SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
__X__ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________to ______________
Commission file number 0-27494
-------
LEISUREPLANET HOLDINGS, LTD.
(Exact name of Registrant as Specified in Its Charter)
Bermuda Not Applicable
------- --------------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
Clarendon House, Church Street, Hamilton HM CX, Bermuda
-------------------------------------------------------
(Address of Principal Executive Offices with Zip Code)
Registrant's Telephone Number, Including Area Code: 441-295-1422
------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ____No __
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of common stock outstanding as of February 11, 2000 was
8,027,359.
<PAGE>
LEISUREPLANET HOLDINGS, LTD.
FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1999
PART I - FINANCIAL INFORMATION
ITEM 1 Unaudited Consolidated Balance Sheets at December 31, 1999 an
June 30, 1999
Unaudited Consolidated Statements of Income/(loss) and
Comprehensive Income/(loss) for the three and six months ended
December 31, 1999 and 1998
Unaudited Consolidated Statements of Cash Flows for the six
months ended December 31, 1999, 1998
Unaudited Consolidated Statement of Changes in Stockholders
Investment for the period June 30, 1999 to December 31, 1999
Notes to the Unaudited Consolidated Financial Statements for the
six months ended December 31, 1999 and 1998
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk
PART II - OTHER INFORMATION
ITEM 6 Exhibits and Reports on 8-K
SIGNATURES
<PAGE>
LEISUREPLANET HOLDINGS, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------ -------------------- ------------------
DECEMBER 31, JUNE 30,
1999 1999
$ $
- ------------------------------------------------------------------------------------ -------------------- ------------------
CURRENT ASSETS
<S> <C> <C>
Cash on hand 48,048,435 20,813,301
Trade accounts receivable 22,562,978 13,388,561
Less: Allowances for bad debts (390,081) (443,172)
--------- ---------
22,172,897 12,945,389
- ------------------------------------------------------------------------------------ -------------------- ------------------
Inventories (net) 9,751,657 9,152,575
Prepaid expenses and other current assets 4,433,187 5,236,587
Deferred income taxes - 539,884
---------- -------
- ------------------------------------------------------------------------------------ -------------------- ------------------
TOTAL CURRENT ASSETS 84,406,176 48,687,736
- ------------------------------------------------------------------------------------ -------------------- ------------------
Property, plant and equipment 33,677,625 30,777,399
Less: Accumulated depreciation (12,795,614) (11,488,982)
------------ ------------
20,882,011 19,288,417
- ------------------------------------------------------------------------------------ -------------------- ------------------
Intangible assets (net) 29,037,644 34,024,745
Deferred charges (net) 557,494 868,944
Other assets 33,279 33,988
---------- ------------
- ------------------------------------------------------------------------------------ -------------------- ------------------
134,916,604 102,903,830
- ------------------------------------------------------------------------------------ -------------------- ------------------
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ------------------------------------------------------------------------------------ -------------------- ------------------
CURRENT LIABILITIES
Bank overdraft payable 1,656,886 -
Current portion of long term debt 1,091,651 3,088,435
Trade accounts payable 15,089,201 9,058,811
Other provisions and accruals 4,775,239 4,618,283
Dividends payable 3,149 1,870,959
Other taxes payable 773,061 558,669
Income taxes payable 677,353 1,214,292
--------- ---------
- ------------------------------------------------------------------------------------ -------------------- ------------------
TOTAL CURRENT LIABILITIES 24,066,540 20,409,449
- ------------------------------------------------------------------------------------ -------------------- ------------------
Long term debt 26,975,647 33,598,244
Deferred income taxes 1,528,094 1,551,724
--------- ---------
- ------------------------------------------------------------------------------------ -------------------- ------------------
52,570,281 55,559,417
- ------------------------------------------------------------------------------------ -------------------- ------------------
Minority stockholders investment 43,962,569 32,198,314
- ------------------------------------------------------------------------------------ -------------------- ------------------
FSAH mandatory redeemable preferred stock 9,891,197 9,891,197
- ------------------------------------------------------------------------------------ -------------------- ------------------
STOCKHOLDERS INVESTMENT
Capital stock:
A class common stock, $0.01 par value - authorized 23,000,000 shares,
issued
and outstanding 7,905,947 shares (1998: 5,383,142 shares) 79,059 53,832
B class common stock, $0.01 par value - authorized 2,000,000 shares, issued
and outstanding 946,589 shares (1998: 946,589 shares) 9,466 9,466
FSAH B class common stock, R0.001 par value - authorized 10,000,000 shares,
issued and outstanding 2,671,066 shares (1998: 2,550,466 shares) 599 580
Preferred stock, $0.01 par value - authorized 5,000,000 shares, issued and
outstanding nil shares - -
Capital in excess of par 45,600,871 22,971,261
- ------------------------------------------------------------------------------------ -------------------- ------------------
Retained (loss)/earnings (1,331,710) (3,084,700)
----------- -----------
- ------------------------------------------------------------------------------------ -------------------- ------------------
44,358,285 19,950,439
- ------------------------------------------------------------------------------------ -------------------- ------------------
Foreign currency translation adjustments (15,865,728) (14,695,537)
------------ ------------
- ------------------------------------------------------------------------------------ -------------------- ------------------
28,492,557 5,254,902
----------- ---------
- ------------------------------------------------------------------------------------ -------------------- ------------------
134,916,604 102,903,830
- ------------------------------------------------------------------------------------ -------------------- ------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
LEISUREPLANET HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF INCOME/(LOSS) AND COMPREHENSIVE INCOME/(LOSS)
FOR THE THREE MONTHS ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------- --------------- ----------------
1999 1998
RESTATED
$ $
- ------------------------------------------------------------------------------------- --------------- ----------------
Revenues 30,055,350 26,054,480
---------- ----------
- ------------------------------------------------------------------------------------- --------------- ----------------
Operating expenses
Cost of sales 19,587,667 15,609,329
Selling, general and administrative costs 9,544,939 8,017,917
Loss on sale of investment in First SA Lifestyle Holdings Limited - 1,094,190
Amortization of intangibles 435,020 281580
Depreciation 1,061,980 894,642
---------- ----------
30,629,606 25,897,658
- ------------------------------------------------------------------------------------- --------------- ----------------
Operating (loss)/income (574,256) 156,822
- ------------------------------------------------------------------------------------- --------------- ----------------
Other income 6,867,317 75,123
Interest (expense)/income (298,104) 175,254
--------- -------
- ------------------------------------------------------------------------------------- --------------- ----------------
Income from consolidated companies before income taxes and minority interests 5,994,957 407,199
Provision for taxes on income (1,347,937) (859,032)
----------- ---------
- ------------------------------------------------------------------------------------- --------------- ----------------
Income/(loss)from continuing operations before minority interests 4,647,020 (451,833)
Minority interest in consolidated subsidiary companies (104,843) (1,102,264)
--------- -----------
- ------------------------------------------------------------------------------------- --------------- ----------------
Income from continuing operations 4,542,177 (1,554,097)
Income from discontinued operations - 578,723
--------- ----------
- ------------------------------------------------------------------------------------- --------------- ----------------
Net Income/(loss) 4,542,177 (975,374)
Other comprehensive (loss)/income:
Foreign currency translation adjustments (1,688,732) 182,971
----------- - -------
- ------------------------------------------------------------------------------------- --------------- ----------------
Comprehensive income/(loss) 2,853,445 (792,403)
--------- ---------
- ------------------------------------------------------------------------------------- --------------- ----------------
Basic earnings/(loss) per share from continuing operations $0.63 ($0.25)
Basic earnings per share from discontinued operations - $0.09
----- -----
- ------------------------------------------------------------------------------------- --------------- ----------------
Total basic earnings/(loss) per share $0.63 ($0.16)
----- -------
- ------------------------------------------------------------------------------------- --------------- ----------------
Diluted earnings/(loss) per share from continuing operations $0.49 ($0.25)
Diluted earnings per share from discontinued operations - $0.09
----- -----
- ------------------------------------------------------------------------------------- --------------- ----------------
Total diluted earnings/(loss) per share $0.49 ($0.16)
----- -------
- ------------------------------------------------------------------------------------- --------------- ----------------
* Additional shares were not considered in the prior year as the result would be anti-dilutive
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
LEISUREPLANET HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF INCOME/(LOSS) AND COMPREHENSIVE INCOME/(LOSS)
FOR THE SIX MONTHS ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------- -------------- ---------------
1999 1998
RESTATED
$ $
- -------------------------------------------------------------------------------------- -------------- ---------------
Revenues 52,777,288 45,311,600
---------- ----------
- -------------------------------------------------------------------------------------- -------------- ---------------
Operating expenses
Cost of sales 34,755,179 27,541,911
Selling, general and administrative costs 17,374,054 13,529,643
Loss on sale of investment in First SA Lifestyle Holdings Limited - 1,094,190
Amortization of intangibles 19,381 563,160
Depreciation 1,950,272 1,338,414
---------- ---------
54,998,886 44,067,318
- -------------------------------------------------------------------------------------- -------------- ---------------
Operating (loss)/income (2,221,598) 1,244,282
- -------------------------------------------------------------------------------------- -------------- ---------------
Other income 7,076,799 139,906
Interest (expense)/income (508,865) 318,829
--------- -------
- -------------------------------------------------------------------------------------- -------------- ---------------
Income from consolidated companies before income taxes and minority interests 4,346,336 1,703,017
Provision for taxes on income (1,902,325) (1,353,428)
----------- -----------
- -------------------------------------------------------------------------------------- -------------- ---------------
Income from continuing operations before minority interests 2,444,011 349,589
Minority interest in consolidated subsidiary companies (735,272) (1,513,675)
--------- -----------
- -------------------------------------------------------------------------------------- -------------- ---------------
Income/(loss) from continuing operations 1,708,739 (1,164,086)
Loss from discontinued operations - (927,427)
--------- ---------
- -------------------------------------------------------------------------------------- -------------- ---------------
Net Income/(loss) 1,708,739 (2,091,513)
Other comprehensive (loss)/income:
Foreign currency translation adjustments (1,170,191) 1,142,214
----------- ---------
- -------------------------------------------------------------------------------------- -------------- ---------------
Comprehensive income/(loss) 538,548 (953,299)
------- ----------
- -------------------------------------------------------------------------------------- -------------- ---------------
Basic earnings/(loss) per share from continuing operations $0.25 ($0.17)
Basic loss per share from discontinued operations - ($0.13)
----- -------
- -------------------------------------------------------------------------------------- -------------- ---------------
Total basic earnings/(loss) per share $0.25 ($0.30)
----- -------
- -------------------------------------------------------------------------------------- -------------- ---------------
Diluted earnings/(loss) per share from continuing operations $0.25 ($0.17)
Diluted loss per share from discontinued operations - ($0.13)
----- -------
- -------------------------------------------------------------------------------------- -------------- ---------------
Total diluted earnings/(loss) per share $0.25 ($0.30)
----- -------
- -------------------------------------------------------------------------------------- -------------- ---------------
* Additional shares were not considered as the result would be anti-dilutive
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
LEISUREPLANET HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED
- ---------------------------------------------------------------------------------------- ------------------ ------------------
DECEMBER 31, DECEMBER 31,
1999 1998
RESTATED
$ $
- ---------------------------------------------------------------------------------------- ------------------ ------------------
Cash flows from operating activities:
Net Income/(loss) 1,708,739 (2,091,513)
Loss from discontinued operations - 927,427
--------- -----------
Loss from continuing operations 1,708,739 (1,164,086)
Adjustments to reconcile loss to net cash (utilized)/generated by
operating activities:
Depreciation and amortization 2,869,653 1,901,574
Deferred income taxes 539,304 162,897
Net loss on sale of assets 68,729 -
Net gain on sale of subsidiary - (384,919)
Net loss on debenture redemption - 282,359
Net loss/(gain) on transactions with minorities (10,869,556) 247,365
Effect of changes in current assets and current liabilities (5,272,764) (5,660,833)
Minority interest in consolidated subsidiary companies 735,272 1,513,675
Creation of debenture redemption reserve fund 562,500 281,250
------- -------
- ---------------------------------------------------------------------------------------- ------------------ ------------------
Net cash (utilized)/generated by continuing operating activities (9,658,123) (2,820,718)
Net cash utilized by discontinued operations - (927,427)
---------- ---------
- ---------------------------------------------------------------------------------------- ------------------ ------------------
Net cash utilized by operating activities (9,658,123) (3,748,145)
- ---------------------------------------------------------------------------------------- ------------------ ------------------
Cash flows from investing activities:
Proceeds on minority shares issued in LPI Limited 20,844,442 -
Proceeds on minority shares issued in First Lifestyle Holdings Limited 16,645 -
Proceeds on First Lifestyle Holdings shares sold 437,773 4,559,222
Additional intangibles acquired (493,073) -
Additions to property, plant and equipment (4,004,673) (1,818,244)
Proceeds on disposal of property, plant and equipment 9,065 767,629
Additional purchase price payments - (2,085,313)
Other assets acquired - (89,019)
Proceeds on disposal of subsidiary (Net of cash of $10,562) - 48,262
-------- ----------
- ---------------------------------------------------------------------------------------- ------------------ ------------------
Net cash realized by/(used in) investing activities 16,810,179 1,382,537
- ---------------------------------------------------------------------------------------- ------------------ ------------------
- ---------------------------------------------------------------------------------------- ------------------ ------------------
Cash flows from financing activities:
Net borrowings in bank overdrafts 1,665,575 2,004,268
(Repayments)/borrowings in long term debt (36,915) 1,493,164
Redemption of debentures - (2,733,910)
Repayments of short term debt (1,945,223) (1,158,727)
Proceeds/(redemption)on stock issues 20,576,253 (2,088,674)
---------- -----------
- ---------------------------------------------------------------------------------------- ------------------ ------------------
Net cash provided in financing activities 20,259,690 (2,438,879)
- ---------------------------------------------------------------------------------------- ------------------ ------------------
Effect of exchange rate changes on cash (176,612) 1,548,700
--------- ---------
- ---------------------------------------------------------------------------------------- ------------------ ------------------
Cash generated/(utilized) by operations 27,235,134 (3,255,787)
Cash on hand at beginning of period 20,813,301 17,948,991
---------- ----------
- ---------------------------------------------------------------------------------------- ------------------ ------------------
Cash on hand at end of period 48,048,435 14,693,204
========== ==========
- ---------------------------------------------------------------------------------------- ------------------ ------------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
LEISUREPLANET HOLDINGS, LTD.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' INVESTMENT
- -------------------------------------------------------------------------------------------------------------------------------
OTHER
FIRST SOUTH LEISUREPLANET LEISUREPLANET S COMPREHENSIVE
AFRICAN HOLDINGS, HOLDINGS, (LOSS)/INCOME
HOLDINGS LTD. LTD. (FOREIGN
B CLASS A CLASS B CLASS CAPITAL IN CURRENCY
COMMON COMMON COMMON EXCESS OF RETAINED TRANSLATION TOTAL
STOCK STOCK STOCK PAR (LOSS)/EARNING ADJUSTMENTS)
--------$ ---------$ ---------$ ----------$ -----------$ ----------$ $
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1999 580 53,832 9,466 22,971,261 (3,084,700) (14,695,537) 5,254,902
- -------------------------------------------------------------------------------------------------------------------------------
Options exercised - 800 - 159,200 - - 160,000
- -------------------------------------------------------------------------------------------------------------------------------
Debentures converted - 165 - 98,835 - - 99,000
- -------------------------------------------------------------------------------------------------------------------------------
Share issue expenses written - - - (25,092) - - (25,092)
off
- -------------------------------------------------------------------------------------------------------------------------------
Net loss - - - - (2,833,436) - (2,833,436)
- -------------------------------------------------------------------------------------------------------------------------------
Translation difference - - - - - 518,541 518,541
----- ----- ----- ----- ----- ------- ----------
- -------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1999 580 54,797 9,466 23,204,204 (5,918,136) (14,176,996) 3,173,915
- -------------------------------------------------------------------------------------------------------------------------------
Options exercised - 255 - 120,870 - - 121,125
- -------------------------------------------------------------------------------------------------------------------------------
Debentures converted - 3,585 - 2,147,409 - - 2,150,994
- -------------------------------------------------------------------------------------------------------------------------------
A warrants exercised - 724 - 476,626 - - 477,350
- -------------------------------------------------------------------------------------------------------------------------------
Escrow shares issued - 5,905 - (5,905 - - -
- -------------------------------------------------------------------------------------------------------------------------------
New shares issued - 13,793 - 19,986,207 - - 20,000,000
- -------------------------------------------------------------------------------------------------------------------------------
FSAH B class shares issued 19 - - 567,842 - 567,861
- -------------------------------------------------------------------------------------------------------------------------------
Share issue expenses incurred - - - (896,382) - - (896,382)
- -------------------------------------------------------------------------------------------------------------------------------
Net profit - - - - 4,542,176 - 4,542,176
- -------------------------------------------------------------------------------------------------------------------------------
Dividends reversed - - - - 44,250 - 44,250
- -------------------------------------------------------------------------------------------------------------------------------
Translation difference - - - - - (1,688,732) (1,688,732)
------ ------ ------ ----- ----- ----------- ---------
- -------------------------------------------------------------------------------------------------------------------------------
599 79,059 9,466 45,600,871 (1,331,710) (15,865,728) 28,492,557
=== ====== ===== ========== =========== ============ ==========
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LEISUREPLANET HOLDINGS, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
1. ORGANIZATION AND PRINCIPAL ACTIVITIES OF THE GROUP
Leisureplanet Holdings, Ltd.(formerly First South Africa Corp., Ltd.)(the
"Company") was founded on September 6, 1995.The purpose of the Company is
to acquire and operate South African companies and acquire and develop
Internet related companies with an emphasis on European based e-commerce
related businesses.
The principal activities of the group include the following:
LIFESTYLE PRODUCTS
The manufacture, sale and distribution of lifestyle enhancing products,
which includes both consumable food products and semi-durable outdoor and
indoor products.
INTERNET RELATED ACTIVITIES
The maintenance and provision of an Internet travel service to Internet
subscribers, providing the convenience of one stop travel planning with
on-line booking and flexibility.
2. SUMMARY OF ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance
with US generally accepted accounting principles and incorporate the
following significant accounting policies:
CONSOLIDATION
The Company consolidates its majority owned subsidiaries. The
consolidated financial statements include the accounts of the Company and
its subsidiaries. Minority interests have been taken into account when
determining the net income due to the Company. Intercompany transactions
have been eliminated on consolidation.
ACCOUNTING ESTIMATES
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements, disclosure of contingent
liabilities at the financial statement date and reported amounts of
revenue and expenses during the reporting period. Actual results could
differ from those estimates.
(LOSS)/EARNINGS PER SHARE
(Loss)/earnings per share on common shares is based on net (loss)/income
and reflects dilutive effects of any stock options and warrants which
exist at year end.
INTANGIBLE ASSETS
Goodwill, recipes and other intellectual property, and trademarks are
being amortized on a straight line basis over a period of twenty to
twenty five years. If facts and circumstances were to indicate that the
carrying amount of goodwill, recipes and other intellectual property is
impaired, the carrying amount would be reduced to an amount representing
the discounted future cash flows to be generated by the operation.
Also included in intangible assets are non-competition agreements which
are being amortized on a straight line basis over the six year term of
the agreements.
The Company has adopted Statement of Financial Accounting Standards No.
121 ("SFAS 121") Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of. No impairments in long-lived
assets has taken place.
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The functional currency of the underlying companies in the Lifestyle
enhancing segment is that of the South African Rand. Accordingly, the
following rates of exchange have been used for translation purposes:
Assets and liabilities are translated into United States Dollars using
the exchange rates at the balance sheet date.
Common stock and capital in excess of par are translated into United
States Dollars using historical rates at date of issuance.
Revenue, expenses, gains and losses are translated into United States
Dollars using the weighted average exchange rates for each year.
The resultant translation adjustments are reported in the component of
stockholders' investment designated as "Foreign currency translation
adjustments."
FOREIGN ASSETS AND LIABILITIES
Transactions in foreign currencies arise as a result of inventory
purchases from foreign countries and intercompany funding transactions
between the subsidiaries and the Company. Transactions in foreign
currencies are accounted for at the rates ruling on transaction dates.
Exchange gains and losses are charged to the income statement during the
period in which they are incurred. Foreign assets and liabilities of the
group which are not denominated in United States Dollars are converted
into United States Dollars at the exchange rates ruling at the financial
year end or at the rates of forward cover purchased. Forward cover is
purchased to cover the currency exposure on foreign liabilities.
INVENTORIES
Inventories are valued at the lower of cost and net realizable value,
using both the first-in, first-out and the weighted average methods. The
value of work-in-progress and finished goods includes an appropriate
portion of manufacturing overheads. A valuation reserve has been
established to reduce the values of certain identified inventories
(determined to be obsolete or otherwise impaired) to their estimated net
realizable values (market or selling price less costs to dispose).
PROPERTY, PLANT AND EQUIPMENT
Land is stated at cost and is not depreciated. Buildings are depreciated
on the straight line basis over estimated useful lives of 20 years.
Plant and equipment, and motor vehicles are written off over their
estimated useful lives of 5 to 10 years.
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
taxes are measured by applying currently enacted tax laws.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As at December 31, 1999, the carrying value of accounts receivable,
accounts payable and investments approximate their fair value. The
carrying value of long term debt approximates fair value, as the debt,
other than convertible debentures, interest rates are keyed to the prime
lending rate. The convertible debentures are believed to approximate fair
market.
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
REVENUES
Revenues comprise net invoiced sales of shipped Lifestyle enhancing
products and Internet travel related commissions. Combined revenues
exclude sales to group companies.
Revenues are stated net of allowances granted to customers and trade
discounts. Returns of defective product are offset against revenues.
GAIN ON DISPOSAL OF SUBSIDIARY STOCK
Subsidiary stock disposed of during the period is recognized as a gain in
the statement of income and is separately disclosed as a non operating
gain.
CASH FLOWS
For the purposes of the statements of cash flows, cash includes cash on
hand and deposits held on notice.
RECLASSIFICATION
Certain items in the prior year financial statements have been
reclassified to conform with the current period presentation.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at
its fair value and that changes in the derivatives fair value be
recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows
derivatives gains and losses to offset related results on the hedged item
in the income statement and requires that the Company must formally
document, designate and assess the effectiveness of transactions that
receive hedge accounting. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. The Company believes that the future
adoption of this statement will not have a significant impact on the
results of operations or financial position of the Company.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
------------------------------------------------------------- ---------------------- ---------------
DECEMBER 31, JUNE 30,
1999 1999
$ $
------------------------------------------------------------- ---------------------- ---------------
<S> <C> <C>
Finished goods 4,058,332 4,655,361
Work in progress 569,319 587,544
Raw materials and ingredients 3,883,385 2,983,298
Supplies 1,365,844 1,066,595
--------- ---------
------------------------------------------------------------- ---------------------- ---------------
Inventories (Gross) 9,876,880 9,292,798
Less: Valuation allowances (125,223) (140,223)
- --------- -- ---------
------------------------------------------------------------- ---------------------- ---------------
Inventories (Net) 9,751,657 9,152,575
========= =========
------------------------------------------------------------- ---------------------- ---------------
</TABLE>
4. DISCONTINUED OPERATIONS
During the previous fiscal year, the Company discontinued its operations in
the Industrial manufacturing and Packaging business segments in order to
concentrate all of its efforts on its core operations of Lifestyle
enhancing products and Internet travel related businesses.
<PAGE>
5. EARNINGS/(LOSS) PER SHARE
Earnings/(loss) per share data is calculated as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------- ----------------- ------------- ---------------
BASIC EARNINGS PER SHARE FOR THE THREE MONTHS ENDED
DECEMBER 31, 1999
Net income available to common stockholders 4,542,177
---------
----------------------------------------------------------- ----------------- ------------- ---------------
SHARES FRACTION OF WEIGHTED
DATES OUTSTANDING OUTSTANDING PERIOD AVERAGE SHARES
----------------------------------------------------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C>
October 1, 1999 6,426,231 1.00 6,426,231
October 1, 1999 to December 31, 1999
New shares issued during the quarter 1,379,310 0.04 59,970
Options converted to shares during the quarter 25,500 0.04 1,109
Escrow shares issued during the quarter 590,596 1.00 590,596
A Warrants exercised during the quarter 72,400 0.16 11,819
Debentures converted into shares during the 358,499 0.18 63,460
------- ---- ------
quarter
----------------------------------------------------------- ----------------- ------------- ---------------
WEIGHTED AVERAGE SHARES 8,852,536 7,153,185
========= =========
----------------------------------------------------------- ----------------- ------------- ---------------
----------------------------------------------------------- ----------------- ------------- ---------------
BASIC EARNINGS PER SHARE FOR THE SIX MONTHS ENDED
DECEMBER 31, 1999
Net income available to common stockholders 1,708,739
---------
----------------------------------------------------------- ----------------- ------------- ---------------
SHARES FRACTION OF WEIGHTED
DATES OUTSTANDING OUTSTANDING PERIOD AVERAGE SHARES
----------------------------------------------------------- ----------------- ------------- ---------------
July 1, 1999 6,329,731 1.00 6,329,731
July 1, 1999 to December 31, 1999
New shares issued during the year 1,379,310 0.02 29,985
Options converted to shares during the year 105,500 0.57 60,554
Escrow shares issued during the year 590,596 0.51 298,508
A Warrants exercised during the year 72,400 0.08 5,911
Debentures converted into shares during the year 374,999 0.12 44,463
------- ---- ------
----------------------------------------------------------- ----------------- ------------- ---------------
WEIGHTED AVERAGE SHARES 8,852,536 6,769,152
========= =========
----------------------------------------------------------- ----------------- ------------- ---------------
----------------------------------------------------------- ----------------- ------------- ---------------
BASIC LOSS PER SHARE FOR THE THREE MONTHS ENDED DECEMBER
31, 1998
Net loss available to common stockholders from continuing
operations (1,554,097)
Net income available to common stockholders from
discontinued operations 578,723
-------
Total net loss (975,374)
---------
----------------------------------------------------------- ----------------- ------------- ---------------
SHARES FRACTION OF WEIGHTED
DATES OUTSTANDING OUTSTANDING PERIOD AVERAGE SHARES
----------------------------------------------------------- ----------------- ------------- ---------------
October 1, 1998 7,837,708 1.00 7,837,708
October 1, 1998 to September 30, 1998
Redemption of escrow shares (1,583,059) 1.00 (1,583,059)
----------- -----------
----------------------------------------------------------- ----------------- ------------- ---------------
WEIGHTED AVERAGE SHARES 6,254,649 6,254,649
========= =========
----------------------------------------------------------- ----------------- ------------- ---------------
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
5. EARNINGS/(LOSS) PER SHARE (CONTINUED)
----------------------------------------------------------- ----------------- ------------- ---------------
BASIC LOSS PER SHARE FOR THE SIX MONTHS ENDED DECEMBER
31, 1998
Net loss available to common stockholders from continuing
operations (1,164,086)
Net loss available to common stockholders from
discontinued operations (927,427)
---------
Total net loss (2,095,513)
-----------
----------------------------------------------------------- ----------------- ------------- ---------------
SHARES FRACTION OF WEIGHTED
DATES OUTSTANDING OUTSTANDING PERIOD AVERAGE SHARES
----------------------------------------------------------- ----------------- ------------- ---------------
July 1, 1998 7,472,324 1.00 7,472,324
July 1, 1998 to December 31, 1998
Additional purchase price payments 242,684 0.51 122,661
Debentures converted into shares during the 122,700 0.95 116,032
year (1,583,059) 0.51 (800,134)
----------- ---------
Redemption of escrow shares during the quarter
----------------------------------------------------------- ----------------- ------------- ---------------
WEIGHTED AVERAGE SHARES 7,072,892 6,910,883
========= =========
----------------------------------------------------------- ----------------- ------------- ---------------
----------------------------------------------------------- ----------------- ------------- ---------------
DILUTED EARNINGS PER SHARE FOR THE THREE MONTHS ENDED
DECEMBER 31, 1999
Net income available to common stockholders 4,542,177
Add impact of assumed conversions 605,510
----------------------------------------------------------- ----------------------- ------- ---------------
ADJUSTED NET INCOME 5,147,687
----------------------------------------------------------- ----------------------- ------- ---------------
Weighted average shares 7,153,185
Warrants and options not yet exercised 1,137,823
9% convertible debentures 669,206
Increasing rate debentures 1,578,947
---------
----------------------------------------------------------- ----------------------- ------- ---------------
ADJUSTED WEIGHTED AVERAGE SHARES 10,539,161
----------------------------------------------------------- ----------------------- ------- ---------------
----------------------------------------------------------- ----------------------- ------- ---------------
DILUTED EARNINGS PER SHARE FOR THE SIX MONTHS ENDED
DECEMBER 31, 1999
Net income available to common stockholders 1,708,739
Add impact of assumed conversions 1,226,569
----------------------------------------------------------- ----------------------- ------- ---------------
ADJUSTED NET INCOME 2,935,308
----------------------------------------------------------- ----------------------- ------- ---------------
Weighted average shares 6,769,152
Warrants and options not yet exercised 835,198
9% convertible debentures 705,062
Increasing rate debentures 1,578,947
---------
----------------------------------------------------------- ----------------------- ------- ---------------
ADJUSTED WEIGHTED AVERAGE SHARES 9,888,359
----------------------------------------------------------- ----------------------- ------- ---------------
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
5. EARNINGS/(LOSS) PER SHARE (CONTINUED)
----------------------------------------------------------- ----------------------- ------- ---------------
DILUTED LOSS PER SHARE FOR THE THREE MONTHS ENDED
DECEMBER 31, 1998
Net loss available to common stockholders from continuing
operations (1,554,097)
Add impact of assumed conversions 643,100
(910,997)
Net income available to common stockholders from
discontinued operations 578,723
----------------------------------------------------------- ----------------------- ------- ---------------
ADJUSTED NET LOSS (332,274)
----------------------------------------------------------- ----------------------- ------- ---------------
Weighted average shares 6,254,649
9% convertible debentures 947,166
Increasing rate debentures 1,578,947
---------
----------------------------------------------------------- ----------------------- ------- ---------------
ADJUSTED WEIGHTED AVERAGE SHARES 8,780,762
----------------------------------------------------------- ----------------------- ------- ---------------
----------------------------------------------------------- ----------------------- ------- ---------------
DILUTED LOSS PER SHARE FOR THE SIX MONTHS ENDED
DECEMBER 31, 1998
Net loss available to common stockholders from continuing
operations (1,164,086)
Add impact of assumed conversions 979,963
(184,123)
Net loss available to common stockholders from
discontinued operations (927,427)
----------------------------------------------------------- ----------------------- ------- ---------------
ADJUSTED NET LOSS (1,111,550)
----------------------------------------------------------- ----------------------- ------- ---------------
Weighted average shares 6,910,883
9% convertible debentures 1,001,559
Increasing rate debentures 1,578,947
---------
----------------------------------------------------------- ----------------------- ------- ---------------
ADJUSTED WEIGHTED AVERAGE SHARES 9,491,389
----------------------------------------------------------- ----------------------- ------- ---------------
</TABLE>
The adjusted weighted average number of shares and the adjusted net loss
available to common stockholders has not been taken into account as the
result achieved is anti-dilutive.
6. SUBSEQUENT EVENTS
CNN AGREEMENT
Prior to December 31, 1999, our online travel services subsidiary, LPI
Limited, entered into an agreement with CNN whereby LPI Limited will
provide a co-branded on-line travel services web site along with travel
related content on various CNN web sites. This will result in CNN providing
valuable marketing and promotional exposure for LPI Limited. LPI Limited
agreed to issue to CNN a total of $20 million of preferred stock at $8.00
per share. This preferred stock may be converted into common stock of LPI
Limited at CNN's option in three equal installments of $6.66 million at a
maximum price of $8.00 per share. These equal installments may be exercised
as follows:
. Immediately upon closing or thereafter;
. September 30, 2000, or thereafter; and
. September 30, 2001, or thereafter.
Should CNN fulfill its commitments under the agreement prior to September
30, 2001, the third installment shall be exercisable on the date on which
such promotional commitment is satisfied, provided such third installment
shall not be exercisable prior to March 31, 2001.
In addition, LPI Limited agreed to spend a total of $30 million on
advertising with CNN equally over a three-year period.
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
6. SUBSEQUENT EVENTS (CONTINUED)
DEBENTURE CONVERSIONS
Subsequent to December 31, 1999 an additional $880,000 of the 9%
Debentures and $3.00 million of the increasing rate debentures were
converted to common stock.
WARRANTS AND OPTIONS EXERCISED
Subsequent to December 31, 1999 option over 74,500 shares and 8,400 A
warrants were exercised.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
BACKGROUND AND HISTORY
The Company was incorporated in September 1995 with the intention of actively
pursuing acquisitions fitting a pre-defined investment strategy. The broad
strategy followed in all investment decisions was as follows:
Revenue must be within the range of $5 million - $50 million.
Net income must yield a sustainable above average return on investment.
Growth in revenue must be above average growth rates and must be sustainable
over the medium term.
The industry in which the target operates must be one of the pre-defined
industry sectors identified by management.
The Company holds, through its South African subsidiary, First South African
Holdings (Pty.) Ltd., nine South African subsidiaries that have met the
acquisition criteria identified above. In addition, the Company acquired an 81%
stake in LPI Limited, an Internet travel company, on January 1, 1999. The
Company currently owns approximately 57% of LPI Limited. Our subsidiaries are
listed below and are engaged in the following industry segments:
INTERNET AND E-COMMERCE RELATED BUSINESSES
LPI Limited
LIFESTYLE PRODUCTS
FOOD DIVISION
Piemans Pantry
Astoria Bakery
Seemann's Quality Meat Products
Gull Foods
Fifers Bakery
LEISURE DIVISION
SA Leisure
Galactex Outdoor
Republic Umbrella
Tradewinds
SOUTH AFRICAN OPERATIONS
As the Company's results are reported in US Dollars, but revenues are primarily
generated in South African Rand, the South African inflation rate and the
depreciation of the South African Rand against the US Dollar are important to
the understanding of the Company's results.
In broad terms, if the deterioration of the Rand is in excess of the South
African inflation rate, then the Company would need to generate South African
revenue in excess of the South African inflation rate to maintain US Dollar
parity.
<PAGE>
The average rate for the South African Rand against the US Dollar for the period
presented in this report is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------- --------------------- ---------------------
THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
- ------------------------------------------------------------- --------------------- ---------------------
<S> <C> <C>
Rate of exchange vs $1 6.16 5.80
- ------------------------------------------------------------- --------------------- ---------------------
Depreciation 6.21%
- ------------------------------------------------------------- --------------------- ---------------------
- ------------------------------------------------------------- --------------------- ---------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, 1999 DECEMBER 31,
1998
- ------------------------------------------------------------- --------------------- ---------------------
Rate of exchange vs $1 6.12 5.97
- ------------------------------------------------------------- --------------------- ---------------------
Depreciation 2.51%
- ------------------------------------------------------------- --------------------- ---------------------
</TABLE>
The annual rate of inflation in South Africa for the year ended December 31,
1999 was approximately 1.9%
The result reflected below is therefore greater than inflation adjusted South
African Rand for both revenue and earnings growth.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1999 AS COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1998
Revenues
Revenues for the three months ended December 31, 1999 increased by $4.001
million or 15.3% to $30.055 million as compared to $26.054 million for the three
months ended December 31, 1998.
This growth in revenue was generated primarily in the Lifestyle enhancing
business segment which has improved revenue 20.5% in South African Rand terms
after factoring out the effects of the improvement in the currency over the
respective quarters, which is significantly better than inflation.
This growth in revenue can be attributed to increased market share in the South
African market as well as a significant improvement in exports to European
destinations.
Cost of goods sold
Cost of goods sold has increased as a percentage of revenues from 60% to 65.2%.
This reflects a slight improvement over the fiscal year ended June 30, 1999
result of 69%. Generally, two operations in the Lifestyle enhancing business
sector have experienced difficulties during the current fiscal year, which
resulted in lower than anticipated margins being achieved. Corrective action is
being taken to address the margin deficiencies.
Selling, general and administrative expenses
Selling, general and administrative expenses for the three months ended December
31, 1999 increased by $1.527 million or 19% to $9.545 million as compared to
$8.018 million for the three months ended December 31, 1998. This increase takes
into account the operating expenses of our Internet travel related subsidiary
that was acquired on January 1, 1999.
Loss on sale of investment in First SA Lifestyle Holdings Limited
The loss realized on the disposal of the leisure related companies to the food
related companies occurred in October 1998. This merger of the two operations
has given rise to First Lifestyle Holdings Limited, the lifestyle enhancing
company.
<PAGE>
Amortization of intangibles
Amortization of intangibles increased from $0.28 million for the three months
ended December 31, 1998 to $0.43 million for the three months ended December 31,
1999. This increase is primarily due to the fact that the additional purchase
price payments made at the end of fiscal year ended June 30, 1999 incurred under
the Company's various purchase agreements have been allocated to intangibles and
therefore have been amortized.
Depreciation
Depreciation increased from $0.89 million for the three months ended December
31, 1998 to $1.062 million for the three months ended December 31, 1999. This
increase is due to the amortization of computer equipment in the Internet travel
related business acquired in January 1999 and additional plant and machinery
acquired in the Lifestyle sector to grow the sector organically.
Other income
Other income for the three months ended December 31, 1999 totaled $6,867,000 and
is primarily made up of the unrealized gain on the Company's investment in LPI
Limited. The introduction of new capital in LPI Limited has had a positive
effect on the equity position of that concern, giving rise to the gain.
Interest expense/(income)
Interest expense of $0.3 million for the three months ended December 31, 1999
has decreased by $0.47 million from an interest income of $0.17 million for the
three months ended December 31, 1998. This decrease is primarily due to a
reduction in the interest rates earned on cash balances coupled with average
lower cash balances than in the prior year. The majority of the additional funds
reflected in the group were received in the latter half of December 1999.
Provision for taxes on income
Our income tax provision increased from $0.86 million for the three months ended
December 31, 1998 to $1.35 million for the three months ended December 31, 1999.
This increase is after accounting for the decrease in the South African tax rate
from 35% to 30% during 1999. The taxation charge represents the taxation charge
incurred by the Lifestyle enhancing business segment, which has reflected
increased taxable income over the comparative period in the prior quarter.
South African tax law does not permit the losses incurred in the Internet travel
related business and the corporate head office to be offset against the taxable
income of the Lifestyle enhancing business segment.
Loss from discontinued operations
The loss resulted from the operations of our currently discontinued industrial
products and packaging business segments. We decided to discontinue these
segments during the fiscal fiscal year ended June 30, 1999 as their performance
was below average and these businesses were considered as non-core to the group.
<PAGE>
Minority interest in consolidated subsidiary companies
The minority interest in our subsidiaries decreased from $1.1 million for the
three months ended December 31, 1998 to $0.1 million for the three months ended
December 31, 1999. This decrease is primarily due to the fact that after the
recent equity infusion into LPI Limited, the minority interest in this company
has assumed a positive balance, which results in these minorities absorbing a
portion of the losses generated by that company. LPI Limited is primarily
incurring marketing expenditure whilst it is still in its growth phase. The
percentage of LPI Limited's losses absorbed by minorities during the current
quarter was 38.2%.
Net (loss)/income
As a result of the above, the Company has achieved a gain of $4.542 million as
compared to a loss of $0.98 million for the comparative quarter in the prior
year.
The Internet travel related business is undergoing extensive development and
presently does not generate significant revenues, thereby contributing a
significant loss for the quarter. These losses are expected to continue for the
foreseeable future.
SIX MONTHS ENDED DECEMBER 31, 1999 AS COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1998
Revenues
Revenues for the six months ended December 31, 1999 increased by $7.466 million
or 16.48% to $52.777 million as compared to $45.312 million for the six months
ended December 31, 1998.
This growth in revenue was generated primarily in the Lifestyle enhancing
business segment which has improved revenue 20% in South African Rand terms
after factoring out the effects of the improvement in the currency over the
respective quarters, which is significantly better than inflation.
This growth in revenue as mentioned previously is attributable to increased
market share in the South African market as well as a significant improvement in
exports to European destinations. The current focus of the Lifestyle enhancing
businesses is to improve export revenues where significant future growth is
expected.
Cost of goods sold
Cost of goods sold has increased as a percentage of revenues from 60.1% to
65.8%. This reflects a slight improvement over the fiscal year ended result of
69%. As mentioned previously, two operations in the Lifestyle enhancing business
sector have experienced difficulties during the current fiscal year, which
resulted in lower than anticipated margins being achieved. Corrective action is
being taken to address the margin deficiencies.
Selling, general and administrative expenses
Selling, general and administrative expenses for the six months ended December
31, 1999 increased by $3.844 million or 28% to $17.374 million as compared to
$13.530 million for the six months ended December 31, 1998. This increase takes
into account the operating expenses of our Internet travel related subsidiary
which was acquired on January 1, 1999.
Loss on sale of investment in First SA Lifestyle Holdings Limited
The loss realized on the disposal of the leisure related companies to the food
related companies occurred in October 1998. This merger of the two operations
has given rise to First Lifestyle Holdings Limited, the lifestyle enhancing
company, mentioned previously.
<PAGE>
Amortization of intangibles
Amortization of intangibles increased from $0.56 million for the six months
ended December 31, 1998 to $0.92 million for the six months ended December 31,
1999. This increase is primarily due to the fact that the additional purchase
price payments made at the end of fiscal year ended June 30, 1999 incurred under
the Company's various purchase agreements have been allocated to intangibles and
therefore have been amortized.
Depreciation
Depreciation increased from $1.338 million for the six months ended December 31,
1998 to $1.95 million for the six months ended December 31, 1999. This increase
is due to the amortization of computer equipment in the Internet travel related
business acquired in January 1999 as well as depreciation on plant and machinery
required for organic expansion.
Other income
Other income for the six months ended December 31, 1999 totaled $7,076,799 and
is primarily made up of the unrealized gain on the Company's investment in LPI
Limited. The introduction of new capital in LPI Limited has had a positive
effect on the equity position of that concern, giving rise to the gain.
Interest expense/(income)
Interest expense of $0.5 million for the six months ended December 31, 1999 has
decreased by $0.83 million from an interest income of $0.3 million for the six
months ended December 31, 1998. This decrease is primarily due to a reduction in
the interest rates earned on cash balances coupled with lower average cash
balances than in the prior year. The significant increase in cash balances
materialized in the latter half of December 1999, the full effect of the
increase in cash on interest income will only materialize in future quarters.
Provision for taxes on income
Our income tax provision increased from $1.35 million for the six months
December 31, 1998 to $1.9 million for the six months ended December 31, 1999.
This increase is after accounting for the decrease in the South African tax rate
from 35% to 30% during 1999. The taxation charge represents the taxation charge
incurred by the Lifestyle enhancing business segment, which has reflected
increased taxable income over the comparative period in the prior quarter.
South African tax law does not permit the losses incurred in the Internet travel
related business and the corporate head office to be offset against the taxable
income of the Lifestyle enhancing business segment.
Loss from discontinued operations
The loss resulted from the operations of our currently discontinued industrial
products and packaging business segments. We decided to discontinue these
segments during the fiscal year ended June 30, 1999 as their performance was
below average and these businesses were considered as non-core to the group.
Minority interest in consolidated subsidiary companies
The minority interest in our subsidiaries decreased from $1.51 million for the
six months ended December 31, 1998 to $0.73 million for the six months ended
December 31, 1999. This decrease is primarily due to the fact that after the
recent equity infusion into LPI Limited, the minority interest in this company
has assumed a positive balance, which results in these minorities absorbing a
portion of the losses generated by that company. LPI Limited is primarily
incurring marketing expenditure whilst it is still in its growth phase. The
percentage of LPI Limited's losses absorbed by minorities during the current
period was 38.2%.
Net (loss)/income
As a result of the above, the Company has achieved an income of $1.709 million
as compared to a loss of $2.092 million for the comparative period in the prior
year.
<PAGE>
The Internet travel related business is undergoing extensive development and
presently does not generate significant revenues, thereby contributing a
significant proportion of the quarter's loss. These losses are expected to
continue for the foreseeable future.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash increased by $27.235 million from $20.813 million to $48.048 million. The
increase is primarily as a result of the additional $20 million injection of
capital by minorities into LPI Limited and an additional $20 million capital
injection into the Company by strategic equity partners. The Lifestyle enhancing
products segments utilized $1.642 million of cash, primarily due to a
significant dividend payment during the current year. The Internet travel
related business still requires significant cash resources as it incurs
primarily marketing expenditure in developing its future potential.
Working capital increased by $32.062 million to $60.340 million at December 31,
1999 from $28.278 million at June 30, 1998. This is primarily a result of the
increase in cash resources due to capital injections from strategic equity
partners. Accounts receivable has increased by $9.228 million over June 30,
1998. This has been partially funded by an increase in accounts payable by
$6.030 million over June 30, 1998. The significant increase in accounts
receivable is due to significant turnover generated in the Lifestyle enhancing
sector during December 1999. In addition, several significant suppliers delayed
payment of accounts due to precautions taken for possible Year 2000 related
problems.
At December 31, 1999, we had borrowings of $26.976 million which has decreased
from $33.598 million. This includes the conversion of $7.094 million of debt
owing to the minority shareholders of LPI Limited and the Company as loan funds
to equity. The slight increase in borrowings arose primarily to fund the
acquisition of assets and an increase in the capital redemption reserve fund of
$0.28 million during the quarter.
Cash flow from operations for the six months ended December 31 1999, excluding
non-cash charges, resulted in the utilization of $9.658 million, primarily
utilized to fund the losses in the Internet travel related business and to fund
the additional funds required for accounts receivable balances at December 31,
1999. Investing activities undertaken by the group resulted in the generation of
an additional $16.810 million during the year. This included the funds received
from the minority shareholders in LPI Limited. The financing activities
undertaken by the group resulted in a net capital injection of $20.260 million,
sourced primarily from the capital injection into the Company by strategic
equity partners.
FUTURE COMMITMENTS
Under its various acquisition agreements, the Company anticipates having to
spend approximately $1.0 million in cash for its contingent payments over the
next 12 months as well as approximately $0.8 million in stock. The Company
anticipates that its cash on hand and future operating cash flows will be
sufficient to fully fund these payments as well as fund the capital expenditures
for its various operations. Excess cash will also be utilized to fund additional
acquisitions. The Company anticipates that any longer term contingent
acquisition payments will be funded out of operating cash flows of the acquired
entities.
The Company's operating subsidiaries generally collect their receivables within
65 days to 90 days and reserve approximately 3% for doubtful accounts.
Historically, the Company's operating and capital needs have been met by
internal cash flow and outside bank borrowing. It is management's belief that
capital expenditures for the foreseeable future can continue to be met by
internal cash flow and bank borrowing.
The Company will be required to incur additional indebtedness or equity
financing in connection with the funding of LPI Limited, until such time as that
company is able to sustain its own infrastructural costs as well as to fund
future acquisitions. There is no assurance that the Company will be able to
incur additional indebtedness or raise additional equity to fund LPI Limited or
to finance future acquisitions on terms acceptable to management, if at all.
LPI Limited currently incurs operational losses of approximately $1.4 million
per month with minimal revenues being realized, due to the nature and stage of
growth of the business and the Internet travel related industry. These costs are
expected to increase over the following few months. These operational losses
which are being generated by LPI Limited need to be funded by further injections
of capital for which there is no assurance that the Company will be able to
secure such funding.
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not ordinarily hold market risk sensitive instruments for
trading purposes. The Company does however, recognize market risk from interest
rate, foreign currency exchange and commodity price exposure.
INTEREST RATE RISK
At December 31, 1999, approximately $2.6 million of the Company's long term
debt, specifically the borrowings in First Lifestyle Holdings Limited, bear
interest at variable rates. Similarly, the cash resources of the Company earn
interest at variable rates. Accordingly, the Company's net income and after tax
cash flows are affected by fluctuations in interest rates. Assuming the current
level of cash resources and borrowings at variable interest rates and assuming a
two percentage point decrease in the average interest rate under these
borrowings and cash resources, it is estimated that the net effect on interest
would be a reduction in interest earned of $330,000, resulting in a reduction in
the Company's net income and after tax cash flow of $231,000. Any adverse
changes in interest rates would likely result in management taking action to
mitigate the Company's exposure. However, due to the uncertainty of the actions
that management would take and their possible effects, this analysis assumes no
action is taken. There are also no assurances that decrease or increases in
interest rates will not exceed possible projections.
FOREIGN CURRENCY RISK
The primary operations of the Company are based in South Africa and most of the
economic activity of the Company is denominated in South African Rand. This
exposes the Company to market risk with respect to fluctuations in the relative
value of the South African Rand against the US Dollar. Certain of this risk is
covered through the purchase of foreign exchange contracts.
COMMODITY PRICE RISK
The Lifestyle enhancing products segment of the Company makes use of several
commodity products.
PROCESSED FOODS
The main ingredient in many of the processed food products manufactured by the
Company includes raw produce such as meat, potatoes, vegetables and other staple
products. These food groups are commodities whose prices are largely dependent
on supply and demand. The supply of these products is also dependent on
environmental factors such as weather conditions and rainfall patterns. While
these price fluctuations will impact on the input cost of the products produced,
these are not expected to have a material impact on the profitability of the
Company due to the pass through of commodity price increases to customers.
LEISURE PRODUCTS
The leisure products side of the Company makes use of processed raw materials,
such as polypropylene, as well and natural resources such as timber. The price
of polypropylene is determined on an import parity basis in South Africa, which
means that worldwide surpluses and shortages are factored into the product
pricing. This results in fluctuations of the price of this material from time to
time. These price fluctuations impact on the per unit input cost of the products
produced. Management therefore mitigates this risk by entering into pricing
agreements with suppliers to limit the effects of any adverse movements in the
commodity price.
Timber as a natural resource is subject to sustainability requirements and is
also dependent on environmental factors such as weather conditions and rainfall
patterns. The price of timber may fluctuate depending on supply and demand,
which has an impact on the input price of our products produced. In order to
mitigate this risk management enters into supply arrangements with suppliers
wherever possible, including pricing terms. In addition, raw material input
prices may be passed onto customers where the factors governing such price
fluctuations are outside of the control of the Company.
<PAGE>
YEAR 2000
COSTS TO ADDRESS YEAR 2000 ISSUES
The costs incurred to date have typically been to replace aging hardware and to
upgrade the existing purchased software. Costs to replace aging hardware have
not amounted to material amounts and were already provided for in general
capital expenditure budgets. In addition, costs to upgrade software have not
been material to date as upgrades have typically been available from the
software suppliers who certify Year 2000 compliance.
RISK ASSOCIATED WITH YEAR 2000 ISSUES
Based on risk assessments already carried out and assessments which are due to
take place, the Company feels that due to the level of IT sophistication within
the Company, the risk of ceasing production and distribution completely is
minimal.
CONTINGENCY PLANS
Where possible, alternative sources of supply have been identified should there
be a significant disruption from one of our suppliers. However, there are
significant suppliers within the group which are sole suppliers. We are unable
to cover this risk sufficiently. Therefore, we are attempting to the best of our
ability to assess the state of readiness of these suppliers.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibit
27.1 Financial Data Schedule
(b) Reports on Form 8-K filed during quarter ended December
31, 1999:
None
<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 duly authorized.
Date: February 13, 2000
LEISUREPLANET HOLDINGS, LTD.
/s/ Clive Kabatznik
Clive Kabatznik
Chief Executive Officer, President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001003390
<NAME> LEISUREPLANET HOLDINGS, LTD.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> OCT-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 48,048,435
<SECURITIES> 0
<RECEIVABLES> 22,562,978
<ALLOWANCES> 390,081
<INVENTORY> 9,751,657
<CURRENT-ASSETS> 84,406,176
<PP&E> 33,677,625
<DEPRECIATION> 12,795,614
<TOTAL-ASSETS> 134,916,604
<CURRENT-LIABILITIES> 24,066,540
<BONDS> 17,205,026
9,891,197
0
<COMMON> 89,124
<OTHER-SE> 28,403,433
<TOTAL-LIABILITY-AND-EQUITY> 134,916,604
<SALES> 30,055,350
<TOTAL-REVENUES> 30,055,350
<CGS> 19,587,657
<TOTAL-COSTS> 30,629,606
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 298,104
<INCOME-PRETAX> 5,890,114
<INCOME-TAX> 1,347,937
<INCOME-CONTINUING> 4,542,177
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,853,445
<EPS-BASIC> 0.63
<EPS-DILUTED> 0.49
</TABLE>
