SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
(Mark One)
[X]      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT of 1934
                     For the fiscal year ended June 30, 2000
                                       OR
[ ]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT of 1934
             For the transition period from ________ to ___________

                      Commission file number: 333-00400-LA
                           CHILDREN'S WONDERLAND, INC.
                 (Name of Small Business Issuer In Its Charter)

         California                                           95-4455341
       (State or Other Jurisdiction of                      (I.R.S. Employer
        Incorporation or Organization)                       Identification No.)

            Children's Wonderland, Inc.
            3775 Mansell Road
            Alpharetta, Ga.                                    30022
        (Address of Principal Executive Offices)             (Zip Code)

          Issuer's Telephone Number, Including Area Code: (770-594-9790
           Securities registered under Section 12(b) of the Act: None

         Securities registered under section 12(g) of the Act:

         Title of Each Class         Name of Each Exchange on Which Registered
         -------------------         -----------------------------------------
     Common Stock, No Par Value                   Non-OTCBB
   Warrants to Purchase Common Stock

         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been  subject  to such  filing  requirements  for the past 90 days.  Yes ___
No__X__

         Check if there is no disclosure of delinquent  filers  pursuant to Item
405 of Regulation S-B 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]

         The issuer's revenues for its most recent fiscal year were $1,259,000.

         The aggregate  market value of the voting stock of the registrant  held
by non-affiliates  of the Registrant,  based upon the closing sales price of the
Common  Stock on the over the  counter  non-bulletin  board on June 27, 2001 was
approximately $254,414.

         As of May 1, 2001 the number of shares of the registrant's Common Stock
issued and outstanding was 10,562,185.
                      DOCUMENTS INCORPORATED BY REFERENCE
                                      None.
<PAGE>
         Transitional Small Business Disclosure Format (check one): Yes  No X
                                                                       --   --
Other than a Current  Report on Form 8-K filed on October 13, 2000 relating to a
change in its independent auditor, Children's Wonderland, Inc. (the "Company" or
"CWI") has not filed any reports under the Securities  Exchange Act of 1934 (the
"Exchange  Act")  since it filed its  Quarterly  Report on Form  10-QSB  for the
quarter  ended March  31,1997.  This Annual Report on Form 10-KSB is intended to
provide  all  material  information  about  the  Company  that  would  have been
available in the  Company's  Annual  Reports for the fiscal years ended June 30,
2000,  June 30, 1999,  June 30,1998 and June 30, 1997 had the Company filed such
Annual Reports on a timely basis.

The  statements in this  Form10-KSB  relating to ongoing  operations and program
offerings,   development  and  expansion,  and  potential  future  services  and
products,  and other similar projections are  forward-looking  statements within
the meaning of the  Securities Act of 1933, as amended (the  "Securities  Act"),
and the  Exchange  Act,  and are subject to the safe  harbors  created  thereby.
Actual results could differ materially because of the following  factors,  among
others: changes in product mix, economic conditions in the U.S., competition and
competitive pressures in pricing and service availability,  market acceptance of
the  Company  and the  Company's  products,  service  efficiencies  and  overall
capacity  utilization,  litigation,  regulatory  compliance,  strategic planning
decisions by management, the Company's ability to retain key personnel,  ability
to secure adequate  financing,  natural disaster,  uninsured losses,  ability to
obtain  regulatory  licenses  for various  programs  offerings,  and other risks
detailed in the Company's Securities and Exchange Commission("SEC") filings. All
forward-looking  statements contained in this Form 10-KSB are qualified in their
entirety by this cautionary statement.

Reference in this Report to any "fiscal  year" shall mean the fiscal year ending
June 30 of such year.

PART I

Item 1.  Description of Business

Business Summary and Strategy

The Company was  incorporated in California in September 1993 to own and operate
full service  family care Centers  ("Centers"),  which  provide  developmentally
appropriate educational programs and activities for infants and toddlers (ages 6
weeks to 2 years),  preschoolers (ages 3 to 4), kindergartners,  and the elderly
(ages 60+).  The Company has also  provided  before and/or after school care for
elementary school aged children, flex-care, and care for the mildly ill.

In May 2001, the Company sold for $455,000 the assets  relating to its remaining
Center in West Haven, CT, and assigned its lease for that Center,  to Tutor Time
Learning Systems,  Inc. The net proceeds of such sale were used to repay certain
debts and legal fees of the Company.

Since  June  2000,  the  Company's  intention  has been to change its focus from
owning and operating child care centers to providing quality education  programs
to children  internationally and to implementing a commerce program that creates
additional  revenue  streams for  schools,  youth  athletic  programs  and other
non-profit organizations that benefit children, parents and entire communities.

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As of June 30, 2000,  the Company had two offices,  one at 15060  Ventura  Blvd.
Suite  211,  Sherman  Oaks,  CA  91403  and  another  one at  3775  Mansell  Rd.
Alpharetta, GA 30022.

In November  2000,  the Company  signed a Letter of Intent to acquire assets and
operations  of  KinderWorld,  an  Asian/Pacific  region  child-care/kindergarten
franchise  headquartered in Singapore.  This Letter of Intent expired on January
1,  2001.  The terms of the Letter of Intent  stated  that  KinderWorld  will be
acquired by the Company through an exchange of one hundred percent (100%) of the
outstanding  stock of all classes of  KinderWorld  (with an agreed  valuation of
$8,000,000  US) for a number of shares of the  Company's  Common Stock  ("Common
Stock") to be determined prior to the closing of the acquisition. Management has
maintained  frequent  contact with  KinderWorld even though the letter of intent
between the parties has expired.  The Company's  hope was to fuse  KinderWorld's
operation  into a newly formed  subsidiary to be owned 100% by the Company.  Any
acquisition  of  KinderWorld  would be  contingent  upon,  among other  factors,
securing  funding of  approximately  $2,000,000 in new capital invested into the
Company.  There can be no  assurance  that the  Company  will be  successful  in
acquiring  KinderWorld  or that funds  necessary for such  acquisitions  will be
raised.  Further,  any  closing  of such an  acquisition  would  be  subject  to
extensive due diligence from both parties and availability of audited  financial
results.

KinderWorld   is  a  child   care/kindergarten   franchise   consisting   of  11
English-speaking  owned and operated Centers and 4  English-speaking  franchised
Centers in 5 countries  throughout the Asia Pacific  Region.  Additionally,  the
Company   believes  that   KinderWorld  has  established  a  relationship   with
Somerset/Ascott  Group, one of the largest service  apartment  developers in the
Asia-Pacific  region, to establish and operate learning centers in its apartment
complexes.  The Company believes that an international focus is important to its
future.  Singapore,  a country that has adopted English as its primary language,
represents a gateway to the greater Asia-Pacific  region.  Through operations in
Singapore, English speaking teachers and Western education theories and products
can be funneled to the greater Asia Pacific markets where the demand for English
teaching and Western  products is high.  Management  believes  that  significant
local presence in the major  Asia-Pacific  markets  provides an ideal foundation
for successful growth.

The  Company  also  intends to focus its  efforts  on  developing  software  and
commerce  programs to enhance the profitability of schools,  athletic  programs,
and non-profit organizations.  The Company has established a relationship with a
company  that  owns  software  relating  to a  transaction  processing  network.
Management  believes that if it is able to raise $2,000,000 in new capital,  the
Company  will be able to acquire a license to the  software  for this network in
addition  to being  able to  acquire  KinderWorld.  The  Company  has  partially
developed  software for  predictive  modeling and rebate  application  and would
require   additional   funding  to  complete  the  development  of  such  rebate
application. The license to the transaction procession network, coupled with the
rebate  application,  would permit the Company to launch its  transaction  based
rebate program.  This rebate program would permit consumers using credit, debit,
ATM or other  cards,  by  registering  with the  Company,  to donate the rebates
earned from using such cards to  schools,  non-profit  organizations  or another
type of entity. TutorTime Learning Systems has agreed with the Company to permit


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<PAGE>
the Company until May 31, 2002 to utilize four of  TutorTime's  pre-schools as a
test bed for launching  the  Company's  transaction  based rebate  program.  The
Company hopes to refine its program prior to launching by utilizing focus groups
consisting of participating parents from these pre-schools.

There can be no assurance that any of the Company's plans or proposals set forth
above or herein will be consummated.

History Through 2000

In May 1996, the Company  completed an initial  public  offering (IPO) of units,
each  unit  consisting  of one share of its  Common  Stock  and one  warrant  to
purchase Common Stock,  raising  $8,050,000 in gross proceeds  before  deducting
related fees and commissions.  In the initial public  offering,  1,750,000 units
were  sold  and,  after  exercise  by  the  underwriter  of  the  over-allotment
allowance, an additional 262,500 units were sold.

In both fiscal years 1995 and 1996, the Company  incurred  losses as a result of
significant   costs   associated  with  the   establishment   of  its  corporate
infrastructure.  These costs  included the  documentation  of  intergenerational
Center operating procedures and curriculum,  hiring new management,  creation of
standard Center purchase and long-term lease agreements, creation of prospective
site  evaluation  and  selection  criteria,  and creation of regional  sales and
development  functions. A significant portion of these costs represents expenses
required to break out of the childcare  industry's norm of small, "mom and pop",
backyard-based operations.

The   Company   through   1996  had   committed   to  the   opening  of  several
intergenerational  care  facilities,   which  were  to  be  financed  through  a
combination of public debt and equity offerings by the Company.  The Company had
opened a number  of  facilities  based  upon  funding  commitments  from its IPO
underwriter,  an investment-banking firm. Such funding was necessary to complete
construction  and to offset the operating  losses that typically are experienced
for a period of time after a new Center is opened. The  investment-banking  firm
did not honor its funding  commitment  and, as a result in fiscal year 1998, the
Company was forced to abandon its projects in development,  either close or sell
all but one of its  operating  facilities  and to  abandon  its plans for future
expansion. See Item 3. Legal Proceedings.

In May 1997,  the  Company  filed a lawsuit  against  its IPO  underwriters  and
certain  of their  principals  in  federal  district  court  alleging  breach of
fiduciary duty,  fraud, and other claims.  It was alleged that in late 1996, the
Company  was  working  with new  investment  bankers to raise  money for further
expansion.  The Company's  former  underwriters who had taken the Company public
opposed a new financing by the Company.  The Company's stock price collapsed and
the Common Stock was de-listed  from NASDAQ in April 1997.  The Company lost the
new financing after that development, and sued its former underwriters.

In March 1997, the Company completed a private placement of $1,375,000 unsecured
10% per annum promissory notes.  Principal and interest were due payable in full
upon the earlier of a secondary  public  offering by the  Company,  or March 24,
1998.  Each $50,000  promissory  note entitled the holder to 25,000 common stock
purchase  warrants to purchase  Common Stock for $5.00 per share during a period


                                       4
<PAGE>
commencing one year from the  completion of a secondary  offering (or January 1,
1998 if such public  offering has not occurred by that date) and expiring on May
6, 2001.

The following table lists the Company operated  Centers,  and where  applicable,
the year of each Center's sale and/or  termination  of  applicable  leases.  The
Company had operated each Center pursuant to a lease of the applicable  property
from a third party  landlord.  With respect to the Centers  that are  identified
below as "Sold," the Company  sold the  business  and  assigned  the  applicable
lease. With respect to the Centers  identified below as "Terminated  Lease," the
Company neither sold the Center  business nor assigned the applicable  lease but
rather ceased operations and terminated the lease.

Location
Address                                 Sq. Ft.       Sold   Terminated Lease
-------                                 -------       ----   ----------------
27400 Canwood St., Agoura, CA            14,500                1998
21772 Lake Forest Dr., Lake Forest, CA    7,560       1997
107 Teardrop Court, Newbury Park, CA      8,500       1997
700 Esplanade Dr., Oxnard, CA            11,600       1998
25022 Hawkbyrn Ave., Newhall, CA          3,800                1998
15250 E. 6th Ave., Aurora, CO             6,400       1997
3225 S. Wadsworth Blvd., Lakewood, CO     5,012       1997
9102 W. 88th Ave., Westminster CO         5,320       1997
1400 Ironton, Aurora, CO                  6,000       1997
18707 E. Hampden Ave., Aurora, CO         3,680       1997
5207 W. 26th St., Edgewater, CO           4,800       1997
2317 Gold Meadow Way, Gold River, CA     11,600       1998
5855 DeSoto Ave., Woodland Hills, CA     12,247       1998
4 Veterans Circle, West Haven, CT        11,500     Still Operating
                                                    as of June 30, 2000
----------------------

As of June 1997,  the United  States  Veterans  Administration  ("VA")  operated
approximately  160 sites in the United  States,  and the Company was selected to
operate Centers on 5 of those sites. On July 25, 1997, the Company  commenced an
action  in the  Superior  Court of  California  in Los  Angeles  County  against
Diversified  Intergenerational  Care,  Inc.  ("DIC").  The VA had  selected  the
Company  and  DIC to  provide  5 care  Centers  on VA  properties  and  DIC  had
contracted  with the  Company to build those care  Centers.  With the West Haven
Center  having been  completed  by DIC behind  schedule  and no work having been
commenced on the other four care  Centers,  the  complaint  alleged that DIC was
attempting to block the Company from  submitting new proposals to the VA without
DIC and that DIC was  attempting  to  impose  on the  Company  excessive  rents,
security  deposits and other terms relating to the care Centers.  At trial,  the
Company was  awarded  approximately  $79,500 in damages  plus  attorney  fees of
approximately  $166,750.  In addition,  the contract between the Company and DIC
was  nullified,   permitting  the  Company  to  pursue  a  direct,   independent
relationship with the VA for future care Centers.

Around  May 1997 when the  Company  commenced  its  lawsuit  against  its former
underwriters, the Company was forced to commence liquidating some of its assets.

In September  1997,  the Company sold its six centers in Colorado to Imagination
Plus.  The  agreement  for the sale of the Colorado  Centers  required  that the


                                       5
<PAGE>
Company include for sale two of its California Centers,  Lake Forest and Newbury
Park. In fiscal 1998, the Company sold 8 Centers in all to Imagination Plus.

In fiscal  1998,  as part of its  effort to save  itself  from  bankruptcy,  the
Company began to downsize its corporate office in Agoura, California. A total of
ten employees were laid off in the corporate  facility.  With its remaining four
employees, the Company began the process of disposing of its Centers. As part of
the Company's continuing effort to cancel existing leases and reduce expenses to
the  bare  minimum,  the  remaining  corporate  employees  were  moved  from the
Company's  corporate  office  in  Agoura,  California  to the  Oxnard  Center in
California.

In October  1997,  the Company and the members of its Board of  Directors,  were
sued in a class  action  lawsuit  caused by the decline in the  Company's  stock
price.  Due to lack of any evidence of wrongdoing on the part of the Company and
its Directors, this lawsuit was dismissed with prejudice.

In order to keep itself  solvent  through  the  litigation  process  against its
former underwriters,  the Company sold three of its remaining California Centers
to Aloha Pacific,  Inc. in May 1998.  The Oxnard,  Woodland Hills and Gold River
Centers were sold to Aloha  Pacific,  Inc.,  but the Company  still  possessed a
management contract with Aloha Pacific to manage these three Centers for a fee.

Due to continuing  financial  difficulty,  the Company was forced to abandon its
last two  California  Centers,  located in Agoura and  Newhall,  in August 1998.
However,  as of June 30, 2000, the Company was still  operating a Center in West
Haven, Connecticut.

The Company's  lawsuit  against its former  underwriters  was being prepared for
trial in early  2000  when a  settlement  was  reached.  Under  the terms of the
settlement, the Company received $1,575,000 in cash and cancellation of notes in
the principal amount of $975,000 plus accrued interest of $291,000.  Most of the
proceeds of the  settlement  were used to pay  attorney  fees and other costs of
litigation and to make repayment of loans and debt of the Company.


Because of continuing  financial  problems,  and the conflict arising with Aloha
Pacific,  Inc. ("API") due to API's  non-payment of management fees owing to the
Company, the Company relocated its corporate office in June 1999 from the Oxnard
Center to 15060 Ventura Boulevard, Sherman Oaks, California.

In December  1999,  the Company  filed a lawsuit  against API and certain of its
officers and directors  alleging breach of contract,  fraud, and other claims in
connection  with the sale of the three  Centers  by the  Company  to API and the
associated  management  contract whereby the Company was to manage those Centers
for API until $250,000 in management fees was earned by the Company. The Company
alleged that API abruptly and without cause  terminated the management  contract
with  approximately  $100,000  still owing to the Company.  As of June 30, 2000,
this matter had been mediated and the parties had entered into a stipulation  of
settlement.  As part of this  stipulation  of  settlement,  the  Company and API
agreed to a rescission of their sale contract and the Company introduced a third
party that  purchased  for $480,000 the three Centers which the Company had sold
to API. The third party and API are continuing to resolve  issues  regarding the
sale of these Centers. The Company will have no further obligation to API or the
third party upon their completion of such sale.


                                       6
<PAGE>
On February 4, 2000, Tiger Ventura County,  L.P. commenced an action against the
Company and API in the  Superior  Court of  California  in the County of Ventura
alleging  the  defendants'  failure to pay  property  taxes and  assessments  of
approximately  $67,000 on a property  which had been leased by the Company  from
the  plaintiff.  As of April 30,  2001,  funds in the  amount of  $480,000,  the
purchase  price being paid by the third party for the three  Centers sold by the
Company to API,  and the  Company's  deposit of  $67,000  for the Tiger  Ventura
settlement  had been  deposited  into an account at Commerce  Escrow  Company of
California.  Additionally,  the  Company  had  forwarded  its  documentation  to
commence the closing of the rescission.  As of May 21, 2001, the third party and
API have yet to resolve  certain issues  involved with the purchase of the three
Centers.  As a result, the rescission of the original sales contract between the
Company and API has not been finalized and the funds to settle the Tiger Ventura
lawsuit remain in escrow.

In February  2000, two  investors,  John R. Clarke and Robert  Becker,  acquired
control of the Company by purchasing  for $300,000,  600,000 newly issued shares
of the Company's  Series A Convertible  Preferred  Stock  ("Series A Preferred")
which shares can be converted  into a majority of the  outstanding  Common Stock
and can be voted on an "as-converted basis" in any vote by the holders of Common
Stock.  The Company  used the  proceeds  of the sale of Series A  Preferred  for
working  capital  purposes  including  payment of certain past due  obligations.
Additionally,  John R. Clarke and Robert  Becker have  provided the Company with
loans in the  amount of  $186,000  as of May 1, 2001.  As of June 1,  2001,  the
amount of such loans outstanding was $126,000.

In June 2000, John R. Clarke was elected the Company's Chairman of the Board and
Robert  Becker was  elected  as a member of the  Company's  Board of  Directors.
Concurrently, Ken Bitticks resigned as the Company's Chairman of the Board.

During the quarter ended June 30, 2000, the Company  reached an agreement with a
number  of its  trade  creditors  and  note  holders  for  the  exchange  of one
newly-issued  share  of the  Company's  Series  B  Convertible  Preferred  Stock
("Series B  Preferred")  for every $10.00 of debt owed by the Company,  which is
cancelled  by such  creditor or note  holder.  In  connection  with the Series B
Preferred  offering by the Company,  each creditor or note holder was issued one
warrant  ("Series  B  Warrants")  to  purchase  Common  Stock for each  Series B
Preferred share issued. The Company issued no registration rights in conjunction
with the Series B Preferred or Series B Warrants.

On  December  7, 2000,  Debby  Bitticks  and  Robert  Wilson  resigned  from the
Company's Board of Directors.  Subsequently,  Ms. Bitticks resigned as President
of the Company.

In May 2001,  Robert Becker  resigned from the Company's  Board of Directors and
his position as Chief Financial Officer.

Governmental Regulation

On May 1, 2001,  the Company sold its one Center in West Haven,  Connecticut  to
Tutor  Time  Learning  Systems,  Inc.  This  center  was  to be  licensed  under
applicable  state or local  licensing  laws and is subject to a variety of state
and local  regulations.  Although these  regulations  vary from  jurisdiction to
jurisdiction,  governmental  agencies  generally review the safety,  fitness and
adequacy  of the  buildings  and  equipment,  the  ratio of  staff  to  enrolled

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<PAGE>
children,  the dietary program,  the daily curriculum and compliance with health
standards.   In  most  jurisdictions,   these  agencies  conduct  scheduled  and
unscheduled  inspections of Centers, and licenses must be renewed  periodically.
Repeated failures of a Center to comply with applicable  regulations can subject
it to  sanctions,  which might  include  probation  or, in more  serious  cases,
suspension or revocation of the Center's license to operate.

In the ordinary course of business, the Company's West Haven Center, like others
in the day  care  industry,  from  time  to  time  had  received  statements  of
deficiency and, occasionally, citations for failure to comply with various state
regulatory  requirements.  As of May 1, 2001,  such statements of deficiency and
citations had not had any material  adverse effect on the Company or the Center.
No  statements  of  deficiency  or citations  were pending and the Center was in
compliance.  Based on its operating policies and compliance procedures,  quality
assurance  programs and past  experience,  the Company does not believe that the
Center is likely to receive any  statements  of  deficiency  or citations  which
would, either  individually or in the aggregate,  have a material adverse effect
on the Company.

To the best knowledge of the Company, no property leased by the Company has been
cited for violation of any environmental law and the Company is not aware of any
environmental  problem  related to the property  leased by the Company for which
the government may order  compliance with  environmental  laws. In the event the
government does order compliance with environmental laws, depending on the terms
of the lease with respect to the affected property,  the Company may be required
to bear the costs of such compliance.

The Company is also subject to the Fair Labor  Standards Act, which governs such
matters as minimum  wages,  overtime  compensation  and  working  conditions.  A
significant  portion of the Company's personnel are paid at rates related to the
federal  minimum  wage and  accordingly,  increases  in the  minimum  wage  will
increase the Company's labor costs.

Suppliers

The Company is not  dependent  on any single  supplier of equipment or supplies,
and has not  entered  into  any  material,  long-term  contracts  with  any such
supplier.

Insurance

The  Company  maintains   comprehensive  general  liability  insurance  for  its
remaining Center in West Haven,  Connecticut,  which provides  coverage for both
bodily injury and property  damage and specific  coverage for child physical and
sexual  abuse.  Although  there can be no assurance,  the Company  believes such
insurance  coverage is adequate.  The Company has not experienced  difficulty in
obtaining  insurance  coverage,  but there can be no  assurances  that  adequate
insurance  coverage  will be  available  in the  future,  or that the  Company's
current coverage will protect it against all possible claims.

Risk Factors

An investor or potential  investor in the Company should carefully  consider the
risks  described  below  and the  other  information  in  this  Form  10-KSB  in
evaluating the Company and its prospects.

                                       8
<PAGE>
a. The Company  will need to obtain  additional  financing  in order to continue
operations  and implement its business plan

Since its initial public offering, the Company has been unable to pay its debts,
has  experienced  limited  business  activity  and  has  remained  substantially
leveraged.  While the Company is hoping to pursue a new business strategy, as of
June 30, 2000, it is faced with cash constraints and will require new capital to
be able to pursue its new strategy. While the Company is operating one Center as
of June 30, 2000,  the  operation of Centers is not at the core of the Company's
new strategy. In the 2000 fiscal year, the Company has had insufficient revenues
to satisfy any expenses  other than the expenses of operating  the one Center in
Connecticut. There can be no assurance that the Company will ever be profitable.
If the Company does not become  profitable or obtain  additional  financing,  it
will be unable to continue  even its  already-downsized  operations or to pursue
its new  business  strategy.  There is  substantial  doubt  about the  Company's
ability to continue as a going concern.

b. A start-up business is difficult to evaluate

Even though the Company  completed an initial public offering of Common Stock in
1996,  the  business  which it pursued  with the  proceeds of such  offering has
substantially  failed and the  Company is hoping to pursue a new  business.  The
Company must, therefore, be viewed as an early stage enterprise with an untested
business  model and must be  considered  in light of the risks and  difficulties
facing early stage  enterprises.  In addition,  the Company's current management
has been with the Company for only a short period of time. As a result, there is
a limited operating history upon which to evaluate the Company's prospects.

The Company's proposed business model is unproven and, to its knowledge, none of
the Company's  competitors has achieved  profitability in this business segment.
The Company  cannot  predict  whether  demand for its products and services will
ever  develop,  particularly  at the volume or prices which the Company needs to
become profitable.

c. The Company must continually enhance and develop its products and services

Even if the Company  obtains  financing  to pursue its new  strategy,  it may be
unable to develop and to deliver  compelling  products  and  services  that will
attract  clients  necessary for the success of the  Company's new business.  The
market for the Company's  proposed services is characterized by rapidly changing
technology,  emerging  industry  standards  and consumer  requirements  that are
subject  to  rapid  change  and  frequent  new  service   introductions.   These
characteristics  are  exacerbated  by the  expectation  that many  companies may
introduce products and services  addressing the Company's targeted market in the
near future.  There can be no assurance  that the Company will be  successful in
developing its software or in delivering  comprehensive services and products on
a timely  basis,  or that such products and services  will  effectively  address
consumer requirements and achieve market acceptance.

d. The Company is in a highly competitive and evolving market

Many of the Company's  existing and  potential  competitors  have  substantially
greater  financial,  technical,  marketing and  distribution  resources than the
Company  does.   Additionally,   many  of  these  companies  have  greater  name


                                       9
<PAGE>
recognition  and  more  established  relationships  with  the  Company's  target
customers.  Furthermore,  these competitors may be able to adopt more aggressive
pricing policies and offer customers more attractive terms than the Company can.
There can be no  assurance  that the  Company  can ever  achieve  or  maintain a
meaningful level of revenues.
Some of the Company's  competitors have or may establish  relationships with and
among  themselves  that could  emerge  and  rapidly  acquire  market  share.  In
addition,  there  may not be  sufficient  demand  for the type of  products  and
services which the Company plans to offer to child care centers.

e. Risks of acquisitions

The Company may seek to pursue its new strategy  through  acquisitions  of other
businesses if it can obtain  financing  and if  acquisition  candidates  present
desirable opportunities. There are risks related to expansion by acquisition, as
the Company has already experienced following its initial public offering. There
are certain risks  inherent in acquiring  other  businesses  such as the general
risk that the  Company  may  invest  time and money  into  such  acquisition  or
expansion  without  success.  The  integration  of  other  businesses  into  the
Company's business would also increase operating expenses.

f. The Company is delinquent with certain obligations

The Company has failed to file its  corporate  income tax returns and has failed
to pay income taxes or minimum taxes since fiscal year ended June 30, 1996.  The
Company has also failed to pay payroll  taxes  including  interest and penalties
for late payments of such payroll taxes. There are liens on the Company's assets
in connection  with such  delinquent  payroll tax  obligations.  There can be no
assurance that the Company will be able to correct these problems.

g. Investors  may find it difficult to trade the  Company's  Common Stock due to
the  "Penny  Stock"  rules

Currently   the  Common   Stock  is  quoted  on  the  "pink   sheets"   for  the
over-the-counter  market.  As a result,  trading  in  shares of Common  Stock is
covered by "penny stock" rules promulgated for non-exchange  listed  securities.
Under these rules, any  broker/dealer  who recommends  shares of Common Stock to
persons  other than prior  customers  and investors  meeting  certain  financial
requirements,   must,  prior  to  sale,  make  a  special  written   suitability
determination for the purchaser and receive the purchaser's written agreement to
a transaction.  Securities are exempt from these rules if the market price is at
least $5.00 per share.

The SEC has adopted  regulations  that generally  define a penny stock to be any
equity security that has a market price of less than $5.00 per share, subject to
certain  exceptions.  Unless an exception is available,  the regulations require
the delivery,  prior to any transaction involving a penny stock, of a disclosure
schedule explaining the penny stock market and the risks associated with trading
in the penny stock market.  The price and ability to sell shares of Common Stock
may be  negatively  affected  because the shares can only be sold in  compliance
with the penny stock rules. The Company cannot be sure that, in the future,  its
securities  will  not be  subject  to  the  penny  stock  regulations  or  other
regulations that would negatively affect the market for its securities.


                                       10
<PAGE>
Seasonality

The Company's revenues has varied throughout the year. As is the case throughout
the childcare industry, the Company's first fiscal quarter (the summer months of
July, August and September) generally reflected the lowest revenues.  To address
this matter,  the Company had an enhanced  summer camp  program,  which  brought
additional  revenue  during the summer months and helped with client  retention.
The fourth fiscal  quarter  generally  reflected  the highest  revenues for each
year.

Employees

As of June  30,  1997  the  Company  had  328  employees  (242  full-time),which
consisted  of 20  salaried  employees  and  308  hourly  employees.  Due  to the
divestiture of its  facilities,  the number of employees  diminished to 172 (140
full time), 9 salaried  employees and 163 hourly  employees as of June 30, 1998,
to 44 (35 full time),  5 salaried  employees and 39 hourly  employees as of June
30, 1999 and 47 (37 full time), 5 salaried  employees and 42 hourly employees as
of June 30, 2000. The Company employed one full time bookkeeper for fiscal years
1997 and  1998.  For  fiscal  years  1999 and 2000,  the  Company  employed  one
part-time  bookkeeper.  Additionally,  the Company employed one registered nurse
for the Center in West Haven,  CT for fiscal years 1997,  1998, 1999 and 2000 to
comply with its agreement with the Veteran's  Association.  The Company believes
that its future success will depend in part on its ability to attract and retain
qualified employees.  The Company believes that its relations with its employees
have been good.  The  employees  were not parties to any  collective  bargaining
agreements  and the  Company  does not  anticipate  becoming a party to any such
agreements.

Trademarks

The Company has the rights to federally  registered  trademarks or service marks
in the  Children's  Wonderland  name and logo,  as well as "The Family  Resource
Center"  and  "Keeping  The  Family  Together,"  which  collectively  reflect  a
philosophy  which integrates the need of the child, the parent and the family as
a whole.  The  Company  owns the  registration  rights  to  trademarks  for "The
Highland  Club",  "Highland  Home" and "Highland Care" which were registered for
the  anticipation  of  expanding  the  Company's  elder care  services  in 1997.
However, the Company is no longer offering elder care services and does not plan
to use these marks in the future.  In 2000,  the Company  made  filings with the
U.S.  Patent  and  Trademark  Office  to  register  the  following   trademarks:
"BeParents.com", "KideKiosk" and "Parent Power."

Item 2.  Description of Property

As of June 30, 2000, the Company was operating a daycare and preschool  facility
in West Haven, Connecticut, with the following address:

West Haven Center
4 Veteran Circle
West Haven, CT 06516





                                       11
<PAGE>
Terms of West Haven Lease:

In March 2000, a new lease  agreement was entered into with Resun Leasing,  Inc.
The term of this lease is  eighty-two  (82) months  beginning on March 24, 2000,
expiring December 24, 2006.

The  monthly  rental for the West Haven  Center is as follows:  (4)  payments of
$5,000.00,  followed by (3) payments at  $8,000.00,  followed by (3) payments at
$10,000.00,  followed by (12) payments at $13,000,  followed by (12) payments of
$14,000, followed by (48) payments at $15,000.

The lease was assumed by TutorTime in connection  with the Company's sale of its
assets at the West Haven Center.

Prior Centers operated by the Company

In the past, the Company,  also operated the following  Centers.  The years,  in
which the Centers were sold and leases terminated are also listed.

Location
Address                                  Sq. Ft.    Sold     Terminated Lease
-------                                  -------    ----     ----------------
27400 Canwood St., Agoura, CA             14,500                    1998
21772 Lake Forest Dr., Lake Forest, CA     7,560    1997
107 Teardrop Court, Newbury Park, CA       8,500    1997
700 Esplande Dr., Oxnard, CA              11,600    1998
25022 Hawkbyrn Ave., Newhall, CA           3,800                    1998
15250 E. 6th Ave., Aurora, CO              6,400    1997
3225 S. Wadsworth Blvd., Lakewood, CO      5,012    1997
9102 W. 88th Ave., Westminster CO          5,320    1997
1400 Ironton, Aurora, CO                   6,000    1997
18707 E. Hampden Ave., Aurora, CO          3,680    1997
5207 W. 26th St., Edgewater, CO            4,800    1997
2317 Gold Meadow Way, Gold River, CA      11,600    1998
5855 DeSoto Ave., Woodland Hills, CA      12,247    1998
4 Veterans Circle, West Haven, CT         11,500   Still Operating
                                                   as of June 30, 2000
----------------------

Item 3.  Legal Proceedings

In May 1997, the Company filed a lawsuit against its former  underwriters  and a
number of their  principals in district court alleging breach of fiduciary duty,
fraud, and other claims.  The Company alleged that in late 1996, the Company was
working with new  investment  bankers to raise money for further  expansion  and
that the Company's former  underwriters who had taken the Company public opposed
the new financing.  The price of Common Stock collapsed and the Common Stock was
de-listed  from NASDAQ in April 1997.  The Company lost the new financing  after
that development,  and sued the Company's former  underwriters.  As the case was
being  prepared for trial in early 2000,  a settlement  was reached with the old
underwriters. Under the terms of the settlement, the Company received $1,575,000
in cash and  cancellation  of notes  in the  amount  of  $975,000  plus  accrued
interest of $291,000 on the notes.  A  confidentiality  agreement  was signed by
CWI.


                                       12
<PAGE>
In July  1997,  the  Company  commenced  an  action  in the  Superior  Court  of
California  in Los Angeles  County  against DIC. The VA had selected the Company
and DIC to provide 5 care Centers on VA properties and DIC had  contracted  with
the Company to build those care  Centers.  With the West Haven CT Center  having
been  completed by DIC behind  schedule and no work having been commenced on the
other four care Centers,  the complaint alleged that DIC was attempting to block
the Company from submitting new proposals to the VA without DIC and that DIC was
attempting to impose on the Company excessive rents, security deposits and other
terms  relating  to  the  care  Centers.  At  trial,  the  Company  was  awarded
approximately  $79,500 in damages plus attorney fees of approximately  $166,750.
In addition, the contract between the Company and DIC was nullified,  permitting
the Company to pursue a direct,  independent relationship with the VA for future
care Centers.

In October 1997, the Company and the members of its Board of Directors were sued
in a class action  lawsuit  caused by the decline in the Company's  stock price.
Due to lack of any  evidence  of  wrongdoing  on the part of the Company and its
directors, this lawsuit was dismissed with prejudice.

In December  1999,  the Company  filed a lawsuit  against API and certain of its
officers and directors  alleging breach of contract,  fraud, and other claims in
connection  with the sale of the three  Centers  by the  Company  to API and the
associated  management  contract whereby the Company was to manage those Centers
for API until $250,000 in management fees was earned by the Company. The Company
alleged that API abruptly and without cause  terminated the management  contract
with  approximately  $100,000  still owing to the Company.  As of June 30, 2000,
this matter had been mediated and the parties had entered into a stipulation  of
settlement.  As  part  of  this  stipulation  of  settlement,  the  Company  has
introduced  a  third  party  to  purchase  the  three  centers  for  $  480,000.
Additionally, the Company has deposited $67,000 into an escrow account to settle
its  portion of the Tiger  Ventura LP  dispute.  The  Company has signed all the
settlement  and  closing  documents  and sent the signed  documents  to Commerce
Escrow  Company,  the escrow agent for the documents  and funds  relating to the
rescission of the Company's original sale of the three centers. However, API and
the third party are continuing to resolve  issues  pertaining to the transfer of
the three centers.

In February 2000,  Tiger Ventura  County,  L.P.  commenced an action against the
Company and API in the  Superior  Court of  California  in the County of Ventura
alleging the  defendants'  failure to pay real property taxes and assessments of
approximately  $67,000 on a property  which had been leased by the Company  from
the  plaintiff.  API,  which had assumed the lease from the  Company,  brought a
cross claim  against the  Company  and its Chief  Executive  Officer on June 28,
2000, alleging  misrepresentations by them at the time API assumed the lease and
submissions  by the Company to API of misleading  accounting  statements.  As of
June  30,  2000,  the  parties  to  this  action  had  entered  into a  mediated
stipulation of settlement and the Company has $67,000 in a trust account for the
settlement  of this  matter.  As of May 1, 2001,  the  Company  believes  it has
satisfied its  requirements  for the completion of the settlement of this action
and the API action  described  above and is awaiting the  resolution  of certain
issues by the other parties to the settlement.

Item 4.  Submission of Matters to a Vote of Security Holders

         None.

                                       13
<PAGE>
PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

Stock Market and Other Information; Market for Common Stock

The  Company's  Common  Stock and  public  warrants  are  quoted on the over the
counter  (Non-Bulletin  Board)  market,  or the "pink sheets," under the symbols
(CWIC) and (CWICW).

The following  table sets forth for the periods  indicated the high and low last
sales price, or high and low bid quotations, for a share of the Company's Common
Stock in each  quarter,  as reported  initially by NASDAQ from the  inception of
trading  on May 7, 1996 and then by the NASD  beginning  in April 1997 after the
de-listing of the Common Stock.

Year                 Quarter        High      Low
---------------- ------------- ----------- -----------
Fiscal 1996             Q4          9.75      6.50
---------------- ------------- ----------- -----------
Fiscal 1997             Q1          9.75      7.50
---------------- ------------- ----------- -----------
Fiscal 1997             Q2         10.125     7.0
---------------- ------------- ----------- -----------
Fiscal 1997             Q3          7.87      6.93
---------------- ------------- ----------- -----------
Fiscal 1997             Q4          7.125     0.63
---------------- ------------- ----------- -----------
Fiscal 1998             Q1          0.875     0.125
---------------- ------------- ----------- -----------
Fiscal 1998             Q2          0.375     0.045
---------------- ------------- ----------- -----------
Fiscal 1998             Q3          0.60      0.055
---------------- ------------- ----------- -----------
Fiscal 1998             Q4          0.87      0.15
---------------- ------------- ----------- -----------
Fiscal 1999             Q1          0.62      0.19
---------------- ------------- ----------- -----------
Fiscal 1999             Q2          0.35      0.04
---------------- ------------- ----------- -----------
Fiscal 1999             Q3          0.20      0.14
---------------- ------------- ----------- -----------
Fiscal 1999             Q4          0.25      0.14
---------------- ------------- ----------- -----------
Fiscal 2000             Q1          0.17      0.052
---------------- ------------- ----------- -----------
Fiscal 2000             Q2          0.10      0.001
---------------- ------------- ----------- -----------
Fiscal 2000             Q3          0.05      0.001
---------------- ------------- ----------- -----------
Fiscal 2000             Q4          0.35      0.001
---------------- ------------- ----------- -----------
Fiscal 2001             Q1          0.25      0.001
------------------------------ ----------- -----------


                                       14
<PAGE>
The following table sets forth  comparable  price  information for the Company's
publicly traded warrants for the periods indicated.

Year                 Quarter        High       Low
---------------- ------------- ----------- -----------
Fiscal 1996             Q4          4.50      2.625
---------------- ------------- ----------- -----------
Fiscal 1997             Q1          5.00      3.750
---------------- ------------- ----------- -----------
Fiscal 1997             Q2          5.375     3.875
---------------- ------------- ----------- -----------
Fiscal 1997             Q3          4.750     3.875
---------------- ------------- ----------- -----------
Fiscal 1997             Q4          4.500     0.094
---------------- ------------- ----------- -----------
Fiscal 1998             Q1          0.13      0.02
---------------- ------------- ----------- -----------
Fiscal 1998             Q2          0.02      0.02
---------------- ------------- ----------- -----------
Fiscal 1998             Q3          0.03      0.06
---------------- ------------- ----------- -----------
Fiscal 1998             Q4          0.19      0.02
---------------- ------------- ----------- -----------
Fiscal 1999             Q1          0.14      0.04
---------------- ------------- ----------- -----------
Fiscal 1999             Q2          0.07      0.04
---------------- ------------- ----------- -----------
Fiscal 1999             Q3          0.04      0.03
---------------- ------------- ----------- -----------
Fiscal 1999             Q4          0.05      0.03
---------------- ------------- ----------- -----------
Fiscal 2000             Q1          0.03      0.03
---------------- ------------- ----------- -----------
Fiscal 2000             Q2          0.03      0.01
---------------- ------------- ----------- -----------
Fiscal 2000             Q3          0.01      0.01
---------------- ------------- ----------- -----------
Fiscal 2000             Q4          0.01      0.01
---------------- ------------- ----------- -----------
Fiscal 2001             Q1          0.01      0.01
---------------- ------------- ----------- -----------


As of May 1,  2001,  there  were,  approximately  241  holders  of record of the
Company's common stock.
As of May 1,  2001,  there  were,  approximately  140  holders  of record of the
Company's publicly traded warrants.

Sales of Unregistered Securities

The Company  completed  a private  placement  of units in March 1997;  each unit
consisted of one $50,000 face amount of promissory  note and 25,000 Common Stock
purchase warrants. Such notes bear interest at 10% per annum and were due at the


                                       15
<PAGE>
earlier of the completion of the proposed  secondary  public offering (which has
not  occurred)  or March 1998.  The  warrants  entitle  the  holders  thereof to
purchase  one  share  of  Common  Stock  for  $5.00  per  share  during a period
commencing  one year  from  the  completion  of the  proposed  secondary  public
offering  (or January 1, 1998 if such public  offering  has not occurred by that
date) and expiring on May 6, 2001. In connection with such offering, $600,000 of
notes  previously  issued was  exchanged for 12 units under this  offering,  and
$150,000  of  commissions  payable  with  respect to the private  placement  was
exchanged for three units under this  offering.  The net proceeds to the Company
from  this  offering,  including  the  $600,000  in  converted  notes  and after
deducting costs of issuance, amounted to $1,180,326.

In August 1997, the Company  issued 36,476 shares of restricted  Common Stock to
an owner of a company  in partial  consideration  for such  company's  providing
renovation services at the Agoura Center.

In September  1997, the Company  privately sold to an investor a promissory note
with a two month maturity,  a total face value of $7,500 and an interest premium
of 10%. On September 22, 1997, this investor exercised the option to convert the
note into  62,500  shares of Common  Stock at the  conversion  rate of $0.12 per
share.

In June 1998,  the  Company  completed  a $600,000  private  placement,  issuing
3,999,987 shares of restricted  Common Stock to various investors at an offering
price of $.15 per share. In connection  with this placement,  the Company issued
364,000 shares,  436,000 shares and 50,000 shares,  respectively,  of restricted
Common Stock in February 1999 to three  consultants in  consideration  for their
financial and consulting services to the Company.

In June 1998, the Company  privately  issued 20,000 shares of restricted  Common
Stock  to  a  principal  of  a  company  that  owned  certain  land  as  partial
consideration  for that  company's  agreement to sell such land to Aloha Pacific
rather than to a competitor of the Company,  so that Aloha Pacific could develop
a Center on the site.  The  Company had entered  into a  management  contract to
manage such Center for a fee from Aloha Pacific.

In  October  1998,  the  Company  privately  sold to six  investors,  four-month
promissory  notes with a total face value of $151,000,  accruing 13.46% interest
for such four-month period.  The Company also issued to these investors,  for no
additional  consideration,  a total of 75,450  restricted shares of Common Stock
and warrants to purchase  within two years of their issuance up to 75,450 shares
of Common Stock at the exercise price of $0.25 per share.

In February 1999, the Company issued 8,333 restricted  shares of Common Stock to
a former  employee in  connection  with the exercise of her stock  options for a
total exercise price of $416.65, or $0.05 per share.

In June 1998, the Company issued a total of 474,402  restricted shares of Common
Stock to two of its  creditors in  satisfaction  of the  Company's  debt to such
creditors of $349,160 plus interest accrued thereon from March 23, 1998.

In February  2000,  the Company  issued 600,000 shares of Series A Preferred for
$300,000 to two  investors,  who are  currently  officers  and  directors of the
Company. Each share of Series A Preferred has a stated value of $.50, and may be


                                       16
<PAGE>
converted at the option of the holder, into the number of shares of Common Stock
equal to the number of fully  diluted  outstanding  shares of Common Stock as of
February  24,  2000  divided  by.10 and then  dividing  the result  obtained  by
600,000.  On matters  requiring  the consent of the holders of the Common Stock,
each share of Series A Preferred is entitled to the number of votes equal to the
number of shares of Common  Stock  into  which it is  convertible.  The Series A
Preferred  is  senior  to  the  Common  Stock  and  Series  B  Preferred  as  to
liquidation,  and if dividends are declared on Common Stock,  is entitled to the
same  dividends  as would have been paid with respect to the number of shares of
Common Stock the holder would have received had it converted all of its Series A
Preferred shares.

In June 2000,  the Company  issued  386,183  shares of its Series B Preferred in
full  settlement  of  $4,564,000  of Company debt and 50,000  shares of Series B
Preferred  to a note  holder,  whose  release  of the debt is subject to certain
conditions.  The  shares  of Series B  Preferred  have  been  recorded  at their
estimated  fair value of $2.48 per share and a gain has been  recognized for the
difference  between  the  recorded  amount of the debt and the fair value of the
shares  issued  (See  Note  K to the  Company's  financial  statements  attached
hereto).  Each  share of  Series B  Preferred  has a  stated  value of $10,  and
automatically  converts  into the number of shares of Common  Stock equal to $10
divided by 85% of the average of the per share  closing bid and asked prices (or
last sale price) of the  Company's  Common  Stock for the last five trading days
preceding the date of conversion (the "Conversion Date"). The Conversion Date is
the later of January 1, 2001, or the date on which a sufficient number of shares
of  Common  Stock  is  authorized  under  the  Company's  Restated  Articles  of
Incorporation to permit the conversion into Common Stock of all of the Company's
then  outstanding  convertible  securities.  The  Company  plans to file a proxy
statement to increase the number of authorized Common Stock to cover conversions
of all Series of Preferred  Stock into Common Stock by June 30, 2001. On matters
requiring the consent of the holders of the Company's  Common Stock,  each share
of Series B  Preferred  is  entitled  the number of votes equal to the number of
shares of Common Stock, which would be issuable upon its conversion.  The Series
B  Preferred  is junior to Series A Preferred  and senior to Common  Stock as to
liquidation,  and if dividends are declared on Common Stock,  is entitled to the
same  dividends  as would have been paid with respect to the number of shares of
Common Stock the holder would have received had it converted all of its Series B
Preferred shares.

In connection with the Company's issuance of the Series B Preferred, each holder
was issued one warrant to purchase Common Stock for each preferred share issued,
exercisable  for a two-year period at 120% of the average of the closing bid and
asked  prices  for the  Common  Stock  for the five  days in which  trading  has
occurred  immediately  preceding the later of (1) April 30, 2000 or (2) the 20th
business  day  following  the date on which a reverse  split of the Common Stock
becomes effective.

The Company believes that the unregistered  sales of securities  described above
were exempt from registration under section 4 (2) of the Securities Act.

Dividend Policy

The Company has not paid any dividends on its Common Stock to date.  The payment
of  dividends,  if any, in the future is within the  discretion  of its Board of

                                       17
<PAGE>
Directors and will depend on the Company's  earnings,  its capital  requirements
and financial  condition.  It is the present intention of the Board of Directors
to retain all  earnings,  if any, for use in the Company's  business  operations
and,  accordingly,  the Board does not expect to declare or pay any dividends in
the foreseeable future for the common stock. The Board of Directors will use its
discretion  to pay any  dividends  on  existing or future  classes of  preferred
stock.

Transfer Agent and Registrar

Continental  Stock  Transfer & Trust  Company of New York,  New York,  serves as
transfer agent and registrar of the Company's Common Stock and public warrants.

Item 6. Management's Discussion and Analysis of Financial  Condition  or Results
        of Operation

This  Annual  Report  on Form  10-KSB  contains  forward-looking  statements.  A
forward-looking statement may contain words such as "will continue to be", "will
be", "continue to", "expect to",  "anticipates  that", "to be", or "can impact".
Management  cautions that  forward-looking  statements  are subject to risks and
uncertainties that could cause the Company's actual results to differ materially
from those projected in forward-looking statements.  Reference in this Item 6 to
any year shall mean the fiscal year ending June 30 of such year.

OVERVIEW

Results of Operation

As of June 30, 1997, the Company owned and operated 14 child care and elder care
centers.  Throughout the period of fiscal years 1998, 1999 and 2000, the Company
sold and closed all but 1 Center located in West Haven, CT.


Since June 2000,  the Company's  intention has been to change its direction from
strictly  owning and  operating  Centers to  providing a suite of  products  and
services that enhance the profitability of early learning  centers.  The Company
intends to provide quality education  programs to children  internationally  and
implement  a commerce  program  that  creates  additional  revenue  streams  for
schools,  youth  athletic  programs,  and other  non-profit  organizations  that
benefit children, parents, and entire communities.

RESULTS OF OPERATIONS

The  following  table sets forth the  Company's  results of  operations  for the
periods indicated:


                                       18
<PAGE>
<TABLE>
<S>                                <C>           <C>           <C>           <C>           <C>
                                                                     Year Ended June 30
                                           1996          1997          1998          1999          2000
                                   ------------  ------------  ------------  ------------  ------------
Revenue (including $190,000 of     $  4,606,319  $  5,698,000  $  4,840,000  $  1,236,000  $    884,000
   management fees in 1999)

Grant Revenue                                --            --            --            --       375,000
                                   ------------  ------------  ------------  ------------  ------------

Total Revenue                         4,606,319     5,698,000     4,840,000     1,236,000     1,259,000
                                   ------------  ------------  ------------  ------------  ------------
Operating Expense:
    Payroll and Related Costs         3,030,776     5,101,000     4,437,000       812,000       923,000
    Center Facilities Costs             953,831     1,125,000     1,086,000       360,000       220,000
    General and Administrative        1,709,279     5,589,000     1,891,000       773,000       710,000

    Development Costs                   368,270            --            --            --            --
    Food & Other                        389,093       172,000       116,000        17,000        49,000
    Depreciation and Amortization       339,888       669,000       843,000        53,000        44,000
                                   ------------  ------------  ------------  ------------  ------------

Total                                 6,791,137    12,656,000     8,373,000     2,015,000     1,946,000
                                   ------------  ------------  ------------  ------------  ------------

Operating Loss                       (2,184,818)   (6,958,000)   (3,533,000)     (779,000)     (687,000)
                                   ------------  ------------  ------------  ------------  ------------

Other (income) expense:
    Interest Expense, net               360,294     2,829,000     2,753,000       837,000       828,000
    Interest/Penalties on
        Payroll Taxes                        --            --            --       158,000       149,000

    Loss on disposition of Centers           --            --       552,000            --            --
    Gain on Settlement of litigation         --            --            --            --    (2,075,000)

    Other Non-Operating Costs           212,699       219,000        58,000        19,000        22,000
                                   ------------  ------------  ------------  ------------  ------------
                                        572,993     3,048,000     3,363,000     1,014,000    (1,076,000)
                                   ------------  ------------  ------------  ------------  ------------
Income(loss) before Income
    Taxes (benefits) &
      Extraordinary item             (2,757,811)  (10,006,000)   (6,896,000)   (1,793,000)      389,000
                                   ------------  ------------  ------------  ------------  ------------
    Income(loss) before
      Extraordinary item             (2,757,811)  (10,006,000)   (6,896,000)   (1,793,000)      389,000

Extraordinary Item:
    Gain on settlement of
       Indebtedness(net of
        tax Benefit of $0)                                                                    2,038,000
                                                                                           ------------
</TABLE>


                                       19
<PAGE>
<TABLE>
<S>                                <C>           <C>           <C>           <C>           <C>
                                                                     Year Ended June 30
                                           1996          1997          1998          1999          2000
                                   ------------  ------------  ------------  ------------  ------------

Net Income(Loss)                   $ (2,757,811) $(10,006,000) $ (6,896,000) $ (1,793,000) $  2,427,000
                                   ============  ============  ============  ============  ============
Net Income(Loss) per share - basic:
    Before extraordinary item      $      (2.03) $      (2.53) $      (1.62) $      (0.18) $       0.04
    Extraordinary item                       --            --            --            --          0.20
                                   ------------  ------------  ------------  ------------  ------------
    Net income(Loss) per share     $      (2.03) $       2.53) $      (1.62) $      (0.18) $       0.24
                                   ------------  ------------  ------------  ------------  ------------
Net income(Loss) per share-diluted:
    Before extraordinary item      $      (2.03) $      (2.53) $      (1.62) $      (0.18) $       0.00
    Extraordinary item                       --            --            --            --  $       0.03
                                   ------------   ------------  ------------  ------------  ------------
    Net income(Loss) per share     $      (2.03) $      (2.53) $      (1.62) $      (0.18) $       0.03
                                   ============  ============  ============  ============  ============
Weighted average common shares
    Outstanding-basic                 1,979,254     3,957,024     4,251,285     9,961,863    10,012,185

Weighted average common shares
    Outstanding-diluted               1,979,254     3,957,024     4,251,285     9,961,863    76,994,706
</TABLE>

The  following  table sets forth the  Company's  percentage of expenses to total
revenue for the periods indicated:
<TABLE>
<S>                                <C>         <C>         <C>          <C>          <C>
                                                     Year Ended June 30
                                         1996        1997         1998         1999          2000
                                   ----------  ----------  -----------  -----------  ------------
Revenue                                100  %      100  %       100  %       100  %         70.2%
Grant Revenue                            -           -            -            -            29.8%

Total Revenue                          100  %      100  %       100  %       100  %        100  %
                                   ----------  ----------  -----------  -----------  ------------

Operating Expense:
Payroll and Related Costs               65.8%       89.5%        91.6%        65.6%         73.3%
Center Facilities Costs                 20.7%       19.7%        22.4%        29  %         17.4%
General and Administrative              37.1%       98.1%        39  %        62.5%         56.3%
Development Costs                        8  %
Food & Other                             8.4%        3  %         2.4%         1.3%          3.8%
Depreciation and Amortization            7.4%       11.7%        17.4%         4.2%          3.4%
                                     --------  ----------  -----------  -----------  ------------
Total Operating Expenses
     as a % of Revenue                 147.4%      222  %       172.8%       162.6%       (154.2%)
                                     --------  ----------  -----------  -----------  ------------
</TABLE>
COMPARISON OF FISCAL YEAR 2000 TO 1999

Revenue.  Revenue  increased  1.8% to  $1,259,000  for fiscal  year  2000,  from
$1,236,000 in fiscal year 1999. The increase in revenue was  attributable  to an


                                       20
<PAGE>
increase in Center capacity at the West Haven,  Connecticut Center, as well as a
grant  issued to the West Haven,  CT Center in the amount of  $375,000  from the
State of Connecticut.  The increase in revenue was offset by a $190,000 decrease
in management fees.

Operating  Expense - Payroll and Related Costs.  Payroll costs related to Center
operations  increased  13.6% to $923,000 for fiscal year 2000,  from $812,000 in
fiscal year 1999. The increase resulted from an approximate 6.8% increase in the
average  number of  employees  from 44 for  fiscal  year 1999 to 47 for the 2000
fiscal year.  This  increase was due to the increase in  enrollment  at the West
Haven, CT Center.

Operating Expense - Center Facilities Costs. Facilities costs decreased 38.8% to
$220,000 for fiscal year 2000,  from $360,000 for fiscal year 1999. This expense
category  consists  primarily of  facilities  rent expense for the West Haven CT
Center. The decrease was due to the closing of Centers, except the Company's one
remaining Center in West Haven, Connecticut.

Operating  Expense - General &  Administrative.  General & administrative  costs
decreased  8.1% to $710,000 for fiscal year 2000,  from $773,000 for fiscal year
1999;  these costs  decreased  as a percent of  revenue,  from 62.5% to 56.3% of
revenue for fiscal  years 1999 and 2000,  respectively.  The decrease was due to
the reduction in employees  and office  expense in  California,  as well as to a
decrease in legal fees and expenses due to the  Company's  settlement of certain
legal matters.

Operating Expense - Food & Other. Food & Other operating expenses increased 188%
to $49,000 for fiscal year 2000 from $17,000 for fiscal year 1999.  This expense
category includes the cost of Center supplies,  food,  special  activities,  and
other  Center  related  items.  As  such,  these  expenses  increased  as  total
enrollment at the West Haven Center increased.  In addition, a higher proportion
of  enrolled  students  were  contracted  to receive  food due to certain  grant
revenue.

Operating  Expense -  Depreciation &  Amortization.  Depreciation & amortization
decreased  16.9% to $44,000 for fiscal year 2000,  from  $53,000 for fiscal year
1999.

Operating Loss. Operating loss decreased 11.8% to $687,000 for fiscal year 2000,
from $779,000 for fiscal year 1999.  Such decrease in operating  loss was due to
increased grant revenue and revenue from the West Haven Center, to a decrease in
facility  costs  due to the  closing  of  Centers  and to a  decrease  in  legal
expenses.

Interest Expense,  Net. Net interest expense decreased 1% to $828,000 for fiscal
year 2000, from $837,000 for fiscal year 1999. The decrease was  attributable to
the decrease of expenses  associated with the issuance of warrants in connection
with notes payable.

Interest and Penalties on payroll taxes. Interest and Penalties on payroll taxes
decreased  6% to $149,000  for fiscal year 2000,  from  $158,000 for fiscal year
1999.


                                       21
<PAGE>
Gain on  Settlement  of  Litigation.  In  June  2000,  the  Company  recorded  a
$2,075,000  gain  resulting  from the  settlement  of its  lawsuit  against  its
underwriters.

Other  Non-Operating  Costs.  Other  non-operating  costs  increased to 15.7% to
$22,000 for fiscal year 2000, from $19,000 for fiscal year 1999.

Extraordinary  Item.  In June 2000,  the Company  issued  386,183  shares of its
Series B Preferred in full  settlement of $4,564,000 of Company debt. The shares
have  been  recorded  at  their  fair  value of $2.48  per  share  and a gain of
$2,038,000 has been recognized for the difference between the recorded amount of
the debt and the fair  value of  shares  issued.  (See  Note K to the  Company's
financial statements attached hereto.)

LIQUIDITY AND CAPITAL RESOURCES

The  Company's  net cash used for  operations  for fiscal year 2000 was $218,000
compared  to $ 446,000  for fiscal year 1999.  The  Company's  net cash used for
investing  for fiscal year 2000 was  $16,000  compared to $8,000 used for fiscal
year 1999.  The Company's net cash provided by financing  activities  for fiscal
year 2000 was $244,000  compared to $254,000 for fiscal year 1999. Cash and cash
equivalents  totaled  $16,000 at June 30,  2000  compared  to $6,000 at June 30,
1999.  The  Company's  working  capital  deficit was $ 2,789,000  in 2000 versus
$8,488,000 in 1999. The Company's current  liabilities  include past due payroll
taxes, including penalties and interest, of approximately $915,000.

In February of 2000,  two  investors,  John Clarke and Robert  Becker  purchased
600,000 newly issued shares of the Series A Preferred for $300,000, allowing for
potential  conversion into a majority ownership of the outstanding capital stock
of the Company. The Company used these proceeds for working capital purposes.

In April of 2000, the Company  received a  $1,575,000.00  cash settlement of its
lawsuit against its former  underwriters.  The Company used most of proceeds for
settlements of payables, legal fees, court cost and loans.

In June 2000,  the Company  issued  386,183  shares of its Series B Preferred in
full  settlement  of  $4,564,000  of Company debt and 50,000  shares of Series B
Preferred to a note holder  whose  release of the  Company's  debt is subject to
certain conditions.

At various times from July 1999,  the Company had  experienced  severe cash flow
shortfalls  from  operations  and due to its inability to secure  financing on a
timely basis.  The Company's success will depend significantly on its ability to
obtain  financing  on a  continuing  basis for its  working  capital  needs.  To
complete the Company's new strategic direction, it will need to raise $2 million
in the immediate future to acquire the KinderWorld  operation and to develop and
test its software products.  At present,  the Company does not have a sufficient
number of authorized  shares available under its Certificate of Incorporation to
be able to raise capital through the sale of capital stock. However,  Management
controls a  sufficient  number of the votes of the  Company's  capital  stock to
approve  an  increase  in the  authorized  number  of  shares  of  the  Company.
Management  believes that it can take all other necessary  action to effect such
an increase.



                                       22
<PAGE>
COMPARISON OF FISCAL YEAR 1999 TO 1998

Revenue.  Revenue  decreased  74.4% to  $1,236,000  for fiscal  year 1999,  from
$4,840,000  in fiscal year 1998.  The decrease in revenue was  attributed to the
decrease in the number of Centers in operation from four to one, and the related
decrease in Center capacity.

Operating  Expense - Payroll and Related Costs.  Payroll costs related to Center
operations  decreased 81.7% to $812,000 for fiscal year 1999, from $4,437,000 in
fiscal year 1998. The decrease  resulted from an approximate 75% decrease in the
average  number of  employees  from 172 for fiscal  year 1998 to 44 for the 1999
fiscal year.  Center payroll expenses as a percent of Center revenues  decreased
due to the decrease in the number of Centers and Center capacity.

Operating Expense - Center Facilities Costs. Facilities costs decreased 66.8% to
$360,000 for fiscal year 1999, as compared to  $1,086,000  for fiscal year 1998.
This  expense  category  consists  primarily of  facilities  rent  expense.  The
decrease was due to the closing of Centers in fiscal year 1998.

Operating  Expense - General &  Administrative.  General & administrative  costs
decreased 59% to $773,000 for fiscal year 1999,  from $1,891,000 for fiscal year
1998.  These expenses  decreased due to the decrease in personnel at the Centers
and corporate office.

Operating Expense - Food & Other. Food & Other operating  expenses decreased 85%
to $17,000  for fiscal  year 1999,  from  $116,000  for fiscal  year 1998.  This
expense category includes the cost of Center supplies, food, special activities,
and other Center  related  items.  As such,  these  expenses  decreased as total
enrollment as well as the number of Centers decreased.

Operating  Expense -  Depreciation &  Amortization.  Depreciation & amortization
decreased  93.7% to $53,000 for fiscal year 1999,  from $843,000 for fiscal year
1998. The decrease is related to decreased fixed assets balances and capitalized
acquisition costs.

Operating Loss. Operating loss decreased 77.9% to $779,000 for fiscal year 1999,
from  $3,533,000  for fiscal year 1998.  The decrease in the operating  loss was
related to decreased number of Centers and the resulting decrease in general and
administrative expenses related to the smaller operation.

Interest  Expense,  Net. Net interest  expense  decreased  69.6% to $837,000 for
fiscal year 1999, from $2,753,000 for fiscal year 1998. Interest Expense in 1998
included  $1,832,000 of  amortization  related to warrants  issued in connection
with  promissory  notes issued by the Company in 1997.  The Company did not have
comparable interest expense in 1999.

Interest and Penalties on payroll taxes. Interest and Penalties on payroll taxes
increased  to $158,000  for fiscal year 1999 from $0 for fiscal year 1998.  Such
interest and  penalties  arose out of missed  payroll tax payments from 1998 and
were assessed to the Company in 1999.

Other Non-Operating  Costs. Other non-operating costs decreased 67.2% to $19,000
for fiscal year 1999,  from $58,000 for fiscal year 1998.  This expense includes
costs primarily  related to acquisition  activities which were sharply curtailed
during fiscal 1998.


                                       23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

The  Company's net cash used for  operations  for fiscal year 1999 was $ 446,000
compared to $ 1,422,000  for fiscal year 1998.  The  Company's net cash used for
investing  for fiscal  year 1999 was $8,000  compared  to  $920,000  provided in
fiscal year 1998.  The Company's net cash provided by financing  activities  for
fiscal year 1999 was  $254,000  compared to $ 636,000 in fiscal year 1998.  Cash
and cash  equivalents  totaled  $6,000 at June 30, 1999  compared to $206,000 at
June 30, 1998.  The Company's  working  capital  deficit was $8,488,000 in 1999,
versus $6,846,000 in 1998.

The Company had negative  cash flow from  operations  as of June 30, 1999. As of
June 30,  1999,  the Company had  financed  its  operations  from the  following
sources of cash: The Company  received net proceeds of $975,000 from the sale of
Centers  in  1998;   borrowed  $156,000  and  $420,000  pursuant  to  short-term
promissory  notes in fiscal  1999 and 1998,  respectively;  received  loans from
certain  officers  of the  Company in the amounts of $110,000 in fiscal 1999 and
$389,000  in fiscal  1998;  and  issued  3,999,987  shares  of common  stock for
$600,000 in 1998.


COMPARISON OF FISCAL YEAR 1998 TO 1997

Revenue.  Revenue  decreased  15% to  $4,840,000  for  fiscal  year  1998,  from
$5,698,000 in fiscal year 1997. The decrease in revenue was  attributable to the
decrease in number of Centers and decrease in Center capacity.

Operating  Expense - Payroll and Related Costs.  Payroll costs related to Center
operations  decreased 13% to $4,437,000 for fiscal year 1998, from $5,101,000 in
fiscal year 1997. The decrease  resulted from an approximate 49% decrease in the
number  of  employees  from 338 for June 30,  1997 to 172 for June 30,  1998 the
current  fiscal year.  The decrease was attributed to the decrease in the number
of Centers and Center enrollment.

Operating Expense - Center Facilities Costs.  Facilities costs decreased 3.4% to
$1,086,000 for fiscal year 1998, from $1,125,000 for fiscal year 1997,  although
the balance remained consistent as a percent of revenues.

Operating  Expense - General &  Administrative.  General & administrative  costs
decreased 66% to $1,891,000  for fiscal year 1998,  from  $5,589,000  for fiscal
year 1997;  these costs also decreased as a percent of revenue,  from 98% to 40%
of revenue for fiscal years 1997 and 1998, respectively. The decrease was due to
a  reduction  in legal fees which were higher in 1997  because of the  Company's
commencement of a lawsuit against its underwriters. The decrease was also due to
reduced payroll for administrative employees corresponding with the reduction in
the number of Centers in 1998. Also,  general and  administrative  expenses were
higher in 1997 due to  $2,297,000  of  expenses  attributable  to the  Company's
issuance  of  warrants  to various  parties in  connection  with their  services
relating to  development  of corporate  strategic  direction for the Company and
real estate development.

Operating  Expense - Food & Other.  Food & Other  operating  expenses  decreased
32.5% to $116,000 for fiscal year 1998, from $172,000 for fiscal year 1997. This
expense category includes the cost of Center supplies, food, special activities,


                                       24
<PAGE>
and  other  Center  related  items.  As such,  these  costs  decreased  as total
enrollment decreased. Other operating expenses remained relatively consistent as
a percent of  revenue,  decreasing  from 3% to 2% percent of revenue  for fiscal
years 1997 and 1998, respectively.

Operating  Expense -  Depreciation &  Amortization.  Depreciation & amortization
increased  26% to $843,000 for fiscal year 1998,  from  $669,000 for fiscal year
1997.  The increase was related to higher average fixed assets  balances  during
fiscal 1998 compared with fiscal 1997.

Operating  Loss.  Operating loss  decreased  49.2% to $3,533,000 for fiscal year
1998,  from  $6,958,000 for fiscal year 1997. The decrease in the operating loss
was related to decreased  number of Centers,  payroll  expenses and  development
costs.

Interest  Expense,  Net. Net interest  expense  decreased 2.6% to $2,753,000 for
fiscal  year 1998,  from  $2,829,000  for fiscal  year  1997.  Interest  expense
attributable  to the  issuance  of  warrants  in  connection  with  the  private
placement of notes by the Company decreased by $332,000 from fiscal 1997 to 1998
and this decrease in warrant expense was substantially offset by higher interest
expense in fiscal 1998 relating to the Company's  higher notes payable  balances
in 1998 compared with 1997.

Other Non-Operating  Costs. Other non-operating costs decreased 73.5% to $58,000
for fiscal year 1998, from $219,000 for fiscal year 1997. This expense  includes
costs primarily related to acquisition activities,  which were sharply curtailed
during fiscal 1998.

Loss on disposition of Centers. The Company recorded a loss of $552,000 from the
disposition of centers in fiscal year 1998.

LIQUIDITY AND CAPITAL RESOURCES

The Company's net cash used for  operations  for fiscal year 1998 was $1,422,000
compared to $3,554,000 used in fiscal year 1997. The Company's net cash provided
from  investing  activities  for  fiscal  year  1998 was  $920,000  compared  to
$1,964,000  used in  fiscal  year  1997.  The  Company's  net cash  provided  by
financing  activities for fiscal year 1998 was $636,000  compared to $ 2,380,000
in fiscal year 1997. Cash and cash equivalents totaled $206,000 at June 30, 1998
compared to 72,000 at June 30, 1997. The Company's  working  capital deficit was
$6,846,000 in 1998, versus $4,725,000 in 1997.

The Company had negative  cash flow from  operations  as of June 30, 1998. As of
June 30,  1998 the Company  was  financing  its  operations  from the  following
sources of cash: The Company  received net proceeds of $975,000 from the sale of
centers in 1998, and completed a $600,000 private placement.  In connection with
the  $600,000  private  placement,   the  Company  issued  3,999,982  shares  of
restricted  common stock to various  investors at an offering  price of $.15 per
share. The Company also borrowed $420,000 by issuing short-term promissory notes
to various parties and $389,000 from certain offices of the Company.

During 1998, the Company used funds  otherwise  payable for payroll taxes to pay
other of its  current  obligations.  In or about June  1998,  the  Company  owed



                                       25
<PAGE>
approximately  $700,000 for back payroll taxes including  interest and penalties
on such taxes.


COMPARISON OF FISCAL YEAR 1997 TO 1996

Revenue.  Revenue  increased  23.6% to  $5,698,000  for fiscal  year 1997,  from
$4,606,000 in fiscal year 1996. The increase in revenue was  attributable to the
Center  acquisitions  as well as to an  increase  in the  number of  Centers  in
operation and the related increase in Center capacity.

Operating  Expense - Payroll and Related Costs.  Payroll costs related to Center
operations  increased  68.3% to $5,101,000 for fiscal year 1997, from $3,031,000
in fiscal year 1996. The increase resulted from an approximate 40.8% increase in
the  average  number of  employees  from 240 for fiscal year 1996 to 338 for the
1997  fiscal  year.  Center  payroll  expenses  as a percent of Center  revenues
increased  from  65% in 1996 to  89.5%  in 1997  due to the  temporary  need for
proportionately higher staffing levels for the new Centers that were acquired in
order to provide proper  training to new  employees.  State law for licensed day
care facilities requires a specific ratio of elders/children to teachers.

Operating Expense - Center Facilities Costs. Facilities costs increased 17.9% to
$1,125,000  for fiscal year 1997,  from $954,000 for fiscal year 1996,  although
such costs remained consistent as a percent of revenues.

This  expense  category  consists  primarily of  facilities  rent  expense.  The
increase was due to the timing of Center  acquisitions;  the Company added seven
Center  facilities  under long term lease at various  times  during  fiscal year
1996. Two additional Centers were added early in fiscal year 1997.

Operating  Expense - General &  Administrative.  General & administrative  costs
increased  227% to $5,589,000 for fiscal year 1997,  from  $1,709,000 for fiscal
year 1996;  these costs also increased as a percent of revenue,  from 37% to 98%
of revenue for fiscal years 1996 to 1997, respectively.  The increase was due to
higher legal expenses in 1997 and higher  administrative  costs  associated with
the operation of additional  Centers in 1997. Also,  general and  administrative
expenses were higher in 1997 due to $2,297,000 of expenses  attributable  to the
Company's  issuance  of  warrants to various  parties in  connection  with their
services  relating to  development  of  corporate  strategic  direction  for the
Company and real estate development.

Operating  Expense - Development  Costs.  Development costs decreased 100% to $0
for fiscal year 1997,  from $368,000 for fiscal year 1996. In 1996,  the Company
incurred  development  costs associated with starting up new Centers which costs
were not incurred in 1997 when the Company began to purchase existing Centers.

Operating  Expense - Food & Other.  Food & Other  operating  expenses  decreased
55.7% to $172,000 for fiscal year 1997, from $389,000 for fiscal year 1996. This
expense category included the cost of Center supplies, food, special activities,
and other  Center  related  items.  The  decrease in this  expense  category was
attributable  to the Company's  shift in 1997 from supplying food at its Centers
through  Company-employed  cooks and staff to supplying food through third-party
catering and delivery services.



                                       26
<PAGE>

Operating  Expense -  Depreciation &  Amortization.  Depreciation & amortization
increased  96.8% to $669,000 for fiscal year 1997, from $340,000 for fiscal year
1996.  The  increase  was  related  to  increased   fixed  assets,   capitalized
acquisition and start up cost balances  related to new Center  additions  during
the year.

Operating  Loss.  Operating  loss  increased  218% to $6,958,000 for fiscal year
1997,  from  $2,185,000 for fiscal year 1996. The increase in the operating loss
was related to increased Center payroll expenses as a percent of Center revenues
due to the temporary need for  proportionately  higher  staffing levels at newly
opened Centers,  increased depreciation and amortization expenses related to the
increased facilities,  equipment,  and intangible assets related to goodwill and
the  start-up of Centers,  and  increased  general and  administrative  expenses
relating to higher legal expenses,  higher warrant expense  relating to warrants
issued  to  consultants  for  services,  and the  administration  of  additional
Centers.

Interest  Expense,  Net. Net interest  expense  increased 685% to $2,829,000 for
fiscal year 1997,  from  $360,000 for fiscal year 1996.  The increase was due to
the expense  associated  with the  issuance of warrants in  connection  with the
issuance of notes and higher levels of debt.

Other Non-Operating  Costs. Other non-operating costs increased 2.9% to $219,000
for fiscal year 1997, from $213,000 for fiscal year 1996. This expense  includes
costs related to acquisition activities and other items.

LIQUIDITY AND CAPITAL RESOURCES

The Company's net cash used for  operations  for fiscal year 1997 was $3,554,000
compared to  $2,688,000  for fiscal year 1996.  The  Company's net cash used for
investing  activities for fiscal year 1997 was  $1,964,000  compared to $644,000
for fiscal year 1996.  The Company's  net cash provided by financing  activities
for fiscal year 1997 was  $2,380,000  compared to $6,477,000  provided in fiscal
year 1996. Cash and cash  equivalents  totaled $72,000 at June 30, 1997 compared
to $3,210,000 at June 30, 1996.  The working  capital  deficit was $4,725,000 in
1997 versus positive working capital of $3,145,346 in 1996.

During 1997, the Company financed its operations  through  cash flow from Center
operations,  private sales of its restricted securities and borrowings providing
net  proceeds  of  approximately  $2,216,000,  the  issuance  of  shares  of its
restricted  common stock for $66,000 in  consideration,  and $96,000 in advances
from certain of its officers.

The  Company's  investing  activities  were  primarily  related to  acquiring or
constructing  new Centers,  renovating and upgrading  existing  Centers.  During
fiscal years 1996-97, the Company anticipated opening new centers and renovating
existing Centers as enrollment increased.








                                       27
<PAGE>



Item 7.  Financial Statements and Supplementary Data

The Financial  Statements of the Company are submitted as a separate  section of
this Form 10-KSB on pages F-1 through F-32.

Item 8.  Changes  in  and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosure

At a meeting  of its Board of  Directors  dated  January 3,  2000,  the  Company
appointed  Richard  A.  Eisner &  Company,  LLP  ("Eisner")  as its  independent
auditors for the years ended June 30, 1997,  1998, and 1999.  Subsequently,  the
board approved the appointment of Eisner as its auditor for fiscal 2000.  During
the three most recent fiscal years and through  January,  2000,  the Company had
not  consulted  Eisner  regarding  either  (i)  the  application  of  accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's financial statement, or
(ii) any matter that was either the subject of a  disagreement,  as that term is
defined in Item 304(a)(1)(iv) of Regulation S-K and the related  instructions to
Item 304 of Regulation  S-K, or a reportable  event,  as that term is defined in
Item 304(a)(1)(iv) of Regulation S-K.

Deloitte & Touche LLP had been the Company's prior independent  auditors for the
years  ended  June 30,  1995  and 1996 and  during  that  period  there  were no
reportable  disagreements  on any matter of accounting  principles or practices,
financial  statement   disclosure,   or  auditing  scope  or  procedure,   which
disagreements  if not  resolved to the  satisfaction  of Deloitte & Touche would
have  caused  it to  make  reference  thereto  in its  report  on the  financial
statements  for such  years.  As of August  1997,  Deloitte  & Touche LLP was no
longer the  independent  auditor for the  Company.  Between the time  Deloitte &
Touche stopped serving as the Company's  auditors and the Company's  appointment
of Eisner, the Company had no independent auditor.

PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;Compliance
with Section 16(a) of the Exchange Act

The directors,  executive officers and significant  employees of the Company and
their  respective  ages and  positions  with the  Company  are set  forth in the
following table.

   Name               Age                             Position
   ----               ---                             --------
John Clarke           38                  Chairman  of the  Board of  Directors
                                          and Chief Executive Officer

Robert Becker         38                  Chief Financial Officer and Director


John Clarke has served as Chairman of the Board of Directors and Chief Executive
Officer of the Company  since June 2000.  Prior to joining CWI, Mr.  Clarke held
the title of Managing  Director of Capital Markets at J.P. Turner from June 1998

                                       28
<PAGE>
to June 2000.  From October 1996 to June 1998,  he was employed  with  Perpetual
Growth Advisors as the Managing Director of the firm. From November 1995-October
1996,  Mr.  Clarke  was  the  Senior  Vice  President  of  Sales  at JW  Charles
Securities, Inc. He earned his Bachelor of Science degree in finance from the E.
Claiborne School of Business at the University of Richmond.

Robert Becker has served as Chief Financial Officer and a member of the Board of
Directors of the Company  since June 2000.  Prior to joining CWI, Mr. Becker was
the Sr. Vice President of High Yield Sales at Raymond James  Financial from July
1999 to January  2000.  From  February  1997 to July of 1999,  he was the Senior
Salesman  for  Montgomery  Securities,  which later merged with Bank of America.
From October 1995 to 1997, Mr. Becker held the position of Sr. Vice President of
Corporate Finance and Strategic Planning for ACTV, Inc., a company  specializing
in  interactive  television.  For six years prior to ACTV, he was employed as an
analyst/portfolio  manager at Providence Investment Management Group. Mr. Becker
earned  his  B.S.  degree  in   Marketing/Management  at  Alfred  University  in
Northwestern New York State. As of May 1, 2001,  Robert Becker resigned from the
Board of Directors and as Chief Financial Officer.

Former Officers and Directors of the Company from 1997 through 2000.

Debby Bitticks is a former Chief Executive Officer, former President, and former
Board  member of the  Company.  From June 2000 to December  2000,  Ms.  Bitticks
served  as the CWI's  President  and a member  of its  Board of  Directors.  She
co-founded  the Company in 1993 and served as its Chief  Executive  Officer from
the  Company's  inception  in 1993 to June 2000.  She served as Chief  Executive
Officer of D & D Child Development Corporation from 1972 to May 1994, when D & D
sold its remaining day care Centers to the Company. Prior to this, she worked as
an educational  therapist at the West Valley Center for  Educational  Therapy in
California.  Ms.  Bitticks  attended  UCLA where she majored in early  childhood
education and education therapy.

Kenneth Bitticks is the former Chairman of the Board of Directors,  and a former
director of the Company.  He was a director  since the  formation of the Company
and was appointed the Chairman of the Board in September  1994 until he resigned
from both  positions in June 2000.  Prior to joining  CWI, Mr.  Bitticks was the
Chief Executive Officer of Interlink Electronics ("Interlink"), a public company
that manufactures  electronic  components,  from September 1987 through February
1994 and also served as Interlink's Chairman of the Board from June 1990 through
September 1994.  Prior to that time, he had been a Chief  Executive  Officer and
director  of Delphi  Information  Systems,  Inc.,  a  publicly  traded  computer
software  company.  Mr.  Bitticks,  a Certified Public  Accountant,  founded and
managed a computer software development and marketing group for Haskins & Sells,
Certified  Public  Accountants,  from 1968 to 1976.  Mr.  Bitticks  holds a B.S.
degree from the University of Southern California.

Robert Wilson is a former  President,  former Chief  Financial  Officer,  former
Secretary, and a former director of the Company. Mr. Wilson held these positions
from June 1995 until he resigned from the Company in June 2000. Prior to joining
CWI, Mr. Wilson served in various  capacities,  including Vice President,  Chief
Financial/Operating Officer at Wismer*Martin Inc., a publicly traded provider of
health care  information  systems,  from February 1992 to May 1995. From 1989 to
1991 he was President, Chief Executive Officer and a director of Caelus, Inc., a



                                       29
<PAGE>

software  developer.  He was  employed  from 1987 to 1989 by  Interlink as Chief
Financial/Operating  Officer and a director.  From 1981 to 1986 he was President
and Chief Executive Officer and director of Collins Systems, Inc., a provider of
information  systems  to the oil  industry.  Mr.  Wilson is a  Certified  Public
Accountant and holds a B.S. degree from the University of Southern California.

Elliot Wax served as a director of the Company  from  October  1994 to May 1997.
Prior to  joining  CWI,  Mr.  Wax was the owner and Chief  Executive  Officer of
Elliot Wax &  Associates,  Inc.,  a company  formed by him,  which is a boutique
talent agency with a selective  clientele of television  producers,  writers and
directors.  Prior to owning his own  business,  he was a Vice  President  of the
William Morris Agency.  Mr. Wax holds a B.A. in Industrial  Psychology  from the
New York University (Heights).

Michael Laney is a former President,  former Chief Financial Officer, and former
director of the Company from  January 1997 to April 1997.  Prior to joining CWI,
Mr. Laney was the Senior Vice  President of Operations of the Feature  Animation
Division at Warner Bros.,  a subsidiary of  Time-Warner,  Inc from 1994 to 1996.
From 1992 to 1994,  he served as Vice  President  of  Operations  of the Feature
Animation  Division at Walt Disney Pictures and Television,  a subsidiary of The
Walt Disney Studios, Inc.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company's  executive officers and
directors  and  persons  who  beneficially  own more  than 10% of the  Company's
outstanding  Common  Stock to file initial  reports of ownership  and reports of
changes in ownership with the SEC. Such officers,  directors,  and  stockholders
are  required by the SEC  regulations  to furnish the Company with copies of all
Section 16 (a) reports that they file.

Solely  based upon such reports  received or not  received by the  Company,  the
Company is not aware of any  failure to comply with the filing  requirements  of
Section 16 (a).  However,  because the Company has not been reporting  under the
Exchange Act for the periods  following  the quarter  ended March 31,  1997,  it
believes  that none of its officers,  directors,  or 10%  shareholders  has been
making filings under Section 16 (a) of the Exchange Act.

Item 10.  Executive Compensation

The following  table sets forth  information  for the fiscal year ended June 30,
2000,  1999,1998 and 1997  concerning the  compensation  paid and awarded to the
Company's Chief Executive  Officer and all other executive  officers whose total
annual salary and bonus exceeded $100,000 during those fiscal years.











                                       30
<PAGE>
                           Summary Compensation Table
                           --------------------------
<TABLE>
<S>                          <C>   <C>       <C>   <C>          <C>        <C>
                             Fiscal                All Other    Long Term Compensation
Name and Principal Position  Year  Salary    Bonus Compensation Securities Underlying Option
---------------------------  ----  ------    ----- ------------ ---------- -----------------

Debby S. Bitticks            2000  $0        $ 0   $70,000(1)
Former Chief Executive       1999  $69,813   $ 0    ------
Officer & President          1998  $172,691  $ 0    ------
                             1997  $175,646  $ 0    ------
                                                    ------
</TABLE>
---------------------------------

(1) This figure represents the value of the Company's  securities granted to Ms.
Bitticks  in June 2000 in lieu of  accrued  salary.  In June 2000,  the  Company
granted to Ms. Bitticks  155,000 Units from the Series B Preferred  offering and
approximately  9,904,310 shares of Common Stock (to be issued after a sufficient
number of shares of Common Stock become available under the Company's  charter),
which  securities  had an  estimated  fair value of  $586,000,  in exchange  for
$227,000 of accrued salary and $1,675,000 of other debt owed to Ms. Bitticks and
her husband.  Of such $586,000,  $70,000 was allocated to compensation  based on
the portion of the total amount of the Company debt  exchanged by the  Bitticks'
which is represented by accrued salary.



The following tables sets forth information regarding the outstanding options to
purchase  Common Stock  granted in the fiscal  years ended June 30, 2000,  1999,
1998 and 1997 to the  executive  officers  named in the  foregoing  compensation
table.
                                Option Grants (1)

                                 Number of     % of
                                Securities  Total Options
                                Underlying   Granted to
                        Fiscal     Options  Employees in  Exercise Expiration
                          Year     Granted   Fiscal Year    Price      Date
                          ----     -------   -----------    -----      ----
Debby S. Bitticks.......  2000           0
Debby S. Bitticks.......  1999           0
Debby S. Bitticks.......  1998      50,000          23%      $.05     8/13/02
Debby S. Bitticks.......  1997     125,000          41%      $.05     1/10/02
------------------------

(1) In January  1997,  the Company  granted Debby  Bitticks  options to purchase
125,000  shares of Common  Stock,  for the  exercise  price of $7.00 per  share,
vesting  as to 50,000  shares  on the date of grant  and,  as to the  remainder,
vesting as to 25,000  shares on each of the three  anniversaries  following  the
date of grant.  In August  1997,  the Company  granted Ms.  Bitticks  options to
purchase 50,000 shares of Common Stock, exercisable for $0.31 per share, vesting
as to  one-third  on the 30th day  following  the date of grant,  as to  another
one-third  on the 6-month  anniversary  of the date of grant and as to the final

                                       31
<PAGE>
one-third  on the  18-month  anniversary  of the date of grant.  On December 30,
1997, the Company  adjusted the exercise price for Ms.  Bitticks'  Company stock
options, as well as for the stock options held by other officers,  directors and
key employees of the Company, to $0.05 per share, the market price of the Common
Stock as of such  date.  In May  2000,  the  Company  extended  the terms of Ms.
Bitticks'  options so that they expire on January  2004 as to the 125,000  share
options and August 2004 as to the 50,000 share options.  As of May 30, 2000, the
date of such extension, the Common Stock was trading at $0.20 per share.

No options were  exercised in fiscal years 1997,  1998,  1999, or 2000 by any of
the Company's  officers named above.  The following  table sets forth,  for each
such  officer,  the number and value of vested and  unvested  options held as of
June 30, 2000,1999, 1998, and 1997.

                              Number of Securities       Value of Unexercised
                             Underlying Unexercised          In-The-Money
                               Options at June 30          Options at June 30
                            ------------------------    -----------------------
                           Exercisable Un-exercisable Exercisable Un-exercisable
                           ----------- -------------- ----------- --------------
Option Value at
June 30, 2000

Debby S. Bitticks.........     175,000           --        -0-            -0-

Option Value at June 30, 1999

Debby S. Bitticks.........     150,000       25,000        -0-            -0-

Option Value at June 30, 1998

Debby S. Bitticks.........     108,333       66,667        -0-            -0-

Option Value at June 30, 1997

Debby S. Bitticks.........      50,000       75,000        -0-            -0-

Stock Option Plan

In December 1993, the Board of Directors adopted the 1993 Incentive Stock Option
Plan and amended such plan in December 1995 (the "1993 Option  Plan").  The 1993
Option Plan provides for grants to key employees,  directors, and consultants of
the  Company.  There is no  maximum or  minimum  number of shares,  which may be
subject to options  granted to any one  individual  under the 1993 Option  Plan.
Pursuant to the 1993  Option  Plan,  options to acquire or awards of  restricted
stock were granted to key employees, directors and consultants.

Subject to the  provisions of the 1993 Option Plan,  the Board or a committee of
the Board has the  authority  to  determine  the  individuals  to whom the stock
awards are to be granted,  the number of shares to be covered by each award, the
restrictions, if any, on the award, and other terms and conditions.

In 1996,  the Board of Directors  adopted the 1996 Stock Option Plan under which
plan the  Company  has issued  stock  options to its  employees,  directors  and
consultants.

                                       32
<PAGE>
Compensation of Directors

Directors  of the  Company did not receive  fees for  attending  meetings of the
Board of Directors for fiscal years 2000, 1999, 1998 and 1997.

Employment Agreements:

Mark Rosenberg became VP of Corporate  Development  effective November 15, 2000.
The terms of his employment  contract  allow Mr.  Rosenberg an accrued salary of
$6,000  per  month to be paid upon the  Company's  closing  of a  minimum  of $2
million in an equity  financing.  Additionally,  Mr. Rosenberg will be issued an
option to purchase shares of Common Stock equal to .125% of the shares of Common
Stock  outstanding on a  fully-diluted  basis and options to purchase  shares of
Common  Stock  equal to up to 5% of the  outstanding  shares on a  fully-diluted
basis based on certain criteria if he becomes a full time employee.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

The  following  table sets forth the  number of shares of the  Company's  Common
Stock (as of May 1, 2000 unless otherwise  indicated)  beneficially owned by the
Company's directors, Chief Executive Officer and its other executive officer(s),
each  person  known  by the  Company  to own  beneficially  more  than 5% of the
outstanding shares of the Company's  outstanding Common Stock, and all directors
and  executive  officers  as a group.  Unless  otherwise  indicated  below,  the
business  address of each individual is the same as the address of the Company's
principal executive offices.

As of December 30, 2000,  Debby Bitticks,  Ken Bitticks and Robert Wilson are no
longer directors, or officers of the company, but are considered as such for the
purpose of the following table.

Name of Beneficial Owner   Number of Share              Percentage of Class of
                           Beneficially Owned                  Common Stock
--------------------------------------------------------------------------------
John Clarke                   99,046,150 (2)                    49.4

Robert Becker                 81,037,755 (2)                    40.4

Debby Bitticks                10,889,841 (1)(3)                  5.4

Kenneth W. Bitticks              975,483 (4)                       *

Robert Wilson                    120,818 (5)                       *

All Executive Officers
and Directors as a Group:    192,070,030 (2)(3)(5)              69.3%

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

      Less than 1%.

1.       All  calculations in this table assume that all  outstanding  shares of
         the Company's Series A Preferred (but not Series B Preferred) have been
         converted into a total of 180,083,910 shares of Common Stock and assume


                                       33
<PAGE>
         the issuance of 9,904,310 shares to Debby Bitticks pursuant to a letter
         agreement,  dated June 9, 2000. Such letter agreement  provides for the
         issuance to Ms. Bitticks of a number of shares of Common Stock equal to
         5.0% of the  Common  Stock  outstanding  as of June 9,  2000 on a fully
         diluted  basis  after  taking  into  account  the   conversion  of  all
         outstanding  shares  of the  Series A  Preferred.  The  Company  is not
         obligated to issue such shares to Ms. Bitticks until it has amended its
         certificate of  incorporation  to sufficiently  increase its authorized
         Common Stock from the current 20,000,000 shares. The Series A Preferred
         has the power to vote with the Common Stock on as  as-converted  basis.
         This table  includes  shares  issuable  upon the exercise of options or
         warrants  that  are  exercisable  within  60  days  of the  date of the
         beneficial ownership information set forth above. The shares underlying
         such options or warrants are deemed to be  outstanding  for the purpose
         of computing the percentage of outstanding  stock owned by such persons
         individually and by each group of which they are a member,  but are not
         deemed to be  outstanding  for the purpose of computing the  percentage
         ownership of any other person.

2.       Includes  shares of Common Stock issuable upon conversion of the Series
         A Preferred held by such person.

3.       Includes  175,000 shares  issuable upon exercise of options and 625,466
         shares  issuable  upon  exercise  of  warrants  jointly  held  with her
         husband,  Kenneth  Bitticks.  Excludes shares issuable upon exercise of
         options solely held by Mr.  Bitticks and shares owned by Mr.  Bitticks,
         to which Debby Bitticks disclaims beneficial ownership.

4.       Includes  115,000 shares  issuable upon exercise of options and 625,466
         shares  issuable upon exercise of warrants  jointly held with his wife,
         Debby  Bitticks.  Excludes shares issuable upon exercise of options and
         warrants solely held by Ms. Bitticks and shares owned by Ms.  Bitticks,
         to which Kenneth Bitticks disclaims beneficial ownership.  Mr. Bitticks
         was the Company's Chairman prior to June 9, 2000.

5.       Includes 90,000 shares issuable upon exercise of options and warrants.


Item 12.  Certain Relationships and Related Transactions

On February  24, 2000,  the Company  sold  600,000  total shares of its Series A
Preferred to John Clarke and Robert Becker for the aggregate  purchase  price of
$300,000.  Mr. Clarke and Mr. Becker were not  affiliates of the Company at such
date,  but both have since become an officer and  director of the  Company.  The
holders may convert the 600,000  outstanding shares of Series A Preferred at any
time into approximately  180,083,910 shares of Common Stock (equal to the number
of shares of Common  Stock  that would  result in the  holders  together  owning
approximately  90.09% of the fully-diluted shares of Common Stock outstanding as
of February 24, 2000).

The  Company  entered  into  an  agreement  as of June 9,  2000  (the  "Bitticks
Agreement") with Debby Bitticks (at that time the President of the Company and a
member of its Board of Directors) and Kenneth  Bitticks (the former  Chairman of
the Company).  The Company  agreed (1) to indemnify Ken and Debby  Bitticks from


                                       34
<PAGE>
any lawsuits  initiated against them by the Company's former underwriter (or its
affiliates)  whom the Company had sued; (2) to use certain proceeds to repay Ken
and Debby  Bitticks  for  $350,000 of credit card debt which they  incurred  for
Company expenses;  (3) to issue to Debby Bitticks the number of shares of Common
Stock  (approximately  9,904,310) that would be equal to 5% of the fully diluted
Common  Stock  outstanding  as of June 9, 2000,  assuming  for this  purpose the
conversion  of all shares of Series A Preferred  into Common  Stock;  and (4) to
negotiate a two-year  employment  with Debby  Bitticks with a minimum  salary of
$100,000 per year.  However,  Ms. Bitticks  resigned from the Board of Directors
and as President of the Company in December  2000.  Ken and Debby  Bitticks,  as
part of the Bitticks Agreement, agreed to exchange all of their debt against the
Company  (except the  $350,000 in credit card debt  described  above) into units
consisting  of 155,000  shares of Series B  Preferred  and Series B Warrants  to
purchase  155,000  shares of Common  Stock  pursuant  to the Series B  Preferred
Offering.

The amount owed by the Company to Ken and Debby Bitticks  totaled  approximately
$1,902,000 at the time of the Bitticks'  exchange of such  obligations  into the
Company's  units,  consisting of (i) $110,000 of notes payable by the Company to
the  Bitticks',  comprised  of two $50,000  notes dated  October 7, 1994 and one
$10,000  note dated  August 11,  1994,  (ii)  $652,000  of loans  payable by the
Company  (which does not  includes  the  $350,000 of credit card debt  described
above), of which $57,000 was loaned by the Bitticks' prior to 1997,  $96,000 was
loaned by them in 1997,  $389,000  was loaned by them in 1998 and  $110,000  was
loaned by them in 1999, (iii) $403,000 of interest  accruing to June 30, 2000 on
such notes and loans,  (iv) $227,000 of unpaid  salary  accrued from fiscal 1997
through  fiscal 2000, , and (v) $510,000 of accrued fees incurred by the Company
for the Bitticks' consulting services from January 1, 1997 to January 1, 2000.

The Company  entered  into an  agreement  as of April 20,  2000 with Mr.  Justin
Gasarch,  a major note holder of the Company and the holder of 200,000 shares of
Common Stock. In return for advisory services from Mr. Gasarch and his agreement
to exchange  $500,000  of the  Company's  debt to him for units  pursuant to the
Series B Preferred  Offering,  the Company  agreed to issue to him the number of
shares of Common Stock (after giving effect to a  contemplated  reverse split by
the  Company)  which  is  higher  of (i)  250,000  or  (ii)  3.8%  of the  total
outstanding  Common  Stock as of April 20,  2000,  assuming for this purpose the
conversion of all shares of Series A Preferred into Common Stock.

Because the Company does not have a sufficient  number of authorized  shares, it
would have to amend its Articles of  Incorporation  to increase  its  authorized
Common Stock  before it can issue  shares of Common Stock due to Debby  Bitticks
and Justin  Gasarch  upon  conversion  of the Series A  Preferred,  the Series B
Preferred and the Series B Warrants.


                                       35
<PAGE>
Item 13.  Exhibits and Reports on Form 8-K

Exhibits (a)

Item
Number            Description

2.1      Asset  Purchase  Agreement,  dated as of August 1,  1997,  between  the
         Registrant and Imagination Plus Child Development Center, Inc. relating
         to the sale of two centers in  California  and six centers in Colorado.
         (*)

2.2      Asset Purchase  Agreement  dated as of April 24, 1998, by and among the
         Registrant,  Aloha Pacific,  Inc.,  Kenneth Bitticks and Debby Bitticks
         relating to three centers in California. (*)

3.1      Restated  Articles of Incorporation and Amendments  thereto,  including
         Certificates of Determination, of the Registrant. (*)

3.2      By laws of the Registrant (1)

3.3      Form  of  Warrant  Agreement  and  Warrant   Certificate   relating  to
         Registrant's Initial Public Offering (1)

4.1      Form of Underwriters Unit Purchase Option (1)

4.2      Form of Common Stock Certificate (1)

4.4      Certificates of Determination  for the Registrant's  Series A Preferred
         Stock and Series B Preferred  Stock (filed  herewith as part of Exhibit
         3.1).

4.5      Form of Warrant issued with Series B Preferred Stock of Registrant. (*)

10.1     Employment  Agreement dated December 1, 1993 between the Registrant and
         Debby S. Bitticks and amendment dated December 15, 1995 (1)

10.2     Employment  Agreement  dated June 1, 1995  between the  Registrant  and
         Robert M. Wilson. (1)

10.3     [Intentionally Left Blank]

10.4     Amended 1993 Incentive Stock Option Plan (1)

10.5     Incentive  Stock  Option  Agreement  dated  June 1,  1995  between  the
         Registrant and Kenneth W. Bitticks (1)

10.6     Incentive  Stock  Option  Agreement  dated  June 1,  1995  between  the
         Registrant and Robert M. Wilson (1)

10.7     Agreement  dated June 24,  1994  between  the  Registrant  and Scott L.
         Shafer and Bernard L. Ginsberg (1)

10.8     Agreement  dated  June  15,  1995  between   Registrant  and  Brian  T.
         Fitzpatrick (1)

                                       36
<PAGE>
10.9     Asset Purchase Agreement dated December 27, 1993 between Registrant and
         D&D Child Development Corporation (1)

10.10    Asset Purchase Agreement dated December 27, 1993 between Registrant and
         Growth and Learning Center (1)

10.11    Asset Purchase Agreement dated December 27, 1993 between Registrant and
         Children's Village of Oxnard, Inc. (1)

10.12    Credit Agreement dated November 30, 1993 between Registrant and Kenneth
         W. Bitticks (1)

10.13    Amendment to Credit  Agreement dated April 25, 1994 between  Registrant
         and Kenneth W. Bitticks (1)

10.14    Subscription  Agreement dated November 30, 1993 between  Registrant and
         Debby S. Bitticks (1)

10.15    Subscription  Agreement dated November 30, 1993 between  Registrant and
         Kenneth W. Bitticks (1)

10.16    Subscription  Agreement dated November 30, 1993 between  Registrant and
         Brian T. Fitzpatrick (1)

10.17    Subscription  Agreement dated November 30, 1993 between  Registrant and
         Stefan Harlan (1)

10.18    Subscription  Agreement and Letter of Investment Intent dated April 29,
         1994 between  Registrant  and Kenneth W. Bitticks and Debby S. Bitticks
         (1)

10.19    Indemnity  Agreement dated June 15, 1995 between Registrant and Kenneth
         W. Bitticks and Debby S. Bitticks (1)

10.20    Security  Agreement  dated  November  30, 1993 between  Registrant  and
         Kenneth W. Bitticks (1)

10.21    Commercial  Lease dated November 13, 1993 between  Registrant and KASCO
         for 27400 West Canwood Street, Agoura, California (1)

10.22    Lease Agreement dated December 17, 1993 between Registrant and Teardrop
         Partners for 107 Teardrop  Court,  Thousand Oaks,  California  (Newbury
         Park) (1)

10.23    Lease  Agreement dated February 1, 1994 between  Children's  Village of
         Oxnard,  Inc.  and Martin V. Smith,  Trustee of the Martin V. Smith and
         Martha K. Smith 1990 Smith Trust and  Assignment  and Addendum to Lease
         dated March 1, 1994 between Registrant, Martin V. Smith, Trustee of the
         Martin V. Smith and Martha K. Smith Family Trust and Children's Village
         of Oxnard for 700 Esplanade Drive, Oxnard, California (1)

10.24    Build-to-Suit  Lease for a Child Care  Center,  Gold River,  California
         dated  April  1995  between  Registrant  and  Panattoni-Catlin  Venture
         (Sacramento) (1)


                                       37
<PAGE>
10.25    Office Lease dated March 13, 1995 between  Registrant and Warner Center
         Business  Properties  III, L.P. and First Amendment to Lease dated June
         19, 1995 between Registrant and Warner Center Business  Properties III,
         L.P. for 5855 DeSoto, Woodland Hills, California (1)

10.26    Build-to-Suit Sublease for a Child Care Center, West Haven, Connecticut
         dated  June  16,  1995  between  Registrant  and  Medical  Marketing  &
         Management (1)

10.27    Form of Director and Officer Indemnification (1)

10.28    Commercial  Lease dated May 31, 1996 between  Registrant  and KASCO for
         27400 West Canwood Street, Agoura, California (2)

10.29    Letter  Agreement,  dated June 9, 2000,  among Debby Bitticks,  Kenneth
         Bitticks and Registrant (*)

10.30    Lease  Agreement,  dated as of March  24,2000,  between Resun  Leasing,
         Incorporated  and  Registrant  relating  to  property  in  West  Haven,
         Connecticut. (*)

10.31    Letter   Agreement,   dated  April  20,  2000,  among  Justin  Gasarch,
         Registrant, Robert Becker and John Clarke. (*)

16       Letter of Deloitte & Touche LLP  concerning its ceasing to serve as the
         Registrant's independent auditor. (3)

27       Financial Data Schedules (*)
------------------------------------------------------------
(*) Filed herewith.

1.       Filed as an exhibit of the same  number to the  Company's  Registration
         Statement on Form SB-2 Registration Number 333-00400-LA)

2.       Filed as an exhibit of the same number to Registrants' Annual Report on
         Form 10-KSB for the fiscal year ended June 30, 1996.

3.       Filed as an exhibit of the same number to  Registrant's  Current Report
         on Form 8-K,  dated January 3, 2000,  and filed with the  Commission on
         October 13, 2000.

(b)      Reports on Form 8-K
         -------------------
The Company  did not file any reports on Form 8-K during the periods  covered by
this Form 10-KSB  report.  However,  on October 13,  2000,  the Company  filed a
Current  Report on Form 8-K,  dated  January  3,  2000,  reporting  under Item 4
(Changes in Registrant's Certifying Accountant) and Item 7 (Exhibits).





                                       38
<PAGE>
SIGNATURES

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

                                                  Children's Wonderland, Inc.
                                                  ---------------------------
                                                  (Registrant)

Dated:  August 13, 2001
                                                  By: /s/ John Clarke
                                                      -----------------------
                                                      John Clarke,
                                                      Chief Executive Officer
                                                      and Sole Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person(s) on behalf of the Registrant and
in the capacities and on the dates indicated.

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


/s/ John Clarke           Chief Executive Officer,            August 13, 2001
------------------        Chief Financial Officer and
John Clarke               Sole Director




























                                       39
<PAGE>

CHILDREN'S WONDERLAND, INC.

Contents

                                                                         Page

Financial Statements

   Independent auditors' report                                          F-1

   Balance sheets as of June 30, 2000, 1999, 1998 and 1997               F-2

   Statements of operations for the years ended June 30,
      2000, 1999, 1998, and 1997                                         F-4

   Statements of changes in capital deficit for the years
      ended June 30, 2000, 1999, 1998, and 1997                          F-6

   Statements of cash flows for the years ended June 30, 2000,
      1999, 1998, and 1997                                               F-9

   Notes to financial statements                                         F-12


































                                      F-i
<PAGE>




INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
Children's Wonderland, Inc.


We have audited the accompanying balance sheets of Children's  Wonderland,  Inc.
(the  "Company")  as of June 30,  2000,  1999,  1998 and 1997,  and the  related
statements of operations,  changes in capital deficit and cash flows for each of
the  years  in the  four-year  period  ended  June  30,  2000.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of Children's  Wonderland,  Inc. as of
June 30, 2000,  1999,  1998 and 1997,  and the results of its operations and its
cash flows for each of the years in the four-year  period ended June 30, 2000 in
conformity with accounting principles generally accepted in the United States of
America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue as a going  concern.  As  discussed  in Note A[2] to the
financial  statements,  the Company has experienced  net losses,  has a negative
working capital position, has a capital deficiency,  has failed to remit payroll
taxes withheld to the  authorities,  has failed to file corporate income tax(es)
returns,  has sold its sole remaining  childcare center and is not in compliance
with terms of its debt that  raises  substantial  doubt about the ability of the
Company to continue as a going  concern.  Management's  plans in regard to these
matters are also described in Note A[2]. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.


/s/ Richard A. Eisner & Co., LLP
--------------------------------

New York, New York
December 29, 2000

With respect to Notes P[3] and P[4]
March 12, 2001

                                      F-1
<PAGE>
CHILDREN'S WONDERLAND, INC.

Balance Sheets
<TABLE>
<S>                                            <C>             <C>             <C>             <C>
                                                                            June 30,
                                              -------------------------------------------------------------
                                                       2000            1999            1998            1997
                                              ---------------  --------------  -------------  -------------
ASSETS (Notes A[2], F and P) Current assets:
 Cash and cash equivalents                     $     16,000    $      6,000    $    206,000    $     72,000
 Cash held in escrow                                423,000
 Accounts receivable, net of allowance
  for doubtful accounts of $5,000, $13,000
   $15,000 and $55,000 as of June 30, 2000,
   1999, 1998 and 1997, respectively                 77,000          36,000          64,000         191,000
   Prepaid expenses                                  12,000           9,000          49,000         158,000
                                               ------------    ------------    ------------    ------------
        Total current assets                        528,000          51,000         319,000         421,000

Equipment and improvements, net                      90,000         128,000         169,000       3,446,000
Intangible assets, net                                                                4,000         643,000
Assets held for sale                                                                129,000         609,000
Deposits and other                                    4,000         107,000          50,000         704,000
                                               ------------    ------------    ------------    ------------
                                               $    622,000    $    286,000    $    671,000    $  5,823,000
                                               ============    ============    ============    ============
LIABILITIES AND CAPITAL DEFICIT
Current liabilities:
 Checks issued in excess of bank balances                                                      $    335,000
 Accounts payable                              $    453,000    $  1,257,000    $  1,242,000       1,488,000
 Accrued expenses and other liabilities           1,554,000       2,978,000       1,790,000         812,000
 Due to stockholders and directors                  350,000         978,000         868,000         479,000
 Notes payable (in default) (net of debt
   discount of $1,375,000 in 1997)                  949,000       3,312,000       3,252,000       1,711,000
 Current portion of capitalized lease                11,000          14,000          13,000         321,000
   obligation                                  ------------    ------------    ------------    ------------

              Total current liabilities           3,317,000       8,539,000       7,165,000       5,146,000

Capitalized lease obligations, less                   2,000          23,000          36,000       2,034,000
 current portion
Liabilities to be paid with common stock            439,000
                                               ------------    ------------    ------------    ------------

              Total liabilities                   3,758,000       8,562,000       7,201,000       7,180,000
                                               ------------    ------------    ------------    ------------
</TABLE>







                                       F-2

<PAGE>
CHILDREN'S WONDERLAND, INC.

Balance Sheets (continued)
<TABLE>
<S>                                            <C>             <C>             <C>             <C>
                                                                            June 30,
                                              -------------------------------------------------------------
                                                       2000            1999            1998            1997
                                              ---------------  --------------  -------------  -------------
Commitments and contingencies

Capital deficit:
 Preferred stock, no par value;
    5,000,000 shares authorized:
      Series A, convertible
        600,000 issued and outstanding,
        $300,000 liquidation value                  300,000
      Series B, convertible
        900,000 shares authorized;
        436,183 issued and outstanding;
        $4,361,830 liquidation value                314,000
 Common stock, no par value, 20,000,000
   shares authorized;
   shares issued and outstanding:10,012,185
    as of June 30, 2000 and 1999, 9,428,402
    and 3,985,037 as of June 30, 1998 and
    1997, respectively                           10,761,000      10,761,000      10,729,000       9,749,000
   Paid in capital                                8,858,000       6,759,000       6,744,000       6,458,000
   Debt discount in excess of notes payable                                                        (457,000)
   Accumulated deficit                          (23,369,000)    (25,796,000)    (24,003,000)    (17,107,000)
                                               ------------    ------------    ------------    ------------
              Total capital deficit              (3,136,000)     (8,276,000)     (6,530,000)     (1,357,000)
                                               ------------    ------------    ------------    ------------
                                               $    622,000    $    286,000    $    671,000    $  5,823,000
                                               ============    ============    ============    ============
</TABLE>















See notes to financial statements
                                     F-3
<PAGE>
CHILDREN'S WONDERLAND, INC.

Statements of Operations
<TABLE>
<S>                                            <C>             <C>             <C>             <C>
                                                                       Year Ended June 30,
                                               ------------------------------------------------------------
                                                       2000            1999            1998            1997
                                               ------------    ------------    ------------    ------------
Revenue (including $190,000 of
  managementfees in 1999)                      $    884,000    $  1,236,000    $  4,840,000    $  5,698,000
Grant revenue                                       375,000
                                               ------------    ------------    ------------    ------------
                                                  1,259,000       1,236,000       4,840,000       5,698,000
                                               ------------    ------------    ------------    ------------
Costs and operating expenses:
   Payroll and related                              923,000         812,000       4,437,000       5,101,000
   Facilities                                       220,000         360,000       1,086,000       1,125,000
   General and administrative                       710,000         773,000       1,891,000       5,589,000
   Food and other                                    49,000          17,000         116,000         172,000
   Depreciation and amortization                     44,000          53,000         843,000         669,000
                                               ------------    ------------    ------------    ------------
                                                  1,946,000       2,015,000       8,373,000      12,656,000
                                               ------------    ------------    ------------    ------------
Loss from operations before other                  (687,000)       (779,000)     (3,533,000)     (6,958,000)
   (income) expense                            ------------    ------------    ------------    ------------

Other (income) expense:
   Interest expense                                 828,000         837,000       2,753,000       2,829,000
   Interest and penalties on payroll taxes          149,000         158,000
   Loss on disposition of centers                                                   552,000
   Gain on settlement of litigation              (2,075,000)
   Other                                             22,000          19,000          58,000         219,000
                                               ------------    ------------    ------------    ------------
                                                 (1,076,000)      1,014,000       3,363,000       3,048,000
                                               ------------    ------------    ------------    ------------
Income (loss) before income taxes
  (benefits) and extraordinary item                 389,000      (1,793,000)     (6,896,000)    (10,006,000)
Income tax expense (benefit)
                                               ------------    ------------    ------------    ------------
Income (loss) before extraordinary item             389,000      (1,793,000)     (6,896,000)    (10,006,000)
</TABLE>














                                       F-4
<PAGE>
CHILDREN'S WONDERLAND, INC.

Statements of Operations (continued)
<TABLE>
<S>                                            <C>             <C>             <C>             <C>
                                                                       Year Ended June 30,
                                               ------------------------------------------------------------
                                                       2000            1999            1998            1997
                                               ------------    ------------    ------------    ------------
Extraordinary item:
   Gain on settlement of indebtedness
    (net of tax benefit of $-0-)                  2,038,000
                                               ------------    ------------    ------------    ------------
Net income (loss)                              $  2,427,000    $ (1,793,000)   $ (6,896,000)   $(10,006,000)
                                               ============    ============    ============    ============
Net income (loss) per share - basic:
   Before extraordinary item                   $       0.04    $      (0.18)   $      (1.62)   $      (2.53)
   Extraordinary item                                  0.20
                                               ------------    ------------    ------------    ------------
   Net income (loss) per share                 $       0.24    $      (0.18)   $      (1.62)   $      (2.53)
                                               ============    ============    ============    ============
Net income (loss) per share - diluted:
   Before extraordinary item                   $       0.00    $      (0.18)   $      (1.62)   $      (2.53)
   Extraordinary item                                  0.03
                                               ------------    ------------    ------------    ------------
   Net income (loss) per share                 $       0.03    $      (0.18)   $      (1.62)   $      (2.53)
                                               ============    ============    ============    ============

Weighted average common shares
   outstanding - basic                           10,012,185       9,961,863       4,251,285       3,957,024
                                               ============    ============    ============    ============
Weighted average common shares
   outstanding - diluted                         76,994,706       9,961,863       4,251,285       3,957,024
                                               ============    ============    ============    ============
</TABLE>


















See notes to financial statements
                                       F-5
<PAGE>
Statements of Changes in Capital Deficit
Years Ended June 30, 2000, 1999, 1998 and 1997
<TABLE>
<S>                                                <C>        <C>          <C>          <C>         <C>          <C>       <C>
                                                                                                Convertible Preferred Stock
                                                                                           ------------------------------------
                                                             Common Stock                  Series A              Series B
                                                   --------------------------------
                                                   Number of               Paid-In      Number of              Number of
                                                    Shares       Amount    Capital      Shares      Amount     Shares      Amount
                                                   ---------  -----------  -----------  ---------   ------     ---------   --------
Balance - June 30, 1996                            3,925,689  $ 9,638,000
Issuance of common stock
 for services                                          6,000       45,000
Exercise of warrants for cash                         53,348       66,000
Issuance of 687,500 warrants
 with debt offering                                                        $ 2,442,000
Discount in excess of face
 value of debt
Issuance of 365,000 warrants
 for services                                                                2,297,000
Issuance of 837,650 warrants with
 demand and short-term notes                                                 1,649,000
Issuance of 98,000 warrants with
 borrowing from officers/stockholders                                           70,000
Net loss
                                                   ---------  ----------- ------------
Balance - June 30, 1997                            3,985,037    9,749,000    6,458,000
Sale of common stock                               4,849,987      600,000
Shares issued to settle obligations to
 trade creditors                                     536,902      357,000
Shares issued for services                            56,476       23,000
Issuance of 308,200 warrants for services                                      121,000
Issuance of 186,000 warrants with demand notes                                  67,000
Issuance of 459,666 warrants with borrowings
 from officers/stockholders                                                     98,000
Amortization of discount in excess of face
 amount of indebtedness
Net loss
                                                   ---------  ----------- ------------
Balance - June 30, 1998                            9,428,402   10,729,000    6,744,000
Shares issued to creditor upon exercise of
 warrants in settlement of interest payable          500,000       25,000
Shares issued in financing                            75,450        7,000
Issuance of shares upon exercise of options            8,333
Issuance of 75,450 warrants with financing                                      15,000
Net loss
                                                  ----------  ----------- ------------
Balance - June 30, 1999                           10,012,185   10,761,000    6,759,000
</TABLE>




See notes to financial statements

                                       F-6
<PAGE>
Statements of Changes in Capital Deficit
Years Ended June 30, 2000, 1999, 1998 and 1997 (continued)
<TABLE>
<S>                                                <C>        <C>          <C>          <C>         <C>          <C>       <C>
                                                                                                Convertible Preferred Stock
                                                                                           ------------------------------------
                                                             Common Stock                  Series A              Series B
                                                   --------------------------------
                                                   Number of               Paid-In      Number of              Number of
                                                    Shares       Amount    Capital      Shares      Amount     Shares      Amount
                                                   ---------  -----------  -----------  ---------   ------     ---------   --------

Class A convertible preferred shares issued in
   private placement                                                                    600,000     $300,000
Class B convertible preferred shares issued in
 settlement of indebtedness                                                                                      281,183   $699,000
Value of beneficial conversion feature in Class B
   convertible preferred stock                                                 770,000                                     (770,000)
Issuance of 155,000 Class B convertible
 preferred shares in settlement of indebtedness
 owed to officers/stockholders                                               1,316,000                           155,000    385,000
Issuance of 436,183 warrants in settlement of
   indebtedness (Re:  Series B)                                                 13,000
Net income
                                                  ----------  ----------- ------------  -------     --------     -------   --------
Balance - June 30, 2000                           10,012,185  $10,761,000 $  8,858,000  600,000     $300,000     436,183   $314,000
                                                  ==========  =========== ============  =======     ========     =======   ========
</TABLE>



























                                       F-7
<PAGE>
Statements of Changes in Capital Deficit
Years Ended June 30, 2000, 1999, 1998 and 1997 (continued)
<TABLE>
<S>                                                                          <C>             <C>             <C>
                                                                                              Discount in
                                                                                              Excess of
                                                                              (Accumulated    Face Value
                                                                              Deficit)           of Debt           Total
                                                                             -------------   -------------   --------------
Balance - June 30, 1996                                                      $ (7,101,000)                   $  2,537,000
Issuance of common stock for services                                                                              45,000
Exercise of warrants for cash                                                                                      66,000
Issuance of 687,500 warrants with debt offering                                                                 2,442,000
Discount in excess of face value of debt                                                     $   (457,000)       (457,000)
Issuance of 365,000 warrants for services                                                                       2,297,000
Issuance of 837,650 warrants with demand and
   short-term notes                                                                                             1,649,000
Issuance of 98,000 warrants with borrowing from officers/
   stockholders                                                                                                    70,000
Net loss                                                                      (10,006,000)                    (10,006,000)
                                                                             ------------    ------------    ------------
Balance - June 30, 1997                                                       (17,107,000)       (457,000)     (1,357,000)
Sale of common stock                                                                                              600,000
Shares issued to settle obligations to trade creditors                                                            357,000
Shares issued for services                                                                                         23,000
Issuance of 308,200 warrants for services                                                                         121,000
Issuance of 186,000 warrants with demand notes                                                                     67,000
Issuance of 459,666 warrants with borrowings from
   officers/stockholders                                                                                           98,000
Amortization of discount in excess of face amount of
   indebtedness                                                                                   457,000         457,000
Net loss                                                                       (6,896,000)                     (6,896,000)
                                                                             ------------    ------------    ------------
Balance - June 30, 1998                                                       (24,003,000)              0      (6,530,000)
Shares issued to creditor upon exercise of warrants in
   settlement of interest payable                                                                                  25,000
Shares issued in financing                                                                                          7,000
Issuance of shares upon exercise of options
Issuance of 75,450 warrants with financing                                                                         15,000
Net loss                                                                       (1,793,000)                     (1,793,000)
                                                                             ------------    ------------    ------------
Balance - June 30, 1999                                                       (25,796,000)              0      (8,276,000)
Class A convertible preferred shares issued in
   private placement                                                                                              300,000
Class B convertible preferred shares issued in settlement
   of indebtedness                                                                                                699,000
Value of beneficial conversion feature in Class B
   convertible preferred stock                                                                                          0
Issuance of 155,000 Class B convertible preferred shares
   in settlement of indebtedness owed to
   officers/stockholders                                                                                        1,701,000
Issuance of 436,183 warrants in settlement of
   indebtedness (Re:  Series B)                                                                                    13,000
Net income                                                                      2,427,000                       2,427,000
                                                                             ------------    ------------    ------------
Balance - June 30, 2000                                                      $(23,369,000)   $          0    $ (3,136,000)
                                                                             ============    ============    ============
</TABLE>
See notes to financial statements
                                      F-8
<PAGE>
Statements of Cash Flows
<TABLE>
<S>                                                    <C>             <C>             <C>             <C>
                                                                                     Year Ended June 30,
                                                       ------------------------------------------------------------
                                                            2000            1999            1998            1997
                                                       ------------    -------------   ------------    ------------
Cash flows from operating activities:
 Net income (loss)                                     $  2,427,000    $ (1,793,000)   $ (6,896,000)   $(10,006,000)
 Adjustments to reconcile net income (loss)
  to net cash used in operating activities:
     Extraordinary gain on settlement of
           indebtedness                                  (2,038,000)
     Cancellation of notes payable and accrued
           interest in litigation settlement             (1,266,000)
     Depreciation and amortization                           44,000          53,000         843,000         669,000
     Issuance of warrants for services and in
           connection with indebtedness                      13,000          15,000         309,000       4,626,000
     Issuance of Series B convertible preferred
           stock for finance fees                           124,000
        Interest and finance fees to be paid in
           common stock                                     147,000
        Issuance of common stock for services                                                                45,000
        Rent financed with notes payable                                     18,000          14,000
        Issuance of common stock in connection
           with bridge loans                                                  7,000
        Amortization of debt discount in
           connection with bridge loans                                      15,000
        Amortization of warrants issued as debt
           discount                                                                       1,832,000
        Loss on asset dispositions and capital
           lease termination                                  1,000                         552,000
        Changes in:
         Cash held in escrow                               (423,000)
         Accounts receivable, net                           (41,000)         28,000         127,000        (126,000)
         Prepaid expenses and other current assets           (3,000)         40,000         109,000         (53,000)
         Accounts payable and accrued expenses              772,000       1,228,000       1,188,000       1,291,000
         Other                                               25,000         (57,000)        500,000
                                                       ------------    ------------    ------------    ------------
          Net cash used in operating activities            (218,000)       (446,000)     (1,422,000)     (3,554,000)
                                                       ------------    ------------    ------------    ------------

Cash flows from investing activities:
   Proceeds from sale of assets                                                           1,250,000
   Fee for capital lease termination                                                       (275,000)
   Purchases of intangible assets                                                           (19,000)       (111,000)
   Purchases of equipment and improvements                  (16,000)         (8,000)        (36,000)     (1,543,000)
   Increase in deposits and other assets                                                                   (310,000)
                                                       ------------    ------------    ------------    ------------
              Net cash (used in) provided by
                investing activities                        (16,000)         (8,000)        920,000      (1,964,000)
                                                       ------------    ------------    ------------    ------------
</TABLE>


                                      F-9
<PAGE>
Statements of Cash Flows (continued)
<TABLE>
<S>                                                    <C>             <C>             <C>             <C>
                                                                                     Year Ended June 30,
                                                       ------------------------------------------------------------
                                                            2000            1999            1998            1997
                                                       ------------    -------------   ------------    ------------
Cash from financing activities:
   Checks issued in excess of bank balances                                                (335,000)        335,000
   Borrowings from stockholders                                             110,000         389,000          96,000
   Proceeds from notes payable                                              156,000         420,000       2,546,000
   Financing expense                                                                                       (330,000)
   Payments of notes payable                                (41,000)                       (268,000)       (161,000)
   Principal payments on capital leases                     (15,000)        (12,000)       (170,000)       (172,000)
   Issuance of Series A convertible
       preferred stock                                      300,000
   Issuance of common stock                                                                 600,000          66,000
                                                       ------------    ------------    ------------    ------------
          Net cash provided by financing activities         244,000         254,000         636,000       2,380,000
                                                       ------------    ------------    ------------    ------------
Net increase (decrease) in cash and cash equivalents         10,000        (200,000)        134,000      (3,138,000)
Cash and cash equivalents - beginning of year                 6,000         206,000          72,000       3,210,000
                                                       ------------    ------------    ------------    ------------
Cash and cash equivalents - end of year                $     16,000    $      6,000    $    206,000    $     72,000
                                                       ============    ============    ============    ============
</TABLE>

















                                     F-10
<PAGE>
Statements of Cash Flows (continued)
<TABLE>
<S>                                              <C>         <C>        <C>         <C>
                                                                Year Ended June 30,
                                                 --------------------------------------------
                                                    2000        1999       1998        1997
                                                 ---------   ---------  ---------   ---------
Supplemental disclosures:
   Cash paid for interest                        $  62,000   $ 117,000  $ 416,000   $ 482,000
   Non-cash financing activities:
      In March 1997,  the Company  issued
       536,902 shares of common stock at fair
       market value of $357,000 in exchange
       for accounts payable.
      In July 1998, the Company issued 500,000
        shares of common stock pursuant to
        exercise of  warrants at $.05 per share
        in settlement of $25,000 of accrued interest.
   Capitalized leases                                                   $  23,000   $ 161,000
   In June 2000, the Company exchanged accounts
      payable and accrued expenses (including
      interest of $696,000) aggregating $1,582,000,
      notes and loans payable (including bank loan
      of  $103,000) aggregating $1,171,000 for
      231,183  shares  of  Series  B  convertible
      preferred stock and warrants valued at $583,000.
   In June 2000, the Company exchanged liabilities
      owed to an officer stockholder and her spouse/
      stockholder/ex-director in the total amount of
      $1,902,000 for 155,000 shares of Series B
      convertible  preferred stock and warrants
      valued at $385,000. In June 2000, the Company
      also agreed with these stockholders to issue
      common stock concurrent with exchange of debt
      as an additional consideration valued at
      $201,000 which is shown as reduction of
      additional paid-in capital.
   In June 2000, the Company agreed to issue common
      stock for certain of its loan balance and
      interest payable aggregating $91,000.
   In September 1999, assets held for sale was
      exchanged for notes payable in the amount of
      $129,000.
   During the year ended June 30, 1998, capitalized
      lease obligations, and notes payable in the
      aggregate amount of $2,333,000 and related
      assets were exchanged in connection with
      sale/termination of such transactions.
   During the year ended June 30, 1997, the Company
      issued 687,500  warrants in connection with
      the debt valued at $2,442,000 and amortized
      $610,000 leaving an unamortized balance of
      $1,832,000  which is shown as reduction of
      face amount of notes payable of $1,375,000
      and $457,000 as discount in excess of face
      value of debt in Capital Deficit.
</TABLE>
See notes to financial statements
                                      F-11
<PAGE>
CHILDREN'S WONDERLAND, INC.

Notes to Financial Statements
June 30, 2000, 1999, 1998 and 1997

Note A - Business Description and Summary of Significant Accounting Policies

[1]    Description of business:

       Children's Wonderland,  Inc. (the "Company" or "CWI") was incorporated in
       September  1993 to own and operate full service  family care centers (the
       "Centers") which provide developmentally appropriate educational programs
       and  activities  for  infants  and  toddlers  (ages 6 weeks to 2  years),
       preschoolers (ages 3 to 4), and kindergartners (ages 4 to 5). The Company
       has also provided  before and/or after school care for elementary  school
       aged  children,  flex-care,  and care  for the  mildly-ill  and  provided
       activities for the elderly (ages 60+).

       In  the  past  the  Company   has  owned  and   operated   full   service
       intergenerational family care centers. During fiscal 1998, eleven centers
       operating in  California  and  Colorado  were sold and in fiscal 1999 the
       remaining two centers in California were closed.

       As of June 30, 2000 there was one operating center located in West Haven,
       Connecticut. In August 1999, the Company applied for and received a grant
       from the State of Connecticut for its School Readiness and Child Day Care
       Grant Program. The Company operated the program in its West Haven Center,
       serving 77 children.  In May 2001, the Company sold its sole center (Note
       Q).

[2]    Basis of presentation:

       The  accompanying  financial  statements have been prepared  assuming the
       Company will continue as a going concern which assumes the realization of
       assets  and the  satisfaction  of  liabilities  in the  normal  course of
       business.  The Company had  experienced  substantial  negative  operating
       trends during the four years ended June 30, 2000. As at June 30, 2000 the
       Company  had a  working  capital  deficit  of  $2,789,000  and a  capital
       deficiency  of  $3,136,000.  The  Company's  financial  difficulties  are
       occasioned by not being in compliance with terms of various notes payable
       and other  obligations.  The Company sold its sole operating center (Note
       Q).  The Company's chief executive  officer  resigned  as of December 31,
       2000.  The  Company  has  failed  to file  and  meet  various  regulatory
       requirements of the Security Exchange Commission.  The Company has failed
       to file its corporate income tax returns since the fiscal year ended June
       30, 1996 and has failed to pay income taxes or minimum taxes due for such
       periods.  Such failure to file  corporate  tax returns at the state level
       may result in withdrawals  of the charter  issued by states.  The Company
       has failed to comply with reporting  requirements  under Internal Revenue
       Code such as issuance of Form 1099s,  for which the Company may be liable
       for penalties as well as income taxes payable by the reportable entities.
       Although  some trade and notes payable  amounts have been settled,  other
       creditors  have  not  agreed  to  such  settlements,   restructurings  or
       forbearance.  Further,  there  are  liens  on  the  Company's  assets  in
       connection with significant  delinquent payroll tax obligations for which
       the  Company  has not  been  able to  enter  into  arrangements  with the
       applicable taxing authorities and these assets have been sold since then.

                                      F-12
<PAGE>
NOTE A - BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

[2]    Basis of presentation:  (continued)

       The Company will not generate  sufficient  cash flows from its  remaining
       operating  center to service its debt and there can be no assurance  that
       it will meet its  obligations  or reach  settlement  with its  creditors,
       obtain additional financing for future operations,  on favorable terms or
       at all.  In the event of a failure to do so, the Company may be forced to
       file for bankruptcy protection.

       These factors  raise  substantial  doubt about the  Company's  ability to
       continue as a going concern.  The financial statements do not include any
       adjustment  relating to the  recoverability or classification of recorded
       asset amounts or the amount and  classification of liabilities that might
       be necessary as a result of this uncertainty.

       The  Company has changed  its  strategic  direction  away from owning and
       operating  Centers,  and put  its  efforts  into  developing  a suite  of
       products and services that enhance the  profitability  of early  learning
       centers  throughout  the world.  In addition,  the Company will focus its
       efforts on  developing  software  and  commerce  programs  to enhance the
       profitability of schools, athletic programs and non-profit organizations.
       In the  future,  the  Company  will seek  potential  acquisitions  and or
       licensing  agreements  to  enable  the  Company  to enter  the  franchise
       business of early education  centers in both the United States as well as
       abroad. The Company will need cash to develop and test potential products
       and services,  to acquire early learning  centers and to develop software
       and other  programs.  There is no assurance that the Company will be able
       to pursue any or all of the new objectives,  strategies and acquire early
       learning centers.

[3]    Revenue recognition and concentration of credit risk:

       The Company recognizes revenue upon the daily delivery of family day care
       services.  Prepaid  tuition is deferred and recognized on a straight-line
       basis over the term of the period in which the service is to be provided.
       Revenues are derived from clients whose  residence or place of employment
       is in close proximity of the respective  center. The Company has recorded
       an  allowance  for  doubtful  accounts  to cover the  difference  between
       recorded  revenues and the  anticipated  collections.  The  allowance and
       provision  for  bad  debts  are  adjusted  periodically  based  upon  the
       Company's  evaluation  of  historical  collection  experience  and  other
       relevant factors. The Company's grant revenue representing  approximately
       30% of its total  revenue  in the year  ended  June 30,  2000 is from the
       Connecticut  School  Readiness and Day Care Grants.  The Company does not
       require collateral in connection with its accounts receivable.

       Accounts  receivable of $48,000,  representing 59% of accounts receivable
       at June 30, 2000 is from the state of Connecticut.



                                      F-13
<PAGE>
NOTE A - BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

[4]    Use of estimates:

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

[5]    Cash and cash equivalents:

       Cash equivalents include short-term  investments with original maturities
       of three months or less.

[6]    Financial instruments:

       The fair  value of  accounts  receivable  approximates  book  value.  The
       determination  of the  fair  value of  accounts  payable,  amount  due to
       stockholders/directors,  and other notes payable is not practicable since
       the  amounts  are past due,  delinquent  and  settlement  is subject to a
       substantial amount of negotiation.

[7]    Equipment and improvements:

       Equipment and improvements are recorded at cost. Depreciation is computed
       over the  estimated  useful lives of the assets  using the  straight-line
       method.  Leasehold  improvements are amortized over their useful lives or
       the respective lease terms, whichever are less.

[8]    Intangible assets:

       Intangible  assets  represent cost in excess of the fair value of the net
       assets in centers purchased. Such cost includes direct incremental amount
       incurred in connection  with the finding and  acquisition of new centers.
       Costs  incurred to effect the Company's debt  financing  activities  have
       been deferred.  The cost in excess of net assets acquired and acquisition
       costs are amortized  over a 15 year life on a  straight-line  basis.  The
       costs  related  to  financing  activities  are  amortized  using a method
       approximating the effective interest method, over the term of the related
       indebtedness.

[9]    Impairment of long-lived assets:

       The Company  assesses the carrying  amount of all long-lived  assets on a
       periodic  basis to determine if  adjustment  to the useful life or to the
       unamortized  balance  is  warranted.  Such  evaluation  is  based  on the
       expected   utilization  of  the  long-lived   assets  and  the  projected
       undiscounted  future cash flows of the operations in which the long-lived
       assets are used.

                                      F-14
<PAGE>
NOTE A - BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

[10]   Earnings (loss) per share:

       Basic earnings (loss) per share has been computed based upon the weighted
       average common stock outstanding during the period.  Diluted earnings per
       share gives effect to all dilutive  potential  common shares  outstanding
       during the period. For the year ended June 30, 2000, the weighted average
       number of diluted  common shares  outstanding  of  76,994,706  includes a
       weighted average of 62,659,333  common shares issuable upon conversion of
       Series A  Convertible  Preferred  Stock (Note J) and  4,323,188  weighted
       average shares from other dilutive securities consisting of a convertible
       note, stock options,  warrants,  Series B Convertible Preferred Stock and
       contingently  issuable  shares (Note K[1] and [2]).  The  computation  of
       diluted  earnings per share does not assume the conversion or exercise of
       securities that would have an  anti-dilutive  effect on earnings  (loss).
       Such securities  consist of 5,568,814 warrants and 20,000 options at June
       30, 2000.

[11]   Employee stock options:

       The  Company  has  elected,   as  permitted  by  Statement  of  Financial
       Accounting   Standards  No.  123  ("SFAS  No.  123"),   "Accounting   for
       Stock-Based Compensation", to account for its employee stock compensation
       arrangements under the provisions of Accounting  Principles Board ("APB")
       Opinion No. 25 "Accounting  for Stock Issued to Employees"  (the "APB No.
       25"). Accordingly,  if the exercise price of the Company's employee stock
       options  equals or exceeds  market price of the  underlying  stock on the
       date of  grant,  no  compensation  expense  (i.e.,  intrinsic  value)  is
       recognized  and the pro forma effects on net income (loss) as if the fair
       value of the options been expense is disclosed.

[12]   Income taxes:

       The Company  accounts for income taxes  utilizing the asset and liability
       approach requiring the recognition of deferred tax assets and liabilities
       for the expected future tax consequences of temporary differences between
       the bases of assets and liabilities for financial  reporting purposes and
       tax purposes and operating loss carryforwards.

[13]   Recent accounting pronouncements:

       In  December  1999,  the   Securities   and  Exchange   Commission   (the
       "Commission")   issued  Staff   Accounting   Bulletin  No.  101,  Revenue
       Recognition  in Financial  Statements,  which is to be applied  beginning
       with the fourth fiscal quarter of fiscal years  beginning  after December
       15, 1999, to provide guidance related to revenue recognition. The Company
       has  reviewed the  application  of the Staff  Accounting  Bulletin to the
       Company's financial statements, however, any potential accounting changes
       are not expected to result in a material change in the amount of revenues
       we ultimately expect to realize.



                                      F-15
<PAGE>
NOTE A - BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

[13]   Recent accounting pronouncements:  (continued)

       In March 2000,  the Financial  Accounting  Standards  Board (FASB) issued
       FASB Interpretation No. 44 (Interpretation  44),  "Accounting for Certain
       Transactions  Involving Stock  Compensation".  Interpretation 44 provides
       criteria  for  the  recognition  of   compensation   expense  in  certain
       stock-based  compensation  arrangements  that are accounted for under APB
       No.  25.  Interpretation  44 is  effective  July 1,  2000,  with  certain
       provisions  that are  effective  retroactively  to December  15, 1998 and
       January 12, 2000.  Interpretation 44 is not expected to have an impact on
       the Company's financial statements. The accompanying financial statements
       reflect the adoption of the  Interpretation  44 from its effective  dates
       wherever applicable.

       In June 1998,  the FASB issued SFAS No. 133,  "Accounting  for Derivative
       Instruments and Hedging  Activities" SFAS No. 133, as amended by SFAS No.
       137, is effective for fiscal years  beginning  after June 15, 2000.  SFAS
       No. 133  requires  the Company to  recognize  all  derivatives  as either
       assets or liabilities  and measure these  instruments  at fair value.  It
       further provides criteria for derivative  instruments to be designated at
       fair  value,  cash  flow and  foreign  currency  hedges  and  establishes
       respective  accounting  standards for reporting changes in the fair value
       of the  derivative  instruments.  Upon  adoption,  the  Company  will  be
       required to adjust hedging instruments to fair value in the balance sheet
       and  recognize  the  offsetting  gains or  losses  as  adjustments  to be
       reported in net income or other comprehensive income, as appropriate. The
       Company is evaluating its expected adoption date and currently expects to
       comply with the requirements of SFAS 133 in fiscal year 2001. The Company
       does not expect the adoption will be material to the Company's  financial
       position or results of operations  since the Company had not participated
       in such activities.

       In September  2000,  FASB issued SFAS 140,  "Accounting for Transfers and
       Servicing of Financial Assets and  Extinguishments of Liabilities".  SFAS
       140 replaces  SFAS 125,  "Accounting  for  Transfers  and  Servicing  and
       Extinguishments of Liabilities".  It revises the standards for accounting
       for   securitizations   and  other  transfers  of  financial  assets  and
       collateral and requires certain disclosures,  but it carries over most of
       SFAS 125's provisions. SFAS 140 is effective at varying dates ranging for
       fiscal years ending after  December 15, 2000 and events  occurring  after
       March 31, 2001. The adoption of SFAS 140 will not have material impact on
       the accompanying financial statements.









                                      F-16
<PAGE>
NOTE B - EQUIPMENT AND IMPROVEMENTS

Equipment and improvements consist of the following:
<TABLE>
<S>                               <C>            <C>        <C>       <C>       <C>
                                                                  June 30,
                                  Useful         -----------------------------------------
                                  Lives            2000        1999      1998       1997
                                  ------------   ---------  --------  --------  ----------
Furniture and fixtures            3 to 5 years   $ 115,000  $114,000  $187,000  $  782,000
Office equipment                  5 years           25,000    10,000   131,000     217,000
Vehicles                          5 years                                           49,000
Leasehold improvements            7 to 10 years     47,000    47,000   123,000     828,000
Assets held under capital lease   5 to 22 years     45,000    67,000    67,000   2,509,000
Construction in progress                                                           328,000
                                                 ---------  --------  --------  ----------
                                                   232,000   238,000   508,000   4,713,000
Less accumulated depreciation                      142,000   110,000   215,000     928,000
                                                 ---------  --------  --------  ----------
                                                    90,000   128,000   293,000   3,785,000
Less assets held for sale, net (Note D)                               (124,000)   (339,000)
                                                 ---------  --------  --------  ----------
                                                 $  90,000  $128,000  $169,000  $3,446,000
                                                 =========  ========  ========  ==========
</TABLE>
Depreciation expense was $44,000,  $49,000,  $435,000 and $467,000 for the years
ended June 30, 2000, 1999, 1998 and 1997 respectively.

Accumulated  depreciation  of assets  held  under  capital  lease  was  $35,000,
$35,000,  $22,000  and  $449,000  as of June 30,  2000,  1999,  1998  and  1997,
respectively.


NOTE C - INTANGIBLE ASSETS

Intangible assets consist of the following:

                                                       June 30,
                                       2000        1999       1998        1997
Cost in excess of fair value of net
 assets acquired                                                      $ 530,000
Capitalized start-up costs                                              150,000
Capitalized financing costs          $ 349,000  $ 349,000  $ 364,000    360,000
Capitalized acquisition costs                                 14,000    118,000
                                     ---------  ---------  ---------  ---------
                                       349,000    349,000    378,000  1,158,000
Less accumulated amortization          349,000    349,000    369,000    286,000
                                     ---------  ---------  ---------  ---------
                                             0          0      9,000    872,000
Less assets held for disposition             0          0     (5,000)  (229,000)
                                     ---------  ---------  ---------  ---------
                                     $       0  $       0  $   4,000  $ 643,000
                                     =========  =========  =========  =========
Amortization  expense was $0, $4,000,  $408,000 and $202,000 for the years ended
June 30, 2000, 1999, 1998 and 1997, respectively.


                                      F-17
<PAGE>
NOTE D - ASSETS HELD FOR SALE

At the end of June 30, 1998 and 1997,  the following  assets were  classified in
the accompanying balance sheet as assets held for sale:

                                                           June 30,
                                                     1998            1997

Equipment and improvements, net
 of accumulated depreciation                   $    124,000   $    339,000
Intangibles, net of accumulated
 amortization and other noncurrent assets             5,000        270,000
                                               ------------   ------------
                                               $    129,000   $    609,000
                                               ============   ============

Assets held for sale at June 30,  1997 were sold in July 1997 for cash  proceeds
of $675,000 and $190,000 of liabilities, including a capital lease obligation of
$98,000,  were canceled or assumed by the buyer,  the Company realized a gain of
$256,000  on the  transaction.  During the year ended June 30,  1998 the Company
also disposed of $2,963,000 of other assets,  consisting primarily of $2,888,000
of equipment and assets under capital lease, by either sale or  abandonment.  In
connection  with  these  transactions,   $2,143,000  of  liabilities  consisting
primarily of  capitalized  lease  obligations  of  $2,061,000  were  canceled or
assumed by the buyer.  The Company  received  net cash  proceeds of $225,000 and
recognized a loss of $595,000 on these transactions. Also, during the year ended
June  30,  1998,  the  Company  recognized  a loss  of  $213,000  pertaining  to
intangible   assets   disposed  of  in  September  1999.  As  a  result  of  the
transactions,  the Company recognized a loss of $552,000,  classified as loss on
dispositions  of centers,  in the year ended June 30,  1998.  In December  2000,
sales of three of the  centers  were  rescinded  and the rights to  acquire  the
centers were assigned to a third party (see Note P[1]).

The assets held for  disposition  as of June 30, 1998 were given to a noteholder
in exchange for the  cancellation  of notes payable in the amount of $129,000 in
September 1999.

NOTE E- ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following:

                                                         June 30,
                                   --------------------------------------------
                                        2000       1999       1998       1997
                                   ---------- ---------- ----------   ---------
Accrued salaries and wages         $   23,000 $  182,000 $  266,000   $ 199,000
Accrued consulting services
 (former officer and stockholder)                420,000    240,000      60,000
Past due withholding taxes
 including interests and penalties    915,000    780,000    700,000      85,000
Accrued interest                      248,000  1,142,000    469,000     129,000
Professional fees                     307,000    350,000
Other                                  61,000    104,000    115,000     339,000
                                   ----------  ---------   ---------- ---------
                                   $1,554,000 $2,978,000   $1,790,000 $ 812,000
                                   ========== ==========   ========== =========

                                      F-18
<PAGE>
NOTE F - NOTES PAYABLE

Notes payable consist of the following. All notes payable outstanding as of June
30, 2000 are in default.
<TABLE>
<S>                                             <C>            <C>           <C>           <C>       <C>
                                                                            June 30,
                                                --------------------------------------------------------
                                                       2000           1999          1998        1997
                                                -----------    -----------   -----------   ------------
Convertible notes, past due May 1997,
   bearing interest at 12%, convertible
   into common stock at $2.50 per share
   (1994 Private Placement) (a)                                $   210,000   $   210,000   $   210,000
Short term and demand notes, past due
   March through June 1997, bearing
   interest ranging between 8% and 12% (b)      $   418,000      1,005,000     1,005,000     1,005,000
Convertible demand note, bearing interest
   at 12%, convertible into common stock
   at $.05 per share (c)                                            66,000        66,000        66,000
Promissory notes payable, due to earlier of
   the closing of a public offering of common
   stock or March 24, 1998 bearing interest
   at 10% (1997 Private Placement) (d)              350,000      1,375,000     1,375,000     1,375,000
Less discount related to warrants issued
   in connection with promissory notes (e)                                                  (1,375,000)
Short term and demand notes, past due,
   bearing interest ranging between 8% and
   12% (f)                                           79,000        300,000       300,000
Promissory notes due on demand, bearing
   interest at 10%(g)                                20,000         20,000
Bridge loans, past due, bearing interest
   at 10% (h)                                                      151,000
Note payable, past due, bearing interest at
   8%. (i)                                           82,000         82,000        64,000
Notes payable, due in monthly installments
   of $2,827, through January 2002, bearing
   interest at 8% (j)                                                            129,000      152,000
Notes payable, due in monthly installments
   through August 2002 of $2,525, bearing
   interest at 8% (k)                                                                         128,000
Other Notes payable with interest ranging
   from 7% to 14.9% ( l )                                                                      95,000
Bank Loans Payable (m)                                             103,000       103,000       55,000
                                                -----------    -----------   -----------   ----------
                                                $   949,000    $ 3,312,000   $ 3,252,000   $1,711,000
                                                ===========    ===========   ===========   ==========
</TABLE>
(a)  Includes  $110,000  payable  to  officers/stockholders  and  $100,000  to a
     stockholder/former  director.  All of the notes were exchanged for Series B
     Convertible Stock and warrants in June 2000 (Note K).

(b)  Short term and  demand  notes  payable  issued  with  837,650  warrants  to
     purchase  common  stock at  exercise  prices  ranging  from  $.05 to $8.00,
     expiring in October 1998 through May 2003,  which  warrants  were valued at

                                      F-19
<PAGE>
NOTE F - NOTES PAYABLE  (CONTINUED)

     $1,649,000  using  the  Black-Scholes  option-pricing  model  based  on the
     following  assumptions:  risk free  interest  rates  ranging  from 5.91% to
     6.76%, volatility ranging from .355 to 2.631, dividend yield of 0, expected
     term ranging from 2 years to 6.6 years.

     Maturities  of the notes  ranged  from demand  through  six  months.  Notes
     totalling  $581,000  were  exchanged  for  Series B  Convertible  Stock and
     warrants in June 2000,  and $6,000 of  principal  payments  were made.  The
     balance  at June 30,  2000,  consist  primarily  of one  note for  $400,000
     bearing  interest at 10% that the holder has  conditionally  exchanged  for
     Series B convertible preferred stock and warrants to purchase common stock.
     As the conditions  have not yet been  fulfilled,  the principal  balance is
     still  outstanding as of June 30, 2000 (Note K[2]). The $18,000  obligation
     is payable at $3,000 per month, and is interest free.

(c)  In June 2000 the noteholder  instructed the Company to convert the note and
     accrued  interest thereon into common stock in accordance with the terms of
     the note. The Company has not yet issued the common stock and the principal
     balance and $25,000 of accrued  interest is included in  liabilities  to be
     paid with common stock.

(d)  Notes issued in a private  placement in March 1997 with 687,500  redeemable
     common  stock  warrants  with an exercise  price of $5.00,  expiring in May
     2001,  which  warrants  were valued at $2,442,000  using the  Black-Scholes
     option-pricing  model using the  following  assumptions:  risk free rate of
     6.54% volatility of .384,  dividend yield of 0, expected term of 4.1 years.
     In the third  quarter of fiscal year ended June 30,  2000,  notes  totaling
     $975,000  and  206,250  warrants to purchase  common  stock were  cancelled
     pursuant to the lawsuit  settlement with the Company's former  underwriters
     and  certain of their  principals.  Two other  notes,  $25,000  each,  were
     exchanged for Series B convertible preferred stock in June 2000 (Note K).

(e)  Represents  value of  warrants  net of $457,000  classified  as discount in
     excess of face value of debt in the statement of stockholders'  deficit, as
     noted in (d) above.

(f)  Short term and  demand  notes  payable  issued  with  186,000  warrants  to
     purchase  common  stock  at  exercise  prices  ranging  from  $.05 to $.75,
     expiring in October 1998 through May 2003,  which  warrants  were valued at
     $67,000 using the Black-Scholes option-pricing model based on the following
     assumptions:  risk  free  interest  rates  ranging  from  4.54%  to  6.16%,
     volatility ranging from 2.632 to 3.113,  dividend yield of 0, expected term
     ranging for 2 to 5.8. Notes totalling  $221,000 were exchanged for Series B
     convertible stock and warrants in June 2000 (Note K).

(g)  These demand notes payable remains outstanding as of June 30, 2000.

(h)  Bridge  financing  issued  with  75,450  shares of common  stock and 75,450
     warrants to purchase common stock with an exercise price of $.25,  expiring
     September through November 2000 which warrants were valued at $15,000 using
     the Black-Scholes  option-pricing model based on the following assumptions:
     risk free rates of 6.33%, volatility of 3.00, dividend yield of 0, expected
     term of 2 years.  This loan balance was  exchanged for Series B convertible
     stock and warrants in June 2000 (Note K).

                                      F-20
<PAGE>
NOTE F - NOTES PAYABLE  (CONTINUED)

(i)  As part of the  abandonment  of a  facility,  a $50,000  Note was issued in
     April  1998 to the  landlord.  (Note D). The  principal  was  increased  by
     $14,000   and   $18,000  in  the  years  ended  June  30,  1998  and  1999,
     respectively,  in  exchange  for  rent  for the  period  May  1998  through
     September  1999,  when  the  Company  vacated  the  premises.  The Note and
     additional debt owed to the landlord was settled  subsequent to the balance
     sheet date (June 30, 2000) (Note P[2]).

(j)  This note,  was secured by a facility  held for  disposal at June 30, 1998,
     the secured assets were turned over to the lender in full  satisfaction  of
     the note in 1999.

(k)  This note was secured by a facility,  held for sale at June 30,  1997.  The
     assets were sold in the first  quarter of 1998 and $106,000 of the proceeds
     were accepted by the Noteholder as full settlement of the $128,000 balance.

(l)  These  notes  were  settled from the proceeds of sale of assets in the year
     ended June 30, 1998.

(m)  The bank loans were settled in the third quarter of the year ended June 30,
     2000 with $35,000 cash payments and exchange of Series B convertible  stock
     and warrants.

NOTE G - CAPITALIZED LEASE OBLIGATION

The Company has entered into several  agreements to lease  equipment,  buildings
and leasehold improvements (Note B). The lease terms vary from 5 to 10 years and
imputed interest ranges between 9.25% and 10%.

The  following  is a schedule  by years of future  minimum  lease  payments  for
capital leases together with the present value of the net minimum lease payments
as of:
<TABLE>
<S>                                           <C>          <C>          <C>          <C>
                                                                     June 30,
                                              --------------------------------------------------
                                                    2000         1999         1998         1997
   Year Ended                                 ----------   ----------   ----------   ----------
      June 30,
    ----------
      1998                                                                           $  436,000
      1999                                                              $   18,000      383,000
      2000                                                 $   18,000       18,000      383,000
      2001                                    $   13,000       18,000       18,000      383,000
      2002                                         2,000        6,000        5,000      348,000
   Thereafter                                                                         2,396,000
                                              ----------   ----------   ----------   ----------
Total minimum lease payments                      15,000       42,000       59,000    4,329,000
Less amount representing interest                  2,000        5,000       10,000    1,974,000
                                              ----------   ----------   ----------   ----------
Present value of net minimum lease payments       13,000       37,000       49,000    2,355,000
Less current portion                              11,000       14,000       13,000      321,000
                                              ----------   ----------   ----------   ----------
Long-term portion                             $    2,000   $   23,000   $   36,000   $2,034,000
                                              ==========   ==========   ==========   ==========
</TABLE>
                                      F-21
<PAGE>
NOTE G - CAPITALIZED LEASE OBLIGATION (CONTINUED)

In July 1997 and April 1998, capital lease obligations of $98,000 and $1,020,000
respectively,  were  assumed  by the buyers in  connection  with the sale of the
related facilities by the Company (Note D).

In April 1998 a capital lease  obligation of $1,041,000  was  terminated and the
assets leased were returned to the lessor (Note D).

Amortization  of assets held under  capital  leases is included in  depreciation
expense.


NOTE H - INCOME TAXES

At June 30,  2000,  1999,  1998 and 1997  the  principal  components  of the net
deferred tax assets are as follows:
<TABLE>
<S>                                          <C>            <C>            <C>            <C>
                                                                        June 30,
                                             --------------------------------------------------------
                                                    2000           1999           1998           1997
                                             -----------    -----------    -----------    -----------
Current deferred tax assets (liabilities):
  Net operating loss carryforwards           $ 4,935,000    $ 5,772,000    $ 5,150,000    $ 3,938,000
  Intrinsic value of warrants -
    consulting services                          796,000        796,000        796,000        776,000
  Intrinsic value of warrants - debt
    discount                                     894,000        894,000        894,000        442,000
  Salary to officer/stockholder                                  63,000         63,000
  Consulting fees to officer/stockholder                        168,000         96,000         24,000
  Liability exchanged for stock issued/
    issuable                                     166,000        258,000        228,000
  Vacation accrual                                 6,000          8,000         42,000         34,000
  Deferred revenue                                               (1,000)       (37,000)       (46,000)
  Accounts receivable                              2,000          5,000          6,000         22,000
  Accrued interest (includes payable
    to controlling stockholders)                 100,000        458,000        188,000         52,000
                                             -----------    -----------    -----------    -----------
       Total current deferred tax assets
         (liabilities)                         6,899,000      8,421,000      7,426,000      5,242,000
                                             -----------    -----------    -----------    -----------
Loss on assets held for sale                                                   259,000
Deferred rent                                      9,000         24,000         15,000         56,000
                                             -----------    -----------    -----------    -----------
       Total noncurrent deferred tax
         assets (liabilities) (net)                9,000         24,000        274,000         56,000
                                             -----------    -----------    -----------    -----------
       Total deferred tax assets
         (liabilities) (net)                   6,908,000      8,445,000      7,700,000      5,298,000
Less valuation allowance                       6,908,000      8,445,000      7,700,000      5,298,000
                                             -----------    -----------    -----------    -----------
Net deferred tax assets                      $         0    $         0    $         0    $         0
                                             ===========    ===========    ===========    ===========
</TABLE>
A  reconciliation  of income tax  (benefit)  expense to amounts  computed  using
effective statutory rates is as follows:
                                      F-22
<PAGE>
NOTE H - INCOME TAXES (CONTINUED)
<TABLE>
<S>                                  <C>            <C>            <C>            <C>
                                                                   June 30,
                                     ----------------------------------------------------------
                                            2000            1999            1998           1997
                                     -----------    ------------   -------------  -------------
Income tax (benefit) expense at
  statutory rates                    $   971,000    $  (717,000)   $ (2,758,000)  $ (3,791,000)
Gain on settlement of debt with
  controlling stockholders               526,000
Nondeductible expenses:
  Amortization of discount on debt
    in excess of intrinsic value                          5,000         356,000        479,000
  Amortization of consulting fees
    in excess of intrinsic value                                         28,000        143,000
Penalties on withholding taxes            36,000         38,000
Net operating loss utilization        (1,533,000)
                                     -----------    -----------     -----------   ------------
                                               0       (674,000)     (2,374,000)    (3,169,000)
Valuation allowance                            0        674,000       2,374,000      3,169,000
                                     -----------    -----------     -----------    -----------
                                     $         0    $         0     $         0    $         0
                                     ===========    ===========     ===========    ===========
</TABLE>
The Company reported an extraordinary gain of $3,354,000  (including  $1,316,000
gain relating to controlling stockholders in the fiscal year ended June 30, 2000
(Note K)). The  extraordinary  gain is excludable  from federal  taxable  income
because the Company is insolvent;  however,  the  Company's  net operating  loss
carryover is reduced by the amount of the extraordinary gain so excluded.  Thus,
as of June 30,  2000,  the Company  had, for federal  income tax  purposes,  net
operating loss carryforwards of approximately $12,000,000 expiring in years 2011
through 2020.

Section 382 of the Internal  Revenue Code contains  provisions  which limits the
loss  carryforwards  available  if  significant  changes  occur  in  stockholder
ownership interest.  Management believes that such limitations apply as a result
of changes in stockholder  ownership  interests  which have occurred in the past
and  anticipated  changes  in the  future.  Accordingly,  the  Company  would be
significantly  limited in the  utilization  of its net  operating  losses in any
year.


NOTE I - STOCK OPTIONS AND WARRANTS

The Company has a 1993 Stock Option Plan (the "Plan")  authorizing  the issuance
of up to 210,000  nonqualified  options to purchase  common stock at an exercise
price of no less  than 85% of the  market  price  (110% in the case of an option
granted to an optionee  owning more than 10% of the voting stock of the Company)
(a "10% stockholder").  Under the Plan, the options vesting is determined by the
Board of  Directors.  All options  expire five years after date of grant or upon
termination of employment.


                                      F-23
<PAGE>
NOTE I - STOCK OPTIONS AND WARRANTS (CONTINUED)

In addition the Company has a 1996 Stock  Option Plan "the 1996 Plan".  The 1996
Plan, as amended,  provides for the granting of both incentive and  nonqualified
options to purchase common stock of the Company.

The term of  incentive  options  granted  under the 1996 Plan may not exceed ten
years (five years for a 10%  Stockholder).  The option price for incentive stock
options  can not be less than  100% of the fair  market  value of the  shares of
common  stock at the time the  option is granted  (110% for a 10%  Stockholder).
Option terms are set by the Compensation Committee in its discretion. The option
price for nonqualified options may not be less than 85% of the fair market value
of the  common  stock.  The total  number of shares in the 1996 Plan is  400,000
shares.

The following  table  summarizes  stock option activity for the years ended June
30:
                                          2000      1999      1998         1997
                                       -------- --------- ----------- ---------
Outstanding at beginning of the year   410,000   424,733   535,700      195,700
Weighted average exercise price        $   .06   $   .09   $  5.41      $  1.43
Outstanding at end of the year         410,000   410,000   424,733(1)   535,700
Weighted average exercise price        $   .06   $   .06   $   .09      $  5.41
Exercisable at end of the year         410,000   361,075   283,175      283,200
Grants during the year                                     220,000      380,000
Range of exercise prices                                 $.05 to $.31   $  7.00
Exercised during the year                          8,333
Expirations during the year                        6,400   330,967       40,000
Average remaining contractual life     34 months 22 months 34 months   50 months

(1)      In December 1997, the exercise price of 285,000 options with a weighted
         average exercise price of $5.32 was reduced to $.05.

In  addition  to the  Plan,  35,000  options  to  purchase  units at $4.00  unit
outstanding  at July 1,  1996,  expired  in May  1997.  Each unit  under  option
consisted  of .88  shares of the  Company's  common  stock,  plus a  warrant  to
purchase .44 additional shares of common stock for $2.00.

If compensation  expense for the Company's  stock-based  compensation  plans had
been determined  based on their fair value,  the Company's net income (loss) and
net income  (loss) per share  including  pro forma  results  would have been the
amounts indicated below:
                                       Year Ended June 30,
                    --------------------------------------------------------
                         2000          1999           1998           1997
                    -----------   ------------   ------------   ------------
Net income (loss):
  As reported       $ 2,427,000   $(1,793,000)   $(6,896,000)   $(10,006,000)
  Pro forma         $ 2,367,000   $(1,853,000)   $(7,056,000)   $(10,244,000)

Net income (loss) per share:
  As reported:
    Basic             $ 0.24        $(0.18)         $(1.62)        $(2.53)
    Diluted           $  .03        $(0.18)         $(1.62)$       $(2.53)
  Pro forma:
    Basic             $ 0.24        $(0.19)         $(1.66)$       $(2.59)
    Diluted           $  .03        $(0.19)         $(1.66)$       $(2.59)

                                      F-24
<PAGE>
NOTE I - STOCK OPTIONS AND WARRANTS  (CONTINUED)

The pro forma  effect on net income  (loss) for the years 2000,  1999,  1998 and
1997 may not be  representative  of the pro forma effect on net income (loss) of
future years due to,  among other  things:  (i) the vesting  period of the stock
options and the (ii) fair value of additional stock options in future years.

For the  purpose  of the above  table,  the fair value of each  option  grant is
estimated as of the date of grant using the Black-Scholes  option-pricing  model
with the following weighted average assumptions:

                                               1998       1997
                                              -------    -------
       Dividend yield                           0%         0%
       Expected volatility                    2.777       .396
       Risk-free interest rate                 5.99       6.33
       Expected life in years                  3.0         3.0

The weighted  average fair value at date of grant for options granted during the
years  1998  and 1997  were  $.08  and  $2.38,  respectively,  using  the  above
assumptions.

The following summarizes the outstanding warrants:
<TABLE>
<S>                                            <C>           <C>         <C>         <C>         <C>
                                                                                June 30,
                                                Expiration -----------------------------------------------
                                                   Date         2000        1999        1998        1997
Warrants issued with initial public offering    ---------- -----------  ----------  ----------  ----------
   ("IPO") at $5.00 per share                     4/30/01    2,012,500   2,012,500   2,012,500   2,012,500
Warrants issued with conversion of pre-IPO
   securities at $5.00 per share                  4/30/01    1,000,000   1,000,000   1,000,000   1,000,000
Warrants in connection with pre IPO stock at
   $4.00 per share (a)                             5/98              0           0           0      39,624
Warrants in connection with pre IPO stock at
   $4.00 per share (a)(b)(i)                       5/05         67,800      67,800      67,800      67,800
Warrants in connection with pre IPO
   indebtedness at $.62 - $.70 per share       7/00 - 7/02       5,500       5,500       5,500       5,500
Warrants in connection with pre IPO stock at
   $2.00 per share                                 2/98              0           0           0      25,315
Warrants in connection with pre IPO stock at
   $2.00 per share                             2/98 - 7/00     134,279     134,279     134,279     156,292
Warrants in connection with pre IPO stock at
   $2.00 per share (c)                             5/03        100,732     100,732     100,732     100,732
Warrants issued in connection with short-term
   and demand notes at $.05 (h)                   8/1/2001      22,000      22,000      22,000      22,000
Warrants issued in connection with borrowings
   from officers/directors at $.05 - $.06
   (b)(f)(i)                                      5/1/2005     219,946     219,946     219,946
Warrants issued in connection with short-term
   and demand notes at $.12(h)                   9/99 - 9/00    13,000      43,000      43,000
Warrants issued in connection with borrowings
   from officers/directors at $.18 (f)               5/15       77,000      77,000      77,000

</TABLE>
(carried forward)
                                      F-25
<PAGE>
NOTE I - STOCK OPTIONS AND WARRANTS  (CONTINUED)
<TABLE>
<S>                                                  <C>          <C>        <C>       <C>        <C>
                                                                                June 30,
                                                      Expiration -------------------------------------------
                                                        Date          2000      1999        1998     1997
Warrants issued in connection with short-term
   and demand notes at $.25 - $.31 (h)               11/99 - 5/03    290,000   307,250   307,250    307,250
Warrants issued in connection with short-term
   and demand notes at $.25 - $.31 (h)               10/00 - 11/00    60,000    60,000    60,000
Warrants issued in connection with short-term
   and demand notes at $.25 (h)                       9/00 - 11/00    75,450    75,450
Warrants issued in connection with short-term
   and demand notes at $.25 - $.31 (h)                    5/01                           500,000    500,000
Warrants issued in connection with borrowings
   from officers/directors at $.25 - $.31 (f)(g)          5/05        35,720    35,720    35,720
Warrants issued in connection with short-term
   and demand notes at $.37 - $.44 (h)                    6/02        15,000    15,000    15,000
Warrants issued in connection with borrowings
   from officers/directors at $.37 - $.44 (f)(h)          5/05        17,000    17,000    17,000
Warrants issued in connection with short-term
   demand notes at $.50 - $.50 (h)                    7/02 - 5/03     53,000    53,000    53,000
Warrants issued in connection with borrowings from
   officers/directors at $.50 - $.56 (d)(e)               5/05        56,000    56,000    56,000     56,000
Warrants issued in connection with borrowings from
   officers/directors at $.50 - $.56 (f)                  5/05        61,000    61,000    61,000
Warrants issued in connection with short-term and
demand notes at $.62 - $.75(h)                            7/02        15,000    15,000    15,000
Warrants issued in connection with borrowings from
   officers/directors at $.62 - $.75 (d)(e)               5/05        42,000    42,000    42,000     42,000
Warrants issued in connection with borrowings from
   officers/directors at $.62 - $.75 (f)                  5/05        49,000    49,000    49,000
Warrants issued in connection with short-term and
demand notes at $8.00 (h)                                10/98                             8,400      8,400
Warrants issued with private placement of debt at        5/6/01      481,250   687,500   687,500    687,500
   $5 (h)
Warrants issued in exchange for goods and services
   of $.05                                            9/99 - 5/03     50,000    85,000    85,000     50,000
Warrants issued in connection with pre IPO
   borrowings $.28                                        9/00        75,000    75,000    75,000     75,000
Warrants issued in exchange for goods and services
   at $.25 - $.31                                     6/02 - 5/05    236,000   240,000   240,000    240,000
Warrants issued in exchange for goods and services
   at $.25 - $.31                                     9/99 - 5/05    273,200   273,200   273,200
Warrants issued in connection with Series B
   preferred shares at $.11 (g)                         3/31/02      436,183
                                                                  ---------- --------- ---------  ---------
                                                                   5,973,560 5,829,877 6,262,827  5,395,913
                                                                  ========== ========= =========  =========
</TABLE>
In July 2000,  the Company  entered  into a one year  employment  contract at an
annual  compensation of $48,000 plus 50,000 options to purchase shares of common
stock at $1.00  assuming a 20:1 future reverse stock split to a newly named Vice
President of curriculum development.  In October 2000, the Company granted .125%
of the outstanding shares of the Company on a fully diluted basis to an employee
and agreed to grant additional options up to 5% (inclusive of the initial grant)
of the  outstanding  shares of common  stock of the  Company on a fully  diluted
basis, based on time devoted by the employee.
                                      F-26
<PAGE>
NOTE I - STOCK OPTIONS AND WARRANTS  (CONTINUED)

(a)   In June 1997,  the terms of these  warrants  were  modified;  the exercise
      price was  reduced to $.50 and the  expiration  date was  extended  to May
      1998.

(b)   In May 1998,  the terms of these  warrants were  modified;  the expiration
      date was extended to May 2003.

(c)   In May 1998, the terms of these warrants were modified; the exercise price
      was reduced to $.25 and the expiration date was extended to May 2003.

(d)   In December  1997,  the exercise  price was reduced to $.05. The resulting
      additional interest expense was not material.

(e)   98,000 warrants valued at $70,000 using the Black Scholes Method using the
      following  assumptions:  risk free rate of 6.46%,  volatility ranging from
      2.784 to 2.802, dividend yield of 0 and expected life in years of 5.

(f)   459,666  warrants  valued at $98,000 using the Black Scholes  Method using
      the  following  assumptions:  risk free rate  ranging from 5.53% to 6.29%,
      volatility ranging from 1.787 to 2.796,  dividend yield of 0, and expected
      life in years ranging from 2.8 to 7.6.

(g)   See Note J for information regarding valuation of warrants.

(h)   See Note F for information regarding valuation of warrants.

(i)   In May 2000,  the life of all options and warrants  (aggregating  967,666)
      held by employees  officers and  directors  were  extended 24 months and a
      cashless  exercise  option  was  authorized.  The  resulting  compensation
      expense required under interpretation 44 was not material.


NOTE J - CONVERTIBLE PREFERRED STOCK

 In February 2000, the Company  authorized the issuance 600,000 shares of Series
A  convertible  preferred  stock (the "Series A") and in June 2000,  the Company
authorized issuance 900,000 shares of Series B convertible  preferred stock (the
"Series B").

 In February 2000, the Company issued 600,000 shares of Series A for $300,000 to
two  investors,  who are currently  officers and directors of the Company.  Each
share has a stated  value of $.50,  and may be  converted  at the  option of the
holder,  into the number of shares of common  stock equal to the number of fully
diluted  outstanding  shares of common  stock as of February 24, 2000 divided by
 .10 and then dividing the quotion obtained by 600,000 (total number of shares of
common stock issuable upon  conversion  180,083,190).  On matters  requiring the
consent of the holders of the Company's common stock,  each share of Series A is
entitled to the number of votes equal to the number of shares of common stock in
which it is convertible  into. The Series A is senior as to liquidation,  and if
dividends  are declared on common  stock,  is entitled to the same  dividends as
would have been made with  respect  to the number of shares of common  stock the
holder would have received had it converted all of its Series A shares.


                                      F-27
<PAGE>
NOTE J - CONVERTIBLE PREFERRED STOCK  (CONTINUED)

 On June 30,  2000,  the  Company  issued  386,183  shares  of  Series B in full
settlement of $4,564,000 of Company debt and 50,000 shares at Series B to a note
holder,  whose release of the debt is subject to certain conditions.  The shares
have been recorded at their  estimated  fair value of $2.48 per share and a gain
has been  recognized for the difference  between the recorded amount of the debt
and the fair value of the shares  issued  (Note K). Each share of Series B has a
stated value of $10,  and  automatically  converts  into the number of shares of
common stock equal to $10 divided by 85% of the average of the per share closing
bid and asked prices (or last sale price) of the Company's  common stock for the
last five trading days preceding the date of conversion (the "Conversion Date").
The  Conversion  Date is the later of January  1,  2001,  or the date on which a
sufficient  number of shares of common stock is  authorized  under the Company's
Restated  Articles of  Incorporation to permit the conversion into common stock,
all of the Company's then  outstanding  convertible  securities.  Management has
reflected the issuance of the Series B within the capital deficit section of the
balance  sheet as of June 30, 2000,  since the approval of the  shareholders  is
considered  perfunctory as the Board of directors  represents  sufficient voting
interests of the common stock to assure the increase in the authorized number of
shares to allow the conversion.  On matters requiring the consent of the holders
of the Company's common stock,  each share of Series B is entitled the number of
votes equal to the number of shares of common stock upon conversion.  The Series
B is junior to Series A and  senior to common  stock as to  liquidation,  and if
dividends  are declared on common  stock,  is entitled to the same  dividends as
would have been made with  respect  to the number of shares of common  stock the
holder would have received had it converted all of its Series B shares.

 The beneficial  conversion  feature of the Series B was accounted for using the
intrinsic  value method set forth in FASB  Emerging  Issues Task Force Issue No.
98-5.  Accordingly,  a beneficial conversion feature of $770,000 was recorded on
the Series B, to be amortized in a manner similar to a preferred  stock dividend
through the conversion  period, or January 1, 2001. Since the shares were issued
on June 30, 2000, no preferred dividends were recorded for the year then ended.

 In  connection  with the Series B, each  shareholder  was issued one warrant to
purchase  common  stock  for each  Series B issued,  exercisable  at 120% of the
average of the  closing bid and asked  prices for the common  stock for the five
days in which trading has occurred immediately  preceding the later of (1) April
30, 2000 and (2) the earlier of (i) the 20th  business day following the date on
which a reverse split of the common stock becomes effective, and (ii) January 1,
2001.

 The Series B warrants were valued using the Black-Scholes, option-pricing model
with the following assumptions:  no dividend yield, expected volatility of 3.00,
risk free interest  rate of 6.5% and an expected  term of 3 years,  the value of
warrants of $13,000 is included in the consideration given to the creditors (See
Note K).


NOTE K - EXTRAORDINARY GAIN ON SETTLEMENT OF DEBT

 During  the fiscal  year  ended  June 30,  2000,  the  Company  negotiated  the
settlement of amounts due to various  trade  creditors,  officer and  directors,
bank note  holders and other note holders at amounts  lower than their  recorded

                                      F-28
<PAGE>
NOTE K - EXTRAORDINARY GAIN ON SETTLEMENT OF DEBT  (CONTINUED)

amounts.  The various creditors  received cash,  Series B convertible  preferred
stock with warrants to purchase common stock (Note J), or a combination thereof.
The cash used for the payment was primarily  the net proceeds of the  litigation
with the Company's  underwriters  (Note N). The Series B  convertible  preferred
stock was valued at an  estimated  fair  market  value of $2.48 per  share.  The
valuation  was  primarily  based  on the  sale of  600,000  shares  of  Series A
convertible  preferred stock in February 2000 for a total cash  consideration of
$300,000 and its assumed  conversion to the Company's common stock as stipulated
in the  Certificate of  Designation,  and adjusted for the gain on settlement on
debt. The table summarizes the types of debt forgiven,  the consideration given,
and the gain calculated.
<TABLE>
<S>                      <C>         <C>        <C>       <C>        <C>       <C>        <C>         <C>
                                                      Series B
                                                     Convertible
                            Recorded                  Preferred
                           Amount or           -------------------                           Total
                              Face    Cash     Number of            Number of  Value of      Value     Gain on
          Type                Value   Paid       Shares      Value   Warrants  Warrants      Paid     Settlement
------------------------ ----------  --------  ---------  --------  ---------  ---------  ----------  ----------
Accounts payable         $  553,000  $ 16,000    53,120   $132,000    53,120   $   2,000  $  150,000  $  403,000
Accrued rent                299,000              33,000     82,000    33,000       1,000      83,000     216,000
Bank notes payable          103,000    35,000     4,000     10,000     4,000                  45,000      58,000
Note holders, including
   accrued interest
   of $696,000            1,799,000             141,063    351,000   141,063       5,000     356,000   1,443,000
                         ----------  --------   -------   --------   -------   ---------   ---------  ----------
Total                    $2,754,000  $ 51,000   231,183   $575,000   231,183   $   8,000   $ 634,000   2,120,000
                         ==========  ========   =======   ========   =======   =========   =========
Less legal costs
   incurred                                                                                               82,000
                                                                                                      ----------

                                                                                                      $2,038,000
                                                                                                      ==========
</TABLE>
(1)    The table does not  include the  issuance  of 155,000  shares of Series B
       convertible    preferred    stock   and    155,000    warrants    to   an
       officer/stockholder  and her spouse who is also a  stockholder  and was a
       director of the Company in settlement  of $1,902,000 of debt,  consisting
       of notes payable of $110,000, loans payable of $652,000, accrued interest
       of $403,000,  accrued salary of $227,000 and  consulting  fees payable of
       $510,000.  Concurrent  with the  agreement  to exchange  their debt,  the
       officer entered into an agreement whereby the Company agreed to issue the
       officer  common stock equal to 5% of the Company's  fully diluted  common
       stock,  excluding  the  dilutive  effect  of  the  Series  B  convertible
       preferred  stock. The liability for the common shares valued at $201,000,
       is included  in  liabilities  to be paid with common  stock (Note O). The
       $1,517,000 representing the difference between the face value of the debt
       and the estimated fair value of the Series B convertible  preferred stock
       received  ($385,000) less the $201,000 estimated fair value of the common
       stock to be received has been recorded as a capital contribution.


                                      F-29
<PAGE>
NOTE K - EXTRAORDINARY GAIN ON SETTLEMENT OF DEBT  (CONTINUED)
(2)    The table does not include a note holder with a principal due of $400,000
       and accrued  interest of $86,000 who received  50,000  shares of Series B
       convertible  preferred stock valued at $124,000 which has been charged to
       interest and finance  expense.  No gain has been  recognized  as the note
       holder's release of the debt is subject to certain conditions,  including
       among others, the conversion of the Series B convertible  preferred stock
       into common stock and the issuance of additional  common shares  pursuant
       to a consulting agreement signed concurrently with the transaction. As no
       substantive  services  are  required  pursuant  to  the  agreement,   the
       estimated value of $147,000 for the additional  common shares issuable to
       the  noteholder  were also charged to interest and finance  expense.  The
       liability  for the common  shares is included in  liabilities  to be paid
       with common stock (Note O).

In  addition,  the Company  agreed to pay certain  amounts as  specified  in the
agreement,  upon  liquidation  preferences  of both  the  Series  A  convertible
preferred stock and the Series B convertible  preferred stock, not to exceed the
amount of indebtedness converted into Series B convertible preferred stock


NOTE L - COMMITMENTS AND CONTINGENCIES

 The Company is obligated under an operating lease for one remaining facility in
West Haven,  Connecticut.  Future minimum annual payments under the lease are as
follows:

             Year Ended
              June 30

             2001                                               $     125,000
             2002                                                     161,000
             2003                                                     173,000
             2004                                                     180,000
             2005                                                     180,000
             Thereafter                                               285,000
                                                                -------------
                                                                $   1,104,000

Rent  expense approximated $236,000,  $800,000,  $400,000 and $1,100,000 for the
years ended June 30, 2000, 1999, 1998 and 1997, respectively.


NOTE M - RELATED PARTY TRANSACTIONS

 The debt  settlement  referred to in Note K[1]  settled all but $350,000 of the
debt owed to the officer/stockholder and her spouse. Such amount represents debt
incurred  on behalf of the Company  during the period 1997 to 2000.  The Company
has agreed to use certain proceeds for repayment of the debt,  specifically 100%
of the  proceeds  received  by the  Company  from  the sale of  certain  centers
reacquired  as  discussed  in Note P, and 10% of the  proceeds  received  by the
Company from any equity or debt financing transaction.




                                      F-30
<PAGE>
NOTE N - SETTLEMENT OF LITIGATION

 In May 1997, the Company filed a lawsuit against its  underwriters  and certain
of their  principals  in a district  court  alleging  breach of fiduciary  duty,
fraud,  and other  claims.  In the third  quarter of fiscal  year ended June 30,
2000, the matter was settled,  and the Company received $1,575,000 in cash and a
release from notes payable to the  underwriters and the principals in the amount
of $1,266,000,  including $291,000 of accrued interest. In addition,  all of the
warrants issued with the notes were  cancelled.  The $2,841,000 less $856,000 of
legal and other litigation costs is included as gain on litigation.


 In July 1997, the Company filed a lawsuit against a lessor/builder  of veterans
care centers and its principals in Superior Court in Los Angeles alleging breach
of contract, fraud and other claims. In June 2000, the Court awarded the Company
damages of $80,000  and  attorney  fees in the amount of  $167,000.  The Company
assigned the entire  judgment,  valued at $100,000 for the  settlement  of legal
fees and a cash payment of $125,000 subsequent to June 30, 2000. This assignment
of the  judgement  resulted  in a gain of $90,000 in fiscal  year ended June 30,
2000, for the previously recorded legal fees.


NOTE O - LIABILITIES TO BE PAID WITH COMMON STOCK

 In April 2000,  the Company  entered  into a consulting  agreement  with a note
holder that  requires the Company to issue the note holder,  the greater of 3.8%
of the Company's  common stock  outstanding as defined in the  agreement,  after
taking  account  the effect of all Series A  convertible  preferred  stock,  but
excluding  the effect of any other  convertible  securities,  or 250,000  shares
after giving effect to a  contemplated  reverse  split of the  Company's  common
stock. The agreement was entered into  concurrently  with  negotiations with the
note  holder on the  exchange  of the Note and  accrued  interest  for  Series B
convertible preferred stock (Note K). An estimated fair market value of $147,000
has been recorded as liabilities to be paid with common stock  representing  the
7,223,652 shares (3.8%) of the Company's outstanding stock as defined above.

 On June 9, 2000,  concurrent  with the agreement to exchange debt with Series B
convertible  preferred  stock the  Company  entered  into an  agreement  with an
officer and note holder, who is also a shareholder, that requires the Company to
issue the officer the number of shares equal to 5% of the Company's common stock
on a fully diluted basis,  excluding the effect of any Series B conversions.  An
estimated  fair market value of $201,000 has been recorded as  liabilities to be
paid with common stock  representing  the 9,904,310 shares (5%) of the Company's
outstanding stock as defined above.

 The Company,  pursuant to the agreement, will not issue these shares until they
have amended their Restated  Articles of Incorporation to authorize a sufficient
number of shares of common  stock to permit the  conversion  of all  outstanding
convertible  securities  including the shares  stipulated in the agreement.  The
Company does not have sufficient  authorized  shares to permit the conversion of
all  outstanding  shares and has not yet  amended  their  Restated  Articles  of
Incorporation.

 On June 26, 2000, a noteholder with a principal  balance of $66,000 and accrued
interest  of  $25,000,  convertible  into  common  shares at a price of $.05 per
share,  requested  the  Company to  convert  the note into  common  stock of the
Company.  The Company has not yet issued the 1,822,980  shares and the liability
of $91,000 has been classified as liabilities to be paid with common stock.
                                      F-31
<PAGE>
NOTE P - SUBSEQUENT EVENTS

(1)    On July 21, 2000, Children's Wonderland, Inc. met with a mediator and the
       buyer  of  centers  from the  Company  with  respect  to its  filing  for
       rescission  of the sale of its  Warner  Center,  Oxnard  and  Gold  River
       facilities  (the  "Centers").   This  matter  has  been  mediated  and  a
       stipulation of settlement has been reached, whereby the Company agreed to
       repurchase  the  Centers for  $490,000.  In  December  2000,  the Company
       entered into a recession  and  assignment  agreement  whereby the Company
       assigned  its  rights  to  purchase  the  Center to Tutor  Time  Learning
       Systems,  Inc. (the Buyer).  Funds  necessary for the closing,  including
       $67,000 deposited by the Company, have been placed in escrow. The closing
       has not been completed as certain conditions,  including various landlord
       consents to amendments and assignments  have not been received.  Prior to
       the recession  and  assignment  agreement  discussed  above,  the Company
       assigned  the  purchase  rights to a third  party (the  "Assignee"),  but
       subsequently  cancelled the assignment,  incurring a cancellation  fee of
       $150,000.  The fee, reduced by any interest payable on the note described
       below, is payable April 12, 2001.  Concurrently  with the cancellation of
       the assignment  agreement,  the Assignee agreed to lend the Company up to
       $250,000 under the terms of a Secured  Promissory Note (the "Note").  The
       Company received  advances on the Note for the full amount of $250,000 in
       October 2000.  The Note has an interest rate of 10%, was due on April 15,
       2001,  and is secured by the assets and  property of the company  located
       in, and with respect to, the  Company's  child care center in West Haven,
       CT. (See Note Q)

(2)    In July 2000,  the Company  issued 1,050  shares of Series B  convertible
       preferred stock, 1,050 warrants and paid $98,700 in cash in settlement of
       debt in the amount of $132,000,  consisting  of an $82,000 note  payable,
       accrued interest of $12,000 and $38,000 of other payables  resulting in a
       gain of $30,000.

(3)    During  the  period  from  December  2000  through  March 12,  2001,  two
       principal  stockholders  and  officers of the Company  have  advanced the
       Company  $186,000  bearing  interest at 6% and payable 24 months from the
       loan date.

(4)    In January 2001, the Company issued 550,000 shares of common stock with a
       market value of $6,000 to employees for services rendered.

 NOTE Q - SUBSEQUENT EVENTS (UNAUDITED)

Under an Asset Purchase  Agreement  dated May 2, 2001, the Company sold its sole
child care center  located in West  Haven,  CT for a net  proceeds of  $455,000.
Under the  agreement,  the Company  assigned the lease of its center through the
unexpired portion of the lease period.  In addition,  subject to meeting certain
revenue  criteria,  the Company  receive a warrant for 10,000  shares of Buyer's
common stock  exercisable  at $5.00 per share.  The warrant  cannot be exercised
until subsequent to the first  anniversary from the date of issuance and expires
in 5 years  from the date of  issuance.  The sale of the  center  results  in an
approximate  gain of  $434,000  which will be reported in the fiscal year ending
June 30, 2001. A portion of the  proceeds  were used to repay the $250,000  note
discussed  in P[1].  The  Assignee  agreed to extend  the  maturity  date of the
$150,000 cancellation fee to May 2002.

Out of the proceeds, the Company paid $49,000 to the officer/stockholder and her
spouse,  against $350,000 of the debt owed as discussed in Note M and $60,000 to
two principal stockholders and officers of the Company under Note P[3] above.
                                      F-32
<PAGE>
                           CHILDREN'S WONDERLAND, INC.
                           INDEX OF EXHIBITS ATTACHED


EXHIBIT NUMBER             DESCRIPTION OF EXHIBIT


2.1       Asset Purchase Agreement, dated as of August 1, 1997, between the
          Registrant and Imagination Plus Child Development Center, Inc.
          relating to the sale of two centers in California and six centers in
          Colorado.

2.2       Asset Purchase Agreement, dated as of April 24, 1998, by and among the
          Registrant, Aloha Pacific, Inc., Kenneth Bitticks and Debby Bitticks
          relating to three centers in California.

3.1       Restated Articles of Incorporation and Amendments thereto, including
          Certificates of Determination, of the Registrant.

4.5       Form of Warrant issued with Series B Preferred Stock of Registrant.

10.29     Letter Agreement, dated June 9, 2000, among Debby Bitticks, Kenneth
          Bitticks and Registrant.

10.30     Lease Agreement, dated as of March 24,2000, between Resun Leasing,
          Incorporated and Registrant relating to property in West Haven,
          Connecticut.

10.31     Letter Agreement, dated April 20, 2000, among Justin Gasarch,
          Registrant, Robert Becker and John Clarke.

27        Financial Data Schedules.