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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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                                   FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                      FOR THE YEAR ENDED DECEMBER 31, 1997

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

                      MALIBU ENTERTAINMENT WORLDWIDE, INC.
          (FORMERLY NAMED MOUNTASIA ENTERTAINMENT INTERNATIONAL, INC.)
                         717 NORTH HARWOOD, SUITE 1650
                              DALLAS, TEXAS 75201
                                 (214) 210-8701

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INCORPORATED IN GEORGIA      COMMISSION FILE NO. 0-22458      IRS NO. 58-1949379

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE SECURITIES EXCHANGE ACT:

<TABLE>
<CAPTION>
             TITLE OF EACH CLASS                    NAME OF EXCHANGE ON WHICH REGISTERED
             -------------------                    ------------------------------------
<S>                                            <C>
          Common Stock, no par value                      American Stock Exchange
</TABLE>

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

     The Company (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90 days.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
contained in the definitive Proxy Statement incorporated by reference into Part
III of this Report.

     At March 25, 1998, there were 48,376,773 shares of the Company's Common
Stock outstanding. The aggregate market value of the 9.1 million shares of
Common Stock held by nonaffiliates of the Company was approximately $35.6
million, based on the closing sales price of Common Stock as reported by the
American Stock Exchange on that date.

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

                       DOCUMENT INCORPORATED BY REFERENCE

     Portions of the Proxy Statement for the Company's 1998 annual meeting of
shareholders, which will be filed prior to April 30, 1998, are incorporated by
reference into Part III hereof to the extent stated therein. Except with respect
to information specifically incorporated by reference herein, the Proxy
Statement is not deemed to be filed as a part hereof.
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<PAGE>   2

                                     PART I

ITEMS 1 & 2. BUSINESS AND PROPERTIES

BUSINESS

     Malibu Entertainment Worldwide, Inc. (the "Company") owns and operates
multiple-attraction entertainment centers. The Company's original concept was
the family entertainment center ("FEC"), which generally included a combination
of several entertainment attractions at a single location such as miniature golf
courses, go-karts, bumper boats, batting cages, video game rooms, souvenir
concession stands and, in some parks, scaled grand prix style racetracks
utilizing the Company's proprietary Malibu Grand Prix race cars. As of March 27,
1998, the Company owned, leased or had a majority ownership interest in 29
traditional FECs, one of which was held for sale. In 1997, the Company
introduced its new SpeedZone concept. SpeedZones are primarily designed for
young adults and feature the Company's Malibu Grand Prix racing attraction,
go-kart-type racing attractions and the Company's new "Top Eliminator" dragster
attraction, together with a restyled clubhouse, miniature golf course, video
game room and meeting and party rooms to complement the racing attractions. The
implementation of the SpeedZone concept began in 1997 with the re-development
and opening, at the end of June, of the new SpeedZones in Dallas and Los Angeles
and a scaled-down version in Atlanta.

     The new SpeedZones have been endorsed and promoted by six of the top
professional race car drivers in the world -- NASCAR drivers Mark Martin and
Jeff Burton, CART drivers Al Unser, Jr., Jimmy Vasser and Bryan Herta and a top
fuel drag racing winner on the NHRA circuit, Kristen Powell. In addition to
arranging such endorsements and promotions, the Company has engaged these race
car drivers to advise the company in providing the most realistic and
competitive racing experience possible for SpeedZone guests. Revenues for the
last six months of 1997 for the three SpeedZone parks were $3.8 million for
Dallas, $4.7 million for Los Angeles and $2.3 million for Atlanta, for a total
of $10.8 million, as compared to $0.9 million, $1.4 million and $1.0 million,
respectively, for a total of $3.3 million, for the same periods in 1996 when
these parks operated as FECs, a 227% overall increase in revenues for six
months. The initial focus on concept design and development was followed by the
implementation of operational service standards designed to assure the highest
possible level of guest satisfaction. Since then, the Company has focused on
effective group sales programs and other profit improvement programs.

     The Company's primary focus in 1997 was the re-development and opening of
the three new SpeedZones, the repositioning of its base of traditional FECs
(which included the sale or closure of 16 FECs), redevelopment of the Company's
corporate infrastructure, including the downsizing and relocation of its
corporate headquarters to Dallas from Atlanta, and other initiatives designed to
improve the Company's results of operations. In 1998, the Company intends to
seek to obtain additional sources of debt or equity capital to provide funds to
develop additional SpeedZone parks once the concept has been proven and refined
and to further improve the results of operations of its SpeedZones and FECs. See
"Item 7 -- Management's Discussion and Analysis of Financial Conditions and
Results of Operations -- Liquidity and Capital Resources".

PROPERTIES

     As of March 27, 1998, the Company operated 29 FECs located in 10 states.
One of the Company's operating FECs was held for sale. Excluding the FEC held
for sale, 11 of the Company's remaining FECs were owned, 15 were leased under
agreements expiring on various dates from 1998 to 2019 and two were owned by
limited partnerships in which the Company had majority ownership interests.
Payments under these leases totaled $4.0 million in 1997. The FECs not currently
held for sale are located in California (4), Florida (4), Georgia (3), New
Jersey (1), Nevada (1), Ohio (3), Oregon (1), South Carolina (1), Colorado (1)
and Texas (9), generally in large metropolitan areas and the Partnership FECs
are located in California and Texas.

     The Company is currently operating one FEC which the Company has contracted
to sell and has two leased sites and two owned sites that have been closed for
disposition. The Company's total reserves for the sale or closure of these parks
was $1.1 million as of December 31, 1997. The FECs held for sale or closure

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were carried on the Company's books at $3.0 million as of December 31, 1997.
While the Company presently intends to seek to sell or discontinue these assets
in an orderly fashion during 1998, there can be no assurance that it will be
able to do so.

     The Company also leases other properties incident to its business, none of
which is material.

CERTAIN FORWARD-LOOKING STATEMENTS

     This Report (including the documents incorporated by reference herein)
contains certain forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995) and information relating to
the Company that are based on the beliefs of the management of the Company, as
well as assumptions made by and information currently available to the
management of the Company. When used in this report, the words "anticipate,"
"believe," "estimate," "expect," "intend" and similar expressions, as they
relate to the Company or its management, identify forward-looking statements.
Such statements reflect the current views of the Company or its management with
respect to future events and are subject to certain risks, uncertainties and
assumptions relating to the operations and results of operations of the Company
and the success of the Company's business plan, including as a result of the
availability, terms and cost of capital resources; competitive factors and
pricing pressures; general economic conditions; the failure of market demand for
the types of entertainment opportunities the Company provides or plans to
provide in the future and for family entertainment in general to be commensurate
with management's expectations or past experience; impact of present and future
laws; ongoing need for capital improvements; changes in operating expenses;
adverse changes in governmental rules or policies; changes in demographics and
other factors. Should one or more of these assumptions prove incorrect, actual
results or outcomes may vary materially from those described herein as
anticipated, believed, estimated, expected or intended. Accordingly,
shareholders are cautioned not to place undue reliance on such forward-looking
statements.

ITEM 3. LEGAL PROCEEDINGS

     Due to the nature of the attractions at the Company's parks, the Company
has been, and will likely continue to be, subject to a significant number of
personal injury lawsuits, certain of which may involve claims for substantial
damages. The Company also is from time to time a party to other claims and legal
proceedings, and is subject to environmental, zoning and other legal
requirements. As of the date of this Report, the Company does not believe that
any such matter is reasonably likely to have a material adverse effect on the
Company's financial position or results of operations. However, there
necessarily can be no assurance in this regard or that the Company will not be
subject to material claims or legal proceedings or requirements in the future.

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

     There were no matters submitted to a vote of the Company's shareholders
during the fourth quarter of 1997.

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<PAGE>   4

                                    PART II

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

INFORMATION RELATING TO COMMON STOCK

     The Company's Common Stock is traded on the AMEX under the symbol "MBE".
The following table indicates for each calendar quarter the high and low
reported closing sale prices for the Company's Common Stock during the prior two
calendar years:

<TABLE>
<CAPTION>
                                                              HIGH      LOW
                                                              -----    -----
<S>                                                           <C>      <C>
1997
Fourth Quarter..............................................  $4.43    $3.00
Third Quarter...............................................  $5.50    $3.75
Second Quarter..............................................  $6.00    $2.50
First Quarter...............................................  $3.56    $2.50
1996
Fourth Quarter..............................................  $3.56    $1.94
Third Quarter...............................................  $3.06    $2.47
Second Quarter..............................................  $3.63    $2.38
First Quarter...............................................  $5.06    $3.25
</TABLE>

As of March 25, 1998, there were approximately 188 holders of record of the
Company's Common Stock.

     The Company has not paid dividends on its Common Stock since prior to its
initial public offering and has no intention to begin paying regular dividends
on its Common Stock in the foreseeable future. The payment of dividends is
restricted by credit instruments to which the Company is a party.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                THREE
                                       YEARS ENDED              MONTHS                       YEARS ENDED
                               ---------------------------      ENDED       ---------------------------------------------
                               DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   SEPTEMBER 30,   SEPTEMBER 30,   SEPTEMBER 30,
                                   1997           1996         1995(1)          1995            1994            1993
                               ------------   ------------   ------------   -------------   -------------   -------------
<S>                            <C>            <C>            <C>            <C>             <C>             <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues...........    $ 44,607       $ 37,430       $ 6,754        $ 46,207         $28,177         $12,159
Operating expenses(2)........      95,089         77,239        10,417          47,765          25,293           9,884
Operating income (loss)......     (50,482)       (39,809)       (3,663)         (1,558)          2,884           2,275
Interest expense.............       6,185          6,579         2,754           4,108           1,371             863
Income (loss) before other
  income (expenses)..........     (56,667)       (46,388)       (6,417)         (5,666)          1,513           1,412
Other income (expenses)......      (2,597)         1,648          (680)          1,514             342             -0-
Benefit (provision) for
  income taxes...............         -0-         (2,184)        2,692           1,310            (705)           (536)
Net income (loss)............     (59,303)       (47,633)       (4,494)         (3,201)          1,232             875
Basic and diluted income
  (loss) per share of Common
  stock......................    $  (1.41)      $  (2.91)      $ (0.77)       $  (0.53)        $  0.20         $  0.15
Weighted average shares of
  Common Stock outstanding...      41,960         17,407         8,375           7,720           6,269           3,089
</TABLE>

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<PAGE>   5

<TABLE>
<CAPTION>
                               DECEMBER 31,   DECEMBER 31,                  SEPTEMBER 30,   SEPTEMBER 30,   SEPTEMBER 30,
                                   1997           1996                          1995            1994            1993
                               ------------   ------------                  -------------   -------------   -------------
<S>                            <C>            <C>            <C>            <C>             <C>             <C>
BALANCE SHEET DATA:
Working capital..............    $ (1,824)      $ 16,210                      $ (8,253)        $(1,316)        $(2,617)
Total assets.................     135,350        122,097                       101,139          69,926          24,948
Long-term obligations,
  excluding current
  portion....................      95,733         25,538                        15,545          18,285          12,719
Convertible subordinated
  Debentures.................         -0-         16,521                        14,150             -0-             -0-
Total liabilities............     114,614         57,088                        51,702          28,258          19,141
Total shareholders' equity...    $ 20,736       $ 64,231                      $ 48,059         $31,827         $ 5,808
</TABLE>

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(1) Represents a three-month period as the Company changed its fiscal year end
    to December 31st of each year.

(2) Operating expenses include non-recurring charges including losses on
    impairment of assets and write downs of investments in affiliates of $20.9
    million and $0.6 million, respectively, for the year ended December 31, 1997
    and $21.0 million and $2.6 million, respectively, for the year ended
    December 31, 1996. See "Item 7 Management's Discussion and Analysis of
    Financial Condition and Results of Operations" for a discussion of other
    non-recurring charges.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

RESULTS OF OPERATIONS

  Noncomparability

     Among other transactions and actions, during 1997, the Company opened the
three new SpeedZones mid-year, closed four FECs, disposed of 12 FECs, recorded a
$20.9 million charge for impairment of assets and a $0.6 million write down of
investments in affiliates and a $2.4 million charge for relocation of its
corporate headquarters, recorded a charge of $1.9 million for environmental
remediation costs and issued 19.4 million shares of Common Stock upon conversion
of certain convertible debt securities.

     Similarly, during 1996, the Company effected a recapitalization (see Note 2
of Notes to Consolidated Financial Statements), recorded a $21.0 million charge
for impairment of assets and a $2.6 million write down of investments in
affiliates, recorded a charge of $1.1 million for environmental remediation
costs, and ceased conducting syndication and development/construction activities
as separate businesses. In addition, $3.8 million of the Company's convertible
preferred stock and $3.0 million of the Company's convertible debt was converted
into Common Stock during 1996. In 1996, the Company changed its fiscal year end
from September 30 to December 31. The Company also acquired the partnership
interests that it did not already own in three FECs in August, 1996.

     In light of the foregoing, the financial condition and results of
operations of the Company discussed herein are generally not directly comparable
period-to-period and are not necessarily indicative of the Company's future
results of operations. The following discussion should be read in conjunction
with the Consolidated Financial Statements and the notes thereto contained
elsewhere in this Report.

  Fiscal year ended December 31, 1997 compared to fiscal year ended December 31,
1996.

     The Company's operations resulted in a net loss of $59.3 million ($1.41 per
share) for the year ended December 31, 1997 ("1997") as compared to a net loss
of $47.6 million ($2.91 per share) for the year ended December 31, 1996
("1996").

     The net loss for 1997 included $25.8 million ($0.61 per share) of
non-recurring charges and expenses, and the net loss for 1996 included $30.3
million ($1.74 per share) of non-recurring charges and expenses, associated with
the Recapitalization and the continued implementation and reassessment of the
Company's

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<PAGE>   6

business plan due to adjustments in carrying value of assets, increases in
environmental reserves and, in 1997, the relocation of the Company's
headquarters.

     Pursuant to the Company's business plan, 12 of the Company's non-strategic
FECs were sold during 1997, five FECs are held for sale or closure, the Company
is reviewing additional FECs for possible sale or closure, and the Company
recorded a charge totaling $20.9 million under Statement of Financial Accounting
Standards No. 121 ("SFAS 121") for impairment of assets and adjustments in
carrying values. In 1996 the Company recorded a charge totaling $21.0 million
under SFAS 121.

     See "Items 1 and 2 -- Business and Properties" for a discussion of the
Company's business plan. In addition to the disposition of nonstrategic FECs and
operational improvements, the Company's business plan involves the development
and rollout of the Company's new "SpeedZone" concept. While the Company does not
presently anticipate additional material nonrecurring charges against its
existing asset base in 1998, and is taking steps to improve its results of
operations, with the time required to fully develop its SpeedZone concept, the
loss of operating revenues during the construction period for parks being
reconsidered for redevelopment and other factors, management does not expect
that the Company will return to profitability in 1998.

     Operating Revenues

     Entertainment revenues (revenues from the operation of FECs) increased by
$7.7 million, or 22%, to $43.5 million for 1997 from $35.8 for 1996. The
increase in entertainment revenues was due to (i) an increase in entertainment
revenue from the FECs which were operated in both years ($2.2 million), (ii) an
increase in entertainment revenues from the three FECs which were converted to
SpeedZones ($5.9 million), and (iii) three FECs purchased in August 1996 that
were only included in five months of 1996 ($2.3 million). These increases were
offset by the decrease in revenue ($2.3 million) from the FECs which were sold
in May 1997 and FECs closed in 1997 pending final disposition ($0.4 million).

     Operating Expenses

     Total 1997 operating expenses were $95.1 million, an increase of $17.9
million, or 23%, over 1996.

     Entertainment expenses increased by $18.3 million, or 55%, to $51.8 million
for 1997 from $33.5 million for 1996. The increase is primarily a result of (i)
greater operating costs associated with the increase in operating revenues
generated by the new SpeedZone product, (ii) excess operating costs for the
SpeedZone parks to provide enhanced customer service in the initial months of
operations prior to the implementation of operational efficiencies, (iii)
expenses associated with the grand opening of the SpeedZone parks and pre-
opening costs such as promotion, advertising, training and non-recurring concept
refinement costs, travel and (iv) additional advertising expenses incurred to
revitalize customer awareness of all of the Company's FECs, and (v) the three
FECs purchased in August 1996.

     General and administrative expenses decreased by $2.8 million, or 23%, to
$9.2 million from $12.1 million for 1996. The decrease is primarily a result of
expenses the Company incurred in 1996 relating to recording (i) bad debt
reserves and various accruals of $1.6 million and (ii) costs associated with the
Company's 1996 recapitalization.

     Depreciation and amortization expense increased by $3.8 million, or 61%,
primarily as a result of the acquisition of the three parks in August 1996 and
the depreciation recognized on the newly redeveloped SpeedZones.

     During each of 1997 and 1996, the Company recognized a loss due to
impairment of assets of $20.9 million and $21.0 million, respectively,
principally as a result of adjustments in the carrying value of assets resulting
from the implementation of its new business plan and the determination that the
carrying value of certain of such assets was higher than their undiscounted
expected future cash flows. In addition, the Company adjusted the value of
investments in its limited partnerships based upon their net realizable values
which resulted in a loss on investments in affiliates of $0.6 million in 1997
and $2.6 million in 1996, recorded a charge of $1.1 million for environmental
remediation costs in 1996 and an additional environmental charge of $1.9 million
in 1997.
                                        6
<PAGE>   7

  Other (Expense) Income

     During 1997, the Company began the relocation of its corporate headquarters
from Atlanta, Georgia to Dallas, Texas, which was completed March 1, 1998. In
connection with this relocation, the Company recognized office closing costs
(including $2.2 million in severance costs) of approximately $2.4 million in
1997.

  Calendar Year Ended December 31, 1996 Compared to Fiscal Year Ended September
30, 1995

     The Company's operations resulted in a net loss of $47.6 million ($2.91 per
share) for the year ended December 31, 1996 ("1996"), as compared to a net loss
of $3.2 million ($0.53 per share) for the year ended September 30, 1995
("1995"). The net loss for 1996 included $30.3 million ($1.74 per share) of non-
recurring charges and expenses associated with the recapitalization and the
Company's new business plan.

     Operating Revenues

     Total operating revenues for 1996 declined by $8.8 million, or 19.0%, to
$37.4 million as compared to $46.2 million for 1995.

     Entertainment revenues increased by $3.6 million, or 11.2%, to $35.8
million for 1996 from $32.2 million for 1995. The increase was principally due
to (i) the inclusion of 12 months rather than 10 1/2 months of revenues from 21
FECs acquired from Malibu in November 1994 and (ii) the inclusion of revenues
from five FECs acquired by the Company during 1996 in which the Company
previously had a minority interest. Entertainment revenues for the 18 FECs owned
and operated by the Company during both years decreased by $1.6 million, or
5.1%.

     Other operating revenues declined by $.5 million, or 23.8%, primarily due
to the decrease in management fees and rental income previously received in
connection with the five FECs in which the Company had a minority interest.

     Development and construction revenue declined by $10.3 million and
syndication revenue declined by $1.6 million as compared to 1995 because the
Company discontinued these business activities in 1996.

     Operating Expenses

     Total 1996 operating expenses were $77.2 million, an increase of $29.4
million, or 61.5%, over 1995.

     Entertainment expenses increased by $7.6 million, or 29.3%, to $33.5
million in 1996, of which $6.3 million was due to the related increases in
entertainment revenues discussed above, with the remaining increase due to
higher maintenance costs resulting from previously deferred maintenance.

     General and administrative expenses increased by $4.9 million, or 68.0%, to
$12.1 million for 1996, of which (i) $2.8 million related to consulting and
other costs incurred in the development of the Company's future business plan,
costs associated with the Recapitalization and employee severance arrangements
associated with the restructuring of the Company's administrative organization,
(ii) $0.7 million related to consulting and legal fees incurred in connection
with the Exchange Offer and discontinuance of the development and construction
businesses, and (iii) $1.6 million related to the recording of the bad debt
reserves and various accruals. Development and construction expenses declined by
$9.2 million due to the discontinuation of development and construction
activities for third parties.

     Depreciation and amortization expense increased by $1.6 million, or 34.8%,
principally as a result of the FECs acquired during 1996, and the fact that the
newly acquired FECs operated for only 10 1/2 months in 1995.

     A loss due to impairment of assets of $21.0 million recognized in 1996 is
principally a result of adjustments in the carrying value of assets determined
pursuant to SFAS No. 121. Additionally, the Company adjusted the carrying value
of investments in limited partnerships based upon their net realizable values
which resulted in a loss on investments in affiliates of $2.6 million and
recorded a charge for environmental remediation costs of $1.1 million.

                                        7
<PAGE>   8

  Other (Expense) Income

     Interest expense increased by $2.5 million, or 61.0%, principally as a
result of increased outstanding indebtedness during 1996 as compared to 1995,
including convertible debentures issued in connection with the acquisition of
FECs in August 1996.

     The loss on settlement of strategic alliance agreements of $1.0 million is
the result of the termination of two strategic alliance agreements in which the
Company had previously granted rights to third parties to acquire, construct and
own FECs internationally and domestically. The termination of these alliances
was effected in connection with the Recapitalization. The gain of $0.8 million
associated with the Company's development and construction division is related
to the reversal of an accrual for the costs of the disposal of its development
and construction division. The Company also recognized a gain of $0.4 million in
1996 associated with the cancellation of previously issued warrants.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's principal sources of liquidity in 1997 were funds advanced by
the Company's largest shareholder ($64.4 million) and third party debt ($25.4
million), and proceeds from the sale of non-strategic assets ($4.5 million). The
Company's principal uses of liquidity in 1997 were to finance operations ($19.4
million), SpeedZone redevelopment and land costs ($59.2 million), purchase of
property and equipment ($4.0 million) and the repayment of borrowings ($4.5
million).

     The Company and its largest shareholder have amended the existing $9.5
million and $30.0 million promissory notes (as amended, the "Shareholder Notes")
to, among other things, increase the principal amount of the Shareholder Notes
to $10.0 million and $65.0 million, respectively, and to provide that the
Shareholder Notes are convertible at MEI Holdings' option into subordinated
notes that are convertible into Common Stock ("Convertible Notes") which will
have terms that an independent investment adviser advises the Company would
ensure that the proceeds of a sale at that time of the Convertible Notes would
be sufficient to repay the then-outstanding interest and principal on the
Shareholder Notes and all third-party costs incurred in connection therewith.
The amounts outstanding under the Shareholder Notes as of March 27, 1998, were
$8.5 million and $39.8 million, respectively. The Company's largest shareholder
is permitted, but is not required, to advance additional funds up to the face
amounts under the Shareholder Notes.

     At December 31, 1997, the Company's total long-term debt was $95.7 million,
$1.1 million of which is due during 1998. Required amortization of the Company's
long-term debt during the next three years is as follows: 1999: $22.3 million;
2000: $4.0 million; and 2001: $67.5 million. The Company's $20.0 million term
and revolving credit loan facility matures in August 2001, with no required
principal amortization prior thereto.

     The Company presently expects that the conversion of certain other FECs to
the SpeedZone concept and the development of new SpeedZone parks will require
the Company to secure additional capital resources, which could involve the
issuance of debt or equity securities, securitization of assets or other capital
transactions. The cost of conversion of existing FECs to the SpeedZone concept,
or the development of new SpeedZone parks, will be dependent upon various
factors, including land acquisition, construction and other costs, but is
expected to be substantial ($10-$20 million per facility). The pursuit of any
acquisition opportunities which may become available and the implementation of
the Company's business plan on a more rapid timetable than the Company presently
contemplates also may require the Company to issue additional debt or equity
securities or to consider possible changes in its capitalization or structure.
Accordingly, there can be no assurance that the Company will be able fully to
implement its business plan or to pursue those or other opportunities that
otherwise might be available to the Company or as to the timing or terms
thereof.

     In addition, the Company expects to seek to refinance its existing
indebtedness, including indebtedness held by its largest shareholder, during
1998. Any refinancing could involve the issuance of additional debt or equity
securities, or rights in respect thereof, the terms of which can not be
predicted but could involve, among

                                        8
<PAGE>   9

other possible transactions, additional asset sales, spin-offs or other
transactions. There can be no assurance that such refinancing will be available
to the Company or as to the amount and terms thereof.

SEASONALITY

     The business of the Company is highly seasonal. Approximately 64% of the
Company's revenues are generated during the six-month period of April through
September. As a result, the Company's operating income can be expected to be
substantially lower in the first and last three months of the year than the
second and third quarters. Furthermore, since many of the attractions at the
parks involve outdoor activities, prolonged periods of inclement weather result
in a substantial reduction of revenues during such period.

INFLATION

     The effects of inflation, as measured by fluctuations in the consumer price
index, have not had a material impact on the Company's revenues or net income in
recent years.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information required by this item is set forth in the Company's
Consolidated Financial Statements and Supplementary Data contained in this
Report and is incorporated herein by reference. Specific financial information
can be found at the pages listed in the following index:

<TABLE>
<CAPTION>
                            ITEM                                  PAGE NO.
                            ----                              ----------------
<S>                                                           <C>
Report of Independent Public Accountants....................  F-1
Consolidated Balance Sheet..................................  F-2
Consolidated Statement of Operations........................  F-3
Consolidated Statement of Cash Flows........................  F-4
Consolidated Statement of Changes in Shareholders' Equity...  F-5 and F-6
Notes to Consolidated Financial Statements..................  F-7 through F-25
</TABLE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this Item is set forth under the caption
"Election of Directors" in the Company's Proxy Statement for the 1998 Annual
Meeting of Shareholders (the "Proxy Statement") and is incorporated herein by
reference.

ITEM 11. EXECUTIVE COMPENSATION

     The information required by this Item is set forth under the caption
"Executive Compensation" in the Proxy Statement and is incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this Item is set forth under the caption
"Security Ownership Information" in the Proxy Statement and is incorporated
herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item is set forth under the caption
"Certain Relationships and Related Transactions" in the Proxy Statement and is
incorporated herein by reference.

                                        9
<PAGE>   10

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a) The following documents are filed as part of this Form 10-K:

          1. Financial Statements: The list of financial statements required by
     this item is set forth in "Item 8 -- Financial Statements and Supplementary
     Data" and is incorporated herein by reference.

          2. Financial Statement Schedules: All financial statement schedules
     are omitted as they are either not applicable or the required information
     is included in the consolidated financial statements or the notes thereto.

          3. Exhibits: The following exhibits are filed herewith:

<TABLE>
<CAPTION>
      EXHIBIT NO.                                DESCRIPTION
      -----------                                -----------
<C>                      <S>
          3.1            -- Articles of Incorporation of the Company (incorporated by
                            reference to the Company's Annual Report on Form 10-K for
                            the year ended September 30, 1993 (the "1993 10-K"))
          3.2            -- Amended and Restated Bylaws of the Company (incorporated
                            by reference to the Company's Current Report on Form 8-K,
                            dated June 19, 1996 (the "1996 8-K"))
          4.1            -- Specimen of Common Stock Certificate (incorporated by
                            reference to the 1993 10-K)
          4.2            -- Form of Warrant (incorporated by reference to the
                            Company's 1993 10-K)
          4.3            -- Indenture, dated as of November 15, 1994, between the
                            Company and Continental Stock Transfer and Trust Company,
                            as Trustee (incorporated by reference to the Company's
                            Annual Report on Form 10-K for the year ended September
                            30, 1994) and Supplemental Indenture thereto dated August
                            27, 1996 (incorporated by reference to the Company's
                            Annual Report on Form 10-K for the year ended December
                            31, 1996 (the "1996 10-K"))
          4.4            -- Preferred Stock Designations (incorporated by reference
                            to the 1996 10-K)
         10.1            -- 1993 Incentive Stock Option Plan (incorporated by
                            reference to the Company's Registration Statement on Form
                            SB-2 filed on November 3, 1993 (File No. 33-68454-A) (the
                            "Registration Statement"))
         10.2            -- 1993 Company Nonemployee Director Stock Option Plan with
                            accompanying forms of Stock Option (incorporated by
                            reference to the Registration Statement)
         10.3            -- Equity Incentive Plan (incorporated by reference to Annex
                            A of the Company's proxy statement on Schedule 14A for
                            the 1997 Annual Meeting of Shareholders)
         10.4            -- Promissory Note, dated June 30, 1993, in the principal
                            amount of $6,150,000 in favor of M.B. Seretean
                            (incorporated by reference to the Registration Statement)
         10.5            -- Consolidated, Amended and Restated Loan and Security
                            Agreement, dated August 22, 1996, between the Company and
                            Foothill Capital Corporation (incorporated by reference
                            to 1996 10-K)
         10.6            -- Amendment No. 4 to the Consolidated, Amended and Restated
                            Loan Security, dated August 22, 1996, between the Company
                            and Foothill Capital Corporation (filed herewith)
         10.7            -- Investment Agreement, dated as of June 5, 1996, as
                            amended, between MEI Holdings and the Company
                            (incorporated by reference to MEI Holdings' Amendment No.
                            3 to Schedule 13D-1 filed September 25, 1996 ("MEI
                            Holdings' 13D-1"))
</TABLE>

                                       10
<PAGE>   11

<TABLE>
<CAPTION>
      EXHIBIT NO.                                DESCRIPTION
      -----------                                -----------
<C>                      <S>
         10.8            -- Warrant, dated August 28, 1996, by the Company
                            (incorporated by reference to MEI Holdings' 13D-1)
         10.9            -- Registration Rights Agreement, dated August 28, 1996,
                            between the Company and MEI Holdings (incorporated by
                            reference to MEI Holdings' Schedule 13D-1)
         10.10           -- Agreements, dated August 28, 1996, between the Company
                            and L. Scott Demerau and the Company and Julia E. Demerau
                            (incorporated by reference to the 1996 8-K)
         10.11           -- Redemption Agreement, dated November 14, 1996, between
                            the Company and MEI Holdings (incorporated by reference
                            to MEI Holdings' Schedule 14D-1, dated November 14, 1996)
         10.12           -- Second Amended and Restated Promissory Note from the
                            Company to MEI Holdings for $65.0 million, dated as of
                            June 5, 1997 (filed herewith)
         10.13           -- Amended and Restated Promissory Note from the Company to
                            MEI Holdings for $10.0 million, dated as of June 5, 1997
                            (filed herewith)
         10.14           -- Loan Agreement, dated as of June 27, 1997, between Malibu
                            Centers, Inc. and Nomura Asset Capital Corporation
                            ("Nomura") (incorporated by reference to the 2nd Q 1997
                            10-Q)
         10.15           -- Promissory Note from Malibu Centers, Inc. to Nomura for
                            $21,390,375 (incorporated by reference to the
                            (incorporated by reference to the 2nd Q 1997 10-Q)
         10.16           -- Guaranty, dated June 27, 1997, of MEI Holdings in favor
                            of Nomura (incorporated by reference to the 2nd Q 1997
                            10-Q)
         21              -- Subsidiaries (incorporated by reference to the 1996 10-K)
         24              -- Powers of Attorney
         27              -- Financial Data Schedule (for SEC purposes only)
</TABLE>

     (b) Reports on Form 8-K: No Reports on Form 8-K were filed by the Company
during the fourth quarter of 1997.

                                       11
<PAGE>   12

                                   SIGNATURES

     Pursuant to the requirements of Section 13 of the Securities Exchange Act
1934, the Company has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                        MALIBU ENTERTAINMENT WORLDWIDE, INC.

Date: March 27, 1998                    By:    /s/ RICHARD M. FITZPATRICK
                                           -------------------------------------
                                                  Richard M. FitzPatrick
                                                  Chief Financial Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
and in the capacities indicated on March 27, 1998.

<TABLE>
<CAPTION>
                      SIGNATURE                                            TITLE
                      ---------                                            -----
<C>                                                    <S>

                /s/ ROBERT A. WHITMAN                  Chief Executive Officer, Chairman of the Board
-----------------------------------------------------    and Director
                  Robert A. Whitman

             /s/ RICHARD M. FITZPATRICK                Chief Financial Officer and Director
-----------------------------------------------------
               Richard M. FitzPatrick

                          *                            Director
-----------------------------------------------------
                  Daniel A. Decker

                          *                            Director
-----------------------------------------------------
                  L. Scott Demerau

                          *                            Director
-----------------------------------------------------
                  Julia E. Demerau

                          *                            Director
-----------------------------------------------------
                   James T. Hands

                          *                            Director
-----------------------------------------------------
               William M. Kearns, Jr.

                          *                            Director
-----------------------------------------------------
                  Steven D. Scheetz

                          *                            Director
-----------------------------------------------------
                  Bert W. Wasserman
</TABLE>

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

* The undersigned, by signing his name hereto, does sign and execute this Report
  pursuant to the powers of attorney executed by the above-named officers and
  directors and filed herewith:

                                            By: /s/ RICHARD M. FITZPATRICK
                                              ----------------------------------
                                                       Attorney-in-Fact

                                       12
<PAGE>   13

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Malibu Entertainment Worldwide, Inc.

     We have audited the accompanying consolidated balance sheets of MALIBU
ENTERTAINMENT WORLDWIDE, INC. (A GEORGIA CORPORATION) AND SUBSIDIARIES as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the years ended December
31, 1997 and 1996, the three months ended December 31, 1995, and the year ended
September 30, 1995. These financial statements are the responsibility of the
Company s management. Our responsibility is to express an opinion on these
financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 financial position of Malibu
Entertainment Worldwide, Inc. and subsidiaries as of December 31, 1997 and 1996,
and the results of their operations and their cash flows for the years ended
December 31, 1997 and 1996, the three months ended December 31, 1995, and the
year ended September 30, 1995 in conformity with generally accepted accounting
principles.

                                            Arthur Andersen LLP

Atlanta, Georgia
March 31, 1998

                                       F-1
<PAGE>   14

                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

                           CONSOLIDATED BALANCE SHEET

                                     ASSETS

<TABLE>
<CAPTION>
                                                              DECEMBER 31,    DECEMBER 31,
                                                                  1997            1996
                                                              -------------   ------------
<S>                                                           <C>             <C>
Current
  Cash and cash equivalents.................................  $   5,270,843   $  2,583,735
  Restricted cash...........................................  1,302,724....        966,075
  Accounts receivable, net of allowance for doubtful
    accounts of $1,525,130 and $1,583,376...................             --        109,537
  Stock subscription receivable.............................             --     16,076,260
  Inventories...............................................      1,976,524      1,359,331
  Current portion of notes receivable.......................         79,927        172,284
  Assets held for sale......................................      3,002,672      6,271,003
  Other current assets......................................      1,019,946      1,261,694
                                                              -------------   ------------
         Total current assets...............................     12,652,636     28,799,919
                                                              -------------   ------------
Property and equipment, less accumulated depreciation.......    116,125,198     85,484,158
                                                              -------------   ------------
Other noncurrent
  Investments in and advances to limited partnerships.......      2,180,410      2,288,129
  Notes receivable..........................................         41,823        272,267
  Other assets..............................................        163,805        190,479
  Debt issuance costs, less accumulated amortization........      3,155,526      2,453,798
  Intangible assets, less accumulated amortization..........      1,029,986      2,608,608
                                                              -------------   ------------
         Total other noncurrent assets......................      6,571,550      7,813,281
                                                              -------------   ------------
                                                              $ 135,350,104   $122,097,358
                                                              =============   ============
                           LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
  Current portion of notes payable..........................  $   1,060,411   $  1,120,467
  Accounts payable..........................................      5,623,907      2,354,823
  Accrued expenses..........................................      6,719,027      5,864,595
  Accrued expenses related to assets held for sale..........      1,073,714      3,250,000
                                                              -------------   ------------
         Total current liabilities..........................     14,477,059     12,589,885
Noncurrent liabilities
  Line of credit............................................      7,500,000      7,250,053
  Term loan revolver........................................     10,000,000     12,500,000
  Notes payable to shareholder..............................     48,301,668             --
  Notes payable.............................................     28,836,505      5,788,475
  Convertible subordinated debentures.......................             --     16,521,422
  Accrued interest due to shareholder.......................      1,094,781             --
  Other accrued expenses....................................      4,403,856      2,438,383
                                                              -------------   ------------
         Total liabilities..................................    114,613,869     57,088,218
                                                              -------------   ------------
  Contingent liability for guaranteed stock values..........             --        777,861
                                                              -------------   ------------
Shareholders' equity
  Preferred stock, 6,000,000 shares authorized with no par
    value
    Series F, 2,700,000 authorized; 0 and 808,692 issued and
     outstanding............................................             --     22,700,000
    Series G, 213,551 authorized; 0 and 213,551 issued and
     outstanding............................................             --      4,826,260
  Common stock, 100,000,000 shares authorized with no par
    value; 48,376,776 and 28,472,877 shares issued and
    outstanding.............................................    141,212,037     97,062,239
  Outstanding warrants......................................      2,085,100      2,440,100
  Notes receivable from employees...........................     (5,864,523)    (5,681,951)
  Accumulated deficit.......................................   (116,696,379)   (57,115,369)
                                                              -------------   ------------
         Total shareholders' equity.........................     20,736,235     64,231,279
                                                              -------------   ------------
                                                              $ 135,350,104   $122,097,358
                                                              =============   ============
</TABLE>

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

                                       F-2
<PAGE>   15

                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

                      CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                              FOR THE THREE
                                                    FOR THE YEAR ENDED   FOR THE YEAR ENDED   MONTHS ENDED    FOR THE YEAR ENDED
                                                       DECEMBER 31,         DECEMBER 31,      DECEMBER 31,      SEPTEMBER 30,
                                                           1997                 1996              1995               1995
                                                    ------------------   ------------------   -------------   ------------------
<S>                                                 <C>                  <C>                  <C>             <C>
OPERATING REVENUES
Entertainment revenue.............................     $ 43,523,933         $ 35,810,918       $ 6,007,447       $32,185,420
Development and construction revenue from related
  parties.........................................               --                   --           265,695        10,311,271
Syndication revenue...............................               --                   --            70,000         1,600,000
Other.............................................        1,083,545            1,619,205           411,236         2,109,995
                                                       ------------         ------------       -----------       -----------
        Total operating revenues..................       44,607,478           37,430,123         6,754,378        46,206,686
                                                       ------------         ------------       -----------       -----------
OPERATING EXPENSES
Entertainment expenses............................       51,837,953           33,533,903         6,363,800        25,930,779
General and administrative expenses...............        9,248,877           12,063,425         2,395,197         7,207,072
Other expenses....................................          632,402              712,099           123,988           515,569
Development and construction expense..............               --                   --           241,138         9,246,197
Depreciation and amortization.....................        9,995,090            6,220,848         1,293,142         4,572,211
Provision for loss due to impairment of assets....       20,869,962           21,038,417                --                --
Provision for environmental costs.................        1,900,000            1,100,000                --                --
Provision for loss on investments in limited
  partnerships....................................          604,957            2,570,000                --                --
Realized loss on sale of securities...............               --                   --                --           293,430
                                                       ------------         ------------       -----------       -----------
        Total operating expenses..................       95,089,241           77,238,692        10,417,265        47,765,258
                                                       ------------         ------------       -----------       -----------
Operating loss....................................      (50,481,763)         (39,808,569)       (3,662,887)       (1,558,572)
OTHER (EXPENSE) INCOME
Interest expense..................................       (6,184,502)          (6,578,838)       (2,754,290)       (4,108,445)
Interest income...................................          608,570              308,007           114,285           421,176
Office closing expense............................       (2,410,000)                  --                --                --
Loss on settlement of strategic alliance
  agreements......................................               --           (1,005,751)               --                --
Gain (loss) associated with development and
  construction division...........................               --              795,000          (795,000)               --
Gain associated with cancellation of warrants.....               --              422,333                --                --
Other.............................................         (795,576)           1,128,149                --         1,093,750
                                                       ------------         ------------       -----------       -----------
Loss before benefit (provision) for income taxes
  and cumulative effect of a change in accounting
  principle and extraordinary item................      (59,263,271)         (44,739,669)       (7,097,892)       (4,152,091)
Benefit (provision) for income taxes..............               --           (2,184,357)        2,692,295         1,310,517
Equity in net (losses) earnings of limited
  partnerships, net of tax........................          (39,240)             (46,287)          (88,064)           78,891
                                                       ------------         ------------       -----------       -----------
Loss before cumulative effect of a change in
  accounting principle and extraordinary item.....      (59,302,511)         (46,970,313)       (4,493,661)       (2,762,683)
Cumulative effect of a change in accounting
  principle, net of tax...........................               --                   --                --          (438,068)
Extraordinary item................................               --             (662,580)               --                --
                                                       ------------         ------------       -----------       -----------
Net loss..........................................     $(59,302,511)        $(47,632,893)      $(4,493,661)      $(3,200,751)
                                                       ============         ============       ===========       ===========
NET LOSS APPLICABLE TO COMMON STOCK
  Net loss........................................     $(59,302,511)        $(47,632,893)      $(4,493,661)      $(3,200,751)
  Less: Preferred stock dividends.................               --           (2,969,464)       (1,976,238)         (866,333)
                                                       ------------         ------------       -----------       -----------
Net loss applicable to common stock...............     $(59,302,511)        $(50,602,357)      $(6,469,899)      $(4,067,084)
                                                       ============         ============       ===========       ===========
Basic and diluted loss applicable to common stock
  before cumulative effect of a change in
  accounting principle and extraordinary item.....     $      (1.41)        $      (2.87)      $     (0.77)      $     (0.47)
Basic and diluted loss per share of common stock
  as a result of cumulative effect of a change in
  accounting principle............................               --                   --                --             (0.06)
Basic and diluted effect of extraordinary item....               --                (0.04)               --                --
                                                       ------------         ------------       -----------       -----------
Basic and diluted loss per share of common
  stock...........................................     $      (1.41)        $      (2.91)      $     (0.77)      $     (0.53)
                                                       ============         ============       ===========       ===========
Weighted average number of shares of common stock
  used in calculating net loss per share..........       41,959,558           17,406,837         8,374,750         7,719,727
                                                       ============         ============       ===========       ===========
</TABLE>

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

                                       F-3
<PAGE>   16

                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                               FOR THE THREE
                                                     FOR THE YEAR ENDED   FOR THE YEAR ENDED   MONTHS ENDED    FOR THE YEAR ENDED
                                                        DECEMBER 31,         DECEMBER 31,      DECEMBER 31,      SEPTEMBER 30,
                                                            1997                 1996              1995               1995
                                                     ------------------   ------------------   -------------   ------------------
<S>                                                  <C>                  <C>                  <C>             <C>
Operating activities:
  Net loss.........................................     $(59,302,511)        $(47,632,893)      $(4,493,661)      $ (3,200,751)
  Extraordinary item, net of income taxes..........                               662,580
  Adjustments to reconcile net loss to net cash
    used by
    operating activities
    Cumulative effect of a change in accounting
      principle....................................                                                                    706,562
    Provision for discontinued operations..........
    Syndication revenue............................                                                 (70,000)        (1,050,000)
    Equity in net (losses) earnings of limited
      partnerships.................................          (39,240)              46,287            88,064            (78,891)
    Increase in allowance for doubtful accounts....          244,502              853,039            37,954            793,617
    Depreciation and amortization..................        9,995,090            6,220,848         1,293,142          4,572,211
    Interest expense associated with amortization
      of loan costs................................        1,337,411            1,399,796         1,791,720            618,477
    Deferred income taxes..........................                             2,205,829        (2,186,850)        (1,811,494)
    Realized loss on securities/investments in
      affiliates...................................          604,957            2,570,000                              293,430
    Loss (gain) on sales or write-off of property
      and equipment................................          845,135           (1,129,652)                             146,202
    Loss on impairment of assets...................       20,869,962           21,038,417
    Amortization of warrants.......................                               234,722           102,778            408,333
    Gain associated with cancellation of
      warrants.....................................                              (422,333)
    (Gain) loss associated with development and
      construction division........................                              (795,000)          795,000
    Issuance of common stock and warrants..........                                60,000           132,964
  Changes in assets and liabilities, net of
    acquisitions
    Decrease (increase) in accounts receivable.....          109,537             (802,868)           43,475           (504,351)
    Decrease (increase) in inventory...............         (676,873)             306,643           (95,635)          (238,979)
    Decrease (increase) in other assets............           52,526              264,737          (465,051)          (844,606)
    Decrease in advances to limited partnerships...                                                                    425,000
    Decrease (increase) in intangible assets.......         (113,653)              13,504                           (2,174,194)
    (Decrease) increase in accounts payable........        3,269,084              925,378           (12,095)          (960,460)
    (Decrease) increase in accrued expenses........        2,819,905            1,589,153           511,524           (919,179)
    Decrease in restructuring reserve..............         (571,647)
    Increase in accrued interest due to
      shareholder..................................        1,094,781
    (Decrease) increase in deferred revenue........                            (1,856,248)         (587,892)         2,444,140
                                                        ------------         ------------       -----------       ------------
        Cash used by operating activities..........      (19,461,034)         (14,248,061)       (3,114,563)        (1,374,933)
                                                        ------------         ------------       -----------       ------------
Investing activities:
  Purchases of property and equipment..............      (63,210,827)         (14,447,703)       (1,226,199)        (1,224,137)
  Proceeds from sales of property and equipment....        4,491,247            3,431,107                            1,600,331
  Proceeds from sale of securities available for
    sale...........................................                                                                  2,665,921
  Increase in notes receivable.....................          (68,750)            (435,745)                            (467,972)
  Principal payments under notes receivable........          147,049              459,110            21,437             66,116
  Decrease (increase) in restricted certificates of
    deposit........................................                             1,925,686           (42,221)        (1,324,708)
  Decrease (increase) in restricted cash...........         (336,649)           1,150,471            (9,381)        (2,107,165)
  Increase in investments in limited
    partnerships...................................         (574,230)          (2,588,786)         (216,628)          (537,106)
  Purchases of facilities..........................                            (9,427,340)                         (20,976,284)
                                                        ------------         ------------       -----------       ------------
        Cash used in investing activities..........      (59,552,160)         (19,933,200)       (1,472,992)       (22,305,004)
                                                        ------------         ------------       -----------       ------------
Financing activities:
  Proceeds from borrowings.........................       73,657,630           40,699,206                           15,760,980
  Payments of borrowings...........................       (4,502,733)         (42,495,703)       (1,453,635)       (16,560,733)
  Increase in debt issuance costs..................       (2,317,638)          (2,744,033)
  Decrease (increase) in subscription receivable...       16,076,260          (16,076,260)
  Increase in interest on notes receivable for
    employees......................................         (418,076)            (113,685)
  Proceeds from issuance of convertible
    subordinated debenture.........................                                                                 14,150,000
  Issuance of preferred stock......................                            34,188,260           500,000         11,500,000
  Redemption of preferred stock....................                            (7,398,690)
  Redemption of subordinated debentures............                            (8,597,545)
  Issuance of common stock.........................                            45,519,336                           13,001,386
  Payment of guaranteed stock values...............         (777,861)          (3,018,451)
  Stock issuance costs.............................                            (3,885,578)          (54,241)        (2,504,664)
  Payment of dividends on preferred stock..........                              (138,455)
  Purchase and cancellation of common stock........          (17,280)            (722,744)          (51,257)        (5,658,027)
                                                        ------------         ------------       -----------       ------------
        Cash provided by (used in) financing
          activities...............................       81,700,302           35,215,658        (1,059,133)        29,688,942
                                                        ------------         ------------       -----------       ------------
Increase in cash and cash equivalents..............        2,687,108            1,034,397        (5,646,688)         6,009,005
Cash and cash equivalents, beginning of year.......        2,583,735            1,549,338         7,196,026          1,187,021
                                                        ------------         ------------       -----------       ------------
Cash and cash equivalents, end of year.............     $  5,270,843         $  2,583,735       $ 1,549,338       $  7,196,026
                                                        ============         ============       ===========       ============
</TABLE>

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

                                       F-4
<PAGE>   17

                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                                                                PREFERRED STOCK
                                               ---------------------------------------------------------------------------------
                                                 CLASS A       CLASS B      CLASS C       CLASS D       CLASS F        CLASS G
                                               -----------   -----------   ----------   -----------   ------------   -----------
<S>                                            <C>           <C>           <C>          <C>           <C>            <C>
Balance, September 30, 1994..................  $             $             $            $             $              $
 Issuance of preferred stock.................   11,500,000
 Discount on preferred stock.................   (1,725,000)
 Issuance of common stock....................
 Stock issuance costs........................     (862,500)
 Discount on 10% subordinated debentures.....
 Purchase and cancellation of stock..........
 Warrants issued in connection with purchase
   of MGPC...................................
 Warrants issued in connection with financial
   advisory agreement........................
 Unearned compensation in connection with the
   financial advisory agreement..............
 Warrants issued in connection with the
   Company's initial public offering.........
 Warrants issued in connection with November
   1994 equity offering......................
 Warrants issued in connection with NEF......
 Warrants issued in connection with September
   1995 equity offering......................
 Adjustment to common stock as a result of
   guaranteed stock prices...................
 Change in unrealized loss on securities
   available for sale, net of tax............
 Accretion of preferred stock dividends......      866,333
 Net loss....................................
                                               -----------   -----------   ----------   -----------   ------------   -----------
Balance, September 30, 1995..................    9,778,833
 Issuance of preferred stock.................                                 500,000
 Issuance of common stock....................
 Stock issuance costs........................
 Purchase and cancellation of stock..........
 Warrants issued in connection with financial
   advisory agreement........................
 Unearned compensation in connection with
   financial advisory agreements.............
 Warrants issued.............................
 Adjustment to common stock as a result of
   guaranteed stock prices...................
 Accretion of preferred stock dividends......    1,976,238
 Preferred stock converted...................   (7,034,931)
 Subordinated debt converted.................
 Transfer of Class A preferred stock to Class
   B preferred stock.........................   (4,300,000)    4,300,000
 Net loss....................................
                                               -----------   -----------   ----------   -----------   ------------   -----------

<CAPTION>

                                                  TOTAL
                                                PREFERRED       COMMON      OUTSTANDING     UNEARNED
                                                  STOCK          STOCK       WARRANTS     COMPENSATION
                                               ------------   -----------   -----------   ------------
<S>                                            <C>            <C>           <C>           <C>
Balance, September 30, 1994..................  $              $30,398,487   $   300,000    $
 Issuance of preferred stock.................    11,500,000
 Discount on preferred stock.................    (1,725,000)
 Issuance of common stock....................                  13,051,923
 Stock issuance costs........................      (862,500)   (2,547,164)
 Discount on 10% subordinated debentures.....
 Purchase and cancellation of stock..........                  (5,658,027)
 Warrants issued in connection with purchase
   of MGPC...................................                                   900,000
 Warrants issued in connection with financial
   advisory agreement........................                                   333,333
 Unearned compensation in connection with the
   financial advisory agreement..............                                                (250,000)
 Warrants issued in connection with the
   Company's initial public offering.........                                   650,000
 Warrants issued in connection with November
   1994 equity offering......................                                   100,000
 Warrants issued in connection with NEF......                                    25,000
 Warrants issued in connection with September
   1995 equity offering......................                                   375,000
 Adjustment to common stock as a result of
   guaranteed stock prices...................                     312,956
 Change in unrealized loss on securities
   available for sale, net of tax............
 Accretion of preferred stock dividends......       866,333
 Net loss....................................
                                               ------------   -----------   -----------    ----------
Balance, September 30, 1995..................     9,778,833    35,558,175     2,683,333      (250,000)
 Issuance of preferred stock.................       500,000
 Issuance of common stock....................                     101,364
 Stock issuance costs........................                    (221,529)
 Purchase and cancellation of stock..........                     (51,257)
 Warrants issued in connection with financial
   advisory agreement........................                                   350,000
 Unearned compensation in connection with
   financial advisory agreements.............                                                (247,222)
 Warrants issued.............................                                    31,600
 Adjustment to common stock as a result of
   guaranteed stock prices...................                    (585,247)
 Accretion of preferred stock dividends......     1,976,238
 Preferred stock converted...................    (7,034,931)    7,034,931
 Subordinated debt converted.................                   2,031,892
 Transfer of Class A preferred stock to Class
   B preferred stock.........................
 Net loss....................................
                                               ------------   -----------   -----------    ----------

<CAPTION>
                                                  NOTES        LOSS ON
                                               RECEIVABLE    SECURITIES
                                                  FROM        AVAILABLE     ACCUMULATED
                                                EMPLOYEES     FOR SALE        DEFICIT         TOTAL
                                               -----------   -----------   -------------   ------------
<S>                                            <C>           <C>           <C>             <C>
Balance, September 30, 1994..................  $             $  (227,714)  $   1,355,995   $ 31,826,768
 Issuance of preferred stock.................                                                11,500,000
 Discount on preferred stock.................                                  1,725,000             --
 Issuance of common stock....................                                                13,051,923
 Stock issuance costs........................                                                (3,409,664)
 Discount on 10% subordinated debentures.....                                  1,275,000      1,275,000
 Purchase and cancellation of stock..........                                                (5,658,027)
 Warrants issued in connection with purchase
   of MGPC...................................                                                   900,000
 Warrants issued in connection with financial
   advisory agreement........................                                                   333,333
 Unearned compensation in connection with the
   financial advisory agreement..............                                                  (250,000)
 Warrants issued in connection with the
   Company's initial public offering.........                                                   650,000
 Warrants issued in connection with November
   1994 equity offering......................                                                   100,000
 Warrants issued in connection with NEF......                                                    25,000
 Warrants issued in connection with September
   1995 equity offering......................                                                   375,000
 Adjustment to common stock as a result of
   guaranteed stock prices...................                                                   312,956
 Change in unrealized loss on securities
   available for sale, net of tax............                    227,714                        227,714
 Accretion of preferred stock dividends......                                   (866,333)            --
 Net loss....................................                                 (3,200,751)    (3,200,751)
                                               -----------   -----------   -------------   ------------
Balance, September 30, 1995..................                                    288,911     48,059,252
 Issuance of preferred stock.................                                                   500,000
 Issuance of common stock....................                                                   101,364
 Stock issuance costs........................                                    (36,617)      (258,146)
 Purchase and cancellation of stock..........                                                   (51,257)
 Warrants issued in connection with financial
   advisory agreement........................                                                   350,000
 Unearned compensation in connection with
   financial advisory agreements.............                                                  (247,222)
 Warrants issued.............................                                                    31,600
 Adjustment to common stock as a result of
   guaranteed stock prices...................                                   (585,247)
 Accretion of preferred stock dividends......                                 (1,976,238)            --
 Preferred stock converted...................                                                        --
 Subordinated debt converted.................                                                 2,031,892
 Transfer of Class A preferred stock to Class
   B preferred stock.........................                                                        --
 Net loss....................................                                 (4,493,661)    (4,493,661)
                                               -----------   -----------   -------------   ------------
</TABLE>

                                       F-5
<PAGE>   18

                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

    CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>

                                                                                PREFERRED STOCK
                                               ---------------------------------------------------------------------------------
                                                 CLASS A       CLASS B      CLASS C       CLASS D       CLASS F        CLASS G
                                               -----------   -----------   ----------   -----------   ------------   -----------
<S>                                            <C>           <C>           <C>          <C>           <C>            <C>
Balance, December 31, 1995...................      410,109     4,500,000      500,000
 Issuance of preferred stock.................                                             6,662,000     22,700,000     4,826,260
 Issuance of common stock....................
 Discount on 9% subordinated debentures......
 Interest on notes receivable from
   employees.................................
 Stock issuance costs........................
 Purchase and cancellation of stock..........
 Unearned compensation in connection with the
   financial advisory agreements.............
 Warrants issued.............................
 Adjustment to common stock as a result of
   guaranteed stock prices...................
 Accretion and payment of preferred stock
   dividends.................................       28,441       215,000                  1,266,000
 Accretion of preferred stock discount.......
 Preferred stock converted...................     (310,126)                              (3,502,700)
 Preferred stock redeemed....................                 (1,354,500)    (500,000)   (4,425,300)
 Subordinated debt converted.................
 Preferred stock converted to subordinated
   debt......................................                 (3,160,500)
 Payment of dividends........................     (138,455)
 Cancellation of warrants....................
 Net loss....................................
                                               -----------   -----------   ----------   -----------   ------------   -----------
Balance, December 31, 1996...................                                                           22,700,000     4,826,260
 Issuance of common stock....................
 Interest on notes receivable from
   employees.................................
 Purchase of stock from employees............
 Stock issuance costs........................
 Subordinated debt converted.................                                                           15,671,322
 Conversion of preferred stock...............                                                          (38,371,322)   (4,826,260)
 Termination of warrants.....................
 Net loss....................................
                                               -----------   -----------   ----------   -----------   ------------   -----------
Balance, December 31, 1997...................  $             $             $            $             $              $
                                               ===========   ===========   ==========   ===========   ============   ===========

<CAPTION>

                                                  TOTAL
                                                PREFERRED       COMMON      OUTSTANDING     UNEARNED
                                                  STOCK          STOCK       WARRANTS     COMPENSATION
                                               ------------   -----------   -----------   ------------
<S>                                            <C>            <C>           <C>           <C>
Balance, December 31, 1995...................     5,230,340    43,368,529     3,364,933       457,712
 Issuance of preferred stock.................    34,188,260
 Issuance of common stock....................                  51,087,602
 Discount on 9% subordinated debentures......
 Interest on notes receivable from
   employees.................................
 Stock issuance costs........................                  (3,353,921)
 Purchase and cancellation of stock..........                    (722,744)
 Unearned compensation in connection with the
   financial advisory agreements.............                                                 234,722
 Warrants issued.............................                                    60,000
 Adjustment to common stock as a result of
   guaranteed stock prices...................                    (682,201)
 Accretion and payment of preferred stock
   dividends.................................     1,509,441
 Accretion of preferred stock discount.......
 Preferred stock converted...................    (3,812,826)    3,812,826
 Preferred stock redeemed....................    (6,279,800)
 Subordinated debt converted.................                   3,052,348
 Preferred stock converted to subordinated
   debt......................................    (3,160,500)
 Payment of dividends........................      (138,455)
 Cancellation of warrants....................                                  (684,833)      262,500
 Net loss....................................
                                               ------------   -----------   -----------    ----------
Balance, December 31, 1996...................    27,526,260    97,062,239     2,440,100
 Issuance of common stock....................                     556,000
 Interest on notes receivable from
   employees.................................
 Purchase of stock from employees............                    (808,784)
 Stock issuance costs........................
 Subordinated debt converted.................    15,671,322       850,000
 Conversion of preferred stock...............   (43,197,582)   43,197,582
 Termination of warrants.....................                     355,000      (355,000)
 Net loss....................................
                                               ------------   -----------   -----------    ----------
Balance, December 31, 1997...................  $              $141,212,037  $ 2,085,100    $
                                               ============   ===========   ===========    ==========

<CAPTION>
                                                  NOTES        LOSS ON
                                               RECEIVABLE    SECURITIES
                                                  FROM        AVAILABLE     ACCUMULATED
                                                EMPLOYEES     FOR SALE        DEFICIT         TOTAL
                                               -----------   -----------   -------------   ------------
<S>                                            <C>           <C>           <C>             <C>
Balance, December 31, 1995...................                 (6,217,605)     45,438,575
 Issuance of preferred stock.................                                                34,188,260
 Issuance of common stock....................   (5,568,266)                                  45,519,336
 Discount on 9% subordinated debentures......                                    236,250        236,250
 Interest on notes receivable from
   employees.................................     (113,685)                                    (113,685)
 Stock issuance costs........................                                   (531,657)    (3,885,578)
 Purchase and cancellation of stock..........                                                  (722,744)
 Unearned compensation in connection with the
   financial advisory agreements.............                                                   234,722
 Warrants issued.............................                                                    60,000
 Adjustment to common stock as a result of
   guaranteed stock prices...................                                                  (682,201)
 Accretion and payment of preferred stock
   dividends.................................                                 (2,969,464)    (1,460,023)
 Accretion of preferred stock discount.......                                                        --
 Preferred stock converted...................                                                        --
 Preferred stock redeemed....................                                                (6,279,800)
 Subordinated debt converted.................                                                 3,052,348
 Preferred stock converted to subordinated
   debt......................................                                                (3,160,500)
 Payment of dividends........................                                                  (138,455)
 Cancellation of warrants....................                                                  (422,333)
 Net loss....................................                                (47,632,893)   (47,632,893)
                                               -----------   -----------   -------------   ------------
Balance, December 31, 1996...................   (5,681,951)                  (57,115,369)    64,231,279
 Issuance of common stock....................     (556,000)                                          --
 Interest on notes receivable from
   employees.................................     (418,076)                                    (418,076)
 Purchase of stock from employees............      791,504                                      (17,280)
 Stock issuance costs........................                                   (278,499)      (278,499)
 Subordinated debt converted.................                                                16,521,322
 Conversion of preferred stock...............                                                        --
 Termination of warrants.....................                                                        --
 Net loss....................................                                (59,302,511)   (59,302,511)
                                               -----------   -----------   -------------   ------------
Balance, December 31, 1997...................  $(5,864,523)  $             $(116,696,339)  $ 20,736,235
                                               ===========   ===========   =============   ============
</TABLE>

                                       F-6
<PAGE>   19

                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES

     Malibu Entertainment Worldwide, Inc. (the "Company") owns and operates
multi-attraction entertainment centers. The Company's original concept was the
family entertainment center ("FEC") which generally included a combination of
several entertainment attractions at a single location such as miniature golf
courses, go-karts, bumper boats, batting cages, video game rooms and souvenir
concession stands and, in some parks, scaled grand prix style racetracks
utilizing the Company's proprietary Malibu Grand Prix race cars. As of March 27,
1998, the Company owned, leased or had a majority ownership interest in 29
traditional FECs, one of which was held for sale. In 1997, the Company
introduced a new concept -- the "SpeedZone" parks -- primarily designed for
young adults. SpeedZones feature the Company's Malibu Grand Prix racing
attraction, go-kart-type racing attractions and the Company's new "Top
Eliminator" dragster attraction, together with a restyled clubhouse, miniature
golf course, video game room and meeting and party rooms to complement the
racing attractions. The implementation of the SpeedZone concept began in 1997
with the re-development and opening, at the end of June, of the new SpeedZones
in Dallas and Los Angeles, and a scaled-down version in Atlanta.

     At the Company's annual meeting of shareholders on April 28, 1997, the
Company's shareholders approved the change in the name of the Company from
Mountasia Entertainment International, Inc. to Malibu Entertainment Worldwide,
Inc.

CHANGE IN YEAR END

     On January 19, 1996 the Board of Directors approved a change in the
Company's fiscal year end from September 30th to December 31st.

PRINCIPLES OF CONSOLIDATION

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

REVENUES

     Entertainment revenue represents revenue from FECs operated by the Company
and is recognized when earned.

     Prior to 1996, the Company developed and constructed FECs for limited
partnerships. Development and construction revenue from related parties
represents the revenue recognized for the preparation of detail design and
construction drawings and the construction of facilities for limited
partnerships in which the Company owns an interest. Revenue under these
construction agreements, exclusive of the percentage interest owned by the
Company, was recognized using the percentage-of-completion method.

     In prior years, the Company assisted third parties in raising funds to
capitalize limited partnerships which constructed and owned FECs and the Company
received a limited partnership interest as compensation for syndication
activities performed. The Company recognized syndication revenue upon completion
of construction of the FEC (Note 4).

CASH AND CASH EQUIVALENTS

     For purposes of the statement of cash flows, the Company considers all
highly liquid investment securities purchased with an initial maturity of three
months or less to be cash equivalents.

RESTRICTED CASH

     Restricted cash is restricted in accordance with various agreements with
insurance carriers.

                                       F-7
<PAGE>   20
                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed over the lesser of the estimated useful lives of the
assets or the term of the lease. Depreciable lives range from two to thirty-nine
years and lease terms range from one to twenty-five years. Depreciation is
computed using the straight-line method for financial reporting and an
accelerated method for income tax purposes.

DEBT ISSUANCE COSTS

     Costs associated with the issuance of debt are capitalized and amortized
using the straight line method which approximates the effective interest method
over the term of the related debt.

INTANGIBLE ASSETS

     Goodwill, which represents the excess of purchase price over the fair value
of assets acquired in connection with the acquisitions of various entities, is
being amortized over 30 years. Trademarks are capitalized and amortized over 17
years.

INVESTMENTS IN AND ADVANCES TO LIMITED PARTNERSHIPS

     Investments in limited partnerships are accounted for under the equity
method. Under the equity method, the Company adjusts the carrying amount of its
investments for its share of the earnings or losses of the limited partnership
and reports the earnings or losses in income. Distributions from a limited
partnership reduce the carrying amount of the investment.

ENVIRONMENTAL RESERVE

     The Company has adopted a policy of providing a reserve for estimated costs
of site remediation of its underground storage tanks on a tank by tank basis as
soon as a potential liability is reasonably estimable. The Company's reserve is
periodically evaluated and adjusted as necessary based on the latest available
information.

NET LOSS PER SHARE OF COMMON STOCK

     Net loss per share of common stock is computed by dividing net loss
applicable to common stock by the weighted average number of shares of common
stock outstanding during the year. Potentially issuable shares under stock
options which were not included in the loss per share calculations because they
were anti-dilutive were approximately 16,000, 5,000, 1,000, and 3,000 shares
during the years ended December 31, 1997 and 1996, the three months ended
December 31, 1995 and the year ended September 30, 1995, respectively. Any
preferred dividends paid or accrued during the year are reflected as an increase
in net loss prior to the calculation of net loss per share of common stock.

     During 1997 the Company adopted Statement of Financial Accounting Standards
No. 128, Earnings Per Share, (SFAS 128). The effect of adopting SFAS 128 was not
material to the Company.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The Company estimates that the fair value of its financial instruments,
primarily its debt instruments and notes receivable, approximates the
instruments carrying amounts based on the respective instruments terms and
maturities.

                                       F-8
<PAGE>   21
                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF

     In January 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121. The effect of adopting this new
accounting pronouncement in January 1996 was determined not to be material to
the Company's financial position or results of operations. (Notes 9 and 23)

USE OF ESTIMATES

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

RECLASSIFICATION

     Certain prior year amounts have been reclassified to conform with the
current year presentation.

2. RECAPITALIZATION

     On June 5, 1996, the Company and MEI Holdings, L.P. ("MEI Holdings")
entered into an Investment Agreement (the "Investment Agreement") and related
documents, including a Warrant and the Standstill Agreement (together with the
Investment Agreement, collectively, the "Recapitalization Agreements"). The
transactions provided for in the Recapitalization Agreement (the
"Recapitalization") were completed on August 28, 1996.

     Pursuant to the Recapitalization Agreement, the Company (i) sold 11,727,970
shares of Common Stock to MEI Holdings (45.45% of the then-outstanding shares of
Common Stock after giving effect to such issuance and prior to the sale of 2.1
million shares of Common Stock to employees) and (ii) issued to MEI Holdings a
Warrant to acquire additional shares of Common Stock automatically upon the
occurrence of certain events. In addition, MEI Holdings is entitled to
additional Common Stock under certain post-closing adjustment provisions of the
Investment Agreement if certain events occur which vary adversely from the
parties valuation assumptions related to MEI Holdings investment in the Company
pursuant to the Investment Agreement.

     As a part of the Recapitalization, among other things, (i) the Company
obtained the right to require MEI Holdings to invest up to an additional $22.7
million in the Company (the "Company Call Option") and (ii) MEI Holdings agreed,
subject to certain conditions, to provide up to an additional $30.0 million to
backstop certain future rights offerings. The Company exercised the Company Call
Option in December 1996 and subsequently issued 6,655,623 Common Shares to MEI
Holdings for $22.7 million.

     In November 1996, MEI Holdings provided the capital required for the
Company to redeem the $4.6 million aggregate principal amount of the Company's
10% Debentures in exchange for which MEI Holdings received 213,551 shares of
Series G Preferred Stock (subsequently converted into 2,135,513 Common Shares).

3. EXTRAORDINARY ITEM

     In September 1995, the Company issued $8,500,000 principal amount of 10%
Debentures. During 1996 the 10% Debentures were amended and certain terms
modified. In connection with amending certain terms, the Company redeemed 30% of
the outstanding balance of its 10% Debentures and its Series B Preferred Stock
and the Company exchanged the remaining 70% outstanding balance under the Series
B Preferred Stock and its 10% Debentures into newly structured 10% Convertible
Subordinated Debentures (the "New

                                       F-9
<PAGE>   22
                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10% Debentures"). The redemption of the 10% Debentures, along with the issuance
of the New 10% Debentures, resulted in the Company recognizing a loss on the
extinguishment of debt of approximately $663,000 for the year ended December 31,
1996 for the redemption premium of 20%, along with the write off of unamortized
debt issue costs.

4. CHANGE IN ACCOUNTING PRINCIPLE

     Prior to 1996, the Company assisted third parties in raising funds to
capitalize limited partnerships which construct and own FECs, and the Company
received a limited partnership interest as compensation for syndication
activities performed. Prior to October 1, 1994, the Company recognized
syndication revenue when minimum cash or other equity was raised as specified in
the respective partnership offering circulars and after completion of activities
associated with determining the feasibility of a particular entertainment center
site, preparing preliminary site designs, and assisting the local general
partner in meetings with potential investors. The Company retained significant
involvement in limited partnerships that it syndicated for a period of time
while it performed the functions of a developer. Its exposure to future costs in
that capacity were estimated to be nominal for those syndications that closed
prior to October 1, 1994. However, FECs became increasingly more complex as a
wider variety of attractions were included in their design. As a result, the
Company's continued involvement during the pre-opening period was determined to
be greater. Accordingly, the Company believed it was preferable to defer
recognition of its syndication fees until completion of the construction of the
FEC, rather than recognizing such fees when the syndication had been capitalized
through non-refundable equity investments and adopted this change for its fiscal
year beginning October 1, 1994.

5. ACQUISITIONS

NATIONAL ENTERTAINMENT FUNDING L.P.

     On April 3, 1996, the Company entered into Purchase and Sales Agreements
with the general and limited partners of National Entertainment Funding L.P.
("NEF") to acquire their partnership interests in NEF which owned three FECs in
McAllen, Texas; Henderson, Nevada; and Miami, Florida.

     The total consideration paid was as follows:

<TABLE>
<S>                                                           <C>
Cash........................................................  $   600,000
Issuance of 9.1% subordinated debentures....................   11,422,422
Assumption of long term debt................................    4,427,000
Net liabilities assumed.....................................    2,272,000
                                                              -----------
                                                              $18,721,422
                                                              ===========
</TABLE>

     The acquisition was accounted for under the purchase method of accounting
and accordingly, the Company allocated its total purchase price to the assets
acquired based upon their estimated fair values.

                                      F-10
<PAGE>   23
                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The financial data below combines the Company's Consolidated Statements of
Operations with the financial statements of NEF as if such acquisition had
occurred at the beginning of each period presented (unaudited, in thousands,
except per share amounts).

<TABLE>
<CAPTION>
                                                                    FOR THE THREE
                                            FOR THE YEAR ENDED      MONTHS ENDED       FOR THE YEAR ENDED
                                            DECEMBER 31, 1996     DECEMBER 31, 1995    SEPTEMBER 30, 1995
                                            ------------------    -----------------    ------------------
<S>                                         <C>                   <C>                  <C>
Operating revenues........................       $ 39,794              $ 7,490              $43,645
                                                 ========              =======              =======
Loss before extraordinary item............       $(47,574)             $(4,943)             $(5,960)
                                                 ========              =======              =======
Basic and diluted loss per share of common
  stock...................................       $  (2.94)             $ (0.83)             $ (0.77)
                                                 ========              =======              =======
</TABLE>

     In January 1996, the Company entered into an Asset Purchase Agreement,
which was completed in November 1996, to acquire the remaining partnership
interests which the Company did not own in Mountasia of Willowbrook, L.P.
("Willowbrook"). Additionally, in November 1996, the Company entered into an
Asset Purchase Agreement with Mountasia Family Fun Centers of Columbus, L.P.
("Columbus") to acquire the remaining partnership interests which the Company
did not own. The purchase price for Willowbrook and Columbus was comprised of
cash of $5,738,000 and $3,099,000, respectively, and assumption of net
liabilities of $73,000 and $538,000, respectively.

     The Company leased the Willowbrook and Columbus FECs from January 1996
through the purchase date for approximately $576,000 and $310,000, respectively.

6. RELATED PARTY TRANSACTIONS

     On January 17, 1997, MEI Holdings closed on a tender offer for any and all
outstanding Common Shares it did not own at $3.50 per share and for any and all
of the Company's 9% Debentures and 9.1% Debentures at par plus accrued and
unpaid interest for the purchased debentures. Pursuant to the tender offer, MEI
Holdings acquired 7,802,435 Common Shares, $4,249,000 aggregate principal amount
of 9% Debentures and $11,422,322 aggregate principal amount of 9.1% Debentures.
The purchased debentures have been converted into 4,477,521 Common Shares.

     During 1997, the Company entered into two promissory notes with MEI
Holdings with terms which management believed to be comparable to terms which
would be attainable from third parties (Note 13). The Company paid loan costs of
$685,000 to MEI Holdings in connection with one of the promissory notes.
Additionally, the Company reimburses MEI Holdings for certain costs incurred by
MEI Holdings for the benefit of the Company. The total amount charged to the
Company for overhead costs was $636,000 for the year ended December 31, 1997.

     In January 1996, the Company entered into employment agreements with L.
Scott Demerau and Julia E. Demerau, its then largest shareholders, in which
Scott and Julia Demerau received 350,000 and 150,000 stock options,
respectively. In connection with the Recapitalization, the Company purchased the
stock options for $100,000 and $50,000, respectively.

     During 1994, two limited partnerships which were shareholders of the
Company and a then principal shareholder and director of the Company formed
Brass Ring II, L.L.C. ("Brass Ring II"), a Georgia limited liability company.
Brass Ring II purchased 2.8% of the limited partnership interests in the
Mountasia FunCenter developed in Santa Clarita, California, 18.5% of the limited
partnership interests in the Mountasia FunCenter in Columbus, Ohio, 5.8% of the
limited partnership interests in the Mountasia FunCenter in Willowbrook, Texas
and 4.5% of the limited partnership interests in the Mountasia FunCenter in
North Richland Hills, Texas. Additionally, in 1994, Brass Ring II entered into a
limited partnership agreement with

                                      F-11
<PAGE>   24
                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the Company for the construction of enhancements to the infrastructure of the
Willowbrook FEC in order to construct additional amenities (i.e., Virage(R)
track or skating rink) adjacent to the Mountasia FunCenter in Willowbrook,
Texas.

     In October 1995, the Company purchased Brass Ring II's rights arising out
of the enhancements to the infrastructure for $1,090,000 in anticipation of the
purchase of the Willowbrook FEC (Note 5). During 1996, the Company purchased the
assets of Brass Ring II for a total purchase price of $2,109,375. The purchase
price consisted of cash of $1.5 million and 325,000 Common Shares valued at
$609,375.

     In 1995, the Company entered into two strategic alliance agreements with
related parties. Under the strategic alliance agreements the Company granted
rights to third parties to build, own and construct FECs domestically and
internationally. The entities which entered into the international and domestic
agreements were owned 20% and 50%, respectively, by a relative of the Company's
former President and Chief Executive Officer. During the year ended December 31,
1996 the Company terminated the strategic alliance agreements and recognized a
loss of approximately $1,006,000.

7. NOTES RECEIVABLE

     Notes receivable are summarized as follows:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,    DECEMBER 30,
                                                                 1997            1996
                                                             ------------    ------------
<S>                                                          <C>             <C>
RELATED PARTIES
Note receivable from MFG of Greenville, L.P., interest at
  6%, unsecured; paid in February 1997.....................   $      --       $ 116,600
Note receivable from Mountasia of Colorado Springs, L.P.,
  interest at 10%, due in March 2005, unsecured............      50,000          50,000
Note receivable from officer, non interest bearing, due on
  demand, secured by common stock..........................      61,750              --
OTHER
Note receivable from Swingtime, Inc., interest at 9.5%; due
  in January 2001, secured by real and personal property...      60,000         327,951
Notes receivable from an individual, interest at 12%; due
  on demand, unsecured.....................................      30,000          30,000
                                                              ---------       ---------
                                                                201,750         524,551
Less: Current portion (before reserve of $30,000 in
  1997)....................................................    (109,927)       (172,284)
                                                              ---------       ---------
Long-term portion (before reserve of $50,000 in 1997 and
  $80,000
  in 1996).................................................      91,823         352,267
Less: Reserve for uncollectible notes receivable...........     (80,000)        (80,000)
                                                              ---------       ---------
                                                              $  11,823         272,267
                                                              =========       =========
</TABLE>

                                      F-12
<PAGE>   25
                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future aggregate receipts of notes receivable are due as follows (without giving
effect to the reserves reflected above):

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S>          <C>                                                <C>
   1998.......................................................  $109,927
   1999.......................................................    19,981
   2000.......................................................    20,053
   2001.......................................................    51,789
                                                                --------
                                                                $201,750
                                                                ========
</TABLE>

8. PROPERTY AND EQUIPMENT

     Property and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                                         DECEMBER 31,      DECEMBER 30,
                                                             1997              1996
                                                         ------------      ------------
<S>                                                      <C>               <C>
Land...................................................  $ 30,272,715      $27,188,146
Racetracks, miniature golf courses and clubhouses......    73,618,092       52,740,049
Equipment..............................................     8,669,489        2,226,917
Games..................................................     9,241,632        8,246,648
Transportation equipment...............................            --           38,171
Construction in progress...............................     3,821,508        3,982,037
                                                         ------------      -----------
                                                          125,623,436       94,421,968
Less: Accumulated depreciation.........................    (9,497,518)      (8,937,810)
                                                         ------------      -----------
                                                         $116,125,918      $85,484,158
                                                         ============      ===========
</TABLE>

     During 1997, the Company capitalized interest of $504,000 related to the
construction of the three SpeedZones.

9. ASSETS HELD FOR SALE (SEE ALSO NOTE 23)

     During 1996, the Company adopted a comprehensive business plan designed to
reposition the Company through investment in its best performing parks,
including additions of new attractions, upgrading FECs, selling or closing FECs
that are not believed to be strategic and the pursuit of internal and external
growth opportunities. In implementing this business plan, the Company determined
that it would initially sell or close 15 parks. The 15 parks to be sold
generated operating revenues of $4.5 million and had an operating loss of
$517,000 for the year ended December 31, 1996. During 1997, the Company sold 12
of the FECs for a total sales price of $3.8 million. During 1997, the Company
closed an additional three FECs.

     The Company estimated the values of certain FECs using their undiscounted
cash flows and recorded a writedown of $13.2 million for the year ended December
31, 1996. The values of FECs to be sold or closed were estimated using their
expected sales prices and resulted in a reserve for sale or closure of $3.3
million and a write down of $4.6 million to net realizable value for the year
ended December 31, 1996. The Company is currently marketing the FECs to be sold
and expects to dispose of these FECs within a year.

10. INVESTMENTS IN AND TRANSACTIONS WITH LIMITED PARTNERSHIPS

     Prior to 1996, when the Company assisted third parties in raising funds to
capitalize limited partnerships which constructed and owned FECs, the Company
received a limited partnership interest as compensation for syndication
activities performed. Effective October 1, 1994, syndication revenue is
recognized upon comple-

                                      F-13
<PAGE>   26
                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

tion of construction of the FEC. Prior to October 1, 1994, syndication revenue
was recognized when minimum cash and other equity was raised and certain
services were performed by the Company for the limited partnership (Note 4).

     During fiscal year 1994, the Company assisted with the raising of capital
for the NEF partnership and received fees of $550,000 for performing certain
syndication activities. The recognition of those syndication fees was deferred,
along with the related syndication costs of approximately $386,000, since the
NEF general partners held a put. The terms of the NEF Partnership Agreement
required a unanimous vote of the general partners in order to exercise the put.
In April 1995, two of NEF's three general partners entered into an agreement
with each other and the Company in which they irrevocably agreed not to exercise
or seek enforcement of the put. Therefore, as the Company did not have any
future obligations or risk related to NEF, the related net syndication fee of
$164,000 was recognized during fiscal 1995.

     Under the terms of the Formation Agreement with NEF, the Company was to
build and operate FEC's in various locations, including Kendall, Florida, a
suburb of Miami. The Formation Agreement provided NEF with the right to purchase
any Company facility located within a specified radius of a proposed facility.
In connection with the Malibu Acquisition, the Company acquired a facility
within the specified radius of NEF's proposed facility in Kendall, Florida (the
"Miami Facility"). In December 1994, NEF exercised its right under the agreement
to purchase the Miami facility. NEF purchased the improvements, but not the
land, at the Miami Facility for its net book value, and fair value of
$1,250,000. In connection with the Company's agreement to cancel NEF's
obligation to fund the construction of a FEC in Kendall, Florida, the Company
and NEF executed an agreement providing for a fee of $1,250,000 which was
recognized as income for the year ended September 30, 1995, net of the Company's
ownership percentage. In August 1996 the Company purchased the general and
limited partnership interests in NEF (Note 5).

     The Company charges fees for the management and operation of certain FEC's
in which the Company has ownership interests. Management fees for the years
ended December 31, 1997 and 1996, the three month period ended December 31, 1995
and the year ended September 30, 1995 were $64,000, $153,000, $74,000, and
$347,000, respectively.

     Prior to 1997, the Company has entered into game revenue sharing agreements
with limited partnerships in which the Company purchases games for the limited
partnerships' use and receives 40-50% of total game revenue. Total game sharing
revenue recognized for the year ended December 31, 1996, the three month period
ended December 31, 1995 and the year ended September 30, 1995 was approximately
$209,000, $134,000, and $370,000, respectively.

     During the years ended December 31, 1997 and 1996, the Company adjusted the
carrying value of its investments in limited partnerships which resulted in a
writedown of its investments by $605,000 and $2,570,000, respectively.

11. INTANGIBLE ASSETS

     Intangible assets are summarized as follows:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,    DECEMBER 31,
                                                                 1997            1996
                                                             ------------    ------------
<S>                                                          <C>             <C>
Goodwill...................................................   $1,049,910      $2,856,903
Trademarks.................................................      126,381          18,750
                                                              ----------      ----------
                                                               1,176,291       2,875,653
Less: Accumulated amortization.............................     (146,305)       (267,045)
                                                              ----------      ----------
                                                              $1,029,986      $2,608,608
                                                              ==========      ==========
</TABLE>

                                      F-14
<PAGE>   27
                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     During 1997 and 1996, the Company wrote down certain assets in accordance
with Statement of Financial Accounting Standards No. 121, including goodwill of
$1,593,000 and $8,596,000, respectively (Notes 9 and 23).

12. ACCRUED EXPENSES

     Accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,    DECEMBER 31,
                                                                 1997            1996
                                                             ------------    ------------
<S>                                                          <C>             <C>
Insurance..................................................   $  793,712      $  954,854
Interest...................................................      240,579         404,365
Payroll and related expenses...............................    2,680,123         971,814
Property taxes.............................................           --         149,104
Sales tax..................................................      529,648         962,626
Environmental..............................................      998,623         276,067
Accrued rent...............................................      534,685         722,903
Accrued legal..............................................      129,559         322,510
Income taxes...............................................      102,729          86,888
Other......................................................      709,369       1,013,464
                                                              ----------      ----------
                                                              $6,719,027      $5,864,595
                                                              ==========      ==========
</TABLE>

13. NOTES PAYABLE TO SHAREHOLDER

     During 1997, the Company entered into two promissory notes with MEI
Holdings with terms which management believed to be comparable to terms which
would be attainable from third parties. The initial amounts of the two
promissory notes were $9.5 million and $30.0 million, respectively. As
subsequently amended, the first promissory note is for $10.0 million with
interest at LIBOR plus 350 basis points and is payable in January 1999 and the
second promissory note is for maximum borrowings of up to $65.0 million with
interest at 10% and matures in August 2001. MEI Holdings has the option, but is
not obligated, to advance amounts in excess of the amounts presently outstanding
under the notes.

     The notes are each convertible at MEI Holdings' option into subordinated
notes that are convertible into Common Stock ("Convertible Notes") which will
have terms that an independent investment adviser advises the Company would
ensure that the proceeds of a sale at that time of the Convertible Notes would
be sufficient to repay the then outstanding interest and principal on the $10.0
million and $65.0 million notes and all third-party costs incurred in connection
therewith. At December 31, 1997 the outstanding balance under the $10.0 million
and the $65.0 million was approximately $8.0 million and $40.3 million,
respectively. Accrued interest on the notes totaled approximately $1.094 million
as of December 31, 1997.

14. LINE OF CREDIT AND TERM LOAN REVOLVER

     In 1996 the Company entered into a loan agreement ("Senior Credit
Facility"), which was amended during 1997, with a leading U.S. based financial
institution to provide $20 million in senior secured credit facilities. The
Senior Credit Facility is comprised of a $12.5 million senior secured term loan
and a $7.5 million senior secured revolving credit facility. Each credit
facility matures in August 2001 with no interim principal amortization. The
credit facilities are secured by substantially all of the Company's assets and
bear interest at a floating reference rate plus 1.5%. At December 31, 1997 the
outstanding balance under the term loan and revolver was $10,000,000 and
$7,500,000, respectively.

                                      F-15
<PAGE>   28
                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company is required to maintain affirmative covenants regarding among
other things, the maintenance of certain financial ratios and net worth. At
December 31, 1997 the Company was in compliance with the various covenants.

15. NOTES PAYABLE AND SUBORDINATED DEBENTURES

Notes payable are summarized as follows:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,    DECEMBER 31,
                                                                1997            1996
                                                            ------------    ------------
<S>                                                         <C>             <C>
Mortgage note bearing interest at LIBOR plus 350 basis
  points, payable in September 1998, extendable at the
  Company's option to January 1999; secured by real
  estate..................................................  $21,390,375      $       --
Mortgage notes bearing interest at prime plus 2.75% to
  11.5%,
  weighted average interest rate of 9% and 10%,
     respectively,
  payable in various monthly installments of principal and
  interest and balloon payments through 2018; secured by
     land
  and miniature golf courses..............................    4,576,836       1,847,844
Notes payable to financial institutions bearing interest
  at rates
  ranging from 8% to 10%, weighted average interest rate
     of
  10%, with various maturity dates through 2000; secured
     by
  land, miniature golf courses and equipment, intangibles,
  and the guarantee of certain shareholders...............    1,219,702       2,007,173
Note payable to a former shareholder......................    2,710,003       3,053,925
                                                            -----------      ----------
                                                             29,896,916       6,908,942
Less: Current portion.....................................   (1,060,411)     (1,120,467)
                                                            -----------      ----------
                                                            $28,836,505      $5,788,475
                                                            ===========      ==========
</TABLE>

     Future maturities of notes payable are as follows:

<TABLE>
<CAPTION>
                      YEAR ENDING
                      DECEMBER 31,
                      ------------
<S>                                                       <C>
  1998..................................................  $ 1,060,411
  1999..................................................   22,276,365
  2000..................................................    3,981,947
  2001..................................................      388,129
  2002..................................................      410,000
  Thereafter............................................    1,780,064
                                                          -----------
                                                          $29,896,916
                                                          ===========
</TABLE>

     The note payable to a former shareholder represents a note which bears
interest at 8% per annum. Under the terms of the note agreement, the Company is
required to remit all excess cash flow of certain FECs to the note holder and
has guaranteed a minimum principal and interest payment of $500,000 annually,
less any capital improvements made to these FECs. Under the terms of the note
agreement, principal will be reduced by 15% of capital improvements to the
facilities. Under the terms of the note agreement, certain shareholders must own
an aggregate of 750,000 Common Shares. In the event that such persons fail to
continue to own 750,000 Common Shares, the former shareholder may accelerate
payment of the note to a five-year term.

     At December 31, 1996, there were two issues of Convertible Subordinated
Debentures (9% and 9.1% issues) with an aggregate principal balance of
$16,521,422. Each of the issues of the debentures was

                                      F-16
<PAGE>   29
                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

convertible into common shares at maximum conversion prices ranging from
$3.50-$5.00 per share. Such debentures were converted into common shares during
1997 (See Note 17).

16. INCOME TAXES

     The benefit (provision) for income taxes is as follows:

<TABLE>
<CAPTION>
                                          FOR THE YEAR ENDED        FOR THE THREE   FOR THE YEAR
                                      ---------------------------   MONTHS ENDED        ENDED
                                      DECEMBER 31,   DECEMBER 31,   DECEMBER 31,    SEPTEMBER 30,
                                          1997           1996           1995            1995
                                      ------------   ------------   -------------   -------------
<S>                                   <C>            <C>            <C>             <C>
Federal and state taxes-current.....  $        --    $    11,584     $  (51,667)     $ (232,483)
Deferred income taxes...............           --     (2,195,941)     2,743,962       1,543,000
                                      -----------    -----------     ----------      ----------
Benefit (provision) for income
  Taxes.............................  $        --    $(2,184,357)    $2,692,295      $1,310,517
                                      ===========    ===========     ==========      ==========
</TABLE>

     As of December 31, 1997, the Company has a tax net operating loss
carryforward of approximately $86,603,000 for income tax purposes which expires
in 2006-2010. There are certain limitations that could be imposed by the
Internal Revenue Code regarding the amount of carryforwards that may be utilized
each year. The Company also has available alternative minimum tax credit
carryforwards of approximately $292,000, which may be used to offset future
regular income tax.

     Significant components of the Company's deferred income tax liabilities are
as follows:

<TABLE>
<CAPTION>
                                                          DECEMBER 31,      DECEMBER 31,
                                                              1997              1996
                                                          ------------      ------------
<S>                                                       <C>               <C>
Deferred tax liabilities:
  Depreciation..........................................  $ 8,113,463       $ 6,395,204
  Syndication revenue...................................    1,235,190         1,235,190
  Other.................................................      273,319           167,986
                                                          -----------       -----------
  Gross deferred tax liabilities........................    9,621,972         7,798,380
Deferred tax assets:
  Net operating loss carryforward.......................  (32,909,278)      (16,367,083)
  Equity in net earnings of limited partnerships........     (738,906)         (696,640)
  Minimum tax credit carryforward.......................     (292,060)         (292,060)
  Loss on impairment of assets..........................  (15,721,901)       (8,412,598)
  Other.................................................   (2,147,434)       (1,494,680)
                                                          -----------       -----------
  Gross deferred tax assets.............................  (51,809,579)      (27,263,061)
                                                          -----------       -----------
                                                          (42,187,607)      (19,464,681)
Less: Valuation allowance...............................   42,187,607        19,464,681
                                                          -----------       -----------
                                                          $        --       $        --
                                                          ===========       ===========
</TABLE>

17. SHAREHOLDERS' EQUITY

COMMON STOCK

     On January 17, 1997, MEI Holdings closed on a tender offer for any and all
outstanding Common Shares it did not own at $3.50 per share and for any and all
of the Company's 9% Debentures and 9.1% Debentures at par plus accrued and
unpaid interest for the purchased debentures. Pursuant to the tender offer, MEI
Holdings acquired 7,802,435 Common Shares, $4,249,000 aggregate principal amount
of 9% Debentures and $11,422,322 aggregate principal amount of 9.1% Debentures.
The purchased debentures have been converted into 4,477,521 Common Shares.

                                      F-17
<PAGE>   30
                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     At the Company's annual meeting in April 1997, the shareholders approved
the grant of ordinary voting rights to 24.9 million shares of capital stock. In
conjunction with this approval, all of the Series F and G Preferred Stock was
converted into Common Shares.

     In August 1996, the Company was recapitalized by MEI Holdings in which MEI
Holdings exchanged $40.0 million for 11,727,970 Common Shares (Note 2).

     In prior years the Company entered into purchase transactions for FECs in
which the Company issued common stock as partial consideration and guaranteed to
their respective seller(s) that the aggregate market value of the common stock
would have a certain value, as defined, on specified future dates. During 1996,
the Company settled two stock guarantees by purchasing the originally issued
131,237 shares at the aggregate guaranteed purchase price of $3,018,451. At
December 31, 1996, the Company had one remaining stock price guarantee that was
settled in February 1997.

     During the periods ended December 31, 1996 and 1995, the Company converted
$3,042,894 and $1,981,666 of the 10% Debentures into 991,286 and 496,842 Common
Shares, respectively. The Company also converted $850,000 of the 9% Debentures
into 212,666 Common Shares during 1997. Additionally, during the periods ended
December 31, 1996 and 1995, the Company converted $3,497,126 and $7,034,931,
including accrued dividends, of Series A Preferred Stock and Series D Preferred
Stock into 1,424,939 and 1,723,893 Common Shares, respectively.

     During the periods ended December 31, 1997, 1996 and 1995 and September 30,
1995, the Company purchased and canceled 291,875; 347,102; 10,000; and 58,520
Common Shares.

PREFERRED STOCK

     The Company's Articles of Incorporation, as amended, authorized the
issuance of up to 6,000,000 shares of preferred stock, no par value with such
designations, rights and preferences as may be determined by the Board of
Directors.

SERIES A PREFERRED STOCK

     In September 1995, two thousand (2,000) of the 6,000,000 authorized shares
of Preferred Stock were designated Series A Non-Voting Preferred Stock ("Series
A Preferred Stock") of which the Company issued 1,150 shares for cash proceeds
of $10,637,500. At December 31, 1996 and 1995 the holders of the Series A
Preferred Stock converted $310,126 and $7,034,931, including accrued dividends,
into 93,572 and 1,723,893 Common Shares, respectively. In connection with the
issuance of the Preferred Stock, the Company issued warrants to the underwriter
to purchase 111,034 Common Shares at $8.70 per share as compensation for
investment services. The warrants expire in September 2000. The warrants were
valued at $215,000 using an independent third party appraisal and were accounted
for as a stock issuance cost.

     In December 1995, the Company entered into an agreement with certain of the
holders of $4,300,000 aggregate principal amount of the Series A Preferred Stock
in which the holders agreed to extend the conversion date in return for a
reduction of the fixed conversion price to $5.125. In connection with the above
change in the conversion price, the Series A Preferred Stock was converted into
Series B Preferred Stock.

SERIES B PREFERRED STOCK

     In December 1995, the Company's Board of Directors designated 2,000 shares
of Preferred Stock as convertible, non-voting Series B Preferred Stock (the
"Series B Preferred Stock"). As discussed above, the Series B Preferred Stock
was issued in exchange for the holder's Series A Preferred Stock. There were no
conversions of Series B Preferred Stock into common stock. However, in July 1996
the Company redeemed

                                      F-18
<PAGE>   31
                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

30% of the outstanding balance and exchanged the remaining 70% of the
outstanding balance into a New 10% Debenture (Note 3).

SERIES C PREFERRED STOCK

     In December 1995 the Company's Board of Directors designated 1000 shares of
Preferred Stock as Series C Nonvoting Convertible Preferred Stock (the "Series C
Preferred Stock"). The Company issued 500 shares of Series C Preferred Stock for
$500,000. In 1996, the Company redeemed the 500 shares for the face value plus a
13% preferred dividend.

SERIES D PREFERRED STOCK

     During 1996, the Company's Board of Directors designated 20,000 shares of
the Company's Preferred Stock as Series D Preferred Stock (the "Series D
Preferred Stock"). During 1996, the Company issued 8,027 of Series D Preferred
Stock with a face value of $7,928,000 for $6,662,000. The Series D Preferred
Stock was convertible into the number of Common Shares equal to the Series D
Original Issue Price, divided by the lesser of (i) $6.00 or (ii) the average
closing bid price, as defined, for the five trading days immediately preceding
the date the Series D Preferred Stock is converted (the "Series D Conversion
Price"). The holders of the Series D Preferred Stock received dividends of 4%.
During 1996 $4,023,500 of the Series D Preferred Stock was redeemed and
$3,187,000 was converted into 1,331,367 Common Shares.

SERIES F PREFERRED STOCK

     During 1996, the Company's Board of Directors designated 2,700,000 shares
of the Company's Preferred Stock as Series F Preferred Stock. Series F Shares
were convertible into Common Shares after Shareholder approval was given or
under certain other circumstances. The terms of the Series F Shares were
structured so that Series F Shares were substantially equivalent (except as to
voting) to Common Shares. Accordingly, the holders of the Series F Shares were
entitled when, as and if declared by the Board, to dividends or other
distributions payable or distributable on the date on which dividends or other
distributions were so payable or distributable on or in respect of Common
Shares, in an amount per Series F Share equal to the aggregate per share amount
of all cash dividends and the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions, declared on the Common Shares. If
the Company declared any dividend or other distribution on Common Shares payable
in Common Shares or any other capital stock of the Company having the right to
vote in the election of directors on a regular basis ("Other Voting Shares"),
then in each such case where Common Shares would have been payable, each holder
of Series F Shares would be entitled to receive a number of additional Series F
Shares equal to the number of Common Shares such holder would have received if
all of such holder's Series F Shares had been converted into Common Shares, and
in each such case where shares of Other Voting Shares would have been payable,
each such holder of Series F Shares would be entitled to receive such number of
shares of any series or class of Company shares as provides such holder all of
the relative rights, preferences and powers, except voting rights, that the
holder would have received as a holder of Common Shares if all of such holder's
Series F Shares had been converted into Common Shares. Subject to the prior and
superior rights of the holders of any shares of any senior preferred stock, if
the Company subdivides the outstanding Common Shares into a greater number of
shares or combines the outstanding Common Shares into a reduced number of
shares, then in each case the outstanding Series F Shares would also be
subdivided or combined in the same proportion so that each Series F Share
continued to be entitled to ten times the amount of dividends and distributions
as each Common Share.

     During 1997, upon Shareholder approval at the Company's 1997 annual
meeting, all such shares were converted into Common Stock.

                                      F-19
<PAGE>   32
                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SERIES G PREFERRED STOCK

     During 1996, the Company's Board of Directors designated 213,551 shares of
the Company's Preferred Stock as Series G Preferred Stock. The Series G Shares
were (i) nonvoting, (ii) had a liquidation preference equal to the amount
received by the Company for their issuance, (iii) had a dividend rate of 7% per
annum with unpaid dividends to accrue but be payable only at such time as
dividends are declared and paid on the Common Shares, and (iv) were not
convertible into Common Shares unless and until Shareholder approval was given.
Dividends accrued but not declared would be lost upon conversion of the Series G
Shares into Common Shares.

     During 1997, upon Shareholder approval at the Company's 1997 annual
meeting, all such shares were converted into Common Stock.

MANAGEMENT INCENTIVE PLAN

     In September 1996 the Company sold 2,093,333 shares (the "Management
Shares") of Common Stock at a per share price equal to $2.6625 per share, for an
aggregate note receivable of $5,568,266, which price was the average of the
closing prices of the common stock for the 10 trading days immediately preceding
the sale to the participants in the Incentive Plan. Those persons eligible to
participate in the Incentive Plan are key employees designated by the
Compensation Committee of the Board of Directors. In order to participate in the
Incentive Plan the participants surrendered all options to acquire Common
Shares. During 1997, the Company purchased 291,875 Management Shares and issued
200,000 Common Shares.

     Initially, all Management Shares are restricted such that they are not
subject to alienation or transfer by the participant and are subject to the
Company's repurchase option as set forth below. The Management Shares "vest",
thereby becoming unrestricted shares, at a rate of 1/48th per month, provided
the participant remains in the continuous full time employment of the Company.
If a participant's employment with the Company is terminated within five years
of the acquisition of such shares, the Company has the right to repurchase from
the participant, and the participant has the right to sell to the Company, all
of the participant's Management Shares which have not vested. If the participant
is terminated without cause, the per share purchase price to be paid by the
Company upon such repurchase will be equal to the initial per share purchase
price of such shares (plus accrued interest). If the participant is terminated
with cause or voluntarily terminates his or her own employment, the per share
purchase price to be paid by the Company upon such repurchase will be equal to
the lesser of (i) the average of the closing price on the principal securities
market on which the common stock is then included for each of the 15 trading
days immediately preceding the date on which the participant's employment is
terminated and (ii) the initial purchase price for such shares (plus accrued
interest).

     To finance the purchase of the Management Shares, the Company made
available to each participant a five year recourse loan bearing interest
initially at 7.0% per annum and escalating to 8.5% annum secured by the Common
Shares acquired thereby. If a participant's employment with the Company is
terminated within five years of the acquisition of such shares, or if the
participant otherwise defaults on the loan, then the entire balance due under
such participant's financing becomes due and payable.

     To secure payment of the loan, each participant entered into a pledge
agreement with the Company pursuant to which all of the Management Shares
acquired by the participants have been pledged to the Company. The Management
Shares will be released from pledge upon payment in full of the entire amount
due under the loan.

COMMON STOCK OPTIONS

     On September 3, 1993, the Company adopted the Mountasia 1993 Incentive
Stock Option Plan (the Plan). The Plan was amended during fiscal 1995 and
provides for the issuance of options covering up to

                                      F-20
<PAGE>   33
                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1,250,000 Common Shares (subject to appropriate adjustments in the event of
stock splits, stock dividends and similar dilutive events). Options may be
granted under the Plan to employees, officers or directors of, and consultants
and advisors to the Company. All options are issued at fair market value at the
date of grant; thus no compensation expense has been recorded during the years
ended December 31, 1997 and 1996, the three month period ended December 31, 1995
and the year ended September 30, 1995. Activity under the Plan is as follows:

<TABLE>
<CAPTION>
                                                            NUMBER OF       RANGE OF
                                                             OPTIONS      OPTION PRICE
                                                            ---------    --------------
<S>                                                         <C>          <C>
Balance, September 30, 1995...............................   138,800     $7.25 -$12.50
  Options issued..........................................   100,000         $9.00
  Options expired or terminated...........................    (6,700)        $8.00
                                                            --------
Balance, December 31, 1995................................   232,100
  Options expired or terminated...........................  (206,400)     $8.00-$9.00
Balance, December 31, 1996................................    25,700
  Options expired or terminated...........................    (4,000)        $8.00
                                                            --------
Balance, December 31, 1997................................    21,700
                                                            ========
</TABLE>

     The options expire four to five years from the date of grant. No options
have been issued under this plan since 1995.

     In September 1993, the Company adopted the 1993 Nonemployee Director Stock
Option Plan (the Director Plan), which was amended during the year ended
September 30, 1995, and reserved 250,000 Common Shares for issuance thereunder.
The Director Plan provides for the grant of nonqualified stock options to
purchase Common Shares to directors who are not employees of the Company. All
options are issued at fair market value at the date of grant and vest
immediately.

     Activity under the Director Plan during the three year period ended
December 31, 1997 is as follows:

<TABLE>
<CAPTION>
                                                             NUMBER OF      RANGE OF
                                                              OPTIONS     OPTION PRICE
                                                             ---------    ------------
<S>                                                          <C>          <C>
Balance, September 30, 1995................................   173,000     $7.36-$10.87
  Options expired or terminated............................   (30,000)       $7.76
                                                             --------
Balance, December 31, 1995.................................   143,000
  Options issued...........................................    25,000        $2.60
                                                             --------
Balance, December 31, 1996.................................   168,000
  Options issued...........................................    30,000     $2.95-$8.75
  Options expired or terminated............................  (125,000)    $7.53-$7.76
                                                             --------
Balance, December 31, 1997.................................    73,000
                                                             ========
</TABLE>

     In conjunction with the purchase of Malibu Grand Prix Corporation, the
Company granted MGP Holdings, Inc., or its nominee, an option to acquire, for a
period of five years from November 15, 1994, 200,000 Common Shares at $12.00 per
share. No options have been exercised at December 31, 1997.

     The Company adopted Statement of Financial Accounting Standards No. 123
during 1996. The Company has chosen the method of adoption whereby the previous
method of accounting (Accounting Principles Board Opinion No. 25) is followed
for financial statement purposes and the proforma effect of valuing options at
fair value is presented in the footnotes to the financial statements. The
significant assumptions used by the Company in this calculation were a risk free
interest rate of 6.9%, an expected dividend yield of 0% and expected lives of
options of ten years. The effect of implementing this statement

                                      F-21
<PAGE>   34
                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

resulted in an increase in the proforma net loss for the year ended December 31,
1997 of $25,000 or $0.00 per share.

WARRANTS

     In connection with the issuance of the 10% Debentures in September 1995,
the Company issued warrants to purchase 82,069 and 111,034 Common Shares at
$8.70 per share to the underwriter as compensation for investment services. The
warrants expire in September 2000. In connection with the amendments to the 10%
Debentures and the Preferred A Stock the Company reduced the exercise price on
79,607 of the warrants to $5.125.

     In calendar year 1995, the Company entered into two financial advisory
agreements with investment firms for a specific period of time. As consideration
for their retention, the Company issued to the investment firms warrants to
purchase Common Stock. The warrants were valued and expensed over the terms of
the financial advisory agreements. During 1996 the Company terminated the
financial advisory agreements and the investment firms returned the warrants.
The Company recognized a gain of approximately $422,000 related to the warrant's
value which had previously been expensed.

18. 401(K) PLAN

     In May 1997, the Company adopted the Malibu Entertainment Worldwide, Inc.
401(k) plan. All full-time employees are eligible to participate in the plan
after one full year of service. The Company matches 25% of each dollar
contributed to this plan up to 6% of an employee's salary. The Company
recognized expense related to the 401(k) plan of $60,000 for the year ended
December 31, 1997.

19. COMMITMENTS AND CONTINGENCIES

     The Company leases its office and operating facilities and certain
equipment under operating leases. Additionally, the Company has various
operating leases which require the payment of a percentage of gross revenues to
the lessor. The following schedule summarizes the future minimum lease payments
required, excluding percentage rents, under noncancelable operating leases:

<TABLE>
<CAPTION>
                     YEAR ENDING
                     DECEMBER 31,
------------------------------------------------------
<S>                                                       <C>
  1998................................................    $ 3,890,000
  1999................................................      3,058,000
  2000................................................      2,074,000
  2001................................................      2,362,000
  2002................................................      1,890,000
  Thereafter..........................................      12,910,00
                                                          -----------
                                                          $ 26,184,00
                                                          ===========
</TABLE>

     Rental expense totaled approximately $3,971,000, $5,202,000, $1,030,000,
and $3,449,000 for the years ended December 31, 1997 and 1996, the three month
period ended December 31, 1995 and the year ended September 30, 1995,
respectively.

     The Company has entered into sponsorship contracts with six entities that
have relationships with NASCAR, CART and NHRA drivers. The contracts expire at
various dates through 2001; however, the

                                      F-22
<PAGE>   35
                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company has the right to terminate the agreements under certain conditions.
Future annual payments under these contracts are follows:

<TABLE>
<CAPTION>
                       YEAR ENDING
                      DECEMBER 31,
                      ------------
<S>                                                        <C>
  1998...................................................  $  422,000
  1999...................................................     447,000
  2000...................................................     503,000
  2001...................................................     578,000
                                                           ----------
                                                           $1,950,000
                                                           ==========
</TABLE>

     The Company has also entered into a purchase and license agreement with an
entity to provide certain race car attractions and the related license rights to
that attraction. Future minimum payments under the purchase contract are $8.9
million and $10.8 million for the years ended December 31, 1998 and 1999,
respectively.

     The Company is a guarantor on an outstanding loan for a limited
partnership. In the event the limited partnership defaults under the debt, the
Company is required to purchase the loan from the bank. At December 31, 1997,
the outstanding balance under the loan was $1.8 million.

20. SUPPLEMENTAL CASH FLOW INFORMATION

     The Company purchased all of the assets and assumed certain liabilities of
NEF, Willowbrook, and Columbus FECs in 1996. Additionally, the Company purchased
the partnership interests in NEF that it did not already own. In 1995, the
Company purchased the stock of Malibu. In conjunction with the acquisitions,
liabilities were assumed as follows:

<TABLE>
<CAPTION>
                                                              1996            1995
                                                          ACQUISITIONS    ACQUISITIONS
                                                          ------------    ------------
<S>                                                       <C>             <C>
Fair value of assets acquired...........................  $ 22,273,500    $ 32,735,100
Excess of purchase price over fair value of assets
  acquired..............................................     7,246,000              --
Cash....................................................    (9,437,000)    (24,198,000)
Assumption of long term debt............................    (4,427,000)             --
Issuance of 9.1% Subordinated Debentures................   (11,422,422)             --
Basis carryover.........................................    (1,326,500)             --
Value of Options........................................            --        (900,000)
Deferred tax liabilities................................            --        (921,000)
                                                          ------------    ------------
Liabilities assumed.....................................  $  2,906,578    $  6,716,100
                                                          ============    ============
</TABLE>

     During fiscal year 1994, the Company assisted with the raising of capital
for NEF and received fees totaling $550,000 for performing certain syndication
activities. The Company deferred the recognition of these syndication fees,
along with the related syndication costs of approximately $386,000. The Company
recognized the net syndication income of approximately $164,000 during fiscal
1995. In connection with the formation of NEF, the Company issued to certain
affiliates of NEF's general partners warrants (having a value of $300,000) to
purchase 122,500 Common Shares in return for the affiliates providing certain
financial consulting services to the Company. The Company recognized the warrant
expense in fiscal 1995.

     During fiscal 1995, the Company issued 29,630 Common Shares with an
aggregate value of $266,670 as a commission related to an equity offering. The
issuance of the Common Shares was recorded as stock issuance costs.
Additionally, during fiscal 1995 the Company issued warrants with an appraised
value of $220,000 and $905,000 which were classified as debt issuance costs and
stock issuance costs, respectively.

                                      F-23
<PAGE>   36
                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company paid interest of approximately $5,485,000, $4,936,000, and
$2,909,100, for the years ended December 31, 1997 and 1996, and September 30,
1995, respectively, and approximately $949,000 for the three month period ended
December 31, 1995. The Company paid income taxes of $158,000, $110,000, and
$330,000 for the years ended December 31, 1997 and 1996, and September 30, 1995,
respectively, and no income taxes for the three months ended December 31, 1995.

     During the year ended September 30, 1995 the Company obtained an interest
in certain limited partnerships of $1,050,000. The Company obtained an interest
of $70,000 in certain limited partnerships for the three month period ended
December 31, 1995. Acquisition of these interests was for services rendered by
the Company and did not impact cash flow.

     The Company acquired games costing approximately $2,264,689 through the
assumption of debt during the year ended September 30, 1995.

21. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

     Quarterly financial information for the periods ended December 31, 1997,
1996, and 1995 are as follows:

<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31, 1997
                                            ------------------------------------------
                                             FIRST     SECOND      THIRD       FOURTH
                                            -------    -------    --------    --------
                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                         <C>        <C>        <C>         <C>
Operating revenues........................  $ 7,171    $11,375    $ 16,877    $  9,184
Operating expenses........................   10,370     16,793      24,103      43,823
Operating loss............................   (3,199)    (5,418)     (7,226)    (34,639)
Net loss..................................   (3,933)    (5,853)    (11,499)    (38,018)
Loss per common share(A)..................  $ (0.14)   $ (0.14)   $  (0.24)   $  (0.78)
</TABLE>

<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31, 1996
                                          --------------------------------------------
                                           FIRST       SECOND      THIRD       FOURTH
                                          --------    --------    --------    --------
                                             (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                       <C>         <C>         <C>         <C>
Operating revenues......................  $  6,997    $ 11,157    $ 12,400    $  6,876
Operating expenses......................   (10,355)    (16,683)    (13,687)    (36,513)
Operating loss..........................    (3,358)     (5,526)     (1,287)    (29,637)
Net loss................................    (2,120)     (3,944)     (1,921)    (39,648)
Loss per common share(A)................  $  (0.23)   $  (0.46)   $  (0.15)   $  (1.41)
</TABLE>

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                 DECEMBER 31,
                                                                     1995
                                                              ------------------
                                                                (IN THOUSANDS,
                                                               EXCEPT PER SHARE
                                                                    DATA)
<S>                                                           <C>
Operating revenues..........................................       $  6,754
Operating expenses..........................................        (10,417)
Operating loss..............................................         (3,663)
Net loss....................................................         (4,494)
Loss per common share.......................................       $  (0.77)
</TABLE>

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

(A) The sum of the quarterly loss per common share does not equal the annual
    loss per common share due to rounding of weighted average shares.

                                      F-24
<PAGE>   37
                      MALIBU ENTERTAINMENT WORLDWIDE, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

22. LITIGATION

     Due to the nature of the attractions at the Company's parks, the Company
has been, and will likely continue to be, subject to a significant number of
personal injury lawsuits, certain of which may involve claims for substantial
damages. The Company also is, from time to time, a party to other claims and
legal proceedings, and is subject to environmental, zoning and other legal
requirements. As of the date of this Report, the Company does not believe that
any such matter is reasonably likely to have a material adverse effect on the
Company's financial position or results of operations. However, there
necessarily can be no assurance in this regard or that the Company will not be
subject to material claims or legal proceedings or requirements in the future.

23. FOURTH QUARTER CHARGES

     Under Statement of Financial Accounting Standards No. 121, during the
fourth quarters of each of 1997 and 1996, the Company recorded a loss due to
impairment of assets of $20.9 million and $21.0 million, respectively,
principally as a result of adjustments in the carrying value of assets resulting
from the implementation of its new business plan and the determination that the
carrying value of such assets was higher than their undiscounted expected future
cash flows. Additionally, the Company adjusted the value of its limited
partnerships based upon their net realizable values which resulted in a loss on
investments in affiliates of $0.6 million and $2.6 million in the respective
fourth quarters of 1997 and 1996.

     During the fourth quarters of 1997 and 1996, the Company recorded charges
of $1.9 million and $1.1 million, respectively, for environmental costs based
upon analyses completed by the Company's environmental consultants.

                                      F-25
<PAGE>   38

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
      EXHIBIT NO.                                DESCRIPTION
      -----------                                -----------
<C>                      <S>
          3.1            -- Articles of Incorporation of the Company (incorporated by
                            reference to the Company's Annual Report on Form 10-K for
                            the year ended September 30, 1993 (the "1993 10-K"))
          3.2            -- Amended and Restated Bylaws of the Company (incorporated
                            by reference to the Company's Current Report on Form 8-K,
                            dated June 19, 1996 (the "1996 8-K"))
          4.1            -- Specimen of Common Stock Certificate (incorporated by
                            reference to the 1993 10-K)
          4.2            -- Form of Warrant (incorporated by reference to the
                            Company's 1993 10-K)
          4.3            -- Indenture, dated as of November 15, 1994, between the
                            Company and Continental Stock Transfer and Trust Company,
                            as Trustee (incorporated by reference to the Company's
                            Annual Report on Form 10-K for the year ended September
                            30, 1994) and Supplemental Indenture thereto dated August
                            27, 1996 (incorporated by reference to the Company's
                            Annual Report on Form 10-K for the year ended December
                            31, 1996 (the "1996 10-K"))
          4.4            -- Preferred Stock Designations (incorporated by reference
                            to the 1996 10-K)
         10.1            -- 1993 Incentive Stock Option Plan (incorporated by
                            reference to the Company's Registration Statement on Form
                            SB-2 filed on November 3, 1993 (File No. 33-68454-A) (the
                            "Registration Statement"))
         10.2            -- 1993 Company Nonemployee Director Stock Option Plan with
                            accompanying forms of Stock Option (incorporated by
                            reference to the Registration Statement)
         10.3            -- Equity Incentive Plan (incorporated by reference to Annex
                            A of the Company's proxy statement on Schedule 14A for
                            the 1997 Annual Meeting of Shareholders)
         10.4            -- Promissory Note, dated June 30, 1993, in the principal
                            amount of $6,150,000 in favor of M.B. Seretean
                            (incorporated by reference to the Registration Statement)
         10.5            -- Consolidated, Amended and Restated Loan and Security
                            Agreement, dated August 22, 1996, between the Company and
                            Foothill Capital Corporation (incorporated by reference
                            to 1996 10-K)
         10.6            -- Amendment No. 4 to the Consolidated, Amended and Restated
                            Loan Security, dated August 22, 1996, between the Company
                            and Foothill Capital Corporation (filed herewith)
         10.7            -- Investment Agreement, dated as of June 5, 1996, as
                            amended, between MEI Holdings and the Company
                            (incorporated by reference to MEI Holdings' Amendment No.
                            3 to Schedule 13D-1 filed September 25, 1996 ("MEI
                            Holdings' 13D-1"))
         10.8            -- Warrant, dated August 28, 1996, by the Company
                            (incorporated by reference to MEI Holdings' 13D-1)
         10.9            -- Registration Rights Agreement, dated August 28, 1996,
                            between the Company and MEI Holdings (incorporated by
                            reference to MEI Holdings' Schedule 13D-1)
         10.10           -- Agreements, dated August 28, 1996, between the Company
                            and L. Scott Demerau and the Company and Julia E. Demerau
                            (incorporated by reference to the 1996 8-K)
         10.11           -- Redemption Agreement, dated November 14, 1996, between
                            the Company and MEI Holdings (incorporated by reference
                            to MEI Holdings' Schedule 14D-1, dated November 14, 1996)
</TABLE>
<PAGE>   39

<TABLE>
<CAPTION>
      EXHIBIT NO.                                DESCRIPTION
      -----------                                -----------
<C>                      <S>
         10.12           -- Second Amended and Restated Promissory Note from the
                            Company to MEI Holdings for $65.0 million, dated as of
                            June 5, 1997 (filed herewith)
         10.13           -- Amended and Restated Promissory Note from the Company to
                            MEI Holdings for $10.0 million, dated as of June 5, 1997
                            (filed herewith)
         10.14           -- Loan Agreement, dated as of June 27, 1997, between Malibu
                            Centers, Inc. and Nomura Asset Capital Corporation
                            ("Nomura") (incorporated by reference to the 2nd Q 1997
                            10-Q)
         10.15           -- Promissory Note from Malibu Centers, Inc. to Nomura for
                            $21,390,375 (incorporated by reference to the
                            (incorporated by reference to the 2nd Q 1997 10-Q)
         10.16           -- Guaranty, dated June 27, 1997, of MEI Holdings in favor
                            of Nomura (incorporated by reference to the 2nd Q 1997
                            10-Q)
         21              -- Subsidiaries (incorporated by reference to the 1996 10-K)
         24              -- Powers of Attorney
         27              -- Financial Data Schedule (for SEC purposes only)
</TABLE>