<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 1998
Commission file Number 0-23049
SVI Holdings, Inc.
--------------------------------------------------------
(Exact name of registrant as specified in its charter.)
Nevada 84-1131608
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7979 Ivanhoe Avenue, Suite 500, La Jolla, CA 92037
--------------------------------------------------
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code:
(619) 551-2365
Indicate by check mark whether the registrant(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date:
Common Stock, $0.0001 Par Value - 28,233,684 shares as of July 15, 1998.
<PAGE> 2
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<CAPTION>
June 30, March 31,
1998 1998
------------- -------------
(unaudited)
Assets
<S> <C> <C>
Current assets
Cash and cash equivalents $ 12,907,675 $ 14,468,578
Accounts receivable, net of allowance for doubtful accounts of
$445,222 at June 30, 1998 and $342,537 at March 31, 1998 5,799,278 3,214,402
Inventories 343,886 326,807
Prepaid expenses and other current assets 1,012,743 388,456
-------------- -------------
Total current assets 20,063,582 18,398,243
Furniture and equipment, net of accumulated depreciation of $717,900
at June 30, 1998 and $486,678 at March 31, 1998 1,261,130 885,276
Deferred tax asset 225,011 239,690
Capitalized software, net of accumulated amortization of $1,940,860 at
June 30, 1998 and $1,357,766 at March 31, 1998 12,479,213 12,354,371
Excess of cost over fair value of net assets acquired, net of accumulated
amortization of $507,655 at June 30, 1998 and $313,183 at
March 31, 1998 14,671,876 14,586,102
Other Assets 40,107 16,974
-------------- -------------
Total assets $ 48,740,919 $ 46,480,656
============= =============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 1,991,397 $ 3,520,223
Accrued expenses 4,871,608 2,477,699
Income taxes payable 1,704,511 2,637,424
-------------- -------------
Total current liabilities 8,567,516 8,635,346
Long-term liabilities - 35,299
Deferred tax liability 713,709 720,464
Due to Stockholders - 14,552
-------------- -------------
Total liabilities 9,281,225 9,405,661
-------------- -------------
Stockholders' Equity
Preferred stock, $.0001 par value; 5,000,000 shares
authorized; none issued and outstanding - -
Common stock, $.0001 par value; 50,000,000 shares authorized;
28,233,684 and 28,146,684 issued and outstanding at
June 30, 1998 and March 31, 1998, respectively 2,823 2,815
Additional paid-in capital 33,591,231 33,137,939
Retained earnings 6,415,578 4,299,994
Cumulative foreign currency translation adjustment (549,938) (365,753)
-------------- -------------
Total stockholders' equity 39,459,694 37,074,995
-------------- -------------
Total Liabilities and Stockholders' Equity $ 48,740,919 $ 46,480,656
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 3
<TABLE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended June 30,
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 8,495,436 $ 2,328,667
Cost of goods sold 1,633,095 618,203
------------ ------------
Gross profit 6,862,341 1,710,464
Selling, general and administrative expenses 4,301,982 1,424,462
------------ ------------
Income from operations 2,560,359 286,002
------------ ------------
Other income (expenses)
Interest income 174,935 15,656
Other income 36,584 9,289
Interest expense (19,064) (38,789)
Gain on sale of Softline shares - 3,598,995
Foreign exchange gain 14,072 -
------------ ------------
Total other income (expense) 206,527 3,585,151
------------ ------------
Income before provision for income taxes 2,766,886 3,871,153
Income taxes provision 651,302 124,961
------------ ------------
Net income from continuing operations 2,115,584 3,746,192
Loss from discontinued operations - (108,084)
------------ ------------
NET INCOME $ 2,115,584 $ 3,638,108
============ ============
BASIC EARNINGS PER SHARE:
Continuing operations $ 0.08 $ 0.26
Discontinued operations - (0.01)
------------ ------------
Total $ 0.08 $ 0.25
============ ============
DILUTED EARNINGS PER SHARE:
Continuing operations $ 0.07 $ 0.23
Discontinued operations - (0.01)
------------ ------------
Total $ 0.07 $ 0.22
============ ============
Weighted-average common shares outstanding:
Basic 28,189,640 14,361,866
============ ============
Diluted 31,459,807 16,054,606
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
<TABLE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended June 30,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income from continuing operations $ 2,115,584 $ 3,746,192
Net loss from discontinued operations - (108,084)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 630,750 90,633
Compensation expense 240,000 -
Changes in deferred taxes 7,924 -
Gain on sale of Softline Limited shares - (3,598,995)
(Increase) decrease in:
Accounts receivable (2,559,103) (307,034)
Inventories (17,079) 90,279
Prepaid expenses and other current assets (624,287) 169,761
Deposits and other assets (23,133) -
Increase (decrease) in:
Accounts payable and accrued expenses (557,084) 1,011,712
------------- -------------
Net cash provided (used) by operating activities (786,428) 1,094,464
------------- -------------
Cash flows from investing activities
Purchase of furniture and equipment (247,572) (66,603)
Proceeds from sale of Softline Limited shares - 5,597,409
Purchase of capitalized software (104,616) -
Acquisition of Todds of Lincoln (411,077) -
Acquisition of Chapman Computers - (784,000)
------------- -------------
Net cash provided (used) by investing activities (763,265) 4,746,806
------------- -------------
Cash flows from financing activities:
Sale of common stock - 1,144,585
Decrease in due to stockholders, net (40,325) (944,602)
Repayment of note payable - (5,339,026)
Increase in short term loans - (199,711)
Stock options exercised 213,300 -
------------- -------------
Net cash provided (used) by financing activities 172,975 (5,338,754)
------------- -------------
Cumulative translation adjustment (184,185) (4,201)
------------- -------------
Net increase (decrease) in cash (1,560,903) 498,315
Cash and cash equivalents, beginning of period 14,468,578 216,452
------------- -------------
Cash and cash equivalents, end of period $ 12,907,675 $ 714,767
============= =============
Supplemental disclosure of cash flow information:
Interest paid $ 19,064 $ 38,789
Income taxes paid $ 1,488,510 $ -
Supplemental schedule of non-cash investing and financing activities:
The Company acquired Triple-S Limited by incurring
a short-term liability $ 453,955 $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Organization and Basis of Preparation
The accompanying consolidated financial statements have been prepared from the
unaudited records of SVI Holdings, Inc. and subsidiaries. In the opinion of
management, all adjustments necessary to present fairly the financial position,
results of operations and cash flows at June 30, 1998 and for all the periods
presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Accounting policies followed by the Company are
described in the notes to the financial statements in its Transition Report on
Form 10-KSB for the six months ended March 31, 1998. The financial information
included in this quarterly report should be read in conjunction with the
consolidated financial statements and related notes thereto in the Company's
Form 10-KSB for the six months ended March 31, 1998.
Certain numbers in the comparative period ended June 30, 1997 have been restated
to reflect compliance with Financial Accounting Standards opinions effective
subsequent to June 30, 1997.
The results of operations for the three months ended June 30, 1998 and 1997 are
not necessarily indicative of the results to be expected for the full year.
Note B - Acquisitions and Related Parties
Effective April 1, 1998, Divergent Technologies Pty. Ltd., a wholly-owned
subsidiary located in Australia, acquired Triple-S Computers Pty. Limited
("Triple-S") of Cape Town, South Africa, by assignment from the Company's
majority stockholder, for the consideration of R 3,200,000 (US$ 635,000).
Triple-S develops and installs computerized point of sale retail systems
throughout southern Africa.
Effective April 1, 1998, IBIS Systems Pty. Ltd., a wholly-owned subsidiary
located in United Kingdom, acquired the service division of Todds of Lincoln
Limited for the consideration of 125,000 pounds (US$ 210,000) and 52,000 shares
of the Company's common stock. Under the terms of the purchase agreement, Todds
of Lincoln is entitled to additional consideration based on pre-tax net income
for the acquired assets for the fiscal year ending March 31, 1999. The deferred
consideration will be paid in cash and in shares of the Company's common stock.
The results of operations for these acquisitions for the quarter ended June 30,
1998 have been included in the consolidated results of the Company. Because of
the small size of these acquisitions, no supplemental reporting is presented.
<PAGE> 6
Note C - Stock Option Plan
Effective April 1, 1998, the Company amended its incentive stock option plan to
increase the number of shares available for issuance from 1,000,000 to
1,500,000. Also effective April 1, 1998, the Company granted options under the
stock option plan for 412,375 shares at a weighted average exercise price of
$3.24 per share.
The Company recognized expenses of $240,000 resulting from options granted
during the quarter ended June 30, 1998.
Note D. Earnings Per Share
Earnings per share for the quarters ended June 30, 1998 and 1997
were as follows:
<TABLE>
<CAPTION>
For the quarter ended June 30, 1998
(Unaudited)
---------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Income available to common
stockholders $ 2,115,584 28,189,640 $ 0.08
Effect of dilutive securities
options - 3,270,167
-----------------------------
Diluted EPS
Income available to common
stockholders plus assumed
conversions $ 2,115,584 31,459,807 $ 0.07
=============================
</TABLE>
<TABLE>
<CAPTION>
For the quarter ended June 30, 1997
(Unaudited)
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Income available to common
stockholders $ 3,638,108 14,361,866 $ 0.25
Effect of dilutive securities
options - 1,692,740
-----------------------------
Diluted EPS
Income available to common
stockholders plus assumed
conversions $ 3,638,108 16,054,606 $ 0.22
=============================
</TABLE>
<PAGE> 7
Item 2. Management's Discussion and Analysis
Introduction
SVI Holdings, Inc. (the "Company") is 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; software applications for the construction and heavy
equipment leasing industries; and general financial applications.
On July 8, 1998, the Company's common stock was approved for listing on the
American Stock Exchange under the symbol "SVI".
Effective April 1, 1998, the Company's United Kingdom subsidiary, IBIS Systems
Pty. Ltd. ("IBIS"), acquired the computer service division of Todds of Lincoln
Limited for 125,000 British pounds (US$210,000) and 52,000 shares of the
Company's common stock. Under the terms of the purchase agreement, Todds of
Lincoln is entitled to additional consideration based on pre-tax net income for
the acquired assets for the fiscal year ending March 31, 1999. The deferred
consideration will be paid in cash and in shares of the Company's common stock.
This acquisition has enhanced IBIS's customer base in the U.K.
Effective April 1, 1998, a wholly-owned subsidiary of the Company's Divergent
Technologies Pty. Ltd. ("Divergent") subsidiary, acquired Triple-S Computers
Pty. Limited ("Triple-S") of Cape Town, South Africa. The acquisition was by
assignment of the acquisition agreement from Softline Limited and a wholly-owned
subsidiary of Softline Limited. Softline Limited beneficially owns approximately
62 percent of the Company's common stock. Triple-S develops and installs
computerized point of sale retail systems throughout southern Africa. The
Company reimbursed Softline Limited for the 3,200,000 South African Rand
(US$635,000) paid by Softline Limited for Triple-S. This acquisition has allowed
Divergent to expand its operations to the African continent.
Effective April 1, 1998, the Board of Directors approved an amendment to the
Company's Incentive Stock Option Plan (the "Plan") increasing the number of
shares of common stock authorized under the Plan to 1,500,000 from 1,000,000. On
the same date, the Company granted options under the Plan for 347,000 shares of
common stock at an exercise price of $3.00 per share and 65,375 shares at an
exercise price of $4.54 per share.
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained in this report regarding matters that are not
historical facts are forward-looking statements. 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, competition, fluctuations in currency exchange rates, the demand for
<PAGE> 8
the Company's products and services internationally, especially in the United
Kingdom, Australia and South Africa, and other risk factors identified from time
to time in the Company's filings with the Securities and Exchange Commission.
The Company urges readers to review the risk factors listed in the Company's
Transition Report on Form 10-KSB for the six months ended March 31, 1998. The
Company undertakes no obligation to release publicly any revisions to
forward-looking statements to reflect events or circumstances after the date of
this report or to reflect the occurrence of unanticipated events.
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>
Three months ended June 30,
----------------------------------------------------------
1998 1997
Amount Percentage Amount Percentage
------------------------- --------------------------
<S> <C> <C> <C> <C>
Net sales $ 8,495,000 100% $ 2,329,000 100%
Cost of goods sold 1,633,000 19% 618,000 27%
------------------------- --------------------------
Gross profit 6,862,000 81% 1,711,000 73%
Selling, general and administrative
expenses 4,302,000 51% 1,425,000 61%
Other income (excluding gain on
sale of Softline Limited shares) 207,000 2% (14,000) -1%
------------------------- --------------------------
Income before income taxes 2,767,000 33% 272,000 12%
Income tax provision 651,000 8% 125,000 5%
------------------------- --------------------------
INCOME FROM CONTINUING OPERATIONS 2,116,000 25% 147,000 6%
Gain on sale of Softline Limited shares - 0% 3,599,000 155%
Discontinued operations - 0% (108,000) -5%
------------------------- --------------------------
NET INCOME $ 2,116,000 25% $ 3,638,000 156%
========================= ==========================
BASIC EARNINGS PER SHARE:
Continuing operations $ 0.08 $ 0.01
Gain on sale of Softline Limited shares - 0.25
Discontinued operations - (0.01)
------------ ------------
$ 0.08 $ 0.25
============ ============
DILUTED EARNINGS PER SHARE:
Continuing operations $ 0.07 $ 0.01
Gain on sale of Softline Limited shares - 0.22
Discontinued operations - (0.01)
------------ ------------
$ 0.07 $ 0.22
============ ============
</TABLE>
<PAGE> 9
The Company reports a consolidated net income of $2,116,000 and $3,638,000 for
the quarters ended June 30, 1998 and 1997, respectively. The results for the
quarter ended June 30, 1997 included a gain of $3,599,000 from the sale of
Softline Limited ("Softline") shares and a loss of $108,000 from discontinued
operations. Income from continuing operations (excluding these non-recurring
items) for the quarter ended June 30, 1997 was $147,000. The quarter ended June
30, 1998 results therefore represent an increase of $1,969,000, or 1339%, in net
income from continuing operations, compared to the quarter ended June 30, 1997.
Net sales increased by $6,166,000, or 265%, for the three months ended June 30,
1998 to $8,495,000, compared to $2,329,000 for the comparable period ended June
30, 1997. This increase is primarily attributable to the following:
- Inclusion in net sales of $4,250,000 generated from IBIS Systems
Pty. Ltd., which was acquired in October 1997; and
- An increase in net sales generated by Divergent Technologies Pty.
Ltd. of $1,795,000 for the quarter ended June 30, 1998 in
comparison to the same period of 1997.
Cost of goods sold for the quarters ended June 30, 1998 and 1997 were $1,633,000
and $618,000, respectively. The $1,015,000, or 164%, increase resulted from the
increase in related sales. Gross profit increased $5,151,000, or 301%, to
$6,862,000 in the 1998 period compared to $1,711,000 in the 1997 period. Gross
profit increased as a percentage of sales from 73% in the 1997 period to 81% for
the 1998 period, primarily due to the inclusion of higher profit margin sales of
IBIS and a greater proportion of revenues from higher margin service components
of customer contracts.
Selling, general and administrative expenses for the three months ended June 30,
1998 were $4,302,000 compared to $1,425,000 for the same period ended June 30,
1997, an increase of $2,877,000, or 202%. The increase in expenses is due to
growth in the Company's operations. Selling, general and administrative expenses
have declined as a percentage of sales to 51% for the quarter ended June 30,
1998 from 61% for the comparable quarter in 1997. This decrease 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.
<PAGE> 10
Pre-tax income from continuing operations (excluding the sale of Softline
Limited shares) increased by $2,495,000, or 917%, to $2,767,000 for the quarter
ended June 30, 1998 from $272,000 for the comparable period in 1997. The
increase is primarily due to the acquisition of IBIS and increases in sales from
the existing subsidiaries.
For the quarter ended June 30, 1997, the Company recorded a gain of $3,599,000
on the sales of Softline Limited shares. The sale of the Softline Limited shares
yielded proceeds of $5,597,000.
Basic earnings per share for the quarters ended June 30, 1998 and 1997 were
$0.08 and $0.25 per share, respectively. The basic earnings per share for the
quarter ended June 30, 1997 included $0.25 per share from the sale of Softline
shares and ($0.01) per share for the loss from discontinued operations. Without
these non-recurring items, the basic earnings per share would have increased by
$0.07 per share to $0.08 per share for the quarter ended June 30, 1998 from
$0.01 per share for the comparable quarter in 1997.
Diluted earnings per share for the quarters ended June 30, 1998 and 1997 were
$0.07 and $0.22 per share, respectively. The quarter ended June 30, 1997 diluted
earnings per share included $0.22 per share from the sale of Softline shares and
($0.01) for the loss from discontinued operations. Without these non-recurring
items, the diluted earnings per share would have increased by $0.06 per share to
$0.07 per share for the three months ended June 30, 1998 from $0.01 per share
for the comparable period in 1997.
Liquidity and Capital Resources
At June 30, 1998, the Company had cash of $12,908,000, a decrease of $1,561,000
from $14,469,000 of cash at March 31, 1998. The most significant use of cash was
income tax payments of $1,489,000.
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 specialty areas 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.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
On November 26, 1996, the Company obtained a preliminary injunction in the
United States District Court (Southern District of California) (the "District
Court") against certain defendants, including Park Financial Group, Inc. ("Park
Financial"), Edwin Wood, Bank Martinique, Brink, Hudson & LaFever, Ltd., Walmur
& Co., Pacific International Securities, Inc., Union Securities, Ltd., Corporate
Stock Transfer, Inc., BLB Financial, Inc., Brian Walsh, Brian Johanson, Luke di
Angelo, Gary Robinson, Bear Stearns & Co., Inc., and Philadelphia Depository
Trust Company, in order to prevent the transfer of any of the two million shares
of the Company's common stock that had been delivered to Park Financial in
contemplation of a loan to be secured by a pledge of stock.
The Company has alleged that Claudav Holdings Ltd. B.V., then the Company's
majority stockholder, in the course of seeking a loan from a prospective lender,
transferred a significant number of the Company's shares held by that majority
stockholder to Park Financial. The shares were to be held in trust by Park
<PAGE> 11
Financial until the loan was funded and then held by Park Financial as a pledge
holder. The Company alleges that Park Financial failed to hold the shares in
trust and instead sold or otherwise transferred the shares to third parties who
began to trade the restricted shares in violation of Park Financial's
representations and obligations to the Company and its majority stockholder.
Based on the above allegations, the Company has filed a lawsuit in the District
Court against certain of the above defendants for breach of contract, common law
fraud, and conversion, as well as for violations of federal securities 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 upon return of the final 50,000 shares held by
Bear Stearns & Co.
Item 2. Changes in Securities
On June 9, 1998, the Company issued 52,000 shares to Todds of Lincoln Limited as
partial consideration for the purchase of the service division of that company
by IBIS.
In the quarter ended June 30, 1998, Donald Radcliffe, a director, exercised an
option to purchase 35,000 shares of common stock at an exercise price of $0.30
for a total exercise price of $10,500.
These transactions were exempt from registration under the Securities Act of
1933, as amended, pursuant to Section 4(2) of such Act.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibits 2.1 to 2.6, 3.2 and 10.02 to 10.14 included in the Company's report on
Form 10-KSB for the transition period ended March 31, 1998 are incorporated
herein by reference.
Exhibit Description
- ------- -----------
10.1 Incentive Stock Option Plan, as amended April 1, 1998.
10.2 Assignment and Assumption of Acquisition Agreement dated
April 1, 1998.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K/A on May 22, 1998 providing the required
financial data on the acquisition of certain assets of Multisoft Financial
Systems Limited through the Company's wholly-owned IBIS subsidiary.
<PAGE> 12
SIGNATURES
----------
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly cause this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SVI Holdings, Inc.
Registrant
/s/ David L. Reese
-------------------------------
Date: July 20, 1998 David L. Reese
Chief Financial Officer
Signing on behalf of the registrant and as
principal financial officer.
<PAGE> 13
EXHIBIT 10.1
INCENTIVE STOCK OPTION PLAN
(Amended as of April 1, 1998)
This Incentive Stock Option Plan of SVI Holdings, Inc., formerly known
as Wilson Capital, Inc., a Nevada corporation ("Corporation") is dated November
29, 1989, and amended as of April 1, 1998. The purpose of this Plan is to help
attract, keep and motivate superior personnel.
ARTICLE I
---------
STOCK SUBJECT TO OPTION
-----------------------
The total number of shares in the Corporation which may be issued under
incentive stock options ("options") granted pursuant to this Plan is 1,500,000
common shares having $.0001 par value.
ARTICLE II
----------
EMPLOYEES ELIGIBLE TO RECEIVE OPTIONS
-------------------------------------
SECTION 2.1 ALL EMPLOYEES. All employees of the Corporation, its parent
or subsidiaries, if any, shall be eligible to receive options to purchase stock
under this Plan.
SECTION 2.2 10% SHAREHOLDERS. Employees directly or indirectly owning
more than 10% of the stock of the Corporation, its parent or subsidiaries, if
any, shall be eligible to receive options to purchase stock under this Plan. For
purposes of this Plan, an employee is considered to own those shares which are
owned by his siblings, spouse, ancestors, and lineal descendants, and a
proportionate amount of those shares owned by or for a corporation, partnership,
estate or trust of which he is a shareholder, partner or beneficiary.
ARTICLE III
------------
ANNUAL LIMIT ON OPTIONS
-----------------------
Any employee receiving options under this Plan may receive options for
stock having a fair market value of no more than $100,000 per calendar year. To
the extent that the above limit exceeds the value of options granted to an
employee in any calendar year, 50% of the excess for that individual employee
may be carried over to the succeeding three calendar years.
EXHIBIT IV
----------
OPTION PRICE
------------
SECTION 4.1 MINIMUM PRICE. The minimum option price for the purchase of
any stock pursuant to an option granted under this Plan shall be 100% of the
fair market value of the stock at the time the option is granted.
SECTION 4.2 PRICE FOR 10% SHAREHOLDERS. The minimum option price for
10% Shareholders shall be at least 110% of the fair market value of the stock at
the time the option is granted.
ARTICLE V
---------
OPTION LIFE
-----------
SECTION 5.1 TIME OF GRANT. All options granted under this Plan must he
granted within ten years from the date the Board of Directors adopt this Plan,
or the date the Shareholders approve this Plan, whichever is earlier.
SECTION 5.2 TIME OF EXERCISE. An option granted under this Plan must
provide that it is to be exercised within a period less than ten years after the
date the option is granted. However, if an optionee directly or indirectly
<PAGE> 14
owns more than 10%, not including stock obtainable under the option, of the
stock of the Corporation, its parent or subsidiaries, if any, the option must
provide that it is to be exercised within a period less than five years after
the date the option is granted.
SECTION 5.3 SEQUENCE OF EXERCISE. An option may not be exercised while
there is a prior outstanding incentive stock option issued by the Corporation,
its parent or subsidiaries, if any. For purposes of this Section, an incentive
stock option is treated as outstanding until it either has been exercised or has
expired by lapse of time.
ARTICLE VI
----------
EMPLOYMENT STATUS
-----------------
All incentive stock options granted under this Plan must be granted in
connection with an optionee's employment status. Employment by the Corporation,
its parent or subsidiaries, if any, must continue from the time of the grant
until three months before the option is exercised. However, if an optionee
becomes disabled, an option may be exercised by a disabled employee up to twelve
months after termination of employment.
ARTICLE VII
-----------
HOLDING PERIOD
--------------
All shares of stock purchased by an employee pursuant to the exercise
of an option granted under this Plan shall be eligible for the special tax
treatment provided by Section 422A of the Internal Revenue Code of 1954, only if
that employee does not dispose of those shares for at least two years after the
option is granted and at least one year after the date the shares are
transferred to the employee.
ARTICLE VIII
------------
NONTRANSFERABILITY
------------------
Options granted under this Plan may not be assigned and may be
transferred only by will or by laws of descent and distribution. During the
employee's life, the options are exercisable only by him.
ARTICLE IX
----------
ADMINISTRATION OF PLAN
----------------------
This Plan shall be administered by the Board of Directors of the
Corporation or a Compensation Committee appointed by the Board of Directors. The
Directors of the Corporation or the Compensation Committee shall have the
exclusive power to select the employees to be granted options, the time at which
an option may be granted, the number of Shares for which an option is granted,
and the term of any option. In granting options, the Directors or the
Compensation Committee may take into consideration the value of the services
rendered by the employees, their present and potential contributions to the
Corporation's success, and such other factors deemed relevant in accomplishing
the purposes of this Plan. All decisions and determinations made by the
Directors or the Compensation Committee shall be final and binding upon all
parties, including the Corporation, its shareholders and its employees.
ARTICLE X
---------
AMENDMENT OF PLAN
-----------------
This Plan may be amended at any time by the Board of Directors without
the approval of the Corporation's Shareholders, other than an amendment of the
provisions regarding the number of optionable shares, the class of eligible
employees, the minimum option prices, or the $100,000 ceiling on grants. If any
provision of this Plan is determined to disqualify the options or shares which
may be purchased upon exercise of the options granted under this Plan so that
the special tax treatment provided by Section 422A is not available, then
<PAGE> 15
this Plan shall be deemed to be automatically amended so as to delete the
disqualifying provision as if it had never been inserted in this Plan, and to
incorporate by reference the modification necessary to qualify the options or
shares under Section 422A.
This Plan shall be effective as of the date and year first written
above.
<PAGE> 16
ASSIGNMENT AND ASSUMPTION OF ACQUISITION AGREEMENT
This Assignment and Assumption of Acquisition Agreement (the "Agreement")
made and entered into as of April 1, 1998, among Softline Limited, a South
African Company ("Softline") Softline Holdings (Pty) Limited, a South African
Company ("Softhold"), Triple-S Computers (Pty) Limited ("Triple-S") Divergent
S.A. (Pty) Limited, a South African Company ("Divergent S.A.") and the
shareholders reflected on attached Exhibit A (the "Shareholders").
RECITALS
A. Softline, Softhold and Triple-S entered into an Acquisition Agreement as
of April 1, 1998 ("Acquisition Agreement"), a copy of which is attached as
Exhibit B, under the terms of which, inter alia, Softline and Softhold purchased
from Triple-S all of assets of the Business conducted by Triple-S, under the
terms of the Acquisition Agreement.
B. Under the terms of the Acquisition Agreement, Softhold was entitled to
designate a nominee as the purchaser of the Assets and the Business.
C. Softline and Softhold designated Divergent S.A. as their respective
nominee to acquire all their respective interests under the Acquisition
Agreement as more fully set forth in this Agreement.
1. DEFINITIONS. All capitalized terms used in this Agreement shall have the
meaning ascribed such terms in the Definitions Section (Article 2) of the
Acquisition Agreement, unless otherwise defined in this Agreement.
2. DESIGNATION OF NOMINEE. Softline and Softhold hereby designate, appoint
and nominate Divergent S.A. as their respective nominee to purchase, acquire and
take delivery of all of the sale Assets and the Business purchased under the
Acquisition Agreement.
3. SALE LIABILITIES. For the purposes of this Agreement and the Acquisition
Agreement, the Sale Liabilities assumed by Divergent S.A. shall include only the
liabilities set forth on the Business Financial Statements, including Triple-S's
overdraft at Nedbank Cape Town, trade creditors in the amount specified on the
business's financial statements, and all amounts owing in respect of leased
assets, and no other liabilities or claims of any nature whatsoever.
4. SUSPENSIVE CONDITIONS. This Agreement is suspensive and conditional upon
Divergent S.A. and the transaction qualifying as "an income earning activity"
within the meaning of Section 1l(e)(i)(aa) of the VAT Act.
5. PERFORMANCE. Triple-S and the Shareholders shall perform each of their
obligations, agreements, representations and warranties as specified under the
Acquisition Agreement to
1
<PAGE> 17
Divergent S.A. as fully and to the same extent as if Divergent S.A. had
executed the Acquisition Agreement in the place of Softline and Softhold. Such
obligation shall include, without limitation, the following:
5.1. Triple-S and the Shareholders hereby jointly and severally
warrant and represent that the warranties set forth in Article 12 of the
Acquisition Agreement were true and correct upon execution of the Acquisition
Agreement and will be true and correct upon execution of this Agreement and the
Closing Date.
5.2. Triple-S and the Shareholders shall jointly and severally perform
and be obligated under each of the indemnity provisions provided in the
Acquisition Agreement and by application of law, including without limitation
Article 17 of the Acquisition Agreement.
6. ADDITIONAL CONTRACTS. Triple-S and the Shareholders warrant and
represent the following contracts have been entered into, of full force and
effect, and are enforceable in accordance with their terms:
6.1. The Lease in the form of attached Exhibit C.
6.2. The Service Contract of Leslie Basil Gordon Katz in the form of
attached Exhibit D.
The foregoing contracts have not been amended and are nor terminable by any
party except in accordance with the terms of such contract.
7. SHAREHOLDERS' OBLIGATIONS. The Shareholders hereby reaffirm all of their
obligations under the Acquisition Agreement including, without limitation,
Article 14 thereof. The Shareholders, by their signatures to this Agreement
hereby jointly and severally bind themselves into and in favor of Divergent S.A.
as sureties for and co-principle debtors in solidum with Triple-S for due and
punctual performance by Triple-S of all of the obligations, covenants,
warranties sad representations set forth in the Acquisition Agreement and this
Agreement.
8. NO MODIFICATION. Except as expressly provided for in this Agreement, the
Acquisition Agreement shall not be amended, modified or altered in any respect
whatsoever nor shall any party be relieved of their obligations under the
Acquisition Agreement.
9. ATTORNEYS FEES. In the event of any litigation, arbitration mediation,
or other proceeding ("Proceeding") is initiated by any party(ies) against any
other party(ies) to enforce, interpret or otherwise obtain judicial or
quasi-judicial relief in connection with this Agreement, the prevailing
party(ies) in such Proceeding shell be entitled to recover from the unsuccessful
party(ies) all costs, expenses, actual attorney's and expert witness fees,
relating to or arising out of (c) such Proceeding (whether or nor such
Proceeding proceeds to judgment), and (d) any post-judgment or post-award
proceeding including without limitation one to enforce any judgment or award
resulting from any such Proceeding. Any such judgment or
2
<PAGE> 18
award shall contain a specific provision for the recovery of all such
subsequently incurred costs, expenses, actual attorney's and expert witness
fees.
10. ENTIRE AGREEMENT. This Agreement may not be amended except by a written
agreement executed by the party to be charged with the amendment.
11. NOTICES. All notices, consents, waivers, and other communications under
this Agreement must be in writing and will be deemed to have been duly given
when (a) delivered by hand (with written confirmation of receipt), (b) sent by
telecopier (with written confirmation of receipt), provided that a copy is
mailed by registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
Softline Holdings (Pty) Limited
c/o Ivan Epstein
16 Commerce Crescent
Eastgate Extension 13
Sandton
Fax (011) 444-7233
Softline Limited
16 Commerce Crescent
Eastgate Ext. 13
Kramerville 2144
Fax: (011) 444-7233
Triple-S Computers (Pty) Limited
BDO Spencer Steward
9th Floor
Broadway Centre
Hertzog Boulevard
Foreshore, Cape Town 8001
Fax: (011) ###-##-####
Divergent S.A. (Pty) Limited
Level 1
33 Spring Street
Bondi Junction
NSW Sydney 2022
Australia
Fax No.:______________
3
<PAGE> 19
with copy to: Solomon Ward Seidenwurm & Smith, LLP
401 B Street, Suite 1200
San Diego, CA 92101
Attn: Norman L. Smith, Esq.
Fax: (619) 231-0303
12. FURTHER ASSURANCES. The parties agree (a) to furnish upon request to
each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying our the intent of this
Agreement and the documents referred to in this Agreement.
13. WAIVER. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to raise further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
14. SEVERABILITY. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
///
///
///
///
///
4
<PAGE> 20
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
N WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first written above.
Softline Limited Softline Holdings (Pty) Limited
A South African Company A South African Company
By:_______________________ By:_______________________
Triple-S Computers (Pty) Limited Divergent S.A. (Pry) Limited
A South African Company A South African Company
By:_______________________ By:_______________________
5
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 12,908
<SECURITIES> 0
<RECEIVABLES> 6,244
<ALLOWANCES> 445
<INVENTORY> 344
<CURRENT-ASSETS> 20,064
<PP&E> 1,979
<DEPRECIATION> 718
<TOTAL-ASSETS> 48,741
<CURRENT-LIABILITIES> 8,568
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 39,457
<TOTAL-LIABILITY-AND-EQUITY> 48,741
<SALES> 8,495
<TOTAL-REVENUES> 8,721
<CGS> 1,633
<TOTAL-COSTS> 1,633
<OTHER-EXPENSES> 4,302
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19
<INCOME-PRETAX> 2,767
<INCOME-TAX> 651
<INCOME-CONTINUING> 2,116
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,116
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.07
</TABLE>
