<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 1, 1998
-------------------
SVI Holdings, Inc.
- ------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Nevada
- ------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
0-23049 84-1131608
- ------------------------ -------------------------------
(Commission File Number) IRS Employer Identification No.)
7979 Ivanhoe Avenue, Suite 500, La Jolla, California 92037
- ------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(619) 551-2365
- ------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- ------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
The Registrant filed a Form 8-K on September 16, 1998 concerning an acquisition
of Applied Retail Solutions, Inc. ("ARS"). Subsequent to such filing, the former
shareholders of ARS and the Registrant agreed that a total of 750,000 shares of
the Registrant's common stock issued in the acquisition would be held in escrow
and subject to return to the Registrant as described in the initial filing.
This filing on Form 8-K/A also includes the required historical financial
information of ARS pursuant to Item 7(a) and the required pro forma financial
information of the Registrant pursuant to Item 7(b) of Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired
Please see Financial Statement pages indexed on page F-1
(b) Pro forma financial information
Please see financial statement pages indexed on Page F-1
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
Date: October 14, 1998
SVI Holdings, Inc.
(Registrant)
By: /s/ David L. Reese
------------------
David L. Reese
Chief Financial Officer
<PAGE> 3
INDEX TO FINANCIAL STATEMENTS
Applied Retail Solutions, Inc.
- ------------------------------
F-2 Report of Independent Certified Accountants
F-3 Balance Sheet as of October 31, 1997
F-4 Statement of Operations for the Year Ended October 31, 1997
F-5 Statement of Stockholders' Equity for the Year Ended October 31, 1997
F-6 Statement of Cash Flows for the Year Ended October 31, 1997
F-7 Notes to Financial Statements
F-12 Report of Independent Certified Accountants
F-13 Balance Sheet as of June 30, 1998
F-14 Statement of Operations for the Eight Months Ended June 30, 1998
and 1997
F-15 Statement of Stockholders' Equity for the Eight Months Ended June 30,
1998 and 1997
F-16 Statement of Cash Flows for the Eight Months Ended June 30, 1998 and
1997
F-17 Notes to Financial Statements
Pro Forma Consolidated Financial Statements
- -------------------------------------------
F-22 Introductory Notes
F-24 Pro Forma Consolidated Balance Sheet as of June 30, 1998
F-26 Pro Forma Consolidated Statement of Operations for the Year Ended
September 30, 1997
F-28 Pro Forma Consolidated Statement of Operations for the Six Months Ended
March 31, 1998
F-30 Pro Forma Consolidated Statement of Operations for the Quarter Ended
June 30, 1998
F-1
<PAGE>
HAMILTON
ACCOUNTANCY
CORPORATION
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Applied Retail Solutions
We have audited the balance sheet of Applied Retail Solutions, Inc. as of
October 31, 1997, and the related statements of operations, stockholders'
equity, and cash flows for the year 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 financial position of Applied Retail Solutions, Inc.
as of October 31, 1997, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
/s/ Hamilton Accountancy Corporation
Hamilton Accountancy Corporation
Solana Beach, California
July 31, 1998
Certified Public Accountants
323 North Pacific Coast Highway 101, P.O. Box 786 Solana Beach, California 92075
(619) 481-7702 Fax (619) 481-7828
F-2
<PAGE>
APPLIED RETAIL SOLUTIONS, INC.
BALANCE SHEET
OCTOBER 31, 1997
================================================================================
ASSETS
CURRENT ASSETS
Cash $ 421,436
Accounts receivable 441,030
Inventories 51,312
Prepaid expenses and other current assets (Note 4) 60,205
Deferred income taxes (Note 7) 160,000
------------
Total current assets 1,133,983
FURNITURE AND EQUIPMENT, net (Note 3) 277,179
------------
TOTAL ASSETS $ 1,411,162
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Deferred revenue $ 196,133
Notes payable (Note 8) 53,329
------------
TOTAL CURRENT LIABILITIES $ 249,462
COMMITMENTS (Note 5)
STOCKHOLDERS' EQUITY (Note 6)
Common stock, no par value
5,000,000 shares authorized
1,595,000 issued and outstanding 14,000
Retained earnings 1,147,700
------------
Total stockholders' equity 1,161,700
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,411,162
============
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
APPLIED RETAIL SOLUTIONS, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
================================================================================
SALES $ 2,672,556
COST OF MATERIALS 72,900
------------
GROSS PROFIT 2,599,656
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 3,012,589
------------
LOSS FROM OPERATIONS (412,933)
------------
OTHER INCOME (EXPENSE)
Interest income 8,019
Other income 24,697
Interest expense (2,541)
------------
Total other income (expense) 30,175
------------
LOSS BEFORE PROVISION FOR INCOME TAXES (382,758)
INCOME TAX BENEFIT (Note 7) 179,200
------------
NET LOSS $ (203,558)
============
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
APPLIED RETAIL SOLUTIONS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED OCTOBER 31, 1997
================================================================================
<TABLE>
<CAPTION>
Common Stock Retained
Shares Amount Earnings Total
------ ------ -------- -----
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 31, 1996 1,595,000 $ 14,000 $ 1,351,258 $ 1,365,258
NET LOSS $ (203,558) $ (203,558)
-------------- -------------- -------------- --------------
BALANCE, OCTOBER 31, 1997 1,595,000 $ 14,000 $ 1,147,700 $ 1,161,700
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
APPLIED RETAIL SOLUTIONS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 1997
================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ (203,558)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 142,221
Changes in deferred taxes (180,000)
Changes in
Accounts receivable 343,857
Inventories 9,551
Prepaid expenses and other current assets (4,000)
Deferred revenue (2,181)
Accounts payable (5,581)
------------
Net cash provided by operating activities 100,309
------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment (92,942)
------------
Net cash used in investing activities (92,942)
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term note payable 53,329
------------
Net cash provided by financing activities 53,329
------------
Net increase in cash and
cash equivalents 60,696
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 360,740
------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 421,436
============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest of $2,541 was paid during the year ended October 31, 1997. Income taxes
of $800 were paid during the year ended October 31, 1997.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
APPLIED RETAIL SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
================================================================================
NOTE 1- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
- -----------------------------------
Applied Retail Solutions, Inc. (the "Company") is engaged in the development and
distribution of computer software, computer training courses, and special
software applications for retail and point of sale establishments. The Company
was incorporated in California on October 15, 1987 and is located in San Diego,
California.
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.
Inventory
- ---------
Inventory consists of computer materials and are stated at the lower of cost or
market, cost 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 method over the estimated useful lives as
follows:
Machinery & equipment 5 to 7 years
Furniture & fixtures 7 years
Computer software 5 to 7 years
Expenditures for maintenance and repairs are charged to operations as incurred
while renewals and betterments are capitalized.
Revenue Recognition
- -------------------
Licensing and royalty revenues are generally recognized at 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
additions by customers of units containing the Company's products. Revenue under
such agreements is recognized at the time the Company is informed of the
additions 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-7
<PAGE>
APPLIED RETAIL SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
================================================================================
NOTE 1- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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. Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
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, deferred revenue, and note
payable, the carrying amounts approximate fair value due to their short
maturities.
NOTE 2- CASH
The Company maintains cash balances at one financial institution. Accounts at
this institution are insured by the Federal Deposit Insurance Corporation up to
$100,000. As of October 31, 1997, the uninsured portion of these balances held
at financial institutions aggregated to $321,136. The Company has not
experienced any losses in such accounts and believes it is not exposed to any
significant credit risk on cash.
NOTE 3- FURNITURE AND EQUIPMENT
Furniture and equipment at October 31, 1997 consisted of the following:
Machinery and equipment $ 479,498
Furniture and fixtures 138,659
Computer software 57,461
--------------
675,618
Less accumulated depreciation 398,439
--------------
TOTAL $ 277,179
==============
F-8
<PAGE>
APPLIED RETAIL SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
================================================================================
NOTE 4- RELATED PARTIES
Included in prepaid expenses and other current assets at October 31, 1997 is a
loan due from stockholder of $35,000, which is unsecured with no stated maturity
date, with interest at 6.5% per annum. Interest paid under this loan for the
year ended October 31, 1997 was approximately $1,137.
NOTE 5- COMMITMENTS
Operating Leases
- ----------------
The Company leases facilities for its corporate offices in San Diego, California
under a long-term lease agreement through April 2000. Future annual minimum
lease payments for non-cancelable operating leases are summarized as follows:
For The Two Months Ending December 31
-------------------------------------
1997 $ 49,810
Year Ending December 31
-----------------------
1998 306,193
1999 317,181
2000 106,948
----------
TOTAL $ 780,132
==========
Rent expense was $ 294,429 FOR the year ended October 31, 1997.
NOTE 6- COMMON STOCK OPTIONS
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 400,000
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 grants.
Options vest over periods not to exceed five years.
The following summarizes the Company's stock options outstanding under the stock
option plan.
<TABLE>
<CAPTION>
Shares Under Average Exercise
Option Price
------------ ----------------
<S> <C> <C>
Options outstanding, October 31, 1996 40,000 $ 2.78
Granted 38,000 2.15
----------
Options outstanding, October 31, 1997 78,000 $ 2.43
==========
</TABLE>
At October 31, 1997 there were no exercisable shares.
F-9
<PAGE>
APPLIED RETAIL SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
================================================================================
NOTE 7-INCOME TAXES
The Company files corporate federal and State of California income tax return.
Income before provision for income taxes and the current and deferred components
of the provision for income taxes at October 31, 1997 were as follows:
INCOME TAX PROVISION (BENEFIT)
Current
Federal $ -0-
State 800
-----------
800
-----------
Deferred
Federal (135,000)
State (45,000)
-----------
(180,000)
-----------
TOTAL BENEFIT $ (179,200)
===========
The components of the Company's deferred tax assets and liabilities at October
31, 1997 were as follows:
DEFERRED TAX ASSETS (LIABILITIES)
Financial provisions not deducted for tax purposes $ (115,500)
Net operating loss carry-forwards 10,000
Tax credit carry-forwards 270,000
Depreciation (5,000)
------------
TOTAL DEFERRED TAX ASSETS $ 160,000
============
NOTE 8- NOTES PAYABLE
The Company has an equipment loan from Wells Fargo Bank due June 5, 2002, with
interest at 9.70%. The balance outstanding at October 31, 1997 was $53,329. The
Company intends to retire the entire debt within the current period.
The Company has an operating line of credit from Wells Fargo Bank due February
10, 1999, with interest at Wells Fargo Bank's prime rate plus .75%; the prime
rate at October 31, 1997 was 8.5%. The maximum amount of the line of credit is
$460,000, which was all available at October 31, 1997.
F-10
<PAGE>
APPLIED RETAIL SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
================================================================================
NOTE 9- PENSION PLAN
The Company has adopted a defined contribution 40 1(k) profit sharing plan for
the benefit of its employees who have completed one year of service. Although
the Company's contributions to this plan are discretionary, it has made a
matching contribution in the amount of $39,590 for the year ended October 31,
1997.
F-11
<PAGE>
HAMILTON
ACCOUNTANCY
CORPORATION
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Applied Retail Solutions
We have audited the interim balance sheet of Applied Retail Solutions, Inc. as
of June 30, 1998, and the related statements of operations, stockholders'
equity, and cash flows for the eight 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 financial position of Applied Retail Solutions, Inc.
as of June 30, 1998, and the results of its operations and its cash flows for
the eight months then ended, in conformity with generally accepted accounting
principles.
/s/ Hamilton Accountancy Corporation
Hamilton Accountancy Corporation
Solana Beach, California
July 31, 1998
Certified Public Accountants
323 North Pacific Coast Highway 101, P.O. Box 786 Solana Beach, California 92075
(619) 481-7702 Fax (619) 481-7828
F-12
<PAGE>
APPLIED RETAIL SOLUTIONS, INC.
BALANCE SHEET
JUNE 30,1998
================================================================================
<TABLE>
<CAPTION>
ASSETS
June 30,
1998
------------
<S> <C>
Current Assets
Cash $ 640,966
Accounts receivable 470,851
Inventories 23,131
Deferred income taxes, net (Note 7) 180,000
Prepaid expenses and other current assets (Note 4) 57,885
------------
Total current assets 1,372,833
FURNITURE AND EQUIPMENT, net (Note 3) 252,676
------------
Total assets $ 1,625,509
===========
LIABILITIES AN]) STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Deferred revenue $ 321,600
Note payable (Note 8) 47,159
Accrued expenses (Note 6) 123,155
------------
Total current liabilities 491,914
COMMITMENTS (Note 5)
STOCKHOLDERS' EQUITY (Note 6)
Common stock, no par value
5,000,000 shares authorized
1,595,000 issued and outstanding 14,000
Retained earnings 1,119,595
------------
Total stockholders' equity 1,133,595
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,625,509
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
APPLIED RETAIL SOLUTIONS, INC.
STATEMENT OF OPERATIONS
FOR THE EIGHT MONTHS ENDED JUNE 30, 1998 AND 1997
================================================================================
<TABLE>
<CAPTION>
Eight Months Ended
June 30,
1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
NET SALES $ 2,094,623 $ 1,286,838
COST OF MATERIALS 41,195 58,452
------------ ------------
GROSS PROFIT 2,053,428 1,228,386
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 2,112,623 1,943,019
------------ ------------
LOSS FROM OPERATIONS (59,195) (714,633)
------------ ------------
OTHER INCOME (EXPENSE)
Interest income 3,536 5,808
Other income 12,289 12,037
Interest expense (3,935) (697)
------------ ------------
Total other income(expense) 11,890 17,148
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (47,305) (697,485)
INCOME TAX BENEFIT (Note 7) 19,200 800
------------ ------------
NET LOSS $ (28,105) $ (698,285)
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
APPLIED RETAIL SOLUTIONS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE EIGHT MONTHS ENDED JUNE 30, 1998 AND 1997
================================================================================
<TABLE>
<CAPTION>
Common Stock Retained
Shares Amount Earnings Total
------ ------ -------- -----
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 31, 1997 1,595,000 $ 14,000 $ 1,147,700 $ 1,161,700
NET INCOME $ (28,105) $ (28,105)
-------------- -------------- -------------- --------------
BALANCE, JUNE 30, 1998 1,595,000 $ 14,000 $ 1,119,595 $ 1,133,595
============== ============== ============== ==============
(unaudited)
BALANCE, OCTOBER 31, 1996 1,595,000 $ 14,000 $ 1,371,540 $ 1,385,540
NET INCOME $ (698,285) $ (698,285)
-------------- -------------- -------------- --------------
BALANCE, JUNE 30, 1997 1,595,000 $ 14,000 $ 673,255 $ 687,255
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
APPLIED RETAIL SOLUTIONS, INC.
STATEMENT OF CASH FLOWS
FOR THE EIGHT MONTHS ENDED JUNE 30, 1998 AND 1997
================================================================================
<TABLE>
<CAPTION>
Eight Months Ended
June 30,
1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (28,105) $ (698,285)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 62,782 95,746
Changes in deferred taxes (20,000) -
Changes in
Accounts receivable (29,821) 386,305
Inventories 28,181 7,790
Prepaid expenses and other current assets 2,320 51,623
Deferred revenue 125,748 175,651
Accrued expenses 122,874 (3,917)
------------ ------------
Net cash provided by operating activities 263,979 14,913
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment (38,279) (89,301)
------------ ------------
Net cash used in investing activities (38,279) (89,301)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on short-term note payable (6,170) 56,229
------------ ------------
Net cash used in financing activities (6,170) 56,229
------------ ------------
Net increase in cash 219,530 (18,159)
CASH, BEGINNING OF PERIOD 421,436 344,117
------------ ------------
CASH, END OF PERIOD $ 640,966 $ 325,958
============ ============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest of $3,935 was paid during the eight months ended June 30, 1998. Income
taxes of $800 were paid during the eight months ended June 30, 1998.
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
APPLIED RETAIL SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
================================================================================
NOTE 1- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
- -----------------------------------
Applied Retail Solutions, Inc. (the "Company") is engaged in the development and
distribution of computer software, computer training courses, and special
software applications for retail and point of sale establishments. The Company
was incorporated in California on October 15, 1987 and is located in San Diego,
California.
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.
Inventory
- ---------
Inventory consists of computer materials and are stated at the lower of cost or
market, cost 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 method over the estimated useful lives as
follows:
Machinery & equipment 5 to 7 years
Furniture & fixtures 7 years
Computer software 5 to 7 years
Expenditures for maintenance and repairs are charged to operations as incurred
while renewals and betterments are capitalized.
Revenue Recognition
- -------------------
Licensing and royalty revenues are generally recognized at 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
additions by customers of units containing the Company's products. Revenue under
such agreements is recognized at the time the Company is informed of the
additions 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-17
<PAGE>
APPLIED RETAIL SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
================================================================================
NOTE 1- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Income Taxes
- ------------
The Company utilizes SEAS 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. Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
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, deferred revenue, and note
payable, the carrying amounts approximate fair value due to their short
maturities.
NOTE 2- CASH
The Company maintains cash balances at one financial institution. Accounts at
this institution are insured by the Federal Deposit Insurance Corporation up to
$100,000. As of June 30, 1998, the uninsured portion of these balances held at
financial institutions aggregated to $440,966. The Company has not experienced
any losses in such accounts and believes it is not exposed to any significant
credit risk on cash.
NOTE 3- FURNITURE AND EQUIPMENT
Furniture and equipment at June 30, 1998 consisted of the following:
Machinery and equipment $ 509,747
Furniture and fixtures 138,659
Computer software 65,491
----------
713,897
Less accumulated depreciation 461,221
----------
Total $ 252,676
==========
F-18
<PAGE>
APPLIED RETAIL SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
================================================================================
NOTE 4- RELATED PARTIES
Included in prepaid expenses and other current assets at June 30, 1998 is a loan
due from stockholder of $35,000, which is unsecured with no stated maturity
date, with interest at 6.5% per annum. Interest paid under this loan for the
eight months ended June 30, 1998 was approximately $758.
NOTE 5- COMMITMENTS
Operating Leases
- ----------------
The Company leases facilities for its corporate offices in San Diego, California
under a long-term lease agreement through April 2000. Future annual minimum
lease payments for non-cancelable operating leases are summarized as follows:
For The Seven Months Ending December 31
---------------------------------------
1998 $ 93,781
Year Ending December 3 1
------------------------
1999 317,181
2000 106,948
----------
Total $ 517,910
==========
Rent expense was $212,412 for the eight months ended June 30, 1998.
NOTE 6- EMPLOYEE STOCK OPTION PLAN
Effective June 30, 1998, the Company terminated the Applied Retail Solutions,
Inc. Employee Stock Option Plan. Included in accrued expenses at June 30, 1998
is an amount of $77,874.00, which represents payments due to certain employees
related to the termination of the employee stock option plan.
F-19
<PAGE>
APPLIED RETAIL SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
================================================================================
NOTE 7-INCOME TAXES
The Company files corporate federal and State of California income tax returns.
Income before provision for income taxes and the current and deferred
components of the provision for income taxes at June 30, 1998 were as follows:
INCOME TAX PROVISION (BENEFIT)
Current
Federal $ -0-
State 800
-----------
800
-----------
Deferred
Federal (14,000)
State (6,000)
-----------
(20,000)
-----------
TOTAL BENEFIT $ (19,200)
===========
The components of the Company's deferred tax assets and liabilities at June 30,
1998 were as follows:
DEFERRED TAX ASSETS (LIABILITIES)
Financial provisions not deducted for tax purposes $ (10,000)
State taxes (5,000)
Tax credit carry-forwards 195,000
------------
TOTAL DEFERRED TAX ASSETS $ 180,000
============
NOTE 8- NOTES PAYABLE
The Company has an equipment loan from Wells Fargo Bank due June 5, 2002, with
interest at 9.70%. The balance outstanding at June 30, 1998 was $47,159. The
Company intends to retire the entire debt within the current period.
The Company has an operating line of credit from Wells Fargo Bank due February
10, 1999, with interest at Wells Fargo Bank's prime rate plus .75%; the prime
rate at June 30, 1998 was 8.5%. The maximum amount of the line of credit is
$460,000, which was all available at June 30, 1998.
F-20
<PAGE>
APPLIED RETAIL SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
================================================================================
NOTE 9- PENSION PLAN
The company has adopted a defined contribution 401(k) profit sharing plan for
the benefit of its employees who have completed one year of service. Although
the Company's contributions to this plan are discretionary, it has made matching
contribution in the amount of $30,121 for the eight-month period ended June 30,
1998.
F-21
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
SVI Holdings, Inc. and Subsidiaries
Introductory Notes
The accompanying unaudited pro forma consolidated balance sheet
includes the balance sheet of SVI Holdings, Inc. and its subsidiaries
(collectively, the "Company") as of June 30, 1998, and then assumes the merger
of Applied Retail Solutions, Inc. ("ARS") with a wholly-owned subsidiary of the
Company, which was consummated as of July 1, 1998, as if such acquisition
occurred on June 30, 1998, using the purchase method of accounting and based
upon the assumptions indicated in the notes to the statement.
The accompanying unaudited pro forma consolidated statement of
operations for the twelve months ended September 30, 1997 combines the
consolidated operations of the Company with (i) the operations of Chapman
Computers Pty. Ltd. ("Chapman"), the assets of which were acquired by the
Company on April 28, 1997, (ii) the operations of IBIS Systems Pty. Limited
("IBIS"), the stock of which was acquired by the Company as of October 1, 1997,
(iii) the operations represented by certain assets of Multisoft Financial
Systems Limited (the "Multisoft Assets") acquired by the Company on March 9,
1998, and (iv) the operations of ARS, as if the respective transactions were
each completed as of the beginning of the twelve month period presented, using
the purchase method of accounting and based upon the assumptions indicated in
the notes to the statement.
The accompanying unaudited pro forma consolidated statement of
operations for the six months ended March 31, 1998 combines the consolidated
operations of the Company with (i) the operations represented by the Multisoft
Assets and (ii) the operations of ARS, as if the respective transactions were
each completed as of the beginning of the six month period presented, using the
purchase method of accounting and based upon the assumptions indicated in the
notes to the statement.
The accompanying unaudited pro forma consolidated statement of
operations for the three months ended June 30, 1998 combines the consolidated
operations of the Company with the operations of ARS, as if the merger were
completed as of the beginning of the three month period presented, using the
purchase method of accounting and based upon the assumptions indicated in the
notes to the statement.
These statements are not necessarily indicative of future
operations or the actual results which would have occurred had the various
acquisitions been consummated at the beginning of the periods indicated.
F-22
<PAGE>
The unaudited pro forma consolidated financial statements should
be read in conjunction with the historical financial statements of the Company
and the notes to such statements included in the Company's Form 10-KSB for the
fiscal year ended September 30, 1997, Form 10-KSB for the transitional fiscal
year ended March 31, 1998 and Form 10-QSB for the three months ended June 30,
1998, as well as the historical financial statements of ARS included in this
Form 8-K/A, and the historical financial statements of Chapman and IBIS included
in the Company's Form 8-K filed on August 11, 1997 and Form 8-K/A filed February
12, 1998, respectively.
F-23
<PAGE>
SVI Holdings, Inc. and Subsidiaries
Pro Forma Consolidated Balance Sheet
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
A
SVI Holdings Pro forma Pro forma
and Subsidiaries ARS Adjustments Consolidated
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash $ 12,907,675 $ 640,966 B $ (2,000,000) $ 11,548,641
Certificate of deposit, pledged - - -
Accounts receivable, net 5,799,278 470,851 6,270,129
Inventories 343,886 23,131 367,017
Prepaid expenses and other current assets 1,012,743 57,885 1,070,628
-------------------------- -------------
Total current assets 20,063,582 1,192,833 19,256,415
Furniture and equipment, net 1,261,130 252,676 1,513,806
Agreement not-to-compete - C 1,845,755 1,845,755
Deferred tax asset 225,011 180,000 405,011
Capitalized software, net 12,479,213 D 6,240 12,485,453
Goodwill on acquisition of subsidiaries 14,671,876 - 14,671,876
Other assets 40,107 40,107
-------------------------- ------------- -------------
Total assets $ 48,740,919 $ 1,625,509 $ (148,005) $ 50,218,423
========================== ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $ - $ 47,159 $ 47,159
Accounts payable 1,991,397 1,991,397
Accrued expenses 4,871,608 123,155 E (73,995) 4,920,768
Deferred income 321,600 321,600
Income taxes payable 1,704,511 - 1,704,511
-------------------------- -------------
Total current liabilities 8,567,516 491,914 8,985,435
Long-term liabilities - -
Due to stockholder - -
Deferred tax liability 713,709 713,709
-------------------------- -------------
Total liabilities 9,281,225 491,914 9,699,144
-------------------------- -------------
Stockholders' equity
Preferred stock
Common stock 2,823 14,000 F (13,975) 2,848
Additional paid in capital 33,591,231 G 999,975 34,591,206
Retained earnings-beginning 4,299,994 979,760 H (979,760) 4,299,994
Net income-current 2,115,584 139,835 (80,250) 2,175,169
Cumulative translation adjustment (549,938) (549,938)
-------------------------- -------------
39,459,694 1,133,595 40,519,279
-------------------------- ------------- -------------
Total liabilities and stockholders' equity $ 48,740,919 $ 1,625,509 $ (148,005) $ 50,218,423
========================== ============= =============
</TABLE>
F-24
<PAGE>
SVI Holdings, Inc. and Subsidiaries
Pro Forma Consolidated Balance Sheet
As of June 30, 1998
(Unaudited)
PRO FORMA ADJUSTMENTS:
A As of June 30, 1998, Chapman, IBIS and Multisoft were fully consolidated
with SVI Holdings, Inc.
B Cash expended to acquire ARS (2,000,000)
=============
C Agreement not-to-compete 1,926,005
Amortization of Agreement not-to-compete (80,250)
--------------
1,845,755
=============
D Acquired ARS Technology 6,240
=============
E Liability assumed through Acquisition 73,995
=============
F Issued 250,000 shares to acquire ARS 25 I
Elimination of equity of ARS (14,000)
-------------
(13,975)
=============
G Issued 250,000 shares to acquire ARS 999,975 I
=============
H Elimination of equity of ARS (979,760)
=============
I Excludes 750,000 shares held in escrow pending determination of whether
earn-out provisions will be achieved.
F-25
<PAGE>
SVI Holdings, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Operations
For the Year Ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
SVI Holdings Multisoft Pro Forma Pro Forma
and Subsidiaries Chapman IBIS Assets ARS Adjustments Consolidated
-------------------------------------------------------------------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 10,433,878 $ 699,426 $ 4,756,800 $ 5,469,981 $ 2,672,556 $ 24,032,641
Cost of goods sold 3,036,660 219,501 1,850,038 1,474,830 72,900 6,653,929
-------------------------------------------------------------------------- --------------
Gross profit 7,397,218 479,925 2,906,762 3,995,151 2,599,656 17,378,712
Selling, general and
admin. expenses 5,883,558 296,903 1,743,300 1,741,938 3,012,589 A 1,981,455 14,659,743
-------------------------------------------------------------------------- --------------- --------------
Profit / (loss)
from operations 1,513,660 183,022 1,163,462 2,253,213 (412,933) 1,981,455 2,718,969
Interest income 60,751 43,434 8,019 112,204
Interest expense (103,398) (553) - (2,541) (106,492)
Other income 32,891 82,423 24,697 140,011
Gain on disposal
of Softline shares 3,973,755 B 5,232,774 9,206,529
Equity in earnings
of Softline Limited 627,550 C (627,550) -
Foreign exchange
gain (loss) (120,455) (120,455)
-------------------------------------------------------------------------- --------------- --------------
Income before
income tax 5,951,863 215,360 1,289,319 2,253,213 (382,758) 6,586,679 11,950,766
Income taxes 1,103,453 743,970 (179,200) D 1,429,591 3,097,814
-------------------------------------------------------------------------- --------------- --------------
Net income $ 4,848,410 $ 215,360 $ 1,289,319 $ 1,509,243 $ (203,558) $ 5,157,088 $ 8,852,952
========================================================================== =============== ==============
Earnings per share:
Basic $ 0.31 $ 0.30
============== ==============
Diluted $ 0.29 $ 0.29
============== ==============
Shares outstanding:
Basic 15,617,655 E 13,536,000 29,153,655
Diluted 16,718,655 E 13,536,000 30,254,655
</TABLE>
F-26
<PAGE>
SVI Holdings, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Operations
For the Year Ended September 30, 1997
(Unaudited)
A Amortization of goodwill - Multisoft Assets 380,975
Amortization of goodwill - IBIS 298,670
Amortization of software license rights-Brilliant 460,472
Amortization of software license rights-IBIS 233,697
Amortization of Agreement not-to-compete 321,000
Amortization of technology - ARS 286,641
----------------
1,981,455
================
B Proceed from sale of Softline shares 6,383,979
Less: investment in Softline shares (1,778,755)
Add: equity in earnings of Softline Limited 627,550
----------------
5,232,774
================
C Eliminate equity in earnings of Softline Limited 627,550
================
D Income tax expense:
of pre-tax income as follows:
Chapman (estimated 34% of pre-tax income) 73,222
IBIS (estimated 34% of pre-tax income) 438,369
Income from pro-forma adjustments @ 35% effective
tax rate 918,000
----------------
1,429,591
================
Income tax expense for Multisoft Assets is based on estimated rate of 33%.
E Shares issued for acquisition of IBIS 5,000,000
Shares issued for cash and technology rights 7,536,000
Shares issued for acquisition of ARS 1,000,000
----------------
13,536,000
================
Shares issued for acquisition of ARS assumes that all earn-out provisions
for release of 750,000 shares from escrow would have been met during the
year ended September 30, 1997.
No assumptions are made herein regarding debt reduction or interest income
related to the pro forma increase in cash.
F-27
<PAGE>
SVI Holdings, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Operations
For the Six Months Ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
SVI Holdings Multisoft Pro Forma Pro Forma
and Subsidiaries Assets ARS Adjustments Consolidated
-------------------------------------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Net sales $ 16,354,383 $ 1,697,640 $ 986,410 $ 19,038,433
Cost of goods sold 6,489,081 333,935 38,031 6,861,047
-------------------------------------------- ----------------
Gross profit 9,865,302 1,363,705 948,379 12,177,386
Selling, general and admin. expenses 6,500,041 458,955 1,221,267 A 264,360 8,444,623
-------------------------------------------- --------------- ----------------
Profit / (loss) from operations 3,365,261 904,750 (272,888) 264,360 3,732,763
Interest income 351,309 2,569 353,878
Interest expense (16,635) (2,110) (18,745)
Other income 56,427 289 56,716
Gain on disposal of Softline shares 4,388,389 - 4,388,389
Foreign exchange gain (loss) (14,041) (14,041)
-------------------------------------------- --------------- ----------------
Income before income tax 8,130,710 904,750 (272,140) 264,360 8,498,960
Income taxes 2,311,743 299,390 (104,200) - 2,506,933
-------------------------------------------- --------------- ----------------
Net income $ 5,818,967 $ 605,360 $ (167,940) $ 264,360 $ 5,992,027
============================================ =============== ================
Earnings per share:
Basic $ 0.21 $ 0.21
============== ================
Diluted $ 0.19 $ 0.19
============== ================
Shares outstanding:
Basic 27,768,239 B 250,000 28,018,239
Diluted 31,045,886 B 250,000 31,295,886
</TABLE>
F-28
<PAGE>
SVI Holdings, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Operations
For the Six Months Ended March 31, 1998
(Unaudited)
PRO FORMA ADJUSTMENTS:
A Amortization of Agreement not-to-compete 160,500
Amortization of goodwill - Multisoft Assets 103,860
----------------
264,360
================
B Shares issued for acquisition of ARS 250,000
----------------
250,000
================
Excludes 750,000 shares held in escrow pending determination of whether
earn-out provisions will be achieved.
No assumptions are made herein regarding debt reduction or interest income
related to the pro forma increase in cash.
F-29
<PAGE>
SVI Holdings, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Operations
For the Quarter Ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SVI Holdings Pro Forma Pro Forma
and Subsidiaries ARS Adjustments Consolidated
----------------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 8,495,436 $ 1,108,213 $ 9,603,649
Cost of goods sold 1,633,095 3,164 1,636,259
----------------------------- ---------------
Gross profit 6,862,341 1,105,049 7,967,390
Selling, general and admin. expenses 4,301,982 891,356 A (80,250) 5,113,088
----------------------------- -------------- ---------------
Profit / (loss) from operations 2,560,359 213,693 (80,250) 2,854,302
Interest income 174,935 967 175,902
Interest expense (19,064) (1,825) (20,889)
Other income 36,584 12,000 48,584
Gain on disposal of Softline shares - - -
Foreign exchange gain (loss) 14,072 14,072
----------------------------- -------------- ---------------
Income before income tax 2,766,886 224,835 (80,250) 3,071,971
Income taxes 651,302 85,000 - 736,302
----------------------------- -------------- ---------------
Net income $ 2,115,584 $ 139,835 $ (80,250) $ 2,335,669
============================= ============== ===============
Earnings per share:
Basic $ 0.08 $ 0.08
============== ===============
Diluted $ 0.07 $ 0.07
============== ===============
Shares outstanding:
Basic 28,189,640 B 250,000 28,439,640
Diluted 31,459,807 B 250,000 31,709,807
</TABLE>
F-30
<PAGE>
SVI Holdings, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Operations
For the Quarter Ended June 30, 1998
(Unaudited)
PRO FORMA ADJUSTMENTS:
A Amortization of goodwill - Multisoft Assets -
Amortization of technology - ARS 80,250
---------------
80,250
===============
B Shares issued for acquisition of ARS 250,000
---------------
250,000
===============
Excludes 750,000 shares held in escrow pending determination of whether
earn-out provisions will be achieved.
No assumptions are made herein regarding debt reduction or interest income
related to the pro forma increase in cash.
F-31
