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

                                   FORM 10-KSB

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended November 30, 1997
                                       OR
[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

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

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

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

    22 Manhasset  Avenue, Port Washington,  New York               11050
    ------------------------------------------------               ------
    (Address of principal executive offices)                     (Zip Code)

Issuer's telephone number:  (516) 883-7529
Securities registered pursuant to Section 12(g) of the Exchange Act:

                          Common Stock $.001 Par Value
                          ----------------------------
                                (Title of class)

              Common Stock Purchase Warrants (Expired January 1996)
              -----------------------------------------------------
                                (Title of class)

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

     Check if there is no disclosure of delinquent filers in response to Item 
405 of Regulation S-B is not contained in this form, and no disclosure will 
be contained, to the best of registrant's knowledge, in definitive proxy or 
information statements incorporated by reference in Part III of this Form 
10-KSB or any amendment to this Form 10-KSB. [X]

     State issuer's revenues for its most recent fiscal year: $117,866 .

     State the aggregate market value of the voting stock held by 
non-affiliates computed by reference to the price at which the stock was 
sold, or the average bid and asked prices of such stock, as of a specified 
date within the

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past 60 days: As of June 9, 1998 the average bid price of common stock was 
$.001 and the average asked price was $.05.

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)
     State the number of shares outstanding of each of the issuer's classes 
of common stock, as of the latest practicable date: As of June 5, 1998 the 
number of shares of common stock outstanding was 12,762,910.

                    DOCUMENTS INCORPORATED BY REFERENCE: NONE


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                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

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

RECENT EVENTS

     ASSET PURCHASE AGREEMENT WITH MICHAEL ASTOR

     Despite the best efforts of management to reduce costs by significantly 
decreasing the number of locations in operation, during the fiscal year ended 
November 30, 1995, the Company sustained losses from operations of $584,110. 
Since the Company had been unable to raise the required capital to continue 
operating in its present form, the Company decided to divest all of its 
operations.

     On April 14, 1995, the Company entered into an Asset Purchase Agreement 
(the "Agreement") with Michael Astor (who, along with his wife, Susan Astor, 
comprise all of the current officers and members of the Board of Directors of 
the Company), pursuant to which an entity formed by Mr. and Mrs. Astor (the 
"Purchaser") agreed to acquire all of the assets and properties of the 
Company, including, without limitation, all copyrights, trademarks, trade 
names (including the name "Playorena"), accounts receivable, equipment, 
inventory, cash and cash equivalents (the "Playorena Assets"), in exchange 
for the Purchaser's assumption of certain liabilities of the Company and the 
transfer to the Company by Mr. and Mrs. Astor of 1,041,800 shares of common 
stock of the Company, $.001 par value per share (the "Common Stock"), 
representing all of the Common Stock of the Company owned by Mr. and Mrs. 
Astor. Obtaining the approval of the holders of not less than 66 2/3% of the 
issued and outstanding shares of capital stock of the company was a condition 
precedent (the "Asset Sale"). The assets to be transferred and the 
liabilities to be assumed had an approximate value of $277,000 and $478,000, 
respectively, at November 30, 1995 and $131,000 (which the Company has 
written off as of November 30, 1996) and $481,000, respectively, at November 
30, 1996. At November 30, 1997 liabilities of the discontinued business 
consisting of accounts payable and accrued expenses aggregated $496,583. As 
of November 30, 1997 the Company's total liabilities were

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$1,827,395. As indicated below, this shareholder approval was obtained in 
February 1997 and the Asset Sale is expected to be consummated in July 1998.

     The terms of the Agreement were negotiated on behalf of the Company by 
Robert M. Rubin beginning in April 1995. Mr. Rubin currently owns 2,923,334 
shares of Common Stock of the Company, representing 22.9% of the issued and 
outstanding shares of Common Stock. In addition, in consideration for a loan 
made to the Company by Mr. Rubin in January 1994 and due in September 1995, 
Mr. Rubin was granted a first priority security interest in all of the assets 
of the Company. As the Company has not had the resources to repay the 
$200,000 principal amount of the secured loan to Mr. Rubin, since September 
30, 1995, Mr. Rubin has had the right to foreclose on his security interest 
in all of the assets of the Company. Pursuant to the terms of the Agreement, 
Mr. Rubin is required to release his security interests so that the Purchaser 
will obtain title to the Company's assets free and clear of any liens or 
encumbrances. The only other secured creditors, certain individuals and 
entities who purchased certain securities of the Company in 1994, will 
release their liens in exchange for 1,381,136 shares of Common Stock (after 
the reverse split described herein). See "Private Placement of Equity and 
Debt" below.

     The Agreement specifically provides that the Company shall retain "all 
claims for tax refunds, tax loss carry forwards or carry backs or tax credits 
of any kind" applicable to the Company's business prior to the closing of the 
Asset Sale. Without future profits by the Company such tax losses are of 
limit or no value. As of November 30, 1997, the Company has net operating 
loss carry forwards of approximately $5,700,000 that expire between 1998 and 
2011, and investment tax credit carry forwards of approximately $16,000 which 
expire in 1998. Without future profits by the Company, such tax losses are of 
limited or no value. The Agreement further specifies that the following 
liabilities will NOT be assumed by the acquiring entity:

  (i) liabilities owed to certain affiliates of the Company, including Mr. 
Rubin, estimated to be $875,333 in the aggregate (including $143,333 loaned 
to the Company since January 1995) plus accrued interest, estimated at 
$296,956 at November 30, 1996 (these liabilities are expected to be converted 
into equity of the Company);

  (ii) liabilities owed to certain professionals who have provided services 
to the Company, plus other liabilities all aggregating approximately $158,524 
at November 30, 1997;

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

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

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

     The financial statements included in this report indicate that based 
upon the proposed

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structure of the transaction set forth in the Agreement immediately following 
the closing of the Asset Sale the Company will have no assets or business but 
will retain estimated liabilities of $952,062 plus possible liabilities with 
respect to certain heretofore unasserted claims against the Company. In light 
of the fact that subsequent to the closing the Company will not have any 
business or assets with which to generate revenue, the Company will not have 
any means to satisfy such liabilities or obligations unless and until the 
Company is able to raise additional capital or acquire a profitable business. 
The Company does not presently have any such plans and there can be no 
assurance that raising such capital or acquiring a new business will be 
possible. If such capital should become available or such business should be 
offered to the Company, any such transaction is likely to result in immediate 
and substantial dilution to the present shareholders of the Company.

     The Company has written off all the remaining assets of the discontinued 
business, consisting mainly of the undepreciated cost of play equipment, at 
November 30, 1996. Such write off totaled approximately $131,000. Liabilities 
of the discontinued business consist of accounts payable and accrued expenses 
aggregating $496,583. The Company will remain contingently liable to the 
extent that assumed liabilities are not satisfied. In this regard, the 
Company has not recognized any gain at November 30, 1997 for the impending 
assumption of these liabilities. Revenues of discontinued business were 
$117,866 and $340,439 in the fiscal years ended November 30, 1997 and 1996, 
respectively.

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

     In order to afford the Company the flexibility to attempt to raise 
additional capital and/or acquire another business subsequent to the Asset 
Sale, management believed it to be in the Company's best interest to reverse 
split the 15,000,000 shares of Common Stock to be outstanding immediately 
subsequent to the Asset Sale (including 3,278,890 pre-split shares to be 
issued prior to the closing to Messrs. Rubin, Lawrence Kaplan and Jaroslow in 
consideration for their lending the Company an aggregate of $140,333, see 
"Additional Loans From Affiliates of the Company") on a one share for twenty 
share basis so that the number of shares of Common Stock outstanding 
immediately subsequent to the reverse stock split will be 750,000. Increasing 
the number of authorized but unissued shares of Common Stock will insure that 
authorized but unissued shares will be available for stock dividends or stock 
splits, possible acquisitions, financings, stock option or purchase plans and 
other corporate purposes in the future, without the necessity of further 
shareholder action. Such flexibility will enable the Company's Board of 
Directors to issue additional shares of Common Stock without further approval 
by the shareholders upon such terms and at such times as the Board may 
determine. Except as

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disclosed herein, the Company currently has no understandings, agreements, 
plans or commitments that would involve the issuance of additional shares of 
Common Stock. This reverse split also was approved by the shareholders of the 
Company in February 1997.

     In light of its decision to divest all of its operations, the Company is 
accounting for the historical results of the business as discontinued 
operations.

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

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

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

     The Company is currently in the process of consummating the Asset Sale, 
which is expected to be completed in July 1998.

     LOAN TO THE COMPANY

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

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

     ADDITIONAL LOANS FROM AFFILIATES OF THE COMPANY


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

     PRIVATE PLACEMENT OF EQUITY AND DEBT

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

     The Company has offered and as of the date hereof most of these lenders
have verbally agreed to accept an aggregate of 1,381,136 shares (subsequent to
the reverse stock split) of Common Stock as full payment for such indebtedness,
and the release of the security interest in the Company's assets, to be issued
upon consummation of the Asset Sale.

LIQUIDITY AND CAPITAL RESOURCES

     At November 30, 1997, the Company had a working capital deficit of 
$1,827,395 compared to a working capital deficit of $1,718,375 at November 
30, 1996.

     Based upon the structure of the transaction set forth in the Agreement, 
immediately following the closing of the Asset Sale the Company will have no 
assets or business but will retain estimated liabilities of $952,062 (all of 
which shall be converted into shares of Common Stock as indicated above), 
plus possible liabilities with respect to certain heretofore unasserted 
claims against the Company. In light of the fact that subsequent to the 
closing the Company will not have any business or assets with which to 
generate revenue, the Company will not have any means to satisfy such 
liabilities or obligations unless and until the Company is able to raise 
additional capital or acquire a profitable business. The Company does not 
presently have any such plans and there can be no assurance that raising such 
capital or acquiring a new business will be possible. If such capital should 
become available or such a business should be offered to the Company, the 
acquisition is likely to result in immediate and substantial dilution to the

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shareholders of the Company.

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

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

     Pursuant to the terms of a letter agreement dated November 18, 1994 (the 
"Letter Agreement") among the Company and each of Michael Astor, Susan Astor 
and Fred Jaroslow (then directors of the Company), in their individual 
capacities, and Lawrence E. Kaplan, Stanley Kaplan and Mr. Rubin (the 
"Investors"), the Company agreed to: (i) cause the Board of Directors of each 
of the Company and Kid `N Things to terminate the Reorganization Agreement; 
(ii) issue 1,500,000 shares of Common Stock to Bernard Tessler in 
consideration of the payment of $2,000 and past services rendered to the 
Company; (iii) elect each of Messrs. Lawrence E. Kaplan, Rubin and Andrew 
Kaplan (the son of Stanley Kaplan) to fill three vacancies on the Board of 
Directors caused by the resignations of Messrs. Tessler, Baird and Horvitz; 
(iv) issue an aggregate of 100,000 shares of Common Stock to Jerry Feldman in 
consideration of the payment of $100 and past services rendered to the 
Company, (v) issue an aggregate of 3,249,996 shares of Common Stock to 
Messrs. Andrew Kaplan (as Stanley Kaplan's designee), Lawrence E. Kaplan and 
Rubin in consideration of the payment of an aggregate of $4,200, past 
financial consulting services rendered and the joint and several agreement 
among the Investors to make available to the Company a $275,000 line of 
credit (the "Line of Credit"); and (vi) issue 400,000 shares of Common Stock 
to Mr. Rubin in consideration of the payment of $400 and his agreement to 
waive any and all defaults by the Company to make current interest payments 
through the maturity date arising under the Note. The 5,250,000 shares of 
Common Stock to be issued to Mr. Tessler pursuant to the Letter Agreement 
were reduced by 750,000 shares pursuant to a subsequent letter agreement 
between the Company and Mr. Tessler dated April 10, 1995 (the "Second Letter 
Agreement"), wherein Mr. Tessler agreed, among other things, to reduce the 
total number of shares of Common Stock to be issued to him from 1,500,000 to 
750,000. The total number of shares required to be issued pursuant to the 
Letter Agreement is 4,500,000. These shares were issued in September 1996.

     On October 26, 1994, Messrs. Lawrence E. Kaplan, Rubin and Andrew Kaplan 
were

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

     The Letter Agreement establishing the Line of Credit provides that the 
outstanding principal amount drawn down shall bear interest at the rate of 
10% per annum, with principal and interest due on September 30, 1995. To 
date, the Company has borrowed the full amount available under the Line of 
Credit ($275,000). No portion of the Line of Credit has been repaid and the 
Company does not at the present time have the resources to repay the Line of 
Credit. These lenders have verbally agreed to accept an aggregate of 
5,555,965 shares (subsequent to the reverse stock split) of Common Stock as 
full payment for such indebtedness and certain services which have been 
provided by such individuals, to be issued upon consummation of the Asset 
Sale.

MANAGEMENT AGREEMENT WITH BERNARD TESSLER .

     On November 9, 1993, the Company entered into a Management Agreement 
with Bernard Tessler, as amended by a letter agreement dated January 20, 1994 
(collectively, the "Management Agreement"), whereby the Company agreed to 
engage Mr. Tessler to manage its business for a period of one year. In 
addition to the fee payable to Mr. Tessler pursuant to the Management 
Agreement, the Company agreed that in the event that the merger with Kids `N 
Things was not completed before February 28, 1995, the Company would issue an 
aggregate of 2,600,000 shares of common stock to Messrs. Tessler, Rubin and 
Feldman in recognition and consideration of Mr. Tessler entering into and the 
services to be rendered pursuant to the Management Agreement, the credit to 
be extended by Mr. Rubin pursuant to the Note and the services to be rendered 
and costs to be incurred by Messrs. Tessler, Rubin and Feldman in connection 
with the merger. Pursuant to the terms of the Letter Agreement, the Company 
and Mr. Tessler agreed to terminate the Management Agreement, thereby 
relieving the Company of any future obligation to issue any shares 
thereunder. Mr. Tessler and the Company further agreed to enter into a 
Consulting Agreement effective January 1, 1995, pursuant to which Mr. Tessler 
agreed to provide consulting services during 75% of his full working time for 
a fee of $75,000 per annum through February 28, 1995 and to provide 
consulting services during 20% of his full working time for a fee of $25,000 
per annum from March 1, 1995 through December 31, 1997. Pursuant to the terms 
of the Second Letter Agreement, Mr. Tessler agreed, among other things, to 
release the Company from all payment obligations arising under the Consulting 
Agreement in

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consideration for a payment of $6,200, which payment has been made.

OPERATIONS DISCONTINUED

     THE PLAYORENA CENTERS

     The Company opened its first two centers in 1982 and, as of the date of 
this Annual Report, operates 9 centers in New York. The Company did not add 
any centers in fiscal 1997. Revenues from classroom fees generated by 
Company-owned centers were $345,402 in fiscal 1997, representing a decrease 
from $340,439 classroom fees generated in fiscal 1996.

     In addition to the 9 Company-operated centers, the Company began a 
franchise sales program in December 1984 and has sold franchises for the 
operation of 28 centers, 5 of which are now being operated by 2 franchisees 
-- 4 in Japan, and 1 in Korea. The initial franchise fee charged by the 
Company ranged from $7,000 to $14,000 per center. Thereafter each franchisee 
pays the Company a royalty fee equal to 6% of gross sales. In addition, each 
franchisee may be required to pay additional amounts to the Company for 
advertising. In light of the Company's belief that it was more economically 
advantageous to expand through Company-owned centers, in 1989 the Company 
elected not to renew its franchise registrations with the proper government 
authorities and is therefore unable to offer additional franchises in the 
United States at this time.

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

     THE PLAYORENA PROGRAM

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

     Each Playorena center appears as a brightly colored indoor playground 
and is equipped

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

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

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

     Since its inception, the Company and its franchisees have registered 
more than 190,000 enrollments in its programs and during the fiscal year 
ended November 30, 1997, the Company registered approximately 3,000 
enrollments in its programs. During its last three sessions (Spring 1997, 
Fall 1997 and Winter 1997/98) the Company's 9 owned centers averaged an 
enrollment of approximately 80 children per session. An "enrollment" is one 
child's participation in one 8 to 13 week session. Children who participate 
in more than one session per year are counted as more than one "enrollment" 
during such year. Since September 1991, the Company has experienced a decline 
in the average number of enrollments per center and believes that such a 
decline is attributable to the continuing economic downturn in the New York 
metropolitan area and increased competition. The Company cannot predict how 
long this decline will continue.

OPERATING CONTROLS AND PROCEDURES


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

     COMPETITION

     The Company's major competitor in the exercise/play program market is 
Gymboree Corp. ("Gymboree"), a publicly traded company. Although Playorena 
and Gymboree evolved directly from the prototype developed, in substantial 
part, by Ms. Astor, Gymboree has been operating for approximately five years 
longer than the Company and is substantially larger with greater resources. 
Both Gymboree and Playorena are similar in concept, purpose and pricing. 
Playorena's programs are currently operating in several of the same markets 
in which Gymboree operates. In addition, new indoor exercise/play centers 
have recently been established by various operators which provide classes for 
a wider age range than that for which the Company provides and allows 
participants to "drop in" for individual programs without making a commitment 
for a full session. Such centers have begun to create some competition for 
the Company. Other small companies and local organizations such as YMCA 
programs, church-affiliated or non-profit groups also compete with the 
Company as part of their overall programs. Management believes that the 
Company competes by offering a trained facilitator and a 
professionally-planned and specialized program in well-equipped facilities.

     TRADEMARKS

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

     INSURANCE

     The Company's insurance coverage currently includes the following types 
of policies: property; general liability and medical payments; excess 
umbrella liability; workers compensation; New York disability benefits and 
group life and medical. The liability policy

                                       12
<PAGE>

includes a medical payment provision for accidents which applies to each 
child enrolled in a program and is subject to various limits. There can be no 
assurance that claims in excess of or not included within the Company's 
coverage will not be asserted.

     EMPLOYEES

     In addition to the Company's two executive officers, the Company 
currently employs an office manager and 10 part-time facilitators working at 
the Company's 9 centers.

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

     GOVERNMENT REGULATION

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

INITIAL PUBLIC OFFERING

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

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

ITEM 2.  DESCRIPTION OF PROPERTY.

     In August 1993, the Company relocated its executive offices from Roslyn 
Heights, New York to a 5,000 square foot space in Port Washington, New York 
that is leased from an unaffiliated landlord. The leased premises are used by 
the Company for its executive offices, storage and a training facility. The 
Company's annual rent for such leased premises was $38,000

                                       13
<PAGE>

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

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

ITEM 3.  LEGAL PROCEEDINGS.

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

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

     In the fourth quarter of the fiscal year ended November 30, 1997 there 
was no submission of matters to a vote of security holders.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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

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

     Upon the NASD's determination of the Company's ineligibility, the 
Company's securities began quotation on the OTC Bulletin Board. Quotation on 
the OTC Bulletin Board has had a

                                       14
<PAGE>

substantial negative effect on the liquidity of the market for the Company's 
securities and, consequently, the price at which such securities are quoted. 
The Company's Warrants expired on January 16, 1996 and, consequently, were 
delisted from the OTC Bulletin Board on February 20, 1996.

     On June 9, 1998, the quoted bid price of the Company's Common Stock was 
$.001 per share and the asked price was $.05 per share. On the day 
immediately preceding the Company's public announcement of its intention to 
proceed with the Asset Sale, the quoted bid price of the Company's Common 
Stock was $.001 and the asked price was $.05 per share.

     The following tables set forth the high and low closing bid and ask 
quotations for each fiscal quarter of 1997 and for each fiscal quarter of 
1996 and 1995, with respect to the Common Stock and Warrants as reported by 
NASD and quoted on the NASDAQ Stock Market. The prices shown in the tables 
reflect inter-dealer prices, and do not include retail mark-up, mark-down or 
commissions, and may not represent actual transactions. The Company has not 
paid cash dividends on its Common Stock.

     As of June 9, 1998, there were approximately 94 holders of record and 
the Company believes that there are in excess of 700 beneficial holders of 
the Common Stock.

<TABLE>
<CAPTION>
                                          Common Stock,
                                          .001 par value

                                Bid                 Ask
                                ---                 ---

Period                              High    Low               High     Low
                                    ----    ---               ----     ---

<S>                                 <C>     <C>               <C>      <C>

1997
------

First Quarter                       .001    .001              .05      .05
(December 1996
through February)

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

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

Fourth Quarter                      .001    .001              .05      .05
(September through
</TABLE>


                                       15
<PAGE>


<TABLE>

<S>                                 <C>     <C>               <C>      <C>
November)


1996
------

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

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

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

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

1995
------

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

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

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

Fourth Quarter                      $.02    $.001             $.05     $.04
(September through
November)
</TABLE>



                                      Warrants
                                      --------
                                    Closing Bid              Closing Ask
                                    ------------             -----------

                                       16

<PAGE>



<TABLE>
<CAPTION>
Period                              High         Low           High      Low
                                    ----         ---           ----      ---
<S>                                 <C>          <C>           <C>       <C> 
1997
------
Not applicable.

1996
------

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


1995
------

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

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

Third Quarter                       $.001        $.001         $.05      $.02
(June through August)
</TABLE>


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

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

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

                                       17
<PAGE>


RESULTS OF OPERATIONS -
COMPARISON OF FISCAL 1996 AND FISCAL 1995

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

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

COMPARISON OF FISCAL 1997 AND FISCAL 1996

     During the fiscal year ended November 30, 1997, revenues of discontinued 
business decreased to $117,866 from $340,439 in fiscal 1996.

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

LIQUIDITY AND CAPITAL RESOURCES

     At November 30, 1997, the Company had a working capital deficit of 
$1,827,395, as compared to $1,718,375 at November 30, 1996. In its operation 
of the discontinued operations, management has been attempting to reverse 
this downward trend by significantly decreasing the number of Company owned 
centers in operation, implementing staff reductions and seeking additional 
capital for the placement of Playorena programs in alternative outlets.

MANAGEMENT'S PLAN OF OPERATION

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

     Following the Asset Sale, the Company intends to seek financing to fund 
its operations

                                       18
<PAGE>

going forward and to seek to acquire or merge with another operating 
business. There can be no assurance that the Company will be successful in 
its efforts. Without such additional capital or an acquisition or merger, it 
is unlikely the Company will be able to fund its operations after the Asset 
Sale.

ITEM 7.  FINANCIAL STATEMENTS

         See attached.

[Remainder of page intentionally left blank.]

                                       19
<PAGE>


                                 PLAYORENA, INC.

                          INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                                               Page

<S>                                                                                                             <C>
Auditor's report on financial statements........................................................................F-2

Balance sheet as of November 30, 1997...........................................................................F-3

Statements of operations for the years
   ended November 30, 1997 and 1996.............................................................................F-4

Statement of changes in shareholders'
   equity (deficiency) for the years ended
   November 30, 1997 and 1996...................................................................................F-5

Statements of cash flows for the years
   ended November 30, 1997 and 1996.............................................................................F-6

Notes to financial statements...................................................................................F-7
</TABLE>


                                       F-1
<PAGE>


                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Shareholders
Playorena, Inc.

     We have audited the accompanying balance sheet of Playorena, Inc. as of 
November 30, 1997, and the related statements of operations, shareholders' 
deficiency and cash flows for the years ended November 30, 1997 and 1996. 
These financial statements are the responsibility of the Company's 
management. Our responsibility is to express an opinion on these financial 
statements based on our audit.

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

     In our opinion, the financial statements referred to above present 
fairly, in all material respects, the financial position of Playorena, Inc. 
as of November 30, 1997, and the results of its operations and cash flows for 
the years ended November 30, 1997 and 1996, in conformity with generally 
accepted accounting principles.

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

                                           /s/ Feldman Sherb Ehrlich & Co., P.C.
                                           Feldman Sherb Ehrlich & Co., P.C.
                                           (Formely Feldman Radin & Co., P.C.)
                                           Certified Public Accountants

New York, New York
May 31, 1998


                                       F-2
<PAGE>



                                 PLAYORENA INC.

                                  BALANCE SHEET

                                NOVEMBER 30, 1997


                                     ASSETS


<TABLE>
<S>                                                                                                      <C>               
                                                                                                         $         -
                                                                                                           ----------------
                                                                                                           ----------------
</TABLE>


                LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)

<TABLE>
<S>                                                                                                      <C>               
       CURRENT LIABILITIES:
                Notes payable                                                                            $         875,333
                Liabilities of discontinued operations                                                             496,582
                Accrued expenses                                                                                   455,480
                                                                                                           ----------------
                     TOTAL CURRENT LIABILITIES                                                                   1,827,395

       COMMITMENTS AND CONTINGENCIES

       SHAREHOLDERS' EQUITY (DEFICIENCY):
                Common stock, $ .001 par value;
                     15,000,000 shares authorized,
                     12,762,910 shares issued and outstanding                                                       12,763
                Additional paid-in-capital                                                                       4,130,283
                Accumulated deficit                                                                             (5,970,441)
                                                                                                           ----------------
                     TOTAL SHAREHOLDERS' DEFICIENCY                                                             (1,827,395)
                                                                                                           ----------------
                                                                                                         $          -
                                                                                                           ----------------
                                                                                                           ----------------
</TABLE>
                                       
                       See Notes to Financial Statements.

                                       F-3

<PAGE>



                                 PLAYORENA INC.

                             STATEMENT OF OPERATIONS


<TABLE>
<CAPTION>
                                                                                 Years ended November 30,
                                                                     -------------------------------------------------
                                                                             1997                        1996
                                                                     ----------------------      ---------------------


<S>                                                                <C>                         <C>                    
EXPENSES:
         General and administrative                                $                27,241     $               51,301
         Non-cash stock compensation                                                     -                     45,000
         Interest expense                                                           87,536                     91,704
                                                                     ----------------------      ---------------------
          TOTAL EXPENSES                                                           114,777                    188,005
                                                                     ----------------------      ---------------------

LOSS FROM CONTINUING OPERATIONS                                                   (114,777)                  (188,005)
                                                                     ----------------------      ---------------------

INCOME (LOSS) FROM DISCONTINUED OPERATIONS:
         Income (Loss) from discontinued operations                                  5,756                   -
         Income (Loss) on disposal                                              -                            (184,653)
                                                                     ----------------------      ---------------------

TOTAL INCOME (LOSS) FROM DISCONTINUED OPERATIONS                                     5,756                   (184,653)
                                                                     ----------------------      ---------------------

NET LOSS                                                           $              (109,021)    $             (372,658)
                                                                     ----------------------      ---------------------
                                                                     ----------------------      ---------------------

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

NET LOSS PER SHARE                                                 $                 (0.01)    $                (0.08)
                                                                     ----------------------      ---------------------
                                                                     ----------------------      ---------------------

WEIGHTED AVERAGE SHARES USED IN COMPUTATION                                     12,762,910                  9,762,910
                                                                     ----------------------      ---------------------
                                                                     ----------------------      ---------------------
</TABLE>


                       See Notes to Financial Statements.

                                       F-4


<PAGE>


                                 PLAYORENA INC.

           STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)


<TABLE>
<CAPTION>
                                            Common Stock                  
                                 -----------------------------------       Additional           Accumulated
                                     Shares             Amount           Paid-in Capital          Deficit             Total
                                 -----------------------------------   --------------------   ----------------   ----------------

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

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

Net loss                               -                   -                    -                    (372,658)          (372,658)
                                 ---------------    ----------------   --------------------   ----------------   ----------------

Balance , November 30, 1996          12,762,910              12,763              4,130,283         (5,861,420)        (1,718,374)

Net loss                               -                   -                    -                    (109,021)          (109,021)
                                 ---------------    ----------------   --------------------   ----------------   ----------------

<S>                            <C>                <C>                <C>                    <C>                <C>               
Balance , November 30, 1997    $     12,762,910   $          12,763  $           4,130,283  $      (5,970,441) $      (1,827,395)
                                 ---------------    ----------------   --------------------   ----------------   ----------------
                                 ---------------    ----------------   --------------------   ----------------   ----------------
</TABLE>


                       See Notes to Financial Statements.

                                       F-5


<PAGE>


                                 PLAYORENA INC.

                             STATEMENT OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                                         Years Ended November 30,
                                                                             -------------------------------------------------
                                                                                     1997                        1996
                                                                             ---------------------       ---------------------

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                        <C>                         <C>                    
     Net loss                                                              $             (109,021)     $             (372,658)
     Adjustments to reconcile net loss to net cash
         used by operating activities:
            Depreciation and amortization                                              -                               61,292
            Non-cash stock compensation                                                -                               45,000
            Gain (loss) on sale of equipment                                           -                              (84,079)
     Change in operating assets and liabilities                                           109,021                     271,037
                                                                             ---------------------       ---------------------

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

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

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

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

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

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

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

CASH AT END OF YEAR                                                        $            -               $          -
                                                                             ---------------------       ---------------------
                                                                             ---------------------       ---------------------

SUPPLEMENTAL DISCLOSURE OF CASH
     FLOW INFORMATION:
     Cash paid during the year for:
         Interest                                                          $            -               $               2,489
                                                                             ---------------------       ---------------------
                                                                             ---------------------       ---------------------
</TABLE>







                       See Notes to Financial Statements.

                                       F-6


<PAGE>


                                 PLAYORENA, INC.

                          NOTES TO FINANCIAL STATEMENTS

                                NOVEMBER 30, 1997


1.       DISCONTINUED OPERATIONS

         Playorena, Inc. (the "Company") was incorporated on December 4, 1981,
         under the laws of the State of New York. The Company formely operated
         recreational play and exercise programs specifically designed for
         children between three months and four years of age. During the fiscal
         year ended 11/30/97, the Company discontinued those operations.

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

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


                                       F-7
<PAGE>


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

                  (i) loans owed to certain affiliates of the Company, including
                  Mr. Rubin, in the aggregate principal amount of $875,333 plus
                  accrued interest, estimated at $296,956 at November 30, 1997;

                  (ii) liabilities owed to certain legal and accounting
                  professionals who have provided services to the Company, plus
                  sundry other liabilities, all aggregating approximately
                  $158,524 at November 30, 1997;

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

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

         Based upon the proposed structure of the transaction set forth in the
         Agreement, immediately following the closing of the Asset Sale the
         Company will have no assets or business but will retain estimated
         liabilities of $952,062 plus possible liabilities with respect to
         certain heretofore unasserted claims against the Company. In light of
         the fact that subsequent to the closing the Company will not have any
         business or assets with which to generate revenue, the Company will not
         have any means to satisfy such liabilities or obligations unless and
         until the Company is able to raise additional capital or acquire a
         profitable business. The Company does not presently have any such plans
         and there can be no assurance that raising such capital or acquiring a
         new business will be possible. If such capital should become available
         or such business should be offered to the Company, any such transaction
         is likely to result in immediate and substantial dilution to the
         present shareholders of the Company.

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

         The Company has written off all the remaining assets of the
         discontinued business, consisting mainly of the undepreciated cost of
         play equipment, at November 30, 1996. Such write off totaled
         approximately $131,000 and is included with the loss on disposal of the
         discontinued operations. Liabilities of the discontinued business
         consist of accounts payable and accrued expenses aggregating $496,583.
         The Company will remain contingently liable to the extent that assumed
         liabilities are not satisfied. In this regard, the Company has not
         recognized any gain at November 30, 1997 for the impending assumption
         of these liabilities.


                                       F-8
<PAGE>


         Revenues of the discontinued business were $117,866 and $340,439 in the
         fiscal years ended November 30, 1997 and 1996, respectively.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

                  There was negative working capital of $1,827,395 at November
                  30, 1997.

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

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

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

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


                                       F-9
<PAGE>


3.       ACCRUED EXPENSES

         Following is a summary at November 30, 1997:


<TABLE>
<S>                                                                     <C>                  
Interest                                                                $             296,956
Other                                                                                 158,524
                                                                             ----------------
                                                                        $             455,480
                                                                             ----------------
                                                                             ----------------
</TABLE>

4.       NOTES PAYABLE

         Following is a summary of the balance of notes payable at November 30,
1997:


<TABLE>
<S>                                                                      <C>                   
a.  Environmental Resources and Disposal, Ltd.                           $               10,000
b.  Private Placement                                                                   250,000
c.  Robert M. Rubin                                                                     200,000
d.  Revolving line of credit                                                            275,000
e.  Bridge loans                                                                        140,333
                                                                              -----------------
                                                                         $              875,333
                                                                              -----------------
                                                                              -----------------
</TABLE>

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

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

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


                                      F-10
<PAGE>


              by a general lien in all of the assets of the Company. The Company
              is currently in default of this note.

         d.   On November 18, 1994, the Company entered into a preliminary
              agreement with the following stockholders: Mr. Rubin, Mr. Lawrence
              E. Kaplan (also a director) and Stanley Kaplan (the "Investors")
              regarding $270,000 that had previously been advanced to the
              Company. The investors agreed to lend to the Company up to
              $275,000 inclusive of previous advances. Interest is payable at
              the rate of 10% per annum, with principal and interest due on
              September 30, 1995. The Company is currently in default of these
              loans.

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

5.       INCOME TAXES

         The Company has available net operating loss carry forwards for federal
         income tax purposes of approximately $5,700,000 that expire from 1998
         through 2011. In addition, the Company has investment tax credit carry
         forwards of approximately $16,000 that expire in 1998. The Company has
         applied a valuation allowance, eliminating entirely only tax benefits
         or tax assets that may arise from these favorable tax attributes.

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

6.       EMPLOYEE INCENTIVE STOCK OPTION PLAN

         The Company's Employee Incentive Stock Option Plan was adopted and
         approved as of June 1, 1989. The plan provides for the grant to key
         employees, officers and directors of both "incentive stock options"
         within the meaning of Section 422A of the Internal Revenue Code of 1986
         and non-statutory stock options. The plan provides for the issuance of
         up to 600,000 shares of common stock. Each option granted under the
         plan has a term of up to five years, is exercisable only at such times
         as the board of directors determine at the time of grant for a price at
         least equal to the fair market value of the common stock on the date of
         the option is granted, will terminate under certain circumstances if
         the holder ceases to be an employee of the Company and requires that
         the exercise price be paid, in the discretion of the board of
         directors, in cash, shares (valued at


                                      F-11
<PAGE>


         the fair market value thereof on the date of exercise) or a combination
         thereof. The exercise price of "incentive stock options" granted to 10%
         or greater shareholders of the Company must be equal to at least 110%
         of the fair market value of the Company's shares of common stock on the
         date of grant.

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

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

         On January 31, 1994, the Board of Directors authorized the grant of
         options to purchase an aggregate of 362,500 shares of common stock
         under the plan as follows: Fred Jaroslow-100,000 shares, Michael
         Astor-131,250 shares, and Susan Astor-131,250 shares. Such options will
         vest on December 31, 1996. As of November 30, 1997, the options had not
         been issued.

7.       EMPLOYMENT AGREEMENTS

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

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

         All such employment agreements provide for payments to the respective
         officers upon the termination of their employment by the Company
         without cause. While such officers are not currently receiving salaries
         at the rates provided in the employment agreements, to the extent not
         paid, Mr. and Mrs. Astor's salaries are currently being accrued. Mr.
         Jaroslow has agreed to waive his unpaid salary and accrued vacation as
         of November 30, 1994. Mr. and Mrs. Astor have agreed to waive accrued
         vacation as of November 30, 1995. Such employment agreements will
         terminate upon closing of the Asset Sale and, to the extent


                                      F-12
<PAGE>


         not paid prior to closing, all accrued salaries and vacations shall be
         waived.

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

8.       CONSULTING AGREEMENTS

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

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

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

9.       WARRANTS

         In March 1990, the Company closed its initial public offering of
         2,500,000 units, each consisting of one common share and one common
         share purchase warrant. Each common share purchase warrant entitles the
         warrant holder to purchase one common share at $1.25 per share until
         January 16, 1993. In addition, the Company received $40 from the
         Underwriter for the Underwriter's purchase of 40,000 shares of common
         stock of the


                                      F-13
<PAGE>


         Company. The Board of Directors has extended the expiration date of the
         outstanding warrants until January 16, 1996 with all original terms of
         exercise in effect.

10.      COMMITMENTS AND CONTINGENCIES

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

         Pursuant to the terms of a letter of agreement dated November 18, 1994
         (the "Letter Agreement") among the Company and each of Michael Astor,
         Susan Astor and Fred Jaroslow, in their individual capacities, and
         Lawrence E. Kaplan, Stanley Kaplan and Mr.. Rubin (the "Investors"),
         the Company agreed to: (i) cause the Board of Directors of each of the
         Company and Kid 'N Things to terminate the Reorganization Agreement;
         (ii) issue 1,500,000 shares of Common Stock to Bernard Tessler in
         consideration of the payment of $2,000 and past services rendered to
         the Company (reduced to 750,000 shares in April 1995); (iii) elect each
         of Messrs. Lawrence E. Kaplan, Rubin and Andrew Kaplan (the son of
         Stanley Kaplan) to fill three vacancies on the Board of Directors
         caused by the resignations of Messrs. Tessler, Baird and Horovitz; (iv)
         issue an aggregate of 100,000 shares of Common Stock to Jerry Feldman
         in consideration of the payment of $100 and past services rendered to
         the Company, (v) issue an aggregate of 3,249,996 shares of Common Stock
         to Messrs. Andrew Kaplan (as Stanley Kaplan's designee), Lawrence E.
         Kaplan, and Rubin in consideration of the payment of an aggregate of
         $4,200, past financial consulting services rendered and the joint and
         several agreement among the Investors to make available to the Company
         a $275,000 line of credit (the "Line of Credit"); and (vi) 400,000
         shares of Common Stock to Mr. Rubin in consideration of the payment of
         $400 and his agreement to waive any and all defaults by Playorena to
         make current interest payments through the maturity date arising under
         the Note. The 5,250,000 shares of common stock to be issued to Mr.
         Tessler pursuant to the Letter Agreement were reduced by 750,000 shares
         pursuant to a subsequent letter agreement between the Company and Mr.
         Tessler dated April 10, 1995, wherein Mr. Tessler agreed, among other
         things, to reduce the total number of shares of common stock to be
         issued to him from 1,500,000 to 750,000. Pursuant to the Letter
         Agreement, on September 6, 1996, the Company issued 4,500,000 shares.
         Such shares were valued at $45,000, the estimated fair value, resulting
         in non-cash compensation of this amount.


                                      F-14
<PAGE>


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

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

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

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

                                    PART III

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

     OFFICERS AND DIRECTORS

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

<TABLE>
<CAPTION>
                                                                     Year First
    Name                   Age       Position                          Elected
------------              ----      ----------------------           ----------
<S>                        <C>      <C>                                <C> 
Susan Astor                49       President and Director             1981
Michael Astor              53       Vice President, Chief              1983
                                    Operating Officer, Chief
                                    Financial Officer, Treasurer
                                    and Director
</TABLE>


                                       20

<PAGE>



<TABLE>
<S>                        <C>      <C>                                <C> 
Lawrence E. Kaplan         55       Nominee (Director)                 N/A
Robert Rubin               58       Nominee (Director)                 N/A
Alfred Romano              60       Nominee (Director)                 N/A
</TABLE>


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

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

     LAWRENCE E. KAPLAN. Lawrence E. Kaplan became a director of the Company 
in October 1994 as a condition of the Letter Agreement and resigned as a 
director on March 27, 1995. Mr. Kaplan is a director of American United 
Global, Inc. He is also a director of Andover Equities, Inc. and the Park 
Group, Ltd., both of which are public shell companies. He also is a 
registered representative and sole shareholder, officer and director of G-V 
Capital Corp., an NASD and SEC-registered broker/dealer engaged in private 
placements and other offerings.

     ROBERT M. RUBIN. Robert M. Rubin became a director of the Company in 
October 1994 as a condition of the Letter Agreement and resigned as a 
director on March 27, 1995. Between October, 1990 and January 1, 1994, Mr. 
Rubin served as the Chairman of the Board and Chief Executive Officer of 
American United Global, Inc. ("AUG") and its subsidiaries; from January 1, 
1994 to January 19, 1996, he served only as Chairman of the Board of AUG and 
its subsidiaries. Mr. Rubin was the founder, President, Chief Executive 
Officer and a Director of Superior Care, Inc. ("SCI") from its inception in 
1976 until May 1986. Mr. Rubin continued as a

                                       21
<PAGE>


director of SCI, now known as Olsten Corporation ("Olsten"), until the latter 
part of 1987. Olsten, a New York Stock Exchange listed company, is engaged in 
providing home care and institutional staffing services and health care 
management services. Mr. Rubin is Chairman of the Board, Chief Executive 
Officer and a stockholder of ERD Waste Technology, Inc. ("ERD"), a 
diversified waste management public company specializing in the management 
and disposal of municipal solid waste, industrial and commercial 
non-hazardous waste and hazardous waste. In September 1997, ERD filed for 
protection under the provisions of Chapter 11 of the federal bankruptcy act. 
Mr. Rubin is a former director and Vice Chairman, and currently a minority 
stockholder of American Complex Care, Incorporated, a public company formerly 
engaged in providing on-site health care services, including intra-dermal 
infusion therapies. In April 1995, American Complex Care, Incorporated's 
operating subsidiaries made assignments of their assets for the benefit of 
creditors without resort to bankruptcy proceedings. Mr. Rubin is also a 
minority stockholder of Universal Self Care, Inc., a public company engaged 
in the sale of products used by diabetics. Mr. Rubin is also the Chairman of 
the Board of both Western Power and Equipment Corp. and IDF International, 
Inc. Mr. Rubin is also a director and a minority stockholder of Response USA, 
Inc., a public company engaged in the sale and distribution of personal 
emergency response systems; Diplomatic Corporation, a public company engaged 
in the manufacture and distribution of baby products; and Medi-Merg, Inc., a 
Canadian management company for hospital emergency rooms and out-patient 
facilities.

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

     During the fiscal year ended November 30, 1997, the Board of Directors 
held no meetings. Directors do not receive compensation for their services in 
such capacity. The Board of Directors does not presently have committees.

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

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

     Upon the closing of the Asset Sale, Mr. and Mrs. Astor will resign as 
officers and directors of the Company and the newly elected Board of 
Directors, comprising of Lawrence E. Kaplan, Robert M. Rubin and Alfred 
Romano, will elect the following persons to the offices set forth opposite 
their names:

                                       22
<PAGE>


<TABLE>
<CAPTION>
    NAME                            OFFICE
   ------                           -------
<S>                                 <C>                  
    Robert M. Rubin                 Chairman of the Board

    Lawrence E. Kaplan              President

    Alfred Romano                   Secretary
</TABLE>


     COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

     The Company was not furnished with copies of Form 5 (Annual Statement of 
Beneficial Ownership of Securities) by any officer, director or beneficial 
owner of more than ten percent of any class of equity securities of the 
Company subsequent to its fiscal year ended November 30, 1997.

ITEM 10. EXECUTIVE COMPENSATION.

ANNUAL COMPENSATION

     The following table sets forth the cash compensation in each of the last 
three completed fiscal years to the Company's then Chief Executive Officer. 
Mr. Jaroslow resigned as an officer and director of the Company effective 
March 27, 1995. Since Mr. Jaroslow's resignation, the Board of Directors of 
the Company has not elected a successor Chief Executive Officer. While Susan 
Astor was the President and Michael Astor was the Vice President, Chief 
Operating Officer, Chief Financial Officer and Treasurer of the Company at 
November 30, 1995, the table below omits information as to their 
compensation, because neither officer received a total annual salary and 
bonus for 1997 in excess of $100,000.

                              SUMMARY COMPENSATION TABLE
                                 ANNUAL COMPENSATION

<TABLE>
<CAPTION>
                                                     Other
Name and                                             Annual            Other
Principal Position   Year          Salary            Comp              Compensation
------------------   ----          ------           -------           -------------
<S>                  <C>            <C>              <C>               <C>
Fred Jaroslow,       1995           --               --                --
Former
Chairman, Chief
Executive Officer,
Executive Vice
President and
Secretary*
</TABLE>


                                       23
<PAGE>


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

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

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

AGGREGATE OPTION EXERCISES

     The following table shows stock options exercised by executive officers 
during 1997, including the aggregate value of any gains on the date of 
exercise. In addition, this table includes the number of shares covered by 
both exercisable and non-exercisable stock options as of November 30, 1997. 
Values for the options are not reported because none of the exercisable 
options are "in-the-money" options which represent the positive spread 
between the exercise price of outstanding stock options and the year-end 
price of Company common stock.

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

                              No. of Shares Covered
                                 by Unexercised
                                   Options at
                                    11/30/97

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

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

(2) Includes the grant in January 1994 pursuant to the Company's 1989 Incentive


                                       24
<PAGE>


   Stock Option Plan of options, exercisable beginning in 1996 to (i) Mr.    
   Jaroslow to purchase 100,000 shares of Common Stock at $.344 per share. and  
   (ii) each of Mr. Astor and Ms. Astor to purchase 131,250 shares of Common  
   Stock at $.3125 per share.

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

EMPLOYMENT AGREEMENTS

     In December 1988, the Company entered into separate five-year employment 
agreements with each of Fred Jaroslow, Susan Astor and Michael Astor which 
became effective upon the closing of the Initial Public Offering in March 
1990. Pursuant to agreements dated October 22, 1993, the employment 
agreements of Michael Astor and Susan Astor were amended to provide that 
employment shall continue until December 31, 1996. The terms of such 
agreements are renewable for one-year periods subject to the approval of the 
Board of Directors of the Company. During the first two years of their 
agreements, the officers were entitled to receive salaries at a combined rate 
of $245,000 and each received ten percent increases during the third year. 
Thereafter, their salaries were to be negotiated, in good faith, with the 
Board of Directors (with all three officers abstaining from any vote by the 
Board). All of such employment agreements provide for payments to the 
respective officers upon the termination of their employment by the Company 
without cause. While such officers are not currently receiving salaries at 
the rates provided in the employment agreements, to the extent not paid, Mr. 
and Mrs. Astor's salaries are currently being accrued. Mr. Jaroslow has 
agreed to waive his unpaid salary and accrued vacation as of November 30, 
1994. Mr. and Mrs. Astor have agreed to waive accrued vacation as of November 
30, 1997. Such employment agreements will terminate upon the closing of the 
Asset Sale and, to the extent not paid prior to the closing, all accrued 
salaries and vacations shall be waived.

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

     Pursuant to the terms of the Letter Agreement (as defined in 
"Description of Business Termination of Plan of Reorganization, Issuance of 
Shares and Line of Credit"), the Company agreed to enter into a consulting 
agreement with Bernard Tessler to be effective January 1, 1995

                                       25
<PAGE>

pursuant to which Mr. Tessler shall provide consulting services to the 
Company encompassing 75% of his full working time through February 28, 1995 
and 20% of his full working time through December 31, 1997. In consideration 
therefore, the Company agreed to pay Mr. Tessler at the rate of $75,000 per 
annum for the period from January 1, 1995 through February 28, 1995 and 
$25,000 per annum for the period from March 1, 1995 through December 31, 
1997. Pursuant to the terms of the Second Letter Agreement (as defined in 
"Description of Business Termination of Plan of Reorganization, Issuance of 
Shares and Line of Credit"), Mr. Tessler agreed among other things, to 
release the Company from all payment obligations arising under this 
consulting agreement in consideration for a payment of $6,200.00.

1989 EMPLOYEE INCENTIVE STOCK OPTION PLAN

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

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

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

                                       26
<PAGE>


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

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

     The following table sets forth, as of June 9, 1998, the beneficial 
ownership of Common Stock by (i) each of the Company's directors and 
officers, (ii) all directors and officers as a group (which ownership 
constitutes in the aggregate approximately 48.8% of the outstanding Common 
Stock) and (iii) by unaffiliated individuals who beneficially hold in the 
aggregate more than five percent of the Common Stock.

<TABLE>
<CAPTION>
                                    Amount and Nature                  Percentage of
                                    of Beneficial                      Common Stock
Name and Address                    Ownership(1)(2)                    Outstanding
----------------                    ---------------                    -----------
<S>                                 <C>                                <C> 
Susan Astor                         543,400(2)(3)                      4.3%
22 Manhasset Avenue
Port Washington, NY 11050

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

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

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

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

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


                                       27
<PAGE>


<TABLE>
<S>                                 <C>                                <C> 
Andrew Kaplan                       1,083,333                          8.5%
150 Motor Parkway
Suite 311
Hauppauge, NY 11788

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

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

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

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

--------------------
*Represents less than a 1% interest

(1)      A person is considered to be the "beneficial owner" of any securities
         with respect to which he has or shares, directly or indirectly, or has
         the right to acquire within 60 days, (1) voting power, which includes
         the power to vote, or to direct the voting of, such security and/or (2)
         investment power, which includes the power to dispose, or to direct the
         disposition of, such security. Each person has both voting and
         investment power and considers himself to be the beneficial owner of
         the securities shown following his name except as otherwise indicated.
         Except as otherwise indicated, the beneficial owners listed here have
         sole voting and investment power, subject to community property laws
         where applicable, as to all of the shares listed as beneficially owned
         by them. As of May 1, 1998, there were 12,762,910 shares of Common
         Stock outstanding.

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


                                       28
<PAGE>


         per share. All of such options granted shall terminate upon the closing
         of the Asset Sale.

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

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


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Pursuant to the terms of the Letter Agreement dated November 18, 1994 
among the Company and each of Michael Astor, Susan Astor, Bernard Tessler and 
Fred Jaroslow (then directors of the Company), in their individual 
capacities, and Lawrence E. Kaplan, Stanley Kaplan and Mr. Rubin (see "Recent 
Events -- Termination of Plan of Reorganization, Issuance of Shares and Line 
of Credit"), the Company agreed to: (i) cause the Board of Directors of each 
of the Company and Kids 'N Things to terminate the Reorganization Agreement 
(see "Recent Events -- Termination of Plan of Reorganization, Issuance of 
Shares and Line of Credit"); (ii) issue 1,500,000 shares of common stock to 
Bernard Tessler in consideration of the payment of $2,000 and past services 
rendered to the Company; (iii) elect each of Messrs. Lawrence E. Kaplan, 
Rubin and Andrew Kaplan (the son of Stanley Kaplan) to fill three vacancies 
on the Board of Directors caused by the resignations of Messrs. Tessler, 
Baird and Horvitz; (iv) issue an aggregate of 100,000 shares of common stock 
to Jerry Feldman in consideration of the payment of $100 and past services 
rendered to the Company, (v) issue an aggregate of 3,250,000 shares of Common 
Stock to Messrs. Andrew Kaplan (as Stanley Kaplan's designee), Lawrence E. 
Kaplan and Rubin in consideration of the payment of an aggregate of $4,200 in 
past financial consulting services rendered and the joint and several 
agreement among the Investors to make available to the Company a $275,000 
Line of Credit (see "Recent Events -- Termination of Plan of Reorganization, 
Issuance of Shares and Line of Credit"); and (vi) issue 400,000 shares of 
common stock to Mr. Rubin in consideration of the payment of $400 and his 
agreement to waive any and all defaults by Playorena to make current interest 
payments through the maturity date arising under the Note. The 5,250,000 
shares of Common Stock to be issued to Mr. Tessler pursuant to the Letter 
Agreement were reduced by 750,000 shares pursuant to a subsequent letter 
agreement between the Company and Mr. Tessler dated April 10, 1995 (the 
"Second Letter Agreement"), wherein Mr. Tessler agreed, among other things, 
to reduce the total number of shares of Common Stock to be issued to him from 
1,500,000 to 750,000. The total number of shares now required to be issued 
pursuant to the Letter Agreement is 4,500,000 (prior to the reverse stock 
split). These shares were issued in September, 1996.

     The Letter Agreement establishing the Line of Credit provides that the 
outstanding principal amount drawn down shall bear interest at the rate of 
10% per annum, with principal and interest due at the earlier of the closing 
of any debt or equity offering of the Company's

                                       29

<PAGE>


securities, the gross proceeds of which is not less than $1,500,000, or 
September 30, 1995. To date, the Company has borrowed the maximum amount 
available under the Line of Credit ($275,000). The Line of Credit was not 
repaid and the Company does not at the present time have the resources to 
repay the Line of Credit. Pursuant to the terms of the Letter Agreement, the 
Company and Mr. Tessler agreed to terminate the Management Agreement, thereby 
relieving the Company of any future obligation to issue any shares 
thereunder. Mr. Tessler and the Company further agreed to enter into a 
Consulting Agreement effective January 1, 1995, pursuant to which Mr. Tessler 
agreed to provide consulting services during 75% of his full working time for 
a fee of $75,000 per annum through February 28, 1995 and to provide 
consulting services during 20% of his full working time for a fee of $25,000 
per annum from March 1, 1995 through December 31, 1997. Under the terms of 
the Second Letter Agreement, Mr. Tessler agreed, among other things, to 
release the Company from all payment obligations arising under the Consulting 
Agreement in consideration for a payment of $6,200. In February and March 
1995, the Company received loans in the aggregate amount of $143,333 from 
three directors of the Company and the father of a principal shareholder of 
the Company: (i) Lawrence E. Kaplan -- $20,426; (ii) Stanley Kaplan (the 
father of Andrew Kaplan) -- $20,417; (iii) Fred Jaroslow -- $40,500; and (iv) 
Robert Rubin -- $62,000. The lenders have agreed to accept an aggregate of 
3,278,890 (163,945 shares subsequent to the reverse stock split) shares of 
Common Stock as payment in full for such loans. Such shares will be issued 
simultaneously upon receipt of the shares to be delivered by Mr. and Mrs. 
Astor to the purchaser of the assets of the Company pursuant to the Asset 
Sale Agreement. See "Description of Business -- Additional Loans from 
Affiliates of the Company".

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

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

     A.  Exhibits

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

                                       30
<PAGE>


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

          4.0 1989 Incentive Stock Option Plan - incorporated by reference to 
Exhibit 4.3 to Registration Statement on Form S-18 (SEC File No.33-29561-NY)

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

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

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

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

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

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

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

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

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

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

                                       31
<PAGE>


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

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

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

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

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

          27.1     Financial Data Schedule

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

[Remainder of page intentionally left blank]


                                       32
<PAGE>


                                   SIGNATURES

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

                                          PLAYORENA INC.

Dated:   June     , 1998

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

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

<TABLE>
<CAPTION>
Signature                           Title                     Date
----------                          ------                   ------
<S>                                 <C>                       <C>               
                                    President                 June        , 1998
Susan Astor                         and Director

                                    Director                  June        , 1998
Michael Astor
</TABLE>


                                       33

<PAGE>


                                   SIGNATURES

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

                                          PLAYORENA INC.

Dated:   June 20, 1998

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

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

<TABLE>
<CAPTION>
Signature                           Title                     Date
----------                          ------                    -----
<S>                                 <C>                       <C>           
/s/ Susan Astor                     President                 June 20, 1998
----------------                                                   ---
Susan Astor                         and Director

/s/ Michael Astor                   Director                  June 20, 1998
-----------------                                                  ---
</TABLE>


                                       34

<PAGE>


                                  EXHIBIT INDEX

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

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

          4.0 1989 Incentive Stock Option Plan - incorporated by reference to 
Exhibit 4.3 to Registration Statement on Form S-18 (SEC File No.33-29561-NY)

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

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

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

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

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

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

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

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

          10.7 Revolving 10% Promissory Note (incorporated by reference
to the


                                       35
<PAGE>


registrant's Annual Report on Form 10-KSB for fiscal year ended 11/30/93)]

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

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

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

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

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

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

          27.1     Financial Data Schedule

                                       35