<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, 1998; 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.)
18081 MAGNOLIA AVE., FOUNTAIN VALLEY, CALIFORNIA 92708
------------------------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(714) 378-8761
--------------
(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 13, 1998
----- ---------------------------
Common Stock, par value 13,918,849 shares
$.01 per share
Transitional Small Business Disclosure Format (check one):
YES __________ NO X
<PAGE> 2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 119,570 $ 152,770
Receivables 21,046 21,732
Prepaid expenses and other current assets 54,937 59,690
------------ ------------
TOTAL CURRENT ASSETS 195,553 234,192
PROPERTY AND EQUIPMENT, Net 2,152,699 2,172,569
INVESTMENT IN UNITED HOTEL 3,484,800 3,633,800
INVESTMENT IN HEP II - RELATED PARTY 1,120,500 1,120,500
INVESTMENT IN GRAND HAVANA - RELATED PARTY 159,000 340,025
LOANS RECEIVABLE FROM GRAND HAVANA - RELATED PARTY 563,085 681,643
DUE FROM OFFICER -- 12,567
DEPOSITS AND OTHER ASSETS 81,007 82,043
------------ ------------
$ 7,756,644 $ 8,277,339
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 1,925,000 $ 1,925,000
Accounts payable and accrued expenses 1,675,721 1,387,039
Deferred revenues 41,431 32,710
Deposits and other 44,926 43,426
Due to officer 28,048 --
------------ ------------
TOTAL CURRENT LIABILITIES 3,715,126 3,388,175
LONG-TERM DEBT 842,000 842,000
STOCKHOLDERS' EQUITY
Preferred stock, $100 par value; authorized - 100,000
shares; issued and outstanding - none -- --
Common stock, $.01 par value; authorized - 30,000,000
shares; issued and outstanding - 12,718,849 shares at
March 31, 1998 and 12,618,849 shares at December 31, 1997 127,188 126,188
Additional paid-in capital 24,617,488 24,587,188
Accumulated deficit (20,621,727) (19,923,806)
Accumulated other comprehensive loss - Unrealized loss on investment (923,431) (742,406)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,199,518 4,047,164
------------ ------------
$ 7,756,644 $ 8,277,339
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 3
UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
March 31, March 31,
1998 1997
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUE
Rentals $ 4,247 $ 79,383
Children's recreational activities 486,909 544,903
------------ ------------
TOTAL REVENUE 491,156 624,286
DIRECT OPERATING EXPENSES 668,370 857,982
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 137,170 272,727
DEPRECIATION AND AMORTIZATION 41,123 190,471
------------ ------------
LOSS BEFORE OTHER INCOME (EXPENSE) (355,507) (696,894)
OTHER INCOME (EXPENSE)
Legal costs (141,946) (20,133)
Equity in net loss of United Hotel (149,000) --
Interest income 34,445 96,696
Interest expense (93,444) (21,060)
Other, net 7,531 41,561
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (342,414) 97,064
------------ ------------
NET LOSS (697,921) (599,830)
------------ ------------
OTHER COMPREHENSIVE LOSS
Unrealized holding loss on securities arising during the period (181,025) --
------------ ------------
COMPREHENSIVE LOSS $ (878,946) $ (599,830)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 12,686,000 12,369,000
============ ============
BASIC AND DILUTED LOSS PER SHARE $ (0.06) $ (0.05)
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 4
UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
March 31, March 31,
1998 1997
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (697,921) $ (599,830)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 41,123 190,471
Issuance of common stock for services 31,300
Equity in net loss of United Hotel 149,000
Accrual of interest income on restricted cash (9,434)
Accrual of interest income from related party
Changes in operating assets and liabilities:
Trading securities (25,000)
Receivables 686 71,470
Prepaid expenses and other current assets 4,753 (20,055)
Deposits (374) 1,090
Accounts payable and accrued expenses 288,682 84,302
Accrued expenses due to related party 40,615 (122,905)
Deferred revenues 8,721 (39,633)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (133,415) (469,524)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (19,843) (46,944)
Investment in Grand Havana (575,000)
Loans receivable from Grand Havana (775,000)
Collection of loan receivable from Grand Havana 118,558
Deposits and other 1,500 (17,096)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES 100,215 (1,414,040)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES -- --
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (33,200) (1,883,564)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 152,770 3,845,653
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 119,570 $ 1,962,089
============ ============
CASH PAID FOR:
Interest $ 93,444 $ 62,843
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 5
UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim consolidated financial statements presented have been
prepared by United Leisure Corporation (the "Company") without audit
and, in the opinion of the management, reflect all adjustments of a
normal recurring nature necessary for a fair statement of (a) the
consolidated results of operations for the three months ended March 31,
1998 and 1997, (b) the consolidated financial position at March 31, 1998
and (c) the consolidated cash flows for the three months ended March 31,
1998 and 1997. Interim results are not necessarily indicative of results
for a full year.
The consolidated balance sheet presented as of December 31, 1997 has
been derived from the consolidated financial statements that have been
audited by the Company's independent public accountants. The
consolidated financial statements and notes are condensed as permitted
by Form 10-QSB and do not contain certain information included in the
annual financial statements and notes of the Company. The consolidated
financial statements and notes included herein should be read in
conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-KSB/A.
2. COMPREHENSIVE INCOME
The Company adopted SFAS No. 131, "Reporting Comprehensive Income"
effective for its interim financial statements for the three months
ended March 31, 1998. Components of comprehensive income (loss) for the
Company include net income (loss) and changes in the value of
available-for-sale securities. The interim statement of operations for
the three months ended March 31, 1997 was reclassified for comparative
purposes. Unrealized holding loss on securities arising during the
period represents the change in the fair value of the Company's
investment in common stock of Grand Havana Enterprises, Inc., an
affiliated company.
3. SUBSEQUENT EVENTS
In April 1998, the Company's Board of Directors approved a 6-for-1
reverse split of its common stock. The reverse stock split is
conditioned upon stockholder ratification.
In April 1998, the Company sold 10 Units at $26,400 per Unit in an
offering of securities exempt from registration under the Securities Act
of 1933. Each Unit consists of 120,000 shares of the Company's common
stock and warrants to purchase 60,000 shares at $.27 per share. The
Company received net proceeds of $229,680 from this offering.
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's consolidated financial statements and the notes thereto appearing
elsewhere in this Quarterly Report on Form 10-QSB. Certain statements contained
herein that are not related to historical results, including, without
limitation, statements regarding the Company's business strategy and objectives,
future financial position, expectations about pending litigation and estimated
cost savings, are forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
involve risks and uncertainties. Although the Company believes that the
assumptions on which these forward-looking statements are based are reasonable,
there can be no assurance that such assumptions will prove to be accurate and
actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, the risks, uncertainties, costs and
outcome of pending litigation in which the Company is involved, costs and
uncertainties associated with future developments, concerns regarding the
Company's liquidity and financial condition, regulatory policies, competition
from other similar businesses, and market and general economic factors. All
forward-looking statements contained in this Quarterly Report on Form 10-QSB are
qualified in their entirety by this statement.
OVERVIEW
During the quarter ended March 31, 1998, the Company's operations were
primarily focused in two principal areas: (i) children's recreational
activities, which includes the operation of the Company's "Camp Frasier"
locations, "Planet Kids" locations and "Frasier's Frontier," all located in
Southern California and (ii) investments in certain companies, including both
affiliated and unaffiliated companies. In addition, the Company historically had
engaged in operations relating to facility rentals, pursuant to which the
Company subleased or otherwise allowed others to use the Irvine Property (as
defined below), which activities ceased upon the termination of the Ground Lease
(as defined below) on February 28, 1997. Unless the context otherwise indicates,
the term the "Company" as used herein includes United Leisure Corporation, a
Delaware corporation, and its consolidated subsidiaries.
The Company's business has historically been highly seasonal, with the
second and third quarters of each fiscal year being the strongest quarters of
operations. The Company had total operating revenues from rental operations of
$4,247 for the quarter ended March 31, 1998 as compared
<PAGE> 7
to $79,383 for the quarter ended March 31, 1997, a decrease of $75,136, 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 $486,909 for the quarter ended March 31,
1998, compared to $544,903 for the comparable period in 1997, a decrease of
$57,994, due primarily to the decline in admissions in one Planet Kids location.
Rental Activities. Until February 28, 1997, when its Ground Lease with
the Irvine Company (the "Irvine Company"), as landlord (the "Ground Lease"),
expired, the primary business of United Leisure Corporation had been to act as a
developer and manager (rather than as an operator) of approximately 300 acres of
real estate in Irvine, California (the "Irvine Property"). Income from the
Company's Ground Lease operations has been reduced as a percentage of its total
income from operations in the last three years. Since 1986, the Company has been
engaged in protracted and expensive litigation involving the Ground Lease with
the Irvine Company (the "Irvine Company Litigation"). See Part II, Item 1,
"Legal Proceedings." Although litigation remains pending with respect to various
aspects of the Ground Lease, the Company does not anticipate that it will have
any future income from its Ground Lease operations.
Children's Recreational Activities. The Company currently operates two
Camp Frasier day camp locations, which are scheduled to open during the third
week of June; three Planet Kids, an indoor multimedia interactive play learning
center for children; and one Frasier's Frontier, an amusement park, all of which
are located in southern California. The Company does not currently anticipate
that it will expand any of its children's educational and recreational
activities.
Investments in HEP II L.P. In April 1996, the Company acquired 50% of
the limited partnership interests in HEP II L.P., a California limited
partnership ("HEP II"), which was formed in March 1996, for a capital
contribution in the amount of $1,500,000. HEP II is engaged in the motion
picture production business. The general partner of HEP II is United Film
Distributors, Inc., a California corporation ("UFD"), formerly known as Hit
Entertainment, Inc. As of March 31, 1998, the balance of the Company's
investment in HEP II was $1,120,500. Harry Shuster, the Chairman of the Board,
President and Chief Executive Officer of the Company is the Chairman of the
Board of UFD as well as one of its principal stockholders. Brian Shuster, a
director of the Company, is the President and a principal stockholder of UFD,
and the son of Harry Shuster.
Investments In and Loans To Grand Havana Enterprises, Inc. The
Company has an investment in the common
<PAGE> 8
stock of, and has made loans to, Grand Havana Enterprises, Inc. ("GHEI"), an
affiliated company. Harry Shuster is the Chairman of the Board, President,
Chief Executive Officer and a principal stockholder of GHEI.
As of March 31, 1998, the Company held 966,666 shares of GHEI's common
stock. Management of the Company estimated the fair value of the investment in
GHEI using the discounted last closing price of the stock at March 31, 1998
(approximately 75% of $.21, or $.16 per share), resulting in an aggregate fair
value of $159,000 at March 31, 1998. Unrealized loss on this investment included
as a component of stockholders' equity was $923,431.
In February 1997, the Company entered into a financing agreement with
GHEI pursuant to which the Company agreed to loan GHEI up to $1,250,000 in order
to fund the development of two private membership restaurant and cigar clubs
being developed by GHEI. The loan, which may be advanced in increments from time
to time as requested by GHEI, bears interest at the rate of 8% per annum on the
outstanding principal amount. This loan was not repaid when due on September 30,
1997. The financing agreement provided that if the loan was not repaid by
September 30, 1997, it would become payable on demand and the Company would then
be entitled to receive an additional 25,000 shares of the common stock of GHEI.
In February 1998, GHEI issued 25,000 shares of its common stock to the Company
pursuant to the terms of this financing agreement, which was valued by the
Company at $38,681, and which number of shares is included in the number of
shares of GHEI common stock indicated above as held by the Company as of March
31, 1998. The parties agreed to extend the maturity date of advances made under
this financing agreement to September 30, 1998. The Company received $130,000
from GHEI as partial repayment of the loan during the quarter ended March 31,
1998. At March 31, 1998, accrued interest amounted to $43,085, and an aggregate
of $520,000 in principal amount remained payable by GHEI to the Company pursuant
to this financing agreement.
Investments in United Hotel & Casino LLC. In January 1997, the Company
and two California limited liability companies formed United Hotel & Casino,
L.L.C., a Delaware limited liability company ("UHC"). The Company currently has
a 50% membership interest in UHC. The Company has the right to appoint one
member (who has two votes), and the remaining members have the right, in the
aggregate, to appoint two members (each of whom has one vote), of the three
member Management Committee of UHC.
On July 29, 1997, UHC acquired approximately 8.5 acres of partially
developed land on the Las Vegas Strip in Las Vegas, Nevada (the "Las Vegas
Property"). The Las Vegas Property is located at 3025 Las Vegas Boulevard. Upon
the acquisition of the Las Vegas Property, UHC became the lessor of a shopping
center consisting of approximately 20
<PAGE> 9
retailers and The Silver City Casino, which is currently responsible for
approximately 50% of the rental income received by UHC from the Las Vegas
Property. The Silver City Casino is owned and operated by Circus Circus
Enterprises, Inc. ("Circus Circus") and it is anticipated that Circus Circus
will continue to operate this casino on the Las Vegas Property. The lease for
The Silver City Casino is due to expire in October, 1999. UHC currently intends
to continue to lease the existing shopping center on the Las Vegas Property. The
Company is evaluating various alternatives with respect to its investment in
UHC, including further development of the Las Vegas Property. No assurance can
be given that any particular alternative will be pursued or that any agreement
will be entered into on terms favorable to the Company.
The aggregate purchase price for the Las Vegas Property was
approximately $23,200,000, which was paid in the form of (i) cash in the amount
of approximately $5,590,000, (ii) a one-year note in the amount of $1,250,000
and (iii) assumption of a first deed of trust on the Las Vegas Property in the
principal amount of approximately $16,360,000. The Company contributed
approximately $3,800,000 to the cash payment, which cash came in part from its
working capital and in part from two different loans, the Westminster Loan and
the Bibicoff Loan, as discussed below.
Concurrently with the closing of UHC's purchase of the Las Vegas
Property, Westminster made a loan of $1,900,000 to the Company (the "Westminster
Loan") to enable the Company to meet a portion of its additional capital
contribution obligation to UHC. The loan was evidenced by a Secured Convertible
Promissory Note (the "Westminster Note") made by the Company. The Westminster
Loan bears interest at the rate of 15% per annum and is due on the earlier to
occur of (i) the demand of Westminster (which demand may not be made until July
29, 1998 unless there is a sooner event of default) or (ii) July 29, 1999 (the
"Maturity Date"). The holder of the Westminster Note has the right, at any time
prior to the Maturity Date, to convert the entire outstanding principal balance
of the Westminster Note into one-half of the Company's membership interest in
UHC. The Westminster Note may be prepaid by the Company at any time prior to
conversion and after July 29, 1998. One-half of any cash distributions which may
be made by UHC to the Company prior to the repayment of the Westminster Note are
required to be paid to Westminster as a prepayment on the Westminster Note.
The Westminster Loan is secured by, among other things, a pledge of
stock, pursuant to which the Company has pledged 408,333 of the 966,666 shares
it owns in GHEI. As additional security, the Company has granted a security
interest to Westminster, pursuant to a Security Agreement dated as of July 29,
1997, in the Company's 50% membership interest in UHC and in the receivables and
certain
<PAGE> 10
indebtedness due to the Company from GHEI. Harry Shuster serves as a member of
the Management Committee of UHC; and also is the Chairman of the Board,
President and Chief Executive Officer, and is a principal stockholder of, GHEI.
In addition, Harry Shuster and his spouse, Nita Shuster, provided certain other
security individually and jointly with respect to the Westminster Loan.
As additional consideration for Westminster making the Westminster Loan,
the Company granted Westminster a three-year warrant to purchase 150,000 shares
of the common stock of the Company at a per share price equal to the lesser of
$.40 or 75% of the average of the last trade prices for the ten trading days
immediately preceding the exercise of the warrants. At the request of
Westminster, the Company has filed a registration statement to register the
shares of common stock underlying the warrants, which registration statement has
been declared effective by the Securities and Exchange Commission (the "SEC").
The Company additionally arranged for GHEI to grant to Westminster a three-year
warrant to purchase 150,000 shares of the common stock of GHEI exercisable at a
per share price equal to the lesser of $.75 or 75% of the average of the last
trade prices for the ten trading days immediately preceding the exercise of the
warrants.
On July 29, 1997, Harvey Bibicoff, a director of GHEI, made a short-term
loan to the Company in the amount of $900,000 (the "Bibicoff Loan"). The
Bibicoff Loan is evidenced by a promissory note and bears interest at the rate
of 10% per annum. As of March 31, 1998, $25,000 of the principal amount of the
Bibicoff Loan was outstanding.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared to Three Months
Ended March 31, 1997
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 quarter ended March 31, 1998, the Company
had total revenues of $491,156, compared to revenues of $624,286 for the first
quarter of 1997, a decrease of $133,130 or 21.3%. The Company had $4,247 in
revenues from its rental operations for the fiscal quarter ended March 31, 1998,
compared to revenues of $79,383 from its rental operations for the fiscal
quarter ended March 31, 1997. This decrease in revenues is due to the fact that
the Company's operations with respect to the Ground Lease ceased on February 28,
1997. The rental income of $4,247 during the quarter ended March 31, 1998
relates to the sublease of certain space at one Planet Kids location. The
Company's revenues from its children's recreational activities for the
comparable periods decreased from $544,903 for the fiscal quarter ended March
31, 1997 to $486,909 for the fiscal
<PAGE> 11
quarter ended March 31, 1998, a decrease of $57,994 or approximately 10.6%. This
decrease in revenues was due primarily to the decline in admissions at one
Planet Kids location.
Operating expenses decreased from $1,321,180 for the quarter ended March
31, 1997 to $846,663 for the quarter ended March 31, 1998, a decrease of
$474,517 or 35.9%. This decrease was due primarily to decreases in occupancy
expenses and selling, general and administrative expenses associated with the
Company's Ground Lease operations which terminated in February 1997, as well as
a decrease in depreciation on property and equipment because of the write-down
of certain Planet Kids assets during the year ended December 31, 1997.
For the quarter ended March 31, 1998, the Company incurred a net loss of
$878,946 or ($.06) per share, as compared to a net loss of $599,830 or ($0.05)
per share for the comparable period of 1997. This is primarily due to the fact
that the Company had revenues from its Ground Lease operations for the quarter
ended March 31, 1997 and no revenues from this source for the quarter ended
March 31, 1998, the decline in admissions at one Planet Kids location, the
Company's share in net loss of UHC, and increased legal costs relating to the
Irvine Company Litigation.
LIQUIDITY AND FINANCIAL CONDITION
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. The proceeds from the
Company's 1994 public offering have been exhausted and at March 31, 1998 the
Company had cash or cash equivalents in the amount of $119,570 and a working
capital deficit of $3,519,573.
Due to the fact that the trading price of the Company's common stock has
fallen during recent months, there can be no assurance that the Company will be
able to sell its securities in private placements on terms that are acceptable
to the Company. In addition, the Company does not currently meet the new listing
requirements for maintenance of the Company's securities on Nasdaq's SmallCap
Market (the "New Listing Requirements"). The New Listing Requirements became
effective in February 1998. If the Company is unable to comply with the New
Listing Requirements, the Company's securities may be de-listed from the Nasdaq
SmallCap Market, which might result in the Company having difficulty in placing
its securities with prospective investors. In this regard, the Company has
prepared and filed with the SEC, and mailed to stockholders of record as of the
close of business on May 6, 1998, an Information Statement proposing an
amendment to the Company's Certificate of Incorporation to effect a 6:1
<PAGE> 12
reverse stock split of the Company's common stock (the "Reverse Stock Split").
If the amendment to the Company's Certificate of Incorporation is approved by
the consent of a majority of shares entitled to vote thereon, which can occur on
or after May 28, 1998, it is expected that the bid price of the Company's common
stock as quoted on the Nasdaq SmallCap Market after the Reverse Stock Split
would be greater than $1.00 per share, and the Company would be in compliance
with the New Listing Requirements.
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 adverse impact on the Company's
liquidity.
On July 28, 1997 UHC acquired the Las Vegas Property. The Company was
required to make an additional capital contribution to UHC of approximately
$3,800,000 in connection with the acquisition of the Las Vegas Property and in
connection therewith obtained two loans, one for $1,900,000 from Westminster and
one for $900,000 from Harvey Bibicoff, the latter of which $875,000 has been
repaid. The Westminster Loan is secured by a significant amount of the Company's
assets, including its 50% membership interest in UHC and a significant portion
of GHEI's common stock which the Company owns. Although the Company believes
that it will be able to meet this loan obligation as it matures from working
capital, repayment by GHEI of certain loans made by the Company to GHEI, release
of certain cash pledged by the Company to support a letter of credit for GHEI,
and/or from additional financing from affiliated or unaffiliated sources, if the
Company is unable to meet this loan obligation as becomes due, the collateral
pledged by the Company could be foreclosed upon.
As of March 31, 1998, investments in and loans to affiliated companies,
GHEI and HEP II, and related parties totaled approximately $1,842,585 or 23.8%
of total assets and 57.6% of the Company's stockholder's equity. Both affiliated
companies have had substantial losses and have working capital deficits,
creating liquidity risks to the Company. If these losses continue, a substantial
portion of the Company's net worth would be impaired or at risk. Although
management believes that it is more likely than not that the investments and
receivables with related companies are not impaired, the cumulative losses and
liquidity problems of the affiliated companies create an inherent risk in these
assets.
Although the Company believes that its current cash and income from
operations, distributions received by the
<PAGE> 13
Company as a result of its investments, and repayment to the Company of amounts
previously advanced by the Company to GHEI 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 related legal
proceedings. 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
favorable terms.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For information with respect to the action titled The Splash v. The
Irvine Company, et. al. (Case No. 49-12-02), reference is made to the
description of such litigation set forth in the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1997. The appeal in this action
is pending. In view of the inherent uncertainties of litigation, no prediction
can be made as to the outcome of this matter.
For information with respect to the action titled 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 the fiscal year ended December 31, 1997. The appeal in this
action is pending. In view of the inherent uncertainties of litigation, no
predictions can be made as to the outcome of this matter.
For information with respect to the action titled 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
the fiscal year ended December 31, 1997. The case is pending. In view of the
inherent uncertainties of litigation, no prediction can be made as to the
outcome of this matter.
For information with respect to the action titled Lion Country Safari,
Inc. - California v. The Irvine Co. (OCSC Case No. 775923), reference is made to
the description of such litigation in the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1997. In response to certain motions made
at the outset of trial in April 1998, the trial judge ruled that the Company
would not be allowed present its theory of calculating damages at trial and
ruled against the Company on alternative remedies at trial. As a result of this
ruling, judgment will be entered against the
<PAGE> 14
Company in this matter. Once judgment is entered, the Company intends to appeal
the judge's decision. In view of the inherent uncertainties of litigation, no
prediction can be made as to the outcome of this matter.
For information with respect to the action titled The Splash dba Wild
Rivers v. Harry Shuster, et. al. (OCSC Case No. 771810), reference is made to
the description of such litigation in the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1997. Prior to trial, which was scheduled
for April 27, 1998, and following various motions made by the parties before the
trial judge, the court vacated the trial date and scheduled a status hearing for
June 1, 1998. In view of the inherent uncertainties of litigation, no prediction
can be made as to the outcome of this matter.
For information with respect to the case titled The Irvine Company vs.
Lion Country Safari, Inc. - California (OCSC Case No. 776187), reference is made
to the description of such litigation in the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1997. The appeal in this action is
pending. In view of the inherent uncertainties of litigation, no prediction can
be made as to the outcome of this matter.
ITEM 2. CHANGES IN SECURITIES
In February 1998, the Company issued 100,000 shares of its common stock
to Transit Securities, Inc. in connection with advisory services rendered to the
Company. The Company received no proceeds from this issuance. The offering was
made directly by the officers and directors of the Company and no underwriting
discounts or commissions were paid, and was exempt from the registration
provisions of the Securities Act pursuant to Section 4(2) thereof, for
transactions by an issuer not involving any public offering.
In April 1998, subsequent to the end of the quarter ended March 31,
1998, the Company issued 10 units (each unit consisting of 120,000 shares of
common stock and warrants to purchase 60,000 shares of common stock at $.27 per
share) to Strata Equities Limited, at $26,400 per unit, in an offering pursuant
to Regulation S promulgated under the Securities Act, with aggregate gross
proceeds to the Company of $264,000. The warrants may be exercised for a period
of five years from issuance. The Regulation S offering was placed through
Baytree Associates, Incorporated, which received a 10% commission and a 3%
non-accountable expense allowance in connection with the Regulation S offering,
resulting in net proceeds to the Company of approximately $229,680.
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(27) Financial Data Schedule
(b) 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.
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 15, 1998 UNITED LEISURE CORPORATION
By: /s/ HARRY SHUSTER
---------------------------------
Harry Shuster, Chairman
of the Board and Chief
Executive Officer
(Principal Financial
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS FOR
THE QUARTER ENDED MARCH 31, 1998 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-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 119,570
<SECURITIES> 0
<RECEIVABLES> 21,046
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 195,553
<PP&E> 2,152,699
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,756,644
<CURRENT-LIABILITIES> 3,715,126
<BONDS> 842,000
0
0
<COMMON> 127,188
<OTHER-SE> 3,072,330
<TOTAL-LIABILITY-AND-EQUITY> 7,756,644
<SALES> 0
<TOTAL-REVENUES> 491,156
<CGS> 0
<TOTAL-COSTS> 846,663
<OTHER-EXPENSES> 290,946
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93,444
<INCOME-PRETAX> (697,921)
<INCOME-TAX> 0
<INCOME-CONTINUING> (697,921)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (697,921)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
