<PAGE>   1
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                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

(Mark One)

[X]     QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934

        For the quarterly period ended:  March 31, 1998


[ ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT 

        For the transition period from ___________ to ___________


                         Commission File Number: 0-11532


                        INLAND ENTERTAINMENT CORPORATION
        (Exact name of small business issuer as specified in its charter)

                     Utah                             33-0618806
        (State or other jurisdiction of            (I.R.S. Employer
        incorporation or organization)            Identification No.)

        16868 Via Del Campo Court, Suite 200, San Diego, California 92127
                    (Address of principal executive offices)

         Issuer's telephone number, including area code: (619) 716-2100

                   __________________________________________
      (Former name, former address and former fiscal year, if changed since
                                  last report)

        Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS

        State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: as of May 8, 1998,
3,891,348 shares of common stock, $.001 par value per share, were outstanding.

        Transitional Small Business Disclosure Format (check one) 
Yes [ ]  No [X]


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<PAGE>   2
                        INLAND ENTERTAINMENT CORPORATION
                                   FORM 10-QSB
                       FOR THE PERIOD ENDED MARCH 31, 1998

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                           Page
                                                                          Number
                                                                          ------
<S>                                                                       <C>
PART I.  FINANCIAL INFORMATION

     ITEM 1.  FINANCIAL STATEMENTS (Unaudited):

             Balance Sheets -
             June 30, 1997 and March 31, 1998.............................    3

             Statements of Operations -
             Three months ended March 31, 1997 and 1998...................    4
             Nine months ended March 31, 1997 and 1998....................    5

             Statements of Cash Flows -
             Nine months ended March 31, 1997 and 1998....................    6

             Notes to Interim Financial Statements........................    7

      ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS
                          OR PLAN OF OPERATION............................   14

PART II.  OTHER INFORMATION

      ITEM 5. OTHER INFORMATION ..........................................   22

      ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................   22

SIGNATURES                                                                   23
</TABLE>


<PAGE>   3
                         PART I - FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS.

                        INLAND ENTERTAINMENT CORPORATION
                                 BALANCE SHEETS
                        JUNE 30, 1997 AND MARCH 31, 1998


<TABLE>
<CAPTION>
                                                                      June 30, 1997        March 31, 1998
                                                                      -------------        --------------
<S>                                                                   <C>                  <C>        
                                                                                            (Unaudited)
                                     ASSETS

CURRENT ASSETS:
      Cash and cash equivalents....................................    $ 8,004,078          $ 9,151,807
      Accounts receivable..........................................         70,100              146,140
      Prepaid expenses and other current assets....................         58,069              272,289
                                                                       -----------          -----------

                Total current assets...............................      8,132,247            9,570,236
RESTRICTED CASH AND OTHER INVESTMENTS                                    1,981,750            2,115,320
OTHER NON-CURRENT ASSETS
           Receivables due after one year..........................        240,000              481,131
           Furniture and equipment, net............................        159,633            1,000,397
           Deferred contract costs, net............................      5,843,023            4,023,055
           Deferred taxes..........................................        270,183               52,183
           Deposits and other assets...............................         87,291              401,014
                                                                       -----------          -----------

                                                                       $16,714,127          $17,643,336
                                                                       ===========          ===========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

      Advances of future consulting fees--Barona Casino...........     $ 2,173,135          $ 1,902,517
      Current portion of long-term debt...........................       1,020,054              400,000
      Accounts payable and accrued expenses.......................         975,424            1,176,352
      Income taxes payable........................................         190,737              362,429
                                                                       -----------          -----------

                Total current liabilities.........................       4,359,350            3,841,298
                                                                       -----------          -----------

LONG TERM DEBT, LESS CURRENT PORTION..............................       6,469,591            6,300,000
COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:

      Common stock, $.001 par, 100,000,000 shares authorized,
          3,891,348 shares outstanding............................           3,855                3,891
      Additional paid in capital..................................                              122,278
      Retained earnings...........................................       5,881,331            7,375,869
                                                                       -----------          -----------
                Total shareholders' equity........................       5,885,186            7,502,038
                                                                       -----------          -----------

                                                                       $16,714,127          $17,643,336
                                                                       ===========          ===========
</TABLE>


                                       3
<PAGE>   4
                        INLAND ENTERTAINMENT CORPORATION
                            STATEMENTS OF OPERATIONS
               FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                          1997                  1998
                                                      -----------           -----------
<S>                                                   <C>                   <C>        

CONTRACT REVENUE
     Barona Casino................................    $ 4,250,000           $ 3,782,500
     Other........................................         51,663
                                                      -----------           -----------
                                                        4,301,663             3,782,500
                                                      -----------           -----------

OPERATING EXPENSES:
     General and administrative expenses..........      1,707,361             2,006,464
     Amortization of deferred contract costs......        705,869               407,095
                                                      -----------           -----------
                                                        2,413,230             2,413,559
                                                      -----------           -----------

Operating profit..................................      1,888,433             1,368,941

Other income and (expense):
     Interest income..............................         93,737               145,931
      Interest expense............................       (103,250)             (137,499)
                                                      -----------           -----------
                                                           (9,513)                8,432
                                                      -----------           -----------
Income before income taxes........................      1,878,920             1,377,373

Income tax provision..............................        734,000               561,000
                                                      -----------           -----------

Net income........................................    $ 1,144,920           $   816,373
                                                      ===========           ===========

Earnings per share - basic........................    $      0.30           $      0.21
                                                      ===========           ===========
Earnings per share - diluted......................    $      0.29           $      0.20
                                                      ===========           ===========

Shares used in the computation of  income
    per share - basic.............................      3,854,548             3,887,015
                                                      ===========           ===========
Shares used in the computation of  income
    per share - diluted...........................      3,945,160             3,993,710
                                                      ===========           ===========
</TABLE>


                                       4
<PAGE>   5
                        INLAND ENTERTAINMENT CORPORATION
                            STATEMENTS OF OPERATIONS
                FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1998
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                          1997                   1998
                                                      ------------           ------------
<S>                                                   <C>                    <C>         

CONTRACT REVENUE
     Barona Casino................................    $ 11,942,500           $ 10,575,000
     Other........................................         117,480                190,469
                                                      ------------           ------------
                                                        12,059,980             10,765,469
                                                      ------------           ------------

OPERATING EXPENSES:
     General and administrative expenses..........       5,773,983              6,050,788
     Amortization of deferred contract costs......       1,945,960              2,165,888
                                                      ------------           ------------
                                                         7,719,943              8,216,676
                                                      ------------           ------------

Operating profit..................................       4,340,037              2,548,793

Other income and (expense):
     Interest income..............................         227,233                454,285
     Interest expense.............................        (222,250)              (400,540)
                                                      ------------           ------------
                                                             4,983                 53,745
                                                      ------------           ------------
Income before income taxes........................       4,354,020              2,602,538

Income tax provision..............................       1,851,000              1,108,000
                                                      ------------           ------------

Net income........................................    $  2,494,020           $  1,494,538
                                                      ============           ============

Earnings per share - basic........................    $       0.41           $       0.39
                                                      ============           ============
Earnings per share - diluted......................    $       0.40           $       0.35
                                                      ============           ============

Shares used in the computation of  income
    per share - basic.............................       6,130,455              3,872,971
                                                      ============           ============
Shares used in the computation of  income
    per share - diluted...........................       6,203,281              4,318,783
                                                      ============           ============
</TABLE>


                                       5
<PAGE>   6
                        INLAND ENTERTAINMENT CORPORATION
                            STATEMENTS OF CASH FLOWS
                FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1998
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                     1997                  1998
                                                                 -----------           -----------
<S>                                                              <C>                   <C>        

Net cash generated by (used in) operating activities:
     Net income..............................................    $ 2,494,020           $ 1,494,538
     Adjustments to reconcile net income to net cash
       provided by operating activities:
         Depreciation and amortization.......................      1,984,403             2,279,022
         Deferred taxes......................................        153,000               218,000
         Changes in assets and liabilities:
             Accounts receivable.............................        (98,453)              (76,040)
             Prepaid expenses and other current assets.......        (39,190)             (214,220)
             Deposits and other assets.......................                             (313,723)
             Accounts payable and accrued expenses...........        371,436               200,928
             Income taxes payable............................         30,800               171,692
             Advances of future consulting fees..............        343,431              (270,618)
                                                                 -----------           -----------
Net cash provided by operating activities....................      5,239,447             3,489,579
                                                                 -----------           -----------

 Cash flows provided by (used) in investing activities:
     Purchase of furniture and equipment.....................        (45,767)             (954,469)
     Deferred contract costs.................................     (1,373,295)             (115,511)
     Acquisition of revenue bonds and restricted cash........     (2,397,993)             (133,000)
                                                                 -----------           -----------
Net cash used in investing activities........................     (3,817,055)           (1,202,980)
                                                                 -----------           -----------

Cash flows provided by (used in) financing activities:
    Payment of notes payable.................................       (279,944)           (1,020,054)
    Loans to employees.......................................                             (132,462)
    Investments/other loans..................................                             (108,669)
    Sale of revenue bonds....................................        195,582
    Proceeds from exercise of stock options..................                              122,315
    Repurchase and cancellation of common stock..............       (200,000)
                                                                 -----------           -----------
Net cash provided by (used in) financing activities..........       (284,362)           (1,138,870)
                                                                 -----------           -----------

Increase (decrease) in cash..................................      1,138,030             1,147,729
Cash, beginning of period....................................      4,347,985             8,004,078
                                                                 -----------           -----------
Cash, end of period..........................................    $ 5,486,015           $ 9,151,807
                                                                 ===========           ===========

Supplemental disclosures of cash flow information:

    Interest expense paid....................................    $    63,000           $   400,942
                                                                 ===========           ===========
    Interest income received.................................    $   198,765           $   431,710
                                                                 ===========           ===========
    Income taxes paid........................................    $ 1,668,000           $   718,308
                                                                 ===========           ===========
    Issuance of notes payable in connection
             with the repurchase of common stock.............    $ 3,500,000
                                                                 ===========
</TABLE>


                                       6
<PAGE>   7
                        INLAND ENTERTAINMENT CORPORATION
                      NOTES TO INTERIM FINANCIAL STATEMENTS
                                 MARCH 31, 1998


1.      PRESENTATION OF INTERIM FINANCIAL INFORMATION.

Basis of Presentation - The accompanying interim unaudited financial statements
have been prepared by Inland Entertainment Corporation, a Utah corporation (the
"Company" or "Inland"), in conformity with generally accepted accounting
principles for interim financial information and with the rules and regulations
of the U.S. Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such regulations. The interim unaudited financial statements reflect
all normal, recurring adjustments and disclosures which are, in the opinion of
management, necessary for a fair presentation. The results of operations for the
interim periods are not necessarily indicative of the results of the full fiscal
year. The interim financial statements should be read in conjunction with the
Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1997.

Earnings per share - As of December 31, 1997, the Company adopted the Statement
of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share." The
Company was required to change the method used to calculate earnings per share
and to restate all comparative prior periods reported. The new requirements
include a calculation of basic earnings per share, using only the weighted
number of shares outstanding ("EPS - basic"), and diluted earnings per share
("EPS - diluted"), in which the dilutive effect of equivalent shares are used
assuming the exercise of all vested stock options.

2.      BUSINESS AND BASIS OF ACCOUNTING. The Company provides consulting and
other professional services for gaming operations under consulting agreements
with Native American Tribes. Currently, the Company provides services to The
Barona Group of Capitan Grande Band of Mission Indians (the "Barona Tribe") in
connection with the Barona Tribe's operation of a gaming facility located north
of Lakeside, California, in eastern San Diego County. Additionally, the Company
provided consulting services to tribes in Oregon and New Mexico.

The Company has continued to explore new business opportunities, including the
research and evaluation of other services and products focused primarily on
Internet services. The Company has established a wholly- owned foreign
subsidiary, Worldwide Media Holdings N.V., a Curacao, Netherland Antilles
corporation ("WMH"). WMH has been appointed as a marketing representative for a
gaming license holder in Curacao, Netherland Antilles. In March 1998, the
license holder opened a virtual casino web site accepting wagers only from
non-U.S. citizens named "CasinoAustralia.com" for which WMH is the marketing
representative. (See Note 7. Commitments.)

The Company reports revenues and expenses using the accrual method of
accounting. All of the Company's fee revenue for the nine months ended March 31,
1997 and 1998 was generated from services provided to the Barona Tribe, with the
exception of approximately $117,000 in fees received for work performed for a
tribe in New Mexico for the nine months ended March 31, 1997, and $190,000 in
fees received for work performed for a tribe in Oregon for the nine months ended
March 31, 1998. The operating activity from the online gaming sites has been
insignificant through March 31, 1998.

3.      AGREEMENTS WITH THE BARONA TRIBE. The Company has provided services to
the Barona Tribe since 1991. The Company was providing consulting services in
accordance with the terms and conditions of an Amended and Restated Consulting
Agreement (the "Predecessor Agreement"). During February 1998, the Company and
the Barona Tribe executed Modification #1 to the Amended and Restated Consulting
Agreement (the "Modification") which extended the term for providing consulting
services by an additional 60 months. Unless otherwise stated herein, the
Predecessor Agreement, as amended by the Modification,


                                       7
<PAGE>   8
                        INLAND ENTERTAINMENT CORPORATION
                NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 1998

shall be referred to herein as the "Barona Consulting Agreement" or the
"Consulting Agreement." The Barona Consulting Agreement expires in March 2004.

Under the terms of the Barona Consulting Agreement, the Barona Tribe has the
right to draw from the gross revenues of the Barona Casino an annual income
stream at least equal to the distributions received by the Barona Tribe for the
twelve month period ended December 31, 1995, and fees paid or payable to the
Company may accordingly be reduced.

In March 1996, the Barona Tribe submitted the Initial Consulting Agreement, (a
predecessor agreement to the Amended and Restated Consulting Agreement), to the
National Indian Gaming Commission (the "NIGC") and, in May 1996, the NIGC
determined that the Initial Consulting Agreement was not a management agreement
and, therefore, not subject to NIGC approval, and forwarded such agreement to
the Bureau of Indian Affairs (the "BIA"). In July 1997, the BIA reviewed the
Initial Consulting Agreement and determined that no further action by it with
respect to such agreement was required.

In January 1997, the Company entered into a settlement agreement with the NIGC
regarding the Company's relationship with the Barona Tribe which existed prior
to the effective date of the Initial Consulting Agreement. Under the terms of
the settlement agreement, the NIGC held, among other things, that the
relationship between the Barona Tribe and the Company had benefited the Barona
Tribe, and that the Company had not violated any law. The Company agreed to
reimburse the NIGC for administrative, investigative and legal expenses in the
aggregate amount of $250,000. In addition, the Company agreed to contribute $2
million to the Barona Tribe for general improvements on the reservation, payable
in five equal annual installments commencing in January 1997. The Company
accounted for the $2 million commitment as deferred contract costs, which will
be amortized over the remaining term of the Consulting Agreement with the Barona
Tribe.

In January 1997, the Company submitted the Predecessor Agreement to the NIGC. In
April 1997, the Company received a letter from the NIGC questioning whether the
Predecessor Agreement was in fact a management contract. The Company believes
that the NIGC will ultimately determine that the Predecessor Agreement is not a
management contract, based on (i) the May 1996 and July 1997 determinations of
the NIGC and BIA respectively, with respect to the Initial Consulting Agreement,
(ii) the NIGC's findings in the January 1997 settlement agreement and (iii) the
actual elements of the relationship between the Barona Casino and the Company.
However, there is no assurance that the NIGC will determine that the Predecessor
Agreement is not a management contract. If such a determination is not made by
the NIGC, the failure of the NIGC to approve the Predecessor Agreement (and the
Modification) could have a material adverse effect on the business and financial
condition of the Company. If the NIGC concludes that the Predecessor Agreement
(and the Modification) is not a management agreement, the NIGC will forward the
Agreement to the BIA for its review. To the extent that the BIA determines that
its approval is required, there can be no assurance that the BIA will approve
such Agreement, and such failure to approve the Predecessor Agreement (and the
Modification) may have a material adverse effect on the business and financial
condition of the Company. The Company is in the process of submitting the
Modification to the NIGC.


4.      DEFERRED CONTRACT COSTS. Pursuant to oral agreements with the Barona
Tribe, the Company has agreed to fund, or to arrange acceptable financing for,
the construction of facility improvements, furniture and equipment, the
establishment of initial working capital, and the losses, if any, of the Barona
Casino's operations. Because the Barona Tribe will not allow its land to be
encumbered and has not assumed liability for any of these obligations, the
Company has capitalized those costs incurred as deferred contract costs since
(i) the Company had the ultimate responsibility for such costs incurred in
connection with developing


                                       8
<PAGE>   9
                        INLAND ENTERTAINMENT CORPORATION
                NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 1998

the Barona Casino and (ii) management believes that these costs are fully
recoverable over the life of the Consulting Agreement through receipt of fee
income from the Barona Casino. However, given the nature of the asset, if the
recoverability is determined to be not probable, the Company will expense the
unamortized portion. On an ongoing basis, the Company reviews the valuation and
recoverability of these unamortized deferred contract costs. As part of this
review, the Company estimates the discounted present value of the future
projected net income generated by the Barona Casino and the resulting revenue to
the Company to determine whether impairment has occurred.

Amortization of the deferred costs is calculated using the straight-line method
over the remaining term of the Consulting Agreement. Under the terms of the
Consulting Agreement, title to the Barona Casino facilities, furniture and
equipment rests solely with the Barona Tribe, unless the Barona Tribe agrees
otherwise. The Consulting Agreement may be terminated by the Barona Tribe for
any material breach by the Company, as defined in such agreement. Management is
not aware of any material breach of the Consulting Agreement.

5.      RESTRICTED CASH AND OTHER INVESTMENTS. From June 1996 to May 1997, the
Company provided consulting services to the Klamath and Modoc Tribes and the
Yahooskin Band of Snake Indians (collectively, the "Klamath Tribes"). The
Klamath Tribes constructed the Kla-Mo-Ya Casino near Chiloquin, in south central
Oregon, a temporary gaming facility funded by revenue bonds issued by the
Klamath Tribes. In connection with such bond financing, the Company has a net
investment of $464,320 in revenue bonds with a principal face amount of
$500,000. In addition, as a condition of the bond financing, the Company agreed
to hold the bonds for a five year period. Pre-opening costs and expenses of
approximately $1.5 million were financed by loans made pursuant to a third-party
bank credit agreement with the Klamath Tribes. The Company pledged to such bank
a certificate of deposit for $1,518,000 as collateral for such loans.

If the Klamath Tribes are unable to pay its obligations, the Company may lose
all or a portion of its investment in the revenue bonds it purchased and its
certificate of deposit pledged as collateral for bank loans to the Klamath
Tribes, which could have a material adverse effect on the financial condition of
the Company.

Additionally, the Company issued an irrevocable letter of credit for $133,000 to
satisfy the terms of the corporate office lease agreement. Such letter of credit
will automatically renew on an annual basis until October 31, 2002 unless
canceled by the lessor.

6.      STOCK REPURCHASE/LONG-TERM DEBT.

Stock Repurchase Obligations - In March 1996, the Company repurchased its own
common stock and outstanding options from a former executive officer, director
and principal shareholder of the Company. The purchase price consisted of a
$500,000 cash payment and issuance of a $900,000, 7% unsecured promissory note,
payable in three equal installments of $342,947. The notes were paid in full in
September 1997. If the Company's common stock trading price reaches certain
levels during measurement periods prior to March 4, 1998 and 1999, such former
executive officer will be entitled to up to $250,000 in additional compensation
for each measurement period. The Company's stock trading price did not reach the
required levels for payment of additional compensation for the 1998 measurement
period.

In September 1996, the Company entered into a Stock Purchase and Settlement and
Release Agreement with two shareholders, including a former director (the "Stock
Purchase Agreement"). The terms of the Stock Purchase Agreement included (i) an
aggregate cash payment of $200,000 to such shareholders upon closing, (ii) the
issuance of two unsecured promissory notes in the aggregate principal amount of
$3,500,000,


                                       9
<PAGE>   10
                        INLAND ENTERTAINMENT CORPORATION
                NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 1998

with interest at the rate of 10% per annum, payments of interest only for the
first three years, followed by three equal annual installments of principal
repayment, with interest on the remaining balance commencing September 30, 1997,
(iii) a contingent obligation (the "Initial Contingent Obligations") to issue an
aggregate principal amount of $9,856,488 in unsecured promissory notes to such
shareholders including $2,000,000 in principal amount of notes each year for
four years and $1,856,488 in principal amount of notes to be issued in a fifth
year, each note with interest at 10%, payment of interest only for three years,
followed by three equal annual installments of principal plus interest on the
remaining principal balance, and (iv) another contingent obligation (the "Second
Contingent Obligation") to issue an additional aggregate principal amount of
$3,000,000 in unsecured promissory notes (or cash, if Company has closed a firm
commitment underwritten public offering of securities of not less than $35
million prior to the contingencies being met).

The Initial Contingent Obligations are contingent upon the Company's retained
earnings balance, with certain adjustments, being at least $4,000,000 for the
fiscal year ending immediately prior to the date the notes are to be issued. The
test is to be made each year for eight successive years commencing with the
fiscal year ending June 30, 1997. The Second Contingent Obligation is subject to
the following conditions: (i) the Barona Tribe enters into a Class III Gaming
Compact (the "Compact") with the State of California which permits the operation
of video gaming machines at the Barona Casino in San Diego County; (ii) at the
time that the Barona Tribe enters into the Compact, the Company has a consulting
agreement or similar contractual arrangement with the Barona Tribe; and (iii)
consulting fees paid to the Company by the Barona Tribe relating to the Barona
Casino for any consecutive 12-month period within five years after the Barona
Tribe has entered into the Compact, equals or exceeds one and one-half times
such consulting fees for the year ended June 30, 1996. The Company intends to
record as the additional cost of the repurchase of its common stock, each
contingent obligation as each contingency or condition is met. All payments
pursuant to the Stock Purchase Agreement are further subject to compliance with
certain state law provisions and the Company's Articles of Incorporation
concerning repurchase transactions.

As of June 30, 1997, the Company's retained earnings exceeded $4,000,000.
Accordingly, a $2,000,000 obligation has been recorded at June 30, 1997, and has
been treated as additional consideration for the common stock repurchased under
the Stock Purchase Agreement.

NIGC Settlement Obligation - In January 1997, the Company entered into a
settlement agreement with the NIGC regarding the Company's relationship with the
Barona Tribe. Under the terms of the agreement, the Company agreed to contribute
$2,000,000 to the Barona Tribe for general improvements on the Barona
reservation, payable in five equal annual installments, commencing in January
1997. Debt at March 31, 1998, includes $1,200,000 relating to the January
Settlement Agreement, of which $400,000 is currently payable.

7.      COMMITMENTS. In March 1998, WMH entered a five-year Software License and
Support Agreement (the "Software Agreement") for online casino technology and
support. An initial license fee will be amortized over the life of the Software
Agreement. WMH earns marketing fees of a percentage of the net profits of the
online casinos to promote and market such casinos. The Software Agreement is
subject to termination by the licensor for such reasons as WMH's non-compliance
with gaming and regulatory statutes, improper ownership of universal resource
locators, or the failure of the online casinos to meet certain sales targets.
Additionally, the Software Agreement obligates WMH, as the marketing
representative, to spend a minimum of $10,000 a month for the marketing and
promotion of the online casinos.

WMH is in the process of finalizing a license agreement with entertainer/singer
Kenny Rogers to be the spokesperson for a virtual casino web site it is
marketing entitled "KennyRogersCasino." Terms of such


                                       10
<PAGE>   11
                        INLAND ENTERTAINMENT CORPORATION
                NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 1998


license agreement currently provide for annual compensation of the greater of a
fixed cash payment or a percentage of the net profits of such virtual casino. An
initial payment of $40,000 was made to Mr. Rogers during March 1998. The
potential cost of this contract to WMH is not known at this time.

The Company has entered into other short-term contracts for consulting services
with commitments to vendors totaling approximately $332,000 as of March 31,
1998.

8.      CONTINGENCIES. On June 30, 1994, the U.S. Attorney's Office of the
Southern District of California ("USAO") announced a verbal understanding with a
number of Southern California tribes, including the Barona Tribe (collectively,
the "Southern District Tribes"), that allowed the Barona Tribe to continue to
operate without expansion of gaming activities subject to certain conditions.

In June 1997, as a result of a recent Supreme Court decision, the Southern
District Tribes have acknowledged that certain currently operated video gaming
devices are not within the acceptable/permissible scope of compactible gaming
under present federal and state law and agreed to the commencement of a
voluntary phase-out plan with the USAO. The phase-out plan commenced in August
1997, with the removal of 6% of each Southern District Tribe's existing video
gaming machines and continued in September 1997 with the removal of another 10%
of each Southern District Tribe's video gaming machines. The USAO stated that
the phase-out plan (i) demonstrates a good faith effort by the Southern District
Tribes to continue to cooperate with the USAO and comply with state and federal
laws, (ii) is necessary in order to minimize the impacts to affected Tribal
employees and local negative economic impacts resulting from the reduction in
gaming operations, and (iii) is expected to facilitate negotiations between the
State of California and the Southern District Tribes designed to determine the
type of machine gaming permissible (otherwise referred to as "compactible")
under federal and state laws.

In September 1997, the USAO announced that it would defer further decisions
relating to the phase-out plan until (i) the completion of the ongoing compact
negotiations between the Pala Band of Mission Indians (the "Pala Tribe") and
(ii) the establishment of a framework for future negotiations between the Pala
Tribe and the State of California, and the State of California and the other
California Tribes, including those that are presently engaged in gaming.

In March 1998, a Tribal-State Compact (the "Pala Compact") which approved
certain types of gaming activities was reached between the Pala Tribe and the
State of California. Under the Pala Compact, the Pala Tribe will be permitted to
legally offer for public play, electronic devices which are lottery based, as
well as table games consistent with those permitted in California's card clubs.
On March 13, 1998, the Pala Compact was filed with the U.S. Secretary of the
Interior (the "Secretary") and, with certain amendments, such compact was 
approved by the Secretary in April 1998.

The Pala Compact limits the total number of electronic lottery based machines to
19,900, to be divided equally among the 100 federally recognized tribes in
California. Although each tribe is allocated only 199 electronic devices, those
tribes choosing not to utilize their allocation may license it to tribes wishing
to accumulate more than the initial per tribe allocation; however, the maximum
number of electronic devices that one tribe may operate is 975.

Additionally, under the Pala Compact, employees of tribal casinos will be
offered California's worker's compensation, unemployment insurance, disability
insurance and guaranteed the right to engage in collective bargaining
activities. Patrons of such facilities will have the right to require binding
arbitration of player disputes. A tribe entering into a compact must carry
public liability insurance.


                                       11
<PAGE>   12
                        INLAND ENTERTAINMENT CORPORATION
                NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 1998


Local communities will be given the right to have an advisory vote on whether a
Native American facility should be located within a certain area. Although a
negative vote will not result in preventing the location of a gaming entity on a
reservation, it may prompt negotiations for different conditions in the compact
for that area. Additionally, a tribe with a compact must make arrangements for
mitigation of environmental, police, fire, emergency or other local services.

The Barona Tribe currently operates table games which are consistent with those
permitted in California's card clubs. The Pala Compact lottery-based electronic
devices have not yet been commercially produced or tested in a true casino
environment. There is no current basis to determine whether the compact-defined
devices will produce an income stream consistent with those machines currently
in play at the Barona Casino. In the event the lottery-based devices do not
produce an income stream consistent with that being earned by the machines
currently in play at the Barona Casino, the resulting decline in revenue from
Barona operations may have a materially adverse impact on the consulting fees
paid to the Company under the Consulting Agreement.

Subsequent to the signing of the Pala Compact, the United States Attorneys in
the four California Districts announced that all Indian tribes conducting gaming
operations must decide on or before May 13, 1998 to either (i) agree to adopt a
form of the Pala Compact or (ii) cease all Class III gaming operations. In the
event a Tribe elects to not adopt a form of the Pala Compact, the Department of
Justice has stated that it would require such Tribe to either cease all Class
III gaming activities or agree to terminate Class III gaming as a condition
precedent to initiating compact negotiations with the State. California has
consented to suit from Tribes who contend the State has not engaged in good
faith compact negotiations if acceptable provisions have not been reached after
six months of bargaining. If a Tribe does not consent to either adopt the form
of Pala Compact or to cease all Class III gaming prior to compact negotiations,
the Department of Justice will seek judicial remedies to enjoin such operations.

For those Tribes who elect to be bound by a form of the Pala compact, a sixty
(60) day period from such election has been provided, during which
non-substantive changes to the compact may be negotiated. Class III games may
continue during such negotiations. However, after the compact is signed, such
operations must cease unless they are in conformity with those games permitted
under the compact. If the electronic lottery-based machines described in the
Pala Compact are not available commercially, the Tribe may continue to operate
existing machines until lottery-based machines become available, but in no event
longer than six (6) months after the compact becomes effective. Tribes
exercising this option may seek a ruling from the State as to whether the
electronic machines they operate are Class II or III. While such a ruling is
pending, a Tribe may continue to operate its existing games. The compact
contains provisions permitting amendment by mutual consent of the State and
Tribe during its effective term. However, traditional slot machines would be
prohibited by California law unless future Court decisions allow such games.

The Barona Tribe instituted suit in Federal District Court for the Northern
District of California on May 7, 1998 to seek a declaratory interpretation of
certain provisions of the Indian Gaming Regulatory Act of 1988 (25 U.S.C.
Section 2701, et seq.) and to request an injunction preventing the Department of
Justice from enforcing federal laws which may compel the cessation of Class III
games at the Barona Casino. As of May 14, 1998, there has been no hearing on
this suit. On May 14, 1998, the same Federal District Court denied a request by
another Tribe (instituted in connection with a separate suit) for issuance of a
temporary restraining order.

On May 13, 1998, the Barona Tribe elected not to adopt the Pala Compact. On May
14, 1998, the USAO announced that it had filed a civil forfeiture complaint
against the slot machines operated by the Barona Tribe. The complaint asks that
the "gambling machines" be forfeited because they are being operated by the
Barona Tribe in the absence of a tribal-state compact and, therefore, in
violation of federal and state law. The USAO's position is that, without prior
negotiation of such a compact, the machines are being operated in violation of
federal and state law. United States Attorney Alan D. Bersin stated that the
USAO, aside from filing the above-referenced suit, would not take any action
against the Barona Casino (including taking possession of the "gambling
machines") until after a hearing by the District Court Judge assigned to the
case. Mr. Bersin also stated that the USAO would raise with the District Court
the propriety of the Barona Tribe's continued possession and use of the slot
machines pending the resolution of the forfeiture complaint.

If the USAO prevails and the slot machines are removed from the Barona Casino,
there will be a significant decline in revenue from gaming operations at the
Barona Casino which will have a material adverse impact on the consulting fees
paid to the Company under the Consulting Agreement and a material adverse impact
on the financial condition of the Company.


                                       12
<PAGE>   13
Many of the laws and regulations concerning the regulation of the business of
Internet gaming in the United States and in other countries are currently being
developed. The evolution of the laws and statutes regarding Internet gaming will
have a significant impact on the Company's Internet gaming business. It is not
known at what rate or direction the evolution of such gaming regulations and
statutes will take place in the United States or around the world.


                                       13
<PAGE>   14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

OVERVIEW

Inland Entertainment Corporation (the "Company" or "Inland") provides services
for gaming operations under consulting agreements with Native American Tribes.
The Company has provided services to the Barona Group of Capitan Grande Band of
Mission Indians (the "Barona Tribe"), since 1991. The Company is currently
providing consulting services to the Barona Tribe at the Barona Casino under the
terms of Modification #1 (the "Modification") to the Amended and Restated
Consulting Agreement (as amended by the Modification, the "Barona Consulting
Agreement" or the "Consulting Agreement") which was executed during the quarter
ending March 31, 1998. The Modification, among other things, extended the terms
of the Amended and Restated Consulting Agreement for an additional 60 months.
The Company provided certain personnel, at its expense, to facilitate the
activities at the Barona Casino, and it entered into agreements such as leases
or other contracts for the benefit of the Barona Casino in which the Company was
the obligor (e.g., leases for gaming equipment, the Big Top lease, etc.).

In addition to its obligations under the Consulting Agreement and collateral
contracts for the benefit of the Barona Tribe, the Company's consulting
activities include assisting the Barona Tribe in arranging or providing
financing to support casino construction projects and monitoring of Indian
Gaming legislative and litigation matters. The financing costs have been
recognized as an asset in the financial statements of the Company, designated as
deferred contract costs, and are being amortized to expense over the remaining
life of the Consulting Agreement through March 2004. The recovery of these
deferred costs is achieved through the fees earned by Inland pursuant to
agreements with the Barona Tribe.

Over the last year, the Company has been actively researching and evaluating
business opportunities outside of Indian gaming and have focused primarily on
establishing Internet services and products to enable them to benefit from
online gaming. In March 1998, the Company established a wholly-owned foreign
subsidiary, Worldwide Media Holdings N.V. ("WMH"), a Curacao, Netherland
Antilles corporation. WMH has entered into a software license and support
agreement with Intertainet Overseas Licensing Limited, a Cyprus Corporation
("IOL"), which obligates IOL to perform casino technology and support services.
WMH also has entered into an agreement which appoints them as the marketing
representative of a Netherland Antilles company who holds a gaming license (the
"Gaming Licensee") issued by the government of the Netherland Antilles. In March
1998, the gaming licensee opened "CasinoAustralia.com," a virtual casino on the
Internet, accepting wagers only from non-U.S. citizens. WMH earns marketing fees
of a percentage of the net profits of the online casinos to promote and market
such casinos. The operating activity from the online gaming sites has been
insignificant through March 31, 1998.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
1998.

REVENUE. Revenue decreased 12.1% from approximately $4,302,000 for the three
months ended March 31, 1997 to approximately $3,783,000 for the three months
ended March 31, 1998, as a result of lower profit margins at the Barona Casino
due to an increase in operating expenses at their facility. The Company's
revenue for the three months ended March 31, 1997 and 1998 was entirely from
fees earned as a consultant to the Barona Tribe with the exception of
approximately $52,000 in fees received from consulting services provided to a
tribe in New Mexico during the three months ended March 31, 1997.

OPERATING EXPENSES. General and administrative expenses increased 17.5% from
approximately $1,707,000 for the three months ended March 31, 1997 to
approximately $2,006,000 for the three months ended March 31, 1998, resulting
primarily from increases in compensation, computer supplies and software costs
related to the development of new business opportunities primarily focused on
Internet gaming. Facilities costs also increased attributed to the Company's
relocation of its corporate offices. The increased expenses are partially offset
by decreases in charitable contributions. Additionally in the three months 


                                       14
<PAGE>   15
ended March 31, 1997, the Company incurred unreimbursed marketing expenses
related to consulting engagements in the Northwest which were not incurred
during the three months ended March 31, 1998.

Amortization of deferred contract costs decreased 42.3% from approximately
$706,000 for the three months ended March 31, 1997 to approximately $407,000 for
the three months ended March 31, 1998. The total amount of deferred contract
costs being amortized have increased primarily resulting from the addition of
the $2,000,000 commitment to the Barona Tribe. However, during the quarter ended
March 31, 1998 a new consulting agreement was entered into with the Barona Tribe
that extended the term of the contract by an additional 60 months. Therefore,
the deferred contract costs amortization period has been increased by an
additional 60 months. (See Notes to Interim Financial Statements, Note 3.
Agreements with the Barona Tribe and Note 4. Deferred Contract Costs.)

OTHER INCOME AND EXPENSE. For the three months ended March 31, 1998, interest
income was approximately $146,000 compared to approximately $94,000 for the
three months ended March 31, 1997. The increase was due to the increase in the
Company's investments and cash equivalents.

Interest expense increased from approximately $103,000 for the three months
ended March 31, 1997 to approximately $137,000 for the three months ended March
31, 1998, primarily as a result of an increase in notes payable to two major
shareholders, including a former director of the Company, in connection with the
repurchase of shares of the Company's common stock. (See Notes to Interim
Financial Statements, Note 6. Stock Repurchase/Long-term Debt.)

INCOME TAX PROVISION. The income tax provision decreased 23.6% from $734,000 for
the three months ended March 31, 1997 to $561,000 for the three months ended
March 31, 1998, based on decreased operating profit in the current quarter.


NINE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THE NINE MONTHS ENDED MARCH 31,
1998.

REVENUE. Revenue decreased 10.7% from approximately $12,060,000 for the nine
months ended March 31, 1997 to approximately $10,765,000 for the nine months
ended March 31, 1998, as a result of lower profit margins at the Barona Casino
due to an increase in operating expenses at their facility. The Company's
revenue for the nine months ended March 31, 1997 and 1998 was entirely from fees
earned as a consultant to the Barona Tribe with the exception of approximately
$117,000 in fees received from consulting services provided to a tribe in New
Mexico during the nine months ended March 31, 1997 and approximately $190,000 in
fees received from consulting services provided to a tribe in Oregon during the
nine months ended March 31, 1998.

OPERATING EXPENSES. General and administrative expenses increased 4.8% from
approximately $5,774,000 for the nine months ended March 31, 1997 to
approximately $6,051,000 for the nine months ended March 31, 1998, resulting
primarily from increases in compensation, computer supplies and software costs
related to the development of new business opportunities primarily focused on
Internet gaming. Facilities costs also increased attributed to the Company's
relocation of its corporate offices. The increased expenses are partially offset
by decreases in political contributions as this was not a significant election
year, unreimbursed marketing expenses related to consulting engagements in the
Northwest, decreased business development expenses related to the pursuit of
Indian gaming consulting work, and in the provision for doubtful accounts as
allowances were established to cover anticipated losses resulting from certain
consulting engagements.

Amortization of deferred contract costs increased 11.3% from approximately
$1,946,000 for the nine months ended March 31, 1997 to approximately $2,166,000
for the nine months ended March 31, 1998, as a result of an increase in deferred
contract costs, primarily resulting from the addition of the $2,000,000
commitment to the Barona Tribe. However, the increase has been significantly
offset by a reduction in amortization expense during the quarter ended March 31,
1998 as a new consulting agreement was entered into with the Barona Tribe that
extended the term of the contract by an additional sixty months. (See Notes to
Interim Financial Statements, Note 3. Agreements with the Barona Tribe and Note
4. Deferred Contract Costs.)

OTHER INCOME AND EXPENSE. For the nine months ended March 31, 1998, interest
income was 


                                       15
<PAGE>   16
approximately $454,000 compared to approximately $227,000 for the nine months
ended March 31, 1997. The increase was due to the increase in the Company's
investments and cash equivalents.

Interest expense increased from approximately $222,000 for the nine months ended
March 31, 1997 to approximately $401,000 for the nine months ended March 31,
1998, primarily as a result of an increase in notes payable to two major
shareholders, including a former director of the Company, in connection with the
repurchase of shares of the Company's common stock. (See Notes to Interim
Financial Statements, Note 6. Stock Repurchase/Long-term Debt.)

INCOME TAX PROVISION. The income tax provision decreased 40.1% from $1,851,000
for the nine months ended March 31, 1997 to $1,108,000 for the nine months ended
March 31, 1998, based on decreased operating profit.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal source of liquidity at March 31, 1998 consisted of cash
of $9,151,807, future revenues generated from operations and advances of future
fees under the Consulting Agreement with the Barona Tribe. The Company finances
its operations through cash provided by its operations and advances of future
fees, all (in the case of future fees) or substantially all (in the case of cash
provided by operations) derived from agreements with the Barona Tribe. The
Company believes that these sources of liquidity will be sufficient to meet the
Company's operating and capital requirements for the foreseeable future.

During the nine months ended March 31, 1998, the Company's cash position
increased approximately $1,148,000 from the June 30, 1997 balance of
approximately $8,004,000, to $9,152,000 at March 31, 1998. The increase was
provided by net cash generated by operating activities of approximately
$3,490,000 during the period, reduced by cash flows used in investing activities
of approximately $1,203,000 and financing activities of approximately
$1,139,000.

Deferred income taxes decreased $218,000 as the amortization of deferred
contract costs for tax purposes exceeded amortization of such costs for
financial statement purposes during the nine months ended March 31, 1998.

Accounts receivable increased approximately $76,000 primarily due to the
purchase and pending sale of a home to facilitate the relocation of an employee.

Prepaid expenses and other current assets increased approximately $214,000
primarily due to the purchase of software and licensing agreements related to
the Company's Internet online gaming activities.

From the inception of the Company, the Company's most significant expenditure
has been the funding of the deferred contract costs related to expansion of the
facilities at the Barona Casino. The Company has received advances against
future fees from the Barona Tribe to assist in financing such activities. The
decrease in net deferred contract costs from approximately $5,843,000 at June
30, 1997 to approximately $4,023,000 at March 31, 1998, resulted from
amortization of approximately $2,166,000, partially offset by a $346,000
increase in deferred contract costs financed by the use of $116,000 in cash flow
and $230,000 in long-term advances of future fees from the Barona Casino during
the same period. At March 31, 1998, outstanding advances of future fees from the
Barona Casino totaled approximately $1,903,000. Advances do not bear interest
and are due on demand. Debt at March 31, 1998 includes $1,200,000 due to the
Barona Tribe related to the NIGC Settlement Obligation of which $400,000 is
currently payable.

Cash flows used in investing activities for the nine months ended March 31, 1998
includes net investments in fixed assets of approximately $954,000 which
consisted primarily of tenant leasehold improvements at the new corporate
facilities and computer software and hardware related to the Company's online
gaming ventures.


                                       16
<PAGE>   17
Cash flows used in financing activities include approximately $620,000 for
repayment of promissory note to a former executive officer, director, and
principal shareholder for the repurchase of shares of common stock. This
repayment also decreased the current portion of long-term debt by approximately
$620,000. Additionally, a $400,000 payment was made pursuant to the NIGC
Settlement Obligation. (See Notes to Interim Financial Statements, Note 6. Stock
repurchase/Long-term debt.) For the nine months ended March 31, 1998, the
Company expended approximately $132,000 in loans made to employees and expended
approximately $109,000 in loans to third parties, in part, as investment
opportunities.

Cash flows provided by financing activities of approximately $122,000 is a
result of the exercise of 36,800 stock options during the nine months ended
March 31, 1998.

It is the Company's intention to assist the Barona Tribe in funding, or finding
acceptable sources of funding, for future improvements in the Barona Casino.
Depending on the nature and extent of the improvement project and, to the extent
practicable, it is the Company's intent to first explore funding such
improvement projects from the Company's working capital and through advances of
future fees, before seeking outside debt or equity financing. However, outside
sources of financing may be required or sought at any time.

The Barona Casino and all of the related facilities are capital improvements
upon land that belongs to the Barona Tribe. As such, the Company has no
ownership in any of the improvements to such land. All such improvements belong
to the Barona Tribe.

From June 1996 to May 1997, the Company provided consulting services to the
Klamath and Modoc Tribes and the Yahooskin Band of Snake Indians (collectively,
the "Klamath Tribes") to assist with the development, construction and eventual
operation of the Kla-Mo-Ya Casino, near Chiloquin, in south-central Oregon. In
connection with the financing of the Kla-Mo-Ya Casino project, the Company
expended $879,933 to purchase revenue bonds with a principal amount of $900,000,
as part of a $4,735,000 bond financing. In January 1997, the Company sold
$200,000 principal face amount of such bonds for $195,582 and in June 1997 sold
another $200,000 principal face amount of such bonds for $185,500. In addition
to the bond financing, the Company pledged a certificate of deposit for
$1,518,000 as collateral for third-party bank loans to the Klamath Tribes. If
the Kla-Mo-Ya Casino sustains operating losses after opening, the Company may
lose a portion or all of its $464,320 investment in revenue bonds, ($500,000
principal amount), and its pledged $1,518,000 certificate of deposit, which
could have a material adverse effect on the Company's liquidity and financial
condition.

Restricted cash and other investments of approximately $2,115,000 is comprised
of a bank certificate of deposit of $1,518,000 pledged as collateral by the
Company to secure loans made pursuant to a bank credit agreement with the
Klamath Tribes in connection with the development of the Kla-Mo-Ya Casino and
the Company's net investment of $464,000 in revenue bonds issued by the Klamath
Tribes. Additionally, the Company issued an irrevocable letter of credit for
$133,000 to satisfy the terms of the corporate office lease agreement. Such
letter of credit will automatically renew on an annual basis until October 31,
2002 unless canceled by the lessor. (See Notes to Interim Financial Statements,
Note 5. Restricted cash and other investments.)

WMH has entered into a long-term contract which obligates them to purchase
$120,000 a year for marketing services related to the promotion of online
casinos. Additionally, the Company has signed a letter of intent for the
licensing of additional gaming software for $175,000 of which $25,000 has been
paid as of March 31, 1998. The Company has entered into or is in the process of
entering into other miscellaneous short-term contracts for consulting services
with commitments to vendors totaling approximately $582,000 as of March 31,
1998. One of the agreements includes terms for profit sharing of one of the
virtual casinos marketed by WMH. Estimates of such costs to the Company are not
known at this time. (See Notes to Interim Financial Statements, Note 7.
Commitments.)


                                       17
<PAGE>   18
FORWARD-LOOKING STATEMENTS AND CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

Included in this Item 2, and in the Notes to the Interim Financial Statements
are certain forward-looking statements reflecting the Company's current
expectations. Although the Company believes that its expectations are based on
reasonable assumptions, there can be no assurance that the Company's financial
goals or expectations will be realized. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause the
actual results, performance, or achievements of the Company, or industry
results, to be materially different from future results, performance, or
achievements expressed or implied by such forward-looking statements. Numerous
factors may affect the Company's actual results and may cause results to differ
materially from those expressed in forward-looking statements made by or on
behalf of the Company. The Company assumes no obligation to update or revise any
such forward-looking statements or the factors listed below to reflect events or
circumstances that may arise after this report is filed, and that may have an
effect on the Company's overall performance.

-  DEPENDENCY ON REVENUES FROM THE BARONA CASINO

The Company historically and currently has derived substantially all of its
income from services provided to the Barona Tribe. While the Company is taking
steps to diversify its business activities and resulting revenues, those
activities are still in their development stage. Accordingly, any material
reduction in fees payable to the Company from the Barona Casino, whether as a
result of (i) action by regulatory authorities to remove all electronic games
from the Barona Casino deemed by them to be Class III games (See discussion
below regarding "Compact Negotiations"); (ii) a modification to the Consulting
Agreement between the Company and the Barona Tribe as a result of regulatory
compliance requirements; (iii) weakness in the operations in the Barona Casino
or (iv) otherwise, would have a material adverse affect on the business and
financial condition of the Company, if the Company could not either reduce
expenses or increase revenues from other sources.

-  COMPACT NEGOTIATIONS

The State of California is engaged in negotiations with various Indian tribes to
determine what type of gaming is permissible and the circumstances under which
it may be conducted pursuant to the form of tribal-state compact executed in
March of 1998. These negotiations are important to the Barona Tribe, as well as
other California tribes, in connection with establishing a framework for future
permissible gaming activities for Indian tribes in California. (See Notes to
Interim Financial Statement, Note 8. Contingencies.)

As a result of negotiations between the U.S. Attorney's Office of the Southern
District of California ("USAO") and several Southern California Indian tribes,
including the Barona Tribe (the "Southern District Tribes"), each of the
Southern District Tribes agreed to commence a phase-out plan of certain
electronic gaming machines.

The phase-out plan commenced in August 1997, with the removal of 6% of each
Southern District Tribe's existing video gaming machines and continued in
September 1997 with the removal of another 10% of each Southern District Tribe's
video gaming machines. The USAO stated that the phase-out plan (i) demonstrates
a good faith effort by the Southern District Tribes to continue to cooperate
with the USAO and comply with state and federal laws, (ii) is necessary in order
to minimize the impacts to affected Tribal employees and local negative economic
impacts resulting from the reduction in gaming operations, and (iii) is expected
to facilitate negotiations between the State of California and the Southern
District Tribes designed to determine the type of machine gaming permissible
(otherwise referred to as "compactible") under federal and state laws.

In September 1997, the USAO announced that it would defer further decisions
relating to the phase-out plan until (i) the completion of the ongoing compact
negotiations between the Pala Band of Mission Indians (the "Pala Tribe") and
(ii) the establishment of a framework for future negotiations between the Pala
Tribe and 


                                       18
<PAGE>   19
the State of California, and the State of California and the other California
Tribes, including those that are presently engaged in gaming.

In March 1998, a Tribal-State Compact, which approved certain types of gaming
activities, was reached between the Pala Tribe and the State of California (the
"Pala Compact"). Under the Pala Compact, the Pala Tribe will be permitted to
legally offer for public play, electronic devices which are lottery based, as
well as table games consistent with those permitted in California's card clubs.
On March 13, 1998, the Pala Compact was filed with the U.S. Secretary of the
Interior (the "Secretary") and, with certain amendments, such compact was
approved by the Secretary in April 1998.

The Pala Compact limits the total number of electronic lottery based machines to
19,900, to be divided equally among the 100 federally recognized tribes in
California. Although each tribe is allocated only 199 electronic devices, those
tribes choosing not to utilize their allocation may license it to tribes wishing
to accumulate more than the initial per tribe allocation; however, the maximum
number of electronic devices permissable by one tribe is 975.

Additionally, under the Pala Compact, employees of tribal casinos will be
offered California's worker's compensation, unemployment insurance, disability
insurance and guaranteed the right to engage in collective bargaining
activities. Patrons of such facilities will have the right to require binding
arbitration of player disputes. A tribe entering into a compact must carry
public liability insurance.

Local communities will be given the right to have an advisory vote on whether a
Native American facility should be located within a certain area. Although a
negative vote will not result in preventing the location of a gaming entity on a
reservation, it may prompt negotiations for different conditions in the compact
for that area. Additionally, a tribe with a compact must make arrangements for
mitigation of environmental, police, fire, emergency or other local services.

The Barona Tribe currently operates table games which are consistent with those
permitted in California's card clubs. The Pala Compact lottery-based electronic
devices have not yet been commercially produced or tested in a true casino
environment. There is no current basis to determine whether the compact-defined
devices will produce an income stream consistent with those machines currently
in play at the Barona Casino. In the event the lottery-based devices do not
produce an income stream consistent with that being earned by the machines
currently in play at the Barona Casino, the resulting decline in revenue from
Barona operations may have a materially adverse impact on the consulting fees
paid to the Company under the Consulting Agreement.

Subsequent to the signing of the Pala Compact, the United States Attorneys in
the four California Districts announced that all Indian tribes conducting gaming
operations must decide on or before May 13, 1998 to either (i) agree to adopt a
form of the Pala Compact or (ii) cease all Class III gaming operations. In the
event a Tribe elects to not adopt a form of the Pala Compact, the Department of
Justice has stated that it would require such Tribe to either cease all Class
III gaming activities or agree to terminate Class III gaming as a condition
precedent to initiating compact negotiations with the State. California has
consented to suit from Tribes who contend the State has not engaged in good
faith compact negotiations if acceptable provisions have not been reached after
six months of bargaining. If a Tribe does not consent to either adopt the form
of Pala Compact or to cease all Class III gaming prior to compact negotiations,
the Department of Justice will seek judicial remedies to enjoin such operations.

For those Tribes who elect to be bound by a form of the Pala compact, a sixty
(60) day period from such election has been provided, during which
non-substantive changes to the compact may be negotiated. Class III games may
continue during such negotiations. However, after the compact is signed, such
operations must cease unless they are in conformity with those games permitted
under the compact. If the electronic lottery-based machines described in the
Pala Compact are not available commercially, the Tribe may continue to operate
existing machines until lottery-based machines become available, but in no event
longer than six (6) months after the compact becomes effective. Tribes
exercising this option may seek a ruling from the State as to whether the
electronic machines they operate are Class II or III. While such a ruling is


                                       19
<PAGE>   20
pending, a Tribe may continue to operate its existing games. The compact
contains provisions permitting amendment by mutual consent of the State and
Tribe during its effective term. However, traditional slot machines would be
prohibited by California law unless future Court decisions allow such games.

The Barona Tribe instituted suit in Federal District Court for the Northern
District of California on May 7, 1998 to seek a declaratory interpretation of
certain provisions of the Indian Gaming Regulatory Act of 1988 (25 U.S.C.
Section 2701, et seq.) and to request an injunction preventing the Department of
Justice from enforcing federal laws which may compel the cessation of Class III
games at the Barona Casino. As of May 14, 1998, there has been no hearing on
this suit. On May 14, 1998, the same Federal District Court denied a request by
another Tribe (instituted in connection with a separate suit) for issuance of a
temporary restraining order. 

On May 13, 1998, the Barona Tribe elected not to adopt the Pala Compact. On May
14, 1998, the USAO announced that it had filed a civil forfeiture complaint
against the slot machines operated by the Barona Tribe. The complaint asks that
the "gambling machines" be forfeited because they are being operated by the
Barona Tribe in the absence of a tribal-state compact and, therefore, in
violation of federal and state law. The USAO's position is that, without prior
negotiation of such a compact, the machines are being operated in violation of
federal and state law. United States Attorney Alan D. Bersin stated that the
USAO, aside from filing the above-referenced suit, would not take any action
against the Barona Casino (including taking possession of the "gambling
machines") until after a hearing by the District Court Judge assigned to the
case. Mr. Bersin also stated that the USAO would raise with the District Court
the propriety of the Barona Tribe's continued possession and use of the slot
machines pending the resolution of the forfeiture complaint.

If the USAO prevails and the slot machines are removed from the Barona Casino,
there will be a significant decline in revenue from gaming operations at the
Barona Casino which will have a material adverse impact on the consulting fees
paid to the Company under the Consulting Agreement and a material adverse impact
on the financial condition of the Company.

-  EXTENSIVE REGULATORY ENVIRONMENT RELATING TO INDIAN GAMING

Gaming on Indian land is extensively regulated by Federal, State and Tribal
governments. In addition to the Compact negotiations with the State of
California referenced above, the present regulatory environment is extremely
uncertain because of certain pending litigation and legislation. Adverse
findings for any of the Indian tribes in any of the pending actions could have a
material adverse effect on the operations of the Company, as would criminal and
civil enforcement actions taken by federal agencies which could be commenced
before the outcome of such litigation is known.

In addition, all appropriate regulatory authorities have not yet approved the
Consulting Agreement. If the Consulting Agreement is not approved or is
significantly modified from the standpoint of consulting revenue, such action
would have a material adverse effect on the business and financial condition of
the Company. (See Notes to Interim Financial Statements, Note 3. Agreements with
the Barona Tribe.)


-  UNCERTAINTIES CONCERNING INTERNET GAMING

The Company's new business venture to market world-wide Internet gaming is in
its development stage and, to date, has no operating history upon which an
evaluation of the business prospects of this venture can be based.

Many of the laws and regulations concerning the regulation of the business of
Internet gaming in the United States and in other countries are currently being
developed. The evolution of the laws and statutes regarding Internet gaming will
have a significant impact on the Company's Internet gaming business. It is not
known at what rate or direction the evolution of such gaming regulations and
statutes will take place in the United States or around the world.

The Company is competing with other entities, some of which have been in the
market longer than the Company. In addition, certain current competitors and
potential future competitors have, or may have greater resources than the
Company to devote further technologies and new product developments to the
development of Internet gaming. There can be no assurance that existing or
future competitors will not develop or offer technologies that provide
significant economic, technological, creative or strategic advantages over those
offered by the Company. The Company's future success in the Internet gaming
field is dependent on the evolving regulatory and competitive environment. There
is no assurance that the Company's present and contemplated services provided to
"Internet gaming casinos" will achieve or maintain sufficient commercial
acceptance, or if they do, that regulatory developments will not diminish the


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<PAGE>   21
full economic potential of such virtual gaming sites.

-  VOLATILITY OF STOCK PRICE

The trading price of the Company's Common Stock has been, and will likely
continue to be, subject to wide fluctuations in response to Indian gaming
regulatory developments, quarterly variations in the Company's operating
results, announcements of new products or business activities by the Company or
its competitors, general market fluctuations, and other events and factors.

-  YEAR 2000 COMPLIANCE

Many of the world's computer systems currently record years in a two-digit
format. Such computer systems will be unable to properly interpret dates beyond
the year 1999, which could lead to business disruptions in the U.S. and
internationally (the "Year 2000" issue). The potential costs and uncertainties
associated with the Year 2000 issue will depend on a number of factors,
including software, hardware and the nature of the industry in which the Company
operates. Additionally, companies must coordinate with other entities with which
they electronically interact, such as customers and creditors.

The Company and WMH have evaluated all significant internal operating systems
and are actively working with its major suppliers and customers to assess their
Year 2000 compliance efforts and the Company's exposure to them. At this time,
it appears that the aggregate cost related to Year 2000 compliance issues facing
the Company, WMH, and the Company's and WMH's major suppliers and customers will
not be material.


                                       21
<PAGE>   22
                           PART II - OTHER INFORMATION

ITEM 5. OTHER INFORMATION

     On May 13, 1998, the Barona Tribe elected not to adopt the Pala Compact. On
May 14, 1998, the USAO announced that it had filed a civil forfeiture complaint
against the slot machines operated by the Barona Tribe. The complaint asks that
the "gambling machines" be forfeited because they are being operated by the
Barona Tribe in the absence of a tribal-state compact and, therefore, in
violation of federal and state law. The information set forth under Part I. Item
2. Management's Discussion and Analysis or Plan of Operation under the captions
"Forward-Looking Statements and Certain Factors That May Affect Future
Results--Dependency on Revenues from the Barona Casino" and "--Compact
Negotiation", are hereby incorporated by reference herein.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

    (a) Exhibits. The Exhibits listed below are hereby filed with the U.S.
Securities and Exchange Commission (the "Commission") as part of this Quarterly
Report on Form 10-QSB.

    Exhibit No.                      Description

        MATERIAL CONTRACTS RELATING TO MANAGEMENT COMPENSATION PLANS OR
        ARRANGEMENTS

        10.1    Settlement and Release Agreement by and between the Company and
                Duane Eberlein, dated as of February 10, 1998.

        10.2    Settlement and Release Agreement by and between the Company and
                Art Pfizenmayer, dated as of March 6, 1998.

        10.3    Consulting Agreement by and between the Company and Torrey Pines
                Consultants Inc., dated as of February 13, 1998.

        OTHER MATERIAL CONTRACTS

        10.4    Modification No. 1 to Amended and Restated Consulting Agreement
                by and between the Company and the Barona Group of Capitan
                Grande Band of Mission Indians, dated as of February 17, 1998.

        10.5    Software Supply and Support Agreement by and between Worldwide
                Media Holdings N.V. and Intertainet Overseas Licensing Limited,
                dated as of March 13, 1998.

        10.6    This Appointment of Marketing Representative by and between
                Worldwide Media Holdings N.V. and Intertainet Overseas Licensing
                Limited and Cyberluck Curacao N.V. and Bardenac Holdings N.V.,
                dated as of March 13, 1998.

        27      Financial Data Schedule.


    (b) Reports on Form 8-K. No reports on Form 8-K were filed with the 
Commission during the Company's third quarter ended March 31, 1998.


                                       22
<PAGE>   23
                                   SIGNATURES

        In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                       INLAND ENTERTAINMENT CORPORATION,
                                       a Utah Corporation



Date: May 14, 1998                     By: /S/ ANDREW B. LAUB
                                           ----------------------------------
                                           Andrew B. Laub
                                           Executive Vice President,
                                           Chief Financial Officer and
                                           Treasurer
                                           (Principal Financial Officer)


                                       23
<PAGE>   24
                                  EXHIBIT INDEX


    Exhibit No.                      Description

        MATERIAL CONTRACTS RELATING TO MANAGEMENT COMPENSATION PLANS OR
        ARRANGEMENTS

        10.1    Settlement and Release Agreement by and between the Company and
                Duane Eberlein, dated as of February 10, 1998.

        10.2    Settlement and Release Agreement by and between the Company and
                Art Pfizenmayer, dated as of March 6, 1998.

        10.3    Consulting Agreement by and between the Company and Torrey Pines
                Consultants Inc., dated as of February 13, 1998.

        OTHER MATERIAL CONTRACTS

        10.4    Modification No. 1 to Amended and Restated Consulting Agreement
                by and between the Company and the Barona Group of Capitan
                Grande Band of Mission Indians, dated as of February 17, 1998.

        10.5    Software Supply and Support Agreement by and between Worldwide
                Media Holdings N.V. and Intertainet Overseas Licensing Limited,
                dated as of March 13, 1998.

        10.6    This Appointment of Marketing Representative by and between
                Worldwide Media Holdings N.V. and Intertainet Overseas Licensing
                Limited and Cyberluck Curacao N.V. and Bardenac Holdings N.V.,
                dated as of March 13, 1998.

        27      Financial Data Schedule.