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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 [FEE REQUIRED]
For the fiscal year ended JUNE 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to ________
Commission file number 0-27494
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 Identification No.)
incorporation or organization)
CLARENDON HOUSE, CHURCH STREET, HAMILTON HM CX, BERMUDA
------------------------------------------------------------
(Address of Principal Executive Offices with Zip Code)
Registrant's telephone number, including area code (441) 295-1422
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 [_]
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 Registrants 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. [ ]
The aggregate market value of the Registrants Common Stock held by
non-affiliates of the Registrant as of September 5, 1996, was $15, 376,410.
As of September 5,1996 there were 2,300,000 shares of the Registrant's Common
Stock outstanding and 1,842,500 shares of the Registrant's Class B Common Stock.
2
PART 1
ITEM 1. DESCRIPTION OF BUSINESS
First South Africa Corp., Ltd., ("the Company") was organized to
acquire, own and operate seasoned, closely held companies in South Africa with
annual sales in the range of approximately $5 to $50 million. Since its initial
public offering on January 24, 1996, the Company has acquired through its wholly
owned subsidiary, First South African Holdings (Pty) Ltd.("FSAH"), six
businesses based in South Africa ("the Acquisitions") that are as a group
engaged in the following industry segments:
1. High quality plastic packaging machinery.
2. Metal washers used in the fastener industry.
3. Air conditioning and refrigeration machinery components.
4. Processed foods.
Upon completion of its initial public offering the Company acquired
Starpak (Pty) Limited, which is engaged in the manufacture of high quality
plastic packaging machinery; L.S. Pressing (Pty) Limited, which is engaged in
the manufacture of washers for the use in the fastener industry; and Europair
Africa (Pty) Ltd., which is engaged in the manufacture and supply of air
conditioning products. In April 1996, L.S. Pressings acquired Crowle Investments
(Pty) Limited,(trading as Paper & Metal Industries) a small manufacturer of
rough washers for use in the fastener industry. In April 1996, Europair acquired
the assets and business of Universal Refrigeration, an agent and supplier of
refrigeration products. In June 1996, FSAH acquired Piemans Pantry (Pty)
Limited, a manufacturer and distributor of high quality meat pies.
FSAH acts as a vehicle for the management of the Company's business
interest in South Africa. FSAH monitors the operational performance of its
subsidiaries and seeks out prospective acquisition candidates in businesses that
compliment or are otherwise related to the Company's existing acquisitions, and
in other businesses that may be identified by the Company's management.
HISTORY
The Company was founded in September 1995 in response to management's
perception of a growing global interest in South Africa as an emerging market.
The Company believes that the recent relaxation of trade and financial sanctions
and the reintegration of South Africa into the world economic community may
increase the opportunity for improved growth in the South African economy in
general and more particularly in the industry segments in which the Company is
engaged.
STRATEGY
The Company intends to focus its efforts on businesses related to
infrastructure development, and consumer goods that the Company believes are
well situated to benefit from South Africa's on-going transformation into an
active participant in the global market place. The Company's strategy is to
expand and improve its current operations in the industry sectors in which its
operating subsidiaries are currently engaged, and in other related industry
sectors, by acquiring mid-size, closely-held, companies in South Africa that
operate efficiently, profitably and have seasoned management. The Company
believes that it can acquire these types of companies at lower multiples of
earnings than comparable companies would command in the United States. The
Company seeks to benefit from the combination of business factors that South
Africa has to offer, which includes a skilled work force, effective and
expanding infrastructure and increasing access to foreign markets. The Company
may also consider investments in businesses that are located in other countries,
or are engaged in other industries, and in South African companies, the
securities of which are publicly traded, that meet the Company's price and
quality requirements. The Company has and will
3
continue to identify potential acquisition candidates through the industry
contacts of management and the managements of its subsidiaries, as well as
through other general business sources. To date, the Company has financed its
acquisitions through a combination of cash, issuance of shares of stock of FSAH
or the Company and debt financing. The Company anticipates that it will continue
to follow similar financing strategies in its future acquisitions.
THE ACQUISITIONS
The following is a brief description of the businesses in each of the
Company's industry segments:
PLASTIC PACKAGING MACHINERY
STARPAK
Starpak manufactures high quality plastic packaging machinery and
does business under the name of Levy and Smith. Starpak's operations are located
in Johannesburg with service offices in Durban and Cape Town. Machinery
manufactured by Starpak is generally used by manufacturers to provide low cost
and high quality packaging for a broad spectrum of consumer goods. Its machines
are used in industries such as food, baking, beverages, cosmetics,
pharmaceuticals, chemicals, motor oils, printing, hardware and general trade.
Starpak markets its products directly and through independent sales agents. Over
90% of Starpak's sales are generated through its in-house sales force. During
the last fiscal year no one customer accounted for more than 10% of Starpak's
annual sales. Prior to such time, Albany Bakeries, which developed a new bread
packaging product, and the Premier Group, which purchased a wide range of bakery
packaging equipment, accounted for more than 10% of Starpak's annual sales in
the previous two fiscal years.
Starpak competes on the basis of quality. Starpak faces competition
from major competitors whose machines are frequently less expensive, although
Starpak believes that they are of lower quality than machines produced by
Starpak. To the best of its knowledge, management estimates that the total
market for shrink packaging machinery in South Africa in 1995 was approximately
$10,000,000. Of this total market, Starpak has an estimated 48.3% share, with
the remainder of the market being serviced by a number of small packaging
machine manufacturing companies. In the past, Starpak has experienced a seasonal
down-turn in its business during the period commencing mid-December and ending
at the end of February. This down-turn appears to be due to the main summer
holidays in South Africa that occur during such period. The most active period
for receipt of orders has historically been from July to the beginning of
December. As of August 31, 1996, Starpak's backlog of firm orders was
approximately $1,225,000 . On August 31, 1995, Starpak's backlog of firm orders
was approximately $1,000,000 .
Although Starpak's principal suppliers are foreign companies, each
principal supplier is represented locally in South Africa and to date, Starpak
has not experienced material difficulties or delays in obtaining products or
supplies. Almost all local suppliers are on thirty-day terms, while items
purchased directly from overseas suppliers require irrevocable letters of
credit. Motors, which comprise approximately 5% of the cost of the machines, are
imported directly from non-African sources. Other products obtained by Starpak
from its suppliers include electronic controllers, pneumatics, overloads,
contractors, switches and Teflon tape.
FASTENER INDUSTRY
L.S. PRESSINGS
L.S. Pressings and its subsidiary, Paper & Metal Industries,
manufacture washers for supply to distributors of nuts and bolts who in turn
distribute L. S. Pressing products to end users in various industries and
markets. L.S. Pressings' operations are located in Johannesburg. L.S Pressings
manufactures a full
4
range of washers to metric, capital imperial as well as U.S. specifications. In
addition, it manufactures special size washers to suit customers specific
requirements. Washers are manufactured from mild steel, black (heat tempered)
steel, copper, brass, fiber and various plastics. Washers are used in numerous
industries, including automotive, electrical, furniture and construction
industries. They are also used for sealing purposes, water piping and as a
non-conductive element. L.S. Pressings has no sales representatives with orders
being placed directly by customers. Substantially all of the customers are
distributors who resell the washers to end users. During the last three fiscal
year no one customer accounted for more than 10% of L.S. Pressings' annual
sales.
L.S. Pressings believes that it is the single largest supplier of
washers in the South African market, although a number of competitors compete
with L.S. Pressings in particular niches. L.S. Pressings' strongest competition
is from importers of standard size washers manufactured in Taiwan. However,
importers of Taiwanese washers generally do not offer a "one-stop" source of
supply and L.S. Pressings believes it competes successfully with respect to
pricing. As a result, the importers have not had a substantial impact on L.S.
Pressings' sales although there can be no assurance that this will remain the
case. L.S. Pressings believes that no other South African manufacturer of
washers offers a comparable range of products. L.S. Pressings typically
manufactures to order and delivers within approximately 10 days of order.
Backlog numbers are therefore not significant for L.S. Pressings and tend to
vary widely. However, as of August 31, 1996, L.S. Pressings' firm order backlog
was $65,000 as compared with $90,000 on August 31, 1995.
All of L.S. Pressings' suppliers are local companies. In the last
year there has been a shortage of scrap metal in South Africa, although L.S.
Pressings has had no material problems obtaining scrap required for its
operations. Spring washers, which comprise approximately 10% of L.S. Pressings'
annual sales, are manufactured using a different process to that adopted by L.S.
Pressings. As a result, L.S. Pressings purchases spring washers from
locally-represented suppliers. Apart from the month of December when its
factories are closed, there is no particular seasonality to these businesses.
AIR CONDITIONING AND REFRIGERATION
EUROPAIR
Europair manufactures and supplies products, parts and accessories to
the heating, ventilation and air conditioning industry ("HVAC") in South Africa.
Europair's operations are located in Johannesburg with branch offices in Durban,
Cape Town, Port Elizabeth, East London, Nelspruit and Pietersburg. Europair
seeks to provide a single source of components and accessories for original
equipment manufacturers, contractors and duct shops in South Africa and
neighboring countries. Its products include grilles, flexible ducting, flanging,
insulation, humidifiers, fire dampers and other accessory products for the air
conditioning industry. Europair markets its products primarily through its sales
personnel directly to air conditioning and building contractors as well as to
other agents. During the last three fiscal years no one customer accounted for
more than 10% of Europair's annual sales.
Europair believes it is unique in South Africa in its increasing
capacity as a full-range supplier to the HVAC industry and believes it does not
currently compete directly with any supplier that offers as comprehensive a
range of products. Europair does, however, have a number of competitors in each
of its product groups. Increasingly, the threat of competition is presented by
less expensive imports, although such imports are sometimes lower quality and
the importers are generally unable to stock a broad range of products. As
Europair is in the air conditioning and refrigeration business it experiences a
seasonality that corresponds with the summer months in the Southern hemisphere.
Typically, sales are higher in the months of October through February. As of
August 31, 1996 Europair's firm order backlog was $93,562 as compared with
$56,557 on August 31, 1995.
5
Europair relies on local suppliers to provide it with aluminum
extrusions, aluminum foil, fiberglass and other insulation material, fire
dampers, steel and wire in the manufacturing of Europair's products and for
inclusion in other products sold by Europair. The principal foreign suppliers of
Europair provide it with humidifiers, glue, air valves, vinyl, polyester, access
doors and fans. Ordinarily, Europair does not experience material difficulty in
procuring the raw materials required for its production processes. Aluminum
prices are, however, commodity driven and change frequently. The Durban factory
experienced a substantial inventory shortage with respect to its aluminum
requirements in October and November 1994 due to a countrywide shortage of
aluminum. In response to such shortage Europair has accumulated and maintains a
substantial stockpile of aluminum.
UNIVERSAL REFRIGERATION
Universal Refrigeration has been renamed Europair Refrigeration, it
is a wholly owned subsidiary of Europair engaged as an agent in the distribution
and supply of various refrigeration related products. Its sales are generated
through Europair's existing national sales network.
PROCESSED FOODS
PIEMANS PANTRY
Piemans Pantry manufactures, sells and distributes quality meat,
vegetarian and fruit pies, both in the baked and frozen, unbaked form. The
business manufactures, markets and distributes from its headquarters in
Krugerdorp, Gauteng and has a regional sales office in KwaZulu-Natal. The
company strives to emphasize the highest standards of quality control and
consistency of product. It's major customers are independent retail baker shops,
pie shop franchises, in-store bakeries, national bread bakery groups,
institutional cafeterias and convenience stores. The company's sales are
conducted through its own employees, as well as through distributors/agents.
Approximately 71% of the company's sales are internally generated with the
remainder through agents. During the last fiscal year the Spar Group (a
cooperative of independent supermarkets) accounted for 17% of the company's
sales, while the London Pie Company (a pie store franchise chain) contributed
10% of the company's sales. In the previous two fiscal years, no company
accounted for more than 10% of Piemans' sales.
Piemans competes on the basis of quality. It faces competition from a
number of manufacturers, primarily those supplying to the lower end of the
market. Piemans believes that it has only one significant competitor and that
its market share is currently around 20%. Piemans business is slightly stronger
in the months of July through October as well as in December. However, these
increases are not significant to make this a seasonal business. Piemans Pantry
manufactures to order on a daily basis. Backlog is therefore not counted, nor is
it relevant in the analysis of Piemans' business.
Piemans' principal suppliers for its pastry and filling ingredients
are both local and foreign companies. All suppliers except one have immediate
alternative sources. The company selects its suppliers on the basis of quality
and price and to date it has no difficulty in obtaining sufficient supplies.
REGULATION
The Company's South African business operation will be 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. The Company's management believes that each of its subsidiaries is
in substantial compliance with applicable South African law and the regulations
promulgated under such law
6
and that no violation of any such law or regulation by any such company has
occurred which would have a material adverse effect on the financial condition
of the Company.
EMPLOYEES
As of June 30, 1996, in addition to its President who devotes
substantially all of his business time to the Company, the Company had only one
full-time salaried employee. "See Management - Employment Agreements". As of
such date, FSAH had no full-time salaried employees. The Company intends to add
employees as necessary to meet management and other requirements from time to
time. On July 1, 1996 FSAH entered into an employment agreement with Cornelius
J. Roodt to act as its Managing Director. -"See Employment Contracts". As of
June 30, 1996, the Company's operating subsidiaries employed 780 people.
ITEM 2. PROPERTIES
The Company's principal executive offices are located at Clarendon
House, Church Street, Hamilton, HM CX, Bermuda. The Company's U.S. subsidiary,
First South African Management Corp.,(FSAM), a Delaware corporation incorporated
in September 1995, has its principal executive offices at 2665 South Bayshore
Drive, Suite 702, Coconut Grove, Florida 33133. FSAM offices consist of
approximately 2,000 square feet of office space in an office section of Coconut
Grove, Florida which FSAM occupies on a three year lease agreement with a
monthly rental of $2,400. FSAH's principal executive offices are located in the
facilities of Europair in South Africa.
Starpak and L.S. Pressings operate out of a facility made up of
adjacent buildings owned by Levy & Smith Properties (Proprietary) Limited, a
wholly owned subsidiary of Starpak. The facility has a total lot size of
approximately 30,000 square feet. The facility has three floors at 85% coverage
equal to a total of 76,500 square feet. The Company anticipates that it will
require additional space and is considering the rental of additional space at a
nearby location. Starpak also has branches in Durban and Cape Town, South
Africa.
Europair operates from premises and facilities that it owns in
Gauteng and from leased premises in KwaZulu-Natal, Western Cape and the Eastern
Cape. The Company has granted Mr. Bruce Thomas (the Chief Executive Officer of
Europair) the option to acquire Europair's premises for $890,868 and to enter
into a ten year lease with Europair with respect to such premises for an initial
rental rate of $110,111 per annum. Europair believes this property is well
suited to Europair's operations and can accommodate relatively large increases
in manufacturing and storage. The original purchase of such property was
financed by a loan from United Bank, secured by a bond and mortgage on the
property. The outstanding liability with respect to such loan, as of June 30,
1996, was $477,126. Europair's leased properties are located in Durban, Cape
Town and Port Elizabeth.
Piemans operates from premises and facilities that it owns in
Krugersdorp. The facility has two floors with a total size of 38,000 square
feet. In addition, Piemans rents a retail facility in Krugersdorp, as well as an
office space in KwaZulu-Natal.
Paper & Metal Industries rents two adjacent industrial properties in
Germiston, Gauteng. The total size of the facility is 8,975 Square feet. Paper &
Metal have a two year lease at approximately $34,744 per annum.
7
ITEM 3. LEGAL PROCEEDINGS
Neither the Company and its subsidiaries, nor any of Starpak, L.S.
Pressings or Europair, are subject to any material legal proceedings.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On January 24, 1996 , the Company's Common stock and Units were
listed for quotation on the SmallCap Market on the Nasdaq System under the
symbols FSACF and FSAUF, respectively. The following table sets forth, for the
periods indicated the high and low bid prices for the Common Stock and Units as
reported by Nasdaq. Quotations reflect prices between dealers, without retail
mark-up, mark down or commissions and may not necessarily represent actual
transactions.
High Bid
---- ---
Common Stock
- ------------
1996
3rd Quarter $4.75 $2.88
4th Quarter $6.00 $3.00
1997
1st Quarter
(through October 7, 1996) $6.00 $5.625
High Bid
---- ---
Units
- -----
1996
3rd Quarter $6.50 $5.38
4th Quarter $10.00 $5.25
1997
1st Quarter
(through October 7, 1996) $11.00 $9.375
The Company has not declared or paid any dividends on the Common
Stock and does not intend to declare or pay any dividends on the Common Stock in
the foreseeable future. The Company currently intends to reinvest earnings in
the development and expansion of its business. The declaration of dividends in
the future will be at the election of the Board of Directors and will depend
upon earnings, capital requirements and the financial position of the Company,
general economic conditions and other relevant factors.
As of August 7, 1996, there were approximately 1,429 shareholders,
both of record and beneficial, of the Company's Common Stock.
8
ITEM 6. SELECTED FINANCIAL DATA
SELECTED HISTORICAL AND PRO FORMA
CONDENSED COMBINED FINANCIAL DATA
The following selected financial data for Starpak and L.S. Pressings,
the Company's predecessor, as of and for the periods presented have been derived
from the combined audited financial statements of Starpak and L.S. Pressings.
The unaudited financial data, in the opinion of management, contain all
adjustments (consisting only of normal and recurring adjustments) necessary for
a fair presentation of such data. The result of the interim periods are not
necessarily indicative of the results of a full year. 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 FINANCIAL INFORMATION
PREDECESSOR COMPANY (1) THE COMPANY
----------------------- -----------
MARCH 1, 1995
TO JUNE 30, JULY 1, 1995
YEARS ENDED FEBRUARY 28, 1995 TO JUNE 30, 1996
------------------------------------------------ --------- ----------
1992 1993 1994 1995
STATEMENT OF OPERATIONS DATA $ $ $ $ $ $
--------- --------- --------- --------- --------- ----------
Net sales..................... 5,374,147 6,256,667 6,851,457 8,826,856 3,297,507 14,911,097
Total operating expenses...... 4,744,035 5,818,092 6,414,144 8,179,083 292,806 19,833,942(3)
Operating income.............. 630,112 438,575 437,313 647,773 334,701 (4,922,845)
Interest paid................. 219,424 223,314 180,960 152,163 18,801 856,733(4)
Net income before tax......... 361,678 269,251 321,319 536,440 359,045 (5,248,942)
Net Income after tax.......... 271,036 138,839 207,916 313,882 213,829 (5,737,560)
PREDECESSOR COMPANY (1) THE COMPANY
FEBRUARY 28, JUNE 30,
------------------------------------------- --------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
BALANCE SHEET DATA $ $ $ $ $
--------- --------- --------- --------- ----------
Total assets.................. 4,446,132 3,976,769 3,976,974 5,161,709 23,604,994
Long term liabilities......... 1,562,095 1,140,244 1,112,391 1,123,665 2,361,372
Net working capital........... 1,305,961 1,177,250 1,194,931 1,366,602 4,624,417
Stockholders' equity.......... 2,280,434 1,527,356 1,580,826 1,828,656 12,792,376
- -----------
(1) Represents the combined results for Starpak and L.S. Pressings, which
are deemed to be the predecessor of the Company due to the common
ownership and control of such entities. The Company's fiscal year end
is June 30.
(2) No dividends were declared or paid during the periods presented.
(3) Includes a one time non-cash escrow shares charge of $6,314,000 related
to the release of 1.1 million shares under the terms of an Earnout
Escrow Agreement between the Company, certain shareholders and the
Underwriter of the Company's Initial Public Offering.
(4) Includes a non-cash charge of $396,000 relating to costs incurred in
connection with a November 1995 Bridge Note Financing.
9
PRO FORMA FINANCIAL INFORMATION
Pro forma adjustments have been made to the consolidated statements
of income for the year ended June 30, 1996 to reflect the acquisitions of the
combined Starpak and L.S. Pressings operations, Europair and of the Piemans
Pantry operations as if these acquisitions had occurred on July 1, 1994.
The Starpak and L.S Pressings transactions were accounted for as
predecessor to the Company, and the Europair transaction as a purchase for
financial reporting purposes.
The unaudited pro forma combined financial statements of the Company
have been derived from the historical financial statements of Starpak, L.S.
Pressings, Europair and Piemans Pantry. The pro forma combined statement of
operations and balance sheet data set forth below do not purport to be
indicative of the combined financial position or combined results of operations
that would have occurred had the transactions been completed on July 1, 1994 or
which may be expected to occur in the future.
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1996 AND JUNE 30, 1995
(UNAUDITED)
PROFORMA (UNAUDITED)
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1996 1995
$ $
----------- -----------
Revenues 36,907,198 33,062,715
----------- -----------
Operating expenses
Cost of sales 19,555,997 17,983,400
Selling, general and administrative costs 13,670,868 12,110,748
Non-cash escrow share charge 6,314,000 --
----------- -----------
39,540,865 30,094,148
----------- -----------
OPERATING (LOSS)/INCOME (2,633,667) 2,968,567
Other income 832,519 466,356
Interest expense (1,428,617) (768,413)
----------- -----------
(Loss)/income before income taxes (3,229,765) 2,666,510
Provision for taxes on income (1,293,084) (944,383)
----------- -----------
Net (loss)/income (4,522,849) 1,722,127
=========== ===========
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
The Company was incorporated in September 1995 to acquire, own and
operate closely held companies in South Africa with annual sales in the range of
approximately $5 million to $50 million. In this regard, the Company, through
its South African subsidiary, FSAH, has acquired six South African companies
(collectively, the "Acquisitions" engaged in the following industry segments (i)
the manufacture of high-quality plastic packaging machinery through Starpak,
(ii) the manufacture of washers for use in the fastener industry through L.S.
Pressings and its subsidiary Paper and Metal Industries, (iii) the manufacture
and supply of air conditioning and refrigeration products through Europair and
its subsidiary Europair Refrigeration, and (iv) the manufacture and distribution
of processed food products through Piemans Pantry. See "Business" and "Certain
Transactions." The Company has funded itself since inception primarily through
stockholders' loans and capital contributions and the Bridge Financing of Notes
and Warrants and the proceeds of its Initial Public Offering completed in
January 1996. The Company anticipates that it will derive revenues primarily
through income generated from the operations of acquired operating companies in
South Africa.
The annual rate of inflation in South Africa for the periods set
forth below was as follows:
FISCAL YEAR 1995 FISCAL YEAR 1996
10.0% 6.9%
The average rate for the South African Rand against the U.S. dollar for
the periods under discussion were as follows:
FISCAL YEAR 1995 FISCAL YEAR 1996
$1 = R3.53 $1 = R3.85
Depreciation of 9.06%
Results of Operations
This discussion should be read in conjunction with the Selected
Historical and Pro Forma Combined Financial Data and the financial statements
and notes thereto appearing elsewhere in this document. In this discussion, "Pro
Forma" includes all the combined results for the Company's acquisitions that
have been consummated since the Company's Initial Public Offering in January,
The "Pro Forma" results may not be representative of the actual results that
would have been achieved had such events actually occurred at the beginning of
the periods indicated.
The Company's Consolidated Balance Sheet and Statement of Income
reflect the twelve month period ending June 30, 1996. The Statement of Income
includes the operations of L.S. Pressings (Pty) Limited and Starpak (Pty)
Limited for the full twelve month period, the operations of Europair (Pty)
10
Limited from January 24, 1996 and the operation of Piemans Pantry (Pty) Limited
from June 3, 1996. Starpak and L.S. Pressings are deemed capital predecessors of
the Company, while the operations of Europair and Piemans Pantry have been
accounted for upon consumation of their acqusition.
Due to the lack of comparative prior financial periods, and in order
to provide a meaningful reference point in the Management's Discussion and
Analysis, comparative twelve month pro forma results have been added for the
twelve-month periods ended June 30, 1996 and 1995 respectively. These pro forma
results include the results for all of the Company's acquisitions, including
those made after January 24, 1996. Attention is drawn to the Management's
Discussion and Analysis for the Pro Forma periods mentioned above. This section
provides the most meaningful analysis of the Company's performance on a broader
time scale.
PROFORMA (UNAUDITED)
Year Ended Year ended
June 30, 1996 June 30, 1995
Costs of sales ...................................... 53.0% 53.4%
Gross profit ........................................ 47.0% 46.6%
Selling, general and administrative
expenses ......................................... 37.0% 36.0%
Interest expense .................................... 3.9% 2.3%
Operating income (pre non cash escrow
charge) .......................................... 10.0% 9.0%
Other income (net of other expenses) ................ 2.3% 1.4%
Income before income taxes( pre non
cash escrow charge) .............................. 8.4% 8.1%
Income before income taxes .......................... (8.7%) 8.1%
Pro Forma Twelve Months Ended June 30, 1996
Compared to Pro Forma Twelve Months Ended June 30, 1995
Proforma sales for the 12 months ended June 30, 1996 increased 11.6%
to $36,907,198 from $33,062,715 for the period ended June 30, 1995. The increase
included a 2.0% decrease in the combined sales of L.S. Pressings, and of
Starpak, a 3.9% increase in the sales of Europair Africa and a 26% increase in
the sales of Piemans Pantry. The decrease in sales of L.S. Pressings and Starpak
as well as the relatively slow growth of Europair Africa can be primarily
attributed to the above average macro-economic growth South Africa experienced
following the April 1994 elections. In the 12 months leading up to the first
South African national elections the country faced tremendous uncertainty.
Corporate capital expenditures were frozen pending the results of the election.
Upon the peaceful conclusion of the election, business confidence was boosted
and spending on capital goods resumed at an above average pace, resulting in
increased volume sales for all three companies. Capital spending rates have
decreased in fiscal 1996 as opposed to the above average rates following the
April 1994 elections. In contrast Piemans Pantry's rapid growth continued to be
fueled by an overall increase in the South African meat pie market.
11
Proforma cost of goods sold were $19,555,997 and $17,983,400 for the
twelve months ended June 30, 1996 and 1995 respectively. This represented 53% of
sales for the twelve months ended June 30, 1996 versus 54.4 % for the
corresponding period in 1995. This decrease can be primarily explained by
improved productivity at Piemans Pantry due to increased automation.
Proforma sales, general and administrative costs increased to
$13,670,868 from $12,110,748 for the twelve months ended June 30, 1996 and 1995,
respectively. This represented 37.0% of sales for the twelve months ended June
30, 1996 versus 36.6% for the corresponding period a year earlier. During the
period in fiscal 1996, the Company's net corporate expenses accounted for
approximately .6% of this increase.
Proforma interest expenses increased to $1,428,617 during the twelve
months ended June 30, 1996 from $768,413 for the twelve months ended June 30,
1995. Most of this increase can be attributed to a non-cash charge of $396,000
that the Company took in connection with its November 1995 private placement of
Bridge Notes. In addition, long-term debt increased as a result of debt utilized
as part of the Company's acquisition financing as well as increased investment
in fixed assets which was facilitated through the utilization of long-term debt
facilities.
Proforma other income was $832,519 and $466,356 for the twelve months
ended June 30, 1996 and 1995, respectively, primarily as a result of interest
earned on greater net positive cash balances for the year ended June 30, 1996,
as opposed to the corresponding period in 1995.
The Company recorded a non-cash escrow share charge of $6,314,000 for
the year ended June 30, 1996. This charge relates to the release of 1,100,000
shares pursuant to an Earnout Escrow Agreement that the Company entered into on
October 30, 1995, as amended. Under the terms of this agreement, 1,100,000
shares were deposited in escrow subject to the Company achieving certain pre tax
Pro Forma earnings results as set forth in such agreement, as amended. It is
management's belief that the Pro Forma results for June 30, 1996 have met the
earnout requirements of this agreement, as amended, and as a result the Company
has taken this one time non-cash charge which is calculated by multiplying
1,100,000 shares by the current bid price of the Company's Common Stock. The
$6,314,000 charge has been reflected as additional Capital in Excess of Par in
the June 30, 1996 Balance Sheets. Management expects the release of such
1,100,000 shares from the earnout escrow during the second quarter of the
Company's current fiscal year.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - PREDECESSOR COMPANY.
The annual rate of inflation in South Africa for the period set forth
below was as follows:
1993 1994 1995
---- ---- ----
13.9% 9.7% 8.6% (est.)
12
The average rate for the South African Rand against the U.S. dollar
for the periods under discussion were as follows:
FISCAL YEAR 1993 FISCAL YEAR 1994 FISCAL YEAR 1995
$1 = R2.90 $1 = R3.32 $1 = R3.53
Depreciation of 14.48% 6.3%
Based on these figures, in evaluating the comparable sales and
expense numbers for the companies in question for the period ended February 28,
1995 versus the period ended February 28, 1994, approximately 3.5% of the
increase in sales and expenses can be attributed to the net effect of the rate
of inflation of South Africa. The calendar year figures are provided with the
fiscal year figures as set forth above to provide an effective comparison of
inflation figures for the periods in question.
Results of Operations
This discussion should be read in conjunction with the Selected
Historical and Pro Forma Combined Financial Data and the financial statements
and notes thereto appearing elsewhere in this Prospectus. In this discussion,
"Historical" reflects the combined historical financial data of Starpak and L.S.
Pressings. Prior to the Company's Initial Public Offering, such entities were
each principally owned by FSA Stock Trust, a principal stockholder of the
Company, and are therefore treated as the Company's predecessor. "Pro Forma"
assumes the consummation of this Offering and the acquisition of Europair.
COMBINED RESULTS FOR STARPAK AND L.S. PRESSINGS
PERIOD FROM
MARCH 1. 1995 TO
AS PERCENTAGE OF SALES JUNE 30, 1995 1995 1994 1993
- ---------------------- ------------- ---- ---- ----
FISCAL YEAR ENDED FEBRUARY 28,
------------------------------
Costs of sales ................................ 57.0% 57.3% 65.9% 66.0%
Gross profit .................................. 43.0% 42.7% 34.1% 34.0%
Selling, general and administrative expenses .. 32.8% 35.4% 27.7% 27.0%
Interest expense .............................. .05% 1.7% 2.6% 3.6%
Operating income .............................. 10.1% 7.3% 6.4% 7.0%
Other income (net of other expenses) .......... 1.3% 0.5% 0.9% 0.9%
Income before income taxes .................... 10.9% 6.1% 4.7% 4.3%
Twelve Months Ended February 28, 1995 Compared to Twelve Months Ended February
28, 1994
Historical sales for the twelve months ended February 28, 1995
increased 28.8% to $8,826,856 from $6,851,457 for the period ended February 28,
1994. As adjusted for inflation, historical sales volume increased approximately
25%. The increase included a 48% increase in sales of L.S. Pressings (or
approximately 45% volume increase) and a .05% decrease (a 3% volume increase
adjusting for inflation) in the sales of Starpak. The overall growth in the
volume of sales of the companies can be primarily attributable to the
improvement in macro-economic conditions in South Africa following the April
1994 elections, as described above.
13
The Historical cost of goods sold were $5,058,749 and $4,513,384 for
the twelve months ended February 28, 1995 and 1994, respectively. This
represented 57.3% of sales for the twelve months ended February 28, 1995 versus
65.9% for the corresponding period a year earlier. Decreases in cost of goods
sold were experienced in both Starpak and L.S. Pressings and can be attributed
primarily to more efficient production that resulted from the increase in
revenues, as both companies have relatively fixed manufacturing overhead costs.
In addition, labor costs as a percentage of sales were reduced, as there were a
number of work stoppages in support of political causes prior to the elections
which negatively impacted on the cost of sales for the year ended February 28,
1994.
Historical sales, general and administrative costs increased 64% to
$3,120,334 from $1,900,760 for the twelve months ended February 28, 1995 and
1994, respectively. This represented 35.4% of sales for the twelve months ended
February 28, 1995 versus 27.7% for the corresponding period a year earlier.
These increases were experienced in both companies and can be attributed
primarily to increased expenditures in administrative personnel as well as an
increase of $213,280 in management profit sharing bonuses which resulted from an
increase in operating profits.
Historical interest expenses declined to $152,163 during the twelve
months ended February 28, 1995 from $180,960 for the twelve months ended
February 28, 1994. This decrease can be attributed primarily to a decline in the
average level of borrowings during the year. However, in order to support
expansion, the companies increased their investment in fixed assets during the
last quarter of the fiscal year. As a result, despite the lower average level of
borrowings during the year, the aggregate interest-bearing debt at February 28,
1995 was $1,180,000 while the corresponding balance at February 28, 1994 was
$1,070,000.
Historical other income was $40,830 and $64,966 for the twelve months
ended February 28, 1995 and 1994, respectively. The decrease can be attributed
primarily to a decline in other income earned by Starpak due to the release of
bad debt provisions in 1994, as well as a loss on the disposal of fixed assets.
During fiscal 1995 the South African tax authorities lowered
corporate income taxes from 40% to 35%. This has resulted in a 5% increase in
net income for the Company for the year ended February 28, 1995 as compared to
the corresponding period in 1994.
Twelve Months Ended February 28, 1994 compared to Twelve Months Ended February
28, 1993.
Historical sales for the twelve months ended February 28, 1994
increased 9.5% to $6,851,457 from $6,256,667 for the period ended February 28,
1994. The increase included a 3.7% increase in volume sales of L.S. Pressings,
and a 9.3% increase in the volume sales of Starpak.
Historical cost of goods sold were $4,513,384 and $4,128,047 for the
twelve months ended February 28, 1994 and 1993, respectively. This represented
65.9% of sales for the twelve months ended February 28, 1994 versus 66.0% for
the corresponding period in the prior year.
Historical sales, general and administrative costs increased to
$1,900,760 from $1,690,045 for the twelve months ended February 28, 1994 and
1993, respectively. This represented 27.7% of sales
14
for the twelve months ended February 28, 1994 versus 27.0% for the corresponding
period in the prior year.
Historical interest expenses declined to $180,960 during the twelve
months ended February 28, 1994 from $223,314 for the twelve months ended
February 28, 1993. This decrease can be attributed primarily to a decline in the
level of borrowings. The reduction in interest expense for the fiscal year ended
February 28, 1994 relative to fiscal year ended February 28, 1993 was due
principally to a reduction in interest rates, as the prime borrowing rate was
reduced from 20.25% at February 28, 1993 to 15.25% at February 28, 1994.
Historical other income was $64,996 and $53,990 for the twelve months
ended February 28, 1994 and 1993, respectively.
LIQUIDITY AND CAPITAL RESOURCES
In January 1996, the Company raised approximately $9 million in net
proceeds after all fees and expenses from its Initial Public Offering. Proceeds
of this offering have been primarily utilized to fund the Company's acquisitions
as well as to provide a certain amount of working capital to its South African
subsidiaries. Approximately $1 million in cash was provided to First South
Africa Holdings, of which approximately 55% was lent to Europair or working
capital purposes in fulfillment of the Company's commitment under its Share
Purchase and Sale Agreement with Bruce Thomas. An additional $3 million was
utilized for the Piemans Pantry acquisition. In addition, First South African
Holdings utilized a portion of a $1,100,000 new bank facility to fund this
acquisition. Currently, the Company has a cash commitment of approximately $1.3
million in connection with its agreement to acquire Astoria Bakery. Such
commitment will be funded from existing cash on hand.
As of June 30, 1996, the Company had $4,682,035 in cash with working
capital of $4,624,417. As of June 30, 1996, the Company had a total of
$5,208,895 in bank debt, of which 2,847,523 was classified as current.
Cash flows provided by operating activities for the period ended June
30, 1996 totaled $876,607. Cash flows used in investing activities for the
period ended June 30, 1996 totaled $5,510,105 primarily attributable to the
purchase of assets and acquisition of subsidiaries. Net cash provided by
financing activities generated $9,020,069 during the period ended June 30, 1996.
The Company's operating subsidiaries generally collect their
receivables within 65 - 90 days and reserve approximately 19% for doubtful
accounts. Historically, the companies' operating and capital needs have been met
by internal cash flow and outside bank borrowing. It is management's belief that
capital expenditures for the foreseeable future can continue to be met by
internal cash flow and bank borrowing. The Company's operating subsidiaries
engage in certain hedging transactions with respect to certain overseas
purchases in order to lock in a specified exchange rate. In addition, in May
1996, the Company, through Swiss Bank Corporation, purchased a 12 month option
to acquire the equivalent of $5 million in South African Rand at the strike
price of Five Rand to the Dollar. This option has the effect of hedging $5
million of the Company's fiscal 1997 earnings, in the event the
15
exchange rate of the South African Rand falls below this strike price. The cost
of such option was approximately $150,000 and is being amortized over the length
of the option.
The Company intends to continue to pursue an aggressive acquisition
strategy in South Africa and anticipates utilizing a substantial portion of its
cash balances and operating earnings 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 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.
"Safe Harbor" Statement under the private Securities Litigation
Reform Act of 1995: The statements above which are not historical facts are
forward-looking statements that involve risks and uncertainties, including, but
not limited to, demand for the Comapny's products and market acceptance risks,
the effect of economic conditions, the impact of competitive products and
pricing, product development, commercialization and technological difficulties,
capacity, and supply constraints or difficulties, the results of financing
efforts, and other risks detailed in the Comapny's Securities and Exchange
Commission filings.
16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FIRST SOUTH AFRICA CORP., LTD.
INDEX TO FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
FIRST SOUTH AFRICA CORP., LTD.
Report of the independent auditors
Consolidated Balance Sheets at June 30, 1996 and 1995
Consolidated Statements of Income for the year ended June 30,
1996, four months ended June 30, 1995 and the years ended
February 28, 1995 and 1994
Pro forma Consolidated Statements of Income for the years ended
June 30, 1996 and 1995 (Unaudited)
Consolidated Statements of Cash Flows for the year ended June 30,
1996, four months ended June 30, 1995 and the years ended
February 28, 1995 and 1994.
Consolidated Statements of Changes in Stockholders' Investment
for the period February 28, 1993 to June 30, 1996.
Notes to the Consolidated Financial Statements for the year ended
June 30, 1996, four months ended June 30, 1995 and the years
ended February 28, 1995 and 1994.
17
FIRST SOUTH AFRICAN CORP., LTD.
REPORT OF THE INDEPENDENT AUDITORS
To the Board of Directors
of First South Africa Corp., Ltd.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of cash flows and of changes in
stockholders' investment present fairly, in all material respects, the financial
position of First South Africa Corp., Ltd. and its subsidiaries at June 30, 1996
and 1995, and the results of their operations and their cash flows for the year
ended June 30, 1996, four months ended June 30, 1995 and the years ended
February 28, 1995 and 1994 in conformity with generally accepted accounting
principles 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.
Price Waterhouse
Sandton, South Africa
September 27, 1996
18
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30, JUNE 30,
1996 1995
$ $
----------- -----------
CURRENT ASSETS
Cash on hand 4,682,035 744,251
Trade accounts receivable 5,833,542 2,287,572
Less: Allowances for bad debts (402,333) (232,442)
----------- -----------
5,431,209 2,055,130
Inventories (net) 2,510,868 1,232,728
Prepaid expenses and other current assets 451,551 188,937
----------- -----------
TOTAL CURRENT ASSETS 13,075,663 4,221,046
Property, plant and equipment 9,000,334 1,854,831
Less: Accumulated depreciation (2,119,912) (320,529)
----------- -----------
6,880,422 1,534,302
Goodwill 408,541 --
Recipes and other intellectual property 2,848,532 --
Other assets 318,286 16,224
Deferred income taxes 73,550 10,145
Loan to related company -- 145,823
----------- -----------
23,604,994 5,927,540
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities
Bank overdraft payable 745,724 270,822
Current portion of long term debt 2,101,799 147,126
Trade accounts payable 2,162,257 479,179
Other provisions and accruals 1,923,371 1,369,663
Income taxes payable 1,518,095 430,127
----------- -----------
TOTAL CURRENT LIABILITIES 8,451,246 2,696,917
Long term debt 2,361,372 954,717
Loan from related company -- 257,909
----------- -----------
TOTAL LIABILITIES 10,812,618 3,909,543
19
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' INVESTMENT (CONTINUED)
STOCKHOLDERS' INVESTMENT
Capital stock:
First South Africa Corp., Ltd:
A class common stock, $0.01 par value-
authorised 23,000,000 shares; issued and
outstanding 2,200,000 22,000 --
B class common stock, $0.01 par value-
authorised 2,000,000 shares; issued
and outstanding 1,942,500 (see footnote 24) 19,701 --
Preferred stock, $0.01 par value -
authorised 5,000,000 shares; issued and
outstanding nil shares -- --
Capital in excess of par
18,518,986 --
LS Pressings (Pty) Ltd
Common stock, R1 par value - authorised, issued
and outstanding 3 million shares in 1995 -- 460,978
Starpak (Pty) Ltd
Common stock, R1 par value - authorised 4,000
shares; issued and outstanding 1,250 shares in 1995 -- 1,010
Capital in excess of par -- 746,790
Retained earnings (3,887,407) 1,850,153
Foreign currency translation adjustments (1,888,211) (1,040,934)
Income restricted as to distribution 7,307 --
----------- -----------
23,604,994 5,927,540
=========== ===========
20
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED STATEMENTS OF INCOME
JULY 1, MARCH 1, YEAR ENDED YEAR ENDED
TO JUNE 30, TO JUNE 30, FEBRUARY 28, FEBRUARY 28,
1996 1995 1995 1994
$ $ $ $
----------- ----------- ----------- -----------
Revenues 14,911,097 3,297,507 8,826,856 6,851,457
----------- ----------- ----------- -----------
Operating expenses
Cost of sales 8,385,511 1,881,686 5,058,749 4,513,384
Selling, general and administrative costs 5,134,431 1,081,120 3,120,334 1,900,760
Non cash compensation charge 6,314,000 -- -- --
----------- ----------- ----------- -----------
19,833,942 2,962,806 8,179,083 6,414,144
----------- ----------- ----------- -----------
Operating (loss)/income (4,922,845) 334,701 647 773 437,313
Other income 539,636 43,145 40 830 64,966
Interest expense (865,733) (18,801) (152,163) (180,960)
----------- ----------- ----------- -----------
(Loss)/income before income taxes (5,248,942) 359,045 536,440 321,319
Provision for taxes on income (488,618) (145,216) (222,558) (113,403)
----------- ----------- ----------- -----------
Net (loss)/income (5,737,560) 213,829 313,882 207,916
=========== =========== =========== ===========
Net loss per share ($ 3.03)
Weighted average number of shares
outstanding 1,893,463
21
FIRST SOUTH AFRICA CORP., LTD.
PROFORMA CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
YEARS ENDED JUNE 30
1996 1995
$ $
----------- -----------
Revenues 36,907,198 33,062,715
----------- -----------
Operating expenses
Cost of sales 19,555,997 17,983,400
Selling, general and administrative costs 13,670,868 12,110,748
Non cash compensation charge 6,314,000 --
----------- -----------
39,540,865 30,094,148
----------- -----------
Operating (loss)/income (2,633,667) 2,968,567
Other income 832,519 466,356
Interest expense (1,428,617) (768,413)
----------- -----------
(Loss)/income before income taxes (3,229,765) 2,666,510
Provision for taxes on income (1,293,084) (944,383)
----------- -----------
Net (loss)/income (4,522,849) 1,722,127
=========== ===========
Net-(loss)/profit per share ($ 1.34) $ 0.51
Weighted average number of shares
outstanding 3,374,079 3,374,079
The proforma information has been prepared assuming that the acquisitions had
taken place and that operations had commenced on July 1, 1994.
The proforma information does not purport to be indicative of the results that
would have actually been obtained if the acquisitions had occurred at the
beginning of the period nor is it indicative of future results.
22
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
JULY 1, MARCH 1, YEAR ENDED YEAR ENDED
TO JUNE 30, TO JUNE 30, FEBRUARY 28, FEBRUARY 28,
1996 1995 1995 1994
$ $ $ $
---------- ---------- ---------- ----------
Cash flows from operating activities:
Net (loss)/income (5,737,560) 213,829 313,882 207,916
Adjustments to reconcile net loss to net
cash provided by operating activities:
Non-cash compensation charge 6,314,000 -- -- --
Depreciation 345,884 50,678 92,746 82,988
Amortisation of other assets 49,873 -- -- --
Deferred income taxes (90,559) -- (69,295) 5,363
Net (gain)/loss on sale of assets 22,523) 1,320 19,636 3,526
Effect of changes in assets and
liabilities 10,185 (94,090) (23,012) (65,840)
Assets acquired at a discount 7,307 -- -- --
---------- ---------- ---------- ----------
Net cash provided by operating activities 876,607 171,737 333,957 233,953
---------- ---------- ---------- ----------
Cash flows from investing activities:
Net additions to property, plant and equipment (453,768) (166,124) (327,039) (255,454)
Other assets (acquired)/disposed (704,117) (16,502) 22,053 (5,188)
Decrease/(increase) in loans to related
companies 145,823 (280) 45,241 94,418
Acquisition of subsidiaries (net of cash
of $4,746) (4,498,043) -- -- --
---------- ---------- ---------- ----------
Net cash used in investing activities (5,510,105) (182,906) (259,745) (166,224)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Net borrowings/(repayments) in bank overdraft 135,941 119,473 (26,269) (24,815)
Net (repayments)/ borrowings of long term debt (1,525,613) 93,202 93,618 68,616
Net (repayments)/ borrowings in loans from
related parties (880,034) -- 30,473 (66,408)
Net repayments of loans from stockholders 137,656 -- -- --
Net borrowings/(repayments) in short term debt 1,954,673 -- 81,972 (11,835)
Net proceeds on stock issues 9,197,446 -- -- --
---------- ---------- ---------- ----------
Net cash provided by financing activities 9,020,069 212,675 179,794 (34,442)
---------- ---------- ---------- ----------
Effect of exchange rate changes on cash (448,787) (9,783) (16,573) (31,301)
---------- ---------- ---------- ----------
Net increase in cash on hand 3,937,784 191,723 237,433 1,986
Cash on hand at beginning of period 744,251 552,528 315,095 313,109
---------- ---------- ---------- ----------
Cash on hand at end of period 4,682,035 744,251 552,528 315,095
========== ========== ========== ==========
23
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
(PART 1 OF 2)
Capital
stock Capital Capital in
First South Stock Capital excess of
Africa Capital in LS Stock par
Corp., excess of Pressings Starpak Starpak
Ltd. par (Pty) Ltd (Pty) Ltd (Pty) Ltd
$ $ $ $ $
---------- ---------- --------- ---------- ----------
Balance at February 28, 1993 -- -- 460,978 1,010 746,790
Net income -- -- -- -- --
Translation adjustment -- -- -- -- --
---------- ---------- --------- ---------- ----------
Balance at February 28, 1994 -- -- 460,978 1,010 746,790
Net income -- -- -- -- --
Translation adjustment -- -- -- -- --
---------- ---------- --------- ---------- ----------
Balance at February 28, 1995 -- -- 460,978 1,010 746,790
Net income -- -- -- -- --
Translation adjustment -- -- -- -- --
---------- ---------- --------- ---------- ----------
Balance at June 30, 1995 -- -- 460,978 1,010 746,790
Issuance of stock to acquire
predecessor, Starpak and LS Pressings 150 1,208,628 (460,978) (1,010) (746,790)
Issuance of stock to acquire
subsidiary companies 98 1,840,365 -- -- --
Other stock issues 28 260,024 -- -- --
Proceeds on First South Africa
Corp., Ltd. stock issues 41,425 9,896,646 -- -- --
Share issue expenses written off -- (1,000,677) -- -- --
Escrow stock released -- 6,314,000 -- -- --
Subsidiary assets acquired at
a discount -- -- -- -- --
Net loss -- -- -- -- --
Translation adjustment -- -- -- -- --
---------- ---------- --------- ---------- ----------
Balance at June 30, 1996 41,701 18,518,986 -- -- --
---------- ---------- --------- ---------- ----------
(PART 2 OF 2)
Income Foreign
restricted currency
Retained as to translation
earnings distribution adjustments Total
$ $ $ $
------------ ----------- ---------- -----------
Balance at February 28, 1993 1,114,526 -- (795,948) 1,527,356
Net income 207,916 -- -- 207,916
Translation adjustment -- -- (154,446) (154,446)
------------ ----------- ---------- -----------
Balance at February 28, 1994 1,322,442 -- (950,394) 1,580,826
Net income 313,882 -- -- 313,882
Translation adjustment -- -- (66,052) (66,052)
------------ ----------- ---------- -----------
Balance at February 28, 1995 1,636,324 -- (1,016,446) 1,828,656
Net income 213,829 -- -- 213,829
Translation adjustment -- -- (24,488) (24,488)
------------ ----------- ---------- -----------
Balance at June 30, 1995 1,850,153 -- (1,040,934) 2,017,997
Issuance of stock to acquire
predecessor, Starpak and LS Pressings -- -- -- --
Issuance of stock to acquire
subsidiary companies -- -- -- 1,840,463
Other stock issues -- -- -- 260,052
Proceeds on First South Africa
Corp., Ltd. stock issues -- -- -- 9,938,071
Share issue expenses written off -- -- -- (1,000,677)
Escrow stock released -- -- -- 6,314,000
Subsidiary assets acquired at
a discount -- 7,307 -- 7,307
Net loss (5,737,560) -- -- (5,737,560)
Translation adjustment -- -- (847,277) (847,277)
------------ ----------- ---------- -----------
Balance at June 30, 1996 (3,887,407) 7,307 (1,888,211) 12,792,376
------------ ----------- ---------- -----------
24
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
1. ORGANIZATION
First South Africa Corp., Ltd. (the "Company") was founded on September 6, 1995.
The purpose of the Company is to make investments in South African companies.
The predecessor to the Company was the combined entity under common control,
Starpak (Proprietary) Limited and its subsidiary companies and LS Pressings
(Proprietary) Limited.
On January 24, 1996, subsequent to an initial public offering and in terms of an
agreement reached before the initial public offering, the Company acquired 100%
of the common stock of the business combination of Starpak (Proprietary) Limited
and its subsidiary companies and LS Pressings (Proprietary) Limited. The
acquisition was accounted for using the purchase method of accounting at net
book value at date of acquisition.
On January 24, 1996, also subsequent to the initial public offering and also in
terms of an agreement reached before the initial public offering, the Company
acquired 100% of the common stock of Europair Africa (Proprietary) Limited for
an aggregate net purchase price of $1,029,206.
The acquisition was accounted for using the purchase method of accounting. The
assets and liabilities were taken over at fair market value as determined by
management.
Europair Africa (Pty)
Ltd
$
----------
Acquisition costs
Stock issued in lieu of cash 399,638
Cash consideration 629,568
----------
Purchase price to be allocated 1,029,206
----------
Summary allocation of purchase price
Current assets 1,582,299
Property, plant and equipment 1,598,128
Deferred income taxes 21,398
Goodwill 91,150
----------
Total assets acquired 3,292,975
----------
Current liabilities 923,688
Long term debt 1,196,636
Loans from related parties 143,445
----------
Total liabilities assumed 2,263,769
----------
Excess of assets over liabilities assumed 1,029,206
==========
25
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
1. ORGANIZATION (continued)
On June 3, 1996 the Company acquired 100% of the common stock of the business
combination of Piemans Pantry (Proprietary) limited and Surfs-Up Investments
Limited for an aggregate net purchase price of $5,314,045.
The acquisition was accounted for using the purchase method of accounting. The
assets and liabilities were taken over at fair market value as determined by
management.
Piemans Pantry
(Pty) Ltd and Surfs-
Up Investments (Pty)
Ltd
$
---------
Acquisition costs
Stock issued in lieu of cash 1,440,825
Cash consideration 3,630,796
Other direct expenses 242,424
---------
Purchase price to be allocated 5,314,045
---------
Summary allocation of purchase price
Current assets 2,594,124
Property, plant and equipment 3,988,033
Stockholders loans 137,656
Recipes and other intellectual property 2,829,299
Goodwill 12,483
---------
Total assets acquired 9,561,595
---------
Current liabilities 1,984,686
Loans to related companies 478,680
Long term debt 1,735,632
Deferred income taxes 48,552
Total liabilities assumed 4,247,550
Excess of assets over liabilities assumed 5,314,045
=========
2. PRINCIPLE ACTIVITIES OF THE GROUP
The principle activities of the group include the business of
manufacturing, servicing and selling packaging machines, receiving rental
income, manufacture of washers for use in the fastener industry, manufacture and
supply of air-conditioning products and the manufacture, sale and distribution
of both ready to eat and ready for bake off pastry related food products.
26
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
3. SUMMARY OF ACCOUNTING POLICIES
The consolidated and combined financial statements have been prepared in
accordance with US generally accepted accounting principles and incorporate the
following significant accounting policies.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company, First
South Africa Corp., Ltd. and its subsidiaries. All subsidiaries are wholly owned
and no minority interests exist. Material intercompany transactions have been
eliminated on consolidation.
The combined financial statements include the financial statements of Starpak
(Proprietary) Limited, its wholly owned subsidiaries, Levy & Smith Properties
(Proprietary) Limited and Michael Levy Family Holdings (Proprietary) Limited and
LS Pressings (Proprietary) Limited, as they are entities under common control.
All significant intercompany balances and transactions have been eliminated.
ACCOUNTING ESTIMATES
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities at the date of the
financial statements, disclosure of contingent liabilities at the financial
statement date and reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
EARNINGS PER SHARE
Earnings per share for the Company on common shares is based on net income and
reflects dilutive effects of any stock options which exists at year end.
INTANGIBLE ASSETS
Goodwill resulting from acquisitions, and recipes and other intellectual
property is being amortised on a straight line basis over a period of twenty to
twenty five years. If facts and circumstances were to indicate that the carrying
amount of goodwill, recipes and other intellectual property is impaired the
carrying amount would be reduced to an amount representing the discounted future
cash flows to be generated by the operation. Also included in intangible assets
are non-competition agreements relating to the Europair acquisition which are
being amortised on a straight line basis over a six year term of the agreements.
The company has adopted Statement
27
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
3. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
of Financial Accounting Standards No. 121 ("SFAS 121") Accounting for the
impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". No
impairments in long-lived assets has taken place.
FOREIGN CURRENCY TRANSLATION
The functional currency of the underlying companies is that of South African
Rands. Accordingly, the following rates of exchange have been used for
translation purposes:
(a) Assets and liabilities are translated into United States Dollars
using the exchange rates at the balance sheet date.
(b) Common stock and capital in excess of par are translated into United
States dollars using historical rates at date of issuance.
(c) 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
shareholders' investment designated as "Foreign currency translation
adjustment".
28
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
3. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to reduce its exposure to
fluctuations in foreign exchange rates by creating offsetting positions through
the use of derivative financial instruments. The market risk related to the
foreign exchange option is offset by changes in the valuation of the underlying
profits being hedged.
The option premium is accounted for on the accrual basis, and is amortised over
the option term. The notional amount of the option is the amount bought or sold
at maturity. Notional amounts are indicative of the extent of the Company's
involvement in the use of derivative financial instruments and are not a measure
of the company's exposure to credit or market risks through its use of
derivatives.
FOREIGN ASSETS AND LIABILITIES
Transactions in foreign currencies arise as a result of inventory purchases from
foreign countries and intercompany funding transactions between the subsidiaries
and First South Africa Corp., Ltd. Transactions in foreign currencies are
accounted for at the rates ruling on transaction dates. Exchange gains and
losses are charged to the income statement during the period in which they are
incurred. Foreign assets and liabilities of the group which are not denominated
in United States Dollars are converted into United States Dollars at the
exchange rates ruling at the financial year end or at the rates of forward cover
purchased. Forward cover is purchased to hedge the currency exposure on foreign
liabilities.
INVENTORIES
Inventories are valued at the lower of cost and net realisable value, using both
the first-in, first-out and the weighted average methods. The value of
work-in-progress and finished goods includes an appropriate portion of
manufacturing overheads.
PROPERTY, PLANT AND EQUIPMENT
Land is stated at cost and is not depreciated. Buildings are depreciated on the
straight line basis over estimated useful lives of 50 years.
Buildings, plant and equipment, and motor vehicles are written off over their
estimated useful lives to each asset's residual value.
The following rates are considered appropriate:
Percentage
Buildings 2%
Plant and equipment 10-33%
Motor vehicles 20%
29
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
3. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income tax expense is based on reported earnings before income taxes. Deferred
income taxes represent the impact of temporary differences between the amounts
of assets and liabilities recognised for financial reporting purposes and such
amounts recognised for tax purposes. Deferred taxes are measured by applying
currently enacted tax laws.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As at June 30 1996, the carrying value of accounts receivable, accounts payable
and investments approximate their fair value.
REVENUES
Revenues comprise net invoiced sales of washers, manufactured packaging
machines, spares and service charges, food products, air conditioning systems,
fans and related accessories, and rental income. Combined revenues exclude sales
to group companies. The Company recognises revenues on an accrual basis.
4. INVENTORIES
Inventories consists of the following:
June 30, June 30,
1996 1995
$ $
---------- ----------
Finished goods 2,077,679 1,481,124
Work-in-progress 272,377 185,140
Raw materials 501,562 390,852
Supplies 93,055 --
---------- ----------
Inventories (gross) 2,944,673 2,057,116
Less: Valuation allowances (433,805) (824,388)
---------- ----------
Inventories (net) 2,510,868 1,232,728
========== ==========
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
Accumulated Net book Net book
Cost depreciation value value
June 30, June 30, June 30, June 30,
1996 1996 1996 1995
$ $ $ $
--------- ---------- --------- ---------
Land and buildings 2,713,473 (17,147) 2,696,326 845,479
Plant and equipment 3,463,121 (1,415,524) 2,047,597 372,244
Vehicles 1,789,905 (687,241) 1,102,664 316,579
Capital work in progress 1,033,835 -- 1,033,835 --
--------- ---------- --------- ---------
9,000,334 (2,119,912) 6,880,422 1,534,302
========= ========== ========= =========
Depreciation 345,884 50,678
========= =========
Certain assets of the company are encumbered as
security for the liabilities of the group (Refer note 11)
30
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
6. GOODWILL
Goodwill consists of the following:
Accumulated Net book
Cost amortisation value
June 30, June 30, June 30,
1996 1996 1996
$ $ $
------- ------ -------
Goodwill arising on acquisitions 414,610 (6,069) 408,541
======= ====== =======
7. RECIPES AND OTHER INTELLECTUAL PROPERTY
Recipes and other intellectual property consists of the following:
Accumulated Net book
Cost amortisation value
June 30, June 30, June 30,
1996 1996 1996
$ $ $
--------- ------ ---------
Recipes and other intellectual property 2,858,011 (9,479) 2,848,532
========= ====== =========
8. OTHER ASSETS
Other assets consists of the following:
Accumulated Net book Net book
Cost amortisation value value
June 30, June 30, June 30, June 30,
1996 1996 1996 1995
$ $ $ $
------- ------ ------- ------
Loans to shareholder 84,768 -- 84,768 --
Non competition agreements 115,842 (8,992) 106,850 --
Derivative financial instruments 152,000 (25,332) 126,668 --
Other -- -- -- 16 224
------- ------ ------- ------
352,610 34,324 318,286 16,224
======= ====== ======= ======
Derivative financial instruments consist of a purchased foreign currency option
with a notional amount of South African Rands (ZAR) 25 000 000 with a strike
price of ZAR5 to $1. The option term is twelve months and expires on May 2,
1997.
31
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 ANDTHE
YEARS ENDED FEBRUARY 28, 1995 AND 1994
9. LOAN TO RELATED COMPANY
June 30, June 30,
1996 1995
$ $
--------- ---------
Michael Levy Family Holdings (Proprietary) Limited -- 145,822
========= =========
The terms of this loan have changed with the closing of the initial public
offering. The loan has been revalued and disclosed as loans to shareholders, and
is unsecured, interest free and repayable on February 28, 1998.
10. BANK OVERDRAFT FACILITIES
The Company has general short term unsecured banking facilities, which are
renewable annually, of $2,460,437 available. These facilities bear interest at
prime lending rates, which is currently 19.5%, and are repayable on demand.
11. SHORT AND LONG TERM DEBT
June 30, June 30,
1996 1995
$ $
---------- ----------
Long term debt
Secured debt
Mortgage loans 1,508,870 561,301
Equipment notes 1,904,980 540,542
Unsecured debt
Unsecured notes 125,214 --
---------- ----------
3,539,064 1,101,843
Less: Current portion (1,177,692) (147,126)
---------- ----------
Total long term debt 2,361,372 954,717
========== ==========
Short term debt
Current portion of long term debt 1,177,692 147,126
Trade finance loan 924,107 --
---------- ----------
2,101,799 147,126
========== ==========
32
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
11. SHORT AND LONG TERM DEBT (CONTINUED)
MORTGAGE LOANS
Mortgage loans are secured by first and second mortgage bonds over property.
These loans are generally repayable in equal instalments of $27,568 over periods
ranging from five to twenty years and bear interest at rates ranging from 12% to
18.5%. Generally these interest rates are linked to the prime lending rate which
is currently at 19.5%.
EQUIPMENT NOTES
Equipment notes are secured over movable assets. These loans are generally
repayable in equal monthly instalments over a maximum period of five years.
These loans bear interest at rates ranging from 16.9% to 2% above the prime
lending rate, which is currently 19.5%.
UNSECURED NOTES
Unsecured notes bear interest at the prime lending rate, which is currently
19.5% , and have no fixed repayment terms. These notes have been included in the
current portion of long term liabilities.
TRADE FINANCE LOAN
The trade finance loan is denominated in United States Dollars and is repayable
within 90 days. This loan is covered forward by a forward exchange contract and
bears interest at 6.5625%. This facility is made available to the group by the
companies bankers as a significant part of the general short term banking
facilities. (see note 10)
The following is a schedule of repayments of long term liabilities by year of
repayment
YEAR ENDED JUNE 30, 1996 $
- ------------------------ ----------
1997 543,812
1998 537,723
1999 476,208
2000 274,749
Thereafter 528,880
----------
2,361,372
12. LOAN FROM RELATED COMPANY
JUNE 30, JUNE 30,
1996 1995
$ $
------- -------
Trumetric Washers (Proprietary) Limited -- 257,909
======= =======
This loan was repaid from cash generated by operations. This loan was unsecured
and interest free.
33
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
13. INCOME RESTRICTED AS TO DISTRIBUTION
This represents the excess of assets acquired over liabilities assumed in the
purchase of the assets and liabilities of operating entities. This amount is not
distributable until such time as the assets so acquired are disposed. There are
no restrictions on the future income of the Company.
14. OPERATING LEASES
The group has several operating leases over land and buildings. These leases
generally expire within the next five years. These leases generally contain
renewal options at the fair market value at the date of renewal. In most cases,
management expects that in the normal course of business, leases will be renewed
or replaced by other leases.
The following is a schedule of future minimum rental payments required under
operating leases that have initial or remaining non-cancellable lease terms in
excess of one year as of June 30, 1996:
YEAR ENDED JUNE 30, 1996 $
- ------------------------ --------
1997 337,690
1998 553,677
1999 431,237
2000 35,047
Thereafter 2,233
---------
1,359,884
=========
The following schedule shows the composition of total rental expense for all
operating leases except those with terms of a month or less:
Year ended Four months Year ended Year ended
June 30, June 30, February 28, February 28,
1996 1995 1995 1994
$ $ $ $
------- ------ ------ ------
Minimum rentals 415,815 25,562 78,730 98,135
======= ====== ====== ======
15. OTHER INCOME
Other income includes interest received, proceeds from insurance claims, bad
debts recovered, commissions received and profits on sale of assets.
34
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
16. INCOME TAXES
Income taxes are accounted for under Statement of Financial Standards No. 109
"Accounting for Income Tax" ("SFAS 109"), an asset and liability method. SFAS
109 requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the tax bases
and financial reporting bases of the Company's assets and liabilities. In
addition, SFAS 109 requires the recognition of future tax benefits such as net
operating loss carryforwards, to the extent realisation of such benefit is more
likely than not.
The provision for income taxes charged to continuing operations was as follows:
Four months
Year ended ended Year ended Year ended
June 30, June 30, February 28, February 28,
1996 1995 1995 1994
$ $ $ $
------- ------- ------- -------
Current
South African normal 848,006 145,216 291,853 108,040
Total current taxes 848,006 145,216 291,853 108,040
Deferred
South African normal (359,388) -- (69,295) 5,363
Total deferred taxes (359,388) -- (69,295) 5,363
------- ------- ------- -------
Provision for taxes on income 488,618 145,216 222,558 113,403
======= ======= ======= =======
Deferred tax asset at June 30, is comprised of the following:
June 30, June 30,
1996 1995
$ $
---------- -----------
Fixed assets 346,961 58,956
Prepaid expenditure 12,245 --
---------- -----------
Gross deferred tax liabilities 359,206 58,956
---------- -----------
Accruals (372,447) (69,101)
Deposits received on equipment sales
(60,309) --
---------- -----------
Gross deferred tax assets (432,756) (69,101)
---------- -----------
Net deferred tax asset (73,550) (10,145)
========== ==========
35
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
16. INCOME TAXES (CONTINUED)
The provision for taxes on income differs from the amount of income tax
determined by applying the applicable South African statutory income tax rate to
pre-tax income from continuing operations as a result of the following
differences:
The Company reflects a net loss position of $5,248,942 before taxation. However,
there is a recorded tax charge as $6,743,000 of the loss before taxation
consists of expenditure not allowable for tax purposes, including a charge of
$6,314,000 for the non cash compensation charge. The balance of the expenditure
not allowable for tax purposes is incurred mainly in Bermuda, where no taxation
laws are in existence. After eliminating non allowable expenditure, the tax rate
reconciliation is as follows:
Four
Months Year Year
Year ended ended ended ended
June 30, June 30 February February
1996 1995 28, 1995 28, 1994
% % % %
------ ------ ------ ------
South African Statutory tax rate 35 35 35 40
Capital allowances (2) -- -- --
Disallowable expenditure 1 5 1 2
Transitional levy -- -- 6 --
Tax rate adjustment -- -- (2) (3)
Non taxable income (1) -- -- --
Other -- -- 1 (4)
------ ------ ------ ------
Effective tax rate 33 40 41 35
====== ====== ====== ======
17. CASH FLOWS
The changes in assets and liabilities consist of the following:
Four months
Year ended Ended Year ended Year ended
June 30, June 30, February 28, February 28,
1996 1995 1995 1994
$ $ $ $
-------- -------- -------- --------
(Increase)/ decrease in trade accounts
receivable (756,684) 36,382 (989,374) (22,786)
Decrease/(increase) in inventories 146,179 (357,614) 13,759 (189,278)
(Increase)/decrease in prepaid expenses
and other current assets (134,650) (146,445) 15,906 5,453
Increase in trade accounts payable 360,265 91,094 97,479 49,638
(Decrease)/increase in other provisions
and accruals (38,785) 127,573 659,078 178,901
Decrease in dividends payable -- -- -- (90,242)
Increase in income taxes payable 433,860 154,920 180,140 2,474
-------- -------- -------- --------
10,185 94,090 (23,012) (65,840)
======== ======== ======== ========
Supplemental disclosure of cash
flow information:
Interest paid 865,733 18,801 152,163 180,960
======== ======== ======== ========
36
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
18. EMPLOYMENT BENEFITS
The Company participates in various retirement benefit funding plans and medical
aid plans for the benefit of its employees.
All of the retirement benefit funds are defined contribution plans and by nature
of the funds there can be no unfunded obligations or responsibility on the
employer. The only obligation of the Company is the contribution to these
schemes which generally ranges from 6% to 9% of the employees annual earnings.
Amounts charged to pension costs and contributed by the Company to the funds
were as follows:
F