================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-QSB
-----------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to _________.
COMMISSION FILE NUMBER 0-6106
UNITED LEISURE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13 - 2652243
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1990 WESTWOOD BOULEVARD, PENTHOUSE
LOS ANGELES, CALIFORNIA 90025-4650
(Address, including zip code, of principal executive offices)
(310) 441-0900
(Registrant's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [__]
Indicate the number of shares outstanding of each class of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING
Common Stock, par value 19,887,377 shares, as
$0.01 per share. of August 7, 2000
Transitional Small Business Disclosure Format (Check one): Yes [__] No [X]
================================================================================
<PAGE>
UNITED LEISURE CORPORATION AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.......................................1
Condensed Consolidated Balance Sheets, June 30,
2000 and December 31, 1999.................................1
Condensed Consolidated Unaudited Statements of
Operations and Comprehensive Income (Loss) for
the Three Months Ended June 30, 2000 and 1999 and
Six Months Ended June 30, 2000 and 1999....................2
Condensed Consolidated Unaudited Statements of
Cash Flows for the Six Months Ended June 30, 2000
and 1999...................................................3
Notes to Condensed Consolidated Unaudited
Financial Statements.......................................4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................7
PART II. OTHER INFORMATION
ITEM 1 Legal Proceedings.........................................12
ITEM 2. Changes in Securities.....................................12
ITEM 3. Defaults Upon Senior Securities...........................12
ITEM 4. Submission of Matters to a Vote of Security Holders.......12
ITEM 5. Other Information.........................................12
ITEM 6. Exhibits and Reports on Form 8-K..........................12
SIGNATURE...................................................................13
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.................... $9,216,667 $1,998,059
Receivables.................................. 78,449 88,540
Deferred production cost..................... - 115,027
Prepaid expenses and other current assets.... 86,837 75,208
------------ -------------
Total current assets............................ 9,381,953 2,276,834
------------ -------------
Property and equipment, net..................... 388,773 181,765
------------ -------------
Investments
Investment in HEP II at equity - related party 100,000 100,000
Investment in Grand Havana at fair value-related
party........................................ 135,913 101,500
------------ -------------
Total investments............................... 235,913 201,500
------------ -------------
Other Assets
Loan receivable from Grand Havana - related party 812,013 779,680
Loans receivable from other - related party.. 71,387 46,387
Patent costs ................................ 147,208 -
Capitalized development costs................ 238,085 -
Due from former officer...................... 6,250 81,027
Deposits and other assets.................... 82,648 61,689
------------ -------------
Total other assets.............................. 1,357,591 968,783
============ =============
$11,364,230 $3,628,882
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses........ $ 671,997 $ 751,976
Due to related parties....................... 71,529 141,774
Deferred revenues............................ 7,214 235,923
Deposits and other........................... 2,912 2,612
------------ -------------
Total current liabilities....................... 753,652 1,132,285
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 -
19,681,827 shares in 2000 and 16,146,868
shares in 1999............................. 196,818 161,468
Additional paid-in capital................... 37,574,384 26,892,688
Accumulated deficit.......................... (27,257,871) (24,620,392)
Accumulated other comprehensive income -
unrealized gain on investment.............. 97,247 62,833
------------ -------------
Total stockholders' equity...................... 10,610,578 2,496,597
============ =============
$11,364,230 $3,628,882
============ =============
</TABLE>
See accompanying notes to condensed consolidated unaudited financial statements
1
<PAGE>
UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ -------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenue
Recreational and corporate activities......... $ 208,776 $ 282,097 $ 477,510 $ 601,540
Licensing fees................................ 1,567 200,000 701,567 200,000
----------- ----------- ------------ ------------
Total Revenue.................................... 210,343 482,097 1,179,077 801,540
Expenses
Direct operating expenses..................... 522,944 673,843 1,877,184 1,224,860
Selling, general and administrative expenses.. 1,068,862 492,400 2,085,442 890,072
Non-cash compensation expense................. 384,201 203,512 615,260 237,700
Depreciation and amortization................. 16,091 40,989 27,303 85,827
------------- ---------- ------------ ------------
Total expenses................................... 1,992,098 1,410,744 4,605,189 2,438,459
------------- ---------- ------------ ------------
Loss before other income (expense)............... (1,781,755) (928,647) (3,426,112) (1,636,919)
Other income (expense)
Litigation settlement......................... - (185,000) (5,000) (185,000)
Equity in net loss of United Hotel............ - (96,476) - (46,335)
Equity in net loss of Netcruise............... - - - (210,133)
Gain on sale of investment in Netcruise....... 600,000 - 600,000 -
Interest income............................... 160,513 41,806 239,853 80,001
Interest expense.............................. (34,434) (96,766) (69,790) (212,501)
Other, net.................................... 11,110 30,810 23,571 (34,971)
----------- ----------- ----------- -----------
Total other income (expense)..................... 737,189 (305,626) 788,634 (608,939)
----------- ----------- ----------- -----------
Net loss......................................... (1,044,566) (1,234,273) (2,637,478) (2,245,858)
Other comprehensive income
Unrealized holding gain on securities arising
during the period............................. 19,913 - 34,413 -
============ =========== ============ ============
Comprehensive loss............................... $(1,024,653) $(1,234,273) $(2,603,065) $(2,245,85)
============ ============ ============ ============
Weighted average number of common
shares outstanding.............................. 19,595,841 15,525,854 19,047,188 14,462,851
============ ============ ============ =============
Basic and diluted loss per share................ $(0.05) $(0.08) $(0.14) $(0.16)
============ ============ ============ =============
</TABLE>
See accompanying notes to condensed consolidated unaudited financial statements.
2
<PAGE>
UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
JUNE 30, JUNE 30,
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss............................................... $(2,637,478) $(2,245,858)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization..................... 11,212 85,827
Loss on termination of lease...................... - 45,333
Fair value of options and warrants granted to
non-employees................................... 615,260 237,700
Equity in net loss of United Hotel................ - 46,335
Equity in net loss of Netcruise................... - 210,133
Accrual of interest income from related parties... (32,333) (24,717)
Changes in operating assets and liabilities:
Receivables....................................... 10,091 19,765
Deferred production cost.......................... 115,027 -
Patent costs...................................... (147,208) -
Prepaid expenses and other current assets......... (11,629) 31,470
Deposits.......................................... (20,659) (3,041)
Accrued interest.................................. - 148,347
Accounts payable and accrued expenses............. (79,979) 66,385
Accrued expenses due to related parties........... 74,777 60,000
Deferred revenues................................. (228,709) 86,465
Litigation settlement............................. - 185,000
------------- -------------
Net cash used in operating activities.................. (2,331,628) (1,050,856)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment.................... (218,220) (37,257)
Loans receivable from Grand Havana..................... - (75,000)
Advances to related party.............................. (25,000) (87,636)
Payments of advances from related party................ (70,245) -
Development costs...................................... (238,085) -
Deposits and other..................................... - (10,156)
------------- -------------
Net cash used in investing activities.................. (551,550) (210,049)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock..................... 5,701,949 1,500,000
Common stock issued for warrants and options exercised. 4,399,837 186,300
------------- -------------
Net cash provided by financing activities.............. 10,101,786 1,686,300
------------- -------------
Net increase in cash and cash equivalents.............. 7,218,608 425,395
Cash and cash equivalents, beginning of period......... 1,998,059 799,369
------------- -------------
Cash and equivalents, end of period.................... $9,216,667 $1,224,764
------------- -------------
</TABLE>
See accompanying notes to condensed consolidated unaudited financial statements.
3
<PAGE>
UNITED LEISURE CORPORATION
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2000
1. BASIS OF PRESENTATION
The interim condensed consolidated unaudited financial statements presented have
been prepared by United Leisure Corporation (the "Company" or "ULC") without
audit and, in the opinion of management, reflect all adjustments of a normal
recurring nature necessary for a fair presentation of (a) the consolidated
results of operations for the three and six months ended June 30, 2000 and 1999,
(b) the consolidated financial position at June 30, 2000 and December 31, 1999,
and (c) the consolidated cash flows for the six months ended June 30, 2000 and
1999. The results of operations for the interim periods are not necessarily
indicative of results for the full year. The consolidated balance sheet of the
Company at December 31, 1999 was derived from the audited consolidated balance
sheet at that date. The condensed consolidated unaudited financial statements
and notes are condensed as permitted by Form 10-QSB and do not contain certain
information included in the annual financial statements and notes of the
Company. The condensed consolidated unaudited financial statements and notes
included herein should be read in conjunction with the financial statements and
notes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1999.
2. STOCKHOLDERS' EQUITY
In January 2000, the Company sold a total of 2,240,000 shares of its common
stock for a total consideration of $5,600,000, or $2.50 per share, to five
accredited investors. The offer and sale of the shares was exempt from the
registration provisions of the Securities Act of 1933, as amended (the "Act"),
pursuant to Section 4(2) of the Act. No general forms of advertising were used
in connection with the issuance of the shares. The purchasers acquired the
shares for their own account. Each purchaser was, prior to the sale of the
Company's securities, fully informed and advised about such matters concerning
the Company as its business, financial affairs and other matters.
From February 2000 to March 2000, options and warrants to purchase a total of
195,000 shares of common stock of the Company were exercised at prices ranging
from $0.23 to $1.50 per share for a total of $126,950. The options and warrants
were granted in 1999 to employees of the Company and to certain third parties in
connection with certain services rendered by them to the Company. The issuance
of shares of common stock upon exercise of the options and warrants was exempt
from the registration provisions of the Act pursuant to Section 4(2) thereof.
The option and warrant holders acquired the shares for their own account.
During the three months ended June 30, 2000, 1,099,959 Class A Warrants were
exercised at an exercise price of $4.00 each, resulting in proceeds of
$4,399,836 to the Company.
In November 1999 and January 2000, the Company's subsidiary, United Internet
Technologies, Inc. ("UIT"), granted options to purchase 4,250,000 shares and
665,000 shares, respectively, of its common stock to employees, officers and a
member of the advisory board of UIT. Additionally, in May and June 2000, UIT
granted options to purchase 1,302,500 shares of its common stock to employees
and members of the advisory board of UIT.
3. LITIGATION
The Company and UIT are parties to two patent infringement lawsuits, both
involving Hyperlock Technologies, Inc. In the first action, Case No. 99C3776,
filed on June 7, 1999 by Hyperlock in the Northern District of Illinois,
Hyperlock has alleged infringement by UIT of U.S. Patents Nos. 5,892,825 and
5,937,164. In the second action, originally filed by UIT on February 7, 2000 in
the Central District of California, UIT has alleged infringement by Hyperlock
and Broadbridge Media, LLC of UIT's U.S. Patent No. 5,996,000. The California
case has been transferred to the Northern District of Illinois, and has been
consolidated with the earlier filed Illinois case. On June 28, 2000, in response
to representations made by Broadbridge's counsel, the court dismissed Count I of
the complaint against UIT (alleging infringement by UIT of U.S. Patent No.
5,892,825) without prejudice.
4
<PAGE>
UNITED LEISURE CORPORATION NOTES TO CONDENSED
CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS JUNE 30, 2000
4. SEGMENT INFORMATION
The Company operates in two business segments: developing and licensing Internet
technology and Recreational and corporate activities. Recreational and corporate
activities consist of summer day camps and children's play-learning centers
known as Planet Kids. Segment operating loss is defined as total segment revenue
reduced by operating expenses identifiable to that business segment. Corporate
expenses include general corporate administrative costs. The accounting policies
of the reportable segments are the same as those described in the summary of
significant accounting policies. There are no intersegment sales.
<TABLE>
<CAPTION>
INTERNET RECREATIONAL
TECHNOLOGY AND CORPORATE CONSOLIDATED
---------- ------------- -------------
<S> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 2000
------------------------------
Revenue........................................ $ 701,567 $ 477,510 $ 1,179,077
Direct Operating Expense....................... (1,208,061) (669,123) (1,877,184)
Selling, General and Administrative Expense.... (1,610,793) (474,649) (2,085,442)
Non-Cash Compensation Expense.................. (615,260) - (615,260)
Loss from operations........................... (2,027,515) (609,963) (2,637,478)
Assets......................................... 8,089,966 3,274,264 11,364,230
SIX MONTHS ENDED JUNE 30, 1999
------------------------------
Revenue........................................ 200,000 601,540 801,540
Direct Operating Expense....................... 426,199 798,661 1,224,860
Selling, General and Administrative Expense.... 211,219 678,853 890,072
Non-Cash Compensation Expense.................. 237,700 - 237,700
Loss from operations........................... (617,290) (1,628,568) (2,245,858)
Assets......................................... 142,871 8,399,359 8,542,230
</TABLE>
5. INVESTMENT IN AND LOAN RECEIVABLE FROM GRAND HAVANA
On June 30, 2000, the quoted market value of the Company's investment in Grand
Havana was $135,913. The Company recorded changes in the market value in Other
Comprehensive Income. The valuation represents a mathematical calculation based
on the closing quotation published by the OTC Bulletin Board for the common
stock of Grand Havana and is not necessarily indicative of the amount that could
be realized upon sale.
An additional $16,373 in Loan Receivable from Grand Havana represents accrued
interest income for the three months ended June 30, 2000.
6. DUE FROM FORMER OFFICER
Changes in Due from Former Officer represent net changes in due to and from
Harry Shuster, which arose from accrued interest income and accrued interest
expense.
7. DUE TO RELATED PARTIES
Changes in Due to Related Parties represent payments to Brian Shuster of $65,000
and additional advances from Grand Havana of $5,729.
5
<PAGE>
UNITED LEISURE CORPORATION
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2000
8. SUBSEQUENT EVENT
In July 2000, UIT formed a European subsidiary, Interactive Internet
Technologies (IIT) GmbH, based in Hamburg, Germany. The subsidiary was funded
with $2 million in equity financing from private German investors. UIT retains a
61.1% share ownership in IIT, the private investors own 33.3% and the European
management of IIT will own the remaining 5.6%.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward looking statements regarding events
and financial trends that may affect the Company's future operating results and
financial position. Such statements can be identified by the use of such words
as "may," "expect," "believe," "anticipate," "intend" and similar expressions.
Such statements involve risks and uncertainties that could cause the Company's
actual results to differ materially. Factors that could cause or contribute to
such differences include, but are not limited to, costs and uncertainties
associated with future developments, concerns regarding the Company's liquidity
and financial condition, regulatory policies, competition from other similar
businesses, and market and general economic factors. The Company undertakes no
obligation to publicly release the result of any revision of these
forward-looking statements to reflect events or circumstances after the date
they are made or to reflect the occurrence of unanticipated events. The
following discussion should be read in conjunction with the Company's condensed
consolidated unaudited financial statements and the notes thereto appearing
elsewhere in this Quarterly Report on Form 10-QSB.
OVERVIEW
Through its subsidiary, United Internet Technologies, Inc. ("UIT"), the Company
is primarily engaged in the business of developing technologies that control and
enable a wide range of devices, such as household and business appliances and
medical monitoring devices to communicate and be controlled over the Internet
and other digital systems, cable, television and wireless networks. The Company
has developed two proprietary technologies: (1) an Intelligent Control
Interactive TechnologyTM (I-C-ITTM) platform and (2) Digitally Integrated Video
OverlayTM ("DIVOTM").
UIT has developed Intelligent Control Interactive Technology(TM) ("I-C-IT(TM)"),
a proprietary platform of hardware and software for networking devices through
various digital delivery systems such as the Internet, cable, television and
wireless networks. Devices empowered with I-C-IT technology become networkable.
This means that these devices can communicate with the user and/or other devices
and be accessed and controlled by the user or other devices from a remote
location. The I-C-IT enabled products are built to function in low bandwidth
environments suitable for consumer markets. Management's intention is to expand
the I-C-IT platform by developing new applications for different industry
sectors serving specific business needs.
Digitally Integrated Video Overlay(TM) (DIVO(TM)) is a technology that allows
high-quality video to be delivered over the Internet while connected with a
standard dial-up telephone line. DIVO files are activated by a server that can
instruct any computer's CD-ROM or DVD-ROM drive and have it activate video files
that have been locally stored on a CD-ROM or DVD-ROM. This process integrates
video material into a website. Once the DIVO software has been downloaded to the
personal computer, the video content can be updated by passive download or
through the distribution of additional CD-ROMs/DVDs. DIVO technology enhances
the web presentation experience and management believes that it is suitable for
the entertainment, travel, shopping, corporate and educational markets.
To date, the Company has generally licensed the DIVO technology to large
customers as part of turnkey projects custom-designed for each individual
customer. For instance, the Company has licensed an application of the DIVO
technology for television to NBC, an application of the technology for wrestling
and related activities to World Championship Wrestling, Inc. ("WCW") and
travel-related applications of the technology to Netcrusie.com, Inc. (formerly
known as Genisys Reservation Systems, Inc.). The Company currently intends to
begin offering a licensable software version of its DIVO technology in the third
quarter of 2000.
Before February 1997, the Company's primary business was to act as a developer
and manager of facilities for recreational and corporate activities. As part of
the Company's decision to reorient its business to developing and licensing its
technology, it closed some of these facilities. In August 1999, the Company sold
real property located in El Cajon, California, which was previously used for
some of its recreational and corporate activities. In October 1999, the Company
sold its real estate holdings in Las Vegas, Nevada.
7
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1999
Revenues
The Company had total revenues of $210,343 for the quarter ended June 30,
2000, compared to total revenues of $482,097 for the quarter ended June 30,
1999, a decrease of $271,754 or approximately 56%. This decrease resulted from
an approximately 26% decrease in revenue from recreational and corporate
activities and from a 99% decrease in licensing revenue which resulted from the
Company's decision to refocus its DIVO(TM) technology licensing strategy from
providing customized turnkey licensing projects to creating a licensable
software product. Management determined to focus its efforts on technology
development and move away from inclusive turnkey web management projects for
individual customers. Management believes that the development of licensable
versions of its DIVO(TM) technologies will lead to higher margin product and
service offerings. Turnkey licensing efforts were reduced while the Company
focused its efforts on developing its new licensable software application. The
Company currently plans to begin offering a licensable software version of its
DIVO technology in the third quarter of 2000.
LICENSING FEES. Revenues from licensing fees were $1,567 for the quarter
ended June 30, 2000, compared to $200,000 for the quarter ended June 30, 1999, a
decrease of $198,433. The decrease in licensing revenue is attributable to the
Company's decision to refocus its DIVO(TM) technology licensing strategy from
providing turnkey licensing projects to creating a licensable software product.
The Company currently plans to begin offering a licensable software version of
its DIVO technology in the third quarter of 2000.
RECREATIONAL AND CORPORATE ACTIVITIES. Revenues from recreational and
corporate activities were $208,776 for the quarter ended June 30, 2000 compared
to $282,097 for the quarter ended June 30, 1999, a decrease of $73,321 or
approximately 26%. This is the result of the Company reorienting its business to
focus on its Internet technology while moving away from its historical emphasis
on recreational and corporate activities. The Company expects its revenue from
recreational and corporate activities to continue to decline in future periods.
Operating Expenses
Operating expenses were $1,992,098 for the quarter ended June 30, 2000
compared to $1,410,744 for the quarter ended June 30, 1999 an increase of
$581,354, or approximately 41%. Of this increase, $384,201 is due to a non-cash
compensation charge related to options to purchase shares of UIT common stock
granted to members of UIT's advisory board. The Company also had increased
expenses in connection with the development of the I-C-IT technology platform,
increased marketing expenditures related to UIT's DIVO technology, and increased
personnel costs as a result of a significant build-up of employees in the
Internet technology business, as well as increased legal and consulting fees in
connection with the establishment of a new corporate and operational framework
for the business.
DIRECT OPERATING EXPENSES. Direct operating expenses were $522,944 for the
quarter ended June 30, 2000 compared to $673,843 for the quarter ended June 30,
1999 a decrease of $150,894 or approximately 22%. This decrease is primarily due
to decreased expenses from recreational and corporate activities offset by
increased expenditures incurred in connection with the build-up of the Company's
Internet business described above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $1,068,862 for the quarter ended June 30, 2000
compared to $492,400 for the quarter ended June 30, 1999 an increase of $576,462
or approximately 117%. This increase was primarily due to increased expenses in
connection with the development of the I-C-IT technology platform, increased
marketing expenditures related to the DIVO(TM) technology and increased
personnel costs as a result of the build-up of employees in the Internet
technology business.
8
<PAGE>
NON-CASH COMPENSATION EXPENSES. Non-cash compensation expenses were
$384,201 for the quarter ended June 30, 2000 compared to $203,512 for the
quarter ended June 30, 1999 an increase of $180,689 or approximately 89%. This
increase was due to options to purchase shares of UIT common stock granted to
members of UIT's advisory board.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were
$16,091 for the quarter ended June 30, 2000 compared to $40,989 for the quarter
ended June 30, 1999 a decrease of $24,898 or approximately 61%. This decrease
was due to a reduced depreciable asset base in connection with discontinued
operations from recreational and corporate activities.
Other Income
Other income consists of interest income, interest expense, gain on sale,
and litigation settlement. During the quarter ended June 30, 2000, other income
was $737,189 compared to other expense of $305,626 for the quarter ended June
30, 1999, an increase of $1,042,815. This increase was primarily due to the gain
of $600,000 during the quarter ended June 30, 2000 on the sale of the Company's
investment in Netcruise.com, Inc (formerly known as Genisys Reservation Systems,
Inc.) UIT received the Netcruise.com, Inc. shares as compensation for the
licensing of its technology in a prior year. The remainder of the increase in
other income resulted from an increase in interest income of $118,707.
Net Loss
For the reasons stated above, for the quarter ended June 30, 2000, the
Company had a net loss of ($1,044,566) or ($0.05) per share as compared to a net
loss of ($1,234,273) or ($0.08) per share for the quarter ended June 30, 1999.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO
SIX MONTHS ENDED JUNE 30, 1999
Revenues
The Company had total revenues of $1,179,077 for the six months ended June
30, 2000, compared to total revenues of $801,540 for the six months ended June
30, 1999, an increase of $377,537 or approximately 47%. This increase resulted
primarily from $700,000 in revenues generated in the first quarter of 2000
pursuant to licensing agreements related to interactive CD-ROMs utilizing the
Company's DIVO technology which were created for Teen People Magazine and for
Nordstrom, Inc.
LICENSING FEES. Revenues from licensing fees were $701,567 for the six
months ended June 30, 2000, compared to $200,000 for the six months ended June
30, 1999, an increase of $501,567 or approximately 251%. The increase in
licensing revenue is primarily from $700,000 in revenues generated in the first
quarter of 2000 pursuant to licensing agreements related to interactive CD-ROMs
utilizing the Company's DIVO technology, which were created by the Company for
Teen People Magazine and Nordstrom, Inc. Licensing revenues decreased
significantly during the second quarter of 2000. This decrease in licensing
revenue is attributable to the Company's decision to refocus it's DIVO(TM)
technology licensing strategy from providing customized turnkey licensing
projects for individual customers to development of a licensable software
product. The Company currently plans to begin offering a licensable software
version of its DIVO technology in the third quarter of 2000.
RECREATIONAL AND CORPORATE ACTIVITIES. Revenue from recreational and
corporate activities for the six months ended June 30, 2000 were $477,510
compared to $601,540 for the six months ended June 30, 1999 a decrease of
$124,030 or approximately 21%. This is the result of the Company reorienting its
business to focus on its Internet technology while moving away from its
historical emphasis on recreational and corporate activities, the Company
expects its revenue from recreational and corporate activities to continue to
decline in future periods.
9
<PAGE>
Operating Expenses
Total operating expenses increased to $4,605,189 for the six months ended
June 30, 2000, from $2,438,459 for the six months ended June 30, 1999, an
increase of $2,116,730 or approximately 89%. Of this increase, $615,260 is due
to a non-cash compensation charge related to options to purchase shares of UIT
common stock granted to members of UIT's advisory board. The balance of the
increase was primarily due to the increase in expenses incurred in connection
with the refocusing of the Company's Internet technology licensing strategy and
development of the I-C-IT technology platform, increased marketing expenditures
related to UIT's DIVO technology, and increased personnel costs as a result of a
significant build-up of employees in the Internet technology business, as well
as increased legal and consulting fees in connection with the build-up of the
Company and the establishment of a new corporate and operational framework for
the business.
DIRECT OPERATING EXPENSES. Direct operating expenses were $1,877,184 for
the six months ended June 30, 2000 compared to $1,224,860 for the six months
ended June 30, 1999 an increase of $652,324 or approximately 53%. This increase
is primarily due to expenses incurred in connection with the Teen People
Magazine project in the first quarter of 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $2,085,442 for the six months ended June 30, 2000
compared to $890,072 for the six months ended June 30, 1999, $1,195,370 or
approximately 134%. This increase was primarily due to increased expenses in
connection with the development of the I-C-IT technology platform, increased
marketing expenditures related to the DIVO(TM) technology and increased
personnel costs as a result of a build-up of employees in the Internet
technology business.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were
$27,303 for the six months ended June 30, 2000 compared to $85,827 for the six
months ended June 30, 1999 a decrease of $58,524 or approximately 68%. This
decrease was due to a reduced depreciable asset base in connection with
discontinued operations from recreational and corporate activities.
NON-CASH COMPENSATION EXPENSES. Non-cash compensation expenses were
$615,260 for the six months ended June 30, 2000, compared to $237,700 for the
six months ended June 30, 1999, an increase of $377,560 or approximately 159%.
This increase is due to options to purchase shares of UIT common stock granted
to members of UIT's advisory board.
Other Income
Other income consists of interest income, interest expense, gain on sale,
and litigation settlement. During the six months ended June 30, 2000, other
income was $788,634 compared to other expense of $608,939 for the six months
ended June 30, 1999, an increase of $1,397,573. This increase was primarily due
to the gain of $600,000 during the six months ended June 30, 2000 on the sale of
the Company's investment in Netcruise.com, Inc (formerly known as Genisys
Reservation Systems, Inc.). UIT received the Netcruise.com, Inc. shares as
compensation for the licensing of its technology in a prior year. The remainder
of the increase in other income resulted from an increase in interest income of
$159,852.
Net Loss
For the reasons stated above, for the six months ended June 30, 2000, the
Company had a net loss of ($2,637,478) or ($0.14) per share, compared to a net
loss of $(2,245,858) or ($0.16) per share for the six months ended June 30,
1999.
LIQUIDITY AND FINANCIAL CONDITION
The Company is experiencing operating losses. At June 30, 2000, the
Company had cash and cash equivalents of $9,216,667 and working capital of
$8,628,301, compared to cash and cash equivalents of $1,998,059 and working
10
<PAGE>
capital of $1,144,549 at December 31, 1999, an increase in working capital of
approximately 653%. This increase is primarily due to the increase in cash
generated from issuances of common stock and a reduction in current liabilities
during the six months ended June 30, 2000.
Net cash used in operating activities was $2,331,628 for the six months
ended June 30, 2000 as compared to $1,050,856 for the six months ended June 30,
1999. This increase is primarily due to higher selling, general and
administrative and direct operating expenses in connection with restructuring of
the Company's Internet technology business, development of the I-C-IT technology
platform, increased marketing expenditures related to UIT's DIVO technology,
increased personnel costs related to the build-up of employees in the Internet
technology business and increased legal and consulting expenses.
Net cash used in investing activities was $551,550 for the six months
ended June 30, 2000, compared to $210,049 for the six months ended June 30,
1999. This increase is primarily due to an increase in purchases of equipment,
organizational build up of UIT and capitalized development costs in connection
with the Company's Internet technology business.
Net cash provided by financing activities was $10,101,786 for the six
months ended June 30, 2000, compared to $1,686,300 for the six months ended June
30, 1999. This increase is due to a private placement of the Company's common
stock in January 2000 and to issuances of common stock upon exercise of
outstanding Class A Warrants and stock options.
The Company's future capital requirements will depend on various factors
including:
1. The number of applications using the Company's technology that the
Company determines to develop; and
2. United Internet's need to hire additional technical and marketing
personnel.
If the Company is unable to raise additional funds when needed, through
the private placement of its securities, it may seek financing from affiliated
or unaffiliated third parties. There can be no assurance, however, that such
financing would be available to the Company when and if it is needed, or that if
it is available, that it will be available on terms acceptable to the Company.
If the Company is unable to sell its securities or obtain financing to meet its
working capital needs, the Company may have to consider such alternatives as
selling or pledging portions of its assets, among other possibilities, in order
to meet such obligations.
The Company believes that its primary sources for cash over the next
twelve months will be its current cash and income from investments, and the
exercise of outstanding warrants. Although the Company believes these sources
will provide the Company with sufficient funds to meet the Company's anticipated
working capital and capital expenditures needs for at least the next 12 months,
there can be no assurance that this will be the case. With respect to the
warrants, there can be no assurance that holders of warrants will exercise in a
sufficient number to generate significant cash for the Company.
The Company wishes to expand its development and marketing capabilities
for its Internet technology. While the continued development of some
applications can be funded from internal sources, more aggressive development
and marketing may require additional financing from either public or private
sources. To accomplish this, the Company may raise additional capital by
borrowing money or through a public or private sale of debt or equity
securities. There can be no assurance, however, that the Company will be able to
acquire additional financing on favorable terms, or at all.
YEAR 2000 COMPLIANCE
The Company did not experience any material business interruption as a
result of the Year 2000 issue. Our own software applications functioned well and
we did not experience any problem with the software applications of our
suppliers and vendors. We will continue to monitor our critical computer
applications throughout the Year 2000 to ensure that any Year 2000 matters that
may arise are addressed promptly.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its wholly-owned subsidiary, United Internet Technologies,
Inc. ("UIT"), are parties in two patent infringement lawsuits, both involving
Hyperlock Technologies, Inc. In the first action, Case No. 99C3776, filed on
June 7, 1999 by Hyperlock in the Northern District of Illinois, Hyperlock has
alleged infringement by UIT of U.S. Patent Nos. 5,892,825 and 5,937,164. In the
second action, originally filed by UIT on February 7, 2000 in the Central
District of California, UIT has alleged infringement by Hyperlock and
Broadbridge Media, LLC of UIT's U.S. Patent No. 5,996,000. The California case
has been transferred to the Northern District of Illinois, and has been
consolidated with the earlier filed Illinois case. On June 28, 2000, in response
to representations made by Broadbridge's counsel, the court dismissed Count I of
the complaint against UIT (alleging infringement by UIT of U.S. Patent No.
5,892,825) without prejudice.
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
Not Applicable.
12
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
UNITED LEISURE CORPORATION,
(Registrant)
August 11, 2000 BY: /S/ BRIAN SHUSTER
---------------------------------
Brian Shuster
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer and
Principal Financial Officer)
13
<PAGE>
EXHIBIT INDEX
NO. DESCRIPTION
-- -----------
27 Financial Data Schedule
14
