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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended:
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from October 1, 1997 to March 31, 1998
Commission File No. 0-23049
SVI HOLDINGS, INC.
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(Name of Small Business Issuer in its Charter)
Nevada 84-1131608
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
7979 Ivanhoe Avenue, Suite 500, La Jolla, California 92037
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(Address of Principal Executive Offices, Including Zip Code)
Issuer's Telephone Number, Including Area Code: (619) 551-2365
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock $0.0001 par value per share.
Name of each exchange on which registered: None.
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to
this Form 10-KSB. [ ]
The Issuer's revenues from operations for the six months ended March 31, 1998
were $16,354,000.
The aggregate market value of the Issuer's voting stock held by non-affiliates
was $24,100,000 as of May 22, 1998.
As of May 22, 1998, 28,181,684 shares of the Issuer's common stock were
outstanding.
Documents incorporated by reference: None.
The Company changed its fiscal year end to March 31 from September 30.
Therefore, this Form 10-KSB reports results for the six months ended March 31,
1998.
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Currency Translation
Unless otherwise indicated, references in this report to (a) "$" are to U.S.
Dollars; (b) "Australian Dollars" or "A$" are to Australian Dollars; (c)
"Rand" or "R" are to South African Rand; and (d) "Pounds" or "UK" are to
United Kingdom Pounds. On March 31, 1998, the market exchange rate was
approximately A$0.66, UK 1.68 and R 5.04 per U.S. dollar as reported by the
Federal Reserve Board. Unless otherwise indicated, U.S. Dollar equivalent
information of foreign currencies for a period is based on the average of the
daily exchange rates for the days in the period, and U.S. Dollar information as
of a specified date is based on the exchange rate for that date unless otherwise
indicated. Certain numbers in this report have been rounded.
Cautionary Statement Regarding Forward-Looking Information
Certain statements contained in this report regarding matters that are not
historical facts are forward-looking statements (as such term is defined in the
rules promulgated pursuant to the Securities Exchange Act of 1934, as amended).
Because such forward-looking statements include risks and uncertainties, actual
results may differ materially from those expressed in or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to, those discussed herein under "Risk
Factors." The Company undertakes no obligation to release publicly any revisions
to these forward-looking statements that may be made to reflect events or
circumstances after the date of this report or to reflect the occurrence of
unanticipated events.
PART I
ITEM 1. Description of Business.
INTRODUCTION
Since merging with Sabica Ventures, Inc. in 1994, SVI Holdings, Inc. ("SVI" or
the "Company") has emerged as a provider of computer and information technology
services to specialty industries in domestic and international markets. The
Company is a holding company and operates solely through its wholly-owned
subsidiaries. The Company currently has three major operating subsidiaries which
offer products and services in the following businesses: point of sale and
retail management computer systems; PC courseware and skills assessment
products; and software applications for the construction and heavy equipment
leasing industries.
The Company has an ongoing program to evaluate additional acquisition
opportunities within its target profile of companies with advanced technologies
and market leadership in specialty areas of information technology. The Company
prefers acquisition targets which have propriety rights in the products or
services they sell and whose products operate in open architecture environments
such as UNIX. The Company also seeks companies which have global synergies with
the Company's existing core specialties.
During the past two and one-half years, SVI has consummated four major
acquisitions. As a result of these acquisitions, the Company's revenues have
grown to $16,354,000 for the six months ended March 31, 1998, from $3,930,000
for the six months ended March 31, 1997.
The Company was founded as a Nevada corporation in 1989 as Wilson Capital, Inc.
In February 1994, the Company acquired Sabica Ventures, Inc. which was formed in
1990 as a holding company for potential growth industries. Before such
acquisition, the Company's activities had been limited to organizational
activities. The Company changed its name to SVI Holdings, Inc. in February 1994.
The Company maintains its principal place of business at 7979 Ivanhoe Avenue,
Suite 500, La Jolla, California 92037. Its telephone number is (619) 551-2365.
The Company owns all of the issued and outstanding stock of Sabica Ventures,
Inc. ("Sabica"). Sabica in turn owns all of the issued and outstanding stock
of SVI Training Products, Inc. ("Training"), Divergent Technologies Pty. Ltd.
("Divergent"), IBIS Systems Pty. Ltd. ("IBIS"), Anniston Ventures Ltd.
("Anniston"), Tango Products USA, Inc. ("Tango"), and Cabinets Galore, Inc.
("Cabinets"). Tango and Cabinets have been discontinued or sold, and they will
be dissolved during the next fiscal year.
The Company and its subsidiaries employ a total of approximately 212 people at
May 22, 1998, approximately 204 of which are full time.
RECENT GROWTH OF THE COMPANY
The Company has over the past two and one half years made four major
acquisitions of businesses or assets. These are:
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Acquisition Date Name and Principal Principal Business Activity
Location at Time of Acquisition
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October 1, 1996 Divergent Technologies Point of sale and retail
Pty. Ltd., Australia management computer systems
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April 28, 1997 Chapman Computers Pty. Accounting and management
Ltd., Australia systems for retail industry
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October 1, 1997 IBIS Systems Pty. Ltd., Software applications for
United Kingdom, Ireland, construction and heavy
Scotland and equipment leasing
South Africa industries
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March 2, 1998 Certain assets of Financial software
Multisoft Financial applications sales,
Systems Limited, United training and support
Kingdom
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Divergent Technologies Pty. Ltd./Chapman Computers Pty. Ltd.
Effective October 1, 1996, the Company entered into agreements for the
acquisition of Divergent Technologies Pty. Ltd. ("Divergent"), an Australian
information technology company specializing in point of sale and retail
management computer systems. 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 also acquired the exclusive worldwide
technology rights (the "Technology Rights") for the "dOLPHIN" and "dPOSit"
software products.
The purchase price for Divergent was A$5,178,000 ($4,155,000) plus options to
purchase 1,600,000 shares of the Company's common stock exercisable for $1.75
per share for two years. The Company also agreed to issue options to purchase
120,000 shares of the Company's common stock exercisable for $2.00 per share,
and to forgive the exercise price of these options if Divergent earned at least
A$1,400,000 ($1,092,000) in profits for the period of October 1, 1996 to June
30, 1997. Divergent exceeded the profit target and the 120,000 shares were
issued December 4, 1997. The Technology Rights were acquired in exchange for
1,300,000 shares of the Company's common stock. The Company financed the
acquisition of Divergent by the sale of a portion of its investment in Softline
Limited (see below). On March 12, 1997, the 52,500 "E" Class Redeemable
Preference shares were redeemed for $405,000 plus the issuance of 52,484 shares
of the Company's common stock.
On April 28, 1997, Divergent acquired certain assets, the principal technology
and computer software programs of Chapman Computers Pty. Ltd. ("Chapman") from
Chapman, The Chapman Computers Unit Trust (the "Trust") and Colin Bruce Chapman.
Chapman is an Australian company that specializes in providing computer systems
for accounting and management to the retail industry in Australia, New Zealand
and the Pacific Rim.
The purchase price of Chapman was $1,384,000, consisting of a cash portion of
$784,000 (A$1,000,000) with the balance of $600,000 paid through the issuance of
300,000 shares of the Company's common stock to the Trust. The shares issued for
the acquisition are to be held in escrow for a period of 3 years from the
completion of sale of Chapman to Divergent. The cash portion of the purchase
price was financed by the sale of a portion of the Company's investment in
Softline Limited (see below). The Company also issued an additional 200,000
shares of its common stock to the Trust on March 16, 1998 pursuant to an
earn-out provision in the acquisition agreement.
Softline Limited/IBIS Systems Pty. Ltd./Multisoft Financial Systems Limited
In 1996, the Company acquired 40% of the equity of Softline Limited
("Softline"), a South African company, for R 9,627,000 ($2,014,000 at September
30, 1997). Softline was listed on the Johannesburg Stock Exchange (the "JSE") in
February 1997 via the merger with another company listed on that exchange. As a
result of that merger, the Company's interest in the equity of Softline was
diluted to approximately 29% of the outstanding shares, represented by
48,639,000 shares.
During the fiscal year ended September 30, 1997, the Company sold 28,763,000
Softline shares realizing gross proceeds of approximately $7,000,000 and
resulting in a net gain of approximately $3,974,000.
During the six months ended March 31, 1998, the Company sold the remaining
19,876,000 Softline shares for gross proceeds of approximately $6,167,000 and
resulting in a net gain of approximately $4,388,000.
Effective October 1, 1997, the Company consummated an indivisible group of
agreements with Softline and Hosken Consolidated Investments Limited ("HCI")
which resulted in a change of control of the Company and the acquisition by
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the Company of IBIS Systems Limited ("IBIS"). HCI is a South African company
listed on the JSE. The group of agreements are as follows:
(a) Sales of Shares Agreement: by this agreement, the Company acquired 100% of
the equity of Anniston Ventures Ltd. ("Anniston") and IBIS in exchange for
the issue of 5,000,000 shares of the common stock of the Company to
Softline.
(b) Share Swap Agreement: by this agreement, the Company issued 7,536,000
shares of its common stock to Softline in exchange for certain technology
assets and 22,130,000 shares of the common stock of Softline.
(c) Renunciation Agreement: by this agreement, the Company renounced its
rights in favor of HCI to the Softline shares acquired through the Share
Swap Agreement in exchange for R 35,409,000 ($7,662,000) cash paid by HCI.
As part of its acquisition of IBIS, the Company assumed an earn-out obligation
payable to the management of IBIS based upon the financial performance of IBIS
in 1998 and 1999. Softline remains responsible for the earn-out obligation, if
any, up to R 45,000,000 ($9,318,000). The Company cannot at this time determine
whether it will have any material liability on the earn-out obligation.
In summary, the agreements described above provided that the Company issued
12,536,000 shares of its common stock in exchange for 100% of the equity of
Anniston and IBIS and cash of R 35,409,000 ($7,662,000). Softline, through these
transactions, and through separate purchases of 4,000,000 shares of SVI's common
stock from certain shareholders of the Company, acquired a total of 16,536,000
shares of the Company's common stock constituting approximately 59% of the
Company's total outstanding common stock. Prior to this transaction, Claudav
Holdings Ltd. B.V. was the majority stockholder of the Company.
Effective March 2, 1998, IBIS acquired certain customer contracts and other
assets of Multisoft Financial Systems Limited ("Multisoft"). The acquired assets
were associated with Multisoft's "Multisoft Direct" service and were purchased
for 3,880,000 Pounds ($6,478,000). The acquired assets included certain
prepayments in the amount of 863,000 Pounds ($1,440,000) which were remitted to
the Company at the time of the acquisition. The Multisoft Direct service offered
certain financial software applications to businesses and provided training and
support for those applications. The assets acquired from Multisoft consisted
principally of customer contracts which had been substantially performed by
Multisoft except for service and support obligations. IBIS plans to use the
customer lists associated with these contracts to market its own software
applications to the former Multisoft Direct customers.
Discontinued Operations
Tango Products USA, Inc.
Tango Products USA, Inc. held exclusive rights for the U.S., Canada, Mexico
and Southern Africa for the distribution and sale of the Australian-
manufactured Tango range of thermoplastic drinkware and tabletop products.
This operation was sold in the fiscal year ended September 30, 1996. Tango
will be dissolved during the coming fiscal year.
Cabinets Galore, Inc.
Cabinets Galore, Inc. was a manufacturer of European style melamine furniture
and cabinets. This operation was discontinued at the beginning of the fiscal
year ended September 31, 1995. Cabinets will be dissolved during the coming
fiscal year.
MAJOR OPERATING SUBSIDIARIES
Divergent Technologies Pty. Ltd.
Divergent is an Australian information technology company with primary locations
in Sydney, Melbourne, Adelaide and Brisbane, Australia. Specializing in point of
sale and retail management computer systems, Divergent provides comprehensive
solutions for clients' information system requirements through sales of hardware
and software and the provision of implementation, support and training services.
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Divergent's products and services are primarily provided to clients utilizing
client/server architecture for their information technology solutions.
Client/server architecture utilizes multiple terminals and workstations linked
to larger computers and includes internet and intranet solutions. This
architecture is generally used by larger businesses with multiple locations and
by Australian State and Federal Government bodies.
Divergent has a strategic business alliance with IBM Corporation through which
Divergent receives preferential pricing on IBM hardware incorporated in its
solutions. This alliance has also resulted in customer referrals to Divergent.
Divergent's systems include (i) the dOLFIN Financial Management system for
retail distribution and manufacturing companies, (ii) the dPOSit Retail,
Management and Point-Of-Sale System for multi-store specialty retailers and
(iii) the RAGS Computer Systems, designed for the garment industry. Divergent's
business systems provide complete integration of all business activities into a
single computer system.
In April 1997, Divergent acquired the business of Chapman which was thereafter
integrated into the operations of Divergent. This acquisition enabled Divergent
to increase its customer base and provided Divergent with additional technical
resources resulting in the improvement of its range of software products.
Divergent has achieved a dominant market position in Australia for its point of
sale and retail management systems. Divergent's primary competition in Australia
is companies which have developed their own internal information systems.
Divergent's market position in New Zealand and the Pacific Rim is not as
dominant, and it competes with a number of other sellers of hardware and
software. Divergent's market is characterized by rapid technology advances and
frequent introductions of new products and enhancements of existing products.
Therefore, new competitors may enter the market at any time. Some of these
competitors may have greater financial, technical and/or marketing resources
than the Company, and could pose a significant competitive threat. Divergent
competes on the basis of its high quality systems, its lower costs due to
economies of scale and its superior customer support.
Divergent's software products are frequently refined and improved to remain
competitive and to integrate enhancements provided by new technology advances.
Research and development expenditures amounted to approximately A$1,082,000 and
A$742,000 ($738,000 and $572,000) for the six months ended March 31, 1998 and
1997, respectively.
Divergent currently has 83 employees, of which 75 are full time.
Divergent continues to investigate opportunities to acquire additional specialty
products and expand into additional markets in the Pacific Rim and Asia.
SVI Training Products, Inc.
SVI Training Products, Inc. ("Training") develops and distributes PC courseware
and skills assessment products. The courseware is designed for use in an
instructor-led training environment. Courseware is sold either as individual
manuals and instructor guides, or provided to customers on CD-Rom on a limited
site license basis. Training has developed more than 200 training modules.
Training offers site licensing which allows a customer to utilize Training's
products to train an unlimited number of people for a fixed annual fee, and
provides Training with a recurring annual income stream upon renewal. To date,
license renewals have exceeded 80% of the original licenses sold. Site licenses
are provided on CD-Rom, allowing customers flexibility in the customization of
the instructor-led course materials.
Training uses a network of specialized sub-contractors in the development of
materials. The sub-contractors are hired on a project basis which allows for the
fast, simultaneous development of multiple courses and gives Training access to
diverse skills without incurring commitments to additional fixed overhead.
Training currently advertises its product range through the internet using the
SVI Training home page (svitrain.com). Training is in the process of
redeveloping the web page to include electronic commerce facilities with a
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secure engine for on-line ordering. The web site has led to an increase in
sales, and management believes that on-line ordering will lead to global
exposure of the product range and further increase sales.
Training also markets its products through direct mail, trade shows and
telemarketing. Training uses both in-house and independent representatives, and
has established sales offices in California, Texas, Virginia and Indiana.
Training has also recently opened a sales office in the United Kingdom and is in
the process of negotiating agreements to open distribution to additional foreign
markets. Customers include universities, large corporations, government agencies
and training schools.
In November 1997, Training released upgraded customization software compatible
with Microsoft Windows 95 and Office 97. This software is distributed on a CD-
Rom and provides a simple method for clients to customize the existing
courseware library to their specific requirements.
Training also entered into an agreement as a reseller for Computer Based
Training ("CBT") applications. Although Training specializes in providing
instructor-led training materials developed internally, the addition of CBT and
multi-media products to the product range allows Training access to a more
diverse customer base.
Training recently released skills testing software in conjunction with
Masterskill Training (a subsidiary of Softline). Skills testing software enables
employers to evaluate the skills of their employees and provides assistance in
selecting the appropriate course modules for trainees. Training intends to
market its skills testing software to personnel agencies and individual
employers.
Training competes which a large number of companies which offer similar
products. In addition, the market for courseware and skills assessment products
is characterized by low barriers to entry, and other information technology or
educational resource companies may enter the market at any time. Many of these
competitors and potential competitors have greater financial, technical and/or
marketing resources than the Company. Training competes on the basis of its
existing breadth of products, timely introduction of new products and value
pricing. Management believes that these factors give Training an advantage over
many of its competitors. Management further believes that larger competitors
will find it difficult to compete on the basis of price with Training due to
their higher development costs and large overhead structures.
Training expended approximately $55,000 and $50,000 in research and development
for the six months ended March 31, 1998 and 1997, respectively.
It is the present intention of Training to continue to broaden its base of
products and to expand its markets both domestically and overseas.
Training currently has 8 employees in the United States and 2 in the United
Kingdom, all of which are full time.
IBIS Systems Pty. Ltd.
IBIS develops, supplies and supports commercial software applications designed
specifically for the construction and heavy equipment leasing industries. The
market for IBIS products is primarily larger companies within those markets. The
software is designed for use in a client/server environment and is designed to
be hardware independent by using UNIX based open systems architecture.
IBIS products are marketed under the name of "SULUS" throughout the United
Kingdom, Ireland, Scotland and South Africa. The SULUS software package
comprises 10 modules utilized in the accounting and management of construction
and heavy equipment leasing enterprises.
In March 1998, IBIS acquired certain assets of Multisoft Financial Systems
Limited, a division of The Sage Group Plc. This acquisition greatly expanded the
installed customer base for IBIS and creates an opportunity to market IBIS's
products to the former Multisoft customers.
The competition in IBIS's specialty market sectors is currently limited to
companies smaller than IBIS. IBIS believes that its technology is superior to
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that of the current competition. In addition, IBIS competes with the internal
information staffs of many of its potential customers. Many other companies
offer products which perform functions similar to those of the SULUS suite of
applications, but which are not tailored to IBIS's industry segments. These and
other companies could begin aggressively marketing products within IBIS's
industry segments at any time, and many of these existing and potential
competitors have greater financial, technical and/or marketing resources than
the Company. IBIS competes in its market segments on the basis of customization
for the particular industries and for the particular customers and on the basis
of price.
IBIS is currently focusing on developing and expanding its customer base and
exploiting opportunities to market additional products and services to existing
customers.
PROPRIETARY RIGHTS
The Company and its subsidiaries rely on a combination of copyright, trade
secret and trademark laws, and nondisclosure and other contractual provisions to
protect their various proprietary products and technologies. These safeguards
may not prevent competitors from imitating the Company's products and services
or from independently developing competing products and services, especially in
foreign countries where legal protections of intellectual property may not be as
strong or consistent as in the United States.
Because the Company's business segments are characterized by rapid technological
change, the Company believes that factors such as the technological and creative
skills of its personnel, name recognition, market penetration and reliable
customer service and support are more important to establishing and maintaining
a competitive position in its markets than the various legal protections of its
proprietary developments.
The Company believes that its proprietary rights do not infringe the proprietary
rights of third parties. There can be no assurance however that third parties
will not assert such infringement by the Company with respect to current or
future products, software, trade names or services. Any such claim, with or
without merit, could be time consuming, result in costly litigation and cause
product release delays, and might require the Company to enter into royalty or
licensing agreements or cease distribution of certain products or services. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to the Company.
RISK FACTORS
The securities of the Company are speculative in nature and involve a high
degree of risk. In addition to the other information contained in this report,
shareholders should carefully consider the following risk factors.
Possible Fluctuations In Operating Results. There can be no assurance that the
Company's operating subsidiaries will continue to operate profitably, or that
prior trends will be indicative of future results of operations. The Company
expects that its operating results will fluctuate in the future as a result of
factors such as increases in competition, significant acquisitions, currency
fluctuations, political changes, overall domestic and international economic
conditions, and other circumstances that may not be foreseeable at this time.
The Company will have no control or influence over many of these factors.
Risks Associated with Potential Acquisitions. In connection with the Company's
plan to grow its existing markets and expand into new markets, the Company
intends to acquire existing companies and convert or integrate such companies'
existing operations and products with the Company's operations and products. If
the Company does enter into any such acquisition transactions, the Company does
not intend to seek shareholder approval unless it is required to do so by
applicable law or the regulations of a stock exchange or quotations system on
which the Company's securities trade. Therefore, the shareholders of the Company
may not have the ability to review the financial statements of the acquisition
candidate or to vote on the acquisition. Any such acquisition could
substantially dilute the ownership interest of the existing shareholders. The
Company may compete for acquisition and expansion opportunities with companies
which have significantly greater financial and other resources. There can be no
assurance that the Company will be able to locate or acquire suitable
acquisition candidates, or that any operations that are acquired can be
effectively and profitably integrated into the Company's existing operations.
Additionally, although acquisitions will be designed to increase the Company's
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long-term profitability, they may negatively impact the Company's operating
results, particularly during the periods immediately following an acquisition,
as a result of capital funding requirements, the dedication of management
resources that may temporarily detract attention from other operations,
difficulties of combining research and development and sales and marketing
efforts, the necessity of coordinating geographically separated organizations,
and difficulties integrating personnel with disparate business backgrounds and
combining different corporate cultures.
Competition. The information technology industry is highly competitive. The
industry includes major domestic and international companies, many of which have
financial, technical, marketing, sales, distribution and other resources
substantially greater than those of the Company and its subsidiaries. Although
the Company generally competes in specialty sectors of the information
technology industry where competition is currently less intense, the Company
expects competition in each of these sectors to increase. As competition
increases, competitors can be expected to aggressively price their products and
offer new products and services not currently offered by the Company or its
subsidiaries. Emergence of new competitors, particularly those offering lower
cost products, enhancements and/or additional features, may impact margins and
intensify competition in new markets.
Dependence On Key Personnel. The Company's success depends upon the continued
contributions of its Chief Executive Officer, Barry M. Schechter. The Company's
success also depends upon the executive management of Training, Divergent and
IBIS. The business of the Company could be adversely affected by the loss of
services of, or a material reduction in the amount of time devoted to the
Company, by its executive officers.
Control by Majority Shareholder. Softline Limited currently owns approximately
59% of the issued and outstanding stock of the Company. As a result, Softline
has the power to exercise majority control of the Company, with the ability to
approve fundamental corporate transactions and to control the election of the
Board of Directors. Three directors of the Company, Barry M. Schechter, Ivan M.
Epstein and Gerald Rubenstein, are also directors of Softline.
No Assurance of Public Market; Potential Volatility of Stock Price. There
currently exists only a limited public trading market for the Company's common
stock. Price and volume quotations are currently reported on the OTC Bulletin
Board, but there can be no assurance that an active trading market will be
sustained. The market price of the common stock could be subject to significant
fluctuations in response to operating results and other factors, many of which
are not within the control of the Company. In addition, in recent years the
stock market in general, and the market for shares of small capitalization
stocks in particular, have experienced extreme price and volume fluctuations
that often have been unrelated or disproportionate to the operating performance
of affected companies. These fluctuations, as well as general economic and
market conditions, may adversely affect the market price of the common stock.
Effects of Possible Issuance of Preferred Stock. The Company's articles of
incorporation authorize the issuance of preferred stock in the future without
further shareholder approval and upon such terms and conditions, and having such
rights, privileges and preferences, as the Board of Directors may determine. The
rights of the holders of common stock will be subject to, and may be adversely
affected by, the rights of the holders of any preferred stock that may be issued
in the future. The Company has no present plans to issue any shares of preferred
stock. Any issuance of preferred stock could make it more difficult for a third
party to acquire, or could discourage a third party from acquiring, a majority
of the outstanding voting stock of the Company.
Risks of International Business. The Company through its subsidiaries currently
has significant operations abroad and plans to expand its foreign operations.
Although senior management of the Company and its subsidiaries have significant
experience managing international operations, the Company has limited experience
in some of the foreign markets in which its subsidiaries operate. International
expansion efforts may strain the Company's management and other resources. Any
failure of the Company to expand in an efficient manner or to manage its
dispersed organization could have a material adverse impact on the Company's
business and financial results. Other risks that will be faced by the Company in
its international business include potentially costly regulatory requirements;
unexpected changes in regulatory requirements; application of foreign law;
fluctuations in currency exchange rates (which could materially and adversely
affect the Company's results of operation and, in addition, may have an
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adverse effect on demand for the Company's products abroad); tariffs or other
barriers; difficulties in staffing and managing foreign operations; political
and economic instability; difficulties in accounts receivable collection;
extended payment terms; and potentially negative U.S. and foreign tax
consequences. These factors could have an adverse impact on the Company's
business and financial results in the future or require the Company to modify
its current business practices.
Substantial Future Capital Needs; No Funding Commitments. Expansion of the
Company's business, including acquisitions, may require a commitment of
substantial funds. To the extent that the internally generated funds are
insufficient to fund the Company's expansion, it may be necessary for the
Company to seek additional funding, either through collaborative
arrangements or through public or private financing. The Company has no current
commitments or arrangements with respect to, or readily available sources of,
additional funding. There can be no assurance that additional financing will be
available on acceptable terms or at all. If additional funds are raised by
issuing equity securities, dilution to the existing shareholders will likely
result. If adequate funds are not available, the Company's business could be
adversely affected.
Dependence on Proprietary Technology; Lack of Patents and Proprietary
Protection; Risks of Third Party Infringement Claims. The Company and its
subsidiaries presently have no patents with respect to their proprietary
technologies. Instead, the Company and its subsidiaries currently rely upon
copyright and trademark laws, trade secrets, confidentiality procedures and
contractual provisions to protect their proprietary products. All of these
afford only limited protection. Accordingly, there can be no assurance that the
Company's measures to protect its current proprietary rights will be adequate to
prevent misappropriation of such rights or that the Company's competitors will
not independently develop or patent technologies that are substantially
equivalent or superior to the Company's technologies. Additionally, although the
Company believes that its products and technologies do not infringe upon the
proprietary rights of any third parties, there can be no assurance that third
parties will not assert infringement claims against the Company. Similarly,
infringement claims could be asserted against products and technologies which
the Company licenses, or has the rights to use, from third parties. Any such
claims, if proved, could materially and adversely affect the Company's business
and results of operations. In addition, though any such claims may ultimately
prove to be without merit, the necessary management attention to, and legal
costs associated with, litigation or other resolution of such claims could
materially and adversely affect the Company's business and results of
operations.
Rapid Obsolescence and Technological Change. The market for information
technology products and services is characterized by rapidly changing
technology, frequent introductions of new products and evolving industry
standards which result in product obsolescence and short product life cycles.
Accordingly, the Company's success is dependent upon its ability to anticipate
technological changes in the industry and to continually identify, obtain and
successfully market new products and services that satisfy evolving
technologies, customer preferences and industry requirements. There can be no
assurance that competitors will not market products and services which have
perceived advantages over those of the Company and its subsidiaries or which
render products and services to be offered by the Company and its subsidiaries
obsolete or less marketable.
No Dividends on Common Stock. The Company has not previously paid any cash or
other dividends on its common stock and does not anticipate payment of any
dividends for the foreseeable future. The Company anticipates retaining its
earnings to finance its operations, growth and expansion.
Certain United States Federal Income Tax Risks. It is possible that based on
stock ownership and/or types of income, the Company may be classified as a
passive foreign investment company, a controlled foreign corporation, a foreign
personal holding company or a personal holding company for United States federal
income tax purposes. Under the special rules that apply to such companies,
United States residents may be required to include certain amounts in income
before it is actually distributed to them. Although the Company intends, to the
extent consistent with its other business goals, to operate in a manner that
will minimize the adverse effects of such provisions, if applicable, no
assurance of such a result can be given. Therefore, each shareholder should
consult his or her own tax advisor with respect to the tax consequences to him
or her of the ownership and disposition of the Company's common stock, including
8
<PAGE>
the applicability and effect of federal, state, local and foreign tax laws and
of changes in applicable tax laws.
Year 2000 Software Compliance ("Millennium bug"). The Company and subsidiaries
are primarily reliant on software developed internally. Although such software
has been enhanced to provide for the year 2000, it is possible that programs
acquired from third parties and incorporated into applications may contain such
errors. The Company intends to continue testing and enhancement of its software
to ensure that risks related to the millennium bug are minimized. Due to the
fact that such software is continually in the process of development and
enhancement, additional costs related to the correction of this problem are not
expected to be significant.
Item 2. Description of Property.
The Company's principal corporate headquarters consists of 1,899 square feet in
a building located at 7979 Ivanhoe Avenue, Suite 500, La Jolla, California. This
facility is shared with SVI Training Products, Inc. The facility is occupied
under a lease which expires on May 31, 1999. The current base monthly rent is
$3,600.
Divergent Technologies Pty. Ltd. has its principal offices at Level 1, 35
Spring Street, Bondi Junction, Sydney, NSW 2022, Australia. This 3,398 square
foot facility is leased through October 31, 2006. The current base monthly
rent is A$20,600 ($13,596). Divergent also leases small regional offices in
Elsternwick and Blackburn, Victoria, Brisbane, Queensland and Mt. Barker,
South Australia. These small regional facilities are leased for terms expiring
in late 1998 and 1999. Monthly base rental amounts range from A$1,400 to
A$2,793 ($924 to $1,843).
IBIS Systems Pty. Ltd. has its principal offices at 2 Twyford Place, Lincoln's
Inn, Cresses, High Wycombe, Buckinghamshire, HP12 3RE, United Kingdom. The 5,593
square foot facility is leased through March 31, 2002. The current monthly base
rent is 5,593 Pounds ($9,396). IBIS also leases a small branch facility at 30
Seabury Drive, Malahide, County Dublin, Ireland. This 1,000 square foot facility
is leased on a month-to-month agreement for 1,000 Pounds ($1,680).
Item 3. 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 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
D'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 Company has alleged that Claudav Holdings Ltd. B.V., the Company's former
majority stockholder, in the course of seeking a loan from a prospective lender,
transferred a significant number of the Company's shares held by it 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 loan was not
funded, and the Company alleges that Park Financial failed to hold the shares in
trust and instead 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 to Claudav Holdings. 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 statutes.
The Company has been successful in obtaining court orders accounting for all
shares forming the subject matter of the transaction. The Company has obtained
judgment against defendants Park Financial, Edwin Wood, Donna Dickenson and
Kathryn Jones, jointly and severally, for payment in the sum of $937,500. The
Company has obtained a default judgment against Banque de Petite Martinique for
damages in the sum of $967,500. The Company expects to dismiss the lawsuit with
respect to all other defendants within the next month.
9
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Company's Common Equity and Related Stockholder
Matters.
Principal Market
The Company's common stock began trading on the over-the-counter market in March
1994, and is quoted on OTC Bulletin Board System. As of May 22, 1998 there were
28,181,684 shares of common stock outstanding held by approximately 118 holders
of record representing approximately 672 beneficial owners.
The Company has requested a preliminary determination of eligibility to list its
common stock on the American Stock Exchange. This request is currently being
processed. No assurances of preliminary approval or actual listing approval can
be given by the Company at this time.
Stock Price and Dividend Information
The following table sets forth high and low bid closing quotations for the
common stock, on a quarterly basis from October 1, 1996 to March 31, 1998.
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997 Fiscal 1996
Quarter Ended High Bid Low Bid High Bid Low Bid High Bid Low Bid
<S> <C> <C> <C> <C> <C> <C>
December 31 4.88 2.25 4.63 1.75 8.00 0.50
March 31 5.25 3.63 3.13 1.88 8.75 5.88
June 30 2.88 2.05 8.25 5.50
September 30 3.00 2.13 7.00 3.25
</TABLE>
The quotations for the common stock set forth above represent bid quotations
between dealers, and may not necessarily represent actual transactions and "real
time" sales prices. The source of the bid information is the National
Association of Securities Dealers, Inc.
The Company has not paid dividends to its stockholders since its inception and
does not anticipate paying dividends in the foreseeable future.
On October 24, 1997, the Company issued 12,536,000 shares of its common stock to
Softline in the acquisition of IBIS and related transactions as described in
Item 1. On March 9, 1998, the Company issued 200,000 shares to key members of
the Divergent staff for exceeding their economic targets.
On December 4, 1997, the Company issued an option to purchase 2,438,000 shares
of its common stock at $2.00 per share for two years to Softline. The purpose of
this option was to allow Softline to maintain its control position at an
estimated level of 60% of the outstanding shares.
During the six month period ended March 31, 1998, the Company issued 561,100
common stock options to consultants (120,000 shares) and existing shareholders
(441,100 shares) for periods ranging from three to five years and exercise
prices ranging from $2.00 to $2.75 per share. Additionally, the Company issued
161,300 options to employees for a period of two years at exercise prices
ranging from $2.75 to $3.03. All employee options were granted in compliance
with the Company's Incentive Stock Option Plan. These transactions were exempt
from registration under the Securities Act of 1933, as amended, pursuant to
Section 4(2) of such act or Regulation S promulgated under such act.
The Company has adopted only the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." It applies Accounting Principles
Bulletin ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations in accounting for its plans and does not recognize
compensation expense for its stock-based compensation plans other than for
restricted stock and options issued to outside third parties. Where required,
the appropriate adjustments are made to capital and expense. The Company and its
auditors use an analysis model to determine any compensation expense related to
the stock options issued to non-employees. This was done for options issued in
the six months ended March 31,
10
<PAGE>
1998, and resulted in a total charge to compensation expense of $318,000. Of
this total, $296,000 related to non-employee options and $22,000 related to
options granted to employees.
ITEM 6. Management's Discussion and Analysis.
Results of Operations
The following table sets forth for the periods indicated the relative
percentages that certain income and expense items bear to sales:
<TABLE>
<CAPTION>
Six months ended March 31,
------------------------------------------------------------------------
1998 1997
Amount Percentage Amount Percentage
------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Net sales $ 16,354,000 100% $ 3,930,000 100%
Cost of goods sold 6,489,000 40% 1,152,000 29%
------------------------------- --------------------------------
Gross profit 9,865,000 60% 2,778,000 71%
Selling, general, and
administrative expenses 6,500,000 40% 2,379,000 61%
Other income (excluding gain on
sale of Softline Limited shares) 378,000 2% 290,000 7%
------------------------------- --------------------------------
Income from operations 3,743,000 23% 689,000 17%
Gain on sale of Softline Limited
shares 4,388,000 27% 152,000 4%
------------------------------- --------------------------------
Income before provision for
income taxes 8,131,000 50% 841,000 21%
Provision for income taxes 2,312,000 14% 278,000 7%
------------------------------- --------------------------------
Net Income $ 5,819,000 36% $ 563,000 14%
=============================== ================================
</TABLE>
The Company reported a consolidated net income of $5,819,000 and $563,000 for
the six months ended March 31, 1998 and 1997, respectively.
Net sales increased by $12,424,000 for the six months ended March 31, 1998 to
$16,354,000 compared to $3,930,000 for the same period ended March 31, 1997.
This increase in net sales is primarily attributable to the following:
(a) Sales generated by Divergent increased by $7,220,000 to $10,784,000 for
the six months ended March 31, 1998 from $3,564,000 for the comparable
period in 1997. This was due to Divergent being awarded several large,
national level contracts and the expanded customer base from the
acquisition of Chapman in April 1997.
(b) Inclusion in sales of $5,156,000 generated from IBIS, which was
acquired in October 1997.
Cost of goods sold for the six months ended March 31, 1998 and 1997 were
$6,489,000 and $1,152,000, respectively. This $5,337,000 increase is consistent
with the increase in related sales. Gross profit as a percentage of sales
declined from 71% for the six months ended March 31, 1997 to 60% for the six
months ended March 31, 1998. The decline in gross profit was due to the
inclusion in the 1998 period of the results of operations of IBIS. IBIS derives
a significant amount of its revenues from service contracts with a higher cost
structure.
Selling, general, and administrative expenses for the six months ended March 31,
1998 were $6,500,000 compared to $2,379,000 for the same period ended March 31,
1997, an increase of $4,121,000. This increase in costs is attributable
primarily to the inclusion of the costs of IBIS in the 1998 period and increases
in costs required to meet the expanded sales activity from Divergent. Operating
expenses have declined as a percentage of sales to 40% for the six months ended
March 31, 1998 from 61% for the comparable period in 1997. This reflects the
Company's increased ability to absorb overhead as a result of the increased
scale of the consolidated operations. The Company expects selling, general, and
administrative expenses to continue to decline as a percentage of net sales
through further realization of economies of scale as the Company further
implements its growth strategy.
For the six months ended March 31, 1998 and 1997, the Company recorded a gain of
$4,388,000 and $152,000, respectively, on the sales of Softline shares. The sale
of the Softline shares yielded net proceeds of $6,167,000 and $300,000 in
11
<PAGE>
the six month periods ended March 31, 1998 and 1997, respectively. The Company
owns no further shares in Softline.
Basic earnings per share was $.21 per share for the period ended March 31, 1998,
of which approximately $.10 per share was derived from the sale of the shares of
Softline. In the comparable six month period ended March 31, 1997, basic
earnings per share was $.04 per share, of which approximately $.01 per share was
derived from the sale of Softline shares. Diluted earning per share was $.19 per
share in the six months ended March 31, 1998, compared to the $.04 per share
recorded in the six months ended March 31, 1997.
Liquidity and Capital Resources
At March 31, 1998, the Company had cash of $14,469,000, an increase of
$9,784,000 from $4,685,000 of cash at September 30, 1997. Significant sources
and uses of cash include proceeds of $6,167,000 from sale of Softline shares;
disbursement of $4,985,000 to acquire certain assets of Multisoft (representing
the purchase price of $6,478,000 less prepayments of $1,493,000 remitted back to
the Company); proceeds of $11,433,000 from issuing common shares to Softline;
and acquisition of certain software rights from Softline for $3,770,000.
The Company believes it has sufficient cash to meet its working capital needs
for the next twelve months.
The Company expects to continue its strategy of seeking acquisition
opportunities within its target profile of companies with advanced technologies
and market leadership in a specialty area of information technology. There can
be no assurance that any such acquisition opportunities will be available on
terms acceptable to the Company, or that any such acquisitions will ultimately
be consummated. If any such acquisitions are consummated, they could result in
the issuance of significant amounts of equity securities which would dilute the
interests of existing shareholders. Such acquisitions could also cause the
Company to incur commitments for capital expenditures in excess of its cash on
hand, either for the purchase price or for the target's operational needs, or
both. The Company has not at this time identified any source for such capital if
it were to be required.
ITEM 7. Financial Statements.
Please see financial statement pages F-1 through F-21.
ITEM 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.
None.
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Set forth below are the names, ages and principal occupations for the last five
years of the directors and executive officers of the Company:
Barry M. Schechter - (44), has been Chairman, President, Chief Executive
Officer and director of the Company from February 1994 to the present. He also
serves as Chairman of the Board of each of the Company's subsidiaries. He has
been Chief Executive Officer of Sabica Ventures, Inc. since its inception in
February 1990. Mr. Schechter is also a director of Softline Limited, which
owns 59% of the issued and outstanding stock of the Company, and which is
listed on the Johannesburg Stock Exchange. Mr. Schechter is a Chartered
Accountant (South Africa).
Arthur S. Klitofsky - (43), has been Vice President and a director of the
Company from February 1994 to the present. He has been Chief Executive Officer
of SVI Training Products, Inc. since 1991. From 1985 to 1991, he was Managing
Director of Punch Line Columbia Training Ltd., which became the largest computer
education company in South Africa. Mr Klitofsky has a Bachelor of Science Degree
in Electrical Engineering from the University of Witwatersrand, Johannesburg,
South Africa and a Bachelor in Accounting Science Degree from the University of
South Africa.
12
<PAGE>
Russell A. Schechter - (34), has been a director of the Company from February
1994 to the present. He was Vice President, Treasurer and Secretary of the
Company from February 1994 to November 1997, when he resigned as Treasurer and
Secretary. He remains a Vice President of the Company. From 1986 to 1991, he was
employed in the audit and management advisory services division of Coopers &
Lybrand in South Africa. Mr Schechter is a Chartered Accountant (South Africa).
Donald S. Radcliffe - (53), Mr. Radcliffe became a director of the Company in
May 1998. He has been President of Radcliffe & Associates since 1990.
Radcliffe & Associates provides financial consulting services to public
companies, and currently provides financial advisory services to the Company.
Since 1984 he has also been Executive Vice President and Chief Operating and
Financial Officer of World-Wide Business Centres, which is a privately held
operator of shared office space facilities. Mr. Radcliffe is also a director
of Pallet Management Systems Inc., a publicly held company. Mr. Radcliffe
received a B.S. from Lehigh University and an M.B.A. from Dartmouth College.
He is also a certified public accountant.
Ivan M. Epstein - (37), Mr. Epstein became a director of the Company in May
1998. He is the Chief Executive Officer and a director of Softline Limited,
which he co-founded in 1988. Softline is listed in the Electronics sector of the
Johannesburg Stock Exchange and is a developer of specialist information
technology products, with operations throughout southern Africa, the United
Kingdom, Australia and the United States. Softline owns 59% of the issued and
outstanding stock of the Company.
Gerald Rubenstein - (64), Mr. Rubenstein became a director of the Company in May
1998. He is an attorney in South Africa and is currently a consultant to the law
firm of Fluxman Rabinowitz - Raphaely Weiner. He specializes in corporate
finance and mergers and acquisitions. He is also the Chairman of Protea
Furnishers Limited and Vestacor Limited. He currently serves as a director of
seven public companies in South Africa, including Softline Limited, which owns
59% of the issued and outstanding stock of the Company.
Ian Bonner - (43), Mr. Bonner became a director of the Company in May 1998.
Since 1993 he has held various positions with IBM Corporation, and he currently
serves as Vice President of Partner Marketing and Programs for the
IBM/Lotus/Tivoli Software Group. His responsibilities include the development
and implementation of marketing campaigns and programs designed to serve the
business partners of IBM, Lotus and Tivoli, including major accounts,
independent software vendors and global systems integrators. He also oversees
the IBM BESTearn and the Lotus Business Partner programs which are designed to
provide enhanced opportunities, including education, marketing and training
support, to qualified providers of IBM's and Lotus's portfolio of network
solutions. Mr. Bonner received a Bachelor of Commerce from the University of the
Witwatersrand in 1976 and a graduate degree in Marketing Management and Market
Research and Advertising from the University of South Africa in 1978.
David L. Reese - (53), Mr. Reese became Chief Financial Officer and Secretary
of the Company in November 1997. Prior to joining the Company, Mr. Reese
served as Chief Financial Officer for Pygmalion Asset Management Company from
1993 to 1997. Mr. Reese is a certified public accountant. He has a B.S. in
Business and Accounting and an M.S. in Finance and Taxation from
University of Southern California.
Shaun Rosen - (40), Mr. Rosen has served as Managing Director of the
Company's wholly-owned subsidiary Divergent Technologies Pty. Ltd. since the
acquisition of Divergent by the Company. Mr. Rosen founded Divergent in South
Africa in 1983 and moved the operations to Australia in 1988. He has a B.Sc. in
Computer Science from University of Cape Town.
Peter Nagle - (37), Mr. Nagle has served as Managing Director of IBIS Systems
Pty. Ltd. since 1987. Prior to founding IBIS, he owned and managed a large
construction company in Ireland.
Directors of the Company will be elected annually and hold office until the next
annual meeting of shareholders or until their successors are duly elected and
qualified. All officers of the Company will be elected and serve at the
discretion of the Board of Directors.
There are no family relationships among the directors and executive officers
except that Barry M. Schechter and Russell A. Schechter are brothers.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Exchange Act requires that the Company's directors and
executive officers and persons who own more than ten percent of a registered
13
<PAGE>
class of the Company's equity securities to file with the Commission initial
reports of ownership and reports of changes in ownership of common stock and
other equity securities of the Company. Executive officers, directors and
greater-than-ten-percent stockholders are required by Commission regulations to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and internal records of the Company concerning
transactions in common stock, the following reporting persons failed to file or
filed late required reports under Section 16(a) during the fiscal year ended
March 31, 1998 or with respect to such fiscal year: Barry M. Schechter (1
report), David L. Reese (2 reports), Shaun Rosen (2 reports) and Peter Nagle (2
reports).
Item 10. Executive Compensation.
The following table sets forth for the periods indicated certain compensation of
the Company's Chief Executive Officer and the executive officers of the Company
who earned more than $100,000 during the six months ended March 31, 1998, or
during either of the two prior full fiscal years (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
Securities
Name and Annual Compensation Underlying
Principal Position Year Salary Options
Barry M. Schechter 1998(1) $ 86,000 50,000
Chairman, President 1997(2) $156,000 0
and Chief Executive 1996(2) $138,000 0
Officer
Arthur S. Klitofsky 1998(1) $ 66,000 20,000
President of SVI 1997(2) $127,000 57,000
Training 1996(2) $114,000 200,000
Shaun Rosen, Managing 1998(1) $ 82,500(3) 0
Director, Divergent 1997(2) $165,000 0(3)
Technologies Pty Limited 1996(2) $ 0 0
(1) For the six month period ended March 31, 1998.
(2) For the twelve month periods ended September 30, 1997 and 1996.
(3) Mr. Rosen was issued options to purchase 60,000 shares of common stock
at $2.00 per share on December 15, 1996 and options to purchase 800,000
shares of common stock at $1.75 per share on December 27, 1996, both
grants in connection with the Company's acquisition of Divergent. Mr.
Rosen exercised the options for 60,000 shares at $2.00 per share on
December 4, 1997. The Company forgave the $120,000 exercise price of
these options in accordance with an earn-out agreement entered into in
connection with the acquisition of Divergent. The Company has deemed the
$120,000 as additional acquisition expense and not as compensation to
Mr. Rosen.
The Company also provides certain compensatory benefits and other non-cash
compensation to the Named Executive Officers. The incremental cost to the
Company of all such benefits and other compensation paid in the years indicated
to each such person was less than 10% of his reported compensation and also less
than $50,000.
The following table sets forth the information concerning individual grants of
stock options during the last fiscal year to the Named Executive Officers.
14
<PAGE>
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
(Individual Grants)
<CAPTION>
Percent Of
Number of Total Options
Securities Granted To
Underlying Employees In
Options Fiscal Exercise Or
Granted (#) Year ($/Sh) Base Price Expiration
<S> <C> <C> <C> <C>
Barry Schechter 20,000 12% $ 2.75 November 2002
Barry Schechter 30,000 19% $ 3.03 November 2000
Arthur Klitofsky 30,000 19% $ 2.75 October 1999
Shaun Rosen 0 0% -- --
</TABLE>
The following table sets forth the information concerning each exercise of stock
options during the last fiscal year by each of the Named Executive Officers and
the fiscal year end value of unexercised options.
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<CAPTION>
Number Of
Securities Value Of
Underlying Unexercised
Shares Unexercised In-The-Money
Acquired Options At Options At
On Value FY-End (#) FY-End(S)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
B. Schechter 0 $0 50,000/0 $ 72,850/$0
A. Klitofsky 0 $0 282,000/0 $975,250/$0
S. Rosen 0 (1) $0 0/0 $ 0/$0
</TABLE>
(1) See Note (3) Under Summary Compensation Table.
Stock Option Plan
The Company has an Incentive Stock Option Plan (the "Plan") under which options
granted are intended to qualify as incentive stock options as defined under the
Internal Revenue Code. In accordance with the terms of the Plan, options to
purchase up to 1,000,000 shares of the Company's common stock may be granted to
employees of the Company. The Plan is administered by the Board of Directors,
which establishes the terms and conditions of each option grant. Incentive stock
options must be granted at an exercise price of at least the market value of the
common stock on the date of grant, except for recipients who own 10% or more of
the Company's outstanding common stock, in which case the exercise price on the
date of grant must be at least 110% of the market value of the common stock.
Additionally, the options must not have a term of in excess of 10 years, or five
years if the recipient owns more than 10% of the outstanding common stock.
Director Compensation
There are no standard arrangements by which directors are compensated for their
services as directors and to date, directors of the Company have received no
compensation for their service as directors of the Company.
Employment Contracts
The Company entered into an employment agreement with Barry M. Schechter
effective October 1, 1997. Such agreement will continue until September 30, 2000
unless earlier terminated for cause. The agreement provides for annual
compensation of $180,000 for the first year of the agreement, $240,000 for the
second year of the agreement and $300,000 for the third year of the agreement.
In addition, Mr. Schechter is entitled to receive options on each anniversary of
the agreement to purchase the number of shares equal to 150% of his annual
compensation for the prior year divided by the average price per share for the
30 day period preceding such anniversary. This average price per share will also
be the exercise price of the options. The options are fully vested when issued,
assignable, and exercisable for five years after the date of the grant.
Shaun Rosen entered into an employment agreement with Divergent dated November
5, 1996. The agreement will continue in effect until November 4, 2001, unless
earlier terminated by Divergent or Mr. Rosen. The agreement provides for an
initial annual salary of A$250,000 per year ($165,000). The salary is subject to
annual increases to reflect inflation and discretionary annual increases. If
Divergent terminates the agreement without cause, it will be required to pay all
salary and benefits which would have accrued for the remainder of the
15
<PAGE>
five-year term of the agreement. The agreement further provides that Mr. Rosen
will not compete with Divergent in Australia for three years after termination
of the agreement.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Set forth below is certain information concerning the ownership of the Company's
common stock as of May 22, 1998, by (i) all persons known to the Company to be
beneficial owners of more than 5% of the outstanding common stock, (ii) each
director of the Company, (iii) each executive officer of the Company, and (iv)
all executive officers and directors of the Company as a group. Except as
otherwise specified, the address for each person is 7979 Ivanhoe Avenue, Suite
500, La Jolla, California 92037.
Number of Shares
Beneficially Owned Percent of Class
Softline Limited 18,974,000(2) 62.0%
16 Commerce Crescent
Eastgate Extension 13
Sandton 2148
South Africa
Claudav Holdings Ltd. 5,402,200 19.2%
B.V.
9 Rue Charles Humbert
1205 Geneva
Switzerland
Barry M. Schechter 5,454,200(1)(2) 19.3%
Arthur S. Klitofsky 432,200(2) 1.5%
Russell A. Schechter 461,510(2) 1.6%
Donald S. Radcliffe 760,100(2)(3) 2.7%
575 Madison Avenue
New York, NY 10022
Ivan M. Epstein -- --
2 Victoria
Eastgate Extension 13
Sandton 2148
South Africa
Gerald Rubenstein -- --
16 Commerce Crescent
Eastgate Extension 13
Sandton 2148
South Africa
Ian Bonner -- --
5527 Inverrary Court
Dallas, Texas 75287
David L. Reese 10,000(2) <1%
Shaun Rosen 800,000(2) 2.8%
Level 1
35 Spring Street
Bondi Junction
Sydney, NSW 2022
Australia
Peter Nagle -- --
2 Twyford Place
Lincoln's Inn
Cressee, High Wycombe
Buckinghamshire
HP12 ERE
United Kingdom
All directors and 7,918,010(2) 26.4%
executive officers as a
group (10 persons)
16
<PAGE>
(1) Includes all of the shares held by Claudav Holdings Ltd. B.V. and 2,000
shares held by minor children of Mr. Schechter.
(2) Includes shares issuable upon the exercise of options within sixty days
of May 22, 1998 as follows: Softline Limited -- 2,438,000; Barry M.
Schechter -- 50,000; Arthur S. Klitofsky -- 282,000; Russell A.
Schechter -- 263,810; Donald A. Radcliffe (and an affiliate) --
375,000; David L. Reese -- 10,000; and Shaun Rosen -- 800,000.
(3) Includes 136,900 shares held by various entities for which Mr.
Radcliffe may be deemed the beneficial owner. Does not include 117,500
shares held by Mr. Radcliffe's wife, for which Mr. Radcliffe disclaims
beneficial ownership.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Claudav Holdings Ltd. B.V., which owns 19.2% of the outstanding common stock of
the Company, from time to time, has provided funds to the Company to cover
operating expenses in the form of unsecured loans bearing interest at rates
agreed to periodically between Claudav Holdings and the Company. As of March 31,
1998, the loans due Claudav Holdings aggregated $14,552.
In September 1996, Sudash Pty. Ltd., an affiliate of Claudav Holdings Ltd. B.V.
advanced the Company R 8,280,000 ($ 1,831,858 at September 30, 1996) for the
acquisition of Softline shares. The loan was repaid in 1997.
On October 24, 1997, the Company entered into a multi-party transaction that
included Softline Limited and is described in detail under Item 1. Barry M.
Schechter was at all relevant times a director of Softline and at the
conclusion of the transaction, Softline became a majority shareholder of the
Company. Subsequent to these transactions, Ivan M. Epstein and Gerald
Rubenstein, both directors of Softline, became directors of the Company.
Divergent Technologies Pty. Ltd. leases its principal offices in Sydney,
Australia from Reefmist Pty Limited, a company affiliated with Shaun Rosen.
The current monthly base rental is A$20,600 ($13,596).
On December 4, 1997, Shaun Rosen exercised options for 60,000 shares at $2.00
per share. The Company forgave the $120,000 exercise price of these options in
accordance with an earn-out agreement entered into in connection with the
Company's acquisition of Divergent.
The Company retains Radcliffe & Associates, Inc., a company affiliated with
Donald A. Radcliffe, to perform investor public relations and financial advisory
services for the Company. Radcliffe & Associates is currently paid $52,000 per
year for these services. On June 3, 1997, Mr. Radcliffe was issued options to
purchase the Company's common stock as additional compensation for these
services as follows: (a) 100,000 shares at an exercise price of $2.00 per share;
(b) 100,000 shares at an exercise price of $3.375 per share; and (c) 100,000
shares at an exercise price of $4.50 per share, as compensation for the services
of Radcliffe & Associates to the Company. These transactions were negotiated at
arm's length before Mr. Radcliffe was a director of the Company.
Although some of the foregoing transactions were determined without arm's length
negotiations and necessarily involved conflicts of interest between the
interests of the related parties and the Company, the Company believes that all
of the foregoing transactions were entered into on terms no less favorable to
the Company than could have been obtained from independent third parties.
17
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Description
2.1 Asset 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.
2.2 Sales Of Shares Agreement dated January 28, 1996, between the
Company and Management of the Softline Management Group for
the acquisition of Softline Business Systems (Pty) Ltd,
incorporated by reference to exhibit 10.3 of the Company's
Form 10-KSB for the fiscal year ended September 30, 1996.
2.3 Share 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
Technologies Pty. Ltd., incorporated by reference to exhibit
10.4 of the Company's Form 10-KSB for the fiscal year ended
September 30, 1996.
2.4 Technology 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 of the Company's Form 10-KSB for
the fiscal year ended September 30, 1996.
2.5 Asset Purchase Agreement dated as of April 28, 1997, between
the Company, Divergent Technologies Pty. Ltd., Colin Bruce
Chapman, Chapman Computers Pty. Ltd. and The Chapman Computers
Unit Trust, incorporated by reference to exhibit 2.1 of the
Form 8-K filed on August 11, 1997.
2.6 Escrow Agreement between Escrow Agent and Divergent
Technologies Pty. Ltd., Colin Bruce Chapman, Chapman Computers
Pty. Ltd. and The Chapman Computers Unit Trust, incorporated
by reference to exhibit 2.2 of the Form 8-K filed on August
11, 1997.
3.1 Articles of Incorporation, incorporated by reference to
exhibit 3.1 to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1993.
3.2 Bylaws, incorporated by reference to exhibit 3.1 to the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1993.
10.01 Incentive Stock Option Plan, incorporated by reference to
exhibit 3.1 to the Company's Annual Report on Form 10-KSB for
the year ended September 30, 1994.
10.02 Deed of Assignment of Copyright between Chapman Computers and
The Chapman Computers Unit Trust and Divergent Technologies
Pty. Ltd., incorporated by reference to exhibit 2.3 of the
Form 8-K filed on August 11, 1997.
10.03 Confidentiality agreement and restraint of trade between
Chapman Computers Pty. Ltd. and Chapman Computers Pty. Ltd. as
Trustee for The Chapman Computers Unit Trust and Divergent
Technologies Pty. Ltd., incorporated by reference to exhibit
2.4 of the Form 8-K filed on August 11, 1997.
10.04 Sale of Shares Agreement between Softline Limited and the
Company for the acquisition of IBIS Systems Pty. Ltd.,
incorporated by reference to exhibit 1 of the Company's Form
8-K filed on December 19, 1997.
10.05 Share Swap Agreement between the Company and Softline Limited
for the exchange of 7,536,000 SVI shares for 22,130,448 shares
of Softline Limited, incorporated by reference to exhibit 2 of
the Company's Form 8-K filed on December 19, 1997.
18
<PAGE>
10.06 Renunciation Agreement between the Company, Hosken
Consolidated Investments Limited ("HCI") and Softline Limited
providing for the sale of 22,130,448 Softline shares to HCI,
incorporated by reference to exhibit 3 of the Company's Form
8-K filed on December 19, 1997.
10.07 Subscription Agreement, incorporated by reference to exhibit 4
of the Company's Form 8-K filed on December 19, 1997.
10.08 Agreement between the Company, HCI and Softline Limited,
incorporated by reference to exhibit 5 of the Company's Form
8-K filed on December 19, 1997.
10.09 Employment Agreement of Barry M. Schechter dated effective
October 1, 1997, incorporated by reference to exhibit 10.15 of
the Company's 10-KSB for the fiscal year ended September 30,
1997.
10.10 Agreement between Multisoft Financial Systems Limited and the
Sage Group Plc. and IBIS Systems Limited, incorporated by
reference to exhibit 10.21 of the Company's Form 8-K filed on
March 24, 1998.
10.11 Amendment Agreement between Multisoft Financial Systems
Limited and The Sage Group Plc and IBIS Systems Pty. Ltd.,
incorporated by reference to exhibit 10.22 of the Company's
Form 8-K filed on March 24, 1998.
10.12 License to Occupy between Multisoft Financial Systems Limited
and IBIS Systems Pty. Ltd., incorporated by reference to
exhibit 10.23 of the Company's Form 8-K filed on March 24,
1998.
10.13 Employment Agreement between Divergent Technologies Pty. Ltd.
and Shaun Rosen dated November 5, 1996.
10.14 Lease dated November 1, 1996 between Divergent Technologies
Pty. Ltd. and Reefmist Pty. Limited.
21 List of Subsidiaries.
27 Financial Data Schedule
(b) Reports on Form 8-K
1. The Company filed a report on Form 8-K/A on February 9, 1998
providing the required financial data on the business
acquisition disclosed on Forms 8-K filed on November 6, 1997
and December 19, 1997.
2. The Company filed a report on Form 8-K on February 9, 1998
detailing the change of its fiscal year-end from September 30
to March 31 effective March 31, 1998.
3. The Company filed a report on Form 8-K on March 24,1998
detailing the acquisition of certain assets of Multisoft
Financial Systems Limited through its wholly-owned subsidiary,
IBIS Systems Limited.
19
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SVI HOLDINGS, INC., A NEVADA CORPORATION
By: /s/ Barry M. Schechter
---------------------------------
Barry M. Schechter, President and
Chief Executive Officer
(Principal Executive Officer)
Date: June 4, 1998
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signatures Capacity Date
---------- -------- ----
/s/ Barry M. Schechter
- ------------------------- Chairman of the Board, June 4, 1998
Barry M. Schechter President, Chief
Executive Officer and
Director
/s/ David L. Reese
- ------------------------- Chief Financial June 4, 1998
David L. Reese Officer, Secretary
/s/ Arthur S. Klitofsky
- ------------------------- Vice President and June 4, 1998
Arthur S. Klitofsky Director
/s/ Russell A. Schechter
- ------------------------- Vice President and June 4, 1998
Russell A. Schechter Director
/s/ Donald S. Radcliffe
- ------------------------- Director June 4, 1998
Donald S. Radcliffe
/s/ Ivan M. Epstein
- ------------------------- Director June 4, 1998
Ivan M. Epstein
/s/ Gerald Rubenstein
- ------------------------- Director June 4, 1998
Gerald Rubenstein
/s/ Ian Bonner
- ------------------------- Director June 4, 1998
Ian Bonner
20
<PAGE>
SVI HOLDINGS, INC. AND
SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1997
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONTENTS
MARCH 31, 1998
- --------------------------------------------------------------------------------
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Consolidated Balance Sheet 2 - 3
Consolidated Statements of Operations 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6 - 7
Notes to Consolidated Financial Statements 8 - 21
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
SVI Holdings, Inc.
We have audited the consolidated balance sheet of SVI Holdings, Inc. and
Subsidiaries as of March 31, 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the six months then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SVI Holdings, Inc.
and Subsidiaries as of March 31, 1998, and the consolidated results of their
operations and their consolidated cash flows for the six months then ended in
conformity with generally accepted accounting principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
April 20, 1998 (except for Note 10,
as to which the date is May 7, 1998)
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 2) $ 14,468,578
Accounts receivable, net of allowance for doubtful accounts
of $342,537 3,214,402
Inventories 326,807
Prepaid expenses and other current assets 388,456
-------------
Total current assets 18,398,243
FURNITURE AND EQUIPMENT, net (Note 3) 885,276
DEFERRED TAX ASSET (Note 8) 239,690
CAPITALIZED SOFTWARE, net (Note 4) 12,354,371
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED,
net of accumulated amortization of $313,183 14,586,102
OTHER ASSETS 16,974
-------------
TOTAL ASSETS $ 46,480,656
=============
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
MARCH 31, 1998
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,520,223
Accrued expenses 2,477,699
Income taxes payable 2,637,424
-------------
Total current liabilities 8,635,346
LONG-TERM LIABILITIES 35,299
DEFERRED TAX LIABILITY 720,464
DUE TO STOCKHOLDER (Note 5) 14,552
-------------
Total liabilities 9,405,661
-------------
COMMITMENTS (Note 6)
STOCKHOLDERS' EQUITY (Note 7)
Preferred stock, $.0001 par value
5,000,000 shares authorized
0 issued and outstanding -
Common stock, $.0001 par value
50,000,000 shares authorized
28,146,684 issued and outstanding 2,815
Additional paid-in capital 33,137,939
Retained earnings 4,299,994
Cumulative foreign currency translation adjustment (365,753)
-------------
Total stockholders' equity 37,074,995
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 46,480,656
=============
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31,
- --------------------------------------------------------------------------------
1998 1997
------------- -------------
(unaudited)
NET SALES $ 16,354,383 $ 3,930,164
COST OF GOODS SOLD 6,489,081 1,152,447
------------- -------------
GROSS PROFIT 9,865,302 2,777,717
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 6,500,041 2,379,044
------------- -------------
INCOME FROM OPERATIONS 3,365,261 398,673
------------- -------------
OTHER INCOME (EXPENSE)
Interest income 351,309 16,836
Other income 56,427 20,149
Interest expense (16,635) (62,908)
Equity in earnings of Softline Limited - 348,123
Loss on foreign currency transaction (14,041) (32,318)
Gain on disposal of Softline Limited shares 4,388,389 152,253
------------- -------------
Total other income (expense) 4,765,449 442,135
------------- -------------
INCOME BEFORE PROVISION FOR INCOME TAXES 8,130,710 840,808
PROVISION FOR INCOME TAXES (Note 8) 2,311,743 277,591
------------- -------------
NET INCOME $ 5,818,967 $ 563,217
============= =============
EARNINGS PER SHARE
BASIC $ 0.21 $ 0.04
============= =============
DILUTED $ 0.19 $ 0.04
============= =============
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC 27,768,239 13,782,125
============= =============
DILUTED 31,045,886 15,880,576
============= =============
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------
<CAPTION>
Cumulative
Retained Foreign
Additional Earnings Currency
Common Stock Paid-In (Accumulated Translation
Shares Amount Capital Deficit) Adjustment Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September
30, 1996 12,422,800 $ 1,242 $ 6,712,705 $(6,367,383) $ - $ 346,564
Common stock
issued to purchase
software 1,620,000 162 3,889,838 3,890,000
Sale of common stock 196,484 20 368,837 368,857
Exercise Of Stock
options 805,000 80 1,003,670 1,003,750
Expense recognized
from issuance of
stock options 202,500 202,500
Increase in equity in
Softline Limited
as a result of
going public 488,014 488,014
Change in foreign
currency translation
adjustment (262,673) (262,673)
Net income 4,848,410 4,848,410
------------ ------------ ------------ ------------ ------------ ------------
Balance, September
30, 1997 15,044,284 1,504 12,665,564 (1,518,973) (262,673) 10,885,422
Common stock issued
to purchase
technology rights
and subsidiary 5,000,000 500 7,499,500 7,500,000
Sale of common stock 7,536,000 754 11,303,246 11,304,000
Exercise of stock
options 267,400 27 368,543 368,570
Additional common
stock issued to
purchase
subsidiary 200,000 20 699,980 700,000
Common stock
issued as
compensation 85,000 9 233,741 233,750
Common stock
issued for
services rendered 14,000 1 48,999 49,000
Expense recognized
from issuance
of stock options 318,366 318,366
Cumulative translation
adjustment (103,080) (103,080)
Net income 5,818,967 5,818,967
------------ ------------ ------------ ------------ ------------ ------------
Balance, March 31,
1998 28,146,684 $ 2,815 $33,137,939 $ 4,299,994 $ (365,753) $37,074,995
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31,
- --------------------------------------------------------------------------------
<CAPTION>
1998 1997
------------- -------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,818,967 $ 563,217
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 1,029,984 170,205
Changes in deferred taxes 596,971 -
Unrealized foreign exchange gain - 32,318
Foreign currency transaction loss 14,041 -
Gain on sale of Softline Limited shares (4,388,389) (152,253)
Compensation expense 601,116 -
Equity in earnings of Softline Limited - (348,123)
(Increase) decrease in
Accounts receivable (796,708) (453,258)
Inventories 886,930 (69,136)
Prepaid expenses and other current assets 153,391 (122,256)
Deposits and other assets 10,263 -
Increase (decrease) in
Accounts payable (2,952,847) (21,816)
Accrued expenses 1,208,911 -
Other liabilities (207,934) 35,412
Income taxes payable 1,380,102 -
------------- -------------
Net cash provided by (used in) operating activities 3,354,798 (365,690)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturity of certificates 350,000 -
Purchase of furniture and equipment (268,805) (236,772)
Net proceeds from sale of Softline Limited shares 6,167,144 300,000
Purchase of software license rights - (3,250,000)
Purchase of capitalized software (672,149) -
Acquisition of Divergent Technologies (Pty) Limited, net
of cash acquired - (4,076,945)
Acquisition of IBIS Systems Limited, net of cash acquired 542,870 -
Acquisition of Multisoft Financial Systems Limited, net of
cash acquired (6,478,251) -
Acquisition of Softline Limited software (3,770,231) -
------------- -------------
Net cash used in investing activities (4,129,422) (7,263,717)
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
<TABLE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED MARCH 31,
- --------------------------------------------------------------------------------
<CAPTION>
1998 1997
------------- -------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock 11,432,570 3,541,847
Due to stockholders, net (381,716) 568,335
Payments on notes payable (50,000) (146,345)
Payments on line of credit (340,000) 3,576,945
------------- -------------
Net cash provided by financing activities 10,660,854 7,540,782
------------- -------------
CUMULATIVE TRANSLATION ADJUSTMENT (103,080) (26,489)
------------- -------------
Net increase (decrease) in cash and cash
and cash equivalents 9,783,150 (115,114)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,685,428 331,566
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 14,468,578 $ 216,452
============= =============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest of $16,635 and $58,803 (unaudited) was paid during the six months ended
March 31, 1998 and 1997, respectively. Income taxes of $336,141 and $129,848
(unaudited) were paid during the six months ended March 31, 1998 and 1997,
respectively.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the six months ended March 31, 1998, the Company issued 200,000 shares of
common stock valued at $700,000 as additional consideration for the purchase of
Divergent Technologies (Pty) Limited's subsidiary, Chapman Computers (Pty)
Limited.
As more fully described in Note 1, during the six months ended March 31, 1998,
the Company issued 5,000,000 shares of common stock valued at $1.50 per share to
acquire 100% of the common stock of IBIS Systems Limited ("IBIS") and the
trademark for IBIS' software.
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
SVI HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Lines of Business
----------------------------------
SVI Holdings, Inc. (the "Company") is a holding company. The Company,
through its subsidiaries, is engaged in the development and distribution
of computer software, computer training courses, and special software
applications for retail, point of sale, construction, and equipment
leasing establishments. The Company changed its fiscal year from
September 30 to March 31 effective March 31, 1998.
Business Combination
--------------------
Effective October 1, 1996, the Company entered into a Share Purchase
Agreement and a Technology Purchase Agreement to acquire 100% of the
issued and outstanding shares of Divergent Technologies Pty. Ltd.
("Divergent"), an Australian software company. The purchase price was
$4,154,933 plus 1,300,000 shares of the Company's common stock and
options to purchase 1,600,000 shares of the Company's common stock at a
price of $1.75 for two years. As part of the acquisition, the Company
also agreed to issue options to purchase 120,000 shares at $2.00 per
share, and to forgive the exercise price of these options if Divergent
earned at least Australian dollars ("AUS") $1,400,000 in net profits for
the period October 1, 1996 to June 30, 1997. Divergent exceeded the net
profit target and the 120,000 shares were issued in December 1997. The
$240,000 exercise price which was forgiven was treated as additional
acquisition expense. This acquisition was accounted for using the
purchase method of accounting. The Company recorded $2,462,149 in excess
of cost over fair value of net assets acquired which is being amortized
on a straight-line basis over twenty years. The results of operations
for Divergent have been included in the consolidated results of the
Company since October 1, 1996.
Effective April 28, 1997, Divergent entered into an agreement to acquire
Chapman Computers Pty. Ltd. ("Chapman"), an Australian software
company. The purchase price was $1,384,000 which consisted of cash of
$784,000 and common stock valued at $600,000. Under the terms of the
acquisition agreement, 200,000 additional shares of the Company's common
stock are to be issued if Chapman's pre-tax net income exceeds
AUS $450,000 during the year ended June 30, 1998. Chapman exceeded the
pre-tax income level early and the Company issued these shares in March
1998. This acquisition was accounted for using the purchase method of
accounting. The purchase was principally allocated to capitalized
software that is being amortized on a straight-line basis over ten
years. The results of operations for Chapman have been included in the
consolidated results of the Company since April 28, 1997. Pro forma
results for the year ended September 30, 1997, as if the acquisition had
taken place as of the beginning of the 1997 fiscal year, are not
presented because the effect on operations would be immaterial.
F-8
<PAGE>
SVI HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Business Combination (Continued)
--------------------------------
Effective October 1, 1997, the Company entered into a series of
transactions with Softline Limited ("Softline") and Hosken Consolidated
Investments Limited ("Hosken"). Both Softline and Hosken are South
African public companies traded on the Johannesburg Stock Exchange. The
closing of these agreements resulted in Softline acquiring a 60%
interest in the Company. Softline obtained this interest by acquiring
5,000,000 shares of the Company in exchange for 100% of the common stock
of IBIS Systems Ltd. ("IBIS") and Anniston Ventures Ltd. ("Anniston")
(both owned by Softline) and 7,536,000 shares of the Company's common
stock in exchange for cash and the worldwide technology rights outside
of Africa for Softline's "Brilliant" range of software products. The
shares of common stock issued pursuant to these agreements resulted in
the issuance of 12,536,000 new shares of common stock of the Company.
The value of the common stock issued was based on the market price of
the Company's common stock on the effective date of the transaction
discounted approximately 40% to reflect the fact that the shares cannot
be traded for three years from the effective date of the transaction.
The Company also issued 2,438,000 options to Softline. These options are
exercisable at $2.00 per share. In addition to the shares acquired by
Softline from the Company, Softline also acquired 4,000,000 shares of
the Company's common stock from the Company's former majority
stockholder and other current stockholders. The Company also agreed to
sell its remaining interest in Softline comprising 19,876,000 shares to
Hosken for cash and recognized a gain of $4,388,389 on the sale of the
shares.
IBIS is a UK-based software development company specializing in the
construction and heavy equipment rental industries, and Anniston holds
the trademark for the "SULUS" range of software products sold by IBIS.
The acquisition of IBIS and Anniston was accounted for using the
purchase method of accounting. The Company recorded $5,160,621 in excess
of cost over fair value of net assets acquired which is being amortized
on a straight-line basis over twenty years. The results of operations
for IBIS for the six months ended March 31, 1998 have been included in
the consolidated results of the Company.
The assets acquired and liabilities assumed were as follows:
Cash $ 542,870
Other current assets 812,994
Furniture and fixtures 202,044
Software costs 2,452,000
Goodwill 5,160,621
Current liabilities (1,670,529)
-------------
PURCHASE PRICE $ 7,500,000
=============
F-9
<PAGE>
SVI HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Acquisition
-----------
Effective March 2, 1998, IBIS acquired certain assets of Multisoft
Financial Systems Limited ("Multisoft"), a wholly-owned subsidiary of
The Sage Group Plc. The purchase price for the assets was
(pound)3,863,000 ($6,478,251). The assets consisted principally of
customer contracts. The acquisition was accounted for using the
purchase method of accounting. The Company recorded $6,315,687 in
excess of cost over fair value of net assets acquired which is being
amortized on a straight-line basis over twenty years. The operations
of Multisoft from March 2, 1998 have been consolidated with those of
the Company.
The assets acquired were as follows:
Furniture and fixtures $ 162,564
Goodwill 6,315,687
-------------
PURCHASE PRICE $ 6,478,251
=============
Summary pro forma results of operations for the Company, assuming that
the results of operations of Multisoft had been consolidated with those
of the Company, are listed below:
Six Months Ended March 31,
----------------------------
1998 1997
------------- -------------
Statement of operations
Net sales $ 18,062,653 $ 6,676,587
Gross profit $ 11,237,546 $ 4,783,642
Operating income $ 4,275,676 $ 1,529,989
Net income $ 6,429,773 $ 1,320,993
Basic earnings per share $ 0.23 $ 0.10
Diluted earnings per share $ 0.21 $ 0.08
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated.
Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
F-10
<PAGE>
SVI HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash Equivalents
----------------
For purposes of the statements of cash flows, the Company considers all
highly-liquid investments purchased with original maturities of three
months or less to be cash equivalents. Cash equivalents consist of
interest bearing accounts with maturities of one week or less. The
amortized cost of the investments approximates their fair value.
Inventories
-----------
Inventories consist of finished goods and are stated at the lower of
cost or market, cost generally being determined on a first-in, first-out
basis.
Furniture and Equipment
-----------------------
Furniture and equipment are stated at cost. Depreciation and
amortization are being provided using the straight-line and accelerated
methods over the estimated useful lives as follows:
Automobiles 7 years
Computer equipment 4 years
Furniture and fixtures 7 to 10 years
Leasehold improvements life of the related assets or
the term of the lease, whichever is shorter
Expenditures for maintenance and repairs are charged to operations as
incurred while renewals and betterments are capitalized.
Excess of Cost over Fair Value of Net Assets Acquired
-----------------------------------------------------
Excess of cost over fair value of net assets acquired arising from the
Company's acquisitions of Divergent, IBIS, and Multisoft is amortized
over twenty years using the straight-line method. The Company
periodically reviews this asset to determine its recoverability.
Revenue Recognition
-------------------
Licensing and royalty revenues are generally recognized on the
completion of the license agreement by the Company, provided that no
significant vendor or post-contract support obligations remain
outstanding and collection of the resulting receivable is deemed
probable. Where significant, revenue from support obligations is
recognized ratably over the contract term. Certain royalty agreements
provide for per unit royalties to be paid to the Company based on
shipments by customers of units containing the Company's products.
Revenue under such agreements is recognized at the time of shipment by
the customer. Revenue from the installation of point-of-sale computer
systems is recognized when installation is completed and accepted by the
customer.
F-11
<PAGE>
SVI HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Capitalized Software
--------------------
Capitalized software includes amounts paid to develop the Company's
computer training courses and to develop the accounting software for
retail establishments. These costs are amortized over five and ten
years, respectively, using the straight-line method.
Earnings per Share
------------------
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings per Share." Basic earnings per share is computed by
dividing income available to common stockholders by the weighted-average
number of common shares outstanding. Diluted earnings per share is
computed similar to basic earnings per share except that the denominator
is increased to include the number of additional common shares that
would have been outstanding if the potential common shares had been
issued and if the additional common shares were dilutive.
Income Taxes
------------
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which
requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their
financial reporting amounts at each period end based on enacted tax laws
and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized. The provision for income taxes
represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
Accounting Pronouncements
-------------------------
The Financial Accounting Standards Board ("FASB") issued SFAS No. 130,
"Reporting Comprehensive Income," which is effective for financial
statements with fiscal years beginning after December 15, 1997. SFAS No.
130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial
statements. The Company has not determined the impact, if any, the
adoption of SFAS No. 130 will have on its financial position or results
of operations.
The FASB issued SFAS 131, "Disclosure about Segments of an Enterprise
and Related Information," issued by FASB, which is effective for
financial statements with fiscal years beginning after December 31,
1997. This statement establishes standards for the way that public
entities report selected information about operating segments, products,
and services, geographic areas, and major customers in interim and
annual financial reports. The Company does not expect adoption of SFAS
No. 131 to have a material effect, if any, on its financial position or
results of operations.
F-12
<PAGE>
SVI HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial Instruments
-----------------------------------
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the
Company's financial instruments, including cash, accounts receivable,
accounts payable, and accrued expenses, the carrying amounts approximate
fair value due to their short maturities.
NOTE 2 - CASH
The Company maintains cash balances and short-term investments at
several financial institutions. Accounts at each institution are insured
by the Federal Deposit Insurance Corporation up to $100,000. As of March
31, 1998, the uninsured portion of these balances held at financial
institutions aggregated to $8,036,550. The Company also had funds
totaling $6,087,161 in non-United States financial institutions. The
Company has not experienced any losses in such accounts and believes it
is not exposed to any significant credit risk on cash and cash
equivalents.
NOTE 3 - FURNITURE AND EQUIPMENT
Furniture and equipment at March 31, 1998 consisted of the following:
Automobiles $ 140,659
Computer equipment 915,269
Furniture and fixtures 248,252
Leasehold improvements 67,774
-------------
1,371,954
Less accumulated depreciation and amortization 486,678
--------------
TOTAL $ 885,276
=============
NOTE 4 - CAPITALIZED SOFTWARE
Capitalized software at March 31, 1998 consisted of the following:
Training software $ 86,575
Point-of-sale software 13,625,562
-------------
13,712,137
Less accumulated amortization 1,357,766
-------------
TOTAL $ 12,354,371
=============
F-13
<PAGE>
SVI HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE 5 - RELATED PARTIES
The loans due to stockholder of $14,552 are unsecured with no stated
maturity date, with interest generally at prime (8.5% at March 31, 1998)
plus 1.2% per annum, but is forgiven from time to time by the
stockholders. Interest paid under these loans for the six months ended
March 31, 1998 and 1997 was approximately $0 and $30,239 (unaudited),
respectively.
Included in prepaid expenses and other current assets at March 31, 1998
is an amount due from an officer of Divergent in the amount of $141,584.
The amount was repaid by the employee in April 1998.
Included in accrued expenses at March 31, 1998 is $430,000 due to a
significant stockholder of the Company to reimburse the stockholder for
shares that were to be used as security for a loan. (See additional
discussion in Note 10.)
The office space for the Company's Sydney office is leased from an
officer of Divergent. During the six months ended March 31, 1998, the
Company paid AUS $90,000 in rent to this related party.
NOTE 6 - COMMITMENTS
Operating Leases
----------------
The Company leases facilities for its corporate offices in San Diego,
California under a long-term lease agreement through June 2000. The
Company's Australian subsidiary leases facilities in Australia under
long-term lease agreements through October 2006. The Company's
subsidiary in the United Kingdom leases automobiles and facilities in
the United Kingdom under long-term lease agreements through January
2003. Future annual minimum lease payments for non-cancelable operating
leases are summarized as follows:
Year Ending
March 31,
-----------
1999 $ 274,642
2000 266,977
2001 200,179
2002 189,355
2003 171,775
Thereafter 426,539
-------------
TOTAL $ 1,529,467
=============
Rent expense was $166,849 and $110,663 (unaudited) for the six months
ended March 31, 1998 and 1997, respectively.
F-14
<PAGE>
SVI HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE 6 - COMMITMENTS (CONTINUED)
Line of Credit
--------------
Divergent has a line of credit of AUS $1,000,000, none of which was
outstanding at March 31, 1998.
NOTE 7 - COMMON STOCK, STOCK OPTIONS, AND WARRANTS
Issuance of Common Shares
-------------------------
As discussed above in Note 1, during the six months ended March 31,
1998, the Company sold 7,536,000 shares of common stock at $1.50 per
share as part of the change in control of the Company.
Stock Option Plan
-----------------
The Company has adopted an incentive stock option plan. Options under
this plan may be granted to employees and officers of the Company. There
are 1,000,000 shares of common stock reserved for issuance under this
plan. The exercise price of the options is determined by the board of
directors, but the exercise price may not be less than 100% of the fair
market value on the date of grant. Options vest over periods not to
exceed ten years.
The following summarizes the Company's stock option transactions under
the stock option plan:
Weighted
Average
Shares Under Exercise
Option Price
------------ --------
Options outstanding, September 30, 1996 412,310 $ 0.54
Expired/canceled (22,000) $ 1.75
Granted 226,000 $ 1.75
Exercised (5,000) $ 0.75
-------------
Options outstanding, September 30, 1997 611,310 $ 0.94
Granted 161,300 $ 2.80
-------------
OPTIONS OUTSTANDING, MARCH 31, 1998 772,610 $ 1.33
=============
At March 31, 1998, all of the options were exercisable.
In addition to options issued pursuant to the stock option plan
mentioned above, the Company has issued additional options to employees,
consultants, and unrelated third parties. The following summarizes the
Company's other stock option transactions:
F-15
<PAGE>
SVI HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE 7 - COMMON STOCK, STOCK OPTIONS, AND WARRANTS (CONTINUED)
Stock Option Plan (Continued)
-----------------------------
<TABLE>
<CAPTION>
Weighted
Average
Shares Under Exercise
Option Price
------------- -----------
<S> <C> <C>
Options outstanding, September 30, 1996 950,000 $ 0.70
Granted 2,470,000 $ 1.93
Exercised (800,000) $ 1.25
-------------
Options outstanding, September 30, 1997 2,620,000 $ 1.44
Expired/canceled (15,000) $ 0.75
Granted 3,039,100 $ 2.01
Exercised (267,400) $ 1.38
-------------
OPTIONS OUTSTANDING, MARCH 31, 1998 5,376,700 $ 1.77
=============
</TABLE>
At March 31, 1998, all of the options were exercisable.
During the six months ended March 31, 1998, the Company recognized
expense of $318,366 resulting from options granted during the period.
The Company has adopted only the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." It applies Accounting
Principles Bulletin ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in accounting for its plans
and does not recognize compensation expense for its stock-based
compensation plans other than for restricted stock and options issued to
outside third parties. If the Company had elected to recognize
compensation expense based upon the fair value at the grant date for
awards under this plan consistent with the methodology prescribed by
SFAS 123, the Company's net income and income per share would be reduced
to the pro forma amounts indicated below:
Six Months Ended March 31,
------------------------------
1998 1997
-------------- --------------
(unaudited)
Net income
as reported $ 5,818,967 $ 563,217
pro forma $ 5,674,923 $ 453,257
Basic earnings per share
as reported $ 0.21 $ 0.04
pro forma $ 0.20 $ 0.03
Diluted earnings per share
as reported $ 0.19 $ 0.04
pro forma $ 0.18 $ 0.03
F-16
<PAGE>
SVI HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE 7 - COMMON STOCK, STOCK OPTIONS, AND WARRANTS (CONTINUED)
Stock Option Plan (Continued)
-----------------------------
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense
related to grants made before October 1, 1995. The fair value of these
options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions for
the six months ended March 31, 1998: dividend yield of 0%; expected
volatility of 83%; risk-free interest rate of 5.5%; and expected life of
1 to 2.5 years. The weighted-average fair value of options granted
during the six months ended March 31, 1998 was $1.03, the
weighted-average exercise price was $2.80, and the weighted-average
stock price at the date of the grant was $2.92.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single measure
of the fair value of its employee stock options.
Warrants
--------
From the sale of units from the Company's initial public offering, the
Company has outstanding 1,000,000 warrants to purchase one share of
common stock with an exercise price of $7.00 per share. The warrants
expire two years from the effective date of a post-effective amendment
to the Company's registration statement that has yet to be filed. During
the six months ended March 31, 1998, the Company retired 975,000 of the
warrants for a nominal amount.
NOTE 8 - INCOME TAXES
The Company and its domestic subsidiaries file a consolidated United
States federal income tax return. Foreign subsidiaries file separate
corporate income tax returns in their respective countries.
The components of income before provision for income taxes and the
current and deferred components of the provision for income taxes at
March 31, 1998 were as follows:
Income before provision for income taxes
United States $ 3,577,485
Foreign 4,553,225
-------------
TOTAL $ 8,130,710
=============
F-17
<PAGE>
SVI HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES (CONTINUED)
Income tax provision
Current
United States federal $ 150,288
Foreign 1,437,809
State 126,675
-------------
1,714,772
-------------
Deferred
United States federal 458,405
Foreign (13,189)
State 151,755
-------------
596,971
-------------
TOTAL PROVISION $ 2,311,743
=============
The components of the Company's deferred tax assets and liabilities at
March 31, 1998 were as follows:
Deferred tax assets
Allowance for doubtful accounts $ 127,229
State taxes 73,669
Accrued expenses 38,792
-------------
TOTAL DEFERRED TAX ASSETS $ 239,690
=============
Deferred tax liabilities
Depreciation and amortization $ 684,694
Other 35,770
-------------
TOTAL DEFERRED TAX LIABILITIES $ 720,464
=============
The valuation allowance decreased by $782,000 from September 30, 1997 to
March 31, 1998.
F-18
<PAGE>
SVI HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES (CONTINUED)
The difference between the actual provision and the amount computed at
the statutory United Stated federal income tax rate of 34% for 1998 is
attributable to the following:
Total provision computed at statutory rate 34.0%
Non-deductible items 3.8
Decrease in valuation allowance (8.0)
Foreign income taxed at different rates (3.7)
State income tax, net of federal tax benefit 2.9
Other (0.6)
-----------
TOTAL PROVISION FOR INCOME TAXES 28.4%
===========
NOTE 9 - EARNINGS PER SHARE
Earnings per share for the six months ended March 31, 1998 and 1997 was
as follows:
<TABLE>
<CAPTION>
For the Six Months Ended March 31, 1998
-------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------- ------------- -------------
<S> <C> <C> <C>
Basic EPS
Income available to common
stockholders $ 5,818,967 27,768,239 $ 0.21
Effect of dilutive securities
Options - 3,277,647
------------- -------------
DILUTED EPS
INCOME AVAILABLE TO COMMON
STOCKHOLDERS PLUS
ASSUMED CONVERSIONS $ 5,818,967 31,045,886 $ 0.19
============= =============
</TABLE>
F-19
<PAGE>
SVI HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE 9 - EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
For the Six Months Ended March 31, 1997
(unaudited)
----------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
-------------- -------------- --------------
<S> <C> <C> <C>
Basic EPS
Income available to common
stockholders $ 563,217 13,782,125 $ 0.04
Effect of dilutive securities
Options - 2,098,451
-------------- --------------
DILUTED EPS
INCOME AVAILABLE TO COMMON
STOCKHOLDERS PLUS
ASSUMED CONVERSIONS $ 563,217 15,880,576 $ 0.04
============== ==============
</TABLE>
NOTE 10 - 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 in order to prevent the
transfer of any of the 2,000,000 shares of the Company's common stock
that had been delivered to the principal defendant 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 alleges that the principal defendant failed to hold the
shares in trust and instead transferred the shares to third parties who
began to trade the restricted shares in violation of the principal
defendant's representations and obligations to the Company and its
majority stockholder. Based on the above allegations, the Company had
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 statutes.
The Company has been successful in obtaining court orders accounting for
all shares forming the subject matter of the action. Subsequent to March
31, 1998, the Company obtained judgment against certain defendants,
jointly and severally, for payment in the sum of $937,500. The Company
has obtained a default judgment against another defendant for damages in
the sum of $967,500. The Company expects to dismiss the lawsuit with
respect to all other defendants within the next month. These amounts
have not been recorded by the Company and will be recorded when the
payments are received.
F-20
<PAGE>
SVI HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE 10 - LEGAL PROCEEDINGS (CONTINUED)
At March 31, 1998, the Company had recorded a liability in the amount of
$430,000 to reimburse a significant stockholder of the Company for
215,000 shares that were part of the 2,000,000 shares delivered to the
principal defendant. These 215,000 shares were sold to third parties in
bona fide transactions and were not returned to the Company's then
majority stockholder. The Company will use a portion of the payments to
reimburse the significant stockholder.
F-21
<PAGE>
[ON DIVERGENT'S LETTERHEAD]
Letter of Continuing Employment
5/11/96
Mr. Shaun Rosen
12 Northante road
ROSE BAY NSW 2029
Dear Shaun
It is with pleasure to confirm your continuing appointment with Divergent
Technologies Pty Limited ("Divergent") on the following terms and conditions:
1. POSITION
With effect from 5/11/96 (the "EFFECTIVE DATE") your position with Divergent
will be as Managing Director.
2. DUTIES
(a) As Managing Director you will be responsible for the day to day running of
the Business of Divergent which encompasses and which is inclusive of the
following:
(i) Product Research and Development;
(ii) Software and Technical issues relating to Divergent;
(iii) Mergers and Acquisitions to enhance the business of Divergent, with
consent of Mr. Barry Schechter ("Schechter").
(iv) Administration and finance with the assistance of Ivan Hammerschlag
or a suitably qualified person.
(b) You will report to Schechter of SVI Holdings Limited.
(c) You will devote the whole of your time, attention and skill during normal
business hours to the operations of Divergent.
3. TERM
Your appointment will continue for a period of five (5) years from the Effective
Date subject to the terms hereinafter contained.
4. SALARY
(a) With effect from the Effective Date, your remuneration will be a salary
package of $250,000.00 made upon the manner as from time selected by you.
<PAGE>
2
(b) Your salary package will include all benefits of employment including
superannuation, insurance, motor vehicle allowance, fringe benefits and
other taxes and other legitimate expenses.
(c) Your remuneration will be reviewed on each anniversary of the Effective
Date but any amount determined shall never be less than the salary for the
immediately preceding year.
(d) At each review your salary will increase by a proportion not less than the
proportionate increase of the All Groups Consumer Price Index for Sydney
published by the Australia Bureau of Statistics (or a comparable index
selected by Divergent if that index ceases to be published) in respect of
the year preceding the salary review.
5. EXPENSES
You will be reimbursed by Divergent for all out-of-pocket expenses reasonably
incurred by you in respect of Divergent business. Divergent may require
evidence of expenses you have incurred.
6. EXCLUSIVITY AND CONFIDENTIALITY
(a) You must not engage in any employment or provide any services to anyone
other than Divergent during the currency of this Agreement.
(b) You will not during your employment or thereafter without Divergent's
prior written consent or as otherwise required by law disclose directly or
indirectly to any person for any reason other than the conduct of
Divergent's business any confidential information of or relating to
Divergent or Divergent's customers or clients including information
relating to costings, budgets, fees, advertising, margins, remuneration
policy, client base, technology, techniques and intellectual property
(unless such technology and techniques were not derived by you whilst at
Divergent and are in the public domain) nor will you during your
employment or thereafter without Divergent's prior written consent or as
otherwise required by law use, copy, transmit or remove or attempt to use,
copy, transmit or remove any part of the information in any way for any
purpose other than Divergent's business or in any manner which may cause
or be calculated to cause injury or loss to divergent or a related or
associated company.
(c) For period of three years after the termination of your employment to the
extent permitted by applicable law;
(i) you will not, directly or indirectly, engage or invest in, own,
manage, operate, finance, control or participate in the ownership,
management operation or control of, be employed by, associated
with, or in any manner connected with, lend you name or any similar
name to, lend your credit to or render services or advice to, any
business in each State and Territory in the Commonwealth of
Australia whose products or activities compete in whole with the
products or activities of Divergent provided, however, that you may
purchase or otherwise acquire up to (but not more than) five
percent (5%) of any class of
<PAGE>
3
securities of any enterprise (but without otherwise participating
in the activities of such enterprise) as such securities are issued
on any national or regional securities exchange or have been
registered under Section 12(g) of the US Securities Exchange Act,
1934. You agree that this covenant is reasonable with respect to
its duration, geographical area and scope:
(ii) You will not, directly or indirectly, either for yourself or any
other person:
(A) induce or attempt to induce any employee of Divergent to
leave Divergent;
(B) employ, or otherwise engage as an employee, independent
contractor, or otherwise any employee of Divergent; or
(C) induce or attempt to induce any customer, supplier, licensee,
or business relation of Divergent to cease doing business
with Divergent;
(iii) Divergent acknowledges that you have substantial expertise in the
development of computer software products and that you may continue
to be engaged in the computer industry PROVIDED THAT you do not
engage in an area which competes with the products of Divergent.
(d) You acknowledge that having regard to the duties provided for in this
agreement you may become possessed of trade secrets and confidential
information of Divergent and that disclosure of any of those trade secrets
or that confidential information could materially harm Divergent and that
therefore the restraints and restrictions contained in this agreement are
fair and reasonable in all the circumstances and necessary for the
protection of the goodwill and property of Divergent.
7. LEAVE
You are entitled to four (4) weeks annual leave and to long service leave in
accordance with the legislation of the State of New South Wales or such other
legislation as may be applicable. Subject to any applicable award or agreement,
you are not entitled to annual leave loading. Divergent will require you to take
all annual and long service leave within twelve (12) months of its accruing due
unless otherwise expressly agreed or unless such procedure is prohibited by any
relevant legislation.
8. SICK LEAVE
You will be entitled to five (5) days sick leave for each year of employment,
subject to the production of such medical evidence as may reasonably be required
and the requirements of any applicable award or agreement. Sick leave not
availed of will accrue during your employment up to a maximum of 25 days, but
Divergent will not pay out the value of any accrued and untaken sick leave on
the cessation of your employment.
<PAGE>
4
9. TERMINATION
(a) Immediate termination upon paying out of remaining term:
(i) Divergent may terminate this agreement by giving thirty (30) days
notice, in writing at any time, for any reason including the event
of being declared bankrupt and/or insane PROVIDED THAT Divergent
must then pay to you an amount equal to your salary package and
bonus entitlements which you would have received in respect of the
unexpired portion of the five (5) year term of this agreement
(based on your annual salary package as at the date the notice is
given.)
(ii) You may terminate this agreement by giving thirty (30) days notice,
if Divergent undermines your position as Managing Director or acts
in a manner tantamount to dismissing you whereupon the provision
contained in Sub-Clause 10(a)(i) shall apply.
(iii) Any amount payable by Divergent under Clause 120(a)(i) and Clause
10(a)(ii) must be paid in full upon termination of your employment.
For the purposes of this Clause "bankruptcy" shall mean that Shaun Rosen is
declared to be bankrupt and a trustee is appointed to his insolvent estate
within the meaning of the Bankruptcy Act 1966 and "insanity" shall mean that
Shaun Rosen is determined to be insane in accordance with the provisions of the
Mental Health Act, 1990 by two (2) medical practitioners practising as
psychiatrists.
(b) Divergent may terminate your employment summarily and without notice if
you:
(i) Commit a serious material breach of this agreement whereby the
status of Divergent is undermined; and
(ii) Are convicted of a serious criminal offence of a commercial nature
excluding matters relating to taxation.
(c) Upon termination for any reason, you will have no further claim other than
mentioned in Clause 10(a) hereof against Divergent for compensation for
loss of office in respect of the termination.
(d) Divergent's premises are a smoke free working environment and you are not
permitted to smoke on those premises during work hours.
10. INCONSISTENCY
This agreement shall be construed subject to any applicable legislation, rule,
regulation, ward or agreement (collectively "APPLICABLE LEGISLATION") to the
intent and effect that if any provision of this agreement is inconsistent with
the terms of any applicable legislation which may not be varied or contracted
out of then the terms of the applicable legislation shall prevail and this
agreement shall to the extent of the inconsistency be inoperative.
<PAGE>
5
11. ENFORCEMENT
(a) You acknowledge that damages may be inadequate compensation for breach of
this agreement, and, subject to the court's discretion, divergent may
restrain, by an injunction or similar remedy, any conduct or threatened
conduct which is or will be a breach of this agreement.
(b) You acknowledge that the obligations conferred on you by the agreement are
necessary to protect the interests of Divergent and that you are unaware
that Divergent intends to use its best endeavours and resources to enforce
these obligations to the maximum extent possible.
12. PROPER LAW
This agreement shall be governed by and construed in accordance with the law for
the time being in force in the State of New South Wales and both parties submit
to the non-exclusive jurisdiction of the Courts of that State.
Yours sincerely
______________________
<PAGE>
LEASE Land Titles Office use only
Real Property Act, 1900
[seal] Office of State Revenue use only
(A) PROPERTY LEASED
Show no more than 20 References to Title.
Specify the part or premises if appropriate.
-------------------------------------------------
Certificates of Title Folio Identifiers
6 /SP47021
7 /SP47021
8 /SP47021
9 /SP47021
10/SP47021
11/SP47021
-------------------------------------------------
(B) LODGED BY -------------------------------------------------
L.T.O. Box Name, Address or DX and Telephone
REFERENCE (max. 15 characters):
-------------------------------------------------
(C) LESSOR REEFMIST PTY LIMITED ACN 069 718 387
(D) The lessor leases to the lessee the property described above subject to the
following ENCUMBRANCES
1. .............. 2. .............. 3. .............. 4. ..............
(E) LESSEE ------------------------------------------------------------
DIVERGENT TECHNOLOGIES PTY LIMITED ACN 003 908 325
as joint tenants/tenants in common
------------------------------------------------------------
(G) 1. TERM: Ten (10) years
2. COMMENCING DATE: 1 November 1996
3. TERMINATING DATE: 31 October 2006
4. With an OPTION TO RENEW for a period of Five (5) years set out it
Part 14
Incorporates the provisions set out in ANNEXURE "A" hereto.
<PAGE>
We certify this dealing correct for the purposes of the Real Property Act, 1900
DATE OF EXECUTION ........
Signed in my presence by the lessor who is personally known to me
[SEAL]
THE COMMON SEAL of
REEFMIST PTY LIMITED
was hereunto affixed..../s/ Alan Treisman
Signature of Witness
in accordance with its
Articles of Association
in the presence of:....Alan Treisman
Name of Witness (BLOCK LETTERS)
L/8 Kobada Road, Dover Heights /s/ signature
- ---------------------------------- -------------------------
Address of Witness Signature of Lessor
Signed in my presence by the lessor who is personally known to me
[SEAL]
THE COMMON SEAL OF [OF DIVERGENT]
DIVERGENT TECHNOLOGIES PTY LIMITED [TECHNOLOGIES]
was hereunto affixed..../s/ Alan Treisman
Signature of Witness
in accordance with its
Articles of Association
in the presence of:....Alan Treisman
Name of Witness (BLOCK LETTERS)
L/8 Kobada Road, Dover Heights /s/ signature
- ---------------------------------- -------------------------
Address of Witness Signature of Lessee
I solemnly and sincerely declare that the time for the exercise of the
Option to Renew/Purchase in expired lease No._____________ has ended and
the lessee under that lease has not exercised the option.
I make this solemn declaration conscientiously believing the same to be true
and by virtue of the Oaths Act, 1900.
Made and subscribed at _____________________ in the State of ___________________
on ___________________ 19____________ in the presence of
_________________________
Signature of Witness
_______________________________
Name of Witness (BLOCK LETTERS)
____________________________________ ____________________________
Address of Witness Signature of Lessor
<PAGE>
THIS PAGE AND THE SUCCEEDING 26 PACES IS THE ANNEXURE MARKED "A"
COMPRISING SCHEDULE TWO OF THE LEASE DATED DAY OF NOVEMBER 1996
BETWEEN REEFMIST PTY LIMITED ACN 969 711 387 AS LESSOR AND DIVERGENT
TECHNOLOGIES PTY LIMITED ACN 003 908 325 AS LESSEE
THE LESS0R AND THE LESSEE HEREBY EXPRESSLY MUTUALLY COVENANT AND AGREE
THE ONE WITH THE OTHER AS FOLLOWS
PART 1. - INTERPRETATION
- ------------------------
1.1 In the interpretation of this Lease and the Schedules hereto except to
the extent to which such interpretation shall be excluded by or be
repugnant to the context.-
1.1.1 The expression "the Lessor" means the person referred to as the
Lessor in the front page of this Lease and includes his
successors and assigns.
1.1.2 The expression "the Lessee" means the person referred to as the
Lessee in the front page of this Lease and includes his
successors and permitted assigns AND extends to and includes any
permitted sub-tenant of the Lessee.
1.1.3 The expression "the Guarantor" means the person or persons (if
any) specified in Item 9.
1.1.4 The expression "the Demised Premises" means the part of the Land
and the Building referred to on the front page of this Lease
which for the purposes of obligation as well as grant shall
exclude any common parts but include the surface of all internal
walls floors and ceilings and all floor and wall coverings all
doors and door frames all windows and window frames all internal
partitioning (erected by the Lessor or the Lessee at any time)
and all the Lessor's fixtures and fittings (excepting any heating
air conditioning and ventilation plant not exclusively serving
the premises).
1.1.5 The expression "the Land" means the land which as at the date
hereof is or was comprised in Certificates of Title or Folio
Identifiers specified in Item 9.
1.1.6 The expression "The Building" means the improvements erected on
the Land including any extensions or modifications thereto from
time to time and all fittings fixtures (other than tenant's
fixtures and fittings) plant equipment and machinery conveniences
amenities and appurtenances thereto and thereof including without
prejudice to the foregoing any gardens foot and vehicular ways
within the land and all fences within and on the boundary of the
Land.
1.1.7 The expression "the Common Parts" means any passageways walkways
staircases parades entrances lobbies foyer decoration gardens
pavements lawns and other parts of the building nut demised or
intended to be demised by the Lessor which are for the common use
enjoyment or benefit of the Lessee and other occupants of
premises in the Building notwithstanding that they may also be
used or enjoyed by or be of benefit of the public.
<PAGE>
2
1.1.8 The expression "this LEASE" means the lease to which this
Annexure "A" is annexed.
1.1.9 The expression "the Rent" means the initial yearly amount
specified in Item 1 together with and including any increases
thereto in accordance with the provisions of Part 13 hereof.
1.1.10 The expression "Lessee Party" means and includes any or the
Lessee and any servants agents and employee contractor or visitor
of the Lessee or any person claiming through or under him or any
pursuit under the control or direction of the Lessee.
1.1.11 The expression "the Term" means the term granted by this Lease.
1.1.12 The expression "the Review Dates" means those dates specified in
Item 6.
1.1.13 Words importing a person shall be deemed to include a corporation
or firm and vice versa.
1.1.14 Words importing the singular or plural number shall be deemed to
include the plural and singular number respectively.
1.1.15 When two or more persons comprise the Lessee or Guarantor all the
covenants conditions terms and restrictions shall bind such
persons and any two or greater number of them jointly and each of
them severally and shall also bind the respective personal
representatives assigns and successors in title of each of them
jointly and severally.
1.1.16 Words importing any gender shall include every other gender as
the case may require.
1.1.17 The headings or marginal notes contained herein are inserted for
reference purposes only and shall not be construed as forming
part of this document nor shall they affect the interpretation
thereof in any way whatsoever.
1.1.18 Any statutory provisions shall be construed as a reference to the
provisions as respectively amended or re-enacted (either before
or after the date of this Lease) from time to time.
1.1.19 This Lease shall include the Reference Schedule to this Lease the
contents of which Reference Schedule shall be read and construed
as if they were set out in the body of this Lease.
1.1.20 An item number shall mean the respective items set out in the
Reference Schedule to this Lease and,
1.1.21 A clause number shall mean the respective clauses of this Lease.
<PAGE>
3
1.2 In the event or there being a Guarantor to this Lease set out in Item 9
this Lease shall be deemed to be granted at the request of the Guarantor.
1.3 Any covenant or agreement by the Lessee not to do or omit any act or
thing shall be deemed to extend to an obligation not to permit any third
party to do or omit the same.
1.4 Any approval consent permission or notice pursuant to this Lease shall
not be valid unless in writing.
1.5 This Lease shall be read and construed and take effect in accordance
with the laws of New South Wales.
1.6 The Lessor shall be entitled to exercise any right on its behalf
expressed in or implied by this Lease by itself its employees agents
servants or contractors
1.7 To the extent permitted by law the application to this Lease and the
provisions hereof or any moratorium or other Commonwealth or State
Statute ordinance rule or regulation which reduces or postpones the
payment of the rent or extends the Term or otherwise affects the
operation of any of the provisions of this Lease to the detriment of the
Lessor is hereby expressly excluded and negatived.
1.8 The Lessor and the Lessee hereby agree and declare that any provision of
this Lease which is or shall be or become in breach of the Trade
Practices Act 1974 or any other Commonwealth or State statute rule or
regulation and in consequence of such breach us void voidable
unenforceable or invalid shall in my such case and for so long as it is
in breach as aforesaid be severable from this Lease and this Lease shall
be read and construed as if such provision was not expressed herein.
PART 2.- EXCLUSION OF IMPLIED COVENANTS AND POWERS
- --------------------------------------------------
2.1 The covenants and powers implied in every lease by virtue of Sections 84,
84A and 85 of the Conveyancing Act 1919 shall not apply to or be implied
in this Lease except an so far as the same or some part or parts thereof
are included in the covenants hereinafter contained.
PART 3. - RENT
- --------------
3.1 The Lessee shall pay to the Lessor without demand or deduction during the
Term the Rent at the amount per annum set out in Item 1 (and at the same
rate for a portion of such period) in the manner set out in Item 2
(including any alterations in the Rent determined in accordance with the
provisions of Part 13).
3.2 The Lessee will as and when same becomes due for payment pay all accounts
for the supply of all excess water and gas, electricity, telephone and
other services to or from the Demised Premises according to the meter
readings thereof or in the event of then being no meter or of any meter
being defective then for the amount of water, gas,
<PAGE>
4
electricity, telephone or other services or charges which shall be
assessed by the corporation or authority supplying the same.
PART 4 - USE OF THE DEMISED PREMISES AND ASSIGNMENT
- ---------------------------------------------------
Permitted Use.
4.1 The Lessee will not use the Demised Promises or permit the Demised
Premises to be used for any purpose other than in connection with the
business of the Lessee as set out in Item 3 or such other purpose to
which the Lesser may consent.
4.2 The Lessor gives no warranty as to the use to which the Demised Premises
may be put and the Lessee shall satisfy itself thereon and at its own
expense obtain all necessary consents and approvals to its use of the
Demised Premises.
No Noxious etc. Use:
4.3 The Lessee will not permit any noxious poisons immoral illegal or
offensive act trade business occupation or calling to be exercised
carried on permitted or suffered to or upon the Demised Premises at any
time during the Term and will not permit any act matter or thing
whatsoever to be done in or upon the Demised Premises at any time during
the Term which shall or may cause annoyance nuisance grievance damage or
disturbance to the occupiers or owners of other premises in the Building
or to the occupiers or owners of adjoining or neighbouring lands or
buildings.
No Assignment:
4.4 The Lessee will not during the continuance of this Lease assign transfer
mortgage charge or otherwise deal with the Lessee's interest in the
Demised Premises or demise sublet or part with or share the possession of
or grant any license affecting the Demised Premises or any act or deed
procure any of the foregoing Any assignment transfer subletting or
licence of the whole of the Demised Premises shall be deemed not to be a
breech of the foregoing provisions of this Clause if prior thereto the
Lessee either has not committed any default under this Lease or has
committed a default under this Lease which has been waived or excused and
if prior thereto:-
4.1.1 the Lessee has proved to the satisfaction of the Lessor that the
proposed assignee transferee sub-lessee or licensee (hereinafter
called "the Ingoing Tenant") is a respectable responsible and
solvent person capable of adequately carrying on the business
permitted under this Lease or other business approved by the
Lessor to be carried on in the Demised Premises;
4.4.2 the Ingoing Tenant has entered into a covenant with the Lessor in
the form requested by the Lessor that be will duly perform and
observe the covenants and agreements on the Lessee's part herein
contained. In this respect the Lessor shall have the right to
require any further covenant or guarantee that the Lessor in its
sole discretion may require.
<PAGE>
5
4.4.3 the Ingoing Tenant has furnished the Lessor such guarantee or
guarantees of the performance of his obligations under the Lease
as the Lessor shall require;
4.4.4 the Lessee has entered into a Deed in the form required by the
Lessor under which the Lessee releases the Lessor from all claims
against the Lessor in respect of, or in any way arising from,
this lease; and
4.4.5 in the case of a sublease or licence the Lessee has established
to the satisfaction of the Lessor that the Ingoing Tenant is
obliged to pay a full market rental or licence fee.
4.5 The Lessor shall upon any assignments of this Lease not be obliged or
required to release the Lessee from the covenants on its part herein
contained or the Guarantor from the guarantee herein contained and
nothing expressed in this Lease shall imply any such release.
4.6 Where the Lessee is a corporation the shares in which are not listed on
any member exchange of the Australian Associated Stock Exchanges and
there is an alteration in the beneficial ownership of or issue of further
shares in the share capital of the Lessee which in the reasonable opinion
of the Lessor alters the effective control of the Lessee from the control
thereof at the date of this Lease such change in control of the Lessee
shall be deemed to be an assignment of this Lease PROVIDED THAT the
provisions of this sub-clause shall not apply to the Lessee, but shall
apply in respect of any assignee of the Lease.
PART 5. - MAINTENANCE. REPAIR AND ALTERATIONS
- ---------------------------------------------
To keep in Repair:
5.1 The Lessee will at all times during the Term and during any period of
holding over maintain and keep the Demised Premises in good and
substantial repair order and condition to the satisfaction of the Lessor
having regard to the age of the Demised Premises and in all respects and
as nearly as possible in the same condition as at the time of erection or
installation of the same and for the purposes aforesaid the Lessee shall
if required by the Lessor effect and keep in force comprehensive
maintenance and repair contracts with a competent person approved by the
Lessor in respect of air conditioning plant fire fighting equipment and
other plant and equipment which exclusively serve the Demised Premises.
The Lessee shall not be required to undertake any work of a structural
nature.
Fire Fighting Equipment:
5.2 The Lessee will maintain all fire-fighting and fire-prevention equipment
now in the Demised Premises in good working order and condition to the
standard specified by the Lessor or if not specified to the standard from
time to time adopted by the Standards Association of Australia and hive
same inspected at least once in every year of the Term by the relevant
fire authority.
<PAGE>
6
To paint etc.:
5.3 Without prejudice to the provisions of Clause 5.1 hereof the Lessee will
at intervals specified in Item 4 and from time to time if necessary or
reasonably required by the Lessor paint repaint clean wallpaper stain or
otherwise appropriately treat in a proper and workmanlike manner such
internal parts of the Demised Premises usually so treated.
To keep Clean:
5.4 The Lessee will during the term cause the Demised Premises to be kept
clean and free from dirt and rubbish and particularly shall store and
keep all trade waste trash and garbage in proper receptacles and arrange
for the regular removal thereof from the Demised Premises.
Broken Glass etc.:
5.5 The Lessee will immediately repair and replace all broken glass including
exterior windows with glass of the same or similar quality and all
damaged or broken heating lighting or electrical equipment and plumbing
installed upon the Demised Premises.
Lessor may Inspect:
5.6 The Lessor may at all reasonable times upon giving to the Lessee
reasonable notice (except in the case of emergency when no notice shall
be required) enter upon the Demised Premises and view the state of repair
thereof and may serve upon the Lessee a notice in writing of any defect
for the repair of which the Lessee may be responsible hereunder requiring
the Lessee within a reasonable time to repair the same. All expenses
incurred by the Lessor in relation to the serving of such notices shall
be reimbursed to the Lessor by the Lessee.
Lessor may Repair:
5.7 The Lessor may at all reasonable times upon giving to the Lessee
reasonable notice (except in the case of emergency when no notice shall
be required) enter upon the Demised Premises with workmen and others and
all necessary materials for the purpose of complying with any request
requirement notification or order of any Authority having jurisdiction or
authority over or in respect of the Demised Premises for which the Lessee
is not liable under its covenants herein contained or for carrying out
such repairs renovations maintenance modifications extensions or
alterations to the Demised Premises deemed necessary or desirable by the
Lessor provided always that in the exercise of any such power under this
Clause no undue inconvenience shall be caused to the Lessee.
Alterations and Additions:
5.8 The Lessee will not nor will it permit any person to partition the
Demised Premises or make any alteration or addition to the structure or
exterior of the Demised Premises
<PAGE>
7
or any partitions therein or any additions or alterations thereto without
the prior consent in writing of the Lessor (such consent not to be
unreasonably withheld) and shall in the course of such partitioning
alterations or additions made with the consent or the Lessor observe and
comply with all requirements of the Lessor and public authorities.
Without prejudice to the foregoing provisions of this Clause the Lessee
will when applying for the Lessors approval to any alterations or
additions to the Demised Premises submit with the application drawings
and specifications in respect thereof prepared by a qualified consultant
or consultants approved by the Lessor. Work in respect of alterations or
additions to the Demised Premises approved by the Lessor shall only be
carried out by the contractors or qualified tradesmen approved by the
Lessor and if required by the Lessor the Lessee shall on completion of
such work hand to the Lessor a certificate by a consultant approved by
the Lessor to the effect that such work has been carried out in
accordance with the drawings and specifications relating thereto and in
accordance with the requirements of all relevant public authorities. In
making any decision pursuant to this Clause the Lessor may refit to any
consultant and during the construction of such alterations and additions
the Lessor may require periodic inspections thereof by its consultants
and all the Lessor's expenses of such references and inspections shall be
met by the Lessee.
To maintain Lessee's equipment:
5.9 The Lessee will at all times during the Term keep and maintain clean and
in good and substantial repair working order and condition all machinery
plant equipment fixtures fittings and furnishings of the Lessee.
PART 6. - AIR CONDITIONING
- --------------------------
Installation:
6.1 The Lessee may subject to obtaining the Lessor's prior consent in writing
install at the Lessee's own expense additional plant machinery or
equipment for heating cooling or circulating air (all of which are herein
included in the expression "air conditioning plant")
Operation and Maintenance:
6.2 Such air conditioning plant shall be and remain the property of the
Lessee who shall be responsible for all operating costs maintenance and
insurance thereof.
Removal:
6.3 If so required by the Lessor such air conditioning plant (or the relevant
portion thereof) shall be removed by the Lessee from all portions of the
Demised Premises vacated by the Lessee at or prior to the expiration of
the occupation of' the Demised Premises by the Lessee and in default
thereof the Lessor may at the expense of the Lessee remove and dispose of
the same and any air conditioning plant not so removed by the Lessee
prior to the expiration of the occupation of the Demised Premises by the
Lessee shall become the property of the Lessor.
<PAGE>
8
Damage:
6.4 All damage done to the Demised Premises by reason of such installation or
removal aforesaid shall be made good by the Lessee and if the Lessee
fails so to do the Lessor may make good all such damage at the expense of
the Lessee.
PART 7. - GENERAL LESSEE'S COVENANTS
- ------------------------------------
Remove Signs and Rectify Damage:
7.1 The Lessee will not erect or display any signs or advertisement on the
exterior of he Demised Premises (or within the Demised Premises so that
such sign or advertisement can be seen from the exterior of the Building)
without the consent in writing of the Lesser (such consent not to be
unreasonably withheld) and the consents of all relevant and competent
authorities and will erect any such permitted sign or advertisement in a
good and workmanlike manner and make good all damage caused by such
erection and upon the termination of this Lease remove such sign or
advertisement and make good any damage caused to the Demised Premises by
such removal.
Requirements of Public Authorities:
7.2 From time to time the Lessee will forthwith comply at its own expense
with all statutes ordinances proclamations orders and regulations present
or future affecting or relating to the Demised Premises or the use
thereof and with all requirements which may be made or notices or orders
which may he given to the Lessor or the Lessee by. any governmental
semi-governmental city municipal health licensing or any other authority
having jurisdiction or authority in respect or the Demised Premises or
the use thereof and copies of any notices or orders received by the
Lessee shall forthwith be delivered to the Lessor PROVIDED THAT the
provisions of this sub-clause shall not apply to structural work unless
the need for same arises from the Lessee's use and/or occupation of the
Demised Premises.
Floor Overloading:
7.3 The Lessee will not do or permit or suffer to be done upon the Demised
Premises anything in the nature of overloading any floor or any other
part of the structure of the Building whereby the Building may be
strained or any walls or floors or other part thereof be caused to sag or
deflect from she right lines of the Building or whereby the Building may
be otherwise damaged.
Noise and Other Damage:
7.4 The Lessee will not without the written consent of the Lessor install use
place or permit or suffer to be brought into the Demised Premises any
plant machinery or other articles winch may cause undue noise or
vibrations or which are of a weight or size which may cause damage
directly or indirectly to the Building.
<PAGE>
9
Use of Lavatories etc.:
7.5 The Lessee will not use nor permit nor suffer to be used the lavatories
toilets sinks and drainage and other plumbing facilities in the Demised
Premises for any purposes other than those for which they were
constructed or provided and shall not deposit nor permit to be deposited
therein any sweepings rubbish or other matter and any damage thereto
caused by misuse shall be made good by the Lessee forthwith.
Dangerous Substances etc.:
7.6 The Lessee will not bring onto the Demised Premises any dangerous
inflammable explosive noxious or offensive substances except in the
ordinary course of the Lessee's business (permitted by this Lease to be
carried on at the Demised Premises) and provided that the Lessee shall
ensure thaw all proper and prudent measures are taken in the storage and
use of any such substances and that the Lessor is previously notified of
the nature and extent of any such substances brought onto the Demised
Premises
Pest Control:
7.7 The Lessee will take all reasonable precautions to keep the Demised
Premises free of rodents vermin insects pests birds and animals and in
the event of failing to do so will if so required by the Lessor but at
the cost of the Lessee employ from time to time or periodically pest
exterminators approved by the Lessor.
Overload Wires:
7.8 The Lessee will not overload the electric wires and cables serving the
Demised Premises.
Infectious Illness:
7.9 The Lessee will in the event or any infectious illness occurring in the
Demised Premises forthwith give notice thereof to the Lessor and to the
proper public authorities and at the expense of the Lessee will
thoroughly fumigate and disinfect the Demised Premises to the
satisfaction of the Lessor and such public authorities and otherwise
comply with their reasonable and lawful requirements in regard to the
same.
Notice of Defects:
7.10 The Lessee will give to the Lessor prompt notice in writing of any
accident to or defect or want of repair in any services or fixtures
fittings plant or equipment in the Demised Premises and or any
circumstances likely to be or to cause any danger risk or hazard to the
Demised Premises or to the Building or any person therein or thereon.
Particulars or Notice:
7.11 The Lessee will give to the Lessor full particulars of any permission
notice order requirement recommendation or proposal given or issued in
respect of or in connection
<PAGE>
10
with the Demised Premises by any competent authority within seven (7)
days or its receipt by the Lessee.
Compliance with Rules:
7.12 The Lessee will comply with such reasonable rules as the Lessor may now
or in the future make for the more efficient management of the Building
(including its security and that of its lessees and occupants).
Observance of Restrictions on Certificate of Title:
7.13 The Lessee will at all times observe and perform the restrictions
stipulations and covenants (if any) referred to in the certificate(s) of
title in respect of the Building and or the Land.
Obstruction of Windows or Ventilators:
7.14 The Lessee will not obstruct any of the windows or ventilators belonging
to the Demised Premises nor to permit any new window or ventilator or
other encroachment or easement of which the Lessee is aware to be made
against or over the Demised Premises.
7.15 The Lessee will not cause any damage to or obstruction of any of the
Common Parts or to any road or laneway serving the Building and not to
place or store any goods outside the Demised Premises.
PART 8 - INSURANCE
- ------------------
Public Risk Insurance:
8.1 The Lessee will at its own cost effect and at all times keep in full
force and effect a policy of public risk insurance with a reputable and
solvent insurer with respect to the Demised Premises and the business
carried on in the Demised Premises in which limits of public risk shall
be not less than the amount specified in Item 5 (or such other amount as
the Lessor may from time to time reasonably require) as the amount
payable in respect or liability arising out of any one single accident or
event and shall deliver to the Lessor on demand a copy of the policy and
a current certificate of insurance.
Plate Glass insurance:
8.2 The Lessee will at its own cost effect and at all times keep in full
force and effect plate glass insurance (for the full replacement value
thereof) in respect of all plate glass attached to or forming part of the
Demised Premises and shall deliver to the Lessor on demand a copy of the
policy and a current certificate of insurance.
8.3 The Lessee will include as the insured parties in respect of each of the
policies effected pursuant to Clause 8.1 and 8.2 the Lessor any superior
lessor and any person
<PAGE>
11
or persons nominated by the Lessor as being mortgagees of the Building and
the Lessee.
Indemnity:
8.4 The Lessee will indemnify and hereby does indemnify and hold indemnified
the Lessor from and against all actions claims demands losses damage costs
and expenses which the Lessor may sustain or incur or for which the Lessor
may become liable whether during or after the Term in respect of or arising
from:-
8.4.1 the neglect or default of any Lessee Party to observe at perform
any of the terms covenants and conditions expressed in or implied
in this Lease;
8.4.2 the negligent use of misuse waste or abuse by any Lessee Party of
any water gas electricity or other services to the Building;
8.4.3 the overflow leakage or escape of water fire gas electricity or
any other harmful agent whatsoever in or from the Demised
Premises;
8.4.4 the failure of the Lessee upon becoming aware of any defect in
any of the air conditioning fire prevention equipment or other
facilities presently available in relation to the Demised
Premises to notify the Lessor of such defect;
8.4.5 the use of the Demised Premises and the common Parts by any
Lessee Party;
8.4.6 the carrying out of any additions or alterations or other works
to the Demised Premises by any Lessee Party;
8.4.7 the use by any Lessee Party of any car parking facilities in the
area permitted by this Lease;
and it is hereby agreed that the Lessor shall not be liable or in any way
responsible to the Lessee or any Lessee Party for any injury loss or damage
which may be suffered or sustained to any property or by any person on the
Demised Premises unless caused by the wilful act or omission of the Lessor
its servants or agents.
Compliance with Requirements:
8.5 The Lessee will comply with all requirements and recommendations of the
Insurers of the Building and not do or omit to do anything on the Demised
Premises which may increase the premium above the ordinary rate render any
additional premium payable for the insurance of the Building or of any
neighbouring premises or which may make void or voidable any policy of such
insurance and to reimburse the Lessor forthwith on demand any additional
premium which may have been paid or become payable by reason of any such
act or omission together with all expenses incurred by the Lessor in
relation to the removal of any policy of insurance.
<PAGE>
12
Inform:
8.6 The Lessee will inform the Lessor of any reason why in the Lessee's opinion
the Lessor's insurable interest in the Demised Premises or in any adjoining
premises may be effected.
Insurances Money Irrecoverable:
8.7 In the event of the Demised Premises or any part thereof being damaged or
destroyed at any time during the Term and the insurance money under the
insurance policy effected thereon being wholly or partially irrecoverable
by reason solely or in part of any act or default of the Lessee or its
respective agents servants invitees or licensees the Lessee will forthwith
pay then and in every such case to the Lessor the whole or as the case may
require a fair proportion of the cost of rebuilding and reinstating the
same.
Heating:
8.8 The Lessee will not use or permit or suffer to be used any method of
heating or lighting the Demised Premises in contravention of any policy of
insurance in respect of the Demised Premises.
Fire Regulations:
8.9 The Lessee will comply with insurance sprinkler and fire alarm regulations
from time to time affecting the Demised Premises and the Lessee will pay to
the Lessor the cost of any alterations to the sprinkler and fire alarm
installation which may be required by any competent Authority or which may
become necessary by reason of the non-compliance by the Lessee with the
said regulations.
Lessee to Pay Additional Insurance Premiums:
8.10 In the event that the Lessor shall approve in writing of the proposal of
the Lessee to increase the risk of damage by fire or other cause the Lessee
shall pay any extra premiums of insurance on the Building or any property
therein required on account of the extra risk caused by the use to which
the Demised Premises are put by the Lessee with approval as aforesaid.
PART 9. - LESSOR'S COVENANTS AND REMOVAL OF LESSEE'S FIXTURES AND FITTINGS
- --------------------------------------------------------------------------
Quiet enjoyment:
9.1 The Lessee paying the rent hereby reserved and duly and punctually
observing and performing the covenants obligations and provisions in this
Lease on the part of the Lessee to be observed and performed, shall and may
peaceably possess and enjoy the Demised Premises during the Term without
any interruption or disturbances from the Lessor or any other person or
persons lawfully claiming by from or under the Lessor.
<PAGE>
13
Removal of Lessee's Fixtures and Fittings:
9.2 The Lessee may at or prior to the determination of this Lease (and will if
so required by the Lessor at or immediately following the expiration or
sooner determination of the Term) take remove and carry away from the
Demised Premises all fixtures fittings plant equipment or other articles
upon the Demised Premises in the nature of trade or tenant's fixtures
brought upon the Demised Premises by the Lessee together with any items
referred to in Clause 7.1 hereof and shall if required by the Lessor
restore the Demised Premises to their condition prior to any alterations or
additions carried out by the Lessee to the structure or fabric of the
Demised Premises but the Lessee shall in such removal or restoration do no
damage to the Demised Premises and shall forthwith make good any damage
which may have been occasioned thereto by such articles alterations or
additions or by the Lessee in such removal of restoration.
Lessee's Fixtures not Removed:
9.3 If the Lessee does not remove and carry away any of such fixtures fittings
plant equipment and other articles or items or restore any such alterations
or additions at or immediately following the determination of this Lease
the Lessor may at the expense of the Lessee remove and dispose of the same
and make good any damage and any of such fixtures fittings plant equipment
and other articles or items or alterations or additions not removed by the
Lessee as aforesaid shall become the property of the Lessor.
Insurance by Lessor:
9.4 The Lessor will at all times during the Term (unless such insurance shall
be avoided by any act or omission of the Lessee as aforesaid) insure and
keep insured the Building against the risks referred to in Clause 1.1.13.3
and will whenever required (but not more than twice in every calendar year)
produce a certificate to the Lessee in respect of such insurance.
Holding over:
9.5 In the event of the Lessee holding over after the expiration or sooner
determination of the Term with re consent of the Lessor the Lessee shall
_________ a monthly tenant only of the Lessor at a monthly rental
equivalent to a monthly proportion of the Rent reserved and payable by the
Lessee ___________________________________ determination of the Term or at
a monthly rental as may be agreed upon between the Lessor and the Lessee
and otherwise on the same terms and conditions as those herein contained as
far as applicable.
PART 10. - DESTRUCTION OF PREMISES
- ----------------------------------
10.1 If during the Term of this Lease the Building shall be destroyed or damaged
so as to
<PAGE>
render the Demised Premises or any part thereof substantially unfit for the
use and occupation by the Lessee or so as to deprive the Lessee of
substantial use of or access to the same: -
<PAGE>
14
10.1.1 This Lease may be terminated without compensation by either the Lessor or
the Lessee by notice in writing to the other provided that the Lessee
shall not be entitled to terminate the Lease unless the Lessor shall
unreasonably delay in rebuilding or reinstating the Demised Premises.
10.1.2 Any such termination as aforesaid shall be without prejudice to the
rights of either party in respect of my antecedent breach matter or
thing.
10.1.3 On the happening of any such damage or destruction as aforesaid (provided
that any insurance moneys that have been payable to the Lessor are not
wholly or partially irrecoverable by reason of any act or default of the
Lessee or its respective agents servants invitees or licensees) the Rent
hereinbefore reserved or a proportionate part thereof according to the
nature and extent of the damage sustained shall abate and all or any
remedies for the recovery of the Rent or such proportionate part thereof
shall be suspended until the Demised Premises shall have been rebuilt or
reinstated or made fit for the occupation and use of the Lessee or until
access thereto shall have been provided or until the Lease shall be
terminated pursuant to the provisions hereof as the case may be. In the
event of any dispute arising out of this clause the same shall be
determined by a valuer agreed between the parties or failing agreement
appointed for such purpose by the president or secretary for the time
being of the New South Wales Real Estate Institute. Such valuer shall be
deemed to be acting as an expert and not as an arbitrator and his fees
shall be borne by the Lessor and Lessee in equal shares.
No Obligation to Rebuild:
10.2 Nothing expressed in or implied by this Lease shall be deemed to impose
any obligation upon the Lessor to rebuild or reinstate or make fit for
occupation the Demised Premises or the Building in the event of damage
thereto or destruction thereof.
PART 11. - DEFAULT, TERMINATION, ETC.
- -------------------------------------
11.1 Notwithstanding any provision to the contrary expressed in or implied by
this Lease upon the happening of any of the following events the Lessor
shall be entitled to exercise any of the rights specified in Clause
11.2;-
11.1.1 If the Rent or any part thereof or any other money (whether or
not in the nature of rent) shall be in arrears of unpaid for a
period of fourteen (14) days (whether or not formally demanded);
11.1.2 If the Lessee shall default in the due observance and performance
of any covenant condition restriction agreement or regulation
(not relating to the payment of the Rent or other moneys (whether
or not in the nature of rent)) expressed in or implied by this
Lease on its part to be observed and performed provided that in
so far as such default is reasonably capable of remedy the
<PAGE>
15
Lessor shall first give the Lessee not less than fourteen (14)
days notice requiring the default to be remedied;
11.1.3 If in the event of the Lessee being a corporation:-
11.1.3.1 an order is made or a resolution is passed for its
winding up or proceedings are initiated or a meeting
called to obtain any such order or to pass such
resolution;
11.1.3.2 a receiver manager administrator or receiver and
manager and administrator of its undertaking or any
part thereof is appointed or an official manager or
provisional liquidator or administrator is appointed;
11.1.13.3 if there shall be without the consent of the Lessor
any sale transfer or other disposition whatsoever of
the shares in its issued capital or any issue or
allotment of any new shares in its capital or any
other act matter or thing whatsoever done or performed
the effect of which is to transfer whether directly or
indirectly to any person persons company or companies
its effective management and control.
11.1.4 If the Lessee being an individual;-
11.1.4.1 dies or becomes incapable of managing his own affairs;
11.1.4.2 is declared bankrupt or makes any arrangement with his
creditors;
11.1.5 If any execution or other process of any Court or other authority
issues out against or is levied upon any of the property of the
Lessee;
11.1.6 If the Lessee stops or threatens to stop payment of its debts or
shall without the consent in writing of the Lessor cease or
threaten to cease to carry on its business;
11.1.7 If any warranty or representation expressed in or implied by this
Lease or otherwise made by or on behalf of the Lessee to the
Lessor prior to entering into this Lease shall be found to be
materially incorrect;
11.1.8 If a final judgment is entered in any Court against the Lessee
and is not satisfied within fourteen (14) days thereafter.
11.1.9 If the Lessee without the consent in writing or the Lessor first
had and obtained creates or purports to create any charge or
mortgage over its interest in this Lease.
<PAGE>
16
Re-entry or Surrender on Default
11.2 Upon the happening of any of the events specified in Clause 11.1 the
Lessor may In its absolute discretion:-
11.2.1 Subject to any notice required by statute immediately or at any
time thereafter and without any notice or previous demand
re-enter (forcibly if necessary) into and upon the Demised
Premises or part in parts thereof in the name of the whole and
repossess the same as of its former estate and to expel and
remove the Lessee and all other occupiers without liability for
the tort of trespass and without prejudice to any remedies which
might otherwise be available to the Lessor to recover arrears of
rent or to redress any antecedent breach of the covenants
conditions restrictions agreements and regulations on the part of
the Lessee expressed in or implied by this Lease and such
re-entry shall (unless the Lessor shall otherwise expressly
elect) automatically cause this Lease to cease determine and be
at an end as if it has thereupon expired by effusion of time but
the Lessee shall remain liable for all rents due to the date of
such re-entry and for all other moneys (if any) due hereunder and
in the event of any such re-entry the Lessor may retain any
furniture fittings fixtures or other items belonging to the
Lessee in the Demised Premises and the Lessor shall have the
right to sell such furniture fittings and fixtures or other items
by public auction and apply the proceeds of such sale towards the
payment of any moneys outstanding and payable to the Lessor
pursuant to this Lease.
11.2.2 By giving notice in writing to the Lessee to reduce the Term so
that it expires on a date being not prior to the seventh day
after the date of service of such notice; or
11.2.3 By giving notice in writing to the Lessee require the Lessee to
surrender the Lease on a date being not earlier than the seventh
day after the date of service of such notice and for the purposes
of effecting such surrender the Lessee hereby appoints the Lessor
and in the event of the Lessor being a corporation the directors
and secretary of the Lessor severally the attorneys of the Lessee
to do all such acts deeds and things and execute all such deeds
and documents (all at the cost of the Lessee) as are necessary to
effect and give full effect to any surrender so required.
11.3 The Lessee hereby agrees that any surrender required by the Lessor
pursuant to Clause 11.2.3 shall not prejudice the Lessor's rights and
entitlements with respect to any antecedent breach or default by the
Lessee of the provisions of this Lease.
Acceptance of Rent:
11.4 Demand for or acceptance of rent by the Lessor after default by the
Lessee under this Lease shall be without prejudice to the exercise by the
Lessor of the powers conferred upon it by Clause 11.2 hereof or any other
right power or privilege of the Lessor under this Lease and shall not
operate as an election by the Lessor either to exercise or not to
exercise any of such rights power of privileges.
<PAGE>
17
PART 12. - GENERAL
- ------------------
Exclusion of Warranties:
12.1 The Lessee acknowledges and declares that no promise representation
warranty or undertaking has been given by or on behalf of the Lessor in
respect to the suitability of the Demised Premises for any purpose or
business to be carried on therein or to any air-conditioning plant or
other plant or elevators or to the fittings finish facilities and
amenities of the Demised Premises.
Whole Agreement:
12.2 The covenants and provisions contained in this Lease expressly or by
statutory implication cover and comprise the whole of the agreement
between the parties hereto and it is expressly agreed and declared that
no further or other covenants or provisions whether in respect or the
Demised Premises or otherwise shall be deemed to be implied herein or to
arise between the parties hereto by way of collateral or other agreement
by reason of any promise representation warranty or undertaking given or
made by or on behalf of any party hereto on or prior to the execution
hereof and the existence of any such implication or collateral or other
agreement is hereby negatived.
Waiver:
12.3 No waiver by the Lessor of one breach of any covenant, obligation or
provision in this Lease contained or implied shall operate as a waiver or
another breach of the same or of any other covenant obligation or
provision in this lease contained or implied.
Premium:
12.4 Save as herein contained no premium or other consideration has been or is
to be paid to the Lessor hereunder by the Lessee or any other person.
Cost of Lease, etc.:
12.5 The Lessee hereby covenants with the Lessor to pay to the Lessor on
demand:
12.5.1 all reasonable and proper legal and other costs and
disbursements (including stamp duty) incurred by the Lessor in
relation to any application by the Lessee for consent to an
assignment of this lease or any other dealing with the Lessee's
interest herein or any other matter requiring the consent of the
Lessor pursuant to provisions hereof or in connection with any
breach of threatened breach of any of the terms hereof by the
Lessee and in connection with any proceedings for enforcement of
payment of the Rent or any other terms of this Lease;
12.5.2 upon the signing of this Lease the Lessor's reasonable legal
costs and disbursements in connection with this Lease and the
stamping and registration thereof including any consent and/or
lodgement fees charged by the Mortgagee.
<PAGE>
18
Lessee Not to Cause Acne Reduction
12.6 The Lessee will not without the consent in writing of the Lessor by any
act matter or deed or by any failure or omission impair reduce or
diminish directly or indirectly the Rent hereby reserved or impose or
cause or permit to be imposed on the Lessor any liability of the Lessee
under or by virtue of this Lease even though entitled so to do whether by
statue ordinance proclamation order regulation or moratorium (present or
future) or otherwise.
Notices:
12.7 All demands requisitions consents elections or notices shall be in
writing and may be given to or served upon a party hereto by being left
at the party's registered office or principal place of business in the
State or Territory in which the Demised Premises are situated or by being
posted to a prepaid certified or registered letter addressed to that
party at such office or principal place of business AND any such demand
requisition consent election or notice shall be deemed duly served at the
expiration of three (3) days after the time of posting AND in proving the
giving of the same it shall be sufficient to prove the envelope
containing the same was properly addressed stamped and registered and put
into a post office box in the Commonwealth of Australia. Any demand
requisition consent election nor notice may be signed by the Lessor or on
its behalf by any Manager the Secretary or other authorised office
managing agent or solicitor for the time being of the Lessor.
"For Sale" and "To Let" Notices;
12.8 The Lessee will at all reasonable times permit the Lessor to exhibit the
Demised Premises to prospective tenants or purchasers and will at all
times within the six (6) months immediately preceding the termination of
this Lease allow the Lessor to affix and exhibit where the Lessor shall
think fit at any time the usual "To Be Let" notices and will at all times
allow the Lessor to affix and exhibit where the Lessor shall think fit at
any time the usual "For Sale" notices in each case with the name and
address of the Lessor and/or its agent thereon and the Lessee will not
remove any such notice without the written consent of the Lessor.
Non-merger:
12.9 None of the terms or conditions of this Lease nor any act matter or thing
done under or by virtue of or in connection with this Lease or any other
agreement between the parties hereto shall operate as a merger of any of
the rights and remedies of the parties in or under this Lease or is or
under any such other agreement all of which shall continue in full force
and effect.
Supply Failure:
12.10 The Lessor will not be under any liability for any loss or damage
sustained by the Lessee or any other person at any time as a result of or
arising in any way out of the failure of the electricity or water supply
air conditioning or any other services or
<PAGE>
19
facilities provided by the Lessor for enjoyment by the Lessee in
conjunction with the Demised Premises.
Lessee's Obligations:
12.11 Whenever the Lessee is obligated or required hereunder to do or effect
any act matter or thing then the doing of such act matter or thing shall
unless this Lease otherwise provides be at the sole risk and expense of
the Lessee.
Grant Easements:
12.12 The Lessor shall be entitled for the purpose of the provision of public
or private access to and egress from the Demised Premises or support or
structures hereafter erected on or form adjoining lands or of services
(including water drainage gas and electricity supply and telephone and
electronic communication services) to grant easements or enter into any
arrangement or agreement with any of the owners lessees tenants or
occupiers or others interested in any land adjacent or near to the
Demised Premises or with any public authority as the Lessor think fit and
it may likewise for such aforesaid purpose dedicate land or transfer
grant or create any easement privilege or other right in favour of such
parties or in favour of any such adjoining or neighbouring land or any
public authority over or affecting the Demised Premises and this Lease
shall be deemed to be subject to any such agreement arrangement right
easement or privilege. Notwithstanding the reservation contained in this
Clause the Lessor in exercise of the rights herein conferred shall not
dedicate land or transfer grant or create any easement privilege or other
right to any other person which shall substantially or permanently
derogate from the enjoyment of rights conferred on the Lessee by this
Lease.
Lessee not to Carry Out Structural Repairs:
12.13 It is hereby acknowledged and agreed that the Lessee shall not be obliged
by anything expressed in or implied by this Lease to carry out any
structural repairs or works to the Building unless the same arise
(whether directly or indirectly) as a result of any of the following:-
12.13.1 the neglect or default by the Lessee or any servant agent
sub-tenant licensee or other person claiming through or under the
Lessee to observe or perform any of the terms covenants and
conditions expressed in or implied by this Lease;
12.13.2 the use or occupation of the Demised Premises by the Lessee or
any sub-tenant;
12.13.3 the employment of any person in the Demised Premises by the
Lessee or any sub-tenant;
12.13.4 the use of any fixtures fittings plant machinery or goods in the
Demised Premises by the Lessee or any sub-tenant.
<PAGE>
20
12.13.5 the carrying out of any alterations or additions to the Demised
Premises by the Lessee or any sub-tenant or the reinstatement of
the Demised Premises following any alterations in additions
thereto, and
12.13.6 the bringing on to the Demised Premises by the Lessee or any
subtenant of any plant machinery or other items (whether
consented to by the Lessor not)
In which event the Lessee shall at the option of the Lessor either at its
own coat forthwith repair and reinstate the structure or the Building so
requiring repair or carry out such structural works as may be necessary
to comply with the requirements of any competent authority to the
reasonable satisfaction of the Lessor and all relevant authorities or if
the Lessor has itself elected to carry out such repairs and reinstatement
or works the Lessee shall forthwith upon demand by the Lessor pay to the
Lessor all its costs and expenses (including all professional fees)
incurred in connection therewith.
Fundamental and Essential Terms:
12.14 Notwithstanding anything to the contrary expressed in or implied by this
Lease:
12.14.1 The Lessee hereby assures the Lessor that it will as all times
strictly and substantially comply with each and every covenant
condition restriction rule and agreement expressed in or implied
by this Lease on the Lessee's part to be performed or observed
and the Lessee acknowledges that the Lessor has entered into this
Lease on the basis of such assurance.
12.14.2 The Lessor and the Lessee hereby expressly agree and acknowledge
that each covenant condition restriction rule and agreement
expressed in or implied by this Lease on the Lessee's part to be
performed and observed is a fundamental and essential term of
this Lease.
12.14.3 The Lessor and the Lessee hereby expressly agree and acknowledge
that if:-
12.14.3.1 the Rent hereby reserved or any part thereof shall be
in arrears or unpaid for fourteen (14) days after
formal demand has been made for payment
12.14.3.2 the Lessee shall neglect to perform or observe any
covenant condition restriction rule or agreement
herein contained or implied on the Lessee's part to be
performed or observed:
12.14.3.3 the Lessee shall neglect to comply with any proper
notice given pursuant to this Lease;
<PAGE>
21
12.14.3.4 the Lessee (being a natural person) shall commit any
act of bankruptcy or have his estate sequestrated in
bankruptcy or shall assign his estate for the benefit
of creditors or enter into a Deed of Arrangement with
his creditors or enter into an arrangement for the
liquidation of his debts by composition or otherwise;
or
12.14.3.5 the Lessee (being a company) shall be subject to an
order for liquidation whether compulsory or voluntary
or commit any act of bankruptcy or if a receiver or
administrator shall be appointed over the whole or
part of its assets or undertaking or if the Term of
the interest of the Lessee hereunder or the goods and
chattels of the Lessee within the Demised Premises
shall be attached or taken in execution;
any such act matter or thing shall if the Lessor so elects (and
the Lessor shall deemed to have so elected if it exercises any
right of re-entry pursuant to Clause 11.2) constitute a
repudiation by the Lessee of this Lease so that the Lessor shall
without prejudice to any other rights it may have be entitled to
recover damages from the Lessee for the full extent of its loss
arising out of such repudiation.
Additional Guarantees
12.15 If any of the events specified in Clause 11.1.4 occurs with respect to
any Guarantor being a corporation or if any of the events specified in
Clause 11.1.5 occurs with respect to any Guarantor being an individual
then the Lessee shall within fourteen (14) days of such event procure an
additional guarantee of its obligations under this Lease (in the form
contained in Clause 18.1) by a respectable responsible and solvent person
acceptable to the Lessor.
PART 13. - RENT REVIEW
- ----------------------
Review Dates:
13.1 The Rent payable by the Lessee hereunder shall be reviewed on each of the
dates set out in Item 6 (each of which is herein called "Review Date") to
the sum being the greater of:.
13.1.1 the amount represented by A in the formula
A = B x C/D where
D = the rent payable as at the commencement of this Lease.
C = the index number realised for the quarter ending or
applicable as at the date of the rent increase calculated
pursuant to this sub-clause, and
<PAGE>
22
D = the index number realised for the quarter ending or
applicable as at the date of commencement of the
immediately preceding particular year of the lease.
13.1.1.1 In this sub-clause "Index Number" shall mean the
Consumer Price index Number for Sydney (all groups)
released from time to time in the Commonwealth
Statistician's Summary of Australian Statistics
together with any supplementary summary. In the event
that there is any suspension of discontinuance of the
Consumer Price Index by the Commonwealth Authorities
then "Index Number" shall mean the New South Wales
Male Basic or Minimum Wage applicable for the City of
Sydney. If the system or practice of the determination
of the New South Wales Male Basic or Minimum Wage
applicable for the City of Sydney shall also cease
then "Index Number" shall mean such Index published at
the relevant dates in the said Commonwealth
Statistician's Summary of Australian Statisticians
which reflects fluctuations of the cost of living in
Sydney and which the parties may mutually agree upon
and if they are unable to agree then such Index as may
be determined by the President (or other officer of
similar status) at the relevant times of the
Commonwealth Institute of Valuers (New South Wales
Division) or some person nominated by him whose
decision shall be conclusive and binding;
or
13.1.2 Market value as determined in accordance with the provision of
clauses 14.2, 14.3 and 14.4.
Payment Pending Determination:
13.2 Should the amount of the Rent not be determined as aforesaid before the
relevant Review Date the Lessee shall pending determination thereof pay
rent at the rate applicable prior to the Review Date but subject to the
revision thereof and upon the Rent being determined hereunder any
necessary adjustment of rent calculated from the adjustment date shall be
paid forthwith by the Lessee to the Lessor
PART 14. - OPTION
- -----------------
14.1 If the Lessee shall desire to take a renewed lease of the Demised
Premises for a term of years specified in Item 7 and shall give to the
Lessor previous notice of such desire not less than nor more than the
periods respectively specified in Item 8 prior to the expiration of the
Term and provided the Lessee is not then in default under the provisions
of this Lease whether express or implied the Lessor will at the cost and
expense of the Lessee grant to the Lease a renewal of this Lease for a
further term of years as specified in Item 7 and upon the same terms and
conditions as are contained in this Lease with the exception of this
Clause and save that the dates set
<PAGE>
23
forth in Item 6 hereto shall each be the same period from the date of
commencement of the new term as the dates therein set forth are from the
date of commencement of the Term and provided however that the Rent
payable pursuant to Item 1 of this Lease shall be the sum being the
amount which the Lessor shall notify the Lessee to be the amount assessed
by the Lessor to be a proper market rent for the Demised Premises (having
regard to the current market rental value thereto and to all matters
relevant to the determination of market rent) and unless within one (1)
month from the date on which the Lessor gives the said notice to the
Lessee the Lessee notifies the Lessor by notice in writing that the
Lessee disputes such assessment and advises the name of a qualified
valuer appointed by the Lessee pursuant to Clause 14.2 hereof the Rent as
specified by the Lessor shall be the Rent payable hereunder such
variation to take effect on and from the date of commencement of the new
term PROVIDED THAT the annual rental payable hereunder shall be no less
than that payable immediately prior to the new term.
Lessee Dispute Lessor's Assessment:
14.2 If the Lessee disputes the Lessor's assessment of the Rent as the current
market rent of the Demised Premises as provided for in Clause 14.1 then
the current market rent for the Demised Premises (having regard to the
current market rental value thereof and to all matters then relevant to
the determination of such rent) shall be determined by two (2) qualified
valuers one selected by the Lessor and one selected by the Lessee or (in
the event of failure of such valuers to agree on the Rent payable within
twentyone (21) days of the expiration of the period of one (1) month
referred to in Clause 14.1 hereof) by a qualified valuer to be agreed
upon by the valuers selected by the lessor end the lessee or if no valuer
is agreed upon by such valuers within seven (7) days after the aforesaid
period of twenty-one (21) days has elapsed then the matter is to be
referred for final determination to an independent valuer appointed by
the President for the time being of the Australia Institute of Valuers
provided that any such valuer appointed pursuant to the provisions of
this Clause shall be a member of the Australia Institute or Valuers (or
should such institute have ceased to exist of such body or association as
then serves substantially the same objects as such institute) and shall
be registered under the Valuers Registration Act of 1976 to value
property of the type concerned in the determination and:-
14.2.1 any determination made by any such valuer or valuers shall be
made as an expert and not as an arbitrator;
14.2.2 if the Rent is determined by the two (2) qualified valuers as
hereinbefore mentioned then each party shall pay its own costs
incurred in connection with the determination of such rent but
otherwise all costs incurred in connection with the determination
of the Rent by a single valuer shall be paid by the Lessee and
the Lessor equally unless the qualified valuer determines the
Rent to be equal to or greater than that specified in the
Lessor's notice pursuant to Clause 14.1 in which case the costs
of such determination shall be borne by the lessee.
<PAGE>
24
Current Market Rental.
14.3 For the purpose of this Part 14 the expression "current market rental
value" shall mean the current annual open market rental value of the
Demised Premises based on a lease between a willing Lessor and a willing
Lessee granted with vacant possession and taking no account of any
goodwill attributable to the Demised Premises by reason of any trade or
business carried on therein by the Lessee and in all other respects
(except as to rent payable) on the terms covenants and conditions of this
Lease.
Payment Pending Determination
14.4 Should the amount of the Rent not be determined as aforesaid before the
date of commencement of the new term the Lessee shall pending
determination thereof pay rent at the rate specified in the Lessor's
determination of the Rent in the notice referred to in Clause 14.1 hereof
but subject to the revision thereof and upon the Rent being determined
hereunder any necessary adjustment of rent calculated from the adjustment
date shall be paid forthwith by the Lessee to the Lessor or reimbursed by
the Lessor to the Lessee as the case may be
PART 15 - STRATA TITLE PROVISIONS
- ---------------------------------
15.1 If the Land or any part thereof is or becomes subject to the provisions
of the Strata Titles Act 1973 as amended or any similar legislation or
requirement or any competent authority relating to strata title then the
following covenants shall apply to and be binding on the Lessee:
15.1.1 For the purposes of this Lease wheresoever reference shall be
made therein to the payment of rates and taxes such reference
shall be deemed to include the payment of all contribution levies
and other payments properly payable by the Lessor to the Body
Corporate of the relevant strata scheme (excluding any "special
levies" as defined in the Strata Titles Act, 1973 as amended).
15.1.2 The Lessee its servants and agents shall observe and comply
punctually with all by-laws in force in respect of the relevant
strata scheme.
Making Rules:
16.1 The Lessor may from time to time make and prescribe rules (not
being inconsistent with express rights of the Lessee under this
Lease) which shall be reasonable for or in relation to -
16.1.1 the use safety care and cleanliness of the Common
Areas of the Building and the Land and/or the
preservation of good order therein and/or the comfort
of persons lawfully using same;
<PAGE>
25
16.1.2 the location and storage of garbage and refuse in the
Common Areas pending removal;
16.1.3 the policing and regulating of traffic and the parking
of motor vehicles in the common parking area (if any)
situate upon the land;
16.1.4 the closure of the Common Areas or any part thereof
outside normal trading hours;
16.1.3 the definition of normal trading hours;
16.1.6 the external appearance of the Building upon the Land.
Amending Rules:
16.2 The Rules may from time to time be repealed amended modified or varied or
added to at the discretion of the Lessor (save that no such amendment or
addition shall make the rules inconsistent with the express rights of the
Lessee hereunder) and upon notice in writing thereof under the hand of
the Lessor or its agent for the time being being given to the Lessee
shall be and become binding upon the Lessee as if expressly set forth in
this Lease as covenants on the part of the Lessee.
Certificates:
16.3 A certificate signed by any director manager or secretary of the Lessor
or by the Lessor's managing agent for the time being of the Building
shall be sufficient evidence that the Rules have been duly made and are
in force or have been repealed amended modified or varied and (unless the
contrary is proved) that notice in writing thereof has been given to the
Lessee on the date specified in the certificate
PART 17. - PARKING
- ------------------
17.1 In the event that the Lessee has been granted the right to park any motor
vehicle in any part of the Building on the Land the following provisions
shall apply:
17.1.1 The Lessee shall park the motor vehicles only in the positions
designated by the Lessor.
17.1.2 The Lessee shall have the right to identify its car parking
spaces by painting appropriate identifying letters or names in
such spaces or by erecting at its own expense and with the
consent in each case of the Lessor appropriate identifying name
plates adjacent to each space and the Lessee covenants to remove
any such signs or painting at its own expense on the termination
of this Lease and to make good any damage occasioned thereby.
17.1.3 the lessee shall not permit or allow any motor vehicle to be
cleaned greased oiled washed or repaired in any part of the
Building.
<PAGE>
26
17.1.4 The Lessee shall not store or permit or suffer to be stored or
kept in any part of such car parking area of the Building any
petrol or other inflammable fuel except as is contained in the
petrol or other fuel feed tanks forming a permanent part of a
vehicle.
17.1.5 The Lessor shall not be held responsible for the loss of or
damage to any car entering leaving or parked in the car parking
area or for the loss of or damage to any article of thing in or
upon any car or for any injury to any person howsoever such loss
damage or injury may arise or be caused including in any such
case the removal of any car of article from the car parking area
by en unauthorised person.
IN WITNESS WHEREOF the parties have set their hands and seals on the day first
herinbefore mentioned.
THE COMMON SEAL OF )
REEFMIST PTY LIMITED ) [graphic of seal]
was hereunto affixed in accordance )
with its Articles of Association )
in the presence of: )
/s/ Ivan Hammerschlag /s/ Shaun Rosen
- ----------------------------------- ----------------------------
Director Secretary
Ivan Hammerschlag Shaun Rosen
- ----------------------------------- ----------------------------
Print Name Print Name
THE COMMON SEAL OF )
DIVERGENT TECHNOLOGIES ) [graphic of seal]
PTY LIMITED was hereunder affixed )
in accordance with its Article of )
Association in the presence of: )
/s/ Ivan Hammerschlag /s/ Shaun Rosen
- ----------------------------------- ----------------------------
Director Secretary
Ivan Hammerschlag Shaun Rosen
- ----------------------------------- ----------------------------
Print Name Print Name
<PAGE>
<TABLE>
<CAPTION>
THE REFERENCE SCHEDULE
----------------------
<S> <C> <C> <C>
Item 1. RENT (Clause 3.1) One Hundred and Eighty
Thousand Dollars ($180,000.00)
per annum
Item 2. MANNER OF (Clause 3.1) By monthly instalments of
PAYMENT OF RENT Fifteen Thousand Dollars and
on the 1st day of each month
following the commencement
date of the Lease. Thereafter
one-twelfth of the reviewed rent
for any particular year of the
Term hereof payable as
aforementioned.
Item 3. PERMITTED USE OF (Clause 4.1) Computer software development
THE DEMISED and sales of computer software
PREMISES and hardware.
Item 4. INTERVALS AT THE (Clause 5.3) When reasonably required by
END OF WHICH the Lessor.
LESSEE IS TO PAINT
OR OTHERWISE
TREAT THE DEMISED
PREMISES
Item 5. REQUIRED MINIMUM (Clause 8.1) Five million dollars
AMOUNT OF ($5,000,000.00)
INSURANCE ON
PUBLIC RISK
Item 6. REVIEW DATES (Clause 13.1) Year 2 CPI - Clause 13.1
Year 3 CPI - Clause 13.1
Year 4 Market - Clause 14.1
Year 5 CPI - Clause 13.1
<PAGE>
Year 6 CPI - Clause 13.1
Year 7 Market - Clause 14.1
Year 8 CPI - Clause 13.1
Year 9 CPI - Clause 13.1
Year 10 Market - Clause 14.1
Option Period
Year 1 Market - Clause 14.1
Year 2 CPI - Clause 13.1
Year 3 CPI - Clause 13.1
Year 4 Market - Clause 14.1
Year 5 Market - Clause 14.1
Item 7. OPTION - (Clause 14.1) Five (5) years
Item 8. OPTION - LIMIT (Clause 14.1) Minimum: Three (3) months
ON PRIOR NOTICE Maximum: Six (6) months
Item 10. LAND (Clause 1.1.5) Certificates of Title Folio
Identifiers:
6 /SP47201
7 /SP47201
8 /SP47201
9 /SP47201
10/SP47201
11/SP47201
</TABLE>
Exhibit 21
Subsidiaries of SVI Holdings, Inc.
Subsidiary State or County of Incorporation
- ---------- --------------------------------
Sabica Ventures, Inc. California
SVI Training Products, Inc. California
Divergent Technologies Pty. Ltd. Australia
Chapman Computers Pty. Ltd. Australia
IBIS Systems Pty. Ltd. United Kingdom
Anniston Ventures Ltd. British Virgin Islands
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> Mar-31-1998
<CASH> 14,469
<SECURITIES> 0
<RECEIVABLES> 3,557
<ALLOWANCES> 345
<INVENTORY> 327
<CURRENT-ASSETS> 18,398
<PP&E> 1,372
<DEPRECIATION> 487
<TOTAL-ASSETS> 46,481
<CURRENT-LIABILITIES> 8,635
<BONDS> 0
<COMMON> 3
0
0
<OTHER-SE> 37,072
<TOTAL-LIABILITY-AND-EQUITY> 46,481
<SALES> 16,354
<TOTAL-REVENUES> 21,151
<CGS> 6,489
<TOTAL-COSTS> 6,489
<OTHER-EXPENSES> 6,514
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 8,131
<INCOME-TAX> 2,312
<INCOME-CONTINUING> 5,819
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,819
<EPS-PRIMARY> .21
<EPS-DILUTED> .19
</TABLE>
