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

                                  FORM 10-KSB/A

(Mark One)

|X|  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 [Fee Required]

     For the fiscal year ended June 30, 1996

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934 [No Fee Required]

     For the transition period from ___________________ to _____________________

     Commission file number 0-25110

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


             New York                                    11-3163443
   (State or other jurisdiction             (I.R.S. Employer Identification No.)
 of incorporation or organization)


 200 Smith Street Farmingdale, New York                                 11735
(Address of principal executive offices)                              (Zip Code)


                                 (516) 694-0999
                (Issuer's Telephone Number, including Area Code)


           Securities registered pursuant to Section 12(b) of the Act

                                      None

           Securities registered pursuant to Section 12(g) of the Act

                              Title of Each Class:

                                      Units
                                  Common Stock
                                Class A Warrants


                            Page 1 of 13 Total Pages

<PAGE>


                                Explanatory Note

     The  Registrant,  subsequent  to the  filing of its  Annual  Report on Form
10-KSB for the fiscal year ended June 30, 1996,  discovered certain cosmetic and
typographical  errors  which  were  inadvertently  omitted  from  the  Financial
Statements  contained in Item 7 thereof,  including text which was inadvertently
omitted  from the Notes to such  Financial  Statements.  Such  omissions  do not
affect the Results of Operations or any other numerical information disclosed in
such Financial Statements and relate solely to the text of the Notes thereto.

     The undersigned  Registrant  therefore  hereby amends the following  items,
financial  statements,  exhibits or other  portions of its Annual Report on Form
10-KSB  for the  fiscal  year  ended  June,  30,  1996 as set forth in the pages
attached hereto to reflect such inadvertent  omissions to Part IV of such Annual
Report and to include the Part III information which was  appropriately  omitted
therefrom:

     Item 7.  Financial Statements and Supplementary Data

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

     Item 10. Executive Compensation

     Item 11. Security Ownership of Certain Beneficial Owners and Management

     Item 12. Certain Relationships and Related Transactions

     Item 13. Exhibits,  Financial Statement Schedules,  and Reports on Form 8-K
              Signatures



                                      - 2 -

<PAGE>


Item 7. Financial Statements and Supplementary Data

     The Company's  consolidated financial statements and a related schedule are
included on pages F-1 to F-22.

                                    PART III


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


Directors and Executive Officers

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

Gerard A. Reda          31       President, Chief Executive Officer and Director

Conrad J. Gunther       50       Treasurer and Director

Douglas B. Fox          49       Secretary and Director

Michael P. Sable        47       Controller


     Directors  hold  office  until the next  annual  meeting  of the  Company's
stockholders and until their successors are elected and qualified.  Officers are
elected  annually by the Board of Directors  and serve at the  discretion of the
Board.

Gerard A. Reda has been President and Chief Executive  Officer and a director of
the Company since September 30, 1996. Prior to his joining the Company, Mr. Reda
had been Chairman,  President and Chief Executive  Officer of Just Kiddie Rides,
Inc. ("Just Kiddie") since 1989.

Conrad J. Gunther has been a director of the Company  since July 3, 1996.  Since
1995,  Mr.  Gunther has worked as a business  development  manager and financial
advisor with the Allied Group, a  privately-owned  insurance  brokerage firm. He
also served as Chief  Operating  Officer and Executive  Vice  President of North
Fork Bancorporation, a publicly traded company, from 1989 to 1995.

Douglas  B.  Fox  has  been a  director  of the  Company  since  July  3,  1996.
Additionally,  Mr. Fox has been  employed  with  Landmark  Communications,  Inc.
("Landmark"),  a multi-divisional media company, since 1994, and served as Chief
Operating  Officer-President of Publishing and Video Games of Landmark from June
1994 to November 1995. Mr. Fox joined Times Mirror,  Inc., a newspaper group, in
1987 and served as Corporate Vice  President-Marketing  from October 1987 to May
1994 and as  President  and Chief  Operating  Officer of New York  Newsday  from
September 1990 to October 1992.

Michael P. Sable has been  Controller  of the Company  since  February  1995 and
Secretary  since May 1995.  Prior to that time,  from September 1993 to February
1995, he was Vice President-Finance of Logitek, Inc., a defense contractor, from
September  1992 to August 1993, he was controller of L.J.  Simone,  Inc., a shoe
importer,  and from July 1989 to July 1992,  he was  controller of IHC Services,
Inc., an exporter of heavy equipment.


                                      - 3 -

<PAGE>


Compliance with Section 16(a) of the Exchange Act

     Section 16(a) of the Securities Exchange Act of 1934, as amended,  requires
the Company's  directors and officers and persons who beneficially own more than
ten  percent  of the  Company's  Common  Stock to file with the  Securities  and
Exchange  Commission ("SEC") initial reports of ownership and reports of changes
in  ownership  of  Common  Stock  of  the  Company.   Officers,   directors  and
greater-than-ten  percent shareholders are required by SEC regulation to furnish
the  Company  with  copies of all  Section  16(a)  reports  they  filed.  To the
Company's  knowledge,  based  solely  on review  of the  copies of such  reports
furnished to the Company and written  representations that no other reports were
required,  during the fiscal year ended June 30, 1996,  all Section 16(a) filing
requirements were compiled with.

ITEM 10. EXECUTIVE COMPENSATION

     The  following  table  sets  forth  information  with  respect to the Chief
Executive  Officer  and  each  executive  officer  whose  compensation  exceeded
$100,000 during fiscal 1996 and fiscal 1995.

<TABLE>
<CAPTION>
===========================================================================================================
                                         SUMMARY COMPENSATION TABLE
-----------------------------------------------------------------------------------------------------------
                                                                            Annual Compensation
-----------------------------------------------------------------------------------------------------------
                                                                      Bonus                Other Annual
Name and                                               Salary          ($)              Compensation(1)(2)
Principal Occupation                 Year               ($)            -0-                      ($)
===========================================================================================================
<S>                                  <C>              <C>               <C>                      <C>
Salvatore Casaccio                   1996             150,000          -0-                      -0-
  Chief Executive                    1995             150,000          -0-                      -0-
  Officer
-----------------------------------------------------------------------------------------------------------
A. Joseph Melnick                    1996             150,000          -0-                      -0-
  President, Chief                   1995             150,000          -0-                      -0-
Operating
  Officer and Chief
Financial Officer
-----------------------------------------------------------------------------------------------------------
Richard Bartlett                     1996             150,000          -0-                      -0-
 Executive Vice                      1995             150,000          -0-                      -0-
 President
===========================================================================================================
</TABLE>

(1)  The named  executive  officers  routinely  received other benefits from the
     Company,  the aggregate amounts of which during the years indicated did not
     exceed 10% of the salary and bonus set forth above.

(2)  On July 3, 1996, the Company and all such officers named above entered into
     an Employment  Termination and Option  Termination  Agreement,  pursuant to
     which such officers agreed to terminate  their  employment with the Company
     in consideration  for receiving certain cash,  options,  and in the case of
     two  of  such  officers,  certain  assets  of  the  Company.  See  "Certain
     Relationships and Related Transactions."


Employment Agreements and Consulting Agreements with Officers and Directors

     On September 30, 1996, in connection with the acquisition of Just Kiddie by
the Company,  the Company  entered into an Employment  Agreement  with Gerard A.
Reda, pursuant to which Mr. Reda agreed

                                      - 4 -

<PAGE>


to serve as the Company's  President and Chief  Executive  Officer for a term of
five years  commencing  on  September  30, 1996 (the  "Commencement  Date").  In
addition to certain  employee  benefits,  the Company  agreed to pay Mr. Reda an
annual salary of $250,000,  subject to adjustment  upon terms agreed upon by the
Board and Mr. Reda, after the first  anniversary of the  Commencement  Date. Mr.
Reda shall also be granted options at the discretion of the Board based upon the
performance  of the  Company  and the  performance  of Mr.  Reda.  In  addition,
pursuant to the Employment Agreement, the Company elected Mr. Reda to serve as a
member of the Board.

     On July 3, 1996, as compensation  for joining the Board, the Company agreed
to pay to each of Messrs.  Conrad Gunther and Douglas Fox an annual  retainer of
$18,000 per year,  $1,000 per formal Board  meeting and $500 for each  committee
meeting of the Board, a consulting  fee of $20,000,  and agreed to grant 200,000
options,  subject  to  shareholder  approval,  to  Messrs.  Gunther  and  Fox as
described  in "Stock  Option  Grants"  below.  On October 3, 1996,  the  Company
entered into five-year  consulting  agreements with each of Messrs.  Gunther and
Fox (the  "Consulting  Agreements"),  pursuant to which Messrs.  Gunther and Fox
agreed to waive the $18,000 annual  retainer fee,  agreed to accept $500 for all
meetings of the Board and the  committees  and the Company agreed to pay each of
Messrs.  Gunther and Fox a monthly  retainer of $2,500 plus expenses,  agreed to
grant,  subject to  shareholder  approval,  to each of Messrs.  Gunther  and Fox
ten-year options to purchase 500,000 shares of Common Stock at an exercise price
of  $.10  per  share  and to pay  each of  Messrs.  Gunther  and Fox  additional
compensation  in connection with special  projects which may present  themselves
from time to time.  Of such  options,  100,000 of each vest on the date of grant
and  100,000  of each vest on the next  four  anniversaries  thereof,  provided,
however,  all such options shall  immediately vest under certain  circumstances.
The  shares  issuable  upon  exercise  of  such  options  are  also  subject  to
restriction  on sale  without  the  consent of the  Company  for a period of two
years.

Stock Option Grants

     As compensation  for agreeing to serve on the Board,  the Company agreed to
grant to each of  Messrs.  Gunther  and Fox,  subject to  shareholder  approval,
options  to  purchase  (i)  100,000  shares  of  common  stock  of the  Company,
exercisable  at $.10 per  share,  such  options  to vest in three  installments,
50,000 of which vested on July 3, 1996, the date of their respective election to
the Board and the next two  installments  of 25,000  options to vest on the next
two anniversaries thereof,  provided, however all such options shall immediately
vest under  certain  circumstances;  and (ii) an  additional  100,000  shares of
common stock of the Company, exercisable at $.10 per share, such options to vest
in three  installments,  50,000 of which  vested on October 3, 1996 and the next
two  installments  of  25,000  options  to vest on the  next  two  anniversaries
thereof, provided, however all such options shall immediately vest under certain
circumstances.  The shares  issuable  upon  exercise  of such  options  are also
subject to  restriction  on sale without the consent of the Company for a period
of two years.

     As set forth above,  pursuant to the Consulting  Agreements,  on October 3,
1996, the Company agreed to grant to each of Messrs. Gunther and Fox, subject to
shareholder  approval,  ten-year  options to purchase  500,000  shares of Common
Stock at an exercise price of $.10 per share.  Of such options,  100,000 of each
vest  on  the  date  of  grant  and  100,000  of  each  vest  on the  next  four
anniversaries  thereof,  provided,  however,  all such options shall immediately
vest under  certain  circumstances.  The shares  issuable  upon exercise of such
options  are also  subject to  restriction  on sale  without  the consent of the
Company for a period of two years.

     On July 3, 1996,  the Company  entered into an Employment  Termination  and
Option  Termination  Agreement  (the  "Termination  Agreement")  with  Salvatore
Casaccio,  the Company's former Chairman,  former Chief Executive  Officer and a
former  Director  of the  Company;  A.  Joseph  Melnick,  the  Company's  former
President,  former Chief Operating Officer, former Chief Financial Officer and a
former Director of

                                      - 5 -

<PAGE>


the Company; and Richard Bartlett, the Company's former Executive Vice President
and a former  Director of the  Company  (collectively,  the "Former  Officers").
Pursuant to the  Termination  Agreement,  each of the Former  Officers agreed to
terminate their respective  employment agreements with the Company, to resign as
officers  and  Directors  of the  Company  and  to  relinquish  certain  options
previously  granted to them by the  Company,  in exchange  for which each of the
Former Officers were granted,  among other things,  options to purchase  300,000
shares of the Company's Common Stock at an exercise price of $.01 per share. See
"Certain Relationships and Related Transactions."



                                      - 6 -

<PAGE>


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

     The following  table sets forth certain  information as of October 15, 1996
(on which date 10,555,000  shares of Common Stock were outstanding) with respect
to the stock ownership of (i) those persons or groups who  beneficially own more
than 5% of the Company's  Common Stock,  (ii) each director of the Company (iii)
each executive Officer whose  compensation  exceeded $100,000 in the fiscal year
ended June 30,  1996,  and (iv) all  directors  and  executive  officers  of the
Company as a group (based upon information furnished by such persons).


                              Amount and Nature of
Name and Address              Beneficial Ownership           Percentage of Class
----------------              --------------------           -------------------

Gerard A. Reda (1)                 4,250,000                         40.3%


Conrad J. Gunther (1)                 -0- (2)                          --

Douglas Fox (1)                       -0- (2)                          --

Roger Pratt                          750,000                          7.1%
14 Straw Lane
Hicksville, NY 11801

Salvatore Casaccio                   699,122 (3)                      6.6%
64 Burton Avenue
Staten Island, NY 10309

A. Joseph Melnick                    660,000 (3)                      6.3%
85 Collyer Avenue
Staten Island, NY 10312

Richard Bartlett                     525,000 (3)                      5.0%
2 Sunnyfield Road
Hicksville, NY 11801

All Officers and Directors         4,250,000                         40.3%
  as a Group (3 persons)


(1)  The  address  of  such  person  is  c/o  the  Company,  200  Smith  Street,
     Farmingdale, New York 11735.

(2)  Does not include options to purchase 700,000 shares of Common Stock,  which
     the  Company  has agreed to grant,  but which are  subject  to  shareholder
     approval.   See  "Employment  Agreements  and  Consulting  Agreements  with
     Officers and Directors."

(3)  Includes  300,000  options  granted  in  connection  with  the  Termination
     Agreements. See "Certain Relationships and Related Transactions."



                                      - 7 -

<PAGE>


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Pursuant to an Agreement  of Merger among Just Kiddie,  Gerard Reda and the
Company  (the  "Agreement  of  Merger"),  Just  Kiddie  merged  into Just Kiddie
Acquisition Corp. (the "Acquisition  Corp."),  a wholly-owned  subsidiary of the
Company,  on September  30, 1996 (the  "Merger").  Pursuant to the  Agreement of
Merger,  the Company agreed to issue an aggregate of 5,000,000  shares of Common
Stock to the  shareholders  of Just Kiddie,  promissory  notes in the  aggregate
principal amount of $750,000,  and a non-competition  payment to Mr. Reda in the
amount of  $250,000  in  exchange  for all of the  outstanding  shares of common
stock, without par value, of Just Kiddie ("Just Kiddie Common Stock"). Gerard A.
Reda,  who, prior to the Merger,  was the owner of 85% of the  outstanding  Just
Kiddie Common Stock, received, as consideration for the Just Kiddie Common Stock
held by Mr.  Reda,  pursuant to the  Agreement  of Merger,  4,250,000  shares of
Common Stock of the Company.

     Pursuant to the terms of the  Termination  Agreement,  the Former  Officers
agreed to terminate their employment  agreements with the Company,  to resign as
officers  and  Directors  of the  Company  and  to  relinquish  certain  options
previously  granted to them by the  Company,  in exchange  for which each of the
Former  Officers  were  entitled to receive  $200,000  (plus  reimbursement  for
certain expenses approximately $17,000 in the aggregate,  and in the case of Mr.
Bartlett,  the repayment of loans previously made by Mr. Bartlett to the Company
in the amount of  $87,620)  and each of the Former  Officers  were  entitled  to
receive options to purchase  300,000 shares of the Company's  Common Stock at an
exercise price of $.01 per share. At the closing of the  Termination  Agreement,
$50,000 was paid to each of the Former Officers (plus the expense  reimbursement
and loan repayment  referenced above) and the remainder of such obligations with
respect to the  payments to be made to the Former  Officers  were  evidenced  by
notes  issued by the  Company  in favor of each of the  Former  Officers  in the
original  principal amount of $150,000,  which are due one year from the closing
of the Termination Agreement (subject to certain mandatory  prepayments) and are
secured  by the assets of Group  Coin  Associates,  Inc.,  a  subsidiary  of the
Company.  The Company has also  agreed to use its best  efforts to register  the
sale of the shares  issuable upon  exercise of such options,  subject to certain
restrictions on the sale of such shares by the Former Officers.

     In addition,  pursuant to the terms of the  Termination  Agreement,  at the
closing thereof the Company transferred to Mr. Casaccio,  all of the outstanding
shares of stock of Bayridge Playrobics, Inc., Third Avenue Playrobics, Inc., and
East Side  Playrobics,  Inc.,  the  Company's  subsidiaries  which  operate  the
Company's   playcenters   in  Bayside,   Brooklyn  and   Manhattan,   New  York,
respectively.

     On September 30, 1996, the Company entered into the Second Amendment to the
Termination  Agreement (the "Second  Amendment"),  pursuant to which the Company
agreed to  transfer to Mr.  Casaccio  all of the assets and  liabilities  of the
Company which are used in the operation of the Company's  playcenter  located at
Avenue U, Brooklyn,  New York,  subject to consents to be obtained in connection
therewith.  In  addition,  pursuant to the Second  Amendment,  the Company  also
agreed to transfer to Messrs.  Casaccio and Bartlett, the Company's stock in Fun
Station USA of Staten Island, Inc. ("FSSI"),  a company in which the Company has
a 51%  interest  and which  operates a playcenter  in Staten  Island,  New York,
subject to certain restrictions on transfer,  and until such time as the Company
is able to consummate  such transfer,  the Company  granted a limited  revocable
proxy  with  respect  to the  shares  of  FSSI  held  by  the  Company  to  such
individuals.  Should the  Company be unable to  consummate  such  transfer,  the
Company  intends  to take  action to  otherwise  dispose  its  interest  in such
playcenter.


                                      - 8 -

<PAGE>


PART IV

Item 13.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

     (a)  Financial Statements

          Consolidated Balance Sheets at June 30, 1996 and 1995

          Consolidated  Statements  of  Operations  for the years ended June 30,
          1996 and 1995

          Consolidated  Statements of  Shareholders'  Equity for the years ended
          June 30, 1996 and 1995

          Consolidated  Statements  of Cash  Flows for the years  ended June 30,
          1996 and 1995

          Notes to Consolidated Financial Statements

     (b)  Financial Statement Schedule

          Schedule II - Valuation and Qualifying Accounts

     (c)  Exhibits


<TABLE>
<CAPTION>
     Exhibit                                                                             By Reference               No. in
      Number      Description                                                            from Document             Document
      ------      -----------                                                            -------------             --------
       <C>        <S>                                                                          <C>                    <C>
       3.0        Registrant's Certificate of Incorporation                                    A                      3.0

       3.1        Registrant's Amendment to its Certificate of
                  Incorporation, filed April 22, 1994                                          A                      3.1

       3.2        By-Laws                                                                      B                      3.2

       4.0        Specimen Copy of Common Stock Certificate                                    A                      4.0

       4.1        Form of Underwriter's Unit Purchase Option                                   A                      4.1

       4.2        Warrant Agreement between the Registrant and
                  American Stock Transfer & Trust Company and
                  Specimen Copy of class A Warrant Certificate                                 A                      4.2

       10.1       Bridge Loan Agreements, dated March 1994                                     A                     10.2

       10.2       Option Agreement, dated November 30, 1994,
                  between Explorations Acquisition Co. and
                  Explorations Holding Company, Inc.                                           C                       1
</TABLE>



                                      - 9 -

<PAGE>


<TABLE>
       <C>        <S>                                                                         <C>                    <C>
       10.3       Secured Promissory Note, dated November 30, 1994,
                  in the  principal   amount  of  $300,000  in  favor  of 
                  Explorations Acquisition Co.                                                C                       2

       10.4       Financial Public Relations Consulting
                  Agreement, dated November 30, 1994, by and
                  between Childrobics, Inc. and Richard Rozzi                                 C                       3


       10.5       Asset Purchase Agreement, dated November 30,
                  1994, between Explorations Acquisition Co. and
                  Richard Rozzi                                                               C                       4


       10.6       Asset Purchase Agreement, dated March 3,
                  1995, between Group Coin Amusement Corp.
                  and Group Coin Associates, Inc.                                             D                       1


       10.7       Asset Purchase Agreement, dated March 3,
                  1995, between Replay Amusement Corp. and
                  Group Coin Associates, Inc.                                                 D                       2


       10.8       Asset Purchase Agreement, dated March 3,
                  1995, between Amusement Associates, Inc. and
                  Amusement Associates Distributing, Inc.                                     D                       3


       10.9       Asset Purchase Agreement, dated March 3,
                  1995, between Turnpike Distributing Corp. and
                  Turnpike Amusement Distributing, Inc.                                       D                       4


      10.10       Asset Purchase Agreement, dated March 3,
                  1995, between Medford Amusement Corp. and
                  Kid's Kingdom Amusement, Inc.                                               D                       5


      10.11       Asset Purchase Agreement, dated April 3, 1995,
                  between FZL and Fun Zones of Lynbrook, Inc.                                  E                     10.13


      10.12       Asset Purchase Agreement, dated June 26, 1995,
                  between Tunnels & Tubes For Fun, Inc. and
                  Tunnels & Tubes, Inc.                                                        E                     10.14


      10.13       Employment Termination and Option
                  Termination Agreement, dated July 3, 1996,
                  among Salvatore Casaccio, A. Joseph Melnick,
                  Richard Bartlett and the Company                                             F                       1 
</TABLE>


                                     - 10 -

<PAGE>


<TABLE>
      <C>        <S>                                                                          <C>                    <C>
      10.14       Merger Agreement, dated September 30, 1996,
                  among Just Kiddie Rides, Inc., Gerard A. Reda,
                  Just Kiddie Acquisition Corp., and Childrobics, Inc.                         G                       1


      10.15       Employment Agreement, dated September 30,
                  1996, between Childrobics, Inc. and Gerard A.
                  Reda                                                                         G                       2


      10.16       Financing Agreement, dated October 3, 1996,
                  by and among Sterling Commercial Capital,
                  Inc., Norwood Venture Corp., Vega Capital
                  Corp., Childrobics, Inc., Just Kiddie Rides,
                  Inc., Turnpike Amusement Associates, Inc.,
                  Group Coin Associates, Inc., and Tunnels &
                  Tubes, Inc.
                                                                                               G                       3


      10.17       Agreement of Sale, dated September 25, 1996, 
                  between Childrobics, Inc. and Express Vending
                  Corporation with respect to Fun Station USA of
                  Lynbrook, Inc., excluding exhibits                                           G                       4


      10.18       Agreement of Sale, dated September 25, 1996,
                  between Childrobics, Inc. and Express Vending
                  Corporation with respect to Fun Zones of 
                  Danbury, Inc., excluding exhibits                                            G                       5


      10.19       Agreement of Sale, dated September 25, 1996,
                  between Childrobics, Inc. and Express Vending
                  Corporation with respect to Kids Kingdom
                  Amusement, Inc., excluding exhibits                                          G                       6


      10.20       Second Amendment to Employment Termination
                  and Option Termination Agreement, dated
                  September 30, 1996, among Salvatore Casaccio,
                  A. Joseph Melnick, Richard Bartlett, and Child-
                  robics, Inc.                                                                 G                       7
</TABLE>

----------

C    Form 8-K Current Report dated December 14, 1994

D    Form 8-K Current Report dated March 17, 1995

E    Form 10-KSB Annual Report of the  Registrant for the fiscal year ended June
     30, 1995

F    Form 8-K Current Report dated July 3, 1996

G    Form 8-K Current Report dated September 25, 1996

                                     - 11 -

<PAGE>


(d) Reports on Form 8-K

     1.   The Company filed a Current Report on Form 8-K having a report date of
          July 3, 1996.

     2.   The Company filed a Current Report on Form 8-K having a report date of
          September 25, 1996.


                                     - 12 -

<PAGE>


                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the  Securities  Exchange Act of
1934,  the  Company  caused  this  Report  to be  signed  on its  behalf  by the
undersigned, thereunto duly authorized.

                                       CHILDROBICS, INC.
                                       (Registrant)


Dated: October 30, 1996                By:  /s/Gerard A. Reda
                                           ------------------
                                           Gerard A. Reda
                                           President and Chief Executive Officer


                                     - 13 -

<PAGE>


                       CHILDROBICS, INC. AND SUBSIDIARIES

                   Index to Consolidated Financial Statements

                                                                          Page
                                                                          ----
Report of Independent Accounts............................................F-2

Consolidated Financial Statements:

     Consolidated Balance Sheet - June 30, 1996...........................F-3

     Consolidated Statements of Operations -
       Years Ended June 30, 1996 and 1995.................................F-4

     Consolidated Statements of Shareholders -
       Year Ended June 30, 1996...........................................F-5

     Consolidated Statements of Cash Flow -
       Years Ended June 30, 1996 and 1995.................................F-6

     Notes to Consolidated Financial Statements...........................F-8


                                       F-1

<PAGE>


                          INDEPENDENT AUDITOR'S REPORT


The Board of Directors and Shareholders'
Childrobics, Inc.
Farmingdale, New York

     We have audited the accompanying consolidated balance sheet of Childrobics,
Inc.  and its  Subsidiaries  as of June 30, 1996,  and the related  consolidated
statements of operations,  shareholders'  equity, and cash flows for each of the
two years in the  period  ended  June 30,  1996.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

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

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
Childrobics, Inc. and its Subsidiaries as of June 30, 1996, and the consolidated
results  of their  operations  and their cash flows for each of the two years in
the period ended June 30, 1996, in conformity with generally accepted accounting
principals.

     The  accompanying  consolidated  financial  statements  have been  prepared
assuming that Childrobics,  Inc. will continue as a going concern.  As discussed
in  Note  21  to  the  consolidated   financial  statements,   the  Company  has
insufficient  cash resources and negative working capital that raise substantial
doubt about its ability to continue as a going  concern.  Management's  plans in
regard  to  these  matters  are also  described  in Note  21.  The  consolidated
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.

                                       MOORE STEPHENS, P.C.


Certified Public Accountants
Cranford, New Jersey
October 14, 1996

                                       F-2

<PAGE>



                               Childrobics, Inc.,
                                and Subsidiaries
                           Consolidated Balance Sheets

                                                                       June 30,
                                                                         1996
                                                                         ----
ASSETS:
Cash and cash equivalents                                             $     --
Certificate of deposit - restricted                                     100,000
Accounts receivable, net of allowance for doubtful
  accounts of $650,297                                                  114,676
Inventory                                                               234,866
Prepaid expenses                                                         39,088
Net assets of discontinued operations                                   525,000
                                                                     ----------
  Total current assets                                                1,013,630

Property and equipment - Net                                          3,491,235
Other                                                                   111,778
                                                                     ----------
  Total assets                                                       $4,616,643
                                                                     ==========

LIABILITIES:
Accounts payable                                                     $1,296,346
Accrued expenses                                                      1,392,821
Short term line of credit                                               163,798
Notes payable                                                           607,352
Current portion of capitalized leases                                     7,040
Due to former officer                                                    87,620
                                                                     ----------
  Total current liabilities                                           3,554,977

LONG-TERM LIABILITIES:
Notes payable                                                            30,671
Capitalized lease                                                         8,595
                                                                     ----------
  Total long-term liabilities                                            39,266

Commitments and contingencies

STOCKHOLDERS' EQUITY:
Common stock - $.01 par value, 25,000,000 shares
  authorized, 5,355,000 issued and outstanding                           53,550
Additional paid-in capital                                           12,820,405
Retained deficit                                                    (11,851,555)
                                                                     ----------
  Total shareholders' equity                                          1,022,400
                                                                     ----------
  Total liabilities and shareholders equity                          $4,616,643
                                                                     ==========


              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-3

<PAGE>

                               Childrobics, Inc.,
                                and Subsidiaries
                      Consolidated Statements of Operations
                           For the Twelve Months Ended

                                                     June 30,        June 30,
                                                       1996            1995

REVENUES:
Video & arcade                                     $  1,672,340    $    397,032
Sales of equipment and rides                          5,507,618       1,577,909
                                                   ------------    ------------
  Total revenues                                      7,179,958       1,974,941
                                                   ------------    ------------
COST OF SALES:
Video & arcade                                        1,203,018         297,805
Cost of equipment and rides                           5,267,916       1,329,464
                                                   ------------    ------------
  Total cost of sales                                 6,470,934       1,627,269
                                                   ------------    ------------
  Gross profit                                          709,024         347,672
EXPENSES:
Selling, general and
  administrative expenses                             2,294,655         868,775
Officers' compensation                                2,478,500         537,361
Bad debt expense                                        653,292          14,361
                                                   ------------    ------------
  Operating loss                                     (4,717,423)     (1,072,825)
Interest and financing expenses                          65,848          31,239
Interest income                                            --          (314,294)
                                                   ------------    ------------
  Total interest and financing expenses                  65,848        (283,055)
                                                   ------------    ------------

  Loss from continuing operations                    (4,783,271)       (789,770)
Discontinued operations:
  Loss from discontinued operations                  (1,546,862)       (576,450)
  Loss on disposal of discontinued operations        (3,543,026)           --
                                                   ------------    ------------
Loss from discontinued operations                    (5,089,888)       (576,450)
                                                   ------------    ------------

  Net  loss                                          (9,873,159)     (1,366,220)
Retained deficit:
  Beginning of period                                (1,978,396)       (612,176)
                                                   ------------    ------------

  End of period                                    ($11,851,555)   ($ 1,978,396)
                                                   ============    ============
PER SHARE DATA
Loss from continuing operations                          ($1.04)         ($0.20)
Loss from discontinued operations                         (1.10)          (0.15)
                                                         ------          ------
Net loss                                                 ($2.14)         ($0.35)
                                                        =======         =======
Weighted average number of shares used                4,620,753       3,957,287
                                                      =========       =========


              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-4

<PAGE>


<TABLE>
                                                          CHILDROBICS, INC.
                                                          and Subsidiaries
                                           Consolidated Statement of Shareholders' Equity
                                                 For the Period Ended June 30, 1996

<CAPTION>
                                                         Common Stock                                                      Total
                                                  ------------------------            Paid-In          Retained        Shareholders'
                                                  Shares            Amount            Capital           Deficit            Equity
                                                  ------            ------            -------           -------            ------
<S>                                             <C>             <C>                <C>               <C>                <C>         
Beginning balances,
 July 1 1994                                    3,850,000       $     38,500       $ 10,128,830      ($   612,176)      $ 9,555,154

Issuance pursuant to Asset
  Purchase Agreement -
  March 2, 1995                                   375,000              3,750            699,375                        $    703,125

Issuance pursuant to Asset
  Purchase Agreement -
  April 3, 1995                                    65,000                650            104,975                        $    105,625

Issuance pursuant to Asset
  Purchase Agreement -
  June 26, 1995                                    65,000                650             56,225                        $     56,875

Net loss - 1995                                                                                       (1,366,220)      ($ 1,366,220)
                                             ------------       ------------       ------------      ------------       ------------

Balances, June 30, 1995                         4,355,000             43,550         10,989,405        (1,978,396)        9,054,559

Sale of common stock,
  March 28, 1996                                1,000,000             10,000            490,000                             500,000

Employment and Option
  Termination Agreement                                                               1,341,000                           1,341,000
  dated July 3, 1996

Net loss - 1996                                                                                        (9,873,159)       (9,873,159)
                                             ------------       ------------       ------------      ------------       ------------

  Balances, June 30, 1996                       5,355,000       $     53,550       $ 12,820,405      $(11,851,555)      $ 1,022,400
                                             ============       ============       ============      ============       ============

                       The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                                                 F-5

<PAGE>

                                CHILDROBICS, INC.
                                and Subsidiaries
                      Consolidated Statements of Cash Flows
                           For the Twelve Months Ended

<TABLE>
<CAPTION>
                                                           June 30,        June 30,
                                                             1996           1995
                                                             ----           ----
<S>                                                     <C>            <C>         
OPERATING ACTIVITIES:
Net loss from continuing operations                     ($4,783,271)   $  (789,770)
Adjustments to reconcile net loss to net
 cash provided (used) by operating
 activities:
Options issued as part of Employment and
  Option Termination Agreement                            1,341,000           --
Depreciation and amortization                               719,525        133,592
Bad debts                                                   653,292         14,361
Changes in assets and liabilities:
Accounts receivable                                        (138,560)      (643,769)
Inventory                                                   931,876     (1,166,742)
Prepaid expenses                                             25,675        (61,013)
Accounts payable and accrued expenses                     1,613,300        981,906
Other                                                       (13,995)        11,195
                                                        -----------    -----------
Net cash provided (used) by continuing operations           348,842     (1,520,240)
                                                        -----------    -----------
Discontinued operations:
Net loss from discontinued operations                    (1,546,862)      (576,450)
Adjustments to reconcile net loss to net
 cash provided  (used) by  discontinued operations:
   Changes in net assets, liabilities and losses          4,699,460     (5,224,460)
Estimated loss on disposal of discontinued operations    (3,543,026)          --
                                                        -----------    -----------
Net cash used by discontinued operations                   (390,428)    (5,800,910)
INVESTING ACTIVITIES:
Operating assets of businesses acquired- cash paid             --       (1,600,000)
Sales of (investments in) marketable securities                --        7,856,365
Investment in certificate of deposit- restricted           (100,000)          --
Purchases of property and equipment                        (639,827)      (218,600)
Expenditures for (disposition of) other assets               63,866
                                                                       -----------
Net cash provided by (used in) investing activities        (675,961)     6,037,765
                                                        -----------    -----------
FINANCING ACTIVITIES:
Proceeds of short term line of credit                       200,000           --
Repayment of short term line of credit                      (36,202)          --
Proceeds from former officer                                 87,620           --
Issuance of common stock                                    500,000           --
Repayment of capitalized lease                               (5,838)          --
Repayment of notes payable                                 (202,294)          --
                                                        -----------    -----------
Net cash provided by (used in) financing activities         543,286              0
                                                        -----------    -----------
Decrease in cash balances                                  (174,261)    (1,283,385)
Cash, beginning of period                                   174,261      1,457,646
                                                        -----------    -----------
Cash, end of period                                              $0    $   174,261
                                                                       ===========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-6

<PAGE>


                                CHILDROBICS, INC.
                                and Subsidiaries
                Consolidated Statements of Cash Flows- continued
                           For the Twelve Months Ended

                                                        June 30,      June 30,
                                                          1996         1995
                                                          ----         ----
Supplemental Disclosures:
Cash paid during the period for:
  Interest                                            $    65,848   $    36,653
                                                                    ===========

  Income taxes                                        $      --     $      --
                                                      ===========   ===========


Notes payable disclosure:
The Company issued notes payable in
 fiscal 1996 pursuant to the purchase of
 property and equipment as follows:
   Cost of property and equipment                     $   844,144   $      --

   Cash paid                                                 --
                                                      -----------   -----------
   Liability under note payable                       $   844,144   $         0
                                                      ===========   ===========


Capitalized lease disclosure:
The Company entered into two capital lease
 obligations in fiscal 1995 and one lease
 in fiscal 1996 for the purchase of
 property and equipment as follows:
  Cost of property and equipment                      $     3,827   $    17,646

  Cash paid
                                                      -----------   -----------
  Liability under capitalized lease                   $     3,827   $    17,646
                                                      ===========   ===========


Supplemental Schedule of Non-Cash Investing
  Financing Activities:
During the twelve months ended June 30, 1995
 the Company acquired the operating assets of
 three different businesses in the following manner:

Total operating assets of the businesses acquired     $      --     $ 1,656,875

Less:  common stock issued                                   --         (56,875)
                                                      -----------   -----------

Total cash paid                                       $         0   $ 1,600,000
                                                      ===========   ===========


              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-7

<PAGE>


                                CHILDROBICS, INC.
                   Notes to Consolidated Financial Statements

Note  1 -  Description  of  Business,  Certain  Considerations  relating  to the
Business and Summary of Significant Accounting Policies

Description of Business

Childrobics,  Inc. (the "Company"),  is engaged in the children's recreation and
entertainment  business.  The Company operates several complementary  businesses
which service the  recreation  and  entertainment  industry as a distributor  of
amusements games,  rides and redemption items, a manufacturer  which designs and
assembles  softplay  structures  and an  operator  of video and arcade  games at
non-company  owned  facilities.  Businesses  in the United  States  serving  the
children's   market  are   characterized  by  intense  and  substantial   direct
competition.  Although  the  market  is  generally  fragmented,  certain  of the
companies  with which the Company  competes  are  substantially  larger and have
substantially  greater  resources,  especially in marketing and sales,  than the
Company.  It is also  likely that other  competitors  will emerge in the future.
Through  June  30,  1996  the  Company  also  owned  and  operated   indoor  and
indoor/outdoor  recreation and entertainment centers ("Playcenters") through its
subsidiaries  and was a franchisor  of  Playcenters  throughout  the U.S. In the
first quarter of fiscal 1997, the Company disposed of  substantially  all of its
recreational   Playcenters  and  in  the  fourth  quarter  of  1996  closed  its
franchising operation. See Note 4.

The Company was  incorporated  in the State of New York on May 7, 1993 under the
name Child Playrobics, Inc. and changed its name to Childrobics, Inc. in 1994.

History of Losses, Working Capital Deficit and Need for Additional Capital

During the fiscal years ended June 30, 1996 and 1995, the Company  sustained net
losses of $9,873,996 and $1,366,220, respectively. Although the Company recorded
net income from  operations  prior to its initial public  offering in June 1994,
since that time, as the Company  commenced its expansion  plans, the Company has
not achieved net income and has not  generated  positive  cash flow. At June 30,
1996, the Company had a working capital  deficit of $2,531,397.  The Company has
significant  debts related to a liquidity  crisis resulting from its losses from
operations for the fiscal year ended June 30, 1996. The Company has been able to
continue its  operations  despite its lack of cash  resources as a result of the
proceeds received by the Company from a Lender in the form of a $1,500,000 loan,
pursuant  to a  financing  agreement.  The  Company's  ability to  continue  its
operations is dependent upon its ability to obtain  additional  financing,  take
steps necessary to increase its cash flow,  including the sale of certain assets
of the Company,  merge with a profitable company and to continue to persuade its
trade creditors not to insist upon strict adherence to normal payment terms. The
Company  cannot provide  assurances  that success of any or all of these factors
will be sufficient to make the Company's operations  profitable or will generate
positive cash flows in the future.

Basis of Presentation

The consolidated  financial  statements  include the accounts of the Company and
all its subsidiaries  through June 30, 1996. The Company owned approximately 51%
of two  Florida  companies,  one of which  also  owns  100% of  another  Florida
company.  In  December  1995,  the Company  acquired an 80%  interest in another
Playcenter  located  in  Florida.  In  September  1995,  the  Company  purchased
approximately 51% of a Playcenter in Staten Island,  N.Y. All other subsidiaries
are 100%  owned by the  Company.  In the  first  quarter  of 1997,  the  Company
disposed of substantially all of its recreational  Playcenters and in the fourth
quarter  of 1996  closed  its  franchising  operation  and  accounted  for these
entities as discontinued operations in its June 30, 1996 financial statements.

                                       F-8

<PAGE>


                                CHILDROBICS, INC.
                   Notes to Consolidated Financial Statements

Note  1 -  Description  of  Business,  Certain  Considerations  relating  to the
Business and Summary of Significant Accounting Policies - continued

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

All  material  intercompany  sales and  related  profits  have been  eliminated.
Certain items in the 1995 financial statements have been reclassified, primarily
due to discontinued operations, to conform to the 1996 presentation.

Concentration of Credit Risk

Accounts  receivable  consists  of amounts due from  credit  sales to  customers
principally  in  North  America.  It is the  Company's  policy  not  to  require
collateral for credit sales. The Company performs ongoing credit  evaluations of
its  customers  and  maintains  allowances  for  potential  credit  losses  and,
therefore,  it believes  its  exposure is limited by such  allowances,  however,
these assessments may change in the near term.

Inventories

Inventories are carried at the lower of cost (on a first-in  first-out basis) or
market.

Property and Equipment

The cost of property and equipment is amortized over the estimated  useful lives
of the  respective  assets  using the  straight-line  method with a half year of
depreciation   or   amortization   recorded  in  the  year  of  acquisition  and
disposition. Estimated useful lives were as follows:

     Property                     5 Years
     Equipment                    5-7 Years
     Leaseholds                   Over the life of the applicable lease
     Furniture and fixtures       5 Years

Maintenance  and repair  costs are charged to expense as  incurred.  Renewal and
improvements that extend the useful life of the assets are added to the property
and equipment accounts.

Other Assets

Organization costs are amortized over five years under the straight-line method.

Income Taxes

Deferred income tax assets and liabilities are computed annually for differences
between the  financial  statement and tax bases of assets and  liabilities  that
will result in taxable or deductible  amounts in the future based on enacted tax
laws and rates  applicable to the periods in which the  differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce  deferred tax assets to the amount  expected to be  realized.  Income tax
expense is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets or liabilities.


                                       F-9

<PAGE>


                                CHILDROBICS, INC.
                   Notes to Consolidated Financial Statements

Note  1 -  Description  of  Business,  Certain  Considerations  relating  to the
Business and Summary of Significant Accounting Policies - continued

Revenue Recognition

Sales of equipment and rides are recognized when shipped. Revenue from video and
arcade  operations is recognized when earned.  All sales are denominated in U.S.
Dollars.

Earnings per Share

Earnings  per share for all periods  have been  presented  based on the weighted
average number of shares outstanding including shares subscribed.  Stock options
and  warrants  have not  been  included  since  their  effect  would  have  been
anti-dilutive.

Stock Options and Similar Equity Instruments Issued to Employees

The Company uses the intrinsic value method to recognize cost in accordance with
Accounting Principles Board No. 25 (Accounting for Stock Issued to Employees).

Note  2 - Acquisitions

Explorations

In  November  1994,  the  Company  acquired  approximately  51% of  Explorations
Franchise Group, Inc.("EFG"), SJB Investments Corp ("SJB"), and SJB's 100% owned
subsidiary,  Explorations Entertainment Group, Inc. ("EEG"),  collectively known
as  "Explorations".  Explorations  operates a Playcenter  and  franchises  other
Playcenters  on a national  basis.  Such  majority  interest  was  acquired  for
$300,000 plus acquisition costs and the Company advanced an additional  $300,000
in the form of non-  interest  bearing  notes  payable at  acquisition  date. In
December 1995, the Company acquired an 80% interest in another  Playcenter for a
nominal consideration in Boynton Beach, Fl ("Boynton"). In the fourth quarter of
fiscal 1996,  the Company shut down EFG, and in the first quarter of fiscal 1997
signed a letter of intent to sell its majority interest in the remaining Florida
operations,   SJB,  EEG,  and  Boynton,   to  the  management  of  Explorations.
Explorations  is accounted for as a  discontinued  operation in fiscal 1996. See
Note 4.

Group  Coin and Affiliates

In March 1995,  the Company  acquired  substantially  all of the assets of Group
Coin,  Replay  Amusement  Corp.,  Amusement  Associates,  Turnpike  and  Medford
Amusement Corp, now Kids Kingdom. The purchase price of the acquisition was paid
with  $1,500,000 of cash,  the issuance of 375,000 of common stock at $1.875 per
share and the assumption of $200,000 of  liabilities  related to the purchase of
Medford  Amusement  Corp.  Included in the $1,500,000 of cash was $1,435,000 for
the  acquisition  of video,  arcade and redemption  equipment  recorded as fixed
assets,  $25,000  related to covenants not to compete and $40,000 for inventory.
The Company may have to issue additional  shares depending upon the market price
of the Company's  common stock two years after the closing date of the purchase.
Certain  restrictions  apply to the  transfer or sale of the common stock issued
and the Company has made certain  pledges  related to the  registration of these
shares. The Company's Kids Kingdom Playcenter located in Medford,  N.Y. was sold
in the first  quarter  of fiscal  1997 and is  accounted  for as a  discontinued
operation in fiscal 1996. See Note 4.


                                      F-10

<PAGE>



Note  2 - Acquisitions - continued

FZL,  Inc.

In April 1995, the Company acquired all of the assets of FZL, Inc., a Playcenter
located in Lynbrook,  N.Y. The purchase  price was $400,000 paid in cash and the
issuance 65,000 shares of common stock at $1.625 per share.  Additional  amounts
were paid  relating to a security  deposit  from the  landlord of the  facility.
Under  certain  circumstances,  additional  shares  may be issued to the  seller
subject to the market  price of the  Company's  common stock two years after the
closing date of the  purchase.  The Company has retained  certain  voting rights
related to additional  shares which may be issued pursuant to this  acquisition.
Certain  restrictions  apply to the  transfer or sale of the common stock issued
related to this  acquisition and the Company has made certain pledges related to
the registration of these newly issued shares.  The Company sold its interest in
this  Playcenter in the first quarter of fiscal 1997 and is accounting  for this
entity as a discontinued operation in fiscal 1996. See Notes 3 and 4.

Tunnels & Tubes, Inc.

In June 1995, the Company acquired all of the assets of Tunnels & Tubes for Fun,
Inc. The purchase price of the  acquisition,  paid in cash, was $100,000 for the
business,  $70,000 for certain  sales  contracts,  inventory,  a covenant not to
compete and a $6,875 for a security deposit. The Company issued 65,000 shares of
common stock related to the acquisition and may have to issue additional  shares
depending  upon the market price of the  Company's  Common Stock two years after
the closing date of the purchase . Certain restrictions apply to the transfer or
sale of the common stock issued and the Company has made certain pledges related
to the registration of these shares. See Note 3.

Whitey Ford's Grand Slam  of Staten Island, Inc.

In July 1995,  the Company agreed to purchase a 51% interest in Whitey Ford's of
Staten Island,  Inc., a Playcenter  located in Staten Island,  N.Y. for $500,000
($300,000 in cash and notes for the  acquisition  and the Company also agreed to
invest  $200,000 to be used for the  renovation  and  expansion  of the existing
facility).  The  Company  borrowed  an  additional  $300,000  from  a  financial
institution to purchase  additional rides and games. The Company entered into an
agreement to transfer its interest in this  Playcenter  in the first  quarter of
fiscal 1997 and is accounted for as a discontinued  operation in fiscal 1996 and
the outstanding  debt associated  with this  transaction  will be assumed by the
acquiring entity. See Note 4.

Note  3 - Related Party Transactions

In April 1995, the Company  acquired all of the assets of FZL Inc., a Playcenter
located in  Lynbrook,  N.Y. A former  Officer and Director of the Company held a
partial  interest  in the  company  from which the assets  were  acquired.  This
Playcenter  was disposed of in the first quarter of fiscal 1997. See Notes 2 and
4.

In June 1995, the company acquired all of the assets of Tunnels & Tubes for Fun,
Inc. The same former  Officer and Director owned 100% of this company from which
the assets were acquired. See Note 2.


                                      F-11

<PAGE>


                                CHILDROBICS, INC.
                   Notes to Consolidated Financial Statements

Note  4 - Discontinued Operations

Franchise Operation

In the fourth  quarter of 1996,  the Company  shut down  Explorations  Franchise
Group in which it also owned approximately 51% of the outstanding shares.  Sales
of these  operations were $151,585 and $124,379 for the twelve months ended June
30, 1996 and 1995, respectively.

Playcenters

As part of the  Employment  and Option  Termination  Agreement (See Note 13) the
Company's  former  Chief  Executive  Officer  received  the common  stock in the
Playcenters  located in Brooklyn,  N.Y.,  Bayside,  N.Y., New York, N.Y. and the
assets of its original Playcenter in Brooklyn,  N.Y. In addition,  the Company's
former Executive Vice President,  in conjunction with the Company's former Chief
Executive  Officer,  will receive the Company's  51% interest in the  Playcenter
located in Staten  Island,  N.Y.  Each officer will receive these assets free of
charge,  however,  all  liabilities,  with the exception of liabilities  owed to
other  Childrobics  subsidiaries,  will be  assumed  in the  transaction  by the
Officers.  Sales of these  operations  were  $2,184,932  and  $1,242,281 for the
twelve months ended June 30, 1996 and 1995, respectively.

On  September  25,  1996,  the  Company  sold to an  investor  the  stock in its
Playcenters located in Danbury, Ct. for $350,000, Medford, N.Y. for $400,000 and
Lynbrook, N.Y. for $325,000. The Company received cash at closing of $60,000 and
notes receivable for $490,000 payable to the Company after closing: (1) $115,000
in 30 days; (2) $75,000 in six months;  (3) $25,000 in nine months;  (4) $75,000
in twelve months,  and (5) $200,000 in two years. The Company will also receive,
(1) within  six  months of the  closing,  at the sole  discretion  of the buyer,
either $100,000 by delivery of 25,000 shares of restricted stock of the buyer or
$25,000  in cash;  and (2)  within  twelve  months of the  closing,  at the sole
discretion  of the  buyer,  either  $100,000  by  delivery  of 25,000  shares of
restricted  stock of the buyer or $50,000 in cash.  The buyer has also agreed to
assume the following debt for each of the respective  Playcenters:  (1) $150,000
for Lynbrook,  N.Y., (2) $50,000 for Danbury,  Ct., and (3) 250,000 for Medford,
N.Y.  Sales of these  operations  were  $2,803,306  and  $477,745 for the twelve
months ended June 30, 1996 and 1995, respectively.  As part of the sale of these
Playcenters, the buyer signed a five year contract for the Company's subsidiary,
Group Coin  Associates,  to be the sole  operator  of video and arcade  games in
these three Playcenters.

In the fourth  quarter of fiscal 1996 the Company shut down EFG. As set forth in
the letter of intent  which the  Company  signed in the first  quarter of fiscal
1997, the Company agreed to sell its majority  interest in the remaining Florida
operations,   SJB,  EEG,  and  Boynton,   to  the  management  of  Explorations.
Explorations is accounted for as a discontinued  operation in fiscal 1996. Sales
of these  operations were $639,637 and $236,923 for the twelve months ended June
30, 1996 and 1995, respectively. See Note 4.


                                      F-12

<PAGE>


                                CHILDROBICS, INC.
                   Notes to Consolidated Financial Statements

Note  4 - Discontinued Operations  - continued

Summarized  net assets,  sales and results of  operations  for all  discontinued
operations are as follows:

                                                                        1996
                                                                        ----
  Net assets of discontinued operations 
    (Primarily Notes Receivable)                                     $  525,000
  Revenues                                                           $5,779,460
  Loss from discontinued operations                                 ($1,546,862)

There was no income  tax  liability  or  benefit  associated  with the losses on
discontinued operations.

The disposition of its  Playcenters is subject to negotiations  and execution of
definitive  agreements  and there can be no  assurance  that the Company will be
able to consummate such  transactions on acceptance terms or at all. The amounts
the Company will  ultimately  realize  could differ  materially in the near term
from the amount  assumed in arising at the loss or disposal of the  discontinued
operations.

Note 5 - Inventory

Inventory consisted of the following items as of June 30,

                                   1996
                                   ----
Equipment                        $224,866
Parts                              10,000
                                 --------
Total                            $234,866
                                 ========

In fiscal 1996,  the Company  charged to operations  approximately  $ 273,640 to
provide for  obsolescence  and net  realizable  issues  related to its equipment
inventory.

Note 6 -  Property and Equipment

Property and equipment consisted of the following at June 30,

                                  1996
                                  ----
Equipment                      $4,061,038
Leasehold improvements             35,381
Machinery                          26,912
Furniture and fixtures            177,774
                               ----------
sub-total                       4,301,105
Accumulated depreciation         (809,870)
                               ----------
Net property and equipment     $3,491,235
                               ==========


                                      F-13

<PAGE>


                                CHILDROBICS, INC.
                   Notes to Consolidated Financial Statements

Note 7 - Other Assets

Other assets consisted of the following at June 30,

                                                                    1996
                                                                    ----
Security and other deposits                                       $33,431
Organization costs                                                 78,347
                                                                 --------
Total Other Assets                                               $111,778
                                                                 ========

Note 8 -  Accrued Liabilities

Accrued liabilities consisted of the following at June 30,

                                                                    1996
                                                                    ----
Termination pay                                                  $687,500
Professional fees                                                 396,168
Rent                                                               72,562
Insurance                                                          63,707
Claims                                                             49,856
Payroll and taxes                                                  49,126
Other                                                              73,902
                                                               ----------
           Total Accrued Liabilities                           $1,392,821
                                                               ==========


Note 9 - Revolving Credit Agreement

In July 1995,  the Company  obtained a $200,000  revolving line of credit from a
bank which  requires the Company to maintain a deposit of $100,000 with the bank
for the  duration of the  agreement as  collateral  securing the line of credit.
Such line of credit  provides for interest at 1% above the prime lending rate of
the bank.  The weighted  average  interest rate for the twelve months ended June
30, 1996 was 9.25%.

Note 10 - Notes Payable

Notes payable was comprised of the following:

                                                                  1996
                                                                  ----
Betson Equipment                                                $224,026
Firestone Financial                                              413,997
                                                                 -------
Total  debt                                                      638,023
Less:  current maturities                                       (607,352)
                                                                 ------- 
Total long term debt                                             $30,671


                                      F-14

<PAGE>


                                CHILDROBICS, INC.
                   Notes to Consolidated Financial Statements

Note 10 - Notes Payable -continued

Notes payable is composed of seven notes, with interest rates varying from 12.6%
to 15.6% and  collateralized  by  equipment  with a book value of  approximately
$800,000. Current maturities of the above captioned notes are:

1997                  $607,352

1998                    30,671

Note 11- Capital Leases

The Company  entered into an equipment lease which give it the right to purchase
the item for $1 at the termination of the lease.  Depreciation  recorded on such
lease was $3,525 for twelve  months  ended June 30,  1996 and 1995.  Amounts due
under the lease are as follows:

1997                                    $9,556

1998                                     8,820

1999                                       735
                                        ------
   sub-total                            19,111

Less:  amounts representing interest    (3,476)
                                       -------
   Total                               $15,635

Note 12 - Fair Value of Financial Instruments

Effective June 30, 1996, the Company adopted  Statement of Financial  Accounting
Standards No. 107,  Disclosure About Fair Value of Financial  Instruments  which
requires   disclosing  fair  value  to  the  extent  practicable  for  financial
instruments  which are recognized or unrecognized in the balance sheet. The fair
value of the financial  instruments  is not  necessarily  representative  of the
amount  that  could be  realized  or  settled,  nor does the fair  value  amount
consider the tax consequences of realization or settlement.

For certain financial  instruments,  including cash and cash equivalents,  trade
receivables and payables, it was estimated that the carrying amount approximated
fair value because of the near term  maturities of such  obligations.  It is not
practicable  to estimate a fair value for the  Company's  long-term  debt as the
Company cannot currently obtain conventional financing. See Note 20.

The Company does not believe it is practicable to estimate the fair value of the
guarantee and does not believe exposure to loss is likely. See Note 13.


                                      F-15

<PAGE>


                                CHILDROBICS, INC.
                   Notes to Consolidated Financial Statements

Note  13 - Commitments and Contingencies

Operating Leases

The Company is  obligated  under  operating  leases for its  facilities.  Rental
expense under the current leases for  continuing  operations for the period June
30, 1996 and 1995 were $83,500 and $46,982,  respectively.  Rental expense under
leases for  discontinued  operations for the period ended June 30, 1996 and 1995
was  $1,416,112  and  $380,289.  Future  minimum  lease  payments  under current
non-cancelable  leases for the remaining years of the leases  subsequent to June
30, 1996 for continuing operations are as follows:

1997              $84,583

1998               57,500
                 --------
Total            $142,083
                 ========



The Company is contingently liable in the amount of $1,720,860 for the remaining
lease  payments  for the  Danbury,  Ct  Playcenter  which  was sold in the first
quarter  of 1997 and is shown as a  discontinued  operation.  In  addition,  the
Company is liable to the  remaining  lease  payments  for the  Funnyone,  Stafer
Island. Such amount is approximately $1,500,000. This Playcenter was disposed of
during the first quarter of 1997.  All other leases  pertaining to  discontinued
operations have been assumed by the acquiring entities.

Employment Agreements

In September  1995, the Company  entered into  employment  agreements with three
officers and directors (the "Officers"). Such agreements were to expire July 10,
2000.  The annual  salaries  under the agreements for each Officer were $150,000
and  annual  bonuses  equal to 50 percent of the  salary  provided  under  their
respective  agreements.  Bonuses  for  the  previous  two  years,  amounting  to
$400,000, have been accrued but remain unpaid.

Pursuant to an Employment and Option  Termination  Agreement  (the  "Termination
Agreement") as approved by the two independent members of the Company's Board of
directors,  dated July 3, 1996,  and  amended in  September  1996,  between  the
Officers  and the Company,  each  officer has agreed to resign their  respective
positions  with the Company and  forfeit  all unpaid  bonuses and stock  options
awarded to them  subject to the  Company  obtaining  financing  in the form of a
$1,500,000  loan (the  "Financing  Agreement")  and the completion of the merger
with Just Kiddie Rides,  Inc.,  which closed on September 30, 1996.  See Notes 4
and 20.

As provided for in the Termination Agreement, each Officer will receive:

(1)  $200,000,  of which  $50,000 is to be paid at the closing of the  Financing
Agreement  and the balance to be paid in short term notes,  all of which will be
satisfied not later than the earlier of one year from the date of closing of the
financing  agreement or the completion of a secondary  offering of the Company's
common stock. Such amounts have been collateralized by a pledge of the assets of
the Company's subsidiary,  Group Coin Associates,  Inc.; (2) Options to purchase
300,000  shares of the  Company's  common stock for $.01 per share.  The Company
charged to operations and credited to


                                      F-16

<PAGE>


                                CHILDROBICS, INC.
                   Notes to Consolidated Financial Statements

Note  13 - Commitments and Contingencies- continued

Additional Paid in Capital $1,341,000 related compensation for such below market
stock  options;  (3)  each  Officer  will be  reimbursed  for any out of  pocket
expenses incurred on behalf of the Company up to a specified amount;  (4) two of
the Officers will receive the Company's 51% interest in its Staten Island,  N.Y.
Playcenter;  and,  (5) one of the Officers  will  receive 100% of the  Company's
common stock of the Playcenters  located in Brooklyn,  N.Y.,  Bayside,  N.Y. and
N.Y., N.Y. and will also assume all outstanding  liabilities  with the exception
of liabilities owed to other  subsidiaries of the Company.  In addition,  due to
the Company's cash  shortage,  each Officer agreed to defer any salary from July
1, 1996 through the closing of the Financing Agreement. The Company has provided
$87,500 in fiscal 1996 for such event.  As of June 30, 1996,  one Officer loaned
to the Company approximately $87,620 and will be repaid from the proceeds of the
Financing Agreement.

Legal Proceedings

A  judgement  in the amount of  $156,000  has been  awarded  against the Company
resulting  from an action  brought by Creative  Engineering  for  non-payment of
trade  obligations.  The full amount of the judgement has been recorded in these
financial statements.

The Company is involved in legal proceedings from time to time involving alleged
personal  injury which are generally  considered  routine and  incidental to its
business.  The Company  believes that legal  proceedings  presently  pending are
adequately  covered by insurance and any potential  liability in connection with
these  proceedings  will not have a  material  adverse  effect on the  financial
condition  and results of operations  and cash flows of the Company.  If a claim
was  partially  or  completely  uninsured,   if  successful  and  of  sufficient
magnitude,  such claim may have a material adverse effect on the Company and its
financial condition.

The Company is also  involved in other legal  proceedings  which are  considered
routine and  incidental  to its  business.  The Company  believes that the legal
proceedings which are presently  pending have no potentia  liability which would
have a  material  adverse  effect on the  financial  condition  and  results  of
operations and cash flows of the Company.

The Company's  assessment of its potential  liability with respect to any of the
above legal matters may change in the near term.

Guarantees

During  1996 the  Company  made two  sales to an  unrelated  party of soft  play
structures  through its Tunnels & Tubes subsidiary with recourse.  The unrelated
party  financed  the sale through a financial  institution  in which the Company
guaranteed  payment of the unpaid balance in the event the unrelated party fails
to satisfy the financing. As of June 30, 1996 the remaining liability on the two
sales contracts was approximately $130,500. If all payments are made on a timely
basis the liability  will cease in July 1999. 


                                      F-17

<PAGE>


                                CHILDROBICS, INC.
                   Notes to Consolidated Financial Statements

Note 13 - Commitments and Contingencies - continued

Tax Defaults

The  Company  has not paid  quarterly  New York State  sales tax in the last two
quarters  in the  aggregate  amount of  approximately  $175,000  (which has been
recorded by the Company but has not been paid), although the Company has entered
into  negotiations  with  the  State  of New  York to  resolve  the  outstanding
liabilities.  In addition,  the Company and its subsidiaries have failed to file
(i) a New York City Rent Tax  Return  with  respect  to one of its  subsidiaries
located in New York,  New York,  which was due June 20,  1996,  in the amount of
approximately $10,000, which liability was assumed by the Company's former Chief
Executive  Officer (ii) Florida State Personal Property Tax returns with respect
to the  Company's  subsidiaries  located in Florida  which were due in  December
1995, and (iii) a New York State  estimated  quarterly  franchise tax return for
the quarter ended June 30, 1996 in the amount of $6,150. The Company's June 1995
New York State Franchise Tax payment in the amount of $9,966 was returned by the
State of New York due to an error by the State.  The Company may also be subject
to certain  fines and  penalties  with  respect to such unpaid taxes which could
have a material adverse effect on the Company.

As action was  commenced  against the Company as maker of a series of promissory
notes in the amount of $200,000  (which has been recorded by the Company but has
not been paid) related to one of its  discontinued  operations.  Acceleration of
the total  amount due of $200,000 has been  requested  by plaintiff  and accrued
unpaid  interest  of  approximately  $9,000  and court  costs.  The  Company  is
presently negotiating a settlement with plaintiff.  However,  resolution has not
been reached as of October 14, 1996.

Note 14 - Common Stock

In March 1994, the Company borrowed $500,000 in a bridge loan from four persons,
such loans were repaid at the closing of the Company's  initial public  offering
("IPO") on June 21,  1994.  In further  consideration  of the bridge  loan,  the
Company  issued  175,000 shares of common stock and 175,000 Class A warrants and
175,000  Class B warrants of the Company to such  persons.  The Class A Warrants
entitle the holder to purchase 1 share of common stock at $4.50 per share during
the four  year  period  commencing  one  year  from  the  effective  date of the
offering, June 14, 1994. The Class B Warrants, which were not registered as part
of the offering, are identical to the Class A Warrants except the exercise price
is $9.00 per share.

In connection with the Company's IPO, the Company sold to the  Underwriter,  for
nominal  consideration,  warrants to purchase an aggregate of 250,000  shares of
common stock which are  exercisable  through June 1998, at an exercise  price of
$6.60 per unit.

On March 26, 1996, the Company  completed a private offering of 1,000,000 units,
each unit  consisting  of one share of Common  Stock,  one Class C Common  Stock
Purchase Warrant and one Class D Common Stock Purchase  Warrant,  from which the
Company  derived  gross  proceeds of $500,000.  Each Class C Warrant and Class D
Warrant entitles the holder to purchase one share of Common Stock at an exercise
price of $.70 and $.90 per share,  respectively.  The  principal  purpose of the
offering was to raise  working  capital.  The  securities  offered have not been
registered  under the Securities Act of 1933 or any applicable  state securities
laws.



                                      F-18

<PAGE>


                                CHILDROBICS, INC.
                   Notes to Consolidated Financial Statements

Note 15 - Income Taxes

No provision  for income taxes has been made because of the  Company's  net loss
position.  Income  tax  accounting  standards  require  the  establishment  of a
deferred tax asset for all deductible  temporary  differences and operating loss
carryforwards.  The Company has recorded a deferred  tax asset of  approximately
$4,000,000.  Due to operating  losses the Company has also  recorded a valuation
allowance in the amount of $4,000,000.

As of June 30, 1996, the Company had approximately  $11,800,000 of net operating
loss  carryforwards  available to offset future taxable income expiring  between
2009 and 2011.  Pursuant to Section 382 of the Internal Revenue Code, the future
availability of such net operating tax loss  carryforwards  may be significantly
limited due to its merger with Just Kiddie Rides and certain  provisions  of its
Financing Agreement dated September 30, 1996.

Note 16 - Fourth Quarter Adjustments

In the  fourth  quarter  of fiscal  1996,  the  Company  charged  to  operations
approximately  $1,728,500  related to Officer's  compensation  expense (see Note
13),  approximately  $653,300 related to uncollectible  accounts  receivable and
approximately $273,600 related to inventory obsolescence charges.

Note 17 - Major Customers

The  Company  had  sales  to one  customer  located  in  Brazil,  South  America
representing  approximately  46% and 44% of total  continuing  sales in 1996 and
1995 and 40% of outstanding  accounts receivable as of June 30, 1995. No amounts
were due as June 30, 1996 from this customer. The loss of this customer resulted
in a material adverse effect on the Company.

Note 18 - New Authoritative Pronouncements

The  Financial  Accounting  Standards  Board has issued  Statement  of Financial
Accounting   Standards  (SFAS)  No.  121,  "Accounting  for  the  Impairment  of
Long-Lived  Assets and for  Long-Lived  Assets to be Disposed  of". SFAS No. 121
requires that long-lived assets and certain identifiable  intangibles to be held
and used by an entity,  including goodwill,  be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be  recoverable.  As the  Company's  remaining  property  and  equipment
relates to its profitable  operations the Company does not believe that SFAS No.
121 will have any material adverse effect on the Company's financial statements.

The FASB has also issued Statement of Financial  Accounting Standards (SFAS) No.
123,  "Accounting for Stock Based  Compensation",  in October 1995. SFAS No. 123
uses a fair value  based  method of  recognition  for stock  options and similar
equity  instruments  issued to employees as contrasted  to the intrinsic  valued
based method of  accounting  prescribed by APB Opinion No. 25,  "Accounting  for
Stock Issued to Employees."  The  recognition  requirements  of SFAS No. 123 are
effective  for  transactions  entered  into in fiscal  years  that  begin  after
December  15,  1995.  The  Company  will  continue  to apply  Opinion  No. 25 in
recognizing its stock based employee arrangements.  The disclosure  requirements
of SFAS No. 123 are effective for financial  statements beginning after December
15, 1995. The Company

                                      F-19

<PAGE>


                                CHILDROBICS, INC.
                   Notes to Consolidated Financial Statements

Note 18 - New Authoritative Pronouncements - continued

adopted the disclosure  requirements  on July 1, 1996. SFAS No. 123 also applies
to  transactions  in which an entity  issues its equity  instruments  to acquire
goods or services from  non-employees.  Those transactions must be accounted for
based on the fair value of the  consideration  received or the fair value of the
equity  instrument  issued,   whichever  is  more  reliably   measurable.   This
requirement is effective for transactions entered into after December 15, 1995.

Note  19 - Segment Data

The following data includes that of non-affiliated continuing operations as June
30:

<TABLE>
<CAPTION>
                         Video &             Equipment
                          Arcade              Sales                Corporate            Eliminations             Consolidated
                          ------              -----                ---------            ------------             ------------
<S>                   <C>                  <C>                  <C>                     <C>                        <C>       
Revenue
1996                  $1,672,340           $5,507,618           $          -            $          -               $7,179,958
                      ==========           ==========           ============            ============               ==========

1995                     397,032            1,577,909           $          -            $          -                1,974,941
                      ==========           ==========           ============            ============               ==========

Income (Loss)
1996                      90,186             (618,250)           (4,235,207)                (20,000)              (4,783,271)
                      ==========           ==========           ============            ============               ==========

1995                       7,265               95,728              (892,763)                       -                (789,770)
                      ==========           ==========           ============            ============               ==========

Identifiable
Assets
1996                   6,213,717            5,579,058            21,175,611             (28,351,743)                4,616,643
                      ==========           ==========           ============            ============               ==========

1995                   2,930,023            3,677,802                39,831              (3,168,557)                3,479,099
                      ==========           ==========           ============            ============               ==========

Depreciation
      &
Amortization
1996                     674,696                7,392                37,437                      -                    719,525
                      ==========           ==========           ============            ============               ==========

1995                     130,347                3,245                     -                      -                    133,592
                      ==========           ==========           ============            ============               ==========

Capital
Expenditures
1996                     574,789               47,410                17,628                      -                    639,827
                      ==========           ==========           ============            ============               ==========

1995                     $85,278              $40,517               $92,805                      -                   $218,600
                      ==========           ==========           ============            ============               ==========
</TABLE>


                                      F-20

<PAGE>


                                CHILDROBICS, INC.
                   Notes to Consolidated Financial Statements

Note 20 - Subsequent Events

Financing Agreement

On September  30, 1996,  the Company  entered  into a Financing  Agreement  (the
"Financing Agreement") with three financial institutions (the "Lender") pursuant
to which the Lender  agreed to provide the Company with  financing in the amount
of $1,500,000. In exchange for such financing the Company granted to the Lender,
for nominal consideration,  warrants (the "Financing Warrants") representing the
right to purchase  5,000,000 shares of Common Stock for $100. On October 4, 1996
the  Lender  exercised  the  Financing  Warrants.  The  Company  paid a  $15,000
processing  fee,  agreed to certain  covenants such as prepayment  penalties and
agreed to register the  underlying  shares  pursuant to a  pre-established  time
table.  Terms of the  Financing  Agreement  were a five year note,  payable with
interest only at 12% annually for the first two years and principal and interest
thereafter through maturity.  In accordance with Accounting Principles Board No.
14-  Accounting  for  Convertible  Debt  and Debt  Issues  with  Stock  Purchase
Warrants, the Company will record a debt discount of over $1 million, which will
be  amortized  to  interest  expense  over  the  life of the  loan,  which  will
significantly increase the Company's effective cost of capital.

Merger with Just Kiddie Rides, Inc.

On September 30, 1996, a Merger Agreement between Just Kiddie Rides, Inc. ("Just
Kiddie") and the Company was completed.  The Company issued  5,000,000 shares of
Common Stock, paid $250,000 cash related to a covenant not to compete and issued
a note payable for $750,000 under the same terms as the aforementioned Financing
Agreement.  Upon completion of the merger,  Just Kiddie's  founder and president
became a director, President and Chief Executive Officer of Childrobics, Inc.

The  Company's  new president  signed a five year  employment  contract with the
Company  commencing on September 30, 1996 which, in addition to certain employee
benefits,  grants an annual  salary of $250,000 and bonuses paid in Common Stock
subject to the Company meeting certain performance goals.

Pursuant to the Merger Agreement, the Company acquired all of the assets of Just
Kiddie.  This  acquisition  may  potentially  subject the Company to a number of
risks,  including,  but not limited to,  diversion  of  management's  attention,
adverse  effects on the  Company's  operating  results and hiring of  additional
personnel  and there  can be no  assurance  that the  Company  can  successfully
integrate  Just Kiddie into the Company  without  substantial  costs,  delays or
other  problems.  There can be no assurance that the  acquisition of Just Kiddie
will prove beneficial to the Company.



                                      F-21

<PAGE>


                                CHILDROBICS, INC.
                   Notes to Consolidated Financial Statements

Note 20 - Subsequent Events - continued

Options Granted to New Directors

On July 3, 1996 the Company approved the following options:

     (a) Each of  Messrs.  Gunther  and Fox were  granted  options,  subject  to
shareholder approval, to purchase 100,000 shares of common stock of the Company,
exercisable  at $.10 per  share,  such  options  to vest in three  installments,
50,000 of which shall vest on the date of election to the Board and the next two
installments  of 25,000 options to vest on the next two  anniversaries  thereof,
provided,  however  all  such  options  shall  immediately  vest  under  certain
circumstances  (The  shares  issuable  upon  exercise  of such  options are also
subject to  restriction  on sale without the consent of the Company for a period
of two years); and

     (b) The  Company  agreed to grant to each of Messrs.  Gunther and Fox, at a
later date, subject to shareholder  approval,  options to purchase an additional
100,000  shares of common stock of the Company,  exercisable  at $.10 per share,
such  options to vest in three  installments,  50,000 of which shall vest on the
date of grant of such options and the next two installments of 25,000 options to
vest on the next two anniversaries thereof,  provided,  however all such options
shall  immediately  vest under certain  circumstances  (The shares issuable upon
exercise of such  options are also  subject to  restriction  on sale without the
consent of the Company for a period of two years).

Note  21 - Going Concern

The Company has a working capital deficit of $2,541,347 as of June 30, 1996. The
Company's  financial  statements  for the year  ended June 30,  1996,  have been
prepared on a going concern basis which  contemplates  the realization of assets
and the  settlement  of  liabilities  and  commitments  in the normal  course of
business.  The  continuation of the Company as a going concern is dependent upon
its  ability  to  generate   sufficient   cash  from  operations  and  financing
activities. The Company's working capital deficit raises substantial doubt about
the entity's ability to continue as a going concern.  Management's plans include
the following: (1) to generate additional financing through a $1,500,000 private
placement  of the  Company's  Common Stock (See Note 20), (2) to merge with Just
Kiddie  Rides,  Inc., a profitable  privately  held company in the same industry
which  will  complement  and  supplement  the  Company's  continuing  profitable
operations  (See Note 20),  and (3) to shut down or otherwise  divest  itself of
unprofitable operations. Management believes that these plans can be effectively
implemented  in  the  next  twelve  months.  There  can  be no  assurances  that
management  will be successful  in these  endeavors.  The  Company's  ability to
continue as a going  concern is dependent on the  implementation  and success of
these plans. The financial  statements do not include any adjustments that might
result in the event the Company is unable to continue as a going concern.


                                      F-22