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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K/A
                                (AMENDMENT NO. 2)

         [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

                    FOR THE FISCAL YEAR ENDED MARCH 31, 2002
                                              --------------

         [ ]      TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

             FOR THE TRANSITION PERIOD FROM _________ TO _________.

Commission file number 0-23049
                       -------

                               SVI SOLUTIONS, INC.
                               -------------------
             (Exact Name of Registrant as specified in its charter)


                DELAWARE                               33-0896617
---------------------------------------- ---------------------------------------
     (State or other jurisdiction of     (I.R.S. Employer Identification Number)
     incorporation or organization)

      5607 PALMER WAY, CARLSBAD, CA                       92008
---------------------------------------- ---------------------------------------
(Address of principal executive offices)               (Zip Code)

Registrant's telephone number, including area code:  (877) 784-7978
                                                     --------------

Securities registered pursuant to Section 12(b) of the Act:

      Title of each class              Name of each exchange on which registered
Common Stock, $0.0001 par value                 American Stock Exchange
-------------------------------                 -----------------------

Securities registered under Section 12(g) of the Act

Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not 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-K or any amendment to this Form 10-K. [ ]

The aggregate market value of the voting stock (Common Stock) held by
non-affiliates* as of June 28, 2002 was approximately $6.1 million, based on the
closing sale price on the American Stock Exchange on that date.

The number of shares outstanding of the registrant's Common Stock was 28,454,441
on June 28, 2002.

------------------
* Excludes the Common Stock beneficially held by executive officers, directors
and stockholders whose beneficial ownership exceeds 10% of the Common Stock
outstanding at June 28, 2002.

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PART I

     THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS. THESE STATEMENTS RELATE TO
FUTURE EVENTS OR FUTURE FINANCIAL PERFORMANCE OF THE REGISTRANT, SVI SOLUTIONS,
INC. ("WE" OR "US"). IN SOME CASES, YOU CAN IDENTIFY FORWARD-LOOKING STATEMENTS
BY TERMINOLOGY SUCH AS THE WORDS MAY, WILL, SHOULD, EXPECT, PLAN, ANTICIPATE,
BELIEVE, ESTIMATE, PREDICT, POTENTIAL OR CONTINUE, OR THE NEGATIVES OF SUCH
WORDS OR OTHER COMPARABLE TERMINOLOGY. THESE STATEMENTS ARE ONLY PREDICTIONS.
ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. IMPORTANT FACTORS THAT MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS ARE
DESCRIBED IN THE SECTION ENTITLED "BUSINESS RISKS" IN ITEM 7 IN THIS REPORT, AND
OTHER RISKS IDENTIFIED FROM TIME TO TIME IN OUR FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION, PRESS RELEASES AND OTHER COMMUNICATIONS.

     ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING
STATEMENTS ARE REASONABLE, WE CANNOT GUARANTEE FUTURE RESULTS, LEVELS OF
ACTIVITY, PERFORMANCE OR ACHIEVEMENTS. WE ARE UNDER NO OBLIGATION TO UPDATE ANY
OF THE FORWARD-LOOKING STATEMENTS AFTER THE FILING OF THIS REPORT TO CONFORM
SUCH STATEMENTS TO ACTUAL RESULTS OR TO CHANGES IN OUR EXPECTATIONS.

ITEM 1. DESCRIPTION OF BUSINESS

INTRODUCTION

     We are an independent provider of multi-channel application software
technology and associated services for the retail industry including enterprise,
direct-to-consumer and store solutions and related training products and
professional and support services. Our applications and services represent a
full suite of offerings that provide retailers with a complete end-to-end
business solution. We also develop and distribute PC courseware and skills
assessment products for both desktop and retail applications.

     Our offerings consist of the following components:

     The ISLAND PACIFIC MERCHANDISE MANAGEMENT suite of applications builds on
our long history in retail software design and development and provides our
customers with a comprehensive and fully integrated merchandise management
solution. Our complete enterprise-level offering of applications and services is
designed to assist our customers in maximizing their business potential. The
foundation of our application suite is the individual modules that comprise the
offering. The core modules are:

     o        Merchandising;
     o        The Eye(TM), datamart, planning and reporting tool;
     o        Trends, forecasting and dynamic replenishment tool;
     o        Events;
     o        Warehouse;
     o        Ticketing;
     o        Financials; and
     o        Sales Audit.

     The ISLAND PACIFIC DIRECT SOLUTION supports Web-based and traditional mail
order and catalog retailing. Direct allows our customers to offer multi-channel
merchandise management within one integrated application tool set to manage
order entry, order processing, customer service, purchasing, inventory planning
and forecasting, fulfillment and shipping. The core modules are:

     o        Call Center;
     o        Customer Relationship Management (CRM);
     o        Planning and Forecasting; and
     o        Fulfillment.
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     The SVI STORE SOLUTION suite of applications builds on our long history of
providing multi-platform, client server in-store solutions. We market this set
of applications under the name "OnePointe," which is a full business to consumer
software infrastructure encompassing a range of integrated store solutions.
OnePointe is a complete application providing all point-of-sale ("POS") and
in-store processor (server) functions for traditional "brick and mortar" retail
operations.

     Our PROFESSIONAL SERVICES provide our customers with expert retail business
consulting, project management, implementation, application training, technical
and documentation services. This offering ensures that our customers' technology
selection and implementation projects are planned and implemented timely and
effectively. We also provide development services to customize our applications
to meet specific requirements of our customers and ongoing support and
maintenance services.

     We market our applications and services through an experienced professional
direct sales force in the United States and the United Kingdom. We believe our
knowledge of the complete needs of multi-channel retailers enables us to help
our customers identify the optimal systems for their particular businesses. The
customer relationships we develop build recurring support, maintenance and
professional service revenues and position us to continuously recommend changes
and upgrades to existing systems.

     We also develop and distribute retail system training products and general
computer courseware and computer skills testing products through our SVI
Training Products, Inc. subsidiary.

     Our executive offices are located at 5607 Palmer Way, Carlsbad, California
92008, telephone number (877) 784-7978.

RECENT DEVELOPMENTS

     In October 2001, we completed an analysis of our operations and concluded
that it was necessary to restructure the composition of our management and
personnel. We were concerned that the new management team appointed during the
fourth quarter of fiscal 2001 had not been able to close a number of new
business opportunities or to raise capital. We were also concerned with general
economic conditions, especially after the terrorist attacks of September 11,
2001, and the resulting ongoing hostilities in the world. Our CEO, Thomas A.
Dorosewicz, and our CFO, Kevin M. O'Neill, elected to leave to pursue other
interests, and both resigned from our board of directors. We appointed Barry M.
Schechter, our Chairman, as Chief Executive Officer, and Jackie Tran, our
Controller, as acting Chief Financial Officer. We also reduced our staff by a
total of 20%, and restructured and refocused our sales force toward
opportunities available in the current economic climate.

     As of April 1, 2002, we have refocused the company into three strategic
business units each lead by experienced managers. The units are Island Pacific,
SVI Store Solutions, and SVI Training Products, Inc.

     In May 2002, we completed an integrated series of transactions with
Softline Limited to repay our subordinated note to Softline, to transfer to
Softline our note received in connection with the sale of IBIS Systems Limited,
and to issue to Softline new preferred securities. Softline also returned to us
10,700,000 shares of our common stock. Steven Cohen, Softline's Chief Operating
Officer, and Gerald Rubenstein, a director of Softline, resigned from our board
of directors in May 2002. Ivan Epstein, Softline's Chief Executive Officer,
continues to serve on our board, and in June 2002, Robert P. Wilkie, Softline's
Chief Financial Officer, was appointed to our board of directors. For a further
discussion of the terms of transactions with Softline during the 2002 fiscal
year, see "Management's Discussion and Analysis of Financial Condition and
Results of Operation" under the heading "Financing Transactions -- Softline."

     Due to the declining performance of our Australian subsidiary, the
subsidiary ceased operations in February 2002. For further details, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" under the heading "Liquidity and Capital Resources -- Contractual
Obligations -- National Australia Bank" below.

     In May 2002, we entered into a new two-year software development and
services agreement with our largest customer, Toys "R" Us, Inc. Toys also agreed
to invest $1.3 million for the purchase of a non-recourse convertible note and a
warrant to purchase 2,500,000 common shares. For a further details, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" under the heading "Liquidity and Capital Resources -- Financing
Transactions -- Toys "R" Us" below.

     We issued a total of $1.25 million in convertible notes to a limited number
of accredited investors related to ICM Asset Management, Inc. of Spokane,
Washington, a significant beneficial owner of our common stock. We amended these
notes to extend the maturity date and other provisions, and we replaced warrants
issued to these investors in July 2002. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" under the heading
"Financing Transactions -- ICM Asset Management, Inc." below.

     We negotiated an extension of our senior bank lending facility to August
31, 2003. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" under the heading "Liquidity and Capital Resources -
Contractual Obligations -- Union Bank" below.

                                       2
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INDUSTRY OVERVIEW - RETAIL APPLICATION SOFTWARE

     The rapid development of the retail application software market has
increasingly allowed the retail industry to track, analyze and implement its
information on a virtually real-time basis. Modern applications and technology
capture sales information as a sale occurs and quickly provide that information
to the enterprise's retail management system. This information is available
daily both to local management and to the retailer's headquarters functions for
purposes of inventory tracking and sales analysis. These systems have become
increasingly important for multi-channel retail enterprises that need to
disseminate sales information throughout the enterprise to better manage
inventory, costs, pricing and manufacturing requirements. Multi-channel
retailers also require sophisticated, integrated point-of-sale retail management
systems that can reliably and efficiently capture and manage large numbers of
individual transactions generated from diversified points of sale.

     Retail software applications were initially custom-designed to satisfy
business needs of individual retailers. These initial applications were
proprietary, with software and support services developed either internally or
provided by a single supplier. Due to the custom nature of the applications,
little opportunity existed for suppliers to leverage their niche success into
market-wide success. In addition, custom solutions, whether internally developed
by the retailer or offered by external suppliers, often did not provide a
long-term return on investment (ROI). However, standard, scalable, extensible
applications that are provided by suppliers such as us, offer both near- and
long-term ROI, as these solutions are continuously developed and evolve over
time. Outside suppliers such as us, with our single version philosophy and
built-in upgrade path to the future, provide the retailer with a solution that
continues to provide a consistent return on its application investment.

     The retail application-specific software 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 individual retail
enterprise. Correspondingly, application software suppliers can leverage their
investment in design, development and expertise across standard platforms and
multiple customers. When scalable technology is included in the offering, the
result is a growing market for retail applications that includes smaller as well
as larger retailers.

     The retail industry we serve is currently experiencing significant
structural changes. These changes are driven by a variety of factors including
evolving consumer preferences, technological advances, globalization and more
intense competition. The rapid growth of the Internet as a means of commerce is
affecting the retail industry. The Internet is a business-to-consumer (B2C)
sales channel and a means of creating and managing customer relationships. The
Internet is also transforming business-to-business (B2B) supply chain
communications and management. These changes have forced traditional "brick and
mortar" retailers to re-evaluate their business models and to also develop
e-commerce strategies in order to maximize their competitive position. We
believe the industry changes and trends include:

     o    MULTI-CHANNEL RETAILING. Retailers of all types are changing their
          business models to service their customers using multiple channels of
          distribution, including traditional brick and mortar stores, the Web,
          catalog, and mail order methods. In addition, manufacturers can now
          directly market their merchandise more efficiently and compete with
          the retailers who were formerly their partners.

     o    PRESSURE ON PROFIT MARGINS. The wide availability and accessibility of
          competitive price quotes on the Internet and intense competition from
          other retailers places price pressure on both online retailers and
          brick and mortar retailers, forcing lower profit margins. This
          pressure on margins has forced retailers to focus on maximizing the
          cost structure and profit opportunity across their entire enterprise,
          from the supply chain process, through the enterprise and at the store
          level.

     o    CENTRALIZED FULFILLMENT. The emergence of online retailing has created
          significantly higher demand for centralized on demand, order
          fulfillment solutions.

     o    PRODUCT LEVEL INFORMATION. Because of additional retail channels like
          e-commerce sites, the ability to have a single view of a product
          across all retail channels is critical for the accuracy of inventory
          management and maximizing profit opportunities.

                                       3
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     o    NEED FOR TECHNOLOGY. Traditional retailers have historically been
          relatively slow to introduce new technologies. Retailers are now
          moving at a faster pace to utilize technology to compete effectively.

     o    WIRELESS APPLICATIONS. There is a growing demand for in-store wireless
          communications based applications, utilizing various handheld and POS
          devices.

     All of these changes are leading to new approaches to retail systems
architecture. These approaches include movement away from traditional
distributed models and toward more centralized control environments with limited
capability in-store devices also known as "thin clients." The thin clients
include point-of-sale devices, kiosks and wireless in-store devices.

     We believe these changes have accelerated the trend away from internally
developed and supported retail application software. The increasingly
competitive and technologically evolving environment has made it very difficult
for companies that use internal, proprietary or prior generation
supplier-provided software to keep up with the rapidly improving products that
are available from external suppliers. At the same time, these changes have put
pressure on outside suppliers such as us to continuously enhance our existing
applications and develop new applications under new technologies on a more rapid
timetable. We further believe that as retailers move forward with the selection
and implementation of applications such as ours, they will increasingly require
expert consulting, system integration, and other technical professional and
support services. Further, we see that retailers are increasingly looking to
experts, not generalists, to provide these services.

MISSION AND STRATEGY

     Our mission is to become the leading global provider of retail application
technology and related services using our single version philosophy which offers
our customers a built-in upgrade path to the future. To fulfill our mission, our
strategy is to provide our current and new customers the tools, infrastructure
and expert services necessary for them to compete effectively in the global,
multi-channel marketplace. Key elements of our strategy include:

     o    LEVERAGING OUR RETAIL EXPERIENCE AND PRESENCE IN SELLING TO NEW AND
          EXISTING CUSTOMERS. Over 200 retailers in the US, Canada, Europe,
          South America and Australia use some or all of our solutions. Our
          management, marketing, sales, development, quality assurance,
          professional services and support teams have an in-depth understanding
          of the retail industry through having delivered widely accepted
          products and services for more than 25 years. We believe our single
          version philosophy, the sophistication and stability of our
          applications, and our experience and presence in the retail industry
          give us a significant competitive advantage in marketing new and
          enhanced applications and services to the industry. Our refocused
          marketing strategy involves an emphasis on our core competencies, the
          high degree of customer satisfaction and loyalty of our existing
          customers and our built-in upgrade path to the future. Our training
          products subsidiary has also focused development and marketing efforts
          on producing training products for our retail customer base.

     o    EXPANDING AND ENHANCING OUR APPLICATIONS. We are engaged in an
          aggressive application technology development effort to expand and
          enhance our applications for use both domestically in the US and
          internationally. We are also continuing our strategy of offering new
          solutions that are complementary to our applications, primarily
          through strategic alliances. Our application technology enhancement
          program is designed to anticipate trends in the retail industry
          through constant consultation with our customers, strategic alliance
          partners and research analysts. Our goal is to introduce timely new
          applications and enhancements to our existing applications that will
          allow us to better compete for new customers and continued to be
          attractive to our existing customers.

     o    INCREASING FOCUS ON THE SMALLER RETAILER. We recently introduced a new
          standard merchandising management and store solution application set
          based on our large tier retailer experience and application base. We
          can supply this application with little or no modification to smaller
          Tier 2, Tier 3 and Tier 4 retailers at a competitive price point. The
          application set offers these retailers a fast implementation schedule
          and short ROI. We intend to market more aggressively to Tier 3 and
          Tier 4 retailers as part of our strategy to locate and exploit market
          opportunities available to us in the current economic climate,
          especially those opportunities which are underserved by our larger
          competitors.

                                       4
<PAGE>

     o    EMPHASIZING MULTI-CHANNEL SOLUTIONS. An important part of our
          application technology enhancement program is the integration of
          Web-based, catalog and mail order solutions with our historic suite of
          applications focused on the traditional brick and mortar retail
          business.

     o    GROWING PROFESSIONAL SERVICES. An increasingly important part of our
          solutions are the expert services we provide including retail business
          consulting, project management, implementation, integration, training
          and documentation services. We intend to continue to grow and market
          our Professional Services to support close relationships with our
          customers and to assist them in successful implementation of both our
          application technology and that of our strategic partners. We expect,
          as a result, to receive recurring revenues from our professional
          service agreements, and application customization services. We believe
          that an expansion of this revenue base can create a more stable
          revenue and cash flow base, reducing our reliance on application
          software license sales, which tend to fluctuate over time based on
          economic and other conditions.

     o    GROWING RECURRING REVENUES. Using our single version philosophy and by
          offering our existing and new customers a built-in upgrade path to the
          future, we are able and expect to grow our recurring revenue from our
          maintenance and support agreements. We believe that an expansion of
          this revenue base can create a more stable revenue and cash flow base,
          reducing our reliance on application software license sales, which
          tend to fluctuate over time based on economic and other conditions.

     o    INCREASING INTERNATIONAL SALES. We intend to increase our
          international sales efforts, focusing on the European market. Our
          development efforts with Toys "R" Us, Inc. have added significant
          functionality to our Island Pacific Merchandise Management suite,
          making us even more competitive internationally.

APPLICATION TECHNOLOGY AND SERVICES

     We have three operating business units: Island Pacific, SVI Store Solutions
and SVI Training Products, Inc.

ISLAND PACIFIC

     OVERVIEW

     Island Pacific is a leading provider of application software solutions and
professional services for multi-channel retailers in the specialty, mass
merchandising and department store markets. Our applications and services
provide retailers with a robust enterprise business solution.

     Our Island Pacific applications and services include the following major
offerings:

     o    ISLAND PACIFIC MERCHANDISE MANAGEMENT suite of applications, including
          Merchandising, The Eye(TM) datamart tool set, Trends forecasting and
          dynamic replenishment tools, Events, Warehouse, Ticketing, Financials,
          and Sales Audit.

     o    ISLAND PACIFIC DIRECT, including support for Web-based, mail-order and
          traditional catalog retailing, which can be integrated with our
          Merchandise Management suite or implemented independently.

     o    ISLAND PACIFIC PROFESSIONAL SERVICES, including retail business
          consulting, project management, implementation, application training,
          and technical and documentation services.

     o    ISLAND PACIFIC DEVELOPMENT, MAINTENANCE AND SUPPORT SERVICES,
          including custom application development to tailor our software to
          meet the specific needs of our customers, and Maintenance and Support
          Services whereby we offer Help Desk, product release upgrades and
          error correction services to our customer base using our applications.

                                       5

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     Our application technology and services provide the following benefits to
our customers:

     MULTI-CHANNEL RETAILING. Our solutions integrate the various storefronts of
retailers, from point-of-sale devices to Web-based storefronts to mail order
catalogs.

     INTEGRATION. Our solutions are fully integrated applications that address
the complete information and management requirements of the retail enterprise.
In addition, our applications are designed for ease of implementation and
operation. This means that our customers can quickly install, train and become
operational with our products, thus minimizing the cost and time required to
achieve true return on their investment. All of our applications are open
systems, allowing integration with many third-party applications used by our
customers.

     SERVICES. We are able to provide expert, retail-savvy professional services
to plan and implement our application solutions with our customers. We also
customize our solutions to the unique needs of particular retailers. In
addition, our standard applications contain a number of tools and features that
allow our customers to tailor their systems continuously to their changing
needs.

     MARKETS AND CUSTOMERS

     Island Pacific software is installed in over 200 retailers worldwide. Our
applications are used by the full spectrum of retailers including specialty
goods sellers, mass merchants and department stores. Most of our U.S. customers
are in the Tier 1 to Tier 3 retail market sectors.

     A sample of some of our active customers are listed below:
<TABLE>
<CAPTION>

     <S>                    <C>               <C>                            <C>
     Nike                   Limited Brands    American Eagle Outfitters      Disney
     Phillips-Van Heusen    Signet (UK)       Shoefayre (UK)                 Pacific Sunwear
     Toys "R" Us            Timberland        Vodaphone (UK)                 Academy Sports
</TABLE>

     MARKETING AND SALES

     We sell our applications and services primarily through a direct sales
force that operates in the United States and the United Kingdom. Sales efforts
involve comprehensive consultations with current and potential customers prior
to completion of the sales process. Our Sales Executives, Retail Application
Consultants (who operate as part of the sales force) and Marketing and
Technology Management associates use their collective knowledge of the needs of
multi-channel retailers to help our customers identify the optimal solutions for
their individual businesses.

     We maintain a comprehensive web site describing our applications, services
and company. We regularly engage in cooperative marketing programs with our
strategic alliance partners. We annually host a Users Conference in which
hundreds of our customers attend to network and to share experiences and ideas
regarding their business practices and implementation of our, and our partners'
technology. This Users Conference also provides us with the opportunity to meet
with many of our customers on a concentrated basis to provide training and
insight into new developments and to gather valuable market requirements
information.

     We are aggressively focusing on our Product Marketing and Product
Management functions to better understand the needs of our markets in advance of
required implementation, and to translate those needs into new applications,
enhancements to existing applications and related services. These functions are
also responsible for managing the process of market need identification through
product or service launch and deployment. It is the goal of these functions to
position Island Pacific optimally with customers and prospects in our target
market.

     We have established a Product Direction Council, comprised of leading
executives from our customers. The purpose of this Council is to help guide us
in the future development of our applications and services, to maximize our
opportunity to meet overall retail market trends and needs for a broad sector of
the industry, and to do so well in advance of our competitors.

                                       6
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     DESCRIPTION OF APPLICATIONS AND SERVICES

     We have carefully assembled our Island Pacific Applications such that the
modules work together as a single solution. Our customers can mix and match the
modules to create a solution tailored to their businesses. We also offer
comprehensive professional services, custom development, maintenance and support
services.

     ISLAND PACIFIC ENTERPRISE SOLUTION

     Island Pacific's Enterprise Solution application suite provides a
methodology for retail chains that integrates the flow of data from the planning
phase, through budgeting, to purchasing, allocation and distribution. The
application then takes retail sales data for evaluation and feedback to the
sales audit and planning phase. This suite of applications operates on the IBM
iSeries computing platform, which is widely installed and extremely popular in
the retail industry. The diagram below provides a graphic representation of the
Island Pacific applications suite, including the integration of the optional
Direct and Store Solutions applications.




                [Island Pacific Applications Suite Graphic Here]






     MERCHANDISING. The Merchandising module is the core of the Island Pacific
Enterprise Solution application suite. This extensive module includes management
planning and real time open to buy, forecasting, purchase order management,
merchandise receiving, allocation, transfers, basic stock replenishment,
physical inventory, price management and merchandise stock ledger. Merchandising
has multiple language and currency capabilities for international operations.

     Merchandising is offered as a single version application. Most
modifications we perform on the application are incorporated into future
releases of the base. This methodology reduces implementation risks for our
customers, shortens the implementation cycle and reduces software bugs. It also
reduces training requirements. Moreover, customers who continue to use our
services for maintenance of the application are able to take advantage of
improvements requested by other retailers. Finally, it gives us the ability to
present a very stable application and support it with smaller focused
infrastructure.

                                       7
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     THE EYE(TM) (DATAMART). The Eye complements the Merchandising application
by offering user-definable datamarts and information retrieval. The Eye uses
innovative storage techniques that provide quick access to data and graphical
drag-and-drop movement of elements and data. The Eye can also be used for data
generated by applications outside the Island Pacific Enterprise Solution suite.

     FINANCIALS. Financials includes accounts payable with automatic invoice
matching, general ledger and fixed assets functions.

     WAREHOUSE. Warehouse is a user-definable locator application for
controlling the physical flow of merchandise. Warehouse employs a number of
special features designed for retailers. Warehouse also includes support for
radio frequency (RF) technology to allow for access to the application from the
warehouse floor using a range of wireless devices.

     EVENTS. The Events module plans and analyzes the performance of events and
promotions. The module is linked to The Eye datamart application to provide
sophisticated and customizable implementation of an event or promotion and
analysis and reports of its success.

     Island Pacific Enterprise Solution Suite also includes sales audit,
forecast and dynamic replenishment and merchandise ticketing modules.

     ISLAND PACIFIC DIRECT SOLUTION

     Our Direct application suite provides fully integrated tools including
order entry, order processing, customer service, purchasing, inventory planning
and forecasting, warehouse management, fulfillment and shipping, as well as
marketing and circulation management to support Internet, catalog and mail-order
retailing. We support these tools using our single version development
philosophy, offering constant evolution and improvement to features and
functions. Used in combination with our Island Pacific Merchandise Management
suite of applications, Island Pacific Direct provides a system to fully
integrate the fulfillment functions of multiple distribution channels, including
local outlets, e-commerce and catalog and mail order.

     PROFESSIONAL SERVICES

     We offer a variety of consulting implementation and upgrade services to our
customers. We perform services on an as needed basis and as part of project
plans. We typically render services at the customer's site to provide the best
overall understanding of the customer's environment and business.

     RETAIL BUSINESS CONSULTING. We employ a staff of highly qualified,
experienced retailers who provide a variety of business consulting services. Our
consulting staff members have an average of over ten years experience in the
retail industry as buyers, merchandise planners, store managers, IT managers,
and retail business owners. They combine their retail experience with their
knowledge of the SVI application solutions to offer advice on how best to
integrate our solutions into the latest retail practices for a cost-effective,
smooth implementation of change within an organization.

<TABLE>
<CAPTION>

     Our RETAIL CONSULTANTS assist with:

     <S>                                                 <C>
     o   requirements definitions;                       o   business process review;
     o   work process re-engineering;                    o   understanding of business benefits; and
     o   organizational change management;               o   job definition and staffing requirements.

     PROJECT MANAGEMENT.  Our experienced project management teams assist with:

     o   work product definition;                        o   coordination with suppliers;
     o   business and technical coordination;            o   project assessment documentation;
     o   application testing and conference room pilots; o   system integration; and
     o   overall implementation planning;                o   project timelines.
</TABLE>

                                       8

<PAGE>

     APPLICATION TRAINING. We train the customer's internal training staff and
we offer training for the customer's end users. Through our SVI Training
Products subsidiary, we also offer certain software-training modules for our
solutions.

     IMPLEMENTATION SERVICES. Our technical experts provide implementation
consulting and programming services. Implementation services include:

<TABLE>
<CAPTION>

     <S>                              <C>                               <C>
     o    interface and conversion    o   design, modification and
          between systems;                customization;                o   programming; and
     o    testing;                    o   problem resolution;           o   system management.
                                      o   upgrade  planning, testing
     o    software installation;          and implementation;

</TABLE>

     DOCUMENTATION SERVICES. We provide customized documentation for all
elements of our solutions.

SVI STORE SOLUTIONS

     SVI Store Solutions offers retailers a complete application providing
point-of-sale and in-store processor (server) functions through its OnePointe
application. OnePointe is a full business-to-consumer (B2C) integrated, in-store
application, encompassing a range of integrated store solutions. It can also
incorporate a third-party provided retail customer relationship management
system and a complete performance measurement system with loss prevention
features. The major benefits of OnePointe to a retailer are as follows:

     o    OnePointe is POS hardware platform independent, functioning on IBM,
          NCR, Fujitsu, Wincorp or PC-CD platforms.

     o    Thick or thin client versions of the product are available, allowing
          retailers to have software continuity as hardware platforms evolve.

     o    OnePointe's functionality reflects over 15 years of customized
          development for a wide variety of large and medium retailers.

     o    OnePointe offers multi-channel applications and hardware. Kiosk and
          web applications allow retailers to access their customers via several
          channels.

     o    OnePointe uses Internet protocol data transfer for peer to peer
          communications.

     o    OnePointe includes advanced development toolset, including TAG, a
          customer useable development environment.

     o    OnePointe is offered on a variety of hardware configurations, and is
          able to run on many different operating system platforms. The
          application employs a graphical user interface, optional touch screen
          input and wireless communication support. The application also
          provides an on-demand reference source for employees, including store
          policies, an on-screen calculator, instructions for forms usage,
          package pricing, frequent shopper information, gift cards, training
          mode, auditing features and e-mail. The application is fully
          customizable, either by the customer using included tools, or by our
          technical team as part of our implementation and support services.

     o    OnePointe provides a reliable, high-performance management platform to
          administer store applications. The architecture is designed to
          maintain data integrity while allowing full integration with our
          Island Pacific suite or third-party enterprise software products used
          by the individual customer.

                                       9

<PAGE>

SVI TRAINING PRODUCTS, INC.

     Our training products subsidiary develops and distributes PC courseware and
skills assessment products. The courseware is designed for use in instructor-led
and self-study training environments. We sell courseware either as individual
manuals and instructor guides, or on a limited site license basis. We have
developed more than 210 training courses for desktop and retail applications.

     Site licensing allows a customer to print an unlimited number of course
manuals for a fixed annual fee, and renewals provide us with a recurring annual
revenue stream. In excess of 80% of the annual training site licenses are
renewed. We provide the site-licensed courseware on the Internet through our
website, or on CD-ROM, allowing customization of the instructor-led course
materials.

     We use a network of specialized consultants to develop courseware products.
We hire consultants on a project basis. This allows for the fast, simultaneous
development of multiple courses and gives us access to diverse skills without
fixed overhead commitments.

     We market training products through a direct sales force. We also advertise
and sell the training product range through the Internet, direct mail and trade
shows. SVI Training Products uses both in-house and independent representatives,
and has representation in California, Texas, Indiana, Florida, New Jersey,
Ireland, the United Kingdom and South Africa. Customers include Fortune 1000
corporations, K-12 school districts, universities, military facilities,
government agencies and training schools.

     Our training subsidiary is also a reseller of multimedia and hardcopy
self-study materials for desktop and technical computer software applications.
In addition, we resell on-line training products.

     We also market the "compAssess On-Line" skills testing administration
system and test center. compAssess On-Line is a multi-faceted software product
that consists of three main applications. It includes a comprehensive
administration system for registering students, assigning tests and monitoring
results, a built-in collection of more than 1,500 performance based software
test questions, and a facility to develop multiple-choice, true/false, hotspot
and simulated questions on any subject regardless of the discipline. The
compAssess built-in questions enable employers to evaluate the computer skills
of their employees and provides assistance in selecting the appropriate course
modules for trainees. We market this package to personnel agencies,
universities, schools, training companies and corporations.

     Our training subsidiary also provides courseware for our Store Solutions
Group. The courseware is designed to provide in store training to all levels of
store personnel from management to POS data entry clerks. We also provide custom
courseware development services to support additional retail applications.

APPLICATION TECHNOLOGY DEVELOPMENT

     We believe it is imperative to our long-term success that we maintain
aggressive application technology development programs to improve our existing
applications and to develop new applications. We believe that the core
functionality that already exists in our technology will continue to serve many
of the important retailing functions, but that additional functionality and
flexibility will be required in the constantly challenging, competitive
environment.

     Our future performance will depend in large part on our ability to enhance
our current application technology and develop new applications. In order to
achieve market acceptance, these new applications must anticipate and respond to
the latest trends in business-to-consumer and business-to-business commerce. Our
applications must also offer clearly perceived advantages over the offerings of
our competitors.

     As of July 29, 2002, 40% of our employees were engaged in application
technology development. Most of these employees are located in our southern
California offices. Company-sponsored application technology development
expenses were $4.1 million, $6.6 million and $6.7 million , respectively, for
the fiscal years 2002, 2001 and 2000. Customer-sponsored application technology
development expenses were $5.5 million, $5.5 million and $1.5 million,
respectively, for the fiscal years 2002, 2001 and 2000.

                                       10

<PAGE>

     OUR CURRENT APPLICATION DEVELOPMENT PROJECTS INCLUDE:

     o    INFOCUS 2.0 OF OUR ISLAND PACIFIC MERCHANDISE MANAGEMENT APPLICATION
          SUITE. This release will offer significant enhancements to our current
          release 1.5, which continues to be deployed by the majority of our
          customers. InFocus 2.0 is expected to be released late in calendar
          year 2002 and to be generally available at the beginning of calendar
          2003.

     o    DEVELOPMENT OF THE ISLAND PACIFIC APPLICATION ARCHITECTURE USING THE
          JAVA PROGRAMMING LANGUAGE. Several of our Java-based applications will
          be able to operate on virtually any hardware platform, and will allow
          for greater centralization of the control system environment. We are
          continuing to redevelop other portions and modules of the solution in
          Java as new features and enhancements are introduced.

     o    INVISION 1.5. InVision 1.5 is our affordable and scaleable, yet
          complete merchandise management system designed to meet the needs of
          the regional retailing entrepreneur. Through the launch of InVision
          1.5, Island Pacific will penetrate the Tier 3 and 4 retail sectors, a
          market that has been typically ignored by the competition due to the
          size of the businesses.

     o    THE CONTINUED IMPROVEMENT OF OUR SINGLE VERSION STORE SOLUTION
          APPLICATION, ONEPOINTE. We introduced this offering in the fourth
          quarter of fiscal 2000, and we are continuing to enhance its features
          and functions.

COMPETITION

     The markets for our application technology and services are highly
competitive, subject to rapid change and sensitive to new product introductions
or enhancements and marketing efforts by industry participants. We expect
competition to increase in the future as open systems architecture becomes more
common and as more companies compete in the emerging electronic commerce market.

     The largest of our competitors offering end-to-end retail solutions is JDA
Software Group, Inc. Other suppliers offer one or more of the components of our
solution. In addition, new competitors may enter our markets and offer
merchandise management systems that target the retail industry. For enterprise
solutions, our competitors include Retek Inc., SAP AG, nsb Retail Systems PLC,
Essentus, Inc., GERS, Inc., Marketmax, Inc., Micro Strategies Incorporated and
NONSTOP Solutions. For SVI Store Solutions, our competitors include Datavantage,
Inc., CRS Business Computers, nsb Retail Systems PLC, Triversity, ICL, NCR and
IBM. Our Direct applications compete with Smith Gardner & Associates, Inc., and
CommercialWare, Inc. Our professional services offerings compete with the
professional service groups of our competitors, major consulting firms
associated or formerly associated with the "Big 5" accounting firms, as well as
locally based service providers in many of the territories in which we do
business. Our strategic partners, including IBM, NCR and Fujitsu, represent
potential competitors as well.

     We believe the principal competitive factors in the retail solutions
industry are price, application features, performance, retail application
expertise, availability of expert professional services, quality, reliability,
reputation, timely introduction of new offerings, effective distribution
networks, customer service, and quality of end-user interface.

     We believe we currently compete favorably with respect to these factors. In
particular, we believe that our competitive advantages include:

     o    Proven, single version technology, reducing implementation costs and
          risks and providing continued forward migration for our customers.
     o    Extensive retail application experience for all elements of the
          customer's business, including Professional Services, Development,
          Customer Support, Sales and Marketing/Technology Management.
     o    Ability to provide expert Professional Services.

                                       11

<PAGE>

     o    Large and loyal customer base.
     o    Hardware platform independent Store Solution (POS) application.
     o    Breadth of our application technology suite including its
          multi-channel retailing capabilities.
     o    Our corporate culture focusing on the customer.

     Many of our current and potential competitors are more established, benefit
from greater name recognition, have greater financial, technical, production
and/or marketing resources, and have larger distribution networks, any or all of
which advantages could give them a competitive advantage over us. Moreover, our
current financial condition has placed us at a competitive disadvantage to many
of our larger competitors, as we are required to provide assurance to customers
that we have the financial ability to support the products we sell. We believe
strongly that we provide and will continue to provide excellent support to our
customers, as demonstrated by the continuing upgrade purchases by our top-tier
established customer base.

     Our training products 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. Many existing and potential
competitors have greater financial, technical, production and/or marketing
resources than we have. Our training subsidiary competes on the basis of its
existing breadth of products, timely introduction of new products and value
pricing. We believe that these factors give us an advantage over many of our
competitors. We further believe that larger competitors will find it difficult
to compete with us on the basis of price due to their higher development costs
and larger overhead structures.

PROPRIETARY RIGHTS

     Our success and ability to compete depend in part on our ability to develop
and maintain the proprietary aspects of our technologies. We rely on a
combination of copyright, trade secret and trademark laws, and nondisclosure and
other contractual provisions, to protect our various proprietary applications
and technologies. We seek to protect our source code, documentation and other
written materials under copyright and trade secret laws. We license our software
under license agreements that impose restrictions on the ability of the customer
to use and copy the software. These safeguards may not prevent competitors from
imitating our applications and services or from independently developing
competing applications and services, especially in foreign countries where legal
protections of intellectual property may not be as strong or consistent as in
the United States.

     We hold no patents. Consequently, others may develop, market and sell
applications substantially equivalent to our applications, or utilize
technologies similar to those used by us, so long as they do not directly copy
our applications or otherwise infringe our intellectual property rights.

     We integrate widely-available platform technology from third parties for
certain of our applications. These third-party licenses generally require us to
pay royalties and fulfill confidentiality obligations. Any termination of, or
significant disruption in, our ability to license these products could cause
delays in the releases of our software until equivalent technology can be
obtained and integrated into our applications. These delays, if they occur,
could have a material adverse effect on our business, operating results and
financial condition.

     Intellectual property rights are often the subject of large-scale
litigation in the software and Internet industries. We may find it necessary to
bring claims or litigation against third parties for infringement of our
proprietary rights or to protect our trade secrets. These actions would likely
be costly and divert management resources. These actions could also result in
counterclaims challenging the validity of our proprietary rights or alleging
infringement on our part. We cannot guarantee the success of any litigation we
might bring to protect our proprietary rights.

     Although we believe that our application technology does not infringe on
any third-party's patents or proprietary rights, we cannot be certain that we
will not become involved in litigation involving patents or proprietary rights.
Patent and proprietary rights litigation entails substantial legal and other
costs, and we do not know if we will have the necessary financial resources to
defend or prosecute our rights in connection with any such litigation.
Responding to, defending or bringing claims related to our intellectual property


                                       12
<PAGE>

rights may require our management to redirect our human and monetary resources
to address these claims. In addition, these actions could cause delivery delays
or require us to enter into royalty or license agreements. Royalty or license
agreements, if required, may not be available on terms acceptable to us, if they
are available at all. Any or all of these outcomes could have a material adverse
effect on our business, operating results and financial condition.

EMPLOYEES

     At July 29, 2002, we had a total of 168 employees, 153 of which were based
in the United States and 15 of which were based in the United Kingdom. Of the
total, 14% were engaged in sales and marketing, 40% were engaged in application
technology development projects, 29% were engaged in professional services, and
17% were in general and administrative. We believe our relations with our
employees are good. We have never had a work stoppage and none of our employees
are subject to a collective bargaining agreement.


ITEM 2.  DESCRIPTION OF PROPERTY

     Our principal corporate headquarters consists of 13,003 square feet in a
building located at 5607 Palmer Way, Carlsbad, California. The lease for this
facility is currently being negotiated. The current monthly rent is $13,680. Our
primary operational office is in Irvine, California, where we occupy 26,521
square feet in a building located at 19800 MacArthur Blvd. This facility is
occupied under a lease that expires on June 30, 2005. The current monthly rent
is $55,620. We also occupy premises in the United Kingdom located at The Old
Building, Mill House Lane, Wendens Ambo, Essex, England. The lease for this
office building expires August 31, 2003. Annual rent is $43,646 (payable
quarterly) plus common area maintenance charges and real estate taxes.


ITEM 3. LEGAL PROCEEDINGS

     In April of 2002 our former CEO, Thomas A. Dorosewicz, filed a demand with
the California Labor Commissioner for $256,250 in severance benefits allegedly
due under a disputed employment agreement, plus attorney's fees and costs. On
June 18, 2002, we filed an action against Mr. Dorosewicz and an entity
affiliated with him in San Diego Superior Court, Case No. GIC790833, alleging
fraud and other causes of action relating to transactions Mr. Dorosewicz caused
us to enter into with his affiliates and related parties without proper board
approval. We expect one or more cross-claims from Mr. Dorosewicz in that action.
We do not believe we have any obligation to pay the severance benefits alleged
by Mr. Dorosewicz to be due, and we intend to vigorously pursue our causes of
action against Mr. Dorosewicz. We cannot at this time predict what will be the
outcome of these matters, as discovery has not yet commenced in either action.

     Due to the declining performance of our Australian subsidiary, we decided
in the third quarter of fiscal 2002 to sell certain assets of our Australian
subsidiary to the former management of such subsidiary, and then cease
Australian operations. Such sale was however subject to the approval of National
Australia Bank, the subsidiary's secured lender. The bank did not approve the
sale and the subsidiary ceased operations in February 2002. The bank caused a
receiver to be appointed in February 2002 to sell substantially all of the
assets of the Australian subsidiary and pursue collections on any outstanding
receivables. The receiver proceeded to sell substantially all of the assets for
$300,000 in May 2002 to the entity affiliated with former management, and is
actively pursuing the collection of receivables. If the sale proceeds plus
collections on receivables are insufficient to discharge the indebtedness to
National Australia Bank, we may be called upon to pay the deficiency under our
guarantee to the bank. We have accrued $187,000 as the maximum amount of our
potential exposure. The receiver has also claimed that we are obligated to it
for inter-company balances of $636,000, but we do not believe any amounts are
owed to the receiver, who has not as of the date of this report acknowledged the
monthly corporate overhead recovery fees and other amounts charged by us to the
Australian subsidiary offsetting the amount claimed to be due.

                                       13

<PAGE>

     Except as set forth above, we are not involved in any material legal
proceedings, other than ordinary routine litigation proceedings incidental to
our business, none of which are expected to have a material adverse effect on
our financial position or results of operations. However, litigation is subject
to inherent uncertainties, and an adverse result in existing or other matters
may arise from time to time which may harm our business.


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

     Our common stock is listed on the American Stock Exchange under the symbol
"SVI" and has traded on that exchange since July 8, 1998. The following table
indicates the high and low sales prices for our shares for each quarterly period
for each of our two most recent fiscal years.

YEAR ENDED MARCH 31, 2002                             HIGH              LOW
First Quarter                                       $  1.600         $  0.650
Second Quarter                                      $  1.040         $  0.690
Third Quarter                                       $  1.010         $  0.670
Fourth Quarter                                      $  0.920         $  0.580

YEAR ENDED MARCH 31, 2001                             HIGH              LOW
First Quarter                                       $ 10.250         $  5.125
Second Quarter                                      $  7.063         $  4.760
Third Quarter                                       $  5.000         $  0.950
Fourth Quarter                                      $  2.700         $  0.910

     We have never declared any dividends. Our agreement with Union Bank
prohibits us from paying dividends while the term loan from Union Bank is
outstanding. We are also required to pay dividends on our Series A Convertible
Preferred Stock in preference and priority to dividends on our common stock. We
currently intend to retain any future earnings to discharge indebtedness and
finance the growth and development of the business. We therefore do not
anticipate paying any cash dividends in the foreseeable future. Any future
determination to pay cash dividends when we are permitted to do so will be at
the discretion of the board of directors and will be dependent upon the future
financial condition, results of operations, capital requirements, general
business conditions and other factors that the board of directors may deem
relevant.

     As of June 28, 2002 there were 28,454,441 shares of our common stock
outstanding, which were held by approximately 128 stockholders of record.

     During the quarter ended March 31, 2002, we issued the following securities
without registration under the Securities Act of 1933

     o    45,133 shares of common stock to outside service providers for payment
          of services rendered in previous periods, valued at $36,000.

     o    In conjunction with the Softline transactions described below under
          "Management's Discussion and Analysis of Financial Condition and
          Results of Operation -- Financing Transactions -- Softline," we issued
          to Softline an aggregate of 141,000 shares of newly-designated Series
          A Convertible Preferred Stock at a deemed purchase price of $100 per
          share in exchange for 10,700,000 SVI common shares held by Softline
          and the discharge of a $12.3 million note payable to Softline. We also
          transferred to Softline our note received in connection with the sale
          of IBIS Systems Limited.

     The foregoing securities were offered and sold without registration under
the Securities Act to sophisticated investors who had access to all information
which would have been in a registration statement, in reliance upon the
exemption provided by Section 4(2) under the Securities Act and Regulation D
thereunder, and an appropriate legend was placed on the shares.

     Information concerning securities authorized for issuance under our equity
compensation plans is included below under the heading "Security Ownership of
Certain Beneficial Owners and Management."

                                       14
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

     The following selected financial data should be read in conjunction with
our consolidated financial statements and related notes and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
selected consolidated financial data presented below under the captions
"Statement of Operations Data" and "Balance Sheet Data" for, and as of the end
of, each of our last six fiscal years (including the six months ended March 31,
1998) are derived from our consolidated financial statements. The consolidated
financial statements as of March 31, 2002, 2001, and 2000 and the independent
auditors' report thereon, are included elsewhere in this report.
<TABLE>
<CAPTION>
                                                                                                           SIX MONTHS
                                                                                                              ENDED     YEAR ENDED
                                                             YEAR ENDED MARCH 31,                           MARCH 31,  SEPTEMBER 30,
                                                    ---------------------------------------------------     ---------    ---------
                                                       2002          2001         2000          1999          1998         1997
                                                    ---------     ---------     ---------     ---------     ---------    ---------
                                                                   (in thousands except for per share data)
<S>                                                 <C>           <C>           <C>           <C>           <C>           <C>
STATEMENT OF OPERATIONS DATA:
Net sales                                           $ 27,109      $ 27,713      $ 26,652      $  5,010      $    414      $    800
Cost of sales                                         10,036         9,188         6,421         1,401            37            66
                                                    ---------     ---------     ---------     ---------     ---------     ---------
   Gross profit                                       17,073        18,525        20,231         3,609           377           734

Expenses:
   Application development                             4,203         5,333         4,877
   Depreciation and amortization                       6,723         8,616         7,250         1,672         1,611         1,018
   Selling, general and administrative                13,144        18,037        14,817         4,265           418         1,312
   Impairment of intangible assets                                   6,519
   Impairment of note receivable
      received in connection with the
      sale of IBIS Systems Limited                                   7,647
                                                    ---------     ---------     ---------     ---------     ---------     ---------
      Total expenses                                  24,070        46,152        26,944         5,937         2,029         2,330
                                                    ---------     ---------     ---------     ---------     ---------     ---------

Loss from operations                                  (6,997)      (27,627)       (6,713)       (2,328)       (1,652)       (1,596)

Other income (expense):
   Interest income                                        10           628         1,074           520           274            33
   Other income (expense)                                (46)           63          (206)          828            49           627
   Interest Expense                                   (3,018)       (3,043)       (1,493)           (1)          (35)         (102)
   Gain on disposals of Softline Limited shares                                                                4,388         3,974
   Gain (loss) on foreign currency transaction            (9)            2           (10)          (58)          (14)         (120)
                                                    ---------     ---------     ---------     ---------     ---------     ---------
      Total other income (expense)                    (3,063)       (2,350)         (635)        1,289         4,662         4,412
                                                    ---------     ---------     ---------     ---------     ---------     ---------

Income (loss) before provision (benefit)
   for income taxes                                  (10,060)      (29,977)       (7,348)       (1,039)        3,010         2,816

   Provision (benefit) for income taxes                   39        (4,778)       (2,414)           30           887           190
                                                    ---------     ---------     ---------     ---------     ---------     ---------

Income (loss) from continuing operations             (10,099)      (25,199)       (4,934)       (1,069)        2,123         2,626

Income (loss) from discontinued operations            (4,559)       (3,746)          880         6,654         3,696         2,222
                                                    ---------     ---------     ---------     ---------     ---------     ---------
         Net income (loss)                          $(14,658)     $(28,945)     $ (4,054)     $  5,585      $  5,819      $  4,848
                                                    =========     =========     =========     =========     =========     =========

Basic earnings (loss) per share:
   Income (loss) from continuing operations         $  (0.28)     $  (0.72)     $  (0.15)     $  (0.04)     $   0.08      $   0.19
   Income (loss) from discontinued operations          (0.13)        (0.11)         0.03          0.24          0.13          0.16
                                                    ---------     ---------     ---------     ---------     ---------     ---------
         Net income (loss)                          $  (0.41)     $  (0.83)     $  (0.12)     $   0.20      $   0.21      $   0.35
                                                    =========     =========     =========     =========     =========     =========

Diluted earnings (loss) per share:
   Income (loss) from continuing operations         $  (0.28)     $  (0.72)     $  (0.15)     $  (0.03)     $   0.07      $   0.17
   Income (loss) from discontinued operations          (0.13)        (0.11)         0.03          0.20          0.12          0.14
                                                    ---------     ---------     ---------     ---------     ---------     ---------
         Net income (loss)                          $  (0.41)     $  (0.83)     $  (0.12)     $   0.17      $   0.19      $   0.31
                                                    =========     =========     =========     =========     =========     =========

Weighted average common shares:
   Basic                                              35,698        34,761        32,459        28,600        27,768        13,971
   Diluted                                            35,698        34,761        32,459        33,071        31,046        15,618

BALANCE SHEET DATA:
Working capital                                     $ (5,337)     $ (2,782)     $  2,628      $ 26,387      $  9,763      $    596
Total assets                                        $ 40,005      $ 56,453      $ 94,083      $ 52,374      $ 46,481      $ 19,230
Long-term obligations                               $  8,013      $ 18,554      $ 21,586      $  2,043      $    771      $    545
Stockholders' equity                                $ 21,952      $ 26,993      $ 53,497      $ 45,270      $ 37,075      $ 10,885
</TABLE>

                                                                 15

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

FORWARD-LOOKING STATEMENTS

     THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS. THESE STATEMENTS RELATE TO
FUTURE EVENTS OR OUR FUTURE FINANCIAL PERFORMANCE. IN SOME CASES, YOU CAN
IDENTIFY FORWARD-LOOKING STATEMENTS BY TERMINOLOGY SUCH AS THE WORDS MAY, WILL,
SHOULD, EXPECT, PLAN, ANTICIPATE, BELIEVE, ESTIMATE, PREDICT, POTENTIAL OR
CONTINUE, OR THE NEGATIVES OF SUCH WORDS OR OTHER COMPARABLE TERMINOLOGY. THESE
STATEMENTS ARE ONLY PREDICTIONS. ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY.
IMPORTANT FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE
FORWARD-LOOKING STATEMENTS ARE DESCRIBED UNDER THE HEADING "BUSINESS RISKS"
BELOW, AND MAY BE IDENTIFIED FROM TIME TO TIME IN OUR FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION, PRESS RELEASES AND OTHER COMMUNICATIONS.

     ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING
STATEMENTS ARE REASONABLE, WE CANNOT GUARANTEE FUTURE RESULTS, LEVELS OF
ACTIVITY, PERFORMANCE OR ACHIEVEMENTS. WE ARE UNDER NO OBLIGATION TO UPDATE ANY
OF THE FORWARD-LOOKING STATEMENTS AFTER THE FILING OF THIS REPORT TO CONFORM
SUCH STATEMENTS TO ACTUAL RESULTS OR TO CHANGES IN OUR EXPECTATIONS.

OVERVIEW

     We are an independent provider of multi-channel application software
technology and associated services for the retail industry including enterprise,
direct-to-consumer and store solutions and related training products and
professional and support services. Our applications and services represent a
full suite of offerings that provide retailers with a complete end-to-end
business solution. We also develop and distribute PC courseware and skills
assessment products for both desktop and retail applications.

     We developed our retail application software technology and services
business through acquisitions. The largest and most important of these
acquisitions were:

     o    Applied Retail Solutions, Inc. (ARS) in July 1998 for aggregate
          consideration of $7.9 million in cash and stock paid to the former
          stockholders; and

     o    Island Pacific Systems Corporation in April 1999 for $35 million cash.

     Island Pacific is one of the leading providers of retail enterprise
applications. ARS was one of the leading providers of store applications, and
the technology we acquired and have subsequently enhanced now forms the core of
our SVI Store Solutions.

     We accounted for both the Island Pacific and ARS acquisitions using
purchase accounting, which has resulted in the addition of significant goodwill
and capitalized software assets on our balance sheet. We amortized capitalized
software and goodwill from both of these acquisitions using ten year lives
through March 31, 2002. See "Significant Accounting Policies" below.

     Effective April 1, 2002, we restructured our operations into three
strategic business units lead by experienced managers. The business units are
Island Pacific, SVI Store Solutions and SVI Training Products, Inc. Our
operations are conducted principally in the United States and the United
Kingdom. Prior to February 2002, we also conducted business in Australia.

     We currently derive the majority of our revenues from the sale of
application software licenses and the provision of related professional and
support services. Application software license fees are dependent upon the sales
volume of our customers, the number of users of the application(s), and/or the
number of locations in which the customer plans to install and utilize the
application(s). As the customer grows in sales volume, adds additional users
and/or adds additional locations, we charge additional license fees. We
typically charge for support, maintenance and software updates on an annual
basis pursuant to renewable maintenance contracts. We typically charge for
professional services including consulting, implementation and project
management services on an hourly basis. Our sales cycles for new license sales
historically ranged from three to twelve months, but new license sales were
limited during the past two fiscal years and sales cycles are now difficult to
estimate. Our long sales cycles have in the past caused our revenues to
fluctuate significantly from period to period. The reduction of new license
sales caused the revenues of our Australian subsidiary to decrease substantially
prior to discontinuation of operations in February 2002, and our sales mix in
the US and the UK to shift to lower margin services.

                                       16
<PAGE>

     We evaluate local operations primarily based on total revenues and earnings
before interest expense, provision for income taxes, depreciation and
amortization and impairment charges as shown below.

<TABLE>
<CAPTION>
                                                                           YEAR ENDED MARCH 31,
                                                         2002                      2001                      2000
                                               ------------------------  ------------------------  ------------------------
                                                             PERCENTAGE                PERCENTAGE                PERCENTAGE
                                                 AMOUNT     OF REVENUE     AMOUNT      OF REVENUE     AMOUNT      OF REVENUE
                                                 ------     ----------     ------      ----------     ------      ----------
<S>                                             <C>             <C>       <C>              <C>       <C>             <C>
Net sales                                       $ 27,109        100%      $  27,713        100%      $ 26,652        100%
Cost of sales                                     10,036         37%          9,188         33%         6,421         24%
                                                ---------    ---------    ----------    ---------   ----------     ---------
   Gross profit                                   17,073         63%         18,525         67%        20,231         76%

Application development expense                    4,203         16%          5,333         19%         4,877         18%
Selling, general and administration expenses      13,144         48%         18,037         65%        14,817         56%
Other income (expense)                               (45)         0%            694          3%           858          3%
                                                ---------    ---------    ----------    ---------   ----------     ---------
   Income (loss) before interest expense,
     provision for income taxes, depreciation
     and amortization and impairment                (319)        (1)%        (4,151)       (14)%        1,395          5%

Depreciation and amortization                     (6,723)       (25)%        (8,616)       (31)%       (7,250)       (27)%
Impairment of intangible assets                                              (6,519)       (24)%
Impairment of note receivable received in
   connection with the sale of IBIS
   Systems Limited                                                           (7,647)       (28)%
Interest expense                                  (3,018)       (11)%        (3,043)       (11)%       (1,493)        (6)%
Provision (benefit) for income taxes                  39          0%         (4,778)        17%        (2,414)         9%
                                                ---------    ---------    ----------    ---------   ----------     ---------

Loss from continuing operations                  (10,099)       (37)%       (25,199)       (91)%       (4,934)       (19)%


Income (loss) from discontinued operations,
     net of taxes                                 (4,559)                    (3,746)                      880
                                                ---------                  ----------                ----------

Net loss                                        $(14,658)                  $(28,945)                 $ (4,054)
                                                =========                  =========                 =========
</TABLE>

We also manage long-lived assets by geographic region. The geographic
distribution of our revenues and long-lived assets for the fiscal years ended
March 31, 2002, 2001, and 2000 is as follows (in thousands):

<TABLE>
<CAPTION>
                                                      YEAR ENDED       YEAR ENDED        YEAR ENDED
                                                       MARCH 31,        MARCH 31,         MARCH 31,
                                                         2002             2001              2000
                                                   ---------------  ----------------  ---------------
                                                                     (in thousands)
<S>                                                <C>              <C>               <C>
Net Sales:
     United States                                 $       24,559   $        25,457   $       22,820
     Australia (discontinued operations)                    2,363             4,959            8,372
     South Africa (discontinued operations)                                                    1,090
     United Kingdom                                         2,550             2,256            3,832
                                                   ---------------  ----------------  ---------------
         Total net sales                           $       29,472   $        32,672   $       36,114
                                                   ===============  ================  ===============

Long-lived assets:
     United States                                 $       35,280   $        48,270   $       60,909
     Australia (discontinued operations)                                      1,370           11,471
     United Kingdom                                            22                59               75
                                                   ---------------  ----------------  ---------------
     Total long-lived assets                       $       35,302   $        49,699   $       72,455
                                                   ===============  ================  ===============
</TABLE>

     Up to March 31, 2002, we classified our operations into two lines of
business: retail solutions and training products. As revenues, results of
operations and assets related to our training products subsidiary were below the
threshold established for segment reporting, we consider our business for the
fiscal year ended March 31, 2002 to have consisted of one reportable operating
segment. Effective April 1, 2002, we operate under three strategic business
units. Each of these units will be measured separately against their individual
business plans.

     Results of operations for fiscal 2002 reflect continued weakness in new
license sales of our application software suites. As a result of our net losses,
we experienced significant strains on our cash resources throughout the 2002
fiscal year.

     We have taken a number of affirmative steps to address our operating
situation and liquidity problems, and to position us for improved results of
operations.

     o    In the third quarter of 2002, we completed an analysis of our
          operations and concluded that it was necessary to restructure the
          composition of our management and personnel. We were concerned that
          the new management team had not been able to close a number of new
          business opportunities or to raise capital. We were also concerned


                                       17

<PAGE>

          with general economic conditions, especially after the terrorist
          attacks of September 11, 2001, and the resulting ongoing hostilities
          in the world. Our CEO, Thomas A. Dorosewicz, and our CFO, Kevin M.
          O'Neill, elected to leave to pursue other interests, and both resigned
          from our board of directors. We appointed Barry M. Schechter, our
          Chairman, as Chief Executive Officer, and Jackie Tran, our Controller,
          as acting Chief Financial Officer. We also reduced our staff by a
          total of 20%, and restructured and refocused our sales force toward
          opportunities available in the current economic climate. This
          reorganization resulted in costs savings of approximately $3 million
          per year.

     o    In the fourth quarter of 2001, we appointed experienced managers to
          manage our Island Pacific and SVI Store Solutions operations. We also
          appointed an experienced vice president of sales to the team.

     o    We developed measurable budgets for each divisional operation so as to
          measure performance directly and maintain control over expenditures.

     o    We restructured our application development efforts in concert with
          our new Marketing and Technology Management team to work more closely
          with customers for improvements to our offerings. We expect the result
          will be application technology that more closely meets the needs of
          our customers. Additionally, more of the costs of development may be
          offset against customer specific revenues.

     o    We issued a total of $1.25 million in convertible notes to a limited
          number of accredited investors related to ICM Asset Management, Inc.
          of Spokane, Washington, a significant beneficial owner of our common
          stock. In July 2002, we amended these notes to extend the maturity
          date and other provisions, and we replaced the warrants issued to
          these investors. See "Financing Transactions -- ICM Asset Management,
          Inc." below.

     o    We relocated our principal executive offices to smaller and less
          expensive premises in Carlsbad, California.

     o    We negotiated an extension of our senior bank lending facility to
          August 31, 2003. See "Liquidity and Capital Resources -- Contractual
          Obligations -- Union Bank" below.

     o    We completed an integrated series of transactions with Softline to
          repay our subordinated note to Softline, to transfer to Softline our
          note received in connection with the sale of IBIS Systems Limited, and
          to issue new Series A Convertible Preferred securities in exchange for
          10,700,000 SVI common shares. See "Financing Transactions -- Softline"
          below.

     o    Our Australian subsidiary ceased operations in February 2002. See
          "Discontinued Operations" below.

     o    In May 2002, we entered into a new two-year software development and
          services agreement with our largest customer, Toys "R" Us, Inc. Toys
          also agreed to invest $1.3 million for the purchase of a non-recourse
          convertible note and a warrant to purchase 2,500,000 common shares.
          For a further details, see "Financing Transactions -- Toys "R" Us"
          below.

For a further discussion of our plans to address our net losses and negative
working capital, see Note 1 to our Financial Statements included with this
report.

DISCONTINUED OPERATIONS

     Due to the declining performance of our Australian subsidiary, we decided
in the third quarter of fiscal 2002 to sell certain assets of the Australian
subsidiary to the former management of such subsidiary, and then cease
Australian operations. Such sale was however subject to the approval of National
Australia Bank, the subsidiary's secured lender. The bank did not approve the
sale and the subsidiary ceased operations in February 2002. The bank caused a
receiver to be appointed in February 2002 to sell substantially all of the
assets of the Australian subsidiary and pursue collections on any outstanding
receivables. The receiver proceeded to sell substantially all of the assets for
$300,000 in May 2002 to the entity affiliated with former management, and is
actively pursuing the collection of receivables. If the sale proceeds plus
collections on receivables are insufficient to discharge the indebtedness to
National Australia Bank, we may be called upon to pay the deficiency under our
guarantee to the bank. We have accrued $187,000 as the maximum amount of our
potential exposure. The receiver has also claimed that we are obligated to it
for inter-company balances of $636,000, but we do not believe any amounts are
owed to the receiver, who has not as of the date of this report acknowledged the
monthly corporate overhead recovery fees and other amounts charged by us to the
Australian subsidiary offsetting the amount claimed to be due. For further
details, see "Liquidity and Capital Resources -- Contractual Obligations --
National Australia Bank" below.

                                       18

<PAGE>

     The disposal of our Australian subsidiary resulted in a loss of $3.2
million. The operating results of the Australian subsidiary are shown on our
financial statements as discontinued operations with the prior period results
restated.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     Our discussion and analysis of financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, based on
historical experience, and various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

     We believe the following critical accounting policies affect significant
judgments and estimates used in the preparation of our consolidated financial
statements:

     o   REVENUE RECOGNITION. Our revenue recognition policy is significant
         because our revenue is a key component of our results of operations. In
         addition, our revenue recognition determines the timing of certain
         expenses such as commissions and royalties. We follow specific and
         detailed guidelines in measuring revenue; however, certain judgments
         affect the application of our revenue policy.

         We license software under non-cancelable agreements and provide related
         services, including consulting and customer support. We recognize
         revenue in accordance with Statement of Position 97-2 (SOP 97-2),
         Software Revenue Recognition, as amended and interpreted by Statement
         of Position 98-9, Modification of SOP 97-2, Software Revenue
         Recognition, with respect to certain transactions, as well as Technical
         Practice Aids issued from time to time by the American Institute of
         Certified Public Accountants. We adopted Staff Accounting Bulletin No.
         101 (SAB 101), Revenue Recognition in Financial Statements, during the
         first quarter of 2000. SAB 101 provides further interpretive guidance
         for public companies on the recognition, presentation, and disclosure
         of revenue in financial statements. The adoption of SAB 101 did not
         have a material impact on our licensing or revenue recognition
         practices.

         Software license revenue is generally recognized when a license
         agreement has been signed, the software product has been delivered,
         there are no uncertainties surrounding product acceptance, the fees are
         fixed and determinable, and collection is considered probable. If a
         software license contains an undelivered element, the fair value of the
         undelivered element is deferred and the revenue recognized once the
         element is delivered. In addition, if a software license contains
         customer acceptance criteria or a cancellation right, the software
         revenue is recognized upon the earlier of customer acceptance or the
         expiration of the acceptance period or cancellation right. Typically,
         payments for our software licenses are due in installments within
         twelve months from the date of delivery. Where software license
         agreements call for payment terms of twelve months or more from the
         date of delivery, revenue is recognized as payments become due and all
         other conditions for revenue recognition have been satisfied. Deferred
         revenue consists primarily of deferred license, prepaid services
         revenue and maintenance support revenue.

         Consulting services are separately priced, are generally available from
         a number of suppliers, and are not essential to the functionality of
         our software products. Consulting services, which include project
         management, system planning, design and implementation, customer
         configurations, and training are billed on both an hourly basis and
         under fixed price contracts. Consulting services revenue billed on an
         hourly basis is recognized as the work is performed. On fixed price
         contracts, consulting services revenue is recognized using the


                                       19

<PAGE>

         percentage of completion method of accounting by relating hours
         incurred to date to total estimated hours at completion. We have from
         time to time provided software and consulting services under fixed
         price contracts that require the achievement of certain milestones. The
         revenue under such arrangements is recognized as the milestones are
         achieved.

         Customer support services include post contract support and the rights
         to unspecified upgrades and enhancements. Maintenance revenues from
         ongoing customer support services are billed on a monthly basis and
         recorded as revenue in the applicable month, or on an annual basis with
         the revenue being deferred and recognized ratably over the maintenance
         period. If an arrangement includes multiple elements, the fees are
         allocated to the various elements based upon vendor-specific objective
         evidence of fair value.

     o   ACCOUNTS RECEIVABLE. We typically extend credit to our customers.
         Software licenses are generally due in installments within twelve
         months from the date of delivery. Billings for customer support and
         consulting services performed on a time and material basis are due upon
         receipt. From time to time software and consulting services are
         provided under fixed price contracts where the revenue and the payment
         of related receivable balances are due upon the achievement of certain
         milestones. Management estimates the probability of collection of the
         receivable balances and provides an allowance for doubtful accounts
         based upon an evaluation of our customers ability to pay and general
         economic conditions.

     o   VALUATION OF LONG-LIVED AND INTANGIBLE ASSETS AND GOODWILL. We assess
         the impairment of identifiable intangibles, long-lived assets and
         related goodwill whenever events or changes in circumstances indicate
         that the carrying value may not be recoverable. When we determine that
         the carrying value of intangibles, long-lived assets and related
         goodwill may not be recoverable we measure any impairment based on a
         projected discounted cash flow method using a discount rate determined
         by our management to be commensurate with the risk inherent in our
         current business model. Net intangible assets, long-lived assets, and
         goodwill amounted to $35.5 million as of March 31, 2002.

         In our 2003 fiscal year, Statement of Financial Accounting Standards
         (SFAS) No. 142, Goodwill and Other Intangible Assets became effective
         and as a result, we will cease to amortize approximately $14.8 million
         of goodwill. We had recorded approximately $2.2 million of amortization
         during fiscal 2002 and would have recorded approximately $2.2 million
         of amortization during fiscal 2003.

FINANCING TRANSACTIONS

     AMRO INTERNATIONAL, S.A.

     On October 24, 2000, the SEC declared effective a registration statement
registering up to 700,000 shares of our common stock for resale by AMRO
International, S.A. AMRO purchased 344,948 shares in March 2000 for
approximately $2.9 million, and under the terms of the purchase agreement, was
entitled to receive additional shares of our common stock if the average of the
closing price of our stock for the five days preceding the effective date of the
registration statement was less than $10.34. Pursuant to the repricing formula,
we issued to AMRO 375,043 additional shares of common stock. We became obligated
to pay to AMRO liquidated damages for late effectiveness of the registration
statement in the amount of $286,000. AMRO agreed in March 2001 to accept 286,000
shares of common stock in satisfaction of the liquidated damages, and agreed to
purchase an additional 214,000 shares of common stock for $214,000. In
connection with this agreement, we issued AMRO a two-year warrant to purchase up
to 107,000 shares of common stock at $1.50 per share. We may call the warrant
for $0.001 per share if our common stock trades above $2.00 per share for twenty
consecutive trading days and the warrant shares are registered with the SEC for
resale or otherwise salable by AMRO without restriction. AMRO will have thirty
days after the call to exercise the warrant, after which time the warrant will
expire.

     We agreed to register all of the shares sold in March 2001, and those that
we may sell under the warrant, with the SEC. We became obligated to pay to AMRO
as liquidated damages the amount of $60,000. In April 2002, AMRO agreed to
accept 140,000 shares of common stock in satisfaction of the liquidated damages.

                                       20

<PAGE>

     ICM ASSET MANAGEMENT, INC.

     In December 2000, we entered into an agreement to sell up to 2,941,176
common shares to a limited number of accredited investors related to ICM Asset
Management, Inc. for cash at $0.85 per share. We sold 1,764,706 of such shares
in December 2000, for gross proceeds of $1.5 million, and an additional 588,235
shares in January 2001, for additional gross proceeds of $0.5 million. Two of
the investors exercised a right to purchase an additional 588,235 shares in
February 2001 for additional gross proceeds of $0.5 million.

     We also agreed to issue to each investor a warrant to purchase one common
share at $1.50 for each two common shares purchased in the private placement
(aggregate warrants exercisable into 1,470,590 option shares). We had the right
to call 50% of the warrants, subject to certain conditions, if our common shares
traded at a price above $2.00 per share for thirty consecutive days. We had the
right to call the remaining 50% of the warrants, subject to certain conditions,
if our common shares traded at a price above $3.00 per share for thirty
consecutive days.

     We agreed to register all of the shares sold under the purchase agreement
or the warrants with the SEC. Our agreement with the investors provided that if
a registration statement was not effective on or before April 21, 2001, we would
be obligated to issue two-year warrants to each investor, entitling the investor
to purchase additional shares of our common stock at $0.85 per share. We filed a
registration statement in January 2001 to register these shares, but it did not
become effective. As of June 28, 2002, we had issued the investors warrants to
purchase 1,249,997 common shares under this agreement.

     In May and June 2001, we issued a total of $1.25 million in convertible
notes to a limited number of accredited investors related to ICM. The notes were
originally due August 30, 2001, and required interest at the rate of 12% per
annum to be paid until maturity, with the interest rate increasing to 17% after
maturity. Any portion of the unpaid amount of principal and interest was
convertible at any time by the investors into common shares valued at $1.35 per
share. We also agreed to issue to the investors three-year warrants to purchase
250 common shares for each $1,000 in notes purchased, at an exercise price of
$1.50 per share.

     In July 2002, we agreed to amend the terms of the notes and warrants issued
to the investors related to ICM. The investors agreed to replace the existing
notes with new notes having a maturity date of September 30, 2003. The interest
rate on the new notes was reduced to 8% per annum, increasing to 13% in the
event of a default in payment of principal or interest. We are required to pay
accrued interest on the new notes calculated from July 19, 2002, in quarterly
installments beginning September 30, 2002. The investors agreed to reduce
accrued interest and late charges on the original notes by up to $85,000, and to
accept the reduced amount in shares of our common stock valued at the average
closing price of our shares on the American Stock Exchange for the 10 trading
days prior to July 19, 2002. The new notes are convertible at the option of the
holders into shares of our common stock valued at $0.60 per share. We do not
have a right to prepay the notes.

     We also agreed that the warrants previously issued to the investors to
purchase an aggregate of 3,033,085 shares at exercise prices ranging from $0.85
to $1.50, and expiring on various dates between December 2002 and June 2004,
would be replaced by new warrants to purchase an aggregate of 1,600,000 shares
at $0.60 per share, expiring July 19, 2007. The replacement warrants are not
callable by us.

     We also agreed to file a registration statement for the resale of all
shares held by or obtainable by these investors. In the event such registration
statement is not declared effective by the SEC within 120 days after July 17,
2002, we will be obligated to issue five-year penalty warrants for the purchase
of 5% of the total number of registrable securities at an exercise price of
$0.60 per share. We will be obligated to issue additional penalty warrants for
each 30 day period after such date in which the registration statement is not
effective. No further penalty warrants will accrue from our original
registration obligation.

     SOFTLINE

     In May 2002, we entered into an integrated series of transactions with
Softline by which:

     1.   We transferred to Softline the note received in connection with the
          sale of IBIS Systems Limited.

     2.   We issued to Softline 141,000 shares of newly-designated Series A
          Convertible Preferred Stock.

     3.   Softline released us from approximately $12.3 million in indebtedness
          due to Softline under a promissory note.

     4.   Softline surrendered 10,700,000 shares of our common shares held
          by Softline.

                                       21
<PAGE>

     The Series A Preferred Stock has a stated value of $100 per share and is
redeemable at our option any time prior to the maturity date of December 31,
2006 for 107% of the stated value and accrued and unpaid dividends. The shares
are entitled to cumulative dividends of 7.2% per annum, payable semi-annually
when, as and if declared by the board of directors. Softline may convert each
share of Series A Preferred Stock at any time into the number of common shares
determined by dividing the stock stated value plus all accrued and unpaid
dividends, by a conversion price initially equal to $0.80. The conversion price
increases at an annual rate of 3.5% calculated on a semi-annual basis. The
Series A Preferred Stock is entitled upon liquidation to an amount equal to its
stated value plus accrued and unpaid dividends in preference to any
distributions to our common stockholders. The Series A Preferred Stock has no
voting rights prior to conversion into common stock, except with respect to
proposed impairments of the Series A Preferred rights and preferences, or as
provided by law. We have the right of first refusal to purchase all but not less
than all of any shares of Series A Preferred Stock or common shares received on
conversion which Softline may propose to sell to a third party, upon the same
price and terms as the proposed sale to a third party. We also granted Softline
certain registration rights for the common shares into which the Series A
Preferred Stock is convertible, including the right to demand registration on
Form S-3 if such form is available to us and Softline proposes to sell at least
$5 million of registrable common shares, and the right to include shares
obtainable upon conversion of the Series A Preferred Stock in other registration
statements we propose to file.

     These transactions were recorded for accounting purposes on January 1,
2002, the date when Softline took effective control of the IBIS note and we
ceased accruing interest on the Softline note. We did not recognize any gain or
loss in connection with the disposition of the IBIS note or the other components
of the transactions.

     TOYS "R" US

     In May 2002, Toys "R" Us agreed to invest $1.3 million for the purchase of
a non-recourse convertible note and a warrant to purchase 2,500,000 common
shares. The purchase price is payable in installments through September 27,
2002. The note is non-interest bearing, and the face amount is payable in shares
of our stock valued at $0.553 per share. The note is due May 29, 2009, or if
earlier than that date, three years after the completion of the development
project contemplated in the development agreement between us and Toys entered
into at the same time. We do not have the right to prepay the convertible note
before the due date, but upon the due date, we may at our option pay the
principal amount in cash rather than shares to the extent Toys did not earlier
convert the note to shares. The face amount of the note is 16% of the $1.3
million purchase price as of May 29, 2002, and increases by 4% of the $1.3
million purchase price on the last day of each succeeding month, until February
28, 2004, when the face amount is the full $1.3 million purchase price. The face
amount will cease to increase if Toys terminates its development agreement with
us for a reason other than our breach. The face amount will be zero if we
terminate the development agreement due to an uncured breach by Toys of the
development agreement.

     The warrant entitles Toys to purchase up to 2,500,000 of our common shares
at $0.553 per share. The warrant is initially vested as to 400,000 shares as of
May 29, 2002, and vests at the rate of 100,000 shares per month until February
28, 2004. The warrant will cease to vest if Toys terminates its development
agreement with us for a reason other than our breach. The warrant will become
entirely non-exercisable if we terminate the development agreement due to an
uncured breach by Toys of the development agreement. Toys may elect a "cashless
exercise" where a portion of the warrant is surrendered to pay the exercise
price.

     The note conversion price and the warrant exercise price are each subject
to a 10% reduction in the event of an uncured breach by us of certain covenants
to Toys. These covenants do not include financial covenants. Conversion of the
note and exercise of the warrant each require 75 days advance notice to us. As a
result, under the rules of the SEC, Toys will not be considered the beneficial
owner of the common shares into which the note is convertible and the warrant is
exercisable until 15 days after it has given notice of conversion or exercise,
and then only to the extent of such noticed conversion or exercise. We also
granted Toys certain registration rights for the common shares into which the
note is convertible and the warrant is exercisable, including the right to
demand registration on Form S-3 if such form is available to us, and the right
to include shares into which the note is convertible and the warrant is
exercisable in other registration statements we propose to file.

                                       22

<PAGE>

     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:

<TABLE>
<CAPTION>
                                                                              YEAR ENDED MARCH 31,
                                                           2002                       2001                       2000
                                                  -----------------------    ----------------------     -----------------------
                                                              PERCENTAGE                 PERCENTAGE                 PERCENTAGE
                                                   AMOUNT     OF REVENUE      AMOUNT     OF REVENUE      AMOUNT     OF REVENUE
                                                  ---------    ---------     ---------    ---------     ---------    ---------
<S>                                               <C>               <C>      <C>               <C>      <C>               <C>
Net sales                                         $ 27,109          100%     $ 27,713          100%     $ 26,652          100%
Cost of sales                                       10,036           37%        9,188           33%        6,421           24%
                                                  ---------    ---------     ---------    ---------     ---------    ---------
   Gross profit                                     17,073           63%       18,525           67%       20,231           76%

Expenses:
   Application development                           4,203           16%        5,333           19%        4,877           18%
   Depreciation and amortization                     6,723           25%        8,616           31%        7,250           27%
   Selling, general and administration              13,144           48%       18,037           65%       14,817           56%
   Impairment of intangible assets                                              6,519           24%
   Impairment of note receivable received in
      connection with the sale of IBIS
      Systems Limited                                                           7,647          (28)%
                                                  ---------    ---------     ---------    ---------     ---------    ---------
        Total expenses                              24,070           89%       46,152          167%       26,944          101%
                                                  ---------    ---------     ---------    ---------     ---------    ---------

Loss from operations                                (6,997)         (26)%     (27,627)        (100)%      (6,713)         (25)%

Other income (expense)
   Interest income                                      10            0%          628            2%        1,074            4%
   Other income (expense)                              (46)           0%           63            0%         (206)          (1%)
   Interest expense                                 (3,018)         (11)%      (3,043)         (11)%      (1,493)          (6)%
   Gain (loss) on foreign currency translation          (9)           0%            2            0%          (10)           0%
                                                  ---------    ---------     ---------    ---------     ---------    ---------
      Total other expense                           (3,063)         (11)%      (2,350)          (8)%        (635)          (2)%
                                                  ---------    ---------     ---------    ---------     ---------    ---------
Loss before provision (benefit) for
   income taxes                                    (10,060)         (37)%     (29,977)        (108)%      (7,348)         (28)%

   Provision (benefit) for income taxes                 39            0%       (4,778)          17%       (2,414)           9%
                                                  ---------    ---------     ---------    ---------     ---------    ---------

Loss from continuing operations                    (10,099)         (37)%     (25,199)         (91)%      (4,934)         (19)%

Income (loss) from discontinued operations,
     net of taxes                                   (4,559)                    (3,746)                       880
                                                  ---------                  ---------                  ---------

Net loss                                          $(14,658)                  $(28,945)                  $ (4,054)
                                                  =========                  =========                  =========
</TABLE>


FISCAL YEAR ENDED MARCH 31, 2002 COMPARED TO FISCAL YEAR ENDED MARCH 31, 2001

     NET SALES

     Net sales decreased slightly by $0.6 million, or 2%, to $27.1 million in
the fiscal year ended March 31, 2002 from $27.7 million in the fiscal year ended
March 31, 2001. Fiscal year 2001 revenues included recognition of $2.0 million
in revenue from a one-time sale of technology rights which was signed in fiscal
2000.

     Fiscal 2002 was a challenging year in which to close new application
license sales. We believe our difficulties initially arose from insufficient
staffing of our sales force. Although we significantly increased the staffing of
our sales force in the first quarter of fiscal 2002, the economic slowdown and
the terrorist attacks of September 11, 2001, and the ongoing hostilities in the
world increased the challenges faced by our sales force. In addition, our
financial condition may have interfered with our ability to sell new application
software licenses, as implementation of our applications generally requires
extensive future services and support, and some potential customers have
expressed concern about our financial ability to provide these ongoing services.
We believe strongly that we provide and will continue to provide excellent
support to our customers, as demonstrated by the continuing upgrade purchases by
our top-tier established customer base. Significant sales growth may however
depend in part on our ability to improve our financial condition.

     In October 2001, we took aggressive steps designed to improve sales of new
application software licenses, and to streamline our operations around services
to our existing customers. These steps included a restructuring of our
operations and repositioning of the sales force to better focus on the
historical markets of our retail enterprise solution and our retail store
solution. This strategy has permitted us to reduce overhead expenses, while
allowing us to target those markets most likely to result in sales in the
current economic climate. Our newly focused sales force has also begun to
aggressively market individual modules within our suites. These modules have
been improved through modification services performed for existing customers,
and may now be marketed as separate applications to new customers. These modules
are suited to those potential customers looking for incremental upgrades to
their systems at a substantially lower cost, and with a substantially reduced
implementation commitment, than an upgrade to our full suite would require. We
intend to add additional sales personnel at such time as the economic climate
and market for our products permits.

                                       23

<PAGE>

     In July 2001, we entered into an agreement to expand our current
professional services activities with Toys "R" Us significantly through
September 2003. In May 2002, we entered into a new development agreement with
Toys for the provision of development services through February 2004. We expect
the overall dollar amount of professional services we perform for Toys in 2003
to be comparable to fiscal 2002, and to continue to be a significant source of
professional services revenues in fiscal 2004. Toys accounted for 42% of our net
sales in fiscal 2002 compared to 29% of net sales in fiscal 2001.

     COST OF SALES/GROSS PROFIT

     Cost of sales increased $0.8 million, or 9%, to $10.0 million in the fiscal
year ended March 31, 2002 from $9.2 million in the fiscal year ended March 31,
2001. Gross profit as a percentage of net sales decreased to 63% in fiscal 2002
from 67% in fiscal 2001. The decrease in gross profit margin was due to a
further shift in the sales mix from high margin application licenses to lower
margin software modification and professional services. During fiscal 2002,
application technology license revenues represented 17% of net sales and related
services represented 76% of net sales, compared to 25% and 69% of net sales,
respectively, of net sales during fiscal 2001.

     Cost of sales for fiscal 2002 and 2001 included $3.6 million and $3.4
million, respectively, in costs associated with the development or modification
of modules for Toys "R" Us, including the use of higher cost outsource
development services (subcontractors) for certain components of the overall
project. These costs are neither capitalized nor included in application
technology development expenses, but we consider them to be part of our overall
application technology development program.

     APPLICATION DEVELOPMENT EXPENSE

     Application development expense for the fiscal year ended March 31, 2002
was $4.2 million as most development expenditures were client funded compared to
$5.3 million for the fiscal year ended March 31, 2001, a decrease of 21%. The
decrease reflects a shift toward customer-funded development expenses. For a
further discussion of our application technology development program, see
"Description of Business" under the heading "Application Technology
Development" above.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     Selling, general and administrative expenses decreased by $4.9 million, or
27%, to $13.1 million compared to $18.0 million in the fiscal year ended March
31, 2001. The decrease was due to the following:

     o    Personnel reduction implemented in the fourth quarter of 2001 and
          third quarter of 2002 and control of expenditures.

     o    A $0.9 million reserve for bad debts in fiscal 2001.

     During the third quarter of 2002, we completed an analysis of our
operations and concluded that it was necessary to restructure the composition of
our management and personnel. We anticipated that the restructuring would result
in an approximately $3.0 million annual reduction in our expense levels compared
to expenses prior to implementation of the plan. To the extent resources are
available, we expect to slowly increase our expense levels in fiscal 2003 from
the reduced level after the reductions in the third quarter of fiscal 2002.
Additional planned expenditures are for the building of our sales force and for
additions to our Professional Services group for US and UK retail operations as
new licenses and services are sold.

     EARNINGS (LOSS) FROM CONTINUING OPERATIONS AND BEFORE INTEREST EXPENSE,
     INCOME TAXES, DEPRECIATION, AMORTIZATION AND IMPAIRMENTS

     The loss from continuing operations and before interest expense, income
taxes, depreciation, amortization, and impairments of intangible assets and
notes receivable was $0.3 million for the year ended March 31, 2002 as compared
to a comparable loss from continuing operations of $4.2 million in the year
ended March 31, 2001, representing an improvement of $3.9 million. The gross
profit for the year decreased by $1.5 million and other income by $3.9 million,
but was offset by improvements primarily from reduced application development
expenses in the amount of $1.1 million, and reduced selling, general and
administrative expenses of $4.9 million.

     DEPRECIATION AND AMORTIZATION

     Depreciation and amortization decreased by $1.9 million, or 22%, to $6.7
million in the fiscal year ended March 31, 2002 from $8.6 million in the fiscal
year ended March 31, 2001. The decrease reflected the reduction in the base
amounts of goodwill and capitalized software assets resulting from the
recognition of impairments of those assets in the fourth quarter of fiscal 2001.
As a result of the implementation of SFAS No. 142, we will not amortize goodwill
in fiscal 2003. We will however record in the first quarter of fiscal 2003 a
$0.6 million impairment charge based upon the transitional analysis of goodwill
impairment required by SFAS 142, and we may record impairment charges based upon
the impairment testing procedures required by SFAS 144 (see "Recent Accounting
Pronouncements" below).

                                       24

<PAGE>

     INTEREST INCOME AND EXPENSE

     Interest expense was $3.0 million in the fiscal years ended March 31, 2002
and 2001.

     Interest income decreased $0.6 million to $0.1 million in fiscal 2002,
compared to $0.7 million in fiscal 2001 due to cessation of the accrual of
interest income on the note receivable received in connection with the sale of
IBIS after the second quarter of fiscal 2001.

     DISCONTINUED OPERATIONS

     Loss from discontinued operations in fiscal 2002 was $4.6 million, which
included $1.4 million of net loss from Australian operations and $3.2 million of
loss on disposal. Loss from discontinued operations in fiscal 2001 was $3.7
million. Net sales from Australian operations decreased from $5.0 million in
fiscal 2001 to $2.4 million in fiscal 2002.

FISCAL YEAR ENDED MARCH 31, 2001 COMPARED TO FISCAL YEAR ENDED MARCH 31, 2000

     NET SALES

     Net sales increased by $1.0 million, or 4%, to $27.7 million in the fiscal
year ended March 31, 2001 from $26.7 million in the fiscal year ended March 31,
2000. Fiscal year 2001 revenues included recognition of $2.0 million in revenue
from a one-time sale of technology rights which was signed in fiscal 2000. In
addition to those factors, the decrease in net sales was principally due to a
$1.6 million decrease in revenue from our United Kingdom retail operations
reflecting a substantial decrease in new application license sales. The
substantial decrease in new application license sales was due in part to our
inability to close several larger application license transactions in our sales
pipeline.

     COST OF SALES/GROSS PROFIT

     Cost of sales increased $2.8 million, or 43%, to $9.2 million in the fiscal
year ended March 31, 2001 from $6.4 million in the fiscal year ended March 31,
2000. Gross profit as a percentage of net sales decreased to 67% in fiscal 2001
from 76% in fiscal 2000. The decrease in gross profit margin was due to a shift
in the sales mix from high margin application licenses to lower margin software
modification and professional services. During fiscal 2001, application
technology license revenues represented 23% of net sales and related services
represented 77% of net sales, compared to 30% and 70% of net sales,
respectively, of net sales during fiscal 2000.

     Cost of sales for fiscal 2001 included $4.9 million in costs associated
with the development or modification of modules for Toys "R" Us, including the
use of higher cost outsource development services (subcontractors) for certain
components of the overall project. These costs are neither capitalized nor
included in application technology development expenses, but we consider them to
be part of our overall application technology development program.

     APPLICATION DEVELOPMENT EXPENSE

     Application development expense for the fiscal year ended March 31, 2001
was $5.3 million compared to $4.9 million for the fiscal year ended March 31,
2000, an increase of 8%. During fiscal 2001, we continued our application
technology development program begun in fiscal 2000 to improve and integrate our
application software. For a further discussion of our application technology
development program, see "Description of Business" under the heading
"Application Technology Development" above.

                                       25
<PAGE>

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     Selling, general and administrative expenses increased by $3.2 million, or
22%, to $18.0 million compared to $14.8 million in the fiscal year ended March
31, 2000. The increase was due to the following:

     o    One-time personnel reduction charge of $0.9 million in the fourth
          quarter associated with the reorganization of our SVI Retail
          operations in Irvine and San Diego, California.

     o    An increase in professional fees and allowances of $1.1 million.

     o    Increased personnel expense, in part due to our acquisition of
          MarketPlace Systems Corporation.

     EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INTEREST EXPENSE, INCOME
     TAXES, DEPRECIATION, AMORTIZATION AND IMPAIRMENTS

     The loss from continuing operations before interest expense, income taxes,
depreciation, amortization and impairments of intangible assets and notes
receivable was $4.2 million for the year ended March 31, 2001 as compared to a
comparable profit from continuing operations of $1.4 million in the year ended
March 31, 2000, representing a reduction of $5.6 million. The gross profit for
the year decreased by $1.7 million and other income by $0.2 million; application
development expenses increased by $0.5 million and selling, general and
administrative expenses increased by $3.2 million.

     DEPRECIATION AND AMORTIZATION

     Depreciation and amortization increased by $1.3 million, or 18%, to $8.6
million in the fiscal year ended March 31, 2001 from $7.3 million in the fiscal
year ended March 31, 2000. The increase was due to the amortization of software
purchased in connection with the acquisition of MarketPlace Systems Corporation
in March 2000, and to amortization of capitalized software that was made
available for sale in fiscal 2001.

     IMPAIRMENT OF ASSETS

     Our March 31, 2001 balance sheet includes a $7.0 million note receivable.
This note was secured by 1,536,000 shares or approximately 11% of the
outstanding common stock of Integrity Software, Inc. We do not believe the
obligor under the note has significant assets other than the Integrity shares
securing the note. The obligor is an entity affiliated with Integrity, and its
ability to sell the Integrity shares to repay the note is limited by law and by
market conditions. During the fiscal year ended March 31, 2001, we determined
that the value of this note receivable was impaired, and we wrote off a total of
$7.6 million as a valuation allowance. We obtained an independent valuation of
the Integrity shares securing the note at March 31, 2001, which supported the
value shown on our March 31, 2001 balance sheet. This note and the shares
securing it were transferred to Softline effective January 1, 2002. See
"Financing Transactions -- Softline" above.

     We also recorded in the fourth quarter of fiscal 2001 an impairment of $6.5
million in capitalized software and goodwill associated with Australian
operations. In determining the amount of impairment, we compared the net book
value of the long-lived assets associated with the Australian subsidiary,
primarily consisting of recorded goodwill and software intangibles, to their
estimated fair values. Fair values were estimated based on anticipated future
cash flows of the Australian operations, discounted at a rate commensurate with
the risk involved.

     INTEREST INCOME AND EXPENSE

     Interest expense increased $1.5 million, or 100%, to $3.0 million in the
fiscal year ended March 31, 2001 from $1.5 million in the fiscal year ended
March 31, 2000. The increase was due to inclusion for the full 2001 fiscal year
of interest from indebtedness incurred in June 1999 to purchase Island Pacific,
and an increase in our average interest rate to 12% in fiscal 2001 compared to
9% in fiscal 2000. The increase also included $0.5 million in amortized loan
refinancing costs, including $0.2 million of amortized loan cost reimbursement
to Softline.

     Interest income decreased $0.5 million to $0.6 million in fiscal 2001,
compared to $1.1 million in fiscal 2000 due to decreased cash and cash
equivalents.

LIQUIDITY AND CAPITAL RESOURCES

     CASH FLOWS

     During the fiscal year ended March 31, 2002, we financed our operations
using cash on hand, internally generated cash, cash from the issuance of
convertible notes and loans from an entity affiliated with Donald S. Radcliffe,
a director. During the fiscal year ended March 31, 2001, we financed our
operations using cash on hand, internally generated cash, cash from the sale of


                                       26
<PAGE>

common stock, proceeds from the exercise of options, lines of credit and loans
from each of Softline, a subsidiary of Softline and Barry M. Schechter, our
Chairman. During the fiscal year ended March 31, 2000, we financed our
operations through internally generated cash, proceeds from bank and other loans
(including a loan from a major stockholder), proceeds from the sale of common
stock and the exercise of options, and bank lines of credit. At March 31, 2002
and 2001, we had cash of $1.3 million.

     Operating activities provided cash of $1.6 million in the fiscal year ended
March 31, 2002 and used cash of $2.4 million in the fiscal year ended March 31,
2001 and $2.3 million in the fiscal year ended March 31, 2000. Cash provided for
operating activities in fiscal 2002 resulted primarily from $2.5 million
decrease in accounts receivable and other receivables, $1.6 million increase in
deferred revenue, $7.1 million in non-cash depreciation and amortization, $3.2
million of loss on disposal of Australian operations, $2.3 million increase in
interest payable and $1.0 million in non-cash charges for stock-based
compensation and interest related to convertible notes due stockholders; offset
by $14.7 million of net losses and $1.9 million decrease in accounts payable and
accrued expenses. Cash used for operating activities in fiscal 2001 resulted
primarily from $28.9 million of net losses, a $4.4 million decrease in net
deferred tax liability and a $4.4 million decrease in deferred revenue; offset
by $16.5 million in non-cash impairments of assets, $9.5 million in non-cash
depreciation and amortization, a $5.1 million decrease in accounts receivable,
and a $4.4 million increase in accounts payable and accrued expenses. Cash used
for operating activities during fiscal year 2000 primarily resulted from a $4.1
million net loss, a $4.6 million increase in accounts receivable and other
receivables, a $0.6 million decrease in accounts payable and accrued expenses, a
$0.8 million increase in interest receivable, a $2.6 million decrease in income
tax payable, and a $2.6 million increase in deferred income taxes liability;
offset in part by $7.9 million of non-cash depreciation and amortization expense
and a $5.0 million increase in deferred revenue.

     Accounts receivable decreased during fiscal year 2002 primarily due to a
write-off of $367,000 in receivables in connection with the discontinuation of
Australian operations in February 2002 and a significant improvement in
collection efforts. Accounts receivable decreased during fiscal year 2001
primarily due to payment during fiscal 2001 of $2.0 million from the one-time
sale of technology rights during fiscal 2000, the write-off during the fourth
quarter of fiscal 2001 of the $1.6 million outstanding balance remaining from
the one-time sale of technology rights and a decrease in trade receivables aged
over 30 days as a result of improvement in collection efforts. Accounts
receivable increased during fiscal year 2000 primarily due to the inclusion of
Island Pacific accounts receivable of $4.0 million at March 31, 2000 and the
$3.3 million total receivable associated with the non-recurring sale of
technology rights. Accounts receivable balances fluctuate significantly due to a
number of factors including acquisitions and dispositions, seasonality, shifts
in customer buying patterns, contractual payment terms, the underlying mix of
applications and services sold, and geographic concentration of revenues.

     Investing activities used cash of $0.7 million, $3.0 million, and $36.5
million in the fiscal years ended March 31, 2002, 2001 and 2000. Investing
activities during fiscal 2002 included a $0.4 million increase in capitalized
software development costs and $0.3 million in furniture and equipment
purchases. Investing activities during fiscal year 2001 included a $2.5 million
increase in purchase of software and capitalized software development costs and
$0.5 million in furniture and equipment purchases. Investing activities during
fiscal year 2000 included a $33.8 million net cash payment for the acquisition
of Island Pacific, $1.8 million in software purchases and capitalized software
development costs and $0.8 million in capital expenditures.

     Financing activities used cash of $0.8 million in the fiscal year ended
March 31, 2002 and provided cash of $1.9 million and $30.9 million in the fiscal
years ended March 31, 2001 and 2000. Financing activities during fiscal year
2002 included $1.2 million in note payments and $0.8 million decrease in amounts
due to stockholders; offset in part by $1.3 million in proceeds from issuance of
convertible notes. Financing activities during fiscal year 2001 included $3.8
million in proceeds from the sale of common stock, $9.9 million increase in
amounts due to stockholders and $1.6 million in proceeds from lines of credit,
offset by $13.2 million in note payments. Financing activities during fiscal
year 2000 included $18.5 million in proceeds from loans obtained to acquire
Island Pacific, $9.6 million in proceeds from the exercise of options and
private sale of common stock and $2.3 million in proceeds from lines of credit,
offset in part by $1.5 million in loan payments.

     Changes in the currency exchange rates of our foreign operations had the
effect of decreasing cash by $0.1 million in the fiscal years ended March 31,
2002 and 2001 and $0.3 million in the fiscal year ended March 31, 2000.

                                       27

<PAGE>

     CONTRACTUAL OBLIGATIONS

     THE FOLLOWING TABLE SUMMARIZES OUR CONTRACTUAL OBLIGATIONS, INCLUDING
PURCHASE COMMITMENTS AT MARCH 31, 2002, AND THE EFFECT SUCH OBLIGATIONS ARE
EXPECTED TO HAVE ON OUR LIQUIDITY AND CASH FLOW IN FUTURE PERIODS.

<TABLE>
<CAPTION>

                                                            For the fiscal years ending March 31,
                                                            -------------------------------------
Contractual Cash Obligations                 2003            2004            2005            2006        Thereafter
----------------------------                 ----            ----            ----            ----        ----------
                                                                        (in thousands)
<S>                                         <C>             <C>             <C>             <C>             <C>
Operating leases                            $  752          $  724          $  704          $  192          $    7
Capital leases                              $   73          $   18
Term loans                                  $  833          $7,345
Convertible notes due stockholders          $               $1,421
Demand loans due stockholders               $  618
Payables aged over 90 days                  $  449
Other long-term obligations                 $  200
                                            -------         -------         -------         -------         -------
   Total contractual cash obligations       $2,925          $9,508          $  704          $  192          $    7
                                            =======         =======         =======         =======         =======


                                                            For the fiscal years ending March 31,
                                                            -------------------------------------
Other Commercial Commitments                 2003            2004            2005            2006        Thereafter
----------------------------                 ----            ----            ----            ----        ----------
                                                                        (in thousands)
Guarantees                                  $  187
                                            -------         -------         -------         -------         -------
   Total commercial commitments             $  187
                                            =======         =======         =======         =======         =======
</TABLE>

UNION BANK

On June 29, 2001, we entered into an amended and restated loan agreement with
Union Bank with respect to the $7.4 million owing under the our term loan. The
maturity date under the restated agreement was May 1, 2002, but we had a right
to extend that date to November 1, 2002 if we satisfied certain conditions,
including our achieving certain earnings targets. We are required to pay monthly
interest at 5% over the bank reference rate, increased by an additional 2% for
late payments of principal and interest. We were required to make an initial
$210,000 principal payment in August 2001, and monthly principal payments of
$50,000 beginning October 1, 2001. Monthly principal payments were to increase
to $100,000 on May 1, 2002 upon an extension of the maturity date. We had
difficulty making both interest and principal payments during fiscal 2002, and
the bank extended on several occasions the due dates for required payments. We
are required to use any proceeds in excess of $6 million we receive from private
equity placements to reduce principal under the loan. We are also prohibited
from making any payments on certain subordinated obligations, including the ICM
convertible notes. The entire amount owed to the bank is secured by
substantially all of our assets and those of our subsidiaries and 10,700,000
shares of our treasury stock. The restated agreement also contains limitations
on acquisitions, investments and other borrowings.

     We agreed to pay the bank a loan restructuring fee of $200,000, originally
due May 1, 2002 (or if the maturity date is extended, $150,000 on May 1, 2002
and $50,000 on November 1, 2002), but the fee would be waived if we discharged
the loan before May 1, 2002. We are also required to reimburse the bank for
certain other expenses incurred during the term of the loan.

     On March 18, 2001, the loan agreement was amended to release certain
collateral from the pledge to Union Bank, and to instead pledge to the bank the
10,700,000 shares of our common stock surrender by Softline in the related
recapitalization transactions with Softline described above under the heading
"Financing Transactions -- Softline." The released collateral was our shares in
our Australian subsidiary, and the IBIS note and related shares of Integrity
Software.

                                       28

<PAGE>

     On May 21, 2002, the bank further amended the agreement to extend the
maturity date to May 1, 2003 and to revise other terms and conditions. We agreed
to pay to the bank $100,000 as a loan extension fee, payable in four monthly
installments of $25,000 each commencing on June 30, 2002. If we failed to pay
any installment when due, the loan extension fee was to increase to $200,000,
and the monthly payments were to increase accordingly. We also agreed to pay all
overdue interest and principal by June 30, 2002, and to pay monthly installments
of $24,000 commencing on June 30, 2002 and ending April 30, 2003 for the bank's
legal fees.

     We were not able to make the payments required in June 2002. We were also
out of compliance with certain financial covenants as of June 28, 2002.
Effective July 15, 2002, the bank further amended the restated term loan
agreement, and waived the then existing defaults. Under this third amendment to
the restated agreement, the bank agreed to waive the application of the
additional 2% interest rate for late payments of principal and interest, and to
waive the additional $100,000 refinance fee required by the second amendment.
The bank also agreed to convert $361,000 in accrued and unpaid interest and
fees to term loan principal, and we executed a new term note in total principal
amount of $7.2 million. We are required to make a principal payment of $35,000
on October 15, 2002, principal payments of $50,000 on each of November 15, 2002
and December 15, 2002, and consecutive monthly principal payments of $100,000
each on the 15th day of each month thereafter through August 15, 2003. The
entire amount of principal and accrued interest is due August 31, 2003. The bank
also agreed to eliminate certain financial covenants and to ease others, and we
are in compliance with the revised covenants.

     We also agreed to issue a contingent warrant to an affiliate of the bank to
purchase up to 4.99% of the number of outstanding common shares on January 2,
2003 for $0.01 per share. The warrant will be issued and exercisable for shares
equal to 1% of our outstanding common stock on January 2, 2003, and will become
exercisable for shares equal to an additional 0.5% of our outstanding common
stock on the first day each month thereafter, until it is exercisable for the
full 4.99% of our outstanding common stock. The warrant will not become
exercisable to the extent that we have discharged in full our bank indebtedness
prior to a vesting date. Accordingly, the warrant will not become exercisable
for any shares if we discharge our bank indebtedness in full prior to January 2,
2003; and if the warrant does become partially exercisable on such date, it will
cease further vesting as of the date we discharge in full the bank indebtedness.

     NATIONAL AUSTRALIA BANK LIMITED

     Our Australian subsidiary maintained an AUS$1,000,000 (approximately
US$510,000) line of credit facility with National Australia Bank Limited. The
facility was secured by substantially all of the assets of our Australian
subsidiary, and we have guaranteed all amounts owing on the facility. In April
2001, we received a formal demand under our guarantee for the full AUS$971,000
(approximately US$495,000) then alleged by the bank to be due under the
facility. Due to the declining performance of our Australian subsidiary, we
decided in the third quarter of fiscal 2002 to sell certain assets of the
Australian subsidiary to the former management of such subsidiary, and then
cease Australian operations. Such sale was however subject to the approval of
National Australia Bank, the subsidiary's secured lender. The bank did not
approve the sale and the subsidiary ceased operations in February 2002. The bank
caused a receiver to be appointed in February 2002 to sell substantially all of
the assets of the Australian subsidiary and pursue collections on any
outstanding receivables. The receiver proceeded to sell substantially all of the
assets for $300,000 in May 2002 to the entity affiliated with former management,
and is actively pursuing the collection of receivables. If the sale proceeds
plus collections on receivables are insufficient to discharge the indebtedness
to National Australia Bank, we may be called upon to pay the deficiency under
our guarantee to the bank. We have accrued $187,000 as the maximum amount of our
potential exposure. The receiver has also claimed that we are obligated to it
for inter-company balances of $636,000, but we do not believe any amounts are
owed to the receiver, who has not as of the date of this report acknowledged the
monthly corporate overhead recovery fees and other amounts charged by us to the
Australian subsidiary offsetting the amount claimed to be due.

     OTHER INDEBTEDNESS, INCLUDING RELATED PARTIES

     In connection with our acquisition of Island Pacific, we also borrowed $2.3
million with no stated maturity date from three entities in June 1999. $1.5
million of such amount was borrowed from Claudav Holdings Ltd. B.V., a
significant stockholder. The balance due on these loans at March 31, 2002 was
$0.6 million. The loans bear interest at the prime rate and are due upon demand.

     We issued convertible notes to entities related to ICM Asset Management,
Inc., which notes are to be amended in July 2002. See "Financing Transactions --
ICM Asset Management, Inc." above.

     In May 2001, December 2001 and May 2002, we borrowed $50,000, $125,000 and
$70,000 from World Wide Business Centres, a company affiliated with Donald S.
Radcliffe, a director, to meet payroll expenses. These amounts were repaid
together with interest at the then-effective prime rate, promptly as revenues
were received, and are paid in full as of the date of this report.

                                       29
<PAGE>

     CASH POSITION

     As a result of our indebtedness and net losses for the past three years, we
have experienced significant strains on our cash resources. In order to manage
our cash resources, we reduced expenses and discontinued our Australian
operations. We have also extended payment terms with many of our trade creditors
wherever possible, and we have diligently focused our collection efforts on our
accounts receivable. We had a negative working capital of $5.3 million and $2.8
million at March 31, 2002 and 2001, respectively.

     We were unable to make timely, monthly rent payments due for our Irvine and
Carlsbad facilities during the first quarter of fiscal 2003. We renegotiated
rent terms with the landlords of our Irvine and Carlsbad facilities in June
2002, and we are currently in compliance with the renegotiated terms.

     As discussed above, we renegotiated on several occasions our agreements
with Union Bank after we were unable to make payments which would have otherwise
been required under these agreements. Other than cash on hand, we have no unused
sources of liquid assets.

     Management has been actively engaged in attempts to resolve our liquidity
problems. We negotiated extensions of the maturity of our major indebtedness to
the second quarter of fiscal 2004, and as a result, we believe we will have
sufficient cash to remain in compliance with our debt obligations, and meet our
critical operating obligations, for the next twelve months. We are nonetheless
actively seeking a private equity placement to help discharge aged payables,
pursue growth initiatives and prepay bank indebtedness. We have no binding
commitments for funding at this time. Financing may not be available on terms
and conditions acceptable to us, or at all.

RECENT ACCOUNTING PRONOUNCEMENTS

     In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations." SFAS 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. The adoption of SFAS 141 did not have a significant
impact on our financial statements.

     In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which is effective
for fiscal years beginning after December 15, 2001. SFAS 142 prohibits the
amortization of goodwill and intangible assets with indefinite useful lives but
requires that these assets be reviewed for impairment at least annually or on an
interim basis if an event occurs or circumstances change that could indicate
that their value has diminished or been impaired. Other intangible assets will
continue to be amortized over their estimated useful lives. We evaluate the
remaining useful lives of these intangibles on an annual basis to determine
whether events or circumstances warrant a revision to the remaining period of
amortization. Pursuant to SFAS 142, amortization of goodwill and assembled
workforce intangible assets recorded in business combinations prior to June 30,
2001 ceased effective March 31, 2002. Goodwill resulting from business
combinations completed after June 30, 2001, will not be amortized. We recorded
amortization expense of approximately $2.2 million on goodwill during the fiscal
year ended March 31, 2002. We currently estimate that application of the
non-amortization provisions of SFAS 142 will reduce amortization expense and
increase net income by approximately $2.2 million in fiscal 2003.

     We tested goodwill for impairment during the 2003 fiscal year, and the
resulting impairment of $0.6 million will be recorded as a cumulative effect of
a change in accounting principle in the first quarter of fiscal 2003.

     In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 143 ("SFAS 143"), "Accounting for Asset Retirement Obligations." This
statement applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and/or the normal operation of long-lived assets, except for certain obligations
of lessees. The adoption of SFAS No. 143 did not have a significant impact on
our consolidated financial statements.

     In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS 144 supercedes SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 144 applies
to all long-lived assets (including discontinued operations) and consequently
amends APB Opinion 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." SFAS 144 develops one
accounting model for long-lived assets that are to be disposed of by sale. SFAS
144 requires that long-lived assets that are to be disposed of by sale be
measured at the lower of book value or fair value cost to sell. Additionally
SFAS 144 expands the scope of discontinued operations to include all components
of an entity with operations that (1) can be distinguished from the rest of the
entity and (2) will be eliminated from the ongoing operations of the entity in a
disposal transaction. SFAS 144 is effective for fiscal years beginning after
December 15, 2001. The accounting prescribed in SFAS 144 was applied in
connection with the disposal of our Australian subsidiary.

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<PAGE>

     In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145 ("SFAS 145"), "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145
updates, clarifies, and simplifies existing accounting pronouncements. This
statement rescinds SFAS No. 4, which required all gains and losses from
extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. As a result, the criteria
in APB No. 30 will now be used to classify those gains and losses. SFAS No. 64
amended SFAS No. 4 and is no longer necessary as SFAS No. 4 has been rescinded.
SFAS No. 44 has been rescinded as it is no longer necessary. SFAS No. 145 amends
SFAS No. 13 to require that certain lease modifications that have economic
effects similar to sale-leaseback transactions to be accounted for in the same
manner as sale-lease transactions. This statement also makes technical
corrections to existing pronouncements. While those corrections are not
substantive in nature, in some instances, they may change accounting practice.
We do not expect adoption of SFAS No. 145 to have material impact, if any, on
our financial position or results of operations.

     In November 2001, the FASB issued a Staff Announcement Topic D-103 ("Topic
D-103"), "Income Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred". Topic D-103 establishes that reimbursements
received for out-of-pocket expenses should be reported as revenue in the income
statement. Currently, we classify reimbursed out-of-pocket expenses as a
reduction in cost of consulting services. We are required to adopt the guidance
of Topic D-103 in the first quarter of fiscal year 2003 and our consolidated
statements of operations for prior periods will be reclassified to conform to
the new presentation. The adoption of Topic D-103 will result in an increase in
reported net sales and cost of sales; however, it will not affect net income or
loss in any past or future periods.

BUSINESS RISKS

     Investors should carefully consider the following risk factors and all
other information contained in this Form 10-K. Investing in our common stock
involves a high degree of risk. In addition to those described below, risks and
uncertainties that are not presently known to us or that we currently believe
are immaterial may also impair our business operations. If any of the following
risks occur, our business could be harmed, the price of our common stock could
decline and our investors may lose all or part of their investment. See the note
regarding forward-looking statements included at the beginning of this Form
10-K.

WE INCURRED LOSSES IN FISCAL YEARS 2002, 2001 AND 2000.

     We incurred losses of $14.7 million, $28.9 million and $4.1 million in the
fiscal years ended March 31, 2002, 2001 and 2000. The losses in the past two
years have generally been due to difficulties completing sales for new
application software licenses, the resulting change in sales mix toward lower
margin services, and debt service expenses. We will need to generate additional
revenue to achieve profitability in future periods. Failure to achieve
profitability, or maintain profitability if achieved, may have a material
adverse effect on our business and stock price.

WE HAVE NEGATIVE WORKING CAPITAL, AND WE HAVE EXTENDED PAYMENT TERMS WITH A
NUMBER OF OUR SUPPLIERS.

     At March 31, 2002 and 2001, we had negative working capital of $5.3 million
and $2.8 million, respectively. We have had difficulty meeting operating
expenses, including interest payments on debt, lease payments and supplier
obligations. We have at times deferred payroll for our executives offices, and
borrowed from related parties to meet payroll obligations. We have extended
payment terms with our trade creditors wherever possible.

                                       31

<PAGE>

     As a result of extended payment arrangements with suppliers, we may be
unable to secure products and services necessary to continue operations at
current levels from these suppliers. In that event, we will have to obtain these
products and services from other parties, which could result in adverse
consequences to our business, operations and financial condition.

OUR NET SALES HAVE DECLINED. WE EXPERIENCED A SUBSTANTIAL DECREASE IN
APPLICATION SOFTWARE LICENSE SALES. OUR GROWTH AND PROFITABILITY IS DEPENDENT ON
THE SALE OF HIGHER MARGIN LICENSES.

     Our net sales decreased by 2% in the fiscal year ended March 31, 2002
compared to the fiscal year ended March 31, 2001. Net sales for the fiscal year
ended March 31, 2001 decreased 4% compared to the fiscal year ended March 31,
2000. We experienced a substantial decrease in application license software
sales, which typically carry a much higher margin than other revenue sources. We
must improve new application license sales to become profitable. We have taken
steps to refocus our sales strategy on core historic competencies, but our
typically long sales cycles make it difficult to evaluate whether and when sales
will improve. We cannot be sure that the decline in sales has not been due to
factors which might continue to negatively affect sales.

OUR FINANCIAL CONDITION MAY INTERFERE WITH OUR ABILITY TO SELL NEW APPLICATION
SOFTWARE LICENSES.

     Future sales growth may depend on our ability to improve our financial
condition. Our current financial condition has made it more difficult for us to
complete sales of new application software licenses. Because our applications
typically require lengthy implementation and extended servicing arrangements,
potential customers require assurance that these services will be available for
the expected life of the application. These potential customers may defer buying
decisions until our financial condition improves, or may choose the products of
our competitors whose financial condition is or is perceived to be stronger.
Customer deferrals or lost sales will adversely affect our business, financial
conditions and results of operations.

OUR SALES CYCLES ARE LONG AND PROSPECTS ARE UNCERTAIN. THIS MAKES IT DIFFICULT
FOR US TO PREDICT REVENUES AND BUDGET EXPENSES.

     The length of sales cycles in our business makes it difficult to evaluate
the effectiveness of our sales strategies. Our sales cycles historically ranged
from three to twelve months, which caused significant fluctuations in revenues
from period to period. Due to our difficulties in completing new application
software sales in recent periods and our refocused sales strategy, it is
difficult to predict revenues and properly budget expenses.

     Our software applications are complex and perform or directly affect
mission-critical functions across many different functional and geographic areas
of the retail enterprise. In many cases, our customers must change established
business practices when they install our software. Our sales staff must dedicate
significant time consulting with a potential customer concerning the substantial
technical and business concerns associated with implementing our products. The
purchase of our products is often discretionary, so lengthy sales efforts may
not result in a sale. Moreover, it is difficult to predict when a license sale
will occur. All of these factors can adversely affect our business, financial
condition and results of operations.

OUR OPERATING RESULTS HAVE FLUCTUATED SIGNIFICANTLY IN THE PAST, AND THEY MAY
CONTINUE TO DO SO IN THE FUTURE, WHICH COULD ADVERSELY AFFECT OUR STOCK PRICE.

         Our quarterly operating results have fluctuated significantly in the
past and may fluctuate in the future as a result of several factors, many of
which are outside of our control. If revenue declines in a quarter, our
operating results will be adversely affected because many of our expenses are
relatively fixed. In particular, sales and marketing, application development
and general and administrative expenses do not change significantly with
variations in revenue in a quarter. It is likely that in some future quarter our
net sales or operating results will be below the expectations of public market
analysts or investors. If that happens, our stock price will likely decline.

                                       32
<PAGE>

OUR REVENUE MAY VARY FROM PERIOD TO PERIOD, WHICH MAKES IT DIFFICULT TO PREDICT
FUTURE RESULTS.

     Factors outside our control that could cause our revenue to fluctuate
significantly from period to period include:

     o    the size and timing of individual orders, particularly with respect to
          our larger customers;
     o    general health of the retail industry and the overall economy;
     o    technological changes in platforms supporting our software products;
     o    customer order deferrals in anticipation of our and our competitors'
          new offerings; and
     o    market acceptance of new applications and related services.

     The factors within our control include:

     o    acquisitions and dispositions of businesses;
     o    changes in our strategies; and
     o    non-recurring sales of assets and technologies.

     In particular, we usually deliver our software applications when contracts
are signed, so order backlog at the beginning of any quarter may represent only
a portion of that quarter's expected revenues. As a result, application license
revenues in any quarter are substantially dependent on orders booked and
delivered in that quarter, and this makes it difficult for us to accurately
predict revenues. We have experienced, and we expect to continue to experience,
quarters or periods where individual application license or services orders are
significantly larger than our typical application license or service orders.
Because of the nature of our offerings, we may get one or more large orders in
one quarter from a customer and then no orders the next quarter.

OUR EXPENSES MAY VARY FROM PERIOD TO PERIOD, WHICH COULD AFFECT QUARTERLY
RESULTS AND OUR STOCK PRICE.

     If we incur additional expenses in a quarter in which we do not experience
increased revenue, our results of operations would be adversely affected and we
may incur losses for that quarter. Factors that could cause our expenses to
fluctuate from period to period include:

     o    the extent of marketing and sales efforts necessary to promote and
          sell our applications and services;
     o    the timing and extent of our development efforts; and
     o    the timing of personnel hiring.

IT IS DIFFICULT TO EVALUATE OUR PERFORMANCE BASED ON PERIOD TO PERIOD
COMPARISONS OF OUR RESULTS.

     The many factors which can cause revenues and expenses to vary make
meaningful period to period comparisons of our results difficult. We do not
believe period to period comparisons of our financial performance are
necessarily meaningful, and you cannot rely on them as an indication of our
future performance.

WE MAY EXPERIENCE SEASONAL DECLINES IN SALES, WHICH COULD CAUSE OUR OPERATING
RESULTS TO FALL SHORT OF EXPECTATIONS IN SOME QUARTERS.

     We may experience slower sales of our applications and services from
October through December of each year as a result of retailers' focus on the
holiday retail-shopping season. This can negatively affect revenues in our third
fiscal quarter and in other quarters, depending on our sales cycles.

WE HAVE SUBSTANTIAL DEBT WHICH ADVERSELY AFFECTS US.

     We have a substantial amount of debt, including the following as of July
15, 2002:

     o    A $7.2 million term loan from Union Bank due August 31, 2003. The term
          loan is secured by substantially all of our assets and 10,700,000
          shares of our treasury stock.

                                       33
<PAGE>

     o    $0.6 million due to stockholders on demand.

     o    $1.25 million in convertible notes reissued in July 2002 to entities
          related to ICM Asset Management due September 30, 2003.

     The substantial amount of our indebtedness impacts us in a number of ways:

     o    We have to dedicate a portion of cash flow from operations to
          principal and interest payments on the debt, which reduces funds
          available for other purposes.

     o    We may not have sufficient funds to pay monthly principal and interest
          payments, which could lead to a default.

     o    The existing debt makes it difficult for us to obtain additional
          financing for working capital or other purposes.

     o    The debt detracts from our ability to successfully withstand downturns
          in our business or in the economy.

     o    If we default on our Union Bank indebtedness, the bank could take
          control of the substantial majority of our assets.

     These factors generally place us at a disadvantage to our less leveraged
competitors. Any or all of these factors could cause our stock price to decline.

     During the past three fiscal years, we renegotiated on several occasions
our agreements with Union Bank after we were unable to make payments required
under these agreements. Union Bank may not be willing to renegotiate our
indebtedness in the future if we are unable to make required payments. We will
likely need outside sources of capital to pay our Union Bank obligations upon
maturity.

OUR BANK LOAN IMPOSES RESTRICTIONS ON US AND ON OUR ABILITY TO TAKE IMPORTANT
ACTIONS. THESE RESTRICTIONS MAY AFFECT OUR ABILITY TO SUCCESSFULLY OPERATE OUR
BUSINESS.

     We are restricted by the terms of our outstanding Union Bank loan agreement
from taking various actions, such as incurring additional indebtedness, paying
dividends, paying subordinated obligations, entering into transactions with
affiliates, merging with other entities and selling all or substantially all of
our assets. These restrictions could also limit our ability to obtain future


                                       34
<PAGE>

financing, make needed capital expenditures, withstand a future downturn in our
business or the economy in general, or otherwise conduct our business. We may
also be prevented from taking advantage of business opportunities that arise
because of the limitations imposed on us by the restrictive covenants under the
Union Bank loan. A breach of any of these provisions could result in a default
under the loan agreement, and upon a default, Union Bank could declare all
indebtedness immediately due and payable. If we were unable to pay those
amounts, Union Bank could take control of the substantial majority of our
assets.

FLUCTUATIONS IN INTEREST RATES COULD INCREASE OUR INTEREST EXPENSE AND REDUCE
CASH AVAILABLE FOR OTHER PURPOSES.

     Our indebtedness with Union Bank and some of our other indebtedness require
us to pay interest based on a rate which floats with market interest rates. If
market interest rates increase, our interest expense will increase, which will
reduce our earnings and reduce cash available for other purposes. At March 31,
2002, our total borrowings subject to variable interest rates was $7.5 million.
Based on this balance, a one percent increase in interest rates would cause a
change in interest expense of approximately $75,000 on an annual basis.

WE HAVE RELIED ON CAPITAL CONTRIBUTED BY RELATED PARTIES, AND SUCH CAPITAL MAY
NOT BE AVAILABLE IN THE FUTURE.

     Our cash from operations has not been sufficient to meet our operational
needs, and we have relied on capital from related parties. A company affiliated
with Donald S. Radcliffe, one of our directors, made short-term loans to us in
fiscal 2002 and in the first quarter of fiscal 2003 to meet payroll when cash on
hand was not sufficient. Softline loaned us $10 million to make a required
principal payment on our Union Bank term loan in July 2000. A subsidiary of
Softline loaned us an additional $600,000 in November 2000 to meet working
capital needs. This loan was repaid in February 2001, in part with $400,000 we
borrowed from Barry M. Schechter, our Chairman. We borrowed an additional
$164,000 from Mr. Schechter in March 2001 for operational needs related to our
Australian subsidiary.

     We may not be able to obtain capital from related parties in the future.
Neither Softline, Mr. Schechter, Mr. Radcliffe nor any other officers,
directors, stockholders or related parties are under any obligation to continue
to provide cash to meet our future liquidity needs.

WE NEED TO RAISE CAPITAL TO REPAY DEBT AND GROW OUR BUSINESS. OBTAINING THIS
CAPITAL COULD IMPAIR THE VALUE OF YOUR INVESTMENT.

     We need to raise capital to discharge our aged payables and grow our
business. We will also likely need to raise capital to pay our Union Bank
obligations upon maturity in August 2003. We may also need to raise further
capital to:

     o    support unanticipated capital requirements;
     o    take advantage of acquisition or expansion opportunities;
     o    continue our current development efforts;
     o    develop new applications or services; or
     o    address working capital needs.

     Our future capital requirements depend on many factors including our
application development, sales and marketing activities. We do not know whether
additional financing will be available when needed, or available on terms
acceptable to us. If we cannot raise needed funds for the above purposes on
acceptable terms, we may be forced to curtail some or all of the above
activities and we may not be able to grow our business or respond to competitive
pressures or unanticipated developments.

     We may raise capital through public or private equity offerings or debt
financings. To the extent we raise additional capital by issuing equity
securities, our stockholders may experience substantial dilution and the new
equity securities may have greater rights, preferences or privileges than our
existing common stock.

                                       35

<PAGE>

INTANGIBLE ASSETS MAY BE IMPAIRED MAKING IT MORE DIFFICULT TO OBTAIN FINANCING.

     Goodwill, capitalized software, non-compete agreements and other intangible
assets represent 89% of our total assets as of March 31, 2002 and represent more
than our stockholders' equity. We may have to impair or write-off these assets,
which will cause a charge to earnings and could cause our stock price to
decline.

     Any such impairments will also reduce our assets, as well as the ratio of
our assets to our liabilities. These balance sheet effects could make it more
difficult for us to obtain capital, and could make the terms of capital we do
obtain more unfavorable to our existing stockholders.

FOREIGN CURRENCY FLUCTUATIONS MAY IMPAIR OUR COMPETITIVE POSITION AND AFFECT OUR
OPERATING RESULTS.

     Fluctuations in currency exchange rates affect the prices of our
applications and services and our expenses, and foreign currency losses will
negatively affect profitability or increase losses. Approximately 17%, 22% and
37% of our net sales were outside North America, principally in Australia and
the United Kingdom, in the fiscal years ended March 31, 2002, 2001 and 2000,
respectively. Many of our expenses related to foreign sales, such as corporate
level administrative overhead and development, are denominated in U.S. dollars.
When accounts receivable and accounts payable arising from international sales
and services are converted to U.S. dollars, the resulting gain or loss
contributes to fluctuations in our operating results. We do not hedge against
foreign currency exchange rate risks.

IF WE CANNOT MANAGE ADDITIONAL CHALLENGES PRESENTED BY OUR INTERNATIONAL
OPERATIONS, OUR REVENUES AND PROFITABILITY MAY SUFFER.

     A portion of our net sales are outside the United States and part of our
growth strategy depends on increasing international sales. If we cannot increase
our international sales, we may not be able to achieve our business objectives.
We have already devoted resources to, and expect to continue to devote resources
to, our expansion into foreign countries, particularly to expand our sales
force. To increase international sales in the future, we must establish
additional foreign operations, hire additional personnel and further exploit
strategic relationships. The countries in which we operate may not have a
sufficient pool of qualified personnel from which to hire, and we may not be
successful at hiring, training or retraining personnel.

     There are many risks inherent in our international business activities. For
example:

     o    we are subject to many foreign regulatory requirements which may
          change without notice;
     o    our expenses related to sales and marketing and development may
          increase;
     o    localizing products for foreign countries involves costs and risks of
          non-acceptance;
     o    we are subject to various export restrictions, and export licenses may
          not always be available;
     o    we are subject to foreign tariffs and other trade barriers;
     o    we may become subject to higher tax rates or taxation in more than one
          jurisdiction;
     o    some of the foreign countries that we deal with suffer from political
          and economic instability;
     o    we may have less protection for our intellectual property rights;
     o    consulting, maintenance and service revenues may have lower margins in
          foreign countries;
     o    we may not be able to move earnings back to the United States;
     o    it can be more difficult to staff and manage our foreign operations;
          and
     o    we may have difficulty collecting accounts receivable.

     Any of these factors could negatively affect our financial performance and
results of operations and cause our stock price to decline.

WE HAVE A SINGLE CUSTOMER REPRESENTING A SIGNIFICANT AMOUNT OF OUR BUSINESS.

     Toys "R" Us, accounted for 42%, 29% and 15% of our net sales for the fiscal
years ended March 31, 2002, 2001 and 2000, respectively. While we have a
development agreement with this customer, Toys has the right to terminate the
agreement without cause with limited advance notice. A reduction, delay or
cancellation of orders from Toys "R" Us would significantly reduce our revenues


                                       36
<PAGE>

and force us to substantially curtail operations. We cannot provide any
assurances that Toys "R" Us or any of our current customers will continue at
current or historical levels or that we will be able to obtain orders from new
customers.

IF WE LOSE THE SERVICES OF ANY MEMBER OF OUR SENIOR MANAGEMENT OR KEY TECHNICAL
AND SALES PERSONNEL, OR IF WE ARE UNABLE TO RETAIN OR ATTRACT ADDITIONAL
TECHNICAL PERSONNEL, OUR ABILITY TO CONDUCT AND EXPAND OUR BUSINESS WILL BE
IMPAIRED.

     We are heavily dependent on Barry M. Schechter, our CEO, and on other key
management personnel. Mr. Schechter has an employment agreement with us. Mr.
Schechter's employment agreement expires September 30, 2003 and may be
terminated on 14 days notice. We also believe our future success will depend
largely upon our ability to attract and retain highly-skilled software
programmers, managers, and sales and marketing personnel. Competition for
personnel is intense, particularly in international markets. The software
industry is characterized by a high level of employee mobility and aggressive
recruiting of skilled personnel. We compete against numerous companies,
including larger, more established companies, for our personnel. We may not be
successful in attracting or retaining skilled sales, technical and managerial
personnel. The loss of key employees or our inability to attract and retain
other qualified employees could negatively affect our financial performance and
cause our stock price to decline.

WE ARE DEPENDENT ON THE RETAIL INDUSTRY, AND IF ECONOMIC CONDITIONS IN THE
RETAIL INDUSTRY DECLINE, OUR REVENUES MAY DECLINE. RETAIL SALES MAY BE SLOWING.

     Our future growth is critically dependent on increased sales to the retail
industry. We derive the substantial majority of our revenues from the licensing
of software applications and the performance of related professional and
consulting services to the retail industry. Demand for our applications and
services could decline in the event of consolidation, instability or downturns
in the retail industry. This decline would likely cause reduced sales and could
impair our ability to collect accounts receivable. The result would be reduced
earnings and weakened financial condition, each or both of which would likely
cause our stock price to decline.

     The success of our customers is directly linked to economic conditions in
the retail industry, which in turn are subject to intense competitive pressures
and are affected by overall economic conditions. In addition, the retail
industry may be consolidating, and it is uncertain how consolidation will affect
the industry. The retail industry as a whole is currently experiencing increased
competition and weakening economic conditions that could negatively impact the
industry and our customers' ability to pay for our products and services. Such
consolidation and weakening economic conditions have in the past, and may in the
future, negatively impact our revenues, reduce the demand for our products and
may negatively impact our business, operating results and financial condition.
Weakening economic conditions and the September 11, 2001 terrorist attack have
adversely impacted sales of our software applications, and we believe mid-tier
specialty retailers may be reluctant during the current economic slowdown to
make the substantial infrastructure investment that generally accompanies the
implementation of our software applications.

THERE MAY BE AN INCREASE IN CUSTOMER BANKRUPTCIES DUE TO WEAK ECONOMIC
CONDITIONS

     We have in the past and may in the future be impacted by customer
bankruptcies. During weak economic conditions, such as those currently being
experienced in many geographic regions around the world, there is an increased
risk that certain of our customers will file bankruptcy. When our customers file
bankruptcy, we may be required to forego collection of pre-petition amounts
owed, and to repay amounts remitted to us during the 90-day preference period
preceding the filing. Accounts receivable balances related to pre-petition
amounts may in certain of these instances be large due to extended payment terms
for software license fees, and significant billings for consulting and
implementation services on large projects. The bankruptcy laws, as well as the
specific circumstances of each bankruptcy, may severely limit our ability to
collect pre-petition amounts, and may force us to disgorge payments made during
the 90-day preference period. We also face risk from international customers
which file for bankruptcy protection in foreign jurisdictions, in that the
application of foreign bankruptcy laws may be less certain or harder to predict.
Although we believe that we have sufficient reserves to cover anticipated
customer bankruptcies, there can be no assurance that such reserves will be
adequate, and if they are not adequate, our business, operating results and
financial condition would be adversely affected.

                                       37
<PAGE>

OUR GROWTH IS DEPENDENT ON DEVELOPING OUR DIRECT SALES OR EXPANDING INTO OTHER
DISTRIBUTION CHANNELS. OTHER DISTRIBUTION CHANNELS CREATE RISKS THAT WE MAY NOT
MANAGE SUCCESSFULLY.

     In order to grow, we may find it necessary to expand our distribution
channels beyond direct sales, which constitute the majority of our sales. If we
begin to use resellers, they may compete with our direct sales. If we cannot
expand our direct sales, develop additional distribution channels, or manage any
potential channel conflicts, our sales may not grow.

IF WE CANNOT EXPAND INTO CERTAIN MARKET SECTORS, WE MAY NOT BE ABLE TO GROW OUR
BUSINESS.

     In order to grow our business, we need to expand our customer base and the
types and size of retailers we serve. We currently serve only the specialty
goods, mass merchants and department store markets. Our applications and
services may not gain acceptance in or meet the expectations and needs of other
types and size of retailer or other sectors.

WE MAY NOT BE ABLE TO MAINTAIN OR IMPROVE OUR COMPETITIVE POSITION BECAUSE OF
THE INTENSE COMPETITION IN THE RETAIL SOFTWARE INDUSTRY.

     We conduct business in an industry characterized by intense competition.
Most of our competitors are very large companies with an international presence.
We must also compete with smaller companies which have been able to develop
strong local or regional customer bases. Many of our competitors and potential
competitors are more established, benefit from greater name recognition and have
significantly greater resources than us. Our competitors may also have lower
cost structures and better access to the capital markets than us. As a result,
our competitors may be able to respond more quickly than we can to new or
emerging technologies and changes in customer requirements. Our competitors may:

     o    introduce new technologies that render our existing or future products
          obsolete, unmarketable or less competitive;

     o    make strategic acquisitions or establish cooperative relationships
          among themselves or with other solution providers, which would
          increase the ability of their products to address the needs of our
          customers; and

     o    establish or strengthen cooperative relationships with our current or
          future strategic partners, which would limit our ability to compete
          through these channels.

     We could be forced to reduce prices and suffer reduced margins and market
share due to increased competition from providers of offerings similar to, or
competitive with, our applications, or from service providers that provide
services similar to our services. Competition could also render our technology
obsolete. For a further discussion of competitive factors in our industry, see
"Description of Business" above under the heading "Competition."

OUR MARKETS ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE, SO OUR SUCCESS DEPENDS
HEAVILY ON OUR ABILITY TO DEVELOP AND INTRODUCE NEW APPLICATIONS AND RELATED
SERVICES.

     The retail software industry is characterized by rapid technological
change, evolving standards and wide fluctuations in supply and demand. We must
cost-effectively develop and introduce new applications and related services
that keep pace with technological developments to compete. If we do not gain
market acceptance for our existing or new offerings or if we fail to introduce
progressive new offerings in a timely or cost-effective manner, our financial
performance will suffer.

     The success of application enhancements and new applications depends on a
variety of factors, including technology selection and specification, timely and
efficient completion of design, and effective sales and marketing efforts. In
developing new applications and services, we may:

     o    fail to respond to technological changes in a timely or cost-effective
          manner;

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<PAGE>

     o    encounter applications, capabilities or technologies developed by
          others that render our applications and services obsolete or
          non-competitive or that shorten the life cycles of our existing
          applications and services;

     o    experience difficulties that could delay or prevent the successful
          development, introduction and marketing of these new applications and
          services; or

     o    fail to achieve market acceptance of our applications and services.

     The life cycles of our applications are difficult to estimate, particularly
in the emerging electronic commerce market. As a result, new applications and
enhancements, even if successful, may become obsolete before we recoup our
investment.

OUR PROPRIETARY RIGHTS OFFER ONLY LIMITED PROTECTION AND OUR COMPETITORS MAY
DEVELOP APPLICATIONS SUBSTANTIALLY SIMILAR TO OUR APPLICATIONS AND USE SIMILAR
TECHNOLOGIES WHICH MAY RESULT IN THE LOSS OF CUSTOMERS. WE MAY HAVE TO BRING
COSTLY LITIGATION TO PROTECT OUR PROPRIETARY RIGHTS.

     Our success and competitive position is dependent in part upon our ability
to develop and maintain the proprietary aspects of our intellectual property.
Our intellectual property includes our trademarks, trade secrets, copyrights and
other proprietary information. Our efforts to protect our intellectual property
may not be successful. Effective copyright and trade secret protection may be
unavailable or limited in some foreign countries. We hold no patents.
Consequently, others may develop, market and sell applications substantially
equivalent to ours or utilize technologies similar to those used by us, so long
as they do not directly copy our applications or otherwise infringe our
intellectual property rights.

     We may find it necessary to bring claims or litigation against third
parties for infringement of our proprietary rights or to protect our trade
secrets. These actions would likely be costly and divert management resources.
These actions could also result in counterclaims challenging the validity of our
proprietary rights or alleging infringement on our part. The ultimate outcome of
any litigation will be difficult to predict.

OUR APPLICATIONS MAY INFRINGE ON THE PROPRIETARY RIGHTS OF THIRD PARTIES, WHICH
MAY EXPOSE US TO LITIGATION.

     We may become involved in litigation involving patents or proprietary
rights. Patent and proprietary rights litigation entails substantial legal and
other costs, and we do not know if we will have the necessary financial
resources to defend or prosecute our rights in connection with any such
litigation. Responding to and defending claims related to our intellectual
property rights, even ones without merit, can be time consuming and expensive
and can divert management's attention from other business matters. In addition,
these actions could cause application delivery delays or require us to enter
into royalty or license agreements. Royalty or license agreements, if required,
may not be available on terms acceptable to us, if they are available at all.
Any or all of these outcomes could have a material adverse effect on our
business, operating results and financial condition.

IF OUR APPLICATIONS ARE NOT COMPATIBLE WITH HARDWARE OR SOFTWARE PRODUCTS, OUR
SALES COULD SUFFER.

     Software sales can often be driven by advances in hardware or operating
system technology. If providers do not, or are unable to, continue to provide
state-of-the-art POS and enterprise hardware which runs our applications, our
financial performance may suffer. We do not develop hardware or operating
systems, so we are dependent upon third-party providers to develop the hardware
platforms and operating systems on which our applications run.

DEVELOPMENT AND MARKETING OF OUR OFFERINGS DEPENDS ON STRATEGIC RELATIONSHIPS
WITH OTHER COMPANIES. OUR EXISTING STRATEGIC RELATIONSHIPS MAY NOT ENDURE AND
MAY NOT DELIVER THE INTENDED BENEFITS, AND WE MAY NOT BE ABLE TO ENTER INTO
FUTURE STRATEGIC RELATIONSHIPS.

     Since we do not possess all of the technical and marketing resources
necessary to develop and market our offerings to their target markets, our
business strategy substantially depends on our strategic relationships. While
some of these relationships are governed by contracts, most are non-exclusive
and all may be terminated on short notice by either party. If these
relationships terminate or fail to deliver the intended benefits, our
development and marketing efforts will be impaired and our revenues may decline.


                                       39
<PAGE>

We may not be able to enter into new strategic relationships, which could put us
at a disadvantage to those of our competitors which do successfully exploit
strategic relationships.

OUR PRIMARY COMPUTER AND TELECOMMUNICATIONS SYSTEMS ARE IN A LIMITED NUMBER OF
GEOGRAPHIC LOCATIONS, WHICH MAKES THEM MORE VULNERABLE TO DAMAGE OR
INTERRUPTION. THIS DAMAGE OR INTERRUPTION COULD HARM OUR BUSINESS.

     Substantially all of our primary computer and telecommunications systems
are located in two geographic areas. These systems are vulnerable to damage or
interruption from fire, earthquake, water damage, sabotage, flood, power loss,
technical or telecommunications failure or break-ins. Our business interruption
insurance may not adequately compensate us for our lost business and will not
compensate us for any liability we incur due to our inability to provide
services to our customers. Although we have implemented network security
measures, our systems are vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions. These disruptions could lead to
interruptions, delays, loss of data or the inability to service our customers.
Any of these occurrences could impair our ability to serve our customers and
harm our business.

IF PRODUCT LIABILITY LAWSUITS ARE SUCCESSFULLY BROUGHT AGAINST US, WE MAY INCUR
SUBSTANTIAL LIABILITIES AND MAY BE REQUIRED TO LIMIT COMMERCIALIZATION OF OUR
APPLICATIONS.

     Our business exposes us to product liability risks. Any product liability
or other claims brought against us, if successful and of sufficient magnitude,
could negatively affect our financial performance and cause our stock price to
decline.

     Our applications are highly complex and sophisticated and they may
occasionally contain design defects or software errors that could be difficult
to detect and correct. In addition, implementation of our applications may
involve customer-specific customization by us or third parties, and may involve
integration with systems developed by third parties. These aspects of our
business create additional opportunities for errors and defects in our
applications and services. Problems in the initial release may be discovered
only after the application has been implemented and used over time with
different computer systems and in a variety of other applications and
environments. Our applications have in the past contained errors that were
discovered after they were sold. Our customers have also occasionally
experienced difficulties integrating our applications with other hardware or
software in their enterprise.

     We are not currently aware of any defects in our applications that might
give rise to future lawsuits. However, errors or integration problems may be
discovered in the future. Such defects, errors or difficulties could result in
loss of sales, delays in or elimination of market acceptance, damage to our
brand or to our reputation, returns, increased costs and diversion of
development resources, redesigns and increased warranty and servicing costs. In
addition, third-party products, upon which our applications are dependent, may
contain defects which could reduce or undermine entirely the performance of our
applications.

     Our customers typically use our applications to perform mission-critical
functions. As a result, the defects and problems discussed above could result in
significant financial or other damage to our customers. Although our sales
agreements with our customers typically contain provisions designed to limit our
exposure to potential product liability claims, we do not know if these
limitations of liability are enforceable or would otherwise protect us from
liability for damages to a customer resulting from a defect in one of our
applications or the performance of our services. Our product liability insurance
may not cover all claims brought against us.

                                       40

<PAGE>

SOFTLINE LIMITED HAS THE RIGHT TO ACQUIRE A CONTROLLING PERCENTAGE OF OUR COMMON
STOCK, SO WE MAY BE EFFECTIVELY CONTROLLED BY SOFTLINE AND OUR OTHER
STOCKHOLDERS ARE UNABLE TO AFFECT THE OUTCOME OF STOCKHOLDER VOTING.

     Softline Limited beneficially owns 57.0% of our outstanding common stock,
including shares Softline has the right to acquire upon conversion of its Series
A Convertible Preferred Stock. Ivan M. Epstein, Softline's Chief Executive
Officer, and Robert P. Wilkie, Softline's Chief Financial Officer, serve on our
board of directors. If Softline converts its Series A Preferred Stock, it may
have effective control over all matters affecting us, including:

     o    the election of all of our directors;
     o    the allocation of business opportunities that may be suitable for
          Softline and us;
     o    any determinations with respect to mergers or other business
          combinations involving us;
     o    the acquisition or disposition of assets or businesses by us;
     o    debt and equity financing, including future issuance of our common
          stock or other securities;
     o    amendments to our charter documents;
     o    the payment of dividends on our common stock; and
     o    determinations with respect to our tax returns.

OUR BUSINESS MAY BE DISADVANTAGED OR HARMED IF SOFTLINE'S INTERESTS RECEIVE
PRIORITY OVER OUR INTERESTS.

     Conflicts of interest have and will continue to arise between Softline and
us in a number of areas relating to our past and ongoing relationships.
Conflicts may not be resolved in a manner that is favorable to us, and such
conflicts may result in harmful consequences to our business or prospects.

SOFTLINE'S INFLUENCE ON OUR COMPANY COULD MAKE IT DIFFICULT FOR ANOTHER COMPANY
TO ACQUIRE US, WHICH COULD DEPRESS OUR STOCK PRICE.

     Softline's potential voting control could discourage others from initiating
any potential merger, takeover or other change of control transaction that may
otherwise be beneficial to our business or our stockholders. As a result,
Softline's control could reduce the price that investors may be willing to pay
in the future for shares of our stock, or could prevent any party from
attempting to acquire us at any price.

OUR STOCK PRICE HAS BEEN HIGHLY VOLATILE, AND HAS RECENTLY DECLINED.

     The market price of our common stock has been, and is likely to continue to
be, volatile. When we or our competitors announce new customer orders or
services, change pricing policies, experience quarterly fluctuations in
operating results, announce strategic relationships or acquisitions, change
earnings estimates, experience government regulatory actions or suffer from
generally adverse economic conditions, our stock price could be affected. Some
of the volatility in our stock price may be unrelated to our performance.
Recently, companies similar to ours have experienced extreme price fluctuations,
often for reasons unrelated to their performance. For further information on our
stock price trends, see "Market for Company's Common Equity and Related
Stockholder Matters" above.

WE HAVE NEVER PAID A DIVIDEND ON OUR COMMON STOCK AND WE DO NOT INTEND TO PAY
DIVIDENDS IN THE FORESEEABLE FUTURE.

     We have not previously paid any cash or other dividend on our common stock.
We anticipate that we will use our earnings and cash flow for repayment of
indebtedness, to support our operations, and for future growth, and we do not
have any plans to pay dividends in the foreseeable future. Our agreement with
Union Bank prohibits us from paying dividends, and Softline is entitled to
dividends on its Series A Convertible Preferred Stock in preference and priority
to common stockholders. Future equity financing(s) may further restrict our
ability to pay dividends.

THE TERMS OF OUR PREFERRED STOCK MAY REDUCE THE VALUE OF YOUR COMMON STOCK.

     We are authorized to issue up to 5,000,000 shares of preferred stock in one
or more series. We issued 141,000 shares of Series A Convertible Preferred Stock
to Softline in May 2002. Our board of directors may determine the terms of
subsequent series of preferred stock without further action by our stockholders.
If we issue additional preferred stock, it could affect your rights or reduce
the value of your common stock. In particular, specific rights granted to future
holders of preferred stock could be used to restrict our ability to merge with
or sell our assets to a third party. These terms may include voting rights,
preferences as to dividends and liquidation, conversion and redemption rights,
and sinking fund provisions. We are actively seeking capital, and some of the
arrangements we are considering may involve the issuance of preferred stock.

                                       41

<PAGE>

FAILURE TO COMPLY WITH THE AMERICAN STOCK EXCHANGE'S LISTING STANDARDS COULD
RESULT IN OUR DELISTING FROM THAT EXCHANGE AND LIMIT THE ABILITY TO SELL ANY OF
OUR COMMON STOCK.

     Our stock is currently traded on the American Stock Exchange. The Exchange
has published certain guidelines it uses in determining whether a security
warrants continued listing. These guidelines include financial, market
capitalization and other criteria, and as a result of our financial condition or
other factors, the Exchange could in the future determine that our stock does
not merit continued listing. If our stock were delisted from the American Stock
Exchange, the ability of our stockholders to sell our common stock could become
limited, and we would lose the advantage of some state and federal securities
regulations imposing lower regulatory burdens on exchange-traded issuers.

DELAWARE LAW AND SOME PROVISIONS OF OUR CHARTER AND BYLAWS MAY ADVERSELY AFFECT
THE PRICE OF YOUR STOCK.

     Special meetings of our stockholders may be called only by the Chairman of
the Board, the Chief Executive Officer or the Board of Directors. Stockholders
have no right to call a meeting and may not act by written consent. Stockholders
must also comply with advance notice provisions in our bylaws in order to
nominate directors or propose matters for stockholder action. These provisions
of our charter documents, as well as certain provisions of Delaware law, could
delay or make more difficult certain types of transactions involving a change in
control of the company or our management. Delaware law also contains provisions
that could delay or make more difficult change in control transactions. As a
result, the price of our common stock may be adversely affected.

SHARES ISSUED UPON THE EXERCISE OF OPTIONS AND WARRANTS COULD DILUTE YOUR STOCK
HOLDINGS AND ADVERSELY AFFECT OUR STOCK PRICE.

     We have issued options and warrants to acquire common stock to our
employees and certain other persons at various prices, some of which are or may
in the future be below the market price of our stock. If exercised in the money,
these options and warrants will cause immediate and possibly substantial
dilution to our stockholders. We currently have all of the outstanding options
and warrants for 12,282,838 million shares at prices above the recent market
price of $0.50 per share, and if the current market price increases, these
options and warrants could have a dilutive effect on stockholders if exercised.
Our existing stock option plan currently has approximately 689,000 shares
available for issuance. Future options issued under the plan may have further
dilutive effects.

     Sales of shares pursuant to exercisable options and warrants could lead to
subsequent sales of the shares in the public market, and could depress the
market price of our stock by creating an excess in supply of shares for sale.
Issuance of these shares and sale of these shares in the public market could
also impair our ability to raise capital by selling equity securities.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Market risk represents the risk of loss that may impact our consolidated
financial position, results of operations or cash flows. We are exposed to
market risks, which include changes in interest rates and changes in foreign
currency exchange rate as measured against the U.S. dollar.

INTEREST RATE RISK

     Our exposure to market risk for changes in interest rates relates to our
variable rate term loans, which totaled $7.5 million at March 31, 2002. Based on
this balance, a change in one percent in the interest rate would cause a change
in interest expense of approximately $75,000 or less than $0.01 per basic and
diluted share, on an annual basis.

                                       42
<PAGE>

     These instruments were not entered into for trading purposes and carry
interest at a pre-agreed upon percentage point spread from the bank's prime
interest rate. Our objective in maintaining these variable rate borrowings is
the flexibility obtained regarding early repayment without penalties and lower
overall cost as compared with fixed-rate borrowings.

FOREIGN CURRENCY EXCHANGE RATE RISK

     We conduct business in various foreign currencies, primarily in Europe and
until February 2002, Australia. Sales are typically denominated in the local
foreign currency, which creates exposures to changes in exchange rates. These
changes in the foreign currency exchange rates as measured against the U.S.
dollar may positively or negatively affect our sales, gross margins and retained
earnings. We attempt to minimize currency exposure risk through decentralized
sales, development, marketing and support operations, in which substantially all
costs are local-currency based. There can be no assurance that such an approach
will be successful, especially in the event of a significant and sudden decline
in the value of the foreign currency. We do not hedge against foreign currency
risk. Approximately 17%, 22%, and 37% of our total net sales were denominated in
currencies other than the U.S. dollar for the periods ended March 31, 2002, 2001
and 2000, respectively.

EQUITY PRICE RISK

     We have no direct equity investments.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Our consolidated financial statements at March 31, 2001, March 31, 2000,
and March 31, 1999 and the reports of Singer Lewak Greenbaum & Goldstein LLP and
Deloitte & Touche LLP, independent accountants, are included in this report on
pages beginning F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     On November 30, 2001, Deloitte & Touche LLP notified us that they were
resigning as our independent certified public accountants. On December 5, 2001,
we engaged Singer Lewak Greenbaum & Goldstein LLP ("Singer Lewak") as our new
independent auditors. Singer Lewak previously audited our financial statements
for the fiscal years ended March 31, 1998 and September 30, 1997, 1996, 1995 and
1994. The decision to engage Singer Lewak was recommended by the Audit Committee
of the Board of Directors and approved by the Board of Directors.

     Deloitte & Touche's reports on the financial statements for the fiscal
years ended March 31, 2001 and 2000 did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles, except as noted in the following sentence.
Deloitte & Touche's audit report on the financial statements for the year ended
March 31, 2001, dated July 13, 2001, expressed an unqualified opinion and
included an explanatory paragraph relating to substantial doubt about our
ability to continue as a going concern. Further, in connection with its audits
of our financial statements for the past two fiscal years and the subsequent
interim period immediately preceding the date of resignation of Deloitte &
Touche, we had no disagreements with Deloitte & Touche on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
Deloitte & Touche, would have caused them to make a reference to the subject
matter of the disagreements in connection with their reports on our consolidated
financial statements.

                                       43
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Our directors and executive officers, and their ages as of June 28,
2002, are as follows:
<TABLE>
<CAPTION>

               NAME                AGE                         TITLE                       DIRECTOR SINCE
   ----------------------------- --------- ---------------------------------------------- ------------------
<S>                                 <C>    <C>                                                  <C>
   Barry M. Schechter               48     Chief Executive Officer, Chairman of
                                             the Board and Director                             1994

   Arthur S. Klitofsky              48     Vice President and Director                          1994

   Coleen K. McNally                43     Chief Operating Office of Island Pacific

   Jackie O. Tran                   33     Acting Chief Financial Officer

   Donald S. Radcliffe (1)          57     Director                                             1998

   Michael Silverman (1) (2)        57     Director                                             2001

   Ian Bonner (1) (2)               47     Director                                             1998

   Ivan M. Epstein                  41     Director                                             1998

   Robert P. Wilkie                 32     Director                                             2002

</TABLE>
------------------
       (1)      Member of the Audit Committee
       (2)      Member of the Compensation Committee

         Barry M. Schechter has been our Chairman of the Board since February
1994. He has been our Chief Executive Officer since October 2001 and also held
such position from February 1994 to January 2001. He also has been Chief
Executive Officer of our predecessor and wholly-owned subsidiary, Sabica
Ventures, Inc., from its inception in February 1990. Mr. Schechter is a director
of Integrity Software, Inc. Mr. Schechter is a Chartered Accountant (South
Africa).

         Arthur S. Klitofsky has been Vice President and a director since
February 1994. He has been President of our SVI Training Products, Inc.
subsidiary since 1991. Mr. Klitofsky has a Bachelor of Science Degree in
Electrical Engineering from the University of Witwatersrand, Johannesburg, South
Africa and a Bachelor in Accounting Science Degree from the University of South
Africa.

                                       44
<PAGE>

         Coleen K. McNally became Chief Operating Officer of our Island Pacific
business unit in January 2002. Prior to such appointment, Ms. McNally held
various positions within Island Pacific since 1989. Prior to joining Island
Pacific, Ms. McNally held retail industry positions with retailers including
Software Etc., Maurice's (a division of Amcena Corporation of New York) and B.
Dalton Bookseller. Ms. NcNally has a B.S. in Business from St. Cloud State
University.

         Jackie O. Tran became our Acting Chief Financial Officer in October
2001. She has been our Controller since 1998. From November 1993 to March 1998,
Ms. Tran was controller of JMC Group, Inc., a financial services company. Ms.
Tran has a B.S. in Business from San Diego State University and is a certified
public accountant.

         Donald S. Radcliffe became a director in May 1998. He has been
President of Radcliffe & Associates since 1991. Radcliffe & Associates provides
financial consulting services to public companies, and currently provides
financial advisory services to us. Since 1984 he has also been Executive Vice
President and Chief Operating and Financial Officer of World-Wide Business
Centres, which is a privately held operator of shared office space facilities.
Mr. Radcliffe also serves as a director of Complete Wellness Centers, Inc. Mr.
Radcliffe received a B.S. from Lehigh University and an M.B.A. from Dartmouth
College. He is a certified public accountant and a member of the Audit
Committee.

         Michael Silverman became a director in January 2001. Mr. Silverman
founded Advanced Remote Communication Solutions, Inc. (formerly known as
Boatracs, Inc.) in 1990. He served as its Chairman until May 2002, and as Chief
Executive Officer and President until October 1997, and from November 1999 to
May 2002. Mr. Silverman is a Chartered Accountant (South Africa) and has
an M.B.A. from Stanford University. Mr. Silverman is a member of the Audit and
Compensation Committees.

         Ian Bonner became a director in May 1998. He is President and Chief
Executive Officer of Terraspring, Inc., a software and Internet infrastructure
company. From 1993 until April 2001, he held various positions with IBM
Corporation, including Vice President of Partner Marketing and Programs for the
IBM/Lotus/Tivoli Software Group. His responsibilities included the development
and implementation of marketing campaigns and programs designed to serve the
business partners of IBM, Lotus and Tivoli, including major accounts,
independent software vendors and global systems integrators. He also oversaw the
IBM BESTeam and the Lotus Business Partner programs which are designed to
provide enhanced opportunities, including education, marketing and training
support, to qualified providers of IBM's and Lotus's portfolio of network
solutions. Mr. Bonner received a Bachelor of Commerce from the University of the
Witwatersrand in 1976 and a graduate degree in Marketing Management and Market
Research and Advertising from the University of South Africa in 1978. Mr. Bonner
is a member of the Audit and Compensation Committees.

         Ivan M. Epstein became a director in May 1998. He is the Chairman and
Chief Executive Officer of Softline Limited, which he co-founded in 1988.
Softline is listed in the Information Technology sector of the Johannesburg
Stock Exchange (JSE:SFT) and is one of the leading accounting software vendors
in the world. Softline beneficially owns 57.0% of our common stock.

         Robert P. Wilkie became a director in June 2002. He is the Group
Financial Director and director of Softline, which he joined in 1997 as
controller. Mr. Wilkie is responsible for operational fiscal discipline, group
treasury and financial reporting across Softline. Mr. Wilkie received a Bachelor
of Commerce from the University of Cape Town in 1989 and Bachelor of Accounting
from the University of Witwatersrand in 1992. Mr. Wilkie is a Chartered
Accountant (South Africa).

                                       45
<PAGE>

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934 requires our
officers, directors and persons who own more than 10% of a class of our
securities registered under Section 12 of the Exchange Act to file reports of
ownership and changes in ownership with the SEC. Officers, directors and greater
than 10% stockholders are required by SEC regulations to furnish us with copies
of all Section 16(a) forms they file.

         Based solely on a review of copies of such reports furnished to us and
written representations that no other reports were required during the fiscal
year ended March 31, 2002, we believe that all persons subject to the reporting
requirements of Section 16(a) filed the required reports on a timely basis with
the SEC, except Kevin O'Neill, Jackie Tran, Coleen McNally and Graham Brown,
each of whom were late in filing initial Form 3 reports; Ivan Epstein, Steven
Cohen, Ian Bonner and Michael Silverman, each of whom were late in filing Form 5
reports reporting a single grant of an option to each such individual; ICM Asset
Management, Inc., which filed late one Form 4 report covering two transactions;
and Softline Limited, which has not to date filed a Form 4 reflecting the
recapitalization transactions described above under "Management's Discussion and
Analysis of Financial Condition and Results of Operation -- Financing
Transactions -- Softline."

                                       46
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

                           SUMMARY COMPENSATION TABLE

         The following table sets forth summary information concerning the
compensation for the last three fiscal years received by each person who served
as Chief Executive Officer during the last completed fiscal year, the four other
most highly compensated persons serving as executive officers at the end of the
last completed fiscal year who earned more than $100,000 in salary and bonus in
the last completed fiscal year, and two other persons who were executive
officers during the last completed fiscal year and earned more than $100,000 in
salary and bonus, but who were not executive officers at the end of the last
completed fiscal year. We refer to these individuals as the "named executive
officers."
<TABLE>
<CAPTION>

                                         SUMMARY COMPENSATION TABLE

                                         Annual Compensation               Long Term
                                                                          Compensation
                       ------------------------------------------------  --------------
                                                                            Securities
Name and                                                Other Annual        Underlying         All Other
Principal Position  Year       Salary($)   Bonus($)    Compensation($)     Options/SARs    Compensation($)(1)
------------------  ----       ---------   --------    ---------------     ------------    ------------------

<S>                 <C>        <C>         <C>         <C>                    <C>                 <C>
Barry M. Schechter  2002       337,486         --          --                 505,000             4,263
Chief Executive     2001       312,492         --          --                 321,429             4,995
Officer and         2000       270,000         --          --                  24,750                --
Chairman of the
Board

Thomas A.           2002       144,826     20,193      46,139(2)                   --             3,714
Dorosewicz          2001        55,929     37,500                             550,000               277
Former Chief
Executive Officer

Arthur S.           2002       168,000     14,700                               5,000             3,807
Klitofsky           2001       152,400         --                              90,000             4,572
President of SVI    2000       140,400         --                              12,700                --
Training

Coleen K. McNally   2002       175,442     33,963                              85,000             3,479
Chief Operating
Officer of Island
Pacific

Jackie O. Tran      2002       120,000     38,306                              50,000             2,814
Acting Chief
Financial Officer

Graham Brown        2002       114,863         --                              75,000             9,189
Chief Executive
Officer of SVI
Store Solutions

Kevin M. O'Neill    2002       133,779     19,104                             125,000                --
Former Chief
Financial Officer

William Farrant     2002       185,455     17,500                              75,000             3,496
Former Executive    2001        11,410         --                              50,000                --
Vice President
and General
Manager of SVI
Retail Inc.
</TABLE>

(1)      Consists of 401(k) matching contributions.

(2)      Includes $37,401 for San Diego housing expenses.

         We also provide certain compensatory benefits and other non-cash
compensation to the named executive officers. Except as set forth above, our
incremental cost of all such benefits and other compensation paid in the years
indicated to each such person was less than 10% of his reported compensation and
also less than $50,000.

                                       47
<PAGE>

         The following table sets forth the information concerning individual
grants of stock options during the last fiscal year to the named executive
officers.
<TABLE>
<CAPTION>

                        OPTION GRANTS IN LAST FISCAL YEAR
-------------------------------------------------------------------------------------------------------

                                                                                  Potential Realizable
                                                                                    Value at Assumed
                                     Individual Grants                              Annual Rates of
                                                                                       Stock Price
--------------------------------------------------------------------------------    Appreciation for
                                                            Exercise                 Option Term ($)
                                                            or Base
                         Date of     Options       % of      Price   Expiration  ----------------------
         Name             Grant    Granted (#)    Total     ($/Sh.)     Date          5%         10%
-------------------------------------------------------------------------------------------------------
<S>                        <C>       <C>           <C>         <C>    <C>          <C>        <C>
Barry M. Schechter         10/1/01    26,223(1)     0.6%       0.77   10/1/11        9,708     27,419
                           10/1/01   473,777(1)    10.4%       0.77   10/1/11      175,405    495,391
                           1/30/02     5,000(2)     0.1%       0.95   1/30/12        2,254      6,403

Arthur S. Klitofsky        1/30/02     5,000(2)     0.1%       0.86   1/30/12        2,704      6,853

Coleen K. McNally          1/30/02    85,000(2)     1.9%       0.86   1/30/12       45,972    116,503

Graham Brown                1/2/02    75,000(3)     1.7%       0.90    1/2/12(3)    42,450    107,578

Jackie O. Tran             1/30/02    50,000(2)     1.1%       0.86   1/30/12       27,042     68,531

Kevin M. O'Neill            4/2/01    50,000(2)     1.1%       0.97    4/2/11(4)         0          0
                           7/12/01    75,000(2)     1.7%       0.98   7/12/11(4)         0          0

William Farrant            7/12/01    75,000(2)     1.7%       0.98   7/12/11(5)         0          0
</TABLE>

(1)      Options vest on the date of grant and are subject to continuing
         service.

(2)      Options vest as to one-third of the shares on the first anniversary of
         the grant and the remaining two-thirds of the shares in 24 equal
         monthly installments after the first vesting date, subject to
         continuing service.

(3)      Options originally vested as to one-half of the shares on the first
         anniversary of the grant and the remaining one-half of the shares in 12
         equal monthly installments after the first vesting date, subject to
         continuing service. Pursuant to our severance agreement with Mr. Brown
         dated July 2, 2002, we agreed that these options would became fully
         vested and would be exercisable until July 2, 2004.

(4)      Mr. O'Neill resigned from his position on October 21, 2001. As a
         result, none of these options vested and they were terminated at fiscal
         year end.

(5)      Mr. Farrant resigned from his position effective December 3, 2001. As a
         result, none of these options vested and they were terminated at fiscal
         year end.

         The potential realizable value is calculated based on the term of the
option at its time of grant and the number of shares underlying the grant at
fiscal year end. It is calculated based on assumed annualized rates of total
price appreciation from the market price at the date of grant of 5% and 10%
(compounded annually) over the full term of the grant with appreciation
determined as of the expiration date. The 5% and 10% assumed rates of
appreciation are mandated by SEC rules and do not represent our estimate or
projections of future common stock prices. Actual gains, if any, on stock option
exercises are dependent on the future performance of the common stock and
overall stock market conditions. The amounts reflected in the table may not be
achieved.

                                       48
<PAGE>

         The following table sets forth the information concerning the fiscal
year end value of unexercised options held by the named executive officers. None
of the named executive officers exercised options during the last fiscal year.
<TABLE>

                          FISCAL YEAR END OPTION VALUES
<CAPTION>

                                         Number of Securities
                                        Underlying Unexercised      Value of Unexercised In-The-Money
                                        Options at FY End (#)              Options at FY End ($)
                   Name               Exercisable/Unexercisable       Exercisable/Unexercisable (1)
        ---------------------------------------------------------------------------------------------

<S>                                        <C>                                    <C>
        Barry M. Schechter                 749,711/262,143                        0/0
        Thomas A. Dorosewicz                     0/0                              0/0
        Arthur S. Klitofsky                135,080/84,620                         0/0
        Coleen K. McNally                   13,805/111,195                        0/0
        Graham Brown                        32,500/100,000                        0/0
        Jackie O. Tran                      23,916/67,584                         0/0
        Kevin M. O'Neill                         0/0                              0/0
        William Farrant                          0/0                              0/0
</TABLE>

(1)  Based upon the market price of $0.67 per share, determined on the basis of
     the closing sale price per share of our common stock on the American Stock
     Exchange on the last trading day of the 2002 fiscal year, less the option
     exercise price payable per share.

LONG-TERM INCENTIVE PLANS

         We do not have any long-term incentive plans, as those terms are
defined in SEC regulations. During the fiscal year ended March 31, 2002, we did
not adjust or amend the exercise price of stock options awarded to the named
executive officers. We have no defined benefit or actuarial plans covering any
named executive officer.

STOCK INCENTIVE PLANS

         We have two stock incentive plans. Our Incentive Stock Option Plan
(1989 plan) terminated in October 1999. It provided for issuance of incentive
stock options to purchase up to 1,500,000 shares of common stock to employees.
627,235 of such shares remain subject to option as of June 28, 2002. The 1989
plan was administered by the Board of Directors, which established the terms and
conditions of each option grant.

         Our 1998 Incentive Stock Plan (1998 plan) authorizes the issuance of
shares of common stock through incentive stock options, non-statutory options,
stock bonuses, stock appreciation rights and stock purchase agreements. The 1998
plan was amended in August 2000 to increase the number of shares reserved from
3,500,000 to 4,000,000. The August 2000 amendments authorized a further
automatic annual increase in reserved shares to take place on the first trading
day of each fiscal year. The amount of the annual increase is 2% of the total
number of shares of common stock outstanding on the last trading day of the
immediately prior fiscal year. The annual increase cannot however be more than
600,000 shares, and the Board may in its discretion provide for a lesser
increase. The August 2000 amendments also implemented a limit on stock awards to
any one person in excess of 500,000 shares in any calendar year. Our

                                       49
<PAGE>

stockholders approved the amendments at our annual meeting held November 16,
2000. On April 1, 2002, the automatic increase of 567,872 shares was effected,
so that the total number of shares reserved under the 1998 plan is currently
5,167,872. 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.

EMPLOYMENT AGREEMENTS

         We entered into an employment agreement with Barry M. Schechter
effective October 1, 2000. This agreement will continue until September 30, 2003
unless earlier terminated for cause. Under the agreement Mr. Schechter has the
right to annual compensation of $325,000 for the first year of the agreement,
$350,000 for the second year of the agreement and $375,000 for the third year of
the agreement. In addition, Mr. Schechter is entitled to receive options on each
anniversary of the agreement to purchase the number of shares equal to 150% of
his annual compensation for the prior year divided by the market price on the
anniversary date. The agreement states that options will be fully vested when
issued and exercisable for ten years after the date of the grant.

         We entered into an employment agreement with Thomas A. Dorosewicz
effective January 10, 2001. Under the agreement, Mr. Dorosewicz was paid base
annual compensation of $250,000. For fiscal year 2001, he was entitled to earn a
guaranteed bonus of $18,750 and an additional $18,750 performance bonus. Mr.
Dorosewicz earned the full $37,500 bonus for fiscal 2001, and agreed to accept
payment in shares of our common stock. We agreed to pay the withholding taxes
which were due upon this stock grant. We agreed that Mr. Dorosewicz would be
entitled to a cash bonus of up to 75% of his base salary upon achievement of
performance targets in fiscal 2002. We also agreed to issue Mr. Dorosewicz
250,000 options priced at fair market value on his start date, vesting over five
years, and an additional 300,000 special stock options priced at 85% of fair
market value, vesting 100,000 immediately, 100,000 after six months and 100,000
after 24 months. We had agreed to issue additional options to Mr. Dorosewicz
during fiscal 2002 based on various performance criteria. We also agreed to pay
Mr. Dorosewicz certain relocation expenses. The agreement could be terminated by
us or by Mr. Dorosewicz with 30 days advanced notice. If we terminated the
agreement without cause, the agreement provided that Mr. Dorosewicz would be
entitled to severance equal to six months' base salary plus the pro-rated
portion of his bonus. If we terminated the agreement without cause after one
year, the agreement provided that Mr. Dorosewicz would be entitled to additional
severance of one month's base salary for each year of service completed, up to a
maximum of six additional months. Effective October 21, 2001, Mr. Dorosewicz
resigned from his position. As a result of his resignation, we did not pay
severance to Mr. Dorosewicz. Mr. Dorosewicz has filed a demand with the
California Labor Commissioner for $256,250 in alleged unpaid severance benefits
(see "Legal Proceedings" above). Mr. Dorosewicz received no bonuses or
additional stock options for fiscal 2002.

         On July 2, 2002, we entered into a separation agreement with Graham
Brown. Under the terms of the agreement, Mr. Brown will remain employed by us
through September 30, 2002 at full salary, but with reduced duties. We also
agreed that unvested options issued to Mr. Brown to purchase 75,000 shares at
$0.90 per share would fully vest, and would remain exercisable until July 2,
2004. We also agreed to assume Mr. Brown's automobile lease obligation and to
pay Mr. Brown $8,000 for relocation costs. Mr. Brown released us from all claims
arising from his employment.

         On February 27, 2002, we entered into a severance agreement with Kevin
O'Neill. We agreed to pay Mr. O'Neill $16,667 in severance, and Mr. O'Neill
agreed to release us from all claims arising from his employment.

         On December 3, 2001, we entered into a severance agreement with William
Farrant. We agreed to pay Mr. Farrant his salary and health benefits through
February 28, 2002, and Mr. Farrant agreed to release us from all claims arising
from his employment.


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         Ian Bonner and Michael Silverman served as members of the Compensation
Committee during all of fiscal 2002. Neither Mr. Bonner nor Mr. Silverman has
ever been an officer of SVI or any of its subsidiaries. During fiscal 2002, none
of our executive officers served as a member of a compensation committee or
board of directors of any entity that has one or more if its executive officers
serving as a member of our Compensation Committee.

DIRECTOR COMPENSATION

         During fiscal 2002, we issued options to purchase 5,000 shares of our
common stock at an exercise price of $0.86 each to Barry Schechter, Arthur
Klitofsky, Ian Bonner, Donald Radcliffe, Michael Silverman, Ivan Epstein and
Steven Cohen in connection with their service on the board. We also issued
options to purchase 50,000 shares of our common stock at an exercise price of
$0.86 to each of Ian Bonner, Donald Radcliffe and Michael Silverman for
committee service. The options each expire on January 30, 2012 and will vest at
a rate of one-third of the shares on the first anniversary of the grant, and the
remaining two-thirds of the shares in 24 equal monthly installments after the
first vesting date, subject to continuing service.

         On January 30, 2002, the board adopted a plan to issue to each director
who attends a board meeting an option under our 1998 plan to purchase 5,000
shares at the fair market value on the date of the meeting.

                                       50
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table shows beneficial ownership of shares of our common
stock as of June 28, 2002 (except as otherwise stated below) (i) by all persons
known by us to beneficially own more than 5% of such stock and (ii) by each
director, each of the named executive officers, and all directors and executive
officers as a group. Except as otherwise specified, the address for each person
is 5607 Palmer Way, Carlsbad, California 92007. As of June 28, 2002, there were
28,454,441 shares of common stock outstanding. Each of the named persons has
sole voting and investment power with respect to the shares shown (subject to
community property laws), except as stated below.

<TABLE>
<CAPTION>
                                                   Amount and Nature
              Name and Address of                 of Beneficial Ownership       Percent
               Beneficial Owner                            (1)                 of Class
          ---------------------------------       ----------------------       --------
<S>                                                    <C>                 <C>    <C>
          Softline Limited                             26,650,027          (2)    57.0%
          16 Commerce Crescent
          Eastgate Extension 13
          Sandton 2148
          South Africa

          Claudav Holdings Ltd. B.V.                    5,143,548          (3)    17.6%
          9 Rue Charles Humbert
          1205 Geneva
          Switzerland

          The Ivanhoe Irrevocable Trust                 5,143,548          (3)    17.6%

          Barry M. Schechter                            5,143,548          (3)    17.6%

          ICM Asset Management, Inc.                    7,224,922          (4)    22.5%
          601 W. Main Ave., Suite 600
          Spokane, WA  99201

          Thomas A. Dorosewicz                             36,407                  < 1%

          Arthur S. Klitofsky                             397,980          (5)     1.4%

          Coleen K. McNally                                14,639          (6)     < 1%

          Graham Brown                                    132,500          (6)     < 1%

          Jackie O. Tran                                   36,916          (7)     < 1%

          Kevin M. O'Neill                                      0                  0.0%

          William Farrant                                       0                  0.0%

          Donald S. Radcliffe                             769,900          (8)     2.7%
          575 Madison Avenue
          New York, NY 10022

          Michael Silverman                                16,000          (9)     < 1%
          10675 Sorrento Valley Road, Suite 200
          San Diego, CA  92121


                                           51
<PAGE>

          Ian Bonner                                       32,000          (6)     < 1%
          5527 Inverrary Court
          Dallas, Texas 75287

          Ivan M. Epstein                                 105,000          (6)     < 1%
          2 Victoria
          Eastgate Extension 13
          Sandton 2148
          South Africa

          Robert P. Wilkie                                      0                  0.0%
          16 Commerce Crescent
          Eastgate Extension 13
          Sandton 2148
          South Africa

          All directors and executive                   6,648,483         (10)    22.2%
          Officers as a group (10 persons)
</TABLE>

(1)      This table is based on information supplied by officers, directors and
         principal stockholders, except for information concerning Mr.
         Dorosewicz, which is based on information from our transfer agent. The
         inclusion in this table of such shares does not constitute an admission
         that the named stockholder is a direct or indirect beneficial owner of,
         or receives the economic benefit of, such shares.

(2)      Includes 61,812 shares pursuant to outstanding options exercisable
         within 60 days of June 28, 2002 and 18,259,500 shares obtainable upon
         conversion of Series A Convertible Preferred Stock. The nine directors
         of the Softline Limited board are Ivan M. Epstein, Steven Cohen, Carlos
         Soares dos Santos, Eric Ellerine, Mac Maharaj, Robert Wilkie, Gerald
         Rubenstein, John Copelyn and Marcel Golding. Mr. Epstein serves as
         Chairman and Chief Executive Officer, Mr. Cohen serves as Chief
         Operating Officer, and Mr. Wilkie serves as Group Financial Director.
         Each of the foregoing persons disclaims beneficial ownership of the
         shares and options held by Softline.

(3)      Claudav Holdings Ltd. B.V., the Ivanhoe Irrevocable Trust and Barry M.
         Schechter may be deemed a group pursuant to Rule 13d-5 promulgated
         under the Exchange Act. Claudav holds 2,224,500 shares, for which it
         shares voting power with Mr. Schechter pursuant to a proxy. Claudav is
         managed by Erwin Wachter, Trustee. Mr. Wachter therefore shares
         beneficial ownership with Mr. Schechter of the shares held by Claudav.
         Ivanhoe holds 2,167,337 shares for which it shares voting and
         investment power with Mr. Schechter pursuant to Mr. Schechter's
         position as a trustee. Includes 2,000 shares held by Mr. Schechter's
         minor children and 749,711 shares issuable upon exercise of options of
         Mr. Schechter exercisable within 60 days of June 28, 2002. Excludes
         10,000 shares held by Mr. Schechter's spouse, for which Mr. Schechter
         disclaims beneficial ownership.

(4)      Represents holdings as of July 19, 2002. Includes 2,590,321 shares held
         by Koyah Leverage Partners, L.P., 36,710 shares held by Raven Partners,
         L.P. and 634,136 shares held by Koyah Partners, L.P. Also includes
         1,257,925 shares pursuant to outstanding warrants and 1,562,500 shares
         obtainable upon conversion of convertible notes held by Koyah Leverage
         Partners, L.P., 309,784 shares pursuant to outstanding warrants and
         312,500 shares obtainable upon conversion of convertible notes held by
         Koyah Partners, L.P., and 12,535 shares pursuant to outstanding
         warrants and 208,334 shares obtainable upon conversion of convertible
         notes held by Raven Partners, L.P. Koyah Ventures, LLC is the general
         partner of Koyah Leverage Partners, L.P., Koyah Partners, L.P. and
         Raven Partners, L.P., and as a result has shared voting and investment
         power over shares held by all three entities. ICM Asset Management,
         Inc. is the investment advisor to Koyah Leverage Partners, L.P., Koyah
         Partners, L.P. and Raven Partners, L.P., and as a result has shared
         voting and investment power over shares held by all three entities.
         Also includes 300,717 shares held by other clients of ICM Asset
         Management, Inc. ICM Asset Management, Inc. has discretionary authority
         over shares held by these other clients and as a result has shared
         voting and investment power over these shares. James M. Simmons is the
         managing member of Koyah Ventures, LLC and the chief investment officer

                                       52
<PAGE>

         and controlling shareholder of ICM Asset Management, Inc. and as a
         result has shared voting and investment power over shares held by Koyah
         Leverage Partners, L.P., Koyah Partners, L.P., Raven Partners, L.P.,
         ICM Asset Management, Inc. and the other clients of ICM Asset
         Management, Inc. Each of these entities or persons disclaims beneficial
         ownership in these securities except to the extent of such entity's or
         person's pecuniary interest in these securities and disclaims
         membership in a group with any other entity or person within the
         meaning of Rule 13d-5(b)(1) under the Securities Exchange Act of 1934.

(5)      Includes 135,080 shares pursuant to outstanding options exercisable
         within 60 days of June 28, 2002.

(6)      Consists of outstanding options exercisable within 60 days of June 28,
         2002.

(7)      Includes 26,416 shares pursuant to outstanding options exercisable
         within 60 days of June 28, 2002.

(8)      Includes 320,000 shares pursuant to outstanding options exercisable
         within 60 days of June 28, 2002. Also includes 11,500 shares held by an
         entity for which Mr. Radcliffe has sole voting and investment power.
         Also includes an aggregate of 82,100 shares held by three entities for
         which Mr. Radcliffe has shared voting and investment power. Excludes
         121,500 shares held by Mr. Radcliffe's spouse, for which Mr. Radcliffe
         disclaims beneficial ownership.

(9)      Includes 10,000 shares pursuant to outstanding options exercisable
         within 60 days of June 28, 2002.

(10)     Includes 1,525,346 shares pursuant to outstanding options exercisable
         within 60 days of June 28, 2002.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

We have two equity incentive plans under which our equity securities are or have
been authorized for issuance to our employees or directors: the Incentive Stock
Option Plan (1989 plan), which terminated in October 1999, but under which
options remain outstanding, and the 1998 Incentive Stock Plan (1998 plan). Both
the 1989 plan and the 1998 plan have been approved by our stockholders. In
addition, from time to time we issue non-employee options and warrants to
service providers to purchase shares of our common stock, and these grants have
not been approved by our stockholders.

<TABLE>
<CAPTION>
------------------------------- ---------------------------- ---------------------------- ----------------------------
        Plan category                    Number of                Weighted-average                 Number of
                                       securities to              exercise price of               securities
                                         be issued                   outstanding                   remaining
                                           upon                   options, warrants              available for
                                        exercise of                  and rights                 future issuance
                                        outstanding                                              under equity
                                         options,                                                compensation
                                       warrants and                                                  plans
                                          rights                                                  (excluding
                                                                                                  securities
                                                                                                 reflected in
                                                                                                  column (a))

                                            (a)                          (b)                          (c)
------------------------------- ---------------------------- ---------------------------- ----------------------------
<S>                                     <C>                              <C>                     <C>
Equity compensation plans               4,485,889                        $2.05                   710,791(1)
 approved by security holders

------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans not           2,092,481(2)                     $2.68                        --
 approved by security holders

------------------------------- ---------------------------- ---------------------------- ----------------------------
            Total                       6,578,370                        $2.25                   710,791
------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>

(1) Does not include an automatic increase of 567,872 shares available for
issuance under the 1998 plan, which occurred April 1, 2002. After such increase,
we had 1,278,663 shares available for grant under our 1998 plan.

(2) Consists of individual non-employee option and warrant grants to service
providers approved by the board from time to time. Includes warrants to purchase
291,667 shares which were cancelled in April 2002 due to termination of a
service contract.

                                       53
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The following is a description of transactions since April 1, 2001 to
which we have been a party, in which the amount involved exceeds $60,000 and in
which any director, executive officer or holder of more than 5% of our common
stock had or will have a direct or indirect interest, other than our
compensation arrangements with our directors and named executive officers
described above under "Executive Compensation." Certain of these transactions
will continue in effect and may result in conflicts of interest between us and
such individuals. Although these persons may owe fiduciary duties to our
stockholders, there is a risk that such conflicts of interest may not be
resolved in favor of us.

         We borrowed $10 million from Softline Limited in July 2000 in order to
pay the same amount to Union Bank as a mandatory reduction of principal owing to
Union Bank. In July 2001, we amended and restated the Softline note. The
restated note was in the original principal amount of $11.4 million and accrued
interest at 14% per annum. All unpaid principal and interest was due May 1,
2003, unless the Union Bank loan was not extended to November 1, 2002, in which
case the note would have been due and payable on November 1, 2002. The restated
note was subordinate to our Union Bank indebtedness, and we were not required or
permitted to make any payments of principal or interest under the restated note
so long as the Union Bank indebtedness was outstanding.

         In May 2002, we entered into an integrated series of transactions with
Softline by which:

         o        We transferred to Softline the note received in connection
                  with the sale of IBIS Systems Limited.
         o        We issued to Softline 141,000 shares of newly-designated
                  Series A Convertible Preferred Stock.
         o        Softline released us from approximately $12.3 million then due
                  under the promissory note to Softline.
         o        Softline surrendered 10,700,000 shares of our common shares
                  held by Softline.

See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Financing Transactions -- Softline" above.

         In May and June, 2001, we issued a total of $1.25 million in
convertible notes and related warrants to a limited number of accredited
investors related to ICM Asset Management, Inc., which currently beneficially
owns 22.5% of our common stock. In July 2002, we agreed to amend the terms of
the notes and warrants, and certain other warrants issued to these investors in
a prior financing. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financing Transactions -- ICM Asset
Management, Inc." above.

         In May 2001, December 2001 and May 2002, we borrowed $50,000, $125,000
and $70,000 from World-Wide Business Centres, a company affiliated with Donald
S. Radcliffe, to meet payroll expenses. These amounts were repaid together with
interest at the then-effective prime rate, promptly as revenues were received,
and are paid in full as of the date of this report.

         We began occupying our current principal executive offices in July
2001. At that time, the premises were owned by an affiliate of our then Chief
Executive Officer, Thomas A. Dorosewicz. Monthly rent for these premises was set
at $13,783. In April, 2002, the premises were sold to an entity unrelated to Mr.
Dorosewicz. As of the date of this report, we are negotiating the terms of a
written lease with the new owner.

         During fiscal 2002, we paid a total of $532,770 in interest and
principal to Claudav Holdings Ltd. B.V., which is deemed the beneficial owner of
17.6% of our common stock as of June 28, 2002. The original loan was in the
amount of $1.5 million, bore interest at the prime rate, and was used to pay a
portion of the purchase price for Island Pacific in 1999. The loan was due on
demand, and was paid in full as of July 29, 2002.

         We retain Radcliffe & Associates, an entity affiliated with Donald S.
Radcliffe, to perform financial advisory services for us. During the fiscal year
ended March 31, 2002, we incurred $42,000 in fees and costs to Radcliffe &
Associates. We incurred an additional $19,000 in fees to Mr. Radcliffe for
accounting services during the fiscal year ended March 31, 2002. In June 2002,
we issued Mr. Radcliffe 75,000 shares of common stock to repay $25,000 in
obligations pursuant to these arrangements.

                                       54
<PAGE>

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
(a)  Financial statements and financial statement schedules

<S>                                                                             <C>
     Independent Auditors' Report of Singer Lewak Greenbaum & Goldstein LLP.    F-1

     Independent Auditors' Report of Deloitte & Touche LLP..................    F-2

     Consolidated Balance Sheets as of March 31, 2002 and 2001..............    F-3

     Consolidated  Statements of Operations for the Fiscal Years ended March
     31, 2002, 2001, and 2000...............................................    F-4

     Consolidated  Statements of  Stockholders'  Equity for the Fiscal Years
     Ended March 31, 2002, 2001 and 2000....................................    F-5

     Consolidated  Statements of Cash Flows for the Fiscal Years Ended March
     31, 2002, 2001 and 2000................................................    F-7

     Notes to Consolidated Financial Statements.............................    F-9
</TABLE>

     All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are not considered necessary and therefore have been
omitted.

(b)  Reports on Form 8-K

     During the quarter ended March 31, 2002, we filed the following:

          o    Form 8-K filed February 14, 2002 reporting in Item 8 the
               determination not to change our fiscal year as previously
               announced.

                                       55
<PAGE>

(c)  Exhibits

EXHIBIT           DESCRIPTION
-------           -----------

2.1               Purchase and Exchange Agreement dated as of January 1, 2002
                  between the Company and Softline Limited, incorporated by
                  reference to exhibit 2.1 to the Company's 8-K filed May 16,
                  2002. Exhibits and schedules have been omitted pursuant to
                  Item 601(b)(2) of Regulation S-K, but a copy will be furnished
                  supplementally to the Securities and Exchange Commission upon
                  request.

2.2               Deed of Appointment dated February 20, 2002 between the bank
                  and the receivers of SVI Retail (Pty) Limited.* Exhibits and
                  schedules have been omitted pursuant to Item 601(b)(2) of
                  Regulation S-K, but a copy will be furnished supplementally to
                  the Securities and Exchange Commission upon request.

2.3               Business Sale Agreement dated May 3, 2002 among the receivers
                  and managers of the assets of SVI Retail (Pty) Limited and QQQ
                  Systems PTY Limited.* Exhibits and schedules have been omitted
                  pursuant to Item 601(b)(2) of Regulation S-K, but a copy will
                  be furnished supplementally to the Securities and Exchange
                  Commission upon request.

3.1               Restated Certificate of Incorporation, incorporated by
                  reference to exhibit 3.1 to the Company's Form 10-K for the
                  fiscal year ended March 31, 2001.

3.2               Certificate of Designation, incorporated by reference to
                  exhibit 4.1 of the Company's Form 8-K filed May 16, 2002.

3.3               Restated Bylaws, incorporated by reference to exhibit 3.2 to
                  the Company's Form 10-K for the fiscal year ended March 31,
                  2001.

4.1               Form of Stock Certificate, incorporated by reference to
                  exhibit 4.1 to the Company's Form 10-K for the fiscal year
                  ended March 31, 2001.

10.1              Letter Agreement between the Company and Union Bank of
                  California, N.A. dated April 24, 2001, incorporated by
                  reference to exhibit 10.18 to the Company's Form 10-K for the
                  fiscal year ended March 31, 2001.

10.2              Letter Agreement between the Company and Union Bank of
                  California, N.A. dated June 22, 2001, incorporated by
                  reference to exhibit 10.19 to the Company's Form 10-K for the
                  fiscal year ended March 31, 2001.

10.3              Amended and Restated Term Loan Agreement between the Company
                  and Union Bank of California, N.A. dated as of June 29, 2001,
                  incorporated by reference to exhibit 10.20 to the Company's
                  Form 10-K for the fiscal year ended March 31, 2001.

                                       56
<PAGE>

EXHIBIT           DESCRIPTION
-------           -----------

10.4              First Amendment to Amended and Restated Term Loan Agreement
                  between the Company and Union Bank of California, N.A. dated
                  as of March 18, 2002 (included herewith), and First Amendment
                  to Amended and Restated Pledge Agreement between the Company,
                  Sabica Ventures, Inc., SVI Retail, Inc., SVI Training
                  Products, Inc., and Union Bank of California, N.A. dated as of
                  March 18, 2002.*

10.5              Second Amendment to Amended and Restated Term Loan Agreement
                  between the Company and Union Bank of California, N.A. dated
                  as of May 21, 2001.*

10.6              Third Amendment to Amended and Restated Term Loan Agreement
                  between the Company and Union Bank of California, N.A. dated
                  as of July 15, 2002.*

10.7              Amended and Restated Subordinated Promissory Note of the
                  Company in favor of Softline Limited dated June 30, 2001,
                  incorporated by reference to exhibit 10.26 to the Company's
                  Form 10-K for the fiscal year ended March 31, 2001.

10.8              Investor Rights Agreement between the Company and Softline
                  Limited dated as of January 1, 2002, incorporated by reference
                  to exhibit 4.2 of the Company's Form 8-K filed May 16, 2002.

10.9              Investors' Rights Agreement, incorporated by reference to
                  exhibit 10.3 to the Company's Form 8-K filed January 8, 2001.

10.10             Form of Convertible Promissory Note, incorporated by reference
                  to exhibit 10.31 to the Company's Form 10-K for the fiscal
                  year ended March 31, 2001.

10.11             Amendment Agreement between the Company, Koyah Leverage
                  Partners, Koyah Partners, L.P., Raven Partners, L.P., Nigel
                  Davey, and Brian Cathcart dated July 15, 2002.*

10.12             Summary of loan transactions between the Company and World
                  Wide Business Centres.*

10.13             Professional Services Agreement between SVI Retail, Inc. and
                  Toys "R" Us dated July 10, 2001, incorporated by referenced to
                  exhibit 10.2 to the Company's Form 10-Q for the quarter ended
                  September 30, 2001. Portions of this exhibit (indicated by
                  asterisks) have been omitted pursuant to a request for
                  confidential treatment pursuant to Rule 24b-2 of the
                  Securities Exchange Act of 1934.

10.14             Purchase Agreement between the Company and Toys "R" Us, Inc.
                  dated May 29, 2002.*

                                       57
<PAGE>

EXHIBIT           DESCRIPTION
-------           -----------

10.15             Convertible Note in favor of Toys "R" Us, Inc. dated May 29,
                  2002.*

10.16             Warrant in favor of Toys "R" Us, Inc. dated May 29, 2002.*

10.17             Development Agreement between the Company and Toys "R" Us,
                  Inc. dated May 29, 2002.* Portions of this exhibit (indicated
                  by asterisks) have been omitted pursuant to a request for
                  confidential treatment pursuant to Rule 24b-2 of the
                  Securities Exchange Act of 1934.

10.20             Summary of lease terms for Carlsbad facility.*

21                List of Subsidiaries.*


                  * previously filed

                                       58
<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.

Date:  July 29, 2002               SVI SOLUTIONS, INC., A DELAWARE CORPORATION

                                   By:  /s/ Barry M. Schechter
                                        ----------------------------------------
                                   Barry M. Schechter, Chairman and Chief
                                   Executive Officer
                                   (Principal Executive Officer)



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                         July 29, 2002
---------------------------------------       and Chief Executive Officer
Barry M. Schechter


/s/ Jackie O. Tran                            Acting Chief Financial Officer                July 29, 2002
---------------------------------------       (Principal Financial Officer)
Jackie O. Tran


/s/ Arthur S. Klitofsky                       Vice President and Director                   July 29, 2002
---------------------------------------
Arthur S. Klitofsky


/s/ Donald S. Radcliffe                                Director                             July 29, 2002
---------------------------------------
Donald S. Radcliffe


/s/ Ivan M. Epstein                                    Director                             July 29, 2002
---------------------------------------
Ivan M. Epstein


/s/ Ian Bonner                                         Director                             July 29, 2002
---------------------------------------
Ian Bonner


/s/ Michael Silverman                                  Director                             July 29, 2002
---------------------------------------
Michael Silverman


/s/ Robert P. Wilkie                                   Director                             July 29, 2002
---------------------------------------
Robert P. Wilkie
</TABLE>

                                                    59
<PAGE>

                          INDEPENDENT AUDITOR'S REPORT


Board of Directors and Shareholders
SVI Solutions, Inc. and subsidiaries

We have audited the accompanying consolidated balance sheet of SVI Solutions,
Inc. and subsidiaries as of March 31, 2002, 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 auditing standards generally accepted
in the United States of America. 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 referred to above present
fairly, in all material respects, the financial position of SVI Solutions, Inc.
and subsidiaries as of March 31, 2002, and the results of their operations and
their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.



/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
May 30, 2002


                                      F-1

<PAGE>

INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of
SVI Solutions, Inc.:

We have audited the accompanying consolidated balance sheet of SVI Solutions,
Inc. and subsidiaries (collectively, the "Company") (a majority owned subsidiary
of Softline Limited) as of March 31, 2001, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period 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 audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of March 31, 2001,
and the results of its operations and its cash flows for each of the two years
in the period then ended in conformity with accounting principles generally
accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's recurring losses from operations and
negative working capital raise substantial doubt about its ability to continue
as a going concern. Management's plans concerning these matters are also
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

/s/ DELOITTE & TOUCHE LLP

San Diego, California
July 13, 2001

                                      F-2



<PAGE>

<TABLE>
SVI SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
<CAPTION>

                                                                                     MARCH 31,      MARCH 31,
                                                                                       2002           2001
                                                                                   ------------   ------------
                                                                               (in thousands, except share amounts)
<S>                                                                                <C>            <C>
ASSETS
Current assets:
     Cash and cash equivalents                                                     $     1,309    $     1,208
     Accounts receivable, net of allowance for doubtful
         accounts of $446 and $790, respectively                                         1,946          3,394
     Income tax refund receivable                                                           --            380
     Other receivables, including $31 and $61 from related parties, respectively           255            253
     Inventories                                                                           126            138
     Current portion - non-compete agreements                                              917          1,017
     Net assets from discontinued operations                                                --          1,441
     Prepaid expenses and other current assets                                             150            293
                                                                                   ------------   ------------
              Total current assets                                                       4,703          8,124

Note receivable, net                                                                        --          7,000
Property and equipment, net                                                                641            976
Purchased and capitalized software, net                                                 17,612         20,074
Goodwill, net                                                                           15,422         17,642
Non-compete agreements, net                                                              1,585          2,597
Other assets                                                                                42             40
                                                                                   ------------   ------------
              Total assets                                                         $    40,005    $    56,453
                                                                                   ============   ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Demand loans due to stockholders                                              $       618    $     1,333
     Current portion of term loans                                                         435             --
     Accounts payable                                                                    1,497          2,868
     Accrued expenses                                                                    3,864          4,911
     Deferred revenue                                                                    3,528          1,794
     Income tax payable                                                                     98             --
                                                                                   ------------   ------------
              Total current liabilities                                                 10,040         10,906

Term loans refinanced in July 2002 and May 2001                                          6,472          7,325
Convertible notes due to stockholders                                                    1,421             --
Subordinated term loan due to stockholder                                                   --         11,037
Other long-term liabilities                                                                120            192
                                                                                   ------------   ------------
              Total liabilities                                                         18,053         29,460
                                                                                   ------------   ------------

Commitments and contingencies (Note 12)

Stockholders' equity:
     Preferred stock, $.0001 par value; 5,000,000 shares authorized; Series A
         Convertible Preferred stock, 7.2% cumulative convertible 141,100
         shares authorized and outstanding with a stated value of $100 per
         share, dividends in arrears of $254                                            14,100             --
     Common stock, $.0001 par value; 100,000,000 shares authorized;
         28,293,609 and 37,836,669 shares issued and outstanding                             4              4
     Additional paid-in capital                                                         54,685         57,108
     Retained (deficit) earnings                                                       (37,772)       (23,114)
     Treasury stock, at cost; shares - 10,700,000 in 2002 and 444,641 in 2001           (8,580)        (4,306)
     Shares receivable                                                                    (485)            --
     Accumulated other comprehensive loss                                                   --         (2,699)
                                                                                   ------------   ------------
              Total stockholders' equity                                                21,952         26,993
                                                                                   ------------   ------------
              Total liabilities and stockholders' equity                           $    40,005    $    56,453
                                                                                   ============   ============

            The accompanying notes are an integral part of these consolidated financial statements.

                                                     F-3
</TABLE>



<PAGE>

<TABLE>
SVI SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>

                                                                        YEAR ENDED MARCH 31,
                                                                 ---------------------------------
                                                                    2002        2001        2000
                                                                 ---------   ---------   ---------
                                                               (in thousands, except per share data)
<S>                                                              <C>         <C>         <C>
Net sales                                                        $ 27,109    $ 27,713    $ 26,652
Cost of sales                                                      10,036       9,188       6,421
                                                                 ---------   ---------   ---------
              Gross profit                                         17,073      18,525      20,231
                                                                 ---------   ---------   ---------
Expenses:
     Application development                                        4,203       5,333       4,877
     Depreciation and amortization                                  6,723       8,616       7,250
     Selling, general and administrative                           13,144      18,037      14,817
     Impairment of capitalized software and goodwill                   --       6,519          --
     Impairment of note receivable received in
         connection with the sale of IBIS Systems Limited              --       7,647          --
                                                                 ---------   ---------   ---------
              Total expenses                                       24,070      46,152      26,944
                                                                 ---------   ---------   ---------

Loss from operations                                               (6,997)    (27,627)     (6,713)

Other income (expense):
     Interest income                                                   10         628       1,074
     Other income (expense)                                           (46)         63        (206)
     Interest expense, including $1,988, $1,391 and $114 to
         related parties                                           (3,018)     (3,043)     (1,493)
     Gain (loss) on foreign currency transaction                       (9)          2         (10)
                                                                 ---------   ---------   ---------
              Total other expense                                  (3,063)     (2,350)       (635)
                                                                 ---------   ---------   ---------

Loss before provision (benefit) for income taxes                  (10,060)    (29,977)     (7,348)

     Provision (benefit) for income taxes                              39      (4,778)     (2,414)
                                                                 ---------   ---------   ---------

Loss from continuing operations                                   (10,099)    (25,199)     (4,934)

Income (loss) from discontinued Australian operations,
         net of estimated income taxes expense (benefit)
         of $0, ($833) and $2                                      (4,559)     (3,746)        880
                                                                 ---------   ---------   ---------
Net loss                                                         $(14,658)   $(28,945)   $ (4,054)
                                                                 =========   =========   =========

Basic and diluted earnings (loss) per share:
     Continuing operations                                       $  (0.28)   $  (0.72)   $  (0.15)
     Discontinued operations                                        (0.13)      (0.11)       0.03
                                                                 ---------   ---------   ---------
         Net loss                                                $  (0.41)   $  (0.83)   $  (0.12)
                                                                 =========   =========   =========


Basic and diluted weighted average common shares outstanding       35,698      34,761      32,459
                                                                 =========   =========   =========

      The accompanying notes are an integral part of these consolidated financial statements.

                                               F-4
</TABLE>
<PAGE>

<TABLE>
SVI SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>

                                                                                                             ACCUMULATED
                                                                                                   OTHER        OTHER
                                                  ADDITIONAL                          RETAINED     COMPRE-     COMPRE-
                            PREFERRED    COMMON    PAID-IN     TREASURY     SHARES    EARNINGS     HENSIVE     HENSIVE
                              STOCK      STOCK     CAPITAL      STOCK     RECEIVABLE  (DEFICIT)     LOSS         LOSS       TOTAL
                            ---------- ---------- ----------  ----------  ----------  ----------  ----------  ----------  ----------
                                (in thousands, except share amounts)
<S>                                <C> <C>        <C>         <C>         <C>         <C>         <C>         <C>         <C>
Balance, March 31, 1999            --  $       3  $  39,436   $    (951)  $  (2,142)   $   9,885          --   $    (961)  $  45,270

Issuance of common stock
  in connection with the
  purchase of technology
  rights and subsidiaries          --         --      3,654          --          --          --          --          --       3,654
Exercise of stock options          --         --      6,992          --          --          --          --          --       6,992
Income tax benefit on
  stock options exercised          --         --        424          --          --          --          --          --         424
Compensation expense for
  stock options granted            --         --         55          --          --          --          --          --          55
Repurchase of common stock         --         --         --      (1,213)         --          --          --          --      (1,213)
Shares receivable from
  stockholder in connection
  with the sale of
  IBIS Systems Limited             --         --         --      (2,142)      2,142          --          --          --          --
Issuance of common stock
  for services                     --         --         20          --          --          --          --          --          20
Private placement of common
  stock                            --         --      2,873          --          --          --          --          --       2,873
Comprehensive loss:

  Net loss                         --         --         --          --          --      (4,054)  $  (4,054)         --      (4,054)
  Other comprehensive loss:
    Translation adjustment         --         --         --          --          --          --        (524)       (524)       (524)
                                                                                                  ----------
      Comprehensive loss           --         --         --          --          --          --   $  (4,578)         --          --
                            ---------- ---------- ----------  ----------  ----------  ----------  ==========  ----------  ----------
Balance, March 31, 2000            --  $       3  $  53,454   $  (4,306)   $     --   $   5,831          --   $  (1,485)  $  53,497

Exercise of stock options          --         --        792          --          --          --          --          --         792
Income tax benefit on stock
  options exercised                --         --         84          --          --          --          --          --          84
Compensation expense for
  stock options                    --         --         28          --          --          --          --          --          28
Issuance of common stock
  warrants for services            --         --          6          --          --          --          --          --           6
Issuance of common stock
  (net of financing costs
  of $40,035)                      --          1      2,460          --          --          --          --          --       2,461
Issuance of common stock
  (net of $286,000 late
  registration fees)               --         --        214          --          --          --          --          --         214
Issuance of common stock
  for services                     --         --         70          --          --          --          --          --          70
Comprehensive loss:
  Net loss                         --         --         --          --          --     (28,945)  $ (28,945)         --     (28,945)
  Other comprehensive loss:
    Translation adjustment         --         --         --          --          --          --      (1,214)     (1,214)     (1,214)
                                                                                                  ----------
      Comprehensive loss           --         --         --          --          --          --   $ (30,159)         --          --
                            ---------- ---------- ----------  ----------  ----------  ----------  ==========  ----------  ----------
Balance, March 31, 2001            --  $       4  $  57,108   $  (4,306)  $      --   $ (23,114)         --   $  (2,699)  $  26,993

                                                                                                                         (Continued)
                       The accompanying notes are an integral part of these consolidated financial statements.

                                                                F-5
</TABLE>



<PAGE>

<TABLE>
SVI SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
<CAPTION>

                                                                                                             ACCUMULATED
                                                                                                   OTHER        OTHER
                                                  ADDITIONAL                          RETAINED     COMPRE-     COMPRE-
                            PREFERRED    COMMON    PAID-IN     TREASURY     SHARES    EARNINGS     HENSIVE     HENSIVE
                              STOCK      STOCK     CAPITAL      STOCK     RECEIVABLE  (DEFICIT)     LOSS         LOSS       TOTAL
                            ---------- ---------- ----------  ----------  ----------  ----------  ----------  ----------  ----------
                                (in thousands, except share amounts)
<S>                         <C>        <C>        <C>         <C>         <C>         <C>         <C>         <C>         <C>
Balance, March 31, 2001            --  $       4  $  57,108   $  (4,306)  $      --   $ (23,114)         --   $  (2,699)  $  26,993

Issuance of common stock
  for services and
  severance payments               --         --        441          --          --          --          --          --         441
Common stock to be returned        --         --        485          --        (485)         --          --          --          --
Compensation expense for
  warrants granted                 --         --        579          --          --          --          --          --         579
Interest charges on
  convertible notes due to
  stockholders                     --         --        438          --          --          --          --          --         438
Warrants issued for late
  effectiveness of the
  registration for common
  stock sold in a private
  placement in fiscal 2001         --         --        711          --          --          --          --          --         711
Offering costs                     --         --       (711)         --          --          --          --          --        (711)
Liquidated damages for late
  effectiveness of the
  registration statement           --         --        (60)         --          --          --          --          --         (60)
Issuance of Series A
  Preferred stock in
  exchange for common
  stock, sale of IBIS note
  receivable and settlement
  of Softline note payable  $  14,100         --         --      (8,580)         --          --          --          --       5,520

Retired treasury stock             --         --     (4,306)      4,306          --          --          --          --          --
Comprehensive loss:
  Net loss                         --         --         --          --          --     (14,658)  $ (14,658)         --     (14,658)
  Other comprehensive loss:
    Disposal of Australian
      operation                    --         --         --          --          --          --       2,699       2,699       2,699
                                                                                                  ----------
      Comprehensive loss           --         --         --          --          --          --   $ (11,959)         --          --
                            ---------- ---------- ----------  ----------  ----------  ----------  ==========  ----------  ----------
Balance, March 31, 2002     $  14,100  $       4  $  54,685   $  (8,580)  $    (485)  $ (37,772)         --   $      --   $  21,952
                            ========== ========== ==========  ==========  ==========  ==========              ==========  ==========

                                                                                                                         (Concluded)
                       The accompanying notes are an integral part of these consolidated financial statements.

                                                                F-6
</TABLE>
<PAGE>

<TABLE>
SVI SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>

                                                                                      YEAR ENDED MARCH 31,
                                                                              ------------------------------------
                                                                                 2002         2001         2000
                                                                              ----------   ----------   ----------
                                                                              (in thousands, except share amounts)
<S>                                                                           <C>          <C>          <C>
Cash flows from operating activities:
     Net loss                                                                 $ (14,658)   $ (28,945)   $  (4,054)
     Adjustments to reconcile net loss to net cash provided
         by (used for) operating activities:
         Depreciation and amortization                                            7,069        9,540        7,942
         Impairment of note receivable                                               --        7,647           --
         Impairment of intangible assets associated with discontinued operations     --        8,886           --
         Loss on disposal of Australian operations                                3,171
         (Gain)/Loss on foreign currency transactions                                41           (9)          12
         Compensation expense for stock options and warrants                        579          112           55
         Interest charges on convertible notes due to stockholders                  438           --           --
         Common stock issued for services rendered and severance
            payments                                                                245           --           --
         Deferred income tax provision                                             (149)      (4,396)      (2,614)
         Loss on sale of furniture and equipment                                     64            3          177

         Changes in assets and liabilities, net of effects of acquisitions:
             Accounts receivable and other receivables                            2,548        5,126       (4,586)
             Accrued interest on note receivable                                     --         (555)        (840)
             Inventories                                                             61           (8)         (34)
             Prepaid expenses and other current assets                               60          157         (197)
             Accounts payable and accrued expenses                               (1,892)       3,506         (576)
             Accrued interest on stockholders' loans and note payable             2,295          944           --
             Deferred revenue                                                     1,642       (4,438)       5,023
             Income taxes payable                                                    98           --       (2,576)
                                                                              ----------   ----------   ----------
                  Net cash provided by (used for) operating activities            1,612       (2,430)      (2,268)
                                                                              ----------   ----------   ----------

Cash flows from investing activities:
     Acquisitions, net of cash acquired                                              --           --      (33,898)
     Purchase of furniture and equipment                                           (301)        (534)        (849)
     Proceeds from sale of furniture and equipment                                   13           --           83
     Purchase of software and capitalized software development costs               (409)      (2,471)      (1,831)
                                                                              ----------   ----------   ----------
                  Net cash used for investing activities                           (697)      (3,005)     (36,495)
                                                                              ----------   ----------   ----------

Cash flows from financing activities:
     Proceeds from issuance of common stock                                          --        3,754        9,615
     Increase (decrease) in amounts due to stockholders, net                       (844)       9,855        1,982
     Proceeds from lines of credit                                                   --        1,555        2,281
     Proceeds from convertible notes due to stockholders                          1,260           --           --
     Proceeds from term loans                                                        --           --       18,500
     Payments on term loans                                                      (1,243)     (13,231)      (1,458)
                                                                              ----------   ----------   ----------
                  Net cash provided by (used for) financing activities             (827)       1,933       30,920
                                                                              ----------   ----------   ----------

Effect of exchange rate changes on cash                                             (46)         (69)        (325)
                                                                              ----------   ----------   ----------

Net increase (decrease) in cash and cash equivalents                                 42       (3,571)      (8,168)
Cash and cash equivalents, beginning of year                                      1,267        4,838       13,006
                                                                              ----------   ----------   ----------
Cash and cash equivalents, end of year                                        $   1,309    $   1,267    $   4,838
                                                                              ==========   ==========   ==========

                                                                                                       (Continued)

              The accompanying notes are an integral part of these consolidated financial statements.

                                                       F-7
</TABLE>
<PAGE>
<TABLE>
SVI SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<CAPTION>

                                                                                   YEAR ENDED MARCH 31,
                                                                          -------------------------------------
                                                                              2002         2001         2000
                                                                          -----------  -----------  -----------
                                                                          (in thousands, except share amounts)
<S>                                                                       <C>          <C>          <C>
Supplemental disclosure of non-cash information:
     Interest paid                                                        $    1,194   $    1,990   $    1,417
     Income taxes paid                                                            --   $      665   $    2,163

Supplemental disclosure of non-cash investing and financing activities:
     Issued 38,380 shares of common stock for services to be
       provided                                                           $       31           --           --
     644,715 shares of common stock to be returned for services
       canceled after shares were issued                                  $      485           --           --
     Issuance of 141,000 shares of Series A Preferred Stock and
       Transfer of note receivable received from the sale of IBIS
         Systems Limited in exchange for 10,700,000 shares
         of common stock and settlement of Softline note payable          $    5,520           --           --
       Issued 46,774 shares of common stock in connection
         with the acquisition of Triple-S                                         --           --   $      213
     Issued 168,208 and 54,845 shares of common stock for
       services rendered                                                  $      165   $       70           --
     Issued 500,000 shares of common stock for $214,000 in cash
       and $286,000 in accrued costs related to penalty for
       late effectiveness of the registration statement                          --   $      286           --
     Issued 5,000 warrants in connection with an equity financing                --   $        8           --
     Received 178,500 treasury shares as settlement for a
       Receivable                                                                 --           --   $   (2,142)
     Issued 220,000 shares of common stock in connection
       with prior acquisitions                                                    --           --   $    2,402
     Received 78,241 shares from Softline for Triple-S                            --           --   $     (665)
     Issued 93,023 shares of common stock in connection
       with acquisition of MarketPlace Systems Corporation                        --           --   $    1,000

                                                                                                    (Concluded)

            The accompanying notes are an integral part of these consolidated financial statements.

                                                      F-8
</TABLE>



<PAGE>

                      SVI SOLUTIONS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         BUSINESS CONDITIONS - SVI Solutions, Inc. (the "Company") is a holding
         company which, through its subsidiaries, is an independent provider of
         multi-channel application software technology and associated services
         for the retail industry. The Company also develops and distributes PC
         courseware and skills assessment products for both desktop and retail
         applications.

         MANAGEMENT'S PLAN TO CONTINUE AS A GOING CONCERN - The accompanying
         consolidated financial statements have been prepared on a going concern
         basis, which contemplates the realization of assets and satisfaction of
         liabilities in the ordinary course of business. As shown in the
         accompanying consolidated financial statements, the Company has
         incurred net losses of $14.7 million, $28.9 million and $4.1 million
         from operations for the years ended March 31, 2002, 2001 and 2000,
         respectively.

         The loss for the year ended March 31, 2002 included a $4.6 million
         loss from the discontinued Australian operations and non-cash charges
         of $6.7 million in depreciation and amortization. While net sales
         decreased slightly by 2%, the selling, general and administrative
         expense decreased by 25%.

         The loss for the year ended March 31, 2001 included a non-cash
         impairment of charges totaling $14.2 million for goodwill and
         capitalized software write-downs related to its discontinued Australian
         subsidiary and its note receivable in connection with a prior sale of a
         foreign subsidiary. In addition, the Company recorded a $3.7 million
         loss from the discontinued Australian operations, non-cash charges of
         $8.6 million in depreciation and amortization, which related primarily
         to its intangible assets, and $900,000 for severance and related
         personnel reductions in the fourth quarter of the year ended March 31,
         2001. Overall, the Company's general and administrative expense
         increased 22% during fiscal 2001.

         In addition, the Company's balance sheet reflects negative working
         capital of $5.3 million and $2.8 million as of March 31, 2002 and 2001,
         respectively. At March 31, 2002, the Company has a substantial amount
         of debt, including $6.9 million due to Union Bank of California and
         $2.0 million due to other stockholders. The Company experienced
         significant strains on its cash resources during the years ended March
         31, 2002 and 2001, and had difficulty meeting its current obligations,
         including principal and interest payments on indebtedness and lease
         payments due on its two facilities in the US.

         The Company experienced a reduction in sales of its high margin
         application software licenses in its U.S. and U.K. operations. The
         Company believes its difficulties initially arose from insufficient
         staffing of its sales force. Although the Company significantly
         increased the staffing of the sales force in the first quarter of
         fiscal 2002, the economic slowdown and the terrorist attacks of
         September 11, 2001, and the ongoing hostilities in the world, increased
         the challenges faced by the sales force. In addition, the Company's
         financial condition may have interfered with its ability to sell new
         application software licenses. The Company was dependent on one
         customer for 42% of its net sales in fiscal 2002. The Company needs to
         generate additional sales and revenue and to control expenditures to
         return to profitability and to achieve positive cash flow.

         In October 2001, the Company completed an analysis of its operations
         and concluded that it was necessary to restructure the composition of
         management and personnel. The CEO, CFO and general manager of the
         Company's retail operations elected to leave to pursue other interests.
         The Company appointed the Chairman as the Chief Executive Officer. The
         Company reduced its staff by a total of 20%, and restructured and
         refocused the sales force toward opportunities available in the current
         economic climate.

         As of April 1, 2002, the Company has refocused the company into three
         strategic business units lead by experienced managers. The units are
         Island Pacific, SVI Store Solutions and SVI Training Products, Inc.

                                      F-9
<PAGE>

         The management team developed and presented to the Board of Directors
         in June 2002, an operating plan for the current fiscal year that, if
         achieved, will return the Company to positive cash flow from
         operations. This improvement is based on a restructuring of the
         Company's debt with Union Bank of California ("Union Bank"), on an
         aggressive sales campaign for its applications and related services and
         on rigorous management of its costs and expenses.

         In May and July 2002, the Company extended its term loan facility with
         Union Bank (see Note 10). In May 2002, the Company also entered into an
         agreement with its major customer, Toys "R" Us ("Toys"), to issue a
         $1.3 million non-interest bearing convertible note, a warrant to
         purchase up to 2.5 million shares of the Company's common stock at the
         exercise price of $0.553 per share and to provide development and
         professional services to Toys through February 2004. In July 2002, the
         Company extended its notes payable to certain stockholders which were
         in default (see Note 11).

         Management is now actively seeking additional financing to provide
         needed working capital for operations and to reduce its overall debt
         burden. Management believes additional financings, if completed, would
         provide the cash required for operations during the current fiscal
         year, thus enabling the Company the opportunity to increase sales of
         its applications and services. However, there can be no assurance that
         the Company will be successful in obtaining new financing, increasing
         sales or producing incremental profits and cash flow.

         PRINCIPLES OF CONSOLIDATION AND FINANCIAL STATEMENT PRESENTATION - The
         consolidated financial statements include the accounts of the Company
         and its wholly-owned subsidiaries, SVI Retail, Inc. and SVI Training
         Products, Inc., based in US and SVI Retail (Pty) Limited based in
         Australia. Effective February 2002, the Australian subsidiary ceased
         operation (see Note 3). All material intercompany balances and
         transactions have been eliminated in consolidation.

         RECLASSIFICATIONS - Certain amounts in the prior periods have been
         reclassified to conform to the presentation for the fiscal year ended
         March 31, 2002. Such reclassifications did not have any effect on
         losses reported in prior periods.

         ESTIMATES - The preparation of financial statements in conformity with
         accounting principles generally accepted in the United States of
         America 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.

         FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of short-term
         financial instruments, including cash and cash equivalents, trade
         accounts receivable, other receivables, prepaid expenses, other assets,
         accounts payable, accrued expenses, lines of credit and demands due to
         stockholders approximate their carrying amounts in the financial
         statements due to the short maturity of and/or the variable nature of
         interest rates associated with such instruments.

         The fair value of the long-term note receivable is discussed in Note 5.

         The amounts shown for term loans and convertible notes due to
         stockholders approximate fair value because current interest rates
         offered to the Company for debt of similar maturity are substantially
         the same or the difference is immaterial.

         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 lives of the assets, generally ranging from 4 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.

         GOODWILL - Goodwill, the excess of cost over the fair value of net
         assets acquired, is being amortized using the straight-line method over
         various periods not exceeding 10 years. The Company periodically

                                      F-10
<PAGE>

         reviews goodwill to evaluate whether changes have occurred that would
         suggest that goodwill may be impaired based on the estimated
         undiscounted cash flows of the assets acquired over the remaining
         amortization period. If this review indicates that the remaining
         estimated useful life of goodwill requires revision or that the
         goodwill is not recoverable, the carrying amount of the goodwill is
         reduced to its fair value, generally using the estimated shortfall of
         cash flows on a discounted basis. As described in Note 8 to the
         consolidated financial statements, effective April 1, 1999, the Company
         revised its estimate of the useful life of goodwill from twenty years
         to ten years.

         PURCHASED AND CAPITALIZED SOFTWARE COSTS - 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 three to ten
         years using the greater of the ratio that current gross revenue for a
         product bears to the total of current and anticipated future gross
         revenue for that product or the straight-line method over the remaining
         estimated economic life of the product. At each balance sheet date, the
         Company evaluates on a product-by-product basis the unamortized
         capitalized cost of computer software compared to the net realizable
         value of that product. The amount by which the unamortized capitalized
         costs of a computer software product exceed its net realizable value is
         written off (see Note 7).

         NON-COMPETE AGREEMENTS - 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, generally ranging from two to six years.

         IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
         - The Company evaluates its long-lived assets for impairment whenever
         events or changes in circumstances indicate that the carrying amount of
         such assets or intangibles may not be recoverable. Recoverability of
         assets to be held and used is measured by a comparison of the carrying
         amount of an asset to future undiscounted net cash flows expected to be
         generated by the asset. If such assets are considered to be impaired,
         the impairment to be recognized is measured by the amount by which the
         carrying amount of the assets exceeds the fair value of the assets (see
         Notes 4, 7, 8 and 9). Assets to be disposed of are reported at the
         lower of the carrying amount or fair value less costs to sell.

         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.
         Professional services are billed on an hourly basis and revenue is
         recognized as the work is performed.

         In December 1999, SEC Staff Accounting Bulletin ("SAB") No. 101,
         "Revenue Recognition in Financial Statements" was issued. SAB 101
         provides the SEC staff's views in applying generally accepted
         accounting principles to selected revenue recognition issues, including
         software revenue recognition. There was no impact on the financial
         statements as a result of the adoption of SAB 101. Therefore, no
         adjustment was recorded.

         In November 2001, the Financial Accounting Standards Board ("FASB")
         issued a Staff Announcement Topic D-103 ("Topic D-103"), "Income
         Statement Characterization of Reimbursements Received for Out-of-Pocket
         Expenses Incurred". Topic D-103 establishes that reimbursements
         received for out-of-pocket expenses should be reported as revenue in
         the income statement. Currently, the Company classifies reimbursed
         out-of-pocket expenses as a reduction in cost of consulting services.
         The Company is required to adopt the guidance of Topic D-103 in the
         first quarter of fiscal year 2003 and its consolidated statements of
         operations for prior periods will be reclassified to conform to the new
         presentation. The adoption of Topic D-103 will result in an increase in
         reported net sales and cost of sales; however, it will not affect the
         net income or loss in any past or future periods.

                                      F-11
<PAGE>

         NET INCOME (LOSS) 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 effect to all potential dilutive common shares outstanding during
         the year such as stock options, warrants and contingently issuable
         shares.

         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 sheet
         date. Transaction 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.

         ADVERTISING AND PROMOTIONAL EXPENSES - Advertising and promotional
         expenses are charged to expense as incurred and amounted to $38,000,
         $198,000 and $497,000 for the years ended March 31, 2002, 2001 and
         2000, respectively.

         COMPREHENSIVE INCOME - The Company utilizes Statement of Financial
         Accounting Standards No. 130, "Reporting Comprehensive Income." This
         statement establishes standards for reporting comprehensive income and
         its components in a financial statement. Comprehensive income as
         defined includes all changes in equity (net assets) during a period
         from non-owner sources. Examples of items to be included in
         comprehensive income, which are excluded from net income, include
         foreign currency translation adjustments and unrealized gains and
         losses on available-for-sale securities and are included as a component
         of stockholders' equity.

         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.

         In April 2000, the FASB issued FASB Interpretation (FIN) No. 44,
         "Accounting for Certain Transactions Involving Stock Compensation and
         Interpretation of APB No. 25," which is effective July 1, 2000 except
         for certain conclusions which cover specific events after either
         December 15, 1998 or January 12, 2000. FIN No. 44 clarifies the
         application of APB No. 25 related to modifications of stock options,
         changes in grantee status, and options issued on a business
         combination, among other things. The adoption of FIN No. 44 did not
         have a significant impact on the consolidated financial position or
         results of operations.

         CONCENTRATIONS - 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, 2002, the uninsured portion of these
         balances held at financial institutions aggregated to approximately
         $973,000. 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.

         For the fiscal years ended March 31, 2002, 2001 and 2000, sales to one
         customer accounted for 42%, 29% and 15%, respectively, of total
         consolidated net revenues. As of March 31, 2002 and 2001, the Company's
         trade receivables from this customer accounted for 40% and 26%,
         respectively, of total consolidated receivables. As of March 31, 2002,
         deferred revenues from this customer accounted for 48% of total
         consolidated deferred revenue.

                                      F-12
<PAGE>

         RECENT ACCOUNTING PRONOUNCEMENTS - In July 2001, the Financial
         Accounting Standards Board ("FASB") issued Statement of Financial
         Accounting Standards No. 141 ("SFAS 141"), "Business Combinations."
         SFAS 141 requires the purchase method of accounting for business
         combinations initiated after June 30, 2001 and eliminates the
         pooling-of-interests method. The adoption of SFAS 141 did not have a
         significant impact on the Company's financial statements.

         In July 2001, the FASB issued Statement of Financial Accounting
         Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets,"
         which is effective for fiscal years beginning after December 15, 2001.
         SFAS 142 prohibits the amortization of goodwill and intangible assets
         with indefinite useful lives but requires that these assets be reviewed
         for impairment at least annually or on an interim basis if an event
         occurs or circumstances change that could indicate that their value has
         diminished or been impaired. Other intangible assets will continue to
         be amortized over their estimated useful lives. The Company evaluates
         the remaining useful lives of these intangibles on an annual basis to
         determine whether events or circumstances warrant a revision to the
         remaining period of amortization. Pursuant to SFAS 142, amortization of
         goodwill and assembled workforce intangible assets recorded in business
         combinations prior to June 30, 2001 ceased effective March 31, 2002.
         Goodwill resulting from business combinations completed after June 30,
         2001 will not be amortized. The Company recorded amortization expense
         of approximately $2.2 million on goodwill during the fiscal year ended
         March 31, 2002. The Company currently estimates that application of the
         non-amortization provisions of SFAS 142 will reduce amortization
         expense and increase net income by approximately $2.2 million in fiscal
         2003.

         The Company will test goodwill and intangible assets with indefinite
         lives for impairment during the fiscal year beginning April 1, 2002 and
         any resulting impairment charge will be reflected as a cumulative
         effect of a change in accounting principle. Under SFAS 142, the Company
         is required to screen goodwill for potential impairment by September
         30, 2002 and measure the amount of impairment, if any, by March 31,
         2003. Subsequent to March 31, 2002, the Company completed the
         transitional analysis of goodwill impairment required by the adoption
         of SFAS 142 in fiscal 2003, and the Company will record in the first
         quarter of fiscal 2003 an impairment of $627,000 as a cumulative effect
         of a change in accounting principles.

         In June 2001, the FASB issued Statement of Financial Accounting
         Standards No. 143 ("SFAS 143"), "Accounting for Asset Retirement
         Obligations." This statement applies to legal obligations associated
         with the retirement of long-lived assets that result from the
         acquisition, construction, development and/or the normal operation of
         long-lived assets, except for certain obligations of lessees. The
         adoption of SFAS No. 143 did not have a material impact on the
         Company's consolidated financial statements.

         In August 2001, the FASB issued Statement of Financial Accounting
         Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or
         Disposal of Long-Lived Assets." SFAS 144 supercedes SFAS 121,
         "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
         Assets to Be Disposed Of." SFAS 144 applies to all long-lived assets
         (including discontinued operations) and consequently amends APB Opinion
         30, "Reporting the Results of Operations - Reporting the Effects of
         Disposal of a Segment of a Business, and Extraordinary, Unusual and
         Infrequently Occurring Events and Transactions." SFAS 144 develops one
         accounting model for long-lived assets that are to be disposed of by
         sale. SFAS 144 requires that long-lived assets that are to be disposed
         of by sale be measured at the lower of book value or fair value cost to
         sell. Additionally SFAS 144 expands the scope of discontinued
         operations to include all components of an entity with operations that
         (1) can be distinguished from the rest of the entity and (2) will be
         eliminated from the ongoing operations of the entity in a disposal
         transaction. SFAS 144 is effective for fiscal years beginning after
         December 15, 2001. The accounting prescribed in SFAS 144 was applied in
         connection with the disposal of the Australian operations.

         In April 2002, the FASB issued Statement of Financial Accounting
         Standards No. 145 ("SFAS 145"), "Rescission of FASB Statements No. 4,
         44, and 64, Amendment of FASB Statement No. 13, and Technical
         Corrections." SFAS No. 145 updates, clarifies, and simplifies existing
         accounting pronouncements. This statement rescinds SFAS No. 4, which
         required all gains and losses from extinguishment of debt to be
         aggregated and, if material, classified as an extraordinary item, net
         of related income tax effect. As a result, the criteria in APB No. 30
         will now be used to classify those gains and losses. SFAS No. 64
         amended SFAS No. 4 and is no longer necessary as SFAS No. 4 has been
         rescinded. SFAS No. 44 has been rescinded as it is no longer necessary.
         SFAS No. 145 amends SFAS No. 13 to require that certain lease
         modifications that have economic effects similar to sale-leaseback
         transactions to be accounted for in the same manner as sale-lease
         transactions. This statement also makes technical corrections to
         existing pronouncements. While those corrections are not substantive in
         nature, in some instances, they may change accounting practice. The
         Company does not expect adoption of SFAS No. 145 to have material
         impact, if any, on its financial position or results or operations.

                                      F-13
<PAGE>

2.       ACQUISITIONS

         MARKETPLACE SYSTEM CORPORATION - Effective March 16, 2000, Island
         Pacific acquired certain assets and liabilities of Marketplace System
         Corporation ("Marketplace"), a privately-held software development and
         consulting firm headquartered in Austin, Texas. The purchase price for
         the acquisition was $750,000 in cash and 93,023 shares of the Company's
         common stock with the fair value of $1 million at the date of
         acquisition. The acquisition has been accounted for as a purchase.

         The fair value of assets acquired and liabilities assumed were as
         follows (in thousands):

              Assets acquired, including goodwill                 $       1,621
              Liabilities assumed                                             -
              Common stock issued                                        (1,000)
              Liability for purchase consideration                         (500)
                                                                  --------------
                  Net cash paid for acquisition                   $         121
                                                                  ==============

3.       DISCONTINUED OPERATIONS

         The Company's Australian subsidiary maintained an AUS$1,000,000
         (approximately US$510,000) line of credit facility with National
         Australia Bank Limited. The facility was secured by substantially all
         of the assets of the Australian subsidiary, and the Company has
         guaranteed all amounts owing on the facility. The facility became due
         in February of each year, but had renewed annually. In April 2001, the
         Company received a formal demand under the guarantee for the full
         AUS$971,000 (approximately US$495,000) then alleged by the bank to be
         due under the facility. Due to the declining performance of the
         Australian subsidiary, management decided in the third quarter of
         fiscal 2002 to sell certain assets of the Australian subsidiary to the
         former management of such subsidiary, and then cease Australian
         operations. Such sale was however subject to the approval of National
         Australia Bank, the subsidiary's secured lender. The bank did not
         approve the sale and the subsidiary ceased operations in February 2002.
         The bank caused a receiver to be appointed in February 2002 to sell
         substantially all of the assets of the Australian subsidiary and pursue
         collections on any outstanding receivables. The receiver proceeded to
         sell substantially all of the assets for $300,000 in May 2002 to the
         entity affiliated with former management, and is actively pursuing the
         collection of receivables. If the sale proceeds plus collections on
         receivables are insufficient to discharge the indebtedness to National
         Australia Bank, the Company may be called upon to pay the deficiency
         under its guarantee to the bank. The Company has accrued $187,000 as
         the maximum amount of our potential exposure. The receiver has also
         claimed that the Company is obligated to it for inter-company balances
         of $636,000, but the Company does not believe any amounts are owed to
         the receiver, who has not as of the date of this report acknowledged
         the monthly corporate overhead recovery fees and other amounts charged
         by us to the Australian subsidiary offsetting the amount claimed to be
         due.

         The disposal of the Australian subsidiary resulted in a loss of $3.2
         million. The operating results of the Australian subsidiary are shown
         as discontinued operations with the prior period results restated. The
         operating results reflected in loss from discontinued operations are
         summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                           Year ended March 31,
                                                                   2002             2001            2000
                                                                   ----             ----            ----
<S>                                                              <C>             <C>             <C>
                  Net sales                                      $  2,363        $  4,959        $  9,462
                  Income (loss) before taxes                     $ (1,056)       $ (4,580)       $    882
                  Provision (benefit) for income taxes                332            (833)              2
                  Net income (loss)                              $ (1,388)       $ (3,746)       $    880

                  Net income (loss) per share of common stock    $  (0.04)       $  (0.11)       $   0.03
</TABLE>

         Net assets from discontinued operations at March 31, 2001 consisted of
         the following (in thousands):

                 Net assets available for sale                   $  1,595
                 Current assets                                     1,102
                 Line of credit                                      (485)
                 Current liabilities                                 (771)
                                                                 ---------
                                                                 $  1,441
                                                                 =========

                                      F-14
<PAGE>

4.       ASSET IMPAIRMENT CHARGES

         In the fiscal year ended March 31, 2001, the Company evaluated the
         recoverability of the long-lived assets in accordance with the
         evaluation of its long-lived assets as described in Note 1. In
         determining the amount of impairment, the Company compared the net book
         value of the long-lived assets associated with the Australian
         operations, primarily consisting of recorded goodwill and software
         intangibles, to their estimated fair values. Fair values were estimated
         based on anticipated future cash flows of the Company's operations
         consistent with the assets' remaining useful lives. The anticipated
         future cash flows were then discounted at 13%, which approximates the
         Company's interest rate on its amended and restated loan agreement in
         fiscal year ended March 31, 2001. Accordingly, the Company recorded
         impairment of goodwill of $2.3 million and capitalized software of $6.6
         million in the fiscal year ended March 31, 2001.

         The Company also recorded an impairment charge to its note receivable
         in the fiscal year ended March 31, 2001 (See Note 5.).

         Subsequent to March 31, 2002, the Company completed the transitional
         analysis of intangible asset impairment required by the adoption of
         Statement of Financial Accounting Standards No. 147 in fiscal 2003, and
         the Company will record in the first quarter of fiscal 2003 impairments
         of $627,000, $1,182,000 and $161,000 to goodwill, capitalized software
         and non-compete agreements, respectively, as a cumulative effect of a
         change in accounting principles.

5.       NOTE RECEIVABLE

         In connection with the sale of its United Kingdom subsidiary, IBIS
         Systems Limited ("IBIS") to Kielduff Investments Limited ("Kielduff")
         in the fourth quarter of fiscal 1999, the Company recorded a note
         receivable (the "Note") of $13.6 million. The Note bore interest at 2%
         over the base prime rate for United States dollar deposits quoted by
         the Hong Kong Shanghai British Columbia Bank plc, and principal and
         interest were originally due October 1, 1999. In September 1999, the
         Note was extended to February 15, 2000 to allow Kielduff sufficient
         time to complete a combination of several companies under a common
         name, Integrity Software, Inc. ("Integrity"), and register this newly
         formed entity for trading on a United States exchange. The Note was
         further extended to November 15, 2000 to accommodate the registration
         and underwriting process related to Integrity. In September 2000, the
         Company discontinued accruing interest on the Note. The Note was
         secured by approximately 11% of the outstanding shares of Integrity.
         The Company also had the right to convert all sums due from Kielduff
         into shares of Integrity at its option. The Company did not exercise
         its option to convert any amount of the Note into shares of Integrity.
         Kielduff did not pay the Note on the November 15, 2000 due date. Given
         the Company's lack of ability to enforce collection on the due date,
         the Company classified the Note as long term. The Company engaged
         Business Valuation Services, Inc. ("BVS") to perform an analysis of the
         fair value of the Note's underlying collateral at each quarter during
         fiscal year 2001. After consideration of the BVS reports and other
         relevant data, the Company concluded that the fair value of the
         collateral underlying the Note was impaired. Thus, during the fiscal
         year ended March 31, 2001, the Company recorded an impairment of $7.6
         million. The carrying value of the Note at March 31, 2001 was $7.0
         million.

         Effective January 1, 2002, the Company transferred the Note to Softline
         Limited ("Softline"), a major stockholder, in connection with an
         integrated series of transactions with Softline (see Notes 10 and 13).
         The transactions with Softline were as follows:

                  1.       The Company transferred to Softline the note received
                           in connection with the sale of IBIS.
                  2.       The Company issued to Softline 141,000 shares of
                           newly-designated Series A Convertible Preferred Stock
                           ("Series A Preferred").
                  3.       In consideration of the above, Softline released the
                           Company from its obligations related to the note and
                           financing costs payable due to Softline. Softline
                           also surrendered 10,700,000 shares of the Company's
                           common stock held by Softline.

         No gain or loss was recognized in connection with the disposition of
         the Note or the other components of the transactions.

6.       PROPERTY AND EQUIPMENT

         Property and equipment at March 31, 2002 and 2001 consisted of the
         following (in thousands):

<TABLE>
<CAPTION>
                                                                                 2002             2001
                                                                           --------------    --------------
<S>                                                                        <C>               <C>
              Computer equipment and purchased software                    $       2,299     $       2,451
              Furniture and fixtures                                                 473               492
              Automobiles                                                                              29
              Leasehold improvements                                                 400               338
                                                                           --------------    --------------
                                                                                   3,172             3,281
              Less accumulated depreciation and amortization                       2,531             2,305
                                                                           --------------    --------------
                  Total                                                    $         641     $         976
                                                                           ==============    ==============
</TABLE>

                                      F-15
<PAGE>

         Depreciation and amortization expense from continuing operations for
         the fiscal years ended March 31, 2002, 2001 and 2000 was $520,000,
         $698,000 and $414,000, respectively. Depreciation and amortization
         expense from discontinued operations for the fiscal years ended March
         31, 2002, 2001 and 2000 was $46,000, $173,000 and $241,000,
         respectively.

7.       CAPITALIZED SOFTWARE

         Capitalized software at March 31, 2002 and 2001 consisted of the
         following (in thousands):

                                                     2002             2001
                                               --------------    --------------

              Software                         $      28,128     $      27,873
              Less accumulated amortization           10,516             7,799
                                               --------------    --------------
              Total                            $      17,612     $      20,074
                                               ==============    ==============

         Amortization expense from continuing operations for the fiscal years
         ended March 31, 2002, 2001 and 2000 was $2.9 million, $3.4 million and
         $2.8 million, respectively. Amortization expense from discontinued
         operations for the fiscal years ended March 31, 2002, 2001 and 2001 was
         $300,000, $751,000 and $451,000, respectively. The Company recorded an
         impairment of $6.6 million to the capitalized software associated with
         its discontinued Australian subsidiary at 2001 (see Note 4).

8.       GOODWILL

         In evaluating the economic benefit and useful lives of goodwill
         obtained in connection with the Company's acquisition of Divergent
         Technologies Pty. Ltd., Chapman Computers Pty. Ltd., Applied Retail
         Solutions, Inc. and Island Pacific Systems Corporation, management
         determined that the period of amortization should be revised from
         twenty years to ten years effective April 1, 1999. Accordingly, the
         unamortized cost of such assets at April 1, 1999 have been allocated to
         the reduced number of remaining periods in the revised useful life.

         Goodwill at March 31, 2002 and 2001 consisted of the following (in
         thousands):

                                                      2002            2001
                                                --------------   --------------

              Cost                              $      21,915    $      21,914
              Less accumulated amortization             6,493            4,272
                                                --------------   --------------
              Total                             $      15,422    $      17,642
                                                ==============   ==============

         The amortization expense for twelve months ended March 31, 2002, 2001
         and 2000 was $2.2 million, $2.6 million, and $2.4 million,
         respectively. The Company recorded an impairment to the goodwill
         associated with its discontinued Australian subsidiary of approximately
         $2.3 million at March 31, 2001 (see Note 4).

9.       NON-COMPETE AGREEMENTS

         Non-compete agreements as of March 31, 2002 and 2001 are as follows (in
         thousands):

                                                      2002             2001
                                                --------------    --------------

              Cost                              $       6,986     $       6,986
              Less accumulated amortization             4,484             3,372
                                                --------------    --------------
              Total                                     2,502             3,614

              Current portion                             917             1,017
                                                --------------    --------------
              Long-term portion                 $       1,585     $       2,597
                                                ==============    ==============

                                      F-16

<PAGE>

         The amortization expense for the twelve months ended March 31, 2002,
         2001 and 2000 was $1.1 million , $1.6 million and $1.5 million,
         respectively.

10.      TERM LOANS

         TERM LOANS DUE TO BANK

         The Company's term loans at March 31, 2002 and 2001 consist of the
         following (in thousands):

<TABLE>
<CAPTION>
                                                                  2002             2001
                                                            --------------    --------------
<S>                                                         <C>               <C>
              Term loans payable to bank                    $       6,907     $       7,325
              Less term loans payable to bank classified
                  as long-term as discussed below                   6,472             7,325
                                                            --------------    --------------
              Current portion of term loans                 $         435     $           -
                                                            ==============    ==============
</TABLE>

         In June 1999, the Company obtained two term loans from Union Bank of
         California, N.A. (the "Bank") in the aggregate amount of $18.5 million
         as partial funding for the acquisition of Island Pacific Systems
         Corporation. During the first quarter of fiscal 2001, the Company
         agreed to consolidate the approximately $14.75 million balance of the
         two loans into a single term loan, and to extend the maturity date of
         the renegotiated loan to August 1, 2000. The Company also agreed to
         reduce the outstanding principal amount by $10 million. During the
         second quarter of fiscal 2001, Softline loaned the Company $10 million
         for the purpose of making this $10 million principal reduction. The
         Company then refinanced the $4.75 million balance due on the term loan.
         Under the terms of this arrangement, the Company was required beginning
         August 1, 2000 to pay interest on the outstanding balance at the rate
         of 5% over the Bank's prime rate, increasing to 6.25% over the Bank's
         prime rate after December 31, 2000. The Company was also required to
         pay $200,000 per month toward reduction of principal, and to pay as
         further reduction of principal one half of amounts received from a
         $1.75 million contract receivable, any amounts received from sale of
         shares of Integrity Software, Inc. which secure a related note
         receivable (see Note 4), and any amounts received from the issuance of
         debt or equity securities other than stock option exercises. The
         Company's $3 million revolving line of credit with the Bank also became
         subject to the terms of this agreement. The entire amount of
         indebtedness was due April 1, 2001.

         During the third quarter of fiscal 2001, the Bank agreed to waive the
         required $200,000 monthly principal payments and to allow the Company
         to pay a reduced monthly interest rate of 2% over prime, with the
         balance of the contractual interest accruing and payable upon maturity.
         The Bank also agreed to permit the Company to apply up to $2.5 million
         in private placement proceeds (see Note 12) and the full $100,000 paid
         on the contract receivable during the third quarter of the fiscal year
         toward working capital instead of reduction of principal. The Company
         also agreed to terminate the revolving line of credit arrangement,
         which as of December 31, 2000, was fully drawn, and to a restriction on
         payments toward subordinated loan obligations until the Bank
         obligations are discharged. The restriction did not apply to the
         repayment of amounts due to a subsidiary of Softline (see Note 17).

         The entire amount owed to the Bank is secured by the Company's assets,
         10,700,000 shares of the Company's common stock and stock of its U.S.
         retail and training products subsidiaries. The loan is subject to
         certain financial covenants and contains limitations on acquisitions,
         investments and other borrowings.

         Effective June 28, 2001, the term loan was amended and restated. Under
         the restated term loan agreement, the Bank extended the maturity date
         to May 1, 2002. The restated agreement also provided for the Company,
         at its option, to receive a further extension of six months (i.e.,
         until November 1, 2002), subject to certain conditions. Interest on the
         term loan accrues and is payable monthly at a rate per annum equal to
         the Bank's reference rate plus five percentage points. The restated
         agreement includes affirmative covenants regarding the Company
         maintaining and obtaining certain financial ratios. The Company was
         required to make monthly principal payments of $50,000 starting October
         1, 2001.

         On March 18, 2001, the loan agreement was amended to release certain
         collateral from the pledge to the Bank, and to instead pledge to the
         Bank 10,700,000 shares of the Company's common stock surrendered by

                                      F-17
<PAGE>

         Softline in the related recapitalization transactions with Softline
         described in Notes 5, 10 and 13. The release collateral consisted of
         shares of capital stock of our Australian subsidiary, and the IBIS note
         and related shares of Integrity Software.

         On May 21, 2002, the Bank further amended the loan agreement to extend
         the maturity date to May 1, 2003 and to revise other terms and
         conditions. We agreed to pay to the Bank $100,000 as a loan extension
         fee, payable in four monthly installments of $25,000 each commencing on
         June 30, 2002. If we fail to pay any installment when due, the loan
         extension fee increases to $200,000, and the monthly payments increase
         accordingly. We also agreed to pay all overdue interest and principal
         by June 30, 2002, and to pay monthly installments of $24,000 commencing
         on June 30, 2002 and ending April 30, 2003 for the Bank's legal fees.

         The Company was not able to make the payments required in June 2002.
         The Company was also out of compliance with certain financial covenants
         as of June 28, 2002. Effective July 15, 2002, the Bank further amended
         the restated term loan agreement, and waived the then existing
         defaults. Under this third amendment to the restated agreement, the
         Bank agreed to waive the application of the additional 2% interest rate
         for late payments of principal and interest, and to waive the
         additional $100,000 refinance fee required by the second amendment. The
         Bank also agreed to convert $361,000 in accrued and unpaid interest
         and fees to term loan principal, and the Company executed a new term
         note in total principal amount of $7.2 million. The Company is required
         to make a principal payment of $35,000 on October 15, 2002, principal
         payments of $50,000 on each of November 15, 2002 and December 15, 2002,
         and consecutive monthly principal payments of $100,000 each on the 15th
         day of each month thereafter through August 15, 2003. The entire amount
         of principal and accrued interest is due August 31, 2003. The Bank also
         agreed to eliminate certain financial covenants and to ease others, and
         the Company is in compliance with the revised covenants.

         The Company also agreed to issue a contingent warrant to an affiliate
         of the Bank to purchase up to 4.99% of the number of outstanding shares
         of common stock on January 2, 2003 for $0.01 per share. The warrant
         will be issued and exercisable for shares equal to 1% of the
         outstanding common stock on January 2, 2003, and will become
         exercisable for shares equal to an additional 0.5% of the outstanding
         common stock on the first day each month thereafter, until it is
         exercisable for the full 4.99% of the outstanding common stock. The
         warrant will not become exercisable to the extent that the Company
         discharged in full the Bank indebtedness prior to a vesting date.
         Accordingly, the warrant will not become exercisable for any shares if
         the Company discharges its bank indebtedness in full prior to January
         2, 2003; and if the warrant does become partially exercisable on such
         date, it will cease further vesting as of the date the Company
         discharges in full the bank indebtedness.

         SUBORDINATED TERM LOAN DUE TO STOCKHOLDER

         During the second quarter of fiscal 2001, Softline loaned the Company
         $10 million for the purpose of making a $10 million principal reduction
         on the Bank term loan. This loan was unsecured and was subordinated to
         the term loan. The loan bore interest at 14% per annum, payable
         monthly, and had a stated due date of August 1, 2001. The Company did
         not pay monthly interest and had accrued $1.0 million interest as of
         March 31, 2001. There were no financial covenants or restrictions
         related to the Softline loan. Effective June 30, 2001, the terms of the
         loan with Softline were amended. Included in the amendment was an
         extension of the maturity date to November 1, 2002.

         The Company agreed to reimburse Softline for costs associated with this
         loan in the amount of $326,000, which was fully accrued for as of March
         31, 2001. These costs were to be amortized over the initial 13 month
         life of the loan.

         Effective January 1, 2002, the Company entered into an integrated
         series of transactions with Softline where Softline agreed to release
         the Company's obligations relating to this loan, including the $326,000
         refinancing costs. As a result, the Company recorded a reduction of
         refinancing cost equal to the $224,000 previously amortized. For
         further discussion of the transactions with Softline, see Notes 5 and
         13.

         During the fiscal year ended March 31, 2001, the Company borrowed $0.6
         million from a subsidiary of Softline on a short-term basis (see Note
         16).

         Interest expense included interest due to Softline and its subsidiary
         for the fiscal years ended March 31, 2002, 2001 and 2000 of $1.3
         million, $1.0 million and $0, respectively. Interest expense for the
         fiscal years ended March 31, 2002, 2001 and 2000 also included interest
         due to other stockholders in the amount of $56,000, $130,000 and
         $31,000, respectively.

11.      CONVERTIBLE NOTES

         CONVERTIBLE NOTES DUE TO STOCKHOLDERS

         In May and June 2001, the Company entered into Subscription Agreements
         with a limited number of accredited investors related to existing
         stockholders for gross proceeds of $1.3 million. Each unit consisted of
         a convertible promissory note and warrants to purchase 250 shares of
         the Company's common stock for each $1,000 borrowed by the Company. The
         holders of the notes had the option to convert the unpaid principal and
         interest at any time at a conversion price of $1.35. The notes matured
         on August 30, 2001 and earned interest at 12% per annum to be paid at
         maturity. The notes were not paid or converted at March 31, 2002.

                                      F-18
<PAGE>

         The interest rate increased to 17% per annum on August 30, 2001 as a
         result of the non-payment on the maturity date. As of March 31, 2002,
         the balance of these convertible notes is $1.4 million, including
         $171,000 in accrued interest.

         In accordance with generally accepted accounting principles, the
         difference between the conversion price of $1.35 and the Company's
         stock price on the date of issuance of the notes is considered to be
         interest expense. It is recognized in the statement of operations
         during the period from the issuance of the debt to the time at which
         the debt first becomes convertible. The Company recognized interest
         expense of $191,000 in the accompanying statement of operations for the
         fiscal year ended March 31, 2002.

         Each warrant entitled the holder to purchase one share of the Company's
         common stock at an exercise price of $1.50. The warrants were to expire
         three years from the date of issuance. The Company allocates the
         proceeds received from debt or convertible debt with detachable
         warrants using the relative fair value of the individual elements at
         the time of issuance. The amount allocated to the warrants was
         determined to be $247,000 and is included in interest expense in the
         accompanying statement of operations for the year ended March 31, 2002.
         Interest expense for the fiscal year ended March 31, 2002 was $609,000.

         Subsequent to March 31, 2002, the Company agreed to amend the terms of
         the notes and warrants issued to these investors. The investors agreed
         to replace the existing notes with new notes having a maturity date of
         September 30, 2003. The interest rate on the new notes was reduced to
         8% per annum, increasing to 13% in the event of a default in payment of
         principal or interest. The Company is required to pay accrued interest
         on the new notes calculated from July 19, 2002, in quarterly
         installments beginning September 30, 2002. The investors agreed to
         reduce accrued interest and late charges on the original notes by up to
         $85,000, and to accept the reduced amount in shares of the Company's
         common stock valued at the average closing price of the shares on the
         American Stock Exchange for the 10 trading days prior to July 19, 2002.
         The new notes are convertible at the option of the holders into shares
         of the Company's common stock valued at $0.60 per share.

         The Company also agreed that the warrants previously issued to the
         investors to purchase an aggregate of 3,033,085 shares of common stock
         at exercise prices ranging from $0.85 to $1.50, and expiring on various
         dates between December 2002 and June 2004, would be replaced by new
         warrants to purchase an aggregate of 1,600,000 shares at $0.60 per
         share, expiring July 19, 2007. The Company also agreed to file a
         registration statement with the Securities and Exchange Commission for
         the resale of all shares held by or obtainable by these investors. In
         the event such registration statement is not declared effective within
         120 days after July 19, 2002, the Company will be obligated to issue
         five-year penalty warrants for the purchase of 5% of the total number
         of registrable securities at an exercise price of $0.60 per share. The
         Company will be obligated to issue additional penalty warrants for each
         30 day period after such date in which the registration statement is
         not effective. No further penalty warrants will accrue from the
         original registration obligation to these investors (see Note 13).

         CONVERTIBLE NOTE DUE TO MAJOR CUSTOMER

         Subsequent to March 31, 2002, Toys agreed to invest $1.3 million for
         the purchase of a non-recourse convertible note and a warrant to
         purchase 2,500,000 shares of common stock. In connection with this
         transaction, Toys signed a two-year software development and services
         agreement (the "Development Agreement") that expires in February 2004.
         The purchase price is payable in installments through September 27,
         2002. The note is non-interest bearing, and the face amount is payable
         in shares of common stock valued at $0.553 per share. The note is due
         May 29, 2009, or if earlier than that date, three years after the
         completion of the development project contemplated in the Development
         Agreement. The Company does not have the right to prepay the
         convertible note before the due date, but upon the due date, the
         Company may at its option pay the principal amount in cash rather than
         shares of common stock to the extent Toys did not earlier convert the
         note to shares of common stock. The face amount of the note is 16% of
         the $1.3 million purchase price as of May 29, 2002, and increases by 4%
         of the $1.3 million purchase price on the last day of each succeeding
         month, until February 28, 2004, when the face amount is the full $1.3
         million purchase price. The face amount will cease to increase if Toys
         terminates the Development Agreement for a reason other than the
         Company's breach. The face amount will be zero if the Company
         terminates the Development Agreement due to an uncured breach by Toys
         of the Development Agreement.

         The warrant entitles Toys to purchase up to 2,500,000 of shares of our
         common stock at $0.553 per share. The warrant is initially vested as to
         400,000 shares as of May 29, 2002, and vests at the rate of 100,000
         shares per month until February 28, 2004. The warrant will cease to
         vest if Toys terminates the Development Agreement for a reason other
         than the Company's breach. The warrant will become entirely
         non-exercisable if the Company terminates the Development Agreement due
         to an uncured breach by Toys of the Development Agreement. Toys may
         elect a "cashless exercise" where a portion of the warrant is
         surrendered to pay the exercise price.

         The note conversion price and the warrant exercise price are each
         subject to a 10% reduction in the event of an uncured breach by the
         Company of certain covenants to Toys. These covenants do not include
         financial covenants. Conversion of the note and exercise of the warrant
         each require 75 days advance notice. The Company also granted Toys
         certain registration rights for the shares of common stock into which
         the note is convertible and the warrant is exercisable.

12.      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 leases contain renewal
         options. Future annual minimum lease payments for non-cancelable
         operating leases at March 31, 2002 are summarized as follows (in
         thousands):

              YEAR ENDING MARCH 31:
              2003                                            $         753
              2004                                                      724
              2005                                                      704
              2006                                                      192
              2007                                                        7
                                                              --------------
                                                              $       2,380
                                                              ==============

         Rent expense was $1.2 million, $1.5 million and $1.3 million for the
         fiscal years ended March 31, 2002, 2001 and 2000, respectively.

                                      F-19
<PAGE>

         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 the United
         States ("401(k) Plan"). Eligible participants may contribute up to
         $10,000 or 20% of their total compensation, whichever is lower. The
         Company matched 50% of the employee's contributions, up to 3% 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. Effective, July 1, 2000, the Company
         amended the 401(k) Plan to for the following items: (a) Company
         matching contribution equal to 50% of the employee's contributions, up
         to 6% of the employee's total compensation and (b) eligible
         participants may defer up to $10,500 or 18% of their total
         compensation, whichever is lower. Effective January 1, 2002, the
         Company ceased matching contributions. The Company made matching
         contributions to the 401(k) Plan of approximately $125,000, $359,000
         and $192,000 in the fiscal years ended March 31, 2002, 2001 and 2000,
         respectively.

         LITIGATION -In April of 2002, the Company's former CEO, Thomas
         Dorosewicz, filed a demand with the California Labor Commissioner for
         $256,250 in severance benefits allegedly due under a disputed
         employment agreement, plus attorney's fees and costs. On June 18, 2002,
         the Company filed an action against Mr. Dorosewicz and an entity
         affiliated with him in San Diego Superior Court, Case No. GIC790833,
         alleging fraud and other causes of action relating to transactions Mr.
         Dorosewicz caused the Company to enter into with his affiliates and
         related parties without proper board approval. The Company expects one
         or more cross-claims from Mr. Dorosewicz in that action. The Company
         does not believe it has any obligation to pay the severance benefits
         alleged by Mr. Dorosewicz to be due, and it intends to vigorously
         pursue its causes of action against Mr. Dorosewicz. The Company cannot
         at this time predict what will be the outcome of these matters, as
         discovery has not yet commenced in either action.


13.      PREFERRED STOCK, COMMON STOCK, TREASURY STOCK, STOCK OPTIONS AND
         WARRANTS

         PRIVATE PLACEMENTS - In March 2000, the Company received $2.9 million
         from the sale of common stock to an investor. The Company agreed to
         register the shares with the Securities and Exchange Commission
         ("SEC"). The shares carried a "repricing right" which entitled the
         investor to receive additional shares upon the occurrence of certain
         events. In October 2000, the Company issued 375,043 shares in
         satisfaction of the repricing right.

         In October 2000, the SEC declared effective the registration statement.
         The Company became obligated to pay to the investor liquidated damages
         for late effectiveness of the registration statement in the amount of
         $286,000. The investor agreed in March 2001 to accept 286,000 shares of
         common stock in satisfaction of the liquidated damages and agreed to
         purchase an additional 214,000 shares of common stock for $214,000. In
         connection with this agreement, the Company issued the investor a
         two-year warrant to purchase up to 107,000 shares of common stock at
         $1.50 per share. The Company may call the warrants for $0.001 per share
         upon the occurrence of certain events. The investor will have thirty
         days after the call to exercise the warrant, after which time the
         warrant will expire.

         The Company agreed to register all of the shares sold in March 2001,
         and those that it may sell under the warrant, with the SEC. The Company
         became obligated to pay to the investor liquidated damages in the
         amount of $60,000. Subsequent to March 31, 2002, the investor agreed to
         accept 140,000 shares of common stock in satisfaction of the liquidated
         damages.

         In December 2000, the Company received $1.5 million from the sale of
         common stock and warrants to a limited number of accredited investors.
         As part of the same transaction, the investors purchased in January
         2001 an additional $0.5 million of common stock and warrants, and two
         of the investors purchased in February 2001 an additional $0.5 million
         of common stock and warrants on the same terms and conditions. The
         Company issued a total of 2,941,176 shares of common stock and
         1,470,590 warrants to purchase common stock at an exercise price of
         $1.50 as a result of the aforementioned transaction. The Company agreed
         to register the common shares purchased and the common shares issuable
         upon the exercise of warrants with the Securities and Exchange
         Commission. The Company filed a registration statement in January 2001
         to register these shares, but it did not become effective. As of March
         31, 2002, the Company has not registered these shares and has issued
         1,029,410 penalty warrants with a strike price of $0.85 per share, with
         fair value of $711,000, as required under an agreement with the
         investors. The Company was obligated to issue to each investor a
         warrant for an additional 2.5% of the number of shares purchased by
         that investor in the private placement for each continuing 30-day
         period during which a registration statement is not effective.
         Subsequent to March 31, 2002, the Company and the investors agreed to
         revise the terms of the foregoing warrants, and to cease accruing
         penalty warrants (see Note 11).

         PREFERRED STOCK - The Series A Preferred has a stated value of $100 per
         share and is redeemed at the option of the Company any time prior to
         the maturity date of December 31, 2006 for 107% of the stated value and
         accrued and unpaid dividends. The shares are entitled to cumulative
         dividends of 7.2% per annum, payable semi-annually. At March 31, 2002,
         dividends in arrears amount to $254,000 or $1.80 per share. The holders
         may convert each share of Series A Preferred at any time into the
         number of shares of the Company's common stock determined by dividing
         the stated value plus all accrued and unpaid dividends, by a conversion
         price initially equal to $0.80. The conversion price will increase at
         an annual rate of 3.5% calculated on a semi-annual basis. The Series A
         Preferred is entitled upon liquidation to an amount equal to its stated
         value plus accrued and unpaid dividends in preference to any
         distributions to common stockholders. The Series A Preferred has no
         voting rights prior to conversion into common stock, except with
         respect to proposed impairments of the Series A Preferred rights and
         preferences, or as provided by law. The Company has the right of first
         refusal to purchase all but not less than all of any shares of Series A
         Preferred or shares of common stock received on conversion which the
         holder may propose to sell to a third party, upon the same price and
         terms as the proposed sale to a third party.

                                      F-20
<PAGE>

         COMMON STOCK - During fiscal year ended March 31, 2002, the Company
         issued the following:

                  o        An aggregate of 573,845 shares of common stock for
                           services rendered and severance payments totaling
                           $490,000.

                  o        38,380 shares of common stock for investor relations
                           services. The $31,000 value of these shares was
                           recorded subsequent to year end when the services
                           were performed.

                  o        644,715 shares of common stock totaling $485,000
                           which are to be returned as a result of early
                           termination of investor relations service contracts.
                           The value of these shares is recorded as a share
                           receivable component of stockholders' equity.

         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. As of March 31, 2001 and 2000, the Company had repurchased
         444,641 shares of its common stock at a cost of $4.3 million. The
         purchased shares were canceled as of March 31, 2002.

         The Company received 10,700,000 shares of the Company's common stock
         valued at $8.6 million from Softline in connection with the
         transactions between the Company and Softline described in Notes 5, 10
         and 13. These shares are pledged to the Bank as collateral for the term
         loans (see Note 10).

         STOCK OPTION PLAN - The Company adopted an incentive stock option plan
         during fiscal year 1990 (the "1989 Plan"). Options under this plan may
         be granted to employees and officers of the Company. There were
         initially 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 1989 Plan increasing the number of shares of common
         stock authorized under the 1989 Plan to 1,500,000. 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 from the date of grant. The 1989 Plan terminated in
         October 1999.

         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 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 from the date of grant. The 1998
         Plan terminates in October 2008. On August 18, 2000, the Board approved
         certain amendments to the 1998 Plan. On November 16, 2000, certain of
         the amendments were approved by the shareholders. These amendments: (a)
         increased number of shares authorized in the Plan from 3,500,000 to
         4,000,000, (b) authorized an "automatic" annual increase in the number
         of shares reserved for issuance by an amount equal to the lesser of 2%
         of total number of shares outstanding on the last day of the fiscal
         year, 600,000 shares, or an amount approved by the Board of Directors,
         and (c) to limit the number of stock awards of any one participant
         under the 1998 Plan to 500,000 shares in any calendar year.

                                      F-21
<PAGE>

         The following summarizes the Company's stock option transactions under
         the stock option plans:

                                                                      WEIGHTED
                                                                       AVERAGE
                                                                      EXERCISE
                                                                      PRICE PER
                                                          OPTIONS       SHARE
                                                        -----------  -----------

                  Options outstanding, April 1, 1999     1,369,285   $   4.05
                      Exercised                           (190,075)  $   3.63
                      Granted                              730,150   $   7.87
                      Expired/canceled                    (119,100)  $   7.28
                                                        -----------

                  Options outstanding, March 31, 2000    1,790,260   $   5.44
                      Exercised                           (131,300)  $   6.24
                      Granted                            2,891,929   $   1.35
                      Expired/canceled                    (589,855)  $   4.88
                                                        -----------

                  Options outstanding, March 31, 2001    3,961,034   $   2.55
                      Granted                            2,117,300   $   0.89
                      Expired/canceled                  (1,592,445)  $   1.84
                                                        -----------

                  Options outstanding March 31, 2002     4,485,889   $   2.05
                                                        ===========

                  Exercisable, March 31, 2000            1,169,160   $   4.37
                                                        ===========

                  Exercisable, March 31, 2001              922,885   $   4.01
                                                        ===========

                  Exercisable, March 31, 2002            2,030,673   $   2.63
                                                        ===========

         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 third parties. The following
         summarizes the Company's other stock option transactions:

                                                                      WEIGHTED
                                                                       AVERAGE
                                                                      EXERCISE
                                                                      PRICE PER
                                                          OPTIONS       SHARE
                                                        -----------  -----------
                  Options outstanding, April 1, 1999     5,388,700   $   1.95
                      Exercised                         (3,247,188)  $   1.92
                      Granted                               15,000   $   9.50
                                                        -----------

                  Options outstanding, March 31, 2000    2,156,512   $   2.02
                      Exercised                           (289,700)  $   1.82
                      Granted                              300,000   $   0.95
                      Expired/Canceled                    (800,000)  $   1.25
                                                        -----------

                  Options outstanding, March 31, 2001    1,366,812   $   2.28
                      Expired/Canceled                    (320,000)  $   1.08
                                                        -----------
                  Options outstanding, March 31, 2002    1,046,812   $   2.61
                                                        ===========

                  Exercisable, March 31, 2000            2,156,512   $   2.02
                                                        ===========

                  Exercisable, March 31, 2001            1,166,812   $   2.51
                                                        ===========

                  Exercisable, March 31, 2002            1,046,812   $   2.61
                                                        ===========

         During the fiscal years ended March 31, 2001 and 2000, the Company
         recognized compensation expense of $28,000 and $55,000, respectively,
         for stock options granted to non-employees for services provided to the
         Company.

                                      F-22
<PAGE>

         The following table summarizes information as of March 31, 2002
         concerning currently outstanding and exercisable options:

<TABLE>
<CAPTION>
                                            Options Outstanding                             Options Exercisable
                              --------------------------------------------------       -----------------------------
                                                  Weighted
                                                  Average              Weighted                             Weighted
                                                  Remaining            Average                              Average
             Range Of            Number           Contractual          Exercise           Number            Exercise
          Exercise Prices     Outstanding            Life               Price           Exercisable          Price
         ----------------     ------------       -------------       -----------        ------------        --------
                                                   (years)
<S>      <C>                    <C>                  <C>             <C>                 <C>              <C>
         $0.50 -   1.75         4,020,664            8.28            $     1.15          1,720,728        $      1.13
         $1.76 -   4.00           631,812            5.32            $     2.45            631,812        $      2.45
         $4.01 -   7.00           464,575            4.06            $     5.36            444,575        $      5.32
         $7.01 -  11.75           415,650            4.25            $     7.83            280,370        $      7.87
                              --------------------------------------------------        ------------------------------

                                5,532,701            7.28            $     2.16          3,077,485        $      2.62
                              ==================================================        ==============================
</TABLE>

         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 fiscal years ended March
         31, 2002, 2001 and 2000, as determined under the fair value method
         prescribed by SFAS No. 123 (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                           YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                            MARCH 31,       MARCH 31,       MARCH 31,
                                                              2002            2001            2000
                                                          ------------    ------------    ------------
<S>                                                       <C>             <C>             <C>
              Net loss:
                  As reported                             $   (14,658)    $   (28,945)    $    (4,054)
                  Pro forma                               $   (15,963)    $   (29,408)    $    (5,305)
              Basic and diluted loss per share:
                  As reported                             $     (0.41)    $     (0.83)    $     (0.12)
                  Pro forma                               $     (0.45)    $     (0.85)    $     (0.16)

              Weighted average assumptions:
                  Dividend yield                                 None            None            None
                  Volatility                                      77%            140%             49%
                  Risk free interest rate                        3.9%            5.8%            5.8%
                  Expected life of options                   4 years        10 years       1-4 years
</TABLE>

         For options granted during the year ended March 31, 2002 where the
         exercise price was greater than the stock price at the date of grant,
         the weighted-average fair value of such options was $0.46, and the
         weighted-average exercise price of such options was $0.89. For options
         granted during the year ended March 31, 2002 where the exercise price
         was equal to the stock price at the date of grant, the weighted average
         fair value of such options was $0.53, and the weighted-average exercise
         price of such options was $0.89. No options granted during the year
         ended March 31, 2002 where the exercise price was less than the stock
         price at the date of grant.

         WARRANTS - At March 31, 2002 and 2001, the Company had outstanding
         warrants to purchase 4,040,168 and 1,614,925 shares of common stock,
         respectively, at exercise prices ranging from $0.79 to $7.00 per share.
         The lives of the warrants range from two to five years from the grant
         date. During the fiscal year ended March 31, 2002, the Company
         recognized compensation expense of $579,000 for warrants granted to
         non-employees for services provided to the Company. Subsequent to March
         31, 2002, the Company agreed to replace warrants to purchase an
         aggregate of 3,033,085 shares of common stock at exercise prices
         ranging from $0.85 to $1.50, and expiring on various dates between
         December 2002 and June 2004, with new warrants to purchase an aggregate
         of 1,600,000 shares of common stock at $0.60 per share, expiring July
         17, 2007 (see Note 11).

                                      F-23
<PAGE>

14.      INCOME TAXES

         The provision (benefit) for income taxes consisted of the following
         components (in thousands):

<TABLE>
<CAPTION>
                                                            YEAR ENDED          YEAR ENDED          YEAR ENDED
                                                             MARCH 31,           MARCH 31,           MARCH 31,
                                                               2002                2001                2000
                                                          ---------------    ----------------    ---------------
<S>                                                       <C>                <C>                 <C>
              Current:
                  Federal                                 $           39     $        (1,261)    $          681
                  State                                                -                  45                103
                  Foreign                                              -                                  1,048
                                                          ---------------    ----------------    ---------------
              Total                                                   39              (1,216)             1,832
                                                          ---------------    ----------------    ---------------

              Deferred:
                  Federal                                              -              (3,523)            (3,325)
                  State                                                -                (774)               261
                  Foreign                                              -                 (99)            (1,180)
                                                          ---------------    ----------------    ---------------
              Total                                                   39              (4,396)            (4,244)
                                                          ---------------    ----------------    ---------------

              Provision (benefit) for income taxes        $           39     $        (5,612)    $       (2,412)
                                                          ===============    ================    ===============
</TABLE>

         Significant components of the Company's deferred tax assets and
         liabilities at  March 31, 2002 and 2001 are as follows (in
         thousands):

<TABLE>
<CAPTION>
                                                                                       MARCH 31,
                                                                           --------------------------------
                                                                                 2002             2001
                                                                           --------------    --------------
<S>           <C>                                                          <C>               <C>
              Current deferred tax assets/(liabilities):
                  State taxes                                              $           -     $           1
                  Accrued expenses                                                 1,107               728
                  Related party interest                                             852               511
                  Prepaid services                                                   284                 -
                  Warrants for services                                              344                 -
                  Allowance for bad debts                                            191                99
                                                                           --------------    --------------

              Net current deferred tax assets                                      2,778             1,339
                                                                           --------------    --------------

              Non-current deferred tax assets/(liabilities):
                  Research and expenditure credits                                     -             1,656
                  Net operating loss                                              11,040             3,994
                  Fixed assets                                                         -               117
                  Other credits                                                        -               123
                  Deferred rent                                                       82                82
                  Accrued expenses                                                    84             3,567
                                                                           --------------    --------------

              Total non-current deferred tax assets                               11,206             9,539

              Intangible assets                                                   (9,908)           (5,678)
              Accumulated capitalized research and development costs                (749)             (749)
              Other                                                                  (17)             (227)
                                                                           --------------    --------------

              Total non-current deferred tax liability                           (10,674)           (6,654)
                                                                           --------------    --------------

              Net non-current deferred tax asset/(liability)                       3,310             2,885
                                                                           --------------    --------------

              Valuation allowance                                                 (3,310)           (2,885)
                                                                           --------------    --------------

              Net deferred tax liability                                   $           -     $           -
                                                                           ==============    ==============
</TABLE>

                                      F-24

<PAGE>

         The difference between the actual provision (benefit) and the amount
         computed at the statutory United States federal income tax rate of 34%
         for the fiscal years ended March 31, 2002, 2001 and 2000 is
         attributable to the following:

<TABLE>
<CAPTION>
                                                               YEAR                YEAR                YEAR
                                                               ENDED               ENDED               ENDED
                                                             MARCH 31,           MARCH 31,           MARCH 31,
                                                               2002                2001                2000
                                                          ---------------    ----------------    ---------------
<S>                                                         <C>                      <C>                 <C>
         Provision (benefit) computed at statutory rate          (34.0)%             (34.0)%             (34.0)%
         Nondeductible goodwill                                    5.1                 4.8                12.8
         Change in valuation allowance                            20.4                 9.1
         Foreign income taxed at different rates                   9.7                 5.0                (4.7)
         Tax credits                                              (2.9)
         State income tax, net of federal tax benefit             (0.7)               (1.4)               (4.3)
         Other                                                     2.4                 0.3                (7.1)
                                                          ---------------    ----------------    ----------------

         Total provision (benefit) for income taxes                 (-)%             (16.2)%             (37.3)%
                                                          ===============    ================    ================
</TABLE>

         At March 31, 2002, the Company had Federal and California tax net
         operating loss carryforwards of approximately $29.4 million and $15.2
         million, respectively. The Federal and California tax net operating
         loss carryforwards will begin expiring after 2008 and 2002,
         respectively.

         The Company also has Federal and California research and development
         tax credit carryforwards of approximately $960,000 and $696,000,
         respectively. The Federal credits will begin expiring after 2008. The
         California credits may be carried forward indefinitely.

15.      EARNINGS (LOSS) PER SHARE

         Earnings (loss) per share for the fiscal years ended March 31, 2002,
         2001 and 2000, are as follows (in thousands, except share amounts and
         per share data):

<TABLE>
<CAPTION>
                                                                  FISCAL YEAR ENDED MARCH 31, 2002
                                                              ---------------------------------------
                                                                 LOSS         SHARES       PER SHARE
                                                              (NUMERATOR)  (DENOMINATOR)     AMOUNT
                                                              -----------   -----------   -----------
<S>                                                           <C>           <C>           <C>
                  Basic and diluted EPS:
                      Loss available to common stockholders   $  (14,658)   35,697,999    $    (0.41)
                                                              ===========   ===========   ===========


                                                                  FISCAL YEAR ENDED MARCH 31, 2001
                                                              ---------------------------------------
                                                                INCOME        SHARES       PER SHARE
                                                              (NUMERATOR)  (DENOMINATOR)     AMOUNT
                                                              -----------   -----------   -----------

                  Basic and diluted EPS:
                      Loss available to common stockholders   $  (28,945)   34,761,386    $    (0.83)
                                                              ===========   ===========   ===========


                                                                  FISCAL YEAR ENDED MARCH 31, 2000
                                                              ---------------------------------------
                                                                INCOME        SHARES       PER SHARE
                                                              (NUMERATOR)  (DENOMINATOR)     AMOUNT
                                                              -----------   -----------   -----------

                  Basic and Diluted EPS:
                      Loss available to common stockholders   $   (4,054)   32,458,902    $    (0.12)
                                                              ===========   ===========   ===========
</TABLE>

         The following potential common shares have been excluded from the
         computation of diluted net loss per share for the periods presented
         because the effect would have been anti-dilutive:

                                      F-25

<PAGE>

<TABLE>
<CAPTION>
                                                                               For the years ended March 31,
                                                                              2002         2001         2000
                                                                              ----         ----         ----
<S>                                                                         <C>          <C>          <C>
                  Options outstanding under the Company's
                      stock option plans                                    4,485,889    3,961,034    1,790,260
                  Options granted outside the Company's
                      stock option plans                                    1,046,812    1,366,812    2,156,212
                  Warrants issued in conjunction with private placements    2,944,499    1,602,590       25,000
                  Warrants issued for services rendered                     1,095,669       12,336
                  Convertible notes due to stockholders                     1,037,037
                  Series A Convertible Preferred Stock                     17,625,000
</TABLE>

16.      RELATED PARTIES

         Included in other receivables at March 31, 2002 and 2001 are amounts
         due from officers and employees of the Company in the amount of $31,000
         and $65,000, respectively.

         The office space for the Company's Sydney office was leased from a
         former officer of the Company. During the year ended March 31, 2000,
         the Company paid $163,000 in rent to this related party. The former
         officer was terminated in fiscal year ended March 31, 2001.

         The Company began occupying its current principal executive offices in
         July 2001. At that time, the premises were owned by an affiliate of the
         Company's then Chief Executive Officer. Monthly rent for these premises
         was set at $13,783. In April, 2002, the premises were sold to an entity
         unrelated to the former Chief Executive Officer. As of the date of this
         report, the Company is negotiating the terms of a written lease with
         the new owner.

         In November 2000, the Company borrowed $600,000 from a wholly-owned
         subsidiary of Softline to help meet operating expenses. This loan
         called for interest at 10% per annum, and was discharged in full in
         February 2001. Interest expense under this loan was $3,000 for the year
         ended March 31, 2001. In order to discharge the remaining balance of
         that loan while meeting other critical operational expenses, the
         Company borrowed $400,000 from Barry M. Schechter, the Company's
         Chairman. The Company borrowed an additional $164,000 from Mr.
         Schechter in March 2001, which funds were needed to meet operational
         requirements of our Australian subsidiary. The advances from Mr.
         Schechter bore interest at prime rate and were due on demand, subject
         to a limit on demand rights of $50,000 per payment. Interest expense
         under the loans from Mr. Schechter was $0 and $7,000 for the fiscal
         year ended March 31, 2002 and 2001, respectively. The loans were paid
         in full in June 2001.

         Included in demand loans due to stockholders totaling $618,000 and
         $1.3 million as of March 31, 2002 and 2001, respectively, was $122,000
         and $552,000, respectively, owed to a stockholder who together with
         Barry M. Schechter and an irrevocable trust forms a beneficial
         ownership group. The original loan amounts totaling $2.3 million ($1.5
         million of which was from the stockholder included in the group
         described above) were borrowed in June 1999 to fund the acquisition of
         Island Pacific Systems Corporation on April 1, 1999. Interest is
         calculated monthly at the current prime rate with no stated maturity
         date. Interest expense under these loans for the years ended March 31,
         2002, 2001 and 2000 was $26,000, $74,000 and $80,000, respectively.

         The Company retains an entity affiliated with a director of the board
         to provide financial advisory services. During the years ended March
         31, 2002, 2001 and 2000, the expenses for these services were $42,000,
         $112,000 and $36,000, respectively. The Company also incurred $19,000
         and $25,000 in expenses to the same director for accounting services
         during the fiscal years ended March 31, 2002 and 2001, respectively.
         The Company borrowed $50,000 and $125,000 from another entity
         affiliated with this director in May 2001 and December 2001,
         respectively, to meet payroll expenses. The Company also borrowed
         $70,000 from this entity subsequent to March 31, 2002 for the same
         purpose. These amounts were repaid together with interest at the
         then-effective prime rate, promptly as revenues were received, and are
         paid in full as of the date of this report.

         Effective October 1, 1999, the Company sold its Triple-S Computers
         (Pty) Limited subsidiary ("Triple-S") to Softline. Triple-S developed
         and installed retail point of sale systems throughout Southern Africa.
         Softline transferred 78,241 shares of the Company's common stock valued
         at the October 1, 1999 closing price of $8.50 per share as
         consideration for the acquisition. The transfer of Triple-S was
         recorded at the Company's historical book basis and was not material to
         the operations of the Company.

                                      F-26

<PAGE>

17.      BUSINESS SEGMENTS AND GEOGRAPHIC DATA

         The Company classifies its operations into two lines of business,
         retail solutions and training products. As revenues, reported
         profit/(loss) and assets related to the Company's training products
         subsidiary are below the threshold established for segment reporting,
         the Company considers its business to consist of one reportable
         operating segment.

         The Company currently operates in the United States and the United
         Kingdom. In February 2002, the Australian subsidiary ceased operations
         after National Australian Bank, the subsidiary's secured lender, placed
         it in receivership (see Note 3). In the fiscal year ended March 31,
         2000, the Company also had limited operations in South Africa. The
         following is a summary of local operations by geographic area (in
         thousands):

<TABLE>
<CAPTION>
                                                            YEAR ENDED          YEAR ENDED          YEAR ENDED
                                                             MARCH 31,           MARCH 31,           MARCH 31,
                                                               2002                2001                2000
                                                          ---------------    ----------------    ---------------
<S>                                                       <C>                <C>                 <C>
              Net sales:
                           United States                  $       24,559     $        25,457     $       22,820
                           Australia (discontinued
                               operations)                         2,363               4,959              8,372
                           South Africa (discontinued
                             operations                                                                   1,090
                           United Kingdom                          2,550               2,256              3,832
                                                          ---------------    ----------------    ---------------
                                 Total net sales          $       29,472     $        32,672     $       36,114
                                                          ===============    ================    ===============

              Long-lived assets:
                           United States                  $       35,280     $        48,270     $       60,909
                           Australia (discontinued
                              operations)                                              1,370             11,471
                           South Africa                                                    -                  -
                           United Kingdom                             22                  59                 75
                                                          ---------------    ----------------    ---------------
                                 Total long-lived assets  $       35,302     $        49,699     $       72,455
                                                          ===============    ================    ===============
</TABLE>

18.      SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
         MARCH 31, 2002                               JUNE 30        SEPT 30         DEC 31         MAR 31          TOTAL
         ------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>             <C>           <C>             <C>           <C>
         NET SALES                                  $   7,851       $  8,419      $    6,317      $   6,885     $   29,472
         GROSS PROFIT                                   4,376          5,195           3,795          4,918         18,284
         NET LOSS                                      (3,514)        (3,588)         (2,970)        (4,586)       (14,658)
         DILUTED LOSS PER SHARE                     $   (0.09)      $  (0.09)     $    (0.08)     $   (0.16)    $    (0.41)

         MARCH 31, 2001                               JUNE 30        SEPT 30         DEC 31         MAR 31          TOTAL
         ------------------------------------------------------------------------------------------------------------------

         NET SALES                                  $  11,000       $  7,993      $    7,737      $   5,942      $  32,672
         GROSS PROFIT                                   8,314          4,004           3,861          4,824         21,003
         NET INCOME (LOSS)                                546         (4,741)         (5,997)       (18,753)       (28,945)
         DILUTED (LOSS) PER SHARE                   $    0.02       $  (0.14)     $    (0.17)     $   (0.54)     $   (0.83)
</TABLE>

         The summation of quarterly net income (loss) per share may not equate
         to the year-end calculation as quarterly calculations are performed on
         a discrete basis.

                                      F-27