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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended:
March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-23049
SVI HOLDINGS, INC.
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(Name of Small Business Issuer in its Charter)
Nevada 84-1131608
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
7979 Ivanhoe Avenue, Suite 500, La Jolla, California 92037
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(Address of Principal Executive Offices, Including Zip Code)
Issuer's Telephone Number, Including Area Code: (619) 551-2365
Securities registered under Section 12(b) of the Exchange Act:
Common Stock $0.0001 par value per share.
Securities registered under Section 12(g) of the Exchange Act: None.
Name of each exchange on which registered: American Stock Exchange.
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
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The Issuer's revenues from operations for the twelve months ended March 31, 1999
were $17,486,670. The Company also had additional revenues of $12,402,521 which
are classified as discontinued operations.
The aggregate market value of the Issuer's voting stock held by non-affiliates
was $89,300,039 as of May 26, 1999.
As of May 26, 1999, 32,070,045 shares of the Issuer's common stock were
outstanding.
Documents incorporated by reference: The information required by Part III is
incorporated from the Company's definitive proxy statement which will be filed
on or before July 29, 1999.
Currency Translation
Unless otherwise indicated, references in this report to "$" are to U.S.
Dollars. Transactions which occurred in foreign currencies are described in U.S.
Dollars based on the exchange rate applicable on the transaction date unless
otherwise indicated. Certain numbers in this report have been rounded.
Cautionary Statement Regarding Forward-Looking Information
Certain statements contained in this report regarding matters that are not
historical facts are forward-looking statements (as such term is defined in the
rules promulgated pursuant to the Securities Exchange Act of 1934, as amended).
Because such forward-looking statements include risks and uncertainties, actual
results may differ materially from those expressed in or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to, those discussed herein under "Risk
Factors." The Company undertakes no obligation to release publicly any revisions
to these forward-looking statements that may be made to reflect events or
circumstances after the date of this report or to reflect the occurrence of
unanticipated events.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
INTRODUCTION
SVI Holdings, Inc. ("SVI" or the "Company") was founded as a Nevada corporation
in 1989 as Wilson Capital, Inc. The Company was inactive until February 1994
when it acquired Sabica Ventures, Inc. and changed its name to SVI Holdings,
Inc. Sabica Ventures, Inc. was formed in 1990 as a holding company for potential
growth industries. The Company maintains its principal place of business at 7979
Ivanhoe Avenue, Suite 500, La Jolla, California 92037. Its telephone number is
(619) 551-2365.
Since merging with Sabica Ventures, Inc. in 1994, the Company has grown steadily
as a provider of computer and information technology services to specialty
industries in domestic and international markets. More recently, the Company has
narrowed its focus to two distinct portions of the information industry:
- - Open architecture point of sale and retail management computer systems
- - PC education courseware and computer skills assessment products
The Company is a holding company which operates solely through its wholly-owned
subsidiaries. The Company has implemented its new focus through several
strategic acquisitions and the sale of one major subsidiary over the last twelve
months.
The Company has three primary retail system products:
- - SVI-POST: Hardware independent, open architecture point of sale systems.
- - SVI-HOST: Hardware independent, open architecture retail management systems
software, including merchandising, accounting and supply chain management.
- - SVI-E-HOST: An electronic commerce engine designed to interface with SVI-POST,
SVI-HOST and other retail industry software platforms to create broad
databases for enhanced well-targeted marketing programs.
During fiscal 1999, the Company acquired Applied Retail Solutions in San Diego,
California and Triple-S Computers Pty. Limited in South Africa. Both companies
are in the point of sale systems business.
In June 1999, the Company acquired Island Pacific Systems Corporation of
Irvine, California ("Island Pacific"), a leading provider of retail management
software products. The Island Pacific products are now an important component of
the SVI-HOST solution.
SVI currently has over 83,000 point of sale terminals installed with 3,400
clients worldwide. Major SVI clients include:
- - United Stated Postal Service
- - Crate & Barrel, Inc.
- - Home Depot, Inc.
- - Office Max Stores
- - Musicland Stores
- - Phillips Van Heusen
- - Oshman's Sporting Goods
- - Wilson's House of Suede
- - The Limited
- - Disney Stores
- - Timerland
- - Bugle Boy
- - Liz Clairborne
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The Company currently markets its products in North America, the United Kingdom,
Australia, New Zealand and southern Africa.
The Company has partnering agreements with NCR, ICL Fujitsu and IBM, pursuant to
which the Company's software products are licensed and sold with such companies'
hardware products.
The Company sold its IBIS Systems Pty. Ltd. subsidiary effective January 1,
1999. IBIS provided software systems, hardware and customer service for the
construction and plant hire industries, principally in the United Kingdom. The
Company decided to sell IBIS to better focus operations and resources on the
retail software systems industry.
During fiscal 2000, the Company expects to emphasize internal growth, market new
products and provide new services to its existing client base. The Company will
continue to evaluate opportunities (including acquisition opportunities) to
exploit new trends, emerging markets and complimentary services within the
retail software sector of the market.
The Company and its subsidiaries employ a total of approximately 315 people as
of June 4, 1999, approximately 300 of which are full time.
INDUSTRY OVERVIEW - RETAIL SOFTWARE SYSTEMS
The rapid development of the retail software market has increasingly allowed the
retail industry to track, analyze and implement sales information on a real-time
basis. Software systems provide for the input of sales information as a sale
occurs and simultaneously provide that information to the enterprise's retail
management software. Such information is available both to local management and
to company headquarters for purposes of asset management, inventory tracking and
sales analysis. These systems have become increasingly important for
multi-location retail enterprises that need to disseminate sales information
throughout the enterprise to better manage inventory, costs, pricing and
manufacturing. Multi-location retailers require sophisticated, integrated point
of sale ("POS") retail management systems that can reliably and efficiently
capture and manage large numbers of individual transactions generated from
diversified points of sale.
Retail software systems were initially custom designed to satisfy individual
business needs of a customer. These initial systems were proprietary with
software and service developed internally or provided by a single vendor. Due to
the custom nature of the application, little opportunity existed for vendors to
leverage their niche success into market-wide success.
The retail software systems industry has developed from proprietary, customized,
single platform systems to open architecture systems in which a variety of
hardware and software products from different manufacturers can be combined to
obtain the mix of features desired by the customer. With the advent of hardware
and software systems using industry standard open system architecture, retailers
are no longer captive to the single solution vendors which created their retail
software systems. As a result, the market for retail systems has grown
substantially to include smaller retailers as well as large chains, and a number
of new suppliers have entered the retail software systems business.
While many retailers did, in the past, develop and maintain their own
proprietary retail software systems, the increasingly competitive environment
has made it difficult for such companies to keep up with the rapidly improving
products which become available through outside vendors. By purchasing third
party systems, companies reduce compatibility problems from hardware changes and
also reduce the need for a sophisticated technical staff to maintain such
systems, while having access to advanced products to operate more efficiently.
SVI's mission is to provide sophisticated and reliable enterprise retail
software solutions to a wide variety of retail clients in diverse geographic
markets, and to participate in the expansion of these markets.
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RECENT GROWTH OF THE COMPANY
<TABLE>
The Company has over the past two and one-half years made six major acquisitions
of businesses or assets. These are:
<CAPTION>
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Acquisition Date Name and Principal Location Principal Business Activity at Time of Acquisition
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<S> <C> <C>
October 1, 1996 Divergent Technologies Pty. Ltd., Australia Point of sale and retail management computer
systems
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April 28, 1997 Chapman Computers Pty. Ltd., Australia Accounting and management systems for retail
industry
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October 1, 1997 (sold IBIS Systems Pty. Ltd., United Kingdom, Software applications for construction and plant
as of Jan. 1, 1999) Ireland and Scotland hire industries
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April 1, 1998 Triple-S Computers Pty. Limited, South Africa Point of sale retail systems
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July 1, 1998 Applied Retail Solutions, San Diego, California Point of sale retail systems
- ----------------------------------------------------------------------------------------------------------------------------
June 1999 Island Pacific Systems Corporation, Irvine, Retail industry merchandising and management
California software
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</TABLE>
DIVERGENT TECHNOLOGIES PTY. LTD.
The Company acquired Divergent Technologies Pty. Ltd. ("Divergent") effective
October 1, 1996. Divergent is an Australian information technology company
specializing in POS and retail management computer systems. In connection with
the acquisition, the Company acquired the exclusive worldwide technology rights
for Divergent's "dOLFIN" and "dPOSit" software products.
The purchase price for Divergent and the associated technology rights was
$4,155,000 in cash, 1,300,000 shares of the Company's common stock, plus options
to purchase an additional 1,600,000 shares of common stock at a price of $1.75
per share.
CHAPMAN COMPUTERS PTY. LTD.
On April 28, 1997, Divergent acquired the principal technology and computer
software programs of Chapman Computers Pty. Ltd. ("Chapman"). Chapman is an
Australian company that specializes in providing computer systems for accounting
and management to the retail industry in Australia, New Zealand and the Pacific
Rim.
The purchase price for Chapman was $1,384,000, consisting of $784,000 in cash
and $600,000 paid through the issuance of 300,000 shares of the Company's common
stock. The shares issued for the acquisition are held in escrow until April 28,
2000. The Company also issued an additional 200,000 shares of its common stock
on March 16, 1998 pursuant to an earn-out provision in the acquisition
agreement.
IBIS SYSTEMS PTY. LTD.
See discussion below under "Discontinued Operations."
TRIPLE-S COMPUTERS PTY. LIMITED
Effective April 1, 1998, Divergent acquired certain assets of Triple-S Computers
Pty. Limited ("Triple-S") of Cape Town, South Africa. The acquisition was by
assignment of the acquisition agreement from Softline Limited ("Softline").
Softline currently beneficially owns approximately 58 percent of the Company's
common stock. Triple-S develops and installs POS retail systems throughout
southern Africa. The Company reimbursed Softline for the $270,115 paid by
Softline for Triple-S by issuing to Softline 68,035 shares of SVI common stock.
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APPLIED RETAIL SOLUTIONS, INC.
Effective July 1, 1998, the Company acquired Applied Retail Solutions, Inc.
("ARS"), a San Diego based company specializing in POS software systems. ARS has
been in business since 1987 and its "Retail Solutions Package" is installed on
over 40,000 POS terminals in over 4,000 locations worldwide. ARS's significant
clients include the United States Postal Service, Crate & Barrel, Home Depot and
Office Max. The Retail Solutions Package is an open architecture system designed
to work in a client-server environment. The Company issued 1,000,000 shares of
its common stock in connection with the acquisition, and paid a total of
$1,926,000 to the two principals of ARS for entering into two-year employment
agreements and four-year non-compete agreements. An earn-out provision included
in the acquisition provided that up to $2,000,000 would be paid in the form of
SVI common stock upon ARS's achievement of certain revenue targets. On May
26, 1999, the Company and the former ARS shareholders agreed that the Company
would issue 165,000 of its common shares to such shareholders in full
satisfaction of the earn-out provision.
ISLAND PACIFIC SYSTEMS CORPORATION
In June 1999, the Company purchased all of the outstanding stock of Island
Pacific Systems Corporation ("Island Pacific"), a California corporation, for
$35 million cash. The Company also entered into three year employment agreements
and three year non-competition agreements with some of Island Pacific's
principals. The Company paid the purchase price using cash on hand, cash
acquired from the sale of IBIS, approximately $4 million paid by Softline upon
exercise of options, a $2.3 million loan from Claudav Holdings Ltd., B.V. (which
owns 16.9% of the outstanding shares of the Company) and two bank loans. The
first bank loan is in the amount of $15 million with interest-only payments for
the first six months, convertible thereafter to a fully-amortized two year loan.
The second loan is in the amount of $3.5 million and is a fully amortizing two
year loan.
Island Pacific, founded in 1977, is based in Irvine, California and develops and
markets retail industry merchandising and management software systems. Island
Pacific's software automates the full scope of a retailer's operations from
inventory planning and purchasing through distribution and final sale of goods.
Island Pacific's products have been licensed to over 245 clients worldwide. Over
50 of such clients have been using Island Pacific's products for 8 or more
years. Island Pacific's key clients include The Limited, Nike, J.C. Penny, The
Disney Stores and Bugle Boy.
SALE OF SOFTLINE LIMITED SHARES
In 1996, the Company acquired 40% of the outstanding shares of Softline Limited,
a South African company, for $2,014,000. Softline was listed on the Johannesburg
Stock Exchange (the "JSE") in February 1997 via the merger with another company
listed on that exchange. As a result of that merger, the Company's interest in
the equity of Softline was diluted to approximately 29% of the outstanding
shares, represented by 48,639,000 shares.
Between February 1997 and March 31, 1998, the Company sold all of its Softline
shares and has not acquired any further holdings in Softline.
DISCONTINUED OPERATIONS
IBIS SYSTEMS PTY. LTD.
On May 1, 1999, the Company sold all of its stock in IBIS Systems Pty. Ltd.
("IBIS") with effect from January 1, 1999. The Company recorded a gain on the
sale of IBIS of $274,000 after taxes.
The purchaser of IBIS was Kielduff Investments Limited, an Ireland corporation
("Kielduff"), which is owned and controlled by Peter Nagle and other former
management or affiliates of SVI's IBIS subsidiary.
The purchase price for IBIS included the following components: (a) $2,250,000
cash; (b) 141,000 shares of SVI common stock; (c) the surrender by Mr. Nagle of
the net shares issuable upon exercise of an option to purchase 50,000 shares of
SVI common stock at $3.00 per share; and (d) a promissory note (the "Note") in
the amount of $18,108,000, payable in full on October 1, 1999, bearing interest
from May 1, 1999 at 2% over the base prime rate for U.S. dollar deposits quoted
by HSBC Plc. The Note is secured by a pledge in favor of SVI of all of the
common stock of IBIS.
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As part of the transaction, the Company agreed to pay to Systems for Business
Incorporated, a British Virgin Islands corporation ("Systems"), the sum of
$4,500,000 which is last payable under the Note, in settlement of certain
obligations assumed by the Company from Softline in connection with its
acquisition of IBIS. Mr. Nagle is an affiliate of Systems. The Company
subtracted this amount in determining net proceeds from the sale.
The Company also agreed with Kielduff that for a period of two years following
the sale, the Company will not (a) solicit the customers of IBIS or (b) compete
against the business of IBIS in the United Kingdom.
The Company determined to sell IBIS as part of the shift in strategic emphasis
to enterprise software solutions for the retail industry. IBIS' software
applications were non-retail and utilized for the building, leasing and general
financial industries. The Board of Directors determined that the consideration
to be received from the sale of IBIS should be directed to further acquisitions
within the retail enterprise marketplace, and the proceeds were used to finance
part of the acquisition of Island Pacific.
The Company acquired IBIS on October 1, 1997 through a group of agreements with
Softline and Hosken Consolidated Investments Limited ("HCI") which resulted in a
change of control of the Company in addition to the acquisition of IBIS. HCI is
a South African company listed on the JSE. The group of agreements were as
follows:
- - Sales of Shares Agreement: by this agreement, the Company acquired 100% of the
equity of Anniston Ventures Ltd. ("Anniston") and IBIS in exchange for the
issuance of 5,000,000 shares of the Company's common stock to Softline.
- - Share Swap Agreement: by this agreement, the Company issued 7,536,000 shares
of its common stock to Softline in exchange for certain technology assets and
22,130,000 shares of the common stock of Softline.
- - Renunciation Agreement: by this agreement, the Company renounced its rights in
favor of HCI to the Softline shares acquired through the Share Swap Agreement
in exchange for $7,662,000 cash paid by HCI.
As part of its acquisition of IBIS, the Company assumed an earn-out obligation
payable to the management of IBIS based upon the financial performance of IBIS
in 1998 and 1999. The Company and Softline settled the earn-out in connection
with the Company's sale of IBIS as described above.
In summary, the agreements described above provided that the Company issued
12,536,000 shares of its common stock in exchange for 100% of the equity of
Anniston and IBIS, certain technology assets and cash of $7,662,000. Softline,
through these transactions, and through separate purchases of 4,000,000 shares
of SVI's common stock from certain stockholders of the Company, acquired a total
of 16,536,000 shares of the Company's common stock constituting approximately
58% of the Company's total outstanding common stock at that time.
Effective March 9, 1998, IBIS purchased from Multisoft Financial Systems Limited
("Multisoft") certain customer contracts and other assets which were associated
with Multisoft's "Multisoft Direct" service for $6,478,000. The acquired assets
included certain prepayments in the amount of $1,440,000 which were remitted to
the Company at the time of the acquisition. During fiscal 1999, IBIS also
acquired three other United Kingdom businesses. All of these operations were
sold along with IBIS. In addition, the Company conveyed all of the assets of
Anniston prior to the sale of IBIS. Anniston is now an inactive subsidiary of
the Company.
MAJOR OPERATING SUBSIDIARIES
RETAIL SYSTEMS OPERATIONS
The Company's retail systems operations are composed of the following
subsidiaries: ARS, Divergent, Triple-S and Island Pacific.
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The Company's current primary retail software products include SVI-POST,
SVI-HOST and SVI-E HOST. SVI-POST is retail POS software, which when installed
with appropriate hardware, replaces cash registers. SVI-HOST is software
designed for retail management systems, merchandising and supply chain
management. SVI-E HOST is still under development and will be designed to
provide electronic commerce capability to the SVI-POST and SVI-HOST
applications, as well as other retail industry software platforms.
The Company currently has approximately 83,000 separate SVI-POST devices
installed worldwide on behalf of approximately 3,200 clients. Included as part
of SVI-POST's solution is ARS's "Retail Solutions Package" which represents
approximately 40,000 of the Company's point of sale terminals. The Retail
Solutions Package is an open architecture system designed to operate in a
client-server environment.
Through the acquisition of Island Pacific, the Company acquired a complete
package of retail management systems which are sold in modules under the I3(TM)
brand name. These products are now part of the SVI-HOST solution.
The I3(TM) Merchandising product defines the core of the Island Pacific
products. It includes management planning and "open to buy" forecasting,
physical inventory, price management, competitor pricing and merchandise stock
ledger. Other I3(TM) products include I3(TM) Financials, which provides software
functionality for accounts payable, general ledgers and fixed assets; I3(TM)
Sales Audit, providing up to date data at any point in the audit cycle; and
I3(TM) Warehouse, a user definable locator system, which controls the physical
flow of merchandise. All of the I3(TM) modules have multiple language and
currency capabilities for international use.
ARS and Island Pacific serviced some of the same clients prior to SVI's
acquisition of Island Pacific. The ARS and Island Pacific systems complement
each other, and the Company intends to cross-market a complete system to the
clients of each company which are not currently using the products of the other.
Island Pacific has approximately 245 clients worldwide running its systems.
Premier clients include The Limited, Disney Stores, Timberland, Bugle Boy and
Liz Claiborne.
Divergent's systems include (i) the dOLFIN Financial Management system for
retail distribution and manufacturing companies, (ii) the dPOSit Retail,
Management and Point-Of-Sale system for multi-store specialty retailers and
(iii) the RAGS Computer Systems, designed for the garment industry. Divergent's
business systems provide complete integration of all business activities into a
single software system.
Triple-S provides POS and retail management systems in southern Africa.
Triple-S's clients include primarily large specialty retailers. Since the
acquisition, the Company has improved and expanded the Triple-S product line and
now offers southern African customers the Company's full range of retail
software solutions.
SVI intends to continue its efforts to integrate the individual products of its
retail systems subsidiaries so as to offer more sophisticated, higher quality
products to its customers. The Company will rely on the combined talent of its
subsidiaries to continue to create, integrate and improve its products.
The current market for the Company's retail software products are English
speaking countries, including North America, the United Kingdom, Australia, New
Zealand and southern Africa. The Company hopes to expand its market to
non-English speaking countries in the future through resellers and hardware
vendors. The Company has, in the past, expanded its market substantially via the
acquisition of its subsidiaries based in various geographic areas.
The Company focuses generally on retailers in Tier 1 (over 700 stores) and Tier
2 (over 300 stores). The Company markets its products to specialty stores,
department stores and mass merchandisers through an in house sales team.
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The Company also has several strategic relationships and co-marketing agreements
with computer and software manufacturers. Divergent has a strategic business
alliance with IBM Corporation through which Divergent receives volume pricing on
IBM hardware incorporated in its solutions. The Company's other subsidiaries
also have partnering agreements with several hardware manufacturers, including
NCR, ICL Fujitsu and IBM, pursuant to which the Company's software products are
bundled with such companies' hardware products.
In April 1999, the Company entered into a co-marketing agreement with IBM to
integrate the Company's SVI-E HOST product with certain IBM software upon the
launch of the SVI-E HOST product.
The Company's retail systems subsidiaries spent approximately $1,660,000 and
$1,306,000 on research and development for the twelve month periods ended March
31, 1999 and 1998, respectively.
SVI TRAINING PRODUCTS, INC.
SVI Training Products, Inc. ("Training") develops and distributes PC courseware
and skills assessment products. The courseware is designed for use in an
instructor-led training environment. Training licenses courseware either as
individual manuals and instructor guides, or on a limited site license basis.
Training has developed more than 215 training modules.
Site licensing allows a customer to print an unlimited number of course manuals
for a fixed annual fee, and renewals provide Training with a recurring annual
revenue stream. Over 80% of Training's site licenses are renewed. Training
provides the site licensed courseware on CD-ROM, allowing customization of the
instructor-led course materials.
Training uses a network of specialized sub-contractors to develop products.
Training hires sub-contractors on a project basis, which allows for the fast,
simultaneous development of multiple courses and gives Training access to
diverse skills without fixed overhead commitments.
Training advertises and sells its product range through the internet using the
SVI Training home page (svitrain.com). Training also markets its products
through direct mail and trade shows. Training uses both in-house and independent
representatives, and has representation in California, Texas, Indiana, the
United Kingdom and South Africa. Customers include universities, large
corporations, government agencies and training schools.
Training is also a reseller for Computer Based Training ("CBT") products, which
are multimedia self-training materials for computer software applications. The
CBT products are sold over the internet.
Training recently released "compAssess" computer skills testing program. The
compAssess product enables employers to evaluate the computer skills of their
employees and provides assistance in selecting the appropriate course modules
for trainees. Training intends to market its skills testing software to
personnel agencies, individual employers and training companies.
In August 1998, Training entered into a strategic agreement with PDI World Ltd.
of the United Kingdom to market its training products in the United Kingdom,
Europe and the Middle East. This agreement also includes marketing of Training's
products on the internet. In the current fiscal year, Training will begin to
develop training materials in support of the retail software applications
developed by the Company's subsidiaries.
Training is currently developing courseware for retail management and POS
software applications. This courseware will be designed to train all levels of
store personnel from management to POS data entry clerks. Training intends to
continue to broaden its base of products and to expand its markets both
domestically and overseas.
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COMPETITION
RETAIL SOFTWARE SYSTEMS
The retail software and POS systems industry has evolved from individual,
customized, proprietary systems to large-scale, standardized, open architecture
products. The Company has therefore relied on the open architecture of its
products and its large-scale focus to stay competitive. Companies promoting
proprietary systems have faced significant pressure on their operating margins
and many have left the retail systems marketplace. The largest multinational
open systems computer companies have not entered the retail software systems
market on a large scale, but are potential future competitors for the Company.
The present market for the Company's retail software and POS products and
services is highly competitive, subject to rapid change and sensitive to new
product introductions or enhancements and marketing efforts by industry
participants. In addition, there are virtually no proprietary barriers to entry
into the market. The Company expects competition to increase in the future as
open systems architecture becomes more common in the Company's targeted
industries. Competitive factors include price, product features and performance,
compatibility, quality and reliability, brand awareness, timely introduction of
new products, effective distribution networks, customer service and quality of
visual display.
The Company has been able to enter new geographic markets by strategic
acquisitions of established POS and retail management software companies in
various markets. Even with these acquisitions, the Company must compete with
other local service providers which have been able to develop strong local
customer bases.
Many of the Company's current and potential competitors are more established,
benefit from greater name recognition, have significantly greater financial,
technical, production and/or marketing resources, and have more extensive
distribution networks than the Company. The Company believes that the technical,
creative and marketing skills of its personnel, its commitment to quality and
the sophistication of its technology give it a competitive edge in this
industry.
Several of the Company's competitors currently offer open systems and many more
will likely move to open system architecture in the next several years. In order
to compete effectively over time, the Company must continue aggressive
technology development efforts, respond to evolving technology and customer
demands and expand distribution channels. There is no guarantee that the Company
will have the financial or technical resources required to remain competitive in
this environment.
The Company's Divergent subsidiary has achieved a dominant market position in
Australia for its POS and retail management systems. Divergent's primary
competition in Australia consists of companies which have developed their own
internal retail management systems. Divergent's market position in New Zealand
and the Pacific Rim is not as dominant, and it competes with a number of other
manufactures of hardware and software.
In the remainder of the Company's markets, the Company competes directly with a
substantial number of large, well-established companies which offer open systems
architecture products and related services.
Increased competition from manufacturers or distributors of products similar to
or competitive with the Company's products, or from service providers that
provide services similar to the Company's services, could result in price
reductions, reduced margins and loss of market share, and could render the
Company's technology obsolete, any of which could have a material adverse effect
on the Company's results of operations and financial condition.
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TRAINING PRODUCTS
The Company's Training subsidiary competes with a large number of companies
offering similar products. The market for courseware and skills assessment
products is characterized by low barriers to entry, and other information
technology or educational resource companies may enter the market at any time.
Many of these competitors and potential competitors have greater financial,
technical, production and/or marketing resources than the Company. Training
competes on the basis of its existing breadth of products, timely introduction
of new products and value pricing. Management believes that these factors give
Training an advantage over many of its competitors. Management further believes
that larger competitors will find it difficult to compete on the basis of price
with Training due to their higher development costs and larger overhead
structures.
PROPRIETARY RIGHTS
The Company and its subsidiaries rely on a combination of copyright, trade
secret and trademark laws, and nondisclosure and other contractual provisions to
protect their various proprietary products and technologies. These safeguards
may not prevent competitors from imitating the Company's products and services
or from independently developing competing products and services, especially in
foreign countries where legal protections of intellectual property may not be as
strong or consistent as in the United States.
Because the Company's business segments are characterized by rapid technological
change, the Company believes that factors such as the technological and creative
skills of its personnel, name recognition, market penetration and reliable
customer service and support are more important to establishing and maintaining
a competitive position in its markets than the various legal protections of its
proprietary developments.
The Company believes that its proprietary rights do not infringe the proprietary
rights of third parties. However, it is possible that third parties may assert
that the Company's current or future products, software, trade names or services
infringe on their rights. Any such claim, with or without merit, could be time
consuming, result in costly litigation, cause product release delays and/or
require the Company to enter into royalty or licensing agreements or to cease
distribution of certain products or services. Royalty or licensing agreements,
if required, may not be available on terms acceptable to the Company.
RISK FACTORS
The securities of the Company are speculative in nature and involve a high
degree of risk. In addition to the other information contained in this report,
stockholders should carefully consider the following risk factors.
FLUCTUATIONS IN OPERATING RESULTS. The Company's operating results have shown
significant fluctuations as a result of acquisitions, dispositions and
discontinued operations. The Company acquired Island Pacific after 1999 fiscal
year end, so the financial statements in this report do not reflect the
operations of Island Pacific, which are expected to have a material impact on
future results of operations. Accordingly, prior trends may not be indicative of
future results of operations. The Company expects that its operating results
will fluctuate in the future as a result of factors such as further significant
acquisitions and/or dispositions, integration and consolidation of operations,
technological advances in the Company's industries, increases in competition,
currency fluctuations, political changes, overall domestic and international
economic conditions, and other circumstances that may not be foreseeable at this
time. The Company will have no control or influence over many of these factors.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS. In connection with the Company's
plan to grow its existing markets and expand into new markets, the Company may
acquire other companies and convert or integrate such companies' existing
operations and products with the Company's operations and products. If the
Company does enter into any such acquisition transactions, the Company does not
intend to seek stockholder approval unless it is required to do so by applicable
law or the regulations of a stock exchange or quotations system through which
the Company's securities trade. Therefore, the stockholders of the Company may
not have the ability to review the financial statements of the acquisition
candidate or to vote on the acquisition. Any such acquisition could dilute
substantially the ownership interest of the existing stockholders. The Company
may compete for acquisition and expansion opportunities with companies which
have significantly greater financial and non-financial resources. The Company
may not be able to locate or acquire suitable acquisition candidates, and
operations that are acquired may not be integrated effectively and profitably
into the Company's existing operations. Additionally, although acquisitions will
be designed to increase the Company's long-term profitability, they may
negatively impact the Company's operating results, particularly during the
periods immediately following an acquisition, as a result of capital funding
requirements, the dedication of management resources that may temporarily
detract attention from other operations, difficulties of combining research and
development and sales and marketing efforts, the necessity of coordinating
geographically separated organizations, and difficulties integrating personnel
with disparate business backgrounds and combining different corporate cultures.
10
<PAGE>
RISKS ASSOCIATED WITH DISPOSITION OF IBIS. The Company sold its IBIS subsidiary
on May 1, 1999 with effect from January 1, 1999. The purchaser paid a
substantial portion of the consideration in the form of a promissory note due
October 1, 1999. There is a risk that the purchaser may default under the
promissory note. Although the note is secured by a pledge of all of the stock of
IBIS, such stock may not be worth the unpaid amount of the note in the event of
default. Moreover, foreclosing upon the stock of IBIS would require management
to divert resources to the operation of IBIS or to the sale of IBIS to another
party. The Company may not be able to retain existing management of IBIS, which
could further impair value. Finally, the Company expects to repay a substantial
portion of the indebtedness incurred in connection with the acquisition of
Island Pacific by applying the proceeds of the IBIS note. To the extent proceeds
from the IBIS note fall short of expectations, the Company would have to apply
other operating income to satisfy of its obligations under that loan. See "Need
to Repay Loans."
RISKS ASSOCIATED WITH OTHER DISPOSITIONS. As the Company increases its focus on
retail software systems and consolidation and integration of current operations,
it may engage in further dispositions of assets, subsidiaries or product lines.
Any such dispositions may be subject to risks of non-performance by the
purchaser and may have adverse effects on results of operations in future
periods.
COMPETITION. The market for the Company's products is highly competitive. The
industry includes major domestic and international companies, many of which have
financial, technical, production, marketing, sales, distribution and other
resources substantially greater than those of the Company and its subsidiaries.
The principal elements of competition related to the Company's products include
price, product features and performance, compatibility, quality and reliability,
brand awareness, timely introduction of new products, effective distribution
networks, customer service and quality of visual display. The Company believes
the use of open systems architecture in its targeted industries is an important
competitive element. Several of the Company's competitors currently offer open
systems and many more will likely move to open system architecture in the next
several years. The shift to open systems architecture will likely lead to
increased competition in the future. Further disclosures regarding the
competition facing each of the Company's major operations is set forth above
under the heading "COMPETITION."
NEED TO REPAY LOANS. In connection with the Company's acquisition of Island
Pacific, the Company obtained two bank loans totaling $18,500,000 and a loan
from a related party of $2,300,000. The bank loans are secured by substantially
all of the assets of SVI and all of the stock and substantially all of the
assets of ARS and Island Pacific, as well as 65% of the stock of Divergent. The
Company expects to prepay a substantial part of the bank loans using principal
and interest due October 1, 1999 on the IBIS promissory note. Until payment is
received on the IBIS promissory note, the Company will be required to use its
operating income to make payments on these loans. There can be no guarantee that
the purchaser of IBIS will pay the IBIS promissory note when due or at all. The
related party loan calls for interest only payments until maturity with no
stated maturity date. In the event of a default under the IBIS promissory note,
the Company will not be able to prepay the bank loans as anticipated, and the
required amortizing loan payments would in such circumstances have a material
adverse effect on operating results in future periods. See "Risks Associated
with Disposition of IBIS."
DEPENDENCE ON KEY PERSONNEL. The Company's success depends upon the continued
contributions of its Chief Executive Officer, Barry M. Schechter. The Company's
success also depends upon the executive management of Training, Retail, ARS,
Divergent, Island Pacific and Triple-S. The business of the Company could be
adversely affected by the loss of services of, or a material reduction in the
amount of time devoted to the Company, by its executive officers.
11
<PAGE>
CONTROL BY MAJORITY STOCKHOLDER. Softline currently owns approximately 58% of
the issued and outstanding stock of the Company. As a result, Softline has the
power to exercise majority control of the Company, with the ability to approve
fundamental corporate transactions and to control the election of the entire
Board of Directors. Barry M. Schechter, the Chairman and Chief Executive Officer
of the Company, is also a director of Softline. Ivan Epstein, Gerald Rubenstein
and Marcel Golding are also directors of both Softline and the Company, and Mr.
Epstein is Chief Executive Officer of Softline.
RISK OF DISCONTINUED LISTING; POTENTIAL VOLATILITY OF STOCK PRICE. The Company's
common stock is currently traded on the American Stock Exchange ("Amex"). There
can be no guarantee that the Company will continue to meet the listing
maintenance criteria established by Amex, or that Amex will not change the
maintenance criteria such that the Company will no longer qualify for listing.
In addition, the market price of the common stock could be subject to
significant fluctuations in response to operating results and other factors,
many of which are not within the control of the Company. In recent years the
stock market in general, and the market for shares of smaller capitalization
stocks in particular, have experienced extreme price and volume fluctuations
that often have been unrelated or disproportionate to the operating performance
of affected companies. These fluctuations, as well as general economic and
market conditions, may adversely affect the market price of the common stock.
EFFECTS OF POSSIBLE ISSUANCE OF PREFERRED STOCK. The Company's articles of
incorporation authorize the issuance of preferred stock in the future without
further stockholder approval and upon such terms and conditions, and having such
rights, privileges and preferences, as the Board of Directors may determine. The
rights of the holders of common stock will be subject to, and may be adversely
affected by, the rights of the holders of any preferred stock that may be issued
in the future. The Company has no present plans to issue any shares of preferred
stock. Any issuance of preferred stock could make it more difficult for a third
party to acquire, or could discourage a third party from acquiring, a majority
of the outstanding voting stock of the Company.
RISKS OF INTERNATIONAL BUSINESS. The Company, through its subsidiaries,
currently has significant operations abroad and plans to expand its foreign
operations. Although senior management of the Company and its subsidiaries have
significant experience managing international operations, the Company has
limited experience in some of the foreign markets in which its subsidiaries
operate. International expansion efforts may strain the Company's management and
other resources. Any failure of the Company to expand in an efficient manner or
to manage its dispersed organization could have a material adverse impact on the
Company's business and financial results. Other risks the Company will face in
its international business include potentially costly regulatory requirements;
unexpected changes in regulatory requirements; application of foreign law;
fluctuations in currency exchange rates (which could materially and adversely
affect the Company's results of operation and, in addition, may have an adverse
effect on demand for the Company's products abroad); tariffs or other barriers;
difficulties in staffing and managing foreign operations; political and economic
instability; difficulties in accounts receivable collection; extended payment
terms; and potentially negative U.S. and foreign tax consequences. These factors
could have an adverse impact on the Company's business and financial results in
the future or require the Company to modify its current business practices.
LACK OF FUNDING COMMITMENTS. Expansion of the Company's business, including
acquisitions, may require a commitment of substantial funds. The Company used a
substantial portion of its cash reserves to purchase Island Pacific. In the
event that the Company enters into additional acquisition agreements or to the
extent that the internally generated funds are insufficient to fund the
Company's operating requirements, it may be necessary for the Company to seek
additional funding, either through collaborative arrangements or through public
or private financing. The Company has no current commitments or arrangements
with respect to additional funding. Additional financing may not be available on
acceptable terms or at all. If additional funds are raised by issuing equity
securities, dilution to the existing stockholders will result. If adequate funds
are not available, the Company's business could be adversely affected.
12
<PAGE>
DEPENDENCE ON PROPRIETARY TECHNOLOGY; LACK OF PATENTS AND PROPRIETARY
PROTECTION; RISKS OF THIRD PARTY INFRINGEMENT CLAIMS. The Company and its
subsidiaries presently have no patents with respect to their proprietary
technology. Instead, the Company and its subsidiaries rely upon copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect their proprietary products. All of these afford only
limited protection. Accordingly, there can be no guarantee that the Company's
measures to protect its proprietary rights will be adequate to prevent
misappropriation of such rights or that the Company's competitors will not
independently develop or patent technologies which are substantially equivalent
or superior to the Company's technologies. Although the Company believes that
its products and technologies do not infringe upon the proprietary rights of any
third parties, there is a risk that third parties may nonetheless assert
infringement claims against the Company. Similarly, infringement claims could be
asserted against third party products and technologies that the Company licenses
or has the rights to use. Any such claims, if proved, could materially and
adversely affect the Company's business and results of operations. In addition,
though any such claims may ultimately prove to be without merit, the necessary
management attention to, and legal costs associated with, litigation or other
resolution of such claims could materially and adversely affect the Company's
business and results of operations.
RAPID OBSOLESCENCE AND TECHNOLOGICAL CHANGE. The market for information
technology products and services, including those products offered by the
Company's subsidiaries, is characterized by rapidly changing technology,
frequent introductions of new products and evolving industry standards which
result in product obsolescence and short product life cycles. Accordingly, the
Company's success is dependent upon its ability to anticipate technological
changes in the industry and to continually identify, obtain and successfully
market new products and services that satisfy evolving technologies, customer
preferences and industry requirements. Competitors may market products and
services which have perceived advantages over those of the Company and its
subsidiaries or which render products and services to be offered by the Company
and its subsidiaries obsolete or less marketable.
NO DIVIDENDS ON COMMON STOCK. The Company has not previously paid any cash or
other dividends on its common stock and does not anticipate payment of any
dividends for the foreseeable future. The Company anticipates retaining its
earnings to finance its operations, growth and expansion.
CERTAIN UNITED STATES FEDERAL INCOME TAX RISKS. It is possible that based on
stock ownership and/or types of income, the Company may be classified as a
passive foreign investment company, a controlled foreign corporation, a foreign
personal holding company or a personal holding company for United States federal
income tax purposes. Under the special rules that apply to such companies,
United States residents may be required to include certain amounts in income
before it is actually distributed to them. Although the Company intends, to the
extent consistent with its other business goals, to operate in a manner that
will minimize the adverse effects of such provisions, if applicable, no
guarantee of such a result can be given. Therefore, each stockholder should
consult his or her own tax advisor with respect to the tax consequences to him
or her of the ownership and disposition of the Company's common stock, including
the applicability and effect of federal, state, local and foreign tax laws and
of changes in applicable tax laws.
YEAR 2000 SOFTWARE COMPLIANCE ("MILLENNIUM BUG"). As the year 2000 approaches,
there is a risk that existing computer systems will be adversely affected by the
rollover of the two digit year value to "00". Systems that do not properly
recognize date-sensitive information when the year changes to 2000 could
generate erroneous data or cause system failures. The Company and its
subsidiaries are primarily reliant on software developed internally and while
such software has been enhanced to provide for the year 2000, it is possible
that programs acquired from third parties and incorporated into applications may
contain such errors. In addition, technology acquired by the Company through its
recent acquisitions may not have been sufficiently tested for year 2000
compliance. Any year 2000 compliance problems of either the Company or third
parties could materially affect the Company's business, financial condition or
operating results. The Company intends to continue testing and enhancement of
its software to ensure that risks related to the millennium bug are minimized.
Since such software is continually in the process of development and
enhancement, additional costs related to the correction of this problem are not
expected to be significant. Additional information regarding the Company's year
2000 compliance program is set forth in Item 6 below.
13
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's principal corporate headquarters consists of 1,899 square feet in
a building located at 7979 Ivanhoe Avenue, Suite 500, La Jolla, California. This
facility is shared with SVI Training Products, Inc. The facility is occupied
under a lease which expires on June 30, 2000. The current base monthly rent is
$3,700. ARS has its principal offices at 12707 High Bluff Drive, Suite 335, San
Diego, California. This 18,313 square foot facility is leased through April 30,
2000. The current base monthly rent is $25,821.
Divergent Technologies Pty. Ltd. has its principal offices at Level 1, 35 Spring
Street, Bondi Junction, Sydney, NSW 2022, Australia. This 3,398 square foot
facility is leased through October 31, 2006. The current base monthly rent is
$13,596. Divergent also leases small regional offices in Brisbane and Melbourne.
These small regional facilities are leased for terms expiring in 1999 and 2000,
respectively. Monthly base rental amounts are $924 and $1,843, respectively.
Triple-S has its principal offices at 101 Castle Street, Cape Town, South
Africa. This is a 9,200 square foot facility which is leased through March 31,
2001. The current monthly rent is U.S. $4,593. Triple-S also maintains a small
office in Johannesburg, South Africa.
Island Pacific's principal office is located at 19800 MacArthur Blvd., 12th
Floor, Irvine, California. This is a 21,234 square foot facility. The current
lease expires on June 30, 2005. Monthly base rent is $36,981. Island Pacific
also leases a 1,700 square foot off-site storage facility located at 1725
Monrovia Avenue, Unit D-3, Costa Mesa, CA 92627. The lease expires May 31, 2000
and current monthly rent is $1,156. Island Pacific also occupies premises in the
United Kingdom located at The Old Building, Mill House Lane, Wendens Ambo,
Essex, England. The five-year lease for this three story office building
commenced on September 1, 1998. Annual rent is $49,227 (payable quarterly) plus
common area maintenance charges and real estate taxes.
ITEM 3. LEGAL PROCEEDINGS.
In September 1998, ALT Consulting, LLC ("ALT") filed a complaint against Island
Pacific in the Orange County Superior Court (the "ALT Litigation") asserting
claims for breach of contract and of the implied covenant of good faith and fair
dealing, negligent and intentional misrepresentation, promissory fraud and
declaratory relief arising out of a software consulting contract. Island Pacific
has answered the complaint and filed a cross-complaint against ALT and its
principal member asserting claims for rescission, breach of contract and of the
implied covenant of good faith and fair dealing, breach of fiduciary duty,
intentional and negligent misrepresentation, promissory fraud, misappropriation
of trade secrets and conversion. Under the Stock Purchase Agreement entered into
by the Company to acquire Island Pacific, the Company will provide the selling
shareholders of Island Pacific with reasonable assistance and authority to
defend and prosecute the ALT Litigation and contribute a maximum of $200,000 to
costs and damages arising from the ALT Litigation. The Island Pacific selling
shareholders are obligated to indemnify and hold the Company harmless from all
other claims, damages or losses arising from the ALT Litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRINCIPAL MARKET
On July 8, 1998, the Company's common stock was approved for listing on the
American Stock Exchange under the symbol "SVI". The Company's common stock also
ceased trading on the over-the-counter market on July 8, 1998, where it had been
trading since March 1994.
14
<PAGE>
As of May 26, 1999 there were 32,070,045 shares of common stock outstanding held
by 134 holders of record representing 1,218 beneficial owners.
STOCK PRICE AND DIVIDEND INFORMATION
The following table sets forth high and low sales prices for the common stock,
on a quarterly basis from April 1, 1997 to March 31, 1999. Prices for quarters
marked with a "*" are quarters during which the Company's stock was traded on
the over-the-counter market. Figures for these quarters represent high and low
bid closing quotations between dealers, and may not represent actual
transactions. The source of the bid information is the National Association of
Securities Dealers, Inc.
<TABLE>
<CAPTION>
Twelve Months Ended Twelve Months Ended
March 31, 1999 March 31, 1998
----------------------------------------- -----------------------------------------
Quarter Ended High Sales Price Low Sales Price High Sales Price Low Sales Price
------------- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
June 30 5.06* 3.91* 2.88* 2.05*
September 30 8.31 4.69 3.00* 2.13*
December 31 7.88 6.00 4.88* 2.25*
March 31 15.38 7.38 5.25* 3.63*
</TABLE>
The Company has not paid dividends to its stockholders since its inception and
does not anticipate paying dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
During the quarter ended March 31, 1999, the Company issued 18,000 shares upon
exercise of options issued to Madison Avenue Leasing in connection with a
private placement in October 1997. Madison Avenue Leasing is a corporation
affiliated with Donald Radcliffe, a director. The options had an exercise price
of $2.00 per share.
On March 31, 1999, the Company issued 28,125 shares to Softline to reimburse it
for costs borne by it in connection with the acquisition of the "compAssess"
product by Training. The Company issued an additional 119,869 shares to Softline
on March 31, 1999 to reimburse Softline for payments made by Softline in
connection with the acquisition of Triple-S and Softline's advance of funds to
repay a short term loan on behalf of Triple-S.
During the three months ended March 31, 1999, the Company granted options to
purchase an aggregate of 130,500 shares of common stock under the Company's 1998
Incentive Stock Plan to certain employees and directors at an exercise price of
$7.44 per share.
These transactions were exempt from registration under the Securities Act of
1933, as amended, pursuant to Section 4(2) of such Act.
15
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
FORWARD-LOOKING STATEMENTS
All statements in this Item 6 which are not historical facts are forward-looking
statements. These forward-looking statements involve risks and uncertainties
which could cause actual results to differ materially from those expressed or
implied by such forward-looking statements. These risks and uncertainties
include the effects on results of operations of the acquisition of Island
Pacific, the effects of the Company's efforts to integrate operations and
development efforts of its subsidiaries, the performance by the purchaser of
IBIS under the terms of the promissory note given to the Company, competition,
changes in demand for the Company's products, technological developments, and
other risk factors identified in Item 1 and from time to time in future filings
with the Commission. 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.
PRESENTATION OF FINANCIAL RESULTS
Following the close of the Company's fiscal year ended September 30, 1997, the
Company changed its fiscal year end to March 31, commencing with the fiscal year
ended March 31, 1998. The Company's Form 10-KSB for the fiscal year ended March
31, 1998 therefore reported results for the transitional six month period.
The Company's Consolidated Statements of Operations, Stockholders' Equity and
Cash Flows included in this report show results for the following periods:
- - The fiscal year ended March 31, 1999
- - The twelve months ended March 31, 1998 (unaudited)
- - The six months ended March 31, 1998
- - The fiscal year ended September 30, 1997
The six month and twelve month periods ended March 31, 1998 and September 30,
1997 are not comparable to the current reported fiscal year ended March 31,
1999. Accordingly, the discussion and analysis below compares the fiscal year
ended March 31, 1999 to the comparable twelve month period ended March 31, 1998.
The twelve month period ended March 31, 1998 is unaudited, and includes the
results for the transitional six month year ended March 31, 1998, plus the last
two quarters of the fiscal year ended September 30, 1997.
All dollar and share amounts other than earnings per share are rounded to the
nearest thousand.
DISCONTINUED OPERATIONS
As described above in Item 1 under "Discontinued Operations," the Company sold
its IBIS subsidiary effective January 1, 1999. Accordingly, the operations of
IBIS are shown in the financial statements as discontinued operations and are
not included in the amounts recorded under net sales, cost of sales, income from
operations or income from continuing operations. The discontinued operations
shown on the Company's financial statements relate entirely to IBIS. Since IBIS
represented a substantial part of the Company's operations during the reported
periods, management believes that a full understanding of its operating results
for the 1999 fiscal year requires that the discussion below include a pro forma
analysis of operating results including operations from IBIS in addition to an
analysis of reported results.
The Company recorded a gain on the sale of IBIS of $274,000 (after taxes).
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the relative
percentages that certain income and expense items bear to net sales, as reported
in the Consolidated Statements of Operations included with the financial
statements.
16
<PAGE>
<TABLE>
As Reported on Consolidated Statements of Operations
<CAPTION>
Twelve months ended March 31,
----------------------------------------------------
1999 1998 Variance
Amount Percentage Amount Percentage Amount Percentage
------------------------- ------------------------- ------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 17,487,000 100% $ 17,702,000 100% $ (215,000) -1%
Cost of sales 5,347,000 31% 5,753,000 32% (406,000) -7%
------------------------- ------------------------ -------------------------
Gross profit 12,140,000 69% 11,949,000 68% 191,000 2%
Selling, general and administrative
expenses 9,998,000 57% 9,055,000 51% 943,000 10%
Other income (excluding gain on disposal
of Softline Limited shares) 1,227,000 7% 532,000 3% 695,000 131%
------------------------- ------------------------ -------------------------
Income before taxes 3,369,000 19% 3,426,000 19% (57,000) -2%
Income tax provision 1,671,000 10% 1,597,000 9% 74,000 5%
------------------------- ------------------------ -------------------------
Income from continuing operations
before gain on disposal of shares 1,698,000 10% 1,829,000 10% (131,000) -7%
Gain on disposal of Softline Limited shares,
net of taxes 0% 7,133,000 40% (7,133,000) -100%
------------------------- ------------------------ -------------------------
Income from continuing operations 1,698,000 10% 8,962,000 51% (7,264,000) -81%
------------------------- ------------------------ -------------------------
Discontinued operations
Income from operations of IBIS,
net of taxes 3,613,000 1,142,000 2,471,000 216%
Gain on disposal of IBIS, net
of taxes 274,000 274,000 100%
------------- ------------- -------------------------
Income from discontinued operations 3,887,000 1,142,000 2,745,000 240%
------------- ------------- -------------------------
Net income $ 5,585,000 $ 10,104,000 $ (4,519,000) -45%
============= ============= =========================
Basic earnings per share:
Continuing operations $ 0.06 $ 0.09
Discontinued operations 0.13 0.05
Gain on disposal of Softline Limited shares - 0.34
Gain on disposal of IBIS 0.01 -
------------- -------------
Total $ 0.20 $ 0.48
============= =============
Diluted earnings per share:
Continuing operations $ 0.05 $ 0.08
Discontinued operations 0.11 0.05
Gain on disposal of Softline Limited shares - 0.30
Gain on disposal of IBIS 0.01 -
------------- -------------
Total $ 0.17 $ 0.43
============= =============
Weighted average shares:
Basic 28,600,000 21,251,000
Diluted 33,071,000 23,379,000
</TABLE>
17
<PAGE>
The following table sets forth, for the periods indicated, the relative
percentages that certain income and expense items would bear to net sales, on an
unaudited pro forma basis, if the operations of IBIS were included in continuing
operations rather than classified as discontinued operations. The Company owned
IBIS during the first three quarters of fiscal 1999 and during the last two
quarters of the twelve month period ended March 31, 1998.
<TABLE>
Pro Forma Inclusive of Operations of IBIS
<CAPTION>
Twelve months ended March 31,
----------------------------------------------------
1999 1998 Variance
Amount Percentage Amount Percentage Amount Percentage
------------------------- ------------------------- -------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net sales (inclusive of IBIS operations) $ 29,889,000 100% $ 22,858,000 100% $ 7,031,000 31%
Cost of sales (inclusive of IBIS operations) 8,231,000 28% 8,373,000 37% (142,000) -2%
------------------------- ------------------------- -------------------------
Gross profit (inclusive of IBIS
operations) 21,658,000 72% 14,485,000 63% 7,173,000 50%
Selling, general and administrative
expenses (inclusive of IBIS operations) 14,842,000 50% 10,005,000 44% 4,837,000 48%
Other income (excluding gain on disposal
of Softline Limited shares) 1,503,000 5% 551,000 2% 952,000 173%
------------------------- ------------------------- -------------------------
Income before taxes 8,319,000 28% 5,031,000 22% 3,288,000 65%
Income tax provision 3,008,000 10% 2,060,000 9% 948,000 46%
------------------------- ------------------------- -------------------------
Income from operations before gain on
disposal of Softline Limited shares 5,311,000 18% 2,971,000 13% 2,340,000 79%
Gain on disposal of Softline Limited shares,
net of taxes - 0% 7,133,000 31% (7,133,000) -100%
------------------------- ------------------------- -------------------------
Income from operations 5,311,000 18% 10,104,000 44% (4,793,000) -47%
Gain on disposal of IBIS, net of taxes 274,000 - 274,000 100%
-------------- -------------- -------------------------
Net income $ 5,585,000 $ 10,104,000 $ (4,519,000) -45%
============== ============== =========================
Basic earnings per share:
Operations (including IBIS discontinued
operations) $ 0.19 $ 0.14
Gain on disposal of Softline Limited shares - 0.34
Gain on disposal of IBIS 0.01 -
-------------- --------------
$ 0.20 $ 0.48
============== ==============
Diluted earnings per share:
Operations (including IBIS discontinued
operations) $ 0.16 $ 0.13
Gain on disposal of Softline Limited shares - 0.30
Gain on disposal of IBIS 0.01 -
-------------- --------------
$ 0.17 $ 0.43
============== ==============
Weighted average shares:
Basic 28,600,000 21,251,000
Diluted 33,071,000 23,379,000
</TABLE>
18
<PAGE>
NET INCOME
The Company reports consolidated net income of $5,585,000 and $10,104,000 for
the twelve months ended March 31, 1999 and 1998, respectively. The results
include income from discontinued operations of $3,887,000 and $1,142,000 for the
periods ended March 31, 1999 and 1998, respectively, all of which represents net
income from IBIS. The Company owned IBIS for the last two quarters of the twelve
months ended March 31, 1998, and for the first three quarters of the fiscal year
ended March 31, 1999. The results for the 1998 period also include a one-time
gain of $8,210,000 ($7,133,000 after estimated income taxes) from the sale of
Softline shares. Excluding the one-time gains from the sale of Softline shares
in the 1998 period and the sale of IBIS in the 1999 period, comparative net
income would have been $5,311,000 and $2,971,000 for the fiscal years ended
March 31, 1999 and 1998, respectively, representing an increase of $2,340,000 or
79%.
Net income for fiscal 1999 and the 1998 comparative period, including the
results from discontinued operations and excluding the one-time gains on the
sale of Softline shares and the sale of IBIS, represents 18% and 13% of net
sales (inclusive of IBIS net sales), respectively.
NET SALES
The Company reports net sales of $17,487,000 and $17,702,000, respectively, for
the twelve months ended March 31, 1999 and 1998, a decrease of 1%. These
reported amounts exclude net sales of IBIS in the amounts of $12,403,000 and
$5,156,000, respectively. The reported net sales amounts reflect the inclusion
of ARS which was acquired in July 1998 and increased sales from Training, offset
by decreased sales of Divergent. The decrease in Divergent sales was directly
related to the completion in March 1998 of several large contracts with a major
retail group, which included significant hardware sales.
If sales of IBIS classified as discontinued operations were included, sales
would have increased $7,031,000, or 31%, from $22,858,000 in the 1998 period to
$29,889,000 in fiscal 1999. This increase in total net sales including
discontinued operations was due to the inclusion of IBIS for three quarters in
fiscal 1999 versus two quarters in the comparable 1998 period, and an overall
increase in sales of IBIS.
COST OF SALES/GROSS PROFIT
The Company reports cost of sales of $5,347,000 and $5,753,000, respectively,
for the twelve months ended March 31, 1999 and 1998. These amounts represented
31% and 32% of net sales, respectively.
If the discontinued operations of IBIS were included with cost of sales, the
amounts would be $8,231,000 and $8,373,000 for fiscal 1999 and the comparative
1998 period, respectively. These amounts would represent 28% and 37% of net
sales inclusive of IBIS. This decline in cost of sales (inclusive of IBIS
discontinued operations) reflected a shift in revenue sources within IBIS from
higher cost hardware sales to lower cost technology licensing. Reported cost of
sales, exclusive of IBIS, remained nearly constant, both absolutely and as a
percentage of net sales, from the 1998 period to the 1999 period.
Reported gross profit as a percentage of net sales increased 1% from 68% in the
1998 period to 69% in fiscal 1999. If the IBIS discontinued operations were
included in the calculation, gross profit as a percentage of net sales would
have increased 9%, from 63% in the 1998 period to 72% in fiscal 1999. As
described above, most of the increase was due to lower cost of sales as a
percentage of sales within IBIS.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The Company reports selling, general and administrative expenses of $9,998,000
and $9,055,000, respectively, for the twelve months ended March 31, 1999 and
1998. These amounts represented 57% and 51% of reported net sales, respectively.
The percentage increase was primarily due to costs associated with the rapid
integration of ARS into the operations of the Company and, to a lesser extent,
to a decline in sales activity in Australia and South Africa with a delayed
reduction in operating costs.
If costs related to the IBIS discontinued operations were included, selling,
general and administrative expenses would have been $14,842,000 and $10,005,000,
respectively, for the 1999 and 1998 periods. These amounts would have
represented 50% and 44% of net sales inclusive of IBIS. The percentage increase
was due to the factors described above. The absolute increase was due primarily
to the inclusion of IBIS for three of the four quarters in the 1999 period
compared to only two of the four quarters in the 1998 period, as well as
increased sales at IBIS in the 1999 period leading to higher selling, general
and administrative expenses.
During fiscal 2000, the Company will be seeking to organize more efficiently its
current multi-national operations, eliminate redundancies and better coordinate
its product development and marketing efforts. The Company anticipates that
these efforts will lead to a reduction in selling, general and administrative
expenses as a percentage of net sales in future periods.
19
<PAGE>
GAIN ON SALE OF SOFTLINE SHARES
For the twelve months ended March 31, 1998, the Company recorded a gain of
$7,133,000 (net of estimated income taxes of $1,077,000) on the sales of
Softline shares. The sale of the Softline shares yielded net proceeds of
$12,032,000. The Company has no further holdings in Softline.
EARNINGS PER SHARE
The Company reports basic earnings per share of $0.20 and $0.48 for the twelve
month periods ended March 31, 1999 and 1998, respectively. Basic earnings per
share for the 1998 period included $0.34 per share attributable to the sale of
Softline shares. Adjusting for this non-recurring event, and adjusting the basic
earnings per share for the 1999 period to exclude the $.01 per share
attributable to the gain on the sale of IBIS, basic earnings per share would be
$0.19 and $0.14, respectively. This represents a 36% increase. The increase in
basic earnings per share as so adjusted was due primarily to increases in
earnings from IBIS, partially offset by a 35% increase in outstanding shares
from 21,251,000 to 28,600,000.
The Company reports diluted earnings per share of $0.17 and $0.43 for the twelve
month periods ended March 31, 1999 and 1998, respectively. Diluted earnings per
share for the 1998 period included $0.30 per share attributable to the sale of
Softline shares. Adjusting for this non-recurring event, and adjusting the
diluted earnings per share for the 1999 period to exclude the $.01 per share
attributable to the gain on the sale of IBIS, diluted earnings per share would
be $0.16 and $0.13, respectively. This represents a 23% increase. This increase
is lower than the comparable increase in basic earnings per share due to the
larger increase (41% versus 35%) in outstanding shares on a fully diluted basis,
from 23,379,000 to 33,071,000.
SUBSEQUENT EVENTS
On April 14, 1999, Softline Limited exercised options to purchase 1,994,000
shares of SVI common stock at $2.00 per share, for net proceeds of $3,989,000.
As a result, Softline's ownership of shares in the Company increased from 55% to
58% of total outstanding shares. Total outstanding shares also increased by 8%
from 29,741,000 to 32,070,000.
As further described above under Item 1, the Company purchased all of the
outstanding stock of Island Pacific Systems Corporation in June 1999 for
$35,000,000 cash. The Company paid the purchase price using cash on hand, cash
acquired from the sale of IBIS, cash acquired from the exercise of options by
Softline, a $2,300,000 loan from Claudav Holdings Ltd., B.V. (which owns 16.9%
of the outstanding shares of the Company) and two bank loans totaling
$18,500,000.
The loan from Claudav Holdings has no stated maturity date. Interest-only
payments at prime are due monthly until maturity.
The bank loans are in the amounts of $15,000,000 and $3,500,000. The terms of
the $15,000,000 loan call for interest-only payments for the first six months of
the loan. At the end of the first six months, the Company may convert the
balance to a two year, fully amortizing term loan. The $3,500,000 loan is a two
year, fully amortizing term loan. Both loans may be prepaid at any time without
penalty. The bank loans are secured by substantially all of the assets of SVI
and all of the stock and substantially all of the assets of ARS and Island
Pacific, as well as 65% of the stock of Divergent. The Company expects to prepay
a substantial part of the bank loans using principal and interest due October 1,
1999 on the IBIS promissory note.
Island Pacific had net sales of $16,737,000 and $10,281,000, and net income
(loss) before taxes of $2,059,000 and $(616,000) during its fiscal years ended
December 31, 1998 and 1997, respectively. The Company expects Island Pacific to
contribute significantly to net sales and earnings in future periods.
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had cash and cash equivalents of $13,006,000, a
decrease of $1,463,000 from $14,469,000 as of March 31, 1998. The significant
uses of cash and cash equivalents were as follows:
- - Income tax payments of $2,005,000;
- - Net payments of $2,115,000 for acquisitions;
- - Purchases of proprietary software and research and development
expenditures of $2,679,000;
- - Repurchases of common stock at market for $951,000; and
- - Purchases of furniture and equipment of $821,000.
The uses of cash were offset by the following sources of cash:
- - Net proceeds of $2,218,000 from the sale of IBIS;
- - Net cash of $4,204,000 from operating activities excluding income tax
payments; and
- - Proceeds of $719,000 from options exercised.
As described above, the Company closed its acquisition of Island Pacific on June
3, 1999 for a purchase price of $35,000,000 in cash. As of June 11, 1999 the
Company has approximately $2,300,000 in cash and cash equivalents. The Company
believes that its current cash on hand together with its earnings from
operations will be sufficient to meet its working capital needs for the next
twelve months.
The Company will be required to use operating income to discharge the payments
due on the loans obtained to purchase Island Pacific. These payments could have
an adverse effect on earnings. In the event of a default under the IBIS
promissory note, the principal balance of the bank loans may not be reduced as
anticipated, and monthly payments due to the bank would increase substantially.
These payments would have an adverse effect on earnings until the loans are
fully amortized.
The Company expects to continue its strategy of seeking acquisition
opportunities within its target profile of companies with advanced technologies
and market leadership in the retail software sector of the information
technology market. 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 be ultimately consummated. To the extent that the terms
of any such acquisitions call for payment in cash, the Company will likely need
to seek an outside source of capital. The Company has not identified any sources
for such capital, and there can be no guarantee that such capital will be
available on terms acceptable to the Company or at all.
STOCK OPTION PLANS
On October 5, 1998, the Board of Directors adopted the 1998 Incentive Stock
Plan. This plan is in addition to the Company's Incentive Stock Option Plan
adopted in 1989. 3,500,000 shares of common stock are reserved for issuance
under the new plan and may be issued pursuant to incentive stock options,
non-statutory options, stock bonuses, stock appreciation rights and stock
purchase agreements. The exercise price of 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 the grant, in the case of incentive stock options, or 85%
of the fair market value on the date of the grant, in the case of non-statutory
stock options. Options must vest over a period not to exceed five years.
The stockholders approved the 1998 Plan as well as an increase in authorized
shares under the 1989 Plan to 1,500,000 at the Company's annual meeting of
stockholders on November 2, 1998.
21
<PAGE>
YEAR 2000 SOFTWARE COMPLIANCE ("MILLENNIUM BUG").
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field and cannot distinguish 21st
century dates from 20th century dates. As a result, software and computer
systems, including machines controlled by microprocessors, may need to be
upgraded or replaced in order to comply with such "Year 2000" requirements.
In general, the Company's operating subsidiaries develop and sell software
developed internally. The Company believes that no significant Year 2000 issues
exist with these products and services. However, some of the Company's customers
may not install the Year 2000 compliant versions of the Company's products in a
timely manner, which could lead to failure of customer systems and product
liability or warranty claims against the Company.
Although the Company believes that its systems are generally Year 2000
compliant, the Company utilizes third-party equipment and software that may not
be Year 2000 compliant. For this reason, the Company has implemented a four step
plan to address its Year 2000 issues, consisting of (i) assessing Year 2000
readiness; (ii) remediating non-compliant hardware and software; (iii) testing
remediated hardware and software; and (iv) certifying Year 2000 compliance.
Personnel from each operating subsidiary as well as outside consultants have
been involved in the process. Senior management of the Company is coordinating
the effort. Assessment activities are estimated at approximately 98% complete.
Assessment data is continuously updated as new information becomes available.
Overall remediation efforts are estimated at 85% complete. The Company believes
it has adequate resources to complete these efforts, and anticipates completion
of all assessment and remediation efforts by September 30, 1999.
Communications with customers and suppliers to determine their Year 2000
preparedness are an integral part of the program. The Company's subsidiaries
have reviewed all vendor contracts and have requested written certification from
each vendor that its products are Year 2000 compliant. The Company has received
replies from approximately 90% of its vendors.
The Company estimates its Year 2000 remediation effort will cost $250,000
including costs incurred to date. The Company does not believe that the cost of
Year 2000 remediation will have a material adverse effect on the Company's
consolidated financial position or results of operations. The estimated impact,
cost and timing of the Company's Year 2000 effort is based on the Company's best
estimates using information currently available. These estimates may not be
achieved, and actual results could differ materially from the Company's plans.
In the event that any of the Company's significant suppliers or customers do not
successfully and timely achieve Year 2000 compliance, the Company's business or
operations could be adversely affected. This could result in system failures or
generation of erroneous information and could cause significant disruption of
business activities. In the event the Company does not fully identify and
correct all Year 2000 problems in the products marketed by its subsidiaries,
those subsidiaries could become subject to warranty claims or returns, which
could have an adverse effect on financial performance. Moreover, the Company's
subsidiaries could become subject to warranty claims, with or without merit,
returns and/or increased customer support expenses if the computer systems of
customers are not able to integrate the Company's products due to customers'
internal Year 2000 problems.
The former shareholders of ARS have represented that ARS's express written
warranties to customers concerning Year 2000 compliance for ARS's products and
services are accurate, and such shareholders have agreed to indemnify the
Company in the event this representation proves not to be accurate, up to the
full value of the consideration paid or to be paid by the Company in the
acquisition of ARS. The former shareholders of Island Pacific have made similar
warranties and have agreed to indemnify the Company for any breach of those
warranties (subject to a $1 million limitation on indemnification). The Company
has no similar guarantees with respect to its other operating subsidiaries.
22
<PAGE>
The Company intends as part of the certification process to have each of its
operating subsidiaries perform a Year 2000 "dry run," where the dates on all
computers and microprocessor-controlled equipment are set ahead to a date within
the year 2000, and the Company hopes that the dry run will identify any
remaining internal Year 2000 issues before problems occur. These procedures will
not however identify external Year 2000 problems.
ITEM 7. FINANCIAL STATEMENTS.
Please see financial statement pages F-1 through F-26.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On September 24, 1998, the Company engaged Deloitte & Touche LLP to serve as the
Company's independent accountants for the fiscal year ending March 31, 1999. On
the same date, the Company formally notified Singer Lewak Greenbaum & Goldstein
LLP ("Singer Lewak"), its prior independent accountants, that the Company would
not be engaging Singer Lewak to serve as its independent accountants for the
fiscal year ending March 31, 1999. The decision was recommended by the Company's
Audit Committee and approved by the Company's Board of Directors.
Singer Lewak's reports for the fiscal years ended March 31, 1998, September 30,
1997 and September 30, 1996 did not contain an adverse opinion or disclaimer of
opinion and were not modified as to uncertainty, audit scope or accounting
principles. There were no disagreements with Singer Lewak on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure. The reason for the change in accountants was the desire of
the Company to engage a firm with a national and international reputation and
presence so that a single firm could serve all of the Company's domestic and
foreign operations and subsidiaries.
PART III
The information required by Part III is incorporated by reference from the
Company's definitive proxy statement which will be filed by no later than July
29, 1999.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Description
- ------- -----------
2.1 Sales Of Shares Agreement dated January 28, 1996, between the Company
and Management of the Softline Management Group for the acquisition of
Softline Business Systems (Pty) Ltd., incorporated by reference to
exhibit 10.3 of the Company's Form 10-KSB for the fiscal year ended
September 30, 1996.
2.2 Share Purchase Agreement dated November 4, 1996 as amended among the
Company and Hookmond Pty., Ltd. and Landreef Pty. Ltd. for the
acquisition of the equity of Divergent Technologies Pty. Ltd.,
incorporated by reference to exhibit 10.4 of the Company's Form 10-KSB
for the fiscal year ended September 30, 1996.
2.3 Technology Purchase Agreement dated November 4, 1996 as amended
between the Company and New Hope Trading Limited for the acquisition
of the exclusive worldwide technology rights for the "dOLPHIN" and
"dPOSit" software products, incorporated by reference to exhibit 10.5
of the Company's Form 10-KSB for the fiscal year ended September 30,
1996.
23
<PAGE>
2.4 Asset Purchase Agreement dated as of April 28, 1997, among the
Company, Divergent Technologies Pty. Ltd., Colin Bruce Chapman,
Chapman Computers Pty. Ltd. and The Chapman Computers Unit Trust,
incorporated by reference to exhibit 2.1 of the Form 8-K filed on
August 11, 1997.
2.5 Escrow Agreement among Escrow Agent and Divergent Technologies Pty.
Ltd., Colin Bruce Chapman, Chapman Computers Pty. Ltd. and The Chapman
Computers Unit Trust, incorporated by reference to exhibit 2.2 of the
Form 8-K filed on August 11, 1997.
2.6 Sale of Shares Agreement between Softline Limited and the Company for
the acquisition of IBIS Systems Pty. Ltd., incorporated by reference
to exhibit 1 of the Company's Form 8-K filed on December 19, 1997.
2.7 Share Swap Agreement between the Company and Softline Limited for the
exchange of 7,536,000 SVI shares for 22,130,448 shares of Softline
Limited, incorporated by reference to exhibit 2 of the Company's Form
8-K filed on December 19, 1997.
2.8 Renunciation Agreement among the Company, Hosken Consolidated
Investments Limited ("HCI") and Softline Limited providing for the
sale of 22,130,448 Softline shares to HCI, incorporated by reference
to exhibit 3 of the Company's Form 8-K filed on December 19, 1997.
2.9 Agreement between the Company, HCI and Softline Limited, incorporated
by reference to exhibit 5 of the Company's Form 8-K filed on December
19, 1997.
2.10 Agreement of Merger and Plan of Reorganization dated as of July 1,
1998 among SVI Holdings, Inc. and its wholly-owned subsidiary; Applied
Retail Solutions, Inc.; and the shareholders of Applied Retail
Solutions, Inc., incorporated by reference to exhibit 2.1 of the Form
8-K filed on September 16, 1998.
2.11 First Amendment to the Agreement and Plan of Reorganization dated
January 28, 1999 among SVI Holdings, Inc. and its wholly-owned
subsidiary; Applied Retail Solutions, Inc.; and the shareholders of
Applied Retail Solutions, Inc., incorporated by reference to exhibit
2.1 of the Form 10-QSB for the quarter ended December 31, 1998.
2.12 Second Amendment to the Agreement and Plan of Reorganization dated May
24, 1999 among SVI Holdings, Inc. and its wholly-owned subsidiary;
Applied Retail Solutions, Inc. and the shareholders of Applied Retail
Solutions Inc. (Included herewith).
2.13 Share Sale Agreement effective December 31, 1998 between Kielduff
Investments Limited and SVI Holdings, Inc., incorporated by reference
to exhibit 10.2 of the Form 8-K filed on May 14, 1999.
2.14 Promissory Note dated December 31, 1998 executed by Kielduff
Investments Limited in favor of SVI Holdings, Inc., incorporated by
reference to exhibit 10.3 of the Form 8-K filed on May 14, 1999.
2.15 Pledge Agreement effective December 31, 1998 between Kielduff
Investments Limited and SVI Holdings, Inc., incorporated by reference
to exhibit 10.4 of the Form 8-K filed on May 14, 1999.
2.16 Settlement and Release Agreement effective December 31, 1998 among
Kielduff Investments Limited, SVI Holdings, Inc., Softline Limited,
Systems for Business Incorporated and IBIS Systems Limited,
incorporated by reference to exhibit 10.5 of the Form 8-K filed on May
14, 1999.
24
<PAGE>
2.17 Stock Purchase Agreement dated June 1, 1999 among SVI Holdings, Inc.,
Island Pacific Systems Corporation, and the shareholders of Island
Pacific Systems Corporation, incorporated by reference to exhibit 2.1
to the Form 8-K filed on June 18, 1999.
2.18 Employment Agreement of Todd T. Hammett dated June 3, 1999,
incorporated by reference to exhibit 2.2 to the Form 8-K filed on June
18, 1999.
2.19 Employment Agreement of Mark Wulff dated June 3, 1999, incorporated by
reference to exhibit 2.3 to the Form 8-K filed on June 18, 1999.
2.20 Noncompetition Agreement of the Mickelsen Family Trust dated June 3,
1999, incorporated by reference to exhibit 2.4 to the Form 8-K filed
on June 18, 1999.
3.1 Articles of Incorporation, incorporated by reference to exhibit 3.1 to
the Company's Form 10-KSB for the fiscal year ended December 31, 1993.
3.2 Bylaws, incorporated by reference to exhibit 3.1 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1993.
3.3 Amendment to Bylaws dated July 3, 1998, incorporated by reference to
exhibit 3.1 of the Form 10-QSB for the quarter ended September 30,
1998.
10.1 Incentive Stock Option Plan, as amended April 1, 1998, incorporated by
reference to exhibit 10.1 to the Company's Form 10-QSB for the quarter
ended September 30, 1998.
10.2 Deed of Assignment of Copyright between Chapman Computers and The
Chapman Computers Unit Trust, and Divergent Technologies Pty. Ltd.,
incorporated by reference to exhibit 2.3 of the Form 8-K filed on
August 11, 1997.
10.3 Confidentiality Agreement between Chapman Computers Pty. Ltd. and
Chapman Computers Pty. Ltd. as Trustee for The Chapman Computers Unit
Trust, and Divergent Technologies Pty. Ltd., incorporated by reference
to exhibit 2.4 of the Form 8-K filed on August 11, 1997.
10.4 Employment Agreement of Barry M. Schechter dated effective October 1,
1997, incorporated by reference to exhibit 10.15 of the Company's
10-KSB for the fiscal year ended September 30, 1997.
10.5 Agreement between Multisoft Financial Systems Limited and the Sage
Group Plc., and IBIS Systems Limited, incorporated by reference to
exhibit 10.21 of the Company's Form 8-K filed on March 24, 1998.
10.6 Amendment Agreement between Multisoft Financial Systems Limited and
The Sage Group Plc, and IBIS Systems Pty. Ltd., incorporated by
reference to exhibit 10.22 of the Company's Form 8-K filed on March
24, 1998.
10.7 License to Occupy between Multisoft Financial Systems Limited and IBIS
Systems Pty. Ltd., incorporated by reference to exhibit 10.23 of the
Company's Form 8-K filed on March 24, 1998.
10.8 Employment Agreement between Divergent Technologies Pty. Ltd. and
Shaun Rosen dated November 5, 1996, incorporated by reference to
exhibit 10.13 of the Company's Form 10-KSB for the fiscal year ended
March 31, 1998.
10.9 Lease dated November 1, 1996 between Divergent Technologies Pty. Ltd.
and Reefmist Pty. Limited, incorporated by reference to exhibit 10.14
of the Company's Form 10-KSB for the fiscal year ended March 31, 1998.
25
<PAGE>
10.10 Assignment and Assumption of Acquisition Agreement dated April 1, 1998
among Softline Limited, Softline Holdings (Pty) Limited, Triple-S
Computers (Pty) Limited, Divergent S.A. (Pty) Limited and the
shareholders of Triple-S Computers (Pty) Limited, incorporated by
reference to exhibit 10.2 of the Company's Form 10-QSB for the quarter
ended June 30, 1998.
10.11 1998 Incentive Stock Plan, incorporated by reference to exhibit 10.2
of the Form 10-QSB for the quarter ended September 30, 1998.
10.12 Employment Agreement of Sam Pickard dated as of August 27, 1998,
incorporated by reference to exhibit 2.3 of the Form 8-K filed on
September 16, 1998.
10.13 Employment Agreement of Larry Lahodny dated as of August 27, 1998,
incorporated by reference to exhibit 2.4 of the Form 8-K filed on
September 16, 1998.
10.14 Promissory note dated October 13, 1998 between SVI Holdings, Inc. and
Softline Limited, incorporated by reference to exhibit 10.1 of the
Form 10-QSB for the quarter ended December 31, 1998.
10.15 Pledge Agreement dated October 13, 1998 between SVI Holdings, Inc. and
Softline Limited, incorporated by reference to exhibit 10.2 of the
Form 10-QSB for the quarter ended December 31, 1998.
10.16 Term Loan Agreement dated June 3, 1999 between SVI Holdings, Inc. and
Union Bank of California, N.A., incorporated by reference to exhibit
10.1 to the Form 8-K filed on June 18, 1999.
10.17 Term Loan A Note dated June 3, 1999 between SVI Holdings, Inc. and
Union Bank of California, N.A., incorporated by reference to exhibit
10.2 to the Form 8-K filed on June 18, 1999.
10.18 Term Loan B Note dated June 3, 1999 between SVI Holdings, Inc. and
Union Bank of California, N.A., incorporated by reference to exhibit
10.3 to the Form 8-K filed on June 18, 1999.
10.19 Pledge Agreement dated June 3, 1999 between SVI Holdings, Inc. and
Union Bank of California, N.A., incorporated by reference to exhibit
10.4 to the Form 8-K filed on June 18, 1999.
10.20 Security Agreement by SVI Holdings, Inc. in favor of Union Bank of
California, N.A., incorporated by reference to exhibit 10.5 to the
Form 8-K filed on June 18, 1999.
10.21 Security Agreement by Applied Retail Solutions, Inc. in favor of Union
Bank of California, N.A., incorporated by reference to exhibit 10.6 to
the Form 8-K filed on June 18, 1999.
10.22 Security Agreement by Island Pacific Systems Corporation in favor of
Union Bank of California, N.A., incorporated by reference to exhibit
10.7 to the Form 8-K filed on June 18, 1999.
21 List of Subsidiaries.
27 Financial Data Schedule.
(b) Reports on Form 8-K During the Fourth Quarter
None.
26
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SVI HOLDINGS, INC., A NEVADA CORPORATION
By: /s/ Barry M. Schechter
-------------------------------------
Barry M. Schechter, President and
Chief Executive Officer
(Principal Executive Officer)
Date: June 24, 1999
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signatures Capacity Date
---------- -------- ----
<S> <C> <C>
/s/ Barry M. Schechter Chairman of the Board, President, June 24, 1999
- ----------------------------- Chief Executive Officer and Director
Barry M. Schechter
/s/ David L. Reese Chief Financial Officer, Secretary June 24, 1999
- ----------------------------- and Director
David L. Reese
/s/ Arthur S. Klitofsky Vice President and Director June 24, 1999
- -----------------------------
Arthur S. Klitofsky
/s/ Donald S. Radcliffe Director June 24, 1999
- -----------------------------
Donald S. Radcliffe
/s/ Ivan M. Epstein Director June 24, 1999
- -----------------------------
Ivan M. Epstein
/s/ Gerald Rubenstein Director June 24, 1999
- -----------------------------
Gerald Rubenstein
/s/ Ian Bonner Director June 24, 1999
- -----------------------------
Ian Bonner
/s/ Marcel Golding Director June 24, 1999
- -----------------------------
Marcel Golding
</TABLE>
27
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
----
INDEPENDENT AUDITORS' REPORT OF DELOITTE & TOUCHE LLP F-1
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
OF SINGER LEWAK GREENBAUM & GOLDSTEIN LLP F-2 - F-3
FINANCIAL STATEMENTS
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7 - F-8
Notes to Consolidated Financial Statements F-9 - F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of SVI Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of SVI Holdings,
Inc. and subsidiaries as of March 31, 1999, and the related consolidated
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 consolidated financial statements present fairly, in all
material respects, the financial position of SVI Holdings, Inc. and subsidiaries
as of March 31, 1999, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/S/ DELOITTE & TOUCHE LLP
San Diego, California
May 14, 1999 (except for Note 15, as to which the date is June 3, 1999)
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
SVI Holdings, Inc.
We have audited the consolidated balance sheet of SVI Holdings, Inc. and
Subsidiaries as of March 31, 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the six months then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SVI Holdings, Inc.
and Subsidiaries as of March 31, 1998, and the consolidated results of their
operations and their consolidated cash flows for the six months then ended in
conformity with generally accepted accounting principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
April 20, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
SVI Holdings, Inc.
We have audited the consolidated statements of operations, stockholders' equity,
and cash flows of SVI Holdings, Inc. and Subsidiaries for the year ended
September 30, 1997. 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
SVI Holdings, Inc. and Subsidiaries for the year ended September 30, 1997, in
conformity with generally accepted accounting principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
December 5, 1997
F-3
<PAGE>
<TABLE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
MARCH 31, MARCH 31,
1999 1998
------------------ -------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,006,153 $ 14,468,578
Accounts receivable, net of allowance for doubtful accounts
of $374,685 and $342,537, respectively 3,310,008 2,926,952
Other receivables 2,994,836 287,450
Note receivable 13,608,000 -
Inventories 238,314 326,807
Prepaid expenses and other current assets 183,760 388,456
------------------ -------------------
Total current assets 33,341,071 18,398,243
Property and equipment, net 734,386 885,276
Capitalized software, net 14,053,186 12,290,472
Goodwill, net 4,534,570 14,586,102
Non-compete agreement, net 1,677,112 -
Deferred income tax asset 762,910 239,690
Other assets 175,649 80,873
------------------ -------------------
Total assets $ 55,278,884 $ 46,480,656
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 345,275 $ 3,520,223
Accrued expenses 1,908,105 2,477,699
Line of credit 231,876 -
Income taxes payable 2,576,151 2,637,424
------------------ -------------------
Total current liabilities 5,061,407 8,635,346
Due to stockholder - 14,552
Long-term liabilities 2,000,000 35,299
Deferred income tax liability 805,433 720,464
------------------ -------------------
Total liabilities 7,866,840 9,405,661
------------------ -------------------
Commitments and contingencies (Note 9)
Stockholders' equity
Preferred stock, $.0001 par value; 5,000,000 shares
authorized; no shares issued and outstanding - -
Common stock, $.0001 par value; 50,000,000 shares authorized;
29,741,278 and 28,146,684 shares issued and outstanding 2,987 2,815
Additional paid-in capital 39,435,921 33,137,939
Treasury stock, at cost; shares - 127,400 in 1999 and none in 1998 (951,404) -
Retained earnings 9,885,138 4,299,994
Accumulated other comprehensive loss (960,598) (365,753)
------------------ -------------------
Total stockholders' equity 47,412,044 37,074,995
------------------ -------------------
Total liabilities and stockholders' equity $ 55,278,884 $ 46,480,656
================== ===================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
<TABLE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
YEAR ENDED MARCH 31, MARCH 31, SEPTEMBER 30,
1999 1998 1998 1997
------------- ------------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Net sales $ 17,486,670 $ 17,701,729 $ 11,198,015 $ 10,433,878
Cost of sales 5,347,376 5,752,896 3,868,683 3,036,660
------------- ------------- ------------- -------------
Gross profit 12,139,294 11,948,833 7,329,332 7,397,218
Selling, general, and administrative expenses 9,997,805 9,054,820 5,550,306 5,883,558
------------- ------------- ------------- -------------
Income from operations 2,141,489 2,894,013 1,779,026 1,513,660
------------- ------------- ------------- -------------
Other income (expense):
Interest income 646,343 382,392 351,309 60,751
Other income 817,108 14,632 34,781 -
Interest expense (90,467) (41,524) (13,866) (103,398)
Loss on foreign currency transaction (145,850) (102,178) (14,041) (120,455)
Equity in earnings of Softline Limited - 279,427 - 627,550
Gain on disposal of Softline Limited shares - 8,209,891 4,388,389 3,973,755
------------- ------------- ------------- -------------
Total other income (expense) 1,227,134 8,742,640 4,746,572 4,438,203
------------- ------------- ------------- -------------
Income before provision for income taxes 3,368,623 11,636,653 6,525,598 5,951,863
Provision for income taxes 1,670,966 2,674,445 1,848,583 1,103,453
------------- ------------- ------------- -------------
Income from continuing operations 1,697,657 8,962,208 4,677,015 4,848,410
------------- ------------- ------------- -------------
Discontinued operations:
Income from operations of IBIS Systems Ltd., net of
applicable income taxes of $1,336,882 and
$463,163, respectively 3,613,432 1,141,952 1,141,952 -
Gain on disposal of IBIS Systems Ltd., net of
applicable income taxes of $753,043 274,055 - - -
------------- ------------- ------------- -------------
Income from discontinued operations 3,887,487 1,141,952 1,141,952 -
------------- ------------- ------------- -------------
Net income $ 5,585,144 $ 10,104,160 $ 5,818,967 $ 4,848,410
============= ============= ============= =============
Basic earnings per share:
Continuing operations $ 0.06 $ 0.43 $ 0.17 $ 0.35
Discontinued operations 0.14 0.05 0.04 -
------------- ------------- ------------- -------------
Net income $ 0.20 $ 0.48 $ 0.21 $ 0.35
============= ============= ============= =============
Diluted earnings per share:
Continuing operations $ 0.05 $ 0.38 $ 0.15 $ 0.31
Discontinued operations 0.12 0.05 0.04 -
------------- ------------- ------------- -------------
Net income $ 0.17 $ 0.43 $ 0.19 $ 0.31
============= ============= ============= =============
Weighted-average common shares outstanding
Basic 28,599,597 21,251,359 27,768,239 13,971,238
============= ============= ============= =============
Diluted 33,071,287 23,378,551 31,045,886 15,617,665
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-5
<PAGE>
<TABLE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RETAINED ACCUMULATED
COMMON STOCK ADDITIONAL EARNINGS OTHER
--------------------- PAID-IN TREASURY (ACCUMULATED COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT CAPITAL STOCK DEFICIT) INCOME LOSS TOTAL
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1996 12,422,800 $ 1,242 $ 6,712,705 $ $(6,367,383) $ $ 346,564
Issuance of common stock
in connection with the
purchase of technology
rights 1,620,000 162 3,889,838 3,890,000
Sale of common stock 196,484 20 368,837 368,857
Exercise of stock options 805,000 80 1,003,670 1,003,750
Compensation expense for
stock options granted 202,500 202,500
Increase in equity in Softline
Limited as a result of
going public 488,014 488,014
Comprehensive income
Net income 4,848,410 $ 4,848,410 4,848,410
Other comprehensive income:
Translation adjustment (262,673) (262,673) (262,673)
------------
Comprehensive income 4,585,737
---------- ------- ----------- --------- ----------- ============ ----------- -----------
BALANCE, SEPTEMBER 30, 1997 15,044,284 1,504 12,665,564 (1,518,973) (262,673) 10,885,422
Issuance of common stock
in connection with the
purchase of technology
rights and subsidiaries 5,200,000 520 8,199,480 8,200,000
Sale of common stock 7,536,000 754 11,303,246 11,304,000
Exercise of stock options 267,400 27 368,543 368,570
Issuance of common stock
for compensation 85,000 9 233,741 233,750
Issuance of common stock
for services rendered 14,000 1 48,999 49,000
Compensation expense for
stock options granted 318,366 318,366
Comprehensive income
Net income 5,818,967 5,818,967 5,818,967
Other comprehensive income:
Translation adjustment (103,080) (103,080) (103,080)
------------
Comprehensive income 5,715,887
---------- ------- ----------- --------- ----------- ============ ----------- -----------
BALANCE, MARCH 31, 1998 28,146,684 2,815 33,137,939 4,299,994 (365,753) 37,074,995
Issuance of common stock
in connection with the
purchase of technology
rights and subsidiaries 1,199,994 120 4,955,260 4,955,380
Exercise of stock options 522,000 52 719,171 719,223
Income tax benefit on stock
options exercised 223,274 223,274
Compensation expense for
stock options granted 400,277 400,277
Repurchase of common stock (127,400) (951,404) (951,404)
Comprehensive income
Net income 5,585,144 5,585,144 5,585,144
Other comprehensive income:
Translation adjustment (594,845) (594,845) (594,845)
------------
Comprehensive income $ 4,990,299
---------- ------- ----------- --------- ----------- ============ ----------- ------------
BALANCE, MARCH 31, 1999 29,741,278 $ 2,987 $39,435,921 $(951,404) $ 9,885,138 $ (960,598) $47,412,044
========== ======= =========== ========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
F-6
<PAGE>
<TABLE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS YEAR ENDED
YEAR ENDED MARCH 31, ENDED MARCH 31, SEPTEMBER 30,
1999 1998 1998 1997
-------------- -------------- ---------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,585,144 $ 10,104,160 $ 5,818,967 $ 4,848,410
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,933,292 2,037,613 1,029,984 1,177,834
Loss on foreign currency transactions 145,850 102,178 14,041 120,455
Equity in earnings in Softline Limited - (279,427) - (627,550)
Gain on sale of Softline Limited shares - (8,209,891) (4,388,389) (3,973,755)
Compensation expense for stock options granted 400,277 803,616 601,116 202,500
Deferred income tax provision (258,251) 480,774 596,971 (116,197)
Loss on sale of assets 32,778 - - -
Gain on disposal of IBIS Systems Ltd. (1,027,098) - - -
Changes in assets and liabilities:
Accounts receivable and other receivables (4,636,457) (1,606,343) (796,708) (947,897)
Inventories 34,605 112,383 886,930 (843,683)
Prepaid expenses and other current assets (336,962) 15,539 163,654 (234,959)
Accounts payable (2,488,823) 1,937,246 (2,952,847) 4,868,277
Accrued expenses and other liabilities (148,474) 624,671 1,000,977 (376,306)
Income taxes payable 1,963,472 2,406,031 1,380,102 1,025,929
------------- ------------- ------------- -------------
Net cash provided by operating activities 2,199,353 8,528,550 3,354,798 5,123,058
------------- ------------- ------------- -------------
Cash flows from investing activities:
Maturity of certificates of deposit - 700,000 350,000 350,000
Acquisition of Applied Retail Solutions, Inc., net of cash
acquired (1,419,810) - - -
Acquisition of Quest Software Limited, net of cash acquired (293,250) - - -
Acquisition of Open Support Limited, net of cash acquired (148,872) - - -
Acquisition of Todds of Lincoln, net of cash acquired (253,092) - - -
Acquisition of Multisoft, net of cash acquired - (6,478,251) (6,478,251) -
Acquisition of Softline Ltd. Software - (3,770,231) (3,770,231) -
Acquisition of IBIS Systems Ltd., net of cash acquired - 542,870 542,870 -
Acquisition of Divergent Technologies, net of cash acquired - 237,294 - (3,839,651)
Net proceeds from sale of Softline Limited shares - 12,031,996 6,167,144 6,164,852
Purchase of furniture and equipment (820,568) (526,856) (268,805) (494,823)
Proceeds from sale of assets 101,877 - - -
Proceeds from sale of IBIS Systems Ltd., net 2,217,600 - - -
Capitalized research and development and purchase of
software (2,679,218) 1,685,899 (672,149) (891,952)
------------- ------------- ------------- -------------
Net cash provided by (used for) investing activities (3,295,333) 4,422,721 (4,129,422) 1,288,426
------------- ------------- ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of common stock 719,223 9,263,330 11,432,570 1,372,607
Decrease in amount due to stockholders, net (14,552) (4,547,799) (381,716) (3,597,748)
Repurchase of common stock (951,404) - - -
Proceeds from line of credit 231,876 - - -
Proceeds from note payable - 172,910 - 26,565
Payments on line of credit - (4,276,344) (340,000) (359,399)
Payments on note payable - (50,000) (50,000) -
Due from affiliates - 1,078,022 - 1,078,022
------------- ------------- ------------- -------------
Net cash provided by (used for) financing activities (14,857) 1,640,119 10,660,854 (1,479,953)
------------- ------------- ------------- -------------
Effect of exchange rate changes on cash (351,588) (339,265) (103,080) (262,673)
------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (1,462,425) 14,252,125 9,783,150 4,668,858
Cash and cash equivalents, beginning of period 14,468,578 216,453 4,685,428 16,570
------------- ------------- ------------- -------------
Cash and cash equivalents, end of period $ 13,006,153 $ 14,468,578 $ 14,468,578 $ 4,685,428
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
F-7
<PAGE>
<TABLE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED SIX MONTHS YEAR ENDED
MARCH 31, ENDED MARCH 31, SEPTEMBER 30,
1999 1998 1997
-------------- --------------- ----------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 90,467 $ 16,635 $ 102,527
Income taxes paid $ 2,005,439 $ 336,141 $ 233,000
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Note receivable and other receivable acquired as partial payment from
sale of IBIS Systems, Ltd. $ 15,750,000 $ - $ -
Issued 1,000,000 shares of common stock in connection with the
acquisition of Applied Retail Solutions, Inc. $ 4,000,000 $ - $ -
Issued 68,035 shares of common stock in connection with the
acquisition of Triple S from Softline Limited $ 270,115 $ - $ -
Issued 28,125 shares of common stock in connection with the
purchase of software from Softline Limited $ 205,594 $ - $ -
Issued 52,000 shares of common stock in connection with the
acquisition of Todds of Lincoln $ 202,800 $ - $ -
Issued 1,620,000 shares of common stock in connection with
purchase of software from Softline Limited $ - $ - $ 3,889,838
Issued 5,000,000 shares of common stock in connection with the
acquisition of IBIS Systems Ltd. $ - $ 7,500,000 $ -
Issued 200,000 shares of common stock in connection with the
acquisition of Chapman Computers (Pty) Limited. $ - $ 700,000 $ -
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-8
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
----------------------------------------
SVI Holdings, Inc. (the "Company") is a holding company. The Company,
through its subsidiaries, is engaged in the development and
distribution of computer software, computer training courses, and
special software applications for retail and point of sale
establishments.
Principles of Consolidation and Financial Statement Presentation
----------------------------------------------------------------
The Company changed its fiscal year end from September 30 to March 31
effective March 31, 1998. The unaudited financial statements for the
twelve months ended March 31, 1998 are included for comparative
purposes. In addition, certain amounts in the prior periods have been
reclassified to conform to the presentation for the fiscal year ended
March 31, 1999.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated.
Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could
differ from those estimates.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include cash and highly liquid investments
with original maturities of not more than three months.
The fair value of short-term financial instruments, including cash and
cash equivalents, notes receivable, trade accounts receivable and
payable, accrued expenses and line of credit approximate their carrying
amounts in the financial statements due to the short maturity of such
instruments.
Inventories
-----------
Inventories consist of finished goods and are stated at the lower of
cost or market, on a first-in, first-out basis.
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is provided
using the straight-line method over the estimated useful-life of the
asset as follows:
Automobiles 7 years
Computer equipment 4 years
Furniture and fixtures 7 to 10 years
Leasehold improvements are amortized using the straight-line method,
over the shorter of the life of the improvement or lease term.
Expenditures for maintenance and repairs are charged to operations as
incurred while renewals and betterments are capitalized.
F-9
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Goodwill
--------
Goodwill represents the excess of the cost over the fair value of net
assets acquired in business combinations and acquisitions and is being
amortized on a straight-line basis over twenty years.
Revenue Recognition
-------------------
The Company recognizes revenues in accordance with the provisions of
the American Institute of Certified Public Accountants Statement of
Position 97-2, "Software Revenue Recognition." The Company licenses its
software products under nonexclusive, nontransferable license
agreements. For software arrangements that require significant
production, modification or customization, the entire arrangement is
accounted for in conformity with Accounting Research Bulletin No. 45,
"Long-term Construction-Type Contracts", using the relevant guidance
Statement of Position 81-1, "Accounting for Performance of
Construction-Type Contracts and Certain Production-Type Contracts". For
those arrangements that do not require significant production,
modification or customization, revenue is recognized when a license
agreement has been signed, delivery of the software product has
occurred, the related fee is fixed or determinable and collectibility
is probable. The Company also licenses non-software training products
under nonexclusive, nontransferable licenses. Revenue related to such
license agreements is recognized ratably over the license agreement, or
at such time that no further obligation to the customer exists.
Capitalized Software
--------------------
Pursuant to the provisions of Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to Be
Sold, Leased or Otherwise Marketed," the Company Capitalizes internally
developed software and software purchased from third parties, if the
related software product under development has reached technological
feasibility or if there are alternative future uses for the purchased
software. These costs are amortized on a product by product basis
typically over ten years using the straight-line method.
Employment and Non-Compete Agreements
-------------------------------------
Employment and non-compete agreements represent agreements to retain
key employees of acquired subsidiaries for a certain period of time and
prohibit those employees from competing with the Company within a
stated period of time after terminating employment with the Company.
The amounts incurred are capitalized and amortized over the life of the
agreements.
Evaluation of Capitalized Software, Goodwill and Other Long-Lived
Assets
-----------------------------------------------------------------------
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and For Long-Lived Assets to Be
Disposed Of" requires that impairment losses be recognized when the
carrying value of an asset will not be recognizable based on future
cash flows. The Company's policy is to evaluate, at each balance sheet
date, the appropriateness of the carrying values of the unamortized
balances of capitalized software, goodwill and other long-lived assets
on the basis of estimated future cash flows and other factors. If such
evaluation were to indicate a material impairment of these intangible
assets, such impairment would be recognized by a write down of the
applicable asset to its estimated fair value.
F-10
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Net Income per Share
--------------------
As required by Statement of Financial Accounting Standards No. 128,
"Earnings per Share," the Company has presented basic and diluted
earnings per share amounts. Basic earnings per share is calculated
based on the weighted-average number of shares outstanding during the
year, while diluted earnings per share also gives the effect to all
potential dilutive common shares outstanding during the year such as
stock options, warrants and contingently issuable shares.
Reporting Comprehensive Income
------------------------------
In March 1999, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No.130 requires reporting and presenting comprehensive income and its
components which, for the Company, includes net income and unrealized
gains and losses on foreign currency translation adjustments. In
accordance with SFAS No. 130, the accumulated balance of other
comprehensive income is disclosed as a separate component of
stockholders' equity.
Income Taxes
------------
The Company utilizes Statement of Financial Accounting Standards 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.
Translation of Foreign Currency
-------------------------------
The financial position and results of operations of the Company's
foreign subsidiaries are measured using local currency as the
functional currency. Revenues and expenses of such subsidiaries have
been translated into U.S. dollars at average exchange rates prevailing
during the period. Assets and liabilities have been translated at the
rates of exchange at the balance date. Translation gains and losses are
deferred as a separate component of stockholders' equity, unless there
is a sale or complete liquidation of the underlying foreign
investments. Aggregate foreign currency transaction gains and losses
are included in determining net earnings.
Stock-Based Compensation
------------------------
As permitted under Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation", the Company
accounts for costs of stock based compensation in accordance with the
provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and accordingly, discloses the pro
forma effect on net income (loss) and related per share amounts using
the fair-value method defined in SFAS No. 123.
Segment Reporting
-----------------
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which revises
reporting requirements and definitions for segments of business
operations. SFAS No. 131 established standards for the reporting of
information about operating segments and requires related disclosures
about products and services, geographic areas and major customers. The
Company adopted SFAS No. 131 as of March 31, 1999.
F-11
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Concentration of Risk
---------------------
The Company maintains cash balances and short-term investments at
several financial institutions. Accounts at each institution are
insured by the Federal Deposit Insurance Corporation up to $100,000. As
of March 31, 1999, the uninsured portion of these balances held at
financial institutions aggregated to $11,007,522. The Company also had
funds totaling $1,498,631 in non-United States financial institutions.
The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk on cash and
cash equivalents.
Recent Accounting Pronouncements
--------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities, which is effective for
fiscal years beginning after June 15, 2000. The Company has not
completed the process of evaluating the impact that will result from
the adoption of SFAS No. 133; however, on a preliminary basis,
management does not believe that eventual adoption will have a
significant impact on the Company's financial statements.
NOTE 2 - ACQUISITIONS
During the period from October 1, 1996 through March 31, 1999, the
Company made the acquisitions set forth below, each of which has been
accounted for as a purchase. The consolidated financial statements
include the operating results of each business from the date of the
acquisition. Pro forma results of operations have been presented,
except for those acquisitions for which the effects were not considered
significant.
APPLIED RETAIL SOLUTIONS, INC. Effective July 1, 1998, the Company
acquired 100% of the issued and outstanding shares of Applied Retail
Solutions, Inc. ("ARS"), a San Diego based company specializing in
point-of-sale software systems. The acquisition was accomplished via a
merger with a newly-formed, wholly-owned subsidiary of the Company. The
Company issued a total of 1,000,000 shares of common stock at $4.00 per
share which represents the fair value of the Company's common stock at
the date of acquisition to the former owners of ARS as merger
consideration. In addition, the Company paid a total of $1,926,000 to
the two principals of ARS for entering into two-year employment and
four-year non-compete agreements (Note 1). According to the purchase
agreement, the earn-out provision for the acquisition provided that up
to additional $2,000,000 would be paid in the form of Company common
stock upon ARS's achievement of certain revenue targets. On May 26,
1999, the Company and the former ARS shareholders agreed that the
Company would issue 165,000 shares of its common stock to such
shareholders in full satisfaction of the earn-out provision.
The Company recorded $1,468,811 in goodwill, which is being amortized
on a straight-line basis over twenty years.
F-12
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The fair value of assets acquired and liabilities assumed were as
follows:
Assets acquired, including goodwill $ 8,007,323
Liabilities assumed (587,513)
Common stock issued (4,000,000)
Common stock to be issued (2,000,000)
----------------
Net cash paid for acquisition $ 1,419,810
================
The following unaudited pro forma consolidated results of continuing
operations for the six months ended March 31, 1998 assume the ARS
acquisition occurred as of October 1, 1997. The pro forma results are
not necessarily indicative of the actual results that would have
occurred had the acquisition been completed as of the beginning of each
of the periods presented, nor are they necessarily indicative of future
consolidated results.
SIX MONTHS ENDED
MARCH 31, 1998
----------------
Total revenues $ 12,613,785
Net income $ 4,384,164
Basic earnings per share $ 0.16
Diluted earnings per share $ 0.14
QUEST SOFTWARE LIMITED. Effective July 1, 1998, IBIS Systems Ltd.
("IBIS") acquired certain assets of Quest Software Limited ("Quest")
for a cash payment of $293,250. In connection with the acquisition, the
Company granted the former owner of Quest options to purchase 205,000
shares of the Company's common stock at $5.00 per share as
consideration for entering into a three-year employment agreement. The
Company recorded compensation expense equal to the fair value of the
first 105,000 options that are exercisable. The remaining 100,000
options were exercisable only to the extent pre-tax profits of Quest
for the twelve months ending July 31, 1999 exceeded certain targets. As
discussed in Note 12, the Company sold IBIS during the fourth quarter
of fiscal year 1999. As a result of the disposal of IBIS, these options
become vested upon the payment of the note receivable due from the
buyer of IBIS. The Company recorded $178,807 in goodwill, which was
being amortized on a straight-line basis over twenty years.
The fair value of assets acquired were as follows:
Assets acquired, including goodwill $ 293,250
Liabilities assumed -
----------------
Net cash paid for acquisition $ 293,250
================
OPEN SUPPORT LIMITED. Effective July 1, 1998, IBIS also acquired
certain assets and liabilities of Open Support Limited ("Open") for a
cash payment of $148,872. In connection with the acquisition, the
Company granted the former owner of Open options to purchase up to
200,000 shares of the Company's common stock at $5.00 per share which
was approximately the fair value of the Company common stock at the
date of grant as consideration for entering into a three-year
employment agreement. The options would have been exercisable only to
the extent pre-tax profits of Open for the twelve months ending July
31, 1999 exceeded certain targets. As discussed in Note 12, the Company
sold IBIS during the fourth quarter of fiscal year 1999. As a result of
the disposal of IBIS, these options were canceled.
F-13
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company recorded $346,736 in goodwill, which was being amortized on
a straight-line basis over twenty years.
The fair value of assets acquired and liabilities assumed were as
follows:
Assets acquired, including goodwill $ 346,736
Liabilities assumed (197,864)
----------------
Net cash paid for acquisition $ 148,872
================
TRIPLE-S COMPUTERS PTY. LTD. Effective April 1, 1998, Divergent
Technologies Pty. Ltd. ("Divergent"), a wholly-owned subsidiary
located in Australia, acquired certain assets and liabilities of
Triple-S Computers Pty. Ltd. ("Triple-S") of Cape Town, South Africa,
by assignment from the Company's majority stockholder, for
consideration of $540,230. $270,115 of the purchase consideration was
placed in escrow and was subject to return to the Company if a certain
profit target for Triple-S was not achieved for the six months ended
September 30, 1998. As of September 30, 1998, Triple-S did not meet
the profit target. The escrowed amount has not been recognized as part
of the purchase consideration.
The fair value of assets acquired and liabilities assumed were as
follows:
Assets acquired $ 917,411
Liabilities assumed (647,296)
----------------
Common stock issued for acquisition $ 270,115
================
TODDS OF LINCOLN LIMITED. Effective April 1, 1998, IBIS acquired the
service division of Todds of Lincoln Limited ("Todds") for the purchase
consideration of $253,092 and 52,000 shares of the Company's common
stock. Under the terms of the purchase agreement, Todds was entitled to
additional consideration based on pre-tax net income for the acquired
assets for the fiscal year ended March 31, 1999. Prior to the sale of
IBIS, the Company agreed the earn-out provision had been achieved. As a
result, the Company agreed to issue 55,000 shares of common stock as
payment for the deferred consideration. The Company recorded $732,728
in goodwill, which was being amortized on a straight-line basis over
twenty years.
The fair value of assets acquired and liabilities assumed were as
follows:
Assets acquired, including goodwill $ 864,369
Common stock issued (202,800)
Liability for additional consideration (408,477)
----------------
Net cash paid for acquisition $ 253,092
================
F-14
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
MULTISOFT FINANCIAL SYSTEMS LIMITED. Effective March 2, 1998, IBIS
acquired certain assets of Multisoft Financial Systems Limited
("Multisoft"), a wholly-owned subsidiary of The Sage Group Plc. The
purchase price for the assets acquired was $6,478,251. The assets
acquired consisted principally of customer contracts. The Company
recorded $6,315,687 in goodwill, which was being amortized on a
straight-line basis over twenty years. As discussed in Note 12, the
Company sold IBIS during the fourth quarter of fiscal year 1999.
The fair value of assets acquired and liabilities assumed were as
follows:
Assets acquired, including goodwill $ 6,478,251
Liabilities assumed -
----------------
Net cash paid for acquisition $ 6,478,251
================
The following is a summary of unaudited pro forma results of discontinued
operations for the six months ended March 31, 1998 and year ended September
30, 1997, assuming that the acquisition of Multisoft occurred as of October
1, 1996.
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997
-------------------- --------------------
<S> <C> <C>
Net sales $ 6,864,638 $ 6,395,530
Net income $ 1,752,758 $ 950,258
Basic earnings per share $ 0.06 $ 0.07
Diluted earnings per share $ 0.06 $ 0.06
</TABLE>
IBIS AND ANNISTON. Effective October 1, 1997, the Company entered into
a series of transactions with Softline Limited ("Softline") and Hosken
Consolidated Investments Limited ("Hosken"). Both Softline and Hosken
are South African public companies traded on the Johannesburg Stock
Exchange. The closing of these agreements resulted in Softline
acquiring a 60% interest in the Company. Softline obtained this
interest by acquiring 5,000,000 shares of the Company in exchange for
100% of the common stock of IBIS Systems Ltd and Anniston Ventures Ltd.
("IBIS and Anniston") (both owned by Softline) and 7,536,000 shares of
the Company's common stock in exchange for cash and the worldwide
technology rights outside of Africa for Softline's "Brilliant" range of
software products. The shares of common stock issued pursuant to these
agreements resulted in the issuance of 12,536,000 new shares of common
stock of the Company. The value of the common stock issued was based on
a discount from the market price of the Company's common stock on the
effective date of the transaction. The Company also issued 2,438,000
options to Softline. These options are exercisable at $2.00 per share.
In addition to the shares acquired by Softline from the Company,
Softline also acquired 4,000,000 shares of the Company's common stock
from the Company's former majority stockholder and other current
stockholders. The Company also sold its remaining interest in Softline
comprising 19,876,000 shares to Hosken for cash and recognized a gain
of $4,388,389 on the sale of the shares. The Company recorded
$5,160,621 in excess of cost over fair value of net assets acquired
which is being amortized on a straight-line basis over twenty years. As
discussed in Note 12, the Company sold IBIS during the fourth quarter
of fiscal 1999.
The fair value of assets acquired and liabilities assumed were as
follows:
Assets acquired, including goodwill $ 8,627,659
Liabilities assumed (1,670,529)
Common stock issued (7,500,000)
----------------
Net cash acquired from acquisition $ (542,870)
================
F-15
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following unaudited pro forma consolidated results of discontinued
operations for year ended September 30, 1997 assume the IBIS acquisition
occurred as of October 1, 1996, including all acquisitions made by IBIS
during the year ended March 31, 1998.
YEAR ENDED
SEPTEMBER 30, 1997
------------------
Total revenues $ 6,395,530
Net income $ 950,258
Basic earnings per share $ 0.07
Diluted earnings per share $ 0.06
DIVERGENT TECHNOLOGIES PTY. LTD. Effective October 1, 1996, the Company
entered into a Share Purchase Agreement and a Technology Purchase
Agreement to acquire 100% of the issued and outstanding shares of
Divergent Technologies Pty. Ltd. ("Divergent"), an Australian software
company. The purchase price was $4,154,933 plus 1,300,000 shares of the
Company's common stock and options to purchase 1,600,000 shares of the
Company's common stock at a price of $1.75 for two years. As part of
the acquisition, the Company also agreed to issue options to purchase
120,000 shares at $2.00 per share, and to forgive the exercise price of
these options if Divergent earned at least $1,108,000 profits for the
period October 1, 1996 to June 30, 1997. Divergent exceeded the net
profits target and the 120,000 shares were issued in December 1997. The
$240,000 exercise price, which was forgiven, was treated as additional
acquisition expense. This acquisition was accounted for using the
purchase method of accounting. The Company recorded $2,462,149 in
excess of cost over fair value of net assets acquired which is being
amortized on a straight-line basis over twenty years. The results of
operations for Divergent have been included in the consolidated results
of the Company since October 1, 1996.
CHAPMAN COMPUTERS PTY. LTD. Effective April 28, 1997, Divergent entered
into an agreement to acquire Chapman Computers Pty, Ltd. ("Chapman"),
an Australian software company. The purchase price was $1,384,000 which
consisted of cash of $784,000 and common stock valued at $600,000.
Under the terms of the acquisition agreement, the Company issued an
additional 200,000 shares of the Company's common stock in March 1998
in satisfaction of an earn-out provision. This acquisition was
accounted for using the purchase method of accounting. The purchase
price was allocated principally to capitalized software that is being
amortized on a straight-line basis over ten years. The results of
operations for Chapman have been included in the consolidated results
of the Company since April 28, 1997. Pro forma results for the year
ended September 30, 1997, as if the acquisition had taken place as of
the beginning of the 1997 fiscal year, are not presented because the
effect on operations would be immaterial.
NOTE 3 - NOTE RECEIVABLE
In connection with the sale of its United Kingdom subsidiary, IBIS Systems
Ltd., the Company recorded a note receivable of $13,608,000. Beginning May
1, 1999, the note bears interest at a variable rate (3.25% as of May 1,
1999). Principal and interest are due October 1, 1999.
F-16
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at March 31, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Automobiles $ 71,781 $ 140,659
Computer equipment 1,693,207 915,269
Furniture and fixtures 152,907 248,252
Leasehold improvements 35,833 67,774
--------------- ---------------
1,953,728 1,371,954
Less accumulated depreciation and
amortization 1,219,342 486,678
--------------- ---------------
Total $ 734,386 $ 885,276
=============== ===============
</TABLE>
NOTE 5 - CAPITALIZED SOFTWARE
Capitalized software at March 31, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Point-of-sale software $ 16,492,901 $ 13,626,483
Less accumulated amortization 2,439,715 1,336,011
--------------- ---------------
Total $ 14,053,186 $ 12,290,472
=============== ===============
</TABLE>
Amortization expense was $1,400,967, $669,866 and $687,078 for the year
ended March 31, 1999, six months ended March 31, 1998 and year ended
September 30, 1997, respectively.
NOTE 6 - EMPLOYMENT AND NON-COMPETE AGREEMENTS
Employment and non-compete agreements as of March 31, 1999 are as
follows:
Cost $ 1,926,005
Less accumulated amortization 248,893
---------------
Total $ 1,677,112
===============
NOTE 7 - LONG-TERM LIABILITY
Pursuant to the attainment of certain profit and license fee targets for
Applied Retail Solutions, Inc. ("ARS"), the Company recorded additional
purchase consideration of $2,000,000 due to the former ARS shareholders. On
May 26, 1999, the Company agreed to issue 165,000 shares of its common
stock to the former ARS shareholders in full satisfaction of the additional
purchase consideration.
F-17
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 - RELATED PARTIES
Included in other receivables at March 31, 1999 and 1998 are amounts
due from officers and employees of the Company in the amount of
$237,524 and $141,584, respectively.
The office space for the Company's Sydney office is leased from an
officer of the Company. During the years ended March 31, 1999 and 1998,
the Company paid $154,306 and $141,499, respectively, in rent to this
related party.
During the third quarter of the fiscal year 1999, the Company loaned
$5,213,636 to the Company's majority stockholder, Softline Limited, to
facilitate the payment by the majority stockholder of an earn-out due
to an officer of the Company by the majority stockholder. The loan was
paid off during the fourth quarter of the fiscal year 1999. Interest
income received under this loan was $163,093 for the year ended March
31, 1999.
The loan due to stockholder of $14,552 and $301,645 as of March 31,
1998 and September 30, 1997, respectively was paid off during the first
quarter of the year ended March 31, 1999. Interest paid under this loan
for the year ended March 31, 1999, six months ended March 31, 1998 and
year ended September 30, 1997 was $0, $0 and $42,257, respectively.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Operating Leases
----------------
The Company leases office space and various automobiles under
non-cancelable operating leases that expire at various dates through
the year 2006. Certain of the leases contain renewal options. Future
annual minimum lease payments for non-cancelable operating leases at
March 31, 1999 are summarized as follows:
Year Ending
March 31,
2000 $ 785,090
2001 363,864
2002 163,229
2003 160,501
2004 158,246
Thereafter 408,803
----------------
Total $ 2,039,733
================
Rent expense was $680,541, $166,849 and $191,806 for the year ended
March 31, 1999, six months ended March 31, 1998 and year ended
September 30, 1997, respectively.
Line of Credit
--------------
The Company's wholly-owned subsidiary, Divergent Technologies Pty.
Ltd. ("Divergent"), maintained a revolving line of credit of $634,000
to finance its bank overdrafts. The line of credit is secured by the
assets of Divergent and bears a 9% interest rate. As of March 31, 1999
and 1998, the outstanding balance under this line of credit was
$231,876 and $0, respectively.
F-18
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Interest paid during the year ended March 31, 1999, six months ended
March 31, 1998 and year ended September 30, 1997 was $5,681, $3,087 and
$1,331, respectively.
Employee Benefit Plan
---------------------
Effective January 1, 1999, the Company adopted a defined contribution
plan under Section 401(k) of the Internal Revenue Code covering all
eligible employees employed in United States ("401(k) Plan"). Eligible
participants may contribute up to 20% of their total compensation. The
Company matches 50% of the employee's contributions, up to three
percent of the employee's total compensation, and may make
discretionary contributions to the plan. Participants will be
immediately vested in their personal contributions and over a six year
graded schedule for amounts contributed by the Company. The Company
made matching contributions to the 401(k) Plan of $37,485 in the year
ended March 31, 1999.
Litigation
----------
As discussed in Note 2, a wholly-owned subsidiary of the Company
acquired Triple-S Systems Ltd. in April 1998. The purchase price
consisted of two installments. The second installment was held in
escrow and was subject to an agreed upon profit target for the
six-month period ended September 30, 1998. The Company believes the
profit target was not met, which is currently in dispute by the
original sellers of the business. At the date of this report, the
original sellers have made a claim for $144,000 plus interest. The
matter is currently in arbitration. The Company has sought legal advice
and believes that the original seller's claim is without merit, and the
outcome of this matter will not have a material adverse effect on the
Company's financial condition or operations.
NOTE 10 - COMMON STOCK, TREASURY STOCK, STOCK OPTIONS, AND WARRANTS
Treasury Stock
--------------
In November 1998, the Board of Directors authorized the Company to
purchase up to 1,000,000 shares of the Company's common stock. At March
31, 1999, the Company had repurchased 127,400 shares of its common
stock at a cost of $951,404. Purchased shares are available for general
corporate purposes.
Stock Option Plan
-----------------
The Company adopted an incentive stock option plan (the "1989 Plan").
Options under this plan may be granted to employees and officers of the
Company. There are 1,000,000 shares of common stock reserved for
issuance under this plan. Effective April 1, 1998, the board of
directors approved an amendment to the Company's 1989 Plan increasing
the number of shares of common stock authorized under the 1989 Plan to
1,500,000 from 1,000,000. The exercise price of the options is
determined by the board of directors, but the exercise price may not be
less than the fair market value of the common stock on the date of
grant. Options vest immediately and expire between three to ten years.
On October 5, 1998, the board of directors and stockholders approved a
new plan entitled the 1998 Incentive Stock Plan (the "1998 Plan"). The
1998 Plan is in addition to the 1989 Plan. The 1998 Plan authorizes
3,500,000 shares to be issued pursuant to incentive stock options,
non-statutory options, stock bonuses, stock appreciation rights or
stock purchases agreements. The options may be granted at a price not
less than the fair market value of the common stock at the date of
grant. The options generally become exercisable over periods ranging
from zero to five years, commencing at the date of grant, and expire in
one to ten years. The 1998 Plan terminates in October 2008.
F-19
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following summarizes the Company's stock option transactions under
the stock option plans:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price per Share
---------------- -------------------
<S> <C> <C>
Options outstanding, October 1, 1996 412,310 $ 0.54
Exercised (5,000) $ 0.75
Granted 226,000 $ 1.75
Expired/canceled (22,000) $ 1.75
----------------
Options outstanding, September 30, 1997 611,310 $ 0.94
Granted 161,300 $ 2.80
----------------
Options outstanding, March 31, 1998 772,610 $ 1.33
Exercised (374,000) $ 1.36
Granted 987,675 $ 5.15
Expired/canceled (17,000) $ 3.44
----------------
Options outstanding, March 31, 1999 1,369,285 $ 4.05
================
Exercisable, September 30, 1997 611,310 $ 0.94
================
Exercisable, March 31, 1998 772,610 $ 1.33
================
Exercisable, March 31, 1999 934,285 $ 2.88
================
</TABLE>
In addition to options issued pursuant to the stock option plans
described above, the Company issued additional options outside the
plans to employees, consultants, and unrelated third parties. The
following summarizes the Company's other stock option transactions:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price per Share
---------------- -------------------
<S> <C> <C>
Options outstanding, October 1, 1996 950,000 $ 0.70
Exercised (800,000) $ 1.25
Granted 2,470,000 $ 1.93
----------------
Options outstanding, September 30, 1997 2,620,000 $ 1.44
Exercised (307,400) $ 1.38
Granted 3,039,100 $ 2.01
Expired/canceled (15,000) $ 0.75
----------------
Options outstanding, March 31, 1998 5,336,700 $ 1.89
Exercised (148,000) $ 1.37
Granted 125,000 $ 5.00
Expired/canceled (40,000) $ 2.50
----------------
Options outstanding, March 31, 1999 5,273,700 $ 1.98
================
Exercisable, September 30, 1997 2,620,000 $ 1.44
================
Exercisable, March 31, 1998 5,336,700 $ 1.89
================
Exercisable, March 31, 1999 5,273,700 $ 1.98
================
</TABLE>
F-20
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
During the year ended March 31, 1999, the Company granted options for
347,000 shares to employees under the 1989 Plan at exercise prices less
than fair market value at the date of grant. As a result, the Company
recognized compensation expense of $400,277 from the options granted
during the year.
During the six months ended March 31, 1998, the Company granted an
option to purchase 2,438,000 shares of its common stock at $2.00 per
share for two years to Softline Limited, its majority stockholder. The
purpose of this option was to allow Softline to maintain its control
position at an estimated level of 60% of the outstanding shares.
The Company has adopted the disclosure-only provision of SFAS No. 123.
The following pro forma information presents net income and basic and
diluted earnings per share as if compensation expense had been
recognized for stock options granted in the year ended March 31, 1999,
six months ended March 31, 1998 and year ended September 30, 1997 as
determined under the fair value method prescribed by SFAS No. 123:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS YEAR ENDED
MARCH 31, ENDED MARCH 31, SEPTEMBER 30,
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Net income
As reported $ 5,585,144 $ 5,818,967 $ 4,848,410
Pro forma $ 4,467,833 $ 5,674,923 $ 4,628,490
Basic earnings per share
As reported $ 0.20 $ 0.21 $ 0.35
Pro forma $ 0.16 $ 0.20 $ 0.33
Diluted earnings per share
As reported $ 0.17 $ 0.19 $ 0.31
Pro forma $ 0.14 $ 0.18 $ 0.30
Weighted average assumptions
dividend yield None None None
volatility 65% 83% 100%
risk free interest rate 5.0% 5.5% 5.7%
expected life of options 1 year 1-2.5 years 2 years
</TABLE>
F-21
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
The following table summarizes information as of March 31, 1999
concerning currently outstanding and exercisable options:
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------- --------------------------------------
Weighted average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
(years)
<S> <C> <C> <C> <C> <C>
$0.30 - 2.75 5,408,810 2.3 $1.80 5,408,810 $1.80
$3.00 - 7.60 1,234,175 7.5 $5.07 799,175 $4.24
---------------- ------------------- ---------------- ---------------- ---------------------
6,642,985 3.3 $2.41 6,207,985 $2.11
================ =================== ================ ================ =====================
</TABLE>
Warrants
--------
At March 31, 1999 and 1998, the Company has 25,000 warrants outstanding
to purchase one share of common stock at an exercise price of $7.00 per
share outstanding. The warrants expire two years from the effective
date of a post-effective amendment to the Company's registration
statement that has yet to be filed.
NOTE 11 - INCOME TAXES
<TABLE>
The provision for income taxes consisted of the following components:
<CAPTION>
YEAR ENDED SIX MONTHS YEAR ENDED
MARCH 31, ENDED MARCH 31, SEPTEMBER 30,
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Current:
Federal $ - $ 150,288 $ 100,000
State - 126,675 90,000
Foreign 834,922 974,649 1,029,650
--------------- --------------- ---------------
Total 834,922 1,251,612 1,219,650
--------------- --------------- ---------------
Deferred:
Federal - 458,405 -
State - 151,755 -
Foreign 836,044 (13,189) (116,197)
--------------- --------------- ---------------
Total 836,044 596,971 (116,197)
--------------- --------------- ---------------
Provision for income taxes $ 1,670,966 $ 1,848,583 $ 1,103,453
=============== =============== ===============
</TABLE>
F-22
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Significant components of the Company's deferred tax assets and
liabilities at March 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Deferred tax assets 1999 1998
---------------- ----------------
<S> <C> <C>
Foreign tax credit $ 220,006 $ 127,229
State taxes 164,614 73,669
Stock options 171,479 -
Depreciation 74,470 -
AMT credit 92,828 -
Accrued expenses 39,109 38,792
Loss on sale of assets 404 -
---------------- ----------------
Total deferred tax assets 762,910 239,690
---------------- ----------------
Deferred tax liabilities
Depreciation and amortization 98,775 684,694
Accumulated capitalized research and
development costs 706,658 -
Other - 35,770
---------------- ----------------
Total deferred tax liabilities 805,433 720,464
---------------- ----------------
Net deferred tax liabilities $ 42,523 $ 480,774
================ ================
</TABLE>
The difference between the actual provision and the amount computed at
the statutory United States federal income tax rate of 34% for 1999 and
1998 is attributable to the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS YEAR ENDED
MARCH 31, ENDED MARCH 31, SEPTEMBER 30,
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Provision computed at statutory rate 34.0% 34.0% 34.0%
Changes not deductible or recognizable
for tax purposes - 3.8 -
Decrease in valuation allowance - (8.0) (32.3)
Foreign income taxed at different rates 7.4 (3.7) 15.3
State income tax, net of federal tax benefit - 2.9 1.5
Other 8.2 (0.6) -
--------------- --------------- ---------------
Total provision for income taxes 49.6% 28.4% 18.5%
=============== =============== ===============
</TABLE>
NOTE 12 - DISCONTINUED OPERATIONS
In the fourth quarter of fiscal 1999, the Company sold its United Kingdom
operations, IBIS Systems, Ltd. ("IBIS") for cash proceeds of $2,250,000,
surrender of common stock of the Company valued at $2,142,000 (which is
included in other receivables as of March 31, 1999) and a note receivable
of $13,608,000. The sale resulted in a gain of $274,055, net of applicable
income taxes of $753,043. Accordingly, the operating results of IBIS are
shown as discontinued operations with prior period results restated. The
operating results reflected in earnings from discontinued operations are
summarized as follows:
F-23
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
MARCH 31, MARCH 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Net sales $ 12,402,521 $ 5,156,368
Income before taxes $ 4,950,314 $ 1,605,112
Taxes on income 1,336,882 463,163
Net income $ 3,613,432 $ 1,141,952
Net income per share of common stock:
Basic $ 0.14 $ 0.04
Diluted $ 0.12 $ 0.04
</TABLE>
NOTE 13 - EARNINGS PER SHARE
Earnings per share for the year ended March 31, 1999, six months ended
March 31, 1998 and year ended September 30, 1997 are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31, 1999
------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------------- ---------------- ---------------
<S> <C> <C> <C>
Basic EPS
Income available to common
stockholders $ 5,585,144 28,599,597 $ 0.20
Effect of dilutive securities
Options - 4,471,690
---------------- ----------------
Diluted EPS
Income available to common
stockholders plus
assumed conversions $ 5,585,144 33,071,287 $ 0.17
================ ================
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED MARCH 31, 1998
------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------------- ---------------- ---------------
<S> <C> <C> <C>
Basic EPS
Income available to common
stockholders $ 5,818,967 27,768,239 $ 0.21
Effect of dilutive securities
options - 3,277,647
---------------- ----------------
Diluted EPS
Income available to common
stockholders plus
assumed conversions $ 5,818,967 31,045,886 $ 0.19
================ ================
</TABLE>
F-24
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 1997
------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------------- ---------------- ---------------
<S> <C> <C> <C>
Basic EPS
Income available to common
stockholders $ 4,848,410 13,971,238 $ 0.35
Effect of dilutive securities
options - 1,646,427
---------------- ----------------
Diluted EPS
Income available to common
stockholders plus
assumed conversions $ 4,848,410 15,617,665 $ 0.31
================ ================
</TABLE>
NOTE 14 - BUSINESS SEGMENTS AND GEOGRAPHIC DATA
The Company provides global enterprise software solutions for the retail
industry. In accordance with SFAS No. 131, the Company considers its
business to consist of one reportable operating segment.
The Company operates in four countries, the United States, Australia, South
Africa and United Kingdom. The following is a summary of local operations
by geographic area:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS YEAR ENDED
MARCH 31, ENDED MARCH 31, SEPTEMBER 30,
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenues:
United States $ 5,010,362 $ 414,228 $ 800,627
Australia 10,706,558 10,783,787 9,633,251
South Africa 1,769,750 - -
United Kingdom (discontinued operations) 12,402,521 5,156,368 -
--------------- --------------- ---------------
Total revenues $ 29,889,191 $ 16,354,383 $ 10,433,878
=============== =============== ===============
Identifiable assets:
United States $ 44,402,906 $ 27,284,952 $ 10,206,353
Australia 10,194,030 9,258,218 9,023,180
South Africa 681,948 - -
United Kingdom (discontinued operations) - 9,937,486 -
--------------- --------------- ---------------
Total identifiable assets $ 55,278,884 $ 46,480,656 $ 19,229,533
=============== =============== ===============
</TABLE>
NOTE 15 - SUBSEQUENT EVENTS
In April 1999, the Company's majority stockholder, Softline Limited,
exercised its options to purchase 1,994,267 shares of its common stock
for $3,988,534.
On June 3, 1999, the Company closed its acquisition of all of the
outstanding shares of Island Pacific Systems Corporation ("Island
Pacific"). Island Pacific produces and markets retail back office
software systems primarily in the United States and the United Kingdom.
At the date of acquisition, Island Pacific had approximately 130
employees with 115 located in the U.S.
F-25
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The purchase price for the shares acquired was $35 million in cash, of
which $18.5 million was financed under two term loans which are secured
by the shares of the Company's subsidiaries. The secured loans bear
interest at prime rate plus .25% and .50% for terms of 6 and 24 months,
respectively. An additional $2.3 million was advanced to the Company
for this transaction by a major stockholder of the Company with no
stated maturity date and with interest at the prime rate. The balance
of the purchase price was funded from the cash resources of the
Company.
The acquisition will be accounted for as a purchase in fiscal year
2000. The purchase price will be allocated to the assets acquired and
liabilities assumed based upon their estimated fair market values. The
purchase price allocation will be determined during fiscal year 2000
when additional information becomes available. Results of operations
for Island Pacific will be included with those of the Company beginning
in fiscal 2000.
Island Pacific is a defendant in a lawsuit filed by ALT Consulting, LLC
("ALT") in Orange County Superior Court. The complaint asserts various
claims arising out of a software consulting contract. Island Pacific
has answered the complaint and filed a cross-complaint against ALT and
its principal member. The Company is obligated to provide to the Island
Pacific selling shareholders reasonable assistance and authority to
defend and prosecute the ALT litigation, and the Company agreed to
contribute a maximum of $200,000 toward costs and damages associated
with the ALT litigation. The Island Pacific selling shareholders are
obligated to indemnify the Company against any further costs or damages
associated with the ALT litigation.
F-26
Exhibit 2.12
SECOND AMENDMENT TO AGREEMENT AND
PLAN OF REORGANIZATION
This Second Amendment to Agreement and Plan of Reorganization ("Amendment") is
entered into as of May 24, 1999, by and among SVI Holdings, Inc., a Nevada
corporation ("SVI"), Applied Retail Solutions, Inc., a Delaware corporation
("Merger Sub"), Applied Retail Solutions, Inc., a California corporation
("ARS"), Sam Pickard ("Pickard") and Larry Lahodny ("Lahodny"). Pickard and
Lahodny and/or their respective successors in title, are collectively referred
to as the "Former Shareholders." The capitalized terms used in this Amendment
shall have the meanings ascribed such terms in the Agreement and Plan of
Reorganization entered into among the parties hereto as of July 1, 1998 (the
"Merger Agreement").
1. RECITALS.
1.1. Under the Merger Agreement parties provided for certain
calculation procedures to be followed with regards to the payment of Additional
Consideration. Namely the number of shares to be issued, how the shares value
would be established and the latest date when the shares could be issued in
settlement. Ref. Para. 1.14 (a)(ii)
2. AGREEMENT. The parties hereby acknowledge, agree and consent to the
following:
2.1. The calculation of the number of shares to be issued in
settlement of the $2,000,000 Additional Consideration is hereby waived. The
parties agree that the share value will be established as $12.12 per share and
will yield 165,000 shares in full and complete settlement.;
2.2. Waiver of the phrase that "the shares shall be issued on
or before June 30, 2,000" in favor of the shares being issued as soon as
possible. The additional shares will be issued as
Name of Shareholders Number of Shares
-------------------- ----------------
Janet Lahodny, as successor in title and interest
of Larry Lahodny 70,785
------
Sam Pickard 94,215
------
APPLIED RETAIL SOLUTIONS, INC.
a Delaware corporation
SVI HOLDINGS, INC. formerly, Applied Retail Solutions, Inc.
a Nevada corporation a California corporation
By: /S/ Barry M. Schechter By: /s/ Sam Pickard
--------------------------- -------------------------------
Name: Barry M. Schechter Name: Sam Pickard
------------------------- -----------------------------
Its: Chief Executive Officer Its: President
------------------------- ----------------------------
<PAGE>
SECOND AMENDMENT TO AGREEMENT AND
PLAN OF REORGANIZATION
Sam Pickard
/s/ Sam Pickard
-----------------------------------------
Janet Lahodny, as successor in title and
interest of Larry Lahodny
/s/ Janet Lahodny
-----------------------------------------
Exhibit 21
Subsidiaries of SVI Holdings, Inc.
Subsidiary State or County of Incorporation
- ---------- --------------------------------
Sabica Ventures, Inc. California
SVI Training Products, Inc. California
Anniston Ventures Ltd. United Kingdom
Applied Retail Solutions California
Divergent Technologies Pty. Ltd. Australia
Triple-S Computers Pty. Ltd. South Africa
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 13,006,153
<SECURITIES> 0
<RECEIVABLES> 3,684,693
<ALLOWANCES> 374,685
<INVENTORY> 238,314
<CURRENT-ASSETS> 33,341,071
<PP&E> 1,953,728
<DEPRECIATION> 1,219,342
<TOTAL-ASSETS> 55,278,884
<CURRENT-LIABILITIES> 5,061,407
<BONDS> 0
0
0
<COMMON> 2,987
<OTHER-SE> 47,409,057
<TOTAL-LIABILITY-AND-EQUITY> 55,278,884
<SALES> 17,486,670
<TOTAL-REVENUES> 17,486,670
<CGS> 5,347,376
<TOTAL-COSTS> 5,347,376
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,467
<INCOME-PRETAX> 3,368,623
<INCOME-TAX> 1,670,966
<INCOME-CONTINUING> 1,697,657
<DISCONTINUED> 3,887,487
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,585,144
<EPS-BASIC> 0.20
<EPS-DILUTED> 0.17
</TABLE>
