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 September 30, 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
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(Address of Principal Executive Offices with Zip Code)
Registrant's Telephone Number, Including Area Code: 809-295-1422
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------------------------------------------------------------------
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 November 8, 1999 was
6,426,231.
LEISUREPLANET HOLDINGS, LTD.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
PART I - FINANCIAL INFORMATION
Item 1 Unaudited Consolidated Balance Sheets at September 30, 1999 and
June 30, 1999
Unaudited Consolidated Statements of (Loss)/Income and
Comprehensive (Loss)/Income for the three months ended
September 30, 1999 and 1998
Unaudited Consolidated Statements of Cash Flows for the three
months ended September 30, 1999, 1998
Unaudited Consolidated Statement of Changes in Stockholders
Investment for the period June 30, 1999 to September 30, 1999
Notes to the Unaudited Consolidated Financial Statements for
the three months ended September 30, 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 Report on 10-K
SIGNATURES
LEISUREPLANET HOLDINGS, LTD.
UNAUDITED CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
September 30, June 30,
1999 1999
$ $
- ----------------------------------------------------------------------------------------------------------------------------
Current assets
Cash on hand 17,535,700 20,813,301
Trade accounts receivable 16,647,752 13,388,561
Less: Allowances for bad debts (461,644) (443,172)
--------- ---------------
6,186,108 12,945,389
- ----------------------------------------------------------------------------------------------------------------------------
Inventories (net) 9,600,855 9,152,575
Prepaid expenses and other current assets 6,434,383 5,236,587
Deferred income taxes 539,884
--------- --------------
- ----------------------------------------------------------------------------------------------------------------------------
Total current assets 49,757,046 48,687,736
- ----------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 31,831,379 30,777,399
Less: Accumulated depreciation (12,444,665) (11,488,982)
---------------- ---------------
19,386,714 19,288,417
- ----------------------------------------------------------------------------------------------------------------------------
Intangible assets (net) 33,792,950 34,024,745
Deferred charges (net) 797,295 868,944
Other assets 34,239 33,988
--------------- --------------
- ----------------------------------------------------------------------------------------------------------------------------
103,768,244 102,903,830
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------------------------------------------------------------------------------------------
Current liabilities
Bank overdraft payable 842,522
Current portion of long term debt 1,138,917 3,088,435
Trade accounts payable 9,502,029 9,058,811
Other provisions and accruals 6,112,556 4,618,283
Dividends payable 1,885,672 1,870,959
Other taxes payable 704,590 558,669
Income taxes payable 1,582,608 1,214,292
--------------- --------------
- ----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 21,768,894 20,409,449
- ----------------------------------------------------------------------------------------------------------------------------
Long term debt 34,881,504 33,598,244
Deferred income taxes 1,207,347 1,551,724
--------------- --------------
- ----------------------------------------------------------------------------------------------------------------------------
57,857,745 55,559,417
--------------- --------------
- ----------------------------------------------------------------------------------------------------------------------------
Minority stockholders investment 32,845,387 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 5,479,642 shares (1998: 5,383,142 shares) 54,797 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 2,550,466 shares (1998: 2,550,466 shares) 580 580
Preferred stock, $0.01 par value - authorized 5,000,000 shares, issued and
outstanding nil shares - -
Capital in excess of par 23,204,204 22,971,261
- ----------------------------------------------------------------------------------------------------------------------------
Retained (loss)/earnings (5,918,136) (3,084,700)
---------------- ---------------
- ----------------------------------------------------------------------------------------------------------------------------
17,350,911 19,950,439
- ----------------------------------------------------------------------------------------------------------------------------
Foreign currency translation adjustments (14,176,996) (14,695,537)
---------------- ---------------
- ----------------------------------------------------------------------------------------------------------------------------
3,173,915 5,254,902
--------------- --------------
- ----------------------------------------------------------------------------------------------------------------------------
103,768,244 102,903,830
- ----------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONDSOLIDATED FINANCIAL STATEMENTS
LEISUREPLANET HOLDINGS, LTD.
UNAUDITED CONSOLIDATED STATEMENTS OF (LOSS)/INCOME AND COMPREHENSIVE (LOSS)/INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------------------------------------------------------
1999 1998
Restated
$ $
- --------------------------------------------------------------------------------------------------------------------------------
Revenues 22,721,938 19,257,120
---------- ----------
- --------------------------------------------------------------------------------------------------------------------------------
Operating expenses
Cost of sales 15,167,513 11,932,582
Selling, general and administrative costs 7,829,115 5,511,726
Amortization of intangibles 484,361 281,580
Depreciation 888,292 443,772
------- -------
24,369,281 18,169,660
---------- ----------
- --------------------------------------------------------------------------------------------------------------------------------
Operating income/(loss) (1,647,343) 1,087,460
- --------------------------------------------------------------------------------------------------------------------------------
Other income 209,481 64,783
Interest (expense)/income (210,760) 143,575
--------- -------
- --------------------------------------------------------------------------------------------------------------------------------
(Loss)/income from consolidated companies before income taxes and minority interests
Provision for taxes on income (1,648,622) 1,295,818
(554,386) (494,396)
--------- ---------
- --------------------------------------------------------------------------------------------------------------------------------
(Loss)/income from continuing operations before minority interests (2,203,008) 801,422
Minority interest in consolidated subsidiary companies (630,428) (411,411)
--------- ---------
- --------------------------------------------------------------------------------------------------------------------------------
Profit/(Loss) from continuing operations (2,833,436) (390,011)
Loss from discontinued operations (1,506,150)
---------- -----------
- --------------------------------------------------------------------------------------------------------------------------------
Net loss (2,833,436) (1,116,139)
Other comprehensive income:
Foreign currency translation adjustments 518,541 959,243
------- -------
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss (2,314,895) (156,896)
----------- =========
- --------------------------------------------------------------------------------------------------------------------------------
Basic loss per share from continuing operations ($0.44) $0.05
Basic loss per share from discontinued operations ($0.20)
------ -------
- --------------------------------------------------------------------------------------------------------------------------------
Total basic loss per share ($0.44) ($0.15)
------- -------
- --------------------------------------------------------------------------------------------------------------------------------
Diluted loss per share from continuing operations * ($0.44) $0.05
Diluted loss per share from discontinued operations ($0.20)
----- -------
- --------------------------------------------------------------------------------------------------------------------------------
Total diluted loss per share * ($0.44) ($0.15)
------- -------
- --------------------------------------------------------------------------------------------------------------------------------
* Additional shares were not considered as the result would be anti-dilutive
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
LEISUREPLANET HOLDINGS, LTD.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
- ---------------------------------------------------------------------------------------- ------------------ ------------------
September 30, September 30,
1999 1998
Restated
$ $
- ---------------------------------------------------------------------------------------- ------------------ ------------------
Cash flows from operating activities:
Net loss (2,833,436) (1,116,139)
Loss from discontinued operations 1,506,150
----------- ---------
Loss from continuing operations (2,833,436) 390,011
Adjustments to reconcile loss to net cash (utilized)/generated by
operating activities:
Depreciation and amortization 1,372,653 725,352
Deferred income taxes 184,698 11,108
Net loss on sale of assets 31,244 -
Net loss on sale of subsidiary - 15,408
Net loss on debenture redemption - 94,259
Net loss/(gain) on transactions with minorities in First Lifestyle
Holdings Limited 424 (11,743)
Effect of changes in current assets and current liabilities (2,310,361) (934,922)
Minority interest in consolidated subsidiary companies 630,429 411,411
Creation of debenture redemption reserve fund 281,250 -
--------- ---------
- ---------------------------------------------------------------------------------------- ------------------ ------------------
Net cash (utilized)/generated by continuing operating activities (2,643,099) 700,884
Net cash utilized by discontinued operations (854,049)
--------- ---------
- ---------------------------------------------------------------------------------------- ------------------ ------------------
Net cash utilized by operating activities (2,643,099) (153,165)
- ---------------------------------------------------------------------------------------- ------------------ ------------------
Cash flows from investing activities:
Proceeds on minority shares issued in First Lifestyle Holdings Limited 16,221 -
Additional intangibles acquired (5,954) -
Additions to property, plant and equipment (880,525) (1,275,699)
Proceeds on disposal of property, plant and equipment 9,134 653,627
Additional purchase price payments - (2,085,313)
Other assets acquired - (40,106)
Proceeds on disposal of subsidiary (Net of cash of $9,633) 49,191
-------- ------
- ---------------------------------------------------------------------------------------- ------------------ ------------------
Net cash (used in)/realized by investing activities (861,124) (2,698,300)
- ---------------------------------------------------------------------------------------- ------------------ ------------------
Cash flows from financing activities:
Net borrowings in bank overdrafts 829,688 874,368
Borrowings in long term debt 1,063,365 825,654
Redemption of debentures - (2,733,810)
Repayments of short term debt (1,943,755) (405,053)
Proceeds on stock issues 160,000 1,033,613
---------- ---------
- ---------------------------------------------------------------------------------------- ------------------ ------------------
Net cash provided in financing activities 109,298 (405,228)
- ---------------------------------------------------------------------------------------- ------------------ ------------------
Effect of exchange rate changes on cash 117,324 182,513
------- -------
- ---------------------------------------------------------------------------------------- ------------------ ------------------
Cash utilized by operations (3,277,601) (3,074,180)
Cash on hand at beginning of period 20,813,301 17,948,991
---------- ----------
- ---------------------------------------------------------------------------------------- ------------------ ------------------
Cash on hand at end of period 17,535,700 14,874,811
========== ==========
- ---------------------------------------------------------------------------------------- ------------------ ------------------
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
LEISUREPLANET HOLDINGS, LTD.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS INVESTMENT
---------------------------------------------------------------------------------------------------------------------------
Leisureplanet Leisureplanet
Holdings, Ltd. Holdings, Ltd. First South
A Class common B class common African Holdings Capital in Retained
Stock stock B class common Excess of (loss)/earnings
$ $ stock par $
$ $
---------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999 53,832 9,466 580 22,971,261 (3,084,700)
---------------------------------------------------------------------------------------------------------------------------
Options exercised 800 - - 159,200 -
---------------------------------------------------------------------------------------------------------------------------
Debentures converted 165 - - 98,835 -
---------------------------------------------------------------------------------------------------------------------------
Share issue expenses written off - - - (25,092) -
---------------------------------------------------------------------------------------------------------------------------
Net loss - - - - (2,833,436)
---------------------------------------------------------------------------------------------------------------------------
Translation difference - - - - -
---------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1999 54,797 9,466 580 23,204,204 (5,918,136)
------ ----- --- ---------- -----------
---------------------------------------------------------------------------------------------------------------------------
---------------------------------
Other
Comprehensive
(loss)
/income
(Foreign
currency
translation
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)
- -------------------------------------------------------------------------------
Translation difference 518,541 518,541
------ ------
- -------------------------------------------------------------------------------
Balance at September 30, 1999 (14,176,996) 3,173,915
---------- ---------
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
LEISUREPLANET HOLDINGS, LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1. ORGANISATION 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 Company 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.
LEISUREPLANET HOLDINGS, LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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 South African Rands. 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 a "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 Leisure Planet Holdings Limited.
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 September 30, 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.
LEISUREPLANET HOLDINGS, LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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:
----------------------------------------------------------------------------------------------------------------------
September 30, June 30,
1999 1999
$ $
----------------------------------------------------------------------------------------------------------------------
Finished goods 4,879,739 4,655,361
Work in progress 382,324 587,544
Raw materials and ingredients 3,449,293 2,983,298
Supplies 1,037,155 1,066,595
--------- ---------
----------------------------------------------------------------------------------------------------------------------
Inventories (Gross) 9,784,511 9,292,798
Less: Valuation allowances (147,656) (140,223)
--------- ---------
----------------------------------------------------------------------------------------------------------------------
Inventories (Net) 9,600,855 9,152,575
========= =========
----------------------------------------------------------------------------------------------------------------------
LEISUREPLANET HOLDINGS, LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
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.
The businesses disposed of, or where the operations have ceased are as
follows:
The following summarizes the results of the discontinued operations:
---------------------------------------------------------------------------------------------------- --------------------
Three months ended
September 30,
1998
$
---------------------------------------------------------------------------------------------------- --------------------
Revenue 6,007,756
Cost of sales (4,427,289)
Selling, general and administrative (2,833,159)
---------------
Operating (loss)/income (1,252,692)
Other income 22,426
Interest expense (250,111)
---------------
(Loss)/income before income taxes and minority interests (1,480,377)
Provision for taxes on income (25,773)
---------------
Net (loss)/income from discontinued operations (1,506,150)
---------------
---------------------------------------------------------------------------------------------------- --------------------
Interest expense represents the actual interest costs incurred by the
discontinued operations.
5. LOSS/EARNINGS PER SHARE
Loss per share data is calculated as follows:
----------------------------------------------------------------- ----------------- ------------------ ------------------
Basic loss per share for the three months ended September 30,
1999
Net loss available to common stockholders (2,833,436)
-----------
----------------------------------------------------------------- ----------------- ------------------ ------------------
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 September 30, 1999
Options converted to shares during the quarter 80,000 0.50 40,000
Debentures converted into shares during the quarter 16,500 0.50 8,250
------ -----
----------------------------------------------------------------- ----------------- ------------------ ------------------
Weighted average shares 6,426,231 6,377,981
========= =========
----------------------------------------------------------------- ----------------- ------------------ ------------------
LEISUREPLANET HOLDINGS, LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
5. LOSS PER SHARE (continued)
----------------------------------------------------------------- ----------------- ------------------ ------------------
Basic loss per share for the three months ended September 30, $
1998
Net loss available to common stockholders from continuing
operations 390,011
Net loss available to common stockholders from discontinued
operations (1,506,150)
-----------
Total net loss (1,116,139)
===========
----------------------------------------------------------------- ----------------- ------------------ ------------------
Shares Fraction of Weighted average
Dates outstanding outstanding period shares
----------------------------------------------------------------- ----------------- ------------------ ------------------
July 1, 1998 7,472,324 1.00 7,472,324
July 1, 1998 to September 30, 1998
Additional purchase price payments 242,684 0.10 2,638
Debentures converted into shares during the year 122,700 0.90 109,363
------- -------
----------------------------------------------------------------- ----------------- ------------------ ------------------
Weighted average shares 7,837,708 7,584,325
========= =========
----------------------------------------------------------------- ----------------- ------------------ ------------------
Diluted loss per share for the three months ended September 30,
1999
Net loss available to common stockholders (2,833,436)
Add impact of assumed conversions 621,059
----------------------------------------------------------------- ----------------- ------------------ ------------------
Adjusted net loss (2,212,377)
----------------------------------------------------------------- ----------------- ------------------ ------------------
Weighted average shares 6,377,981
Warrants and options not yet exercised 280,198
9% convertible debentures 740,916
Increasing rate debentures 1,578,947
---------
----------------------------------------------------------------- ----------------- ------------------ ------------------
Adjusted weighted average shares 8,978,042
----------------------------------------------------------------- ----------------- ------------------ ------------------
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.
----------------------------------------------------------------- ----------------- ------------------ ------------------
Diluted loss per share for the three months ended September 30, $
1998
Net loss available to common stockholders from continuing
operations 390,011
Add impact of assumed conversions 336,863
726,874
Net loss available to common stockholders from discontinued
operations (1,506,150)
----------------------------------------------------------------- ----------------- ------------------ ------------------
Adjusted net loss (779,276)
----------------------------------------------------------------- ----------------- ------------------ ------------------
Weighted average shares 7,584,325
9% convertible debentures 1,055,954
Increasing rate debentures 1,578,947
---------
----------------------------------------------------------------- ----------------- ------------------ ------------------
Adjusted weighted average shares 10,219,226
----------------------------------------------------------------- ----------------- ------------------ ------------------
Item 2. 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. Prior to the
acquisition of LPI Limited, the broad strategy followed in all investment
decisions was as follows:
Revenue is to 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 and must be sustainable over the medium
term.
The target must operate in 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, effective January 1, 1999. 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.
The average rate for the South African Rand against the US Dollar for the period
presented in this report is as follows:
- -----------------------------------------------------------------------------------------------------------
Three months ended Three months ended
September 30, 1999 September 30, 1999
- -----------------------------------------------------------------------------------------------------------
Rate of exchange vs $1 6.07 6.14
- -----------------------------------------------------------------------------------------------------------
Appreciation 1.1%
- -----------------------------------------------------------------------------------------------------------
The annual rate of inflation in South Africa for the year ended September 30,
1999 was approximately 1.9%
RESULTS OF OPERATIONS
Three months ended September 30, 1999 as compared to three months ended
September 30, 1998
Revenues
Revenues for the three months ended September 30, 1999 increased by $3.465
Million or 18.0% to $22.722 Million as compared to $19.257 Million for the three
months ended September 30, 1998.
This revenue is primarily derived from the Lifestyle enhancing business segment
which has improved revenue 17% 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 62% to 66.8 %.
This reflects a slight improvement over the fiscal year ended 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
September 30, 1999 increased by $2.32 Million or 42% to $7.829 Million as
compared to $5.511 Million for the three months ended September 30, 1998. This
increase takes into account the operating expenses of our Internet travel
related subsidiary which was acquired effective January 1, 1999.
Amortization of intangibles
Amortization of intangibles increased from $0.28 Million for the three months
ended September 30, 1998 to $0.48 Million for the three months ended September
30, 1999. This increase is primarily due to the fact that the additional
purchase price payments made at the end of fiscal 1999 under the Company's
various acquisition agreements have been allocated to intangibles and therefore
have been amortized.
Depreciation
Depreciation increased from $0.44 Million for the three months ended September
30, 1998 to $0.89 Million for the three months ended September 30, 1999. This
increase is primarily due to the depreciation of computer equipment in the
Internet travel related business acquired effective January 1, 1999.
Interest expense/(income)
Interest expense of $0.2 Million for the three months ended September 30, 1999
has decreased by $0.35 Million from an interest income of $0.14 Million for the
three months ended September 30, 1998. This decrease is primarily due to a
reduction in the interest rate earned on cash balances coupled with lower cash
balances than in the prior year.
Provision for taxes on income
Our income tax provision increased from $0.49 Million for the three months ended
September 30, 1998 to $0.55 Million for the three months ended September 30,
1999. This increase is after accounting for the decrease in the South African
tax rate from 35% to 30% during fiscal 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 discontinuance of our industrial products and
packaging business segments. We decided to discontinue these segments during
fiscal 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 increased from $0.41 Million for the
three months ended September 30, 1998 to $0.63 Million for the three months
ended September 30, 1999. This increase was primarily due to a decrease in our
shareholdings of First Lifestyle Holdings Limited during fiscal 1999 from 67% to
approximately 51.5%.
Net (loss)/income
As a result of the above, the Company has achieved a loss of $2.833 Million as
compared to a loss of $1.116 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 proportion of the quarter's loss. These losses are expected to
continue for the foreseeable future.
Financial condition, liquidity and capital resources
Cash decreased by $3.278 Million from $20.813 Million to $17.536 Million. The
decrease is primarily a result of the funding required for the Internet travel
related business.
Working capital decreased by $0.290 Million to $27.988 Million at September 30,
1999 from $28.278 Million at September 30, 1998.
At September 30, 1999, the Company had borrowings of $34.882 Million which has
increased from $33.598 Million. This includes $10 Million owing to the minority
shareholders of LPI Limited as loan funds. The 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.
Operations for the three months ended September 30, 1999, excluding non-cash
charges, resulted in the utilization of $2.643 Million, primarily in the
Internet travel related business. Investing activities undertaken by the group
resulted in the utilization of an additional $0.86 Million during the year. This
included the acquisition of property, plant and equipment of $0.88 Million.
Future commitments
Under the Company's various acquisition agreements, the Company anticipates
having to spend approximately $1.07 Million in cash for its contingent payments
over the next 12 months, as well as approximately $0.6 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, if any, 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 LPI
Limited is able to sustain its own infrastructure costs. The Company will also
be required to incur additional indebtedness or equity financing 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 $1.0 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.
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 September 30, 1999 approximately $3.8 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 Rands. 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 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 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 enter 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
Based on the assessments already carried out by the Company and the ongoing
assessments being performed, the costs that have materialized to date and the
costs that are expected to materialize are not significant to the Company or any
individual entity as a whole. However, there can be no guarantee that the costs
involved will not be material should a significant problem be subsequently
discovered.
The costs incurred to date have typically been to replace aging hardware, which
has not amounted to material amounts and were already provided for in general
capital expenditure budgets and to upgrade the existing purchased software. In
each case upgrades are available from the software suppliers who certify Year
2000 compliance. The costs incurred on the software upgrades have not being
material to date.
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.
The Company is able to support a manual record keeping system temporarily should
there be a total IT system failure.
In management's opinion, the significant risks that face the Company are the
states of readiness of the utility suppliers, the Company's major suppliers,
customers and bankers.
Steps have been taken to ensure that these suppliers, customers and bankers have
confirmed their state of readiness to us and what steps are being taken by them
to ensure that they are fully Year 2000 compliant.
The likely impact on the Company from this risk is significant and all steps are
being taken to ensure that this risk is adequately addressed.
Contingency plans
The Company is developing a contingency plan which will ensure that the
production and distribution and the recording of all transactions will be
adequately covered should there be a significant problem. However, we cannot
guarantee that these plans will be sufficient to prevent disruption and the
likely impact that this may have on the group as a whole.
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.
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 September
30, 1999:
None
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 thereunto duly authorized.
Date: November 12, 1999
LEISUREPLANET HOLDINGS, LTD.
/s/ Clive Kabatznik
-------------------------------
Clive Kabatznik
Chief Executive Officer, President
and Chief Financial Officer