<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 March 31, 1997; 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 (I.R.S. Employer
of Incorporation or Organization) Identification No.)
18081 Magnolia, Fountain Valley, California 92708
(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 May 10, 1997
----- ---------------------------
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
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,962,089 $ 3,845,653
Trading securities 25,000
Receivables 57,373 128,843
Inventory 26,012 30,308
Prepaid expenses 115,309 90,958
------------ -----------
TOTAL CURRENT ASSETS $ 2,185,783 $ 4,095,762
PROPERTY AND EQUIPMENT,
less accumulated depreciation and amortization 6,443,839 6,578,586
OTHER ASSETS
Due from related parties 1,229,022 331,117
Investment in Grand Havana Enterprises, Inc. 1,225,516 511,766
Investment in HEP II 1,120,500 1,120,500
Restricted cash 884,434 875,000
Intangible assets, net of
accumulated amortization 24,540 33,320
Deposits 207,745 208,835
------------ -----------
TOTAL OTHER ASSETS 4,691,757 3,080,538
------------ -----------
$ 13,321,379 $13,754,886
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 707,317 $ 623,015
Deferred revenues 243,062 143,945
Deposits and other 107,179 124,275
------------ -----------
TOTAL CURRENT LIABILITIES 1,057,558 891,235
LONG TERM DEBT 842,000 842,000
------------ -----------
TOTAL LIABILITIES 1,899,558 1,733,235
------------ -----------
STOCKHOLDERS' EQUITY
Common stock 123,688 123,688
Unrealized gain on investment 181,766 181,766
Capital in excess of par value 24,326,458 24,326,458
Accumulated deficit (13,210,091) (12,610,261)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 11,421,821 12,021,651
------------ -----------
$ 13,321,379 $13,754,886
============ ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
REVENUES
Rentals $ 79,383 $ 167,850
Children's recreational activities 544,903 462,423
------------ ------------
TOTAL REVENUES 624,286 630,273
------------ ------------
OPERATING EXPENSES
Occupancy 857,982 872,426
Selling, General and Administrative 272,727 179,945
Depreciation and amortization 190,471 113,409
------------ ------------
TOTAL OPERATING EXPENSES 1,321,180 1,165,780
OPERATING LOSS (696,894) (535,507)
------------ ------------
OTHER INCOME (EXPENSE)
Interest income 96,696 90,867
Interest expense (21,060) (21,065)
Legal costs (20,133) (88,377)
Other 41,561 9,370
------------ ------------
TOTAL OTHER INCOME
(EXPENSE) 97,064 (9,205)
------------ ------------
NET LOSS $ (599,830) $ (544,712)
============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 12,368,849 12,368,849
============ ============
LOSS PER COMMON SHARE $(.05) $(.04)
===== =====
</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>
Three Months Three Months
Ended Ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (599,830) $ (544,712)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization
of property and equipment 181,691 113,409
Amortization of intangibles 8,780
Changes in operating assets and liabilities:
Trading securities (25,000)
Receivables 71,470 131,252
Inventory 4,296 2,359
Prepaid expenses (24,351) (44,304)
Pre-opening costs (22,967)
Deposits 1,090 (17,910)
Accounts payable and accrued expenses 84,302 (155,973)
Due from related party (122,905)
Earned interest on restricted cash (9,434)
Deferred revenues and others (39,633) 5,702
----------- -----------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES (469,524) (533,144)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (46,944) (90,169)
Loans receivable from Grand Havana Enterprises, Inc. (775,000)
Investment in Grand Havana Enterprises, Inc. (575,000)
Deposits & others (17,096) 7,820
----------- -----------
NET CASH (USED) BY INVESTING ACTIVITIES (1,414,040) (82,349)
CASH FLOWS FROM FINANCING ACTIVITIES
Advance to related parties (675,000)
Repayment of related party advances (83,277)
----------- -----------
NET CASH PROVIDED (USED BY)
FINANCING ACTIVITIES (758,277)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,883,564) (1,373,770)
CASH AND CASH EQUIVALENTS,
Beginning of year 3,845,653 9,929,785
----------- -----------
CASH AND CASH EQUIVALENTS, End of year $ 1,962,089 $ 8,556,015
=========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Interest paid $ 62,843 $ 21,065
Income taxes paid $ 11,620
Interest received $ 96,696 $ 90,868
</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 accompanying unaudited consolidated financial statements, which
are for interim periods, do not include all disclosures provided in the annual
consolidated financial statements. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the footnotes thereto contained in the Annual Report on Form
10-KSB for the year ended December 31, 1996 of United Leisure Corporation and
its consolidated subsidiaries (collectively, the "Company"), as filed with the
Securities and Exchange Commission. The December 31, 1996 balance sheet was
derived from audited consolidated financial statements, but does not include all
disclosures required by generally accepted accounting principles.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal recurring
nature) necessary for a fair presentation of the financial statements. The
results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the full fiscal year.
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") terminated in February 1997. The Company,
through its subsidiary, Lion County Safari, Inc., has been engaged in protracted
and expensive litigation with its landlord, The Irvine Company, relating to the
Ground Lease, since 1987 (the "Irvine Company Litigation"). Due to the inherent
uncertainties of litigation, there can be no assurance as to the outcome of the
Irvine Company Litigation. See Note 3, below. Historically, the Company has
derived most of its income from its sublease activities with respect to the
Ground Lease. During the last several 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 children's play-learning centers known as "Planet Kids," and the
establishment of additional children's day camps, known as "Camp Frasier" on
locations other than the Irvine Property. There can be no assurance that this
new business area for the Company will be successful.
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3. LEGAL PROCEEDINGS
The Irvine Company Litigation arose out of various disputes between the
Company and its landlord, The Irvine Company, under the Ground Lease. A trial of
The Irvine Company Litigation was commenced in early October 1993, and in
November 1993, the Company was awarded a jury verdict in the total approximate
amount of $42 million, and Irvine was denied any recovery against the Company.
In April 1994, after a hearing on post-verdict motions brought by
Irvine for a new trial and/or judgment notwithstanding the verdict, the court
granted a new trial on all issues and denied Irvine's motion for a judgment
notwithstanding the verdict on the basis that the evidence was not sufficient to
justify the verdict reached by the jury. The Company has appealed this Order and
intends to vigorously continue its prosecution of The Irvine Company Litigation.
The appeal has been fully briefed and is currently scheduled for oral argument
in November 1997. There can be no assurance as to the ultimate outcome of The
Irvine Company Litigation.
On or about March 5, 1997, Irvine sued the Company for unlawful
detainer. Essentially, Irvine alleged that its Ground Lease with the Company
expired on February 28, 1997 and that Irvine was therefore entitled to immediate
possession of the leasehold premises. The Company contends that it has the
right, and has exercised the right, to extend the initial term of the Ground
Lease for another 26 years. The Irvine Company brought a Motion for Summary
Judgment on April 5, 1997 which was denied on April 11, 1997. On April 16, 1997,
the Irvine Company brought various motions in limine which were decided by the
Court on April 17, 1997 without allowing the Company sufficient time to file
opposing papers. The Court granted all of The Irvine Company's motions and ruled
that the Company could not offer any evidence to defend itself against the
unlawful detainer claim. The Irvine Company made an oral motion for a judgment
on the pleadings on April 18, 1997 which was granted by the Court. Judgment was
entered granting the Irvine Company possession of the Irvine Property on April
25, 1997. The Company filed a Notice of Appeal of this Judgement on May 1, 1997,
which appeal is pending. A writ of execution on the Judgment was issued. The
Company petitioned for a stay of execution to the trial court and thereafter to
the Court of Appeals pending the Company's appeal of the judgment. Both courts
denied the Company's petition. The Company was evicted from the Irvine Property
on May 6, 1997. On May 5, 1997 The Irvine Company filed a motion to recover
attorneys' fees and costs in the amount of $397,778. The hearing on the motion
for attorneys' fees and costs is scheduled for May 16, 1997. The Company intends
to vigorously oppose the motion for attorneys' fees and costs. The Company
intends to continue its appeal of the judgment in this unlawful detainer action.
In view of the inherent uncertainties of litigation, no prediction can be made
as to the outcome of these matters.
For a further description of the above-described litigation and other
litigation in which the Company is involved, see the Company's Annual Report on
Form 10-KSB for its fiscal year ended December 31, 1996, and Part II, Item 1,
"Legal Proceedings," of this Quarterly Report on Form 10-QSB.
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4. RELATED PARTY TRANSACTIONS
In February 1997, the Company exercised its warrants to purchase
433,333 shares of common stock of Grand Havana Enterprises, Inc. ("Grand
Havana") for a total exercise price of $575,000. The Chairman of the Board,
President and Chief Executive Officer of the Company is the Chairman of the
Board and Chief Executive Officer of Grand Havana. The Chief Financial Officer
of the Company is also the Chief Financial Officer of Grand Havana.
In February 1997, the Company entered into a financing agreement with
Grand Havana whereby the Company agreed to provide advances to Grand Havana,
from time to time, during a period of six months, of up to $1,250,000. Interest
on the amount advanced bears interest at the rate of 8% per annum. The full
principal amount and accrued interest on any amounts advanced is payable on
September 30, 1997. In consideration for making the loan, the Company received
75,000 shares of common stock of Grand Havana which were valued at $138,750. If
the loan is not paid by the maturity date, then Grand Havana will issue to the
Company, as a late fee, an additional 25,000 shares of common stock. As of March
31, 1997, the Company has advanced to Grand Havana an aggregate of $775,000.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
To the extent any of the statements contained herein contain
forward-looking statements, such statements are based on current expectations
that involve a number of uncertainties and risks that could cause actual results
to differ materially from those projected in the forward-looking statements,
including risks and uncertainties associated with the costs of the litigation in
which the Company is involved, the outcome of this litigation and the costs
associated with the development of projects to be undertaken by the Company in
the future, including the acquisition and development of the Las Vegas Shopping
Center by United Hotel & Casino, L.L.C., as discussed below.
OVERVIEW
The Company's Ground Lease for the Irvine Property, which historically
provided the Company with most of its income, terminated on February 28, 1997.
Although the Company instituted an action for declaratory relief against The
Irvine Company in February 1997 in which the Company alleged it had the right to
extend the term of the Ground Lease, the Irvine Company in March 1997 filed an
action for unlawful detainer. The trial court granted the Irvine Company
possession of the Irvine Property on April 25, 1997, and the Company was
subsequently evicted from the Irvine Property. The Company filed a notice of
appeal of this judgment on May 1, 1997 which appeal is pending. Accordingly, at
this time the Company has no income from the Irvine Property and management
does not anticipate that the Company will have any income from the Irvine
Property in the future. See Part II, Item 1, "Legal Proceedings."
The Company has been planning for the termination of the Ground Lease
for the past several years, and its income from its Ground Lease operations has
been reduced as a percentage of its total income from operations for the past
several years. The Company had revenues from its Ground Lease sublease
activities of $79,383 for the three months ended March 31, 1997 and does not
anticipate that it will have future revenues from its Ground Lease operations.
Since 1987 the Company 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
et. al. The Irvine Company Litigation is still pending. In this litigation,
involving disputes between the parties under the Ground Lease, the Company was
awarded a jury verdict in the total approximate amount of $42 million in
November 1993, and the Irvine Company was denied any recovery against the
Company on its claims. In April 1994, the Court granted a new trial on
post-verdict motions brought by the Irvine Company. The Company has appealed
this order. The appeal has been fully briefed and is currently scheduled for
oral argument in November 1997. If a new trial is ordered in connection with the
Irvine Company Litigation, the Company anticipates that it may have to incur
substantial additional legal fees. In view of
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<PAGE> 9
the inherent uncertainties of litigation, the ultimate outcome of the Irvine
Company Litigation cannot be predicted. See Part II, Item 1, "Legal
Proceedings."
The Company currently operates three Camp Frasier day camp locations,
three Planet Kids play/learning centers and one Frasier's Frontier, an amusement
park. The Company intends to continue to operate each of these locations;
however, the Company does not currently anticipate that it will continue to
expand its children's educational and recreational activities in the future. The
Company's fourth Camp Frasier day camp location was located on the Irvine
Property and accordingly had its last summer of operations in 1996.
In January 1997 the Company acquired a 50% membership interest in
United Hotel & Casino, L.L.C., a Delaware limited liability company ("UHC"),
which was formed for the purpose of acquiring a shopping center on the Las Vegas
Strip in Las Vegas, Nevada (the "Las Vegas Shopping Center"). The purchase of
the Las Vegas Shopping Center is conditioned on the current trust deed lender's
approval of the assignment and assumption of the existing trust deed on the
property. UHC has filed an action for declaratory relief to seek to cause the
lender to agree to the assignment of the trust deed. In the event UHC's action
against the lender which is the holder of the trust deed with respect to the
shopping center is successful, the Company has agreed to make an additional
capital contribution of $3,375,000 to UHC primarily to fund the development of
the Las Vegas Shopping Center. In view of the inherent uncertainties of
litigation, the outcome of this action cannot be predicted. See "Liquidity and
Capital Resources, below."
During the fiscal quarter ended March 31, 1997 the Company's operations
consisted of two business segments, facility rentals, pursuant to which the
Company subleased or otherwise allowed others to use the Irvine Property, which
activities ceased at the termination of the Ground Lease on February 28, 1997,
and children's recreational activities, which includes the operation of the
Company's Camp Frasier locations, Planet Kids locations and Frasier's Frontier.
The Company had total operating revenues from its Ground Lease operations of
$79,383 for the three month period ended March 31, 1997 as compared to $167,850
for the three month period ended March 31, 1996, a decrease of $88,467, due to
the fact that the Company's operations with respect to the Ground Lease ceased
on February 28, 1997. The Company had total operating revenues from its
children's recreational activities of $544,903 for the three month period ended
March 31, 1997 compared to $462,423 for the comparable period in 1996.
All of the Company's current operations are conducted in Southern
California. The Company's Camp Frasier operations are also seasonal in nature,
conducted during the summer season. Inflation in recent years has not been an
important factor in the Company's operations.
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RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
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 Company's first fiscal quarter ended March 31,1997, the
Company received total revenues of $624,286, compared to revenues of $630,273
for the first quarter of 1996. This near stable amount of revenues is the result
of a decrease of $88,467 in the Company's rental income from its Ground Lease
activities and an increase of $82,480 in the Company's revenues from its
children's recreational activities due primarily to increases in admissions and
concessions resulting from the Company's opening an additional Planet Kids
location in September 1996.
Operating expenses increased from $1,165,780 for the three month period
ended March 31, 1996 to $1,321,180 for the three month period ended March 31,
1997, or an aggregate increase in operating expenses of $155,400. Depreciation
and amortization expense increased to $190,471 for the three month period ended
March 31, 1997 from $113,409 for the three month period ended March 31, 1996, or
an aggregate of $77,062, due primarily to improvements made by the Company to
its Frasiers Frontier location, Camp Frasier locations and the building of one
new Planet Kids location. Occupancy expenses decreased from $872,426 for the
three month period ended March 31, 1996 compared to $857,982 for the comparable
period in 1997, a decrease of $14,444, and selling, general and administrative
expenses increased from $179,945 for the three month period ended March 31,1996
to $272,727 for the three month period ended March 31, 1997, or an increase of
$92,782, which increase is due primarily to increased expenses related to
opening of one new Planet Kids and one new Camp Frasier and increased expenses
associated with carrying out these two new operations.
Interest income for the three months ended March 31, 1997 was $96,696
as compared to $90,867 for the comparable period in 1996, an increase of $5,589.
This increase was due to increased lending to a related party by the Company.
See Note 4 to Financial Statements.
The Company incurred legal costs of $20,133 during the three month
period ended March 31, 1997 as compared to $88,377 during the three month period
ended March 31, 1996, a decrease of $68,244. The decrease in legal costs is due
primarily to the decreased costs associated with the various actions involving
the Irvine Company in the fiscal quarter ended March 31, 1997.
The Company had a net loss of $599,830 or ($.05) per share, with
respect to the first three months of 1997 as compared to a net loss of $544,712
or ($.04) per share, for the comparable period of the previous year, for an
aggregate decrease in net income of $55,118.
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LIQUIDITY AND CAPITAL RESOURCES
The Company has relied primarily on cash flows from operations as well
as from proceeds of its public offering in 1994 to finance working capital,
acquisitions and improvements in the past several years. At March 31, 1997 the
Company had cash or cash equivalents in the amount of $1,962,089.
The Company's future capital requirements will depend on numerous
factors. If the $42 million judgment in the Irvine Company Litigation is not
upheld and a new trial is ordered, the Company anticipates that it will continue
to expend significant funds on legal expenses. There are numerous uncertainties
associated with the various aspects of the Irvine Company Litigation and the
outcome of these matters could have a material impact on the Company's liquidity
in ways in which the Company's management is unable to predict.
If UHC is successful in acquiring the Las Vegas Shopping Center, the
Company has committed to make an additional capital contribution to UHC of
$3,375,000. Although the Company believes it will have sufficient funds to make
this capital contribution when and if it is required to do so in the future,
which funds would come from existing cash, working capital and the repayment to
the Company of certain loans made by the Company to Grand Havana and the release
of certain cash pledged by the Company to support a letter of credit for Grand
Havana, it is possible that Grand Havana will not repay its loan obligations
when due or that the Company would otherwise not have sufficient cash to meet
its capital contribution obligation to UHC, in which event the Company would
have to seek other sources to meet its capital contribution obligations.
Although the Company believes that its current cash and income from
operations as well as distributions received by the Company as a result of its
investments will provide the Company with sufficient funds to meet the Company's
anticipated need for working capital and capital expenditures for at least the
next 12 months, there can be no assurance that this will be the case, in
particular with regard to the various uncertainties surrounding the Irvine
Company Litigation and the Las Vegas Shopping Center. If the Company is in need
of additional financing, there can be no assurance that the Company will be able
to acquire additional financing, or that if such financing is available, that it
will be available to the Company on acceptable terms.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For information with respect to the action styled The Splash v. The
Irvine Company, et. al. (Case No. 49-12-02), filed in the Orange Country
Superior Court, reference is made to the description of such litigation set
forth in the Company's Annual Report on Form 10-KSB for its fiscal year ended
December 31, 1996. The appeal of the trial court's new trial order in this
action remains pending. Oral argument of the appeal is now scheduled for
November 1997, having been put over from August 1997 at the request of counsel
for The Irvine Company.
For information with respect to the action styled Lion Country Safari,
Inc.-California v. The Irvine Company, (Case No. 743669), reference is made to
the description of such litigation set forth in the Company's Annual Report on
Form 10-KSB for its fiscal year ended December 31, 1996.
For information with respect to the action styled Irvine Meadows v.
Shuster. et al., (OCSC Case No. 771509), reference is made to the description of
such litigation set forth in the Company's Annual Report on Form 10-KSB for its
fiscal year ended December 31, 1996. On February 19, 1997 the trial judge
granted plaintiff Irvine Meadow's request for an injunction against the Company,
barring it from removing the Irvine Meadows Ampitheatre. The Company is
attempting to have the injunction dissolved. The hearing on the Company's motion
for dissolution of the injunction is scheduled for May 15, 1997. In view of the
inherent uncertainties of litigation, no prediction can be made as to the likely
outcome of this matter.
With respect to the action tiled The Splash dba Wild Rivers v. Harry
Shuster, et. al. (OCSC Case No. 771810), further described in the Company's
Annual Report on Form 10- KSB for the fiscal year ended December 31, 1996, on
March 25, 1997 the Company filed a cross-complaint against The Splash for
declaratory relief and for breach of the sublease between the parties dated May
14, 1985 (the "Sublease"). The Company contends in its cross-complaint that Wild
Rivers breached the Sublease by, among other things, refusing to vacate the
subleased premises and to relinquish its ownership and possessory interest in
existing improvements after the Sublease ended on February 28, 1997. In its
cross-complaint, the Company seeks damages for breach of contract that would
include the market value as of March 1, 1997 of any and all of the structural
improvements that now exist on the subleased premises, to the extent that the
Company is prevented from removing them from the subleased premises. Wild Rivers
has indicated that it wants to amend its complaint to assert another cause of
action alleging that the Company has wrongfully refused to return to it the
security deposit on the Sublease of $100,000. The Company contends that Wild
Rivers is not entitled to a return of its security deposit because it never
relinquished possession of and control over the subleased property and the
existing improvements. Wild Rivers has not yet filed a motion for leave to amend
its complaint to
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assert this proposed claim. A mandatory settlement conference for this action
has been scheduled for September 26, 1997.
On February 27, 1997, the Company brought an action against Irvine for
declaratory relief in a case styled Lion Country Safari, Inc. - California v.
The Irvine Co., (OCSC Case No. 775923). In the lawsuit, the Company alleges
that, although the initial term of the Ground Lease expired on February 28,
1997, it has the right, and has exercised the right, to extend the tenancy for
an additional 26 years. The Company is asking the court for a declaration that
it has the right to such a lease extension. The Irvine Company has filed and
served its answer to the Company's complaint. Neither side has as yet initiated
discovery in this action. The outcome is a matter of uncertainty.
On or about March 5, 1997, in a case styled The Irvine Company v. Lion
Country Safari, Inc. - California (OCSC Case No. 776187), Irvine sued the
Company for unlawful detainer. Essentially, Irvine alleged that its lease with
the Company expired on February 28, 1997 and that Irvine was therefore entitled
to immediate possession of the leasehold premises. The Company contends that it
has the right, and has exercised the right, to extend the initial term of the
Ground Lease for another 26 years. The Irvine Company brought a Motion for
Summary Judgment on April 5, 1997 which was denied on April 11, 1997. On April
16, 1997, the Irvine Company brought various motions in limine which were
decided by the Court on April 17, 1997 without allowing the Company sufficient
time to file opposing papers. The Court granted all of The Irvine Company's
motions and ruled that the Company could not offer any evidence to defend itself
against the unlawful detainer claim. The Irvine Company made an oral motion for
a judgment on the pleadings on April 18, 1997 which was granted by the Court.
Judgment was entered granting the Irvine Company possession of the Irvine
Property on April 25, 1997. The Company filed a Notice of Appeal of this
Judgement on May 1, 1997, which appeal is pending. A writ of execution on the
Judgment was issued. The Company petitioned for a stay of execution to the trial
court and thereafter to the Court of Appeals pending the Company's appeal of the
judgment. Both courts denied the Company's petition. The Company was evicted
from the Irvine Property on May 6, 1997. On May 5, 1997 The Irvine Company filed
a motion to recover attorneys' fees and costs in the amount of $397,778. The
hearing on the motion for attorneys' fees and costs is scheduled for May 16,
1997. The Company intends to vigorously oppose the motion for attorneys' fees
and costs. The Company intends to continue its appeal of the judgment in this
unlawful detainer action. In view of the inherent uncertainties of litigation,
no prediction can be made as to the outcome of these matters.
See the Company's Report on Form 10-KSB for its fiscal year ended
December 31, 1996 for a further description of the above-referenced actions and
for a discussion of an action brought by UHC in the District Court in Clark
County, Nevada, against American Realty Trust ("ART") titled Silver City
Holdings, Inc.; United Hotel and Casino, LLC, et. al. v. American Realty Trust,
Inc. et. al. (Case No. A 369908).
13
<PAGE> 14
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.
14
<PAGE> 15
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: May 13, 1997 By /s/ Harry Shuster
----------------------------------
Harry Shuster,
Chairman of the Board and
Chief Executive Officer
Dated: May 13, 1997 By /s/ David M. Kane
----------------------------------
David M. Kane
Chief Financial Officer
15
<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 MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,962,089
<SECURITIES> 25,000
<RECEIVABLES> 57,373
<ALLOWANCES> 0
<INVENTORY> 26,012
<CURRENT-ASSETS> 2,185,783
<PP&E> 10,878,232
<DEPRECIATION> 4,434,393
<TOTAL-ASSETS> 13,321,379
<CURRENT-LIABILITIES> 1,057,558
<BONDS> 842,000
0
0
<COMMON> 123,688
<OTHER-SE> 11,298,133
<TOTAL-LIABILITY-AND-EQUITY> 13,321,379
<SALES> 0
<TOTAL-REVENUES> 624,286
<CGS> 0
<TOTAL-COSTS> 1,321,180
<OTHER-EXPENSES> 20,133
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,060
<INCOME-PRETAX> (599,830)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (599,830)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> 0
</TABLE>
