<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 December 31, 1997
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 - 27,932,684 shares as of
December 31, 1997
The Registrant meets the requirements set forth in Instruction G(1)
and is therefore filing this Form 10-QSB with the reduced disclosure format.
<PAGE> 2
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
SVI Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
3 Months 3 Months
Ended Ended
December 31, December 31,
1997 1996
<S> <C> <C>
Net Sales 10,016,343 2,059,252
Cost Of Goods Sold 5,100,119 713,963
--------- ----------
Gross Profit 4,916,225 1,345,289
Selling, General and Administrative Expenses 2,994,823 1,088,882
--------- ----------
Profit from operations 1,921,402 256,407
Net interest Received / (Paid) 86,557 (20,936)
Other Income 15,258 12,256
Gain on Disposal of Softline Limited stock 4,018,407 -
Equity in earnings of Softline Limited - 135,703
Foreign Exchange Gain / (Loss) (32,782) 26,408
--------- ----------
Income from operations
before income tax 6,008,842 409,838
Income Taxes 2,040,493 148,321
--------- ----------
Net Income 3,968,349 261,517
========= ==========
Per share information:
Basic Net Income per share 0.14 0.02
========= =========
Weighted average number of common shares
outstanding 27,562,282 12,671,713
========== ===========
Diluted Net Income per share 0.13 0.02
========== ===========
Weighted average number of common shares
outstanding - diluted 30,969,526 14,044,213
========== ===========
</TABLE>
<PAGE> 3
SVI Holdings, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents 17,992,828 5,035,428
Accounts receivable 1,979,301 1,828,358
Inventories 311,096 1,200,461
Prepaid expenses and other current assets 538,874 331,465
----------- ------------
Total current assets 20,822,099 8,395,712
Furniture and equipment, net of accumulated
depreciation of $461,022 702,242 442,712
Investment in Softline Holdings, at equity - 1,778,755
Deferred tax asset - 116,197
License rights, net of accumulated
amortization of $1,158,053 12,008,344 6,129,878
Other assets 9,725 27,237
Goodwill on acquisition of subsidiaries
net of accumulated amortization of $214,822 7,204,564 2,339,042
----------- ------------
40,746,975 19,229,533
=========== ============
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities
Lines of credit - 340,000
Notes payable - 50,000
Accounts payable and accrued expenses 3,946,348 6,383,304
Income taxes payable 2,040,493 1,025,929
----------- ------------
Total current liabilities 5,986,841 7,799,233
Due to stockholders 136,695 301,645
Note payable - 243,233
Provisions 431,851 -
Deferred tax liability 140,194 -
----------- ------------
6,695,581 8,344,111
=========== ============
Stockholders equity
Preferred stock, $.0001 par value 5,000,000
shares authorized, none issued
Common stock, $.0001 par value, 50,000,000
shares authorized, 27,932,684 issued and
outstanding 2,794 1,504
Additional paid in capital 31,869,065 12,665,564
Retained earnings (deficit) 2,449,376 (1,518,973)
Cumulative currency translation adjustment (269,841) (262,673)
----------- -----------
Total stockholders equity 34,051,394 10,885,422
----------- -----------
40,746,975 19,229,533
=========== ===========
</TABLE>
<PAGE> 4
SVI Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Three Months
Ended Ended
December 31, December 31,
1997 1996
Cash flows from operating activities:
Income (loss) from continuing operations 3,968,349 261,517
Depreciation and amortization 548,257 90,778
Foreign exchange gain (loss) - (26,408)
Equity in earnings of Softline Limited - (135,703)
Gain on disposal of Softline shares (4,018,407) -
(Increase) decrease in:
Accounts receivable 648,774 (513,780)
Inventories 902,641 15,841
Prepaid expenses and other current assets (92,037) 27,069
Increase (decrease) in:
Accounts payable and accrued expenses (3,006,373) 169,525
----------- -----------
Net cash used in operating activities (1,048,796) (111,161)
Cash flows from investing activities:
Purchase of furniture and equipment (135,569) (179,546)
Net proceeds on Sale of Softline shares 5,797,162 -
Acquisition of technology assets (182,893) (3,250,000)
Other Assets 133,709 29,189
Acquisition of Divergent Technologies, Limited - (4,076,945)
Cash acquired on acquisition of IBIS Systems 542,534 -
----------- -----------
Net cash used in investing activities 6,154,943 (7,477,302)
Cash flows from financing activities:
Sale of common stock 7,694,560 3,450,000
Increase (decrease) in due to stockholders (164,950) 369,498
Repayment of note payable (243,233) 153,655
Increase (decrease) in short term liabilities 572,045 3,576,945
----------- -----------
Net cash provided by financing activities 7,858,422 7,550,098
Effect of foreign exchange rates on cash (7,168) 7,214
----------- -----------
Net increase (decrease) in cash 12,957,401 (31,151)
Cash and cash equivalents, beginning of period 5,035,428 331,566
----------- -----------
Cash and cash equivalents, end of period 17,992,829 300,415
=========== ===========
</TABLE>
<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 December 31, 1997
and for all the periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Accounting policies
followed by the Company are described in the notes to the financial statements
in its Annual Report on form 10-KSB for the year ended September 30, 1997. The
financial information included in this quarterly report should be read in
conjunction with the consolidated financial statements and related notes
thereto in the Company's Form 10-KSB for the fiscal year ended September 30,
1997.
The results of operations for the three months ended December 31, 1997 and
1996 are not necessarily indicative of the results to be expected for the full
year.
On December 4, 1997, SVI Holdings, Inc. (The "Company") consummated an
indivisible group of agreements with Softline Limited ("Softline") and Hosken
Consolidated Investments Limited ("HCI") which resulted in a change in control
of the Company.
The group of agreements resulting in the change in control of the Company are
as follows:
a) Sale of Shares Agreement: through this agreement the Company has acquired
100% of the equity of Anniston Ventures, Limited ("Anniston") and IBIS
Systems, Limited ("IBIS") in exchange for the issue of 5,000,000 shares of the
common stock of the Company to Softline.
b) Share Swap Agreement: under the terms of this agreement the Company issued
7,536,000 shares of common stock in favor of Softline in exchange for certain
technology assets and 22,130,448 shares in the common stock of Softline.
c) Renunciation Agreement: under the term of this agreement the Company
renounced its rights to the Softline common stock shares acquired through the
Share Swap agreement in favor of HCI in exchange for R35,408,717 or
(US$7,331,756)
In addition to the shares in the Company received by Softline as a result
of these transactions, current holders of the common stock of the Company sold
4,000,000 shares to Softline in exchange for cash and Softline shares.
In summary, the agreements described above provided that the Company
issued 12,536,000 new shares of common stock in exchange for 100% of the
equity of Anniston and IBIS and R35,408,717 or (US$7,331,756). Softline,
through this transaction, acquired a total of 16,536,000 shares of the
Company's common stock comprising approximately 60% of the total common stock
<PAGE> 6
shares of the Company.
Prior to this transaction, Claudav Holdings, B.V. was the majority
stockholder.
Resulting from this transaction, no changes are contemplated in the Company's
management structure. Barry Schechter, Chief Executive Officer of the Company
is also a Director of Softline.
In a separate transaction concurrent with the agreements discussed herein, the
Company disposed of it's remaining interest in Softline of 19,876,000 common
stock shares for cash. Gross proceeds on the sale of the Softline shares were
$6,181,477 and resulted in a pre-tax gain of $4,018,407.
These transaction were previously reported on Form 8-K, inclusive of all
agreements, on December 19, 1997.
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of operations
For a discussion of certain risks regarding the Company, see the Risk
Factors section of the Company's Form 10-KSB for the year ended September 30,
1997.
For the three months ended December 31, 1997, revenues from operations
increased by $7,957,091 in comparison with the same period in the
previous year. This increase is attributable to the acquisition of IBIS
Systems, Limited and significant increases in the quarterly revenue of
Divergent Technologies (Pty) Ltd. related to several large contracts. These
large contracts have greatly expanded the installed base of companies using
the services and technology of Divergent. The largest of these hardware and
software installation contracts is with VOX Retail Group Limited of Australia.
The contract provides for hardware and software installation in 215 stores and
several remote sites. The majority of the installation revenue will be
realized in the period 10/97 through 3/98. Software support and customer
service will continue beyond this period.
Cost of sales increased $4,386,156 in comparison with the same period of
the previous year. This increase is attributable to the acquisition of IBIS
and purchases required to provide for the large Divergent contracts. These
purchases include high quality hardware, components and software.
Selling, General and Administrative expenses increased $1,905,941 in
comparison with the quarter ended December 31, 1996. This increase is
primarily attributable to the inclusion of IBIS in the consolidated financial
statements for the quarter ended December 31, 1997. Additional significant
factors contributing to this increase were costs related directly to
facilities, staff additions, temporary technical support and benefit expansion
by Divergent in enlarging its presence and increasing sales revenue.
The Company sold its Softline shares in the quarter ended December 31,
1997. Accordingly, no participation in equity is presented. The Company sold
19,876,000 shares for $6,181,477. Net of costs and provisions this resulted in
a pre-tax gain of $4,018,407.
Foreign income taxes of $548,655 and $170,868 were paid or provided for by
Divergent and IBIS respectively in the quarter ended December 31, 1997. Net
<PAGE> 7
operating loss carry forwards historically available to SVI Holdings are not
available to offset the tax liabilities of the foreign subsidiaries. SVI
Holdings has recorded an income tax provision, net of all available offsets,
for the quarter ended December 31, 1997 of $1,320,970. This is related
primarily to the disposal of the Softline shares. The consolidated tax
liability is $2,040,493 at December 31, 1997 and was $148,321 in the quarter
ended December 31, 1996. The increase in tax liability is consistent with the
increase in revenue.
A foreign exchange loss of $32,782 arose for the quarter ended
December 31, 1997. Comparatively, the same quarter in 1996 reflected a gain of
$26,408. This is the result of fluctuations in the rate of exchange due to
loans between SVI, Divergent and IBIS being denominated in their respective
foreign currencies. It is both normal and expected that foreign exchange gains
or losses will arise in the future as the result of transactions occurring
between SVI, Softline, Divergent and IBIS in the normal course of business.
Income from operations of $3,968,349 was earned for the quarter
ended December 31, 1997 compared with Income from operations of $261,517
for the comparative period of the prior year. The increase in profit is due
directly to the contributions of Divergent and IBIS, and the disposal of the
Softline shares.
At the quarter ended December 31, 1996, the Company had a deferred tax
asset of approximately $2,200,000 resulting from net operating loss carry
forwards, which had been offset in its entirety by a valuation allowance.
This carry forward has been substantially depleted.
Earnings per share data, as presented herein, is in compliance with the
Financial Accounting Standards Board ("FASB") issued SFAS No. 128 "Earnings
Per Share", which is effective for financial statements ending after December
15, 1997, including interim periods. Early adoption was not permitted. SFAS
No. 128 requires public companies to present "Basic" earnings per share and,
if applicable, "Diluted" earnings per share instead of the former primary and
fully-diluted earnings per share. Management does not believe that earnings
per share presented in accordance with SFAS No. 128 will be materially
different from the earnings per share previously reported. Prior comparative
periods have been restated to be in compliance.
Financial Condition
At December 31, 1997, the Company had retained earnings of $2,449,376.
This compares to a deficit of $1,518,973 at September 30, 1997. This increase
is primarily related to the sale of Softline shares, the acquisition of IBIS
and the revenue growth of Divergent. The Company has reduced debt and
significantly increased it's available cash position. Management believes the
current cash resources are adequate to provide for the Company's foreseeable
operations and acquisitions.
Historically, the operations of the Company have been primarily financed
by private placements of the Company's common stock and advances from
stockholders. There is no assurance that these sources of funds will be
available in the future. In addition to private placements and advances from
stockholders, the Company intends to utilize, as needed, the unrestricted cash
flow from it's foreign subsidiaries. Management believes that existing cash
and short term investments, and cash generated from operations will be
sufficient to meet the Companies expected capital needs.
The Company intends to continue investigating opportunities for expansion
in both foreign and domestic markets. While certain opportunities have been
identified and are currently under investigation, there is no assurance that
such acquisitions will be consummated at this time.
<PAGE> 8
PART II. - OTHER INFORMATION
Item 1.Legal Proceedings.
On November 26, 1996, the Company obtained a preliminary injunction in the
United States District Court (Southern District of California) (the "District
Court") against certain defendants, including Park Park Financial Group, Inc.
("Park Financial"), Edwin Wood, Bank Martinique, Brink, Hudson & LaFever,
Ltd., Walmur & Co., Pacific International Securities, Inc., Union Securities,
Ltd., Corporate Stock Transfer, Inc., BLB Financial, Inc., Brian Walsh, Brian
Johanson, Luke di Angelo, Gary Robinson, Bear Stearns & Co., Inc., and
Philadelphia Depository Trust Company, in order to prevent the transfer of any
of the two million shares of the Company's common stock that had been
delivered to Park Financial in contemplation of a loan to be secured by a
pledge of stock. The loan was not funded and the stock should have been
returned to the majority stockholder of the Company.
The Company has alleged that, the Company's majority stockholder, in the
course of seeking a loan from a prospective lender, transferred a significant
number of the Company's shares held by that majority stockholder to Park
Financial. The shares were to be held in trust by Park Financial until the
loan was funded and then held by Park Financial as a pledge holder. The
Company alleges that Park Financial failed to hold the shares in trust and
instead sold or otherwise transferred the shares to third parties who began to
trade the restricted shares in violation of Park Financial's representations
and obligations to the Company and its majority stockholder. Based on the
above allegations, the Company has filed a lawsuit in the District Court
against certain of the above defendants for breach of contract, common law
fraud, and conversion, as well as for violations of federal securities
statutes.
The Company has been successful in obtaining court orders accounting for
all shares forming the subject matter of the transaction. With the exception
of 215,000 shares sold to bona fide purchasers, the Company has court orders
authorizing the recovery of all shares. The Company is maintaining its action
against defendants Park Financial Group, Inc., Edwin Wood, Donna Dickenson,
Kathryn Jones and Banque de Petite Martinique for recovery of the Company's
damages and attorneys fees and costs expended as a result of such defendant's
unlawful conduct. The Company expects this matter to be adjudicated or
successfully resolved within 3 to 6 months.
Item 2. Changes in Securities
In the quarter ended December 31, 1997 the Company's issued and
outstanding common shares increased from 15,044,284 to 27,932,684. This
increase of 12,888,400 was the result of the issuance of 12,536,000 shares to
Softline for the acquisition of Anniston and IBIS, technology rights and cash.
Additionally, options were exercised by consultants and stockholders for
147,400 shares at prices ranging from $0.30 to $2.00 per share. Lastly,
management approved and issued 205,000 bonus shares in December 1997 to key
members of the Divergent staff for exceeding their economic targets. These
shares were issued at prices ranging from $2.00 to $2.75 per share. The
issuance of 205,000 bonus shares is exempt from registration under section
4(2) of the Securities Act of 1933, and rules 505 or 506 of Regulation D
promulgated thereunder, or Regulation S promulgated thereunder, due the
limited number of purchaser / recipients and the fact
that all purchaser / recipients are residents of Australia.
<PAGE> 9
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
Limited. The purpose of this one-time option was to allow Softline to maintain
it's control position at an estimated level of 60% of the outstanding shares.
In the quarter ended December 31, 1997 the Company issued 538,700 common stock
options to existing stockholders and consultants for periods ranging from 3 to
5 years and exercise prices ranging from $2.00 to 2.75 per share.
Additionally, the Company also issued in the same time period 151,300 options
to existing employees of SVI Holdings, Inc. and Divergent 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.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
(a) Exhibits
<CAPTION>
Exhibit Description
<S> <C>
3.1 Articles of Incorporation - Incorporated by reference to exhibit
3.1 to the Company's Annual Report for the year ended December 31,
1993.
3.2 Bylaws - Incorporated by reference to exhibit 3.1 to the Company's
Annual Report for the year ended December 31, 1993.
10.1 Incentive Stock Option Plan - Incorporated by reference to
exhibit 3.1 to the Company's Annual Report for the year ended
September 30, 1994.
10.16 Sale of Shares Agreement between Softline and the Company for the
acquisition of IBIS.- Incorporated by reference to exhibit (A) to
the Company's Form 8-K filed December 19, 1997.
10.17 Share Swap Agreement between the Company and Softline for the trade
of 7,536,000 SVI shares for 22,130,448 shares of Softline.
Incorporated by reference to exhibit (B) to the Company's Form 8-K
filed December 19, 1997.
10.18 Renunciation Agreement between SVI, HCI and Softline providing for
the sale of 22,130,448 Softline shares to HCI.- Incorporated by
reference to exhibit (C) to the Company's Form 8-K filed December
19, 1997.
10.19 Subscription Agreement - Incorporated by reference to exhibit (D)
to the company's Form 8-K filed December 19, 1997.
10.20 Agreement between SVI, HCI and Softline recording that all other
agreements are indivisible.- Incorporated by reference to exhibit
(E) to the Company's Form 8-K filed December 19, 1997.
27 Article 5 Financial Data Schedule for the first quarter of 1998.
</TABLE>
<PAGE> 10
(b) Reports on Form 8-K
During the period ended December 31, 1997 the Company filed Form 8-K
as follows:
File Date Purpose / Attachments
11/6/97 Part 5 filing, preliminary disclosure of the IBIS acquisition
and change in control of the Company.
12/19/97 Disclosure the IBIS acquisition with agreements and change in
control of the Company.
2/9/98 Filed Form 8-KA, amending the 8-K filed on December 19, 1997
by providing the required financial information.
SVI Holdings, Inc.
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
Date: February 17,1998
---------------- By: /s/ Russell Schechter
-----------------
Russell Schechter
Vice President / Secretary
Signing on behalf of the registrant
as principal financial officer.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SVI
Holdings, Inc.'s interim consolidated statement of income for the three months
ended December 31, 1997 and it's consolidated balance sheet as of December 31,
1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 17,992,828
<SECURITIES> 0
<RECEIVABLES> 1,979,301
<ALLOWANCES> 0
<INVENTORY> 311,096
<CURRENT-ASSETS> 20,822,099
<PP&E> 702,242
<DEPRECIATION> 548,257
<TOTAL-ASSETS> 40,746,975
<CURRENT-LIABILITIES> 3,946,348
<BONDS> 0
0
0
<COMMON> 2,794
<OTHER-SE> 34,048,600
<TOTAL-LIABILITY-AND-EQUITY> 40,746,975
<SALES> 10,016,343
<TOTAL-REVENUES> 14,050,008
<CGS> 5,100,119
<TOTAL-COSTS> 5,100,119
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86,557
<INCOME-PRETAX> 6,008,842
<INCOME-TAX> 2,040,493
<INCOME-CONTINUING> 3,968,349
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,968,349
<EPS-PRIMARY> .14
<EPS-DILUTED> .13
</TABLE>
