<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Amendment No. 1)
(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, 1999
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.)
1990 Westwood Boulevard, Los Angeles, California 90025
(Address of Principal Executive Offices) (Zip Code)
310/441-0900
(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 11, 1999
- -------------------- --------------------------------
Common Stock, par 15,935,854 shares
value $.0l per share
Transitional Small Business Disclosure Format (check one):
YES [__] NO [X]
<PAGE>
EXPLANATORY NOTE
This report on Form 10-QSB/A is being filed as Amendment No. 1 to the
Registrant's Quarterly Report on Form 10-QSB for the Quarter Ended June 30,
1999, filed with the Securities and Exchange Commission on August 16, 1999,
solely for the purpose of revising the following items in their entirety.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,224,764 $ 799,369
Receivables 33,388 53,153
Prepaid expenses and other current assets 46,612 78,082
------------ ------------
TOTAL CURRENT ASSETS 1,304,764 930,604
------------ ------------
PROPERTY AND EQUIPMENT, NET 276,880 384,984
------------ ------------
INVESTMENTS
Investment in United Hotel at equity - related party 3,386,117 3,432,452
Investment in HEP II at equity - related party 700,000 700,000
Investment in Genisys at equity - related party - 210,133
Investment in Grand Havana at fair value - related party 38,667 38,667
------------ ------------
TOTAL INVESTMENTS 4,124,784 4,381,252
------------ ------------
OTHER ASSETS
Loan receivable from Grand Havana - related party 719,015 619,298
Due from former officer 420,263 332,627
Assets held for sale 1,616,387 1,663,857
Deposits and other assets 80,137 78,929
------------ ------------
2,835,802 2,694,711
------------ ------------
$ 8,542,230 $ 8,391,551
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 2,622,000 $ 1,900,000
Accrued interest 555,155 406,808
Accounts payable and accrued expenses 473,499 478,785
Due to related parties 168,587 107,535
Deferred revenues 114,525 28,060
Deposits and other 2,611 5,652
Litigation settlement 185,080 -
------------ ------------
TOTAL CURRENT LIABILITIES 4,121,377 2,926,840
LONG-TERM DEBT 120,000 842,000
COMMON STOCK SUBJECT TO REPURCHASE - 150,001 SHARES 132,000 78,000
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 - 15,785,854 shares at June 30, 1999
and 13,918,849 shares at December 31, 1998 157,858 139,188
Additional paid-in capital 26,695,498 24,844,168
Accumulated deficit (22,684,503) (20,438,645
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 4,288,853 4,544,711
------------ ------------
$ 8,542,230 $ 8,391,551
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<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,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUE
Licensing fees $ 200,000 $ 410,817 $ 200,000 410,817
Children's recreational activities 282,097 444,584 601,540 931,493
----------- ----------- ----------- -----------
TOTAL REVENUE 482,097 855,401 801,540 1,342,310
EXPENSES
Direct operating expenses 813,379 765,211 1,517,891 1,433,581
Selling, general and administrative expenses 556,376 164,071 834,741 301,241
Depreciation and amortization 40,989 44,391 85,827 85,514
----------- ----------- ----------- -----------
1,410,744 973,673 2,438,459 1,820,336
----------- ----------- ----------- -----------
LOSS BEFORE OTHER INCOME (EXPENSE) (928,647) (118,272) (1,636,919) (478,026)
OTHER INCOME (EXPENSE)
Legal costs - (108,504) - (250,450)
Equity in net income (loss) of United Hotel (96,476) 34,000 (46,335) (115,000)
Equity in net loss of Genisys - - (210,133) -
Realized loss from write-down of investment in Grand Havana - (946,131) - (946,131)
Interest income 41,806 34,263 80,001 68,708
Interest expense (96,766) (97,781) (212,501) (191,225)
Other, net 30,810 15,015 (34,971) 26,793
Litigation settlement (185,000) - (185,000) -
----------- ----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSE) (305,626) (1,069,138) (608,939) (1,407,305)
----------- ----------- ----------- -----------
NET LOSS (1,234,273) (1,187,410) (2,245,858) (1,885,331)
----------- ----------- ----------- -----------
OTHER COMPREHENSIVE LOSS
Unrealized holding loss on securities arising during the period - (22,700) - (203,725)
Less: reclassification adjustment for loss realized in net loss - 946,131 - 946,131
----------- ----------- ----------- -----------
- 923,431 - 742,406
----------- ----------- ----------- -----------
COMPREHENSIVE LOSS $(1,234,273) $ (263,979) $(2,245,858) $(1,142,925)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 15,525,854 13,918,949 14,462,851 13,302,182
=========== =========== =========== ===========
BASIC AND DILUTED LOSS PER SHARE $ (0.08) $ (0.09) $ (0.16) $ (0.14)
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
June 30, June 30,
1999 1998
--------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,245,858) $(1,885,331)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 85,827 85,514
Loss on termination of lease 45,333 -
Issuance of common stock for services - 31,300
Fair value of options granted to non-employees 237,700 -
Write-down of investment in Grand Havana - 946,131
Licensing fees - (410,817)
Equity in net loss of United Hotel 46,335 115,000
Equity in net loss of Genisys 210,133 -
Accrual of interest income from related parties (24,717) (21,813)
Changes in operating assets and liabilities:
Receivables 19,765 1,328
Prepaid expenses and other current assets 31,470 (10,683)
Deposits - 2,338
Accrued interest 148,347 -
Accounts payable and accrued expenses 66,385 640,924
Accrued expenses due to related parties 60,000 61,821
Deposits and other liabilities (3,041) -
Deferred revenues 86,465 363,012
Litigation settlement (185,000) -
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (990,856) (81,276)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (37,257) (35,896)
Loans receivable from Grand Havana (75,000) -
Advances to former officer, net (87,636) -
Collection of loan receivable from Grand Havana - 130,000
Deposits and other (10,156) 1,501
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (210,049) 95,605
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock 1,500,000 229,680
Common stock issued for warrants and options exercised 186,300 -
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,686,300 229,680
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS 425,395 244,009
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 799,369 152,770
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,224,764 $ 396,779
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
UNITED LEISURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
1. BASIS OF PRESENTATION
The interim consolidated financial statements presented have been prepared
by United Leisure Corporation (the "Company" or "ULC") 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, 1999 and
1998, (b) the consolidated financial position at June 30, 1999 and (c) the
consolidated cash flows for the six months ended June 30, 1999 and 1998.
Interim results are not necessarily indicative of results for a full year.
The consolidated balance sheet presented as of December 31, 1998 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. LICENSING REVENUE
During the quarter ended March 31, 1999, United Internet Technologies, Inc.
("UIT"), a wholly-owned subsidiary of the Company, received $200,000 as a
non-refundable advance against royalties pursuant to a License Agreement
entered into by UIT and World Championship Wrestling, Inc. ("WCW") as of
February 23, 1999. UIT granted to WCW a limited non-exclusive license of
the Technology. WCW has the right to approve the application of the
Technology against certain indicated specifications and descriptions during
a testing period, which approval the Company obtained during the quarter
ended June 30, 1999.
3. STOCKHOLDERS' EQUITY
On April 13, 1999, the Company and Strata Equities Limited ("Strata")
amended the Warrant Agreement dated April 2, 1998 relating to the issuance
of a stock purchase warrant (the "Warrant") for 600,000 shares of the
Company's Common Stock at $.27 per share, to permit a cashless exercise of
the Warrant, and Strata exercised the Warrant on a cashless basis. Based on
an intraday trading price of $4.60 per share of the Company's Common Stock
on April 13, 1999, the Company issued to Strata 564,783 shares of the
Company's common stock. The Company received no proceeds from the issuance,
as a result of the cashless exercise .
On April 29, 1999, the Company sold 500,000 shares of Common Stock to one
individual, at a purchase price of $2.00 per share. Proceeds to the Company
in connection with the sale were $1,000,000.
In April 1999, the Company issued 82,222 shares of Common Stock to Mary
Jane Shapiro, upon the cashless exercise of a stock purchase warrant for
100,000 shares of the Company's Common Stock at $.75 per share. The Company
received no proceeds from the issuance, as a result of the cashless
exercise.
In April 1999, the Company issued 10,000 shares of Common Stock to Alvin
Alexander, a director of the Company, upon the exercise of a stock option
at an exercise price of $.30 per share. Proceeds to the Company in
connection with the exercise were $3,000.
On May 26, 1999, the Company granted options to Julie Lepere, Secretary of
the Company, to purchase an aggregate of 16,000 shares of the Company's
Common Stock, at various exercise prices and subject to vesting, as
follows:
(i) $1.00 per share as to 5,000 shares, which are immediately
exercisable;
(ii) $2.25 per share as to 6,500 shares, which are exercisable at any time
after May 26, 2000 and on or before May 26,2001;
(iii) $1.50 per share as to 4,500 shares, which are exercisable at any
time after May 26, 2001 and on or before May 26,2002;
provided, however, that in the event the employee's employment with the
Company is terminated prior to May 26, 2002, the vested portion of the
options become non-exercisable six months after such termination.
On May 26, 1999, the Company granted an option to purchase 100,000 shares
of the Company's Common Stock to Lou Pitt, a consultant to the Company, at
an exercise price of $1.00 per share. The option is exercisable immediately
upon grant and expires on May 26, 2002.
On June 24, 1999, the Company sold 250,000 shares of its Common Stock at a
purchase price of $2.00 per share, to the same individual who had purchased
500,000 shares of the Company's Common Stock on April 29, 1999. Proceeds to
the Company from the second sale were $500,000.
In June 1999, the Company issued 10,000 shares of its Common Stock to
Shannon Taylor, a consultant to the Company, in connection with her
exercise of options which were granted on January 4, 1999. Proceeds to the
Company in connection with such exercise were $2,300.
Subsequent to the end of the quarter ended June 30, 1999, the following
transactions took place:
On July 16, 1999, the Company granted an option to purchase 10,000 shares
of the Company's Common Stock to James Orr, a consultant to the Company, at
an exercise price of $1.00 per share. On the date of such grant, the
closing bid price of the Company's Common Stock as quoted on the OTC
Bulletin Board was $3.1875. The option is exercisable immediately upon
grant and expires on July 16, 2000.
On July 21, 1999, the Company and Media Group, Inc. ("MGI") entered into an
agreement (the "MGI Agreement") for the duplication of one million CD-ROM
shrink-wrapped packages for NBC. The total order is $380,000. Pursuant to
the MGI Agreement, the Company made a payment of $95,000 to MGI and
delivered 150,000 shares of its Common Stock (the "MGI Shares"). The
Company further agreed to include the MGI Shares in a registration
statement which the Company intends to file shortly with the Securities and
Exchange Commission for the benefit of certain selling stockholders (the
"Selling Stockholders' Registration Statement"). Until the Selling
Stockholders' Registration Statement is declared effective by the SEC, the
Company has agreed to make further payments to MGI under the MGI Agreement
until the full $380,000 is paid. Once the Selling Stockholders'
Registration Statement is declared effective by the SEC, the Company has
the right to have the MGI Shares returned to the Company within ten days
following the declaration of effectiveness by the SEC of the Selling
Stockholders' Registration Statement and to pay the $380,000 in full. If
the Company does not so elect, MGI has the right to (i) put the MGI Shares
to the Company and the Company will pay the balance then due under the MGI
Agreement, or (ii) retain the MGI Shares and sell them pursuant to the
prospectus forming a part of the Selling Stockholders' Registration
Statement, in which case any amounts received by MGI over the balance due
at that time shall be refunded to the Company. The Company has further
agreed to pay to MGI any shortfall between the net proceeds of any sale of
the MGI Shares and the balance owing under the MGI Agreement. There were no
proceeds to the Company in connection with this issuance.
5
<PAGE>
UNITED LEISURE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
4. LITIGATION
On November 12, 1996, Irvine Meadows, one of the Company's sublessees and
the operator of the Irvine Meadows Amphitheater, sued the Company and Harry
Shuster in Orange County, California Superior Court (Case No. 771509). The
plaintiff sought an injunction preventing the Company from removing certain
improvements from the property at the expiration of the lease. On January
3, 1997, Irvine Meadows filed a first amended complaint and sought an
injunction and declaratory relief but no money damages. On February 19,
1997, the trial judge granted Irvine Meadows' request for an injunction and
barred the Company from removing the leasehold improvements from the
property.
The plaintiffs won the suit on a motion for summary judgment in May 1998.
The Company appealed the decision of the court. On October 27, 1998, the
plaintiffs were awarded costs in the amount of approximately $545,000. The
Company also appealed this award.
On May 7, 1999, the Company settled this litigation. The Company agreed to
dismiss with prejudice the appeal of the trial court's judgment. The
Company also agreed to pay the plaintiffs not less than $225,000 in
principal amount, plus 6% interest compounded daily, in installments. Of
this amount, the Company's litigation counsel agreed to contribute
approximately $40,000. Concurrently with the signing of the settlement
agreement, $26,316.23 was paid, which includes principal of $25,000. On
July 1, 1999, an additional $26,841.61 was paid, which includes principal
of $25,000. The Company is required to make an additional payment of
$90,144.56, which includes principal of $87,500, on October 1, 1999, and a
final payment of $88,822.28, which includes principal of $87,500, on
December 31, 1999. If the Company fails to make any payment when it is due,
the Company can be held in default of the settlement agreement. In such
case, the plaintiffs could seek to enforce the original court's judgment in
an amount not to exceed $300,000, less any payments of principal the
Company has already made under the settlement agreement, plus 6% interest.
On June 7, 1999, the Company was sued by Hyperlock Technologies, Inc.
("Hyperlock") in the United States District Court for the Northern District
of Illinois, Eastern Division. Hyperlock alleges that the Company has
infringed United States Patent No. 5,892,825, (the "'825 patent") entitled,
"Method of Secure Server Control of Local Media Via a Trigger Through a
Network for Instant Local Access of Encrypted Data on Local Media."
Hyperlock is seeking an injunction against the Company and unspecified
damages. Hyperlock also seeks treble damages, court costs and reasonable
attorneys' fees and such other and further relief as the court may deem to
be just and proper. Based on a review of the '825 patent, the Company
believes that the suit is without merit. The Company believes that it has
not committed any acts of infringement, and intends to defend this suit
vigorously. Due to the inherent uncertainties regarding litigation, the
Company can make no prediction about the outcome of the litigation.
5. COMPUTATION OF LOSS PER SHARE
<TABLE>
<CAPTION>
For the Quarter Ended June 30, 1999
----------------------------------------------
Income Shares Per Share
(Numerator (Denominator) Amount
------------ ------------- -----------
<S> <C> <C> <C>
Basic loss per share:
Net loss $(1,234,273)
Less: accretion in the carrying amount
of common stock subject to
repurchase (27,000)
-----------
Net loss attributable to common
stockholders $(1,261,273) 15,525,854 $(0.08)
=========== ========== ======
<CAPTION>
For the Six Months Ended June 30, 1999
----------------------------------------------
Income Shares Per Share
(Numerator (Denominator) Amount
------------ ------------- -----------
<S> <C> <C> <C>
Basic loss per share:
Net loss $(2,245,858)
Less: accretion in the carrying amount
of common stock subject to
repurchase (54,000)
-----------
Net loss attributable to common
stockholders $(2,299,858) 14,462,851 $(0.15)
=========== ========== ======
</TABLE>
Options and warrants to purchase 9,862,950 shares were outstanding at June
30, 1999, but were not included in the computation of diluted loss per common
share because the effect would be antidilutive.
6
<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 1O-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
Through its wholly-owned subsidiary, United Internet Technologies,
Inc.("UIT"), United Leisure Corporation (the "Company") is primarily engaged in
the development and licensure of the Company's proprietary Internet technology
(the "Technology") and sites on the World Wide Web (the "Web") incorporating the
Technology. The Company has developed two proprietary technologies, Parallel
Addressing Technology ("PAV") and Dynamic Integrated Video Overlay ("DIVO").
Primarily, the Company licenses the use of the Technology to others. The Company
has licensed an application of the Technology for television to National
Broadcasting Company, Inc. ("NBC"), an application of the Technology for
wrestling and related activities to World Championship Wrestling, Inc. ("WCW"),
and travel related applications to Genisys Reservation Systems, Inc.
("Genisys"). The Company's Technology utilizes proprietary program instruction
applications to provide a means of linking a full motion video on a user's CD-
ROM or DVD-ROM drive to a site on the Web. The Company intends to continue to
pursue licensing agreements with others and may develop its own Web sites.
7
<PAGE>
Subsequent to the end of the second quarter, the Company and NBC entered
into a Master Development Agreement dated July 1, 1999 (the "Development
Agreement"). Pursuant to the Development Agreement, NBC will pay the Company
either a fixed fee or on a time and material basis for each project, as
specified in the related Statement of Work. The Development Agreement is for a
term of one year; however, NBC may terminate the Development Agreement for any
reason upon 30 days' prior written notice to the Company. In addition, either
party may terminate the Development Agreement in the case of a material breach
of a Statement of Work by the other party, which is not cured by the breaching
party within 30 days. NBC has the right to test and approve any ordered
products.
Pursuant to the first order placed under the Development Agreement, NBC has
ordered and the Company has agreed to master, reproduce and distribute 1,000,000
CD-ROMs containing NBC video and other graphics showcasing the NBC Fall 1999
television season and incorporating an interactive game/contest. The CD-ROMs
will utilize the Company's PAV and DIVO technologies tied to a special NBC Web
site. It is anticipated that the CD-ROMs will be distributed free in newspapers
on September 7, 1999, in six major metropolitan areas. The Company will be paid
a fixed price of $100,000 upon newspaper delivery of 1,000,000 CD-ROMs to
1,000,000 homes.
Prior to February 1997, the primary business of the Company had been to act
as a developer and manager (rather than as an operator) under a ground lease
(the "Ground Lease") with the Irvine Company. The Ground Lease terminated in
February 1997. As part of management's decision to reorient the Company's
business to the development and licensure of the Technology, the Company's Camp
Frasiers and Frasier's Frontiers activities have been discontinued and the
Company has decided to dispose of its Planet Kids facilities. In connection
therewith, the Company will have significantly reduced employment requirements,
primarily part-time and seasonal employees, in 1999.
Results of Operations
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30,
1998.
The Company had total revenue of $482,097 in the quarter ended June 30,
1999, compared to total revenue of $855,401 for the quarter ended June 30, 1998,
a decrease of $373,304 or approximately 43.6%. This decrease results primarily
from a decrease in the total amount of licensing fees related to the Company's
Internet business. In the quarter ended June 30, 1998, the Company had licensing
fees of $410,817, which 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
8
<PAGE>
the travel-related applications of the Company's interactive Internet technology
to a wholly-owned subsidiary of Genisys. In the quarter ended June 30, 1999, the
Company had licensing fees of $200,000, which the Company received in connection
with the licensing of the Company's interactive Internet technology to WCW in
connection with its wrestling Web site. WCW is a subsidiary of Turner
Broadcasting System Inc., a Time Warner company.
An additional contributing factor to the decrease in revenue for the
quarter ended June 30, 1999 is the decrease in revenue from children's
recreational activities, due primarily to declines in admissions in the
Company's three Planet Kids centers, as well as the fact that Frasier's Frontier
amusement park and Camp Frasier facilities did not operate at all during the
second quarter of 1999. All of the Company's revenue from children's
recreational activities in the quarter ended June 30,1999 was provided by Planet
Kids centers. Because the Company has reoriented its business to focus on the
Technology and move away from its historical emphasis on children's recreational
activities, the Company expects its revenue from children's recreational
activities to continue to decline in future periods.
Total operating expenses increased to $1,410,744 for the quarter ended June
30, 1999, from $973,673 for the quarter ended June 30, 1998, an increase of
$437,071 or approximately 44.9%. This increase was due primarily to increases in
operating expenses of UIT, specifically, increased salaries and consulting fees
for management, as well as for programmers, offset in part by decreased expenses
for personnel related to the Company's remaining children's recreational
facilities, Planet Kids.
Other expense decreased to $305,626 in the quarter ended June 30, 1999,
from $1,069,138 in the quarter ended June 30, 1998, a decrease of $763,512 or
approximately 71.4%. Included in other expense for the quarter ended June 30,
1998 is loss from the write-down of investment in Grand Havana Enterprises, Inc.
("GHEI") in the amount of $946,131. GHEI is an affiliate of the Company.
Included in other expense for the quarter ended June 30, 1999 is a charge of
$185,000 for litigation settlement.
For the quarter ended March 31, 1999, the Company had a net loss of
$(1,234,273) or ($0.08) per share, as compared to a net loss of $(1,187,410) or
($0.09) per share for the quarter ended June 30, 1998.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998.
The Company had total revenue of $801,540 for the six months ended June 30,
1999, compared to total revenue of $1,342,310 for the six months ended June 30,
1998, a decrease of $540,770 or approximately 40.3%. This decrease results
primarily from a decrease in the total amount of licensing fees related to the
9
<PAGE>
Company's Internet business. In the six months ended June 30, 1998, the Company
had licensing fees of $410,817, which 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 the travel-related applications of
the Company's interactive Internet technology to a wholly-owned subsidiary of
Genisys. In the six months ended June 30, 1999, the Company had licensing fees
of $200,000, which the Company received in connection with the licensing of the
Company's interactive Internet technology to WCW in connection with its
wrestling Web site.
An additional contributing factor to the decrease in revenue for the six
months ended June 30, 1999 is the decrease in revenue from children's
recreational activities, due primarily to declines in admissions in the
Company's three Planet Kids centers, as well as the fact that Frasier's Frontier
amusement park and the Camp Frasier facilities did not operate at all during
1999. All of the Company's revenue from children's recreational activities for
the six months ended June 30,1999 was provided by Planet Kids centers. Because
the Company has reoriented its business to focus on the Technology and move away
from its historical emphasis on children's recreational activities, the Company
expects its revenue from children's recreational activities to continue to
decline in future periods.
Total operating expenses increased to $2,438,459 for the six months ended
June 30, 1999, from $1,820,336 for the six months ended June 30, 1998, an
increase of $618,123 or approximately 34.0%. This increase was due primarily to
increases in operating expenses of UIT, specifically, increased salaries and
consulting fees for management, as well as for programmers, offset in part by
decreased expenses for personnel related to the Company's remaining children's
recreational facilities, Planet Kids.
Other expense decreased to $608,939 in the six months ended June 30, 1999,
from $1,407,305 in the six months ended June 30, 1998, a decrease of $798,366 or
approximately 56.7%. Included in other expense for the six months ended June 30,
1998 is loss from the write-down of investment in GHEI in the amount of
$946,131. Included in other expense for the six months ended June 30, 1999 is a
charge of $185,000 for litigation settlement.
For the six months ended June 30, 1999, the Company had a net loss of
$(2,245,868) or ($0.16) per share, as compared to a net loss of $(1,885,331) or
($0.14) per share for the six months ended June 30, 1998.
10
<PAGE>
Liquidity and Financial Condition
The Company has experienced operating losses in recent years. For the
quarter ended June 30, 1999, the Company experienced a net loss of $(1,234,273).
The Company's working capital requirements have been and will continue to
be significant. As of June 30, 1999, the Company had cash and cash equivalents
of $1,224,764 and a working capital deficit of $2,816,613.
The Company's future capital requirements will depend on various factors,
including:
1. The number of applications utilizing the Company's Technology that the
Company wants to develop;
2. UIT's needs to hire additional technical and marketing personnel;
3. The length of time that it takes for the Company to dispose of its
children's recreation facilities and the manner of disposition, the
sale of a portion of which, the real property located in El Cajon,
California, closed in August 1999; and
4. The Company and other members of United Hotel & Casino, L.L.C.("UHC"),
an affiliate of the Company, have entered into an agreement to sell the
commercial property UHC owns in Las Vegas (the "Las Vegas Property")
for $31.5 million. The Company believes that the net amount estimated
to be realized from the sale, which is scheduled to close in August
1999, will be considerably more than the cost.
Due to the fact that the Company did not meet the new minimum bid listing
requirements for maintenance of the Company's Common Stock on the Nasdaq
SmallCap Market (the "Nasdaq Market"), effective the close of business on
December 1, 1998, the Company's Common Stock was delisted from the Nasdaq
Market. The Company's Common Stock is now quoted on the OTC Bulletin Board. The
delisting could result in the Company's having difficulty in offering and
selling its securities to prospective investors.
If the Company is unable to raise additional funds, when needed, 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.
11
<PAGE>
As of June 30, 1999, investments in and loans to certain affiliated
companies, GHEI, UHC and HEP II, L.P., totaled approximately $4,124,784, or
approximately 48.2% of total assets. These affiliated companies have had
substantial losses and have working capital deficits, creating liquidity risks
for 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 in and receivables from
related companies are not impaired, the cumulative losses and liquidity problems
of the affiliated companies create an inherent risk in these assets. In
addition, at June 30, 1999, the Company had a net receivable from Harry Shuster
of $420,263.
Although the Company believes that its current cash and revenue from
operations, distributions received by the Company as a result of its
investments, repayment to the Company of amounts previously advanced by the
Company to GHEI, proceeds from the recently completed sale of the Company's real
property located in El Cajon, California (previously used in connections with
children's recreational activities) and the Company's portion of the net
proceeds from the pending sale of the Las Vegas Property 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.
The Company wishes to expand its development and marketing capabilities for
the Technology. While development of certain applications currently under
development can be funded from internal sources, more aggressive development and
marketing may require additional financing from either public or private
sources. To this end, the Company might raise additional capital either by
borrowing money or a public or private sale of equity or both. 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.
Year 2000 Issues
The Company has a Year 2000 project designed to identify and assess the
risks associated with its information systems, operations, infrastructure and
technology products, and customers and suppliers, that are not Year 2000
compliant, and to develop, implement, and test remediation and contingency plans
to mitigate these risks. The project comprises four phases: (1) identification
of risks, (2) assessment of risks, (3) development of correction and contingency
plans, and (4) implementation and testing.
The Company's Year 2000 project is being overseen by a consultant to the
Company. The Company's Year 2000 project is currently in the development of
correction plans phase. Based on
12
<PAGE>
vendor-provided information, the Company believes that all primary software
applications being used within the Company are either Year 2000 compliant or,
with upgrades, can be made Year 2000 compliant. Based on testing of certain
hardware, it was determined to replace certain systems. Such upgrading or
replacement of software and hardware is expected to be completed by September
30, 1999. Based on current estimates, the Company does not believe that the cost
of upgrading or replacing such software and hardware will be material. After all
upgrading and replacement is complete, all new systems will be evaluated for
Year 2000 compliance. The Company's technical consultant will continue to
analyze the current software and hardware vendors for Year 2000 compliance as
issues may be discovered within the Company or within the industry.
The Company believes that software products currently produced by the
Company are Year 2000 compliant; however, additional testing is in progress. It
is not believed that there will be any adverse effects on the ability to use the
interactive products being developed by the Company. Upgrading to uniform
operating and accounting systems on a Company-wide basis is in process. In
addition, the hardware used in connection with the children's recreational
activities business conducted by the Company will have to be replaced, if the
remaining assets are not sold by the end of 1999. The costs of such assessments
and upgradings or replacements are not expected to be material. In addition, the
Company is in the process of obtaining Year 2000 compliance statements from the
manufacturers of the Company's hardware and software products.
The Company believes that its greatest potential risks are associated
with(i)its information systems and systems embedded in its operations and
infrastructure; and (ii) its reliance on Year 2000 compliance by the Company's
vendors and suppliers of operating systems and software applications. The
Company is continuing its assessments for its operations and infrastructure, and
cannot predict whether significant additional problems will be identified. The
company is asking its critical vendors and suppliers to provide information on
the status of the Year 2000 compliance in order to assess the effect it could
have on the Company. The Company has supplied all such requests to such vendors.
The Company has not yet determined the full extent of contingency planning that
may be required. Based on the status of the assessments made and remediation
plans developed to date, the Company is not in a position to state the total
cost of remediation of all Year 2000 Issues. Costs identified to date have not
been material. However, the Company has not yet completed its assessments,
developed remediations for all problems, developed any contingency plans, or
completely implemented or tested any of its remediation plans.
Based on the Company's current analysis and assessment of the state of its
Year 2000 compliance, the Company's most
13
<PAGE>
reasonably likely worst case scenario involves delays in shipping of products by
its vendors and suppliers. Such delays could cause the Company to experience
delays in delivering its own products. Specific contingency plans will be
formulated after the Company has received information on the status of vendor
and supplier Year 2000 compliance.
As the Year 2000 project continues, the Company may discover additional
Year 2000 problems, may not be able to develop, implement, or test corrections
or contingency plans, or may find that the costs of these activities exceed
current expectations and become material. In many cases, the Company is relying
on assurances from suppliers that new and upgraded information systems and other
products will be Year 2000 compliant. The Company plans to test such third-party
products, but cannot be sure that its tests will be adequate or that, if
problems are identified, they will be addressed in a timely and satisfactory
way. Because the Company uses a variety of information systems and has
additional systems embedded in its operational infrastructure, the Company
cannot be sure that all its systems will work together in a Year 2000 compliant
fashion. Furthermore, the Company cannot be sure that it will not suffer
business interruptions, either because of its own Year 2000 problems, or those
of its customers or suppliers whose Year 2000 problems may make it difficult or
impossible for them to fulfill their commitments to the Company. If the Company
fails to satisfactorily resolve Year 2000 issues related to its products in a
timely manner, it could be exposed to liability to third parties. The Company is
continuing to evaluate Year 2000 related risks and will take such further
corrective actions as may be required.
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10-49 Option Agreement dated as of January 4, 1999 between United
Leisure Corporation and Brian Shuster(1)
10-50 Option Agreement dated as of January 4, 1999 between United
Leisure Corporation and Alvin Cassel(1)
10-51 Option Agreement dated as of January 4, 1999 between United
Leisure Corporation and J. Brooke Johnston, Jr.(1)
10-52 Option Agreement dated as of February 1, 1999 between United
Leisure Corporation and Brian Shuster(1)
10-53 Employment Agreement, dated as of January 1, 1999, between the
Company and Brian Shuster, together with supplemental agreement
between the Company, United Internet Technologies, Inc. and Brian
Shuster(1)
10-54 Consulting Agreement, dated as of January 1, 1999, between United
Internet Technologies, Inc. and Harry Shuster(1)
10-55 Agreement dated July 21, 1999 between the Company and Media
Group, Inc.(1)
27* Financial Data Schedule
- -----------------
* Filed herewith
(1) Previously filed as an exhibit of the same number to the Company's Quarterly
Report on Form 10-QSB for the Quarter Ended June 30, 1999, filed on August
16, 1999.
(b) Reports on Form 8-K
None
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant caused this amendment to its report on Form 10-QSB to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: September 1, 1999 UNITED LEISURE CORPORATION
By: /s/ Brian Shuster
-------------------------
Chairman of the Board and
Chief Executive Officer
(Principal Financial Officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,224,764
<SECURITIES> 0
<RECEIVABLES> 33,388
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,304,764
<PP&E> 276,880
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,542,230
<CURRENT-LIABILITIES> 4,061,377
<BONDS> 0
0
0
<COMMON> 157,658
<OTHER-SE> 26,695,498
<TOTAL-LIABILITY-AND-EQUITY> 8,542,230
<SALES> 0
<TOTAL-REVENUES> 801,540
<CGS> 0
<TOTAL-COSTS> 1,636,919
<OTHER-EXPENSES> 396,438
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 212,501
<INCOME-PRETAX> (2,245,858)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,245,858)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,245,858)
<EPS-BASIC> (0.16)
<EPS-DILUTED> (0.16)
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