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, 2001
-------------
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, $.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. [ ]
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates of the Registrant. The aggregate market value shall be
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such common equity, as of a specified date within 60
days prior to the date of filing. (See definition of affiliate in Rule 405, 17
CFR 230.405).
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant as of September 27, 2001, was $5,053,957.
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 27, 2001, there were 7,219,939 shares of the Registrant's Common
Stock outstanding and 926,025 shares of the Registrant's Class B Common Stock
outstanding.
-2-
PART 1
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, fantasystockcar.com, and
fantasynhra.com websites and specializes in subscription based NASCAR, college
football and basketball and other fantasy sports games. We are also the largest
shareholder in Magnolia Broadband Wireless, a startup company which is
developing wireless broadband products.
HISTORY
We were founded in September 1995 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. As a result of these changes, and developments we have
reestablished our investment criteria. Our strategy focuses on:
o Acquiring controlling stakes in small, high quality, 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.
In connection with the most recent shift in our business strategy away from the
travel industry, we changed our name to Silverstar Holdings, Ltd., and we
changed our trading symbol on the Nasdaq National Market to SSTR.
DESCRIPTION OF OUR SUBSIDIARIES AND INVESTMENTS
FANTASY SPORTS, INC.
Fantasy Sports Enterprises 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 and
basketball fantasy games. The company intends to develop further participatory
fantasy sports related games and aims to become the leading provider of such
subscription based games in the United States. All the company's games offer
weekly and seasonal cash and merchandise prizes.
Currently, over 30,000 subscribers participate in the company's Spring,
Fall and One Race Nascar challenges, as well as the fantasy college football and
basketball challenges. Our Nascar games currently generate over 90% of our
subscriber 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 $20,000 prize 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. In 2000, over 93% of our
participants were prize winners.
-3-
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
Winston Cup Series races, have made this one of America's most popular sports.
This trend has been strengthened in 2001 with the first national television
network broadcast of the Winston Cup Series. The death of Dale Earnhardt has
generated further public interest in the sport and does not seem to have had a
negative impact on the sport's popularity. Fantasy Sports has been operating
their Nascar challenges since 1993 and are the dominant company in this market.
Our spokesperson, Ned Jarrett, a well-known Nascar personality, lends
credibility and wide public acceptance to our games. Mr. Jarrett appears in our
numerous television commercials as well as on the cover of our rulebook and his
reputation personifies the quality and integrity of our games. In addition, 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. Our state-of-the-art in-house call center offers live, high
quality customer service to our participants.
Since 1997, Fantasy Sports has operated a full season college football
challenge game, which accounts for approximately 8% of our revenues at present.
During 2001, we developed and deployed a tournament challenge college basketball
game that generated over 1,000 paying customers during its first period of
operation. We have developed an online retail store, along with a traditional
retail outlet that specializes in the sale of Nascar related die-cast cars and
other merchandise. This retail operation commenced busienss in May, 2001. In
July, 2001 we entered into an agreement with TWI Interactive, Inc. (TWII), the
online arm of International Management Group(IMG), the world's largest sports
marketing firm. The three-year agreement was designed to aid us in our goal to
establish Fantasy Sports, Inc. as the premiere, independent, subscription based
fantasy sports games provider worldwide. Under the agreement, TWII and
affiliates of IMG provide exclusive representation and services across a broad
spectrum of its sports marketing activities. The agreement also provides for
TWII to receive a 4-year warrant to acquire up to 5% of the currently
outstanding shares of Fantasy Sports, Inc.
We are currently developing a number of new fantasy sports games to
broaden our line of products and provide a wider appeal to the general sports
market. We are also seeking 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, however we have not yet entered into any such agreements.
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 by 2004, driven by an expected sales volume of over 1.2
billion handsets that year.
Magnolia is developing technology to become one of the first companies
to integrate smart antenna technologies into RF chip sets utilized in mobile
phones. The Company's innovative chip sets are aimed at helping handset
manufacturers satisfy both of their key constituencies - consumers and network
operators. Magnolia's technology aims to: double power efficiency, i.e. battery
life; decrease radiation at least twenty times (reducing health risks); and,
significantly reduce dropped calls. We believe the technology will be attractive
to network operators because if effective it will enable them to serve twice as
many subscribers with the same infrastructure and offer better, more consistent
reception to users, many of whom choose a carrier based on this critical
criterion.
-4-
We invested $2,500,000 in Magnolia and received shares of preferred
stock in Magnolia. We also received board representation rights and registration
rights. The shares of Magnolia preferred stock we own are convertible into
common stock of Magnolia, and we are entitled to voting rights on an
as-converted basis, and certain preferred dividend, liquidation and
anti-dilution rights. We initially own approximately 48% of Magnolia. Certain of
the shares of the founders of Magnolia are subject to repurchase by Magnolia if
the founders' employment with Magnolia terminates before October 15, 2002.
Magnolia has reserved additional shares for issuance to founders, employees,
consultants, directors and other investors. Assuming full issuance of such
shares, our ownership interesting Magnolia will be reduced to 33%.
In March 2001, we contributed $250,000 of a $750,000 of a bridge loan
financing to Magnolia. On September 17, 2001, Magnolia received a commitment
from Silverstar Holdings, Selway Partners and CIP to invest a further $750,000
as part of a recapitalization. This investment round is intended to close on or
before September 30, 2001. We will provide $200,000 of this amount and upon
closing and the conversion of the March Bridge Loan we will own approximately
28% of Magnolia and 22% on a fully diluted basis. This round of financing will
enable Magnolia to operate until April 2002. During this time, Magnolia will
complete prototypes and endeavor to enter into customer relationships that will
increase the company's value prior to a further round of financing.
EMPLOYEES
Silverstar Holdings has only 2 full time salaried employees. Fantasy
Sports, Inc. currently employs 12 full time salaried employees, and
approximately 35 hourly employees. We intend to add employees as necessary to
meet management and other requirements from time to time.
Our success will depend on our ability to attract and retain highly
qualified employees. We provide performance based and equity based compensation
programs to reward and motivate significant contributors among our employees.
Competition for qualified personnel in the industry is intense. There can be no
assurance that our current and planned staffing will be adequate to support our
future operations or that management will be able to hire, train, retain,
motivate, and manage required personnel. Although none of our employees is
represented by a labor union, there can be no assurance that our employees will
not join or form a labor union. We have not experienced any work stoppages and
consider our relations with our employees to be good.
ITEM 2. PROPERTIES
Our principal executive offices are located at Clarendon House, Church
Street, Hamilton, HM CX, Bermuda, which space is made available to us pursuant
to a corporate services agreement entered into with a corporate services company
in Bermuda.
Fantasy Sports, Inc. has its principal executive offices at 2009
Industrial Highway, York, Pennsylvania, 17402. These offices also contain our
call center and warehouse space and cover approximately 5,000 square feet. The
lease is held on a month-to-month basis, and costs us approximately $40,000 per
year. In addition, Fantasy Sports rents 2,400 square feet of warehouse space in
York, Pennsylvania under a lease that expires on December 31, 2001, and costs us
approximately $18,225 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 2003 and costs us approximately $28,000 per year.
ITEM 3. LEGAL PROCEEDINGS
Neither we nor any of our subsidiaries is subject to any material legal
proceedings.
-5-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On December 13, 2000 the Company held its annual meeting of
stockholders. At the annual meeting, the Company's stockholders elected five
directors to serve until the next annual meeting and until their respective
successors are elected and qualified. At the annual meeting, the Company's
stockholders also approved and adopted a proposal to change the Company's name
from Leisureplanet Holdings, Ltd. to Silverstar Holdings, Ltd. The votes for
directors were as follows:
The votes with respect to the increase in our authorized shares were as follows:
Votes
----------------------------------
For Withheld
--------- ----------
Michael Levy 10,530,951 31,411
Clive Kabatznik 10,530,951 31,411
Cornelius J. Roodt 10,530,951 31,411
Chris Matty 10,530,951 31,411
David BenDaniel 10,530,951 31,411
The votes to approve and adopt the change of the Company's name to Silverstar
Holdings, Ltd. were as follows:
For Against Abstain
------------------- ------------- -------------
10,532,272 25,440 4,650
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 2000
1st Quarter........................................ $7.938 $3.625
2nd Quarter........................................ $16.50 $3.563
3rd Quarter........................................ $14.25 $8.063
4th Quarter........................................ $9.063 $2.438
Fiscal 2001
1st Quarter........................................ $3.44 $0.94
2nd Quarter........................................ $1.17 $0.56
3rd Quarter........................................ $1.25 $0.63
4th Quarter........................................ $1.11 $0.63
Fiscal 2002
1st Quarter (through September 27, 2001)........... $1.00 $0.38
-6-
As of September 27, 2001, there were approximately 35 holders of our
common stock, exclusive of holders whose shares were held by brokerage firms,
depositaries and other institutional firms in "street name" for their customers.
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 THE COMPANY
----------------------------------------------- ---------------------------------------------------------------------------
YEARS ENDED JUNE 30,
----------------------------------------------- ---------------------------------------------------------------------------
1997 (1) 1998 1999 2000 2001
----------------------------------------------- -------------- --------------- -------------- ------------- ---------------
Revenues $41,885,993 $ - $ - $ - $1,301,432
----------------------------------------------- -------------- --------------- -------------- ------------- ---------------
Total operating expenses (38,559,968) 2,000,920 2,504,838 2,581,406 4,362,413
----------------------------------------------- -------------- --------------- -------------- ------------- ---------------
Operating (loss)/income 3,325,945 (2,000,920) (2,504,838) (2,581,406) (3,060,981)
----------------------------------------------- -------------- --------------- -------------- ------------- ---------------
Interest (expense)/income 26,016 (1,223,654) (2,403,997) (1,363,360) 976,107
----------------------------------------------- -------------- --------------- -------------- ------------- ---------------
(Loss)/income from continuing operations
before income taxes 7,149,970 (615,740) (6,208,976) (4,232,603) (5,010,726)
----------------------------------------------- -------------- --------------- -------------- ------------- ---------------
Net (loss)/income from continuing operations 5,832,932 (615,740) (6,210,195) (4,233,222) (5,010,726)
----------------------------------------------- -------------- --------------- -------------- ------------- ---------------
(Loss)/gain from discontinued operations 850,243 3,387,631 (4,916,267) (34,429,264) (2,389,383)
----------------------------------------------- -------------- --------------- -------------- ------------- ---------------
Net (loss)/income 6,683,165 2,771,891 (11,126,462) (38,662,486) [ (5,257,160)]
----------------------------------------------- -------------- --------------- -------------- ------------- ---------------
(Loss)/income per share - from continuing
operations $1.13 ($0.10) ($0.95) ($0.54) ($0.95)
----------------------------------------------- -------------- --------------- -------------- ------------- ---------------
----------------------------------------------- ---------------------------------------------------------------------------
BALANCE SHEET DATA THE COMPANY
JUNE 30,
----------------------------------------------- -------------- --------------- -------------- -------------- --------------
1997 1998 1999 2000 2001
----------------------------------------------- -------------- --------------- -------------- -------------- --------------
Total assets $64,197,149 $89,561,459 $102,615,018 $94,266,439 $15,931,857
----------------------------------------------- -------------- --------------- -------------- -------------- --------------
Long term liabilities 13,341,758 29,507,926 33,598,244 15,473,769 -
----------------------------------------------- -------------- --------------- -------------- -------------- --------------
Net working capital (2) 25,357,584 25,491,685 28,276,771 31,414,757 4,253,001
----------------------------------------------- -------------- --------------- -------------- -------------- --------------
Stockholders' equity 23,220,014 16,097,666 2,090,966 5,595,870 13,578,710
----------------------------------------------- -------------- --------------- -------------- -------------- --------------
(1) Due to the unavailability of financial data on discontinued operations
for 1997 fiscal year, the discontinuation of First Lifestyle Holdings and
Leisureplanet have not been taken into account in these figures.
(2) Net working capital is the net of current assets and current
liabilities.
-7-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
BACKGROUND AND HISTORY
Silverstar Holdings, Ltd., formerly Leisureplanet 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, 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.
The Company has disposed of First Lifestyle Holdings Limited ("Lifestyle"), the
holding company of its last remaining South African operating subsidiaries. On
June 21, 2000 the Company received an offer from Lifestyle management to buy
Lifestyle from the Company. The Company accepted the offer on September 26, 2000
at a general meeting of Lifestyle shareholders. Regulatory approval was obtained
from the South African monopolies commission on October 12, 2000. Proceeds from
the sale were received on November 6, 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 incur income statement charges to the extent that the Rand
devalues relative to the US Dollar. At the present time, management has no
intention of disposing of the notes receivable.
The Company was unable to obtain additional financing to fund the activities of
Leisureplanet.com ("LPI"), the Internet travel related business. On August 2,
2000 LPI was placed under voluntary administration in the United Kingdom. Full
provision was made for the Company's investment in LPI in the accounts for the
year ended June 30, 2000.
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.
Company's management has ceased funding Hotelsupply Goup, Inc. As a result it
ceased operations in April 2001. No recovery is expected.
-8-
RESULTS OF OPERATIONS
The results of operations only analyze the corporate activity of the group, as
its former operations, namely Lifestyle and LPI are no longer included as
continuing operations. Discussion of the results of these operations is given
under the heading, DISCONTINUED OPERATIONS, below.
FISCAL 2001 COMPARED TO FISCAL 2000
REVENUES
Revenues were zero in 2000 due to the discontinuation of all then
existing businesses. The Company acquired Fantasy in November 2000. All
of the revenues in 2001 relate to Fantasy.
COST OF SALES
Cost of sales was zero in 2000 due to the discontinuation of all then
existing businesses. The Company acquired Fantasy in November 2000. All
cost of sales in 2001 relate to Fantasy. The margin as a percentage of
revenues is 33.2%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the year ended June 30,
2001 increased by $1.21 million to $3.06 million as compared to $1.84
million for the fiscal year ended June 30, 2000. This increase is
primarily due to the acquisition of Fantasy.
AMORTIZATION OF INTANGIBLES
Amortization of intangibles decreased from $0.73 million in fiscal 2000
to $0.37 million in fiscal 2001. This decrease is primarily due to
elimination of non-competition agreements in 2000, which were written
off, with the sale of Lifestyle. The amortization expense in 2001 was
primarily related to goodwill and customer lists from the purchase of
Fantasy.
DEPRECIATION
Depreciation charge relates to minor office equipment, furniture and
computer equipment. This increase is primarily due to the acquisition of
Fantasy.
FOREIGN CURRENCY LOSS
Foreign currency loss of $1.04 million represents the loss realized on
the net assets of First South Africa Holdings (Pty) Ltd (FSAH), that
remain denominated in South African Rand, primarily cash, certain
inter-company balances and notes receivable offset by realized currency
hedging profits. Since the divestiture of Lifestyle, the Company began
recognizing translation gains or losses on the exposure of net assets and
liabilities denominated in South African Rand, within the results of
operations. The prior year's foreign currency loss of $80 thousand
represents the loss realized on the repayment and the translation of the
current account between FSAH and the Company.
INTEREST IN LOSSES OF AFFILIATES
The Company owns a 48% stake in Magnolia Broadband and a 51% stake in
HotelSupplyGroup.com. Both of these companies are start-up ventures,
which have only incurred expenses to date. The charge of $1.92 million
represents the Company's equity accounted share of the operating losses
for the period and a reserve of $0.25 million of a loan made to Magnolia
Broadband. During 2000, the Company's management ceased funding
Hotelsupply Goup, Inc. As a result it discontinued operations in April
2001. The remaining investment of $5,000 was written off. No recovery is
expected.
OTHER INCOME
Other income primarily represents the release of obligations from a
previously sold subsidiary.
-9-
FISCAL 2001 COMPARED TO FISCAL 2000 (CONTINUED)
PREFERENCE DIVIDEND
The preference dividend on the mandatory redeemable preference shares
declared during the current fiscal year was $.17 million. During prior
years, the preference dividend on the mandatory redeemable preference
shares has been accrued on a time proportion basis as the agreement to
pay preference dividends provides for two options, the first being that
the dividend payable must be based on the ordinary dividend declared by
Lifestyle, or the second option must increase by a minimum of 25% percent
over the prior year. The first option is payable three days after receipt
of the Lifestyle dividend, the second option is payable on February 19,
of each calendar year. Since no Lifestyle preference dividend was
declared during the prior fiscal year, the dividend of $0.17 million
represents the time proportion of the dividend payable as of February 19,
2001 through the date of the sale of Lifestyle. The mandatory redeemable
preference shares were redeemed with the sale of Lifestyle.
INTEREST INCOME (EXPENSE)
Interest income has increased by $2.34 million from net interest expense
of $1.36 million to net interest income of $0.98 million. The decrease in
interest expense is due to the early retirement of convertible debt at a
discount. The balance of the movement was made on interest earned on cash
balances; the Company had significant cash resources throughout the year
as compared to the previous fiscal year due to the sale of Lifestyle.
PROVISION FOR INCOME TAXES
The Company is registered in Bermuda, where no tax laws are applicable.
Two of the Company's subsidiaries are subject to income taxes. Up to this
date, neither has had taxable income. Both have incurred losses for tax
purposes. The deferred tax asset generated by the tax losses and
temporary differences have been fully reserved for.
DISCONTINUED OPERATIONS
The loss from discontinued operations decreased from $34.43 million in
2000 to $2.39 million in 2001. The primary reason for the decrease is the
completion of the sale of the Lifestyle business in November 2000 and the
inclusion of the LPI business segment, which was put under voluntary
administration in 2000. As a result, no additional losses from
discontinued operations were recorded after the sale of Lifestyle or the
voluntary administration of LPI. Additional losses related to any
remaining South African assets after the sale are included in continuing
operations. Translation losses on the net assets denominated in South
African Rand were recognized in discontinued operations up through the
sale date of Lifestyle.
EXTRAORDINARY ITEM
The Company negotiated agreements with three lenders to retire $11.70
million of debentures at face plus accrued interest. As a result, the
Company recorded a gain on previously accreted sinking fund interest of
$2.14 million in the 2001. No such transaction occurred in 2000.
NET LOSS
As a result of the above the Company has achieved a loss of $5.26 million
as compared to a loss of $38.66 million in the prior year.
FISCAL 2000 COMPARED TO FISCAL 1999
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the year ended June 30,
2000 decreased by $0.25 million to $1.84 million as compared to $2.09
million for the fiscal year ended June 30, 1999. This decrease is
primarily due to a reduction in corporate support needed for the
Lifestyle business due to the shift in focus to acquisition of
businesses.
-10-
FISCAL 2000 COMPARED TO FISCAL 1999 (CONTINUED)
AMORTIZATION OF INTANGIBLES
Amortization of intangibles increased from $0.42 million in fiscal 1999
to $0.73 million in fiscal 2000. This increase is primarily due to a
change in estimate of the useful life of non-competition agreements.
DEPRECIATION
Depreciation charge relates to minor office equipment, furniture and
computer equipment. Due to the nature of the head office function, these
charges are immaterial.
FOREIGN CURRENCY LOSS
Foreign currency loss of $0.08 million represents the loss realized on
the repayment and the translation of the current account between FSAH and
the Company.
GAIN ON SALE OF SUBSIDIARY STOCK
In the prior year 13,946,500 shares held by FSAH in Lifestyle were sold
at an average price of R2.48 per share realizing a consolidated gain on
disposal of $0.62 million. In addition, a loss on dilution on a group
restructure of $1.42 million was realized. During 2000, 900,000 shares in
First Lifestyle Holdings Limited were sold at R3.00 per share, realizing
a gain of $0.1 million.
INTEREST IN LOSSES OF AFFILIATES
The Company acquired a 48% stake in Magnolia Broadband, a 51% stake in
HotelSupplyGroup.com and a 50% stake in Hall Lifestyle Products. All of
these companies are start-up ventures, which have only incurred expenses
to date. The charge of $0.16 million represents the equity accounted
share of operating losses for the period.
PREFERENCE DIVIDEND DECLARED
During fiscal 2000, the preference dividend on the mandatory redeemable
preference shares has been accrued on a time proportion basis as the
agreement to pay preference dividends provides for two options, the first
being that the dividend payable must be based on the ordinary dividend
declared by Lifestyle, or the second option must increase by a minimum of
25% percent over the prior year. The first option is payable three days
after receipt of the Lifestyle dividend, the second option is payable on
February 19, of each calendar year. Since no Lifestyle dividend was
declared during the current fiscal year the dividend of $0.15 million
represents the time proportion of the dividend payable on February 19,
2001.
INTEREST INCOME (EXPENSE)
Interest expense has decreased by $1.04 million from an interest
expense of $2.40 million to $1.36 million. The conversion of 3,000 of
the increasing rate debentures and the remaining 9% debentures gave
rise to an interest saving of $0.23 million in the current year. The
balance of the movement was made on interest earned on cash balances;
the Company had significant cash resources throughout the year as
compared to the previous fiscal year.
-11-
FISCAL 2000 COMPARED TO FISCAL 1999 (CONTINUED)
PROVISION FOR INCOME TAXES
The Company is registered in Bermuda, where no tax laws are applicable.
One of the Company's subsidiaries is subject to income taxes. Up to this
date, this subsidiary has not had taxable income. The subsidiary has
incurred losses for tax purposes. The deferred tax asset generated by the
tax loss has been fully reserved for.
DISCONTINUED OPERATIONS
During the 2000 fiscal year a loss of $11.93 million arose on
discontinued operations as compared to $3.94 million in fiscal 1999,
representing an increase of $7.99 million over the prior year. The prior
fiscal year included the industrial and packaging business segments,
which incurred losses of $1.46 million and were disposed of during 1999.
The loss realized on the LPI business segment increased by $8.95 million
from $6.17 million in 1999 to $15.12 million in 2000. The increase in the
loss was primarily due to an aggressive attempt to increase the awareness
of the product offered by signing up expensive portal agreements and
advertising arrangements. Due to the lack of investor appetite for loss
making Internet enterprises, LPI could no longer fund its operations and
was placed under voluntary administration on August 2, 2000. Full
provision has been made for the Company's investment in LPI. The
Lifestyle business sector contributed a profit of $3.19 million as
compared to $3.69 million during the previous fiscal year, a decrease of
$0.50 million over the fiscal year. This is primarily because the growth
experienced in this division in South African Rand was 3.9% , which is
below the currency depreciation of the South African Rand against the US
Dollar of 13%. The growth in the business sector was below expectations
due to the lack of consumer demand in South Africa and the inability to
increase selling prices to recover increased costs passed by Lifestyle
suppliers due to competitive pressures experienced in a weak consumer
market.
The loss on disposition of $22.50 million in fiscal 2000 increased by
$21.53 million from $0.97 million in fiscal 1999. The increase is
primarily due to the estimated loss on liquidation of the LPI business
segment and the expected loss arising on the disposition of the Lifestyle
business segment after the inclusion of the currency translation
adjustment reserve and the impairment of an intangible asset related to a
restraint of trade agreement.
NET LOSS
As a result of the above the Company has achieved a loss of $38.66
million as compared to a loss of $11.13 million in the prior year.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash decreased by $24.19 million from $29.85 million to $5.66 million.
Included in the $29.85 million is $4.64 million which was restricted and
was used to repay LPI creditors. The decrease is primarily due to the
cash from the Lifestyle business sector, which was included in the
consolidated cash balance in 2000, but was sold in November, 2000.
Substantially all the net cash received from the Lifestyle sale has been
used to retire the increasing rate debentures $11.70 million face amount
and to fund the acquisition of Fantasy. The balance of the remaining cash
is being held to fund potential investments.
Working capital decreased by $27.16 million from $31.42 million at June
30, 2000 to $4.25 million at June 30, 2001. This is primarily due to the
sale of the Lifestyle businesses.
-12-
At June 30, 2000 the Company had borrowings of $18.48 million which has
decreased to $0.36 million. The decrease is due to the sale of the
Lifestyle businesses and the early retirement of $11.70 million face
amount of convertible debentures.
FUTURE COMMITMENTS
The Company will pay off its remaining debentures of $0.30 million face
amount of debentures after they mature in October, 2001. Excess remaining
cash will be utilized to fund potential acquisitions. There are no other
contingent payments remaining.
Subsequent to year-end, the Company agreed to loan Magnolia Broadband
$0.20 million in the form of convertible notes. The notes will bear
interest at 10% per annum and mature in sixty days. The Company's
investment is contingent on other investors loaning $0.55 million.
Magnolia Broadband will continue to work on securing permanent financing.
Magnolia has received commitments from the other investors for the $0.55
million. Upon closing this round of financing, the Company's ownership
percentage will be reduced to 20% on a fully diluted basis. Magnolia's
management believes that this financing will provide sufficient funding
to operate through April 2002.
As of June 30, 2001, Fantasy, the Company's only operating subsidiary,
had incurred a loss. The Company anticipates that this situation will be
rectified through a combination of improved controls over marketing
expenditures and increased revenues through product expansion. 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
support the operations of Fantasy.
On September 24, 2001, a newly created subsidiary of 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.
Management believes that Student Sports will be able to provide all of
its capital requirements out of its own operations.
The Company intends to continue to pursue acquisitions and anticipates
utilizing a substantial portion of its remaining cash balances and the
proceeds of its disposal of Lifestyle to fund this strategy to the extent
that suitable acquisition candidates can be identified. The Company may
be required to incur additional indebtedness or equity financing in
connection with the funding of future acquisitions. There is no assurance
that the Company will be able to incur additional indebtedness or raise
additional equity to finance future acquisitions on terms acceptable to
management, if at all.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company does not ordinarily hold market risk sensitive instruments
for trading purposes. The company does however recognize market risk from
interest rate and foreign currency exchange exposure.
INTEREST RATE RISK
At June 30, 2001 the Company's cash resources earn interest at variable
rates. Accordingly, the Company's return on these funds is affected by
fluctuations in interest rates. The debt of the continuing operations is
primarily at fixed interest rates. Any decrease in interest rates will
have a negative effect on the Company's earnings. There is no assurance
that interest rates will increase or decrease over the next fiscal year.
FOREIGN CURRENCY RISK
Certain of the Company's cash balances and the remaining proceeds from
the sale of Lifestyle 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% decline in the
Rand/US Dollar exchange rate, at year-end exchange rates, the Company
loses $1,238 on every R1,000,000 retained in South Africa.. Subsequent to
year-end the Rand has depreciated against the US Dollar by approximately
10%. At June 30, 2001, the Company had assets denominated in Rand of R
57.75 million.
-13-
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
----
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1 - F-2
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets F-3
Statements of Operations F-4
Statements of Stockholders' Equity and Comprehensive Income F-5 - F-6
Statements of Cash Flows F-7 - F-8
Notes to Consolidated Financial Statements F-9 - F-34
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Silverstar Holdings, Ltd.
Boca Raton, Florida
We have audited the accompanying consolidated balance sheet of Silverstar
Holdings Limited and Subsidiaries (the Company) as of June 30, 2001, and the
related consolidated statements of operations, stockholders' equity and
comprehensive income, and cash flows for the year then ended. 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 audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis for the
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, Ltd. and its subsidiaries at June 30, 2001,
and the consolidated results of their operations and their cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States.
RACHLIN COHEN & HOLTZ LLP
Fort Lauderdale, Florida
September 7, 2001, except for Note 25,
as to which the date is September 24, 2001
F-1
SILVERSTAR HOLDINGS, LTD.
REPORT OF THE INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Silverstar Holdings, Ltd.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity, of comprehensive
income and of cash flows, present fairly, in all material aspects, the financial
position of Silverstar Holdings, Ltd. and its subsidiaries at June 30, 2000
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended June 30, 2000 in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
managment, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2 to the consolidated financial statements, the Company
restated its consolidated financial statements for the years ended June 30,
2000, 1999 and 1998.
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers
West Londaon
October 13, 2000
Except for Note 2(m)(ii)
as to which the date is February 20, 2001
F-2
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND 2000
2001 2000
---- ----
ASSETS
------
Current Assets:
Cash and cash equivalents $5,664,013 $ 29,853,067
Accounts receivable, net - 10,608,197
Inventories 377,721 9,386,857
Current portion of long-term notes receivable 411,266 -
Prepaid expenses and other current assets 153,148 3,631,348
Deferred income taxes - 898,280
------------ ------------
Total current assets 6,606,148 54,377,749
Property, Plant and Equipment, Net 167,464 18,215,196
Investments in Affiliates 631,066 1,283,935
Long-Term Notes Receivable 5,033,080 -
Intangible Assets, Net 3,487,799 20,130,119
Deferred Charges and Other Assets 6,300 259,440
------------ ------------
Total assets $ 15,931,857 $ 94,266,439
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Bank overdraft $ 92,887 $ 896,860
Current portion of long-term debt 361,836 2,105,153
Accounts payable 421,316 13,046,686
Accrued expenses 553,742 5,754,638
Deferred revenue 923,366 -
Dividends payable - 179,840
Income taxes payable - 676,003
Other taxes payable - 303,812
------------ ------------
Total current liabilities 2,353,147 22,962,992
Long-Term Debt - 15,473,769
Deferred Income Taxes - 4,402,038
------------ ------------
Total liabilities 2,353,147 42,838,799
------------ ------------
Minority Interest - 37,059,840
------------ ------------
FSAH Mandatory Redeemable Preferred Stock - 8,771,930
------------ ------------
Commitments, Contingencies and Subsequent Events - -
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;
7,178,310 and 8,368,767 shares issued and outstanding, respectively 71,783 83,687
Common stock, Class B, $0.01 par value; 2,000,000 shares authorized;
946,589 and 946,589 shares issued and outstanding, respectively 9,466 9,466
Common stock, FSAH Class B, R0.001 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 63,349,937 64,307,442
Accumulated deficit (49,853,076) (44,595,916)
Accumulated other comprehensive loss - (14,209,409)
------------ ------------
Total stockholders' equity 13,578,710 5,595,870
------------ ------------
Total liabilities and stockholders' equity $ 15,931,857 $ 94,266,439
============ ============
See notes to consolidated financial statements.
F-3
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
2001 2000 1999
---- ---- ----
Revenues $1,301,432 $ - $ -
---------- ---------- ----------
Operating Expenses:
Cost of sales 869,185 - -
Selling, general and administrative 3,055,955 1,844,197 2,090,086
Amortization of intangibles 369,318 640,441 410,466
Depreciation 67,955 6,490 4,286
---------- ---------- ----------
4,362,413 2,491,128 2,504,838
---------- ---------- ----------
Operating Loss (3,060,981) (2,491,128) (2,504,838)
Gain (Loss) on Sale of Subsidiary Stock - 103,505 (804,150)
Interest in Losses of Unconsolidated Affiliates (1,919,026) (251,163) -
Other Income 200,757 - -
Preference Dividend (165,109) (149,755) (495,991)
Foreign Currency Loss (1,042,474) (80,702) -
Interest Income (Expense), Net of Interest Income of
$1,548,882, $668,109 and $297,834, respectively 976,107 (1,363,360) (2,403,997)
---------- ---------- ----------
Loss from Continuing Operations Before Income Taxes (5,010,726) (4,232,603) (6,208,976)
Provision for Income Taxes - (619) (1,219)
---------- ---------- ----------
Loss From Continuing Operations (5,010,726) (4,233,222) (6,210,195)
Discontinued Operations:
Loss from operations, net of income taxes of
$0, $2,543,255 and $2,893,380, respectively - (11,931,286) (3,941,319)
Loss on disposition, net of income taxes of $0, $0 and $0,
respectively (2,389,383) (22,497,978) (974,948)
---------- ---------- ----------
Loss before Extraordinary Item (7,400,109) (38,662,486) (11,126,462)
Extraordinary Item - Gain on Extinguishment of Debt,
Net of Income Taxes of $0 2,142,949 - -
---------- ---------- ----------
Net Loss $(5,257,160) $(38,662,486) $(11,126,462)
=========== ============ ============
Loss Per Share - Basic and Diluted:
Continuing operations $ (0.57) $ (0.54) $ (0.95)
Discontinued operations (0.27) (4.39) (0.75)
---------- ---------- ----------
Loss before extraordinary item (0.84) (4.93) (1.70)
Extraordinary item 0.24 - -
---------- ---------- ----------
Net loss $ (0.60) $ (4.93) $ (1.70)
=========== ============ ============
Weighted Average Common Stock Outstanding:
Basic and diluted 8,849,663 7,836,387 6,548,491
=========== ============ ============
See notes to consolidated financial statements.
F-4
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
Silverstar Silverstar
Holdings, Ltd. Holdings, Ltd. First SA Holdings
Class A Class B Class B
Common Stock Common Stock Common Stock
------------ ------------ ------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Balance, June 30, 1998 5,649,209 $ 56,492 1,822,500 $ 18,225 2,307,782 $ 537
Year Ended June 30, 1999:
Issuance of stock to FSAC escrow agent 243,400 2,434 - - - -
Issuance of stock on additional purchase
price payments - - - - 242,684 43
Options exercised 20,000 200 - - - -
Conversion of 9% debentures
to common stock 320,700 3,207 - - - -
Redemption and cancellation of stock
from FSAC escrow agent (1,726,078) (17,260) - - - -
Conversion of Class B common stock
to Class A common stock 875,911 8,759 (875,911) (8,759) - -
Net loss - - - - - -
Translation adjustment - - - - - -
Total comprehensive loss - - - - - -
---------- ------- -------- ------ ---------- ----
Balance, June 30, 1999 5,383,142 53,832 946,589 9,466 2,550,466 580
---------- ------- -------- ------ ---------- ----
Retained Accumulated
Additional Earnings Other
Paid-in (Accumulated Comprehensive
Capital Deficit) Income (Loss) Total
------- -------- ------------- -----
Balance, June 30, 1998 $ 28,288,404 $ 5,193,032 $(17,377,313) $ 16,179,377
Year Ended June 30, 1999:
Issuance of stock to FSAC escrow agent (2,434) - - -
Issuance of stock on additional purchase
price payments 1,033,572 - - 1,033,615
Options exercised 106,800 - - 107,000
Conversion of 9% debentures
to common stock 1,732,895 - - 1,736,102
Redemption and cancellation of stock
from FSAC escrow agent (8,837,331) - - (8,854,591)
Conversion of Class B common stock
to Class A common stock - - - -
Net loss - (11,126,462) -
Translation adjustment - - 3,015,925
Total comprehensive loss - - - (8,110,537)
----------- ----------- ------------ ----------
Balance, June 30, 1999 22,321,906 (5,933,430) (14,361,388) 2,090,966
----------- ----------- ------------ ----------
See notes to consolidated financial statements.
F-5
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(Continued)
Silverstar Silverstar
Holdings, Ltd. Holdings, Ltd. First SA Holdings
Class A Class B Class B
Common Stock Common Stock Common Stock
------------ ------------ ------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Balance, June 30, 1999 5,383,142 $ 53,832 946,589 $ 9,466 2,550,466 $ 580
Year Ended June 30, 2000:
Issuance of stock to FSAC escrow agent 120,621 1,206 - - - -
Issuance of stock on additional purchase price payments - - - - 120,621 20
Issuance of shares 1,379,310 13,793 - - - -
Warrants exercised 247,311 2,473 - - - -
Options exercised 180,000 1,800 - - - -
Conversion of 9% debentures to common stock 742,503 7,425 - - - -
Increasing rate debentures converted to common stock 315,789 3,158 - - - -
Issuance of warrants - - - - - -
Equity gain on group restructure - - - - - -
Net loss - - - - - -
Provision for loss on subsidiary - - - - - -
Translation adjustment - - - - - -
Total comprehensive loss - - - - - -
---------- --------- ------- -------- ---------- ------
Balance, June 30, 2000 8,368,676 83,687 946,589 9,466 2,671,087 600
Year Ended June 30, 2001:
Disposal of FSAH -translation loss - - - - - -
Stock issued to employee 10,000 100 - - - -
Issuance of warrants for services - - - - - -
Purchase and retirement of treasury stock (1,200,366) (12,004) - - - -
Net loss - - - - - -
---------- --------- ------- -------- ---------- ------
Balance, June 30, 2001 7,178,310 $ 71,783 946,589 $ 9,466 2,671,087 $ 600
========== ========= ======== ======== ========== ======
Retained Accumulated
Additional Earnings Other
Paid-in (Accumulated Comprehensive
Capital Deficit) Income (Loss) Total
------- -------- ------------- -----
Balance, June 30, 1999 $ 22,321,906 $(5,933,430) $(14,361,388) $2,090,966
Year Ended June 30, 2000:
Issuance of stock to FSAC escrow agent (1,206) - - -
Issuance of stock on additional purchase price payments 567,687 - - 567,707
Issuance of shares 18,361,207 - - 18,375,000
Warrants exercised 1,356,434 - - 1,358,907
Options exercised 872,296 - - 874,096
Conversion of 9% debentures to common stock 4,083,465 - - 4,090,890
Increasing rate debentures converted to common stock 3,312,657 - - 3,315,815
Issuance of warrants 3,446,633 - - 3,446,633
Equity gain on group restructure 9,986,363 - - 9,986,363
Net loss - (38,662,486) -
Provision for loss on subsidiary - - 6,268,756
Translation adjustment - - (6,116,777)
Total comprehensive loss - - - (38,510,507)
------------- ------------- ----------- -------------
Balance, June 30, 2000 64,307,442 (44,595,916) (14,209,409) 5,595,870
Year Ended June 30, 2001:
Disposal of FSAH -translation loss - - 14,209,409 14,209,409
Stock issued to employee 7,400 - - 7,500
Issuance of warrants for services 34,326 - - 34,326
Purchase and retirement of treasury stock (999,231) - - (1,011,235)
Net loss - (5,257,160) - (5,257,160)
------------- ------------- ----------- -------------
Balance, June 30, 2001 $ 63,349,937 $ (49,853,076) $ - $ 13,578,710
============= ============== =========== =============
See notes to consolidated financial statements.
F-6
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
2001 2000 1999
---- ---- ----
Cash Flows from Operating Activities:
Net loss from continuing operations $(5,010,726) $(4,233,222) $(6,210,195)
Dividend charge 165,109 149,755 495,991
Depreciation and amortization 437,273 737,209 414,752
Non-cash compensation charge - - 268,802
Deferred income taxes - 748,359 1,104,397
Net loss (gain) on sale of assets - (34,419) 665,842
Net gain on sale of and dilution in subsidiaries - (103,505) 804,150
Issuance of stock and warrants for services 41,826 - -
Changes in operating assets and liabilities, net (943,728) 3,838,445 541,506
Increase in other assets 32,351 - -
Creation of debenture redemption reserve fund 266,748 1,012,500 843,750
Provision for affiliate losses - 35,763 -
Equity in losses of affiliates 1,919,026 160,885 -
---------- ---------- ----------
Net cash provided by (used in) continuing operations (3,092,121) 2,311,770 (1,071,005)
Net cash provided by (used in) discontinued operations (1,090,173) (15,032,079) 1,042,217
---------- ---------- ----------
Net cash used in operating activities (4,182,294) (12,720,309) (28,788)
---------- ---------- ----------
Cash Flows from Investing Activities:
Proceeds on disposal of investment in subsidiaries - 421,400 5,712,671
Proceeds on disposal of discontinued operations 11,102,549 - 91,718
Additional shares acquired in subsidiaries - - (51,402)
Acquisition of intangibles (49,332) (25,232) (74,832)
Acquisition of property, plant and equipment (1,662,725) (5,862,741) (5,968,074)
Proceeds on disposal of property, plant and equipment 74,150 147,237 740,482
Additional purchase price payments - (586,589) (2,523,311)
Other assets acquired - (1,512) (171,322)
Investment in affiliates - (2,805,423) -
Decrease in long-term receivable 1,188,355 - -
Settlement of share price warranties - - (5,073,339)
Loan to affiliate (250,000) - -
Repayment of loan by affiliates 161,500 - -
Acquisition of subsidiaries (net of cash of $863,337,
$0 and $430,556) (3,454,569) - (2,438,375)
Other 1,042 - -
---------- ---------- ----------
Net cash provided by (used in) investing activities 7,110,970 (8,712,860) (9,755,784)
---------- ---------- ----------
See notes to consolidated financial statements.
F-7
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
2001 2000 1999
---- ---- ----
Cash Flows from Financing Activities:
Short term borrowings, net $ (999,883) $ 301,767 $ 836,250
Proceeds from long-term debt - 234,542 1,317,219
Repayment of long-term debt (1,246,822) (6,227,693) (200,486)
Redemption of debentures (11,700,000) - (2,630,132)
Redemption of preferred shares (8,153,928) - -
Treasury stock transactions (1,011,232) - -
Proceeds on issuance of FSAH mandatory
redeemable preferred stock - - 9,891,197
Share issue expenses in subsidiary company - - (59,489)
Dividends paid - (1,342,996) (284,219)
Proceeds on minority shares issued in Lifestyle - 16,887 -
Proceeds of subsidiary stock issue - 18,997,589 -
Proceeds on issuance of common stock - 20,543,100 107,000
------------ ------------ ------------
Net cash provided by (used in) financing activities (23,111,865) 32,523,196 8,977,340
------------ ------------ ------------
Effect of Exchange Rate Changes on Cash (4,005,865) (2,050,261) 3,671,542
------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents (24,189,054) 9,039,766 2,864,310
Cash and Cash Equivalents, Beginning 29,853,067 20,813,301 17,948,991
------------ ------------ ------------
Cash and Cash Equivalents, Ending $ 5,664,013 $ 29,853,067 $ 20,813,301
============ ============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 373,574 $1,363,360 $1,298,438
============ ============ ============
Cash paid during the period for income taxes $ - $2,218,165 $2,170,203
============ ============ ============
See notes to consolidated financial statements.
F-8
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 1. ORGANIZATION AND PRINCIPAL ACTIVITIES OF THE GROUP
Silverstar Holdings, Ltd. (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
(see Note 3).
Additional investments have been made in other companies, which are in
line with the Company's new focus (see Notes 7 and 25).
DISCONTINUED OPERATIONS
The original investment made in Leisureplanet.com ("LPI"), the Internet
travel related services company, has been unsuccessful due to a lack of
further investor funding into the loss making entity. Therefore, on
August 2, 2000, LPI was placed under voluntary administration in the
United Kingdom and subsequently liquidated (see Note 15).
In addition to LPI, First Lifestyle Holdings Limited ("Lifestyle"), the
products segment, was also discontinued in line with the shift in
strategy of the holding company. This segment was involved in the
manufacture, sale and distribution of lifestyle enhancing products,
which included both consumable food products and semi-durable outdoor
and indoor products (see Note 15).
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 the equity
method of accounting. 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.
F-9
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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. Significant estimates which could be
subject to change in the near term include amortization and valuation
of intangible assets.
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 substantially all 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.
NOTES RECEIVABLE
The Company's notes receivable are to be settled in South African Rand
by South African companies. The Company's ability to collect on these
notes may be affected by economic conditions in South Africa and the
value of the South African Rand, as compared to the U.S. dollar.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts receivable,
accounts payable and convertible debentures 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.
F-10
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Depreciation is
provided using the straight-line method over the estimated useful lives
of the assets. Land was not depreciated. Buildings were depreciated
over 20 years. Plant and equipment and motor vehicles are 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. In 2001, Fantasy
developed software to run the college basketball fantasy league;
however, such costs were not significant.
INTANGIBLE ASSETS
Intangible assets include goodwill, customer lists, patents and
trademarks, recipes and other intellectual property and non-competition
agreements. Intangible assets are stated on the basis of cost and are
amortized on a straight-line basis over a period of three to twenty
five years. Management periodically reviews intangible assets for
impairment based on an assessment of undiscounted future cash flows,
which are compared to the carrying value of the intangible. Should
these cash flows not equate 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. Goodwill and customer lists
are amortized over a period of 3 to 25 years. The patents, trademarks,
recipes and other intellectual property were amortized over a period of
25 years, and non-competition agreements were amortized over a 3-year
period, up to the time of their disposal (see Note 15).
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.
F-11
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs incurred
for the year ended June 30, 2001 was $591,894. Advertising costs
incurred for the years ended June 30, 2000 and 1999 are included in
discontinued operations.
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.
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
and convertible debentures. Dilutive potential common shares for all
periods presented are computed utilizing the treasury stock method. The
diluted share base for the years ended June 30, 2001, 2000 and 1999
excludes shares of 261,092, 2,997,230, and 2,565,817, respectively,
related to stock options, warrants and convertible debentures. These
shares are excluded due to their anti-dilutive effect as a result of
the Company's loss from continuing operations during 2001, 2000 and
1999.
F-12
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RECLASSIFICATIONS
Certain items in the prior year financial statements have been
reclassified to conform to the current period presentation.
RECENTLY ISSUED ACCOUNTING STANDARDS
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 will
be effective for the Company's financial statements beginning July 1,
2002, with earlier application encouraged. The Company believes that
the adoption of this statement will not have a significant impact on
the results of operations or financial position of the Company.
In July 2001, the FASB issued SFAS No. 141, "BUSINESS COMBINATIONS",
and SFAS No. 142, "GOODWILL AND OTHER INTANGIBLE ASSETS" which replace
Accounting Principles Board Opinion Nos. 16, "BUSINESS COMBINATIONS"
and 17, "INTANGIBLE ASSETS", respectively. SFAS No. 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001, and that the use of the
pooling-of-interests method be prohibited. SFAS No. 142 changes the
accounting for goodwill from an amortization method to an
impairment-only method. Amortization of goodwill, including goodwill
recorded in past business combinations, will cease upon adoption of
SFAS No. 142, which the Company will be required to adopt on July 1,
2002. After June 30, 2002, goodwill can only be written down upon
impairment discovered during annual tests for fair value, or discovered
during tests taken when certain triggering events occur. The Company is
in the process of determining the impact of these pronouncements on its
consolidated financial position and results of operations.
In June 1998, the FASB issued SFAS No. 133, as amended by SFAS No. 137
and SFAS No. 138, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES." SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair
value and that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows derivatives gains
and losses to offset related results on the hedged item in the income
statement and requires that the company must formally document,
designate and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133 is effective for fiscal years beginning
after June 15, 2000. The adoption of this statement has not had a
significant impact on the results of operations or financial position
of the Company.
F-13
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
Staff Accounting Bulletin "SAB" No. 101, issued by the U.S. Securities
and Exchange Commission, provides the staff's views in applying
generally accepted accounting principles to selected revenue
recognition issues. SAB 101 is effective no later than the fourth
quarter of fiscal years beginning after December 15, 1999. The Company
believes that it is in compliance with the guidelines set forth in SAB
101.
NOTE 3. ACQUISITIONS
The results of operations of the following acquisition are included in
the consolidated financial statements from the date of acquisition. The
costs of the acquisition were allocated on the basis of the estimated
fair value of the assets acquired and liabilities assumed as required
under purchase accounting.
Percentage Purchase
SUBSIDIARY/BUSINESS Date Acquired Acquired Consideration
------------------- ------------- -------- -------------
Fantasy Sports, Inc. November 15, 2000 100% $4,330,990
=========
ACQUISITION COSTS:
Cash consideration $4,330,990
---------
Net Assets Acquired:
Cash and cash equivalents 863,276
Current assets 25,985
Property, plant and equipment 193,472
Intangibles 3,782,814
---------
Total assets 4,865,547
Current Liabilities 534,557
----------
$4,330,990
In connection with the acquisition of Fantasy Sports, Inc., the Company
recorded intangibles consisting of goodwill and customer lists. These
intangibles are being amortized on a straight-line basis over their
expected useful lives of 3 to 10 years.
The following unaudited pro forma summary presents consolidated
financial information as if the acquisition of Fantasy Sports, Inc. had
occurred effective July 1, 1999. The pro forma amounts include
adjustments for amortization of intangibles. 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,
-------------------
2001 2000
---- ----
Revenue $ 2,231,026 $ 2,611,280
========== =============
F-14
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 3. ACQUISITIONS (Continued)
Year Ended June 30,
-------------------
2001 2000
---- ----
Loss before extraordinary item $(8,472,074) $(39,178,696)
Extraordinary item - gain on extinguishment of debt 2,142,949 -
---------- ------------
Net loss $(6,329,125) $(39,178,696)
========== ===========
Loss per share - basic and diluted:
Loss before extraordinary item $(0.96) $(5.00)
Extraordinary item 0.24 -
----- -------
Net loss $(0.72) $(5.00)
===== =====
NOTE 4. ACCOUNTS RECEIVABLE
2001 2000
---- ----
Accounts receivable $ - $11,034,417
Less allowance for doubtful accounts - 426,220
---------- ------------
$ - $10,608,197
========= ==========
NOTE 5. INVENTORIES
2001 2000
---- ----
Finished goods $377,721 $5,147,642
Work in progress - 358,890
Raw materials and ingredients - 2,701,284
Supplies - 1,179,041
------------ ---------
$377,721 $9,386,857
======= =========
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
2001 2000
---- ----
Land and buildings $ - $ 2,174,364
Leasehold improvements 7,264 1,265,657
Plant and equipment 251,021 23,721,346
Motor vehicles - 2,325,005
Construction in progress - 558,416
------------ ------------
258,285 30,044,788
Less accumulated depreciation 90,821 11,829,592
-------- ----------
$167,464 $18,215,196
======= ==========
Depreciation expense was $67,955, $2,906,643, and $2,510,953 for the years ended
June 30, 2001, 2000 and 1999, respectively. Of this depreciation expense, $-0-,
$2,900,153 and $2,506,667, respectively, was included in discontinued
operations.
F-15
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 7. INVESTMENTS IN AFFILIATES
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, 2001 June 30, 2000
--------- ------------- -------------
Investments In and Receivables From
Unconsolidated Affiliates:
HotelSupplyGroup.com 51% $ - $ 183,134
Magnolia Broadband 48 631,066 1,076,338
Hall Lifestyle Products 50 - 24,463
---------------- -----------
$ 631,066 $1,283,935
=========== =========
Share of losses of unconsolidated affiliates:
HotelSupplyGroup.com 51 $ (14,032) $ (37,223)
Magnolia Broadband (includes $250,000
provision relating to the convertible note
and $433,332 and $90,278, respectively,
of goodwill amortization) 48 (1,904,994) (213,940)
---------- ----------
$(1,919,026) $ (251,163)
========== ==========
HOTELSUPPLYGROUP.COM
On July 13, 1999 the Company organized a new company,
HotelSupplyGroup.Com Limited ("HSG"), with Intercommerce Trading
Limited. HSG is 51% owned by the Company and 49% by Intercommerce
Trading limited. However, the Company does not have a majority voting
interest; therefore, HSG has been accounted for under the equity method
in the consolidated financial statements. A stockholder's loan of
$250,000 was advanced to HSG as initial funding. As of June 30, 2001,
the Company's investment in HSG has been reduced to zero due to
uncertainty surrounding its recoverability. HSG was subsequently
liquidated.
HALL LIFESTYLE PRODUCTS LTD.
On February 21, 2000, the Company organized a new company, Hall
Lifestyle Products (Pty) Ltd ("HLP") and entered into a joint venture
agreement with HL Hall & Sons (Group Services) (Pty) Ltd ("Hall"),
whereby each venturer invested an equal sum of R275,000 into a newly
formed entity. The Company and Hall each own 50% of HLP with equal
voting rights.
The losses incurred in HLP of $23,111 in 2001 are included in the
Lifestyle discontinued operation.
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 is being amortized
over a three-year period.
F-16
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 7. INVESTMENTS IN AFFILIATES (Continued)
MAGNOLIA BROADBAND, INC. (Continued)
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. Subsequent to June 30,
2001, the Company made an additional investment in Magnolia (see Note
26).
NOTE 8. LONG-TERM NOTES RECEIVABLE
In connection with the sale of Lifestyle, which was completed in
November 2000, the Company received as partial consideration three
notes 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 obligee. Two notes require principal
payments ranging from R175,000 to R184,000 through June 30, 2003. The
third note was for R52 million of which R20 million (plus accrued
interest) has been treated as contingent consideration to be recorded
when collected. The remaining R32 million is payable to the extent the
borrower collects on Junior debt. Collections of Junior debt will be
first charged against accrued interest and the excess applied to the
receivable balance not to exceed tranches of R500,000. These notes bear
interest at rates based on the South African prime rate (13.5% at June
30, 2001). Notes receivable include accrued interest of approximately
$270,000.
Balance at June 30, 2001 $5,444,346
Less current portion 411,266
----------
Long-term portion $5,033,080
=========
NOTE 9. INTANGIBLE ASSETS
2001 2000
---- ----
Goodwill $3,567,814 $ 5,596,624
Customer lists 215,000 -
Patents and trademarks - 5,366,800
Recipes and other intellectual property - 11,590,790
----------- ----------
3,782,814 22,554,214
Less accumulated amortization 295,015 2,424,095
----------- ----------
Intangible assets, net $3,487,799 $20,130,119
========== ===========
Amortization expense was $369,318, $2,934,686 and $1,613,206 for the years ended
June 30, 2001, 2000 and 1999, respectively. Of this amortization expense, $-0-,
$2,203,967 and $1,209,253, respectively, was included in discontinued
operations.
F-17
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10. LONG-TERM DEBT
2001 2000
---- ----
Increasing rate convertible debentures $300,000 $12,000,000
Debenture redemption reserve fund 61,836 2,025,000
Mortgage loans - 373,333
Equipment notes - 2,164,047
Deferred purchase consideration - 1,016,542
------------- -----------
361,836 17,578,922
Less current portion 361,836 2,105,153
------------ -----------
Long-term debt, net $ - $15,473,769
============ ===========
INCREASING RATE SUBORDINATED CONVERTIBLE DEBENTURES
15,000 increasing rate subordinated convertible debentures of $1,000
each were issued on October 31, 1997.
These debentures bear interest at the following rates which is payable
quarterly:
4% per annum for the year ending October 31, 1998; 4.5% per
annum for the two years ending October 31, 2000; and 5% per
annum for the year ending October 31, 2001.
The debentures are convertible into shares of common stock, at the
option of the debenture holder, at any time prior to maturity at a
price of $9.50 per share. The debentures may be redeemed at the option
of the Company from October 31, 1998, if the Company's common stock
trades at more than $14.25 per share for 30 consecutive market days.
Should the debentures not be converted into shares of common stock
prior to October 31, 2001, the maturity date, the redemption value of
the debentures will be 122.5% of the principal amount.
The following covenants are in existence:
A restriction has been placed on the ability of the Company to
pay any dividends. The restriction against repurchasing stock
was waived.
A restriction has been placed on transactions with affiliates,
whereby all transactions must be no less favorable than those
on normal commercial terms.
The Company may not adopt any plan of liquidation
(bankruptcy).
During fiscal 2000, 3,000 increasing rate subordinated convertible
debentures of $1,000 each were converted to shares of common stock at
$9.50 per share. The unamortized debt issue costs related to these
debentures was offset against additional paid-in capital. There were no
debentures converted into common stock in fiscal 2001.
Debt issue costs of $669,294 relating to these debentures are being
amortized over the term of the debenture issue. The charge to interest
expense for fiscal year 2001 was $107,310.
F-18
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10. LONG-TERM DEBT (Continued)
INCREASING RATE SUBORDINATED CONVERTIBLE DEBENTURES (Continued)
As of June 30, 2001, the Company has redeemed all but $300,000 of the
increasing rate convertible debentures (see below).
DEBENTURE REDEMPTION RESERVE FUND
Under the terms of the increasing rate subordinated convertible
debentures, a redemption reserve fund has been created to accrue for
the premium required on the redemption of those debentures on October
31, 2001. This debenture redemption reserve fund is being created on
the straight-line basis over the remaining period of the debenture
tenure.
The charge to interest expense for fiscal year 2001 for the debenture
redemption reserve was $275,107.
In connection with redemption of the increasing rate subordinated
convertible debentures in 2001, the Company recognized an extraordinary
gain of $2,142,949 (Net of $119,323 debenture issuance costs and
$24,000 of accrued interest write-off) of previously accrued amounts in
the debenture redemption reserve fund (see Note 16). The balance of the
debenture redemption reserve fund at June 30, 2001 was $61,836.
NOTE 11. FSAH MANDATORY REDEEMABLE STOCK
On April 16, 1999, FSAH issued 60,000,000 mandatory redeemable
preferred stock for R60,000,000, each with a par of R0.001. FSAH is a
wholly owned subsidiary of the Company. The preferred stock was
redeemable on April 17, 2002 at the original issue price. Dividends on
the preferred stock are equal to the greater of (i) the dividend
declared by Lifestyle, a subsidiary of FSAH, listed on the Johannesburg
Stock Exchange, or (ii) 125% of the prior year's dividend. These
dividends accrued annually and were payable 3 days after the receipt of
the Lifestyle dividend or, if no such dividend was declared, annually
on February 19. No dividends were declared in 2001 and 2000.
During 2001, the Company redeemed all the redeemable preferred stock
with proceeds received from the sale of Lifestyle.
NOTE 12. FOREIGN CURRENCY CASH FLOW HEDGE
The functional currency of the Company's South African subsidiary is
the South African Rand. Due to the volatility of this currency against
the currencies of major trading partners, forward foreign currency
exchange contracts are entered into which effectively result in the
purchase of foreign currency at a set value for delivery at a future
date. These contracts generally do not exceed one year. Unrealized
gains and losses at June 30, 2001 and 2000 were not material. Foreign
currency losses are reported in the accompanying statement of
operations net of foreign currency hedging gains and losses.
F-19
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 13. GAIN (LOSS) ON SALE OF SUBSIDIARY STOCK
The gain (loss) on disposal of subsidiary stock includes any gains or
losses made on the dilution of the Company's effective interest in
subsidiaries by the issuance of shares in its underlying subsidiaries
to minority stockholders.
The gain (loss) on disposal and dilution recognized in the consolidated
statements of operations was comprised of the following:
2000 1999
---- ----
Proceeds received $421,400 $ 5,712,671
Less net carrying value of shares of First Lifestyle Holdings Limited 317,895 5,097,527
------- ---------
103,505 615,144
Loss on dilution in First Lifestyle Holdings Limited - (1,419,294)
------------ ----------
$103,505 $ (804,150)
======= ==========
There were no such gains or losses for the year ended June 30, 2001.
NOTE 14. INCOME TAXES
The components of the Company's provision (benefit) for income taxes
were as follows:
2001 2000 1999
---- ---- ----
Current:
Federal $ - $619 $1,219
State - - -
-------- ----- ---------
- 619 1,219
-------- --- -----
Deferred:
Federal - - -
State - - -
-------- ----- --------
- - -
-------- ----- --------
$ - $619 $1,219
======== ===== ========
A reconciliation of income tax computed at the statutory federal rate to income
tax expense (benefit) is as follows:
2001 2000 1999
---- ---- ----
Tax benefit at the statutory rate of 34% $(1,703,647) $(1,439,085) $2,111,052
Tax benefit relating to income in non-taxing
jurisdictions 1,031,590 1,439,085 2,111,052
State income taxes, net of federal income tax (59,299) - -
Travel and entertainment 2,276 - -
Valuation allowance 729,080 - -
----------- ----------- ----------
$ - $ - $ -
=========== =========== ==========
F-20
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 14. INCOME TAXES (Continued)
At June 30, 2001, the Company has available a U.S. net operating loss
carryforward of approximately $755,000 which expires in 2016.
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,
2001, 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 were as follows at June 30,
2001:
Current:
Net operating loss $279,280
Accrued prize winnings 53,063
Deferred revenue 341,658
---------
674,001
---------
Long-Term:
Amortization of goodwill 49,475
Depreciation 5,604
---------
55,079
---------
729,080
Total Valuation allowance (729,080)
---------
Deferred tax asset $ -
=========
Net deferred tax liabilities in 2000 relate primarily to the Lifestyle
segment which was sold in November 2000 and was comprised of the
following:
Accruals and prepaid expenditure $ 203,313
Assessable losses 694,967
-----------
Gross deferred tax assets 898,280
-----------
Property, plant and equipment and intangibles (4,402,038)
----------
Gross deferred tax liabilities (4,402,038)
----------
Net deferred tax liability $(3,503,758)
==========
The Silverstar Holdings, Ltd. is a Bermuda registered corporation
where there are no tax laws applicable.
FSAH, a South African registered corporation, incurred no income tax
charges in fiscal year 2001.
First South Africa Management Corp., a U.S. registered corporation,
incurred income taxes of $1,219 in 1999. There was no income tax
provision for 2001 and 2000 and this subsidiary has no significant
deferred tax assets or liabilities.
F-21
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 15. DISCONTINUED OPERATIONS
FIRST LIFESTYLE HOLDINGS LIMITED ("LIFESTYLE")
During 2000, the Company changed its focus away from investing in South
African based industries. Although Lifestyle had performed well over
the past few years, it no longer fit the Company's investment strategy.
On June 21, 2000 the Company received an offer from Lifestyle
management to buy Lifestyle from the Company. The Company accepted the
offer on September 26, 2000 at a general meeting of Lifestyle
stockholders, which has been approved by the South African competition
authorities.
On August 14, 2000, the Company sold an effective 13.7% interest in
Lifestyle to the existing Lifestyle management as part of the plan to
dispose of the Lifestyle segment. This sale was done on the same terms
and conditions as the offer made by management to the remaining
stockholders as contained in a circular to Lifestyle stockholders dated
September 4, 2000.
Regulatory approval was obtained from the South African Monopolies
Commission on October 12, 2000. Proceeds from the sale were received on
November 6, 2000. Excluded from the proceeds below are R20 million of a
R52 million note (denominated in South African Rand) from Salwin
Investments (Pty.) Ltd. (a South African company formed for the
acquisition of Lifestyle). The note accrues interest and contains
provisions for the payment of interest and/or principal, based on the
performance or sale of the Lifestyle assets (see Note 8).
Remaining Assets/
Liabilities at
June 30, 2000
-------------
Proceeds on Disposal (including cash of $24,976,036) $ 29,972,391
===========
Net Assets Sold:
Cash and cash equivalents $ 13,873,487 $18,106,098
Current assets 25,470,455 22,429,254
Property, plant and equipment, net 17,230,653 18,194,926
Other assets 36,655 55,826
Intangibles 17,192,604 18,246,771
----------- -----------
Total assets 73,803,854 77,032,875
----------- -----------
Current liabilities 17,007,032 15,186,433
Long-term debt 270,742 1,448,769
Deferred income taxes 3,442,583 4,409,291
------------ ------------
Total liabilities 20,720,357 21,044,493
----------- -----------
53,083,497 $55,988,382
==========
Minority shareholders' interest (37,320,516)
Movement in translation difference related to disposal 14,209,410
-----------
Net value disposed of 29,972,391
-----------
Gain (loss) on sale of subsidiary $ -
============
F-22
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 15. DISCONTINUED OPERATIONS (Continued)
FIRST LIFESTYLE HOLDINGS LIMITED ("LIFESTYLE") (Continued)
The following summarizes the operating results of the Lifestyle
discontinued operations:
Four Months
Ended Year Ended Year Ended
June 30, 2001 June 30, 2000 June 30, 1999
------------- ------------- -------------
Revenue $ 28,235,519 $ 93,292,006 $ 84,944,309
============ ============ ============
Operating income $ 1,646,745 $ 6,471,842 $ 7,024,057
============ ============ ============
Net income, net of minority interest
of $798,671, $3,479,293 and $3,010,194 $ 823,373 $ 3,188,161 $ 3,685,334
============ ============ ============
Provision for loss on disposal $ (2,389,383) $ (6,823,816) $ -
============ ============ ============
Lifestyle was sold effective November 6, 2000, the date that the
proceeds from the sale were made available to the Company. Therefore,
the results presented above for the period ended June 30, 2001 are for
a four-month period.
LEISUREPLANET.COM ("LPI")
Due to the lack of investor appetite for loss-generating Internet
businesses, no further funding was available to fund the activities of
LPI, previously Leisureplanet Limited, the Internet travel related
business. On August 2, 2000, LPI was placed under voluntary
administration in the United Kingdom. On August 31, 2000, the
administrator placed LPI into liquidation. The liabilities of LPI
exceeded the assets and, where appropriate, provision was made for any
liabilities, contingent or otherwise, which the Company incurred as of
June 30, 2000.
The following summarizes the remaining assets and liabilities of the
LPI segment which are included in the accompanying consolidated balance
sheet at June 30, 2000:
Provision
for Losses
June 30, 2000 on Disposal June 30, 2000
------------- ----------- -------------
Assets:
Cash and cash equivalents $ 4,641,539 $ - $4,641,539
Accounts receivable, net 304,741 (304,741) -
Prepaid expenses and other current assets 25,727,155 (25,727,155) -
----------- ------------ ------------
Total current assets 30,673,435 (26,031,896) 4,641,539
Property, plant and equipment, net 1,571,009 (1,571,009) -
Intangibles, net 11,336,630 (11,336,630) -
----------- ------------ ------------
Total assets $43,581,074 $(38,939,535) $ 4,641,539
=========== ============ ============
F-23
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 15. DISCONTINUED OPERATIONS (Continued)
LEISUREPLANET.COM ("LPI") (Continued)
Liabilities:
Bank overdraft $ 1,510 $ (1,510) $ -
Accounts payable 6,864,781 (2,223,242) 4,641,539
Accrued expenses 1,004,239 (1,004,239) -
----------- ------------ -------------
Total current liabilities 7,870,530 (3,228,991) 4,641,539
Long-term debt 4,155,561 (4,155,561) -
----------- ------------ -------------
12,026,091 (7,384,552) 4,641,539
Minority interest 2,547,488 (2,547,488) -
Preference share capital 13,333,333 (13,333,333) -
----------- ------------ -------------
27,906,912 (23,265,373) 4,641,539
----------- ------------ -------------
$15,674,162 $(15,674,162) $ -
========== =========== =============
The following summarizes the operating results of the LPI segment:
Year Ended Year Ended
June 30, 2000 June 30, 1999
------------- -------------
Revenue $ 546,942 $ 164,486
============= ===========
Operating loss $(30,124,852) $(6,231,845)
=========== ==========
Net loss, net of minority interest of $14,598,890 and $-0- $(15,119,447) $(6,167,662)
============ ==========
OTHER DISPOSALS
During 1999, the Company completed the discontinuation of its
operations in the industrial manufacturing and packaging business
segments in order to concentrate all of its efforts on its core
operations of Lifestyle enhancing products and Internet travel related
businesses.
The following summarizes the operating results of the industrial and
packaging business segments:
Year Ended
June 30, 1999
-------------
Revenue $18,492,864
==========
Operating loss (695,700)
===========
Net loss $(1,458,991)
==========
Loss on disposal of discontinued operations $ (612,858)
Write off of development costs incurred on processed food pie business (362,090)
-----------
(974,948)
-----------
Net loss on discontinued operations $(2,433,939)
=========
F-24
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 16. EXTRAORDINARY ITEM
During the year ended June 30, 2001, the Company purchased and retired
$11,700,000 face value of the increasing rate subordinated convertible
debentures for face value plus accrued but not accreted interest. As a
result of these retirements, the Company recognized an extraordinary
gain of $2,142,949 of previously accrued but unpaid accreted interest
(see Note 10).
NOTE 17. CASH FLOWS
Changes in operating assets and liabilities consist of the following:
2001 2000 1999
---- ---- ----
Increase in accounts receivable $ - $ (837,497) $ (1,609,848)
Increase in inventories (361,818) (1,415,494) (1,257,940)
Increase in prepaid expenses and current assets (569,714) (2,245,402) (3,758,667)
Increase in accounts payable 340,073 7,259,517 2,141,313
(Decrease) increase in accrued expenses (352,269) 1,703,222 5,398,166
(Decrease) increase in other taxes payable - (202,532) 8,483
Decrease in income taxes payable - (423,369) (380,001)
-------------- -------------- -------------
$ (943,728) $ 3,838,445 $ 541,506
============= ============== =============
Dividends paid is reconciled as follows:
Movement in opening and closing balances $ (179,840) $ (1,572,434) $ 1,315,222
Liability assumed upon disposition 344,949 - -
Minority dividend movements - 379,193 (1,103,450)
Dividend charge (165,109) (149,755) (495,991)
-------------- -------------- -------------
Dividends paid $ - $ (1,342,996) $ (284,219)
============= ============== ============
Netcash provided by (used in) discontinued
operations consists of the following:
Net loss of discontinued operations $(2,389,383) $(34,429,264) $(4,916,267)
Provision for losses on discontinuance - 22,497,978 -
Depreciation and amortization 950,388 4,549,060 3,715,552
Minority share of (losses) gains 844,273 (11,119,597) 3,010,194
Changes in operating accounts (824,326) - -
Interest in losses of affiliates 13,579 23,111 -
Net loss on sale of assets 21,278 - -
Movement in deferred income taxes 294,018 - -
Shares to be issued - 3,446,633 -
Loss on sale of shares - - (767,262)
-------------- -------------- -------------
-
$(1,090,173) $(15,032,079) $ 1,042,217
========== =========== ==========
Non-cash investing and financing activities:
Gain on extinguishment of accrued but unpaid accreted interest $2,142,949
=========
Retirement of treasury shares $1,011,232
=========
F-25
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 18. BUSINESS SEGMENT INFORMATION
In fiscal year 2000 and 1999, the Company had two reportable segments,
which included strategic business units that offered different products
and services. These business units were managed separately as each unit
was in a different technological and marketing field. Both of these
segments, Internet travel related businesses and Lifestyle enhancing
products, are reported as discontinued operations as the Company has
changed its focus. As a result, as of June 30, 2001, the Company
operates in only one segment, consisting of fantasy sports games.
NOTE 19. 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, 2001, has granted options to purchase
741,666 shares of common stock under the Plan, of which 110,000 options
have been exercised.
F-26
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 19. STOCK OPTION PLAN (Continued)
The options issued under the plan still outstanding are reflected in
the table below.
Shares Weighted
Subject to Average
Options Exercise Price
Outstanding Per Option
----------- ----------
Balance at June 30, 1999 1,040,000 $4.21
Granted - non-plan options 600,000 4.88
Granted - plan options 60,000 3.76
Exercised - non-plan options (100,000) 2.00
Exercised - plan options (80,000) 4.75
----------
Balance at June 30, 2000 1,520,000 4.54
Granted - non-plan options 250,000 .75
Granted - plan options 45,000 .75
Expired - non-plan options (71,669) 3.29
-----------
Balance at June 30, 2001 1,743,331 3.62
===========
Significant option groups outstanding at June 30, 2001 and related
weighted average exercise price and weighted average remaining life are
as follows:
Options Outstanding Options Exercisable
------------------------------------------------ -------------------------------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Exercise Exercise Remaining
Prices Shares Price Shares Price Life (years)
--------------------- ----------- -------------- ------------ ------------- ----------------
$1.00 to $2.19 455,000 $1.02 267,500 $1.21 4.20
$3.75 to $4.88 968,331 4.35 634,999 4.47 3.99
$5.00 to $6.00 320,000 5.11 320,000 5.11 4.20
The Company has also issued options to an employee to acquire 4.45
shares of Fantasy common stock for $47,191 per share. These options
vest immediately and have 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 has a
remaining life of 2.3 years.
The Company measures compensation cost for its stock option plan using
the intrinsic value based method of accounting.
F-27
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 19. STOCK OPTION PLAN (Continued)
Had the Company used the fair value-based method of accounting to
measure compensation expense for its stock option grants and charged
compensation cost against income over the vesting periods based on the
fair value of options at the date of the grant, income from continuing
operations and the related diluted per common share amounts for 2001,
2000 and 1999 would have been reduced to the following proforma
amounts:
2001 2000 1999
---- ---- ----
Loss from continuing operations:
As reported $(5,010,726) $(4,233,222) $(6,210,195)
Pro forma (5,849,374) (6,809,446) (7,895,108)
Loss from continuing operations - per share -
basic and diluted:
As reported $(0.57) $(0.54) $(0.95)
Pro forma (0.66) (0.86) (1.21)
The weighted average grant date fair value of options granted in 2001, 2000 and
1999 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:
2001 2000 1999
---- ---- ----
Weighted average grant-date fair value of
options granted $0.54 $4.07 $4.51
Assumptions:
Risk free interest rate 4.96% 14.96% 14.96%
Expected life 5 Years 4 Years 5 Years
Expected volatility 88% 106.45% 108.6%
Expected dividend yield 0.0% 0.0% 0.0%
NOTE 20. WARRANTS OUTSTANDING
In connection with the initial public offering ("the offering")
consummated in January 1996, the Company issued 2,300,000 units. Each
unit issued consisted of one share of common stock, one redeemable
Class A warrant and one redeemable Class B warrant. In addition,
100,000 warrants were issued to the underwriter pursuant to the
underwriting agreement. Concurrently with the offering, the selling
security holder offered 650,000 selling security holder warrants,
650,000 selling security holder Class B warrants issuable upon exercise
of the selling security holder warrants and 1,300,000 shares of common
stock issuable upon exercise of these selling security holder warrants
and selling security holder Class B warrants. These selling security
holder warrants are identical to the Class A warrants, except that
there are certain restrictions imposed upon the transferability of
these warrants. All of these warrants expired on January 24, 2001.
F-28
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 20. WARRANTS OUTSTANDING (Continued)
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.
During fiscal 2000, 25,000 of the debenture warrants and 57,811 of the
Class A Redeemable warrants were exercised.
During fiscal 2001, the Company issued 50,000 warrants to a consultant
for services provided valued at $34,326.
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 24).
Warrants outstanding at June 30, 2001 were as follows:
SILVERSTAR HOLDINGS, LTD.
Number of Exercise Expiration
Warrant Warrants Price Date Entitlement
------- -------- ----- ---- -----------
Debenture Warrants 110,000 $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
Other Warrants 50,000 $1.50 January 10, 2003 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-29
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 21. FANTASY ESCROW AGREEMENT
In November 2000, in connection with the acquisition of Fantasy, the
Company entered into an Escrow Agreement with the Seller. The Company
deposited $250,000 with the escrow agent to secure various obligations
of the Seller on the terms, and subject to the conditions, set forth in
the Asset Purchase Agreement. Escrow funds may be released from time to
time within twelve months and after the Company has given written
notice of claim and such claim has been approved by the Seller. As of
June 30, 2001, no escrow monies have been released.
NOTE 22. 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.
In 2000, an additional 120,621 shares of common stock were issued to
the FSAH escrow agent in terms of the FSAC Escrow agreements entered
into, in connection with the acquisition of Gull Foods.
No further shares of common stock are to be issued in terms of FSAC or
FSAH escrow agreements.
In terms of the agreements entered into with the previous vendors of
Piemans Pantry, Seemann's Quality Meat Products, Gull Foods and Fifers
Bakery, the underlying value of the FSAC escrow stock was underpinned
at certain minimum values. The previous vendors had the option to put
the shares to the Company at those values, which was obligated to honor
the minimum values placed on those shares. These vendors exercised this
option during 1999, which resulted in the redemption and cancellation
of 1,583,059 FSAC A class common stock.
F-30
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 22. FIRST SOUTH AFRICAN HOLDINGS ESCROW AGREEMENT (Continued)
There are no further stock price warranties outstanding.
NOTE 23. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office facilities and various equipment under
non-cancelable operating leases expiring through March 2005. Office
facility and equipment rent expense for the year ended June 30, 2001
was approximately $88,000. Office and equipment lease expense in prior
years was not significant.
Approximate future minimum lease payments under non-cancelable office
and equipment lease agreements are as follows:
Year ending June 30:
2002 $ 81,000
2003 54,000
2004 25,000
2005 8,000
----------
$ 168,000
==========
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 the resolution of
pending claims will not 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 January 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
currently 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.
F-31
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 23. COMMITMENTS AND CONTINGENCIES (Continued)
EMPLOYMENT AGREEMENTS (Continued)
SILVERSTAR HOLDINGS LTD. (Continued)
On December 18, 2000, the Company entered into an agreement
with an employee that provides for a base salary, 250,000
stock options that vest over a period of time and 10,000
shares of the Company's common stock issued upon acceptance of
the employment agreement. The agreement also allows the
employee to participate in a management bonus pool. Such pool
will be comprised of up to 5% of realized capital gains from
the Company's investments made after April 1, 2000.
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 will
receive 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 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.
WEBSITE LINK AGREEMENT
In February 2001, the Company entered into an agreement with
Turner Sports Interactive, Inc. (TSI) whereby TSI will provide
a branded link to Fantasy's Fantasy Cup Auto Racing game on
Fantasy's website. Fantasy is responsible for the design,
technical specifications, graphic art and logo for this link.
Under the terms of the agreement, the Company will pay a
minimum annual revenue share guarantee of $250,000. In
addition, the Company will share in the gross revenue from all
fees paid by users who register to play the Fantasy game by
linking to the Fantasy site or becoming aware of the Fantasy
game because of the link. TSI will receive the following share
of gross revenues, which is based upon the number of
Nascar.com registered users.
Registered Users TSI Percentage of Revenue
---------------- -------------------------
0-499 Users 35%
500-999 Users 40%
1,000 plus users 50%
During 2001, the Company has incurred only the minimum
guarantee of $250,000.
F-32
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 23. COMMITMENTS AND CONTINGENCIES (Continued)
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 declared in 2001, 2000 and 1999.
The Company has guaranteed the banking facilities of certain of its
subsidiaries previously disposed of during the prior year. These
guarantees amounted to $1,050,000 as of June 30, 2001.
During 2001, the Company entered into various contracts with web based
and non-web based companies whereby these companies will direct their
customers to the Fantasy.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 three year 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.
NOTE 24. QUARTERLY INFORMATION
Quarters Ended
--------------- -------------- -------------- -------------
September 30, December 31, March 31, June 30,
2000 2000 2001 2001 Total
---- ---- ---- ---- -----
Revenues $ - $ - $ 511,900 $ 789,532 $ 1,301,432
Loss from continuing operations (1,518,534) (957,476) (1,470,310) (794,403) (5,010,726)
Net loss (983,722) (1,795,395) (443,414) (2,034,629) (5,257,160)
Net loss per share - basic and diluted (0.11) (0.19) (0.05) (0.25) (0.60)
Weighted average common stock
outstanding - basic and diluted 9,315,265 9,274,776 8,680,302 8,129,654 8,849,663
F-33
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 25. SUBSEQUENT EVENTS
ADDITIONAL INVESTMENT IN AFFILIATE
On September 24, 2001, the Company entered in an agreement with two
other investors in Magnolia whereby the Company will loan Magnolia
$200,000 and the other investors will loan $550,000 through the
purchase of Convertible Notes (Notes) which will be convertible into
newly reclassified Series A Convertible Preferred Stock which will be
convertible into shares of Magnolia's common stock. As part of the
consideration for the Notes, one of the investors and the Company will
exchange its existing convertible notes and the Company will exchange
its existing shares of Series A Preferred Stock. The notes will bear
interest at 10% per annum and mature in sixty days. The Company has the
right to convert the Note at any time prior to repayment of the Note
and, if not repaid, at the maturity date.
ACQUISITION
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 to 1,500,000 shares of Company common
stock on March 31, 2004. In addition, the agreement calls for certain
potential earn-outs of 33% of the pre-tax profits of Student Sports for
the years ending December 31, 2002 and 2003 as defined. This earn-out
payment, which cannot exceed $500,000, is to be paid no later than
April 30, 2003. Finally, the seller is to receive 33% of certain
litigation proceeds, as defined, if received by the Company. The assets
are to be held in a new wholly-owned subsidiary, Student Sports, Inc.
F-34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In April 2001 we changed our accounting firm from
PriceWaterhouseCoopers, LLC (PWC) to Rachlin Cohen & Holtz LLP. This change was
made due to the fact that we had discontinued and sold our operations in the
United Kingdom and South Africa and were focusing on small businesses in the
United States. A smaller accounting firm would be more cost effective and
responsive to the needs of our new strategy. There were no disputes or
disagreements on accounting and financial disclosures with PWC. The change was
made for business reasons only.
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...................... 55 Chairman of the Board
Clive Kabatznik................... 44 Vice Chairman of the Board, Chief Executive Officer,
President and Chief Financial Officer
Cornelius J. Roodt................ 42 Director
David BenDaniel................. 69 Director
Chris Matty........................ 33 Director
Greg Liegey....................... 38 Chief Executive Officer, Fantasy Sports, Inc.
MICHAEL LEVY is our co-founder and has served as Chairman of our Board
of Directors since our inception. Since 1987, Mr. Levy has been the Chief
Executive Officer and Chairman of the Board of Arpac L.P., a Chicago-based
manufacturer of plastic packaging machinery.
CLIVE KABATZNIK is our co-founder and has served as a director and our
President since inception and as our Vice Chairman, Chief Executive Officer and
Chief Financial Officer since October 1995. Mr. Kabatznik has served as
President of Colonial Capital, Inc. a Miami-based investment banking company
that specializes in advising middle market companies in areas concerning
mergers, acquisitions, private and public agency funding and debt placements.
CORNELIUS J. ROODT has served as a member of our Board of Directors
since December 1996 and was appointed Managing Director and Chief Financial
Officer of one of our subsidiaries, First South African Holdings (Pty.) Ltd., in
July 1996. Mr. Roodt was responsible for overseeing all of the South African
operations of First South African Holdings (Pty.) Ltd. Mr. Roodt 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.
-14-
DAVID BENDANIEL, PH.D. has been a professor at Cornell University since
1985 and is currently the Berens Professor of Entrepreneurship at the Johnson
Graduate School of Management at Cornell University. Dr. BenDaniel is the
co-editor of INTERNATIONAL M&A, JOINT VENTURES AND BEYOND - DOING THE DEAL,
printed in 1998. Dr. BenDaniel holds a B.A. and M.S. in Physics from the
University of Pennsylvania and a Ph.D. in Engineering from the Massachusetts
Institute of Technology.
CHRIS MATTY has been the founder and Chief Executive Officer of
Halcyan.com since March 2001. Prior to that, since February 1997 he was Vice
President of Strategic Development for InfoSpace.com, Inc., an aggregator of
content on the Internet. Prior to that time, Mr. Matty was a consultant for
Wiredweb, an Internet service provider, from December 1996 to February 1997. In
May 1996, Mr. Matty founded Environmental Products, a recycling company, and was
responsible for finance and marketing of that company until December 1996. From
June 1994 to May 1996, Mr. Matty was Program Manager at Clarion Communications,
a telecommunications company, where he was responsible for international
business development.
GREGORY LIEGEY has been the Chief Executive Officer of Fantasy Sports,
Inc. since we acquired that company in November 2000. He was the founder of
Fantasy Sports and since its inception in 1993, he has acted as Chief Executive
of that company. From 1988 - 1993, he was a manager of sales and marketing
accounting at Pfaltzgraff. From 1985 to 1988, he was a senior auditor at Arthur
Andersen. Mr. Liegey holds a degree in accounting from Shippensburg University.
All of our directors hold office until their respective successors are
elected, or until death, resignation or removal. Officers hold office until the
meeting of the Board of Directors following each Annual Meeting of Stockholders
and until their successors have been chosen and qualified.
COMMITTEES OF THE BOARD OF DIRECTORS
Our Board of Directors has an audit committee and a compensation
committee. The audit committee is composed of Chris Matty, David BenDaniel, and
Michael Levy. The audit committee is responsible for recommending annually to
the Board of Directors the independent auditors to be retained, reviewing with
the independent auditors the scope and results of the audit engagement and
establishing and monitoring our financial policies and control procedures.
The compensation committee is currently composed of Michael Levy and
Chris Matty. The compensation committee has power and authority with respect to
all matters pertaining to compensation and the administration of employee
benefits, deferred compensation and our stock option plans.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Section 16(a) of the Securities Exchange Act of 1934 requires our
executive officers and directors, and persons who beneficially own more than 10%
of our common stock, to file initial reports of ownership and reports of changes
of ownership with the Securities and Exchange Commission and furnish copies of
those reports to us. Based solely on a review of the copies of the reports
furnished to us to date, or written representations that no reports were
required, we believe that all reports required to be filed by such persons with
respect to our fiscal year ended June 30, 2001 were timely made.
-15-
ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation table sets forth the aggregate
compensation we paid or accrued to our Chief Executive Officer and to the
Managing Director and Chief Financial Officer of our subsidiaries, First South
African Holdings (Pty.) Ltd. and First Lifestyle Holdings Ltd. during the fiscal
years ended June 30, 1999, June 30, 2000 and June 30, 2001. Apart from Mr.
Kabatznik, whose annual salary is $315,000, none of our executive officers or
any of our subsidiaries received compensation in excess of $100,000.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------ -----------------------------------
FISCAL
NAME AND YEAR OTHER ANNUAL RESTRICTED SECURITIES
PRINCIPAL POSITION ENDED SALARY BONUS COMPENSATION STOCK UNDERLYING
JUNE 30, AWARDS STOCK OPTIONS
-------------------- ---------- --------------- ------------- --------------- ---------------- ----------------
$ $
Clive Kabatznik, 2001 303,750 0 --- --- 5,000
President and Chief 2000 230,000 0 255,000
Executive Officer 1999 180,000 0 5,000
The options granted to Mr. Kabatznik during fiscal year ended June 30,
2001 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 $.75 per share;
The options granted to Mr. Kabatznik during fiscal year ended June 30,
2000 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 $5.125 per share; and
o a non-plan option granted by our Board of Directors to
purchase 250,000 shares of our common stock which is currently exercisable at an
exercise price of $4.875 per share.
The options granted to Mr. Roodt during fiscal year ended June 30, 2001
were granted under our 1995 Stock Option Plan and represent, in each case, an
option to purchase 5,000 shares of our common stock which is currently
exercisable at an exercise price of $.75 per share.
The options granted to Mr. Roodt during fiscal year ended June 30, 2000
were granted under our 1995 Stock Option Plan and represent, in each case, an
option to purchase 5,000 shares of our common stock which is currently
exercisable at an exercise price of $5.125 per share.
The options granted to Mr. Kabatznik and Mr. Roodt during fiscal year
ended June 30, 1999 were granted under our 1995 Stock Option Plan and represent,
in each case, an option to purchase 5,000 shares of our common stock which is
currently exercisable at an exercise price of $2.19 per share.
-16-
OPTIONS GRANTED IN FISCAL 2001
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, 2001, 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 VALUE AT ASSUMED ANNUAL
SECURITIES TO SHARE EXPIRATION DATE RATE OF STOCK PRICE
UNDERLYING EMPLOYEES IN EXERCISE APPRECIATION
NAME OPTIONS FISCAL YEAR PRICE FOR OPTION TERM
-------------------------- --------------- ---------------- ----------- ----------------
5% 10%
Clive Kabatznik 5,000 7.00% $.75 December 1, $1,036.06 $2,239.40
2005
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
During the fiscal year ended June 30, 2001, 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, 2001. 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, 2001, or
$3.25, over the exercise price of the option.
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED IN THE MONEY
FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END
--------------- --------------------------
NAME OF EXECUTIVE OFFICER EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------------- ----------------- ---------------- ------------------- ------------------
Clive Kabatznik 652,249 83,333 $0 $0
DIRECTOR COMPENSATION
Except for Mr. Levy, our directors do not receive fixed compensation
for their services as directors other than options to purchase 10,000 shares of
our common stock granted to each non-employee director and options to purchase
5,000 shares of our common stock granted to each director who is an employee, in
each case under our 1995 Stock Option Plan. Mr. Levy receives an annual
consulting fee of $60,000 and options to purchase 10,000 shares of our common
stock for every year of service as a member of our Board of Directors. Directors
are reimbursed for their reasonable out-of-pocket expenses incurred in
connection with their duties.
-17-
EMPLOYMENT AGREEMENTS
On April 12, 2000, the Company's Board of Directors approved an Amended
and Restated Employment Agreement with Clive Kabatznik (the "Employment
Agreement"). Pursuant to the Employment Agreement, Mr. Kabatznik will serve as
the Chief Executive Officer, President and Chief Financial Officer of the
Company beginning as of February 1, 2000 and continuing through and until
January 31, 2005. As compensation for his services, Mr. Kabatznik will receive
an annual base salary of $300,000 (with five percent increases each year), and
an annual bonus of five percent of net realized capital gains upon the sale,
liquidation or distribution by the Company of any Portfolio Company (as defined
in the Employment Agreement). A Portfolio Company does not include any of the
South African entities currently owned by the Company. In the event of a Change
in Control (as defined in the Employment Agreement), Mr. Kabatznik may also be
entitled to a payment of five percent of any net unrealized capital gains on any
Portfolio Company, which gains may, at the option of the Company, be paid in
cash, stock of the Portfolio Company or any combination of the foregoing.
Mr. Roodt's employment agreement with the company terminated on
December 31, 1999 when he became Chief Executive Officer of First Lifestyle
Holdings, Ltd. Mr. Roodt has not been an employee of the Company or any of its
subsidiaries since the disposal of our South African assets in November 2000.
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 will serve as the Chief Executive Officer, of
Fantasy Sports Inc. beginning as of November 30, 2000 and continuing through and
until November 30, 2003. As compensation for his services, Mr. Liegey will
receive an annual base salary of $100,000 with increases at the discretion of
the board of directors of Fantasy Sports Inc. In addition, Mr. Liegey received a
three-year option to acquire 5% of the shares of Fantasy Sports, Inc.
outstanding as of November 16, 2000, at a price equal to that paid by Silverstar
Holdings upon acquisition of the assets of Fantasy Sports Inc. A similarly
priced performance based three-year option to acquire a further 2.5% of the
outstanding shares of Fantasy Sports Inc. as of November 16, 2000 was also
issued to Mr. Liegey. This performance based option will vest on the earlier of
Fantasy Sports Inc. 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.
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.
-18-
Our 1995 Stock Option Plan is administered by the compensation
committee of our Board of Directors. The compensation committee will determine
the terms of options exercised, including the exercise price, the number of
shares subject to the option and the terms and conditions of exercise. No option
granted under our 1995 Stock Option Plan is transferable by the optionee other
than by will or the laws of descent and distribution and each option is
exercisable during the lifetime of the optionee only by such optionee or his
legal representatives.
The exercise price of incentive stock under our 1995 Stock Option Plan
must be at least equal to 100% of the fair market value of such shares on the
date of grant, or 110% of fair market value in the case of an optionee who owns
or is deemed to own stock possessing more than 10% of the voting rights of our
outstanding capital stock. The term of each option will be established by the
compensation committee, in its sole discretion. However, the maximum term for
each incentive stock option granted under our 1995 Stock Option Plan is ten
years, or five years in the case of an optionee who owns or is deemed to own
stock possessing more than 10% of the total combined voting power of our
outstanding capital stock. Options will become exercisable at such times and in
such installments as the compensation committee will provide in the terms of
each individual option. The maximum number of shares for which options may be
granted to any individual in any fiscal year is 210,000.
Our 1995 Stock Option Plan also contains an automatic option grant
program for our directors. Each of our non-employee directors is automatically
granted an option to purchase 10,000 shares of our common stock following each
annual meeting of shareholders. In addition, each of our employee directors is
automatically granted an option to purchase 5,000 shares of our common stock
following each annual meeting of shareholders. Each grant has an exercise price
per share equal to the fair market value of the our common stock on the grant
date, is immediately exercisable and has a term of five years measured from the
grant date, subject to earlier termination if an optionee's service as a Board
member is terminated for cause.
Through September 28, 2001, we have granted options to purchase 741,666
shares of our common stock under our 1995 Stock Option Plan, 110,000 of which
have been exercised.
-19-
NON-PLAN STOCK OPTIONS
We have granted non-plan stock options to purchase 1,100,000 shares of
our common stock, 500,000 of which were granted at an exercise price of $4.75
per share and 600,000 of which were granted at $4.06 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of our compensation committee of our Board of
Directors is now or ever has been one of our officers or employees. None of our
executive officers serves as a member of the board of directors or compensation
committee of any entity that has one or more executive officers serving on our
Board of Directors or our compensation committee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 31, 2001, 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
----------- --------------
Class B of Voting
Name and Address of Common ------- -- ------
Beneficial Shareholder ------ Common Ownership Power
---------------------- Stock ------ --------- -----
----- Stock (2) (1)(3) (1)(3)
--------- ------ - ------
Michael Levy 106,666(4) 736,589(5) 10.4% 32%
9511 West River Street
Shiller Park, IL 60176
Clive Kabatznik 608,332(6) 190,000 9.9% 13.1%
6100 Glades Road
Suite 305
Boca Raton, FL 33434
Cornelius J. Roodt 198,333(7) 0 2.4% 1.7%
P.O. Box 4001
Kempton Park
South Africa
American Stock Transfer 354,334(8) 166,452(8) 6.4% 10%
& Trust Company
6201 15th Avenue
Brooklyn, New York 11219
David BenDaniel 20,000(9) 0 * *
6100 Glades Road
Suite 305
Boca Raton, Florida 33434
Chris Matty 20,000(9) 0 * *
6100 Glades Road
Suite 305
Boca Raton, Florida 33434
All executive officers and
directors as a group (5
persons) 1,059,997(10) 1,093,041 29.1% 56.8%
* 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, 20001.
-20-
(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 106,666 shares of our common stock issuable upon exercise of
options that are immediately exercisable.
(5) Includes (i) 570,137 shares of our Class B common stock and (ii)
166,452 shares of our Class B common stock issued to the American Stock
Transfer & Trust Company pursuant to the terms of an escrow agreement,
which shares correspond to a like number of shares of First South
African Holdings (Pty.) Ltd. Class B stock. American Stock Transfer &
Trust Company has granted to Mr. Levy a proxy to vote each of such
shares of our Class B common stock.
(6) Includes 608,332 shares of our common stock issuable upon exercise of
options that are immediately exercisable.
(7) Includes 198,333 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.
(9) Includes 20,000 shares of our common stock issuable upon the exercise
of options that are immediately exercisable.
(10) Represents 1,059,997 shares issuable upon exercise of options that are
immediately exercisable.
-21-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14.
(A) EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
1. FINANCIAL STATEMENTS
The following financial statements are included as required to be filed
by Item 8:
LEISUREPLANET HOLDINGS, LTD.
Report of the independent auditors
Consolidated Balance Sheets at June 30, 2001 and 2000
Consolidated Statements of Income for the years ended June 30, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended June 30, 2001, 2000, and 1999
Consolidated Statement of Changes in Stockholders' Investment for the period June 30, 1999 to
June 30, 2001
Notes to the Consolidated Financial Statements for the years ended June 30, 2001, 2000, and
1999
2. FINANCIAL STATEMENT SCHEDULES:
All schedules have been omitted since the required information is
included in the consolidated financial statements or notes thereto.
3. EXHIBITS: - SEE BELOW
(B) REPORTS ON FORM 8-K
Not applicable.
1. Current report on Form 8-K filed with the Commission 10/12/2000
regarding the disposition of the assets of First Lifestyle Holdings,
Ltd.
2. Current report on Form 8-K filed with the Commission 12/01/2000
regarding the acquisition of certain assets of goracing Interactive
Services, Inc.
3. Current report on Form 8-K filed with SEC on 04/23/01 regarding a
change in certifying accountant from PricewaterhouseCoopers, LLC to
Rachlin Cohen & Holtz LLP.
The following financial statements are included as required to be filed
by Item 8:
-22-
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
3.1 Memorandum of Association of the Registrant(7)
3.2 Bye-Laws of the Registrant(7)
4.3 Indenture dated April 25, 1997 between the Registrant and
American Stock Transfer & Trust Company(1)
4.4 Form of Debenture(8)
4.5 Form of Placement Warrant(8)
4.6 Stock Option Agreement(8)
4.7 Indenture dated October 29, 1997, between the Registrant
and American Stock Transfer & Trust Company(3)
10.1 Form of Escrow Agreement regarding the Earnout Escrow
Shares(7)
10.2 Form of FSAH Escrow Agreement(7)
10.3 Form of First Amended and Restated Employment Agreement of
Clive Kabatznik(7)
10.4 Form of FSAM Management Agreement(7)
10.5 Form of Consulting Agreement with Michael Levy(7)
10.6 1995 Stock Option Plan(7)
10.7 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, certain other purchasers and the
Company, dated as of September 24, 2000 (9)
10.8 Fantasy Sports Asset Acquisition Agreement dated as of
November 17, 2000 (10)
10.9 Employment Agreement of Greg Liegey (11)
21.1 Subsidiaries of the Registrant(9)
23.1 Consent of PricewaterhouseCoopers (11)
23.2 Consent of Rachlin Cohen & Holtz (11)
Footnotes
----------------
(1) Incorporated by reference is the Registrant's Current Report on Form
8-K, Exhibit 4.1 (filed on September 10, 1997).
(2) Incorporated by reference is the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1997 (filed on September 29,
1997).
(3) Incorporated by reference is the Registrant's Current Report on Form
8-K, Exhibit 4.1 (filed on October 31, 1997).
(4) Incorporated by reference is the Registrant's Current Report on Form
8-K, Exhibit 1 (filed on June 14, 1996) as amended on Form 8-K/A (filed
on August 16, 1996) and as amended on Form 8-K/A (filed on January 22,
1998).
(5) Incorporated by reference is the Registrant's Current Report on Form
8-K, Exhibit 1 (filed on November 7, 1996) as amended on Form 8-K/A
(filed on March 14, 1997).
(6) Incorporated by reference is the Registrant's Current Report on Form
8-K, Exhibit 1 (filed on May 8, 1997) as amended on Form 8-K/A (filed
on July 3, 1997).
-23-
(7) Incorporated by reference is the Registrant's Registration Statement on
Form S-1 (No. 33-99180) (filed on November 9, 1995), as amended on Form
S-1/A No. 1, Form S-1/A No. 2, Form S-1/A No. 3 (filed on December 27,
1995, January 16, 1996 and January 24, 1996, respectively) and Form
10-Q for the fiscal quarter ended March 31, 2000.
(8) Incorporated by reference is the Registrant's Registration Statement on
Form S-1 (No. 333-33561) (filed on August 13, 1997), as amended on Form
S-1/A No. 1, Form S-1/A No. 2 and For S-1/A No. 3 (filed on December 9,
1997, January 22, 1998 and February 11, 1998, respectively).
(9) Incorporated by reference to the Company's current report on Form 8-K
filed with the Commission on October 12, 2000.
(10) Incorporated by reference to the Company's current report on Form 8-K
filed with the Commission on December 1, 2000.
(11) Filed herewith.
-24-
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 11th day of October, 2001.
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 October 11, 2001
------------------------- Directors
Michael Levy
/s/ Clive Kabatznik President, Vice Chairman, October 11, 2001
------------------------- Chief Executive Officer, Chief
Clive Kabatznik Financial Officer, Director and
Controller
/s/Cornelius Roodt Director October 11, 2001
-------------------------
Cornelius Roodt
/s/David BenDaniel Director October 11, 2001
-------------------------
David BenDaniel
Director October __, 2001
-------------------------
Chris Matty
-25-