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 March 31, 2000
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: 809-295-1422
------------
---------------------------------------------------------------------
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 May 10, 2000 was
8,391,899.
LEISUREPLANET HOLDINGS, LTD.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
PART I - FINANCIAL INFORMATION
ITEM 1 Unaudited Consolidated Balance Sheets at March 31, 2000 and June 30,
1999
Unaudited Consolidated Statements of Income/(loss) and
Comprehensive Income/(loss) for the three and nine months
ended March 31, 2000 and 1999
Unaudited Consolidated statements of Cash Flows for the nine
months ended March 31, 2000 and 1999
Unaudited Consolidated Statement of Changes in Stockholders
Investment for the period June 30, 1999 to March 31, 2000
Notes to the Unaudited Consolidated Financial Statements
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 Form 8-K
SIGNATURES
LEISUREPLANET HOLDINGS, LTD.
CONSOLIDATED BALANCE SHEETS
ASSETS
- --------------------------------------------------------------------------------
JUNE 30,
MARCH 31, 2000 1999
------------------- -------------------
(DOLLARS)
---------------------------------------
CURRENT ASSETS
Cash on hand 38,406,792 20,813,301
Trade accounts receivable 15,065,992 13,388,561
Less: Allowances for bad debts (388,599) (443,172)
-------------------- --------------------
14,677,393 12,945,389
Inventories (net) 8,948,699 9,152,575
Prepaid expenses and other current assets 25,677,364 5,236,587
Deferred income taxes - 539,884
-------------------- --------------------
TOTAL CURRENT ASSETS 87,710,248 48,687,736
Property, plant and equipment 31,681,481 30,777,399
Less: Accumulated depreciation (12,619,664) (11,488,982)
-------------------- --------------------
19,061,817 19,288,417
Intangible assets (net) 27,549,000 34,024,745
Deferred charges (net) 269,909 868,944
Other assets 37,075 33,988
-------------------- --------------------
134,628,049 102,903,830
==================== ====================
LIABILITIES AND STOCKHOLDERS INVESTMENT
- --------------------------------------------------------------------------------
JUNE 30,
MARCH 31, 2000 1999
------------------- -------------------
(DOLLARS)
---------------------------------------
CURRENT LIABILITIES
Bank overdraft payable 441,803 -
Current portion of long term debt 996,523 3,088,435
Trade accounts payable 10,311,397 9,058,811
Other provisions and accruals 3,999,436 4,618,283
Dividends payable - 1,870,959
Other taxes payable 222,055 558,669
Income tax payable 566,634 1,214,292
---------- ---------
TOTAL CURRENT LIABILITIES 16,537,84 20,409,449
Long term debt 19,981,484 33,598,244
Deferred income taxes 1,205,985 1,551,724
---------- ---------
37,725,31 55,559,417
========= ==========
Minority stockholders investment 14,144,428 32,198,314
Preferred stock 23,224,530 9,891,197
STOCKHOLDERS' INVESTMENT
Capital stock:
A class common stock, $0.01 par value - authorized 23,000,000
shares, issued and outstanding 8,363,676 shares 83,636 53,832
B class common stock, $0.01 par value - authorized 2,000,000
shares, issued and outstanding 946,589 shares 9,466 9,466
FSAH B Class common stock 599 580
Preferred stock, $0.01 par value - authorized 5,000,000 shares,
issued and outstanding nil shares - -
Capital in excess of par 51,081,196 22,971,26
Retained earnings/(loss) (2,698,777) (3,084,700)
---------- ----------
48,476,120 19,950,439
Foreign currency translation adjustments (19,942,346) (14,695,537)
----------- -----------
28,533,774 5,254,902
134,628,049 102,903,830
=========== ===========
-2-
LEISUREPLANET HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF INCOME/(LOSS) AND COMPREHENSIVE
INCOME/(LOSS) FOR THE THREE MONTHS ENDED MARCH 31,
1999
2000 RESTATED
------------------- -------------------
(DOLLARS)
Revenues 21,100,519 20,221,736
Operating expenses
Cost of sales 14,648,524 12,195,024
Selling, general and administrative costs 12,167,952 7,038,218
Loss on sale of investment in First SA Lifestyle Holdings Limited - 1,094,190
Amortization of intangibles 404,462 754,877
Depreciation 1,063,819 536,429
------------------- -------------------
28,284,757 21,618,738
------------------- -------------------
Operating loss (7,184,238) (1,397,002)
Other income 2,677,666 442,348
Interest income/(expense) 413,425 (444,742)
------------------- -------------------
Loss from consolidated companies before income taxes and minority interests (4,093,147) (1,399,396)
Provision for taxes on income 302,617 (294,056)
------------------- -------------------
Loss from continuing operations before minority interests (3,790,530) (1,693,452)
Minority interest in consolidated subsidiary companies 2,423,463 (855,696)
------------------- -------------------
Loss from continuing operations (1,367,067) (2,549,148)
Income from discontinued operations - 85,596
------------------- -------------------
Net (loss)/income (1,367,067) (2,463,552)
Other comprehensive (loss)/income
Foreign currency translation difference (4,076,618) 1,031,350
------------------- -------------------
Comprehensive loss (5,443,685) (1,432,202)
------------------- -------------------
Basic loss per share from continuing operations ($0.15) ($0.42)
Basic earnings per share from discontinued operations - 0.01
------------------- -------------------
Total basic loss per share ($0.15) ($0.41)
Diluted loss per share from continuing operations ($0.15) ($0.42)
Diluted earnings per share from discontinued operations - 0.01
------------------- -------------------
Total diluted loss per share ($0.15) ($0.41)
Diluted earnings per share have not been reflected, as the result is
anti-dilutive.
-3-
LEISUREPLANET HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF INCOME/(LOSS) AND COMPREHENSIVE
INCOME/(LOSS) FOR THE NINE MONTHS ENDED MARCH 31,
1999
------------------
2000 RESTATED
(DOLLARS)
Revenues 73,877,806 65,533,336
================== ==================
Operating expenses
Cost of sales 49,403,704 39,736,935
Selling, general and administrative costs 29,542,007 21,662,051
Loss on sale of investment in First SA Lifestyle Holdings Limited - 1,094,190
Amortization of intangibles 1,323,843 1,318,037
Depreciation 3,014,091 1,874,843
------------------ ------------------
83,283,645 65,686,056
================== ==================
Operating loss (9,405,839) (152,720)
Other income 9,754,465 582,254
Interest expense (95,440) (125,913)
------------------ ------------------
Income from consolidated companies before income taxes and
minority interests 253,186 303,621
Provision for taxes on income (1,599,707) (1,647,484)
------------------ ------------------
Income/(loss) from continuing operations before minority interests (1,346,521) (1,343,863)
Minority interest in consolidated subsidiary companies 1,688,190 (2,369,370)
------------------ ------------------
Income from continuing operations 341,669 (3,713,233)
Income from discontinued operations - (841,831)
------------------ ------------------
Net (loss)/income 341,669 (4,555,064)
Other comprehensive (loss)/income
Foreign currency translation difference (5,246,809) 2,173,564
------------------ ------------------
Comprehensive income/(loss) (4,905,140) (2,381,500)
------------------ ------------------
Basic loss per share from continuing operations $0.05 ($0.56)
Basic loss per share from discontinued operations - (0.13)
------------------ ------------------
Total basic loss per share $0.05 ($0.69)
Diluted loss per share from continuing operations $0.18 ($0.56)
Diluted loss per share from discontinued operations - (0.13)
------------------ ------------------
Total diluted loss per share $0.18 ($0.69)
------------------ ------------------
Diluted earnings per share for 1999 has not been reflected as the result is
anti-dilutive
-4-
LEISUREPLANET HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31
1999
2000 RESTATED
(DOLLARS)
Cash flows from operating activities:
Net Income/(loss) 341,669 (4,555,064)
Loss from discontinued operations - 841,831
----------------- ------------------
Loss from continuing operations 341,669 (3,713,233)
ADJUSTMENTS TO RECONCILE LOSS TO NET CASH (UTILIZED)/GENERATED BY OPERATING
ACTIVITIES:
Depreciation and amortization 4,337,934 3,192,880
Deferred income taxes 291,528 250,076
Net loss on sale of assets 63,167 -
Net gain on sale of portion of investment in First Lifestyle Holdings - (747,093)
Net loss/(gain) on transactions with minorities 13,572,877) 2,976,622
Effect of changes in current assets and current liabilities (5,363,601) (6,202,985)
Minority interest in consolidated subsidiary companies (1,327,782) 2,622,490
Creation of debenture redemption reserve fund 393,750 562,500
----------------- ------------------
Net cash utilized by continuing operating activities (15,196,620) (7,011,987)
Net cash utilized by discontinued operations - (841,831)
----------------- ------------------
Net cash utilized by operating activities (15,196,620) (7,835,818)
----------------- ------------------
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 dilution in First SA Lifestyle holdings Limited - 10,352,556
Proceeds on First Lifestyle Holdings shares sold 437,773 -
Additional shares in First Lifestyle Holdings acquired - (33,655)
Additional intangibles acquired (1,103,008) (17,896)
Additions to property, plant and equipment (4,447,356) (2,794,041)
Proceeds on disposal of property, plant and equipment 36,445 482,766
Restraint of trade payments - (1,385,197)
Additional purchase price payments - (2,484,510)
Other assets acquired (6,190) (175,812)
Acquisition of subsidiaries (net of cash) - (2,434,902)
Proceeds on disposal of subsidiary (Net of cash of $10,562) - 14,189
----------------- ------------------
Net cash realized by investing activities 15,778,751 1,523,498
----------------- ------------------
Cash flows from financing activities:
Net borrowings in bank overdrafts 466,057 739,916
Repayments of long term debt (1,516,732) (1,775,955)
Repayments of short term debt (1,942,165) (1,314,396)
Proceeds on preference stock issued - 9,891,197
Proceeds/(redemption)on stock issues 21,101,884 (1,900,574)
----------------- ------------------
Net cash provided in financing activities 18,109,044 5,640,188
Effect of exchange rate changes on cash (1,097,684) 4,040,042
------------------ ------------------
Cash generated by operations 17,593,491 3,367,910
Cash on hand at beginning of period 20,813,301 17,948,991
------------------ ------------------
Cash on hand at end of period 38,406,792 21,316,901
================= =================
-5-
LEISUREPLANET HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS INVESTMENT
FIRST SOUTH
LEISUREPLANET LEISUREPLANET AFRICAN
HOLDINGS, LTD. HOLDINGS, LTD. HOLDINGS B
A CLASS COMMON B CLASS COMMON CLASS COMMON CAPITAL IN
STOCK STOCK STOCK EXCESS OF PAR
---------------- ----------------- ------------- ----------------
(DOLLARS)
Balance at June 30, 1999
Options exercised 800 - - 159,200
Debentures converted 165 - - 98,835
Share issue expenses written off - - - (25,092)
Net loss - - - -
Translation difference - - - -
---------- ----------- --------- ----------
Balance at September 30, 1999 54,797 9,466 580 23,204,204
Options exercised 255 - - 120,870
Debentures converted 3,585 - - 2,147,409
A warrants exercised 724 - - 476,626
Escrow shares issued 5,905 - - (5,905
New shares issued 13,793 - - 19,986,207
FSAH B class shares issued - - 19 567,842
Share issue expenses incurred - - - (896,382)
Net profit - - - -
Dividends reversed - - - -
Translation difference - - - -
---------- ----------- --------- ----------
Balance at December 31, 1999 carried forward 79,059 9,466 599 45,600,871
========== =========== ========== ==========
OTHER
COMPREHENSIVE
(LOSS) /INCOME
(FOREIGN
CURRENCY
RETAINED TRANSLATION
(LOSS)/EARNINGS ADJUSTMENTS) TOTAL
----------------- ------------- --------------
Balance at June 30, 1999 (14,695,537) 5,254,902
Options exercised - - 160,000
Debentures converted - - 99,000
Share issue expenses written off - - (25,092)
Net loss (2,833,436) - (2,833,436)
Translation difference - 518,541 518,541
---------- ----------- ---------
Balance at September 30, 1999 (5,918,136) (14,176,996) 3,173,915
Options exercised - - 121,125
Debentures converted - - 2,150,994
A warrants exercised - - 477,350
Escrow shares issued - - -
New shares issued - - 20,000,000
FSAH B class shares issued - 567,861
Share issue expenses incurred - - (896,382)
Net profit 4,542,176 - 4,542,176
Dividends reversed 44,250 - 44,250
Translation difference - (1,688,732) (1,688,732)
---------- ----------- ---------
Balance at December 31, 1999 carried forward (1,331,710) (15,865,728) 28,492,557
========== =========== ==========
-6-
LEISUREPLANET LEISUREPLANET FIRST SOUTH
HOLDINGS, LTD. HOLDINGS, LTD. AFRICAN HOLDINGS
A CLASS COMMON B CLASS COMMON B CLASS COMMON CAPITAL IN
STOCK STOCK STOCK EXCESS OF PAR
----------------- ------------------ ---------------- -----------------
(DOLLARS)
Balance at December 31, 1999 brought forward 79,059 9,466 599 45,600,871
Options exercised 745 353,130
Warrants exercised 1,699 - - 1,070,057
Escrow shares reversed (4,700) - - 4,700
Debentures converted 6,833 - - 4,952,438
Share issue expenses incurred - - - (900,000)
Net loss - - - -
Translation difference - - - -
---------- ----------- ---------- ------------
Balance at March 31, 2000 83,636 9,466 599 51,081,196
========== =========== ========== ===========
OTHER
COMPREHENSIVE
(LOSS) /INCOME
(FOREIGN CURRENCY
RETAINED TRANSLATION
(LOSS)/EARNINGS ADJUSTMENTS) TOTAL
- ------------------ ---------------- ------------
alance at December 31, 1999 brought forward (1,331,710) (15,865,728) 28,492,557
Options exercised - - 353,875
Warrants exercised - - 1,071,756
Escrow shares reversed - - -
Debentures converted - - 4,959,271
Share issue expenses incurred - - (900,000)
Net loss (1,367,067) - (1,367,067)
Translation difference - (4,076,618) (4,076,618)
---------- ----------- ----------
Balance at March 31, 2000 (2,698,777) (19,942,346) 28,533,774
========== =========== ==========
-7-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND 1999
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.
EARNINGS/(LOSS) PER SHARE
Earnings/(loss) per share on common shares is based on net
income/(loss) and reflects dilutive effects of any stock options and
warrants that exist at period 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
-8-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND 1999
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 that
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 have taken place.
FOREIGN CURRENCY TRANSLATION
The functional currency of the underlying companies in the Lifestyle
enhancing segment is that of 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
adjustment."
FOREIGN ASSETS AND LIABILITIES
Transactions in foreign currencies arise as a result of inventory
purchases from foreign countries and intercompany funding transactions
between the Company and its subsidiaries. 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).
-9-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND 1999
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 March 31, 2000, 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.
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 products 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 to 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
-10-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND 1999
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:
MARCH 31, JUNE 30,
2000 1999
----------------- ---------------
DOLLARS
Finished goods 4,307,613 4,655,361
Work in progress 515,983 587,544
Raw materials and ingredients 3,087,475 2,983,298
Supplies 1,155,025 1,066,595
--------- ---------
Inventories (Gross) 9,066,096 9,292,798
Less: Valuation allowances (117,397) (140,223)
--------- ---------
Inventories (Net) 8,948,699 9,152,575
========= =========
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.
-11-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND 1999
5.EARNINGS PER SHARE
Earnings/(loss) per share data is calculated as follows:
BASIC LOSS PER SHARE FOR THE THREE MONTHS ENDED
MARCH 31, 2000
Net loss available to common stockholders (1,367,067)
SHARES FRACTION OF WEIGHTED AVERAGE
DATES OUTSTANDING OUTSTANDING PERIOD SHARES
----------- ------ ------
January 1, 2000 8,852,536 1.00 8,852,536
January 1, 2000 to March 31, 2000
Options converted to shares during the quarter 74,500 0.90 66,973
Warrants exercised during the quarter 169,911 0.40 67,298
Escrow shares reversed during the quarter (469,975) 1.00 (469,975)
Debentures converted into shares during the quarter 683,293 0.71 485,566
--------- ---------
WEIGHTED AVERAGE SHARES 9,310,265 9,002,398
========= =========
BASIC LOSS PER SHARE FOR THE NINE MONTHS ENDED
MARCH 31, 2000
Net loss available to common stockholders 341,669
SHARES FRACTION OF WEIGHTED AVERAGE
DATES OUTSTANDING OUTSTANDING PERIOD SHARES
July 1, 1999 6,329,731 1.00 6,329,731
July 1, 1999 to March 31, 2000
New shares issued during the year 1,379,310 0.02 473,194
Options converted to shares during the year 180,000 0.57 97,317
Escrow shares issued during the year 120,621 0.51 80,561
A Warrants exercised during the year 242,311 0.08 49,856
Debentures converted into shares during the year 1,058,292 0.12 312,526
--------- ---------
WEIGHTED AVERAGE SHARES 9,310,265 7,343,185
========= =========
BASIC LOSS PER SHARE FOR THE THREE MONTHS ENDED
MARCH 31, 1999
Net loss available to common stockholders from
continuing operations (2,549,148)
Net income available to common stockholders from
discontinued operations 85,596
----------
Total net loss (2,463,552)
==========
-12-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND 1999
SHARES FRACTION OF WEIGHTED AVERAGE
DATES OUTSTANDING OUTSTANDING PERIOD SHARES
Balance at January 1, 1999 6,254,649 1.00 6,254,649
Redemption of shares during the quarter (142,918) 1.00 142,918
Options converted to shares during the quarter 25,500 1.00 25,500
--------- ---------
WEIGHTED AVERAGE SHARES 6,137,231 6,137,231
BASIC LOSS PER SHARE FOR THE NINE MONTHS ENDED MARCH 31, 1999
Net loss available to common stockholders from
continuing operations (3,713,233)
Net loss available to common stockholders from
discontinued operations (841,831)
-----------
Total net loss (4,555,064)
-----------
SHARES FRACTION OF WEIGHTED AVERAGE
DATES OUTSTANDING OUTSTANDING PERIOD SHARES
----------- ------ ------
July 1, 1998 7,472,324 1.00 7,472,324
July 1 - September 30, 1998
Additional purchase price payments 242,684 0.67 162,085
Warrants converted to shares during the quarter 127,200 0.96 122,558
October 1 - December 31, 1998
Redemption of escrow shares during the quarter (1,583,059) 0.51 (1,057,299)
January 1 - March 31, 1999
Redemption of shares during the quarter (142,918) 0.33 (46,944)
Options converted to shares during the quarter 21,000 0.33 6,898
WEIGHTED AVERAGE SHARES 6,137,231 6,659,622
DILUTED LOSS PER SHARE FOR THE THREE MONTHS
ENDED MARCH 31, 2000
Net loss available to common stockholders (1,367,067)
Add impact of assumed conversions 401,832
----------
ADJUSTED NET INCOME (965,235)
----------
Weighted average shares 9,002,398
Warrants and options not yet exercised 1,795,774
9% convertible debentures 148,603
Increasing rate debentures 1,312,281
----------
ADJUSTED WEIGHTED AVERAGE SHARES 12,259,056
==========
-13-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND 1999
DILUTED LOSS PER SHARE FOR THE NINE MONTHS ENDED
MARCH 31, 2000
Net loss available to common stockholders 341,669
Add impact of assumed conversions 1,628,401
---------
ADJUSTED NET INCOME 1,970,070
---------
Weighted average shares 7,343,185
Warrants and options not yet exercised 1,312,751
9% convertible debentures 522,282
Increasing rate debentures 1,491,356
---------
ADJUSTED WEIGHTED AVERAGE SHARES 10,669,574
==========
DILUTED LOSS PER SHARE FOR THE THREE MONTHS
ENDED MARCH 31, 1999
Net loss available to common stockholders from continuing
operations (2,549,148)
Add impact of assumed conversions 653,794
---------
(1,895,354)
Net income available to common stockholders from discontinued
operations 85,596
---------
ADJUSTED NET LOSS AVAILABLE TO COMMON
STOCKHOLDERS (1,809,938)
==========
Weighted average shares 6,137,231
Warrants and options not yet exercised 19,852
9% convertible debentures 921,666
Increasing rate debentures 1,578,947
---------
ADJUSTED WEIGHTED AVERAGE SHARES 8,657,696
==========
DILUTED LOSS PER SHARE FOR THE NINE MONTHS
ENDED MARCH 31, 1999
Net loss available to common stockholders from
continuing operations (3,713,233)
Add impact of assumed conversions 1,633,757
---------
(2,079,476)
Net loss available to common stockholders from
discontinued operations (841,831)
ADJUSTED NET LOSS AVAILABLE TO COMMON
STOCKHOLDERS (2,921,307)
==========
Weighted average shares 6,659,622
Warrants and options not yet exercised 6,617
9% convertible debentures 979,358
Increasing rate debentures 1,578,947
---------
ADJUSTED WEIGHTED AVERAGE SHARES 9,224,544
==========
-14-
6. SUBSEQUENT EVENTS
EMPLOYMENT AGREEMENT FOR CLIVE KABATZNIK
On April 12, 2000, the Company's Board of Directors approved a revised
Employment Agreement with Clive Kabatznik (the "Employment Agreement"). Pursuant
to the Employment Agreement, Mr. Kabatznik will serve as the Chief Executive
Officer, President and Chief Financial Officer of the Company beginning as of
February 1, 2000 and continuing through and until January 31, 2005. As
compensation for his services, Mr. Kabatznik will receive an annual base salary
of $300,000 (with five percent increases each year), and an annual bonus of five
percent of net realized capital gains upon the sale, liquidation or
distribution by the Company of any Portfolio Company (as defined in the
Employment Agreement). A Portfolio Company does not include any of the South
African entities currently owned by the Company. In the event of a Change in
Control (as defined in the Employment Agreement), Mr. Kabatznik may also be
entitled to a payment of five percent of any net unrealized capital gains on any
Portfolio Company, which gains may, at the option of the Company, be paid in
cash, stock of the Portfolio Company or any combination of the foregoing.
INVESTMENT IN MAGNOLIA BROADBAND
On April 14, 2000, the Company entered into a Securities Purchase Agreement
(the "Agreement") with Magnolia Broadband, Inc. ("Magnolia"). Magnolia is a
start-up company which plans to develop fixed wireless broadband solutions.
Magnolia is seeking to develop technology that provides residential and small
business users of the Internet with high speed access to Internet services at
lower capital costs and with faster deployment. Magnolia will initially target
its products in the United States and plans to later penetrate international
markets.
Pursuant to the Agreement, the Company invested $2,500,000 in Magnolia and
received shares of preferred stock in Magnolia. The Company also received
certain board representation rights and registration rights. The shares of
Magnolia preferred stock owned by the Company are convertible into common stock
of Magnolia, and the Company is entitled to voting rights (on an as-converted
basis) and certain preferred dividend, liquidation and anti-dilution rights. The
Company initially owns approximately 48% of Magnolia. Certain of the shares
owned by the founders of Magnolia are subject to repurchase by Magnolia if the
founders' employment with Magnolia terminates before October 15, 2002. Magnolia
has reserved additional shares of its common stock for issuance to founders,
employees, consultants, directors and other investors. Assuming full issuance of
such shares, the Company's ownership interest in Magnolia will be reduced to
33%.
-15-
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 meet 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
The Company also owns stakes in two other entities in the Internet and
e-commerce related segment, Magnolia Broadband, Inc. and hotelsupplygroup.com.
Each of these entities was inoperative during the quarter ended March 31, 2000.
-16-
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.
The average rate for the South African Rand against the US Dollar for the period
presented in this report is as follows:
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
Rate of exchange vs $1 6.42 6.15
Depreciation 4.4%
NINE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
Rate of exchange vs $1 6.22 6.03
Depreciation 3.15%
The annual rate of inflation in South Africa for the year ended March 31, 2000
was approximately 3.4%
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 MARCH 31, 2000 AS COMPARED TO THREE MONTHS ENDED MARCH 31,
1999
Revenues
Revenues for the three months ended March 31, 2000 increased by $0.88 million or
4.4% to $21.1 million as compared to $20.2 million for the three months ended
March 31, 1999. For the three months ended March 31, 2000, revenues generated
from Internet and e-commerce related businesses totaled $100,000, while revenues
generated from the lifestyle products segment totaled $21.0 million.
Cost of goods sold
Cost of goods sold has increased as a percentage of revenues from 60% to 69.4%.
This is in line with the fiscal year ended June 30, 1999 percentage of 69%.
Generally, two operations in the
-17-
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 March
31, 2000 increased by $5.2 million or 73.4% to $12.2 million as compared to $7.0
million for the three months ended March 31, 1999. 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
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.
Amortization of intangibles
Amortization of intangibles decreased from $0.7 million for the three months
ended March 31, 1999 to $0.4 million for the three months ended March 31, 2000.
This decrease is primarily due to the write off of intangibles arising on the
acquisition of the Company's various businesses, which intangibles were no
longer justifiable.
Depreciation
Depreciation increased from $0.5 million for the three months ended March 31,
1999 to $1.1 million for the three months ended March 31, 2000. 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 March 31, 2000 totaled $2.67 million and
is primarily made up of unrealized gains on the Company's investment in LPI
Limited. These gains resulted from the issuance of new shares by LPI Limited to
new investors. These new investments were made at a higher valuation than the
investments made by the Company and carried on the Company's financial
statements.
Interest expense/(income)
Interest income of $0.4 million for the three months ended March 31, 2000 has
increased by $0.86 million from an interest expense of $0.45 million for the
three months ended March 31, 1999. This increase is primarily due to the
conversion of debentures to shares during the quarter and the resultant reversal
of a portion of the capital redemption reserve fund, which was being created for
future debenture redemptions.
-18-
Provision for taxes on income
Our income tax provision decreased from $0.3 million for the three months ended
March 31, 1999 to a credit of $0.3 million for the three months ended March 31,
2000. This credit arose due to the incurring of losses in a quiet trading period
by some of the Lifestyle enhancing businesses, reversing some of the taxation
provision required.
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 discontinuance of our 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 $0.9 million for the
three months ended March 31, 1999 to a credit of $2.4 million for the three
months ended March 31, 2000. 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 43.3%.
Net (loss)/income
As a result of the above, the Company has achieved a loss of $1.37 million as
compared to a loss of $2.46 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.
The Internet travel related business contributed a loss of $4.02 million to the
group after taking into account the minority interests. The remaining gain
represents profits from the Lifestyle enhancing business sector, corporate home
office expenses and unrealized gains on the Company's investment in LPI Limited.
-19-
NINE MONTHS ENDED MARCH 31, 2000 AS COMPARED TO NINE MONTHS ENDED MARCH 31, 1999
Revenues
Revenues for the nine months ended March 31, 2000 increased by $8.34 million or
12.7% to $73.87 million as compared to $65.5 million for the nine months ended
March 31, 1999. For the nine months ended March 31, 2000, revenues generated
from Internet and e-commerce related businesses totaled $200,000, while revenues
generated from the lifestyle products segment totaled $73.67 million.
This growth in revenue was generated primarily from the Lifestyle enhancing
business segment which has improved revenue 17% in South African Rand terms
after factoring out the effects of the deterioration in the currency over the
respective quarters, which is significantly better than inflation. This growth
in revenue 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 60.6% to
66.9%. This reflects a slight improvement over the fiscal year ended June 30,
1999 percentage 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 nine months ended March 31,
2000 increased by $7.9 million or 36.6% to $29.6 million as compared to $21.7
million for the nine months ended March 31, 1999. 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
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.
Amortization of intangibles
Amortization of intangibles increased from $1.32 million for the nine months
ended March 31, 1999 to $1.33 million for the nine months ended March 31, 2000.
Depreciation
Depreciation increased from $1.87 million for the nine months ended March 31,
1999 to $3.01 million for the nine months ended March 31, 2000. This increase is
due to the amortization of
-20-
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 nine months ended March 31, 2000 totaled $9.8 million and
is primarily made up of unrealized gains on the Company's investment in LPI
Limited. These gains resulted from the issuance of new shares by LPI Limited to
new investors. These new investments were made at a higher valuation than the
investments made by the Company and carried on the Company's financial
statements.
Interest expense/(income)
Interest expense of $0.1 million for the nine months ended March 31, 2000 has
decreased by $0.03 million from an interest expense of $0.13 million for the
nine months ended March 31, 1999.
Provision for taxes on income
Our income tax provision decreased from $1.65 million for the nine months ended
March 31, 1999 to $1.6 million for the nine months ended March 31, 2000. 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 year.
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 year 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 $2.4 million for the
nine months ended March 31, 1999 to a credit of $1.7 million for the nine months
ended March 31, 2000. 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 resulted 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 43.3%.
-21-
Net (loss)/income
As a result of the above, the Company has achieved a profit of $0.3 million as
compared to a loss of $4.6 million for the comparative period in the prior year.
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.
The Internet travel related business contributed a loss of $9.3 million to the
group after taking into account the minority interests. The remaining gain
represents profits from the Lifestyle enhancing business sector, corporate home
office expenses and unrealized gains on the Company's investment in LPI Limited.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash increased by $17.6 million from $20.8 million to $38.4 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 $1.052 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 $22.9 million to $51.2 million at March 31, 2000
from $28.278 million at June 30, 1999. This is primarily as a result of the
increase in cash resources due to capital injections from strategic equity
partners. Accounts receivable has increased by $1.7 million over June 30, 1999.
This has been partially funded by an increase in accounts payable by $1.25
million over June 30, 1999.
At March 31, 2000, the Company had borrowings of $19.98 million which has
decreased from $33.598 million. This includes the conversion from loan funds to
equity of $4.8 million of debt owing to the minority shareholders of LPI
Limited. The remaining reduction resulted from the conversion of convertible
debentures to equity.
Cash flow from operations for the nine months ended March 31 2000, excluding
non-cash charges, resulted in the utilization of $15.2 million, primarily
utilized to fund the losses in the Internet travel related business. Investing
activities undertaken by the group resulted in the generation of an additional
$15.8 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 $18.1 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
-22-
as approximately $0.8 million in stock. The Company anticipates that this cash
and 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 $2.2 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. There is no assurance that the Company will be able to secure such
funding.
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 March 31, 2000 approximately $2.2 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.
-23-
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 are
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 demand and supply. 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 as 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
produce. 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.
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
-24-
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.
-25-
6. PART II - OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibit
10.1 Employment Agreement dated as of April 12, 2000
between the Company and Clive Kabatznik
10.2 Securities Purchase Agreement dated as of April 14,
2000 between Magnolia Broadband, Inc. and the Company
27.1 Financial Data Schedule
(b) Reports on Form 8-K filed during quarter ended March 31, 2000:
None
-26-
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: May 12, 2000
LEISUREPLANET HOLDINGS, LTD.
/s/ Clive Kabatznik
----------------------------------
Clive Kabatznik
Chief Executive Officer, President
and Chief Financial Officer