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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

                        FOR THE FISCAL YEAR ENDED MARCH 31, 2003
                                                  --------------

         [ ]      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:  None

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. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

The aggregate market value of the registrant's voting and non-voting common
stock held by non-affiliates as of September 30, 2002 was approximately $18.1
million, based on the closing sale price on the American Stock Exchange on
September 30, 2002. Excludes shares of common stock held by directors, officers
and each person who holds 10% or more of the registrant's common stock.

The number of shares outstanding of the registrant's Common Stock was 31,560,016
on May 31, 2003.

                       DOCUMENTS INCORPORATED BY REFERENCE

               DOCUMENTS                               FORM 10-K REFERENCE
-------------------------------------------    ---------------------------------
Portions of the Proxy Statement for the        Items 10,11,12 and 13 of Part III
registrant's 2003 Annual Meeting of
Stockholders are incorporated by reference
into Part III of this Form 10-K

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<TABLE>
                                              TABLE OF CONTENTS
<CAPTION>
<S>      <C>                                                                                               <C>
PART I
         Item 1.           Description of Business                                                           2
         Item 2.           Description of Property                                                          12
         Item 3.           Legal Proceedings                                                                12
         Item 4.           Submission of Matters to a Vote of Security Holders                              13

PART II
         Item 5.           Market for Registrant's Common Equity and Related Stockholder Matters            13
         Item 6.           Selected Financial Data                                                          15
         Item 7.           Management's Discussion and Analysis of Financial Condition and Results          16
                             of Operations
                           Business Risks                                                                   34
         Item 7A.          Quantitative and Qualitative Disclosures About Market Risk                       44
         Item 8.           Financial Statements and Supplementary Data                                      44
         Item 9.           Changes in and Disagreements with Accountants on Accounting and Financial
                             Disclosures                                                                    44

PART III
         Item 10.          Directors and Executive Officers of the Registrant                               44
         Item 11.          Executive Compensation                                                           45
         Item 12.          Security Ownership of Certain Beneficial Owners and Management                   45
         Item 13.          Certain Relationship and Related Transactions                                    45
         Item 14.          Controls and Procedures                                                          45

PART IV
         Item 15.          Exhibits, Financial Statement Schedules and Reports on Form 8-K                  45
                           Signatures                                                                       49
                           Certifications                                                                   50

                                                     1
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INTRODUCTORY NOTE

     THE ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934 AND THE COMPANY INTENDS THAT CERTAIN MATTER
DISCUSSED IN THIS REPORT ARE "FORWARD-LOOKING STATEMENTS" INTENDED TO QUALIFY
FOR THE SAFE HARBOR FROM LIABILITY ESTABLISHED BY THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. THESE FORWARD-LOOKING STATEMENTS CAN GENERALLY BE
IDENTIFIED BY THE CONTEXT OF THE STATEMENT WHICH MAY INCLUDE WORDS SUCH AS THE
COMPANY ("SVI", "WE" OR "US") "BELIEVES", "ANTICIPATES", "EXPECTS", "FORECASTS",
"ESTIMATES" OR OTHER WORDS SIMILAR MEANING AND CONTEXT. SIMILARLY, STATEMENTS
THAT DESCRIBE FUTURE PLANS, OBJECTIVES, OUTLOOKS, TARGETS, MODELS, OR GOALS ARE
ALSO DEEMED FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE FORECASTED OR ANTICIPATED AS OF THE DATE OF THIS
REPORT. CERTAIN OF SUCH RISKS AND UNCERTAINTIES ARE DESCRIBED IN CLOSE PROXIMITY
TO SUCH STATEMENTS AND ELSEWHERE IN THIS REPORT, INCLUDING ITEM 7,
"MANANGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." STAKEHOLDERS, POTENTIAL INVESTORS AND OTHER READERS ARE URGED TO
CONSIDER THESE FACTORS IN EVALUATING THE FORWARD-LOOKING STATEMENTS AND ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS OR
CONSTRUE SUCH STATEMENTS TO BE A REPRESENTATION BY US THAT OUR OBJECTIVES OR
PLANS WILL BE ACHIEVED. THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS REPORT
ARE MADE ONLY AS OF THE DATE OF THIS REPORT, AND WE UNDERTAKE NO OBLIGATION TO
PUBLICLY UPDATE SUCH FORWARD-LOOKING STATEMENTS TO REFLECT SUBSEQUENT EVENTS OR
CIRCUMSTANCES.

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

     SVI Solutions, Inc. is a leading provider of software solutions and
services to the retail industry. We provide high value innovative solutions that
help retailers understand, create, manage and fulfill consumer demand. Up until
April 1, 2003, we also developed and distributed PC courseware and skills
assessment products for both desktop and retail applications.

     Our solutions and services have been developed specifically to meet the
needs of the retail industry. Our solutions help retailers improve the
efficiency and effectiveness of their operations and build stronger, longer
lasting relationships with their customers.

     We market our software solutions through direct and indirect sales channels
primarily to retailers who sell to their customers through traditional retail
stores, catalogs and/or Internet-enabled storefronts. To date, we have licensed
our solutions to more than 200 retailers across a variety of retail sectors.

SVI SOLUTIONS

     Historically, retailers have relied upon custom-built systems, often
self-developed, to manage business processes and business information with both
trading partners and customers. These legacy systems are typically built on
1960's business models and 1970s technology. They are not Internet-enabled, and
do not permit collaboration among a retailer's customers, partners, suppliers
and other members of the supply/demand chain. Moreover, they reflect the
thinking of a seller's market.

     Over the past few years, retailers have begun to purchase packaged
solutions designed specifically for the retail industry. Most of these systems
are very expensive to license, and very expensive, time-consuming and painful to
implement. They have been primarily positioned to the largest companies, who
have enormous amounts of managerial, technical and financial resources at their
disposal- organizations for which distraction and mistakes are affordable.

     These solutions ignore the needs of the small to medium sized retailers,
who have many of the same needs and face many of the same challenges as do the
larger retailers, but lack the excess managerial, financial and technological
capacity of the larger retailers.

     Our solutions serve the small to medium sized market.

     All retailers today face the challenge of operating in a very competitive
environment, an environment that can be best described as over-stored and
over-homogenized, an environment in which power has shifted from the seller to
the buyer.

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     As retailers expand their businesses to include the Internet, catalog,
kiosk and other distribution channels, the complexity of managing inventory and
meeting customer demands places tremendous pressure on their business processes
and their technology infrastructure.

     To meet an ever more mobile and demanding consumer's expectations,
retailers need to deliver on the customer's terms. This means having the right
product, at the right time and in the right place across multi-channel touch
points. To do this, retailers need valuable consumer insights, intelligence on
external factors that shape consumer response such as how the weather, the
economy and changing consumer attitudes will affect future buying patterns. This
intelligence, augmented by powerful communications, comprehensive loss
prevention, strong forecasting, planning, assortment planning, allocation, event
planning, replenishment and merchandising functions are critical to profitably
achieve this goal. These represent the content of our offering.

     Small to medium sized retailers need a cost-effective, easily installed,
affordable, comprehensive, integrated software infrastructure that spans
supplier to consumer and gives the retailer visibility, flexibility and control
of all business processes to meet all competitive challenges.

     We believe a market opportunity exists to provide these retailers with a
software solution that is designed specifically for their needs. This solution
should be easy-to-use, leverage a retailer's existing investments in information
technology and be sufficiently flexible to meet the specific needs of a broad
range of retail sectors, such as fashion, hard-lines, mass merchandise or food
and drug.

     We have developed and deployed software solutions that enable retailers to
manage the entire scope of their operations. These operations include
point-of-sale, customer relationship management, vendor relationship management,
merchandising, demand chain management, planning, and forecasting.

     Key areas, which differentiate our software solutions, include:

          o    VALUE - Our integrated and modular architecture helps retailers
               meet return on investment (ROI) objectives by allowing them to
               implement the most critical and valuable applications first. This
               modular architecture decreases migration path risk for the
               replacement of legacy systems and increases the probability of an
               on-time, on-budget implementation project.

          o    PROVEN - We are a leading provider of retail infrastructure
               software and services. We understand the complex needs of
               retailers and have designed our solutions specifically for the
               retail industry. We provide certain software products and
               services infrastructure for retailers with combined revenues of
               over $200 billion annually.

          o    SCALABLE - Our solutions are engineered to provide scalability to
               efficiently handle large volumes of transactions and users. Our
               solutions work in environments that span from one to five
               thousand stores.

          o    INNOVATIVE - Our partnerships and our solutions include some of
               the most advanced technologies available to retailers.

RECENT DEVELOPMENTS

     In January 2003, we appointed Harvey Braun, a well-known and
highly-respected retail industry veteran, to the position of Chief Executive
Officer of Island Pacific, one of our business units. In April 2003, our Board
of Directors appointed Mr. Braun to the position of Chief Executive Officer and
director of SVI. Barry Schechter remains as Chairman of the Board.

     In October 2002, we appointed Steven Beck, a retail industry expert, to the
position of President of Island Pacific. In April 2003, our Board of Directors
appointed Mr. Beck to the position of President and Chief Operating Officer and
director of SVI. We anticipate Mr. Braun and Mr. Beck will lead us through the
next evolution of product and service offerings to meet the everchanging needs
of retailers worldwide. Mr. Beck's vision for SVI is to become the dominant
provider of "Thoughtware" to the retail industry. Mr. Beck's goals are to
develop high value products and services to the retail industry; using
breakthrough technologies and processes, and to provide these products and their
associated services in partnership with major consulting organizations and other
best of breed solution providers. These products and services will be offered to
small and mid-size retailers. Our goal is to expand alternatives to retailers,

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matching innovative solutions to emerging industry complexities so retailers
will realize ongoing successes. We will make available to retailers at what we
believe to be affordable prices a "dashboard" of decision makers, and
experienced minds in the industry, yielding a range of velocity management
alternatives for review and actions that span merchandising and marketing
activities from conception to consumption.

     We are strengthening our product offerings through strategic relationships
with Planalytics, KMG Solutions, VisionCompass Inc., Raymark, Inc., Wazagua LLC,
ANT USA, Inc. and IT Resources Inc.

     Under a partnership agreement with Planalytics Inc. ("Planalytics"), Island
Pacific will market Impact LR, an internet-based application that measures the
specific effects of future weather on consumer demand by product, location and
time. Using Impact LR, our customers can plan the timing of in-season markdowns,
as well as the season-to-season flow of merchandise into their stores with
maximum effectiveness.

     Under a marketing license agreement with KMG Solutions ("KMG"), Island
Pacific will integrate, market and support Traxion(TM) process management
solutions. Traxion's business process management solution consists of three
modules. Traxion ProcessEngine(TM) is the real-time process management platform
that retailers use to actively manage and support their organizations' unique
business processes. Traxion ProcessModeler(TM), includes simulation functions
such as same-time comparison of process variations and the use of actual cost
data to produce process-based financial estimates. Traxion
OrganizationModeler(TM) simplifies the creation of sophisticated models
including inter-company workgroups, payroll information, and roles.

     Island Pacific will market VisionCompass(TM) collaborative enterprise
management software, which uniquely combines the best of performance management,
business intelligence, resource planning, and collaboration capabilities into
one straightforward, web-based application. The system enables decision makers
and teams to develop specific business goals, work on them together, and measure
their collective results objectively. The highly flexible system is easily
customizable to fit each organization's unique needs and leads directly to
improved quality and visibility of key indicators throughout the enterprise.

     Under an OEM agreement with Raymark, Inc., Island Pacific will integrate,
market and support Xpert Store point-of-sale ("POS") software solution under the
Island Pacific brand. Raymark's full-featured POS solution streamlines the
checkout process in order to increase sales associate efficiency and augment
customer satisfaction. The software supports multi-channel, multi-language,
multi-currency and multi-taxation requirements.

     Under a agreement with Wazagua LLC ("Wazagua"), Island Pacific will
exclusively offer to retailers worldwide Wazagua's products and services
including web-based Loss Prevention Case Management Package, ASP Data Hosting
and POS Exception Reporting. WAZAGUA(TM) ASP Hosted Suite of Modules automates
data management for the Loss Prevention, Operations, Human Resources, Safety &
Risk Management community. These ASP-hosted productivity tools enable retailers
to capture the power of the internet. Retailers can create efficiencies, manage
and share information, make better use of their staff, eliminate redundant data
entry - and work from virtually any point in the world.

     Under terms of a reseller agreement, Island Pacific will market, sell,
install, interface to, and support ANT USA Inc.'s ("ANT") products including
Buyer's Toolbox(tm), a leading suite of merchandise and assortment planning
software that has been successfully implemented by over 140 retailers worldwide.
The software will extend Island Pacific's assortment and planning capabilities
by providing a solid planning methodology accessed through an easy-to-use
interface, in a cost-effective offering.

     A marketing license agreement with IT Resources Inc. enables Island Pacific
to market, sell, install, support and integrate IT Resources' Buyer's
WorkMate(r) Suite, an innovative decision support software platform developed
for merchandising organizations. The software will bring mobility and other
timesaving benefits to the buying process.

     Under a marketing alliance agreement with BIGresearch, Island Pacific will
provide retailers, suppliers and third party companies with an end-to-end
information solution to forecast consumer demand, better utilize assets,
merchandise, and develop strategy and market position.

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     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. Effective April 1, 2003, we
agreed to sell our shares of SVI Training Products, Inc., our wholly-owned
subsidiary, to Arthur Klitofsky. Mr. Klitofsky resigned from the Board in March
2003. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" under the heading "Discontinued Operations" 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 in fiscal 2001.
In July 2002, we amended the convertible notes to extend the maturity date to
September 30, 2003 and we replaced the warrants issued to these investors. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" under the heading "Liquidity and Capital Resources -- Indebtedness
-- ICM Asset Management, Inc." below.

     In July 2002, we negotiated an extension of our senior bank lending
facility to August 31, 2003, and then we subsequently satisfied this debt under
the Discounted Loan Payoff Agreement dated March 31, 2003. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" under
the heading "Liquidity and Capital Resources -- Indebtedness -- Union Bank"
below.

     In May 2002, we completed an integrated series of transactions with
Softline Limited ("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 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."

     In May 2002, we entered into a new two-year software development and
services agreement with our largest customer, Toys "R' Us, Inc. ("Toys"). Toys
also agreed to invest $1.3 million for the purchase of a non-recourse
convertible note and a warrant to purchase up to 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 - Indebtedness -- Toys "R" Us' below.

     In March 2003, we issued a total of $3.5 million in 9% convertible
debentures to Midsummer Investment, Ltd., Omicron Master Trust and Islandia,
L.P. Along with these debentures, warrants to purchase an aggregate of 1,572,858
shares of common stock were issued to these investors. See "Financing
Transactions - Midsummer/Omicron/Islandia" below.

     In April 2003, we issued $400,000 in 9% convertible debentures to MBSJ
Investors, LLC. Along with these debentures, warrants to purchase 156,311 shares
of common stock were issued to this investor. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" under the heading
"Financing Transactions - MBSJ".

         In March 2003, the Board adopted a resolution to change our name to
"Island Pacific, Inc.", subject to approval by our shareholders.

         In May 2003, we issued $300,000 in 9% convertible debentures to
Crestview Capital Fund I, L.P., Crestview Capital Fund II, L.P. and Crestview
Capital Offshore Fund, Inc. Along with these debentures, warrants to purchase
101,112 shares of common stock were issued to these investors. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" under
the heading "Financing Transactions - Crestview".

STRATEGY

     Our mission is to provide the small to medium sized retailer all the
intelligence, tools and infrastructure necessary to success in a highly
competitive environment.

     Our mission is to make this information and these tools and infrastructure
useable, affordable and reliable for end-use in highly volatile environments.


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     Our mission is to make our products and services easy to acquire, easy to
install and easy to live with.

     Our mission is to create value for retailers by providing valuable
intelligence and innovative technology solutions that help to understand,
create, manage, and fulfill consumer demand.

     Our strategies are as follows:

          o    INCREASE OUR MARKET SHARE. We believe we can continue to build
               and expand our position of leadership within the retail packaged
               software applications market as the retail industry increasingly
               turns to packaged software applications as an alternative to
               expensive in-house and custom developed applications.

          o    PROVIDE HIGH LEVELS OF CUSTOMER SATISFACTION. The retail industry
               is strongly influenced by formal and informal references. We
               believe we have the opportunity to expand market share by
               providing high levels of customer satisfaction with our current
               customers, thereby fostering strong customer references to
               support sales activities.

          o    DELIVER VALUE TO OUR CUSTOMERS. We believe that maximizing our
               customers' return on investment will help us compete in our
               market space and increase our market share.

          o    BECAME THE PREFERRED APPLICATION AND TECHNOLOGY ARCHITECTURE FOR
               THE SMALL TO MEDIUM SIZED RETAILERS GLOBALLY. By leveraging our
               25 years of success, we believe we are uniquely positioned to
               become the preferred application and technology architecture
               provider for retail software and associated services to this
               market.

PRODUCTS

     We partner, develop and sell business intelligence and software solutions
that support virtually all of the operational activities of a typical retailer.
Our business intelligence is critical to sound strategy and execution. Our
software solutions create value by applying innovative technology that help our
customers efficiently and effectively understand, create, manage and fulfill
consumer demand. Our products can be deployed individually to meet specific
business needs, or as part of a fully integrated, end-to-end solution.

     Our solution set consists of the following components:

                      [IP INTEGRATOR GRAPHIC APPEARS HERE]

     THE ISLAND PACIFIC RETAIL MANAGEMENT suite of applications builds on our
long history in retail software design and development and provides our
customers with an extremely reliable, widely deployed, comprehensive and fully
integrated retail management solution. Our complete enterprise-level offering of
applications and services is designed to assist our customers in maximizing
their business potential.

     Our offerings are a combination of collaborations with partner companies
and solutions developed internally by us. They are all completely integrated.
Our offerings include:

          o    IP GLADIATOR: is a collaborative solution with Wazagua that
               orchestrates a myriad of processes across retail enterprise to
               deliver effective loss prevention. To do so, IP Gladiator enables
               an integrated asset protection workflow spanning exception
               management, investigation management, case management and civil
               collection. The salient features of this solution include: (a)
               availability in ASP or in-house modes, (b) advanced data mining
               to recognize loss patterns, and (c) POS platform independence.

          o    IP GLOBAL NETWORK: is an offering that cost-effectively enables
               retailer collaboration with vendors, including product design
               collaboration, and facilitates improved communication with
               stores. This will feature services such as teleconferencing,
               voice-over-IP, and instant messaging to deliver the collaboration
               capabilities.

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          o    IP INTEGRATOR: is a common integration platform that seamlessly
               unifies all IP applications with partner applications as well as
               enables integrations to 3rd party and legacy applications of a
               retailer. It leverages an industry proven technology to deliver
               speed, reliability, maintainability and shorter implementation
               cycles in addressing integration needs. This solution is jointly
               developed with Bostech.

          o    IP BUYER'S WORKMATE: features a suite of integrated modules that
               enable, automate and enforce best practices leading to sound
               merchandise purchase and allocation decisions, in compliance with
               the approved budgets. This suite, along with the range of
               capabilities provided through IP Consumer Research, IP Weather
               Impacts, IP Profiling and the IP Core Merchandising suite,
               enables the retailer to plan and execute consumer-sensitive
               merchandising, placement, pricing and promotion decisions. The
               suite consists of:

               o    IP DECISION SUPPORT: features an analytical processing tool
                    designed to provide retailers with relevant, timely and
                    detailed business information.

               o    IP ASSORTMENT PLANNING: enables retailer to arrive at a
                    well-researched and sound buying decisions - yielding
                    merchandise assortments that meet local consumer demand,
                    minimize inventory investment, accelerate sales, lessen
                    inter-store transfers and reduce markdowns.

               o    IP ALLOCATION: enables allocation of purchase order
                    receipts, advanced shipping notices and warehouse back-stock
                    in a manner sensitive to the assortment plan, merchandise
                    performance, and store stocking levels.

          o    IP WEATHER IMPACTS: is a collaborative offering with Planalytics
               to enable retailers to understand and address the impact that
               weather has had and will have on their businesses, helping them
               to avoid surprises and improve bottom line profitability.

          o    IP BUSINESS PROCESS OPTIMIZATION: is a collaborative retail
               process management solution offered in partnership with KMG that
               enables the retailers to improve productivity and reduce
               inefficiencies through better control and management of business
               processes. The applications of interest to retailers can range
               from operational activities such as new store construction and
               opening, global sourcing, distribution center optimization and
               promotions management to fiduciary responsibilities and processes
               such tracking and control of financial reporting.

          o    IP CONSUMER RESEARCH: is a collaborative offering with
               BIGresearch to leverage syndicated consumer intelligence from
               over 8,000 shoppers each month to provide retailers a projected
               look at consumers demand. The deep and proven consumer research
               insights can enable retailers to anticipate consumer demand,
               correct market focus, develop strategy and market positioning, to
               understand simultaneous media usage and exposure to determine
               what they are actually receiving from their media expenditures.

          o    IP PROFILING: is a collaborative offering to develop Sales
               Profiles by recognizing common selling patterns from voluminous
               sales history. It features an advanced statistical pattern
               coupled with an interactive graphical approach to the creation,
               maintenance and monitoring of seasonal profiles.

          o    IP FORECASTING AND REPLENISHMENT: is a collaborative offering of
               a full feature forecasting and replenishment solution to address
               the needs of retailers seeking a higher end solution in this
               area.

          o    IP OMNICARD: provides a loyalty card application, with advanced
               features such as secure authentication, data storage, and
               radio frequency identification, to retailers that enables them to
               provide consumers with reason to carry a retailer loyalty card.

          o    IP STORE PEOPLE PRODUCTIVITY: application helps retailer analyze
               store, people and item and transaction level sales productivity.

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     At the foundation of our application suite are the integrated modules that
comprise our core-merchandising solution. They are:

          o    MERCHANDISING MANAGEMENT

               o    The Island Pacific Merchandising module is a comprehensive
                    solution for management of core retail processes, which
                    optimizes workflow and provides the highest level of data
                    integrity.

               o    This module supports all operational areas of the supply
                    chain: Planning, Open-To-Buy, Purchase Order Management,
                    Forecasting, Warehouse and Store Receiving, Distribution,
                    Transfers, Price Management, Performance Analysis, and
                    Physical Inventory.

          o    THE EYE (TM) ANALYSIS AND PLANNING

               o    The Eye(TM), Island Pacific's datamart is a comprehensive
                    analysis and planning tool that provides answers to
                    retailer's merchandising questions. The specific "who, what,
                    where, when and why" are defined in a multi-dimensional
                    format. The Eye is completely integrated to IP Core
                    Merchandising.

               o    This application enables the retailer to develop completely
                    user-defined inquiries and reports. The capacity of The Eye
                    to store, manipulate, and present information is limited
                    only by the retailer's imagination.

          o    REPLENISHMENT AND FORECASTING

               o    The Island Pacific Replenishment module is a tool that
                    ensures the retailer will have the right merchandise in the
                    right stores at the right time by dynamically forecasting
                    accurate merchandise need, reducing lost sales, increasing
                    stock turn, and reducing cost of sales.

          o    PROMOTIONS AND EVENTS

               o    The Island Pacific Event and Promotion Management tool
                    enables the retailer to manage, plan and track all
                    promotional and event related activities including price
                    management, in-store display, deal, and media related
                    promotions. The promotions addressed through this module can
                    include non-price promotions as well. The analysis includes
                    actual to plan comparisons prior to, during and after the
                    event.

          o    WAREHOUSE

               o    The Island Pacific Warehouse module provides enhanced
                    control and visibility of product movement through the
                    warehouse. Item, quantity and bin integrity is ensured
                    through directed put away, task confirmation, RF procedures,
                    automated cycle counts and carton control.

          o    TICKETING

               o    The Island Pacific Ticketing module supports both
                    merchandise and warehouse location identification utilizing
                    multiple printers and bar codes. User-configured tickets may
                    include desired product characteristics, including but not
                    limited to retail price, compare at pricing, item, style,
                    color and size information.

          o    FINANCIALS

               o    The Island Pacific Financials module incorporates a General
                    Ledger that is synchronized with the Merchandising Stock
                    Ledger.

               o    This module also includes a robust Accounts Payable
                    application, which supports 3-way automated matching of
                    invoices, receipts, and purchase orders that streamline
                    workflow to optimize operations.

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          o    SALES AUDIT

               o    This module is an integrated conduit between Point-of-Sale
                    applications and the Island Pacific Host System, which
                    manages the upload- and download- processes. The Upload
                    process manages all transactional information that occurs at

                    the store such as Sales, Customer Returns, Physical
                    Inventory, Transfers, Acknowledgements, Purchase Order Drop
                    Ship Receipts, Layaway, and Special Order. The Download
                    process manages all Store pricing including Price Look Up,
                    Promotional pricing, Deal pricing, Event pricing, Price
                    Changes, Markdowns, On Order to Stores, In-transit, Current
                    Inventory, Company definitions (Hierarchy, Constants,
                    Vendors, Stores)

               o    This application is flexible relative to POS requirements,
                    while featuring full integration to IP POS product,
                    OnePointe.

     The ISLAND PACIFIC 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," and "OnePointe
International" 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 in 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.

     Up until April 1, 2003, we also developed and distributed retail system
training products and general computer courseware and computer skills testing
products through our SVI Training Products, Inc. subsidiary. Effective April 1,
2003, we sold the SVI Training Products, Inc. subsidiary and discontinued this
line of business.

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

MARKETS AND CUSTOMERS

     Our 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.

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

                                        9


<PAGE>

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.

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 4" 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.
     o    Large and loyal customer base.
     o    Hardware platform independent Store Solution (POS) application.
     o    Breadth of our application technology suite including our
          multi-channel retailing capabilities. o Our corporate culture focusing
          on the customer.
                                        10


<PAGE>

     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.

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
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 May 31,2003, we had a total of 123 employees, 107 of which were based in
the United States and 16 of which were based in the United Kingdom. Of the
total, 13% were engaged in sales and marketing, 43% were engaged in application
technology development projects, 27% 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.

                                        11


<PAGE>

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 $56,148 plus common area maintenance charges. 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 $44,425 (payable quarterly) plus common area maintenance charges
and real estate taxes.

ITEM 3.  LEGAL PROCEEDINGS

     In April of 2002, our 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. Mr.
Dorosewicz's demand was later increased to $283,894. On June 18, 2002, we filed
an action against Mr. Dorosewicz, Michelle 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. On July 31, 2002, Mr. Dorosewicz filed cross-complaints in that action
alleging breach of statutory duty, breach of contract, fraud and other causes of
action related to his employment with us and other transactions he entered into
with us. These matters are still pending and the parties have agreed to resolve
all claims in binding arbitrations, scheduled for September 2003.

     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 an 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 reserved $187,000 as 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.

     On May 15, 2002, an employee who is currently out on disability/worker's
compensation leave, Debora Hintz, filed a claim with the California Labor
Commissioner seeking $41,000 in alleged unpaid commissions. In or about December
of 2002, Ms. Hintz filed a discrimination claim against us with the Department
of Fair Employment and Housing, alleging harassment and sexual orientation
discrimination. We have responded appropriately to both the wage claim and the
discrimination allegations, which we believe lack merit based on present
information.

     On August 30, 2002, Cord Camera Centers, Inc., an Ohio corporation ("Cord
Camera"), filed a lawsuit against one of our subsidiaries, SVI Retail, Inc. as
the successor to Island Pacific Systems Corporation, in the United States
District Court for the Southern District of Ohio, Eastern Division, Case No. C2
02 859. The lawsuit claims damages in excess of $1.5 million, plus punitive
damages of $250,000, against SVI Retail for alleged fraud, negligent
misrepresentation, breach of express warranties and breach of contract. These
claims pertain to the following agreements between Cord Camera and Island
Pacific: (i) a License Agreement, dated December 1999, as amended, for the use
of certain software products, (ii) a Services Agreement for consulting, training
and product support for the software products and (iii) a POS Software Support
Agreement for the maintenance and support services for a certain software
product. At this time, we cannot predict the merits of this case because it is
in its preliminary state and discovery has not yet commenced. However, SVI
Retail intends to defend vigorously the action and possibly file one or more
counter-claims. The U.S. District Court of Ohio has proper jurisdiction over us,
and a trial is scheduled for May 2004.

                                        12


<PAGE>

     In mid-2002, we were the subject of an adverse judgment entered against us
in favor of Randall's Family Golf Centers, ("Randall") in the approximate sum of
$61,000. The judgment was entered as a default judgment, and is based on
allegations that the Company received a preferential transfer of funds within 90
days of the filing by Randall of a chapter 11 case in the United States
Bankruptcy Court for the Southern District of New York. We and Randall have
agreed to settle this claim for $12,500, subject to the settlement receiving
approval by the U.S. Bankruptcy Court.

     On December 16, 2002, Chapter 11 Debtors Natural Wonders, Inc. and World of
Science, Inc. (collectively "Debtors") filed an adversary proceeding against our
subsidiary SVI Retail, Inc. seeking to avoid and recover preferential transfers.
The Debtors sought recovery of approximately $84,000, which it had previously
paid to SVI Retail for goods and services rendered. On March 12, 2003, the
Debtors and SVI Retail settled the adversary proceeding for $18,000.

     On November 22, 2002, UDC Homes, Inc and UDC Corporation now known as Shea
Homes, Inc. served Sabica Ventures, Inc. ("Sabica") and Island Pacific, an
operating division of SVI Solutions, Inc. ("Island Pacific") with a
cross-complaint for indemnity on behalf of an entity identified in the summons
as Pacific Cabinets. Sabica and Island Pacific filed a notice of motion and
motion to quash service of summons on the grounds that neither Sabica nor Island
Pacific has ever done business as Pacific Cabinets and has no other known
relation to the construction project that is the subject of the cross-complaint
and underlying complaint. A hearing on Sabica's and Island Pacific's motion to
quash occurred on May 22, 2003 and was subsequently denied.

     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, 2003                        HIGH              LOW
     First Quarter                                  $  0.66          $  0.30
     Second Quarter                                 $  1.30          $  0.21
     Third Quarter                                  $  1.25          $  0.40
     Fourth Quarter                                 $  1.17          $  0.55

     YEAR ENDED MARCH 31, 2002                        HIGH              LOW
     First Quarter                                  $  1.60          $  0.65
     Second Quarter                                 $  1.04          $  0.69
     Third Quarter                                  $  1.01          $  0.67
     Fourth Quarter                                 $  0.92          $  0.58

     We have never declared any dividends. Our agreement with Union Bank
prohibited us from paying dividends while the term loan from Union Bank was
outstanding. This loan was paid off on March 31, 2003. 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 May 31, 2003 there were 31,560,016 shares of our common stock
outstanding, which were held by approximately 142 stockholders of record.

                                        13


<PAGE>

     During the quarter ended March 31, 2003, we issued the following securities
without registration under the Securities Act of 1933:

          o    1,000,000 shares of common stock to Union Bank of California
               pursuant to the Loan Discount Payout agreement, valued at
               $788,000.

          o    25,000 shares of common stock to a consultant for investor
               relation services, valued at $8,000.

     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.

     In addition, we received 367,000 shares, valued at $264,000, from a former
consultant as a result of early termination of an investor relation service
agreement. These shares were canceled and retired in the fourth quarter of 2003.

     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 five fiscal years are derived from our consolidated
financial statements. The consolidated financial statements as of March 31,
2003, 2002, and 2001 and the independent auditors' report thereon, are included
elsewhere in this report.
<TABLE>
<CAPTION>
                                                                          YEAR ENDED MARCH 31,
                                                        ---------------------------------------------------------
                                                           2003        2002       2001        2000         1999
                                                        ---------   ---------   ---------   ---------   ---------
                                                                 (in thousands except for per share data)
<S>                                                     <C>         <C>         <C>         <C>         <C>
STATEMENT OF OPERATIONS DATA:
Net sales                                               $ 22,296    $ 26,715    $ 28,049    $ 25,027    $  3,648
Cost of sales                                              8,045      11,003      10,815       6,176       1,206
                                                        ---------   ---------   ---------   ---------   ---------
   Gross profit                                           14,251      15,712      17,234      18,851       2,442

Application development expenses                           4,643       4,203       5,333       4,877          --
Depreciation and amortization                              4,148       6,723       8,299       7,201       1,672
Selling, general and administrative expenses               8,072      12,036      16,985      13,769       3,181
Impairment of intangible assets                               --          --       6,519          --          --
Impairment of note receivable received in
   connection with the sale of IBIS Systems
   Limited                                                    --          --       7,647          --          --
                                                        ---------   ---------   ---------   ---------   ---------
      Total expenses                                      16,863      22,962      44,783      25,847       4,853
                                                        ---------   ---------   ---------   ---------   ---------
Loss from operations                                      (2,612)     (7,250)    (27,549)     (6,996)     (2,411)
Other income (expense):
   Interest income                                             1           7         620       1,069         516
   Other income (expense)                                     24         (56)         74        (202)        769
   Interest expense                                       (1,088)     (3,018)     (3,043)     (1,493)         (1)
                                                        ---------   ---------   ---------   ---------   ---------
         Total other income (expense)                     (1,063)     (3,067)     (2,349)       (626)      1,284
                                                        ---------   ---------   ---------   ---------   ---------
Loss before provision (benefit) for income taxes          (3,675)    (10,317)    (29,898)     (7,622)     (1,127)
   Provision (benefit) for income taxes                       11           2      (4,778)     (2,435)         30
                                                        ---------   ---------   ---------   ---------   ---------
Loss before extraordinary item and change
   in accounting principle                                (3,686)    (10,319)    (25,120)     (5,187)     (1,157)

   Extraordinary item- Gain on debt forgiveness            1,476          --          --          --          --
   Cumulative effect of changing accounting principle
      - Goodwill valuation under SFAS 142                   (627)         --          --          --          --
                                                        ---------   ---------   ---------   ---------   ---------
Loss from continuing operations                           (2,837)    (10,319)    (25,120)     (5,187)     (1,157)

Income (loss) from discontinued operations                   119      (4,339)     (3,825)      1,133       6,742
                                                        ---------   ---------   ---------   ---------   ---------

         Net income (loss)                              $ (2,718)   $(14,658)   $(28,945)   $ (4,054)   $  5,585
                                                        =========   =========   =========   =========   =========
Basic earnings (loss) per share:
   Loss before extraordinary item and
      change in accounting principle                    $  (0.12)   $  (0.29)   $  (0.72)   $  (0.15)   $  (0.04)
   Extraordinary item - gain on debt forgiveness            0.05          --          --          --          --
   Loss from change in accounting principle                (0.02)         --          --          --          --
                                                        ---------   ---------   ---------   ---------   ---------
   Loss from continuing operations                         (0.09)      (0.29)      (0.72)      (0.15)      (0.04)
   Income (loss) from discontinued operations                 --       (0.12)      (0.11)       0.13        0.24
                                                        ---------   ---------   ---------   ---------   ---------
         Net income (loss)                              $  (0.09)   $  (0.41)   $  (0.83)   $  (0.12)   $   0.20
                                                        =========   =========   =========   =========   =========
Diluted earnings (loss) per share:
   Loss before extraordinary item and
      change in accounting principle                    $  (0.12)   $  (0.29)   $  (0.72)   $  (0.15)   $  (0.03)
   Extraordinary item - gain on debt forgiveness            0.05          --          --          --          --
   Loss from change in accounting principle                (0.02)         --          --          --          --
                                                        ---------   ---------   ---------   ---------   ---------
   Loss from continuing operations                         (0.09)      (0.29)      (0.72)      (0.15)      (0.03)
   Income (loss) from discontinued operations                 --       (0.12)      (0.11)       0.03        0.20
                                                        ---------   ---------   ---------   ---------   ---------
         Net income (loss)                              $  (0.09)   $  (0.41)   $  (0.83)   $  (0.12)   $   0.17
                                                        =========   =========   =========   =========   =========
Weighted average common shares:
   Basic                                                  29,599      35,698      34,761      32,459      28,600
   Diluted                                                29,599      35,698      34,761      32,459      33,071

                                                       15
</TABLE>


<PAGE>

<TABLE>
<CAPTION>
                                                                          YEAR ENDED MARCH 31,
                                                        ---------------------------------------------------------
                                                           2003        2002       2001        2000         1999
                                                        ---------   ---------   ---------   ---------   ---------
                                                                             (in thousands)
<S>                                                     <C>         <C>         <C>         <C>         <C>
BALANCE SHEET DATA:
Working capital                                         $ (4,056)   $ (5,337)   $ (2,782)   $  2,628    $ 26,387
Total assets                                            $ 37,637    $ 40,005    $ 56,453    $ 94,083    $ 52,374
Long-term obligations                                   $  2,807    $  8,013    $ 18,554    $ 21,586    $  2,043
Stockholders' equity                                    $ 23,842    $ 21,952    $ 26,993    $ 53,497    $ 45,270
</TABLE>

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

OVERVIEW

     We are a leading provider of software solutions and services to the retail
industry. We provide high value innovative solutions that help retailers
understand, create, manage and fulfill consumer demand. Our solutions and
services have been developed specifically to meet the needs of the retail
industry. Our solutions help retailers improve the efficiency and effectiveness
of their operations and build stronger, longer lasting relationships with their
customers. Up until April 1, 2003, we also developed and distributed 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 management
solution. 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
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. Effective
April 1, 2003, we sold the SVI Training Products, Inc. unit and discontinued the
training product line of business. 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 manage long-lived assets by geographic region. The geographic
distribution of our revenues and long-lived assets for the fiscal years ended
March 31, 2003, 2002 and 2001 is as follows (in thousands):
<TABLE>
<CAPTION>
                                                  YEAR ENDED       YEAR ENDED     YEAR ENDED
                                                   MARCH 31,        MARCH 31,      MARCH 31,
                                                     2003             2002           2001
                                                 ------------    ------------    ------------
                                                                (in thousands)
<S>                                              <C>             <C>             <C>
Net Sales:
        Continuing operations:
         United States                           $    19,616     $    24,246     $    25,930
         United Kingdom                                2,680           2,469           2,119
                                                 ------------    ------------    ------------
                                                      22,296          26,715          28,049
                                                 ------------    ------------    ------------
        Discontinued operations:
         United States                                 1,370           1,390           1,300
         Australia                                        --           2,363           4,959
         United Kingdom                                  147             146             216
                                                 ------------    ------------    ------------
                                                       1,517           3,899           6,475
                                                 ------------    ------------    ------------

                  Total net sales                $    23,813     $    30,614     $    34,524
                                                 ============    ============    ============

Long-lived assets:
         United States                           $    31,595     $    36,154     $    48,270
         Australia (discontinued operations)              --              --           1,370
         United Kingdom                                   27              22              59
                                                 ------------    ------------    ------------
                  Total long-lived assets        $    31,622     $    36,176     $    49,699
                                                 ============    ============    ============
</TABLE>
     Up to April 1, 2003, 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, 2003 to have consisted of one reportable operating
segment. Effective April 1, 2003, we sold our training products subsidiary and
discontinued the training products line of business.

     Results of operations for fiscal 2003 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 2003
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 January 2003, we appointed Harvey Braun, a well-known and
               highly-respected retail industry veteran, to the position of
               Chief Executive Officer of Island Pacific, one of our business
               units. In April 2003, our Board of Directors appointed Mr. Braun
               to the position of Chief Executive Officer and director of SVI.

          o    In October 2002, we appointed Steven Beck, a retail industry
               expert, to the position of President of our Island Pacific unit.
               In April 2003, our Board of Directors appointed Mr. Beck to the
               position of President and Chief Operating Officer and director of
               SVI.

          o    We are strengthening our product offerings through strategic
               relationships with Planalytics, KMG Solutions, VisionCompass
               Inc., Raymark, Inc., Wazagua LLC, ANT USA, Inc. and IT Resources
               Inc.

          o    Under a partnership agreement with Planalytics Inc., Island
               Pacific will market Impact LR, an internet-based application that
               measures the specific effects of future weather on consumer
               demand by product, location and time. Using Impact LR, our
               customers can plan the timing of in-season markdowns, as well as
               the season-to-season flow of merchandise into their stores with
               maximum effectiveness.

                                        17


<PAGE>

          o    Under a marketing license agreement with KMG Solutions, Island
               Pacific will integrate, market and support Traxion(TM)process
               management solutions. Traxion's business process management
               solution consists of three modules. Traxion ProcessEngine(TM)is
               the real-time process management platform that retailers use to
               actively manage and support their organizations' unique business
               processes. Traxion ProcessModeler(TM), includes simulation
               functions such as same-time comparison of process variations and
               the use of actual cost data to produce process-based financial
               estimates. Traxion OrganizationModeler(TM) simplifies the
               creation of sophisticated models including inter-company
               workgroups, payroll information, and roles.

          o    Island Pacific will market VisionCompass(TM) collaborative
               enterprise management software, which uniquely combines the best
               of performance management, business intelligence, resource
               planning, and collaboration capabilities into one
               straightforward, web-based application. The system enables
               decision makers and teams to develop specific business goals,
               work on them together, and measure their collective results
               objectively. The highly flexible system is easily customizable to
               fit each organization's unique needs and leads directly to
               improved quality and visibility of key indicators throughout the
               enterprise.

          o    Under an OEM agreement with Raymark, Inc., Island Pacific will
               integrate, market and support Xpert Store point-of-sale ("POS")
               software solution under the Island Pacific brand. Raymark's
               full-featured POS solution streamlines the checkout process in
               order to increase sales associate efficiency and augment customer
               satisfaction. The software supports multi-channel,
               multi-language, multi-currency and multi-taxation requirements.

          o    Under a agreement with Wazagua LLC, Island Pacific will
               exclusively offer to retailers worldwide Wazagua's products and
               services including web-based Loss Prevention Case Management
               Package, ASP Data Hosting and POS Exception Reporting.
               WAZAGUA(TM) ASP Hosted Suite of Modules automates data management
               for the Loss Prevention, Operations, Human Resources, Safety &
               Risk Management community. These ASP-hosted productivity tools
               enable retailers to capture the power of the internet. Retailers
               can create efficiencies, manage and share information, make
               better use of their staff, eliminate redundant data entry - and
               work from virtually any point in the world.

          o    Under terms of a reseller agreement, Island Pacific will market,
               sell, install, interface to, and support ANT USA's products
               including Buyer's Toolbox(tm), a leading suite of merchandise and
               assortment planning software that has been successfully
               implemented by over 140 retailers worldwide. The software will
               extend Island Pacific's assortment and planning capabilities by
               providing a solid planning methodology accessed through an
               easy-to-use interface, in a cost-effective offering.

          o    A marketing license agreement with IT Resources Inc. enables
               Island Pacific to market, sell, install, support and integrate IT
               Resources' Buyer's WorkMate(r) Suite, an innovative decision
               support software platform developed for merchandising
               organizations. The software will bring mobility and other
               timesaving benefits to the buying process.

          o    Under a marketing alliance agreement with BIGresearch, we will
               provide retailers, suppliers and third party companies with an
               end-to-end information solution to forecast consumer demand,
               better utilize assets and merchandise, and develop strategy and
               market position.

          o    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. Effective April 1, 2003, we agreed to sell our
               shares of SVI Training Products, Inc., our wholly-owned
               subsidiary, to Arthur Klitofsky. Mr. Klitofsky resigned from the
               Board in March 2003. See "Discontinued Operations" below.

                                        18


<PAGE>

          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 fiscal 2001. In July 2002, we
               amended the convertible notes to extend the maturity date to
               September 30, 2003 and we replaced the warrants issued to these
               investors. See "Liquidity and Capital Resources -- Indebtedness
               -- ICM Asset Management, Inc." below.

          o    In July 2002, we negotiated an extension of our senior bank
               lending facility to August 31, 2003, and then we subsequently
               satisfied this debt under the Discounted Loan Payoff Agreement
               dated March 31, 2003. See "Liquidity and Capital Resources --
               Indebtedness -- Union Bank" below.

          o    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 "Financing Transactions --
               Softline."

          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"). Toys also agreed to invest $1.3 million for the
               purchase of a non-recourse convertible note and a warrant to
               purchase up to 2,500,000 common shares. For a further details,
               see "Liquidity and Capital Resources - Indebtedness -- Toys "R"
               Us' below.

          o    In March 2003, we issued a total of $3.5 million in 9%
               convertible debentures to Midsummer Investment, Ltd., Omicron
               Master Trust and Islandia, L.P. Along with these debentures,
               warrants to purchase an aggregate of 1,572,858 shares of common
               stock were issued to these investors. See "Financing Transactions
               - Midsummer/Omicron/Islandia" below.

          o    In April 2003, we issued $400,000 in 9% convertible debentures to
               MBSJ Investors, LLC. Along with these debentures, warrants to
               purchase 156,311 shares of common stock were issued to this
               investor. See "Financing Transactions - MBSJ".

          o    In March 2003, the Board adopted a resolution to change our name
               to "Island Pacific, Inc.", subject to approval by our
               shareholders.

          o    In May 2003, we issued $300,000 in 9% convertible debentures to
               Crestview Capital Fund I, L.P., Crestview Capital Fund II, L.P.
               and Crestview Capital Offshore Fund, Inc. Along with these
               debentures, warrants to purchase 101,112 shares of common stock
               were issued to these investors. See "Financing Transactions -
               Crestview".

DISCONTINUED OPERATIONS

     Effective April 1, 2003, we sold our wholly-owned subsidiary, SVI Training
Products, Inc. ("Training Products") to our former president of Training
Products for the sale price of $180,000 plus earn-out payments equal to 20% of
the total gross revenues of Training Products in each of its next two fiscal
years, to the extent the revenues in each of those years exceed certain targets.
We received a promissory note for the amount of $180,000 and the earn-out
payments, if any, will be made in quarterly installments following each fiscal
year, bearing an annual interest rate of 5%. The sale of the Training Products
subsidiary resulted in a loss of $129,000, net of estimated income taxes, which
was accrued for at March 31, 2003. The operating results of Training Products of
$248,000 are shown as discontinued operations, net of the loss on sale of
Training Products with the prior period results restated.

                                        19


<PAGE>

     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 April 2002 to sell substantially all of the assets
of the Australian subsidiary and pursue collections on any outstanding
receivables. The receiver proceeded to sale 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.

     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 at March 31, 2002 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.

               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.

                                        20


<PAGE>

               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 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. For
               fiscal 2003, we have adopted SFAS No. 142 resulting in a change
               in the way we value long-term intangible assets and goodwill. We
               were required to perform an initial transitional analysis of
               goodwill impairment. We concluded this analysis as of April 1,
               2002 and recorded an impairment of $0.6 million as a cumulative
               effect of a change in accounting principle in the first quarter
               of fiscal 2003. We will no longer amortize goodwill, but will
               instead test goodwill for impairment on an annual basis or more
               frequently if certain events occur. Goodwill is to be measured
               for impairment by reporting units, which currently consist of our
               operating segments. At each impairment test for a business unit,
               we are required to compare the carrying value of the business
               unit to the fair value of the business unit. If the fair value
               exceeds the carrying value, goodwill will not be considered
               impaired. If the fair value is less than the carrying value, we
               will perform a second test comparing the implied fair value of
               reporting unit goodwill with the carrying amount of that
               goodwill. The difference if any between the carrying amount of
               that goodwill and the implied fair value will be recognized as an
               impairment loss, and the carrying amount of the associated
               goodwill will be reduced to its implied fair value. These tests
               require us to make estimates and assumptions concerning prices
               for similar assets and liabilities, if available, or estimates
               and assumptions for other appropriate valuation techniques.

                                        21


<PAGE>

               For our intangible assets with finite lives, including our
               capitalized software and non-compete agreements, we assess
               impairment at least annually or whenever events and circumstances
               suggest the carrying value of an asset may not be recoverable
               based on the net future cash flows expected to be generated from
               the asset on an undiscounted basis. When we determine that the
               carrying value of intangibles with finite lives 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.

RECENT ACCOUNTING PRONOUNCEMENTS

     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 accounting prescribed in SFAS 145 was applied in connection with the gain
from extinguishment of our debt to Union Bank of California.

     In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146 ("SFAS 146"), "Accounting for Costs Associated with Exit or Disposal
Activities". SFAS 146 replaces current accounting literature and requires the
recognition of costs associated with exit or disposal activities when they are
incurred rather than at the date of commitment to an exit or disposal plan. The
provisions of the SFAS 146 are effective for exit or disposal activities that
are initiated after December 31, 2002. We do not expect adoption of SFAS No. 146
to have a significant effect on our results of operations or financial
condition.

     In October 2002, the FASB issued Statement of Financial Accounting
Standards No. 147 ("SFAS 147"), "Acquisition of certain Financial Institutions".
SFAS 147 removes the requirement in SFAS 72 and Interpretation 9 thereto, to
recognize and amortize any excess of the fair value of liabilities assumed over
the fair value of tangible and identifiable intangible assets acquired as an
unidentifiable intangible asset. This statement requires that those transactions
be accounted for in accordance with SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets". In addition, this
statement amends SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets, to include certain financial institution related intangibles.
This statement is not likely to have any impact on our consolidated financial
statements.

     In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148 ("SFAS 148"), "Accounting for Stock-Based
Compensation-Transition and Disclosure". This Statement amends SFAS 123,
"Accounting for Stock-Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS 148 amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The transition guidance and annual disclosure provisions of SFAS 148
are effective for fiscal years ending after December 15, 2002, with earlier
application permitted in certain circumstances. The interim disclosure
provisions are effective for financial reports containing financial statements
for interim periods beginning after December 15, 2002. We will provide the
comparative interim pro forma disclosures required by SFAS 148 beginning in
first quarter ending June 30, 2003. SFAS 148 is not expected to have a material
impact on the Company's financial statements.

                                        22


<PAGE>

     In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45 ("FIN 45"), "Guarantor's Accountings and disclosure
Requirements for Guarantees, Including Indirect Guarantees of the Indebtedness
of Others", which clarifies the requirement of SFAS No. 5, "Accounting for
Contingencies", relating to a guarantor's accounting for and disclosures of
certain guarantee issues. FIN 45 was applied to our guarantee of a line of
credit facility from National Australia Bank Limited to our former Australian
subsidiary.

     In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities".
Variable interest entities are defined as entities with a level of invested
equity that is not sufficient to fund future activities to permit it to operate
on a stand-alone basis. We do not participate in variable interest entities and
therefore have not applied FIN 46.

     In November 2002, the FASB reached consensus on Emerging Issues Task Force
Issue No. 00-21 ("EITF No. 00-21"), "Accounting for Revenue Arrangements with
Multiple Deliverables." In general, this issue addresses certain aspects of the
accounting by a vendor for arrangements under which it will perform multiple
revenue-generating activities. Specifically, this issue addresses how to
determine whether an arrangement involving multiple deliverables contains more
than one earnings process and, if so, how to divide the arrangement into
separate units of accounting consistent with the identified earnings processes
for revenue recognition purposes. This issue also addresses how arrangement
consideration should be measured and allocated to the separate units of
accounting in the arrangement. EITF Issue 00-21 is applicable to arrangements
entered into after June 15, 2003. We do not believe the application of EITF
Issuer 00-21 will have any material impact on our consolidated financial
statements.

     In April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149 ("SFAS 149"), "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities." SFAS 149 further clarifies accounting for derivative
instruments. We believe the adoption of this statement will have no material
impact on our consolidated financial statements.

     In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150, "Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity," ("SFAS 150"). SFAS 150 establishes standards for
how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances). Many of those instruments were previously
classified as equity. SFAS 150 is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. We do not believe the
adoption of SFAS 150 will have a material impact on our consolidated financial
statements.

FINANCING TRANSACTIONS

     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.

                                        23


<PAGE>

     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.

     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 Asset Management, Inc. 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 $16,000, and to accept the reduced amount in 527,286 shares of our common
stock valued at $0.41 per share which was 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. In December 2002, the investors agreed to extend the payments of accrued
interest to September 30, 2003.

     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 by June 30, 2003, 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.
For the first 30 day period after June 30, 2003 in which the registration
statement is not effective, we will be obligated to issue additional warrants
for the purchase of 5% of the total number of registrable securities at an
exercise price of $0.60 per share. For each 30 day period thereafter in which
the registration statement is not effective, we will be obligated to issue
additional penalty warrants for the purchase of 2.5% of the total number of
registrable securities at an exercise price of $0.60. No further penalty
warrants will accrue from our original registration obligation. The registration
statement was filed in May 2003; however, it has not been declared effective as
of the date of this report.

     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.

                                        24


<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 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, INC.

     In May 2002, Toys "R" Us, Inc. ("Toys") 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 was received in installments through
September 27, 2002. The note is non-interest bearing, and the face amount was
either convertible into shares of our stock valued at $0.553 per share or
payable in cash at our option, at the end of the term. In November 2002, the
Board decided that this note will be converted solely for equity and will not be
repaid in cash. 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. 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. As of May 31, 2003, 1.6 million shares of the warrant are exercisable.

     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.

                                        25


<PAGE>

     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.

     MIDSUMMER/OMICRON/ISLANDIA

     On March 31, 2003, we entered into a Securities Purchase Agreement with
Midsummer Investment, Ltd. ("Midsummer"), Omicron Master Trust ("Omicron"), and
Islandia, L.P. ("Islandia") for the sale to these investors of 9% debentures,
convertible into shares of SVI common stock at a conversion price equal to $1.02
per share, for an aggregate amount of $3.5 million. The investors also each
received a warrant to purchase up to, in the aggregate, 1,572,858 shares of
common stock with an exercise price equal to $1.02 per share.

     The debentures bear an interest rate of 9% per annum, and they provide for
interest only payments on a quarterly basis, payable, at our option, in cash or
shares of common stock. The debentures mature in May 2005. If certain conditions
are met, we have the right, but not the obligation, to redeem the debentures at
110% of their face value, plus accrued interest. Commencing on February 1, 2004,
we must redeem $219,000 per month of the debenture. Furthermore, if the daily
volume weighed average price of the our common stock on the American Stock
Exchange exceeds $1.02 by more than 200% for 15 consecutive trading days, we
will have the option to cause the investors to convert their debentures into
common stock.

     The warrants issued to the investors are for a 5-year term, with an
exercise price equal to $1.02 per share.

     The investors were granted the right of first refusal to participate in our
future offerings of common stock or equivalent securities so long as any one of
them owns at least 5% of the debentures purchased by them. Monthly redemptions
shall be in cash, or, provided certain conditions are met, such as an effective
registration statement, in shares of common stock. If we elect to pay in shares
of common stock, the conversion price shall be the lessor of $1.02 and 90% of
the average of the daily volume weighted average price of the common stock for
the 20 trading days immediately prior to the redemption date. The investors were
also given registration rights under a Registration Rights Agreement requiring
us to file by June 30, 2003 a registration statement respecting 130% of the
common stock issuable upon the conversion of the debentures and the warrants,
and to use best efforts to have the registration statement declared effective at
the earliest date. If the registration statement is not filed within these
timeframes or declared effective by June 29, 2003 following the closing date of
the debentures sold in this first phase, or within 120 days in the event of a
review by the Securities and Exchange Commission, we will be obligated to pay
liquidated damages to the investors equal to 2% of the sum of the amount of
debentures subscribed to by the investors and the value of the warrants for each
month until the registration statement becomes effective. The registration
statement was filed in May 2003; however, it has not been declared effective as
of the date of this report.

                                        26


<PAGE>

     Additional debentures aggregating up to $2 million, can be sold to these
investors in a second closing, at our option, if within one year after the date
of first sale of debentures there occurs a period of 15 consecutive trading days
during which the daily volume weighted average closing price of our common stock
is maintained at a price at or above $1.75 per share, subject to certain
conditions. The shares of common stock underlying these debentures and warrants
have not been included for registration in the prospectus filed in May 2003.

     MBSJ INVESTORS, LLC

     On April 1, 2003, we entered into a Securities Purchase Agreement with MBSJ
Investors, LLC ("MBSJ") for the sale to MBSJ of a 9% debenture, convertible to
shares of our common stock at a conversion price of $1.02, for $400,000. This
debenture was accompanied by a five-year warrant to purchase 156,311 shares of
common stock with an exercise price of $1.02 per share. Interest is due on a
quarterly basis, payable in cash or shares of common stock at our option.
Commencing on February 1, 2004, we must redeem $20,000 per month of the
debenture. The debenture matures in October 2005. MBSJ was also granted
registration rights under a Registration Rights Agreement, and certain other
rights similar to those granted to Midsummer, Omicron and Islandia.

     CRESTVIEW

     On May 6, 2003, we entered into an agreement with Crestview Capital Fund I,
L.P., Crestview Capital Fund II, L.P. and Crestview Capital Offshore Fund, Inc.
(collectively, the "Crestview Investors") for the sale to the Crestview
Investors of 9% debentures, convertible into shares of our common stock at a
conversion price of $1.02 for $300,000. These debentures were accompanied by
five-year warrants to purchase an aggregate of 101,112 shares of common stock
with an exercise price of $1.02 per share. Interest is due on a quarterly basis,
payable in cash or shares of common stock at our option. Commencing on February
1, 2004, we must redeem $19,000 per month of the debentures. The debentures
mature in October 2005. The Crestview Investors were also granted registration
rights under a registration rights agreement, and certain other rights similar
to those granted to Midsummer, Omnicron and Islandia.


                                        27


<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,
                                                        -----------------------------------------------------------------------
                                                                 2003                    2002                      2001
                                                        ---------------------    ---------------------    ---------------------
                                                                   PERCENTAGE               PERCENTAGE               PERCENTAGE
                                                         AMOUNT    OF REVENUE      AMOUNT   OF REVENUE     AMOUNT    OF REVENUE
                                                        ---------  ----------    ---------  ----------    ---------  ----------
<S>                                                     <C>              <C>     <C>              <C>     <C>              <C>
Net sales                                               $ 22,296         100%    $ 26,715         100%    $ 28,049         100%
Cost of sales                                              8,045          36%      11,003          41%      10,815          39%
                                                        ---------   ---------    ---------   ---------    ---------   ---------
   Gross profit                                           14,251          64%      15,712          59%      17,234          61%

Application development expense                            4,643          21%       4,203          16%       5,333          19%
Depreciation and amortization                              4,148          19%       6,723          25%       8,299          30%
Selling, general and administration expenses               8,072          36%      12,036          45%      16,985          60%
Impairment of intangible assets                               --          --           --          --        6,519          23%
Impairment of note receivable received in
   connection with the sale of IBIS
   Systems Limited                                            --          --           --          --        7,647          27%
                                                        ---------   ---------    ---------   ---------    ---------   ---------

         Total expenses                                   16,863          76%      22,962          86%      44,783         159%
                                                        ---------   ---------    ---------   ---------    ---------   ---------

Loss from operations                                      (2,612)        (12)%     (7,250)        (27)%    (27,549)        (98)%

Other income (expense)
   Interest income                                             1           0%           7           0%         620           2%
   Other income (expense)                                     24           0%         (56)          0%          74           1%
   Interest expense                                       (1,088)         (5)%     (3,018)        (11)%     (3,043)        (11)%
                                                        ---------   ---------    ---------   ---------    ---------   ---------
     Total other expense                                  (1,063)         (5)%     (3,067)        (11)%     (2,349)         (8)%
                                                        ---------   ---------    ---------   ---------    ---------   ---------

Loss before provision (benefit) for income taxes          (3,675)        (17)%    (10,317)        (38)%    (29,898)       (106)%

     Provision (benefit) for income taxes                     11           0%           2           0%      (4,778)         17%
                                                        ---------   ---------    ---------   ---------    ---------   ---------

Loss before extraordinary item and change in
     accounting principle                                 (3,686)        (17)%    (10,319)        (38)%    (25,120)        (89)%

   Extraordinary item - gain on debt forgiveness           1,476                       --                       --
   Cumulative effect of changing accounting principle
     - Goodwill valuation under SFAS 142                    (627)                      --                       --
                                                        ---------                ---------                ---------

Loss from continuing operations                           (2,837)                 (10,319)                 (25,120)

Income (loss) from discontinued operations,
     net of taxes                                            119                   (4,339)                  (3,825)
                                                        ---------                ---------                ---------

Net loss                                                $ (2,718)                $(14,658)                $(28,945)
                                                        =========                =========                =========
</TABLE>

                                        28


<PAGE>

FISCAL YEAR ENDED MARCH 31, 2003 COMPARED TO FISCAL YEAR ENDED MARCH 31, 2002

     NET SALES

     Net sales decreased by $4.4 million, or 16%, to $22.3 million in the fiscal
year ended March 31, 2003 from $26.7 million in the fiscal year ended March 31,
2002.

     Fiscal 2003 was a challenging year for the sale of new application
licenses. The slow down in the U.S. and world economy combined with the fear of
future terrorist attacks and the ongoing hostilities in the world cause the
retail industry to be more cautious with their investment in information systems
and deliberately evaluating solutions, which resulted in decrease in sales and
in extended sales cycles. 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.

     COST OF SALES/GROSS PROFIT

     Cost of sales decreased $3.0 million, or 27%, to $8.0 million in the fiscal
year ended March 31, 2003 from $11.0 million in the fiscal year ended March 31,
2002. Gross profit as a percentage of net sales increased to 64% in fiscal 2003
from 59% in fiscal 2002. The increase in gross profit margin was due to a
decrease in modification and professional services sales, which have low margin,
combined with an increase in software license sales, which have much higher
margin. During fiscal 2003, software license sales represented 25% of net sales
and related services represented 45% of net sales, compared to 17% and 57%,
respectively, of net sales during fiscal 2002.

     Cost of sales for fiscal 2003 and 2002 included $2.4 million and $3.6
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 increased by $0.4 million, or 10%, to $4.6
million in fiscal year ended March 31, 2003 from $4.2 million in the fiscal year
ended March 31, 2002. The increase in application development expense is
primarily due to the ongoing enhancement of our suites of applications.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     Selling, general and administrative expenses decreased by $3.9 million, or
33%, to $8.1 million compared to $12.0 million in the fiscal year ended March
31, 2002. The decrease is due to decrease in sales and personnel reduction
implemented in the third quarter of 2002 and fourth quarter of 2003 and control
of expenditures.

     DEPRECIATION AND AMORTIZATION

     Depreciation and amortization decreased by $2.6 million, or 38%, to $4.1
million in the fiscal year ended March 31, 2003 from $6.7 million in the fiscal
year ended March 31, 2002. The decrease is mainly due a reduction of $2.2
million in amortization pursuant to the non-amortization provisions of Statement
Financial Accounting Standard No. 142 ("SFAS 142") for goodwill with indefinite
useful lives.

     INTEREST EXPENSE

     Interest expense decreased by $1.9 million, or 64%, to $1.1 million in the
fiscal year ended March 31, 2003 from $3.0 million in the fiscal year ended
March 31, 2002. Interest expense in fiscal 2002 included $1.2 million interest
expense on the $10 million note payable to Softline Limited. Our obligations
related to this note were released by Softline effective in January 1, 2002 in
connection with the integrated series of recapitalization transactions with
Softline. The decrease was also due to $0.7 million decrease in amortization of
debt discount.

                                        29


<PAGE>

     DISCONTINUED OPERATIONS

     Income from discontinued operations in fiscal 2003 represents a profit of
$0.2 million from operations of the Training Products subsidiary; offset in part
by $0.1 million accrual for loss on the sale of our Training Products
subsidiary. Our Training Products subsidiary was sold effective April 1, 2003.

     EXTRAORDINARY ITEM - GAIN ON DEBT FORGIVENESS

     On March 31, 2003, we entered into a Discounted Loan Payoff Agreement with
Union Bank of California (the "Bank"), our senior lender. Under this agreement,
we paid the Bank $2.8 million acquired from the sale of 9% convertible
debentures to certain investors. We also issued to the Bank 1 million shares of
our common stock and a $500,000 one-year unsecured, non-interest bearing
convertible note payable in either cash or stock, at our option. The cash
payment, shares and convertible note were accepted by the Bank in full
satisfaction of our debt to the Bank. The Bank also canceled the warrant to
purchase 1.5 million shares of our common stock and returned all collateral
held, including 10.7 million shares of our common stock pledged as security. In
connection with the settlement of the debt to the Bank, we reported an
extra-ordinary gain of $1.5 million.

     CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE

     The cumulative effect of accounting change in the fiscal year end March 31,
2003 was a non-cash, net-of-tax transitional goodwill impairment charge of $0.6
million which relates to the adoption of SFAS 142.

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

     NET SALES

     Net sales decreased slightly by $1.3 million, or 5%, to $26.7 million in
the fiscal year ended March 31, 2002 from $28.0 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.

     COST OF SALES/GROSS PROFIT

     Cost of sales was $11.0 million in the fiscal years ended March 31, 2002
and 2001. Gross profit as a percentage of net sales decreased to 59% in fiscal
2002 from 61% 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 57% of net sales, compared to 24% and 49%, 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.

                                        30


<PAGE>

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     Selling, general and administrative expenses decreased by $5.0 million, or
29%, to $12.0 million compared to $17.0 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.

     DEPRECIATION AND AMORTIZATION

     Depreciation and amortization decreased by $1.6 million, or 19%, to $6.7
million in the fiscal year ended March 31, 2002 from $8.3 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.

     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 $4.3 million, which
included $1.4 million of net loss from Australian operations and $3.2 million of
loss on disposal of the Australian operations; offset in part by $0.2 million of
net income from the Training Products operations. Loss from discontinued
operations in fiscal 2001 was $3.8 million, which included $3.7 million of net
loss from the Australian operations and $0.1 million of net loss from the
Training Products operations. Our Training Products subsidiary was sold
effective April 1, 2003 and our Australian operations were disposed in the
fourth quarter of fiscal 2002.

LIQUIDITY AND CAPITAL RESOURCES

     CASH FLOWS

     During the fiscal year ended March 31, 2003, we financed our operations
using cash on hand, internally generated cash, cash from the issuance of
convertible note and debentures and loans from an entity affiliated with Donald
S. Radcliffe, a director. 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 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. At March 31, 2003 and 2002, we had cash from continuing
operations of $1.3 million.

                                        31


<PAGE>

     Operating activities used cash of $0.9 million in the fiscal year ended
March 31, 2003, 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. Cash
used in fiscal 2003 resulted primarily from $2.7 million of net loss, $1.5
million non-cash gain on debt forgiveness, $2.0 million increase on accounts
receivable and other receivable and $2.0 million increase in deferred revenue;
offset in part by non-cash charges of $4.1 million in depreciation and
amortization and $0.6 million in a change in accounting principle, $1.0 million
increase in accounts payable and accrued expenses and $0.9 million increase in
accrued interest payable. 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
loss, 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.

     Accounts receivable increased during fiscal year 2003 primarily due to $2.5
million increase in unbilled receivables. The unbilled receivables represents
license and services revenue fully earned at March 31, 2003 that will be billed
subsequently in accordance with the contract terms. 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 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 $0.2 million, $0.7 million and $3.0
million in the fiscal years ended March 31, 2003, 2002 and 2001. Investing
activities during fiscal 2003 included $0.1 million purchases of furniture and
equipment and $0.1 million capitalized development costs. 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.

     Financing activities provided cash of $1.3 million in the fiscal year ended
March 31, 2003, used cash of $0.8 million in the fiscal year ended March 31,
2002 and provided cash of $1.9 million in the fiscal year ended March 31, 2001.
Financing activities during fiscal 2003 included proceeds of $3.5 million from
the issuance of convertible debentures, $1.4 million from issuance of
convertible note to our major customer and $0.1 million loan from an entity
affiliated with Donald S. Radcliffe, a director; offset in part by payments of
$3.3 million on term loan, $0.3 million interest on stockholders' notes and $0.1
million on loan from Mr. Radcliffe's affiliated entity. 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.

     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,
2003, 2002 and 2001.

                                        32


<PAGE>

     CONTRACTUAL OBLIGATIONS

     The following table summarizes our contractual obligations, including
purchase commitments at March 31, 2003, 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                   2004         2005         2006         2007      Thereafter
----------------------------                ---------    ---------    ---------    ---------    ----------
                                                                    (in thousands)
<S>                                         <C>          <C>          <C>          <C>          <C>
Operating leases                            $    736     $    708     $    195     $      7
Capital leases                                   156
Convertible notes due stockholders             1,371
Convertible debentures                           839        3,276          575
Payables aged over 90 days                     2,496
                                            ---------    ---------    ---------    ---------    ----------

     Total contractual cash obligations     $  5,598     $  3,984     $    770     $      7     $      --
                                            =========    =========    =========    =========    ==========
</TABLE>

<TABLE>
<CAPTION>
                                                  For the fiscal years ending March 31,
                                                  -------------------------------------
Other Commercial Commitments                   2004         2005         2006         2007      Thereafter
----------------------------                ---------    ---------    ---------    ---------    ----------
                                                                    (in thousands)
<S>                                         <C>          <C>          <C>          <C>          <C>
Guarantees                                  $    187
                                            ---------    ---------    ---------    ---------    ----------

      Total commercial commitments          $    187
                                            =========    =========    =========    =========    ==========
</TABLE>

     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

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

     At March 31, 2003, we had an outstanding balance of approximately $1.0
million due on payroll taxes, which was subsequently paid in the first quarter
of fiscal 2004.

     In March 2003, we issued 9% convertible debentures to Midsummer, Omicron
and Islandia for the total proceeds of $3.5 million. See "Financing Transactions
- Midsummer/Omicron/Islandia" above.

                                        33


<PAGE>

     In April 2003, we issued 9% convertible debentures to MBSJ Investors, LLC
for a proceeds of $400,000. See "Financing Transactions - MBSJ" above.

     In May 2003, we issued 9% convertible debentures to Crestview Investors for
a proceeds of $300,000. See "Financing Transactions - Crestview" above.

     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 $4.1 million and $5.3
million at March 31, 2003 and 2002, respectively.

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

     We have been actively engaged in attempts to resolve our liquidity
problems. 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.

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 FOR THE FISCAL YEARS 2003, 2002, 2001 AND 2000.

     We incurred losses of $2.7 million, $14.7 million, $28.9 million and $4.1
million in the fiscal years ended March 31, 2003, 2002, 2001 and 2000,
respectively. The losses in the past three 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, 2003, 2002, 2001, we had negative working capital of $4.1
million, $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 executive
offices, and borrowed from related parties to meet payroll obligations. We have
extended payment terms with our trade creditors wherever possible.

     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.

                                        34


<PAGE>

     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 16% in the fiscal year ended March 31, 2003,
compared to the fiscal year ended March 31, 2002. Our net sales decreased by 5%
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 5%
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 has
ranged from three to twelve months, which has 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.

     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;

                                        35


<PAGE>

     o    technological changes in platforms supporting our software products;
          and

     o    market acceptance of new applications and related services.

     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.

     OUR DEBT COULD ADVERSELY AFFECT US.

     As of May 31, 2003, our debt is as follows:

          o    $3.5 million in convertible debentures issued on March 31, 2003
               to Midsummer Investment, Ltd., Omicron Master Trust, and
               Islandia, L.P. due in full in May 2005, with monthly redemptions
               to commence in February 2004.

          o    $400,000 in convertible debentures issued on April 1, 2003 to
               MBSJ Investors LLC due in full in October 2005, with monthly
               redemptions to commence in February 2004.

          o    $300,000 in convertible debentures issued on May 7, 2003 to
               Crestview Capital Fund I, L.P., Crestview Capital Fund II, L.P.,
               and Crestview Capital Offshore Fund, Inc., with monthly
               redemptions to commence in February 2004.

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

          o    $500,000 in a convertible note issued to Union Bank of California
               NA on March 31, 2003, due March 31, 2004.

     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.

                                        36


<PAGE>

          o    We may not have sufficient funds to pay principal and/or interest
               payment when they become due, which could lead to a default.

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

     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 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, which
was repaid in July 2001.

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

     We may need to raise capital to discharge our aged payables and grow our
business. We will also likely need to raise capital to pay our $1.25 million
convertible note obligations to the entities related to ICM Asset Management,
Inc. due in full in September 2003, our $3.5 million and $300,000 convertible
debenture obligations due in full in May 2005, with monthly redemptions
commencing in February 2004, and our $400,000 convertible debenture obligations
due in full in October 2005, with monthly redemptions commencing in February
2004. 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 or convertible debt securities, our stockholders may experience
substantial dilution and the new securities may have greater rights, preferences
or privileges than our existing common stock.

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

     Goodwill, capitalized software, non-compete agreements and other intangible
assets represent approximately 83% of our total assets as of March 31, 2003 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.

                                        37


<PAGE>

     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 13%, 17% and
22% of our net sales were outside North America, principally in Australia and
the United Kingdom, in the fiscal years ended March 31, 2003, 2002 and 2001,
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.

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

     Toys "R" Us, Inc. ("Toys") accounted for 31%, 42% and 29% of our net sales
for the fiscal years ended March 31, 2003, 2002 and 2001, 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 would significantly reduce our revenues and
force us to substantially curtail operations. We cannot provide any assurances
that Toys 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 Chairman, Harvey Braun,
our Chief Executive Officer, and Steven Beck, our President and Chief Operating
Officer. Mr. Schechter has an employment agreement with us, which expires
September 30, 2003 and may be terminated on 14 days notice. We do not have any
written employment agreements with Mr. Braun or Mr. Beck. 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 FURTHER DECLINE, OUR REVENUES MAY ALSO DECLINE. RETAIL
     SALES HAVE BEEN AND MAY CONTINUE TO BE SLOW.

     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 more
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

                                        38


<PAGE>

implementation of our software applications. Also, the current war in Iraq and
the anticipated burden of rebuilding that country's infrastructure has led to
some uncertainty in the economic climate, which may adversely impact our
business.

     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.

     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
"Business" 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:

                                        39


<PAGE>

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

          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 BE SUBJECT TO CLAIMS THEY 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.

     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.
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.

                                        40


<PAGE>

     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.

     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 54.7% 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;

                                        41


<PAGE>

          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.

     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 "Price Range of Common Stock."

     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. 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.

                                        42


<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 American Stock 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, WARRANTS, DEBENTURES AND
     CONVERTIBLE NOTES 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 have exercise prices at below the market price of our stock. We
currently have outstanding options and warrants for 16,233,395 shares. Of these
options and warrants, 1,008,161 have exercise prices above the recent market
price of $2.09 per share (as of June 13, 2003), and 15,215,234 have exercise
prices at below that recent market price. If exercised, these options and
warrants will cause immediate and possibly substantial dilution to our
stockholders.

     Our existing stock option plan currently has approximately 2,235,007 shares
available for issuance as of June 13, 2003. Future options issued under the plan
may have further dilutive effects.

     We issued to Toys "R" Us, our major customer, a note convertible into
2,500,000 shares of common stock. This note has a conversion price of $0.553.
This note will have a dilutive effect on stockholders if converted.

     We issued to entities related to ICM Asset Management notes that are
convertible into 2,083,333 shares of common stock. These notes have a conversion
price of $0.60 per share, which is currently below the recent market price of
$2.09. These notes will have a dilutive effect on stockholders if converted.

     We also recently issued to a group of investors debentures that are
convertible into 4,103,165 shares of common stock. These debentures have a
conversion price of $1.0236, which is below the recent market price of $2.09.
These debentures will have a dilutive effect on stockholders of converted.

     We issued to Union Bank of California, N.A. an unsecured note that is
convertible into shares of common stock at a price per share of eighty percent
(80%) of the average share closing price of our common stock for the ten trading
day period immediately preceding the maturity date of the note. This note will
have a dilutive effect on stockholders if converted.

     Sales of shares pursuant to exercisable options, warrants, convertible
notes, and convertible debentures 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.

                                        43


<PAGE>

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 foreign currency exchange rate as
measured against the U.S. dollar.

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 12%, 17%, and 22% of our total net sales were denominated in
currencies other than the U.S. dollar for the periods ended March 31, 2003,
2002, and 2001, respectively.

INTEREST RATE RISK

     We do not have financial instruments or investment securities.

EQUITY PRICE RISK

     We have no direct equity investments.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Our consolidated financial statements at March 31, 2003, March 31, 2002,
and March 31, 2000 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 report on the financial statements for the fiscal year
ended March 31, 2001 did not contain an adverse opinion or a disclaimer of
opinion and was 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.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this item is incorporated by reference to the
information under the captions "Elections of Directors" and "Compliance with
Section 16(a) of the Exchange Act" of our definitive proxy statement and notice
of annual meeting of stockholders which we will file with the Securities and
Exchange Commission within 120 days after the end of the fiscal year covered by
this report.

                                        44


<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

     The information required by this item is incorporated by reference to the
information under the caption "Executive Compensation" of our definitive proxy
statement and notice of annual meeting of stockholders, which we will file with
the Securities and Exchange Commission within 120 days after the end of the
fiscal year covered by this report.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is incorporated by reference to the
information under the caption "Security Ownership of Certain Beneficial Owners
and Management" of our definitive proxy statement and notice of annual meeting
of stockholders which we will file with the Securities and Exchange Commission
within 120 days after the end of the fiscal year covered by this report.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is incorporated by reference to the
information under the caption "Certain Relations and Related Transactions" of
our definitive proxy statement and notice of annual meeting of stockholders,
which we will file with the Securities and Exchange Commission within 120 days
after the end of the fiscal year coverage by this report.

ITEM 14. CONTROLS AND PROCEDURES

     EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Based on their evaluation
of our disclosure controls and procedures, as such term is defined under Rule
13a-14 (c) promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), as of a date (the "Evaluation Date") within 90 days of the
filing date of this Annual Report on Form 10-K, our chief executive officer and
principal accounting officer have concluded that our disclosure controls and
procedures are designed to ensure that information required to be disclosed by
us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms and are operating in an effective manner.

     CHANGES IN INTERNAL CONTROLS. There were no significant changes in our
internal controls, as such term is defined under Section 13 (b) of the Exchange
Act, or to our knowledge, in other factors that could significantly affect these
controls subsequent to the Evaluation Date.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

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

         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, 2003 and 2002..............  F-3

         Consolidated Statements of Operations for the Fiscal Years ended March
         31, 2003, 2002, and 2001...............................................  F-4

         Consolidated Statements of Stockholders' Equity for the Fiscal Years
         Ended March 31, 2003, 2002 and 2001....................................  F-5

         Consolidated Statements of Cash Flows for the Fiscal Years Ended March
         31, 2003, 2002 and 2001................................................  F-7

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

                                        45


<PAGE>

     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.

         No Form 8-k was filed during the quarter ended March 31, 2003.

(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, incorporated by
                  reference to exhibit 2.2 to the Company's 10-K for fiscal year
                  ended March 31, 2002.

  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, incorporated by reference to exhibit 2.3
                  to the Company's 10-K for fiscal year ended March 31, 2002.

  2.4             Securities Purchase Agreement dated March 31, 2003 by and
                  among the Company, Midsummer Investment, Ltd., Omicron Master
                  Trust, and Islandia, L.P., incorporated by reference to
                  exhibit 2.1 to the Company's Form 8-K filed April 15, 2003.

  2.5             Securities Purchase Agreement dated April 1, 2003 by and among
                  the Company and MBSJ Investors, LLC, incorporated by reference
                  to exhibit 2.2 to the Company's Form 8-K filed on April 15,
                  2003.

  2.6             Agreement dated May 6, 2003 by and among the Company,
                  Crestview Capital Fund I, L.P., Crestview Capital Fund II,
                  L.P. and Crestview Capital Offshore Fund, Inc., incorporated
                  by reference to exhibit 2.12 to the Company's Form S-1 filed
                  on May 12, 2003.

  2.7             Stock Purchase Agreement effective April 1, 2003 between SVI
                  Solutions, Inc. and Arthur Klitofsky, incorporated by
                  reference to exhibit 4.1 to the Company's Form 8-K filed on
                  May 21, 2003.

  2.8             Pledge Agreement effective April 1, 2003 between SVI
                  Solutions, Inc. and Arthur Klitofsky, incorporated by
                  reference to exhibit 4.2 to the Company's Form 8-K filed on
                  May 21, 2003.

  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.

                                        46


<PAGE>

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

  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.

  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, 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,
                  incorporated by reference to exhibit 10.4 to the Company's
                  form 10-K for fiscal year ended March 31, 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, incorporated by reference to exhibit 10.5
                  to the Company's form 10-K for fiscal year ended March 31,
                  2002.

  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, incorporated by reference to exhibit 10.6
                  to the Company's form 10-K for fiscal year ended March 31,
                  2002.

  10.7            Fourth Amendment to Amended and Restated Term Loan Agreement
                  between the Company and Union Bank of California, N.A. dated
                  as of November 15, 2002, incorporated by reference to exhibit
                  10.3 to the Company's 10-Q filed on February 14, 2003.

  10.8            Warrant in favor of UNIONBANCAL EQUITIES, Inc. dated January
                  2, 2003, incorporated by reference to exhibit 10.4 to the
                  Company's 10-Q filed on February 14, 2003.

  10.9            Discounted Loan Payoff Agreement dated March 31, 2003 by and
                  among Union Bank of California, N.A., SVI, SVI Retail, Inc.,
                  Sabica Ventures, Inc. and SVI Training Products, Inc.,
                  incorporated by reference to exhibit 10.3 to the Company's
                  Form 8-k filed on April 15, 2003.

  10.10           Unsecured Promissory Note dated March 31, 2003 in favor of
                  Union Bank of California, incorporated by reference to exhibit
                  10.47 to the Company's Form S-1 filed on May 12, 2003.

  10.11           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.

  10.12           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.

  10.13           Investors' Rights Agreement between the Company, Koyah
                  Leverage Partners, L.P. and Koyah Partners, L..P.,
                  incorporated by reference to exhibit 10.3 to the Company's
                  Form 8-K filed January 8, 2001.

  10.14           Investors' Rights Agreement among SVI Holdings, Inc., Koyah
                  Leverage Partners, L.P. and Koyah Partners, L.P. dated July
                  19, 2002, incorporated by reference to exhibit 10.25 to the
                  Company's Form S-1 filed on May 12, 2003.

  10.15           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.

                                       47


<PAGE>

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

  10.16           Amendment Agreement to between the Company, Koyah Leverage
                  Partners, Koyah Partners, L.P., Raven Partners, L.P., Nigel
                  Davey, and Brian Cathcart dated July 15, 2002, incorporated by
                  reference to exhibit 10.11 to the Company's 10-K for fiscal
                  year ended March 31, 2002.

  10.17           First Amendment to Amendment Agreement between the Company,
                  Koyah Leverage Partners, Koyah Partners, L.P., Raven Partners,
                  L.P., Nigel Davey, and Brian Cathcart dated December 5, 2002,
                  incorporated by reference to exhibit 10.6 to the Company's
                  10-Q filed on February 14, 2003.

  10.18           Second Amendment to Amendment Agreement between the Company,
                  Koyah Leverage Partners, Koyah Partners, L.P., and Raven
                  Partners, L.P. dated March 14, 2003, incorporated by reference
                  to exhibit 10.29 to the Company's Form S-1 filed on May 12,
                  2003.

  10.19           Third Amendment to Amendment Agreement between the Company,
                  Koyah Leverage Partners, Koyah Partners, L.P., and Raven
                  Partners, L.P. dated March 28, 2003, incorporated by reference
                  to exhibit 10.30 to the Company's Form S-1 filed on May 12,
                  2003..

  10.20           Fourth Amendment to Amendment Agreement between the Company,
                  Koyah Leverage Partners, Koyah Partners, L.P., and Raven
                  Partners, L.P. dated April 3, 2003, incorporated by reference
                  to exhibit 10.31 to the Company's Form S-1 filed on May 12,
                  2003.

  10.21           Summary of loan transactions between the Company and World
                  Wide Business Centres, incorporated by reference to exhibit
                  10.12 to the Company's form 10-K for fiscal year ended March
                  31, 2002.

  10.22           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.

  10.23           Purchase Agreement between the Company and Toys "R" Us, Inc.
                  dated May 29, 2002, incorporated by reference to exhibit 10.14
                  to the Company's form 10-K for fiscal year ended March 31,
                  2002.

  10.24           Convertible Note in favor of Toys "R" Us, Inc. dated May 29,
                  2002, incorporated by reference to exhibit 10.15 to the
                  Company's form 10-K for fiscal year ended March 31, 2002.

  10.25           Warrant in favor of Toys "R" Us, Inc. dated May 29, 2002,
                  incorporated by reference to exhibit 10.16 to the Company's
                  form 10-K for fiscal year ended March 31, 2002.

  10.26           Development Agreement between the Company and Toys "R" Us,
                  Inc. dated May 29, 2002, incorporated by reference to exhibit
                  10.17 to the Company's form 10-K for fiscal year ended March
                  31, 2002.

  10.27           Summary of lease terms for Carlsbad facility, incorporated by
                  reference to exhibit 10.20 to the Company's form 10-K for
                  fiscal year ended March 31, 2002.

  21              List of Subsidiaries.

  99.1            Certification of Chief Executive Officer

  99.2            Certification of Principal Financial and Accounting Officer

                                       48


<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:  June 26, 2003               SVI SOLUTIONS, INC., A DELAWARE CORPORATION

                                   By:  /s/ Harvey Braun
                                        ---------------------------------------
                                   Harvey Braun, Chief Executive Officer
                                   (Principal Executive Officer)

                                   By:  /s/ Barry M. Schechter
                                        ---------------------------------------
                                   Barry M. Schechter, Chairman of the Board
                                   (Principal Financial and Accounting 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>
<S>                                      <C>                                                <C>
SIGNATURES                                             CAPACITY                                 DATE

/s/ Barry M. Schechter                           Chairman of the Board                      June 26, 2003
---------------------------------------
Barry M. Schechter

/s/ Harvey Braun                         Chief Executive Officer and Director               June 26, 2003
---------------------------------------
Harvey Braun

/s/ Steven Beck                              President and Chief Operating                  June 26, 2003
---------------------------------------          Officer and Director
Steven Beck

/s/ Donald S. Radcliffe                                Director                             June 26, 2003
---------------------------------------
Donald S. Radcliffe

/s/ Ivan M. Epstein                                    Director                             June 26, 2003
---------------------------------------
Ivan M. Epstein

/s/ Ian Bonner                                         Director                             June 26, 2003
---------------------------------------
Ian Bonner

/s/ Michael Silverman                                  Director                             June 26, 2003
---------------------------------------
Michael Silverman

/s/ Robert P. Wilkie                                   Director                             June 26, 2003
---------------------------------------
Robert P. Wilkie
</TABLE>

                                        49


<PAGE>


                            FORM 10-K CERTIFICATIONS

I, Harvey Braun, Chief Executive Officer, certify that:

               1. I have reviewed this annual report on Form 10-K of SVI
Solutions, Inc.;

               2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

               3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;

               4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

                      a) designed such disclosure controls and procedures to
     ensure that material information relating to the registrant, including its
     consolidated subsidiaries, is made known to us by others within those
     entities, particularly during the period in which this annual report is
     being prepared;

                      b) evaluated the effectiveness of the registrant's
     disclosure controls and procedures as of a date within 90 days prior to the
     filing date of this annual report (the "Evaluation Date"); and

                      c) presented in this annual report our conclusions about
     the effectiveness of the disclosure controls and procedures based on our
     evaluation as of the Evaluation Date;

               5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons performing
the equivalent functions):

                      a) all significant deficiencies in the design or operation
     of internal controls which could adversely affect the registrant's ability
     to record, process, summarize and report financial data and have identified
     for the registrant's auditors any material weaknesses in internal controls;
     and

                      b) any fraud, whether or not material, that involves
     management or other employees who have a significant role in the
     registrant's internal controls; and

               6. The registrant's other certifying officers and I have
indicated in this annual report whether there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

                                                   By:  /s/ HARVEY BRAUN
                                                        -----------------------
                                                        Harvey Braun
                                                        Chief Executive Officer

     Date: June 26, 2003

                                       50


<PAGE>

I, Barry M. Schechter, Chairman of the Board, certify that:

               1. I have reviewed this annual report on Form 10-K of SVI
Solutions, Inc.;

               2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

               3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;

               4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

                      a) designed such disclosure controls and procedures to
     ensure that material information relating to the registrant, including its
     consolidated subsidiaries, is made known to us by others within those
     entities, particularly during the period in which this annual report is
     being prepared;

                      b) evaluated the effectiveness of the registrant's
     disclosure controls and procedures as of a date within 90 days prior to the
     filing date of this annual report (the "Evaluation Date"); and

                      c) presented in this annual report our conclusions about
     the effectiveness of the disclosure controls and procedures based on our
     evaluation as of the Evaluation Date;

               5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons performing
the equivalent functions):

                      a) all significant deficiencies in the design or operation
     of internal controls which could adversely affect the registrant's ability
     to record, process, summarize and report financial data and have identified
     for the registrant's auditors any material weaknesses in internal controls;
     and

                      b) any fraud, whether or not material, that involves
     management or other employees who have a significant role in the
     registrant's internal controls; and

               6. The registrant's other certifying officers and I have
indicated in this annual report whether there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

                                   /s/ BARRY SCHECHTER
                                   --------------------------------------------
                                   Barry M. Schechter, Chairman of the Board
                                   (Principal Financial and Accounting Officer)
     Date: June 26, 2003

                                       51


<PAGE>

                          INDEPENDENT AUDITOR'S REPORT

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

We have audited the accompanying consolidated balance sheets of SVI Solutions,
Inc. and subsidiaries as of March 31, 2003 and 2002, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years 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, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of SVI
Solutions, Inc. and subsidiaries as of March 31, 2003 and 2002, and the results
of their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.

As described in Note 7 to the consolidated financial statements, the Company
adopted SFAS 142 effective April 1, 2002 and ceased amortization of goodwill.

/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
May 30, 2003

                                      F-1


<PAGE>

                          INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of SVI Solutions, Inc. and subsidiaries
(collectively, the "Company") (a majority owned subsidiary of Softline Limited)
for the year ended March 31, 2001. These 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, such consolidated statements present fairly, in all material
respects, the results of the Company's operations and its cash flows for the
year ended March 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.

The accompanying statements have been prepared assuming that the Company will
continue as a going concern. The Company's recurring losses from operations and
negative working capital raise substantial doubt about its ability to continue
as a going concern. 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,
                                                                                         2003             2002
                                                                                     ------------     ------------
                                                                                 (in thousands, except share amounts)
<S>                                                                                  <C>              <C>
ASSETS
Current assets:
     Cash and cash equivalents                                                       $     1,319      $     1,309
     Accounts receivable, net of allowance for doubtful
         accounts of $372 and $446, respectively                                           3,974            1,946
     Other receivables, including $3 and $31 from related parties, respectively               97              255
     Inventories                                                                              91              126
     Current portion - non-compete agreements                                                917              917
     Net assets from discontinued operations                                                 309               --
     Prepaid expenses and other current assets                                               225              150
                                                                                     ------------     ------------
              Total current assets                                                         6,932            4,703

Property and equipment, net                                                                  380              641
Purchased and capitalized software, net                                                   14,804           17,612
Goodwill, net                                                                             14,795           15,422
Non-compete agreements, net                                                                  668            1,585
Other assets                                                                                  58               42
                                                                                     ------------     ------------
              Total assets                                                           $    37,637      $    40,005
                                                                                     ============     ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Debt due to stockholders                                                        $     1,320      $       618
     Current portion of long-term debt                                                       649              435
     Accounts payable                                                                      2,941            1,497
     Accrued expenses                                                                      4,517            3,864
     Deferred revenue                                                                      1,561            3,528
     Income tax payable                                                                       --               98
                                                                                     ------------     ------------
              Total current liabilities                                                   10,988           10,040

Term loans refinanced in July 2002                                                            --            6,472
Convertible notes due to stockholders                                                         --            1,421
Convertible debentures                                                                     2,726               --
Other long-term liabilities                                                                   81              120
                                                                                     ------------     ------------
              Total liabilities                                                           13,795           18,053
                                                                                     ------------     ------------

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 $1,269 and $254                                   14,100           14,100
     Committed common stock - 2,500,000 shares                                             1,383               --
     Common stock, $.0001 par value; 100,000,000 shares authorized;
         42,199,632 and 38,993,609 shares issued and 31,499,632 and
         28,293,609 shares outstanding                                                         4                4
     Additional paid-in capital                                                           57,751           54,685
     Retained (deficit) earnings                                                         (40,490)         (37,772)
     Treasury stock, at cost - 10,700,000 shares                                          (8,906)          (8,580)
     Shares receivable                                                                        --             (485)
                                                                                     ------------     ------------
              Total stockholders' equity                                                  23,842           21,952
                                                                                     ------------     ------------
              Total liabilities and stockholders' equity                             $    37,637      $    40,005
                                                                                     ============     ============

              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,
                                                                            -------------------------------------------------
                                                                                2003              2002              2001
                                                                            -------------     -------------     -------------
                                                                                (in thousands, except per share data)
<S>                                                                         <C>               <C>               <C>
Net sales                                                                   $     22,296      $     26,715      $     28,049
Cost of sales                                                                      8,045            11,003            10,815
                                                                            -------------     -------------     -------------
              Gross profit                                                        14,251            15,712            17,234
                                                                            -------------     -------------     -------------
Expenses:
     Application development                                                       4,643             4,203             5,333
     Depreciation and amortization                                                 4,148             6,723             8,299
     Selling, general and administrative                                           8,072            12,036            16,985
     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                                                      16,863            22,962            44,783
                                                                            -------------     -------------     -------------

Loss from operations                                                              (2,612)           (7,250)          (27,549)

Other income (expense):
     Interest income                                                                   1                 7               620
     Other income (expense)                                                           24               (56)               74
     Interest expense, including $128, $1,988 and $1,391 to
         related parties                                                          (1,088)           (3,018)           (3,043)
                                                                            -------------     -------------     -------------
              Total other expense                                                 (1,063)           (3,067)           (2,349)
                                                                            -------------     -------------     -------------

Loss before provision (benefit) for income taxes                                  (3,675)          (10,317)          (29,898)

     Provision (benefit) for income taxes                                             11                 2            (4,778)
                                                                            -------------     -------------     -------------
Loss before extraordinary item and change in accounting principle                 (3,686)          (10,319)          (25,120)

     Extraordinary item - Gain on debt forgiveness, net of taxes                   1,476                --                --
     Cumulative effect of changing accounting principle - Goodwill
         valuation under SFAS 142                                                   (627)               --                --
                                                                            -------------     -------------     -------------
Loss from continuing operations                                                   (2,837)          (10,319)          (25,120)

Discontinued operations:
     Income (loss) from operations of SVI Training Products, Inc., net
         of estimated income tax expense (benefit) of ($57), $37 and $1              119               220               (79)
     Loss from Australian operations, net of estimated
         income taxes benefit of $0 and ($833)                                        --            (4,559)           (3,746)
                                                                            -------------     -------------     -------------
Income (loss) from discontinued operations                                           119            (4,339)           (3,825)
                                                                            -------------     -------------     -------------
Net loss                                                                    $     (2,718)     $    (14,658)     $    (28,945)
                                                                            =============     =============     =============

Basic and diluted earnings (loss) per share:
     Loss before change in accounting principle                             $      (0.12)     $      (0.29)     $      (0.72)
     Gain on debt forgiveness                                                       0.05                --                --
     Loss from change in accounting principle                                      (0.02)               --                --
                                                                            -------------     -------------     -------------
     Loss from continuing operations                                               (0.09)            (0.29)            (0.72)
     Discontinued operations                                                          --             (0.12)            (0.11)
                                                                            -------------     -------------     -------------
         Net loss                                                           $      (0.09)     $      (0.41)     $      (0.83)
                                                                            =============     =============     =============

Basic and diluted weighted average common shares outstanding                      29,599            35,698            34,761
                                                                            =============     =============     =============

                   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, April 1, 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

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                                                          --

                                                                                                                         (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 COMMITTED  COMMON   PAID-IN    TREASURY    SHARES    EARNINGS     HENSIVE    HENSIVE
                            STOCK     STOCK    STOCK    CAPITAL     STOCK    RECEIVABLE  (DEFICIT)     LOSS        LOSS      TOTAL
                          --------- --------- -------- ----------  --------  ----------  ----------  ----------  -------  ----------
                                                           (in thousands, except share amounts)
<S>                       <C>       <C>       <C>      <C>         <C>       <C>         <C>         <C>         <C>      <C>
Comprehensive loss:
   Net loss                                                                                (14,658)  $ (14,658)             (14,658)
   Other comprehensive loss:
     Disposal of Australian
       operation                                                                                            --    2,699       2,699
                                                                                                     ----------
       Comprehensive loss                                                                            $ (14,658)
                          --------- --------- -------- ----------  --------  ----------  ----------              -------  ----------
Balance, March 31, 2002   $ 14,100            $     4  $  54,685   $(8,580)  $    (485)  $ (37,772)              $   --   $  21,952

Issuance of common stock
  for services and interest
  expense                                                    761                                                                761
Issuance of common stock to
  payoff a stockholder's note
  payable                                                    388                                                                388
Issuance of common stock and
  convertible note to payoff
  term loan                                                  787                                                                787
Issuance of common stock for
  liquidated damage charge
  for late effectiveness of
  the registration statement                                  60                                                                 60
Issuance of convertible note
  payable solely in common
  stock                                1,383                                                                                  1,383
Common stock returned                                       (474)                  485                                           11
Compensation expense for
  warrants and options
  granted                                                     32                                                                 32
Interest charges on
  convertible notes due to
  major customer                                             879                                                                879
Offering costs                                              (708)                                                              (708)
Interest charges on
  convertible debentures                                   1,341                                                              1,341
Adjustment to cost of
  treasury stock                                                      (326)                                                    (326)
Comprehensive loss:
   Net loss                                                                                 (2,718)  $  (2,718)              (2,718)
                                                                                                     ----------
       Comprehensive loss                                                                            $  (2,718)
                          --------- --------- -------- ----------  --------  ----------  ----------  ==========  -------  ----------
Balance, March 31, 2003   $ 14,100  $  1,383  $     4  $  57,751   $(8,906)  $      --   $ (40,490)              $   --   $  23,842
                          ========= ========= ======== ==========  ========  ==========  ==========              =======  ==========

                                                                                                                         (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,
                                                                                     ----------------------------------------------
                                                                                         2003             2002              2001
                                                                                     ------------     ------------     ------------
                                                                                          (in thousands, except share amounts)
<S>                                                                                  <C>              <C>              <C>
Cash flows from operating activities:
     Net loss                                                                        $    (2,718)     $   (14,658)     $   (28,945)
     Adjustments to reconcile net loss to net cash provided by (used for)
         operating activities:
         Depreciation and amortization                                                     4,148            7,069            9,540
         Cumulative effect of a change in accounting principle -
             Goodwill valuation under SFAS 142                                               627               --               --
         Impairment of note receivable                                                        --               --            7,647
         Impairment of intangible assets associated with discontinued
             operations                                                                       --               --            8,886
         Gain on debt forgiveness                                                         (1,476)              --               --
         Loss on disposal of Training Products and Australian operations                     129            3,171               --
         Compensation expense for stock options and warrants                                   8              579              112
         Interest charges on convertible debt                                                171              438               --
         Common stock issued for services rendered, severance and
             interest payments                                                               115              245               --
         Deferred income tax provision                                                        --             (149)          (4,396)
         Loss on sale of furniture and equipment                                              --               64                3
         Changes in assets and liabilities, net of effects of acquisitions:
             Accounts receivable and other receivables                                    (2,046)           2,548            5,126
             Accrued interest on note receivable                                              --               --             (555)
             Inventories                                                                      24               61               (8)
             Prepaid expenses and other current assets                                      (286)              60              157
             Accounts payable and accrued expenses                                         1,394           (1,892)           3,506
             Accrued interest on stockholders' loans and note payable                        853            2,295              944
             Deferred revenue                                                             (1,967)           1,642           (4,438)
             Income taxes payable                                                            (98)              98               --
                                                                                     ------------     ------------     ------------
                  Net cash provided by (used for) operating activities                    (1,122)           1,571           (2,421)
                                                                                     ------------     ------------     ------------

Cash flows from investing activities:
     Purchase of furniture and equipment                                                     (67)            (301)            (534)
     Proceeds from sale of furniture and equipment                                            --               13               --
     Purchase of software and capitalized software development costs                         (93)            (409)          (2,471)
                                                                                     ------------     ------------     ------------
                  Net cash used for investing activities                                    (160)            (697)          (3,005)
                                                                                     ------------     ------------     ------------

Cash flows from financing activities:
     Proceeds from issuance of common stock                                                   --               --            3,754
     Increase (decrease) in amounts due to stockholders, net                                (287)            (844)           9,855
     Proceeds from lines of credit                                                            --               --            1,555
     Proceeds from committed stock                                                         1,383               --               --
     Proceeds from convertible notes due to stockholders                                      --            1,260               --
     Proceeds from convertible debentures                                                  3,500               --               --
     Proceeds from short-term loan from related party                                        120               --               --
     Payments on term loans                                                               (3,303)          (1,243)         (13,231)
     Payments on short-term loan from related party                                         (120)              --               --
                                                                                     ------------     ------------     ------------
                  Net cash provided by (used for) financing activities                     1,293             (827)           1,933
                                                                                     ------------     ------------     ------------

                                                                                                                        (Continued)

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

                                                                F-7


<PAGE>

SVI SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                                                                                                  YEAR ENDED MARCH 31,
                                                                                     ----------------------------------------------
                                                                                         2003             2002              2001
                                                                                     ------------     ------------     ------------
                                                                                          (in thousands, except share amounts)

Effect of exchange rate changes on cash                                                       (1)              (5)             (78)
                                                                                     ------------     ------------     ------------

Net increase (decrease) in cash and cash equivalents                                          10               42           (3,571)
Cash and cash equivalents, beginning of year                                               1,309            1,267            4,838
                                                                                     ------------     ------------     ------------
Cash and cash equivalents, end of year                                               $     1,319      $     1,309      $     1,267
                                                                                     ============     ============     ============

Supplemental disclosure of non-cash information:
     Interest paid                                                                   $       492      $     1,194      $     1,990
     Income taxes paid                                                               $        40               --      $       665

Supplemental disclosure of non-cash investing and financing activities:
     Issued 1,000,000 shares of common stock for part of term loan
         payoff                                                                      $       788               --               --
     Issued 1,010,000 shares of common stock to payoff a shareholder's
         loan                                                                        $       388               --               --
     Issued 38,380 shares of common stock for services to be provided                         --      $        31               --
     629,500 shares of common stock returned for service contract
         canceled after shares were issued                                           $      (474)     $       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 1,223,580, 168,208 and 54,845 shares of common stock for
         services rendered and interest payments                                     $       657      $       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 140,000 shares of common stock for accrued liquidated
         damages for late effectiveness of the registration statement                $        60               --               --
     Issued 5,000 warrants in connection with an equity financing                             --               --      $         8

                                                                                                                        (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 - We are a leading provider of software solutions
         and services to the retail industry. We provide high value innovative
         solutions that help retailers understand, create, manage and fulfill
         consumer demand. Up until April 1, 2003, we also developed and
         distributed PC courseware and skills assessment products for both
         desktop and retail applications through our SVI Training Products
         subsidiary. Our solutions and services have been developed specifically
         to meet the needs of the retail industry. Our solutions help retailers
         improve the efficiency and effectiveness of their operations and build
         stronger, longer lasting relationships with their customers. Effective
         April 1, 2003, we discontinued this line of business.

         PRINCIPLES OF CONSOLIDATION AND FINANCIAL STATEMENT PRESENTATION - The
         consolidated financial statements include the accounts of SVI
         Solutions, Inc. and our wholly-owned subsidiaries, SVI Retail, Inc.,
         Sabica Ventures, Inc. and SVI Training Products, Inc. ("Training
         Products)", based in U.S., and SVI Retail (Pty) Limited based in
         Australia. The Australian subsidiary ceased operations effective
         February 2002 and the Training Products ceased operations effective
         April 1, 2003 (see Note 3). All material intercompany balances and
         transactions have been eliminated in consolidation. The consolidated
         financial statements are stated in U.S. dollars and are prepared under
         accounting principles generally accepted in the United States.

         RECLASSIFICATIONS - Certain amounts in the prior periods have been
         reclassified to conform to the presentation for the fiscal year ended
         March 31, 2003. 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 us 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.

                                       F-9


<PAGE>

         GOODWILL - Goodwill represents the excess of cost over the fair value
         of net assets acquired. Beginning April 1, 2002, we adopted Statement
         of Financial Accounting Standard No. 142, "Goodwill and Other
         Intangible Assets" ("SFAS 142") and ceased amortization of goodwill
         recorded in business combinations prior to June 30, 2001 (see Note 8).
         We review goodwill for impairment at least annually or on an interim
         basis if an event occurs or circumstances change that could indicate
         that its value has diminished or been impaired. Goodwill was amortized
         using the straight-line method over various periods not exceeding 10
         years. As described in Note 8 to the consolidated financial statements,
         effective April 1, 1999, we revised our 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," we capitalize 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, we
         evaluate 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 us within a
         stated period of time after terminating employment with us. 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
         - We adopted Statement of Financial Accounting Standards No. 144,
         "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
         144"). SFAS 144 addresses financial accounting and reporting for the
         impairment of disposal of long-lived assets, and supercedes Statement
         Financial Accounting Standards No. 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 fiscal 2002 and the Training
         Products subsidiary sold on April 1, 2003.

         Prior to the adoption of SFAS 144, we evaluated our long-lived assets
         for impairment whenever events or changes in circumstances indicated
         that the carrying amount of such assets or intangibles might not be
         recoverable. Recoverability of assets to be held and used was 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 were considered to be impaired, the impairment to be
         recognized is measured by the amount by which the carrying amount of
         the assets exceeded 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.

                                       F-10


<PAGE>

         REVENUE RECOGNITION - 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.

         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

                                      F-10


<PAGE>

         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
         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.

         REIMBURSABLE OUT-OF-POCKET EXPENSES - We adopted Financial Accounting
         Standards Board Emerging Issues Task Force No. 01-14 ("EITF 01-14"),
         "Income Statement Characterization of Reimbursements Received for
         Out-of-Pocket Expenses Incurred". EITF 01-14 establishes that
         reimbursements received for out-of-pocket expenses should be reported
         as revenue in the income statement. Through March 31, 2002, we
         classified reimbursed out-of-pocket expenses as a reduction in cost of
         consulting services. The adoption of EITF 01-14 increased reported net
         sales and cost of sales; however, it did not affect the net income or
         loss in any post or future periods. Reimbursed expenses of $615,000
         have been classified in both net sales and cost of sales for the year
         ended March 31, 2003 and we have reclassified reimbursed expenses of
         $1.1 million and $1.9 million to net sales and cost of sales in the
         consolidated statements of operations for the years ended March 31,
         2002 and 2001, respectively.

         NET INCOME (LOSS) PER SHARE - As required by Statement of Financial
         Accounting Standards No. 128, "Earnings per Share," we have 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 - We utilize 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.

                                       F-11


<PAGE>

         TRANSLATION OF FOREIGN CURRENCY - The financial position and results of
         operations of our foreign division are measured using local currency as
         the functional currency. Revenues and expenses of such division 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 $60,000,
         $38,000 and $198,000 for the years ended March 31, 2003, 2002 and 2001,
         respectively.

         COMPREHENSIVE INCOME - We utilize 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", we account 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 - We maintain 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, 2003, the uninsured portion of these balances held at
         financial institutions aggregated to approximately $1.2 million. We
         have not experienced any losses in such accounts and believe it is not
         exposed to any significant credit risk on cash and cash equivalents.

         For the fiscal years ended March 31, 2003, 2002 and 2001, sales to one
         customer accounted for 31%, 47% and 33%, respectively, of total
         consolidated net sales. As of March 31, 2003 and 2002, our trade
         receivables from this customer accounted for 43% and 40%, respectively,
         of total consolidated receivables. As of March 31, 2003 and 2002,
         deferred revenues from this customer accounted for 0% and 48%,
         respectively, of total consolidated deferred revenue.

         RECENT ACCOUNTING PRONOUNCEMENTS - 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

                                       F-12


<PAGE>

         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 accounting prescribed in SFAS 145 was applied in
         connection with the gain from extinguishment of our debt to Union Bank
         of California.

         In July 2002, the FASB issued Statement of Financial Accounting
         Standards No. 146 ("SFAS 146"), "Accounting for Costs Associated with
         Exit or Disposal Activities". SFAS 146 replaces current accounting
         literature and requires the recognition of costs associated with exit
         or disposal activities when they are incurred rather than at the date
         of commitment to an exit or disposal plan. The provisions of the SFAS
         146 are effective for exit or disposal activities that are initiated
         after December 31, 2002. We do not expect adoption of SFAS No. 146 to
         have a significant effect on our results of operations or financial
         condition.

         In October 2002, the FASB issued Statement of Financial Accounting
         Standards No. 147 ("SFAS 147"), "Acquisition of certain Financial
         Institutions". SFAS 147 removes the requirement in SFAS 72 and
         Interpretation 9 thereto, to recognize and amortize any excess of the
         fair value of liabilities assumed over the fair value of tangible and
         identifiable intangible assets acquired as an unidentifiable intangible
         asset. This statement requires that those transactions be accounted for
         in accordance with SFAS No. 141, "Business Combinations" and SFAS No.
         142, "Goodwill and Other Intangible Assets". In addition, this
         statement amends SFAS No. 144, "Accounting for the Impairment or

         Disposal of Long-Lived Assets, to include certain financial institution
         related intangibles. This statement is not likely to have any impact on
         our consolidated financial statements.

         In December 2002, the FASB issued Statement of Financial Accounting
         Standards No. 148 ("SFAS 148"), "Accounting for Stock-Based
         Compensation-Transition and Disclosure". This Statement amends SFAS
         123, "Accounting for Stock-Based Compensation", to provide alternative
         methods of transition for a voluntary change to the fair value based
         method of accounting for stock-based employee compensation. In
         addition, SFAS 148 amends the disclosure requirements of Statement 123
         to require prominent disclosures in both annual and interim financial
         statements about the method of accounting for stock-based employee
         compensation and the effect of the method used on reported results. The
         transition guidance and annual disclosure provisions of SFAS 148 are
         effective for fiscal years ending after December 15, 2002, with earlier
         application permitted in certain circumstances. The interim disclosure
         provisions are effective for financial reports containing financial
         statements for interim periods beginning after December 15, 2002. We
         will provide the comparative interim pro forma disclosures required by
         SFAS 148 beginning in first quarter ending June 30, 2003. SFAS 148 is
         not expected to have a material impact on the Company's financial
         statements.

         In November 2002, the Financial Accounting Standards Board issued FASB
         Interpretation No. 45 ("FIN 45"), "Guarantor's Accountings and
         disclosure Requirements for Guarantees, Including Indirect Guarantees
         of the Indebtedness of Others", which clarifies the requirement of SFAS
         No. 5, "Accounting for Contingencies", relating to a guarantor's
         accounting for and disclosures of certain guarantee issues. FIN 45 was
         applied to our guarantee of a line of credit facility from National
         Australia Bank Limited to our former Australian subsidiary (see Note
         2).

         In January 2003, the Financial Accounting Standards Board issued FASB
         Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest
         Entities". Variable interest entities are defined as entities with a
         level of invested equity that is not sufficient to fund future
         activities to permit it to operate on a stand alone basis. We do not
         participate in variable interest entities.

                                       F-13


<PAGE>

         In November 2002, the FASB reached consensus on Emerging Issues Task
         Force Issue No. 00-21 ("EITF No. 00-21"), "Accounting for Revenue
         Arrangements with Multiple Deliverables." In general, this issue
         addresses certain aspects of the accounting by a vendor for
         arrangements under which it will perform multiple revenue-generating
         activities. Specifically, this issue addresses how to determine whether
         an arrangement involving multiple deliverables contains more than one
         earnings process and, if so, how to divide the arrangement into
         separate units of accounting consistent with the identified earnings
         processes for revenue recognition purposes. This issue also addresses
         how arrangement consideration should be measured and allocated to the
         separate units of accounting in the arrangement. EITF Issue 00-21 is
         applicable to arrangements entered into after June 15, 2003. We do not
         believe the application of EITF Issuer 00-21 will have any material
         impact on our consolidated financial statements.

         In April 2003, the FASB issued statement of Financial Accounting
         Standards No. 149 ("SFAS 149"), "Amendment of Statement 133 on
         Derivative Instruments and Hedging Activities". SFAS 149 further
         clarifies accounting for derivative instruments. We believe the
         adoption of this statement will have no material impact on our
         consolidated financial statements.

         In May 2003, the FASB issued Statement of Financial Accounting
         Standards No. 150, "Accounting for CERTAIN Financial Instruments with
         Characteristics of both Liabilities and Equity," ("SFAS 150"). SFAS 150
         establishes standards for how an issuer classifies and measures certain
         financial instruments with characteristics of both liabilities and
         equity. It requires that an issuer classify a financial instrument that
         is within its scope as a liability (or an asset in some circumstances).
         Many of those instruments were previously classified as equity. SFAS
         150 is effective for financial instruments entered into or modified
         after May 31, 2003, and otherwise is effective at the beginning of the
         first interim period beginning after June 15, 2003. We do not believe
         the adoption of SFAS 150 will have a material impact on our
         consolidated financial statements.

2.       DISCONTINUED OPERATIONS

         Effective April 1, 2003, we sold our wholly-owned subsidiary, SVI
         Training Products, Inc. ("Training Products") to our former president
         of Training Products for the sale price of $180,000 plus earnout
         payments equal to 20% of the total gross revenues of Training Products
         in each of its next two fiscal years, to the extent the revenues in
         each of those years exceed certain target. We received a promissory
         note for the amount of $180,000 and the earnout payments, if any, will
         be made in quarterly installments following each fiscal year, bearing
         an annual interest rate of 5%. The sale of the Training Products
         subsidiary resulted in a loss of $129,000, net of estimated income
         taxes, which was accrued for at March 31, 2003. The operating results
         of Training Products are shown as discontinued operations with the
         prior period results restated. The operating results reflected in
         income (loss) from operations are summarized as follows:

<TABLE>
<CAPTION>
                  Year ended March 31,                               2003             2002             2001
                                                                     ----             ----             ----
<S>                                                               <C>              <C>              <C>
                  Net sales                                       $  1,517         $  1,537         $  1,516
                  Income (loss) before taxes                      $    191         $    257         $    (80)
                  Taxes (benefits) on loss                             (57)              37                1
                  Net income (loss)                               $    248         $    220         $    (79)
                  Net income per share of common stock            $   0.01         $   0.01         $     --
</TABLE>

         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
         the Australian subsidiary, and we have guaranteed all amounts owing on
         the facility. The facility became due in February of each year, but had
         renewed annually. In April 2001, we 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, we decided in the third
         quarter of fiscal 2002 to sell certain assets of the Australian

                                       F-14


<PAGE>

         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 April 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.

         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:

<TABLE>
<CAPTION>
                                                                                  Year ended March 31,
                                                                                  2002             2001
                                                                                  ----             ----
<S>                                                                             <C>              <C>
                  Net sales                                                     $ 2,363          $  4,959
                  Income (loss) before taxes                                    $(1,056)         $ (4,580)
                  Taxes (benefits) on loss                                          332              (833)
                  Net income (loss)                                             $(1,388)         $ (3,746)
                  Net income (loss) per share of common stock                   $ (0.04)         $  (0.11)
</TABLE>

3.       ASSET IMPAIRMENT CHARGES

         In the fiscal year ended March 31, 2001, we evaluated the
         recoverability of the long-lived assets in accordance with the
         evaluation of our long-lived assets as described in Note 1. In
         determining the amount of impairment, we 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 our operations consistent with the
         assets' remaining useful lives. The anticipated future cash flows were
         then discounted at 13%, which approximates our interest rate on our
         amended and restated loan agreement in fiscal year ended March 31,
         2001. Accordingly, we recorded impairment of goodwill of $2.3 million
         and capitalized software of $6.6 million, of which $2.4 million was
         classified as discontinued operations, in the fiscal year ended March
         31, 2001.

         We also recorded an impairment charge to our note receivable in the
         fiscal year ended March 31, 2001 (See Note 4).

4.       NOTE RECEIVABLE

         In connection with the sale of our United Kingdom subsidiary, IBIS
         Systems Limited ("IBIS") to Kielduff Investments Limited ("Kielduff")
         in the fourth quarter of fiscal 1999, we 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, we

                                       F-15


<PAGE>

         discontinued accruing interest on the Note. The Note was secured by
         approximately 11% of the outstanding shares of Integrity. We also had
         the right to convert all sums due from Kielduff into shares of
         Integrity at our option. We did not exercise our 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 our lack of ability to
         enforce collection on the due date, we classified the Note as long
         term. We 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, we concluded that the fair value of
         the collateral underlying the Note was impaired. Thus, during the
         fiscal year ended March 31, 2001, we 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, we 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.       We transferred to Softline the note received in connection
                  with the sale of IBIS.
         2.       We 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 us from our
                  obligations related to the note payable due to Softline.
                  Softline also surrendered 10,700,000 shares of our 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.

5.       PROPERTY AND EQUIPMENT

         Property and equipment at March 31, 2003 and 2002 consisted of the
         following (in thousands):

<TABLE>
<CAPTION>
                                                                                 2003             2002
                                                                           --------------    --------------
<S>                                                                        <C>               <C>
              Computer equipment and purchased software                    $       2,321     $       2,299
              Furniture and fixtures                                                 474               473
              Leasehold improvements                                                 406               400
                                                                           --------------    --------------
                                                                                   3,201             3,172
              Less accumulated depreciation and amortization                       2,821             2,531
                                                                           --------------    --------------
                  Total                                                    $         380     $         641
                                                                           ==============    ==============

         Depreciation and amortization expense from continuing operations for
         the fiscal years ended March 31, 2003, 2002 and 2001 was $330,000,
         $520,000 and $698,000, respectively. Depreciation and amortization
         expense from discontinued operations for the fiscal years ended March
         31, 2003, 2002 and 2001 was $0, $46,000 and $173,000, respectively.

6.       CAPITALIZED SOFTWARE

         Capitalized software at March 31, 2003 and 2002 consisted of the
         following (in thousands):

                                                                                 2003             2002
                                                                           --------------    --------------

              Software                                                     $      28,221     $      28,128
              Less accumulated amortization                                       13,417            10,516
                                                                           --------------    --------------
              Total                                                        $      14,804     $      17,612
                                                                           ==============    ==============
</TABLE>

                                       F-16


<PAGE>

         Amortization expense from continuing operations for the fiscal years
         ended March 31, 2003, 2002 and 2001 was $2.9 million, $2.9 million and
         $3.4 million, respectively. Amortization expense from discontinued
         operations for the fiscal years ended March 31, 2002 and 2001 was
         $300,000 and $751,000, respectively. We recorded an impairment of $6.6
         million to the capitalized software associated with our discontinued
         Australian subsidiary in fiscal 2001, of which $2.4 million was
         classified as discontinued operations (see Note 2).

7.       GOODWILL

         Effective April 1, 1999, in evaluating the economic benefit and useful
         lives of goodwill obtained in connection with our 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. 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.

         We adopted SFAS 142 effective April 1, 2002 and ceased amortization of
         goodwill we recorded in business combinations prior to June 30, 2001.
         SFAS 142 prohibits the amortization of goodwill and certain other
         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 continue to be amortized over their useful lives.

         Pursuant to SFAS 142, we completed the transitional analysis of
         goodwill impairment as of April 1, 2002 and recorded an impairment of
         $627,000 as a cumulative effect of a change in accounting principle in
         the quarter ended June 30, 2002. We also completed our annual test for
         goodwill impairment during fourth quarter 2003 and found no indication
         of impairment of the goodwill allocated to the individual reporting
         units. Accordingly, absent future indications of impairment, the next
         annual impairment test will be performed in fourth quarter 2004.

         We also evaluated the remaining useful lives of our intangible assets
         in the quarter June 30, 2002 and during the fourth quarter 2003. No
         adjustments have been made to the useful lives of our intangible
         assets.

         Goodwill at March 31, 2003 and 2002 consisted of the following (in
         thousands):

<TABLE>
<CAPTION>
                                                                                 2003             2002
                                                                           --------------    --------------
<S>                                                                        <C>                 <C>
              Cost                                                         $      21,288       $    21,915
              Less accumulated amortization                                        6,493             6,493
                                                                           --------------    --------------
              Total                                                        $      14,795     $      15,422
                                                                           ==============    ==============
</TABLE>

         The amortization expense for twelve months ended March 31, 2002 and
         2001 was $2.2 million, and $2.6 million, respectively. We recorded an
         impairment to the goodwill associated with our discontinued Australian
         subsidiary of approximately $2.3 million at March 31, 2001 (see Note
         2).

                                       F-17


<PAGE>

         The following table reconciles net loss and loss per share as reported
         for the years ended March 31, 2003, 2002 and 2001 to net loss and loss
         per share as adjusted to exclude amortization expense, net of taxes,
         related to goodwill that are no longer being amortized (in thousands).

<TABLE>
<CAPTION>
                                                        YEAR ENDED       YEAR ENDED       YEAR ENDED
                                                         MARCH 31,        MARCH 31,        MARCH 31,
                                                           2003             2002             2001
                                                       ------------     ------------     ------------
<S>                                                    <C>              <C>              <C>
              Reported net loss                        $    (2,718)     $   (14,658)     $   (28,945)
              Add back:  Goodwill amortization                  --            2,220            2,618
                                                       ------------     ------------     ------------
                    Adjusted net loss                  $    (2,718)     $   (12,438)     $   (26,327)
                                                       ============     ============     ============

              Basic and diluted loss per share:
                    Reported net loss                  $     (0.09)     $     (0.41)     $     (0.83)
                    Goodwill amortization                       --             0.06             0.07
                                                       ------------     ------------     ------------

                           Adjusted net loss           $     (0.09)     $     (0.35)     $     (0.76)
                                                       ============     ============     ============

                 Basic and diluted weighted
                   average common shares outstanding        29,599           35,698           34,761
</TABLE>

8.       NON-COMPETE AGREEMENTS

         Non-compete agreements as of March 31, 2003 and 2002 are as follows (in
         thousands):

<TABLE>
<CAPTION>
                                                                                 2003             2002
                                                                           --------------    --------------
<S>                                                                        <C>               <C>
              Cost                                                         $       6,986     $       6,986
              Less accumulated amortization                                        5,401             4,484
                                                                           --------------    --------------
              Total                                                                1,585             2,502

              Current portion                                                        917               917
                                                                           --------------    --------------
              Long-term portion                                            $         668     $       1,585
                                                                           ==============    ==============

         The amortization expense for the twelve months ended March 31, 2003,
         2002 and 2001 was $917,000, $1.1 million and $1.6 million,
         respectively.

9.       TERM LOANS

         TERM LOAN DUE TO BANK

         Our term loans at March 31, 2003 and 2002 consist of the following (in
         thousands):

                                                                                 2003             2002
                                                                           --------------    --------------

              Term loans payable to bank                                   $          --     $       6,907
              Less term loans payable to bank classified
                  as long-term as discussed below                                     --             6,472
                                                                           --------------    --------------
              Current portion of term loans                                $          --     $         435
                                                                           ==============    ==============
</TABLE>

                                       F-18


<PAGE>

         Effective June 29, 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 us, at our
         option, to receive a further extension of six months (i.e., until
         November 1, 2002), subject to certain conditions. Interest on the term
         loan accrued and was payable monthly at a rate per annum equal to the
         Bank's reference rate plus five percentage points. The restated
         agreement included affirmative covenants regarding our maintaining and
         obtaining certain financial ratios. We were required to make monthly
         principal payments of $50,000 starting October 1, 2001.

         On March 18, 2002, 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 our common stock surrendered by Softline in
         the related recapitalization transactions with Softline described in
         Notes 4, 9 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 failed to pay any installment when due, the loan
         extension fee increased to $200,000, and the monthly payments increased
         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 were 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 was due August 31, 2003. The Bank also agreed to eliminate
         certain financial covenants and to ease others, and we were in
         compliance with the revised covenants.

         On January 2, 2003, we issued a warrant to an affiliate of the Bank to
         purchase up to 1.5 million shares of our common stock for $0.01 per
         share. The warrant was exercisable for shares equal to 1% of our
         outstanding common stock on January 2, 2003, and would become
         exercisable for shares equal to an additional 0.5% of outstanding
         common stock on the first day of each month thereafter, until it was
         exercisable for the full 4.99% of the outstanding common stock. The
         warrant would not become exercisable to the extent that the Company
         discharged in full the Bank indebtedness prior to a vesting date.

         On March 31, 2003, we entered into a Discounted Loan Payoff Agreement
         with the Bank. Under this agreement, we paid the Bank $2.8 million from
         the sale of 9% convertible debentures to certain investors (see Note
         10). We also issued to the Bank 1 million shares of our common stock,
         valued at $788,000, and a $500,000 one-year unsecured, non-interest
         bearing convertible note payable in either cash or stock, at our
         option. The cash payment, shares and convertible note were accepted by
         the Bank in full satisfaction of our debt to the Bank. The Bank also
         canceled the warrant to purchase 1.5 million shares of our common stock
         and returned all collateral held, including 10.7 million shares of our
         common stock pledged as security. The 10.7 million shares were canceled
         and retired in May 2003. In March 2003, the Board decided that the
         $500,000 convertible note will be converted solely for equity and will
         not be repaid in cash. However, as the conversion price cannot be
         determined at the date of this report; therefore, this convertible note
         has been reported as current liability as it becomes payable on March
         31, 2004. In connection with the settlement of the debt to the Bank, we
         reported as extra-ordinary gain of $1.5 million.

                                       F-19


<PAGE>

         SUBORDINATED TERM LOAN DUE TO STOCKHOLDER

         During the second quarter of fiscal 2001, Softline loaned us $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. We 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.

         We 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 and was paid off in fiscal 2003. These costs were to be amortized
         over the initial 13-month life of the loan.

         Effective January 1, 2002, we entered into an integrated series of
         transactions with Softline where Softline agreed to release our
         obligations relating to this loan. For further discussion of the
         transactions with Softline (see Notes 4 and 13).

         During the fiscal year ended March 31, 2001, we 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, 2003, 2002 and 2001 of $0, $1.3
         million and $1.0 million, respectively. Interest expense for the fiscal
         years ended March 31, 2003, 2002 and 2001 also included interest due to
         other stockholders in the amount of $128,000, $56,000 and $130,000
         respectively.

10.      CONVERTIBLE DEBT

         CONVERTIBLE NOTE DUE TO STOCKHOLDERS

         In May and June 2001, we 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 our
         common stock for each $1,000 borrowed by us. 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 interest rate increased to 17% per annum on August 30, 2001 as a
         result of the non-payment on the maturity date.

         In accordance with generally accepted accounting principles, the
         difference between the conversion price of $1.35 and our stock price on
         the date of issuance of the notes was considered to be interest
         expense. It was recognized in the statement of operations during the
         period from the issuance of the debt to the time at which the debt
         first became convertible. We 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 our common
         stock at an exercise price of $1.50. The warrants were to expire three
         years from the date of issuance. We allocated 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
         was included in interest expense in the accompanying statement of
         operations for the year ended March 31, 2002.


                                       F-20


<PAGE>

         In July 2002, we 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.
         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 $16,000, and to accept the reduced
         amount in 527,286 shares of our common stock valued at $0.41 per share,
         which was 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 our common
         stock valued at $0.60 per share. We do not have the right to prepay the
         notes. In December 2002, the investors agreed to extend the payments of
         accrued interest to September 30, 2003.

         We 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.

         We 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. The registration statement was filed on May 12,
         2003. In the event such registration statement is not declared
         effective by the SEC by June 30, 2003, 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. For
         the first and second 30 day periods after June 30, 2003 in which the
         registration statement is not effective, we will be obligated to issue
         additional warrants for the purchase of 5% of the total number of
         registrable securities at an exercise price of $0.60 per share. For
         each 30 day period thereafter in which the registration statement is
         not effective, we will be obligated to issue additional penalty
         warrants for the purchase of 2.5% of total number of registrable
         securities at an exercise price of $0.60 per share. No further penalty
         warrants will accrue from the original registration obligation to these
         investors (see Note 13).

         As of March 31, 2003 and 2002, the balance of these convertible notes
         was $1.3 million and $1.4 million, respectively, which included accrued
         interest of $70,000 and $171,000, respectively. Interest expense
         related to these convertible notes was $115,000 and $609,000 in the
         fiscal years ended March 31, 2003 and 2002, respectively.

         CONVERTIBLE DEBENTURES

         On March 31, 2003, we entered into a Securities Purchase Agreement for
         the sale to a group of investors convertible debentures, convertible
         into shares of our common stock at a conversion price of $1.02 per
         share, for the total proceeds of $3.5 million. $2.8 million of the
         proceeds were used to pay our debt to the Bank (see Note 9). The
         debentures mature in May 2005 and bear an interest rate of 9% per
         annum. Interest are payable on a quarterly basis beginning June 1,
         2003, at our option, in cash or shares of common stock. If certain
         conditions are met, we have the right, but not the obligation, to
         redeem the debentures at 110% of their face value, plus accrued
         interest. Commencing in February 2004, we must redeem $219,000 per
         month of the debenture. Furthermore, if the daily volume weighted
         average price of our common stock on the American Stock Exchange
         exceeds $1.02 by more than 200% for 15 consecutive trading days, we
         will have the option to cause the investors to convert their debentures
         into common stock.

         In accordance with generally accepted accounting principles, the
         difference between the conversion price of $1.02 and our stock price on
         the date of issuance of the notes was considered to be interest
         expense. It was recognized in the statement of operations during the
         period from the issuance of the debt to the time at which the debt
         first became convertible. We recognized interest expense of $715,000
         against the extra-ordinary gain of debt forgiveness, related to the
         payoff of our debt to the Bank, in the accompanying statement of
         operations for the fiscal year ended March 31, 2003.

                                       F-21


<PAGE>

         The investors also each received a warrant to purchase up to, in the
         aggregate, 1,572,858 shares of common stock with an exercise price
         equal to $1.02 per share. The warrants are to expire five years from
         the date of issuance. We allocated 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 $625,000 and will be
         amortized as interest expense over the life of the convertible
         debentures.

         As of March 31, 2003, the balance of these convertible debentures was
         as follows (in thousands):

                  Convertible debentures                      $       3,500,000
                  Less:  unamortized debt discount                      625,000
                                                              ------------------
                                                                      2,875,000
                  Current portion                                       149,000
                                                              ------------------
                  Long-term portion                           $       2,726,000
                                                              ==================

11.      COMMITTED STOCK

         In May 2002, Toys "R" Us, Inc. ("Toys"), our major customer, 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 either convertible into shares of common stock valued at
         $0.553 per share or payable in cash at our option, at the end of the
         term. 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. We do not have the right to prepay the
         convertible note before the due date. 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 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. At March 31, 2003, we had received the full
         proceeds of $1.3 million and the face amount of the note is $774,000.

         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 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. At
         March 31, 2003, 1.4 million shares of the warrant are exercisable.

         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. We also granted Toys certain
         registration rights for the shares of common stock into which the note
         is convertible and the warrant is exercisable.

         In November 2002, the Board decided that this note will converted
         solely for equity and will not be repaid in cash. The note therefore
         has been classified as equity at March 31, 2003.

         In accordance with generally accepted accounting principles, the
         difference between the conversion price of the note of $0.553 and our
         stock price on the date of issuance of the note was considered to be
         interest expense. For the year ended March 31, 2003, we recorded a
         charge of $151,000 representing a proportion of the total debt
         discount.

                                       F-22


<PAGE>

         We have also allocated 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. For the year ended March
         31, 2003, we recognized $20,000 as interest expense. The remaining
         value of the detachable warrants of $574,000 has been recorded as an
         offering cost and as such, there is no effect on our consolidated
         statement of operations.

12.      COMMITMENTS AND CONTINGENCIES

         OPERATING LEASES - We lease 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:
              2004                                               $         736
              2005                                                         708
              2006                                                         195
              2007                                                           7
                                                                 --------------
                                                                 $       1,646
                                                                 ==============

         Rent expense was $891,000, $1.2 million and $1.5 million for the fiscal
         years ended March 31, 2003, 2002 and 2001, respectively.

         EMPLOYEE BENEFIT PLAN - Effective January 1, 1999, we 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. Up until July 1, 2000, we
         matched 50% of the employee's contributions, up to 3% of the employee's
         total compensation and made 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 us.
         Effective, July 1, 2000, we amended the 401(k) Plan to for the
         following items: (a) our 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 $12,000 or 18% of their
         total compensation, whichever is lower. Effective January 1, 2002, we
         ceased matching contributions. We made matching contributions to the
         401(k) Plan of approximately $125,000 and $359,000 in the fiscal years
         ended March 31, 2002 and 2001, respectively.

         LITIGATION -In April of 2002, our 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. Mr. Dorosewicz's demand was later
         increased to $283,894. 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. On
         July 31, 2002, Mr. Dorosewicz filed cross-complaints in that action
         alleging breach of statutory duty, breach of contract, fraud and other
         causes of action related to his employment with us and other
         transactions he entered into with us. These matters are still pending
         and the parties have agreed to resolve all claims in binding
         arbitrations, scheduled for September 2003. We cannot at this time
         predict what will be the outcome of these matters.

         On May 15, 2002, an employee who is currently out on
         disability/worker's compensation leave filed a claim with the
         California Labor Commissioner seeking $41,000 in alleged unpaid
         commissions. In or about December of 2002, the employee filed a
         discrimination claim against us with the Department of Fair Employment
         and Housing, alleging harassment and sexual orientation discrimination.
         We have responded appropriately to both the wage claim and the
         discrimination allegations, which we believe lack merit based on
         present information.

                                       F-23


<PAGE>

         On August 30, 2002, Cord Camera Centers, Inc., an Ohio corporation
         ("Cord Camera"), filed a lawsuit against one of our subsidiaries, SVI
         Retail, Inc. ("SVI Retail") as the successor to Island Pacific Systems
         Corporation, in the United States District Court for the Southern
         District of Ohio, Eastern Division, Case No. C2 02 859. The lawsuit
         claims damages in excess of $1.5 million, plus punitive damages of
         $250,000, against SVI Retail for alleged fraud, negligent
         misrepresentation, breach of express warranties and breach of contract.
         These claims pertain to the following agreements between Cord Camera
         and Island Pacific: (i) a License Agreement, dated December 1999, as
         amended, for the use of certain software products, (ii) a Services
         Agreement for consulting, training and product support for the software
         products and (iii) a POS Software Support Agreement for the maintenance
         and support services for a certain software product. At this time, we
         cannot predict the merits of this case because it is in its preliminary
         state and discovery has not yet commenced. However, SVI Retail intends
         to defend vigorously the action and possibly file one or more
         counter-claims. The U.S. District Court of Ohio has proper jurisdiction
         over us, and a trial is scheduled for May 2004.

         In mid-2002, we were the subject of an adverse judgment entered against
         it in favor of Randall's Family Golf Centers, ("Randall") in the
         approximate sum of $61,000. The judgment was entered as a default
         judgment, and is based on allegations that we received a preferential
         transfer of funds within 90 days of the filing by Randall of a chapter
         11 case in the United States Bankruptcy Court for the Southern District
         of New York. We and Randall agreed to settle this claim for $12,500
         subject to the settlement receiving approval by the U.S. Bankruptcy
         Court.

         On December 16, 2002, Chapter 11 Debtors Natural Wonders, Inc. and
         World of Science, Inc. (collectively "Debtors") filed an adversary
         proceeding against our subsidiary SVI Retail, Inc. seeking to avoid and
         recover preferential transfers. The Debtors sought recovery of
         approximately $84,000, which it had previously paid to SVI Retail for
         goods and services rendered. On March 12, 2003, the Debtors and SVI
         Retail settled the adversary proceeding for $18,000.

         On November 22, 2002, UDC Homes, Inc and UDC Corporation now known as
         Shea Homes, Inc. served Sabica Ventures, Inc. ("Sabica"), our
         wholly-owned subsidiary, and Island Pacific, Inc., an operating
         division of SVI Solutions, Inc., ("Island Pacific") with a
         cross-complaint for indemnity on behalf of an entity identified in the
         summons as Pacific Cabinets. Sabica and Island Pacific filed a notice
         of motion and motion to quash service of summons on the grounds that
         neither Sabica nor Island Pacific has ever done business as Pacific
         Cabinets and has no other known relation to the construction project
         that is the subject of the cross-complaint and underlying complaint. A
         hearing on Sabica's and Island Pacific's motion to quash occurred on
         May 22, 2003 and was subsequently denied.

         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.

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

         PRIVATE PLACEMENTS - In March 2000, we received $2.9 million from the
         sale of common stock to an investor. We 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, we
         issued 375,043 shares in satisfaction of the repricing right.

         In October 2000, the SEC declared effective the registration statement.
         We 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, we issued the investor a two-year
         warrant to purchase up to 107,000 shares of common stock at $1.50 per
         share. This warrant had expired and was canceled at March 31, 2003.

                                       F-24


<PAGE>

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

         In December 2000, we 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. We 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. We agreed to register the common shares
         purchased and the common shares issuable upon the exercise of warrants
         with the Securities and Exchange Commission. We filed a registration
         statement in January 2001 to register these shares, but it did not
         become effective. We issued 1,249,997 penalty warrants with a strike
         price of $0.85 per share, with a fair value of $740,000, as required
         under an agreement with the investors. We were 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.

         In July 2002, we and the investors agreed to revise the terms of the
         foregoing warrants and to cease accruing penalty warrants from the
         original obligation. We 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.

         We 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. The registration statement was filed on May 12,
         2003. In the event such registration statement is not declared
         effective by the SEC by June 30, 2003, 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. For
         the first and second 30 day periods after June 30, 2003 in which the
         registration statement is not effective, we will be obligated to issue
         additional warrants for the purchase of 5% of the total number of
         registrable securities at an exercise price of $0.60 per share. For
         each 30 day period thereafter in which the registration statement is
         not effective, we will be obligated to issue additional penalty
         warrants for the purchase of 2.5% of total number of registrable
         securities at an exercise price of $0.60 per share. No further penalty
         warrants will accrue from the original registration obligation to these
         investors (see Note 10).

         PREFERRED STOCK - The Series A Preferred has a stated value of $100 per
         share and is redeemed 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. At March 31, 2003 and 2002,
         dividends in arrears amount to $1.3 million or $9.00 per share and
         $254,000 or $1.80 per share, respectively. The holders may convert each
         share of Series A Preferred at any time into the number of shares of
         our 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. We have 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-25


<PAGE>

         COMMON STOCK - During fiscal year ended March 31, 2003, we issued the
         following:

                  o        an aggregate of 91,666 shares of common stock
                           totaling $36,000 to consultants for services rendered
                           in the prior periods.

                  o        an aggregate of 96,666 shares of common stock
                           totaling $26,000 to consultants for services rendered
                           in the current year.

                  o        an aggregate of 120,000 shares of common stock
                           totaling $60,000 to our attorney for legal services
                           rendered in prior periods.

                  o        15,000 shares of common stock, with fair value of
                           $7,000 to an attorney for legal services provided in
                           the current year.

                  o        140,000 shares of common stock in satisfaction of the
                           liquidated damages relating to late registration of
                           the shares sold to AMRO International, S.A. in March
                           2001.

                  o        In conjunction with the recapitalization transactions
                           with Softline Limited, we issued in May 2002 an
                           aggregate of 141,000 shares of newly-designated
                           Series A Preferred Stock at a deemed purchase price
                           of $100 per share in exchange for 10,700,000 of our
                           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
                           transactions had an effective date of January 1, 2002
                           (see Note 4).

                           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 in
                           priority and preference to dividends declared on our
                           common shares. Softline may convert each share of
                           Series A Preferred Stock at any time into the number
                           of common shares determined by dividing the 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.

                  o        an aggregate of 527,286 shares of common stock
                           totaling $217,000 to stockholders as payment of
                           accrued interest on the convertible notes due to
                           stockholders.

                                       F-26


<PAGE>

                  o        an aggregate of 595,200 shares of common stock
                           totaling $390,000 to Softline Limited, our majority
                           stockholder, as payments for past due loan
                           refinancing fees and payables.

                  o        1,010,000 shares of common stock to a stockholder as
                           repayment of a loan with the outstanding balance of
                           $388,000. This loan was acquired in connection with
                           the acquisition of Island Pacific.

                  o        100,000 shares of common stock to an employee as
                           bonus payment of $25,000 earned in the current year.

                  o        1,000,000 shares of common stock with the fair market
                           value of $787,000, to Union Bank of California as
                           partial payment of loan payoff (see Note 9).

         We also received 367,000 shares of our common stock returning from a
         consultant as a result of early termination of investor relations
         service contracts. These shares were recorded as share receivable
         component of stockholders' equity at March 31, 2002. These shares were
         canceled and retired at March 31, 2003.

         TREASURY STOCK - In November 1998, the Board of Directors authorized us
         to purchase up to 1,000,000 shares of our common stock. As of March 31,
         2001, we had repurchased 444,641 shares of our common stock at a cost
         of $4.3 million. The purchased shares were canceled as of March 31,
         2002.

         We received 10,700,000 shares of our common stock valued at $8.6
         million from Softline in connection with the transactions between us
         and Softline described in Notes 5, 10 and 13. Up until March 31, 2003,
         these shares were pledged to the Bank as collateral for the term loans
         (see Note 10). Subsequent to March 31, 2003, the 10.7 million treasury
         shares were canceled and retired.

         STOCK OPTION PLAN - We adopted an incentive stock option plan during
         fiscal year 1990 (the "1989 Plan"). Options under this plan may be
         granted to our employees and officers. 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, the
         shareholders approved certain amendments. 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. On
         September 19, 2002, the shareholders approved to increase the number of
         shares authorized in the 1998 Plan by 1,000,000 shares and to increase
         the number of stock awards that may be granted to any one participant
         in any calendar year under the 1998 Plan from 500,000 shares to
         1,000,000 shares.

                                       F-27

<PAGE>

         The following summarizes our stock option transactions under the stock
         option plans:
<TABLE>
<CAPTION>
                                                                                                WEIGHTED
                                                                                                 AVERAGE
                                                                                                EXERCISE
                                                                                                PRICE PER
                                                                                OPTIONS           SHARE
                                                                           --------------    --------------
<S>                                                                           <C>            <C>
              Options outstanding, April 1, 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
                  Exercised                                                     (150,000)    $        0.50
                  Granted                                                      1,718,000     $        0.51
                  Expired/canceled                                            (1,224,483)    $        1.91
                                                                           --------------

              Options outstanding March 31, 2003                               4,829,406     $        1.56
                                                                           ==============

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

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

              Exercisable, March 31, 2003                                      3,096,559     $        1.84
                                                                           ==============

         In addition to options issued pursuant to the stock option plans
         described above, we issued additional options outside the plans to
         employees, consultants, and third parties. The following summarizes our
         other stock option transactions:

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

              Options outstanding, April 1, 2000                               2,156,512     $        2.02
                  Exercised                                                     (289,700)    $        1.82
                  Granted                                                        300,000     $        0.95
                  Granted                                                       (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
                  Granted                                                      4,132,500     $        0.32
                  Expired/Canceled                                              (125,000)    $        4.60
                                                                           --------------
              Options outstanding, March 31, 2003                              5,054,312     $        0.69
                                                                           ==============

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

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

              Exercisable, March 31, 2003                                      5,054,312     $        0.69
                                                                           ==============
</TABLE>

                                      F-28


<PAGE>

         During the fiscal years ended March 31, 2003, 2002 and 2001, we
         recognized compensation expense of $8,000, $0 and $28,000,
         respectively, for stock options granted to non-employees for services
         provided to us.

         The following table summarizes information as of March 31, 2003
         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>
         $0.28 -   0.30            4,835,000            3.64         $        0.28          4,500,000      $        0.28
         $0.30 -   1.00            2,157,819            7.68         $        0.79          1,420,202      $        0.79
         $1.01 -   3.00            2,150,454            6.38         $        1.62          1,527,984      $        1.72
         $3.01 -   7.00              438,175            4.36         $        4.74            433,175      $        4.72
         $7.01 - 11.75               302,270            3.80         $        7.87            269,510      $        7.88
                             ------------------------------------------------------     ----------------------------------

                                   9,883,718            5.04         $        0.87          8,150,871      $        0.87
                             ======================================================     ==================================
</TABLE>

         We have 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, 2003, 2002 and 2001, 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,
                                                               2003           2002           2001
                                                            -----------    -----------    -----------
<S>                                                          <C>            <C>            <C>
              Net loss:
                  As reported                                $  (2,718)     $ (14,658)     $ (28,954)
                  Pro forma                                  $  (4,431)     $ (15,963)     $ (29,408)
              Basic and diluted loss per share:
                  As reported                                $   (0.09)     $   (0.41)     $   (0.83)
                  Pro forma                                  $   (0.15)     $   (0.45)     $   (0.85)

              Weighted average assumptions:
                  Dividend yield                                  None           None           None
                  Volatility                                      117%            77%           140%
                  Risk free interest rate                        2.25%           3.9%           5.8%
                  Expected life of options                     4 years        4 years       10 years
</TABLE>

         For options granted during the year ended March 31, 2003 where the
         exercise price was equal to the stock price at the date of grant, the
         weighted average fair value of such options was $0.39, and the
         weighted-average exercise price of such options was $0.51. No options
         granted during the year ended March 31, 2003 where the exercise price
         was greater than or less than the stock price at the date of grant.

         WARRANTS - At March 31, 2003 and 2002, we had outstanding warrants to
         purchase 6,018,527 and 4,040,168 shares of common stock, respectively,
         at exercise prices ranging from $0.55 to $7.28 per share. The lives of
         the warrants range from two to seven years from the grant date. During
         the fiscal year ended March 31, 2003 and 2002, we recognized
         compensation expense of $43,000 and $579,000, respectively, for
         warrants granted to non-employees for services provided to us.

                                      F-29


<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,
                                                               2003                2002                2001
                                                          ---------------    ----------------    ---------------
<S>                                                       <C>                <C>                 <C>
              Current:
                  Federal                                 $           --     $            39     $       (1,261)
                  State                                            4,000                  --                 45
                  Foreign                                             --                  --                 --
                                                          ---------------    ----------------    ---------------
              Total                                                4,000                  39             (1,216)
                                                          ---------------    ----------------    ---------------

              Deferred:
                  Federal                                             --                  --             (3,523)
                  State                                               --                  --               (774)
                  Foreign                                             --                  --                (99)
                                                          ---------------    ----------------    ---------------
              Total                                                   --                  --             (4,396)
                                                          ---------------    ----------------    ---------------

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

         Significant components of our deferred tax assets and liabilities at
         March 31, 2003 and 2002 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                       MARCH 31,
                                                                           --------------------------------
                                                                                 2003             2002
                                                                           --------------    --------------
<S>                                                                        <C>               <C>
              Current deferred tax assets/(liabilities):
                  State taxes                                              $         300     $          --
                  Accrued expenses                                                   913             1,107
                  Related party interest                                              --               852
                  Prepaid services                                                    92               284
                  Deferred revenue                                                   669                --
                  Warrants for services                                              298               344
                  Allowance for bad debts                                            159               191
                                                                           --------------    --------------

              Net current deferred tax assets                                      2,431             2,778
                                                                           --------------    --------------

              Non-current deferred tax assets/(liabilities):
                  Research and expenditure credits                                 2,005                --
                  Net operating loss                                               7,571            11,040
                  Fixed assets                                                       117                --
                  Other credits                                                       --                --
                  Deferred rent                                                       35                82
                  State taxes                                                       (575)               --

                  Accrued expenses                                                    --                84
                                                                           --------------    --------------

              Total non-current deferred tax assets                                9,153            11,206

              Intangible assets                                                   (6,415)           (9,908)
              Accumulated capitalized research and development costs                  --              (749)
              Other                                                                   --               (17)
                                                                           --------------    --------------

              Total non-current deferred tax liability                            (6,415)          (10,674)
                                                                           --------------    --------------

              Net non-current deferred tax asset/(liability)                       5,169             3,310
                                                                           --------------    --------------

              Valuation allowance                                                 (5,169)           (3,310)
                                                                           --------------    --------------

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

                                                          F-30


<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, 2003, 2002 and 2001 is
         attributable to the following:

<TABLE>
<CAPTION>
                                                               YEAR                YEAR                YEAR
                                                               ENDED               ENDED               ENDED
                                                             MARCH 31,           MARCH 31,           MARCH 31,
                                                               2003                2002                2001
                                                          ---------------    ----------------    ---------------
<S>                                                               <C>                <C>                 <C>
         Provision (benefit) computed at statutory rate           (34.0)%            (34.0)%             (34.0)%
         Nondeductible goodwill                                     7.9                5.1                 4.8
         Change in valuation allowance                             73.9               20.4                 9.1
         Foreign income taxed at different rates                   (0.3)               9.7                 5.0
         Tax credits                                              (24.2)              (2.9)                 --
         State income tax, net of federal tax benefit              (2.5)              (0.7)               (1.4)
         Other                                                    (20.8)               2.4                 0.3
                                                          ---------------    ----------------    ----------------

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

         At March 31, 2003 and 2002, we had Federal and California tax net
         operating loss carryforwards of approximately $19.6 million and $10.1
         million, respectively. The Federal and California tax net operating
         loss carryforwards will begin expiring after 2008.

         We also have Federal and California research and development tax credit
         carryforwards of approximately $1.2 million 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, 2003,
         2002 and 2001, are as follows (in thousands, except share amounts and
         per share data):

<TABLE>
<CAPTION>
                                                                                    FISCAL YEAR ENDED MARCH 31, 2003
                                                                         -------------------------------------------------------
                                                                              LOSS               SHARES             PER SHARE
                                                                           (NUMERATOR)        (DENOMINATOR)           AMOUNT
                                                                         --------------      ---------------     ---------------
<S>                                                                      <C>                     <C>             <C>
              Basic and diluted EPS:
                  Loss available to common stockholders                  $       (2,718)         29,598,518      $        (0.09)
                                                                         ===============     ===============     ===============

                                                                                     FISCAL YEAR ENDED MARCH 31, 2002
                                                                         -------------------------------------------------------
                                                                             INCOME              SHARES             PER SHARE
                                                                           (NUMERATOR)        (DENOMINATOR)           AMOUNT
                                                                         --------------      ---------------     ---------------
              Basic and diluted EPS:
                  Loss available to common stockholders                  $      (14,658)         35,697,999      $        (0.47)
                                                                         ===============     ===============     ===============

                                                                                     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)
                                                                         ===============     ===============     ===============
</TABLE>

                                                              F-31


<PAGE>

         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:
<TABLE>
<CAPTION>
                                                                                    FOR THE YEARS ENDED MARCH 31,
                                                                                2003             2002              2001
                                                                                ----             ----              ----
<S>                                                                         <C>               <C>                <C>
                  Options outstanding under our stock option plans           4,829,406         4,485,889         3,961,034
                  Options granted outside our stock option plans             5,054,312         1,046,812         1,366,812
                  Warrants issued in conjunction with private placements     1,625,000         2,944,499         1,602,590
                  Warrants issued for services rendered                        320,669         1,095,669            12,336
                  Warrants issued in conjunction with convertible note
                         due to major customer                               2,500,000                --                --
                  Warrants issued in conjunction with convertible
                         debentures                                          1,572,858                --                --
                  Convertible notes due to stockholders                      2,200,338         1,037,037                --
                  Series A Convertible Preferred Stock                      18,561,594        17,625,000                --
                  Convertible debentures                                     3,419,304                --                --
                  Committed Stock                                            2,976,190                --                --
                                                                        ---------------    --------------    --------------
                               Total                                        43,059,671        28,234,906         6,942,772
                                                                        ===============    ==============    ==============
</TABLE>

16.      RELATED PARTIES

         Included in other receivables at March 31, 2003 and 2002 are amounts
         due from our officers and employees in the amount of $3,000 and
         $31,000, respectively.

         We began occupying our current principal executive offices in July
         2001. At that time, the premises were owned by an affiliate of our
         Chief Executive Officer at that time. 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, we are negotiating the terms of a written lease with the new
         owner.

         In November 2000, we 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, we borrowed $400,000
         from Barry M. Schechter, our Chairman. We 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, $0 and
         $7,000 for the fiscal year ended March 31, 2003, 2002 and 2001,
         respectively. The loans were paid in full in June 2001.

         Included in loans due to stockholders totaling $1.3 million and
         $618,000 as of March 31, 2003 and 2002, respectively, was $0 and
         $122,000, 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. These loans were repaid in full
         at March 31, 2003. Interest was calculated monthly at the current prime
         rate with no stated maturity date. Interest expense under these loans
         for the years ended March 31, 2003, 2002 and 2000 was $12,000, $26,000
         and $74,000, respectively.

         We retains an entity affiliated with a director of the board to provide
         financial advisory services. During the years ended March 31, 2003,
         2002 and 2001, the expenses for these services were $47,000, $42,000
         and $112,000, respectively. We also incurred $0, $19,000 and $25,000 in
         expenses to the same director for accounting services during the fiscal
         years ended March 31, 2003, 2002 and 2001, respectively. We borrowed
         $50,000, $125,000, $70,000 and $50,000 from another entity affiliated
         with this director in May 2001, December 2001, May 2002 and September
         2002, respectively, 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.

                                      F-32


<PAGE>

17.      BUSINESS SEGMENTS AND GEOGRAPHIC DATA

         We are a leading provider of software solutions and services to the
         retail industry. We provide high value innovative solutions that help
         retailers understand, create, manage and fulfill consumer demand. Up
         until April 1, 2003, we also developed and distributed PC courseware
         and skills assessment products for both desktop and retail
         applications. Our solutions and services have been developed
         specifically to meet the needs of the retail industry. Our solutions
         help retailers improve the efficiency and effectiveness of their
         operations and build stronger, longer lasting relationships with their
         customers.

         Up to March 31, 2002, we considered our business to consist of one
         reportable operating segment. Effective April 1, 2002, we reorganized
         our operations into three business units that have separate management
         teams and reporting infrastructures. Each unit is evaluated primarily
         based on total revenues and operating income excluding depreciation and
         amortization. Identifiable assets are also managed by business units.
         The units are as follows:

                  o        ISLAND PACIFIC - offers suite of applications, which
                           builds on our long history in retail software design
                           and development. Island Pacific provides our
                           customers with an extremely reliable, widely
                           deployed, comprehensive and fully integrated retail
                           management solutions. Island Pacific Retail
                           Management solution includes merchandise management
                           that optimizes workflow and provides the highest
                           level of data integrity. This module supports all
                           operational areas of the supply chain including
                           planning, open-to-buy purchase order management,
                           forecasting, warehouse and store receiving
                           distribution, transfers, price management,
                           performance analysis and physical inventory. In
                           addition, Island Pacific Retail Management includes a
                           comprehensive set of tools for analysis and planning,
                           replenishment and forecasting, event and promotion
                           management, warehouse, ticketing, financials and
                           sales audit. Through collaborations with strategic
                           partners, Island Pacific Retail Management offers
                           tools for loss prevention, communication with stores
                           and vendors, integration needs, purchase and
                           allocation decisions, analysis of weather impact,
                           control and management of business processes,
                           consumer research, tracking consumer shopping
                           patterns, forecasting and replenishment, and
                           analyzing store people productivity.

                  o        SVI STORE SOLUTIONS ("Store Solutions") - offers
                           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," and "one Pointe International"
                           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.

                  o        SVI TRAINING PRODUCTS, INC. ("Training Products") -
                           developed and distributed PC Courseware and skills
                           assessment products for both desktop and retail
                           applications. This unit was sold and discontinued
                           effective April 1, 2003.

                                       F-33


<PAGE>

         A summary of the revenues and operating income (loss), excluding
         depreciation and amortization, attributable to each of these business
         units and identifiable assets is as follows (in thousands):
<TABLE>
<CAPTION>
                                                                              Fiscal 2003
<S>                                                                         <C>
                     Net sales:
                               Island Pacific                               $       20,390
                               Store Solutions                                       1,906
                               Training Products                                     1,517
                                                                            ---------------
                                        Consolidated net sales              $       23,813
                                                                            ===============

                     Operating income (loss):
                               Island Pacific                               $        3,129
                               Store Solutions                                         129
                               Training Products                                       287
                               Other (see below)                                    (5,974)
                                                                            ---------------
                                        Consolidated operating loss         $       (2,429)
                                                                            ===============

                     Depreciation:
                               Island Pacific                               $          192
                               Store Solutions                                          47
                               Other                                                    91
                                                                            ---------------
                                        Consolidated depreciation           $          330
                                                                            ===============

                     Other operating loss:
                               Amortization of intangible assets            $       (3,818)
                               Depreciation                                            (91)
                               Administrative costs and other
                                 non-allocated expenses                             (2,065)
                                                                            ---------------
                                        Consolidated other operating loss   $       (5,974)
                                                                            ===============

                     Identifiable assets:
                               Island Pacific                               $       31,953
                               Store Solutions                                       4,404
                               Training Products                                       381
                                                                            ---------------
                                        Consolidated identifiable assets    $       36,738
                                                                            ---------------
</TABLE>

         Operating income in Island Pacific, Store Solutions and Training
         Products includes direct expenses for software licenses, maintenance
         services, programming and consulting services, sales and marketing
         expenses, product development expenses, and direct general,
         administrative and depreciation expenses. The "Other" caption includes
         amortization of intangible assets, non-allocated costs and other
         expenses that are not directly identified with a particular business
         unit and which we do not consider in evaluating the operating income of
         the business unit.

         We currently operate 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). The following is a summary of local
         operations by geographic area (in thousands):

                                       F-34


<PAGE>

<TABLE>
<CAPTION>
                                                                         YEAR ENDED         YEAR ENDED       YEAR ENDED
                                                                          MARCH 31,          MARCH 31,        MARCH 31,
                                                                            2003               2002             2001
                                                                      ----------------   ----------------  ---------------
                                                                                          (in thousands)
<S>                                                                   <C>                <C>               <C>
                   Net Sales:
                           Continuing operations:
                            United States                             $        19,616    $        24,246   $       25,930
                            United Kingdom                                      2,680              2,469            2,119
                                                                      ----------------   ----------------  ---------------
                                                                               22,296             26,715           28,049
                                                                      ----------------   ----------------  ---------------
                           Dicontinued operations:
                            United States                                       1,370              1,390            1,300
                            Australia                                              --              2,363            4,959
                            United Kingdom                                        147                146              216
                                                                      ----------------   ----------------  ---------------
                                                                                1,517              3,899            6,475
                                                                      ----------------   ----------------  ---------------

                                     Total net sales                  $        23,813    $        30,614   $       34,524
                                                                      ================   ================  ================

                   Long-lived assets:
                            United States                             $        31,595    $        36,154   $       48,270
                            Australia (discontinued operations)                    --                 --            1,370
                            United Kingdom                                         27                 22               59
                                                                      ----------------   ----------------  ---------------
                                     Total long-lived assets          $        31,622    $        36,176   $       49,699
                                                                      ================   ================  ================
</TABLE>


18.      SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
         MARCH 31, 2003                               JUNE 30       SEPT. 30         DEC. 31        MAR. 31         TOTAL
         ------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>            <C>           <C>               <C>         <C>
         NET SALES                                   $  5,321       $  4,205      $    7,391        $ 6,896     $   23,813
         GROSS PROFIT                                   3,209          2,538           5,173          4,646         15,566
         NET INCOME (LOSS)                             (2,017)        (2,259)            384          1,174         (2,718)
         DILUTED INCOME (LOSS) PER SHARE             $  (0.07)      $  (0.08)     $     0.01        $  0.04     $    (0.09)

         MARCH 31, 2002                               JUNE 30       SEPT. 30         DEC. 31        MAR. 31         TOTAL
         ------------------------------------------------------------------------------------------------------------------

         NET SALES                                   $  7,509       $  7,966      $    5,971        $ 6,806     $   28,252
         GROSS PROFIT                                   3,914          4,666           3,619          4,874         17,073
         NET INCOME (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)
</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.

20.      SUBSEQUENT EVENTS

         In April 2003, we appointed Messrs. Harvey Braun and Steven Beck to the
         positions of Chief Executive Officer and Chief Operating Officer,
         respectively. Mr. Barry M. Schechter remains as Chairman of the Board.

         In April 2003, we entered into a Securities Purchase Agreement with an
         unrelated investor for the sale of a 9% debenture, convertible to
         shares of our common stock at a conversion price of $1.02, for the
         proceeds of $400,000. This debenture matures in October 2005 and was
         accompanied by a five-year warrant to purchase 156,311 shares of common
         stock with an exercise price of $1.02 per share. Interest is due on a
         quarterly basis, payable in cash or shares of common stock at our
         option.

         In May 6, 2003, we entered into an agreement with another unrelated
         group of investors for the sale of 9% debentures, convertible into
         shares of our common stock at a conversion price of $1.02, for the
         gross proceeds of $300,000. These debentures mature in October 2005 and
         are accompanied by five-year warrants to purchase an aggregate of
         101,112 shares of common stock with an exercise price of $1.0236 per
         share. Interest is due on a quarterly basis, payable in cash or shares
         of our common stock at our option.

                                       F-35