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================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

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

FOR THE FISCAL YEAR ENDED MARCH 31, 2001

[ ]      TRANSITION 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)

12707 HIGH BLUFF DRIVE, SUITE 335, SAN DIEGO, CA                92130
------------------------------------------------               --------
   (Address of principal executive offices)                    ZIP Code

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

Securities registered under Section 12(b) of the Act:

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

Securities registered under Section 12(g) of the Act:

Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X]   No  [ ]
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.____

The aggregate market value of the voting stock (Common Stock) held by
non-affiliates* as of June 29, 2001 was approximately $9.7 million, based on the
closing sale price on the American Stock Exchange on that date.

The number of shares outstanding of the registrant's Common Stock was 37,914,744
on June 29, 2001.

--------------------------------------------------------------------------------
* Excludes the Common Stock beneficially held by executive officers, directors
and stockholders whose beneficial ownership exceeds 10% of the Common Stock
outstanding at June 29, 2001.





<PAGE>

PART I

         THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS. THESE STATEMENTS
RELATE TO FUTURE EVENTS OR FUTURE FINANCIAL PERFORMANCE OF THE REGISTRANT, SVI
SOLUTIONS, INC. ("WE" OR "US"). IN SOME CASES, YOU CAN IDENTIFY FORWARD-LOOKING
STATEMENTS BY TERMINOLOGY SUCH AS THE WORDS MAY, WILL, SHOULD, EXPECT, PLAN,
ANTICIPATE, BELIEVE, ESTIMATE, PREDICT, POTENTIAL OR CONTINUE, OR THE NEGATIVES
OF SUCH WORDS OR OTHER COMPARABLE TERMINOLOGY. THESE STATEMENTS ARE ONLY
PREDICTIONS. ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. IMPORTANT FACTORS
THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING
STATEMENTS ARE DESCRIBED IN THE SECTION ENTITLED "RISK FACTORS" IN ITEM 1 IN
THIS REPORT, AND OTHER RISKS IDENTIFIED FROM TIME TO TIME IN OUR FILINGS WITH
THE SECURITIES AND EXCHANGE COMMISSION, PRESS RELEASES AND OTHER COMMUNICATIONS.

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

ITEM 1.  DESCRIPTION OF BUSINESS

INTRODUCTION

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

         Our offerings consist of the following components:

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

         o        Merchandise Management;
         o        The Eye(TM), data warehousing, planning and reporting tool;
         o        Financials;
         o        Warehouse;
         o        Sales Audit;
         o        Events;
         o        Ticketing; and
         o        Replenishment.


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

         o        Call Center;
         o        Customer Relationship Management (CRM);
         o        Planning and Forecasting; and
         o        Fulfillment.

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


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         operations. It can also incorporate a third-party provided retail
         customer relationship management system and a complete performance
         measurement system with loss prevention features. Its major features
         include:

         o        operation of a network consisting of the POS terminals and the
                  corporate headquarters;
         o        ability to function on and interconnect with a wide variety of
                  hardware and software platforms and generations; and
         o        user-defineable to the retailer's business practices.

         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, the United Kingdom and
Australia. We believe our knowledge of the complete needs of multi-channel
retailers enables us to help our customers identify the optimal systems for
their particular businesses. The customer relationships we develop build
recurring support, maintenance and professional service revenues and position us
to continuously recommend changes and upgrades to existing systems.

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

         Our executive offices are located at 12707 High Bluff Drive, Suite 335,
San Diego, California 92130, telephone number (877) 784-7978.


RECENT DEVELOPMENTS

         On April 1, 2000, we reorganized our U.S. and U.K. based, retail
operations under a single wholly owned-subsidiary, SVI Retail, Inc. This
reorganization combined the former Island Pacific and Applied Retail Solutions
subsidiaries. We have subsequently merged the Marketplace Systems Corporation
into SVI Retail, Inc. as well.

         During the fourth quarter of the fiscal year, we appointed a new
executive management team. This new team included Thomas A. Dorosewicz,
President and Chief Executive Officer, as of January 10, 2001, William E.
Farrant, Executive Vice President and General Manager, Retail Operations, as of
March 13, 2001, and Kevin M. O'Neill, Executive Vice President and Chief
Financial Officer, as of April 2, 2001. In addition, we appointed Graham Brown
as Managing Director of our Australian subsidiary.

         In March 2001, we completed our reincorporation as a Delaware
corporation and changed our name to SVI Solutions, Inc.

         In May 2001, we entered into a memorandum of understanding with Shmulik
Stein International Investments (SSII) and our majority stockholder, Softline
Limited, providing for a substantial reduction in our indebtedness to Softline
and the opportunity to discharge our indebtedness to our senior lender, Union
Bank of California, N.A. For further discussion of the terms of this memorandum
of understanding, see "Management's Discussion and Analysis of Financial
Condition and Results of Operation" under the heading "SSII-Softline Memorandum
of Understanding."

         In July 2001, we entered into a new agreement, effective June 29, 2001,
with Union Bank to extend the maturity date of our bank indebtedness to May 1,
2002, and to permit extension of that date to November 1, 2002 if we meet
various conditions and financial covenants. For a further discussion of the
terms of our bank loan, see "Management's Discussion and Analysis of Financial
Condition and Results of Operation" under the heading "Indebtedness--Union
Bank."

         In July 2001, we also entered into a new subordinated promissory note
with Softline extending the maturity date of our $11.4 million obligation to
Softline to November 1, 2002, which date will be extended to May 1, 2003 if our
bank loan is extended. For a further discussion of the terms of our subordinated
obligation to Softline, see "Management's Discussion and Analysis of Financial
Condition and Results of Operation" under the heading "Indebtedness--Softline."

                                       2

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         INDUSTRY OVERVIEW - RETAIL APPLICATION SOFTWARE

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

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

         The retail application-specific software industry has developed from
proprietary, customized, single platform systems to open architecture systems in
which a variety of hardware and software products from different manufacturers
can be combined to obtain the mix of features desired by the individual retail
enterprise. Correspondingly, application software suppliers can leverage their
investment in design, development and expertise across standard platforms and
multiple customers. When scalable technology is included in the offering, the
result is a growing market for retail applications that includes smaller as well
as larger retailers.

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

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

         o        PRESSURE ON PROFIT MARGINS. The wide availability of
                  competitive price quotes on the Internet and intense
                  competition from other retailers places price pressure on both
                  online retailers and brick and mortar retailers, forcing lower
                  profit margins. This pressure on margins has forced retailers
                  to drive cost out of their traditional "brick & mortar" stores
                  and now to focus on maximizing the cost structure across their
                  entire enterprise, including their supply chain process.

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

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

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

                                       3

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

         We believe these changes have accelerated the trend away from
internally developed and supported retail application software. The increasingly
competitive and technologically evolving environment has made it very difficult
for companies that use internal, proprietary or prior generation
supplier-provided software to keep up with the rapidly improving products that
are available from external suppliers. At the same time, these changes have put
pressure on outside suppliers such as us to continuously enhance our existing
technology and develop new technology on a more rapid timetable. We further
believe that as retailers move forward with the selection and implementation of
technology, they will increasingly require expert consulting, system
integration, and other technical and support services. Further, we see that
retailers are increasingly looking to external suppliers to provide these
services.

MISSION AND STRATEGY

         Our mission is to become the leading global provider of retail
application technology and related services. To fulfill our mission, our
strategy is to provide our current and new customers the tools, infrastructure
and expert services necessary for them to compete effectively in the global,
multi-channel marketplace. Key elements of our strategy include:

         o        LEVERAGING OUR RETAIL EXPERIENCE AND PRESENCE IN OUR CUSTOMER
                  BASE. Over 200 retailers in the US, Canada, Europe and
                  Australia use some or all of our solutions. Our management,
                  marketing, sales, development, professional services and
                  technical support teams have an in-depth understanding of the
                  retail industry through having delivered widely accepted
                  products and services for more than 25 years. We believe our
                  experience and presence in the retail industry give us a
                  significant competitive advantage in marketing new and
                  enhanced applications and services to the industry. Many of
                  our customers began using one or more of our offerings before
                  the original provider (Island Pacific, Applied Retail
                  Solutions, Marketplace Systems) was a part of the SVI Retail
                  group. Therefore, a number of our customers do not use our
                  complete suite of SVI Retail applications and services. We
                  intend to aggressively cross-sell our existing and new
                  applications and services to those customers who use only part
                  of our end-to-end solution suite. Our training products
                  subsidiary also plans to focus development and marketing
                  efforts on producing training products for our retail customer
                  base.

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

         o        EMPHASIZING MULTI-CHANNEL SOLUTIONS. An important part of our
                  application technology enhancement program is the integration
                  of Web-based, catalog and mail order solutions with our
                  historic suite of applications focused on the traditional
                  "brick and mortar" retail business. Our acquisition in 2000 of
                  Marketplace Systems provided us with the basis for our Direct
                  to Consumer application suite that offers order entry, order
                  processing, customer service, purchasing, inventory planning
                  and forecasting, fulfillment and shipping, as an expansion of
                  our SVI Retail Enterprise Solutions suite.

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

                                       4

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         o        INCREASING FOCUS ON THE SMALLER RETAILER. Many of our U.S.
                  store solutions customers are very large Tier 1 and Tier 2
                  multi-channel retailers. We recently introduced a new standard
                  store solution application set based on our large tier
                  retailer experience and application base. We can supply this
                  application with little or no modification to smaller Tier 2
                  and Tier 3 and Tier 4 retailers at a competitive price point.
                  We intend to market more aggressively to smaller retailers as
                  part of our strategy to expand our revenue base and market
                  penetration.

         o        INCREASING INTERNATIONAL SALES. We intend to increase our
                  international sales efforts, focusing on the European market.
                  Our development efforts with Toys "R" Us International has
                  added significant functionality to our SVI Retail Enterprise
                  Solutions suite, making us even more competitive
                  internationally.

         o        EXPANDING STRATEGIC ALLIANCES. We will continue to establish
                  strategic alliances with "best-of-breed" software and hardware
                  suppliers for products that complement our SVI Retail
                  Solutions. We currently maintain strategic relationships with
                  IBM, NCR, Fujitsu and Epson, among others. We intend to
                  continue to develop these relationships and to develop new
                  relationships with technology suppliers with a focus on Supply
                  Chain Solutions. We believe there is a significant opportunity
                  to provide Supply Chain Solutions to our current and new
                  retail customers and that our position, especially with
                  Enterprise Solution customers, and our retail-savvy
                  Professional Services infrastructure, provides us with a
                  unique opportunity to sell and implement these technologies in
                  our customer base.

         o        INCREASING OPERATIONAL EFFICIENCY. We built our application
                  technology and service solutions principally through
                  acquisitions of previously independent companies. We have
                  attempted to reduce duplicative efforts and increase
                  efficiencies of these operations, and we have taken steps
                  since January 2001 to reduce operating expenses and to fully
                  integrate these operations under a single management focus.


APPLICATION TECHNOLOGY AND SERVICES

         We have three operating subsidiaries: SVI Retail, Inc., SVI Retail
(Pty) Limited (Australia) and SVI Training Products, Inc.

SVI RETAIL, INC.

         OVERVIEW

         SVI Retail, Inc. is a leading provider of application software
solutions and professional services for multi-channel retailers in the
specialty, mass merchandising and department store markets. Our applications and
services provide retailers with a complete end-to-end business solution.

         Our SVI Retail applications and services include the following major
offerings:

         o        SVI RETAIL ENTERPRISE SOLUTION suite of applications,
                  including Merchandise Management, The Eye(TM) Data Warehouse
                  tool set, Financials, Warehouse, Sales Audit, Events,
                  Replenishment and Ticketing.

         o        SVI RETAIL DIRECT TO CONSUMER suite of applications, including
                  support for Web-based, mail-order and traditional catalog
                  retailing, which can be integrated with our Retail Enterprise
                  Solutions suite or implemented independently.

         o        SVI RETAIL STORE SOLUTION "ONEPOINTE" suite of applications,
                  including multi-platform point-of-sale, in-store processor and
                  wireless device applications.

         o        SVI RETAIL PROFESSIONAL SERVICE, including retail business
                  consulting, project management, implementation, application
                  training, and technical and documentation services.

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

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

                                       5

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

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

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

         MARKETS AND CUSTOMERS

         We currently have approximately 160 retailers worldwide using our SVI
Retail, Inc. application solutions. 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. Our international customers range in size but are typically
smaller than our U.S. customers.

         A sample of some of our active customers are listed below:

         Chico's FAS    Limited Stores        Musicland         Disney
         Officemax      Phillips-Van Heusen   Shoefayre (UK)    Pacific Sunwear
         Toys "R" Us    Nike                  Vodaphone (UK)    CenterParcs (UK)

         Sales to one customer, Toys "R" Us, comprised 29% of net sales for the
fiscal year ended March 31, 2001.

         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 Associates, 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.

         On a limited basis, we attend trade shows and advertise in industry
publications. We also 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 expanding our Technology Management and Marketing
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 to
product or service launch and deployment. It is the goal of these functions to
position SVI Retail optimally with customers and prospects in our target market.

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

                                       6

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         DESCRIPTION OF APPLICATIONS AND SERVICES

         We have carefully assembled our SVI Retail Application Technology such
that the modules work together as a single solution. Our customers can mix and
match the modules to create a solution tailored to their businesses. We classify
our applications into three broad categories, retail enterprise solutions,
direct to consumer solutions, and store solutions; although many of these
applications span more than one category. We also offer comprehensive
professional services, custom development, maintenance and support services.

         SVI RETAIL ENTERPRISE SOLUTION

         SVI Retail's Enterprise Solution application suite provides a
methodology for retail chains that integrates the flow of data from the planning
phase, through budgeting, to purchasing, allocation and distribution. The
application then takes retail sales data for evaluation and feedback to the
sales audit and planning phase. This suite of applications operates on the IBM
iSeries and AS/400 computing platforms, which are widely installed and extremely
popular in the retail industry. The diagram below provides a graphic
representation of the SVI Retail Enterprise Solutions applications suite,
including the integration of the optional Direct to Consumer and Store Solutions
applications.

[APPLICATION DIAGRAM]

             Warehouse              Financials         Catalog
                      \             /       \              |     Internet
                       \           /         \          /Direct /---- Mail
                        Merchandising         \        /              Order
        Events ------------- and -------------- Sales /
                           The Eye              Audit
                         /                          \
                  Ticketing                          POS


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

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

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

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

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

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

         SVI RETAIL ENTERPRISE SOLUTION SUITE also includes sales audit,
replenishment and merchandise ticketing modules.

                                       7

<PAGE>

         SVI RETAIL DIRECT TO CONSUMER SOLUTION

         We are aggressively developing and marketing multi-channel retailing
aspects of our solutions to provide retailers with the tools they need to
compete in the business to consumer marketplace. Our direct to consumer solution
include:

         INTEGRATED FULFILLMENT. Through our acquisition of MarketPlace Systems
in March 2000, we acquired a fulfillment application that we have further
enhanced and are marketing under the name Direct to Consumer Solution. This
application suite provides fully integrated tools including order entry, order
processing, customer service, purchasing, inventory planning and forecasting,
warehouse management, fulfillment and shipping, as well as marketing and
circulation management to support Internet, catalog and mail-order retailing. We
support these tools using our single version development philosophy, offering
constant evolution and improvement to features and functions. Used in
combination with our SVI Retail Enterprise Solution suite of applications, SVI
Retail Direct to Consumer provides a system to fully integrate the fulfillment
functions of multiple distribution channels, including local outlets, e-commerce
and catalog and mail order.

         SVI RETAIL STORE SOLUTION

         SVI RETAIL STORE SOLUTION (ONEPOINTE) is a full business-to-consumer
(B2C) integrated in-store application.

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

                  IN-STORE PROCESSOR APPLICATION (ISP). The ISP application
         provides a reliable, high-performance management platform to administer
         store applications. The architecture is designed to maintain data
         integrity while allowing full integration with our SVI Retail
         Enterprise Solution suite or third-party enterprise software products
         used by the individual customer.

         PROFESSIONAL SERVICES

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

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

<TABLE>
<CAPTION>
         Our RETAIL CONSULTANTS assist with:
<S>                                                                    <C>
         o        requirements definitions;                            o business process review;
         o        work process re-engineering;                         o understanding of business benefits; and
         o        organizational change management;                    o job definition and staffing requirements.

         PROJECT MANAGEMENT. Our experienced project management teams assist
with:

         o        work product definition;                             o coordination with suppliers;
         o        business and technical coordination;                 o project assessment documentation;
         o        application testing and conference room pilots;      o system integration; and
         o        overall implementation planning;                     o project timelines.
</TABLE>
                                       8

<PAGE>

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

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

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

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

SVI TRAINING PRODUCTS, INC.

         Our training products subsidiary develops and distributes PC courseware
and skills assessment products. The courseware is designed for use in
instructor-led and self-study training environments. We license courseware
either as individual manuals and instructor guides, or on a limited site license
basis. We have developed more than 200 training courses for desktop and retail
applications.

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

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

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

         Our training subsidiary is also a reseller of multimedia and hardcopy
self-study materials for desktop and technical computer software applications.

         We also market the "compAssess" computer skills testing program. The
compAssess product enables employers to evaluate the computer skills of their
employees and provides assistance in selecting the appropriate course modules
for trainees. We market this package to personnel agencies, universities,
schools and training companies.

         We entered into a strategic agreement with Electric Paper, a company
based in the United Kingdom, to develop a customized version of the compAssess
skills assessment product for the international market. We completed the second
version of the product in July 2000 and Electric Paper is marketing the product
under the name AutoTest through its distributors world-wide. AutoTest has been
approved as an electronic testing product for the ECDL and ICDL software
certification program in Europe, the United Kingdom, Canada and South Africa.

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

SVI RETAIL (PTY) LIMITED. (AUSTRALIA)

         Our Australian subsidiary develops markets and supports a unique suite
of applications for the retail marketplace in Australia and New Zealand.

                                       9

<PAGE>

          In addition to developing retail enterprise and POS applications for
their market, our Australian subsidiary also offers their customers complete
solutions including hardware, services and consulting. We have more than 220
customers in Australia using our solutions, and have a significant presence in
the Tier 2 and Tier 3 apparel market segment. We have solutions installed in
several of Australia's largest retailers including Woolworths and Coles Myer.

         Our Australian subsidiary operates from three locations: Sydney,
Melbourne and Adelaide. We have approximately 60 associates in our Australian
business.

         Our Australian subsidiary has a direct sales force that sells our
applications and services, and it resells products from other suppliers as part
of the total system integration offering. Our Australian subsidiary also works
closely with Strategic Partners, such as IBM, to market and sell the solutions.

         Like SVI Retail, Inc., our Australian subsidiary's strategic focus in
Australia and New Zealand is Multi-Channel Retailing. It provides solutions that
embrace CRM (Customer Relationship Management) and leverage the Internet with
our ePigeon solution.

         Our Australian subsidiary also offers both Enterprise and Store
Solutions that we develop, support and service. The Enterprise applications are:
MerVYN (inventory planning and allocation) dolFIN, (inventory control,
financials, sales analysis, polling), Rags (apparel manufacturing) and CRMS
(big-ticket merchandising) the Store applications are: dPOSit and ePigeon.
Services offered include: consulting, system integration, implementation, custom
development, business process planning and project management.

APPLICATION TECHNOLOGY DEVELOPMENT

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

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

         As of March 31, 2001, 42% of our associates were engaged in application
technology development. Most of these associates are located in our southern
California offices. Company-sponsored application technology development
expenses were $6.6 million, $6.7 million and $1.7 million, respectively, for the
fiscal years 2001, 2000 and 1999. In addition, customer-sponsored application
technology development expenses were $5.5 million, $1.5 million and $0.7
million, respectively, in fiscal years 2001, 2000 and 1999.

         Our current application development projects include:

         o        The development of version 2.0 of our SVI Retail Enterprise
                  Solution suite. This version will offer significant
                  enhancements to our current version 1.5, which is still being
                  deployed by many of our customers. Version 2.0 is expected to
                  be available later in calendar year 2002.
         o        The development of the SVI Retail Enterprise Solution
                  architecture using the Java programming language. A Java-based
                  application will be able to operate on virtually any hardware
                  platform, and will allow for greater centralization of the
                  control system environment. We have completed the
                  redevelopment of the Eye portion of SVI Retail Enterprise
                  Solution suite in Java. We are continuing to redevelop other
                  portions and modules of the solution in Java as new features
                  and enhancements are introduced.
         o        The continued improvement of our single version Store Solution
                  application, OnePointe. We introduced this offering in the
                  fourth quarter of fiscal 2000, and we are continuing to
                  enhance its features and functions.
         o        The development of a Replenishment application that is
                  currently in "beta" testing with customers.

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.

                                       10

<PAGE>

         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. For enterprise solutions, our competitors include Retek Inc., SAP
AG, and STS Systems (now part of NSB Retail Systems PLC). For store solutions,
our competitors include Datavantage, Inc., Applied Digital Solutions, Inc., and
CRS Retail Systems, Inc. Our Direct to Consumer applications compete with Smith
Gardner & Associates, Inc., and CommercialWare, Inc. Our professional services
offerings compete with the professional service groups of our competitors 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 in all
                           elements of the company, 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
                           its multi-channel retailing capabilities; and
                  o        Our customer centric corporate culture.

         Many of our current and potential competitors are more established,
benefit from greater name recognition, have significantly greater financial,
technical, production and/or marketing resources, and have larger distribution
networks, any or all of which advantages could give them a significant
competitive advantage over us.

         Our training products subsidiary competes with a large number of
companies offering similar products. The market for courseware and skills
assessment products is characterized by low barriers to entry. Many existing and
potential competitors have greater financial, technical, production and/or
marketing resources than we have. Our training subsidiary competes on the basis
of its existing breadth of products, timely introduction of new products and
value pricing. We believe that these factors give us an advantage over many of
our competitors. We further believe that larger competitors will find it
difficult to compete with us on the basis of price due to their higher
development costs and larger overhead structures.

PROPRIETARY RIGHTS

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

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

         We license and integrate technology from third parties in certain of
our applications. For example, we license IBM OS/400 for our Enterprise and
Direct to Consumer Solutions, Microsoft Windows for our store solution
applications, and Lansa Inc.'s LANSA for our Direct to Consumer application.
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.

                                       11

<PAGE>

         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.

ASSOCIATES

         At March 31, 2001, we had a total of 267 associates, 187 of which were
based in the United States and 80 of which were based in the United Kingdom and
Australia. Of the total, 15% were engaged in sales and marketing, 42% were
engaged in application technology development projects, 27% were engaged in
professional services, and 16% were in general and administrative. We believe
our relations with our associates are good. We have never had a work stoppage
and none of our employees are subject to a collective bargaining agreement.

RISK FACTORS

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

WE INCURRED LOSSES IN FISCAL YEARS 2001 AND 2000. OUR INDEPENDENT AUDITORS HAVE
RAISED SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.

         We incurred a loss of $28.9 million in the fiscal year ended March 31,
2001, and a loss of $4.1 million in the fiscal year ended March 31, 2000. The
loss in the fiscal year ended March 31, 2001 was due to impairments of assets,
change in sales mix toward lower margin services, depreciation and amortization
of intangible assets, debt service expenses and development expenses. The loss
in fiscal 2000 was due to insufficient increases in revenue to offset the
increases in general and administrative expenses such as depreciation,
amortization and interest expenses associated with our acquisition of Island
Pacific Systems Corporation. Due to these losses and our negative working
capital, our independent auditors have noted in their report on our financial
statements a substantial doubt about our ability to continue as a going concern.
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, 2001, we had negative working capital of $4.2 million.
During the last two quarters of fiscal 2001, we had difficulty meeting operating
expenses, including interest payments on debt, lease payments and supplier
obligations. We have extended payment terms with our trade creditors wherever
possible. Due to our negative working capital and losses from operations, our
independent auditors have noted in their report on our financial statement
substantial doubt about our ability to continue as a going concern.

         We were unable to make timely, monthly lease payments due for our
Irvine and San Diego facilities during the fourth quarter of fiscal 2001. We
renegotiated lease terms with the landlord of our Irvine facility in April 2001
and are currently in compliance with terms. We are in arrears in lease payments
for our San Diego facility. We are working to negotiate an assignment of this
lease with the landlord to a new tenant, and we plan to move to smaller
facilities in the greater San Diego area. If we are unable to successfully
complete these negotiations, we may be forced to vacate our San Diego facilities
earlier than planned. This would have an adverse affect on our business and
operations.

                                       12

<PAGE>

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

OUR NET SALES HAVE DECLINED. WE EXPERIENCED A SUBSTANTIAL DECREASE IN
APPLICATION SOFTWARE LICENSE SALES.

         Our net sales decreased by 10% in the fiscal year ended March 31, 2001
compared to the fiscal year ended March 31, 2000. This decrease in net sales
reflected a substantial decrease in new application software license sales,
which we believe was due principally to inadequate staffing of our sales force.
We have taken steps to strengthen our sales force, 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 was not due to other factors which
might continue to negatively affect sales.

OUR SALES CYCLES ARE LONG AND LENGTHENED IN FISCAL 2001. THIS MAKES IT DIFFICULT
FOR US TO PREDICT REVENUES AND BUDGET EXPENSES.

         The length of our sales cycles results in fluctuations in our operating
results, which could cause our stock price to decline. Our sales cycles vary
substantially from customer to customer. Our sales cycles historically ranged
from three to twelve months, but we experienced an overall lengthening in sales
cycles during the 2001 fiscal year. Our sales cycles may remain extended in
future periods and adversely affect our business, financial condition and
results of operations.

         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.

WE DO NOT EXPECT TO ACHIEVE OUR HISTORICAL RATE OF GROWTH.

         We experienced growth in fiscal years prior to 2001, but most of our
growth in these prior fiscal years was due to acquisitions. We do not presently
intend to engage in any significant acquisitions. Our net sales declined in
fiscal 2001, and our net sales may not grow at the rate they grew in prior
fiscal years.

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;
         o        technological changes in platforms supporting our software
                  products;
         o        customer order deferrals in anticipation of our and our
                  competitors' new offerings; and
         o        market acceptance of new applications and related services.

                                       13

<PAGE>

         The factors within our control include:

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

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

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

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

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

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

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

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

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

WE BELIEVE THAT THE VALUE OF A LARGE NOTE RECEIVABLE DEPENDS ON THE VALUE OF ITS
COLLATERAL, WHICH CONSISTS OF STOCK IN A U.K. COMPANY.

         Our March 31, 2001 balance sheet includes a $7.0 million note
receivable. This note is secured by 1,536,000 shares or approximately 11% of the
outstanding common stock of Integrity Software, Inc. We do not believe the
obligor under the note has significant assets other than the Integrity shares
securing the note. The obligor is an entity affiliated with Integrity, and its
ability to sell the Integrity shares to repay the note is limited by law and by
market conditions. Our ability to sell the Integrity shares upon foreclosure of
the note may be similarly limited.

         During the fiscal year ended March 31, 2001, we determined that the
value of this note receivable was impaired, and we wrote off a total of $7.6
million as a valuation allowance. If we experience further impairment in the
value of the note receivable, our assets will decline and we will incur a charge
in the quarter in which the impairment occurs equal to the amount of the
impairment. This will adversely affect our results for that quarter, and may
cause our stock price to decline. We obtained an independent valuation of the
Integrity shares securing the note at March 31, 2001, which supported the value
shown on our March 31, 2001 balance sheet.

                                       14

<PAGE>

WE HAVE SUBSTANTIAL DEBT WHICH ADVERSELY AFFECTS US.

         We have a substantial amount of debt, including the following as of
June 29, 2001:

         o        A $7.4 million term loan from Union Bank due May 1, 2002,
                  unless extended to November 1, 2002 upon us meeting various
                  conditions and financial covenants. The bank loan is secured
                  by substantially all of our assets and those of our U.S.
                  retail and training products subsidiaries, and 65% of the
                  stock of our Australian subsidiary.
         o        An $11.4 million subordinated promissory note, including
                  accrued interest to Softline Limited, our majority
                  stockholder, due November 1, 2002, or May 1, 2003 if the Union
                  Bank loan is extended.
         o        A $0.5 million obligation under a line of credit from National
                  Australia Bank which has been called due.
         o        $1.3 million to stockholders, due on demand.
         o        $1.25 million in convertible notes issued in May and June of
                  2001, to entities related to ICM Asset Management due August
                  1, 2001.

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

         o        We have to dedicate a portion of cash flow from operations to
                  principal and interest payments on the debt, which reduces
                  funds available for other purposes.
         o        We may not have sufficient funds to pay monthly principal and
                  interest payments, which could lead to a default.
         o        The existing debt makes it difficult for us to obtain
                  additional financing for working capital or other purposes.
         o        The debt detracts from our ability to successfully withstand
                  downturns in our business or in the economy.
         o        If we default on our Union Bank indebtedness, the bank could
                  take control of the substantial majority of our assets.

         During the past two fiscal years, we renegotiated on several occasions
our agreements with Union Bank after we were unable to make payments which would
otherwise have been required under these agreements. Union Bank may not be
willing to renegotiate our indebtedness in the future if we are unable to make
required payments. We will likely need outside sources of capital to make the
required principal payments on our Union Bank and Softline obligations.

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

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

         We are restricted by the terms of our outstanding Union Bank loan
agreement from taking various actions, such as incurring additional
indebtedness, paying dividends, paying subordinated obligations, entering into
transactions with affiliates, merging with other entities and selling all or
substantially all of our assets. These restrictions could also limit our ability
to obtain future financing, make needed capital expenditures, withstand a future
downturn in our business or the economy in general, or otherwise conduct our
business. We may also be prevented from taking advantage of business
opportunities that arise because of the limitations imposed on us by the
restrictive covenants under the Union Bank loan. A breach of any of these
provisions could result in a default under the loan agreement, and upon a
default, Union Bank could declare all indebtedness immediately due and payable.
If we were unable to pay those amounts, Union Bank could take control of the
substantial majority of our assets.

A SECURED LENDER TO OUR AUSTRALIAN SUBSIDIARY HAS DEMANDED PAYMENT OF AMOUNTS
DUE UNDER OUR GUARANTEE. THE LENDER MAY TAKE CONTROL OF OUR AUSTRALIAN
SUBSIDIARY.

         In April 2001 we received a demand under our guarantee of our
Australian subsidiary's AUS$1 million (approximately US$510,000) line of credit
for the full amount owed of US$0.5 million. The line of credit is secured by
substantially all of the assets of our Australian subsidiary. We have been
negotiating with the lender, National Australia Bank Limited, to resolve the
situation. If we are unable to resolve this matter, the Bank could take control
of substantially all of the assets of our Australian subsidiary, and we could be
held responsible under our guarantee for any amounts which remained unsatisfied.
Our Australian subsidiary contributed approximately $5.0 million of our
consolidated net sales during fiscal 2001, but incurred a net loss of $5.0
million and had total assets of $3.4 million at March 31, 2001.

                                       15

<PAGE>

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

         Our indebtedness with Union Bank and some of our other indebtedness
require us to pay interest based on a rate which floats with market interest
rates. If market interest rates increase, our interest expense will increase,
which will reduce our earnings and reduce cash available for other purposes. At
March 31, 2001, our total borrowings subject to variable interest rates was $9.1
million. Based on this balance, a one percent increase in interest rates would
cause a change in interest expense of approximately $91,000 on an annual basis.

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

         Our cash from operations has not been sufficient to meet our
operational needs, and we have relied on capital from related parties. 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. Also, during fiscal
2000, Softline exercised options to purchase shares of SVI common stock for net
proceeds of $4.8 million. We used these proceeds to finance a portion of our
operations, including interest payments on debt. In June 1999 we borrowed $2.3
million ($1.3 million of which is outstanding as of March 31, 2001) from three
of our stockholders to pay a portion of the purchase price for Island Pacific.

         We may not be able to obtain capital from related parties in the
future. Neither Softline, Mr. Schechter, nor any other officers, directors,
stockholders or related parties are under any obligation to continue to provide
cash to meet our future liquidity needs. Moreover, Softline's ability to
continue to finance our liquidity needs is limited by Softline's cash resources
and by South African currency exchange laws.

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

         We need to raise capital to discharge our aged payables. We will also
likely need to raise capital to make the required principal payments on our
Union Bank and Softline obligations. We may also need to raise further capital
to:

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

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

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

                                       16

<PAGE>

WE HAVE ENTERED INTO A MEMORANDUM OF UNDERSTANDING WITH SOFTLINE AND AN OUTSIDE
INVESTOR TO REDUCE OUR INDEBTEDNESS TO SOFTLINE AND SELL OUR IBIS NOTE. THIS
TRANSACTION IS SUBJECT TO CONTINGENCIES WHICH MAY NOT BE SATISFIED.

         In May 2001, we entered into a memorandum of understanding with Shmulik
Stein International Investments (SSII) and Softline to reduce our indebtedness
and provide us financing and liquidity. For further discussion of the terms of
this memorandum of understanding, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" under the heading "SSII-Softline
Memorandum of Understanding". This transaction is subject to completion of
definitive documentation and final approval by the board of directors of SVI and
Softline. Under the rules of the American Stock Exchange, the transactions
contemplated may also require the approval of our stockholders.

         If this transaction is consummated, it will result in substantial
dilution to our existing stockholders. If the transaction is not consummated, we
will likely need to find alternative sources of capital to repay our
indebtedness to Union Bank and to Softline when those obligations come due. Such
capital may not be available on terms and conditions acceptable to us, or at
all.

INTANGIBLE ASSETS REPRESENT 74% OF OUR TOTAL ASSETS AS OF MARCH 31, 2001 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 MAKE IT MORE
DIFFICULT TO OBTAIN FINANCING.

         The large percentage of our assets and stockholders' equity represented
by goodwill, capitalized software, non-compete agreements and other intangible
assets makes us susceptible to very large impairments and write-offs. These
impairments can in turn cause very large one-time losses, which could cause our
stock price to decline. Impairments of goodwill and capitalized software related
to our Australian operations resulted in an impairment loss of $8.9 million the
fourth quarter in fiscal 2001.

         Consistent with generally accepted accounting principles, we evaluate
our long-lived assets, including our intangible assets, for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. If we determine an asset is impaired, we will
write-off the difference between the carrying value and the fair value of the
asset. At each balance sheet date, we also evaluate on a product-by-product
basis the unamortized capital cost of computer software compared to the net
realizable value of that product. We will write-off any excess in unamortized
capital costs of a computer software product over the product's net realizable
value. Any impairment of an asset will be a charge against earnings for the
quarter in which it occurs.

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

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

         Fluctuations in currency exchange rates affect the prices of our
applications and services and our expenses, and foreign currency losses will
negatively affect profitability or increase losses. Approximately 22% of our net
sales were outside North America, principally in Australia and the United
Kingdom, in the fiscal year ended March 31, 2001 and approximately 37% of our
net sales were outside North America, also in Australia and the United Kingdom,
in the fiscal year ended March 31, 2000. Most of our international sales are
denominated in the local currency rather than U.S. dollars. In particular, sales
denominated in Australian dollars accounted for 15% of our net sales in fiscal
2001 and 23% of our net sales in fiscal 2000.

         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.

                                       17

<PAGE>

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

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

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

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

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

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

         Toys "R" Us, accounted for 29% of our net sales for the
fiscal year ended March 31, 2001 and 15% of our net sales for the
fiscal year ended March 31, 2000. We expect increased sales to Toys "R" Us for
fiscal 2002. A reduction, delay or cancellation of orders from Toys "R" Us would
significantly reduce our revenues and force us to substantially curtail
operations. We cannot provide any assurances that Toys "R" Us or any of our
current customers will continue at current or historical levels or that we will
be able to obtain orders from new customers.

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

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

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

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

                                       18

<PAGE>

         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. Recent indications
are that retail sales for the later half of 2000 and the first half of 2001 were
below expectations and the current economic slowdown may have adversely affected
the retail industry. This may cause deferred or abandoned purchasing decisions
for our applications and services. In addition, the retail industry may be
consolidating, and it is uncertain how consolidation will affect the industry.

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

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

WE RELY ON THIRD-PARTY SUPPLIERS, AND A DISRUPTION IN SUPPLY WOULD NEGATIVELY
IMPACT OUR ABILITY TO MEET CUSTOMER DEMANDS.

         We rely on technology licensed from third parties, including Microsoft
for the Windows operating system, IBM for the OS/400 operating system and the
Websphere Commerce Suite, and Lansa Inc. for integrated AS/400 software
development tools. Any termination of, or significant disruption in, our ability
to license these products would adversely affect our business and revenues. Our
licenses from each of these providers are non-exclusive. In addition, any
technical problems or errors with current or future versions of these licensed
products could cause errors or technical problems in our applications, which
could result in loss of sales, delays in or elimination of market acceptance,
damage to our brand or to our reputation, product returns, increased costs, and
diversion of development resources, product redesigns and increased warranty and
servicing costs.

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

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

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

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

         o        introduce new technologies that render our existing or future
                  products obsolete, unmarketable or less competitive;
         o        make strategic acquisitions or establish cooperative
                  relationships among themselves or with other solution
                  providers, which would increase the ability of their products
                  to address the needs of our customers; and
         o        establish or strengthen cooperative relationships with our
                  current or future strategic partners, which would limit our
                  ability to compete through these channels.

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

                                       19

<PAGE>

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

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

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

         o        fail to respond to technological changes in a timely or
                  cost-effective manner;
         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 OUR PROPRIETARY RIGHTS.

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

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

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

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

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

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

                                       20

<PAGE>

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.

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.

                                       21

<PAGE>

SOFTLINE LIMITED OWNS A MAJORITY 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 slightly over 50% of our outstanding
common stock. Softline has nine directors, three of which are on our board of
directors. None of our executive officers are on Softline's board. We therefore
do not control Softline. You will not be able to affect the outcome of any
stockholder vote so long as Softline owns a majority of our common stock. As a
result, Softline will control all matters affecting us, including:

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

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

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

SOME OF OUR DIRECTORS ARE ALSO DIRECTORS OR EXECUTIVE OFFICERS OF SOFTLINE,
WHICH COULD CAUSE SOFTLINE'S INTERESTS TO RECEIVE PRIORITY OVER OUR INTERESTS.

         Ivan M. Epstein, Steven Cohen and Gerald Rubenstein, each of whom is
one of our directors, are also directors or executive officers of Softline.
These directors may consider not only the short-term and long-term impact of
financial and operating decisions on us, but also the impact of these decisions
on Softline's financial results and its stockholders. In some instances, the
impact of these decisions could be disadvantageous to us while advantageous to
Softline.

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

         Softline's control over our management and affairs, and over potential
business combinations, 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 BUSINESS MAY SUFFER BECAUSE WE ENTERED INTO AGREEMENTS WITH SOFTLINE THAT
ARE NOT BASED ON ARM'S LENGTH NEGOTIATIONS.

         We have in the past entered into various agreements with Softline, and
have a memorandum of understanding to do so in the future. We owe $11.4 million
to Softline under a subordinated promissory note due November 1, 2002 (which may
be extended to May 1, 2003). We also have a memorandum of understanding the
terms of which include an exchange of 7,000,000 of our common shares in
satisfaction of $7 million of indebtedness to Softline, and an exchange of the
approximately $4.4 million balance of the existing note for a convertible note
in the same principal amount. We also borrowed $0.6 million from a subsidiary of
Softline in November 2000, which bore interest at 10% per annum until repayment
in February 2001. For a further discussion of our agreements with Softline, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and "Certain Relationships and Related Transactions" (incorporated
by reference in this Form 10-K). None of these agreements resulted from arm's
length negotiations. These agreements may include terms and conditions that may
be more or less favorable to us than terms contained in similar agreements
negotiated with third parties.

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

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

                                       22

<PAGE>

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

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

WE MAY ISSUE PREFERRED STOCK IN THE FUTURE, AND THE TERMS OF THE 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. Our board of directors may determine the terms of preferred
stock without further action by our stockholders. If we issue 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.

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

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

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

         We have issued options and warrants to acquire common stock to our
employees and certain other persons at various prices, some of which are or may
in the future be below the market price of our stock. If exercised in the money,
these options and warrants will cause immediate and possibly substantial
dilution to our stockholders. We currently have options and warrants for
approximately 597,000 shares outstanding which have exercise prices below the
recent market price of our stock of $1.00 per share. We have options and
warrants for 7.0 million shares outstanding at prices above the recent $1.00
market price, and if the current market price increases, these options and
warrants could have a dilutive effect on stockholders if exercised. Our existing
stock option plan currently has approximately 1,290,000 shares available for
issuance. Future options issued under the plan may have further dilutive
effects.

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


ITEM 2.  DESCRIPTION OF PROPERTY

         Our principal corporate headquarters consists of 19,621 square feet in
a building located at 12707 High Bluff Drive, Suite 335, San Diego, California.
The facility is occupied under a lease that expires on August 31, 2004. The
current monthly rent is $41,229. We are actively seeking to negotiate an
assignment of our lease at this location and to move to a less expensive
facility in the San Diego area. Our primary operational office is in Irvine,
California, where we occupy 26,521 square feet in a building located at 19800
MacArthur Blvd. This facility is occupied under a lease that expires on June 30,
2005. The current monthly rent is $55,620. We also occupy premises in the United
Kingdom located at The Old Building, Mill House Lane, Wendens Ambo, Essex,
England. The lease for this office building expires August 31, 2003. Annual rent
is $43,280 (payable quarterly) plus common area maintenance charges and real
estate taxes.

         SVI Retail Pty Limited (Australia) has its principal offices at Level
1, 35 Spring Street, Bondi Junction, Sydney, NSW 2022, Australia. This 14,393
square foot facility is leased through October 31, 2006. The current base
monthly rent is $15,200. The Australian subsidiary also leases small regional
offices in Adelaide and Melbourne.

                                       23

<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

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

YEAR ENDED MARCH 31, 2000                     HIGH                    LOW
First Quarter                                 $14.750                $ 11.500
Second Quarter                                $13.188                $ 12.813
Third Quarter                                 $14.875                $  7.250
Fourth Quarter                                $14.375                $  9.000

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

         As of June 29, 2001 there were 37,914,744 shares of our common stock
outstanding, which were held by approximately 79 stockholders of record.

         During the quarter ended March 31, 2001, we issued the following
securities without registration under the Securities Act of 1933:

                  o        30,000 shares of common stock to a non-employee for
                           payment of services, valued at $30,000
                  o        1,176,470 shares of common stock sold to accredited
                           investors relating to the private placement for net
                           proceeds of $984,965 (net of issuance costs of
                           $15,035)
                  o        500,000 shares of common stock issued AMRO
                           International, S.A., for $500,000 offset by $286,000
                           for penalty for late effectiveness of the
                           registration statement.

         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.

                                       24

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

         The following selected financial data should be read in conjunction
with our consolidated financial statements and related notes and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". The selected consolidated financial data presented below under the
captions "Statement of Operations Data" and "Balance Sheet Data" for, and as of
the end of, each of our last six fiscal years (including the six months ended
March 31, 1998) are derived from the consolidated financial statements of SVI
Solutions, Inc. (formerly SVI Holdings, Inc.). The consolidated financial
statements as of March 31, 2001, March 31, 2000, and March 31, 1999 and the
independent auditors' report thereon, are included elsewhere in this report.

<TABLE>
<CAPTION>
                                                                            SIX MONTHS
                                                                               ENDED          YEAR ENDED
                                                 YEAR ENDED MARCH 31,        MARCH 31,       SEPTEMBER 30,
                                         ---------------------------------   ---------   ---------------------
                                            2001        2000        1999       1998        1997        1996
                                         ---------   ---------   ---------   ---------   ---------   ---------
                                                        (in thousands except for per share data)
<S>                                      <C>         <C>         <C>         <C>         <C>         <C>
STATEMENT OF OPERATIONS DATA:
Net sales                                $ 32,672    $ 36,114    $ 17,487    $ 11,198    $ 10,434    $    673

Cost of sales                              11,669      10,970       5,347       3,869       3,037         100
                                         ---------   ---------   ---------   ---------   ---------   ---------
     Gross profit                          21,003      25,144      12,140       7,329       7,397         573

Application development expenses            5,576       4,877
Selling, general and administrative
   expenses                                21,569      18,235       7,603       4,611       4,706       1,035
Other income                                  761         975       1,317         372         567         781
Gain on disposals of Softline Limited
   Shares                                   4,388       3,974
                                         ---------   ---------   ---------   ---------   ---------   ---------
     Income (loss) before interest
        expense, provision for income
        taxes, depreciation and
        amortization and impairment        (5,381)      3,007       5,854       7,478       7,232         319
        Depreciation and amortization      (9,540)     (7,942)     (2,395)       (939)     (1,178)        (54)
        Impairment of goodwill and
           capitalized software
           associated with Australian
            operations                     (8,886)
        Impairment of note receivable
           received in connection with
           the sale of IBIS Systems
           Limited                         (7,647)
       Interest Expense                    (3,103)     (1,531)        (90)        (13)       (103)       (134)
       (Provision) benefit for
           income taxes                     5,612       2,412      (1,671)     (1,849)     (1,103)
                                         ---------   ---------   ---------   ---------   ---------   ---------
     Income (loss) from continuing
        operations                        (28,945)     (4,054)      1,698       4,677       4,848         131

     Income from discontinued
        operations                                                  3,887       1,142                      16
                                         ---------   ---------   ---------   ---------   ---------   ---------
             Net income (loss)           $(28,945)   $ (4,054)   $  5,585    $  5,819    $  4,848    $    147
                                         =========   =========   =========   =========   =========   =========
Basic earnings (loss) per share:
     Income (loss) from continuing
        operations                       $  (0.83)   $  (0.12)   $   0.06    $   0.17    $   0.35    $   0.01

     Income from discontinued
        operations                                                   0.14        0.04
                                         ---------   ---------   ---------   ---------   ---------   ---------
            Net income (loss)            $  (0.83)   $  (0.12)   $   0.20    $   0.21    $   0.35    $   0.01
                                         =========   =========   =========   =========   =========   =========
Diluted earnings (loss) per share:
     Income (loss) from continuing
        operations                       $  (0.83)   $  (0.12)   $   0.05    $   0.15    $   0.31    $   0.01

     Income from discontinued
        operations                                                   0.12        0.04
                                         ---------   ---------   ---------   ---------   ---------   ---------
           Net income (loss)             $  (0.83)   $  (0.12)   $   0.17    $   0.19    $   0.31    $   0.01
                                         =========   =========   =========   =========   =========   =========
Weighted average common shares:
     Basic                                 34,761      32,459      28,600      27,768      13,971      11,902
     Diluted                               34,761      32,459      33,071      31,046      15,618      13,470
</TABLE>

                                                      25

<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
<S>                                      <C>         <C>         <C>         <C>         <C>         <C>
Working capital                          $ (4,152)   $  2,628    $ 26,387    $  9,763    $    596    $ (1,844)
Total assets                             $ 57,710    $ 94,083    $ 52,374    $ 46,481    $ 19,230    $  5,006
Long-term obligations                    $ 18,554    $ 21,586    $  2,043    $    771    $    545    $  1,947
Stockholders' equity                     $ 26,993    $ 53,497    $ 45,270    $ 37,075    $ 10,885    $    347
</TABLE>


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

FORWARD-LOOKING STATEMENTS

         THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS. THESE STATEMENTS
RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL PERFORMANCE. IN SOME CASES, YOU
CAN IDENTIFY FORWARD-LOOKING STATEMENTS BY TERMINOLOGY SUCH AS THE WORDS MAY,
WILL, SHOULD, EXPECT, PLAN, ANTICIPATE, BELIEVE, ESTIMATE, PREDICT, POTENTIAL OR
CONTINUE, OR THE NEGATIVES OF SUCH WORDS OR OTHER COMPARABLE TERMINOLOGY. THESE
STATEMENTS ARE ONLY PREDICTIONS. ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY.
IMPORTANT FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE
FORWARD-LOOKING STATEMENTS ARE DESCRIBED IN THE SECTION ENTITLED "RISK FACTORS"
IN ITEM 1 IN THIS REPORT, AND OTHER RISKS IDENTIFIED FROM TIME TO TIME IN OUR
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, PRESS RELEASES AND OTHER
COMMUNICATIONS.

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

OVERVIEW

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

         We incurred a loss of $28.9 million in the fiscal year ended March 31,
2001, and a loss of $4.1 million in the fiscal year ended March 31, 2000. The
loss in the fiscal year ended March 31, 2001 was due to impairments of assets,
change in sales mix toward lower margin services, depreciation and amortization
of intangible assets, debt service expenses and development expenses. The loss
in fiscal 2000 was due to insufficient increases in revenue to offset the
increases in general and administrative expenses such as depreciation,
amortization and interest expenses associated with our acquisition of Island
Pacific Systems Corporation. Due to these losses and our negative working
capital, our independent auditors have noted in their report on our financial
statements substantial doubt about our ability to continue as a going concern.
We will need to generate additional revenue to achieve profitability in future
periods.

         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 was one of the leading providers of enterprise applications, and
the technology we acquired and have subsequently enhanced now forms the core of
our SVI Retail Enterprise 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 SVI Retail Store Solution.

         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 are amortizing
capitalized software and goodwill from both of these acquisitions over ten
years.

                                       26

<PAGE>

         Effective April 1, 2000, we merged Island Pacific and ARS into a single
operational subsidiary, SVI Retail, Inc. We also began to promote the full suite
of retail application solutions created by the combination of the technology
acquired from these companies with our further development activities and
enhancements. During the 2000 fiscal year, we commenced an active product
development program to more fully integrate our SVI Retail Enterprise and Store
Solutions, to develop versions of our applications in other programming
languages, to eliminate dependency on client/server architecture, and to develop
new modules and applications of our end-to-end solution. This application
development program continued throughout fiscal 2001.

         Our operations are conducted principally in the United States, the
United Kingdom and 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 we experienced a
lengthening in sales cycles during the 2001 fiscal year, in part due to economic
conditions in the US and in part due to insufficient staffing of our sales force
in the US and the UK. Our long sales cycles have in the past caused our revenues
to fluctuate significantly from period to period. The reduction of new license
sales and the lengthening of our sales cycles in fiscal 2001 caused the revenues
of our Australian subsidiary to decrease substantially and our sales mix in the
US and the UK to shift to lower margin services.

         We evaluate local operations primarily based on total revenues and
earnings before interest, taxes, depreciation and amortization (EBITDA). We also
manage long-lived assets by geographic region. The geographic distribution of
our revenues and long-lived assets for the fiscal years ended March 31, 2001,
2000 and 1999 is as follows (in thousands):

                                 YEAR ENDED       YEAR ENDED       YEAR ENDED
                               MARCH 31, 2001   MARCH 31, 2000   MARCH 31, 1999
                               --------------   --------------   --------------
                                                (in thousands)
 Net Sales:
    United States              $      25,457    $      22,819    $       5,010
    Australia                          4,959            8,372           10,707
    South Africa                                        1,091            1,770
    United Kingdom                     2,256            3,832
    United Kingdom
 (discontinued operations)                                              12,403
                               --------------   --------------   --------------

         Total net sales       $      32,672    $      36,114    $      29,890
                               ==============   ==============   ==============

Long-lived assets:
    United States              $      48,270    $      60,909    $      10,524
    Australia                          1,370           11,471           11,152

    United Kingdom                        59               75               13

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

    Total long-lived assets    $      49,699    $      72,455    $      21,689
                               ==============   ==============   ==============

         We classify 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 are below the threshold established for segment
reporting, we consider our business to consist of one reportable operating
segment.

RECENT DEVELOPMENTS

         Results of operations for fiscal 2001 reflect the decrease in new
license sales of our application software suite. As a result of our net losses,
we also experienced significant strains on our cash resources throughout the
2001 fiscal year. The strain became particularly acute during the last six
months of the fiscal year.

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

                                       27

<PAGE>

         o        We implemented a new executive management team, including a
                  new CEO, CFO and Executive Vice President and General Manager
                  of US and UK Retail Operations and a new Managing Director of
                  our SVI Retail (Pty) Australia subsidiary, each with extensive
                  experience in improving sales and operations.
         o        We conducted a detailed review of operations, and as a result,
                  reorganized our US and UK retail operations and our Australian
                  subsidiary's operations. As a result of these reorganizations,
                  we reduced non-essential personnel during the fourth quarter
                  of fiscal 2001. This reorganization will result in
                  approximately $3.0 million in annual cost savings in our US
                  and UK operations and in approximately $0.7 million cost
                  savings in our Australian subsidiary's operations.
         o        We significantly increased our sales team starting in the
                  fourth quarter of fiscal 2001 and completed this initial
                  increase in the first quarter of fiscal 2002. We established
                  four regional sales areas throughout North America, hired an
                  experienced Vice President of Sales and hired a sales director
                  and account executives for each area. We are also in the
                  process of adding Retail Application Consultants to augment
                  and support the sales team in these areas. We have also
                  expanded our European sales operation based in the United
                  Kingdom.
         o        We established a Marketing and Technology Management team in
                  the first quarter of fiscal 2002, using experienced resources
                  from within our organization. This team will work to position
                  our offerings properly in the marketplace, manage the
                  direction and delivery of our application enhancements and
                  ensure that we are defining and developing new capabilities
                  that meet the future requirements of our customers and
                  prospective customers.
         o        We restructured our application development efforts in concert
                  with our new Marketing and Technology Management team to work
                  more closely with customers for improvements to our offerings.
                  We expect the result will be application technology that
                  closely meets the needs of our customer. Additionally, more of
                  the costs of development may be offset against customer
                  specific revenues.
         o        We raised a total of $2.5 million in equity financing from
                  institutions and persons related to ICM Asset Management, Inc.
                  of Spokane, Washington, and additional equity financing from
                  AMRO International, S.A., to help with short-term liquidity
                  needs.
         o        We negotiated an extension of our senior bank lending facility
                  to May 1, 2002, with a right to further extend maturity to
                  November 1, 2002 subject to certain conditions and covenants.
                  See "Liquidity and Capital Resources -- Indebtedness--Union
                  Bank" below.
         o        We negotiated an extension of the due date of our $11.4
                  million indebtedness to our majority stockholder to November
                  1, 2002, or a further extension to May 1, 2003 if Union Bank
                  has also extended our term loan. See "Liquidity and Capital
                  Resources - Indebtedness - "Softline" below.
         o        We entered into a memorandum of understanding with Shmulik
                  Stein International Investments (SSII) and Softline, providing
                  for a substantial reduction in our indebtedness to Softline
                  and the opportunity to discharge our indebtedness to our
                  senior lender. See "Financing Transactions --
                  SSII-Softline Memorandum of Understanding" below.

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

FINANCING TRANSACTIONS

         AMRO INTERNATIONAL, S.A.

         On October 24, 2000, the SEC declared effective a registration
statement registering up to 700,000 shares of our common stock for resale by
AMRO International, S.A. AMRO purchased 344,948 shares in March 2000 for
approximately $2.9 million, and under the terms of the purchase agreement, was
entitled to receive additional shares of our common stock if the average of the
closing price of our stock for the five days preceding the effective date of the
registration statement was less than $10.34. Pursuant to the repricing formula,
we issued to AMRO 375,043 additional shares of common stock. We have further
agreed to register the 19,991 shares issued to AMRO which are in excess of the
700,000 shares currently registered.

         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 the liquidated damages in the form of 286,000
shares of common stock, 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

                                       28

<PAGE>

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 initially sold, and those that
we may sell under the warrant, with the SEC. Our agreement provides that if a
registration statement is not filed on or before September 12, 2001, we will be
obligated to pay to AMRO as liquidated damages one percent of the purchase price
of the shares for the first month such registration statement has not been
filed, and 2% of the purchase price for each month it has not been filed
thereafter. We are obligated to take commercially reasonable steps to obtain the
effectiveness of the registration statement, and to maintain its effectiveness
for two years.

         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 may
call 50% of the warrants, subject to certain conditions, if our common shares
have traded at a price above $2.00 per share for thirty consecutive days. We may
call the remaining 50% of the warrants, subject to certain conditions, if our
common shares have traded at a price above $3.00 per share for thirty
consecutive days. In each case, the holder of a called warrant 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 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. Through June 29, 2001, we have
issued the investors warrants to purchase 367,647 common shares under this
agreement. We are 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. We intend to refile the registration statement
promptly after filing this report. We may call these warrants and other late
registration warrants on the same terms as the warrants described in the
preceding paragraph.

         We also granted the investors certain other rights, including a
one-year right of first refusal to purchase new securities we propose to issue.

         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 are
due August 30, 2001, and require interest at the rate of 12% per annum to be
paid at maturity. Any portion of the unpaid amount of principal and interest is
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. We also agreed to register with the SEC any shares
that may be obtained upon conversion of the notes or exercise of the warrants.
We are further required to obtain an agreement from Softline subordinating our
obligation to Softline to the convertible notes.

SSII-SOFTLINE  MEMORANDUM OF UNDERSTANDING

         In May 2001, we entered into a memorandum of understanding with Shmulik
Stein International Investments (SSII) and Softline to reduce our indebtedness
and provide us financing and liquidity. Under the terms of the letter of intent:

o        Softline will accept 7,000,000 of our common shares in satisfaction of
         $7 million of indebtedness owed under our note to Softline. Softline
         will exchange the approximately $4.5 million balance of the existing
         note (principal and accrued interest and charges) for a convertible
         note in the principal amount of $4.5 million. The note will be
         convertible for one year into SVI common shares at $1.00 per share, and
         will not bear interest during the one year conversion period.
o        SSII will purchase the 7,000,000 SVI common shares from Softline for $7
         million.
o        Softline will grant SSII a one-year option to purchase the $4.5 million
         convertible note for $4.77 million.

                                       29

<PAGE>

o        SSII will purchase our note receivable obtained in connection with our
         sale of IBIS Systems Limited in 1999. We will use the proceeds of this
         sale to repay our current Term Loan obligation with Union Bank.
         Softline has agreed in turn to purchase the convertible note from SSII
         using SVI common shares currently held by Softline.

This transaction is subject to completion of definitive documentation and final
approval by the board of directors of SVI and Softline. Under the rules of the
American Stock Exchange, the transactions contemplated may also require the
approval of our stockholders, although we intend to seek a transaction structure
which will permit the transaction to be consummated subject to subsequent
shareholder ratification.

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,
                                            ---------------------------------------------------------------------------
                                                      2001                      2000                      1999
                                            -----------------------   -----------------------   -----------------------
                                                         PERCENTAGE                PERCENTAGE                PERCENTAGE
                                              AMOUNT     OF REVENUE     AMOUNT     OF REVENUE     AMOUNT     OF REVENUE
                                            ----------   ----------   ----------   ----------   ----------   ----------
<S>                                         <C>               <C>     <C>               <C>     <C>               <C>
Net sales                                   $  32,672         100%    $  36,114         100%    $  17,487         100%
Cost of sales                                  11,669          36%       10,970          30%        5,347          31%
                                            ----------   ----------   ----------   ----------   ----------   ----------
     Gross Profit                              21,003          64%       25,144          70%       12,140          69%

Application development expense                 5,576          17%        4,877          14%
Selling, general and administration
   expenses                                    21,569          66%       18,235          50%        7,603          43%
Other income                                      761           2%          975           3%        1,317           8%
                                            ----------                ----------                ----------
   Income (loss) before interest
      expense, provision for income
      taxes, depreciation and
      amortization and impairment              (5,381)        (16)%       3,007           8%        5,854          33%

Depreciation and amortization                  (9,540)        (29)%      (7,942)        (22)%      (2,395)        (14)%
Impairment of goodwill and capitalized
   software associated with
   Australian operations                       (8,886)        (27)%
Impairment of note receivable received
   in connection with the sale of IBIS
   Systems Limited                             (7,647)        (23)%
Interest expense                               (3,103)         (9)%      (1,531)        (4)%         (90)         (1)%
(Provision) benefit for income taxes            5,612         (17)%       2,412         (7)%      (1,671)        (10)%
                                            ----------   ----------   ----------   ----------   ----------   ----------

   Income (loss) from continuing
      operations                              (28,945)        (89)%      (4,054)       (11)%       1,698          10%

Discontinued operations
   Income from discontinued
      operations, net of taxes                                                                     3,613
   Gain on disposal of discontinued
      operations, net of applicable taxes                                                            274
                                            ----------                ----------               ----------

   Income from discontinued operations                                                             3,887
                                            ----------                ----------               ----------

Net income (loss)                           $ (28,945)                $  (4,054)               $   5,585
                                            ==========                ==========               ==========
</TABLE>

                                                    30

<PAGE>

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

         NET SALES

         Net sales decreased by $3.4 million, or 10%, to $32.7 million in the
fiscal year ended March 31, 2001 from $36.1 million in the fiscal year ended
March 31, 2000. Fiscal year 2001 revenues included recognition of $2.0 million
in revenue from a one-time sale of technology rights which was signed in fiscal
2000. Fiscal 2000 revenues included $1.1 million in revenue from our South
African operation, which we sold to Softline in October 1999. In addition to
those factors, the decrease in net sales was principally due to the following:

o        Revenue from our Australian subsidiary decreased by $3.4 million. This
         decrease was due to the loss of a large customer and reduced overall
         sales and services, including the absence of Year 2000 preparation
         services performed during the 2000 fiscal year.
o        A $1.6 million decrease in revenue from our United Kingdom retail
         operations. This decrease reflected a substantial decrease in new
         application license sales.

         The substantial decrease in new application license sales was due in
part to our inability to close several larger application license transactions
in our sales pipeline. A slowdown in the US during fiscal 2001 appears to have
somewhat delayed or otherwise affected our customers' decision processes, and
lengthened our related sales cycles. We believe that significant reason for the
decline in new application license sales was insufficient staffing of our sales
force in the US and the UK. We have taken aggressive steps to build and
strengthen our sales force, and we believe that our applications and related
services continue to compete strongly in the marketplace. For a further
discussion of our competitive position, see "Description of Business" under the
heading "Competition". We have rebuilt our sales pipeline for new application
license sales with current and prospective customers and we anticipate a
reversal of this trend in the US and UK retail operations in fiscal 2002.

         In July 2001, we entered into an agreement to expand our current
professional services activities with Toys "R" Us significantly through
September 2003. We expect the overall dollar amount of professional services we
perform for Toys "R" Us to increase substantially in fiscal 2002 compared to
fiscal 2001, and to continue to be a significant source of professional services
revenues in fiscal 2003 and 2004.

         COST OF SALES/GROSS PROFIT

         Cost of sales increased $0.7 million, or 6%, to $11.7 million in the
fiscal year ended March 31, 2001 from $11.0 million in the fiscal year ended
March 31, 2000. Gross profit as a percentage of net sales decreased to 64% in
fiscal 2001 from 70% in fiscal 2000. The decrease in gross profit margin was due
to a shift in the sales mix from high margin application licenses to lower
margin software modification and professional services. During fiscal 2001,
application technology license revenues represented 23% of net sales and related
services represented 77% of net sales, compared to 30% and 70% of net sales,
respectively, of net sales during fiscal 2000.

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

         APPLICATION DEVELOPMENT EXPENSE

         Application development expense for the fiscal year ended March 31,
2001 was $5.6 million compared to $4.9 million for the fiscal year ended March
31, 2000, an increase of 14%. During fiscal 2001, we continued our application
technology development program begun in fiscal 2000 to improve and integrate our
application software. For a further discussion of our application technology
development program, see "Description of Business" under the heading
"Application Technology Development."

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative expenses increased by $3.4 million,
or 19%, to $21.6 million compared to $18.2 million in the fiscal year ended
March 31, 2000. The increase was due to the following:

o        One-time personnel reduction charge of $1.0 million in the fourth
         quarter associated with the integration of our SVI Retail operations in
         Irvine and San Diego, California, and in personnel reductions charges
         in our Australian subsidiary.
o        A $0.6 million write-off of a receivable associated with our former
         IBIS subsidiary.
o        An increase in professional fees and allowances of $1.1 million.
o        Increased personnel expense, in part due to our acquisition of
         MarketPlace Systems Corporation.

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<PAGE>

         During the fourth quarter, we conducted a comprehensive review of
operating expenses and implemented a plan to reduce expenses for non-essential
personnel, outside contract labor, travel, trade shows and supplies. We
anticipate that these reductions will result in an approximately $3.7 million
annual reduction in our expense levels compared to expenses prior to
implementation of the plan. We expect to slowly increase our expense levels in
fiscal 2002 from the reduced level after the reductions in the fourth quarter of
fiscal 2001. We plan expenditures for the rebuilding of our sales force and for
additions to our Professional Services group for US and UK retail operations.

         DEPRECIATION AND AMORTIZATION

         Depreciation and amortization increased by $1.6 million, or 20%, to
$9.5 million in the fiscal year ended March 31, 2001 from $7.9 million in the
fiscal year ended March 31, 2000. The increase was due to the amortization of
software purchased in connection with the acquisition of MarketPlace Systems
Corporation in March 2000, and to amortization of capitalized software that was
made available for sale in fiscal 2001.

         IMPAIRMENT OF ASSETS

         Our March 31, 2001 balance sheet includes a $7.0 million note
receivable. This note is secured by 1,536,000 shares or approximately 11% of the
outstanding common stock of Integrity Software, Inc. We do not believe the
obligor under the note has significant assets other than the Integrity shares
securing the note. The obligor is an entity affiliated with Integrity, and its
ability to sell the Integrity shares to repay the note is limited by law and by
market conditions.

         During the fiscal year ended March 31, 2001, we determined that the
value of this note receivable was impaired, and we wrote off a total of $7.6
million as a valuation allowance. If we experience further impairment in the
value of the note receivable, our assets will decline and we will incur a charge
in the quarter in which the impairment occurs equal to the amount of the
impairment. This will adversely affect our results for that quarter, and may
cause our stock price to decline. We obtained an independent valuation of the
Integrity shares securing the note at March 31, 2001, which supported the value
shown on our March 31, 2001 balance sheet.

         Although we have limited registration rights associated with the
Integrity shares, our ability to sell such shares to realize liquidity from the
note will be limited by securities laws and market conditions. We therefore do
not view the note or the Integrity shares as a liquid asset, and we classify as
the note as long-term on our balance sheet. Our memorandum of understanding with
SSII and Softline provides for SSII to purchase the note from us as a component
of that transaction, should it be completed as expected. See "SSII-Softline
Memorandum of Understanding" above.

         We also recorded in the fourth quarter of fiscal 2001 an impairment of
$8.9 million in capitalized software and goodwill associated with Australian
operations. In determining the amount of impairment, we compared the net book
value of the long-lived assets associated with the Australian subsidiary,
primarily consisting of recorded goodwill and software intangibles, to their
estimated fair values. Fair values were estimated based on anticipated future
cash flows of the Australian operations, discounted at a rate commensurate with
the risk involved.

         INTEREST INCOME AND EXPENSE

         Interest expense increased $1.6 million, or 103%, to $3.1 million in
the fiscal year ended March 31, 2001 from $1.5 million in the fiscal year ended
March 31, 2000. The increase was due to inclusion for the full 2001 fiscal year
of interest from indebtedness incurred in June 1999 to purchase Island Pacific,
and an increase in our average interest rate to 12% in fiscal 2001 compared to
9% in fiscal 2000. The increase also included $0.5 million in amortized loan
refinancing costs, including $0.2 million of amortized loan cost reimbursement
to Softline.

         Interest income decreased $0.4 million to $0.7 million in fiscal 2001,
compared to $1.1 million in fiscal 2000. As of September 30, 2000, we are no
longer accruing interest on our note receivable obtained in connection with the
sale of IBIS Systems Limited due to the impairment of such receivable.

                                       32

<PAGE>

FISCAL YEAR ENDED MARCH 31, 2000 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1999

         NET SALES

         Net sales increased by $18.6 million, or 106%, to $36.1 million in the
fiscal year ended March 31, 2000 from $17.5 million in the fiscal year ended
March 31, 1999. The increase in net sales was primarily due to the following:

                  o        Inclusion of $19.0 million in sales of our SVI Retail
                           Enterprise Solution suite and related Professional
                           Services, which was acquired at the beginning of
                           fiscal year 2000 through acquisition of Island
                           Pacific.
                  o        Increase of $2.4 million in sales of our SVI Retail
                           Store Solution suite, which was acquired in July 1998
                           through the acquisition of Applied Retail Solutions
                           (ARS). The comparable results in the fiscal year
                           ended March 31, 1999 included only nine months of
                           these sales.
                  o        Offset in part by a decrease of $3.0 million in sales
                           from Australian operations due to a downturn in
                           demand for software licenses and related consulting
                           and support services in Australia.

         The overall results reflected a downturn in sales for new application
licenses beginning during the second half of fiscal 1999.

         COST OF SALES/GROSS PROFIT

         Cost of sales increased by $5.7 million, or 108%, to $11.0 million in
the fiscal year ended March 31, 2000 from $5.3 million in the fiscal year ended
March 31, 1999. This increase was primarily due the inclusion of cost of sales
of the SVI Retail Enterprise Solution suite and related professional services.
Gross profit increased by $13.0 million, or 106%, to $25.1 million in the fiscal
year ended March 31, 2000 from $12.2 million in the fiscal year ended March 31,
1999. Gross profit, as a percentage of total revenues, increased to 70% in
fiscal year 2000 from 69% in fiscal year 1999. This increase was primarily due
to the inclusion of high margin application license sales of the SVI Retail
Enterprise Solution suite.

         APPLICATION TECHNOLOGY DEVELOPMENT EXPENSES

         Application technology development expenses for the fiscal year ended
March 31, 2000 were $4.9 million or 14% of net sales. There were no application
technology development expenses in the comparative period. In conjunction with
the acquisition of Island Pacific, we commenced an active integration and
development program to ensure compatibility between our Store and Enterprise
Solution suites. Additionally, we developed versions of our applications in
other program languages to reduce hardware dependencies.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative expenses increased by $10.6
million, or 139%, to $18.2 million in the fiscal year ended March 31, 2000 from
$7.6 million in the fiscal year ended March 31, 1999. The increase was due to
the following:

                  o        Inclusion of selling, general and administrative
                           expenses of $8.8 million related to our SVI Retail
                           Enterprise Solution suite and related professional
                           services, which we acquired at the beginning of the
                           fiscal year 2000.
                  o        Increase of $0.6 million in selling, general and
                           administrative expenses related to our SVI Retail
                           Store Solution suite.
                  o        Increase of $1.2 million in selling, general and
                           administrative expenses to expand marketing and
                           investor relations activities.

         DEPRECIATION AND AMORTIZATION

         Depreciation and amortization increased by $5.5 million, or 229%, to
$7.9 million in the fiscal year ended March 31, 2000 from $2.4 million in the
fiscal year ended March 31, 1999. The increase was primarily due to the
acquisition of $42.6 million in intangible assets in the acquisition of Island
Pacific. These intangible assets are being amortized over estimated lives not
exceeding ten years.

                                       33

<PAGE>

         OTHER INCOME (EXPENSE)

         Other income (expense) decreased by $1.8 million, or 150%, to $(0.6)
million in the fiscal year ended March 31, 2000 from $1.2 million in the fiscal
year ended March 31, 1999. The decrease was primarily due to an increase of $1.4
million in interest expense in fiscal year 2000 and life insurance proceeds of
$0.5 million received in the prior fiscal year. The increase in interest expense
was due to the $20.8 million in notes payable obtained in fiscal year 2000 to
acquire Island Pacific.

         DISCONTINUED OPERATIONS

         Effective January 1, 1999, we sold our IBIS Systems Limited subsidiary
for $18 million. We recorded a gain of $0.3 million, net of applicable income
taxes of $0.8 million. Accordingly, the results of operations of IBIS for fiscal
1999 are shown as discontinued operations. In fiscal 2001, we recognized
impairment to the note received in connection with that sale. See "Impairment of
Assets" above.

LIQUIDITY AND CAPITAL RESOURCES

         CASH FLOWS

         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.
During the fiscal year ended March 31, 2000, we financed our operations through
internally generated cash, proceeds from bank and other loans (including a loan
from a major stockholder), proceeds from the sale of common stock and the
exercise of options, and bank lines of credit. During the fiscal year ended
March 31, 1999, we financed our operations primarily through internally
generated cash and proceeds from the exercise of options. At March 31, 2001, we
had cash of $1.3 million, a decrease of $3.5 million from $4.8 million of cash
at March 31, 2000.

         Operating activities used cash of $2.4 million in the fiscal year ended
March 31, 2001 and $2.3 million in the fiscal year ended March 31, 2000, and
provided cash of $2.0 million in the fiscal year ended March 31, 1999. Cash used
for operating activities in fiscal 2001 resulted primarily from $28.9 million of
net losses, a $4.4 million decrease in net deferred tax liability and a $4.4
million decrease in deferred revenue; offset by $16.5 million in non-cash
impairments of assets, $9.5 million in non-cash depreciation and amortization, a
$5.1 million decrease in accounts receivable, and a $4.4 million increase in
accounts payable and accrued expenses. Cash used for operating activities during
fiscal year 2000 primarily resulted from a $4.1 million net loss, a $4.6 million
increase in accounts receivable and other receivables, a $0.6 million decrease
in accounts payable and accrued expenses, a $0.8 million increase in interest
receivable, a $2.6 million decrease in income tax payable, and a $2.6 million
increase in deferred income taxes liability; offset in part by $7.9 million of
non-cash depreciation and amortization expense and a $5.0 million increase in
deferred revenue. Cash provided by operating activities in fiscal year 1999
resulted from $5.6 million in net income, $2.9 million of depreciation and
amortization, and a $1.7 million increase in income taxes payable; offset in
part by a $4.6 million increase in accounts receivable and other receivables, a
$2.6 million decrease in accounts payable and accrued expenses and a $1.0
million gain on disposal of IBIS.

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

         Investing activities used cash of $3.0 million, $36.5 million and $3.3
million in the fiscal years ended March 31, 2001, 2000 and 1999. Investing
activities during fiscal year 2001 included a $2.5 million increase in purchase
of software and capitalized software development costs and $0.5 million in
furniture and equipment purchases. Investing activities during fiscal year 2000
included a $33.8 million net cash payment for the acquisition of Island Pacific,
$1.8 million in software purchases and capitalized software development costs
and $0.8 million in capital expenditures. Investing activities in fiscal year
1999 included $1.4 million in net cash payments for the acquisition of ARS, $0.8
million in net cash payments for other acquisitions related to our former IBIS
subsidiary and $3.3 million in capital expenditures, offset by $2.2 million in
net proceeds from the sale of IBIS.

                                       34

<PAGE>

         Financing activities provided cash of $1.9 million, $30.9 million and
$0.2 million in the fiscal years ended March 31, 2001, 2000 and 1999. Financing
activities during fiscal year 2001 included $3.8 million in proceeds from the
sale of common stock, $9.9 million increase in amounts due to stockholders and
$1.6 million in proceeds from lines of credit, offset by $13.2 million in note
payments. Financing activities during fiscal year 2000 included $18.5 million in
proceeds from loans obtained to acquire Island Pacific, $9.6 million in proceeds
from the exercise of options and private sale of common stock and $2.3 million
in proceeds from lines of credit, offset in part by $1.5 million in loan
payments. Financing activities in fiscal year 1999 included $1.0 million in cash
payments to repurchase common stock, offset in part by $0.7 million proceeds
from the exercise of options.

         Changes in the currency exchange rates of our foreign operations had
the effect of decreasing cash by $0.1 million, $0.3 million and $0.4 million in
the fiscal years ended March 31, 2001, 2000 and 1999.

         INDEBTEDNESS

         UNION BANK

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

         During the third quarter of fiscal 2001, the bank agreed to waive the
required $200,000 monthly principal payments and to allow us to pay a reduced
monthly interest rate of 2% over the bank reference rate, with the balance of
the contractual interest accruing and payable upon maturity. The bank also
agreed to permit us to apply up to $2.5 million in private placement proceeds
and the full $100,000 paid on the contract receivable during the quarter toward
working capital instead of reduction of principal. We also agreed to terminate
the revolving line of credit arrangement, which as of December 31, 2000, was
fully drawn, and to a restriction on payments toward subordinated loan
obligations until the bank obligations were discharged. We were permitted
however to discharge our indebtedness to Softline's subsidiary due February 22,
2001 (see below). We experienced difficulty in maintaining required interest
payments during the fourth quarter of fiscal 2001, but became current in April
2001. We were also out of compliance with certain covenants under the loan
agreement.

         We began negotiations with Union Bank in the fourth quarter of fiscal
2001 to extend the maturity date, renegotiate payment terms, and potentially
release collateral to allow other financing transactions. Union Bank agreed to
extend the maturity date of the current agreement while those negotiations were
ongoing. On June 29, 2001, we entered into an amended and restated loan
agreement with respect to the $7.4 million owing under the former agreement. The
maturity date under the restated agreement is May 1, 2002, but that date may be
extended to November 1, 2002 if we satisfy certain conditions, including us
achieving certain earnings targets. We are required to pay monthly interest at
5% over the bank reference rate. We are required to make a $210,000 payment on
August 24, 2001 or the date of the completion of equity issuance, if completed
earlier, and monthly principal payments of $50,000 beginning October 1, 2001. If
the maturity date is extended to November 1, 2002, monthly principal payments of
$100,000 will be due beginning May 1, 2002. We are required to use any proceeds
in excess of $6 million we receive from private equity placements to reduce
principal under the loan. We are also prohibited from making any payments on
certain subordinated obligations, including the Softline note and the ICM
convertible notes. Finally, we must apply all of the proceeds from a sale of
Integrity shares toward the principal balance.

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

                                       35

<PAGE>

         The entire amount owed to the bank is secured by substantially all of
our assets and those of our U.S. retail and training products subsidiaries, and
65% of the stock of our Australian subsidiary.

         The restated agreement also contains limitations on acquisitions,
investments and other borrowings.

         SOFTLINE

         We borrowed $10 million from Softline in July 2000 in order to pay the
same amount to Union Bank as a mandatory reduction of principal owing to Union
Bank. The note called for monthly interest payments at 10% per annum, which we
agreed to increase to 14% per annum after Softline advised us that the higher
rate was required under the conditions attached to South African Reserve Bank
approval for the loan. In order to conserve cash and in accordance with our
agreements with Union Bank, we have been accruing interest on the Softline note.
We agreed to reimburse Softline for costs associated with this loan in the
amount of $0.3 million. These costs are being amortized as additional interest
over the original 13 month life of the loan.

         In July 2001, we amended and restated the Softline note. The restated
note is in the original principal amount of $11.4 million and accrues interest
at 14% per annum. All unpaid principal and interest is due May 1, 2003, unless
the Union Bank loan is not extended to November 1, 2002, in which case the note
will be due and payable on November 1, 2002. The restated note is subordinate to
our Union Bank indebtedness, and we are not required or permitted to make any
payments of principal or interest under the restated note so long as the Union
Bank indebtedness is outstanding. We are however permitted to convert the note
to common shares should we and Softline agree to the terms of such a conversion.
See "SSII-Softline Memorandum of Understanding" above for proposed terms of a
conversion of the note. We are also required under the terms of the convertible
notes we sold to persons related to ICM Asset Management to obtain an agreement
from Softline to subordinate the Softline note to the ICM notes.

         Our memorandum of understanding with Softline and SSII provides that
Softline will accept 7,000,000 shares of our common stock in satisfaction of $7
million of indebtedness under the restated Softline note, and the balance of the
$4.4 million obligation will convert to a convertible note which is
interest-free for the first year. See "SSII-Softline Memorandum of
Understanding" above.

         NATIONAL AUSTRALIA BANK LIMITED

         Our Australian subsidiary maintains an AUS$1,000,000 (approximately
US$510,000) line of credit facility with National Australia Bank Limited. The
facility is secured by substantially all of the assets of our Australian
subsidiary, and we have guaranteed all amounts owing on the facility. The
facility became due in February of each year, but has renewed annually. 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. We have been negotiating with National Australia Bank to resolve this
situation. If National Australia Bank is able to demonstrate that it has the
right to call the full amount of the facility due, and if we are not able
negotiate a settlement with the bank or otherwise discharge the indebtedness,
National Australia Bank could take control of substantially all of the assets of
our Australian subsidiary, and could hold us responsible under our guarantee for
any and all unsatisfied amounts under the facility.

         ICM

         We sold $1.25 million in 12% convertible notes due August 30, 2001 to
persons related to ICM in May and June 2001. See "ICM Asset Management, Inc."
above. We used the proceeds from the sale of these notes for working capital.

         OTHER INDEBTEDNESS, INCLUDING RELATED PARTIES

         In connection with our acquisition of Island Pacific, we also borrowed
$2.3 million with no stated maturity date from three entities. $1.5 million of
such amount was borrowed from a major stockholder. The balance due on these
loans at March 31, 2001 was $1.3 million. The loans bear interest at the prime
rate and are due upon demand.

         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. In order to
discharge 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 bear interest at prime rate and are due on demand, subject to a
limit on demand rights of $50,000 per payment. As of June 29, 2001, the
remaining balance due to Mr. Schechter on these loans is $38,000 including
accrued interest.

                                       36

<PAGE>

         PLAN REGARDING INDEBTEDNESS

         We have been using operating income and cash from financing activities
to discharge the payments due on our bank term loans and lines of credit. We
have no available lines of credit at this time. We have borrowed from related
parties, including Softline, a subsidiary of Softline, Barry Schechter and
entities related to ICM, as needed to make bank loan and other payments when our
operations could not support such payments. We intend to use funds we receive
from the sale to SSII of the note received in connection with our sale of IBIS
to discharge our indebtedness to Union Bank, and to eliminate the related
interest payments. The SSII-Softline transaction, if completed, will also reduce
the amount of our indebtedness to Softline by $7 million, and eliminate interest
payments due on the $4.5 million balance for one year. See "SSII-Softline
Memorandum of Understanding" above. The contemplated transactions will
substantially reduce our debt burden, and we believe once they are completed, we
will be able to reestablish lines of credit. However, the SSII-Softline
transaction remains subject to final documentation and other conditions, and may
not proceed when or as anticipated.

         If the SSII-Softline transaction does not proceed as anticipated, we
believe we will be able to satisfy from operations the interest-only payments
and the required principal prepayments due to Union Bank under the restated
agreement for the next twelve months, provided the loan is extended. We are not
required to make principal or interest payments to Softline so long as the Union
Bank obligation is outstanding, but interest does currently accrue on that
obligation. Principal and accrued interest on the Softline note will be due May
1, 2003 if the note is not restructured pursuant to the SSII-Softline memorandum
of understanding. We most likely will not have sufficient cash to pay the ICM
convertible notes when due on August 30, 2001, and our agreement with Union Bank
prohibits such payments. These notes are unsecured, and we anticipate that the
holders will convert the notes prior to maturity. We remain potentially subject
to an action by National Australia Bank to take control of our Australian
operations and to seek recovery from us on our guaranty of the obligation of our
Australian subsidiary. It is our intent to negotiate a settlement with National
Australia Bank which would avoid these outcomes, but we may not be successful in
these efforts.

         CASH POSITION AND NEED FOR CAPITAL

         As a result of our indebtedness and net losses for the past two fiscal
years, we began experiencing significant strains on our cash resources in the
third quarter of fiscal 2001. In order to manage our cash resources, we reduced
expenses in our Australian subsidiary and in our US and UK retail 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 $(4.2) million at March 31,
2001, a decrease of $6.8 million from working capital of $2.6 million at March
31, 2000.

         We were unable to make timely, monthly rent payments due for our Irvine
and San Diego facilities during the fourth quarter of fiscal 2001. We
renegotiated rent terms with the landlord of our Irvine facilities in April
2001, and we are currently in compliance with the renegotiated terms. As of June
29, 2001, we are in arrears on rent for our San Diego facility. We are working
to negotiate an assignment of this lease with the landlord to a new tenant and
it is our intention to move to smaller and less expensive facilities in the
greater San Diego area during the second quarter of fiscal 2002.

         As discussed above, we renegotiated on several occasions our agreements
with Union Bank after we were unable to make payments which would have otherwise
been required under these agreements. We were required during the second half of
fiscal 2001 and the first quarter of fiscal 2002 to borrow from related parties
and affiliates to meet non-deferrable operating expenses. Other than cash on
hand, we have no unused sources of liquid assets.

         Management has been actively engaged in attempts to resolve our
liquidity problems. The proposed transaction with SSII and Softline, if
consummated, will substantially relieve the pressures on our liquidity by
reducing our indebtedness, providing a working capital reserve and putting us in
a position where we may be able to establish one or more bank lines of credit.
We will continue however to have a need for working capital after completion of
the SSII-Softline transaction. We are therefore actively seeking a private
equity placement to provide needed working capital for growth and to discharge
aged payables. 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. Failure to obtain the required funding would place further strains on our
working capital resources and operations.

                                       37

<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

         In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No.
101, "Revenue Recognition in Financial Statements". SAB 101 provides the SEC
staff's views in applying generally accepted accounting principles to selected
revenue recognition issues, including software revenue recognition. The Company
adopted SAB 101 in the fourth quarter of the 2001 fiscal year and it did not
have a material effect on our financial position or results of operations for
the fiscal year ended March 31, 2001.

         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 our consolidated financial position or results
of operations.

EURO CURRENCY

         In January 1999, participating European Economic and Monetary Union
(EMU) countries introduced the ECU or "Euro" as a new currency. During 2002, all
participating EMU countries are expected to convert to the Euro as their single
currency. During the next two years, participating EMU countries will conduct
business in both the existing national currency and the Euro. Companies
operating in or conducting business in these EMU member countries will need to
ensure that their financial and other software systems are capable of processing
transactions and properly handling these currencies, including the Euro. We
believe that all of our internal financial and software systems can accommodate
the dual currency system and the full conversion to the Euro. Our retail
software products are designed to operate in any foreign currency, including the
Euro. We cannot guarantee however that our products will operate without
modification through full conversion to the Euro or meet all of the Euro
currency requirements. If our software products do not meet all the Euro
currency requirements, our business, operating results and financial condition
could be materially adversely affected. We have not had and do not expect a
material impact on our results of operations from foreign currency gains or
losses as a result of the transition to the Euro as the functional currency for
our operations in EMU countries.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Market risk represents the risk of loss that may impact our
consolidated financial position, results of operations or cash flows. We are
exposed to market risks, which include changes in interest rates, changes in
foreign currency exchange rate as measured against the U.S. dollar and changes
in the value of stock of a publicly traded company which secures a promissory
note we hold.

INTEREST RATE RISK

         Our exposure to market risk for changes in interest rates relates to
our variable rate term loans, which totaled $9.1 million at March 31, 2001.
Based on this balance, a change in one percent in the interest rate would cause
a change in interest expense of approximately $91,000 or less than $0.01 per
basic and diluted share, on an annual basis.

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

                                       38

<PAGE>

FOREIGN CURRENCY EXCHANGE RATE RISK

         We conduct business in various foreign currencies, primarily in Europe
and 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 22%, 37%, and 83% of our total net sales were denominated in
currencies other than the U.S. dollar for the periods ended March 31, 2001, 2000
and 1999, respectively.

EQUITY PRICE RISK

         We have no direct equity investments. However, we have a note
receivable with a stated balance of $14.1 million which is secured by shares of
the common stock of Integrity Software, Inc. ("Integrity"), a publicly traded
company with shares quoted on the National Quotation Bureau Pink Sheets. We also
have the right to convert the note into common stock of Integrity at a fixed
price. We are therefore exposed to indirect equity price risk. We have not taken
steps to mitigate this risk. During the 2001 fiscal year, the Company engaged a
valuation firm to perform an analysis of the fair value of the collateral
securing the Note at the end of each quarter. After consideration of this
valuation report and other relevant data, the Company concluded at the end of
each of its last three quarters that the fair value of the collateral underlying
the note was less than the value of the note. During the fiscal year, the
Company recognized total impairment of $7.6 million on this note. A decline in
the trading price of Integrity common stock may further impair the value of and
our ability to collect the note which is currently recorded at $7.0 million.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Our consolidated financial statements at March 31, 2001, March 31,
2000, and March 31, 1999 and the report of 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

         None.


                                       39
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Our directors and executive officers, and their ages as of June 29,
2001, are as follows:
<TABLE>
<CAPTION>

               NAME                AGE                         TITLE                        DIRECTOR SINCE
   ----------------------------- ---------   ---------------------------------------------- ------------------
<S>                                 <C>    <C>                                                  <C>
   Barry M. Schechter               47     Chairman of the Board and Director                   1994

   Thomas A. Dorosewicz             46     Chief Executive Officer and Director                 2001

   Arthur S. Klitofsky              47     Vice President and Director                          1994

   Kevin M. O'Neill                 47     Executive Vice President and Chief Financial         2001
                                           Officer, Secretary and Director

   William E. Farrant               46     Executive Vice President and General                  - -
                                           Manager, Retail

   Donald S. Radcliffe (1)          56     Director                                             1998

   Ivan M. Epstein                  40     Director                                             1998

   Gerald Rubenstein                67     Director                                             1998

   Ian Bonner (1) (2)               46     Director                                             1998

   Steven Cohen                     39     Director                                             2000

   Michael Silverman (1) (2)        56     Director                                             2001

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

         Barry M. Schechter has been our Chairman of the Board since February
1994. He was Chief Executive Officer from February 1994 to January 2001. He was
also Chief Executive Officer of our predecessor and wholly-owned subsidiary,
Sabica Ventures, Inc., from its inception in February 1990. Mr. Schechter was a
director of Softline Limited ("Softline"), which beneficially owns 50.3% of our
common stock from until October 2000. Mr. Schechter is also a director of
Integrity Software, Inc., whose share prices are quoted on the National
Quotation Bureau Pink Sheets. We have an indirect equity interest in Integrity
(see "Management's Discussion and Analysis of Financial Condition and Results of
Operations" under "Results of Operations--Fiscal Year Ended March 31, 2001
Compared to Fiscal Year Ended March 31, 2000--Impairment of Assets" above).

         Thomas A. Dorosewicz, has been our Chief Executive Officer and a
Director since January 2001. Mr. Dorosewicz was President of ecVision, Inc. of
San Jose, California, from January 2000 to January 2001. ecVision is a provider
of XML based technology used to automate the merchandise supply chain process
via the Internet. Mr. Dorosewicz directed U.S. operations of ecVision. From
September 1998 to January 2000, he was a Vice President of Integrated Business
Solutions, a Lockheed Martin company which provides information technology
outsourcing and systems integration in e-commerce and integrated document
management. His responsibilities included developing and managing an integrated
e-business unit, and worldwide sales of integrated document management
solutions. Mr. Dorosewicz has a B.S. from University of Maryland.

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

                                       40
<PAGE>

         Kevin M. O'Neill became our Executive Vice President and Chief
Financial Officer in April 2001. He also serves as our Secretary, and he became
a director in May 2001. From 1994 until joining us, Mr. O'Neill held various
positions within Anacomp, Inc., a San Diego-based company whose shares are
quoted on the OTC Bulletin Board. His most recent position was Senior Vice
President, Corporate Development and Strategic Relations. He joined Anacomp as
part of a small team of senior managers responsible for restructuring the
company. His recent responsibilities at Anacomp included oversight of Anacomp's
strategic marketing initiatives, its public and investor relations activities
and its mergers, strategic acquisitions and partnerships. Mr. O'Neill held
various retail industry-related positions within Fujitsu-ICL Systems, Inc. (and
its predecessors and subsidiaries) from 1982 to 1994, the last of which was
Senior Director, Marketing and Development. Mr. O'Neill has a B.A. in Business
Management and Economics from Catawba College.

         William E. Farrant became Executive Vice President and General Manager,
Retail Operations in March 2001. He oversees the day-to-day operations of our
United Kingdom and U.S. retail operations. From 1992 until joining us, Mr.
Farrant held various positions within Anacomp, Inc. His most recent position was
Senior Vice President and General Manager, Document Solutions. The Document
Solutions business is Anacomp's largest business unit. Mr. Farrant held various
retail industry-related positions within Fujitsu-ICL Systems, Inc. (and its
predecessors and subsidiaries) from 1977 to 1992, the last of which was
Director, Product Management. Mr. Farrant has a B.S. in Management and an M.B.A.
from Pepperdine University.

         Donald S. Radcliffe became a director in May 1998. He has been
President of Radcliffe & Associates since 1991. Radcliffe & Associates provides
financial consulting services to public companies, and currently provides
financial advisory services to us. Since 1984 he has also been Executive Vice
President and Chief Operating and Financial Officer of World-Wide Business
Centres, which is a privately held operator of shared office space facilities.
Mr. Radcliffe also serves as a director of Complete Wellness Centers, Inc. and
Integrity Software, Inc. We have an indirect equity interest in Integrity (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" under "Results of Operations--Fiscal Year Ended March 31, 2001
Compared to Fiscal Year Ended March 31, 2000--Impairment of Assets" above). Mr.
Radcliffe received a B.S. from Lehigh University and an M.B.A. from Dartmouth
College. He is a certified public accountant and a member of the Audit
Committee.

         Ivan M. Epstein became a director in May 1998. He is the Chief
Executive Officer and a director of Softline, which he co-founded in 1988.
Softline is listed in the Information Technology sector of the Johannesburg
Stock Exchange and is one of the leading accounting software vendors in the
world. Softline operates in 37 countries with products available in eight
languages, and targets mainly small to medium size enterprises. Softline
beneficially owns 50.3% of our common stock. Mr. Epstein is also a director of
Integrity Software, Inc., for which we have an indirect equity interest (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" under "Results of Operations--Fiscal Year Ended March 31, 2001
Compared to Fiscal Year Ended March 31, 2000--Impairment of Assets" above).

         Gerald Rubenstein became a director in May 1998. He is an attorney in
South Africa and is currently a consultant to the law firm of Fluxman Rabinowitz
- Raphaely Weiner. He specializes in corporate finance and mergers and
acquisitions. He is also the Chairman of Protea Furnishers Limited and Vestacor
Limited. He currently serves as a director of seven public companies in South
Africa, including Softline, which beneficially owns 50.3% of our outstanding
common stock.

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

                                       41
<PAGE>

         Steven Cohen became a director in June 2000. He is the Chief Operating
Officer and a director of Softline, which he joined in 1989 as financial
director. Mr. Cohen played a key role in the development of Softline's
"Brilliant Accounting" software package, and he was an active participant in the
growth of Softline to its current position as one of the leading global
providers of midrange accounting software. Softline beneficially owns 50.3% of
our common stock.

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

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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

         Based solely on a review of copies of such reports furnished to us and
written representations that no other reports were required during the fiscal
year ended March 31, 2001, we believe that all persons subject to the reporting
requirements of Section 16(a) filed the required reports on a timely basis with
the SEC, except Michael Silverman, who filed late his initial Form 3.


                                       42
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

                           SUMMARY COMPENSATION TABLE

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

                                 Annual                               Securities
Name and                     Compensation                             Underlying      All Other
Principal Position               Year          Salary($)   Bonus($)     Options    Compensation($)(1)
------------------           -------------    -----------   -----    ------------   ----------------
<S>                                <C>           <C>        <C>          <C>           <C>
Barry M. Schechter                 2001          312,492       --        321,429           4,995
Chairman of the Board              2000          270,000       --         24,750             --
(and formerly Chief                1999          198,000       --        110,675             --
Executive Officer)

Thomas A. Dorosewicz               2001           55,929    37,500       550,000             277
Chief Executive Officer

Arthur S. Klitofsky                2001          152,400       --         90,000           4,572
President of SVI                   2000          140,400       --         12,700             --
Training                           1999          134,100       --         35,000             --

Mark Wulff                         2001          287,500       --        100,000           6,213
Former Chief Executive             2000          280,769       --           --               --
Officer of SVI Retail, Inc.

David L. Reese                     2001          150,000       --         12,000           4,500
Former Chief Financial             2000          116,667       --         59,000             --
Officer                            1999           90,248       --         51,000             --

William Witte                      2001          178,125       --         50,000           1,874
Former Executive Vice
President and General
Manager, Supply Chain
Solutions

William MacFarlane                 2001          108,924       --         50,000             --
Former Executive Vice
President and General
Manager, Client Services
</TABLE>

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

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

                                       43
<PAGE>

         The following table sets forth the information concerning individual
grants of stock options during the last fiscal year to the named executive
officers. Except as otherwise indicated, the options are fully vested.
<TABLE>
<CAPTION>

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

                 Potential Realizable
                   Value at Assumed
                   Annual Rates of
                                     Individual Grants                           Stock Price
-------------------------------------------------------------------------------- -------------       Appreciation for
                                                            Exercise   Market                         Option Term ($)
                                                            or Base   Price on
                         Date of     Options       % of      Price  Date of Grant Expiration    -----------------------------
         Name             Grant    Granted (#)    Total     ($/Sh.)    ($/Sh .)     Date          0%        5%         10%
-----------------------------------------------------------------------------------------------------------------------------
<S>                       <C>       <C>            <C>        <C>        <C>      <C>        <C>         <C>        <C>
Barry M. Schechter         12/5/00   321,429(1)    10.7%       1.40      1.27     12/5/10         0     214,938    608,884

Thomas A. Dorosewicz       1/10/01   250,000(1)     7.8%       1.12      1.12     1/10/11         0     176,090    446,248
                           1/10/01   300,000(2)     9.4%       0.95      1.12     1/10/11    51,000     262,309    586,497

Arthur S. Klitofsky       11/15/00    90,000(1)     2.8%       1.61      1.61    11/15/10         0      91,127    230,933

Mark T. Wulff             11/15/00   100,000        3.1%       1.61      1.61    11/15/10(3)      0           0(3)       0(3)

David L. Reese            11/15/00    12,000(1)     0.4%       1.61      1.61    11/15/10(4)      0           0(4)       0(4)

William Witte             11/15/00    25,000        0.8%       1.61      1.61    11/15/10         0      25,313     64,148
                          11/15/00    25,000(1)     0.8%       1.61      1.61    11/15/10(5)      0      25,313     64,148

William MacFarlane        11/15/00    10,000(1)     0.3%       1.61      1.61    11/15/10(6)      0      10,125     25,659
                           2/27/01    40,000(7)     1.3%       1.31      1.31     2/27/11(6)      0      32,954     83,512
</TABLE>

(1)  Options vest 20% per year over five years beginning on the first
     anniversary of the grant, subject to continuing service.

(2)  Options vest as to 100,000 shares on the date of grant, 100,000 shares six
     months after the date of grant, and 100,000 shares 24 months after the date
     of grant, subject to continuing service.

(3)  Mr. Wulff resigned from his position on January 5, 2001. As a result, none
     of these options will vest and they were therefore effectively terminated
     at fiscal year end.

(4)  Mr. Reese resigned from his position effective March 31, 2001. As a result,
     none of these options will vest and they were therefore effectively
     terminated at fiscal year end.

(5)  Effective April 30, 2001, Mr. Witte is no longer employed by SVI. As a
     result, none of these options will vest and they were therefore effectively
     terminated. These options were in force at fiscal year end.

(6)  Effective May 31, 2001, Mr. MacFarlane is no longer employed by SVI. As a
     result, none of these options will vest and they were therefore effectively
     terminated. These options were in force at fiscal year end.

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

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

                                       44
<PAGE>

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

                          FISCAL YEAR END OPTION VALUES
<CAPTION>

                                         Number of Securities
                                        Underlying Unexercised      Value of    Unexercised In-The-Money
                                        Options at FY End (#)       Options          at FY End ($)
                   Name               Exercisable/Unexercisable               Exercisable/Unexercisable (1)
------------------------------------------------------------------------------------------------
<S>                                        <C>                                   <C>
        Barry M. Schechter                 185,425/321,429                   0/0
        Thomas A. Dorosewicz               100,000/450,000                 8,000/16,000
        Arthur Klitofsky                   114,540/100,160                   0/0
        Mark Wulff                                 0/0 (2)                   0/0
        David L. Reese                        37,000/0 (3)                   0/0
        William Witte                        25,000/25,000                   0/0
        William MacFarlane                        0/50,000                   0/0
</TABLE>

(1)  Based upon the market price of $1.03 per share, determined on the basis of
     the closing sale price per share of our common stock on the American Stock
     Exchange on the last trading day of the 2001 fiscal year, less the option
     exercise price payable per share.

(2)  As a result of Mr. Wulff's resignation from his position on January 5,
     2001, unvested option at fiscal year end will not vest and have been
     omitted from the table.

(3)  As a result of Mr. Reese's resignation from his position effective March
     31, 2001, unvested options at fiscal year end will not vest and have been
     omitted from the table.

LONG-TERM INCENTIVE PLANS

         We do not have any long-term incentive plans, as those terms are
defined in SEC regulations. During the fiscal year ended March 31, 2001, we did
not adjust or amend the exercise price of stock options awarded to the named
executive officers. We have no defined benefit or actuarial plans covering any
named executive officer.

STOCK INCENTIVE PLANS

         We have two stock incentive plans. Our Incentive Stock Option Plan
(1989 plan) terminated in October 1999. It provided for issuance of incentive
stock options to purchase up to 1,500,000 shares of common stock to employees.
625,485 of such shares remain subject to option as of June 30, 2001. The 1989
plan was administered by the Board of Directors, which established the terms and
conditions of each option grant.

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

                                       45
<PAGE>

stockholders approved the amendments at our annual meeting held November 16,
2000. On April 2, 2001, the automatic increase of 600,000 shares was effected,
so that the total number of shares reserved under the 1998 plan is currently
4,600,000. The exercise price of options is determined by the Board of
Directors, but the exercise price may not be less than 100% of the fair market
value on the date of the grant, in the case of incentive stock options, or 85%
of the fair market value on the date of the grant, in the case of non-statutory
stock options.

EMPLOYMENT AGREEMENTS

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

         We entered into an employment agreement with Thomas A. Dorosewicz
effective January 10, 2001. Under the agreement, Mr. Dorosewicz is paid base
annual compensation of $250,000. For fiscal year 2001, he was entitled to earn a
guaranteed bonus of $18,750 and an additional $18,750 performance bonus. Mr.
Dorosewicz earned the full $37,500 bonus for fiscal 2001, and agreed to accept
payment in shares of our common stock. We agreed to pay the withholding taxes
which were due upon this stock grant. For fiscal 2002, Mr. Dorosewicz will be
entitled to a cash bonus of up to 75% of his base salary upon achievement of
performance targets. We also agreed to issue Mr. Dorosewicz 250,000 options
priced at fair market value on his start date, vesting over five years, and an
additional 300,000 special stock options priced at 85% of fair market value,
vesting 100,000 immediately, 100,000 after six months and 100,000 after 24
months. We have agreed to issue additional options to Mr. Dorosewicz during
fiscal 2002 based on various performance criteria. We also agreed to pay Mr.
Dorosewicz certain relocation expenses. The agreement may be terminated by us or
by Mr. Dorosewicz with 30 days advanced notice. If we terminate the agreement
without cause, we must pay Mr. Dorosewicz severance equal to six months' base
salary plus the pro-rated portion of his bonus. If we terminate the agreement
without cause after one year, we must pay additional severance of one month's
base salary for each year of service completed, up to a maximum of six
additional months.

         We entered into a three-year employment agreement with Mark T. Wulff
effective June 3, 1999. Mr. Wulff's annual compensation under the agreement was
$300,000. The agreement could be terminated at will by either party upon six
months prior written notice or by us for cause on three days' written notice. In
January 2001, Mr. Wulff stepped down as CEO of SVI Retail. We are currently
negotiating a release and severance agreement with him.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         Ian Bonner, Gerald Rubenstein and Michael Silverman served as members
of the Compensation Committee during some or all of fiscal 2001. Mr. Bonner and
Mr. Silverman currently serve as the member of the Compensation Committee. No
member of the Compensation Committee during fiscal 2001 has ever been an officer
of SVI or any of its subsidiaries. During fiscal 2001, none of our executive
officers served as a member of a compensation committee or board of directors of
any entity that has one or more if its executive officers serving as a member of
our Compensation Committee.

DIRECTOR COMPENSATION

         We did not pay direct or indirect remuneration to any of our directors
in their capacities as directors during the last fiscal year. We do not
anticipate paying any direct or indirect remuneration to our directors in their
capacities as directors during this fiscal year other than reimbursement of
expenses for attending directors' or committee meetings and discretionary stock
option grants under the 1998 plan. During the last fiscal year, Donald Radcliffe
and Michael Silverman received options to purchase 100,000 and 50,000 shares,
respectively, of our common stock at an exercise price of $1.00. The options
each expire on January 2, 2011 and will vest at a rate of 20% of the shares
subject to the grant annually, subject to continuing service.

                                       46
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table shows beneficial ownership of shares of our common
stock as of June 29, 2001 (i) by all persons known by us to beneficially own
more than 5% of such stock and (ii) by each director, each of the named
executive officers, and all directors and executive officers as a group. Except
as otherwise specified, the address for each person is 12707 High Bluff Drive,
Suite 335, San Diego, California 92130. As of June 29, 2001, there were
37,914,744 shares of common stock outstanding. Each of the named persons has
sole voting and investment power with respect to the shares shown (subject to
community property laws), except as stated below.
<TABLE>
<CAPTION>

                                                   Amount and Nature
              Name and Address of                 of Beneficial Ownership           Percent
               Beneficial Owner                            (1)                     of Class
          ---------------------------------       ----------------------           --------
<S>                                                    <C>                 <C>        <C>
          Softline Limited                             19,100,527          (2)        50.3%
          16 Commerce Crescent
          Eastgate Extension 13
          Sandton 2148
          South Africa

          Claudav Holdings Ltd. B.V.                    5,511,925          (3)        14.5%
          9 Rue Charles Humbert
          1205 Geneva
          Switzerland
          The Ivanhoe Irrevocable Trust                 5,511,925          (3)        14.5%

          Barry M. Schechter                            5,511,925          (3)        14.5%

          ICM Asset Management, Inc.                    6,254,697          (4)        15.3%
          601 W. Main Ave., Suite 600
          Spokane, WA  99201

          Thomas A. Dorosewicz                            136,407          (5)         < 1%

          Kevin M. O'Neill                                 10,000                      < 1%

          David L. Reese                                   37,000          (6)         < 1%

          Arthur S. Klitofsky                             377,440          (7)         1.0%

          William Witte                                    25,000          (6)         < 1%

          William MacFarlane                                    0                      0.0%

          Donald S. Radcliffe                             647,800          (8)         1.7%
          575 Madison Avenue
          New York, NY 10022

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

                                       47
<PAGE>

          Gerald Rubenstein                                 5,000          (6)         < 1%
          16 Commerce Crescent
          Eastgate Extension 13
          Sandton 2148
          South Africa

          Ian Bonner                                       52,000          (6)         < 1%
          5527 Inverrary Court
          Dallas, Texas 75287

          Steven Cohen                                          0                      0.0%
          16 Commerce Crescent
          Eastgate Extension 13
          Sandton 2148
          South Africa

          Mark Wulff                                            0                      0.0%

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

          All directors and executive                   6,854,572          (9)        17.7%
          Officers as a group (11 persons)
</TABLE>

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

(2)    Includes 71,812 shares pursuant to outstanding options exercisable within
       60 days of June 29, 2001. The eleven directors of Softline are Ivan M.
       Epstein, Steven Cohen, Carlos de Santos, Ivan Ferrer, Laurence Nestadt,
       Eric Ellerine, Mac Maharaj, Robert Wilkie, Gerald Rubenstein, Jonathon
       Copelyn and Marcel Golding. Mr. Golding serves as Chairman of the Board,
       Mr. Epstein serves as Chief Executive Officer, and Mr. Cohen serves as
       Chief Operating Officer. Each of the foregoing persons disclaims
       beneficial ownership of the shares and options held by Softline.

(3)    Claudav Holdings Ltd. B.V. ("Claudav"), the Ivanhoe Irrevocable Trust
       ("Ivanhoe") and Barry M. Schechter may be deemed a group pursuant to Rule
       13d-5 promulgated under the Exchange Act. Claudav holds 2,224,500 shares,
       for which it shares voting power with Mr. Schechter pursuant to a proxy.
       Claudav is managed by Erwin Wachter, Trustee. Mr. Wachter therefore
       shares beneficial ownership with Mr. Schechter of the shares held by
       Claudav. Ivanhoe holds 3,100,000 shares for which it shares voting and
       investment power with Mr. Schechter pursuant to Mr. Schechter's position
       as a trustee. Includes 2,000 shares held by Mr. Schechter's minor
       children and 185,425 shares pursuant to options of Mr. Schechter
       exercisable within 60 days of June 29, 2001. Excludes 10,000 shares held
       by Mr. Schechter's spouse, for which Mr. Schechter disclaims beneficial
       ownership.

(4)    Includes 2,321,411 shares held by Koyah Leverage Partners, L.P. and
       580,353 shares held by Koyah Partners, L.P. Also includes 1,685,258
       shares pursuant to outstanding warrants and 694,445 shares obtainable
       upon conversion of convertible notes held by Koyah Leverage Partners,
       L.P., 409,598 shares pursuant to outstanding warrants and 138,889 shares
       obtainable upon conversion of convertible notes held by Koyah Partners,
       L.P., and 31,250 shares pursuant to outstanding warrants and 92,593
       shares obtainable upon conversion of convertible notes held by Koyah
       Community Partners, L.P. Koyah Ventures, LLC is the general partner of
       Koyah Leverage Partners, L.P., Koyah Partners, L.P. and Koyah Community
       Partners, L.P., and as a result has shared voting and investment power
       over shares held by all three entities. ICM Asset Management, Inc. is the
       investment advisor to Koyah Leverage Partners, L.P., Koyah Partners, L.P.
       and Koyah Community Partners, L.P., and as a result has shared voting and
       investment power over shares held by all three entities. Also includes
       300,900 shares held by other clients of ICM Asset Management, Inc. ICM
       Asset Management, Inc. has discretionary authority over shares held by
       these other clients and as a result has shared voting and investment
       power over these shares. James M. Simmons is the managing member of Koyah
       Ventures, LLC and the chief investment officer and controlling


                                       48
<PAGE>

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

(5)    Includes 100,000 shares pursuant to outstanding options exercisable
       within 60 days of June 29, 2001.

(6)    Consists of outstanding options exercisable within 60 days of June 29,
       2001.

(7)    Includes 114,540 shares pursuant to outstanding options exercisable
       within 60 days of June 29, 2001.

(8)    Includes 300,000 shares pursuant to outstanding options exercisable
       within 60 days of June 29, 2001. Also includes 11,500 shares held by an
       entity for which Mr. Radcliffe has sole voting and investment power. Also
       includes an aggregate of 82,100 shares held by three entities for which
       Mr. Radcliffe has shared voting and investment power. Excludes 121,500
       shares held by Mr. Radcliffe's spouse, for which Mr. Radcliffe disclaims
       beneficial ownership.

(9)    Includes 861,965 shares pursuant to outstanding options exercisable
       within 60 days of June 29, 2001.

POSSIBLE CHANGE OF CONTROL

         In May 2001, we entered into a memorandum of understanding with
Softline and Shmulik Stein International Investments (SSII). If the transactions
contemplated by the memorandum of understanding are consummated, Softline would
no longer be our majority stockholder, and SSII would become a substantial
stockholder . The terms of this memorandum of understanding are discussed above
in "Management's Discussion and Analysis of Financial Condition and Results of
Operation" under "Financing Transactions--SSII-Softline Memorandum of
Understanding."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The following is a description of transactions since April 1, 2000 to
which we have been a party, in which the amount involved exceeds $60,000 and in
which any director, executive officer or holder of more than 5% of our common
stock had or will have a direct or indirect interest, other than our
compensation arrangements with our directors and named executive officers
described above under "Executive Compensation." Certain of these transactions
will continue in effect and may result in conflicts of interest between us and
such individuals. Although these persons may owe fiduciary duties to our
stockholders, there is a risk that such conflicts of interest may not be
resolved in favor of us.

         In July 2000, we borrowed $10 million from Softline Limited in order to
pay the same amount to Union Bank as a mandatory reduction of principal owing to
Union Bank. Softline beneficially owns approximately 50.3% of our common stock,
and is therefore a parent corporation to us. Softline is a South African company
listed on the Johannesburg Stock Exchange. Ivan M. Epstein, Gerald Rubenstein
and Steven Cohen are each directors of Softline. Mr. Epstein is Chief Executive
Officer and Mr. Cohen is Chief Operating Officer of Softline. The terms of this
loan are discussed above in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" under "Liquidity and Capital
Resources--Indebtedness--Softline."

         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.

                                       49
<PAGE>

         In February 2001, we borrowed $400,000 from Barry M. Schechter, our
Chairman, in order to pay off in part our obligation due to the wholly-owned
subsidiary of Softline. 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 bear interest at prime
rate and are due on demand, subject to a limit on demand rights of $50,000 per
payment. As of June 29, 2001, the remaining balance due to Mr. Schechter on
these loans was $38,000 including accrued interest.

         In May 2001, we entered into a memorandum of understanding with
Softline and Shmulik Stein International Investments. The terms of this
memorandum of understanding are discussed above in "Management's Discussion and
Analysis of Financial Condition and Results of Operation" under "Financing
Transactions--SSII-Softline Memorandum of Understanding."

         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
Asset Management, Inc., which beneficially owns 15.3% of our common stock,
including the securities obtained through this private placement. The notes are
due August 30, 2001, and require interest at the rate of 12% per annum to be
paid at maturity. Any portion of the unpaid amount of principal and interest is
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. We also agreed to register with the SEC any shares that may be
obtained upon conversion of the notes or exercise of the warrants. We are
further required to obtain an agreement from Softline subordinating our
obligation to Softline to the convertible notes.

         We retain Radcliffe & Associates, an entity affiliated with Donald S.
Radcliffe, to perform financial advisory services for us. During the fiscal year
ended March 31, 2001, we incurred $111,966 in fees and costs to Radcliffe &
Associates. We incurred an additional $25,435 in fees to Mr. Radcliffe for
accounting services during the fiscal year ended March 31, 2001.

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

(a)      Financial statements and financial statement schedules

         Independent Auditors' Report.....................................F-1

         Consolidated Balance Sheets as of March 31, 2001 and 2000........F-2

         Consolidated Statements of Operations for the Years ended
         March 31, 2001, March 31, 2000, and March 31, 1999...............F-3

         Consolidated Statements of Stockholders' Equity for the Years
         Ended March 31, 2001, March 31, 2000 and March 31, 1999..........F-4-5

         Consolidated Statements of Cash Flows for the Years Ended
         March 31, 2001, March 31, 2000, and March 31, 1999...............F-6-7

         Notes to Consolidated Financial Statements.......................F-8-24

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

(b)      Reports on Form 8-K.

         During the quarter ended March 31, 2001, we filed the following:

o    Form 8-K filed January 8, 2001 reporting in Item 5 the appointment of our
     new CEO and the sale of common stock and warrants to accredited investors
     in a private placement.

o    Form 8-K filed February 21, 2001 reporting in Item 5 the exercise of
     options held by accredited investors to acquire common stock and warrants.

o    Form 8-K filed March 14, 2001 reporting in Item 5 changes in senior
     management.

                                       50
<PAGE>

(c)      Exhibits

         In the index below, we refer to SVI Solutions, Inc. and its
         predecessors as the "Company."

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

2.1      Sale of Shares Agreement between Softline Limited and the Company for
         the acquisition of IBIS Systems Pty. Ltd., incorporated by reference to
         exhibit 1 to the Company's Form 8-K filed on December 19, 1997.

2.2      Agreement of Merger and Plan of Reorganization dated as of July 1, 1998
         among the Company and its wholly-owned subsidiary; Applied Retail
         Solutions, Inc., and the shareholders of Applied Retail Solutions,
         Inc., incorporated by reference to exhibit 2.1 to the Company's Form
         8-K filed on September 16, 1998.

2.3      First Amendment to the Agreement and Plan of Reorganization dated
         January 28, 1999 among the Company and its wholly-owned subsidiary,
         Applied Retail Solutions, Inc., and the shareholders of Applied Retail
         Solutions, Inc., incorporated by reference to exhibit 2.1 to the
         Company's Form 10-QSB for the quarter ended December 31, 1998.

2.4      Second Amendment to the Agreement and Plan of Reorganization dated May
         24, 1999 among the Company and its wholly-owned subsidiary, Applied
         Retail Solutions, Inc., and the shareholders of Applied Retail
         Solutions Inc., incorporated by reference to exhibit 2.12 to the
         Company's Form 10-KSB for the fiscal year ended March 31, 1999.

2.5      Share Sale Agreement effective December 31, 1998 between Kielduff
         Investments Limited and the Company, incorporated by reference to
         exhibit 10.2 to the Company's Form 8-K filed on May 14, 1999.

2.6      Stock Purchase Agreement dated June 1, 1999 among the Company, Island
         Pacific Systems Corporation, and the shareholders of Island Pacific
         Systems Corporation, incorporated by reference to exhibit 2.1 to the
         Company's Form 8-K filed on June 18, 1999.

2.7      Asset Purchase Agreement dated March 16, 2000 among the Company,
         MarketPlace Systems Corporation and Jay Fisher, incorporated by
         reference to exhibit 2.15 to the Company's Form 10-K for the fiscal
         year ended March 31, 2000.

2.8      Agreement and Plan of Merger of SVI Solutions, Inc. and SVI Holdings,
         Inc. dated February 20, 2001. *

3.1      Restated Certificate of Incorporation. *

3.2      Restated Bylaws. *

4.1      Form of Stock Certificate. *

10.1     Incentive Stock Option Plan, as amended April 1, 1998, incorporated by
         reference to exhibit 10.1 to the Company's Form 10-QSB for the quarter
         ended September 30, 1998.

10.2     Employment Agreement of Barry M. Schechter dated effective October 1,
         2000. *

10.3     Description of Agreement between Softline Limited and SVI Holdings,
         Inc. regarding sale of Triple-S Computers (Pty) Limited, incorporated
         by reference to exhibit 10.4 to the Company's Form 10-K for the fiscal
         year ended March 31, 2000.

10.4     1998 Incentive Stock Plan, as amended. *

10.5     Promissory Note dated December 31, 1998 executed by Kielduff
         Investments Limited in favor of the Company, incorporated by reference
         to exhibit 10.3 to the Company's Form 8-K filed on May 14, 1999.

10.6     Pledge Agreement effective December 31, 1998 between Kielduff
         Investments Limited and the Company, incorporated by reference to
         exhibit 10.4 to the Company's Form 8-K filed on May 14, 1999.

10.7     Settlement and Release Agreement effective December 31, 1998 among
         Kielduff Investments Limited, the Company, Softline Limited, Systems
         for Business Incorporated and IBIS Systems Limited, incorporated by
         reference to exhibit 10.5 to the Company's Form 8-K filed on May 14,
         1999.

10.8     Amendment to Note between the Company and Kielduff Investments Limited,
         incorporated by reference to exhibit 2.1 to the Company's Form 8-K
         filed November 1, 1999.

                                       51
<PAGE>

10.9     Agreement and Amendment to Note, Pledge Agreement and Settlement and
         Release Agreement among the Company, Softline Limited, Kielduff
         Investments Limited, Systems For Business Incorporated, IBIS Systems
         Limited and Jyris Group, incorporated by reference to exhibit 10.24 to
         the Company's Form 10-Q/A filed July 11, 2000 for the quarter ended
         December 31, 1999.

10.10    Registration Rights Agreement between the Company and Integrity
         Holdings, Ltd., incorporated by reference to exhibit 10.25 to the
         Company's Form 10-Q filed February 14, 2000.

10.11    Letter Agreement between the Company and Union Bank of California,
         N.A., incorporated by reference to exhibit 10.26 to the Company's Form
         10-Q/A filed on July 11, 2000.

10.12    Term Loan Agreement dated June 3, 1999 between the Company and Union
         Bank of California, N.A., incorporated by reference to exhibit 10.1 to
         the Company's Form 8-K filed on June 18, 1999.

10.13    Amendment No. 1 to Term Loan Agreement between the Company and Union
         Bank of California, N.A., dated May 31, 2000, incorporated by reference
         to exhibit 10.24 to the Company's Form 10-K for the fiscal year ended
         March 31, 2000.

10.14    Revolving Note between the Company and Union Bank of California, N.A.,
         dated May 31, 2000, incorporated by reference to exhibit 10.25 to the
         Company's Form 10-K for the fiscal year ended March 31, 2000.

10.15    Amendment No. 2 to Term Loan Agreement between the Company and Union
         Bank of California, N.A., dated July 13, 2000, incorporated by
         reference to exhibit 10.26 to the Company's Form 10-K for the fiscal
         year ended March 31, 2000.

10.16    Term Loan Note of the Company in favor of Union Bank of California,
         N.A. dated July 13, 2000, incorporated by reference to exhibit 10.27 to
         the Company's Form 10-K for the fiscal year ended March 31, 2000.

10.17    Amendment No. 3 to Term Loan Agreement, incorporated by reference to
         exhibit 10.6 to the Company's Form 10-Q filed February 14, 2001.

10.18    Letter Agreement between the Company and Union Bank of California, N.A.
         dated April 24, 2001. *

10.19    Letter Agreement between the Company and Union Bank of California, N.A.
         dated June 22, 2001. *

10.20    Amended and Restated Term Loan Agreement between the Company and Union
         Bank of California, N.A. dated as of June 29, 2001. *

10.21    Common Stock Purchase Agreement between the Company and AMRO
         International, S.A. dated March 13, 2000, incorporated by reference to
         exhibit 10.28 to the Company's Form 10-K for the fiscal year ended
         March 31, 2000.

10.22    Registration Rights Agreement between the Company and AMRO
         International, S.A. dated March 13, 2000, incorporated by reference to
         exhibit 10.29 to the Company's Form 10-K for the fiscal year ended
         March 31, 2000.

10.23    Letter Agreement between the Company and AMRO International, S.A. dated
         March 1, 2000. *

10.24    Common Stock Option Agreement dated May 24, 1999 between the Company
         and Softline Limited, incorporated by reference to exhibit 10.30 to the
         Company's Form 10-K for the fiscal year ended March 31, 2000.

10.25    Software Sale and Use Agreement dated September 16, 1999 between
         Divergent Technologies (Pty) Limited and Resource Control Management
         Limited (UK), incorporated by reference to exhibit 10.31 to the
         Company's Form 10-K for the fiscal year ended March 31, 2000.

10.26    Amended and Restated Subordinated Promissory Note of the Company in
         favor of Softline Limited dated June 30, 2001. *

10.27    Convertible Promissory Note and Grant of Security Interest,
         incorporated by reference to exhibit 10.1 to the Company's Form 8-K
         filed January 8, 2001.

                                       52
<PAGE>

10.28    Common Stock Purchase Agreement, incorporated by reference to exhibit
         10.2 to the Company's Form 8-K filed January 8, 2001.

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

10.30    Form of Warrant To Purchase Common Stock, incorporated by reference to
         exhibit 10.4 to the Company's Form 8-K filed January 8, 2001.

10.31    Form of Convertible Promissory Note. *

10.32    Loan Note in Favor of Datafaction, as amended, incorporated by
         reference to exhibit 10.5 to the Company's Form 10-Q filed February 14,
         2001.

10.33    Promissory Note in favor of Barry Schechter, dated February 13, 2001. *

10.34    Umbrella Agreement with Toys 'R Us. Portions of this exhibit (indicated
         by asterisks) have been omitted pursuant to a request for confidential
         treatment pursuant to Rule 24b-2 under the Securities Exchange Act of
         1934. *

10.35    License Agreement for Software Products with Toys 'R Us. Portions of
         this exhibit (indicated by asterisks) have been omitted pursuant to a
         request for confidential treatment pursuant to Rule 24b-2 under the
         Securities Exchange Act of 1934. *

10.36    Modification Agreement with Toys 'R Us, as amended. Portions of this
         exhibit (indicated by asterisks) have been omitted pursuant to a
         request for confidential treatment pursuant to Rule 24b-2 under the
         Securities Exchange Act of 1934. *

10.37    Services Agreement with Toys 'R Us. Portions of this exhibit (indicated
         by asterisks) have been omitted pursuant to a request for confidential
         treatment pursuant to Rule 24b-2 under the Securities Exchange Act of
         1934. *

10.38    Lease agreement for San Diego facilities dated December 14, 1992, as
         amended. *

10.39    Lease agreement for Irvine facility dated March 29, 1995, as amended. *

21       List of Subsidiaries. *


* previously filed

                                       53
<PAGE>


                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

Date: July 30, 2001                SVI SOLUTIONS, INC., A DELAWARE CORPORATION



                                   By: /s/ Thomas A. Dorosewicz
                                   ---------------------------------------------
                                   Thomas A. Dorosewicz, Chief Executive Officer
                                   (Principal Executive Officer)

         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>

Signatures                                 Capacity                         Date
----------                                 --------                         ----
<S>                                        <C>                              <C>
/s/ Barry M. Schechter                     Chairman of the Board,           July 30, 2001
-------------------------------------      and Director
Barry M. Schechter

/s/ Thomas A. Dorosewicz                   Chief Executive Officer          July 30, 2001
-------------------------------------      and Director
Thomas A, Dorosewicz

/s/ Kevin M. O'Neill                       Chief Financial Officer,         July 30, 2001
-------------------------------------      Secretary and Director
Kevin M. O'Neill

/s/ Arthur S. Klitofsky                    Vice President and Director      July 30, 2001
-------------------------------------
Arthur S. Klitofsky

/s/ Donald S. Radcliffe                    Director                         July 30, 2001
-------------------------------------
Donald S. Radcliffe

/s/ Ivan M. Epstein                        Director                         July 30, 2001
-------------------------------------
Ivan M. Epstein

/s/ Gerald Rubenstein                      Director                         July 30, 2001
-------------------------------------
Gerald Rubenstein

/s/ Ian Bonner                             Director                         July 30, 2001
-------------------------------------
Ian Bonner

/s/ Steven Cohen                           Director                         July 30, 2001
-------------------------------------
Steven Cohen

/s/ Michael Silverman                      Director                         July 30, 2001
-------------------------------------
Michael Silverman

</TABLE>
                                       54
<PAGE>

INDEPENDENT AUDITORS' REPORT


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

We have audited the accompanying consolidated balance sheets of SVI Solutions,
Inc. and subsidiaries (collectively, the "Company") (a majority owned subsidiary
of Softline Limited) as of March 31, 2001 and 2000, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended March 31, 2001. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of March 31, 2001
and 2000, and the results of its operations and its cash flows for each of the
three years in the period ended March 31, 2001 in conformity with accounting
principles generally accepted in the United States of America.

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

/s/ DELOITTE & TOUCHE LLP

San Diego, California
July 13, 2001

                                      F-1

<PAGE>

<TABLE>
SVI SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>

                                                                         March 31,     March 31,
                                                                           2001          2000
                                                                 ------------------------------------
                                                                  (in thousands, except share amounts)
<S>                                                                      <C>         <C>
ASSETS (See Note 9)

Current assets:
     Cash and cash equivalents                                           $1,267      $  4,838
     Accounts receivable, net of allowance for doubtful
         accounts of $790 and $1,283, respectively                        3,828         9,954
     Income tax refund receivable                                         1,017
     Other receivables                                                      286           303
     Inventories                                                            281           272
     Current portion - non-compete agreements                             1,017         1,609
     Deferred income tax asset                                               --         3,905
     Prepaid expenses and other current assets                              315           747
                                                                       ---------     ---------
              Total current assets                                        8,011        21,628

Note receivable, net                                                      7,000        14,092
Property and equipment, net                                               1,106         1,529
Purchased and capitalized software, net                                  21,310        30,597
Goodwill, net                                                            17,646        22,545
Non-compete agreements, net                                               2,597         3,615
Other assets                                                                 40            77
                                                                       ---------     ---------
              Total assets                                             $ 57,710      $ 94,083
                                                                       =========     =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                  $  3,225      $  1,242
     Accrued expenses                                                     5,234         3,642
     Deferred revenue                                                     1,886         6,324
     Current portion of term loans                                           --         3,892
     Line of credit                                                         485         2,268
     Demand loans due to stockholders (See Note 15)                       1,333         1,632
                                                                       ---------     ---------
               Total current liabilities                                 12,163        19,000

Term loans refinanced in July 2000 and May 2001                           7,325        13,150
Subordinated term loan due to stockholder (See Note 9)                   11,037
Other long-term liabilities                                                 192           135
Deferred income tax liability                                                --         8,301
                                                                       ---------     ---------
              Total liabilities                                          30,717        40,586
                                                                       ---------     ---------

Commitments and contingencies (Note 10)

Stockholders' equity:
     Preferred stock, $.0001 par value; 5,000,000 shares authorized;
       no shares issued and outstanding
     Common stock, $.0001 par value; 100,000,000 shares authorized;
       37,836,669 and  33,567,884 shares issued and outstanding               4             3
     Additional paid-in capital                                          57,108        53,454
     Treasury stock, at cost; shares - 444,641 in 2001 and 2000          (4,306)       (4,306)
     Retained (deficit)earnings                                         (23,114)        5,831
     Accumulated other comprehensive loss                                (2,699)       (1,485)
                                                                       ---------     ---------
              Total stockholders' equity                                 26,993        53,497
                                                                       ---------     ---------
              Total liabilities and stockholders' equity               $ 57,710      $ 94,083
                                                                       =========     =========

     The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
                                              F-2

<PAGE>

<TABLE>
SVI SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>

                                                                      YEAR ENDED MARCH 31,
                                                            -------------------------------------
                                                                2001         2000          1999
                                                             ---------    ---------     ---------
                                                             (in thousands, except per share data)
<S>                                                          <C>           <C>          <C>
Net sales                                                    $ 32,672     $ 36,114      $ 17,487
Cost of sales                                                  11,669       10,970         5,347
                                                             ---------    ---------     ---------
       Gross profit                                            21,003       25,144        12,140
                                                             ---------    ---------     ---------
Expenses:
    Application development                                     5,576        4,877
    Depreciation and amortization                               9,540        7,942         2,395
    Selling, general and administrative                        21,569       18,235         7,603
    Impairment of capitalized software and goodwill
        associated with Australian operations                   8,886
    Impairment of note receivable received in
        connection with the sale of IBIS Systems Limited        7,647
                                                             ---------    ---------     ---------
          Total expenses                                       53,218       31,054         9,998
                                                             ---------    ---------     ---------

Income (loss) from operations                                 (32,215)      (5,910)        2,142

Other income (expense):
    Interest income                                               681        1,081           646
    Other income                                                   89          (94)          817
    Interest expense                                           (3,103)      (1,531)          (90)
    Loss on foreign currency transaction                           (9)         (12)         (146)
                                                             ---------    ---------     ---------
       Total other income (expense)                            (2,342)        (556)        1,227
                                                             ---------    ---------     ---------

Income (loss) before provision (benefit) for income           (34,557)      (6,466)        3,369
  taxes

     Provision (benefit) for income taxes                      (5,612)      (2,412)        1,671
                                                             ---------    ---------     ---------

Income (loss) from continuing operations                      (28,945)      (4,054)        1,698

Discontinued operations:
    Income from operations of IBIS Systems
      Limited, net of applicable income taxes of $1,337                                    3,613
    Gain on disposal of IBIS Systems Limited, net of
      applicable income taxes of $753                                                        274
                                                             ---------    ---------     ---------
         Income from discontinued operations                    3,887
                                                             ---------    ---------     ---------

Net income (loss)                                            $(28,945)    $ (4,054)     $  5,585
                                                             =========    =========     =========

Basic earnings (loss) per share:
    Continuing operations                                    $  (0.83)    $  (0.12)     $   0.06
    Discontinued operations                                                                 0.14
                                                             ---------    ---------     ---------
       Net income (loss)                                     $  (0.83)    $  (0.12)     $   0.20
                                                             =========    =========     =========

Diluted earnings (loss) per share:
    Continuing operations                                    $  (0.83)    $  (0.12)     $   0.05
    Discontinued operations                                                                 0.12
                                                             ---------    ---------     ---------
       Net income (loss)                                     $  (0.83)    $  (0.12)     $   0.17
                                                             =========    =========     =========

Weighted average common shares outstanding:
    Basic                                                      34,761       32,459        28,600
                                                             =========    =========     =========
    Diluted                                                    34,761       32,459        33,071
                                                             =========    =========     =========

      The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
                                               F-3

<PAGE>

<TABLE>
SVI SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>


                                                                                                      OTHER   ACCUMULATED
                                                                                                      COMPRE-    OTHER
                                       COMMON STOCK      ADDITIONAL                       RETAINED    HENSIVE    COMPRE-
                                  ---------------------   PAID-IN   TREASURY     SHARES   EARNINGS    INCOME    HENSIVE
                                    SHARES      AMOUNT    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, 1998            28,146,684   $     3   $ 33,138              $  4,300                         $   (366)  $ 37,075

Issuance of common stock in
  connection with the purchase
  of technology rights and
  subsidiaries                     1,199,994                4,955                                                             4,955
Exercise of stock options            522,000                  719                                                               719
Income tax benefit on stock
  options exercised                                           224                                                               224
Compensation expense for stock
   options granted                                            400                                                               400
Repurchase of common stock          (127,400)                       $   (951)                                                  (951)
Shares receivable from
  stockholder in connection
  with the sale of IBIS
  Systems Limited                                                              $ (2,142)                                     (2,142)
Comprehensive income:
  Net income                                                                                 5,585   $  5,585                 5,585
  Other comprehensive income:
    Translation adjustment                                                                    (595)      (595)      (595)
                                                                                                     ---------
      Comprehensive income                                                                              4,990
                                  -----------  --------  ---------  ---------  ---------  ---------  =========  ---------  ---------

Balance, March 31, 1999           29,741,278   $    3   $ 39,436    $ (951)    $ (2,142)  $  9,885              $   (961)  $ 45,270


Issuance of common stock in
  connection with the purchase
  of technology rights and
  subsidiaries                       359,797                3,654                                                             3,654
Exercise of stock options          3,437,263                6,992                                                             6,992
Income tax benefit on stock
  options exercised                                           424                                                               424
Compensation expense for stock
  options                                                      55                                                                55
Repurchase of common stock          (138,741)                         (1,213)                                                (1,213)
Shares received from
  stockholder in connection
  with the sale of IBIS
  Systems Limited                   (178,500)                         (2,142)                                                 2,142
Issuance of common stock for
  services                             1,839                   20                                                                20
Private placement of common          344,948                2,873                                                             2,873
  stock
Comprehensive loss:
  Net loss                                                                                  (4,054)    (4,054)               (4,054)
  Other comprehensive loss:
    Translation adjustment                                                                    (524)      (524)      (524)
                                                                                                     ---------
      Comprehensive loss                                                                             $ (4,578)
                                  -----------  --------  ---------  ---------  ---------  ---------  =========  ---------  ---------

Balance, March 31, 2000           33,567,884   $     3   $ 53,454   $ (4,306)  $      -   $  5,831              $ (1,485)  $ 53,497



                                        (Continued)

                       The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
                                                                 F-4

<PAGE>

<TABLE>
SVI SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
<CAPTION>

                                                                                           OTHER              ACCUMULATED
                                                                                           COMPRE-                OTHER
                                       COMMON STOCK      ADDITIONAL             RETAINED   HENSIVE               COMPRE-
                                  ---------------------   PAID-IN   TREASURY     SHARES    EARNINGS    INCOME    HENSIVE
                                    SHARES      AMOUNT    CAPITAL    STOCK     RECEIVABLE  (DEFICIT)   (LOSS)      LOSS     TOTAL
                                  -----------  --------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                                                  (in thousands except share amounts)
<S>                               <C>          <C>       <C>        <C>        <C>        <C>        <C>        <C>        <C>


Balance, March 31, 2000           33,567,884   $     3   $ 53,454   $ (4,306)  $     -    $  5,831              $ (1,485)  $ 53,497

Exercise of stock options            397,721                  792                                                               792
Income tax benefit on stock

  options exercised                                            84                                                               84
Compensation expense for                                       28                                                               28
  stock options granted
Issuance of  common stock
  warrants for services                                         6                                                                6
Issuance of common stock (net
  of financing costs of
  $40,035)                         3,316,219         1       2,460                                                           2,461
Issuance of common stock (net
  of $286,000 late
  registration fees)                 500,000                  214                                                              214
Issuance of common stock for
  services                            54,845                   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           37,836,669   $     4   $ 57,108   $ (4,306)  $     -   $(23,114)             $ (2,699)  $ 26,993
                                  ===========  ========  =========  =========  =========  =========             =========  =========


                                        (Concluded)

                       The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
                                                                F-5

<PAGE>

<TABLE>
SVI SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>

                                                                        YEAR ENDED MARCH 31,
                                                                 ---------------------------------
                                                                    2001        2000        1999
                                                                 ---------   ---------   ---------
                                                               (in thousands, except share amounts)
<S>                                                              <C>         <C>         <C>
Cash flows from operating activities:
   Net income (loss)                                             $(28,945)   $ (4,054)   $  5,585
   Adjustments to reconcile net income (loss)
     to net cash provided by (used for)
     operating activities:
        Depreciation and amortization                               9,540       7,942       2,935
        Impairment of note receivable                               7,647
        Impairment of Australia's intangible assets                 8,886
        (Gain)/Loss on foreign currency transactions                   (9)         12         146
        Compensation expense for stock options                        112          55         400
        Deferred income tax provision                              (4,396)     (2,614)       (258)
        Loss on sale of assets                                          3         177          31
        Gain on disposal of IBIS Systems Limited                   (1,027)
        Changes in assets and liabilities, net of
          effects of acquisitions:
            Accounts receivable and other receivables               5,126      (4,586)     (4,636)
            Accrued interest on note receivable                      (555)       (840)
            Inventories                                                (8)        (34)         35
            Prepaid expenses and other current assets                 157        (197)       (337)
            Accounts payable and accrued expenses                   3,506        (576)     (1,374)
            Accrued interest on stockholders' loans
              and note payable                                        944
            Deferred revenue                                       (4,438)      5,023      (1,264)
            Income taxes payable                                   (2,576)      1,740
                                                                 ---------   ---------   ---------
              Net cash provided by (used for)
                operating activities                               (2,430)     (2,268)      1,976
                                                                 ---------   ---------   ---------

Cash flows from investing activities:
   Acquisitions, net of cash acquired                             (33,898)     (2,115)
   Purchase of furniture and equipment                               (534)       (849)       (821)
   Proceeds from sale of assets                                                    83         102
   Proceeds from sale of IBIS Systems Limited, net                                          2,218
   Purchase of software and capitalized software
     development costs                                             (2,471)     (1,831)     (2,679)
                                                                 ---------   ---------   ---------
              Net cash used for
                investing activities                               (3,005)    (36,495)     (3,295)
                                                                 ---------   ---------   ---------

Cash flows from financing activities:
   Proceeds from issuance of common stock                           3,754       9,615         942
   Increase in amount due to stockholders, net                      9,855       1,982         (15)
   Repurchase of common stock                                        (951)
   Proceeds from lines of credit                                    1,555       2,281         232
   Proceeds from note payable                                      18,500
   Payments on note payable                                       (13,231)    (1,458)
                                                                 ---------  ---------   ---------
              Net cash provided by
                 financing activities                               1,933     30,920         208
                                                                 ---------  ---------   ---------

Effect of exchange rate changes on cash                               (69)      (325)       (352)
                                                                 ---------  ---------   ---------

Net decrease in cash and cash equivalents                          (3,571)    (8,168)     (1,463)
Cash and cash equivalents, beginning of year                        4,838     13,006      14,469
                                                                 ---------  ---------   ---------
Cash and cash equivalents, end of year                           $  1,267   $  4,838    $ 13,006
                                                                 =========  =========   =========

      (Continued)

      The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
                                               F-6

<PAGE>

<TABLE>
SVI SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>

                                                                        YEAR ENDED MARCH 31,
                                                                      ---------------------------------
                                                                    2001       2000        1999
                                                                 ---------   ---------   ---------
                                                               (in thousands, except share amounts)
<S>                                                              <C>         <C>         <C>
Supplemental disclosure of non-cash information:
   Interest paid                                                 $  1,990    $  1,417    $     90
   Income taxes paid                                             $    665    $  2,163    $  2,005

Supplemental disclosure of non-cash investing and
  financing activities:
    Note receivable and shares receivable acquired as
      partial payment from sale of IBIS Systems Limited          $ 15,750
    Issued 1,194,934 shares of common stock in connection
      with the acquisitions                                                  $    213    $  4,679
    Issued 54,845 shares of common stock for services rendered   $     70
    Issued 500,000 shares of common stock for $214,000 in cash
      and $286,000 in accrued costs related to penalty for
      late effectiveness of the registration statement           $    286
    Issued 5,000 warrants in connection with an equity
      financing                                                  $      8
    Received 178,500 treasury shares as settlement for a
      receivable                                                             $ (2,142)
    Issued 220,000 shares of common stock in connection
      with prior acquisitions                                                $  2,402
    Received 78,241 shares from Softline for Triple-S                        $   (665)
    Issued 93,023 shares of common stock in connection
      with acquisition of MarketPlace Systems Corporation                    $  1,000


      (Concluded)

      The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
                                               F-7

<PAGE>

SVI SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         BUSINESS CONDITIONS - MANAGEMENT'S PLAN TO CONTINUE AS A GOING CONCERN
         - SVI Solutions, Inc. (the "Company") is a holding company, which
         through its subsidiaries, is a leading global provider of multi-channel
         application software technology and associated services for the retail
         industry. The Company also develops and distributes PC courseware and
         skills assessment products for both desktop and retail applications. As
         March 31, 2001, 50.2% of the Company's outstanding voting shares were
         held by Softline Limited ("Softline"), a South African company whose
         shares trade on the Johannesburg Stock Exchange.

         The accompanying consolidated financial statements have been prepared
         on a going concern basis, which contemplates the realization of assets
         and satisfaction of liabilities in the ordinary course of business. As
         shown in the accompanying consolidated financial statements, the
         Company has incurred net losses of $28.9 million and $4.1 million from
         operations for the years ended March 31, 2001 and 2000, respectively.

         The loss for the year ended March 31, 2001, included non-cash
         impairment of charges totaling $16.5 million for goodwill and
         capitalized software write-downs related to its Australian subsidiary
         and of a note receivable in connection of a prior sale of a foreign
         subsidiary. In addition, the Company recorded non-cash charges of $9.5
         million in depreciation and amortization, which related primarily to
         its intangible assets and $1.0 million for severance and related
         personnel reductions in the fourth quarter of the year ended March 31,
         2001. Overall, the Company's general and administrative expense
         increased 19% during fiscal 2001.

         In addition, as of March 31, 2001, the Company's balance sheet reflects
         negative working capital of $4.2 million. The Company has a substantial
         amount of debt, including $7.3 million due to Union Bank of California,
         $11.0 million due to Softline, and $1.3 million due on demand to other
         stockholders. The Company experienced significant strains on its cash
         resources during the year ended March 31, 2001, and had difficulty
         meeting its current obligations, including interest payments on
         indebtedness and lease payments due on its San Diego and Irvine
         facilities. In April 2001, the Company received a demand under its
         guarantee of its Australian subsidiary's $0.5 million line of credit.
         The line of credit is secured by substantially all of the assets of the
         Australian subsidiary. During fiscal 2001, the Company's net sales
         declined by 10%, principally due to declines in sales in its Australian
         subsidiary. The Company also experienced a reduction in sales of its
         high margin application software licenses in its U.S., U.K. and
         Australian operations. The Company believes these reductions were due
         to a lengthening of the overall sales cycle and to inadequate staffing
         of its sales force in all geographies. The Company was dependent on one
         customer for 29% of its net sales in fiscal 2001. The Company needs to
         generate additional sales and revenue to return to profitability and to
         achieve positive cash flow.

         The Company hired a new chief executive, chief financial officer and
         general manager of retail operations during the fourth quarter of
         fiscal 2001. The new management team brings extensive experience in
         improving sales and operations. During the period from February 2001
         through April 2001, the new management team reorganized the business
         operations and reduced expenses to enable the Company to operate in a
         more efficient manner. The expense reductions are expected to save more
         than $3.7 million on an annualized basis. The new management team has
         also hired an experienced sales and marketing group to better position
         the Company in its market and to more effectively sell its applications
         and services to its customers.

         The management team developed and presented to the Board of Directors
         in May 2001, an operating plan for the current fiscal year that, if
         achieved, will return the Company to positive cash flow from
         operations. This improvement is based on a restructuring of the
         Company's debt with Union Bank of California ("Union Bank"), on an
         aggressive sales campaign for its applications and related services and
         on rigorous management of its costs and expenses.

         During early July 2001, the Company renegotiated its term loan facility
         with Union Bank (see Note 9). Management is now actively seeking
         additional financing to provide needed working capital for operations
         and to reduce its overall debt burden.

         In May 2001, the Company entered into a memorandum of understanding
         with Shmulik Stein International Investments ("SSII") and Softline
         providing for a substantial reduction in indebtedness to Softline and
         the opportunity to discharge the Company's indebtedness to Union Bank.
         The transaction is subject to the completion of definitive
         documentation and certain other conditions.

                                      F-8

<PAGE>

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

         PRINCIPLES OF CONSOLIDATION AND FINANCIAL STATEMENT PRESENTATION - The
         consolidated financial statements include the accounts of the Company
         and its wholly-owned subsidiaries. All material intercompany accounts
         and transactions have been eliminated.

         In addition, certain amounts in the prior periods have been
         reclassified to conform to the presentation for the fiscal year ended
         March 31, 2001.

         ESTIMATES - The preparation of financial statements in conformity with
         accounting principles generally accepted in the United States of
         America requires management to make estimates and assumptions that
         affect the amounts reported in the consolidated financial statements
         and accompanying notes. Actual results could differ from those
         estimates.

         CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash and
         highly liquid investments with original maturities of not more than
         three months.

         FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of short-term
         financial instruments, including cash and cash equivalents, trade
         accounts receivable and payable, accrued expenses and lines of credit
         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 4.

         INVENTORIES - Inventories consist of finished goods and are stated at
         the lower of cost or market, on a first-in, first-out basis.

         PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
         Depreciation is provided using the straight-line method over the
         estimated useful-lives of the assets generally ranging from 4 to 10
         years.

         Leasehold improvements are amortized using the straight-line method,
         over the shorter of the life of the improvement or lease term.
         Expenditures for maintenance and repairs are charged to operations as
         incurred while renewals and betterments are capitalized.

         GOODWILL - Goodwill, the excess of cost over the fair value of net
         assets acquired, is being amortized using the straight-line method over
         various periods not exceeding 10 years. The Company periodically
         reviews goodwill to evaluate whether changes have occurred that would
         suggest that goodwill may be impaired based on the estimated
         undiscounted cash flows of the assets acquired over the remaining
         amortization period. If this review indicates that the remaining
         estimated useful life of goodwill requires revision or that the
         goodwill is not recoverable, the carrying amount of the goodwill is
         reduced to its fair value, generally using the estimated shortfall of
         cash flows on a discounted basis. As described in Note 7 to the
         consolidated financial statements, effective April 1, 1999, the Company
         revised its estimate of the useful life of goodwill from twenty years
         to ten years.

         PURCHASED AND CAPITALIZED SOFTWARE COSTS - Pursuant to the provisions
         of Statement of Financial Accounting Standards No. 86, "Accounting for
         the Costs of Computer Software to Be Sold, Leased or Otherwise
         Marketed," the Company capitalizes internally developed software and
         software purchased from third parties, if the related software product
         under development has reached technological feasibility or if there are
         alternative future uses for the purchased software. These costs are
         amortized on a product by product basis typically over three to ten
         years using the greater of the ratio that current gross revenue for a
         product bears to the total of current and anticipated future gross
         revenue for that product, or the straight-line method over the
         remaining estimated economic life of the product. At each balance sheet
         date the Company evaluates on a product-by-product basis the
         unamortized capitalized cost of computer software compared to the net
         realizable value of that product. The amount by which the unamortized
         capitalized costs of a computer software product exceed its net
         realizable value are written off (see Note 6).

         NON-COMPETE AGREEMENTS - Non-compete agreements represent agreements to
         retain key employees of acquired subsidiaries for a certain period of
         time and prohibit those employees from competing with the Company
         within a stated period of time after terminating employment with the
         Company. The amounts incurred are capitalized and amortized over the
         life of the agreements, generally ranging from two to six years.

                                      F-9

<PAGE>

         IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
         - The Company evaluates its long-lived assets for impairment whenever
         events or changes in circumstances indicate that the carrying amount of
         such assets or intangibles may not be recoverable. Recoverability of
         assets to be held and used is measured by a comparison of the carrying
         amount of an asset to future undiscounted net cash flows expected to be
         generated by the asset. If such assets are considered to be impaired,
         the impairment to be recognized is measured by the amount by which the
         carrying amount of the assets exceeds the fair value of the assets (see
         Notes 3, 6, and 7). Assets to be disposed of are reported at the lower
         of the carrying amount or fair value less costs to sell.

         REVENUE RECOGNITION - The Company recognizes revenues in accordance
         with the provisions of the American Institute of Certified Public
         Accountants Statement of Position 97-2, "Software Revenue Recognition."
         The Company licenses its software products under nonexclusive,
         nontransferable license agreements. For software arrangements that
         require significant production, modification or customization, the
         entire arrangement is accounted for in conformity with Accounting
         Research Bulletin No. 45, "Long-term Construction-Type Contracts",
         using the relevant guidance Statement of Position 81-1, "Accounting for
         Performance of Construction-Type Contracts and Certain Production-Type
         Contracts". For those arrangements that do not require significant
         production, modification or customization, revenue is recognized when a
         license agreement has been signed, delivery of the software product has
         occurred, the related fee is fixed or determinable and collectibility
         is probable. The Company also licenses non-software training products
         under nonexclusive, nontransferable licenses. Revenue related to such
         license agreements is recognized ratably over the license agreement, or
         at such time that no further obligation to the customer exists.
         Professional services are billed on an hourly basis and revenue is
         recognized as the work is performed.

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

         NET INCOME (LOSS) PER SHARE - As required by Statement of Financial
         Accounting Standards No. 128, "Earnings per Share," the Company has
         presented basic and diluted earnings per share amounts. Basic earnings
         per share is calculated based on the weighted-average number of shares
         outstanding during the year, while diluted earnings per share also
         gives the effect to all potential dilutive common shares outstanding
         during the year such as stock options, warrants and contingently
         issuable shares.

         INCOME TAXES - The Company utilizes Statement of Financial Accounting
         Standards No. 109, "Accounting for Income Taxes," which requires the
         recognition of deferred tax liabilities and assets for the expected
         future tax consequences of events that have been included in the
         financial statements or tax returns. Under this method, deferred income
         taxes are recognized for the tax consequences in future years of
         differences between the tax bases of assets and liabilities and their
         financial reporting amounts at each period end based on enacted tax
         laws and statutory tax rates applicable to the periods in which the
         differences are expected to affect taxable income. Valuation allowances
         are established, when necessary, to reduce deferred tax assets to the
         amount expected to be realized. The provision for income taxes
         represents the tax payable for the period and the change during the
         period in deferred tax assets and liabilities.

         TRANSLATION OF FOREIGN CURRENCY - The financial position and results of
         operations of the Company's foreign subsidiaries are measured using
         local currency as the functional currency. Revenues and expenses of
         such subsidiaries have been translated into U.S. dollars at average
         exchange rates prevailing during the period. Assets and liabilities
         have been translated at the rates of exchange at the balance sheet
         date. Transaction gains and losses are deferred as a separate component
         of stockholders' equity, unless there is a sale or complete liquidation
         of the underlying foreign investments. Aggregate foreign currency
         transaction gains and losses are included in determining net earnings.

         STOCK-BASED COMPENSATION - As permitted under Statement of Financial
         Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
         Compensation", the Company accounts for costs of stock based
         compensation in accordance with the provisions of Accounting Principles
         Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
         accordingly, discloses the pro forma effect on net income (loss) and
         related per share amounts using the fair-value method defined in SFAS
         No. 123.

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

                                      F-10

<PAGE>

         CONCENTRATIONS - The Company maintains cash balances and short-term
         investments at several financial institutions. Accounts at each
         institution are insured by the Federal Deposit Insurance Corporation up
         to $100,000. As of March 31, 2001, the uninsured portion of these
         balances held at financial institutions aggregated to approximately
         $515,000. The Company also had funds totaling approximately $489,000 in
         non-United States financial institutions. The Company has not
         experienced any losses in such accounts and believes it is not exposed
         to any significant credit risk on cash and cash equivalents. Customer
         concentrations are described in Note 10.

         RECENT ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial
         Accounting Standards Board issued Statement of Financial Accounting
         Standards ("SFAS") No. 133 as amended, Accounting for Derivative
         Instruments and Hedging Activities, which is effective for fiscal years
         beginning after June 15, 2000. The Company has not completed the
         process of evaluating the impact that will result from the adoption of
         SFAS No. 133; however, on a preliminary basis, management does not
         believe that eventual adoption will have a significant impact on the
         Company's financial statements.

2.       ACQUISITIONS

         ISLAND PACIFIC SYSTEMS CORPORATION - Effective April 1, 1999, the
         Company acquired all of the issued and outstanding shares of Island
         Pacific Systems Corporation ("Island Pacific") for a purchase price of
         $35 million in cash. As part of the purchase price, the Company entered
         into a two-year non-compete agreement with one of the four principals
         of Island Pacific and two-year employment and four-year non-compete
         agreements with the other three principals of Island Pacific. Island
         Pacific, based in Irvine, is a leading provider of retail management
         software products primarily in the United States and the United
         Kingdom.

         The acquisition was funded from cash resources of the Company and two
         bank loans. (See Note 9.)

         This acquisition has been accounted for as a purchase. The results of
         the operations of Island Pacific have been included in the consolidated
         financial statements since the date of the acquisition. The excess of
         purchase price over the fair values of net assets acquired was
         approximately $20.4 million and has been recorded as goodwill, which is
         being amortized on a straight-line basis over ten years. In connection
         with the aforementioned acquisition, the Company recognized a deferred
         tax liability of $7.0 million related to the income tax consequences
         from differences between the assigned values of software acquired and
         its tax basis.

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

                  Assets acquired, including goodwill           $   45,757
                  Liabilities assumed                              (11,980)
                                                                -----------
                      Net cash paid for acquisition             $   33,777
                                                                ===========


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

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

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

                                      F-11

<PAGE>

3.       ASSET IMPAIRMENT CHARGES

         In accordance with the evaluation of its long-lived assets as described
         in Note 1, the Company evaluated the recoverability of the long-lived
         assets, including intangibles, of its wholly-owned subsidiary in
         Australia. In determining the amount of impairment, the Company
         compared the net book value of the long-lived assets associated with
         the Australian operations, primarily consisting of recorded goodwill
         and software intangibles, to their estimated fair values. Fair values
         were estimated based on anticipated future cash flows of the Australian
         operations consistent with the assets' remaining useful lives. The
         anticipated future cash flows were then discounted at 13% which
         approximates the Company's interest rate on its amended and restated
         loan agreement. Accordingly, the Company recorded impairment of
         goodwill of $2,281,000 and $6,605,000 of capitalized software related
         to these assets.

         The Company has also recorded impairment charge to its note receivable
         (See Note 4.).

4.       NOTE RECEIVABLE

         In connection with the sale of its United Kingdom subsidiary, IBIS
         Systems Limited ("IBIS") to Kielduff Investments Limited, ("Kielduff"),
         the Company recorded a note receivable (the "Note") of $13.6 million.
         The Note bears 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 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 the newly formed entity. In September
         2000, the Company discontinued accruing interest on the Note. The Note
         is secured by approximately 11% of the outstanding shares of Integrity
         Software, Inc. ("Integrity"). The Company also has the right to convert
         all sums due from Kielduff into shares of Integrity at its option. The
         Company has not exercised its option to convert any amount of the Note
         into shares of Integrity. Kielduff did not pay the Note on the November
         15, 2000 due date and it is not certain when and if Kielduff will pay
         the Note. Given the Company's lack of ability to enforce collection on
         the due date, the Company has classified the Note as long term. The
         Company engaged Business Valuation Services, Inc. ("BVS") to perform an
         analysis of the fair value of the Note's underlying collateral at each
         quarter during fiscal year 2001. After consideration of the BVS reports
         and other relevant data, the Company concluded that the fair value of
         the collateral underlying the Note was impaired. Thus, during the
         fiscal year ended March 31, 2001, the Company recorded an impairment of
         $7.6 million. The carrying value of the Note at March 31, 2001 is $7.0
         million.

                                      F-12

<PAGE>

5.       PROPERTY AND EQUIPMENT

         Property and equipment at March 31, 2001 and 2000 consisted of the
         following (in thousands):

                                                               2001       2000
                                                            ---------  ---------

            Automobiles                                     $     29   $     41
            Computer equipment and purchased software          3,278      3,143
            Furniture and fixtures                               492        471
            Leasehold improvements                               362        293
                                                            ---------  ---------
                                                               4,161      3,948
            Less accumulated depreciation and amortization     3,055      2,419
                                                            ---------  ---------
            Total                                           $  1,106   $  1,529
                                                            =========  =========

         Depreciation and amortization expense for the years ended March 31,
         2001, 2000 and 1999, was $876,000, $650,000, and $650,000,
         respectively.

6.       CAPITALIZED SOFTWARE

         Capitalized software at March 31, 2001 and 2000 consisted of the
         following (in thousands):

                                                          2001          2000
                                                      -----------   -----------

            Software                                  $   31,247    $   36,257
            Less accumulated amortization                  9,937         5,660
                                                      -----------   -----------
            Total                                     $   21,310    $   30,597
                                                      ===========   ===========

         The amortization expense for the years ended March 31, 2001, 2000, and
         1999, was $4.1 million, $3.3 million, and $1.4 million, respectively.
         The Company recorded an impairment of $6.6 million to the capitalized
         software associated with the Australian operations at March 31, 2001
         (See Note 3).

7.       GOODWILL

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

         Goodwill at March 31, 2001 and 2000 consisted of the following (in
         thousands):

                                                          2001          2000
                                                      -----------   -----------

            Cost                                      $   21,924    $   25,325
            Less accumulated amortization                  4,278         2,780
                                                      -----------   -----------
            Total                                     $   17,646    $   22,545
                                                      ===========   ===========

         The amortization expense for the years ended March 31, 2001,
         2000, and 1999, was $2.6 million, $2.4 million, and $0.6 million,
         respectively. The Company recorded an impairment to the goodwill
         relating to the Australian operations of approximately $2.3 million at
         March 31, 2001 (See Note 3).

                                     F-13

<PAGE>

8.       NON-COMPETE AGREEMENTS

         Non-compete agreements as of March 31, 2001 and 2000 are as follows (in
         thousands):

                                                          2001          2000
                                                      -----------   -----------

            Cost                                      $    6,986    $    6,986
            Less accumulated amortization                  3,372         1,762
                                                      -----------   -----------
            Total                                          3,614         5,224


            Current portion                                1,017         1,609
                                                      -----------   -----------
            Long-term portion                         $    2,597    $    3,615
                                                      ===========   ===========

         The amortization expense for the years ended March 31, 2001, 2000, and
         1999 was $1.6 million, $1.5 million and $0.2 million, respectively.

9.       TERM LOANS

         TERM LOANS DUE TO BANK

         The Company's term loans at March 31, 2001 and 2000 consist of the
         following (in thousands):

                                                            2001          2000
                                                         ----------   ----------

            Term loans payable to bank                   $   7,325    $  17,042
            Less term loans payable to bank classified
               as long-term as discussed below               7,325       13,150
                                                         ----------   ----------
            Current portion of term loans                $       -    $   3,892
                                                         ==========   ==========

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

         During the third quarter of fiscal 2001, the Bank agreed to waive the
         required $200,000 monthly principal payments and to allow the Company
         to pay a reduced monthly interest rate of 2% over prime, with the
         balance of the contractual interest accruing and payable upon maturity.
         The Bank also agreed to permit the Company to apply up to $2.5 million
         in private placement proceeds (see Note 11) and the full $100,000 paid
         on the contract receivable during the third quarter of the fiscal year
         toward working capital instead of reduction of principal. The Company
         also agreed to terminate the revolving line of credit arrangement,
         which as of December 31, 2000, was fully drawn, and to a restriction on
         payments toward subordinated loan obligations until the Bank
         obligations are discharged. The restriction did not apply to the
         repayment of amounts due to a subsidiary of Softline (see Note 15).

         The entire amount owed to the Bank is secured by the Company's assets
         and stock of its U.S. retail and training products subsidiaries, and
         65% of the stock of the Company's Australian subsidiary. The loan is
         subject to certain financial covenants and contains limitations on
         acquisitions, investments and other borrowings.

                                      F-14

<PAGE>

         As of March 31, 2001, the Company was not in compliance with certain
         financial covenants. Subsequent to March 31, 2001, the term loan was
         amended by the Bank. Under the amendment, the Bank extended the
         maturity date to May 1, 2002. The amendment also provides for the
         Company, at its option, to receive a further extension of six months
         (i.e., until November 1, 2002), subject to certain conditions that must
         be satisfied by the Company as outlined in the amendment. Interest on
         the term loan accrues and is payable monthly at a rate per annum equal
         to the Bank's reference rate plus five percentage points. The agreement
         includes affirmative covenants regarding the Company maintaining and
         obtaining certain financial ratios. The Company is required to make
         monthly principal payments of $50,000 starting October 1, 2001. The
         Company must also pay the Bank a financing fee of $200,000 at the
         maturity of the one year extension. However, if the Company repays all
         amounts due under the term loan prior to the initial one year maturity
         date of May 1, 2002, the Bank will waive the financing fee. If the term
         of the loan is extended on May 1, 2002, the Company must pay the Bank
         $150,000 of the financing fee and the remaining $50,000 shall be paid
         at the maturity of the six-month extension period.

         SUBORDINATED TERM LOAN DUE TO STOCKHOLDER

         During the second quarter of fiscal 2001, Softline, the Company's
         majority shareholder, loaned the Company $10 million for the purpose of
         making the $10 million principal reduction on the term loan. This loan
         is unsecured and is subordinated to the term loan. The loan currently
         bears interest at 14% per annum, payable monthly, and had a stated due
         date of August 1, 2001. The Company has not paid monthly interest and
         has accrued $1.0 million interest as of March 31, 2001. There are no
         financial covenants or restrictions related to the Softline loan.
         Subsequent to fiscal year end, the terms of the loan with Softline were
         amended. Included in the amendment was an extension of the maturity
         date to November 1, 2002. An additional extension until May 1, 2003
         will be granted in the event that the term loan with Union Bank is
         extended to November 1, 2002.

         The Company agreed to reimburse Softline for costs associated with this
         loan in the amount of $326,000, which is fully accrued for as of March
         31, 2001. These costs are being amortized over the initial 13 month
         life of the loan. The balance of the unamortized portion of the
         financing costs which is included in prepaid expenses in the
         accompanying balance sheet at March 31, 2001 is approximately $102,000.

         The Company borrowed $0.6 million from a subsidiary of Softline on a
         short-term basis (See Note 15).

         Interest expense included interest and refinancing costs due to
         Softline and its subsidiary in the amount of $1.0 million for the year
         ended March 31, 2001.

         Interest expense for the fiscal year ended March 31, 2001 and 2000 also
         included interest due to other stockholders in the amount of $130,000
         and $31,000, respectively.

10.      COMMITMENTS AND CONTINGENCIES

         OPERATING LEASES - The Company leases office space and various
         automobiles under non-cancelable operating leases that expire at
         various dates through the year 2006. Certain of the leases contain
         renewal options. Future annual minimum lease payments for
         non-cancelable operating leases at March 31, 2001 are summarized as
         follows (in thousands):

                  YEAR ENDING MARCH 31:
                  2002                                       $     1,400
                  2003                                             1,368
                  2004                                             1,367
                  2005                                             1,065
                  2006                                               332
                  Thereafter                                          94
                                                             ------------
                                                             $     5,626
                                                             ============

         Rent expense was $1.5 million, $1.3 million, and $0.7 million for the
         years ended March 31, 2001, 2000 and 1999, respectively.

                                      F-15

<PAGE>

         EMPLOYEE BENEFIT PLAN - Effective January 1, 1999, the Company adopted
         a defined contribution plan under Section 401(k) of the Internal
         Revenue Code covering all eligible employees employed in the United
         States ("401(k) Plan"). Eligible participants may contribute up to
         $10,000 or 20% of their total compensation, whichever is lower. The
         Company matches 50% of the employee's contributions, up to 3% of the
         employee's total compensation, and may make discretionary contributions
         to the plan. Participants will be immediately vested in their personal
         contributions and over a six year graded schedule for amounts
         contributed by the Company. Effective, July 1, 2000, the Company
         amended the 401(k) Plan to for the following items: (a) Company
         matching contribution equal to 50% of the employee's contributions, up
         to 6% of the employee's total compensation and (b) eligible
         participants may defer up to $10,500 or 18% of their total
         compensation, whichever is lower. The Company made matching
         contributions to the 401(k) Plan of approximately $359,000 and $192,000
         in the years ended March 31, 2001 and 2000, respectively.

         LINE OF CREDIT - The Company's Australian subsidiary maintains an
         AUS$1,000,000 (approximately US$510,000) line of credit facility with
         National Australia Bank Limited. The facility is secured by
         substantially all of the assets of the Australian subsidiary, and the
         Company has guaranteed all amounts owing on the facility. The facility
         became due in February of each year, but has renewed annually. In April
         2001, the Company received a formal demand under the guarantee for the
         full AUS$971,000 (approximately US$495,000) then alleged by the bank to
         be due under the facility. The Company has been negotiating with
         National Australia Bank to resolve this situation. If National
         Australia Bank is able to demonstrate that it has the right to call the
         full amount of the facility due, and if the Company is unable negotiate
         a settlement with the bank or otherwise discharge the indebtedness,
         National Australia Bank could take control of substantially all of the
         assets of the Australian subsidiary, and could hold the Company
         responsible under the guarantee for any and all unsatisfied amounts
         under the facility.

         LITIGATION - The Company is not involved in any material pending legal
         proceedings, other than ordinary routine litigation incidental to its
         business. [Kevin to check on materiality of current litigation]

11.      COMMON STOCK, TREASURY STOCK, STOCK OPTIONS, AND WARRANTS

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

         In December 2000, the Company received $1.5 million from the sale of
         common stock and warrants to a limited number of accredited investors.
         As part of the same transaction, the investors agreed to purchase in
         January 2001 an additional $0.5 million of common stock and warrants,
         and were given an option exercisable on or before February 20, 2001 to
         purchase an additional $0.5 million of common stock and warrants on the
         same terms and conditions. The Company issued a total of 2,941,176
         shares of common stock and 1,470,590 warrants to purchase common stock
         at an exercise price of $1.50 as a result of the aforementioned
         transaction. The Company has agreed to register the common shares
         purchased and the common shares issuable upon the exercise of warrants
         with the Securities and Exchange Commission. As of June 29, 2001, the
         Company has not registered these shares and has issued 367,649 penalty
         warrants with a strike price of $0.85 per share as required under an
         agreement with the investors.

         The Company sold $1.25 million in 12% convertible notes due August 30,
         2001 to entities and persons related to ICM in May and June 2001. The
         Company used the proceeds from the sale of these notes for working
         capital.

         TREASURY STOCK - In November 1998, the Board of Directors authorized
         the Company to purchase up to 1,000,000 shares of the Company's common
         stock. As of March 31, 2001 and 2000, the Company had repurchased
         444,641 shares of its common stock at a cost of $4.3 million. Purchased
         shares are available for general corporate purposes.

                                      F-16
<PAGE>

         STOCK OPTION PLAN - The Company adopted an incentive stock option plan
         (the "1989 Plan"). Options under this plan may be granted to employees
         and officers of the Company. There 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. 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. The 1998 Plan terminates in
         October 2008. On August 18, 2000, the Board approved certain amendments
         to the 1998 Plan. On November 16, 2000, certain of the amendments were
         approved by the shareholders. These amendments: (a) increased number of
         shares authorized in the Plan from 3,500,000 to 4,000,000, (b)
         authorized an "automatic" annual increase in the number of shares
         reserved for issuance by an amount equal to the lesser of 2% of total
         number of shares outstanding on the last day of the fiscal year,
         600,000 shares, or an amount approved by the Board of Directors, and
         (c) to limit the number of stock awards of any one participant under
         the 1998 Plan to 500,000 shares in any calendar year.

                                      F-17

<PAGE>

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

<TABLE>
<CAPTION>

                                                                                WEIGHTED
                                                                                AVERAGE
                                                                               EXERCISE
                                                                               PRICE PER
                                                              OPTIONS            SHARE
                                                            -----------        ----------
<S>                                                         <C>                <C>
                  Options outstanding, April 1, 1998           772,610         $   1.33
                     Exercised                                (374,000)        $   1.36
                     Granted                                   987,675         $   5.15
                     Expired/canceled                          (17,000)        $   3.44
                                                            -----------
                  Options outstanding, March 31, 1999        1,369,285         $   4.05
                     Exercised                                (190,075)        $   3.63
                     Granted                                   730,150         $   7.87
                     Expired/canceled                         (119,100)        $   7.28
                                                            -----------

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

                  Options outstanding March 31, 2001         3,961,034         $   2.55
                                                            ===========

                  Exercisable, March 31, 1999                  934,285         $   2.88
                                                            ===========

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

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

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


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

                  Options outstanding, April 1, 1998         5,451,700
                     Exercised                                (148,000)        $   1.37
                     Granted                                   125,000         $   5.00
                     Expired/canceled                          (40,000)        $   2.50
                                                            -----------
                  Options outstanding, March 31, 1999        5,388,700         $   1.95

                     Exercised                              (3,247,188)        $   1.92
                     Granted                                    15,000         $   9.50
                                                            -----------
                  Options outstanding, March 31, 2000        2,156,512         $   2.02

                     Exercised                                (289,700)        $   1.82
                     Granted                                   300,000         $   0.95
                     Expired/Canceled                         (800,000)        $   1.25
                                                            -----------

                  Options outstanding, March 31, 2001        1,366,812         $   2.28
                                                            ===========

                  Exercisable, March 31, 1999                5,273,700         $   1.98
                                                            ===========

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

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

</TABLE>
                                      F-18

<PAGE>

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

         During the year ended March 31, 1999, the Company granted options for
         347,000 shares to employees under the 1989 Plan at exercise prices less
         than fair market values at the date of grant. As a result, the Company
         recognized compensation expense of $400,000 from the options granted
         during the year.

         The following table summarizes information as of March 31, 2001
         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>
           $0.50 -  1.75         3,635,239           8.80             $ 1.30       769,810         $ 1.22
           $2.00 - 11.75         1,692,607           2.34             $ 2.34     1,319,887         $ 7.39

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

                                 5,327,846           7.60             $ 2.48     2,089,697         $ 3.17

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

         The Company has adopted the disclosure-only provision of SFAS No. 123.
         The following pro forma information presents net income and basic and
         diluted earnings per share as if compensation expense had been
         recognized for stock options granted in the years ended March 31, 2001,
         2000, and 1999, 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,
                                                               2001           2000            1999
                                                            -----------     -----------     -----------
<S>                                                         <C>              <C>            <C>
                  Net income (loss):
                     As reported                            $  (28,945)      $ (4,054)     $    5,585
                     Pro forma                              $  (29,408)      $ (5,305)     $    4,468
                  Basic earnings (loss) per share:
                     As reported                            $    (0.83)      $  (0.12)     $     0.20
                     Pro forma                              $    (0.85)      $  (0.16)     $     0.16
                  Diluted earnings (loss) per share:
                     As reported                            $    (0.83)      $  (0.12)     $     0.17
                     Pro forma                              $    (0.85)      $  (0.16)     $     0.14

                  Weighted average assumptions:
                     Dividend yield                                None          None           None
                     Volatility                                    140%            49%            65%
                     Risk free interest rate                       5.8%           5.8%           5.0%
                     Expected life of options                  10 years       1-4 years         1 year
</TABLE>

         Warrants - At March 31, 2001 and 2000, the Company has 1,614,925 and
         25,000, respectively, warrants outstanding to purchase one share of
         common stock at an exercise price ranging from $1.08 to $7.00 per share
         outstanding. The life of the warrants range from two to three years
         from the grant date.

                                      F-19

<PAGE>

12.      INCOME TAXES

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

                                    YEAR ENDED     YEAR ENDED      YEAR ENDED
                                     MARCH 31,      MARCH 31,       MARCH 31,
                                       2001           2000            1999
                                  -------------  --------------  --------------
            Current:
               Federal            $     (1,261)  $         681   $
               State                        45             103
               Foreign                                   1,048             835
                                  -------------  --------------  --------------
            Total                       (1,216)          1,832             835
                                  -------------  --------------  --------------

            Deferred:
               Federal                  (3,523)         (3,325)
               State                      (774)            261
               Foreign                     (99)         (1,180)            836
                                  -------------  --------------  --------------
            Total                       (4,396)         (4,244)            836
                                  -------------  --------------  --------------

            Provision (benefit)
               for income taxes   $     (5,612)  $      (2,412)  $       1,671
                                  =============  ==============  ==============

         Significant components of the Company's deferred tax assets and
         liabilities at March 31, 2001 and 2000 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                          March 31,
                                                                 -------------------------
                                                                    2001          2000
                                                                 -----------   -----------
<S>                                                              <C>           <C>
         Current deferred tax assets/(liabilities):
              Deferred revenue                                                 $    1,414
              Research and expenditure credits                                        463
              Excess capital loss over gain                                            24
              Net operating loss                                                    1,607
              State taxes                                        $        1            77
              Accrued expenses                                          728           227
              Related party interest                                    511
              Allowance for bad debts                                    99            93
                                                                 -----------   -----------

         Net current deferred tax assets                              1,339         3,905
                                                                 -----------   -----------

         Non-current deferred tax assets/(liabilities):
              Research and expenditure credits                        1,656
              Net operating loss                                      3,994
              Fixed assets                                              117            11
              Other credits                                             123
              Deferred rent                                              82            54
              Accrued expenses                                        3,567
              Foreign tax credit and other                                            309
                                                                 -----------   -----------

         Total non-current deferred tax assets                        9,539           374

         Intangible assets                                           (5,678)       (7,872)
         Accumulated capitalized research and development costs        (749)         (803)
         Other                                                         (227)
                                                                 -----------   -----------

         Total non-current deferred tax liability                    (6,654)       (8,675)
                                                                 -----------   -----------

         Net non-current deferred tax asset/(liability)               2,885        (8,301)
                                                                 -----------   -----------

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

         Net deferred tax liability                              $        -    $   (4,396)
                                                                 ===========   ===========
</TABLE>
                                      F-20

<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 years ended March 31, 2001, 2000, and 1999, is attributable to
         the following:

<TABLE>
<CAPTION>
                                                            YEAR         YEAR        YEAR
                                                            ENDED        ENDED       ENDED
                                                           MARCH 31,    MARCH31,   MARCH 31,
                                                             2001         2000        1999
                                                           --------     --------    -------
<S>                                                         <C>          <C>        <C>
         Provision (benefit) computed at statutory rate     (34.0)%      (34.0)%      34.0%
         Nondeductible goodwill                               4.8         12.8
         Change in valuation allowance                        9.1
         Foreign income taxed at different rates              5.0         (4.7)        7.4
         State income tax, net of federal tax benefit        (1.4)        (4.3)
         Other                                                0.3         (7.1)        8.2
                                                           --------     --------    -------

         Total provision (benefit) for income taxes         (16.2)%      (37.3)%      49.6%
                                                           ========     ========    =======
</TABLE>

         At March 31, 2001, the Company had Federal and California tax net
         operating loss carryforwards of approximately $12.3 million and $5.7
         million, respectively. The Federal and California tax net operating
         loss carryforwards will begin expiring after 2008 and 2001,
         respectively.

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

13.      DISCONTINUED OPERATIONS

         In the fourth quarter of fiscal 1999, the Company sold its United
         Kingdom operations, IBIS Systems Limited ("IBIS") for cash proceeds of
         $2.3 million, receipt of common stock of the Company valued at $2.1
         million, which is included in shares receivable as of March 31, 1999,
         and a note receivable of $13.6 million. The sale resulted in a gain of
         $274,000, net of applicable income taxes of $753,000. Accordingly, the
         operating results of IBIS are shown as discontinued operations.

14.      EARNINGS (LOSS) PER SHARE

         Earnings (loss) per share for the years ended March 31, 2001, 2000, and
         1999, are as follows (in thousands, except share amounts and per share
         data):

<TABLE>
<CAPTION>
                                                                            YEAR ENDED MARCH 31, 2001
                                                                 ----------------------------------------------
                                                                     LOSS            SHARES         PER SHARE
                                                                 (NUMERATOR)      (DENOMINATOR)       AMOUNT
                                                                 ------------     ------------     ------------
<S>                                                              <C>              <C>              <C>
            Basic and diluted EPS:
                Loss available to common stockholders            $   (28,945)      34,761,386      $     (0.83)
                                                                 ============     ============     ============


                                                                            YEAR ENDED MARCH 31, 2000
                                                                 ----------------------------------------------
                                                                   INCOME            SHARES         PER SHARE
                                                                 (NUMERATOR)     (DENOMINATOR)       AMOUNT
                                                                 ------------     ------------     ------------
            Basic and diluted EPS:
                Loss available to common stockholders            $    (4,054)      32,458,902      $     (0.12)
                                                                 ============     ============     ============


                                                                            YEAR ENDED MARCH 31, 1999
                                                                 ----------------------------------------------
                                                                   INCOME           SHARES         PER SHARE
                                                                 (NUMERATOR)     (DENOMINATOR)       AMOUNT
                                                                 ------------    ------------     ------------
            Basic EPS:
                Income available to common stockholders          $     5,585      28,599,597      $      0.20
                                                                 ============
                Effect of dilutive securities options                              4,471,690
                                                                                 ------------
            Diluted EPS:
                Income available to common stockholders plus
                     assumed conversions                         $     5,585      33,071,287      $      0.17
                                                                 ============    ============     ============
</TABLE>
                                      F-21

<PAGE>

         Options outstanding at March 31, 2001 and 2000 to purchase 1,389,249
         and 3,210,910 respectively, shares of common stock were not included in
         the computation of diluted loss per share because the effect of such
         inclusion would be anti-dilutive.

15.      RELATED PARTIES

         Included in other receivables at March 31, 2001 and 2000 are amounts
         due from officers and employees of the Company in the amount of $65,000
         and $41,000, respectively.

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

         In November 2000, the Company borrowed $600,000 from a wholly-owned
         subsidiary of Softline to help meet operating expenses. This loan
         called for interest at 10% per annum, and was discharged in full in
         February 2001. In order to discharge the remaining balance of that loan
         while meeting other critical operational expenses, the Company borrowed
         $400,000 from Barry M. Schechter, the Company's Chairman. The Company
         borrowed an additional $164,000 from Mr. Schechter in March 2001, which
         funds were needed to meet operational requirements of our Australian
         subsidiary. The advances from Mr. Schechter bear interest at prime rate
         and are due on demand, subject to a limit on demand rights of $50,000
         per payment. Interest expense under this loan was $7,000 for the fiscal
         year. At March 31, 2001, the remaining balance due to Mr. Schechter as
         regards both of these loans was $250,000 including accrued interest.

         Included in demand loans due to stockholders totaling $1.3 million as
         of March 31, 2001, was $63,000 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 was
         used to fund the acquisition of Island Pacific Systems Corporation on
         April 1, 1999. Interest is calculated monthly at the current prime rate
         with no stated maturity date. Interest expense under this loan for the
         year ended March 31, 2001 was $123,000.

         The Company retains an entity affiliated with a director of the board
         to provide financial advisory services. During the years ended March
         31, 2001, 2000 and 1999, the expenses for these services were $112,000,
         $36,000 and $58,000, respectively. The Company also incurred $25,000 in
         expenses to the same director for accounting services during the fiscal
         year ended March 31, 2001.

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

         In the fourth quarter of fiscal 1999, the Company sold its United
         Kingdom operations, IBIS Systems Limited ("IBIS") to the former
         managing director of IBIS.

         During the third quarter of the fiscal year 1999, the Company loaned
         $5.2 million to Softline, to facilitate the payment by Softline of an
         earn-out due to an officer of the Company by Softline. The loan was
         paid off during the fourth quarter of the fiscal year 1999. Interest
         income received under this loan was $163,000 for the year ended March
         31, 1999.

                                      F-22

<PAGE>

         During the six months ended March 31, 1998, the Company granted an
         option to purchase 2,438,000 shares of its common stock at $2.00 per
         share for two years to Softline Limited, its majority stockholder. The
         purpose of this option was to allow Softline to maintain its control
         position at an estimated level of 60% of the outstanding shares.

16.      BUSINESS SEGMENTS AND GEOGRAPHIC DATA

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

         The Company currently operates in three countries, the United States,
         Australia, and the United Kingdom. In the fiscal years ended March 31,
         2000 and 1999, the Company also had some operations in South Africa.
         The following is a summary of local operations by geographic area (in
         thousands):

<TABLE>
<CAPTION>
                                                         YEAR ENDED     YEAR ENDED     YEAR ENDED
                                                          MARCH 31,      MARCH 31,      MARCH 31,
                                                            2001           2000          1999
                                                            ----           ----          ----
<S>                                                    <C>            <C>            <C>
          Net sales:
                     United States                     $    25,457    $    22,819    $     5,010
                     Australia                               4,959          8,372         10,706
                     South Africa                                -          1,091          1,770
                     United Kingdom                          2,256          3,832              -
                     United Kingdom (discontinued
                         operations)                             -              -         12,403
                                                       ------------   ------------   ------------
                           Total net sales             $    32,672    $    36,114    $    29,889
                                                       ============   ============   ============

                  Long-lived assets:
                     United States                     $    48,270    $    60,909    $    10,524
                     Australia                               1,370         11,471         11,152
                     South Africa                                -              -              -
                     United Kingdom                             59             75             13
                     United Kingdom (discontinued
                         operations)                             -              -              -
                                                       ------------   ------------   ------------
                           Total long-lived assets     $    49,699    $    72,455    $    21,689
                                                       ============   ============   ============
</TABLE>

         For the fiscal year ended March 31, 2001 and 2000, sales to one
         customer accounted for 29% and 15%, respectively, of total consolidated
         net revenues. As of March 31, 2001 and 2000, the Company's trade
         receivables from this customer accounted for 26% and 33%, respectively,
         of total consolidated receivables. As of March 31, 2000, deferred
         revenues from this customer accounted for 27% of total consolidated
         deferred revenue.

                                      F-23

<PAGE>

17.      SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
         2001                                          JUNE 30      SEP 30    DEC 31      MAR 31       TOTAL
         -------------------------------------------------------------------------------------------------------
<S>                                                    <C>         <C>       <C>         <C>         <C>
         NET SALES                                     $11,000     $ 7,993   $ 7,737     $ 5,942     $ 32,672
         GROSS PROFIT                                    8,314       4,004     3,861       4,824       21,003
         NET INCOME (LOSS)                                 546      (4,741)   (5,997)    (18,753)     (28,945)
         DILUTED INCOME (LOSS) PER SHARE               $  0.02     $ (0.14)  $ (0.17)    $ (0.54)    $  (0.83)




         2000                                          JUNE 30      SEP 30    DEC 31      MAR 31       TOTAL
         -------------------------------------------------------------------------------------------------------
         NET SALES                                     $11,767     $10,067   $ 7,484     $ 6,796     $ 36,114
         GROSS PROFIT                                    9,322       7,191     5,573       3,058       25,144
         NET INCOME (LOSS)                               1,381        (209)   (2,036)     (3,190)      (4,054)
         DILUTED INCOME (LOSS) PER SHARE               $  0.04     $ (0.01)  $ (0.06)    $ (0.09)    $  (0.12)
</TABLE>

         The summation of quarterly net income (loss) per share may not equate
         to the year-end calculation as quarterly calculations are performed on
         a discrete basis.

                                      F-24