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, 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 Avenue, 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 August 17, 1998
--------------------- ------------------------------
Common Stock, par 13,918,849 shares
value $.01 per share
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------- --------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 396,779 $ 152,770
Receivables 20,404 21,732
Prepaid expenses and other current assets 70,373 59,690
------------ ------------
TOTAL CURRENT ASSETS 487,556 234,192
PROPERTY AND EQUIPMENT, Net 2,074,102 2,172,569
INVESTMENT IN UNITED HOTEL - RELATED PARTY 3,518,800 3,633,800
INVESTMENT IN HEP II - RELATED PARTY 1,120,500 1,120,500
INVESTMENT IN GRAND HAVANA - RELATED PARTY 136,300 340,025
LOANS RECEIVABLE FROM GRAND HAVANA - RELATED PARTY 573,456 681,643
INVESTMENT IN GENISYS - RELATED PARTY 459,666 --
DUE FROM OFFICER -- 12,567
DEPOSITS AND OTHER ASSETS 79,705 82,043
------------ ------------
$ 8,450,085 $ 8,277,339
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 1,925,000 $ 1,925,000
Accounts payable and accrued expenses 2,027,963 1,387,039
Deferred revenues 395,722 32,710
Deposits and other 44,927 43,426
Due to officer 49,254 --
------------ ------------
TOTAL CURRENT LIABILITIES 4,442,866 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 - 13,918,849 shares at
June 30, 1998 and 12,618,849 shares at December 31, 1997 139,188 126,188
Additional paid-in capital 24,835,168 24,587,188
Accumulated deficit (21,809,137) (19,923,806)
Accumulated other comprehensive loss - Unrealized loss on investment -- (742,406)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,165,219 4,047,164
------------ ------------
$ 8,450,085 $ 8,277,339
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------------
June 30, June 30,
1998 1997
---------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,885,331) $(1,675,644)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 85,514 373,572
Issuance of common stock for services 31,300 --
Write-down of investment in Grand Havana 946,131
Licensing fees --
Equity in net loss of United Hotel 115,000 --
Accrual of interest income on restricted cash -- (9,434)
Accrual of interest income on loans receivable (21,813) --
Changes in operating assets and liabilities:
Receivables 1,328 104,940
Prepaid expenses and other current assets (10,683) (119,692)
Deposits 2,338 25,699
Accounts payable and accrued expenses 640,924 425,586
Accrued expenses due to related party 61,821 (312,703)
Deferred revenues 363,012 463,797
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES 329,541 (723,879)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (35,896) (91,472)
Investment in Grand Havana -- (575,000)
Loans receivable from Grand Havana -- (775,000)
Collection of loan receivable from Grand Havana 130,000 --
Deposits and other 1,501 (20,000)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES 95,605 (1,461,472)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock 229,680 --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 229,680 --
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 654,826 (2,185,351)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 152,770 3,845,653
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 807,596 $ 1,660,302
=========== ===========
CASH PAID FOR:
Interest $ 48,657 $ 42,127
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------------------------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
------------- ------------ ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUE
Children's recreational activities $ 444,584 $ 625,873 $ 931,493 $ 1,170,776
Licensing fees 410,817 -- 410,817 --
Rentals -- -- -- 79,383
------------ ------------ ------------ ------------
TOTAL REVENUE 855,401 625,873 1,342,310 1,250,159
DIRECT OPERATING EXPENSES 765,211 1,063,566 1,433,581 1,921,548
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 164,071 122,741 301,241 395,468
DEPRECIATION AND AMORTIZATION 44,391 183,101 85,514 373,572
------------ ------------ ------------ ------------
973,673 1,369,408 1,820,336 2,690,588
------------ ------------ ------------ ------------
LOSS BEFORE OTHER INCOME (EXPENSE) (118,272) (743,535) (478,026) (1,440,429)
OTHER INCOME (EXPENSE)
Legal costs (108,504) (451,289) (250,450) (471,422)
Equity in net loss of United Hotel 34,000 -- (115,000) --
Realized loss from write-down of investment in Grand Havana (946,131) -- (946,131) --
Interest income 34,263 74,252 68,708 170,948
Interest expense (97,781) (21,067) (191,225) (42,127)
Sub-lease income 8,732 12,979
Other, net 6,283 65,825 13,814 107,386
------------ ------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE) (1,069,138) (332,279) (1,407,305) (235,215)
------------ ------------ ------------ ------------
NET LOSS (1,187,410) (1,075,814) (1,885,331) (1,675,644)
------------ ------------ ------------ ------------
OTHER COMPREHENSIVE LOSS Unrealized loss on securities:
Unrealized holding loss on securities arising during the period (22,700) (335,642) (203,725) (335,642)
Less: reclassification adjustment for loss realized in net loss 946,131 -- 946,131 --
------------ ------------ ------------ ------------
OTHER COMPREHENSIVE LOSS 923,431 (335,642) 742,406 (335,642)
------------ ------------ ------------ ------------
COMPREHENSIVE LOSS $ (263,979) $ (1,411,456) $ (1,142,925) $ (2,011,286)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 13,918,849 12,368,849 13,302,182 12,368,849
============ ============ ============ ============
BASIC AND DILUTED LOSS PER SHARE $ (0.09) $ (0.09) $ (0.14) $ (0.14)
============ ============ ============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
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 and six months ended
June 30, 1998 and 1997, (b) the consolidated financial position at June
30, 1998 and (c) the consolidated cash flows for the six months ended
June 30, 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.
2. COMPREHENSIVE INCOME
The Company adopted SFAS No. 131, "Reporting Comprehensive Income"
effective January 1, 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 statements of operations for
the three and six months ended June 30, 1997 were reclassified for
comparative purposes.
During the three months ended June 30, 1998, the Company realized a
loss of $946,131 from the write-down of its investment in restricted
common stock of Grand Havana Enterprises, Inc., an affiliated company.
3. INVESTMENT IN GENISYS
As of June 30, 1998, the Company's wholly owned subsidiary, United
Leisure Interactive, Inc. ("ULI") sold to NetCruise Interactive, Inc.
("NetCruise"), a wholly owned subsidiary of Genisys Reservation
Systems, Inc. ("Genisys"), an exclusive and worldwide and perpetual
license for travel related applications of certain interactive
technology. In addition, the Company sold certain related intellectual
properties and computer equipment.
As consideration for the sale, ULI received (i) 2,000,000 of
unregistered shares of common stock of Genisys, (ii) a warrant to
purchase up to 800,000 shares of
5
<PAGE>
Genisys common stock at $2.50 per share if the total pretax profits of
NetCruise for the years 1999, 2000 and 2001 equal or exceed $5,000,000
and (iii) a warrant to purchase up to 800,000 shares of Genisys common
stock at $6.00 per share if the total pretax profits of NetCruise for
the years 1999, 2000 and 2001 equal or exceed $10,000,000.
ULI's investment in Genisys common stock was accounted for under the
equity method. ULI's investment represents 29.61% of the outstanding
common stock of Genisys.
For a period of three years, Harry Shuster will serve as Chairman and
Brian Shuster will serve as President of NetCruise. In addition, both
Harry Shuster and Brian Shuster will serve on the Board of Directors of
Genisys for the same period. Harry Shuster is the Chairman of the
Board, President, Chief Executive Officer and a director of the Company
and Brian Shuster is Executive Vice President, Secretary and a director
of the Company. Brian Shuster is the son of Harry Shuster. Brian
Shuster was issued warrants to purchase Genisys common stock on the
same terms as the warrants issued to ULI, except that each of the two
warrants issued to Brian Shuster represents the right to purchase up to
200,000 shares of Genisys common stock.
NetCruise also assumed the ULI's lease at 1990 Westwood Boulevard,
Penthouse, Los Angeles, California.
5. STOCKHOLDERS' EQUITY
In February 1998, the Company issued 100,000 shares of its common stock
to Transit Securities, Inc. for advisory services rendered to the
Company. The shares were valued at $31,300, its fair value at the date
of issuance.
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.
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.
6. SUBSEQUENT EVENTS
On July 30, 1998, the Company's "Secured Convertible Promissory Note"
dated as of July 29, 1997 of $1,900,000 to Westminster Capital, Inc.
("Westminster") became payable on demand.
6
<PAGE>
On August 6, 1998, United Hotel, LLC ("United Hotel"), a Company's
equity investee, borrowed $1,100,000 from Westminster. The Company and
two other members of United Hotel executed a non-recourse secured
guaranty under which each entity pledged their interests in United
Hotel as collateral under the guaranties. Harry Shuster and two other
individuals personally guaranteed the loan. A default under this loan
shall constitute a default under the "Secured Convertible Promissory
Note" dated as of July 29, 1997. The conversion rights granted to
Westminster under the "Secured Convertible Promissory Note" dated as of
July 29, 1997 was extended until July 31, 2001.
7
<PAGE>
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 June 30, 1998, the Company's operations were
primarily focused in three 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; (ii) the
development of the Company's proprietary interactive Internet technology; and
(iii) investments in affiliated companies. Unless the context otherwise
indicates, the term the "Company" as used herein includes United Leisure
Corporation, a Delaware corporation, and its consolidated subsidiaries.
Children's Recreational Activities. The Company currently operates two
Camp Frasier day camp locations, which opened for the season 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
8
<PAGE>
Southern California. The Company does not currently anticipate that it will
expand any of its children's educational and recreational activities.
Interactive Technology. Through its wholly-owned subsidiary, United
Leisure Interactive, Inc. ("ULI"), the Company has continued to develop its
proprietary Internet technology (the "Technology"). The first such interactive
multimedia products were developed as Netcruise, which allows a person to view
and book various travel products on the Internet. After the end of the second
quarter, on July 23, 1998, the Company, ULI, Genisys Reservation Systems, Inc.
("Genisys") and its wholly-owned subsidiary Netcruise Interactive, Inc. ("NII"),
entered into an agreement pursuant to which ULI granted to NII an exclusive,
world-wide and perpetual license to the travel-related applications of the
Technology and sold to NII certain tangible assets and intellectual property to
be used in connection with the exploitation of the licensed Technology. In
consideration therefor, ULI received (i) 2,000,000 shares of restricted common
stock of Genisys, (ii) a warrant to purchase up to 800,000 shares of Genisys
common stock at $2.50 per share if the total pretax profits of NII ("Total
Pretax Profits") for the years 1999, 2000 and 2001 equal or exceed $5,000,000
and (iii) a warrant to purchase up to 800,000 shares of Genisys common stock at
$6.00 per share if the Total Pretax Profits of NII for the years 1999, 2000 and
2001 equal or exceed $10,000,000.
Investments in and Loans to Grand Havana Enterprises, Inc. The Company
has an investment in the common stock of, and has made loans to, Grand Havana
Enterprises, Inc. ("GHEI"), an affiliate of the Company. Harry Shuster is the
Chairman of the Board, President, Chief Executive Officer and a principal
stockholder of GHEI.
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 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 $38,691, 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 June
30, 1998. The parties agreed to extend the maturity date of advances made under
this financing agreement to September 30, 1998. At June 30, 1998, accrued
interest amounted to $53,456, and an aggregate of $520,000 in principal amount
remained payable by GHEI to the Company pursuant to this financing agreement.
9
<PAGE>
As of June 30, 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 June 30, 1998
(approximately 75% of $.19, or $.14 per share), resulting in an aggregate fair
value of approximately $136,300 at June 30, 1998. Because Management of the
Company does not believe that it will recover its investment in GHEI, it has
realized loss on this investment in the amount of $946,131 during the three
months ended June 30, 1998.
Investments in United Hotel & Casino L.L.C. 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 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 First Westminster Loan
and the Bibicoff Loan (as defined 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 "First
Westminster Loan") to enable the Company to meet a portion of its additional
capital contribution obligation to UHC. The First Westminster Loan was evidenced
by a Secured
10
<PAGE>
Convertible Promissory Note (the "First Westminster Note") made by the Company.
The First Westminster Loan, which bears interest at the rate of 15% per annum,
is due on the earlier to occur of (i) the demand of Westminster (which demand
may be made at any time after July 29, 1998) or (ii) July 29, 1999 (the
"Maturity Date"). The holder of the First Westminster Note has the right, at any
time prior to the Maturity Date, to convert the entire outstanding principal
balance of the First Westminster Note into one-half of the Company's membership
interest in UHC. The conversion feature of the First Westminster Note has been
amended to extend the conversion date, as described below. The First 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 First Westminster Note are required to
be paid to Westminster as a prepayment on the First Westminster Note.
The First 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 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
First Westminster Loan.
As additional consideration for Westminster making the First
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 August 6, 1998, Westminster made a loan of $1,100,000 to UHC (the
"Second Westminster Loan"). The Second Westminster Loan is evidenced by a
promissory note in the amount of $1,100,000, which bears interest at the rate of
15% per annum and matures on August 1, 1999 (the "Second Westminster Note"). In
order to induce Westminster to make the Second Westminster Loan, the Company
agreed to amend the First Westminster Note to provide that the holder of
11
<PAGE>
the First Westminster Note now has the right, at any time prior to July 31,
2001, to convert the entire outstanding principal balance of the First
Westminster Note into one-half of the Company's membership interest in UHC. It
was also agreed by the parties that a default by UHC under the Second
Westminster Note will be deemed to be a default by the Company under the First
Westminster Note. Harry Shuster personally guaranteed the obligations of UHC
under the Second Westminster Loan and the Company issued a non-recourse guaranty
with joint and several liability, limited to the Company's interest in UHC.
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 June 30, 1998, $25,000 of the principal amount of
the Bibicoff Loan was outstanding.
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 June 30, 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, Executive Vice
President and a director of the Company, is the President and a principal
stockholder of UFD, and is the son of Harry Shuster.
Rental Activities. Until February 28, 1997, when its Ground Lease with
the Irvine Company (the "Irvine Company"), as landlord (the "Ground Lease"),
expired, the Company's primary business 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"). Since 1986, the Company has been
engaged in protracted and expensive litigation involving the Ground Lease with
the Irvine Company, which remains pending (the "Irvine Company Litigation"). See
Part II, Item 1, "Legal Proceedings."
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. The Company had total revenue of $855,401 in the quarter ended June
30, 1998, compared to total revenue of $625,873 for the quarter ended June 30,
1997, an increase of $229,528 or approximately 36.7%. This increase results
primarily
12
<PAGE>
from the recognition of one-time licensing fees in connection with the licensing
of travel-related applications of the Company's interactive technology,
partially offset by a decrease in revenue from children's recreational
activities.
Revenue from children's recreational activities was $444,584 for the
quarter ended June 30, 1998, compared to $625,873 for the quarter ended June 30,
1997, a decrease of $181,289 or approximately 29.0%. This decrease is due
primarily to a decline in admissions at the Company's Planet Kids locations.
Licensing fees in the quarter ended June 30, 1998 amounted to $410,817.
This amount represents the book value of 2,000,000 shares of unregistered common
stock of Genisys, which the Company received in connection with the licensing of
travel-related applications of the Company's interactive technology to a
wholly-owned subsidiary of Genisys. There were no licensing fees received in the
quarter ended June 30, 1997.
Total operating expenses decreased from $1,369,408 for the quarter
ended June 30, 1997 to $973,673 for the quarter ended June 30, 1998, a decrease
of $395,735 or approximately 28.9%. This decrease was due primarily to decreases
in occupancy expenses 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, partially offset by an increase in selling,
general and administrative expenses, which resulted from increases in general
legal expenses and accounting expenses.
For the quarter ended June 30, 1998, the Company incurred a net loss of
$1,187,410 or ($.09) per share, as compared to a net loss of $1,075,814 or
($0.09) per share for the quarter ended June 30, 1997. This increase in loss is
primarily due to the realized loss from write-down of investment in GHEI, an
affiliate of the Company, in the amount of $946,131, partially offset by revenue
from licensing fees in the amount of $410,817 from Genisys, that amount being
the value of the shares of unregistered common stock of Genisys received by the
Company in connection with the licensing of travel-related applications of the
Company's interactive technology to a wholly-owned subsidiary of Genisys.
Six Months Ended June 30, 1998 Compared to Six Months Ended
June 30, 1997
The Company had total revenue of $1,342,310 in the six-month period
ended June 30, 1998, compared to total revenue of $1,250,159 for the six-month
period ended June 30, 1997, an increase of $92,151 or approximately 7.4%. This
increase results primarily from the recognition of one-time licensing fees in
connection with the licensing of travel-related applications of the Company's
interactive technology, partially offset by a decreases in revenue from
children's recreational activities and rental activities.
13
<PAGE>
Total operating expenses decreased from $2,690,588 for the six-month
period ended June 30, 1997 to $1,820,336 for the six-month period ended June 30,
1998, a decrease of $870,252 or approximately 32.3%. 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 six months ended June 30, 1998, the Company incurred a net loss
of $1,885,331 or ($.14) per share, as compared to a net loss of $1,675,644 or
($0.14) per share for the quarter ended June 30, 1997. This increase in loss is
primarily due to the realized loss from write-down of investment in GHEI, an
affiliate of the Company, in the amount of $946,131, partially offset by revenue
from licensing fees in the amount of $410,817 from Genisys, that amount being
the value of the shares of unregistered common stock of Genisys received by the
Company in connection with the licensing of travel-related applications of the
Company's interactive technology to a wholly-owned subsidiary of Genisys.
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 June 30, 1998 the
Company had cash and cash equivalents in the amount of $396,779 and a working
capital deficit of $3,955,310.
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 on terms that are acceptable to the Company. In
addition, the Company does not currently meet the new minimum bid listing
requirements (the "New Listing Requirements") for maintenance of the Company's
common stock on the SmallCap Market of The Nasdaq Stock Market ("Nasdaq"). The
New Listing Requirements became effective in February 1998. In June 1998, the
Company was notified that Nasdaq intended to delist the Company's common stock
for failure to meet the New Listing Requirements. The Company has appealed the
proposed Nasdaq delisting, which appeal is pending. During the pendency of this
appeal, the Company's common stock will not be delisted by Nasdaq. If the
Company's common stock is ultimately delisted from Nasdaq, it may be
automatically eligible to trade on the OTC Bulletin Board. Nonetheless, such a
development could result in the Company's having difficulty in offering and
selling its securities to prospective investors.
The Company has prepared and filed with the Securities and
Exchange Commission, and mailed to stockholders of record as of the
14
<PAGE>
close of business on May 6, 1998, an Information Statement (the "Information
Statement") proposing an amendment to the Company's Certificate of Incorporation
to effect a 1-for-6 reverse stock split of the Company's common stock (the
"Reverse Stock Split"). If a majority of the Company's stockholders approve of
the amendment to the Company's Certificate of Incorporation and the Reverse
Stock Split is effected, it is expected that the minimum bid price of the
Company's common stock on Nasdaq would be greater than $1.00 per share and,
among other things, the Company would be in compliance with the New Listing
Requirements.
However, since the mailing of the Information Statement, the Company
has not sought to obtain the approval of the Company's stockholders to amend the
Company's Certificate of Incorporation and effect the Reverse Stock Split, while
the Company first pursues other alternatives. However, no definitive agreement
has been signed with respect to any such alternatives and there can be no
assurance that the Company will be able to reach any such agreement in the
future or, if any such agreement is reached, whether it will be on terms
favorable to the Company.
If the Company is unable to raise additional funds through the private
placement of its securities, it may seek financing from affiliated or
unaffiliated third parties. There can be no assurance, however, that such
financing would be available to the Company when and if it is needed, or that if
it is available, that it will be available on terms acceptable to the Company.
If the Company is unable to sell its securities or obtain financing to meet its
working capital needs and to repay indebtedness as it becomes due, the Company
may have to consider such alternatives as selling or pledging portions of its
assets, among other possibilities, in order to meet such obligations.
The Company's future capital requirements will depend on numerous
factors. If the Irvine Company Litigation is not settled and a new trial is
held, 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 First 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
additional financing from affiliated or unaffiliated sources, there is no
agreement in place to provide such financing. If the Company is unable to meet
the
15
<PAGE>
obligation under First Westminster Loan as it becomes due, the collateral
pledged by the Company could be foreclosed upon. In addition, the Company issued
a non-recourse guaranty with joint and several liability, limited to the
Company's interest in UHC, in connection with the Second Westminster Loan made
by Westminster to UHC.
As of June 30, 1998, investments in and loans to affiliated companies,
GHEI, HEP II, UHC and Genisys, and related parties, totaled approximately
$5,808,722 or approximately 68.7% of total assets. All of the affiliated
companies have had substantial losses and have working capital deficits (except
that Genisys does not have a working capital deficit), 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, 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.
16
<PAGE>
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. In June 1998, the California
Court of Appeals has affirmed all decisions of the trial court and has sent the
matter back for retrial. 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. In June 1998, the plaintiff received a
grant of summary judgment in its favor, permanently enjoining the Company from
removing the improvements on the Irvine Property relating to the plaintiff's
business. As the prevailing party, the plaintiff is seeking attorney fees and
costs of the litigation. The Company intends to appeal the judgment of the trial
court. 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 to 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 was entered against the Company in this matter
in June 1998. 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
17
<PAGE>
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,
which is now scheduled for September 14, 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 April 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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(4-4) Warrant to Purchase 600,000 Shares of Common Stock of
United Leisure Corporation dated April 2, 1998,
issued to Strata Equities Limited.
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K during the period
covered by this Quarterly Report on Form 10-QSB with respect to the issuance of
securities described in Part II, Item 2.
18
<PAGE>
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: August 19, 1998 UNITED LEISURE CORPORATION
By: /s/ HARRY SHUSTER
-----------------------------------
Harry Shuster,
Chairman of the Board and
Chief Executive Officer
(Principal Financial Officer)
19
EXHIBIT 4-4
Void after 5:00 p.m. New York, New York
on April 2, 2003
Warrant to Purchase 600,000 Shares of Common Stock
THIS WARRANT AND THE SHARES OF COMMON STOCK UNDERLYING THIS WARRANT
(collectively, the "Securities") HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (the "Act") AND MAY NOT BE EXERCISED
BY A "U.S. PERSON" (as defined in Section (j) hereof) OR FOR THE ACCOUNT AND
BENEFIT OF A U.S. PERSON UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR
AN OPINION OF COUNSEL IS DELIVERED TO THE EFFECT THAT AN EXEMPTION FROM SUCH
REGISTRATION UNDER THE ACT IS APPLICABLE FROM OR AS OTHERWISE PROVIDED IN
REGULATION S PROMULGATED UNDER SUCH ACT. IN ADDITION, NO OFFERS OR SALES OR
TRANSFERS (INCLUDING INTERESTS THEREIN) MAY BE MADE OF ANY OF THE SECURITIES IN
THE UNITED STATES OR TO A U.S. PERSON OR FOR THE ACCOUNT AND BENEFIT OF A U.S.
PERSON, UNLESS SUCH SECURITIES HAVE BEEN REGISTERED FOR RESALE UNDER THE ACT
EXCEPT AS PERMITTED BY REGULATION S OR ANOTHER EXEMPTION FROM REGISTRATION UNDER
THE ACT.
-------------------------------
WARRANTS TO PURCHASE COMMON STOCK
OF
UNITED LEISURE CORPORATION
-------------------------------
This is to certify that, FOR VALUE RECEIVED, Strata Equities Limited or
assigns ("Holder"), is entitled to purchase, subject to the provisions of this
Warrant, from United Leisure Corporation, a Delaware Corporation ("Company"),
600,000 fully paid, validly issued and non-assessable shares of Common Stock,
$.01 par value, of the Company ("Common Stock") at any time on or after the date
hereof but not later than 5:00 p.m. New York, New York Time, April 2, 2003
("Exercise Period") at an exercise price equal to Twenty Seven ($.27) per share.
The number of Shares of Common Stock to be received upon the exercise of this
Warrant and the price to be paid for each share of Common Stock may be adjusted
from time to time as hereinafter set forth. The shares of Common Stock
deliverable upon such exercise, and as adjusted from time, are hereinafter
sometimes referred to as "Warrant Shares" and the exercise price of a share of
Common Stock in effect at any time and as adjusted from time to time is
hereinafter sometimes referred to as the "Exercise Price".
(A) EXERCISE OF WARRANT. This Warrant may be exercised in whole or
in part at any time during the Exercise Period, and during the Exercise Period
the Holder shall have the right to exercise this
<PAGE>
Warrant into the kind and amount of shares of Common Stock and other securities
and property (including cash) receivable by a holder of the number of shares of
Common Stock into which this Warrant might have been exercisable immediately
prior thereto.
(i) Mechanics of Exercise. (a) In order to exercise Warrants
into full shares of Common Stock, the Holder shall (i) fax a copy of the fully
executed notice of exercise (purchase form) in the form attached hereto ("Notice
of Exercise") to the Company at the office of the Company for the Common Stock
that the Holder elects to exercise the same, which notice shall specify the
number of Warrants to be exercised, the applicable exercise price and a
calculation of the number of Pares of Common Stock issuable upon such exercise
(together with a copy of the first page of each certificate to be exercised)
prior to Midnight, New York City time (the "Exercise Notice Deadline") on the
date of exercise specified on the Notice of Exercise and (ii) surrender the
original certificates representing the Warrants being exercised duly endorsed,
along with a copy of the Notice of Exercise together with the Warrants and the
full exercise price for the Warrants (the "Exercise Documents") no later than
Midnight, New York City time the next business day, to a common courier for
either overnight or 2-day delivery to the office of the Company. The Company
shall cause to be issued and delivered within five (5) business days after
delivery to the Company of the facsimile copies of such notice of Exercise and
such Warrants to such Holder at the address of the Holder on the books of the
Company or such other address as may be specified by such Holder, a certificate
or certificates for the number of shares of Common Stock issuable upon such
exercise of Warrants; provided, however, that the Company shall not be obligated
to issue certificates evidencing the shares of Common Stock unless either the
original Warrants have been received by the Company, or the Holder notifies the
Company or its Transfer Agent, or the Holder delivers to the Company an
affidavit and indemnification to the effect that such certificates have been
lost, stolen or destroyed, together with an appropriate indemnity bond.
(ii) The Company shall, no later than 6:00 P.M. (New York City
time) on the fifth business day (the "Deadline") after receipt by the Company of
a Notice of Exercise and a facsimile copy of the Warrant, provided the Company
has received the Exercise Documents, issue a certificate for the number of
shares of Common Stock to which the holder ("Holder") of the Security shall be
entitled as aforesaid and surrender such original Common Stock certificates to a
common courier for overnight delivery to the Holder at the address of the Holder
on the books of the Company. The Company understands that a delay in the
issuance and delivery of the shares of Common Stock beyond the Deadline could
result in economic loss to the Holder. As compensation to the Holder for such
loss, the Company agrees, provided the Company has received the Exercise
Documents, to pay late payments to the Holder for late issuance of Shares upon
exercise of Warrants of $50 per business day for each business day after the
Deadline until the shares shall be issued.
<PAGE>
The Company shall pay any amounts incurred under this Section (ii) in
immediately available funds within five (5) business days from the date of
issuance of the applicable Common Stock. Nothing herein shall limit a Holder's
right to pursue actual damages for the Company's failure to issue and deliver
shares of Common Stock to the Holder pursuant to the terms of the Warrants. In
addition, nothing herein shall limit the Holder's right to pursue actual damages
for the Company's failure to maintain a sufficient number of authorized shares
of Common Stock.
(iii) If this Warrant should be exercised in part only, the
Company shall, upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Holder thereof to purchase
the balance of the Warrant Shares purchasable thereunder. Upon receipt by the
Company of this Warrant at its office, or by the stock transfer agent of the
Company at its office, in proper form for exercise and accompanied by payment of
the Exercise Price, the holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then be physically delivered
to the Holder.
(iv) This Warrant is not transferable to a U.S. Person nor may
it be exercised by a U.S. Person (as defined in Section (j) hereof). The person
exercising this Warrant must certify to the Company in writing that he is not a
U.S. Person (as defined in Section (j) hereof) and is not exercising this
Warrant on behalf of a U.S. Person (as defined in Section hereof).
(B) RESERVATION OF SHARES. The Company shall at all times reserve
for issuance and/or delivery upon exercise of this Warrant such number of shares
of its Common Stock as shall be required for issuance and delivery upon exercise
of the Warrant.
(C) FRACTIONAL SHARES. No fictional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the Current Market Value of a share, determined as follows:
(1) If the Common Stock is listed on a National Securities
Exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ system, the Current Market Value shall be the last
reported sale price, regular way, of the Common Stock on such exchange or system
on the last business day prior to the date of exercise of this Warrant or if no
such sale is made on such day, the average closing bid price, regular way, for
such day on such exchange or system; or
<PAGE>
(2) If the Common Stock is not so listed or admitted to
unlisted trading privileges, the Current Market Value shall be the mean of the
last reported bid and asked prices reported by the National Quotation Bureau,
Inc. on the last business day prior to the date of the exercise of this Warrant;
or
(3) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
Current Market Value shall be an amount not less than book value thereof as at
the end of the most recent fiscal year of the Company ending prior to the date
of the exercise of the Warrant, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
(D) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. Subject to
the legend first appearing above, this Warrant is exchangeable, without expense,
at the option of the Holder, upon presentation and surrender hereof to the
Company or at the office of its stock transfer agent, if any, for other warrants
of different denominations entitling the Holder thereof to purchase in the
aggregate the same number of shares of Common Stock purchasable hereunder.
Subject to the legend first appearing above, upon surrender of this Warrant to
the Company at its principal office or at the office of its stock transfer
agent, if any, with the Assignment Form annexed hereto duly executed and funds
sufficient to pay any transfer tax, the Company shall, without charge, execute
and deliver a new Warrant in the name of the assignee named in such instrument
of assignment and this Warrant shall promptly be cancelled. This Warrant may be
divided or combined with other Warrants which carry the same rights upon
presentation hereof at the principal office of the Company or at the office of
its stock transfer agent, if any, together with a written notice specifying the
names and denominations in which new Warrants are to be issued and signed by the
Holder hereof. The term "Warrant" as used herein includes any Warrants into
which this Warrant may be divided or exchanged. Upon receipt by the Company,of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant is lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
(E) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof,
be entitled to any rights of a shareholder in the Company, either at law or
equity, and the rights of the Holder are limited to those expressed in the
Warrant and are not enforceable against the Company except to the extent set
forth herein.
<PAGE>
(F) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any
time and the number and kind of securities purchasable upon the exercise of the
Warrants shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(1) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common Stock
or (ii) subdivide or reclassify its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect at the time of the record
date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that it shall
equal the price determined by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such action, and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
Such adjustment shall be made successively whenever any event listed above shall
occur.
(2) In case the Company shall combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect at the time of the record date for such combination or
reclassification shall not be adjusted and shall remain "as is" and, anything in
subsection (3) of this Section f to the contrary notwithstanding, the number of
shares shall not be adjusted and shall remain "as is."
(3) Upon each adjustment of the Exercise Price pursuant to the
provisions of this Section f, the number of Common Shares issuable upon the
exercise of this Warrant shall be adjusted to the nearest full Share by
multiplying a number equal to the Exercise Price in effect immediately prior to
such adjustment by the number of Common Shares issuable upon exercise of this
Warrant immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
(4) No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price hereof shall be made:
(I) Upon the issuance or sale of this Warrant or the
Common Shares issuable upon the exercise of this Warrant;
or
(II) If the amount of said adjustment shall be less than
five cents ($.05) per Common Share, provided, however,
that in such case any adjustment that adjustment which,
together with any adjustment so carried forward, shall
amount to
<PAGE>
at least five cents ($.05) per Share.
(5) Whenever the Exercise Price is adjusted, as herein
provided, the Company shall promptly cause a notice setting forth the adjusted
Exercise Price and adjusted number of shares issuable upon exercise of each
Warrant to be mailed to the Holders, at their last addresses appearing in the
Warrant Register, and shall cause a certified copy thereof to be mailed to its
transfer agent, if any. The Company may retain a firm of independent certified
public accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by this
Section (f), and a certificate signed by such firm shall be conclusive evidence
of the correctness of such adjustment.
(6) In the event that at any time, as a result of an
adjustment made pursuant to this Section (f), the Holder of this Warrant
thereafter shall become entitled to receive any shares of the Company, other
than Common Stock, thereafter the number of such other shares so receivable upon
exercise of this Warrant shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in this Section (f).
(7) Irrespective of any adjustments in the Exercise Price or
the number or kind of shares purchasable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Agreement.
(G) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be
adjusted as required by the provisions of Section (f), the Company shall
forthwith file in the custody of its Secretary or an Assistant Secretary at its
principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner computing such adjustment. Each such officer's certificate shall be made
available at all reasonable times for inspection by the Holder or any holder of
a Warrant executed and delivered pursuant to Section (a) and the Company shall
forthwith after each such adjustment, mail a copy by certified mail of such
certificate to the Holder or any such holder.
(H) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock as a class or (ii) if the Company shall offer to the
holders of Common Stock for
<PAGE>
subscription or purchase by them any share of any class or any other rights or
(iii) if the capital reorganization of the Company, reclassification of the
capital stock of the Company, consolidation or merger of the Company with or
into another corporation, sale of all or substantially all of the property and
assets of the Company to another corporation or voluntary or involuntary
dissolution, liquidation or winding up of the Company shall be effected, then in
any such case, the Company shall cause to be mailed by certified mail to the
Holder, at least ten (10) days prior to the date specified in (x) or (y) below,
as the case may be, a notice containing a brief description of the proposed
action and stating the date on which (x) a record is to be taken for the purpose
of such dividend, distribution or rights, or (y) such reclassification,
reorganization, consolidation, merger, sale, dissolution, liquidation or winding
up is to take place and date, if any is to be fixed, as of which the Holders of
the Common Stock or other securities shall receive cash or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up. Notwithstanding the above,
the failure to give such notice shall not affect the validity of any transaction
for which the notice was required to be given.
(I) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or in which merger the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization or other
change of outstanding shares of Common Stock of the class issuable upon exercise
of this Warrant or in case of any sale to another corporation of the property of
the Company as an entirety, the Company shall, as a condition precedent to such
transaction, cause effective provisions to be made so that the Holder shall have
the right thereafter by exercising this Warrant at any time prior to the
expiration of the Warrant, to purchase the kind and amount of shares of stock
and other securities and property receivable upon such reclassification, capital
reorganization and other change, consolidation, merger or sale, by a Holder of
the number of shares of Common Stock which might have been purchased upon
exercise of this Warrant immediately prior to such reclassification, change,
consolidation, merger or sale. Any such provision shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The foregoing provisions of this
Section (i) shall similarly apply to successive reclassification, capital
reorganizations and changes of shares of Common Stock and to successive
consolidations, mergers or sales.
(J) THE RESTRICTIVE PERIOD.
(1) The Holder of this Warrant agrees that the Holder, or any
successor, or any Professional (as defined in Section (j)(3)
<PAGE>
hereof) (except for sales of any securities registered under The United States
Securities Act of 1933 (the "Act"), in compliance with Regulation S or otherwise
exempt from registration under the Act), (A) will not sell the Warrants and the
shares of Common Stock issuable upon exercise thereof to a U.S. Person or on
account of the benefit of a U.S. Person or any one believed to be a U.S. Person,
(B) will not engage in any efforts to sell the Warrants and the shares of Common
Stock issuable upon exercise thereof in the United States, (C) will, at the time
a buy order or transfer of the Warrants and the shares of Common Stock issuable
upon exercise thereof is originated, believe, after reasonable investigation,
that the buyer or transferee is outside the United States, and (D) will send to
a "Professional" acting as agent or principal, a confirmation or other notice
stating that the Professional is subject to the same restrictions on transfer to
U.S. Persons or for the account of U.S. Persons as provided for herein. The
Company will not honor or register, and will not be obligated to honor or
register, any transfer or exercise in violation of any of the provisions herein
or that would cause the loss of the exemption afforded by Regulation S.
(2) For purposes hereof, a "U.S. Person" shall have the
meaning set forth in Rule 902(o) of Regulation S under the Act, which includes,
without limitation, generally any natural person, resident of the United States,
any partnership or corporation organized or incorporated under the laws of the
United States; any estate of which any executor or administrator is a U.S.
Person; any trust of which any trustee is U.S. Person; any agency or branch of a
foreign entity located in the United States; any nondiscretionary account or
similar account, other than estate or trust, held by a dealer or other fiduciary
for the benefit or account of the U.S. Person; any discretionary account or
similar account, other than incorporated or, (if an individual) resident of the
United States.
(3) A "Professional" is a "distributor" as defined in Rule
902(c) of Regulation S under the Act (generally any underwriter, or other
person, who participates, pursuant to a contractual arrangement, in the
distribution of the Securities); a dealer as defined in Section 2(12) of the
U.S. Securities Act of 1934 (encompassing those who engage in the business of
trading or dealing in securities as agent, broker or principal); or a person
receiving a selling concession, fee or other enumeration in respect of the
securities sold.
(K) NON-U.S. PERSON. The Holder represents to the Company that it
is not a U.S. Person (as defined above) and he/it is not acquiring the Warrants
or the shares of Common Stock issuable upon exercise thereof for a U.S. Person
and the Holder is physically located outside the United States.
Notice hereunder may be given by personal delivery, express
courier, or registered or certified mail.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed and attested by the Undersigned, each being duly authorized, as of the
date below.
UNITED LEISURE CORPORATION
By: /s/ Harry Shuster
-----------------------------------
Dated: April 2, 1998
<PAGE>
PURCHASE FORM
Dated: ,
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing __________ Shares of Common Stock and hereby
makes payment of $___________ in payment of the actual exercise price thereof.
The undersigned hereby certifies to United Leisure Corporation, a
Delaware corporation, that he is not a U.S. Person and is not exercising this
Warrant on behalf of a U.S. Person as defined in Regulation S promulgated under
the U.S. Securities Act of 1933 and this exercise is not taking place within the
United States.
--------------------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
--------------------------------------
Name:
---------------------------------------------------------------------------
(Please type or print in block letters)
Address:
------------------------------------------------------------------------
Signature:
----------------------------------------------------------------------
------------------------
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED,____________________________________________________
hereby sells, assigns and transfers unto
Name:
---------------------------------------------------------------------------
(Please type or print in block letters)
Address:
------------------------------------------------------------------------
the right to purchase Common Stock represented by this Warrant to the extent of
____________shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint______________________________, Attorney, to
transfer the same on the books of the Company with full power of substitution in
the premises.
Date: ,
-----------------
Signature:
------------
<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 SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000059684
<NAME> UNITED LEISURE CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 396,779
<SECURITIES> 0
<RECEIVABLES> 20,404
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 487,556
<PP&E> 2,074,102
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,450,085
<CURRENT-LIABILITIES> 4,442,866
<BONDS> 842,000
0
0
<COMMON> 139,188
<OTHER-SE> 3,026,031
<TOTAL-LIABILITY-AND-EQUITY> 8,450,085
<SALES> 0
<TOTAL-REVENUES> 1,342,310
<CGS> 1,433,581
<TOTAL-COSTS> 1,433,581
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 191,225
<INCOME-PRETAX> (1,885,331)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,885,331)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,885,331)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
