SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
--------------------------------------------------
Date of Report (Date of earliest event reported) June 11, 1996
First South Africa Corp., Ltd.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Bermuda 0-27494 N/A
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
or incorporation) File Number) Identification No.)
Clarendon House, Church Street, Hamilton HM CX, Bermuda
------------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code (809) 295-1422
Not Applicable
------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 7. FINANCIAL STATEMENT AND EXHIBITS.
(a) Financial Statements of Businesses Acquired. Provided herein on
pages F-1 to F-21 are the following financial statements of Piemans
Pantry (Proprietary) Limited ("Piemans") and Surfs Up Investments
(Proprietary) Limited ("Surfs Up")
(i) Unaudited Combined Balance Sheets at May 31, 1996;
(ii) Unaudited Combined Statements of Income for the Quarter
Ended May 31, 1995 and 1996;
(iii) Unaudited Combined Statements of Cash Flows for the
Quarter Ended May 31, 1995 and 1996;
(iv) Notes to the Unaudited Combined Financial Statements for
the Quarter Ended May 31, 1996;
(v) Reports of the Independent Auditors
(vi) Audited Combined Balance Sheets at February 28, 1995 and
February 29, 1996
(vii) Audited Combined Statements of Income for the Years Ended
February 28, 1994, February 28, 1995 and February 29, 1996
(viii) Audited Combined Statements of Cash Flows for the Years
Ended February 28, 1994, February 28, 1995 and February 29, 1996
(ix) Audited Combined Statements of Changes in Stockholders
Investments for the Years Ended February 28, 1994, February 28,
1995 and February 29, 1996
(x) Notes to the Combined Annual Financial Statements for the
Years Ended February 28, 1994, February 28, 1995 and February
29, 1996
(b) Pro Forma Financial Information. Provided herein on pages F-22 to
F-26 are the following Pro Forma Consolidated Financial Statements for
First South Africa Corp., Ltd., Piemans and Surfs Up.
(i) Unaudited Pro Forma Consolidated Balance Sheet;
(ii) Unaudited Pro Forma Consolidated Statements of Income;
(iii) Notes to Unaudited Pro Forma Consolidated Balance Sheet
and Statements of Income
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the securities exchange act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST SOUTH AFRICA CORP., LTD.
By: /s/ Clive Kabatznik
President
DATED: January 22, 1998
3
<PAGE>
PIEMANS PANTRY (PROPRIETARY) LIMITED AND
SURFS UP INVESTMENTS (PROPRIETARY) LIMITED
UNAUDITED COMBINED BALANCE SHEETS AT MAY 31, 1996
May 31,
1996
$
----------
ASSETS
Current Assets
Cash on hand 0
Receivables 2,178,497
Allowances for bad debts (78,679)
----------
2,099,819
Inventories (note 1) 391,592
Prepaid expenses and other current assets 606,553
----------
Total current assets 3,097,963
Property, plant and equipment 4,825,882
Less: Accumulated depreciation (1,401,635)
----------
3,424,248
Goodwill 12,483
----------
6,534,694
==========
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Bank overdraft 31,448
Current portion of long term debt 391,194
Trade accounts payable 1,033,479
Other provisions and accruals 385,246
Income taxes payable 639,311
----------
Total current liabilities 2,480,677
Long term debt 1,344,438
Loan from stockholders 381,098
Deferred income taxes 56,191
----------
Total liabilities 4,262,404
Stockholders investment
Capital stock
Piemans Pantry (Pty) Ltd Common stock, R1 par value -
Authorized 1000 shares, issued
100 shares in 1996. 35
Surfs Up Investments (Pty) Ltd Common stock, R1 par value -
Authorized 1000 shares, issued
100 shares in 1996. 35
Capital in excess of par 134
Retained earnings 2,734,081
Foreign currency translation adjustments (461,995)
----------
6,534,695
==========
F-1
<PAGE>
PIEMANS PANTRY (PROPRIETARY) LIMITED AND
SURFS UP INVESTMENTS (PROPRIETARY) LIMITED
UNAUDITED COMBINED STATEMENTS OF INCOME
FOR THE QUARTER ENDED MAY 31, 1995 AND 1996
May 31, May 31,
1995 1996
$ $
---------- ----------
Revenues 3,825,466 4,257,777
---------- ----------
Operating expense
Cost of sales 1,969,621 2,148,975
Selling, general and administrative costs 1,450,741 1,696,409
---------- ----------
3,420,362 3,845,384
Operating income 405,103 412,393
Other income 42,139 44,430
Interest expense (91,906) (79,982)
---------- ----------
Income before income taxes 355,336 376,841
Provisions for taxes on income (106,092) (154,684)
---------- ----------
Net income 249,244 222,158
Dividend
Retained earnings at beginning of the period 1,194,316 2,511,923
---------- ----------
Retained earnings at end of period 1,443,559 2,734,081
========== ==========
F-2
<PAGE>
PIEMANS PANTRY (PROPRIETARY) LIMITED AND
SURFS UP INVESTMENTS (PROPRIETARY) LIMITED
UNAUDITED COMBINED STATEMENTS OF CASH FLOWS
FOR THE QUARTER ENDED MAY 31, 1995 AND 1996
<TABLE>
<CAPTION>
For For
May 31, May 31,
1995 1996
$ $
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income 249,244 222,158
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 121,265 142,801
Amortization of goodwill 2,151 1,834
Deferred income taxes 0 0
Net loss/(gain) on sale of assets (16,098) (13,160)
Effect of changes in assets and liabilities (564,008) (705,740)
-------- --------
Net cash provided by operating actives (207,445) (352,107)
-------- --------
Cash flows from investing actives:
Net proceeds/(additions) to fixed assets (165,285) (166,414)
Sale/(purchase) of investments and other assets 0 0
(Increase)/decrease in loans to related companies 0 0
-------- --------
Net cash used in investing actives (164,285) (166,414)
-------- --------
Cash flows from financing actives:
Net (repayment)/borrowings in bank overdraft and factoring facility 5,387 32,344
Net proceeds/(repayments) of long term debt 390,275 61,684
Net (repayment)/borrowings in loans from related companies 0 0
Net (repayment)/borrowings in loans from stockholders (52,934) (70,503)
Net (repayment)/borrowings in short term debt (120,254) (134,112)
Net proceeds on share issue 0 0
-------- --------
Net cash provided by financing activities 212,475 (110,677)
-------- --------
Effect of exchange rate changes on cash (2,233) (69,677)
-------- --------
Net increase in cash on hand (162,488) (698,786)
Cash on hand at beginning of year 244,342 698,786
-------- --------
Cash on hand at end of year 81,854 0
======== ========
</TABLE>
F-3
<PAGE>
PIEMANS PANTRY (PROPRIETARY) LIMITED AND
SURFS UP INVESTMENTS (PROPRIETARY) LIMITED
NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MAY 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited interim financial statements
The accompanying unaudited combined financial statements of the company
have been prepared in accordance with generally accepted accounting principles
for interim financial information and in accordance with item Article 10 of
Regulation S-X. Accordingly they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the unaudited interim
combined financial statements contain all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial position of the
company at May 31, 1996 and 1995, and the results of operations and cashflows
for the periods presented. Results for interim periods are not necessarily
indicative of results to be expected for the full year. Piemans Pantry
(Proprietary) Limited and Surfs Up Investments (Proprietary) Limited were under
common control from the date of organization.
2. INVENTORY
Inventory for the period ended May 31, consists of the following:
May 31,
1996
$
-------
Finished goods 144,418
Ingredients and work in progress 143,887
Packaging 101,544
Clearing materials 1,210
Fuel 534
-------
391,592
=======
3. CONTINGENT LIABILITIES
South African secondary tax on companies at 12.5 percent is payable on
all future dividend declarations.
4. EVENTS SUBSEQUENT TO MAY 31, 1996
Subsequent to May 31, 1996, an agreement was reached to dispose of 100
percent of the equity of the companies to First South African Holdings
(Proprietary) Limited, a subsidiary of First South Africa Corp., Ltd, an entity
under common control.
F-4
<PAGE>
[LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Piemans Pantry (Proprietary) Limited and Surfs-up
Investments (Proprietary) Limited:
We have audited the accompanying combined balance sheet of Piemans Pantry
(Proprietary) Limited and Surfs-up Investments (Proprietary) Limited at February
29, 1996 and the results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles in the
United States. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit. The financial statements of
Piemans Pantry (Proprietary) Limited and Surfs-up Investments (Proprietary)
Limited at February 28, 1995 and 1994 were audited by other auditors whose
reports dated May 15, 1995 and June 15, 1994 respectively, expressed unqualified
opinions on those statements prepared in conformity with South African statutory
accounting principles.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. Our audit included examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above presents
fairly, in all material respects, the financial position of Piemans Pantry
(Proprietary) Limited and Surfs-up Investments (Proprietary) Limited at February
29, 1996, and the results of its operations and cash flows for the year then
ended in conformity with generally accepted accounting principles in the United
States.
We have also audited the adjustments to combine the financial statements of
Piemans Pantry (Proprietary) Limited and Surfs-up Investments (Proprietary)
Limited at and for the years ended February 28, 1995 and 1994, and to convert
the financial statements from South African statutory accounting principles to
generally accepted accounting principles in United States. In our opinion, such
adjustments are appropriate and have been properly applied.
/s/ Price Waterhouse
Sandton, South Africa
August 14, 1996
F-5
<PAGE>
[LETTERHEAD]
Deloitte & Touche
REPORT OF THE INDEPENDENT AUDITORS
TO THE MEMBERS OF PIEMANS PANTRY CC
We have audited the annual financial statements for the year ended 28 February
1994 of Piemans Pantry CC which are not presented separately herein. These
financial statements are the responsibility of the members. Our responsibility
is to report on these financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance that, in all material respects, fair presentation is achieved in the
financial statements. An audit includes an evaluation of the appropriateness of
the accounting policies, an examination, on a test basis, of evidence supporting
the amounts and disclosures included in the financial statements, an assessment
of the reasonableness of significant estimates and a consideration of the
appropriateness of the overall financial statement presentation. We consider
that our audit procedures were appropriate in the circumstances to express our
opinion presented below.
In our opinion these financial statements fairly present the financial position
of the close corporation at 28 February 1994, and the results of its operations
and cash flow information for the year then ended in conformity with generally
accepted accounting practice and in the manner required by the Close
Corporations Act.
/s/ Deloitte & Touche
15 June 1994
Sandton, South Africa
F-6
<PAGE>
[LETTERHEAD]
Deloitte & Touche
REPORT OF THE INDEPENDENT AUDITORS
TO THE MEMBERS OF PIEMANS PANTRY CC
We have audited the annual financial statements for the year ended 28 February
1995 of Piemans Pantry CC which are not presented separately herein. These
annual financial statements are the responsibility of the members. Our
responsibility is to report on these annual financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance that, in all material respects, fair presentation is achieved in the
annual financial statements. An audit includes an evaluation of the
appropriateness of the accounting policies, an examination, on a test basis, of
evidence supporting the amounts and disclosures included in the annual financial
statements, an assessment of the reasonableness of significant estimates and a
consideration of the appropriateness of the overall financial statement
presentation. We consider that our audit procedures were appropriate in the
circumstances to express our opinion presented below.
In our opinion these annual financial statements fairly present the financial
position of the close corporation at 28 February 1995 and the results of its
operations and cash flow information for the year then ended in conformity with
generally accepted accounting practice and in the manner required by the Close
Corporations
Act.
/S/Deloitte & Touche
15 May 1995
Sandton, South Africa
F-7
<PAGE>
[LETTERHEAD]
Deloitte & Touche
REPORT OF THE INDEPENDENT AUDITORS
TO THE MEMBERS OF SURFS UP INVESTMENTS CC
We have audited the annual financial statements for the 8 months ended February
28, 1994, of Surfs Up Investments CC which are not presented separately herein.
These annual financial statements are the responsibility of the members. Our
responsibility is to report on these annual financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance that, in all material respects, fair presentation is achieved in the
annual financial statements. An audit includes an evaluation of the
appropriateness of the accounting policies, an examination, on a test, basis, of
evidence supporting the amounts and disclosures included in the annual financial
statements, an assessment of the reasonableness of significant estimates and a
consideration of the appropriateness of the overall financial statement
presentation. We consider that our audit procedures were appropriate in the
circumstances to express our opinion presented below.
In our opinion these annual financial statements fairly present the financial
position of the close corporation at 28 February 1994, and the results of its
operations and cash flow information for the 8 months then ended in conformity
with generally accepted accounting practice and in the manner required by the
Close Corporations Act.
/s/ Deloitte & Touche
15 June 1994
Sandton, South Africa
F-8
<PAGE>
[LETTERHEAD]
Deloitte & Touche
REPORT OF THE INDEPENDENT AUDITORS
TO THE MEMBERS OF SURFS-UP INVESTMENTS CC
We have audited the annual financial statements for the year ended 28 February
1995 of Surfs Up Investments CC which are not presented separately herein. These
annual financial statements are the responsibility of the members. Our
responsibility is to report on these annual financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance that, in all material respects, fair presentation is achieved in the
annual financial statements. An audit includes an evaluation of the
appropriateness of the accounting policies, an examination, on a test-basis, of
evidence supporting the amounts and disclosures included in the annual financial
statements, an assessment of the reasonableness of significant estimates and a
consideration of the appropriateness of the overall financial statement
presentation. We consider that our audit procedures were appropriate in the
circumstances to express our opinion presented below.
In our opinion these annual financial statements fairly present the financial
position of the close corporation at 28 February 1995 and the results of its
operations and cash flow information for the year then ended in conformity with
generally accepted accounting practice and in the manner required by the Close
Corporations
Act.
/s/ Deloitte & Touche
15 May 1995
Sandton, South Africa
F-9
<PAGE>
PIEMANS PANTRY (PROPRIETARY) LIMITED AND
SURFS UP INVESTMENTS (PROPRIETARY) LIMITED
AUDITED COMBINED BALANCE SHEETS AT FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
<TABLE>
<CAPTION>
February 28, February 29,
1995 1996
$ $
---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash on hand 244,342 698,786
Receivables 1,296,543 2,029,860
Allowances for bad debts (6,662) (82,044)
---------- ----------
1,289,881 1,947,817
Inventories 376,371 459,790
Prepaid expenses and other current assets 181,014 74,884
---------- ----------
Total current assets 2,091,608 3,181,277
Property, plant and equipment 3,712,310 5,342,050
Less: Accumulated depreciation (997,041) (1,471,067)
---------- ----------
2,715,269 3,870,983
Goodwill 25,949 16,298
---------- ----------
4,832,826 7,068,557
========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Current portion of long term debt 483,594 595,862
Trade accounts payable 407,211 828,671
Other provisions and accruals 508,291 747,298
Income taxes payable 239,630 502,422
---------- ----------
Total current liabilities 1,628,727 2,674,252
Long term debt 1,362,187 1,467,357
Loan from stockholders 595,601 513,675
Deferred income taxes 79,986 64,192
---------- ----------
Total liabilities 3,676,501 4,719,478
Stockholders investment
Capital stock
Piemans Pantry (Pty) Ltd Common stock, R1 par
value - Authorized 1000
shares, issued 100 shares
in 1996, 1995 and 1994. 35 35
Surfs Up Investment Common stock, R1 par
(Pty) Ltd value - Authorized 1000
shares, issued 100 shares
in 1996, 1995 and 1994. 35 35
Capital in excess of par 134 134
Retained earnings 1,194,316 2,511,923
Foreign currency translation adjustments (38,195) (163,047)
---------- ----------
4,832,826 7,068,557
========== ==========
</TABLE>
F-10
<PAGE>
PIEMANS PANTRY (PROPRIETARY) LIMITED AND
SURFS UP INVESTMENTS (PROPRIETARY) LIMITED
AUDITED COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED FEBRUARY 28, 1994, FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
<TABLE>
<CAPTION>
February 28, February 28, February 29,
1994 1995 1996
$ $ $
----------- ----------- -----------
<S> <C> <C> <C>
Revenues 8,059,366 12,852,595 18,179,468
----------- ----------- -----------
Operating expense
Cost of sales 5,620,005 9,500,626 13,230,852
Selling, general and administrative costs 1,323,202 1,777,498 2,609,178
----------- ----------- -----------
6,943,207 11,278,123 15,840,030
Operating income 1,116,159 1,574,471 2,339,438
Other income 86,358 60,003 122,964
Interest expense (335,339) (397,192) (431,527)
----------- ----------- -----------
Income before income taxes 867,178 1,237,282 2,030,875
Provisions for taxes on income (362,602) (483,994) (713,268)
----------- ----------- -----------
Net income 504,576 753,288 1,317,607
Dividend
Retained earnings at beginning of the period (63,548) 442,028 1,194,316
----------- ----------- -----------
Retained earnings at end of period 441,028 1,194,316 2,511,923
=========== =========== ===========
</TABLE>
F-11
<PAGE>
PIEMANS PANTRY (PROPRIETARY) LIMITED AND
SURFS UP INVESTMENTS (PROPRIETARY) LIMITED
AUDITED COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 28, 1994, FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
<TABLE>
<CAPTION>
For For For
February 28, February 28, February 29,
1994 1995 1996
$ $ $
---------- ---------- ----------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income 504,576 753,288 1,317,607
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 227,898 481,008 656,708
Amortization of goodwill 9,351 8,749 8,523
Deferred income taxes 30,604 (3,803) (11,673)
Net loss/(gain) on sale of assets (5,707) (15,456) (28,234)
Effect of changes in assets and liabilities (202,221) (464,323) 259,322
---------- ---------- ----------
Net cash provided by operating actives 564,501 759,462 2,202,253
---------- ---------- ----------
Cash flows from investing actives:
Net (repayment)/borrowings in bank overdraft and
factoring facility (174,467) 0 0
Net proceeds/(repayments) of long term debt 52,971 98,000 192,546
Net (repayment)/borrowings in loans from related companies 0 0 0
Net (repayment)/borrowings in loans from stockholders 665,964 (20,613) (49,598)
Net (repayment)/borrowings in short term debt 127,711 195,434 146,729
Net proceeds on share issue 99 0 0
---------- ---------- ----------
Net cash provided by financing activities 1,149,025 272,821 289,676
---------- ---------- ----------
Effect of exchange rate changes on cash (32,036) (11,081) (35,679)
---------- ---------- ----------
Net increase in cash on hand (27,963) (61,136) 454,444
Cash on hand at beginning of year 333,443 305,480 244,342
---------- ---------- ----------
Cash on hand at end of year 305,480 244,342 698,786
========== ========== ==========
</TABLE>
F-12
<PAGE>
PIEMANS PANTRY (PROPRIETARY) LIMITED AND
SURFS UP INVESTMENTS (PROPRIETARY) LIMITED
AUDITED COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS INVESTMENT
FOR THE YEARS ENDED FEBRUARY 28, 1994, FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
<TABLE>
<CAPTION>
Capital Foreign
stock Capital stock Capital in currency
Piemans Surfs Up excess of Retained translation
Pantry Investments par Earnings adjustments Total
$ $ $ $ $ $
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1994 35 35 134 441,028 (13,337) 427,895
Net income 753,288 753,288
Translation adjustment (24,858) (24,858)
---------- ---------- ---------- ---------- ---------- ----------
Balance at February 28, 1996 35 35 134 1,194,316 (38,195) 1,156,324
Net income 1,317,607 1,317,607
Translation adjustment (124,852) (124,852)
---------- ---------- ---------- ---------- ---------- ----------
35 35 134 2,511,923 (163,047) 2,349,080
========== ========== ========== ========== ========== ==========
</TABLE>
F-13
<PAGE>
PIEMANS PANTRY (PROPRIETARY) LIMITED AND SURFS UP INVESTMENTS
(PROPRIETARY) LIMITED
NOTES TO THE COMBINED ANNUAL FINANCIAL STATEMENTS FOR THE YEARS ENDED
FEBRUARY 28, 1994, FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
1. BUSINESS AND FORMATION OF THE COMPANIES
Piemans Pantry (Proprietary) Limited and Surfs Up Investments (Proprietary)
Limited (the Companies) previously registered as close corporations and conduct
the following business:
Piemans Pantry (Proprietary) Limited
Manufacture and distribution of frozen and pre-baked pies and related pastry
products.
Surfs Up Investments (Proprietary) Limited
Property owning company owning the fixed property from which Piemans Pantry
(Proprietary) Limited operates.
The Companies were under common control from the date of organization.
2. SUMMARY OF ACCOUNTING POLICIES
The financial statements have been prepared in conformity with Generally
Accepted Accounting Practice in the United States of America, on the historical
cost basis and incorporate the following significant accounting policies.
Foreign currency translation
The functional currency is that of South African Rands. Accordingly the
following rates of exchange have been used for translation purposes:
Assets and liabilities are translated to United States Dollars using
the exchange rates at the balance sheet date.
Common stock is translated to United States Dollars using the
historical exchange rates at the dates of issuances.
Revenues, expenses, gains and losses are translated to United States
Dollars using weighted average exchange rates during the year.
The resultant translation adjustments are reported in the component of
stockholders investment designated as Foreign currency translation adjustment.
Foreign assets and liabilities
Transactions in foreign currencies arise as a result of plant and equipment
purchased form foreign countries. Transactions in foreign currencies are
accounted for at the rates ruling at the transaction dates. Exchange gains and
losses are charged to the income statement during the period in which they
occur. Foreign assets and liabilities of the company which are not denominated
in South African Rands are converted into South African Rands at the exchange
rates ruling at the financial year end or the rates of forward cover purchased.
Forward cover is purchased to hedge the currency exposure on foreign
liabilities.
Inventories
Inventories are valued at the lower of cost and net realizable value. Cost is
determined on the following basis:
Raw materials and consumable stores are valued at cost using the FIFO
formula.
Work in progress and finished goods are valued at direct raw material
cost plus labor and related manufacturing overhead expenses.
Redundant and slow moving inventory is identified and written down
with regard to its estimated economic or realizable value.
F-14
<PAGE>
PIEMANS PANTRY (PROPRIETARY) LIMITED AND SURFS UP INVESTMENTS
(PROPRIETARY) LIMITED
NOTES TO THE COMBINED ANNUAL FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1994, FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
Capital work in progress is classified as a fixed asset and is not
depreciated.
Property, plant and equipment
Land and buildings are stated at cost and land is not depreciated, provision is
made to recognize permanent declines in value and major improvements to land and
buildings are capitalized. Buildings, plant, machinery, vehicles, equipment and
furniture and fittings are depreciated on the straight line basis so that the
cost of the assets is written off over their estimated useful lives.
The following periods are considered appropriate:
Period
Years
-----
Buildings 20
Plant, machinery and equipment 3-10
Vehicles 5
Furniture and fittings 10
Intangible assets
Goodwill represents the excess of the cost of acquisition over the fair values
of the net identifiable assets acquired. Goodwill is recognized as an asset in
the balance sheet and is amortized, together with other intangible assets over
five years.
Gross Revenue
Gross revenue comprises the gross invoiced value of sales in respect of trading
operations, before discounts, and excludes value added taxation. The company
recognizes revenue on the accrual basis upon delivery of the products to the
customers.
Income taxes
Income tax expense is based on reported earnings before income taxes. Deferred
income taxes represent the impact of temporary differences between the amounts
of assets and liabilities recognized for financial reporting purposes and such
amounts recognized for tax purposes. Deferred taxation is provided on the
comprehensive basis and is measured by applying currently
enacted tax laws.
Fair value of financial instruments
As at the end of February 1994, 1995 and 1996, the carrying value of accounts
receivable and accounts payable approximate their fair value.
F-15
<PAGE>
PIEMANS PANTRY (PROPRIETARY) LIMITED AND SURFS UP INVESTMENTS
(PROPRIETARY) LIMITED
NOTES TO THE COMBINED ANNUAL FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1994, FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
3. INVENTORIES
Inventories for the year ended February 29, 1996, consist of the following:
February 28, February 29,
1995 1996
$ $
------- -------
Finished goods 159,175 170,651
Ingredients and work in progress 100,675 203,242
Packaging 112,264 76,842
Cleaning materials 1,350 1,285
Fuel 2,907 7,770
------- -------
376,371 459,790
Less: Valuation allowance -- --
------- -------
366,371 459,790
======= =======
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
Accumulated Net Book Net Book
Cost Depreciation value value
February 29, February 29, February 29, February 28,
1996 1996 1996 1995
$ $ $ $
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Land 91,989 -- 91,989 89,049
Buildings 1,294,938 -- 1,294,938 1,128,179
Plant, machinery and equipment 2,151,266 (986,572) 1,164,694 856,412
Vehicles 1,119,890 (482,450) 637,440 632,631
Furniture and fittings 11,708 (2,045) 9,663 8,997
Capital work in progress 672,259 -- 672,259 --
---------- ---------- ---------- ----------
5,342,050 (1,471,067) 3,870,983 2,715,269
========== ========== ========== ==========
Depreciation 656,708 481,008
========== ==========
</TABLE>
Certain plant and equipment is encumbered as security for liabilities of the
company (refer note 7)
5. INTANGIBLE ASSETS
February 28, February 28,
1995 1996
$ $
------- -------
Cost 43,248 40,743
Accumulated amortization (17,299) (24,445)
------- -------
25,949 16,298
======= =======
F-16
<PAGE>
PIEMANS PANTRY (PROPRIETARY) LIMITED AND SURFS UP INVESTMENTS
(PROPRIETARY) LIMITED
NOTES TO THE COMBINED ANNUAL FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1994, FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
6. OTHER PROVISIONS AND ACCRUALS
February 28, February 28,
1995 1996
$ $
------- -------
Other taxes payable 325,541 148,348
Other creditors 182,750 598,950
------- -------
508,291 747,298
======= =======
7. LONG TERM DEBT
<TABLE>
<CAPTION>
February 28, February 28,
1995 1996
$ $
---------- ----------
<S> <C> <C>
Findevco (Proprietary) Limited
Property finance loans bear interest at 14.5% in 1995 and 1996 874,598 724,716
Equipment finance loans bear interest at 16.9% in 1995 and 14.3 % in 1996 359,410 762,541
---------- ----------
1,234,008 1,487,256
========== ==========
Installment sale agreements bearing interest at rates linked to the prime
bank overdraft rate 578,955 553,143
Krugersdorp town council, bearing interest at 12.5% in 1995 and 1996 32,818 22,820
---------- ----------
1,845,780 2,063,219
Less: current portion (483,594) (595,862)
---------- ----------
Total long term debt 1,362,187 1,467,357
========== ==========
</TABLE>
The Findevco property finance loans are secured by first and second mortgage
bonds of $808,308 over land and buildings with a book value of $1,386,927. It is
repayable over 107 months, in amounts of $8,244 (excluding interest) and one
final installment of $8,322, commencing on June 1, 1994.
The Findevco equipment finance loans are secured by general notarial bonds of
$808,308 over all moveable asset with a book value of $1,816,797. These loans
are repayable as follows:
47 monthly installments of $7,974 (excluding interest and one final
installment of $8,540, commencing on September 1, 1994)
47 monthly installment of $10,869 (excluding interest one final
installment of $10,968, commencing on February 1, 1996)
The installment sale agreements are secured over certain assets having a book
value of $653,168. They are repayable over the next five years.
The Krugersdorp Town Council loan is secured over land with a book value of
$91,989. The loan is repayable in 60 monthly installments of $975, commencing on
May 1, 1993.
F-17
<PAGE>
PIEMANS PANTRY (PROPRIETARY) LIMITED AND SURFS UP INVESTMENTS
(PROPRIETARY) LIMITED
NOTES TO THE COMBINED ANNUAL FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1994, FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
8. LOANS FROM STOCKHOLDERS
<TABLE>
<CAPTION>
February 28, February 28,
1995 1996
$ $
------- -------
<S> <C> <C>
Loans from stockholders bearing interest at the prime bank overdraft rate 595,601 513,675
======= =======
</TABLE>
9. OPERATING LEASES
Piemans Pantry (Proprietary) Limited leases factory vehicles and equipment under
operating leases. These leases expire over the next five years.
In most cases, management expects that in the normal courses of business, leases
will be renewed or replaced by other leases.
The following schedule shows the composition of total rental expenses for all
operating leases except those with a term of one month or less:
February 28, February 28, February 28,
1994 1995 1996
$ $ $
------- ------- -------
Minimum rentals 111,667 289,224 318,947
======= ======= =======
Lease payments for the following periods (estimated for years ended February 28,
1998 to 2001) are:
Year ended February 28, $
- --------------------------------------------------------------------
1997 347,655
1998 378,943
1999 359,995
2000 25,234
2001 959
- --------------------------------------------------------------------
1,112,786
=========
10. OTHER INCOME
Other income includes, interest received, proceeds from insurance claims and
profits on disposal of assets. The major components of other income are as
follows:
February 28, February 28, February 29,
1994 1995 1996
$ $ $
------- ------- -------
Interest received 76,215 23,514 74,454
Profit on disposal of assets 5,707 15,456 28,234
Other 4,616 9,033 20,276
------- ------- -------
86,358 60,003 122,964
======= ======= =======
F-18
<PAGE>
PIEMANS PANTRY (PROPRIETARY) LIMITED AND SURFS UP INVESTMENTS
(PROPRIETARY) LIMITED
NOTES TO THE COMBINED ANNUAL FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1994, FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
11. INTEREST PAID
February 28, February 28, February 28,
1994 1995 1996
$ $ $
------- ------- -------
Bank overdraft 2,391 1,327 2,721
Loans from stockholders 118,316 107,089 102,506
Long term debt 214,632 288,777 314,771
Other -- -- 11,529
------- ------- -------
335,339 397,192 431,527
======= ======= =======
12. INCOME TAXES
Income taxes are accounted for under Statement of Financial Accounting Standards
No. 109, Accounting for Income Tax (SFAS 109), an asset and liability method.
SFAS requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the tax bases
and financial reporting bases of the Company's assets and liabilities. In
addition, SFAS 109 requires the recognition of future tax benefits, such as net
operating loss carryforwards, to the extent realization of such benefit is more
likely than no.
The provision for income taxes charged to continuing operations was as follows:
February 28, February 28, February 28,
1994 1995 1996
$ $ $
------- ------- -------
Current
South African 331,998 487,797 724,941
-------- -------- --------
Total current taxes 331,998 487,797 724,941
-------- -------- --------
Deferred
South African 30,604 (3,803) (11,673)
-------- -------- --------
Total deferred taxes 30,604 (3,803) (11,673)
-------- -------- --------
362,602 483,994 713,268
======== ======== ========
Deferred tax liabilities (assets) are comprised of the following at:
February 28, February 28, February 28,
1994 1995 1996
$ $ $
------- ------- -------
Prepaid expenses -- 1,805 6,563
Fixed assets 91,218 79,930 79,166
------- ------- -------
Gross deferred tax liabilities 91,218 81,735 85,728
------- ------- -------
Provisions for bad debts (4,152) (1,749) (21,536)
------- ------- -------
Gross deferred tax assets (4,152) (1,749) (21,536)
------- ------- -------
Net deferred tax (asset)/liability 87,066 79,986 64,192
======= ======= =======
F-19
<PAGE>
PIEMANS PANTRY (PROPRIETARY) LIMITED AND SURFS UP INVESTMENTS
(PROPRIETARY) LIMITED
NOTES TO THE COMBINED ANNUAL FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1994, FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
The provisions for income taxes differs from the amount of income tax determined
by applying the applicable South African statutory income tax rate to pre-tax
income from continuing operations as a result of the following differences:
<TABLE>
<CAPTION>
February 28, February 28, February 28,
1994 1995 1996
$ $ $
------ ------ ------
<S> <C> <C> <C>
South African Statutory tax rate 40% 35% 35%
Disallowable expenditure 0.6% 0.3% 0.5%
Prior year underprovision --% -- 3.4%
Timing differences -2.6% -0.4% --
Creation/Utilization of operating loss carryforwards -0.3% -0.4% -0.3%
Transitional levy -- 4.9% --
------ ------ ------
Effective tax rate 38.3% 39.4% 38.6%
====== ====== ======
</TABLE>
A one time transitional levy of five percent was enacted by the Receiver of
Revenue, being the Fiscal Authority of the South African Government, in respect
of years of assessment ending during the twelve months preceding March 31, 1995.
The impact of this levy on the Companys current income taxes payable for the
year ended February 28, 1995 resulted in an increase to income tax expense of
approximately $60,394. An amending tax law was enacted in 1994 which reduced
corporate income tax rates from 40 percent to 35 percent, for financial years
ending during the twelve months preceding March 31, 1995.
13. CASH FLOWS
The changes in assets and liabilities consist of the following:
<TABLE>
<CAPTION>
February 28, February 28, February 28,
1994 1995 1996
$ $ $
------------ ------------ ------------
<S> <C> <C> <C>
Increase in receivables (374,340) (452,767) (766,317)
Increase in inventory (19,964) (209,906) (110,058)
Decrease/(increase) in prepaid expenses (87,284) (101,431) 100,036
Increase in accounts payable 22,468 39,900 465,493
Increase in other provisions 272,372 259,302 280,785
Increase/(decrease) in income taxes payable (15,473) 3,579 289,383
-------- -------- --------
(202,221) (464,323) 259,322
======== ======== ========
Supplemental disclosures of cash flow information:
Interest paid 335,339 397,192 431,527
Income taxes paid 347,474 484,219 435,558
======== ======== ========
</TABLE>
14. RETIREMENT BENEFITS
The company participates in non-contributory provident and group life funds, the
Old Mutual Pension Services, Orion Plan, on behalf of all persons in the
permanent employ of the company. In terms of the provident fund, the company
contributes 5% of the employees gross salary or wage to the fund. In terms of
the group life fund, the company contributes 1% of the employees gross salary or
wage to the fund. By the nature of a provident fund there can be no unfunded
obligation or responsibility on the employer.
F-20
<PAGE>
PIEMANS PANTRY (PROPRIETARY) LIMITED AND SURFS UP INVESTMENTS
(PROPRIETARY) LIMITED
NOTES TO THE COMBINED ANNUAL FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1994, FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
Amounts charged to pension costs and contributed by the company to the funds
were as follows:
February 28, February 28, February 28,
1994 1995 1996
$ $ $
------------ ------------ ------------
Pension costs 51,805 70,245 96,235
====== ====== ======
15. PROFIT SHARE
Management receive an annual bonus, determined at the discretion of the board of
directors.
The amounts paid to management were as follows:
February 28, February 28, February 28,
1994 1995 1996
$ $ $
------------ ------------ ------------
Profit share 27,753 39,545 65,358
====== ====== ======
16. CONTINGENT LIABILITIES
South African secondary tax on companies at 12.5 percent is payable on all
future dividends declared.
17. EVENTS SUBSEQUENT TO FEBRUARY 29, 1996
Subsequent to the year end, and agreement was reach to sell 100% of the equity
of the companies to First South African Holdings (Proprietary) Limited, a
subsidiary of First South Africa Corp., Ltd, an entity under common control.
F-21
<PAGE>
FIRST SOUTH AFRICA CORP., LTD
PRO FORMA CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
Combined
Consolidated Piemans Pantry
Company and Surfs Up
March 31, February 28, Pro Forma Pro Forma
1996 1996 Adjustments Consolidated
$ $ $ $
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash on hand 8,149,681 698,786 (4,080,446) 1 4,768,021
Receivables 3,172,595 2,029,860 -- 5,202,455
Allowances for bad debts (370,056) (82,044) -- (452,100)
----------- ----------- ----------- -----------
2,802,539 1,947,817 0 4,750,356
Inventories 2,102,146 459,790 -- 2,561,936
Prepaid expenses and other current assets 148,628 74,884 -- 223,512
----------- ----------- ----------- -----------
Total current assets 13,202,994 3,181,277 (4,080,446) 12,303,825
Property, plant and equipment 3,817,970 5,342,050 -- 9,160,020
Less: Accumulated depreciation (1,201,293) (1,471,067) -- (2,672,360)
----------- ----------- ----------- -----------
2,616,677 3,870,983 -- 6,487,660
Goodwill 43,475 16,298 -- 59,773
Investment and other intangibles 96,154 -- 3,389,261 1 3,485,415
----------- ----------- ----------- -----------
15,959,300 7,068,557 (691,185) 22,336,673
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Bank overdraft 112,261 -- -- 112,261
Current portion of long term debt 419,020 595,862 -- 1,014,882
Trade accounts payable 1,222,974 828,671 -- 2,051,645
Other provisions and accruals 1,022,786 747,298 -- 1,770,084
Income taxes payable 352,160 502,422 -- 854,582
----------- ----------- ----------- -----------
Current liabilities 3,129,201 2,674,254 -- 5,803,455
Long term debt 1,308,667 1,467,357 -- 2,776,024
Loans from related companies 16,146 -- -- 16,146
Loan from stockholders -- 513,675 -- 513,675
Deferred income taxes (57,413) 64,192 -- 6,779
----------- ----------- ----------- -----------
Total liabilities 4,396,601 4,719,478 -- 9,116,079
Stockholders investment
Capital stock 399,476 70 (70) 1 2,057,371
-- -- 1,657,895 1 --
Capital in excess of par 10,496,996 134 (134) 1 10,496,996
Retained earnings 1,962,558 2,551,923 (2,511,923) 1 1,962,558
Foreign currency translation adjustments (1,296,331) (163,047) 163,047 1 (1,296,331)
----------- ----------- ----------- -----------
15,959,300 7,068,557 (691,185) 22,336,673
=========== =========== =========== ===========
</TABLE>
F-22
<PAGE>
FIRST SOUTH AFRICA CORP., LTD
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Combined
Piemans Pantry Consolidated
and Surfs Up Company
Nine months Nine months
ended February ended March 31, Pro Forma Pro Forma
29, 1996 1996 Adjustments Consolidated
$ $ $ $
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues 14,345,030 13,406,104 -- 27,751,134
=========== =========== =========== ===========
Operating expense
Cost of sales 11,244,541 8,128,789 -- 19,373,330
Selling, general and administrative costs 1,216,003 4,274,943 101,678 2 5,592,624
----------- ----------- ----------- -----------
12,460,544 12,403,732 101,678 24,965,954
Operating income 1,884,486 1,002,372 (101,678) 2,785,180
Other income 80,967 269,292 (110,675) 3 239,584
Interest expense (339,421) (777,004) -- (1,116,425)
----------- ----------- ----------- -----------
Income before income taxes 1,626,032 494,660 (212,353) 1,908,339
Provisions for taxes on income (606,275) (296,486) 35,587 2 (828,437)
3 38,736
----------- ----------- ----------- -----------
1,019,757 198,174 (176,766) 1,079,902
=========== =========== =========== ===========
Weighted average number of shares outstanding at March 31, 1996 (note 4) 1,540,928
Earnings per share 0.70
</TABLE>
F-23
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Combined Pro Forma
Piemans Pantry Consolidated
and Surfs Up Company
Year ended Pro Forma Year ended Pro Forma
May 31, 1995 Adjustments June 30, 1995 Consolidated
$ $ $ $
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues 14,224,408 - 18,114,575 32,338,983
=========== =========== =========== ===========
Operating expense
Cost of sales 9,731,801 - 11,586,025 21,317,826
Selling, general and administrative costs 2,831,734 135,570 2 5,254,604 8,221,909
----------- ----------- ----------- -----------
12,563,535 135,570 16,840,629 29,539,735
Operating income 1,660,873 (135,570) 1,273,946 2,799,248
Other income 78,860 - 178,524 257,384
Interest expense (397,602) - (744,570) (1,142,172)
----------- ----------- ----------- -----------
Income before income taxes 1,342,131 (135,570) 707,900 1,914,461
Provisions for taxes on income (520,862) 47,450 2 (360,611) (834,023)
----------- ----------- ----------- -----------
821,269 (88,121) 347,289 1,080,438
=========== =========== =========== ===========
Number of shares outstanding at June 30, 1995 (note 4) 1,174,079
Earnings per share 0.92
</TABLE>
F-24
<PAGE>
NOTES TO PRO FORMA
CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME
(unaudited)
1. Reflects the acquisition of Piemans Pantry and Surfs Up Investments
The purchase price and adjustments arising as a result of the
acquisition are as follows:
331,579 shares of FSAH class B stock issued to Piemans
Pantry and Surfs Up Investments shareholders at $5.00
each, the fair market value of the shares at the
effective date of the agreement. R1,657,895
Cash portion of purchase consideration 4,080,446
----------
Total purchase price 5,738,341
Common stockholders equity at February 28, 1996
Capital stock (70)
Capital in excess of par (134)
Retained earnings (2,511,923)
Foreign currency translation adjustments 163,047
----------
Other intangibles R3,389,261
==========
A contingent second and third installment, based on the pre tax profit of the
business combination is payable as follows:
Second installment
4 times pre tax profit for the year ended February 28, 1997 multiplies
by 20 percent, multiplied by a factor of 1,01875
Third installment
4 times pre tax profit for the year ended February 28, 1998 multiplies
by 20 percent, multiplied by a factor of 1,01875
These installments will be paid as follows:
Shares
37.5 percent of the purchase price determined by the formula above will
be settled in FSAH class B stock.
62.5 percent of the purchase price determined by the above formula will
be settled by a cash consideration.
2. Amortization of other intangibles which represent rights to intangibles
knowledge acquired from the selling stockholders. Amortized over a
twenty five year period.
Other intangibles R3,389,261
Amortization charge for the year ended May 31, 1995 135,570
==========
Taxation effect of amortization at 35%, the South African
statutory tax rate, for the year ended May 31, 1995 47,450
==========
Amortization charge for the nine months ended February 29, 1996 101,678
==========
Taxation effect of amortization at 35%, the South African
statutory tax rate, for the nine months ended February 29, 1996 35,587
==========
F-25
<PAGE>
NOTES TO PRO FORMA
CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME
(unaudited)
3. Reduction of interest income earned on cash on hand
Excess funds realized on the initial public offering was assumed to be
in an interest earning account, the interest earned has been adjusted to take
into account the purchase of Piemans Pantry and Surfs Up Investments.
Initial public offering took place on January 24, 1996.
Adjustments to interest from January 24, 1996 to March 31, 1996 at an
assumed rate of return of 15 percent, the approximate rate available in South
Africa on short term investments.
Cash consideration R4,080,446
==========
Interest reduction 110,675
==========
Taxation effect of interest reduction of 35%, the South African
Statutory tax rate. 38,736
==========
4. Calculation of weighted average number of shares outstanding at March
31, 1996 and number of shares outstanding at June 30, 1995.
March 31, 1996
The weighted average number of shares outstanding at March 31, 1996 has
been adjusted to take into account the shares issued as part of the
purchase consideration of Piemans Pantry an Surfs Up.
Weighted average number of shares per the 10Q,
March 31, 1996. 1,209,349
FSAH class B stock issued as part of the
consideration for Piemans Pantry and Surfs Up
Investments 331,579
----------
1,540,928
==========
June 30, 1995
The weighted average number of shares outstanding at June 30, 1995 has
been adjusted to take into account the shares issued as part of the
purchase consideration of Piemans Pantry and Surfs Up.
Weighted average number of shares per the 10Q,
June 30, 1995 842,500
FSAH class B stock issued as part of the consideration for
Piemans Pantry and Surfs Up Investments 331,579
----------
1,174,079
==========
F-26
