UNITED LEISURE CORP, SB-2, 1999-09-01

UNITED LEISURE CORP
SB-2, 1999-09-01
LESSORS OF REAL PROPERTY, NEC

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As filed with the Securities and Exchange Commission on September 1, 1999
Registration No. 333-

- -----------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------

FORM SB-2
Registration Statement Under
The Securities Act of 1933

UNITED LEISURE CORPORATION
(Name of Small Business Issuer in its Charter)

Delaware 7389 13-2652243
(State or Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification Number)
Organization) Code Number)

United Leisure Corporation
1990 Westwood Boulevard
Los Angeles, CA 90025
(310) 441-0900
(Address and Telephone Number
of Principal Executive Offices)

Brian Shuster
United Leisure Corporation
1990 Westwood Boulevard
Los Angeles, CA 90025
(310) 441-0900
(Name, Address and Telephone
Number of Agent for Service)

Copies to:
Gerald M. Chizever, Esq.
Lance Jon Kimmel, Esq.
Richman, Lawrence, Mann, Chizever & Phillips
9601 Wilshire Boulevard, Penthouse
Beverly Hills, California 90210
(310) 274-8300 (phone)
(310) 274-2831(fax)

Approximate date of commencement of proposed sale to the public: As soon as
practicable from time to time after the effective date of this Registration
Statement.

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Amount to Offering Price Aggregate Registration
Securities to be Registered be Registered Per Unit(1) Offering Price Fee
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share 1,400,000 shares $2.65625 $3,718,750 $1,033.81
</TABLE>

(1) Estimated in accordance with Rule 457 solely for the purpose of determining
the registration fee and based on the average of bid and asked prices as
reported by the National Association of Securities Dealers Inc. on August
27, 1999.
____________________

If delivery of a prospectus is expected to be made pursuant to Rule 434, please
check the following box. [ ]

The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>

This is a preliminary prospectus which may be added to or amended. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission (SEC). These securities may not be sold
before the SEC declares the registration statement effective. These securities
are not being offered for sale in any state where their sale would be illegal
prior to registration or qualification under state law.

UNITED LEISURE CORPORATION
1,400,000 Shares of Common Stock

See "Risk Factors" beginning on page 3 for a discussion of certain factors that
you should consider before you invest in the common stock being sold with this
prospectus.

This prospectus covers the resale by some of our current stockholders of some or
all of the shares of our company's stock that they own. Only these stockholders
will be selling shares, not the company itself. The stockholders selling their
shares will receive the proceeds from any sales, not our company.

Our company will pay the costs of registering these shares.

Our common stock is quoted on the Nasdaq OTC Bulletin Board under the symbol
UTDL. On August 27, 1999, the closing price for our stock was $2.625
per share.

Neither the SEC nor state securities regulators have approved or disapproved
these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.

This prospectus is dated _________, 1999
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TABLE OF CONTENTS

Page
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<S> <C>
Summary.................................................................................. 3
Risk Factors............................................................................. 5
Use Of Proceeds.......................................................................... 15
Market For Common Stock And Related Stockholder Matters.................................. 15
Selling Stockholders..................................................................... 16
Plan Of Distribution..................................................................... 18
Management's Discussion And Analysis Of Financial Condition And Results Of Operation..... 18
Description of Internet Business......................................................... 25
Our Other Business....................................................................... 38
Legal Proceedings........................................................................ 44
Management............................................................................... 45
Executive Compensation................................................................... 47
Certain Relationships And Related Transactions........................................... 50
Security Ownership Of Certain Beneficial Owners And Management........................... 55
Indemnification For Securities Act Liability............................................. 56
Where You Can Find More Information...................................................... 56
Legal Matters............................................................................ 57
Experts.................................................................................. 57
</TABLE>

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SUMMARY

This summary highlights selected information from this prospectus and may
not contain all of the information that is important to you. We encourage you to
read the prospectus in its entirety.

Through our wholly-owned subsidiary, United Internet Technologies, Inc.,
our company, United Leisure Corporation, is primarily engaged in the business of
developing and licensing our proprietary Internet technology and sites on the
World Wide Web that incorporate our technology. We have developed two
proprietary technologies, Parallel Addressing Technology (PAV) and Dynamic
Integrated Video Overlay (DIVO). Our technology equips sites on the World Wide
Web with software that allows a CD-ROM or DVD-ROM to play a pre-recorded full-
motion video. The display of the video content at the user's end is completely
controlled by the Web server. Our technology lets users interact with a Web site
and experience full-motion video and stereo audio in broadcast quality while the
user is on line, without having to download files or play "streaming" video or
audio.

Primarily, we license the use of our technology to others. We have licensed
an application for television to National Broadcasting Corporation (NBC), an
application for wrestling and related activities to World Championship
Wrestling, Inc. and travel related applications to Genisys Reservation Systems,
Inc. We also have marketing agreements with EarthLink Network, Inc. and AT&T
Corp. We have other commercial and educational applications under development.
We intend to continue to pursue licensing agreements with others and we may also
develop our own Web sites.

Our in-house content and production capabilities span the spectrum from
development of video through distribution of the CD-ROM or DVD-ROM. We can
design a Web site's concept, write the script, shoot footage in various formats
to make it compatible with our technology, and distribute the final product.

We also have investments in several affiliated companies. These investments
consist of the following:

. United Hotel & Casino, L.L.C., which owns certain commercial real estate in
Las Vegas, Nevada on the "Las Vegas Strip". United Hotel is in the process
of selling the Las Vegas property.

. Grand Havana Enterprises, Inc., which owns and operates private membership
restaurants and cigar clubs

. HEP II L.P., which is in the motion picture production business.

Prior to February 1997, our 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, under a ground lease with the Irvine Company. That
ground lease terminated in February 1997. As part of the decision to reorient
our business to developing and licensing our technology, we have

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closed our Camp Frasiers and Frasier's Frontiers amusement park and we have
decided to dispose of our Planet Kids facilities.

Our address is 1990 Westwood Boulevard, Los Angeles, California 90025 and
our telephone number is (310) 441-0900.

The selling stockholders will be selling up to 1,400,000 shares of our
company's common stock, over time on the open market or in negotiated
transactions. The company is not selling any stock itself. The stockholders
selling their shares will receive the proceeds from any sales, not our company.
However, some stockholders who are selling their stock must first exercise
warrants which they hold; if they do so, our company could receive up to
$62,500, which it would use for general working capital. See "Selling
Stockholders."

Our company will pay the costs of registering these shares.

Offering these shares for sale does not guarantee that anyone will buy
them.

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RISK FACTORS

Investing in our stock is very risky. You should be able to bear a complete
loss of your investment. You should carefully consider the following factors,
among others.

Limited Operations; Our primary business is developing and licensing
Lack Of Diversification proprietary interactive Internet technology. These
activities are conducted through our wholly-owned
subsidiary, United Internet Technologies, Inc. Our
interactive Internet business has been our primary
business focus since 1998 and our operations from
that business are limited in scope and duration.
Our other business consists of (i) children's
recreational activities and (ii) investments we
make in affiliated companies. Our children's
recreational activities have been an increasingly
smaller part of our business and revenues since
February 1997, and we intend to dispose of our
remaining children's recreational facilities.
Therefore, our business may not be sufficiently
diversified to spread the risk of any downturn in
the growth of the Internet or in the development
and licensing our interactive Internet technology.

Sustained Losses We have sustained operating losses for the last
several years from our traditional business of
children's recreational activities. In addition,
we have significant working capital requirements
and these needs are expected to continue to be
significant. Moreover, we have significant
investments in affiliates, United Hotel & Casino,
L.L.C., Grand Havana Enterprises, Inc., and HEP II
LLP. Most of the affiliates have substantial
losses and working capital deficits. If these
losses continue, a substantial portion of our net
worth would be at risk. See "Description of
Internet Business - The Genisys Transaction" and
"Our Other Business - Investments in Affiliates."

Limited Operating History Our Internet subsidiary, United Internet, was
for Our Internet Business formed to develop and market our proprietary
interactive Internet technology and related
products. So far, United Internet's operations
have been limited to developing, marketing and
licensing a small number of applications of our
technology. See "Description of Internet Business
- Applications." Our success depends upon
developing and licensing, or selling, additional
applications of our technology. If additional
applications of our technology are not
successfully developed and licensed or sold, there
would be a material adverse effect on our
business, results of operations and financial
condition.

Future Revenues Are We cannot forecast revenues from our Internet
Uncertain business accurately. This is because of the
limited operating history of our Internet business
and the rapidly developing nature of the Internet
market.

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The market for our technology is uncertain. We
intend to increase substantially our operating
expenses to accomplish certain goals. These
include:

. further developing our Technology

. creating new applications of our Technology

. increasing sales and marketing activities

. purchasing additional equipment for
operations.

Many of these and other expenses of operating our
Internet business are fixed expenses. If we are
not successful in increasing revenues, we may be
unable to adjust spending quickly to compensate
for any revenue shortfall. This could lead to
further losses. Alternatively, we might have to
reduce certain operating expenses, and this could
have a negative effect on developing the Internet
business and generating revenues. Either of these
situations could have a material adverse effect on
our business, results of operations and financial
condition.

We May Need Through United Internet, we intend to enter into
Additional Financing additional license agreements for our technology.
We expect that these license agreements will
generate revenue that United Internet can use to
develop our Internet business further. However, it
is not known whether we will be successful in
entering into additional license agreement. If
license agreements and other arrangements do not
generate enough revenue to develop our Internet
business further, we will need to raise money.
This would probably be done by selling our stock,
stock of United Internet, our investment in
affiliated companies or other securities in public
or private offerings. It is not known whether we
would be successful in raising additional money in
the future. Depending upon how much money we
raise, United Internet may have more or less
ability to expand our Internet business rapidly.
See Description of Internet Business - Business
Strategy." If we are unable to generate revenue
from our business operations or raise additional
funds when needed or on favorable times, United
Internet may not be able to continue developing
our Internet business. That would have a material
adverse effect on our business, results of
operations and financial condition.

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Our Internet Business Because we have developed a small number of
is Not Diversified applications of our interactive Internet
technology, we are more vulnerable than a more
diversified business to any unanticipated
occurrences. So far, only a limited number of
applications of our technology have been developed
and licensed:

. with NBC to preview its Fall 1999 television
season

. with Turner Sports/Time Warner associated
with a wrestling Web site

. an on-line travel planning and reservations
system

United Internet has a license agreement with NBC
to master, reproduce and distribute 1,000,000 CDs
with a preview of NBC's Fall 1999 television
season. See "Description of Internet Business
- Applications - Television. "

United Internet has a license agreement with World
Championship Wrestling on a non-exclusive basis.
Our technology will be used by WCW in connection
with their World Championship Wrestling Web site.
See "Description of Internet Business -
Applications - Wrestling."

United Internet also has a license agreement with
NetCruise Interactive, Inc. (NII) for travel and
travel-related applications of our technology. In
this license agreement, we transferred all of our
rights to the travel applications of our
technology to NII. In exchange for this perpetual
license, United Internet received a substantial
amount of the common stock of NII's parent
company, Genisys Reservation Systems, Inc.
Therefore, we have only an indirect ownership
interest in the travel application of our
technology. See "Description of Internet
Business - Applications - Travel."

The Genisys Transaction Since we entered into the transaction with
Has Special Risks Genisys and NetCruise, the transaction has been
restructured in some significant ways. These
include the amount and type of securities that
United Internet will receive from Genisys. The
stockholders of Genisys must approve the
transaction for the original terms of the deal to
apply. In addition, if the Genisys stockholders do
not approve the original transaction, the entire
transaction with Genisys will be unwound. See
"Description of Internet Business - The Genisys
Transaction."

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Risks Associated with Genisys and its NII subsidiary have had serious
NetCruise(C) License delays launching Internet travel services that
use our technology. Significant additional delays
could have a material adverse effect on Genisys'
revenues and the price of its stock, of which we
have a significant amount. See "Description of
Internet Business - Current Applications - Travel"
and "Description of Internet Business - The
Genisys Transaction."

Strategic Alliances We intend to enter into additional license
agreements. However, we do not know if we will be
able to enter into any such agreements or if any
agreements entered into will be favorable to us.
If additional agreements are not entered into, the
cost of introducing new applications of our
technology in the marketplace may be prohibitive
under our current business plan and
capitalization. See "Description of Internet
Business - Business Strategy."

Development Risks We do not know if United Internet will be able to
develop any additional applications of the
technology which are commercially viable or
competitive. Additional development is required
for new commercial and educational applications of
our technology. See "Description of Internet
Business - Business Strategy." Additionally, we
do not know if United Internet will be able to
expand its present staff of technicians and
software designers to create a large enough staff
that is capable of developing commercial and
educational applications of the technology in a
timely manner.

Uncertainty About The Our ability to earn revenue from our Internet
Internet as a Medium of products depends in part upon increased
Commerce; Dependence acceptance of the Internet as a medium for "e-
on the Internet commerce" by consumers. The Internet may not
develop into a viable commercial marketplace as
quickly as some industry estimates suggest. E-
commerce on the Internet may not develop to the
extent anticipated. Rapid growth and interest in
the Internet and other online services is a recent
development. We do not know if the use of the
Internet for e-commerce will continue to develop
or that a large enough number of consumers will
use the Internet and other online services for e-
commerce. Because global commerce on the Internet
is still new and evolving, we cannot predict the
extent to which the Internet will be a viable
commercial marketplace. In addition, there are
several factors that could have an impact of the
growth of e-commerce. These include:

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. security

. reliability of service

. cost of Internet access

. how easy it is to use the Internet or e-
commerce features on the Internet

. how easy it is to gain access to the Internet

. quality of service

. delays in developing of new standards and
protocols to handle increased Internet
traffic

. increased governmental regulation

Slow growth of e-commerce on the Internet for
these or any other reasons could have a material
adverse effect on our business, results of
operations and financial condition.

We depend upon Web browsers, Internet Service
Providers and Online Service Providers to allow
Internet users to access United Internet's own Web
sites and Web sites of United Internet's
licensees. From time to time, users may experience
difficulties accessing or using Web sites due to
system failures or delays which are not related to
United Internet's systems. These difficulties may
negatively affect audio and video quality or
result in interruption of video delivery. Any
significant delays or failure of service could
reduce the attractiveness of our technology and
applications to our licensees, users, advertisers
and content providers. Any of these events could
have a material adverse effect on our business,
results of operations and financial condition.

Security Risks Even though we employ security measures, United
Internet's Web sites and the Web sites of United
Internet's licensees may be vulnerable to
unauthorized access, computer viruses, Trojan
horses, worms and other disruptions. A party who
is able to circumvent security measures could
misappropriate proprietary information or cause
interruptions in United Internet's or its
licensees' Internet operations. Internet Service
Providers and Online Service Providers have
experienced, and may in the future experience,
interruptions in service as a result of the
accidental or intentional actions of Internet
users, their own current and former employees or
others. We may be required to spend significant

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capital or other resources to protect against the
threat of security breaches or to solve problems
caused by these types of security breaches.
Although United Internet intends to continue to
implement industry-standard security measures, we
do not know if the measures implemented by United
Internet will be circumvented in the future.
Eliminating computer viruses, Trojan horses and
worms and solving other security problems may
require interruptions or delays in service to
users who access United Internet's or its
licensees' Web sites. Any of these things could
have a material adverse effect on our business,
results of operations and financial condition.

Intense Competition There is significant competition in the evolving
market for video delivery on the Internet. We and
our primary competitors have each approached
Internet video delivery using different
technologies. Many of our competitors have
substantially greater financial, marketing,
personnel and other resources than we have. Our
management believes that the barriers to enter
this market are relatively high and there is
significant lead time required to market a
competitive Internet video delivery technology.
See "Description of Internet Business -
Competition."

There is significant competition for content
development and broadcasting on the Internet. The
largest competitors in the context development and
broadcast area are broadcast.com, Inc. and
RealNetworks, Inc. These, and many other
competitors in the content development and
broadcast area, have substantially greater assets
than we do. We expect competition in this area to
remain strong and to increase further.

Technological The Internet, computer hardware and software
Obsolescence markets, and the field of e-commerce, all are
undergoing rapid technological changes. Newer
technologies, techniques or products could be
developed which might perform functions similar to
our technology and which operate as efficiently
and easily, or which solve the problem of long
download times for multimedia files in other ways.
For example, a new technological advance that
allows faster downloading of information from
computer networks, or the development of entirely
new methods of data transmission, could have a
material adverse effect on our business, results
of operations and financial condition.

It is probable that existing broadband technology
will eventually develop to allow streaming video
to provide television-quality video in direct
competition with our technology, as well as with
other alternative video delivery systems. While
some industry

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estimates project that such developments may not
occur for the next six to eight years, we do not
know if these technological developments will
occur sooner. In any event, over time we will need
to respond to technological innovation in a
rapidly changing industry. See "Description of
Internet Business - Introduction."

Government Regulation Although there are currently few laws and
and Legal Uncertainty regulations that directly apply to the Internet,
it is likely that new laws and regulations will be
adopted in the United States and elsewhere
covering a wide range of Internet-related issues.
This could include broadcast license fees, music
licensing, copyrights, privacy, pricing, sales
taxes, and characteristics and quality of Internet
services. It is also possible that laws could be
passed that may apply to us in the areas of
content, network security, encryption, privacy
protection, electronic authentication or "digital"
signatures, illegal and harmful content, access
charges and re-transmission activities. If
restrictive laws or regulations are adopted, it
could slow Internet growth. If certain laws or
regulations apply to us and the type of Internet
business or service we provide, it could expose us
to significant liabilities associated with the
content on United Internet's Web sites, and
possibly for the content on the Web sites of
United Internet's licensees. We do not know if
laws will be adopted that apply to our business on
the Internet. If such laws and regulations are
adopted, we do not know if they will affect our
business. Any new legislation or regulation or
enforcement of existing laws and regulations could
limit the growth of the Internet, increase our
cost of doing business or increase our legal
exposure.

There are also uncertainties about how existing
laws in other areas apply to the Internet. Some of
these laws deal with such issues as property
ownership, libel, taxation, defamation and
personal privacy. The majority of these laws were
adopted before the widespread use of the Internet.
Therefore, they do not address the unique issues
of the Internet and related technologies. There
are very few cases about the interpretation of
these types of law on Internet use. If such laws
apply to the Internet, it could limit growth of
the Internet and could have a material adverse
effect on our business, results of operations and
financial condition.

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we do not know how any future laws or regulations
regarding decency might be interpreted. In
addition to the potential for liability, these
types of laws could also damage the growth of the
Internet generally. That could have the effect of
decreasing the demand for our technology and its
applications. Any of these developments could have
a material adverse effect on our business, results
of operations and financial condition. So far, we
have not required our licensees to indemnify us
for this type of liability and we do not have
insurance for this type of liability.

If we are considered to be a distributor of
Internet content, we face potential liability for
negligence, copyright, patent, trademark,
defamation, indecency and other claims. These
types of lawsuits have been brought against
Internet content distributors. In addition, we
could be liable for the broadcast content, or
unauthorized duplication of broadcast content. So
far, we have not required our licensees to
indemnify us for this type of liability. Any
liability that is not covered by insurance or an
indemnification by a licensee could have a
material adverse effect on our business, results
of operations and financial condition. At present,
we do not have insurance for this type of
liability. See "Description of Internet
Business - Governmental Regulation."

Patent Matters We filed a provisional application for a utility
patent for our PAV and DIVO technology with the
U.S. Patent and Trademark Office in July 1997. We
have been notified by the Patent Office that our
patent has been allowed and we expect it to be
issued sometime in the next few months. We filed a
second patent application relating to enhancements
to our DIVO technology in May 1999. We do not know
if that patent will be issued or, if it is issued,
how broad it will be. It is therefore possible
that our competitors will be able to use products
and technologies similar to our own. That could
significantly reduce our competitive advantage.
However, even if a patent is not issued, we
believe that the value of our DIVO technology will
not be critically impaired. We also do not know if
any patent that we might receive in the future
will provide protection from infringement or if
our patent applications will be challenged. If any
of our patents are challenged, we do not know what
the result of the challenge would be and we also
do not know if we would have adequate resources to
enforce or defend our rights. See "Description of
Internet Business - Patents and Trademarks" and
"Legal Proceedings."

Patent Infringement On June 7, 1999 we were sued by Hyperlock
Lawsuit Technologies, Inc. in the United States District
Court for the Northern District of Illinois,
Eastern Division. Hyperlock alleges that we have
infringed United

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States Patent No. 5,892,825, 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 us 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, we believe that the suit is
without merit. We believe that we have not
committed any acts of infringement, and we intend
to defend this suit vigorously. Due to the
inherent uncertainties regarding litigation, we
can make no prediction about the outcome of the
litigation. However, an adverse result would have
a material adverse effect on our business, results
of operations and financial condition. See "Legal
Proceedings".

Intellectual Property Our copyrights, trademarks, trade secrets and
other intellectual property rights are critical to
our success. We rely on copyright and trademark
laws, trade secret protection, and confidentiality
and non-disclosure agreements with our employees
and third parties to protect our proprietary
rights. We do not know if these steps will be
adequate. We do not know if we will be able to
obtain trademark registrations for our marks in
the United States or other countries. We do not
know if third parties will infringe upon or
misappropriate our copyrights, trademarks, service
marks and other intellectual proprietary rights.
None of our marks or rights are registered at
present. In addition, meaningful copyright and
trademark protection may be unenforceable or
limited in certain countries. In the future, it is
possible that we would have to sue to protect our
copyrights, trademarks, trade secrets and other
intellectual property rights. We cannot give any
assurance as to our ability to enforce our rights
or the outcome of any suits to protect those
rights.

United Internet generally enters into
nondisclosure agreements with its employees and
consultants. United Internet also limits access to
and distribution of its software, sensitive
documents and other proprietary information. We do
not know if the steps taken by United Internet
to prevent misappropriation of its proprietary
information will be successful. If these
agreements are breached we do not know if we will
have adequate remedies available, or if the
agreements themselves would be enforceable. Even
with the precautions taken by United Internet, it
might be possible for a third party to copy,
obtain and use, our proprietary information
without authorization. It is also possible that
our trade secrets will be independently developed
by competitors. See "Description of Internet
Business - Intellectual Property."

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We Depend on An important part of our performance depends upon the
Certain Personnel services of our senior management, certain other key
personnel, and technical and business consultants. The
loss of their services could have a material adverse
effect on our business, results of operations and
financial condition.

Dilution If we raise additional funds by selling common stock or
other equity securities, the interests of current
stockholders would be diluted. We may also issue common
stock or options or warrants to purchase our common
stock to provide incentives to officers, employees,
consultants, advisors and other people who perform
services for us. Stock which is issued when options and
warrants are exercised will dilute our present
stockholders' ownership percentage in our company.

Control of Our Company Brian Shuster and certain of his relatives are
by Certain Stockholders principal stockholders of our company. Harry Shuster,
the father of Brian Shuster, owns 34.9% of our common
stock, and Brian Shuster owns 7.1% of our common stock.
Therefore, Brian Shuster and members of his family have
the ability largely to control the outcome of Company
actions requiring the approval of our stockholders.
These matters include:

. election of directors

. mergers, sales of all or most of our assets; or

. other change of control of our company.

Brian Shuster is Chairman of the Board, President,
Chief Executive Officer and a director of our company.
See "Management," "Security Ownership of Certain
Beneficial Owners and Management" and "Certain
Relationships and Related Transactions."

Matters Relating to On May 24, 1999, Harry Shuster resigned his positions
Former Chairman as Chairman of the Board, Chief Executive Officer and a
director of our company and our United Internet
subsidiary, and also as President of our company. On
the same day, Mr. Shuster resigned as Chairman of the
Board, President, Chief Executive Officer and a
director of Grand Havana Enterprises, Inc., which is an
affiliate of our company. He also resigned as a
director of Genisys; and as Chairman of the Board of
NII. He resigned from these position to devote a
greater amount of his time to defend himself in
criminal proceedings following his indictment by the
U.S. Attorney for the Southern District of New York.
These matters concern Harry Shuster personally and do
not involve our company, our United Internet subsidiary
or any of our affiliates. The outcome of these

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matters is uncertain. Harry Shuster is the father of
Brian Shuster. Harry Shuster provides certain
consulting services to us in connection with our non-
Internet business. Harry Shuster is a principal
stockholder of our company. See "Management", "Security
Ownership of Certain Beneficial Owners and Management"
and "Certain Relationships and Related Transactions".

Dividends We have not paid dividends on our common stock in the
past and we do not expect to declare dividends on our
common stock in the foreseeable future. We intend to
continue to retain earnings for use in the operation
and expansion of our business. Dividend policy in the
future is at the discretion of our Board of Directors
and will depend upon our financial condition, results
of operations, capital requirements and other factors
that the Board of Directors considers relevant. We are
not a party to any agreement restricting the payment of
dividends. See "Market for Common Stock and Related
Stockholder Matters" and "Our Other Business -
Dividends."

USE OF PROCEEDS

The stockholders selling their shares of common stock will receive the
proceeds from any sales, not our company. However, some selling stockholders may
exercise warrants which they presently own. If these stockholders exercise their
warrants, our company could receive up to $62,500 from them, which we would use
for general working capital purposes. See "Selling Stockholders."

MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Our common stock was traded on the Nasdaq SmallCap Market under the symbol
UTDL from November 10, 1994 until December 1, 1998. In our 1994 public offering,
we sold a total of 4,945,000 units, each unit consisting of one share of common
stock and one Class A Warrant. Each Class A Warrant entitles the holder to
purchase one share of the our common stock at an exercise price of $4.00 per
share. The Class A Warrants expire on November 10, 1999. On February 26, 1998,
our Class A Warrants were delisted from the Nasdaq Market because there were no
longer any active market makers registered to trade the Class A Warrants.
Effective the close of business on December 1, 1998, our common stock was
delisted from the Nasdaq Market because it did not satisfy Nasdaq's minimum bid
requirement of $1.00 per share. Our common stock is now quoted on the OTC
Bulletin Board.

This table shows the high and low bid prices of our common stock, for each
quarter from January 1, 1997 through June 30, 1999. The information for the
period January 1, 1997 through

15
<PAGE>

December 1, 1998 is from the Nasdaq Market and the information for the period
December 2, 1998 through August 27, 1999 is from the OTC Bulletin Board.

<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
High Bid Low Bid High Bid Low Bid High Bid Low Bid
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
lst Quarter $ 7/8 $ 3/8 $ 3/8 $ 1/4 $2.15 $ .23
2nd Quarter $ 7/16 $ 1/4 $ 1/4 $5/32 $4.87 $ .81
3rd Quarter $ 5/16 $5/16 $5/16 $3/16 $3.38(1) $2.13(1)
4th Quarter $13/16 $ 1/4 $ 1/4 $5/32 --- --
</TABLE>

- ------------------
(1) Through August 27, 1999.

These quotes are for dealer transactions and do not include retail markup,
markdown or commissions. They do not represent actual sale prices.

On August 16, 1999, there were approximately 2,428 holders of record of our
common stock.

We have not paid dividends on our common stock in the past and we do not
expect to declare dividends on our common stock in the foreseeable future. We
intend to continue to retain earnings for use in the operation and expansion of
our business. We are not a party to any agreement restricting the payment of
dividends.

SELLING STOCKHOLDERS

This table shows the names of the selling stockholders, how many shares
they own, the maximum number of shares they plan to sell in this offering, how
many shares they will own if they sell all the shares they own, and the
percentage of the total number of shares they will own before and after their
sales.

<TABLE>
<CAPTION>
Name Shares Beneficially Number of Shares to Shares Beneficially
Owned Prior to Offering to be Sold in Offering Owned After Offering
----------------------- ---------------------- --------------------

Number (1) Percent Number Percent
---------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Klaus Helbert 1,249,000 7.8% 750,000 499,000 3.1%
IIG Capital LLC 250,000 1.6% 250,000 0 -
Media Group, Inc. 150,000 * 150,000 0 -
Mark Hollo (2) 125,000 * 125,000 0 -
Sands Brothers & Co., Ltd. (2) 125,000 * 125,000 0 -
</TABLE>

- ------------------------

(1) Percentage of ownership for each holder is calculated on 15,935,854
shares of common stock outstanding on August 16, 1999. Beneficial
ownership is determined

16
<PAGE>

in accordance with the rules of the SEC and generally includes shares
over which the holder has voting or investment power, subject to
community property laws. Shares of common stock subject to options or
warrants that are currently exercisable or exercisable within 60 days
are considered to be beneficially owned by the person holding the
options or warrants for computing that person's percentage, but are
not treated as outstanding for computing the percentage of any other
person.

(2) Consists of 125,000 shares of our common stock which may be issued
upon the exercise of warrants.

Klaus Helbert purchased 750,000 shares of common stock of our company in
two private offerings during 1999, at $2.00 per share. We agreed to register
these shares in this registration statement. We received $1,500,000 in gross
proceeds from these offerings. Mr Helbert is neither a citizen nor a resident of
the United States.

On July 21, 1999, we entered into an agreement with Media Group, Inc. for
the duplication of 1,000,000 CD-ROM shrink-wrapped packages for NBC. The total
order is $380,000. Under this agreement with Media Group, we paid $95,000 to
Media Group and delivered 150,000 shares of our common stock. We agreed to
include those shares in this registration statement. Until this registration
statement is declared effective by the SEC, we agreed to make further payments
to Media Group of $95,000 per month beginning November 1, 1999 until the full
$380,000 is paid. Once this registration statement is declared effective by the
SEC, we have the right to have Media Group return the 150,000 shares to us
within ten days following the declaration of effectiveness by the SEC of this
registration statement and pay Media Group the $380,000 in full. If we do not
make this election, Media Group has the right to either (i) put the shares to us
and we will pay the balance then due under the agreement, or (ii) retain the
shares and sell them, in which case any amounts received by Media Group over the
balance due at that time will be refunded to us. We further agreed to pay to
Media Group any shortfall between the net proceeds of any sale of the shares and
the balance owing under the agreement.

On June 25, 1998, we entered into an agreement with Sands Brothers & Co.
Ltd., and we amended that agreement on July 23, 1998. Under the amended
agreement, Sands Brothers agreed to serve as our exclusive financial advisor and
consultant in connection with acquisitions, financings and other transactions
for a three-year period. Sands Brother was also appointed as our non-exclusive
advisor and consultant for certain business transactions. In addition, Sands
Brothers had a right of first refusal for future financing transactions during
the term of the agreement. For its services, the agreement provided that Sands
Brothers was to be paid a flat fee and a 5% transaction fee for business
transactions. Under this financial advisory agreement, we issued a warrant to
Sands Brothers for 125,000 shares of our common stock and a warrant to Mark
Hollo, the Managing Director of Sands Brothers, for 125,000 shares of our common
stock. The warrants can be exercised at $.25 per share for a period of five
years beginning June 25, 1998. Alternatively, the warrants can be exercised in a
"cashless" manner, by which the warrant holder does not pay for the exercise of
the warrants and receives a fewer number of shares based on the value of the
stock at the time the warrant is exercised. In that situation, we would not
receive any proceeds from the exercise of these warrants. We can redeem the
warrants under certain circumstances which have not yet been satisfied. Sands
Brothers and Mark Hollo have the right to have us register the shares of our
common stock underlying the warrants. We are registering these shares as
provided by this

17
<PAGE>

financial advisory agreement.

We have since terminated this agreement, except that Sands Brothers remains
a non-exclusive advisor and consultant for certain business transactions and the
warrants remain in full force and effect.

In June 1999, Grand Havana and Harry Shuster settled certain litigation that
was threatened to be brought by The International Investment Group Equities Fund
N.V. and certain related parties against Grand Havana and Mr. Shuster. As part
of that settlement, these investors transferred to Harry Shuster a total of
2,315,270 shares of Grand Havana common stock and warrants to purchase an
additional 1,157,636 shares of Grand Havana common stock, and Harry Shuster
transferred to these investors 250,000 shares of our common stock which Mr.
Shuster owned personally. IIG Capital LLC is the nominee holder of the shares on
behalf of these investors, The International Investment Group Equities Fund
N.V.; The Venezuela Recovery Fund N.V.; New Millennium FSG Ltd.; The First
Newland Bank; AmeriCapital, S.A.; and Alberto Ardissone. None of these entities
and people is an affiliate of our company. We agreed to register those shares in
this registration statement.

PLAN OF DISTRIBUTION

The selling stockholders will be selling their stock over time through
dealers on the OTC Bulletin Board at quoted prices or directly to buyers at
negotiated prices, or both.

Our company will pay the costs of registering these shares.

Offering these shares for sale does not guarantee that anyone will buy them.

MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION

The following discussion contains forward-looking statements within the
meaning of Federal securities laws. Such statements can be identified by the use
of such words as "may," "will," "expect," "anticipate," "estimate" or other
similar words. Forward-looking statements discuss future expectations, contain
projections of results of operations or financial condition or state other
forward-looking information. When considering such forward-looking statements,
you should keep in mind the risk factors and other cautionary statements in this
Prospectus. Management believes that the expectations reflected in such forward-
looking statements are based on reasonable assumptions. However, there are
certain factors, such as our ability to acquire other businesses, obtain
financing for such acquisitions or for general corporate needs, market and
general economic conditions, that might cause a difference between actual
results and those forward-looking statements. This discussion should be read in
conjunction with our consolidated financial statements and the notes included in
this prospectus beginning on page F-1. This statement applies to all forward-
looking statements that appear anywhere in this prospectus.

18
<PAGE>

Overview

Through our wholly-owned subsidiary, United Internet, we are primarily
engaged in the business of developing and licensing our proprietary Internet
technology and sites on the World Wide Web that incorporate our technology. We
have developed two proprietary technologies, Parallel Addressing Technology
(PAV) and Dynamic Integrated Video Overlay (DIVO). Primarily, we license the use
of our technology to others. We have licensed an application for television to
NBC, an application for wrestling and related activities to World Championship
Wrestling, Inc. (WCW), and travel related applications to Genisys Reservation
Systems, Inc. Our technology uses 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. We intend to continue to pursue licensing agreements
with others and we may also develop our own Web sites.

Prior to February 1997, our primary business had been to act as a developer
and manager (rather than as an operator) under a ground lease with the Irvine
Company. That ground lease terminated in February 1997. As part of the decision
to reorient our business to developing and licensing our technology, we have
closed our Camp Frasiers and Frasier's Frontiers amusement park and we have
decided to dispose of our Planet Kids facilities. In August 1999, we sold real
property in El Cajon, California which we previously used for some of our
children's recreational activities. As a result of the reduced operation of our
children's recreational activities, we will have significantly fewer employees,
primarily part-time and seasonal employees, in 1999.

Results of Operations

Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998

We 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 our Internet
business. In the six months ended June 30, 1998, we had licensing fees of
$410,817, which amount represents the book value of 2,000,000 shares of
unregistered common stock of Genisys that we received when we licensed the
travel-related applications of our technology to a wholly-owned subsidiary of
Genisys. In the six months ended June 30, 1999, we had licensing fees of
$200,000, which we received in connection with licensing our 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 declining admission at our 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 our
revenue from children's recreational activities for the six months ended June
30, 1999 was provided by Planet Kids centers. Because we have reoriented our
business to focus on our technology and move away from our historical emphasis
on children's recreational activities, we expect revenues from children's
recreational activities will continue to decline in future periods.

19
<PAGE>

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 United Internet, specifically, increased
salaries and consulting fees for management and programmers. This increase was
offset in part by decreased expenses for personnel related to our 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 our investment in Grand Havana in the amount
of $946,131. Grand Havana is an affiliate of our company. 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, we 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.

Fiscal Year Ended December 31, 1998 Compared to Fiscal Year Ended December 31,
1997

We had total revenues during the fiscal year ended December 31, 1997, in the
amount of $2,889,141 as compared to $2,443,601 for the fiscal year ended
December 31, 1998, a decrease of $445,540. The decrease is due primarily to the
fact that we had reduced revenues from our children's recreational activities.
Revenues from children's recreational activities decreased from $2,802,342 for
the fiscal year ended December 31, 1997 to $2,032,784 for the fiscal year ended
December 31, 1998, a decrease of $775,558. This decrease in revenues was due
primarily to lower attendance at these facilities. We had revenues for the first
time from licensing our proprietary Internet technology, in the amount of
$410,817.

Operating expenses, excluding impairment losses, decreased from $5,825,624
for the fiscal year ended December 31, 1997, to $4,029,035 for the fiscal year
ended December 31, 1998, or a decrease in operating expenses of $1,796,589. This
decrease was due primarily to decreases in occupancy expenses and selling,
general and administrative expenses associated with termination of our Irvine,
California ground lease operations in February 1997. In addition, depreciation
and amortization for the fiscal year ended December 31, 1997 was $747,282,
compared to $171,623 for fiscal year ended December 31, 1998. This decrease in
depreciation and amortization was as a result of the impairment loss of
$3,862,554 taken in the fiscal year ended December 31, 1997.

For the fiscal year ended December 31, 1997, we had a net loss of $7,313,545
or ($0.59) per share, compared with a net loss of $514,839 or ($0.04) per share
for the fiscal year ended December 31, 1998. The net loss in the fiscal year
ended December 31, 1997 was primarily the result of an impairment loss in the
amount of $3,862,554 relating to Planet Kids, additional legal expenses relating
to litigation with the Irvine Company (which we have since settled) and the fact
that we had only two months of revenues from our ground lease operations prior
to the expiration of the ground lease in February 1997.

20
<PAGE>

We incurred legal expenses of $716,291 in the fiscal year ended December 31,
1997, as compared to $603,183 in the fiscal year ended December 31, 1998. In
addition, we wrote down $1,464,264 of various investments and our equity in net
losses of other companies we have invested in, of $475,881 in the fiscal year
ending December 31, 1998. This was offset by an extraordinary gain of $4,043,020
resulting from the settlement of the litigation with the Irvine Company.

Fiscal Year Ended December 31, 1997 Compared to Fiscal Year Ended December 31,
1996

We had total revenues during the year ended December 31, 1996, in the amount
of $4,495,500 as compared to $2,889,141 for 1997, a decrease of $1,606,359. The
decrease is due primarily to the fact that we had rental income from our ground
lease operations of $80,799 for the fiscal year ended December 31, 1997 compared
to $1,444,284 for the fiscal year ended December 31, 1996. Revenue from
children's recreational activities decreased from $3,051,216 for the fiscal year
ended December 31, 1996 to $2,808,342 for the fiscal year ended December 31,
1997, a decrease of $242,874. This decrease in revenue was due primarily to the
fact that since the ground lease terminated in February 1997, we had no revenues
in 1997 from our Camp Frasier facility that had formerly been located on that
property. This camp had been our largest summer day camp operation.

Operating expenses, excluding impairment losses, decreased from $6,055,281
for the fiscal year ended December 31, 1996 to $5,825,624 for the fiscal year
ended December 31, 1997, or an aggregate decrease in operating expenses of
$229,657. This decrease was due primarily to decreases in occupancy expenses and
selling, general and administrative expenses associated with termination of our
ground lease operations in February 1997. This decrease was offset by services
rendered in obtaining the First Westminster Loan and a loan from Harvey Bibicoff
in connection with our investment in United Hotel & Casino. We recognized
impairment losses during 1997 of $3,862,554 as the result of a write-off of
certain property and equipment of the Planet Kids centers.

For the fiscal year ended December 31, 1996, we had a net loss of $403,275
or ($.03) per share compared with a net loss of $7,313,545 or ($0.59) per share
for the fiscal year ended December 31, 1997. The net loss in the fiscal year
ended December 31, 1996 included income from reversing a provision for disputed
contingent claims of approximately $1,100,000. The net loss in the fiscal year
ended December 31, 1997 was primarily the result of the impairment loss in the
amount of $3,862,554 relating to Planet Kids, additional legal expenses relating
to the litigation with the Irvine Company and the fact that we had only two
months of revenues from our ground lease operations for the fiscal year ended
December 31, 1997.

We incurred legal expenses of $331,291 for 1996 as compared to $716,291 for
1997. Interest income on the invested net proceeds of our 1994 public offering
was $382,028 in 1996, as compared to $344,009 in 1997. This decrease is due
primarily to the fact that we spent substantially all of the net proceeds from
our 1994 public offering by December 31, 1996.

In 1996, we wrote off a previous provision for a disputed contingency claim
in the amount of $1,128,973 which we had previously established in connection
with the litigation with the

21
<PAGE>

Irvine Company. We did that because management believed that it was unlikely
that any portion of this amount would ever have to be paid.

Liquidity and Financial Condition

We have experienced operating losses in recent years. For the six months
ended June 30, 1999, we had a net loss of $(2,245,858) and for the year ended
December 31, 1998, we had a net loss of $(514,839).

Our working capital requirements have been and will continue to be
significant. As of June 30, 1999, we had cash and cash equivalents of $1,224,764
and a working capital deficit of $2,816,613.

Our future capital requirements will depend on various factors, including:

(i) The number of applications utilizing our technology that we want
to develop;

(ii) United Internet's needs to hire additional technical and marketing
personnel;

(iii) The length of time that it takes for us to dispose of our 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

(iv) We and other members of United Hotel have entered into an agreement to
sell the commercial property United Hotel owns in Las Vegas for $31.5
million. We believe that the net amount we will realize from the sale
will be considerably more than the cost of our investment in United
Hotel. United Hotel is an affiliate of our company.

Due to the fact that we did not meet the new minimum bid listing
requirements for maintenance of our Common Stock on the Nasdaq SmallCap Market,
effective the close of business on December 1, 1998, Nasdaq delisted our Common
Stock from the Nasdaq Market. Our common stock is now quoted on the OTC Bulletin
Board. The delisting could make it more difficult for us to offer and sell our
securities to prospective investors.

If we are unable to raise additional funds, when we need them, through the
private or public placement of our securities or United Internet's securities,
we may seek financing from affiliated or unaffiliated third parties. We can give
no assurance, however, that financing would be available to us should we need
it, or, if it is available, that it will be available on favorable terms. If we
are unable to sell our securities or obtain financing to meet our working
capital needs and to repay indebtedness as it becomes due, we may have to
consider other alternatives such as selling or pledging a portion of our assets,
in order to meet such obligations.

As of June 30, 1999, investments in and loans to certain affiliated
companies, Grand Havana, United Hotel and HEP II, totaled approximately
$4,124,784, or approximately

22
<PAGE>

48.2% of our total assets. Most of these affiliated companies have substantial
losses and working capital deficits, creating potential liquidity risks for
us. If these losses continue, a substantial portion of our net worth could be
impaired or at risk. Although management of our company 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 do create an inherent risk in these assets. In addition, at June 30,
1999, we had a net receivable from Harry Shuster of approximately $420,263.

Although we believe that our current cash and revenue from operations,
distributions received by us as a result of its investments, repayments to us of
amounts previously advanced by us to Grand Havana, proceeds from the recently
completed sale of our real property in El Cajon, California (previously used in
connection with children's recreational activities) and our anticipated portion
of the net proceeds from the pending sale of the property in Las Vegas, will
provide us with sufficient funds to meet our anticipated need for working
capital and capital expenditures for at least the next 12 months, we cannot be
certain that this will be the case.

We wish to expand United Internet's development and marketing capabilities
for our technology. While the development of some 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. If that is necessary, we might raise additional capital either by
borrowing money or a public or private sale of equity or both. We can provide no
assurance that we will be able to acquire additional financing, or if financing
is available, that it will be available to us on favorable terms.

Year 2000 Issues

We have a Year 2000 project designed to identify and assess the risks
associated with our information systems, operations, infrastructure and
technology products, and customers and suppliers, that are not Year 2000
compliant. We will also 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) remediation and testing.

Our Year 2000 project is being overseen by a consultant to our company. Our
Year 2000 project is currently in the development of correction and remediation
phases, except for a small portion of our project which is still in the
assessment phase.

We are in the process of obtaining Year 2000 compliance statements from the
manufacturers of the Company's hardware and software products. Based on
information provided to us by our vendors so far, we believe that all primary
software applications being used within our company are either Year 2000
compliant or, with upgrades, can be made Year 2000 compliant. The costs of these
upgrades are not expected to be material.

After testing certain hardware, we decided to replace certain systems. We
are in the process of upgrading to uniform operating and accounting systems on a
company-wide basis. This upgrading or replacement of software and hardware is
expected to be completed by September

23
<PAGE>

30, 1999. Based on current estimates, we do not believe that the cost of
upgrading or replacing this software and hardware will be material. In addition,
the hardware used in connection with our children's recreational activities
business will have to be replaced if the remaining assets are not sold by the
end of 1999. After all upgrading and replacement is complete, all new systems
will be evaluated for Year 2000 compliance. Our technical consultant will
continue to analyze current software and hardware vendors for Year 2000
compliance as issues may be discovered within our company or within the
industry.

We believe that the software products currently produced by us are Year 2000
compliant; however, additional testing is in progress. We do not believe that
there will be any adverse effects on the ability to use our interactive Internet
products as a result of Year 2000 concerns.

We believe that the greatest potential risks are associated with information
systems and systems embedded in our operations and infrastructure, as well as
our reliance on Year 2000 compliance by our vendors and suppliers of operating
systems and software applications. We are continuing to assess our operations
and infrastructure, and cannot predict whether significant additional problems
will be identified. We have not yet determined the full extent of contingency
planning that may be required should additional problems be identified.

Based on the status of the assessments made and remediation plans developed
to date, we are not able to state the total cost of remediation of all Year 2000
Issues. Costs identified to date have not been material. However, we have not
yet completed all assessments, developed remediations for all problems,
developed any contingency plans, or completely implemented or tested all of our
remediation plans.

Based on our current analysis and assessment of the state of our Year 2000
compliance, our most reasonably likely worst case scenario involves delays in
shipping of products by our vendors and suppliers. Such delays could cause us to
experience delays in delivering our own software products. Specific contingency
plans will be formulated after we have received complete information on the
status of our vendor and supplier Year 2000 compliance.

We are continuing to evaluate Year 2000 related risks and will take further
corrective actions as may be required. However, as our Year 2000 project
continues, we may discover additional Year 2000 problems, we may not be able to
develop, implement, or test corrections or contingency plans, or we may find
that the costs of these activities exceed current expectations and become
material. In many cases, we are relying on assurances from vendors and suppliers
that new and upgraded hardware, software, information systems and other products
will be Year 2000 compliant. We plan to test all third-party products, but we
cannot be sure that our tests will be adequate or that if problems are
identified, that they will be addressed timely and satisfactorily. Because we
use a variety of information systems and have additional systems embedded in our
operational infrastructure, we cannot be sure that all its systems will work
together in a Year 2000 compliant fashion. Furthermore, we cannot be sure that
we will not suffer business interruptions, either because of our own Year 2000
problems, or those of our customers or suppliers whose own Year 2000 problems
may make it difficult or impossible for them to fulfill their commitments to us.
If we fail to satisfactorily resolve Year 2000 issues

24
<PAGE>

related to our products in a timely manner, we could be exposed to liability to
third parties or suffer a material adverse effect on our business, results of
operations and financial condition.

DESCRIPTION OF INTERNET BUSINESS

Introduction

We incorporated United Internet in Delaware in December 1995 under the
name "United Leisure Interactive, Inc.". United Internet was incorporated to
develop and market our proprietary interactive Internet technology. Sometimes in
this prospectus when we discuss our interactive Internet technology business, we
use the words "us", "we" and "our company" to mean our United Internet
subsidiary.

Our technology equips sites on the World Wide Web with software that
allows a CD-ROM or DVD-ROM to play a pre-recorded full-motion video. The display
of the video content at the user's end is completely controlled by the Web
server. Our technology lets users interact with a Web site and experience full-
motion video and stereo audio in broadcast quality while the user is on line,
without having to download files or play "streaming" video or audio. We spent
approximately $127,000 in 1997 and $168,000 in 1998 for research and development
to develop our interactive Internet technology. In addition, we spent
approximately $1,744,000 from January 1996 through June 1999, for United
Internet's portion of company expenses.

United Internet's principal executive offices are at 1990 Westwood
Boulevard, Los Angeles, CA 90025 and the telephone number is (310) 441-0900.

Development of Internet-Based Video Delivery Systems. The Internet has
----------------------------------------------------
grown rapidly in recent years, spurred by numerous technological innovations and
developments such as:

. easy-to-use Web browsers

. the wide availability of multimedia personal computers

. more complete online networks

. the growth of interesting and rich content on the Web

. improved quality of graphics

. the development of multimedia and interactive features on the Web; and

25
<PAGE>

. e-commerce

Currently, there are several technologies and methods for users to
communicate and retrieve various types of information from resources on the
Internet. For most types of information, Internet communications are acceptable
and provide the user with instant access to a wide array of information
gathering formats. However, for data that is considerably larger in size, such
as full-motion video and some audio formats, it takes a long time to transfer
this information. Many Internet users consider this length of time to be
inconvenient or unacceptable.

The first companies that provided video to Internet users pre-recorded the
information and required it to be downloaded in its entirety to the user's
computer. After the download was completed, the user then opened a separate
software application to view the downloaded material. Internet users could not
begin playing the audio or watching the video until the entire content was
downloaded. This took a lot of time depending upon modem (transmission) speeds
and other factors. In addition, because the files containing the video and audio
had to be downloaded to the user's computer, it took up a lot of hard disk space
on the computer.

To overcome these limitations, newer technologies have been developed by
various companies to provide a video format and transmission method known as
"streaming" video. This format allows the user to begin watching the video and
hearing the audio while it is still being transmitted. At present, in order to
receive streamed media adequately, users generally must have multimedia
computers with certain microprocessor requirements, at least a 28.8 kbps
(thousands of bits per second) modem and streaming media software. Users
typically download streaming media software and install it on their computers.
Users are currently able to download copies of RealNetworks, Inc.'s RealPlayer
and Microsoft Corporation's NetShow Player software free of charge. The
downloading and installation process may require technical expertise that some
users do not have.

Even with improvements, there are significant limitations to streaming
technology. Older versions of some Web browsers may need to be reconfigured in
order to receive streaming media from Web sites and this, too, may require
technical expertise that some users do not have. Because of bandwidth
constraints on intranets (which can be thought of as an in-house Internet for an
office, school, or other organization), some information systems managers block
reception of streamed media. In order for users to receive streaming media over
intranets, it may be necessary to reconfigure intranets. Widespread adoption of
streaming media technology depends on overcoming these obstacles, improving
audio and video quality, and educating people how to use streaming media
technology.

In addition, video streaming at 28.8 kbps -- a typical modem speed --
produces a video that is of considerably lower quality than traditional media
broadcasts, such as television. The result is a jumpy or choppy video that is
perceived by the user as less than full motion. Streaming video is displayed in
a small window on the user's computer screen, and displaying the video in a
larger size further reduces the quality of the video image. Streaming technology
is also limited by Internet bandwidth. Congestion over the Internet and
occasional loss of the Internet connection may interrupt audio and video
streams.

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All of these factors can result in an unsatisfying user experience with
current video technology. In the future, industry analysts believe that these
technologies will become more efficient when data rates increase between a
computer and the Internet. Various experts within the communications industry
estimate that higher speeds could be in use in as little as three years and as
long as six to eight years. These estimates depend on a number of factors, such
as the increase in general network usage and the rate at which various
communication technologies are developed or improved.

Our Solution. We believe that current streaming video technology delivers a
------------
video that is limited in motion, has poor resolution and a small viewing window,
and is relatively unstable. To solve this problem, our technology permits the
design of Web sites that integrate video in innovative ways, without sacrificing
quality or requiring large amounts of bandwidth.

So far, we have developed two components of our technology for video and
audio delivery.

1. Parallel Addressing Video (PAV)

Our PAV technology is not a broadcast, downloaded or streaming technology.
Instead, PAV technology makes use of video and audio that has been pre-recorded
and distributed on a CD-ROM or DVD-ROM to the user. PAV technology equips Web
sites with software that allows a Web site to interact with a user's Internet
browser and activate the CD-ROM or DVD-ROM. The result is 30 frame-per second
broadcast quality, full motion, full screen video and stereo-audio on the user's
computer, while the user is on the Internet.

Our PAV technology is also unlike traditional CD-ROM and DVD-ROM multimedia
products, such as interactive encyclopedias or magazines. With those traditional
multimedia products, control of the pre-recorded content is completely
controlled by the user on his or her computer. With PAV technology, the display
of the content is completely controlled from the Web site.

Various security techniques allow the creator of the pre-recorded material
to control when and how much of the material is available to the user. For
example, a Web site administrator could pre-record more video than would be
available on the Web site at any one time, distribute it on a CD-ROM or DVD-ROM,
and make it accessible by the user either in a time-released fashion or with
proprietary encryption keys (security codes). The user's video player
communicates with the Web server, which in turn creates a secure encryption key
to unlock the video. Security and time-control functions exist on both the Web
site and the distributed medium to allow the video to be delivered to the user
in whatever manner the content provider wishes to do so. Encryption keys also
allow the owners of the Web sites to protect against unauthorized use or
distribution of their video content.

In addition, PAV technology permits all information other than the actual
pre-recorded material to be changed on the Web site. This results in a more
varied and interesting interactive experience, changing as frequently as the Web
site administrator would like. As a result, the Web site content remains fresh
and up-to-date and the context in which the material is viewed can be changing
to keep the user's interest active.

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While there is some video content which needs to be "live" and therefore
transmitted using other technologies, we believe that most of the Internet video
currently being shown and which will be shown in the future can be produced and
recorded in advance. Therefore, our PAV technology has broad possible
application for a wide range of Internet uses. Our PAV technology can easily be
adapted for "live" events. Current and "live" information can be provided using
traditional web publishing, perhaps including other lower-quality video formats,
while larger amounts of data are retrieved and played by the user from the pre-
recorded and distributed media.

2. Dynamic Integrated Video Overlay (DIVO)

Our DIVO technology is an enhancement to our PAV technology. DIVO
technology allows video distributed and controlled through PAV technology to be
integrated within a Web page. The result is that special effects and videoactive
interfaces can be designed, using a combination of video and fixed Web design
tools and technologies. These innovations do not currently exist in other video
formats. When this is combined with full-motion, 30 frame-per-second, broadcast-
quality video, the result is an even more multimedia-enhanced Web page, compared
to Web pages that use static elements and streaming video. For example, using
DIVO technology, a host can appear in full motion on the Web page to instruct,
entertain or educate the user. DIVO technology works in such a way that it
appears that the host is actually part of the video, even though two different
sources are involved.

DIVO technology provides functions that allow video to be combined
seamlessly within the user's own Web browser software. Like PAV, DIVO technology
is designed to work with popular browsers from both Netscape Communication
Corporation and Microsoft Corporation.

In order to use our technologies, a user's computer must meet certain
minimum specifications:

. 32-bit operating system (Windows 95, Windows 98 or Windows 2000). Windows
NT is not fully supported and while our technology can be viewed on a
Windows NT operating system, certain video and audio components could be
out of synchronization.

. Pentium 133 MHZ processor or higher

. 4x CD-ROM or higher

. 16 MB RAM memory or higher

At present, there is not a form of our technology that is compatible with
Macintosh computers. However, we are working on developing that application and
we currently anticipate that we may have such an application ready at the end of
1999 or the beginning of 2000.

We are also in the early stages of developing a media player to incorporate
additional functions and features. This includes a new technology, currently
under development, called Vector Image Mapping. VIM technology would enable
selected video pixels to be clickable. In

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other words, while a user is watching video, he or she could click on an image
in the video and create an interactive experience with that image. This
technology, if and when it is successfully developed, has the potential to add
significant additional choice and a range of new experiences when using our
technologies with a Web site.

Current Applications

Television. United Internet has entered into a Master Development Agreement
----------
dated July 1, 1999 with National Broadcasting Company, Inc. (NBC). Under this
development agreement, NBC will pay us 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; NBC may terminate the
development agreement for any reason upon 30 days' prior written notice to us.
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 any ordered
products and accept them.

In the first order NBC placed under the development agreement, we will
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 our 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. We will be paid a fixed price of $100,000 upon newspaper
delivery of 1,000,000 CD-ROMs to 1,000,000 homes.

A user who has a copy of the NBC disc will be able to access a special NBC
Web site and, from that Web site, activate the encrypted video on the CD-ROM to
play excerpts from seven returning NBC television shows and seven new NBC
television shows in the Fall 1999 lineup. Users can also play an interactive
game and participate in a contest, first prize of which is a spot on an NBC
television show. The special NBC Web site will be deactivated sometime in
October 1999, after the beginning of the Fall 1999 television season.

Wrestling. United Internet and World Championship Wrestling (WCW) have
---------
entered into a license agreement. Under the terms of the WCW license agreement,
United Internet has granted to WCW a non-exclusive license to use our PAV and
DIVO technology in connection with their Worldwide Championship Wrestling Web
site and the CD-ROMs or other discs and software that will permit users to
access the interactive features of WCW's Web site. During the term of the WCW
license agreement, United Internet will not compete with WCW or license our
technology to WCW's competitors or others in the wrestling business.

The term of the WCW license agreement is three years. However, WCW can
terminate the agreement at the end of any one-year period by giving 30 days'
prior written notice. Under certain circumstances, either party may terminate
the agreement in the event of material breaches of the contract.

WCW will pay United Internet royalties equal to:

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. 15% of WCW's adjusted gross revenues from banners or similar advertisements
and/or sponsorships that are now standard in the Internet industry and are
contained on or are accessed through use of the CD-ROMs or other discs;
plus

. 20% of WCW's adjusted gross revenues from full-screen, full-motion trailers
and/or other full-screen or full-motion video and/or audio-visual
advertisements that are not standard in the Internet industry and are
contained on or accessed through use of the CD-ROMs or other discs.

WCW has paid United Internet $200,000 as a non-refundable advance against
royalties.

During the term of the WCW license agreement, we will make available to WCW
any improvements and enhancements which we develop. We also will provide certain
technical and creative support services to WCW.

In August 1999, we received video from WCW to produce a master CD-ROM
containing wrestling video for use in conjunction with WCW's Web site. We expect
to reproduce and distribute between 750,000 and 1,000,000 discs in the first
run. WCW has said that it intends to begin marketing CD-ROMs containing our
technologies in October 1999. WCW intends to market the CD-ROMs through four
avenues:

. WCW's Web site, www.wcw.com, which receives 15 million "page impressions"
per month.

. Television. WCW has seven primetime hours per week of broadcasts in major
markets with an estimated audience of 32 million viewers per week,
primarily young males. WCW will have dedicated spots to advertise the CD-
ROMs.

. Live events, which WCW estimates will have total attendance of
approximately two million people during 1999. At these live events, the CD-
ROMs will be distributed free of charge.

. Inserts in wrestling magazines.

Travel. We developed an application of our PAV technology called
------
NetCruise(C). NetCruise(C) allows anyone to book travel, including cruise
vacations, hotels, car rental and airline tickets from a one-stop-shopping Web
site, www.NetCruise.com. In July 1998, we licensed NetCruise(C), together with
all other travel-related applications of our PAV technology, to NII, a
wholly-owned subsidiary of Genisys. See "Description of Internet Business - The
Genisys Transaction."

The CD-ROMs or DVD-ROMs that Genisys and NII will distribute will contain
full motion video "virtual tours" of approximately seven cruise lines and
approximately 13 travel destinations. For example, a user can view staterooms,
dining rooms, entertainment venues, casinos, other areas of the ship and other
special features, all prior to booking. The NetCruise(C) software has full
motion video and live vocal interaction, combined with updated on-line
information.

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Genisys intends that the NetCruise(C) product will allow people to book
every aspect of their own vacation all at once and to book travel for others and
"Be Your Own Travel Consultant." Genisys' Web site will walk users through the
process of booking and/or selling any travel arrangements.

The initial marketing plan is for Genisys to advertise and sell the
NetCruise(C) product through an infomercial that will display the product's
various features and provide for call-in purchases. As an incentive to encourage
consumers to buy the NetCruise(C) product, rather than use a travel agent or Web
sites run by cruise lines or hotels, purchasers of the NetCruise(C) product will
receive from Genisys and NII a rebate of one-half of the standard travel agent's
commission for all travel they book through the NetCruise(C) Web site. The
NetCruise(C) Web site is owned and maintained by Genisys and NII.

The launch by Genisys and NII of the NetCruise(C) Web site and services
using the NetCruise(C) product has been delayed beyond what was originally
anticipated. These delays occurred because Genisys sold its previous business, a
limousine reservation system, in order to become more active in the retail
travel business. Genisys also suffers from limited cash flow. The Genisys Web
site is operational as a travel consultant booking service for members who have
joined by paying a fee and receiving a password. Genisys has informed us that
they are rebuilding both the hardware and software of their Web site. Genisys
and NII are responsible for building and maintaining their Web site, including
all related technical matters, and marketing the NetCruise(C) product. At this
point, we merely provide advisory services, when Genisys requests it, regarding
video production, technical support and marketing. The infomercial has now been
produced and is in post-production. The expected air date for the infomercial is
late 1999. Significant additional delays by Genisys and NII in making their Web
site fully operational or airing their infomercial, or both, could have an
adverse effect on Genisys' revenues and the price of its stock, of which we have
a significant amount. See "Risk Factors - Risks Associated with NetCruise(C)
License."

Marketing. United Internet entered into a distribution agreement with
---------
EarthLink Network, Inc. to market EarthLink's Internet service provider software
on discs produced by us using our technology. EarthLink will pay United Internet
an amount for each new customer who signs up for EarthLink service in
conjunction with using any of our disks for various services or products. This
amount varies from $20.00 to $50.00 per new EarthLink customer depending upon
how many subscribers sign up for EarthLink Internet service and is cumulative
from one project to another. In addition, EarthLink has paid United Internet
$40,000 as a nonrefundable advance against these payments. The term of the
distribution agreement is one year with automatic annual renewals unless written
notice of termination is given by either party between 30 and 90 days before the
end of each one year term.

The first such arrangement is in connection with the discs we are producing
to preview the NBC Fall 1999 television season, 1,000,000 of which will be
distributed in early September 1999. The disks we are producing for NBC will
contain EarthLink's software and give a user the option to sign up for EarthLink
service. Under United Internet's agreement with NBC, United Internet will share
all Earthlink revenue equally with NBC after the parties recoup their

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<PAGE>

investment pro rata. We estimate that these recoupment payments will be
allocated approximately 80% to us and 20% to NBC. See "Description of Internet
Business - Current Applications - Television."

United Internet and AT&T Corp. have also entered into a marketing
agreement. Under the AT&T marketing agreement, AT&T has granted to United
Internet a non-exclusive license to distribute software for AT&T's Internet
Service Provider service. We must distribute at least one million CD-ROMs or
other products which combine, or bundle, AT&T's software with some other
information or material that we place on the disks. The term of the agreement is
one year. The distributed material must meet certain technical and other
specifications established by AT&T, and must be tested by AT&T prior to
distribution.

AT&T will pay United Internet $20.00 for each person who switches to AT&T's
Internet Service Provider as a result of using the AT&T software on one of our
distributed CD-ROMs and also pays AT&T at least $19.95 during the first three
months after they register for the AT&T service. United Internet did not receive
any advance payment from AT&T under this agreement.

AT&T will provide technical support and customer care services for users of
their service and we will provide all technical support and customer care
services for users of the bundled material contained on the distributed CD-ROMs.
AT&T has the right to approve any bundled product that contains their Internet
software.

Possible Future Applications

E-Commerce. Our PAV and DIVO technologies easily lend themselves to the
-----------
expanding world of e-commerce:

. Businesses can sell their goods over the Internet using full motion video
to promote their products, just like on television.

. Users could select a product and the amount they would like to spend, and
the system would provide details on all available products based on the
user's criteria; or, the buyer could just click on an icon, and a video of
that product will play on the screen.

. If the buyer would like to learn more about a product and alternative
choices, clicking on the appropriate icon provides additional details.
After watching the video, complete details would be available on all
aspects of the product.

. Once a decision on a product has been made, a buyer may simply click and
order with the confidence of security of important personal information,
including credit card data; or, our technologies would be able to connect a
live operator to buyers when they require assistance.

Other Commercial Applications. We are developing additional applications of
-----------------------------
our technology for a number of different industries. These include:

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<PAGE>

. marketing (through which an end user could participate in an interactive
focus group or marketing study)

. interactive game shows

. Pay-per-view video content could be prerecorded and distributed to users,
and the release of the video by users could be controlled by the original
content provider through security codes. This capability could combine the
benefits of pay-per-view events similar to television with the added
benefits of the Internet's interactivity.

We may need to raise additional funds to develop additional commercial
applications of our technology. See "Risk Factors - We May Need Additional
Financing."

Other Forms of Entertainment. We are continuing to develop our previously
-----------------------------
announced PreviewMovies.com and PreviewMusic.com applications of our technology.
These applications, which are similar in concept to the NBC television preview
application, would allow a user to see movie previews or trailers, and music
videos, by means of activating a command from a Web site to a CD-ROM or DVD-ROM
containing prerecorded encrypted video and audio. Further development of
PreviewMovies depends on establishing strategic relationships with studios and
putting a distribution system in place. PreviewMusic is in an earlier phase of
development. Further development of PreviewMusic depends upon finding a
strategic alliance to help build the site and handle distribution.

Demonstrations of both these applications can be seen on a demonstration
disc that United Internet offers free to our stockholders, the press or any
other interested person. The demonstration disc operates in conjunction with our
own Web site, www.uitlive.com. In order to utilize the disc, the user's
computer must meet certain minimum technical specifications. See "Description of
Internet Business - Introduction."

Education. We have developed educational applications for our technologies.
---------
This might work by recording educational material on a CD-ROM or DVD-ROM which
is distributed to students. For example, a geology lecture could be illustrated
with video clips of the regions described, an anatomy lecture could provide
videos or animations of bodily systems, and an art history lecture could display
photographs of the work being discussed. Because the software is connected to
the Internet, students would be able to submit questions, take tests, answer
questions and receive a grade back almost instantaneously. They could also
signal the CD-ROM or DVD-ROM to replay selections from the lecture with the
answers to the questions the student might have missed. The result would be to
integrate review and correction into the testing experience. So far, we have not
licensed any educational applications of our technologies. We can give no
assurance that any educational applications will be licensed or otherwise
developed on terms favorable to us.

We are continuing to develop our previously announced CollegeEd.com
application of our technology. This application is in an early phase of
development. Further development depends upon finding a strategic alliance to
help build the site and handle distribution to students.

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Business Strategy

Our business strategy over the next 12 months is as follows:

. continue developing our technologies and additional applications employing
our technologies

. select brand leaders in individual industries to exploit our technologies,
through strategic alliances; and

. further develop and create our own Web sites.

Aspects of our business strategy are highly dependent upon having
sufficient revenue to accomplish these goals. Revenue can be provided from
license and other agreements to use our technologies, or from sales of our
securities or our United Internet subsidiary's securities, in private or public
offerings. We can give no assurance that we will have sufficient revenues to
accomplish these goals or that any or all of these goals may be achieved once we
pursue them. See "Risk Factors - Need for Additional Financing" and "Risk
Factors - Development Risks".

We intend to enter into additional licensing agreements and marketing
agreements, or other strategic alliances, for additional applications of our
technology which have been developed and which may be developed in the future.
Several agreements are currently being negotiated. No other agreements have been
entered into and we can give no assurance that any additional agreements will be
entered into or whether any additional agreements will be on terms that are
favorable to us.

We maintain our own Web site, www.uitlive.com, although at this time it is
not intended to serve as a generally accessible Web site. At our Web site, a
visitor can find basic information about our company, read descriptions of our
PAV and DIVO technologies and use our demonstration disc to access encrypted
video of our PreviewMovies, PreviewMusic and CollegeEd applications. We intend
to further develop our Web site. At this time, however, it is not our priority
to promote self-branded products using our technology in conjunction with our
own Web site. However, we may choose to do that at some point in the future.

The Genisys Transaction

On July 23, 1998, our company, United Internet, Genisys and its wholly-
owned subsidiary, NII, entered into an agreement, which we refer to as the
Genisys Agreement. In that agreement, we granted to NII an exclusive, world-wide
and perpetual license to the travel-related applications of our technology. We
also sold to NII certain tangible assets and intellectual property to be used by
them in connection with our technology. United Internet received the following
securities:

. 2,000,000 shares of unregistered common stock of Genisys

. a warrant to purchase up to 800,000 shares of Genisys common stock at $2.50
per share, if NII's total pretax profits for the years 1999, 2000 and 2001
equal or exceed $5,000,000

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<PAGE>

. a warrant to purchase up to 800,000 shares of Genisys common stock at $6.00
per share, if NII's total pretax profits for the years 1999, 2000 and 2001
equal or exceed $10,000,000

Subsequent to the date of the Genisys Agreement, Genisys informed us of the
following. Genisys was notified by The Nasdaq Stock Market, Inc. that Genisys
was in violation of a Nasdaq Marketplace Rule because the issuance of the
2,000,000 shares of Genisys common stock and the Genisys warrants amounted to
more than 20% of the issued and outstanding shares of Genisys and the issuance
had to be approved by Genisys' stockholders. Genisys was informed that Nasdaq
intended to delist Genisys common stock from the Nasdaq SmallCap Market, unless
Genisys took steps acceptable to Nasdaq to cure the violation. Genisys began to
take these steps and also appealed Nasdaq's determination to delist the Genisys
common stock. A hearing on the proposed delisting was held on November 20, 1998.
Thereafter, Nasdaq approved the continued listing of Genisys common stock while
Genisys arranged to hold a stockholders meeting and subject to certain
additional changes that Nasdaq required to be made to the terms of the Genisys
Agreement.

As a result of Nasdaq's original notification, United Internet, Genisys and
certain of Genisys' principal stockholders signed an agreement dated October 28,
1998 for the purpose of restructuring the Genisys transaction. Under the terms
of this agreement, United Internet agreed to return to Genisys 1,100,000 shares
of Genisys common stock (retaining 900,000 shares of Genisys common stock), and
the Genisys warrants. Genisys agreed to issue to United Internet 1,100,000
shares of Genisys Convertible Series B Preferred Stock, par value $.0001 per
share. Among other things, the Genisys preferred shares are automatically
convertible into 1,100,000 shares of Genisys common stock immediately upon the
approval of the Genisys transaction by Genisys' stockholders. In addition, when
the Genisys stockholders approve the Genisys transaction, Genisys agreed to
reissue the Genisys warrants to United Internet.

The Genisys preferred shares carry a mandatory dividend of $275,000,
payable on September 30, 1999, and mandatory quarterly dividends of $68,750,
beginning with the quarter ending December 31, 1999. No dividend is payable if
the Genisys stockholders approve the issuance of the 1,100,000 shares of Genisys
common stock and the Genisys warrants to United Internet, and the Genisys
preferred shares have been converted into 1,100,000 shares of Genisys common
stock, prior to June 30, 1999. Since the meeting of the Genisys stockholders has
not yet taken place, it is the position of the Company that the $275,000
dividend is payable on September 30, 1999. The Genisys preferred shares are non-
voting, unless voting is required by New Jersey law. The Genisys preferred
shares also carry a mandatory liquidation preference of $2,750,000 plus all
accrued and unpaid dividends.

In response to further requirements of Nasdaq, the parties entered into
another agreement dated January 25, 1999. This agreement provides that if the
Genisys stockholders do not approve both the Genisys transaction, and the
issuance to United Internet of the 1,100,000 shares of Genisys common stock
relating to the Genisys preferred shares, and the Genisys warrants, the entire
Genisys transaction will be unwound. If the Genisys transaction is unwound,
Genisys will have an option until September 30, 1999 to again seek and obtain
approval of the Genisys transaction by Genisys' stockholders on the same terms
and conditions as originally agreed to in the original agreement, as amended by
the agreement in October 1998 and the agreement in January 1999.

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<PAGE>

United Internet has agreed not to vote the remaining 900,000 shares of
common stock and may not vote the Genisys preferred shares at the Genisys
stockholders' meeting at which the approval of the Genisys transaction will be
sought. Certain other principal stockholders of Genisys have agreed to vote
their shares of Genisys common stock in favor of the Genisys transaction and the
issuance of the additional 1,100,000 shares of Genisys common stock and the
Genisys warrants. Genisys has indicated that it expects to hold its
stockholders meeting in September 1999.

We have been informed that Nasdaq delisted the common stock of Genisys from
the Nasdaq SmallCap Market effective the close of business on August 17, 1999.
We have also been told that Genisys intends to appeal the delisting. On August
19, 1999, Brian Shuster submitted his resignation as a director of Genisys.

Patents and Trademarks

We filed a provisional application for a utility patent for our PAV and DIVO
technology with the U.S. Patent and Trademark Office in July 1997. We have been
notified by the Patent Office that our patent has been allowed and we expect it
to be issued sometime in the next few months. We filed a second patent
application relating to enhancements to our DIVO technology in May 1999. We do
not know if that patent will be issued or, if it is issued, how broad it will
be. It is therefore possible that our competitors will be able to use products
and technologies similar to our own. That could significantly reduce our
competitive advantage. However, even if a patent is not issued, we believe that
the value of our DIVO technology will not be critically impaired. We also do
not know if any patent that we might receive in the future will provide
protection from infringement or if our patent applications will be challenged.
If any of our patents are challenged, we do not know what the result of the
challenge would be and we also do not know if we would have adequate resources
to enforce or defend our rights.

We have been sued for patent infringement by a company that alleges to have
a patent for technology similar to ours. See "Legal Proceedings".

Intellectual Property

Our copyrights, trademarks, trade secrets and other intellectual property
rights are critical to our success. We rely on copyright and trademark laws,
trade secret protection, and confidentiality and non-disclosure agreements with
our employees and third parties to protect our proprietary rights. We do not
know if these steps will be adequate. We do not know if we will be able to
obtain trademark registrations for our marks in the United States or other
countries. We do not know if third parties will infringe upon or misappropriate
our copyrights, trademarks, service marks and other intellectual proprietary
rights. None of our marks or rights is registered at present. In addition,
meaningful copyright and trademark protection may be unenforceable or limited in
certain countries. In the future, it is possible that we would have to sue to
protect our copyrights, trademarks, trade secrets and other intellectual
property rights. We cannot give any assurance as to our ability to enforce our
rights or the outcome of any suits to protect those rights.

United Internet generally enters into nondisclosure agreements with its
employees and consultants. United Internet also limits access to and
distribution of its software, sensitive

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<PAGE>

documents and other proprietary information. We do not know if the steps taken
by United Internet to prevent misappropriation of its proprietary information
will be successful. If these agreements are breached we do not know if we will
have adequate remedies available, or if the agreements themselves would be
enforceable.

Even with the precautions taken by United Internet, it might be possible for
a third party to copy, obtain and use, United Internet's proprietary information
without authorization. It is also possible that our trade secrets will be
independently developed by competitors.

Competition

There is significant competition in the evolving market for video delivery
on the Internet. We and our primary competitors have each approached Internet
video delivery using different technologies. Many of our competitors have
substantially greater financial, marketing, personnel and other resources than
we have. Our management believes that the barriers to enter this market are
relatively high and there is significant lead time required to market a
competitive Internet video delivery technology.

There is significant competition for content development and broadcasting on
the Internet. The largest competitors in the content development and broadcast
area are broadcast.com, Inc. and RealNetworks, Inc. These, and many other
competitors in the content development and broadcast area have substantially
greater assets than we do. We expect competition in this area to remain strong
and to increase further.

Governmental Regulation

Although there are currently few laws and regulations that directly apply to
the Internet, it is likely that new laws and regulations will be adopted in the
United States and elsewhere covering a wide range of Internet-related issues.
This could include broadcast license fees, music licensing, copyrights, privacy,
pricing, sales taxes, and characteristics and quality of Internet services.
It is also possible that laws could be passed that may apply to us in the areas
of content, network security, encryption, privacy protection, electronic
authentication or "digital" signatures, illegal and harmful content, access
charges and re-transmission activities. If restrictive laws or regulations are
adopted, it could slow Internet growth. If certain laws or regulations apply to
us and the type of Internet business or service we provide, it could expose us
to significant liabilities associated with the content on our Web sites, and
possibly for the content on the Web sites of our licensees. We do not know if
laws will be adopted that apply to our business on the Internet. If such laws
and regulations are adopted, we do not know if they will affect our business.
Any new legislation or regulation or enforcement of existing laws and
regulations could limit the growth of the Internet, increase our cost of doing
business or increase our legal exposure.

37
<PAGE>

technologies. There are very few cases about the interpretation of these types
of law on Internet use.

Congress enacted the Communications Decency Act in 1996. The U.S. Supreme
Court ruled that certain sections of that Act which would have imposed criminal
penalties on anyone distributing "indecent" material to minors over the Internet
were unconstitutional. We do not know if similar laws will be adopted and
upheld. Even though we do not currently distribute the types of materials on the
Internet that the Act may have considered illegal, we do not know how any future
laws or regulations regarding decency might be interpreted. In addition to the
potential for liability, these types of laws could also damage the growth of the
Internet generally. That would have the effect of decreasing the demand for our
technology and its applications. So far, United Internet has not required our
licensees to indemnify it for this type of liability and we do not have
insurance for this type of liability.

OUR OTHER BUSINESS

Children's Recreational Activities

Because we are focusing on our interactive Internet technology business, we
have ended operations at most of our children's recreational facilities. We
have closed our Camp Frasier and Frasier's Frontier amusement park facilities.
We have also decided to dispose of our remaining children's recreational
facilities, Planet Kids.

Until February 28, 1997, when our ground lease with the Irvine Company, as
landlord, expired, our 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. After the expiration of the ground lease, we did not
have any significant income from our ground lease operations, and no revenue for
the year ended December 31, 1998.

In 1998, our children's recreational activities consisted of two Camp
Frasier day camps, three Planet Kids, and one Frasier's Frontier. Our Camp
Frasier day camps operated from the last week of June through late August 1998.
Frasier's Frontier was an amusement park. Planet Kids facilities are indoor
multimedia interactive play learning centers for children. All of these
facilities are located in Southern California.

The Planet Kids concept is to operate state-of-the-art children's play
learning centers for children ages 3 through 13. Each center provides children
with interactive multimedia educational games, exercise playgrounds, educational
computers, party facilities and other indoor

38
<PAGE>

activities. Planet Kids opened its first play-learning center in Laguna Hills,
California in July 1995, the second center in Orange, California in December
1995 and the third center in Fountain Valley, California in September 1996.
These centers are operated in leased premises. We have provided for a loss for
impairment of value of certain of our Planet Kids assets in the amount of
$3,862,554. We still operate our Planet Kids centers, but we intend to dispose
of this asset.

The Camp Frasier program, which we no longer operate, was offered to
children between the ages of 3 and 13. Its concept was to provide significant
flexibility in attendance requirements, with a minimum of ten days per camper
during the summer. Campers were provided with planned activity programs, which
included educational activities, horseback riding, swimming, arts and crafts,
fishing, a rope challenge course, go-carts and karate. These facilities were
operated on both owned and leased premises.

In April 1995, we purchased certain real and personal property in El Cajon,
San Diego County, California. We renovated the El Cajon property and reopened
it as "Frasier's Frontier," an amusement park. The Camp Frasier location on the
El Cajon property operated between 1996 and 1998. In August 1999, we sold the
El Cajon property. The sale price of the El Cajon Property was $975,000, paid
in cash. After satisfying the first trust deed in the outstanding amount of
approximately $772,077, the second trust deed in the amount of approximately
$128,236, current and delinquent property taxes in the amount of approximately
$21,013 and other expenses, fees and charges incurred by us, as seller of this
property, net cash proceeds to us were approximately $45,382.

In March 1996, we entered into a lease with the County of Orange, California
to operate a Camp Frasier location in Foothill Ranch, Orange County, California.
The lease is for a term of 15 years and provides that we will pay as annual
rental the greater of the minimum annual rental or the percentage rental. The
minimum annual rental is $10,000 for the first year, $20,000 for the second year
and $30,000 for years three through five. The percentage rental is equal to 15%
of our gross receipts from the day camp and any swimming programs or lessons
which we conduct.

We were a party to a sublease with American Sportsworld, Inc., under which
we subleased approximately 15 acres of the Irvine Property to The Splash. The
Splash operates a theme family water park. The sublease was terminated on
February 26, 1997, when our ground lease for the Irvine, California location
terminated. Under the terms of the sublease, The Splash paid a minimum annual
rent of $475,000, payable $39,583 per month, against a percentage rent equal to
10% of annual gross revenues. In addition, The Splash paid additional rent to
cover various expenses we incurred on the property, as well as all taxes related
to the property. We have a 3.12% limited partnership interest in The Splash.

Investments in Affiliates

Investments in United Hotel & Casino, L.L.C.
--------------------------------------------

In January 1997, two California limited liability companies and we formed
United Hotel & Casino, L.L.C., a Delaware limited liability company. We
currently have a 50% membership interest in United Hotel. United Hotel has a
three member management committee. We have the

39
<PAGE>

right to appoint one member (who has two votes), and the remaining investors
have the right, together, to appoint two members (each of whom has one vote), of
the management committee.

On July 29, 1997, United Hotel acquired approximately 8.5 acres of partially
developed land on the Las Vegas Strip in Las Vegas, Nevada. The Las Vegas
property is located at 3025 Las Vegas Boulevard and currently contains a
shopping center consisting of approximately 20 retailers and the Silver City
Casino. Upon the acquisition of the Las Vegas property, United Hotel became the
landlord of the shopping center and the Silver City Casino. The Silver City
Casino is owned and operated by Circus Enterprises, Inc. The lease to the Silver
City Casino expires in October 1999. In July 1999, United Hotel signed an
agreement to sell the Las Vegas property for $31.5 million. If the Las Vegas
property is not sold, we are also considering selling our interest in United
Hotel. We cannot give any assurance that a particular proposal will be accepted
or that any agreement that may be signed will be on terms that are favorable to
us. See "Our Other Business - Property".

The Silver City Casino is currently responsible for a substantial percentage
of the rental income received by United Hotel from the Las Vegas property. The
monthly income of the Las Vegas property is approximately $182,000 and the
monthly expense is approximately $37,000.

United Hotel paid approximately $23,200,000 for the Las Vegas property. The
purchase price was paid in the form of cash in the amount of approximately
$5,590,000, a one-year note in the amount of $1,250,000, and assumption of a
first deed of trust on the Las Vegas property in the principal amount of
approximately $16,360,000. We contributed approximately $3,800,000 to the cash
payment. Those funds came in part from our working capital and in part from two
different loans discussed below.

Harvey Bibicoff, who at that time was a director of Grand Havana, an
affiliate of our company, loaned us $900,000 toward our capital contribution to
United Hotel. We have repaid that loan in full.

Westminster Capital, Inc. loaned us $1,900,000 to meet a portion of our
$3,800,000 capital contribution to United Hotel to purchase the Las Vegas
property. We refer to this as the First Westminster Loan. We signed a Secured
Convertible Promissory Note, which bears interest at the rate of 15% per year
and matures on the earlier to occur of Westminster's demand (which they can make
any time after July 29, 1998), or July 29, 1999. We refer to this promissory
note as the First Westminster Note. The holder of the First Westminster Note has
the right, at any time prior to the maturity date of the First Westminster Note,
to convert the entire outstanding principal balance of the First Westminster
Note into one-half of our original membership interest in United Hotel. We have
amended the conversion feature of the First Westminster Note to extend the
conversion date, which we discuss below. We can prepay the First Westminster
Note at any time prior to conversion and after July 29, 1998. We are required to
pay Westminster one-half of any cash distributions which may be made to us by
United Hotel prior to the repayment of the First Westminster Note. Any such
payments would be treated as prepayments on the First Westminster Note.

The First Westminster Loan is secured by certain collateral. One of those
items of collateral is a pledge of 408,333 of the 966,666 shares that we own in
Grand Havana.

40
<PAGE>

Grand Havana is an affiliate of our company. As additional security, we entered
into a Security Agreement dated as of July 29, 1997 and granted a security
interest to Westminster of our 50% membership interest in United Hotel and the
receivables and certain indebtedness due to us from Grand Havana.

Harry Shuster is the former Chairman of the Board, President and Chief
Executive Officer of our company, and he is still a principal stockholder of our
company. He serves as a member of the management committee of United Hotel.
Mr. Shuster is also the former Chairman of the Board, President and Chief
Executive Officer of Grand Havana. In addition, Harry Shuster and his spouse,
Nita Shuster, provided certain other security individually and jointly with
respect to the First Westminster Loan. See "Certain Relationships and Related
Transactions."

As additional consideration for Westminster making the First Westminster
Loan, we also granted to Westminster a three-year warrant to purchase 150,000
shares of our common stock, 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 warrant. At the request of Westminster, we filed a
registration statement to register the shares of our common stock underlying the
warrant. The registration statement has been declared effective by the SEC. In
addition, we arranged for Grand Havana to grant Westminster a three-year warrant
to purchase 150,000 shares of their common stock, 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 warrant.
Grand Havana is an affiliate of our company. See "Our Other Business -
Investments in Affiliates - Investments in and Loans to Grand Havana
Enterprises, Inc."

On August 6, 1998, Westminster made a loan of $1,100,000 to United Hotel.
We refer to this loan as 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 year and matures on August 1, 1999. We refer to
this note as the Second Westminster Note. As part of this transaction, we
agreed to amend the First Westminster Note to provide that the holder of 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 United Hotel. We also
agreed that a default by United Hotel under the Second Westminster Note will be
considered to be a default by us under the First Westminster Note. Harry
Shuster personally guaranteed the obligations of United Hotel under the Second
Westminster Loan and we issued a non-recourse guaranty with joint and several
liability, limited to our interest in United Hotel. See "Certain Relationships
and Related Transactions."

On July 28, 1997, we entered into an agreement with Harvey Bibicoff to
provide us management consulting services. In exchange for those services, we
agreed, among other things, to transfer to Mr. Bibicoff a 2 1/2 % membership
interest in United Hotel from our 50% interest. We valued that interest at
$187,500 and accrued it as consulting fees in 1997.

Therefore, after accounting for Mr. Bibicoff's 2 1/2 % interest in United
Hotel and the expected conversion by Westminster of the First Westminster Loan
into a 25% interest in United Hotel, we will have a 22 1/2 % interest in United
Hotel.

41
<PAGE>

Investments in and Loans to Grand Havana Enterprises, Inc.
----------------------------------------------------------

We have an investment in the common stock of Grand Havana. We have also made
loans to Grand Havana. Grand Havana is an affiliate of our company. Grand Havana
is primarily engaged in the business of owning and operating private membership
restaurants and cigar clubs. Harry Shuster is the former Chairman of the Board,
President, Chief Executive Officer and principal stockholder of Grand Havana.
See "Management" and "Certain Relationships and Related Transactions."

In September 1996, we entered into a financing agreement with Grand Havana.
Under this financing agreement, we pledged $875,000 cash to support a letter of
credit that Grand Havana provided in connection with a lease they had signed.
In consideration for our providing this pledge of cash collateral, Grand Havana
agreed to pay us 10% per year on the pledged cash. As additional consideration,
we received 100,000 shares of the common stock of Grand Havana and a warrant to
purchase an additional 100,000 shares of common stock of Grand Havana at an
exercise price of $.75 per share. We exercised the warrant in February 1997.

On July 15, 1997, Grand Havana and we amended this financing agreement. In
exchange for our agreeing to forego the requirement that Grand Havana replace
the collateral pledged on an ongoing basis from operations, Grand Havana agreed
to issue to us or someone we designated a warrant to purchase 150,000 shares of
the common stock of Grand Havana at an exercise price of the lesser of $.75 per
share or 75% of the average of the last trade for the common stock of Grand
Havana for the ten day period prior to the exercise of the warrant. We
subsequently designated Westminster, which had provided the financing to us in
connection with the acquisition of the Las Vegas property by United Hotel, as
the entity to receive this warrant. See "Our Other Business - Investments in
Affiliates - Investments in United Hotel & Casino, L.L.C."

In February 1997, we entered into an additional financing agreement with
Grand Havana. Under this financing agreement, we agreed to loan Grand Havana up
to $1,250,000 for their development of two private membership restaurants and
cigar clubs. The loan bears interest at the rate of 8% per year on the
outstanding principal amount. As additional consideration for this loan, we
received 75,000 shares of the common stock of Grand Havana. This loan was not
repaid when due on September 30, 1997. The financing agreement provided that if
the loan was not repaid by that date, the loan would become payable on demand
and we would also be entitled to receive an additional 25,000 shares of the
common stock of Grand Havana. In February 1998, Grand Havana issued 25,000
shares of its common stock to us as required by the financing agreement. The
parties also agreed to extend the maturity date of the loans made under this
financing agreement to September 30, 1998.

On September 30, 1998, we agreed to make a new installment loan to Grand
Havana in the amount of up to $1,250,000, in replacement of the previous loan.
Grand Havana signed a secured promissory note, which bears interest at 8% per
year. This note was due and payable in full on March 31, 1999. We extended the
maturity date of the note for an additional 60 days and we have further extended
the maturity date again to November 30, 1999. This note is secured by a grant
of a security interest in certain collateral of Grand Havana.

42
<PAGE>

The initial loan advance under this new loan on September 30, 1998 was
$603,280. That amount represents the principal amount due under the previous
note of $536,000, plus accrued interest of $67,280. From time to time we have
the option to make additional advances to Grand Havana, up to a total amount of
$1,250,000. At June 30, 1999, $603,280 in principal amount and accrued interest
of $39,235 remained payable by Grand Havana to us under this financing
agreement. See "Certain Relationships and Related Transactions."

On March 8, 1999, we made a separate $75,000 loan to Grand Havana. This loan
accrues interest at 8% per annum. Both principal and interest are due on
September 8, 2000. At June 30, 1999, $75,000 in principal amount and accrued
interest of $1,500 remained payable by Grand Havana to us under this loan. The
loan is guaranteed by Harry Shuster. See "Certain Relationships and Related
Transactions."

As of June 30, 1999, we held 966,666 shares of the common stock of Grand
Havana. We estimated the fair value of our investment in Grand Havana at
approximately $38,667 at June 30, 1999. Because we do not believe that we will
recover the original cost of our investment in Grand Havana, we realized loss on
this investment in the amount of $1,043,764. On October 27, 1998, the common
stock of Grand Havana was delisted from the Nasdaq SmallCap Market because
Grand Havana common stock no longer satisfied Nasdaq's minimum bid and net asset
value requirements. Grand Havana common stock is presently being quoted on the
OTC Bulletin Board.

Our transactions with Grand Havana were not reached through arm's length
negotiations since both companies were under the common control of Harry
Shuster at that time.

Investments in HEP II L.P.
--------------------------

HEP II, a California limited partnership, was formed in March 1996. In
April 1996, we acquired 50% of the limited partnership interests in HEP II for
an initial capital contribution of $1,500,000. HEP II is engaged in the motion
picture production business. Limited partners in HEP II are entitled to receive
99% of all distributions made by HEP II until they receive a 110% return of
their investment and thereafter they receive 50% of distributions until a 200%
return is achieved, at which time HEP II will terminate. The general partner of
HEP II is United Film Distributors, Inc., a California corporation. Harry
Shuster, the former Chairman of the Board, President and Chief Executive officer
of our company is the Chairman of the Board of UFD as well as one of its
principal stockholders. Brian Shuster, the present Chairman of the Board,
President and Chief Executive Officer of our Company, is the President and a
principal stockholder of United Film. Brian Shuster is also the son of Harry
Shuster.

In 1997, at the request of Harry Shuster, United Film paid us $325,000.
That amount was used to reduce the outstanding net balance of money Harry
Shuster owed to us.

At June 30, 1999, we had an investment in HEP II in the amount of
$700,000. See "Certain Relationships and Related Transactions."

Our transactions with HEP II were not reached through arm's length
negotiations since both companies were under the common control of Harry Shuster
and Brian Shuster.

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<PAGE>

Employees

We currently have 14 employees, all of whom are full-time. Five of them are
full-time employees of our company and nine of them are full-time employees of
United Internet.

Property

Our offices consist of rented office space in Los Angeles, which we share
with our United Internet subsidiary. We anticipate that our current location
will be sufficient for our needs for the foreseeable future. We rent our office
space from 1990 Westwood Boulevard, Inc., a company in which Harry Shuster is an
officer and principal stockholder. See "Certain Relationships and Related
Transactions."

As a result of our 50% interest in United Hotel, we have an ownership
interest in approximately 8.5 acres of partially developed land on the Las Vegas
Strip in Las Vegas, Nevada. The Las Vegas property is located at 3025 Las Vegas
Boulevard and currently contains a shopping center consisting of approximately
20 retailers and the Silver City Casino. Upon the acquisition of the Las Vegas
property, United Hotel became the landlord of the shopping center and the Silver
City Casino. The Silver City Casino is owned and operated by Circus Enterprises,
Inc. The lease to the Silver City Casino expires in October 1999. The
outstanding balance of the first trust deed on the Las Vegas property is
approximately $16.0 million and the outstanding balance of the second trust deed
on the Las Vegas property is approximately $1.1 million. See "Our Other
Business - Investments in Affiliates - Investments in United Hotel & Casino,
L.L.C." and "Certain Relationships and Related Transactions."

In July 1999, United Hotel signed an agreement to sell the Las Vegas
property for approximately $31.5 million. The closing is expected to occur in or
before mid-October 1999. United Hotel is not able to estimate net proceeds of
the sale, but they are expected to be substantially greater than the purchase
price of the Las Vegas property. If the Las Vegas property is not ultimately
sold, we would continue to consider selling our interest in United Hotel. We
cannot give any assurance that a particular proposal would be accepted or that
any agreement that may be signed will be on terms that are favorable to us. See
"Our Other Business - Investments in Affiliates - Investments in United Hotel &
Casino, L.L.C."

We do not have a specific policy regarding real estate investment, and it is
not our intention to become active in real estate investment. With the focus of
our business now on developing and licensing our interactive Internet
technologies, we do not intend to make additional investments in real estate,
real estate mortgages or the securities of businesses primarily engaged in real
estate activities.

LEGAL PROCEEDINGS

On June 7, 1999 we were sued by Hyperlock Technologies, Inc. in the United
States District Court for the Northern District of Illinois, Eastern Division.
Hyperlock alleges that we have infringed United States Patent No. 5,892,825,
entitled "Method of Secure Server Control of

44
<PAGE>

Local Media via a Trigger Through a Network for Instant Local Access of
Encrypted Data on Local Media." Hyperlock is seeking an injunction against us
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, we believe
that the suit is without merit. We believe that we have not committed any acts
of infringement, and we intend to defend this suit vigorously. Due to the
inherent uncertainties regarding litigation, we can make no prediction about the
outcome of the litigation.

We are also involved in routine and non-material litigation from time to
time in the course of conducting our business.

MANAGEMENT

This table lists our directors and executive officers.

Name Current Position with Company
- ---- -----------------------------

Brian Shuster Chairman of the Board, Chief Executive Officer,
President and Director

Julie Lepere Secretary

Alvin Alexander Director

Alvin Cassel Director

J. Brooke Johnston, Jr. Director

The business experience of the individuals named above for at least the past
five years is described below. Other than what is described here, none of these
people is related to any of the others. None of them has been involved in
significant legal proceedings.

Brian Shuster, 41, has served as Chairman of the Board, Chief Executive
Officer and President of our company since May 24, 1999 and he has been a
director of our company since May 1996. From March 1997 through May 1999, he
served as Executive Vice President of our company. Mr. Shuster is also
President, Chief Executive Officer and a director of our United Internet
subsidiary. From July 1998 through August 1999, Brian Shuster was a director of
Genisys, which is a public company in the retail travel business. From 1993
through 1995, Brian Shuster was President of Beverly Hills Producers Group, an
independent motion picture production company. Brian Shuster is the son of
Harry Shuster, former Chairman of the Board, President, Chief Executive Officer
and a director of our company. See "Certain Relationships and Related
Transactions".

Julie Lepere, 39, has been with our company since 1978 and has served as
Secretary since May 1999. Since January 1999, Ms. Lepere has also served as
Director of Administration. From

45
<PAGE>

1984 through 1998, Ms. Lepere was the Administration Director for our three
summer day camps located in Orange County, California. From 1984 through 1996,
she was also assistant to our Vice President/Controller.

Alvin Alexander, 70, is and has been for more than five years President of
Skip Alexander Productions, a company located in Los Angeles, California, which
develops game shows and other television properties.

Alvin Cassel, 85, is of counsel to the law firm of Broad and Cassel in
Miami, Florida. He has been engaged in a general civil law practice for more
than 60 years. Mr. Cassel is also a director of Grand Havana, an affiliate of
our company. Mr. Cassel is also Managing Director of Koorn N.V., whose stock is
owned by Harry Shuster. See "Security Ownership of Certain Beneficial Owners and
Management."

J. Brooke Johnston, Jr., 59, is a partner of the law firm of Baker, Johnston
& Wilson LLP, in Birmingham, Alabama. He was Senior Vice President and General
Counsel for Med Partners, Inc., in Birmingham, Alabama from April 1996 until
July 1998. Prior to that, Mr. Johnston was a senior principal of the law firm of
Haskell Slaughter Young & Johnston, a Professional Association, in Birmingham,
Alabama, where he practiced securities law for more than 17 years. Mr. Johnston
is also a director of Grand Havana, an affiliate of the Company.

Significant Employees of United Internet
----------------------------------------

Jay Dunn, 34, has been Vice President of Motion Graphics Programming since
October 1998. From 1997 through October 1998, Mr. Dunn designed motion graphic
videos for the "Eyes of the Nation" project for the Library of Congress. From
1992 through 1997, he was a freelance computer motion graphics consultant. Mr.
Dunn studied computer arts and sciences at Ohio State University. From 1983
through 1989, Mr. Dunn served in the United States Navy, performing the duties
of electronics technician and nuclear reactor operator.

Consultants
-----------

Robert Eady, 27, has served as Senior Programming Consultant since September
1997, supervising the creation and implementation of applications of our
technology and providing other software design and operations services. From
February 1996 through August 1997, he served as Manager of Internet
Product/Service Development for Positive Developments Limited, an Internet and
commercial software firm. From May 1994 through December 1995, he was a
Computer Services Administrator in the Planning & New Programs Department of
Cognos

46
<PAGE>

Corporation. From September 1993 through March 1994, he was the principal
consultant of Eady & Associates, providing computer communications and software
consulting services.

Harry Shuster, 64, is the former Chairman of the Board, President and Chief
Executive Officer of our company; former Chairman of the Board, President and
Chief Executive Officer of our United Internet subsidiary; a former director of
Genisys; and former Chairman of the Board of NII. He resigned from these
positions to devote a greater amount of his time to defend himself in criminal
proceedings following his indictment by the U.S. Attorney for the Southern
District of New York. These matters concern Harry Shuster personally and do not
involve our company, our United Internet subsidiary or any of our affiliates.
The outcome of these matters is uncertain. Harry Shuster is the father of Brian
Shuster. Harry Shuster provides certain consulting services to us in connection
with our non-Internet business. Harry Shuster is a principal stockholder of our
company. See "Risk Factors - Matters Relating to Former Chairman" and "Certain
Relationships and Related Transactions."

EXECUTIVE COMPENSATION

This table shows all of the compensation given to the Chief Executive
Officer and all other officers who were paid more than $100,000 during the
fiscal years ended December 31, 1998, 1997 and 1996. These people are referred
to as Named Executive Officers.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Long Term All Other
Annual Compensation Compensation Compensation(1)
-------------------- ------------ ---------------
Name and Principal Securities
Position Year Salary Bonus Underlying Options
- ------------------------------ ---- ------ ----- ------------------
<S> <C> <C> <C> <C> <C>

Harry Shuster 1998 $300,663 $ -- 2,100,000(3) $ --
Former Chairman of the 1997 $273,330 $ -- ________ $ --
Board, President and Chief 1996 $248,482 $ -- ________ $3,600
Executive Officer (2)
</TABLE>

(1) Consists of $300 per month car allowance paid Mr. Shuster.
(2) Harry Shuster resigned these offices on May 24, 1999.
(3) This option was issued to Mr. Shuster in accordance with our corporate
policy, in connection with a guaranty issued by Mr. Shuster to
collateralize certain of our corporate debt. See "Certain Relationships and
Related Transactions."

Stock Option Grants

This table shows information regarding stock option grants made to each of
our Named Executive Officers who received options during the fiscal year ended
December 31, 1998. All of the options were issued at not less than the fair
market value of our common stock on the date of grant and are 100% vested.

47
<PAGE>

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
Number of Percent of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees Price Expiration
Name Granted (#) in Fiscal Year ($/sh) Date
- --------------- ------------ -------------- ------ ----
<S> <C> <C> <C> <C>
Harry Shuster 2,100,000 87.5% $.625 September 30, 2003
</TABLE>

This table shows information regarding unexercised options held by our
Named Executive Officers. No options were exercised during the fiscal year ended
December 31, 1998.

AGGREGATED OPTION EXERCISE IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at In-the-Money Options
December 31, 1998 at December 31, 1998 (1)
------------------------- ------------------------

Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Harry Shuster 2,606,950 -- $ 0 $ --
</TABLE>

_____________________
(1) Represents the difference between market price of the Company's common
stock and the respective exercise prices of the options at December 31,
1998. Since the market price of our common stock at December 31, 1998 was
less than the exercise prices of any of Mr. Shuster's outstanding options,
the options were not "in-the-money" at December 31, 1998. Actual values
which may be realized, if any, upon any exercise of these options will be
based on the market price of our common stock at the time of any exercise
and are therefore dependent upon future performance of our common stock.

Stock Options

On December 31, 1998, there were outstanding presently exercisable non-
qualified stock options to purchase a total of 3,166,950 shares of our common
stock held by our officers and directors. Of this amount, 2,606,950 were held by
Harry Shuster, former Chairman of the Board, President and Chief Executive
Officer of our company, and the balance were held by the other directors of our
company, at option prices ranging from $.25 to $1.38 per share. See "Security
Ownership of Certain Beneficial Owners and Management."

All non-qualified stock options which we have issued to our directors and
executive officers are in substantially the same form. All options have a term
which expires on December 31, 2002, except for options granted during 1998,
which have a term of five years from date of grant (expiring in September 2003),
and are immediately exercisable as to all of the shares of our common stock
covered by the option. The option price is the fair market value of our common
stock as of the date of grant. Each option terminates at the end of 90 days
following termination

48
<PAGE>

of association with or employment by us for any reason other than death, or at
the end of one year in the event termination is caused by death.

In addition to the non-qualified stock options held by our directors and
executive officers on December 31, 1998, there were outstanding non-qualified
options to purchase a total of 100,000 shares of our common stock held by third
parties. All of these non-qualified options are in substantially the same form
as those issued to our directors and executive officers, except that generally
they are not terminable until they expire. These options have exercise prices
ranging from $.30 to $.75 and expire at December 31, 2002.

Employment and Consulting Agreements

United Internet and Brian Shuster entered into an employment agreement
dated as of January 1, 1999. Under this employment agreement, Brian Shuster is
employed as the President of United Internet at an initial base salary of
$240,000 per year. Of Brian Shuster's base salary, United Internet may offset up
to $5,000 per month from payments Brian Shuster receives under his oral
consulting arrangement with our company, plus up to an additional $5,000 per
month from payments he receives under the Genisys agreement. Genisys is an
affiliate of our company. See "Certain Relationships and Related Transactions."
The employment agreement provides for annual 10% increases in Brian Shuster's
base salary. The employment agreement provides for a rolling five-year term.
This is accomplished by extending the initial five-year term of the employment
agreement automatically for successive one-year periods unless one party
provides a written notice of termination at least 60 days before to the end of
the first year of the current five-year period. The employment agreement also
provides that any inventions developed by Brian Shuster during his employment by
United Internet and which relate to the business of United Internet, will remain
United Internet's property. The employment agreement also contains a
confidentiality provision to protect United Internet's trade secrets and other
confidential information. Brian Shuster is permitted to engage in outside
business activities to the extent that these obligations do not interfere with
his duties to United Internet. Of the $120,000 that we accrued for Brian
Shuster's salary for the period January through June 1999, we have paid
Mr. Shuster $15,000 through June 30, 1999.

Prior to becoming President and Chief Executive Officer of our company in
May 1999, Brian Shuster provided certain consulting services to us and received
$5,000 per month in consulting fees. The consulting agreement is an oral
arrangement, which may be terminated by either party upon 30 days notice.
Amounts received by Brian Shuster under this arrangement up to $5,000 per month
are credited against payments made to him under his employment agreement with
United Internet. Under the agreement with Genisys, Brian Shuster is entitled to
receive $5,000 per month for services rendered by him to NII. Brian Shuster's
employment agreement also provides that amounts received by him under the
Genisys agreement up to $5,000 per month are credited against payments made to
him by United Internet. See "Certain Relationships and Related Transactions".

The Company and Harry Shuster entered into a consulting agreement dated as
of June 1, 1994. Under this consulting agreement, Harry Shuster served as
President, Chief Executive Officer and a director of our company at an initial
base compensation of $208,984 per year. The consulting agreement provides for
annual 10% increases in Harry Shuster's base compensation. In 1998, we accrued
base compensation to Mr. Shuster of $300,663. Harry Shuster is also

49
<PAGE>

provided with the use of a car or a $300 per month car allowance. The consulting
agreement also provides for certain disability payments to be made for up to
three years. The consulting agreement provides for a rolling five-year term.
This is accomplished by extending the initial five-year term of the consulting
agreement automatically for successive one-year periods unless one party
provides a written notice of termination at least 60 days before to the end of
the first year of the current five-year period. As of June 1, 1999, the
consulting agreement was amended to provide that Harry Shuster will be paid
$5,000 per month and the balance of his then-current compensation will be
applied to offset the net amount he owes the Company. As of June 30, 1999, that
amount was approximately $420,263, including interest. The consulting agreement
terminates on Mr. Shuster's death or in the event of a breach of the consulting
agreement by Mr. Shuster. See "Certain Relationships and Related Transactions."

The Company and C2 Design, a division of 1150250 Inc. entered into a
consulting agreement dated as of September 1, 1998. Under this consulting
agreement, C2 has made the services of Robert Eady available to United Internet
for a five-year period, commencing September 1, 1998. Mr. Eady's
responsibilities includes planning, implementing and configuring real-time
interactive software and hardware systems for Internet applications, and other
functions associated with the development of applications of our technology. Mr.
Eady receives $75,000 per year for the first year of the consulting agreement,
with annual increases of 10% effective on each anniversary date of the
consulting agreement. The consulting agreement also provides that any inventions
developed by Robert Eady during his work for United Internet and which relate to
the business of United Internet, will remain United Internet's property. The
consulting agreement also contains a confidentiality provision to protect United
Internet's trade secrets and other confidential information.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Harry Shuster is the former Chairman of the Board, President, Chief
Executive Officer and a director of our company, and he currently owns
approximately 34.9% of our common stock. See "Security Ownership of Certain
Beneficial Owners and Management." Mr. Shuster is also a former director of
Genisys, an affiliate of the Company, and former Chairman of the Board of NII, a
wholly-owned subsidiary of Genisys. We licensed the travel-related applications
of our technology to NII, and under our agreement with Genisys, Mr. Shuster
became a director of Genisys and Chairman of the Board of NII. Mr. Shuster is
also the former Chairman of the Board, President, Chief Executive Officer and a
director of Grand Havana, an affiliate of our company. Harry Shuster is the
father of Brian Shuster. In May 1999, Mr. Shuster resigned all positions with
our company, our United Internet subsidiary, Genisys, NII and Grand Havana. See
"Management".

Brian Shuster is Chairman of the Board, President, Chief Executive Officer
and a director of our Company and President, Chief Executive Officer and a
director of United Internet. Brian Shuster was also a director of Genisys (a
position he resigned from on August 19, 1999) and President of NII, as provided
for in the Genisys Agreement. Brian Shuster is the son of Harry Shuster.

50
<PAGE>

Transactions with Present and Former Directors and Officers
-----------------------------------------------------------

In prior years, Harry Shuster advanced working capital to us at the prime
rate plus 3%. These advances were secured by our rights under various sublease
arrangements in connection with our children's recreational activities. In June
1995, Mr. Shuster converted advances in the amount of $649,800, excluding
accrued interest of $789,649, into equity, by exercising options to purchase
755,550 shares of our common stock. Mr. Shuster has deferred payment of certain
of the interest due to him under this loan arrangement and certain amounts
due to him under his consulting agreement. At June 30, 1999, accrued interest
payable to Mr. Shuster amounted to $1,185,947. We have also advanced money to
Mr. Shuster from time to time. At June 30, 1999, Mr. Shuster owed us
$1,606,210, including accrued interest. Therefore, as of June 30, 1999, Mr.
Shuster owed us the net amount of $420,263.

We lease our principal executive offices from 1990 Westwood Boulevard,
Inc., a company in which Harry Shuster is an officer and principal stockholder.
Prior to January 1, 1999, the lease was on a month-to-month basis. Effective
January 1, 1999, we entered into a five-year lease at a monthly rent of $1.75
per square foot. As of May 1, 1999, we expanded our space to approximately 6,000
square feet, with a current monthly rent of approximately $10,500.

From October 1, 1997 through May 31, 1999, we accrued rent, including
homeowner association dues, payable to Harry Shuster in the amount of $49,551,
for an apartment which he owns and which he and Brian Shuster have used while
they are in New York City on company business. Since June 1, 1999, we have
accrued rent and homeowner association dues in the amount of $300 per day for
each day of use by Harry Shuster or Brian Shuster. We believe that this rent is
at least as favorable as the cost of comparable housing over the significant
period of time that Messrs. Shuster have been in New York City on company
business.

Under the terms of the agreement under which we sold the interactive
Internet technology to our United Internet subsidiary, United Internet is
obligated to pay us $1,250,000. The purchase price was not reached through
arm's-length negotiations since United Internet is our wholly-owned subsidiary
and both companies have the same management.

Transactions with United Hotel
------------------------------

Westminster Capital, Inc. loaned us $1,900,000 to meet a portion of our
$3,800,000 capital contribution to United Hotel to purchase the Las Vegas
property in July 1997. We refer to this

51
<PAGE>

as the First Westminster Loan. We signed a Secured Convertible Promissory Note,
which bears interest at the rate of 15% per year and matures on the earlier
to occur of Westminster's demand (which they can make any time after July 29,
1998), or July 29, 1999. We refer to this promissory note as the First
Westminster Note. The holder of the First Westminster Note has the right, at any
time prior to the maturity date of the First Westminster Note, to convert the
entire outstanding principal balance of the First Westminster Note into one-half
of our membership interest in United Hotel. We have amended the conversion
feature of the First Westminster Note to extend the conversion date, which we
discuss below. We can prepay the First Westminster Note at any time prior to
conversion and after July 29, 1998. We are required to pay Westminster one-half
of any cash distributions which may be made to us by United Hotel prior to the
repayment of the First Westminster Note. Any such payments would be treated as
prepayments on the First Westminster Note.

The First Westminster Loan is secured by certain collateral. One of those
items of collateral is a pledge of 408,333 of the 966,666 shares that we own in
Grand Havana. Grand Havana is an affiliate of our company. As additional
security, we entered into a Security Agreement dated as of July 29, 1997 and
granted a security interest to Westminster of our 50% membership interest in
United Hotel and the receivables and certain indebtedness due to us from Grand
Havana.

Harry Shuster is the former Chairman of the Board, President and Chief
Executive Officer of our company, and he is still a principal stockholder of our
company. He serves as a member of the management committee of United Hotel. Mr.
Shuster is also the former Chairman of the Board, President and Chief Executive
Officer of Grand Havana. In addition, Harry Shuster and his spouse, Nita
Shuster, provided certain other security individually and jointly with respect
to the First Westminster Loan.

52
<PAGE>

outstanding principal balance of the First Westminster Note into one-half of the
Company's membership interest in United Hotel. We also agreed that a default by
United Hotel under the Second Westminster Note will be considered to be a
default by us under the First Westminster Note. Harry Shuster personally
guaranteed the obligations of United Hotel under the Second Westminster Loan and
we issued a non-recourse guaranty with joint and several liability, limited to
our interest in United Hotel.

Transactions with Grand Havana
------------------------------

In September 1996, we entered into a financing agreement with Grand Havana.
Under this financing agreement, we pledged $875,000 cash to support a letter of
credit that Grand Havana provided in connection with a lease they had signed. In
consideration for our providing this pledge of cash collateral, Grand Havana
agreed to pay us 10% per year on the pledged cash. As additional consideration,
we received 100,000 shares of the common stock of Grand Havana and a warrant to
purchase an additional 100,000 shares of common stock of Grand Havana at an
exercise price of $.75 per share. We exercised the warrant in February 1997.

On September 30, 1998, we agreed to make a new installment loan to Grand
Havana in the amount of up to $1,250,000, in replacement of the previous loan.
Grand Havana signed a secured promissory note, which bears interest at 8% per
year. This note was due and payable in full on March 31, 1999. We extended the
maturity date of the note for an additional 60 days and we have further extended
the maturity date again to November 30, 1999. This note is secured by a grant of
a security interest in certain collateral of Grand Havana.

53
<PAGE>

On March 8, 1999, we made a separate $75,000 loan to Grand Havana. This
loan accrues interest at 8% per annum. Both principal and interest are due on
September 8, 2000. At June 30, 1999, $75,000 in principal amount and accrued
interest of $1,500 remained payable by Grand Havana to us under this loan. The
loan is guaranteed by Harry Shuster. See "Certain Relationships and Related
Transactions."

Our transactions with Grand Havana were not reached through arm's length
negotiations since both companies were under the common control of Harry
Shuster at that time.

Transactions with HEP II
------------------------

In April 1996, we acquired 50% of the limited partnership interests in HEP
II for an initial capital contribution of $1,500,000. HEP II is engaged in the
motion picture production business. Limited partners in HEP II are entitled to
receive 99% of all distributions made by HEP II until they receive a 110% return
of their investment and thereafter they receive 50% of distributions until a
200% return is achieved, at which time HEP II will terminate. The general
partner of HEP II is United Film Distributors, Inc., a California corporation.
Harry Shuster, the former Chairman of the Board, President and Chief Executive
officer of our company is the Chairman of the Board of United Film as well as
one of its principal stockholders. Brian Shuster, the present Chairman of the
Board, President and Chief Executive Officer of our Company, is the President
and a principal stockholder of United Film. Brian Shuster is also the son of
Harry Shuster.

In 1997, at the request of Harry Shuster, United Film paid us $325,000.
That amount was used to reduce the outstanding net balance of money Harry
Shuster owed to us.

At June 30, 1999, we had an investment in HEP II in the amount of $700,000.
See "Certain Relationships and Related Transactions."

Our transactions with HEP II were not reached through arm's length
negotiations since both companies were under the common control of Harry Shuster
and Brian Shuster.

54
<PAGE>

Although any conflict of interest involving our company will be resolved by
our directors and officers exercising their individual judgment consistently
with their fiduciary duties, there can be no assurance that any conflicts of
interest will be resolved in a manner favorable to our company.

SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

This table provides information about the stock ownership of our company on
June 30, 1999. It shows the holdings of each director, each person we know to
hold more than 5% of our stock, and all of our directors and officers as a
group.

<TABLE>
<CAPTION>
Shares
Beneficially Percentage
Names and Address of Beneficial Owner Owned (1) Ownership
- ------------------------------------- ----------- ----------
<S> <C> <C>
Brian Shuster (2)(3) 1,050,300 7.1%
Alvin Cassel (2)(4) 185,100 1.3%
Alvin Alexander (2) 13,021 *
J. Brooke Johnston, Jr (2)(5) 105,000 *
Harry Shuster (2)(6) 5,879,933 34.9%
Klaus Helbert (7) 1,249,000 7.8%
All Directors and Executive Officers
as a Group (4 persons) (3)(4)(5) 1,353,421 9.0%
</TABLE>

____________________
* Less than 1%

(1) Includes shares which can be issued upon the exercise of options or
warrants that are exercisable within 60 days. The shares underlying these
options or warrants are considered to be outstanding for the purpose of
computing the percentage of outstanding stock owned by such persons
individually and by each group of which they are a member, but the shares
are not considered to be outstanding for the purpose of computing the
percentage ownership of any other person.

(2) The address of all officers, directors and consultants is c/o our company
at 1990 Westwood Boulevard, Penthouse, Los Angeles, CA 90025.

(3) Consists of 300 shares owned by Nita Shuster and Brian Shuster, 160,000
shares owned by The Brian Shuster Trust, 240,000 shares owned by Brian
Shuster for the benefit of his three minor children and options to purchase
650,000 shares of our common stock which are currently exercisable.

(4) Consists of 110,100 shares held by Koorn N.V., a Netherlands Antilles
corporation, of which Mr. Cassel is Managing Director and as to which Mr.
Cassel has shared voting power, and options to purchase 75,000 shares of
our common stock which are currently exercisable. See also note (6).

55
<PAGE>

(5) Includes options to purchase 100,000 shares of our common stock which are
currently exercisable, of which amount options to purchase 50,000 shares of
our common stock are held by Mr. Johnston directly and options to purchase
100,000 shares of our common stock are held by a law firm in which Mr.
Johnston was a partner, half of which he is entitled to receive and as to
the other half of which he disclaims beneficial ownership.

(6) Includes 110,100 shares owned by Koorn N.V., a Netherlands Antilles
corporation, all of whose capital shares are owned by Harry Shuster. Mr.
Shuster has sole investment power over the shares owned by Koorn N.V., but
shares voting power of these shares. Alvin Cassel, a director of our
company, acts as Managing Director of Koorn N.V. Also includes 125,000
shares owned by the Harry and Nita Shuster Charitable Foundation and 300
shares owned by Nita Shuster, the spouse of Harry Shuster. Does not include
10,000 shares owned by Bardene Shuster, 300 shares owned by Nita Shuster
and Bardene Anne Shuster, 300 shares owned by Nita Shuster and Brian
Shuster, and 300 shares owned by Nita Shuster and Stanley Shuster, of which
shares Mr. Shuster disclaims beneficial ownership. Also includes options to
purchase 2,606,950 shares of our common stock which are currently
exercisable as well as 3,037,583 shares of our common stock owned directly
by Mr. Shuster. Also does not include an aggregate of 480,000 shares of our
common stock owned by trusts of which Mr. Shuster's adult children are the
beneficial owners. Until May 24, 1999, Mr. Shuster served as Chairman of
the Board, President, Chief Executive Officer and a director of our
company.

(7) Mr. Helbert's address is Gustav-Stresemann-Ring 1, 65189 Wiesbaden,
Postfach 3012, Germany.

INDEMNIFICATION FOR SECURITIES ACT LIABILITY

Our certificate of incorporation allows us to indemnify our officers and
directors to the maximum extent allowed under Delaware law. This includes
indemnification for liability which could arise under the Securities Act. The
SEC takes the position that any indemnification for securities law violations is
against public policy and is unenforceable.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, and other information with
the SEC. You may read and copy any document we file at the SEC's public
reference rooms in Washington, D.C.; New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available on the SEC's website:
http://www.sec.gov.

We do not voluntarily send an annual report to our stockholders and we do
not intend to send an annual report to our stockholders. Information about our
company, including audited financial statements, can be found in our Annual
Report on Form 10-KSB which we filed with the SEC.

This prospectus is part of a Registration Statement on Form SB-2 that has
been filed with the SEC. It does not include all of the information that is in
the registration statement and the additional documents filed as exhibits with
it. For more detail you should read the exhibits themselves.

56
<PAGE>

You should rely only on the information incorporated by reference or in
this prospectus or any supplement to it. We have not authorized anyone to
provide you with information that is different. You should not assume that the
information in this prospectus or any supplement is accurate as of any date
other than the date on its cover.

LEGAL MATTERS

The law firm of Richman, Lawrence, Mann, Chizever & Phillips, of Beverly
Hills, California, will pass upon the validity of the securities offered by this
prospectus.

EXPERTS

Hollander Lumer & Co. LLP, independent auditors, have audited our
consolidated financial statements included in this prospectus and registration
statement for the years ended December 31, 1997 and 1998 and for each of the two
years in the period ended December 31, 1998, as set forth in their report. Our
consolidated financial statements are included in reliance on their report,
given on their authority as experts in accounting and auditing.

57
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----
<S> <C>

Report of Independent Auditors F-1

Consolidated Balance Sheets at December 31, 1998 and 1997 F-2

Consolidated Statements of Operations and Comprehensive Income (Loss)
for the years ended December 31, 1998 and 1997 F-3

Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998 and 1997 F-4

Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 1997 F-5

Notes to Consolidated Financial Statements December 31, 1998 and 1997 F-7

Consolidated Balance Sheet June 30, 1999 (Unaudited) F-23

Consolidated Statements of Operations and Comprehensive Loss
for the six months ended June 30, 1999 and 1998 (Unaudited) F-24

Consolidated Statements of Cash Flows
for the six months ended June 30, 1999 and 1998 (Unaudited) F-25

Notes to Consolidated Financial Statements
June 30, 1999 (Unaudited) F-26
</TABLE>
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders
United Leisure Corporation

We have audited the accompanying consolidated balance sheets of United Leisure
Corporation and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations and comprehensive income (loss),
stockholders' equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
United Leisure Corporation and subsidiaries as of December 31, 1998 and 1997,
and the consolidated results of their operations and their cash flows for the
years then ended, in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as going concern. As discussed in Note 2 to the
consolidated financial statements, there is a substantial doubt about the
ability of the Company to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

HOLLANDER, LUMER & CO. LLP

Los Angeles, California
March 6, 1999

F-1
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 799,369 $ 152,770
Receivables 53,153 21,732
Prepaid expenses and other current assets 78,082 59,690
------------ ------------
TOTAL CURRENT ASSETS 930,604 234,192
------------ ------------
PROPERTY AND EQUIPMENT, NET 384,984 2,172,569
------------ ------------
INVESTMENTS
Investment in United Hotel at equity - related party 3,432,452 3,633,800
Investment in HEP II at equity - related party 700,000 1,120,500
Investment in Genisys at equity - related party 210,133 -
Investment in Grand Havana at fair value - related party 38,667 340,025
------------ ------------
TOTAL INVESTMENTS 4,381,252 5,094,325
------------ ------------
OTHER ASSETS
Loan receivable from Grand Havana - related party 619,298 681,643
Due from officer 332,627 12,567
Assets held for sale 1,663,857 -
Deposits and other assets 78,929 82,043
------------ ------------
TOTAL OTHER ASSETS 2,694,711 776,253
------------ ------------
$ 8,391,551 $ 8,277,339
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 1,900,000 $ 1,925,000
Accrued interest 406,808 143,973
Accounts payable and accrued expenses 478,785 1,243,066
Due to related parties 107,535 -
Deferred revenues 28,060 32,710
Deposits and other 5,652 43,426
------------ ------------
TOTAL CURRENT LIABILITIES 2,926,840 3,388,175
LONG-TERM DEBT 842,000 842,000
COMMON STOCK SUBJECT TO REPURCHASE - 150,001 SHARES 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 - 13,918,849 shares in 1998 and
12,618,849 shares in 1997 139,188 126,188
Additional paid-in capital 24,844,168 24,587,188
Accumulated deficit (20,438,645) (19,923,806)
Accumulated other comprehensive loss - Unrealized loss on investment - (742,406)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 4,544,711 4,047,164
------------ ------------
$ 8,391,551 $ 8,277,339
============ ============
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-2
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUE
Rentals $ - $ 80,799
Children's recreational activities 2,032,784 2,808,342
Licensing fees 410,817 -
----------- -----------
TOTAL REVENUE 2,443,601 2,889,141
----------- -----------
EXPENSES
Direct operating expenses 3,114,182 3,971,056
Selling, general and administrative expenses 743,230 1,107,286
Depreciation and amortization 171,623 747,282
Impairment losses - 3,862,554
----------- -----------
TOTAL EXPENSES 4,029,035 9,688,178
----------- -----------
LOSS BEFORE OTHER INCOME (EXPENSE) (1,585,434) (6,799,037)
----------- -----------
OTHER INCOME (EXPENSE)
Litigation settlement 4,043,020 -
Legal costs (603,183) (716,291)
Equity in net loss of United Hotel (226,348) (117,700)
Equity in net loss of Genisys (249,533) -
Realized loss from write-down of investment in HEP II (420,500) -
Realized loss from write-down of investment in Grand Havana (1,043,764) -
Interest income 158,916 344,009
Interest expense (697,047) (303,823)
Other, net 109,034 279,297
----------- -----------
TOTAL OTHER INCOME (EXPENSE) 1,070,595 (514,508)
----------- -----------
NET LOSS (514,839) (7,313,545)
----------- -----------
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized loss on securities available for sale:
Unrealized holding (loss) on securities arising during the period (301,358) (924,172)
Reclassification adjustment for loss realized in net loss 1,043,764 -
----------- -----------
OTHER COMPREHENSIVE INCOME (LOSS) 742,406 (924,172)
----------- -----------
COMPREHENSIVE INCOME (LOSS) $ 227,567 $(8,237,717)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 13,502,182 12,493,849
=========== ===========
BASIC AND DILUTED LOSS PER SHARE $ (0.04) $ (0.59)
=========== ===========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-3
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
Common Stock
---------------------- Accumulated
Additional Other
Number of Paid-in Accumulated Comprehensive
Shares Amount Capital Deficit Income (Loss) Total
---------- -------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 12,368,849 $123,688 $24,326,458 $(12,610,261) $ 181,766 $12,021,651
Issuance of common stock for
services 250,000 2,500 67,500 70,000
Fair value of options and
warrants issued to non-
employees 193,230 193,230
Unrealized loss on investment (924,172) (924,172)
Net loss (7,313,545) (7,313,545)
---------- -------- ----------- ------------ --------- -----------
Balance, December 31, 1997 12,618,849 126,188 24,587,188 (19,923,806) (742,406) 4,047,164
Issuance of common stock for
services 100,000 1,000 30,300 31,300
Sale of common stock 1,200,000 12,000 217,680 229,680
Fair value of options and
warrants issued to non-
employees 45,000 45,000
Accretion in the carrying
amount of common stock
subject to repurchase (36,000) (36,000)
Realized loss on investment 742,406 742,406
Net loss (514,839) (514,839)
---------- -------- ----------- ------------ --------- -----------
Balance, December 31, 1998 13,918,849 $139,188 $24,844,168 $(20,438,645) $ - $ 4,544,711
========== ======== =========== ============ ========= ===========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-4
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
1998 1997
----------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (514,839) $(7,313,545)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 171,623 741,642
Impairment losses - 3,862,554
Issuance of common stock for services 73,300 70,000
Fair value of options and warrants issued to non-employees 45,000 193,230
Licensing fees (410,817) -
Write-down of investment in Grand Havana 1,043,764 -
Write-down of investment in HEP II 420,500 -
Equity in net loss of Genisys 249,533 -
Equity in net loss of United Hotel 226,348 117,700
Accrual of interest from related parties (144,468) (99,044)
Write-off of loan from director - 10,000
Receipt of common stock of Grand Havana as loan fees - (177,431)
Changes in operating assets and liabilities:
Receivables (31,421) 107,111
Prepaid expenses and other current assets (18,392) 61,576
Deposits 3,114 160,112
Accrued interest 262,835 -
Accounts payable and accrued expenses (764,281) 764,024
Accrued expenses due to related parties 215,588 25,951
Deferred revenues (4,650) (111,235)
Other current liabilities (37,774) (80,849)
---------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVIES 784,963 (1,668,204)
---------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (96,744) (198,179)
Restricted cash - 875,000
Investment in Grand Havana - (575,000)
Advances to related party (335,300) -
Collection of advances due from officer - 350,000
Investment in United Hotel (25,000) (3,751,500)
Loan receivable from Grand Havana - (775,000)
Collection of loan receivable from Grand Havana 114,000 125,000
---------- -----------
NET CASH USED IN INVESTING ACTIVITIES (343,044) (3,949,679)
---------- -----------
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-5
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - 2,800,000
Repayments of notes payable (25,000) (875,000)
Sale of common stock 229,680 -
---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 204,680 1,925,000
---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 646,599 (3,692,883)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 152,770 3,845,653
---------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 799,369 $ 152,770
========== ===========

CASH PAID FOR:
Interest $ 121,975 $ 159,850
========== ===========

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Issuance of common stock for services $ 31,300 $ 70,000
Fair value of options and warrants to non-employees 45,000 193,230
Investment in Genisys for licensing fees 410,817 -
Reclassification of property and equipment to assets held for sale 1,663,857 -
Issuance of common stock subject to repurchase 42,000 -
Accretion in the carrying amount of common stock subject to repurchase 36,000 -
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-6
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997

1. Summary of Significant Accounting Policies

Description of Business - The Company is in the business of developing and
licensing for various applications its internet video technology ("Technology").
The Technology, which equips sites on the World Wide Web (the "Web") with
software, provides a means of linking a full-motion video on CD-ROM located
on the user's personal computer to the Web sites. The display of the content of
the CD-ROM is completely controlled by the remote Web server.

During 1997, the Company operated summer day camps in two locations in
Southern California and one in its property in San Diego County, California, and
children's play-learning centers known as Planet Kids in three locations in
Southern California. During 1998, the Company did not open the summer day camp
in San Diego County, California. The property in San Diego County is being held
for sale.

Principles of Consolidation - The consolidated financial statements include
the accounts of United Leisure Corporation and its wholly-owned subsidiaries.
All significant intercompany transactions and balances have been eliminated.

Investments - Investments in 20 percent to 50 percent owned limited
partnership and limited liability company are carried at equity. Investment in
less than 20% owned partnership is carried at cost less distributions.
Investments in available for sale securities are carried at fair value, with the
unrealized gains and losses reported as a separate component of stockholders'
equity.

Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.

Cash and cash equivalents - The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.

Fair Value of Financial Instruments - The Company's financial instruments
consist of cash equivalents, receivables, accounts payable, accrued expenses,
notes payable and due to related parties. The fair values of the Company's
financial instruments approximate the carrying value of the instruments.

Concentration of Risk - The Company invests its excess cash in certificates
of deposit and money market funds, which, at times, may exceed federally insured
limits. The Company maintains its accounts with financial institutions with high
credit ratings.

Property and Equipment - Property and equipment is recorded at cost and
depreciation is computed on the straight-line method based upon the estimated
useful life of the related asset as follows:

<TABLE>
<S> <C>
Buildings and improvements............................. 3-27 years
Machinery, equipment and vehicles...................... 4-10 years
Furniture, fixtures and office equipment............... 5-10 years
Computers.............................................. 6 years
Signs.................................................. 10 years
</TABLE>

Property and equipment are reviewed for impairment whenever events or
circumstances indicate that the asset's undiscounted expected cash flows are not
sufficient to recover its carrying amount. The Company measures an impairment
loss by comparing the fair value of the asset to its carrying amount. Fair value
of an asset is calculated as the present value of expected future cash flows.

F-7
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998 AND 1997

Capitalized Technology Costs - The Company capitalizes certain costs incurred
to internally develop its Technology which is licensed to third parties.
Capitalization of internally developed Technology begins upon the establishment
of technological feasibility. Costs incurred prior to the establishment of
technological feasibility are expensed as incurred. Technological feasibility is
established when the Company has completed all activities that are necessary to
establish that the product can be produced to meet specifications.

Development expenses were $168,179 and $126,917 in 1998 and 1997,
respectively. No costs had been capitalized at December 31, 1998.

Licensing Revenue Recognition Policies - The Company is engaged as a licensor
of its Technology. Generally, revenue is recognized upon delivery of the
Technology. For arrangements to deliver the Technology that require significant
modification or customization, revenue is recognized on the percentage-of-
completion method.

Stock-Based Compensation - Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), encourages, but
does not require a fair value based method of accounting for stock options. The
Company elected to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"), and related
interpretations, under which no compensation cost related to stock options has
been recognized as the exercise price of each option at the date of grant was
equal to the fair value of the underlying common stock.

Earnings per Share - Effective December 31, 1997, the Company adopted
Statement of Financial Accounting Standards No. 128, "Earnings per Share" which
established simplified standards for computing and presenting earnings per share
information. Basic EPS is calculated by dividing income available to common
stockholders (the "numerator") by the weighted-average number of common shares
outstanding (the "denominator") during the period. The computation of diluted
EPS is similar to the computation of basic EPS except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if the dilutive potential common shares (that is, securities such as
options, warrants, convertible securities, or contingent stock agreements) had
been issued. In addition, in computing the dilutive effect of convertible
securities, the numerator is adjusted to add back (a) any convertible preferred
dividends and (b) the after-tax amount of interest recognized in the period
associated with any convertible debt. The computation of diluted EPS shall not
assume conversion, exercise, or contingent issuance of securities that would
have an antidilutive effect on EPS.

Comprehensive Income - The Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" effective January 1, 1998.
This statement establishes standards for reporting and display of comprehensive
income and its components in a full set of financial statements. Components of
comprehensive income (loss) for the Company include net income (loss) and
changes in the value of available-for-sale securities. The statements of
operations for the year ended December 31, 1997 were reclassified for
comparative purposes.

Segment Information - As of January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information", ("SFAS No. 131") issued by the FASB. SFAS
No. 131 requires that public companies report certain information about
operating segments, products, services and geographical areas in which they
operate and their major customers.

Income Taxes - The Company utilizes the asset and liability method for income
taxes. Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

New Accounting Pronouncement - In April 1998, the Accounting Standards
Executive Committee of the AICPA issued Statement of Position ("SOP") No. 98-5
"Reporting on the Costs of Start-Up Activities." Costs of start-up activities,
including organization costs, should be expensed as incurred. This SOP is
effective for financial statements for the fiscal year beginning after December
15, 1998. The Company does not expect adoption of SOP No. 98-5 to have a
material effect, if any, on its financial position or results of operations.

Reclassifications - Certain 1997 balances have been reclassified to conform
with 1998 presentation.

F-8
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998 AND 1997

2. Disclosure of Certain Significant Risks and Uncertainties

Going Concern - The Company has experienced operating losses in recent years.
For the years ended December 31, 1997 and 1998, the Company experienced net
losses of $7,313,545 (which includes impairment losses of $3,862,554) and
$514,839, respectively. The Company's working capital requirements have been and
will continue to be significant. As of December 31, 1998, the Company had cash
and cash equivalents of $799,369 and a working capital deficit of $1,996,236. In
December 1998, the Company's common stock was delisted on the Nasdaq's SmallCap
Market.

Liquidity - As of December 31, 1998, investments and loans to Grand Havana
Enterprises, Inc. ("Grand Havana") and HEP II, LP ("HEP II") totaled
approximately $1,358,000 or 16% of total assets and 30% of the Company's
stockholders' equity. Both affiliated companies had substantial losses 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.

The Company's significant operating losses and significant capital
requirements raise substantial doubt about the Company's ability to continue as
a going concern. The accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and
liabilities in the normal course of business. The financial statements do not
include any adjustments relating to the recoverability of the recorded assets or
the classification of the liabilities that might be necessary should the Company
be unable to continue as a going concern.

3. Property and Equipment

Property and equipment consisted of the following at December 31, 1998 and
1997:

<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
Land $ - $1,247,003
Buildings and improvements 328,233 752,554
Machinery, equipment and vehicles 98,184 242,006
Furniture, fixtures and office equipment 17,508 139,690
Computers 111,136 139,325
Signs and other 296 296
--------- ----------
555,357 2,520,874
Less accumulated depreciation and amortization (170,373) (348,305)
--------- ----------
$ 384,984 $2,172,569
========= ==========
</TABLE>

The Company's Planet Kids play-learning centers has generated increasing
operating cash flow losses since its opening in 1995. These circumstances
indicated that the carrying amounts related to these play-learning centers may
not be recoverable. Accordingly, management reviewed the property and equipment
related to these play-learning centers for recoverability in accordance with
SFAS No. 121 and determined that these assets were impaired. For each play-
learning center, the Company determined impairment by computing the sum of the
estimated future operating cash flows (undiscounted and without interest
charges) and comparing that result to its carrying value. If such sum was less
than the carrying value of the play-learning center's assets, an impairment
condition was considered to exist and an impairment loss was recognized. The
impairment loss was measured as the amount by which the carrying amount exceeded
the fair value of the play-learning center's assets. The estimate of

F-9
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998 AND 1997

fair value was determined using the present values of each play-learning
center's estimated future operating cash flows. The Company recognized
impairment losses in the fourth quarter of 1997 of $3,862,554. Management's
judgment is necessary to estimate future operating cash flows. Accordingly,
actual results could vary from such estimates.

As of December 31, 1998, the Company decided that Frasier's Frontier amusement
park in San Diego County did not meet the Company's long-term strategic goals.
The amusement park was closed in Spring 1998 and the Company intends to sell the
facility. The sale is not expected to occur within the next twelve months since
the property is in the process of being rezoned. The assets of this amusement
park include land, buildings and leasehold improvements, machinery and
equipment, vehicles, furniture and fixtures, computers, and rides. The carrying
value of these assets of $1,663,857 was reclassified as assets held for sale at
December 31, 1998. Management believes that the fair value of these assets is
in excess of its carrying amount.

4. Investments

Investment in The Splash - The Company has a 3.12% interest in The Splash, a
California limited partnership organized for the purpose of developing and
operating a water park on a parcel of property previously subleased from the
Company. At December 31, 1998 and 1997, the carrying value of the Company's
investment, net of distributions, was $0. During 1998 and 1997, the Company
received distributions of $48,723 and $65,000, respectively, which were included
in other income in the accompanying statements of operations.

Investment in United Hotel - In January 1997, the Company and two unrelated
California limited liability companies formed United Hotel & Casino, LLC
("United Hotel"), organized under the laws of the State of Delaware. On July 29,
1997, United Hotel acquired the a real property commonly known as The Silver
City/Las Vegas Plaza Shopping Center ("Las Vegas Property") in Las Vegas,
Nevada. The aggregate purchase price was approximately $23,200,000, which was
paid by a cash payment of approximately $5,590,000, a one-year note being
carried by the seller of the property in the amount of $1,250,000 and the
assumption of a first deed of trust in the amount of approximately $16,360,000.
The Company contributed $3,751,500 to the cash payment. The Company holds a 50%
membership interest in United Hotel & Casino which is being accounted for under
the equity method. During 1998, the Company contributed an additional $25,000
to United Hotel.

The following is the financial summary of United Hotel as of and for the year
ended December 31, 1998:

<TABLE>
<S> <C>
Balance Sheet:
Current Assets
Rents receivable $ 1,230
Prepaid Expenses 60,976
-----------
Total Current Assets 62,206
Property and equipment, net 21,958,383
Other assets 32,044
-----------
Total Assets $22,052,633
===========
Current Liabilities
Checks drawn in excess of available bank balances $ 89,560
Payroll taxes payable 305
Note payable 1,100,000
Current maturities of long-term debt 176,518
Tenant security deposits 50,836
Tenant prepaid rent 2,160
-----------
Total Current Liabilities 1,419,379
</TABLE>

F-10
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998 AND 1997

<TABLE>
<S> <C>
Long-Term Debt, net 15,880,938
Members' Capital 4,752,316
------------
Total Liabilities and Members' Capital $22,052,633
============
Company's equity in net assets $ 3,432,452
============
Statement of Operations:
Rental Income $ 2,734,905
Operating Expenses 530,258
Depreciation and amortization 921,954
Interest expense 1,734,588
Provision for franchise tax 800
------------
Net loss ($ 452,695)
============
Company's equity in net loss ($ 226,348)
============
</TABLE>

Investment in HEP II - On April 23, 1996, the Company acquired 50% of the
limited partnership interests for an initial investment of $1,500,000 in HEP II,
a California limited partnership, engaged in the motion picture production
business. The Company made advances of $250,000 in HEP II on July 9, 1996, which
was repaid in October 1996 to Mr. Harry Shuster on behalf of the Company. This
repayment was included in advances to Mr. Shuster (see Note 6). On July 22,
1996, the Company advanced $500,000 to HEP II, which was repaid by HEP II on
July 25, 1996. The Company received capital distributions of $379,500 from HEP
II in 1996. The general partner of HEP II is United Film Distributors, Inc., a
California corporation (formerly known as Hit Entertainment, Inc.) ("UFD"), of
which Harry Shuster, the Chairman of the Board, President and Chief Executive
Officer of the Company, is the Chairman of the Board and a principal
stockholder. Brian Shuster, a director of the Company, is the President of UFD.
Brian Shuster is the son of Harry Shuster. During the year ended December 31,
1998, the Company realized a loss from the write-down of the investment of
$420,500. As of December 31, 1998 and 1997, the balance of the Company's
investment in HEP II was $700,000 and $1,120,500, respectively.

As a result of UFD's failure to timely notify HEP II as to how UFD desired to
characterize its advances to HEP II, the historical financial statements of HEP
II through December 31, 1997 were prepared based on the assumption that UFD had
made a capital contribution to HEP II and therefore had become a limited partner
in HEP II. In fact, UFD wished to treat these advances as a loan to HEP II. UFD
clarified its position during 1998. As a result of this clarification, the
accounts of HEP II have been adjusted to reflect UFD's election to have these
payments treated as a loan to HEP II. In consideration for this clarification,
UFD has waived its right to be repaid the balance of the loan and in addition,
has waived its right to receive future payments for its general partnership
interest in HEP II. The following is the summarized financial information of HEP
II as of and for the year ended December 31, 1998:

<TABLE>
<S> <C>
Balance Sheet:
Film costs, net $1,500,000
----------
Total Assets $1,500,000
==========
Limited Partners' Capital $1,500,000
==========

Statement of Operations:
Revenue $ 533,487
Distribution fees paid to UFD 106,697
Amortization of Film Costs 1,170,964
----------
Net Loss $ (744,174)
==========
</TABLE>

F-11
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998 AND 1997

Investment in Genisys - As of June 30, 1998, the Company's wholly owned
subsidiary, United Internet Technologies, Inc. ("United Internet") granted 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, United Internet received (i) 2,000,000 of
unregistered shares of 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 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.

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. Brian Shuster was issued warrants to purchase Genisys common stock on
the same terms as the warrants issued to United Internet, 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.

Subsequent to the date of the transaction described above, Genisys informed
the Company and United Internet of the following. Genisys was notified by The
Nasdaq Stock Market, Inc. ("Nasdaq") that the issuance of the 2,000,000 shares
of Genisys common stock and the warrants to United Internet caused Genisys to be
inadvertently in violation of a certain Nasdaq Marketplace Rule (the "Nasdaq
Rule"), because the issuance of the 2,000,000 shares of Genisys common stock and
warrants amounted to more than 20% of the issued and outstanding shares of
Genisys and the issuance thereof was not approved by Genisys' stockholders as
required by the Nasdaq Rule. Genisys was informed that Nasdaq intended to
delist Genisys' common stock as a result of its noncompliance with the Nasdaq
Rule, unless Genisys took curative action acceptable to Nasdaq. Pending the
full implementation of the proposed curative action described below, Genisys
appealed Nasdaq's determination. A hearing on the proposed delisting was held
on November 20, 1998, following which Nasdaq approved the continued listing of
Genisys common stock pending the holding of a stockholders' meeting and subject
to certain additional changes in the Genisys transaction.

As a result of the Nasdaq notification, United Internet, Genisys and certain
of Genisys' principal stockholders have entered into an agreement dated October
28, 1998 (the "Agreement") for the purpose of restructuring their transaction.
Under the terms of the Agreement, United Internet will return to Genisys (i)
1,100,000 shares of Genisys common stock , retaining 900,000 shares of Genisys
common stock (the "Retained Shares") and (ii) the warrants. Genisys will
promptly issue to United Internet 1,100,000 shares of Genisys Convertible Series
B Preferred Stock, par value $.0001 per share (the "Genisys Preferred Shares"),
which, among other things, are automatically convertible into 1,100,000 shares
of Genisys common stock upon Genisys' obtaining stockholder approval as required
by the Nasdaq Rule. In addition, upon obtaining the requisite stockholder
approval, Genisys will reissue the warrants to United Internet.

Among other things, the Genisys Preferred Shares carry a mandatory dividend
of $275,000, payable on September 30, 1999, and mandatory quarterly dividends of
$68,750, commencing with the quarter ending December 31, 1999. No dividend is
payable if the Genisys stockholders approve the issuance of the 1,100,000 shares
of Genisys common stock and the warrants to United Internet, and the Genisys
Preferred Shares have been converted into 1,100,000 shares of Genisys common
stock, prior to June 30, 1999. The Genisys Preferred Shares are non-voting,
unless voting is required by New Jersey law. The Genisys Preferred Shares also
carry a mandatory liquidation preference of $2,750,000 plus all accrued and
unpaid dividends.

In response to further requirements of Nasdaq, the parties entered into
another agreement dated January 25, 1999 (the "January Agreement"). The January
Agreement provides that in the event that the holders of Genisys do

F-12
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998 AND 1997

not approve both (i) the acquisition of the assets and (ii) the issuance to
Seller of the 1,100,000 shares of Genisys common stock relating to the Genisys
Preferred Shares, and the Warrants, the Genisys Transaction shall be unwound.
Thereafter, Genisys would have an option until September 30, 1999 to again seek
and obtain approval of the Genisys Transaction by Genisys' stockholders on the
same terms and conditions as originally agreed to pursuant to the Genisys
Agreement, as amended by the October Agreement and the January Agreement.

United Internet has agreed not to vote the Retained Shares and may not vote
the Genisys Preferred Shares at the Genisys stockholders meeting with respect to
the approval of the Genisys Transaction. Certain principal stockholders of
Genisys have agreed to vote their shares of Genisys Common Stock in favor of the
issuance of the 1,100,000 shares of Genisys Common Stock and the Warrants. The
Company has been informed that the Genisys Stockholders Meeting is expected to
be held in May or June 1999.

For accounting purposes, the Company and Genisys had taken the position that
the transaction was completed based on its original terms on June 30, 1998, and
as such, United Internet's investment in Genisys common stock was accounted for
under the equity method effective June 30, 1998, resulting in a recognition of
licensing fees of $410,817. United Internet's investment represents 29% of the
outstanding common stock of Genisys at December 31, 1998. Equity in net loss of
Genisys for the year ended December 31, 1998 was $249,533. The Company's equity
in net assets, as adjusted to eliminate the write-up of the transferred assets
and Technology, was $210,133 at December 31, 1998.

Brian Shuster, Executive Vice President and a director of the Company,
provides consulting services to the Company with respect to the development of
the Company's internet video. Brian Shuster receives $5,000 per month consulting
fees. The consulting arrangement is an ongoing oral arrangement, which may be
terminated by either party upon 30 days notice. During the years ended December
31, 1998 and 1997, the Company paid or accrued Brian Shuster consulting fees of
$60,000 and $60,000, respectively.

Investment in Grand Havana - In September 1996, the Company put up a
certificate of deposit in the amount of $875,000 as collateral for a letter of
credit for Grand Havana. Grand Havana was required to provide such letter of
credit in connection with one of its leases. Grand Havana has agreed to replace
the collateral in full by March 1, 1998. In consideration for providing such
collateral, Grand Havana agreed to pay an amount to the Company equal to 10% per
annum on the amount of the pledged cash collateral as it exists from time to
time. As additional consideration, Grand Havana issued to the Company 100,000
shares of its restricted common stock and warrants to purchase 100,000 shares of
common stock at an exercise price of $.75 per share. The Company valued the
shares in the aggregate amount of $80,000 based on the discounted trading price
of the stock at that time. Harry Shuster is the Chairman of the Board, President
and Chief Executive Officer of Grand Havana.

On July 15, 1997, the Company entered into an amendment to a financing
agreement dated as of September 10, 1996 between the Company and Grand Havana,
pursuant to which agreement the Company had agreed to provide collateral for a
letter of credit for $875,000 on behalf of Grand Havana. The amendment to the
financing agreement permitted Grand Havana to forego the requirement that it
replace the collateral out of the initial membership fees it received from
certain of its Grand Havana Room private membership cigar clubs, in
consideration for which Grand Havana agreed to grant to the Company or its
designee a three-year warrant to purchase 150,000 shares of the common stock of
Grand Havana exercisable at the lesser of $.75 per share or 75% of the average
trading price of the common stock of Grand Havana for a ten day period prior to
the exercise of the warrant. The Company subsequently designated Westminster
Capital, Inc. to receive this warrant from Grand Havana in connection with the
financing obtained by the Company related to the acquisition of United Hotel.
In October 1997, Grand Havana replaced the collateral.

F-13
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998 AND 1997

In October 1996, the Company acquired in private placement 333,333 shares of
common stock and warrants to purchase 333,333 shares of common stock at an
exercise price of $1.50 per share of Grand Havana for $250,000. In February
1997, the Company exercised its warrants to purchase 433,333 shares of common
stock of Grand Havana for a total exercise price of $575,000. In consideration
for making the loan to Grand Havana in February 1997, Grand Havana issued to the
Company 75,000 shares of Grand Havana's common stock valued at $138,750. In
February, 1998, Grand Havana also issued to the Company, as a late fee, an
additional 25,000 shares of common stock valued at $38,691.

As of December 31, 1998 and 1997, the Company had 966,666 shares
(approximately 7% of the issued and outstanding common stock) of Grand Havana's
restricted common stock. The Company accounted for this investment as available
for sale security. At December 31, 1998, the quoted market value of the
Company's investment in Grand Havana was $38,667. The valuation represents a
mathematical calculation based on the closing quotation published by OTC
Bulletin Board and is not necessarily indicative of the amounts that could be
realized upon sale. Because Management of the Company does not believe that it
will recover the original cost of its investment in Grand Havana, the Company
has recognized a permanent impairment loss on this investment in the amount of
$1,043,764 during the year ended December 31, 1998.

5. Loan Receivable from Grand Havana

In February 1997, the Company entered into an additional financing agreement
with Grand Havana whereby the Company agreed to loan Grand Havana, from time to
time, during a period of six months, of up to $1,250,000. The loan, which may be
advanced in such increments as shall be requested by Grand Havana from time to
time, bears interest at the rate of 8% per annum on the outstanding principal
amount. As additional consideration for this loan, the Company received 75,000
shares of Grand Havana's common stock. This loan was not repaid when due on
September 30, 1997. The financing agreement provided that if the loan was not
repaid by such date, 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
Grand Havana. In February 1998, Grand Havana issued 25,000 shares of its common
stock to the Company pursuant to the terms of this agreement. The parties agreed
to extend the maturity date of advances made under this financing agreement to
March 31, 1998 and subsequently to September 30, 1998. During 1997, the Company
advanced $775,000 and collected $125,000 from Grand Havana. During 1998, the
Company collected $114,000 from Grand Havana.

On September 30, 1998, the Company agreed to make a new installment loan to
Grand Havana in the amount of up to $1,250,000 in replacement of the previous
loan. Grand Havana executed a Secured Promissory Note dated September 30, 1998
(the "Grand Havana Note"). The Grand Havana Note bears interest at 8% per annum
and is due and payable in full on March 31, 1999. The parties have agreed to
extend the maturity date for an additional 60 days. The Grand Havana Note is
secured pursuant to a Security Agreement dated September 30, 1998 (the "Grand
Havana Agreement"), in which Grand Havana granted the Company a security
interest in certain collateral.

The initial loan advance under the Grand Havana Note on September 30, 1998
was $603,280, which represents the principal amount due under the previous note
of $536,000, together with accrued interest of $67,280. The Company may from
time to time, but shall not be obligated, to make future advances under the
Grand Havana Note up to a total amount of $1,250,000. As of December 31, 1998,
accrued interest amounted to $16,018.

F-14
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998 AND 1997

6. Due from Officer

Due from Harry Shuster consisted of the following at December 31, 1998 and
1997:

<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Loans receivable, including accrued interest at 11.25% per
annum (a) $ 1,430,185 $1,002,072
Loan payable and accrued interest payable at 11.25% per
annum (b) (1,136,886) (789,649)
Prepaid (accrued) consulting fee (Note 13) (c) 39,328 (199,856)
----------- ----------
Due from officer, net $ 332,627 $ 12,567
=========== ==========
</TABLE>

(a) In 1996, the Company made a loan of $825,000 to Mr. Shuster. In 1997, at
the request of Mr. Shuster, UFD, an affiliated company, paid an
aggregate of $325,000 to the Company, which amount was applied to the
Company's additional loans of $325,000 to Mr. Shuster during 1997. Mr.
Shuster is the Chairman of the Board, President and Chief Executive
Officer of the Company, and the Chairman of the Board and a principal
stockholder of UFD. UFD is the general partner of HEP II, in which the
Company had an investment at December 31, 1998 in the amount of
$700,000. In 1998, the Company made additional loans of $335,300 to Mr.
Shuster. At December 31, 1998, the Company's loans receivable from Mr.
Shuster had an outstanding balance of $1,160,300 plus accrued interest
of $269,885.

(b) During 1997, interest of $312,237 was accrued on the accrued interest
payable of $789,649 and loan payable of $35,000.

(c) During 1998, Mr. Shuster was paid total of $559,136 consisting of
accrued consulting fees for 1997 of $199,856, consulting fees for 1998
of $300,663, health insurance of $19,289, and prepaid consulting fees of
$39,328.

7. Notes Payable

Notes payable consisted of the following at December 31, 1998 and 1997:

<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Westminster Capital, Inc. $1,900,000 $1,900,000
Harvey Bibicoff - 25,000
---------- ----------
$1,900,000 $1,925,000
========== ==========
</TABLE>

Concurrently with the closing of United Hotel's acquisition of the Las Vegas
Property, Westminster Capital, Inc. ("Westminster") made a loan of $1,900,000 to
the Company to enable it to meet its $3,800,000 capital contribution. The loan
was evidenced by a secured convertible promissory note made by the Company. The
loan bears interest at 15% per annum and is due on the earlier to occur of (i)
the demand of the holder which demand may not be made until July 29, 1998 unless
there is a sooner event of default or (ii) July 29, 1999. The holder of the note
has the right, at any time prior to maturity date, to convert the entire
outstanding principal balance of the note into a 25% membership interest in

F-15
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998 AND 1997

United Hotel, which would leave the Company with a 25% membership interest in
United Hotel after such conversion (or a 22 1/2% membership interest at August
1, 1999, the date by which the Company has agreed to transfer a 2 1/2%
membership interest to Harvey Bibicoff). The note may be prepaid by the Company
at any time after July 29, 1998. One-half of any cash distributions which may be
made by United Hotel to the Company prior to the repayment of the Note are
required to be paid to Westminster as a prepayment on the note. The loan is
secured by, among other things, a stock pledge agreement pursuant to which the
Company has pledged 408,333 of the 966,666 shares of common stock it owns in
Grand Havana. As additional security, the Company has granted a security
interest to Westminster, in the Company's 50% membership interest in United
Hotel and in the receivables and certain indebtedness due to the Company from
Grand Havana (approximately $607,155 in principal amount at December 31, 1998).
In addition, Harry Shuster and Nita Shuster provided certain other security
individually with respect to the loan. On July 30, 1998, the note become
payable on demand. As of December 31, 1998, accrued interest on the loan
amounted to $406,808.

As additional consideration for Westminster making the loan, the Company
granted Westminster a three-year warrant to purchase 150,000 shares of common
stock of the Company exercisable 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. In addition, Grand Havana,
pursuant to the terms of an amendment dated July 15, 1997, to a financing
agreement dated September 10, 1996, between Grand Havana and the Company,
granted Westminster, as designee of the Company, a three-year warrant to
purchase 150,000 shares of common stock of Grand Havana 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, United Hotel 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.

In connection with obtaining the necessary financing required for the
acquisition of the Las Vegas Property, on July 29, 1997, Harvey Bibicoff made a
loan to the Company of $900,000. The loan was evidenced by a promissory note,
bore interest at 10% per annum and was due and payable on September 28, 1997.
The Company repaid $875,000, leaving a principal loan balance of $25,000 at
December 31, 1997. On September 30, 1998, the Company paid Mr. Bibicoff
$40,000, consisting of $25,000 principal amount of the loan outstanding and
$15,000 accrued interest.

On July 28, 1997, the Company and Harvey Bibicoff, a director of Grand
Havana, entered into an agreement pursuant to which the Company, in
consideration for management consulting services rendered by Mr. Bibicoff to the
Company, agreed (i) to transfer to Mr. Bibicoff, on or prior to August 1, 1999,
a 2 1/2% membership interest in United Hotel free and clear of any liens,
claims, or encumbrances and (ii) to issue 150,000 shares of common stock of the
Company to Mr. Bibicoff. The obligations of the Company under the agreement were
guaranteed by Harry Shuster and Nita Shuster, the spouse of Harry Shuster.
During 1997, 150,000 shares valued at $42,000 were issued to Mr. Bibicoff. The
Company valued the 2 1/2% membership interest at $187,500, which was accrued as
consulting fees in 1997.

8. Long-Term Debt

Long-term debt consisted of the following at December 31, 1998 and 1997:

F-16
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998 AND 1997

<TABLE>
<S> <C>
Note payable dated April 5, 1995, secured by first deed of
trust, payable interest only at 12%, principal due April 1,
2000, secured by real property located in San Diego County,
California $ 120,000
Purchase money loan dated April 5, 1995, payable interest only
at 9.67%, principal due March 1, 2000, secured by a second
deed of trust on real property located in San Diego County,
California 722,000
---------
$ 842,000
=========
</TABLE>

9. Due to Related Parties

Due to related parties consisted of the following at December 31, 1998:

<TABLE>
<S> <C>
Due to Grand Havana $ 51,358
Due to Brian Shuster 60,000
--------
$111,358
========
Due from United Hotel $ 2,179
Due from Genisys 1,644
--------
$ 3,823
========
</TABLE>

10. Common Stock Subject to Repurchase

In August 1998, the Company agreed to issue 150,001 shares of common stock
with a total fair value of $42,000 as payment of legal fees. These shares were
issued in October 1998. The Company agreed to repurchase the shares, one year
from August 1998, at such stockholders' election, at a cash price of $1.00 per
share. If the Company is legally unable or otherwise fails to make such
purchase when due, Harry Shuster agreed to make such purchase at the same price
per share.

Staff Accounting Bulletin No. 64 describes the Securities and Exchange
Commission staff's policy on accounting for mandatorily redeemable stock. It
requires that stocks that are subject to "put rights" on redemption outside of
the Company's control should be presented separately from common stock which is
not subject to "put rights" in order to distinguish it from permanent capital of
the Company. Further, such accounting standards require the Company to present
such shares on the balance sheet at its fair value at the date of issuance. If
that amount is less than the amount which would be paid if repurchased, the
carrying amount should be increased periodically to equal the repurchase price.
The periodic accretions in the carrying amount is determined using the interest
method. The accretion of $36,000 in the repurchase price was charged to
additional paid-in capital in 1998 and has been deducted from earnings available
for common stockholders in the computation of earnings per share.

11. Stockholders' Equity

On July 28, 1997, the Company issued 150,000 shares of its common stock to
Harvey Bibicoff in consideration for consulting services rendered by Mr.
Bibicoff to the Company, which shares were valued at $42,000 or S.28 per share,
the market price at the date of issuance.

On July 29, 1997, in consideration for providing financing in connection
with the acquisition of the Las Vegas Property by United Hotel, Westminster
received a warrant to purchase up to 150,000 shares of Common Stock, valued at
$1,500 or $.01 per share at the date of issuance, which warrant is exercisable
at the lesser of $.40 per share or 75% of the average price for the ten trading
days prior to exercise.

F-17
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998 AND 1997

On July 30, 1997, 100,000 shares of Common Stock were issued to the law firm
of Richman, Lawrence, Mann, Greene, Chizever & Phillips in consideration for
professional services rendered as of July 30, 1997, which shares were valued at
$28,000 or $.28 per share, the market price at the date of issuance. That firm
serves as general counsel to the Company and represents Harry Shuster.

On February 2, 1998, in consideration for certain financial advisory
services, the Company issued 100,000 shares of Common Stock to Transit
Securities, Inc., which shares were valued at $31,300 or $0.313 per share.

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 common stock and warrants to purchase 60,000
shares at $0.27 per share. The Company received net proceeds of $229,680 from
this offering and issued 1,200,000 shares of common stock and warrants to
purchase 600,000 shares of common stock. The warrants expire on April 2, 2003.

In June 1998, the Company issued stock purchase warrants (the "Warrants") to
Sands Brothers & Co., Ltd. ("Sands Brothers"). The Warrants are for 250,000
shares of the Company's Common Stock at an exercise price of $.25 per share. The
Warrants are exercisable at any time commencing June 25, 1998 until June 25,
2003. The Company may redeem the Warrants for $.10 per Warrant under certain
circumstances, including (i) the Company has an effective Registration Statement
covering the shares of the Company's common stock issuable upon exercise of the
Warrants, and (ii) the Company's common stock has been trading at or above $2.50
per share for the previous thirty business days. The holder of the Warrants has
registration rights with respect to the shares of common stock issuable upon
exercise of the Warrants for five years commencing June 25, 1998, and one
"demand" registration right with respect thereto. The Warrants have anti-
dilution protection. The Warrants were issued in connection with financial
advisory services being rendered to the Company by Sands Brothers. The Company
received no proceeds from this issuance.

The following non-qualified stock options granted by the Company were
outstanding at December 31, 1998:

<TABLE>
<CAPTION>
Exercise
Number of Price per
Shares Share Date of Grant Date of Expiration
--------- --------- ------------------- --------------------
<S> <C> <C> <C>
15,000 $ 0.68 January 20, 1987 December 31, 2002
356,950 1.00 July 24, 1987 December 31, 2002
90,000 0.30 April 22, 1988 December 31, 2002
37,500 1.33 October 7, 1988 December 31, 2002
75,000 1.25 November 17, 1988 December 31, 2002
37,500 1.38 December 5, 1988 December 31, 2002
70,000 0.75 December 7, 1990 December 31, 2002
60,000 1.00 September 23, 1993 December 31, 2002
125,000 0.31 July 3, 1997 December 31, 2002
300,000 0.25 September 22, 1998 September 21, 2003
2,100,000 0.625 September 30, 1998 September 29, 2003
---------
3,266,950
=========
</TABLE>

F-18
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998 AND 1997

The following table summarizes the activity of common shares under stock
options for the years ended December 31, 1998 and 1997:

<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Balance - beginning of year 866,950 851,950
Options granted 2,400,000 125,000
Options expired - (110,000)
--------- --------
Balance - end of year 3,266,950 866,950
========= ========
</TABLE>

The non-qualified stock options of 125,000 granted to non-employee directors
during 1997 were valued using the fair value at the grant date consistent with
the methodology prescribed under SFAS No. 123. Compensation expense recognized
amounted to $31,250 in 1997. The fair value of the options granted during 1997
is estimated on the date of the grant using the Black-Scholes pricing model with
the following weighted average assumptions: dividend yield of 0%, volatility of
107%, risk-free interest rate of 6.7% and an expected life of 5 years.

The Company applies APB No. 25 and related interpretations in accounting for
its stock options. Accordingly, no compensation expense has been recognized for
its stock options. Had compensation cost for the Company's stock options been
determined based upon the fair value at the grant date consistent with the
methodology prescribed under SFAS No. 123, the Company's net loss and loss per
share would have been increased by approximately $1,023,000, or $0.08 per share
for 1998. The fair value of the options granted during 1998 is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
assumptions: dividend yield 0%, volatility of 93%, risk-free interest rate of
5.5% and an expected life of 5 years.

Option valuation models require the input of highly subjective assumptions.
Because the Company's stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate in management's
opinion, the existing model does not necessarily provide a reliable single
measure of the fair value of its stock options.

At December 31, 1998, the following warrants were outstanding:

<TABLE>
<CAPTION>
Exercise
Number of Price per
Shares Share Date of Grant Date of Expiration
--------- --------- ---------------- --------------------
<S> <C> <C> <C>
4,945,000 $4.00 November 10, 1994 November 10, 1999
430,000 6.60 November 10, 1994 November 10, 1999
150,000 (i) July 29, 1997 July 29, 2000
200,000 0.75 October 15, 1997 October 15, 2002
250,000 0.25 June 25, 1998 June 25, 2003
600,000 0.27 April 2, 1998 April 2, 2003
---------
6,575,000
=========
</TABLE>

(i) The exercise price is the lesser of $.40 per share or 75% of the average
price for the ten trading days prior to exercise. The warrants granted to
non-employees during 1997 were valued using the fair value at the grant
date consistent with the methodology prescribed under SFAS No. 123.
Compensation expense recognized amounted to $161,980 in 1997. The fair
value of the options granted during 1997 is estimated on the date of the
grant using the Black-Scholes pricing model with the following weighted
average

F-19
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998 AND 1997

assumptions: dividend yield of 0%, volatility of 107%, risk-free
interest rate of 6.7% and an expected life of 4 years.

(ii) The warrants granted to non-employees during 1998 were valued using the
fair value at the grant date consistent with the methodology prescribed
under SFAS No. 123. Compensation expense recognized amounted to $45,000 in
1998. The fair value of the options granted during 1998 is estimated on the
date of the grant using the Black-Scholes pricing model with the following
weighted average assumptions: dividend yield of 0%, volatility of 93%,
risk-free interest rate of 5.5% and an expected life of 5 years. The
exercise price is $.25 per share.

Computation of Loss Per Share:

<TABLE>
<CAPTION>
For the Year Ended December 31, 1998
---------------------------------------------------
Income Shares Per Share
(Numerator (Denominator) Amount
----------- ------------- ----------
<S> <C> <C> <C>
Basic loss per share:
Net loss $(514,839) 13,502,182 $(0.04)
Less: accretion in the carrying amount
of common stock subject to
Repurchase (36,000) - -
--------- ---------- ------
Net loss attributable to common
Stockholders $(550,839) 13,502,182 $(0.04)
========= ========== ======
</TABLE>

Options and warrants to purchase 9,841,950 shares were outstanding at December
31, 1998, but were not included in the computation of diluted loss per common
share because the effect would be antidilutive.

<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
---------------------------------------------------
Income Shares Per Share
(Numerator (Denominator) Amount
----------- ------------- ----------
<S> <C> <C> <C>
Basic loss per share:
Net loss attributable to common
stockholders $(7,313,545) 12,493,849 $(0.59)
=========== ========== ======
</TABLE>

Options and warrants to purchase 6,591,950 were outstanding at December 31,
1997, but were not included in the computation of diluted loss per common share
because the effect would be antidilutive.

12. Legal Proceedings

In September 1998, the Company and its subsidiary, Lion Country Safari, Inc.
- - California, and The Irvine Company settled their long-standing litigations and
have dismissed all superior court and appellate court actions pending between
them, i.e. The Splash v. The Irvine Company, et al. (Case No. 491202), Lion
Country Safari, Inc. - California v. The Irvine Company (OCSC Case No. 743669),
Lion Country Safari, Inc. - California v. The Irvine Company (OCSC Case No.
775923) and The Irvine Company v. Lion Country Safari, Inc. - California (OCSC
Case No. 776187). Pursuant to the terms of the settlement agreement between the
parties, The Irvine Company paid the Company $4,000,000 without admitting any
liability on the part of The Irvine Company.

F-20
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998 AND 1997

On November 12, 1996, Irvine Meadows, a former sublessee and the operator of
the Irvine Meadows Amphitheater, sued the Company and Harry Shuster (OCSC Case
No. 771509). The suit sought an injunction against those parties preventing them
from removing the Amphitheater pursuant to a provision in the Ground Lease that
gives the Company the right to remove leasehold improvements at the expiration
of the lease. On January 3, 1997, Irvine Meadows filed a first amended complaint
in that action. As against the Company, the first amended complaint sought an
injunction and declaratory relief but no money damages. On February 19, 1997,
the trial judge granted Irvine Meadows' request for an injunction against the
Company barring it from removing the Amphitheater. In May 1998, Irvine Meadows
obtained a summary judgment against the Company and Mr. Shuster, awarding Irvine
Meadows a permanent injunction against removal of the Amphitheater. On October
27, 1998, Irvine Meadows was awarded costs in the amount of approximately
$545,000. The Company and other defendants have appealed the judgment and the
award of fees to the California Court of Appeal. Settlement negotiations are
underway. If the matter cannot be settled, management intends to pursue the
appeal vigorously. However, due to the inherent uncertainties of litigation, the
outcome of the appeal cannot be predicted.

13. Commitments and Contingencies

Consulting Agreement - As of June 1, 1994, the Company and Mr. Shuster
entered into an amended and restated consulting agreement updating an
arrangement originally effective as of September 1, 1984. The consulting
agreement provides that Mr. Shuster will act as the President and Chief
Executive Officer and a Director of the Company throughout the rolling five-year
term of the agreement for annual compensation set at $208,984 per annum for
1994, to be increased 10% during each successive year of the agreement. Mr.
Shuster is also to be provided with either the use of a company car in carrying
out his duties for the Company or $300 per month car allowance. The consulting
agreement provides for certain disability benefits for a period of up to three
years. The consulting agreement provides that, so long as Mr. Shuster spends as
much time as is necessary to properly carry out his duties as President and
Chief Executive Officer of the Company, he will be otherwise permitted to spend
a reasonable amount of time pursuing his own outside interests. The consulting
agreement provides for automatic one-year renewals for each contract year that
ends without termination of the consulting agreement by either party. During
1998 and 1997, the Company incurred consulting fees pursuant to this agreement
in the amount of $300,663 and $273,330, respectively.

Lease Arrangements - At December 31, 1998, minimum annual rentals under non-
cancelable leases and minimum sub-lease income are as follows:

<TABLE>
<CAPTION>
Year Ending
December 31, Leases Subleases
------------ ----------- ---------
<S> <C> <C>
1999 $ 394,353 $51,931
2000 420,613 33,648
2001 461,921 1,676
2002 467,339 -
2003 467,339 -
Thereafter 798,606 -
---------- -------
Total $3,010,171 $87,255
========== =======
</TABLE>

Rent expense, net of sublease income of $38,015 in 1998 and $0 in 1997, was
$616,790 in 1998 and $660,045 in 1997.

F-21
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998 AND 1997

The Company leases certain of its office space on a month-to-month basis
from a corporation of which Harry Shuster, is an officer and a principal
stockholder. The Company paid or accrued rent to this corporation of $31,044 in
1997 and $43,624 in 1998

Since October 1, 1997, the Company has paid rental, including homeowners
association dues, in the amount of $34,676 to Harry Shuster for an apartment
which he owns and which he and Brian Shuster use while they are in New York City
on business.

14. Income Taxes

At December 31, 1998, the Company had net operating loss carryforwards for
federal tax purposes expiring as follows:

<TABLE>
<CAPTION>
Year Expires Amount
------------ ---------
<S> <C>
1999 742,000
2000 1,562,000
2001 808,000
2002 282,000
2005 111,000
2007 19,000
2008 523,000
2010 655,000
2011 427,000
2012 2,900,000
----------
$8,029,000
==========
</TABLE>

The components of deferred taxes were as follows at December 31, 1998 and 1997:

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 2,802,000 $ 3,402,000
Accrued expenses to related party - 428,000
Impairment losses 2,209,000 1,672,000
Non-cash compensation 102,000 84,000
Other accruals - 81,000
State income taxes 2,000 2,000
Partnership interests 195,000 27,000
Valuation allowance (5,205,000) (5,675,000)
----------- -----------
Total deferred tax assets 105,000 21,000
Deferred tax liability:
Depreciation 105,000 21,000
----------- -----------
Net deferred taxes $ - $ -
=========== ===========
</TABLE>

F-22
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, 1999

<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,224,764
Receivables 33,388
Prepaid expenses and other current assets 46,612
------------
TOTAL CURRENT ASSETS 1,304,764
------------

PROPERTY AND EQUIPMENT, NET 276,880
------------

INVESTMENTS
Investment in United Hotel at equity - related party 3,386,117
Investment in HEP II at equity - related party 700,000
Investment in Genisys at equity - related party -
Investment in Grand Havana at fair value - related party 38,667
------------
TOTAL INVESTMENTS 4,124,784
------------

OTHER ASSETS
Loan receivable from Grand Havana - related party 719,015
Due from former officer 420,263
Assets held for sale 1,616,387
Deposits and other assets 80,137
------------
2,835,802
------------
$ 8,542,230
============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Notes payable $ 2,622,000
Accrued interest 555,155
Accounts payable and accrued expenses 473,499
Due to related parties 168,587
Deferred revenues 114,525
Deposits and other 2,611
Litigation settlement 185,080
------------
TOTAL CURRENT LIABILITIES 4,121,377
LONG-TERM DEBT 120,000
COMMON STOCK SUBJECT TO REPURCHASE - 150,001 SHARES 132,000
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
Additional paid-in capital 26,695,498
Accumulated deficit (22,684,503)
------------
TOTAL STOCKHOLDERS' EQUITY 4,288,853
------------
$ 8,542,230
============
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-23
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
Six Months Ended June 30, 1999 and June 30, 1998

<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------
1999 1998
---- ----
<S> <C> <C>
REVENUE
Licensing fees $ 200,000 410,817
Children's recreational activities 601,540 931,493
----------- -----------
TOTAL REVENUE 801,540 1,342,310

EXPENSES
Direct operating expenses 1,517,891 1,433,581
Selling, general and administrative expenses 834,741 301,241
Depreciation and amortization 85,827 85,514
----------- -----------
2,438,459 1,820,336
----------- -----------

LOSS BEFORE OTHER INCOME (EXPENSE) (1,636,919) (478,026)

OTHER INCOME (EXPENSE)
Legal costs - (250,450)
Equity in net income (loss) of United Hotel (46,335) (115,000)
Equity in net loss of Genisys 210,133) -
Realized loss from write-down of investment in Grand Havana - (946,131)
Interest income 80,001 68,708
Interest expense (212,501) (191,225)
Other, net (34,971) 26,793
Litigation settlement (185,000) -
----------- -----------
TOTAL OTHER INCOME (EXPENSE) (608,939) (1,407,305)
----------- -----------

NET LOSS (2,245,858) (1,885,331)
----------- -----------

OTHER COMPREHENSIVE LOSS
Unrealized holding loss on securities arising during the period - (203,725)
Less: reclassification adjustment for loss realized in net loss - 946,131
----------- -----------
- 742,406
----------- -----------

COMPREHENSIVE LOSS $(2,245,858) $(1,142,925)
=========== ===========

WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 14,462,851 13,302,182
=========== ===========

BASIC AND DILUTED LOSS PER SHARE $ (0.16) $ (0.14)
=========== ===========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-24
<PAGE>

UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, 1999 and June 30, 1998

<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1999 1998
---- ----
<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.

F-25
<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 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 interim consolidated financial statements and notes are condensed and
do not contain certain information included in the annual financial
statements and notes of the Company. The interim consolidated financial
statements and notes included herein should be read in conjunction with the
year-end financial statements and notes included herein.

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.

F-26
<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 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 $(0.16)
=========== ========== ======
</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.

F-27
<PAGE>

We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this Prospectus. You must not
rely on any unauthorized information. This Prospectus does not offer to sell any
shares in any jurisdiction where it is unlawful. The information in this
prospectus is current as of the date of this Prospectus.

__________________

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary................................................................. 3
Risk Factors............................................................ 5
Use of Proceeds......................................................... 15
Market For Common Stock and Related
Stockholder Matters................................................. 15
Selling Stockholders.................................................... 16
Plan of Distribution.................................................... 18
Management's Discussion and Analysis of
Financial Condition and Results
of Operation........................................................ 18
Description of Our Internet Business.................................... 25
Our Other Business...................................................... 38
Legal Proceedings....................................................... 44
Management.............................................................. 45
Executive Compensation.................................................. 47
Certain Relationships and Related
Transactions........................................................ 50
Security Ownership of Certain Beneficial
Owners and Management............................................... 55
Indemnification for Securities Act Liability............................ 56
Where You Can Find More Information..................................... 56
Legal Matters........................................................... 57
Experts................................................................. 57
</TABLE>

1,400,000 Shares of Common Stock

UNITED LEISURE CORPORATION

______________________________________

PROSPECTUS

______________________________________
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24. Indemnification of Directors and Officers.

Section 145 of the General Corporation Law of the State of Delaware grants
corporations the right to indemnify their directors, officers, employees and
agents in accordance with the provisions therein set forth. The Company's By-
laws provide for indemnification of such persons to the fullest extent allowable
under applicable law. In addition, the Company has entered into indemnity
agreements with each of its directors, which generally provide contractual
indemnity protection which is coextensive with the indemnity provisions of the
General Corporation Law of the State of Delaware and the Company's Certificate
of Incorporation.

Item 25. Other Expenses of Issuance and Distribution.

The following is a schedule of the estimated expenses (all of which will be
borne by the Company) incurred in connection with the offering of the securities
registered hereby, other than underwriting discounts and commissions, if any.
All of the amounts shown are estimates, except the SEC Registration Fee.

SEC registration fee............................ $ 1,034.00
Blue Sky fees and expenses...................... 5,000.00*
Accounting fees and expenses.................... 15,000.00*
Legal fees and expenses......................... 45,000.00*
Miscellaneous................................... 8,966.00*
----------
Total........................................... $75,000.00*
==========
_____________
* estimated

Item 26. Recent Sales of Unregistered Securities

In the past three years the Company has not conducted any sales of its
securities that were not registered under the Securities Act of 1933, as amended
(the "Securities Act"), except as follows.

On July 28, 1997, the Company issued 150,000 shares of its common stock to
Harvey Bibicoff in consideration for consulting services rendered by Mr.
Bibicoff to the Company, which shares were valued at $42,000 or $.28 per shares,
the market price at the date of issuance.

On July 29, 1997, in consideration for providing financing in connection
with the acquisition of the Las Vegas Property by UHC, Westminster received a
warrant to purchase up to 150,000 shares of Common Stock, valued at $1,500 for
$.01 per share at the date of issuance, which warrant is exercisable at the
lesser of $.40 per share or 75% of the average price for the ten trading days
prior to exercise.

II-1
<PAGE>

On July 30, 1997, in consideration for their service on the Board of
Directors of the Company, the following Board members received options to
purchase the following number of shares of common stock of the company, (all of
which options are exercisable at an exercise price of $.3125 per share, the
market price of the Company's Common Stock on the date of grant):

Director Options No. of Shares
-------- ------- -------------

J. Brooke Johnston, Jr. Purchase 50,000
Brian Shuster Purchase 50,000
Alvin Cassel Purchase 25,000
Alvin Alexander On July 3, 1997, Company 25,000
exchanged options to purchase
for note receivable of $10,000

On July 30, 1997, 100,000 shares of Common Stock were issued to the law firm
of Richman Lawrence, Mann, Greene, Chizever & Phillips in consideration for
professional services rendered as of July 30, 1997, which shares were valued at
$28,000 or $.28 per share, the market price at the date of issuance. That firm
serves as general counsel to the Company and represents Harry Shuster, the
former Chairman of the Board and President, and a principal stockholder of the
Company.

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.

In July 1998, the Company issued stock purchase warrants to Sands Brothers &
Co., Ltd. ("Sands Brothers"). The warrants are for 250,000 shares of the
Company's Common Stock at an exercise price of $.25 per share. Alternatively,
the warrants can be exercised in a "cashless" manner, by which the warrant
holder would not pay for the exercise of the warrants and would receive a fewer
number of shares based on the value of our stock at the time of the warrant. In
that situation, we would not receive any proceeds from the exercise of these
warrants. The warrants are exercisable at any time commencing June 25, 1998
until June 25, 2003. The Company may redeem the warrants for $.10 per warrant
under certain circumstances, including (i) the Company has an effective
Registration Statement covering the shares of the Company's Common Stock
issuable upon exercise of the warrants, and (ii) the Company's Common Stock has
been trading at or above $2.50 per share for the previous thirty business days.
The holder of the warrants has registration rights with respect to the shares of
Common Stock issuable upon exercise of the warrants for five years commencing
June 25, 1998, and one "demand" registration right with respect thereto. The
warrants have

II-2
<PAGE>

anti-dilution protection. The warrants were issued in connection with financial
advisory services rendered to the Company by Sands Brothers. The Company
received no proceeds from this issuance.

On September 24, 1998, the Company issued options to purchase 300,000 shares
of the Company's Common Stock to Brian Shuster. The options are fully vested
immediately and may be exercised for five years from the date of grant. The
exercise price of the options is $.25 per share.

On September 30, 1999, the Company issued options to purchase 2,100,000
shares of the Company's Common Stock to Harry Shuster. The options are fully
vested immediately and may be exercised for five years from the date of grant.
The exercise price of the options is $.625 per share.

On October 8, 1998, the Company issued 150,001 shares of common stock to six
stockholders in the professional corporation of Call, Clayton & Jensen for legal
services rendered to the Company in connection with the settlement of Irvine
Company Litigation. These shares were valued at the price of the Company's
Common Stock on August 27, 1998, which was $.28 per share, for a total value of
$42,000. The Company received no proceeds from this issuance. The Company
further agreed to repurchase, on or after August 27, 1999, from any of the
individuals to whom shares of the Company's Common Stock were issued, any or all
of his or her shares at a cash price of $1.00 per share. If the Company is
legally unable or otherwise fails to repurchase such shares, Harry Shuster,
Chairman of the Board, President and Chief Executive Officer of the Company, has
agreed to personally purchase such shares at such price.

On January 4, 1999, the Company granted stock options to the Company's
general outside counsel, Richman, Lawrence, Mann, Chizever & Phillips, a
Professional Corporation ("Richman, Lawrence"), to purchase 200,000 shares of
the Company's Common Stock at $.23 per share. The shareholders of Richman,
Lawrence exercised the options effective the same day. Proceeds to the Company
from this exercise were $46,000. That firm serves as general counsel to the
Company and represents Harry Shuster, the former Chairman of the Board and
President, and a principal stockholder of the Company.

On January 4, 1999, the Company issued stock options to purchase an
aggregate of 200,000 shares of the Company's Common Stock to certain directors,
including Brian Shuster, and an aggregate of 375,000 shares of the Company's
Common Stock to certain employees of the Company. All such options are
exercisable at $.23 per share. The options granted to the directors vest
immediately and the options granted to the employees vest on varying terms
ranging from immediately to five years.

On February 1, 1999, the Company issued a stock option to Brian Shuster to
purchase 200,000 shares of the Company's Common Stock. The option is
exercisable at $.35 per share and vests immediately.

In March 1999, the Company issued 150,000 shares of Common Stock to
Westminster Capital, Inc., upon the exercise of a stock purchase warrant for
150,000 shares of the Company's Common Stock at $.40 per share. Proceeds to the
Company in connection with the exercise were $60,000.

II-3
<PAGE>

In March 1999, the Company issued 100,000 shares of Common Stock to Whale
Securities Co., L.P., upon the exercise of a stock purchase warrant for 100,000
shares of the Company's Common Stock at $.75 per share. Proceeds to the Company
in connection with the exercise were $75,000.

On April 8, 1999, the Company granted an option to purchase 100,000 shares
of the Company's Common Stock to Richard Ames, a consultant to the Company, at
an exercise price of $1.75 per share. The option is exercisable immediately
upon grant and expires on April 8, 2004.

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.

II-4
<PAGE>

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.

In June 1999, the Company issued 10,000 shares of Common Stock to Shannon
Taylor, a consultant to the Company, in connection with her exercise of options
dated January 4, 1999. Proceeds to the Company in connection with such exercise
were $2,300.

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. 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.

Each of the foregoing offerings (i) was made directly by the officers and
directors of the Company and no underwriting discounts or commissions were paid,
and (ii) was exempt from the registration provisions of the Securities Act
pursuant to Section 4(2) thereof, for transactions by an issuer not involving
any public offering; or did not involve the "sale" of a security.

II-5
<PAGE>

Item 27. Exhibits.

Exhibit
Number Description
- ------- -----------

2-1 Asset Purchase Agreement dated as of June 30, 1998 by and among United
Leisure Interactive, Inc., NetCruise Interactive, Inc., Genisys Reservation
Systems, Inc. and United Leisure Corporation, filed an exhibit to the
Company's Current Report on Form 8-K dated August 7, 1998 (as amended on
November 4, 1998), is hereby incorporated herein by reference

2-2 Agreement dated October 27, 1998, by and among United Internet
Technologies, Inc., Genisys Reservation Systems, Inc., Warren D. Bagatelle,
Loeb Holding Corporation, Loeb Partners Corp., HSB Capital, David W. Sass,
Mark A. Kenny, John H. Wasko, Joan E. Wasko, Lawrence E. Burk and S. Charles
Tabak, filed as Exhibit 2-2 to the Company's Current Report on Form 8-K/A
(Amendment No.1) dated November 4, 1998, is hereby incorporated herein by
reference

2-3 Agreement dated as of January 25, 1999, by and among United Internet
Technologies, Inc. (formerly knows as United Leisure Interactive, Inc.),
NetCruise Interactive, Inc., Genisys Reservation Systems, Inc. and United
Leisure Corporation, filed as Exhibit 2-3 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1998, is hereby
incorporated herein by reference

3-1 Restated Certificate of Incorporation of the Company, as filed in the office
of the Secretary of State of the State of Delaware on June 27, 1988, filed
as Exhibit 3-1 to the Company's Registration Statement on Form SB-2
(Registration No. 33-81074), is hereby incorporated herein by reference

3-2 Bylaws of the Company, filed as Exhibit 3-2 to the Company's Registration
Statement on Form SB-2 (Registration No. 33-81074), are hereby incorporated
herein by reference

4-1 Warrant Agreement, dated November 18, 1994, between the Company and OTR,
Inc., filed as Exhibit 4-1 to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994, is hereby incorporated herein by
reference

4-2 Form of Warrant to Purchase Common Stock used in connection with 12%
Promissory Note unit private placement and Bankruptcy Court deposit, filed
as Exhibit 4-3 to the Company's Registration Statement on Form SB-2
(Registration No. 33-81074), is hereby incorporated herein by reference

4-3 Underwriters Unit Purchase Option, dated November 18, 1994, issued to
Stratton Oakmont, Inc., filed as Exhibit 4-3 to the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1994, is hereby
incorporated herein by reference

II-6
<PAGE>

Exhibit
Number Description
- ------- -----------

4-4 Warrant to Purchase 600,000 Shares of Common Stock of United Leisure
Corporation dated April 2, 1998, issued to Strata Equities Limited, filed
as Exhibit 4-4 to the Company's Quarterly Report on Form 10-QSB for the
Quarter Ended June 30, 1998, is hereby incorporated herein by reference

4-5 Warrant Agreement dated as of June 25, 1998 between United Leisure and
Sands Brothers & Co., filed as Exhibit 4-5 to the Company's Quarterly
Report on Form 10-QSB for the Quarter Ended September 30, 1998, is hereby
incorporated herein by reference

4-6 Agreement dated April 13, 1999 between United Leisure Corporation and
Strata Equities Limited, filed as Exhibit 4-6 to the Company's Quarterly
Report on Form 10-QSB for the Quarter Ended June 30, 1999, is hereby
incorporated herein by reference

5* Opinion of Richman, Lawrence, Mann, Chizever & Phillips

10-1 Amended and Restated Consulting Agreement, dated as of June 1, 1994,
between the Company and Harry Shuster, filed as Exhibit 10-3 to the
Company's Registration Statement on Form SB-2 (Registration No. 33-81074),
is hereby incorporated herein by reference

10-2 Stock Option Agreement, dated December 7, 1990, between the Company and
Haskell Slaughter Young & Johnston, Professional Association, covering
50,000 shares of Common Stock, par value $.01 per share, of the Company,
filed as Exhibit 10-5 to the Company's Registration Statement on Form SB-2
(Registration No. 33-81074), is hereby incorporated herein by reference

10-3 Stock Option Agreement, dated December 7, 1990, between the Company and
Alvin Cassel covering 10,000 shares of Common Stock, par value $.01 per
share, of the Company, filed as Exhibit 10-6 to the Company's Registration
Statement on Form SB-2 (Registration No. 33-81074), is hereby incorporated
herein by reference

10-4 Stock Option Agreement dated April 22, 1988, between the Company and Alvin
Cassel covering 10,000 shares of Common Stock par value $.01 per share, of
United Leisure Corporation; Extension of Option Agreement, dated April 20,
1993, between the Company and Alvin Cassel, filed as Exhibit 10-10 to the
Company's Registration Statement on Form SB-2 (Registration No. 33-81074),
is hereby incorporated herein by reference

10-5 Stock Option Agreement, dated October 7, 1988, between the Company and
Harry Shuster covering 37,500 shares of Common Stock, par value $.01 per
share, of the Company; Extension of Option Agreement, dated April 20, 1993,
between the Company and Harry Shuster, filed as Exhibit 10-12 to the
Company's Registration Statement on Form SB-2 (Registration No. 33-81074),
is hereby incorporated herein by reference

II-7
<PAGE>

Exhibit
Number Description
- ------- -----------

10-6 Stock Option Agreement, dated November 17, 1988, between the Company and
Harry Shuster coveting 75,000 shares of Common Stock, par value $.01 per
share, of the Company; Extension of Option Agreement, dated April 20,
1993, between the Company and Harry Shuster, filed as Exhibit 10-13 to the
Company's Registration Statement on Form SB-2 (Registration No. 33-81074),
is hereby incorporated herein by reference

10-7 Stock Option Agreement, dated December 5, 1988, between the Company and
Harry Shuster covering 37,500 shares of Common Stock, par value $.01 per
share, of the Company; Extension of Option Agreement, dated April 20,
1993, between the Company and Harry Shuster, filed as Exhibit 10-14 to the
Company's Registration Statement on Form SB-2 (Registration No. 33-81074),
is hereby incorporated herein by reference

10-8 Stock Option Agreement, dated July 24, 1987, between the Company and Harry
Shuster, Extension of Option Agreement, dated April 20, 1993, between the
Company and Harry Shuster, covering 750,000 shares of Common Stock, par
value $.01 per share, of the Company, filed as Exhibit 10-16 to the
Company's Registration Statement on Form SB-2 (Registration No. 33-81074),
is hereby incorporated herein by reference

10-9 Option Agreement dated as of April 22, 1988, between the Company and
Haskell Slaughter Young & Johnston, Professional Association, covering
50,000 shares of Common Stock, par value $.01 per share, of the Company;
Extension of Option Agreement, dated April 20, 1993, between the Company
and Haskell Slaughter Young & Johnston, Professional Association, filed as
Exhibit 10-17 to the Company's Registration Statement on Form SB-2
(Registration No. 33-81074), is hereby incorporated herein by reference

10-10 Promissory Note, dated June 1, 1985, of Lion Country Safari Inc.-
California, in the principal amount of $973,927 drawn to the order of
Harry Shuster, filed as Exhibit 10-23 to the Company's Registration
Statement on Form SB-2 (Registration No. 33-81074), is hereby incorporated
herein by reference

10-11 Stock Option Agreement, dated as of February 22, 1989, covering 67,500
shares of the Common Stock, par value $.01 per share, of the Company in
favor of Tactron Liquidating Trust, filed as Exhibit 10-27 to the
Company's Registration Statement on Form SB-2 (Registration No. 33-81074),
is hereby incorporated herein by reference

10-12 Stock Option Agreement, dated as of February 22, 1989, covering 7,500
shares of the Common Stock, par value $.01 per share, of the Company in
favor of Lindsey & Associates, Inc., filed as Exhibit 10-28 to the
Company's Registration Statement on Form SB-2 (Registration No. 33-81074),
is hereby incorporated herein by reference

10-13 Form of Indemnity Agreement entered into by the Company with each of its
Directors, filed as Exhibit 10-35 to the Company's Registration Statement
on Form SB-2 (Registration No. 33-81074), is hereby incorporated herein by
reference

II-8
<PAGE>

Exhibit
Number Description
- ------- -----------

10-14 Stock Option Agreement, dated September 23, 1993, between the Company and
Alvin Cassel, covering 5,000 shares of Common Stock, par value $.01 per
share, of the Company, filed as Exhibit 10-41 to the Company's
Registration Statement on Form SB-2 (Registration No. 33-81074), is hereby
incorporated herein by reference

10-15 Sub-Operating Agreement, dated April 11, 1995, between Canyon R.V. Park
and Camp Frasier, Inc., together with related Operating Agreements, filed
as Exhibit 10-31 to Amendment No. I to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1995, is hereby incorporated
herein by reference

10-16 Standard Retail/Office Complex Lease, dated October 12,1994, between PSA
Properties and Planet Kids, Inc., filed as Exhibit 10-32 to Amendment No.
I to the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995, is hereby incorporated herein by reference

10-17 Commercial Lease, between Eastrich Multiple Investor Fund L.P., Midland
Loan Services, L.P. et al., and Planet Kids, Inc., effective August 9,
1995 and Rider thereto filed as Exhibit 10-33 to Amendment No. I to the
Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1995, is hereby incorporated herein by reference

10-18 Lease, dated June 29, 1995, between Magnolia Square and Planet Kids, Inc.
and Addendum thereto, filed as Exhibit 10-34 to Amendment No. 1 to the
Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1995, is hereby incorporated herein by reference

10-19 Territory Rights Agreement, between Planet Kids, Inc. and PT Planet
Kidsindo, filed as Exhibit 10-35 to Amendment No. 1 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995,
is hereby incorporated herein by reference

10-20 Financing Agreement dated as of February 12, 1997 between the Company and
Grand Havana Restaurants, Inc., filed as Exhibit 10-36 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1996,
is hereby incorporated herein by reference

10-21 Financing Agreement dated as of September 10, 1996 between the Company and
Grand Havana Enterprises, Inc., filed as Exhibit 10-37 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1996,
is hereby incorporated herein by reference

10-22 Operating Agreement for United Hotel & Casino, LLC, dated as of January
22, 1997, filed as Exhibit 10-38 to the Company's Annual Report on Form
10-KSB for the, fiscal year ended December 31, 1996, is hereby
incorporated herein by reference

II-9
<PAGE>

Exhibit
Number Description
- ------- -----------

10-23 Lease dated March 7, 1996 between County of Orange and Camp Frasier, Inc.,
filed as Exhibit 10-39 to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996, is hereby incorporated herein by
reference

10-24 Secured Convertible Promissory Note dated July 29, 1997 for $1,900,000
made by the Company and Harry and Nita Shuster to Westminster Capital,
Inc., filed as Exhibit 10.2 to the Company's current Report on Form 8-K/A
dated July 29, 1997, is hereby incorporated herein by reference

10-25 Security Agreement dated July 29, 1997 by and between the Company and
Westminster Capital, Inc., filed as Exhibit 10.3 to the Company's current
Report on Form 8-K/A dated July 29, 1997, is hereby incorporated herein by
reference

10-26 Security Promissory Note dated July 28, 1997 in the principal amount of
$900,000 made by the Company to Harvey Bibicoff, filed as Exhibit 10.4 to
the Company's current Report on Form 8-K/A dated July 29, 1997, is hereby
incorporated herein by reference

10-27 Pledge Agreement dated July 28, 1997 by and between the Company and Harvey
Bibicoff, filed as Exhibit 10.5 to the Company's current Report on Form 8-
K/A dated July 29, 1997, is hereby incorporated herein by reference

10-28 Pledge Agreement dated July 29, 1997 by and between the Company and
Westminster Capital, Inc., filed as Exhibit 10.6 to the Company's current
Report on Form 8-K/A dated July 29, 1997, is hereby incorporated herein by
reference

10-29 Option Agreement dated as of September 22, 1998 between United Leisure
Corporation and Brian Shuster, filed as Exhibit 10-45 to the Company's
Quarterly Report on Form 10-QSB for the Quarter Ended September 30, 1998,
is hereby incorporated herein by reference

10-30 Option Agreement dated as of September 30, 1998 between United Leisure
Corporation and Harry Shuster, filed as Exhibit 10-46 to the Company's
Quarterly Report on Form 10-QSB for the Quarter Ended September 30, 1998,
is hereby incorporated herein by reference

10-31 Quitclaim Deed dated January 18, 1999, between County of Orange,
California and Camp Frasier, Inc., filed as Exhibit 10-47 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998,
is hereby incorporated herein by reference

10-32 License Agreement dated as of February 23, 1999, by and between United
Internet Technologies, Inc. and World Championship Wrestling, Inc., filed
as Exhibit 10-48 on the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1998, is hereby incorporated herein by
reference

II-10
<PAGE>

Exhibit
Number Description
- ------- -----------

10-33 Option Agreement dated as of January 4, 1999 between United Leisure
Corporation and Brian Shuster, filed as Exhibit 10-49 to the Company's
Quarterly Report on Form 10-QSB for the Quarter Ended June 30, 1999, is
hereby incorporated herein by reference

10-34 Option Agreement dated as of January 4, 1999 between Leisure Corporation
and Alvin Cassel, filed as Exhibit 10-50 to the Company's Quarterly
Report on Form 10-QSB for the Quarter Ended June 30, 1999, is hereby
incorporated herein by reference

10-35 Option Agreement dated as of January 4, 1999 between United Leisure
Corporation and J. Brooke Johnston, Jr., filed as Exhibit 10-51 to the
Company's Quarterly Report on Form 10-QSB for the Quarter Ended June 30,
1999, is hereby incorporated herein by reference

10-36 Option Agreement dated as of February 1, 1999 between United Leisure
Corporation and Brian Shuster, filed as Exhibit 10-52 to the Company's
Quarterly Report on Form 10-QSB for the Quarter Ended June 30, 1999, is
hereby incorporated herein by reference

10-37 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, filed as Exhibit
10-53 to the Company's Quarterly Report on Form 10-QSB for the Quarter
Ended June 30, 1999, is hereby incorporated herein by reference

10-38 Consulting Agreement, dated as of January 1, 1999, between United
Internet Technologies, Inc. and Harry Shuster, filed as Exhibit 10-54 to
the Company's Quarterly Report on Form 10-QSB for the Quarter Ended June
30, 1999, is hereby incorporated herein by reference

10-39 Agreement dated July 21, 1999 between the Company and Media Group,
Inc.,filed as Exhibit 10-55 to the Company's Quarterly Report on Form 10-
QSB for the Quarter Ended June 30, 1999, is hereby incorporated herein by
reference

10-40 Purchase Agreement and Escrow Instructions dated June 10, 1999 between
United Leisure Corporation and Shih Ching Chiang, as amended on August 7,
1999, filed as Exhibit 10.1 to the Company's Current Report on Form 8-K
dated August 23, 1999, is hereby incorporated herein by reference

10-41* Master Development Agreement dated as of July 1, 1999, by and between
United Internet Technologies, Inc. and National Broadcasting Company,
Inc.

10-42* Total Access Software Distribution Agreement between EarthLink Network,
Inc. and United Internet Technologies, Inc., together with related letter
agreement dated July 21, 1999

10-43* Agreement dated as of June 1, 1999 between United Leisure Corporation and
Harry Shuster, amending Amended and Restated Consulting Agreement dated
as of June 1, 1994

11* Statement regarding computation of per share earnings (included in
Note 11 to Notes to Consolidated Financial Statements for the Years Ended
December 31, 1998 and December 31, 1997 and Note 5 to Notes to
Consolidated Financial Statements (Unaudited) for the Six Months Ended
June 30, 1999, included herein)

II-11
<PAGE>

Exhibit
Number Description
- ------- -----------

21* Subsidiaries of the Company

23-1* Consent of Richman, Lawrence, Mann, Chizever & Phillips (included in
Exhibit 5)

23-2* Consent of Hollander, Lumer & Co. LLP, independent public accountants

24* Powers of Attorney (included on the signature page in Part II of this
Registration Statement)

__________________________
* filed herewith

II-12
<PAGE>

Item 28. Undertakings.

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;

(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");

(ii) To reflect in the Prospectus any facts or events which,
individually or together, represent a fundamental change in the information
set forth in the Registration Statement; however, notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed with
the Commission pursuant to Rule 424(b) of the Securities Act if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;

(iii) To include any additional or changed material information on the
plan of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration Statement.

provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
- --------- --------
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
section 13 or 15(d) of the Exchange Act that are incorporated by reference in
this registration statement.

(2) That, for the purpose of determining any liability under the Securities
Act, each post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at the time shall be deemed to be the initial bona fide offering
thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.

The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

II-13
<PAGE>

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Registrant's Certificate of Incorporation, By-Laws or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection which the Securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

II-14
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets an of the
requirements for filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on September 1,
1999.

UNITED LEISURE CORPORATION

By /s/ Brian Shuster
---------------------------------------
Brian Shuster
President and Chief Executive Officer

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Brian Shuster his attorney-in-fact with power of
substitution for him in any and all capacities, to sign this Registration
Statement and any amendments, supplements, subsequent registration statements
relating to the offering to which this Registration Statement relates, or other
instructions he deems necessary or appropriate, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact or his substitute may do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on September 1, 1999.

Signature Title
--------- -----

/s/ Brian Shuster Chairman of the Board,
- ----------------------------------
Brian Shuster President, Chief Executive Officer
and Director

*/s/ Alvin Alexander Director
- ----------------------------------
Alvin Alexander

*/s/ Alvin Cassel Director
- ----------------------------------
Alvin Cassel

*/s/ J. Brooke Johnston Director
- ----------------------------------
J. Brooke Johnston

*By /s/ Brian Shuster Attorney-in-Fact
-------------------------------
Brian Shuster

II-15
<PAGE>

Exhibit Index

Exhibit
Number Description
- ------- -----------

2-1 Asset Purchase Agreement dated as of June 30, 1998 by and among United
Leisure Interactive, Inc., NetCruise Interactive, Inc., Genisys
Reservation Systems, Inc. and United Leisure Corporation, filed an
exhibit to the Company's Current Report on Form 8-K dated August 7,
1998 (as amended on November 4, 1998), is hereby incorporated herein
by reference

2-2 Agreement dated October 27, 1998, by and among United Internet
Technologies, Inc., Genisys Reservation Systems, Inc., Warren D.
Bagatelle, Loeb Holding Corporation, Loeb Partners Corp., HSB Capital,
David W. Sass, Mark A. Kenny, John H. Wasko, Joan E. Wasko, Lawrence
E. Burk and S. Charles Tabak, filed as Exhibit 2-2 to the Company's
Current Report on Form 8-K/A (Amendment No.1) dated November 4, 1998,
is hereby incorporated herein by reference

2-3 Agreement dated as of January 25, 1999, by and among United Internet
Technologies, Inc. (formerly knows as United Leisure Interactive,
Inc.), NetCruise Interactive, Inc., Genisys Reservation Systems, Inc.
and United Leisure Corporation, filed as Exhibit 2-3 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1998, is hereby incorporated herein by reference

3-1 Restated Certificate of Incorporation of the Company, as filed in the
office of the Secretary of State of the State of Delaware on June 27,
1988, filed as Exhibit 3-1 to the Company's Registration Statement on
Form SB-2 (Registration No. 33-81074), is hereby incorporated herein
by reference

3-2 Bylaws of the Company, filed as Exhibit 3-2 to the Company's
Registration Statement on Form SB-2 (Registration No. 33-81074), are
hereby incorporated herein by reference

4-1 Warrant Agreement, dated November 18, 1994, between the Company and
OTR, Inc., filed as Exhibit 4-1 to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1994, is hereby
incorporated herein by reference

4-2 Form of Warrant to Purchase Common Stock used in connection with 12%
Promissory Note unit private placement and Bankruptcy Court deposit,
filed as Exhibit 4-3 to the Company's Registration Statement on Form
SB-2 (Registration No. 33-81074), is hereby incorporated herein by
reference
<PAGE>

Exhibit
Number Description
- ------- -----------

4-3 Underwriters Unit Purchase Option, dated November 18, 1994, issued to
Stratton Oakmont, Inc., filed as Exhibit 4-3 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1994, is
hereby incorporated herein by reference

4-4 Warrant to Purchase 600,000 Shares of Common Stock of United Leisure
Corporation dated April 2, 1998, issued to Strata Equities Limited,
filed as Exhibit 4-4 to the Company's Quarterly Report on Form 10-QSB
for the Quarter Ended June 30, 1998, is hereby incorporated herein by
reference

4-5 Warrant Agreement dated as of June 25, 1998 between United Leisure
Corporation and Sands Brothers & Co., filed as Exhibit 4-5 to the
Company's Quarterly Report on Form 10-QSB for the Quarter Ended
September 30, 1998, is hereby incorporated herein by reference

4-6 Agreement dated April 13, 1999 between United Leisure Corporation and
Strata Equities Limited, filed as Exhibit 4-6 to the Company's
Quarterly Report on Form 10-QSB for the Quarter Ended June 30, 1999,
is hereby incorporated herein by reference

5* Opinion of Richman, Lawrence, Mann, Chizever & Phillips

10-2 Stock Option Agreement, dated December 7, 1990, between the Company
and Haskell Slaughter Young & Johnston, Professional Association,
covering 50,000 shares of Common Stock, par value $.01 per share, of
the Company, filed as Exhibit 10-5 to the Company's Registration
Statement on Form SB-2 (Registration No. 33-81074), is hereby
incorporated herein by reference

10-3 Stock Option Agreement, dated December 7, 1990, between the Company
and Alvin Cassel covering 10,000 shares of Common Stock, par value
$.01 per share, of the Company, filed as Exhibit 10-6 to the Company's
Registration Statement on Form SB-2 (Registration No. 33-81074), is
hereby incorporated herein by reference

10-4 Stock Option Agreement dated April 22, 1988, between the Company and
Alvin Cassel covering 10,000 shares of Common Stock par value $.01 per
share, of
<PAGE>

Exhibit
Number Description
- ------- -----------

United Leisure Corporation; Extension of Option Agreement, dated April
20, 1993, between the Company and Alvin Cassel, filed as Exhibit 10-10
to the Company's Registration Statement on Form SB-2 (Registration No.
33-81074), is hereby incorporated herein by reference

10-5 Stock Option Agreement, dated October 7, 1988, between the Company and
Harry Shuster covering 37,500 shares of Common Stock, par value $.01
per share, of the Company; Extension of Option Agreement, dated April
20, 1993, between the Company and Harry Shuster, filed as Exhibit 10-
12 to the Company's Registration Statement on Form SB-2 (Registration
No. 33-81074), is hereby incorporated herein by reference

10-6 Stock Option Agreement, dated November 17, 1988, between the Company
and Harry Shuster coveting 75,000 shares of Common Stock, par value
$.01 per share, of the Company; Extension of Option Agreement, dated
April 20, 1993, between the Company and Harry Shuster, filed as
Exhibit 10-13 to the Company's Registration Statement on Form SB-2
(Registration No. 33-81074), is hereby incorporated herein by
reference

10-7 Stock Option Agreement, dated December 5, 1988, between the Company
and Harry Shuster covering 37,500 shares of Common Stock, par value
$.01 per share, of the Company; Extension of Option Agreement, dated
April 20, 1993, between the Company and Harry Shuster, filed as
Exhibit 10-14 to the Company's Registration Statement on Form SB-2
(Registration No. 33-81074), is hereby incorporated herein by
reference

10-8 Stock Option Agreement, dated July 24, 1987, between the Company and
Harry Shuster, Extension of Option Agreement, dated April 20, 1993,
between the Company and Harry Shuster, covering 750,000 shares of
Common Stock, par value $.01 per share, of the Company, filed as
Exhibit 10-16 to the Company's Registration Statement on Form SB-2
(Registration No. 33-81074), is hereby incorporated herein by
reference

10-9 Option Agreement dated as of April 22, 1988, between the Company and
Haskell Slaughter Young & Johnston, Professional Association, covering
50,000 shares of Common Stock, par value $.01 per share, of the
Company; Extension of Option Agreement, dated April 20, 1993, between
the Company and Haskell Slaughter Young & Johnston, Professional
Association, filed as Exhibit 10-17 to the Company's Registration
Statement on Form SB-2 (Registration No. 33-81074), is hereby
incorporated herein by reference
<PAGE>

Exhibit
Number Description
- ------- -----------

10-11 Stock Option Agreement, dated as of February 22, 1989, covering 67,500
shares of the Common Stock, par value $.01 per share, of the Company
in favor of Tactron Liquidating Trust, filed as Exhibit 10-27 to the
Company's Registration Statement on Form SB-2 (Registration No. 33-
81074), is hereby incorporated herein by reference

10-12 Stock Option Agreement, dated as of February 22, 1989, covering 7,500
shares of the Common Stock, par value $.01 per share, of the Company
in favor of Lindsey & Associates, Inc., filed as Exhibit 10-28 to the
Company's Registration Statement on Form SB-2 (Registration No. 33-
81074), is hereby incorporated herein by reference

10-13 Form of Indemnity Agreement entered into by the Company with each of
its Directors, filed as Exhibit 10-35 to the Company's Registration
Statement on Form SB-2 (Registration No. 33-81074), is hereby
incorporated herein by reference

10-14 Stock Option Agreement, dated September 23, 1993, between the Company
and Alvin Cassel, covering 5,000 shares of Common Stock, par value
$.01 per share, of the Company, filed as Exhibit 10-41 to the
Company's Registration Statement on Form SB-2 (Registration No. 33-
81074), is hereby incorporated herein by reference

10-15 Sub-Operating Agreement, dated April 11, 1995, between Canyon R.V.
Park and Camp Frasier, Inc., together with related Operating
Agreements, filed as Exhibit 10-31 to Amendment No. I to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1995, is hereby incorporated herein by reference

10-16 Standard Retail/Office Complex Lease, dated October 12,1994, between
PSA Properties and Planet Kids, Inc., filed as Exhibit 10-32 to
Amendment No. I to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995, is hereby incorporated herein by
reference

10-17 Commercial Lease, between Eastrich Multiple Investor Fund L.P.,
Midland Loan Services, L.P. et al., and Planet Kids, Inc., effective
August 9, 1995 and Rider thereto filed as Exhibit 10-33 to Amendment
No. I to the Company's Annual
<PAGE>

Exhibit
Number Description
- ------- -----------

Report on Form 10-KSB for the fiscal year ended December 31, 1995, is
hereby incorporated herein by reference

10-18 Lease, dated June 29, 1995, between Magnolia Square and Planet Kids,
Inc. and Addendum thereto, filed as Exhibit 10-34 to Amendment No. 1
to the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1995, is hereby incorporated herein by reference

10-20 Financing Agreement dated as of February 12, 1997 between the Company
and Grand Havana Restaurants, Inc., filed as Exhibit 10-36 to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996, is hereby incorporated herein by reference

10-21 Financing Agreement dated as of September 10, 1996 between the Company
and Grand Havana Enterprises, Inc., filed as Exhibit 10-37 to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996, is hereby incorporated herein by reference

10-22 Operating Agreement for United Hotel & Casino, LLC, dated as of
January 22, 1997, filed as Exhibit 10-38 to the Company's Annual
Report on Form 10-KSB for the, fiscal year ended December 31, 1996, is
hereby incorporated herein by reference

10-23 Lease dated March 7, 1996 between County of Orange and Camp Frasier,
Inc., filed as Exhibit 10-39 to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1996, is hereby
incorporated herein by reference

10-24 Secured Convertible Promissory Note dated July 29, 1997 for $1,900,000
made by the Company and Harry and Nita Shuster to Westminster Capital,
Inc., filed as Exhibit 10.2 to the Company's current Report on Form 8-
K/A dated July 29, 1997, is hereby incorporated herein by reference

10-25 Security Agreement dated July 29, 1997 by and between the Company and
Westminster Capital, Inc., filed as Exhibit 10.3 to the Company's
current Report on Form 8-K/A dated July 29, 1997, is hereby
incorporated herein by reference
<PAGE>

Exhibit
Number Description
- ------- -----------

10-26 Security Promissory Note dated July 28, 1997 in the principal amount
of $900,000 made by the Company to Harvey Bibicoff, filed as Exhibit
10.4 to the Company's current Report on Form 8-K/A dated July 29,
1997, is hereby incorporated herein by reference

10-27 Pledge Agreement dated July 28, 1997 by and between the Company and
Harvey Bibicoff, filed as Exhibit 10.5 to the Company's current Report
on Form 8-K/A dated July 29, 1997, is hereby incorporated herein by
reference

10-28 Pledge Agreement dated July 29, 1997 by and between the Company and
Westminster Capital, Inc., filed as Exhibit 10.6 to the Company's
current Report on Form 8-K/A dated July 29, 1997, is hereby
incorporated herein by reference

10-31 Quitclaim Deed dated January 18, 1999, between County of Orange,
California and Camp Frasier, Inc., filed as Exhibit 10-47 to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998, is hereby incorporated herein by reference

10-32 License Agreement dated as of February 23, 1999, by and between United
Internet Technologies, Inc. and World Championship Wrestling, Inc.,
filed as Exhibit 10-48 on the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1998, is hereby incorporated
herein by reference

10-34 Option Agreement dated as of January 4, 1999 between Leisure
Corporation and Alvin Cassel, filed as Exhibit 10-50 to the Company's
Quarterly Report on Form 10-QSB for the Quarter Ended June 30, 1999,
is hereby incorporated herein by reference
<PAGE>

Exhibit
Number Description
- ------- -----------

10-35 Option Agreement dated as of January 4, 1999 between United Leisure
Corporation and J. Brooke Johnston, Jr., filed as Exhibit 10-51 to the
Company's Quarterly Report on Form 10-QSB for the Quarter Ended June
30, 1999, is hereby incorporated herein by reference

10-37 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, filed
as Exhibit 10-53 to the Company's Quarterly Report on Form 10-QSB for
the Quarter Ended June 30, 1999, is hereby incorporated herein by
reference

10-38 Consulting Agreement, dated as of January 1, 1999, between United
Internet Technologies, Inc. and Harry Shuster, filed as Exhibit 10-54
to the Company's Quarterly Report on Form 10-QSB for the Quarter Ended
June 30, 1999, is hereby incorporated herein by reference

10-39 Agreement dated July 21, 1999 between the Company and Media Group,
Inc.,filed as Exhibit 10-55 to the Company's Quarterly Report on Form
10-QSB for the Quarter Ended June 30, 1999, is hereby incorporated
herein by reference

10-40 Purchase Agreement and Escrow Instructions dated June 10, 1999 between
United Leisure Corporation and Shih Ching Chiang, as amended on August
7, 1999, filed as Exhibit 10.1 to the Company's Current Report on Form
8-K dated August 23, 1999, is hereby incorporated herein by reference

10-41* Master Development Agreement dated as of July 1, 1999, by and between
United Internet Technologies, Inc. and National Broadcasting Company,
Inc.

10-42* Total Access Software Distribution Agreement between EarthLink
Network, Inc. and United Internet Technologies, Inc., together with
related letter agreement dated July 21, 1999

10-43* Agreement dated as of June 1, 1999 between United Leisure Corporation
and Harry Shuster, amending Amended and Restated Consulting Agreement
dated as of June 1, 1994

11* Statement regarding computation of per share earnings (included in
Note 11 to Notes to Consolidated Financial Statements for the Years
Ended December 31, 1998 and December 31, 1997, and Note 5 to Notes to
Consolidated Financial Statements (Unaudited) for the Six Months Ended
June 30, 1999, included herein

21* Subsidiaries of the Company

23-1* Consent of Richman, Lawrence, Mann, Chizever & Phillips (included in
Exhibit 5)
<PAGE>

Exhibit
Number Description
- ------- -----------

23-2* Consent of Hollander, Lumer & Co. LLP, independent public accountants

24* Powers of Attorney (included on the signature page in Part II of this
Registration Statement)

__________________________
* filed herewith

<PAGE>

EXHIBIT 5

[Letterhead of Richman, Lawrence, Mann, Chizever & Phillips]

September 1, 1999

United Leisure Corporation
1990 Westwood Boulevard
Los Angeles, California 90025

Re: Registration Statement on Form SB-2

Gentlemen:

We have acted as securities counsel to United Leisure Corporation, a
Delaware corporation (the "Company"), in connection with the preparation and
filing with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Securities Act"), of a Registration Statement on Form SB-
2 (the "Registration Statement"). The Registration Statement relates to the
public offering by certain selling stockholders named therein (the "Selling
Stockholders") of up to 1,400,000 shares (the "Shares") of the Common Stock, par
value $.01 per share (the "Common Stock"), of the Company.

The Shares are to be sold by the Selling Stockholders. This opinion is
being furnished in accordance with the requirements of Item 601(b)(5) of
Regulation S-B under the Securities Act.

In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
such documents, corporate records and other instruments as we have deemed
necessary or appropriate as a basis for the opinions set forth herein, including
(i) the Registration Statement of the Company filed with the Securities and
Exchange Commission; (ii) the Certificate of Incorporation and the Bylaws of the
Company; (iii) the form of Common Stock Certificate; (v) copies of certain
resolutions adopted by the Board of Directors of the Company relating to the
filing of the Registration Statement and any amendments of supplements thereto
and related matters; and (vi) such other documents as we have deemed necessary
or appropriate as a basis for the opinions set forth below.
<PAGE>

United Leisure Corporation
September 1, 1999
Page 2

In our examination, we have assumed the genuineness of all signatures, the
legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed by parties other than the Company, we have
assumed that such parties had the power, corporate or other, to enter into and
perform all obligations thereunder and have also assumed the due authorization
by all requisite action, corporate or other, and execution and delivery by such
parties of such documents and the validity and binding effect thereof. As to
any facts material to the opinions expressed herein which were not independently
established or verified, we have relied upon oral or written statements and
representations of officers and other representatives of the Company and others.

Members of our firm are admitted to the bar in the State of California, and
we do not express any opinion as to the laws of any other jurisdiction, other
than the corporate laws of the State of Delaware and the laws of the United
States of America to the extent referred to specifically herein.

Based on the foregoing, it is our opinion that, subject to effectiveness
with the Securities and Exchange Commission of the Registration Statement and to
registration or qualification under the securities laws of the states in which
securities may be sold, the Shares are duly and validly authorized and
constitute legally issued, fully paid and nonassessable shares of Common Stock
of the Company.

We consent to the use of our name under the caption "Legal Matters" in the
Registration Statement, and to the filing of this opinion as an exhibit to the
Registration Statement. By giving you this opinion and consent, we do not admit
that we are experts with respect to any part of the Registration Statement
within the meaning of the term "expert" as used in Section 11 of the Securities
Act or the rules and regulations promulgated thereunder, nor do we admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act.

Very truly yours,

/s/ RICHMAN, LAWRENCE, MANN, CHIZEVER & PHILLIPS

<PAGE>

EXHIBIT 10-41

MASTER DEVELOPMENT AGREEMENT

Master Development Agreement, made as of this first day of July, 1999 (the
"Effective Date"), by and between United Internet Technologies, Inc., a Delaware
corporation with an address at 1990 Westwood Blvd., PH, Los Angeles, California
90025 ("United"), and National Broadcasting Company, Inc., a Delaware
------
corporation with an address at 3000 W. Alameda, Burbank, California 91523
("NBC").

1. Definitions.
-----------

1.1 "Deliverables" means the software, Programmer Documentation (as
------------
defined below), modifications, documentation, and/or other deliverables to be
produced by United and delivered to NBC pursuant to a Statement of Work under
this Agreement.

1.2 "Intellectual Property Right" means any patent, copyright, trademark,
---------------------------
trade secret, trade dress, mask work, moral right, right of attribution or
integrity or other intellectual property or proprietary right arising under the
laws of any jurisdiction (including, without limitation, all claims and causes
of action for infringement, misappropriation or violation thereof and all rights
in any registrations and renewals).

1.3 "Services" means the consultation, software programming and/or other
--------
services to be performed by United for NBC pursuant to a Statement of Work under
this Agreement.

1.4 "Statement of Work" means a document for ordering Services and/or
-----------------
Deliverables, each of which shall be incorporated herein and made a part of this
Agreement. Each Statement of Work shall include, without limitation, (a) a
description of the Deliverables to be produced and/or the Services to be
performed and the specifications applicable thereto, or if such specifications
have not yet been developed or agreed upon, the mechanism and time frame under
which such specifications will be finalized, (b) the schedule of delivery of
such Deliverables and/or Services and the date of completion of United's
performance under the Statement of Work, (c) a description of any pre-existing
original software or other works of authorship which are owned by United and are
agreed not to be included in Deliverables constituting works for hire of NBC and
are required or contemplated to be used with the Deliverables (the "Licensed
--------
Materials"), (d) the agreed fees and costs consistent with this Agreement for
- ---------
such Deliverables and/or Services, and (f) the schedule for payment of such fees
and costs, (e) any support and maintenance terms or provisions varying from
those set forth in this Agreement, and (f) any training to be provided by
United. A form of Statement of Work is attached hereto as Exhibit A.

1
<PAGE>

2. Ordering, Changes, Payment, and Taxes.
-------------------------------------

2.1 Ordering Procedure. NBC may obtain Deliverables and/or Services from
------------------
United under this Agreement pursuant to a Statement of Work. The procedure for
ordering Deliverables and/or Services shall generally be as follows: United will
prepare a Statement of Work, or an amendment to a Statement of Work, as the case
may be, for review by NBC. Upon mutual agreement of the parties, NBC will sign
and return the Statement of Work to United. The provisions of this Agreement
shall govern each Statement of Work. In the event of a conflict between the
terms of this Agreement and any Statement of Work, this Agreement shall prevail.

2.2 Timing. United shall provide the Deliverables and/or perform the
------
Services specified in each Statement of Work in accordance with the delivery
schedule specified in such Statement of Work.

2.3. Fees for Services. The parties agree that Deliverables and/or Services
-----------------
may be provided on either a fixed price ("Fixed Price") or a time and materials
-----------
("T&M") basis as specified in the applicable Statement of Work. The fees for any
---
Deliverables and/or Services provided on a T&M basis will be mutually agreed
between the parties. NBC shall not be charged for any overtime or travel charges
pursuant to this Agreement or any Statement of Work.

2.4. Incidental Expenses and Material. Except as specified in the
--------------------------------
applicable Statement of Work, NBC shall reimburse United for actual and
reasonable material(s) and out-of-pocket expenses incurred in conjunction with
the provision of Deliverables and/or Services, provided that United shall not
add any mark-up or fees to such expenses and shall comply with NBC's reasonable
expense reimbursement policies.

2.5. Invoicing and Payment. Except as specified in the applicable Statement
---------------------
of Work, United shall invoice NBC for all fees and charges accrued, and all
reimbursable expenses incurred upon acceptance of the applicable Deliverables
and/or Services in accordance with this Agreement, and NBC shall promptly pay
the invoiced amount within 45 days after receipt of such invoice(s).

2.6. Changes to Scope. Any material change(s) to the scope of work
----------------
contemplated by a particular Statement of Work shall be made by a written
amendment to such Statement of Work. The amendment shall be signed by an
authorized representative of each party prior to implementation of the
change(s).

3. Acceptance. Deliverables shall be deemed accepted by NBC upon completion of
----------
the following acceptance test: (a) United shall make the Deliverable available
to NBC for testing and notify NBC in writing or via email that the Deliverable
is ready for acceptance (a "Ready For Testing Notice"); (b) upon receipt of such
------------------------
notice,

2
<PAGE>

NBC shall promptly perform functional testing of the Deliverable; (c) NBC shall
within thirty (30) days either advise United that the Deliverable is accepted
(an "Acceptance Notice") or advise United as to the specific respects
-----------------
in which the Deliverable does not conform to the specifications set forth in the
applicable Statement of Work or is otherwise not acceptable (a "Non-Compliance
--------------
Notice"); (d) upon receipt of a Non-Compliance Notice, United shall promptly
- ------
correct the Deliverable so that it meets such specifications and is otherwise
acceptable to NBC, and upon such correction, United shall provide another Ready
For Testing Notice to NBC; and (e) upon receipt of such notice, NBC shall again
perform the acceptance testing. The foregoing procedure shall be repeated until
NBC accepts the Deliverable or the applicable Work Order is terminated.

4. Term and Termination.
--------------------

4.1 Term. The term of this Agreement (the "Term") shall commence on the
----
Effective Date and expire one (1) year thereafter.

4.2 Termination Without Cause. NBC may terminate this Agreement and/or any
-------------------------
Statement of Work without penalty for any reason or no reason by providing
United with thirty (30) days prior written notice, whereupon NBC shall be liable
only for fees and charges accrued through the date of termination.

4.3 Termination for Breach. If either party is in material breach of a
----------------------
Statement of Work, the other party shall so notify the breaching party in
writing, specifying the nature of the breach. The breaching party shall have
thirty (30) days from receipt of such notice to correct the breach. If the
breach is not cured within that time period, the other party may terminate the
Statement of Work by providing the breaching party with written notice of
termination.

4.4 Other Termination. Either party may terminate this Agreement and each
-----------------
outstanding Statement of Work immediately upon the occurrence of any of the
following events with respect to the other party: (a) a receiver is appointed
for such party or its material assets; (b) such party becomes insolvent,
generally unable to pay its debts as they become due, makes an assignment for
the benefit of its creditors or seeks relief under any bankruptcy, insolvency or
debtor's relief law; (c) if proceedings are commenced against the other party
under any bankruptcy, insolvency or debtor's relief law, and such proceedings
have not been vacated or set aside within 60 days from the date of commencement
thereof; or (d) if such party is liquidated or dissolved or otherwise ceases to
do business.

4.5 Return of Confidential Information. Upon any termination of this
----------------------------------
Agreement, each party shall immediately return, or if so requested destroy, all
Confidential Information (as defined below) and other property belonging to the
requesting party.

3
<PAGE>

4.6 Effect of Termination. Termination of this Agreement and/or any
---------------------
Statement of Work shall not limit either party from pursuing any other remedies
available to it, including injunctive relief.

5. Ownership: Grant of License.
---------------------------

5.1 NBC Content. Any and all artwork, logos, graphics, audio, video, text,
-----------
data, software, code, domain names and other materials supplied by NBC or its
affiliates to United in connection with this Agreement, shall remain the sole
and exclusive property of NBC or such affiliates, as the case may be (the "NBC
---
Content"). No rights shall be transferred from NBC to United with respect to any
- -------
of the NBC Content or any Intellectual Property Rights therein.

5.2 Deliverables. United agrees, and agrees to ensure that each of its
------------
employees, contractors and consultants assigned to perform services hereunder
(the "Personnel") agrees, that any and all (a) Deliverables, (b) other original
---------
works of authorship, including without limitation user documentation and other
software which may be created, compiled or produced by United or any of the
Personnel in the course of performing Services hereunder or producing
Deliverables for NBC (together with the items described in subparagraph (a)
above, "Works of Authorship"), and (c) copyrights and other proprietary rights
-------------------
and all foreign and domestic, registered and unregistered, copyrights,
applications for registrations therefor and other Intellectual Property Rights
related to any Works of Authorship ("Copyrights"), shall be deemed to be works
----------
made for hire for and the exclusive property of NBC. Except to the extent
specifically agreed in the Statement of Work, to the extent that United has or
obtains any right, title or interest in or to any Work of Authorship or
Copyright, United hereby assigns and agrees to assign to NBC all of such right,
title and interest therein and thereto, and to the extent that any of the
Personnel has or obtains any right, title or interest in or to any Work of
Authorship or Copyright, United shall cause such Personnel to assign to NBC all
of such right, title and interest therein and thereto.

5.3 Licensed Materials. United hereby grants to NBC a non-exclusive,
------------------
worldwide, perpetual license to use, copy, distribute and otherwise exploit the
Licensed Materials. For any License Materials which United is obligated to
provide source code under this Agreement, as may be modified by the applicable
Statement of Work, the foregoing license shall include the right to modify and
prepare derivative works based upon such License Materials. United shall retain
title to the Licensed Materials.

5.4 Programmer Documentation. Except as may be expressly set forth in the
------------------------
applicable Statement of Work, United shall deliver to NBC upon NBC's request and
upon each delivery of any software, all programmer documentation and source code
relating to such software

4
<PAGE>

including, without limitation, all specifications, flow charts, outlines, file
definitions, source files, header files, programmer notes and commentary, and
instructions on how to compile, decompile and link the code (collectively,
"Programmer Documentation").
------------------------

5.5 Further Assurances. United and the Personnel agree to sign, execute
------------------
and acknowledge or cause to be signed, executed and acknowledged, any and all
documents and to perform such acts as may be necessary, useful or convenient for
the purpose of securing to NBC (or any affiliate specified by NBC) patent,
copyright, trade secret or other proprietary protection throughout the world
relating to all Works of Authorship and Copyrights. United hereby appoints NBC
and its successors and assigns as United's attorney-in-fact, with full power of
substitution, in the name and stead of United, for the benefit of NBC and its
successors and assigns, to from time to time do any and all such acts and things
which United is obligated to do under this Section. United declares that the
appointment made and the powers granted hereby are coupled with an interest and
are irrevocable.

6. Representations, Warranties and Covenants.
-----------------------------------------

6.1 Representations, Warranties and Covenants of United. United
---------------------------------------------------
represents, warrants and covenants that (a) it has all necessary rights and
authority to execute and deliver this Agreement and perform its obligations
hereunder, (b) neither this Agreement nor its performance of its obligations
hereunder will place United in breach of any other contract or obligation
binding upon United, (c) the services provided hereunder will be performed in a
professional manner in accordance with the highest standards then prevailing in
the software development industry, (d) the Personnel will be appropriately
knowledgeable, experienced and skilled, (e) the Deliverables developed hereunder
will conform to the highest standards then prevailing in the software
development industry, (f) United will pass through and assign to NBC, at
United's sole cost and expense, all warranties provided by third party licensors
of all code incorporated into or used to develop the Deliverables, (f) the
Deliverables will be developed hereunder by United and the Personnel in a manner
that will not violate any proprietary rights of an third party, including
without limitation any third party confidential relationships or Intellectual
Property Rights, and (g) the Deliverables shall not contain computer viruses or
other contaminants or any codes or instructions that may be used to access,
modify, delete or damage such Deliverables, any other software used as part of
or with the Deliverables or any data files created by other computer programs
used in connection with the Deliverables.

6.2 Year 2000. United represents and warrants that any Deliverables
---------
provided by United hereunder, including, without limitation, each item of
hardware, software, or firmware; any system, equipment, or products consisting
of or containing one or

5
<PAGE>

more thereof; and any and all enhancements, upgrades, customizations,
modifications, maintenance and the like shall be Year 2000 Compliant at the time
of delivery and at all times thereafter and in all subsequent updates or
revisions of any kind. For purposes of this Agreement, Year 2000 Compliant means
that (a) the Deliverables accurately process, provide and/or receive date/time
data (including without limitation calculating, comparing, and sequencing),
within, from, into, and between centuries (including without limitation the
twentieth and twenty-first centuries), including leap year calculations, and (b)
neither the performance nor the functionality of the Deliverables will be
affected by dates/times prior to, on, after, or spanning January 1, 2000. The
design of said Deliverables to ensure compliance with the foregoing warranties
and representations shall include, without limitation, date data century
recognition, calculations that accommodate same century and multi-century
formulae and date values, and date data interface values that reflect the
century. In particular, but without limitation, (i) no value for current
date/time will cause any error, interruption, or decreased performance in the
operation of such Deliverables, (ii) all manipulations of date/time-related data
(including, but not limited to, calculating, comparing, sequencing, processing,
and outputting) will produce correct results for all valid dates/times,
including when used in combination with other products, (iii) date elements in
interfaces and data storage will specify the correct century to eliminate date
ambiguity without human intervention, including leap year calculations, (iv)
where any date element is represented without a century, the correct century
will be unambiguous for all manipulations involving that element, (v)
authorization codes, passwords, and zaps (purge functions) should function
normally and in the same manner prior to, on, after and spanning January 1,
2000, including, without limitation, the manner in which they function with
respect to expiration dates/times and CPU serial numbers. No obligation of
United under this Agreement shall be excused by reason of the failure of the
Deliverables, or any other person's products/services selected for use by
United, to be Year 2000 Compliant, nor shall such occurrence(s) be deemed a
force majeure event. In the event of breach of this Section, in addition to any
other remedies NBC may have, whether pursuant to this Agreement, by law, equity
or otherwise, NBC shall be entitled to repair or replacement of any non-
Compliant item, at no cost to NBC, within ninety (90) days after notice of
breach from NBC to United. In addition to United's obligations as set forth
above, United shall indemnify and hold NBC harmless from and against any claims,
costs, losses, damages, or expenses (including reasonable attorneys' fees)
incurred by NBC arising out of or relating to any failure of the Deliverables to
be Year 2000 Compliant; provided that such indemnity obligation shall not apply
to claims, costs, losses, damages, or expenses (including reasonable attorneys'
fees) that are proximately caused by factors outside United's control.

6
<PAGE>

6.2. Third Party Licensors; Subcontractors. To the extent that (i) United
-------------------------------------
provides NBC with any third party software, (ii) the Materials include any third
party software, or (iii) United uses any subcontractors or consultants to
perform any services for NBC, United has, or will have before any such
subcontractor, consultant or third party software vendor is used, entered into
binding agreements, of which NBC is an intended third party beneficiary, with
such subcontractors, consultants and third party software vendors in effect to
ensure that United has all requisite rights, power and authority to make the
agreements and transfer the rights set forth in Sections 5 and 10 of this
Agreement.

7. Indemnity.
---------

7.1 General. United shall indemnify and hold harmless NBC, its affiliates,
-------
and their respective officers, directors, members, employees and agents from and
against any and all claims, actions, suits or proceedings, as well as any and
all losses, liabilities, damages, costs and expenses (including reasonable
attorneys fees) arising out of or accruing from (a) any misrepresentation or
breach of United's representations and warranties set forth in this Agreement or
any Statement of Work; and (b) any non-compliance by United with any covenants,
agreements or undertakings of United contained in or made pursuant to this
Agreement or any Statement of Work.

7.2 Infringement. United will indemnify and hold harmless NBC, its
------------
affiliates, and their respective officers, directors, members, employees and
agents against all losses, liabilities, damages, costs and expenses (including
reasonable attorneys fees) arising out of any actual claim, suit, action or
proceeding alleging that any Deliverable, information, design, specification,
instruction, software, data or other material furnished by United pursuant to
this Agreement (the "Material") infringes any copyright, trademark, trade
--------
secret, trade dress, patent or other Intellectual Property Right of any third
party. In the event that some or all of the Material is held by a court of
competent jurisdiction to infringe, or if in the good faith judgment of NBC some
or all of the Material is deemed to infringe, then United shall have the option,
at its expense, to (a) modify the Material to be non-infringing, (b) obtain for
NBC a license to continue using the Material; or (c) require return of the
infringing Material and all rights thereto from NBC; provided, that United shall
use its best efforts to implement (a) or (b). If United determines that it is
unable to implement (a) or (b) and therefore implements (c), then NBC may, at
its option, immediately terminate this Agreement and/or each applicable
Statement of Work and United shall immediately refund all fees and expenses paid
by NBC in connection with any affected Statement of Work.

7
<PAGE>

8. Personnel.
---------

8.1 General. Upon NBC's request, United and the applicable Personnel shall
-------
furnish NBC's project manager with periodic written reports relating to their
provision of Services hereunder, which reports shall be at such intervals and in
such form and shall cover such matters as NBC's project manager shall determine.
United shall use all reasonable means to insure the continued employment by
United of the Personnel then performing services hereunder; provided, that NBC
may, in its sole and absolute discretion, require that any or all such Personnel
be replaced due to unsatisfactory performance at any time. If (a) the employment
of any Personnel performing services hereunder is terminated by United for any
reason whatsoever, or (b) NBC requests that any Personnel be replaced pursuant
to this Section, then United shall obtain personnel of experience at least equal
to that of the Personnel affected by the occurrence of such event (the
"Replacement Personnel"). United shall not withdraw any Personnel from any
- ----------------------
assignment with NBC without NBC's prior written consent. NBC shall not be
obligated to make any payment on account of the services of any Replacement
Personnel for the number of hours required to train the applicable Replacement
Personnel so that such Replacement Personnel is able to perform the assigned
work in a manner equal to the replaced Personnel at the particular stage the
assigned work had reached when the personnel change occurred.

8.2 Insurance. United shall maintain throughout the performance of its
---------
obligations under this Agreement a policy of Workers' Compensation and
Disability Insurance with a minimum limit of $1 million. United shall also
provide NBC with a waiver of the insurers' subrogation rights with respect to
losses paid under such coverage. Evidence of United's insurance shall be in the
form of a certificate of insurance naming NBC as an additional insured and
including a thirty (30) day advance written notice of change and/or cancellation
of coverage. Prior to commencement of any services, United shall provide NBC
with said certificates from its insurers indicating the amount of insurance
coverage, the nature of such coverage and the expiration dates of each policy.

9. Maintenance and Support. United guarantees that it will make available
-----------------------
maintenance and support for the Deliverables for the 90 day period following the
acceptance of each such Deliverable by NBC in accordance with the terms hereof.
As part of such maintenance and support United shall timely respond and provide
a solution to inquiries made by NBC during its normal business hours to find an
correct any fault in the Deliverable or the failure of such Deliverable to
perform in accordance with the specifications contained in the applicable
Statement of Work.

8
<PAGE>

10. Confidentiality.
---------------

10.1 General. During the Term, each party hereto (the "Disclosing Party")
------- ----------------
may disclose to the other party (the "Receiving Party") information in
---------------
connection with the performance of this Agreement, including without limitation
technical data, trade secrets, plans for products or services, customer or
supplier lists, marketing plans, software, source code for software, financial
documents or data, and designs which it maintains, and which when provided
hereunder, shall be designated in writing or otherwise reasonably identified
(including orally) as confidential ("Confidential Information"). United and NBC
------------------------
shall use the Confidential Information of the other party solely to perform this
Agreement, and all Confidential Information shall remain the sole property of
the Disclosing Party. The Receiving Party shall hold the Confidential
Information in strict confidence and shall not make any disclosure of the
Confidential Information (including methods or concepts utilized in the
Confidential Information) to anyone during the Term and for a period of two (2)
years thereafter without the express written consent of the Disclosing Party,
except to employees, consultants or agents to whom disclosure is necessary to
the performance of this Agreement and who have executed a confidentiality
agreement with the Receiving Party, or who have been advised of their obligation
to maintain the confidentiality of the Confidential Information. Each of the
parties shall use the same care as it uses to maintain the confidentiality of
its most confidential information, which shall in no event be less than
reasonable care. United and NBC acknowledge that the remedy at law for any
breach or threatened breach of the provisions of this Section shall be
inadequate, and that the non-breaching party, in addition to any other remedy
available to it, shall be entitled to obtain injunctive relief without proof of
irreparable injury and without posting bond.

10.2 Exclusions. Notwithstanding the foregoing, the Receiving Party shall
----------
have no obligation under this Agreement with respect to any Confidential
Information disclosed to it which: (a) the Receiving Party can demonstrate was
already known to it at the time of its receipt hereunder; (b) is or becomes
generally available to the public other than by means of the Receiving Party's
breach of its obligations under this Agreement; (c) is independently obtained
from a third party whose disclosure violates no duty of confidentiality; (d) is
independently developed by or on behalf of the Receiving Party without use of or
reliance on any Confidential Information furnished to it under this Agreement,
and such independent development can be reasonably evidenced by the Receiving
Party; or (e) is disclosed pursuant to applicable law or regulation or by
operation of law, provided that the Receiving Party may disclose only such
information as is legally required, and provided further that the Receiving
Party shall provide reasonable notice to the Disclosing Party of such
requirement and a reasonable opportunity to object to such disclosure.

9
<PAGE>

11. Independent Contractor. United, in performing its obligations under this
----------------------
Agreement, is acting as an independent contractor and shall have exclusive
control of the manner and means of performing such obligations. Each party shall
be solely responsible for the supervision, daily direction and control of its
employees and payment of their salaries (including withholding of appropriate
payroll taxes), worker's compensation, disability, and other benefits. Nothing
in this Agreement shall be construed as making either party the agent of the
other party, as granting to the other party the right to enter into any contract
on behalf of the other party, or as establishing a partnership, franchise or
joint venture between the parties. NBC shall not be responsible for, and United
shall indemnify and hold NBC harmless against, any cost, expense, liability,
claim, damages, action or proceeding relating to any payroll related taxes for
any person who performs any Services, produces any Deliverables, or provides
maintenance, support or training to be performed, produced or provided by United
hereunder or any claim arising out of or relating to the employment or
application for employment of any such person.

12. Onsite Security. Each party agrees that its personnel shall comply with
---------------
reasonable security measures when on the other's premises.

13. Compliance With Law. United shall comply with all applicable laws, codes,
-------------------
ordinances, rules and regulations of the federal, state and local governments,
and of any and all political subdivisions and regulatory authorities thereof.
United shall obtain all necessary permits and licenses required in connection
with the performance of services hereunder by United at its expense.

14. Right To Audit. During and after the Term hereof, NBC or its accountants
--------------
shall have the right at periodic intervals and during reasonable business hours
on United's premises to examine and make copies of all books and records of
United insofar as they relate to this Agreement.

15. Press Releases. Except as provided in the applicable Statement of Work or
--------------
to the extent required by applicable law or as otherwise specified herein, any
use by one party of the other party's name, trademarks or service marks in any
press releases, customer lists, marketing materials or other announcements
concerning the matters covered by this Agreement, or for promotional,
advertising or other purposes, shall require the other party's prior written
approval.

16. Miscellaneous.
-------------

16.1 Force Majeure. Neither party shall be deemed in default or otherwise
-------------
liable for any delay in or failure of its performance under this Agreement or
any Statement of Work by reason of any Act of God, fire, natural disaster,
accident, riot, act of government,

10
<PAGE>

strike against a third party, shortage of materials or supplies, failure of
transportation or communication or of suppliers of goods or services, or any
other cause beyond the reasonable control of such party; provided, that during
any period in which United invokes this Section, NBC shall not be obligated to
make any payments to United.

16.2 Governing Law; Entire Agreement. This Agreement and all Statements of
-------------------------------
Work executed pursuant hereto shall be governed by and construed in accordance
with the laws of the State of New York, without regard to principles of
conflicts of law. This Agreement and any Statements of Work executed pursuant
hereto constitute the entire agreement between the parties with respect to the
subject matter hereof, and supersede all previous or contemporaneous agreements,
proposals, understandings and representations, written or oral, with respect to
the terms and conditions hereof. Neither this Agreement nor any Statement of
Work may be modified or amended except in a writing signed by a duly authorized
representative of each party.

16.3 Arbitration. Except for the right of either party to apply to a court
-----------
of competent jurisdiction for an injunction or other equitable relief or for the
collection of an account stated, any controversy or claim arising out of or
relating to this Agreement or its breach shall be settled by arbitration before
a single arbitrator (or a panel of three arbitrators if the amount in issue
exceeds $250,000) in New York County, State of New York, in accordance with the
rules of the American Arbitration Association, and judgment upon the award
rendered by the arbitrator may be entered in any Court of competent
jurisdiction. As a condition to the parties' agreement to submit any such
controversy or claim to arbitration, the parties agree that the arbitrator must
be an expert in computer technology and/or computer law.

16.4 Notices. All notices, including notices of address changes, required
-------
or permitted to be given by either party under this Agreement shall be sent by
registered or certified mail or by reputable overnight commercial delivery to
the address specified herein by each party.

16.5 Severability. In the event that any one or more of the provisions of
------------
this Agreement shall be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions of this
Agreement shall not be affected, or if any one or more of the provisions
contained herein shall be held to be excessively broad as to duration, activity
or subject, such provision shall be construed by limiting and reducing such
provisions so as to be enforceable to the maximum extent compatible with
applicable law.

11
<PAGE>

16.6 Waiver. The waiver by either party of any default or breach of this
------
Agreement shall not constitute a waiver of any other or subsequent default or
breach.

16.7 Assignment. Neither party may assign this Agreement or the rights and
----------
obligations accruing hereunder without the prior written consent of the other
party, except that NBC may so assign (i) in connection with the sale of all or
substantially all of its assets, (ii) to the surviving entity in any merger or
consolidation, or (iii) to an affiliated company.

16.8 Survival. The parties rights and obligations under Sections 4.5, 4.6,
--------
5, 7, 8.2, 10, 11, 14 and 16 shall survive expiration or termination of this
Agreement and/or any Statement of Work.

16.9 Counterparts. This Agreement may be executed in separate counterparts,
------------
each of which shall be deemed an original (including fixed signatures), and all
of which shall be deemed one and the same instrument.

16.10 Headings. The headings in this Agreement are used for convenience of
--------
reference deemed and shall not be deemed to modify or affect the interpretation
of this Agreement.

IN WITNESS WHEREOF, the parties to this Agreement have caused it to be executed
by their respective duly authorized officers or representatives as of the day
and year first above written.

NATIONAL BROADCASTING UNITED INTERNET TECHNOLOGIES,
COMPANY, INC. INC.

/s/ John D. Miller /s/ Brian Shuster
---------------------- --------------------------
Signature Signature

John Miller Brian Shuster
- ----------------------- --------------------------
Print Name Print Name

President, Advertising & Promotion President
- ---------------------------------- --------------------------
Title Title

12
<PAGE>

STATEMENT OF WORK NO. 1
-----------------------

This Statement of Work No. 1 consisting of two (2) pages is hereby incorporated
into and made a part of the Master Development Agreement with an Effective Date
of July 1, 1999, between National Broadcasting Company, Inc. and United Internet
Technologies, Inc.

NBC Project Manager United Project Manager
Name: John Miller Name: Brian Shuster
Address: 3000 W. Alameda, Address: 1990 Westwood Blvd.,PH
Room 208 Los Angeles, CA 90025
Burbank, CA 91523 Telephone: 310-441-0900
Telephone: 818-840-4804

Description of Work: Creation of a CD-ROM (the "CD-ROM") and accompanying
------
Internet website (the "Website") that will showcase NBC's 1999 fall schedule of
-------
television shows. The Website shall interface with the CD-ROM in a manner that
will (a) allow the end user to view video clips and still photos of NBC's new
fall television shows was as well as other text and graphics relating thereto,
and (b) feature an interactive game/contest modeled after the game
"Concentration" (the "Contest") which shall allow end users to compete and win
-------
prizes. United shall be responsible for mastering, reproducing and distributing
1,000,000 CD-ROM disks as described below.

Deliverables:

. CD-ROM master and source code

. All code, scripts and HTML for the web site, provided, however, that United
shall not be required to provide NBC with any source code related to its
previously existing proprietary technology except to the extent that such
source code is required to create a fully operational CD-ROM and
accompanying web site from the perspective of the end user of the products
(the "Website Code").
------------

. Packaging for the CD-ROM

. 250 copies of the fully packaged CD-ROM for NBC's internal purposes

. 1,000,000 copies of the fully packaged CD-ROM for distribution as specified
below

. Document certifying that 1,000,000 copies of the CD-ROM have been delivered
as specified below

Schedule:

. CD-ROM and Website Code ready for testing will be completed by 7/14/1999.

13
<PAGE>

. Packaging ready for review will be completed and delivered to NBC by
8/2/1999.

. Final CD-ROM and Website Code will be completed, and integration between
the two shall be functionally tested by 8/2/1999.

. Final packaging will be completed by 8/12/1999.

. The HTML and Video code portions of the Website Code shall be delivered to
NBC in a format specified by NBC by 8/20/1999.

. The 1,000,000 fully packaged CD-ROM's shall be completed and ready for
shipment by 8/16/1999.

. The 250 copies of the fully packaged CD-ROM for NBC's internal purposes
shall be delivered by 8/16/1999.

. The Website, the CD-ROM and the integration thereof shall be functionally
tested and debugged by 8/30/1999.

. The 1,000,000 fully packaged CD-ROM's shall be delivered as specified below
by 9/7/1999, with time being of the essence.

Specifications:

. The Website shall be designed to work with Netscape Navigator 3.0 and
above, Microsoft Internet Explorer 3.0 and above and AOL Version 3.0 and
above, when used with one of the aforementioned browsers.

Licensed Materials: None

Fees (specify Fixed Price or T&M): Fixed price of $100,000, which shall be
payable upon successful completion (i.e., newspaper delivery of 1,000,000 CD-
ROM's to 1,000,000 homes as specified below. Fees payable by NBC to United are
capped at $100,000.

Special Terms & Conditions:

. NBC shall provide United with all necessary show materials, video footage,
pictures, graphics, etc. necessary to produce the CD-ROM and the Website.
United shall digitize all video footage and pictures provided by NBC.

. NBC shall have final approval on all aspects of the Website as well as the
CD-ROM and its packaging.

. The Website shall be hosted either at United or on an NBC-approved site
(Snap, NBC.com, Xoom). If it is not hosted by United, United shall
cooperate with NBC in order to ensure

14
<PAGE>

coordination with the hosting provider. If the Website is hosted by United,
United will shut down the Website on 10/1/1999.

. United shall work with Webstakes (NBC's sweepstakes and contests provider)
in order to integrate the Contest into the CD-ROM and the Website.
Webstakes shall provide all contest rules and shall ensure compliance with
all applicable laws relating to contests. NBC shall arrange for a contest
host and associated stage and provide all prizes.

. United guarantees that the copies of the CD-ROM will be distributed to
1,000,000 homes (targeted to demographics acceptable to NBC) through
Valassis as a Free Standing Insert on the date specified above.

. NBC shall run at least one promotional on-air spot in markets where the CD-
ROM's are distributed.

. United shall not include within the CD-ROM or the Website any advertising,
sponsorships, logos or other commercial or promotional material of United
or any third party without the prior written consent of NBC. The CD-ROM
shall not include any end user software other than as described herein;
provided that United shall arrange to have AT&T Worldnet internet software
(which shall not to be promoted in any way) included on the CD-ROM.

. NBC shall be entitled to issue a press release regarding this project which
shall mention United as the production entity for this project. After the
issuance of such press release, United may mention its association with NBC
on this project in its own press release, which shall be subject to NBC's
prior approval, which approval shall not be unreasonably withheld.

. From the Effective Date of this Statement of Work through the date that is
90 days after delivery of the CD-ROM is completed as specified herein,
United shall not contract with another broadcast network for similar
services. NBC shall have the option to enter into additional engagements
during this exclusive period.

. Subject to NBC's approval regarding size and placement, the UIT logo, which
will also identify UIT as the CD-ROM application producer, will appear on
the poly bag, CD-ROM and CD-ROM packaging. In addition, subject to NBC's
approval regarding size and placement, NBC will also place such UIT logo
and text, which will be a hotlink to UIT's website, on the initial page of
the area of the Website web site which can be reached via the CD-ROM.

15
<PAGE>

The Effective Date of this Statement of Work is July 14, 1999.

NATIONAL BROADCASTING UNITED INTERNET TECHNOLOGIES,
COMPANY, INC. INC.

/s/ John D. Miller /s/ Brian Shuster
- ---------------------- -------------------------
Signature Signature

John Miller Brian Shuster
- ----------------------- -------------------------
Print Name Print Name

President, Advertising & Promotion President
- ---------------------------------- -------------------------
Title Title

<PAGE>

EXHIBIT 10-42

TOTAL ACCESS SOFTWARE
DISTRIBUTION AGREEMENT

THIS DISTRIBUTION AGREEMENT is made as of the Effective Date set forth
below among EarthLink Network, Inc., a Delaware corporation ("EarthLink") and
the Distributor named below.

Agreement Data:

1. Distributor: United Internet Technologies

2. Effective Date:__________________________

3a. Notice information per Section 12:

(1) If intended for Distributor: (2) If intended for EarthLink:

United Internet Technologies EarthLink Network, Inc.
1990 Westwood Blvd. 3100 New York Drive
Penthouse Floor Pasadena, California 91107
Attn: Mr. Larry DeLeon Attn: Legal Department
Facsimile No.: (310) 474-7465 Facsimile No. (626) 398-5477

3b. [This section intentionally left blank.]

4. Applicable Exhibits (The referenced exhibits are a part of this
Agreement):

Initials
--------
<TABLE>
<S> <C>
/i/WSH | A. Definitions /i/WSH | B. EarthLink Brand and Marks
------ ---------------- ------ ---------------
EarthLink Distributor EarthLink Distributor

/i/WSH | C. Trademark Usage /i/WSH | D. Special Terms
------ ----------------- ------ ---------------
EarthLink Distributor Guidelines EarthLink Distributor
</TABLE>

5. Total pages in this Agreement: _______________________________ (including
this cover page).

Signatures:

Distributor and EarthLink acknowledge that they have read and fully understand
this Agreement and hereby agree to its terms. In witness whereof, the parties
have executed this Agreement under seal.

<TABLE>
<S> <C>
EARTHLINK: DISTRIBUTOR:

/s/ William S. Heys
- ------------------------------------------- -----------------------------------------
(Signature of Authorized Representative) (Signature of Authorized Representative)

- ------------------------------------------- -----------------------------------------
(Printed Name of Authorized Representative) (Print Name of Authorized Representative)

- ------------------------------------------- -----------------------------------------
(Title) (Title)

Date:______________________________________ Date:____________________________________
</TABLE>

1
<PAGE>

1. Definitions. Certain terms used in this Agreement have the meanings
-----------
defined on the Definitions Exhibit hereto.

2. License Grant.
-------------

2.1 Non-Exclusive License. EarthLink hereby grants to Distributor a royalty
---------------------
free, non-exclusive and non-transferable license during the Term to market, sell
and distribute the Licensed Material in the Territory (the "License"). If
EarthLink delivers the Licensed Material to Distributor in the form of a Master
CD-ROM or a Master Diskette (as indicated in the Special Terms Exhibit), the
License shall include the right to reproduce the Licensed Material. If so
indicated on the Special Terms Exhibit, the Licensed Material may be distributed
only if bundled with the Distributor Product; otherwise, the Licensed Material
may be distributed without being bundled with any Distributor Product.

2.2 Customization. EarthLink shall customize the Software to default to
-------------
the URL set forth on the Special Terms Exhibit. If applicable, Distributor shall
pay the Customization Fee in advance of receipt of the Licensed Material.

2.3 Prohibition On Other Sales Or License. Distributor shall distribute
-------------------------------------
the Licensed Material only in accordance with the terms of this Agreement and
only in the form of EarthLink Network TotalAccess and shall not independently
distribute the various components of EarthLink Network TotalAccess or any
component of the Licensed Material separately from all other components.

2.4 No Other Right. Distributor shall not, nor shall it permit others to:
--------------
reproduce or otherwise make copies of any portion of the Licensed Material
(except as provided in Section 4.2) or modify, reverse engineer, disassemble,
decompile, or otherwise determine or attempt to determine or have or attempt to
obtain access to, the source code or internal design of the Software or to
create any derivative works based upon the Software. Nothing in this Agreement
shall be construed as granting Distributor any rights of any kind with respect
to any portion of the Licensed Material except as expressly and unambiguously
set forth in this Agreement. All rights, title and interest in and to, and
ownership of, the Licensed Material shall remain at all times exclusively with
EarthLink and EarthLink's third-party licensors.

3. Representations and Warranties.
------------------------------

3.1 EarthLink Authority. EarthLink represents and warrants to Distributor
-------------------
that (i) EarthLink owns or has a valid license to all portions of the Licensed
Material and to EarthLink Trademarks, (ii) EarthLink has the full power and
authority to enter into this Agreement and grant the License, and (iii)
EarthLink is a functional Internet access provider (the "Authority Warranty").

3.2 Access Warranty. Subject to the limitations set forth in this
---------------
Agreement and any other warranties contained herein, EarthLink warrants to
Distributor that the Software when properly installed and used in conjunction
with the EarthLink Sprint dial-up Internet access service will provide access to
the Internet a substantial amount of time and will perform substantially in
accordance with the Documentation (the "Access Warranty"). EARTHLINK MAKES NO
WARRANTY THAT ALL ERRORS OR FAILURES IN THE SOFTWARE WILL BE CORRECTED, AND
MAKES NO OTHER REPRESENTATION OR WARRANTY OF ANY KIND WITH RESPECT TO THE
SOFTWARE (EXCEPT WITH RESPECT TO THE PROPRIETARY SOFTWARE AS SET FORTH IN
SECTION 3.3 BELOW), WHETHER EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION
OF LAW. EARTHLINK EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. EARTHLINK DOES NOT WARRANT THAT THE SOFTWARE
IS ERROR-FREE OR THAT OPERATION OF THE SOFTWARE OR INTERNET ACCESS WILL BE
SECURE, UNINTERRUPTED OR ERROR-FREE.

3.3 Non-infringement Warranty and Third Party Software Representation.
-----------------------------------------------------------------
EarthLink warrants to Distributor that the Proprietary Software and related
Documentation and EarthLink Trademarks do not infringe upon the patents,
copyrights, trademarks or other intellectual property rights of any third party
(the "Non-infringement Warranty"). EarthLink represents to Distributor that as
of the Effective Date with respect to the Third Party Software and related
Documentation, EarthLink has not received notice, either oral or written, that
the Third Party Software and related Documentation infringes upon the patents,
copyrights, trademarks or other intellectual property rights of any third party.

2
<PAGE>

3.4 Defects Not Covered by Warranties. EARTHLINK SHALL HAVE NO OBLIGATION
---------------------------------
UNDER THE WARRANTY PROVISIONS SET FORTH IN THE ABOVE SECTIONS IN THE EVENT OF
ANY OF THE FOLLOWING ACTIONS/INACTION BY DISTRIBUTOR OR END USERS: (A)
DISTRIBUTOR INCORPORATES, ATTACHES OR OTHERWISE ENGAGES ANY ATTACHMENT, FEATURE,
PROGRAM, OR DEVICE TO THE SOFTWARE OR ANY PART THEREOF OR MODIFIES THE SOFTWARE
IN ANY WAY WHICH CAUSES THE SOFTWARE NOT TO CONFORM TO THE WARRANTY; OR (B) IF
ANY NONCONFORMANCE IS CAUSED BY ACCIDENT; TRANSPORTATION; NEGLECT OR MISUSE;
ALTERATION, MODIFICATION, OR ENHANCEMENT OF THE SOFTWARE BY DISTRIBUTOR; FAILURE
TO PROVIDE A SUITABLE INSTALLATION ENVIRONMENT; USE OF SUPPLIES OR MATERIALS NOT
MEETING SPECIFICATIONS; USE OF THE SOFTWARE FOR OTHER THAN THE SPECIFIED PURPOSE
FOR WHICH THE SOFTWARE IS DESIGNED; USE OF THE SOFTWARE ON ANY SYSTEMS OTHER
THAN THE SPECIFIED SOFTWARE PLATFORM FOR THE SOFTWARE; OR DISTRIBUTOR'S USE OF
DEFECTIVE MEDIA OR DEFECTIVE REPLICATION OF THE SOFTWARE.

3.5 Prohibition on Extension of Warranties. Distributor shall not make or
--------------------------------------
pass on, or attempt to make or pass on, any representation or warranty on behalf
of EarthLink to any third party other than as set forth in EarthLink's standard
end user license agreement, in a form to be specified by EarthLink in its sole
and absolute discretion, and which shall be included by Distributor together
with the Software distributed by Distributor under this Agreement.

3.6 Remedy for Breach of Authorization Warranty. In the event of a breach
-------------------------------------------
by EarthLink of the Authority Warranty, EarthLink shall take whatever action is
reasonably necessary to acquire such authorization or licenses necessary to
grant the License and perform its obligations hereunder. If such authority or
licenses is or are not reasonably obtainable, this Agreement shall terminate.

3.7 Remedies for Breach of Non-infringement Warranty.
------------------------------------------------

3.7.1 Remedy for Breach of Non-Infringement Warranty for Proprietary Software.
-----------------------------------------------------------------------
In the event the Proprietary Software fails to conform to the Non-infringement
Warranty, EarthLink shall either: (i) obtain a valid license or other right, as
applicable, for Distributor to distribute the Proprietary Software; or (ii)
replace or modify the Proprietary Software, without affecting the material
portions of its functionality, to make it non-infringing in which case that
replacement software shall then be governed by the terms of this Agreement.
Distributor shall have the right to terminate this Agreement pursuant to Section
10.2 in the event that: (a) EarthLink provides Distributor with written notice
that neither Subsection (i) nor Subsection (ii) of the preceding sentence of
this Sub-section is commercially reasonable in the discretion of EarthLink; or
(b) Distributor provides EarthLink with written notice that Distributor believes
that the replacement or modified Software is not of equal material
functionality.

3.7.2 Remedy for Breach of Non-Infringement Warranty for EarthLink Trademarks.
-----------------------------------------------------------------------
In the event any EarthLink Trademark fails to conform to the Non-infringement
Warranty Distributor shall immediately upon notice from EarthLink cease use of
such alleged infringing EarthLink Trademark. In such event, EarthLink, at its
sole option, shall either obtain a valid license for Distributor to use such
EarthLink Trademark or select an alternative non-infringing mark which is as
similar as possible to the unavailable EarthLink Trademark, and that new mark
shall then be governed by the terms of this Agreement as an EarthLink Trademark.

3.7.3 Indemnification for Third Party Infringement Claims. EarthLink
---------------------------------------------------
agrees to indemnify, and hold harmless, Distributor from and against all
reasonable costs and expenses related to claims made by third parties against
Distributor that the Proprietary Software or EarthLink Trademarks infringe the
patents, copyrights, trademarks or service marks or other intellectual property
rights of such third parties.

3.7.4 Limitation of Liability. NOTWITHSTANDING ANYTHING TO THE CONTRARY
-----------------------
CONTAINED IN THIS AGREEMENT, AND EXCEPT FOR THE OBLIGATIONS SET FORTH IN SECTION
11, NEITHER PARTY SHALL, UNDER ANY CIRCUMSTANCES, BE LIABLE TO THE OTHER PARTY
FOR CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES, INCLUDING LOST PROFITS, EVEN
IF SUCH PARTY HAS BEEN APPRISED OF THE LIKELIHOOD OF SUCH DAMAGES OCCURRING.

3
<PAGE>

4. Delivery; Replication; Reorders.
-------------------------------

4.1 Delivery of Licensed Material. EarthLink shall deliver the Licensed
-----------------------------
Material to Distributor in the format indicated on the Special Terms Exhibit.
Shipment of the media containing the Licensed Material shall be made to
Distributor to an address specified in writing by Distributor. Risk of loss
shall pass to Distributor when EarthLink has placed the Licensed Material in the
possession of the carrier. Shipping and freight costs and expenses shall be
payable in accordance with the Special Terms Exhibit.

4.2 Replication; Order Quantities; Software Fees.
--------------------------------------------

4.2.1 Format - Master Disk. In the event that the Licensed Material is
--------------------
delivered from EarthLink to Distributor in the form of a master disk (whether a
gold master CD-ROM, a master 3.5" diskette or otherwise) Distributor shall have
the right to replicate the Licensed Material in such quantities as Distributor
shall, in good faith, believe it can reasonably distribute. If Distributor
outsources the replication process, then (i) within seven (7) days prior to each
replication run of the Licensed Material, Distributor shall provide EarthLink
with a copy of the purchase order submitted to the replicator, and (ii) within
seven (7) days following each replication run, Distributor shall notify
EarthLink in a writing signed by an authorized officer verifying the quantity of
Licensed Material replicated and providing a copy of the invoice from the
replicator for such run showing the quantity of Licensed Material replicated. If
Distributor performs the replication process inhouse, Distributor will provide
EarthLink with written notice signed by an authorized officer, verifying the
quantity of Licensed material replicated. If the Licensed Material is to be
distributed over an Internet site, Distributor shall notify EarthLink of the
Internet address from where the Licensed Material may be downloaded.

4.2.2 Format - Individual Disks. In the event that the Licensed Material
-------------------------
is delivered in the form of individual disks (whether on CD-ROM, 3.5" diskettes
or otherwise) Distributor shall be delivered the Initial Quantity set forth on
the Special Terms Exhibit and shall, thereafter, order such quantities of
additional disks as Distributor and EarthLink may, in good faith, determine that
Distributor can distribute with a reasonable probability of obtaining new
Qualified Subscribers; provided, however, that EarthLink shall be under no
obligation to distribute additional disks in quantities less than the Minimum
Reorder Quantity set forth on the Special Terms Exhibit.

4.2.3 Software Fees. Distributor shall pay to EarthLink the Software Fees
-------------
specified on the Special Terms Exhibit. Such Software Fees shall be due and
payable to EarthLink within 30 days of receipt by Distributor of an invoice
therefor. All past due amounts shall bear an interest rate of 1.5 % per month.

5. Quality Control.
---------------

5.1 Gold Master Samples. Distributor shall provide EarthLink with a gold
-------------------
master containing the Software (and Distributor Product, if applicable), no less
than ten (10) days prior to initial replication run.

5.2 Samples. Distributor shall provide EarthLink with the disks
-------
containing the Software and five copies of all reproduced Documentation from:
(i) each initial replication run of the Software and Documentation, and of any
update, upgrade and/or new version of the Software provided to Distributor by
EarthLink; and (ii) each initial replication run subsequent to any change in the
replication facility and/or process utilized by Distributor.

5.3 Quality Problems. In the event EarthLink notifies Distributor of
----------------
quality problems with the replicated Licensed Materials which cause the Software
not to operate properly or not consistent with the Documentation, Distributor
shall immediately correct such problems in current and future replication runs.
EarthLink may, in its sole discretion, require Distributor to remove from
inventory and/or Distributor's distribution channel all faulty copies of the
Licensed Material. Failure by Distributor to so correct any such identified
problems shall constitute a material breach of this Agreement.

6. Marketing
---------

6.1 Promotion. Distributor shall use its best efforts to promote,
---------
advertise and market the Software and to promote the goodwill of EarthLink and
the market reputation of EarthLink's products and services.

6.2 Publicity. Each party shall have the right to refer to the other
---------
party and its services and products in advertisements, press releases, news
releases and general releases to professional and trade publications; provided,

4
<PAGE>

however, that any such item shall be presented to such other party not less than
ten (10) days prior to the intended publication date for approval by such other
party, which approval shall not be unreasonably withheld or delayed, and which
shall be deemed to be given if no written response is provided within said ten
(10) day period.

6.3 Bookmarks. EarthLink may include bookmarks in the Software provided to
---------
Distributor in accordance with mutually agreed upon specifications; provided,
however, that Distributor agrees that EarthLink may include a bookmark to
EarthLink's home page which bookmark shall be the first bookmark if additional
bookmarks are agreed upon. Distributor shall not alter any bookmarks included in
the Software.

7. Trademarks, Trade Names and Other Designations. Distributor undertakes
-----------------------------------------------
to faithfully reproduce all Marks as they may appear on or in respect of the
Licensed Material. Distributor shall not use the Marks except as provided
herein. All such use of the Marks shall be in accordance with the "EarthLink
General Guidelines for Use of Marks." Distributor undertakes to reproduce
faithfully all EarthLink Marks and proprietary notices, slogans, designs and
distinct advertising as may appear on or in respect of the Licensed Material.
Notwithstanding the foregoing, any such use or proposed use shall be presented
to EarthLink for approval, in EarthLink's sole discretion, not less than ten
(10) business days prior to the intended date of use, which approval shall be
deemed given if no written response is provided to Distributor within said ten
(10) business day period. Notwithstanding the authorization granted in this
section, EarthLink and its third party licensors shall own all right, title and
interest in and to the Marks. Other than as expressly and unambiguously provided
in this Agreement, Distributor shall not have, under any circumstances
whatsoever, any right to use the Marks. Solely for the purpose of enforcing
their rights in and to their trademarks, service marks, slogans and logos,
Sprint Corporation and Sprint Communications Company, beneficiaries to this
Agreement.

8. Payment and Reporting.
----------------------

8.1 Bounty Payments. If applicable, EarthLink will pay Distributor, at the
---------------
address indicated on the cover page, a bounty in the amount specified on the
Special Terms Exhibit for each Qualified Subscriber (the "Bounty"). Within
sixty (60) days after the end of each calendar month, EarthLink shall pay the
Bounty for each Qualified Subscriber obtained in the previous month. EarthLink
shall accompany each monthly payment with a report containing all information
reasonably necessary to verify the accuracy of the payment for that month.

8.2 Registration Number. EarthLink will assign unique registration numbers
-------------------
to the versions of the Software provided to Distributor. The Bounty will be
calculated through the use of these unique registration numbers by tracking each
Qualified Subscriber.

8.3 Maintenance of Records; Audit. Each party shall maintain proper books
-----------------------------
and records so as to allow for the verification of amounts paid or owed to the
other party. Each party agrees to allow the other party's auditors to audit and
analyze its applicable records to ensure compliance with all terms of this
Agreement. Any such audit shall be permitted by party to be audited, during
normal business hours, upon at least fifteen (15) days notice given in
accordance with Section 12. The cost of this audit shall be borne by the
auditing party, unless the results identify a bona fide underpayment to the
auditing party by more than five percent (5%) of the total amount paid or owed
during the audited period, in which case the cost of the audit shall be borne by
the audited party.

9. Technical Support and Training. EarthLink shall provide to end users
-------------------------------
of the Software that obtain the Software through Distributor, technical support
for the Software in accordance with the general policies of EarthLink with
respect to the particular Software product at issue.

10. Term; Termination.
------------------

10.1 Term. This Agreement shall commence on the Effective Date, and unless
----
sooner terminated in accordance with this Section, shall continue for one (1)
year, whereupon it shall automatically renew for consecutive one (1) year terms
unless notice of non-renewal is given by either party in writing no less than
thirty (30) calendar days and no more than ninety (90) calendar days prior to
the end of the then current term.

10.2 Termination For Infringement Claim. Distributor shall have the right
----------------------------------
to terminate this Agreement at any time, effective immediately upon written
notice of termination as set forth in Section 3.7. 1.

5
<PAGE>

10.3 Automatic Termination For Termination Of Underlying License. In the
-----------------------------------------------------------
event of termination of any underlying license to the Software this Agreement
and the License shall automatically terminate with respect to the Software for
which the underlying license has terminated.

10.4 Termination For Cause. Either party shall have the right to terminate
---------------------
this Agreement at any time, effective upon written notice of termination to the
other party, in the event of a breach of this agreement which is unremedied for
a period of thirty (30) days after written notice. Notwithstanding the
foregoing, either party may terminate this Agreement immediately upon a breach
of Section 11.

10.5 Effect Of Termination Of This Agreement. Upon termination of this
---------------------------------------
Agreement for any reason whatsoever Distributor shall: (i) immediately cease to
replicate copies of the Licensed Material; and (ii) return to EarthLink all
other existing copies (including original copies) of any of the Licensed
Material (gold master, unused CD-ROM or disks) in the possession or under the
control of Distributor. Notwithstanding the foregoing, upon any termination of
this Agreement, Distributor shall have the right to continue to distribute
copies of the Licensed Material then in the inventory of Distributor until such
time as such inventory is exhausted for a period of 180 days, whichever is less,
except that Distributor shall not have such right in the event that such
termination of this Agreement was by EarthLink pursuant to Sections 10.3 or 10.4
or by reason of Distributor's failure to correct a quality problem as described
in Section 5.2.

10.6 No Damages Or Indemnification For Termination. Neither party shall be
---------------------------------------------
liable to the other party for any costs or damages of any kind, including
incidental or consequential damages, or for indemnification, solely on account
of the lawful termination of this Agreement, even if informed of the possibility
of such damages.

10.7 Survival Of Terms Upon Termination. The provisions of this Agreement
----------------------------------
that by their sense and context are intended to survive termination of this
Agreement, shall so survive this Agreement, including Sections 3.7.3 (which will
survive for one year), 3.7.4, 10.5, 10.6, 11 and 13.

11. Confidentiality. Each party shall: (i) hold in confidence, and not
---------------
disclose or reveal to any person or entity, any Confidential Information
disclosed under this Agreement without the clear and express prior written
consent of a duly authorized representative of the disclosing party; and (ii)
not use or disclose any of the Confidential Information for any purpose at any
time, other than for the limited purpose of performance under this Agreement.
These obligations shall continue indefinitely for so long as the Confidential
Information is a trade secret under applicable law and shall continue for two
(2) years following termination of this Agreement with respect to Confidential
Information which does not rise to the level of a trade secret.

12. Notices. Except as specifically provided in this Agreement, all
--------
notices required hereunder shall be in writing and shall be given by personal
delivery, overnight courier service, or first class mail postage prepaid, to the
parties at their respective addresses set forth on the first page hereof, or at
such other address(es) as shall be specified in writing by such party to the
other parties in accordance with the terms and conditions of this Section. All
notices shall be deemed effective upon personal delivery, or three (3) business
days following deposit with any overnight courier service or with the U.S.
Postal System, first class postage attached, in accordance with this Section.

13. Miscellaneous.
--------------

13.1 Entire Agreement. This Agreement constitutes the entire understanding
----------------
and agreement, and supersedes any and all prior or contemporaneous
representations, understandings and agreements between the parties with respect
to the subject matter of this Agreement, all of which are merged in this
Agreement.

13.2 Independent Parties. The parties are independent parties and nothing
-------------------
herein shall be construed as creating an employment relationship between the
parties. Neither party is authorized as an agent or legal representative of the
other party. Neither party is granted any right or authority to assume or to
create, any obligation or responsibility, express or implied, on behalf or in
the name of the other party, or to bind such other party in any manner. Each
party is solely responsible for its own taxes.

13.3 Waiver. No waiver of any provision of this Agreement, or any rights
------
or obligations of either party under this Agreement, shall be effective, except
pursuant to a written instrument signed by the party or parties waiving
compliance, and any such waiver shall be effective only in the specific instance
and for the specific purpose

6
<PAGE>

stated in such writing.

13.4 Amendment. All amendments or modifications of this Agreement shall be
---------
binding upon the parties despite any lack of consideration so long as such
amendment or modifications are in writing and executed by the parties.

13.5 Severability Of Provisions. In the event that any provision of this
--------------------------
Agreement is found to be invalid or unenforceable pursuant to judicial decree or
decision, the remainder of this Agreement shall remain valid and enforceable
according to its terms.

13.6 Assignment. This Agreement may not be assigned by Distributor without
----------
the written consent of EarthLink. This Agreement shall be binding upon and
inure to the benefit of each of the parties and their respective legal
successors and permitted assigns.

13.7 Governing Law; Jurisdiction; Attorneys' Fees. This Agreement shall be
--------------------------------------------
governed by the laws of California without giving effect to applicable conflict
of laws provisions. All actions with respect of this Agreement shall be brought
in the federal and state courts having jurisdiction within Pasadena, California
and the parties expressly consent to the personal jurisdiction of such courts.
In the event any litigation or other proceeding is brought by either party in
connection with this Agreement, the prevailing party in such litigation or other
proceeding shall be entitled to recover from the other party all costs,
attorneys' fees and other expenses incurred by such prevailing party in such
litigation.

13.8 Force Majeure. Neither EarthLink nor Distributor shall be deemed in
-------------
default of this Agreement if its performance or obligations under this Agreement
are delayed or become impossible or impractical by reason of any act of God,
war, civil disobedience or any other cause beyond the control of such party.
Notwithstanding the foregoing, a change in economic conditions or technology
shall not be deemed a force majeure event.

13.9 Government Restrictions. Any Licensed Material which Distributor
------------------------
distributes or licenses to or on behalf of the United States of America, its
agencies and/or instrumentalities (the "Government"), is provided to Distributor
with RESTRICTED RIGHTS. Use, duplication or disclosure by the Government is
subject to restriction as set forth in subparagraph (c)(1)(ii) of the rights in
Technical Data and Computer Software clause at DFAR 252.227-7013, or as set
forth in the particular department or agency regulations or rules which provide
EarthLink protection equivalent to or greater than the above-cited clause.
Distributor shall comply with any requirements of the Government to obtain such
RESTRICTED RIGHTS protection, including, without limitation, the placement of
any restrictive legends in any license agreement used in connection with the
distribution thereof. Under no circumstances shall EarthLink be obligated to
comply with any Governmental requirements regarding cost and pricing data and
cost accounting. For any distribution or license of the Licensed Material that
would require compliance by EarthLink with Governmental requirements relating to
cost and pricing data or cost accounting, Distributor must obtain an appropriate
waiver or exemption from such requirements for the benefit of EarthLink from the
appropriate Governmental authority before the distribution and/or license of the
Licensed Material to the Government.

13.10 Export Control. Distributor acknowledges that the Licensed Material
---------------
is subject to the export control laws and regulations of the US, and any
amendments thereof. Distributor confirms that with respect to the Licensed
Material, it will not export or re-export them, directly or indirectly, either
to (a) any countries that are subject to US export restrictions (currently
including, but not necessarily limited to, Cuba, the Federal Republic of
Yugoslavia (Serbia and Montenegro), Iran, Iraq, Libya, North Korea, and Syria);
(b) any end user who Distributor knows or has reason to know will utilize them
in the design, development or production of nuclear, chemical or biological
weapons; or (c) any end user who has been prohibited from participating in the
US export transactions by any federal agency of the US government. Distributor
further acknowledges that the Licensed Material may include technical data
subject to export and re-export restrictions imposed by US law. In addition, the
export of the Licensed Material may require the approval of a governmental
authority and Distributor shall obtain such approval before exporting the
Licensed Material.

7
<PAGE>

EXHIBIT A
DEFINITIONS

1.1 Co-Branding means the joint placement of each of EarthLink's and
-----------
Distributor's brands.

1.2 Confidential Information means any information or material which: (i) is
------------------------
confidential or proprietary to the disclosing party, which derives economic
value from not being generally known and is the subject of reasonable efforts by
the disclosing party to maintain its secrecy; or (ii) the disclosing party
obtains from any third party, which the disclosing party treats as proprietary,
whether or not owned by the disclosing party. Confidential Information shall not
include information which the receiving party can show is: (i) known by the
receiving party at the time of receipt from the disclosing party and not subject
to any other nondisclosure agreement between the parties; (ii) now, or which
hereafter becomes, generally known to the public through no fault of the
receiving party; (iii) otherwise lawfully and independently developed by the
receiving party without reference to Confidential Information of the disclosing
party; or (iv) lawfully acquired by the receiving party from a third party
without any obligation of confidentiality.

1.3 Customization Fee means the amount payable to EarthLink by Distributor
-----------------
for EarthLink's customization of the Licensed Material as provided in Section
2.2.

1.4 Distributor Product means the hardware and/or software product(s)
-------------------
distributed or marketed by Distributor as set forth on the Special Terms
Exhibit.

1.5 Documentation means the documentation customarily supplied by EarthLink
-------------
with the Software.

1.6 EarthLink Trademarks means the trademarks, service marks, logos, trade
--------------------
names and slogans of EarthLink identified in the Trademarks Exhibit.

1.7 Effective Date means the date first set forth above which, upon
--------------
execution of this Agreement by both parties, shall be the effective date of this
Agreement.

1.8 Initial Order Quantity means the number of disk sets in the initial
----------------------
order of Licensed Materials as specified on the Special Terms Exhibit.

1.9 Licensed Material means the Software and the related Documentation.
-----------------

1.10 Marks means the EarthLink Trademarks and copyright and proprietary
-----
notices associated with EarthLink's products and services as well as the
trademarks, trade names, service marks, logos, slogans and copyright and
proprietary notices of EarthLink's third-party licensors, including those of
Sprint Corporation and Sprint Communications Company, L.P.

1.11 Minimum Reorder Quantity means the minimum number of disk sets which
------------------------
Distributor may reorder in a single order as specified in the Special Terms
Exhibit.

1.12 Proprietary Software means the object code form only of EarthLink's
--------------------
proprietary software contained in the EarthLink Network TotalAccess software
suite.

1.13 Qualified Subscriber means an end user who subscribes to EarthLink's
--------------------
services through Software distributed by Distributor, and who has paid in full
for at least two months service from EarthLink.

1.14 Software means the Proprietary Software and the Third Party Software.
--------
The Software shall include all enhancements, updates, upgrades and/or new
versions released during the term of this Agreement.

1.15 Software Fees means the fees charged to Distributor for the right to
-------------
replicate and/or distribute the Licensed Material.

EXHIBIT A - Definitions

<PAGE>

1.16 Termination Date means the date upon which any termination of this
----------------
Agreement, for any reason whatsoever (including expiration), becomes effective.

1.17 Territory means the territory in which Distributor may market and
---------
distribute the Licensed Material as described on the Special Terms Exhibit.

1.18 Third Party Software means the object code form only of software
--------------------
EarthLink licenses from other third parties and which is included in EarthLink
Network TotalAccess, including but not limited to: Netscape Navigator, Microsoft
Internet Explorer and software from Apple Computer, Inc. and Network
Telesystems.

EXHIBIT A - Definitions

<PAGE>

EXHIBIT B
EARTHLINK BRAND AND MARKS

Trademarks, trade names, logos and other product and proprietary identifiers.
- ----------------------------------------------------------------------------

The EarthLink Network logo
The EarthLink Sprint combined logo
EarthLink Network(R)
EarthLink Network TotalAccess/TM/
"EarthLink Sprint"/TM/
bLink/TM/
It's Your Internet/TM/
All the Internet You Can Eat/TM/
The Mall/TM/
The Arena/TM/
Personal Start Page/SM/

EXHIBIT B - EarthLink Brand and Marks

<PAGE>

EXHIBIT C
TRADEMARK USAGE GUIDELINES

EarthLink Network, Inc.
Trademark and Copyright Notice Requirements For
EarthLink Network TotalAccess/TM/

I. CONTRACT TERMS

A. EarthLink Network, Inc.'s ownership of trademarks, trade names, and
copyrights shall be clearly indicated on all documents which include
reference to the EarthLink Network TotalAccess/TM/ software. A
representative sample of each document, showing EarthLink's ownership, must
be sent to the Legal Department.

B. There shall be no alteration of any proprietary (/TM/, (R) or (C)) notices
on the EarthLink Network TotalAccess/TM/ software delivered to Distributor
by EarthLink.

C. All trademarks and service marks belonging to EarthLink Network, Inc.
shall be used consistently and in the exact form provided by EarthLink
Network, Inc. The marks shall never be abbreviated, used in a plural form,
or altered in any manner.

II. ADDITIONAL TERMS PROVIDED

A. SPECIFICATIONS FOR USE OF NOTICES

Trademarks and Service Marks:
-----------------------------

EarthLink Network is both a trade name and a federally registered service
mark of EarthLink Network, Inc. EarthLink Network Total Access/TM/ is a
common law trademark of EarthLink Network, Inc.

1. The marks "EarthLink Network(R)" and "EarthLink Network Total
Access/TM/" should always be used as adjectives rather than as nouns
or verbs.

Examples: OK: The EarthLink Network TotalAccess/TM/ Software
includes...

EarthLink Network(R) Internet access services are among the most
innovative access services available.

NOT OK: The EarthLink Network TotalAccess includes...

2. The mark must be set apart, at all times, from any surrounding text,
either physically or through the use of boldface type, underlining,
italics, or quotation marks, so that it is distinctive.

3. Proper trademark notice ((R) or /TM/, as appropriate) should be used.
For marks that are not federally registered, i.e., "EarthLink Network
TotalAccess/TM/," the symbol "/TM/" must be used with the mark at all
times. For marks that are federally registered, i.e., "EarthLink
----
Network," the symbol "(R)" must be used with the mark at all times.

Copyrights:
-----------

4. Copyright notices must read as follows:

EXHIBIT C - Trademark Usage Guidelines - 1
<PAGE>

B. SPECIFICATIONS FOR USE OF LOGO

1. In Product Packaging:

(a) Placement:

(1) The logo must not touch or overlap any other logo on the
packaging.

(2) When used in conjunction with the Netscape Navigator logo,
the EarthLink logo must be 10% larger.

2. In Print, On-line, Broadcast Advertising and Direct Mail:

(a) Placement:

(1) Generally: The logo must be on a high-contrast background
and stand-alone in making a commercial impression.

(2) Generally: The logo must not touch or overlap any other logo
on the advertisement.

(3) In print and direct mail: The logo must appear in every
viewing plane (plane, spread or gatefold) of the
advertisement.

(4) In broadcast advertising: The logo must be on a screen for
at least five seconds and totally within the title-safe
screen area.

3. In Production Brochures and Other Collateral:

(a) Placement:

(1) The logo must be displayed on the first page of all
brochures and the cover of all manuals and bound collateral.

(2) The logo must be on high contrast background and stand-alone
in making a commercial impression.

4. General Logo Requirements:

(a) All usage of EarthLink Network(R) and/or EarthLink Network
TotalAccess/TM/ included logos must always be identified as
trademarks of EarthLink Network, Inc. as follows: EarthLink
Network(R) (and/or EarthLink Network TotalAccess/TM/) and the
EarthLink Network(R) logo are trademarks of EarthLink Network,
Inc.

(b) The EarthLink Network(R) and/or EarthLink Network TotalAccess/TM/
included logos must be displayed in a positive manner and may not
depict EarthLink in any negative way.

(c) The logo may not be altered in color, shape, font, proportion or
in any other manner without prior written consent from an officer
of EarthLink Network, Inc.

EXHIBIT C - Trademark Usage Guidelines - 2
<PAGE>

C. RELATIONSHIP BETWEEN EARTHLINK AND NETSCAPE NAVIGATOR MARKS

When Netscape Navigator/TM/ software is included with the EarthLink Network
TotalAccess/TM/ software, the following requirements must be met:

1. Netscape Navigator/TM/ included logo in relation to the EarthLink
logo:

a) The EarthLink logo may stand alone, however, any use of the
Netscape Navigator/TM/ logo must be accompanied by the EarthLink
logo.

b) The EarthLink logo must be 10% larger than the Netscape logo.
Type face should be Garamond, Garamond Bold, and/or Garamond
Italic.

2. Netscape Navigator/TM/ trademark and trade name usage in relation to
EarthLink Network TotalAccess/TM/ trademark and trade name usage:

a) Any reference to the combination of marks should read as follows:
"Includes EarthLink Network TotalAccess/TM/ with Netscape
Navigator/TM/"

b) EarthLink Network TotalAccess/TM/ typeface must be 30% larger
than the Netscape Navigator/TM/ trademark typeface.

3. Copyright notices must read as follows:

a) In combination with EarthLink references:

4. For all material that is distributed outside of the United States and
Canada the following notice must appear:

Netscape Navigator/TM/ is offered only in conjunction with
EarthLink Network(R) Internet access service, which may not be
available in all areas.

EXHIBIT C - Trademark Usage Guidelines - 3
<PAGE>

NETSCAPE TRADEMARK PROVISIONS
For "Netscape Navigator/TM/ Included"

I. CONTRACT TERMS:

A. Whenever reference to is made to the Navigator or the functionality of
the Navigator provided within EarthLink's Product, the Netscape
trademarks and trade names relating to the Navigator must be used in
any advertising, marketing, technical or other materials related to
the Navigator which are distributed.

B. Netscape's ownership of trademarks or trade names must be clearly
indicated on all documents which include reference to the Netscape
Navigator/TM/ software.

C. Netscape may request copies of goods bearing Netscape's trademarks
and trade names to verify their adequate quality and if Netscape
determines the quality is inferior, EarthLink must suspend use of
Netscape's trademarks and trade names until EarthLink has taken the
steps Netscape requires to solve the quality deficiencies.

D. There shall be no alteration of any proprietary (/TM/, (R), or (C))
notices on any documents or on the Netscape Navigator/TM/ software
delivered to EarthLink by Netscape.

E. Each portion of the Netscape Navigator/TM/ and documentation
reproduced by EarthLink shall include the intellectual property
notices appearing in or on the corresponding portion of such materials
as delivered by Netscape.

A. All copies of the Netscape Navigator/TM/ must conspicuously display
on labels and all media containing the Navigator the following:

II. ADDITIONAL TERMS PROVIDED:

A. SPECIFICATIONS OF LOGO: Use of logo must comply with all of the
following terms:
1. In Product Packaging:
a) Placement:
(1) The logo must appear on the front of the product
package.
(2) The logo may appear on the spine and/or back of the
product package.
(3) The logo must be placed on a high contrast background.
(4) The logo must not touch or overlap any other logo on the
packaging.

b) Size:
(1) Generally: The "N" graphic portion of Netscape
Navigator/TM/ logo must be at least 3/4" (1/2" is okay)
on each side. The proportion of the entire graphic
should be based on the size of the "N" graphic.
(2) For CD ROMs and CD ROM Jewel Cases: the minimum size of
the "N" graphic portion of the Netscape Navigator/TM/
logo must be at least 1/2" on each side.
(3) Maximum size: The "N" graphic portion of the Netscape
Navigator logo can be no larger than 3/4" on each side.
(4) The Netscape Navigator/TM/ logo must be no larger than
the OEM brand or product name or logo on the package.
(5) When a third party is bundling their products with
EarthLink Network(R) service (i.e. EarthLink is entering
into an "Affiliate" relationship) and three brands,
EarthLink, Netscape, Third party brand X, are on the
package, the required size is 3/8" as measured by the
size of the N square size.

EXHIBIT C - Trademark Usage Guidelines - 4
<PAGE>

2. In Print, On-line, Broadcast Advertising and Direct Mail:
a) Placement:
(1) Generally: The logo must be on a high-contrast
background and stand-alone in making a commercial
impression.
(2) Generally: The logo must not touch or overlap any other
logo on the advertisement.
(3) In print and direct mail: The logo must appear in every
viewing plane (page, spread or gatefold) of the
advertisement.
(4) In broadcast advertising: The logo must be on a screen
for at least 5 seconds and totally within the title-
safe screen area.

b) Size:
(1) Print: The "N" graphic portion of Netscape
Navigator/TM/ Included logo must be at least 3/4" on
each side.
(2) Print: The "N" graphic portion of the Netscape
Navigator/TM/ Included logo can never be larger than 1
1/2" on each side.
(3) Print: The "N" graphic portion of the Netscape
Navigator/TM/ Included logo can never be larger than
the OEM brand or product name or logo.
(4) Broadcast: the logo must be a minimum of 15% of the
title safe area.
(5) Broadcast: the logo may be no larger than the OEM brand
or product name or logo in the broadcast advertisement.
(6) On-line: the "N" graphic portion of the Netscape
Navigator/TM/ Included logo must be at least 30 pixels
one each side and must link to the Netscape site at the
following URL:
"www.netscape.com."

3. In Production Brochures and Other Collateral:
a) Placement:
(1) The logo must be displayed on the first page of all
brochures and the cover of all manuals and bound
collateral.
(2) The logo must be on high contrast background and stand-
alone in making a commercial impression.

b) Size:
(1) The "N" graphic portion of the Netscape Navigator/TM/
Included logo must be at least 3/4" on each side.
(2) The "N" graphic portion of the Netscape Navigator/TM/
Included logo can never exceed 1 1/2" on each side.
(3) The logo can never be larger than the OEM brand/
product name or logo in the collateral.

4. General Logo Requirements:
a) All usage of Netscape Navigator/TM/ Included logo should
always be identified as a trademark of Netscape
Communications Corporation as follows:

"Netscape Navigator and the Netscape Navigator Included logo
are trademarks of Netscape Communications Corporation"

b) The Netscape Navigator/TM/ Included logo must be displayed
in positive manner and may not depict Netscape in any
negative way.

c) The logo may only be reproduced directly from the diskette
provided by Netscape. It may not be altered in color, shape,
font, proportion or in any other manner.

EXHIBIT C - Trademark Usage Guidelines - 5
<PAGE>

d) The words Netscape Navigator/TM/ must be 16 pt font or
smaller on all usage including, but not limited to,
packaging and advertising. The only exception is the usage
of the words within the Navigator Included logo at the
appropriate size.
e) The words "free," "free Upgrades," or "Personal Edition"
may not be used in association with the words Netscape
Navigator/TM/.
f) The number version of the Netscape Navigator software may
not be used (i.e Netscape Navigator 2.0 or Netscape
Navigator 3.0)

B. TRADEMARK, TRADE NAME AND COPYRIGHT USE: Use of the Netscape marks must
comply with all of the following terms:

1. The first mention of a Netscape trademark in the body of printed
material must include proper notice of trademark ownership ((R), /TM/,
or sm.)
a) If the first use is in a headline, the symbols do not have to
appear in the headline provided there is text on the same
page/screen where proper notice does appear.

2. "Netscape Navigator/TM/" should be used as an adjective rather than a
noun or verb:
a) Example: OK: The Netscape Navigator/TM/ software provides . . .
NOT OK: The Netscape Navigator/TM/ provides . . .
b) However, after first use of the Netscape trademark as an
adjective, the trademark can alternately be used as both a noun
and adjective.

a) If more than one Netscape mark is used, all may be incorporated
into one sentence as follows: "The following are worldwide
trademarks of Netscape Communications Corporation or its
subsidiaries, registered in the United States as indicated by and
in numerous other countries worldwide: Netscape/TM/; Netscape
Navigator/TM/; Netscape Store/TM/."

4. The OEM must always represent the products as "including",
"containing" or "with" Netscape Navigator/TM/ software.

5. The words "Netscape" or "Netscape Navigator/TM/" may not appear in the
product or brand name.
a) OK: ABC Internet Suite with Netscape Navigator/TM/ software
b) NOT OK: ABC Netscape Navigator/TM/

6. The OEM must not indicate that the product is supported by
Netscape Communications Corporation directly.

7. The Netscape Navigator/TM/ name must be used in a positive manner.
The name may not depict Netscape in any negative way.

EXHIBIT C - Trademark Usage Guidelines - 6
<PAGE>

EXHIBIT D
SPECIAL TERMS

Territory

The Territory shall be the fifty states of the United States. Prices shall be
higher in Alaska and Canada.

Bundling

The Distributor Product bundled with the Licensed Material shall be various UIT
enhanced CDs.

Customization

The Software will not include a Customized URL.
The Customization Fee to be withheld from the initial Bounty payment(s) shall
be: $0.

Waiver of Sign-Up Fee

The sign-up fee shall be waived for customers who sign-up to EarthLink's dial-up
service as a result of Distributor's efforts.

Free Days

The number of initial free days that EarthLink will provide each customer who
signs-up to EarthLink's dial-up service as a result of Distributor's efforts
shall be 30.

Bounty

Bounty is to be paid on a volume-defined basis, as follows:

<TABLE>
<CAPTION>
BOUNTY PER
TIER QUALIFIED SUBSCRIBER
<S> <C>
- -0- to 2000 Qualified Subscribers $0
2001 to 10,000 Qualified Subscribers $20
10,001 to 25,000 Qualified Subscribers $25
25,001 to 40,000 Qualified Subscribers $30
40,001 to 60,000 Qualified Subscribers $35
60,001 to 80,000 Qualified Subscribers $40
80,001 to 100,000 Qualified Subscribers $45
100,000+ Qualified Subscribers $50
</TABLE>

EarthLink will pay Company a $40,000 non-refundable advance on bounties.

EXHIBIT D - Special Terms - 1
<PAGE>

Format and Platform

The format in which the Licensed Material will be delivered to distributor shall
be Gold Master CD ROM.

The platform for the Licensed Material shall be Windows 95/98.

Software Fee

Distributor shall pay a Software Fee of $0 for each CD disk or floppy disk set
replicated by Distributor.

Agreed to by the parties:

Sign below:

/s/ William S. Heys
- ----------------------------- ------------------------------
EarthLink Distributor

EXHIBIT D - Special Terms - 2
<PAGE>

[LOGO - United Internet Technologies, Inc.]

July 21, 1999

TO: Laura Kaatz cc: Brian Shuster
FROM: Larry DeLeon
Re: Earthlink Marketing Agreement

Following is our understanding of the revenue sharing agreement between us for
the Earthlink ISP offer for our production of the NBC Sneak Peek promotion. It
is based on our discussions, and our understanding of the agreement cited in the
enclosed terms memo from Earthlink:

1. Earthlink Networks is an Internet Service Provider who will offer
optional service to consumers who receive the NBC Sneak Peek promotion
disk. NBC has agreed to let Earthlink participate in the promotion by
allowing them to place an offer on the install disk and on the disk
packaging subject to NBC's approval.

2. Earthlink will pay a bounty to UIT for each new customer who signs up
for service to UIT. The payment schedule for the bounty is based on
the number of customers who sign up for service on a cumulative basis,
meaning that the price per customer applies to future promotions that
the parties participate in. Earthlink has further agreed to advance
$40,000 to UIT against the bounty earned by UIT through this
promotion. The bounty schedule is as follows:

<TABLE>
<S> <C>
0 - 10,000 customers - $20 per customer
10,000 - 24,999 - 25
25,000 - 39,999 - 30
40,000 - 59,999 - 35
60,000 - 79,999 - 40
80,000 - 99,999 - 45
100,000+ - 50
</TABLE>

The enclosed will be superceded by a more detailed agreement. Please review the
above and contact us with any comments immediately, or sign below and fax back
to us, so we can proceed with the Earthlink participation in the NBC Sneak Peek
promotion.

Yours truly,

/s/ Larry DeLeon
- -------------------------
Director of Marketing/Strategic Alliances
UNITED INTERNET TECHNOLOGIES

United Internet Technologies, 1990 Westwood Blvd., Penthouse, Los Angeles, Ca.
90025, phone 310-441-0900, fax 310-474-7465
<PAGE>

Earthlink Agreement, July 21, 1999, page 2

For Earthlink Networks, Inc.

William S. Heys, Sr. V.P. Sales

(please print name and title)
- --------------------------------------------------------------------------------

/s/ William S. Heys 21 July 99
- --------------------------------------------------------------------------------
(Signature) Date

United Internet Technologies, 1990 Westwood Blvd., Penthouse, Los Angeles, Ca.
90025, phone 310-441-0900, fax 310-474-7465

<PAGE>

EXHIBIT 10-43

AGREEMENT

AGREEMENT dated as of June 1, 1999, between UNITED LEISURE CORPORATION, a
Delaware corporation (the "Company"), and HARRY SHUSTER ("Consultant").

WHEREAS, the parties have entered into that certain Amended and Restated
Consulting Agreement dated as of June 1, 1994 (the "Consulting Agreement"); and

WHEREAS, the parties desire to amend certain provisions of the Consulting
Agreement;

NOW, THEREFORE, in consideration of the terms, conditions, mutual
agreements and covenants set forth therein and herein, the parties hereto hereby
agree as follows:

1. Consultant shall relinquish the titles of Chairman of the Board,
President, and Chief Executive Officer, effective May 24, 1999.

2. Consultant shall continue to render consulting services to the Company
and its affiliates in connection with its non-Internet business as
requested by the President of the Company or the Company's Board of
Directors.

3. Consultant shall remain entitled to the entire amount of then-current
compensation provided for under the Consulting Agreement for each year
of the term of said Agreement (the "Gross Compensation").

4. Of the then-current Gross Compensation, Consultant shall be paid the sum
of $5,000 per month.

5. For any given year of the term of the Consulting Agreement, the
balance of the then-current Gross Compensation shall be applied by the
Company, on a monthly basis, to reduce the net amount owed by Consultant
to the Company, including interest (the "Company Receivable"), which on
June 1, 1999 is acknowledged by the parties to be $420,263.

6. After the Company Receivable has been reduced to zero, the entire
amount of the Gross Compensation shall be paid to Consultant in
accordance with the terms of the Consulting Agreement.
<PAGE>

7. All other provisions of the Consulting Agreement shall remain in full
force and effect.

IN WITNESS WHEREOF, the parties hereto have this Agreement as of the date
above first written.

UNITED LEISURE CORPORATION

By /s/ Brian Shuster
-----------------------------------------
Brian Shuster
Title: President and Chief Executive Officer

/s/ Harry Shuster
-------------------------------------------
Harry Shuster ("Consultant")

<PAGE>

EXHIBIT 21

SUBSIDIARIES OF UNITED LEISURE CORPORATION
------------------------------------------

Set forth below is a list of all subsidiaries of United Leisure
Corporation, indicating their jurisdictions of incorporation.

Name Jurisdiction of Incorporation
---- -----------------------------

Camp Frasier, Inc. California

Frasiers Frontier, Inc. California

LCS Tours, Inc. Delaware

Lion County Safari, Inc. - California Florida

Planet Kids, Inc. California

Planet Kids Learning Centers, Inc. Delaware

United Internet Technologies, Inc. Delaware

United Internet Technologies Nevada
of Nevada, Inc.

MonitorMe, Inc. Delaware

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form SB-2 of our report dated March 6, 1999 relating
to the Financial Statements of United Leisure Corporation and Subsidiaries which
appears in such Prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.

HOLLANDER, LUMER & CO. LLP
Los Angeles, California
September 1, 1999