10-Q

SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-Q
(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from			_____________	to ______________
STEINER LEISURE LIMITED (Exact name of Registrant as Specified in its Charter)
Commission File Number: 0-28972
	Commonwealth of The Bahamas				98-0164731
(State or other jurisdiction of incorporation or organization)					(I.R.S. Employer Identification No.)
		Suite 104A, Saffrey Square
		Nassau, The Bahamas			Not Applicable
		(Address of principal executive offices)			(Zip Code)
(242) 356-0006 (Registrant's telephone number, including area code)
			(Former name , former address and former fiscal year, if changed since last report)
Indicate by check 4 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.           [4 ]  Yes    [   ]  No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class				Outstanding
Common Shares, par value (U.S.) $.01 per share				17,298,856 (gross of 1,866,406 treasury shares) shares as of August 7, 2001

STEINER LEISURE LIMITED
INDEX
PART I. FINANCIAL INFORMATION		Page No.
ITEM 1.	Unaudited Financial Statements
	Condensed Consolidated Balance Sheets as of December 31, 2000 and June 30, 2001		3
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2000 and 2001		4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and 2001		5
	Notes to Condensed Consolidated Financial Statements		6
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		12
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk		18
PART II OTHER INFORMATION
ITEM 4.	Submissions of Matters to a Vote of Security Holders		19
ITEM 6.	Exhibits and Reports on Form 8-K		19
SIGNATURES			20
EXHIBIT INDEX			21

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS		December 31,			June 30,
		2000			2001
CURRENT ASSETS:					(Unaudited)
Cash and cash equivalents	$	31,020,000		$	24,927,000
Marketable securities		5,161,000			1,356,000
Accounts receivable		7,147,000			5,677,000
Accounts receivable - students, net		5,155,000			5,716,000
Inventories		10,053,000			11,126,000
Other current assets		2,000,000			3,036,000
Total current assets		60,536,000			51,838,000
PROPERTY AND EQUIPMENT, net		11,843,000			11,405,000
GOODWILL, net		13,983,000			13,617,000
OTHER ASSETS:
Trademarks and product formulations, net		203,000			184,000
License rights, net		713,000			700,000
Advances and deposits related to acquisitions		--			15,174,000
Other		949,000			2,332,000
Total other assets		1,865,000			18,390,000
Total assets	$	88,227,000		$	95,250,000
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	3,846,000		$	2,796,000
Accrued expenses		12,350,000			9,186,000
Current portion of deferred tuition revenue		6,194,000			5,925,000
Income taxes payable		1,173,000			1,115,000
Total current liabilities		23,563,000			19,022,000
LONG TERM DEFERRED TUITION REVENUE		81,000			86,000
MINORITY INTEREST		21,000			29,000
SHAREHOLDERS' EQUITY:
Preferred shares, $.0l par value; 10,000,000 shares authorized, none
issued and outstanding		--			--
Common shares, $.0l par value; 100,000,000 shares authorized,
16,628,000 shares issued in 2000 and 16,630,000
shares issued in 2001.		166,000			166,000
Additional paid-in capital		13,431,000			13,457,000
Accumulated other comprehensive loss		(484,000	)		(872,000	)
Retained earnings		80,820,000			92,733,000
Treasury shares, at cost, 1,866,000 shares in 2000 and 2001		(29,371,000	)		(29,371,000	)
Total shareholders' equity		64,562,000			76,113,000
Total liabilities and shareholders' equity	$	88,227,000		$	95,250,000

The accompanying notes to condensed consolidated financial statements are an integral part of these balance sheets.

STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 2001
(Unaudited)
	Three Months Ended June 30,						Six Months Ended June 30,
		2000			2001			2000			2001
REVENUES:
Services	$	24,427,000		$	26,948,000		$	48,246,000		$	53,040,000
Products		14,780,000			15,545,000			29,184,000			30,477,000
Total revenues		39,207,000			42,493,000			77,430,000			83,517,000
COST OF SALES:
Cost of services		18,442,000			20,541,000			36,522,000			40,269,000
Cost of products		10,935,000			11,621,000			21,595,000			22,770,000
Total cost of sales		29,377,000			32,162,000			58,117,000			63,039,000
Gross profit		9,830,000			10,331,000			19,313,000			20,478,000
OPERATING EXPENSES:
Administrative		2,069,000			2,161,000			4,089,000			4,315,000
Salary and payroll taxes		1,981,000			2,141,000			3,850,000			4,264,000
Goodwill amortization		164,000			185,000			287,000			370,000
Total operating expenses		4,214,000			4,487,000			8,226,000			8,949,000
Income from operations		5,616,000			5,844,000			11,087,000			11,529,000
OTHER INCOME (EXPENSE):
Interest income		368,000			452,000			782,000			972,000
Interest expense		(1,000	)		(6,000	)		(1,000	)		(6,000	)
Total other income (expense)		367,000			446,000			781,000			966,000
Income before provision for income taxes
and minority interest		5,983,000			6,290,000			11,868,000			12,495,000
PROVISION FOR INCOME TAXES		323,000			277,000			634,000			573,000
Income before minority interest		5,660,000			6,013,000			11,234,000			11,922,000
MINORITY INTEREST		(6,000	)		--			(6,000	)		(8,000	)
Net income	$	5,654,000		$	6,013,000		$	11,228,000		$	11,914,000
EARNINGS PER COMMON SHARE:
Basic	$	0.37		$	0.41		$	0.73		$	0.81
Diluted	$	0.36		$	0.40		$	0.70		$	0.78

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 2001
(Unaudited)
		Six Months Ended June 30,
			2000			2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$		11,228,000		$	11,914,000
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation and amortization			1,161,000			1,150,000
Minority interest			6,000			8,000
(Increase) decrease in-
Accounts receivable			867,000			818,000
Inventories			(1,166,000	)		(1,317,000	)
Other current assets			(748,000	)		(987,000	)
Other assets			243,000			(1,447,000	)
Increase (decrease) in-
Accounts payable			1,288,000			(947,000	)
Accrued expenses			(1,135,000	)		122,000
Deferred tuition revenue			(96,000	)		(264,000	)
Income taxes payable			(206,000	)		(31,000	)
Net cash provided by operating activities			11,442,000			9,019,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities			(988,000	)		--
Proceeds from maturities of marketable securities			500,000			3,073,000
Proceeds from sale of marketable securities			995,000			753,000
Capital expenditures			(280,000	)		(5,508,000	)
Acquisitions, net of cash acquired			(4,141,000	)		--
Proceeds from the sale of fixed assets			--			4,969,000
Advances and deposits related to acquisitions			--			(15,174,000	)
Net cash used in investing activities			(3,914,000	)		(11,887,000	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury shares			(4,676,000	)		(3,225,000	)
Net proceeds from stock option exercises			67,000			26,000
Net cash provided by (used in)
financing activities			(4,609,000	)		(3,199,000	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH			(256,000	)		(26,000	)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS			2,663,000			(6,093,000	)
CASH AND CASH EQUIVALENTS, beginning of period			23,893,000			31,020,000
CASH AND CASH EQUIVALENTS, end of period	$		26,556,000		$	24,927,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for-
Interest	$		3,000		$	6,000
Income taxes	$		816,000		$	611,000

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

STEINER LEISURE LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) BASIS OF PRESENTATION OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

The unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2000 and 2001 reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly present the results of operations for the interim periods. The results of operations for any interim period are not necessarily indicative of results for the full year.

The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.

(2) ORGANIZATION:

Steiner Leisure Limited (including its subsidiaries, where the context requires, "Steiner Leisure," "we," "us," "our" and the "Company" refer to Steiner Leisure Limited) provides spa services and skin and hair care products to passengers on board cruise ships worldwide and, commencing in July 2001, provides spa services through day spas primarily in Asia, the Pacific, the United States and the Caribbean. The Company, incorporated in the Bahamas, commenced operations effective November 1995 with the contributions of substantially all of the assets and certain of the liabilities of the Maritime Division (the "Maritime Division") of Steiner Group Limited, now known as STGR Limited ("Steiner Group"), a U.K. company and an affiliate of the Company, and all of the outstanding common stock of Coiffeur Transocean (Overseas), Inc. ("CTO"), a Florida corporation and a wholly owned subsidiary of Steiner Group. The contributions of the net assets o f the Maritime Division and CTO were recorded at historical cost in a manner similar to a pooling of interests.

In February 1999, the Company began operating the luxury health spa at the Atlantis Resort on Paradise Island in The Bahamas (the "Atlantis Spa"). In connection with the operation of the spa, the Company paid the resort's owner the greater of a minimum monthly rental and an amount based on our revenues at the spa. In December 2000, Sun International Bahamas Limited ("Sun International"), the operator of the Atlantis Resort, exercised its option to buy out the remaining term of the Company's lease and effective January 31, 2001, the Company no longer offered its services and products at the Atlantis Spa. The Company received $4.9 million from Sun International as consideration for the leasehold improvements made by the Company and did not recognize any gain or loss in connection with the buy-out. Commencing in July 2001, with our acquisition of a 60% interest in Mandara spas (see Note 10), we began again to offer products and services at the Atlantis spa.

In August 1999, the Company acquired the assets of Florida College of Natural Health, Inc. ("Florida College"). As a result of the acquisition, the Company currently operates through a wholly-owned subsidiary, a post-secondary school (comprised of four campuses) in Florida offering degree and non-degree programs in massage therapy and skin care and related areas. As the result of an acquisition in April 2000, the Company operates, through two wholly-owned subsidiaries, two additional post-secondary massage therapy schools (comprised of five campuses) in Maryland, Pennsylvania and Virginia (collectively, the "Additional Schools").

On October 19, 2000, the Company entered into an agreement to build and operate a luxury spa facility at the Aladdin Resort and Casino in Las Vegas, Nevada. The term of the lease of the facilities will be 15 years with a five year renewal option. The build-out is anticipated to cost approximately $13.0 million and the spa is expected to open at the end of the fourth quarter. Total costs of $5.0 million have been incurred through June 30, 2001 related to this agreement.

In July 2001, the Company entered into an agreement to build and operate a luxury spa facility at the Mohegan Sun Casino in Uncasville, Connecticut. The term of the lease of the facilities will be for 10 years with a five year renewal option. The build-out is anticipated to cost approximately $5 million. Total costs of $0.8 million have been incurred through June 30, 2001 related to this agreement.

(3)	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a)		Marketable Securities

Marketable securities consist of investment grade commercial paper. The Company accounts for marketable securities in accordance with Statement of Financial Accounting Standards Board Statement ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities" and, accordingly, all such instruments are classified as "available for sale" securities which are reported at fair value, with unrealized gains and losses reported as a separate component of shareholders' equity.

(b) Goodwill

Goodwill represents the excess of cost over the fair market value of identifiable net assets acquired. Goodwill is amortized on a straight-line basis over its estimated useful life of 20 years. The Company continually evaluates intangible assets and other long-lived assets for impairment whenever circumstances indicate that carrying amounts may not be recoverable. When factors indicate that the assets acquired in a business purchase combination and the related goodwill may be impaired, we recognize an impairment loss if the undiscounted future cash flows expected to be generated by the asset (or acquired business) are less than the carrying value of the related asset.

In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 141, "Business Combinations". SFAS 141 addresses financial accounting and reporting for business combinations and supercedes APB No. 16, "Business Combinations" and SFAS 38 "Accounting for Pre-acquisition Contingencies of Purchased Enterprises". All business combinations in the scope of SFAS 141 are to be accounted for under the purchase method. SFAS 141 is effective July 1, 2001. The adoption of SFAS 141 will not have an impact on the Company's financial position, results of operations or cash flows.

In July 2001, the FASB also issued SFAS 142, "Goodwill and Other Intangible Assets". SFAS 142 addresses financial accounting and reporting for intangible assets acquired individually or with a group of other assets (but not those acquired in a business combination) at acquisition. SFAS 142 also addresses financial accounting and reporting for goodwill and other intangible assets subsequent to their acquisition. With the adoption of SFAS 142, goodwill is no longer subject to amortization. Rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair value-based test. The impairment loss is the amount, if any, by which the implied fair value of goodwill is less than the carrying or book value. SFAS 142 is effective for fiscal years beginning after December 15, 2001. Impairment loss for goodwill arising from the initial application of SFAS 142 is to be reported as resulting from a change in accounting principle. The Company is currently assessing the impact of adopting SFAS 142, but does not believe the impact will be material to its financial position, results of operations or cash flows in the year of adoption.

(c) Income Taxes

Steiner Leisure files a consolidated tax return for its domestic subsidiaries. In addition, our foreign subsidiaries file income tax returns in their respective countries of incorporation, where required. Steiner Leisure follows SFAS 109, "Accounting for Income Taxes". SFAS 109 utilizes the liability method and deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of enacted tax laws. SFAS 109 permits the recognition of deferred tax assets. Deferred income tax provisions and benefits are based on the changes to the asset or liability from period to period.

(d) Translation of Foreign Currencies

Assets and liabilities of foreign subsidiaries are translated at the rate of exchange in effect at the balance sheet date; income and expenses are translated at the average rates of exchange prevailing during the year. The related translation adjustments are reflected in the accumulated other comprehensive income section of the consolidated balance sheets. Foreign currency gains and losses resulting from transactions, including intercompany transactions, are included in the condensed consolidated statements of operations. The majority of the Company's income is generated outside of the United States.

(e) Earnings per share

Basic earnings per share is computed by dividing the net income available to shareholders by the weighted average number of outstanding common shares. The calculation of diluted earnings per share is similar to that of basic earnings per share except that the denominator includes dilutive common share equivalents such as share options. The computation of weighted average common and common equivalent shares used in the calculation of basic and diluted earnings per share is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
		2000	2001	2000		2001
Weighted average shares outstanding used in
calculating basic earnings per share		15,359,000	14,763,000	15,474,000		14,763,000
Dilutive common share equivalents		494,000	426,000	453,000		478,000
Weighted average common and common equivalent
shares used in calculating diluted earnings per share		15,853,000	15,189,000	15,927,000		15,241,000
Options outstanding which are not included in the
calculation of diluted earnings per share because
their impact is antidilutive		906,000	1,081,000	906,000		1,004,000

(f) Recently Adopted Accounting Pronouncements

On January 1, 2001, the Company adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 133, as amended by SFAS 138, requires the recognition of all derivatives on the balance sheet as either assets or liabilities measured at fair value. Derivatives that do not qualify for hedge accounting must be adjusted to fair value through income. Adoption of SFAS 133 did not have a material impact on the consolidated financial statements, as no derivative contracts have been entered into.

(g) Reclassifications

Certain prior year amounts have been reclassified to conform to the current period presentation.

(4) ACQUISITIONS:

In April 2000, the Company acquired the assets that now constitute the Additional Schools in consideration of approximately $4.1 million (including purchase price adjustments) in cash. The transaction was accounted for under the purchase method of accounting. The purchase price exceeded the fair market value of net assets acquired resulting in goodwill of approximately $5.3 million.

Unaudited pro forma consolidated results of operations assuming the Additional Schools acquisition had occurred at the beginning of the period presented are as follows:

	Six Months Ended June 30, 2000
Revenues	$	78,858,000
Net income		11,400,000
Basic earnings per share		0.74
Diluted earnings per share		0.72

The above pro forma consolidated statement of operations is based upon certain assumptions and estimates which the Company believes are reasonable. The unaudited pro forma consolidated results of operations may not be indicative of the operating results that would have been reported had the acquisition been consummated on January 1, 2000, nor are they necessarily indicative of results which will be reported in the future.

(5) ADVANCES AND DEPOSITS RELATED TO ACQUISITIONS:

During 2001, the Company made $10 million in non-refundable deposits and $5.2 million in advances. The advances were interest-bearing and secured by certain assets of the target companies. The advances were repaid at closing (see Note 10).

(6) ACCRUED EXPENSES:

Accrued expenses consist of the following:

		December 31,		June 30,
		2000		2001
				(Unaudited)
Operative commissions	$	1,575,000	$	1,590,000
Guaranteed minimum rentals		2,975,000		3,711,000
Bonuses		651,000		572,000
Staff shipboard accommodations		470,000		332,000
Earn-out		715,000		--
Amount due for treasury shares		3,225,000		--
Other		2,739,000		2,981,000
Total	$	12,350,000	$	9,186,000

(7) LONG-TERM DEBT:

In July 2001, the Company entered into a credit agreement with a syndicate of banks that provides for a term loan of $45 million and a revolving facility of up to $10 million. Borrowings under the credit agreement are secured by substantially all of the assets of the Company and bear interest primarily at London Interbank Offered Rate ("LIBOR") based rates plus a spread that is dependent upon the Company's financial performance. Borrowings under the term loans were used to fund acquisitions (see Note 10) and under the revolving facility will be used for working capital needs.

The credit agreement contains customary affirmative, negative and financial covenants, including limitations on dividends, capital expenditures and funded debt, and requirements to maintain prescribed interest expense and fixed charge coverage ratios.

(8) COMPREHENSIVE INCOME:

SFAS 130, "Reporting Comprehensive Income," establishes standards for reporting and disclosure of comprehensive income and its components in financial statements. The components of Steiner Leisure's comprehensive income are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2000			2001			2000			2001
Net income	$	5,654,000		$	6,013,000		$	11,228,000		$	11,914,000
Unrealized gain on marketable securities,
net of income taxes		9,000			--			12,000			24,000
Foreign currency translation adjustments,
net of income taxes		(307,000	)		(48,000	)		(385,000	)		(412,000	)
Comprehensive income	$	5,356,000		$	5,965,000		$	10,855,000		$	11,526,000

(9) SEGMENT INFORMATION:

Information about the Spa Operations and Schools segments for the three and six months ended June 30, 2000 and 2001, is as follows:

		Three Months Ended June 30,							Six Months Ended June 30,
		2000				2001			2000				2001
Revenues:
Spa Operations	$		36,758,000		$		38,510,000	$		72,979,000		$		75,616,000
Schools			2,449,000				3,983,000			4,451,000				7,901,000
	$		39,207,000		$		42,493,000	$		77,430,000		$		83,517,000
Operating Income:
Spa Operations	$		6,124,000		$		5,606,000	$		11,609,000		$		10,856,000
Schools			(508,000	)			238,000			(522,000	)			673,000
	$		5,616,000		$		5,844,000	$		11,087,000		$		11,529,000

		December 31,		June 30,
		2000		2001
Identifiable Assets:
Spa Operations	$	61,878,000	$	68,861,000
Schools		26,349,000		26,389,000
	$	88,227,000	$	95,250,000

(10) SUBSEQUENT EVENTS:

On July 3, 2001, the Company purchased a 60% equity interest in each of Mandara Spa LLC and Mandara Spa Asia Limited (collectively referred to as "Mandara Spa"). Mandara Spa operates spas in more than 50 locations worldwide, principally in Asia and the Pacific, the United States and the Caribbean. Mandara Spa also provides spa services for Silversea Cruises, Norwegian Cruise Line and Orient Lines.

The Company paid $29.4 million in cash, $7.0 million in subordinated debt, $10.6 million in common shares and assumed $4.1 million of subordinated indebtedness. The seller parties have guaranteed certain income levels for an eighteen month period. If the income levels are not achieved, then amounts owned on the subordinated debt are reduced on a pro rata basis.

On July 12, 2001, the Company purchased the assets of GH Day Spas, Inc. and related entities, which assets, collectively, constitute eleven luxury day spas located at various locations within the United States, and own the "Greenhouse" mark. The Company paid $24.8 million in cash and $4.3 million in common shares. In addition, $3.0 million of, and 200,000 options in common shares can be earned by the sellers if certain income levels are obtained.

On July 31, 2001, the Company purchased the shares of DK Partners, Inc., which operates six day spas located in California. The Company paid $5.5 million in cash and assumed $2.9 million of subordinated indebtedness. In addition, $3.0 million in cash can be earned by the sellers if certain income levels are obtained.

The acquisitions were financed through a credit agreement entered into with a syndicate of banks (see Note 7). The transactions are being accounted for under the purchase method.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

General

Steiner Leisure Limited (including its subsidiaries and predecessors, "Steiner Leisure," "we," "us" and "our" refer to Steiner Leisure) is the leading worldwide provider of spa services. We sell our services and products to cruise passengers and commencing as of July 2001 at day spas primarily in Asia, the Pacific, the United States and the Caribbean. Payments to cruise lines are based on a percentage of our passenger revenues and, in certain cases, a minimum annual rental or a combination of both. We also sell our services and products through land-based channels. From February 1999 through January 2001, we offered services and products similar to those we offer on cruise ships at the luxury spa at the Atlantis Resort on Paradise Island in The Bahamas. Commencing in July 2001, with our acquisition of a 60% interest in Mandara Spas, we began again to offer our services and products at the Atlantis Spa. Also, in 1999, we began offering post-secondary degree and non-degree programs in massage therapy, skin care and related areas at our school (comprised of four campuses) in Florida. In 2000, we began offering post-secondary degree and non-degree programs in massage therapy at our two schools (comprised of five campuses) in Maryland, Pennsylvania and Virginia. In October 2000, we entered into an agreement to build and operate a luxury spa facility at the Aladdin Resort and Casino in Las Vegas, Nevada. In July 2001, we entered into an agreement to build and operate a luxury spa facility at the Mohegan Sun Casino in Uncasville, CT.

Steiner Leisure and Steiner Transocean Limited, our subsidiary that conducts our shipboard operations, are Bahamas international business companies ("IBCs"). The Bahamas does not tax Bahamas IBCs. Under current legislation, we believe that income from our maritime operations will be foreign source income that will not be subject to United States, United Kingdom or other taxation. Approximately, 85% of our income for the first six months of 2001 was not subject to United States or United Kingdom income tax. Earnings from Steiner Training and Elemis Limited, our United Kingdom subsidiaries, which accounted for a total of 9.4% of our pretax income for the first three months of 2001, will be subject to U.K. tax rates (generally up to 31%). The income from our United States subsidiaries, Steiner Beauty Products, Inc. (which sells products in the U.S.), Steiner Management Services, LLC (which performs administrative services) and Steiner Education Group, Inc. (which runs our schools through its subsidiaries) will generally be subject to U.S. federal income tax at regular corporate rates (generally up to 35%) and may be subject to additional U.S. federal, state and local taxes. When we commence the operations of our spa at the Aladdin Resort and Mohegan Sun Casinos, Steiner Spa Resorts (Nevada), Inc. and Steiner Spa Resorts (Connecticut), our U.S. subsidiaries through which those spas will be operated, also will be subject to these U.S. taxes. Our Bahamas subsidiaries which conducted our Atlantis Spa operations is not an IBC and has been subject to tax on its revenues of approximately one percent. To the extent that our income from non-maritime operations increases more rapidly than any increase in our maritime-related income, the percentage of our income subject to tax would increase.

Results of Operations

The following table sets forth for the periods indicated, certain selected income statement data expressed as a percentage of revenues:

	Three Months Ended June 30,				Six Months Ended June 30,
	2000		2001		2000		2001
Revenues:    Services	62.3	%	63.4	%	62.3	%	63.5	%
Products	37.7		36.6		37.7		36.5
Total revenue	100.0		100.0		100.0		100.0
Cost of sales:
Cost of services	47.0		48.3		47.2		48.2
Cost of products	27.9		27.4		27.9		27.3
Total cost of sales	74.9		75.7		75.1		75.5
Gross profit	25.1		24.3		24.9		24.5
Operating expenses:
Administrative	5.3		5.1		5.3		5.2
Salary and payroll taxes	5.1		5.0		5.0		5.1
Amortization of goodwill	0.3		0.4		0.3		0.4
Total operating expenses	10.7		10.5		10.6		10.7
Income from operations	14.4		13.8		14.3		13.8
Other income	0.9		1.1		1.0		1.2
Income before provision for income taxes	15.3		14.9		15.3		15.0
Provision for income taxes	0.8		0.7		0.8		0.7
Net income	14.5	%	14.2	%	14.5	%	14.3	%

Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000

Revenues. Revenues increased approximately 8.4%, or $3.3 million, to $42.5 million in the second quarter of 2001 from $39.2 million in the second quarter of 2000. Of this increase, $2.5 million was attributable to an increase in services revenues and $765,000 was attributable to an increase in products revenues. The increase in revenues was primarily attributable to an average of six additional spa ships in service in the second quarter of 2001 compared to the second quarter of 2000, and the commencement of operations at our Additional Schools on April 14, 2000 and an increase in full-time students at our Additional Schools. We had an average of 1,085 shipboard staff members in service in the second quarter of 2001 compared to an average of 1,040 shipboard staff members in service in the second quarter of 2000. Revenues per shipboard staff per day increased by 1.0% to $360 in the second quarter of 2001 from $358 in the second quarter of 2000.

Cost of Services. Cost of services as a percentage of services revenue increased to 76.2% in the second quarter of 2001 from 75.5% in the second quarter of 2000. This increase was due to increases in rent allocable on cruise ships covered by agreements that provide for increases in rent in the second quarter of 2001 compared to the second quarter of 2000. Additionally, costs were incurred on four ships that were only in service for a portion of the quarter due to unscheduled mechanical problems.

Cost of Products. Cost of products as a percentage of products revenue increased to 74.8% in the second quarter of 2001 from 74.0% in the second quarter of 2000. This increase was due to increases in rent allocable to products sales on cruise ships covered by agreements which provide for increases in rent in the second quarter of 2001 compared to the second quarter of 2000.

Operating Expenses. Operating expenses as a percentage of revenues decreased to 10.5% in the second quarter of 2001 from 10.7% in the second quarter of 2000 as a result of the Company being able to increase revenues without having to hire additional personnel and incur additional administrative expenses.

Provision for Income Taxes. The provision for income taxes decreased to an overall effective rate of 4.4% for the second quarter of 2001 from an overall effective rate of 5.4% for the second quarter of 2000 primarily due to the income earned in jurisdictions that do not tax our income being greater than our income earned in jurisdictions that tax our income.

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000

Revenues. Revenues increased approximately 7.9%, or $6.1 million, to $83.5 million for the six months ended June 30, 2001 from $77.4 million for the six months ended June 30, 2000. Of this increase, $4.8 million was attributable to increases in services revenues and $1.3 million was attributable to an increase in products revenues. The increase in revenues for the first half of 2001 compared to the same period in the prior year was primarily attributable to an average of five additional spa ships in service, and the commencement of operations at our Additional Schools in April 2000. We had 1,070 shipboard staff members in service on average during the six months ended June 30, 2001 compared to 1,046 shipboard staff members in service on average during the six months ended June 30, 2000. Revenues per shipboard staff per day increased by 1.4% in the first half of 2001 compared to the comparable period of 2000.

Cost of Services. Cost of services as a percentage of services revenue increased to 75.9% in the first six months of 2001 from 75.7% for the first six months of 2000. This increase was attributed to increases in rent allocable to cruise ships covered by agreements that provide for increases in rent in the first six months of 2001 compared to the same period in the prior year. This increase was partially offset by increases in productively and lower cost of services at our Additional Schools which were acquired in April 2000.

Cost of Products. Cost of products as a percentage of products revenue increased to 74.7% in the first six months of 2001 from 74.0% for the first six months of 2000. This increase was due to increases in rent allocable to product sales on cruise ships covered by agreements which provide for increases in rent for the first half of 2001 compared to the same period in the prior year.

Operating Expenses. Operating expenses as a percentage of revenues increased to 10.7% for the first six months of 2001 from 10.6% for the first six months of 2000 as a result of operating expenses and goodwill amortization of our Additional Schools, which were acquired in April 2000.

Provision for Income Taxes. The provision for income taxes decreased to an overall effective rate of 4.6% for the first six months of 2001 from an overall effective rate of 5.3% for the first six months of 2000 primarily due to the income earned in jurisdictions that do not tax our income being greater than our income earned in jurisdictions that tax our income.

Seasonality

Although certain cruise lines have experienced moderate seasonality, we believe that the introduction of cruise ships into service throughout a year has mitigated the effect of seasonality on our results of operations. In addition, decreased passenger loads during slower months for the cruise industry has not had a significant impact on our revenues. However, due to our dependence on the cruise industry, revenues may in the future be affected by seasonality.

Liquidity and Capital Resources

Cash flow from operating activities during the first six months of 2001 was $9.0 million compared to $11.4 million for the first six months of 2000.

Steiner Leisure had working capital of approximately $32.8 million at June 30, 2001 compared to $37.0 million at December 31, 2000.

In connection with the construction of the Atlantis Spa, we spent $2.5 million in 1999 and $3.1 million in 1998. These $5.6 million in capital expenditures were to be amortized over the fifteen-year term of our arrangement with the Atlantis Resort. Effective January 31, 2001, the operator of the Atlantis Resort exercised its option to buy out the remaining term of our lease and, as a result, effective January 31, 2001 we no longer offered our services and products at the Atlantis Spa. In connection with that buy-out we received $4.9 million from the operator of the Atlantis Resort and did not recognize any gain or loss connection with the buy-out. Commencing in July 2001, with our acquisition of a 60% interest in Mandara Spas (see Note 10), we began again to offer products and serves at the Atlantis Spa.

In April 2000, Steiner Leisure acquired the assets of a total of two post-secondary massage therapy schools located in Maryland, Pennsylvania and Virginia. The purchase price for the Additional Schools of approximately $4.1 million in cash was funded from our working capital.

On October 19, 2000, Steiner Leisure entered into an agreement to build and operate a luxury spa facility at the Aladdin Resort and Casino in Las Vegas, Nevada. The term of the lease of the facilities will be 15 years with a five-year renewal option if certain sales levels are achieved. The build-out will cost approximately $13.0 million and the spa is expected to open at the end of the fourth quarter. Total costs of $5.0 million have been incurred through June 30, 2001 related to this agreement. The build-out is expected to be funded from our working capital.

In July 2001, the Company entered into an agreement to build and operate a luxury spa facility at the Mohegan Sun Casino in Uncasville, Connecticut. The term of the lease of the facilities will be for 10 years with a five year renewal option. The build-out is anticipated to cost approximately $5 million. Total costs of $0.8 million have been incurred through June 30, 2001 related to this agreement.

On July 3, 2001, the Company purchased a 60% equity interest in each of Mandara Spa LLC and Mandara Spa Asia Limited (collectively referred to as "Mandara Spa"). Mandara Spa operates spas in more than 50 locations worldwide, principally in Asia and the Pacific, the United States and the Caribbean. Mandara Spa also provides spa services for Silversea Cruises, Norwegian Cruise Line and Orient Lines.

The Company paid $29.4 million in cash, $7.0 million in subordinated debt, $10.6 million in common shares and assumed $4.1 million of subordinated indebtedness. The seller parties have guaranteed certain income levels for an eighteen month period. If the income levels are not achieved then amounts owned on the subordinated debt are reduced on a pro rata basis.

On July 12, 2001, the Company purchased the assets of GH Day Spas, Inc. and other related entities, which assets, collectively, constitute eleven luxury day spas located at various locations within the United States, and own the "Greenhouse" mark. The Company paid $24.8 million in cash and $4.3 million in common shares. In addition, $3.0 million of, and 200,000 options in common shares can be earned by the sellers if certain income levels are obtained.

On July 31, 2001, the Company purchased the shares of DK Partners, Inc., which operates six day spas located in California. The Company paid $5.5 million in cash and assumed $2.9 million of indebtedness. In addition, $3.0 million in cash can be earned by the sellers if certain income levels are obtained.

The acquisitions were financed through a credit agreement entered into with syndicate of banks. The transactions are being accounted for under the purchase method.

In July 2001, the Company entered into a credit agreement with a syndicate of banks that provides for a term loan of $45 million and a revolving facility of up to $10 million. Borrowings under the credit agreement are secured by substantially all of the assets of the Company and bear interest primarily at London Interbank Offered Rate ("LIBOR") based rates plus a spread that is dependent upon the Company's financial performance. Borrowings under the term loan were used to fund acquisitions and under the revolving facility will be used for working capital needs. As of August 7, 2001, $45 million was outstanding under the term loan and the LIBOR rate plus the spread was 7.33%.

The credit agreement contains customary affirmative, negative and financial covenants, including limitations on dividends, capital expenditures and funded debt, and requirements to maintain prescribed interest expense and fixed charge coverage ratios.

Through August 7, 2001, we purchased a total of 1,902,150 of our common shares in the open market for an aggregate purchase price of approximately $30.0 million. The cash used to make such purchases was funded from our working capital. These purchases were made pursuant to a share purchase program authorized by our Board of Directors.

Inflation and Economic Conditions

Steiner Leisure does not believe that inflation has had a material adverse effect on revenues or results of operations. However, public demand for leisure activities, including cruises, is influenced by general economic conditions, including inflation. Periods of economic recession or high inflation, particularly in North America where a significant number of cruise passengers reside, could have a material adverse effect on the cruise industry upon which we are dependent. Current softness of the economy in North America and industry analysts' concerns with respect to cruise industry over-capacity could have a material adverse affect on our business, results of operation and financial condition.

Cautionary Statement Regarding Forward-Looking Statements

From time to time, including herein, Steiner Leisure may publish "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words "may," "will," "intend," "expect," "proposed," "anticipate," "believe," "estimate" and similar expressions are intended to identify such forward-looking statements.

Such forward looking statements include, among others, statements regarding:

• our proposed activities pursuant to agreements with cruise lines or land-based operators;

• our future land-based activities;

• scheduled introductions of new ships by cruise lines;

• our ability to generate sufficient cash flow from operations; and

• the extent of the taxability of our income.

Such statements involve known and unknown risks, uncertainties and other factors which may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, the following:

• negotiations with cruise lines or land-based spa lessors resulting in agreements which may not be as beneficial to us as anticipated or non-renewals of agreements;
• our dependence on cruise line concession agreements of specified terms and that are terminable by cruise lines with limited or no advance notice under certain circumstances;
• terminability with limited or no advance notice under certain circumstances of land-based spa agreements;
• our dependence on the continued viability of the cruise lines we serve and the resorts where we operate our land-based spas;
• our dependence on the cruise industry and our being subject to the risks of that industry;
• our obligation to make minimum payments to certain cruise lines and, possibly, to lessors of land-based spas that we may operate in the future, irrespective of the revenues received by us from customers;
• increase in rent payments accompanying renewal, or new cruise line agreements and land-based spa agreements;
• our dependence on a limited number of cruise companies and on a single product manufacturer;
• our dependence for success on our ability to recruit and retain qualified personnel;
• changes in the taxation of our Bahamas subsidiaries;
• changing competitive conditions including increased competition from providers of shipboard spa services;
• changes in laws and government regulations applicable to us and the cruise industry;
• our limited experience in land-based operations including with respect to the integration of acquired businesses;
• uncertainties beyond our control that could effect our ability to timely and cost-effectively construct land-based spa facilities;
• our ability to effectively integrate new acquired businesses or facilities;
• operation of facilities in countries with histories of economic and/or political instability;
• product liability or other claims against us by customers of our products or services;
• restriction on us as a result of our credit facility; and
• economic downturns that could reduce the number of customers on cruise ships and at resorts and that could otherwise reduce consumer demand for our products and services.

We assume no duty to update any forward-looking statements. The risks to which we are subject are more fully described under "Certain Factors That May Affect Future Operating Results" Steiner Leisure's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, filed with the Securities and Exchange Commission.

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk

The following information about the Company's market sensitive financial instruments constitutes a "forward-looking statement." The Company's major market risk exposure is changing interest rates. The Company's policy is to manage interest rate risk through the use of a combination of fixed and floating rate debt and interest rate derivatives based upon market conditions.

At June 30, 2001, the Company had no derivatives hedging corporate debt with variable interest rate exposure.

PART II - OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders

The annual meeting of shareholders of the Company (the "Annual Meeting") was held on June 4, 2001. At the Annual Meeting, the following matters were considered and voted upon:

Charles D. Finkelstein and Jonathan D. Mariner were elected as directors based on the results of the vote indicated below, and the terms of office of the following directors continued after the Annual Meeting: Clive E. Warshaw, Leonard I. Fluxman, Michèle Steiner Warshaw and Steve J. Preston. The votes cast with respect to the election of Messers. Finkelstein and Mariner were as follows: 12,988,835 shares were voted for each of the nominees and 6,897 shares were withheld from the votes for each of the nominees.

A proposal to amend the Company's amended and restated 1996 Share Option and Incentive Plan to increase the number of Common Shares available for grant thereunder from 3,500,000 to 5,000,000 was approved based on the following vote: 5,946,681 "for," 5,251,986 "against" and 1,287 abstentions.

A proposal to ratify the appointment of Arthur Andersen LLP as independent auditors for the Company for the fiscal year ended December 31, 2001 was approved based on the following vote: 12,917,187 votes "for," 74,445 votes "against" and 4,100 abstentions.

Item 6.  Exhibits and Reports on Form 8-K

1. Exhibits

The exhibits listed below have been filed as part of this Quarterly Report on Form 10-Q.

10.6           Amended and Restated 1996 Share Option and Incentive Plan

1. Reports on Form 8-K

No reports on Form 8-K were filed by Steiner Leisure during the quarter ended June 30, 2001.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: August 14, 2001

STEINER LEISURE LIMITED

(Registrant)

/s/ Clive E. Warshaw

Clive E. Warshaw

Chairman of the Board

/s/ Leonard I. Fluxman

Leonard I. Fluxman

President and Chief Executive Officer

/s/ Glenn J. Fusfield

Glenn J. Fusfield

Chief Operating Officer

/s/ Carl S. St. Philip

Carl S. St. Philip

Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

EXHIBIT INDEX

Exhibit No.		Description
10.6	Amended and Restated Non-Employee Directors' Share Option Plan

EX-10

EXHIBIT 10.6

STEINER LEISURE LIMITED

AMENDED AND RESTATED

1996 SHARE OPTION AND INCENTIVE PLAN

1. Purpose

The purpose of the Steiner Leisure Limited Amended and Restated 1996 Share Option and Incentive Plan (hereinafter referred to as this "Plan") is to (i) assist Steiner Leisure Limited (the "Company") in attracting and retaining highly qualified officers, key employees, directors and consultants for the successful conduct of its business; (ii) provide incentives and rewards for persons eligible for awards which are directly linked to the financial performance of the Company in order to motivate such persons to achieve long-range performance goals; and (iii) allow persons receiving awards to participate in the growth of the Company.

2. Definitions

2.1	"Board" means the Board of Directors of the Company.
2.2	"Change in Control" A Change in Control of the Company shall be deemed to occur if any of the following circumstances have occurred after the closing of an initial public offering of the Shares:

(i)	any transaction as a result of which a change in control of the Company would be required to be reported in response to Item 1(a) of the Current Report on Form 8-K as in effect on the date hereof, pursuant to Sections 13 or 15(d) of the Exchange Act, whether or not the Company is then subject to such reporting requirement, otherwise than through an arrangement or arrangements consummated with the prior approval of the Board;
(ii)	any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act (a) becomes the "beneficial owner," as defined in Rule 13d-3 under the Exchange Act, of more than 20% of the then outstanding voting securities of the Company, otherwise than through a transaction or transactions arranged by, or consummated with the prior approval of, the Board or (b) acquires by proxy or otherwise the right to vote for the election of directors, for any merger or consolidation of the Company or for any other matter or question, more than 20% of the then outstanding voting securities of the Company, otherwise than through an arrangement or arrangements consummated with the prior approval of the Board;
(iii)	during any period of 24 consecutive months (not including any period prior to the adoption of this Plan), Present Directors and/or New Directors cease for any reason to constitute a majority of the Board. For purposes of the preceding sentence, "Present Directors" shall mean individuals who, at the beginning of such consecutive 24 month period, were members of the Board and "New Directors" shall mean any director whose election by the Board or whose nomination for election by the Company's shareholders was approved by a vote of at least two-thirds of the Directors then still in office who were Present Directors or New Directors;
(iv)	any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act that is the "beneficial owner" as defined in Rule 13d-3 under the Exchange Act of 20% or more of the then outstanding voting securities of the Company commences soliciting proxies; and
(v)	with respect to a particular Employee, there occurs a "change in control," as such term is defined under any employment agreement or service agreement between the Company or any direct or indirect subsidiary thereof and such Employee, entered into before or after the date of adoption of this Plan (a "Change in Control Agreement"), which provides for, upon such change in control, the acceleration of the vesting of Share Options or otherwise affects awards that may be made under this Plan; provided, however, that this Section 2.2.(v) applies only with respect to the award or awards accelerated, or otherwise affected by such change in control under such Change in Control Agreement.

         2.3.    "Code" means the United States Internal Revenue Code of 1986, as currently in effect or hereafter amended.

         2.4.    "Committee" means the committee appointed to administer this Plan in accordance with Section 4 of this Plan.

         2.5.    "Disability" means "permanent and total disability" as defined in Section 22(e)(3) of the Code.

         2.6     "Employee" means any employee of the Company or any direct or indirect subsidiary of the Company (a "Subsidiary"), including officers of the Company and any Subsidiary, as well as such officers who are also directors of the Company.

         2.7.    "Exchange Act" means the Securities Exchange Act of 1934, as amended.

         2.8.    "Exercise Payment" means a payment described in Section 8 upon the exercise of a Share Option.

        2.9.    "Fair Market Value," unless otherwise required by any applicable provision of the Code or any regulations issued thereunder, means, as of any date, the mean of the high and low prices reported per Share on the applicable date (i) as quoted on the Nasdaq National Market or the Nasdaq Small Cap Market (each, a "Nasdaq Market") or (ii) if not traded on a Nasdaq Market, as reported by any principal national securities exchange in the United States on which it is then traded (or if the Shares have not been quoted or reported, as the case may be, on such date, on the first day prior thereto on which the Shares were quoted or reported, as the case may be), except that in the case of a Share Appreciation Right that is exercised for cash during the first three (3) days of the ten (10) day period set forth in Section 7.4 of this Plan, "Fair Market Value" means the highest daily closing price per Share as reported on such Nasdaq Market or exchange during such ten (10) day period. Notwithstanding the foregoing, if a Share Appreciation Right is exercised during the sixty (60) day period commencing on the date of a Change in Control, the Fair Market Value for purposes of determining the Share Appreciation shall be the highest of (i) the Fair Market Value per Share, as determined under the preceding sentence; (ii) the highest Fair Market Value per Share during the ninety (90) day period ending on the date of exercise of the SAR; (iii) the highest price per Share shown on Schedule 13D or an amendment thereto filed pursuant to Section 13(d) of the Exchange Act by any person holding 20% of the combined voting power of the Company's then outstanding voting securities; or (iv) the highest price paid or to be paid per Share pursuant to a tender or exchange offer as determined by the Committee. If the Shares are not reported or quoted on a Nasdaq Market or a national securities exchange, its Fair Market Value shall be as determined in good faith b y the Committee.

         2.10.    "Incentive Share Option" or "ISO" means any Share Option granted to an Employee pursuant to this Plan which is designated as such by the Committee and which complies with Section 422 of the Code or any successor provision.

         2.11.    "Non-qualified Share Option" means any Share Option granted to a Participant pursuant to this Plan which is not an ISO.

         2.12.    "Option Price" means the purchase price of one Share upon exercise of a Share Option.

         2.13.    "Performance Award" means an award described in Section 10 of this Plan.

         2.14.    "Retirement" means retirement from employment by the Company or any Subsidiary by a Participant who has attained the normal retirement age under any applicable retirement plan (which is qualified under Section 401(a) of the Code) of the Company in which such Participant participates.

         2.15.    "Restricted Shares" means Shares subject to restrictions on the transfer of such Shares, conditions of forfeitability of such Shares or any other limitations or restrictions as determined by the Committee.

         2.16.    "Settlement Date" means, (i) with respect to any Share Appreciation Rights that have been exercised, the date or dates upon which cash payment is to be made to the Participant, or in the case of Share Appreciation Rights that are to be settled in Shares, the date or dates upon which such Shares are to be delivered to the Participant; (ii) with respect to Performance Awards, the date or dates upon which Shares are to be delivered to the Participant; (iii) with respect to Exercise Payments, the date or dates upon which payment thereof is to be made; and (iv) with respect to grants of Shares, including Restricted Shares, the date or dates upon which such Shares are to be delivered to the Participant, in each case determined in accordance with the terms of the grant (including any award agreement) under which any such award was made.

         2.17.    "Share" or "Shares" means the common shares of the Company.

         2.18.    "Share" Appreciation" means the excess of the Fair Market Value per Share over the Option Price of the related Share, as determined by the Committee.

         2.19.    "Share Appreciation Right" or "SAR" means an award that entitles a Participant to receive an amount described in Section 7.2.

         2.20.    "Share Option" or "Option" means an award that entitles a Participant to purchase one Share for each Option granted.

3. Participation.

The participants in this Plan ("Participants") shall be those persons who are selected to participate in this Plan by the Committee and who are (i) Employees serving in managerial, administrative or professional positions, (ii) directors of the Company or (iii) consultants to the Company or any Subsidiary.

4. Administration.

This Plan shall be administered and interpreted by a committee of two or more members of the Board appointed by the Board. Members of the Committee shall be "Non-Employee Directors" as that term is defined for purposes of Rule 16b-3(b)(3)(i) under the Exchange Act. All decisions and acts of the Committee shall be final and binding upon all Participants. The Committee shall: (i) determine the number and types of awards to be made under this Plan; (ii) set the Option Price, the number of Options to be awarded and the number of Shares to be awarded out of the total number of Shares available for award; (iii) establish any applicable administrative regulations to further the purpose of this Plan; (iv) approve forms of award agreements between a Participant and the Company; and (v) take any other action desirable or necessary to interpret, construe or implement the provisions of this Plan. Prior to the appointment of the Committee by the Board, or if the Committee shall not be in existence at any time during the term of this Plan, this Plan shall be administered and interpreted by the Board and, in such case, all references to the Committee herein shall be deemed to refer to the Board.

5	Awards.
5.1.    Form of Awards. Awards under this Plan may be in any of the following forms (or a combination thereof): (I) Share Options; (ii) Share Appreciation Rights; (iii) Exercise Payment rights; (iv) grants of Shares, including Restricted Shares; or (v) Performance Awards. The Committee may require that any or all awards under this Plan be made pursuant to an award agreement between the Participant and the Company. Such award agreements shall be in such form as the Committee may approve from time to time. The Committee may accelerate awards and waive conditions and restrictions on any awards to the extent it may deem appropriate.
5.2.   Maximum Amount of Shares Available. The total number of Shares (including Restricted Shares, if any) granted, or covered by Options granted, under this Plan during the term of this Plan shall not exceed 5,000,000. Solely for the purpose of computing the total number of Shares optioned or granted under this Plan, there shall not be counted any Shares which have been forfeited and any Shares covered by Options which, prior to such computation, have terminated in accordance with their terms or have been canceled by the Participant or the Company.
5.3.    Adjustment in The Event of Recapitalization, Etc. In the event of any change in the outstanding Shares of the Company by reason of any share split, share dividend, recapitalization, merger, consolidation, combination or exchange of shares or other similar corporate change or in the event of any special distribution to the shareholders, the Committee shall make such equitable adjustments in the number of Shares and prices per Share applicable to Options then outstanding and in the number of Shares which are available thereafter for Option awards or other awards, both under this Plan as a whole and with respect to individuals, as the Committee determines are necessary and appropriate. Any such adjustment shall be conclusive and binding for all purposes of this Plan.
6.		Share Options.
6.1.     Grant of Award. The Company may award Options to purchase Shares, including Restricted Shares (hereinafter referred to as "Share Option Awards") to such Participants as the Committee authorizes and under such terms as the Committee establishes. The Committee shall determine with respect to each Share Option Award, and designate in the grant whether a Participant is to receive an ISO or a Non-qualified Share Option.
6.2.     Option Price. The Option Price per Share subject to a Share Option Award shall be specified in the grant, but, to the extent any Share Option is an Incentive Share Option, the Option Price in no event shall be less than the Fair Market Value per Share on the date of grant. Notwithstanding the foregoing, if the Participant to whom an ISO is granted owns, at the time of the grant, more than ten percent (10%) of the combined voting power of the Company, the Option Price per Share subject to such grant shall be not less than one hundred ten percent (110%) of the Fair Market Value.
6.3.    Terms of Option. A Share Option that is an ISO shall not be transferable by the Participant other than as permitted under Section 422 of the Code or any successor provision, and, during the Participant's lifetime, shall be exercisable only by the Participant. Non-qualified Share Options may be subject to such restrictions on transferability and exercise as may be provided for by the Committee in the terms of the grant thereof. A Share Option shall be of no more than ten (10) years' duration, except that an ISO granted to a Participant who, at the time of the grant, owns Shares representing more than ten percent (10%) of the combined voting power of the Company shall by its terms be of no more than five (5) years' duration. A Share Option by its terms shall vest in a Participant to whom it is granted and be exercisable only after the earliest of: (i) such period of time as the Committee shall determine and specify i n the grant, but, with respect to Employees, in no event less than one (1) year following the date of grant of such award; (ii) the Participant's death; or (iii) a Change in Control.
6.4    Exercise of Option. A Non-qualified Share Option is only exercisable by a Participant who is an Employee while such Participant is in active employment with the Company or a Subsidiary or within thirty (30) days after termination of such employment, except (i) during the three-year period after a Participant's death, Disability or Retirement; (ii) during a three-year period commencing on the date of a Participant's termination of employment by the Company or a Subsidiary other than for cause; (iii) during a three-year period commencing on the date of termination, by the Participant or the Company or a Subsidiary, of employment after a Change in Control unless such termination of employment is by the Company or a Subsidiary for cause; or (iv) if the Committee decides that it is in the best interest of the Company to permit other exceptions. A Non-qualified Share Option may not be exercised pursuant to this paragraph after the expiration date of the Share Option. An ISO is only exercisable by a Participant while the Participant is in active employment with the Company or a Subsidiary or within thirty (30) days after termination of such employment, except (i) during a one-year period after a Participant's death, where the Option is exercised by the estate of the Participant or by any person who acquired such Option by bequest or inheritance; (ii) during a three-month period commencing on the date of the Participant's termination of employment other than due to death, a Disability or by the Company or a Subsidiary other than for cause; or (iii) during a one-year period commencing on the Participant's termination of employment on account of Disability. An ISO may not be exercised pursuant to this paragraph after the expiration date of the Share Option. An Option may be exercised with respect to part or all of the Shares subject to the Option by giving written notice to the Company of the exercise of the Option. The Option Price for the Shares for which an Option is exercised shall be paid on or within ten (10) business days after the date of exercise in cash (by certified or bank cashier's check), in whole Shares owned by the Participant prior to exercising the Option, in a combination of cash and such Shares or on such other terms and conditions as the Committee may approve. The value of any Share delivered in payment of the Option Price shall be its Fair Market Value on the date the Option is exercised.
6.5.    Limitation Applicable to ISOS. The aggregate Fair Market Value, determined as of the date the related Share Option is granted, of all Shares with respect to which an ISO is exercisable for the first time by a Participant in any one calendar year, under this Plan or any other share option plan maintained by the Company, shall not exceed $100,000.
7.		Share Appreciation Rights.
7.1     General. The Committee may, in its discretion, grant SARs to Participants who have received a Share Option Award. The SARs may relate to such number of Shares, not exceeding the number of Shares that the Participant may acquire upon exercise of a related Share Option, as the Committee determines in its discretion. Upon exercise of a Share Option by a Participant, the SAR relating to the Share covered by such exercise shall terminate. Upon termination or expiration of a Share Option, any unexercised SAR related to that Option shall also terminate. Upon exercise of SARs, such rights and the related Share Options, to the extent of an equal number of Shares shall be surrendered to the Committee, and such SARs and the related Share Options shall terminate.
7.2    Award. Upon a Participant's exercise of some or all of the Participant's SARs, the Participant shall receive an amount equal to the value of the Share Appreciation for the number of SARs exercised, payable in cash, Shares, Restricted Shares, or a combination thereof, at the discretion of the Committee.
7.3    Form of Settlement. The Committee shall have the discretion to determine the form in which payment of an SAR will be made, or to permit an election by the Participant to receive cash in full or partial settlement of the SAR. Unless otherwise specified in the grant of the SAR, if a Participant exercises an SAR during the sixty (60) day period commencing on the date of a Change in Control, the form of payment of such SAR shall be cash, provided that such SAR was granted at least six (6) months prior to the date of exercise, and shall be Shares if such SAR was granted six (6) months or less prior to the date of the exercise. Settlement for exercised SARs may be deferred by the Committee in its discretion to such date and under such terms and conditions as the Committee may determine.
7.4.    Restrictions on Cash Exercise. Except in the case of an SAR that was granted at least six (6) months prior to exercise and is exercised for cash during the sixty (60) day period commencing on the date of the Change in Control, any election by a Participant to receive cash in full or partial settlement of the SAR, as well as any exercise by a Participant of the Participant's SAR for such cash, shall be made only during the period beginning on the third business day following the date of release of the quarterly or annual summary statements of sales and earnings and ending on the twelfth business day following such date.
7.5.    Restrictions. An SAR is only vested, exercisable and transferable during the period when the Share Option to which it is related is also vested, exercisable and transferable, respectively. If the Participant is a person subject to Section 16 of the Exchange Act, the SAR may not be exercised within six (6) months after the grant of the related Share Option, unless otherwise permitted by law.
8		Exercise Payments.
The Committee may grant to Participants holding Share Options the right to receive payments in connection with the exercise of a Participant's Share Options ("Exercise Payments") relating to such number of Shares covered by such Share Options, and subject to such restrictions and pursuant to such other terms as the Committee may determine. Exercise Payments shall be in an amount determined by the Committee in its discretion, which amount shall not be greater than 60% of the excess of the Fair Market Value (as of the date of exercise) over the Option Price of the Shares acquired upon the exercise of the Option. At the discretion of the Committee, the Exercise Payment may be made in cash, Shares, including Restricted Shares, or a combination thereof.
9.		Grants of Shares.
9.1.    Awards. The Committee may grant, either alone or in addition to other awards granted under this Plan, Shares (including Restricted Shares) to such Participants as the Committee authorizes and under such terms (including the payment of a purchase price) as the Committee establishes. The Committee, in its discretion, may also make a cash payment to a Participant granted Shares or Restricted Shares under this Plan to allow such Participant to satisfy tax obligations arising out of receipt of such Shares or Restricted Shares.
9.2.    Restricted Share Terms. Awards of Restricted Shares shall be subject to such terms and conditions as are established by the Committee. Such terms and conditions may include, but are not limited to, the requirement of continued service with the Company, achievement of specified business objectives and other measurements of individual or business unit performance, the manner in which such Restricted Shares are held, the extent to which the holder of such Restricted Shares has rights of a shareholder and the circumstances under which such Restricted Shares shall be forfeited. The Participant shall not be permitted to sell, assign, transfer, pledge or otherwise encumber Shares received pursuant to this Section 9 prior to the date on which any applicable restriction established by the Committee lapses. The Participant shall have, with respect to Restricted Shares, all of the rights of a shareholder of the Company, inclu ding the right to vote the Restricted Shares and the right to receive any dividends, unless the Committee shall otherwise provide in the grant of such Restricted Shares. Restricted Shares may not be sold or transferred by the Participant until any restrictions that have been established by the Committee have lapsed. Upon the termination of employment of a Participant who is an Employee during the period any restrictions are in effect, all Restricted Shares shall be forfeited without compensation to the Participant unless otherwise provided in the grant of such Restricted Shares.
10.		Performance Awards.

The Committee may grant, either alone or in addition to other awards granted under this Plan, awards of Shares based on the attainment, over a specified period, of individual performance targets or other parameters to such Participants as the Committee authorizes and under such terms as the Committee establishes. Performance Awards shall entitle the Participant to receive an award if the measures of performance established by the Committee are met. The Committee, shall determine the times at which Performance Awards are to be made and all conditions of such awards. The Participant shall not be permitted to sell, assign, transfer, pledge or otherwise encumber Shares received pursuant to this Section 10 prior to the date on which any applicable restriction or performance period established by the Committee lapses. Performance Awards may be paid in Shares, Restricted Shares or other securities of the Company, cash or any other form of property that the Committee shall determin e. Unless otherwise provided in the Performance Award, a Participant who is an Employee must be an Employee at the end of the performance period in order to receive a Performance Award, unless the Participant dies, has reached Retirement or incurs a Disability or under such other circumstances as the Committee may determine.

11.	General Provisions.
11.1.    Any assignment or transfer of any awards granted under this Plan may be effected only if such assignment or transfer does not violate the terms of the award.
11.2.    Nothing contained herein shall require the Company to segregate any monies from its general funds, or to create any trusts, or to make any special deposits for any immediate or deferred amounts payable to any Participant for any year.
11.3.    Participation in this Plan shall not affect the Company's right to discharge a Participant or constitute an agreement of employment between a Participant and the Company.
11.4    This Plan shall be interpreted in accordance with, and the enforcement of this Plan shall be governed by, the laws of The Bahamas, subject to any applicable United States federal or state securities laws.
11.5.    The headings preceding the text of the sections of this Plan have been inserted solely for convenience of reference and do not affect the meaning or interpretation of this Plan.

12.		Amendment, Suspension or Termination.
12.1.    General Rule. Except as otherwise required under applicable rules of a Nasdaq Market or a securities exchange or other market where the securities of the Company are traded or applicable law, the Board may suspend, terminate or amend this Plan, including, but not limited to, such amendments as may be necessary or desirable resulting from changes in the United States federal income tax laws and other applicable laws, without the approval of the Company's shareholders or Participants; provided, however, that no such action shall adversely affect any awards previously granted to a Participant without the Participant's consent.
12.2.    Compliance With Rule 16B-3. With respect to any person subject to Section 16 of the Exchange Act, transactions under this Plan are intended to comply with the requirements of Rule 16b-3 under the Exchange Act, as applicable during the term of this Plan. To the extent that any provision of this Plan or action of the Committee or its delegates fail to so comply, it shall be deemed null and void.
13.	Effective Date and Duration of Plan.

This Plan shall be effective on August 15, 1996. No award shall be granted under this Plan subsequent to August 15, 2006.

14. Tax Withholding.

The Company shall have the right to (i) make deductions from any settlement of an award, including delivery or vesting of Shares, or require that Shares or cash, or both, be withheld from any award, in each case in an amount sufficient to satisfy withholding of any foreign, federal, state or local taxes required by law or (ii) take such other action as may be necessary or appropriate to satisfy any such withholding obligations. The Committee may determine the manner in which such tax withholding shall be satisfied and may permit Shares (rounded up to the next whole number) to be used to satisfy required tax withholding based on the Fair Market Value of such Shares as of the Settlement Date of the applicable award.