-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QDLkCjhNwVs2mggon06Y/LHPIr4bMsp/2vx+WHaVvRIHGTXnI6zwUs4bqMn09Sw4 EwPRuSMzTUxWKr1C/grt4A== 0000910680-04-001023.txt : 20040928 0000910680-04-001023.hdr.sgml : 20040928 20040928163549 ACCESSION NUMBER: 0000910680-04-001023 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040928 DATE AS OF CHANGE: 20040928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SILVERSTAR HOLDINGS LTD CENTRAL INDEX KEY: 0001003390 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AMUSEMENT & RECREATION SERVICES [7900] IRS NUMBER: 000000000 STATE OF INCORPORATION: B0 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-27494 FILM NUMBER: 041050275 BUSINESS ADDRESS: STREET 1: 6100 GLADES ROAD SUITE 305 CITY: BOCA RATON STATE: FL ZIP: 33434 BUSINESS PHONE: 5614790040 MAIL ADDRESS: STREET 1: 2665 S BAYSHORE DR 405 CITY: COCONUT GROVE STATE: FL ZIP: 33133 FORMER COMPANY: FORMER CONFORMED NAME: LEISUREPLANET HOLDINGS LTD DATE OF NAME CHANGE: 20000128 FORMER COMPANY: FORMER CONFORMED NAME: FIRST SOUTH AFRICA CORP LTD DATE OF NAME CHANGE: 19951114 10-K 1 f10k063004.txt JUNE 30, 2004 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ______________________ Commission file number 0-27494 SILVERSTAR HOLDINGS, 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, $0.01 par value ----------------------------- ("Common Stock") 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 Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. [ ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2) Yes No X ----- ----- State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such common equity, as of the last business day of the Registrant's most recently completed second fiscal quarter. The aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant as of September 13, 2004, was $6,106,357. Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date. As of September 13, 2004, there were 7,812,347 shares of the Registrant's Common Stock outstanding and 876,025 shares of the Registrant's Class B Common Stock outstanding. PART I. Item 1. Description of Business We are a holding company that seeks to acquire businesses fitting a predefined investment strategy. We are the parent company of Fantasy Sports, Inc., which operates the Fantasycup.com, fantasycup.org, fantasycup.net, and fantasystockcar.com, websites and specializes in subscription based NASCAR, college football and basketball and other fantasy sports games. We are also a minority shareholder in Magnolia Broadband Wireless, a startup company which is developing mobile wireless broadband products. History We were founded in September 1995 as a Bermuda corporation to pursue opportunities in South Africa as an emerging market. At that time, our business plan was to acquire, own and operate seasoned, closely held companies in South Africa with annual sales in the range of approximately $5 million to $50 million. In 1999, we shifted our focus to the Internet, technology and e-commerce sectors, and away from South Africa, by acquiring a majority stake in Leisureplanet.com, an Internet travel services company. In connection with the shift in our business plan, we changed our name to Leisureplanet Holdings, Ltd. In 2000, we disposed of our operations in South Africa, closed Leisureplanet.com and acquired 100% of Fantasy Sports, Inc. In 2001, we acquired 100% of Student Sports, Inc, which we sold in 2003. This was the only operating subsidiary in our marketing services segment. As a result of these changes and developments, we have reestablished our investment criteria. Currently, our strategy focuses on: o Acquiring controlling stakes in small, high quality game related media and marketing businesses with strong management teams that are positioned to use technology and Internet related platforms to fuel above average growth. o Our investments must show an ability to contribute, in the short to medium term, to earnings per share through operating profit or capital appreciation. o We aim to add value to our investments by operating in partnership with committed, incentivised, entrepreneurial management who show the vision and ability to grow their businesses into industry or niche leaders. DESCRIPTION OF OUR SUBSIDIARIES AND INVESTMENTS Fantasy Sports, Inc. Fantasy Sports, Inc. owns and operates one of America's oldest and largest subscription based NASCAR fantasy sports game. In addition, the company has developed, and offers, subscription based college football, basketball, and other motor sport fantasy games. All the company's games offer weekly and seasonal cash and merchandise prizes. Currently, the Company has over 25,000 paid game plays for its Spring, Fall and One Race NASCAR challenges, as well as the fantasy college football and basketball challenges and our other games. Subscription revenues for our games and ancillary services account for over 90% of our total revenues. Our NASCAR games currently generate over 90% of our subscription revenues. Participants pay between $99.95 to $169.95 to play in our seasonal games, and a $25 fee to participate in our One Race and Tournament challenges. We offer two grand prizes of $25,000 each for our NASCAR challenges and a $10,000 prize -2- for the college football challenge winner. The winners of our One Race and Tournament challenges receive $10,000. In addition, weekly prizes and bonus points are widely distributed. Fantasy sports participation is rapidly becoming a significant component of sports related leisure time activity. The NASCAR niche is particularly appealing as growing public interest in the sport, as evidenced by increased attendance and TV ratings for all NASCAR events, particularly the Nextel Cup Series races, have made this one of America's most popular sports. This trend was strengthened in 2001 with the first national television network broadcast of the Nextel Cup Series. Fantasy Sports has been operating their NASCAR challenges since 1993 and is one of the leading companies in this market. Our websites offer up to the minute racing tips from Mark Garrow, the well-known broadcaster, which adds to the fun and excitement of playing the game. Contestants can visit the site and trade drivers up to the very last minute prior to a race, thereby offering the highest degree of interactive online participation. Since 1997, Fantasy Sports has operated a full season college football challenge game, which accounts for approximately 5% of our subscription revenues at present. During 2001, we developed and deployed a tournament challenge college basketball game that generated over 2,000 paying customers in our last fiscal year. We developed a retail business that specialized in the sale of NASCAR related die-cast cars, apparel and other merchandise. This retail operation commenced business in May 2001 and accounted for approximately 22% of our overall revenues in fiscal 2003. Due to ongoing losses, this operation was closed during the second quarter of fiscal 2004. It accounted for approximately 7% of our overall revenues during the fiscal year ended 2004. We have substantially reduced our overhead in order to maximize profitability at Fantasy Sports. This was primarily achieved by the reduction of marketing expenses and general and administrative overhead through the outsourcing of our hosting, programming and customer service functions to Stats, Inc. We currently provide an in-house corporate game for the Dana Corporation, and are seeking further corporate sponsorships for our games in order to diversify the revenue streams so that we are not solely reliant on subscription fees for our games. Due to the increased popularity of online Fantasy Sports, we have faced increased competition over the past few years from both large media companies, such as, ESPN.com, CBS Sportsline, FoxSports.com, and Nascar.com, as well as from numerous small companies such as, Fanball.com, CDM Sports, All-Star Stats and Sportsbuff. While we believe that we still are the largest subscription based NASCAR fantasy business, there is no assurance that we will be able to maintain this position against our competitors. There has been increasing governmental scrutiny of online gambling operations, however, to the best of our knowledge, the online fantasy sports business has not been included in this category. Fantasy Sports games have traditionally been differentiated from gambling due to the element of skill involved, as well as the ability of participants to play through the US mail, without paying a fee. Although we have received legal comfort in this regard, there can be no guarantee that governmental regulations may not change or be applied to our business, in the future. Magnolia Broadband Wireless On April 14, 2000, we entered into a Securities Purchase Agreement with Magnolia Broadband, Inc. Magnolia is a start up company that is developing wireless broadband solutions for the mobile telecommunications industry. Mobile telecommunications has been and continues to be one of the fastest growing and most dynamic segments of the telecommunications industry. According to a recent Cahner's Instat Group report, semiconductor revenue for wireless handsets will reach more than $50B in 2004, driven by an expected sales volume of over 1.2 billion handsets that year. -3- Magnolia is developing technology to become one of the first companies to integrate smart antenna technologies into RF chip sets utilized in mobile phones. Their aim is to create chip sets that increase the capacity and coverage of existing networks at little additional cost. Magnolia is a fabless semiconductor company building RF solutions by combining innovative Signal Processing technologies and novel Integrated Circuit solutions for the cellular industry. The combination of these innovations enables the wireless network operators to push out the Diversity Antenna capabilities to the edge of their networks, while enabling the handset manufacturers to offer these benefits economically. We invested $2,500,000 in Magnolia and received shares of preferred stock in Magnolia. We also received board representation rights and registration rights. In October 2001, we invested a further $450,000 of a total $1,500,000 offering of Magnolia's Series A Preferred Stock. We co-invested along with Selway Partners, LLC, and CIP Capital, LP. In April and May 2002 Magnolia raised a further $7.5 million in an offering of Series B Preferred Stock. In June 2003 Magnolia raised a further $6 million dollars in an offering of Series C Preferred Stock. In April 2004, Magnolia raised a further $3 million in an offering of convertible notes. We did not participate in any of these rounds. Currently we own approximately 4% of Magnolia on a fully diluted basis including the exercise of all employee stock options. Due to recurring losses, our investment in Magnolia at June 30, 2004, which is now accounted for under the lower of cost or market method, was $831,066. Discontinued Operations Student Sports, Inc. On June 14, 2003, we entered into an Asset Purchase Agreement with SS Founders, Inc., pursuant to which we sold substantially all of the assets and liabilities of Student Sports, Inc. Student Sports offers unique access to the high school athletic market across multimedia platforms. As a subsidiary of Silverstar Holdings, the company's primary thrust was to offer marketing services to large corporations interested in accessing this market. Additionally, the company worked towards building a "bottom-up" revenue generation strategy based on the creation of a number of subscription based programs where products and services will be sold directly to the high school athletes, their parents and coaches. We originally acquired Student Sports in September 2001. The consideration for the sale of Student Sports was 325,686 shares of Silverstar Holdings common stock that were returned to the Company as well as the forgiveness of a maximum of 913,745 contingent shares of Silverstar Holdings that could have been payable to former Student Sports shareholders in April 2004. Employees Silverstar Holdings through its US management subsidiaries employs two full time salaried employees. Fantasy Sports, Inc. currently employs two full time salaried employees and one hourly employee. Our success will depend on our ability to attract and retain highly qualified employees. We provide performance based and equity based compensation programs to reward and motivate significant contributors among our employees. Competition for qualified personnel in the industry is intense. There can be no assurance that our current and planned staffing will be adequate to support our future operations or that management will be able to hire, train, retain, motivate, and manage required personnel. Although none of our employees is represented by a labor union, there can be no assurance that our employees will not join or form a labor union. We have not experienced any work stoppages and consider our relations with our employees to be good. -4- Item 2. Properties Our principal executive offices are located at Clarendon House, Church Street, Hamilton, HM CX, Bermuda, which space is made available to us pursuant to a corporate services agreement entered into with a corporate services company in Bermuda. Fantasy Sports, Inc. has its principal executive offices at 867 Clare Lane, York, Pennsylvania, 17402. These offices are approximately 980 square feet. The lease expires on December 31, 2004. It is renewably annually and costs us approximately $8,580 per year. Our United States management subsidiary, First South Africa Management Corp., a Delaware corporation incorporated in 1995, has its principal executive offices at 6100 Glades Road, Suite 305, Boca Raton, Florida 33434. The lease expires in February 2006 and costs us approximately $33,000 per year. Item 3. Legal Proceedings None. Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable. PART II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Our common stock is listed for quotation on the National Market on the Nasdaq System under the symbol SSTR. The following table sets forth, for the periods indicated the high and low closing sales prices for our common stock, as reported by Nasdaq. High Low ---- --- Common Stock Fiscal 2003 1st Quarter........................................ $0.33 $0.10 2nd Quarter........................................ $0.27 $0.07 3rd Quarter........................................ $0.38 $0.06 4th Quarter........................................ $0.81 $0.10 Common Stock Fiscal 2004 1st Quarter........................................ $1.51 $0.38 2nd Quarter........................................ $2.69 $1.00 3rd Quarter........................................ $2.41 $1.31 4th Quarter........................................ $1.63 $0.86 The closing price of our common stock on September 13, 2004 was $0.80. As of September 13, 2004, there were approximately 2,400 holders of our common stock, inclusive of holders whose shares were held by brokerage firms, depositaries and other institutional firms in "street name" for their customers. -5- We have never declared or paid any cash dividends on our common stock or our Class B common stock. We do not intend to declare or pay any dividends on our common stock or our Class B common stock in the foreseeable future. We currently intend to retain future earnings, if any, to finance the expansion of our business. Item 6 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA Selected Consolidated Financial Information
Statement of Operations Data Years ended June 30, 2000 2001 2002 2003 2004 Revenues $ - $ 1,301,432 $ 3,107,324 $ 3,141,448 $ 2,367,463 Total operating expenses 2,491,128 4,362,413 5,295,375 4,456,082 3,239,802 Operating loss (2,491,128) (3,060,981) (2,188,051) (1,314,162) (872,339) Interest (expense)/income (1,363,360) 976,107 615,294 638,011 603,352 Foreign Currency Gain (loss) (80,702) (1,042,474) (1,345,348) 1,763,115 1,287,291 Income (Loss) from continuing operations before income taxes (4,232,603) (5,010,726) (2,964,039) 1,069,049 1,030,105 Net Income (Loss) from continuing operations (4,233,222) (5,010,726) (2,964,039) 1,069,049 1,030,105 (Loss)/gain from discontinued operations (34,429,264) - (824,761) (736,947) - Loss on disposition - (2,389,383) - (262,754) (27,582) Extraordinary Item - gain on extinguishments of debt - 2,142,949 - - - Net (loss)/income (38,662,486) (5,257,160) (3,788,800) 69,348 1,002,523 Income (Loss) per share - from continuing Operations $(0.54) $(0.57) $(0.34) $0.12 $0.12 Balance Sheet Data As of June 30, 2000 2001 2002 2003 2004 Total assets $ 94,266,439 $ 15,931,857 $ 11,722,781 $ 12,354,162 $ 13,265,458 Long term liabilities 15,473,769 - - 349,289 234,192 Net working capital (deficiency) (1) 31,414,757 4,253,001 2,345,828 192,081 (177,981) Stockholders' equity 5,595,870 13,578,710 10,212,073 10,025,049 11,422,107
(1) Net working capital (deficiency) is the net of current assets and current liabilities. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Background and History Silverstar Holdings Limited was incorporated in September 1995. The Company's intention is to actively pursue acquisitions fitting a pre defined investment strategy: o Acquiring controlling stakes in small, high quality, sports media and marketing businesses with strong management teams that are positioned to use technology and Internet related platforms to fuel above average growth. o Our investments must show an ability to contribute, in the short to medium term, to earnings per share through operating profit or capital appreciation. -6- o We aim to add value to our investments by operating in partnership with committed, entrepreneurial management who show the vision and ability to grow their businesses into industry or niche leaders. The Company sold its last remaining South African operations in November 2000. The Company still has significant assets that are denominated in South African Rand. The assets include cash and notes receivable. Should the Company hold the notes until maturity the Company will continue to record income statement gains or losses to the extent that the Rand's value fluctuates relative to the US dollar. At the present time, management has no intention of disposing of the notes receivable. On November 17, 2000, the Company acquired all of the assets and certain liabilities of Fantasy Sports (Fantasy) from GoRacing Interactive Services, Inc. Founded in 1993, Fantasy Sports operates the fantasycup.com, fantasycup.org, fantasycup.net, fantasystockcar.com and fantasynhra.com websites and specializes in subscription based NASCAR, college football and other fantasy sports games as well as the sale of die-cast racing cars. On September 24, 2001, a newly created subsidiary of the Company, Student Sports, Inc., acquired all the assets and business and assumed certain liabilities of Student Sports, a media company, producing publications, television programs and various marketing initiatives for the high school sports market. On June 10, 2003, the Company disposed of substantially all the assets and liabilities of Student Sports, which was the only operating subsidiary in the marketing services segment of the Company. In accordance with accounting principles generally accepted in the United States of America the operating results and net assets related to Student Sports have been included in discontinued operations in the company's consolidated statements of operations and consolidated balance sheets. Discontinued operations for the fiscal years ending June 30, 2003 and 2002, represent operating results for eleven and nine months, respectively. Net assets of $0.05 million and net liabilities of $0.06 million were assumed by the parent company. The discontinued operations generated sales of $1.26 million and $1.12 million for the years ended June 30, 2003, and 2002 and net losses from operations of $0.74 million and $0.82 million, respectively. Results of Operations Fiscal 2004 compared to Fiscal 2003 Revenues Revenues were $2.37 million in fiscal 2004 as compared to $3.14 million in the prior year. The decrease was primarily the result of Fantasy Sports decision to discontinue selling die-cast collectibles and apparel during the quarter ended December 31, 2003. Sales of merchandise decreased from $0.81 million in fiscal 2003 to $0.17 million in fiscal 2004. Cost of Sales Cost of sales were $1.41 million in fiscal 2004 as compared to $2.01 million in the prior year. The decrease is primarily a result of decreases in the cost of prizes awarded, fulfillment expenses, direct labor costs and the cost of merchandise and apparel sold. Selling, General and Administrative Expenses Selling, general and administrative expenses for fiscal 2004 were $1.78 million, a decrease of $0.54 million over the same period in the prior year. This decrease was caused by the implementation of cost cutting measures primarily to payroll and related costs at the corporate and operating levels. -7- Amortization and Depreciation Amortization of intangible assets decreased to $0.02 million in fiscal 2004 from $0.07 million in fiscal 2003 as a result of a customer list becoming fully amortized at September 30, 2003. Depreciation expense was $0.04 million in fiscal 2004 as compared to $0.07 million in fiscal 2003. Foreign Currency Gains Foreign currency gains or losses are related to the financial assets remaining in the South African operations. The Foreign currency gains during fiscal 2004 were $1.29 million as compared to gains of $1.76 million in fiscal 2003. These gains are the result of fluctuations of the South African Rand against the US dollar. During the year ended June 30, 2004 the Rand appreciated approximately 17% against the U.S. dollar while it appreciated 26% in fiscal 2003.These foreign currency gains or losses are non-cash items until converted into US dollars, when any unrealized gains or losses will be converted to cash. Interest Income Interest income of $0.63 million was recorded during fiscal 2004 as compared to interest income of $0.65 million in fiscal 2003. Interest income is primarily earned on Notes Receivable from the sale of the Lifestyle business and is affected by the fluctuation of the South African Rand against the US dollar. Interest Expense Interest expense during fiscal 2004 was $0.025 million as compared to $0.012 million in the prior year. The increase in interest expense is attributable to interest charges incurred on short-term credit lines held by Fantasy Sports, Inc. Provision for Income Taxes The Company is registered in Bermuda, where no tax laws are applicable. Three of the Company's subsidiaries are subject to income taxes. Up to this date, none of them has had taxable income. They have incurred losses for tax purposes. The deferred tax asset generated by the tax losses and temporary differences has been fully reserved. Discontinued Operations Student Sports was sold in June 2003. The results for this business for both 2003 and 2002 have been included under Discontinued Operations in our financial statements. During fiscal 2004 the company recognized losses of $0.027 million on assets formerly used by Student Sports that were retained by the parent company when Student Sports was sold in 2003. Net Income(Loss) The Company has recognized income of $1.00 million during fiscal 2004 compared to income of $0.07 million during the prior year. Operating losses for fiscal 2004 were $0.87 million as compared to $1.31 million in Fiscal 2003. The improvement in income in fiscal 2004 was primarily the result of selling Student Sports which generated significant losses in fiscal 2003, a reduction of cost of sales at Fantasy Sports, and a reduction in general and administrative costs at both the operational and corporate levels. The current year includes non-cash foreign currency gains of approximately $1.29 million due to the appreciation of the South African Rand against the US dollar of approximately 17 %. During fiscal 2003 net income included non-cash foreign currency gains of $1.76 million due to the appreciation of the South African Rand against the US dollar of approximately 36%. -8- Fiscal 2003 compared to Fiscal 2002 Revenues Revenues were $3.14 million in fiscal 2003. Revenues in the prior year were $3.10 million. The increase is the result of an increase of revenues of $0.23 million in the sale of NASCAR related die-cast cars, apparel and other items, offset by a smaller decrease in games revenue. Cost of Sales Cost of sales were $2.01 million in fiscal 2003. Cost of sales in the prior year were $1.88 million and are attributable to Fantasy. The increase is primarily caused by increased sale of die cast collectibles. Selling, General and Administrative Expenses Selling, general and administrative expenses for fiscal 2003 were $2.32 million, a decrease of $0.96 million over the same period in the prior year. This decrease is due to sustained efforts to reduce expenses to achieve operational profitability. Amortization and Depreciation Amortization of intangible assets was $0.07 million in both fiscal 2003 and 2002. Depreciation expense was $0.07 million in fiscal 2003 as compared to $0.08 million in fiscal 2002. Foreign Currency Gains Foreign currency gains or losses are related to the financial assets remaining in the discontinued South African operations. The Foreign currency gains during fiscal 2003 were $1.76 million as compared to a loss of $1.35 million in the prior year as a result of the appreciation of the South African Rand against the US dollar. These foreign currency gains or losses are non-cash items until converted into US dollars, when any unrealized gains or losses will be converted to cash. Interest Income Interest income of $0.65 million was recorded during fiscal 2003 as compared to interest income of $0.63 million in fiscal 2002. The increase in interest income in fiscal 2003 is primarily a result of the appreciation of the South African Rand against the dollar, which affects interest earned on Notes Receivable from the sale of the Lifestyle business. Interest Expense Interest expense during fiscal 2003 was $0.12 million as compared to a non-material amount in the prior year. The increase in interest expense is attributable to interest charges incurred on short-term credit lines and lease facilities held by the Company's subsidiaries. Provision for Income Taxes The Company is registered in Bermuda, where no tax laws are applicable. Three of the Company's subsidiaries are subject to income taxes. Up to this date, none of them has had taxable income. They have incurred losses for tax purposes. The deferred tax asset generated by the tax losses and temporary differences has been fully reserved. Discontinued Operations Student Sports was sold in June 2003. The results for this business for both 2003 and 2002 have been included under Discontinued Operations in our financial statements. Net Income(Loss) The Company has recognized income of $0.07 million during fiscal 2003 compared to a loss of $3.79 million during the prior year. The current year includes non-cash foreign currency gains of approximately -9- $1.76 million due to the appreciation of the South African Rand against the US dollar of approximately 36% during the year, offset by non cash charges of approximately $0.59 million related to the sale of Student Sports and the write down of intangible assets. The prior year loss included non-cash foreign currency losses of $1.35 million due to the devaluation of the South African Rand against the US dollar of approximately 29% during the year. The discontinued operations (Student Sports) generated net losses from operations of $0.74 million for fiscal 2003. Without these items, the net loss for fiscal 2003 would have been $0.43 million as compared to $1.61 million loss for fiscal 2002. Financial condition, liquidity and capital resources Cash decreased by $0.38 million from $1.62 million at June 30, 2003 to $1.24 million at June 30, 2004. The balance of the remaining cash is being held for working capital purposes. The Company expects this balance to be sufficient to fund its operations and the operations of its subsidiaries for the next twelve months. During the next twelve months, it also anticipates the commencement of repayment of notes receivable due to it from the sale of First Lifestyle Holdings in South Africa. However, repayment is contingent on the borrower's collection of junior debt. Working capital decreased by $0.37 million from $0.19 million at June 30, 2003 to an ($0.18) million working capital deficiency at June 30, 2004. This decrease is primarily caused by the reduction in cash balances used to fund operations. Accrued interest earned during the year has been classified as part of the Long - - Term Notes Receivable. At June 30, 2004, the Company had borrowings of $0.34 million, which consisted of $0.31 million advances against lines of credit, secured by the Company's cash and $0.03 million of equipment loans. In the future the Company expects to meet its short and long term obligations in part through the collection of amounts due from outstanding notes receivable. Those notes, which are denominated in South African Rand, are to be collected once certain debt covenants have been satisfied in connection with senior debt to which repayment has been subordinated. The Company monitors the financial results of First Lifestyle Holdings on a quarterly and annual basis. It is the Company's opinion, based on reviews of audited financial statements, reviews of the debt covenant compliance calculations, reviews of budgets and inquiries of management of First Lifestyle Holdings, that First Lifestyle Holdings is generating sufficient cash flow from operations to meet its senior debt obligations and be in compliance with the senior debt covenants. The management of First Lifestyle Holdings estimates that repayments of the amounts due should begin in Fiscal 2005. Once the funds are collected in South African Rand, the Company expects to repatriate those funds to the United States. The Company believes that repatriation of the full amount is allowable under current South African foreign currency regulations. Over the last six years the Company has, from time to time, repatriated funds from South Africa without restriction. However, there can be no guarantee that the South African foreign currency regulations will not change in the future in a manner that might restrict the Company's ability to repatriate the remaining assets. In the future the Company intends to add additional operating subsidiaries which will produce revenues and net profits. The Company may utilize a portion of the working capital in connection with the acquisition or establishment of those operations. The Company may also be required to secure additional debt or equity funding in connection with the funding of those future acquisitions. There is no assurance that the Company will be able to secure additional indebtedness or raise additional equity to finance future acquisitions on terms acceptable to management. -10- The following table is a summary of contractual obligations recorded as of June 30, 2004.
Payments due by period More than Contractual Obligations Total Less than 1 Year 1-3 years 3-5 years 5 years Long-Term Debt Obligations $ 35,516 $ 24,883 $ 10,633 - - Operating Lease Obligations 130,861 62,574 55,180 13,107 - Purchase Obligations 265,000 180,000 85,000 - - Employment Contracts 236,250 236,250 - - - -------------------------------------------------------------------------- Total $667,627 $503,707 $150,813 $ 13,107 - ==========================================================================
Purchase Obligations Purchase obligations include a contract between Fantasy Sports, Inc. and a media and marketing consultant for services provided through November 30, 2006. At a minimum the company is obligated to pay $60,000 per year which is reflected on the table of contractual obligations. If certain incentive or additional services are performed additional obligations accrue. Purchase obligations also include a contract between Fantasy Sports, Inc. and another corporation to provide web site hosting and customer service functions through December 31, 2004. The company is obligated to pay $20,000 per month through December 31, 2004 which is reflected on the table of contractual obligations. Additional obligations could become payable under this contract if Fantasy Sports, Inc. achieves specific net profit benchmarks which are summarized below. Potential Obligation 0% of net profits between $0 and $350,000 100% of net profits between $350,000 and $500,000 40% of net profits between $500,000 and $750,000 45% of net profits between $750,000 and $1,000,000 50% of net profits over $1,000,000 Employment Contracts Pursuant to an employment agreement Mr. Clive Kabatznik will serve as Chief Executive Officer, President and Chief Financial Officer of the Company through March 31, 2005. Mr. Kabatznik is paid $315,000 on an annual basis. -11- Off-Balance Sheet Arrangements The Company has guaranteed certain bank facilities of one of its former industrial subsidiaries in South Africa. In January 2004, an unrelated South African third party, entered into an agreement to acquire the former subsidiary. This agreement reduced the Company's guarantee to approximately $47,000, reducing monthly through August 31, 2004. At June 30, 2004, this guarantee stood at approximately $20,000 and was secured by like amounts of cash. As of August 31, 2004, this amount equaled $2,500 and will reduce to $0 by the end of September 2004. The Company does not believe that it will be called upon to meet any portion of this remaining guarantee. In 2001, Fantasy Sports Inc. secured a revolving line of credit for up to $1 million from a bank. Fantasy has drawn and repaid on this line of credit from time to time. Any borrowings under this facility are guaranteed by the Company's cash on hand. As of June 30, 2004, Fantasy had an outstanding balance of approximately $305,160 secured by a like amount of the Company's cash. We anticipate that this line may fluctuate over the course of the current fiscal year. However, based on past experience and current anticipated cash flows, we believe that Fantasy will repay all amounts outstanding under this facility on or before March 31, 2005, however there can be no assurance that these amount will be repaid. Goodwill Impairment Test We acquired Fantasy Sports, Inc. in November 2000. At the time our strategy was to aggressively expand the business by increasing our marketing in the auto-racing segment and developing new games for other niche sports markets. To this end, we hired new staff and increased our marketing and development budgets as well. This strategy was not successful, primarily due to the economic slowdown and as a result, Fantasy has incurred losses since we made this acquisition. During the seven months ended June 30, 2001, Fantasy lost $1,320,000 and had negative cash flow of $268,000. For the twelve months ended June 30, 2002, Fantasy lost $1,135,000 with negative cash flow of $566,000. For the twelve months ended June 30, 2003, Fantasy lost $314,715 with negative cash flow of $185,860. For the twelve months ended June 30, 2004, Fantasy earned $52,785 with positive cash flow of $105,665. Due to the accounting recognition of these losses, the carrying value of Fantasy has diminished since acquisition. On June 30, 2004, we performed an impairment test on the carrying value of Fantasy's goodwill. In accordance with SFAS 142, we compared the fair value of Fantasy (as a reporting unit) to the carrying value of Fantasy including goodwill. The methodology we used to determine fair value was to develop a ratio of revenue to market capitalization utilizing the Company and a comparable publicly traded company in the same industry. This ratio was then applied to Fantasy's revenue to determine fair value. The fair value exceeded Fantasy's carrying value, and therefore, no impairment of goodwill existed at June 30, 2004. We will continue to monitor the carrying values of Fantasy and will use the same methodology on a consistent basis in the future. Should our efforts to stem the losses at Fantasy not succeed and losses and negative cash flow continue, we may be faced with goodwill impairment losses for Fantasy in the future. Future Commitments Through June 30, 2004, Fantasy Sports Inc., the Company's remaining operating subsidiary, generated a small profit after substantial operating losses in previous years. The Company anticipates that this situation will be maintained and improved through a combination of expense reductions and increased -12- revenues. However, there are no assurances that these changes will be successful. In the event that these plans are not successful, the Company may need to continue to support the operations of its subsidiary. The Company intends to increase the profitability of its operating subsidiary and to preserve its cash balances to the best of its ability. The Company anticipates continued repayments from the notes receivable from the sale of certain of its South African subsidiaries. Critical Accounting Policies The following is a discussion of the accounting policies that the Company believes are critical to its operations: Revenues Revenues generated by Fantasy are seasonal from mid-February to the end of November. Fantasy collects its revenue at the beginning and mid-point of the season and recognizes this deferred revenue pro rata over the season. Goodwill The Company adopted SFAS 142 during fiscal 2002 and no longer amortizes goodwill. The Company tests goodwill for impairment in the fourth quarter for Fantasy Sports, Inc. The goodwill impairment test for subsequent acquisitions will be performed on the one-year anniversary of the acquisition and in that period thereafter. The Company performs the impairment test in accordance with SFAS 142 "Goodwill and Other Intangible Assets." SFAS 142 requires that the fair value of the reporting unit be compared to the carrying value, including goodwill, as the first step in the impairment test. The Company determines fair value for Fantasy by developing a ratio of revenue to market capitalization utilizing the Company and comparable publicly traded companies in the same industry and applying this ratio to revenue of the reporting unit. Intangible Assets Intangible assets include trademarks, customer lists and other intellectual property and non-competition agreements. Intangible assets, excluding goodwill, are stated on the basis of cost and are amortized on a straight-line basis over a period of three to ten years. Intangible assets with indefinite lives are not amortized but are evaluated for impairment annually unless circumstances dictate otherwise. Management periodically reviews intangible assets for impairment based on an assessment of undiscounted future cash flows, which are compared to the carrying value of the intangible assets. Should these cash flows not equate to or exceed the carrying value of the intangible, a discounted cash flow model is used to determine the extent of any impairment charge required. Item 7A. Quantitative and Qualitative Disclosures about Market Risk The Company does not ordinarily hold market risk sensitive instruments for trading purposes. The company does however recognize market risk from interest rate and foreign currency exchange exposure. -13- Any movements of interest rates as they relate to outstanding debt would be immaterial to the financial results of the Company. Interest rate risk At June 30, 2004, the Company's cash resources earn interest at variable rates. Accordingly, the Company's return on these funds is affected by fluctuations in interest rates. Any decrease in interest rates will have a negative effect on the Company's earnings. There is no assurance that interest rates will increase or decrease over the next fiscal year. Foreign currency risk Certain of the Company's cash balances and the remaining proceeds from the sale of its South African subsidiaries are denominated in South African Rand. This exposes the Company to market risk with respect to fluctuations in the relative value of the South African Rand against the US Dollar. Due to the prohibitive cost of hedging these proceeds, the exposure has not been covered as yet. Should more favorable conditions arise, a suitable Rand hedge may be considered by management. For every 1% increase or decline in the Rand/US Dollar exchange rate, at year-end exchange rates, the Company would gain or lose $1,594 on every R1,000,000 retained in South Africa. During fiscal 2004, the South African Rand has appreciated against the US dollar by approximately 17% from the rate at June 30, 2003. At June 30, 2004, the Company had assets denominated in South African Rand of 51.30 million. The following is information concerning assets denominated in South African Rand and the foreign currency gains and losses recognized during fiscal 2004: Foreign Currency Balance Gain/(Loss) for the Year As of June 30, 2004 Ended June 30, 2004 In Rand In US Dollars Cash 324,573 $ 8,771 Notes Receivable 50,929,489 1,376,343 Other 45,916 (19,928) -14- SILVERSTAR HOLDINGS LIMITED and Subsidiaries TABLE OF CONTENTS ----------------- PAGE ---- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-1 CONSOLIDATED FINANCIAL STATEMENTS Balance Sheets F-2 Statements of Operations F-3 Statements of Stockholders' Equity F-4 Statements of Cash Flows F-5 - F-6 Notes to Consolidated Financial Statements F-7 - F-29 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders Silverstar Holdings Limited Boca Raton, Florida We have audited the accompanying consolidated balance sheets of Silverstar Holdings Limited and Subsidiaries (the Company) as of June 30, 2004 and 2003, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years ended June 30, 2004. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the accompanying consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Silverstar Holdings Limited and Subsidiaries at June 30, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years ended June 30, 2004, in conformity with accounting principles generally accepted in the United States. RACHLIN COHEN & HOLTZ LLP Fort Lauderdale, Florida August 18, 2004 F-1 SILVERSTAR HOLDINGS LIMITED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 2004 AND 2003
ASSETS 2004 2003 ------------ ------------ Current Assets: Cash and cash equivalents (includes restricted cash of $321,096 and $835,951 in 2004 and 2003, respectively) $ 1,235,310 $ 1,617,629 Accounts receivable, net 1,068 17,816 Inventories 19,379 168,113 Current portion of long-term notes receivable 138,704 248,205 Prepaid expenses and other current assets 36,717 120,142 ------------ ------------ Total Current Assets 1,431,178 2,171,905 ------------ ------------ Property, Plant and Equipment, net 49,856 140,301 Investments in Non-Marketable Securities 843,566 843,566 Long-Term Notes Receivable 7,977,549 6,213,686 Goodwill, net 2,947,824 2,947,824 Intangible Assets, net 12,500 30,750 Deferred Charges and Other Assets 2,985 6,130 ------------ ------------ Total Assets $ 13,265,458 $ 12,354,162 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Bank overdraft $ - $ 567 Lines of credit 305,160 218,851 Current portion of long-term debt 24,883 26,237 Accounts payable 226,830 482,697 Accrued expenses 359,022 415,399 Deferred revenue 693,264 836,073 ------------ ------------ Total Current Liabilities 1,609,159 1,979,824 ------------ ------------ Long-Term Debt 10,633 33,884 Obligation to issue common stock 223,559 315,405 ------------ ------------ Total Liabilities 1,843,351 2,329,113 ------------ ------------ Commitments, Contingencies and Other Matters - - Stockholders' Equity: Preferred stock, $0.01 par value; 5,000,000 shares authorized; no shares issued and outstanding - - Common stock, Class A, $0.01 par value, 23,000,000 shares authorized; 7,798,924 and 7,503,924 shares issued and outstanding, respectively 77,989 75,039 Common stock, Class B, $0.01 par value; 2,000,000 shares authorized; 896,589 and 946,589 shares issued and outstanding, respectively 8,966 9,466 Common stock, FSAH Class B $0.001 par value; 10,000,000 shares authorized; 2,671,087 and 2,671,087 shares issued and outstanding, respectively 600 600 Additional paid-in capital 63,904,557 63,512,472 Accumulated deficit (52,570,005) (53,572,528) ------------ ------------ Total Stockholders' Equity 11,422,107 10,025,049 ------------ ------------ Total Liabilities and Stockholders' Equity $ 13,265,458 $ 12,354,162 ============ ============
See notes to consolidated financial statements F-2 SILVERSTAR HOLDINGS LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED JUNE 30, 2004, 2003 AND 2002
2004 2003 2002 ----------- ----------- ----------- Revenues $ 2,367,463 $ 3,141,448 $ 3,107,324 ----------- ----------- ----------- Operating Expenses: Cost of sales 1,405,728 2,005,598 1,879,967 Selling, general and administrative 1,776,619 2,315,056 3,272,286 Amortization of intangibles 18,250 67,000 67,000 Depreciation 39,205 68,428 76,122 ----------- ----------- ----------- 3,239,802 4,456,082 5,295,375 ----------- ----------- ----------- Operating Loss (872,339) (1,314,634) (2,188,051) Other (Expense) Income 11,801 (17,443) (45,934) Foreign Currency Gain ( Loss) 1,287,291 1,763,115 (1,345,348) Interest Income 628,737 650,329 627,019 Interest Expense (25,385) (12,318) (11,725) ----------- ----------- ----------- Income (Loss) from Continuing Operations Before Income Taxes 1,030,105 1,069,049 (2,964,039) Provision for Income Taxes - - - ----------- ----------- ----------- Income(Loss) From Continuing Operations 1,030,105 1,069,049 (2,964,039) Discontinued Operations: Loss from operations, net of income taxes of $0 and $0, respectively - (736,947) (824,761) Loss on disposition, net of income taxes of $0 and $0, respectively (27,582) (262,754) - ----------- ----------- ----------- Net Income (Loss) $ 1,002,523 $ 69,348 $(3,788,800) =========== =========== =========== Income (Loss) Per Share - Basic and Diluted: Continuing Operations $ 0.12 $ 0.12 $ (0.34) Discontinued Operations (0.00) (0.11) (0.09) ----------- ----------- ----------- Net Income (Loss) $ 0.12 $ 0.01 $ (0.43) =========== =========== =========== Weighted Average Common Stock Outstanding: Basic and diluted 8,575,579 8,704,620 8,750,937 =========== =========== ===========
See notes to consolidated financial statements. F-3 SILVERSTAR HOLDINGS LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS YEARS ENDED JUNE 30, 2004 2003 AND 2002
Silverstar Silverstar Holdings Ltd. Holdings Ltd. Class A Class B Common Stock Common Stock Shares Amount Shares Amount --------- ------------ ------- ------------ Year Ended June 30, 2002: Balance, June 30, 2001 7,178,310 $ 71,783 946,589 $ 9,466 ========= ============ ======= ============ Stock issued for acquisition 900,000 9,000 - - Purchase and retirement of treasury stock (77,000) (770) - - Net Loss - - - - --------- ------------ ------- ------------ Balance, June 30, 2002 8,001,310 $ 80,013 946,589 $ 9,466 ========= ============ ======= ============ Year Ended June 30, 2003: Purchase and retirement of Treasury stock (171,700) (1,717) - - Stock redemtpion -(sale of subsidiary) (325,686) (3,257) - - Net Income - - - - Balance, June 30, 2003 7,503,924 $ 75,039 946,589 $ 9,466 ========= ============ ======= ============ Year Ended June 30, 2004: Stock issued 245,000 2,450 - - Conversion of shares 50,000 500 (50,000) (500) Net Income - - - - Balance, June 30, 2004 7,798,924 $ 77,989 896,589 $ 8,966 ========= ============ ======= ============
First SA Holdings Class B Additional Common Stock Paid-in Accumulated Shares Amount Capital Deficit Total --------- ------------ ------------ ------------ ------------ Year Ended June 30, 2002: Balance, June 30, 2001 2,671,087 $ 600 $ 63,349,937 $(49,853,076) $ 13,578,710 ========= ============ ============ ============ ============ Stock issued for acquisition - - 475,200 - 484,200 Purchase and retirement of treasury stock - - (61,267) - (62,037) Net Loss - - - (3,788,800) (3,788,800) --------- ------------ ------------ ------------ ------------ Balance, June 30, 2002 2,671,087 $ 600 $ 63,763,870 $(53,641,876) $ 10,212,073 ========= ============ ============ ============ ============ Year Ended June 30, 2003: Purchase and retirement of Treasury stock - - (23,418) - (25,135) Stock redemtpion -(sale of subsidiary) (227,980) - (231,237) Net Income - - - 69,348 69,348 Balance, June 30, 2003 2,671,087 $ 600 $ 63,512,472 $(53,572,528) $ 10,025,049 ========= ============ ============ ============ ============ Year Ended June 30, 2004: Stock issued - - 392,085 - 394,535 Conversion of shares - - - - - Net Income - - - 1,002,523 1,002,523 Balance, June 30, 2004 2,671,087 $ 600 $ 63,904,557 $(52,570,005) $ 11,422,107 ========= ============ ============ ============ ============
F-4 SILVERSTAR HOLDINGS LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 2004, 2003 AND 2002
2004 2003 2002 ----------- ----------- ----------- Cash Flows from Operating Activities: Net income( loss) from continuing operations $ 1,002,523 $ 1,069,049 $(2,964,039) Provision for doubtful accounts - 3,365 - Depreciation and amortization 57,455 135,428 143,132 Foreign currency (gains) losses (1,261,824) (1,704,106) 1,212,220 Non-cash interest income on notes receivable (611,720) (603,984) (465,590) Changes in operating assets and liabilities, net (206,713) 193,261 (9,010) (Increase) Decrease in other assets 3,145 (2,274) 171,583 Creation of debenture redemption reserve fund - - 4,248 Loss on disposal of fixed assets 51,065 182 - Net Cash Used in Continuing Operations (966,069) (909,079) (1,907,456) Net Cash Used in Discontinued Operations - (247,000) (1,003,650) ----------- ----------- ----------- Net Cash Used in Operating Activities (966,069) (1,156,079) (2,911,106) ----------- ----------- ----------- Cash Flows from Investing Activities: Acquisition of property, plant and equipment (542) (24,701) (36,628) Proceeds on disposal of property, plant and equipment 1,220 - - Purchase price adjustments - - 200,000 Investment in affiliates - - (212,500) Decrease in long-term note receivable 218,679 115,308 428,607 Acquisition of subsidiaries (net of cash of $0, $0 , $0 and 863,337) - - (120,711) ----------- ----------- ----------- Net Cash Provided by Investing Activities 219,357 90,607 258,768 ----------- ----------- -----------
F-5 SILVERSTAR HOLDINGS LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) YEARS ENDED JUNE 30, 2004, 2003 AND 2002
2004 2003 2002 ----------- ----------- ----------- Cash Flows from Financing Activities: Short term borrowings, net $ 86,309 $ 168,851 $ (42,887) Repayment of long-term debt (24,605) (1,282) (366,084) Issuance of stock 302,689 - - Treasury stock transactions - (25,135) (62,037) ----------- ----------- ----------- Net Cash Provided by (Used in) Financing Activities 364,393 142,434 (471,008) ----------- ----------- ----------- Net Decrease in Cash and Cash Equivalents (382,319) (923,038) (3,123,346) Cash and Cash Equivalents, Beginning 1,617,629 2,540,667 5,664,013 ----------- ----------- ----------- Cash and Cash Equivalents, Ending $ 1,235,310 $ 1,617,629 $ 2,540,667 =========== =========== =========== Supplemental Disclosure of Cash Flow Information: Cash paid during the year for interest $ 25,385 $ 12,318 $ 6,001 =========== =========== =========== Cash Paid during the year for income taxes $ - $ - $ - =========== =========== ===========
See notes to consolidated financial statements. F-6 SILVERSTAR HOLDINGS LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004, 2003 AND 2002 NOTE 1. ORGANIZATION AND PRINCIPAL ACTIVITIES OF THE GROUP Silverstar Holdings Limited (formerly Leisureplanet Holdings Ltd.) (the "Company"), was founded on September 6, 1995. The purpose of the Company has changed from acquiring and operating South African Companies to investing in companies that fit a predefined investment strategy. On November 17, 2000, the Company acquired Fantasy Sports, Inc. ("Fantasy"). Fantasy specializes in Internet-based subscriptions for NASCAR, college football and basketball and other fantasy sports games. On September 24, 2001, the Company acquired Student Sports, Inc. ("Student Sports"), a media company producing publications, television programs and various marketing initiatives for the high school sports market. In June 2003, the company sold it's Student Sports subsidiary and it is reflected as discontinued operations in the accompanying financial statements. (See Discontinued operations below) Investments have been made in other companies, which are in line with the Company's new focus (see Note 7). The Company currently has both Class A and Class B common shares. Holders of Class A Common Stock have one vote per share on each matter submitted to a vote of the shareholders and a ratable right to the net assets of the Company upon liquidation. Holders of the Common Stock do not have preemptive rights to purchase additional shares of Common Stock or other subscription rights. The Common Stock carries no conversion rights and is not subject to redemption or to any sinking fund provisions. All shares of Common Stock are entitled to share equally in dividends from legally available resources as determined by the board of directors. Upon dissolution or liquidation of the Company, whether voluntary or involuntary, holders of the Common Stock, are entitled to receive assets of the Company available for distribution to the shareholders. As of September 13, 2004, the Company currently has 7,812,347 outstanding shares of Class A Common Stock, that are validly authorized and issued, fully paid and non-assessable. Class B and Class A Common Stock are substantially identical except that the holders of Class B Common Stock have 5 votes per share on each matter considered by shareholders. Each share of Class B Common Stock is automatically converted into one share of Class A Common Stock upon sale or death of the shareholder. As of September 13, 2004, the Company currently has 876,025 outstanding shares of Class B Common Stock, that are validly authorized and issued, fully paid and non-assessable. Discontinued Operations On June 10, 2003, the company sold substantially all assets and liabilities of Student Sports, Inc effective as of May 15, 2003. The consideration for the sale of Student Sports was 325,686 shares of Silverstar Holdings common stock that were returned to the Company as well as the forgiveness of a maximum of 913,745 contingent shares of Silverstar Holdings that could have been payable to former Student Sports shareholders in April 2004. (see Note 13) F-7 NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and incorporate the following significant accounting policies: Consolidation The consolidated financial statements include the accounts of the Company and all of its subsidiaries in which it has a majority voting interest. Investments in affiliates are accounted for under either the equity or cost method of accounting, where appropriate. All significant inter-company accounts and transactions have been eliminated in the consolidated financial statements. The entities included in these consolidated financial statements are as follows: Silverstar Holdings, Ltd. (Parent Company) Silverstar Holdings, Inc. First South African Management Corp. First South African Holdings, Ltd. (FSAH) Fantasy Sports, Inc. Student Sports, Inc. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents consist of cash and all highly liquid investments with original maturities of three months or less. Concentrations of Credit and Market Risks Financial instruments that potentially subject the Company to concentrations of credit and market risk are comprised of cash and cash equivalents and notes receivable. Cash The Company currently maintains a substantial amount of cash and cash equivalents with financial institutions in South Africa denominated in South African Rand. Changes in the value of the Rand compared to the U.S. dollar can have an unfavorable impact on the value of the cash and cash equivalents. In addition, these financial instruments are not subject to credit insurance. The Company maintains deposit balances at U.S. financial institutions that, from time to time, may exceed federally insured limits. At June 30, 2004, there were balances in excess of federally insured limits. The Company maintains its cash with high quality financial institutions, which the Company believes limits risk. Notes Receivable The Company's notes receivable are to be settled in South African Rand by South African companies. The Company's ability F-8 to collect on these notes may be affected by the financial condition of the debtor's economic conditions in South Africa and the value of the South African Rand, as compared to the U.S. dollar. In addition, the Company's ability to withdraw these funds from South Africa after collection is restricted and may be subject to approval by the South African government. Fair Value of Financial Instruments The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature of these instruments. The carrying value of long-term notes receivable approximates fair values since interest rates are keyed to the South African prime lending rate. Inventories Inventories are valued at the lower of cost or market with cost determined on the first-in, first-out method. Property, Plant and Equipment Property, plant and equipment is recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Equipment is depreciated over 3 to 10 years. Leasehold improvements are amortized over the terms of the related leases. Software Developed for Internal Use As a result of the acquisition of Fantasy in November 2000, the Company has adopted the provisions of AICPA Statement of Position (SOP) 98-1 "Accounting for the Costs of Computer Software Developed and Obtained for Internal Use". SOP 98-1 requires the capitalization of all internal and external costs incurred to develop internal use software during the application development stage. Fantasy operates its fantasy league through the use of software the company develops. Fantasy develops software to run its fantasy games; however, such costs were not significant during fiscal 2004, 2003 or 2002. Goodwill The Company tests goodwill for impairment in the fourth quarter for Fantasy Sports, Inc. The goodwill impairment test for subsequent acquisitions, if any, will be performed on the one year anniversary of the acquisition and in that period thereafter. The Company performs the impairment test in accordance with SFAS 142 "Goodwill and Other Intangible Assets." SFAS 142 requires that the fair value of the reporting unit be compared to the carrying value, including goodwill, as the first step in the impairment test. The Company determines fair value for Fantasy by developing a ratio of revenue to market capitalization utilizing the Company and comparable publicly traded companies in the same industry and applying this ratio to revenue of the reporting unit. Intangible Assets Intangible assets include trademarks, customer lists, intellectual property and non-competition agreements. Intangible assets, excluding goodwill, are stated on the basis of cost and are amortized on a straight-line basis over a period of three to ten years. Intangible assets with indefinite lives are not amortized but are evaluated for impairment annually unless circumstances dictate otherwise. Management periodically reviews intangible assets for impairment based on an assessment of undiscounted future cash flows, which are compared to the carrying value of the intangible assets. Should these cash flows not equate to or exceed the carrying value of the intangible, a discounted cash flow model is used to determine the extent of any impairment charge required. Customer lists are amortized over a period of three to ten years. The patents, trademarks intellectual property and non-compete F-9 agreements related to discontinued operations were amortized over a period of three to twenty five years, up to the time of their disposal (see Note 13). Foreign Currency Translation The functional currency of the Company is the United States Dollar; the functional currency of First South African Holdings, Ltd. (FSAH) is the South African Rand. Accordingly, the following rates of exchange have been used for translation purposes: Assets and liabilities are translated into United States Dollars using exchange rates at the balance sheet date. Common stock and additional paid-in capital are translated into United States Dollars using historical rates at date of issuance. Revenue, if any, and expenses are translated into United States Dollars using the weighted average exchange rates for each year. The resultant translation adjustments are reported in the statement of operations since FSAH has sold all its operating subsidiaries. Revenue Recognition Revenues generated by Fantasy are seasonal from mid-February to the end of November. Fantasy collects its revenue at the beginning and mid-point of the season and recognizes this deferred revenue pro rata over the season. Revenues from Student Sports is presented in Discontinued Operations. Advertising Costs Advertising costs are expensed as incurred. Advertising costs incurred for continuing operations for the years ended June 30, 2004, 2003 and 2002 were $291,200, $267,857 and $426,558, respectively. Advertising costs incurred for discontinued operations during the years ended June 30, 2003 and 2002 were $7,015 and $25,869. Income Taxes The Company accounts for its income taxes using SFAS No. 109, "Accounting for Income Taxes", which requires the recognition of deferred tax liabilities and assets for expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Stock-Based Compensation Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), encourages but does not require companies to record stock-based compensation plans using a fair value based method. The Company has chosen to continue to account for stock-based compensation using the intrinsic value based method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's common stock at the date of the grant over the amount an employee must pay to acquire the stock. If the Company used the fair value-based method of accounting to measure compensation expense for options granted at grant date as prescribed by SFAS No. 123, income/ (loss) per share from continuing operations would have been reduced to the proforma amounts indicated below. F-10
2004 2003 2002 ------------- ------------- ----------- Income (loss) continuing operations as reported $ 1,030,105 $ 1,069,049 $(2,964,039) Less: Compensation expense for options Awards determined by the fair-value -based Method (88,888) (15,472) (868,002) ------------- ------------- ----------- Proforma net income/(loss) from continuing Operations $ 941,127 $ 1,053,577 $(3,832,041) ============= ============= =========== Basic: As reported $ 0.12 $ 0.12 $ (0.39) Pro forma $ 0.11 $ 0.12 (0.48) Assuming Full dilution : As reported $ 0.11 $ 0.10 N/A Pro forma $ 0.10 $ 0.10 N/A
The weighted average grant date fair value of options granted in 2004, 2003 and 2002 and the significant assumptions used in determining the underlying fair value of each option grant on the date of the grant utilizing the Black Scholes option pricing model were as follows:
2004 2003 2002 ---- ---- ---- Weighted average grant-date fair value of options granted $1.44 $0.14 $0.48 Assumptions: Risk free interest rate 3.17% 3.14% 3.99 to 4.48% Expected life 5 Years 5 Years 5 Years Expected volatility 142% 127% 96% Expected dividend yield 0.0% 0.0% 0.0%
Net Loss Per Share Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding. Diluted net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding and dilutive potential common shares which includes the dilutive effect of stock options, warrants, convertible debentures and shares to be issued in connection with the acquisition of Student Sports (see Note 3). Dilutive potential common shares for all periods presented are computed utilizing the treasury stock method. The dilutive effect of shares to be issued in connection with the acquisition of Student Sports is computed using the average market price for the quarter. The diluted share base for the year ended June 30, 2002 excludes shares of 1,737,910. These shares are excluded due to their anti-dilutive effect as a result of the Company's loss from continuing operations during 2002 . F-11 Recently Issued Accounting Standards On March 31, 2004, the Financial Accounting Standards Board (FASB) issued its Exposure Draft, "Share-Based Payment," which is a proposed amendment to FASB Statement No. 123, "Accounting for Stock-Based Compensation." The Exposure Draft would require all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. FASB expects that a final standard would be effective for public companies for fiscal years beginning after December 15, 2004. The Company does not intend to adopt a fair-value based method of accounting for stock-based employee compensation until a final standard is issued by the FASB that requires this accounting. In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46") which is an interpretation of Accounting Research Bulletin No. 51, "Consolidated Financial Statements." FIN 46 requires a variable interest entity (VIE) to be consolidated by a company that is considered to be the primary beneficiary of that VIE. In December 2003, the FASB issued FIN No. 46 (revised December 2003), "Consolidation of Variable Interest Entities," ("FIN 46-R) to address certain FIN 46 implementation issues. FIN 46 and FIN 46-R apply immediately to variable interest entities created after January 31, 2003. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a VIE that is acquired before February 1, 2003. The adoption of FIN 46 and FIN 46-R does not have a material impact on our financial statements. During May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 ("SFAS 150"), "Accounting for Certain Instruments with Characteristics of both Liabilities and Equity". SFAS 150 clarifies the accounting for certain financial instruments with characteristics of both liabilities and equity and requires that those instruments be classified as liabilities in statements of financial position. Previously, many of those financial instruments were classified as equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150 did not to have a material impact on our operating results or financial position. During April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 ("SFAS 149"), "Amendment of Statement 133 on Derivative Instruments and Hedging Activities". SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement 133. SFAS 149 is effective for contracts entering into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The guidance should be applied prospectively. The adoption of SFAS 149 did not have any impact on our operating results or financial position as we do not have any derivative instruments that are affected by SFAS 149 at this time. On December 31, 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure - An Amendment of SFAS 123. The standard provides additional transition guidance for companies that elect to voluntarily adopt the accounting provisions of SFAS 123, Accounting for Stock-Based Compensation. SFAS 148 does not change the provisions of SFAS 123 that permits entities to continue to apply the intrinsic value method of APB 25, Accounting for Stock Issued to Employees. As Silverstar Holdings continues to follow APB 25, its accounting for stock-based compensation did not change as a result of SFAS 148. SFAS 148 does require certain new disclosures in both annual and interim financial statements. The required annual disclosures are effective immediately and have been included in the Company's consolidated financial statements. The new interim disclosure provisions will be effective in the first quarter of fiscal 2004. F-12 In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclose Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees it has issued. The Interpretation also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. FIN 45 was effective for interim or annual periods ending after December 15, 2002. The adoption of FIN 45 had no material effect on the financial statements. In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities." This statement addresses financial accounting and reporting for costs associated with exit or disposal activities. SFAS 146 will become effective in the third quarter of fiscal 2003. The adoption of this statement did not have a significant impact on the results of operations or financial position of the Company. In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002." Adoption of the standard is generally required in the fiscal year beginning after May 15, 2002, with certain provisions becoming effective for financial statements issued on or after May 15, 2002. Under the standard, transactions currently classified by the Company as extraordinary items will no longer be treated as such but instead will be reported as other non-operating income or expenses. The Company adopted SFAS 145 on July 1, 2002 and the adoption of SFAS 145 did not have a material impact on the Company's financial position or results of operations. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement provides a single comprehensive accounting model for impairment of long-lived assets and discontinued operations. SFAS 144 will become effective in the first quarter of fiscal 2003. The adoption of this statement did not have a significant impact on the results of operations or financial position of the Company. In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement Obligations". SFAS 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. The statement requires that the amount recorded as a liability be capitalized by increasing the carrying amount of the related long-lived asset. Subsequent to initial measurement, the liability is accreted to the ultimate amount anticipated to be paid, and is also adjusted for revisions to the timing or amount of estimated cash flows. The capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. SFAS 143 was effective for the Company's financial statements beginning July 1, 2002. The adoption of this statement did not have a significant impact on the results of operations or financial position of the Company. Effective July 1, 2001, the Company adopted SFAS 142, "Goodwill and Other Intangible Assets," which establishes new accounting and reporting requirements for goodwill and other intangible assets. Under SFAS 142, all goodwill amortization ceased effective July 1, 2001 (goodwill amortization for fiscal 2002 otherwise would have been $821,098) and recorded goodwill attributable to Fantasy Sports, Inc. was tested for impairment. This impairment test is required to be performed at adoption of SFAS 142 and at least annually thereafter. On an ongoing basis (absent any impairment indicators), the Company expects to perform this impairment test during the fourth quarter for Fantasy Sports. Any subsequent acquisitions that are considered reporting units under SFAS 142, the impairment test will be performed on the one year anniversary of the acquisition and in that period thereafter. F-13 Based on the initial impairment test on July 1, 2001, it was determined that none of the goodwill recorded was impaired. Impairment adjustments recognized after adoption, if any, generally are required to be recognized as operating expenses. The Company performed the impairment test on goodwill of Fantasy Sports as of June 30, 2004, 2003 and 2002 and determined that goodwill was not impaired. In connection with adopting SFAS 142, the useful lives and the classification of identifiable intangible assets was reassessed and it was determined that they continue to be appropriate. For the components of amortized intangible assets, see Note 9. In June 2001, the FASB issued SFAS 141, "Business Combinations," which requires all business combinations initiated after June 30, 2001 to be accounted for under the purchase method. SFAS 141 also sets forth guidelines for applying the purchase method of accounting in the determination of intangible assets, including goodwill acquired in a business combination, and expands financial disclosures concerning business combinations consummated after June 30, 2001. The application of SFAS 141 did not affect any of the Company's previously reported amounts included in goodwill or other intangible assets. NOTE 3. ACQUISITIONS On September 24, 2001, the Company acquired all the assets and business and assumed certain liabilities of Student Sports, a media company producing publications, television programs and various marketing initiatives for the high school sports market. Under the terms of the agreement, the Company issued 900,000 Company common shares to the owners of Student Sports, and undertook to provide a further payment, as defined, of between 500,000 and 1,500,000 shares of Company common stock on March 31, 2004. On June 10, 2003 the Company sold substantially all assets and liabilities of Student Sports, Inc. (See Note 13). The costs of the acquisition were allocated on the basis of the estimated fair values of the assets acquired and liabilities assumed. The acquisition was accounted for as a purchase. The intangible assets identified in connection with the acquisition were recorded (and amortized where applicable) in accordance with the provisions of SFAS No. 142. Acquisition cost $1,414,858 ========== Net assets acquired: Current assets, primarily accounts receivable $ 255,426 Fixed assets 41,410 Intangible assets 1,341,038 ---------- Total assets 1,637,874 ---------- Current liabilities 208,720 Long-term debt 14,296 ---------- Total liabilities 223,016 ---------- $1,414,858 ========== F-14 The following unaudited pro forma summary presents consolidated financial information as if the acquisition of Student Sports had occurred effective July 1, 2001. The pro forma amounts, which include the results of operations of Student Sports, were compiled using the cash basis of accounting. The Company believes that these results do not differ materially from generally accepted accounting principles. The pro forma information does not necessarily reflect the actual results that would have occurred, nor is it necessarily indicative of future results of operations of the consolidated entities.
Year Ended June 30, 2002 ----------- Revenue $ 4,597,144 =========== Loss before discontinued operations and extraordinary item (4,073,069) Discontinued operations - Extraordinary item - ----------- Net loss $(4,073,069) =========== Loss per share - basic and diluted: Loss before discontinued operations and extraordinary item $ (0.37) Discontinued operations - Extraordinary item - ----------- Net loss $ (0.37) ===========
NOTE 4. ACCOUNTS RECEIVABLE
2004 2003 ------- ------- Accounts receivable $1,068 $17,816 Less allowance for doubtful accounts - - ------- ------- $1,068 $17,816 ======= ========
NOTE 5. INVENTORIES Inventories consist of finished goods of $19,379 and $168,113 at June 30, 2004 and 2003, respectively. NOTE 6. PROPERTY, PLANT AND EQUIPMENT 2004 2003 -------- -------- Leasehold improvements $ - $ 24,736 Plant and equipment 204,447 336,229 Motor vehicles 34,912 34,912 -------- -------- 239,359 395,877 Less accumulated depreciation 189,503 255,576 -------- -------- $ 49,856 $140,301 ======== ======== Depreciation expense was $39,205 and $94,680 and $91,657 for the years ended June 30, 2004, 2003, and 2002, respectively. Of this depreciation expense, $0, $26,252 and $15,525, respectively, was included in discontinued operations. F-15 NOTE 7. INVESTMENTS IN NON-MARKETABLE SECURITIES A summary of the investments in affiliates on the consolidated financial statements is presented below:
Effective As of and for the Year Ended Percentage --------------------------- Ownership June 30, 2004 June 30, 2003 --------- ------------- ------------- Investments In and Receivables From Unconsolidated Affiliates: Magnolia Broadband 5 and 13 831,066 831,066 Other 12,500 12,500 -------------- ---------- $843,566 $843,566 ============== ============ Share of losses of unconsolidated affiliates: Magnolia Broadband 5 and 13 - - -------------- ------------- $ - $ - ============== ============
Magnolia Broadband, Inc. On April 14, 2000, the Company purchased 3,447,774 shares of Series A Preferred stock in Magnolia Broadband ("Magnolia"), with voting rights representing a 48% interest in Magnolia, for a consideration of $2,500,000, $1,300,000 of which was recorded as goodwill. The goodwill relating to the Company's investment in Magnolia was being amortized over a three-year period. Effective July 1, 2001, the Company adopted SFAS 142 (see Note 2) at which time the unamortized balance was $831,066. Such goodwill is no longer being amortized and at June 30, 2002, such goodwill was not considered impaired. On March 9, 2001, the Company loaned Magnolia $250,000. This loan is convertible into the type of equity security Magnolia sells in its next private placement. In connection with this loan, Magnolia issued the Company warrants to acquire 250,000 shares of Magnolia's common stock at an exercise price of $1.00 per share. The warrants expire on March 9, 2006. The value of the warrants at the date of issuance was not considered significant. At June 30, 2001, the Company provided a full valuation allowance relating this $250,000 loan. In October 2001, the Company loaned Magnolia $200,000, which was convertible into newly reclassified Series A Preferred Stock. As part of the consideration for the Notes, the Company will exchange its existing convertible notes for new Series A Preferred shares. This note and the above note were converted into new Series A Preferred Stock in March 2002 (see below). On March 21, 2002, Magnolia entered into an agreement whereby it raised $6 million from three institutional investors. The agreement called for an immediate infusion of $3 million, with an additional $3 million committed, but contingent on Magnolia reaching defined technical milestones. As a result of this agreement, the Company exchanged its existing shares in Magnolia for new Series A Preferred shares and has converted the October 2001 loan into these new Series A Preferred shares as well. The Company's ownership percentage was reduced to approximately 13% and further reduced when the second tranche of financing was realized. In July 2003, Magnolia closed on a $6 million Series C financing round, half of which was funded on closing with the other half dependant on the achievement of certain technical milestones. In December 2003, Magnolia received the second half of this financing round. On a fully diluted basis, the Company's percentage in Magnolia was reduced to approximately F-16 5%. In April, 2004, Magnolia received a further $3 million from its existing venture capital investors in the form of a convertible note, convertible into Series C Preferred Shares. Magnolia will need to obtain additional funding to fund its future operations until it achieves revenues and profitability. While Magnolia has successfully raised capital in the past, there is no assurance that it will be able to do so in the future. Magnolia Broadband is a development stage company established to develop and market wireless based chips primarily for the mobile handset market. The Company initially invested in Magnolia based on the track record of Magnolia's founder, positive industry feedback together with the results of an independent study commissioned by the Company to evaluate Magnolia's basic technological premise and its market applications. In assessing the fair value of our investment in Magnolia, we monitor their progress through monthly board meetings and additional formal and informal communications. Magnolia, since inception, has set technical goals and timelines, which were invariably met or surpassed. Furthermore, the company excelled in hiring high level technical staff with advanced degrees and experience in management of corporations such as Bell Labs, Motorola, and Anadigics. The willingness of highly qualified individuals to leave established corporations for a start-up opportunity provided validation for our belief in Magnolia's potential. This promise was further validated by the significant investments made by leading venture capital funds in April 2002 and July 2003, and by positive responses from potential customers, most notably SK Telecom and Sprint PCS. Based on Magnolia's achievements, some of which are summarized above, the Company concluded that these positive accomplishments support the variables considered in developing the valuations for the private placement transactions which the Company used as a basis for concluding that its investment in Magnolia was not reflected at a value in excess of fair value on its financial statements. The Company's ongoing monitoring and evaluation described above continues. Over the next twelve months, among other goals, Magnolia anticipates commercial production of its first Chipset product, as well as engineered samples of a second commercial Chipset product. Furthermore, it plans to have successfully completed pre-production of a first commercial design handset with a handset manufacturer. Additionally, a further engineering prototype handset is to be developed with a second handset manufacturer, as well as a commercial relationship with a handset manufacturer are anticipated over the next twelve months. The Company will continue to monitor Magnolias' progress and will evaluate the carrying value of its investment based upon these milestones being met. In performing our analysis of the possible impairment of our investment in Magnolia as of June 30, 2002, 2003 and 2004, we considered our investment in Magnolia in total in accordance with paragraph 19(h) of APB No. 18. In performing our analysis for 2002, we obtained the financial statements of Magnolia to determine their historical cash flow requirements to assist us in evaluating future cash flow needs. We noted that Magnolia had received $3,000,000 in funding in March 2002. Given the available cash at June 30, 2002, we determined that Magnolia would be able to operate through January or February of 2003 without additional funding. However, per Magnolia's agreement with the investor, the investor was required to fund Magnolia with another $3,000,000 if certain defined technical milestones were reached in December 2002. Based on information provided by Magnolia, we felt comfortable that the milestone in December 2002 would be reached. As a result, we concluded that our investment in Magnolia at June 30, 2002 was not impaired pursuant to the criteria in APB 18 paragraph 19(h). Subsequently, Magnolia did meet the milestone and the $3,000,000 in additional funding was received. Furthermore, to determine that our investment in Magnolia was carried at the lower of cost or market on June 30, 2002, the Company computed the value of its holdings in Magnolia Broadband by multiplying F-17 the number of shares it owned by the March 21, 2002 private placement price. This resulted in a fair value that was greater than the carrying value of our investment. In performing our analysis for 2003, we looked to the $6 million in financing Magnolia received in July 2003 from a Series C Preferred Stock Purchase Agreement with existing investors. Under this agreement, Magnolia will receive additional funds from further sales of Series C Preferred Stock to these investors if certain operational milestones are met. The Company determined that based on the $6 million funding received from Magnolia in July 2003 and the progress Magnolia had made in developing its technology and meeting milestones, the Company's investment in Magnolia is not considered impaired at June 30, 2003. We again computed the fair value of our holdings in Magnolia Broadband by multiplying the number of shares we owned by the July 2003 private placement price, which resulted in a fair value that was greater than the carrying value of our investment. Furthermore, in performing our analysis for 2004, we looked to the $6 million in financing Magnolia received in July 2003 from a Series C Preferred Stock Purchase Agreement with existing investors, as well as the convertible notes received by Magnolia in April 2004. The Company determined that based on the $6 million funding received from Magnolia in July 2003 and the terms of the notes, as well as the progress Magnolia had made in developing its technology and meeting milestones, as described above, the Company's investment in Magnolia is not considered impaired at June 30, 2004. We again computed the fair value of our holdings in Magnolia Broadband by multiplying the number of shares we owned by the July 2003 private placement price, as well as the conversion price of the April 2004 Convertible Note, which resulted in a fair value that was greater than the carrying value of our investment. NOTE 8. LONG-TERM NOTES RECEIVABLE In connection with the sale of Lifestyle, which was completed in November 2000, as well as the earlier sale of two other subsidiaries, the Company received as partial consideration three notes receivable denominated in South African Rand. These notes are subject to foreign currency risk and a portion of one is subject to certain performance requirements of the debtor. Two of the notes require monthly payments ranging from R50,000 ($7,000) to R189,000 ($25,000). The Company has received all scheduled payments with respect to the first of these notes, including interest in a timely fashion. The second note has a balance of approximately $60,000 outstanding. This note had been repaid, on a monthly basis, and in a timely fashion for over three years. During the last six months some payments have been deferred, however, we continue to accrue interest and anticipate that the note, plus all interest, will be reapid in full, during fiscal 2005. The third note was for R52 million ($8 million) of which R20 million ($3.1 million) (plus accrued interest) has been treated as contingent consideration to be recorded when collected as it is secured only by the debtor's stock in Lifestyle and therefore collection is not assured. R31.4 million ($4.8 million) of the third note, is payable as the borrower collects on junior debt. Collections of junior debt will be first charged against accrued interest with the excess applied to the receivable balance not to exceed tranches of R500,000. Management does not expect to begin receiving payments on these notes until the third quarter of fiscal 2005. These notes bear interest at rates as defined (at June 30, 2004 the rate was 8.0%). With respect to the Lifestyle note, the Company's South African subsidiary, First South African Holdings (Pty) Ltd (FSAH) received a note receivable, in the face amount of $8,000,000 from Salwin Investments (Pty) Ltd, a special purpose company, owned by First Lifestyle Holdings management. The purpose of the transaction was to enable the management of First Lifestyle Holdings (five executive directors) to acquire shares in First Lifestyle Holdings Limited. This note is payable on the following basis: F-18 (a) If Salwin receives any payment from First Lifestyle for junior debt, such amounts will be used to pay accrued interest on the Note, and any balance will be applied to reduce capital in tranches of R500,000. (b) The shareholders of Salwin can inject funds into the company in order to reduce the debt, without penalty. (c) Should Salwin dispose of its shares in and claims against First Lifestyle, the proceeds will be used to settle the Note. If there is any shortfall in the proceeds, such amount will be written off. (d) Any outstanding liability will irrevocably terminate on the 20th anniversary of the Note. The repayment by First Lifestyle of the junior debt owed to Salwin will at all times be subject to the senior debt covenants that govern the relationship between First Lifestyle and its bankers. As of June 30, 2004, the Company had not received any payment from Salwin for either principal or interest. However, the Company has continued to accrue interest on the original R31.4 million ($4.8 million) portion of the Note that it recorded upon the sale of First Lifestyle Holdings. The Company monitors the financial results of First Lifestyle Holdings on a quarterly and annual basis. It is the Company's opinion that First Lifestyle is generating sufficient cash flow to meet its senior debt obligations and senior bank covenants. As First Lifestyle meets its bank covenants, the Company anticipates receiving repayment of interest and principal on its notes. Management of First Lifestyle has estimated that repayments should begin in Fiscal 2005. Having acquired, owned and operated the South African businesses, the Company is well acquainted with the First Lifestyle Group, its management and its assets. The cash flow generated by First Lifestyle has enabled it to pay down over half its senior debt. It has met two of the three senior bank covenants governing the repayment of its junior debt. It is the Company's belief that such repayments of junior debt will commence in fiscal 2005. Additionally, the management of Lifestyle cannot realize value for their shares in Lifestyle prior to the full payment of the Salwin note. Based on these factors, the Company, has therefore concluded that its note receivable from Salwin will be collected first via the payment of Lifestyle junior debt and thereafter by Lifestyle's management in order to secure free access to their shares in Lifestyle currently encumbered by the Salwin note agreement. The timing of full payment on the loan is undetermined. The Company has continued to accrue interest on the Salwin Note based on its calculation as to the realizable value of the underlying collateral for the Note. This analysis includes both objective valuation calculations, as well as more subjective criteria as to the likelihood of Salwin shareholders accessing liquidity for their Lifestyle shares in the medium term. There can be no guarantee that our analysis is correct or that the realizable value will remain sufficient to cover the full amount of the Note. Should future circumstances dictate a reevaluation of our assumptions, we may cease accruing interest on the Note or may impair its carrying value. The Company is currently in negotiations with the Salwin shareholders for early redemption of a portion of the Note. There is no guarantee that these discussions will result in any accelerated payments. F-19 These notes bear interest at rates based on lower of the South African Bankers Acceptance rate or 12% (at June 30, 2004 the rate was 8%). Notes receivable include accrued interest of approximately $3,706,466. June 30, 2004 2003 ---------- ---------- Balance $8,116,253 $6,461,891 Less current portion 138,704 248,205 ---------- ---------- Long-term portion $7,977,549 $6,213,686 ========== ========== NOTE 9. INTANGIBLE ASSETS The components of amortized intangible assets as of June 30, 2004 and 2003 is as follows: Gross Carrying Accumulated Amount Amortization Balance at June 30, 2004: Customer lists $215,000 $202,500 ======== ======== Balance at June 30, 2003 Customer lists $215,000 $184,250 ======== ======== Amortization expense for intangible assets was $18,250, $112,938 and $106,375, for the years ended June 30, 2004, 2003, and 2002, respectively. Of this amortization expense, $0, $45,938 and $15,525, respectively, was included in discontinued operations. Estimated amortization expense for the five succeeding fiscal years is as follows: 2005 $2,000 2006 $2,000 2007 $2,000 2008 $2,000 2009 $2,000 NOTE 10. ACCRUED LIABILITIES June 30, 2004 2003 -------- -------- Accrued prize winner cash and merchandise awards $170,222 $195,498 Payroll and related payroll expenses 14,698 52,220 Other 174,102 167,681 -------- -------- $359,022 $415,399 ======== ======== F-20 NOTE 11. DEBT Lines of Credit In June 2002, Fantasy Sports obtained a secured line of credit facility for borrowings up to $1.0 million, which is fully secured against cash balances held in the Company's account. This facility is due on demand and has an interest rate of 3.0% . The balance outstanding under this line of credit at June 30, 2004 was $305,160. Long term debt 2004 2003 ------- ------- Vehicle loans $16,276 $21,598 Capital lease obligations 19,240 38,523 ------- ------- 35,516 60,121 Less current portion 24,883 26,237 ------- ------- Long-term debt, net $10,633 $33,884 ======= ======= Scheduled debt maturities for the next five fiscal years are $24,883 in fiscal 2005, $5,983 in fiscal 2006 and $4,650 in fiscal 2007 . NOTE 12. INCOME TAXES The components of the Company's provision for income taxes were as follows: 2004 2003 2002 -------- ----- ----- Current: Federal $ - $ - $ - State - - - -------- ----- ----- - - - -------- ----- ----- Deferred: Federal - - - State - - - -------- ----- ----- - - - -------- ----- ----- $ - $ - $ - ======== ===== ===== A reconciliation of income tax computed at the statutory federal rate to income tax expense (benefit) is as follows:
2004 2003 2002 ------------- ------------- ------------- Tax benefit at the statutory rate of 34% $340,858 $23,578 $(1,288,192) Tax effect on Income (loss) of non-US Operations (324,908) (120,201) 612,297 State income taxes, net of federal income tax 1,446 (8,526) (59,638) Travel and entertainment 447 7,407 4,376 Valuation allowance (17,843) 97,742 731,157 ------------- ------------- ------------- $ - $ - $ - ============= ============= =============
F-21 At June 30, 2004, the Company has available a U.S. net operating loss carryforward of approximately $4,643,076 which expires through 2023. In addition to the net operating loss carryforward, the Company had deferred tax assets which relate primarily to amortization of goodwill recorded at different rates for tax and book purposes, deferred revenue that is deferred for book purposes but is recognized when received for tax purposes, and accrued prize winnings which is accrued for book purposes but deductible when paid for tax purposes. As of June 30, 2004 and 2003, a valuation allowance has been established against the deferred tax asset since the Company believes it is more likely than not that that the amounts will not be realized. The components of the deferred tax assets (liabilities) were as follows at June 30, 2004 and 2003: Current: 2004 2003 -------------- -------------- Net operating loss $1,717,938 $1,265,986 Accrued prize winnings 57,062 66,377 Accrued pit points 5,920 5,920 Deferred revenue 256,508 309,360 -------------- -------------- 2,037,428 1,647,643 Long-term: Amortization of goodwill (161,007) (111,032) Depreciation 8,261 21,368 -------------- -------------- (152,746) (89,664) 1,884,682 1,557,979 Total valuation allowance (1,884,682) (1,557,979) -------------- -------------- Deferred tax asset $ - $ - ============== ============== The Silverstar Holdings Limited is a Bermuda registered corporation where there are no income tax laws applicable. FSAH, a South African registered corporation, incurred no income tax charges in fiscal year 2004 and 2003. First South Africa Management Corp. Fantasy Sports, Inc. and Student Sports, Inc., are U.S. registered corporations and did not incur any income tax provision for 2004, 2003 and 2002. F-22 NOTE 13. DISCONTINUED OPERATIONS Student Sports, Inc. On June 10, 2003, the Company sold substantially all the assets and liabilities as of May 15, 2003 of Student Sports, a media company producing publications, television programs and various marketing initiatives for the high school sports market. The purchaser is an entity controlled by some, but not all of the stockholders from which the Company originally acquired Student Sports in September 2001. Those stockholders who participated in the repurchase agreed to surrender the right to receive shares of Company common stock which they received as contingent consideration in the Company's acquisition of Student Sports. As a result, an obligation to issue approximately 914,000 common shares, valued at approximately $492,000 has been included as a liability relieved in connection with the sale in the calculation of the loss associated with the disposition. The calculation of loss from disposition also includes the value of the Company common stock returned, as well as the cash paid. A summary of the calculation of the loss on disposition is approximately as follows: Cash received $ 1,000 Common stock returned 231,000 Liability to issue common stock relieved 492,000 --------- Total consideration 724,000 Net book value transferred (987,000) --------- Loss on disposition $(263,000) ========= In September 2001 when Student Sports was acquired, a commitment to issue up to 1,500,000 shares of Company common stock, at the lower of $3.00 per share or the market price of the stock, not to exceed $1,500,000 was entered into. The only contingency for the issuance of the shares was time. The shares were to be issued on March 31, 2004. Pursuant to EITF 97-15, the contingent consideration was recorded at the date of acquisition as a liability of $807,000, the 1,500,000 shares at 80% ($0.538 per share) of the average market value for the 20 trading days prior to closing. The remaining liability to issue shares, included as a liability in the accompanying consolidated balance sheet ($223,559) represents the obligation to issue common shares to those rights holders who did not surrender their rights. Those rights that were not surrendered entitle the holders to receive Company common stock on March 31, 2004. The Company is currently negotiating with the remaining rights holders in an effort to reduce or eliminate the number of common shares that the Company must issue in connection with the contingent consideration in light of the poor performance of Student Sports. In accordance with accounting principles generally accepted in the United States of America, the operating results and net assets related to Student Sports, Inc. have been included in discontinued operations in the company's consolidated statements of operations and consolidated balance sheets. F-23 The following summarizes the operating results of Student Sports, discontinued operations: Eleven Months Nine Months Ended Ended May 15, June 30, 2003 2002 ------------ ----------- Revenue $ 1,285,065 $ 1,121,101 ============ =========== Operating loss $ (736,947) $ (824,761) ============ =========== Loss on disposal $ (262,754) $ - ============ =========== Calculation of Loss on Sale of Student Sports Book value of assets transferred $ 1,487,245 Cost of shares issued at acquisition 175,220 Liabilities transferred (501,660) Liability to issue shares relieved, at cost (666,814) Common shares returned at fair value on date of sale (231,237) ----------- Loss on disposition $ 262,754 =========== F-24 NOTE 14: CASH FLOWS Changes in operating assets and liabilities consist of the following:
2004 2003 2002 ----------- ----------- ----------- Decrease (Increase) in accounts receivable $ 16,748 $ 5,413 $ (25,594) Decrease (Increase) in inventories 148,734 (46,483) 256,091 Decrease (Increase) in prepaid expenses and current 83,425 (20,010) 56,812 assets Increase (Decrease) in overdraft (567) 567 (Decrease) increase in accounts payable (255,867) 222,480 (180,786) (Decrease) increase in accrued expenses (199,186) 31,294 (115,533) Decrease in other taxes payable - - - Decrease in income taxes payable - - - ----------- ----------- ----------- $ (206,713) $ 193,261 $ (9,010) =========== =========== =========== Netcash provided used in discontinued Operations consists of the following: Net loss of discontinued operations $ - $ (999,700) $ (824,761) Impairment of intangible assets - 322,000 - Depreciation and amortization - 72,190 54,900 Bad debts expense - 3,700 16,429 Changes in operating accounts - 113,481 (174,377) Loss on Disposal of Fixed Assets - 6,502 - Acquisition of property plant and equipment - (21,207) (64,149) Short - term borrowings -net - 96,045 53,955 Repayment of long term debt - (14,812) (7,013) Proceeds from equipment loans - 322,000 51,175 Cash (included in) from net assets from discontinued operations - - (109,809) Net loss on sale of assets - 174,801 - ----------- ----------- ----------- $ - ($ 247,000) ($1,003,650) ----------- ----------- ----------- Non-cash investing and financing activities: Conversion of Class B shares to common Shares $ 500 $ - $ - =========== =========== =========== Retirement of treasury shares $ - $ 25,135 $ 62,037 =========== =========== =========== Financing of vehicle purchase $ - $ 22,800 $ - =========== =========== ===========
F-25 NOTE 15. BUSINESS SEGMENT INFORMATION During fiscal years 2003 had two reportable segments, which included strategic business units that offered different products and services. These business units were managed separately as Student Sports provided marketing services and Fantasy Sports provides entertainment services. As the company has changed it's focus, the Company sold Student Sports which is therefore being reported as discontinued operations. As a result, continuing operations reflects that the company operated in only one segment, consisting of fantasy sports games. NOTE 16. STOCK OPTION PLAN The Board of Directors has adopted the Company's 1995 Stock Option Plan. The Stock Option Plan provides for the grant of (i) options that are intended to qualify as incentive stock options ("Incentive Stock Options") within the meaning of Section 422 of the Internal Revenue Code to key employees and (ii) options not so intended to qualify ("Nonqualified Stock Options") to key employees (including directors and officers who are employees of the Company and to directors). The Stock Option Plan is administered by the Compensation Committee of the Board of Directors. The committee shall determine the terms of the options exercised, including the exercise price, the number of shares subject to the option and the terms and conditions of exercise. No options granted under the Stock Option Plan are transferable by the optionee other than by the will or the laws of descent and distribution. The exercise price of Incentive Stock Options granted under the plan must be at least equal to the fair market value of such shares on the date of the grant (110% of fair market value in the case of an optionee who owns or is deemed to own more than 10% of the voting rights of the outstanding capital stock of the Company or any of its subsidiaries). The maximum term for each Incentive Stock Option granted is ten years (five years in the case of an optionee who owns or is deemed to own more than 10% of the voting rights of the outstanding capital stock of the Company or any of its subsidiaries). Options shall be exercisable at such times and in such installments as the committee shall provide in the terms of each individual option. The maximum number of shares for which options may be granted to any individual in any fiscal year is 210,000. The Stock Option Plan also contains an automatic option grant program for the employee and non-employee Directors. Each person who is an employee director of the Company following an annual meeting of shareholders will automatically be granted an option for an additional 5,000 shares of common stock; non-employee directors will receive an option for an additional 10,000 shares of common stock. Each grant will have an exercise price per share equal to the fair market value of the common stock on the grant date and will have a term of five years measured from the grant date, subject to earlier termination if an optionee's service as a board member is terminated for cause. The Company, through June 30, 2004, has granted options to purchase 981,666 shares of common stock under the Plan, of which 145,000 options have been exercised and 50,000 options expired unexercised. F-26 Shares Weighted Subject to Average Options Exercise Price Outstanding Per Option ------------ ---------- Balance at June 30, 2001 1,743,331 3.62 Granted - non-plan options 50,000 0.80 Granted - plan options 85,002 0.42 Expired - plan options (65,000) 4.71 ---------- Balance at June 30, 2002 1,813,333 3.35 Granted - plan options 45,000 0.16 Expired - plan options (30,000) 6.00 Terminated - non- plan options (365,000) 2.58 ---------- Balance at June 30, 2003 1,463,333 3.39 --------- Granted - plan options 60,000 1.61 Expired - plan options (145,000) 0.79 Expired - non-plan options (35,000) 0.35 Terminated - non- plan options (130,000) 3.77 Terminated - plan options (20,000) 2.19 ---------- Balance at June 30, 2004 1,193,333 3.68 --------- Significant option groups outstanding at June 30, 2004 and related weighted average exercise price and weighted average remaining life are as follows: Options Outstanding and Exercisable -------------------------------------------------------------------- Weighted Weighted Range of Average Average Exercise Exercise Remaining Prices Shares Price Life (in Years) --------------------- ----------- --------------- ------------------ Less than $1.00 140,000 $0.46 1.95 $1.00 to $2.19 130,000 1.28 3.67 $3.75 to $4.88 683,333 4.32 1.16 $5.00 to $6.00 240,000 5.02 1.47 The Company has also issued options during 2001 to an employee to acquire 4.45 shares of Fantasy common stock for $47,191 per share. These options vested immediately and had a life of three years. The fair value of this option utilizing the Black Scholes option pricing model amounted to $6,451 per share. The assumptions used in this model were as follows: risk-free interest rate 4.96%; expected life 3 years; expected volatility 0.0%; and expected dividend yield of 0.0%. This option expired during the first quarter of fiscal 2004. F-27 NOTE 17. WARRANTS OUTSTANDING In consideration for the capital raising activities undertaken during 2000, the Company issued warrants to purchase 150,000 shares of common stock at an exercise price of $0.01 per share. In accordance with the terms of an agreement entered into with Infospace, the Company undertook to issue warrants over 720,000 shares of common stock valued at $5.00 per share. Infospace was to provide services to the Leisureplanet.com subsidiary in exchange for the Company increasing its holding in Leisureplanet.com equal to the value placed on the warrants. These warrants have an exercise price of $0.01 per share. As of June 30, 2000, 480,000 of these warrants have vested and 240,000 were issued. Since the operations of Leisureplanet.com were closed and the Infospace services ceased, no further options have been issued. As of June 30, 2004, all the Infospace options have expired, unexercised. Also during fiscal 2001, Fantasy issued warrants to acquire 4.68 shares of Fantasy common stock with an exercise price of $47,191 per share to TWI Interactive, Inc, (see Note 21). These warrants were issued in connection with a contract to perform consulting services. Compensation recorded pursuant to that contract includes the fair value of these warrants. These warrants vest immediately and have a life of four years. The fair value of these warrants, which was determined utilizing the Back-Scholes pricing model, amounted to approximately $8,400 per share, a total of approximately $39,300. The assumptions used in this model were as follows: risk free interest rate 4.96%; expected life 4 years; expected volatility 0.0%; and expected dividend yield 0.0%. Warrants outstanding at June 30, 2004 were as follows:
Silverstar Holdings, Ltd. Number of Exercise Expiration Warrant Warrants Price Date Entitlement ------- -------- ----- ---- ----------- Debenture Warrants 2001 52,189 $6.00 July 31, 2007 One share of common stock Capital Raising Warrants 150,000 $6.00 July 31, 2007 One share of common stock Infospace Warrants 240,000 $0.01 June 30, 2004 One share of common stock Fantasy Sports, Inc. Number of Exercise Expiration Warrant Warrants Price Date Entitlement ------- -------- ----- ---- ----------- TWI Interactive, Inc. 4.68 $47,191 June 1, 2005 One share of common stock
F-28 NOTE 18. FIRST SOUTH AFRICAN HOLDINGS ESCROW AGREEMENT The FSAH Escrow Agreement was executed prior to the closing of the Company's offering and provided for the concurrent issuance and delivery of 729,979 shares of Class B common stock to the FSAH escrow agent. The FSAH Escrow Agreement is intended to provide security for the holders of FSAH Class B common stock, who are residents in South Africa and are prohibited in terms of South African law from holding shares in a foreign company. The FSAH Escrow Agreement provides that the parties to this agreement that are holders of FSAH Class B common stock will not sell such shares of stock, but may tender the shares to the FSAH escrow agent against payment therefore by the escrow agent, which payment may consist of the proceeds obtained from the sale of an equal number of Class B common stock of the Company, provided that the proceeds of the sale will be delivered to the holder of the Class B common stock in exchange for the shares in FSAH. These shares will be tendered to the Company and they will be immediately converted to FSAH Class A common stock. Since the consummation of the Company's offering in January 1996, the Company has entered into FSAC Escrow Agreements with the FSAH escrow agent, FSAH and certain principal stockholders of the Company's subsidiaries, which were acquired since January 1996. The terms of the FSAC Escrow Agreement are substantially similar to the terms of the FSAH Escrow Agreement, except that the FSAH Escrow Agreement provided for the issue of shares of Class B common stock to the FSAH escrow agent while the FSAC Escrow Agreements provide for the issue of shares of common stock to the FSAH escrow agent which correspond to the issuance of FSAH Class B common stock by FSAH. Since 2000, no further shares of common stock have been issued in terms of FSAC or FSAH escrow agreements, nor will there be any further issuances. NOTE 19. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS Profitability and Liquidity As reflected in the accompanying consolidated financial statements, the Company has incurred significant operating losses and experienced negative operating cash flows in recent years. With a view towards achieving profitability and improving liquidity, management has adopted, and is in the process of implementing, the following strategies: o seek corporate sponsorships for the internet fantasy sports gaming segment to diversify its revenue streams while focusing on its core motor sports niche; o reduce overhead of the operating subsidiary and continue to look for areas in which further cost savings can be obtained. o diversify the price points and structure of its fantasy games and add additional premium content to attract new customers and generate additional revenues from the existing subscriber base. Management believes that its present financial resources are sufficient to meet its obligations for the ensuing twelve months. In addition to unrestricted cash of approximately $0.93 million at June 30, 2004, the Company expects to begin collecting on an outstanding note receivable due from the sale of First Lifestyle Holdings, which will provide additional resources. Additionally, the Company believes it would be able to raise debt or equity capital should the need arise. F-29 Management believes that the actions presently being taken by the Company will achieve profitability and improve liquidity. However, there can be no assurance that management's plans will be successful or that the Company will be profitable in the future. Leases The Company leases office facilities and various equipment under non-cancelable operating leases expiring through January 2006. Office facility and equipment rent expense included in continuing operations for the years ended June 30, 2004, 2003 and 2002 was approximately $95,000, $137,000 and $133,000, respectively. Approximate future minimum lease payments under non-cancelable office and equipment lease agreements are as follows: Year ending June 30: 2005 62,574 2006 42,073 2007 13,107 2008 13,107 2009 - ========= $130,861 ========= Litigation The Company, from time to time, is involved in various litigation arising in the ordinary course of business. Based on currently available information, management believes that there are no pending claims that will have a material adverse effect on the Companies' operating results or financial position. Employment Agreements Silverstar Holdings Ltd. On April 12, 2000, the Company's Board of Directors approved an Amended and Restated Employment Agreement (the "Employment Agreement") with the Chief Executive Officer (CEO), who will serve as President and Chief Financial Officer of the Company beginning as of February 1, 2000 and continuing through and until March 31, 2005. As compensation for his services, the CEO will receive an annual base salary of $300,000 (with five percent increases each year), and an annual bonus of five percent of net realized capital gains upon the sale, liquidation or distribution by the Company of any Portfolio Company (as defined in the Employment Agreement). A Portfolio Company does not include any of the South African entities previously owned by the Company. In the event of a Change in Control (as defined in the Employment Agreement), the CEO may also be entitled to a payment of five percent of any net unrealized capital gains on any Portfolio Company, which gains may, at the option of the Company, be paid in cash, stock of the Portfolio Company or any combination of the foregoing. Fantasy Sports, Inc. On November 30, 2000, Fantasy entered into Employment Agreement (the "Employment Agreement") with an individual to serve as the Chief Executive Officer of Fantasy beginning as of November 30, 2000 and continuing through and until November 30, 2003. As compensation for his services, the CEO received an annual base salary. In addition, the CEO received a three-year option to acquire 5% of Fantasy's outstanding shares as of November 16, 2000, at a price equal to that paid by Silverstar Holdings upon acquisition of the assets of Fantasy. A similarly priced performance-based three-year option to acquire a further 2.5% of the outstanding shares of Fantasy as of November 16, 2000 was issued to the F-30 CEO. This performance-based option will vest on the earlier of Fantasy achieving an aggregate EBITDA of $4 million for calendar years 2001 and 2002 or an aggregate EBITDA of $9 million for calendar years 2001, 2002 and 2003. This employment agreement terminated on November 30, 2003 with no performance based compensation being realized. The agreement was not renewed. All of the options expired unexercised. Guarantees The Company has guaranteed certain bank facilities of one of its former industrial subsidiaries in South Africa. As per previous disclosure, in January 2004, an unrelated South African third party, entered into an agreement to acquire the former subsidiary. This agreement reduced the Company's guarantee to approximately $47,000, reducing monthly through August 31, 2004. At June 30, 2004, this guarantee stood at approximately $20,000 and was secured by like amounts of cash. The Company does not believe that it will be called upon to meet any portion of this remaining guarantee. Other South African Secondary Tax on Companies at 12.5 percent is payable on all dividends declared out of distributable reserves of South African companies. There were no dividends of this nature declared in 2004, 2003 or 2002. During 2004, the Company entered into various contracts with web based and non-web based companies whereby these companies will direct their customers to the Fantasycup.com website. For those customers that register for the fantasy league through the website, the Company will pay commissions ranging from 12% to 50% of net revenues depending on the terms of each individual agreement. The term of these agreements are for one year and are renewed annually unless terminated by either party. In June 2001, the Company entered into an agreement with TWI Interactive, Inc. (TWI), the online arm of International Management Group (IMG). The agreement was designed to assist Fantasy in establishing itself as the premier, independent, subscription-based fantasy sports game producer. TWI and affiliates of IMG will provide exclusive representation and services across a broad spectrum of its sports marketing activities. Under the agreement, the Company will pay TWI a monthly fee of $12,000 and commissions of 20% to 50% of net revenues generated as a result of the services provided by TWI. The agreement also provides for TWI to receive a four-year warrant to acquire 4.68 shares of Fantasy common stock at $47,191 per share. There was no charge to operations in 2001 for the fair value of the warrants since the amount was not considered material. This agreement was terminated in June 2002, but the warrants remain outstanding and expire June 21, 2005 (see Note 18). On October 7, 2002, Fantasy Sports entered into an agreement with Sports Team Analysis and Tracking Systems of Missouri, Inc. ("STATS"). This agreement subsequently modified on July 21, 2003, calls for STATS to provide hosting, programming, customer service and marketing services for Fantasy Sports. In consideration for these services, Fantasy pays STATS an amount of $20,000 per month, plus a share of net profits above $350,000 per annum. This agreement expires on December 31, 2004. F-31 NOTE 20. QUARTERLY INFORMATION (UNAUDITED)
Quarters Ended ----------------------------------------------------------------- September 30, December 31, March 31, June 30, 2003 2003 2004 2004 Total --------- --------- --------- --------- --------- Revenues $ 886,895 $ 588,796 $ 357,545 $ 534,227 $2,367,463 Income from continuing operations 434,529 347,080 88,595 159,901 1,030,015 Net income 434,529 347,080 88,595 132,319 1,002,523 Net income per share - basic and diluted 0.05 0.04 0.01 0.02 0.12 Weighted average common stock outstanding - basic and diluted 8,482,469 8,582,839 8,630,513 8,659,799 8,575,579
During Fiscal 2004, the Company issued 180,000 shares of Common Stock, pursuant to the Exercise of Stock Options. The price received for such option ranged from $0.16 to $1.03. Total consideration received by the Company was $126,450. F-32 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. ITEM 9A. Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure (1) that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's ("SEC") rules and forms, and (2) that this information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures. Prior to the filing date of this annual report, under the supervision and review of our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective in alerting them in a timely manner to material information regarding us (including our consolidated subsidiaries) that is required to be included in our periodic reports to the SEC. In addition, there have been no significant changes in our internal controls or in other factors that could significantly affect those controls since our evaluation. We cannot assure you, however, that our system of disclosure controls and procedures will always achieve its stated goals under all future conditions, no matter how remote. ITEM 9B. Other Information None. -15- PART III. Item 10. Directors and Executive Officers Directors and Executive Officers Our directors and our executive officers and the executive officers of our subsidiaries, their ages and present position are as follows:
Name Age Positions ---- --- --------- Michael Levy...................... 58 Chairman of the Board Clive Kabatznik................... 47 Vice Chairman of the Board, Chief Executive Officer, President and Chief Financial Officer Cornelius J. Roodt................ 45 Director Joseph Weil....................... 49 Director John Grippo....................... 48 Director
Michael Levy is our co-founder and has served as Chairman of our Board of Directors since our inception in 1995. Since 1987, Mr. Levy has been the Chief Executive Officer and Chairman of the Board of Arpac L.P., a Chicago-based manufacturer of plastic packaging machinery. Clive Kabatznik is our co-founder and has served as a director and our President since inception in 1995 and as our Vice Chairman, Chief Executive Officer and Chief Financial Officer since October 1995. Mr. Kabatznik has served as President of Colonial Capital, Inc. a Miami-based investment banking company that specializes in advising middle market companies in areas concerning mergers, acquisitions, private and public agency funding and debt placements. Cornelius J. Roodt has served as a member of our Board of Directors since December 1996 and was appointed Managing Director and Chief Financial Officer of one of our subsidiaries, First South African Holdings (Pty.) Ltd., in July 1996. Mr. Roodt was responsible for overseeing all of the South African operations of First South African Holdings (Pty.) Ltd. Mr. Roodt led the buyout of First Lifestyle Holdings and he is currently Chief Executive of the successor company, First Lifestyle Holdings, (Pty) Ltd. He is no longer an executive officer of any of our subsidiaries. From February 1994 to June 1996, Mr. Roodt was a senior partner at Price Waterhouse Corporate Finance, South Africa. From January 1991 to January 1994, he was an audit partner at Price Waterhouse, South Africa. Joseph Weil has served as a member of our Board of Directors since 2002 and has served as the President and Chief Executive Officer of Joseph Weil & Sons, Inc. since 1985. Joseph Weil & Sons is an independent wholesale distributor of paper products, packaging supplies and equipment, sanitary products, janitorial supplies and equipment, as well as food service products and office equipment. He also serves as an active member of many business associations including Afflink Worldwide Trade Group, which he serves as Chairman of the Board of Directors. Since 1996, he has also served as an Executive Board Member of the Greater Illinois chapter of the National Multiple Sclerosis Society. John Grippo, has served as a member of our Board of Directors since 2004 and has been the president of his own financial management practice, John Grippo, Inc. since 2000. His firm provides services as Chief Financial Officer to small to mid-sized public and private companies and also provides other related -16- accounting and consulting services. Prior to that, Mr. Grippo served as for ten years as a Chief Financial Officer to companies in the housewares, electric vehicles and financial services industries. He worked for five years as an auditor with Arthur Andersen, LLP, followed by seven years in various accounting positions in the financial services industry. He is a member of the New York Society of Certified Public Accountants and the American Institute of Certified Public Accountants. All of our directors hold office until their respective successors are elected, or until death, resignation or removal. Officers hold office until the meeting of the Board of Directors following each Annual Meeting of Stockholders and until their successors have been chosen and qualified. Audit Committee of the Board of Directors Our Board of Directors has a separate audit committee,. The audit committee is composed of Michael Levy, John Grippo and Cornelius J. Roodt, each of whom are independent directors as defined in Rule 10A-3 of the Securities Exchange Act of 1934. The Board of Directors has determined that Mr. Roodt meets the standards of an audit committee "financial expert" as defined by the Sarbanes Oxley Act of 2002. Compliance with Section 16(a) of the Exchange Act. Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who beneficially own more than 10% of our common stock, to file initial reports of ownership and reports of changes of ownership with the Securities and Exchange Commission and furnish copies of those reports to us. Based solely on a review of the copies of the reports furnished to us to date, or written representations that no reports were required, we believe that all reports required to be filed by such persons with respect to our fiscal year ended June 30, 2004 were timely made. Code of Ethics The Company's Board of Directors adopted a Code of Ethics which applies to all of the Company's directors, executive officers and employees. A copy of the Code of Ethics is available upon request to the Company's counsel at Jenkens & Gilchrist Parker Chapin, LLP, Chrysler Building, 405 Lexington Avenue, 9th Floor, New York, NY 10174. Item 11. Executive Compensation The following summary compensation table sets forth the aggregate compensation we paid or accrued to our Chief Executive Officer during the fiscal years ended June 30, 2002, June 30, 2003 and June 30, 2004. Apart from our Chief Executive Officer, whose annual salary is $315,000, none of our executive officers of any of our subsidiaries received compensation in excess of $100,000 during the fiscal year ended June 30, 2004. -17- Summary Compensation Table
- -------------------------------------------------------------------------------------------------------------------------- Annual Compensation Long Term Compensation -------------------- -------------------------------- Name and Fiscal Salary Bonus Other Annual Restricted Securities Principal Position Year Compensation Stock Awards Underlying Ended Stock Options June 30, - ----------------------------------------------------- ------------------------------------------------- ---------------- $ $ Clive Kabatznik, 2004 315,000 0 --- --- 5,000 President and Chief 2003 315,000 0 --- --- 5,000 Executive Officer 2002 315,000 0 --- --- 5,000
The options granted to Mr. Kabatznik during fiscal year ended June 30, 2004 represent: o ... an option granted under our 1995 Stock Option Plan to purchase 5,000 shares of our common stock, which is currently exercisable at an exercise price of $1.61 per share; The options granted to Mr. Kabatznik during fiscal year ended June 30, 2003 represent: o ... an option granted under our 1995 Stock Option Plan to purchase 5,000 shares of our common stock, which is currently exercisable at an exercise price of $0.16 per share; The options granted to Mr. Kabatznik during fiscal year ended June 30, 2002 represent: o ... an option granted under our 1995 Stock Option Plan to purchase 5,000 shares of our common stock, which is currently exercisable at an exercise price of $0.42 per share; -18- Options Granted in Fiscal 2004 The following table sets forth the details of options to purchase common stock we granted to our executive officers during fiscal year ended June 30, 2004, including the potential realized value over the 5 year term of the option based on assumed rates of stock appreciation of 5% and 10%, compounded annually. These assumed rates of appreciation comply with the rules of the Securities and Exchange Commission and do not represent our estimate of future stock price. Actual gains, if any, on stock option exercises will be dependent on the future performance of our common stock. Each option is immediately exercisable.
Options Granted --------------- Potential Realizable Number of Percent of Total Per Expiration Date Value at Assumed Annual Name Securities to Share Rate of Stock Price Underlying Employees in Exercise Appreciation Options Fiscal Year Price For Option Term - --------------------------------------------------------------------------------------------------------------------------- 5% 10% -- --- Clive Kabatznik 5,000 100% $1.61 December 18, $10,250 $13,000 2008
Aggregated Option Exercises In Last Fiscal Year And Fiscal Year-End Option Values During the fiscal year ended June 30, 2004 no options were exercised by our executive officers. The following table sets forth the number of shares of our common stock underlying unexercised stock options granted by us to our executive officers and the value of those options at June 30, 2004. The value of each option is based on the positive difference, if any, of the closing bid price for our common stock on the Nasdaq National Market on June 30, 2004 or $0.72, over the exercise price of the option.
Number of Securities Underlying Value of Unexercised In the Money Unexercised Options at Options at Fiscal Year-End Fiscal Year-End ------------------------------------ -------------------------------------- Name of Executive Officer Exercisable Unexercisable Exercisable Unexercisable - ------------------------------- ----------------- ------------------ ---------------- --------------------- Clive Kabatznik 475,000 - $3,600 $-
Director Compensation Except for Mr. Levy, our directors do not receive fixed compensation for their services as directors other than options to purchase 10,000 shares of our common stock granted to each non-employee director and options to purchase 5,000 shares of our common stock granted to each director who is an employee, in each case under our 1995 Stock Option Plan. Mr. Levy receives an annual consulting fee of $60,000 and options to purchase 10,000 shares of our common stock per year, solely in connection with his service as a member of our Board of Directors. Directors are reimbursed for their reasonable out-of-pocket expenses incurred in connection with their duties. Employment Agreements On April 12, 2000, the Company's Board of Directors approved an Amended and Restated Employment Agreement with Clive Kabatznik (the "Employment Agreement"). Pursuant to the Employment Agreement, Mr. Kabatznik will serve as the Chief Executive Officer, President and Chief Financial Officer -19- of the Company beginning as of April 1, 2000 and continuing through and until March 31, 2005. As compensation for his services, Mr. Kabatznik will receive an annual base salary of $300,000 (with five percent increases each year), and an annual bonus of five percent of net realized capital gains upon the sale, liquidation or distribution by the Company of any Portfolio Company (as defined in the Employment Agreement). A Portfolio Company does not include any of the South African entities currently owned by the Company. In the event of a Change in Control (as defined in the Employment Agreement), Mr. Kabatznik may also be entitled to a payment of five percent of any net unrealized capital gains on any Portfolio Company, which gains may, at the option of the Company, be paid in cash, stock of the Portfolio Company or any combination of the foregoing. On November 30, 2000, Fantasy Sports Inc. entered into Employment Agreement with Gregory S. Liegey (the "Employment Agreement"). Pursuant to the Employment Agreement, Mr. Liegey served as the Chief Executive Officer, of Fantasy Sports Inc. beginning as of November 30, 2000 and continuing through and until November 30, 2003. This agreement was not renewed upon its termination. Stock Option Plan Our Board of Directors has adopted and our shareholders, prior to our initial public offering, approved our 1995 Stock Option Plan. Our 1995 Stock Option Plan provides for the grant of: o options that are intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986 to key employees; and o options not intended to so qualify to key employees, including our directors and officers, and to directors and consultants who are not employees. The total number of shares of our common stock for which options may be granted under our 1995 Stock Option Plan is 850,000 shares. Our 1995 Stock Option Plan is administered by the compensation committee of our Board of Directors. The compensation committee will determine the terms of options exercised, including the exercise price, the number of shares subject to the option and the terms and conditions of exercise. No option granted under our 1995 Stock Option Plan is transferable by the optionee other than by will or the laws of descent and distribution and each option is exercisable during the lifetime of the optionee only by such optionee or his legal representatives. The exercise price of incentive stock under our 1995 Stock Option Plan must be at least equal to 100% of the fair market value of such shares on the date of grant, or 110% of fair market value in the case of an optionee who owns or is deemed to own stock possessing more than 10% of the voting rights of our outstanding capital stock. The term of each option will be established by the compensation committee, in its sole discretion. However, the maximum term for each incentive stock option granted under our 1995 Stock Option Plan is ten years, or five years in the case of an optionee who owns or is deemed to own stock possessing more than 10% of the total combined voting power of our outstanding capital stock. Options will become exercisable at such times and in such installments as the compensation committee will provide in the terms of each individual option. The maximum number of shares for which options may be granted to any individual in any fiscal year is 210,000. Our 1995 Stock Option Plan also contains an automatic option grant program for our directors. Each of our non-employee directors is automatically granted an option to purchase 10,000 shares of our common stock following each annual meeting of shareholders. In addition, each of our employee directors is automatically granted an option to purchase 5,000 shares of our common stock following each annual meeting of shareholders. Each grant has an exercise price per share equal to the fair market value of the our common -20- stock on the grant date, is immediately exercisable and has a term of five years measured from the grant date, subject to earlier termination if an optionee's service as a Board member is terminated for cause. Through September 28, 2004, we have granted options to purchase 310,000 shares of our common stock under our 1995 Stock Option Plan, 150,000 of which have been exercised. Non-Plan Stock Options We have granted non-plan stock options to purchase 575,000 shares of our common stock at a weighted exercise price of $4.40 per share and 433,333 options at a weighted exercise price of $4.10 per share which expired unexercised in August 2004. Compensation Committee Interlocks and Insider Participation None of the members of our compensation committee of our Board of Directors is now or ever has been one of our officers or employees. None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our Board of Directors or our compensation committee. Item 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth, as of August 31, 2003, certain information as to the beneficial ownership of the our common stock by: o each person known by us to own more than five percent (5%) of our outstanding shares; o each of our directors; o each of our executive officers named in the Summary Compensation Table under "Executive Compensation"; and o all of our directors and executive officers as a group.
Amount and Nature of Beneficial Ownership (1) -------------------------------- Percentage Percentage of Name and Address of Common Stock Class B of Voting Beneficial Shareholder Common Ownership Power Stock (2) (1)(3) (1)(3) ----------------------------- --------------- ----------------- ------ -- ------------- ------------------- Michael Levy 96,000(4) 686,025(5) 9.0% 28.9% 9511 West River Street Schiller Park, IL 60176 Clive Kabatznik 654,400(6) 190,000 9.7% 13.2% 6100 Glades Road Suite 305 Boca Raton, FL 33434 Cornelius J. Roodt 115,000(7) 0 1.3% 0.9% P.O. Box 4001 Kempton Park South Africa American Stock Transfer 88,907(8) 95,888(8) 2.1% 4.7% & Trust Company
-21-
Amount and Nature of Beneficial Ownership (1) -------------------------------- Percentage Percentage of Name and Address of Common Stock Class B of Voting Beneficial Shareholder Common Ownership Power Stock (2) (1)(3) (1)(3) ----------------------------- --------------- ----------------- ------ -- ------------- ------------------- 6201 15th Avenue Brooklyn, New York 11219 Joseph Weil 10,000(9) 0 * * 6100 Glades Road Suite 305 Boca Raton, Florida 33434 John Grippo 25,000(10) 0 * * 6100 Glades Road Suite 305 Boca Raton, Florida 33434 All executive officers and 989,307(11) 876,025 21.4% 44.0% directors as a group (5 persons)
* Less than 1%. (1) Beneficial ownership is calculated in accordance with Rule 13d-3 under the Securities Exchange Act of 1934. Shares subject to stock options, for purposes of this table, are considered beneficially owned only to the extent currently exercisable or exercisable within 60 days after August 31, 2002. (2) Except as otherwise indicated, each of the parties listed has sole voting and investment power with respect to all shares of Class B common stock indicated above. (3) For the purposes of this calculation, our common stock and our Class B common stock are treated as a single class of common stock. Our Class B common stock is entitled to five votes per share, whereas our common stock is entitled to one vote per share. (4) Includes 50,000 shares of our common stock issuable upon exercise of options that are immediately exercisable. (5) Includes (i) 590,137 shares of our Class B common stock and (ii) 95,888 shares of our Class B common stock issued to the American Stock Transfer & Trust Company pursuant to the terms of an escrow agreement, which shares correspond to a like number of shares of First South African Holdings (Pty.) Ltd. Class B stock. American Stock Transfer & Trust Company has granted to Mr. Levy a proxy to vote each of such shares of our Class B common stock. (6) Includes 475,000 shares of our common stock issuable upon exercise of options that are immediately exercisable. (7) Includes 115,000 shares of our common stock issuable upon exercise of options that are immediately exercisable. (8) Based solely upon information contained in a Schedule 13G, Amendment No. 1, dated 12/31/99 filed with the Securities and Exchange Commission. All shares are held as escrow agent pursuant to various escrow agreements. American Stock Transfer & Trust Company holds a proxy to vote the shares of common stock. Michael Levy holds a proxy to vote the shares of Class B Common Stock. -22- (9) Includes 10,000 shares of our common stock issuable upon the exercise of options that are immediately exercisable. (10) Includes 25,000 shares issuable upon exercise of options that are immediately exercisable. (11) Includes 675,000 shares issuable upon exercise of options that are immediately exercisable. Equity Compensation Plan Information The following table contains a summary of the number of shares of Common Stock of the Company to be issued upon the exercise of options, warrants and rights outstanding at June 30, 2004, the weighted average exercise price of those outstanding options, warrants and rights, and the number of additional shares of Common Stock remaining available for future issuance under the plans as at June 30, 2004. Equity Compensation Plan Information
- ------------------------------- ---------------------------- ---------------------------- ---------------------------- Plan Category Number of securities to be Weighted average exercise Number of securities issued upon exercise of price of outstanding remaining available for outstanding options, options, warrants and further issuance warrants and rights rights - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Equity compensation plans approved by shareholders* 310,000 $1.32 390,000 - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Equity compensation plan not 575,000 $4.40 NA approved by shareholders** - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Equity compensation plan not 433,333*** $4.10 NA approved by shareholders** - ------------------------------- ---------------------------- ---------------------------- ----------------------------
* See Description Note 16 to the Financial Statements ** These options were granted pursuant to various employment agreements *** These Options expired Unexercised on August 16th, 2004 -23- Item 13. Certain Relationships and Related Transactions Not applicable. Item 14. Principal Accountant Fees and Services Audit Fees Audit fees billed to the Company by Rachlin Cohen & Holtz LLP for its audit of the Company's financial statements and for its review of the financial statements included in the Company's Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission for 2004 and 2003 totaled $44,061 and $67,832, respectively. Tax Fees Tax fees billed to the Company by Rachlin Cohen & Holtz LLP for its tax returns for the fiscal year 2004 and 2003 were $0, and $ 4,000, respectively. Other Fees No other fees were billed to the Company by Rachlin Cohen & Holtz LLP for all other non-audit or tax services rendered to the Company for the fiscal year 2004 and 2003, respectively. Audit Committee Pre-Approval Policies The Audit Committee has adopted a procedure under which all fees charged by Rachlin Cohen & Holtz LLP must be pre-approved by the Audit Committee, subject to certain permitted statutory de minimus exceptions. -24- Part IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) EXHIBIT INDEX Exhibit Number Description 3.1 Memorandum of Association of the Registrant(2) 3.2 Bye-Laws of the Registrant(2) 4.3 Indenture dated April 25, 1997 between the Registrant and American Stock Transfer & Trust Company(1) 4.6 Stock Option Agreement(3) 10.2 Form of FSAH Escrow Agreement(2) 10.3 Form of First Amended and Restated Employment Agreement of Clive Kabatznik(2) 10.4 Form of FSAM Management Agreement(2) 10.5 Form of Consulting Agreement with Michael Levy(2) 10.6 1995 Stock Option Plan(2) 10.7 Asset purchase agreement by and among First South Africa Holdings PTY Ltd. and minority shareholders of First Lifestyle Holdings, Ltd., Ethos Private Equity, Cornelius Roodt and certain other purchasers and the Company, dated as of September 24, 2000(4) 10.8 Fantasy Sports Asset Acquisition Agreement dated as of November 17, 2000(5) 10.9 Agreement between Sports Team Analysis and Tracking Systems of Missouri, Inc. and Fantasy Sports Enterprises dated October 7, 2002(6) 10.10 Amendment to Agreement dated July 21, 2003 between Fantasy Sports Enterprises, Inc. and Sports Team Analysis and Tracking Systems of Missouri, Inc.(6) 21.1 Subsidiaries of the Registrant(6) 23.1 Consent of Rachlin Cohen and Holtz(6) 31.1 Certificate Pursuant to Section 302 of the Sarbanes Oxley Act of 2002(6) 32.1 Certification Pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(6) - ---------- (1) Incorporated by reference is the Registrant's Current Report on Form 8-K, Exhibit 4.1 (filed on September 10, 1997). (2) Incorporated by reference is the Registrant's Registration Statement on Form S-1 (No. 33-99180) (filed on November 9, 1995), as amended on Form S-1/A No. 1, Form S-1/A No. 2, Form S-1/A No. 3 (filed on December 27, 1995, January 16, 1996 and January 24, 1996, respectively) and Form 10-Q for the fiscal quarter ended March 31, 2000. (3) Incorporated by reference is the Registrant's Registration Statement on Form S-1 (No. 333-33561) (filed on August 13, 1997), as amended on Form S-1/A No. 1, Form S-1/A No. 2 and For S-1/A No. 3 (filed on December 9, 1997 , January 22, 1998 and February 11, 1998, respectively). (4) Incorporated by reference to the Company's current report on Form 8-K filed with the Commission on October 12, 2000. (5) Incorporated by reference to the Company's current report on Form 8-K filed with the Commission on December 1, 2000. (6) Filed herewith. -25- 1. Financial Statements The following financial statements are included as required to be filed by Item 8: Silverstar Holdings, Ltd. Report of independent Certified Public Accountant Consolidated Balance Sheets at June 30, 2004 and 2003 Consolidated Statements of Operations for the years ended June 30, 2004, 2003 and 2002 Consolidated Statements of Cash Flows for the years ended June 30, 2004, 2003 and 2002 Consolidated Statement of Consolidated statements of stockholders' equity and Comprehensive loss for the years ended June 30, 2002, 2003 and 2004 Notes to the Consolidated Financial Statements for the years ended June 30, 2004, 2003, and 2002 2. Financial Statement Schedules: All schedules have been omitted since the required information is included in the consolidated financial statements or notes thereto. (b) Reports on Form 8-K None. -26- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Boca Raton, State of Florida, on the 28th day of September, 2004. SILVERSTAR HOLDINGS, LTD. BY:/s/ Clive Kabatznik ---------------------------------------- Clive Kabatznik President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the date indicated.
Signature Title Date /s/ Michael Levy Chairman of the Board of Directors September 28, 2004 - ------------------------------ Michael Levy /s/ Clive Kabatznik President, Vice Chairman, Chief September 28, 2004 - ------------------------------ Executive Officer, Chief Clive Kabatznik Financial Officer, Director and Controller /s/ Cornelius Roodt Director September 28, 2004 - ------------------------------ Cornelius Roodt /s/ Joseph Weil Director September 28, 2004 - ------------------------------ Joseph Weil /s/ John Grippo Director September 28, 2004 - ------------------------------ John Grippo
EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION -------------- ----------- 3.1 Memorandum of Association of the Registrant(2) 3.2 Bye-Laws of the Registrant(2) 4.3 Indenture dated April 25, 1997 between the Registrant and American Stock Transfer & Trust Company(1) 4.6 Stock Option Agreement(3) 10.2 Form of FSAH Escrow Agreement(2) 10.3 Form of First Amended and Restated Employment Agreement of Clive Kabatznik(2) 10.4 Form of FSAM Management Agreement(2) 10.5 Form of Consulting Agreement with Michael Levy(2) 10.6 1995 Stock Option Plan(2) 10.7 Asset purchase agreement by and among First South Africa Holdings PTY Ltd. and minority shareholders of First Lifestyle Holdings, Ltd., Ethos Private Equity, Cornelius Roodt and certain other purchasers and the Company, dated as of September 24, 2000(4) 10.8 Fantasy Sports Asset Acquisition Agreement dated as of November 17, 2000(5) 10.9 Agreement between Sports Team Analysis and Tracking Systems of Missouri, Inc. and Fantasy Sports Enterprises dated October 7, 2002(6) 10.10 Amendment to Agreement dated July 21, 2003 between Fantasy Sports Enterprises, Inc. and Sports Team Analysis and Tracking Systems of Missouri, Inc.(6) 21.1 Subsidiaries of the Registrant(6) 23.1 Consent of Rachlin Cohen and Holtz(6) 31.1 Certificate Pursuant to Section 302 of the Sarbanes Oxley Act of 2002(6) 32.1 Certification Pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(6) - --------------- (1) Incorporated by reference is the Registrant's Current Report on Form 8-K, Exhibit 4.1 (filed on September 10, 1997). (2) Incorporated by reference is the Registrant's Registration Statement on Form S-1 (No. 33-99180) (filed on November 9, 1995), as amended on Form S-1/A No. 1, Form S-1/A No. 2, Form S-1/A No. 3 (filed on December 27, 1995, January 16, 1996 and January 24, 1996, respectively) and Form 10-Q for the fiscal quarter ended March 31, 2000. (3) Incorporated by reference is the Registrant's Registration Statement on Form S-1 (No. 333-33561) (filed on August 13, 1997), as amended on Form S-1/A No. 1, Form S-1/A No. 2 and For S-1/A No. 3 (filed on December 9, 1997 , January 22, 1998 and February 11, 1998, respectively). (4) Incorporated by reference to the Company's current report on Form 8-K filed with the Commission on October 12, 2000. (5) Incorporated by reference to the Company's current report on Form 8-K filed with the Commission on December 1, 2000. (6) Filed herewith. EX-10 2 ex10_9-f10k063004.txt EX-10.9; AGMNT. BET. STATS & FANTASY SPORTS ENT. Exhibit 10.9 [LOGO OF STATS INC.] October 7, 2002 VIA E-mail: clive@silverstarholdings.com Clive Kabatznik Silverstar Holdings dba Fantasy Sports Enterprises 6100 Glades Road Suite 305 Boca Raton, FL 33434 Tel: 561-479-0040 Fax: 561-479-0757 RE: Agreement between SPORTS TEAM ANALYSIS AND TRACKING SYSTEMS OF MISSOURI, INC. ("STATS") and FANTASY SPORTS ENTERPRISES ("FSE") Dear Mr. Kabatznik: This letter sets forth the Agreement ("Agreement") between STATS and FSE, whereby STATS shall host, maintain, manage, and operate sports fantasy games (collectively, the "Games") in an online version on FSE' World Wide Web site, including the following URL addresses: http://fantasycup.com; http://fantasycup.org; http://fantasycup.net; http://fantasystockcar.com; http://fantasynhra.com; and http://fantasynascar.com (collectively, the "Site"). The parties agree as follows: 1. Performance by STATS. (a) STATS shall provide all necessary technical services required to host, operate, and administer the Games, including but not limited to, administering all customer interfaces for registrations, e-mail, message board and web reports. A description of the Games and the relevant launch dates is set forth on Exhibit A attached hereto. STATS agrees to use its best efforts to provide service to FSE error free. STATS shall correct any errors in accordance with the Service Level Agreement ("SLA") attached hereto as Exhibit C. (b) STATS shall license to FSE, on a non-exclusive basis, the use of STATS' proprietary sports information and data (the "Licensed Information") as required for use in the Games. (c) STATS shall host FSE's company email. (d) STATS shall provide to FSE with access to the production and development software code for the Games and an administrative tool to access all user registration information including names, addresses, phone numbers and e-mail addresses. FSE shall be responsible for all errors and/or damages resulting from the acts of FSE personnel. (e) STATS shall provide personnel to interface with FSE'S customer service staff to address technical/user experience issues. 1 2. Performance by FSE: (a) FSE shall timely provide to STATS any templates, graphics and other materials required in the development of the pages on which the Games shall reside. (b) FSE shall be responsible for all customer contact, including, without limitation, providing telephone and/or email customer service, billing and collection matters, and credit card processing and all associated fees and charges. (c) FSE shall be responsible for the promotion, marketing, and advertising for the Games ("Marketing"), including, without limitation, all expenses, and costs associated with Marketing. (d) FSE shall acquire any and all necessary permissions and licenses from players, coaches, drivers, leagues, associations or their agents or any other party and pay any associated royalties required in connection with the operation, marketing, advertising, sale, distribution, or publication of the Games ("Professional Licenses"). (e) In the event any of the Games shall award prizes, FSE shall be solely responsible for: (i) obtaining prizes and satisfying any applicable bonding requirements; (ii) satisfying any state, federal, or other governmental regulations regarding registration of the Games; and (iii) distributing prizes to the winners. The Site shall contain appropriate language regarding FSE'S sole responsibility for paying prizes. 3. Rights and Licenses. (a) Ownership by STATS. FSE hereby acknowledges STATS' ownership of: (i) the Licensed Information and (ii) STATS' trademarks, trade names, logos, etc (collectively, "STATS Properties"). Nothing in this Agreement shall be interpreted to provide for the assignment by STATS to FSE of any of STATS' Properties or any of STATS' intellectual property rights in such STATS Properties. Nothing in this Agreement shall limit STATS' rights to use, reproduce, enhance, modify, distribute and otherwise exploit the Licensed Information. Nothing in this Agreement shall restrict STATS' rights to use STATS' Properties. (b) Ownership by FSE. STATS hereby acknowledges FSE'S ownership of: (i) the Games (but excluding any STATS' Properties) and that STATS development work with respect to the Games shall constitute "works made for hire" for FSE within the meaning of the copyright laws of the United States and (ii) FSE'S trademarks, trade names, logos, etc (collectively, "FSE Properties"). Nothing in this Agreement shall be interpreted to provide for the assignment by FSE of any of FSE'S Properties or any of FSE'S intellectual property rights in such FSE Properties. Nothing in this Agreement shall restrict FSE'S rights to use FSE Properties. (c) Non-Exclusive License. During the Term, STATS hereby grants to FSE a non-exclusive, worldwide license to reproduce, market, and distribute the Licensed Information solely for use with the Games. 4. Consideration: In consideration for the services performed by STATS for FSE in connection with this Agreement, the parties agree to pay the sums set forth on Exhibit B attached hereto. 2 5. Term. The term of this Agreement shall commence upon its execution (the "Effective Date") and shall terminate on October 31, 2003 (the "Term"), unless sooner terminated as provided in this Agreement. The Agreement shall automatically renew for a period of one (1) year upon the same terms and conditions unless either party notifies the other party in writing of its desire not to renew the Agreement no less than sixty (60) days prior to the expiration of the Term. 6. Trademarks, Trade Names and Related Matters. (a) STATS Name and Trademarks. Subject to approval of such use by STATS, STATS hereby grants to FSE a non-exclusive license to use STATS' name, logo, and any other applicable trademarks in connection with Marketing. (b) FSE's Name and Trademarks. Subject to approval of such use by FSE, FSE hereby grants to STATS a non-exclusive license to use FSE's name, logo, and any other applicable trademarks in connection with the Games on the Site. (c) STATS Logo. The STATS logo shall be displayed on all pages of the Site that introduce the Games and/or Licensed Information. On pages that introduce the Games, the logo shall be preceded by language crediting STATS and acknowledging that the Games are "Powered by STATS, Inc." The size and placement of the STATS logo on the Site shall be mutually agreed upon by the parties but in no event shall the size of the logo be less than 102 x 27 pixels. (d) STATS Copyright. The following copyright notice shall appear on all pages of the Site that display the Licensed Information: "Statistical Data Copyright xxxx (where xxxx denotes the current year) by STATS, Inc. All rights reserved. Any commercial use or distribution without the express written permission of STATS, Inc. is strictly prohibited." 7. Confidential Information. The parties agree that during and after the Term they shall not, except for purposes of this Agreement, use for their own benefit or for the benefit of any person, firm, corporation or other entity, any secret or confidential information, solicitation methods, confidential pricing information or any other data pertaining to their respective businesses, or any affiliates thereof, their respective financial affairs or any other information obtained hereunder regarding each other not generally known within their respective trades, or as a matter of public knowledge or patent, trademark, trade name, service mark, copyright or other intellectual property of the other except as authorized by this Agreement. 8. Termination. Notwithstanding anything in this Agreement to the contrary, this Agreement shall immediately terminate (i) upon the insolvency or bankruptcy of either party, if either party makes an assignment for the benefit of creditors or a receiver, trustee or liquidator is appointed for all or a substantial portion of either party's properties or (ii) upon the breach by either party of any of their obligations under this Agreement which breach is not cured within thirty (30) days after written notice thereof to the breaching party. 3 9. Obligations Upon Termination. (a) Post-Termination Payments. The termination of this Agreement shall not relieve either party of its obligations to account for and pay sums due to the other party hereunder relating to any period prior to the termination of this Agreement. In addition, if this Agreement is terminated as a result of a breach hereof by FSE, the fees set forth on Exhibit B shall accelerate and become immediately due and payable in full to STATS. (b) Additional Post-Termination Obligations. Following the expiration of the Term of this Agreement or the earlier termination of the Agreement for any reason, each party shall return to the other or shall destroy all documents, material and information with respect to any confidential or proprietary information of the other. Immediately upon destruction of any confidential or proprietary information, FSE/STATS shall provide STATS/FSE with an affidavit signed by an officer or legal representative of FSE denoting the items destroyed, the manner of destruction, and the date of the destruction. Upon such expiration or termination, each party shall cease any and all use, reproduction, marketing, and distribution of the trademarks, trade names, service marks, patents or other intellectual and personal property of the other. In the event of termination of this agreement for any reason, STATS shall download all game code and user database files and other data on the hosted site to a DAT Tape or CD and deliver such materials to FSE within 5 business days. STATS shall keep the site publicly accessible for a period of 14 days following the date of termination of this agreement. If the transfer requires a change in the domain name, immediately upon the date that the hosted site is no longer publicly accessible, and for a period of one month thereafter maintain the hosted sites URL, provide one page that FSE may use to direct its users to its new hosted site or some other URL of FSE's choosing; and if the transfer does not require a change in the domain name, cooperate with FSE in assigning a new IP address to the domain name as FSE may request and transferring all operations of the hosted site to new provider. On FSE's written demand within five days following the termination of this agreement, STATS shall maintain one complete electronic version of FSE's hosted site and shall delete all other versions., Upon notification by FSE to STATS in writing that the transferred files appear to be complete, STATS shall delete its final copy of FSE's hosted site from STATS' computers. 10. Representations and Warranties. Each party represents and warrants to the other that it is authorized to enter into this Agreement and perform its obligations hereunder. FSE represents that it shall be responsible for obtaining any and all Professional Licenses in connection with the operation of the Site and FSE's use of the Games and Licensed Information. 11. Disclaimer of Implied Warranties. EXCEPT AS PROVIDED HEREIN, STATS DISCLAIMS ALL WARRANTIES WITH RESPECT TO ITS WORK UNDER THIS AGREEMENT, INCLUDING WITHOUT LIMITATION, THE WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 12. Indemnification. Notwithstanding anything contained in this Agreement to the contrary, the parties hereby agree to defend, indemnify and hold each other harmless from and against any and all claims, demands, lawsuits, damages, injuries, losses, expenses (including reasonable attorney's fees), and liabilities to the extent resulting from or related to any third-party claims arising out of or relating to any breach by either party of any representation, warranty, duty or obligation contained herein. 4 13. Relationship Created. The relationship of the parties created hereby shall be that of independent contractors and not as partners or joint venturers. 14. Limitation of Liability. Notwithstanding anything herein to the contrary, under no circumstances shall STATS be liable for any special, consequential or incidental damages in connection with its obligations under this Agreement, and in any event, the liability of STATS for any act of negligence or breach of this Agreement shall not exceed the amount paid by FSE to STATS in connection with this Agreement during the twelve (12) month period immediately preceding the date of any claim. 15. Equitable Remedies. In the event of any breach of the provisions of Section 7 hereof, the parties hereto agree that remedies at law will not be adequate and each shall be entitled, in addition to damages, to preliminary and permanent injunctive relief (without the necessity of posting of bond) to prevent a then occurring or an about to occur breach, as well as an equitable accounting of all profits or benefits arising out of such breach, which rights and remedies shall be cumulative and in addition to any other rights or remedies to which the parties may be entitled. 16. Notices. All notices and other communications required hereunder shall be in writing and deemed to have been given when personally delivered, three (3) days after being mailed by certified mail, return receipt request, postage prepaid, one (1) day after being sent by Federal Express or other nationally recognized overnight courier with guaranteed next day delivery, or upon delivery by facsimile with confirmed receipt and confirmation via regular mail, to the address or fax number, as the case, may be set forth below, or such other address or fax number as either party may direct by notice given to the other party as provided below: If to STATS: Sports Team Analysis and Tracking Systems, Inc. 8130 Lehigh Avenue Morton Grove, IL 60053 Attn: Alan Leib Fax: (847) 470-9183 with a copy to: Sports Team Analysis and Tracking Systems, Inc. 8130 Lehigh Avenue Morton Grove, IL 60053 Attn: Legal Dept. Fax: (847) 470-9177 5 If to Licensee: Fantasy Sports Enterprises c/o 6100 Glades Road Suite 305 Boca Raton, FL 33434 Attn: Clive Kabatznik Fax: 561-479-0757 17. Force Majeure. Neither of the parties shall be deemed in default of this Agreement to the extent that performance of its respective obligations or attempts to cure any breach are delayed or prevented by reason of any act of God, fire, natural disaster, accident, act of government, shortage of materials or supplies, or any other cause beyond the reasonable control of such party; provided that the party interfered with gives the other party written notice thereof within ten (10) business days of any such event or occurrence. 18. Press Release. STATS and FSE shall, within thirty (30) days after launch of the Games, issue a press release containing language agreed upon by a the parties announcing that the parties have entered into a business relationship with respect to the Games and the Site as contemplated herein. 19. Limited Exclusivity. During the Term, STATS shall not operate other NASCAR, Busch, NHRA or College Football and Basketball fantasy games; provided, however, that STATS shall not be restricted from (i) providing data feeds for such sports or (ii) operating other College Pickem and Bracket Games. 20. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois. The courts of the state of Illinois shall have jurisdiction over any disputes arising from this Agreement, and venue for any action or proceeding involving such disputes shall be in Chicago, Illinois. The prevailing party or parties in any disputes shall be entitled to recover from the other party all costs and expenses, including without limitation reasonable attorneys' and paralegals' fees incurred by such party. The waiver by a party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach. This Agreement supersedes any and all other agreements and understandings heretofore existing between the parties with respect to the subject matter hereof. This Agreement contains the entire agreement of the parties concerning the subject matter hereof and may be amended, modified, or changed only by an agreement in writing signed by each of the parties. The provisions of this Agreement shall be severable, and the invalidity of any provision shall not affect the validity of the other provisions. This Agreement may be executed in two (2) counterparts, each of which shall be deemed an original but both of which shall constitute one and the same agreement, which shall be binding on the parties. 6 If the above reflects our mutual understanding, please execute both copies of this Agreement and return to my attention along with the appropriate payments. Regards, Jennifer Manicki Contracts Administrator ACCEPTED AND AGREED: SPORTS TEAM ANALYSIS FANTASY SPORTS ENTERPRISES AND TRACKING SYSTEMS OF MISSOURI, INC. By: Alan Leib By: _________________________________ Its: President Its: ________________________________ Date: ______________________________________ Date: _______________________________ Signature: _________________________________ Signature: __________________________
7 EXHIBIT A Games & Launch Dates 1. Description of Games: NCAA Football - ------------- 2002 College Bowl Challenge 2003 College Football Challenge Drag Racing - ----------- 2003 Drag Racing Spring Challenge 2003 Drag Racing Fall Challenge Golf - ---- 2003 British Open Golf Challenge NASCAR - ------ 2003 Winston Cup SPRING Challenge 2003 Winston Cup FALL Challenge 2003 SPRING Busch Series 2003 FALL Busch Series One-Race Challenges - -------------------- 2003 Pocono One Race Challenge 2003 Bud Shootout One Race Challenge 2003 The Winston One Race Challenge 2003 Brickyard One Race Challenge 2003 Bristol One Race Challenge 2003 Homestead One Race Challenge NCAA Basketball - --------------- 2003 College Basketball Tournament Challenge 2002/2003 Prize Redemption System 8 2. Launch Dates for STATS' Services hereunder: Game Launch Date Start Date - -------------------------------------------------------------------------------- 2002 College Bowl Challenge 11/1/02 Early 12/02 2003 College Football Challenge 06/01/03 Late 8/03 2003 Drag Racing Spring Challenge 01/01/03 Mid 2/03 2003 Drag Racing Fall Challenge 5/01/03 Mid 6/03 2003 British Open Golf Challenge 06/01/03 Mid 7/03 2003 Winston Cup SPRING Challenge 12/01/02 Mid 2/03 2003 Winston Cup FALL Challenge 06/01/03 Mid 7/03 2003 SPRING Busch Series 12/01/02 Mid 2/03 2003 FALL Busch Series 06/01/03 Early 7/03 2003 Pocono One Race Challenge 05/01/03 Early 6/03 2003 Bud Shootout One Race Challenge 01/01/03 Early 2/03 2003 The Winston One Race Challenge 03/01/03 Mid 5/03 2003 Brickyard One Race Challenge 07/01/03 Early 8/03 2003 Bristol One Race Challenge 07/01/03 Late 8/03 2003 College Basketball Tournament Challenge 01/30/03 Mid 3/03 2002 Winston Cup, Busch & College football prize redemption site 11/01/02 Mid 11/02 2003 Homestead One Race Challenge 10/01/03 Mid 11/03 2003 Dana Corp. Club House for WC 01/01/03 Mid 01/03 9 EXHIBIT B Compensation 1. In consideration for the rights and licenses granted under this Agreement, FSE shall pay to STATS a technical service and license fee for the hosting, administration and operation of the Games (the "Technical Service and License Fee"). The Technical Service and License Fee shall be due and payable to STATS as follows: Amount Due and Payable ------ --------------- $26,666 Upon Execution of this Agreement $26,666 February 17, 2003 $13,333 March 1, 2003 $13,333 April 1, 2003 $13,333 May 1, 2003 $13,333 June 1, 2003 $13,333 July 1, 2003 $13,333 August 1, 2003 $13,333 September 1, 2003 $13,333 October 1, 2003 2. If, through no fault of FSE, STATS does not launch by December 1, 2002, all of the Games which, in accordance with Exhibit A, are scheduled to launch on or before December 1, 2002, STATS shall pay to FSE a penalty fee in the amount of twelve thousand five hundred dollars ($12,500) for the month of December and each subsequent month thereafter during the time which the Games have not launched through no fault of FSE. 3. FSE shall have the right to request development of up to an additional three (3) game engines (the "Additional Game") throughout the Term at no additional charge. Upon STATS' acceptance of such request or requests, FSE shall pay STATS a development and license fee in the amount of $10,000 per game in consideration for the development and operation of each Additional Game (the "Additional Games Fee") beyond the first three. The Additional Games fee shall be due and payable upon execution of a written addendum hereto setting forth the specifications for any such Additional Games. Furthermore, STATS will develop any private label games based on FSE's current games for no additional charges. 4. Revenue Sharing Provisions (a) FSE shall pay STATS 30% of the net revenues received by FSE from new customers of the Games and/or Additional Games directly or indirectly referred to by STATS ("Referral Fee"). (b) FSE shall pay to STATS 10% of the a net revenues received by FSE from customers once the total number of annual paid teams exceeds the baseline threshold of 61,115 paid teams. Paid team refers to an individual fee paid by a participant playing one of FSE's games but does not include any participants in private label games that may be 10 developed by FSE or STATS. The net revenues are defined as fees received minus credit card fees, minus rev share participation. (c) STATS shall secure revenues for any private label games ("Private Label Revenues") based on FSE's current games as defined herein. Private Label Revenues from such games shall be shared 50/50. 5. FSE shall pay to STATS all amounts due pursuant to this paragraph 3 within twenty five (25) days of the end of the month in which such amounts were collected. When making a payment, FSE shall provide STATS a written report that identifies the transactions giving rise to such payment. 6. In the event FSE obtains the right to run free-to-play fantasy games on NASCAR.com ("NASCAR.com Games"), FSE shall so notify STATS and STATS shall perform services with respect to such NASCAR.com Games consistent with the services provided with respect to the Games. In consideration for such services with respect to the NASCAR.com Games, FSE shall pay to STATS (i) an Additional Technical Services and License Fee in the amount of $75,000, payable prior to the launch of such NASCAR.com Games and (ii) an incremental fee of $.10 per user for each user above a threshold of 125,000 users. 7. Any late payments of the above noted fees shall bear interest at the rate per annum equal to the lesser of (i) one and one-half percent (1 1/2%) per month or (ii) the highest rate permitted under applicable law. 8. Reporting Requirements. (a) Reporting Requirements. FSE shall forward to STATS, within twenty five (25) days after the end of each month, monthly statements accounting for all transactions that are subject to payments to STATS. STATS shall forward to FSE statements setting forth the number of paid teams each month for each of the Games, and shall include a calculation of the amounts of any Referral Fees and/or Incremental Fees due and owing to STATS by FSE. (b) Books and Records. FSE shall maintain separate accounts and records at their principal place of business for revenues generated pursuant to this Agreement as are necessary for the determination of all amounts due STATS under this Agreement. STATS shall also have the right to hire an independent auditor to inspect FSE's records and books of account for the purpose of verifying the sums due to STATS hereunder. STATS shall give FSE not less than five (5) business days advance written notice of any audit. The auditor shall not disclose to STATS or any other third party the contents of the books and records being audited other than the information necessary to determine whether FSE has paid all amounts due to the STATS pursuant to this Agreement. If such audit reflects that FSE has underpaid the STATS any amounts due hereunder by five percent (5%) or more, FSE being audited shall bear the cost of such audit. Any underpaid amounts shall be immediately due and payable and shall bear interest at the rate of ten percent (10%) per annum from the date such amounts should have been paid. 11 EXHIBIT C Service Level Agreement This Service Level Agreement (the "SLA") sets forth the level of maintenance, customer support, and technical support to be provided by STATS for the Games during the Term as described in the Agreement. 1. Definitions. In addition to the capitalized terms defined elsewhere in this SLA, the following terms have the meanings ascribed to them below: (a) "Correction" shall mean a modification or addition that, when made in response to an Error, establishes material conformity to the definition of the delivery of the Games as set forth in the Agreement. (b) "Error" shall mean the failure of any portion of the Games to substantially perform in accordance with the Agreement or any reproducible defect in a feature or function of the delivery of licensed material for the Fantasy Games that results in data loss, data corruption, abnormal termination of a program (i.e., a crash, quit, exit or other similar phenomenon), an infinite loop or "hang," and arithmetic or logic error or similar manifest malfunction. For purposes of assigning priority to handling of calls received, all Errors shall be classified as one of the following: (i) "Class 1 Error" shall mean any condition where any of the Games that should be operating as set forth in the Agreement are not operating or available to users (e.g. outage, software, server or devices down that cause FSE customers not to be able to access site and causing critical impact to the business). (ii) "Class 2 Error" shall mean any condition where any of the Games that should be operating as set forth in the Agreement are not operating according to specifications for that particular Game (e.g. one or more of the services are down, such that FSE is experiencing degraded performance). (iii) "Class 3 Error" shall also mean any condition where any of the Games that should be operating as set forth in the Agreement do not receive up date or accurate data files for access by users in playing the Game. (c) "FSE Error" shall mean the disposition of a service call whereby it was established that the Games were functioning as designed, but that a Game may not be operating or operating properly because of some action or omission by FSE. (d) "Normal Working Hours" shall mean STATS' normal hours of operation, currently between 9 AM and 6PM PM CST, Monday through Friday, excluding US holidays. Normal Working Hours are those periods of time when STATS' office is fully staffed. (e) "Support" shall mean telephone and remote diagnostic support to FSE (not directly with end users) with regard to support of the operation the Games and maintenance modifications, error corrections or bug fixes necessary to bring the Games into conformance with the Agreement. 12 (f) "Workaround" shall mean a procedure or routine that, when observed in regular operation of the delivery of licensed material, eliminates, or mitigates the practical adverse effect of an Error in a commercially reasonable manner. All other capitalized terms used in this SLA and not otherwise defined herein shall have the meanings ascribed to them in the Agreement. 2. STATS' Customer Support Obligations. STATS shall provide reasonable support to FSE Customer Service Personnel during the Term, including without limitation, STATS shall be responsible for all Game registrations, reports (web and/or e-mail), and response via e-mail to FSE Customer Service Personnel inquiries generally within one (1) business day of STATS' receipt of inquiry. (a) Telephone Support to FSE. STATS shall provide FSE with access to STATS' technical support personnel with the objective of maintaining or restoring the operational capabilities of the Games. Support personnel shall be available for telephone contact during Normal Working Hours. Where restoration cannot be promptly effected, STATS shall use reasonable commercial efforts to provide a Workaround as a temporary solution while continuing to work towards a Correction. STATS shall provide FSE with telephone access to support personnel outside of Normal Working Hours via STATS' customer service line (1-888-633-2910). (b) Response Times. (i) STATS shall respond in a commercially diligent manner to all requests for assistance within fifteen (15) minutes of notification of an Error by a FSE Contact, communicated to it by telephone during the normal business hours set forth in paragraph 2(a) above. STATS shall endeavor to provide a Correction quickly and keep FSE informed of its resolution efforts. (ii) STATS shall respond in a commercially diligent manner to all requests for assistance within fifteen (15) minutes of notification of an Error by a FSE Contact, communicated to it by telephone after 6 PM CST weekdays or any hour on weekends and holidays. (iii) In order to provide effective service consistent with the severity of the problem to FSE, STATS shall use all commercially reasonable efforts to supply FSE with a Workaround or Correction for the Error in accordance with the following table; provided however, that FSE acknowledges that infrequent and isolated instances (e.g., one or two instances every other month) of STATS failure to meet the time deadlines set forth in the following tables shall not constitute a material breach of this SLA.
- ------------------------------------------------------- ----------------------------------------------------- Types of Error Workaround or Correction - ------------------------------------------------------- ----------------------------------------------------- Class 1 Error or Emergency Call related to operations If initial notification is made to STATS of Games during Normal Working Hours , no longer than 1 hour If initial notification is made to STATS outside of Normal Working Hours, no longer than 3 hours - ------------------------------------------------------- ----------------------------------------------------- Class 2 Error As soon as possible, but in any event, no longer than 12 hours - ------------------------------------------------------- ----------------------------------------------------- Class 3 Error No longer than 24 hours - ------------------------------------------------------- -----------------------------------------------------
13 (c) Critical Time Periods. In order to provide an effective service level, STATS shall provide a fully alert staff during critical time periods ("Key Revenue Generating Time Frames" or "Key Customer Service Time Frames"), where economic or customer satisfaction is critical to FSE. A STATS designated representative will know about these critical time periods by either written communication in this contract, or written communication as soon as possible, but no later than 3 days prior to the critical time period from FSE. The STATS representative will be responsible for communicating the specific critical time frames to this fully alert staff and the criticality of specific site functionality and availabilty, after having discussed this with FSE. STATS will provide the "emergency" contact numbers to FSE. (d) Key Revenue Generating Time Frames. (i.) The Days of Advertising Placement on mass media, i.e. Television Commercial Airings, Television Feature Story Airings, Television & Radio Interviews, Internet Launches i.e. NASCAR.com ad banners or link buttons initially launching on a secondary website. (ii.) Two weeks prior to the start date on Winston Cup Spring and Fall Challenges. (iii.) One week prior to the start date on all other challenges. (e) Key Customer Service Time Frames. (i.) The first trade window, i.e. the second weekend changes made to initial team selections. (ii.) The Results Day, when all results are promised to the participant, i.e. Wednesday 9 AM EST. 3. Infrastructure. (a) Bandwidth. STATS will provide commercially reasonable bandwidth on the Internet at all time. STATS will provide a redundant link to the Internet where FSE's bandwidth will be carried. STATS will have two different ISP carriers to eliminate single points of failure. FSE is currently using 512kb of bandwidth. (b) Hosted Site Backups. STATS shall make an incremental/differential, daily backup of the Hosted site. STATS will maintain these daily backups for thirty (30) days. Additionally a full backup will be performed weekly and stored at a secure off site location. (c) Maintenance. STATS shall from time to time have scheduled downtime to perform maintenance. STATS shall notify FSE a minimum of 24 hours in advance of any such scheduled downtime. STATS shall use its best efforts to schedule any such downtime during off-peak usage hours of the site. (d) Security. STATS shall use its best efforts to prevent unauthorized access to the Hosted Site, other restricted areas of the Hosted Site, and any databases or other sensitive material generated from or used in conjunction with the Hosted Site. STATS shall notify FSE with in 8 hours of any security breaches or holes known by STATS. (e) Server Response Time. STATS will via reasonable commercial efforts to provide optimal system performance with respect to page displays, information searches and financial transactions. (f) System Monitoring. STATS will monitor key variables on FSE's systems 24X7. If a problem is detected, STATS will notify FSE of the problem. 14 4. FSE Cooperation. FSE shall be cooperative in providing access to data, personnel, etc. that may be pertinent to the diagnosis of any problem STATS has been requested to correct. For FSE Errors, STATS shall assist FSE with the courtesy and diligence of good service, but the obligations to remedy the Error rests solely with FSE. FSE shall use commercially reasonable efforts to remedy any FSE Error of which FSE becomes or is made aware of within a commercially reasonable time frame. 5. Support Fees. All Support is provided for the consideration in the Agreement and included at no additional charge. Any additional costs in providing added bandwidth, server capacity, etc. to meet the requirements of this SLA will be borne by STATS. 15 EX-10 3 ex10_10-f10k063004.txt EX_10.10; AMNDMNT TO AGMNT BET. STATS & F.S.E. Exhibit 10.10 July 17, 2003 VIA E-mail: clive@silverstarholdings.com Clive Kabatznik Silverstar Holdings dba Fantasy Sports Enterprises 6100 Glades Road Suite 305 Boca Raton, FL 33434 Tel: 561-479-0040 Fax: 561-479-0757 RE: Amendment to Agreement ("Agreement") dated October 7, 2002 between Fantasy Sports Enterprises, Inc. ("FSE") and SPORTS TEAM ANALYSIS AND TRACKING SYSTEMS OF MISSOURI, INC. ("STATS") Dear Mr. Kabatznik: The following (the "Amendment") confirms the terms and conditions which STATS and FSE have agreed to in amending the Agreement. All capitalized terms not otherwise defined herein shall have the meanings ascribed to in the Agreement. The parties hereby agree as follows: 1. Paragraph 1 of the Agreement is hereby amended by replacing subparagraphs (e) with: "(e) STATS shall be responsible for all telephone and/or email customer service in a manner substantially similar to the level of customer service currently being provided by FSE. STATS responsibilities shall also include: mailing of prize checks; oversight of creation, printing & mailing of promotional and report mailings; oversight of creative for print and online advertising. 2. Paragraph 2 of the Agreement is hereby amended as follows: Paragraph 2(b) of the Agreement is hereby deleted in its entirety and replaced by the following: "(b) FSE shall be responsible for all billing and collection matters, credit card processing and all associated fees and charges. FSE shall use good faith efforts to consult with STATS with respect to all material Marketing and/or licensing decisions in connection with the Games, provided, however, the parties acknowledge that all final decisions shall be made solely by FSE." Paragraph 2(c) of the Agreement is hereby deleted in its entirety and replaced by the following: "(c) FSE shall continue to be responsible for all out of pocket costs associated with Marketing of the Games including but not limited to the cost of printing and postage for mailing promotional materials; the media costs associated with any advertising buy; the costs for any necessary outside creative or advertising agency costs associated with the marketing or promotion of the Games. FSE shall use good faith efforts to consult with STATS with respect to all material Marketing and/or licensing decisions in connection with the Games, provided, however, the parties acknowledge that all final decisions shall be made solely by FSE." Paragraph 2(f) shall be added as follows: (f) FSE shall make available to STATS the equipment associated with the customer service call center including but not limited to: customer service workstatons (personal computers, phones, headsets); telephone recording system; high speed printer; associated software and licenses to operate such equipment; programs for printing reports and marketing materials. FSE shall bear the costs of shipping this equipment from the FSE offices in York, PA to the STATS offices in Morton Grove, IL. FSE shall cooperate with STATS in the transition of this equipment and the customer service operation including but not limited to providing access to FSE employees with expertise in these areas. 3. Paragraph 5 of the Agreement is hereby deleted in its entirety and replaced by the following: "5. Term. The term of this Agreement shall commence upon its execution (the "Effective Date") and shall terminate on December 31, 2004 (the "Term"), unless sooner terminated as provided in this Agreement. The Agreement shall automatically renew for a period of one (1) year upon the same terms and conditions unless either party notifies the other party in writing of its desire not to renew the Agreement no less than sixty (60) days prior to the expiration of the Term." 4. Paragraph 8 of the Agreement is hereby amended by adding the following at the end thereof: "In addition to the above termination provisions, upon 180 days prior written notice to STATS, FSE may terminate this Agreement, at its sole option, in the event that STATS is merged, consolidated, transfers all or substantially all of its assets, or implements or suffers any material change in executive management or control, or upon any transfer of more than 50% of its voting control. If FSE shall exercise such termination, FSE shall have no further obligation to pay the Fee after the effective date of such termination, and any incentive compensation due STATS hereunder shall be prorated accordingly." 5. Paragraph 9(b) of the Agreement is hereby is hereby amended by adding the following at the end thereof: 2 "In addition, STATS shall cooperate fully in any transition of the Games to FSE or another supplier, as directed by FSE." 6. Exhibit B of the Agreement is hereby deleted in its entirety and replaced by the a new Exhibit B attached hereto. Except as amended by the terms of this Amendment, the terms and conditions of the Agreement shall remain in full force and effect. In the event of a conflict between the terms of the Agreement and/or the terms of the Amendment, the terms of the Amendment shall govern and control. AGREED AND ACCEPTED, SPORTS TEAM ANALYSIS AND FANTASY SPORTS TRACKING SYSTEMS ENTERPRISES, INC. OF MISSOURI, INC. By: Alan Leib By:_____________________________ Title: President Title: _________________________ Signature: __________________________ Signature: _____________________ Date: _______________________________ Date: __________________________ 3 EXHIBIT B Compensation 1. Base Fee. In consideration for the rights and licenses granted under this Agreement, FSE shall pay to STATS a fee for the hosting, administration, operation and customer service of the Games (the "Fee"). The Fee shall be due and payable to STATS as follows: Amount Due and Payable ------ --------------- $16,000 September 1, 2003 $16,000 October 1, 2003 $18,000 November 1, 2003 $18,000 December 1, 2003 $20,000 January 1, 2004 $20,000 February 1, 2004 $20,000 March 1, 2004 $20,000 April 1, 2004 $20,000 May 1, 2004 $20,000 June 1, 2004 $20,000 July 1, 2004 $20,000 August 1, 2004 $20,000 September 1, 2004 $20,000 October 1, 2004 $20,000 November 1, 2004 $20,000 December 1, 2004 2. Additional Games. FSE shall have the right to request development of up to an additional three (3) game engines (the "Additional Game") throughout the Term at no additional charge. Upon STATS' acceptance of such request or requests, FSE shall pay STATS a development and license fee in the amount of $10,000 per game in consideration for the development and operation of each Additional Game (the "Additional Games Fee") beyond the first three. The Additional Games fee shall be due and payable upon execution of a written addendum hereto setting forth the specifications for any such Additional Games. Furthermore, STATS will develop any private label games based on FSE's current games for no additional charges. 3. STATS Incentive Compensation. As further consideration for STATS' services to FSE hereunder, STATS shall share in any FSE Net Profit (as hereinafter defined) as follows: (a) STATS shall not participate in the first $350,000 of FSE Net Profit; (b) STATS shall receive 100% of the next $150,000 of FSE Net Profit; and (c) STATS shall receive 40% of any additional FSE Net Profit from $500,000-$750,000, 45% of any additional FSE Net Profit from $750,000- $1 million, and thereafter Stats shall receive 50% of any additional FSE Net Profit. 4 For the purposes hereof, "FSE Net Profit" shall mean the net income of FSE for the period of January 1, 2004 through December 31, 2004 based upon the P&L statement as prepared by FSE'S outside auditors to be presented to STATS no later than March 15, 2005. FSE shall warrant that the calculation of FSE Net Profit shall be substantially similar to past years and shall include no corporate charges from FSE corporate parent or affiliated company. Any share of FSE Net Profit due STATS hereunder shall be payable to STATS as follows: upon receipt of the June 2004 FSE P&L Statement based on actual profits year to date with final payment of the balance due upon receipt of the annual FSE P&L Statement for 2004 as contemplated above. 4. Free Games on Nascar.com. In the event FSE obtains the right to run free-to-play fantasy games on NASCAR.com ("NASCAR.com Games"), FSE shall so notify STATS and STATS shall perform services with respect to such NASCAR.com Games consistent with the services provided with respect to the Games. In consideration for such services with respect to the NASCAR.com Games, FSE shall pay to STATS (i) an Additional Technical Services and License Fee in the amount of $75,000, payable prior to the launch of such NASCAR.com Games and (ii) an incremental fee of $.10 per user for each user above a threshold of 125,000 users. 5. Late Payments. Any late payments of the above noted fees shall bear interest at the rate per annum equal to the lesser of (i) one and one-half percent (1 1/2%) per month or (ii) the highest rate permitted under applicable law. 6. Reporting Requirements. (a) FSE Reporting Requirements. FSE shall forward to STATS, within twenty (20) days after the end of each month, a monthly FSE P&L statement, as well as an annual P&L statement prepared by FSE's outside auditors no later than March 15, of the following calendar year. (b) Books and Records. Each party shall maintain separate accounts and records at their principal place of business as are necessary for the determination of all amounts due the other party under this Agreement. Each party shall also have the right to hire an independent auditor to inspect the other party's records and books of account for the purpose of verifying the sums due to the other party hereunder. The auditing party shall give the other party not less than five (5) business days advance written notice of any audit. The auditor shall not disclose to the auditing party or any other third party the contents of the books and records being audited other than the information necessary to determine whether the party being audited has paid all amounts due to the other party pursuant to this Agreement. If such audit reflects that a party has underpaid the other party any amounts due hereunder by five percent (5%) or more, the party being audited shall bear the cost of such audit. Any underpaid amounts shall be immediately due and payable and shall bear interest at the rate of ten percent (10%) per annum from the date such amounts should have been paid. 5 EX-21 4 exhb21-1.txt 21.1 Exhibit 21.1 SILVERSTAR HOLDINGS, LTD. PRINCIPAL SUBSIDIARIES AS OF JUNE 30, 2004
Name State of Incorporation Conducts Business Under First South Africa Holdings (PTY), Ltd. South Africa Same First South Africa Management Corp. Delaware Silverstar Holdings Fantasy Sports, Inc. Delaware Same Silverstar Holdings, Inc. Delaware Same Student Sports, Inc. Delaware Same
EX-23 5 ex23-1_f10k063004.txt 23.1 RACHLIN COHEN & HOLTZ Exhibit 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-53507, 333-95577 and 333-90606) and on Form S-8 (No. 333-90035 333-36359 and 333-109932) of Silverstar Holdings, Ltd (formerly Leisureplanet Holdings, Ltd) of our report dated August 18, 2004, relating to the consolidated financial statements for the years ended June 30, 2004, 2003 and 2002, which appear in this Form 10-K. /s/ Rachlin Cohen & Holtz LLP RACHLIN COHEN & HOLTZ LLP Fort Lauderdale, Florida September 28, 2004 EX-31 6 exhb31-1.txt 31.1 Exhibit 31.1 I, Clive Kabatznik, Chief Executive Officer and Chief Financial Officer of Silverstar Holdings, Ltd. (the "registrant") certify that: 1. I have reviewed this annual report on Form 10-K of the registrant; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and we have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [intentionally omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: September 27, 2004 By:/s/ Clive Kabatznik --------------------------------- Clive Kabatznik Chief Executive Officer and Chief Financial Officer (Principal Executive and Financial Officer) EX-32 7 exhb32-1.txt 32.1 Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES--OXLEY ACT OF 2002 In connection with the Annual Report of Silverstar Holdings, Ltd. (the "Company") on Form 10-K for the year ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Clive Kabatznik, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. By: /s/ Clive Kabatznik ------------------------ Clive Kabatznik Chief Executive Officer and Chief Financial Officer (Principal Executive and Financial Officer) Date: September 27, 2004 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Silverstar Holdings, Ltd. and will be retained by Silverstar Holdings, Ltd. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----