<PAGE>
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 June 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
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UNITED LEISURE CORPORATION
--------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-2652243
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
8800 Irvine Center Drive, Irvine, California 92718
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(Address of Principal Executive Offices, Including 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___
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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 June 30, 1996
----- ----------------------------
Common Stock, par value 12,452,849 shares
$.01 per share
Transitional Small Business Disclosure Format (check one):
YES____ NO X
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PART I - FINANCIAL INFORMATION
UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
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(UNAUDITED) (DERIVED FROM
AUDITED FINANCIAL
STATEMENTS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,800,301 $ 9,929,785
Receivables 307,099 417,368
Inventory 78,123 80,301
Prepaid Expenses 213,720 178,009
----------- -----------
TOTAL CURRENT ASSETS 7,399,243 10,605,463
PROPERTY AND EQUIPMENT, Net 4,712,256 4,845,406
OTHER ASSETS
Due from related parties 785,000 110,000
Investment in limited partnership 15,000 15,000
Investment in HEP II 1,500,000 -
Pre-opening costs 122,554 405
Construction in progress 441,175 -
Intangible assets, net 50,880 68,440
Deposits 414,292 237,538
----------- -----------
$15,440,400 $15,882,252
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 573,177 $ 509,259
Provision for disputed contingent claim 1,128,973 1,128,973
Due to related party 762,145 1,003,265
Deferred revenue 918,414 31,320
Deposits and other 124,275 124,275
------------ ------------
TOTAL CURRENT LIABILITIES $ 3,506,984 $ 2,797,092
LONG-TERM DEBT 842,000 842,000
------------ ------------
TOTAL LIABILITIES $ 4,348,984 $ 3,639,092
STOCKHOLDERS' EQUITY
Common stock - $.01 par value 123,688 123,688
Capital in excess of par value 24,326,458 24,326,458
Accumulated deficit (13,358,730) (12,206,986)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 11,091,416 12,243,160
------------ ------------
$ 15,440,400 $ 15,882,252
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
2
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UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ------------------------
1996 1995 1996 1995
---- ---- ------ -------
<S> <C> <C> <C> <C>
REVENUES
Rentals $ 258,466 $ 283,106 $ 426,316 $ 530,552
Children's recreational activities 603,363 156,666 1,065,786 156,666
----------- ----------- ----------- -----------
TOTAL REVENUES 861,829 439,772 1,492,102 687,218
----------- ----------- ----------- -----------
OPERATING EXPENSES
Occupancy 1,229,971 696,146 2,102,397 952,635
Selling, general and administrative 219,745 287,471 399,690 373,134
Depreciation and amortization 113,408 20,297 226,817 40,594
----------- ----------- ----------- -----------
TOTAL COSTS AND EXPENSES 1,563,124 1,003,914 2,728,904 1,366,363
----------- ----------- ----------- -----------
OPERATING LOSS (701,295) (564,142) (1,236,802) (679,145)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 102,237 179,277 193,104 385,673
Interest expense (14,037) (19,568) (35,102) (39,568)
Legal Costs (64,144) (137,389) (152,521) (205,033)
Write-off - Goodwill - (115,603) - (115,603)
Other 81,827 17,796 91,197 17,796
----------- ----------- ----------- -----------
TOTAL OTHER INCOME
(EXPENSE) 105,883 (75,487) 96,678 43,265
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
MINORITY INTEREST (595,412) (639,629) (1,140,124) (635,880)
MINORITY INTEREST - 112,411 - 115,620
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES &
EXTRAORDINARY ITEMS (595,412) (527,218) (1,140,124) (520,260)
INCOME TAXES 11,620 11,725 11,620 11,725
----------- --------- ----------- -----------
NET INCOME (LOSS) (607,032) (538,943) (1,151,744) (531,985)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 12,452,849 12,209,428 12,452,849 12,209,428
=========== ========== =========== ===========
EARNINGS (LOSS) PER
COMMON SHARE (.049) (.044) (.092) (.043)
=========== ========= =========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
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UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $(1,151,744) $ (531,985)
Adjustments to reconcile net loss to net
cash provided used by operating activities:
Depreciation and amortization of property
and equipment 209,257 24,129
Amortization of intangibles 17,560 16,465
Gain from settlement of debt - 115,603
Minority interest in net loss of
consolidated subsidiary - (115,620)
Changes in operating assets and liabilities:
Receivables 110,269 (6,171)
Inventory 2,178 (91,107)
Prepaid expenses (35,711) (189,592)
Pre-opening costs (122,149) 5,635
Deposits (176,754) 95,699
Accounts payable and accrued expenses 63,918 101,289
Income taxes payable - (20,000)
Deferred revenue and other 887,094 845,456
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NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (196,082) 249,801
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (518,339) (2,608,317)
Lease acquisition costs 1,057 (6,099)
Investment in HEP II (1,500,000) -
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (2,017,282) (2,614,416)
CASH FLOWS FROM FINANCING ACTIVITIES
Exercise of stock options and warrants - 10,500
Advances to related party (675,000) -
Repayments of related party advances (241,120) (310,022)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (916,120) (299,522)
NET DECREASE IN CASH AND CASH
EQUIVALENTS (3,129,484) (2,664,137)
CASH AND CASH EQUIVALENTS,
Beginning of year 9,929,785 15,955,140
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CASH AND CASH EQUIVALENTS,
End of year $ 6,800,301 $13,291,003
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Interest paid $ 35,102
Income taxes paid $ 11,620
Interest received $ 193,104
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
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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 ground lease relating to the Company's major
asset will expire in February 1997. Additionally, the Company has been engaged
in protracted and expensive litigation with its landlord. Accordingly, the
Company must prepare itself for the future by the development of its business
into new fields of endeavor.
Uncertainty of Success of Play-Learning Centers-- In June 1994 the Company
entered into a joint venture for the development and operation of children's
play-learning centers. This new business may take some time to develop, and
there can be no assurance that the new business will be a success.
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 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 the
Company's park property since 1986. After a six week trial in October and
November 1993, the Company was awarded a jury verdict in
5
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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 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. 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. 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 June 30, 1996, an aggregate of $762,145
remained payable by the Company to Harry Shuster from prior advances made by Mr.
Shuster to the Company.
6
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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 June 30, 1996, the Company had cash or cash equivalents in the
amount of $6,800,301. 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 IRVINE COMPANY LITIGATION
Since 1987, the Company's wholly-owned subsidiary, Lion Country
Safari, Inc.-California (the "Subsidiary"), 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 late 1996. See Note 3 to Notes to Consolidated Financial
Statements.
RESULTS OF OPERATIONS
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 June 30, 1996, the Company received total
revenues of $861,829, compared to $439,772 in revenues for the second quarter of
1995. During the six month period ended June 30, 1996, the Company received
total revenues of $1,492,102 as compared to total revenues of $687,218 for the
first six months of 1995. The Company incurred a net loss of $1,151,744 or
($.092) per share, with respect to the first six months of 1996 as compared to a
net loss of $531,985 or ($.043) per share, for the comparable period of the
previous year. For the quarter ended June 30, 1996, the Company incurred a net
loss of $607,032 or $(.049) per share, as compared to a net loss of $538,943 or
$(.044) per share for the comparable period of 1995.
7
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Revenues were increased during the first six months of 1996 as
compared to the same period for 1995, primarily because of revenues received
from admissions and concessions at Planet Kids and Frasier's Frontier. Expenses
increased during the first six months of 1996 as compared to 1995 because of
increased occupancy expenses related to new Plant Kids locations, increased
selling and administrative expenses related to the development of new Camp
Frasier locations and Planet Kids leases, and operating expenses in carrying out
these operations. In addition, Lion Country Safari incurred legal costs of
$152,521 associated with the appeal pending in the litigation with the Irvine
Company. Interest income for the six months ended June 30, 1996 was $193,104 as
compared to $385,673 for the comparable period in 1995.
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 or for 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
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNITED LEISURE CORPORATION
Dated: August 12, 1996 By: /s/ Harry Shuster
---------------------------------------
Harry Shuster, Chairman of the
Board and Chief Executive
Officer
Dated: August 12, 1996 By: /s/ Sondra G. Koegler
-----------------------------------
Sondra G. Koegler, Acting
Chief Accounting Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
CONTAINED IN ITS REPORT ON FORM 10-QSB FOR ITS FISCAL QUARTER ENDED JUNE 30,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,800,301
<SECURITIES> 0
<RECEIVABLES> 307,099
<ALLOWANCES> 0
<INVENTORY> 78,123
<CURRENT-ASSETS> 7,399,243
<PP&E> 4,712,256
<DEPRECIATION> 226,817
<TOTAL-ASSETS> 15,440,400
<CURRENT-LIABILITIES> 3,506,984
<BONDS> 0
0
0
<COMMON> 123,688
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 15,440,400
<SALES> 0
<TOTAL-REVENUES> 1,492,102
<CGS> 0
<TOTAL-COSTS> 2,728,904
<OTHER-EXPENSES> 187,623
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,102
<INCOME-PRETAX> (1,140,124)
<INCOME-TAX> 11,620
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,151,744)
<EPS-PRIMARY> (.092)
<EPS-DILUTED> 0
</TABLE>
