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, 2002
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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Clarendon House, Church Street, Hamilton HM CX, Bermuda
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(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
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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("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
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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 13, 2002, was $1,273,810.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
As of September 13, 2002, there were 8,001,310 shares of the Registrant's Common
Stock outstanding and 946,589 shares of the Registrant's Class B Common Stock
outstanding.
PART I.
ITEM 1. DESCRIPTION OF BUSINESS
We are a holding company that seeks to acquire businesses fitting a predefined
investment strategy.
We are the parent company of Fantasy Sports, Inc., which operates the
Fantasycup.com, fantasycup.org, fantasycup.net, 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 parent
company of Student Sports, Inc. which publishes Student Sports Magazine, owns
and produces "Inside Cal Hi Sports - Bay Area" television program, owns and
operates Area Code Baseball and operates the Studentsports.com and
packwestfootball.com web sites. Student Sports specializes in media products and
marketing programs focusing on the high school athletic market. We are also a
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. In
2001, we acquired 100% of Student 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, sports media and
marketing businesses with strong management teams that are positioned to
use technology and Internet related platforms to fuel above average growth.
o Our investments must show an ability to contribute, in the short to medium
term, to earnings per share through operating profit or capital
appreciation.
o We aim to add value to our investments by operating in partnership with
committed, incentivised, entrepreneurial management who show the vision and
ability to grow their businesses into industry or niche leaders.
DESCRIPTION OF OUR SUBSIDIARIES AND INVESTMENTS
FANTASY SPORTS, INC.
Fantasy Sports, Inc. owns and operates one of America's oldest and largest
subscription based NASCAR fantasy sports game. In addition, the company has
developed, and offers, subscription based college football, basketball, golf and
other motor sport fantasy games. All the company's games offer weekly and
seasonal cash and merchandise prizes.
Currently, the Company has over 30,000 participants paying for its Spring, Fall
and One Race NASCAR challenges, as well as the fantasy college football and
basketball challenges and our other games. Our NASCAR games currently generate
over 72% 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 $10,000 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.
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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 6% of our revenues at present. During
2001, we developed and deployed a tournament challenge college basketball game
that generated over 2,000 paying customers in our last fiscal year. In 2002, we
developed and operated the only National Hotrod Association (NHRA) fantasy game.
In addition, we developed and operated the official Open Championship Online
Golf Game for the 2002 British Open. To date, these games have yet to develop a
significant customer base. We have developed a retail business that specializes
in the sale of NASCAR related die-cast cars, apparel and other merchandise. This
retail operation commenced business in May 2001 and currently accounts for
approximately 22% of our business. 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 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. In
June 2002, we terminated this agreement.
We are currently 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.
STUDENT SPORTS, INC.
Student Sports offers unique access to the high school athletic market across
multimedia platforms. The company's primary thrust has been to offer marketing
services to large corporations interested in accessing this market.
Additionally, the company is also working towards building a "bottom-up" revenue
generation strategy based on the creation of a number of subscription based
programs where products and services will be sold directly to the high school
athletes, their parents and coaches.
The company's media platforms are as follows:
PUBLISHING DIVISION
The publishing division can be divided into two areas: General Media and
Specialized Recruiting Information.
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General Media: For the past ten years, the company has published a monthly
national magazine called Student Sports. It currently has 13,200 subscribers,
the majority of whom pay $19.95 a year. In addition, the company publishes a
California high school sports almanac, charging $15 a copy, with sales of
approximately 5,000 copies. The company published a National high school
football annual with The Sporting News that is sold on newsstands at $6.98 a
copy.
Specialized Recruiting Information: Over the past fifteen years, the company has
developed and currently employs a national scouting staff of 15. This staff
provides the data for the following specialized publications: A weekly sports
wire to 400 publications with high school rankings, ratings and players of the
week in a number of sports; a student sports football wire which provides
recruiting information to Division 1, 2 and 3 NCAA schools. Currently it has 73
paying schools at an average subscription of $600 per year. Additionally, it
puts out a Cal High Sports weekly newsletter, charging $69 per subscription,
with approximately 250 subscribers.
TELEVISION
Historically, the television division has focused on being a consulting producer
in the Southern California market. For the past five years, the company has
produced a "high school game of the week" for Fox Sports Net in Los Angeles as
well as a weekly magazine-style show, "Inside Cal-High Sports" for which it has
won three Emmy awards. Over the past three years, it has also produced two high
school all-star games a year, which are played in California and broadcast
nationally; California vs. Florida All-Stars and California vs. Texas All-Stars.
Currently, the company has not renewed its agreement with Fox Sports Net and is
seeking other outlets for its shows in the Los Angeles market. In February 2002,
the company hired Robert Braunstein, a highly regarded high school sports
broadcaster in the Bay area. Mr. Braunstein, along with a staff of two, creates
and produces a half-hour weekly show called "Cal-Hi Sports Bay Area" airing this
season every Sunday afternoon at 4:30 on KRON 4 and replayed twice during the
week on Fox Sports Net.
The company owns the content for the games of the week shown over the past five
years. In addition, the division owns extensive video footage of numerous high
school athletes, some of whom have become national figures, such as Emmit Smith,
John Elway and Keyshawn Johnson.
EVENTS
For the past four years, the company has run elite football camps for Nike.
Currently, it runs 12 camps a season, bring 225 regional football all-stars to
each camp. In addition, the company conducts the "Elite 11" quarterback camp.
This high profile five-day elite training school brings together the top high
school quarterbacks in the nation to be coached and mentored by renowned coach
Bob Johnson, and a staff of counselors made up of some of the elite college
quarterbacks in the nation. To date, the company has not charged an entrance fee
for these camps.
In April 2002, Student Sports acquired Area Code Baseball. Area Code has a very
similar model to the Student Sports football camps and attracts over 2,500
leading high school baseball players to regional tryouts throughout the country.
In the 2001 Amateur Draft, 24 former Area Code players were drafted in the first
round. Area Code runs an All-Star Tournament where select players compete in
California in front of coaches, scouts, agents and a paying audience.
The events division, on a ad-hoc basis, organizes and runs unique tournaments,
gatherings and marketing events for its corporate clients. The company also
created, organized and ran the high school football game between the nation's
number 1 and number 2 ranked teams. NFL.com labeled this nationally broadcast
game "high school game of the century."
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INTERNET
The company offers three online destinations. Studentsports.com is a free online
version of the magazine with additional features. Studentsports.com is hosted on
the Citadel network. In addition, the company offers a subscription based
recruiting information service at Pacwestfootball.com, and CalHiSports.com, also
hosted on the Citadel network. Presently, traffic at these sites is relatively
small.
The company is seeking to leverage its various media platforms and access to,
and creditability with, high school athletes into new subscription based
products and content based offerings.
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.
We invested $2,500,000 in Magnolia and received shares of preferred stock in
Magnolia. We also received board representation rights and registration rights.
In October 2001, we invested a further $450,000 of a total $1,500,000 offering
of Magnolia's Series A Preferred Stock. We co-invested along with Selway
Partners, LLC, and CIP Capital, LP. In April and May 2002 Magnolia raised a
further $7.5 million in an offering of Series B Preferred Stock. We did not
participate in this round, which was led by Ecentury Capital Partners and SCP
Private Equity. Currently we own 13% of Magnolia that may be reduced to
approximately 7% on a fully diluted basis including the exercise of all employee
stock options. Due to recurring losses, our investment in Magnolia at June 30,
2002, which is now accounted for under the cost method, was $831,066.
EMPLOYEES
Silverstar Holdings through its US management subsidiaries employs three full
time salaried employees. Fantasy Sports, Inc. currently employs 13 full time
salaried employees and approximately 21 hourly employees. Student Sports, Inc.
currently employs 21 full time salaried employees and approximately two hourly
employees.
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.
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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, 2002, and costs us
approximately $18,225 per year.
Student Sports, Inc. has its principal executive offices at 2780 Skypark Drive,
Torrance, California 90505. This office space is 4,857 square feet and the lease
expires in March 2003 and costs approximately $107,136 per year. In addition,
Student Sports rents 1,490 square feet of warehouse space in Torrance,
California, under a lease that expires on August 31, 2003, and costs us
approximately $16,428 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 $30,000 per year.
ITEM 3. LEGAL PROCEEDINGS
First South Africa Holdings (FSAH), our South African subsidiary, has received
notice of a claim for approximately $250,000 from a holder of FSAH Class B
shares. The claimant contends a breach of their FSAH escrow agreement issued in
connection with the sale of their business in 1997. We believe this claim is
without merit and FSAH will vigorously defend this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On December 18, 2001 the Company held its annual meeting of stockholders. At the
annual meeting, the Company's stockholders elected six 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 approve the issuance of the Company's common stock
pursuant to an Asset Purchase Agreement dated September 24, 2001. The votes for
directors were as follows:
Votes
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For Withheld
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Michael Levy 11,463,864 41,855
Clive Kabatznik 11,463,864 41,855
Cornelius J. Roodt 11,463,864 41,855
Joseph Weil 11,463,864 41,855
David BenDaniel 11,463,864 41,855
Stanley Castleton 11,463,864 41,855
The votes to approve the issuance of the Company's common stock pursuant to an
Asset Purchase Agreement dated September 24, 2001 were as follows:
For Against Abstain
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5,304,867 20,855 28,150
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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
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Common Stock Fiscal 2000
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1st Quarter........................................ $7.938 $3.625
2nd Quarter........................................ $16.50 $3.563
3rd Quarter........................................ $14.25 $8.063
4th Quarter........................................ $9.063 $2.438
Common Stock Fiscal 2001
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1st Quarter........................................ $3.44 $0.94
2nd Quarter........................................ $1.17 $0.56
3rd Quarter........................................ $1.25 $0.63
4th Quarter........................................ $1.11 $0.63
Common Stock Fiscal 2002
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1st Quarter........................................ $1.00 $0.38
2nd Quarter........................................ $0.62 $0.33
3rd Quarter........................................ $0.80 $0.28
4th Quarter........................................ $0.52 $0.17
As of September 20, 2002, there were approximately 1,800 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.
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ITEM 6 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Selected Consolidated Financial Information
STATEMENT OF OPERATIONS DATA YEARS ENDED JUNE 30,
1998 1999 2000 2001 2002
Revenues $ - $ - $ - $ 1,301,432 $ 4,228,535
Total operating expenses 2,000,920 2,504,838 2,491,128 4,362,413 7,245,783
Operating loss (2,000,920) (2,504,838) (2,491,128) (3,060,981) (3,017,248)
Interest (expense)/income (1,223,654) (2,403,997) (1,363,360) 976,107 617,389
Loss from continuing operations before
income taxes (615,740) (6,208,976) (4,232,603) (5,010,726) (3,788,800)
Net loss from continuing operations (615,740) (6,210,195) (4,233,222) (5,010,726) (3,788,800)
(Loss)/gain from discontinued operations 3,387,631 (4,916,267) (34,429,264) (2,389,383) -
Extraordinary Item - gain on extinguishments
of debt - - - 2,142,949 -
Net (loss)/income 2,771,891 (11,126,462) (38,662,486) (5,257,160) (3,788,800)
Loss per share - from continuing
operations $(0.10) $(0.95) $(0.54) $(0.57) $(0.43)
BALANCE SHEET DATA AS OF JUNE 30,
1998 1999 2000 2001 2002
Total assets $ 89,561,459 $102,615,018 $ 94,266,439 $ 15,931,857 $ 12,971,289
Long term liabilities 29,507,926 33,598,244 15,473,769 - 842,776
Net working capital (1) 25,491,685 28,276,771 31,414,757 4,253,001 1,683,874
Stockholders' equity 16,097,666 2,090,966 5,595,870 13,578,710 10,212,073
(1) Net working capital is the net of current assets and current
liabilities.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BACKGROUND AND HISTORY
Silverstar Holdings Limited was incorporated in September 1995. The Company's
intention is to actively pursue acquisitions fitting a pre defined investment
strategy:
o Acquiring controlling stakes in small, high quality, sports media and
marketing businesses with strong management teams that are positioned to
use technology and Internet related platforms to fuel above average growth.
o Our investments must show an ability to contribute, in the short to medium
term, to earnings per share through operating profit or capital
appreciation.
o We aim to add value to our investments by operating in partnership with
committed, entrepreneurial management who show the vision and ability to
grow their businesses into industry or niche leaders.
The Company sold its last remaining South African operations in November 2000.
The Company still has significant assets that are denominated in South African
Rand. The assets include cash and notes receivable. Should the Company hold the
notes until maturity the Company will continue to 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.
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In August 2000, the Company's Internet travel related business,
Leisureplanet.com ("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.
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 2002 COMPARED TO FISCAL 2001
Revenues
Revenues were $4.23 million in fiscal 2002 as a result of revenues earned by
Fantasy and Student Sports, which were acquired during the second quarter of the
prior year and the first quarter of the current year, respectively. Revenues in
the prior year were $1.30 million and were related to Fantasy Sports. The
increase is due to a full year of Fantasy's revenues, as well as the acquisition
of Student Sports during fiscal 2002.
Cost of Sales
Cost of sales were $2.43 million in fiscal 2002 as a result of Fantasy's and
Student Sports' operations. Cost of sales in the prior year were $0.87 million
and are attributable to Fantasy. The increase is due to a full year of Fantasy's
revenue, as well as the acquisition of Student Sports during fiscal 2002 and a
bulk sale of Fantasy Sports inventory.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for fiscal 2002 were $4.62 million,
an increase of $1.56 million over the same period in the prior year. This
increase is due to having a full year of Fantasy as compared with six months in
the prior year and the acquisition of Student Sports at the end of the first
quarter of the current year, offset by a reduction in overall corporate
expenses.
Amortization and Depreciation
Amortization of intangible assets decreased from $0.37 million in fiscal 2001 to
$0.11 million in the current year as a result of the adoption of Statement of
Financial Accounting Standards ("SFAS") No. 142 "GOODWILL AND OTHER INTANGIBLE
ASSETS", whereby the Company no longer amortizes amounts attributable to
goodwill. Depreciation expense was $0.09 million in fiscal 2002 as compared to
$0.07 million in fiscal 2001. The increase is primarily due to the acquisition
of Student Sports.
-9-
Equity in Losses of Unconsolidated Affiliates
Equity in losses of unconsolidated affiliates decreased to zero for fiscal 2002
compared to a loss of $1.92 million in fiscal 2001. The decrease is due to the
Company recognizing losses to the extent of their investment in the prior year.
The Company's investment in Magnolia, effective with the third quarter of fiscal
2002 is being accounted for under the cost method. Therefore, no further income
or loss from Magnolia's operations will be recognized by the Company.
Foreign Currency Loss
Foreign currency losses are related to the assets remaining in the discontinued
South African operations. The Foreign currency losses during fiscal 2002 were
$1.35 million as compared to $1.04 million in the prior year as a result of the
deterioration of the South African Rand against the US dollar. These foreign
currency losses are non cash items until converted into US dollars, when any
unrealized gains or losses will be converted to cash.
Interest Income
Interest income of $0.63 million was recorded during fiscal 2002 as compared to
interest income of $1.55 million in fiscal 2001. During fiscal 2001, the Company
earned interest on the proceeds realized on the sale of Lifestyle. These
proceeds were utilized to pay down debt and invested in interest bearing
accounts. The decrease in interest income in fiscal 2002 is a result of lower
invested cash balances, as well as the deterioration of the South African Rand
against the dollar, which affects interest earned on Notes Receivable from the
sale of the Lifestyle business.
Interest Expense
Interest expense during fiscal 2002 was not material as compared to the $0.57
million in the prior year. The decrease in interest expense is attributable to
the repayment of approximately $12 million of increasing rate subordinated
convertible debentures during the third and fourth quarters of fiscal 2001.
Preference Dividend
The preference dividend related to the mandatory redeemable preference shares of
Lifestyle. These preferred shares were redeemed with the sale of Lifestyle and
there were no additional dividends after the second quarter of fiscal 2001.
Provision for Income Taxes
The Company is registered in Bermuda, where no tax laws are applicable. Three of
the Company's subsidiaries are subject to income taxes. Up to this date, none of
them has had taxable income. They have incurred losses for tax purposes. The
deferred tax asset generated by the tax losses and temporary differences has
been fully reserved.
Discontinued Operations
The Lifestyle business was sold in November 2000 and has not been included in
the Company's results since that time. The income during the prior year was
earned before the disposition of the business.
Extraordinary Item - Gain On Extinguishment of Debt
During the last half of fiscal 2001, the Company negotiated agreements with its
lenders to retire $11.70 million of debentures at face value plus accrued
interest. As a result, the Company recorded a gain on previously accrued sinking
fund interest of $2.14 million in fiscal 2001. Since the remaining debentures
were paid off at their maturity in October 2001, no such transaction occurred
during fiscal 2002.
Net Loss
The Company has recognized a loss of $3.79 million during fiscal 2002, as
compared to a loss of $5.26 million during the prior year. The current year
includes non-cash foreign currency losses of $1.35 million
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due to the devaluation of the South African Rand against the US dollar of
approximately 29% during the year. The prior year loss included $1.04 million of
non-cash foreign currency losses and $2.39 million loss on the disposal of
discontinued operations, offset by the extraordinary gain on the extinguishments
of debt of $2.14 million. Without these items, the net loss for fiscal 2002
would have been $2.44 million as compared to $3.97 million for fiscal 2001.
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.
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 owned 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.
-11-
Preference Dividend
The preference dividend on the mandatory redeemable preference shares declared
during fiscal year 2001 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.
Financial condition, liquidity and capital resources
Cash decreased by $3.01 million from $5.66 million at June 30, 2001 to $2.65
million at June 30, 2002. The decrease in cash in excess of the operating losses
is a result of the repayment of the Company's long term debt, its investment in
Magnolia Broadband and the reduction of payables by the Company and its
subsidiaries. The balance of the remaining cash is being held for working
capital purposes. The Company expects this balance to be sufficient to fund its
operations and the operations of its subsidiaries for the next twelve months.
During the next twelve months, it also anticipates the commencement of
-12-
repayment of notes receivable due to it from the sale of First Lifestyle
Holdings in South Africa. However, repayment is contingent on the borrower's
collection of Junior debt.
Working capital decreased by $2.57 million from $4.25 million at June 30, 2001
to $1.68 million at June 30, 2002. This is primarily due to the losses incurred
by the Company's operating subsidiaries.
At June 30, 2002, the Company had borrowings of $0.16 million, which consisted
of $0.10 million advances against lines of credit and $0.06 million of equipment
loans.
The Company has guaranteed certain bank facilities of some of its former
industrial subsidiaries in South Africa. Currently, these guarantees amount to
approximately $0.90 million and are secured by like amounts of cash. The Company
has reduced these guarantees from approximately $1.20 million as of June 30,
2001 and will try to further reduce these guarantees. In the event that these
guarantees are called, the Company has recourse to certain assets of these
subsidiaries, which should substantially cover the Company's potential exposure.
The Company intends to work on building its existing portfolio of subsidiaries
in terms of revenues and profitability. It may also acquire further synergistic
businesses and may therefore utilize a 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 secure additional indebtedness or raise additional equity to
finance future acquisitions on terms acceptable to management, if at all.
Goodwill Impairment Test
We acquired Fantasy Sports, Inc. in November 2000. At the time our strategy was
to aggressively expand the business by increasing our marketing in the auto
racing segment and developing new games for other niche sports markets. To this
end, we hired new staff and increased our marketing and development budgets as
well. This strategy was not successful, primarily due to the economic slowdown
and as a result, Fantasy has incurred losses since we made this acquisition.
During the seven months ended June 30, 2001, Fantasy lost $1,320,000 and had
negative cash flow of $268,000. For the twelve months ended June 30, 2002,
Fantasy lost $1,135,000 with negative cash flow of $566,000.
Due to the accounting recognition of these losses, the carrying value of Fantasy
has diminished since acquisition. On June 30, 2002, we performed an impairment
test on the carrying value of Fantasy's goodwill. In accordance with SFAS 142,
we compared the fair value of Fanatasy (as a reporting unit) to the carrying
value of Fantasy including goodwill. The methodology we used to determine fair
value was to develop a ratio of revenue to market capitalization utilizing the
Company and a comparable publicly traded company in the same industry. This
ratio was then applied to Fantasy's revenue to determine fair value. The fair
value exceeded Fantasy's carrying value, and therefore, no impairment of
goodwill existed at June 30, 2002.
We will continue to monitor the carrying values of Fantasy and will use the same
methodology on a consistent basis in the future. Should our efforts to stem the
losses at Fantasy not succeed and losses and negative cash flow continue, we may
be faced with goodwill impairment losses for Fantasy in the future.
We will be evaluating the carrying value of the goodwill of Student Sports, Inc.
at the end of the second quarter of fiscal 2003, on the first anniversary of
that acquisition.
-13-
Future commitments
Through June 30, 2002, Fantasy and Student Sports, the Company's operating
subsidiaries, had incurred net losses. The Company anticipates that this
situation will be rectified through a combination of expense reductions and
increased revenues. However, there are no assurances that these changes will be
successful. In the event that these plans are not successful, the Company may
need to continue to support the operations of its subsidiaries.
The Company intends to bring its operating subsidiaries to profitability and to
preserve its cash balances to the best of its ability. The Company anticipates
continued repayments from the notes receivable from the sale of certain of its
South African subsidiaries.
Critical Accounting Policies
The following is a discussion of the accounting policies that the Company
believes are critical to its operations:
Revenues
Revenues generated by Fantasy are seasonal from mid-February to the end of
November. Fantasy collects its revenue at the beginning and mid-point of the
season and recognizes this deferred revenue pro rata over the season. Student
Sports recognizes subscription revenue over the life of the subscription. For
event-type revenue, revenue is recognized over the course of the contract in
proportion to the expenses for the period compared to total expenses anticipated
for the specific event. Revenues from television sports shows produced by
Student Sports for television stations are recognized when the show is aired.
Student Sports, while somewhat less affected by seasonal factors, generates less
revenues in the December quarter than during the rest of the year.
Goodwill
The Company adopted SFAS 142 during fiscal 2002 and no longer amortizes
goodwill. The Company tests goodwill for impairment in the fourth quarter for
Fantasy Sports, Inc. The goodwill impairment test for Student Sports, Inc. and
subsequent acquisitions will be performed on the one year anniversary of the
acquisition and in that period thereafter. The Company performs the impairment
test in accordance with SFAS 142 "Goodwill and Other Intangible Assets." SFAS
142 requires that the fair value of the reporting unit be compared to the
carrying value, including goodwill, as the first step in the impairment test.
The Company determines fair value for Fantasy by developing a ratio of revenue
to market capitalization utilizing the Company and comparable publicly traded
companies in the same industry and applying this ratio to revenue of the
reporting unit.
Intangible Assets
Intangible assets include trademarks, customer lists and other intellectual
property and non-competition agreements. Intangible assets, excluding goodwill,
are stated on the basis of cost and are amortized on a straight-line basis over
a period of three to ten years. Intangible assets with infinite lives are not
amortized but are evaluated for impairment annually unless circumstances dictate
otherwise. Management periodically reviews intangible assets for impairment
based on an assessment of undiscounted future cash flows, which are compared to
the carrying value of the intangible assets. Should these cash flows not equate
to or exceed the carrying value of the intangible, a discounted cash flow model
is used to determine the extent of any impairment charge required.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not ordinarily hold market risk sensitive instruments for
trading purposes. The company does however recognize market risk from interest
rate and foreign currency exchange exposure.
Interest rate risk
At June 30, 2002, the Company's cash resources earn interest at variable rates.
Accordingly, the Company's return on these funds is affected by fluctuations in
interest rates. Any decrease in interest rates will have a negative effect on
the Company's earnings. There is no assurance that interest rates will increase
or decrease over the next fiscal year.
Foreign currency risk
Certain of the Company's cash balances and the remaining proceeds from the sale
of its South African subsidiaries are denominated in South African Rand. This
exposes the Company to market risk with respect to fluctuations in the relative
value of the South African Rand against the US Dollar. Due to the prohibitive
cost of hedging these proceeds, the exposure has not been covered as yet. Should
more favorable conditions arise, a suitable Rand hedge may be considered by
management. For every 1% decline in the Rand/US Dollar exchange rate, at
year-end exchange rates, the Company loses $958 on every R1,000,000 retained in
South Africa. During fiscal 2002, the South African Rand has depreciated against
the US dollar by approximately 29% from the rate at June 30, 2001. At June 30,
2002, the Company had assets denominated in South African Rand of R50.90
million.
The following is information concerning assets denominated in South African Rand
and the foreign currency gains and losses recognized during fiscal 2002:
Foreign Currency
Gain/(Loss) for the Year
As of June 30, 2002 Ended June 30, 2002
In Rand In US Dollars
Cash 6,744,699 $ (185,672)
Notes Receivable 44,079,830 (1,213,457)
Other 53,781
------------
$ (1,345,348)
============
-14-
ITEM 8
SILVERSTAR HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002, 2001 AND 2000
SILVERSTAR HOLDINGS LIMITED 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-33
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors and Stockholders
Silverstar Holdings Limited
Boca Raton, Florida
We have audited the accompanying consolidated balance sheets of Silverstar
Holdings Limited and Subsidiaries (the Company) as of June 30, 2002 and 2001,
and the related consolidated statements of operations, stockholders' equity and
comprehensive income, and cash flows for the years 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 audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the accompanying consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Silverstar Holdings Limited and Subsidiaries at June 30, 2002 and
2001, and the consolidated results of their operations and their cash flows for
the years then ended in conformity with accounting principles generally accepted
in the United States.
RACHLIN COHEN & HOLTZ LLP
Fort Lauderdale, Florida
September 6, 2002
F-1
SILVERSTAR HOLDINGS LIMITED
REPORT OF THE INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Silverstar Holdings Limited
In our opinion, the accompanying consolidated statements of operations, of
stockholders' equity, of comprehensive income and of cash flows, present fairly,
in all material aspects, the results of operations and cash flows of Silverstar
Holdings Limited and its subsidiaries for the year ended June 30, 2000 in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides 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 year ended June 30,
2000.
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers
West London
October 13, 2000
Except for Note 2(m) (ii)
as to which the date is February 20, 2001
F-2
SILVERSTAR HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND 2001
ASSETS 2002 2001
------ ---- ----
Current Assets:
Cash and cash equivalents (includes restricted cash of $53,955) $ 2,650,476 $ 5,664,013
Accounts receivable, net 267,408 -
Inventories 121,630 377,721
Current portion of long-term notes receivable 409,971 411,266
Prepaid expenses and other current assets 150,829 153,148
------------ -----------
Total Current Assets 3,600,314 6,606,148
Property, Plant and Equipment, net 216,179 167,464
Investments in Non-Marketable Securities 843,566 631,066
Long-Term Notes Receivable 3,859,138 5,033,080
Goodwill, net 3,383,862 3,323,049
Intangible Assets, net 1,063,375 164,750
Deferred Charges and Other Assets 4,855 6,300
------------ -----------
Total Assets $12,971,289 $15,931,857
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Bank overdraft $ - $92,887
Line of credit 103,955 -
Current portion of long-term debt 22,682 361,836
Accounts payable 374,572 421,316
Accrued expenses 395,187 553,742
Deferred revenue 1,020,044 923,366
------------ -----------
Total Current Liabilities 1,916,440 2,353,147
Long-Term Debt 35,776 -
Obligation Related to Acquisition of Student Sports 807,000 -
------------ -----------
Total Liabilities 2,759,216 2,353,147
------------ -----------
Commitments, Contingencies and other matters - -
Stockholders' Equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized;
no shares issued and outstanding - -
Common stock, Class A, $0.01 par value, 23,000,000 shares authorized; 8,001,310 and
7,178,310 shares issued and outstanding, respectively 80,013 71,783
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 $0.001 par value; 10,000,000 shares authorized;
2,671,087 and 2,671,087 shares issued and outstanding, respectively 600 600
Additional paid-in capital 63,763,870 63,349,937
Accumulated deficit (53,641,876) (49,853,076)
------------ -----------
Total Stockholders' Equity 10,212,073 13,578,710
------------ -----------
Total Liabilities and Stockholders' Equity $ 12,971,289 $15,931,857
============ ===========
See notes to consolidated financial statements
F-3
SILVERSTAR HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 2002, 2001AND 2000
2002 2001 2000
---- ---- ----
Revenues $ 4,228,535 $ 1,301,432 $ -
------------ ------------ ------------
Operating Expenses:
Cost of sales 2,429,587 869,185 -
Selling, general and administrative 4,618,164 3,055,955 1,844,197
Amortization of intangibles 106,375 369,318 640,441
Depreciation 91,657 67,955 6,490
------------ ------------ ------------
7,245,783 4,362,413 2,491,128
------------ ------------ ------------
Operating Loss (3,017,248) (3,060,981) (2,491,128)
Gain on Sale of Subsidiary Stock - - 103,505
Interest in Losses of Unconsolidated Affiliates - (1,919,026) (251,163)
Other (Expense) Income (43,593) 200,757 -
Preference Dividend - (165,109) (149,755)
Foreign Currency Loss (1,345,348) (1,042,474) (80,702)
Interest Income 630,976 1,548,882 668,109
Interest Expense (13,587) (572,775) (2,031,469)
------------ ------------ ------------
Loss from Continuing Operations Before Income Taxes (3,788,800) (5,010,726) (4,232,603)
Provision for Income Taxes - - (619)
------------ ------------ ------------
Loss From Continuing Operations (3,788,800) (5,010,726) (4,233,222)
Discontinued Operations:
Loss from operations, net of income taxes of
$0, $0 and $2,543,255, respectively - - (11,931,286)
Loss on disposition, net of income taxes of $0, $0 and $0,
respectively - (2,389,383) (22,497,978)
------------ ------------ ------------
Loss Before Extraordinary Item (3,788,800) (7,400,109) (38,662,486)
Extraordinary Item - Gain on Extinguishment of Debt,
net of Income Taxes of $0 - 2,142,949 -
------------ ------------ ------------
Net Loss $ (3,788,800) $ (5,257,160) $(38,662,486)
============ ============ ============
Loss Per Share - Basic and Diluted:
Continuing Operations $ (0.43) $ (0.57) $ (0.54)
Discontinued Operations - (0.27) (4.39)
------------ ------------ ------------
Loss Before Extraordinary Item (0.43) (0.84) (4.93)
Extraordinary Item - 0.24 -
------------ ------------ ------------
Net loss $ (0.43) $ (0.60) $ (4.93)
============ ============ ============
Weighted Average Common Stock Outstanding:
Basic and diluted 8,750,937 8,849,663 7,836,387
============ ============ ============
See notes to consolidated financial statements.
F-4
SILVERSTAR HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE LOSS
YEARS ENDED JUNE 30, 2002, 2001 AND 2000
Silverstar Silverstar
Holdings Ltd. Holdings Ltd. First SA Holdings
Class A Class B Class B
Common Stock Common Stock Common Stock Additional
------------ ------------ ------------ Paid-in
Shares Amount Shares Amount Shares Amount Capital
------ ------ ------ ------ ------ ------ -------
Balance June 30, 1999 5,383,142 $ 53,832 946,589 $ 9,466 2,550,466 $ 580 $ 22,321,906
Year Ended June 30, 2000:
Issuance of stock to FSAC escrow
agent 120,621 1,206 - - - - (1,206)
Issuance of stock on additional
purchase price payments - - - - 120,621 20 567,687
Issuance of shares 1,379,310 13,793 - - - - 18,361,207
Warrants exercised 247,311 2,473 - - - - 1,356,434
Options exercised 180,000 1,800 872,296
Conversion of 9% debentures to
common stock 742,503 7,425 - - - - 4,083,465
Increasing rate debentures
converted to common stock 315,789 3,158 - - 3,312,657
Issuance of warrants - - - - - - 3,446,633
Equity gain on group restructure - - - - - - 9,986,363
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 64,307,442
Year Ended June 30, 2001:
Disposal of FSAH - translation loss - - - - - - -
Stock issued to employee 10,000 100 - - - - 7,400
Issuance of warrants for services - - - - - - 34,326
Purchase and retirement of treasury
stock (1,200,366) (12,004) - - - - (999,231)
Net loss - - - - - - -
----------- -------- ------------ -------- --------- ------ ------------
Balance, June 30, 2001 7,178,310 $ 71,783 946,589 $ 9,466 2,671,087 $ 600 $ 63,349,937
Accumulated
Other
Accumulated Comprehensive
Deficit Income (Loss) Total
------- ------------- -----
Balance June 30, 1999 $ (5,933,430) $(14,361,388) $ 2,090,966
Year Ended June 30, 2000:
Issuance of stock to FSAC escrow
agent - - -
Issuance of stock on additional
purchase price payments - - 567,707
Issuance of shares - - 18,375,000
Warrants exercised - - 1,358,907
Options exercised - - 874,096
Conversion of 9% debentures to
common stock - - 4,090,890
Increasing rate debentures
converted to common stock 3,315,815
Issuance of warrants - - 3,446,633
Equity gain on group restructure - - 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 (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 - - 7,500
Issuance of warrants for services - - 34,326
Purchase and retirement of treasury
stock - - (1,011,235)
Net loss (5,257,160) - (5,257,160)
------------ ------------ ------------
Balance, June 30, 2001 $(49,853,076) $ - $ 13,578,710
F-5
SILVERSTAR HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE LOSS
YEARS ENDED JUNE 30, 2002, 2001 AND 2000
(Continued)
Silverstar Silverstar
Holdings Ltd. Holdings Ltd. First SA Holdings
Class A Class B Class B
Common Stock Common Stock Common Stock Additional
------------ ------------ ------------ Paid-in Capital
Shares Amount Shares Amount Shares Amount Capital
------ ------ ------ ------ ------ ------ -------
Balance June 30, 2001 7,178,310 $ 71,783 946,589 $ 9,466 2,671,087 $ 600 $ 63,349,937
Year Ended June 30, 2002:
Stock issued for acquisition 900,000 9,000 - - - - 475,200
Purchase and retirement of treasury stock (77,000) (770) - - - - (61,267)
Net Loss - - - - - - -
--------- -------- ------- ------- --------- ----- ------------
Balance, June 30, 2002 8,001,310 $ 80,013 946,589 $ 9,466 2,671,087 $ 600 $ 63,763,870
========= ======== ======= ======= ========= ===== ============
Accumulated
Other
Accumulated Comprehensive
Deficit Income (Loss) Total
------- ------------- -----
Balance June 30, 2001 $(49,853,076) $ - $ 13,578,710
Year Ended June 30, 2002:
Stock issued for acquisition - - 484,200
Purchase and retirement of treasury stock - - (62,037)
Net Loss (3,788,800) - (3,788,800)
------------ ------- ------------
Balance, June 30, 2002 $(53,641,876) $ - $ 10,212,073
============ ======= ============
See notes to consolidated financial statements.
F-6
SILVERSTAR HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2002, 2001 AND 2000
2002 2001 2000
---- ---- ----
Cash Flows from Operating Activities:
Net loss from continuing operations $ (3,788,800) $ (5,010,726) $ (4,233,222)
Provision for doubtful accounts 16,429 - -
Dividend charge - 165,109 149,755
Depreciation and amortization 198,032 437,273 737,209
Deferred income taxes - - 748,359
Foreign currency losses on notes receivable 746,630 576,195 -
Net gain on sale of assets - - (34,419)
Net gain on sale of and dilution in subsidiaries - - (103,505)
Issuance of stock and warrants for services - 41,826 -
Changes in operating assets and liabilities, net 183,387 (943,728) 3,838,445
Decrease in other assets 171,583 32,351 -
Creation of debenture redemption reserve fund 4,248 266,748 1,012,500
Provision for affiliate losses - - 35,763
Equity in losses of affiliates - 1,919,026 160,885
------------ ------------ ------------
Net Cash (Used in) Provided by Continuing Operations (2,835,265) (2,515,926) 2,311,770
Net Cash Used in Discontinued Operations - (1,090,173) (15,032,079)
------------ ------------ ------------
Net Cash Used in Operating Activities (2,835,265) (3,606,099) (12,720,309)
------------ ------------ ------------
Cash Flows from Investing Activities:
Proceeds on disposal of investment in subsidiaries - - 421,400
Proceeds on disposal of discontinued operations - 11,102,549 -
Acquisition of intangibles - (49,332) (25,232)
Acquisition of property, plant and equipment (100,777) (1,662,725) (5,862,741)
Proceeds on disposal of property, plant and equipment - 74,150 147,237
Purchase price adjustments 200,000 - (586,589)
Other assets acquired - - (1,512)
Investment in affiliates (212,500) - (2,805,423)
Decrease in long-term note receivable 428,607 612,160 -
Loan to affiliate - (250,000) -
Repayment of loans by affiliates - 161,500 -
Acquisition of subsidiaries (net of cash of $0,
$863,337 and $0) (120,711) (3,454,569) -
Other - 1,042 -
------------ ------------ ------------
Net Cash (Used in) Provided by Investing Activities 194,619 6,534,775 (8,712,860)
------------ ------------ ------------
F-7
SILVERSTAR HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED JUNE 30, 2002, 2001 AND 2000
2002 2001 2000
---- ---- ----
Cash Flows from Financing Activities:
Short term borrowings, net $ 11,068 $ (999,883) $ 301,767
Proceeds from long-term debt 51,175 - 234,542
Repayment of long-term debt (373,097) (1,246,822) (6,227,693)
Redemption of debentures - (11,700,000) -
Redemption of preferred shares - (8,153,928) -
Treasury stock transactions (62,037) (1,011,232) -
Dividends paid - - (1,342,996)
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
------------ ------------ ------------
Net Cash (Used in) Provided by Financing Activities (372,891) (23,111,865) 32,523,196
------------ ------------ ------------
Effect of Exchange Rate Changes on Cash - (4,005,865) (2,050,261)
------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents (3,013,537) (24,189,054) 9,039,766
Cash and Cash Equivalents, Beginning 5,664,013 29,853,067 20,813,301
------------ ------------ ------------
Cash and Cash Equivalents, Ending $ 2,650,476 $ 5,664,013 $ 29,853,067
============ ============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 7,863 $ 373,574 $ 1,363,360
============ ============ ============
Cash paid during the period for income taxes $ - $ - $ 2,218,165
============ ============ ============
See notes to consolidated financial statements.
F-8
SILVERSTAR HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002, 2001 AND 2000
NOTE 1. ORGANIZATION AND PRINCIPAL ACTIVITIES OF THE GROUP
Silverstar Holdings Limited (formerly Leisureplanet Holdings Ltd.) (the
"Company"), was founded on September 6, 1995. The purpose of the Company has
changed from acquiring and operating South African Companies to investing in
companies that fit a predefined investment strategy.
On November 17, 2000, the Company acquired Fantasy Sports, Inc. ("Fantasy").
Fantasy specializes in Internet-based subscriptions for NASCAR, college football
and basketball and other fantasy sports games and sale of die-cast racing cars.
On September 24, 2001, the Company acquired Student Sports, Inc. ("Student
Sports"), a media company producing publications, television programs and
various marketing initiatives for the high school sports market (see Note 3).
Additional investments have been made in other companies, which are in line with
the Company's new focus (see Note 7).
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. 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 either the equity or cost method of
accounting, where appropriate. All significant inter-company accounts and
transactions have been eliminated in the consolidated financial statements. The
entities included in these consolidated financial statements are as follows:
Silverstar Holdings, Ltd. (Parent Company)
Silverstar Holdings, Inc.
First South African Management Corp.
First South African Holdings, Ltd. (FSAH)
Fantasy Sports, Inc.
Student Sports, Inc.
F-9
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and all highly liquid investments with
original maturities of three months or less.
Concentrations of Credit and Market Risks
Financial instruments that potentially subject the Company to concentrations of
credit and market risk are comprised of cash and cash equivalents and notes
receivable.
Cash
The Company currently maintains a substantial amount of cash and
cash equivalents with financial institutions in South Africa
denominated in South African Rand. Changes in the value of the
Rand compared to the U.S. dollar can have an unfavorable impact
on the value of the cash and cash equivalents. In addition, these
financial instruments are not subject to credit insurance.
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. In addition, the Company's ability to withdraw
these funds from South Africa after collection is restricted and
may be subject to approval by the South African government.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value due to the short-term nature of these
instruments. The carrying value of long-term notes receivable approximates fair
values since interest rates are keyed to the South African prime lending rate.
Inventories
Inventories are valued at the lower of cost or market with cost determined on
the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the assets.
Equipment is depreciated over 3 to 10 years. Leasehold improvements are
amortized over the terms of the related leases.
Software Developed for Internal Use
As a result of the acquisition of Fantasy in November 2000, the Company has
adopted the provisions of AICPA Statement of Position (SOP) 98-1 "Accounting for
the Costs of Computer Software Developed and Obtained for Internal Use". SOP
98-1 requires the capitalization of all internal and external costs incurred to
develop internal use software during the application development stage. Fantasy
operates its fantasy league through the use of software the company develops.
Fantasy develops software to run its fantasy games; however, such costs were not
significant during fiscal 2002 or 2001.
F-10
Goodwill
The Company tests goodwill for impairment in the fourth quarter for Fantasy
Sports, Inc. The goodwill impairment test for Student Sports, Inc. and
subsequent acquisitions will be performed on the one year anniversary of the
acquisition and in that period thereafter. The Company performs the impairment
test in accordance with SFAS 142 "GOODWILL AND OTHER INTANGIBLE ASSETS." SFAS
142 requires that the fair value of the reporting unit be compared to the
carrying value, including goodwill, as the first step in the impairment test.
The Company determines fair value for Fantasy by developing a ratio of revenue
to market capitalization utilizing the Company and comparable publicly traded
companies in the same industry and applying this ratio to revenue of the
reporting unit.
Intangible Assets
Intangible assets include trademarks, customer lists, patents and trademarks and
other intellectual property and non-competition agreements. Intangible assets,
excluding goodwill, are stated on the basis of cost and are amortized on a
straight-line basis over a period of three to ten years. Intangible assets with
indefinite lives are not amortized but are evaluated for impairment annually
unless circumstances dictate otherwise. Management periodically reviews
intangible assets for impairment based on an assessment of undiscounted future
cash flows, which are compared to the carrying value of the intangible assets.
Should these cash flows not equate to or exceed the carrying value of the
intangible, a discounted cash flow model is used to determine the extent of any
impairment charge required. Customer lists are amortized over a period of three
to ten years. The patents, trademarks intellectual property and non-compete
agreements related to discontinued operations were amortized over a period of
three to twenty five years, up to the time of their disposal (see Note 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.
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. Student
Sports recognizes subscription revenue over the life of the subscription. For
event-type revenue, revenue is recognized over the course of the contract in
proportion to the expenses for the period compared to total expenses anticipated
for the specific event. Revenues from television sports shows produced by
Student Sports for television stations are recognized when the show is aired.
Student Sports, while somewhat less affected by seasonal factors, generates less
revenues in the December quarter than during the rest of the year.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs incurred for the
years ended June 30, 2002 and 2001 was $452,427 and $591,894, respectively.
Advertising costs incurred for the year ended June 30, 2000 is 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
F-11
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, convertible debentures and shares to be
issued in connection with the acquisition of Student Sports (see Note 3).
Dilutive potential common shares for all periods presented are computed
utilizing the treasury stock method. The dilutive effect of shares to be issued
in connection with the acquisition of Student Sports is computed using the
average market price for the quarter. The diluted share base for the years ended
June 30, 2002, 2001 and 2000 excludes shares of 1,737,910, 261,092 and
2,997,230, respectively. These shares are excluded due to their anti-dilutive
effect as a result of the Company's loss from continuing operations during 2002,
2001 and 2000.
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 FASB issued SFAS 141, "BUSINESS COMBINATIONS", which requires
all business combinations initiated after June 30, 2001 to be accounted for
under the purchase method. SFAS 141 also sets forth guidelines for applying the
purchase method of accounting in the determination of intangible assets,
including goodwill acquired in a business combination, and expands financial
disclosures concerning business combinations consummated after June 30, 2001.
The application of SFAS 141 did not affect any of the Company's previously
reported amounts included in goodwill or other intangible assets.
Effective July 1, 2001, the Company adopted SFAS 142, "GOODWILL AND OTHER
INTANGIBLE ASSETS", which establishes new accounting and reporting requirements
for goodwill and other intangible assets. Under SFAS 142, all goodwill
amortization ceased effective July 1, 2001 (goodwill amortization for fiscal
2002 otherwise would have been $821,098) and recorded goodwill attributable to
Fantasy Sports, Inc. was tested for impairment. This impairment test is required
to be performed at adoption of SFAS 142 and at least annually thereafter. On an
ongoing basis (absent any impairment indicators), the Company expects to perform
this impairment test during the fourth quarter for Fantasy Sports. For the
acquisition of Student Sports, Inc. and any subsequent acquisitions which are
considered reporting units under SFAS 142, the impairment test will be performed
on the one year anniversary of the acquisition and in that period thereafter.
Based on the initial impairment test on July 1, 2001, it was determined that
none of the goodwill recorded was impaired. Impairment adjustments recognized
after adoption, if any, generally are required to be
F-12
recognized as operating expenses. The Company performed the impairment test on
goodwill of Fantasy Sports as of June 30, 2002 and determined that goodwill was
not impaired.
In connection with adopting SFAS 142, the useful lives and the classification of
identifiable intangible assets was reassessed and it was determined that they
continue to be appropriate. For the components of amortized intangible assets
and pro forma results of operations for fiscal 2001 and 2000 giving effect to
the adoption of SFAS 142, see Note 9.
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 August 2001, the FASB issued SFAS No. 144, "ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS." This statement provides a single comprehensive
accounting model for impairment of long-lived assets and discontinued
operations. SFAS 144 will become effective in the first quarter of fiscal 2003.
The Company believes that adoption of this statement will not have a significant
impact on the results of operations or financial position of the Company.
In June 2002, the FASB issued SFAS No. 146 "ACCOUNTING FOR COSTS ASSOCIATED WITH
EXIT OR DISPOSAL ACTIVITIES." This statement addresses financial accounting and
reporting for costs associated with exit or disposal activities. SFAS 146 will
become effective in the third quarter of fiscal 2003. The 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.
NOTE 3. ACQUISITIONS
On September 24, 2001, the Company acquired all the assets and business and
assumed certain liabilities of Student Sports, a media company producing
publications, television programs and various marketing initiatives for the high
school sports market. Under the terms of the agreement, the Company issued
900,000 Company common shares to the owners of Student Sports, and undertook to
provide a further payment, as defined, of between 500,000 and 1,500,000 shares
of Company common stock on March 31, 2004. 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, which
cannot exceed $500,000, is to be paid no later than April 30, 2004. Finally, the
seller is to receive 33% of certain litigation proceeds, as defined, if received
by the Company. As of June 30, 2002, no earn-out had been earned and no
litigation proceeds have been received.
The assets and liabilities are to be held in a new wholly-owned subsidiary,
Student Sports, Inc. ("Student Sports") and will be reported as a new operating
segment titled marketing services (see Note 18). The results of operations of
Student Sports were included in the consolidated financial statements starting
October 1, 2001.
F-13
The costs of the acquisition were allocated on the basis of the estimated fair
values of the assets acquired and liabilities assumed. These estimates are
subject to revision as better information becomes available. The acquisition was
accounted for as a purchase. The intangible assets identified in connection with
the acquisition were recorded (and amortized where applicable) in accordance
with the provisions of SFAS No. 142.
Acquisition cost $ 1,414,858
===========
Net assets acquired:
Current assets, primarily accounts receivable $ 255,426
Fixed assets 41,410
Intangible assets 1,341,038
-----------
Total assets 1,637,874
-----------
Current liabilities 208,720
Long-term debt 14,296
-----------
Total liabilities 223,016
-----------
$1,414,858
===========
The following unaudited pro forma summary presents consolidated financial
information as if the acquisition of Student Sports had occurred effective July
1, 2001 and 2000, respectively. The pro forma amounts, which include the results
of operations of Student Sports, were compiled using the cash basis of
accounting. The Company believes that these results do not differ materially
from generally accepted accounting principles. The pro forma information does
not necessarily reflect the actual results that would have occurred, nor is it
necessarily indicative of future results of operations of the consolidated
entities.
Year ended June 30,
2002 2001
---- ----
Revenue $ 4,597,144 $ 3,296,307
=========== ===========
Loss before discontinued operations and extraordinary item (4,073,069) (8,225,777)
Discontinued operations - (2,389,383)
Extraordinary item - 2,142,949
----------- -----------
Net loss $(4,073,069) $(8,472,211)
=========== ===========
Loss per share - basic and diluted:
Loss before discontinued operations and extraordinary item $ (0.37) $ (0.80)
Discontinued operations - (0.23)
Extraordinary item - 0.20
----------- -----------
Net loss $ (0.37) $ (0.82)
=========== ===========
On April 1, 2002, Student Sports acquired all of the assets of Area Code
Baseball, a company that operates elite regional high school baseball tryouts
and a national high school all-star baseball tournament. The purchase price was
$100,000 and the purchase price has been allocated to goodwill.
On November 17, 2000, the Company acquired all of the assets and certain
liabilities of Fantasy Sports ("Fantasy"). Fantasy 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. 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.
F-14
Acquisition Cost $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, the Company recorded intangibles
consisting of goodwill and customer lists. The customer lists are being
amortized on a straight-line basis over their expected useful lives of three to
ten years.
The following unaudited pro forma summary presents consolidated financial
information as if the acquisition of Fantasy 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
============ ============
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)
============ ============
In October 2001, the Company received $200,000 in cash and approximately
$305,000 reduction in accounts payable primarily related to the acquisition of
Fantasy Sports from Action Performance. The cash amount, which had been held in
escrow, relates to settlement of a dispute related to the acquisition of Fantasy
regarding certain disclosures made by Action at the time of acquisition and has
been used to reduce goodwill. Of the $305,000, $130,000 was used to reduce
inventory to fair value and the remaining $175,000 relating to the purchase
price was also recorded as a reduction to goodwill.
NOTE 4. ACCOUNTS RECEIVABLE
2002 2001
---- ----
Accounts receivable $294,619 $ -
Less allowance for doubtful accounts (27,211) -
-------- -------
$267,408 $ -
======== =======
F-15
NOTE 5. INVENTORIES
Inventories consist of finished goods of $120,630 and $377,721 at June 30, 2002
and 2001, respectively. During fiscal 2002, inventory values were reduced by
approximately $130,000 due to a settlement with the seller of Fantasy (see Note
3) and by a bulk sale of inventory of approximately $150,000.
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
2002 2001
---- ----
Leasehold improvements $ 15,853 $ 7,264
Plant and equipment 365,969 251,021
Motor vehicles 15,000 -
-------- --------
396,822 258,285
Less accumulated depreciation 180,643 90,821
-------- --------
$216,179 $167,464
======== ========
Depreciation expense was $91,657, $67,955, and $2,906,643, for the years ended
June 30, 2002, 2001, and 2000, respectively. Of this depreciation expense,$-0-,
$-0-, and $2,900,153, respectively, was included in discontinued operations.
NOTE 7. INVESTMENTS IN NON-MARKETABLE SECURITIES
A summary of the investments in affiliates on the consolidated financial
statements is presented below:
Effective
Percentage As of and for the Year Ended
Ownership June 30, 2002 June 30, 2001
--------- ------------- -------------
Investments In and Receivables From
Unconsolidated Affiliates:
HotelSupplyGroup.com 51% $ - $ -
Magnolia Broadband 13 and 48 831,066 631,066
Other 12,500 -
--------- ------------
$ 843,566 $ 631,066
========= ============
Share of losses of unconsolidated affiliates:
HotelSupplyGroup.com 51 $ - $ (14,032)
Magnolia Broadband (includes $250,000
provision relating to the convertible note
and $-0- and $433,332, respectively,
of goodwill amortization) 13 and 48 - (1,904,994)
--------- -----------
$ - $(1,919,026)
========= ===========
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 was reduced to zero due to uncertainty surrounding
its recoverability. HSG was subsequently liquidated.
F-16
Magnolia Broadband, Inc.
On April 14, 2000, the Company purchased 3,447,774 shares of Series A Preferred
stock in Magnolia Broadband ("Magnolia"), with voting rights representing a 48%
interest in Magnolia, for a consideration of $2,500,000, $1,300,000 of which was
recorded as goodwill. The goodwill relating to the Company's investment in
Magnolia was being amortized over a three-year period. Effective July 1, 2001,
the Company adopted SFAS 142 (see Note 2) at which time the unamortized balance
was $831,066. Such goodwill is no longer being amortized and at June 30, 2002,
such goodwill was not considered impaired.
On March 9, 2001, the Company loaned Magnolia $250,000. This loan is convertible
into the type of equity security Magnolia sells in its next private placement.
In connection with this loan, Magnolia issued the Company warrants to acquire
250,000 shares of Magnolia's common stock at an exercise price of $1.00 per
share. The warrants expire on March 9, 2006. The value of the warrants at the
date of issuance was not considered significant. At June 30, 2001, the Company
provided a full valuation allowance relating this $250,000 loan.
In October 2001, the Company loaned Magnolia $200,000, which was convertible
into newly reclassified Series A Preferred Stock. As part of the consideration
for the Notes, the Company will exchange its existing convertible notes for new
Series A Preferred shares. This note and the above note were converted into new
Series A Preferred Stock in March 2002 (see below).
On March 21, 2002, Magnolia entered into an agreement whereby it raised $6
million from three institutional investors. The agreement calls for an immediate
infusion of $3 million, with an additional $3 million committed, but contingent
on Magnolia reaching defined technical milestones. As a result of this
agreement, the Company has exchanged its existing shares in Magnolia for new
Series A Preferred shares and has converted the October 2001 loan into these new
Series A Preferred shares as well. The Company's ownership percentage has been
reduced to approximately 13% and will further reduce should the second tranche
of financing be realized, as well as any exercise of outstanding Magnolia
employee stock options. On a fully diluted basis, the Company's percentage in
Magnolia will be reduced to approximately 7%. Effective at the time that the
Company's ownership percentage was reduced below 20%, the Company was accounting
for their investment in Magnolia under the cost method. While Magnolia is
confident that it can meet the defined technical milestones to obtain the
additional funding, there is no assurance that this will occur. Furthermore,
there is no assurance that the full amount will be sufficient for Magnolia to
fund its future operations until it achieves revenues and profitability.
NOTE 8. LONG-TERM NOTES RECEIVABLE
In connection with the sale of Lifestyle, which was completed in November 2000,
as well as the earlier sale of two other subsidiaries, the Company received as
partial consideration three notes 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 of $346,231) 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.
Management does not expect to receive payments on these notes until the third
quarter of fiscal 2003. These notes bear interest at rates based on the South
African prime rate (at June 30, 2002 the rate was 11.35%). Notes receivable
include accrued interest of approximately $554,000.
F-17
June 30,
2002 2001
---- ----
Balance $4,269,109 $5,444,346
Less current portion 409,971 411,266
---------- ----------
Long-term portion $3,859,138 $5,033,080
========== ==========
NOTE 9. INTANGIBLE ASSETS
The components of amortized intangible assets as of June 30, 2002 and 2001 is as
follows:
Gross Carrying Accumulated
Amount Amortization
Balance at June 30, 2002:
Customer lists $245,000 $122,875
Noncompete agreement 225,000 33,750
-------- --------
$470,000 $156,625
======== ========
Balance at June 30, 2001:
Customer lists $215,000 $ 50,250
======== ========
The components of intangible assets that have an indefinite life and are not
amortizable at June 30, 2002 are as follows:
June 30,
2002
----
Trade Names $485,000
Internet domain 65,000
Video and audiovisual materials 50,000
Copyright registration 75,000
Statistics database 75,000
--------
$750,000
========
All intangible assets with an indefinite life identified above were in
connection with the acquisition of Student Sports in September 2001. There were
no intangible assets with indefinite lives in fiscal 2001.
Amortization expense for intangible assets during the fiscal 2002 was $106,375.
Estimated amortization expense for the five succeeding fiscal years is as
follows:
2003 $119,500
2004 70,750
2005 54,500
2006 49,875
2007 13,250
F-18
SFAS 142 was adopted July 1, 2001 for fiscal 2002. The following table shows the
Company's fiscal 2002, 2001 and 2000 results, adjusted to exclude amortization
related to goodwill and equity method goodwill:
Year Ended June 30,
2002 2001 2000
---- ---- ----
Loss before extraordinary items - as reported $ (3,788,800) $ (7,400,109) $ (38,662,486)
Add back: -
Goodwill amortization - 244,765 -
Equity method goodwill amortization - 433,326 90,278
Goodwill amortization - discontinued operations - 56,245 717,435
Deduct:
Increase in loss on disposition - - (1,190,592)
------------- ------------- --------------
Loss before extraordinary items - as adjusted $ (3,788,800) $ 6,665,773 $ (39,045,365)
============= ============= ==============
Net loss - as reported $ (3,788,800) $ (5,257,160) $ (38,662,486)
Add back:
Goodwill amortization - 244,765 -
Equity method goodwill amortization - 433,326 90,278
Goodwill amortization - discontinued operations - 56,245 717,435
Deduct:
Increase in loss on disposition - - (1,090,592)
------------- ------------- --------------
Net loss - as adjusted $ (3,788,800) $ (4,522,824) $ (39,045,365)
============= ============= ==============
Loss per share - basic and diluted:
Loss before extraordinary items - as reported $ (0.43) $ (0.84) $ (4.93)
Add back:
Goodwill amortization - 0.03 -
Equity method goodwill amortization - 0.05 0.01
Goodwill amortization - discontinued operations - 0.01 0.09
Deduct:
Increase in loss on disposition - - (0.15)
------------- ------------- --------------
Loss before extraordinary items - as adjusted $ (0.43) $ (0.75) $ (4.98)
============= ============= ==============
Net loss - as reported $ (0.43) $ (0.60) $ (4.93)
Add back:
Goodwill amortization - 0.03 -
Equity method goodwill amortization - 0.05 0.01
Goodwill amortization - discontinued operations - 0.01 0.09
Deduct:
Increase in loss on dispositions - - (0.15)
------------- ------------- --------------
Net loss - as adjusted $ (0.43) $ (0.51) $ (4.98)
============= ============= ==============
F-19
The changes in goodwill balance during fiscal 2002 are as follows:
Internet
Fantasy
Marketing Sports
Services Games Total
Balance at June 30, 2001, net $ - $ 3,323,049 $ 3,323,049
Additions to goodwill:
Acquisition of Student Sports, Inc. 336,038 - 336,038
Acquisition of Area Code Baseball 100,000 - 100,000
Reductions in goodwill:
Settlement of purchase price issues
related to Fantasy Sports (see Note 3) - (375,225) (375,225)
----------- ----------- -----------
Balance at June 30, 2002 $ 436,038 $ 2,947,824 $ 3,383,862
=========== =========== ===========
NOTE 10. ACCRUED LIABILITIES
June 30,
2002 2001
---- ----
Accrued prize winner cash and merchandise awards $185,337 $142,770
Due to Action Sports - 175,225
Payroll and related payroll expenses 119,327 116,458
Other 90,523 119,289
-------- --------
$395,187 $553,742
======== ========
NOTE 11. DEBT
Lines of Credit
Apart from a $50,000 unsecured line of credit for Fantasy Sports, the Company's
subsidiaries have no fixed line of credit. If and when they do borrow, these
amounts are guaranteed by like deposits of cash at the parent or subsidiary
level. Borrowings under the lines of credit at June 30, 2002, were $50,000 under
the line of credit for Fantasy Sports and $53,955 under a secured line of
credit. These lines of credit are payable on demand with monthly interest
payments. Interest is based on prime plus one half percent. Interest rates at
June 30, 2002 were 5.25%.
Long Term Debt
2002 2001
---- ----
Increasing rate convertible debentures $ - $300,000
Debenture redemption reserve fund - 61,836
Equipment loans 7,283 -
Capital lease obligations 51,175 -
------- -------
58,458 361,836
Less current portion 22,682 361,836
------- -------
Long-term debt, net $35,776 $ -
======= =======
Scheduled debt maturities for the next five fiscal years are $22,682 in fiscal
2003, $18,168 in fiscal 2004 and $17,608 in fiscal 2005.
F-20
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 were 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.
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 were being amortized
over the term of the debenture issue. The charge to interest expense for fiscal
year 2002 was immaterial. The charge to interest expense for fiscal year 2001
was $107,310.
As of June 30, 2001, the Company had redeemed all but $300,000 of the increasing
rate convertible debentures (see below). The remaining debentures were redeemed
at maturity in October 2001
Debenture Redemption Reserve Fund
Under the terms of the increasing rate subordinated convertible debentures, a
redemption reserve fund was created to accrue for the premium required on the
redemption of those debentures on October 31, 2001. This debenture redemption
reserve fund was created on the straight-line basis over the remaining period of
the debenture tenure. The charge to interest expense for fiscal year 2002 and
2001 for the debenture redemption reserve was $4,248 and $275,107, respectively.
In connection with redemption of the increasing rate subordinated convertible
debentures in fiscal 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. This was paid at maturity in October 2001.
NOTE 12. 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.
F-21
NOTE 13. GAIN ON SALE OF SUBSIDIARY STOCK
The gain on disposal of subsidiary stock includes any gains or losses made on
the dilution of the Company's effective interest in subsidiaries by the issuance
of shares in its underlying subsidiaries to minority stockholders.
The gain on disposal and dilution recognized in the consolidated statements of
operations was comprised of the following:
2000
----
Proceeds received $421,400
Less net carrying value of shares of First Lifestyle Holdings Limited 317,895
--------
103,505
Loss on dilution in First Lifestyle Holdings Limited -
--------
$103,505
There was no such gain for the years ended June 30, 2002 and 2001.
NOTE 14. INCOME TAXES
The components of the Company's provision for income taxes were as follows:
2002 2001 2000
---- ---- ----
Current:
Federal $ - $ - $619
State - - -
---- ---- ----
- - 619
---- ---- ----
Deferred:
Federal - - -
State - - -
---- ---- ----
- - -
---- ---- ----
$ - $ - $619
==== ==== ====
A reconciliation of income tax computed at the statutory federal rate to income
tax expense (benefit) is as follows:
2002 2001 2000
---- ---- ----
Tax benefit at the statutory rate of 34% $(1,288,192) $(1,703,647) $(1,439,085)
Tax benefit relating to income in non-taxing
jurisdictions 612,297 1,031,590 1,439,085
State income taxes, net of federal income tax (59,638) (59,299) -
Travel and entertainment 4,376 2,276 -
Valuation allowance 731,157 729,080 -
----------- ----------- -----------
$ - $ - $ -
=========== =========== ===========
At June 30, 2002, the Company has available a U.S. net operating loss
carryforward of approximately $2,797,000 which expires through 2017.
F-22
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, 2002 and 2001, a valuation allowance has been
established against the deferred tax asset since the Company believes it is more
likely than not that the amounts will not be realized.
The components of the deferred tax assets (liabilities) were as follows at June
30, 2002 and 2001:
Current: 2002 2001
---- ----
Net operating loss $ 1,034,750 $ 279,280
Accrued prize winnings 61,434 53,063
Accrued pit points 7,104 -
Deferred revenue 377,429 341,658
----------- -----------
1,480,717 674,001
----------- -----------
Long-term:
Amortization of goodwill (31,191) 49,475
Depreciation 10,713 5,604
----------- -----------
(20,478) 55,079
----------- -----------
1,460,239 729,080
Total valuation allowance (1,460,239) (729,080)
----------- -----------
Deferred tax asset $ - $ -
=========== ===========
The Silverstar Holdings Limited is a Bermuda registered corporation where there
are no income tax laws applicable.
FSAH, a South African registered corporation, incurred no income tax charges in
fiscal year 2002 and 2001.
First South Africa Management Corp. Fantasy Sports, Inc. and Student Sports,
Inc., are U.S. registered corporations and did not incur any income tax
provision for 2002, 2001 and 2000.
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
F-23
provisions for the payment of interest and/or principal, based on the
performance or sale of the Lifestyle assets (see Note 8).
The following summarizes the operating results of the Lifestyle discontinued
operations:
Four Months
Ended Year Ended
October 31, June 30,
----------- --------
2001 2000
---- ----
Revenue $ 28,235,519 $ 93,292,006
============ ============
Operating income $ 1,646,745 $ 6,471,842
============ ============
Net income, net of minority interest
of $798,671 and $3,479,293 $ 823,373 $ 3,188,161
============ ============
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 operating results of the LPI segment:
Year Ended
June 30, 2000
-------------
Revenue $ 546,942
============
Operating loss $(30,124,852)
============
Net loss, net of minority interest of $14,598,890 $(15,119,447)
============
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 11).
F-24
NOTE 17. CASH FLOWS
Changes in operating assets and liabilities consist of the following:
2002 2001 2000
---- ---- ----
Increase in accounts receivable $ 48,141 $ - $ (837,497)
Decrease (Increase) in inventories 256,091 (361,818) (1,415,494)
Increase in prepaid expenses and current assets 22,049 (569,714) (2,245,402)
(Decrease) increase in accounts payable (98,092) 340,073 7,259,517
(Decrease) increase in accrued expenses (315,294) (352,269) 1,703,222
Decrease in other taxes payable - - (202,532)
Decrease in income taxes payable - - (423,369)
----------- ----------- -----------
$ (183,387) $ (943,728) $ 3,838,445
=========== =========== ===========
Dividends paid is reconciled as follows:
Movement in opening and closing balances $ - $ (179,840) $(1,572,434)
Liability assumed upon disposition - 344,949 -
Minority dividend movements - - 379,193
Dividend charge - (165,109) (149,755)
----------- ----------- -----------
Dividends paid $ - $ - $(1,342,996)
=========== =========== ===========
Netcash provided by (used in) discontinued
operations consists of the following:
Net loss of discontinued operations $ - $(2,389,383) $(34,429,264)
Provision for losses on discontinuance - - 22,497,978
Depreciation and amortization - 950,388 4,549,060
Minority share of (losses) gains - 844,273 (11,119,597)
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 - - 3,446,663
----------- ----------- ------------
$ - $(1,090,173) $(15,032,079)
=========== =========== ============
Non-cash investing and financing activities:
Gain on extinguishment of accrued but unpaid
accreted interest $ - $2,142,949 $ -
=========== =========== ============
Retirement of treasury shares $62,037 $1,011,232 $ -
=========== =========== ============
NOTE 18. BUSINESS SEGMENT INFORMATION
As a result of the acquisition of Student Sports (see Note 3), the Company now
operates in two segments - marketing services and Internet fantasy sports games.
The operations of the marketing services segment produces publications,
television programs and various marketing initiatives for the high school sports
market. The operations of the Internet fantasy sports games segment specialize
in Internet-based subscriptions for NASCAR, college football and basketball and
other fantasy sports games. Management has chosen to organize the enterprise
around differences in products and services it provides.
F-25
Information concerning identifiable assets as of June 30, 2002 and 2001 for the
two segments in which the Company operates are shown in the following table.
Corporate assets are principally cash and notes receivable. The Company does not
have any operations outside the United States.
June 30,
Identifiable assets: 2002 2001
---- ----
Segments:
Marketing services $ 1,910,896 $ -
Internet fantasy sports games 3,439,032 4,750,222
----------- -----------
5,349,928 4,750,222
Corporate 7,621,361 11,181,635
----------- -----------
Consolidated Totals $12,971,289 $15,931,857
=========== ===========
Year Ended June 30,
2002 2001 2000
---- ---- ----
Revenues:
Segments:
Marketing services $ 1,121,201 $ - $ -
Internet fantasy sports games 3,107,334 1,301,432 -
----------- ----------- -----------
Consolidated totals $ 4,228,535 $ 1,301,432 $ -
=========== =========== ===========
Loss from continuing operations before
income taxes:
Segments:
Marketing services $ (824,761) $ - $ -
Internet fantasy sports games (935,169) (1,320,268) -
----------- ----------- -----------
(1,759,930) (1,320,268) -
Corporate:
Corporate general and administrative (1,243,357) (1,720,235) (2,491,128)
Gain on sale of subsidiary stock - - 103,505
Other income (50,917) 200,757 -
Foreign currency losses (1,345,348) (1,042,474) (80,702)
Equity in losses of affiliates - (1,919,026) (251,163)
Preference dividend - (165,109) (149,755)
Interest income 622,151 1,527,877 668,109
Interest expense (11,399) (572,248) (2,031,469)
----------- ----------- -----------
Consolidated totals $(3,788,800) $(5,010,726) $(4,232,603)
=========== =========== ===========
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
F-26
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, 2002, has granted options to purchase 876,666
shares of common stock under the Plan, of which 110,000 options have been
exercised.
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
Granted - non-plan options 50,000 0.80
Granted - plan options 85,002 0.42
Expired - plan options (65,000) 4.71
---------
Balance at June 30, 2002 1,813,333 3.35
=========
F-27
Significant option groups outstanding at June 30, 2002 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)
------ ------ ----- ------ ----- ------------
Less than $1.00 135,000 $0.56 85,000 $0.42 4.39
$1.00 to $2.19 385,000 1.03 330,000 1.13 3.05
$3.75 to $4.88 1,023,333 4.38 856,665 4.44 3.05
$5.00 to $6.00 270,000 5.13 270,000 5.13 3.14
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.
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 2002, 2001 and 2000 would have been reduced to the
following proforma amounts:
2002 2001 2000
---- ---- ----
Loss from continuing operations:
As reported $(3,788,800) $(5,010,726) $(4,233,222)
Pro forma (4,656,802) (5,849,374) (6,809,446)
Loss from continuing operations - per share -
basic and diluted:
As reported $(0.43) $(0.57) $(0.54)
Pro forma (0.53) (0.66) (0.86)
F-28
The weighted average grant date fair value of options granted in 2002, 2001 and
2000 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:
2002 2001 2000
---- ---- ----
Weighted average grant-date fair value of
options granted $0.48 $0.54 $4.07
Assumptions:
Risk free interest rate 3.99 to 4.48% 4.96% 14.96%
Expected life 5 Years 5 Years 4 Years
Expected volatility 96% 88% 106.45%
Expected dividend yield 0.0% 0.0% 0.0%
NOTE 20. WARRANTS OUTSTANDING
In consideration for the capital raising activities undertaken during 2000, the
Company issued warrants to purchase 150,000 shares of common stock at an
exercise price of $0.01 per share.
In accordance with the terms of an agreement entered into with Infospace, the
Company undertook to issue warrants over 720,000 shares of common stock valued
at $5.00 per share. Infospace was to provide services to the Leisureplanet.com
subsidiary in exchange for the Company increasing its holding in
Leisureplanet.com equal to the value placed on the warrants. These warrants have
an exercise price of $0.01 per share. As of June 30, 2000, 480,000 of these
warrants have vested and 240,000 were issued. Since the operations of
Leisureplanet.com were closed and the Infospace services ceased, no further
options have been issued.
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 23).
Warrants outstanding at June 30, 2002 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
F-29
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
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, 2002, $200,000 was repaid to the Company from escrow
funds.
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.
There are no further stock price warranties outstanding.
F-30
NOTE 23. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
PROFITABILITY AND LIQUIDITY
As reflected in the accompanying consolidated financial statements, the Company
has incurred significant operating losses and experienced negative operating
cash flows in recent years. With a view towards achieving profitability and
improving liquidity, management has adopted, and is in the process of
implementing, the following three strategies:
o seek corporate sponsorships for the internet fantasy sports gaming
segment to diversify its revenue streams while focusing on its core
motor sports niche;
o cost effectively leverage various media platforms to access new
subscription based product and content offerings for the marketing
services segment;
o reduce overhead of the operating subsidiaries and continue to look for
areas in which further cost savings can be obtained.
Management believes that its present financial resources are sufficient to meet
its obligations for the ensuing twelve months. In addition to cash of
approximately $2.7 million at June 30, 2002, the Company expects to begin
collecting on an outstanding note receivable due from the sale of First
Lifestyle Holdings in March 2003, which will provide additional resources.
Management believes that the actions presently being taken by the Company will
achieve profitability and improve liquidity. However, there can be no assurance
that management's plans will be successful or that the Company will be
profitable in the future.
LEASES
The Company leases office facilities and various equipment under non-cancelable
operating leases expiring through January 2006. Office facility and equipment
rent expense for the year ended June 30, 2002 and 2001 was approximately
$249,000 and $88,000, respectively. Office and equipment lease expense in the
year ended June 30, 2000 was not significant.
Approximate future minimum lease payments under non-cancelable office and
equipment lease agreements are as follows:
Year ending June 30:
2003 $ 209,800
2004 41,300
2005 20,300
2006 2,600
---------
$ 274,000
LITIGATION
First South Africa Holdings (FSAH), our South African subsidiary, has received
notice of a claim for approximately $250,000 from a holder of FSAH Class B
shares. The claimant contends a breach of their FSAH escrow agreement issued in
connection with the sale of their business in 1997. We believe this claim is
without merit and FSAH will vigorously defend this matter.
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.
F-31
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.
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.
STUDENT SPORTS, INC.
On September 24, 2001, Student Sports entered into an Employment Agreement with
an individual to serve as the Chief Executive Officer of Student Sports, Inc.
beginning as of September 15, 2001 and continuing through and until September
24, 2004. As compensation for his services, the CEO will receive an annual base
salary of $150,000 with increases at the discretion of the board of directors of
Student Sports. In addition, as an incentive to the CEO and the employees of
Student Sports, a pool of up to 900,000 shares of Silverstar Holdings, Ltd., may
be issued to Mr. Bark and the employees of Student Sports based on certain
events, as defined in the agreement.
On April 1, 2002, in connection with the acquisition of Area Code Baseball, the
Company entered into a Contract for Services with an individual to serve as
director of Area Code Baseball beginning as of April 1, 2002 and continuing
through and until September 30, 2004. This individual will receive $3,000 per
month and up to $500 per month for expenses incurred in performing services
under this agreement.
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 2002, 2001, or 2000.
F-32
The Company has guaranteed the banking facilities of certain of its subsidiaries
previously disposed of during the prior year. These guarantees amounted to
$900,000 as of June 30, 2002. These guarantees are backed by a bank letter of
credit collateralized by a like amount of cash. The Company is in advanced
stages of negotiations to substantially reduce or remove these guarantees.
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 Fantasycup.com website. For those customers that register for the fantasy
league through the website, the Company will pay commissions ranging from 12% to
50% of net revenues depending on the terms of each individual agreement. The
term of these agreements are for one year and are renewed annually unless
terminated by either party.
In June 2001, the Company entered into an agreement with TWI Interactive, Inc.
(TWI), the online arm of International Management Group (IMG). The agreement was
designed to assist Fantasy in establishing itself as the premier, independent,
subscription-based fantasy sports game producer. TWI and affiliates of IMG will
provide exclusive representation and services across a broad spectrum of its
sports marketing activities. Under the agreement, the Company will pay TWI a
monthly fee of $12,000 and commissions of 20% to 50% of net revenues generated
as a result of the services provided by TWI. The agreement also provides for TWI
to receive a four-year warrant to acquire 4.68 shares of Fantasy common stock at
$47,191 per share. There was no charge to operations in 2001 for the fair value
of the warrants since the amount was not considered material. This agreement was
terminated in June 2002.
NOTE 24. QUARTERLY INFORMATION (UNAUDITED)
Quarters Ended
--------------- -------------- -------------- -------------
September 30, December 31, March 31, June 30,
2001 2001 2002 2002 Total
------------- ------------ --------- -------- -----
Revenues $ 997,024 $1,023,202 $ 985,172 $ 1,223,137 $ 4,228,535
Loss from continuing operations (823,368) (1,928,935) (780,592) (255,905) (3,788,800)
Net loss (823,368) (1,928,935) (780,592) (255,905) (3,788,800)
Net loss per share - basic and diluted (0.10) (0.22) (0.09) (0.03) (0.43)
Weighted average common stock
outstanding - basic and diluted 8,136,095 8,969,889 8,949,855 8,947,899 8,750,937
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
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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...................... 56 Chairman of the Board
Clive Kabatznik................... 45 Vice Chairman of the Board, Chief Executive Officer,
President and Chief Financial Officer
Cornelius J. Roodt................ 43 Director
David BenDaniel................... 70 Director
Joseph Weil....................... 47 Director
Stanley Castleton................. 55 Director
Greg Liegey....................... 39 Chief Executive Officer, Fantasy Sports, Inc.
Andy Bark......................... 41 Chief Executive Office, Student 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.
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.
-15-
STANLEY CASTLETON is, and for the past five years has been the President of
DDRM, Inc., the managing general partner and asset manager of the Hilton
Anaheim, and he is currently also the Managing Member of DDRM Greatplace LLCD, a
real estate development company.
JOSEPH WEIL has served as the President and Chief Executive Officer of Joseph
Weil & Sons, Inc. since 1985. Joseph Weil & Sons is an independent wholesale
distributor of paper products, packaging supplies and equipment, sanitary
products, janitorial supplies and equipment, as well as food service products
and office equipment. He also serves as an active member of many business
associations including Afflink Worldwide Trade Group, which he serves as
Chairman of the Board of Directors. Since 1996, he has also served as an
Executive Board Member of the Greater Illinois chapter of the National Multiple
Sclerosis Society.
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 to 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.
ANDY BARK has been the Chief Executive Officer of Student Sports, Inc. since we
acquired it in September 2001. He was the founder of Student Sports and since
its inception in 1993 has been the Chief Executive Officer of that company.
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 David BenDaniel, Stanley Castleton and Cornelius
J. Roodt. 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 Joseph
Weil. 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, 2002 were timely made.
-16-
ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation table sets forth the aggregate compensation
we paid or accrued to our Chief Executive Officer during the fiscal years ended
June 30, 2000, June 30, 2001 and June 30, 2002. Apart from Mr. Kabatznik, whose
annual salary is $315,000, only one of our executive officers of any of our
subsidiaries received compensation in excess of $100,000 during the fiscal year
ended June 30, 2002.
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
FISCAL
YEAR RESTRICTED SECURITIES
NAME AND ENDED OTHER ANNUAL STOCK AWARDS UNDERLYING
PRINCIPAL POSITION JUNE 30, SALARY BONUS COMPENSATION STOCK AWARDS STOCK OPTIONS
------ ------ ----- ------------ ---------- ----------
Clive Kabatznik, 2002 $ 315,000 $ 0 --- --- 5,000
President and Chief 2001 303,750 0 5,000
Executive Officer 2000 230,000 0 255,000
Andy Bark, 2002 112,500 0 50,000
Chief Executive
Officer, Student
Sports, Inc.
The options granted to Mr. Kabatznik during fiscal year ended June 30, 2002
represent:
o an option granted under our 1995 Stock Option Plan to purchase 5,000
shares of our common stock, which is currently exercisable at an
exercise price of $0.42 per share;
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 $0.75 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. Bark during fiscal year ended June 30, 2002
represent:
o an option granted under our 1995 Stock Option Plan to purchase 50,000
shares of our common stock which is exercisable at an exercise price
of $0.80 per share and vests on September 24, 2004.
-17-
OPTIONS GRANTED IN FISCAL 2002
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, 2002, 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 RATE OF STOCK PRICE
UNDERLYING EMPLOYEES IN EXERCISE APPRECIATION
NAME OPTIONS FISCAL YEAR PRICE EXPIRATION DATE FOR OPTION TERM
- ---- ---------- ----------------- -------- --------------- ------------------------
5% 10%
-------- ---------
Clive Kabatznik 5,000 900% $.42 December 18, $580.00 $1,282.07
2006
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
During the fiscal year ended June 30, 2002 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, 2002 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, 2002 or
$0.30, 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 725,000 - $ - $ -
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.
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
-18-
(with five percent increases each year), and an annual bonus of five percent of
net realized capital gains upon the sale, liquidation or distribution by the
Company of any Portfolio Company (as defined in the Employment Agreement). A
Portfolio Company does not include any of the South African entities currently
owned by the Company. In the event of a Change in Control (as defined in the
Employment Agreement), Mr. Kabatznik may also be entitled to a payment of five
percent of any net unrealized capital gains on any Portfolio Company, which
gains may, at the option of the Company, be paid in cash, stock of the Portfolio
Company or any combination of the foregoing.
On November 30, 2000, Fantasy Sports Inc. entered into Employment Agreement with
Gregory S. Liegey (the "Employment Agreement"). Pursuant to the Employment
Agreement, Mr. Liegey 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.
On September 24, 2001, Student Sports, Inc. entered into an employment Agreement
with Andrew Bark (the "Employment Agreement"). Pursuant to the Employment
Agreement, Mr. Bark will serve as the Chief Executive Officer of Student Sports
beginning as of September 15, 2001 and continuing through and until September
24, 2004. As compensation for his services, Mr. Bark will receive an annual base
salary of $150,000 with annual increases at the discretion of the board of
directors of Student Sports, Inc. In addition, as an incentive to Mr. Bark and
the employees of Student Sports, Inc., a pool of up to 900,000 shares of
Silverstar Holdings, Ltd., may be issued to Mr. Bark and the employees based on
the following events:
o Should the aggregate audited pretax profit reported by Student Sports Inc.
(the "Company") for the two years ended December 31, 2002, and December 31,
2003, be less than $1 million, no shares will be issued.
o Should the aggregate audited pre-tax profit reported by the Company for the
two years ended December 31, 2002 and December 31, 2003 be less than $2
million, 90,000 shares from the pool shall be forfeited for each $100,000
profit shortfall, up to a maximum of 900,000 shares.
o In the event that a qualified strategic partner makes a binding offer to
invest in the Company prior to December 31, 2002 at a valuation equal to or
greater than $7 million or prior to December 31, 2003 at a valuation equal
or greater than $9.35 million, then the full 900,000 share pool will be
issued. A "qualified investor" shall be deemed to be a major company that
is investing cash or services with a demonstrable value, to be determined
and agreed at the sole discretion of Silverstar in a reasonable manner, of
a minimum of $1 million.
o 50,000 Silverstar options at a strike price of $0.80 per share will be
issued to Andy Bark. These options will vest at the earlier of 3 years or
when any of the full provisions for release of the 900,000 share incentive
pool are achieved.
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:
-19-
o options that are intended to qualify as incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986 to key
employees; and
o options not intended to so qualify to key employees, including our
directors and officers, and to directors and consultants who are not
employees.
The total number of shares of our common stock for which options may be granted
under our 1995 Stock Option Plan is 850,000 shares.
Our 1995 Stock Option Plan is administered by the compensation committee of our
Board of Directors. The compensation committee will determine the terms of
options exercised, including the exercise price, the number of shares subject to
the option and the terms and conditions of exercise. No option granted under our
1995 Stock Option Plan is transferable by the optionee other than by will or the
laws of descent and distribution and each option is exercisable during the
lifetime of the optionee only by such optionee or his legal representatives.
The exercise price of incentive stock under our 1995 Stock Option Plan must be
at least equal to 100% of the fair market value of such shares on the date of
grant, or 110% of fair market value in the case of an optionee who owns or is
deemed to own stock possessing more than 10% of the voting rights of our
outstanding capital stock. The term of each option will be established by the
compensation committee, in its sole discretion. However, the maximum term for
each incentive stock option granted under our 1995 Stock Option Plan is ten
years, or five years in the case of an optionee who owns or is deemed to own
stock possessing more than 10% of the total combined voting power of our
outstanding capital stock. Options will become exercisable at such times and in
such installments as the compensation committee will provide in the terms of
each individual option. The maximum number of shares for which options may be
granted to any individual in any fiscal year is 210,000.
Our 1995 Stock Option Plan also contains an automatic option grant program for
our directors. Each of our non-employee directors is automatically granted an
option to purchase 10,000 shares of our common stock following each annual
meeting of shareholders. In addition, each of our employee directors is
automatically granted an option to purchase 5,000 shares of our common stock
following each annual meeting of shareholders. Each grant has an exercise price
per share equal to the fair market value of the our common 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 876,666 shares
of our common stock under our 1995 Stock Option Plan, 110,000 of which have been
exercised.
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.
-20-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 31, 2002, 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 Ownership Power
Beneficial Shareholder Common Stock Stock (2) (1)(3) (1)(3)
---------------------- ------------ --------- --------- -------------
Michael Levy 310,000(4) 736,589(5) 11.3% 30.8%
9511 West River Street
Shiller Park, IL 60176
Clive Kabatznik 817,500(6) 190,000 10.4% 13.2%
6100 Glades Road
Suite 305
Boca Raton, FL 33434
Cornelius J. Roodt 185,000(7) 0 2.0% 1.4%
P.O. Box 4001
Kempton Park
South Africa
American Stock Transfer 354,334(8) 166,452(8) 5.8% 9.4%
& Trust Company
6201 15th Avenue
Brooklyn, New York 11219
David BenDaniel 30,000(9) 0 * *
6100 Glades Road
Suite 305
Boca Raton, Florida 33434
Joseph Weil 25,000(10) 0 * *
6100 Glades Road
Suite 305
Boca Raton, Florida 33434
Stanley Castleton 25,000(10) 0 * *
6100 Glades Road
Suite 305
Boca Raton, Florida 33434
All executive officers and 1,392,500(11) 926,589 22.7% 43.22%
directors as a group (5
persons)
* Less than 1%.
-21-
(1) Beneficial ownership is calculated in accordance with Rule 13d-3 under
the Securities Exchange Act of 1934. Shares subject to stock options,
for purposes of this table, are considered beneficially owned only to
the extent currently exercisable or exercisable within 60 days after
August 31, 2002.
(2) Except as otherwise indicated, each of the parties listed has sole
voting and investment power with respect to all shares of Class B common
stock indicated above.
(3) For the purposes of this calculation, our common stock and our Class B
common stock are treated as a single class of common stock. Our Class B
common stock is entitled to five votes per share, whereas our common
stock is entitled to one vote per share.
(4) Includes 300,000 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 725,000 shares of our common stock issuable upon exercise of
options that are immediately exercisable.
(7) Includes 185,000 shares of our common stock issuable upon exercise of
options that are immediately exercisable.
(8) Based solely upon information contained in a Schedule 13G, Amendment No.
1, dated 12/31/99 filed with the Securities and Exchange Commission. All
shares are held as escrow agent pursuant to various escrow agreements.
American Stock Transfer & Trust Company holds a proxy to vote the shares
of common stock. Michael Levy holds a proxy to vote the shares of Class
B Common Stock.
(9) Includes 30,000 shares of our common stock issuable upon the exercise of
options that are immediately exercisable.
(10) Includes 25,000 shares of our common stock issuable upon the exercise of
options that are immediately exercisable.
(11) Represents 1,290,000 shares issuable upon exercise of options that are
immediately exercisable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
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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:
SILVERSTAR HOLDINGS, LTD.
Reports of the independent auditors
Consolidated Balance Sheets at June 30, 2002 and 2001
Consolidated Statements of Income for the years ended June 30, 2002,
2001 and 2000 Consolidated Statements of Cash Flows for the years ended
June 30, 2002, 2001, and 2000 Consolidated Statement of Changes in
Stockholders' Investment for the period June 30, 2000 to June 30, 2002
Notes to the Consolidated Financial Statements for the years ended June
30, 2002, 2001, and 2000
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.
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)
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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 and 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)
10.10 Asset Purchase Agreement, dated as of September 24,
2001, by and among the Company, Student Sports, Inc., a
California corporation, certain Shareholders of Student
Sports, Inc., and Student Sports, Inc., a Delaware
corporation (11)
21.1 Subsidiaries of the Registrant(12)
23.1 Consent of PricewaterhouseCoopers(12)
23.2 Consent of Rachlin Cohen & Holtz(12)
99.1 Certification Pursuant to 18 U.S.C. Section 1350
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002(12)
(1) Incorporated by reference is the Registrant's Current Report on Form
8-K, Exhibit 4.1 (filed on September 10, 1997).
(2) Incorporated by reference is the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1997 (filed on September 29, 1997).
(3) Incorporated by reference is the Registrant's Current Report on Form
8-K, Exhibit 4.1 (filed on October 31, 1997).
(4) Incorporated by reference is the Registrant's Current Report on Form
8-K, Exhibit 1 (filed on June 14, 1996) as amended on Form 8-K/A (filed
on August 16, 1996) and as amended on Form 8-K/A (filed on January 22,
1998).
(5) Incorporated by reference is the Registrant's Current Report on Form
8-K, Exhibit 1 (filed on November 7, 1996) as amended on Form 8-K/A
(filed on March 14, 1997).
(6) Incorporated by reference is the Registrant's Current Report on Form
8-K, Exhibit 1 (filed on May 8, 1997) as amended on Form 8-K/A (filed on
July 3, 1997).
(7) Incorporated by reference is the Registrant's Registration Statement on
Form S-1 (No. 33-99180) (filed on November 9, 1995), as amended on Form
S-1/A No. 1, Form S-1/A No. 2, Form S-1/A No. 3 (filed on December 27,
1995, January 16, 1996 and January 24, 1996, respectively) and Form 10-Q
for the fiscal quarter ended March 31, 2000.
(8) Incorporated by reference is the Registrant's Registration Statement on
Form S-1 (No. 333-33561) (filed on August 13, 1997), as amended on Form
S-1/A No. 1, Form S-1/A No. 2 and For S-1/A No. 3 (filed on December 9,
1997 , January 22, 1998 and February 11, 1998, respectively).
(9) 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) Incorporated by reference to the Company's current report on From 8-K
filed with the Commission on October 9, 2001.
(12) Filed herewith.
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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 30th day of September, 2002.
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 September 30, 2002
- ------------------------- Directors
Michael Levy
/s/ Clive Kabatznik President, Vice Chairman, September 30, 2002
- ------------------------- Chief Executive Officer, Chief
Clive Kabatznik Financial Officer, Director and
Controller
/s/Cornelius Roodt Director September 30, 2002
- -------------------------
Cornelius Roodt
Director September __, 2002
- -------------------------
David BenDaniel
/s/Stanley Casleton Director September 30, 2002
- -------------------------
Stanley Casleton
/s/Joseph Weil Director September 30, 2002
- -------------------------
Joseph Weil
-25-
CERTIFICATION
I, Clive Kabatznik, the Chief Executive Officer and Chief Financial Officer of
Silverstar Holdings, Ltd., certify that:
1. I have reviewed this annual report on Form 10-K of Silverstar Holdings,
Ltd.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report.
Date: September 30, 2002 /s/ Clive Kabatznik
------------------------- --------------------------
Clive Kabaznik
Chief Executive Officer and
Chief Financial Officer
-26-
EXHIBIT INDEX
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 and 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)
10.10 Asset Purchase Agreement, dated as of September 24,
2001, by and among the Company, Student Sports, Inc., a
California corporation, certain Shareholders of Student
Sports, Inc., and Student Sports, Inc., a Delaware
corporation (11)
21.1 Subsidiaries of the Registrant(12)
23.1 Consent of PricewaterhouseCoopers(12)
23.2 Consent of Rachlin Cohen & Holtz(12)
99.1 Certification Pursuant to 18 U.S.C. Section 1350
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002(12)
- ----------
(1) Incorporated by reference is the Registrant's Current Report on Form
8-K, Exhibit 4.1 (filed on September 10, 1997).
(2) Incorporated by reference is the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1997 (filed on September 29, 1997).
(3) Incorporated by reference is the Registrant's Current Report on Form
8-K, Exhibit 4.1 (filed on October 31, 1997).
(4) Incorporated by reference is the Registrant's Current Report on Form
8-K, Exhibit 1 (filed on June 14, 1996) as amended on Form 8-K/A (filed
on August 16, 1996) and as amended on Form 8-K/A (filed on January 22,
1998).
(5) Incorporated by reference is the Registrant's Current Report on Form
8-K, Exhibit 1 (filed on November 7, 1996) as amended on Form 8-K/A
(filed on March 14, 1997).
(6) Incorporated by reference is the Registrant's Current Report on Form
8-K, Exhibit 1 (filed on May 8, 1997) as amended on Form 8-K/A (filed on
July 3, 1997).
(7) Incorporated by reference is the Registrant's Registration Statement on
Form S-1 (No. 33-99180) (filed on November 9, 1995), as amended on Form
S-1/A No. 1, Form S-1/A No. 2, Form S-1/A
-27-
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) Incorporated by reference to the Company's current report on From 8-K
filed with the Commission on October 9, 2001.
(12) Filed herewith.
-28-