UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2005
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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
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 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. [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) Yes ___ No X
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State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the stock was
sold, or the average bid and asked prices of such common equity, as of the last
business day of the Registrant's most recently completed second fiscal quarter.
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant as of September 16, 2005, was $11,855,541.
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 16, 2005, there were 8,246,747 shares of the Registrant's Common
Stock outstanding and 814,786 shares of the Registrant's Class B Common Stock
outstanding.
PART I.
ITEM 1. BUSINESS
OVERVIEW
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 website, and specializes in subscription based NASCAR, college
football and basketball and other fantasy sports games and Strategy First Inc.,
a leading developer and worldwide publisher of entertainment software for the
Personal Computer (PC). We are also a minority shareholder in Magnolia Broadband
Wireless, a development stage company which is developing mobile wireless
broadband products.
HISTORY
We were founded in September 1995 as a Bermuda corporation to pursue
opportunities in South Africa. At that time, our business plan was to acquire,
own and operate seasoned, closely held companies in South Africa with annual
sales in the range of approximately $5 million to $50 million. In 1999, we
shifted our focus to the Internet, technology and e-commerce sectors, and away
from South Africa, by acquiring a majority stake in Leisureplanet.com, an
Internet travel services company. In connection with the shift in our business
plan, we changed our name to Leisureplanet Holdings, Ltd. In 2000, we disposed
of our operations in South Africa, closed Leisureplanet.com and acquired 100% of
Fantasy Sports, Inc. In 2001, we acquired 100% of Student Sports, Inc, which we
sold in 2003. This was the only operating subsidiary in our marketing services
segment. As a result of these changes and developments, we have reestablished
our investment criteria. Currently, our strategy focuses on the following:
o Acquiring controlling stakes in high quality game related media and
marketing businesses with strong management teams that are positioned to
use technology and Internet related platforms to fuel above average growth.
o Our investments must show an ability to contribute, in the short to medium
term, to earnings per share through operating profit or capital
appreciation.
o We aim to add value to our investments by operating in partnership with
committed, incentivised, entrepreneurial management who show the vision and
ability to grow their businesses into industry or niche leaders.
DESCRIPTION OF OUR SUBSIDIARIES AND INVESTMENTS
STRATEGY FIRST, INC.
In April 2005, we acquired Strategy First Inc. (www.strategyfirst.com), a
leading developer and worldwide publisher of entertainment software for the
Personal Computer (PC). Founded in 1990, the company publishes software games
primarily for the PC platform, including O.R.B, the Disciples franchise, Sacred
Lands, Kohan: Immortal Sovereigns, Steel Beasts, Galactic Civilizations, and the
Jagged Alliance franchise. Our products are sold on CD's and more recently
online, over the Internet and meet the needs of serious gamers who are seeking a
more intense strategy based game experience. In North America, our PC games are
distributed primarily through third-party software distributors, who service the
mass-merchants and major retailers. In territories outside North America, we
license our PC games to third-party software distributors, who are responsible
for the manufacturer and distribution of
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our PC games, in specific geographic territories. Our products sell at retail
prices of $19.99-$49.99, depending on the quality of the particular game.
We acquired the company through the jurisdiction of the Montreal bankruptcy
court. As per the approved plan of arrangement, we paid consideration to
creditors of approximately $600,000 in cash; we issued approximately 400,000
shares of Common Stock; warrants to purchase 200,000 shares of Common Stock;
assumed approximately $400,000 in existing bank debt, as well as contingent
consideration based on the future profitability of Strategy First.
Strategy First had previously encountered financial difficulties due to its
policy of developing its games in-house, which required significant overhead
expenses both in terms of payroll and other development costs. Prior to our
acquisition, management had shifted their strategy to become a publisher selling
other developer's games. This has significantly lowered the company's expenses
and its breakeven threshold. We intend to continue to operate this company as a
publisher and have no current plans to re-enter the development business.
The worldwide consumer entertainment software market is very competitive. We
compete with other companies having operations that vary from small companies
with limited resources to large companies with greater resources than we have.
The changing characteristics of the worldwide consumer entertainment software
market in recent years has been impacted by many factors, such as: an increasing
number of technologically advanced PCs with more powerful operating systems,
enhanced graphics and video cards, expanded memory chips, as well as higher
capacities and faster speeds for CD and hard drives in the home and office;
greater access by consumers to the Internet through high-speed access modes
(such as cable modems and DSL connections); increased interest in online game
play; the increasing number of game console devices in the home; and the
development of increasingly advanced technologies supporting game play (such as
hand held game devices, mobile phones and personal digital assistants). As a
result of this increased competition in the overall consumer entertainment
market, market data suggests that the retail market for PC game software has
decreased over the past two years. This trend is particularly pronounced in
North America.
Furthermore, the North American PC software game market, has gravitated towards
mass merchant retailers thereby increasing the competition for shelf space for
PC games. This increased competition has emphasized the importance of marketing,
merchandising and brand name recognition. A significant result of these market
pressures is an industry trend toward the consolidation of consumer
entertainment PC software publishers and distributors, in addition to the
diversification of products offered by these companies. The trends toward
industry consolidation and increased competition for game content and retail
shelf space are more pronounced in North America than in international markets
and are expected to continue for the foreseeable future.
We intend to continue operating as a low cost publisher of niche PC based games.
We will work to strengthen our overall retail North American distribution
through a combination of alliances with more established distributors and a
strong in house sales effort. We will endeavor to broaden the range of our
titles beyond the Strategy/Role playing category and improve the overall quality
of our titles. We will strive to increase our international presence through
distribution alliances, thereby taking advantage of the relatively stronger
international PC game market. We have launched an online store where games are
sold to consumers in both boxed and direct download formats. We intend to build
on this online initiative to lessen our reliance on the retail sales channel
particularly in North America.
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FANTASY SPORTS, INC.
Fantasy Sports, Inc. owns and operates one of America's oldest and largest
subscription based NASCAR fantasy sports games. In addition, the company has
developed, and offers, subscription based college football, basketball, and
other motor sport fantasy games. All the company's games offer weekly and
seasonal cash and merchandise prizes.
Currently, the Company has over 30,000 paid game plays for its Spring, Fall and
One Race NASCAR challenges, as well as the fantasy college football and
basketball challenges and our other games. Subscription revenues for our games
and ancillary services account for over 99% of our total revenues. Our NASCAR
games currently generate over 88% of our subscription revenues. Participants pay
between $9.95 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.
Fantasy sports participation is rapidly becoming a significant component of
sports related leisure time activity. The NASCAR niche is particularly appealing
as growing public interest in the sport, as evidenced by increased attendance
and TV ratings for all NASCAR events, particularly the Nextel Cup Series races,
have made this one of America's most popular sports. Fantasy Sports has been
operating their NASCAR challenges since 1993 and is one of the leading companies
in this market. Our websites offer up to the minute racing tips from Mark
Garrow, the well-known broadcaster, which adds to the fun and excitement of
playing the game. Contestants can visit the site and trade drivers up to the
very last minute prior to a race, thereby offering the highest degree of
interactive online participation.
Since 1997, Fantasy Sports has operated a full season college football challenge
game, which accounted for approximately 8% of our subscription revenues for
fiscal 2005. During 2001, we developed and distributed a tournament challenge
college basketball game that generated over 1,600 paying customers in our last
fiscal year. We developed a retail business that specialized in the sale of
NASCAR related die-cast cars, apparel and other merchandise. This retail
operation commenced business in May 2001 and accounted for approximately 7% of
our overall revenues in fiscal 2004. Due to ongoing losses, this operation was
closed during the second quarter of fiscal 2004.
We have substantially reduced our overhead in order to maximize profitability at
Fantasy Sports. This was primarily achieved by the reduction of marketing
expenses and general and administrative overhead through the outsourcing of our
hosting, programming and customer service functions to Stats, Inc.
Due to the increased popularity of online Fantasy Sports, we have faced
increased competition over the past few years from both large media companies,
such as, ESPN.com, CBS Sportsline, FoxSports.com, and Nascar.com, as well as
from numerous small companies such as, Fanball.com, CDM Sports, All-Star Stats
and Sportsbuff.
There has been increasing governmental scrutiny of online gambling operations,
however, to the best of our knowledge, the online fantasy sports business has
not been included in this category. Fantasy Sports games have traditionally been
differentiated from gambling due to the element of skill involved, as well as
the ability of participants to play through the US mail, without paying a fee.
Although we have received legal comfort in this regard, there can be no
guarantee that governmental regulations may not change or be applied to our
business, in the future.
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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 recent
industry statistics, semiconductor revenue for wireless handsets exceeded $50
billion in 2004, driven by 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 Radio Frequency (RF) chip sets
utilized in mobile phones. Their aim is to create chip sets that increase the
capacity and coverage of existing networks at little additional cost
Magnolia is a fabless semiconductor company building RF solutions by combining
innovative Signal Processing technologies and novel Integrated Circuit solutions
for the cellular industry. The combination of these innovations enables the
wireless network operators to push out the Diversity Antenna capabilities to the
edge of their networks, while enabling the handset manufacturers to offer these
benefits economically.
We initially 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 an additional $450,000 of a total
$1,500,000 offering of Magnolia's Series A Preferred Stock. We co-invested along
with Selway Partners, LLC, and CIP Capital, LP. In April and May 2002 Magnolia
raised a further $7.5 million in an offering of Series B Preferred Stock. In
June 2003 Magnolia raised a further $6 million dollars in an offering of Series
C Preferred Stock. In April 2004, Magnolia raised a further $3 million in an
offering of convertible notes. In November 2004, Magnolia raised a further $13.5
million in an offering of preferred stock. We did not participate in any of
these rounds. Currently we own approximately 3% of Magnolia on a fully diluted
basis including the exercise of all employee stock options. Due to recurring
losses, our investment in Magnolia at June 30, 2005, which is now accounted for
under the lower of cost or market method, was $831,066.
DISCONTINUED OPERATIONS
Student Sports, Inc.
On June 10, 2003, we entered into an Asset Purchase Agreement with SS Founders,
Inc., pursuant to which we sold substantially all of the assets and liabilities
of Student Sports, Inc. Student Sports offers unique access to the high school
athletic market across multimedia platforms. As a subsidiary of Silverstar
Holdings, the company's primary thrust was to offer marketing services to large
corporations interested in accessing this market. Additionally, the company
worked towards building a "bottom-up" revenue generation strategy based on the
creation of a number of subscription based programs where products and services
will be sold directly to the high school athletes, their parents and coaches. We
originally acquired Student Sports in September 2001. The consideration for the
sale of Student Sports was 325,686 shares of Silverstar Holdings common stock
that were returned to the Company as well as the forgiveness of a maximum of
913,745 contingent shares of Silverstar Holdings that could have been payable to
former Student Sports shareholders in April 2004.
EMPLOYEES
As of September 16, 2005, we employed 19 employees through our subsidiaries, of
which 18 were full time salaried and one was an hourly employee.
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We provide performance based and equity based compensation programs to reward
and motivate significant contributors among our employees. Although none of our
employees is represented by a labor union, we have not experienced any work
stoppages and consider our relations with our employees to be good.
ITEM 2. PROPERTIES
Our principal executive offices are located at Clarendon House, Church Street,
Hamilton, HM CX, Bermuda, which space is made available to us pursuant to a
corporate services agreement entered into with a corporate services company in
Bermuda.
Fantasy Sports, Inc. leases an office at 867 Clare Lane, York, Pennsylvania,
17402. The office occupies approximately 980 square feet. The lease expires on
December 31, 2005. It is renewable annually and costs us approximately $9,000
per year.
Strategy First, Inc. leases an office at 147 St-Paul West, Suite 210, Montreal,
Quebec Canada. The office occupies approximately 3,800 square feet. The lease
expires on November 30, 2006, and costs us approximately $56,000 per year.
Our United States management subsidiary, First South Africa Management Corp., a
Delaware corporation incorporated in 1995, leases an office at 6100 Glades Road,
Suite 305, Boca Raton, Florida 33434. The lease expires in February 2006 and
costs us approximately $33,000 per year for approximately 1,200 square feet.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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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.
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High Low
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Common Stock Fiscal 2004
1st Quarter........................................ $1.48 $0.44
2nd Quarter........................................ $2.49 $1.08
3rd Quarter........................................ $2.09 $1.17
4th Quarter........................................ $1.54 $0.88
Common Stock Fiscal 2005
1st Quarter........................................ $0.97 $0.60
2nd Quarter........................................ $1.16 $0.82
3rd Quarter........................................ $1.34 $1.06
4th Quarter........................................ $1.80 $1.12
The closing price of our common stock on September 16, 2005 was $1.57.
As of September 16, 2005, there were approximately 2,400 holders of our common
stock, inclusive of holders whose shares were held by brokerage firms,
depositaries and other institutional firms in "street name" for their customers.
We have never declared or paid any cash dividends on our common stock or our
Class B common stock. We do not anticipate declaring or paying 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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EQUITY COMPENSATION PLAN INFORMATION
The following table contains a summary of the number of shares of Common Stock
of the Company to be issued upon the exercise of options, warrants and rights
outstanding at June 30, 2005, the weighted average exercise price of those
outstanding options, warrants and rights, and the number of additional shares of
Common Stock remaining available for future issuance under the plans as at June
30, 2005.
EQUITY COMPENSATION PLAN INFORMATION
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Plan Category Number of securities to be Weighted average exercise Number of securities
issued upon exercise of price of outstanding
outstanding options, options, warrants and remaining available for
warrants and rights rights further issuance
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans
approved by shareholders* 575,000 $ 1.20 25,000
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Equity compensation plan not
approved by shareholders NA NA NA
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Stock options issued to
directors and employees** 970,000 $ 3.26 NA
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Warrants issued in connection
with services to be 180,000 $ 0.81 NA
provided***
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Warrants issued in connection
with raising capital **** 202,189 $ 6.00 NA
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Warrants issued for
acquisition of Strategy 200,000 $ 2.50 NA
First, Inc. *****
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* See Note 14 to the Financial Statements
** These options were granted pursuant to various employment agreements
*** These warrants were granted to a consultant for services to be rendered.
These warrants expire July 1, 2007.
**** These warrants were issued in connection with raising capital during 2000.
These warrants expire July 31, 2007.
***** These warrants were issued in connection with the acquisition of Strategy
First, Inc. These warrants expire April 21, 2008.
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ITEM 6...SELECTED FINANCIAL DATA
Selected Consolidated Financial Information
STATEMENT OF OPERATIONS DATA YEARS ENDED JUNE 30,
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2001 2002 2003 2004 2005
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Revenues $ 1,301,432 $ 3,107,324 $ 3,141,448 $ 2,367,463 $ 2,299,254
Total operating expenses 4,362,413 5,295,375 4,456,082 3,239,802 2,943,367
Operating loss (3,060,981) (2,188,051) (1,314,162) (872,339) (644,113)
Interest income, net 976,107 615,294 638,011 603,352 563,135
Foreign currency gain (loss) (1,042,474) (1,345,348) 1,763,115 1,287,291 81,773
Income (loss) from continuing operations
before
Income taxes (5,010,726) (2,964,039) 1,069,049 1,030,105 158,838
Net income (loss) from continuing operations (5,010,726) (2,964,039) 1,069,049 1,030,105 158,838
Loss from discontinued operations - (824,761) (736,947) - -
Loss on disposition (2,389,383) - (262,754) (27,582) -
Extraordinary item - gain on extinguishments
of debt 2,142,949 - - - -
Net (loss)/income (5,257,160) (3,788,800) 69,348 1,002,523 158,838
Income (loss) per share - from continuing
operations $ (0.57) $ (0.34) $ 0.12 $ 0.12 $ 0.02
BALANCE SHEET DATA AS OF JUNE 30,
2001 2002 2003 2004 2005
Total assets $ 15,931,857 $ 11,722,781 $ 12,354,162 $ 13,265,458 $ 14,700,465
Long term liabilities - - 349,289 234,192 423,601
Net working capital (deficiency) (1) 4,253,001 2,345,828 192,081 (177,981) 3,637,934
Stockholders' equity 13,578,710 10,212,073 10,025,049 11,422,107 12,288,518
(1) Net working capital (deficiency) is the net of current assets and current
liabilities.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BACKGROUND AND HISTORY
The following discussion and analysis of our operations, cash flows, liquidity
and capital resources should be read in conjunction with our consolidated
financial statements contained in this report.
Silverstar Holdings, Ltd. was incorporated in September 1995. The Company's
intention is to actively pursue acquisitions fitting a pre defined investment
strategy. Currently our strategy focuses on the following:
o Acquiring controlling stakes in small, high quality, game related media and
marketing businesses with strong management teams that are positioned to
use technology and Internet related platforms to fuel above average growth.
o Our investments must show an ability to contribute, in the short to medium
term, to earnings per share through operating profit or capital
appreciation.
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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.
We sold our last remaining South African operations in November 2000. We still
have significant assets that are denominated in South African Rand. The assets
include cash and notes receivable. Although we purchased a twelve month Rand
Put/US dollar call option that serves as a partial protection against the
depreciation of the SA Rand against the US dollar, should we hold the notes
until maturity we will continue to record income statement gains or losses to
the extent that the Rand's value fluctuates relative to the US dollar. At the
present time, management has no intention of disposing of the notes receivable.
On November 17, 2000, we 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, website and specializes in
subscription based NASCAR, college football and other fantasy sports games.
On September 24, 2001, a newly created subsidiary of the Company, Student
Sports, Inc., acquired all the assets and business and assumed certain
liabilities of Student Sports, a media company, producing publications,
television programs and various marketing initiatives for the high school sports
market. On June 10, 2003, the Company disposed of substantially all the assets
and liabilities of Student Sports, which was the only operating subsidiary in
the marketing services segment of the Company.
In accordance with accounting principles generally accepted in the United States
of America the operating results and net assets related to Student Sports have
been included in discontinued operations in the company's consolidated
statements of operations and consolidated balance sheets. Discontinued
operations for the fiscal years ending June 30, 2003, represent operating
results for eleven months. Net assets of $0.05 million and net liabilities of
$0.06 million were assumed by the parent company.
The discontinued operations generated sales of $1.26 million and net losses from
operations of $0.74 million for the year ended June 30, 2003.
On April 21, 2005, we acquired Strategy First Inc. (www.strategyfirst.com), a
leading developer and worldwide publisher of entertainment software for the PC.
We acquired the company through the jurisdiction of the Montreal bankruptcy
court. Pursuant to the approved plan of arrangement, we paid consideration to
the creditors of $609,000 in cash; we issued 377,000 shares of our common stock;
warrants to purchase 200,000 shares of our common stock; and assumed
approximately $400,000 in existing bank debt, as well as contingent
consideration based on the future profitability of Strategy First. Founded in
1990, the company publishes software games primarily for the PC platform. Some
of our popular games include O.R.B, the Disciples franchise, Sacred Lands,
Kohan: Immortal Sovereigns, Steel Beasts, Galactic Civilizations, and the Jagged
Alliance franchise. Two months of operating results for Strategy Firsts are
included in fiscal 2005.
RESULTS OF OPERATIONS
FISCAL 2005 COMPARED TO FISCAL 2004
Revenues
Revenues were $2.30 million in fiscal 2005 as compared to $2.37 million in the
prior year. Revenues for Fantasy Sports' decreased by $0.42 million which was
offset by Strategy First revenues of $0.35 million. Fantasy Sports' decision to
stop selling merchandise and apparel in December 2003 accounted for $0.17
million of this decrease. The remainder of the decrease was caused by Fantasy
Sports' decision to focus on operating profitable games as well as a decrease in
the number of subscribers.
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Cost of Sales
Cost of sales decreased $0.27 million to $1.14 million in fiscal 2005 as
compared to $1.41 million in the prior year. Cost of Sales for Fantasy Sports
decreased $0.39 million primarily due to decreases in the cost of prizes
awarded, fulfillment expenses, direct labor costs and the cost of merchandise
and apparel sold. The decreases were offset by the cost of sales of $0.12
million for Strategy First.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for fiscal 2005 were $1.76 million
as compared to $1.78 million in fiscal 2004, a decrease of $0.02 million over
the prior year. Fantasy Sports decreased selling, general, and administrative
expenses by $0.36 million by the implementation of cost cutting measures
primarily to payroll and related costs. This decrease was offset by increase in
expenses at the corporate level of $0.13 million and expenses incurred by
Strategy First of $0.21 million.
Amortization and Depreciation
Amortization of intangible assets was $0.02 million in fiscal 2005 and 2004.
Amortization expense for Fantasy Sports decreased $0.02 million as one of two
customer lists became fully amortized at September 30, 2004. Amortization
expenses incurred by Strategy First for game titles and a covenant not to
compete offset this decrease. Depreciation expense was $0.02 million in fiscal
2005 as compared to $0.04 million in fiscal 2004.
Foreign Currency Gains
Foreign currency gains are almost exclusively related to the assets remaining
from the sale of discontinued South African operations. The foreign currency
gains during fiscal 2005 were $0.08 million as compared to gains of $1.29
million in fiscal 2004. These gains are the result of the fluctuations of the
South African Rand against the US dollar. During the year ended June 30, 2005,
the Rand depreciated approximately 7% against the US dollar, while it
appreciated 17% in Fiscal 2004. In 2005, the increase in the market value of
Rand put/US dollar call option partially offset the foreign currency losses
which resulted in an overall gain for the year. These foreign currency gains are
non cash items until converted into US dollars when any accumulated gains or
losses will be converted into cash. During the year ended June 30, 2005, the
Company received approximately R31 million (South African Rand) as partial
payment of notes owed by Salwin Pty, Ltd. As a result the Company realized gains
on this repayment amount when it was converted into US dollars.
Interest Income
Interest income of $0.59 million was recorded during fiscal 2005 as compared to
interest income of $0.63 million in fiscal 2004. Interest income is primarily
earned on Notes Receivable from the sale of the Lifestyle business and is
affected by the fluctuation of the South African Rand against the US dollar as
well as movements in SA prime interest rates.
Interest Expense
Interest expense during fiscal 2005 was $0.02 million as compared to $0.03
million in the prior year. This decrease is attributable the lower short-term
credit lines held by Fantasy Sports, Inc. during fiscal 2005.
Provision for Income Taxes
The Company is registered in Bermuda, where no income tax laws are applicable.
Three of the Company's subsidiaries are subject to U.S. income taxes and one is
subject to Canadian 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.
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Discontinued Operations
During fiscal 2004 the Company recognized losses of $0.03 million on assets
formerly used by Student Sports that were retained by the parent company when
Student Sports was sold in 2003.
Net Income
The Company has recognized income of $0.16 million during fiscal 2005 compared
to income of $1.00 million during the prior year. The current year includes
non-cash foreign currency gains of approximately $0.08 million. During fiscal
2004 net income included non-cash foreign currency gains of $1.29 million due to
the appreciation of the South African Rand against the US dollar of
approximately 17%. Operating losses for fiscal 2005 were $0.64 million as
compared to $0.87 million in Fiscal 2004. The decrease in operating losses was
primarily the result of Fantasy Sports' increase in operating income from $0.07
million in fiscal 2004 to $0.44 million in Fiscal 2005.
FISCAL 2004 COMPARED TO FISCAL 2003
Revenues
Revenues were $2.37 million in fiscal 2004 as compared to $3.14 million in the
prior year. The decrease was primarily the result of Fantasy Sports decision to
discontinue selling die-cast collectibles and apparel during the quarter ended
December 31, 2003. Sales of merchandise decreased from $0.81 million in fiscal
2003 to $0.17 million in fiscal 2004.
Cost of Sales
Cost of sales were $1.41 million in fiscal 2004 as compared to $2.01 million in
the prior year. The decrease is primarily a result of decreases in the cost of
prizes awarded, fulfillment expenses, direct labor costs and the volume of
merchandise and apparel sold.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for fiscal 2004 were $1.78 million,
a decrease of $0.54 million over the same period in the prior year. This
decrease was caused by the implementation of cost cutting measures primarily to
payroll and related costs at the corporate and operating levels.
Amortization and Depreciation
Amortization of intangible assets decreased to $0.02 million in fiscal 2004 from
$0.07 million as a result of a customer list becoming fully amortized at
September 30, 2003. Depreciation expense was $0.04 million in fiscal 2004 as
compared to $0.07 million in fiscal 2003.
Foreign Currency Gains
Foreign currency gains or losses are related to the financial assets remaining
in the South African operations. The Foreign currency gains during fiscal 2004
were $1.29 million as compared to gains of $1.76 million in fiscal 2003. These
gains are the result of fluctuations of the South African Rand against the US
dollar. During the year ended June 30, 2004 the Rand appreciated approximately
17% against the U.S. dollar while it appreciated 26% in 2003. These foreign
currency gains or losses are non-cash items until converted into US dollars,
when any accumulated gains or losses will be converted to cash.
Interest Income
Interest income of $0.63 million was recorded during fiscal 2004 as compared to
interest income of $0.65 million. Interest income is primarily earned on Notes
Receivable from the sale of the Lifestyle business and is affected by the
fluctuation of the South African Rand against the US dollar, as well as movement
in SA prime interest rates.
-11-
Interest Expense
Interest expense during fiscal 2004 was $0.025 million as compared to $0.012
million in the prior year. The increase in interest expense is attributable to
interest charges incurred on short-term credit lines held by Fantasy Sports,
Inc.
Provision for Income Taxes
The Company is registered in Bermuda, where no income tax laws are applicable.
Three of the Company's subsidiaries are subject to income taxes. Up to this
date, none of them has had taxable income. They have incurred losses for tax
purposes. The deferred tax asset generated by the tax losses and temporary
differences has been fully reserved.
Discontinued Operations
Student Sports was sold in June 2003. The results for this business for both
2003 and 2002 have been included under Discontinued Operations in our financial
statements. During fiscal 2004 the company recognized losses of $0.027 million
on assets formerly used by Student Sports that were retained by the parent
company when Student Sports was sold in 2003.
Net Income (Loss)
The Company has recognized income of $1.00 million during fiscal 2004 compared
to income of $0.07 million during the prior year. Operating losses for fiscal
2004 were $0.87 million as compared to $1.31 million in Fiscal 2003 The
improvement in income in fiscal 2004 was primarily the result of selling Student
Sports which generated significant losses in fiscal 2003, a reduction of cost of
sales at Fantasy Sports, and a reduction in general and administrative costs at
both the operational and corporate levels. The current year includes non-cash
foreign currency gains of approximately $1.29 million due to the appreciation of
the South African Rand against the US dollar of approximately 17 %. During
fiscal 2003 net income included non-cash foreign currency gains of $1.76 million
due to the appreciation of the South African Rand against the US dollar of
approximately 36%.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash increased by $3.63 million from $1.24 million at June 30, 2004 to $4.87
million at June 30, 2005. The cash balances are being held for acquisitions and
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.
Working capital increased by $3.82 million from ($0.18) million at June 30, 2004
to $3.64 million at June 30, 2005. This increase is primarily caused by the
repayment of a portion of our Notes receivable. Accrued interest earned during
the year has been classified as part of the Long - Term Notes Receivable.
At June 30, 2005, we had borrowings of $0.44 million, which consisted of $0.07
million advances against lines of credit, secured by the Company's cash, $0.01
million of equipment loans, and term loans of $0.36 million.
In the future the Company expects to meet its short and long term obligations in
part through the collection of amounts due from outstanding notes receivable.
Those notes, which are denominated in South African Rand, are to be collected
upon certain liquidity events at First Lifestyle Holdings. We monitor the
financial results of First Lifestyle Holdings on a quarterly and annual basis.
It is our opinion, based on reviews of audited financial statements, reviews of
budgets and inquiries of management of First Lifestyle Holdings, that the
collateral we hold, in First Lifestyle Holdings is sufficient to repay the
outstanding notes receivable on a liquidation basis.
-12-
Once the funds are collected in South African Rand, the Company expects to
repatriate those funds to the United States. The Company believes that
repatriation of the full amount is allowable under current South African foreign
currency regulations. Over the last seven years, we have, from time to time,
repatriated funds from South Africa without restriction. However, there can be
no guarantee that the South African foreign currency regulations will not change
in the future in a manner that might restrict our ability to repatriate the
remaining assets.
In the future we intend to add additional operating subsidiaries that will
produce revenues and net profits. We may utilize a portion of the working
capital in connection with the acquisition or establishment of those operations.
We may also be required to secure additional debt or equity funding in
connection with the funding of those future acquisitions. There is no assurance
that we will be able to secure additional indebtedness or raise additional
equity to finance future acquisitions on terms acceptable to management.
The following table is a summary of contractual obligations recorded as of June
30, 2005.
PAYMENTS DUE BY PERIOD
MORE THAN
CONTRACTUAL OBLIGATIONS TOTAL LESS THAN 1 YEAR 1-3 YEARS 3-5 YEARS 5 YEARS
----- ---------------- --------- --------- -------
Long-Term Debt Obligations $371,177 $220,845 $150,332 - -
Operating Lease Obligations 179,146 114,946 64,200 - -
Purchase Obligations 575,000 510,000 65,000 - -
Employment Contracts 2,504,473 667,755 1,311,718 525,000 -
-----------------------------------------------------------------------------
Total $ 3,629,796 $ 1,513,546 $ 1,591,250 $ 525,000 -
=============================================================================
PURCHASE OBLIGATIONS
Purchase obligations reflected on the table of contractual obligations include
the following:
- - A contract between Fantasy Sports, Inc. and a media and marketing consultant
for services provided through November 30, 2006. At a minimum the company is
obligated to pay $60,000 per year. If certain incentive or additional services
are performed additional obligations accrue.
- -A contract between Fantasy Sports, Inc. and another corporation to provide web
site hosting and customer service functions through December 31, 2005 at a cost
of $23,500 per month.
- - A contract between Silverstar Holdings, Inc. and consultant for services
provided through June 30, 2007. At a minimum the company is obligated to pay
$5,000 per month which is reflected in the table of contractual obligations.
In addition the consultant received warrants to purchase 180,000 shares of the
company's common stock.
- - Various royalty agreements entered into by Strategy First. Minimum royalty
guarantees are $ 248,230 for the year ended June 30, 2006 and $4,883 for the
year ended June 30, 2007.
EMPLOYMENT CONTRACTS
On April 21, 2004, Strategy First, Inc., entered into employment agreements with
Don McFatridge, Brian Clarke and Richard Therrien. The employment agreements are
on an at-will basis and call for salaries of $Cdn 180,000, 160,000 and 75,000,
respectively Each employee is entitled to a bonus of up to 30% of their salary
at the
-13-
discretion of the board of directors. Mr. McFatridge serves as Chief Executive
Officer of Strategy First and received options to acquire 75,000 shares of
Silverstar Holdings Common Stock. These options vest annually over a three-year
period. Mr. Clarke serves as Chief Operating Officer of Strategy First and
received options to acquire 75,000 shares of Silverstar Holdings Common Stock.
These options vest annually over a three-year period. Mr. Therrien serves as
Chief Technology Officer of Strategy First and received options to acquire
25,000 shares of Silverstar Holdings Common Stock. These options vest annually
over a three-year period.
Pursuant to an employment agreement Mr. Clive Kabatznik will serve as Chief
Executive Officer, President and Chief Financial Officer of the Company through
December 31, 2009. Mr. Kabatznik will receive $330,000, $342,500, $350,000,
$350,000, and $175,000 for fiscal 2006, 2007, 2008, 2009 and 2010, respectively.
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 incurred annual losses though the fiscal year
ending June 30, 2003. During the seven months ended June 30, 2001, Fantasy lost
$1,320,000 and had negative cash flow of $268,000. For the twelve months ended
June 30, 2002, Fantasy lost $1,135,000 with negative cash flow of $566,000. For
the twelve months ended June 30, 2003, Fantasy lost $314,715 with negative cash
flow of $185,860. For the twelve months ended June 30, 2004, Fantasy earned
$52,785 with positive cash flow of $105,665. For the twelve months ended June
30, 2005, Fantasy earned $422,637 with positive cash flow of $433,317.
Due to the accounting recognition of losses through the fiscal year ending June
30, 2003 the carrying value of Fantasy has diminished since acquisition. On June
30, 2005, we performed an impairment test on the carrying value of Fantasy's
goodwill in accordance with SFAS 142. The Company compared the fair value of
Fantasy (as a reporting unit) to the carrying value of Fantasy including
goodwill. The methodology used to determine fair value was to develop a
projected fair value of the entity. The projected fair value of Fantasy sports
was determined by dividing the average projected income for the next three years
by a 12% capitalization rate minus a 5% growth rate. Results indicated that
impairment of goodwill did not exist. The Company also compared the carrying
value of its goodwill to the implied goodwill value on a privately held company
in the same industry that was recently sold. Results of this test also indicated
that impairment did not exist.
FUTURE COMMITMENTS
Through June 30, 2005, Fantasy Sports generated profit after substantial
operating losses in previous years. We anticipate that this situation will be
maintained and improved through a combination of expense reductions and
increased revenues. Strategy First is projecting an operating profit for the
coming twelve months. There are no assurances that these expectations will be
met. In this event, we may need to continue to support the operations of our
subsidiaries.
CRITICAL ACCOUNTING POLICIES
The following is a discussion of the accounting policies that the Company
believes are critical to its operations:
-14-
REVENUE RECOGNITION
Strategy First distributes the majority of its products through third-party
software distributors to mass-merchant and major retailers and directly to
certain PC software retailers, all of which have traditionally sold consumer
entertainment PC software products. Additionally, Strategy may license its
products to distributors in exchange for royalty payments. The distribution of
products is governed by purchase orders, distribution agreements or direct sale
agreements, most of which allow for product returns and price markdowns. For
product shipments to these software distributors or retailers, Strategy records
a provision for product returns and price markdowns as a reduction of gross
sales at the time the product passes to these distributors or retailers. Payment
terms generally require 10% at delivery, with an additional 30% due at 30 days,
60 days, and 180 days. Revenue is recognized at the time product is shipped by
distributors.
The provision for anticipated product returns and price markdowns is primarily
based upon Strategy First's analysis of historical product return and price
markdown results. Should product sell-through results at retail store locations
fall significantly below anticipated levels the adequacy of this allowance may
be insufficient. Strategy First's reviews the adequacy of its allowance for
product returns and price markdowns and if necessary makes adjustments to this
allowance on a quarterly basis.
In the case of royalty income, Strategy will recognize revenue when earned based
on sales reports from its distributors. Most agreements require quarterly
reporting of sales with payment due within 45 days of the end of the quarter. In
many cases, Strategy receives guaranteed royalty income and these revenues are
recorded upon performance of deliverables per the royalty agreements.
Revenues generated by Fantasy Sports are seasonal from mid-February to the end
of November. Fantasy Sports' collects the majority of its revenue from customers
at the beginning and mid-point of a season and defers recognition of income
until the season starts. Once a season begins revenue is recognized prorata
until the season ends.
GOODWILL VALUATION
Goodwill represents the excess of the purchase price over the fair market value
of net assets acquired. The process of determining goodwill requires judgment.
Evaluating goodwill for impairment involves the determination of the fair market
value of our reporting units. Inherent in such fair market value determinations
are certain judgments and estimates, including the interpretation of current
economic indicators and market valuations, and our strategic plans with regard
to our operations. To the extent additional information arises or our strategies
change, it is possible that our conclusion regarding goodwill impairment could
change, which could have a material effect on our financial position and results
of operations. For those reasons, we believe that the accounting estimate
related to goodwill impairment is a critical accounting estimate.
The Company reviews goodwill annually (or more frequently under certain
conditions) for impairment in accordance with SFAS No. 142, Goodwill and Other
Intangible Assets. The Company performed its annual impairment test of goodwill
as of June 30, 2005 and determined that goodwill was not impaired. While the
Company believes that no impairment existed as of June 30, 2005, there can be no
assurances that future economic or financial developments might not lead to an
impairment of goodwill.
INTANGIBLE ASSETS
Intangible assets include software game titles, 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 estimated lives of three to ten years. Intangible
assets with indefinite lives are not amortized but are evaluated for impairment
annually unless circumstances dictate
-15-
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. Any movements of interest rates as
they relate to outstanding debt would be immaterial to the financial results of
the Company.
INTEREST RATE RISK
At June 30, 2005, our cash resources earned 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.
FOREIGN CURRENCY RISK
Strategy First, Inc. is incorporated in Canada and sells products throughout the
United States and Europe. Its functional currency is the Canadian Dollar. This
has exposed the company to market risk with respect to fluctuations in the
relative value of the Euro, British Pound, the Canadian Dollar, and the US
Dollar.
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
has exposed the Company to market risk with respect to fluctuations in the
relative value of the South African Rand against the US Dollar.
On March 9, 2005, the Company acquired a twelve-month Rand put/US dollar call
option, at a strike price of R6.25 to the US dollar. During its term, this
option serves as a partial protection against the depreciation of the SA Rand
versus the US dollar. The cost of the option was approximately $200,000 and its
price was marked to market at the close of business on June 30, 2005. The
Company will continue to adjust the market value of this option as of the end of
subsequent reporting periods.
At June 30, 2005, we had assets denominated in South African Rand of R 34.8
million.
The following is information concerning assets denominated in South African Rand
and the foreign currency gains and losses recognized during fiscal 2005:
Balance Foreign Currency Gain/(Loss) for the
As of June 30, 2005 Year Ended June 30, 2005
-------------------------------- --------------------------------------
In Rand In US Dollars
Cash R 10,650,114 $ 287,881
Notes Receivable R 21,749,971 $ (350,584)
Other R 2,424,441 $ 157,005
-16-
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets F-2
Statements of Operations F-3
Statements of Stockholders' Equity F-4
Statements of Cash Flows F-5 - F-6
Notes to Consolidated Financial Statements F-7 - F-32
-17-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Silverstar Holdings, Ltd.
Boca Raton, Florida
We have audited the accompanying consolidated balance sheets of Silverstar
Holdings, Ltd. and Subsidiaries (the Company) as of June 30, 2005 and 2004, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 2005. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the accompanying consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Silverstar Holdings, Ltd. and Subsidiaries at June 30, 2005 and
2004, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended June 30, 2005, in conformity with
accounting principles generally accepted in the United States.
/S/ RACHLIN COHEN & HOLTZ LLP
RACHLIN COHEN & HOLTZ LLP
Fort Lauderdale, Florida
August 29, 2005
F-1
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2005 AND 2004
ASSETS 2005 2004
------------ ------------
Current Assets:
Cash and cash equivalents
(includes restricted cash of $67,189 and $321,096 in 2005 and 2004,
respectively) $ 4,870,486 $ 1,235,310
Accounts receivable, net 95,130 1,068
Current portion of long-term notes receivable 118,272 138,704
Prepaid expenses and other current assets 183,221 56,096
Option contract 359,171 -
------------ ------------
Total current assets 5,626,280 1,431,178
------------ ------------
Property, Plant and Equipment, net 114,628 49,856
Investments in Non-Marketable Securities 843,566 843,566
Long-Term Notes Receivable 3,135,763 7,977,549
Goodwill, net 3,715,153 2,947,824
Intangible Assets, net 1,241,701 12,500
Deferred Charges and Other Assets 23,374 2,985
------------ ------------
Total assets $ 14,700,465 $ 13,265,458
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Lines of credit $ 67,189 $ 305,160
Current portion of long-term debt 220,845 24,883
Accounts payable 395,383 226,830
Accrued expenses 675,681 359,022
Deferred revenue 629,248 693,264
------------ ------------
Total current liabilities 1,988,346 1,609,159
------------ ------------
Long-Term Debt, net 150,047 10,633
Obligation to issue common stock 273,554 223,559
------------ ------------
Total liabilities 2,411,947 1,843,351
------------ ------------
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; 8,233,324
and 7,798,924 shares issued and outstanding, respectively 82,333 77,989
Common stock, Class B, $0.01 par value; 2,000,000 shares authorized; 835,260 and
896,589 shares issued and outstanding, respectively 8,353 8,966
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 64,602,803 63,904,557
Accumulated deficit (52,411,167) (52,570,005)
Accumulated comprehensive income 5,596 -
------------ ------------
Total Stockholders' Equity 12,288,518 11,422,107
------------ ------------
Total Liabilities and Stockholders' Equity $ 14,700,465 $ 13,265,458
============ ============
See notes to consolidated financial statements
F-2
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
2005 2004 2003
------------ ------------ ------------
Revenues $ 2,299,254 $ 2,367,463 $ 3,141,448
Operating Expenses:
Cost of sales 1,136,497 1,405,728 2,005,598
Selling, general and administrative 1,762,165 1,776,619 2,315,056
Amortization of intangibles 23,809 18,250 67,000
Depreciation 20,896 39,205 68,428
------------ ------------ ------------
Total operating expenses 2,943,367 3,239,802 4,456,082
------------ ------------ ------------
Operating loss (644,113) (872,339) (1,314,634)
Other Income (Expense) 158,043 11,801 (17,443)
Foreign Currency Gain 81,773 1,287,291 1,763,115
Interest Income 586,830 628,737 650,329
Interest Expense (23,695) (25,385) (12,318)
------------ ------------ ------------
Income from continuing operations before income taxes 158,838 1,030,105 1,069,049
Provision for Income Taxes - - -
Income from continuing operations 158,838 1,030,105 1,069,049
Discontinued Operations:
Loss from operations, net of income taxes of $0, $0 and $0,
respectively - - (736,947)
Loss on disposition, net of income taxes of $0, $0 and $0,
respectively - (27,582) (262,754)
------------ ------------ ------------
Net Income $ 158,838 $ 1,002,523 $ 69,348
============ ============ ============
Income (Loss) Per Share:
Basic:
Continuing operations $ 0.02 $ 0.12 $ 0.12
Discontinued operations (0.00) (0.00) (0.11)
------------ ------------ ------------
Net Income $ 0.02 $ 0.12 $ 0.01
============ ============ ============
Diluted:
Continuing operations $ 0.02 $ 0.11 $ 0.10
Discontinued operations 0.00 0.00 (0.10)
------------ ------------ ------------
Net Income $ 0.02 $ 0.00 $ 0.00
============ ============ ============
Weighted Average Common Stock Outstanding:
Basic: 8,791,121 8,575,579 8,704,620
============ ============ ============
Diluted: 9,170,411 9,089,113 10,345,994
============ ============ ============
See notes to consolidated financial statements.
F-3
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE LOSS
YEARS ENDED JUNE 30, 2005 2004 AND 2003
Silverstar Silverstar First South Africa
Holdings Ltd. Holdings Ltd. Holdings
Class A Class B Class B
Common Stock Common Stock Common Stock
----------------------------- ----------------------------- ----------------------------
Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ------------ ------------ ------------
YEAR ENDED JUNE 30, 2003:
BALANCE, JUNE 30, 2002 8,001,310 $ 80,013 946,589 $ 9,466 2,671,087 $ 600
Purchase and retirement of
treasury stock (171,700) (1,717) - - - -
Stock redemption - -
(sale of subsidiary) (325,686) (3,257) - - - -
Net Income - - - - - -
Balance, June 30, 2003 7,503,924 75,039 946,589 9,466 2,671,087 600
============ ============ ============ ============ ============ ============
YEAR ENDED JUNE 30, 2004:
Stock issued 245,000 2,450 - - - -
Conversion of shares 50,000 500 (50,000) (500) - -
Net Income - - - - - -
Balance, June 30, 2004 7,798,924 77,989 896,589 8,966 2,671,087 600
============ ============ ============ ============ ============ ============
YEAR ENDED JUNE 30, 2005:
Stock issued/Acquisition 377,371 3,774 - - - -
Conversion of shares 61,329 613 (61,329) (613) - -
Exercise of stock options 15,000 150 - - - -
Stock-based compensation - - - - - -
Warrants issued - acquisition - - - - - -
Purchase and retirement
of treasury stock (19,300) (193) - - - -
Net Income 158,838 - 158,838
Other comprehensive income
foreign currency translation
adjustment, net of taxes - - - - - -
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 2005 $ 8,233,324 $ 82,333 $ 835,260 $ 8,353 $ 2,671,087 600
============ ============ ============ ============ ============ ============
Accumulated
Additional Other
Paid-in Accumulated Comprehensive
Capital Deficit Income Total
------------ ------------ ------------ ------------
YEAR ENDED JUNE 30, 2003:
BALANCE, JUNE 30, 2002 $ 63,763,870 $(53,641,876) $ - $ 10,212,073
Purchase and retirement of
treasury stock (23,418) - - (25,135)
Stock redemption -
(sale of subsidiary) (227,980) - - (231,237)
Net Income - 69,348 - 69,348
Balance, June 30, 2003 63,512,472 (53,572,528) - $ 10,025,049
============ ============ ============ ============
YEAR ENDED JUNE 30, 2004:
Stock issued 392,085 - - 394.535
Conversion of shares - - - -
Net Income - 1,002,523 - 1,002,523
Balance, June 30, 2004 63,904,557 (52,570,005) - $ 11,422,107
============ ============ ============ ============
YEAR ENDED JUNE 30, 2005:
Stock issued/Acquisition 513,603 - - 517,377
Conversion of shares - - - -
Exercise of stock options 6,500 - - 6,650
Stock-based compensation 32,000 - - 32,000
Warrants issued - acquisition 167,400 - - 167,400
Purchase and retirement
of treasury stock (21,257) - - (21,450)
Net Income
Other comprehensive income
foreign currency translation
adjustment, net of taxes - - 5,596 5,596
------------ ------------ ------------ ------------
Balance, June 30, 2005 $ 64,602,803 $(52,411,167) $ 5,596 $ 12,288,518
============ ============ ============ ============
See notes to consolidated financial statements.
F-4
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
2005 2004 2003
----------- ----------- -----------
Cash Flows from Operating Activities:
Net income from continuing operations $ 158,838 $ 1,002,523 $ 1,069,049
Provision for doubtful accounts 79,271 - 3,365
Depreciation and amortization 44,705 57,455 135,428
Stock-based compensation 49,995 - -
Common stock warrants issued for services 32,000 - -
Unrealized foreign currency gains (300,390) (1,261,824) (1,704,106)
Non-cash interest income on notes receivable (433,416) (611,720) (603,984)
Changes in operating assets and liabilities, net (230,348) (206,713) 193,261
(Increase) Decrease in other assets - 3,145 (2,274)
Loss on disposal of fixed assets - 51,065 182
----------- ----------- -----------
Net Cash Used in Continuing Operations (599,345) (966,069) (909,079)
Net Cash Used in Discontinued Operations - - (247,000)
----------- ----------- -----------
Net Cash Used in Operating Activities (599,345) (966,069) (1,156,079)
----------- ----------- -----------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (3,158) (542) (24,701)
Proceeds on disposal of property, plant and equipment - 1,220 -
Acquisition of non-competitive agreement (2,906) - -
Purchase of option premium (190,257) - -
Proceeds from repayment of long-term note receivable 5,420,720 218,679 115,308
Cash paid for acquisition of subsidiary (682,011) - -
----------- ----------- -----------
Net Cash Provided by Investing Activities $ 4,542,388 $ 219,357 $ 90,607
----------- ----------- -----------
See notes to consolidated financial statements.
Continued on next page
F-5
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
2005 2004 2003
----------- ----------- -----------
Cash Flows from Financing Activities:
Short term borrowings, net $ (237,971) $ 86,309 $ 168,851
Repayment of long-term debt (60,692) (24,605) (1,282)
Proceeds from the exercise of stock options 6,650 302,689 -
Purchase of treasury stock transactions (21,450) - (25,135)
----------- ----------- -----------
Net Cash Provided by (Used in) Financing Activities (313,463) 364,393 142,434
----------- ----------- -----------
Effect of exchange rates in cash 5,596 - -
----------- ----------- -----------
Net Increase (decrease) in Cash and Cash Equivalents 3,635,176 (382,319) (923,038)
Cash and Cash Equivalents, Beginning 1,235,310 1,617,629 2,540,667
----------- ----------- -----------
Cash and Cash Equivalents, Ending $ 4,870,486 $ 1,235,310 $ 1,617,629
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 23,695 $ 25,385 $ 12,318
=========== =========== ===========
Cash Paid during the year for income taxes $ - $ - $ -
=========== =========== ===========
See notes to consolidated financial statements.
F-6
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005, 2004 AND 2003
NOTE 1. ORGANIZATION AND PRINCIPAL ACTIVITIES OF THE GROUP
Silverstar Holdings, Ltd. (formerly Leisureplanet Holdings Ltd.) (the
"Company"), was founded on September 6, 1995. The purpose of the Company has
changed from acquiring and operating South African Companies to investing in
companies that fit a predefined investment strategy.
On November 17, 2000, the Company acquired Fantasy Sports, Inc. ("Fantasy").
Fantasy specializes in Internet-based subscriptions for NASCAR, college football
and basketball and other fantasy sports games. On September 24, 2001, the
Company acquired Student Sports, Inc. ("Student Sports"), a media company
producing publications, television programs and various marketing initiatives
for the high school sports market. In June 2003, the company sold its Student
Sports subsidiary and it is reflected as discontinued operations in the
accompanying financial statements. (See Discontinued Operations below)
In April 2005, the Company acquired Strategy First Inc. (www.strategyfirst.com),
a leading developer and worldwide publisher of entertainment software for the
PC. Founded in 1990, the company publishes software games primarily for the PC
platform.
Investments have been made in other companies, which are in line with the
Company's new focus (see Note 6).
The Company currently has both Class A and Class B common shares. Holders of
Class A Common Stock have one vote per share on each matter submitted to a vote
of the shareholders and a ratable right to the net assets of the Company upon
liquidation. Holders of the common stock do not have preemptive rights to
purchase additional shares of Common Stock or other subscription rights. The
Class A common stock carries no conversion rights and is not subject to
redemption or to any sinking fund provisions. All shares of common stock are
entitled to share equally in dividends from legally available resources as
determined by the board of directors. Upon dissolution or liquidation of the
Company, whether voluntary or involuntary, holders of the common stock, are
entitled to receive assets of the Company available for distribution to the
shareholders.
Class B and Class A Common Stock are substantially identical except that the
holders of Class B Common Stock have 5 votes per share on each matter considered
by shareholders. Each share of Class B Common Stock is automatically converted
into one share of Class A Common Stock upon sale or death of the shareholder.
DISCONTINUED OPERATIONS
On June 10, 2003, the company sold substantially all assets and liabilities of
Student Sports, Inc effective as of May 15, 2003. The consideration for the sale
of Student Sports was 325,686 shares of Silverstar Holdings common stock that
were returned to the Company as well as the forgiveness of a maximum of 913,745
contingent shares of Silverstar Holdings that could have been payable to former
Student Sports shareholders in April 2004. (see Note 11)
F-7
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States and incorporate
the following significant accounting policies:
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all of its subsidiaries in which it has a majority voting interest. Investments
in affiliates are accounted for under either the equity or cost method of
accounting, where appropriate. All significant inter-company accounts and
transactions have been eliminated in the consolidated financial statements. The
entities included in these consolidated financial statements are as follows:
Silverstar Holdings, Ltd. (Parent Company)
Silverstar Holdings, Inc.
First South African Management Corp.
First South African Holdings, Ltd. (FSAH)
Fantasy Sports, Inc.
Student Sports, Inc.
Strategy First, Inc.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and all highly liquid investments with
original maturities of three months or less.
CONCENTRATIONS OF CREDIT AND MARKET RISKS
Financial instruments that potentially subject the Company to concentrations of
credit and market risk are comprised of cash and cash equivalents and notes
receivable.
CASH
The Company currently maintains a substantial amount of cash
and cash equivalents with financial institutions in South
Africa denominated in South African Rand. Although the Company
has entered into a US Dollar South African Rand put/call
option to partially protect it against depreciation of the
South African Rand, changes in the value of the Rand compared
to the U.S. dollar may still have an unfavorable impact on the
value of the cash and cash equivalents. In addition, these
financial instruments are not subject to credit insurance.
The Company maintains deposit balances at U.S. financial
institutions that, from time to time, may exceed federally
insured limits. The Company maintains its cash with high
quality financial institutions, which the Company believes
limits risk.
F-8
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 the financial
condition of the debtor's economic conditions in South Africa
and the value of the South African Rand, as compared to the
U.S. dollar. In addition, the Company's ability to withdraw
these funds from South Africa after collection while
unrestricted at present, 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.
The carrying value of long-term debt approximates fair value since there terms
are consistent with prevailing market rates.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are 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 shorter of the terms of the related leases and their
estimated useful lives.
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 2005, 2004 or 2003.
GOODWILL
The Company adopted Statement of Financial Accounting Standards No. 142 (SFAS
142), Goodwill and Other Intangible Assets. Goodwill and other intangible assets
with indefinite lives must be tested for impairment on an annual basis. The
Company performs this annual impairment test at fiscal year end for goodwill.
SFAS 142 requires the Company to compare the fair value of the reporting unit to
its carrying amount on an annual basis to determine if there is potential
goodwill impairment. If the fair value of the reporting unit is less than its
carrying value, an impairment loss is recorded to the extent that the fair value
of the goodwill within the reporting unit is less than its carrying value. SFAS
142 also requires the Company to compare the fair value of an intangible asset
to its carrying amount. If the carrying amount of the intangible asset exceeds
its fair value, an impairment loss is recognized. Fair values for goodwill and
other indefinite-lived intangible assets are determined based on discounted cash
flows or market multiples as appropriate.
The Company's goodwill represents the excess acquisition cost over the fair
value of the tangible and identified intangible net assets of Fantasy Sports
acquired in 2000 and Strategy First acquired in 2005. For the years ended June
30, 2005, 2004 and 2003, the Company applied what it believes to be the most
appropriate valuation
F-9
methodology for the reporting unit. If the Company had utilized different
valuation methodologies, the impairment test results could differ. There was no
impairment of goodwill for the years ended June 30, 2005, 2004 and 2003.
INTANGIBLE ASSETS
Intangible assets include software game titles, trademarks, customer lists,
intellectual property and non-competition agreements. Intangible assets,
excluding goodwill, are stated on the basis of cost and are amortized on a
straight-line basis over estimated lives 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 11).
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; the functional currency of Strategy First, Inc. is the Canadian
Dollar. 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 for FSAH are reported in the statement of operations
since FSAH has sold all its operating subsidiaries. The resultant translation
adjustments for Strategy First, Inc. are reported as other comprehensive income.
REVENUE RECOGNITION
Revenues generated by Fantasy are seasonal from mid-February to the end of
November. Fantasy collects its revenue at the beginning and mid-point of the
season and recognizes this deferred revenue pro rata over the season.
Strategy First distributes the majority of its products through third-party
software distributors to mass-merchants and major retailers and directly to
certain PC software retailers, all of which have traditionally sold consumer
entertainment PC software products. Additionally, Strategy may license its
products to distributors in exchange for royalty payments. The distribution of
products is governed by purchase orders, distribution agreements or direct sale
agreements, most of which allow for product returns and price markdowns. For
product shipments to these software distributors or retailers, Strategy records
a 30% provision for product returns and price markdowns as a reduction of gross
sales at the time the product passes to these distributors or retailers.
The provision for anticipated product returns and price markdowns is primarily
based upon Strategy's analysis of historical product return and price markdown
results. Should product sell-through results at retail store locations fall
significantly below anticipated levels the adequacy of this allowance may be
insufficient. Strategy will review the adequacy of its allowance for product
returns and price markdowns and if necessary will make adjustments to this
allowance on a quarterly basis.
F-10
In the case of royalty income, Strategy will record this income when earned
based on sales reports from its distributors. In many cases, Strategy receives
guaranteed royalty income and these revenues are recorded upon performance of
deliverables per the royalty agreements. These amounts are carried as accounts
receivable until paid.
Revenues from Student Sports are presented in Discontinued Operations
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs incurred for
continuing operations for the year ended June 30, 2005, were $196,861 of which
$186,170 was incurred by Fantasy Sports, Inc. For the years ended June 30, 2004
and 2003 advertising expenses were $291,200, and $267,857, respectively.
Advertising costs incurred for discontinued operations during the year ended
June 30, 2003, were $7,015.
INCOME TAXES
The Company accounts for its income taxes using SFAS No. 109, "Accounting for
Income Taxes", which requires the recognition of deferred tax liabilities and
assets for expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), encourages but does not require companies to
record stock-based compensation plans using a fair value based method. The
Company has chosen to continue to account for stock-based compensation using the
intrinsic value based method prescribed in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees." Accordingly, compensation
cost for stock options is measured as the excess, if any, of the quoted market
price of the Company's common stock at the date of the grant over the amount an
employee must pay to acquire the stock.
If the Company used the fair value-based method of accounting to measure
compensation expense for options granted at grant date as prescribed by SFAS No.
123, income and loss per share from continuing operations would have been
reduced to the proforma amounts indicated below.
2005 2004 2003
----------- ----------- -----------
Income from continuing operations as reported $ 158,838 $ 1,030,105 $ 1,069,049
Less: Compensation expense for options
awards determined by the fair-value -based
method (677,245) (88,888) (15,472)
----------- ----------- -----------
Proforma net income/(loss) from continuing
operations ($ 518,407) $ 941,217 $ 1,053,577
=========== =========== ===========
Basic:
As reported $0.02 $0.12 $0.12
Pro forma ($0.05) $0.11 $0.12
Assuming Full dilution:
As reported $0.02 $0.11 $0.10
Pro forma ($0.04) $0.10 $0.10
F-11
The weighted average grant date fair value of options granted in 2005, 2004 and
2003 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:
2005 2004 2003
---- ---- ----
Weighted average grant-date fair value of
options granted $0.94 $1.44 $0.14
Assumptions:
Risk free interest rate 3.19-4.01% 3.17 % 3.14 %
Expected life 3-5 Years 5 Years 5 Years
Expected volatility 126-142% 142% 127%
Expected dividend yield 0.00% 0.0% 0.0%
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment". This
standard replaces SFAS No. 123, "Accounting for Stock-Based Compensation" and
supersedes Accounting Principles Board (`APB') Opinion No. 25, "Accounting for
Stock Issued to Employees." The standard requires companies to expense the fair
value of stock option on the grant date and is effective for annual periods
beginning after June 15, 2005. In accordance with the revised statement, the
expense attributable to stock options granted or vested subsequent to July 1,
2005, will be required to be recognized by the Company. Based on existing
unvested option agreements the company anticipates an additional expense of
approximately $68,000 in fiscal 2006 which could increase if additional options
are granted during the fiscal year.
NET INCOME PER SHARE
Basic net income per share is computed by dividing net income by the weighted
average number of common shares outstanding. Diluted net income per share is
computed by dividing net income by the weighted average number of common shares
outstanding and dilutive potential common shares which includes the dilutive
effect of stock options, warrants, and shares to be issued in connection with
the acquisition of Student Sports (see Note 3). Dilutive potential common shares
for all periods presented are computed utilizing the treasury stock method. The
dilutive effect of shares to be issued in connection with the acquisition of
Student Sports is computed using the average market price for the quarter. The
diluted share base for the year ended June 30, 2002 excludes shares of
1,737,910. These shares are excluded due to their anti-dilutive effect as a
result of the Company's loss from continuing operations during 2002.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2004, the FASB issued Statement of Financial Accounting Standards
No. 123, (revised 2004) (SFAS 123R) "Share-Based Compensation" revising SFAS
123, Accounting for Stock-Based Compensation and superseding APB 25, "Accounting
for Stock Issued to Employees". This SFAS eliminates the alternative to use APB
25's intrinsic value method of accounting that was provided in SFAS 123 as
originally issued. SFAS 123R establishes standards for the accounting of
transactions in which a company exchanges its equity instruments for goods or
services or incurs liabilities in exchange for goods or services that are based
on the fair value of the company' equity instruments or that may be settled by
the issuance of equity instruments. This SFAS focuses primarily on accounting
for transactions in which a company obtains employee services in share-based
payment transactions, and does not change the accounting guidance for
share-based payment transactions with parties other than employees. This SFAS
requires a public company to measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value
of the award (with limited exceptions).
F-12
That cost will be recognized over the period during which an employee is
required to provide service in exchange for the award, usually the vesting
period. The grant-date fair value of employee share options and similar
instruments will be estimated using option-pricing models. If an equity award is
modified after the grant date, incremental compensation cost will be recognized
in an amount equal to the excess of the fair value of the modified award over
the fair value of the original award immediately before the modification. SFAS
123R becomes effective as of the beginning of the first interim or annual
reporting period that begins after June 15, 2005.
In December 2004, the FASB issued Statement of Financial Accounting Standards
No. 153, (SFAS 153) "Exchanges of Nonmonetary Assets - an amendment of APB
Opinion No. 29". Opinion 29 provided an exception to the basic measurement
principle (fair value) for exchanges of similar productive assets. That
exception required that some nonmonetary exchanges, although commercially
substantive, be recorded on a carryover basis. SFAS 153 eliminates the exception
to fair value for exchanges of similar productive assets and replaces it with a
general exception for exchange transactions that do not have commercial
substance. The Company expects that the adoption of SFAS 153 will not have a
material effect on the Company's financial position, results of operations or
cash flows.
FASB Staff Position No. 109-2 (FSP 109-2), "Accounting and Disclosure Guidance
for the Foreign Earnings Repatriation Provision within the American Jobs
Creation Act of 2004", provides guidance under SFAS 109, "Accounting for Income
Taxes," with respect to recording the potential impact of the repatriation
provisions of the American Jobs Creation Act of 2004 (the "Jobs Act") on
enterprises' income tax expense and deferred tax liability. The Jobs Act was
enacted on October 22, 2004. FSP 109-2 states that an enterprise is allowed time
beyond the financial reporting period of enactment to evaluate the effect of the
Jobs Act on its plan for reinvestment or repatriation of foreign earnings for
purposes of applying SFAS 109. The Company has not yet completed evaluating the
impact of the repatriation provisions. Accordingly, as provided for in FSP
109-2, the Company has not adjusted its tax expense or deferred tax liability to
reflect the repatriation provisions of the Jobs Act.
In March 2005, the FASB issued FASB Interpretation ("FIN") No. 47, "Accounting
for Conditional Asset Retirement Obligations." FIN No. 47 clarifies the meaning
of the term CONDITIONAL ASSET RETIREMENT OBLIGATION as used in SFAS 143,
"Accounting for Asset Retirement Obligations" and clarifies when an entity would
have sufficient information to reasonably estimate the fair value of an asset
retirement obligation. This interpretation is effective no later than the end of
fiscal years ending after December 15, 2005 (December 31, 2005 for calendar-year
companies). Retrospective application of interim financial information is
permitted but is not required. The adoption of this statement is not expected to
have a material effect on the Company's consolidated financial position, results
of operations or cash flows.
On May 5, 2005, the FASB issued Statement No. 154, Accounting Changes and Error
Corrections ("SFAS 154"), a replacement of APB Opinion No. 20 and FASB Statement
No. 3. The Statement applies to all voluntary changes in accounting principles,
and changes the requirements for accounting for and reporting of a change in
accounting principle. SFAS 154 requires retrospective application to prior
periods' financial statements of a voluntary change in accounting principle
unless it is impracticable. SFAS 154 requires that a change in method of
depreciation, amortization, or depletion for long-lived, nonfinancial assets be
accounted for as a change in accounting estimate that is effected by a change in
accounting principle. Opinion 20 previously required that such a change be
reported as a change in accounting principle. The requirements of SFAS 154 are
effective for accounting changes made in fiscal years beginning after December
15, 2005. The adoption of this statement is not expected to have a material
effect on the Company's consolidated financial position, results of operations
or cash flows.
F-13
NOTE 3. ACQUISITIONS
On April 21, 2005, the Company acquired Strategy First Inc.
(www.strategyfirst.com.), a leading developer and worldwide publisher of
entertainment software for the PC. We acquired the company through the
jurisdiction of the Montreal bankruptcy court. As per the approved plan of
arrangement, we paid consideration to creditors of approximately $609,000 in
cash; we issued approximately 377,000 shares of Common Stock; warrants to
purchase 200,000 shares of common stock; assumed approximately $400,000 in
existing bank debt, as well as contingent consideration based on the future
profitability of Strategy First.
The costs of the acquisition were allocated on the basis of the estimated fair
values of the assets acquired and liabilities assumed. The acquisition was
accounted for as a purchase. The intangible assets identified in connection with
the acquisition were recorded (and amortized where applicable) in accordance
with the provisions of SFAS No. 142.
Acquisition cost $1,370,544
==========
Net assets acquired:
Current assets $ 297,244
Fixed assets 82,664
Goodwill 764,089
Intangible assets 1,245,157
----------
Total assets 2,389,154
Current liabilities 624,183
Long-term debt 394,397
----------
Total liabilities 1,018,580
----------
$1,370,574
NOTE 4. ACCOUNTS RECEIVABLE
2005 2004
--------- ---------
Accounts receivable $ 253,834 $ 1,068
Less: provision for returns (122,080) -
Less: allowance for doubtful accounts (36,624) -
--------- ---------
$ 95,130 $ 1,068
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
2005 2004
--------- ---------
Plant and equipment $ 289,083 $ 204,447
Motor vehicles 34,912 34,912
--------- ---------
323,995 239,359
Less accumulated depreciation (209,367) (189,503)
--------- ---------
$ 114,628 $ 49,856
========= =========
F-14
Depreciation expense was $20,896, $39,205 and $94,680 for the years ended June
30, 2005, 2004 and 2003, respectively. Of this depreciation expense, $26,252,
was included in discontinued operations for the year ended June 30, 2003.
NOTE 6. INVESTMENTS IN NON-MARKETABLE SECURITIES
A summary of the investments in non-marketable securities on the consolidated
balance sheet is presented below:
Effective
Percentage As of and for the Year Ended
Ownership June 30, 2005 June 30, 2004
-------- -------- --------
Investments In
Unconsolidated Affiliates:
Magnolia Broadband, Inc. 2.9% and 13% 831,066 831,066
Other 12,500 12,500
-------- --------
$843,566 $843,566
======== ========
MAGNOLIA BROADBAND, INC.
On April 14, 2000, the Company purchased 3,447,774 shares of Series A Preferred
stock in Magnolia Broadband ("Magnolia"), for 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. In October 2001, the
Company loaned Magnolia $200,000, these notes were converted into new Series A
Preferred Stock in March 2002.
Magnolia has successfully raised over $25 million since its inception from
investors such as SCP Private Equity Partners, Draper Fisher Gotham Ventures,
eCentury and Intel Capital. Despite its excellent technical achievements,
Magnolia will need to obtain additional funding to fund its future operations
until it achieves revenues and profitability. There is no assurance that it will
be able to do so in the future.
Magnolia Broadband is a development stage company established to develop and
market wireless based chips primarily for the mobile handset market.
The Company initially invested in Magnolia based on the track record of
Magnolia's founder, positive industry feedback together with the results of an
independent study commissioned by the Company to evaluate Magnolia's basic
technological premise and its market applications.
In assessing the fair value of our investment in Magnolia, we monitor their
progress through monthly board meetings and additional formal and informal
communications. Magnolia, since inception, has set technical goals and
timelines, which were invariably met or surpassed. Furthermore, the company
excelled in hiring high level technical staff with advanced degrees and
experience in management of corporations such as Nokia, Bell Labs, Motorola, and
Anadigics. The willingness of highly qualified individuals to leave established
corporations for a start-up opportunity provided validation for our belief in
Magnolia's potential. This promise was further validated by the significant
investments made by
F-15
leading venture capital funds in various tranches from 2002 through August 2005,
and by positive field trials and responses from potential customers, most
notably SK Telecom and Sprint PCS.
Based on Magnolia's achievements, some of which are summarized above, the
Company concluded that these positive accomplishments support the variables
considered in developing the valuations for the private placement transactions
which the Company used as a basis for concluding that its investment in Magnolia
was not reflected at a value in excess of fair value on its financial
statements.
The Company's ongoing monitoring and evaluation described above continues. Over
the next twelve months, among other goals, Magnolia anticipates commercial
production of its first Chipset product, as well as production of a second
commercial Chipset product. Furthermore, it plans to have successfully completed
integration of these products into commercial handsets thereby generating sales
revenue for the first time. The Company will continue to monitor Magnolia's
progress and will evaluate the carrying value of its investment based upon these
milestones being met.
In performing our analysis of the possible impairment of our investment in
Magnolia as of June 30, 2003, 2004 and 2005, we considered our investment in
Magnolia in total in accordance with paragraph 19(h) of APB No. 18.
In performing our analysis for 2003, we looked to the $6 million in financing
Magnolia received in July 2003 from a Series C Preferred Stock Purchase
Agreement with existing investors. Under this agreement, Magnolia received
additional funds from further sales of Series C Preferred Stock to these
investors if certain operational milestones were met. The Company determined
that based on the $6 million funding received from Magnolia in July 2003 and the
progress Magnolia had made in developing its technology and meeting milestones,
the Company's investment in Magnolia was not considered impaired at June 30,
2003. We again computed the fair value of our holdings in Magnolia Broadband by
multiplying the number of shares we owned by the July 2003 private placement
price, which resulted in a fair value that was greater than the carrying value
of our investment.
In performing our analysis for 2004, we looked to the $6 million in financing
Magnolia received in July 2003 from a Series C Preferred Stock Purchase
Agreement with existing investors, as well as the convertible notes received by
Magnolia in April 2004. The Company determined that based on the $6 million
funding received from Magnolia in July 2003 and the terms of the notes, as well
as the progress Magnolia had made in developing its technology and meeting
milestones, as described above, the Company's investment in Magnolia was not
considered impaired at June 30, 2004. We again computed the fair value of our
holdings in Magnolia Broadband by multiplying the number of shares we owned by
the July 2003 private placement price, as well as the conversion price of the
April 2004 Convertible Note, which resulted in a fair value that was greater
than the carrying value of our investment.
In performing our analysis for 2005, we looked to the $13.5 million in financing
Magnolia received during the fiscal year from existing and major outside
investors as well as the progress Magnolia had made in developing its technology
and meeting milestones, as described above. The Company's investment in Magnolia
is not considered impaired at June 30, 2005. We again computed the fair value of
our holdings in Magnolia Broadband by multiplying the number of shares we owned
by the price for shares paid by investors in the last placement round, which
resulted in a fair value that was greater than the carrying value of our
investment. Additionally we looked to an independent analysis of Magnolia's
value performed by a leading investment bank and concluded from this, as well,
that the fair value of our holdings was greater than the carrying value of our
investment.
F-16
NOTE 7. LONG-TERM NOTES RECEIVABLE
In connection with the sale of Lifestyle, which was completed in November 2000,
as well as the earlier sale of two other subsidiaries, the Company received as
partial consideration three notes receivable denominated in South African Rand.
These notes are subject to foreign currency risk and a portion of one is subject
to certain performance requirements of the debtor. Two of the notes require
monthly payments ranging from R50,000 ($8,000) to R30,000 ($5,000). The Company
has received all scheduled payments with respect to the first of these notes,
including interest in a timely fashion. The second note has a balance of
approximately $50,000 outstanding. The third note was for R52 million ($8
million) of which R20 million ($3.1 million) (plus accrued interest) has been
treated as contingent consideration to be recorded when collected as it is
secured only by the debtor's stock in Lifestyle and therefore collection is not
assured. R31.4 million ($4.8 million) of the third note, is payable as the
borrower collects on junior debt. In December 2004, the Company received payment
for this R31.4 million portion of the note. Further payments on this note are
dependent on circumstance related to the disposition of the stock that serves as
security for the note.
With respect to the Lifestyle note, the Company's South African subsidiary,
First South African Holdings (Pty) Ltd (FSAH) holds the remainder (approximately
$3.5 million) of the original note receivable, in the face amount of $8,000,000
from Salwin Investments (Pty) Ltd, a special purpose company, owned by First
Lifestyle Holdings management. The purpose of the transaction was to enable the
management of First Lifestyle Holdings (five executive directors) to acquire
shares in First Lifestyle Holdings Limited. Remainder of this note is payable on
the following basis:
(a) The shareholders of Salwin can inject funds into the company in
order to reduce the debt, without penalty.
(b) Should Salwin dispose of its shares in and claims against First
Lifestyle, the proceeds will be used to settle the Note. If there is
any shortfall in the proceeds, such amount will be written off.
(c) Any outstanding liability will irrevocably terminate on the 20th
anniversary of the Note, November 2020.
The repayment by First Lifestyle of the junior debt owed to Salwin will at all
times be subject to the senior debt covenants that govern the relationship
between First Lifestyle and its bankers. As of June 30, 2005, the Company had
received payment from Salwin of R 31.4 million in principal and interest. The
Company continues to accrue interest on the remaining R 18 million) portion of
the Note that it recorded upon the sale of First Lifestyle The Company monitors
the financial results of First Lifestyle Holdings on a quarterly and annual
basis. It is the Company's opinion that First Lifestyle is generating sufficient
cash flow to meet its senior debt obligations and senior bank covenants and that
the Lifestyle shares securing the note are of sufficient value to cover
repayment of the loan.
Having acquired, owned and operated the South African businesses, the Company is
well acquainted with the First Lifestyle Group, its management and its assets.
The cash flow generated by First Lifestyle has enabled it to pay down all its
Junior and Subordinated debt. Going forward, the management of Lifestyle cannot
realize value for their shares in Lifestyle prior to the payment of the Salwin
note. Based on these factors, the Company, has therefore concluded that its note
receivable from Salwin will be collected
F-17
through the efforts of Lifestyle management who will act to secure free access
to their shares in Lifestyle currently encumbered by the Salwin note agreement.
The timing of full payment on the loan is undetermined.
The Company has continued to accrue interest on the Salwin Note based on its
calculation as to the realizable value of the underlying collateral for the
Note. This analysis includes both objective valuation calculations, as well as
more subjective criteria as to the likelihood of Salwin shareholders accessing
liquidity for their Lifestyle shares in the medium term. There can be no
guarantee that our analysis is correct or that the realizable value will remain
sufficient to cover the full amount of the Note. Should future circumstances
dictate a reevaluation of our assumptions, we may cease accruing interest on the
Note or may impair its carrying value.
These notes bear interest at rates based on the lower of the South African
Bankers Acceptance rate or 12% (at June 30, 2005 the rate was 7%). Notes
receivable include accrued interest of approximately $108,067.
JUNE 30,
2005 2004
---------- ----------
Balance $3,254,035 $8,116,253
Less current portion 118,272 138,704
---------- ----------
Long-term portion $3,135,763 $7,977,549
========== ==========
NOTE 8. INTANGIBLE ASSETS
The components of amortized intangible assets as of June 30, 2005 and 2004 is as
follows:
Balance at June 30, 2005 Gross Carrying Accumulated
Amount mortization Total
---------- ---------- ----------
Customer lists $ 215,000 ($ 204,500) $ 10,500
Game titles 1,220,802 (20,347) 1,200,455
Covenant not to compete 32,555 (1,809) 30,746
---------- ---------- ----------
Balance at June 30, 2005 $1,468,357 ($ 226,656) $1,241,701
========== ========== ==========
Balance at June 30, 2004
Customer lists $ 215,000 ($ 202,500) $ 12,500
========== ========== ==========
Amortization expense for intangible assets was $23,809, $18,250, and $112,938
for the years ended June 30, 2005, 2004 and 2003, respectively. Of this
amortization expense $45,938, was included in discontinued operations for the
year end of June 30, 2003.
F-18
Estimated amortization expense for the five succeeding fiscal years is as
follows:
2006 $134,932
2007 $134,932
2008 $133,123
2009 $124,080
2010 $124,080
Thereafter $590,554
NOTE 9. DEBT
LINES OF CREDIT
In June 2002, Fantasy Sports obtained a secured line of credit facility from UBS
for borrowings up to $1.0 million, which is fully secured against cash balances
held in the Company's account. This facility is due on demand and has an
interest rate of 3.0%. The balance outstanding under this line of credit at June
30, 2005 and 2004 was $67,189 and $305,160, respectively.
LONG TERM DEBT
2005 2004
--------- ---------
Vehicle loans $ 10,633 $ 16,276
Working Capital loan 360,259 -
Capital lease obligations - 19,240
--------- ---------
370,892 35,516
Less current portion (220,845) (24,883)
--------- ---------
Long-term debt, net $ 150,047 $ 10,633
========= =========
Scheduled debt maturities for the next five fiscal years are $220,845 in fiscal
2006 and, $150,047 in fiscal 2007.
NOTE 10. INCOME TAXES
The components of the Company's provision for income taxes were as follows:
2005 2004 2003
---- ---- ----
Current:
Federal $ - $ - $ -
Foreign - - -
State - - -
---------- -------- ---------
- - -
---------- -------- ---------
Deferred:
Federal - - -
Foreign - - -
State - - -
---------- --------- ---------
- - -
---------- --------- ---------
$ - $ - $ -
========== ======== ========
F-19
A reconciliation of income tax computed at the statutory rates to income tax
expense (benefit) is as follows:
2005 2004 2003
---- ---- ----
Tax expense at the statutory rate $49,432 $340,858 $23,578
Tax effect on Income (loss) of non-US
operations 61,768 (324,908) (120,201)
State and provincial income taxes, net
of federal income tax 15,669 1,446 (8,526)
Change in effective tax rate (128,330) - -
Permanent differences 3,851 447 7,407
Valuation allowance (2,390) (17,843) 97,742
-------- --------- --------
$ - $ - $ -
============= ============= =============
At June 30, 2005, the Company has available U.S. net operating loss carry
forwards of approximately $4,591,581 which expire through 2023 and Canadian net
operating loss carry forwards of approximately $3,210,000 which expire through
2013.
In addition to the net operating loss carry forward, the Company had deferred
tax assets which relate primarily to amortization of goodwill and fixed assets
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, 2005 and 2004, a valuation allowance has
been established against the deferred tax asset since the Company believes it is
more likely than not that that the amounts will not be realized.
The components of the deferred tax assets (liabilities) were as follows at June
30, 2005 and 2004:
Current: 2005 2004
---- ----
Net operating losses $ 2,763,820 $ 1,717,938
Accrued prize winnings 91,530 57,062
Accrued postage - 5,920
Deferred revenue 251,699 256,508
---------- ----------
3,107,049 2,037,428
---------- ----------
Long-term:
Amortization of goodwill (269,526) (161,007)
Depreciation 53,559 8,261
---------- ----------
(215,967) (152,746)
---------- ----------
2,891,082 1,884,682
Total valuation allowance (2,891,082) (1,884,682)
========== ==========
Deferred tax asset $ - $ -
========== ==========
The Silverstar Holdings Limited is a Bermuda registered corporation where there
are no income tax laws applicable.
F-20
FSAH, a South African registered corporation, incurred no income tax charges in
fiscal year 2005 and 2004.
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 2005, 2004 and 2003.
At June 30, 2005, no provision for income taxes has been made on approximately
$513,000 of foreign earnings, which are expected to be reinvested indefinitely.
Upon distribution of those earnings in the form of dividends or otherwise, the
Company could be subject to U.S. income taxes (subject to adjustment for foreign
tax credits, if any), state income taxes, and withholding taxes payable to
various foreign countries. Determination of the amount of unrecognized deferred
U.S. tax liability is not practicable because of the complexities associated
with this hypothetical calculation.
In December 2004, the FASB issued FASB Staff Position ("FSP") No. 109-2,
"Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision with the American Jobs Creation Act of 2004" ("FSP 109-2"), The
American Jobs Creation Act of 2004 (the "Act") provides for a special one-time
tax deduction of 85% of certain foreign earnings that are repatriated as defined
in the Act. FASB Statement No. 109, "Accounting for Income Taxes," requires
adjustments of deferred tax liabilities and assets for the effects of a change
in tax laws or rates in the period that includes the enactment date. FSP No.
109-2 provides an exception to allow an enterprise time beyond the financial
reporting period of enactment to evaluate the effect of the Act on its plan for
reinvestment or repatriation of foreign earnings for purposes of applying FASB
Statement No. 109.
The Company has not yet completed evaluating the impact of the repatriation
provisions. Accordingly, as provided for in FSP 109-2, the Company has not
adjusted its tax expense or deferred tax liability to reflect the repatriation
provisions of the Jobs Act.
NOTE 11. DISCONTINUED OPERATIONS
STUDENT SPORTS, INC.
On June 10, 2003, the Company sold substantially all the assets and liabilities
as of May 15, 2003 of Student Sports, a media company producing publications,
television programs and various marketing initiatives for the high school sports
market. The purchaser is an entity controlled by some, but not all of the
stockholders from which the Company originally acquired Student Sports in
September 2001. Those stockholders who participated in the repurchase agreed to
surrender the right to receive shares of Company common stock which they
received as contingent consideration in the Company's acquisition of Student
Sports. As a result, an obligation to issue approximately 914,000 common shares,
valued at approximately $492,000 has been included as a liability relieved in
connection with the sale in the calculation of the loss associated with the
disposition. The calculation of loss from disposition also includes the value of
the Company common stock returned, as well as the cash paid. A summary of the
calculation of the loss on disposition is approximately as follows:
Cash received $ 1,000
Common stock returned 231,000
Liability to issue common stock relieved 492,000
---------
Total consideration 724,000
Net book value transferred (987,000)
---------
Loss on disposition $(263,000)
=========
F-21
In September 2001 when Student Sports was acquired, a commitment to issue up to
1,500,000 shares of Company common stock, at the lower of $3.00 per share or the
market price of the stock, not to exceed $1,500,000 was entered into. The only
contingency for the issuance of the shares was time. The shares were to be
issued on March 31, 2004. Pursuant to EITF 97-15, the contingent consideration
was recorded at the date of acquisition as a liability of $807,000, the
1,500,000 shares at 80% ($0.538 per share) of the average market value for the
20 trading days prior to closing. The remaining liability to issue shares,
included as a liability in the accompanying consolidated balance sheet
($223,559) represents the obligation to issue common shares to those rights
holders who did not surrender their rights.
Those rights that were not surrendered entitle the holders to receive Company
common stock on March 31, 2004. The Company is currently negotiating with the
remaining rights holders in an effort to reduce or eliminate the number of
common shares that the Company must issue in connection with the contingent
consideration in light of the poor performance of Student Sports.
In accordance with accounting principles generally accepted in the United States
of America, the operating results and net assets related to Student Sports, Inc.
have been included in discontinued operations in the company's consolidated
statements of operations and consolidated balance sheets.
The following summarizes the operating results of Student Sports, discontinued
operations:
ELEVEN MONTHS
ENDED
MAY 15,
2003
===========
Revenue $ 1,285,065
===========
Operating loss $ ( 736,947)
===========
Loss on disposal $ (262,754)
===========
CALCULATION OF LOSS ON SALE OF STUDENT SPORTS
Book value of assets transferred $ 1,487,245
Cost of shares issued at acquisition 175,220
Liabilities transferred (501,660)
Liability to issue shares relieved, at cost (666,814)
Common shares returned at fair value on date of sale (231,237)
-----------
Loss on disposition $ 262,754
===========
F-22
NOTE 12: CASH FLOWS
Changes in operating assets and liabilities consist of the following:
2005 2004 2003
---------- --------- ---------
Decrease (increase) in accounts receivable $ (44,120) $ 16,748 $ 5,413
Decrease (increase) in inventories 18,845 148,734 (46,483)
Decrease (increase) in prepaid expenses and
current assets (2,115) 83,425 (20,010)
Increase (decrease) in overdraft - (567) 567
(Decrease) increase in accounts payable (169,746) (255,867) 222,480
(Decrease) increase in accrued expenses and
deferred revenue (33,212) (199,186) 31,294
---------- --------- ---------
$ (230,348) $(206,713) $ 193,261
========== ========= =========
Net cash provided used in discontinued operations
consists of the following:
Net loss of discontinued operations $ - $ - $(999,700)
Impairment of intangible assets - - 322,000
Depreciation and amortization - - 72,190
Bad debts expense - - 3,700
Changes in operating accounts - - 113,481
Loss on Disposal of Fixed Assets - - 6,502
Acquisition of property plant and equipment - - (21,207)
Short - term borrowings -net - - 96,045
Repayment of long term debt - - (14,812)
Proceeds from equipment loans - - 322,000
Cash (included in) from net assets from
discontinued operations - - -
Net loss on sale of assets - - 174,801
---------- --------- ---------
$ - $ - ($247,000)
---------- --------- ---------
Non-cash investing and financing activities:
Conversion of Class B shares to common
Shares $ 613 $ 500 $ -
========== ========= =========
Retirement of treasury shares $ $ - $ 25,135
========== ========= =========
Financing of vehicle purchase $ $ - $ 22,800
========== ========= =========
Warrants issued for acquisition $ $ - $ -
========== ========= =========
Stock issued for acquisition $ 167,400 $ - $ -
========== ========= =========
$ 517,676 $ - $ -
========== ========= =========
Issuance of debt for acquisition $ 394,395 $ - $ -
========== ========= =========
NOTE 13. BUSINESS SEGMENT INFORMATION
As a result of the acquisition of Strategy First on April 21, 2005 (see Note 3),
the Company now operates in two segments - entertainment software and internet
fantasy sports games. The operations of the entertainment software specialize in
the publishing of software games for the PC platform The operations
F-23
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.
During fiscal year 2003 the Company had two reportable segments, which included
strategic business units that offered different products and services. These
business units were managed separately as Student Sports provided marketing
services and Fantasy Sports provided entertainment services. As the company
changed its focus, the Company sold Student Sports which is therefore being
reported as discontinued operations. As a result, continuing operations for the
fiscal years ending June 30, 2004 and June 30, 2003 reflect that the company
operated in only one segment, consisting of fantasy sports games.
Information concerning identifiable assets as of June 30, 2005 and 2004 for the
segments in which the Company operated are shown in the following table.
Corporate assets are principally cash and notes receivable.
YEAR ENDED JUNE 30,
IDENTIFIABLE ASSETS: 2005 2004
----------- -----------
Segments:
Entertainment software $ 2,345,845 $ -
Internet fantasy sports games 3,195,566 3,230,867
----------- -----------
5,541,411 3,230,867
Corporate 9,159,054 10,034,591
----------- -----------
Consolidated Totals $14,700,465 $13,265,458
=========== ===========
EXPENDITURES FOR ADDITIONS TO LONG-LIVED ASSETS: 2005 2004
-------- --------
Segments:
Entertainment software $685,000 $ -
Internet fantasy sports games - 542
-------- --------
685,000 542
Corporate 190,267 -
-------- --------
Consolidated Totals $875,426 $ 542
======== ========
F-24
SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES
YEARS ENDED JUNE 30, 2005, 2004 AND 2003
YEAR ENDED JUNE 30,
2005 2004 2003
----------- ----------- -----------
Revenues:
Segments:
Entertainment Software $ 353,343 $ - $ -
Internet Fantasy Sports Game 1,945,911 2,367,463 3,141,448
----------- ----------- -----------
Consolidated Totals $ 2,299,254 $ 2,367,463 $ 3,141,448
=========== =========== ===========
Income (loss) from continuing operations before income taxes:
Segments:
Entertainment software $ (2,343) $ - $ -
Internet Fantasy Sports game 436,613 72,937 (304,545)
----------- ----------- -----------
434,270 72,937 (304,545)
=========== =========== ===========
Corporate:
Corporate general and administrative (1,078,383) (945,276) (1,010,089)
Other income (expense) 158,043 11,801 (17,443)
Foreign currency gains (losses) 81,773 1,287,291 1,763,115
Internet income 586,830 628,727 650,329
Interest expense (23,695) (25,385) (12,318)
Income (loss) from continuing operations $ 158,838 $ 1,030,105 $ 1,069,049
----------- ----------- -----------
Discontinued operations:
Loss from operations - (27,582) (736,947)
Loss on disposition - - (262,754)
----------- ----------- -----------
Net Income $ 158,838 $ 1,002,523 $ 69,348
=========== =========== ===========
F-25
NOTE 14. STOCK OPTION PLAN
The Board of Directors has adopted the Company's 1995 Stock Option Plan. The
Stock Option Plans provide 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 Plans is administered by the Compensation Committee of the
Board of Directors. The committee shall determine the terms of the options
exercised, including the exercise price, the number of shares subject to the
option and the terms and conditions of exercise. No options granted under the
Stock Option Plan are transferable by the optionee other than by the will or the
laws of descent and distribution.
The exercise price of Incentive Stock Options granted under the plan must be at
least equal to the fair market value of such shares on the date of the grant
(110% of fair market value in the case of an optionee who owns or is deemed to
own more than 10% of the voting rights of the outstanding capital stock of the
Company or any of its subsidiaries). The maximum term for each Incentive Stock
Option granted is ten years (five years in the case of an optionee who owns or
is deemed to own more than 10% of the voting rights of the outstanding capital
stock of the Company or any of its subsidiaries). Options shall be exercisable
at such times and in such installments as the committee shall provide in the
terms of each individual option. The maximum number of shares for which options
may be granted to any individual in any fiscal year is 210,000.
The Stock Option Plans also contains an automatic option grant program for the
Directors. Each person who is director of the Company following an annual
meeting of shareholders will automatically be granted an option for an
additional 15,000 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, 2005, has granted options to purchase 1,371,666
shares of common stock under the Plans, of which 160,000 options have been
exercised and 90,000 options expired unexercised.
2004 STOCK INCENTIVE PLAN
The Company's board of directors has adopted and the Company's shareholders
approved the Company's 2004 Stock Incentive Plan (the "2004 Plan"). The 2004
Plan is intended to provide an incentive to employees (including executive
officers), and directors of and consultants to the Company and its affiliates,
and is intended to be the successor plan to the 1995 Stock Option Plan (which
terminates in November 2005). The 2004 Plan authorizes the issuance of a maximum
of 1,000,000 shares of the Company's common stock (subject to adjustment as
described in the 2004 Plan) pursuant to stock grants or options to purchase
common stock to employees (including officers and directors who are employees)
and non-employee directors of, and consultants to, us.
The 2004 Plan provides for the grant of (i) "incentive stock options"
("ISOs") within the meaning of Section 422(b) of the Internal Revenue Code of
1986, as amended (the "Code"), (ii) non-qualified stock options (which are stock
options that do not qualify as ISOs), and (iii) stock awards.
The 2004 Plan will be administered by our board of directors or a
committee of the Company's board of directors consisting of at least two members
of the Company's board, each of whom is a "non-
F-26
employee director" within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934. It is also intended that each member of any
such committee will be an "outside director" within the meaning of Section
162(m) of the Code.
Options granted under the 2004 Plan will be subject to, among other
things, the following terms and conditions:
o The exercise price of each option will be determined by the
administrator; provided, however, that the exercise price of
an ISO may not be less than the fair market value of our
common stock on the date of grant (110% of such fair market
value if the optionee owns (or is deemed to own) more than 10%
of our voting power).
o Options may be granted for terms determined by the
administrator; provided, however, that the term of an ISO may
not exceed 10 years (5 years if the optionee owns (or is
deemed to own) more than 10% of our voting power).
o The maximum number of shares of the Company's common stock for
which options may be granted to an employee in any calendar
year is 230,000. In addition, the aggregate fair market value
of shares with respect to which ISOs may be granted to an
employee which are exercisable for the first time during any
calendar year may not exceed $100,000.
o The exercise price of each option is payable in full upon
exercise or, if the applicable stock option contract entered
into by us with an optionee permits, in installments.
o Options may not be transferred other than by will or by the
laws of descent and distribution, and may be exercised during
the optionee's lifetime only by the optionee or his or her
legal representatives.
o Except as may otherwise be provided in the applicable option
contract, if the optionee's relationship with us as an
employee or consultant is terminated for any reason (other
than the death or disability of the optionee), the option may
be exercised, to the extent exercisable at the time of
termination of such relationship, within three months
thereafter, but in no event after the expiration of the term
of the option.
o The Company's may withhold cash and/or shares of the Company's
common stock having an aggregate value equal to the amount
which we determine is necessary to meet its obligations to
withhold any federal, state and/or local taxes or other
amounts incurred by reason of the grant or exercise of an
option, its disposition or the disposition of shares acquired
upon the exercise of the option. Alternatively, the Company
may require the optionee to pay us such amount, in cash,
promptly upon demand.
The Company, through June 30, 2005, has granted options to purchase 1,371,666
shares of common stock under the Plans, of which 160,000 options have been
exercised and 90,000 options expired unexercised.
F-27
SHARES WEIGHTED
SUBJECT TO AVERAGE
OPTIONS EXERCISE PRICE
OUTSTANDING PER OPTION
Balance at June 30, 2002 1,813,333 3.35
Granted - plan options 45,000 0.16
Expired - plan options (30,000) 6.00
Terminated - non- plan options (365,000) (2.58)
---------
Balance at June 30, 2003 1,463,333 3.39
---------
Granted - plan options 60,000 1.61
Expired - plan options (145,000) 0.79
Expired - non-plan options (35,000) 0.35
Terminated - non- plan options (130,000) 3.77
Terminated - plan options (20,000) 2.19
---------
Balance at June 30, 2004 1,193,333 3.68
---------
PART III. GRANTED OPTIONS
Granted non-plan options 450,000 2.00
Granted-plan options 390,000 1.37
PART IV. EXERCISED OPTIONS (15,000) 0.43
Expired - plan options (40,000) 5.13
Expired - non-plan options (433,333) 4.08
Terminated - non- plan options
Terminated - plan options
Balance at June 30, 2005 1,545,000 2.49
Significant option groups outstanding at June 30, 2005 and related weighted
average exercise price and weighted average remaining life are as follows:
OPTIONS OUTSTANDING AND EXERCISABLE
---------------------- -------------- ----------------- -------------------------
WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE
EXERCISE EXERCISE REMAINING
PRICES SHARES PRICE LIFE (IN YEARS)
---------------------- -------------- ----------------- -------------------------
Less than $1.00 125,000 $0.46 1.42
$1.00 to $2.19 770,000 1.72 3.76
$3.75 to $4.88 250,000 4.75 2.00
$5.00 to $6.00 200,000 5.00 0.60
---------
1,345,000
The Company has also issued options during 2001 to an employee to acquire 4.45
shares of Fantasy common stock for $47,191 per share. These options vested
immediately and had a life of three years.
F-28
The fair value of this option utilizing the Black Scholes option pricing model
amounted to $6,451 per share. The assumptions used in this model were as
follows: risk-free interest rate 4.96%; expected life 3 years; expected
volatility 0.0%; and expected dividend yield of 0.0%. This option expired during
the first quarter of fiscal 2004.
NOTE 15. 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.
During fiscal 2001, Fantasy issued warrants to acquire 4.68 shares of Fantasy
common stock with an exercise price of $47,191 per share to TWI Interactive,
Inc, (see Note 21).
These warrants were issued in connection with a contract to perform consulting
services. Compensation recorded pursuant to that contract includes the fair
value of these warrants. These warrants vest immediately and have a life of four
years. The fair value of these warrants, which was determined utilizing the
Back-Scholes pricing model, amounted to approximately $8,400 per share, a total
of approximately $39,300. The assumptions used in this model were as follows:
risk free interest rate 4.96%; expected life 4 years; expected volatility 0.0%;
and expected dividend yield 0.0%.
In July 2004, 180,000 warrants to purchase one share of Class A common stock at
an exercise price of $0.81 per share were granted to a consultant for services
to be rendered. These warrants were valued at $115,210 using a Black-Scholes
pricing model with the following assumptions: expected volatility of 142%; a
risk-free interest rate of 3.19% and an expected life of three years. An expense
has been recognized for the fair value of these warrants granted to such
non-employees in the amounts of $32,000 for fiscal year 2005. Effective May 1,
2005 the consultant was appointed to the Board at Strategy First and the
remainder of his options valued at $83,210 vested immediately. These options
were included in compensation expense deducted from income from continuing
operations as prescribed by Accounting Principles Board Opinion #25.
In April 2005, 200,000 warrants to purchase one share of Class A common stock at
an exercise price of $2.50 per share were granted to former shareholders of
Strategy First as part of the consideration paid in connection with the
acquisition of that company. These warrants were valued at $167,400 using a
Black-Scholes pricing model with the following assumptions: expected volatility
of 126%; a risk-free interest rate of 3.77% and an expected life of three years.
These warrants vest immediately.
F-29
Warrants outstanding at June 30, 2005 were as follows:
SILVERSTAR HOLDINGS, LTD.
Number of Exercise Expiration
Warrant Warrants Price Date Entitlement
------- -------- ----- ---- -----------
Debenture Warrants 2001 52,189 $6.00 July 31, 2007 One share of common stock
Capital Raising Warrants 150,000 $6.00 July 31, 2007 One share of common stock
Warrants issued for consulting
services 180,000 $0.81 July 31, 2007 One share of common stock
Warrants issued for acquisition
200,000 $2.50 April 21, 2008 One share of common stock
NOTE 16. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
LEASES
The Company leases office facilities and various equipment under non-cancelable
operating leases, expiring through January 2006. Office facility and equipment
rent expense included in continuing operations for the years ended June 30,
2005, 2004 and 2003 was approximately $86,000, $95,000 and $137,000,
respectively.
Approximate future minimum lease payments under non-cancelable office and
equipment lease agreements are as follows:
YEAR ENDING JUNE 30:
2006 114,946
2007 45,686
2008 18,514
2009 -
2010 -
--------
$179,146
========
LITIGATION
The Company, from time to time, is involved in various litigation arising in the
ordinary course of business. Based on currently available information,
management believes that there are no pending claims that will have a material
adverse effect on the Company's operating results or financial position.
EMPLOYMENT AGREEMENTS
SILVERSTAR HOLDINGS LTD.
On January 29, 2005, the Company's Board of Directors approved an 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
F-30
of January 1, 2005 and continuing through and until December 31, 2009. As
compensation for his services, Mr. Kabatznik will receive an annual base salary
of $325,000 increasing by $10,000 in 2006 and increasing to $350,000 per annum
from the beginning of 2007 to the end of 2009. During the term of the agreement,
the employee shall be entitled to an annual bonus in an amount to be determined
by the Company's Board of Directors and Compensation Committee based on results
of operations of the Company for each fiscal year starting in the fiscal year
ending June 30, 2006. Such bonus will be dependant on the Company's net income
from operations achieving a rate of return on equity of not less than 20%
annually.
STRATEGY FIRST, INC
On April 21, 2005, Strategy First, Inc., entered into employment agreements with
Don McFatridge, Brian Clarke and Richard Therrien. The employment agreements are
on an at-will basis and call for salaries of $Cdn 180,000, 160,000 and 75,000,
respectively Each employee is entitled to a bonus of up to 30% of their salary
at the discretion of Silverstar Holdings. Mr. McFatridge serves as Chief
Executive Officer of Strategy First and received options to acquire 75,000
shares of Silverstar Holdings Common Stock. These options vest annually over a
three-year period. Mr. Clarke serves as Chief Operating Officer of Strategy
First and received options to acquire 75,000 shares of Silverstar Holdings
Common Stock. These options vest annually over a three-year period. Mr. Therrien
serves as Chief Technology Officer of Strategy First and received options to
acquire 25,000 shares of Silverstar Holdings Common Stock. These options vest
annually over a three-year period.
OTHER
South African Secondary Tax on Companies at 12.5% is payable on all dividends
declared out of distributable reserves of South African companies. There were no
dividends of this nature declared in 2005, 2004 or 2003.
During 2005, 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 7.5%
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, and the warrants expired on June 21, 2005 (see Note
16).
On October 7, 2002, Fantasy Sports entered into an agreement with Sports Team
Analysis and Tracking Systems of Missouri, Inc. ("STATS"). This agreement
subsequently modified on July 21, 2003, calls for STATS to provide hosting,
programming, customer service and marketing services for Fantasy Sports. In
consideration for these services, Fantasy pays STATS an amount of $23,500 per
month, This agreement expires December 31, 2005.
F-31
NOTE 17. QUARTERLY INFORMATION (UNAUDITED)
QUARTERS ENDED
------------------------------------------------------- ---------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
2004 2004 2005 2005 TOTAL
--------- --------- --------- --------- ---------
Revenues $ 610,335 $ 505,300 $ 249,851 $ 933,768 $ 2,299,254
Income from continuing operations 125,283 787,207 (646,849) (106,803) 158,838
Net income 125,283 787,207 (646,849) (106,803) 158,838
Net income per share:
Basic 0.01 0.09 (0.07) (0.01) 0.02
Diluted 0.01 0.09 (0.07) (0.01) 0.02
Weighted average common stock Outstanding:
Basic 8,695,513 8,695,513 8,746,511 9,026,948 8,791,121
Diluted 9,000,345 9,037,886 8,746,511 9,026,948 9,170,411
F-32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure (1)
that information required to be disclosed by us in the reports we file or submit
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is
recorded, processed, summarized, and reported within the time periods specified
in the Securities and Exchange Commission's ("SEC") rules and forms, and (2)
that this information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management necessarily was required to apply its judgment in
evaluating the cost benefit relationship of possible controls and procedures.
Prior to the filing date of this annual report, under the supervision and review
of our Chief Executive Officer and Chief Financial Officer, we conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this report.
Based on that evaluation, our Chief Executive Officer and our Chief Financial
Officer have concluded that our disclosure controls and procedures are effective
in alerting them in a timely manner to material information regarding us
(including our consolidated subsidiaries) that is required to be included in our
periodic reports to the SEC.
In addition, there have been no significant changes in our internal controls or
in other factors that could significantly affect those controls since our
evaluation. We cannot assure you, however, that our system of disclosure
controls and procedures will always achieve its stated goals under all future
conditions, no matter how remote.
ITEM 9B. OTHER INFORMATION
None.
-18-
PART V.
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...................... 59 Chairman of the Board
Clive Kabatznik................... 48 Vice Chairman of the Board, Chief Executive Officer,
President and Chief Financial Officer
Cornelius J. Roodt................ 46 Director
John Grippo ...................... 49 Director
Douglas Brisotti ................. 37 Director
MICHAEL LEVY is our co-founder and has served as Chairman of our Board of
Directors since our inception in 1995. Since 1987, Mr. Levy has been the Chief
Executive Officer and Chairman of the Board of Arpac L.P., a Chicago-based
manufacturer of plastic packaging machinery.
CLIVE KABATZNIK is our co-founder and has served as a director and our President
since inception in 1995 and as our Vice Chairman, Chief Executive Officer and
Chief Financial Officer since October 1995. Mr. Kabatznik has served as
President of Colonial Capital, Inc. a Miami-based investment banking company
that specializes in advising middle market companies in areas concerning
mergers, acquisitions, private and public agency funding and debt placements.
CORNELIUS J. ROODT has served as a member of our Board of Directors since
December 1996 and was appointed Managing Director and Chief Financial Officer of
one of our subsidiaries, First South African Holdings (Pty.) Ltd., in July 1996.
Mr. Roodt was responsible for overseeing all of the South African operations of
First South African Holdings (Pty.) Ltd. Mr. Roodt led the buyout of First
Lifestyle Holdings and he is currently Chief Executive of the successor company,
First Lifestyle Holdings, (Pty) Ltd. He is no longer an executive officer of any
of our subsidiaries. From February 1994 to June 1996, Mr. Roodt was a senior
partner at Price Waterhouse Corporate Finance, South Africa. From January 1991
to January 1994, he was an audit partner at Price Waterhouse, South Africa.
JOHN GRIPPO, has served as a member of our Board of Directors since 2004 and has
been the president of his own financial management practice, John Grippo, Inc.
since 2000. His firm provides services as Chief Financial Officer to small to
mid-sized public and private companies and also provides other related
accounting and consulting services. Prior to that, Mr. Grippo served as for ten
years as a Chief Financial Officer to companies in the housewares, electric
vehicles and financial services industries. He worked for five years as an
auditor with Arthur Andersen, LLP, followed by seven years in various accounting
positions in the financial services industry. He is a member of the New York
Society of Certified Public Accountants and the American Institute of Certified
Public Accountants.
DOUGLAS BRISOTTI has most recently served as president of the games/media
division at theglobe.com, an Internet communications corporation, and its
subsidiaries including Chips & Bits, a game distribution business; Computer
Games Magazine, a consumer print publication for PC games; Now Playing Magazine
a pop culture entertainment print publication; and Computer Games Online
(www.cgonline.com) and Now Playing Online (www.nowplayingmag.com), the
magazines' online
-19-
counterparts. Prior to theglobe.com, Mr. Brisotti served as group director for
Yahoo! Inc.'s Southeast United States and Caribbean regions. At Yahoo! he was
primarily responsible for strategic client revenue relationships, including
content integration, merchant integration, sponsorships and advertising, as well
as expanding relationship internationally.
All of our directors hold office until their respective successors are elected,
or until death, resignation or removal. Officers hold office until the meeting
of the Board of Directors following each Annual Meeting of Stockholders and
until their successors have been chosen and qualified.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Our Board of Directors has a separate audit committee,. The audit committee is
composed of Michael Levy, John Grippo and Cornelius J. Roodt, each of whom are
independent directors as defined in Rule 10A-3 of the Securities Exchange Act of
1934. The Board of Directors has determined that Messrs Grippo and Roodt meet
the standards of an audit committee "financial expert" as defined by the
Sarbanes Oxley Act of 2002.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Section 16(a) of the Securities Exchange Act of 1934 requires our executive
officers and directors, and persons who beneficially own more than 10% of our
common stock, to file initial reports of ownership and reports of changes of
ownership with the Securities and Exchange Commission and furnish copies of
those reports to us. Based solely on a review of the copies of the reports
furnished to us to date, or written representations that no reports were
required, we believe that all reports required to be filed by such persons with
respect to our fiscal year ended June 30, 2004 were timely made.
CODE OF ETHICS
The Company's Board of Directors adopted a Code of Ethics which applies to all
of the Company's directors, executive officers and employees. A copy of the Code
of Ethics is available upon request to the Company's counsel at Troutman
Sanders, LLP, Chrysler Building, 405 Lexington Avenue, 9th Floor, New York, NY
10174.
ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation table sets forth the aggregate compensation
we paid or accrued to our Chief Executive Officer during the fiscal years ended
June 30, 2003, June 30, 2004 and June 30, 2005. Apart from our Chief Executive
Officer, whose annual salary is $325,000, none of our executive officers of any
of our subsidiaries received compensation in excess of $100,000 during the
fiscal year ended June 30, 2005.
-20-
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
NAME AND FISCAL
PRINCIPAL POSITION YEAR SECURITIES
ENDED SALARY BONUS OTHER ANNUAL RESTRICTED UNDERLYING
JUNE 30, COMPENSATION STOCK AWARDS STOCK OPTIONS
- ------------------ -------- ------ ----- ------------ ------------ -------------
$ $
Clive Kabatznik, 2005 320,000 0 --- 9,090 515,000
President and Chief 2004 315,000 0 --- --- 5,000
Executive Officer 2003 315,000 0 5,000
The options granted to Mr. Kabatznik during fiscal year ended June 30, 2005
represent:
.... an option granted under our 1995 Stock Option Plan to purchase 15,000 shares
of our common stock, which is currently exercisable at an exercise price of
$1.06 per share;
.... an option granted under our 1995 Stock Option Plan to purchase 50,000 shares
of our common stock, which is currently exercisable at an exercise price of
$2.00 per share;
.... a nonqualified option granted to purchase 450,000 shares of our common
stock, which is currently exercisable at an exercise price of $2.00 per share;
The options granted to Mr. Kabatznik during fiscal year ended June 30, 2004
represent:
o ... an option granted under our 1995 Stock Option Plan to
purchase 5,000 shares of our common stock, which is currently
exercisable at an exercise price of $1.61 per share;
The options granted to Mr. Kabatznik during fiscal year ended June 30, 2003
represent:
o ... an option granted under our 1995 Stock Option Plan to
purchase 5,000 shares of our common stock, which is currently
exercisable at an exercise price of $0.16 per share;
-21-
OPTIONS GRANTED IN FISCAL 2005
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, 2005, 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
NAME NUMBER OF PERCENT OF TOTAL PER EXPIRATION DATE VALUE AT ASSUMED ANNUAL
SECURITIES TO SHARE RATE OF STOCK PRICE
UNDERLYING EMPLOYEES IN EXERCISE APPRECIATION
OPTIONS FISCAL YEAR PRICE FOR OPTION TERM
- --------------------------- ------- ----------- ----- ---------------- ------------------------
5% 10%
Clive Kabatznik 15,000 2.4% $1.06 December 18, $15,000 $21,000
2009
Clive Kabatznik 500,000 81.3% $2.00 January 31, $485,000 $693,000
2010
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
During the fiscal year ended June 30, 2005 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, 2005. 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, 2005, or
$1.63, over the exercise price of the option.
- ------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN THE MONEY
UNEXERCISED OPTIONS AT OPTIONS AT FISCAL YEAR-END
FISCAL YEAR-END
- ------------------------------------------------------------------------------------------------------------
NAME OF EXECUTIVE OFFICER EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ----------------- ------------------ ---------------- ---------------------
Clive Kabatznik 975,000 - $8,650 $-
DIRECTOR COMPENSATION
Except for Mr. Levy, our directors do not receive fixed compensation for their
services as directors other than options to purchase 15,000 shares of our common
stock granted to each director and options to purchase 25,000 shares of our
common stock granted to the Chairman of the Board of Directors, and options to
purchase 20,000 shares of our common stock granted to the Chairman of the Audit
Committee, in each case under our 1995 Stock Option Plan. Mr. Levy receives an
annual consulting fee of $60,000 and options to purchase 25,000 shares of our
common stock per year, solely in connection with his service as Chairman of our
Board of Directors. Additionally, each Director received 9,090 shares of
restricted common stock. Directors are reimbursed for their reasonable
out-of-pocket expenses incurred in connection with their duties.
-22-
EMPLOYMENT AGREEMENTS
On January 29, 2005, the Company's Board of Directors approved an 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 January 1,
2005 and continuing through and until December 31, 2009. As compensation for his
services, Mr. Kabatznik will receive an annual base salary of $325,000
increasing by $10,000 in 2006 and increasing to $350,000 per annum from the
beginning of 2007 to the end of 2009. During the term of the agreement, the
employee shall be entitled to an annual bonus in an amount to be determined by
the Company's Board of Directors and Compensation Committee based on results of
operations of the Company for each fiscal year starting in the fiscal year
ending June 30, 2006. Such bonus will be dependant on the Company's net income
from operations achieving a rate of return on equity of not less than 20%
annually.
On November 30, 2000, Fantasy Sports Inc. entered into Employment Agreement with
Gregory S. Liegey (the "Employment Agreement"). Pursuant to the Employment
Agreement, Mr. Liegey served as the Chief Executive Officer, of Fantasy Sports
Inc. beginning as of November 30, 2000 and continuing through and until November
30, 2003. This agreement was not renewed upon its termination.
On April 21, 2004, Strategy First, Inc., entered into employment agreements with
Don McFatridge, Brian Clarke and Richard Therrien.
The employment agreements are on an at-will basis and call for salaries of $Cdn
180,000, 160,000 and 75,000, respectively.
Each employee is entitled to a bonus of up to 30% of their salary at the
discretion of the board of directors.
Mr. McFatridge serves as Chief Executive Officer and received 75,000 options to
acquire Silverstar Holdings Common Stock. These options vest annually over a
three-year period.
Mr. Clarke serves as Chief Operating Officer and received 75,000 options to
acquire Silverstar Holdings Common Stock. These options vest annually over a
three-year period.
Mr. Therrien serves as Chief Technology Officer and received 25,000 options to
acquire Silverstar Holdings Common Stock. These options vest annually over a
three-year period.
1995 STOCK OPTION PLAN
Our Board of Directors has adopted and our shareholders, prior to our initial
public offering, approved our 1995 Stock Option Plan. Our 1995 Stock Option Plan
provides for the grant of:
o options that are intended to qualify as incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986 to key
employees; and
o options not intended to so qualify to key employees, including our
directors and officers, and to directors and consultants who are not
employees.
The total number of shares of our common stock for which options may be granted
under our 1995 Stock Option Plan is 850,000 shares.
Our 1995 Stock Option Plan is administered by the compensation committee of our
Board of Directors. The compensation committee will determine the terms of
options exercised, including the exercise price, the number of shares subject to
the option and the terms and conditions of exercise. No option granted
-23-
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, 2005, we have granted options to purchase 255,000 shares
of our common stock under our 1995 Stock Option Plan, 165,000 of which have been
exercised.
2004 STOCK INCENTIVE PLAN
Our board of directors has adopted and our shareholders approved our 2004 Stock
Incentive Plan (the "2004 Plan"). The 2004 Plan is intended to provide an
incentive to employees (including executive officers), and directors of and
consultants to the Company and its affiliates, and is intended to be the
successor plan to the 1995 Stock Option Plan (which terminates in November
2005). The 2004 Plan authorizes the issuance of a maximum of 1,000,000 shares of
our common stock (subject to adjustment as described in the 2004 Plan) pursuant
to stock grants or options to purchase common stock to employees (including
officers and directors who are employees) and non-employee directors of, and
consultants to, us.
The 2004 Plan provides for the grant of (i) "incentive stock options"
("ISOs") within the meaning of Section 422(b) of the Internal Revenue Code of
1986, as amended (the "Code"), (ii) non-qualified stock options (which are stock
options that do not qualify as ISOs), and (iii) stock awards.
The 2004 Plan will be administered by our board of directors or a
committee of our board of directors consisting of at least two members of our
board, each of whom is a "non-employee director" within the meaning of Rule
16b-3 promulgated under the Securities Exchange Act of 1934. It is also intended
that each member of any such committee will be an "outside director" within the
meaning of Section 162(m) of the Code.
Options granted under the 2004 Plan will be subject to, among other
things, the following terms and conditions:
-24-
o The exercise price of each option will be determined by the
administrator; provided, however, that the exercise price of an ISO may
not be less than the fair market value of our common stock on the date
of grant (110% of such fair market value if the optionee owns (or is
deemed to own) more than 10% of our voting power).
o Options may be granted for terms determined by the administrator;
provided, however, that the term of an ISO may not exceed 10 years (5
years if the optionee owns (or is deemed to own) more than 10% of our
voting power).
o The maximum number of shares of our common stock for which options may
be granted to an employee in any calendar year is 230,000. In addition,
the aggregate fair market value of shares with respect to which ISOs
may be granted to an employee which are exercisable for the first time
during any calendar year may not exceed $100,000.
o The exercise price of each option is payable in full upon exercise or,
if the applicable stock option contract entered into by us with an
optionee permits, in installments.
o Options may not be transferred other than by will or by the laws of
descent and distribution, and may be exercised during the optionee's
lifetime only by the optionee or his or her legal representatives.
o Except as may otherwise be provided in the applicable option contract,
if the optionee's relationship with us as an employee or consultant is
terminated for any reason (other than the death or disability of the
optionee), the option may be exercised, to the extent exercisable at
the time of termination of such relationship, within three months
thereafter, but in no event after the expiration of the term of the
option.
o We may withhold cash and/or shares of our common stock having an
aggregate value equal to the amount which we determine is necessary to
meet its obligations to withhold any federal, state and/or local taxes
or other amounts incurred by reason of the grant or exercise of an
option, its disposition or the disposition of shares acquired upon the
exercise of the option. Alternatively, we may require the optionee to
pay us such amount, in cash, promptly upon demand.
Through September 28, 2005, we have granted options to purchase 255,000 shares
of our common stock under our 1995 Stock Option Plan, 165,000 of which have been
exercised.
NON-PLAN STOCK OPTIONS
At various times since 1996, we have granted non-plan stock options to purchase
1,205,000 shares of our common stock at a weighted exercise price of $2.97 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.
-25-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 31, 2005, 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)
----------------------------- --------------- ----------------- ------ -- ------------- -------------------
Common Stock Class B Percentage Percentage of
Name and Address of Common of Voting
Beneficial Shareholder Stock (2) Ownership Power
(1)(3) (1)(3)
----------------------------- --------------- ----------------- ------ -- ------------- -------------------
Michael Levy 115,090(4) 590,137 7.8% 25.2%
9511 West River Street
Schiller Park, IL 60176
----------------------------- --------------- ----------------- ------ -- ------------- -------------------
Clive Kabatznik 1,163,490(5) 190,000 14.9% 17.3%
6100 Glades Road
Suite 305
Boca Raton, FL 33434
----------------------------- --------------- ----------------- ------ -- ------------- -------------------
Cornelius J. Roodt 134,090(6) 0 1.5% 1.1%
P.O. Box 4001
Kempton Park
South Africa
----------------------------- --------------- ----------------- ------ -- ------------- -------------------
Douglas Brisotti 24,090(7) 0 * *
6100 Glades Road
Suite 305
Boca Raton, Florida 33434
----------------------------- --------------- ----------------- ------ -- ------------- -------------------
John Grippo 54,090(8) 0 * *
6100 Glades Road
Suite 305
Boca Raton, Florida 33434
----------------------------- --------------- ----------------- ------ -- ------------- -------------------
All executive officers and 1,490,850(9) 780,137 24.2% 43.6%
directors as a group (5
persons)
----------------------------- --------------- ----------------- ------ -- ------------- -------------------
* Less than 1%.
(1) Beneficial ownership is calculated in accordance with Rule 13d-3 under
the Securities Exchange Act of 1934. Shares subject to stock options,
for purposes of this table, are considered beneficially owned only to
the extent currently exercisable or exercisable within 60 days after
August 31, 2002.
(2) Except as otherwise indicated, each of the parties listed has sole
voting and investment power with respect to all shares of Class B
common stock indicated above.
-26-
(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 65,000 shares of our common stock issuable upon exercise of
options that are immediately exercisable and 9,090 shares of restricted
stock.
(5) Includes 975,000 shares of our common stock issuable upon exercise of
options that are immediately exercisable and 9,090 shares of restricted
stock.
(6) Includes 125,000 shares of our common stock issuable upon exercise of
options that are immediately exercisable and 9,090 shares of restricted
stock.
(7) Includes 15,000 shares of our common stock issuable upon the exercise
of options that are immediately exercisable and 9,090 shares of
restricted stock.
(8) Includes 45,000 shares issuable upon exercise of options that are
immediately exercisable and 9,090 shares of restricted
stock.
(9) Includes 1,225,000 shares issuable upon exercise of options that are
immediately exercisable and 45,450 shares of restricted stock.
-27-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
Audit fees billed to the Company by Rachlin Cohen & Holtz LLP for its
audit of the Company's financial statements and for its review of the financial
statements included in the Company's Quarterly Reports on Form 10-Q filed with
the Securities and Exchange Commission for 2005 and 2004 totaled $25,953 and
$44,061, respectively.
Tax Fees
Tax fees billed to the Company by Rachlin Cohen & Holtz LLP for its tax
returns for the fiscal year 2005 and 2004 were $0, and $0, respectively.
Other Fees
No other fees were billed to the Company by Rachlin Cohen & Holtz LLP
for all other non-audit or tax services rendered to the Company for the fiscal
year 2005 and 2004, respectively.
Audit Committee Pre-Approval Policies
The Audit Committee has adopted a procedure under which all fees
charged by Rachlin Cohen & Holtz LLP must be pre-approved by the Audit
Committee, subject to certain permitted statutory de minimus exceptions.
-28-
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
3.1 Memorandum of Association of the Registrant(2)
3.2 Bye-Laws of the Registrant(2)
4.3 Indenture dated April 25, 1997 between the Registrant and American Stock Transfer &
Trust Company(1)
4.6 Stock Option Agreement(3)
10.2 Form of FSAH Escrow Agreement(2)
10.3 Form of First Amended and Restated Employment Agreement of Clive Kabatznik(2)
10.4 Form of FSAM Management Agreement(2)
10.5 Form of Consulting Agreement with Michael Levy(2)
10.6 1995 Stock Option Plan(2)
10.7 Asset purchase agreement by and among First South Africa Holdings PTY Ltd. and minority
shareholders of First Lifestyle Holdings, Ltd., Ethos Private Equity, Cornelius Roodt
and certain other purchasers and the Company, dated as of September 24, 2000(4)
10.8 Fantasy Sports Asset Acquisition Agreement dated as of November 17, 2000(5)
10.9 Agreement between Sports Team Analysis and Tracking Systems of Missouri, Inc. and
Fantasy Sports Enterprises dated October 7, 2002(5)
10.10 Amendment to Agreement dated July 21, 2003 between Fantasy Sports Enterprises, Inc. and
Sports Team Analysis and Tracking Systems of Missouri, Inc.(5)
10.11 Employment Agreement, dated as of December 31, 2004, between Clive Kabatznik and First
South Africa Management Corp. (6).
10.12 Subscription Agreement, dated February 24, 2005, between the Registrant and Strategy
First Inc. (7).
10.13 2004 Stock Incentive Plan (8)
21.1 Subsidiaries of the Registrant (8)
23.1 Consent of Rachlin Cohen and Holtz(6)
31.1 Certificate Pursuant to Section 302 of the Sarbanes Oxley Act of 2002(8)
32.1 Certification Pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002(8)
(1) Incorporated by reference to the Registrant's Current Report on Form
8-K filed September 10, 1997.
(2) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (No. 33-99180) filed on November 9, 1995, as amended on Form
S-1/A No. 1, Form S-1/A No. 2, Form S-1/A No. 3 filed on December 27,
1995, January 16, 1996 and January 24, 1996, respectively and Form 10-Q
for the fiscal quarter ended March 31, 2000.
(3) Incorporated by reference is the Registrant's Registration Statement on
Form S-1 (No. 333-33561) filed on August 13, 1997 as amended on Form
S-1/A No. 1, Form S-1/A No. 2 and For S-1/A No. 3 filed on December 9,
1997, January 22, 1998 and February 11, 1998, respectively.
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(4) Incorporated by reference to the Company's Current Report on Form 8-K
filed on October 12, 2000.
(5) Incorporated by reference to the Company's Current Report on Form 8-K
filed on December 1, 2000.
(6) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 2004.
(7) Incorporated by reference to the Registrant's Current Report on Form
8-K filed on April 26, 2005.
(8) Incorporated by reference to the Registrant's Current Report on Form
8-K filed on March 1, 2005.
(9) Filed herewith.
(A) NONE
1. FINANCIAL STATEMENTS
The following financial statements are included as required to be filed
by Item 8:
SILVERSTAR HOLDINGS, LTD.
Report of independent Certified Public Accountant
Consolidated Balance Sheets at June 30, 2005 and 2004
Consolidated Statements of Operations for the years ended June 30,
2005, 2004 and 2003 Consolidated Statements of Cash Flows for the years
ended June 30, 2005, 2004 and 2003
Consolidated Statement of Consolidated statements of stockholders'
equity and Comprehensive loss for the years ended June 30, 2003, 2004
and 2005 Notes to the Consolidated Financial Statements for the years
ended June 30, 2005, 2004, and 2003
2. FINANCIAL STATEMENT SCHEDULES:
All schedules have been omitted since the required information is
included in the consolidated financial statements or notes thereto.
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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 28th day of September, 2005.
SILVERSTAR HOLDINGS, LTD.
BY:/s/ Clive Kabatznik
-------------------
Clive Kabatznik
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities and on the date indicated.
Signature Title Date
/s/ Michael Levy Chairman of the Board of Directors September 28, 2005
- ------------------------------
Michael Levy
/s/ Clive Kabatznik President, Vice Chairman, Chief September 28, 2005
- ------------------------------ Executive Officer, Chief
Clive Kabatznik Financial Officer, Director and
Controller
Director
- ------------------------------
Cornelius Roodt
Director
- ------------------------------
Douglas Brisotti
/s/ John Grippo Director September 28, 2005
- ------------------------------
John Grippo
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EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
3.1 Memorandum of Association of the Registrant(2)
3.2 Bye-Laws of the Registrant(2)
4.3 Indenture dated April 25, 1997 between the Registrant and American Stock Transfer &
Trust Company(1)
4.6 Stock Option Agreement(3)
10.2 Form of FSAH Escrow Agreement(2)
10.3 Form of First Amended and Restated Employment Agreement of Clive Kabatznik(2)
10.4 Form of FSAM Management Agreement(2)
10.5 Form of Consulting Agreement with Michael Levy(2)
10.6 1995 Stock Option Plan(2)
10.7 Asset purchase agreement by and among First South Africa Holdings PTY Ltd. and minority
shareholders of First Lifestyle Holdings, Ltd., Ethos Private Equity, Cornelius Roodt
and certain other purchasers and the Company, dated as of September 24, 2000(4)
10.8 Fantasy Sports Asset Acquisition Agreement dated as of November 17, 2000(5)
10.9 Agreement between Sports Team Analysis and Tracking Systems of Missouri, Inc. and
Fantasy Sports Enterprises dated October 7, 2002(5)
10.10 Amendment to Agreement dated July 21, 2003 between Fantasy Sports Enterprises, Inc. and
Sports Team Analysis and Tracking Systems of Missouri, Inc.(5)
10.11 Employment Agreement, dated as of December 31, 2004, between Clive Kabatznik and First
South Africa Management Corp. (6).
10.12 Subscription Agreement, dated February 24, 2005, between the Registrant and Strategy
First Inc. (7).
10.13 2004 Stock Incentive Plan (8)
21.1 Subsidiaries of the Registrant (8)
23.1 Consent of Rachlin Cohen and Holtz(6)
31.1 Certificate Pursuant to Section 302 of the Sarbanes Oxley Act of 2002(8)
- -----------
(1) Incorporated by reference to the Registrant's Current Report on Form
8-K filed September 10, 1997.
(2) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (No. 33-99180) filed on November 9, 1995, as amended on Form
S-1/A No. 1, Form S-1/A No. 2, Form S-1/A No. 3 filed on December 27,
1995, January 16, 1996 and January 24, 1996, respectively and Form 10-Q
for the fiscal quarter ended March 31, 2000.
(3) Incorporated by reference is the Registrant's Registration Statement on
Form S-1 (No. 333-33561) filed on August 13, 1997 as amended on Form
S-1/A No. 1, Form S-1/A No. 2 and For S-1/A No. 3 filed on December 9,
1997, January 22, 1998 and February 11, 1998, respectively.
(4) Incorporated by reference to the Company's Current Report on Form 8-K
filed on October 12, 2000.
(5) Incorporated by reference to the Company's Current Report on Form 8-K
filed on December 1, 2000.
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(6) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 2004.
(7) Incorporated by reference to the Registrant's Current Report on Form
8-K filed on April 26, 2005.
(8) Incorporated by reference to the Registrant's Current Report on Form
8-K filed on March 1, 2005.
(9) Filed herewith.
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