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

      For the Fiscal Year Ended June 30, 2000 Commission File No. 0-23396



                               Skyline Multimedia
                               Entertainment, Inc.
                 (Name of Small Business Issuer in Its Charter)

<TABLE>
<CAPTION>
<S>                                                                                    <C>
                    New York                                                           11-3182335
         -------------------------------                                        ------------------------
         (State or Other Jurisdiction of                                        (I.R.S. Employer
         Incorporation or Organization)                                         Identification Number)
</TABLE>

                   350 Fifth Avenue, New York, New York 10118
                ------------------------------------ -----------
               (Address of principal executive offices) (Zip Code)

                                 (212) 564-2224
                                 --------------
                (Issuer's Telephone Number, Including Area Code)

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


     Units consisting of Common Stock, Class A Warrants and Class B Warrants
                     Common Stock, $.001 Par Value Per Share
                           Redeemable Class A Warrants
                           Redeemable Class B Warrants

Check  whether  the Issuer:  (1) has filed all  reports  required to be filed by
Section 13 or 15(d) of the Securities  Exchange Act of 1934 during the preceding
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 contained  herein,  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.

The Company's revenues for its most recent fiscal year were $10,223,000.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Company  was  $130,565 as of  September 11,  2000,  based on the average bid and
asked price of $0.13 per share as of that date.

There were 2,095,000 shares of Common Stock, $.001 par value,  outstanding as of
September  11,   2000.  Additionally,  there were  1,090,909  shares of Series A
Convertible  Participating  Preferred  Stock,  $.001 par value  per  share,  and
960,000  shares of Class A Common  Stock,  $.001 par  value,  outstanding  as of
September 11, 2000.



<PAGE>
                                     PART I


Item 1.           DESCRIPTION OF BUSINESS.

General

         Skyline  Multimedia  Entertainment,  Inc. (the  "Company") is a holding
company  incorporated  under  the laws of the State of New York on  November  2,
1993, which owns all of the outstanding stock of its operating subsidiaries, New
York Skyline,  Inc.  ("Skyline") and Skyline Virtual Reality,  Inc. ("SVR"). The
Company  is  engaged  in  the  development  and  operation  of  state-of-the-art
simulator   attractions  and   high-technology   and  family   entertainment  at
established  tourist  sites in New York City.  All  references  to the "Company"
contained herein include Skyline and SVR, except where specifically noted.

         On December 22, 1994,  the Company  commenced  operations  of its first
attraction,  New York Skyride,  which is located in the Empire State Building in
New York City. New York Skyride is an  exhilarating  simulated  "aerial tour" of
New York City in a futuristic  "spacecopter".  New York Skyride  features two 40
passenger  flight  simulators and related  computer-controlled  film  projection
technologies  to  provide  visitors  with  a  complete  "New  York"  experience,
including an extensive pre-show area featuring  interactive  multimedia exhibits
depicting the various  tourist sites and  attractions in and around the New York
Metropolitan  area,  and  culminating  in a  seven  and  a  half  minute  aerial
"adventure" in and around New York City. Passengers will not only experience the
sensations of an actual aerial flight,  but will also  experience  visual images
projected on screens within the simulator that envelop the viewer with a variety
of sights and sounds.  New York Skyride is intended to provide  visitors  with a
sensation  of taking a "once in a  lifetime"  aerial  adventure  around New York
City.

         On December 27, 1996, the Company commenced operations, through SVR, of
an interactive  virtual  reality  entertainment  center,  XS New York,  which is
located in the heart of Times Square in New York City.  XS New York features the
latest in virtual  reality  hardware and  software,  simulation  technology  and
interactive participation game experiences.  Additionally, the facility includes
a "cybercafe"  which offers computer  terminals that are linked to the Internet.
XS New York was opened on a preview basis until March 20, 1997,  the date of its
official Grand Opening.

         The Company's  revenues are generated  primarily  from ticket sales for
New York  Skyride  and game  revenue at XS New York,  with  additional  revenues
generated from the sale of food, beverages and souvenir merchandise. The Company
is also seeking to enter into corporate sponsorship and advertising arrangements
with  certain  consumer  product  companies to provide  additional  revenues and
marketing exposure.

         The Company's principal executive office is located at the Empire State
Building, 350 Fifth Avenue, New York, New York 10118 and its telephone number is
(212) 564-2224.

The New York Skyride Experience

         New York Skyride is an adventure  that captures and builds upon the New
York  City  tourist  experience.  The  Company  believes  that New York  Skyride
enhances a visit to the Empire State  Building and to New York City by providing
an exciting, bird's-eye view of the landmarks and sites that cannot be seen from
any other vantage point.

         Visitors to New York Skyride are treated as first-class passengers on a
futuristic  helicopter  flight around New York City.  Upon entering,  guests are
directed to the pre-show heliport area (approximately  7,500 sq. ft.) where they
are introduced to multimedia  displays  designed and installed by certain of the
Company's  prior  sponsors.  These  displays  depict major New York City tourist
attractions as well as providing  informational and entertaining film clips. The
exhibits  provide the visitor with their first feeling of  participation  in the
New York Skyride experience.
<PAGE>
         Following a preflight  briefing about  "spacecopter"  travel passengers
enter into one of two spacecopters , which are 40 passenger  computer-controlled
flight  simulators.  At the front of each  simulator is a large 18' x 18' screen
upon which New York Skyride's  super 35mm film is presented.  The simulator also
contains an advanced 8-channel digital sound system, with 4 dual amplifiers, 400
watts per channel each (or 3,200 watts of total  sound),  to provide  passengers
with an enhanced audio/visual experience.

         Once  the  passengers  are  seated  in the  spacecopter,  they  begin a
seven-and-a-half minute simulated flight that treats them to a spectacular array
of New York City scenes and adventures.  For example,  the  spacecopter  crashes
into FAO  Schwarz,  the world's  largest toy store,  passes  directly  under the
Brooklyn  Bridge,  "dives" into a tunnel,  crashes into the East River and has a
run-in with a New York City traffic cop,  among other exciting  adventures.  The
spacecopter  also  visits  many of New York City's  other  tourist  attractions,
including  Fifth Avenue,  the World Trade Center  Towers,  Central  Park,  Times
Square and the Statue of  Liberty.  Since New York  Skyride is  intended to be a
family-oriented  attraction,  the film makes the Empire State Building the focal
point of the  attraction,  with a liftoff and landing taking place from atop the
Empire State Building,  to appeal to the broadest audience and not just the most
adventurous thrill-seekers.

         Once the spacecopter flight is complete, passengers exit the simulators
and  proceed to the lobby and a beverage,  food and  souvenir  concession  area.
Passengers are able to purchase souvenirs of their visit to New York Skyride.

The XS New York Experience

         XS New York is an  interactive  virtual  reality  entertainment  center
located in the heart of Times Square in New York City.  XS New York presents the
latest in  entertainment  technology,  featuring  cutting-edge  virtual  reality
hardware  and  software.  Upon  entering  XS New York,  guests are  immersed  in
futuristic  graphics,   lighting,  audio  and  video  treatments.  Upon  further
inspection,  guests find  interactive  show action equipment and special effects
areas that allow them to  experience  the latest in virtual  reality and similar
technologies.  Some of the equipment  offers  competition  between players while
others  provide   exploratory   experiences.   Several   attractions  include  a
3-dimensional  action and visual presentation  allowing guests to view their own
activity,  the activity of competitors and the attractions'  vital statistics on
giant overhead monitors and projection  screens.  Still other attractions can be
programmed to function as stand alone units or in conjunction with other players
at other locations.  Tickets are purchased from a centrally located ticket area.
Guests are also invited to enjoy XS New York's "Cybercafe" which provides access
to the World Wide Web and Internet from table-based PC computer stations.

Simulator and Virtual Reality Technologies

         The Company's motion simulator attractions utilize  computer-controlled
aircraft flight simulators. Simex, Inc. (formerly Interactive Simulation, Inc.),
a  Canadian  company   experienced  in  simulation   technology,   provided  the
sophisticated  computer  hardware and software that coordinates the movements of
the  simulator  platform with the images  projected on the screen.  The range of
motion for the  simulators is along six axes (that is, the simulators can create
up and down motions, right and left motions,  angled motions to simulate turning
or banking while climbing or descending at varying degrees and a spin motion, or
some  combination of the above).  The movable  platforms on which the simulators
rest and which move in  synchronization  with the film were  developed  by Moog,
Inc.,  a large  defense  contractor  experienced  in the  adaptation  of  flight
simulator technology to the entertainment market.
<PAGE>
         A key  component  of the  simulator  technology  is the  "show  control
system",  which is a PC-based  computer program that coordinates and manages the
motion and  gyration of the  simulator  with the film and audio  elements of the
program.  For example,  when the film image shows the spacecopter banking to the
right,  there must be a precise,  coordinated  movement of the simulator in that
direction  to both  convince  the  passengers'  senses that they are flying in a
spacecopter and prevent passenger disorientation.  The speed of the film through
the projection  system is faster than normal film,  television or video footage,
which enhances the passengers' perception of motion and movement. The film is in
super 35mm format  projected  at 30 frames per second  rather  than  standard 24
frames per second, which provides a sharper,  more intense image. The projection
equipment is a fully  automated  system that eliminates the need for a projector
operator.  The film was developed in  conjunction  with  Chromavision  Corp.,  a
production studio with extensive experience in fast-paced concept films.

         XS New York features a wide  assortment of the latest in  entertainment
and virtual reality hardware and software technologies.  The interactive virtual
reality technologies which are showcased at XS New York include:  Alpine Racer -
a  simulated  slalom  ski  race,  Daytona  Speedway  - a  simulated  car  racing
experience,  a laser tag arena,  and a virtual  PC-based  "battle  ground" where
players compete on-line and in person on stage.

The Empire State Building Location

         New York  Skyride is  located  on the  second  and third  floors of the
Empire State Building,  in a 21,800 square foot site that wraps around the south
and west sides of the building.  The location's entrance is situated adjacent to
the main lobby  escalator  that takes all  visitors to the waiting  area for the
Observatory  elevators.  Signs in the Empire State  Building's  lobby and in the
Observatory  ticket  purchase area inform  visitors to the Empire State Building
about New York Skyride.  Most importantly,  visitors who purchase tickets to the
Observatory are offered the choice of purchasing a combined Observatory/New York
Skyride  ticket at a reduced  price,  as compared with the separate  purchase of
tickets to both attractions.  The cost of individual tickets to New York Skyride
and the Observatory are $11.50 and $9.00 for adults, respectively, and $8.50 and
$4.00 for children under the age of 12, respectively. In comparison, the cost of
a  combined  ticket  with the  Observatory  is $17.00  for adults and $10.00 for
children under the age of 12. Any discount  resulting from combined ticket sales
are deducted from the admission price of a New York Skyride  ticket.  Children's
rates,  group  rates and  senior  discounts  are also  offered  along with other
promotional discounts.

         The Empire State Building is a focal point for the tourism  industry in
New York City. The Observatory,  which opened in 1933 and is located on both the
102nd and the 86th floors, has achieved worldwide recognition and publicity, and
is a primary  destination  for a large  percentage  of New York  City's  tourist
traffic.  Estimated paid attendance figures provided by management of the Empire
State Building for the last five years for the Observatory are summarized below.

                        EMPIRE STATE BUILDING OBSERVATORY
                         ADMISSION TICKET SALES (000'S)


         YEAR              1995     1996     1997     1998     1999
                           ----     ----     ----     ----     ----

TOTAL ATTENDANCE           3,350    3,350   3,675    3,614    3,617

         For the year  ended  June  30,  2000,  the  Company's  capture  rate of
Observatory  visitorship  averaged  approximately  16.86%, up from an average of
approximately 15.15% for the year ended June 30, 1999. The Company believes that
the increase in the capture rate is a direct result of its litigation settlement
with the Empire State  Building  Company,  an increase in Empire State  Building
observatory sales and a sustained marketing effort of its product.
<PAGE>
The Times Square Location

         The Company  currently  occupies  approximately  13,000  square feet of
space at 1457-1463 Broadway (at 42nd Street), New York, New York in the Business
Improvement  District  Entertainment  Zone  located in Times  Square in New York
City.  The  Company  utilizes  this space for its  interactive  virtual  reality
entertainment  center - XS New York. See "Item 2.  Description of Property," and
"Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources."

Advertising and Promotional Plans

         The Company's current marketing plans include a multifaceted marketing,
public relations and advertising  program to heighten  awareness of the New York
Skyride,  and the XS New York facility,  among the more than 25 million  persons
who visit New York City every year.

         New  York  Skyride's   advertising  and  promotional  support  programs
concentrate on tourists to New York City,  families with children in the Greater
New York metropolitan area, and youth groups from surrounding areas. The Company
is also continuing its efforts to attract attendees to the Empire State Building
Observatory by offering combined  Observatory and Skyride admission tickets. The
Company also  co-markets with other New York City tourist  companies,  including
Circle Line and Gray Line.

         XS New York's efforts target young adults,  Times Square visitors,  and
corporate groups.  The Company is also focused on developing its corporate event
business for group functions, product introduction parties, meetings and holiday
parties.

         In addition,  the Company  continues to promote New York Skyride and XS
New York to tourist  boards,  travel  agents,  managers of group  activities and
visitors to New York City. Special volume discounts,  travel agent packages, and
other special programs are offered to target group audiences,  especially during
the slower tourist periods in the fall and winter months.

Corporate Sponsors

         Historically,   the  Company  has  solicited  and  maintained   several
corporate  sponsorships from consumer product  companies.  The Company currently
has no such  sponsorship  agreements.  The  Company  is  currently  seeking  new
corporate  sponsorships  that  will  result  in  greater  market  awareness  and
acceptance  through  the  association  of New York  Skyride and XS New York with
their  products.  There can be no  assurance  that the  Company  will be able to
successfully enter into new sponsorship agreements.
<PAGE>
License Agreements

         On February 26, 1993,  the Company,  through  Skyline,  entered into an
exclusive  license  agreement  (the "License  Agreement")  with the Empire State
Building  Company  ("ESBCo"),  the operator of the Empire State  Building in New
York City. The License  Agreement  provides for the joint sale of tickets to the
Observatory  and New York Skyride so long as the Company  makes  payments at the
following annual rates:

(i)     $150,000 from April 1, 1995 through March 31, 1998,
(ii)    $175,000 from April 1, 1998 through March 31, 2002,
(iii)   $200,000 from April 1, 2002 through March 31,  2006,
(iv)    $225,000  from April 1, 2006 through  April 30, 2013,  and
(v)     $186,000 from May 1, 2013 through June 30, 2016.

The License  Agreement also requires the Company to reimburse  certain costs and
expenses  relating  to  the  joint  ticket  sales  and  contains   cross-default
provisions  in the event of a default  under the Lease.  The term of the License
agreement  has been  extended  from its original  20-year term to a term lasting
through June 30, 2016,  which  coincides  with a new lease for space adjacent to
the New York Skyride  location.  For a  description  of the lease,  See "Item 2.
Description of Property."

In December 1999,  ESBCo and Skyline  executed a Second  Modification of License
Agreement ("SMLA"). This latest Amendment provides for a contingent license fee,
in addition to the flat  annual fee noted  above,  in the event that the capture
rate at ESBCo's  ticket  window  (number of Skyride  tickets  sold by ESBCo as a
percentage of Observatory  tickets sold by ESBC) exceeds  10.5%.  This provision
was added to the SMLA as an  incentive  for ESBCo to devote  greater  efforts to
promote the Skyride.  Until the end of 1996,  the capture rate at ESBCo's window
averaged  approximately  15%. This rate declined to 10.3% in 1997, 9.9% in 1998,
8% in 1999 and the first half of 2000. The contingent license fee ranges from an
annual fee of $10,500 at 10.5% to $1,400,000 at 26%.

Patents and Trademarks

         The Company  does not hold any patents  relating to New York Skyride or
XS New York and their related technologies.  Accordingly,  the Company's concept
is not proprietary  and is subject to duplication and competition  from entities
with greater resources and strengths than the Company.  The Company has obtained
registered trademarks for the name "New York Skyride" and "XS", however,  during
November  1997,  the  Company  agreed to sell the "XS"  trademarks  and  related
intellectual  property rights to an equipment  supplier.  In return, the Company
renegotiated  its  revenue  sharing  agreement  to reflect  the  trademark  sale
agreement and the equipment supplier forgave approximately  $427,000 owed by the
Company.  In addition,  the Company can continue to use the "XS"  trademarks and
related  concepts  at  its  Times  Square  location,  pursuant  to a  three-year
renewable license agreement.

Competition

         New York  Skyride and XS New York  compete with all other New York City
tourist  attractions  and  cultural  events  such as  museums,  Broadway  shows,
shopping boutiques and cultural and historic landmarks.  While these attractions
are quite  different  "experiences"  from New York  Skyride's  spacecopter  trip
(which the  Company  believes  is the first  attraction  of its type in New York
City) or XS New York's virtual reality and simulator technologies, they continue
to present intense  competition for attendance and visitor  dollars.  Generally,
these other  attractions  are more  established,  and are owned and  operated by
entities that have greater financial resources and managerial expertise than the
Company.  In addition,  more intense competition of this type can be expected at
Times  Square due to the major  entertainment  complex  that is being  developed
there. The complex will include entertainment attractions from companies such as
Disney,  American Cinema, Madame Tussaud,  ESPN, Broadway City, E-Walk and other
large entertainment companies.
<PAGE>
         In  addition  to   competing   with   general  New  York  City  tourist
attractions,  New York  Skyride and XS New York have direct  competitors  in the
virtual  reality and simulator  markets.  In September 1999, ESPN Zone, a sports
based   entertainment   attraction   utilizing  virtual  reality  and  simulator
technologies,  began operations in their Times Square location.  Furthermore,  a
New York helicopter tour simulator  attraction opened in March 1997 at the World
Trade Center Towers.  There can be no assurance  that other virtual  reality and
simulator  attractions will not commence  operations in the New York area in the
future.

          Insofar as motion  simulation  technologies,  including  show  control
systems  (and  related  projection  and  audio  technologies),  are  subject  to
improvements and enhancements,  it is possible that competitive attractions will
be able to offer more technologically  advanced  "experiences" to customers than
the experience  offered by New York Skyride.  Also, the Company  believes that a
number of attractions utilizing "virtual reality" imaging technologies, or large
film format technologies with enhanced  3-dimensional  projection  technologies,
are  likely  to open  in the  New  York  area  within  the  near  future.  These
attractions do not depend on motion  simulators for their special  effects,  and
they are also  likely  to be  developed  and  operated  by  companies  that have
significantly  greater  financial,  managerial  and  promotional  experience and
resources  than the Company.  While these  attractions  may not offer a directly
competitive "product" to New York Skyride (i.e., an aerial adventure in New York
City)  or  XS  New  York,  their  presence  will  certainly  create  significant
competition  for the Company to attract  visitors to New York Skyride and XS New
York.  The Company will compete  with these  entities  primarily on the basis of
location, uniqueness of product, marketing and price.

Employees

         As of September 30, 2000, the Company employed four management  persons
(other than the Company's  Executive Officers) on a full-time basis. The Company
also employs approximately 125 non-management personnel.  Since August 1997, the
Company has contracted with employees for its XS New York facilites  through the
International Union of Industrial,  Service, Transport and Health Employees. The
Company  believes that it has had good relations  with the union,  and that such
union  representation  will not have a material  adverse effect on the Company's
financial condition or results of operations.


Item 2.           DESCRIPTION OF PROPERTY.

     The Company's executive offices are located at the Empire State Building at
350 Fifth Avenue,  New York,  New York.  These  offices  consist of 4,400 square
feet,  and are  leased  at an annual  cost of  approximately  $110,000,  payable
monthly.  The lease for these premises expired on October 31, 1999. However, the
ESB Co. has granted  the Company an option to extend its lease.  The ESB Co. and
the Company are  currently  negotiating  an  extension.  The ESB Co. has agreed,
until and extension is consummated, to allow the Company to continue leasing the
space under the same terms as its expired lease.

         In addition to these offices,  the Company has four lease agreements on
its two  operating  sites.  On February 26, 1993,  the Company  entered into the
First Lease agreement with the operator of the Empire State  Building,  to lease
approximately  17,800  square  feet on the  second  floor  of the  Empire  State
Building for a term of 20 years.  The First Lease has been  extended to a longer
term,  lasting  through  June 30,  2016,  to coincide  with the Second and Third
Leases for additional  space, as described below. The Company's annual base rent
under the First Lease is scheduled in the following manner:

(i)     $391,798 from April 1, 1998 through March 31, 2002,
(ii)    $445,225 from April 1, 2002 through March 31, 2006,
(iii)   $498,642 from April 1, 2006 through March 31, 2009,
(iv)    $534,270  from April 1, 2009 through  April 30, 2013, and
(v)     $441,663 from May 1, 2013 through June 30, 2016.
<PAGE>
The annual rent is payable  monthly and subject to additional  amounts for taxes
and  utilities.  The Company was not  required to pay the first 21 months  rent,
which benefit is being amortized over the term of the Lease.

         The Company also leases an  additional  4,000 square feet located above
the primary leased premises (the "Second Lease"). The Company uses this space to
accommodate the two large screens (18' X 18') on which the New York Skyride film
is shown.  The Second Lease  premises has an annual base rent of $76,000,  which
increases to $120,000  over the term of the lease.  The term of the Second Lease
coincides with the term of the First Lease and License Agreement, as modified.

         The Company also currently occupies approximately 13,000 square feet of
space at 1457-1463 Broadway (at 42nd Street), New York, New York in the Business
Improvement  District  Entertainment  Zone  located in Times  Square in New York
City.  The  Company  utilizes  this space for its  interactive  virtual  reality
entertainment  center - XS New York.  The lease  for these  premises,  which was
entered  into in April  1996,  contained a provision  allowing  the  landlord to
terminate the lease upon six months notice. In the event the landlord  exercised
this termination right during the first five years of the lease, the Company was
entitled to a maximum termination fee of approximately $974,000 to be reduced on
a straight-line  basis over 60 months. In April 1999, by mutual agreement of the
parties,  however,  this lease was terminated and a stipulation  was signed.  In
general  terms,  the  stipulation  enabled the Company to continue to occupy the
premises  on the same terms as in the  original  lease,  but  reduced the notice
period from six months to four months in exchange  for a 25%  reduction in rent.
The Stipulation  further provided that the landlord was entitled to recover this
25% rent reduction out of any  termination fee which may be owed to the Company.
In addition,  the Company  agreed to vacate the  premises  within four months of
notification by the landlord of its exercise of the cancellation  clause. In May
2000, the stipulation  was   further  amended  to  provide that the Company will
vacate the premises  within sixty days upon  receiving  notice of the landlord's
exercise of the cancellation  clause.  In conjunction  with this amendment,  the
landlord  forgave  certain  past due rental  payments,  less a security  deposit
previously  paid by the Company.  The agreement also provided for future rentals
equal to weekly gaming revenues in excess of $32,500,  up to a maximum rental of
$10,000 per week.  This rental  provision  was further  amended in June 2000, to
provide  that such  future  rentals  would be equal to 50% of the weekly  gaming
revenues in excess of $37,500 with a maximum of $10,000 per week.

         The  Company  has  become  aware of plans by the  landlord  to sell the
property to a developer. The Company is not certain of the timing of the sale of
such property or whether such developer will construct an office building on the
site.

         The Company  believes that its  facilities are adequate for its current
levels of operations.


Item 3.           LEGAL PROCEEDINGS

         None.


Item 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.

         Not Applicable.
<PAGE>
                                     PART II


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


                          PRICE RANGE OF COMMON EQUITY

         Prior to February 14, 1994,  the date of the Company's  initial  public
offering,  there was no public  market  for the  Units,  Common  Stock,  Class A
Warrants or Class B Warrants  (collectively,  the  "Securities").  From February
1994 through  December 1997,  each of these classes of securities were quoted on
the Nasdaq  SmallCap  Market  under the  symbols  "SKYLU,"  "SKYL,"  "SKYLW" and
"SKYLZ," respectively.  In December 1998, the Company's Securities were delisted
from the Nasdaq SmallCap Market. Since that time, the Company's Common Stock has
been  traded on the Over The Counter  Bulletin  Board (the  "OTCBB"),  under the
symbol "SKYL".

         The  following  table sets forth the high and low sales  prices for the
Units,  Common  Stock,  Class A  Warrants  and Class B  Warrants  for the fiscal
periods indicated as reported by Nasdaq or in the  over-the-counter  market. The
quotations  shown represent  inter-dealer  prices without  adjustment for retail
mark-ups,  mark-downs or  commissions,  and may not  necessarily  reflect actual
transactions.
<TABLE>
<CAPTION>

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

                                                                   Fiscal 2000                 Fiscal 1999
                                                                   -----------                 -----------

UNITS                                                          High           Low          High           Low
-----                                                          ----           ---          ----           ---
<S>                                                            <C>           <C>            <C>           <C>
1st Quarter.............................................       9/16          1/16           5/8           1/16

2nd Quarter.............................................        ---           ---           5/8           1/16

3rd Quarter.............................................        ---           ---           ---           ---

4th Quarter.............................................        ---           ---           ---           ---


COMMON STOCK                                                   High           Low          High           Low
------------                                                   ----           ---          ----           ---

1st Quarter.............................................        3/8          1/16           1/2           1/8

2nd Quarter.............................................        3/4          1/16           1/4           1/16

3rd Quarter.............................................        7/8           1/8           3/8           1/16

4th Quarter.............................................        3/4           1/4           ---           ---

--------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------

CLASS A WARRANTS                                               High           Low          High           Low
----------------                                               ----           ---          ----           ---

<S>                                                              <C>           <C>           <C>           <C>
1st Quarter.............................................         0             0             0             0

2nd Quarter.............................................         0             0             0             0

3rd Quarter.............................................         0             0             0             0

4th Quarter.............................................         0             0             0             0


CLASS B WARRANTS                                               High           Low          High           Low
----------------                                               ----           ---          ----           ---

1st Quarter.............................................         0             0             0             0

2nd Quarter.............................................         0             0             0             0

3rd Quarter.............................................         0             0             0             0

4th Quarter.............................................         0             0             0             0
--------------------------------------------------------------------------------------------------------------------
</TABLE>

     The per share  closing  sales price of the Common  Stock as reported by the
OTCBB on September 11, 2000,  (the date of the last reported sale) was $0.13. As
of September 11, 2000,  the Company had in excess of 25 beneficial  shareholders
and 400 shareholders of record.
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS

Introduction

     The  following  discussion  of  the  financial  condition  and  results  of
operations  of the  Company  should be read in  conjunction  with the  Financial
Statements and Notes thereto.  This document  contains  certain  forward-looking
statements  including,   among  others,  anticipated  trends  in  the  Company's
financial  condition  and  results  of  operations  and the  Company's  business
strategy.  These  forward-looking  statements are based largely on the Company's
current  expectations  and are  subject to a number of risks and  uncertainties.
Actual results could differ  materially from these  forward-looking  statements.
Important  factors to consider in  evaluating  such  forward-looking  statements
include (i) changes in external factors or in the Company's  internal  budgeting
process which might impact trends in the Company's  results of operations;  (ii)
unanticipated  working capital or other cash requirements;  (iii) changes in the
Company's  business  strategy or an  inability  to execute its  strategy  due to
unanticipated  changes in the industries in which it operates;  and (iv) various
competitive  market  factors  that may  prevent  the  Company's  from  competing
successfully in the marketplace.

Overview

     Skyline Multimedia Entertainment, Inc. (the "Company") is a holding company
incorporated  under the laws of the State of New York on November 2, 1993, which
owns  all of the  outstanding  stock  of its  operating  subsidiaries,  New York
Skyline, Inc. ("Skyline") and Skyline Virtual Reality, Inc. ("SVR"). The Company
is  engaged in the  development  and  operation  of  state-of-the-art  simulator
attractions and high-technology and family  entertainment at established tourist
sites in New York City.

     On  December  22,  1994,  the  Company  commenced  operations  of its first
attraction,  New York Skyride,  which is located in the Empire State Building in
New York City. New York Skyride is an  exhilarating  simulated  "aerial tour" of
New York City in a futuristic  "spacecopter".  New York Skyride  features two 40
passenger  flight  simulators and related  computer-controlled  film  projection
technologies  to  provide  visitors  with  a  complete  "New  York"  experience,
including an extensive pre-show area featuring  interactive  multimedia exhibits
depicting the various  tourist sites and  attractions in and around the New York
Metropolitan  area,  and  culminating  in a  seven  and  a  half  minute  aerial
"adventure" in and around New York City. Passengers will not only experience the
sensations of an actual aerial flight,  but will also  experience  visual images
projected on screens within the simulator that envelop the viewer with a variety
of sights and sounds.  New York Skyride is intended to provide  visitors  with a
sensation  of taking a "once in a  lifetime"  aerial  adventure  around New York
City.

     For the years ended June 30, 2000 and 1999,  the Company's New York Skyride
facility   was  visited  by   approximately   610,000  and  582,000   customers,
respectively.

     On December 27, 1996, the Company commenced operations,  through SVR, of an
interactive virtual reality  entertainment center, XS New York, which is located
in the heart of Times Square in New York City.  XS New York  features the latest
in virtual reality hardware and software,  simulation technology and interactive
participation   game   experiences.   Additionally,   the  facility  includes  a
"cybercafe" which offers computer terminals that are linked to the Internet.  XS
New York was opened on a preview  basis  until March 20,  1997,  the date of its
official Grand Opening.

<PAGE>
         The Company's  revenues are generated  primarily  from ticket sales for
New York  Skyride  and game  revenue at XS New York,  with  additional  revenues
generated from the sale of food, beverages and souvenir merchandise. The Company
is also seeking to enter into corporate sponsorship and advertising arrangements
with  certain  consumer  product  companies to provide  additional  revenues and
marketing exposure.

Results of Operations

Year Ended June 30, 2000 compared to Year Ended June 30, 1999

Revenues

         Revenues  generated  during  the year ended  June 30,  2000  aggregated
$10,223,000  as compared to  $9,603,000  for the year ended June 30,  1999.  The
increase in revenues  from the prior year is primarily due to an increase in the
average  ticket price  collected for the New York Skyride,  which  accounted for
revenues  of  approximately  $7,059,000  for the year  ended June 30,  2000,  as
compared to  $6,013,000  for the year ended June 30, 1999.  The increase is also
attributable  to an increase in Empire State  Building  Observatory  Combination
Ticket  Sales at the  company's  New York  Skyride  facility.  This  increase in
revenues  is offset by a  decrease  in  revenues  at the  Company's  XS New York
facility,  which accounted for revenues of approximately $3,164,000 for the year
ended June 30, 2000, as compared to $3,590,000 for the year ended June 30, 1999.

Total Expenses

         Total  expenses  incurred  for the year ended June 30, 2000  aggregated
$11,558,000,  as compared to  $12,419,000  for the year ended June 30, 1999. The
decrease  for the year ended June 30,  2000 was  primarily  due to a decrease in
rent expense of approximately  $459,000 relating to the surrender of a lease for
certain  space in the Empire  State  Building,  and a decrease  in legal fees of
approximately $ 258,000 which related to the settlement with the ESBCo.  (see "-
Extraordinary Gains" below) for the year ended June 30, 1999. Additionally,  the
Company  reduced its corporate  overhead  expenses.  However,  such amounts were
offset  by  an  increase  of  purchases  of  additional  Empire  State  Building
Observatory  tickets  for resale as part of  combination  tickets  with New York
Skyride, resulting in higher revenues as described above.

Extraordinary Gains

         The Company,  as a result of the Settlement of its litigation  with the
ESBCo.  (as  discussed in the notes to the  financial  statements),  recorded an
extraordinary  gain  (which  included a  reversal  of unpaid  rents and  charges
aggregating  $1,413,000,  the  reversal of deferred  rents  payable  aggregating
$909,000  relating  to the  surrender  of a lease for  certain  space  which was
scheduled to expire in July 2016 less $116,000 of related  legal fees  incurred)
of approximately $2,206,000 for the year ended June 30, 2000.

         In addition,  as a result of the stipulation  agreement relating to the
Company's  virtual  reality   entertainment  center,  the  Company  recorded  an
extraordinary  gain of $389,000 for the year ended June 30,  2000,  comprised of
the forgiveness of $157,000 past due rentals (net of a $93,000  security deposit
held by the landlord) and the reversal of $232,000  deferred  rentals  resulting
from the elimination of fixed monthly rents.

         Also,  during the year ended June 30, 2000, the Company settled $70,000
of liabilities to vendors for $19,000 resulting in a gain of $51,000.

         Finally,  during the year  ended June 30,  1999,  the  Company  settled
$1,148,000 of liabilities to vendors for $935,000  resulting in an extraordinary
gain of $213,000.

Net Income (Loss) and Income (Loss) Per Share

         The basic and diluted net income  (loss) and earnings  (loss) per share
before  extraordinary items was ($2,441,000) and ($1.07) for the year ended June
30, 2000,  as compared to  ($4,207,000)  and ($1.85) for the year ended June 30,
1999.  The basic and diluted  net income  (loss) and  earnings  (loss) per share
available to common  shareholders  was $205,000 and $.09 for the year ended June
30, 2000,  as compared to  ($3,994,000)  and ($1.76) for the year ended June 30,
1999.
<PAGE>
         Loss  before  extraordinary  items,  for the year ended June 30,  2000,
included  a loss of  approximately  ($2,639,000)  at XS New York and  income  of
approximately   $198,000  at  New  York   Skyride  as  compared  to  a  loss  of
approximately  ($2,620,000) at XS New York, a loss of approximately ($1,279,000)
at New York  Skyride,  and a loss of  approximately  ($308,000)  relating to the
cancelled Sydney Skyride Project for the year ended June 30, 1999.

         For the year ended June 30,  2000,  New York  Skyride  had income  from
operations   (before   extraordinary   item,  net  interest,   depreciation  and
amortization) of approximately $1,134,000, as compared to a loss from operations
(before  extraordinary  item, net interest,  depreciation  and  amortization) of
approximately  ($136,000  ) for the  year  ended  June  30,  1999.  Income  from
operations at New York Skyride  improved from the previous year as a result of a
decrease in rent expense of approximately  $459,000 relating to the surrender of
a lease for certain  space in the Empire State  Building and a decrease in legal
fees of  approximately  $258,000 which related to the settlement with the ESBCo.
(see "-  Extraordinary  Gains"  above).  Additionally,  the Company  reduced its
corporate overhead expenses. However, such amounts were offset by an increase of
purchases of additional  Empire State  Building  Observatory  tickets for resale
resulting in higher revenues as described above.

         XS New York had a loss from operations (before  extraordinary item, net
interest,  depreciation and  amortization)  of approximately  ($350,000) for the
year  ended  June  30,  2000  as  compared  to a loss  from  operations  (before
extraordinary   item,   net  interest,   depreciation   and   amortization)   of
approximately  ($344,000)  for  the  year  ended  June  30,  1999.  Income  from
operations at XS New York decreased from the previous year primarily as a result
of a decrease in gaming revenues offset by a reduction of overhead.

Working Capital Deficiency

Liquidity and Capital Resources

         The working  capital  deficiency  at June 30, 2000,  was  approximately
($3,561,000)   compared  to  a  working  capital   deficiency  of  approximately
($5,593,000) at June 30, 1999. The decrease in the working capital deficiency is
primarily  the result of the  settlement of the  Company's  litigation  with the
ESBCo.,  which  included a  writeoff  of  accumulated  outstanding  payables  of
approximately $1,413,000.

     The Company has historically sustained its operations from the sale of debt
and  equity  securities,   through  institutional  debt  financing  and  through
agreements or arrangements for financing with certain key suppliers.

     As of June 30, 2000, the Company had the following  financing  arrangements
in place:

o        In December  1996, the Company  entered into a Senior Credit  Agreement
         with Prospect Street and Bank of New York, as Trustee for the Employees
         Retirement  Plan of the  Brooklyn  Union Gas  Company.  Pursuant to the
         agreement   (as  amended),   the  Company   borrowed  an  aggregate  of
         $4,450,000. The funds borrowed accrue interest at an annual rate of 14%
         and require the payment of both  principal and interest five years from
         the date of issuance.  In connection with the Senior Credit  Agreement,
         the lenders received warrants to purchase up to an aggregate of 434,146
         shares of Common Stock,  which warrants are exercisable  until December
         20, 2006 at an exercise price of $4.25 per share.

o        In June 1997, the Company borrowed an additional $500,000 from Prospect
         Street. The loan is payable on demand and bears interest at the rate of
         14% per annum.
<PAGE>
o        In December  1997,  the Company  borrowed  $500,000 from a bank bearing
         interest  at the  rate  of  6.25%  per  annum  that  was  secured  by a
         Certificate of Deposit from Prospect  Street.  The loan from this bank,
         however,  was paid off in full by Prospect  Street in December 1999 and
         has been recorded by the Company as a Senior Secured Promissory Note to
         Prospect Street.  Prospect Street has agreed to honor the same terms as
         the Company  previously  had with the bank.  The  Company is  currently
         negotiating new terms and rate with Prospect Street.

o        In  May  1998,  the  Company  and  its  subsidiaries  entered  into   a
         Senior Secured Credit  Agreement with the Bank of New York, as  Trustee
         for the Employees Retirement Plan of Keyspan Energy Corp. and  Prospect
         Street  pursuant  to  which  the  Company  borrowed  an   aggregate  of
         $935,000.  The funds borrowed accrue interest at an annual  rate of 14%
         and are  payable  on  demand.  The Notes  are  secured   (with  certain
         exceptions) by all the assets of the Company and its  subsidiaries.  In
         connection with the Credit Agreement, the lenders  received warrants to
         purchase 94% of the fully diluted  Common Stock of  the Company  (after
         issuance) at an exercise  price of $.375 per share.   The notes and the
         obligations  under the  Credit  Agreement  and the   warrants  are also
         collateralized by a pledge of the stock of the Company's  subsidiaries.
         In addition, Keyspan also received the right to appoint  two members to
         the Company's Board of Directors. Further, as a result of  the issuance
         of warrants in connection  with the Financing,  the conversion  rate of
         the Series A Preferred Stock held by Prospect Street was adjusted  from
         a  conversion  rate of one  share of Common  Stock  for each   share of
         Preferred  Stock to a  conversion  rate of 6.91 shares of Common  Stock
         for  each  share of  Preferred  Stock.  On May 29,  1998,  the   Credit
         Agreement  was amended to increase  the loan amount  funded by  Keyspan
         from an aggregate of $500,000 to $1,850,000  which increased the  total
         financing  from  $935,000  to  $2,285,000.  In  addition,  the   Credit
         Agreement was further amended, subsequent to June 30, 1998, to  include
         under its terms the $500,000  demand loan to the Company from  Prospect
         Street in June 1997.

     In  addition to the  foregoing,  as of June 30,  2000,  the Company had the
     following agreements or arrangements with certain key suppliers in place:

o        The Company has entered into an agreement with its major gaming
         equipment  supplier  pursuant to which the  Company has been  provided
         with certain equipment for use in its XS New York facility in exchange
         for agreeing to (i) share a percentage of the revenues  generated from
         the XS New York  facility  with  the  supplier  and  (ii)  sell the XS
         trademark and related intellectual  property rights to such vendor. In
         November 1997, an agreement was entered into with its major  equipment
         supplier whereby the Company's revenue-sharing  obligation was reduced
         from 40% to 14% in exchange  for the Company  selling the XS trademark
         and related intellectual property rights to such supplier. The Company
         can  continue to use the XS  trademark  at its Times  Square  location
         pursuant to a license  agreement  entered into in connection  with the
         sale of the trademark. Additionally, the supplier has the authority to
         establish and set the gaming prices,  and at its sole discretion,  may
         elect to terminate,  with 60 days notice, the agreement and remove all
         of its equipment and assets from the premises if gaming  revenues from
         its  equipment  did  not  reach  a  minimum  of  $3,500,000   for  any
         consecutive 12 month period.  In December  1998,  the  revenue-sharing
         agreement was amended to increase the  percentage of revenues  payable
         to the supplier to 16% of the net revenue, as defined,  and 50% of the
         excess over such amount.  In December  1999,  the  agreement was again
         amended to adjust the  amounts  payable to the  supplier to 21% of net
         revenues  through May 2000 and 22%  thereafter.  In August  2000,  the
         parties signed a Third  Amendment to Revenue  Sharing  Agreement which
         added release language from Skyline to the supplier,  clarification of
         payment  and  pricing  terms  and   modification   of  the  supplier's
         cancellation notice period from 60 days to 30 days.
<PAGE>
o        In  April  1996,  the  Company  entered   into   a   lease   at   1457
         Broadway  for  its  XS New  York  location.  This  lease  contained  a
         provision allowing the landlord to terminate the lease upon six months
         notice.  In the event the landlord  exercised this  termination  right
         during the first five years of the lease,  the Company was entitled to
         recover  a  portion  of its  leasehold  improvements  in the form of a
         termination fee. The maximum recovery was originally  $974,000 and was
         to be reduced to zero, on a straight-line  basis,  over 60 months.  In
         April  1999,  by  mutual  agreement  of the  parties,  this  lease was
         terminated  and in its place a stipulation  was  executed.  In general
         terms,  the stipulation  enabled the Company to continue to occupy the
         premises under the same terms as contained in the original lease,  but
         with a shorter  termination  notice  period  and a reduced  rent.  The
         notice  period was reduced from six months to four months and the rent
         was reduced by 25%. The Stipulation further provided that the landlord
         was entitled to recover this 25% rent reduction out of any termination
         fee which may be owed to the Company. In May 2000, the stipulation was
         amended to provide a revised method of calculating  rent,  forgiveness
         of past charges and a further  shortening  of the  termination  notice
         period from 4 months to 2 months. Under this revision, the Company was
         entitled to occupy the  premises  rent-free  for any week in which its
         gaming revenue did not exceed $32,500. The Company agreed to allow the
         landlord to recover any rent forgiven under this  arrangement  against
         the Company's $93,000 security deposit,  in addition to the landlord's
         previous  right to recover  against any  termination  fee which may be
         owed the  Company,  The  company  and  landlord  later  modified  this
         arrangement  such that the  Company is  entitled  to occupy  rent-free
         unless gaming revenue  reaches $37,500 per week. For gaming revenue in
         excess of $37,500 per week,  the company must pay 50% of the excess up
         to a maximum of $10,000 per week.

         The  Company  has  become  aware of plans by the  landlord  to sell the
         property  to a  developer.  The Company is not certain of the timing of
         the sale of such property or whether such  developer  will construct an
         office building on the site. As of June 30, 1998, the Company  recorded
         an impairment  loss and  wrote-down the carrying value of its assets at
         XS New  York as a  result  of the  published  reports  of a sale of the
         property.  No formal  notification  has been issued to date.

         Except for the financing facilities described above, the Company has no
other current arrangements in place with respect to financing.  As stated in the
report on the Company's  Financial  Statements for the year ended June 30, 2000,
the Company's ability to continue as a going concern is dependent upon continued
forbearance of the Company's institutional lenders because the Company currently
does not have available funds to repay these loans,  which,  if demanded,  would
cause  the  Company  to be in  default  under its other  agreements  with  these
lenders.  Accordingly,  the Company is in need of either  securing new financing
and/or attaining profitable operations.

         In the event that the Company is unable to sustain  positive cash flow,
the Company will need additional capital.  However, the Company has no assurance
that  additional  capital will be available on acceptable  terms,  if at all. In
such an event,  this would have a  materially  adverse  effect on the  Company's
business, operating results and financial condition.

Inflation

         The Company  believes  that the impact of inflation  on its  operations
since its inception has not been material.
<PAGE>
Seasonality

         The Company's business is seasonal in nature,  based in part, on higher
volumes of tourists in the New York City Metropolitan area during the spring and
summer months and during the December holiday season.

Item 7.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The response to this item is set forth at the end of this report.




<PAGE>
                                    PART III


Item 8.   CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS

         None.


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

            Our executive  officers,  directors and key employees and their ages
and positions with us as of June 30, 2000, are as follows:
<TABLE>
<CAPTION>


         Name                               Age      Position

<S>                                          <C>     <C>
         Steven Vocino                       45      Director


         Thomas Riordan                      41      Director

         John F. Barry, III                  48      Director

         Michael Leeb (1)                    41      Chief Operating Officer and Acting President

         Robert Brenner                      50      President, CEO and Director

         Ronald Aghassi                      34      Vice President of Finance, Secretary
</TABLE>
     (1) The agreement  pursuant to which Robert  Brenner acted as the Company's
President and Chief Executive  Offier expired on November 15, 2000 without being
renewed.  Michael Leeb has been  appointed  as the  Company's  Acting  President
effective as of November 16, 2000.

The following is a brief description of each officer and director listed above:

         Steven Vocino was  appointed by the Company's  Board in of Directors as
Chairman  of the  Board in 1998 to fill a  vacancy  thereon.  Mr.  Vocino is the
Founder and President of WTLN-TV, founded in 1989 the Teaching Learning Network,
an international television program supplier. Mr. Vocino's background includes a
variety of fully sponsored internationally televised sporting events (i.e., 1984
Summer Olympic Games,  the Traveling  Sportsman,  Tour of America and the Pan Am
Games).  Apart from sports programming,  Mr. Vocino has established an excellent
sponsor and  advertising  following  within the children's  programming  market.
Productions  include  Classroom of the Future,  College Bound, Pets and Vets and
Kids Cafe.  Mr.  Vocino  has  established  an  excellent  reputation  within the
broadcast,  cable and public television industry and has won numerous awards for
programming,  including  Telly,  Emmy,  Golden  Globe,  Golden  Apple,  Peabody,
International  Peace Through  Sports Awards and Children's  Television  Workshop
Awards.  In 1995,  Mr. Vocino assumed the  responsibilities  of president of New
Media Inc., a television production company focusing on the travel industry, and
was instrumental in its turnaround.

         Thomas  Riordan has been a  non-employee  director of the Company since
April 1998.  Since July 1998,  Mr.  Riordan has been the  Treasurer  of Brooklyn
Union Gas Company,  a public  utility  ("BUG"),  which  recently  merged to form
Keyspan  Energy Corp.  From July 1997 to June 1998,  Mr.  Riordan was Manager of
Financial  Management of BUG, and from October 1991 to June 1997, he was Manager
of Pension Trust Administration.  Mr. Riordan, through his positions at BUG, has
significant  experience  in all areas of  corporate  finance,  cash  management,
investment administration, and banking.

         John F. Barry III has been a non-employee director of the Company since
July 1995.  Mr.  Barry is an officer  and  director  of the  general  partner of
Prospect Street and also a partner of Prospect Street Investment Management,  an
institutional  private  equity  firm  managing  $300  million  and  which  is an
affiliate of the general partner of Prospect Street. Mr. Barry serves on various
boards,  including  BondNet Trading  Systems,  New Media,  Transitions  Research
Corporation and 24/7 Media, Inc. Mr. Barry was previously a securities  attorney
with Davis Polk & Wardwell  and a  corporate  finance  specialist  with  Merrill
Lynch.
<PAGE>
         Michael  Leeb  was  appointed as the Chief Operating Officer and Acting
President  of the Company in November  2000.  Mr. Leeb has been  employed by the
Company since  February 1994,  having served as the Director of Operations  from
February 1994 to June 1998, and as the Vice  President of Operations  from since
June  1998.  Prior  to  joining  the  Company,  Mr.  Leeb was  employed  by W.A.
Amusements  from February 1984 to December 1993,  having acted as the Operations
Manager for Splish Splash Water Park in Riverhead, New York.

         Robert Brenner has been the President,  Chief  Executive  Officer and a
director of the Company since November 1998.  Prior to joining the Company,  Mr.
Brenner had been serving as a senior adviser to Prospect Street Ventures. He was
Group President of ISS Technology  Group from 1995-1998.  From 1971 to 1995, Mr.
Brenner was Chairman and Chief Executive Officer of US Maintenance  Corporation,
a facility  services  contracting  company that he sold in 1995 to International
Service Systems, Inc., a $2.5 billion Danish facilities service company.

         Ronald  Aghassi has been the  Controller of the Company since June 1996
and the Vice  President of Finance and Secretary of the Company since June 1999.
Prior to joining the Company, Mr. Aghassi was employed as an Audit Supervisor by
Cornick,  Garber &  Sandler,  LLP  (which  firm has been the  Company's  current
auditors since June 1999), a medium-sized  regional  accounting  firm located in
New York City, from December 1994 to June 1996. From June 1988 through  December
1994, Mr.  Aghassi was employed as a certified  public  accountant  with various
accounting firms specializing in the entertainment industry.

         Directors  serve until the next annual meeting of stockholders or until
their successors are elected and qualified.  Officers serve at the discretion of
the Board of  Directors.  The Board of Directors  does not have any  committees.
Directors  who are not  salaried  employees  of the Company  receive  options to
purchase  25,000  shares  of  Common  Stock  upon  their  initial   election  or
appointment  to the Board and options to purchase  12,500 shares of Common Stock
upon their  re-election to the Board.  All of such options  granted as set forth
herein  are  exercisable  one year from the date of grant at an  exercise  price
equal to the fair market value on the date of grant.  Non-employee directors are
also entitled to reimbursement for reasonable expenses incurred in attending any
such meetings. In addition, Steven Vocino receives an annual retainer of $10,000
for his services as Chairman of the Board.

         Messrs.  Riordan and Vocino each  received  options to purchase  25,000
shares of Common Stock in July 1998 in connection with their appointments to the
Board.  In  addition,  in July 1998,  Steven  Vocino,  Chairman  of the Board of
Directors,  received 600,000 shares of restricted Common Stock of the Company in
consideration   for  services   rendered  to  the  Company  in  connection  with
negotiation of favorable settlements with certain of the Company's creditors.




<PAGE>
Item 10. EXECUTIVE COMPENSATION.

         The following  table  summarizes all  compensation  paid by the Company
with  respect to the fiscal  year ended June 30, 2000 paid by the Company to the
Company's Chief Executive Officer,  and all other executive officers whose total
cash  compensation  exceeded  $100,000  in the fiscal  year ended June 30,  2000
(collectively, the "Named Executive Officers").

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

                                Annual Compensation              Long-Term Compensation

                                                                Awards                       Payouts

                                                     Other       Restricted   Securities      LTIP Pay    All Other
Name and Principal      Year    Salary    Bonus ($)  Annual      Stock        Underlying      outs ($)    Compensation
Position                        ($)                  Compen      Award(s)     Options/                    ($)
                                                     -sation     ($)          SAR's (#)
                                                       ($)

Robert Brenner,
<S>                     <C>     <C>       <C>        <C>         <C>          <C>             <C>         <C>
President and Chief     2000    ---       166,000    216,000     ---          ---             ---         ---
Executive Officer(1)    1999    ---       136,000    135,000     ---          ---             ---         ---

</TABLE>

 (1) Mr.  Brenner  has acted as  President  and Chief  Executive  Officer of the
Company  pursuant to a  Consulting  Agreement  entered  into in  November  1998.
Accordingly, Mr. Brenner's compensation is reflective of the fees paid to him in
accordance  with said  agreement.  Furthermore,  his  compensation  for the 1999
fiscal year reflects the fact that he began rendering services to the Company in
November 1998. See "Executive Compensation - Employment and other Agreements."

Employment and Other Agreements

         In November 1998, the Company  entered into a consulting  agreement for
the services of Robert Brenner as its President and Chief Executive Officer. The
consulting agreement is for twenty-four months at $18,000 per month and provides
for additional incentive payments equal to 10% of the first $1,000,000 of EBITDA
(earnings  before interest,  taxes,  depreciation  and  amortization)  and 5% of
EBITDA in excess of $1,000,000, payable in semiannual installments.  Pursuant to
the  agreement,   the  Company  also  paid  a  one-time  $50,000  incentive  fee
attributable  to the  Company's  survival  through  October 15,  1999  without a
bankruptcy  filing. If a change of control of the Company occurs during the term
of the  agreement  or within  twelve  months of its  termination  to a party the
Company held discussions with during the term of the Agreement, the Company will
be required to pay 3% of the  transaction  proceeds or  $250,000,  whichever  is
greater.  The consulting agreement can be terminated by either party upon ninety
days written  notice.  If the Company  terminates or fails to offer to renew the
agreement,  a termination fee of $216,000 is payable. At least one member of the
Board of Directors of the Company has  questioned the due  authorization  of the
consulting agreement.

         In January 2000, the Company entered into an employment  agreement with
Michael Leeb, its Vice  President of Operations,  which expires in December 2001
but which may be cancelled by either party upon ninety days written notice.  The
agreement  provides for a base salary of $100,000 per year through December 2000
with a minimum increase of 5% thereafter.  Additionally,  the agreement provides
for an annual incentive bonus with a minimum of $15,000 per year.




<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The following table sets forth certain information as of June 30, 2000,
with respect to the number of shares of each class of voting stock  beneficially
owned by (i) those  persons  known to the  Company to be the owners of more than
five  percent  of any such  class of  voting  stock of the  Company,  (ii)  each
director of the Company and (iii) all directors  and  executive  officers of the
Company as a group. Unless otherwise  indicated,  each of the listed persons has
sole voting and investment power with respect to the shares  beneficially  owned
by such shareholder.
<TABLE>
<CAPTION>

                          COMMON STOCK                 CLASS A             SERIES A PREFERRED STOCK
                                                     COMMON STOCK

Name and Address    Beneficial     % of                       % of                        % of Total   % of
(1)                 Ownership      Total       Beneficial     Total      Beneficial       Outstanding  Actual
                                   Outstanding Ownership      OutstandingOwnership                     Voting
                                   (2)                                                                 Power (3)

<S>                 <C>            <C>         <C>     <C>    <C>        <C>       <C>    <C>          <C>
John F. Barry,      95,751,124     97.9%       290,000 (7)    100%       1,090,909 (8)    100%         38.5%
III (4)             (5)(6)(7)
                    (8)

Steven Vocino       625,000        28.6%       ---            ---        ---              ---          5.4%
(9)

Thomas Riordan      86,768,900     97.6%       ---            ---        ---              ---          ---
(10)                (11)

Robert Brenner      ---            ---         ---            ---        ---              ---          ---

The Bank of New     86,768,900     97.6%       ---            ---        ---              ---          ---
York, as Trustee    (11)
for the Employees
Retirement Plan
of Key Span
Energy Corp.

Prospect Street     95,731,124     97.9%       290,000 (7)    100%       1,090,909 (8)    100%         38.5% (12)
NYC Discovery       (6)(7)(8)
Fund, L.P.

All directors and   186,686,324    98.1%       290,000 (7)    100%       1,090,909 (8)    100%         43.9%
executive
officers as a
group (5
persons)(13)
</TABLE>

---------------------------
(1)  Unless  otherwise  noted,  the address of each of these  persons is c/o the
Company, 350 Fifth Avenue, New York, New York 10118.

(2)  Based on an  aggregate  of  2,095,000  shares of Common  Stock  issued  and
outstanding  as of the Record  Date,  and includes  shares  subject to currently
exercisable options and warrants for each person or group named.

(3) Does not  include  Common  Stock  issuable  upon  exercise  of  options  and
warrants,  and  assumes no  exercise  of the right of the holder of the Series A
Preferred  Stock to acquire up to 50.1% of the total voting power of the Company
and to elect a majority of the Board of Directors  under  certain  circumstances
and limits such holder's voting power to 24.9% of the total  outstanding  voting
power.
<PAGE>
(4)  Beneficial  ownership of all the  securities  set forth in (5)-(8) below is
attributed  to Mr. Barry  pursuant to his position as an officer and director of
the  general  partner  of  Prospect  Street  and its  affiliates.  See  "Certain
Relationships  and  Related   Transactions."  Mr.  Barry  disclaims   beneficial
ownership  of the  shares  of  Common  Stock,  Class A  Common  Stock,  Series A
Preferred  Stock and Warrants held by Prospect  Street and its  affiliates.  The
address of Prospect  Street is 10 East 40th Street,  44th Floor,  New York,  New
York 10016.

(5)  Includes  options to purchase  20,000  shares of Common  Stock held by such
individual which are currently exercisable.

(6)  Includes a warrant  held by Prospect  Street to  purchase up to  86,500,000
shares of Common Stock and  warrants to purchase up to 146,341  shares of Common
Stock,  all of which were received in connection  with certain loans provided to
the  Company.  In addition,  the  beneficial  ownership of Prospect  Street also
includes an aggregate of 52,700 shares of Common Stock, and warrants to purchase
up to 43,902 shares of Common Stock  received in  connection  with certain loans
provided to the Company,  which  securities  are held by  affiliates of Prospect
Street.

(7) Includes  290,000  shares of Class A Common Stock (which shares are entitled
to five  votes per share and vote  together  with the  Common  Stock as a single
class on all  matters to be voted on by the holders of the Common  Stock)  which
Prospect Street purchased from the Company's former  president,  subject to such
shares  being held as  collateral  for a loan,  and  pursuant to an  irrevocable
proxy, Prospect Street has the right to vote such shares.

(8)  Includes  1,090,909  shares of Series A  Preferred  Stock held by  Prospect
Street which, in the aggregate,  are convertible  into  approximately  7,538,181
shares of Common Stock and which vote together with the Common Stock as a single
class on all matters to be voted on by the holders of the Common  Stock;  except
that the  holder of the  Series A  Preferred  Stock has the  right,  voting as a
separate class, to elect two directors to the Company's Board of Directors.  Mr.
Barry is the designee of Prospect Street.  Pursuant to the terms of the Series A
Preferred  Stock,  Prospect Street will be able to vote up to 24.9% of the total
shares eligible to vote at the Meeting.  See footnote (15) below.  Additionally,
pursuant to the Certificate of Incorporation of the Company,  so long as 272,727
shares of Series A Preferred  Stock remain  outstanding,  and upon notice to the
Company, Prospect Street, as the holder of the Series A Preferred Stock, has the
right to obtain  up to 50.1% of the total  voting  power of the  Company  and to
elect a  majority  of the Board of  Directors  in the event the  holders  of the
Series A Preferred  Stock determine in good faith that such action is reasonably
necessary for the protection of their  investment.  Since  Prospect  Street is a
Small Business  Investment  Company  subject to the regulatory  oversight of the
SBA, the exercise of this control  provision  cannot be made  arbitrarily and is
subject to SBA review.

(9) Reflects (i) 600,000 shares of restricted Common Stock,  which shares became
unrestricted  on July 2, 1998,  and (ii)  options to purchase  20,000  shares of
Common Stock held by such individual which are currently exercisable.

(10) Mr. Riordan is the designee of Keyspan.

(11) Includes (i) a warrant held by Keyspan to purchase up to 86,500,000  shares
of Common Stock and a warrant to purchase 243,900 shares of Common Stock,  which
were received in connection with certain loans provided to the Company, and (ii)
options to purchase  20,000 shares of Common Stock held by Thomas  Riordan which
are  currently   exercisable.   Beneficial  ownership  of  such  securities  are
attributed to Keyspan and its affiliates.

(12)  Prospect  Street  is  a  Small  Business  Investment  Company  subject  to
regulatory oversight by the SBA. Pursuant to certain SBA restrictions,  Prospect
Street  will only be able to vote up to 24.9% of the total  shares  eligible  to
vote at the  Meeting,  subject to Prospect  Street's  right to vote 50.1% of the
total shares eligible to vote under certain circumstances.

(13) Includes all shares beneficially owned by Messrs. Barry and Vocino,  shares
beneficially held by Prospect Street and Keyspan,  and 4,000 shares beneficially
owned by Ronald Aghassi. See footnotes (4) through (9), (11) and (12) above.
<PAGE>
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         In December  1997,  the Company  borrowed  $500,000 from a bank bearing
interest  at the rate of 6.25% per annum that was  secured by a  Certificate  of
Deposit from Prospect Street. The loan from this bank, however,  was paid off in
full by Prospect Street in December 1999 and has been recorded by the Company as
a Senior Secured Promissory Note to Prospect Street.  Prospect Street has agreed
to honor the same terms as the Company previously had with the bank. The Company
is currently negotiating new terms and rate with Prospect Street.

         On April 15, 1998,  the Company and its  subsidiaries  entered into the
Senior Secured Credit  Agreement with Keyspan and Prospect Street (together with
Keyspan,  the  "Institutional  Investors")  relating  to  the  financing  of  an
aggregate of $935,000  ($500,000 from Keyspan and $435,000 from Prospect Street)
(the  "Financing"),  in exchange for receipt by the  Institutional  Investors of
senior  secured  promissory  notes (the "Notes") and the issuance of warrants to
purchase  shares of Common  Stock of the  Company  (the  "Warrants").  The Notes
matured on July 15, 1998 (the "Maturity  Date"),  accrue interest at a per annum
rate equal to 14% and are secured (with certain exceptions) by all the assets of
the Company and its subsidiaries. The Notes and the obligations under the Credit
Agreement and the Warrants are also  collateralized  by a pledge of the stock of
the Company's  subsidiaries.  In connection with the Credit  Agreement,  Keyspan
also  received  the right to  appoint  two  members  to the  Company's  Board of
Directors.  Further,  as a result of the issuance of Warrants in connection with
the  Financing,  the  conversion  rate of the Series A  Preferred  Stock held by
Prospect Street was adjusted from a conversion rate of one share of Common Stock
for each share of Series A Preferred  Stock to a conversion  rate of 6.91 shares
of Common Stock for each share of Series A Preferred Stock. On May 29, 1998, the
credit  agreement was amended to increase the loan amount funded by Keyspan from
an aggregate of $500,000 to $1,850,000  which increased the total financing from
$935,000 to $2,285,000. Additionally, subsequent to June 30, 1998, the financing
was further  amended to include under its terms the $500,000  demand loan to the
Company from Prospect Street in June 1997.

         The Warrants are  exercisable for 94% of the fully diluted Common Stock
of the  Company  (after  issuance)  at an  exercise  price of $.375  per  share.
Accordingly,  the exercise of such Warrants by the Institutional  Investors will
result in a  significant  change in the  ownership of the  Company.  The Company
approved this transaction after  consideration of its alternatives and financial
situation.  The Warrants are exercisable in the aggregate for  approximately 173
million  shares of Common  Stock (86.5  million for each of Keyspan and Prospect
Street) for an aggregate exercise price of approximately  $64.9 million,  or, at
the  option  of  the  holder,  pursuant  to a  cashless  exercise  feature,  the
difference in shares between 173 million shares and that number of shares having
a market value equal to $64.9 million (i.e. at a market price per share of $.40,
an aggregate of 10.8 million shares of Common Stock will be issued) resulting in
significant dilution to existing shareholders.

         The Company believes that all transactions  between the Company and its
officers, directors and employees described above are on terms no less favorable
to the Company than could have been  obtained  from  unaffiliated  parties under
similar circumstances.

Item 13. EXHIBITS, LIST, AND REPORTS ON FORM 8-K.

         (a)  Exhibits  are listed on the Index to  Exhibits  on page __ of this
report.  The Exhibits  required by Item 601 of Regulation S-B are listed on such
Index in response to this Item and are incorporated herein by reference.
<PAGE>
         (b)      Reports on Form 8-K:

                  None.


<PAGE>
                                   SIGNATURES

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

                     SKYLINE MULTIMEDIA ENTERTAINMENT, INC.


             By: /s/ Michael Leeb
                 Michael Leeb, Chief Operating Officer and Acting President


             By: /s/ Ronald H. Aghassi
                 Ronald H. Aghassi, Vice President of Finance

Dated: November 20, 2000

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

<TABLE>
<CAPTION>


<S>                                           <C>
Date:  November 20, 2000                      /s/ Steven Vocino
                                              Steven Vocino, Chairman of the Board


Date:  November 20, 2000                      /s/ Thomas Riordan
                                              Thomas Riordan, Director


Date:  November 20, 2000                      /s/ John F. Barry, III
                                              John F. Barry, III, Director

</TABLE>


<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS

Exhibit
Number                         Description


<S>              <C>
3.1              Certificate of Incorporation of the Company. (1)

3.2              By-laws of the Company. (1)

3.3              Certificate of Amendment of Certificate of Incorporation relating to the issuance of the Preferred
                 Stock. (2)

4.1              See Exhibits 3.1 and 3.2

10.1             The Company's 1994 Stock Incentive Plan (as Amended and Restated). (9)

10.2             The Company's Stock Option Plan for Non-Employee Directors (as Amended and Restated). (9)

10.3             Employment Agreement dated October 1, 1993 between the Company and Zalman Silber. (1)

10.4             Lease Agreement dated February 26, 1993 between the Company and Empire State Building Company. (1)

10.5             License Agreement dated February 26, 1993 between the Company and the Empire State Building
                 Company. (1)

10.6             Purchase Agreement dated February 14, 1994 between the Company and Interactive Simulation, Inc. (3)

10.7             Film Production Agreement dated April 7, 1994 between the Company and Empire Productions, Inc.,
                 and Chromavision Corp. (3)

10.8             Lease Agreement dated April 14, 1994 between the Company and the Empire State Building Company
                 relating to the Company's executive offices. (3)

10.9             Lease Agreement dated February 8, 1994 between the Company and the Empire State Building Company
                 relating to additional space. (3)

10.10            Construction contract dated July 5, 1994 between the Company and Signature Construction Group Inc.
                 (4)

10.11            Loan and security agreement dated November 16, 1994 between the Company and PhoenixCor, Inc. (5)

10.12            Employment Agreement dated August 15, 1994 between the Company and Steven Schwartz. (5)

10.13            Sponsorship Agreement dated February 21, 1995 between the Company and Dentsu USA, Inc. on behalf
                 of JVC Company of America. (6)

10.14            Stock Purchase Agreement, dated as of July 7, 1995, between the Company and Prospect Street Fund.
                 (2)

10.15            Registration Rights Agreement dated as of July 7, 1995 between the Company and Prospect Street
                 Fund relating to the Common Stock issuable upon conversion of the Preferred Stock. (2)
<PAGE>
10.16            Guarantee of Zalman Silber dated as of July 7, 1995 relating to the guarantee of the Company's
                 obligations under the Stock Purchase Agreement. (2)

10.17            Stockholders' Agreement dated as of July 7, 1995 between Zalman Silber and Prospect Street Fund.
                 (2)

10.18            Amendment to Employment Agreement dated June 29, 1995 between the Company and Zalman Silber. (7)

10.19            Agreement dated March 16, 1995 by and between Skyline, PhoenixCor, Inc. and Zalman Silber relating
                 to the release of certain security deposits; and the Rider dated March 16, 1995 to the Individual
                 Guaranty of Zalman Silber. (7)

10.20            Lease amendment dated March 1996 between the Company and the Empire State Building relating to
                 additional space. (8)

10.21            Amendment dated March 1996, to the Company's original lease and license agreement with the Empire
                 State Building Company. (8)

10.22            Lease agreement dated March 1996 between the Company and One Times Square Center Partners, L.P.,
                 for space located at 1457-1463 Broadway, New York, N.Y. (8)

10.23            Lease agreement dated September 5, 1996 between the Company and Woodfield Associates, for space
                 located at the Woodfield Mall in Schaumberg, Illinois. (9)

10.24            Letter of Intent relating to senior unsecured subordinated debt financing dated October 23, 1996,
                 between the Company and Prospect Street. (10)

10.25            Note Purchase Agreement dated November 6, 1996, between the Company and Prospect Street. (10)

10.26            Guarantee of Zalman Silber dated November 6, 1996 relating to the Note Purchase Agreement. (10)

10.27            Senior Credit Agreement dated December 20, 1996, between the Company and Prospect Street and Bank
                 of New York as Trustee for the Employees Retirement Plan of The Brooklyn Union Gas Company. (11)

10.28            Subsidiary Guaranty Agreement dated December 20, 1996, between the Company and Prospect Street.
                 (11)

10.29            Indemnity, Subrogation and Contribution Agreement dated December 20, 1996, between the Company and
                 Prospect Street. (11)

10.30            Amended and restated Registration Rights Agreement dated December 20, 1996, between the Company,
                 Prospect Street, and Bank of New York as Trustee for the Employees Retirement Plan of The Brooklyn
                 Union Gas Company. (11)

10.31            Senior Promissory Note dated December 20, 1996, between the Company and Prospect Street. (11)

10.32            Senior Promissory Note dated December 20, 1996 between the Company and Bank of New York as Trustee
                 for the Employees Retirement Plan of The Brooklyn Union Gas Company. (11)

10.33            Stock Purchase Warrant Agreements dated December 20, 1996, between the Company, Prospect Street,
                 and Bank of New York as Trustee for the Employees Retirement Plan of The Brooklyn Union Gas
                 Company. (11)

<PAGE>
10.34            Loan and Security Agreement dated December 4, 1996, between the Company and People's Bank. (11)

10.35            Loan and Security Agreement dated December 4, 1996, between the Company and Independent Resources
                 Inc. (11)

10.36            Loan and Security Agreement dated December 4, 1996, between the Company and PhoenixCor, Inc. (11)

10.37            Guarantees of Zalman Silber dated December 4, 1996 relating to the Loan and Security Agreements
                 with People's Bank and PhoenixCor, Inc. (11)

10.38            Senior Promissory Note dated February 18, 1997 between the Company and Bank of New York, as
                 Trustee for the Employees Retirement Plan of The Brooklyn Union Gas Company. (12)

10.39            Senior Promissory Note dated March 14, 1997 between the Company and Prospect Street NYC
                 Co-Investment Fund, L.P. (12)

10.40            Senior Promissory Note dated March 21, 1997 between the Company and Bank of New York, as Trustee
                 for Brooklyn Union Gas Company Non-Bargaining Health VEBA. (12)

10.41            Stock Purchase Warrant Agreement dated February 18, 1997 between the Company and Bank of New York,
                 as Trustee for the Employee Retirement Plan of The Brooklyn Union Gas Company. (12)

10.42            Stock Purchase Warrant Agreements dated March 14, 1997 between the Company and Prospect Street NYC
                 Co-Investment Fund, L.P. (12)

10.43            Stock Purchase Warrant Agreement dated March 21, 1997 between the Company and Bank of New York, as
                 Trustee for Brooklyn Union Gas Company Non-Bargaining Health VEBA. (12)

10.44            Purchase Agreement, dated as of November 4, 1997, by and among the Company, Skyline Virtual
                 Reality, Inc. ("SVR") and Namco Cybertainment, Inc. ("Namco"). (13)

10.45            Trademark License Agreement, dated as of November 4, 1997, between SVR and Namco. (13)

10.46            Revenue-Sharing Agreement, dated as of November 4, 1997, by and among the Company, SVR and
                 Namco. (13)

10.47            Employment Agreement dated as of December 1, 1997 between the Company and Zalman Silber. (14)

10.48            Senior Secured Credit Agreement dated as of May 20, 1998 among the Company's and its subsidiaries
                 and Prospect Street and Bank of New York, as Trustee for the Employees Retirement Plan of Keyspan
                 Energy Corp. ("Keyspan", and together with Prospect Street, the "Institutional Investors"). (15)

10.49            Form of Warrants to Purchase Common Stock to be issued to the Institutional Investors. (15)

10.50            Senior Secured Demand Promissory Notes dated as of May 20, 1998 issued to the Institutional
                 Investors. (15)

10.51            Security Agreement dated as of May 20, 1998 among the Company and its subsidiaries and the
                 Institutional Investors. (15)


<PAGE>
10.52            Pledge Agreement dated as of May 20, 1998 among the Company and its subsidiaries and the
                 Institutional Investors. (15)

10.53            Amended and Restated Separation Agreement and General Release dated as of May 20, 1998. (15)

10.53A           First Amendment to Senior Secured Credit Agreement dated as of May 29, 1998 among the Company and
                 its subsidiaries and the Institutional Investors. (16)

10.54            Employment Agreement dated as of May 12, 1998 between the Company and Steven Schwartz. (16)

10.55            Employment Agreement dated as of June 15, 1998 between the Company and Jay Berkman. (16)

10.56            Debt to Equity Conversion Agreement dated as of September 2, 1998. (17)

10.57            Registration Rights Agreement dated as of September 2, 1998. (17)

10.58            Form of Certificate of Amendment to Certificate of Incorporation. (17)

10.59            Consulting  Agreement  dated as of July 14,  1999,  between the
                 Company and Robert Brenner.

10.60            Employment  Agreement dated as of January 13, 2000, between the
                 Company and Michael Leeb.

10.61            Amendment to Lease Agreement between the Company and One Times Square Center Partners, L.P., for
                 space located at 1457-1463 Broadway, New York, N.Y., dated June 1, 2000.

10.62            Third Amendment to Revenue Sharing Agreement, dated as of August 2, 2000, by and among the
                 Company, Skyline Virtual Reality Inc., d/b/a/ XS New York, and Namco Cybertainment, Inc.

21               Subsidiaries of the Company. (9)

23               Letter from Fichard A. Eisner & Company, LLP to the Securities & Exchange Commission, dated June
                 4, 1999. (18)

27.1             Financial Data Schedule.

</TABLE>
     (1) Previously  filed as an exhibit to Registration  Statement on Form SB-2
(Commission File No. 33-73276) declared effective on February 14, 1994.

     (2) Previously filed as an exhibit to the Company's  current report on Form
8-K filed on July 21, 1995.

     (3) Previously  filed as an exhibit to the Company's  annual report on Form
10-KSB for the fiscal year ended June 30, 1994.

     (4)  Previously  filed as an exhibit to the Company's  quarterly  report on
Form 10-QSB for the quarter ended September 30, 1994.

     (5)  Previously  filed as an exhibit to the Company's  quarterly  report on
Form 10-QSB for the quarter ended December 31, 1994.

     (6)  Previously  filed as an exhibit to the Company's  quarterly  report on
Form 10-QSB for the quarter ended March 31, 1995.
<PAGE>
     (7) Previously  filed as an exhibit to the Company's  annual report on Form
10-KSB for the fiscal year ended June 30, 1995.

     (8)  Previously  filed as an exhibit to the Company's  quarterly  report on
Form 10-QSB for the quarter ended March 31, 1996.

     (9) Previously  filed as an exhibit to the Company's  annual report on Form
10-KSB for the fiscal year ended June 30, 1996.

     (10) Previously  filed as an exhibit to the Company's  quarterly  report on
Form 10-QSB for the quarter ended September 30, 1996.

     (11) Previously  filed as an exhibit to the Company's  quarterly  report on
Form 10-QSB for the quarter ended December 31, 1996.

     (12) Previously  filed as an exhibit to the Company's  quarterly  report on
Form 10-QSB for the quarter ended March 31, 1997.

     (13) Previously  filed as an exhibit to the Company's  quarterly  report on
Form 10-QSB for the quarter ended September 30, 1997.

     (14) Previously  filed as an exhibit to the Company's  quarterly  report on
Form 10-QSB for the quarter ended December 31, 1997.

     (15) Previously  filed as an exhibit to the Company's  quarterly  report on
Form 10-QSB for the quarter ended March 31, 1998.

     (16) Previously filed as an exhibit to the Company's current report on Form
8-K filed on July 10, 1998.

     (17) Previously filed as an exhibit to the Company's current report on Form
8-K filed on September 17, 1998.

     (18) Previously filed as an exhibit to the Company's current report on Form
8-K, filed on June 6, 1999.
<PAGE>
                     SKYLINE MULTIMEDIA ENTERTAINMENT, INC.
                                AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                                  JUNE 30, 2000


<PAGE>





                          Independent Auditors' Report


To The Board of Directors and Stockholders
Skyline Multimedia Entertainment, Inc.


                We have audited the accompanying  consolidated  balance sheet of
SKYLINE MULTIMEDIA ENTERTAINMENT,  INC. AND SUBSIDIARIES as at June 30, 2000 and
the related consolidated statements of operations, changes in capital deficiency
and cash  flows for each of the two years in the  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 audit.

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

                In our  opinion,  the  financial  statements  referred  to above
present fairly, in all material respects, the consolidated financial position of
Skyline Multimedia Entertainment, Inc. and Subsidiaries as at June 30, 2000, and
the consolidated  results of their operations and their  consolidated cash flows
for each of the two years in the period ended June 30, 2000, in conformity  with
generally accepted accounting principles.

                The  accompanying   financial   statements  have  been  prepared
assuming that the Company will continue as a going concern. As discussed in Note
A to the financial  statements,  the Company has experienced  significant losses
before  extraordinary items in recent years and at June 30, 2000 has substantial
negative working capital and a substantial  capital  deficiency,  it is possible
that the Company may have to vacate its virtual  reality  game-site prior to the
scheduled  termination  of the  lease  and the  Company  is  dependent  upon the
continued  forbearance  of its principal  creditors in not demanding  payment of
outstanding  indebtedness.  These  factors  raise  substantial  doubt  about the
Company's ability to continue as a going concern.  Management's  plans in regard
to these matters are also  described in Note A. The financial  statements do not
include any adjustments that might result from the outcome of this uncertainty.


                                               \s\CORNICK, GARBER & SANDLER, LLP
                                                  CERTIFIED PUBLIC ACCOUNTANTS




New York, New York
August 30, 2000
<PAGE>
             SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                               AS AT JUNE 30, 2000

                                     ASSETS
                             (To the nearest $1,000)
<TABLE>
<CAPTION>

Current assets:
<S>                                                                                                  <C>
   Cash                                                                                              $   1,309,000
   Inventory                                                                                               146,000
   Prepaid expenses and other current assets                                                               233,000
                                                                                                   ---------------

                  Total current assets                                                                   1,688,000

Property, equipment and leasehold improvements - net                                                     3,892,000
Security deposits                                                                                          174,000
Deferred financing costs                                                                                   243,000
Other assets - net                                                                                          12,000
                                                                                                  ----------------

                  T O T A L                                                                          $   6,009,000
                                                                                                     =============

                                   LIABILITIES

Current liabilities:
   Capital lease obligations - current portion                                                      $      198,000
   Notes payable - institutional lenders                                                                 3,285,000
   Accounts payable                                                                                        714,000
   Accrued expenses                                                                                        368,000
   Interest payable - institutional lenders                                                                684,000
                                                                                                   ---------------

                  Total current liabilities                                                              5,249,000

Capital lease obligations - less current portion                                                            29,000
Notes payable - institutional lenders                                                                    4,450,000
Deferred rent payable                                                                                    1,161,000
Interest payable - institutional lenders                                                                 2,424,000
                                                                                                    --------------

                                                                                                        13,313,000

Commitments and contingencies (Notes H and M)

                               CAPITAL DEFICIENCY

Preferred stock, par value $.001, 5,000,000 shares authorized,  1,090,909 shares
   of Series A convertible participating preferred
   stock issued and outstanding (liquidating value $2.75 per share)                                          1,000
Common stock - $.001 par value; authorized 19,000,000 shares,
   one vote per share, issued 2,095,000 shares                                                               2,000
Class A common stock - $.001 par value; authorized 1,000,000 shares,
   five votes per share, issued 960,000 shares                                                               1,000
Treasury stock, 110,000 shares of common stock and 670,000 shares
   of Class A common stock at cost                                                                        (601,000)
Additional paid-in capital                                                                              10,848,000
Accumulated deficit                                                                                    (17,555,000)
                                                                                                     -------------

                  Total capital deficiency                                                              (7,304,000)
                                                                                                    --------------

                  T O T A L                                                                          $   6,009,000
                                                                                                     =============
</TABLE>

            The notes to financial statements are made a part hereof.
<PAGE>
             SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES

                   STATEMENTS OF CHANGES IN CAPITAL DEFICIENCY
                             (To the nearest $1,000)
<TABLE>
<CAPTION>





                                                  Class A           Series A               Additional
                               Common Stock     Common Stock   Preferred Stock   Treasury   Paid-in      Accumulated
                             Shares   Amount  Shares   Amount  Shares    Amount    Stock    Capital       Deficit         Total

<S>            <C>         <C>        <C>     <C>      <C>     <C>       <C>     <C>        <C>          <C>            <C>
Balance - July 1, 1998     1,495,000  $2,000  960,000  $1,000  1,090,909 $1,000  $(601,000) $10,679,000  $(13,766,000)  $(3,684,000)

Common shares issued as
   payment for services      600,000                                                            169,000                     169,000

Net (loss) for the year
   ended June 30, 1999                                                                                     (3,994,000)   (3,994,000)
                           ---------  ------  -------  ------  --------- ------  ----------  ----------- -------------  ------------

Balance - June 30, 1999    2,095,000   2,000  960,000  $1,000  1,090,909  1,000   (601,000)   10,848,000  (17,760,000)   (7,509,000)

Net income for the year
ended June 30, 2000                                                                                           205,000       205,000
                           ---------  ------  -------  ------  --------- ------  ----------   ----------- ------------- ------------

BALANCE - JUNE 30, 2000    2,095,000  $2,000  960,000  $1,000  1,090,909 $1,000  $(601,000)   $10,848,000 $(17,555,000) $(7,304,000)
                           =========  ======  =======  ======  ========= ======  ==========   =========== ============= ============
</TABLE>



            The notes to financial statements are made a part hereof.


<PAGE>
             SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                             (To the nearest $1,000)

<TABLE>
<CAPTION>


                                                                                            Year Ended
                                                                                              June 30,
                                                                                ----------------------------------
                                                                                     2000               1999
                                                                                ---------------   ----------------

Revenues:
<S>                                                                                <C>                <C>
   Attraction sales                                                                $  9,108,000       $  8,359,000
   Concessions sales                                                                  1,092,000          1,143,000
   Sponsorship income                                                                    23,000            101,000
                                                                                ---------------     --------------

                                                                                     10,223,000          9,603,000
                                                                                   ------------      -------------

Operating expenses:
   Cost of merchandise sold                                                             440,000            515,000
   Selling, general and administrative                                                8,999,000          9,576,000
   Depreciation and amortization                                                      2,119,000          2,028,000
   Loss on impairment of long-lived assets                                                                 300,000
                                                                                ---------------     --------------

                                                                                     11,558,000         12,419,000

(Loss) before interest income and
   expense and extraordinary item                                                    (1,335,000)        (2,816,000)

Interest income                                                                          33,000             44,000

Interest expense                                                                     (1,139,000)        (1,435,000)
                                                                                ---------------     --------------

(Loss) before extraordinary item                                                     (2,441,000)        (4,207,000)

Extraordinary gains from settlements of liabilities                                   2,646,000            213,000
                                                                                ---------------     --------------

NET INCOME (LOSS)                                                                 $     205,000       $ (3,994,000)
                                                                                  =============       ============

Income (loss) per share of common stock - basic and diluted:
   (Loss) before extraordinary item                                                     $(1.07)             $(1.85)
                                                                                  =============       ============

   Net income (loss)                                                                    $  .09              $(1.76)
                                                                                  =============       ============

Weighted number of average common shares outstanding                                 2,275,000           2,275,000
                                                                                  =============       ============

</TABLE>


            The notes to financial statements are made a part hereof.
<PAGE>

             SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (To the nearest $1,000)
<TABLE>
<CAPTION>

                                                                                              Year Ended
                                                                                               June 30,
INCREASE (DECREASE) IN CASH                                                            2000             1999
                                                                                  --------------   ---------------

Cash flows from operating activities:
<S>                                                                                 <C>                <C>
   Net income (loss)                                                                $    205,000       $(3,994,000)
                                                                                    ------------       -----------

   Adjustments  to  reconcile  results  of  operations  to net  cash  effect  of
   operating activities:
      Loss on impairment of long-lived assets                                                              300,000
      Noncash gains on restructuring of liabilities                                   (2,762,000)         (213,000)
      Depreciation and amortization                                                    2,119,000         2,237,000
      Deferred rent payable                                                              167,000           500,000
      Fair value of common stock issued as payment
         for services                                                                                      169,000
      Net changes in assets and liabilities:
         Inventory                                                                       (24,000)           12,000
         Prepaid expenses and other current assets                                      (194,000)          185,000
         Security deposits                                                               151,000           554,000
         Accounts payable and accrued liabilities                                        687,000            89,000
         Due to contractors                                                             (115,000)
         Interest payable - institutional lenders                                      1,051,000         1,013,000
         Deferred sponsorship income                                                     (23,000)          (26,000)
                                                                                 ---------------    --------------

             Total adjustments                                                         1,057,000         4,820,000
                                                                                   -------------      ------------

             Net cash provided by operating activities                                 1,262,000           826,000

Cash flows from investing activities:
   Purchase of fixed assets                                                             (154,000)         (257,000)

Cash flows from financing activities:
   Repayment of capital lease obligations                                               (579,000)       (1,285,000)
                                                                                   -------------      ------------

NET INCREASE (DECREASE) IN CASH                                                          529,000          (716,000)

Cash - July 1                                                                            780,000         1,496,000
                                                                                   -------------     -------------

CASH - JUNE 30                                                                       $ 1,309,000     $     780,000
                                                                                   =============     =============
</TABLE>





(Continued)
<PAGE>
             SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                       -2-

<TABLE>
<CAPTION>


                                                                                              Year Ended
                                                                                               June 30,
                                                                                     -----------------------------
                                                                                        2000              1999
                                                                                     -----------      ------------

Supplemental disclosures of cash flow information:
  Cash paid for:
<S>                                                                                      <C>              <C>
      Interest                                                                           $89,000        $  210,000
                                                                                         =======        ==========

      Taxes                                                                                             $    2,000
                                                                                                        ==========

   Equipment acquired under a capital lease agreement                                                   $   28,000
                                                                                                        ==========


</TABLE>


























            The notes to financial statements are made a part hereof.
<PAGE>
             SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS



NOTE A -     The Company

             Skyline Multimedia Entertainment, Inc. ("SME") is a holding company
             engaged  in  the  development  and  operation  of  state-of-the-art
             entertainment   attractions  and  together  with  its  wholly-owned
             subsidiaries,  New York Skyline,  Inc. ("NYSI") and Skyline Virtual
             Reality,  Inc.  ("SVR") are referred to as the "Company." Its first
             site,  which is located in the Empire  State  Building  in New York
             City, is owned and operated by NYSI which  commenced  operations of
             its "New York Skyride"  facility on December 22, 1994. Its revenues
             for the years  ended  June 30,  2000 and 1999 were  $7,059,000  and
             $6,013,000,  respectively.  The  second  site,  which is located in
             Times Square  ("XS") in New York City, is owned and operated by SVR
             which  commenced  operations  of its  interactive  virtual  reality
             entertainment  center on December  27,  1996.  Its revenues for the
             years ended June 30, 2000 and 1999 were  $3,164,000 and $3,590,000,
             respectively.

             The  Company's  business is somewhat  seasonal in nature,  based in
             part on higher  volumes  of  tourists  during the spring and summer
             months and holiday seasons.

             The  accompanying  financial  statements  have been  prepared  on a
             going-concern  basis.  As reflected in the  accompanying  financial
             statements,  the Company has  experienced  recurring  losses before
             extraordinary  items from  operations and as of June 30, 2000 has a
             working capital  deficiency of $3,561,000 and a capital  deficiency
             of $7,304,000.  In addition,  the Company has become aware of plans
             by the  landlord of its XS Site to sell the property to a developer
             which would cause a  cancellation  of its lease upon 60 days notice
             to the Company by the landlord. As further indicated in Note H, the
             Company's  borrowings  from  institutional  lenders  and  investors
             includes  borrowings  which  are  due on  demand.  The  Company  is
             dependent on the continued forbearance of these lenders because the
             Company  currently  does not have  available  funds to repay  these
             loans, which, if demanded, would cause the Company to be in default
             under its other  agreements  with these lenders.  The above factors
             give rise to substantial  doubt as to the ability of the Company to
             continue as a going concern.  In December 1999, the Company settled
             its on-going  lease  disputes with its landlord at the Empire State
             Building  (see Note M) and in May 2000,  the Company  negotiated  a
             further  revision  to its XS  lease  (see  Note  H).  In  addition,
             management has been reviewing and reducing  operating  expenses and
             focusing on its  marketing  efforts on the Empire  State  Building.
             Management is hopeful that its efforts to increase  visitors to the
             site will be successful. The accompanying financial statements have
             not been adjusted to give effect to the amount or classification of
             recorded  assets or the  classification  and amount of  liabilities
             should the Company be unable to continue as a going concern.



(Continued)
<PAGE>
             SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS
                                       -2-

NOTE B -     Summary of Significant Accounting Policies

             Principles of Consolidation

             The  consolidated  financial  statements of the Company include the
             accounts of the Company and its wholly-owned subsidiaries. Material
             intercompany transactions and account balances have been eliminated
             in consolidation.

             Income (Loss) Per Share

             Basic income  (loss) per share is calculated by dividing net income
             (loss) by the weighted average number of outstanding  common shares
             during the year.  Diluted  per share data  includes  the effects of
             options,  warrants  and  convertible  securities,   when  they  are
             dilutive.   Because  all   potential   common  shares  were  either
             antidilutive  or nondilutive  for the years ended June 30, 2000 and
             1999, they are not included in the calculation of diluted per share
             amounts.

             Inventory

             Inventory consists of clothing, souvenirs and food and is stated at
             the lower of cost (first-in, first-out) or market.

             Property, Equipment and Leasehold Improvements

             Property and  equipment,  including  assets under capital leases is
             stated at cost less accumulated  depreciation  unless impaired,  in
             which case a charge is recognized  for the write down of such asset
             to its estimated net realizable amount. Depreciation is provided on
             the  straight-line  method  over the two to twelve  year  estimated
             useful lives of the assets.  Leasehold  improvements  are amortized
             using the  straight-line  method over the shorter of the lease term
             or the estimated useful life of the asset.

             Rent Expense

             The  Company,  for  financial   accounting   purposes,   recognizes
             scheduled  rent  increases  and rent  holidays over the term of the
             lease using the straight-line method.

             Use of Estimates

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

(Continued)
<PAGE>
             SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS
                                       -3-



NOTE B -     Summary of Significant Accounting Policies (Continued)

             Stock-Based Compensation

             Stock-based  compensation  is  recognized  under the  provisions of
             Statement of Financial  Accounting  Standards No. 123,  "Accounting
             for Stock-Based  Compensation"  ("SFAS No. 123"). The provisions of
             SFAS No. 123 allow  companies to either  expense the estimated fair
             value of  employee  stock  options  or to  continue  to follow  the
             intrinsic  value method set forth in  Accounting  Principles  Board
             Opinion No. 25,  "Accounting  for Stock Issued to Employees"  ("APB
             25"),  but disclose the pro forma  effects on net loss and net loss
             per share had the fair  value of the  options  been  expensed.  The
             Company has elected to continue to apply APB 25 in  accounting  for
             its employee stock option incentive plans (see Note J).

             Fair Value of Financial Instruments

             The Company's  financial  instruments  are  comprised  primarily of
             demand notes,  notes payable,  capitalized  leases and senior debt.
             Because of the  financial  condition of the Company,  management is
             unable to estimate the fair values of these obligations.

             Impairment of Long-Lived Assets

             The Company periodically reviews all its long-lived assets whenever
             events or  changes  in  circumstances  indicate  that the  carrying
             amount of such assets may not be recoverable.

             For the year ended June 30, 1999,  the Company  recorded a $300,000
             impairment loss on a cancelled project in Sidney, Australia.

             Advertising

             Advertising  costs are expensed when  incurred.  Advertising  costs
             were  $303,000  and  $338,000 for the years ended June 30, 2000 and
             1999, respectively.




(Continued)
<PAGE>
             SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS
                                       -4-

NOTE C -     Concentration of Credit Risk

             The  Company  maintains  all of its cash  with  highly  capitalized
             financial  institutions.  However, since such balances often exceed
             the $100,000 FDIC insurance limit, such excess is not insured.


NOTE D -     Property, Equipment and Leasehold Improvements

             Property,  equipment  and leasehold  improvements  is summarized as
             follows:
<TABLE>
<CAPTION>

<S>                                                                                         <C>
                 Equipment and fixtures                                                     $  1,957,000
                 Simulation film                                                               1,070,000
                 Simulation equipment                                                          2,324,000
                 Leasehold improvements                                                        5,596,000
                                                                                           -------------
                                                                                              10,947,000

                 Less accumulated depreciation and amortization                                7,055,000
                                                                                           -------------
                                                                                            $  3,892,000
                                                                                           =============
</TABLE>

NOTE E -     Capital Lease Obligations

             The future minimum lease  payments under capital lease  obligations
             as of June 30, 2000 are as follows:
<TABLE>
<CAPTION>

                 Year Ending June 30:
<S>                  <C>                                                                        <C>
                     2001                                                                       $223,000
                     2002                                                                         18,000
                     2003                                                                          7,000
                     2004                                                                          7,000
                                                                                             -----------
                     Total minimum lease payments                                                255,000

                     Less amount representing interest at
                         9.2% to 11.5% a year                                                     28,000
                                                                                             -----------
                     Present value of minimum lease payments                                     227,000
                     Less current portion                                                        198,000
                                                                                             -----------
                     Long-term portion                                                         $  29,000
                                                                                             ===========

(Continued)

</TABLE>

<PAGE>
             SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS
                                       -5-



NOTE F -     Notes Payable

             In  December  1996,  the  Company  entered  into  a  Senior  Credit
             Agreement  with the Bank of New York as trustee  for the  Employees
             Retirement  Plan of Keyspan Energy Corp.  ("Keyspan")  and Prospect
             Street NYC Discovery Fund, L.P.  ("Prospect Street") (together with
             Keyspan, the "Institutional Investors"). The agreement (as amended)
             provided  for the  borrowing  of  $4,450,000  in the form of senior
             notes which  accrue  interest at 14% a year and require the payment
             of both  principal and interest on December 20, 2001. In connection
             with  the  subordinated  debt,  the  lender  received  warrants  to
             purchase up to 434,146  shares of common stock at an exercise price
             of $4.25  per  share  which the  Company  valued  at  approximately
             $712,000 using the Black-Scholes pricing model. The warrants expire
             on December 20, 2006.

             In December 1997, the Company  received a $500,000 demand loan from
             a bank  bearing  interest  at  6.25% a year  that is  secured  by a
             certificate of deposit from Prospect Street.

             On May 20, 1998,  the Company and its  subsidiaries  entered into a
             Senior Secured Credit  Agreement (the "Credit  Agreement") with the
             Institutional  Investors  relating to the financing of an aggregate
             of  $2,785,000  (the  "Financing")  in exchange  for receipt by the
             Institutional  Investors of senior  secured  promissory  notes (the
             "Notes") and the issuance of warrants to purchase  shares of Common
             Stock of the Company (the "Warrants"). The Notes, which are payable
             on demand,  accrue  interest  at 14% a year and are  secured  (with
             certain  exceptions)  by all  the  assets  of the  Company  and its
             subsidiaries  not otherwise  pledged.  In December  1999,  Prospect
             Street  repaid  the  $500,000  bank loan on behalf of the  Company.
             While the Company and Prospect Street are now negotiating the terms
             of this loan,  Prospect  Street has agreed to extend the same terms
             and  rate  as  existed  under  the  bank  loan.  The  Institutional
             Investors have not demanded payment of the Notes. The Notes and the
             obligations  under the Credit  Agreement  and the Warrants are also
             collateralized   by  a  pledge  of  the  stock  of  the   Company's
             subsidiaries. In connection with the Credit Agreement, Keyspan also
             received the right to appoint two members to the Company's Board of
             Directors.  Further,  as a result of the  issuance  of  Warrants in
             connection with the Financing,  the conversion rate of the Series A
             Preferred Stock (the "Preferred Stock") held by Prospect Street was
             adjusted  from a  conversion  rate of one share of Common Stock for
             each share of Preferred  Stock to a conversion  rate of 6.91 shares
             of Common Stock for each share of Preferred Stock.



(Continued)
<PAGE>
             SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS
                                       -6-



NOTE F -     Notes Payable (Continued)

             The Warrants are  exercisable  for 94% of the fully diluted  Common
             Stock of the Company (after issuance) at an exercise price of $.375
             per  share.  Accordingly,  the  exercise  of such  Warrants  by the
             Institutional Investors would result in a significant change in the
             ownership of the Company.  The Company  approved  this  transaction
             after  consideration of its  alternatives and financial  situation.
             The Warrants are exercisable for  approximately  173 million shares
             of Common Stock at an  aggregate  exercise  price of  approximately
             $64.9  million  or,  at the  option  of the  holder  pursuant  to a
             cashless  exercise  feature,  based  on the  difference  in  shares
             between  173  million  shares  and that  number of shares  having a
             market value equal to $64.9  million  (e.g.,  at a market price per
             share of $.40, an aggregate of 10.8 million  shares of Common Stock
             would be  issued).  Either  exercise  would  result in  significant
             dilution  to  existing  shareholders  which could also result in an
             annual  limitation in the future  utilization  of the Company's net
             operating loss carryforwards.


NOTE G -     Income Taxes

             The principal  components of deferred tax assets,  liabilities  and
             the valuation allowance are as follows:
<TABLE>
<CAPTION>

                                                                                    June 30,
                                                                       ----------------------------------
                                                                            2000                1999
                                                                       ---------------    ---------------
                 Deferred tax assets:
<S>                                                                      <C>                 <C>
                    Capitalization of start-up costs                     $     14,000        $   136,000
                    Depreciation differences                                1,957,000          1,863,000
                    Net operating loss carryforwards                        6,040,000          5,676,000
                                                                          -----------        -----------

                                                                            8,011,000          7,675,000

                    Less valuation allowance                               (8,011,000)        (7,675,000)
                                                                          -----------        -----------


                 Net deferred tax asset                                $    --             $     --
                                                                       ==============      =============

</TABLE>





(Continued)
<PAGE>
             SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS
                                       -7-

NOTE G -     Income Taxes (Continued)

             The  Company has  provided  valuation  allowances  equal to its net
             deferred  tax  assets  at June 30,  2000  and June 30,  1999 due to
             uncertainty of the Company being able to use this benefit to offset
             future taxable income.  The Company will periodically  evaluate the
             likelihood  of  realizing  such asset and will  adjust  such amount
             accordingly.

             At June 30, 2000,  the Company has  available  net  operating  loss
             carryforwards   to  reduce  future   federal   taxable   income  of
             approximately  $13,400,000 for tax reporting  purposes which expire
             from 2010 through 2020.  Pursuant to the provisions of the Internal
             Revenue  Code,  future  utilization  of these  past  losses  may be
             subject  to  certain  annual  limitations  based on  changes in the
             ownership of the Company's stock that may occur.


NOTE H -     Commitments

             The Company  leases space for its Skyride  attraction in the Empire
             State  Building  pursuant to an  operating  lease  expiring in June
             2016.  The lease provides for free rent or rent credits for various
             periods; rental expense is recognized on a straight-line basis over
             the life of the lease.  Additionally,  the Company  occupies office
             space under a lease which expired on October 31, 1999.  The Company
             is currently negotiating the terms of a new lease with the landlord
             and  is  paying  rent  on  a  month-to-month  basis  at a  rate  of
             approximately $9,200 per month.

             The Company occupies space to house its interactive virtual reality
             entertainment  center.  In April 1999,  the lease was  renegotiated
             under  the  terms  of  a  stipulation  agreement.  The  stipulation
             agreement  provided  for  a  25%  reduction  of  rent  offset  by a
             reduction of a  termination  fee from the landlord in the event the
             landlord exercises a cancellation  clause as provided in the lease.
             Additionally,  it required that, upon  notification by the landlord
             of its exercise of the cancellation  clause, the Company vacate the
             premises within four months.

             In May 2000, the stipulation  agreement was revised. As a result of
             the  revision,  the Company must vacate the  premises  within sixty
             days  upon  receiving  notice  of the  landlord's  exercise  of the
             cancellation clause. Additionally,  the landlord forgave payment of
             any rentals due less the security  deposit  previously  paid by the
             Company  (See Note M).  The  agreement  also  provided  for  future
             rentals equal to weekly gaming revenues in excess of $32,500 with a
             maximum  rental of $10,000  per week.  Subsequent  to June 1, 2000,
             such amounts were  adjusted  whereby the rentals  would be equal to
             50% of the  weekly  gaming  revenues  in excess of  $37,500  with a
             maximum of $10,000 per week.

(Continued)
<PAGE>
             SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS
                                       -8-


NOTE H -     Commitments (Continued)

             The Company is aware of the  landlord's  plans to sell the property
             to a developer;  however,  the timing of such sale is not presently
             known.  All related assets have been fully  depreciated at June 30,
             2000.

             Minimum annual rental  payments  required for all operating  leases
             are as follows:
<TABLE>
<CAPTION>

                 Year Ending June 30:
<S>                 <C>                                                  <C>
                    2001                                                 $   480,000
                    2002                                                     496,000
                    2003                                                     545,000
                    2004                                                     545,000
                    2005                                                     545,000
                 Thereafter                                                6,689,000
                                                                         -----------
                                                                          $9,300,000
                                                                         ===========
</TABLE>

             The Empire State  Building lease  includes  escalation  clauses for
             increases   in  real  estate  taxes  and  certain  cost  of  living
             adjustments.

             Rent  expense  for the  years  ended  June  30,  2000  and 1999 was
             approximately $1,649,000 and $2,225,000, respectively (see Note B).

             The  Company  has a  licensing  agreement  with  the  Empire  State
             Building Company ("ESBC") expiring on June 30, 2016 to have tickets
             to its New York Skyride  facility sold by the licensor's  employees
             at the counter  where  licensor's  tickets to the  observatory  are
             sold.  Under the terms of the  licensing  agreement,  the following
             future minimum payments are required:
<TABLE>
<CAPTION>

                 Year Ending June 30:
<S>                 <C>                                                  <C>
                    2001                                                 $   175,000
                    2002                                                     181,000
                    2003                                                     200,000
                    2004                                                     200,000
                    2005                                                     200,000
                 Thereafter                                                2,334,000
                                                                         -----------
                                                                          $3,290,000
                                                                         ===========
</TABLE>


(Continued)
<PAGE>
             SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS
                                       -9-


NOTE H -     Commitments (Continued)

             In  December   1999,   the  Company  and  ESBC  executed  a  Second
             Modification  of License  Agreement.  The agreement  provides for a
             contingent  license fee, in addition to the flat annual fee, in the
             event that the  capture  rate at ESBC's  ticket  window  (number of
             Skyride  tickets sold by ESBC as a percentage  of ESBC  Observatory
             tickets sold) exceeds 10.5%. The contingent license fee ranges from
             an annual fee of $10,500 at a capture  rate of 10.5% to  $1,400,000
             at a capture rate of 26%.


NOTE I -     Consulting and Employment Agreements

             In November 1998, the Company  entered into a consulting  agreement
             for the services of its President and Chief Executive Officer.  The
             agreement  is for  twenty-four  months  at  $18,000  per  month and
             provides  for  additional  incentive  payments  equal to 10% of the
             first  $1,000,000  of  EBITDA  (earnings  before  interest,  taxes,
             depreciation  and  amortization)  and 5% of  EBITDA  in  excess  of
             $1,000,000  payable in  semiannual  installments.  Pursuant  to the
             agreement,  the Company also paid a one-time $50,000  incentive fee
             attributable  to the Company's  survival  through  October 15, 1999
             without a bankruptcy filing. The agreement expired in November 2000
             and  was  not  renewed.  The agreement provides that if the Company
             terminates  or fails to offer to renew the agreement, a termination
             fee  of  $216,000  is  payable. However, at least one member of the
             Board  of  Directors  has  questioned  the due authorization of the
             agreement.

             In January 2000, the Company  entered into an employment  agreement
             with an officer  which  expires in  December  2001 but which may be
             cancelled  by either  party upon ninety days  written  notice.  The
             agreement  provides  for a base salary of $100,000 per year through
             December   2000  with  a  minimum   increase   of  5%   thereafter.
             Additionally,  the agreement provides for an annual incentive bonus
             with a minimum of $15,000 per year.


NOTE J -     Stockholders' Equity

             On July 7, 1995,  the Company  sold to Prospect  Street,  1,090,909
             shares of Series A convertible  participating  preferred stock, par
             value  $.001 per share,  for  $3,000,000.  Net  proceeds  from such
             offering,  aggregated approximately $2,833,000. The preferred stock
             issued is convertible  into common stock of the Company at any time
             at a conversion  rate of 6.91 shares of common stock for each share
             of preferred stock. The preferred shares are subject to both demand
             and  piggyback  registration  rights.  The  preferred  stock  has a
             liquidation  preference  equal to $2.75 per share, but does not pay
             any  dividends  unless  declared  by the  Board of  Directors.  The
             preferred  stockholders are entitled to an aggregate of up to 24.9%
             of the  outstanding  voting power of the Company which can increase
             to  50.1%  of  the  voting  power  if  in  Prospect  Street's  sole
             discretion it becomes  reasonably  necessary for the  protection of
             its investment.

(Continued)
<PAGE>
             SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS
                                      -10-



NOTE J -     Stockholders' Equity (Continued)

             At June 30,  2000,  the Company has  outstanding  warrants  for the
             purchase of its common stock as follows:
<TABLE>
<CAPTION>

                     Warrants Issued in
                      Connection With/           Number of              Exercise
                          Held By                    Shares                Price        Expiration Date

<S>                                                    <C>                  <C>         <C>
                 Sub-debt financing                    243,904              (a)         December 20, 2006
                 Sub-debt financing                     48,780              (a)         December 31, 2006
                 Sub-debt financing                     48,780              (a)         February 18, 2007
                 Sub-debt financing                     43,902              (a)         March 14, 2007
                 Sub-debt financing                     48,780              (a)         March 21, 2007
                 Equipment financing                    50,000              (b)         December 31, 2007
</TABLE>

                 (a) The warrants are exercisable into one share of common stock
                     at an exercise price of $4.25.

                 (b) The warrant is  exercisable  into one share of common stock
                     at an exercise price of $6.00.

             The above  warrants  may be  redeemed  by the Company at a price of
             $.05 per warrant if certain  minimum per share market prices of its
             common stock, as defined, are present.

             The Company has a stock  option plan ("Plan A") which,  as amended,
             provides   for  the  issuance  of   incentive   stock   options  or
             nonqualified options to key employees and officers to be determined
             by the  compensation  committee  of the  Board  of  Directors.  The
             aggregate  number of shares  which  may be issued  under  Plan A is
             2,500,000.  Incentive stock options under Plan A may not be granted
             at less than the fair market value of the underlying shares at date
             of  grant  (110%  of  fair  market  value  for  a  10%  or  greater
             stockholder).  Incentive  stock options granted under Plan A can be
             exercisable for a period not to exceed ten years.







(Continued)
<PAGE>
             SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS
                                      -11-

NOTE J -     Stockholders' Equity (Continued)

             A summary of stock option activity related to Plan A is as follows:
<TABLE>
<CAPTION>

                                                                                              Exercise
                                                                       Number of                Price
                                                                          Shares              Per Share

<S>                                                                          <C>           <C>
                 Outstanding - July 1, 1998                                  931,500       $0.31 - $4.00
                 Cancelled during the year ended
                     June 30, 1998                                          (907,500)      $0.31 - $4.00
                                                                            --------
                 Outstanding - June 30, 1999 and
                     June 30, 2000                                            24,000 (a)   $2.75 - $4.00
                                                                           =========
</TABLE>

                 (a)  All of the options are currently exercisable.

             The following table presents  information  relating to Plan A stock
             options outstanding at June 30, 2000:

                                                                    Approximate
                                                               Weighted Average
                                   Weighted Average                  Remaining
                  Shares            Exercise  Price                      Life

                      7,500               $4.00                        1 month
                     16,500               $2.75                       14 months
                     ------

                     24,000               $3.14                       10 months
                     ======

             The  Company  has a stock  option  plan for  nonemployee  directors
             ("Plan  B").  The  aggregate  number of shares  which may be issued
             under Plan B, as amended, is 500,000.

             A summary of stock option activity related to Plan B is as follows:
<TABLE>
<CAPTION>

                                                                                                  Option
                                                                            Number of              Price
                                                                              Shares            Per Share

<S>                                 <C>                                         <C>           <C>     <C>
                 Outstanding - July 1, 1998                                     190,000       $1.50 - $4.00
                 Granted during the year ended June 30, 1999                     75,000           $.25
                 Cancelled during the year ended June 30, 1999                 (170,000)      $1.50 - $4.00
                                                                               --------
                 Outstanding - June 30, 1999 and
                     June 30, 2000                                               95,000   $  .25 - $4.00
                                                                              =========
</TABLE>

(Continued)
<PAGE>
             SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS
                                      -12-



NOTE J -     Stockholders' Equity (Continued)

             The following table presents  information  relating to Plan B stock
             options outstanding at June 30, 2000:
<TABLE>
<CAPTION>

                                 Options Outstanding                     Options Exercisable
                                                    Weighted
                                 Weighted            Average                          Weighted
                                  Average           Remaining                         Average
                                 Exercise            Life in                         Exercise
                  Shares           Price              Years           Shares           Price

<S>                 <C>         <C>                   <C>              <C>        <C>
                    75,000      $   .25               3.01             37,500     $  .25
                     5,000      $  1.50               2.41              5,000         $1.50
                    15,000      $  3.83                .61             15,000         $3.83
                    ------                                             ------
                    95,000      $   .88               2.60             57,500         $3.25
                    ======                                             ======
</TABLE>

             The Board of Directors  approved a stock buy-back program where the
             Company is  authorized  to purchase up to 300,000  shares of common
             stock.  As of June 30,  2000,  the  Company has  purchased  110,000
             shares which is reflected as treasury stock.

             At June 30, 2000,  the Company has reserved  shares of common stock
             for issuance upon exercise of warrants,  options and conversions of
             preferred stock as follows:
<TABLE>
<CAPTION>

<S>                                                                               <C>
                 Plan "A" options                                                 24,000
                 Plan "B" options                                                 95,000
                 Preferred stock                                               7,538,181
                 Sub-debt financing                                              434,146
                 Equipment financing                                              50,000
                                                                             -----------

                          Total                                                8,141,327
                                                                             ===========
</TABLE>

             The  Company  has  elected to follow  Accounting  Principles  Board
             Opinion 25 ("APB 25") and related interpretations in accounting for
             its employee stock options.  Under APB 25, where the exercise price
             of the Company's  employee stock options equals the market price of
             the  underlying  stock on the date of  grant,  no  compensation  is
             recognized.




(Continued)
<PAGE>
             SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS
                                      -13-

NOTE J -     Stockholders' Equity (Continued)

             Pro forma information regarding net income (loss) and income (loss)
             per share as required by SFAS No.123 has been  determined as if the
             Company had accounted for its employee stock options under the fair
             value method of that statement. The effect of applying SFAS No. 123
             on the 2000 and 1999 pro forma net income (loss) is not necessarily
             representative  of the  effects on reported  operations  for future
             years due to,  among other  things:  (1) the vesting  period of the
             stock options and (2) the fair value of additional stock options in
             future years. Had compensation  cost for the Company's stock option
             plans been  determined  based upon the fair value at the grant date
             for  awards  under  the  plans   consistent  with  the  methodology
             prescribed   under  SFAS  No.  123,  the   Company's   loss  before
             extraordinary  items in 2000 and 1999 would have been approximately
             $2,444,000  and  $4,216,000  or $(1.07)  per share and  $(1.85) per
             share,  respectively,  and its net  income  (loss) in 2000 and 1999
             would have been approximately $202,000 and $(4,003,000) or $.09 per
             share and $(1.76) per share,  respectively.  The  weighted  average
             fair value of the options granted during 1999 are estimated as $.11
             on the date of grant using the Black-Scholes  option-pricing  model
             with the  following  assumptions:  expected  dividend  yield of 0%,
             expected volatility of 40%, risk-free interest rate of 5.48% and an
             estimated  life of 5 years.  No options  or  warrants  were  issued
             during 2000.

             The exercise  price for warrants and options  issued in  connection
             with services rendered by nonemployees or financing arrangements is
             determined by negotiations between the Company and the third party.
             Generally,  warrants  and options are issued to  employees  with an
             exercise  price of not less  that the  quoted  market  price of the
             stock on the date of grant.


NOTE K -     Related Party Transaction

             In July 1998,  the Company issued 600,000 shares of common stock to
             a director of the Company in  connection  with  certain  consulting
             services which were valued at approximately $169,000.


NOTE L -     Revenue Sharing Agreements

             The Company has been provided with certain equipment for use in its
             XS New York  facility in exchange for a percentage  of the revenues
             generated therefrom.  In November 1997, a new agreement was entered
             into  with its  major  equipment  supplier  whereby  the  Company's
             revenue-sharing  obligation was reduced from 40% to 14% in exchange
             for the Company  selling the XS trademark and related  intellectual
             property  rights to such supplier.  The Company can continue to use
             the XS trademark at its Times Square location pursuant to a license
             agreement   entered  into  in  connection  with  the  sale  of  the
             trademark.   Additionally,   the  supplier  has  the  authority  to
             establish and set the gaming prices and, at their sole  discretion,
             may elect to  terminate,  with 60 days notice,  the  agreement  and
             remove all of its  equipment and assets from the premises if gaming
             revenues  from its  equipment do not reach a minimum of  $3,500,000
             for  any  consecutive  12  month  period.  In  December  1998,  the
             revenue-sharing agreement was amended to increase the percentage of
             revenues  payable to the  supplier  to 16% of the net  revenue,  as
             defined,  and 50% of the excess over such amount. In December 1999,
             the agreement  was again  amended to adjust the amounts  payable to
             the  supplier  to 21% of net  revenues  through  May  2000  and 22%
             thereafter. In August 2000, the parties signed a third Amendment to
             Revenue  Sharing  Agreement  which added release  language from the
             Company to the supplier, clarification of payment and pricing terms
             and modification of the supplier's  cancellation notice period from
             60 days to 30 days.

(Continued)
<PAGE>
             SKYLINE MULTIMEDIA ENTERTAINMENT, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS
                                      -14-



NOTE M -     Extraordinary Gains from Restructurings of Liabilities

             Extraordinary  gains from restructuring of liabilities for the year
             ended June 30, 2000 are comprised of the following:
<TABLE>
<CAPTION>

<S>                                                                                    <C>
                  Settlement of Empire State Building litigation                       $2,206,000

                  Revised virtual realty entertainment center
                    stipulation agreement                                                 389,000

                  Settlements with vendors                                                 51,000
                                                                                     ------------

                           Total                                                       $2,646,000
                                                                                     ============
</TABLE>


             In December 1999, the Company  entered into a settlement  agreement
             with ESBC, in  connection  with a lawsuit  originally  filed by the
             Company  against  ESBC and other  named  defendants  in the Supreme
             Court of the State of New York,  County of New York on December 23,
             1997. The Company's action primarily  sought  injunctive  relief to
             prohibit ESBC from,  among other things,  terminating the Company's
             lease and license agreements  relating to the New York Skyride,  as
             well as monetary  damages from ESBC and the other  defendants.  The
             basis for the  Company's  claim was,  among other  things,  lack of
             cooperation  from ESBC and its staff in  violation of the lease and
             license agreements, as well as bad faith, fraud and self-dealing by
             ESBC and certain members of its management staff.

             The settlement  resulted in an extraordinary gain of $2,206,000 for
             the year ended June 30, 2000  representing  reversal of amounts due
             to ESBC for unpaid rents and charges  aggregating  $1,413,000,  the
             reversal of deferred rents payable aggregating $909,000 relating to
             the  surrender of a lease for certain  space which was scheduled to
             expire in July 2016, less $116,000 of related legal fees incurred.

             In addition,  as a result of the stipulation  agreement relating to
             the Company's  virtual reality  entertainment  center (see Note H),
             the Company recorded an extraordinary gain of $389,000 for the year
             ended June 30, 2000  comprised of the  forgiveness of $157,000 past
             due  rentals  (net  of a  $93,000  security  deposit  held  by  the
             landlord) and the reversal of $232,000  deferred rentals  resulting
             from the elimination of fixed monthly rents.

             Also,  during the year ended June 30,  2000,  the  Company  settled
             $70,000 of liabilities  to vendors for $19,000  resulting in a gain
             of $51,000.

             During the year ended June 30, 1999, the Company settled $1,148,000
             of   liabilities   to  vendors  for   $935,000   resulting   in  an
             extraordinary gain of $213,000.