<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December 31, 1996
Commission file Number 33-36125-D
SVI Holdings, Inc.
(Exact name of registrant as specified in its charter.)
Nevada 84-1131608
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7979 Ivanhoe Avenue, Suite 500, La Jolla, CA 92037
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code:
(619) 551-2365
Indicate by check mark whether the registrant(1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date:
Common Stock, $0.0001 Par Value - 15,019,284 shares as of
May 31, 1997.
<PAGE>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
SVI Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Quarter Quarter
Ended Ended
December 31, December 31,
1996 1995
<S> <C> <C>
Net Sales 2,059,252 190,277
Cost Of Goods Sold 713,963 10,998
--------- ---------
Gross Profit 1,345,289 179,279
Selling, General and Administrative Expenses 1,088,882 250,280
--------- ---------
Profit / (loss) from operations 256,407 (71,001)
Net interest Paid (20,936) (46,649)
Other Income 12,256 -
Equity in earnings of Softline Holdings 135,703 -
Foreign Exchange Gain 26,408 -
--------- ---------
Income / (loss) from continuing operations
before income tax 409,838 (117,650)
Income Taxes 148,321 -
--------- ---------
Profit / (loss) from continuing operations 261,517 (117,650)
Discontinued operations
Profit from operations of Tango Products USA,Inc - 28,368
---------
- --------- Net Income
261,517 (89,282)
========= =========
Per share information:
Income/(Loss) from continuing operations 0.02 (0.01)
Income/(Loss) from discontinued operations -
- - ---------
- ---------
Net income / (Loss)per share 0.02 (0.01)
========= =========
Weighted Average Number of Common Shares
Outstanding 13,746,133 11,386,467
========== ===========
</TABLE>
<PAGE>
SVI Holdings, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Pledged certificates of deposit 700,000 700,000
Bank 300,415 16,570
Accounts receivable 1,100,231 80,305
Inventories 297,769 9,177
Prepaid expenses and other current assets 174,315 62,503
----------- ------------
Total current assets 2,572,730 868,555
Furniture and equipment, net of accumulated
depreciation 2,516,080 85,384
Investment in Softline Holdings, at equity 2,989,991 2,854,288
Due from affiliate, unsecured non-interest
bearing 1,078,022 1,078,022
License rights, net of accumulated
amortization 3,209,375 11,126
Notes receivable 159,448 90,344
Other Assets 1,027 18,768
Goodwill on acquisition of subsidiary 1,574,161 -
----------- ------------
14,100,834 5,006,487
=========== ============
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities
Lines of credit 699,400 699,399
Notes payable 374,965 23,435
Accounts payable and accrued expenses 1,262,192 158,151
Loan from Sudash (Pty) Ltd 1,768,097 1,831,858
----------- ------------
Total current liabilities 4,104,654 2,712,843
Due to stockholders 2,316,579 1,947,080
Note payable 3,614,298 -
Stockholders equity
Preferred stock, $.0001 par value 5,000,000
shares authorized, none issued
Common stock, $.0001 par value, 50,000,000
shares authorized, 13,822,800 issued and
outstanding 1,382 1,242
Additional paid in capital 10,162,565 6,712,705
Accumulated deficit (6,105,866) (6,367,383)
Cumulative translation adjustment 7,222 -
----------- -----------
Total stockholders equity 4,065,303 346,564
----------- -----------
14,100,834 5,006,487
=========== ===========
</TABLE>
<PAGE>
SVI Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Three Months
Ended Ended
December 31, December 31,
1996 1995
Cash flows from operating activities
Income (loss) from continuing operations 261,517 (117,650)
Income from discontinued operations - 28,368
Adjustments to reconcile income (loss)
to net cash used in operating activities:
Depreciation and amortization 90,778 13,181
Unrealized foreign exchange gain (26,408) -
Equity in earnings of Softline Holdings (135,703) -
(Increase) decrease in:
Accounts receivable (513,780) (78,091)
Inventories 15,841 (1,877)
Prepaid expenses and other current assets 27,069 41,486
Net current assets of discontinued operations - 41,345
Increase (decrease) in:
Accounts payable and accrued expenses 169,525 (241,042)
----------- -----------
Net cash used in operating activities (111,161) (314,280)
Cash flows from investing activities:
Purchase of furniture and equipment (179,546) (25,080)
Sale of furniture and equipment - 4,645
Purchase of Software License Rights (3,250,000) -
Other Assets 29,189 (123,840)
Acquisition of Divergent Technologies (Pty) Ltd (4,076,945) -
----------- -----------
Net cash used in investing activities (7,477,302) (144,275)
Cash flows from financing activities:
Sale of common stock 3,450,000 800,000
Increase (decrease) in bank overdraft - (9,454)
(Decrease) increase in due to stockholders 369,498 (289,998)
Repayment of note payable 153,655 -
Increase in short term loans 3,576,945 -
----------- -----------
Net cash provided by financing activities 7,550,098 500,548
Effect of exchange rate on cash 7,214 -
----------- -----------
Net increase (decrease) in cash (31,151) 41,993
Cash and cash equivalents, beginning of period 331,566 -
----------- -----------
Cash and cash equivalents, end of period 300,415 41,993
=========== ===========
</TABLE>
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Organization and Basis of Preparation
The accompanying consolidated financial statements have been prepared
from
the unaudited records of SVI Holdings, Inc. and subsidiaries. In the opinion
of management, all adjustments necessary to present fairly the financial
position, results of operations and cash flows at December 31, 1996 and for
all the periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting
principles have been condensed or omitted. Accounting policies followed by
the
Company are described in the notes to the financial statements in its Annual
Report on form 10-KSB for the year ended September 30, 1996. The financial
information included in this quarterly report should be read in conjunction
with the consolidated financial statements and related notes thereto in the
Company's Form 10-KSB for the fiscal year ended September 30, 1996.
The results of operations for the three months ended December 31, 1996
and
1995 are not necessarily indicative of the results to be expected for the
full
year.
On December 8, 1995, the Company sold the net assets and related
operations of Tango Products USA, Inc., a wholly owned and fully consolidated
subsidiary. Operating results of Tango Products USA, Inc. for the quarter
ended December 31, 1996 and December 31, 1995 are shown separately in the
accompanying statement of operations. Except as otherwise noted, all other
adjustments are of a continuing and recurring nature.
In February 1996, the Company entered into an agreement with the
management of Softline Business Systems (Proprietary) Limited ("Softline") to
acquire 100% of Softline for R 7,500,000.00 (US$ 1,927,500 at March 1, 1996).
Management of Softline, which held 15% of the equity in Softline,
simultaneously entered into an agreement to purchase 85% of the outstanding
issued share capital in Softline from Persetel Holdings Limited ("Persetel").
On February 12, 1996, Claudav Holdings B.V., the majority stockholder of SVI
Holdings, Inc. entered into an agreement with Credit Bancorp Limited to
provide financing for the acquisition of Softline. Despite repeated
assurances
from Credit Bancorp and affiliated parties, such funding failed to
materialize. In March 1996, funding for the payment of the outstanding
purchase price was provided by a consortium of investors (the "Consortium").
It was agreed between SVI and the consortium that a new company, Softline
Holdings (Proprietary) Limited ("Softline Holdings") would be formed which
would hold 100% of Softline. SVI would hold 50% of the issued share capital
of
Softline Holdings with the balance of 50% being held by the Consortium and
Softline management. As payment for its 50% interest in Softline Holdings,
SVI agreed to provide R 14,250,000 (US$ 3,355,875 at March 31, 1996).
Although no fixed date was set for the payment of the amount outstanding
for the interest of SVI in Softline, it was agreed that such payment would be
made prior to the listing of Softline on the Johannesburg Stock Exchange (the
"JSE"). In order to finance the acquisition, SVI entered into various
contracts to secure funding through private placements and secured loans, but
despite the binding nature of such agreements, none of the funding parties
complied with their contractual commitments to provide such funding.
In August 1996, Softline entered into negotiations for the listing of
Softline on the JSE via the acquisition of Benoni Gold Mining Limited
("Benoni"), a "cash shell" listed on the JSE. In view of the impending
listing
of Softline and the fact that the contracted sources for the provisions of
funding of the acquisition of Softline had failed to materialize, the Company
entered into negotiations with Softline management and the Consortium. As a
result of these negotiations, it was agreed that the Company would provide an
amount of R 9,627,200 (US$ 2,097,767 at September 30, 1996) and the interest
of SVI in Softline would be adjusted to 40.25% of the outstanding common
shares.
Funding for the amount paid to Softline of R 9,627,200 (US$ 2,097,767 at
September 30, 1996) was raised by the private placement of the Company's
securities and a loan from Sudash (Pty) Ltd ("Sudash") of R 8,280,000 (US$
1,804,212 at September 30, 1996).
On February 19, 1997, the acquisition of Benoni was completed and
Softline was listed in the Industrial - Electronics sector of the JSE as
Softline Limited. In terms of the agreement with the existing shareholders of
Benoni and the exercise of options in Softline, the Company's holding in
Softline was diluted to 29% of the outstanding issued share capital of
Softline Limited amounting to 48,639,000 shares of common stock.
In April 1997, 26,757,131 shares in Softline Limited were sold realizing
US$6,724,934 in proceeds. The proceeds on the sale of shares were utilized
for
the repayment of the Sudash loan, payment for the outstanding balance on the
note due on the acquisition of Divergent and the acquisition of Chapman
Computers (Pty) Ltd. Subsequent to the sale of these Softline shares, the
Company held under 20% of the outstanding equity in Softline and effective
the
quarter ended June 30, 1997, Softline will no longer be accounted for under
the equity method.
Mr. Barry Schechter is a member of the Board of Directors of Softline
serving as a representative of the Company.
On November 5, 1996, the Company entered into agreements for the
acquisition of Divergent Technologies Pty, Ltd.("Divergent"), an Australian
information technology company. The Company acquired 100% of the outstanding
issued share capital of Divergent comprising 1,500,000 Ordinary shares and
52,500 "E" Class Redeemable Preference shares and the exclusive worldwide
technology rights (the "Technology Rights") for the "dOLPHIN" and "dPOSit"
software products.
The purchase price for Divergent was A$ 5,177,720 (United States
$4,076,945 at November 5, 1996) and the option to purchase 1,600,000 shares
of
the Company's common stock at a price of $1.75 for two years. The Technology
Rights were acquired in exchange for 1,300,000 shares of the common stock of
the Company. The Company financed the acquisition of Divergent by the sale of
a portion of its investment in Softline.
On March 12, 1997, the "E" Class Redeemable Preference shares were
redeemed for cash and the exchange of 52,383 shares of the Company's common
stock.
The following unaudited pro forma summary presents the consolidated
results of operations as if the acquisition of Divergent Technologies (Pty)
Ltd had occurred on October 1, 1995. These pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
what would have occurred had the acquisition been made as of those dates or
of
the results which may occur in the future.
Three Months Ended
December 31,
1996 1995
Pro Forma Pro Forma
Consolidated SVI Divergent Note Adjustments
Consolidated
Net Sales 2,059,252 190,277 3,050,740 3,241,017
========= ======= ========= =========
Income from
discontinued
operations - 28,368 - 28,368
Income (loss)
from continuing
operations 261,517 (89,282) 645,665 1 (64,049) 492,334
------- -------- ------- -------
Net Income 261,517 (60,914) 645,665 520,702
======= ======== ======= =======
Earnings per
share 0.02 0.04
======= =======
Weighted
Average
Number of
Common Shares
Outstanding 13,746,133 11,386,467 2 1,300,000 12,686,467
Note 1
Equity in earnings of Softline Limited 1,641
Amortization of goodwill 21,783
Amortization of Software License Rights 40,625
------
64,049
======
Note 2
Common Stock issued for acquisition of Software License: 1,300,000 Shares
In the quarter ended December 31, 1996, the Company sold 100,000 shares
of
common stock through a private placement at $2.00 per share for a total
consideration of $ 200,000. The Company issued 1,300,000 shares of common
stock at a price of $2.50 per share for a total consideration of $3,250,000
in
settlement of the acquisition of the rights to the "dOLPHIN" and "dPOSit"
software products.
In the quarter ended December 31, 1996, the company issued 226,000
employee options under the Company's stock incentive plan at an exercise
price
of $1.75 per share. An additional 2,170,000 non-employee options were issued
with exercise prices ranging from $1.00 to $2.00 per share.
In the quarter ended March 31, 1997, the Company issued 52,484 shares of
common stock for $1.75 per share for a total consideration of $ 91,847 as
part
payment for the redemption of the Divergent "E Class" shares.
In the quarter ended June 30, 1997, consultant optionees exercised their
right to purchase 800,000 shares of common stock at exercise prices ranging
from $0.75 to $1.75 per share for a total consideration of $1,000,000.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of operations
For a discussion of certain risks regarding the Company, see the Risk
Factors section of the Company's Form 10-KSB for the year ended September 30,
1996.
For the three months ended December 31, 1996, revenues from continuing
operations increased by $ 1,868,975 in comparison with the same period in the
previous year. This increase is attributable to the acquisition of Divergent
Technologies (Pty) Ltd.
Cost of sales increased relative to sales for the quarter ended December
31, 1996, in comparison with the same period of the previous year. This
increase is attributable to the acquisition of Divergent and reflects the
higher cost of sales inherent in the provision of high-end computer systems
which includes the sale of hardware and components, in comparison with the
sale of training materials.
Selling, General and Administrative expenses increased to $ 1,088,882 for
the quarter ended December 31, 1996 in comparison with $250,280 in the
quarter
ended December 31, 1995. This increase is attributable to the inclusion of
Divergent in the consolidated financial statements for the quarter ended
December 31, 1996. Additional factors contributing to this increase were
costs
incurred in completing the acquisition of Divergent.
The Company's portion of equity in the earnings of Softline amounted to
$135,703 for the quarter ended December 31, 1996. This comprised 40.25% of
the
earnings of Softline for the period. The Company's portion of the earnings of
Softline will be reduced in future periods as a result of the dilution to 29%
of the Company's holding in Softline in February 1997 and the subsequent sale
of a portion of the Softline shares in April 1997.
Foreign income taxes of $148,321 were paid by Divergent in the quarter
ended December 31, 1996. Net operating loss carry forwards available to SVI
Holdings are not available to offset the tax liabilities of the foreign
subsidiary.
An unrealized foreign exchange gain of $26,408 arose for the quarter
ended
December 31, 1996. This is the result of fluctuations in the rate of exchange
for loans for the acquisitions of Softline and Divergent being denominated in
foreign currency. It is also expected that foreign exchange gains or losses
will arise in future as the result of transactions occurring between SVI,
Softline and Divergent in the normal course of business.
Income from continuing operations of $ 261,517 was earned for the quarter
ended December 31, 1996 compared with a loss from continuing operations of
$117,650 for the comparative period of the prior year. The increase in profit
is due to the contributions of Divergent and Softline.
At the quarter ended December 31, 1996, the Company had a deferred tax
asset of approximately $2,200,000 resulting from net operating loss carry
forwards, which has been offset in its entirety by a valuation allowance.
These carry forwards may be used to offset future taxable income, expiring
from the year 2005 to 2010.
Financial Condition
At December 31, 1996, the Company had a working capital deficit of
$1,531,924. This is an increase in working capital from the deficit of
$1,844,228 at September 30, 1996. The working capital deficit includes the
loan from Sudash of $1,768,097. This loan, together with the note payable on
the acquisition of Divergent of $3,614,298 was repaid in April 1997 from the
proceeds of the sale of a portion of the interest in Softline. Management
believes that current cash resources should be adequate to provide for the
Company's immediate requirements.
The operations of the company have primarily been financed by private
placements of the Company's securities and advances from stockholders. There
is no assurance that these sources of funds will be available in future. In
additional to private placements and advances from stockholders, the Company
intends to utilize the liquidity of its investment in Softline arising from
the listing of Softline on the JSE as an additional source of funds.
PART II. - OTHER INFORMATION
Item 1.Legal Proceedings.
On November 26, 1996, the Company obtained a preliminary injunction in
the
United States District Court (Southern District of California) (the "District
Court") against certain defendants, including Park Park Financial Group, Inc.
("Park Financial"), Edwin Wood, Bank Martinique, Brink, Hudson & LaFever,
Ltd., Walmur & Co., Pacific International Securities, Inc., Union Securities,
Ltd., Corporate Stock Transfer, Inc., BLB Financial, Inc., Brian Walsh,
Brian
Johanson, Luke di Angelo, Gary Robinson, Bear Stearns & Co., Inc., and
Philadelphia Depository Trust Company, in order to prevent the transfer of
any
of the two million shares of the Company's common stock that had been
delivered to Park Financial in contemplation of a loan to be secured by a
pledge of stock. The loan was not funded and the stock should have been
returned to the majority stockholder of the Company.
The Company has alleged that, the Company's majority stockholder, in the
course of seeking a loan from a prospective lender, transferred a significant
number of the Company's shares held by that majority stockholder to Park
Financial. The shares were to be held in trust by Park Financial until the
loan was funded and then held by Park Financial as a pledge holder. The
Company alleges that Park Financial failed to hold the shares in trust and
instead sold or otherwise transferred the shares to third parties who began
to
trade the restricted shares in violation of Park Financial's representations
and obligations to the Company and its majority stockholder. Based on the
above allegations, the Company has filed a lawsuit in the District Court
against certain of the above defendants for breach of contract, common law
fraud, and conversion, as well as for violations of federal securities and
RICO statutes.
Item 2. Changes in Securities
On November 5, 1996, the Company issued an option to purchase 1,600,000
shares of its common stock at $1.75 per share for two years to the
stockholders of Divergent Technologies Pty., Ltd. ("Divergent") in a
transaction to acquire all of the outstanding shares of Divergent. The
Company also issued 1,300,000 shares of its common stock at $2.50 a shares in
order to acquire certain technology rights owned by Divergent. As part of
the
Divergent transaction, employees of Divergent were issued 52,484 shares of
the Company's common stock. The stock issuances were exempt from
registration
under Section 4(2) of the Securities Act of 1933, and Rule 506 or 505 of
Regulation D promulgated thereunder, or Regulation S promulgated thereunder,
due to the limited number of purchasers and the fact that all of the
purchasers are residents of Australia.
On December 10, 1996, the Company issued 100,000 shares of common stock
to an accredited investor at $2.00 per share. The stock issuance was exempt
from registration under Section 4(2) of the Securities Act of 1933, and Rule
506 or 505 of Regulation D promulgated thereunder, due to the limited number
of accredited purchasers.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
(a) Exhibits
<CAPTION>
Exhibit Description
<S> <C>
2.1Asset Purchase Agreement dated as of October 1, 1994 among Cabinets
Galore,
Inc., Cabinets Galore Orange County, Inc., Sabica Ventures, Inc. and Barry
Jacobs incorporated by reference to the Company's Annual Report on Form
10-KSB
for the year ended September 30, 1995.
3.1Articles of Incorporation - Incorporated by reference to exhibit 3.1 to
the
Company's Annual Report for the year ended December 31, 1993.
3.2Bylaws - Incorporated by reference to exhibit 3.1 to the Company's Annual
Report for the year ended December 31, 1993.
10.1Incentive Stock Option Plan - Incorporated by reference to exhibit 3.1
to
the Company's Annual Report for the year ended September 30, 1994.
10.2Distribution Agreement dated November 25, 1992 between Tango Proprietary
Limited and Tango Products USA, Inc. - Incorporated by reference to exhibit
3.1 to the Company's Annual Report for the year ended September 30, 1994.
10.3Sales Of Shares Agreement dated January 28, 1996, between the Company and
Management of the Soft Line Management Group for the acquisition of Soft Line
Business Systems (Pty) Ltd.- Incorporated by reference to exhibit 10.3 to the
Company's Annual Report for the year ended September 30, 1996.
10.4Share Purchase Agreement dated November 4, 1996 as amended between the
Company and Hookmond Pty., Ltd. and Landreef Pty. Ltd. for the acquisition of
the equity of Divergent Technology Pty, Ltd. - Incorporated by reference to
exhibit 10.4 to the Company's Annual Report for the year ended September 30,
1996.
10.5Technology Purchase Agreement dated November 4, 1996 as amended between
the Company and New Hope Trading Limited for the acquisition of the exclusive
worldwide technology rights for the "dOLPHIN" and "dPOSit" software
products.-
Incorporated by reference to exhibit 10.5 to the Company's Annual Report for
the year ended September 30, 1996.
27 Article 5 Financial Data Schedule for the third quarter of 1996.
SVI Holdings, Inc.
</TABLE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of
1934, the registrant has duly cause this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SVI Holdings, Inc.
Registrant
June 24, 1997 /s/Russell Schechter
Date Vice President / Secretary
Signing on behalf of the registrant
and as principal financial officer.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 300,415
<SECURITIES> 0
<RECEIVABLES> 1,100,231
<ALLOWANCES> 500
<INVENTORY> 297,769
<CURRENT-ASSETS> 2,572,730
<PP&E> 2,516,080
<DEPRECIATION> 90,778
<TOTAL-ASSETS> 14,100,834
<CURRENT-LIABILITIES> 4,104,654
<BONDS> 0
0
0
<COMMON> 1,382
<OTHER-SE> 10,162,565
<TOTAL-LIABILITY-AND-EQUITY> 14,100,834
<SALES> 2,059,252
<TOTAL-REVENUES> 2,059,252
<CGS> 713,963
<TOTAL-COSTS> 1,088,882
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,936
<INCOME-PRETAX> 409,838
<INCOME-TAX> 148,321
<INCOME-CONTINUING> 261,517
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 261,517
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
