<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly report pursuant to section 13 or 15(d) of the Securities
----- Exchange Act of 1934 for the quarterly period ended September 30, 1996;
or
Transition report pursuant to section 13 or 15(d) of the Securities
----- Exchange Act of 1934 for the transition period from to .
----- -----
Commission File Number 0-6106
UNITED LEISURE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-2652243
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
8800 IRVINE CENTER DRIVE, IRVINE, CALIFORNIA 92718
(Address of Principal Executive Offices)
(Zip Code)
(714) 837-1200
(Registrant's Telephone Number, Including Area Code)
Check whether the Issuer (1) filed all reports to be filed by Section 13 or
15(d) during the preceding 12 months (or for such shorter period that the
Registrant was required to file such Reports), and (2) has been subject to such
filing requirements for at least the past 90 days.
YES X NO
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding at September 30, 1996
COMMON STOCK, PAR VALUE 12,368,849 SHARES
$.01 PER SHARE
Transitional Small Business Disclosure Format (check one):
YES NO X
----- -----
<PAGE> 2
PART I--FINANCIAL INFORMATION
UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ ------------------
(UNAUDITED) (DERIVED FROM
AUDITED FINANCIAL
STATEMENTS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,006,907 $ 9,929,785
Receivables 545,422 417,368
Inventory 92,909 80,301
Prepaid expenses 217,202 178,009
------------ ------------
TOTAL CURRENT ASSETS $ 4,862,440 $ 10,605,463
PROPERTY AND EQUIPMENT,
less accumulated depreciation and amortization 6,407,168 4,845,406
OTHER ASSETS
Cash pledge for CD 875,000
Due from related parties 110,000 110,000
Investment in limited partnership 15,000 15,000
Investment in HEP II 1,750,000
Investment in marketable securities 80,000 --
Pre-opening costs 48,774 405
Intangible assets, net of
accumulated amortization 42,100 68,440
Deposits 178,097 237,538
TOTAL OTHER ASSETS 3,098,971 431,383
------------ ------------
TOTAL ASSETS $ 14,368,579 $ 15,882,252
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 560,147 $ 509,259
Provision for disputed contingent claim 1,128,973
Due to related party 102,074 1,003,265
Deferred revenues 115,643 31,320
Deposits and Other 124,275 124,275
------------ ------------
TOTAL CURRENT LIABILITIES 902,139 2,797,092
LONG TERM DEBT 842,000 842,000
------------ ------------
TOTAL LIABILITIES 1,744,139 3,639,092
------------ ------------
STOCKHOLDERS' EQUITY
Common Stock 123,688 123,688
Capital in Excess of par value 24,326,458 24,326,458
Accumulated deficit (11,825,706) (12,206,986)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 12,624,440 12,243,160
------------ ------------
$ 14,368,579 $ 15,882,252
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE> 3
UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- --------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Rentals $ 645,790 $ 532,273 $ 1,072,106 $ 1,062,825
Children's recreational activities 1,514,643 1,202,109 2,580,429 1,358,775
------------ ------------ ------------ ------------
TOTAL REVENUES 2,160,433 1,734,382 3,652,535 2,421,600
------------ ------------ ------------ ------------
OPERATING EXPENSES
Occupancy 1,435,004 1,520,177 3,537,402 2,472,812
Selling, General and Administrative 236,087 176,331 635,777 549,465
Depreciation and amortization 113,409 21,940 340,226 12,534
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 1,784,500 1,718,448 4,513,405 3,084,811
OPERATING INCOME (LOSS) 375,933 15,934 (860,870) (663,211)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 106,493 170,578 299,597 556,251
Interest expense (27,742) (35,526) (62,843) (75,094)
Legal costs-litigation (48,132) (152,521) (253,165)
Write-off-goodwill (115,603)
Write-off-disputed contingency claim 1,128,973 1,128,973
Other 820 118,955 92,017 136,751
------------ ------------ ------------ ------------
TOTAL OTHER INCOME
(EXPENSE) 1,208,544 205,875 1,305,223 249,140
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE
MINORITY INTEREST 1,584,477 221,809 444,353 (414,071)
MINORITY INTEREST -- -- -- 115,620
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 1,584,477 221,809 444,353 (298,451)
INCOME TAXES 51,453 15,626 63,073 27,351
------------ ------------ ------------ ------------
NET EARNINGS (LOSS) $ 1,533,024 $ 206,183 $ 381,280 $ (325,802)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 12,368,849 12,212,428 12,368,849 12,212,428
============ ============ ============ ============
EARNINGS (LOSS) PER
COMMON SHARE $ .124 $ .0168 $ .031 $ (.0266)
============ ============ ============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 4
UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
-----------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit (loss) $ 381,280 $ (325,802)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization
or property and equipment 313,886 36,192
Amortization of intangibles 26,340 26,342
Gain from settlement of debt 115,603
Gain from writeoff of provision
for disputed contingent claim (1,128,973)
Minority interest in net loss of
consolidated subsidiary (115,620)
Changes in operating assets and liabilities:
Receivables (128,054) (202,241)
Inventory (12,607) (101,907)
Prepaid expenses (39,193) (126,797)
Pre-opening costs (48,370) (58,331)
Deposits 59,442 35,159
Accounts payable and accrued expenses (17,312) (72,361)
Related party accrued expenses (901,192) --
Income taxes payable 68,200 (20,000)
Deferred revenues and others 4,324 (4,250)
----------- ------------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (1,422,229) (814,013)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (1,877,234) (3,709,837)
Lease acquisition costs 1,585 (6,113)
Investment in HEP II (1,750,000)
Cash pledge for CD (875,000) --
----------- ------------
NET CASH USED BY INVESTING
ACTIVITIES (4,500,649) (3,715,950)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances to related parties (675,000) --
Exercise of stock warrants 9,000
Repayment of related party advances 675,000 (295,360)
----------- ------------
NET CASH PROVIDED (USED BY) FINANCING
ACTIVITIES 0 (286,360)
----------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (5,922,878) (4,816,323)
CASH AND CASH EQUIVALENTS,
Beginning of year 9,929,785 15,955,140
----------- ------------
CASH AND CASH EQUIVALENTS, End of year $ 4,006,907 $ 11,138,817
=========== ============
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 62,843
Income taxes paid $ 13,073
See accompanying Notes to Consolidated Financial Statements
4
<PAGE> 5
UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The results of interim periods are not necessarily indicative of
results to be expected for the year, due to the seasonal nature of the
Company's business. In the opinion of the Company, the accompanying
consolidated financial statements reflect all adjustments (which are
normal recurring adjustments) necessary for a fair presentation of the
results for the interim period and the comparable period presented.
These condensed financial statements do not purport to be full
presentations and do not include all requirements in accordance with
generally accepted accounting principles, but include all information
required by the instructions to Form 10-QSB.
Concentration of Risk - The Company invests its excess cash in
certificates of deposit and money market funds, which, at times, may
exceed federally insured limits. The Company maintains its accounts
with financial institutions with high credit ratings.
Inventory - Inventory consists primarily of merchandise held for sale
at the Company's play learning centers. Inventory is stated at the
lower of cost (first-in, first-out) or market.
2. DISCLOSURE OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
Termination of Ground Lease - The Company's major asset, a ground lease
(the "Ground Lease"), covering approximately 300 acres of real estate
in Irvine, California (the "Irvine Property") will expire in February
1997. The Company, through its subsidiary, Lion Country Safari, Inc.,
has been engaged in protracted and expensive litigation with its
landlord relating to the Ground Lease. The Ground Lease will not be
renewed at the expiration of its term. Historically, the Company has
derived most of its income from its sublease activities with respect to
the Ground Lease. During the last two years the Company has sought to
diversify its operations by increasing its children's recreational
activities which are unrelated to the Ground Lease, in particular, with
respect to the establishment of its childrens' play-learning centers
known as "Planet Kids," and the establishment of additional childrens'
day camps, known as "Camp Frasier" on locations other than the Irvine
Property. However, income from the Ground Lease has continued to remain
significant and it is anticipated that the Company's income from
operations will significantly decrease upon the expiration of the
Ground Lease, although the Company's operating expenses should also
decrease significantly upon expiration of the Ground Lease.
Merger/Acquisition Plans - The Company plans to engage in a merger and
acquisition program in order to merge with or acquire companies engaged
in similar or complementary businesses. The Company is not engaged in
any negotiations to merge with or acquire any such target companies,
but the Company is continually in the process of endeavoring to
identify potential acquisition or merger candidates. The Company can
make no assurances that it will be able to merge with or acquire any
companies.
3. LEGAL PROCEEDINGS
The Company's primary operating subsidiary, Lion Country Safari, Inc. -
California, has been engaged in protracted litigation with the landlord
of Irvine Property since 1986. After a six week trial in October and
November 1993, the Company was awarded a jury verdict in the total
approximate amount of $42,000,000. The jury found that the landlord had
breached the covenant of good faith and fair dealing in the ground
lease with the
5
<PAGE> 6
subsidiary and awarded the subsidiary approximately $37,000,000 in
compensatory damages for such breaches. The jury also found that the
landlord acted with "fraud and malice" in interfering with the
subsidiary's relationship with the operator of the water park on the
premises and awarded an additional $5,000,000 in punitive damages. In
the rent dispute between the landlord and the subsidiary, the jury
found that the subsidiary owed no rent whatsoever because of the
landlord's own unexcused material breaches of the ground lease. The
jury also found that one of the key amendments to the ground lease had
been entered into by the subsidiary under duress and without
consideration.
In April 1994, after hearing a post verdict motion brought by the
landlord for a new trial and/or judgment notwithstanding the verdict,
the court granted a new trial on all issues and denied the landlord's
motion for judgment notwithstanding the verdict, on the basis that the
evidence was not sufficient to justify the verdict brought by the jury.
The Company has appealed this order and intends to vigorously continue
its prosecution of this litigation. The Company anticipates that the
appeal will be heard and a decision rendered sometime in mid-1997.
There can be no assurance as to the outcome of this litigation. The
Company incurred legal costs in connection with this litigation during
the years ended December 31, 1995 and 1994 of $365,207 and $340,679,
respectively.
4. RELATED PARTY TRANSACTIONS
In the fiscal quarter ended June 30, 1996, the Company made an
investment in the amount of $1,500,000 in HEP II L.P., a California
limited partnership engaged in the motion picture production business.
In the fiscal quarter ended September 30, 1996, the Company made an
additional investment of $250,000 in HEP II L.P. The general partner of
HEP II L.P. is Hit Entertainment, Inc., a California corporation of
which Harry Shuster, the Chairman of the Board and Chief Executive
Officer of the Company, is a principal shareholder.
Also in the fiscal quarter ended June 30, 1996, the Company made an
advance of $675,000 to Harry Shuster. As of September 30, 1996, an
aggregate of $102,074 remained payable by the Company to Harry Shuster
from prior advances made by Mr. Shuster to the Company.
In the fiscal quarter ended September 30, 1996 the Company put up a
certificate of deposit in the amount of $875,000 in order to provide
collateral for a letter of credit for an affiliate of the Company,
United Restaurants, Inc. ("United Restaurants"). United Restaurants was
required to provide such letter of credit in connection with a lease
entered into by such corporation. United Restaurants has agreed to
replace the collateral provided by the Company in full by March 1998.
In consideration for providing such collateral, United Restaurants has
agreed to pay an amount to the Company equal to 10% per annum on the
amount of the pledged cash collateral, as it exists from time to time.
As additional consideration, United Restaurants issued 100,000 shares
of its restricted common stock to the Company as well as a warrant to
the Company to purchase an additional 100,000 shares of the common
stock of United Restaurants. The Chairman of the Board, President and
Chief Executive Officer of the Company is the Chairman of the Board,
President and Chief Executive Officer of United Restaurants.
On October 2, 1996 the Company acquired 333,333 shares of the
capital stock of United Restaurants and warrants to purchase an
additional 333,333 shares of the capital stock of United Restaurants
for an aggregate purchase price of $250,000.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-QSB contains forward-looking
statements. A forward-looking statement may contain words
such as "will continue to be," "will be," continue to,"
"expect to," "anticipates that," "to be" or "can impact."
Management cautions that forward- looking statements are
subject to risks and uncertainties that could cause the
Company's actual results to differ materially from those
projected in forward-looking statements.
LIQUIDITY AND FINANCIAL CONDITION
At September 30. 1996, the Company had cash or cash
equivalents in the amount of $4,006,907. Given the stability
of revenues from its current operations, the Company expects
that its operations will continue to generate sufficient cash
flow to continue its operations through the end of the term of
the Irvine Company Ground Lease (February 28, 1997). See Note
2 to Notes to Consolidated Financial Statements. The Company
intends to continue to expend the funds raised in its public
offering in 1994 in order to expand its business in childrens'
recreational activities unrelated to the Ground Lease in order
to create additional sources of future cash flow. The Company
believes the cash still available to it from its 1994 public
offering will be sufficient to meet its needs for at least the
next twelve months of operations.
THE IRVINE COMPANY LITIGATION
Since 1987, the Company's wholly-owned subsidiary, Lion
Country Safari, Inc. - California has been engaged in
protracted and expensive litigation with its landlord, The
Irvine Company , in Orange County Superior Court (Case No.
49-12-02). The case is styled The Splash v. The Irvine Company
and Marsh & McLennan; The Irvine Company v. The Splash and
Lion Country Safari, Inc. - California, Lion Country Safari,
Inc. - California v. The Irvine Company. On April 15, 1994,
the court granted a new trial on all issues. The Company has
appealed this order and intends to vigorously continue its
prosecution of this litigation. It is anticipated that the
ruling on this appeal may take until mid-1997. See Note 3 to
Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
1995 and Three Months Ended September 30, 1996 Compared to Three Months Ended
September 30, 1995
The Company's business has historically been highly seasonal,
with the second and third quarters of each year being the
strongest quarters of operation. During the quarter ended
September 30, 1996, the Company received total revenues of
$2,160,433, compared to total revenues of $1,734,382 for the
third quarter of 1995. During the nine month period ended
September 30, 1996, the Company received total revenues of
$3,652,535 as compared to total revenues of $2,421,600 for the
first nine months of 1995. This increase in revenues is due
primarily to increases in admissions and concessions resulting
from the Company's opening one additional Planet Kids and one
additional Camp Frasier during the nine month period ended
September 30, 1996. As of September 30, 1996, there are three
Planet Kids, three Camp Frasiers and one Frasier's Frontier,
an amusement park.
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<PAGE> 8
The Company had a net profit of $381,280 or $.031 per share,
with respect to the first nine months of 1996 as compared to a
net loss of $325,802 or ($.0266) per share, for the comparable
period of the previous year, for an aggregate increase in
profits of $707,082. This increase in profits was due to a
one-time write-off of goodwill in the amount of $115,603 which
occurred in the nine-month period ended September 30, 1995, a
distribution to minority interest of $115,620 which occurred
in the nine month period ended September 30, 1995 with no
corresponding distribution to minority interest occurring in
the nine month period ended September 30, 1996, and a
write-off of a disputed contingency claim in the amount of
$1,128,973 in the nine-month period ended September 30, 1996.
Interest income for the nine-months ended September 30, 1996
was $299,597 as compared to $556,251 for the comparable period
in 1995, a decrease of $254,654. This decrease was due to
increased capital and other expenditures (including
expenditures involving related party transactions) by the
Company.
Operating Expenses increased from $3,084,811 for the
nine-month period ended September 30, 1995 compared to
$4,513,405 for the nine-month period ended September 30, 1996,
or an aggregate increase in operating expenses of $1,428,594.
Depreciation and amortization expense increased to $340,226
for the nine month period ended September 30, 1996 from
$12,534 for the nine month period ended September 30, 1995, or
an aggregate of $327,692, due primarily to improvements made
by the Company to its Frasier's Frontier location, Camp
Frasier locations and the building of one new Planet Kids
location. Increases in occupancy expenses from $2,472,812 for
the nine-month period ended September 30, 1995 compared to
$3,537,402 for the comparable period in 1996, an increase of
$1,064,590, and increases in selling, general and
administrative expenses, from $549,465 for the nine-month
period ended September 30, 1996 to $635,777 for the nine-month
period ended September 30, 1995, or an increase of $86,312, is
due primarily to increased expenses related to the opening of
one new Planet Kids and one new Camp Frasier in the nine-month
period ended September 30, 1996 and increased expenses
associated with carrying out these two new operations.
For the quarter ended September 30, 1996, the Company incurred
a net profit of $1,533,024 or $.124 per share, as compared to
a net profit of $206,183 or $.0168 per share for the
comparable period of 1995. This increase in profits is due
primarily to the Company's determination to reverse the
accrual for a disputed contingent claim with respect to the
litigation involving the Ground Lease since Management
determined the disputed contingent claim would most likely
never have to be paid due to the running of the applicable
statute of limitations. See Note 3 to Consolidated Financial
Statements.
Lion Country Safari incurred legal costs of $152,521 during
the nine-month period ended September 30, 1996 as compared to
$253,165 during the nine-month period ended September 30,
1995, a decrease of $100,644. The decrease in legal costs is
due to the decreased costs associated with the appeal pending
in the litigation with the Irvine Company.
8
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PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits
(27) Financial Data Schedule
Reports on Form 8-K
The Company filed no Reports on Form 8-K during the period covered by
this Quarterly Report on Form 10-QSB.
No other Items of Part II are applicable to the Registrant for the
period covered by this Quarterly Report on Form 10-QSB.
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
UNITED LEISURE CORPORATION
Dated: November 11, 1996 By /s/Harry Shuster
---------------------------
Harry Shuster, Chairman of the
Board and Chief Executive
Officer
Dated: November 11, 1996 By /s/Sondra G. Koegler
---------------------------
Sondra G. Koegler, Acting
Chief Accounting Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
FOR ITS FISCAL QUARTER ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,006,907
<SECURITIES> 0
<RECEIVABLES> 545,422
<ALLOWANCES> 0
<INVENTORY> 92,909
<CURRENT-ASSETS> 4,862,440
<PP&E> 6,407,168
<DEPRECIATION> 340,226
<TOTAL-ASSETS> 14,368,579
<CURRENT-LIABILITIES> 902,139
<BONDS> 0
0
0
<COMMON> 123,688
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,368,579
<SALES> 0
<TOTAL-REVENUES> 3,652,535
<CGS> 0
<TOTAL-COSTS> 4,513,405
<OTHER-EXPENSES> 215,364
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,843
<INCOME-PRETAX> 444,353
<INCOME-TAX> 63,073
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 381,280
<EPS-PRIMARY> .031
<EPS-DILUTED> .031
</TABLE>
