<PAGE>   1
================================================================================

                     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: December 31, 1998


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

            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: (619) 716-2100

                                 Not Applicable
                                 --------------
   (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 February 5, 1999, 4,745,286
shares of common stock, $.001 par value per share, were outstanding.

Transitional Small Business Disclosure Format (check one): Yes    No X
                                                              ---   ---



================================================================================
<PAGE>   2


                        INLAND ENTERTAINMENT CORPORATION
                                   FORM 10-QSB
                     FOR THE PERIOD ENDED DECEMBER 31, 1998
                                TABLE OF CONTENTS



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

    ITEM 1.  FINANCIAL STATEMENTS (Unaudited):

             Consolidated Balance Sheets -
             June 30, 1998 and December 31, 1998.........................       3

             Consolidated Statements of Operations -
             Three months ended December 31, 1998 and 1997...............       4
             Six months ended December 31, 1998 and 1997.................       5

             Consolidated Statements of Cash Flows -
             Six months ended December 31, 1998 and 1997.................       6

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

      ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS
                           OR PLAN OF OPERATION..........................      11

PART II.  OTHER INFORMATION

      ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .......      20
      ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...........................      20

SIGNATURES                                                                     21
</TABLE>



                                       2
<PAGE>   3

                         PART I - FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS.


                        INLAND ENTERTAINMENT CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                       DECEMBER 31, 1998 AND JUNE 30, 1998




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

CURRENT ASSETS:
  Cash and cash equivalents ........................             $  8,670,440              $  9,205,502
  Short term investments ...........................                       --                 1,876,667
  Accounts receivable ..............................                  497,811                    51,644
  Prepaid expenses and other current assets ........                  210,010                   150,024
  Prepaid income taxes .............................                  239,276                        --
  Due from Barona Casino - expansion project .......                  966,040                        --
                                                                 ------------              ------------
          Total current assets .....................               10,583,577                11,283,837

NONCURRENT ASSETS:
  Restricted cash and other investments ............                2,115,320                 2,115,320
  Employee and other receivables due after one year                   376,076                   478,756
  Property, plant and equipment, net ...............                1,121,636                 1,023,620
  Deferred contract costs, net .....................                3,520,171                 3,855,427
  Deferred taxes ...................................                  140,982                   127,982
  Goodwill, net of amortization ....................                3,608,668                        --
  Deposits and other assets ........................                  443,658                   388,613
                                                                 ------------              ------------
          Total noncurrent assets ..................               11,326,511                 7,989,718
                                                                 ------------              ------------

          Total assets .............................             $ 21,910,088              $ 19,273,555
                                                                 ============              ============


                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Advances of future consulting fees-- Barona Casino             $  2,747,957              $  2,596,930
  Current portion of long-term debt ................                  400,000                   400,000
  Deferred revenues ................................                  101,875                        --
  Accounts payable and accrued expenses ............                1,302,742                 1,150,380
  Income taxes payable .............................                       --                   228,344
                                                                 ------------              ------------
          Total current liabilities ................                4,552,574                 4,375,654

LONG-TERM DEBT, LESS CURRENT PORTION ...............                8,300,000                 8,300,000
                                                                 ------------              ------------
          Total liabilities ........................               12,852,574                12,675,654

SHAREHOLDERS' EQUITY:
  Common stock, $.001 par value, 100,000,000 shares
    authorized and 4,729,186 shares outstanding ....                    4,729                     3,924
  Additional paid in capital .......................                3,223,470                        --
  Retained earnings ................................                5,874,315                 6,683,977
  Deferred compensation ............................                  (45,000)                  (90,000)
                                                                 ------------              ------------
          Total shareholders' equity ...............                9,057,514                 6,597,901
                                                                 ------------              ------------

          Total liabilities and shareholders' equity             $ 21,910,088              $ 19,273,555
                                                                 ============              ============
</TABLE>




                                       3
<PAGE>   4

                        INLAND ENTERTAINMENT CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     FOR THE THREE MONTHS ENDED DECEMBER 31,
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                                  1998                    1997
                                                              -----------              -----------
<S>                                                           <C>                      <C>        
REVENUE
     Indian Gaming Consulting                                 $ 3,123,000              $ 3,050,969
     Other                                                        388,579                       --
                                                              -----------              -----------
                                                                3,511,579                3,050,969
                                                              -----------              -----------

OPERATING EXPENSES:
     General and administrative expenses                        4,169,493                2,082,027
     Amortization of deferred contract costs                      167,628                  885,925
                                                              -----------              -----------
                                                                4,337,121                2,967,952
                                                              -----------              -----------

Operating profit/(loss)                                          (825,542)                  83,017

Other income and (expense):
    Interest income                                               178,744                  162,047
    Interest expense                                             (187,500)                (160,722)
                                                              -----------              -----------
                                                                   (8,756)                   1,325
                                                              -----------              -----------
Income/(loss) before income taxes                                (834,298)                  84,342

Income tax provision                                               65,000                   38,000
                                                              -----------              -----------

Net income/(loss)                                             $  (899,298)             $    46,342
                                                              ===========              ===========

Net income /(loss) per share - basic                          $     (0.19)             $      0.01
                                                              ===========              ===========
Net income /(loss) per share - diluted                        $     (0.18)             $      0.01
                                                              ===========              ===========

Shares used in the computation of  net income
    per share - basic                                           4,710,312                3,881,012
                                                              ===========              ===========
Shares used in the computation of  net income
    per share - diluted                                         5,122,104                4,636,401
                                                              ===========              ===========
</TABLE>




                                       4
<PAGE>   5


                        INLAND ENTERTAINMENT CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      FOR THE SIX MONTHS ENDED DECEMBER 31,
                                   (UNAUDITED)




<TABLE>
<CAPTION>
                                                                  1998                     1997
                                                              -----------              -----------
<S>                                                           <C>                      <C>        
REVENUE
     Indian Gaming Consulting                                 $ 6,220,099              $ 6,982,969
     Other                                                        621,241                       --
                                                              -----------              -----------
                                                                6,841,340                6,982,969
                                                              -----------              -----------

OPERATING EXPENSES:
     General and administrative expenses                        7,199,568                4,044,324
     Amortization of deferred contract costs                      335,256                1,758,793
                                                              -----------              -----------
                                                                7,534,824                5,803,117
                                                              -----------              -----------

Operating profit/(loss)                                          (693,484)               1,179,852

Other income and (expense):
    Interest income                                               349,155                  308,354
    Interest expense                                             (333,333)                (263,041)
                                                              -----------              -----------
                                                                   15,822                   45,313
                                                              -----------              -----------
Income/(loss) before income taxes                                (677,662)               1,225,165

Income tax provision                                              132,000                  547,000
                                                              -----------              -----------

Net income/(loss)                                             $  (809,662)             $   678,165
                                                              ===========              ===========

Earnings/(loss) per share - basic                             $     (0.18)             $      0.18
                                                              ===========              ===========
Earnings/(loss) per share - diluted                           $     (0.16)             $      0.15
                                                              ===========              ===========

Shares used in the computation of  income
    per share - basic                                           4,463,678                3,867,780
                                                              ===========              ===========
Shares used in the computation of  income
    per share - diluted                                         4,940,515                4,438,932
                                                              ===========              ===========
</TABLE>



                                       5


<PAGE>   6

                        INLAND ENTERTAINMENT CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      FOR THE SIX MONTHS ENDED DECEMBER 31,
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                                                 1998                     1997
                                                                             -----------              -----------
<S>                                                                          <C>                      <C>        
Net cash generated by (used in) operating activities:
     Net income/(loss)                                                       $  (809,662)             $   678,165
       Adjustments to reconcile net income to net cash
         provided by operating activities:
         Depreciation and amortization                                           604,146                1,811,662
         Provision for bad debts                                                 110,000                       --
         Deferred taxes                                                          (13,000)                 192,000
         Compensation for granting of non-employee stock options                  48,000                       --
         Due from Barona Casino - expansion project                             (966,040)                      --
        Changes in operating assets and liabilities                             (664,830)                (261,104)
                                                                              ----------              -----------
Net cash provided by (used in) operating activities                           (1,691,386)               2,420,723
                                                                              ----------              -----------
 Cash flows provided by (used) in investing activities:
     Purchase of Cyberworks, Inc.                                               (741,937)                      --
     Maturity of short-term investments                                        1,876,667                       --
     Purchase of furniture and equipment                                        (162,361)                (683,596)
     Loans to employees                                                            2,294                 (132,462)
     Investments/other loans                                                       5,386                 (127,796)
     Deferred contract costs                                                          --                 (115,511)
     Acquisition of restricted cash                                                   --                 (133,000)
                                                                             -----------              -----------
     Net cash provided by (used in) investing activities                         980,049               (1,192,365)
                                                                              ----------              -----------
Cash flows provided by (used in) financing activities:
    Payment of notes payable                                                          --                 (620,054)
    Proceeds from exercise of stock options                                      176,275                  117,315
                                                                             -----------              -----------
Net cash provided by (used in) financing activities                              176,275                 (502,739)
                                                                             -----------              -----------

     Increase/(decrease) in cash                                                (535,062)                 725,619
     Cash, beginning of period                                                 9,205,502                8,004,078
                                                                             -----------              -----------
     Cash, end of period                                                     $ 8,670,440              $ 8,729,697
                                                                             ===========              ===========


Supplemental disclosures of cash flow information:
    Interest expense paid                                                    $   532,655              $   400,942
                                                                             ===========              ===========
    Income taxes paid                                                        $   606,000              $   509,000
                                                                             ===========              ===========


Non-cash investing and financing activities:
    Acquisition of Cyberworks, Inc. 
       Fair value of tangible assets                                         $   244,226
       Goodwill                                                                3,731,501
       Liabilities assumed                                                      (188,790)
       Stock issued (750,000 shares)                                          (3,045,000)
                                                                             -----------
       Cash paid                                                             $   741,937
                                                                             ===========
</TABLE>



                                       6


<PAGE>   7

                        INLAND ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998



1. PRESENTATION OF INTERIM CONSOLIDATED FINANCIAL INFORMATION. The accompanying
interim unaudited consolidated financial statements have been prepared by Inland
Entertainment Corporation and its subsidiaries Cyberworks, Inc. and Worldwide
Media Holdings, N.V., (collectively 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 consolidated financial statements reflect all normal,
recurring adjustments and disclosures which are, in the opinion of management,
necessary for a fair presentation. The interim unaudited consolidated financial
statements should be read in conjunction with the Company's Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1998 and the Current Report on
Form 8-K dated September 10, 1998. Current and future financial statements may
not be directly comparable to the Company's historical financial statements. The
results of operations for the interim period are not necessarily indicative of
the results to be expected for the full year.

2. BARONA CONSULTING AGREEMENT. The Company has provided services to the Barona
Group of Capitan Grande Band of Mission Indians (the "Barona Tribe") since 1991.
The Company provides consulting services in accordance with the terms and
conditions of an Amended and Restated Consulting Agreement (the "Amended and
Restated Consulting 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 Amended
and Restated Consulting Agreement, as amended by the Modification, shall be
referred to herein as the "Barona Consulting Agreement." The Barona Consulting
Agreement expires in March 2004.

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"). 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. The NIGC conducted an investigation of the past
relationship between the Barona Tribe and the Company that resulted in a January
1997 settlement agreement.

In January 1997, the Company submitted the Amended and Restated Consulting
Agreement to the NIGC. In April 1997, the Company received a letter from the
NIGC questioning whether the Amended and Restated Consulting Agreement was in
fact a management contract. The Company believes that the NIGC will ultimately
determine that the Amended and Restated Consulting 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 Amended and Restated
Consulting Agreement is not a management contract. If such a determination is
not made by the NIGC, the failure of the NIGC to approve the Amended and
Restated Consulting 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 Amended and Restated Consulting 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



                                       7

<PAGE>   8

                        INLAND ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998


failure to approve the Amended and Restated Consulting 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.

3. TRIBAL-STATE COMPACT. In August 1998, a Tribal-State Compact was entered into
between the State of California and the Barona Tribe (the "Barona Compact").
Management believes this Compact ended a significant amount of uncertainty and
concern about the future of gaming activities at the Barona Casino.


The Barona Compact was signed by the Governor of California and the Chairman of
the Barona Tribe on August 12, 1998; thereafter, the Barona Tribal Council voted
to submit the Barona Compact to the U.S. Secretary of the Interior (the
"Secretary"). The Secretary's approval of the Barona Compact was published in
the Federal Register on October 22, 1998; however, the State of California has
requested that the Barona Compact not become effective until sometime in 1999.

The initial term of the Barona Compact will terminate on January 1, 2009. The
Barona Tribe has the option to renew the Barona Compact for two additional five
(5) year terms upon written notice of renewal to the Governor prior to the
termination date. Such options may be denied if the Barona Tribe has been found
to have engaged in unauthorized Class III gaming on two or more occasions or has
committed violations of the terms of the Barona Compact on five or more
occasions.

In contrast to the electronic gaming machines currently in play at the Barona
Casino, the Barona Compact permits the following two Indian Lottery Games: (i)
Indian Video Lottery Match Game and (ii) Indian Video Lottery Scratcher Game.
These games are based upon the concept that casino patrons are playing against
one another and not the "house", since California prohibits house-banked games
of any kind. The Barona Tribe is allowed to operate 1,057 machines, but, similar
to other tribes, has been allocated only 199 machines. To achieve the maximum
number of gaming machines permissible, the balance of the machines must be
licensed by the Barona Tribe from other Federally-recognized tribes in
California for an annual fee of $5,000 per machine.

The Barona Tribe will be permitted to operate its existing 1,057 electronic
gaming devices for up to six months after the Barona Compact has been signed if
the Indian Lottery Games are not commercially available to the tribes. At the
present time, there are a limited number of prototype Indian Lottery devices
(machines) being tested at the Barona Casino as well as at a few other Indian
gaming facilities in Northern California. The time limitation for conversion may
be extended if the Indian Lottery devices are still not certified for operation
to the tribes or are not commercially available by that time. There are
currently plans to expand this testing at the Barona Casino in the next several
months which has been agreed to by the State. 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 operations at the Barona Casino may have a material adverse impact
on the fees paid to the Company under the Consulting Agreement.

Additionally, under the Barona Compact, employees must be provided California
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. The Barona Tribe must carry public liability insurance and agree to a
limited waiver of its sovereign immunity for settlement of patron injury claims.

In August 1998, the California Legislature passed legislation ("AB489")
specifically authorizing the Governor of the State of California to execute the
various compacts which had been negotiated between the




                                       8

<PAGE>   9


                        INLAND ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998



State of California and Indian tribes, including, the Barona Tribe. As a
non-urgency measure, AB489 was scheduled to go into effect of January 1, 1999;
however, a referendum petition to overturn AB489 qualified for the next general
election ballot, anticipated to be in March 2000. The effect of qualifying such
referendum provision is that AB489 did not become effective and will not become
effective until the voters of California vote to uphold AB489. Accordingly,
there is a legal question as to whether the Governor's signature on the Compact
between the Barona Tribe and the State of California is sufficient.

4. DUE FROM BARONA CASINO - EXPANSION PROJECT. The Barona Tribe is currently in
the planning stages of an approximately $120 million expansion project which
includes the acquisition of the Indian Lottery devices required by the Barona
Compact. The Company is in the process of assisting the Barona Casino in
obtaining third-party outside financing for the project. The Company plans to
initially share in funding the start-up costs incurred with the Barona Tribe
prior to obtaining outside financing. The Company expects that its commitment
will be approximately $4,000,000, and has advanced, on an unsecured basis,
$966,040 as of December 31, 1998. The Company and the Barona Tribe both will be
reimbursed after outside funding is obtained. These costs will be accounted for
as a receivable from the Barona Casino to the Company and are scheduled to be
reimbursed by June 30, 1999.

5. ACQUISITION. On August 27, 1998, the Company acquired all of the outstanding
shares of Cyberworks Inc., a California corporation ("Cyberworks"), an Internet
marketing and web site developer. Under the terms of the agreement, the Company
exchanged 750,000 shares of its common stock and $500,000 in cash for 100% of
the capital stock of Cyberworks. Cyberworks is being operated as a wholly-owned
subsidiary of the Company. The acquisition was accounted for as a purchase and
the accounts of Cyberworks have been included in the accompanying financial
statements for the period August 27, 1998 to December 31, 1998.

The excess of the total acquisition cost over the fair value of net assets
acquired ("goodwill") will be amortized on a straight-line basis over 10 years.
Goodwill net of amortization as of December 31, 1998 is $3,608,668 and
amortization expense of $122,833 has been recorded as of December 31, 1998. On
an ongoing basis, the Company will review the valuation and recoverability of
the unamortized goodwill costs and will expense all or any portion of
unamortized goodwill determined necessary for fair statement.

The following unaudited pro forma consolidated results of operations assume that
the purchase occurred on July 1, 1997:


<TABLE>
<CAPTION>
                                                      YEAR-TO-DATE ENDED DECEMBER 31,
                                                    1998                         1997
                                                -------------              -------------
<S>                                             <C>                        <C>          
Revenues                                        $   6,983,000              $   7,509,000
Net Income (Loss)                               $  (1,023,000)             $     509,000
Basic Net Income (Loss) per share               $       (0.22)             $        0.11
Diluted Net Income (Loss) per share             $       (0.20)             $        0.10
</TABLE>


6. 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 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




                                       9

<PAGE>   10

                        INLAND ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998



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.

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

7. NET INCOME/(LOSS) PER SHARE. Below is the reconciliation of the components of
the calculation of basic and diluted net income/(loss) per share for the time
periods indicated:


<TABLE>
<CAPTION>
                                                                               For the Three Months
                                                                                ended December 31,
                                                                            1998                     1997
                                                                        -----------              -----------
<S>                                                                     <C>                      <C>        
         Net income/(loss) available to common shareholders             ($  899,298)             $    46,342
                                                                        ===========              ===========

         Weighted average shares outstanding-- Basic                      4,710,312                3,881,012
         Effect of stock options                                            411,792                  755,389
                                                                        -----------              -----------
         Weighted average shares outstanding-- Diluted                    5,122,104                4,636,401
                                                                        ===========              ===========
</TABLE>


<TABLE>
<CAPTION>
                                                                               For the Six Months 
                                                                                ended December 31,
                                                                            1998                     1997
                                                                        -----------              -----------
<S>                                                                     <C>                      <C>        
         Net income/(loss( available to common shareholders             ($  809,662)             $   678,165
                                                                        ===========              ===========

         Weighted average shares outstanding-- Basic                      4,463,678                3,867,780
         Effect of stock options                                            476,837                  571,152
                                                                        -----------              -----------
         Weighted average shares outstanding-- Diluted                    4,940,515                4,438,932
                                                                        ===========              ===========
</TABLE>


   Options to purchase 2,598,550 shares of common stock at prices ranging from
$3.38 to $4.13 a share were outstanding during the second quarter of Fiscal
1999. They were not included in the computation of diluted EPS because the
options' exercise price was greater than the average market price of the common
shares. The options, which expire on various future dates through December 2008,
were still outstanding at December 31, 1998.




                                       10

<PAGE>   11

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

OVERVIEW

INDIAN GAMING



Inland Entertainment Corporation and its subsidiaries (the "Company" or
"Inland") are in the business of (i) providing services for gaming operations
under consulting agreements with Native American Tribes, (ii) web site
development and on-line marketing in gaming and non-gaming industries, and (iii)
consulting, marketing and promotional services to Internet casinos. 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 expires in March 2004. The base consulting fee
paid to the Company under the Consulting Agreement is based upon a net profits
formula which includes the Barona Casino's income and expenses. Accordingly,
although gross revenues of the Barona Casino may increase, the Company's
consulting revenue may not correspondingly increase because expenses at the
Barona Casino also may have increased.

From February 1992 through March 1996, the Company provided casino management
services at the Barona Casino pursuant to a management agreement with the Barona
Tribe. During that same period, funds to purchase or construct all fixed assets
such as buildings, equipment and capital improvements, were contributed to the
Barona Casino by the Company. In the aggregate, the Company contributed
approximately $13,000,000 over the period. Neither the Barona Tribe nor the
Barona Casino paid for any of the fixed assets at the Barona Casino during such
period. Due to the "investment" made by the Company to the Barona Casino,
the value of the Barona Casino has increased, thereby enhancing the potential
fees which may be earned by the Company over the life of its contractual
relationship with the Barona Tribe. These monies contributed to the Barona
Casino which have been used to purchase or construct fixed assets have been
viewed by the Company as intangible assets and referred to as "deferred contract
costs" and are being amortized to expense over the remaining life of the
Consulting Agreement through March 2004. However, given the nature of the asset,
if the recoverability is determined not to be probable, the Company will charge
to expense the unamortized portion.

In 1996, the Barona Casino had become financially self-sufficient and the
Company's relationship with the Barona Tribe had evolved from that of manager of
the Barona Casino to consultant to the Barona Tribe which was now acting as the
manager of the Barona Casino. Since the Company has transitioned from manager to
consultant, there have been only two categories of investments by the Company in
the Barona Casino. The first category related to project commitments made to the
Barona Tribe by the Company when the Company was acting as "manager" pursuant to
the management agreement. Funds attributable to this category have equaled in
the aggregate approximately $10,000. The second category related to a $2,000,000
NIGC settlement. Commencing in November 1996, the Company committed to
contribute such $2,000,000 settlement to the Barona Tribe to be used to
construct a new road and entrance to the Barona Casino.

At this time, the Company has no plans to contribute additional funds to the
Barona Casino or the Barona Tribe in the form of deferred contract costs.
However, the Company will assist the Barona Casino from time to time, in
obtaining third-party outside financing, if internal funding from the Barona
Casino is not adequate to meet the Barona Casino's project needs. With respect
to the current project to expand the Barona Casino which includes the
acquisition of the new Indian Lottery devices (machines), the Company and the
Barona Tribe will initially share in funding the start-up costs incurred prior
to obtaining outside financing. The Company expects that its commitment will be
approximately $4,000,000 (unsecured). As of early February 1999, the Company has
advanced approximately $1.1 million of the $4,000,000 expected commitment
amount. The Company and the Barona Tribe both will be reimbursed after outside
funding is



                                       11
<PAGE>   12


obtained. These costs will be accounted for as a receivable from the Barona
Casino to the Company and are scheduled to be reimbursed by June 30, 1999. These
amounts will not be accounted for as deferred contract costs.

In August 1998, a Tribal-State Compact was entered into between the State of
California and the Barona Tribe (the "Barona Compact"). The Barona Compact was
signed by the Governor of California and the Chairman of the Barona Tribe on
August 12, 1998; thereafter, the Barona Tribal Council voted to submit the
Barona Compact to the U.S. Secretary of the Interior (the "Secretary"). The
Secretary's approval of the Barona Compact was published in the Federal Register
on October 22, 1998; however, the State of California has requested that the
Barona Compact not become effective until sometime in 1999. Management believes
this Compact ended a significant amount of uncertainty and concern about the
future of gaming activities at the Barona Casino.

In October 1998, the Company made a $500,000 contribution to support "The Tribal
Government Gaming and Economic Self Sufficiency Act of 1998" (otherwise referred
to in California and herein as "Proposition 5" or the "Initiative") on the
November 1998 California General Election ballot. The Initiative was proposed by
several Indian Nations in California, together with support from certain
California State Legislators and approved by the California electorate.
Proposition 5 prescribed a model compact offered to all tribes by the State of
California, which the Governor was directed to execute or, if he did not, such
compact was deemed executed 30 days after submission to the Governor by any
Tribe. Since being approved by the voters in November 1998, there have been two
lawsuits filed in the California Supreme Court which challenge Proposition 5 on
both State and Federal grounds. At this time, it is uncertain what effect, if
any, these challenges will have on existing tribal-state compacts. Such legal
challenges have stayed the effectiveness of Proposition 5 until the California
Supreme Court rules on the State and Federal issues asserted. 

WEB SITE DEVELOPMENT BUSINESS

In August 1998, the Company acquired Cyberworks, Inc., a California corporation
("Cyberworks"), a web site developer and on-line marketing company with existing
clients in gaming and non-gaming industries to further the Company's strategic
growth into the on-line marketplace. Cyberworks was acquired for an aggregate
purchase price, excluding acquisition costs, of $3,560,000 consisting of
$500,000 cash and 750,000 shares of the Company's common stock, $.001 par value
per share. The acquisition was accounted for as a purchase and Cyberworks is
being operated as a wholly-owned subsidiary of the Company. There is only
approximately four months of Cyberworks' operating results in the Company's six
month consolidated financial statements ended December 31, 1998. Accordingly,
current and future financial statements may not be directly comparable to the
Company's historical financial statements. (See Notes to Interim Consolidated
Financial Statements, Note 5. Acquisition.)

INTERNET GAMING

In March 1998, the Company established a wholly-owned foreign subsidiary,
Worldwide Media Holdings N.V. ("WMH"), a Curacao, Netherland Antilles
corporation. WMH provides consulting services related to Internet casinos,
including the development of casino-style games and marketing and promoting of
Internet casinos through web site development, Internet advertising and
conventional advertising. Currently, WMH is providing consulting and marketing
services to international Internet casinos. WMH does not operate any of these
casinos and none of the casinos accept wagers from the United States or its
territories. WMH earns marketing fees to promote and market such casinos based
on a percentage of the net profits of the on-line casinos.

The Company has incurred significant costs in the last year to research,
evaluate and pursue new business opportunities. This ultimately resulted in the
founding of WMH and the acquisition of Cyberworks. These business segments are
now past the start-up phase and the Company is committed to significant cost
reductions, primarily in the areas of professional services and compensation,
over the next two quarters.





                                       12
<PAGE>   13

RESULTS OF OPERATIONS

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

REVENUE. Revenue increased 15.1% from $3,050,969 for the three months ended
December 31, 1997 to $3,511,579 for the three months ended December 31, 1998.
Revenues from Indian gaming consulting remained relatively flat; however, the
quarter ended December 31, 1998 included an approximately $353,000 retroactive
adjustment to the consulting fees earned from the Barona Casino based on a
revised interpretation agreed to by the Company and the Barona Tribe regarding
the computation of the consulting fees for the contract year commencing April 1,
1998 though December 31, 1998. Without taking into account the retroactive
adjustment, the consulting fees earned by the Company were lower during the
second quarter of Fiscal 1999 despite revenue growth at the Barona Casino, as a
result of lower profit margins at the Barona Casino due to an increase in
operating expenses at that facility.

In the three months ended December 31, 1998, the Company had two other sources
of revenue not present during the same quarter in the prior year, (i) $286,094
was earned by Cyberworks from web site development and on-line marketing; and
(ii) $102,485 was earned by WMH for marketing and consulting related to Internet
gaming.

OPERATING EXPENSES. General and administrative expenses increased 100.3% from
$2,082,027 for the three months ended December 31, 1997 to $4,169,493 for the
three months ended December 31, 1998, partially resulting from a $500,000
contribution the Company made to support "The Tribal Government Gaming and
Economic Self Sufficiency Act of 1998" (discussed in Overview above), as well as
approximately $300,000 in additional political contributions relating to the
November 1998 California General Election.

Additional increases were also incurred in (i) compensation due to increase in
number of employees, primarily from the acquisition of Cyberworks; (ii)
advertising, promotion and customer support of the on-line casinos; (iii) bad
debt allowances established for loans currently classified as non-current
receivables; (iv) amortization of goodwill related to the acquisition of
Cyberworks; (v) consulting fees related to providing of services to the Barona
Casino; (vi) professional services related to the development of WMH's
businesses; (vii) other general accounting and legal services; and (viii)
facilities costs.

Amortization of deferred contract costs decreased 81.1% from approximately
$886,000 for the three months ended December 31, 1997 to approximately $168,000
for the three months ended December 31, 1998. In February 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.

OTHER INCOME AND EXPENSE. For the three months ended December 31, 1998, interest
income was approximately $179,000 compared to approximately $162,000 for the
three months ended December 31, 1997. The increase was due to the increase in
the Company's investments and cash equivalents.

Interest expense increased from approximately $161,000 for the three months
ended December 31, 1997 to approximately $188,000 for the three months ended
December 31, 1998, primarily as a result of an increase in notes payable to two
shareholders, including a former director of the Company, in connection with the
repurchase of shares of the Company's common stock.

INCOME TAX PROVISION. The income tax provision increased from $38,000 for the
three months ended December 31, 1997 to $65,000 for the three months ended
December 31, 1998, despite decreased operating results in the current quarter,
as certain expenses such as political contributions and amortization of goodwill
are not deductible for tax purposes.





                                       13
<PAGE>   14


SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH THE SIX MONTHS ENDED DECEMBER
31, 1998.

REVENUE. Revenue decreased 2.0% from $6,982,969 for the six months ended
December 31, 1997 to $6,841,340 for the six months ended December 31, 1998,
primarily due to lower consulting fees earned from the Barona Casino. Despite
revenue growth at the Barona Casino, the consulting fees were lower as a result
of lower profit margins at the Barona Casino due to an increase in operating
expenses at that facility.

In the six months ended December 31, 1998, the Company had two other sources of
revenue, (i) $449,202 was earned by Cyberworks from web site development and
on-line marketing for approximately four months (since acquisition), and (ii)
$172,039 was earned by WMH for marketing and consulting related to Internet
gaming. The Company's revenue for the six months ended December 31, 1997 was
exclusively from fees earned from Indian Gaming consulting.

OPERATING EXPENSES. General and administrative expenses increased 78.0% from
$4,044,324 for the six months ended December 31, 1997 to $7,199,568 for the six
months ended December 31, 1998, partially resulting from a $500,000 contribution
the Company made to support "The Tribal Government Gaming and Economic Self
Sufficiency Act of 1998" (discussed in Overview above), as well as approximately
$300,000 in additional political contributions relating to the November 1998
California General Election.

Additional increases were also incurred in (i) compensation due to increase in
number of employees primarily from the acquisition of Cyberworks which was
partially offset by decreases in Inland's compensation expense; (ii) start up
costs, advertising, promotion and customer support of the on-line casinos; (iii)
amortization of goodwill related to the acquisition of Cyberworks; (iv) bad debt
allowances established for loans currently classified as non-current
receivables; (iv) consulting fees related to providing of services to the Barona
Casino which were partially offset by decreases on other general consulting
engagements related to corporate matters; (v) professional services related to
the development of WMH's businesses; (vi) other general accounting and legal
services; and (vii) facilities costs.

Amortization of deferred contract costs decreased 80.9% from approximately
$1,759,000 for the six months ended December 31, 1997 to approximately $335,000
for the six months ended December 31, 1998. In February 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.

OTHER INCOME AND EXPENSE. For the six months ended December 31, 1998, interest
income was approximately $349,000 compared to approximately $308,000 for the six
months ended December 31, 1997. The increase was due to the increase in the
Company's investments and cash equivalents.

Interest expense increased from approximately $263,000 for the six months ended
December 31, 1997 to approximately $333,000 for the six months ended December
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.

INCOME TAX PROVISION. The income tax provision decreased 75.9% from $547,000 for
the six months ended December 31, 1997 to $132,000 for the six months ended
December 31, 1998, based on decreased operating profit. Certain expenses, such
as political contributions and amortization of goodwill, are not deductible for
tax purposes.





                                       14
<PAGE>   15


LIQUIDITY AND CAPITAL RESOURCES

The Company's principal sources of liquidity at December 31, 1998 consisted of
unrestricted cash of $8,670,440 and future revenues generated from operations.
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 six months ended December 31, 1998, the Company's cash position
decreased $535,062 from the June 30, 1998 balance of $9,205,502, to $8,670,440
at December 31, 1998. The decrease was a result of cash flows used in operating
activities of approximately $1,691,000 offset by cash flows generated from
investing activities of approximately $980,000 and financing activities of
approximately $176,000 during the period.

Cash flows used in operating activities include: (i) $966,040 in short-term
advances to the Barona Casino for the Barona Casino expansion project discussed
above; (ii) increase in the advance of future consulting fees of approximately
$151,000 due primarily to a timing difference between consulting fees earned but
not yet paid; (iii) decreases in income tax payable of approximately $468,000
from a $228,344 liability at June 30, 1998 to a $239,376 prepaid income tax at
December 31, 1998, due to the reduction in income tax provision as a result of
decreased operating profit in the current year; and (iv) increases in accounts
receivable of approximately $300,000 primarily due to Cyberworks' billings for
services performed.

Cash flows provided by operating activities include: (i) amortization of net
deferred contract costs of approximately $335,000 which decreased net deferred
contract costs from $3,855,427 at June 30, 1998 to $3,520,171 at December 31,
1998; (ii) goodwill amortization of approximately $123,000 related to the
acquisition of Cyberworks; (iii) depreciation on property and equipment of
approximately $146,000; (iv) establishment of a bad debt reserve of $110,000
primarily for a third-party loan on the Company's books; and (iv) an increase in
deferred revenues of approximately $78,000 which represents payments received
for future services such as maintenance contracts or down payments for design
and development work to be performed by Cyberworks.

Cash flows provided by investing activities of $1,876,667 resulted from
short-term investments maturing during the six months ended December 31, 1998.
These investments were comprised of Euro-dollar time deposits, commercial paper,
and banker's acceptances with original maturities greater than three months. The
Company has similar investments as of December 31, 1998; however, there are no
investments with maturity lengths greater than three months and are, therefore,
classified as cash and cash equivalents in the financial statements.

Cash flows used by investing activities include: (i) net investments in fixed
assets of approximately $162,000, consisting primarily of computer equipment,
software and a telephone system to support the WMH business; and (ii) a $500,000
cash payment and $241,937 in acquisition related expense payments for the
purchase of Cyberworks. (See Notes to Interim Consolidated Financial Statements,
Note 5. Acquisition.)

With respect to the current project to expand the Barona Casino discussed above,
the Company and the Barona Tribe will initially share in funding the start-up
costs incurred prior to obtaining outside financing. The Company expects that
its commitment will be approximately $4,000,000 (unsecured). Advances as of
December 31, 1998 were $966,040, and as of early February 1999, the Company has
advanced approximately $1.1 million. The Company and the Barona Tribe both will
be reimbursed after outside funding is obtained. These costs will be accounted
for as a receivable from the Barona Casino to the Company and are scheduled to
be reimbursed by June 30, 1999. These amounts will not be accounted for as
deferred contract costs.




                                       15
<PAGE>   16


In 1992, there was a one-time advance of future fees under the Consulting
Agreement with the Barona Tribe of approximately $2,500,000. At the beginning of
the management relationship in 1992 between the Barona Tribe and the Company,
the Barona Tribe was not in a financial position to make required investments in
the Barona Casino. The Company invested approximately $2,500,000 into the Casino
which was accounted for as revenue to the Barona Casino and expensed by the
Company due to the uncertainty of recovery. The amount was not accounted for as
a deferred contract cost (similar to those investments discussed in the Overview
above).

As the Barona Casino became profitable between 1992 and 1994, $2,500,000 of the
initial profits of the Barona Casino were distributed to the Company and were
recorded on its books as an obligation called "Advances of Future Consulting
Fees." The Barona Casino established a corresponding receivable. When the
consulting relationship ends, the Company and the Barona Tribe will discuss how
to handle this balance. Depending on the outcome, if the obligation is forgiven
by the Barona Tribe, the Company may have an additional source of liquidity in
the sense that a debt may not need to be repaid; however, if the balance reverts
back to the Barona Casino or the Barona Tribe, the Company may have a debt to
repay. There is no indication how this issue will ultimately be resolved. All
other transactions between the two parties are being treated independently. The
remaining difference of the December 31, 1998 balance in Advances of Future
Consulting fees of $2,747,957 and the $2,500,000 is due to primarily to timing
differences between consulting revenues earned and recognized but not yet paid
and the actual payment of the consulting revenues. The increase in timing
differences of $247,957 at December 31, 1998 compared to $96,930 at June 30,
1998 is related to the retroactive consulting fees recorded in December 1998 not
yet paid as discussed in Results of Operations above.

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, 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. The Initial Contingent Obligation has been
met for the first two test periods.



                                       16
<PAGE>   17
The Company's long-term debt related to this stock repurchase is $7,500,000 as
of December 31, 1998. In addition, if all contingent obligations are met, a
maximum of $8,856,488 of aggregate additional consideration may still have to be
repaid under the Stock Purchase Agreement. Management believes that future
revenues generated from operations and unrestricted cash will be sufficient to
service and repay the aggregate amount of this long-term debt.

Restricted cash and other investment of approximately $2,115,000 includes an
irrevocable letter of credit for $133,000 to satisfy the terms of the corporate
lease agreement which will automatically renew on an annual basis until October
31, 2002, unless canceled by the lessor and the Company funds in the amount of
$1,982,320 which have been invested or pledged as security for amounts borrowed
by third parties in connection with the construction of the Kla-Mo-Ya Casino, a
gaming facility near Chiloquin, in south central Oregon. 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 issued revenue bonds to fund the construction of the
Kla-Mo-Ya Casino. 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 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. (See Notes to
Interim Consolidated Financial Statements, Note 6. Restricted cash and other
investments.)

WMH has entered into a long-term contract that obligates it to spend $120,000 a
year for marketing services related to the promotion of on-line casinos.


FORWARD-LOOKING STATEMENTS AND CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

Included in this Item 2, and in the Notes to the Interim Consolidated Financial
Statements are certain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 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 producing revenues significantly lower than revenues provided
from the Company's services to the Barona Casino. Accordingly, any material
reduction in fees payable to the Company, whether as a result of (i) market
acceptance of the new Indian Gaming Lottery devices; (ii) decreased net
operating profits due to (a) machine device licensing fees to be incurred by the
Barona Casino under the terms of the Barona Compact in order to operate at a
level of 1,057 machines or (b) increases in expenses related to the operation of
the Barona Casino or (c) other factors; or (iii) a modification to the
Consulting Agreement between the Company and the Barona Tribe as a result of
regulatory compliance requirements, could 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.




                                       17
<PAGE>   18

-    THE BARONA CONSULTING AGREEMENT

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 Consolidated Financial Statements, Note 2.-- Barona Consulting
Agreement.)

-    UNCERTAINTIES CONCERNING INTERNET GAMING

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 business venture to market world-wide
Internet gaming. It is not known at what rate or direction the evolution of such
gaming regulations and statutes will take place. 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 won't 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 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 because of 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. These
factors, coupled with the small public float, have in the past, and could in the
future, result in wide fluctuations in the market trading price.

-    YEAR 2000 READINESS DISCLOSURE

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 industries in which the
Company and its subsidiaries operate. Additionally, companies must coordinate
with other entities with which they electronically interact, such as customers
and creditors.

The Company has addressed the critical systems and related software used in the
Cyberworks business as well as Inland's internal financial and administrative
systems and has determined that they are Year 2000 compliant or are not
adversely impacted by the Year 2000 issue. No significant costs were incurred to
perform the evaluation and testing of these systems. The Company will continue
to evaluate all system upgrades, new hardware and software purchases through the
Year 2000.

The Company is addressing the impact to their most significant customer, the
Barona Casino, and the impact to WMH's on-line gaming computer software vendor.





                                       18
<PAGE>   19

The Barona Casino has formed a committee to address the Year 2000 issue. It has
a strategy which includes an analysis phase, project plan, testing phase,
implementation phase (if necessary) and a risk contingency plan. The Company is
in the process of reviewing their strategic plan and has made formal inquiries
as to their progress during the second quarter of Fiscal 1999. Their anticipated
findings related to Year 2000 compliance are not known at this time.

The on-line gaming casinos marketed and promoted by WMH are dependent on a
third-party foreign computer software supplier. The software supplier provides
both the gaming casino software as well as the electronic commerce system that
handles all wagers. The Company has requested Year 2000 compliance and
contingency plan information from this supplier and expects a response from them
during the month of March 1999. The Company is in the process of requesting Year
2000 compliance and contingency plan information from other major suppliers and
customers of the Company and its subsidiaries to assess the potential risks of
non-compliance and the resulting impact on the Company. This process will
continue throughout 1999. The Company will not be able to independently verify
that such external suppliers and customers are, in fact, Year 2000 compliant.

The Company's plan to evaluate the status of suppliers' and customers' efforts
is a means of managing risk but cannot eliminate the potential for disruption
due to third party failure. If it is determined that any of the Company's or its
subsidiaries' vendors, major suppliers, customers or other parties with which
the Company or its subsidiaries conduct business, has an issue with Year 2000
compliance, the Company will pursue alternative business relationships (with the
exception of the Barona Casino) to minimize the impact, if any, that such a
relationship(s), will have on the Company and its subsidiaries' operations. If
it is determined that the Barona Casino has as issue with Year 2000 compliance,
the Company would actively support their efforts to gain compliance in a timely
manner to mitigate system failures causing disruptions in their operations. The
cost or the likelihood of this event occurring is not known at this time.

Costs for Year 2000 compliance evaluation will be expensed as incurred and are
not expected to have a material impact on the Company's consolidated results of
operations.

The information set forth above under this caption "Year 2000 Readiness
Disclosure" relates to the Company's efforts to address the Year 2000 concerns
regarding the Company's (a) operations; (b) services, products and technologies
sold to third parties; and (c) major suppliers and customers. Such statements
are intended as Year 2000 Statements and Year 2000 Readiness Disclosures and are
subject to the Year 2000 Information Readiness Act.






                                       19
<PAGE>   20

                           PART II - OTHER INFORMATION


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

On December 11, 1998, the Company held its Annual Meeting of Shareholders. At
such Meeting, the following matters were approved by the shareholders:

     (a)  Richard T. Harrison, Thomas G. Holmes, Andrew B. Laub, Jana McKeag, G.
Fritz Opel, Charles Reibel, Cornelius E. ("Neil") Smyth and L. Donald Speer II
were each elected to served as directors of the Company to hold office for a
term of one year and until their respective successors are elected and
qualified. The tabulation of the votes cast for election of Directors was as
follows:


<TABLE>
<CAPTION>
              Nominee                            Votes For            Votes Withheld
              -------                            ---------            --------------
<S>                                             <C>                   <C>   
         Richard T. Harrison                     3,677,408                29,797
         Thomas G. Holmes                        3,677,404                29,801
         Andrew B. Laub                          3,677,408                29,797
         Jana McKeag                             3,677,138                30,067
         G. Fritz Opel                           3,677,308                29,897
         Charles Reibel                          3,677,408                29,797
         Cornelius E. ("Neil") Smyth             3,677,403                29,802
         L. Donald Speer II                      3,677,408                29,797
</TABLE>

and

     (b)  An amendment to the Company's 1995 Stock Option Plan to increase the
number of shares of the Company's common stock available for issuance thereunder
by 3,000,000. The tabulation of the votes was as follows:

<TABLE>
<S>                                   <C>
         Votes For                    3,207,598
         Votes Against                  171,043
         Abstentions                      4,831
         Broker Non-Votes               323,733
</TABLE>


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

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


<TABLE>
<CAPTION>
       Exhibit
         No.                              Description
       -------                            -----------
<S>                                   <C>
         27                           Financial Data Schedule.
</TABLE>



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






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<PAGE>   21


                                   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:         February 15, 1999              By:  /S/ ANDREW B. LAUB
                                                  -----------------------------
                                             Andrew B. Laub
                                             Executive Vice President,
                                             Chief Financial Officer and
                                             Treasurer
                                             (Principal Financial Officer)

Date:         February 15, 1999              By:  /S/ KEVIN MCINTOSH
                                                  -----------------------------
                                             Kevin McIntosh
                                             Controller
                                             (Principal Accounting Officer)




                                       21
<PAGE>   22

                                  EXHIBIT INDEX

      Exhibit
        No.                                  Description
      -------                                -----------
        27                                Financial Data Schedule.





                                       22