10-K 1 y41383e10-k.txt LEISUREPLANET HOLDINGS, LTD. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 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. (formerly known as First South Africa Corp., Ltd.) -------------------------------------------------- (Exact name of Registrant as specified in its charter) Bermuda N/A ------- --- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Clarendon House, Church Street, Hamilton HM CX, Bermuda ------------------------------------------------------- (Address of Principal Executive Offices with Zip Code) Registrant's telephone number, including area code (441) 295-1422 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None ---- ---- Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value ---------------------------- ("Common Stock") Class A Redeemable Warrants --------------------------- ("Class A Warrants") Class B Redeemable Warrants --------------------------- ("Class B Warrants") 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 -1- 2 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. [ ] State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such common equity, as of a specified date within 60 days prior to the date of filing. (See definition of affiliate in Rule 405, 17 CFR 230.405). The aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant as of September , 2000, was $ . Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date. As of September , 2000, there were _____ shares of the Registrant's Common Stock outstanding and ______ shares of the Registrant's Class B Common Stock outstanding. -2- 3 PART 1 ITEM 1. DESCRIPTION OF BUSINESS We are a holding company that seeks to acquire controlling stakes in Internet and technology related companies. We own a majority interest in Leisureplanet.com. Leisureplanet.com is a provider of international online travel services for leisure travelers. We are also the parent company of First South African Holdings (Pty.) Ltd. which maintains a majority interest in First Lifestyle Holdings. First Lifestyle Holdings is the owner of the companies through which we conduct our lifestyle products business. We are also the largest shareholder in Magnolia Broadband Wireless, a startup company which is developing fixed wireless broadband internet access products. We also own a majority interest in Hotelsupplygroup.com, a startup company which plans to provide various goods and services to hotels worldwide. HISTORY We were founded in September 1995 to pursue opportunities in South Africa as an emerging market. We were originally organized to acquire, own and operate seasoned, closely held companies in South Africa with annual sales in the range of approximately $5 million to $50 million. Recently, we shifted our focus to the Internet, technology and e-commerce sectors and away from South Africa. We are currently engaged in the following industry segments: - Internet and e-commerce services and technology; and - Lifestyle products. In 2000 we have entered into an agreement to dispose of our operations in South Africa. The agreement contemplates our receiving approximately $36 million in cash, which we plan to use to retire certain of our debt, fund future acquisitions and fund various other corporate purposes. The agreement is subject to a number of conditions, including obtaining South African regulatory approvals and the buyer obtaining sufficient funding to complete the acquisition. Although we anticipate that these conditions will be met, they are beyond our control and therefore we cannot be certain that they will be met. In addition, in July 2000, Leisureplanet.com announced that it had sought the protection of the United Kingdom courts in an administrative procedure. Leisureplanet.com had hoped that this protection would facilitate the renegotiation of its various co-brand agreements and give it an opportunity to seek out a recapitalization of the company. Such a recapitalization was not realized and as a result, we have been forced to write down the value of our investment in Leisureplanet.com from $ to $ . As a result of these changes, and developments we have reestablished our investment criteria. We aim to acquire majority or controlling stakes in Internet related businesses and technology companies. These companies must be either profitable, or reasonably close to profitability. In the case of technology companies, we look for the opportunity to invest definable amounts with the expectation of realizing clearly marked milestones in terms of product development or marketing goals. DESCRIPTION OF OUR CORE INDUSTRY SEGMENTS -3- 4 INTERNET AND E-COMMERCE SERVICES AND TECHNOLOGY Through Leisureplanet.com, our international online travel services company, we offer our consumers a comprehensive online leisure travel service, including the ability to shop online for airline tickets, hotel rooms, car rentals and cruises. We have established a database of over 10,000 independent hotels, including 60,000 full color photographs of hotels, a series of travel guides covering 186 destinations in electronic format and a multilingual customer call center. Our proprietary technology and user-friendly interface enable customers to easily and quickly access travel information seven days a week. We primarily target our services to consumers outside of the United States; in particular in Europe. We do so by offering our services to our customers in their own language and by offering our users the opportunity to reserve hotel stays in independent hotels such as owner operated hotels and inns rather than only hotels which comprise a chain. We also offer users of our web sites in Europe a large volume of airline fares that have been specially negotiated by our fulfillment partners in Europe. We operate our own multilingual web site at www.leisureplanet.com. In addition, to broaden our online presence and to build brand recognition, we have entered into various strategic relationships to provide a number of co-branded web sites. In January 1999, we entered into a three-year agreement with Lycos Bertelsmann GmbH, a European affiliate of Lycos. We serve as the exclusive travel retailer within the Lycos Bertelsmann travel web guide in 14 major European markets, including France, Germany, the United Kingdom, Italy, Sweden, Norway, Denmark, Switzerland, Austria, Belgium, The Netherlands, Luxembourg, Spain and Finland. Also, in February 1999, we entered into a two-year agreement with a subsidiary of Yahoo! Inc., a leading search engine provider. We are Yahoo!'s exclusive provider of airline flights, hotel reservations and car rental bookings through a comprehensive list of airlines, hotels and car rentals, to users in France and Germany of Yahoo!'s travel page and our co-branded web site with Yahoo!. In addition, in June 1999, we entered into a three-year agreement with InfoSpace.com, Inc., a leading aggregator of content on the Internet. We serve as the exclusive integrated booking engine for hotel, air travel, vacation and cruise packages, accessible through InfoSpace's web sites. For fiscal year ended June 30, 2000, our online travel services business had revenues of approximately $ _____ which accounted for approximately 1% of our revenues. Our online travel services business had a loss from operations of approximately $ ______ million for fiscal 2000. As a result of these and past losses, in recent months, Leisureplanet.com had sought to obtain additional financing from a variety of sources to fund its operations, including from various of its strategic partners. After the failure of those efforts to yield additional financing, on July 26, 2000, Leisureplanet.com announced that it had decided to shift its business strategy from business-to-consumer strategy to a business-to-business strategy. In addition, Leisureplanet.com has sought to renegotiate various of its co-branding agreements to reduce the expenses associated with those agreements. By doing the foregoing, Leisureplanet.com hopes to lower its expenses and capitalize on its content and other technology-oriented assets. The company also announced that it would continue to explore alternatives with various strategic partners, as well as opportunities for a sale or merger of the company with other industry players. On August 2, 2000, Leisureplanet.com announced that it had sought the protection of the United Kingdom courts in an administrative procedure. Leisureplanet.com had hoped that this protection would facilitate the renegotiation of its various co-brand agreements and give it an opportunity to seek out a -4- 5 recapitalization of the company. Such a recapitalization was not realized and as a result, we have been forced to write down the entire value of our investment in Leisureplanet.com from $ to $ _____ . Our participation in the online travel business has substantially ended and it is unlikely that we will make any further investments in the online travel sector in the foreseeable future. On April 14, 2000, we entered into a Securities Purchase Agreement with Magnolia Broadband, Inc. Magnolia is a start up company that is developing fixed wireless broadband solutions. Magnolia is seeking to develop technology the 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. We invested $2,500,000 in Magnolia and received shares of preferred stock in Magnolia. We also received board representation rights and registration rights. The shares of Magnolia preferred stock we own are convertible into common stock of Magnolia, and we are entitled to voting rights on an as-converted basis, and certain preferred dividend, liquidation and anti-dilution rights. We initially own approximately 48% of Magnolia. Certain of the shares of 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 for issuance to founders, employees, consultants, directors and other investors. Assuming full issuance of such shares, our ownership interesting Magnolia will be reduced to 33%. We also own 51% of Hotelsupplygroup.com a business to business internet based e-commerce supplier to the hotel and catering industry. It initially plans to market a broad range of goods to the independent hotels currently under contract to Leisureplanet.com. The offers will be provided exclusively to these hotels both through the e-commerce platform, embodied at the hotelsupplygroup.com website, and through more traditional methods such as catalog and other offline marketing campaigns OUR SOUTH AFRICAN LIFESTYLE PRODUCTS OPERATIONS We have recently entered into an agreement to dispose of our operations in South Africa. The agreement contemplates our receiving approximately $36 million in cash, which we plan to use to retire certain of our debt, fund future acquisitions and fund various other corporate purposes. The agreement is subject to a number of conditions, including obtaining South African regulatory approvals and the buyer obtaining sufficient funding to complete the acquisition. Although we anticipate that these conditions will be met, they are beyond our control and therefore we cannot be certain that they will be met. Until such time, if ever, that the agreement is completed, we will continue to own the companies that comprise our Lifestyle division. Our lifestyle products operations consists of nine companies which operate as wholly owned subsidiaries of First Lifestyle Holdings, a publicly traded company on the Johannesburg, South Africa Stock Exchange. We own approximately 51.5% of First Lifestyle Holdings. Of our nine lifestyle products companies, five are engaged in the manufacture of specialty foods, and four are engaged in the manufacture and distribution of a wide variety of indoor and outdoor consumer products. -5- 6 Piemans Pantry, Gull Foods, Seemanns Meat Products, Astoria Bakery and Fifers Bakery are engaged in the manufacture of a variety of specialty foods. Each of our specialty foods companies is characterized by a focus on providing food products to the upper end of the market, with a significant emphasis on quality. We sell to South Africa's leading supermarkets and retail chains, a number of fast food franchises as well as independent bakeries and convenience stores. Piemans Pantry manufactures, sells and distributes quality meat, vegetarian and fruit pies, both in the baked and frozen, unbaked form. Gull Foods manufactures and sells a wide range of prepared food products. Gull's product line includes over 150 products ranging from hamburger patties, prepared sandwiches, salads, prepared pastas, pizzas, and flavored breads. Seemanns manufactures, sells, and distributes a wide range of processed meat products including products typically found in retail butcheries, as well as high margin processed and smoked meat products. Astoria Bakery manufactures, sells and distributes high margin specialty breads such as special rye breads from its bakery in Randburg, South Africa. In addition, Astoria Bakery Lesotho manufactures, sells and distributes staple bread to the Lesotho market, from its bakers in Maseru, the capital of Lesotho. Fifers Bakery manufactures and distributes high quality long life baked confectionary products and filo pastry. SA Leisure, Republic Umbrella, Galactex and Tradewinds Parasol are engaged in the manufacture and distribution of a variety of indoor and outdoor consumer products. Each of our indoor and outdoor consumer products companies is characterized by a focus on providing a broad spectrum of products to the South African retail market, with an increasing emphasis on exports as well. We sell to South Africa's leading retail chains. SA Leisure manufactures a wide range of injection molded consumer items. SA Leisure's product line includes over 100 products ranging from injection molded household products such as containers, waste and laundry baskets, garden chairs and tables, do-it-yourself tool kits and luggage, as well as a range of office shelving and filing systems. Republic Umbrella specializes in the assembly and distribution of a wide variety of umbrellas and other related outdoor products. Republic Umbrella is the largest distributor of SA Leisure products. Galactex Outdoor is the largest broad range distributor of barbecues and barbecue accessories in South Africa, and is the exclusive Southern Africa distributor of Weber-Stephen barbeque products. The distribution agreement with Weber was entered into in 1984 and has been renewed until ___________________________ . Tradewinds Parasol is South Africa's leading manufacturer of large outdoor wooden parasols. Tradewinds Parasol is an export oriented producer and has established an international reputation as a leading manufacturer of high-quality canvas and wooden parasols. We source our raw materials and products for all of our lifestyle products businesses from both local and foreign suppliers. We have adequate alternative suppliers and to date have had no difficulty obtaining adequate supplies of all our requirements. Our specialty foods business is slightly stronger in the months of July through October as well as December. However, these increases are not significant enough to make it a seasonal business. Our indoor and outdoor consumer products business is seasonal, with business increasing significantly from September to January paralleling the South African summer. During fiscal year ended June 30, 2000, the following customers accounted for approximately the following percentage of our sales revenue: Woolworths, %; Pick n Pay, %; and Massmart, %. Our lifestyle products businesses had revenues of approximately $ million which accounted for approximately 99% of our revenues for fiscal year ended June 30, 2000. Our lifestyle products business had income from operations of approximately $ million for fiscal 2000. -6- 7 GOVERNMENT REGULATION Our South African specialty food and lifestyle product business operations are subject to a number of laws and regulations governing the use and disposition of hazardous substances, air and water pollution and other activities that effect the environment. We believe that each of our subsidiaries is in substantial compliance with applicable South African law and regulations and that no violation of any such law or regulation has occurred which would have a material adverse effect on our financial condition. EMPLOYEES In addition to our President, Clive Kabatznik, who devotes substantially all of his business time to our various businesses, Leisureplanet Holdings, Ltd. has only three full-time salaried employees. Our subsidiary, First South African Holdings (Pty.) Ltd. has only two full-time salaried employees. Our operating subsidiaries currently employ approximately 2,300 people. We intend to add employees as necessary to meet management and other requirements from time to time. Our success will depend on our ability to attract and retain highly qualified employees. We provide performance based and equity based compensation programs to reward and motivate significant contributors among our employees. Competition for qualified personnel in the industry is intense. There can be no assurance that our current and planned staffing will be adequate to support our future operations or that management will be able to hire, train, retain, motivate, and manage required personnel. Although none of our employees is represented by a labor union, there can be no assurance that our employees will not join or form a labor union. We have not experienced any work stoppages and consider our relations with our employees to be good. ITEM 2. PROPERTIES Our principal executive offices are located at Clarendon House, Church Street, Hamilton, HM CX, Bermuda, which space is made available to us pursuant to a corporate services agreement entered into with a corporate services company in Bermuda. The principal executive offices of First South African Holdings (Pty.) Ltd. are located in the facilities of Galactex in South Africa. Leisureplanet.com, our online travel services subsidiary, has two offices, one in Cape Town, South Africa and one in Hassrode, Belgium. Our web servers are located in Atlanta, Georgia and Hassrode, Belgium. Our lease in Cape Town covers 10,000 square feet, costs approximately $120,000 annually and expires in October 2004. Our lease in Hassrode, Belgium covers approximately 17,750 square feet, costs approximately $230,000 annually and expires in April 2009. Piemans Pantry operates from premises and facilities that it owns in Krugersdorp, South Africa. The facility has two floors with a total size of 38,000 square feet. Astoria Bakery leases approximately 20,000 square feet of space in Randburg, South Africa for which it pays an annual rent of approximately $100,000 pursuant to a lease expiring in 2006. -7- 8 Seemanns Meat Products operates from premises and facilities that it owns in Randburg, South Africa. These premises include a retail outlet and comprise approximately 44,000 square feet. Gull Foods operates from premises and facilities that it rents in Bronkhorstspruit, South Africa. Such premises include approximately 52,000 square feet of space. Rental cost is approximately $62,000 per annum with a lease term of five years expiring in June 2003. Fifers Bakery leases approximately 18,840 square feet in Isando, South Africa for which it pays an annual rent of approximately $288,000 pursuant to a lease expiring in June 2006. Republic Umbrella leases approximately 16,000 square feet in Springfield Park, Kwa Zulu-Natal, South Africa for which it pays an annual rent of approximately $322,000 pursuant to a lease expiring in November 2003. Galactex Outdoor leases approximately 10,000 square feet in Route 24, Meadowdale, Gauteng, South Africa for which it pays an annual rent of approximately $131,000 pursuant to a lease expiring in September 2008. SA Leisure operates out of an administration building in Gardens, Gauteng, South Africa which it owns and which includes approximately 2,100 square feet of space. S.A. Leisure also operates out of a 30,000 square foot leased facility in Isithebe, Kwa Zulu-Natal, South Africa for which it pays an annual rent of approximately $361,000 pursuant to a lease expiring in October 2000. Our United States subsidiary, First South Africa Management Corp., a Delaware corporation incorporated in 1995, has its principal executive offices at 6100 Glades Road, Suite 305, Boca Raton, Fl 33434. The lease expires in February 20003 and costs us approximately $28,000 per year. ITEM 3. LEGAL PROCEEDINGS Neither we nor any of our subsidiaries is subject to any material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On May 1, 2000 we held our annual meeting of shareholders. At the annual meeting, our shareholders elected five directors to serve until the next annual meeting and until their respective successors are elected and qualified. At the annual meeting, our shareholders also approved a change in an increase in the number of authorized shares of our common stock from 23,000,000 to 50,000,000 and approved the appointment of PricewaterhouseCoopers Inc as our independent public accountants. The votes for directors were as follows:
Votes -------------------------- For Withheld -------------------------- Michael Levy 10,527,219 327,548 Clive Kabatznik 10,527,219 327,548 Cornelius Roodt 10,527,219 327,548
-8- 9
David BenDaniel 10,527,219 327,548 Chris Matty 10,527,219 327,548
-9- 10 The votes with respect to the increase in our authorized shares was as follows:
For Against Abstain ----------- -------- --------- 10,455,365 77,664 321,738
The votes with respect to the appointment of our independent public accountants were as follows:
For Against Abstain ----------- -------- --------- 10,837,607 15,310 1,850
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock is listed for quotation on the National Market on the Nasdaq System under the symbol LPHL. Our redeemable Class A warrants and redeemable Class B warrants are listed for quotation on the Nasdaq SmallCap Market under the symbols LPHLU, LPHLW and LPHLZ, respectively. The following table sets forth, for the periods indicated the high and low closing sales prices for our common stock, units, redeemable Class A warrants and redeemable Class B warrants as reported by Nasdaq.
High Low Common Stock Fiscal 1999 1st Quarter........................ $4.75 $.75 2nd Quarter........................ $1.6875 $.75 3rd Quarter........................ $3.25 $1.3125 4th Quarter........................ $11.875 $1.1875 Fiscal 2000 1st Quarter........................ $7.938 $3.625 2nd Quarter........................ $16.50 $3.563 3rd Quarter........................ $14.25 $8.063 4th Quarter........................ $9.063 $2.438 Fiscal 2001 1st Quarter (through September 2000) $ $
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High Low Class A Warrants Fiscal 1999 1st Quarter........................ $1.375 $0.375 2nd Quarter........................ $0.625 $0.0625 3rd Quarter........................ $0.75 $0.0625 4th Quarter........................ $9.00 $0.4375 Fiscal 2000 1st Quarter........................ $4.75 $2.00 2nd Quarter........................ $16.250 $2.375 3rd Quarter........................ $13.00 $5.875 4th Quarter........................ $3.25 $1.875 Fiscal 2001 1st Quarter (through September , 2000) $ $ Class B Warrants Fiscal 1999 1st Quarter........................ $1.125 $0.625 2nd Quarter........................ $0.625 $0.125 3rd Quarter........................ $0.625 $0.125 4th Quarter........................ $0.3125 $0.125 Fiscal 2000 1st Quarter........................ $2.00 $0.719 2nd Quarter........................ $8.50 $0.563 3rd Quarter........................ $6.00 $2.125 4th Quarter........................ $2.688 $0.25 Fiscal 2001 1st Quarter (through September , 2000) $ $
-11- 12 As of September , 2000, there were approximately _______ holders of our common stock, exclusive of holders whose shares were held by brokerage firms, depositaries and other institutional firms in "street name" for their customers. As of September , 2000, there were approximately _____ holders of our Class A warrants and 5 holders of our Class B warrants. We have never declared or paid any cash dividends on our common stock or our Class B common stock. We do not intend to declare or pay any dividends on our common stock or our Class B common stock in the foreseeable future. We currently intend to retain future earnings, if any, to finance the expansion of our business. In connection with our agreement with InfoSpace.com, Inc., on June 30, 1999, we issued a warrant to purchase 720,000 shares of our common stock at an exercise price of $.01 which warrant will vest in six consecutive quarters. -12- 13 ITEM 6 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA All of the financial data set forth below should be read in conjunction with the information appearing under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." SELECTED CONSOLIDATED FINANCIAL INFORMATION STATEMENT OF OPERATIONS DATA THE COMPANY YEARS ENDED JUNE 30,
1996 (1) 1997 (1) 1998 1999 2000 $ $ $ $ $ Revenues 1,570,888 41,885,993 -- -- -- Total operating expenses (8,198,079) (38,559,968) 2,000,920 2,504,838 2,662,108 Operating (loss)/income (6,627,191) 3,325,945 (2,000,920) (2,504,838) Interest (expense)/income (351,793) 26,016 (1,223,654) (2,403,997) (1,363,360) (Loss)/income from continuing operations before income taxes (6,965,556) 7,149,970 (615,740) (6,208,976) (4,232,603) Net (loss)/income from continuing operations (6,743,363) 5,832,932 (615,740) (6,210,195) (4,233,222) (Loss)/gain from discontinued operations 1,005,803 850,243 3,387,631 (4,916,267) (27,605,448) Net (loss)/income 6,683,165 2,771,891 (11,126,46) (31,838,670) (Loss)/income per share - from continuing operations ($3,56) $1,13 ($0,10) ($0,95) ($0,54)
BALANCE SHEET THE COMPANY DATA JUNE 30, 1996 1997 1998 1999 2000 RESTATED $ $ $ $ $ Total assets 23,604,994 64,197,149 89,561,459 102,615,018 94,821,499 Long term 2,361,372 13,341,758 29,507,926 33,598,241 5,473,769 liabilities Net working 4,624,417 25,357,584 25,491,685 28,876,771 31,414,757 capital (2) Stockholders' 12,792,376 23,220,014 16,097,666 2,090,966 6,150,930 equity
(1) Due to the unavailability of financial data on discontinued operations for the 1996 and 1997 fiscal years, the discontinuation of First Lifestyle Holdings and Leisureplanet have not been taken into account in these figures. (2) Net working capital is the net of current assets and current liabilities. 14 MANAGEMENT DISCUSSION AND ANALYSIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BACKGROUND AND HISTORY Leisureplanet Holdings Limited ("LPHL"), formerly First South Africa Corp., Ltd was incorporated in September 1995 with the intention to actively pursue acquisitions fitting a pre defined investment strategy. Prior to our acquisition of Leisureplanet.com, an online travel services company, in February 1999, the broad strategy followed by us in all of our investment decisions was as follows: - Revenue is to be within the range of $5Million - $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 as sectors meeting our broad investment strategy. LPHL holds, through its South African subsidiary, First South African Holdings (Pty) Ltd. ("FSAH"), an investment in First Lifestyle Holdings limited ("Lifestyle"), which has met the acquisition criteria identified above. In addition, the Company holds a stake in Leisureplanet. Com ("LPI"), an Internet travel related company. The focus of the Company has changed from investing in South African companies to actively seeking out investments in Internet related industries. In keeping with this new focus, we will be basing our investments on the following strategy: - Acquiring controlling stakes in small, high quality, high growth, Technology and Internet related businesses with strong management teams. - Our investments must show an ability to contribute, in the short to medium term, to earnings per share through operating profit or capital appreciation. - We aim to add value to our investments by operating in partnership with committed, incentivised, entrepreneurial management who show the vision and ability to grow their businesses into industry or niche leaders. The Company has made two additional investments during the current year, taking up equity stakes in Magnolia Broadband, a start-up operation in the Internet broadband field, and HotelSupplyGroup.com, Limited, a start-up operation seeking to provide supply services via the Internet to hotel groups. Due to this change in focus the Company has disposed of Lifestyle. On June 21, 2000 the Company received an offer from Lifestyle management to buy Lifestyle from the Company. The Company accepted the offer on September 26, 2000 at a general meeting of Lifestyle shareholders. This deal is still subject to regulatory approval. Due to the lack of investor appetite for loss making Internet businesses, no further funding was available to fund the activities of LPI, the Internet travel related business. On August 2, 2000 LPI was placed under voluntary administration in the United Kingdom. Full provision has been made for the Company's investment in LPI. 15 RESULTS OF OPERATIONS The results of operations analyse the corporate activity of the group as Lifestyle and LPI are no longer included as continuing operations. Discussion of the results of these operations is given under the heading, discontinued operations, below. FISCAL 2000 COMPARED TO FISCAL 1999 Selling, general and administrative expenses Selling, general and administrative expenses for the year ended June 30, 2000 decreased by $0,25 Million to $1,84 Million as compared to $2,09 Million for the fiscal year ended June 30, 1999. This decrease is primarily due to a reduction in corporate support needed for the Lifestyle business due to the shift in focus to Internet and Technology related investments. Amortisation of intangibles Amortisation of intangibles increased from $0,41 Million in fiscal 1999 to $0,73 Million in fiscal 2000. This increase is primarily due to a change in estimate of the useful life of non-competition agreements. Goodwill arose on the investment in Magnolia Broadband, which contributed $0,1 Million to the current year charge. Depreciation Depreciation charge relates to minor office equipment; furniture and computer equipment. Due to the nature of the head office function, these charges are immaterial. Foreign currency loss Foreign currency loss of $0,08 Million represents the loss realized on the repayment and the translation of the current account between FSAH and LPHL. The South African Rand has depreciated by 37,6% over the fiscal period 1998 to 2000. Gain on disposal of subsidiary stock In the prior year 13,946,500 shares held by first South African Holdings in Lifestyle were sold at an average price of R2,48 per share realising a consolidated gain on disposal of $0,62 Million. In addition, a loss on dilution on a group restructure of $1,42 Million was realised. During the current year 900,000 shares in First lifestyle holdings Limited were sold at R3,00 per share, realising a gain of $0,1 Million. Interest expense Interest expense has decreased by $1,04 Million from an interest expense of $2,40 Million to $1,36 Million. The conversion of 3,000 of the increasing rate debentures and the remaining 9% debentures gave rise to an interest saving of $0,23 Million in the current year. The balance of the movement was made on interest earned on cash balances; the Company had significant cash resources throughout the year as compared to the previous fiscal year. Provision for income taxes The Company is registered in Bermuda, where no tax laws are applicable. 16 FISCAL 2000 COMPARED TO FISCAL 1999 (CONTINUED) Interest in losses of affiliates The Company acquired a 48% stake in Magnolia Broadband, a 51% stake in HotelSupplyGroup.com and a 50% stake in Hall Lifestyle Products. All of these companies are start-up ventures, which have only incurred expenses to date. The charge of $0,16 Million represents our equity accounted share of their operating losses for the period. Discontinued operations During the 2000 fiscal year a loss of $11,93 Million arose on discontinued operations as compared to $3,94 Million in fiscal 1999, representing an increase of $7,99 Million over the prior year. The prior fiscal year included the industrial and packaging business segments, which incurred losses of $1,46 and were disposed of during 1999. The loss realized on the LPI business segment increased by $8,95 Million from $6,17 Million in 1999 to $15,12 Million in 2000. The increase in the loss was primarily due to an aggressive attempt to increase the awareness of the product offered by signing up expensive portal agreements and advertising arrangements. Due to the lack of investor appetite for loss making Internet enterprises, LPI could no longer fund its operations and was placed under voluntary administration on August 2, 2000. Full provision has been made for the Company's investment in LPI. The Lifestyle business sector contributed a profit of $3,19 Million as compared to $3,69 Million during the previous fiscal year, a decrease of $0,48 Million over the fiscal year. This is primarily because the growth experienced in this division in South African Rand was 3,9% which is below the currency depreciation of the South African Rand against the US Dollar of 13%. The growth in the business sector was below expectations due to the lack of consumer demand in South Africa and the inability to increase selling prices to recover increased costs passed by Lifestyle suppliers due to competitive pressures experienced in a weak consumer market. The loss on disposition of $15,67 Million in fiscal 2000 increased by $14,70 Million from $0,97 Million in fiscal 1999. The increase is primarily due to the estimated loss on liquidation of the LPI business segment. Preference dividend declared During fiscal 2000, the preference dividend on the mandatory redeemable preference shares has been accrued on a time proportion basis as the agreement to pay preference dividends provides for two options, the first being that the dividend payable must be based on the ordinary dividend declared by Lifestyle, or the second option must increase by a minimum of 25% percent over the prior year. The first option is payable three days after receipt of the Lifestyle dividend, the second option is payable on February 19, of each calendar year. Since no Lifestyle preference dividend was declared during the current fiscal year the dividend of $0,15 Million represents the time proportion of the dividend payable on February 19, 2001. Net (loss)/income As a result of the above the Company has achieved a loss of $31,84 Million as compared to a loss of $11,13 Million in the prior year. FISCAL 1999 COMPARED TO FISCAL 1998 Selling, general and administrative expenses Selling, general and administrative expenses for the year ended June 30, 1999 increased by $0,83 Million to $2,09 Million as compared to $1,26 Million for the fiscal year ended June 30, 1998. This increase related to the corporate activity undertaken with the acquisition of LPI. 17 FISCAL 1999 COMPARED TO FISCAL 1998 (CONTINUED) Amortisation of intangibles Amortisation of intangibles increased from $0,27 Million in fiscal 1998 to $0,41 Million in fiscal 1999. This increase is primarily due to the amortisation of the non-competition agreements entered into with the management of the Lifestyle business sector during the second quarter of the 1999 fiscal year. These non-competition agreements are being amortised over a three-year period. Foreign currency loss The foreign currency loss incurred in 1998 represents a loss on current account payments made to LPHL. No loss was incurred in 1999. Loss on disposal of subsidiary stock A loss on dilution during a group restructure of $1,42 Million and a gain of $0,61 Million on the disposal of a part interest in Lifestyle was realised during the 1999 fiscal year. The loss on dilution arose on an inter-group disposal, which resulted in an increase in minority share of the underlying businesses. The gain of $0,61 Million was realised on the disposal of a part interest in Lifestyle at an average stock price of R2,48 per share. In the prior year an average price of R5,50 was realized per share sold. This decrease in average price is due to a decline in the overall South African stock market. Interest expense Interest expense has increased by $1,18 Million from an interest expense of $1,22 Million to $2,40 Million. This is primarily due to the increase of $0,28 Million in the debenture redemption reserve raised for the current year being for a full year as opposed to 9 months for the 1998 fiscal year. A decrease in the interest earned on cash resources due to the redemption of debentures during the period, utilizing a substantial portion of the surplus cash reserves of the Company, thereby depleting the interest earned on these resources. In addition the company incurred addition interest of $0,17 Million on the increasing rate debentures which incurred interest for the full year as opposed to 9 months in the 1998 fiscal year Provision for income taxes The Company is registered in Bermuda, where no tax laws are applicable. The taxation charge for the current year arose in First South Africa Management Corp., Ltd., which is an American registered company and a subsidiary of the Company. This company had no taxable income for the 1998 fiscal year. Preference dividend declared During fiscal 1999, we declared a preference dividend of $0,50 million. This dividend represents the payment to the holders of $9,891 Million preferred stock in First South African Holdings. This stock was issued to fund the acquisition of LPI during the current fiscal year. 18 MANAGEMENT DISCUSSION AND ANALYSIS FISCAL 1999 COMPARED TO FISCAL 1998 (CONTINUED) Discontinued operations During the 1999 fiscal year a loss from operations of $3,94 Million arose on the discontinued operations as compared to a profit of $3,39 Million in fiscal 1998, representing an increase of $7,33 Million over the prior year. The industrial and packaging business segments incurred a loss of $1,46 Million in the 1999 fiscal year and a loss of $2,18 Million in the 1998 fiscal year, an increase of $0,72 Million. The Lifestyle business sector contributed a profit of $3,86 Million as compared to $5,49 Million during the previous fiscal year, a decrease of $1,63 Million over the fiscal year. This is primarily due to, the percentage shareholding in the Lifestyle business sector decreasing by 15,18% during the year, coupled with a decline of 21,7% of the South African Rand against the US Dollar. The loss on disposal of $0,97 Million in fiscal 1999 represents the losses that were expected to occur subsequent to June 30, 1999. These losses were provided for in full and represented guarantees made to third parties on behalf of the discontinued operations. No operating losses were incurred beyond June 30, 1999. Net (loss)/income As a result of the above the Company has achieved a loss of $11,13 Million as compared to a profit of $2,77 Million in the prior year. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Cash increased by $9,04 Million from $20,81 Million to $29,85 Million. Included in the $29,85Million is $4,64 Million which is restricted and will be used to repay LPI creditors. The increase is primarily due to the cash generated in the Lifestyle business sector, which increased by $3,20 Million from $14,92 Million to $18,12 Million over the fiscal year. The remaining increase is due to the retention of some of the $20,00 Million raised in LPHL during the current fiscal year. The remainder of these funds raised was used to fund LPI by equity injections. On August 2, 2000, LPI was placed under voluntary administration due to the lack of further funding available to loss making Internet related businesses. No return is expected on our capital injections into LPI. Working capital increased by $3,13 Million to $31,41 Million at June 30, 2000 from $28,28 Million at June 30, 1999. This is primarily due to the increase in cash balances offsetting decreases in trade accounts receivable and other current assets, which were partially offset by decreases in dividends payable. At June 30, 2000 we had borrowings of $18,48 Million which has decreased from $36,69 Million. The decrease is due to the voluntary administration of the LPI business segment which included $10,00 Million of loans owing to LPI minority shareholders. The conversion of debentures of $7,50 Million into shares of common stock also occurred during the fiscal year. In addition, the mortgage notes and equipment notes in Lifestyle decreased by repayments of $1,58 Million during the fiscal year. Operations for the year ended June 30, 2000, excluding non-cash charges resulted in the utilisation of $12,72 Million, primarily in the Internet travel related business. Investing activities undertaken by the group resulted in the utilisation of an additional $8,71 Million during the year, this included the acquisition of property, plant and equipment of $5,86 Million, additional purchase price payments of $0,59 Million and investments in affiliates of $2,81 Million. The operations and investing activities were financed primarily by stock issues in the Company and LPI of $39,54 Million, a portion of these proceeds were used to repay debt of $6,23 Million. 19 MANAGEMENT DISCUSSION AND ANALYSIS FUTURE COMMITMENTS Under the various acquisition agreements, the Company will spend $1,02 Million in cash for its contingent payments over the next 12 months. The cash receivable from the disposal of Lifestyle will fully fund these payments as well as fund the redemption of the mandatory redeemable preference shares and partial redemption of the increasing rate debentures during the current fiscal year. Excess cash will be utilised to fund additional acquisitions in the Internet technology market sector. There are no longer-term contingent acquisition payments remaining after payment of the $1,02 Million mentioned above. The Company intends to continue to pursue an acquisition strategy in Internet technology companies and anticipates utilising a substantial portion of its remaining cash balances and the proceeds of its disposal of Lifestyle to fund this strategy to the extent that suitable acquisition candidates can be identified. The Company may be required to incur additional indebtedness or equity financing in connection with the funding of future acquisitions. There is no assurance that the Company will be able to incur additional indebtedness or raise additional equity to finance future acquisitions on terms acceptable to management, if at all. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company does not ordinarily hold market risk sensitive instruments for trading purposes. The company does however recognise market risk from interest rate and foreign currency exchange exposure. INTEREST RATE RISK At June 30, 2000 the Company's cash resources earn interest at variable rates. Accordingly the Company's return on these funds is affected by fluctuations in interest rates. The debt of the continuing operations is primarily at fixed interest rates. Any decrease in interest rates will have a negative effect on the Company's earnings. There is no assurance that interest rates will increase or decrease over the next fiscal year. FOREIGN CURRENCY RISK The expected proceeds from the sale of Lifestyle will be received 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. Due to the prohibitive cost of hedging these proceeds, the exposure has not been covered as yet, should more favorable conditions arise a suitable Rand hedge may be considered by management. For every 1% decline in the Rand/US Dollar exchange rate, the Company loses R68,400 on every R1,000,000 retained in South Africa, at year-end exchange rates, this is equivalent to $10,000. Subsequent to year-end the Rand has depreciated against the US Dollar by an average 7%. 20 MANAGEMENT DISCUSSION AND ANALYSIS SUPPLEMENTAL DISCLOSURE DISCONTINUED SOUTH AFRICAN OPERATIONS As the Lifestyle 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 Lifestyle results. In broad terms, if the deterioration of the Rand is in excess of the rate of price increases in the Company's products, which generally equates 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 rates for the South African Rand against the US Dollar for the periods presented in this report are as follows:
YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, JUNE 30, -------- -------- -------- 2000 1999 1998 Rate of exchange vs. $1 6,84 6,05 4,97 Depreciation 13,06% 21,7% 9,7% Annual rate of inflation 7,8% 4,9% 7,2%
21 MANAGEMENT DISCUSSION AND ANALYSIS PROFORMA INFORMATION The Proforma information presented below is to give a better understanding of the Balance Sheet position of the Company, assuming that the disposal of Lifestyle and the liquidation of LPI effective June 30, 2000. ASSETS
JUNE 30, 2000 $ ---------- CURRENT ASSETS Cash and cash equivalents 27,354,772 Prepaid expenses and other current assets 2,102,681 ---------- TOTAL CURRENT ASSETS 29,457,453 Property, plant and equipment, net 20,270 Other assets 7,602,339 Investments in Affiliates 1,259,472 Intangible assets, net 1,210,564 Deferred charges 228,078 ---------- 39,778,176 ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Bank overdraft 327,952 Current portion of long term debt 1,016,542 Accounts payable 87,459 Other provisions and accruals 1,523,313 Dividends payable 179,753 ---------- TOTAL CURRENT LIABILITIES 3,135,019 Long term debt 14,025,000 ---------- TOTAL LIABILITIES 17,160,019 ---------- STOCKHOLDERS' EQUITY Capital stock: 93,753 Additional paid-in capital 64,307,442 Accumulated deficit (30,442,545) Accumulated Other Comprehensive Income (11,340,493) TOTAL STOCKHOLDERS' EQUITY 22,618,157 39,778,176 ==========
22 LEISUREPLANET HOLDINGS LIMITED INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Accountants Consolidated Balance Sheets at June 30, 2000 and 1999 Consolidated Statements of Operations for the years ended June 20, 2000, 1999 and 1998 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended June 30, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for the years ended June 30, 2000,1999 and 1998 Notes to the Consolidated Financial Statements 23 LEISUREPLANET HOLDINGS LIMITED REPORT OF THE INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Leisureplanet Holdings Limited In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity and comprehensive income and of cash flows, after the restatements described in note 2, present fairly, in all material respects, the financial position of Leisureplanet Holdings Limited and its subsidiaries at June 30, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2000 in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers Windsor October 13, 2000 24 LEISUREPLANET HOLDINGS LIMITED CONSOLIDATED BALANCE SHEETS ASSETS
JUNE 30, JUNE 30, 2000 1999 RESTATED $ $ ---------- ----------- CURRENT ASSETS Cash and cash equivalents 29,853,067 20,813,301 Accounts receivable, net 10,608,197 12,945,389 Inventories 9,386,857 9,152,575 Prepaid expenses and other current assets 3,631,348 5,236,587 Deferred income taxes 898,280 539,884 ---------- ---------- TOTAL CURRENT ASSETS 54,377,749 48,687,736 Property, plant and equipment, net 18,215,196 19,288,417 Investments in Affiliates 1,283,935 - Intangible assets, net 20,685,179 33,735,933 Deferred charges 228,078 868,944 Other assets 31,362 33,988 ---------- ---------- TOTAL ASSETS 94,821,499 102,615,018 ========== ===========
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 25 LEISUREPLANET HOLDINGS LIMITED CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30, JUNE 30, 2000 1999 RESTATED $ $ ---------- ---------- CURRENT LIABILITIES Bank overdraft 896,860 - Current portion of long term debt 2,105,153 3,088,435 Accounts payable 13,046,686 9,060,327 Other provisions and accruals 5,754,638 4,618,283 Dividends payable 179,840 1,870,959 Income taxes payable 676,003 1,214,292 Other taxes payable 303,812 558,669 TOTAL CURRENT LIABILITIES 22,962,992 20,410,965 Long term debt 15,473,769 33,598,244 Deferred income taxes 4,402,038 3,722,971 TOTAL LIABILITIES 42,838,799 57,732,180 Minority interest 37,059,840 32,900,675 FSAH mandatory redeemable preferred stock 8,771,930 9,891,197 Commitments and contingencies (Note 22) STOCKHOLDERS' EQUITY Capital stock: A class common stock, $0.01 par value - authorized 23,000,000 Shares, issued and outstanding 8,368,676 shares (1999: 5,383,142 shares) 83,687 53,832 B class common stock, $0.01 par value - authorized 2,000,000 shares, Issued and outstanding 946,589 shares (1999: 946,589 shares) 9,466 9,466 FSAH B class common stock, R0,001 par value - authorized 10,000,000 shares, issued and outstanding 2,671,087 shares (1999: 2,550,466 shares) 600 580 Preferred stock, $0.01 par value - authorized 5,000,000 shares, none Issued - - Additional paid-in capital 64,307,442 22,321,906 Accumulated deficit (37,772,100) (5,933,430) Accumulated Other Comprehensive Income (20,478,165) (14,361,388) TOTAL STOCKHOLDERS' EQUITY 6,150,930 2,090,966 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 94,821,499 102,615,018 ========== ===========
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 26 LEISUREPLANET HOLDINGS LIMITED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, JUNE 30, 2000 1999 1998 RESTATED RESTATED $ $ $ ----------- ----------- --------- Revenues - - - Operating expenses Cost of sales - - - Selling, general and administrative costs 1,844,197 2,090,086 1,263,081 Amortisation of intangibles 730,719 410,466 271,387 Depreciation 6,490 4,286 5,644 Foreign currency loss 80,702 - 460,808 2,662,108 2,504,838 2,000,920 ----------- ----------- --------- Operating loss (2,662,108) (2,504,838) (2,000,920) ----------- ----------- --------- Gain/(loss) on sale of subsidiary stock 103,505 (804,150) 2,608,834 Interest in losses of affiliates (160,885) - - Preference dividend (149,755) (495,991) - Interest expense (Net of interest income of $668,109, $297,834 and $644,610) (1,363,360) (2,403,997) (1,223,654) Income/(loss) from continuing operations before income Taxes (4,232,603) (6,208,976) (615,740) Provision for income taxes (619) (1,219) - ----------- ----------- --------- Income/(loss) from continuing operations (4,233,222) (6,210,195) (615,740) Discontinued operations (Note 15): (Loss)/income from operations, net of income taxes of $2,543,255, $2,893,380 and $3,966,916 (11,931,286) (3,941,319) 3,387,631 Loss on disposition, net of taxes of $nil, $nil and $nil (15,674,162) (974,948) - ----------- ----------- --------- Net (loss)/income (31,838,670) (11,126,462) 2,771,891 ----------- ----------- --------- Earnings/(Loss) per share - basic and diluted Continuing operations ($0,54) ($0,95) ($0,10) Discontinued operations ($3,52) ($0,75) $0,53 Net income/(loss) ($4,06) ($1,70) $0,43 Weighted average common stock outstanding: Basic and diluted 7,836,387 6,548,491 6,424,981 =========== =========== =========
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 27 LEISUREPLANET HOLDINGS LIMITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
LEISUREPLANET HOLDINGS LEISUREPLANET HOLDINGS FIRST SA HOLDINGS LIMITED LIMITED B CLASS COMMON A CLASS COMMON STOCK B CLASS COMMON STOCK STOCK SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT $ $ $ Balance at June 30, 1997 3,536,500 35,361 1,822,500 18,225 1,921,458 466 Issuance of stock to FSAC escrow agent 386,324 3,863 - - - - Issuance of stock to acquire subsidiaries 142,918 1,429 - - 84,751 19 Issuance of stock on additional purchase price - - - 301,573 52 payments Warrants exercised 233,826 2,339 - - - - Warrant swap out at par value 1,173,476 11,738 - - - Options exercised 35,000 350 - - - Conversion of 9% debentures to common stock 141,165 1,412 - - - - Net income - - - - - - Translation adjustment - - - - - - Total comprehensive loss - - - - - - Balance at June 30, 1998 5,649,209 56,492 1,822,500 18,225 2,307,782 537 Issuance of stock to FSAC escrow agent 243,400 2,434 - - - - Issuance on stock on additional purchase price - - - 242,684 43 payments Options exercised 20,000 200 - - - - Conversion of 9% debentures to common stock 320,700 3,207 - - - - Redemption and cancellation of stock from FSAC escrow (1,726,078) (17,260) - - - - Agent Conversion of B class common stock to A class common 875,911 8,759 (875,911) (8,759) - - Stock Net loss - - - - - - Translation adjustment - - - - - - Total comprehensive loss - - - - - - Balance at June 30, 1999 5,383,142 53,832 946,589 9,466 2,550,466 580
RETAINED ACCUMULATED ADDITIONAL EARNINGS OTHER PAID-IN (ACCUMULATED COMPREHENSIVE CAPITAL DEFICIT) INCOME TOTAL $ $ $ $ Balance at June 30, 1997 22,891,093 2,421,141(1) (2,168,264) 23,198,022 Issuance of stock to FSAC escrow agent (3,863) - - - Issuance of stock to acquire subsidiaries 1,685,282 - - 1,686,730 Issuance of stock on additional purchase price 1,227,137 - - 1,227,189 payments Warrants exercised 1,517,765 - - 1,520,104 Warrant swap out at par value (11,738) - - - Options exercised 137,150 - - 137,500 Conversion of 9% debentures to common stock 845,578 - - 846,990 Net income - 2,771,891 Translation adjustment - (15,209,049) Total comprehensive loss (12,437,158) - Balance at June 30, 1998 28,288,404 5,193,032 (17,377,313) 16,179,377 Issuance of stock to FSAC escrow agent (2,434) - - - Issuance on stock on additional purchase price 1,033,572 - - 1,033,615 payments Options exercised 106,800 - - 107,000 Conversion of 9% debentures to common stock 1,732,895 - - 1,736,102 Redemption and cancellation of stock from FSAC escrow (8,837,331) - - (8,854,591) Agent Conversion of B class common stock to A class common - - - - Stock Net loss - (11,126,462) Translation adjustment - 3,015,925 Total comprehensive loss (8,110,537) - - - Balance at June 30, 1999 22,321,906 (5,933,430) (14,361,388) 2,090,966
(1) Opening retained earnings has been restated to reflect prior year's adjustments for deferred tax on intangibles to reduce the original retained earnings by $381,904. SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 28 LEISUREPLANET HOLDINGS LIMITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
LEISUREPLANET HOLDINGS LEISUREPLANET HOLDINGS FIRST SA HOLDINGS LIMITED LIMITED B CLASS COMMON A CLASS COMMON STOCK B CLASS COMMON STOCK STOCK SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT $ $ $ Balance at June 30, 1999 5,383,142 53,832 946,589 9,466 2,550,466 580 Issuance of stock to FSAC escrow agent 120,621 1,206 - - - - Issuance of stock on additional purchase price - - - - 120,621 20 payments Issuance of shares 1,379,310 13,793 - - - - Warrants exercised 247,311 2,473 - - - - Options exercised 180,000 1,800 - - - - Conversion of 9% debentures to common stock 742,503 7,425 - - - - Increasing rate debentures converted to common 315,789 3,158 - - - - stock Issuance of warrants - - - - - - Equity gain on group restructure - - - - - - Net loss - - - - - - Translation adjustment - - - - - - Total comprehensive loss - - - - - - Balance at June 30, 2000 8,368,676 83,687 946,589 9,466 2,671,087 600
RETAINED ACCUMULATED ADDITIONAL EARNINGS OTHER PAID-IN (ACCUMULATED COMPREHENSIVE CAPITAL DEFICIT) INCOME TOTAL $ $ $ $ Balance at June 30, 1999 22,321,906 (5,933,430) (14,361,388) 2,090,966 Issuance of stock to FSAC escrow agent (1,206) - - - Issuance of stock on additional purchase price 567,687 - - 567,707 payments Issuance of shares 18,361,207 - - 18,375,000 Warrants exercised 1,356,434 - - 1,358,907 Options exercised 872,296 - - 874,096 Conversion of 9% debentures to common stock 4,083,465 - - 4,090,890 Increasing rate debentures converted to common 3,312,657 - - 3,315,815 stock Issuance of warrants 3,446,633 - - 3,446,633 Equity gain on group restructure 9,986,363 - - 9,986,363 Net loss - (31,838,670) Translation adjustment - (6,116,777) Total comprehensive loss (37,955,447) - - Balance at June 30, 2000 64,307,442 (37,772,100) (20,478,165) 6,150,930
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 29 LEISUREPLANET HOLDINGS LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, JUNE 30, 2000 1999 1998 RESTATED RESTATED $ $ $ ---------- ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income/(loss) from continuing operations (4,233,222) (6,210,195) (615,740) ADJUSTMENTS TO RECONCILE NET INCOME/(LOSS) TO NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES: Dividend charge 149,755 495,991 - Depreciation and amortisation 737,209 414,752 277,036 Non-cash compensation charge - 268,802 Deferred income taxes 748,359 1,104,397 1,640,022 Net loss/(gain) on sale of assets (34,419) 665,842 (200,408) Net gain on sale of and dilution in subsidiaries (103,505) 804,150 (2,608,834) Net loss/(gain) on minority shares issued in Lifestyle - (557) Changes in operating assets and liabilities, net 3,838,445 541,506 421,084 Creation of debenture redemption reserve fund 1,012,500 843,750 562,500 Provision for affiliate losses 35,763 - - Interest in losses of affiliates 160,885 - - Net cash provided by/(used in) continuing operations 2,311,770 (1,071,005) (524,897) Net cash provided by/(used in) discontinued operations (15,032,079) 1,042,217 8,454,191 Net cash provided by/(used in) operating activities (12,720,309) (28,788) 7,929,294 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds on disposal of investment in subsidiaries 421,400 5,712,671 4,358,027 Proceeds on disposal of discontinued operations - 91,718 - Additional shares acquired in subsidiaries - (51,402) - Acquisition of intangibles (25,232) (74,832) - Acquisition of property, plant and equipment (5,862,741) (5,968,074) (5,346,671) Proceeds on disposal of property, plant and equipment 147,237 740,482 1,226,083 Additional purchase price payments (586,589) (2,523,311) (4,183,439) Other assets acquired (1,512) (171,322) (229,857) Investment in affiliates (2,805,423) - Settlement of share price warranties (5,073,339) Acquisitions of subsidiaries (net of cash of $nil, $430,556, 1998: $347,052) (2,438,375) (17,881,676) - Net cash provided by/(used in) investing activities (8,712,860) (9,755,784) (22,057,533) ========== ========== ===========
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 30 LEISUREPLANET HOLDINGS LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, JUNE 30, 2000 1999 1998 RESTATED RESTATED $ $ $ ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Short term borrowings, net 301,767 836,250 1,946,515 Proceeds from long term debt 234,542 1,317,219 11,683,238 Repayment of long term debt (6,227,693) (200,486) - Redemption of debentures - (2,630,132) - Proceeds on issuance of FSAH mandatory redeemable Preferred stock - 9,891,197 - Share issue expenses in subsidiary company - (59,489) Dividends paid (1,342,996) (284,219) Proceeds on minority shares issued in Lifestyle 16,887 - 6,054 Proceeds of subsidiary stock issue 18,997,589 - Proceeds on issuance of common stock 20,543,100 107,000 2,496,719 Net cash provided by financing activities 32,523,196 8,977,340 16,132,526 Effect of exchange rate changes on cash (2,050,261) 3,671,542 (3,944,407) Net increase/(decrease) in cash and cash equivalents 9,039,766 2864,310 (1,940,120) Cash and cash equivalents at beginning of year 20,813,301 17,948,991 19,889,111 Cash and cash equivalents at end of year 29,853,067 20,813,301 17,948,991 SUPPLEMENTARY DISCLOSURE: Interest paid 1,363,360 1,298,438 464,165 Taxes paid 2,218,165 2,170,203 1,532,677
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 LEISUREPLANET HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANISATION AND PRINCIPAL ACTIVITIES OF THE GROUP Leisureplanet Holdings Limited (formerly First South Africa Corp., Ltd.) (the "Company"), was founded on September 6, 1995. The purpose of the Company has changed from acquiring and operating South African Companies to one of investing in Internet and technology related industries. The principal activities of the group include the following: INTERNET RELATED ACTIVITIES The original investment made in Leisureplanet.com ("LPI"), the Internet travel related services company, has been unsuccessful due to a lack of further investor funding into the loss making entity, and is currently under voluntary administration in the United Kingdom. Further investments have been made in Internet technology related companies, which is in line with the Company's new focus. DISCONTINUED OPERATIONS In addition to LPI, the Lifestyle products segment is also being discontinued in line with the shift in strategy of the holding company. This segment is involved in the manufacture, sale and distribution of lifestyle enhancing products, which includes both consumable food products and semi durable outdoor and indoor products. 2. SUMMARY OF ACCOUNTING POLICIES The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and incorporate the following significant accounting policies: CONSOLIDATION The consolidated financial statements include the accounts of the Company and all of its subsidiaries in which it has a majority voting interest. Investments in affiliates are accounted for under the equity method of accounting. All inter-company accounts and significant transactions have been eliminated in the consolidated financial statements. ACCOUNTING ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature of these instruments. The carrying value of long-term debt, other than convertible debentures; approximates fair values since interest rates are keyed to the South African prime-lending rate. The carrying values of investments in affiliates and convertible debentures approximate fair value. INVENTORIES Inventories are valued at the lower of cost or market with cost determined on the first-in, first-out and weighted average methods. 32 2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Land is not depreciated. Buildings are depreciated over 20 years. Plant and equipment and motor vehicles are depreciated over 3 to 10 years. Leasehold improvements are amortised over the terms of the related leases. INTANGIBLE ASSETS Intangible assets include goodwill, patents and trademarks, recipes and other intellectual property and non-competition agreements. Intangible assets are stated on the basis of cost and are amortised on a straight-line basis over a period of three to twenty five years. Management periodically reviews intangible assets for impairment based on an assessment of undiscounted future cash flows, which are compared to the carrying value of the intangible. Should these cash flows not equate or exceed the carrying value of the intangible a discounted cash flow model is used to determine the extent of any impairment charge required. Goodwill is amortised over a period of 3 to 25 years, patents, trademarks, recipes and other intellectual property are amortised over a period of 25 years, and non-competition agreements are amortised over a 3-year period. Previously, non- - compete agreements were amortised over 6 years. The effect has been to increase the amortisation charge for the year by $156,432. DEFERRED CHARGES Debt issue costs are capitalized and amortised over the tenure of the related debt. Where convertible debt is converted to equity, any remaining debt issue costs are offset against additional paid-in capital. FOREIGN CURRENCY TRANSLATION The functional currency of the Company is the United States Dollar, the functional currency of the underlying companies in the Lifestyle segment is the South African Rand. Accordingly, the following rates of exchange have been used for translation purposes: Assets and liabilities are translated into United States Dollars using exchange rates at the balance sheet date. Common stock and additional paid-in capital 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' equity designated as accumulated other comprehensive income. Transactions in foreign currencies arise as a result of inventory purchases from foreign countries and inter-company funding transactions between the subsidiaries and the Company. Transactions in foreign currencies are accounted for at the rates ruling on transaction dates. Exchange gains and losses are charged to the income statement during the period in which they are incurred. REVENUES Revenues comprise net invoiced sales of shipped Lifestyle enhancing products and Internet travel related commissions. Revenues are stated net of allowances for estimated returns of defective or damaged product and other sales promotions and discounts. INCOME TAXES Income tax expense is based on reported earnings before income taxes. Deferred income taxes are provided utilizing an asset and liability method that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognised in the Company's financial statements or tax returns. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that all, or some portion of the deferred tax assets will not be realised. 33 LEISUREPLANET HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED) NET INCOME/(LOSS) PER SHARE Basic net income/(loss) per share is computed by dividing net income/(loss) by the weighted average number of common shares outstanding. Diluted net income/(loss) per share is computed by dividing net income/(loss) by the weighted average number of common shares outstanding and dilutive potential common shares which includes the dilutive effect of stock options, warrants and convertible debentures. Dilutive potential common shares for all periods presented are computed utilising the treasury stock method. The diluted share base for the years ended June 30, 2000, 1999 and 1998 excludes shares of 2,997,230, 2,565,817 and 3,208,322, respectively related to stock options, warrants and convertible debentures. These shares are excluded due to their anti-dilutive effect as a result of the Company's loss from continuing operations during 2000, 1999 and 1998. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash and all highly liquid investments with original maturities of three months or less. RESTATEMENTS AND RECLASSIFICATIONS Deferred tax expense has been restated for the years ended June 30, 1999 and 1998 by $1,384,385 and $597,718 respectively, to correctly reflect the change in deferred tax liabilities related to certain intangible assets. The gain/(loss) on sale of subsidiary stock has been restated for the year ended June 30, 1999 to correctly reclassify the loss of $624,554 to additional paid in capital. The gain/(loss) on sale of subsidiary stock for the year ended June 30, 1999 has been restated by $1,146,487 to record a loss on dilution in Lifestyle which was not recorded in the prior year. 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, as amended by SFAS No. 137 and SFAS No. 138, "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 derivative's fair value be recognised 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. Staff Accounting bulletin, "SAB" 101 provides the staff's views in applying Generally Accepted Accounting Principles to selected revenue recognition issues. SAB 101 is effective no later than the fourth quarter of fiscal years beginning after December 15, 1999. The Company believes that the adoption of the provision of this SAB will not have any significant impact on the continuing results of operations and financial position. 34 LEISUREPLANET HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. ACQUISITIONS AND DISPOSALS The results of operations of these acquisitions are included in the consolidated financial statements from the date of acquisition. The costs of the acquisitions were allocated on the basis of the estimated fair value of the assets acquired and liabilities assumed.
PERCENTAGE PURCHASE ACQUIRED CONSIDERATION SUBSIDIARY/BUSINESS DATE ACQUIRED % $ YEAR ENDED JUNE 30, 1999 LPI, Ltd January 1, 1999 81 2,868,932 YEAR ENDED JUNE 30, 1998 Fifers Bakery (Pty) Ltd July 1, 1997 67 2,294,851 Pacforce (Pty) Ltd October 1, 1997 100 618,507 Galactex (Pty) Ltd October 1, 1997 84 3,656,646 Republic Umbrella (Pty) Ltd October 1, 1997 84 6,512,598 S.A. Leisure (Pty) Ltd October 1, 1997 84 8,650,968 Tradewinds Parasol (Pty) Ltd March 1, 1998 84 1,229,857 Cocam Foods (Pty) Ltd June 1, 1998 67 615,133 23,578,560
YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, 1999 1998 $ $ ACQUISITION COSTS Stock issued in lieu of cash - 1,686,730 Minority contribution to business acquired - 3,663,102 Cash consideration 2,868,932 18,228,728 2,868,932 23,578,560 NET ASSETS ACQUIRED Cash and cash equivalents 430,556 347,052 Current assets 226,907 18,052,553 Property, plant and equipment 307,168 11,979,546 Other assets - 5,171,794 Intangibles 11,416,020 3,088,954 TOTAL ASSETS 12,380,651 38,639,899 Current liabilities 828,938 10,514,165 Long-term debt 8,682,781 4,494,195 Deferred income taxes 52,979 - TOTAL LIABILITIES 9,511,719 15,061,339 2,868,932 23,578,560
The Company is required to make additional payments to the former owners based on a multiple of pre-tax earnings. These payments are to be made by the issue of stock and cash. 35 LEISUREPLANET HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. ACQUISITIONS AND DISPOSALS (CONTINUED) Additional purchase price payments made during the current year total $1,154,296. This amount was allocated as follows:
YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, JUNE 30, 2000 1999 1998 $ $ $ ----------------------------------------------------- ---------------- ---------------- ---------------- Goodwill 447,507 649,610 2,169,332 Recipes 706,789 603,509 1,900,935 Trademarks - 2,303,807 1,340,361 1,154,296 3,556,926 5,410,628
These additional purchase price payments were made and are to be made as follows:
YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, JUNE 30, 2000 1999 1998 $ $ $ ----------------------------------------------------- ---------------- ---------------- ---------------- Cash 586,589 2,523,311 4,183,439 Shares issued in lieu of cash 567,707 1,033,615 1,227,189 1,154,296 3,556,926 5,410,628
4. ACCOUNTS RECEIVABLE Accounts receivable consists of the following:
JUNE 30, JUNE 30, 2000 1999 $ $ ---------------------------------------------------------------------- ---------------- ---------------- Accounts receivable 11,034,417 13,388,561 Less: Allowances for bad debts (426,220) (443,172) 10,608,197 12,945,389
5. INVENTORIES Inventories consist of the following:
JUNE 30, JUNE 30, 2000 1999 $ $ ---------------------------------------------------------------------- ---------------- ---------------- Finished goods 5,147,642 4,515,138 Work in progress 358,890 587,544 Raw materials and ingredients 2,701,284 2,983,298 Supplies 1,179,041 1,066,595 9,386,857 9,152,575
36 LEISUREPLANET HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following:
JUNE 30, JUNE 30, 2000 1999 $ $ ---------------------------------------------------------------------- ---------------- ---------------- Land and buildings 2,174,364 2,028,094 Leasehold improvements 1,265,657 1,203,152 Plant and equipment 23,721,346 24,570,108 Motor vehicles 2,325,005 2,508,450 Construction in progress 558,416 467,595 30,044,788 30,777,399 Less: accumulated depreciation (11,829,592) (11,488,982) Property, plant and equipment, net 18,215,196 19,288,417
Depreciation expense was $2,906,643, $2,510,953 and $2,485,838 for the years ended June 30, 2000, 1999 and 1998 respectively. Included in this depreciation expense was $2,900,153, $2,506,667 and $2,480,194 of the discontinued operations. 7. INVESTMENTS IN AFFILIATES A summary of the impact of these investments on the consolidated financial statements is presented below:
EFFECTIVE JUNE 30, JUNE 30, PERCENTAGE 2000 1999 OWNERSHIP $ $ ----------------------------------------------------- ---------------- ---------------- ---------------- Investments in and receivables from unconsolidated affiliates HotelSupplyGroup. Com 51% 183,134 - Magnolia Broadband 48% 1,076,338 - Hall Lifestyle Products 50% 24,463 - 1,283,935 - Share of losses of unconsolidated affiliates: HotelSupplyGroup. Com 51% (37,223) - Magnolia Broadband 48% (123,662) - (160,885) -
On July 13, 1999 the Company organized a new company, HotelSupplyGroup.Com Limited ("HSG"), with Intercommerce Trading Limited. HSG is 51% owned by the Company and 49% by Intercommerce Trading limited. However, the Company does not have a majority voting interest therefore HSG has been accounted for under the equity method in the consolidated financial statements. A shareholders loan of $250,000 has been advanced to HSG as initial funding. A provision of $35,763 has been raised against the carrying value of this investment, which represents the deficit of the book value of the investment to its net asset value at year-end. 37 8. INTANGIBLE ASSETS Intangible assets consist of the following:
JUNE 30, JUNE 30, 2000 1999 RESTATED $ $ ------------------------------------------------- ---------------- ---------------- Goodwill 5,596,624 15,802,699 Patents and Trademarks 5,366,800 6,083,062 Recipes and other intellectual property 11,590,790 12,451,747 Non-competition agreements 1,304,498 1,480,465 --------- --------- 23,858,712 35,817,973 Less: accumulated amortisation (3,173,533) (2,082,040) ----------- ----------- Intangible assets, net 20,685,179 33,735,933 ========== ==========
Amortisation expense was $2,379,626, $1,613,206 and $1,152,831for the years ended June 30, 2000, 1999 and 1998 respectively. Included in the amortisation expense was $1,648,907, $1,209,253 and $881,444 of the discontinued operations. 38 LEISUREPLANET HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 9. DEBT Debt consists of the following:
JUNE 30, JUNE 30, 2000 1999 $ $ --------------------------------------------------------------------------- LONG TERM DEBT 9% convertible debentures -- 4,495,000 Increasing rate convertible debentures 12,000,000 15,000,000 Debenture redemption reserve fund 2,025,000 1,406,250 Mortgage loans 373,333 489,503 Equipment notes 2,164,047 3,623,319 Deferred purchase consideration 1,016,542 1,672,607 Interest free notes -- 10,000,000 ---------- ---------- 17,578,922 36,686,679 Less: current portion (2,105,153) (3,088,435) ---------- ---------- 15,473,769 33,598,244 ---------- ----------
9% CONVERTIBLE DEBENTURES 10,000 9% convertible debentures of $1,000 each were issued in June 1997. These debentures are unsecured, senior and subordinated, bearing interest at 9% per annum, payable quarterly. The debentures are convertible into shares of common stock, by the debenture holder, at any time prior to maturity at a price of $6,00 per share. The debentures may be redeemed at the option of the Company from June 15, 1999 through June 14, 2003 at a redemption premium ranging from 109% to 102,5% of face value, depending on the redemption date. The debentures have mandatory sinking fund payments due in two equal installments totaling 67% of the outstanding fair value on June 15, 2002 and June 15, 2003, with the balance of the issue due at maturity on June 15, 2004. The following covenants are in existence: A restriction has been placed on the ability of the Company to pay any dividends and to repurchase stock, except in terms of stock issued under escrow agreements to vendors of subsidiaries acquired. A restriction has been placed on transactions with affiliates, whereby all transactions must be no less favorable than those on normal commercial terms. The Company may not adopt any plan of liquidation (Bankruptcy). During the current financial year the remaining 4,495 9% convertible debentures of $1,000 each were converted to shares of common stock. During the prior year, 1,924 9% convertible debentures of $1,000 each were converted to shares of common stock and a further 2,734 9% convertible debentures of $1,000 each were repurchased and cancelled. During the current fiscal year the unamortised debt issue costs of the remaining 9% convertible debentures were offset against additional paid-in capital upon conversion of these debentures to shares of A Class common stock. 39 LEISUREPLANET HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 9. DEBT (CONTINUED) INCREASING RATE CONVERTIBLE DEBENTURES 15,000 increasing rate convertible debentures of $1,000 each were issued on October 31, 1997. These debentures bear interest at the following rates which is payable quarterly: 4% per annum for the year ending October 31,1998 4,5% per annum for the two years ending October 31, 2000 5% per annum for the year ending October 31, 2001 The debentures are convertible into shares of common stock, at the option of the debenture holder, at any time prior to maturity at a price of $9,50 per share. The debentures may be redeemed at the option of the Company from October 31, 1998 if the Company's common stock trades at more than $14,25 per share for 30 consecutive market days. Should the debentures not be converted into shares of common stock prior to October 31, 2001, the maturity date, the redemption value of the debentures will be 122,5% of the principal amount. The following covenants are in existence: A restriction has been placed on the ability of the Company to pay any dividends and to repurchase stock, except in terms of stock issued under escrow agreements to vendors of subsidiaries acquired. A restriction has been placed on transactions with affiliates, whereby all transactions must be no less favorable than those on normal commercial terms. The Company may not adopt any plan of liquidation (Bankruptcy). During the current year 3,000 increasing rate convertible debentures of $1,000 each were converted to shares of common stock at $9,50 per share. INCREASING RATE CONVERTIBLE DEBENTURES (CONTINUED) Debt issue costs of $669,294, relating to these debentures is being amortised over the tenure of the debenture issue. The charge to interest expense for the current year is $223,731. During the current fiscal year, 3,000 of the increasing rate debentures were converted to A class shares, the unamortised debt issue costs related to these debentures was offset against additional paid-in capital. DEBENTURE REDEMPTION RESERVE FUND In terms of the tenure of the increasing rate convertible debentures a redemption reserve fund has been created to cater for the premium required on the redemption of those debentures on October 31, 2001. This debenture redemption reserve fund is being created on the straight-line basis over the remaining period of the debenture tenure. The current year charge to interest expense for the debenture redemption reserve is $1,012,500. 40 LEISUREPLANET HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 9. DEBT (CONTINUED) MORTGAGE LOANS Mortgage loans are collateralized by first and second mortgage bonds over property with a net book value of $2,174,364. These loans are repayable in equal monthly installments and equal annual installments over periods ranging from five to twenty years and bear interest at rates ranging from 13,5% to 14,5%. Generally these interest rates are linked to the South African prime lending rate which was 14,5% at June 30,2000. EQUIPMENT NOTES Equipment notes are collateralized over movable assets with a net book value of $26,048,139. These loans are generally repayable in equal monthly installments over a maximum period of five years. These loans bear interest at rates ranging from 2% below to 1,75% above the South African prime lending rate, which was 14.5% at June 30, 2000. DEFERRED PURCHASE CONSIDERATION Represents payments due to the previous owners of Gull Foods and Fifers Bakery which are only payable at fixed dates in terms of the agreements entered into with those owners. INTEREST FREE NOTES Represented loan funds due to the minority shareholders of LPI. This amount was interest free and was only repayable when and if LPI produced positive earnings. Due to the recent voluntary administration of LPI, these loans will no longer be payable. Aggregate annual maturities of long-term debt at June 30, 2000 were as follows:
$ ---------------------------------------------------------------------- 2001 2,105,153 2002 14,869,725 2003 366,994 2004 93,183 2005 143,867 ---------- 17,578,922 ----------
10. FSAH MANDATORY REDEEMABLE PREFERRED STOCK On April 16, 1999, FSAH issued 60,000,000 mandatory redeemable preferred stock for R60,000,000, each with a par of R0,001. FSAH is a wholly owned subsidiary of the Company. The preferred stock is redeemable on April 17, 2002 at the original issue price. Dividends on the preferred stock are equal to the greater of (i) the dividend declared by Lifestyle, a subsidiary of FSAH, listed on the Johannesburg Stock Exchange, or (ii) 125% of the prior years dividend. These dividends accrue annually and are payable 3 days after the receipt of the Lifestyle dividend or, if no such dividend is declared, annually on February 19. Lifestyle did not declare a dividend in the current fiscal year. 41 LEISUREPLANET HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 11. BANKING FACILITIES FSAH, a wholly-owned subsidiary of the Company, has a short term banking facility equal to its exposure to certain South African financial institutions on the strength of guarantees provided by a pledge of 14 million shares in Lifestyle, which represents 17,3% of FSAH's interest in Lifestyle. This facility will need to be renegotiated upon the sale of Lifestyle. This facility bear interest at interest rates linked to the prime lending rate, which is currently 14,5%, and is repayable on demand. Lifestyle, the discontinued operation, has a general short term banking facility of $5,921,000 available to it. This facility bears interest at rates linked to the prime lending rate, which is currently 14,5%, and is repayable on demand. The term of this facility is generally less than twelve months. 12. FORWARD EXCHANGE CONTRACTS The functional currency of the Company's major South African subsidiary is the South African Rand. Due to the volatility of this currency against the currencies of major trading partners, forward foreign currency exchange contracts are entered into which effectively result in the purchase of foreign currency at a set value for delivery at a future date. Unrealized gains and losses at June 30, 2000 and 1999 were not material. 13. GAIN /(LOSS) ON DISPOSAL OF SUBSIDIARY STOCK The gain on disposal of subsidiary stock includes any gains or losses made on the dilution of the Company's effective interest in subsidiaries by the issuance of shares in its underlying subsidiaries to minority shareholders. The gain/(loss) on disposal and dilution recognised in the consolidated statements of operations is made up as follows:
YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, JUNE 30, 2000 1999 1998 RESTATED $ $ $ ------------------------------------------------------------------------------------------------ Proceeds received 421,400 5,712,671 4,358,027 Less: Net carrying value of shares of First Lifestyle Holdings Limited (317,895) (5,097,527) (1,749,193) -------- ---------- ---------- 103,505 615,144 2,608,834 -------- ---------- ---------- Loss on dilution in First Lifestyle Holdings Limited - (1,419,294) - -------- ---------- ---------- 103,505 (804,150) 2,608,834 -------- ---------- ----------
42 LEISUREPLANET HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 14. INCOME TAXES The provision for income taxes charged to operations was as follows:
YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, JUNE 30, 2000 1999 1998 $ $ $ -------------------------------------------------------------------------------- Current: Normal taxation 619 1,219 -- --- ----- --- PROVISION FOR TAXES ON INCOME 619 1,219 -- --- ----- ---
The Company is a Bermuda registered corporation where there are no tax laws applicable. FSAH, a South African registered corporation, incurred a tax charge of $619 in the current fiscal year, relating to prior year underprovisions. First South Africa Management Corp., an American registered corporation, incurred a normal taxation charge of $1,219 in 1999. Net deferred tax liabilities is comprised of the following:
JUNE 30, JUNE 30, 2000 1999 RESTATED $ $ ---------------------------------------------------------------------------------- Accruals and prepaid expenditure 203,313 (42,125) Assessable losses 694,967 582,009 ---------- ---------- Gross deferred tax assets 898,280 539,884 ---------- ---------- Property, plant and equipment and intangibles (4,402,038) (3,722,971) ---------- ---------- Gross deferred tax liabilities (4,402,038) (3,722,971) ---------- ---------- NET DEFERRED TAX LIABILITY (3,503,758) (3,183,087) ---------- ----------
15. DISCONTINUED OPERATIONS FIRST LIFESTYLE HOLDINGS LIMITED ("LIFESTYLE") During the current fiscal year the Company changed its focus to investing in the Internet and wireless communication industries. Although Lifestyle has performed well over the past few years, it no longer fits the Company's investment strategy. On June 21, 2000 the Company received an offer from Lifestyle management to buy Lifestyle from the Company. The company accepted the offer on September 26, 2000 at a general meeting of Lifestyle shareholders, which has been approved by the South African competition authorities. On August 14, 2000, the Company sold an effective 13,7% interest in Lifestyle to the existing Lifestyle management as part of the plan to dispose of the Lifestyle segment. This sale was done on the same terms and conditions as the offer made by management to the remaining shareholders as contained in a circular to Lifestyle shareholders dated September 4, 2000. 43 LEISUREPLANET HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 15. DISCONTINUED OPERATIONS (CONTINUED) The following summarizes the remaining assets and liabilities of the Lifestyle segment that are included n the accompanying consolidated balance sheet at June 30, 2000.
JUNE 30, 2000 $ ------------------------------------------------------------------------ ASSETS Cash and cash equivalents 18,106,098 Accounts receivable, net 10,608,197 Inventories 9,386,857 Prepaid expenses and other current assets 1,528,667 Deferred income taxes 905,533 ---------- TOTAL CURRENT ASSETS 40,535,352 Property, plant and equipment, net 18,194,926 Intangible assets, net 18,801,831 Other assets 55,826 ---------- 77,587,935 ---------- LIABILITIES Bank overdraft 568,908 Current portion of long term debt 1,088,611 Accounts payable 8,291,996 Other provisions and accruals 4,257,016 Dividends payable 87 Income taxes payable 676,003 Other taxes payable 303,812 ---------- TOTAL CURRENT LIABILITIES 15,186,433 Long term debt 1,448,769 Deferred income taxes 4,409,291 ---------- 21,044,493 ---------- 56,543,442 ----------
The following summarizes the operating results of the Lifestyle discontinued operation:
YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, JUNE 30, 2000 1999 1998 $ $ $ --------------------------------------------------------------------------------------------- Revenue 93,292,006 84,944,309 82,759,698 ---------- ---------- ---------- Operating income 6,471,842 7,024,057 9,431,814 ---------- ---------- ---------- Net income, net of minority interest of $3,479,293, $3,010,194 and $1,704,391 3,188,161 3,685,334 5,566,104 ---------- ---------- ----------
The Company anticipates making a profit on the disposal of Lifestyle and accordingly no provision for losses on disposal has been recorded. 44 LEISUREPLANET HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 15. DISCONTINUED OPERATIONS (CONTINUED) LEISUREPLANET.COM ("LPI") Due to the lack of investor appetite for loss making Internet businesses, no further funding was available to fund the activities of LPI, previously Leisureplanet Limited, the Internet travel related business. On August 2, 2000 LPI was placed under voluntary administration in the United Kingdom, subsequent to this date, on August 31, 2000 the administrator placed LPI into liquidation. The liabilities of LPI exceed the assets and, where appropriate, provision has been made for any liabilities, contingent or otherwise, which the Company may incur. The remaining cash is considered restricted as a result of the administrative liquidation. The following summarizes the remaining assets and liabilities of the LPI segment which are included in the accompanying consolidated balance sheet at June 30, 2000:
JUNE 30, PROVISION FOR JUNE 30, 2000 LOSSES ON 2000 DISPOSAL $ $ $ ---------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents 4,641,539 4,641,539 Accounts receivable, net 304,741 (304,741) -- Prepaid expenses and other current assets 25,727,155 (25,727,155) -- ---------- ----------- --------- TOTAL CURRENT ASSETS 30,673,435 (26,031,896) 4,641,539 Property, plant and equipment, net 1,571,009 (1,571,009) -- Intangibles, net 11,336,630 (11,336,630) -- ---------- ----------- --------- 43,581,074 (38,939,535) 4,641,539 ---------- ----------- --------- LIABILITIES Bank overdraft 1,510 (1,510) -- Accounts payable 6,864,781 (2,223,242) 4,641,539 Other provisions and payables 1,004,239 (1,004,239) -- ---------- ----------- --------- TOTAL CURRENT LIABILITIES 7,870,530 (3,228,991) 4,641,539 Long term debt 4,155,561 (4,155,561) -- ---------- ----------- --------- 12,026,091 (7,384,552) 4,641,539 Minority interest 2,547,488 (2,547,488) -- Preference share capital 13,333,333 (13,333,333) -- ---------- ----------- --------- 27,906,912 (23,265,373) 4,641,539 ---------- ----------- --------- 15,674,162 (15,674,162) -- ---------- ----------- ---------
The following summarizes the operating results of the LPI segment:
YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, 2000 1999 $ $ ------------------------------------------------------------------------------------------ Revenue 546,942 164,486 ----------- ---------- Operating loss (30,124,852) (6,231,845) ----------- ---------- Net loss, net of minority interest of $14,598,890 and $nil (15,119,447) (6,167,662) ----------- ----------
45 LEISUREPLANET HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 15. DISCONTINUED OPERATIONS (CONTINUED) During the prior fiscal year the Company completed the discontinuation of 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 following summarizes the operating results of the industrial and packaging business segments:
YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, 1999 1998 $ $ -------------------------------------------------------------------------- Revenue 18,492,864 30,648,652 ---------- ------------ Operating loss (695,700) (1,371,879) ---------- ------------ Net loss (1,458,991) (2,178,473) ---------- ------------ Loss on disposal of discontinued operations (612,858) - Write off of development costs incurred on Processed food pie business (362,090) - ---------- ------------ (974,948) - ---------- ------------ Net loss on discontinued operations (2,433,939) (2,178,473) ---------- ------------
The Company disposed of the following subsidiaries:
PROCEEDS ON DISPOSAL SUBSIDIARY/BUSINESS DATE DISPOSED $ ------------------------------------------------------------------------------------------ INDUSTRIAL MANUFACTURING SEGMENT Humidair (Pty) Ltd July 1, 1998 58,824 First Strut (Pty) Ltd December 1, 1998 - Europair Africa (Pty) Ltd March 1, 1999 - LS Pressings (Pty) Ltd May 1, 1999 495,050 PACKAGING SEGMENT Pakmatic Company (Pty) Ltd April 1, 1999 - Starpak (Pty) Ltd April 1, 1999 - Pacforce (Pty) Ltd - cessation of operations June 30, 1999 - -------- TOTAL DISPOSAL CONSIDERATION 553,874 --------
46 LEISUREPLANET HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 15. DISCONTINUED OPERATIONS (CONTINUED) Where no disposal proceeds are recorded, the liabilities generally exceeded the assets of the company concerned, with the exception of Europair Africa and Pakmatic Company, where the vendors were required to repay shareholders' loans back to the Company.
$ ------------------------------------------------------------------------- Assets and liabilities disposed of: Current assets (including cash of $462,156) 8,983,186 Property, plant and equipment 3,149,176 Goodwill 901,340 Other assets 124,057 ----------- TOTAL ASSETS SOLD 13,157,759 ----------- Current liabilities (11,510,761) Long term debt (1,839,722) Deferred taxes (19,351) Other liabilities (1,205) ----------- TOTAL LIABILITIES SOLD (13,371,039) ----------- (213,280) -----------
16. CASH FLOWS The changes in assets and liabilities consist of the following:
YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, JUNE 30, 2000 1999 1998 $ $ $ --------------------------------------------------------------------------------------------- (Increase)/decrease in accounts receivable (837,497) (1,609,848) 1,251,842 (Increase)/decrease in inventories (1,415,494) (1,257,940) (956,318) Increase in prepaid expenses and other current Assets (2,245,402) (3,758,667) (169,887) Increase/(decrease) in accounts payable 7,259,517 2,141,313 (894,445) Increase in other provisions and accruals 1,703,222 5,398,166 - Increase in other taxes payable (202,532) 8,483 676,319 (Decrease)/increase in income taxes payable (423,369) (380,001) 513,573 ---------- ---------- -------- 3,838,445 541,506 421,084 ---------- ---------- --------
47 LEISUREPLANET HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 16. CASH FLOWS (CONTINUED)
YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, JUNE 30, 2000 1999 1998 $ $ $ ------------------------------------------------------------------------------------------------ DIVIDENDS PAID IS RECONCILED TO THE CASH FLOW AS FOLLOWS: Movement in opening and closing balances (1,572,434) 1,315,222 - Minority dividend movements 379,193 (1,103,450) - Dividend charge (149,755) (495,991) - ----------- ---------- --------- Dividend paid (1,342,996) (284,219) - ----------- ---------- --------- NET CASH PROVIDED BY/(USED IN) DISCONTINUED OPERATIONS CONSISTS OF THE FOLLOWING: Net income/(loss) of discontinued operations: (27,605,448) (4,916,267) 3,387,631 Provision for losses on discontinuance 15,674,162 - - Depreciation and amortisation 4,549,060 3,715,552 3,361,638 Minority share of (losses)/gains (11,119,597) 3,010,194 1,704,922 Interest in losses of affiliates 23,111 - Shares to be issued 3,446,633 - - Loss on sale of shares - (767,262) - ----------- ---------- --------- (15,032,079) 1,042,217 8,454,191 =========== ========== =========
17. EMPLOYMENT BENEFITS The Company does not maintain retirement funds for the benefit of its employees of its continuing operations. The Company and employees of continuing operations participate in various health plans, which provide medical cover for employees on an annual basis. Neither the health plan nor the Company are liable for post retirement medical costs. The contributions to the health plan are borne by the Company. The Company has no liability for employees' medical costs in excess of the contributions to the health plan. The Company's contribution to these health plans was as follows:
YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, JUNE 30, 2000 1999 1998 $ RESTATED RESTATED $ $ ------------------------------------------------------------------------- 6,927 - - ------ ------ ------
18. BUSINESS SEGMENT INFORMATION In the previous year the Company had two reportable segments which included strategic business units that offered different products and services. These business units were both managed separately as each unit was in a different technological and marketing field. Both of these segments, Internet travel related businesses and Lifestyle enhancing products, are reported as discontinued operations in the current year as the company has changed its focus to investing in Internet technology companies and related service industries. As a result, as of June 30, 2000 the Company operates in only one segment. This segment currently generates no revenues and all significant identifiable assets are located in the United States and Israel. 48 LEISUREPLANET HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 19. STOCK OPTION PLAN The board of directors have adopted the Company's 1995 Stock Option Plan. The Stock Option Plan provides for the grant of i) options that are intended to qualify as incentive stock options ("Incentive Stock Options") within the meaning of Section 422 of the code to key employees and ii) options not so intended to qualify ("Nonqualified Stock Options") to key employees (including directors and officers who are employees of the Company and to directors). The Stock Option Plan is to be administered by the Compensation Committee of the board of directors. The committee shall determine the terms of the options exercised, including the exercise price, the number of shares subject to the option and the terms and conditions of exercise. No options granted under the Stock Option Plan are transferable by the optionee other than by the will or the laws of descent and distribution. The exercise price of Incentive Stock Options granted under the plan must be at least equal to the fair market value of such shares on the date of the grant (110% of fair market value in the case of an optionee who owns or is deemed to own more than 10% of the voting rights of the outstanding capital stock of the Company or any of its subsidiaries). The maximum term for each Incentive Stock Option granted is ten years (five years in the case of an optionee who owns or is deemed to own more than 10% of the voting rights of the outstanding capital stock of the Company or any of its subsidiaries). Options shall be exercisable at such times and in such installments as the committee shall provide in the terms of each individual option. The maximum number of shares for which options may be granted to any individual in any fiscal year is 210,000. The Stock Option Plan also contains an automatic option grant program for the employee and non-employee directors. Each person who is an employee director of the Company following an annual meeting of shareholders will automatically be granted an option for an additional 5,000 shares of common stock, non-employee directors will receive an option for an additional 10,000 shares of common stock. Each grant will have an exercise price per share equal to the fair market value of the common stock on the grant date and will have a term of five years measured from the grant date, subject to earlier termination if an optionee's service as a board member is terminated for cause. The Company has granted options to purchase 590,000 shares of common stock under the Plan, of which 30,000 options have been exercised. The options issued under the stock option still outstanding are reflected in the table below. Option activity under the stock option plans is summarised as follows:
SHARES WEIGHTED SUBJECT TO AVERAGE OPTIONS EXERCISE PRICE OUTSTANDING PER OPTION --------------------------------------------------------------------- Balance at July 1, 1997 395,000 3,78 Granted - non plan options 500,000 4,75 Granted - plan options 40,000 5,00 Exercised - plan options (10,000) 4,38 Balance at June 30, 1998 925,000 4,40 Granted - plan options 135,000 2,75 Exercised (20,000) 5,19 Balance at June 30, 1999 1,040,000 4,21 Granted - non plan options 600,000 4,88 Granted - plan options 60,000 3,76 Exercised - non plan options (100,000) 2,00 Exercised - plan options (80,000) 4,75 Balance at June 30, 2000 1,520,000 4,54
49 LEISUREPLANET HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 19. STOCK OPTION PLAN (CONTINUED) Significant option groups outstanding at June 30, 2000 and related weighted average exercise price and weighted average remaining life are as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------- -------------------- WEIGHTED WEIGHTED WEIGHTED RANGE OF AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE REMAINING PRICES SHARES PRICE SHARES PRICE LIFE ------------------------------------------------------------------------------------ $1,00 to $2,19 165,000 1,81 165,000 1,81 7 Years 4 months $3,75 to $4,875 1,075,000 4,81 435,000 4,72 8 Years 3 months $5,00 to $6,00 280,000 5,13 280,000 5,13 5 Years --------- ---- ------- ---- 1,520,000 4,54 880,000 4,30 --------- ---- ------- ----
The Company measures compensation cost for its stock option plan using the intrinsic value based method of accounting. Had the Company used the fair value-based method of accounting to measure compensation expense for it stock option plans beginning in 1997 and charged compensation cost against income, over the vesting periods, based on the fair value of options at the date of the grant, income from continuing operations and the related diluted per common share amounts for 1999, 1998 and 1997 would have been reduced to the following proforma amounts:
1999 1998 2000 RESTATED RESTATED $ $ $ ------------------------------------------------------------------------------------------------ Net income/(loss) from continuing operations As reported (4,233,222) (6,210,195) (615,740) Proforma (6,809,446) (7,895,108) (3,683,094) Basic and diluted (loss)/income per common share As reported ($0,54) ($0,95) ($0,10) Proforma ($0,86) ($1,21) ($0,57)
The weighted average grant date fair value of options granted in 2000, 1999 and 1998 and the significant assumptions used in determining the underlying fair value of each option grant on the date of the grant utilizing the Black Scholes option pricing model were as follows:
2000 1999 1998 ------------------------------------------------------------------------------------- Weighted average grant-date fair value of options Granted $4,07 $4,51 $6,82 Assumptions: Risk free interest rate 14,96% 14,96% 14,0% Expected life 4 Years 5 Years 5 Years Expected volatility 106.45% 108,6% 87,3% Expected dividend yield 0,0% 0,0% 0,0%
50 LEISUREPLANET HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 20. WARRANTS OUTSTANDING In connection with the initial public offering ("the offering") consummated in January 1996 the Company issued 2,300,000 units. Each unit issued consisted of one share of common stock, one redeemable Class A warrant and one redeemable Class B warrant. In addition, 100,000 warrants were issued to the underwriter pursuant to the underwriting agreement. Concurrently with the offering the selling security holder offered 650,000 selling security holder warrants, 650,000 selling security holder Class B warrants issuable upon exercise of the selling security holder warrants and 1,300,000 shares of common stock issuable upon exercise of these selling security holder warrants and selling security holder Class B warrants. These selling security holder warrants are identical to the Class A warrants, except that there are certain restrictions imposed upon the transferability of these warrants. In consideration for the 9% debenture offering the Company issued warrants over 135,000 shares of common stock at an exercise price of $6,00 per share, the fair market price at date of issuance. In consideration for the capital raising exercise undertaken during the current year the Company issued warrants over 150,000 shares of common stock at an exercise price of $0,01 per share. In terms of an agreement entered into with Infospace, the Company undertook to issue warrants over 720,000 shares of common stock valued at $5,00 per share. Infospace were to provide services to the Leisureplanet.com subsidiary in exchange for the Company increasing its holding in Leisureplanet.com equal to the value placed on the warrants. These warrants have an exercise price of $0,01 per share. As at June 30, 2000, 480,000 of these warrants have vested and 240,000 were issued. Warrants over 25,000 of the debenture warrants and 57,811 of the Class A Redeemable warrants were exercised during the current year. Warrants outstanding at June 30, 2000 were as follows:
NUMBER OF EXERCISE WARRANT WARRANTS PRICE EXPIRY DATE ENTITLEMENT ------------------------------------------------------------------------------------------- One share of common Class A Redeemable January 24, stock and one Class B Warrants 1,015,938 $6,50 2001 warrant Class B Redeemable January 24, One share of common Warrants 2,101,547 $8,75 2001 Stock July 31, One share of common Debenture warrants 110,000 $6,00 2007 Stock Capital raising One share of common Warrants 150,000 $6,00 Stock One share of common Infospace warrants 240,000 $0,01 Stock
The Class A warrants are redeemable beginning January 24, 1997, or earlier at the option of the Company with the underwriters consent, at a redemption price of $0,05 per Class A warrant, if the "closing price" of the Company's common stock trades at an average price in excess of $9,10 per share for any consecutive 30 trading day period, ending within 15 days of the notice of redemption. All Class A warrants are to be redeemed if any are to be redeemed. The Class B warrants are redeemable beginning January 24, 1997, or earlier at the option of the Company with the underwriters consent, at a redemption price of $0,05 per Class A warrant, if the "closing price" of the Company's common stock trades at an average price in excess of $12,25 per share for any consecutive 30 trading day period, ending within 15 days of the notice of redemption. All Class B warrants are to be redeemed if any are to be redeemed. 51 LEISUREPLANET HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 21. FIRST SOUTH AFRICAN HOLDINGS ESCROW AGREEMENT The FSAH Escrow Agreement was executed prior to the closing of the Company's offering and provided for the concurrent issuance and delivery of 729,979 shares of Class B common stock to the FSAH escrow agent. The FSAH Escrow Agreement is intended to provide security for the holders of FSAH Class B common stock, who are residents in South Africa and are prohibited in terms of South African law from holding shares in a foreign company. The FSAH Escrow Agreement provides that the parties to this agreement that are holders of FSAH Class B common stock will not sell such shares of stock, but may tender the shares to the FSAH escrow agent against payment therefore by the escrow agent, which payment may consist of the proceeds obtained from the sale of an equal number of Class B common stock of the Company, provided that the proceeds of the sale will be delivered to the holder of the Class B common stock in exchange for the shares in FSAH. These shares will be tendered to the Company and they will be immediately converted to FSAH Class A common stock. Since the consummation of the Company's offering in January 1996, the Company has entered into FSAC Escrow Agreements with the FSAH escrow agent, FSAH and certain principal shareholders of the Company's subsidiaries, which were acquired since January 1996. The terms of the FSAC Escrow Agreement are substantially similar to the terms of the FSAH Escrow Agreement, except that the FSAH Escrow Agreement provided for the issue of shares of Class B common stock to the FSAH escrow agent while the FSAC Escrow Agreements provide for the issue of shares of common stock to the FSAH escrow agent which correspond to the issuance's of FSAH Class B common stock by FSAH. In 2000 a further 120,621 shares of common stock were issued to the FSAH escrow agent in terms of the FSAC Escrow agreements entered into, in connection with the acquisition of Gull Foods. No further shares of common stock are to be issued in terms of FSAC or FSAH escrow agreements. In terms of the agreements entered into with the previous vendors of Piemans Pantry, Seemann's Quality Meat Products, Gull Foods and Fifers Bakery, the underlying value of the FSAC escrow stock was underpinned at certain minimum values. The previous vendors had the option to put the shares to the Company at those values, which was obligated to honor the minimum values placed on those shares. These vendors exercised this option during the prior fiscal year, which resulted in the redemption and cancellation of 1,583,059 FSAC A class common stock. There are no further stock price warranties outstanding. 22. COMMITMENTS AND CONTINGENCIES South African Secondary Tax on Companies at 12,5 percent is payable on all dividends declared out of distributable reserves of South African companies. The Company is liable to pay to the previous vendors an estimated $1,016,542 based on the attainment of profit warranties which form an integral part of all acquisition agreements concluded with previous vendors of acquired companies. The payment of this amount is dependent upon the achievement of pre defined profit targets. The company has ,guaranteed the banking facilities of certain of its subsidiaries previously disposed of during the prior year. These guarantees amount to $1,580,000 The Future minimum non-cancellable operating lease payments are not material. 52 LEISUREPLANET HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 23. QUARTERLY INFORMATION The Company restated the presentation of certain information for the first three quarters. Net income/(loss) has been restated by an equal charge of $107,027 for each of the quarters ended September 30, 1999, December 31, 1999 and March 31, 2000 to correctly reflect the change in deferred tax liabilities related to certain intangible assets. Operating income/(loss) and net income/(loss) has been restated in the quarters ended September 30, 1999, December 31, 1999 and March 31, 2000 by $39,934, $289,796 and $434,651 respectively to correctly reflect the amortisation of prepaid assets which was recorded in the quarter ended June 30, 2000. Net income/(loss) has been restated by $393,750 in the quarter ended March 31, 2000 to correctly reflect transfer of capital redemption reserve, on conversion of debentures into shares, to additional paid in capital. Other income and net income/(loss) has been restated by $6,308,858 and $2,320,999 to correctly reflect the gain made on dilution of investment in LPI, to additional paid in capital.
QUARTERS ENDED -------------------------------------------- SEPTEMBER DECEMBER MARCH 30, 31, 31, 1999 1999 2000 $ $ $ ------------------------------------------------------------------------------------------------ Revenues 22,721,938 30,055,350 21,100,519 ---------- ---------- ---------- Operating income/(loss) (1,687,277) (864,056) (7,618,889) Net income/(loss) (2,980,397) (2,163,504) (4,623,494) Net income/(loss) per share - basic and diluted ($,040) ($0,30) ($0,51) Weighted average common stock outstanding - Basic and diluted 6,377,981 7,153,185 9,002,398
53 DATA FOR EXHIBIT 11.1 (Loss)/earnings per share data is calculated as follows:
BASIC LOSS PER SHARE FOR THE YEAR ENDED JUNE 30, 2000 $ ---------------------------------------------------------------------------------------- Net loss available to common stockholders from continuing operations (4,233,222) Net loss available to common stockholders from discontinued operations (27,605,448) Total net loss (31,838,670)
DATES OUTSTANDING SHARES FRACTION OF WEIGHTED OUTSTANDING PERIOD AVERAGE SHARES -------------------------------------------------------------------------------------------- July 1, 1999 6,329,731 6,329,731 July 1, 1999 to June 30, 2000 Options converted to shares during the year 180,000 0,66 117,930 Additional purchase price payments 120,621 0,75 90,548 A Warrants exercised 164,500 0,43 71,036 Underwriters options exercised 82,811 0,36 29,583 9% debentures converted 742,503 0,48 353,973 Increasing rate debentures 315,789 0,46 144,484 New shares issued 1,379,310 0,51 699,102 WEIGHTED AVERAGE SHARES 9,315,265 7,836,387
BASIC LOSS PER SHARE FOR THE YEAR ENDED JUNE 30, 1999 $ ----------------------------------------------------------------------------------------- Net loss available to common stockholders from continuing operations (6,210,195) Net loss available to common stockholders from discontinued operations (4,916,267) Total net loss (11,126,462)
DATES OUTSTANDING SHARES FRACTION OF WEIGHTED OUTSTANDING PERIOD AVERAGE SHARES -------------------------------------------------------------------------------------------------- July 1, 1998 7,472,324 1,00 7,472,324 July 1, 1998 to June 30, 1999 Additional purchase price payments 242,684 0,75 182,179 Escrow shares and ordinary shares repurchased And cancelled during the year (1,725,977) 0,73 (1,259,251) Options converted to shares during the year 20,000 0,25 4,932 Debentures converted into shares during the year 320,700 0,46 148,307 WEIGHTED AVERAGE SHARES 6,329,731 6,548,491
54 DATA FOR EXHIBIT 11.1 (Loss)/earnings per share data is calculated as follows:
BASIC EARNINGS PER SHARE FOR THE YEAR ENDED JUNE 30, 1998 $ --------------------------------------------------------------------------------------- Net loss available to common stockholders from continuing operations (615,740) Net loss available to common stockholders from discontinued operations 3,387,631 --------- Total net income 2,771,891 ---------
DATES OUTSTANDING SHARES FRACTION OF WEIGHTED OUTSTANDING PERIOD AVERAGE SHARES ------------------------------------------------------------------------------------------------ July 1, 1997 5,359,615 1,00 5,359,615 July 1, 1997 to June 30, 1998 Additional purchase price payments 290,394 0,15 42,884 Acquisition of subsidiaries 238,848 0,46 109,220 Warrants converted to shares during the year 233,826 0,83 194,549 Options converted to shares during the year 35,000 0,39 13,616 Warrants swapped into shares during the year 1,173,476 0,59 697,608 Debentures converted into shares during the year 141,165 0,05 7,489 --------- --------- WEIGHTED AVERAGE SHARES 7,472,324 6,424,981 --------- ---------
DILUTED LOSS PER SHARE FOR THE YEAR ENDED JUNE 30, 2000 $ ---------------------------------------------------------------------------------------- Net loss available to common stockholders from continuing operations (4,233,222) Add impact of assumed conversions 2,030,232 ----------- (2,202,990) Net loss available to common stockholders from discontinued operations (27,605,448) ----------- ADJUSTED NET LOSS (29,808,438) ----------- Weighted average shares 7,836,387 Warrants and options not yet exercised 1,150,698 9% convertible debentures 392,069 Increasing rate debentures 1,434,463 ----------- ADJUSTED WEIGHTED AVERAGE SHARES 10,813,617 ===========
55 DATA FOR EXHIBIT 11.1 (Loss)/earnings per share data is calculated as follows:
DILUTED LOSS PER SHARE FOR THE YEAR ENDED JUNE 30, 1999 $ -------------------------------------------------------------------------------------- Net loss available to common stockholders from continuing operations (6,210,195) Add impact of assumed conversions 2,258,044 ---------- (3,952,151) Net loss available to common stockholders from discontinued operations (4,916,267) ---------- ADJUSTED NET LOSS (8,868,418) ========== Weighted average shares 6,548,491 Warrants and options not yet exercised 41,252 9% convertible debentures 945,618 Increasing rate debentures 1,578,947 ---------- ADJUSTED WEIGHTED AVERAGE SHARES 9,114,308 ==========
DILUTED EARNINGS PER SHARE FOR THE YEAR ENDED JUNE 30, 1998 $ -------------------------------------------------------------------------------------- Net income available to common stockholders from continuing operations (615,740) Add impact of assumed conversions 1,646,170 ---------- 1,030,430 Net loss available to common stockholders from discontinued operations 3,387,631 ---------- ADJUSTED NET INCOME 4,418,061 ========== Weighted average shares 6,424,981 Warrants and options not yet exercised 502,279 9% convertible debentures 1,659,178 Increasing rate debentures 1,046,865 ---------- ADJUSTED WEIGHTED AVERAGE SHARES 9,633,303 ==========
56 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS DIRECTORS AND EXECUTIVE OFFICERS Our directors and our executive officers and the executive officers of our subsidiaries, their ages and present position are as follows:
NAME AGE POSITIONS ---- --- --------- Michael Levy 54 Chairman of the Board Clive Kabatznik 44 Vice Chairman of the Board, Chief Executive Officer, President and Chief Financial Officer Cornelius J. Roodt 41 Director David BenDaniel 68 Director Chris Matty 32 Director Mark J. Korb 32 Chief Financial Officer of First South African Holdings (Pty.) Ltd.
MICHAEL LEVY is our co-founder and has served as Chairman of our Board of Directors since our inception. Since 1987, Mr. Levy has been the Chief Executive Officer and Chairman of the Board of Arpac L.P., a Chicago-based manufacturer of plastic packaging machinery. CLIVE KABATZNIK is our co-founder and has served as a director and our President since inception and as our Vice Chairman, Chief Executive Officer and Chief Financial Officer since October 1995. Mr. Kabatznik has served as President of Colonial Capital, Inc. a Miami-based investment banking company that specializes in advising middle market companies in areas concerning mergers, acquisitions, private and public agency funding and debt placements. CORNELIUS J. ROODT has served as a member of our Board of Directors since December 1996 and was appointed Managing Director and Chief Financial Officer of one of our subsidiaries, First South African Holdings (Pty.) Ltd., in July 1996. Mr. Roodt was responsible for overseeing all of the South African operations of First South African Holdings (Pty.) Ltd. Mr. Roodt has led the buyout of First Lifestyle Holdings and will no longer act as an executive officer of any of our subsidiaries. From February 1994 to June 1996, Mr. Roodt was a senior partner at Price Waterhouse Corporate Finance, South Africa. From January 1991 to January 1994, he was an audit partner at Price Waterhouse, South Africa. 57 DAVID BENDANIEL, PH.D. has been a professor at Cornell University since 1985 and is currently the Berens Professor of Entrepreneurship at the Johnson Graduate School of Management at Cornell University. Dr. BenDaniel is the co-editor of International M&A, Joint Ventures and Beyond - Doing the Deal, printed in 1998. Dr. BenDaniel holds a B.A. and M.S. in Physics from the University of Pennsylvania and a Ph.D. in Engineering from the Massachusetts Institute of Technology. CHRIS MATTY has been Vice President of Strategic Development for InfoSpace.com, Inc., an aggregator of content on the Internet, since February 1997. Prior to that time, Mr. Matty was a consultant for Wiredweb, an Internet service provider, from December 1996 to February 1997. In May 1996, Mr. Matty founded Environmental Products, a recycling company, and was responsible for finance and marketing of that company until December 1996. From June 1994 to May 1996, Mr. Matty was Program Manager at Clarion Communications, a telecommunications company, where he was responsible for international business development. MARK J. KORB has been the Group Finance Director of First Lifestyle Holdings since April 1997. Prior to such time, from August 1993 to March 1997, Mr. Korb was an employee of PricewaterhouseCoopers Inc, as a Senior Audit Manager from July 1994 to March 1997 and a Manager from August 1993 to June 1994. All of our directors hold office until their respective successors are elected, or until death, resignation or removal. Officers hold office until the meeting of the Board of Directors following each Annual Meeting of Stockholders and until their successors have been chosen and qualified. COMMITTEES OF THE BOARD OF DIRECTORS Our Board of Directors has an audit committee and a compensation committee. The audit committee is composed of Chris Matty, David BenDaniel, and Michael Levy. The audit committee is responsible for recommending annually to the Board of Directors the independent auditors to be retained, reviewing with the independent auditors the scope and results of the audit engagement and establishing and monitoring our financial policies and control procedures. The compensation committee is currently composed of Michael Levy and Chris Matty. The compensation committee has power and authority with respect to all matters pertaining to compensation and the administration of employee benefits, deferred compensation and our stock option plans. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who beneficially own more than 10% of our common stock, to file initial reports of ownership and reports of changes of ownership with the Securities and Exchange Commission and furnish copies of those reports to us. Based solely on a review of the copies of the reports furnished to us to date, or written representations that no reports were required, we believe that all reports required to be filed by such persons with respect to our fiscal year ended June 30, 2000 were timely made. ITEM 11. EXECUTIVE COMPENSATION The following summary compensation table sets forth the aggregate compensation we paid or accrued to our Chief Executive Officer and to the Managing Director and Chief Financial Officer of our 58 subsidiaries, First South African Holdings (Pty.) Ltd. and First Lifestyle Holdings Ltd. during the fiscal years ended June 30, 1997, June 30, 1998, June 30, 1999 and June 30, 2000. Apart from Mr. Kabatznik, whose annual salary is $300,000, and Mr. Roodt, whose annual salary is $150,000, none of our executive officers or any of our subsidiaries received compensation in excess of $100,000. 59 SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION ------------------- ---------------------- FISCAL SALARY BONUS YEAR OTHER ANNUAL RESTRICTED SECURITIES NAME AND ENDED COMPENSATION STOCK AWARDS UNDERLYING PRINCIPAL POSITION JUNE 30, STOCK OPTIONS ------------------ -------- --------- ------- ------------ ------------ ------------- $ $ Clive Kabatznik, 2000 230,000 0 --- --- 255,000 President and Chief 1999 180,000 0 5,000 Executive Officer 1998 180,000 170,509 255,000 Cornelius J. Roodt, 2000 150,000 0 5,000 Managing Director and 1999 150,000 0 --- --- 5,000 Chief Financial 1998 150,000 170,509 --- --- 255,000 Officer of First South African Holdings (Pty.) Ltd. and First Lifestyle Holdings Ltd.
The options granted to Mr. Kabatznik during fiscal year ended June 30, 2000 represent: - an option granted under our 1995 Stock Option Plan to purchase 5,000 shares of our common stock which is currently exercisable at an exercise price of $5.125 per share; and - a non-plan option granted by our Board of Directors to purchase 250,000 shares of our common stock which is currently exercisable at an exercise price of $4.875 per share. The options granted to Mr. Roodt during fiscal year ended June 30, 2000 were granted under our 1995 Stock Option Plan and represent, in each case, an option to purchase 5,000 shares of our common stock which is currently exercisable at an exercise price of $5.125 per share. The options granted to Mr. Kabatznik and Mr. Roodt during fiscal year ended June 30, 1999 were granted under our 1995 Stock Option Plan and represent, in each case, an option to purchase 5,000 shares of our common stock which is currently exercisable at an exercise price of $2.19 per share. The options granted to Mr. Kabatznik and Mr. Roodt during fiscal year ended June 30, 1998 represent, in each case: - an option granted under our 1995 Stock Option Plan to purchase 5,000 shares of our common stock which is currently exercisable at an exercise price of $6.00 per share; and - a non-plan option granted by our Board of Directors to purchase 250,000 shares of our common stock which is currently exercisable at an exercise price of $4.75 per share. 60 OPTIONS GRANTED IN FISCAL 2000 The following table sets forth the details of options to purchase common stock we granted to our executive officers during fiscal year ended June 30, 2000, including the potential realized value over the 5 year term of the option based on assumed rates of stock appreciation of 5% and 10%, compounded annually. These assumed rates of appreciation comply with the rules of the Securities and Exchange Commission and do not represent our estimate of future stock price. Actual gains, if any, on stock option exercises will be dependent on the future performance of our common stock. Each option is immediately exercisable.
OPTIONS GRANTED --------------- POTENTIAL REALIZABLE NAME NUMBER OF PERCENT OF TOTAL PER EXPIRATION DATE VALUE AT ASSUMED ANNUAL SECURITIES TO SHARE RATE OF STOCK PRICE UNDERLYING EMPLOYEES IN EXERCISE APPRECIATION OPTIONS FISCAL YEAR PRICE FOR OPTION TERM ------- ----------- ----- --------------- --------------- 5% 10% Clive Kabatznik 250,000 49.00% $4.875 August 15, 2010 $336,718 $744,059.00 Clive Kabatznik 5,000 1.00% $5.125 May 1, 2005 $7080.00 $15,644.32 Cornelius J. Roodt 5,000 1.00% $5.125 May 1, 2005 $7080.00 $15,644.32
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES During the fiscal year ended June 30, 2000, Mr. Roodt exercised 180,000 options. The following table sets forth the number of shares of our common stock underlying unexercised stock options granted by us to our executive officers and the value of those options at June 30, 2000. The value of each option is based on the positive difference, if any, of the closing bid price for our common stock on the Nasdaq National Market on June 30, 2000, or $3.25, over the exercise price of the option.
NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED IN THE MONEY FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END --------------- -------------------------- NAME OF EXECUTIVE OFFICER EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ------------------------- ----------- ------------- ----------- ------------- Clive Kabatznik 558,333 166,666 $5,300 $0 Cornelius J. Roodt 240,000 0 $92,800 $0
DIRECTOR COMPENSATION Except for Mr. Levy, our directors do not receive fixed compensation for their services as directors other than options to purchase 10,000 shares of our common stock granted to each non-employee director and options to purchase 5,000 shares of our common stock granted to each director who is an employee, in each case under our 1995 Stock Option Plan. Mr. Levy receives an annual consulting fee of $60,000 and options to purchase 10,000 shares of our common stock for every year of service as a member of our Board of Directors. Directors are reimbursed for their reasonable out-of-pocket expenses incurred in connection with their duties. 61 EMPLOYMENT AGREEMENTS On April 12, 2000, the Company's Board of Directors approved an Amended and Restated 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. First South African Holdings (Pty.) Ltd. has entered into an employment agreement with its Managing Director and Chief Financial Officer, Cornelius J. Roodt. The agreement provides for a term commencing on July 1, 1996 and terminating in June 2001. The agreement provides that Mr. Roodt will devote substantially all of his business time, energies and abilities to our business and will receive an annual salary of $150,000. Mr. Roodt also received a one time option to purchase 150,000 shares of our common stock at an exercise price of $2.00 per share. The option to purchase 150,000 shares of our common stock is exercisable after the fifth anniversary following the grant date. However, the vesting of such option will be accelerated as follows: - the option will be exercisable with respect to 30,000 shares on such earlier date that we realize earnings per share of $.75 or more on a fiscal year basis; - the option will be exercisable with respect to an additional 50,000 shares on such earlier date that we realize earnings per share of $1.00 or more on a fiscal year basis; and - the option will be exercisable with respect to an additional 70,000 shares on such earlier date that we realize earnings per share of $1.50 or more on a fiscal year basis. The option has vested with respect to 80,000 shares as a result of our realization of the applicable earnings per share requirements. We intend, during the term of Mr. Roodt's employment agreement, to pay Mr. Roodt an annual incentive bonus of four percent of the Minimum Pretax Income, as defined in Mr. Roodt's employment agreement, above $5,000,000, as is reported in our audited financial statements for each fiscal year in which Mr. Roodt is employed, exclusive of certain extraordinary earnings or charges. In November 1998, Mr. Roodt entered into a non-competition agreement with First South African Holdings (Pty.) Ltd. In exchange for his agreement, Mr. Roodt received 2,000,000 shares of First Lifestyle Holdings. Mr. Roodt's employment contract with First South African Holdings (Pty.) Ltd. terminated on December 31, 1999 when he became Chief Executive Officer of First Lifestyle Holdings, Ltd. 62 STOCK OPTION PLAN Our Board of Directors has adopted and our shareholders, prior to our initial public offering, approved our 1995 Stock Option Plan. Our 1995 Stock Option Plan provides for the grant of: - options that are intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986 to key employees; and - options not intended to so qualify to key employees, including our directors and officers, and to directors and consultants who are not employees. The total number of shares of our common stock for which options may be granted under our 1995 Stock Option Plan is 850,000 shares. Our 1995 Stock Option Plan is administered by the compensation committee of our Board of Directors. The compensation committee will determine the terms of options exercised, including the exercise price, the number of shares subject to the option and the terms and conditions of exercise. No option granted under our 1995 Stock Option Plan is transferable by the optionee other than by will or the laws of descent and distribution and each option is exercisable during the lifetime of the optionee only by such optionee or his legal representatives. The exercise price of incentive stock under our 1995 Stock Option Plan must be at least equal to 100% of the fair market value of such shares on the date of grant, or 110% of fair market value in the case of an optionee who owns or is deemed to own stock possessing more than 10% of the voting rights of our outstanding capital stock. The term of each option will be established by the compensation committee, in its sole discretion. However, the maximum term for each incentive stock option granted under our 1995 Stock Option Plan is ten years, or five years in the case of an optionee who owns or is deemed to own stock possessing more than 10% of the total combined voting power of our outstanding capital stock. Options will become exercisable at such times and in such installments as the compensation committee will provide in the terms of each individual option. The maximum number of shares for which options may be granted to any individual in any fiscal year is 210,000. Our 1995 Stock Option Plan also contains an automatic option grant program for our directors. Each of our non-employee directors is automatically granted an option to purchase 10,000 shares of our common stock following each annual meeting of shareholders. In addition, each of our employee directors is automatically granted an option to purchase 5,000 shares of our common stock following each annual meeting of shareholders. Each grant has an exercise price per share equal to the fair market value of the our common stock on the grant date, is immediately exercisable and has a term of five years measured from the grant date, subject to earlier termination if an optionee's service as a Board member is terminated for cause. We have granted options to purchase 630,000 shares of our common stock under our 1995 Stock Option Plan, 110,000 of which have been exercised. 63 NON-PLAN STOCK OPTIONS We have granted non-plan stock options to purchase 1,100,000 shares of our common stock, 500,000 of which were granted at an exercise price of $4.75 per share and 600,000 of which were granted at $4.06 per share. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None of the members of our compensation committee of our Board of Directors is now or ever has been one of our officers or employees. None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our Board of Directors or our compensation committee. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of September 28, 2000, certain information as to the beneficial ownership of the our common stock by: - each person known by us to own more than five percent (5%) of our outstanding shares; - each of our directors; - each of our executive officers named in the Summary Compensation Table under "Executive Compensation"; and - all of our directors and executive officers as a group. 64
Amount and Nature of Beneficial ------------------------------- Ownership (1) ------------- Name and Address of Common Stock Class B Percentage Percentage of of Voting Beneficial Shareholder Common Ownership Power Stock (2) (1)(3) (1)(3) --------- ------ ------ Michael Levy 63,333(4) 736,589(5) 8.58% 28.98% 9511 West River Street Shiller Park, IL 60176 Clive Kabatznik 519,999(6) 190,000 7.26% 10.98% 6100 Glades Road Suite 305 Boca Raton, FL 33434 Cornelius J. Roodt 188,333(7) 0 2.0% 1.4% P.O. Box 4001 Kempton Park South Africa BT Global Credit Limited 1,263,157(8) 0 12.00% 8.94% c/o Bankers Trust Luxembourg S.A. P.O. Box 807 14 Boulevard F.D. Roosevelt L-2540 Luxembourg Luxembourg American Stock Transfer 354,334(9) 166,452(9) 5.62% 9.22% & Trust Company 6201 15th Avenue Brooklyn, New York 11219 UBS AG 1,379,310 0 14.89% 10.72% c/o Warburg Dillon Read 677 Washington Boulevard Stamford, Connecticut 06901 David BenDaniel 10,000(10) 0 * * 6100 Glades Road Suite 305 Boca Raton, Florida 33434 Chris Matty 10,000(10) 0 * * 6100 Glades Road Suite 305 Boca Raton, Florida 33434 All executive officers and 791,665(11) 926,589 17.13% 39.74% directors as a group (5 persons)
* Less than 1 %. 65 (1) Beneficial ownership is calculated in accordance with Rule 13d-3 under the Securities Exchange Act of 1934. Shares subject to stock options, for purposes of this table, are considered beneficially owned only to the extent currently exercisable or exercisable within 60 days after March 13, 2000. (2) Except as otherwise indicated, each of the parties listed has sole voting and investment power with respect to all shares of Class B common stock indicated below. (3) For the purposes of this calculation, our common stock and our Class B common stock are treated as a single class of common stock. Our Class B common stock is entitled to five votes per share, whereas our common stock is entitled to one vote per share. (4) Includes 63,333 shares of our common stock issuable upon exercise of options that are immediately exercisable. (5) Includes (i) 570,137 shares of our Class B common stock and (ii) 166,452 shares of our Class B common stock issued to the American Stock Transfer & Trust Company pursuant to the terms of an escrow agreement, which shares correspond to a like number of shares of First South African Holdings (Pty.) Ltd. Class B stock. American Stock Transfer & Trust Company has granted to Mr. Levy a proxy to vote each of such shares of our Class B common stock. (6) Includes 519,999 shares of our common stock issuable upon exercise of options that are immediately exercisable. (7) Includes 188,333 shares of our common stock issuable upon exercise of options that are immediately exercisable. (8) Includes 1,263,157 shares of our common stock issuable upon conversion of certain Increasing Rate Senior Subordinated Convertible Debentures (9) Based solely upon information contained in a Schedule 13G, Amendment No. 1, dated 12/31/99 filed with the Securities and Exchange Commission. All shares are held as escrow agent pursuant to various escrow agreements. American Stock Transfer & Trust Company holds a proxy to vote the shares of common stock. Michael Levy holds a proxy to vote the shares of Class B Common Stock. (10) Includes 10,000 shares of our common stock issuable upon the exercise of options that are immediately exercisable (11) Represents 791,665 shares issuable upon exercise of options that are immediately exercisable. 66 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) 1. FINANCIAL STATEMENTS The following financial statements are included as required to be filed by Item 8: LEISUREPLANET HOLDINGS, LTD. Report of the independent auditors Consolidated Balance Sheets at June 30, 2000 and 1999 Consolidated Statements of Income for the years ended June 30, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for the years ended June 30, 2000, 1999 and 1998 Consolidated Statement of Changes in Stockholders' Investment for the period June 30, 1998 to June 30, 2000 Notes to the Consolidated Financial Statements for the years ended June 30, 2000, 1999 and 1998 2. FINANCIAL STATEMENT SCHEDULES: All schedules have been omitted since the required information is included in the consolidated financial statements or notes thereto. 3. EXHIBITS: (B) REPORTS ON FORM 8-K Not applicable.
EXHIBIT NUMBER DESCRIPTION -------------- ----------- 3.1 Memorandum of Association of the Registrant(7) 3.2 Bye-Laws of the Registrant(7) 4.1 Form of Warrant Agreement(7) 4.2 Form of Unit Purchase Option(7) 4.3 Indenture dated April 25, 1997 between the Registrant and American Stock Transfer & Trust Company(1) 4.4 Form of Debenture(8) 4.5 Form of Placement Warrant(8) 4.6 Stock Option Agreement(8)
67
EXHIBIT NUMBER DESCRIPTION -------------- ----------- 4.7 Indenture dated October 29, 1997, between the Registrant and American Stock Transfer & Trust Company(3) 4.8 Loan Note dated May 27, 1999 granted by Leisureplanet.com in favor of Twin Media (Proprietary) Limited(9) 10.1 Form of Escrow Agreement regarding the Earnout Escrow Shares(7) 10.2 Form of FSAH Escrow Agreement(7) 10.3 Form of First Amended and Restated Employment Agreement of Clive Kabatznik(7) 10.4 Form of FSAM Management Agreement(7) 10.5 Form of Consulting Agreement with Michael Levy(7) 10.6 1995 Stock Option Plan(7) 10.7 Pieman's Pantry Acquisition Agreement(4) 10.8 Form of Astoria Acquisition Agreement(5) 10.9 Form of Gull Foods Acquisition Agreement(6) 10.10 Form of Employment Agreement of Cornelius Roodt(2) 10.11 Agreement dated February 12, 1999 between Twine Media (Proprietary) Limited, First South Africa Corp., Ltd. and Leisureplanet.com(9) 10.12 Form of Employment Agreement of Pierre Kleinhans(9) 21.1 Subsidiaries of the Registrant(9) 27.1 Financial Data Schedule (9)
----------- (1) Incorporated by reference is the Registrant's Current Report on Form 8-K, Exhibit 4.1 (filed on September 10, 1997). (2) Incorporated by reference is the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997 (filed on September 29, 1997). (3) Incorporated by reference is the Registrant's Current Report on Form 8-K, Exhibit 4.1 (filed on October 31, 1997). (4) Incorporated by reference is the Registrant's Current Report on Form 8-K, Exhibit 1 (filed on June 14, 1996) as amended on Form 8-K/A (filed on August 16, 1996) and as amended on Form 8-K/A (filed on January 22, 1998). (5) Incorporated by reference is the Registrant's Current Report on Form 8-K, Exhibit 1 (filed on November 7, 1996) as amended on Form 8-K/A (filed on March 14, 1997). (6) Incorporated by reference is the Registrant's Current Report on Form 8-K, Exhibit 1 (filed on May 8, 1997) as amended on Form 8-K/A (filed on July 3, 1997). (7) Incorporated by reference is the Registrant's Registration Statement on Form S-1 (No. 33-99180) (filed on November 9, 1995), as amended on Form S-1/A No. 1, Form S-1/A No. 2, Form S-1/A No. 3 (filed on December 27, 1995, January 16, 1996 and January 24, 1996, respectively) and Form 10-Q for the fiscal quarter ended March 31, 2000. (8) Incorporated by reference is the Registrant's Registration Statement on Form S-1 (No. 333-33561) (filed on August 13, 1997), as amended on Form S-1/A No. 1, Form S-1/A No. 2 and For S-1/A No. 3 (filed on December 9, 1997 , January 22, 1998 and February 11, 1998, respectively). (9) Filed herewith. 68 (B) REPORTS ON FORM 8-K Not applicable. 69 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 in the City of Boca Raton, State of Florida, on the 13th day of October, 2000. LEISUREPLANET HOLDINGS, LTD. BY: /s/ Clive Kabatznik ------------------------------ Clive Kabatznik President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the date indicated.
Signature Title Date /s/ Michael Levy Chairman of the Board of October 13, 2000 ---------------------- Michael Levy Directors /s/ Clive Kabatznik President, Vice Chairman, October 13, 2000 ---------------------- Clive Kabatznik Chief Executive Officer, Chief Financial Officer, Director and Controller /s/ Cornelius Roodt Director October 13, 2000 ---------------------- Cornelius Roodt /s/ David BenDaniel Director October 13, 2000 ---------------------- David BenDaniel /s/ Chris Matty Director October 13, 2000 ---------------------- Chris Matty