-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DzBofmVi8dx6MrWxiG+RCGvh/7tVKEkVzsAdOJYVay62b/P1LvKVErMO2ywLpxAw pgGRWApCzZAdDzxeitgyEQ== 0000944209-99-001776.txt : 19991117 0000944209-99-001776.hdr.sgml : 19991117 ACCESSION NUMBER: 0000944209-99-001776 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED LEISURE CORP CENTRAL INDEX KEY: 0000059684 STANDARD INDUSTRIAL CLASSIFICATION: LESSORS OF REAL PROPERTY, NEC [6519] IRS NUMBER: 132652243 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-06106 FILM NUMBER: 99753564 BUSINESS ADDRESS: STREET 1: 18081 MAGNOLIA AVENUE CITY: FOUNTAIN VALLEY STATE: CA ZIP: 92708 BUSINESS PHONE: 7143788761 MAIL ADDRESS: STREET 1: 18081 MAGNOLIA AVENUE CITY: FOUTAIN VALLEY STATE: CA ZIP: 92708 FORMER COMPANY: FORMER CONFORMED NAME: LION COUNTRY SAFARI INC DATE OF NAME CHANGE: 19870330 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL LEISURE INC DATE OF NAME CHANGE: 19720407 10QSB 1 FORM 10-Q SMALL BUSINESS ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------- Form 10-QSB ----------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 0-6106 ----------- UNITED LEISURE CORPORATION (Exact name of registrant as specified in its charter) ----------- Delaware 13-2652243 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1990 Westwood Boulevard 90025 Los Angeles, California (Zip Code) (Address of Principal Executive Offices)
(Registrant's telephone number, including area code) (310) 441-0900 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] The number of shares of Common Stock, $.01 par value, outstanding (the only class of common stock of the Company outstanding) was 16,515,868 on November 10, 1999. Transitional Small Business Disclosure Format (Check one): Yes [_] No [X] ================================================================================ UNITED LEISURE CORPORATION AND SUBSIDIARIES Quarter Ended September 30, 1999 TABLE OF CONTENTS
Page ---- PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (Unaudited) 3 Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998 3 Consolidated Statements of Operation and Comprehensive Income (Loss) for the Three Months Ended September 30, 1999 and 1998 and the Nine Months Ended September 30, 1999 and 1998 4 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 1998 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds 11 Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURE 13
2 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements UNITED LEISURE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30 December 31, 1999 1998 ------------ ------------ (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 502,822 $ 799,369 Receivables 35,962 53,153 Prepaid expenses and other current assets 111,232 78,082 ------------ ------------ TOTAL CURRENT ASSETS 650,015 930,604 ------------ ------------ PROPERTY AND EQUIPMENT, NET 161,611 384,984 ------------ ------------ INVESTMENTS Investment in United Hotel at equity - related party 3,148,521 3,432,452 Investment in HEP II at equity - related party 700,000 700,000 Investment in Genisys at equity - related party - 210,133 Investment in Grand Havana at fair value - related party 38,667 38,667 ------------ ------------ TOTAL INVESTMENTS 3,887,188 4,381,252 ------------ ------------ OTHER ASSETS Loan receivable from Grand Havana - related party 732,771 619,298 Due from former officer 243,937 332,627 Assets held for sale - 1,663,857 Deposits and other assets 68,172 78,929 ------------ ------------ 1,044,879 2,694,711 ------------ ------------ $ 5,743,693 $ 8,391,551 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 1,900,000 $ 1,900,000 Accrued interest 386,370 406,808 Accounts payable and accrued expenses 1,106,541 478,785 Due to related parties 170,949 107,535 Deferred revenues 36,948 28,060 Litigation Settlement 176,842 - Deposits and other 2,612 5,652 ------------ ------------ TOTAL CURRENT LIABILITIES 3,780,262 2,926,840 LONG-TERM DEBT - 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 - 16,085,854 shares at September 30, 1999 and 13,918,849 shares at December 31, 1998 159,358 139,188 Additional paid-in capital 26,825,998 24,844,168 Accumulated deficit (25,021,925) (20,438,645) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 1,963,431 4,544,711 ------------ ------------ $ 5,743,693 $ 8,391,551 ============ ============
See accompanying Notes to Consolidated Financial Statements. 3 UNITED LEISURE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Three Months Ended Nine Months Ended ------------------------------- --------------------------------- September 30, September 30, September 30, September 30, 1999 1998 1999 1998 ------------- ------------- ------------- ------------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) REVENUE Licensing fees $ - $ - $ 200,000 $ 410,817 Children's recreational activities 150,037 816,438 751,577 1,747,931 ----------- ----------- ----------- ----------- TOTAL REVENUE 150,037 816,438 951,577 2,158,748 EXPENSES Direct operating expenses 1,261,008 954,059 2,778,899 2,387,640 Selling, general and administrative expenses 277,037 233,348 1,051,778 534,589 Depreciation and amortization 24,302 42,387 110,129 127,901 ----------- ----------- ----------- ----------- 1,562,347 1,229,794 3,940,806 3,050,130 ----------- ----------- ----------- ----------- LOSS BEFORE OTHER INCOME (EXPENSE) (1,412,310) (413,356) (2,989,229) (891,382) OTHER INCOME (EXPENSE) Litigation settlement - 4,043,020 (185,000) 4,043,020 Legal costs 12,544 (340,190) 12,544 (590,640) Equity in net income (loss) of United Hotel (87,597) (61,000) (133,932) (176,000) Equity in net loss of Genisys - - (210,133) - Realized loss from write-down of investment in Grand Havana - - - (946,131) Loss on sale of assets (705,265) (705,265) Interest income (80,001) 40,243 - 108,951 Interest expense (157,961) (97,081) (370,462) (288,306) Other, net 33,168 18,525 (1,803) 45,318 ----------- ----------- ----------- ----------- TOTAL OTHER INCOME (EXPENSE) (985,112) 3,603,517 (1,594,051) 2,196,212 ----------- ----------- ----------- ----------- NET LOSS (2,397,422) 3,190,161 (4,583,280) 1,304,830 ----------- ----------- ----------- ----------- 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 $(2,397,422) $ 3,190,161 $(4,583,280) $ 2,047,236 =========== =========== =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 14,842,186 13,918,000 15,600,854 13,508,000 =========== =========== =========== =========== BASIC AND DILUTED EARNING (LOSS) PER SHARE $ (0.16) $ 0.23 $ (0.29) $ 0.10 =========== =========== =========== ===========
See accompanying Notes to Consolidated Financial Statements. 4 UNITED LEISURE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended -------------------------------------- September 30, September 30, 1999 1998 ------------- ------------- (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(4,583,280) $1,304,830 Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 110,129 127,901 Loss on termination of lease 45,333 - Issuance of common stock for services - 118,300 Fair value of options granted to non-employees 237,700 - Write-down of investment in Grand Havana - 946,131 Loss on sale of assets 705,265 Licensing fees - (410,817) Equity in net loss of United Hotel (87,597) 176,000 Equity in net loss of Genisys 210,133 - Accrual of interest income from related parties - 93,878 Changes in operating assets and liabilities: Receivables 17,191 11,364 Prepaid expenses and other current assets (33,150) (52,125) Deposits - (1,335) Accrued interest (20,438) - Accounts payable and accrued expenses 627,756 (561,018) Accrued expenses due to related parties 63,414 (255,657) Litigation settlement 176,842 Deposits and other liabilities (3,041) - Deferred revenues 8,888 8,081 ----------- ---------- NET CASH USED IN OPERATING ACTIVITIES (2,524,853) 1,505,533 ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (65,584) (49,706) Distribution from United Hotel 371,528 Loans receivable from Grand Havana (113,473) - Advances to former officer, net 88,690 - Collection of loan receivable from Grand Havana - - Collections from disposition of assets held for sale and fixed assets 1,092,088 Deposits and other 10,757 (58,519) ----------- ---------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,384,007 (108,225) ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Sale of common stock 1,500,000 229,680 Notes payable - (25,000) Payment on long term debt (842,000) Common stock issued for warrants and options exercised 186,300 - ----------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES 844,300 204,680 ----------- ---------- NET DECREASE IN CASH AND CASH EQUIVALENTS (296,547) 1,601,988 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 799,369 152,770 ----------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 502,822 $1,754,758 =========== ==========
See accompanying Notes to Consolidated Financial Statements. 5 UNITED LEISURE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 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 nine months ended September 30, 1999 and 1998, (b) the consolidated financial position at September 30, 1999 and (c) the consolidated cash flows for the nine months ended September 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 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. 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. 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 recorded a liability on its books for the remaining outstanding balance of $285,000. The Company further agreed to include the MGI Shares in a registration statement which the Company filed with the Securities and Exchange Commission on September 1, 1999 for the benefit of certain selling stockholders (the "Selling Stockholders' Registration Statement"). The Company has agreed to make further payments to MGI under the MGI Agreement until the full $380,000 is paid. The Company has the right to have the MGI Shares returned to the Company 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. During the quarter ended September 30, 1999, 150,000 shares of the Company's Common Stock subject to a repurchase agreement were recorded as equity when the repurchase requirement lapsed. 6 UNITED LEISURE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 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." On October 14, 1999, Hyperlock amended its complaint to allege the infringement of an additional patent. 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. SUBSEQUENT EVENT In October, 1999, the Company received approximately $3,000,000 as the result of the distribution from its investment in Hotel and Casino. This distribution resulted from the sale of the real estate in Hotel and Casino. 7 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 consolidated financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-QSB. OVERVIEW Through its wholly owned subsidiary, United Internet Technologies, Inc. ("United Internet"), the Company is primarily engaged in the business of developing and licensing proprietary Internet technology and sites on the World Wide Web that incorporate the Company's technology. The Company has developed two proprietary technologies: (1) Parallel Addressing Technology and (2) Dynamic Integrated Video Overlay. The use of this technology is primarily licensed to others for their use. The Company has 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. The Company's 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. The Company intends to pursue licensing agreements with others and may also develop its own Web sites. Before February 1997, the Company's primary business was to act as a developer and manager of facilities for children's recreational activities. As part of the Company's decision to reorient its business to developing and licensing its technology, it closed some of its facilities and intends to dispose of others. In August 1999, the Company sold real property located in El Cajon, California which was previously used for some of its children's recreational activities. In October 1999, the Company sold its real estate holdings in Las Vegas. As a result of the reduced operations of the Company's children's recreational activities, it had significantly fewer employees through the third quarter of 1999. Results of Operations Three Months Ended September 30, 1999 Compared to Three Months Ended September 30, 1998. The Company had total revenue of $150,037 in the quarter ended September 30, 1999, compared to total revenue of $816,438 for the quarter ended September 30, 1998, a decrease of $666,401 or approximately 81.6%. This decrease results primarily from lower revenue from children's recreational activities, due primarily to a decline in admissions at the Company's three Planet Kids locations, as well as the fact that Frasier's Frontier amusement park and Camp Frasier facilities did not operate at all during 1999. All of the Company's revenue in the quarter ended September 30, 1999 was provided by Planet Kids centers. Because the Company has reoriented its business to focus on its Internet technology and move away from its historical emphasis on children's recreational activities, the company expects its revenue from children's recreational activities to continue to decline in future periods. There were no licensing fees received in the quarter ended September 30, 1999. Total operating expenses increased from $1,229,794 for the quarter ended September 30, 1998 to $1,562,347 for the quarter ended September 30, 1999, an increase of $332,553 or approximately 27%. This increase was due primarily to increases in operating expenses of United Internet, including salaries and consulting fees for management and 8 programmers and promoting the Company's technology. This increase was partially offset by decreased expenses for personnel related to the Company's remaining children's recreational facilities. For the quarter ended September 30, 1999, the Company had a net loss of $(2,397,422) or $(.16) per share as compared to net income of $3,190,161 or $.23 per share for the quarter ended September 30, 1998. This decrease in net income is primarily a result of the receipt by the Company of approximately $4 million in settlement of litigation that the Company recorded in the third quarter of 1998. Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30, 1998. The Company had total revenue of $951,577 in the nine-month period ended September 30, 1999, compared to total revenue of $2,158,748 for the nine-month period ended September 30, 1998, a decrease of $1,207,171 or approximately 55.9%. This decrease results primarily from a decrease in revenue from children's recreational activities partially offset by licensing fees received from the licensing of the Company's interactive technology to WCW in connection with its wrestling Web site. Total operating expenses increased from $3,050,130 for the nine-month period ended September 30, 1998 to $3,940,806 for the nine-month period ended September 30, 1999, an increase of $890,676 or approximately 29.2%. This increase was due to increases in direct operating expenses, primarily those associated with United Internet, including salaries and consulting fees for management and programmers and promoting the Company's technology. For the nine months ended September 30, 1999, the Company had a net loss of $(4,583,280) or $(.29) per share, as compared to net income of $2,047,236 or $.10 per share for the nine months ended September 30, 1998, a decrease of $6,630,516. This decrease of $6,630,516 is a result of the loss of approximately $705,000 on the sale of assets, a decrease in revenue from licensing fees compared to the comparable nine-month period in 1998 and a decrease in revenue from children's recreational activities. In addition, the Company received a payment of approximately $4 million in settlement of litigation in the comparable nine-month period in 1998. Liquidity and Financial Condition The Company has experienced operating losses in recent years. For the three months ended September 30, 1999, the Company had cash and cash equivalents of $502,821 and a working capital deficit of $3,130,247. 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 wants to develop; 2. United Internet's need to hire additional technical and marketing personnel; and 3. The length of time that it takes the Company to dispose of its remaining children's recreational facilities and the manner of disposition. Effective at the close of business on December 31, 1998, the Company's Common Stock was delisted from The Nasdaq Stock Market because it did not meet the minimum bid requirement for continued listing on the Nasdaq SmallCap Market. The Company's Common Stock is now listed on the OTC Bulletin Board which may make it more difficult for the Company to offer and sell its securities to prospective investors. If the Company is unable to raise additional funds, when needed, through the private placement of its securities, it may seek financing from affiliated or unaffiliated third parties. There can be no assurance, however, that such financing would be available to the Company when and if it is needed, or that if it is available, that it will be available on terms acceptable to the Company. If the Company is unable to sell its securities or obtain financing to meet its working capital needs and to repay indebtedness as it becomes due, the Company may have to consider such alternatives as selling or pledging portions of its assets, among other possibilities, in order to meet such obligations. 9 As of September 30, 1999, investments in and loans to affiliated companies, Grand Havana Enterprises, Inc., a Delaware corporation ("Grand Havana"), HEP II, L.P., a California limited partnership ("HEP II") and United Hotel & Casino, L.L.C., a Delaware limited liability company, totaled approximately $3,887,188 or approximately 66.5% of total assets. Grand Havana and HEP II have substantial losses and working capital deficits, creating potential liquidity risks for the Company. If these losses continue, a substantial portion of the Company's net worth would be impaired or at risk. Although management believes that it is more likely than not that the investments in and receivables from related companies are not impaired, the cumulative losses and liquidity problems of the affiliated companies create an inherent risk in these assets. In addition, at September 30, 1999, the Company had a net receivable from Harry Shuster, former President and CEO of the Company, of approximately $244,000. The Company expects that its primary sources for cash over the next twelve months will be its current cash and income investments, repayment of amounts previously advanced by the Company to Grand Havana and proceeds from the recently completed sales of its property in El Cajon, California and Las Vegas. After repayment of a $1.9 million note payable to Westminster Capital, Inc., the Company realized in excess of $3 million from the October 1999 sale of its real estate holdings in Las Vegas. 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. The Company wishes to expand its development and marketing capabilities for its 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 has a Year 2000 project designed to identify and assess the risks associated with its information systems, operations, infrastructure and technology products, and customers and suppliers that are not Year 2000 compliant, and to develop, implement, and test remediation and contingency plans to mitigate these risks. The project is comprised of four phases: (1) risk identification, (2) risk assessment, (3) correction and contingency development, and (4) implementation and testing. The Company's Year 2000 project is currently in the implementation and testing phase. The Company believes that the software products currently produced by the Company are Year 2000 compliant, although additional testing is in progress. It is not believed that there will be any adverse effects on the ability to use the interactive products being developed by the Company. In addition, the Company is in the process of obtaining Year 2000 compliance statements from the manufacturers of the Company's hardware and software products. Based on information received from vendors so far, the Company believes that all primary software applications that the Company uses are either Year 2000 compliant or, with upgrades, will be Year 2000 compliant. The costs of the upgrades are not expected to be material. The Company believes that its greatest potential risks are associated with information systems and systems embedded in its operations and infrastructure, as well as its reliance on Year 2000 compliance by the Company's vendors and suppliers of operating systems and software applications. The Company is continuing to assess its operations and infrastructure and cannot yet predict whether significant additional problems will be identified. The Company has not yet determined the full extent of contingency planning that may be required if additional problems are identified. Based on the status of the assessments made and remediation plans developed to date, the Company is not able to state the total cost of remediation of all Year 2000 issues. Costs identified to date have not been material. However, the Company has not yet developed remediations for all problems, developed any contingency plans, or completely implemented or tested any of its remediation plans. 10 Based on the Company's current analysis and assessment of the state of its Year 2000 compliance, the Company's most reasonably likely worst case scenario involves delays in shipping of products by its vendors and suppliers. Such delays could cause the Company to experience delays in delivering its own software products. Specific contingency plans will be formulated after the Company has received information on the status of vendor and supplier Year 2000 compliance. As the Year 2000 project continues, the Company may discover additional Year 2000 problems, may not be able to develop, implement, or test corrections or contingency plans, or may find that the costs of these activities exceed current expectations and become material. In many cases, the Company is relying on assurances from suppliers that new and upgraded information systems and other products will be Year 2000 compliant. The Company plans to test such third- party products, but cannot be sure that its tests will be adequate or that, if problems are identified, they will be addressed in a timely and satisfactory way. Because the Company uses a variety of information systems and has additional systems embedded in its operations and infrastructure, the Company cannot be sure that all its systems will work together in a Year 2000 compliant fashion. Furthermore, the Company cannot be sure that it will not suffer business interruptions, either because of its own Year 2000 problems, or those of its customers or suppliers whose Year 2000 problems may make it difficult or impossible for them to fulfill their commitments to the Company. If the Company fails to satisfactorily resolve Year 2000 issues related to its products in a timely manner, it could be exposed to liability to third parties. The Company is continuing to evaluate Year 2000 related risks and will take such further corrective actions as may be required. PART II. OTHER INFORMATION Item 2. Changes in Securities 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 has recorded a liability on its books for the remaining outstanding balance of $285,000. The Company further agreed to include the MGI Shares in a registration statement which the Company filed with the Securities and Exchange Commission for the benefit of certain selling stockholders (the "Selling Stockholders' Registration Statement") on September 1, 1999. The Company has agreed to make further payments to MGI under the MGI Agreement until the full $380,000 is paid. The Company has the right to have the MGI Shares returned to the Company and to pay the $380,000 in full. If the Company does not so elect, MGI has the right to 11 (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. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27.1 Financial Data Schedule. __________ (1) Form 8-K dated August 11, 1999, and filed with the Commission on August 24, 1999, with respect to the disposition of certain real property located in El Cajon, California pursuant to a Purchase Agreement entered into between the Company and Shih Ching Chiang. (2) Form 8-K dated October 5, 1999, and filed with the Commission on October 6, 1999, with respect to a press release announcing the extension of the expiration date of the Company's Class A Common Stock Purchase Warrants. (3) Form 8-K dated October 21, 1999, and filed with the Commission on October 26, 1999, with respect to a press release reporting the sale of the Company's real estate holdings in Las Vegas. 12 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, a Delaware corporation November 12, 1999 By: /s/ Brian Shuster -------------------------------------- Brian Shuster Chairman of the Board and Chief Executive Officer (Duly Authorized Officer and Principal Financial Officer) 13 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 502,822 0 35,962 0 0 650,015 161,611 0 5,743,693 3,780,262 0 0 0 159,358 1,804,073 5,743,693 951,577 951,577 3,830,677 3,940,806 1,223,589 0 370,462 (4,583,280) 0 (4,583,280) 0 0 0 (4,583,280) (0.29) (0.29)
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