UNITED STATES        SECURITIES AND EXCHANGE COMMISSION        WASHINGTON, D.C. 20549

FORM 10-K

|  |    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE                    SECURITIES EXCHANGE ACT OF 1934 |
|--|---------------------------------------------------------------------------------------------------------------------------|

For the fiscal year ended June 30,        2007

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 number0-27494

SILVERSTAR HOLDINGS, LTD.        (Exact name of Registrant as specified in its charter)

| Bermuda                                                                                              | N/A                                                     |
|------------------------------------------------------------------------------------------------------|---------------------------------------------------------|
| (State or other                    jurisdiction of                    incorporation or organization) | (I.R.S. Employer                    Identification No.) |

Clarendon House, Church Street,        Hamilton HM CX, Bermuda(Address of Principal Executive Offices        with Zip Code)

Registrant’s telephone number,        including area code:441-295-1422

Securities registered pursuant to        Section 12(b) of the Act:

| Title of each                    class | Name of each exchange on                    which registered |
|----------------------------------------|--------------------------------------------------------------|
| None                                   | None                                                         |
|                                   |                                                         |

Securities registered pursuant to        Section 12(g) of the Act:

| Common Stock, $0.01 par                    value |
|--------------------------------------------------|
| ("Common Stock")                                 |

Indicate by check mark if the        registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.        Yes               No            

Indicate by check mark if the        registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the        Act. Yes               No            

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               No    

Indicate by check mark if disclosure of        delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will        not be contained, to the best of registrant’s knowledge, in definitive proxy or        information statements incorporated by reference in Part III of this Form 10-K or any        amendment to the Form 10-K.    

Indicate by check mark whether the        registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.        See definition of “accelerated filer and large accelerated filer” in Rule 12b-2        of the Exchange Act. Check one: Large accelerated filer                Accelerated filer                Non-accelerated filer           

Indicate by check mark whether the        registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes                 No               

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 was approximately $15,690,000.

As of September 19, 2007, there were        18,127,469shares of the        Registrant’s common stock outstanding.

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**TABLE OF CONTENTS**

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|-------------|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|        |                                                                                                                                               | Page   |
|        |                                                                                                                                               |   |
|        | PART I                                                                                                                                             |   |
| ITEM 1.     | Business                                                                                                                                           | 1      |
| ITEM 1A.    | Risk Factors                                                                                                                                       | 7      |
| ITEM 2.     | Properties                                                                                                                                         | 15     |
| ITEM 3.     | Legal                    Proceedings                                                                                                               | 16     |
| ITEM 4.     | Submission of Matters to a                    Vote of Security Holders                                                                             | 16     |
|        |                                                                                                                                               |   |
|        | PART II                                                                                                                                            |   |
|        |                                                                                                                                               |   |
| ITEM 5.     | Market for Registrant's                    Common Equity, Related Stockholder Matters                    and Issuer Purchases of Equity Securities | 17     |
| ITEM 6.     | Selected Consolidated                    Historical Financial Data                                                                                 | 19     |
| ITEM 7.     | Management's Discussion and                    Analysis of Financial Condition                    and Results of Operations                        | 20     |
| ITEM 7A.    | Quantitative and                    Qualitative Disclosures About Market Risk                                                                      | 30     |
| ITEM 8.     | Consolidated Financial                    Statements and Supplementary Data                                                                        | 31     |
| ITEM 9.     | Changes in and                    Disagreements with Accountants on                    Accounting and Financial Disclosure                         | 32     |
| ITEM 9A.    | Controls and                    Procedures                                                                                                         | 32     |
| ITEM 9(T)   | Controls and                    Procedures                                                                                                         | 32     |
| ITEM 9B.    | Other                    Information                                                                                                               | 32     |
|        |                                                                                                                                               |   |
|        | PART III                                                                                                                                           |   |
|        |                                                                                                                                               |   |
| ITEM 10.    | Directors and Executive                    Officers of the Registrant                                                                              | 32     |
| ITEM 11.    | Executive                    Compensation                                                                                                          | 34     |
| ITEM 12.    | Security Ownership of                    Certain Beneficial Owners, Management                    and Related Stockholder Matters                  | 42     |
| ITEM 13.    | Certain Relationships and                    Related Transactions                                                                                  | 43     |
| ITEM 14.    | Principal Accountant Fees                    and Services                                                                                          | 43     |
|        |                                                                                                                                               |   |
|        | PART IV                                                                                                                                            |   |
|        |                                                                                                                                               |   |
| ITEM 15.    | Exhibits, and Financial                    Statement Schedules                                                                                     | 44     |
| ITEM 15(a). | Index to Consolidated                    Financial Statements and Financial Statement Schedule                                                     |   |
|        | Signatures                                                                                                                                         | 47     |

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**PART I        CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS**

        Some of the statements of Silverstar Holdings, Ltd. included in this Report, including        matters discussed under the captions “Legal Proceedings” in Part I, Item 3        and “Management’s Discussion and Analysis of Financial Condition and Results of        Operations” in Part II, Item 7 are “forward-looking statements.”        Forward-looking statements include statements about the competitiveness of the PC software        game market, potential future growth and earnings, the business strategies of Silverstar,        and other statements that are not historical facts. The words “anticipate,”        “estimate,” “project,” “intend,” “expect,”        “believe,” “forecast” and similar expressions are also intended to        identify the forward-looking statements, but some of these statements may use other        phrasing. These forward-looking statements are not guarantees of future performance and are        subject to a number of risks, uncertainties and other factors that could cause our actual        results, performance or achievements to differ materially from those expressed or implied        by these forward-looking statements. These factors include, among other things:

•      we may be unable to        implement key elements of our business strategy;

•      we may have        insufficient capital to grow our business through new title development and acquisition or        to acquire additional businesses;

•      we may be unable to        retain key personnel;

•      we may face        increased competition from otherentertainment        software developers and publishers; and

•      we may continue to        be subject to rapid changes in technology And game delivery platforms

        Many of these factors are beyond our ability to control or predict, and readers are        cautioned not to put undue reliance on such forward-looking statements. We disclaim any        obligation to update or revise publicly or otherwise any forward-looking statements to        reflect subsequent events, new information or future circumstances, except as required by        law.

**ITEM        1.     Business**

**Overview**

        The Company is the parent company of Empire Interactive, PLC (“Empire”), a        leading worldwide publisher of interactive entertainment software for all game platforms,        as well as Strategy First, Inc. (“Strategy First”), a leading worldwide        publisher of entertainment software for the Personal Computer (PC). The Company is also a        minority shareholder in Magnolia Broadband Wireless (“Magnolia”), a development        stage company which is developing mobile wireless broadband products.

**History**

        We were incorporated in September 1995. Our business plan is to actively manage and grow        our presence in the interactive software entertainment industry both organically and        through acquisitions.

        We sold our last remaining South African operations in November 2000 although we still have        significant assets that are denominated in South African Rand. The assets include cash and        notes receivables. Currently we do not have a financial hedging program to protect against        the depreciation of the South African Rand against the US dollar and, therefore, as long as        we hold assets denominated in South African Rand we will continue to record income        statement gains or losses to the extent that the South African Rand’s value        fluctuates relative to the US dollar.

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        On November 17, 2000, we acquired all of the assets and certain liabilities of Fantasy        Sports, Inc. from GoRacing Interactive Services, Inc. (“Fantasy Sports”)        Founded in 1993, Fantasy Sports operates the fantasycup.com, website and specializes in        subscription based NASCAR, college football and other fantasy sports games. On April 7,        2006, we disposed of substantially all the assets and liabilities of Fantasy Sports.

        On April 21, 2005, we acquired Strategy First, a leading worldwide publisher of        entertainment software for the PC. We acquired Strategy First through the jurisdiction of        the Montreal bankruptcy court. Pursuant to the approved plan of arrangement, we paid (i)        cash consideration to the creditors of Strategy First of $609,000; (ii) issued 377,000        shares of our common stock; (iii) issued warrants to purchase 200,000 shares of our common        stock; and (iv) assumed approximately $400,000 in existing bank debt, as well as contingent        consideration based on the future profitability of Strategy First.

        On October 31, 2005, we consummated a transaction pursuant to a Securities Purchase        Agreement, dated October 21, 2005 with DKR SoundShore Oasis Holding Fund, Ltd. (the        “Purchaser”). Pursuant to which we issued to the Purchaser a $5,000,000        principal amount Variable Rate Secured Convertible Debenture due October 31, 2008 (the        “Debenture”) and a warrant to purchase 791,139 shares of our common stock at an        exercise price of $1.896 per share (the “Warrant”).        In May 2006, we repaid $1,400,000 of the outstanding principal balance along with an early        payment penalty of approximately $210,000. On October 19, 2006, we entered into another        Securities Purchase Agreement with DKR SoundShore Oasis Holding Fund Ltd., pursuant to        which the Company issued to the Purchaser a Variable Rate Secured Convertible Debenture in        the principal amount of $1,400,000 due October 31, 2008.

        On June 29, 2007, we modified its agreements with DKR SoundShore Oasis Holding Fund Ltd.        whereby the maturity date of both its Variable Rate Secured Convertible Debentures was        extended to April 30, 2010 with all principal payments deferred until maturity. In        consideration, we delivered 172,414 shares to DKR SoundShore Oasis valued at $250,000.

        On December 4, 2006, we announced that we had achieved more than 90% acceptance of our        offer to acquire the shares of Empire. Based on these acceptances, we announced a formal        closing of the offer to Empire shareholders effective December 1, 2006. We paid        consideration to the shareholders as follows: approximately $6.8 million paid at closing;        an additional $5.5 million in loan notes payable on October 31, 2007; and further        contingent consideration based on Empire’s EBIDTA for the 12 months ended June 30,        2007.

**Subsequent Events**

        Pursuant to a purchase agreement, dated July 2, 2007, by and among us and the purchasers        named therein, we sold aggregate of 6,206,891 shares (the “Shares”) of our        common stock and warrants (the “Warrants”) to purchase up to 4,344,826 shares        of our common stock at an exercise price of $2.10 per share, at a price per unit of        $1.45.

        The sale an issuance of the Shares and Warrants was structured to close in two closings.        The first closing was completed on July 5, 2007, pursuant to which we sold and issued an        aggregate of 2,057,495 Shares and Warrants to purchase up to an aggregate of 1,440,234        shares of our common stock. The second closing was completed on September 6, 2007, pursuant        to which we sold and issued an aggregate of 4,149,396 shares of our common stock and        warrants to purchase up to 2,904,592 shares of our common stock at the second closing.

        As of September 21, 2007, DKR Oasis had converted an aggregate amount of $2.85 million of        their 2005 Debenture and we have issued 1,420,478 shares of Class A common stock.

        On September 17, 2007, the Company announced a change in its executive management team. In        connection with such change, the Company’s current Chief Financial Officer ("CFO"),        Clive Kabaztink, resigned from that position, and Lawrence R. Litowitz was engaged as the        new CFO. Mr. Kabatznik will continue to serve as the Company’s President and Chief        Executive Officer. Additionally, Mr. Kabatznik

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        has retained responsibility as the Company’s Principal Financial and Accounting        Officer to complete the Company’s Form 10-K for the year ended June 30, 2007.

        Pursuant to an Employment Letter Agreement, dated September 17, 2007 (the “Employment        Agreement”), between the Company and Lawrence R. Litowitz Mr. Litowitz will work        approximately three full days per work week for an initial salary of $1,900 per day        ("Salary"), of which $1,582.70, or 83.3%, shall be paid directly to Mr. Litowitz and        $317.30, or 16.7%, shall be paid directly to Tatum LLC (“Tatum”); provided        however, that in no event shall Mr. Litowitz and Tatum be paid a Salary in excess of the        aggregate amount of $24,166 per calendar month. Any cash bonus to be paid to Mr. Litowitz        shall be determined by the Board of Directors of the Company in its sole discretion. After        allocation of 20% of any cash bonus payable to Mr. Litowitz to Tatum, Mr. Litowitz will be        paid 80% of any cash bonus. In addition, Mr. Litowitz will share with Tatum 20% of any cash        proceeds realized from any equity bonus that Mr. Litowitz may be granted by the        Company’s Board of Directors.

        Pursuant to the Employment Agreement, the Company granted Mr. Litowitz 180,000 options to        purchase common stock of the Company and 5,000 of the options will vest each month        commencing on October 17, 2007. The options were granted under the Company’s 2007        Stock Incentive Plan. The exercise price for each option is $2.15 (the closing price of the        Common Stock on September 17, 2007).

        The Employment Agreement is terminable by either party on 30 days' prior written notice, or        immediately for Cause (as defined in the Employment Agreement) or Good Reason (as defined        in the Employment Agreement). In the event that the Company elects to terminate Mr.        Litowitz without Cause or if Mr. Litowitz elects to terminate the Employment Agreement for        Good Reason, in each case prior to September 16, 2008, then Mr. Litowitz will be entitled        to receive a payment as severance (“Severance Payment”) equal to three months        of the Salary paid to Mr. Litowitz during the three months immediately preceding such        termination (a portion of which shall be paid to Tatum. In the event that the Company        elects to terminate Mr. Litowitz without Cause or Mr. Litowitz elects to terminate the        Employment Agreement for Good Reason, in each case after September 16, 2008 but prior to        September 16, 2010, Mr. Litowitz will be entitled to receive a Severance Payment equal to        six months of the Salary paid to Mr. Litowitz during the six months immediately preceding        such termination (a portion of which shall be paid to        Tatum). 

**Description of Our Subsidiaries and        Investments**

**Empire Interactive PLC:**

        Overview

        In December 2006 we acquired Empire, a leading worldwide publisher and developer of        entertainment software for all game platforms including Microsoft’s Xbox 360 and Xbox        platforms, Sony’s PS2 and PSP platforms, Nintendo’s Wii and DS platforms, as        well as PC, mobile and other digital platforms. Founded in 1989 and headquartered in        London, Empire has operations in every major international territory and has staff        dedicated to each key link in the developing, publishing and distribution chain.        Empire’s guiding philosophy is based on a commitment to a high standard of quality        and a dedication to involve development partners in the entirety of the publishing process.        Its most successful games are the FlatOut and Ford Racing franchises, Big Murtha Truckers,        Hello Kitty, Taito Legends, Starsky & Hutch, Starship Troopers and International        Cricket Captain.

        Empire has two clear strands to its business, frontline and value. The frontline titles,        such as FlatOut, are full-priced games aimed at the more hard core gamer. These games are        published under the Empire brand.

        Empire’s value range began in 2002 under the Xplosiv banner, becoming the fastest        growing PC value range in Europe. In 2003, the industry experienced a shift to value PS2        titles, the success of which has led Empire to specifically develop games in the PS2 value        space such as the Ford racing franchise. These games are aimed at the more casual        gamer.

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**Product Development**

        Empire’s strength is delivering high quality computer games that are capable of being        turned into successful franchises. Successful franchises for the group that Empire        continues to develop include FlatOut, Big Mutha Truckers, International Cricket Captain,        Ford Racing, Taito Legends and Hello Kitty. The ongoing process of sequel development has        allowed Empire to implement R&D efficiencies saving development time and costs.

        Empire both develops and publishes titles. The developing takes a core group of creative,        production, and technical professionals who have responsibility for the entire development        and production process including the supervision and coordination of internal and external        resources. In addition, Empire often seeks out and engages independent third-party        developers to create products on its behalf. Such products are usually owned by Empire,        and, in this case, Empire has unlimited rights to commercially exploit these products. When        Empire publishes a product for third-parties, the third-party developer may retain        ownership of the intellectual property and/or technology included in the product and        reserve certain exploitation rights. Empire selects its independent third-party developers        based on their expertise in developing products in a specific category and tries to use the        same developer to produce the same game for multiple platforms. In consideration for the        services that the independent third-party developer provides, it receives a development fee        in most cases and a royalty generally based on net sales of the product that it has        developed.

**Sales and Marketing**

        Empire’s games are sold directly in the United Kingdom and either directly or through        third party software distributors in the rest of Europe. In North America, Empire has        traditionally licensed its games to third party distributors who are responsible for the        manufacture and distribution of its games. Its products sell at retail prices varying from        $9.99 to $79.99 depending on the particular game and the region in which it is sold.

        Empire’s marketing and promotional efforts are intended to maximize exposure and        broaden distribution of its titles, promote brand name recognition, assist retailers and        properly position, package and merchandise our titles. Empire markets titles by        implementing a combination of public relations campaigns, print and online advertising,        television, radio spots and outdoor advertising.

        Empire’s marketing and promotional efforts are intended to maximize exposure and        broaden distribution of our titles, promote brand name recognition, assist retailers and        properly position, package and merchandise our titles. Empire markets titles by        implementing a combination of public relations campaigns, print and online advertising,        television, radio spots and outdoor advertising.

**Competition**

        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 including Electronic Arts Vivendi        Games, Activision THQ, Take Two Interactive, Sci Entertainment, and Ubisoft.

        The changing characteristics of the worldwide consumer entertainment software market in        recent years have been impacted by many factors, such as:

|  | ·      | Rapid technology changes resulting in more technologically-advanced game                    platforms. This, in many cases, has resulted in increasing development costs to                    match this technological complexity. For the seven months included in the                    fiscal year ending June 30, 2007, Empire’s research and development                    expenses and related royalties were $5,840,725. |
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|  | ·      | An increasing number of platforms supporting game play such as new consoles,                    handheld game devices, mobile phones and personal digital assistants. This has                    resulted in new opportunities as well as additional risk as in order to compete                    successfully. We need to provide games on a broader variety of platforms. |
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|  | ·      | Overall consolidation has taken place at all ends of the market. There are                    fewer but larger competitors in the interactive software entertainment space;                    and there are fewer but larger retailers through which to sell our                    products. |
|--|----------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

        As a result of the factors listed above, Empire’s strategy continues to evolve in        line with the life cycle of the game consoles and trends in the market. Empire is focused        on continuing to develop and publish quality titles for our customers across all the        current platforms and onto the next generation and currently have titles in development for        PC, Sony PS2, Sony PSP, Nintendo, Wii DS and Microsoft Xbox 360.

**Seasonality**

        Empire’s business is driven by the number and quality of titles released in each        quarter. There is, therefore, little seasonality in the business. However, typically the        September quarter would be the slowest of the year.

**Strategy First, Inc.**

        Overview

        In April 2005, we acquired Strategy First, a leading developer and worldwide publisher of        entertainment software for the Personal Computer (PC). Founded in 1990, Strategy First        publishes software games primarily for the PC platform, including O.R.B, the Disciples        franchise, the Space Empires franchise, Kohan: Immortal Sovereigns, SCS        Dangerous Waters, Galactic Civilizations, and the Jagged Alliance franchise. Strategy        First’s products are sold on CD’s and more recently over the Internet and meet        the needs of serious gamers who are seeking a more intense strategy based game experience.        In North America, Strategy First’s PC games are distributed primarily through        third-party software distributors who service the mass-merchants and major retailers. In        territories outside North America, Strategy First licenses its PC games to third-party        software distributors who are responsible for the manufacture and distribution of its PC        games in specific geographic territories. Our products sell at retail prices varying from        $19.99 to $39.99, depending on the quality of the particular game.

        Historically, a limited number of products have generated a disproportionately large amount        of our revenues. In 2007, our Space Empires 5 game accounted for 19%,        and in 2006, our SCS Dangerous Waters   game accounted for 20 % of our        revenues, respectively.

        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, Strategy First shifted        its strategy to become a publisher selling other developer’s games. This shift        resulted in lowering Strategy First’s expenses and its breakeven threshold.

        We intend to continue to operate Strategy First as a publisher and have no plans to        re-enter the development business.

        As a result of 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 PC based games. We will work to        strengthen our North American distribution network through a combination of alliances with        more established

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        distributors and a strong in house sales effort. We will endeavor to broaden the range of        our titles beyond PCs and 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.

**Magnolia Broadband Wireless**

        Overview

        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, driven by sales volume of over 1.2 billion        handsets.

        Magnolia has developed technology to integrate smart antenna technologies into Radio        Frequency (RF) chip sets utilized in mobile phones. Its 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.

        In April 2000, 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 Seaway 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. In 2006, Magnolia raised a further $7 million in an offering of preferred        stock. We invested $300,000 in this offering. Currently we own approximately 2.5% of        Magnolia’s outstanding capital stock on a fully diluted basis including the exercise        of all employee stock options. Our investment in Magnolia at June 30, 2007, which is now        accounted for under the lower of cost or market method, was approximately $1,131,000.

**Discontinued        Operations**

**Fantasy Sports, Inc.**

On April 7, 2006, we sold all the assets and certain        liabilities of Fantasy Sports to a subsidiary of SkillJam Technologies Corporation, a        wholly-owned subsidiary of FUN Technologies Inc. (FUN), a subsidiary of Liberty Media        Corporation for approximately $4.4 million, including $3.85 million paid in cash at        closing. Fantasy Sports 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. We originally acquired Fantasy Sports in November 2000.

**Employees**

As of September 5, 2007, we employed 102 employees        through our subsidiaries, 96 of whom were full-time salaried employees and 6 of whom were        part time employees.

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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 1A.     Risk        Factors**

**RISKS ASSOCIATED WITH OUR SUBSIDIARIES**

**Many of our titles have short lifecycles and fail to generate significant        revenues.**

        The market for entertainment software is characterized by short product lifecycles and        frequent introduction of new products. Many software titles do not achieve sustained market        acceptance or do not generate a sufficient level of sales to offset the costs associated        with product development. A significant percentage of the sales of new titles generally        occurs within the first three months following their release. Therefore, our continued        profitability depends upon our ability to acquire and sell new, commercially successful        titles and to replace revenues from titles in the later stages of their lifecycles. Any        competitive, financial, technological or other factor which delays or impairs our ability        to introduce and sell our software could adversely affect our future operating results.

**We may fail to anticipate changing consumer preferences.**

        Our business is speculative and is subject to all of the risks generally associated with        the entertainment software industry, which has been cyclical in nature and has been        characterized by periods of significant growth followed by rapid declines. Our future        operating results will depend on numerous factors beyond our control, including:

|  | ·      | the popularity, price and timing of new software and hardware platforms being                    released and distributed by us and our competitors; |
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|  | ·      | international, national and regional economic conditions, particularly economic                    conditions adversely affecting discretionary consumer spending; |
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|  | ·      | changes in consumer demographics; |
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|  | ·      | the availability of other forms of entertainment; and |
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|  | ·      | critical reviews and public tastes and preferences, all of which change rapidly                    and cannot be predicted. |
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        In order to plan for acquisition and promotional activities, we must anticipate and respond        to rapid changes in consumer tastes and preferences. A decline in the popularity of        entertainment software or particular platforms could cause sales of our titles to decline        dramatically.

**We may not be able to protect our proprietary rights.**

        We acquire proprietary software and technologies. We attempt to protect our software and        production related intellectual property under copyright, trademark and trade secret laws        as well as through contractual restrictions on disclosure, copying and distribution.

        Entertainment software is susceptible to unauthorized copying. Unauthorized third parties        may be able to copy or to reverse engineer our software to obtain and use programming or        production techniques that we regard as proprietary. In addition, our competitors could        independently develop technologies substantially equivalent or superior to our        technologies.

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**We may be subject to intellectual propriety claims.**

        As the number of entertainment software products increases and the features and content of        these products continue to overlap, software developers increasingly may become subject to        infringement claims. Many of our products are highly realistic and feature materials that        are based on real world examples, which may inadvertently infringe upon the intellectual        property rights of others. Our products often utilize complex technology that may become        subject to the intellectual property rights of others. Although we believe that we make        reasonable efforts to ensure that our products do not violate the intellectual property        rights of others, it is possible that third-parties still may claim infringement. From time        to time, we receive communications from third-parties regarding such claims. Existing or        future infringement claims against us, whether valid or not, may be time consuming and        expensive to defend.

        Intellectual property litigation or claims could force us to do one or more of the        following:

|  | ·      | cease selling, incorporating or using products or services that incorporate the                    challenged intellectual property; |
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|  | ·      | obtain a license from the holder of the infringed intellectual property, which                    if available at all, may not be available on commercially favorable terms;                    or |
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|  | ·      | redesign the effected entertainment software products, which could cause us to                    incur additional costs, delay introduction and possibly reduce commercial                    appeal of our products. |
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        Any of these actions may cause material harm to our business and financial results.

**Rating systems for entertainment software, potential legislation and consumer opposition        could inhibit sales of our products.**

        The home video game industry requires entertainment software publishers to provide        consumers with information relating to graphic violence or sexually explicit material        contained in software titles. Certain countries have also established similar rating        systems as prerequisites for sales of entertainment software in such countries. We believe        that we comply with such rating systems and display the ratings received for our titles.        Our software titles generally receive a rating of “G” (all ages) or        “T” (age 13 and over), although certain of our titles receive a rating of        “M” (age 18 and over), which may limit the potential markets for these        titles.

Several proposals have been made for        federal legislation to regulate the entertainment software, motion picture and recording        industries, including a proposal to adopt a common rating system for entertainment        software, television and music containing violence and sexually explicit material and an        inquiry by the Federal Trade Commission with respect to the marketing of such material to        minors. Consumer advocacy groups have also opposed sales of entertainment software        containing graphic violence and sexually explicit material by pressing for legislation in        these areas and by engaging in public demonstrations and media campaigns. If any groups        were to target our titles, we might be required to significantly change or discontinue a        particular title.

**We operate in a highly competitive industry.**

        The entertainment software industry is intensely competitive and new entertainment software        products and platforms are regularly introduced. Our competitors vary in size from small        companies with limited resources to very large corporations with significantly greater        financial, marketing and product development resources than we have. Due to these greater        resources, certain of our competitors can spend more money and time on developing and        testing products, undertake more extensive marketing campaigns, adopt more aggressive        pricing policies, pay higher fees to licensors for desirable motion picture, television,        sports and character properties and pay more to third-party software developers than we        can. We believe that the main competitive factors in the entertainment software industry        include: product features and playability; brand name recognition; compatibility of        products with popular platforms; access to distribution channels; quality of products; ease        of use; price; marketing support; and quality of customer service.

----

        We also face increasing competition for the leisure and entertainment time of consumers.        Our publishing business competes with all other sources of information and entertainment,        including television, movies, music, live events, radio broadcasts, home video products,        print media and the Internet. Technological advancements, such as new streaming        capabilities and downloading entertainment via the Internet, have increased the number of        media and entertainment choices available to consumers and presents challenges as our        audience becomes more fragmented. The increasing number of choices available to consumers        could negatively impact demand for our products, or require us to use additional resources        to develop more sophisticated software, or both. If we do not respond effectively to        increases in the leisure and entertainment choices available to consumers, it could have an        adverse effect on our competitive position and revenues

**If our products contain defects, our business could be harmed significantly.**

        Software products as complex as the ones we publish may contain undetected errors when        first introduced or when new versions are released. Despite extensive testing prior to        release, we cannot be certain that errors will not be found in new products or releases        after shipment, that could result in loss of or delay in market acceptance. This loss or        delay could significantly harm our business and financial results.

**We rely on independent third parties to develop a number of our software        products.**

        We rely on independent third-party entertainment software developers to develop a number of        our software products. Since we depend on these developers we remain subject to the        following risks

|  | ·      | continuing strong demand for developers’ resources, combined with the                    recognition they receive in connection with their work, may cause developers                    who worked for us in the past either to work for our competitors in the future                    or to renegotiate our agreements with them on terms less favorable for us; |
|--|----------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | ·      | limited financial resources and business expertise and inability to retain                    skilled personnel may force developers out of business prior to completing our                    products or require us to fund additional costs; and |
|--|----------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | ·      | our competitors may acquire the businesses of key developers or sign them to                    exclusive development arrangements. In either case, we would not be able to                    continue to engage such developers’ services for our products, except for                    those that they are contractually obligated to complete for us. |
|--|----------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

        Due to the limited number of third-party developers and the limited control that we        exercise over them, these developers may not be able to complete titles for us on a timely        basis or within acceptable quality standards, if at all.

**The software game market has gravitated towards mass merchant retailers.**

        The software game market has gravitated toward mass merchant retailers thereby increasing        the competition for shelf space for 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 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 may face difficultly obtaining access to retail shelf space necessary to market and        sell our products effectively.**

        Retailers of our products typically have a limited amount of shelf space and promotional        resources, and there is intense competition among consumer entertainment software products        for high quality retail shelf

----

        space and promotional support from retailers. To the extent that the number of products and        platforms increases, competition for shelf space may intensify and may require us to        increase our marketing expenditures. Retailers with limited shelf space typically devote        the most and highest quality shelf space to those products expected to be best sellers. We        cannot be certain that our new products will achieve such “best seller” status.        Due to increased competition for limited shelf space, retailers and distributors are in an        increasingly better position to negotiate favorable terms of sale, including price        discounts, price protection, marketing and display fees and product return policies. Our        products constitute a relatively small percentage of any retailer’s sales volume. We        cannot be certain that retailers will continue to purchase our products or to provide our        products with adequate levels of shelf space and promotional support on acceptable terms. A        prolonged failure in this regard may significantly harm our business and financial        results.

**We permit our customers to return our products and to receive pricing concessions which        could reduce our net revenues and results of operations.**

        We are exposed to the risk of product returns and price protection with respect to our        distributors and retailers. Return policies allow distributors and retailers to return        defective, shelf-worn and damaged products in accordance with terms granted. Price        protection, when granted and applicable, allows customers a credit against amounts they owe        us with respect to merchandise unsold by them. We may permit product returns from, or grant        price protection to, our customers under certain conditions. The conditions our customers        must meet to be granted the right to return products or price protection are, among other        things, compliance with applicable payment terms, delivery to us of weekly inventory and        sell-through reports, and consistent participation in the launches of our premium title        releases. We may also consider other factors, including the facilitation of slow-moving        inventory and other market factors. When we offer price protection, we offer it with        respect to a particular product to all of our retail customers; however, only those        customers who meet the conditions detailed above can avail themselves of such price        protection. Although we maintain a reserve for returns and price protection, and although        we may place limits on product returns and price protection, we could be forced to accept        substantial product returns and provide substantial price protection to maintain our        relationships with retailers and our access to distribution channels. Product returns and        price protection that exceed our reserves could significantly harm our business and        financial results.

**Technology changes rapidly in our business, and if we fail to anticipate or successfully        implement new technologies, the quality, timeliness and competitiveness of our products and        services will suffer.**

        Rapid technology changes in our industry require us to anticipate, sometimes years in        advance, which technologies we must implement and take advantage of in order to make our        products and services competitive in the market. Therefore, we usually start our product        development with a range of technical development goals that we hope to be able to achieve.        We may not be able to achieve these goals, or our competition may be able to achieve them        more quickly than we can. In either case, our products and services may be technologically        inferior to our competitors’, less appealing to consumers, or both. If we cannot        achieve our technology goals within the original development schedule of our products and        services, then we may delay their release until these technology goals can be achieved,        which may delay or reduce revenue and increase our development costs. Alternatively, we may        increase the resources employed in research and development in an attempt to accelerate our        development of new technologies, either to preserve our product or service launch schedule        or to keep up with our competition, which would increase our development costs.

**Our business is highly dependent on the success, timely release and availability of new        video game platforms, on the continued availability of existing video game platforms, as        well as our ability to have commercially successful products developed for these        platforms.**

        We derive a majority of our revenue from the sale of products for play on video game        platforms manufactured by third parties, such as Sony’s PlayStation 2, PlayStation 3        and PSP; and Microsoft’s Xbox, Xbox 360 and Nintendo Wii and DS. The success of our        business is driven in large part by the availability of an adequate supply of current        generation video game platforms (such as the PlayStation 2),

----

        the adequate supply, and, increasingly, the success of new video game hardware systems        (such as the Xbox 360, PlayStation 3 and the Wii), our ability to accurately predict which        platforms will be successful in the marketplace, and our ability to have commercially        successful products developed for these platforms. We must make product development        decisions and commit significant resources well in advance of the anticipated introduction        of a new platform. A new platform for which products are being developed may not succeed or        may have a shorter life cycle than anticipated. Alternatively, a platform for which we have        not devoted significant resources could be more successful than we had initially        anticipated, causing us to miss a meaningful revenue opportunity. If the platforms for        which products are being developed are not available in adequate quantities to meet        consumer demand or are lower than our expectations, or do not attain wide market        acceptance, our revenue will suffer and our financial performance will be harmed.

**The video game hardware manufacturers set the royalty rates and other fees that we must        pay to publish games for their platforms, and therefore have significant influence on our        costs. If one or more of these manufacturers adopt a different fee structure for future        game consoles, our profitability will be materially impacted.**

        In order to publish products for a video game system such as the Xbox 360, PlayStation 3 or        Wii, we must take a license from the manufacturer, which gives it the opportunity to set        the fee structure that we must pay in order to publish games for that platform. Similarly,        certain manufacturers have retained the flexibility to change their fee structures, or        adopt different fee structures for online gameplay and other new features for their        consoles. The control that hardware manufacturers have over the fee structures for their        platforms and online access makes it difficult for us to predict our costs, profitability        and impact on margins. Because publishing products for video game systems is the largest        portion of our business, any increase in fee structures would significantly harm our        ability to generate revenues and/or profits.

----

**RISKS ASSOCIATED WITH OUR OPERATIONS**

**There is no assurance that we can successfully implement our business plan that calls        for the acquisition of additional entertainment software titles and businesses to create a        larger presence in the marketplace.**

        We have engaged in, evaluated, and expect to continue to engage in and evaluate, a wide        array of potential strategic transactions, including (i) acquisitions of companies,        businesses, intellectual properties, and other assets, (ii) minority investments in        strategic partners, and (iii) investments in new interactive entertainment businesses.        Any of these strategic transactions could be material to our financial condition and        results of operations. Although we regularly search for opportunities to engage in        strategic transactions, we may not be successful in identifying suitable opportunities. We        may not be able to consummate potential acquisitions or investments or an acquisition or        investment may not enhance our business or may decrease rather than increase our        earnings.

**If we are unable to successfully integrate acquisitions, our revenue growth and future        profitability may be negatively impacted.**

        The process of integrating an acquired business, technology or product may result in        unforeseen operating difficulties and expenditures and may absorb significant management        attention and capital that would otherwise be available for ongoing development of our        business. In addition, we may not be able to maintain the levels of operating efficiency        that any company we may acquire achieved or might have achieved separately.        Additional risks we face include:

|  | ·      | the need to implement or remediate controls, procedures and policies                    appropriate for a public company in an acquired company that, prior to the                    acquisition, lacked these controls, procedures and policies; |
|--|----------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | ·      | cultural challenges associated with integrating employees from an acquired                    company or business into our organization; |
|--|----------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------|

|  | ·      | retaining key employees from the businesses we acquire; |
|--|----------------------------------------|---------------------------------------------------------|

|  | ·      | the need to integrate an acquired company’s accounting, management                    information, human resource and other administrative systems to permit                    effective management; and |
|--|----------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | ·      | to the extent that we engage in strategic transactions outside of the United                    States, we face additional risks, including risks related to integration of                    operations across different cultures and languages, currency risks and the                    particular economic, political and regulatory risks associated with specific                    countries. |
|--|----------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

        Future acquisitions and investments could involve the issuance of our equity securities,        potentially diluting our existing shareholders, the incurrence of debt, contingent        liabilities or amortization expenses, write-offs of goodwill, intangibles, or acquired        in-process technology, or other increased expenses, any of which could harm our financial        condition. Our shareholders may not have the opportunity to review, vote on or evaluate        future acquisitions or investments.

**Covenants in our agreements relating to our Variable Rate Secured Convertible Debentures        due April 30, 2010 may limit our flexibility and prevent us from taking certain actions,        which could adversely affect our ability to execute our business strategy*.***

        Our agreements relating to our Variable Rate Secured Convertible Debentures due April 30,        2010 contain significant restrictive covenants. These covenants could adversely affect us        by limiting our ability to plan for or react to market conditions, meet our capital needs        and execute our business strategy. These covenants, among other things, limit our ability        to issue or sell (i) any debt or equity securities that are convertible into, exchangeable        or exercisable for additional shares of our common stock either (1) at a conversion,        exercise or exchange rate or other price that is based upon and/or varies with the        trading

----

        prices of or quotations for the shares of our common stock at any time after the initial        issuance of such debt or equity securities, or (2) with a conversion, exercise or exchange        price that is subject to being reset at some future date after the initial issuance of such        debt or equity security or upon the occurrence of specified or contingent events directly        or indirectly related to our business or the market for our common stock; or (ii) enter        into any equity line of credit. A breach of these covenants could result in the Variable        Rate Secured Convertible Debentures becoming immediately due and payable. Additionally,        these covenants could limit our flexibility in raising additional capital in the future        which could limit our ability to implement our business strategies.

**Since a significant amount of our assets are denominated in foreign currency and since        we conduct business internationally, we are subject to currency and foreign regulatory        risks.**

        Strategy First 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.        Empire PLC is incorporated in the United Kingdom and sells products throughout Europe and        the United States. Its functional currency is the British Pound. This has exposed us to        market risk with respect to fluctuations in the relative value of the Euro, British        Pound 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.

        We expect to repatriate our funds held in South Africa to the United States. We believe        that repatriation of the full amount is allowable under current South African foreign        currency regulations. Over the last eight 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.

**We currently are disputing a tax liability with the South African revenue service and we        may be forced to expense additional amounts in this matter.**

        In April 2006, our subsidiary, First South African Holdings, received a letter from the        South African Revenue Service (“SARS”) challenging certain tax treatment of        dividends and operating loss carry forwards for the years 2002 through 2004. In May, 2007,        the Company through an arbitration procedure with SARS reached an agreement whereby SARS        agreed in principle to drop the larger of its two assessments. The Company conceded the        principle of SARS second assessment. On August 31, 2007, the Company paid approximately        $300,000 to SARS in regard to this assessment. The Company is vigorously disputing a        further amount of approximately $770,000 and believes it has strong arguments in this        regard based on among other factors, computational errors made by SARS in its assessment.        Based on its payments to SARS, the Company has reduced its estimated liability to        approximately $313,000. The Company believes its remaining liability to SARS is lower than        this amount, however, in the event its arguments are unsuccessful, it may be forced to        increase this liability.

**We depend on the continued services of key personnel.**

        Our success depends upon the continued contributions of our executive officers, some of        whom are also our principal shareholders, and the continued contributions of the management        of our operating subsidiaries. Our business could be adversely affected by the loss of        services of, or a material reduction in the amount of time devoted to us by our executive        officers or the executive officers of our subsidiary. We do not carry key man        insurance.

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**RISKS RELATING TO OUR COMMON STOCK**

**The price of our common stock is highly volatile.**

        The price of our common stock is highly volatile. Fluctuations in the market price of our        common stock may be a result of any number of factors or a combination of factors        including, but not limited to:

|  | ·      | the number of shares in the market and the number of shares we may be required                    to issue in the future compared to market demand for our shares; |
|--|----------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | ·      | our performance and meeting expectations of performance, including the                    development and commercialization of our current and proposed products and                    services; |
|--|----------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | ·      | market conditions for internet and media companies in the small capitalization                    sector; and |
|--|----------------------------------------|---------------------------------------------------------------------------------------------------------------|

|  | ·      | general economic and market conditions. |
|--|----------------------------------------|-----------------------------------------|

**Since we do not intend to declare dividends in the foreseeable future, the return on        your investment will depend upon the appreciation of the market price of your        shares.**

        We have never paid any dividends on our common stock. Our board of directors does not        intend to declare any dividends in the foreseeable future, but intends to retain all        earnings, if any, for use in our business operations. As a result, the return on your        investment in us will depend upon any appreciation in the market price of our common stock.        The holders of common stock are entitled to receive dividends when, as and if declared by        the board of directors out of funds legally available for dividend payments. The payment of        dividends, if any, in the future is within the discretion of our board of directors and        will depend upon our earnings, capital requirements and financial condition, and other        relevant factors.

**Anti-takeover measures in our Bye-laws could adversely affect the voting power of the        holders of our common stock.**

        Our Bye-laws authorize the issuance of up to 5,000,000 shares of preferred stock with such        designations, rights and preferences as may be determined from time to time by our board of        directors. Accordingly, our board of directors is empowered, without shareholder approval,        but subject to applicable government regulatory restrictions, to issue preferred stock with        dividend, liquidation, conversion, voting or other rights which could adversely affect the        voting power or other rights of the holders of our common stock. In the event of issuance,        the preferred stock could be utilized, under certain circumstances, as a method of        discouraging, delaying or preventing a change in control of us. Although we have no present        intention to issue any shares of our preferred stock, we cannot assure we will not do so in        the future.

**The rights of shareholders under Bermuda law may not be as extensive as the rights of        shareholders under the laws of jurisdictions in the United States.**

        Our corporate affairs are governed by our Memorandum of Association and Bye-laws, as well        as the common law of Bermuda relating to companies and the Companies Act 1981. Our Bye-laws        limit the right of security holders to bring an action against our officers and directors.        The laws of Bermuda relating to shareholder rights, protection of minorities, fiduciary        duties of directors and officers, matters of corporate governance, corporate restructuring,        mergers and similar arrangements, takeovers, shareholder suits, indemnification of        directors and inspection of corporate records, may differ from those that would apply if we        were incorporated in a jurisdiction within the United States. The rights of shareholders in        a Bermuda company may not be as extensive as the rights of a shareholder of a United States        company and, accordingly, the holders of our shares of common stock may be more limited in        their ability to protect their interests in us. In addition, there is uncertainty whether        the courts of Bermuda would enforce judgments of the courts of the United States and of        other foreign jurisdictions. There is also uncertainty whether the courts of Bermuda would        enforce actions brought in Bermuda which are predicated upon the securities laws of the        United States.

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**Our common stock may be delisted from NASDAQ.**

        The National Association of Securities Dealers, Inc. has established certain standards for        the continued listing of a security on the NASDAQ Capital Market. The standards for        continued listing require, among other things, that the minimum bid price for the listed        securities be at least $1.00 per share. A deficiency in the bid price maintenance standard        will be deemed to exist if the issuer fails the individual stated requirement for thirty        consecutive trading days, with a 180-day cure period with respect to the NASDAQ Capital        Market. During November and December 2004 and March 2005 our common stock traded below a        price of $1.00 per share. There can be no assurance that we will continue to satisfy the        requirements for maintaining a NASDAQ Capital Market listing. If our common stock were to        be excluded from NASDAQ, the market price of our common stock and the ability of holders to        sell such stock would be adversely affected, and we would be required to comply with the        initial listing requirements to be relisted on NASDAQ.

**Our common stock may become subject to the Commission’s penny stock rules.**

        If our common stock is excluded from NASDAQ and the price per share of our common stock is        below $5.00, our securities would become subject to certain “penny stock” rules        promulgated by the Securities and Exchange Commission unless we satisfy certain net asset        and revenue tests. The application of these rules to our common stock may adversely impact        both your ability to resell our common stock (liquidity) and the market price of these        shares. The penny stock rules require a broker-dealer, prior to a transaction in a penny        stock not otherwise exempt from the rules, to deliver a standardized risk disclosure        document prepared by the Securities and Exchange Commission that provides information about        penny stocks and the nature and level of risks in the penny stock market. The broker-dealer        also must provide the customer with current bid and offer quotations for the penny stock,        the compensation of the broker-dealer and its salesperson in the transaction, and monthly        account statements showing the market value of each penny stock held in the        customer’s account. In addition, the penny stock rules require that prior to a        transaction in a penny stock not otherwise exempt from such rules, the broker-dealer must        make a special written determination of suitability of the investor purchasing the penny        stock.

**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.

        Strategy First, Inc. leased an office at 147 St-Paul West, Suite 210, and Montreal, Quebec,        Canada. The office occupies approximately 3,800 square feet. The lease expires on        November 30, 2009 and costs us approximately $45,000 per year.

        Our United States management subsidiary, First South Africa Management Corp., a Delaware        corporation incorporated in 1995, leases an office at 1900 Glades Road, Suite 435, Boca        Raton, Florida 33431. The lease expires in January 2009 and costs us approximately $25,000        per year for approximately 800 square feet.

        Empire Interactive (Europe), Ltd. rents offices and warehouse space at The Spires, 677 High        Road, North Finchley, London N12. The offices and warehouse with car parking spaces        occupies 6,770 square feet and costs $130,254 per annum. The main lease expired in November        2006 and Empire Interactive (Europe) is currently operating under a month to month        lease.

        Empire Interactive, Inc. leases an office on the 16th Floor, 580 California        Street, San Francisco, California 94104. The lease expired on June 30, 2007 and the offices        were vacated in July. The cost of this lease was $55,200 per annum.

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        Empire Interactive (Europe), Ltd. owns a freehold commercial business premises at Unit 2,        Kings Meadow, Osney Mead, Oxford OX2 0ES. The premises occupy 3,514 square feet. It has        been vacant since November 2006 and negotiations are in progress for it to be sold. The        property is recorded on the balance sheet as a current asset in accordance with SFAS 144 as        the sale of the property is expected to occur within one year of June 30, 2007.

        Empire Interactive (Europe), Ltd. leases two Office Suites at The Kidlington Centre, High        Street Kidlington, Oxon, England. The lease agreements are for three years expiring on        March 23, 2009. The lease costs of Office Suites N & O are $48,983 and $37,369 per        annum respectively.

        We believe the facilities we own or occupy are adequate for the purposes for which they are        currently used and are well maintained.

**ITEM 3.            Legal Proceedings**

        Other than as set forth below we are not currently a party to any material legal        proceedings. We may become from time to time involved in legal proceedings in the ordinary        course of business. We may not be successful in defending these or other claims. Regardless        of the outcome, litigation can result in substantial expense and could divert the efforts        of our management.

        In April 2006, our First South African subsidiary received a letter from the South African        Revenue Service (“SARS”) challenging certain tax treatment of dividends and        operating loss carry forwards for the years 2002 through 2004. Subsequently SARS issued two        tax assessments for approximately $2.9 million. The Company had contended that its South        African tax filings were in full compliance with all applicable laws and had vigorously        defended its position in this regard. The Company had retained an amount of cash equal to        the assessments in South Africa to satisfy any potential liability that may arise.

        In May, 2007, the Company through an arbitration procedure with SARS reached an agreement        whereby SARS agreed in principle to drop the larger of its two assessments. The Company        conceded the principle of SARS second assessment. On August 31, 2007, the Company paid        approximately $300,000 to SARS in regard to this assessment. The Company is vigorously        disputing a further amount of approximately $770,000 and believes it has strong arguments        in this regard based on among other factors, computational errors made by SARS in its        assessment. Based on its payments to SARS, the Company has reduced its estimated liability        to approximately $316,000. The Company believes its remaining liability to SARS is lower        than this amount, however, in the event its arguments are unsuccessful, it may be forced to        increase this liability.

        In January 2006, we brought an action against JoWood Software Productions AG seeking        damages in the amount of approximately $850,000 for expenses incurred in connection with        our unsuccessful acquisition of shares of JoWood. The case is being heard in the Vienna        Commercial Court in Austria. A judgment is anticipated within the next few months.

        In June 2006, Empire commenced litigation against Take Two Interactive Inc. (“Take        Two”) in regard to the accounting and reporting of sales of various products by Take        Two. Through March 31, 2007 Empire had received payments of approximately $1,632,000 from        Take Two, including $216,000 received during the third quarter of fiscal 2007. On        May 10, 2007, Empire settled this litigation for a final payment of $350,000 plus        expense reimbursements of $140,000.

        In August 2007, Empire was served with a lawsuit brought by a former distributor in        Portugal. The lawsuit claims that Empire had no right to utilize other distributors in        Portugal and seeks 630,000 euros in damages. Empire believes this claim has no merit as its        distribution agreements are tailored for individual products only and do not give blanket        distribution rights to outside distributors. Empire will move to dismiss the claim.

**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 NASDAQ Capital Market 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 the NASDAQ Capital        Market.

|                                         | **High** | **Low** |
|----------------------------------------------|----------|---------|
| Common Stock Fiscal                    2007: |     |    |
| 1st Quarter                                  | $2.24    | $1.13   |
| 2nd Quarter                                  | $2.70    | $1.45   |
| 3rd Quarter                                  | $2.30    | $1.56   |
| 4th Quarter                                  | $1.99    | $1.28   |
|                                         |     |    |
| Common Stock Fiscal                    2006: |     |    |
| 1st Quarter                                  | $2.54    | $1.40   |
| 2nd Quarter                                  | $1.76    | $1.20   |
| 3rd Quarter                                  | $1.64    | $1.16   |
| 4th Quarter                                  | $1.50    | $1.15   |

        The closing price of our common stock on September 18, 2007 was $2.16.        As of September 18, 2007, there were approximately 2,500 holders of record of our common        stock.

        We have never declared or paid any cash dividends on our Class A or Class B common stock.        We do not anticipate declaring or paying any dividends on our Class A or 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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**PERFORMANCE CHART**

        The following graph compares the cumulative return to holders of our common stock for the        period commencing June 30, 2001 and ending September 30, 2006 with the NASDAQ Composite and        the Dow Jones Internet Commerce Index as a peer group index for the same period. The        comparison assumes $100 was invested on June 30, 2001 in our common stock and in each        of the comparison groups. We have paid no dividends to stockholders to date.

| Company/Index/Market                       | Fiscal Year Ending |
|--------------------------------------------|--------------------|
|                                            | 6/28/02            | 6/30/03 | 6/30/04 | 6/30/05 | 6/30/06 | 6/30/07 |
| Nasdaq Composite                           | 100.00             | 100.92 | 134.97 | 140.58 | 148.44 | 177.90 |
| Dow Jones Internet                Commerce | 100.00             | 175.66 | 262.32 | 280.11 | 328.80 | 404.09 |
| Silverstar                Holdings         | 100.00             | 160.00 | 293.34 | 543.34 | 423.34 | 610.01 |

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**Equity Compensation Plan        Information**

        The following table contains a summary of the number of shares of our common stock to be        issued upon the exercise of options, warrants and rights outstanding at June 30, 2007, the        weighted average exercise price of those outstanding options, warrants and rights, and the        number of additional shares of our common stock remaining available for future issuance        under the plans as at June 30, 2007.

| Plan Category                                                                                      | Number of securities                    tobe issued upon                    exerciseof                    outstanding options,warrants and                    rights | Weighted average                    exerciseprice of                    outstandingoptions,                    warrants andrights | Number of securitiesremaining available                    forfurther                    issuance |
|----------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------|
| Equity compensation                    plans

approved by                    shareholders*         | 1,510,000                                                                                                                                                            | $1.60                                                                                                                             | 2,184,810                                                                                         |
| Equity compensation plan                    not

approved by                    shareholders       | 450,000                                                                                                                                                              | $2.00                                                                                                                             | NA                                                                                                |
| Warrants issued in                    connection

with raising capital                    **       | 202,189                                                                                                                                                              | $6.00                                                                                                                             | NA                                                                                                |
| Warrants issued for                    acquisition

of Strategy First, Inc.                    *** | 200,000                                                                                                                                                              | $2.50                                                                                                                             | NA                                                                                                |
| Warrants issued for                    convertible

debt ****                                      | 791,319                                                                                                                                                              | $1.79                                                                                                                             | NA                                                                                                |

| *    | See NOTE 18to the Financial                    Statements.                                                                                                     |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **   | 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 issuance of Strategy First, Inc. These warrants expire                    April 21, 2008. |
| **** | These warrants were issued                    in connection with the issuance of convertible debt. These warrants expire                    October 31, 2010.  |

**ITEM        6.     Selected Financial Data**

        We have derived the selected financial data presented below from our audited consolidated        financial statements for the Fiscal Years ended June 30, 2007, 2006, 2005, 2004 and 2003.        The selected financial information presented below should be read in conjunction with such        consolidated financial statements and notes thereto.

Selected Consolidated Financial Information

|                                                                  | Years Ended June                    30, |
|-----------------------------------------------------------------------|-----------------------------------------|
|                                                                  | 2007                                    | 2006 | 2005 | 2004 | 2003 |
| Revenues                                                              | $19,794,284                        | $3,316,429   | $353,343  | $     -   | $     -    |
| Total operating                    expenses                           | 21,463,240                         | 4,609,589   | 1,434,069  | 945,276   | 1,010,088  |
| Operating loss                                                        | (1,668,956)                             | (1,293,160)  | (1,080,276)  | (945,276)  | (1,010,088)  |
| Foreign tax                    contingency                            | -                             | (675,222)  | -   | -   | -   |
| Interest income (expense),                    net                     | (399,536)                          | 72,290   | 579,150   | 622,213   | 625,679   |
| Foreign currency gain                    (loss)                       | 246,593                       | (674,222)  | 81,773   | 1,287,291   | 1,763,115   |
| Net income (loss) from                    continuing operations       | (2,418,539)                        | (3,621,653)  | (263,798)  | 977,231   | 1,383,764   |
| Income (Loss) from                    discontinued operations         | -                             | 161,753   | 422,636   | 52,784   | (1,051,662)  |
| Gain (Loss) on                    disposition                         | -                             | 1,480,710   | -   | (27,582)  | (262,754)  |
| (Provision) benefit for                    income taxes               | 11,918                        |   |   |   |   |
| Net (loss) income                                                     | (2,406,621)                        | (1,979,190)  | 158,838   | 1,002,523   | 69,348   |
| Income (Loss) per share from                    continuing operations | ($ 0.25)                           | ($ 0.40)  | ($ 0.03)  | $0.11   | $0.15   |

----

| Balance Sheet Data                                | As of June                30, |
|---------------------------------------------------|-------------------------------|
|                                                   | 2007                          | 2006 | 2005 | 2004 | 2003 |
| Total assets                                      |                          |   | $ | 43,785,664 |   | $ | 17,537,989 |   | $ | 14,700,465 |   | $ | 13,265,458 |   | $ | 12,354,162 |   |
| Long term                liabilities              |                          |   |   | 5,203,142 |   |   | 2,550,347 |   |   | 273,554 |   |   | 234,192 |   |   | 349,289 |   |
| Net working                capital (deficiency)** |                          |   |   | (13,199,987 | ) |   | 9,574,661 |   |   | 3,637,934 |   |   | (177,981 | ) |   | 192,081 |   |
| Stockholders'                equity               |                          |   |   | 11,884,010 |   |   | 11,400,482 |   |   | 12,288,518 |   |   | 11,422,107 |   |   | 10,025,049 |   |
|                                                   |                               |  |  |  |  |

        **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** |
|-------------|--------|----------------------------------------------------------------------------------------------------------------|

        The following discussion of our financial condition and results of operations should be        read in conjunction with our consolidated financial statements and the notes thereto        included elsewhere in this report. This discussion and analysis includes forward-looking        statements that are subject to risks, uncertainties and other factors described under the        caption “Risk Factors” beginning on Page 4. These factors could cause our        actual results in current and future periods to differ materially from those expressed in,        or implied by, those forward-looking statements. See “Special Note Regarding        Forward-Looking Statements.”

**Background and History**

        We were incorporated in September 1995. Our business plan is to actively pursue        acquisitions fitting a pre defined investment strategy. Currently our strategy focuses on        the following:

|  | ·      | acquiring controlling stakes in high quality                    electronic entertainment software businesses with strong management teams that                    are positioned to use technology and Internet related platforms to fuel above                    average growth; |
|--|----------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | ·      | investing in companies that show an ability                    to contribute, in the short to medium term, to earnings per share through                    operating profit or capital appreciation; and                                                                          |
|  | ·      | operating in partnership with committed,                    incentivised, 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 receivables. Currently we do not have a financial hedging program to protect against        the depreciation of the South African Rand against the US dollar and, therefore, as long as        we hold assets in South Africa we will continue to record income statement gains or losses        to the extent that the Rand’s value fluctuates relative to the US dollar.

        On November 17, 2000, we acquired all of the assets and certain liabilities of Fantasy        Sports from GoRacing Interactive Services, Inc. and on April 7, 2006, we disposed of        substantially all the assets and liabilities of Fantasy Sports.

        On April 21, 2005, we acquired Strategy First through the jurisdiction of the Montreal        bankruptcy court. Pursuant to the approved plan of arrangement, we paid cash consideration        to the creditors of Strategy First of $609,000; 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, Strategy First publishes software games        primarily for the PC platform. Some of its popular games include O.R.B, the Disciples        franchise, Sacred Lands, Kohan: Immortal Sovereigns, Steel Beasts, Galactic Civilizations,        and the Jagged Alliance franchise.

        On December 4, 2006, the Company announced that it had achieved more than 90% acceptance of        its offer to acquire the shares of Empire. Based on these acceptances, the Company        announced a formal closing of the office to Empire shareholders effective December 1, 2006.        The Company paid consideration to the shareholders as follows: approximately $6.8 million        paid on closing; an additional

----

        $5.5 million in loan notes payable October 31, 2007; and further contingent consideration        based on Empire’s EBIDTA for the 12 months ended June 30, 2007. Based on        Empire’s EBITDA for the 12 months ended June 30, 2007, the additional contingent        consideration in connection with this acquisition will be $3.8 million. This amount is due        and payable on April 30, 2008.

**Results of Operations**

        Due to the acquisition of Empire during fiscal year 2007 the disposal of the assets of        Fantasy Sports, in fiscal year 2006 and the acquisition of Strategy First during fiscal        year 2005 the following management discussion and analysis of financial condition and        results of operations may not provide an accurate comparison between the current and past        fiscal years.

        The fiscal year ending June 30, 2007 includes seven months of operating results for Empire.        The results for Fantasy Sports are classified as discontinued operations in the fiscal        years ending June 30, 2006 and 2005. Two months of operating results for Strategy First are        included in the fiscal year ending June 30, 2005.

**FiscalYear2007 Compared to FiscalYear2006**

**Revenues**

        Net revenues increased to approximately $19,800,000 for fiscal year 2007 as compared to        approximately $3,316,000 in fiscal year 2006. This increase was due to the operations of        Empire which generated revenues of approximately $17,196,000. During fiscal year 2006        revenues were generated by the operations of Strategy First alone.

**Cost of Sales**

        Cost of sales was approximately $6,513,000 for fiscal 2007, or 32.9% of total revenues.        Cost of sales for Empire was approximately $5,841.000, or 39.8% of related sales, while        cost of sales for Strategy First was approximately $672,000, or 25.9% of related sales. For        fiscal year 2006, cost of sales was approximately $555,000, or 16.7% of sales. This        decrease in gross margin is primarily the result of lower gross margins for console games,        which make up the majority of Empire’s sales, as opposed to PC products. In fiscal        year 2006 a significant portion of Strategy First’s sales were generated through        foreign royalty sales, which had no associated cost of sales.

**Development Costs and Royalties**

        Development costs and royalties were approximately $2,133,000 for fiscal year 2007.        Development costs and royalties for Empire totaled approximately $1,527,000 for fiscal year        2007. Royalty costs for Strategy First were approximately $548,000 for fiscal year 2007 as        compared to approximately $943,000 during the prior fiscal year. Royalty expenses decreased        as Strategy First sold less outside products in fiscal year 2007. Development expenditures        capitalized during fiscal year 2007 were approximately $5,524,000 Development costs are        incurred by Empire. To date Strategy First has outsourced development in exchange for        future distribution rights. Amortization of development costs during fiscal year 2007 was        approximately $337,000.

**Selling, General and Administrative Expenses**

        Selling, general and administrative expenses for fiscal year 2007 were approximately        $8,084,000. Selling, general and administrative expenses for Empire Interactive were        approximately $5,138,000 while selling, general and administrative expenses for Strategy        First were approximately $1,604,000. Corporate overhead was approximately $1,383,000. For        fiscal year 2006, selling general and administrative expenses were approximately $2,931,000        of which Strategy First accounted for approximately $1,787,000 with corporate overhead        accounting for approximately $1,144,000. The increase in corporate overhead was primarily        the result of increased professional fees and stock based compensation expense during the        fiscal year 2007.

----

**Amortization and Depreciation**

        Amortization of acquired intangible assets increased to approximately $4,236,000 during        fiscal year 2007 as compared to approximately $149,000 in the prior fiscal year. This        increase is primarily due to the amortization of intangible assets acquired in the Empire        transaction of approximately $3,970,000. Depreciation expenses were approximately $160,000        for fiscal year 2007 and approximately $32,000 in the same period in the prior fiscal year.        Depreciation expense for Empire was approximately $129,000 for fiscal year 2007.

**Foreign Currency Gains (Losses)**

Foreign currency gains during the        fiscal year 2007 were approximately $247,000. Empire realized foreign currency gains of        approximately $205,000 and Strategy First realized foreign currency gains of approximately        $42,000. The foreign currency losses during fiscal year 2006 were approximately $750,000,        consisting of foreign currency losses of approximately $832,000 related to the remaining        assets from the sale of discontinued South African operations, approximately $66,000 in        gains recognized by Strategy First and approximately $16,000 in gains recognized by the        parent company.

**Acquisition Costs Incurred**

        During fiscal year 2006 we incurred approximately $321,000 in direct costs plus additional        costs in related to securing financing for an unsuccessful acquisition of and subsequent        litigation against a European software company. We are seeking damages for breach of        contract from this European software company. The case has been concluded and we are        currently awaiting a verdict form the Vienna District Court, which is expected in the next        few weeks.

**Amortization of Convertible Debt Discounts and Issuance Costs**

        Amortization of convertible debt discounts and issuance costs were approximately $592,000        in fiscal year 2007 as compared to approximately $770,000 in fiscal year 2006. We began        amortizing convertible debt discounts and amortization costs during the second quarter of        fiscal year 2006. Amortization expenses were lower as compared to fiscal year 2006 as a        result of the extending the maturity date of the debentures to April 30, 2010 during the        current fiscal year.

**Interest Expense**

        Interest expense of approximately $884,000 was recorded during fiscal year 2007 as compared        to approximately $561,000 in fiscal year 2006. Interest expense increased as a result of        significant increases in debt obligations that occurred during fiscal year 2007 as compared        to the prior year. This increase is partially attributable to the Empire line of credit        which stood at approximately $2,284,000 at June 30, 2007.

**Interest Income**

        Interest income of approximately $484.000 was recorded during the fiscal year 2007 as        compared to interest income of approximately $633,000 in the prior fiscal year. The        decrease of approximately $149,000 is primarily the result of the Company’s decrease        in the average cash balances held during fiscal year 2007 as compared to the prior fiscal        year.

**Provision for Income Taxes**

        We are registered in Bermuda, where no income tax laws are applicable to us. Two of our        subsidiaries are subject to US income taxes, four subsidiaries are subject to United        Kingdom income taxes, one subsidiary is subject to Canadian income taxes and one of our        subsidiaries is subject to South African income taxes. None of them has had taxable income        because each of them has incurred losses for tax purposes. The deferred tax asset generated        by the tax losses and temporary differences has been fully

----

        reserved with the exception of approximately $625,000 carried as a long-term asset that        will be offset against future taxable earnings of Empire in the United Kingdom.

        In April 2006, our First South African subsidiary received a letter from the South African        Revenue Service (“SARS”) challenging certain tax treatment of dividends and        operating loss carry forwards for the years 2002 through 2004. Subsequently SARS issued two        tax assessments for approximately $2.9 million. The Company had contended that its South        African tax filings were in full compliance with all applicable laws and had vigorously        defended its position in this regard. The Company had retained an amount of cash equal to        the assessments in South Africa to satisfy any potential liability that may arise.

        In May, 2007, the Company through an arbitration procedure with SARS reached an agreement        whereby SARS agreed in principle to drop the larger of its two        assessments. The Company conceded the principle of SARS second assessment. On August 31,        2007, the Company paid approximately $300,000 to SARS in regard to this assessment. The        Company is vigorously disputing a further amount of approximately $770,000 and believes it        has strong arguments in this regard based on among other factors, computational errors made        by SARS in its assessment. Based on its payments to SARS, the Company has reduced its        estimated liability to approximately $316,000 as of August 31, 2007. The Company believes        its remaining liability to SARS is lower than this amount, however, in the event its        arguments are unsuccessful, it may be forced to increase this liability.

**Discontinued Operations**

        During fiscal year 2006, we recognized income of approximately $162,000 from the        discontinued operations of Fantasy Sports, Inc. On April 7, 2006, we sold all the assets        and certain liabilities of Fantasy Sports, Inc. to FUN Technologies, LLC which resulted in        a recognized gain of approximately $1,481.000. In fiscal year 2007, the Company had no        discontinued operations.

**Net Loss**

        We have recognized an operating EBITDA gain of approximately $3.06 million during fiscal        year 2007 compared to an operating EBITDA loss of approximately $1.11 million for the prior        fiscal year. Our operating loss for the fiscal year 2007 was approximately $1.67 million as        compared to approximately $1.29 million for the prior fiscal year. During fiscal year 2007        we incurred amortization expenses for software development and acquired intangibles of        approximately $4.57 million as compared to $150,000 in prior fiscal year. We incurred a net        loss of approximately $2.4 million as compared to approximately $1.98 million in the        previous fiscal year. The increase in the net loss was primarily caused by increases in the        depreciation and amortization of software development costs and acquired intangibles of        approximately $4.4 million in fiscal year 2007 as well decreases in income recognized from        discontinued operations of approximately $1,642,000 as compared to the prior fiscal        year.

        The calculation used to compute Operating EBITDA for the fiscal years ended June 30, 2007        and 2006 was computed as follows:

|                                                                                                             | 2007         | 2006         |
|------------------------------------------------------------------------------------------------------------------|--------------|--------------|
| Operating loss as                    reported:                                                                   | ($1,668,956) | ($1,293,160) |
|                                                                                                             |         |         |
| Add                    back:               |         |         |
| Amortization of software                    development costs                                                    | 337,243      | -            |
| Amortization of acquired                    intangibles                                                          | 4,235,634    | 148,797      |
| Depreciation                                                                                                     | 159,743      | 31,687       |
| Operating                    EBITDA:                                                                             | $3,063,664   | ($1,112,676) |

        For fiscal year 2006, net loss includes non-cash foreign currency losses of approximately        $616,000, as compared to gains of approximately $247,000 in the current fiscal year;        $600,000 expensed for an estimated foreign tax liability as compared to $0 in the current        fiscal year; approximately $321,000 incurred for abandoned acquisition costs as compared to        $0 in the current fiscal year; and approximately

----

        $770,000 of amortization costs related to the issuance of our $5,000,000 convertible debt        as compared to approximately $592,000 during the year ended June 30, 2007.

**Fiscal Year 2006 Compared to Fiscal        Year 2005**

**Revenues**

        Revenues increased approximately $2,963,000 to $3,316,000 in fiscal year 2006 as compared        to approximately $353,000 in the prior fiscal year. The increase in revenues in 2006 was        primarily the result of including operations from Strategy First for a full year in fiscal        year 2006 as compared to two months in fiscal year 2005.

**Cost of Sales**

        Cost of sales increased approximately $495,000 to approximately $555,000 in fiscal year        2006 as compared to approximately $60,000 in the prior fiscal year. Cost of sales relate        solely to the operations of Strategy First. The increase in cost of sales was primarily the        result of including operations from Strategy First for a full year in fiscal year 2006 as        compared to two months in fiscal year 2005.

**Development Costs and Royalties**

        Royalties increased approximately $931,000 to approximately $943,000 in fiscal year 2006 as        compared to approximately $12,000 in the prior fiscal year. Royalty expenses relate solely        to the operations of Strategy First. The increase in cost of sales was primarily the result        of including operations from Strategy First for a full year in fiscal year 2006 as compared        to two months in fiscal year 2005.

**Selling, General and Administrative Expenses**

        Selling, general and administrative expenses increased approximately $1,603,000 to        approximately $2,931,000 in fiscal year 2006 as compared to approximately $1,328,000 in        fiscal year 2005. Selling, general and administrative expenses related to corporate        overhead were approximately $1,144,000 in fiscal year 2006 and approximately $1,070,000 in        fiscal year 2005. The increase in selling, general and administrative expenses was        primarily the result of including operations from Strategy First for a full year in fiscal        year 2006 as compared to two months in fiscal year 2005. Strategy First’s sales,        general and administrative expenses were approximately $1.787,000 in fiscal year 2006 as        compared to approximately $1258,000 in fiscal year 2005 when only two months’        operations were recorded. Included in these amounts are stock based compensation charges of        approximately $113,000 for fiscal year 2006 as compared to approximately $50,000 in fiscal        year 2005.

**Amortization and Depreciation**

        Amortization of intangible assets was approximately $149,000 in fiscal year 2006 as        compared to approximately $22,000 in fiscal year 2005. The increase was due to the full        year amortization of intangible assets related to Strategy First in fiscal year 2006 as        compared to two months in fiscal year 2005. Depreciation expense was approximately $32,000        in fiscal year 2006 as compared to approximately $12,000 in fiscal year 2005. The increase        is related to Strategy First’s operations being recorded for the full year in        2006.

**Foreign Currency Gains (Losses)**

        Foreign currency gains or losses are almost exclusively related to the assets remaining        from the sale of discontinued South African operations. The foreign currency losses during        fiscal year 2006 were approximately $750,000 as compared to approximate gains of $82,000 in        fiscal year 2005. These gains or losses are primarily the result of the fluctuations of the        South African Rand against the US dollar. During fiscal year 2006, the South African Rand        depreciated approximately 9% against the US dollar, while it depreciated approximately 7%        in fiscal year 2005. In fiscal year 2005, the increase in the market value of our South        African Rand put/US dollar call option 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, 2006, we received approximately R20,070,000 (South African        Rand) (approximately $2,761,000) as final payment of notes and interest owed by Salwin Pty,        Ltd.

**Acquisition Costs Incurred**

        During fiscal year 2006, we incurred approximately $321,000 pursuing the unsuccessful        acquisition of and subsequent litigation against a European software company. We are        seeking damages for breach of contract from this European software company.

**Amortization of Convertible Debt Discounts and Issuance Costs**

        Amortization of convertible debt discounts and issuance costs were approximately $770,000        in fiscal year 2006. There were no charges of this nature in fiscal year 2005. These        expenses relate to the issuance of our $5,000,000 convertible debenture to DKR Oasis        Soundshore in October 2005.

**Interest Income**

        Interest income of $633,000 was recorded during fiscal 2006 as compared to interest income        of $587,000 in fiscal 2005. Interest income is primarily earned on cash balances as well as        on notes receivable from the sale of our South African businesses. Interest income is,        therefore affected by the fluctuation of movements in the US and South African interest        rates as well as by the fluctuation of the South African Rand against the US dollar.

**Interest Expense**

Interest expense during fiscal 2006 was $561,000 as        compared to $8,000 in the prior year. This increase is attributable to interest incurred in        connection with the issuance of our $5 million convertible debenture to DKR Oasis        Soundshore in October 2005.

**Provision for Income Taxes**

        We are registered in Bermuda, where no income tax laws are applicable. Two of our        subsidiaries are subject to U.S. income taxes, one subsidiary is subject to Canadian income        taxes and one is subject to South African income taxes. Up to this date, none of them has        had taxable income as they have incurred losses for tax purposes. The deferred tax asset        generated by the tax losses and temporary differences has been fully reserved.

        In early April 2006, our subsidiary First South African Holdings received a letter from the        South African Revenue Service (“SARS”) challenging certain tax treatment of        dividends and operating loss carry forwards for the years 2002 through 2004. Subsequently        SARS has issued an assessment for approximately $2.7 million.

        We believe that our South African tax filings are in full compliance with all applicable        laws and are vigorously defending its position in this regard. However, until such time as        these issues are resolved, we will retain cash in an amount approximately equal to the        assessment in South Africa to satisfy any potential liability that may arise.

        Not withstanding the above and after reviewing this potential liability with outside        experts and conducting a further review into the circumstances of the assessment, we have        recorded an estimated liability of approximately $600,000 at this time.

        We will continue to vigorously defend our position in this matter. However, circumstances        may dictate that we increase this liability as we proceed. There is, therefore, no        assurance that the $600,000 amount will be sufficient to offset the ultimate tax liability.        Conversely, we believe that we have strong defenses in this matter and we may ultimately        obtain a ruling that results in a lesser liability. As this is a fluid situation, we

----

        will assess our liability in this regard on a quarterly basis and may adjust this $600,000        liability in the future.

**Discontinued Operations**

        During fiscal year 2006, we recognized income of approximately $162,000 from the        discontinued operations of Fantasy Sports, Inc. as compared to approximately $423,000 in        fiscal year 2005. On April 7, 2006, we sold all the assets and certain liabilities of        Fantasy Sports, Inc. to FUN Technologies, LLC which resulted in a recognized gain of        approximately $1,481.000.

**Net Income**

        We have recognized a net loss of approximately $1,979,000 during fiscal year 2006 compared        to net income of approximately $159,000 during the prior fiscal year. For fiscal year 2006,        net loss includes non-cash foreign currency losses of approximately $750,000, $600,000        accrued for an estimated foreign tax liability, approximately $321,000 costs incurred        within an abandoned acquisition and approximately $777,000 of amortization costs related to        the issuance of our $5,000,000 convertible debenture. During fiscal year 2005, we        recognized approximately $8,000 in non cash foreign currency gains and did not incur any        expenses in regard to foreign tax liabilities, abandoned acquisition costs, and convertible        debt amortization.

**Financial Condition, Liquidity and Capital Resources**

        Cash decreased by approximately $7,252,000 from $12,009,000 at June 30, 2006 to        approximately $4,757,000 at June 30, 2007. This decrease is primarily the result of the        acquisition cost incurred in connection with the purchase of Empire. The cash balances are        being held for acquisitions and working capital purposes. Included in this amount is        $1,064,000 which is classified as restricted cash. This amount relates to cash used to        secure borrowings of our subsidiary, Strategy First, as well as money retained in South        Africa to satisfy any potential liability that may result from our tax dispute with the        South African Revenue.

        Working capital decreased by approximately $22,275,000 from approximately $9,575,000 at        June 30, 2006 to a deficit of approximately $12,700,000 on June 30, 2007. The decrease is        primarily due to the acquisition of Empire, which resulted in significant decreases to the        cash balance and significant increases in current liabilities. Current liabilities acquired        as part of the acquisition of Empire exceeded current assets acquired by $6,631,000.        Current notes payable to Empire shareholders totaled approximately $9,323,000 as of June        30, 2007. The current portion of our convertible secured debentures decreased $900,000 as        compared to June 30, 2006 as a result of the modification to our debt agreement which        extended the maturity to April 30, 2010.

        On June 30, 2007, Empire owed approximately $1,173,000 for United Kingdom payroll taxes of        which approximately $985,000 was past due. Payroll liabilities totaling approximately        $394,000 for the months of May and June 2007 were paid in July 2007 with the agreement of        the tax authorities and were not subject to penalties. A payment schedule for the remaining        past due balance of $779,000 is currently being finalized. As of June 30, 2007, the        interest rate in effect for late tax payments was 7.50%. Interest is automatically charged        for the period following April 19, 2007 on the amount that was still due at that date. In        addition, the United Kingdom tax authorities have the power to charge this rate of interest        on overdue payroll taxes in respect to periods prior to April 19, 2007; however, in        practice, this is rare.

        At June 30, 2007 we had borrowings of approximately $2,875,000 which consisted of        approximately $2,284,000 in Empire’s line of credit and approximately $591,000        advances against the corporate line of credit, secured by the Company’s cash.        Additionally, we have two outstanding debentures issued to DKR Soundshore Oasis, with a        combined face value of $2,600,000 net of repayments or costs incurred. We currently pay        monthly interest on this amount at a rate of prime plus 1.5%, subject to reduction based on        our share price. We also have note obligations to Empire shareholders of approximately        $5,475,000 that accrue interest at an annual rate of 4% and are payable in full on October        31, 2007. Additionally, there is an earn-out payable to former Empire shareholders. The        earn-out is based on a formula of Empire’s EBITDA for the fiscal year ended June 30,        2007. The amount payable computed using the earn-out

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        formula totaled approximately $3,847,000 at June 30, 2007 and is due to former Empire        shareholders on April 30, 2008.

        As of June 30, 2007, our Balance Sheet reflects a working capital deficit. Until recently        our operations have not generated positive operating EBITDA or earnings and there is no        guarantee that our recent profitability in the fourth quarter of fiscal year 2007 will be        sustained. However, we believe that a combination of our cash on hand, operating cash flow        and additional financing arrangements will be sufficient to meet our short and long-term        obligations. Management’s plans to meet its ongoing cash requirement as follows:

|  | ·      | Raise additional capital through the sale of equity or additional debt. To this                    end the Company announced on September 7, 2007 that it had completed a $9                    million private placement of common stock and warrants with institutional                    investors and management. Silverstar sold a total of 6,206,890 shares at $1.45                    per share. Investors also received five year warrants to purchase approximately                    4,344,826 shares of common stock at $2.10 per share. The Company may seek to                    raise additional debt or equity during the 2008 fiscal year. |
|--|----------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | ·      | The Company amended the terms of its Secured Convertible Debentures with DKR                    Soundshore Oasis in June 2007. Under the terms of the amendment (i) the                    maturity dates of the Debentures were extended to April 30, 2010; (ii) there                    will be no amortization of principal under the Debentures and (iii) the                    Debentures will be mandatorily convertible if the closing sale price of the                    Company’s common stock equals or exceeds $3.48 per share. The mandatory                    conversion will be subject to volume requirements. Furthermore an amount of                    $2.85 million of this Convertible debenture had been converted and the Company                    has issued 1,420,478 shares of Class A common stock. |
|--|----------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | ·      | Generate significant short term operating earnings and cash flow primarily                    through its newly acquired subsidiary Empire. Empire’s first Next                    Generation version of its best selling Flat Out franchise has performed well in                    Europe, generating significant cash flow and is anticipated to meet or exceed                    the Company’s sales expectations in the future. Furthermore, as of                    September 21, 2007, the Company anticipates that Empire’s ongoing                    business which includes planned releases in the next 12 months of such high                    profile titles as Jackass, Hello Kitty and Pipemania, will generate operating                    profits and cash flow in the short term. |
|--|----------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

        The Company has received a commitment from a lender for a two year $2.0 million loan.         The Company and the lender are currently negotiating the terms and conditions of the        loan.        Management believes that these actions and others to be taken by the Company will provide        the opportunity for it to improve liquidity and achieve profitability. However, there can        be no assurance that all such events will occur to realize these goals.

**Contractual Obligations**

        The following table is a summary of contractual obligations as of June 30, 2007:

|                                                                                                      | Payments Due By                    Period |
|-----------------------------------------------------------------------------------------------------------|-------------------------------------------|
| Contractual                    Obligations                                                                | Total                                     | Less than

1 Year | 1-3 Years | 3-5 Years | More than 5                    Years |
| Obligations to former                    Empire

                        shareholders |  

$9,322,605                        |  

$9,322,605 |  

$             - |  

$                            - |  

$                          - |
| Convertible debt                    obligations                                                           | 5,000,000                                 | - | $5,000,000 | - | - |
| Interest Payable                                                                                          | 1,529,546                                 | 635,796 | 893,750 | - | - |
| Operating lease                    obligations                                                            | 532,813                                   | 258,592 | 274,221 | - | - |
| Purchase                    obligations                                                                   | 1,034,978                                 | 719,978 | 315,000 | - | - |
| Employment                    contracts                                                                   | 2,200,169                                 | 1,576,429 | 623,740 | - | - |
| Total                                                                                                     | $19,620,111                               | $12,513,400 | $7,106,711 | $         - | $                          - |

----

**Future Commitments**

        Through June 30, 2007, Strategy First has sustained operating losses. We anticipate that        this situation will be remedied through a combination of increased revenues through        sustained new game releases as well as a reduction in expenses. Strategy First and Empire        are 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.

**Off-Balance Sheet Arrangements**

        We have not created, and we are not a party to, any special-purpose or off-balance sheet        entities for the purpose of raising capital, incurring debt or operating our business. We        do not have arrangements or relationships with entities that are not consolidated into the        financial statements.

**Critical Accounting Policies**

        The following is a discussion of the accounting policies that we believe are critical to        our operations:

**Revenue Recognition**

        Empire and Strategy First distribute the majority of their products through third-party        software distributors to mass-merchant and major retailers and directly to certain        entertainment software retailers, all of which have traditionally sold consumer        entertainment software products. Additionally, the companies may license their 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, the companies record 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.

        The provision for anticipated product returns and price markdowns is primarily based upon        the company’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. The companies review        the adequacy of their respective allowances for product returns and price markdowns and if        necessary make adjustments.

        In the case of royalty income, the company records this income when earned based on sales        reports from its distributors. In many cases, the companies receive guaranteed royalty        income and these revenues are recorded upon signing of the royalty agreements. These        amounts are carried as accounts receivable until paid.

**Development Costs**

        In the past, Empire has incurred significant software development costs in connection with        the production of their products. Under SFAS No. 86 software development cost should be        capitalized once technical feasibility is achieved. In the case of Empire this would be        when the product is commercially viable (“commercial feasibility”).        Empire’s management had taken the position that commercial feasibility is reached        very late in the development process and therefore had not capitalized any development        costs in regard to their products. As reported in the Company’s Form 10-Q/A for the        quarter ended December 31, 2006, the Company was in the process of evaluating the        appropriateness of this position by performing its own analysis to determine as to when        commercial feasibility is reached. This analysis was completed during the quarter ending        March 31, 2007. Based on this analysis, the Company determined to its satisfaction that        there is a clearly defined decision point quite early in development where a product passes        from concept to commercial feasibility. This decision point is either reached with the        consent of outside parties such as Sony or Microsoft or through an internal process where        management decides to move forward with a product’s development once a game concept        has been approved. The Company also found that there has been no material instance where        concept approval has been given and a game has not become a commercial product. The Company        has, therefore, decided to capitalize software development costs after concept        approval.

----

        During the quarter ended December 31, 2006, $693,268 (£353,209 based on the December,        2006 foreign exchange rate of $1.96277 US dollars to the UK pound) of software development        costs were expensed. This had the effect of reducing the March 31, 2007 quarter’s        loss by $690,242 (£353,209 based on the quarter ended March 31, 2007 foreign exchange        rate of 1.95449 US dollars to the UK pound) and represents the amount of software        development cost expensed during the quarter ended December 31, 2006, capitalized during        the current quarter ended March 31, 2007. The table sets forth below the effect on the        quarterly earnings had the Company capitalized its software development costs starting on        December 1, 2006.

|                                                                                                             |   | Fiscal                    Year | Quarter    | Quarter      | Quarter      | Quarter    |
|------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|------------|--------------|--------------|------------|
|                                                                                                             |   | Ended                          | Ended      | Ended        | Ended        | Ended      |
|                                                                                                             |   | 6/30                    /2007  | 6/30/2007  | 3/31/2007    | 12/31/2006   | 9/30/2006  |
| Net income (loss)as reported                                                                                     |   | $2,406,621                | $2,587,516 | ($2,751,028) | ($1,301,671) | ($941,438) |
| Effect of change in                    estimate                                                                  |   | 3,026                     | 0          | (690,242)    | 693,268      | 0     |
| Net loss assuming                    capitalization                                                              |   |                           |       |         |         |
|                         starting December 1, 2006                                            |   | ($2,403,595)                   | $2,587,516 | ($3,441,270) | ($608,403)   | ($941,438) |
| Income (Loss)per share as                    reported:                                                           |   |                           |       |         |         |       |
|                         Basic                                                                |   | ($0.25)                        | $0.25      | ($0.27)      | ($0.14)      | ($0.10)    |
|                         Diluted                                                              |   | ($0.25)                        | ($0.25)    | ($0.27)      | ($0.14)      | ($0.10)    |
| Income (Loss)per share                    assuming

capitalization starting                    December 1, 2006: |   |                           |       |         |         |
|                         Basic                                                                |   | ($0.25)                        | $0.24      | ($0.34)      | ($0.06)      | ($0.10)    |
|                         Diluted                                                              |   | ($0.25)                        | $0.24      | ($0.34)      | ($0.06)      | ($0.10)    |

**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 value of our reporting units.        Inherent in such fair 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, 2007 and determined        that goodwill was not impaired. While the Company believes that no impairment existed as of        June 30, 2007, 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 and non-competition agreements. Intangible        assets, excluding goodwill and Empire game titles are stated on the basis of cost and are        amortized on a straight-line basis over estimated lives of three to ten years. Empire game        titles are amortized over a five-year period based on weighted average expected sales from        the date the title is launched. For titles that have not yet been launched as of June 30,        2007 a launch date was estimated to project future amortization.

        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 equal        or exceed the carrying value of the intangible, a discounted cash flow model is used to        determine the extent of any impairment charge required.

----

**ITEM        7A.     Quantitative and Qualitative Disclosures about Market        Risk**

        The Company does not ordinarily hold market risk sensitive instruments for trading        purposes. The Company does, however, recognize market risk from interest rate and foreign        currency exchange exposure.

**Interest Rate Risk**

        On June 30, 2007, our cash resources earned interest at variable rates. Accordingly, the        Company’s return on these funds is affected by fluctuations in interest rates. The        Company also has significant debt that is tied to interest rates and, therefore, any        increase in interest rates will have a negative effect on the Company’s interest        payments. At June 30, 2007, the Company had two convertible notes outstanding with a        combined balance of approximately $5 million. The interest on these convertible notes is        based on a floating rate equal to prime plus 1.5%. A hypothetical 100 basis point change in        interest rates would result in an approximate $50,000 change in annual interest        expense.

        In addition to the convertible debentures the Company had a secured line of credit facility        at June 30, 2007. Based on the June 30, 2007 balance on this facility, a hypothetical 100        basis point change in interest rates would result in an approximately $6,000 change in        annual interest expense.

        Empire has a line of credit secured by its receivables, inventory, real property and        intangible assets. As of June 30, 2007, the amount outstanding under this facility was        approximately $2,284,000. The line of credit accrues interest at an annual rate of 8.75%. A        hypothetical 100 basis point change in interest rates would result in an approximately        $22,000 change in annual interest expense.

**Foreign Currency Risk**

        The majority of the assets and liabilities of the Company are denominated in foreign        currencies (primarily the pound sterling, Canadian dollar, or the South African Rand). As        such the Company is exposed to foreign currency risks.

        Empire is incorporated in the United Kingdom. Empire sells products throughout the world.        Its functional currency is the pound sterling. This has exposed the Company to market risk        with respect to fluctuations in the relative value of the major currencies particularly the        Euro, British pound, and the US dollar.

        Strategy First 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.

        Net revenues by currency as reported in US dollars for the fiscal years ending June 30,        2007 and 2006 were as follows:

|                                  | 2007        | 2006       |
|---------------------------------------|-------------|------------|
| Euros                                 | $7,727,218  | $996,189   |
| Pound sterling                        | 5,139,752   | -          |
| US dollars                            | 6,786,976   | 2,034,323  |
| Canadian dollars                      | 140,338     | 285,917    |
| Total net                    revenues | $19,794,284 | $3,316,429 |

----

**ITEM 8. FinancialStatements and Supplementary        Data**

**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 and Comprehensive Loss | F-4 - F-5  |
|                                                                         |       |
| Statements of Cash                    Flows                                  | F-6        |
|                                                                         |       |
| Notes to Consolidated                    Financial Statements                | F-7 - F-37 |

----

**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, 2007 and 2006, and the related consolidated        statements of operations, stockholders’ equity and comprehensive loss and cash        flows for each of the three years in the period ended June 30, 2007. These consolidated        financial statements are the responsibility of the Company’s management. Our        responsibility is to express an opinion on these consolidated financial statements based on        our audits.

        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 audit        to obtain reasonable assurance about whether the financial statements are free of material        misstatement. The company is not required to have, nor were we engaged to perform, an audit        of its internal control over financial reporting. Our audit included consideration of        internal control over financial reporting as a basis for designing audit procedures that        are appropriate in the circumstances, but not for the purpose of expressing an opinion on        the effectiveness of the company’s internal control over financial reporting.        Accordingly, we express no such opinion. An audit also includes examining, on a test basis,        evidence supporting the amounts and disclosures in the financial statements, assessing the        accounting principles used and significant estimates made by management, 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, 2007 and 2006, and the consolidated results of        their operations and their cash flows for each of the three years in the period ended June        30, 2007, in conformity with accounting principles generally accepted in the United        States.

        As discussed in Note 3 to the consolidated financial statements, the Company is subject to        certain risks and uncertainties.

RACHLIN COHEN & HOLTZ        LLP

Miami Florida

September 27, 2007

----

**SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        JUNE 30, 2007 AND 2006**

| ASSETS                                                                                                                      | 2007   |        | 2006   |             |
|-----------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|-------------|
| Current assets:                                                                                                             |   |   |   |             |   |   |  |   |
|     Cash and                cash equivalents                                                            |   |   |
|     (Includes                restricted cash of $590,990)                                               |   |   | $      | 3,693,149   |   | $ | 9,075,259 |   |
|     Cash                restricted for foreign tax estimated liability                                  |   |   |   | 1,064,040   |   |   | 2,933,342 |   |
|     Accounts                receivable, net                                                             |   |   |   | 6,908,846   |   |   | 637,135 |   |
|     Inventories,                net                                                                     |   |   |   | 900,128     |   |   | 58,732 |   |
|     Current                portion of long term notes receivable                                        |   |   |   | 256,982     |   |   | 164,548 |   |
|     Prepaid                expenses and other current assets                                            |   |   |   | 669,730     |   |   | 292,805 |   |
|     Assets                available for sale                                                            |   |   |   | 505,650     |   |   | - |   |
|                                                                                                                             |        |        |        |             |
|         Total                current assets                                         |   |   | $      | 13,998,525  |   | $ | 13,161,821 |   |
|                                                                                                                             |        |        |        |             |
| Property, plant                and equipment, net                                                                           |   |   |   | 488,031     |   |   | 77,985 |   |
| Software                development costs, net                                                                              |   |   |   | 5,183,033   |   |   | - |   |
| Investments in                non-marketable securities                                                                     |   |   |   | 1,143,566   |   |   | 1,143,566 |   |
| Long term notes                receivable                                                                                   |   |   |   | 214,222     |   |   | 458,670 |   |
| Goodwill,                net                                                                                                |   |   |   | 890,038     |   |   | 841,726 |   |
| Intangible                assets, net                                                                                       |   |   |   | 20,611,189  |   |   | 1,412,854 |   |
| Deferred tax                asset                                                                                           |   |   |   | 625,217     |   |   | - |   |
| Deferred                charges and other assets                                                                            |   |   |   | 631,843     |   |   | 441,367 |   |
|                                                                                                                             |        |        |        |             |
|         Total                assets                                                 |   |   | $      | 43,785,664  |   | $ | 17,537,989 |   |
|                                                                                                                             |        |        |        |             |
| Liabilities and                stockholders' equity                                                                         |   |   |   |             |  |   |  |  |
| Current                liabilities:                                                                                         |   |   |
|     Lines of                credit                                                                      |   |   | $      | 2,875,472   |   | $ | 647,797 |   |
|     Current                portion of long term debt                                                    |   |   |   | -           |   |   | 180,323 |   |
|     Notes                payable- acquisition                                                           |   |   |   | 5,475,179   |   |   | - |   |
|     Earn out                notes payable - acquisition                                                 |   |   |   | 3,847,426   |   |   | - |   |
|     Current                portion of convertible secured debenture                                     |   |   |   | -           |   |   | 900,000 |   |
|     Accounts                payable                                                                     |   |   |   | 6,959,835   |   |   | 304,088 |   |
|     Accrued                royalty expense                                                              |   |   |   | 2,937,887   |   |   | 82,643 |   |
|     Accrued                payroll tax expense                                                          |   |   |   | 1,585,196   |   |   | 49,846 |   |
|     Accrued                expenses                                                                     |   |   |   | 1,770,656   |   |   | 822,463 |   |
|     Deposits                on July 2007 private placement                                              |   |   |   | 630,403     |   |   | - |   |
|     Estimated                liability for foreign tax                                                  |   |   |   | 616,458     |   |   | 600,000 |   |
|                                                                                                                             |        |        |        |             |
|           Total                current liabilities                        |   |   | $      | 26,698,512  |   | $ | 3,587,160 |   |
|                                                                                                                             |        |        |        |             |
| Convertible                secured debenture                                                                                |   |   |   | 4,790,779   |   |   | 2,318,455 |   |
| Other long-term                liabilities                                                                                  |   |   |   | 412,363     |   |   | 231,892 |   |
|                                                                                                                             |        |        |        |             |
|           Total                liabilities                                |   |   | $      | 31,901,654  |   | $ | 6,137,507 |   |
|                                                                                                                             |        |        |        |             |
| Liabilities and                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, 50,000,000 shares authorized; 9,621,891                              |   |   |
|    [1,496,700                shares in treasury] and 8,313,774 shares issued and outstanding,                |   |   |
|    respectively                                                                                              |   |   |   | 96,218      |   |   | 83,138 |   |
| Common stock,                Class B, $0.01 par value; 2,000,000 shares authorized; 835,260 shares                          |   |   |
|    issued and                outstanding                                                                     |   |   |   | 8,353       |   |   | 8,353 |   |
| Common stock,                FSAH Class B $0.001 par value; 10,000,000 shares authorized; 2,671,087                         |   |   |
|    shares issued                and outstanding                                                              |   |   |   | 600         |   |   | 600 |   |
| Additional                paid-in capital                                                                                   |   |   |   | 67,843,919  |   |   | 65,573,387 |   |
| Accumulated                deficit                                                                                          |   |   |   | (56,796,978 | ) |   | (54,390,357 | ) |
| Other                comprehensive income                                                                                   |   |   |   | 731,898     |   |   | 125,361 |   |
|                                                                                                                             |        |        |        |             |
|            Total                stockholders' equity                 |   |   | $      | 11,884,010  |   | $ | 11,400,482 |   |
|                                                                                                                             |        |        |        |             |
|            Total                liabilities and stockholders' equity |   |   | $      | 43,785,664  |   | $ | 17,537,989 |   |
|                                                                                                                             |        |        |        |             |

See notes to consolidated financial        statements

----

**SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS        YEARS ENDED JUNE 30, 2007, 2006 AND 2005**

|                                                                                              | 2007   |        | 2006   |             | 2005   |        |
|----------------------------------------------------------------------------------------------|--------|--------|--------|-------------|--------|--------|
| Net                Revenues                                                                  |   |   | $      | 19,794,284  |   | $      | 3,316,429 |   | $ | 353,343 |   |
| Operating                Expenses:                                                           |   |   |
|    Cost of                sales                                               |   |   |   | 6,513,072   |   |   | 555,184 |   |   | 60,325 |   |
|    Development                costs and royalties                             |   |   |   | 2,133,430   |   |   | 942,678 |   |   | 12,162 |   |
|    Selling,                general and administrative                         |   |   |   | 8,084,118   |   |   | 2,931,243 |   |   | 1,327,557 |   |
|    Amortization                of software development costs                  |   |   |   | 337,243     |   |   | -- |   |   | -- |   |
|    Amortization                of acquired intangibles                        |   |   |   | 4,235,634   |   |   | 148,797 |   |   | 21,809 |   |
|    Depreciation                                                               |   |   |   | 159,743     |   |   | 31,687 |   |   | 12,216 |   |
|                                                                                              |        |        |        |             |        |        |
|                                                                                         |   |   |   | 21,463,240  |   |   | 4,609,589 |   |   | 1,434,069 |   |
| Operating                loss                                                                |   |   |   | (1,668,956  | )      |   | (1,293,160 | ) |   | (1,080,726 | ) |
|                                                                                              |        |        |        |             |        |        |
| Other income                (expense)                                                        |   |   |   | (4,235      | )      |   | 39,959 |   |   | 156,005 |   |
| Foreign                currency gains (losses)                                               |   |   |   | 246,593     |   |   | (749,764 | ) |   | 81,773 |   |
| Acquisition                costs incurred                                                    |   |   |   | -           |   |   | (321,412 | ) |   | -- |   |
| Amortization of                convertible debt discounts and issuance costs                 |   |   |   | (592,405    | )      |   | (769,566 | ) |   | -- |   |
| Foreign tax                expense                                                           |   |   |   | -           |   |   | (600,000 | ) |   | -- |   |
| Interest                expense                                                              |   |   |   | (883,929    | )      |   | (560,841 | ) |   | (7,551 | ) |
| Interest                income                                                               |   |   |   | 484,393     |   |   | 633,131 |   |   | 586,701 |   |
|                                                                                              |        |        |        |             |        |        |
| Loss from                continuing operations before income taxes                           |   |   |   | (2,418,539  | )      |   | (3,621,653 | ) |   | (263,798 | ) |
| (Provision)                Benefit for income taxes                                          |   |   |   | 11,918      |        |   | -- |   |   | -- |   |
| Loss from                continuing operations                                               |   |   |   | (2,406,621  | )      |   | (3,621,653 | ) |   | (263,798 | ) |
| Discontinued                operations:                                                      |   |   |
| Income from                operations net of income taxes of $0, $0 and $0,                  |   |   |
|      respectively                                                   |   |   |   | --          |   |   | 161,753 |   |   | 422,636 |   |
| Gain on                disposition, net of income taxes of $0, $0 and $0, respectively       |   |   |   | --          |   |   | 1,480,710 |   |   | -- |   |
|                                                                                              |        |        |        |             |        |        |
| Net income(                loss)                                                             |   |   |   | ($2,406,621 | )      |   | ($1,979,190 | ) | $ | 158,838 |   |
|                                                                                              |        |        |        |             |        |        |
| Income (loss)                per share:                                                      |   |   |
|      Basic:                                                         |   |   |
|          Continuing                operations   |   |   |   | ($0.25      | )      |   | ($0.39 | ) |   | ($0.03 | ) |
|          Discontinued                operations |   |   |   | -           |   |   | 0.18 |   |   | 0.05 |   |
| Net                loss                                                                      |   |   |   | ($0.25      | )      |   | ($0.21 | ) | $ | 0.02 |   |
|                                                                                              |        |        |        |             |        |        |
|       Diluted:                                                 |   |   |
|          Continuing                operations   |   |   |   | ($0.25      | )      |   | ($0.39 | ) |   | ($0.03 | ) |
|          Discontinued                operations |   |   |   | -           |   |   | 0.17 |   |   | 0.05 |   |
| Net                loss                                                                      |   |   |   | ($0.25      | )      |   | ($0.21 | ) | $ | 0.02 |   |
|                                                                                              |        |        |        |             |        |        |
| Weighted                average common stock outstanding:                                    |   |   |
|        Basic                                              |   |   |   | 9,726,520   |   |   | 9,102,286 |   |   | 8,791,121 |   |
|                                                                                              |        |        |        |             |        |        |
|        Diluted                                            |   |   |   | 9,726,520   |   |   | 9,574,910 |   |   | 9,170,411 |   |
|                                                                                              |        |        |        |             |        |        |

See notes to consolidated financial        statements

----

**SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY        AND COMPREHENSIVE LOSS        YEARS ENDED JUNE 30, 2007, 2006 AND 2005**

|                                                         |
|---------------------------------------------------------|
|                                                         |
|                                                         |
|                                                         |
|                                                    |   |   |   |   |   |   |   |   |   |   |
|                                                    | Silverstar Holdings                    Ltd. | Silverstar Holdings                    Ltd. | First South African                    Holdings |   |   | Accumulated |   |
|                                                    | Class A | Class B | Class B | Additional |   | Other |   |
|                                                    | Common Stock | Common Stock | Common Stock | Paid-in |   | Comprehensive |   |
|                                                    | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Income | Total |
| Balance June 30,                    2004                | 7,798,924 | $77,989 | 896,589 | $8,966 | 2,671,087 | $600 | $63,904,557 | ($52,570,005) | $- | $11,422,107 |
| Year ended June 30,                    2005::           |   |   |   |   |   |   |   |   |   |   |
| Stock                    issued/acquisition             | 377,371 | 3,774 | - | - | - | - | 513,603 | - | - | 517,377 |
| Conversion of                    shares                 | 61,329 | 613 | (61,329) | (613) | - | - | - | - | - | 0 |
| Exercise of stock                    options            | 15,000 | 150 | - | - | - | - | 6,500 | - | - | 6,650 |
| Stock-based                    compensation             | - | - | - | - | - | - | 32,000 | - | - | 32,000 |
| Warrants issued                    –acquisition   | - | - | - | - | - | - | 167,400 | - | - | 167,400 |
| Purchase and retirement                    of           |   |   |   |   |   |   |   |   |   |   |
|    treasury                    stock          | (19,300) | (193) | - | - | - | - | (21,257) | - | - | (21,450) |
|      Net                    income  | - | - | - | - | - | - | - | 158,838 | - | 158,838 |
| Other                    comprehensive                  |   |   |   |   |   |   |   |   |   |   |
| Income foreign                    currency              |   |   |   |   |   |   |   |   |   |   |
|    translation                    adjustment, |   |   |   |   |   |   |   |   |   |   |
|    net of                    taxes            | - | - | - | - | - | - | - | - | 5,596 | 5,596 |
| Balance, June 30,                    2005               | 8,233,324 | $82,333 | 835,260 | $8,353 | 2,671,087 | $600 | $64,602,803 | ($52,411,167) | $5,596 | $12,288,518 |
| Year ended June 30,                    2006:            |   |   |   |   |   |   |   |   |   |   |
| Stock issued prior                    obligation        | 45,450 | 455 | - | - | - | - | 49,540 | - | - | 49,995 |
| Discounts on convertible                    debt        | - | - | - | - | - | - | 789,738 | - | - | 789,738 |
| Exercise of stock                    options            | 30,000 | 300 | - | - | - | - | 22,200 | - | - | 22,500 |
| Stock-based                    compensation             | - | - | - | - | - | - | 104,634 | - | - | 104,634 |
| Shares issued for                    services           | 20,000 | 200 | - | - | - | - | 27,000 | - | - | 27,200 |

----

|                                                                                      |                                        |                                        |                                            |       |      |          |        |          |     |        |
|-------------------------------------------------------------------------------------------|---------------------------------------------|---------------------------------------------|-------------------------------------------------|------------|-----------|---------------|-------------|---------------|----------|-------------|
|                                                                                      | Silverstar Holdings                    Ltd. | Silverstar Holdings                    Ltd. | First South African                    Holdings |       |      | Accumulated   |        |
|                                                                                      | Class A                                     | Class B                                     | Class B                                         | Additional |      | Other         |        |
|                                                                                      | Common Stock                                | Common Stock                                | Common Stock                                    | Paid-in    |      | Comprehensive |        |
|                                                                                      | Shares                                      | Amount                                      | Shares                                          | Amount     | Shares    | Amount        | Capital     | Deficit       | Income   | Total       |
| Purchase and                    retirement                                                |                                        |                                        |                                            |       |      |          |        |          |     |        |
|    of treasury                    stock                                         | (15,000)                                    | (150)                                       | -                                               | -          | -         | -             | (22,528)    | -             | -        | (22,678)    |
|      Net                    loss                                      | -                                           | -                                           | -                                               | -          | -         | -             | -           | (1,979,190)   | -        | (1,979,190) |
| Other                    comprehensive                                                    |                                        |                                        |                                            |       |      |          |        |          |     |        |
|    income foreign                    currency                                   |                                        |                                        |                                            |       |      |          |        |          |     |        |
|    translation                    adjustment,                                   |                                        |                                        |                                            |       |      |          |        |          |     |        |
|    net of                    taxes                                              | -                                           | -                                           | -                                               | -          | -         | -             | -           | -             | 119,765  | 119,765     |
| Balance, June 30,                    2006                                                 | 8,313,774                                   | $83,138                                     | 835,260                                         | $8,353     | 2,671,087 | $600          | $65,573,387 | ($54,390,357) | $125,361 | $11,400,482 |
| Stock issued prior                    obligation                                          | 37,595                                      | 375                                         | -                                               | -          | -         | -             | 49,625      | -             | -        | 50,000      |
| Private placement                    shares

                      issued       | 371,200                                     | 3,712                                       | -                                               | -          | -         | -             | 646,288     | -             | -        | 650,000     |
| Shares issued for                    acquisition                                          | 406,180                                     | 4,062                                       | -                                               | -          | -         | -             | 718,938     | -             | -        | 723,000     |
| Warrantson convertible                    debt                                            | -                                           | -                                           | -                                               | -          | -         | -             | 62,868      | -             | -        | 62,868      |
| Exercise of stock                    options                                              | 158,728                                     | 1,587                                       | -                                               | -          | -         | -             | 54,885      | -             | -        | 56,472      |
| Stock-based                    compensation                                               | -                                           | -                                           | -                                               | -          | -         | -             | 218,638     | -             | -        | 218,638     |
| Shares issued forservices                                                                 | 177,000                                     | 1,770                                       | -                                               | -          | -         | -             | 296,290     | -             |  -  | 298,060     |
| Shares issued for                    debenture

                      amendment | 172,414                                     | 1,724                                       | -                                               | -          | -         | -             | 248,276     | -             | -        | 250,000     |
| Purchase and                    retirement                                                | (15,000)                                    | (150)                                       | -                                               | -          | -         | -             | (25,276)    | -             | -        | (25,426)    |
| of treasury stock                                                                         |                                        |                                        |                                            |       |      |          |        |          |     |        |
|      Net                    loss                                      | -                                           | -                                           | -                                               | -          | -         | -             | -           | (2,406,621)   | -        | (2,406,621) |
| Other                    comprehensive                                                    |                                        |                                        |                                            |       |      |          |        |          |     |        |
|    income foreign                    currency                                   |                                        |                                        |                                            |       |      |          |        |          |     |        |
|    translation                    adjustment,                                   |                                        |                                        |                                            |       |      |          |        |          |     |        |
|    net of                    taxes                                              | -                                           | -                                           | -                                               | -          | -         | -             | -           | -             | 606,537  | 606,537     |
| Balance June 30,                    2007                                                  | 9,621,891                                   | $96,218                                     | 835,260                                         | $8,353     | 2,671,087 | $600          | $67,843,919 | ($56,796,978) | $731,898 | $11,884,010 |

----

**SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH****FLOWS        YEARS ENDED JUNE 30, 2007, 2006 AND 2005**

| Cash flows from operating                    activities:                                                                                                                       |   | 2007         | 2006              | 2005       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|-------------------|------------|
|                                                                                                                                                                                |        |              |                   |            |
| Net income (loss)                                                                                                                                                              |   | ($2,406,621) | ($1,979,190)      | $158,838   |
| Adjustments to reconcile net                    income(loss)to net cash used in                    operating activities:                                                       |   |         |              |       |
|                         Depreciation and amortization                                                                                                      |   | 5,325,025    | 950,049           | 34,024     |
|     (Gain)                    Loss on disposal of fixed assets                                                                                                  |   | (6,798)      | 1,466             | -          |
|                        Stock-based compensation                                                                                                                 |   | 260,305      | 112,967           | 49,995     |
|     Stock                    issued for services                                                                                                                |   | 548,060      | 27,200            | -          |
|     Common                    stock issued for warrants                                                                                                         |   | -            | -                 | 32,000     |
|     Bad debt                    expense                                                                                                                         |   | 80,801       | -                 | -          |
|                        Unrealized foreign currency gains                                                                                                        |   | (701,152)    | (97,691)          | (300,390)  |
|     Accrued                    interest income on notes receivable                                                                                              |   | (26,786)     | (399,343)         | (433,416)  |
|     Changes                    in operating assets and liabilities, net                                                                                         |   | (4,527,960)  | (133,092)         | (28,985)   |
|     Increase                    in estimated liability for foreign tax                                                                                          |   | -            | 600,000           | -          |
|     Increase                    in other assets                                                                                                                 |   | (15,564)     | (102,446)         | -          |
|     Increase                    in other liabilities                                                                                                            |   | 177,325      | -                 | -          |
|     Gain on                    sale of discontinued operations                                                                                                  |   | -            | (1,480,710)       | -          |
|     Net                    changes in assets and liabilities of discontinued

                           operations          |   |  

-    |  

(220,409) | (114,755)  |
|                                                                                                                                                                                |        |              |                   |            |
|              Net                    cash used in operating activities                                         |   | ($1,293,365) | ($2,721,199)      | ($602,689) |
|                                                                                                                                                                                |        |              |                   |            |
| Cash flows from investing                    activities:                                                                                                                       |   |         |              |       |
|                        Acquisition expenses capitalized                                                                                                         |   | -            | (41,264)          | -          |
|     Cash paid                    for acquisition of subsidiaries                                                                                                |   | (7,969,194)  | -                 | (682,011)  |
|     Proceeds                    from sale of fixed assets                                                                                                       |   | 19,900       | -                 | -          |
|                        Investment in marketable securities                                                                                                      |   | -            | (300,000)         | -          |
|     Purchase                    of intangible assets                                                                                                            |   | -            | (208,928)         | (2,906)    |
|     Purchase                    of option premium                                                                                                               |   | -            | -                 | (190,257)  |
|     Purchase                    of fixed assets                                                                                                                 |   | (102,396)    | (12,451)          | (3,158)    |
|     Proceeds                    from repayment of long-term note receivable                                                                                     |   | 192,427      | 3,219,417         | 5,420,720  |
|                        (Increase) decrease in cash restricted for foreign tax

                           estimatedliability |   | 1,869,302    | (2,933,342)       | -          |
|     Net                    proceeds on disposal of discontinued operations                                                                                      |   | -            | 3,693,378         | -          |
|                                                                                                                                                                                |        |              |                   |            |
|              Net                    cash (used in) provided by investing activities                           |   | ($5,989,957) | $3,416,810        | $4,542,388 |
|                                                                                                                                                                                |        |              |                   |            |
| Cash flows from financing                    activities:                                                                                                                       |   |         |              |       |
|     Short                    term borrowings (repayments), net                                                                                                  |   | (213,951)    | 580,608           | -          |
|     Net                    proceeds from convertible debenture                                                                                                  |   | 827,580      | 4,373,301         | -          |
|                        Repayments of long term debt                                                                                                             |   | -            | (159,139)         | (60,692)   |
|                        Repayments of convertible debt                                                                                                           |   | -            | (1,400,000)       | -          |
|     Proceeds                    from private placement sales of common stock                                                                                    |   | 650,000      | -                 | -          |
|     Proceeds                    from the exercise of stock options                                                                                              |   | 56,472       | 22,500            | 6,650      |
|     Purchase                    of treasury stock                                                                                                               |   | (25,426)     | (22,678)          | (21,450)   |
|              Net                    cash provided by discontinued operations                                  |   | -            | -                 | (237,971)  |
|                                                                                                                                                                                |        |              |                   |            |
|              Net                    cash (used in) provided by financing activities                           |   | $1,294,675   | $3,394,592        | ($313,463) |
|                                                                                                                                                                                |        |              |                   |            |
| Effect of exchange rates on                    cash                                                                                                                            |   | 606,537      | 119,765           | 5,596      |
|                                                                                                                                                                                |        |              |                   |            |
| Net increase (decrease) in                    cash and cash equivalents                                                                                                        |   | (5,382,110)  | 4,209,968         | 3,631,832  |
| Cash and cash equivalents,                    beginning of period                                                                                                              |   | 9,075,259    | 4,865,291         | 1,233,459  |
|                                                                                                                                                                                |        |              |                   |            |
| Cash and cash equivalents,                    end of period                                                                                                                    |   | $3,693,149   | $9,075,259        | $4,865,291 |
|                                                                                                                                                                                |        |              |                   |            |
| Supplemental cash flow                    information:                                                                                                                         |   |         |              |       |
|     Cash paid                    for interest                                                                                                                   |   | $622,318     | $539,155          | $23,695    |
|                                                                                                                                                                                |        |              |                   |            |
|     Cash paid                    for income taxes                                                                                                               |   | $22,092      | -                 | -          |
|                                                                                                                                                                                |        |              |                   |            |

See notes to condensed consolidated            financial statements

             

----

**SILVERSTAR HOLDINGS, LTD. AND SUBSIDIARIES**

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        JUNE 30, 2007, 2006 AND 2005

**NOTE 1.     ORGANIZATION AND PRINCIPAL ACTIVITIES OF THE        GROUP**

        Silverstar Holdings, Ltd. (“the Company) is the parent company of Empire Interactive,        PLC (“Empire”), a leading worldwide publisher of interactive entertainment        software for all game platforms, as well as Strategy First, Inc. (“Strategy        First”), a leading worldwide publisher of entertainment software for the Personal        Computer (PC). The Company is also a minority shareholder in Magnolia Broadband Wireless, a        development stage company which is developing mobile wireless broadband products.

        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 April 7, 2006, the Company sold substantially        all the assets and transferred certain liabilities of Fantasy Sports, Inc which is        reflected as discontinued operations in the accompanying financial statements. (See Note        14.)

        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.

        On December 4, 2006, the Company announced that it had achieved more than 90% acceptance of        its offer to acquire the shares of Empire. Based on these acceptances, the Company        announced a formal closing of the offer to Empire shareholders effective December 1, 2006.        Empire develops and publishes software games for all game platforms. Some of its popular        games include the FlatOut Ford Racing franchises, Big Mutha Truckers, Taito Legends,        Starsky & Hutch, Starship Troopers, and International Cricket Captain.

        The Company currently has Class A common stock shares outstanding. 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 Class A 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 Class A common stock are entitled to receive        assets of the Company available for distribution to the shareholders.

**NOTE 2.     SUMMARY OF SIGNIFICANT ACCOUNTING        POLICIES**

        The consolidated financial statements have been prepared in accordance with accounting        principles generally accepted in the United States and incorporate the following        significant accounting policies:

**Consolidation**

        The consolidated financial statements include the accounts of the Company and all of its        subsidiaries in which it has a majority voting interest. Investments in affiliates are        accounted for under the 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 Africa                    Management Corp.                                           |
|   | First South African                    Holdings, Ltd. (FSAH)                                     |
|   | Fantasy Sports, Inc.                    (Dormant)                                                |
|   | Strategy First,                    Inc.                                                          |
|   | Silverstar Acquisitions                    PLC                                                   |
|   | Empire Interactive Europe                    Limited                                             |
|   | Empire Interactive,                    IncEmpire Interactive Holdings                    Limited |
|   | Razorworks Limited                    (Dormant)Xplosiv Limited                    (Dormant)      |   |

**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, accounts receivable and notes        receivable. The Company did not have a major concentration of customers for the fiscal        years ended June 30, 2007 and 2005. For the fiscal year ended June 30, 2006, Strategy First        conducted a major portion of its business with four customers, each of whom accounted for        more than 10% of total revenues. Combined sales to these customers amounted to        approximately $1,998,000 (60% of net sales) during the year ended June 30, 2006. Accounts        receivable from these customers amounted to $414,000 (65%) of total accounts receivable at        June 30, 2006.

**Cash**

        The Company currently maintains a substantial amount of cash and cash equivalents with        financial institutions in South Africa denominated in South African Rand. Changes in the        value of the Rand compared to the U.S. dollar 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. As of June 30, 2007,        amounts in excess of federally insured amounts totaled approximately $4,702,000.

----

**Accounts Receivable**

        We extend credit to various companies in the retail and mass merchandising industries.        Collection of trade receivables may be affected by changes in economic or other industry        conditions and may, accordingly, impact our overall credit risk. Although we generally do        not require collateral, we perform ongoing credit evaluations of our customers and maintain        reserves for potential credit losses. Significant judgment is required to estimate our        allowance for doubtful accounts in any accounting period. We analyze customer        concentrations, customer credit worthiness and current economic trends when evaluating the        adequacy of the allowance for doubtful accounts.

**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 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 gross carrying value of the Company’s        convertible debenture approximates fair value since interest rates are keyed to the US        prime lending rate. The carrying value of the Company’s other debt approximates fair        value since their terms are consistent with prevailing market rates.

**Inventories**

Inventories are valued at the lower of        cost or market with cost determined on the first-in, first-out method. Inventory represents        mainly finished goods for resale together with some of the component materials necessary to        a completed software product. Cost represents only the purchase price of component        materials. No overheads are incorporated into the inventory value.

**Property, Plant and Equipment**

        Property, plant and equipment are recorded at cost. Depreciation is taken on property and        equipment using accelerated and straight-line methods over the expected lives of the        assets. Estimated useful lives of fixed assets are as follows:

|                    | Years |
|-------------------------|-------|
| Property                | 50    |
| Leasehold improvements  | 5     |
| Furniture and equipment | 4-5   |
| Development equipment   | 2     |
| Motor vehicles          | 4     |

**Development Costs**

        Under SFAS No. 86 software development cost should be capitalized once technical        feasibility is achieved. In the case of Empire this would be when the product is        commercially viable (“commercial feasibility), The Company has determined to its        satisfaction that there is a clearly defined decision point quite early in development        where a product passes from concept to commercial feasibility. This decision point is        either reached with the consent of outside parties such as Sony or Microsoft or through an        internal process where management decides to move forward with a product’s        development once a game

----

concept has been approved. The Company also        found that there has been no material instance where concept approval has been given and a        game has not become a commercial product. The Company has, therefore, decided to capitalize        software development costs after concept approval.

        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 Strategy First acquired in 2005. For        the years ended June 30, 2007, 2006 and 2005, the Company applied what it believes to be        the most appropriate valuation 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, 2007, 2006 and 2005.

**Intangible Assets**

        Intangible assets include software game titles and non-competition agreements. Intangible        assets, excluding goodwill and Empire game titles are stated on the basis of cost and are        amortized on a straight-line basis over estimated lives of three to ten years. Empire game        titles are amortized over a five-year period based on weighted average expected sales from        the date the title is launched. For titles that have not yet been launched as of June 30,        2007 a launch date was estimated to project future amortization. (See Note 11.)

        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 equal        or exceed the carrying value of the intangible, a discounted cash flow model is used to        determine the extent of any impairment charge required.

**Foreign Currency Translation**

        The functional currency of the Company is the United States Dollar; the functional currency        of FSAH is the South African Rand; the functional currency of Strategy First, Inc. is the        Canadian Dollar and the functional currency of Empire is the Pound Sterling. 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 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 and Empire are reported as other comprehensive income.

**Revenue Recognition**

        Empire and Strategy First distribute the majority of their products through third-party        software distributors to mass-merchant and major retailers and directly to certain        entertainment software retailers, all of which have traditionally sold consumer        entertainment software products. Additionally, the companies may license their 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, the companies record 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.

        The provision for anticipated product returns and price markdowns is primarily based upon        the company’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. The companies review        the adequacy of their respective allowances for product returns and price markdowns and if        necessary make adjustments.

        In the case of royalty income, the companies record this income when earned based on sales        reports from its distributors. In many cases, the companies receive guaranteed royalty        income and these revenues are recorded upon signing of the royalty agreements. These        amounts are carried as accounts receivable until paid.

**Advertising Costs**

        Advertising costs are expensed as incurred. Advertising costs for the years ending June 30,        2007, 2006 and 2005 were $1,815,837, $182,295, and $10,691, respectively.

**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**

        In December 2004, the Financial Accounting Standards Board (“FASB”) issued        Statement of Financial Accounting Standards (“SFAS”) No. 123R,        “Share-Based Payment.” This standard replaced 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 recognize all share-based payments to employees,        including grants of employee stock options, in the financial statements based on their fair        values on the grant date and is effective for annual periods beginning after June 15, 2005.        In accordance with the revised statement, the Company recognized the expenses attributable        to stock options granted or vested subsequent to July 1, 2005. During the fiscal years        ended June 30, 2007 and 2006 the Company recognized expenses of $218,638 and $104,634        respectively, for employee stock options that vested during fiscal years 2007 and 2006. The        company also recognized expenses of $41,667 and $8,333 for the vesting of 37,955 restricted        shares that were granted in the fourth quarter of the fiscal year ended June 30, 2006. On        June 27, 2007 the company granted restricted stock awards to members of the Board of        Directors totaling $120,000. These awards will vest on March 29, 2008 and will be expensed        ratably until fully vested.

----

        SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No.        123”), encouraged but did not require companies to record stock-based compensation        plans using a fair value based method. The Company chose to account for stock-based        compensation using the intrinsic value based method described in APB Opinion No. 25,        “Accounting for Stock Issued to Employees” for accounting periods ending before        July 1, 2005. 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 the date they were granted as prescribed by SFAS No. 123        earnings (loss) per share from continuing operations for the year ended June 30, 2005 would        have changed to the pro forma amounts set forth in the table below.

|                                                                                        | 2005                           |   |
|---------------------------------------------------------------------------------------------|--------------------------------|--------|
| Income (Loss) from                    continuing

operations as                    reported | ($ 263,798)                    |   |
| Less compensation expense                    for options                                    |                           |   |
| awards determined by the                    fair-value-

based method                       | (677,245)                      |   |
| Income (Loss) from                    continuing

operations, pro                    forma  | ($                    941,043) |   |
|                                                                                        |                           |   |
| Basic:                                                                                      |                           |   |
| As reported                                                                                 | ($ 0.03)                       |   |
| Proforma                                                                                    | ($ 0.10)                       |   |
| Assuming full                    dilution:                                                  |                           |   |
| As reported                                                                                 | ($ 0.03)                       |   |
| Proforma                                                                                    | ($ 0.10)                       |   |
|                                                                                        |                           |   |

The weighted average grant date fair        value of options granted in 2007, 2006 and 2005 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 are noted in the following table. Expected        volatility is based on historical volatility data of the Company’s stock. As a result        of the acquisition of Empire which significantly changed the size and complexity of the        Company, the volatility of options granted after March 31, 2007 were computed using the        average volatility of competitor companies in the entertainment software industry.        Historical stock prices would not be indicative of their future prices, since the Company        itself is so different from what it was historically. SFAS 123(R) requires the use of        expected volatility in the calculation of the compensation expense of a stock option. While        it allows the use of historical volatility in calculating expected volatility, it does not        require the use of historical volatility and encourages the use of other        factors.

The expected term of stock options        granted is based on historical data and represents the period of time that stock options        are expected to be outstanding. The risk-free rate of the stock options is based on the        United States Treasury rate in effect at the time of grant.

|                                                                         | 2007        | 2006        | 2005       |
|------------------------------------------------------------------------------|-------------|-------------|------------|
| Weighted average grant-date                    fair value of options granted | $ 0.69 | $ 1.08 | $ 0.94     |
| Assumptions:                                                                 |        |        |       |
| Risk free interest                    rate                                   | 4.65-4.82%  | 4.82%       | 3.19-4.01% |
| Expected life                                                                | 0-5 years   | 5 years     | 3-5 years  |
| Expected                    volatility                                       | 42-111%     | 111%        | 126-142%   |
| Expected dividend                    yield                                   | 0.00%       | 0.00%       | 0.00       |

----

        Based on existing unvested option agreements the Company anticipates an additional expense        of approximately $242,926 in fiscal 2008 which could increase if additional options are        granted during the fiscal year. As of June 30, 2007, $291,376 of the total unrecognized        compensation costs related to non-vested options is scheduled to be recognized over a        weighted average period of 2.58 years.

**Net Income (Loss) Per        Share**

        Basic net income or loss per share is computed by dividing net income or loss by the        weighted average number of common shares outstanding. Diluted net income or loss per share        is computed by dividing net income or loss by the weighted average number of common shares        outstanding and dilutive potential common shares reflecting the dilutive effect of stock        options, warrants, convertible debentures and shares to be issued in connection with prior        acquisitions unless their effect is anti-dilutive. Dilutive potential common shares, stock        options, warrants and convertible debentures for all periods presented are computed        utilizing the treasury stock method. The dilutive effect of shares to be issued in        connection with the obligations related to prior acquisitions is computed using the average        market price for the quarter.

**Recently Issued Accounting        Standards**

        On February 15, 2007, the Financial Account Standards Board (“FASB”) issued        Statement of Financial Accounting Standards No. 159, “The Fair Value Option for        Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement        No. 115” (FASB 159”). This standard permits an entity to measure financial        instruments and certain other items at the estimated fair value. Most of the provisions of        SFAS No. 159 are elective; however, the amendment to FASB No. 15, “Accounting for        Certain Investments in Debt and Equity Securities,” applies to all entities that own        trading and available-for-sale securities. The fair value option created by SFAS 159        permits an entity to measure eligible items at fair value as of specified election dates.        The fair value option (a) may generally be applied instrument by instrument, (b) is        irrevocable unless a new election date occurs, and (c) must be applied to the entire        instrument and not to only a portion of the instrument. SFAS 159 is effective as of the        beginning of the first fiscal year that begins after November 15, 2007. Early adoption is        permitted as of the beginning of the previous fiscal year provided that the entity (i)        makes that choice in the first 120 days of that year, (ii) has not yet issued financial        statements for any interim period of such year, and (iii) elects to apply the provisions of        FASB 157. We are currently evaluating the impact of SFAS 159, if any, on our consolidated        financial statements.

        In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin        No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements        in Current Year Financial Statements (“SAB 108”). SAB 108 requires that in        evaluating the effects of prior year errors on current year financial statements, SEC        registrants must consider the effect of the errors on both the current year statement of        operations and the magnitude of the errors on the current year balance sheet. As a result,        SAB 108 could require prior year financial statements to be corrected for errors that had        previously been deemed immaterial. SAB 108 is effective for fiscal years ending after        November 15, 2006. The Company has determined that the impact of adopting this standard did        not have a material effect on its financial position or results of operations.

        In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for        Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109.” This        Interpretation prescribes a recognition threshold and measurement attribute for the        financial statement recognition and measurement of a tax position taken or expected to be        taken in a tax return. This Interpretation also provides guidance on derecognition,        classification, interest and penalties, accounting in interim periods, disclosure, and        transition. The Interpretation is effective for fiscal years beginning after        December 15, 2006. The Company is currently analyzing the effect, if any, this        interpretation may have on its financial condition, results of operations, cash flows or        disclosures.

----

        In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.”        This Statement defines fair value, establishes a framework for measuring fair value and        expands disclosure about fair value measurements, and is effective for financial statements        issued for fiscal years beginning after November 15, 2007, and interim periods within those        fiscal years. The Company is currently evaluating the effect that the adoption of this        Statement will have on its consolidated results of operations and financial condition.

        In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid        Financial Instruments, an amendment of FASB Statements No. 133 and 140.” This        statement permits fair value remeasurement for any hybrid financial instrument that        contains an embedded derivative that otherwise would require bifurcation, and eliminates a        restriction on the passive derivative instruments that a qualifying special-purpose entity        (SPE) may hold. The statement is effective for fiscal years beginning after September 15,        2006. The Company does not believe this standard will have a material effect on its        financial position or results of operations.

**Reclassifications**

        Certain amounts from prior years have been reclassified to conform to the 2007        presentation.

**NOTE 3.     LIQUIDITY AND        PROFITABILITY**

        As of June 30, 2007, our Balance Sheet reflects a working capital deficit. Until recently        our operations have not generated positive operating EBITDA or earnings and there is no        guarantee that our recent profitability (See Note 21) will be sustained. However, we        believe that a combination of our cash on hand, operating cash flow and additional        financing arrangements will be sufficient to meet our short and long-term obligations.        Management’s plans to meet its ongoing cash requirement as follows:

|  | ·      | Raise additional capital through the sale of equity or additional debt. To this                    end the Company announced on September 7, 2007 that it had completed a $9                    million private placement of common stock and warrants with institutional                    investors and management. Silverstar sold a total of 6,206,890 shares at $1.45                    per share. Investors also received five year warrants to purchase approximately                    4,344,826 shares of common stock at $2.10 per share. The Company may seek to                    raise additional debt or equity during the 2008 fiscal year. |
|--|----------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | ·      | The Company amended the terms of its Secured Convertible Debentures with DKR                    Soundshore Oasis in June 2007. Under the terms of the amendment (i) the                    maturity dates of the Debentures were extended to April 30, 2010; (ii) there                    will be no amortization of principal under the Debentures and (iii) the                    Debentures will be mandatorily convertible if the closing sale price of the                    Company’s common stock equals or exceeds $3.48 per share. The mandatory                    conversion will be subject to volume requirements. Furthermore, as of September                    21, 2007, an amount of $2.85 million of this Convertible debenture had been                    converted and the Company has issued 1,420,478 shares of Class A common                    stock. |
|--|----------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | ·      | Generate short term operating earnings and cash flow primarily through its                    newly acquired subsidiary Empire. Empire’s first Next Generation version                    of its best selling Flat Out franchise has performed well in Europe, generating                    significant cash flow and is anticipated to meet or exceed the Company’s                    sales expectations in the future. Furthermore the Company anticipates that                    Empire’s ongoing business which includes planned releases in the next 12                    months of such high profile titles as Jackass, Hello Kitty and Pipemania, will                    generate operating profits and cash flow in the short term. |
|--|----------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

        Management believes that these actions and others to be taken by the Company will provide        the opportunity for it to improve liquidity and achieve profitability. However, there can        be no assurance that all such events will occur to realize these goals.

----

**NOTE 4.            ACQUISITIONS**

**Strategy First**

        On April 21, 2005, the Company acquired Strategy First, Inc. (www.strategyfirst.com), a        leading worldwide publisher of entertainment software for the PC. The Company acquired        Strategy First through the jurisdiction of the Montreal bankruptcy court. Pursuant to the        approved plan of arrangement, the Company (i) paid cash consideration to the creditors of        Strategy First of $609,000; (ii) issued 377,000 shares of our common stock; (iii) issued        warrants to purchase 200,000 shares of our common stock; (iv) and 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. Whereby the acquisition was accounted for        using the purchase method whereby 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       |

**Empire Interactive**

        On December 4, 2006, the Company announced that it had achieved more than 90% acceptance of        its offer to acquire the shares of Empire. Based on these acceptances, the Company        announced a formal closing of the offer to Empire shareholders and took control effective        December 1, 2006.

        The offer provided for either a cash payment of approximately $.13 per share (£.07        p), or an earn-out alternative, where the initial payment was approximately $.09 per share        (£.049 p), with a further $.094 per share (£.05 p) in loan notes payable in        October 2007. Additionally, there is an earn-out payable in April 2008. The earn-out was        based on a formula of Empire’s EBITDA (as defined) for the fiscal year ended June 30,        2007. The earn out has been calculated and the Company’s June 30, 2007 Balance Sheet        includes a liability of approximately £1.9 million, or $3.8 million USD based on the        June 30, 2007 foreign exchange rate of 2.0039 US dollar to the British pound.

        The aggregate purchase price for Empire’s stock, was approximately $17.7 million or        £9.08 million (after adjusting for the actual earn out payable) based on the December        1, 2006 foreign exchange rate of 1.9508 US dollar to the UK pound of which amount        approximately $5.2 million are loan notes which mature October 31, 2007, and $3.8 million        are loan notes payable in April 2008 . $.7 million of the acquisition expenses were paid by        the issuance of 406,180 shares of Silverstar’s Class A common stock. Of this amount        350,000 shares were issued to a consultant to the Company as a finder’s fee for the        transaction pursuant to his consulting contract. The consultant was subsequently appointed        Chairman of the Board of Empire. Of the remaining $8.1 million of the purchase price        approximately $7.8 million has

----

been paid by utilizing the Company’s        internal cash resources. The remaining $.3 million has been accrued as a short-term        liability.

        The purchase price was allocated on the basis of the estimated fair values of the assets        acquired and liabilities assumed. The fair value of the assets acquired and liabilities        assumed exceeded the purchase price and, therefore, the excess was allocated as a pro-rata        reduction of non-current assets, specifically intangible assets. The acquisition was        accounted for as a purchase. The intangible assets identified in connection with the        acquisition were recorded and are being amortized in accordance with the provisions of SFAS        No. 141 and 142.

| Purchase price:                                                                                               |        |
|---------------------------------------------------------------------------------------------------------------|-------------|
| Net assets                    acquired:                                                                       |        |
|    Current                    assets                                                                | $3,226,230  |
|                          Fixed assets                                                | 898,804     |
|                          Intangible assets                                           | 22,816,055  |
|                          Other assets                                                | 608,650     |
|                              Total assets                        | 27,549,739  |
|                                 Total liabilities | (9,856,885) |
|                                                                                                          | $17,692,854 |

        The following unaudited proforma summary presents consolidated financial information as if        the acquisition of Empire had occurred effective July 1, 2006 and 2005, respectively. The        proforma information does not necessarily reflect the actual results that would have        occurred, nor is it necessarily indicative of future results of operations of the        consolidated entities.

|                                                                | Fiscal Years Ended June                    30, |
|---------------------------------------------------------------------|------------------------------------------------|
|                                                                | 2007                                           | 2006 |
| Net revenues                                                        | $30,028,696                                    | $26,989,382 |
| Net (loss)                                                          | ($4,287,987)                         | ($12,303,801) |
| Income (loss) per                    share                          |                                           |   |
| Basic and                    diluted:                               |                                           |   |
|                         Continuing operations   | ($.44)                                         | ($1.47) |
|                         Discontinued operations | -                                              | $0.17 |
|                         Net loss                | ($.44)                                         | ($1.30) |

         

**NOTE 5.     ACCOUNTS        RECEIVABLE**

        The components of accounts receivable are as follows at June 30, 2007 and 2006.

|                                                     |              2007 |               2006 |
|----------------------------------------------------------|------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------|
|                                                          |                                                                                    |                                                                                          |
| Accounts                    receivable                   | 10,632,994                                                                         | $794,353                                                                                 |
| Less: allowance for                    returns           | (3,536,690)                                                                        | (139,362)                                                                                |
| Less: allowance for                    doubtful accounts | (187,458)                                                                          | (17,856)                                                                                 |
|                                                          |                                                                                    |                                                                                          |
|                                                     | $6,908,846                                                                         | $637,135                                                                                 |
|                                                          |                                                                                    |                                                                                          |

**NOTE 6.            INVENTORIES**

        Inventories consist of finished goods and component materials of $900,128 and $58,732 at        June 30, 2007 and 2006, respectively.

**NOTE 7.     PROPERTY, PLANT        AND EQUIPMENT**

        The components of property and equipment are as follows at June 30, 2007 and 2006.

----

|                                             |              2007 |              2006                  |
|--------------------------------------------------|------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------|
|                                                  |                                                                                    |                                                                                                     |
| Leasehold                    improvements        | $243,081                                                                           | $                              -                  |
| Furniture and                    equipment       | 1,553,093                                                                          | 140,044                                                                                             |
| Development                    equipment         | 1,646,352                                                                          | -                                                                                                   |
| Motor vehicles                                   | 40,192                                                                             |                                  - |
|                                                  |                                                                                    |                                                                                                     |
|                                             | 3,482,718                                                                          | 140,044                                                                                             |
| Less accumulated                    depreciation | 2,994,687                                                                          | (62,059)                                                                                            |
|                                                  |                                                                                    |                                                                                                     |
|                                             | $488,031                                                                           | $77,985                                                                                             |
|                                                  |                                                                                    |                                                                                                     |

        Depreciation expense was approximately $160,000, $32,000 and $12,000 for the fiscal years        ended June 30, 2007, 2006 and 2005, respectively.

**NOTE 8.     SOFTWARE        DEVELOPMENT COSTS**

        At June 30, 2007, capitalized software costs are as follows:

|                                             |              2007 |
|--------------------------------------------------|------------------------------------------------------------------------------------|
|                                                  |                                                                                    |
| Capitalized Software                    Costs    | $5,524,293                                                                         |
| Less accumulated                    depreciation | (341,260)                                                                          |
|                                                  |                                                                                    |
|                                             | $5,183,033                                                                         |
|                                                  |                                                                                    |

        Software development costs are amortized over a five-year period based on weighted average        expected sales from the date commercial feasibility is reached. Amortization expense was        $337,243, $0, and $0 for the years ended June 30, 2007, 2006 and 2005, respectively

**NOTE 9.     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 |
|--------------------------------------------------------------|-----------------------------------------|-------------------------------------------------|
| Investments in                    unconsolidated affiliates: |                                    | June 30,                    2007                | June 30,                    2006 |
| Magnolia Broadband,                    Inc.                  | 2.5%                                    | $1,131,066                                      | $1,131,066 |
| Other                                                        |                                    | 12,500                                          | 12,500 |
|                                                              |                                         |                                                 |  |
|                                                         |                                    | $1,143,566                                      | $1,143,566 |
|                                                              |                                         |                                                 |  |
|                                                         |                                    |                                            |   |

        Between April 2000 and January 2006, the Company invested $3,250,000 in Magnolia through        the purchase of Series A and D Preferred Stock.

        Magnolia Broadband is a development stage company established to develop and market        wireless based chips primarily for the mobile handset market.

        In assessing the fair value of the Company’s investment in Magnolia, the Company        monitors 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, Magnolia 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 leading venture capital funds in        various equity financings from 2002 through August 2006, and by positive field trials and        responses from potential customers in the United States and internationally.

        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 carried 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 acceptance of its technology in        the UMTS networks and commercial sales through royalty agreements with baseband chipset        manufacturers.        In performing our analysis of the possible impairment of our investment in Magnolia as of        June 30, 2007, 2006 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 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 was 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.

        In performing our analysis for 2006, we looked to the $13 million in financing Magnolia        received during the fiscal year from existing investors as well as the $5 million in        financing they received from existing and outside investors in July 2006. The        Company’s investment in Magnolia was not considered impaired at June 30, 2006. 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.

        In performing our analysis for 2007, we looked to the $5 million in financing they received        from existing and outside investors in July 2006. The Company’s investment in        Magnolia was not considered impaired at June 30, 2007. 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.

**NOTE 10.     LONG-TERM        NOTES RECEIVABLE**

        In connection with the sale of our South African subsidiary 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 was subject to certain performance requirements        of the debtor. The first note was for R52 million of which R20 million (plus accrued        interest) was treated as contingent consideration to be recorded when collected as it was        secured only by the debtor’s stock in Lifestyle and therefore collection was not        assured. R31.4 million of the third note, was payable as the borrower collected on junior        debt. In December 2004, the Company received a payment in the amount of R31.4 million in        partial payment of the outstanding principal and interest. The Company received R20.07        million on June 30, 2006 in payment of the note’s remaining principal balance and        accrued interest in full.

----

        Two notes remain outstanding at June 30, 2007. Both require monthly payments ranging from        R50,000 to R70,000 and both bear interest at 5%.

|                                    |                            2007 |                                           | 2006   |                                           |
|-----------------------------------------|--------------------------------------------------------------------|------------------------------------------------|--------|------------------------------------------------|
| Balance                                 |                                                               | $                       471,204 |   | $                       623,218 |   |
| Less current                    portion |                                                               | 256,982                                        |   | 164,548                                        |   |
|                                         |                                                                    |                                                |        |                                                |
| Long-term                    portion    |                                                               | $                       214,222 |   | $    458,670               |   |
|                                    |                                                                    |                                                |        |                                                |  |

**NOTE 11.             INTANGIBLE ASSETS**

        The components of amortized intangible assets as of June 30, 2007 and 2006 are as        follows:

|                                                        | Estimated Useful                    Life | Gross Carrying                    Amount | Accumulated                    Amortization | Total       |
|-------------------------------------------------------------|------------------------------------------|------------------------------------------|---------------------------------------------|-------------|
|                                                        |                                     |                                     |                                        |        |
| Game titles - Strategy                    First             | 10 years                                 |   1,635,552                         | (334,032)                                   | 1,301,520   |
| Game titles –                    Empire               | 5 years                                  | 23,437,099                               | (4,127,430)                                 | 19,309,669  |
| Balance on June 30,                    2007                 |                                     | $25,072,651                              | ($4,461,462)                                | $20,611,189 |
|                                                        |                                     |                                     |                                        |        |
|                                                        | Estimated Useful                    Life | Gross Carrying                    Amount | Accumulated                    Amortization | Total       |
| Covenant not to compete -                    Strategy First | 3 years                                  | $44,638                                  | ($17,356)                                   | $27,282     |
| Game titles - Strategy                    First             | 10 years                                 | 1,546,773                                | (161,201)                                   | 1,385,572   |
| Balance on June 30,                    2006                 |                                     | $1,591,411                               | ($178,557)                                  | $1,412,854  |

        The covenant not to compete and the game titles acquired as part of the acquisition of        Strategy First are both amortized using the straight-line method. The covenant not to        compete was nullified and therefore amortized in entirety during the last quarter of the        fiscal year ending June 30, 2007.

The game titles of Empire are amortized over a five-year period based on        weighted average expected sales from the date the title is launched. For titles that have        not been launched as of June 30, 2007 a launch date was estimated to project future        amortization.

        Amortization expense for intangible assets was $4,235,634, $148,797, and $21,809 for the        years ended June 30, 2007, 2006 and 2005, respectively

        Estimated amortization expense for the five succeeding fiscal years is as follows:

|  | 2008      | $     6,158,560 |
|--|------------------------------------|-------------------------------------|

|  | 2009 |                           4,235,820 |
|--|------|-------------------------------------------------------------------|

|  | 2010      |                           4,428,276 |
|--|------------------------------------|-------------------------------------------------------------------|

|  | 2011      |                           3,060,765 |
|--|------------------------------------|-------------------------------------------------------------------|

|  | 2012      |                           1,432,585 |
|--|------------------------------------|-------------------------------------------------------------------|
|  |                                    |                                                                   |
|  | Thereafter                    |         1,295,183         |
|  | Total               | $   20,611,189                                     |

         

         

      

----

**NOTE        12.     DEBT**

        Lines of Credit

        In June 2002, the Company obtained a secured line of credit facility for borrowings up to        $1.0 million, which is fully secured by cash balances held in the Company’s account.        This liability is due on demand and has a floating interest rate that is based on the prime        rate minus 1.75%. On June 30, 2007, the prime rate was 6.5%. The balance outstanding under        this line of credit at June 30, 2007 and June 30, 2006 was $590,990 and $647,797        respectively.

        Empire has a line of credit secured by its receivables, inventory, real property and        intangible assets. As of June 30, 2007 the amount outstanding under this facility was        £1,140,018 ($2,284,482). The line of credit accrues interest at an annual rate of        8.75%.

**Notes Payable**

        The Company owes approximately $5.5 million in notes payable to former shareholders of        Empire pursuant to the Offer made for the acquisition of Empire. This amount accrues        interest at 4% per annum and is payable on October 31, 2007.

        Additionally, the Company owes approximately $3.8 million as earn out consideration based        on Empire’s EBITDA for the fiscal year ended June 30, 2007 and is payable on April        30, 2008.

**Long Term Debt**

        At June 30, 2006 the Company had a term loan assumed pursuant to the plan of arrangement        related to the Company’s acquisition of Strategy First, payable in monthly principal        installments of Canadian $22,000 plus interest at an annual rate of prime plus 3.25% The        loan balance was $180,323 at June 30, 2006. The loan was paid off in full during the fiscal        year ending June 30, 2007.

**NOTE 13.             CONVERTIBLE SECURED DEBENTURES**

        On October 31, 2005, the Company consummated a transaction pursuant to a Securities        Purchase Agreement, dated October 21, 2005 (the “2005 Purchase Agreement”),        with DKR SoundShore Oasis Holding Fund Ltd. (the “Purchaser”). Pursuant to the        2005 Purchase Agreement, the Company issued to the Purchaser a $5,000,000 principal amount        Variable Rate Secured Convertible Debenture due October 31, 2008 (the “2005        Debenture”) and a five year warrant to purchase 791,139 shares of the Company’s        common stock at an exercise price of $1.896 per share (the “Warrant”).

        The Company pays monthly interest on the outstanding principal amount of the 2005 Debenture        at a rate per annum equal to the prime rate for the applicable interest period plus 1.5%.        The interest rate for any interest period decreases by 2% to the extent that the volume        weighted average trading price of the Company's common stock for the five consecutive        trading days immediately prior to such interest period (the “Trigger Price”)        exceeds the conversion price by 25% (and shall be decreased by an additional 2% for every        successive 25% that the Trigger Price exceeds the then applicable conversion price but in        no event shall the interest rate be less than 0%). All overdue accrued and unpaid interest        to be paid under the 2005 Debenture shall entail a late fee at a rate of 18% per annum.

The 2005 Debenture was convertible into shares of common stock of the        Company at an initial conversion rate of $1.738 per share up to a maximum of 2,876,860        shares. The 2005 Debenture and the Warrant provide for an additional 1,100,403 shares of        the Company’s common stock to be issued upon the conversion of the 2005 Debenture or        the exercise of the Warrant as a result of either conversion price adjustments or exercise        price adjustments. Based upon the closing price per share of the Company’s common        stock on the date of issuance, there was an intrinsic value associated with the        beneficial

----

conversion feature of $124,443, which is presented as a discount on the 2005        Debenture and amortized over the term of the 2005 Debenture.

        The Company has the option, at any time, to redeem some or all of the outstanding 2005        Debenture, in cash, equal to the sum of (A) as to redemption dates before April 30, 2008,        (i) 115% of the outstanding principal amount of the Debenture or portion thereof being        redeemed, (ii) accrued but unpaid interest and (iii) all liquidated damages and other        amounts due in respect of the 2005 Debenture and (B) as to redemption dates on or after        April 30, 2008, (i) the greater of (x) 130% of the outstanding principal amount of the 2005        Debenture or portion thereof being redeemed and (y) the principal amount of the 2005        Debenture to be prepaid, plus all other accrued and unpaid interest hereon, divided by the        applicable conversion price on (a) the date the notice of redemption is delivered or (b)        the date the redemption amount is paid in full, whichever is less, multiplied by the VWAP        on (c) the date the redemption notice is delivered or otherwise due or (d) the date the        redemption amount is paid in full, whichever is greater, (ii) accrued but unpaid interest        and (iii) all liquidated damages and other amounts due in respect of the 2005 Debenture. In        May 2006, the Company repaid $1,400,000 of the outstanding principal balance along with an        early payment penalty of approximately $210,000.

        The principal amount of the 2005 Debenture was to be redeemed at the rate of $185,185 per        month, plus accrued and unpaid interest, commencing on July 6, 2006 and may be paid, at the        Company’s option (i) in cash or (ii) in shares of the Company’s common stock.        The terms of the 2005 Debenture were amended in June 2006 and February 2007 and required        redemption at the rate of $180,000 per month commencing on May 1, 2007. The Company did not        pay the initial $180,000 redemption amount on May 1, 2007. The Purchaser and the Company        amended the terms of the 2005 Debenture in June 2007. Under the terms of the amendment (i)        the maturity date of the 2005 Debenture was extended to April 30, 2010; (ii) there will be        no amortization of principal under the Debenture; and (iii) the Debenture will be        mandatorily convertible if the closing sale price of the Company’s common stock        equals or exceeds $3.48 per share. This mandatory conversion is subject to volume        requirements.

        The Company’s obligations under the 2005 Debenture are secured by a lien on all        assets of the Company in favor of the Purchaser pursuant to a Security Agreement, dated        October 31, 2005, among the Company, all of the subsidiaries of the Company and the        Purchaser, and guaranteed by all the subsidiaries of the Company pursuant to a Subsidiary        Guarantee, dated October 31, 2005, made by the Company’s subsidiaries in favor of the        Purchaser. In addition, the obligations of the Company under the 2005 Debenture are        personally guaranteed by Mr. George Karfunkel pursuant to a Personal Guarantee, dated        October 31, 2005, between Mr. Karfunkel and the Purchaser. Mr. Karfunkel is compensated in        the amount of 5% of the current principal outstanding per annum.

        In connection with the 2005 Debenture the Company issued to the holder the Warrant. The        fair value for the Warrant was estimated at the grant date using the Black-Scholes option        pricing model using the following weighted average assumptions: risk-free interest rate of        4.50%, dividend yields of 0% and a volatility factor of the expected market price of the        Common Stock of 114.80%. Based upon the closing price per share of the Company’s        common stock on the date of issuance, the Company estimated the fair value of the warrant        and allocated $665,295 of the proceeds from the 2005 Debenture to the Warrant, which is        presented as a discount on the convertible note, net of amortization to be taken over the        three-year term of the note using the effective interest method. As a result of the June        2007 debt modification the remaining fair values of the warrant is being amortized on a        straight line method through April 30, 2010.

        On October 19, 2006, the Company entered into another Securities Purchase Agreement with        the Purchaser, pursuant to which the Company issued to the Purchaser a Variable Rate        Secured Convertible Debenture in the principal amount of $1,400,000 due October 31, 2008        (the “2006 Debenture”).

        The 2006 Debenture is convertible at any time after December 19, 2006, at the option of the        Purchaser, into shares of common stock at a conversion price of $1.738 per share.

----

        The Company pays monthly interest on the outstanding principal amount of the 2006 Debenture        at a rate per annum equal to the prime rate for the applicable interest period plus 1.5%.        The interest rate for any interest period decreases by 2% to the extent that the volume        weighted average trading price of the common stock for the five consecutive trading days        immediately prior to such interest period (the “Trigger Price”) exceeds the        conversion price by 25% (and shall be decreased by an additional 2% for every successive        25% that the Trigger Price exceeds the then applicable conversion price but in no event        shall the interest rate be less than 0%). All overdue accrued and unpaid interest to be        paid under the 2006 Debenture shall entail a late fee at a rate of 18% per annum.

        The principal amount of the 2006 Debenture was originally redeemable at the rate of $63,636        per month, plus accrued but unpaid interest and liquidated damages, commencing on March 1,        2007. The terms of the 2006 Debenture were amended in February 2007 to require redemption        at a rate of $63,636 per month commencing on May 1, 2007. The Company has the option, at        any time, to redeem some or all of the outstanding 2005 Debenture, in cash, equal to the        sum of (A) as to redemption dates before April 30, 2008, (i) 115% of the outstanding        principal amount of the Debenture or portion thereof being redeemed, (ii) accrued but        unpaid interest and (iii) all liquidated damages and other amounts due in respect of the        2005 Debenture and (B) as to redemption dates on or after April 30, 2008, (i) the greater        of (x) 130% of the outstanding principal amount of the 2005 Debenture or portion thereof        being redeemed and (y) the principal amount of the 2005 Debenture to be prepaid, plus all        other accrued and unpaid interest hereon, divided by the applicable conversion price on (a)        the date the notice of redemption is delivered or (b) the date the redemption amount is        paid in full, whichever is less, multiplied by the VWAP on (c) the date the redemption        notice is delivered or otherwise due or (d) the date the redemption amount is paid in full,        whichever is greater, (ii) accrued but unpaid interest and (iii) all liquidated damages and        other amounts due in respect of the 2005 Debenture.

        The Company did not pay the initial $63,636 redemption amount on May 1, 2007. The Purchaser        and the Company amended the terms of the 2006 Debenture in June 2007. Under the terms of        the amendment (i) the maturity date of the 2005 Debenture was extended to April 30, 2010;        (ii) there will be no amortization of principal under the Debenture; and (iii) the        Debenture will be mandatorily convertible if the closing sale price of the Company’s        common stock equals or exceeds $3.48 per share. This mandatory conversion is subject to        volume requirements.

        The Company’s obligations under the 2006 Debenture are secured by a lien on all        assets of the Company in favor of the Purchaser, and guaranteed by all the subsidiaries of        the Company. In addition, the obligations of the Company under the 2006 Debenture are        personally guaranteed by Mr. George Karfunkel. Mr. Karfunkel is compensated in the amount        of 5% of the current principal outstanding amount of the 2006 Debenture per annum.

        As consideration, the Company reduced the exercise price of the Warrant $.10 to $1.7986 per        share. The fair value for the reduction in the exercise price of the Warrant was estimated        at the grant date using the Black-Scholes option pricing model using the following weighted        average assumptions: risk-free interest rate of 4.37%, dividend yields of 0% and a        volatility factor of the expected market price of the Company’s common stock of        106.66%. Based upon the closing price per share of the Company’s common stock on the        date of issuance, the Company estimated the fair value of the exercise price reduction and        allocated $10,490 of the proceeds from the 2005 Debenture to the Warrant, which is        presented as a discount on the 2005 Debenture, net of amortization to be taken over term of        the 2005 Debenture using the effective interest method. As a result of the June 2007 debt        modification the remaining fair values of the warrant is being amortized on a straight line        method through April 30, 2010.

----

        The balance of the notes as of June 30, 2007 and June 30, 2006, net of unamortized        discounts was as follows:

|                                                                | June                    30,                    2007 | June 30,2006 |
|---------------------------------------------------------------------|-----------------------------------------------------|--------------|
| Principal amount of                    notes                        | $                     5,000,000                | $3,600,000   |
| Discounts for beneficial                    conversion features     |   (58,765)                                     | (60,122)     |
| Discounts for fair value of                    warrants and options | (150,456)                                           | (321,423)    |
| Balance , net of                    unamortized discounts           | $4,790,779                                          | $3,218,455   |
| Less current                    portion-                            | -                                                   | (900,000)    |
| Long-term                    portion                                | $4,790,779                                          | $2,318,455   |

        Scheduled maturities of the convertible debentures as of June 30, 2007 are as follows:

|           | June 30,                    2007                                                                     |
|----------------|------------------------------------------------------------------------------------------------------|
| 1 Year or less | $                                 - |
| 1-3Years       | 5,000,000                                                                                            |
| Total          | $5,000,000                                                                                           |

        Interest expense related to the notes amounted to $429,504 and $491,381 during the years        ended June 30, 2007 and 2006 respectively. Interest expense incurred during the year ended        June 30 includes a $210,000 penalty that was applied when the company paid $1,400,000        toward principal in May 2006.

        Amortization of discounts for the beneficial conversion features and warrant resulted in        charges to Amortization of Convertible Debt Discounts and Issuance Costs totaling $235,192        and $408,193 during the fiscal years ended June 30, 2007 and 2006. The Company also        incurred loan costs of $1,199,119 directly related to securing these notes, which included        $500,000, ($250,000 annually) paid for a personal guarantee on the outstanding balances.        The loan costs were originally amortized over the term of the notes. As a result of the        June 2007 debt modification the remaining loan issuance costs are being amortized on a        straight line method through April 30, 2010.

        The guarantee fees of $500,000 are being amortized at the rate of $250,000 per year.        Amortization expenses for the guarantee and debt issuance costs totaled $357,213 and        $361,372 for the fiscal years ending June 30, 2007 and 2006 are included in Amortization of        Convertible Debt Discounts and Issuance Costs.

        Estimated amortization expense related to the warrants beneficial conversion feature and        costs related to securing these notes through debt maturities is as follows:

| 2008  | $297,365 |
|-------|----------|
| 2009  | 214,032  |
| 2010  | 178,360  |
| Total | $689,757 |

----

**NOTE 14.     INCOME        TAXES**

The components of the        Company’s provision (benefit) for income taxes were as follows:

|                           | 2007   |          | 2006   |     | 2005   |     |
|---------------------------|--------|----------|--------|-----|--------|-----|
| Current:                  |   |          |   |     |   |     |   |
|    Federal |   | ($11,918 | )      | $ - |   | $ - |   |
|    Foreign |   | -        |   | -   |   | -   |   |
|    State   |   |
|                           |        |          |        |     |        |     |
| Tax benefit:              |   | ($11,918 | )      | -   |   | -   |   |
|                           |        |          |        |     |        |     |
| Deferred:                 |   |
|    Federal |   | -        |   | -   |   | -   |   |
|    Foreign |   | -        |   | -   |   | -   |   |
|    State   |   | -        |   | -   |   | -   |   |

A reconciliation of income tax        computed at the statutory rates to income tax expense (benefit) is as follows:

|                                                                  | 2007   |           | 2006   |            | 2005   |          |
|------------------------------------------------------------------|--------|-----------|--------|------------|--------|----------|
| Tax expense at the                statutory rate                 |   | ($818,251 | )      | ($707,528  | )      | $49,432  |   |
| Tax effect on income (loss) of non-US                operations  |   | 665,447   |   | 1,254,175  |   | 61,768   |   |
| State and provincial income taxes, net                of federal |   |
|     income                tax                |   | (73,215   | )      | 88,872     |   | 15,669   |   |
| Change in effective tax                rate                      |   | -         |   | -          |   | (128,330 | ) |
| Permanent difference-                Amortization                |   | 1,216,615 |   |
| Permanent differences-                Other                      |   | 156,870   |   | 6,641      |   | 3,851    |   |
| Deferred Balance                adjustment                       |   | (332,176  | )      | -          |   | -        |   |
| Adjustment for prior years' R&D                expense       |   | -         |   | (1,150,304 | )      | -        |   |
| Valuation allowance                                              |   | (827,208  | )      | 508,144    |   | (2,390   | ) |
|                                                                  |        |           |        |            |        |          |
| Provision (benefit) for                Taxes                     |   | ($11,918  | )      | $ -        |   | $ -      |   |
|                                                                  |        |           |        |            |        |          |

At June 30, 2007, the Company        has available US net operating loss carrying forwards of approximately $3,501,000 which        expire through 2027, Canadian net operating loss carry forwards of approximately $3,430,000        which expire through 2017, and United Kingdom operating losses of approximately $25,900,000        which can be carried forward indefinitely.

In addition to the net        operating loss carrying forward, the Company has deferred tax assets which relate primarily        to depreciation of fixed assets recorded at different rates for tax and book purposes,        certain research and development costs incurred in Canada expensed for book purposes, not        deducted for tax purposes, and available to offset future income taxable in Canada, and        differences in recording bad debts for book and U.K. tax purposes. As of June 30, 2007 a        valuation allowance has been established against a significant portion of the deferred tax        asset since the Company believes it is more likely than not that that the amounts will not        be realized in full; the Company has not established a valuation allowance against the        portion of the deferred tax asset it believes will be realized in future periods due to        expected taxable profits. As of June 30, 2006, a valuation allowance was established        against the entire deferred tax asset.

----

The components of the deferred        tax assets (liabilities) were as follows at June 30, 2007 and 2006:

| Current:                                              | 2007   |             | 2006   |            |
|-------------------------------------------------------|--------|-------------|--------|------------|
|                                                       |   |             |   |            |   |
|    Net operating                losses |   | 10,198,654  |   | $2,087,040 |   |
|                                                       |        |             |        |            |
|    Bad                Debts            |   | 196,478     |   | -          |   |
|    R&D                Expenses     |   | 1,436,816   |   | 1,264,300  |   |
|                                                       |        |             |        |            |
|                                                  |   | 11,831,948  |   | 3,351,340  |   |
| Long term:                                            |   |
|                                                       |        |             |        |            |
|    Depreciation                        |   | 515,440     |   | 47,887     |   |
|                                                       |        |             |        |            |
|                                                  |   | 515,440     |   | 47,887     |   |
|                                                       |        |             |        |            |
|                                                  |   | 12,347,388  |   | 3,399,227  |   |
| Total valuation allowance                             |   | (11,722,171 | )      | (3,399,227 | ) |
|                                                       |        |             |        |            |
|                                                       |        |             |
| Deferred tax asset                                    |   | $625,217    |   | $ -        |   |
|                                                       |        |             |        |            |

The Silverstar Holdings        Limited is a Bermuda registered corporation where there are no income tax laws applicable.        FSAH, a South African registered corporation, incurred no income tax charges for fiscal        years 2007, 2006, and 2005.

First South Africa Management        Corp. and Fantasy Sports, Inc. are US registered corporations and did not incur any income        tax provision for fiscal years 2007, 2006 and 2005.

Silverstar Acquisitions, PLC        is a United Kingdom based registered company and did not incur any income tax charges for        the seven months ending June 30, 2007 (since inception).

Empire Interactive, PLC is a        United Kingdom based registered company and did not incur any income tax charges for the        seven months ending June 30, 2007(since acquisition).

Empire Interactive Europe,        Limited is a United Kingdom based registered company and did not incur any income tax        charges for the seven months ending June 30, 2007 (since acquisition).

Empire Interactive, Inc is a        US registered corporation and recognized a tax benefit of $11,918 for the seven months        ending June 30, 2007 (since acquisition).

Empire Interactive Holdings,        Limited is a United Kingdom based registered company and did not incur any income tax        charges for the for the seven months ending June 30, 2007 (since acquisition).

**NOTE        15.     DISCONTINUED OPERATIONS**

**Fantasy Sports, Inc.**

        On April 7, 2006, the Company sold substantially all the assets and transferred certain        liabilities of Fantasy Sports, Inc. for total cash consideration of $3.85 million. The        purchaser assumed liabilities in the amount of $.79 million

        A summary of the calculation of the gain on disposition is as follows:

| Cash received                                 | $                            3,850,000 |
|-----------------------------------------------|--------------------------------------------------------------------------------|
| Expenses of sale                              | (156,622)                                                                      |
| Net proceeds of                    sale       | 3,693,378                                                                      |
| Net book value                    transferred | (2,212,668)                                                                    |
| Gain on                    disposition        | ($1,480,710)                                                                   |

In accordance with accounting        principles generally accepted in the United States of America, the net income and net        assets related to Fantasy Sports, Inc. have been included in discontinued operations in the        Company’s consolidated statements of operations and consolidated balance        sheets.

----

        The following summarizes the results of Fantasy Sports, discontinued operations:

|                                        | Nine Months Ended April 7,                    2006 | Year Ended June 30,                    2005 |
|---------------------------------------------|----------------------------------------------------|---------------------------------------------|
| Revenues                                    | $1,490,855                                         | $1,945,911                                  |
| Total operating                    expenses | (1,318,555)                                        | (1,502,298)                                 |
| Operating income                            | 172,700                                            | 436,613                                     |
| Other expense                               | (10,947)                                           | (13,977)                                    |
| Net income                                  | $161,753                                           | $422,636                                    |

**NOTE        16.     CASH FLOWS**

        Changes in operating assets and liabilities consist of the following:

|                                                                                                                                                                                                                                                                             | 2007   | 2006   | 2005   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| (Increase) decrease in                    accounts receivable                                                                                                                                                                                                                    |   |   |   | ($3,699,503 | ) |   | ($483,814 | ) |   | $34,083 |   |
| Increase in prepaid                    expenses and current assets                                                                                                                                                                                                               |   |   |   | (298,109 | ) |   | (115,857 | ) |   | (10,166 | ) |
| (Increase) decrease in                    inventories                                                                                                                                                                                                                            |   |   |   | 36,247 |   |   | (52,354 | )  |   | - |   |
| Software development costs                    capitalized                                                                                                                                                                                                                        |   |   |   | (5,524,293 | )  |   |   |   |   |   |   |
| Increase (decrease) in                    accounts payable                                                                                                                                                                                                                       |   |   |   | 3,218,572 |   |   | 41,356 |   |   | (13,246 | ) |
| Increase in refundable                    deposits                                                                                                                                                                                                                               |   |   |   | 630,403 |   |   |   |   |   |   |   |
| Increase (decrease) in                    accrued expenses                                                                                                                                                                                                                       |   |   |   | 1,108,723 |   |   | 477,577 |   |   | (39,656 |   |
|                                                                                                                                                                                                                                                                                  |        |        |        |  |  |
|                                                                                                                                                                                                                                                                             |   |   |   | ($4,527,960 | )  |   | ($133,092 | ) |   | ($ 28,985 | )  |
|                                                                                                                                                                                                                                                                                  |        |        |        |  |  |
| Changes in net assets and                    liabilities of discontinued operations                                                                                                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation and                    amortization                                                                                                                                                                                                                                 |   |   |   | - |   |   | 5,563 |   |   | 10,681 |   |
|                           Changes in operating accounts                                                                                                                                                                                            |   |   |   | - |   |   | (228,122 | ) |   | (122,092 | ) |
|                           Loss on disposal of fixed assets                                                                                                                                                                                         |   |   |   | - |   |   | 2,762 |   |   | - |   |
|                           Decrease in other assets                                                                                                                                                                                                 |   |   |   | - |   |   | - |   |   | - |   |
|                           Changes in cash (included in) from net assets

                                and from discontinued operations                                              |   |   |   | - |   |   | (612                    ) |   |   | (3,344 | ) |
|                                                                                                                                                                                                                                                                                  |        |        |        |  |  |
|                            Changes in net assets and liabilities of discontinuedOperations                                                                                                                                                    |   |   |   | (- | ) |   | ($220,409 | ) |   | ($114,755 | ) |
|                                                                                                                                                                                                                                                                                  |        |        |        |  |  |
|                                                                                                                                                                                                                                                                             |   |   |   |   |   |   |
| Cash flows from financing                    activities - discontinued operations:                                                                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |
| Short-term borrowings                    (repayments), net                                                                                                                                                                                                                       |   |   |   |   |   |   | - |   |   | (237,971 | )  |
|                                                                                                                                                                                                                                                                             |   |   |   |   |   |   |
| Non cash investing and                    financing activities:                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |
|                           Conversion of class B shares to common shares                                                                                                                                                                            |   |   |   |   |   |   | - |   |   | $613 |   |
|                           Issuance of shares of common stock                                                                                                                                                                                       |   |   |   |   |   |   | $49,995 |   |   | - |   |
|                           Warrants issued for acquisition                                                                                                                                                                                          |   |   |   |   |   |   | - |   |   | $167,400 |   |
|                           Cashless exercise of options                                                                                                                                                                                             |   |   |   | $973 |   |   |   |   |   |   |   |
|                           Issuance of notes payable to former Empireshareholders contingent                    on

                                 earn out targetsachieved |   |   |   | $3,847,446 |   |   |   |   |   |   |   |
|        Stock                    issued for acquisition                                                                                                                                                                                        |   |   |   | $723,000 |   |   | - |   |   | $517,676 |   |
|        Issuance                    of debt for acquisition                                                                                                                                                                                    |   |   |   | $5,475,179 |   |   | - |   |   | $394,395 |   |

----

**NOTE 17.     BUSINESS        SEGMENT INFORMATION**

        As a result of the sale of all the assets and transfer of certain liabilities of Fantasy        Sports on April 7, 2006, the Company no longer operates in the Internet fantasy sports        games segment and now only operates in one segment -- entertainment software.

**NOTE 18.     STOCK        OPTION PLAN**

**1995 Stock Option Plan:**

        The Board of Directors has adopted the Company's 1995 Stock Option Plan. The Stock Option        Plan provides for the grant of (i) options that are intended to qualify as incentive stock        options ("Incentive Stock Options") within the meaning of Section 422 of the Internal        Revenue Code to key employees and (ii) options not so intended to qualify ("Nonqualified        Stock Options") to key employees (including directors and officers who are employees of the        Company and to directors).

        The Stock Option Plan is administered by the Compensation Committee of the Board of        Directors. The committee shall determine the terms of the options exercised, including the        exercise price, the number of shares subject to the option and the terms and conditions of        exercise. No options granted under the Stock Option Plan are transferable by the optionee        other than by the will or the laws of descent and distribution.

        The exercise price of Incentive Stock Options granted under the plan must be at least equal        to the fair market value of such shares on the date of the grant (110% of fair market value        in the case of an optionee who owns or is deemed to own more than 10% of the voting rights        of the outstanding capital stock of the Company or any of its subsidiaries). The maximum        term for each Incentive Stock Option granted is ten years (five years in the case of an        optionee who owns or is deemed to own more than 10% of the voting rights of the outstanding        capital stock of the Company or any of its subsidiaries). Options shall be exercisable at        such times and in such installments as the committee shall provide in the terms of each        individual option. The maximum number of shares for which options may be granted to any        individual in any fiscal year is 210,000.

        The Stock Option Plan also contains an automatic option grant program for the 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.

**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 terminated 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 the Company.

        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-employee

----

director" within the meaning of Rule 16b-3 promulgated under the Securities        Exchange Actof 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:

•   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).

•   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).

•   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.

•   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.

•   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.

•   Except as may otherwise be        provided in the applicable option contract, if the optionee's relationship with the Company        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.

•   The Company 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.

**2007 Stock Incentive Plan:**

        The Company's board of directors has adopted and the Company's shareholders approved the        Company's 2007 Stock Incentive Plan (the "2007 Plan"). The 2007 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 2004        Stock Option Plan The 2007 Plan authorizes the issuance of a maximum of 2,000,000 shares of        the Company's common stock (subject to adjustment as described in the 2007 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 the        Company.

The 2007 Plan provides for grant of “incentive        stock options” (“ISOs”) within the meaning of Section 422 of the Internal        Revenue Code of 1986, as amended, non-qualified stock options (“NQSOs”), and        stock awards (“Stock Awards”) ;

----

        The 2007 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-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 2007 Plan        will be subject to, among other things, the following terms and conditions:

•   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).

•   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).

•   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 210,00. 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.

•   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.

•   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.

•   Except as may otherwise be        provided in the applicable option contract, if the optionee's relationship with the Company        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**one year**thereafter, but in no event after the expiration of the        term of the option.

•   The Company 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, 2007, has granted options to purchase 2,111,666 shares of        common stock under the Plans, of which 255,000 options have been exercised and 175,000        options expired unexercised.

----

        The following table represents stock option activity for the years ended June 30, 2005,        2006, and 2007:

|                                                                               | Shares Subject toOptions                    Outstanding | Weighted AverageExercise Price                    Per Option |
|------------------------------------------------------------------------------------|---------------------------------------------------------|--------------------------------------------------------------|
| Balance at June 30,                    2004                                        | 1,193,333                                               | 3.68                                                         |
| Granted options:                                                                   |                                                    |                                                         |
|                           Granted non-plan options   | 450,000                                                 | 2.00                                                         |
|                           Granted-plan options       | 390,000                                                 | 1.37                                                         |
| Exercised                    options:                                              | (15,000)                                                | 0.43                                                         |
|                           Expired - plan options     | (40,000)                                                | 5.13                                                         |
|                           Expired - non-plan options | (433,333)                                               | 4.08                                                         |
|                                                                                    |                                                         |                                                              |
| Balance at June 30,                    2005                                        | 1,545,000                                               | 2.49                                                         |
|                                                                                    |                                                         |                                                              |
|                                                                               |                                                    |                                                         |
| Granted options:                                                                   |                                                    |                                                         |
|                           Granted-plan options       | 57,405                                                  | 1.33                                                         |
| Exercised                    options:                                              | (30,000)                                                | 0.75                                                         |
|                           Expired plan options       | (10,000)                                                | 0.75                                                         |
|                           Expired non-plan options   | (200,000)                                               | 5.00                                                         |
|                           Terminated plan options    | (75,000)                                                | 1.35                                                         |
|                                                                                    |                                                         |                                                              |
| Balance at June 30,                    2006                                        | 1,287,405                                               | 2.17                                                         |
|                                                                                    |                                                         |                                                              |
|                                                                               |                                                    |                                                         |
| Granted options:                                                                   |                                                    |                                                         |
|                           Granted plan options       | 682,595                                                 | 1.76                                                         |
| Exercised                    options:                                              | (65,000)                                                | 0.87                                                         |
|                           Expired plan options       | (25,000)                                                | 0.42                                                         |
|                           Expired non-plan options   | (320,000)                                               | 3.93                                                         |
|                           Terminated plan options    | (50,000)                                                | 1.35                                                         |
|                                                                                    |                                                         |                                                              |
| Balance at June 30,                    2007                                        | 1,510,000                                               | 1,72                                                         |
|                                                                                    |                                                         |                                                              |

        450,000 options granted during the year end June 30, 2005 were subject to a lock-up        agreement and therefore could not be exercised until such lock-up agreement was released.        The lock-up agreement was released during the fiscal year ending June 30, 2007 when        granting of these options was approved by a vote of the Company’s stockholders, which        was required by the terms and conditions of the Company’s NASDAQ listing        agreement.

        The following summarizes information related to options outstanding and exercisable as of        June 30, 2007.

|                                       |      | Options                    Outstanding            |                                                  | Options                    Exercisable |
|--------------------------------------------|-----------|---------------------------------------------------|-------------------------------------------------------|----------------------------------------|
| Range ofExercise                    Prices | Shares    | Weighted AverageExercise                    Price | Weighted AverageRemaining in                    Years | Shares                                 | Weighted AverageExercise                    Price | Weighted AverageRemaining in                    Years |
| Less than $1.00                            | 30,000    | $0.16                                             | 0.50                                                  | 30,000                                 | $0.16 | 0.50 |
| $1.06 to 2.00                              | 1,480,000 | $1.75                                             | 2.59                                                  | 905,833                                | $1.74 | 2.43 |
|                                            |           |                                                   |                                                       |                                        |
|                                       | 1,510,000 |                                              |                                                  | 935,833                                |   |   |

        2,184,810 shares were available for future stock option grants to employees and directors        under the existing plans as of June 30, 2007. As of June 30, 2007 the aggregate intrinsic        value of shares outstanding and exercisable was $135,975. Total intrinsic value of options        exercised was $92,000, $10,900 and $16,500 for the years ended June 30, 2007, 2006 and        2005, respectively.

----

        The following table summarizes our nonvested stock option activity for the year ended June        30, 2007.

|                                             | Shares    | Weighted Average                    Fair Value on the

Grant                    Date |
|--------------------------------------------------|-----------|--------------------------------------------------------------------------------------|
|                                             |      |                                                                                 |
| Nonvested as of June 30,                    2006 | 75,000    | $1.03                                                                                |
| Granted during                    2007           | 682,593   | $0.69                                                                                |
| Vested during                    2007            | (133,429) | $0.84                                                                                |
| Forfeited                                        | (50,000)  | $1.03                                                                                |
|                                                  |           |
| Nonvested as of June 30,                    2007 | 574,166   | $0.66                                                                                |
|                                                  |           |

**NOTE 19.     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 $6.00        per share.

        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 amount of $32,000 for fiscal year 2005.        Effective May 1, 2005, the consultant was appointed to the Board of Directors 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. These options were exercised in a        cashless transaction in June of 2007 which resulted in the issuance of 93,728 shares.

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.

On October 31, 2005, the Company issued        warrants to purchase 791,139 shares of Class A common stock at an exercise price of $1.896        per share to DKR SoundShore Oasis Holding Fund Ltd. in connection with the Company’s        sale of a $5 million convertible debenture. These warrants were valued at $665,295 using a        Black-Scholes pricing model with the following assumptions: expected volatility of 114.80%;        a risk-free interest rate of 4.50% and an expected life of five years On October 19, 2006,        the Company entered into another Securities Purchase Agreement with the Purchaser, pursuant        to which the Company issued to the Purchaser a Variable Rate Secured Convertible Debenture        in the principal amount of $1,400,000 due October 31, 2008.As consideration, the Company        reduced the exercise price of the Warrant $.10 to $1.7986 per share. The fair value for the        reduction in the exercise price of the Warrant was estimated at the grant date using the        Black-Scholes option pricing model using the following weighted average assumptions:        risk-free interest rate of 4.37%, dividend yields of 0% and a volatility factor of the        expected market price of the Company’s common stock of 106.66%. Based upon the        closing price per share of the Company’s common stock on the date of issuance, the        Company estimated the fair value of the exercise price reduction and allocated $10,490 of        the proceeds from the 2005 Debenture to the Warrant, which is presented as a discount on        the 2005 Debenture, net of amortization to be taken over term of the 2005        Debenture.

----

        Warrants outstanding at June 30, 2007 were as follows:

| Warrant                                                      | Number                    ofWarrants | ExercisePrice | Expiration                    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                    acquisition           | 200,000                              | $2.50         | April 21, 2008                     | One share of common                    stock |
| Warrants issued for                    convertible debenture | 791,139                              | $1.79         | October 31, 2010                   | One share of common                    stock |
|                                                         |                                 |          |                               |                                         |

         

**NOTE 20.    COMMITMENTS, CONTINGENCIES AND OTHER        MATTERS**

**Leases**

        The Company leases office facilities and some equipment under non-cancelable operating        leases. Office facility and equipment rental expenses included in continuing operations for        the fiscal years ended June 30, 2007, 2006 and 2005 were approximately $259,000, $109,000        and $60,000, respectively.

        Approximate future minimum lease payments under non-cancelable office and equipment lease        agreements are as follows:

| Fiscal Year End June                    30: |                                                                  |
|---------------------------------------------|-----------------------------------------------------------------------|
| 2008               |  $ 259,000                                                  |
| 2009                                        | 176,000                                                          |
| 2010                                        |      98,000 
                      |
| Total                                       | $ 533,000
                                                       |

**Litigation and Other Contingencies**

        Other than as set forth below we are not currently a party to any material legal        proceedings. We may become from time to time involved in legal proceedings in the ordinary        course of business. We may not be successful in defending these or other claims. Regardless        of the outcome, litigation can result in substantial expense and could divert the efforts        of our management.

        In April 2006, our First South African subsidiary received a letter from the South African        Revenue Service (“SARS”) challenging certain tax treatment of dividends and        operating loss carry forwards for the years 2002 through 2004. Subsequently SARS issued two        tax assessments for approximately $2.9 million. The Company had contended that its South        African tax filings were in full compliance with all applicable laws and had vigorously        defended its position in this regard. The Company had retained an amount of cash equal to        the assessments in South Africa to satisfy any potential liability that may arise.

        In May, 2007, the Company through an arbitration procedure with SARS reached an agreement        whereby SARS agreed in principle to drop the larger of its two assessments. The Company        conceded the principle of SARS second assessment. On August 31, 2007, the Company paid        approximately $300,000 to SARS in regard to this assessment. The Company is vigorously        disputing a further amount of approximately $770,000 and believes it has strong arguments        in this regard based on among other factors, computational errors made by SARS in its        assessment. Based on its payments to SARS, the Company has reduced its estimated liability        to approximately $313,000. The Company believes its remaining liability

----

to SARS is lower than this amount, however, in the event its arguments are        unsuccessful, it may be forced to increase this liability.

        In June 2006, Empire commenced litigation against Take Two Interactive Inc. (“Take        Two”) in regard to the accounting and reporting of sales of various products by Take        Two. Through March 31, 2007 Empire had received payments of approximately $1,632,000 from        Take Two, including $216,000 received during the third quarter of fiscal 2007. On        May 10, 2007, Empire settled this litigation for a final payment of $350,000 plus        expense reimbursements of $140,000.

        During the first quarter of fiscal year 2006, the Company entered into agreements with two        of Strategy First’s game developers to guarantee certain of their royalty payments.        The guarantee is limited to $100,000. Royalties owed to these developers as of June 30,        2007 were less than $31,000. (Strategy First paid these royalties when due after the fiscal        year ended.)

        The Company anticipates that Strategy First will pay the royalties due to its developers        when earned and does not anticipate having to make any payments under these guarantees.

        On March 29, 2006, Strategy First entered into an agreement to acquire certain intellectual        property rights for $200,000 in cash and the issuance of options to acquire 100,000 shares        of the Company’s common stock at an exercise price of $1.50. The options vest when        net sales, as defined in the purchase agreement, exceed $750,000 and expire on December 31,        2008. The agreement also provides for commissions of twenty-five percent of net revenues in        the event they exceed $500,000 through December 31, 2008. As of June 30, 2007 net revenues        earned under this agreement were approximately $335,000.

        On June 30, 2007, Empire owed approximately $1,173,000 for United Kingdom payroll taxes of        which approximately $985,000 was past due. Payroll liabilities totaling approximately        $394,000 for the months of May and June 2007 were paid in July with the agreement of the        tax authorities and were not subject to penalties. A payment schedule for the remaining        past due balance of $779,000 has been finalized and the Company anticipates that this        amount will be paid in full in October 2007. As of June 30, 2007, the interest rate in        effect for late tax payments was 7.50%. Interest is automatically be charged for the period        following April 19, 2007 on the amount that was still due at that date. In addition, the        United Kingdom tax authorities have the power to charge this rate of interest on overdue        payroll taxes in respect to periods prior to April 19, 2007; however in practice, this is        rare.

        In August 2007, Empire was served with a lawsuit brought by a former distributor in        Portugal. The lawsuit claims that Empire had no right to utilize other distributors in        Portugal and seeks 630,000 euros in damages. Empire believes this claim has no merit as its        distribution agreements are tailored for individual products only and do not give blanket        distribution rights to outside distributors. Empire will move to dismiss the claim.

**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 of January 1, 2005 and continuing        through and until December 31, 2009. As compensation for his services, Mr. Kabatznik will        received an annual base salary of $325,000 which increased 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 ended        June 30, 2006. Such bonus will be

----

dependent on the Company’s income from operations achieving a rate of        return on equity of not less than 20% annually.

        Mr. Kabatznik also received options to purchase 500,000 shares of the Company’s        common stock at $2.00 per share for a term of five years. 450,000 of these options are        subject to a lock-up agreement.

**Empire Interactive, PLC**

        On December 1, 2006, Empire Interactive entered into employment agreements with Ian Higgins        and Simon Jeffrey. The agreements terminate on January 1, 2008 and shall then continue        until terminated by either party giving to the other not less than six months notice. The        agreements call for basic annual salary of £132,000 for each executive as well as a        £12,000 car allowance and a pension contribution equal to 15% of the basic annual        salary. Additionally, each executive received 100,000 two-year options to acquire shares of        Silverstar stock at $1.79. These options vest on December 31, 2007. Mr. Higgins serves as        the Chief Executive Officer of the company and Mr. Jeffrey as Managing Director in charge        of product development and acquisition.

**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 Canadian $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. Mr. McFatridge served as Chief Executive Officer of Strategy First and received        options to acquire 75,000 shares of Silverstar’s common stock (25.000 of these        options are vested). Mr. McFatridge’s contract was terminated during the fiscal year        ended June 30, 2007. These options vest annually over a three-year period. Mr. Clarke, who        died in June 2006, served as Chief Operating Officer of Strategy First and received options        to acquire 75,000 shares of Silverstar’s common stock which terminated upon his        death. Mr. Therrien serves as Chief Technology Officer of Strategy First and received        options to acquire 25,000 shares of Silverstar’s common stock. These options vest        annually over a three-year period.

        On October 3, 2005, the Company entered into an employment agreement with Sheldon Reinhart        to serve as Vice President of Finance. The employment agreement is on an at-will basis and        calls for an annual salary of Canadian $120,000.00 and entitles the employee to a bonus of        up to 30% of his salary at the discretion of Silverstar Holdings. Mr. Reinhardt will also        receive stock options to acquire 20,000 shares of the Company’s common stock at the        completion of fiscal year 2007 which will vest annually over a three-year period.

**NOTE 21.    QUARTERLY INFORMATION        (UNAUDITED)**

**Quarter        Ended**

|                                                            | September 30, | December 31, | March 31,   | June 30,    |        |  |
|-----------------------------------------------------------------|---------------|--------------|-------------|-------------|-------------|--|
|                                                            | 2006          | 2006         | 2007        | 2007        | Total       |
| Revenues                                                        | $278,745      | $2,960,789   | $4,603,017  | $11,951,733 | $19,794,284 |
| Income (loss) from                    continuing operations     | (941,438)     | (1,301,671)  | (2,751,028) | 2,587,516   | (2,406,621) |
| Net income                    (loss)                            | (941,438)     | (1,301,671)  | (2,751,028) | 2,587,516   | (2,406,621) |
| Net Income (loss) per                    share:                 |          |         |        |        |        |
|                           Basic   | ($.10)        | ($.14)       | ($.27)      | $.25        | ($.25)      |
|                           Diluted | ($.10)        | ($.14)       | ($.27)      | $.25        | ($.25)      |
| Weighted average common                    stock:               |          |         |        |        |        |
|                           Basic   | 9,149,034     | 9,431,657    | 10,119,834  | 10,205,553  | 9,726,520   |
|                           Diluted | 9,149,034     | 9,431,657    | 10,119,834  | 10,635,564  | 9,726,520   |

----

|                                                          | Quarter Ended     |
|---------------------------------------------------------------|-------------------|
|                                                          | September 30,2005 | December 31,2005 | March 31,2006 | June 30,2006 | Total |
| Revenues                                                      |              |   |   | $370,709 |   |   | $983,434 |   |   | $1,494,991 |   |   | $467,295 |   |   | $3,316,429 |   |
| Loss from continuing                    operations            |              |   |   | (286,528 | ) |   | (574,356 | ) |   | (401,300 | ) |   | (2,359,469 | ) |   | (3,621,653 | ) |
| Net loss                                                      |              |   |   | (48,298 | ) |   | (454,963 | ) |   | (608,112 | ) |   | (867,817 | ) |   | (1,978,990 | ) |
| Net (loss) per                    share:                      |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                           Basic |              |   |   | (0.01 | ) |   | (0.05 | ) |   | (0.07 | ) |   | (0.09 | ) |   | (.22 | ) |
| Weighted average common                    stock outstanding: |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        Basic               |              |   |   | 9,068,584 |   |   | 9,076,518 |   |   | 9,098,584 |   |   | 9,151,177 |   |   | 9,102,286 |   |
|                                                          |              |   |   |   |   |

**NOTE 22.     SUBSEQUENT        EVENTS**

        Pursuant to a purchase agreement, dated July 2, 2007, by and among us and the purchasers        named therein. Pursuant to the purchase agreement, we sold aggregate of 6,206,891 shares        (the “Shares”) of our common stock and warrants (the “Warrants”) to        purchase up to 4,344,826 shares of our common stock at an exercise price of $2.10 per        share, at a price per unit of $1.45 (the “July Private Placement”).

        The sale an issuance of the Shares and Warrants was structured to close in two closings.        The first closing was completed on July 5, 2007, pursuant to which we sold and issued an        aggregate of 2,057,495 Shares and Warrants to purchase up to an aggregate of 1,440,234        shares of our common stock. The second closing was completed on September 6, 2007, pursuant        to which we sold and issued an aggregate of 4,149,396 shares of our common stock and        warrants to purchase up to 2,904,592 shares of our common stock at the second closing.

        As of September 21, 2007, DKR Oasis had converted an aggregate amount of $2.85 million of        their 2005 Debenture and we have issued 1,420,478 shares of Class A common stock.

        On September 17, 2007, the Company announced a change in its executive management team. In        connection with such change, the Company’s current Chief Financial Officer ("CFO"),        Clive Kabaztink, resigned from that position, and Lawrence R. Litowitz was engaged as the        new CFO. Mr. Kabatznik will continue to serve as the Company’s President and Chief        Executive Officer. Additionally, Mr. Kabatznik has retained responsibility as the        Company’s Principal Financial and Accounting Officer to complete the Company’s        Form 10-K for the year ended June 30, 2007.

        Pursuant to an Employment Letter Agreement, dated September 17, 2007 (the “Employment        Agreement”), between the Company and Lawrence R. Litowitz Mr. Litowitz shall work        approximately three full days per work week for an initial salary of $1,900 per day        ("Salary"), of which $1,582.70, or 83.3%, shall be paid directly to Mr. Litowitz and        $317.30, or 16.7%, shall be paid directly to Tatum LLC (“Tatum”); provided        however, that in no event shall Mr. Litowitz and Tatum be paid a Salary in excess of the        aggregate amount of $24,166 per calendar month. Any cash bonus to be paid to Mr. Litowitz        shall be determined by the Board of Directors of the Company in its sole discretion. After        allocation of 20% of any cash bonus payable to Mr. Litowitz to Tatum, Mr. Litowitz will be        paid 80% of any cash bonus. In addition, Mr. Litowitz will share with Tatum 20% of any cash        proceeds realized from any equity bonus that Mr. Litowitz may be granted by the        Company’s Board of Directors.

        Pursuant to the Employment Agreement, the Company granted Mr. Litowitz 180,000 options to        purchase common stock of the Company and 5,000 of the options will vest each month        commencing on October 17, 2007. The options were granted under the Company’s 2007        Stock Incentive Plan. The exercise price for each option is $2.15 (the closing price of the        Common Stock on September 17, 2007). At the option of

        The Employment Agreement is terminable by either party on 30 days' prior written notice, or        immediately for Cause (as defined in the Employment

----

Agreement) or Good Reason (as defined in the Employment Agreement). In the        event that the Company elects to terminate Mr. Litowitz without Cause or if Mr. Litowitz        elects to terminate the Employment Agreement for Good Reason, in each case prior to        September 16, 2008, then Mr. Litowitz will be entitled to receive a payment as severance        (“Severance Payment”) equal to three months of the Salary paid to Mr. Litowitz        during the three months immediately preceding such termination (a portion of which shall be        paid to Tatum. In the event that the Company elects to terminate Mr. Litowitz without Cause        or Mr. Litowitz elects to terminate the Employment Agreement for Good Reason, in each case        after September 16, 2008 but prior to September 16, 2010, Mr. Litowitz will be entitled to        receive a Severance Payment equal to six months of the Salary paid to Mr. Litowitz during        the six months immediately preceding such termination (a portion of which shall be paid to        Tatum). 

----

**ITEM 9.      Changes in        and Disagreements with Accountants on Accounting and Financial Disclosure**

        None.

**ITEM 9A.   Controls and        Procedures**

        At the end of the period covered by this report, we carried out an evaluation, with the        participation of our management, including our Chief Executive Officer and Chief Financial        Officer, of the effectiveness of our disclosure controls and procedures. Based on that        evaluation, we concluded that our disclosure controls and procedures were effective. There        was no change in our internal control over financial reporting during the quarter ended        June 30, 2007 that has materially affected, or is reasonably likely to materially affect,        our internal control over financial reporting.

**ITEM 9A(T).  Controls and        Procedures.**

        Not applicable.

**ITEM        9B.     Other Information**

        None.

**PART III**

**ITEM 10.             Directors and Executive Officers**

Directors and Executive Officers

        As of September 15, 2007, our directors and executive officers, their ages and present        position are as follows:

|  Name                            | Age    | Positions                                                                                                     |
|---------------------------------------|--------|---------------------------------------------------------------------------------------------------------------|
| Michael Levy                          | 61     | Chairman of the                    Board                                                                      |
| Clive Kabatznik                       | 50     | Vice Chairman of the Board,                    Chief Executive Officer, President and Chief Financial Officer |
| Cornelius J.                    Roodt | 48     | Director                                                                                                      |
| Edward Roffman                        | 57     | Director                                                                                                      |
| Douglas Brisotti                      | 39     | Director                                                                                                      |
|                                  |   |                                                                                                          |

**Michael Levy** is our co-founder and has served as our Chairman of the 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 P. Kabatznik** is our co-founder and has served as a member of our Board of        Directors and as our President since our 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

----

        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.

**Edward Roffman** has served as a member of our Board of Directors since March 2007 as        well as the Chairman of the Audit Committee of the Board. He has served as the CFO as well        as Video Game Developer and Publisher of Red Mile Entertainment, Inc. in Sausalito,        California. Prior to his work at Red Mile Entertainment, Mr. Roffman served as CFO at        Fluent Entertainment, Inc. in Novato, California and as a member of Creekside, LLC, a        consulting firm in Larkspur, California.

**Douglas A. Brisotti** has served as a member of our Board of Directors since 2005. Mr.        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 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, Edward Roffman and Cornelius J. Roodt, each of whom are independent directors        as defined in Rule 10A-3 of the Securities Exchange Act of 1934. The Board of Directors has        determined that Mr. Roodt meets the standards of an audit committee “financial        expert” as defined by the Sarbanes Oxley Act of 2002.

**Compliance with Section 16(a) of the        Exchange Act.**

        Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and        directors, and persons who beneficially own more than 10% of our common stock, to file        initial reports of ownership and reports of changes of ownership with the Securities and        Exchange Commission and furnish copies of those reports to us. Based solely on a review of        the copies of the reports furnished to us to date, or written representations that no        reports were required, we believe that all reports required to be filed by such persons        with respect to our fiscal year ended June 30, 2007 were timely made.

**Code of Ethics**

        Our Board of Directors adopted a Code of Ethics which applies to all of our directors,        executive officers and employees. A copy of the Code of Ethics is available upon request to        our counsel at Troutman Sanders, LLP, Chrysler Building, 405 Lexington Avenue, 9th Floor,        New York, NY 10174.

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**ITEM 11.     Executive        Compensation**

**Executive Compensation Discussion and Analysis**

        General Philosophy and Objectives

Our executive compensation policies are        intended to attract, motivate and retain key executives of superior ability. Our main        objectives are to reward individuals for their contributions to our performance and provide        them with a stake in our long-term success. Compensation programs for our executives are        constructed in an effort to reward them, in the short-term, for individual performance and        overall corporate performance through a combination of base salary, discretionary bonuses,        and commission compensation for those individuals whose primary duties and responsibilities        are the sale of our product offerings, and in the longer-term, by tying a portion of their        compensation directly to the performance of our common stock.

**Compensation Process**

        Our Compensation Committee, comprised of Michael Levy and Ed Roffman, reviews and expressly        approves the compensation of our Chief Executive Officer, and as we hire them in the future        will do so for our other executive officers. For fiscal year 2007, the Compensation        Committee reviewed and approved the compensation of our Chief Executive Officer whose        compensation is fixed under an employment contract dated January 2005. Our Board of        Directors, without the participation of any interested member of the Board, approves the        grant of stock options and any other awards under our 2007 Stock Incentive Plan, and        approves the terms and conditions of any employment, severance, “change of        control” or other written employment agreement with any of our executive        officers.

**Elements of        Compensation**

The primary elements of executive        compensation for our executive officers are as follows:

|  | ·      | Annual base salary; |
|--|----------------------------------------|---------------------|

|  | ·      | Bonus compensation, in the discretion of the Compensation Committee; |
|--|----------------------------------------|----------------------------------------------------------------------|

|  | ·      | A long-term incentive component, generally consisting of the grant of stock                    options, also in the discretion of the Board of Directors; and |
|--|----------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | ·      | Perquisites and other benefits |
|--|----------------------------------------|--------------------------------|

        We do not objectively allocate compensation between currently paid and long-term        compensation, or between cash and non-cash compensation, and no specific benchmarks or        other quantitative measures typically are used. Instead, the Compensation Committee and the        Board of Directors believe that they should be able to maintain an overall objective of        attracting, motivating and retaining our key executives while at the same time preserving        discretion to increase or decrease variable compensation on a year-to-year basis depending        on individual and corporate performance, or, in fact, not to pay any such compensation in        any particular year if that is considered appropriate.

Base Salary. Base salary provides an executive with his basic compensation. It is        intended to reflect the skill, experience, and overall value an individual brings to our        business, as well as the individual’s length of service and historic performance. The        base salary for our Chief Executive Officer, as discussed below, is set by the terms of his        employment agreement. The Board has retained the discretion to increase those base salary        levels in its discretion. Annual reviews are typically made of the base salary of the Chief        Executive Officer, and annual adjustments made if adjustments are considered necessary.        However, when warranted by business considerations, such as profitability, gross margin        levels, and/or cash flow considerations, among others, annual adjustments may either be        delayed, or may not be made.

Bonuses. Cash bonuses are awarded on a discretionary basis. Bonuses in the past have        occasionally been based on gross profit or profitability goals and performance metrics.        However, we generally believe

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        factors that an objective performance metric may not permit, or to award available bonus        dollars to those individuals whose contributions to a particular achievement merit special        recognition. Cash bonuses are intended to reward the loyalty of our executives, provide        incentive for a positive performance, and communicate to our executives that when        individual and collective efforts result in positive corporate performance, their        performance will be rewarded.

Long-Term Incentive Compensation: The long-term component of our executive        compensation is designed to provide a commonality of interests between our executives and        our stockholders. In the past, we have utilized stock options as the primary method of        providing long-term and equity-based compensation. Grants under our 2004 and 2007 Stock        Incentive Plan, along with annual bonuses, are the primary methods used to provide        long-term motivation to our executives, and to allow them to participate in the growth of        the Company through increases in the price of our shares of common stock, thereby linking        their interests with those of our stockholders. The 2004 and 2007 Stock Incentive Plan        provides for the grant, in the discretion of the Board of Directors, of stock options, and        restricted stock awards. The Board of Directors may, in connection with the grant of each        option or award, establish one or more objective criteria (which may include reference to        revenues, margin, profits or other goals) to determine whether the options or awards vest        or otherwise will become exercisable, and/or whether any amounts will become payable.

        Other than those disclosed in the executive compensation table, no options or other awards        were granted in fiscal 2007 to our executives.

Perquisites and Other Benefits. We structure our other compensation to provide        competitive benefit packages to our executives. We often offer perquisites to certain of        our executives, primarily automobile allowances. We have used these benefits as a retention        tool and as a relatively inexpensive method of rewarding our executives, particularly when        it is viewed as a part of our overall compensation program that relies in great part on the        discretion of the Board of Directors and the Executive Compensation Committee in assessing        individual and corporate performance.

        The only other benefits available to our executives are those that are generally available        to our employees, including health insurance. We do not offer any of our executives any        pension or retirement benefits that are not otherwise enjoyed by our employees in        general.

**Certain Accounting and Tax Considerations.**

        We are aware that base salary, cash bonuses, stock-based awards, and other elements of our        compensation programs generate charges to earnings under generally accepted accounting        principles (including as provided in SFAS 123R). We generally do not adjust compensation        components based on accounting factors.

**Report of Board of Directors and Executive Compensation Committee**

        The members of the Board of Directors and the Compensation Committee have reviewed and        discussed the Compensation Discussion and Analysis section of this Annual Report on Form        10-K with management. Based on such review and discussion, the members of the Board of        Directors and the Compensation Committee recommended that the Compensation Discussion and        Analysis section be included in this Annual Report on Form 10-K.

| Board of                    Directors: | Compensation                    Committee: |
|----------------------------------------|--------------------------------------------|
| Michael Levy                           | Michael Levy                               |
| Clive Kabatznik                        | Edward Roffman                             |
| Cornelius J.                    Roodt  |                                       |
| Edward Roffman                         |                                       |
| Douglas Brisotti                       |                                       |

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**EXECUTIVE        COMPENSATION**

**Summary Compensation Table**

        The following table sets forth certain information concerning the compensation of our Named        Executive Officers:

| Name and

Principal

Position                                             | Fiscal Year Ended June                    30, | Salary   | Bonus | Stock                    Awards | Option                    Awards | Non-Equity                    Incentive

Plan

Compen                    sation | Change in Pension Value                    and Nonqualified Deferred Compensation Earnings | All Other                    Compensation | Total    |
|---------------------------------------------------------------------------|-----------------------------------------------|----------|-------|---------------------------------|----------------------------------|---------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------|-------------------------------------------|----------|
| Clive Kabatznik, President                    and Chief Executive Officer | 2007                                          | $337,500 | -     | $11,880                         | -                                | -                                                                               | -                                                                                          | -                                         | $349,380 |

**Grant of Plan-Based Awards**

        Our 2004 Stock Incentive Plan provides for the grant, in the discretion of the Board of        Directors, of stock options and restricted stock awards. No options were granted to Mr.        Kabatznik during the fiscal year ended June 30, 2007.

        The options granted to Mr. Kabatznik during fiscal year ended June 30, 2006 represent:

•   an option granted under our        2004Stock IncentivePlan to purchase 15.000 shares of our common stock,        which was exercisable at an exercise price of $1.33 per share: These options were exercised        during the fiscal year endedJune 30,        2007.

        The options granted to Mr. Kabatznik during fiscal year ended June 30, 2005 represent:

•   an option granted under our        2004Stock IncentivePlan to purchase 15,000 shares of our common stock,        which was exercisable at an exercise price of $1.06 per share; These options were exercised        during the fiscal year endedJune 30,        2007.

•   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 non-qualified option granted        to purchase 450,000 shares of our common stock, which is currently exercisable at an        exercise price of $2.00 per share.

**Option Exercises and Stock Vested**

The following table presents        information concerning the exercise of stock options and the vesting of stock for our Chief        Executive Officerduring the        fiscal year ended December 31, 2007:

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**FISCAL 2007 OPTION EXERCISES AND STOCK VESTED**

|            | Option Awards                                                                                  | Stock Awards                                  |
|-----------------|------------------------------------------------------------------------------------------------|-----------------------------------------------|
| Name            | Number of                    Shares                    Acquired                    on Exercise | Value Realized                    on Exercise | Number of                    Shares                    Acquired                    on Vesting | Value Realized                    on Vesting |
| Clive Kabatznik | 35,000                                                                                         | 36.600                                        | 7,519* | 11,880 |

*Represents restricted shares that were        granted on April 03, 2006 and vested April 03, 2007.

On June 27, 2007 Mr. Kabatznik was        granted $20,000 of restricted shares that are scheduled to vest on March 27, 2008.The closing market price of the shares        of common stock of the Company on June 27, 2007 was $1.85. Therefore, on March 27. 2008,        Mr. Kabatznik will receive 10,810 restricted shares.

**Outstanding Equity Awards at Fiscal Year End**

        The following table presents information concerning the number and value of unexercised        options, nonvested stock (including restricted stock, restricted stock units or other        similar instruments) and incentive plan awards for our Chief Executive Officer outstanding        as of the end of the fiscal year ended June 30, 2007.

|            | Option Awards                                                                                 | Stock Awards                                                                                    |
|-----------------|-----------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------|
| Name

(a)       | Number of Securities                    Underlying Unexercised Options

(#)

Exercisable

(b) | Number of Securities                    Underlying Unexercised Options

(#)

Unexercisable

(c) | Equity Incentive Plan                    Awards: Number of Securities Underlying Unexercised Unearned Options

(#)

(d) | Option Exercise                    Price

($)

(e) | Option Expiration                    Date

(f) | Number of Shares or Units                    or Stock That Have Not Vested

(#)

(g) | Market Value of Shares or                    Units of Stock That Have Not Vested

($)

(h) | Equity Incentive Plan                    Awards: Number of Unearned Shares, Units or Other Rights That Have Not                    Vested

(#)

(i) | Equity Incentive Plan                    Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That                    Have Not Vested

($)

(j) |
|            |                                                                                          |                                                                                            |   |   |   |   |   |   |   |
| Clive Kabatznik | 500,000                                                                                       | -                                                                                               | - | $2.00 | 12/31/2009 | - | - | - | - |

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**Director Compensation**

        The following table presents information relating to total compensation of our non-employee        directors for the fiscal year ended June 30, 2007:

| Name                                   | Fees Earned or Paid in                    Cash | Stock Awards* | Option Awards | All Other                    Compensation | Total   |
|----------------------------------------|------------------------------------------------|---------------|---------------|-------------------------------------------|---------|
| Michael Levy                           | $60,000                                        | $11,880       | -             | -                                         | $71,880 |
| Cornelius J.                    Roodt  | -                                              | $11,880       | -             | -                                         | $11,880 |
| Edward Roffman                         | $5,000                                         | -             | -             | -                                         | $5,000  |
| Douglas A.                    Brisotti | -                                              | $11,880       | -             | -                                         | $11,880 |
| John Grippo**                          | -                                              | $11,880       | -             | -                                         | $11,880 |

Each active Board member was granted        7,519 restricted shares on April 03, 2006 which vested April 03, 2007.

**No longer on Board at June 30,        2007.

        Mr. Levy receives an annual consulting fee of $60,000 per year, solely in connection with        his service as Chairman of our Board of Directors. Directors are reimbursed for their        reasonable out-of-pocket expenses incurred in connection with their duties.

Mr. Roffman receives $2,500.00 per        month solely in connection with his service as of the Audit Committee of the        Board.

On June 27, 2007 Mr. Levy, Mr. Roodt,        Mr. Roffman, and Mr. Brisotti were each granted $25,000 of restricted shares that are        scheduled to vest on March 27, 2008.

**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 December 1, 2006, Empire Interactive entered into employment agreements with Ian Higgins        and Simon Jeffrey. The agreements terminate on January 1, 2008 and shall then continue        until terminated by either party giving to the other not less than six months notice. The        agreements call for basic annual salary of £132,000 for each executive as well as a        £12,000 car allowance and a pension contribution equal to 15% of the basic annual        salary. Additionally, each executive received 100,000 two-year options to acquire shares of        Silverstar stock at $1.79. These options vest on December 31, 2007. Mr. Higgins serves as        the Chief Executive Officer of the company and Mr. Jeffrey as Managing Director in charge        of product development and acquisition.

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        On April 21, 2005, Strategy First 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 Canadian $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. Mr.        McFatridge served as Chief Executive Officer of Strategy First and received options to        acquire 75,000 shares of Silverstar’s common stock (25.000 of these options are        vested). Mr. McFatridge’s contract was terminated during the fiscal year ended June        30, 2007. These options vest annually over a three-year period. Mr. Clarke, who died in        June 2006, served as Chief Operating Officer of Strategy First and received options to        acquire 75,000 shares of Silverstar’s common stock which terminated upon his death.        Mr. Therrien serves as Chief Technology Officer of Strategy First and received options to        acquire 25,000 shares of Silverstar’s common stock. These options vest annually over        a three-year period.

        On October 3, 2005, the Company entered into an employment agreement with Sheldon Reinhart        to serve as Vice President of Finance. The employment agreement is on an at-will basis and        calls for an annual salary of Canadian $120,000.00 and entitles the employee to a bonus of        up to 30% of his salary at the discretion of Silverstar Holdings. Mr. Reinhardt will also        receive stock options to acquire 20,000 shares of the Company’s common stock at the        completion of fiscal year 2007 which will vest annually over a three-year period.

**1995 Stock Option**

        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:

•   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

•   options not intended to so        qualify to key employees, including our directors and officers, and to directors and        consultants who are not employees.

        The total number of shares of our common stock for which options may be granted under our        1995 Stock Option Plan is 850,000 shares.

        Our 1995 Stock Option Plan is administered by the compensation committee of our Board of        Directors. The compensation committee will determine the terms of options exercised,        including the exercise price, the number of shares subject to the option and the terms and        conditions of exercise. No option granted under our 1995 Stock Option Plan is transferable        by the optionee other than by will or the laws of descent and distribution and each option        is exercisable during the lifetime of the optionee only by such optionee or his legal        representatives.

        The exercise price of incentive stock under our 1995 Stock Option Plan must be at least        equal to 100% of the fair market value of such shares on the date of grant, or 110% of fair        market value in the case of an optionee who owns or is deemed to own stock possessing more        than 10% of the voting rights of our outstanding capital stock. The term of each option        will be established by the compensation committee, in its sole discretion. However, the        maximum term for each incentive stock option granted under our 1995 Stock Option Plan is        ten years, or five years in the case of an optionee who owns or is deemed to own stock        possessing more than 10% of the total combined voting power of our outstanding capital        stock. Options will become exercisable at such times and in such installments as the        compensation committee will provide in the terms of each individual option. The maximum        number of shares for which options may be granted to any individual in any fiscal year is        210,000.

        Our 1995 Stock Option Plan also contains an automatic option grant program for our        directors. Each of our non-employee directors is automatically granted an option to        purchase 10,000 shares of our common stock following each annual

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        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.

**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:

•   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).

•   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).

•   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.

•   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.

•   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.

•   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.

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•   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        Through September 28, 2006, we have granted options to purchase 95,000 shares of our common        stock under our 2004 Stock Option Plan, 95,000 of which none has been exercised.

**2007 Stock Incentive        Plan:**

        The Company's board of directors has adopted and the Company's shareholders approved the        Company's 2007 Stock Incentive Plan (the "2007 Plan"). The 2007 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 2004        Stock Option Plan The 2007 Plan authorizes the issuance of a maximum of 2,000,000 shares of        the Company's common stock (subject to adjustment as described in the 2007 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 the        Company.

The 2007 Plan provides for grant of “incentive        stock options” (“ISOs”) within the meaning of Section 422 of the Internal        Revenue Code of 1986, as amended, non-qualified stock options (“NQSOs”), and        stock awards (“Stock Awards”) ;

        The 2007 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-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 2007 Plan        will be subject to, among other things, the following terms and conditions:

•   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).

•   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).

•   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.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 210,00. 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.

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•   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.

•   Except as may otherwise be        provided in the applicable option contract, if the optionee's relationship with the Company        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 one yearthereafter, but in no event after the expiration of the        term of the option.

•   The Company 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.

**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.

**ITEM        12.     Security Ownership of Certain Beneficial Owners and        Management**

        The following table sets forth, as of September 14, 2007, certain information as to the        beneficial ownership of the common stock by:

•     each person known by        us to own more than five percent (5%) of our outstanding shares; each of our        directors;

•     each of our        executive officers named in the Summary Compensation Table under "Executive        Compensation;"

•     each of our        directors; and

•     all of our executive        officers and directors as a group.

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        Unless otherwise specified, the address of each of the persons set forth below is in care        of Silverstar Holdings, Ltd, Clarendon House, Church Street, Hamilton HM CX Bermuda:

|                                                                              | Amount and Nature                    ofBeneficialOwnership(1) |                                      |                           |
|-----------------------------------------------------------------------------------|---------------------------------------------------------------|-------------------------------------------|---------------------------|
| Name and Address                    of

Beneficial                    Shareholder | Common                    Stock                               | Class B                    CommonStock(2) | Percentage ofOwnership(1) |   |  |
| Michael Levy                                                                      |                                                          |                                      |                      | 798,885                    (3) | - |   |  |   | 44% |   |   |   |   |   |
| Clive P.                    Kabatznik                                             |                                                          |                                      |                      | 1,573,572(4) | - |   |  |   | 87% |   |   |   |   |   |
| Cornelius J.                    Roodt                                             |                                                          |                                      |                      | 89,836                    (5) | - |   |  |   | *% |   |   |   |   |   |
| Douglas A.                    Brisotti                                            |                                                          |                                      |                      | 47,931(6) | - |   |  |   | *% |   |   |   |   |   |
| Edward Roffman                                                                    |                                                          |                                      |                      | 13,227(7) | - |   |  |   | *% |   |   |   |   |   |
| All executive officers and                    directors as a group (5 persons)    |                                                          |                                      |                      | 2,523,451                    (8) | - |   |  |   | 1.39% |   |   |   |   |   |

|   | * 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) | 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.                                             |
| (3) | Includes 70,000 shares of our common                    stock issuable upon exercise of options that are immediately exercisable and                    13,227 shares of restricted stock.                                                                                                                                                                                           |
| (4) | Includes 1,000,000 shares of our common                    stock issuable upon exercise of options 500,000 of which are immediately                    exercisable and 10,682 shares of restricted stock.                                                                                                                                                                            |
| (5) | Includes 40,000 shares of our common                    stock issuable upon the exercise of options that are immediately exercisable                    and 13,227shares of                    restricted stock.                                                                                                                                                                     |
| (6) | Includes 30,000 shares of our common                    stock issuable upon exercise of options that are immediately exercisable and                    13,227shares of                    restricted stock.                                                                                                                                                                         |
| (7) | Consists of 13,227 shares                    of restricted stock.                                                                                                                                                                                                                                                                                                                    |
| (8) | Includes 1,140,000 shares                    of our common stock issuable upon exercise of options: 640,000sharesof which are exercisable                    immediately; 68,150 shares of restricted stock. Does not include 48,276 and                    96,552 warrants owned by Mr. Levy and Mr. Kabatznik,respectively.                                                        |

         

**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 fiscal years 2007 and 2006 totaled approximately $154,000 and approximately        $70,000, respectively.

----

**Tax Fees**

        Tax fees billed to the Company by Rachlin Cohen & Holtz LLP for its tax returns for the        fiscal years 2007 and 2006 were approximately $3,600 and approximately $6,000,        respectively.

**Other Fees**

        No other fees were billed to the Company by Rachlin Cohen & Holtz LLP for all other        non-audit or tax services rendered to the Company for the fiscal years 2007 and 2006,        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.

**Part IV**

**ITEM        15.     Exhibitsand Financial Statement        Schedules.**

**(a)     The following financial statements and exhibits are        filed as part of this report.**

**(1)     Financial Statements**

Report of Independent        registered Public Accounting Firm

Consolidated Balance        Sheets at June 30, 2007and 2006Consolidated Statements        of Operations for the years ended June 30, 2007, 2006and 2005

Consolidated Statements        of Cash Flows for the years ended June 30, 2007, 2006and 2005

Consolidated Statement        of stockholders’ equity and Comprehensive loss for the years ended June 30, 2007,        2006and        2005

Notes to the        Consolidated Financial Statements for the years ended June 30, 2007, 2006, and        2005

**(2)     Financial Statement Schedules:**

All schedules have been omitted because the required        information is included in the consolidated financial statements or notes        thereto.

**(b)     Exhibits**

| **Exhibit                    Number** | **Description** |
|---------------------------------------|-----------------|
|                                  |            |
| 3                                     | .1              | Memorandum of Association                    of the                    Company(2) |
| 3                                     | .2              | Amended and Restated                    Bye-Laws of the Company(3) |
| 4                                     | .1              | Indenture dated April 25,                    1997 between the Company and American Stock Transfer & Trust Company(1) |
| 4                                     | .2              | Stock Option                    Agreement(4) |
| 4                                     | .3              | Registration Rights                    Agreement, dated October 19, 2006, between the Company and the purchaser named                    therein, as amended on June 28, 2007.(5) |
| 4                                     | .4              | Registration Rights                    Agreement, dated October 31, 2005, between the Company and the purchaser named                    therein, as amended on June 28, 2007(6) |
| 4                                     | .5              | Registration Rights                    Agreement, dated July 2, 2007, between the Company and the Selling                    Shareholders(7) |
| 4                                     | .6              | Amended and Restated                    Variable Rate Secured Convertible Debenture due October 31, 2008 in the                    principal amount of $1,400,000(7) |

----

| 4  | .7  | Amended and Restated                    Variable Rate Secured Convertible Debenture due October 31, 2008 in the                    principal amount of                    $3,600,000(7)                                                                                                                                                     |
|----|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10 | .1  | Form of FSAH Escrow                    Agreement.(2)                                                                                                                                                                                                                                                                                        |
| 10 | .2  | Form of First Amended and                    Restated Employment Agreement of Clive Kabatznik(2)                                                                                                                                                                                                                                            |
| 10 | .3  | Form of FSAM Management                    Agreement(2)                                                                                                                                                                                                                                                                                     |
| 10 | .4  | Form of Consulting                    Agreement with Michael Levy(2)                                                                                                                                                                                                                                                                        |
| 10 | .5  | Asset purchase agreement by                    and among First South African 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(8) |
| 10 | .6  | Employment Agreement, dated                    as of December 31, 2004, between Clive Kabatznik and First South Africa                    Management Corp.(9)                                                                                                                                                                               |
| 10 | .7  | Subscription Agreement,                    dated February 24, 2005, between the Companyand Strategy First                    Inc.(10)                                                                                                                                                                                                       |
| 10 | .8  | 1995 Stock Option                    Plan(2)                                                                                                                                                                                                                                                                                                |
| 10 | .9  | 2004 Stock Incentive                    Plan(10)                                                                                                                                                                                                                                                                                            |
| 10 | .10 | 2007 Stock Incentive                    Plan.*                                                                                                                                                                                                                                                                                              |
| 10 | .11 | Securities Purchase                    Agreement, dated as of July 2, 2007, among the Company and the purchasers named                    therein(7)                                                                                                                                                                                        |
| 10 | .12 | Form of                    Warrant(7)                                                                                                                                                                                                                                                                                                       |
| 21 | .1  | Subsidiaries of the Company                    *                                                                                                                                                                                                                                                                                            |
| 23 | .1  | Consent of Rachlin Cohen and Holtz                    *                                                                                                                                                                                                                                                                                     |
| 31 | .1  | Certificate Pursuant to                    Section 302 of the Sarbanes Oxley Act of 2002*                                                                                                                                                                                                                                                   |
| 32 | .1  | Certification Pursuant to                    18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley                    Act of                    2002*                                                                                                                                                                |

_________________        * Filed herewith

| (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                    to the Company’s Current Report on Form 8-K filed September 9,                    2007.                                                                                                                                                                                                                                                                                                         |
| (4) | 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.                                                                                  |

----

| (5)  | Incorporated by reference                    to the Company’s Current Report on Form 8-K filed October 24, 2006 and                    July 3, 2007. |
|------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (6)  | Incorporated by reference                    to the Company’s Current Report on Form 8-K filed November 4, 2005 and                    July 3, 2007. |
| (7)  | Incorporated by reference                    to the Company’s Current Report on Form 8-K filed July 3,                    2007.                      |
| (8)  | Incorporated by reference                    to the Company’s Current Report on Form 8-K filed on October 12,                    2000.               |
| (9)  | Incorporated by reference                    to the Registrant’s Current Report on Form 8-K filed on April 26,                    2005.              |
| (10) | Incorporated by reference                    to the Registrant’s Current Report on Form 8-K filed on March 2,                    2005.               |

----

**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        28thdayofSeptember,        2007.

SILVERSTAR HOLDINGS,        LTD.

BY:  /s/ Clive        Kabatznik                                    Clive        Kabatznik, CEO

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                                  |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------|---------------------------------------|
|                                                                                                                                                               |                                                                  |                                  |
|                             | Chairman of                    the Board of Directors                 | September 28, 2007                    |
| Michael                    Levy                                                                                                                                    |                                                                  |                                  |
| /s/                    Clive Kabatznik                                                                                                                             | President,                    Vice Chairman, Chief                    | September                    28, 2007 |
| Clive                    Kabatznik                                                                                                                                 | Executive                    Officer, and                    Director |                                  |
|                                                                                                                                                               | (Principal Executive, Financial and Accounting Officer)               |                                  |
|                                                                                                                                                               |                                                                  |                                  |
| /s/                    Cornelius Roodt                                                                                                                             | Director                                                              | September                    28, 2007 |
| Cornelius                    Roodt                                                                                                                                 |                                                                  |                                  |
|                             | Director                                                              | September                    28, 2007 |
| Douglas                    Brisotti                                                                                                                                |                                                                  |                                  |
| /s/ Edward Roffman                                                                                                                                                 | Director                                                              | September                    28, 2007 |
| Edward                    Roffman                                                                                                                                  |                                                                  |                                  |