History

Fun Tyme Concepts, Inc. ("the Company") is a New York corporation which was organized in April 1993. The Company commenced operations with the construction of its first Fun Bubble play center in October 1994, in Staten Island, New York. In May 1998 the Company acquired Play Co. Capital Corp., a Delaware corporation ("PCC"), which owns 50% of Prestige Fine Jewelry, L.L.C. ("Prestige"), a Delaware limited liability company and the rights to purchase Cortina Valley Ski Resort ("Cortina"). Unless the context requires, all references to the "Company" include the Company's subsidiaries, PCC and Prestige and its rights to Cortina.

Corporate Overview

Prior to the consummation of its acquisition of PCC in May 1998, the Company's business plan focused solely on developing, owning, and operating entertainment facilities. Prior to December 1996 the Company focused on children's educational and entertainment facilities, targeting children ages twelve years old and under. In December 1996, the Company expanded its business plan to develop state of the art entertainment centers for the whole family. The Company in developing the design for its East Brunswick facility, expanded its existing concept of children's educational and entertainment by adding the concept of a high tech, theme restaurant and entertainment center catering to children of all ages and to some extent adults. Centers to be opened under the new "Planet Playdium" concept will focus on offering attractions which provide entertainment to all age groups and all members of family groups. The Company plans to incorporate this new concept within its East Brunswick facility, which is currently under construction and if successful add to its existing facilities and use as a format for the development of additional facilities.

In May 1998, upon the consummation of the acquisition of PCC the Company expanded its focus and decided to diversify itself and its operations. Though the Company shall continue to operate and develop its children's entertainment facilities, it shall seek to diversify, investing in and acquiring additional businesses, in which it believes there is the potential for greater returns, in order to increase the profitability of the Company.

Acquisition of Play Co. Capital Corp.

Effective May 28, 1998, the Company entered into a stock purchase agreement (the "Acquisition") with PCC, a Delaware corporation, BBS Holdings, LLC ("BBS Holdings"), a limited liability company organized under the laws of the state of Delaware, the members of BBS Holdings, Anthony DiMatteo, an individual residing at 110H Dinsmore Street, Staten Island, New York 10341 ("DiMatteo") and LD Trust, a trust formed under the laws of the state of Delaware, CAT L.L.C., a limited liability company and RICH L.L.C., a limited liability company, whereby, BBS Holdings acquired an aggregate of 8,152,000 shares or approximately 81.6% of the Company's common stock, par value $.001 per share (the "Common Stock"), of which the Company issued 7,230,000 shares directly to BBS Holdings in exchange for all of the outstanding shares of Play Co. Capital Corp. ("PCC"). Simultaneously therewith, CAT L.L.C and RICH L.L.C transferred an aggregate of 922,000 shares of the Company's Common Stock to BBS Holdings for a 20% ownership interest therein.

PCC owns a 50% interest in Prestige Fine Jewelry, L.L.C., a Delaware limited liability company and owns the right under a purchase agreement to purchase Cortina Valley Ski Resort and all personal and real property included therein.

Prior to the exchange of shares in the Acquisition, Daniel Catalfumo and Richard Rosso each transferred 461,000 shares of the Company's Common Stock to CAT L.L.C. and RICH L.L.C., respectively, companies formed by Daniel Catalfumo and Richard Rosso, Officers of the Company, respectively.

As of June 30, 1998, inclusive of the shares issued in the acquisition, there were 9,991,965 shares of the Company's Common Stock outstanding, of which BBS Holdings owned 8,152,000 or approximately 81.6%, whereby, the Company has become a subsidiary of BBS Holdings and PCC has become a wholly owned subsidiary of the Company.

Since the Acquisition of PCC and certain other concurrent transactions resulted in the transfer of an approximate 81.6% controlling interest in the Company to BBS Holdings, Management believes that the Acquisition will be treated as a purchase business combination, effective May 28, 1998, that will be accounted for as a "reverse acquisition" in which the Company shall be the legal acquirer and PCC will be accounting acquirer. Accordingly, the assets and liabilities of PCC will be accounted for at their historical carrying values and the assets and liabilities of the Company will be valued at their fair values with the excess of BBS Holdings' cost over the fair value of the Company's assets, if any, allocated to goodwill.

Reorganization of Fun Centers

In April 1998, in preparation for the Acquisition, the Company reorganized its corporate structure. The Company formed a wholly-owned subsidiary, named Planet Play-Dium, Inc. ("Planet"), a Delaware corporation, and transferred its ownership in its three fun centers to Planet, whereby, each of Fun Tyme of Edmonton, Inc ("FTE"), Fun Tyme of East Brunswick, Inc. ("FTEB") and newly formed Fun Tyme of Staten Island, Inc. ("FTSI") are wholly-owned subsidiaries of Planet.

Initial Public Offering

On August 15, 1996, through State Street Capital Markets Corp. ("State Street"), the Company consummated an initial public offering ("IPO") of 1,250,000 units, each unit (the "Units") comprising one share of Common Stock, par value $.001, and one redeemable Common Stock Purchase Warrant (the "Warrants"), at a purchase price of $6.25 per unit, inclusive of 800,000 shares of Common Stock sold by the Company, 200,000 shares of Common Stock sold by certain security holders and 250,000 shares of Common Stock and 1,250,000 Warrants sold by a certain selling security holder. Net proceeds to the Company from the IPO were approximately $3,102,000. The proceeds from the Company's IPO were earmarked to enable the Company to open additional facilities, each of which is expected to combine various elements of a children's entertainment center along with indoor recreational and educational facilities and specifically designed toddler programs. The Company has opened a new facility called Congo Bongo Fun Centre, in Edmonton, Canada, and plans to open another new facility called Planet Playdium, incorporating its new Planet Playdium concept, in East Brunswick, New Jersey, in the autumn of 1998.

In August 1996, State Street ceased operations and soon thereafter State Street and the Company terminated its underwriting agreement and all other agreements between the parties. The lack of market support by the Company's underwriter and principal market maker limited the liquidity of the Company's securities and decreased market quotations to a point whereby the units were trading below $1.00. As a result of this continued low trading, though the Company strove to keep its securities listed on the Nasdaq SmallCap Stock Market, Nasdaq delisted the securities on April 7, 1997, at which time the Company's securities began trading on the OTC Bulletin Board.

Family Entertainment Business

Background

In 1993, the founders of the Company began to research the children's entertainment industry and, in doing so, joined the International Association of Amusement Parks and Attractions. They attended trade shows and seminars and visited many other children's entertainment facilities. They noticed that most facilities had limited floor space and low ceilings which limited the space for the larger children's play equipment and which gave most of the facilities a closed-in feeling. After estimating the possibilities, the founders decided that building a facility in an air supported dome with a 40 foot ceiling would create an airy uncluttered environment, and, with the help of a manufacturer of pneumatically inflated domes, in 1993, the Company designed a dome unit that would have a 40 foot ceiling. In October 1994, the Company opened its first Fun Bubble in Staten Island, New York. In August 1997, the Company's second facility, Congo Bongo, was opened in Edmonton, Canada. See "Business - Staten Island, New York Fun Bubble" and "Business - Edmonton, Canada Facility."

Outlook

Although the Company's current expansion plans are focused upon its new acquisitions, the Company still plans to expand its business operations by opening additional facilities, under the Planet Playdium concept, if same is successful. These facilities may be under traditional building structures, not the pneumatic domes used for the Company's Staten Island facility. In either event, the Company will seek to incorporate high ceilings and unfettered open space in keeping with its initial concept. The Company intends to open facilities in or near locations that are family oriented, in areas that have large populations of children, and/or in areas with higher than average disposable income.

Industry Overview

The children's amusement industry is a highly competitive segment of the family entertainment industry, which includes admissions-based, or pay for play, recreational and soft play centers that target young children from toddlers to pre-teens. The pay for play children's entertainment center industry is highly fragmented and consists largely of local "mom and pop" stores, small regional chains, and local non-profit organizations that provide pay for play indoor soft play facilities. The children's amusement industry is subject to rapid technological and innovative change. Competition from and among companies which provide amusement centers and other arenas for the amusement of children is characterized by continuous technological and innovative changes and advances. There can be no assurance that the Company

will be able to keep pace with the technological and innovative developments in the industry or to implement changes in accordance with such developments.

Entertainment Concept

In its existing entertainment centers, the Company encourages the participation of parents and/or guardians with their children and to this end has designed a play maze and other play equipment which will allow children and their parents and/or guardians to play together. In addition to the play maze area, the facilities offer private party rooms, games of skill, video games, redemption games, bumper cars, a train roller coaster ride, a bungee trampoline, a separate toddler play area and a private sound proof parent's lounge. Management believes that the facilities are designed to provide a fun, safe, reliable, and interactive environment whereby children can exercise their bodies and minds and acquire certain necessary skills. It is Management's intention that each location provide such an environment. Each facility is geared toward enhancing a child's (i) hand, eye, and muscle coordination; (ii) motor skills; (iii) flexibility; and (iv) social skills. The Company plans to continuously update its facilities to meet children's recreational and educational needs in a stimulating, safe, and fun arena. See "Toddler and Pre-School Programs."

The Company's new Planet Playdium concept will incorporate the Company's existing attractions and educational offering, with high tech games and a theme restaurant atmosphere, catering to all members of family. The East Brunswick location, as the initial prototype location will include a separate toddler play area with an adjoining "Cyber Cafe" with computers available for the parents use and a "Laser Tag" area hosting futuristic interactive laser gun games. Should the Planet Playdium concept prove to be successful in East Brunswick, the Company plans on expanding its existing facilities to incorporate this new concept.

Staten Island, New York Fun Bubble

The Staten Island Fun Bubble, which opened in October 1994, is constructed under a pneumatic translucent dome with 40 foot ceiling heights, similar to those used for tennis courts. Although the Company intends to open additional facilities under similar structures, it may also operate facilities in traditional building structures. The Staten Island Fun Bubble charges an admission fee of $6.95 per child; there is no admission fee for adults accompanying children.

The Fun Bubble has (i) an environmentally controlled, supervised "Open Air Atmosphere" which is climate controlled throughout the seasons; (ii) a party play center for kids twelve years old and under, which includes athletic games and games of skill; and (iii) a three level soft-sculptured modular foam play maze. All activities are designed with safety in mind and are continuously supervised by the Company's trained employees. The children purchase tokens to play skill games and receive points at the end of each game. These points may be redeemed at any time to receive a prize at the merchandise and concession counter. See "Safety and Arcade Redemption Systems."

In addition to the foregoing, the facility also includes private party rooms, a snack bar, and a sound proof television lounge for parents. The party rooms can be reserved for birthdays and other group events. The Company offers a variety of party packages which combine all aspects of a celebration. The parents' lounge provides a quiet place for adults to retreat on occasion while their children play: it includes a television and a large clear window for viewing

the play area.

In fiscal year 1997, the Staten Island Fun Bubble was remodeled in keeping with the Company's desire to effect an outer space theme. Accordingly, all equipment was redesigned with space and spaceships as the focus.

Edmonton, Canada Facility

In February 1997, the Company formed a wholly-owned subsidiary, Fun Tyme of Edmonton, Inc. ("FTE"). FTE purchased the assets of a pre-existing children's entertainment facility in Edmonton, Canada. This facility was in bankruptcy, and the assets purchased by the Company was effected on May 20, 1997 by and between FTE and Browning Smith Inc., trustee of the estate in bankruptcy.

On May 21, 1997, upon approval of Browning Smith Inc., FTE and the lessor of the former facility executed a lease agreement for the premises. The Edmonton facility commenced operations in August 1997, with a jungle theme, and operates under the name "Congo Bongo."

The Company charges an admission fee of $6.50 Canadian per child; there being no admission fee for adults accompanying children. The Edmonton facility contains substantially the same attractions and programs as the original Staten Island Fun Bubble.

East Brunswick, New Jersey Facility

In December 1996, the Company formed a wholly owned subsidiary, Fun Tyme of East Brunswick, Inc. On January 21, 1997, FTEB executed a lease for an 18,000 square foot facility, formally a movie theatre, in the Miracle Mall in East Brunswick, New Jersey. The Company is in the process of renovating the movie theater within the Mall and plans to open a entertainment facility which can be enjoyed by the whole family. The design of the facility incorporates areas for the facility's theme restaurant, the Cyber Cafe, a Laser Tag section, and the Solocoaster ride, in addition to the original Fun Bubble attractions, therein to bring this area its largest children's entertainment facility. The Miracle Mall is a 120,000 square foot landmark center in the heart of East Brunswick's most active regional shopping area. This mall includes 18 centrally anchored stores and is adjacent to Tices Lane on which an additional 700,000 square feet of retail stores are situated. The movie theater was chosen because of its high ceilings and existing layout, both of which will enable the Company to retrofit the space into its Planet Playdium concept.

The Company has chosen a theme focusing on the future and Hollywood movies for its East Brunswick location. The East Brunswick location is expected to open in the fall of 1998.

Marketing

The Company has incurred marketing expenses in purchasing cable television and radio advertising time, local newspaper and magazine print advertisements, and brochures which it has disseminated at its Staten Island Fun Bubble and Edmonton facility locations. As the Company expands to add additional locations, it intends to increase its advertising and marketing activities: it expects to contact local school systems, clubs, and religious organizations to organize events for children and attract target groups of children to its facilities.

Suppliers

Operation of the entertainment facilities is contingent upon the ability of the Company to purchase and lease equipment from suppliers. Though the Company intends to purchase most of the play equipment it requires for each facility, it may lease certain pieces of equipment. The Company will purchase one play maze (discussed above), at an estimated cost of $250,000 for each facility. The Company believes that there are many vendors and suppliers of the games and equipment it purchases and leases. The Company believes it will continue to be able to purchase and lease equipment in the future at prices and on terms similar to those at which it presently does so. As fads arise and certain games or attractions become popular the Company's inability to obtain these items in a timely manner, to meet demand may have and adverse affect on the Company's operations.

Competition

The Company's facilities are directed at the highly competitive business of children's indoor recreation and educational facilities. The Company's largest competitor in the pay for play segment of the industry is the Discovery Zone. While the Discovery Zone closed over 35% of its locations during its recent bankruptcy, it has recently emerged from its Chapter 11 protection and remains a competitor to the Company. New competitors may include The Walt Disney Company, which has a family entertainment concept in two locations and has announced plans to open additional store locations. The Company also competes with many other small companies which have individual amusement center locations providing basically the same services as the Company. The Company believes that many of its competitors have (i) more extensive research and development and marketing and customer support capabilities; and (ii) greater financial, technological, and other resources than those of the Company. Further, the Company does not believe there are any significant barriers to entry by new companies into this industry.

The Company also competes to some extent against certain children's theme restaurant chains, which provide ancillary entertainment offerings and merchandise in addition to food and do not charge admission fees. Such competitors include ShowBiz Pizza Time, Inc., the operator and franchiser of approximately 300 "Chuck E. Cheese" restaurants in the United States, and, to a lesser extent, certain franchisees of McDonald's Corporation that operate indoor playgrounds at a number of locations. These restaurants differ from the Company's locations in that they do not charge for admission and focus on food as their primary attraction and source of revenue.

The Company expects additional entities to enter into the market in the near future, some of which may have significantly greater resources than the Company. The Company expects that its facilities will naturally compete with other ventures similar to the Company's with respect to location, availability of new and distinct product and service offerings, and cost per visit. In addition to competing with other companies in the business of children's indoor amusement and educational facilities, the Company will compete for dollars spent on entertainment for children involving other types of amusement, sports, recreation, and fitness services such as park district programs, amusement parks, and specialty restaurants.

Safety and Arcade Redemption Systems

The Company is very concerned about the safety of the children entering its facilities. Accordingly, it has designed the Staten Island and Edmonton locations, and intends to design all additional facilities, to guard against (i) injuries to children using the facilities; (ii) children leaving the facilities unaccompanied; and (iii) children leaving the facilities without the parent and/or guardian with whom they entered. As additional precautions, the Company will continue to purchase only the type of play equipment it deems safe and will provide constant supervision over its young patrons in order to minimize injuries.

Electronic Safety Systems

One measure the Company has taken to ensure the safety of children visiting its facilities involves the use of a child safety alarm system. The goal of this system is to prevent a child from leaving the facility without his supervising adult. To accomplish this goal, the Company provides electronic tags for each child entering the facility. These electronic tags are attached to the child's clothing. When a child leaves the facility with his supervising adult, the electronic tag is removed. At each exit of the facility, the Company has installed electronic arches which sound an alarm if a child whose tag has not been removed attempts to leave the location.

Wristband System

An additional safety concern of the Company is that a child only leave with the adult who brought him to the facility. To achieve this goal, no adult is admitted to a location unless he is accompanied by a child. In addition, the Company provides individually numbered and bar coded wristbands which fasten around the wrists of each adult and child who enter the facility. Each adult's wristband number and bar code correspond with the wristband and bar code of each child the adult is supervising. When an adult leaves the facility with a child, the adult will only be allowed to take the child whose wristband number and bar code correspond to the adult's. (These bar coded wrist bands are also used for children to accrue points in order to receive prizes and memorabilia when playing the skill games.) By following this procedure, the Company hopes to prevent a child from leaving the facility without his supervising adult.

Toddler and Pre-School Programs

Mommy & Me

The Company, as part of the services it makes available to the public, has developed, with its consultants, toddler programs called "Mommy & Me." Parents with children ages twelve to eighteen months attend class together at the facilities on a weekly basis for nine weeks, at a cost ranging from $168.00 to $250.00 per child, depending on the number of hours per week parents and children attend. In this program, children participate in activities which focus on socializing, singing, exercising, and playing in the Company's specially designed toddler play area. As children reach eighteen months, the classes include creative arts and crafts programs. Children work with materials such as paints, glue, and beads. After class ends each week, the children are invited to play at the Fun Bubble with their parents. The Company offers Mommy & Me programs for children up to the age of 4 1/2 years old. Each child who enrolls will receive an identification card and during class hours will be required to wear an electronic tag as part of the child safety alarm system. These programs were designed primarily by two consultants to the

Company, pursuant to the terms of a consulting agreement. These consultants have been designing and instructing the Mommy & Me class for several years at other locations.

Separation Classes

Another program the Company provides is a series of "Separation Classes." These classes were designed by the same consultants who designed the Mommy & Me classes. These classes are designed for children who soon will be experiencing their first separation from their parents. The classes focus on topics such as sharing, manners, food groups, recognizing letters and numbers, shapes and colors, worksheets, play stations, creative arts and crafts projects, special theme weeks, and holiday parties. The classes meet from one to two times a week for 2 1/2 hours at a time for nine weeks, at a cost ranging from $110.00 to $190.00 per child. The classes are open to children two to five years of age. Each child who enrolls receives an identification card and, during class hours, is required to wear an electronic tag as part of the child safety alarm system. After class ends each week, the children are invited to stay at the facility and play.

Day Camp

The Company also has developed a day camp called "Camp Fun Bubble" which provides four different day camp programs for different age groups. The program for children two to three years old is called the "playfull summer" camp and is a two hour on premise program offered either two or three times per week during either a four, six, or eight week period. This camp is an extension of the Mommy and Me program, except that the parents choose whether or not to participate.

The "junior camp" is for children three to four years old and provides on premises activities from either 9 a.m. to 12 p.m. or 1 p.m. to 4 p.m., three to five days per week, for a four, six, or eight week period.

The "day camp" is for children two to fourteen years old and provides activities, on and off premises, from 9 a.m. to 4 p.m., three to five days per week, during either a four, six, or eight week period. The day camp is run by board of education certified teachers and includes bus transportation, lunch, and regular camp type activities including sports and crafts.

Seasonality

The Company believes that its business may be considered seasonal and that a large portion of its revenues and profits will be derived during the fall and winter months. The Company believes that outdoor amusement centers and theme parks will take business away from the inside amusement centers during the spring and summer months. Since the Company has been operating (since October 1994), it has observed that the busier months have been in the fall and winter: the spring and summer months have shown a decline in revenues. Since Edmonton experiences a very cold climate, with a long winter, the Company expects that the summer decline in revenues at the Edmonton location to be less pronounced. See "Business - Day Camp."

Insurance

In view of the nature of the activities conducted in an amusement center, there are inherent risks of exposure to certain personal injury liabilities including product liability and negligence claims resulting from injury caused by the use of, or items purchased in, the facilities. Accordingly, with respect to the Staten Island Fun Bubble, the Company currently carries general liability insurance in the amount of $1,000,000 and maintains an additional $1,000,000 umbrella policy. For the Edmonton, Canada facility, the Company carries a $5,000,000 general liability policy. For the East Brunswick, New Jersey facility, the Company maintains a $2,000,000 general liability policy and carries an additional $1,000,000 umbrella policy. The Company believes its insurance coverage is sufficient.

Government Regulations

The Company is subject to the provisions of, among other laws, the Federal Hazardous Substances Act and the Federal Consumer Product Safety Act, the latter of which empowers the Consumer Products Safety Commission ("the Consumer Commission") to protect children from hazardous toys and other articles used by children. Any determination by the Consumer Commission outlawing the use of the type of soft-sculpted modular foam or other toys provided for the children by the Company in its facilities would adversely affect the Company's ability to sustain its operations. Presently, the Company does not know of any alternative products to the soft-sculpted modular foam it currently uses; therefore, any restrictions on its use would significantly adversely affect the Company and its operations. The Company also is required to comply with a wide range of other state and local rules and regulations applicable to its business. The ability of the Company to comply with the current and anticipated broad federal, state, and local regulatory network is essential and may be costly. The failure to comply with such regulations would have an adverse effect on the Company's operations.

Service Mark

The Company relies on common law service marks for use of its name "Fun Bubble." The Company filed to register the Fun Bubble service mark in the United States, and its application was approved on April 3, 1996.

Marketing Research

During the last several years, the Company's executive officers have spent a large portion of their time on research and development of the indoor play facility market, the equipment utilized therein, possibilities for new play equipment, and new locations at which additional facilities may be opened. This research led to an awareness that the offerings of the fun centers could be combined with attractions which cater to older children and adults in order to provide a destination which would appeal to the entire family, including children of all ages. The recent success of theme restaurants, such as "Planet Hollywood" and "Hard Rock Cafe," has evidenced the existing demand for family entertainment.

Cortina Valley Ski Resort

General

In May 1998, the Company, through its subsidiary PCC, acquired the rights to purchase Cortina Valley Ski Resort in the Catskill Mountains. PCC owns all the rights, title and interest of Cortina Mt. Partnership to a contract dated January 24, 1998 between Cortina Mt. Partnership and Rainbow Operation, Inc. and Toru Hamanaka to purchase the rights under a lease agreement and all buildings, ski lifts, and other personal and real property incorporated in the ski resort, known as Cortina Valley Ski Resort ("Cortina"). The contract originally scheduled to close on or before July 1, 1998, has been extended until July 15, 1998.

The Resort

Cortina Valley Ski Resort is a 25 year old all season destination mountain resort in the Catskill Mountains, with primary emphasis on the ski season. The facility currently comprises a base lodge, including a 20 room motel building, lodge/restaurant, ski school building, ski rental shops and other related storage buildings, all of which comprise approximately 19,000 square feet. The resort had operated until the 1996/1997 ski season, during which it was closed. The total land area of the property involved is approximately 300 acres and consists of a ski area containing 106.2 acres and adjacent land containing 193.8 acres. The ski area comprises 18 slopes/trails with a base elevation of 1,925 feet and a top elevation of 2,650 feet. There are two double chair lifts, one tow rope and one poma lift. The resort has snow making capabilities for approximately 90% of the ski area and lighting for approximately 80% of the ski area for night skiing.

Industry Overview

The Catskill Mountains, approximately 705,000 acres, contains four ski resorts, one of which is Cortina. Cortina is located approximately two hours outside of New York City and one hour from Albany, New York, the capital of New York state. The population within 100 miles of the resort is approximately 20,000,000 people. According to the Ski Areas of New York, Inc., New York state has averaged 3.5 million skier visits (defined as any person acquiring a ticket for any part of a day) per year over the last five years, making the state the fourth busiest state in the nation for skier volume. Despite ranking fourth in the nation, New York has more operable ski areas (approaching 60) than any other state in the nation. Due to this large number of areas, New York has more skiable acres under lights available for night skiing than any other state. New York ski areas are a diverse offering of all types of resorts including national destination resorts, regional destinations, and local "day" areas.

During the last decade, the industry began experiencing a shift in its focus as the growth of snowboarding has caused snowboarding to become a major segment of the industry. The preliminary results from the 1998 annual Kottke end of season survey of the ski industry showed that snowboarding has continued its impressive growth. Snowboarding represented 21.2 percent of total skier visits this year, an increase of approximately 20 percent over last and a compound annual rate of growth of 20.7 percent since 1994-95. A 1997 study by American Sports Data indicated that snowboarding is the fastest growing sport in America, up 33% from the previous year.

The preliminary results from the Kottke survey showed that during the 1997-1998 season skier visits were up 2.5 percent nationally over the previous year. The Northeast ranked second among the regions of the nation for percentage increase with a growth of 5.86 percent over the previous season. Skiers continue to be among the most affluent of any sport participants. A recent poll conducted by the National Sporting Goods Association shows that two thirds of alpine skiers have a household income of over $50,000.

Outlook

The Company plans on reopening the currently non-operating ski resort for the 1998-1999 winter season. The Company has budgeted approximately $300,000 to renovate and upgrade the resort for its re-opening, which funding it anticipates obtaining from loans secured by the property.

In time the Company plans on redesigning the resort, turning the facility into a year round full service, all amenities resort catering to families, decreasing the emphasis on the ski season and adding entertainment facilities for year round use. In addition to the traditional hotel, restaurant, nightclub, and swimming pool, which the resort currently offers, the Company intends on adding a family entertainment center, currently in the planning stages.

The Company plans on providing a variety of outdoor winter activities at the Resort. In addition, the future plans for the resort are to expand the available ski acreage and number of lifts. The resort, however, will focus on catering to the snowboarding segment of the skiing industry. Snowboarding currently constitutes a large portion of the skiing industry and its popularity is growing, especially among children. In order to fill a need and to attract families, the Company plans on developing a snowboarding park. In addition, the Company plans on constructing a snow tubing park adjacent to the family entertainment portion of the lodge and an outdoor ice skating rink.

The Company is exploring plans to expand its outdoor summer activities to contain amusement attractions. The existing property also contains mountain biking trails which the Company plans on providing for the use of its customers. In addition to the hotel accommodations provided to guests, the Company plans on expanding the partially completed campgrounds.

Competition

The Catskill Mountains, approximating 705,000 acres, encompasses 4 ski resorts, including Cortina Valley Ski Resort, Hunter Mountain, Ski Windham Resort and Belleayre Mountain Ski Center. In addition, there are numerous other ski areas, totaling 60 within New York State some of which are in close proximity. However, since Cortina Mountain is a small, family-oriented mountain with its major advantage of being close to the New York City metropolitan area, its major competition will be from other ski areas in the Catskill region. Although these areas offer longer vertical drops, and more skiable acres than Cortina, Cortina should be able to compete favorably with these mountains by offering lower lift prices and family oriented services and entertainment. During the 1996-1997 ski season, both Ski Windham and Hunter Mountain had annual ticket sales of approximately 375,000 and adult lift ticket prices ranging from $32 to $43. In addition, Belleayre had sales of 175,000 ticket prices around $30.

Prestige Fine Jewelry, LLC

General

The Company, through its subsidiary PCC, owns 50% of Prestige Fine Jewelry, LLC, a Delaware limited liability company, ("Prestige") formed in March 1998 by Anthony DiMatteo, the Company's Executive Vice President of Sales and Marketing and a Director, and Zeki Kochisarli, the owner of Prestige Chain, Inc. ("PCI"), a manufacturer of jewelry, primarily gold, located in Long Island City, New York. Mr. Kochisarli continues to own 50% of Prestige and 100% of PCI.

Overview

Prestige was formed to be the exclusive sales and marketing arm for PCI, whereby, substantially all jewelry manufactured by PCI is sold through Prestige. Prestige's objective is to act as a wholesaler, selling the Company's products directly to independent jewelry stores and large chain retailers which stock gold chains. The Company shall also seek to directly market its products and service to jewelry designers and department stores who sell jewelry under their own labels. Additionally, the Company may seek to expand into retail sales, by direct marketing avenues such as catalogs and television home shopping networks.

PCI has a unique manufacturing operation, which is one of only a few fully automated precious metal, primarily gold, manufacturing operations in the world, which processes the precious metal from 24 karat fine gold stages to a finished product, providing a high quality product.

PCI is one of the only jewelry manufacturers in the United States who, in addition to producing gold chain and castings, also produces the karat gold used for the production of the jewelry from fine gold. Karat gold (commonly referred to as 10 karat gold, 14 karat gold, etc.) is the raw material used in the making of gold jewelry and is produced by mixing raw gold with an alloy in order to harden the metal. PCI is a leading innovator in the automation of jewelry manufacturing, attaining substantial reductions in labor requirements especially skilled labor. The automation of the manufacturing process allows PCI to quickly adapt its manufacturing process to copy the latest seasonal styles of the industry.

This fully automated manufacturing process does not require extensive labor to operate, though it does require continuous maintenance. The Company believes that the manufacturing process is cost-effective and provides the Company with a competitive advantage because (i) it requires limited labor to operate (ii) is produced in the United States, which limits shipping costs and taxes (duty, tariffs and sales) when compared to the costs associated with purchasing jewelry from overseas and (iii) due to the automation and venue of production decreases the time to market for the products when ordered.

Industry Overview

Although the United States provides a majority of the world's demand for gold jewelry, the gold jewelry industry is dominated by oversees producers located in the Mediterranean region, primarily Italy. The seasonal styles of the industry are largely set by the Italian

manufacturers in the industry. In 1997 sales of gold jewelry reached $12.6 billion up from $12.3 billion from the prior year.

Starting in the late 1970's U.S. companies started to compete with Italian manufacturers, however, in principal these manufacturers were not fully integrated operations, which increased their cost structure. In addition, upon the devaluation of the Italian Lira, U.S. companies were unable to compete with the lower priced Italian products, causing many companies to fail.

Exclusive Sales Agreement

In April 1998, Prestige entered into an exclusive sales agreement with PCI, whereby Prestige became the exclusive and sole sales and marketing arm for PCI. Prestige commenced operations in May 1998, at which time it proceeded to obtain purchase orders for PCI. In accordance with the agreement, Prestige and PCI have negotiated pricing for the different types, styles and designs of jewelry manufactured by PCI, notwithstanding the cost of the gold and other raw materials used in the manufacturing process, which is paid on a cost basis or purchased directly by Prestige.

Marketing and Sales

Prestige has entered in a sales agreement with J.K. Limited, Inc. ("JKLI"), for the sale of jewelry, primarily gold to large chain store retailers. Under the agreement JKLI is the exclusive sales representative for the accounts of 15 customers, including Wal-Mart, K-Mart, Service Merchandise, Target, Sam's Wholesale, and Costco. The agreement is for an initial term of one year, and provides for three annual extensions if JKLI meets the yearly sales production requirements. The sales production requirement is $10,000,000 for the initial year and increases annually by $8,000,000.

Competition

The Company competes, in the U.S. primarily with several companies which manufacture gold jewelry, two of which purchase products from the Company to supplement their offerings. They include; Amburst of Rhode Island, Excel of Rhode Island, and Olef Creations of New York, New York. The Company also competes with many other small companies which have machine shops producing gold jewelry. The Company believes that many of its competitors have greater marketing and customer support capabilities and greater financial resources than those of the Company. The Company does not believe there are any significant barriers to entry by new companies into this industry, as the machinery is unique and the maintenance thereof require skilled and highly trained technicians.

Financing

Prestige entered in an accounts receivable factoring agreement with Prestige Capital Corporation ("Prestige Capital"), an unaffiliated entity for a term ending January 15, 1999. The terms of the agreement provide that the Company shall assign all of its receivables to Prestige Capital, whereby, Prestige Capital shall pay to Prestige up to 80% of the face value of the receivables, hold 10% as security for the receivables and pay out the remaining portion on a sliding scale. If the receivables are paid within 30 days the Company gets an additional 6%, within 45 days an additional 5%, 60 days an additional 4% and 90 days or over an additional

2%. Therefore, Prestige Capital's fee is based on time of collection and ranges from a minimum of 4% to a maximum of 8% of the receivable.

Maintenance

Since the machinery is mostly automated, it requires continuous maintenance by high skilled and trained individuals, such as Mr. Kochisarli. The inability to maintain the machinery in working order or the perception thereof by the jewelry industry could inhibit Prestige's ability to proceed with its business plan. For this reason, management has decided to commence a slow and progressive operation of obtaining and processing purchase orders.

Employees

As of March 31, 1998, the Company had five executive Officers and employed approximately 6 full time employees and 25 part time employees. The Company has hired two managers for its Edmonton facility and shall relocate two of its four Staten Island Fun Bubble managers to the East Brunswick facility. None of the employees of the Company is represented by a union. The Company considers relations with its employees to be good. The Company continues to utilize LaborChex Companies, a company located in Jackson, Missouri, to provide screening of each applicant prior to employment. The screening process informs the Company of the applicants' prior criminal histories, if any, their addresses for the past five years, and their social security numbers.