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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                          ANNUAL REPORT ON FORM 10-KSB

           [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 2000

Commission File Number 0-6106

                           UNITED LEISURE CORPORATION
             (Exact name of registrant as specified in its charter)
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                         Delaware                                                      13 - 2652243
(State or other jurisdiction of incorporation or organization)            (I.R.S. Employer Identification No.)
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                      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)
          Securities registered under Section 12(b) of the Act: None

             Securities registered under Section 12(g) of the Act:
                     Common Stock, par value $.01 per share
                               (Title of Class)

Check whether the Issuer (1) 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 [_]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

The Issuer's revenues for the most recent fiscal year were $712,942.

The aggregate market value of the Common Stock of the Registrant held by non-
affiliates of the Registrant on March 30, 2001, based on the closing price of
the Common Stock as quoted on the OTC Bulletin Board on such date, was
approximately $29.3 million.

The number of shares of the Registrant's Common Stock outstanding as of March
30, 2001 was 20,411,375 shares.
                      DOCUMENTS INCORPORATED BY REFERENCE
Transitional Small Business Disclosure Format (Check one): Yes [_] No [X]

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                           UNITED LEISURE CORPORATION

                          ANNUAL REPORT ON FORM 10-KSB

                                     INDEX

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PART I.
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   ITEM 1.         Business...........................................................................................   1

   ITEM 2.         Description of Property............................................................................  11

   ITEM 3.         Legal Proceedings..................................................................................  11

   ITEM 4.         Submission of Matters to a Vote of Security Holders................................................  11

PART II.
--------
   ITEM 5.         Market for Registrant's Common Equity and Related Stockholder Matters..............................  11

   ITEM 6.         Management's Discussion and Analysis of Financial Condition and Results of Operations..............  12

   ITEM 7.         Financial Statements...............................................................................  17

   ITEM 8.         Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...............  17

PART III.
--------
   ITEM 9.         Directors, Executive Officers, Promoters and Control Persons of the Registrant; Compliance with
                   Section 16(a) of the Exchange Act..................................................................  18

   ITEM 10.        Executive Compensation.............................................................................  19

   ITEM 11.        Security Ownership of Certain Beneficial Owners and Management.....................................  21

   ITEM 12.        Certain Relationships and Related Transactions.....................................................  22

   ITEM 13.        Exhibits and Reports on Form 8-K...................................................................  23

Signatures............................................................................................................  26
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PART I

This Annual Report on Form 10-KSB includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended and Section
21E of the Exchange Act of 1934, as amended.  These include, among others, the
statements about United Leisure's plans and strategies under the headings
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."  When used in this document and the documents
incorporated herein by reference, the words "believes," "expects,"
"anticipates," "intends," "plans," "estimates," or similar expressions are
intended to identify, in certain circumstances, forward looking statements.
Forward-looking statements are not guarantees of future performance and are
subject to certain risks, uncertainties, and other factors, some of which are
beyond the Company's control, are difficult to predict and could cause actual
results to differ materially from those expressed in forward-looking statements.
Although it is not possible to itemize all of the factors and specific events
that could affect the outlook of a technology company like ours operating in a
competitive environment, factors that could significantly impact expected
results include: the acceptance of our technology; the effect of national and
local economic conditions; the Company's outstanding indebtedness; the loss of
key employees; competition from technologies developed by other companies; the
ability to attract and retain employees;  and the ability to identify and
consummate relationships with strategic partners, as well as risks set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Factors That Could Impact Future Results." Although United Leisure
believes that its plans, intentions and expectations reflected in or suggested
by such forward looking statements are reasonable, it cannot assure that such
plans, intentions or expectations will be achieved.  Actual results may differ
materially from the forward-looking statements made in this Annual Report on
Form 10-KSB.

ITEM 1. BUSINESS

Overview

Through our subsidiary, United Internet Technologies, Inc. ("UIT"), we are
engaged in the business of developing technologies that allow a wide range of
electronic devices, such as smart toys, medical devices, household and business
appliances, and consumer electronics, to communicate and be controlled over the
Internet and over other digital systems, such as cable, television and wireless
networks.  We have developed two proprietary technologies: (1) Intelligent
Control Interactive Technology(TM) ("I-C-IT(TM)") ("software") and (2) Digitally
Integrated Video Overlay(TM) ("Divo(TM)") ("software").

Our technologies enable businesses to transition their traditional product lines
into the interactive world. Our objective is to create solutions for specific
business sectors by customizing our I-C-IT platform, allowing our technologies
to be embedded in a wide range of electronic devices. Our strategy is to form
relationships with top tier companies to speed the delivery of our technologies
to the market.  Through our technologies, we offer the opportunity to create
best-of-breed "smart" products on a proven technology platform.  We have branded
our I-C-IT platform under the slogan "We Put the Smart in Smart Devices."(TM)

I-C-IT enabled devices serve to drive traffic to Internet portals as the user is
directed to the web site every time the device is used, which helps to establish
a one-to-one relationship between businesses and customers, creating a powerful
tool for community building and a strong platform for subscription revenues.
Thus, by creating unique interactive experiences, I-C-IT technology allows these
businesses to differentiate themselves by offering on-line value added services
to their customers.

Our Solutions

I-C-IT

I-C-IT is 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 I-C-IT enabled devices and be accessed and controlled by the user
or other devices from a remote location.   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.

I-C-IT enabled devices can communicate with the user and/or other I-C-IT enabled
devices and become accessible and controllable from any place in the world
through the Internet, wireless and broadcast networks. I-C-IT enabled devices
can receive commands, transmit data or even become a transmitter of human
communication. The following examples illustrate how I-C-IT technology may be
applied to enable devices:

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 . Transmission of data: For example, a user can measure his or her blood
  pressure with an I-C-IT enabled medical monitoring device at home and transmit
  the results in real-time to a healthcare professional anywhere in the world. A
  healthcare professional can monitor and record a patient's blood pressure
  while the patient is at home and the doctor is at the office.
 . Transmission of human communication: I-C-IT enabled toys take on traits of
  Artificial Intelligence. Toys can communicate with other toys all over the
  world. Users can control I-C-IT enabled toys at home and also instruct other
  I-C-IT enabled toys to move and speak in real-time. The toys become
  transmitters of human communication and behavior.
 . Broadcast communication and control: Users can instruct and control home and
  office appliances remotely from anywhere in the world through the Internet,
  the personal digital assistant (PDA) or cell phone. For example, while
  watching your favorite cooking show on television, I-C-IT technology will send
  instructions, cooking time, and temperature to the oven.

I-C-IT enabled devices create a one-to-one relationship as I-C-IT enabled
devices connect to networks like the Internet for data transmission, control and
communication, driving traffic to specific websites or portals and creating a
powerful tool for community building, essentially driving people to a specific
portal on a regular basis. In addition, by creating unique interactive
experiences, the I-C-IT technology allows these businesses to differentiate
themselves by offering unique, value added services to their customers.

Simple Interface for Complex Functionality
UIT creates user-friendly interfaces for devices as they become more complex.
The I-C-IT platform can be used in conjunction with a wide range of existing
products. By embedding the I-C-IT technology into existing devices a new, more
intelligent product generation is created.  I-C-IT enabled products are designed
to function in both low and high bandwidth environments and are targeted at the
mass consumer market.

Interactive Entertainment Applications of I-C-IT

We have targeted the interactive entertainment market for the first application
of our I-C-IT platform. We have developed prototypes of interactive smart
devices which are able to connect, communicate and be controlled through the
Internet, game consoles, wireless devices, DVDs and CDs, cable, broadcast
signals and set top boxes.  These devices can also be equipped with a web cam,
enabling the user to see the reaction of his or her friend, enhancing the
interactive experience.  It is the Company's strategy to form relationships with
media companies to obtain the rights to characters to develop I-C-IT enabled
devices for the interactive entertainment space.

We are pursuing strategic relationships with companies in the media and Internet
sectors to exploit opportunities to create I-C-IT enabled devices based on well-
known characters, such as those from movies, cartoons, comic books and
television shows. By creating Internet enabled devices that can be controlled
and communicate through chat rooms, we believe we are offering a very strong
value proposition to companies looking to build communities on the Internet and
reduce overall churn rates, which is the rate at which people drop off from
visiting a particular site or stop subscribing to a particular online service.
We have chosen to apply our I-C-IT technology for the creation of smart toys and
corresponding interactive software because of the strong demand this market
exhibits for smart toys with a higher degree of Internet enabled functionality
and the demand by portals to attract and retain a younger demographic.

We have partnered with leading special effects and animatronic expert Stan
Winston to create an I-C-IT enabled communicative smart device based on the
Endoskeleton character from the Terminator 2: Judgment Day movie.  We unveiled
the device at the International Toy Fair in New York City in February 2001. We
currently intend to bring this product to market in conjunction with a
manufacturing partner by the fourth quarter of 2001.  However, we do not
currently have a relationship in place with a manufacturing partner.

Healthcare Applications of I-C-IT

We have also developed prototypes of I-C-IT enabled medical monitoring devices
that are able to record, monitor and transmit vital sign data online through a
healthcare portal. We are actively seeking strategic partners within the medical
device industry to bring to the market a line of I-C-IT enabled medical devices
for use in the home setting, such as blood pressure monitors and blood glucose
analyzers.

We intend to create the "MonitorMe(TM)" network utilizing our I-C-IT technology
by entering into long-term licensing agreements with both healthcare portals and
medical device manufacturers.  We do not currently have any long-term licensing
agreements in place. We will act as a technological conduit, offering monitoring
device manufacturers and healthcare portals a business solution to enhance their
revenue streams.

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Structure of the MonitorMe network:

 . Healthcare portal: will serve as the MonitorMe network platform, where users
  connect to monitor their vital signals. The healthcare portal will be
  responsible for the day-to-day management of the network and the customer
  interface
 . Device manufacturer: will produce, distribute and market the MonitorMe I-C-IT
  enabled devices
 . UIT, the technology partner: will focus on developing additional functionality
  and new generations of interactive monitoring devices

Divo(TM)

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(TM) 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 stored locally 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(TM)
technology enhances the web presentation experience and we believe that it is
suitable for the entertainment, travel, shopping, corporate and educational
markets.

This Divo(TM) technology enhances our Parallel Addressing Video (see below)
technology by allowing video that is distributed and controlled through Parallel
Addressing Video technology to be integrated within a Web page. This integration
allows for special effects and an active video to be played and controlled
within a live web page using a combination of video and fixed Web design tools
and technologies. We believe combining these innovations with full motion 30
frame-per-second broadcast quality video results in a more multimedia enhanced
Web page than those using traditional static elements and streaming video. For
example, using Digitally Integrated Video Overlay technology, a host can appear
in full motion video on the Web page to educate or entertain the user. This
technology allows the host in the video to appear as an actual part of the web
site although two different sources are involved.

Digitally Integrated Video Overlay technology also provides functions that allow
video to be combined seamlessly within the user's own Web browser software. Like
Parallel Addressing Video, Digitally Integrated Video Overlay technology is
designed to work with popular browsers from both Netscape Communication
Corporation and Microsoft Corporation.

In the past, we have generally licensed the Divo(TM) technology to large
customers as part of turnkey projects custom-designed for each individual
customer. For instance, we licensed an application of the Divo(TM) technology
for television to NBC, an application of the technology for wrestling and
related activities to World Championship Wrestling, Inc. and travel-related
applications of the technology to Netcruise.com, Inc. (formerly known as Genisys
Reservation Systems, Inc.). We have determined to focus our efforts on
technology development and licensing and move away from inclusive turnkey web
management projects for individual customers. We believe that the development of
licensable versions of our Divo(TM) technologies will lead to higher margin
product and service offerings. Turnkey licensing efforts were reduced while we
focused our efforts on developing our new licensable Divo(TM) software
application. We began offering a licensable software version of our Divo(TM)
technology in August 2000. We did not receive any revenue from the licensable
version of Divo(TM) in 2000.

We believe our solutions allow businesses to provide superior video
functionality in combination with the Internet, provide a unique experience to
consumers, help drive greater volumes of traffic to their Web sites and
ultimately create greater value.

Parallel Addressing Video

This technology, which is not a broadcast, downloaded or streaming technology,
uses pre-recorded audio and video that is distributed to the user on a CD-ROM or
DVD-ROM. The technology equips Websites with software that allows the Web site
to interact with a user's Internet browser and activate the CD-ROM or DVD-ROM.
The result is a 30 frame-per-second broadcast quality, full-motion, full-screen
video and audio on the user's computer, while the user is connected to the
Internet.

Unlike traditional CD-ROM or DVD-ROM multimedia products, such as interactive
encyclopedias or magazines, which are completely controlled by the user from
their computer, with our 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 security codes.  The user's video player
communicates with the Web server that creates a secure encryption key to unlock
the video.  Security and time-control functions exist on both the Web site and
the distributed medium that allow the video to be delivered to the user in the
manner that the content

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provider desires. Encryption keys also allow the owners of the Web sites to
protect against unauthorized use or distribution of their video content.

In addition, Parallel Addressing Video technology permits all information other
than the actual pre-recorded material to be changed on the Web site.  This
results in a more diverse interactive experience that can change as frequently
as the Web site administrator desires.  As a result, the Web site content
remains current and the context in which the material is viewed can be updated
to maintain the user's interest.

Vector Image Mapping

We are developing a media player to incorporate additional functions and
features, including new technology called Vector Image Mapping. This technology
will enable a user to click on selected pixels within a video to create an
interactive experience with that image.

Divo(TM) Applications

Television.  In July 1999, we entered into a Master Development Agreement with
NBC. We mastered, reproduced and distributed 1 million CD-ROMs showcasing NBC's
fall 1999 season incorporating an interactive game/contest.  The CD-ROMs used
our Parallel Addressing Video and Dynamic Integrated Video Overlay technologies
linked to a special NBC Web site.  They were distributed free in newspapers in
September 1999 in six major metropolitan areas.  We received a fixed fee of
$100,000 for delivery of the CD-ROMs in 1999.

Users who received a copy of the NBC disc could access the special NBC Web site
and activate encrypted video to play excerpts from seven returning NBC
television shows and seven new shows in the fall 1999 lineup.  Users were also
able to play an interactive game and participate in a contest where the first
prize winner would win a spot on an NBC television show.

Wrestling.  In February 1999, we entered into a license agreement with World
Championship Wrestling. Under the agreement, we granted WCW a non-exclusive
license to use our Parallel Addressing Video and Dynamic Integrated Video
Overlay technologies in connection with their Web site.

The agreement provided that WCW would pay certain royalties to us based upon
gross revenues from (1) banner or similar advertisements and/or sponsorships
contained on or accessed through use of the CD-ROMs or other discs and (2) 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 also paid us a non-refundable advance against these royalties of $200,000 in
1999.

In August 1999, we received video content from WCW to produce a master CD-ROM
containing wrestling video for use in conjunction with WCW's Web site. We
produced and distributed approximately 750,000 discs in the first run. WCW began
marketing CD-ROMs containing our technologies in October 1999 through four
avenues:

 .   WCW's Web site at www.wcw.com;

 .   WCW television broadcasts, which consist of seven prime time hours per week
    in major markets;

 .   Live events, at which WCW had an estimated total attendance of approximately
    2 million people for 1999; and

 .  Inserts in wrestling magazines.

Travel.  We developed an application of our Parallel Addressing Video technology
called Netcruise(TM) that allows anyone to book travel, including cruises,
hotels, car rental and airline tickets from a one-stop shopping Web site at
netcruise.com. In July 1998, we licensed Netcruise, together with all other
travel-related applications of our Parallel Addressing Video technology, to a
wholly owned subsidiary of NetCruise, formerly Genisys Travel Reservations, Inc.

In June 1998, our wholly owned subsidiary, United Internet Technologies, Inc.,
granted to NetCruise Interactive, Inc., a wholly owned subsidiary of NetCruise,
an exclusive, worldwide and perpetual license for travel related applications of
certain interactive technology. In addition, we sold to NetCruise certain
intellectual property and computer equipment for certain consideration
consisting of stock and warrants of NetCruise.

On April 24, 2000, the Company and NetCruise restructured the agreements they
originally entered into in 1998 and which were subsequently amended in 1998 and
1999. In the restructuring, completed on April 24, 2000, UIT provided a revised

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and updated PAV software and technology license to NetCruise. UIT sold 1,500,000
shares of NetCruise's common stock in a private transaction for a cash purchase
price of $600,000 to Mr. Joseph Perri, NetCruise's principal shareholder, and
agreed to the NetCruise's cancellation of warrants to purchase an aggregate of
1,600,000 shares.  In this connection, NetCruise issued to UIT new privately
placed warrants to purchase up to 400,000 shares of common stock for a period of
five years at an initial purchase price of $1.00 per share. NetCruise has since
ceased operations.

In July 2000 we formed a subsidiary in Germany, Interactive Internet
Technologies GmbH ("IIT").  We have invested $192,859 in, and contributed a non-
exclusive license to market our technologies in Europe to IIT and we retained a
66.67% ownership interest.  IIT raised total capital of $964,496 in July 2000.
IIT is primarily engaged in the marketing of our Divo technology in Europe.

Industry Background

Networked Home and Device Sector

The worldwide home networking equipment and residential gateway market is
expected to grow from over $600 million in 2000 to over $5.7 billion by 2004,
according to recent research by one of the leading market research firms,
Cahners In-Stat Group. The Gartner Group projects the existence of 20 million
residential networking nodes by 2003, up from 2 million in 2000.

We believe this growth will be spurred by the interest in home connectivity from
several technology industries. The networked home will move from today's first
generation products, such as basic PC adapter cards and simple gateways, to
tomorrow's, where connectivity technology is embedded in recognizable devices
with which non-technical users are familiar and comfortable. New connectivity-
based services, enabled through home networking technology, will help drive
growth in this market. Additional voice lines, home management and monitoring,
as well as new value added entertainment services, are predicted to create a $3
billion connectivity services market by 2004.

Interactive Gaming and Smart Toy Sector

Smart toys are physical toys that use computing power to create an enhanced play
experience and include toys that:
 . connect to the Internet, Personal Computer, and Television - Networked Toys
 . contain electronics that enhance their play value - Interactive Toys

We believe that smart toys will be the significant growth engine of the toy
industry in the future.  Manufacturers credit the decreasing cost of technology
and the increasingly sophisticated tastes of kids as major success drivers.

Forrester Research indicates that networked toys will drive the smart toy market
segment by 2002.  The networked toy market is projected to reach $1.9 billion in
sales with 16.5 million units sold by 2002, of which content providers will
generate $850 million through Internet downloads ($500 million) and web site
subscriptions ($350 million) (Forrester, 1998). Due to the importance of a
compelling virtual online environment, manufacturers will share a substantial
portion of their revenues from smart toys with content providers. Forrester also
predicts that by 2005 pervasive gaming, defined as online gaming with multiple
real time players, will be a $26 billion market, with close to $17 billion in
content and software. Furthermore, Forrester predicts that by 2005, 50 million
households will take part in pervasive gaming.

A substantial part of the value proposition of networked toys is the promise of
renewable media content through web downloads and an online virtual environment.
This ensures that play activities are continually unique and valuable, adding to
the appeal of the toy. This also allows the toy to "develop" in conjunction with
the cognitive abilities of the child.  Therefore, a PC, Internet, or TV-based
environment that captivates the imagination of a child is likely a key success
factor to a networked toy.

Due to the higher price point of networked toys relative to less sophisticated
toys, manufacturers will need to define the enhanced value to consumers.
Additionally, toys priced $75 and above begin to compete with higher-priced
items such as video game consoles.  Such toys are typically purchased as
presents during the last 12 weeks of the year by parents, family, and friends.
Usually, one product in this price segment is purchased per child, per year.

Trends in Personal Computers and Internet Use

In general, underlying the success of networked toys are the proliferation of
residential personal computers and the widespread use of the Internet by
children. The major drivers of this growth are the decreasing price of consumer
personal computers and the popularity of the Internet as a media source. As
personal computers have become more affordable, residential penetration levels
across all demographic segments have increased.  A significant number of owners
use their

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personal computers to send and receive e-mail and instant messages. The number
of e-mails sent daily in the U.S. is 1.62 billion (e-Marketer and MCM Group
International, 1999). According to America Online, the number of instant
messages sent and received every day is 1.2 billion.

In the under 18 age bracket, Jupiter Communications forecasts that more than 39
million children and teenagers will be online by 2002. Currently, 67% of
teenagers list sending e-mail as their favorite online activity, and 48% list
chat rooms as a major online activity.  Children under 13 years of age list chat
and message boards as their third most favorite activity (MCM Group
International, 1998). We believe the message is clear: the Internet is becoming
more integrated in the lives of  children and teenagers. AOL/Roper Starch
reports that 63% of them prefer going online to watching TV, while 55% choose
online over talking on the phone (AOL/Roper Starch, 2000).

Online gaming sites are a subscription-based source of renewable media. In
general, the online gaming market consists of a diverse audience with 19% of
U.S. online households playing games online at least once a month. Approximately
40% of the online game players are under 25 years old. The online gaming market
is forecast to exceed $1 billion by 2002, up from $41 million in 1997. This
reflects an increase in the number of online game players from 2 million in 1997
to 26.8 million by 2002 (Jupiter Communications, 1998).

Internet Video Delivery

Currently there are several technologies and methods to communicate and retrieve
various types of information from Internet resources. The format for retrieving
much of this information is satisfactory, but the length of time that it takes
to transfer some audio and video content is inconvenient or unacceptable to many
users.

In the past users were required to download audio and video content in its
entirety before they could view or listen to the content. The length of time it
took to accomplish this varied depending on the user's modem transmission speed
as well as other factors. In addition, the downloaded files took up a lot of
space on the user's hard disk drive.

The development of streaming technology overcame some of these limitations. This
technology allows the user to begin watching or listening to the content while
it is being transmitted. To take advantage of streaming technology, the user
must have a multimedia computer with certain microprocessor requirements, at
least a 28.8 kbps modem, and streaming media software. The streaming media
software, such as RealNetwork's RealPlayer and Microsoft Windows Media Player,
can be downloaded from the Internet free of charge.

Despite these improvements, there are significant limitations with streaming
technology, especially with respect to the quality of the video images.
Streaming technology is limited by available bandwidth. For example, a video
streaming at 28.8 kbps will produce a jumpy or choppy video that the viewer
perceives as less than full motion. In addition, streaming video is displayed in
a small window on the viewer's computer screen and enlarging the image further
reduces its quality. Internet congestion or losses in Internet connection may
also interrupt audio and video streams.

These factors can result in an unsatisfactory experience for users of streaming
technology. Increased transmission speeds will enhance the quality of the
technology, but industry analysts disagree as to the time frame in which
transmission speeds sufficient to overcome the current limitations will be in
use.

Marketing

In June 1999, we entered into a marketing agreement with AT&T Corp.  Under the
agreement, AT&T granted us a non-exclusive license to distribute software of
AT&T's Internet service provider service.  We must distribute one million CD-
ROMs or other products that combine or bundle AT&T's software with other
material that we place on the discs. The agreement has a one-year term, which
has since expired.  The distributed material must meet certain technical and
other specifications established by AT&T and must be tested by AT&T before
distribution.

The agreement provides that AT&T will pay us $20 for each person that switches
to AT&T's Internet service provider as a result of using the AT&T software on
one of our distributed CD-ROMs, provided that the user pays AT&T at least $19.95
during the first three months after registering for the service. We received no
advance payment from AT&T under this agreement.

AT&T provides technical support and customer care services for users of their
service and we provide all technical support and customer care services for
users of the bundled material contained on the distributed discs.  AT&T has the
right to approve any bundled product that contains their software. We have not
received any payments from AT&T relating to this agreement and are no longer
distributing the CD-ROMs.

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In July 1999, we entered into a distribution agreement with Earthlink Network,
Inc. to market Earthlink's Internet service provider software on discs produced
using our technology.  Earthlink pays us a fixed amount for each new customer
that subscribes to Earthlink in connection with using any of our discs for
various services or products.  The amount varies from $20 to $50 per customer
depending on the number of subscribers and is cumulative from one project to the
next. In addition, Earthlink paid a $40,000 nonrefundable advance against these
payments. The term of the agreement is for one year with automatic renewal
unless terminated by either party upon 30 to 90 days notice prior to the end of
each one-year term.

Our first distribution in connection with the Earthlink agreement was made in
conjunction with the distribution of the NBC preview CD-ROMs in September 1999.
These CD-ROMs contained Earthlink software and gave the users the option to
subscribe to Earthlink services.  Under our agreement with NBC, we share the
revenue equally with NBC after we each recoup the pro rata share of our
investment. We are no longer distributing the CD-ROMs and there is no ongoing
revenue.

In November 1999, we entered into an agreement with Teen People Magazine to
design and produce a 12-page "magalog" of Nordstrom fashions, accessories and
beauty products and an interactive CD-ROM. The mini-catalog served as a self-
mailer for the CD-ROM. In addition, we included Internet Service Provider
software as part of the package. Approximately 600,000 CD-ROMs were distributed
in March 2000. We received revenues of approximately $700,000 in the first
quarter of 2000 in connection with this agreement. This was the only source of
revenue for our Internet technology business in 2000.

In February 2000, we entered into an agreement with Liquid Audio, Inc. under
which Liquid Audio granted us a limited, non-exclusive, worldwide, royalty-free
license to reproduce, market and distribute Liquid Audio products along with the
distribution of our proprietary software.  The agreement continues until
terminated upon 30 days written notice by either party. We have not received any
revenues from this agreement.

Research and Development

We devote most of our internal research and development resources to making
advances in our interactive technology platform.  We are continuously involved
in the refinement, enhancement, and expansion of our operating and application
capabilities. We have developed prototypes of devices for both the interactive
entertainment sector and for the home medical monitoring sector.  We have also
developed the applications and interfaces that allow the control, data
transmission and communication of these devices through our I-C-IT platform.
Research and development expenses were approximately $782,000 and $1,091,500 in
the fiscal years ended December 31, 1999 and December 31, 2000.

Patents and Trademarks

In November 1999, the U.S. Patent and Trademark Office issued to us a utility
patent for our Parallel Addressing Video and Digitally Integrated Video Overlay
technologies.  In May 1999, we filed a patent application relating to our
Digitally Integrated Video Overlay enhancements.  We do not know if this patent
will be issued, or if issued, how broad it will be.  We do not believe that the
failure to receive a patent for our enhancement technology will critically
impair the value of our Digitally Integrated Video Overlay technology.  We
cannot be sure that any current or future patents will provide protection from
infringement.  Our patent applications may also be challenged.   If challenged,
we may not have adequate resources to enforce or defend our rights.

Competition

There is significant competition in the development of technologies designed to
connect external devices. Sun Microsystems has developed Jini, which provides
simple mechanisms that enable devices to plug together to form an impromptu
community. Jini was launched in January 1999, when Sun demonstrated how a
laptop, printer and digital camera were able to communicate with one another.

Microsoft has developed UPnP Universal Plug and Play (UPnP), the next phase of
Microsoft's seven-year Plug and Play initiative. UPnP makes it easier for
consumers to install and configure their intelligent consumer appliances and
devices on a home or small-business network. UPnP also makes it easier for those
products to work together on a network and to share resources from any device in
the home or business. For example, a homeowner with two PCs and one high-speed
Internet connection can share Internet access across both PCs. Major companies
pledging to produce UPnP-compatible products include Intel, Hewlett-Packard Co.,
Compaq and AT&T Corp.

There is significant competition in the interactive gaming and smart toy area
from established toy companies, video game developers, video game console
developers and interactive software developers.

                                                                               9
<PAGE>

There is significant competition in the online healthcare monitoring market from
established healthcare companies, including Bayer and Johnson & Johnson as well
as from newer companies such as Stayhealthy.com, DiabetesWell and Life Chart.

There is significant competition in the evolving market for delivery of video
content on the Internet. We have approached the delivery of video content using
different technology than that of our competitors. Our competitors, however,
have substantially greater financial, marketing, personnel and other resources
than we do.

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

Government Regulation

Although there are currently few laws and regulations that apply directly to the
Internet, it is likely that new laws and regulations will be enacted in the
United States and elsewhere covering a wide range of Internet-related issues.
These could include broadcast license fees, music licensing, copyrights,
privacy, pricing, sales tax and characteristics and quality of Internet
services.  It is also possible that laws could be passed that would apply to us
in the areas of content, network security, encryption, privacy protection,
electronic authentication or digital signatures, illegal or harmful content,
access charges and re-transmission activities. If certain laws or regulations
apply to the type of service we provide, we could be exposed to significant
liabilities in connection with the content on our Web sites.  We could also have
liability for the content on the Web sites of our licensees. If restrictive laws
or regulations are adopted, it could also slow Internet growth and increase our
cost of doing business.

There are also uncertainties about how existing laws in other areas apply to the
Internet.  Some of these laws deal with issues like property ownership, libel,
taxation, defamation and personal privacy.  The majority of these laws were
adopted before the widespread use of the Internet and do not address the unique
nature of the Internet and related technologies.

In 1996, Congress enacted the Communications Decency Act of 1996. Although the
Supreme Court ruled that sections of this legislation that would have imposed
criminal penalties for the distribution of indecent material to minors over the
Internet were unconstitutional, it is possible that similar legislation could be
adopted and upheld in the future.  Even though we do not distribute content that
the Communications Decency Act would consider illegal, it is not possible to
predict how any future laws or regulations regarding indecency would be
interpreted.  If Internet growth is slowed as a result of restrictive
legislation, the demand for our technology could be adversely impacted.  We do
not require our licensees to indemnify us against these potential liabilities,
nor do we have insurance to cover such liabilities.

If we are considered to be a distributor of Internet content, we could 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.  We do not
require our licensees to indemnify us against these potential liabilities, nor
do we have insurance to cover such liabilities.

Employees

As of March 30, 2001, we had 29 employees, all of whom were full-time employees.
None of our employees are covered by a collective bargaining agreement.

Discontinued Operations

In October 2000, we determined to divest all of our remaining non-technology
businesses. We concluded that these operations were not strategically compatible
with our core internet-technology business. We believe that the opportunity in
our core business requires singular focus of management time and resources. As a
result, our board of directors decided to divest our non-core businesses. These
non-core businesses consist of the Planet Kids business and certain other
investments. We have closed one of our three children's recreational facilities
and expect the remaining facilities to be closed in the near future.

Before February 1997, our primary business was to act as a developer and manager
of facilities for recreational and corporate activities.  As part of our
decision to reorient our business to developing and licensing our technology, we
closed some of these facilities.  In August 1999, we sold real property located
in El Cajon, California, which was previously used for some of our recreational
and corporate activities.  In October 1999, we sold our 50% interest in real
estate holdings in Las Vegas, Nevada.

                                                                              10
<PAGE>

See Part II, Item 6, "Management's Discussion and Analysis of Financial
Condition and Results of Operation" and "Financial Statements - Note 3 to Notes
to Consolidated Financial Statements."

ITEM 2.  DESCRIPTION OF PROPERTY.

We maintain our principal executive offices in approximately 6,000 square feet
of leased office space in Los Angeles under a lease that expires in January
2004.  The lease was entered into with 1990 Westwood Boulevard, Inc. which is
owned 65% by Harry Shuster, the former Chairman of the Board, President, Chief
Executive Officer, Chief Financial Officer and a current principal stockholder
of United Leisure. Harry Shuster is also the father of Brian Shuster, our
current Chairman of the Board, President and Chief Executive Officer.  United
Leisure believes that the rent and other terms of the lease are no more
favorable to the lessor than could have been obtained in a similar building in
the same area from an unrelated lessor.  See Item 12, "Certain Relationships and
Related Transactions."

We believe our existing leased properties are adequate for our current needs.
We also believe that all of the properties are adequately covered by insurance.

ITEM 3.  LEGAL PROCEEDINGS.

On January 17, 2001 we announced that all litigation with Broadbridge Media, LLC
and Hyperlock Technologies, Inc. has been settled, with all claims and
counterclaims voluntarily dismissed. The settlement specifically covers the
patent litigation between the parties under the jurisdiction of the United
States District Court for the Northern District of Illinois, Eastern Division.
Specifically, the cases being voluntarily dismissed are Case No. 99C 3778,
Hyperlock Technologies, Inc. v. United Internet Technologies, Inc., and Case No.
00 C 2311, United Leisure and United Internet Technologies v. Broadbridge Media,
LLC and Hyperlock Technologies, Inc.

On or about February 16, 2001, we terminated the employment contracts of Sonja
Mikic and Chris Riley. It is the Company's position that no further compensation
or benefits are due under those contracts. On or about February 28, 2001, Sonja
Mikic and Christopher Riley ("Plaintiffs") filed a lawsuit against us, UIT, and
Brian Shuster (collectively, "Defendants") in the Superior Court of the State of
California for the County of Los Angeles, West District. Plaintiffs asserted
causes of action for breach of written employment, tortious breach of contract,
and tortious interference with contract. Plaintiffs seek compensatory damages in
an unspecified amount against Defendants, punitive damages, attorneys' fees,
costs of suit, and pre- and post- judgment interest as allowed by law.

Plaintiffs essentially allege that their contracts were terminated without cause
and that UIT and United Leisure are in breach of the employment agreements by
not providing the benefits that would accrue to each Plaintiff in the event his
or her employment was terminated without cause. Separately, Plaintiffs'
purported rights with respect to their ownership of stock options in UIT also
may be at issue. We believe this lawsuit is without merit in that the employment
agreements were terminated for cause, thereby eliminating Plaintiffs' rights to
additional benefits under the agreements.

This action is in a very early stage of litigation and the parties are beginning
the discovery process. UIT and United Leisure have filed a demurrer to the
tortious interference with contract claims asserted against them by Plaintiffs,
which will be heard in early May.

In the normal course of business, we are subject to various claims and legal
actions. We believe that we will not be adversely materially affected by the
ultimate outcome of any of these matters, either individually or in the
aggregate.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Our common stock is traded on the Over the Counter Bulletin Board (the "OTC
Bulletin Board") under the symbol "UTDL." The following table sets forth the
high and low closing prices of the common stock for the quarters indicated as
quoted on the OTC Bulletin Board.

<TABLE>
<CAPTION>

                                                1999                                        2000
                                      High                 Low                    High                  Low
<S>                              <C>                 <C>                     <C>                  <C>
First Quarter                       $1.9062                $.2188                 $13.50              $2.8438
Second Quarter                        4.875                 1.375                 9.9375               5.4375
Third Quarter                         3.375                1.4688                  10.00               3.7812
Fourth Quarter                       3.2812                  1.25                   5.75                2.125
</TABLE>


The above quotations represent prices between dealers without adjustments for
retail markups, markdowns or commissions and may not represent actual
transactions.

As of March 30, 2001, there were approximately 2,323 holders of record of United
Leisure common stock.

We have never declared or paid any cash dividends on our capital stock and do
not anticipate paying cash dividends on our common stock in the foreseeable
future.  We currently intend to retain future earnings to finance our operations
and fund the growth of our business. Any payment of future dividends will be at
the discretion of the Board of Directors of United Leisure and will depend upon,
among other things, our earnings, financial condition, capital requirements,
level of indebtedness, contractual restrictions in respect to the payment of
dividends and other factors that our Board of Directors deems relevant.

                                                                              11
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Results of Operations

Fiscal Year Ended December 31, 2000 Compared to Fiscal Year Ended December 31,
1999

Net Revenues.  For the fiscal year ended December 31, 2000, we had revenues of
$712,942 compared to revenues of $240,000 for the fiscal year ended December 31,
1999, an increase of $472,942 or approximately 197%.  The increase in revenues
for fiscal 2000 compared to fiscal 1999 increase resulted primarily from
revenues generated by licensing agreements in connection with interactive CD-
ROMs created for Teen People Magazine and Nordstrom stores.

Operating Expenses.  Total costs and expenses increased to $14,330,591 for the
fiscal year ended December 31, 2000 from $3,009,529 for the fiscal year ended
December 31, 1999, an increase of $11,321,062 or approximately 376%. The
increase is composed of several components including increases in personnel,
$2,685,980, consultant fees, $393,716, legal, $862,992, non-cash compensation
associated with the issuance of options $6,102,493, and additional overhead,
$1,275,881.    These increases in operating expenses were primarily related to
the development of UIT's technologies and prototypes of devices embedded with
UIT's technologies, as well as business activities to promote our technologies.

Selling, general and administrative expenses were $1,616,832 for the year ended
December 31, 2000 compared to $1,127,255 for the year ended December 31, 1999,
an increase of $489,577 or approximately 43%. Non-cash compensation from option
grants increased by $5,796,443 from $306,500 to $6,102,943 or approximately
1891%. Depreciation and amortization for the year ended December 31, 2000 was
$122,316 compared to $28,035 for the year ended December 31, 1999, an increase
of $94,281 or approximately 336%.

For the year ended December 31, 2000, we had a net loss of $13,410,301,
including loss from discontinued operations of 743,915, or $(0.69) per share,
compared with a net loss of $4,118,914 or $(0.27) per share for the year ended
December 31, 1999. The net loss for the year ended December 31, 2000 is
primarily attributable to an increase in expenses in connection with our
Internet technology business.

Discontinued Operations Fiscal Year Ended December 31, 2000 Compared to Fiscal
Year Ended December 31, 1999

Net Revenues associated with discontinued operations.  For the fiscal year ended
December 31, 2000, we had revenues from discontinued operations of $957,617
compared to revenues of $1,145,679 for the fiscal year ended December 31, 1999,
a decrease of $188,062 or approximately 16%.  The decrease in revenues for
fiscal 2000 compared to fiscal 1999 is primarily due to the closing of one of
the Planet Kids facilities and restructuring the operations of the remaining
facilities.

Operating Expenses associated with discontinued operations.  Total costs and
expenses associated with discontinued operations decreased to $1,401,532 for the
fiscal year ended December 31, 2000 from $2,409,646 for the fiscal year ended
December 31, 1999, a decrease of $1,008,114 or approximately 42%. The decrease
is mainly due to decreased headcount and salaries due to the scaling back of
operations at our Planet Kids facilities. Selling, general and administrative
expenses were $53,202 for the year ended December 31, 2000 compared to $62,597
for the year ended December 31, 1999, a decrease of $9,395 or approximately 15%.
Depreciation and amortization for the year ended December 31, 2000 was $4,505
compared to $99,984 for the year ended December 31, 1999, a decrease of $95,479
or approximately 95%.

Discontinued Operations Fiscal Year Ended December 31, 1999 Compared to Fiscal
Year Ended December 31, 1998

Net Revenues associated with discontinued operations.  For the fiscal year ended
December 31, 1999, we had revenues from discontinued operations of $1,145,679
compared to revenues from discontinued operations of $2,443,601 for the fiscal
year ended December 31, 1998, a decrease of $1,297,922 or approximately 53%.
The decrease in revenues for fiscal 1999 compared to fiscal 1998 is primarily
due to reduced revenues from our children's recreational activities as we
focused on our core technology business.

Operating Expenses associated with discontinued operations.  Total costs and
expenses from discontinued operations decreased to $2,409,646 for the fiscal
year ended December 31, 1999 from $2,526,007 for the fiscal year ended December
31, 1998, a decrease of $116,361 or approximately 5%. Selling, general and
administrative expenses were $62,597 for the year ended December 31, 1999
compared to $1,133,405 for the year ended December 31, 1998, a decrease of
$1,070,808 or approximately 94%. Depreciation and amortization for the year
ended December 31, 1999 was $99,984 compared to $171,623 for the year ended
December 31, 1998.

For the year ended December 31, 1999, we had a net loss of $4,118,914 or $(0.27)
per share, compared with a net loss of $514,839 or $(0.04) per share for the
year ended December 31, 1998.


                                                                              12
<PAGE>

Liquidity and Capital Resources

We have experienced operating losses in recent years. For the year ended
December 31, 2000, we had cash and cash equivalents of $7,416,966 and an
accumulated deficit of $38,035,572.

  Our future capital requirements will depend on various factors including:

  1.   The number of applications using our technology and solutions that we
decide to develop;
  2.   United Internet Technologies' need to hire additional technical and
marketing personnel; and
  3.   The length of time that it takes us to restructure and dispose of our
remaining children's recreational facilities and the manner of disposition.

We had substantial cash assets available at the end of the year.  Management put
through a revised budget for the year 2001, focusing on core activities and
development projects.  We have significantly curtailed all activities that are
not directly related to the development and promotion of our core technology
business.  The result of this management refocus is a substantially reduced
expenditure level budgeted for the year 2001.  We have budgeted minimum amounts
for the purchase of needed assets and reduced capital expenditures.  We project
that the current cash available will exceed the amount required for operations
and overhead.

If we are unable to raise additional funds, when needed, through the private
placement of our securities, we may seek financing from affiliated or
unaffiliated third parties.   Such financing, however, may not be available when
and if it is needed, or if available, it may not be available on acceptable
terms. If we are unable to sell our securities or obtain sufficient financing to
meet our working capital needs and to repay indebtedness as it becomes due, we
may have to consider such alternatives as selling or pledging portions of our
assets, among other possibilities, in order to meet such obligations.

We intend to expand the development and marketing capabilities for our
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,
we may raise additional capital by borrowing money or through a public or
private sale of debt or equity securities.  We may not be able to acquire
additional financing on favorable terms, or at all.

Factors That Could Impact Future Results

We Have a History of Losses and May Not Be Profitable In the Future.

We have sustained operating losses for the last several years from our
traditional business of children's recreational activities. For the year ended
December 31, 2000, we had a net loss of $13,410,301 and an accumulated deficit
of $38,035,472.  In addition, we have significant working capital and research
and development requirements and these needs are expected to continue to be
significant. Moreover, we have a significant investment in Grand Havana
Enterprises, Inc., an affiliate, which has substantial losses and working
capital deficits. If these losses continue, a substantial portion of our net
worth would be at risk.

Our Business May Lack Sufficient Diversification and May Affect Our Ability to
Spread the Risk of Any Downturn in the Technology Sector.

Our primary business is developing and licensing proprietary interactive
Internet technology. These activities are conducted through our wholly owned
subsidiary, United Internet Technologies, Inc. (UIT). Our interactive technology
business has been our primary business focus since 1998 and our operations from
that business are limited in scope and duration. In October 2000, our Board of
Directors decided to discontinue our other businesses of (i) children's
recreational activities and (ii) making investments in affiliated companies. We
intend to dispose of our remaining children's recreational facilities.
Therefore, our business is not sufficiently diversified to spread the risk of
any downturn in the growth of the Internet or in the development and licensing
of our interactive Internet technology.

Our Prospects in the Technology Sector Are Difficult to Forecast Because of
Limited Operating History in our Technology Business.

Our technology subsidiary, UIT, was formed to develop and market our proprietary
interactive Internet technology and related products. So far, UIT's operations
have been limited to developing, marketing and licensing a small number of
applications of our technology. 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, it would seriously harm our business, results of operations and financial
condition.

Future Revenues Are Uncertain.

                                                                              13
<PAGE>

We cannot forecast revenues from our technology business accurately. This is
because of the limited operating history of our technology business and the
rapidly developing nature of the Internet market. 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 technology 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 technology
business and generating revenues. Either of these situations could seriously
harm our business, results of operations and financial condition.

We Will Need Additional Financing

Through UIT, we intend to enter into additional license agreements for our
technology. We expect that these license agreements will generate revenue that
UIT can use to develop our technology business further. However, it is not known
whether we will be successful in entering into additional license agreements. If
license agreements and other arrangements do not generate enough revenue to
develop our technology business further, we will need to raise money. Selling
our stock, stock of UIT, or other securities in public or private offerings
would probably do this. It is not known whether we would be successful in
raising additional money in the future.

Depending upon how much money we raise, UIT may have more or less ability to
expand our technology business rapidly. If we are unable to generate revenue
from our business operations or raise additional funds when needed or on
favorable terms, UIT may not be able to continue developing our technology
business. That would seriously harm our business, results of operations and
financial condition.

Future Strategic Alliances Involve Risk for Us.

To be successful, we will need to enter into strategic alliances and license
agreements with companies in the media, entertainment and Internet sector.
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.

Unanticipated Technological Problems May Affect Our Ability to Meet Our Release
and Delivery Schedules and Adversely Affect our Overall Financial Condition.

All of our products undergo thorough quality assurance testing prior to release.
But, we cannot anticipate all of the technological and other issues that may
arise in connection with our future product development.  We may be unable to
meet delivery commitments if technological or other development issues arise in
connection with our continued product development and enhancement.  Our
reputation may suffer if we fail to meet our release and delivery schedules or
if our products upon release do not perform as expected.  We cannot assure you
that we will be able to fix any new problems that arise in a timely or cost
effective manner, or at all.  If unexpected problems continue to arise, and we
are unable to resolve them timely or at all, we may be unable meet our release
and delivery schedules, our reputation may suffer, it may become more difficult
forming strategic alliances with distribution and other partners, and our
results of operations and financial condition could be materially and adversely
affected.

Our Technology May Not Be Commercially Accepted Which Will Adversely Affect Our
Revenues and Profitability.

Our ability to enter into the online entertainment and smart toy sectors, as
well as the healthcare and medical monitoring device sectors, establish brand
recognition, and compete effectively depend upon many factors, including broad
commercial acceptance of products embedded with our technology.  The commercial
success of products embedded with our technology depends upon the quality and
acceptance of other competing products and technologies, capabilities of our
competitors to provide more widely accepted products and technologies, our
ability to secure licensing agreements with third parties, general economic
conditions and other tangible and intangible factors, all of which can change
and cannot be predicted with certainty.  We cannot assure you that new products
embedded with our technology will achieve significant market acceptance or will
generate significant revenue.  If we are unable to license our technology to
third parties or the marketplace does not broadly accept our products embedded
with our technology, our results of operations and financial condition could be
materially and adversely affected.

                                                                              14
<PAGE>

Our Growth and Operating Results Will Be Impaired if the Internet and Online
Commerce Industries Do Not Continue to Grow.

Our ability to earn revenue from our Internet products depends in part upon
increased acceptance of the Internet as a medium for "e-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 on
the growth of e-commerce. These include:

 .  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 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 UIT's own Web sites and Web sites of
UIT'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
UIT'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 seriously harm our business, results of operations and financial
condition.

Our Technology Business Faces Security Risks.

Even though we employ security measures, UIT's Web sites and the Web sites of
UIT'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 UIT'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 capital or other resources to
protect against the threat of security breaches or to solve problems caused by
these sorts of security breaches. Although UIT intends to continue to implement
industry-standard security measures, we do not know if the measures implemented
by UIT 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 UIT's or its licensees' Web sites. Any
of these things could seriously harm our business, results of operations and
financial condition.

We Are Subject to Intense Competition.

There is significant competition in the evolving market for video delivery on
the Internet. Our primary competitors and we 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
then we do. We expect competition in this area to remain strong and to increase
further.

Failure to Adapt to Technological Change Could Adversely Affect Our Earnings.

The Internet, computer hardware and software 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

                                                                              15
<PAGE>

computer networks, or the development of entirely new methods of data
transmission, could seriously harm 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 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.

Burdensome Government Regulation and Legal Uncertainties Could Impair Our
Results of Operations.

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 technology business or service we provide, it could expose us
to significant liabilities associated with the content on UIT's Web sites, and
possibly for the content on the Web sites of UIT'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 seriously harm our business, results of operations and financial
condition.

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, which would have the effect of decreasing the demand for our
technology and its applications. Any of these developments could seriously harm
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 seriously
harm our business, results of operations and financial condition. At present, we
do not have insurance for this type of liability.

We Have a Pending Patent Application.

We filed an application for a utility patent for our PAV and DIVO technology
with the U.S. Patent and Trademark Office in July 1997. This patent was issued
November 30, 1999. 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.

Our Technology Business Relies on the Enforcement of Our Intellectual Property
Rights.

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

                                                                              16
<PAGE>

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.

UIT generally enters into nondisclosure agreements with its employees and
consultants. UIT also limits access to and distribution of its software,
sensitive documents and other proprietary information. We do not know if the
steps taken by UIT 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 UIT, 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.

We Depend on Certain Personnel

An important part of our performance depends upon the 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.

Sales of Additional Shares of Our Common Stock Into the Public Market May Cause
Our Stock Price to Fall and Dilute Our Stockholders' Interests.

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 by Certain Stockholders

Brian Shuster - Chairman of the Board, President, and Chief Executive Officer of
our Company -  and certain of his relatives are principal stockholders of our
Company. Harry Shuster, the father of Brian Shuster, owns 25.3% of our common
stock, including options exercisable within 60 days, and Brian Shuster owns 5.0%
of our common stock, including options exercisable within 60 days. 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.

We Have Never Paid Dividends on 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. 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.

ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplemental data required by this Item 7 follow
the index to financial statements appearing at Item 14 of this Form 10-KSB.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

    None.

                                                                              17
<PAGE>

PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

Directors and Executive Officers

Set forth in the table below are the names, ages and positions of the current
directors and executive officers of United Leisure.  Ages are shown as of
December 31, 2000.  Directors hold office until the next annual meeting of
stockholders and until their successors are elected and qualified.  Executive
officers are elected by and serve at the discretion of the United Leisure Board.
None of the executive officers has any family relationship to any director or
any other executive officer of United Leisure, except that Brian Shuster is both
an executive officer and director.

<TABLE>
<CAPTION>
                                                 Positions Currently Held
Name                                Age            With United Leisure                    Director Since
----                              -------          -------------------                    --------------
<S>                               <C>          <C>                                        <C>
Brian Shuster                       42         Chief Executive Officer, President,             1996
                                               Chairman of the Board and Director
Julie Lepere                        40         Secretary                                        ---
J. Brooke Johnston, Jr.             60         Director                                        1996
Victor Hollander                    68         Director                                        2001
Gerald Chizever                     57         Director                                        2001
</TABLE>


Set forth below is a brief description of the business experience for the
previous five years of all current directors and executive officers of United
Leisure.

Brian Shuster has served as a director of United Leisure since May 1996 and as
Chief Executive Officer and President of United Leisure since May 1999. Brian
Shuster is also chairman, chief executive officer and president of UIT. From
March 1997 to May 1999, he also served as Executive Vice President of United
Leisure.  From 1993 through 1995, Mr. Shuster served as President of Beverly
Hills Producers Group, an independent motion picture production company.

Julie Lepere has served as Secretary of United Leisure since May 1999. Prior to
that, since 1984, Ms. Lepere served as assistant to our Vice President and
Controller.  In addition, Ms. Lepere served as administration director for our
children's recreational facilities from 1984 through 1988.

J. Brooke Johnston, Jr. has served as a director of United Leisure since May
1996.  Since 1998, Mr. Johnston has been 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, 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 over 17 years.  Mr. Johnston is
also a director of Grand Havana Enterprises, Inc., which owns and operates cigar
clubs in Beverly Hills and New York City.

Victor Hollander has served as a director of United Leisure since February 2001.
He was licensed to practice public accounting in California as a certified
public accountant in 1958. In 1965 he established and was partner in charge of
the Los Angeles office of a large New York certified public accounting firm
where he specialized in audit and securities matters. In 1978 he formed the
accounting firm of Hollander, Gilbert & Co., the predecessor to Hollander, Lumer
& Co. LLP and in February 2001 he merged his firm with the Los Angeles
accounting firm Good Swartz Brown & Berns, LLP where he manages the firms
Securities Group.

Gerald M. Chizever has served as a director of the Company since February 2001.
Mr. Chizever presently is, and has been since 1990, a partner of the law firm of
Richman, Mann, Chizever, Phillips & Duboff in Beverly Hills, California.  Mr.
Chizever's primary area of practice is corporate and business law.

Significant Employees

The following individual is a significant employee of our subsidiary, United
Internet Technologies:

Andy Rifkin has served as Chief Technology Officer of UIT since December 2000.
Andy Rifkin oversees the development and commercialization of UIT's interactive
technologies.  Mr. Rifkin has twenty years of experience in the development of

                                                                              18
<PAGE>

advanced interactive technologies for the consumer electronics, entertainment,
media and communications industries. Mr. Rifkin has extensive senior managerial,
technical and operation experience at Mattel and Time Warner.

Mr. Rifkin was at Mattel from 1994 to 1999 where he served as senior vice
president, Design and Development, Mattel Media, and senior vice president,
Creative Technology. Mr. Rifkin lead the creation, development and production of
interactive toys, including the award winning Barbie Fashion Designer, Barbie
Digital Camera and Hot Wheels Stunt Track Driver. Mr. Rifkin was at Time Warner
from 1985 to 1994, where he held positions as vice president, Interactive
Application Technology, Time Warner Cable and Full Service Network, director of
advanced technologies, Time Customer Services and director of research and
development, New Business Development, Time, Inc. Among his accomplishments, Mr.
Rifkin developed and executed the strategic plan to ensure the committed launch
of Time Warner into interactive television and he was instrumental in developing
business and technical partnerships with Sega and TCI to form the Sega Channel.


Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our officers and
directors, and persons who beneficially own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission.  Officers, directors and
beneficial owners of more than 10% of our Common Stock are required by SEC
regulations to furnish us with copies of all Section 16(a) forms that they file.
Based solely on review of the copies of such forms furnished to us, or written
representations that no reports on Form 5 were required, we believe that for the
period through December 31, 2000, all officers, directors and greater-than-10%
beneficial owners complied with all Section 16(a) filing requirements applicable
to them.


ITEM 10.  EXECUTIVE COMPENSATION

The following table sets forth all compensation received for services rendered
to United Leisure in all capacities for the three fiscal years ended December
31, 2000 by our Chief Executive Officer during fiscal 2000 and the most highly
compensated executive officers at the end of fiscal 2000.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>




                                                   Annual
                                                Compensation                         Long Term Compensation
                                                ------------                         ----------------------
Name and Principal Positions                        Year           Salary          Securities and Underlying
----------------------------                       -------         ------                   Options
                                                                                   -------------------------
<S>                                             <C>                <C>             <C>
   Brian Shuster (1)
        Chairman of the Board                         2000         $263,660                1,750,000 (2)
        President, Chief Executive Officer,           1999         $240,000                  300,000
        Chief Financial Officer                       1998              ---                      ---

   Sonja Mikic (3)
        Chief Executive Officer, UIT                  2000         $186,000                1,250,000 (2)
</TABLE>

(1)  Effective May 24, 1999, Brian Shuster was appointed to serve as Chairman of
     the Board, Chief Executive Officer, President and Chief Financial Officer.

(2)  Consists of UIT options. See Item 3.

(3)  Employment terminated effective February 2001.

Directors receive no cash compensation for their services to the Company as
directors, but are reimbursed for expenses actually incurred in connection with
attending meetings of the Board of Directors. Directors receive periodic stock
option grants.

                                                                              19
<PAGE>

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, 2000.  All of the options were issued at not less than the fair
market value of our common stock on the date of the grant and are 100% vested.

                     OPTION/SAR GRANTS IN LAST FISCAL YEARS


<TABLE>
<CAPTION>

                              Number of                Percent of Total
                             Securities                  Options/SARS
                         Underlying Options/         Granted to Employees         Exercise Price
                           SARs Granted (1)             In Fiscal Year               ($/sh.)             Expiration
                           ----------------             --------------               -------             ----------
<S>                      <C>                         <C>                          <C>                    <C>
Name

   Brian Shuster            1,750,000 (1)                    33.9%                    $1.50              January 2010
   Sonja Mikic              1,250,000 (2)                    24.2%                    $1.50              January 2010
</TABLE>

(1) Represent only UIT options.

(2) See Item 3.

This table shows information regarding unexercised options held by our Named
Executive Officers. No options were exercised during the fiscal year ended
December 31, 2000.


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

<TABLE>
<CAPTION>

                                  Number of Unexercised Options at                  Value of Unexercised In The Money Options at
                                         December 31, 2000                                     December 31, 2000 (1)

Name                           Exercisable                Unexercisable                Exercisable                 Unexercisable
                               -----------                -------------                -----------                 ------------
<S>                            <C>                        <C>                          <C>                         <C>
Brian Shuster                  2,400,000 (2)                        ---                $2,291,500 (4)                       ---
Sonja Mikic                    1,250,000 (3)                        ---                $  781,250 (4)                       ---
</TABLE>

(1)  Represents the difference between the market price of our common stock and
     the respective exercise prices of the options at December 31, 2000. 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.

(2)  Includes 1,750,000 UIT options.

(3)  Consists of 1,250,000 UIT options. See Item 3.

(4)  Based on the assumption that UIT options can be converted on a one to one
     basis to United Leisure options. (See Item 3).

Consulting and Employment Agreements

United Internet Technologies and Brian Shuster entered into a five-year
employment agreement dated as of January 1, 1999, which was amended in 2000.
Under this employment agreement, Mr. Shuster is employed as the President of
United Internet Technologies at an initial base salary of $240,000 per year. Mr.
Shuster was paid $263,660 in 2000 pursuant to this agreement. The employment
agreement also provides that any inventions developed by Mr. Shuster during his
employment by United Internet Technologies that relate to the business of United
Internet Technologies, will remain United Internet Technologies' property. The
employment agreement also contains a confidentiality provision. Mr. Shuster is
permitted to engage in outside business activities to the extent that these
obligations do not interfere with his duties to United Internet Technologies.

                                                                              20
<PAGE>

Prior to becoming President and Chief Executive Officer of our Company in May
1999, Brian Shuster provided certain consulting services to us and received
$6,000 per month in consulting fees.  The consulting agreement may be terminated
by either party upon 30 days notice.

Stock Options

On December 31, 2000, there were outstanding presently exercisable non-qualified
stock options to purchase a total of 3,761,000 shares of UIT and United Leisure
common stock held by our officers and directors.  Of this amount, 2,400,000 were
held by Brian Shuster, our Chairman of the Board, President and Chief Executive
Officer, 1,750,000 of which are options to purchase shares in UIT. The balance
was held by the other current and former directors and officers of our Company,
at option prices ranging from $.23 to $2.25 per share.  See "Security Ownership
of Certain Beneficial Owners and Management."

All non-qualified stock options that we have issued to our directors and
executive officers are in substantially the same form.  All options have a term
ranging from five years to ten years from the date of grant 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.

In addition to the non-qualified stock options held by our directors and
executive officers on December 31, 2000, there were outstanding non-qualified
options to purchase a total of 7,266,450 shares of United Leisure and UIT 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 $.23 to $6.71 and expire from
December 31, 2002 through September 29, 2003.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth certain information regarding beneficial
ownership of United Leisure common stock as of December 31, 2000: (a) by each
person who is known by United Leisure to own beneficially more than 5% of its
common stock; (b) by each of United Leisure's directors; (c) by each of the
named executive officers; and (d) by all officers and directors of United
Leisure as a group.

<TABLE>
<CAPTION>

                                   Number of  ULC           Percentage              Number of UIT          Percentage
                                       Shares               Ownership                  Shares              Ownership
Name and Address                    Beneficially             Of Class               Beneficially           Of Class
Of Beneficial Owner (1)            Owned (2) (3)                (3)                 Owned (2) (3)            (3)
-----------------------            -------------            ------------            -------------        -----------
<S>                                <C>                      <C>                     <C>                  <C>
Brian Shuster                          1,050,000 (4)               4.99%                1,750,000               5.11%
J. Brooke Johnston                       151,400 (5)                  *                         0                  0
Victor Hollander                                  0                      0                         0                  0
Gerald Chizever                           25,000                      *                         0                  0
Harry Shuster                          5,879,993 (6)              25.28%                        0                  0
Sonja Mikic (7)                                0                      0                 1,250,000               4.00%
All officers and directors             1,242,600                   5.87%                3,000,000               9.09%
   as a group (6 people)
</TABLE>

*1ess than 1%

  (1) Each person's address is c/o United Leisure, 1990 Westwood Boulevard, Los
      Angeles, California 90025, unless otherwise noted.

  (2) Unless otherwise indicated, United Leisure believes that all persons named
      in the table have sole voting and investment power with respect to the
      shares of common stock beneficially owned by them.

  (3) A person is deemed to be the beneficial owner of Common stock that can be
      acquired by such person within 60 days of the date hereof upon the
      exercise of warrants or stock options. Except as otherwise specified, each
      beneficial owner's percentage ownership is determined by assuming that
      warrants and stock options that are held by such person (but not those
                                                                              21
<PAGE>

      held by any other person) and that are exercisable within 60 days from the
      date hereof, have been exercised. Figures include options in UIT and
      United Leisure.

  (4) Includes an option to purchase 650,000 shares of United Leisure common
      stock. Includes 80,000 shares held by Brian Shuster as trustee of each of
      Bennett Shuster Trust, Bentley Shuster Trust and Blake Shuster Trust and
      300 shares held by Nita Shuster and Brian Shuster.

  (5) Includes an option to purchase 100,000 shares.

  (6) Includes 111,000 shares of common stock held by Koorn N.V., all of whose
      capital stock is owned by Harry Shuster. Also includes 125,000 shares of
      common stock held 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 Mr. Shuster disclaims beneficial ownership. Also includes options
      to purchase 2,606,950 shares of our common stock and 3,037,583 shares of
      our common stock owned directly by Harry Shuster. Also does not include an
      aggregate of 480,000 shares of our common stock owned by trusts of which
      Harry Shuster's adult children are the beneficial owners. Until May 24,
      1999, Harry Shuster served as Chairman of the Board, President, Chief
      Executive Officer and a director of United Leisure.

  (7) Employment terminated effective February 2001. See Item 3.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Transactions with Harry Shuster. In November, 2000 we structured a termination
of the consulting services agreement between Mr. Harry Shuster and United
Leisure. The termination agreement allowed us to buy out the consulting
agreement of Mr. Shuster, which had a remaining duration of five years at an
annual consulting fee of approximately $270,000. The terms of the agreement
consisted of a one-time payment of $250,000 and the transfer of assets with a
book value of $740,246 from United Leisure to Harry Shuster. The assets
consisted of a loan receivable of $686,790 and accounts receivable of $53,456
owed to United Leisure by Grand Havana, an affiliated company. We incurred total
expenses of $990,246 to terminate the consulting agreement. The agreement was
executed on January 31, 2001.

From October 1, 1997 through May 31, 1999, we paid rent to Harry Shuster in the
amount of $49,551, for an apartment which he owns and which Brian Shuster uses
while in New York City on Company business.  Since June 1, 1999, we have paid
Harry Shuster $300 per day for each day of use by 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 Mr. Shuster has been in New York City on
business.

Lease of Office Premises.  On January 1, 1999, we entered into a five-year lease
with 1990 Westwood Boulevard, Inc.  This agreement was amended on May 1, 1999
and covers approximately 6,000 square feet of office space for our principal
executive offices.  The lease provides for rent of $10,500 per month. 1990
Westwood Boulevard, Inc. is presently owned 65% by Harry Shuster, our former
Chairman of the Board, President, Chief Executive Officer, Chief Financial
Officer, and a principal stockholder of United Leisure.  We believe that the
rent and other terms of the lease are no more favorable to the lessor than could
have been obtained in a similar building in the same area from an unrelated
lessor.

As of December 31, 2000, we held 966,666 shares of Grand Havana's common stock.
The Chief Executive Officer of Grand Havana is Stanley Shuster, the brother of
Brian Shuster.

Transactions With HEP II, L.P.  In April 1996, we acquired 50% of the limited
partnership interests in HEP II, L.P.  The general partner of HEP II is United
Film Distributors, Inc. of which Harry Shuster, the former Chairman of the
Board, President, Chief Executive Officer, Chief Financial Officer, and director
of United Leisure is the Chairman of the Board.   Harry Shuster's son, Brian
Shuster, was the President of United Film Distributors, Inc.  At December 31,
2000, we wrote down our investment in HEP II, L.P to $0 because we believe that
the residual value of future payments on the investment in HEP II will be
negligible.

                                                                              22
<PAGE>

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

(a)  Exhibits.


EXHIBIT
NUMBER    DESCRIPTION
-------   -----------

2.1       Asset Purchase Agreement dated June 30, 1998 by and among United
          Leisure Interactive, Inc., Net Cruise Interactive, Inc., Genysis
          Reservation Systems, Inc. and United Leisure Corporation (incorporated
          by reference to Exhibit 2.1 of United Leisure's Current Report on From
          8-K dated July 23, 1998, as amended by United Leisure's Amendment No.
          1 to Current Report on Form 8-K dated November 4, 1998 (the "Form 8-
          K/A")).

2.2       Agreement date October 27, 1998 by and among United Internet
          Technologies, Inc. Genisys Reservation Systems, Inc. Warren D.
          Bagatelle, Loeb Holding Corporation, Loeb Partners Group. HSB Capital,
          David W. Sass, Mark A Kenny, Hohn H. Wasko, Hoan E. Wasko, Lawrence E.
          Burk and S. Charels Tubak (incorporated by reference to Exhibit 2.2 of
          the Form 8-K/A).

3.1       Restated Certificate of Incorporation of United Leisure (incorporated
          by reference to Exhibit 3.1 of United Leisure's Form SB-2 (File No.
          33-81074 (the "SB-2")).

3.2       Bylaws of United Leisure (incorporated by reference to Exhibit 3.2 of
          the SB-2).

4.1       Warrant Agreement, dated November 18, 1994 between United Leisure and
          OTR, Inc. (incorporated by reference to Exhibit 4.1 of the SB-2).

4.2       Form of Warrant to Purchase Common Stock in connection with 12%
          Promissory Note unit private placement and Bankruptcy Court deposit
          (incorporated by reference to Exhibit 4.3 of the SB-2).

10.1      Stock Option Agreement dated December 7, 1990, between United Leisure
          and Haskell Slaughter Young & Johnston, Professional Association,
          (incorporated by to Exhibit 10.5 of the SB-2).

10.2      Stock Option Agreement dated October 7, 1988, between United Leisure
          and Harry Shuster as extended by Extension of Option Agreement, dated
          April 20, 1993 between United Leisure and Harry Shuster (incorporated
          by reference to Exhibit 10.12 of the SB-2).

10.3      Stock Option Agreement dated November 17, 1988, between United Leisure
          and Harry Shuster as extended by Extension of Option Agreement, dated
          April 20, 1993 between United Leisure and Harry Shuster (incorporated
          by reference to Exhibit 10.13 of the SB-2).

10.4      Stock Option Agreement dated December 5, 1988, between United Leisure
          and Harry Shuster as extended by Extension of Option Agreement, dated
          April 20, 1993 between United Leisure and Harry Shuster (incorporated
          by reference to Exhibit 10.14 of the SB-2).

10.5      Stock Option Agreement dated July 24, 1987, between United Leisure and
          Harry Shuster as extended by Extension of Option Agreement, dated
          April 20, 1993 between United Leisure and Harry Shuster (incorporated
          by reference to Exhibit 10.16 of the SB-2).

10.6      Option Agreement dated as of April 22, 1988, between United Leisure
          and Haskell Slaughter Young & Johnston covering United Leisure,
          Extension of Option Agreement, dated April 20, 1993 between United
          Leisure and Haskell Slaughter Young & Johnston, Professional
          Association (incorporated by reference to Exhibit 10.17 of the SB-2).

10.7      Form of Indemnity Agreement entered into by United Leisure with each
          of its directors (incorporated by reference to Exhibit 10.35 of the
          SB-2).

10.8      Standard Retail/Office Complex Lease dated October 12, 1994, between
          PSA Properties and Planet Kids, Inc., (incorporated by reference to
          Exhibit 10.32 of United Leisure's Amendment No. I to Annual Report on
          Form 10K-SB for the fiscal year ended December 31, 1995 (the "1995 10-
          KSB")).

                                                                              23
<PAGE>

10.9      Commercial Lease among Eastrich Multiple Investor Fund, L.P., Midland
          Loan Services, L.P. et al., and Planet Kids, Inc., effective August 9,
          1995 and Rider thereto (incorporated by reference to Exhibit 10.33 of
          the 1995 10-KSB).

10.10     Lease dated June 29, 1995, between Magnolia Square and Planet Kids,
          Inc. and Addendum thereto (incorporated by reference to Exhibit 10.34
          of the 1995 10-KSB).

10.11     Territory Rights Agreement between Planet Kids, Inc., and PT Planet
          Kidsindo (incorporated by reference to Exhibit 10.35 of the 1995 10-
          KSB).

10.12     Option Agreement dated as of September 22, 1998, between United
          Leisure and Brian Shuster (incorporated by reference to Exhibit 10.45
          of the United Leisure's Quarterly Report on Form 10-QSB for the
          quarter ended September 30, 1998 (the "September 30, 1998 10-QSB")).

10.13     Option Agreement dated as of September 30, 1998, by and between United
          Leisure Brian Shuster (incorporated by reference to Exhibit 10.46 of
          the September 30, 1998 10-QSB).

10.14     Option Agreement dated as of January 4, 1999 between United Leisure
          and Brian Shuster (incorporated by reference to Exhibit 10.49 of
          United Leisure's Quarterly Report on Form 10-QSB for the period ended
          June 30, 1999 (the "June 30, 1999 10-QSB")).

10.15     Option Agreement dated as of January 4, 1999 between United Leisure
          and J. Brooke Johnston (incorporated by reference to Exhibit 10.51 of
          the June 30, 1999 10-QSB).

10.16     Option Agreement dated as of February 1, 1999, between United Leisure
          and Brian Shuster (incorporated by reference to Exhibit 10.52 of the
          June 30, 1999 10-QSB).

10.17     Employment Agreement dated as of January 1, 1999 between United
          Leisure and Brian Shuster, together with supplemental agreement
          between the Company, United Internet Technologies, Inc. and Brian
          Shuster (incorporated by reference to Exhibit 10.53 of the June 30,
          1999 10-QSB).

10.18     Agreement dated as of July 21, 1999 between United Leisure and Media
          Group, Inc. (incorporated by reference to Exhibit 10.55 of the June
          30, 1999 10-QSB).

10.19     Purchase Agreement and Escrow Instructions dated as of June 10, 1999,
          between United Leisure and Shih Ching Chiang, as amended on August 7,
          1999 (incorporated by reference to Exhibit 10.1 of United Leisure's
          Current Report on Form 8-K dated August 23, 1999).

10.20     Total Access Software Distribution Agreement between Earthlink
          Network, Inc. and United Internet Technologies, Inc. together with
          related letter agreement dated July 21, 1999 (incorporated by
          reference to Exhibit 10.42 of United Leisure's Registration Statement
          on Form SB-2 (File no. 333-86335) filed with the Commission on
          September 1, 1999 (the "1999 SB-2")).

10.21     Software License and Distribution Agreement dated June 15, 1999
          between United Internet Technologies and AT&T Corp. (incorporated by
          reference to Exhibit 10.32 of the 1999 10-KSB).

10.22     Letter Agreement dated November 19, 1999 between United Internet
          Technologies and Teen People Magazine (incorporated by reference to
          Exhibit 10.33 of the 1999 10-KSB).

10.23     Distribution Agreement dated February 2, 2000 between United Internet
          Technologies and Liquid Audio, Inc. (incorporated by reference to
          Exhibit 10.34 of the 1999 10-KSB).

10.24*    Termination Agreement and General Release dated January 31, 2001
          between United Leisure Corporation and Harry Shuster.

21.1      Subsidiaries of United Leisure (incorporated by reference to Exhibit
          21.1 of the 1999 10-KSB).

23.1*     Consent of Ernst and Young, LLP.

* Filed herewith.

                                                                              24
<PAGE>

+         Management contract or compensatory plan required to be filed as an
          exhibit pursuant to applicable rules of the Securities and Exchange
          Commission.


(b)  Reports on Form 8-K.
-------------------------

The following Current Reports on Form 8-K were filed by us during the quarter
ended December 31, 2000:

(i) Current Report of Form 8-K filed October 5, 2000. Item 5 was reported.

                                                                              25
<PAGE>

SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

UNITED LEISURE CORPORATION


By: /s/ BRIAN SHUSTER
---------------------

Brian Shuster
President, Chief Executive Officer and Director


Date: April 16, 2001

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated.



SIGNATURE                     TITLE
---------                     -----

/s/  BRIAN SHUSTER            Chairman of the Board, President, Chief Executive
------------------            Officer and Chief Financial Officer
Brian Shuster
                              (Chief Executive Officer; Principal Financial and
                              Accounting Officer)


/s/  J. BROOKE JOHNSTON, JR.
----------------------------
J. Brooke Johnston, Jr.       Director



/s/  VIC HOLLANDER
------------------
Vic Hollander                 Director



/s/  GERALD CHIZEVER
--------------------
Gerald M. Chizever            Director

                                                                              26
<PAGE>

                  United Leisure Corporation and Subsidiaries


             Notes to Consolidated Financial Statements (continued)

                                                                              27
<PAGE>

Consolidated Financial Statements

United Leisure Corporation and Subsidiaries

Years ended December 31, 2000 and 1999
with Report of Independent Auditors

                                                                             F-1
<PAGE>

                  United Leisure Corporation and Subsidiaries

                       Consolidated Financial Statements


                     Years ended December 31, 2000 and 1999



                                    Contents

<TABLE>
<CAPTION>

<S>                                                                     <C>
Report of Independent Auditors.........................................  3

Audited Consolidated Financial Statements

Consolidated Balance Sheets............................................  4
Consolidated Statements of Operations and Comprehensive Income (Loss)..  6
Consolidated Statements of Stockholders' Equity........................  7
Consolidated Statements of Cash Flows..................................  8
Notes to Consolidated Financial Statements............................. 10
</TABLE>

                                                                             F-2
<PAGE>




                         Report of Independent Auditors

The Board of Directors and Stockholders
United Leisure Corporation

We have audited the accompanying consolidated balance sheet of United Leisure
Corporation and subsidiaries as of December 31, 2000, and the related
consolidated statements of operations and comprehensive income (loss),
stockholders' equity, and cash flows for the year 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 audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. 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 audit provides 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 at December 31, 2000, and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with auditing standards generally accepted in the United States.

                                            ERNST & YOUNG LLP
Los Angeles, California
April 9, 2001


                                                                            F-3
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS



To the Board of Directors and Stockholders
United Leisure Corporation


    We have audited the accompanying consolidated balance sheet of United
Leisure Corporation and subsidiaries as of December 31, 1999, and the related
consolidated statement of operations and comprehensive income (loss),
stockholders' equity and cash flows for the year 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 audit.

    We conducted our audit 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 audit provides 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, 1999, and the
consolidated results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles.



                                               HOLLANDER, LUMER & CO. LLP


Los Angeles, California
March 17, 2000, except for Note 3,
  Which is as of April 9, 2001

                                                                             F-3
<PAGE>

                  United Leisure Corporation and Subsidiaries

                          Consolidated Balance Sheets



<TABLE>
<CAPTION>
                                                                      December 31
                                                                 2000             1999
                                                              ---------------------------
<S>                                                           <C>              <C>
Assets
Current assets:
    Cash and cash equivalents                                 $7,416,966       $1,952,124
    Receivables                                                   27,925           87,697
    Deferred production cost                                           -          115,027
    Prepaid expense and other current assets                     144,562           39,171
                                                              ---------------------------
Total current assets                                           7,589,453        2,194,019

Property and equipment, net                                      987,521          158,651

Net assets of discontinued operations                             98,880           79,214

Investments:
    Investment in HEP II at equity - related party                     -          100,000
    Investment in Grand Havana at fair value - related           105,753          101,500
     party
                                                              ---------------------------
Total investments                                                105,753          201,500

Other assets:
    Loan receivable from Grand Havana - related party                  -          779,680
    Due from officer                                                   -           81,027
    Deposits and other assets                                     45,493           11,012
                                                              ---------------------------
                                                                  45,493          871,719
                                                              ---------------------------
Total assets                                                  $8,827,100       $3,505,103
                                                              ===========================
</TABLE>

See accompanying notes.

                                                                             F-4

<PAGE>

<TABLE>
<CAPTION>

                                                                       December 31
                                                                  2000             1999
                                                              ---------------------------
<S>                                                           <C>              <C>
Liabilities and stockholders' equity
Current liabilities:
    Accounts payable and accrued expenses                    $   666,811      $    702,986
    Due to related parties                                       285,059            95,387
    Deferred revenues                                                  -           210,133
    Deposits and other                                                 -                 -
                                                             -----------------------------
Total current liabilities                                        951,870         1,008,506

Minority interest                                                114,546                 -

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 - 20,363,222 shares in
 2000 and 16,230,868 shares in 1999                              202,822           161,468
    Additional paid-in capital                                45,525,722        26,892,688
    Accumulated deficit                                      (38,034,946)      (24,620,392)
    Accumulated other comprehensive income -
     unrealized gain on investment                                67,086            62,833
                                                             -----------------------------
Total stockholders' equity                                     7,760,684         2,496,597
                                                             -----------------------------
Total liabilities and stockholders' equity                   $ 8,827,100      $  3,505,103
                                                             =============================
</TABLE>

                                                                             F-5
<PAGE>

                  United Leisure Corporation and Subsidiaries

                     Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                       Year ended December 31
                                                                       2000               1999
                                                                  -------------------------------
<S>                                                               <C>                 <C>
Revenue:
    Licensing fees                                                $    712,942        $   240,000
                                                                  -------------------------------
Total revenue                                                          712,942            240,000

Costs and expenses:
    Direct operating expenses                                        6,596,339          1,547,739
    Selling, general and administrative expenses                     1,616,832          1,832,520
    Stock compensation                                               6,102,943            306,500
    Depreciation and amortization                                      122,316             28,035
    Minority interest in loss                                         (107,839)                 -
                                                                  -------------------------------
                                                                    14,330,591          3,714,794
Interest income                                                        501,751            178,516
Interest expense                                                       (71,930)          (422,049)

Other income (expense):
    Litigation settlement                                                    -           (255,333)
    Legal (costs) recoveries                                                 -             12,544
    Equity in net income (loss) of United Hotel                              -           (133,932)
    Equity in net loss of Genisys                                            -           (210,133)
    Gain on sale of Genisys                                            600,000                  -
    Realized loss from write-down of investment in
     HEP II                                                           (100,000)          (600,000)
    Realized gain from investment in United Hotel                            -          1,869,584
    Other, net                                                          17,189            117,817
                                                                  -------------------------------
Total other income (expense)                                           517,189            800,547
                                                                  -------------------------------
Loss from continuing operations                                    (12,670,639)        (2,917,780)
Discontinued operations (Note 3):
Loss from operations of discontinued business                         (743,915)        (1,263,967)
                                                                  -------------------------------
Net Loss                                                           (13,414,554)        (4,181,747)

Other comprehensive loss:
    Unrealized holding gain (loss) on securities arising
     during the period                                                   4,253             62,833
                                                                  -------------------------------
Comprehensive income (loss)                                       $(13,410,301)       $(4,118,914)
                                                                  ===============================

Weighted average number of common shares outstanding                19,583,516         15,558,608
Basic loss per share:
Loss per share from continuing operations                         $      (0.65)       $     (0.19)
Loss per share from discontinued operations                       $      (0.04)       $     (0.08)
                                                                  -------------------------------
Total loss per share                                              $      (0.69)       $     (0.27)
                                                                  ===============================
</TABLE>

See accompanying notes.

                                                                             F-6

s
<PAGE>

                  United Leisure Corporation and Subsidiaries

                Consolidated Statements of Stockholders' Equity


<TABLE>
<CAPTION>

                                                                                                Accumulated
                                             Common Stock                                          Other
                                       -----------------------    Additional                   Comprehensive
                                         Number of                 Paid-in      Accumulated        Income
                                           Shares     Amount       Capital        Deficit          (Loss)          Total
                                       ------------------------------------------------------------------------------------
<S>                                      <C>         <C>        <C>            <C>             <C>             <C>
Balance at December 31, 1998             14,002,849   $139,188   $24,844,168    $(20,438,645)        $     -   $  4,544,711
   Cashless warrants exercise               858,018      8,580        (8,580)              -               -              -
   Sale of common stock                     750,000      7,500     1,492,500                                      1,500,000
   Exercise of stock options                470,000      4,700       181,600                                        186,300
   Fair value of options issued to
    non-employees                                                    306,500                                        306,500
   Expiration of put options                 150,001     1,500        76,500                                         78,000
   Unrealized gain on investment                                                                      62,833         62,833
   Net loss                                                                       (4,181,747)                    (4,181,747)
                                       ------------------------------------------------------------------------------------
Balance at December 31,1999              16,230,868   $161,468   $26,892,688    $(24,620,392)        $62,833   $  2,496,597
   Sale of common stock                   2,240,000     22,400     5,577,600                                      5,600,000
   Exercise of stock options                195,000      1,950        76,250                                         78,200
   Exercise of warrants                   1,697,354     17,004     6,622,412                                      6,639,416
   Fair value of options issued to
    non-employees                                                  6,102,943                                      6,102,943
   Change in capital of subsidiary                           -       253,829                                        253,829
   Unrealized gain on investment                  -          -             -               -           4,253          4,253
   Net loss                                                                      (13,414,554)                   (13,414,554)
                                       ------------------------------------------------------------------------------------
Balance at December 31, 2000             20,363,222   $202,822   $45,525,722    $(38,034,946)        $67,086   $  7,760,684
                                       ====================================================================================
</TABLE>

See accompanying notes.

                                                                             F-7
<PAGE>

                  United Leisure Corporation and Subsidiaries

                     Consolidated Statements of Cash Flows



<TABLE>
<CAPTION>
                                                                Year ended December 31
                                                                 2000             1999
                                                            -----------------------------
<S>                                                        <C>                <C>
Operating activities
Net loss                                                    $(13,414,554)     $(4,181,747)
Adjustments to reconcile net loss to net cash
 used in operating activities:
     Loss from discontinued operations                           743,915        1,263,967
     Depreciation and amortization                               122,316           28,035
     Gain on sale of investment in Genisys                      (600,000)               -
     Minority share of loss                                     (107,839)               -
     Settlement of consulting agreement                          845,403                -
     Fair value of options granted to non-employees            6,102,943          306,500
     Write-down of investment in HEP II                          100,000          600,000
     Other                                                        20,000                -
     Realized gain on investment in United Hotel                       -       (1,869,584)
     Equity in net loss of United Hotel                                -          133,932
     Equity in net loss of Genisys                                     -          210,133
     Accrual of interest income from related parties                   -          (85,382)
     Changes in operating assets and liabilities:
     Receivables                                                  59,772          (35,387)
     Deferred production costs                                   115,027         (115,027)
     Prepaid expenses and other current assets                  (154,791)           2,874
     Deposits and other assets                                    14,920           17,240
     Accrued interest                                                  -         (406,808)
     Accounts payable and accrued expenses                      (336,176)         273,191
     Due to related parties                                      189,672          (34,239)
     Deposits and other liabilities                                    -           (3,041)
     Deferred revenues                                          (210,133)         207,863
                                                            -----------------------------
Net cash used in continuing operations                        (6,509,525)      (3,669,937)
Net cash used in discontinued operations                        (465,721)        (408,384)
                                                            -----------------------------
Net cash used in operating activities                         (6,975,246)      (4,078,321)

Investing activities
Purchases of property and equipment                             (949,471)         (99,341)
Proceeds from sale of investment in Genisys                      600,000                -
Investment in United Hotel                                             -        5,168,104
Loans receivable from Grand Havana                               (65,723)         (75,000)
Advances to related party                                         61,027          205,213
Collections from disposition of assets held for sale
 and fixed assets                                                      -        1,087,800
                                                            -----------------------------
Net cash provided by (used in ) investing activities            (354,167)       6,286,776
</TABLE>

                                                                             F-8
<PAGE>

                  United Leisure Corporation and Subsidiaries

                     Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>
                                                              Year ended December 31
                                                               2000            1999
                                                       ---------------------------------
<S>                                                      <C>              <C>
Financing activities
Sale of common stock                                         $ 5,600,000     $ 1,500,000
Proceeds from minority shareholders                              476,639               -
Payment on notes payable                                               -      (1,900,000)
Payment on long-term debt                                              -        (842,000)
Common stock issued for warrants and options
 exercised                                                     6,717,616         186,300
                                                       ---------------------------------
Net cash provided by financing activities                     12,794,255      (1,055,700)
                                                       ---------------------------------

Net increase in cash and cash equivalents                      5,464,842       1,152,755
Cash and cash equivalents at beginning of year                 1,952,124         799,369
                                                       ---------------------------------
Cash and cash equivalents at end of year                     $ 7,416,966     $ 1,952,124
                                                       =================================

Cash paid for:
 Interest                                                    $    71,930     $   406,808
                                                       =================================

Supplemental disclosures of non-cash investing and
 financing activities
Cashless warrant exercise                                    $         -     $     8,580
Fair value of options and warrants to non-employees            6,102,943         306,500
Expiration of put option                                               -          78,000
</TABLE>

See accompanying notes.

                                                                             F-9
<PAGE>

                  United Leisure Corporation and Subsidiaries

            Notes to Consolidated Financial Statements (continued)




1. Summary of Significant Accounting Policies


Description of Business


Through its subsidiary, United Internet Technologies, Inc. ("UIT"), the Company,
is engaged in the business of developing technologies that allow a wide range of
electronic devices, such as smart toys, medical devices, household and business
appliances and consumer electronics, to communicate and be controlled over the
Internet and over other digital systems, such as cable, television and wireless
networks. The Company has developed two proprietary technologies: (1)
Intelligent Control Interactive Technology ("I-C-IT") ("software") and (2)
Digitally Integrated Video Overlay ("Divo") ("software"). These technologies
enable businesses to transition their traditional product liens into the
interactive world. The Company's objective is to create solutions for specific
business sectors by customizing our I-C-IT platform, allowing these technologies
to be embedded in a wide range of electronic devices.


Principles of Consolidation


The consolidated financial statements include the accounts of United Leisure
Corporation and its Majority-owned subsidiaries. During 2000 the Company created
a subsidiary in Germany to license its technology in Europe. At December 31,
2000 the German Subsidiary is 67% owned and has total assets of $379,670.
Intercompany transactions and balances have been eliminated.


Investments


The Company accounts for ownership investments in affiliates using the equity
method of accounting when the Company's voting control in the affiliate is
between 20% and 50%. Investments in companies owned less than 20%, are accounted
for at cost subject to annual impairment reviews, unless the ownership allows
for significant influence in which case the investments are accounted for by the
equity method. 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. In 1999 the Company held an interest in Genisys
Reservation Systems, Inc. (Genisys) that was accounted for on the equity method
with the 1999 equity loss from Genisys reducing the Company's investment balance
to zero as of December 31, 1999. In April 2000, the Company sold its interest in
Genisys to a principal shareholder of Genisys for $600,000 cash, which is
reflected as a gain in the consolidated statement of operations.

                                                                            F-10
<PAGE>

                  United Leisure Corporation and Subsidiaries

            Notes to Consolidated Financial Statements (continued)





1. Summary of Significant Accounting Policies (continued)


Sale of Stock by Subsidiary


At the time a subsidiary or affiliate issues its stock to unrelated parties at a
price more than or less than its book value, the Company's net investment in the
subsidiary or affiliate increases or decreases, respectively.  The increase or
decrease is reflected in "Changes in capital of investee" ( a component of
additional paid-in capital) in the Company's consolidated statement of
stockholders' equity.  During 2000, the Company's German Subsidiary sold shares
where the Company recorded its share of this change in capital of subsidiary in
its Stockholder's equity accounts.


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 highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. The Cash balance
includes $305,388 of cash held in the German Subsidiary and is expected to be
restricted to only offshore uses.


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.

                                                                            F-11
<PAGE>

                  United Leisure Corporation and Subsidiaries

            Notes to Consolidated Financial Statements (continued)





1. Summary of Significant Accounting Policies (continued)


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>
<CAPTION>
       <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
</TABLE>

Long-Lived Assets


Long-lived assets 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.



Revenue Recognition


The Company is engaged as a provider of consultancy services and as a licensor
of its Technology. Generally, revenue is recognized upon delivery of the
Technology. For arrangements to deliver the Technology requiring significant
modification or customization, revenue is recognized on the percentage-of-
completion method. Licensing revenue arises from the preparation of programs
using the Company's interactive technology for marketing purposes to principally
two unrelated parties.

                                                                            F-12
<PAGE>

                  United Leisure Corporation and Subsidiaries

            Notes to Consolidated Financial Statements (continued)





1. Summary of Significant Accounting Policies (continued)


Deferred Production Cost


Costs incurred to modify and customize its technology are deferred and charged
against revenue when earned.


Stock-Based Compensation


The Company and its subsidiaries account for employee and director's stock
option grants using the intrinsic method. Generally, the exercise price of the
Company's employee stock options equals or exceeds the market price of the
underlying stock on the date of grant and no compensation expense is recognized.
If the option price is less than fair value, the Company records compensation
expense over the vesting period of the option. The Company accounts for equity
instrument issued to non-employees in exchange for goods or services using the
fair value method and records, expense based on the values determined using an
option pricing model. The Company discloses the pro forma effects of using the
fair value method for all option plans in its consolidated financial statements,
if material.


Earnings Per Share


Basic Earning Per Share (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 the denominator is
increased to include the number of additional common shares outstanding if the
dilutive potential common shares (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 would have an
antidilutive effect on EPS.


Comprehensive Income


Components of comprehensive income (loss) for the Company include net income
(loss) and changes in the value of available-for-sale securities.

                                                                            F-13
<PAGE>

                  United Leisure Corporation and Subsidiaries

            Notes to Consolidated Financial Statements (continued)





1. Summary of Significant Accounting Policies (continued)


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 including the enactment date.


2. Disclosure of Certain Significant Risks and Uncertainties

Limited Operating History

Through its wholly owned subsidiary, the Company primary business is developing
and licensing proprietary interactive Internet technology. This business started
in 1998 and as such the Company is subject to various risks and uncertainties
frequently encountered by companies in the early stage of development. Such
risks and uncertainties include, but are not limited to, its limited operating
history, an evolving and unpredictable developing Internet technology, and
increasing number of competitors.


3. Discontinued Operations

In prior years, the Company's engaged in a business related to children's
recreational activities. On October 30, 2000, the Company determined to divest
its remaining non-technology businesses. The Company concluded that these
operations were not strategically compatible with its core internet technology
businesses. These non-core businesses consist of its Planet Kids activity.
Management anticipates the complete disposal of the Planet Kids business to
occur during 2001 by the assumption of leased facilities by outside parties. The
assets and liabilities of Planet Kids as of December 31, 2000 are as follows:

                                                                            F-14
<PAGE>

                  United Leisure Corporation and Subsidiaries

            Notes to Consolidated Financial Statements (continued)





3. Discontinued Operations (continued)


<TABLE>
<CAPTION>
                                                                   December 31
                                                                2000         1999
                                                       ----------------------------------
<S>                                                      <C>              <C>
Net assets of discontinued operations
Assets
  Cash and cash equivalents                                $ 31,136         $ 45,935
  Prepaid expenses and other assets                          78,876           87,557
  Property, plant and equipment, net                         16,894           23,114
                                                       ----------------------------------
Total assets                                                126,906          156,606

Liabilities:
  Accounts payable and accrued expenses                      18,599           48,990
  Deferred revenues                                           4,595           25,790
  Deposits and other                                          4,832            2,612
                                                       ----------------------------------
Total liabilities                                            28,026           77,392
                                                       ----------------------------------
Net assets of discontinued operations                      $ 98,880         $ 79,214
                                                       ==================================
</TABLE>

The Planet Kids business incurred an operating loss of $68,417 for the period
from November 1, 2000 through December 31, 2000. The operating results of
discontinued operations for the years ended December 31, 2000 and 1999 are as
follows:


<TABLE>
<CAPTION>
                                                                     December 31
                                                               2000              1999
                                                       -------------------------------------
<S>                                                        <C>                 <C>
Revenue                                                    $   957,617         $ 1,145,679
Direct operating expenses                                   (1,343,825)         (1,539,997)
Provision for operating losses during phase out period        (300,000)                 -
Selling, general and administrative expenses                   (53,202)            (64,400)
Depreciation and amortization                                   (4,505)            (99,984)
Loss on sale of assets                                              -             (705,265)
                                                       -------------------------------------
Loss from discontinued operations                          $ (743,915)         $(1,263,967)
                                                       =====================================
</TABLE>

                                                                            F-15
<PAGE>

                  United Leisure Corporation and Subsidiaries

            Notes to Consolidated Financial Statements (continued)





4. Properties and Equipment

Property and equipment consisted of the following at December 31, 2000 and 1999:


<TABLE>
                                                                    2000            1999
                                                            -------------------------------
<S>                                                          <C>              <C>
Buildings and improvements                                       $  130,386        $ 30,765
Machinery, equipment and vehicles                                   177,293          40,183
Furniture, fixtures and office equipment                            584,103          22,978
Computers                                                           249,217         129,933
Signs and other                                                      34,464             296
                                                           --------------------------------

                                                                  1,175,463         224,155
Less accumulated depreciation and amortization                     (187,942)        (65,504)
                                                           --------------------------------
                                                                 $  987,521        $158,651
                                                           ================================
</TABLE>

                                                                            F-16
<PAGE>

                  United Leisure Corporation and Subsidiaries

            Notes to Consolidated Financial Statements (continued)

5. Stockholders' Equity

The following table summarizes the activity of common shares under stock options
for the years ended December 31, 1999 and 2000:

<TABLE>
<CAPTION>
                                                                                                  Weighted
                                                             Number of          Price per          Average
                                                               Shares             Share        Exercised Price
                                                          ----------------------------------------------------
<S>                                                       <C>                <C>               <C>
Shares outstanding under options at December 31, 1998           3,266,950      $ .25 - $1.38         $ .66
Granted                                                         1,251,000      $ .23 - $1.75         $ .52
Exercised                                                        (220,000)     $ .23 - $1.00         $ .27
Cancelled                                                               -                  -             -
                                                          ----------------------------------------------------

Shares outstanding under options at December 31, 1999           4,297,950      $ .23 - $1.75         $1.13
Granted                                                         6,924,500      $1.50 - $6.71         $2.67
Exercised                                                        (195,000)     $ .23 - $1.00         $ .42
Cancelled                                                               -                  -             -
                                                          ----------------------------------------------------
Shares outstanding under options at December 31, 2000          11,027,450      $ .23 - $6.71         $2.08

                                                          ====================================================
</TABLE>

                                                                            F-16
<PAGE>

                  United Leisure Corporation and Subsidiaries

            Notes to Consolidated Financial Statements (continued)

5. Stockholders' Equity (continued)

The following tables summarize information concerning outstanding and
exercisable options at December 31, 2000.

<TABLE>
<CAPTION>
                                            Options Outstanding                          Options Exercisable
                            -------------------------------------------------        ------------------------------
                                                    Weighted
                                                     Average         Weighted                          Weighted
                                                    Remaining        Average                           Average
Range of                                           Contractual       Exercise                          Exercise
Exercise                      Number                 Life (in       Price per          Number          Price Per
 Prices                     Outstanding              Years)          Shares          Exercisable        Share
-----------------------------------------------------------------------------        ------------------------------
<S>                        <C>                     <C>              <C>              <C>              <C>
$0.01-$1.00                 3,852,950                  2.1            $0.55           3,682,950          $ .56
$1.01-$3.00                 5,840,000                  3.8             1.69           2,248,375           2.57
$3.01-$6.71                 1,334,500                  4.6             6.04             766,447           6.00
                           --------------------------------------------------        -------------------------------
Total                      11,027,450                  2.8             1.91           6,697,772          $1.82
                           ==========                                                ==========
</TABLE>

Stock options granted to non-employees during 2000 and 1999 were valued using
the fair value at the grant date adjusted for changes in market prices until
vesting. Compensation expense recognized amounted to $6,102,943 and $306,500 in
2000 and 1999, respectively. The fair value of the options granted during 2000
and 1999 is estimated on the date of the grant using the Black-Scholes pricing
model with the following assumptions.

<TABLE>
                                                2000              1999
                                            ----------------------------
        <S>                                 <C>               <C>
        Risk-free interest rate                6.00%            5.50%
        Dividend yield                           0%               0%
        Volatility factor                       144%             100%
        Expected life                          5 years          5 years
</TABLE>

The Company applied the intrinsic value method to account for its stock options
to employees. Had compensation cost for the Company's stock options issued to
employees been determined based upon the fair value at the grant date, using the
Black-Scholes pricing, the Company's net loss and loss per share would have been
increased by approximately $3,134,986 and $48,065, or $0.16 and $0.03 per share
for 2000 and 1999, respectively.

                                                                            F-17
<PAGE>

                   United Leisure Corporation and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


5. Stockholders' Equity (continued)

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, 2000 and 1999, the following warrants were outstanding:

<TABLE>

                                               2000                1999
                                          ---------------------------------
  <S>                                     <C>                   <C>
  Balance at beginning of year               4,995,000           6,575,000
  Granted                                            -              50,000
  Exercised                                 (1,697,354)         (1,200,000)
  Cancelled                                          -            (430,000)
                                          ---------------------------------
  Balance at end of year                     3,297,646           4,995,000
                                          =================================
</TABLE>

At December 31, 2000 the 3,297,646 warrants outstanding had an exercise
price of $4.00 per share and expire May 9, 2002.

Outstanding options and warrants to purchase shares at December 31, 2000 and
1999 were not included in the computation of diluted loss per common share
because the effect would be antidilutive.

6. Commitments and Contingencies

In June 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 alleged that the Company had 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 was
seeking an injunction against the Company and unspecified damages.

On January 17, 2001 the Company announced all litigation with Broadbridge Media,
LLC and Hyperlock Technologies, Inc. has been settled, with all claims and
counterclaims voluntarily dismissed.

                                                                            F-18
<PAGE>

                   United Leisure Corporation and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

6. Commitments and Contingencies (continued)

Lease Arrangements

At December 31, 2000, minimum annual rentals under non-cancelable leases and
minimum sub-lease income are as follows:

<TABLE>
<CAPTION>
       Year Ending December 31                      Leases
       -----------------------------------------------------
       <S>                                        <C>
       2001                                       $  544,634
       2002                                          536,063
       2003                                          491,423
       2004                                          452,219
       2005                                          223,628
       Thereafter                                          -
                                                  ----------
       Total                                      $2,247,967
                                                  ==========
</TABLE>

Rent expense, net of sublease income of $43,201 in 2000 and $44,830 in 1999, was
$870,685 in 2000 and $619,580 in 1999.

7. Income Taxes

At December 31, 2000, the Company had net operating loss carryforwards for
federal tax purposes of approximately $10,126,000 expiring through 2020:

The components of deferred taxes were as follows at December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                              2000                  1999
                                         ----------------------------------
<S>                                      <C>                   <C>
Deferred tax assets:
 Net operating loss carryforwards        $ 3,786,000           $ 2,369,000
 Impairment losses                           407,000               747,000
 Non-cash compensation                       500,000               307,000
 State income taxes                            8,000                 2,000
 Partnership interests                             -               193,000
 Valuation allowance                      (4,449,000)           (3,403,000)
                                         ----------------------------------
Total deferred tax assets                    252,000               215,000

Deferred tax liability:
 Depreciation                                252,000               215,000
                                         ----------------------------------
Net deferred taxes                       $         -           $         -
                                         ==================================
</TABLE>

                                                                            F-19
<PAGE>

                   United Leisure Corporation and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

8. Related Party Transactions

Due to related parties at December 31, 2000 and 1999 consisted of the following:

<TABLE>
<CAPTION>
                                                   2000               1999
                                               ------------------------------
<S>                                            <C>                 <C>
Due to Brian Shuster                           $        -          $   65,000
Due to Harry Shuster                              250,000                   -
Due to Grand Havana                                35,059              81,774
                                               ------------------------------
                                                  285,059             146,774
Less:
 Due from 1990 Westwood Boulevard                       -              31,387
 Due from a consultant                                  -              20,000
                                               $  285,059          $   95,387
                                               ==============================
</TABLE>

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 incurred rent expense under this lease of $0 in 2000 and $81,860 in
1999.

The Company has paid rental, and certain expenses to Harry Shuster for an
apartment used for business purposes. In 2000 and 1999, the Company paid $0 and
$25,114, respectively.

As of December 31, 1999, the Company had a net receivable from Harry Shuster,
former President and Chief Executive Officer of the Company, of $81,027.

In November, 2000 the Company agreed to terminate a consulting services
agreement with Harry Shuster. The termination agreement effective December 31,
2000, allowed the Company to terminate the consulting agreement for Mr. Shuster,
which had a remaining duration of five years. The terms of the agreement
required a one time payment of $250,000 and the transfer of certain amounts owed
to the Company by Grand Havana (an affiliated company). The amounts included a
loan receivable from Grand Havana, including accrued interest, of $682,156 and
other balances due from Grand Havana aggregating, which after deducting amounts
owed to Grand Havana, amounted to $58,090. These amounts were expensed in 2000
and are included in selling, general and administrative expense.

                                                                            F-20