AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST ___, 2004
REGISTRATION NO. ___________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ISLAND PACIFIC, INC.
--------------------
(formerly known as SVI Solutions, Inc.)
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 33-0896617
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
7372
----
(Primary Standard Industrial Classification Code Number)
19800 MACARTHUR BOULEVARD
IRVINE, CALIFORNIA 92612
(949) 476-2212
--------------------------------------------------------------------------------
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
___________________
MICHAEL TOMCZAK
PRESIDENT AND CHIEF OPERATING OFFICER
ISLAND PACIFIC, INC.
19800 MACARTHUR BOULEVARD
IRVINE, CALIFORNIA 92612
(949) 476-2212
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
___________________
Copies to:
Harry J. Proctor, Esq.
Solomon Ward Seidenwurm & Smith, LLP
401 B Street, Suite 1200
San Diego, CA 92101
Phone: (619) 231-0303
Fax: (619) 231-4755
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after this registration statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) SHARE (2) PRICE (2) REGISTRATION FEE (2)
---------- ------------- --------- --------- --------------------
Common Stock, $0.0001
par value 6,846,332 $ 0.45 $3,080,849.40 $ 390.34
(1) Pursuant to Rule 416 of the Securities Act of 1933, as amended (the
"Securities Act"), such shares shall include an indeterminate number of
shares of common stock that may be issued in connection with a stock split,
stock dividend, recapitalization or similar event.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) promulgated under the Securities
Act based upon the average of the high and low prices of our common stock
on August 23, 2004 as reported on the American Stock Exchange, which was
$0.45 per share.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED
PURSUANT TO THIS PROSPECTUS UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
ISLAND PACIFIC, INC.
6,846,332 SHARES
COMMON STOCK
We are registering 6,846,332 shares of our common stock for resale by
the selling stockholders identified in this prospectus on pages 15 through 17.
The selling stockholders may sell the shares of common stock described in this
prospectus in public or private transactions, on or off the American Stock
Exchange, at prevailing market prices, or at privately negotiated prices. The
selling stockholders may sell shares directly to purchasers or through brokers
or dealers. Brokers or dealers may receive compensation in the form of
discounts, concessions or commissions from the selling stockholders. We will not
receive any of the proceeds from the sale of the shares by the selling
stockholders. The selling stockholders will receive all of the proceeds from the
sale of the shares and will pay all underwriting discounts and selling
commissions, if any, applicable to the sale of the shares. We will pay the
expenses of this registration statement.
Our common stock is listed on the American Stock Exchange under the
symbol "IPI." The closing sale price of our common stock as reported on the
American Stock Exchange on August 23, 2004 was $0.42 per share.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," BEGINNING ON PAGE 3.
NEITHER THE SECURITIES EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is __________________, 2004, subject to completion.
TABLE OF CONTENTS
-----------------
Page
PROSPECTUS SUMMARY........................................................... 1
THE OFFERING................................................................. 2
RISK FACTORS................................................................. 3
FORWARD LOOKING STATEMENTS...................................................15
USE OF PROCEEDS..............................................................15
SELLING STOCKHOLDERS.........................................................15
PLAN OF DISTRIBUTION.........................................................17
LEGAL MATTERS................................................................18
EXPERTS......................................................................18
WHERE YOU CAN FIND MORE INFORMATION..........................................18
PART II, INFORMATION NOT REQUIRED IN PROSPECTUS.............................II-1
EXHIBIT INDEX...............................................................II-5
YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. THE SELLING STOCKHOLDERS ARE OFFERING TO SELL, AND
SEEKING OFFERS TO BUY, COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES
ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS
OF THE DATE ON THE COVER PAGE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF
DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THE COMMON STOCK. IN THIS PROSPECTUS,
"IPI," "WE," "US," AND "OUR" REFER TO ISLAND PACIFIC, INC., UNLESS THE CONTEXT
OTHERWISE REQUIRES.
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION YOU SHOULD
CONSIDER BEFORE BUYING SHARES IN THIS OFFERING. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS" AND OUR FINANCIAL STATEMENTS
BEFORE MAKING AN INVESTMENT DECISION.
OUR COMPANY
Island Pacific provides software solutions and services that support
virtually all of the operational activities of a typical retailer. We help
traditional and e-commerce retailers understand, manage and fulfill consumer
demand by providing fully-integrated, retail management and point-of-sale
systems. We have installed our software in over 200 retailers worldwide, which
operate approximately 31,000 retail stores and have approximately $250 billion
in combined annual sales. Current customers include Nike, Disney, the Limited
Brands, IBM, Hershey's and Lands End. We distribute our products through a
direct sales force as well as third party distributors that include IBM and IBM
resellers.
Our solutions enable retailers to customize their merchandising and
build customer loyalty through the tracking, reporting and forecasting of
consumer trends. Specifically, our products facilitate data mining, including
identification of consumer preferences and trends, product purchasing
replenishment, pricing, loss prevention, financial management, and e-commerce.
We believe that our products are generally less expensive and faster to
implement than competing products. They are also scaleable, enabling retailers
to leverage their initial investments in our systems as they expand and grow.
OUR INDUSTRY
To operate effectively, retailers need business intelligence systems
that provide reliable data regarding the various factors that shape consumer
response, such as product selection, pricing, and shelf placement. Procurement
and analysis of this information has become more complicated as retailers expand
through the Internet, catalog, kiosk and other distribution channels.
Legacy systems relied upon by retailers to address these information
needs are often self-developed, custom-built systems that are not
Internet-enabled and do not provide the enterprise-wide supply and demand chain
market intelligence, communications, forecasting and planning, and merchandising
functions that are critical to a retailers' ability to operate at maximum
efficiency.
Current offerings of packaged software solutions designed specifically
for the retail industry are primarily positioned for the largest of companies,
which can better afford the expensive licenses and time necessary for managerial
and technical staff to implement these solutions.
Smaller-to -medium sized retailers, generally with $200 to $700 million
in annual sales, have a compelling need for a fully-integrated software
infrastructure that can mine and manage supplier and consumer data; give the
retailer control of its business processes to meet competitive challenges; and
scale up as the retailer grows. In addition, these retailers want systems that
are easy to install, cost-effective and user-friendly.
OUR SOLUTIONS
Our information management solutions are specifically designed to serve
smaller-to-medium sized retailers. Our solutions are easy-to-use, rapidly
deployable, and sufficiently flexible to meet the needs of a broad range of
retail sectors, such as fashion, mass merchandise, and food and drug.
1
Key areas that differentiate our software solutions include:
o RAPID IMPLEMENTATION - We believe that our software systems
can be implemented more quickly than competing systems,
enabling retailers to more rapidly leverage the information
gathering and reporting benefits they desire. Moreover, our
modular architecture allows retailers to implement the
applications they view as most critical first, and to add
upgrades and enhancements as needed.
o STRONG VALUE PROPOSITION - Our systems are less expensive than
competitive, packaged systems and generally much less
expensive than custom-designed retailing solutions. We believe
that the total cost of ownership of our systems, including
installation and maintenance, is among the lowest in the
industry.
o SCALABLE AND FLEXIBLE - Our solutions are scalable; enabling
our customers to leverage their initial investment in our
products as our solutions help them grow. In addition, as
their needs become more complex, we are able to offer them a
variety of options and product extensions through partnerships
with other software vendors. Our solutions work in
environments that span from 1 to 5,000 stores.
o PROVEN LEADERSHIP AND INNOVATION - We are a leading provider
of infrastructure software and services for the retail
industry, our target market, with a reputation for innovation
and service. We provide software products and services
infrastructure for over 200 retailers. Our constant
interaction with this sizeable customer base provides a key
source of ideas for continuous improvement to our products.
RECENT DEVELOPMENTS
OPERATIONAL IMPROVEMENTS
In recent periods, we have taken a number of steps designed to improve
our balance sheet and operations, including:
o Acquired two complementary companies with substantial revenues
and earnings potential;
o Revamped our management team by adding a new President and
COO, new CTO, and new CFO;
o Improved our IBM-based core products through continuing
internal research and development;
o Obtained the rights to distribute complementary products,
including a new easy-to-install and easy-to-use,
open-architecture software system for very small retailers,
which we will introduce in 2004;
o Established partnerships with several value added resellers to
provide a variety of options and product extensions;
o Improved our distribution capabilities by adding new third
party channels, such as IBM and IBM's resellers, and
professional service firms, such as CGI and LakeWest.
We believe that these actions have positioned us for a return to
sustained revenue growth and profitability.
Our executive offices are located at 19800 MacArthur Boulevard, Irvine,
California, 92612, telephone number (949) 476-2212.
THE OFFERING
------------------------------------- -------------------------------------
Common stock to be offered by 6,846,332 shares
the selling stockholders
------------------------------------- -------------------------------------
Common stock outstanding as of 55,205,108
August 9, 2004
------------------------------------- -------------------------------------
Use of proceeds We will not receive any proceeds from
the sale of shares of common stock
covered by this prospectus.
------------------------------------- -------------------------------------
American Stock Exchange symbol IPI
------------------------------------- -------------------------------------
2
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE
RISKS DESCRIBED BELOW BEFORE MAKING A DECISION TO BUY OUR COMMON STOCK. IF ANY
OF THE FOLLOWING RISKS ACTUALLY OCCURS, OUR BUSINESS COULD BE HARMED. IN THAT
CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL
OR PART OF YOUR INVESTMENT. YOU SHOULD ALSO REFER TO THE OTHER INFORMATION IN
THIS PROSPECTUS.
EXCEPT FOR HISTORICAL INFORMATION, THE INFORMATION IN THIS PROSPECTUS CONTAINS
"FORWARD-LOOKING" STATEMENTS ABOUT OUR EXPECTED FUTURE BUSINESS AND PERFORMANCE.
OUR ACTUAL OPERATING RESULTS AND FINANCIAL PERFORMANCE MAY PROVE TO BE VERY
DIFFERENT FROM WHAT WE MIGHT HAVE PREDICTED AS OF THE DATE OF THIS PROSPECTUS.
THE RISKS DESCRIBED BELOW ADDRESS SOME OF THE FACTORS THAT MAY AFFECT OUR FUTURE
OPERATING RESULTS AND FINANCIAL PERFORMANCE.
BUSINESS RISKS
WE INCURRED LOSSES FOR FISCAL YEARS 2004, 2003 AND 2002.
We incurred losses of $4.2 million, $2.7 million, and $14.7 million in
the fiscal years ended March 31, 2004, 2003, and 2002 respectively. The losses
in the past three years have generally been due to difficulties completing sales
for new application software licenses, the resulting change in sales mix toward
lower margin services, and debt service expenses. We will need to generate
additional revenue to achieve profitability in future periods. If we are unable
to achieve profitability, or maintain profitability if achieved, our business
and stock price may be adversely effected and we may be unable to continue
operations at current levels, if at all.
WE HAD NEGATIVE WORKING CAPITAL IN PRIOR FISCAL YEAR, AND WE HAVE EXTENDED
PAYMENT TERMS WITH A NUMBER OF OUR SUPPLIERS.
At March 31, 2003, we had negative working capital of $4.1 million. We
have had difficulty meeting operating expenses, including interest payments on
debt, lease payments, and supplier obligations. We have at times deferred
payroll for our executive officers, and borrowed from related parties to meet
payroll obligations. We have extended payment terms with our trade creditors
wherever possible.
As a result of extended payment arrangements with suppliers, we may be
unable to secure products and services necessary to continue operations at
current levels from these suppliers. In that event, we will have to obtain these
products and services from other parties, which could result in adverse
consequences to our business, operations, and financial condition. We may be
unable to obtain these products from other parties on terms acceptable to us, if
at all.
OUR NET SALES HAVE DECLINED IN RECENT FISCAL YEARS. WE EXPERIENCED A SUBSTANTIAL
DECREASE IN APPLICATION SOFTWARE LICENSE SALES. OUR GROWTH AND PROFITABILITY IS
DEPENDENT ON THE SALE OF HIGHER MARGIN LICENSES.
Our net sales decreased by 2% in the fiscal year ended March 31, 2004,
compared to the fiscal year ended March 31, 2003. Our net sales decreased by 16%
in the fiscal year ended March 31, 2003 compared to the fiscal year ended March
31, 2002. We experienced a substantial decrease in application license software
sales in fiscal year 2003 and 2002, which typically carry a much higher margin
than other revenue sources. We must improve new application license sales to
become profitable. We have taken steps to refocus our sales strategy on core
historic competencies, but our typically long sales cycles make it difficult to
evaluate whether and when sales will improve. We cannot be sure that the decline
in sales has not been due to factors which might continue to negatively affect
sales.
OUR FINANCIAL CONDITION MAY INTERFERE WITH OUR ABILITY TO SELL NEW APPLICATION
SOFTWARE LICENSES.
Future sales growth may depend on our ability to improve our financial
condition. Our past financial condition has made it difficult for us to complete
sales of new application software licenses. Because our applications typically
require lengthy implementation and extended servicing arrangements, potential
customers require assurance that these services will be available for the
expected life of the application. These potential customers may defer buying
decisions until our financial condition improves, or may choose products of our
competitors whose financial conditions are, or are perceived to be, stronger.
Customer deferrals or lost sales will adversely affect our business, financial
condition, and results of operations.
3
OUR SALES CYCLES ARE LONG AND PROSPECTS ARE UNCERTAIN. THIS MAKES IT DIFFICULT
FOR US TO PREDICT REVENUES AND BUDGET EXPENSES.
The length of sales cycles in our business make it difficult to
evaluate the effectiveness of our sales strategies. Our sales cycles
historically have ranged from three to twelve months, which has caused
significant fluctuations in revenues from period to period. Due to our
difficulties in completing new application software sales in recent periods and
our refocused sales strategy, it is difficult to predict revenues and properly
budget expenses.
Our software applications are complex and perform or directly affect
mission-critical functions across many different functional and geographic areas
of the retail enterprise. In many cases, our customers must change established
business practices when they install our software. Our sales staff must dedicate
significant time consulting with a potential customer concerning the substantial
technical and business concerns associated with implementing our products. The
purchase of our products is often discretionary, so lengthy sales efforts may
not result in a sale. Moreover, it is difficult to predict when a license sale
will occur. All of these factors can adversely affect our business, financial
condition, and results of operations.
OUR OPERATING RESULTS AND REVENUES HAVE FLUCTUATED SIGNIFICANTLY IN THE PAST AND
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 outside of
our control, including: the size and timing of orders, the general health of the
retail industry, the length of our sales cycles, and technological changes. 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, which may cause our stock
price to decline.
Further, due to these fluctuations, we do not believe period to period
comparisons of our financial performance are necessarily meaningful nor should
they be relied on as an indication of our future performance.
WE MAY EXPERIENCE SEASONAL DECLINES IN SALES, WHICH COULD CAUSE OUR OPERATING
RESULTS TO FALL SHORT OF EXPECTATIONS IN SOME QUARTERS.
We may experience slower sales of our applications and services from
October through December of each year as a result of retailers' focus on the
holiday retail-shopping season. This can negatively affect revenues in our third
fiscal quarter and in other quarters, depending on our sales cycles.
OUR DEBT COULD ADVERSELY AFFECT US.
As of July 31, 2004, our debt, including any accrued interest, is as follows:
o $1.3 million in convertible debenture issued in March 2004 to
Midsummer Investments, Ltd. ("Midsummer") due in full in May
2006, with monthly redemptions to commence in September 2004.
o $0.5 million in promissory note issued in June 2004 to Intuit
Inc. ("Intuit") due in full on June 1, 2006, payable in
monthly installments.
o $1.9 million in promissory notes issued in June 2004 to
noteholders of Retail Technologies International, Inc. ("RTI")
due on May 1, 2005, payable in monthly installments.
o $2.6 million in promissory notes issued in June 2004 to
Michael Tomczak and Jeffrey Boone due on June 1, 2006, payable
in monthly installments.
o $7.0 million in a secured convertible term note issued to
Laurus Master Fund, Ltd. ("Laurus") in July 2004, matures on
September 1, 2004, subject to automatic extension if we
increase our authorized shares after such action is approved
by our stockholders.
4
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 principal and/or
interest when they become due resulting in a default, which
could lead to our debt holders exercising rights under their
respective debt instruments, including, without limitation,
declaring debt immediately due and payable or taking
possession or control of the assets that secure the respective
debt instruments.
These are just some factors pertaining to our debt that generally place us at a
disadvantage to our less leveraged competitors. Any or all of these factors
could cause our stock price to decline.
WE HAVE RELIED ON CAPITAL CONTRIBUTED BY RELATED PARTIES, AND SUCH CAPITAL MAY
NOT BE AVAILABLE IN THE FUTURE.
Our cash from operations has not been sufficient to meet our
operational needs and we have relied on capital from related parties. A company
affiliated with Donald S. Radcliffe, our director, made short-term loans to us
in fiscal 2002 and in fiscal 2003 to meet payroll. Softline Limited ("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
former Chairman. We borrowed an additional $164,000 from Mr. Schechter in March
2001, which was repaid in July 2001, for operational needs related to our
Australian subsidiary.
We may not be able to obtain capital from related parties in the
future. No officer, director, stockholder, or related party is under any
obligation to provide cash to meet our future liquidity needs.
WE MAY NEED TO RAISE CAPITAL TO GROW OUR BUSINESS. OBTAINING THIS CAPITAL COULD
IMPAIR THE VALUE OF YOUR INVESTMENT.
We may need to raise 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 on terms acceptable to us.
If we cannot raise needed funds for the above purposes on acceptable terms, we
may be forced to curtail some or all of the above activities and we may not be
able to grow our business or respond to competitive pressures or unanticipated
developments.
We may raise capital through public or private equity offerings or debt
financings. To the extent we raise additional capital by issuing equity
securities or convertible debt securities, our stockholders may experience
substantial dilution and the new securities may have greater rights,
preferences, or privileges than our existing common stock.
INTANGIBLE ASSETS MAY BE IMPAIRED MAKING IT MORE DIFFICULT TO OBTAIN FINANCING.
Goodwill, capitalized software, non-compete agreements, and other
intangible assets represent approximately 84% of our total assets as of March
31, 2004. We may have to impair or write-off these assets, which will cause a
charge to earnings and could cause our stock price to decline.
5
Any such impairment 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. Foreign currency losses may
negatively affect profitability or increase losses. Approximately 17%, 12%, and
9% of our net sales from continuing operations were outside North America,
principally in Australia and the United Kingdom, in the fiscal years ended March
31, 2004, 2003, and 2002, respectively. Many of our expenses related to foreign
sales, such as corporate level administrative overhead and development, are
denominated in U.S. dollars. When accounts receivable and accounts payable
arising from international sales and services are converted to U.S. dollars, the
resulting gain or loss contributes to fluctuations in our operating results. We
do not hedge against foreign currency exchange rate risks.
HISTORICALLY WE HAVE BEEN DEPENDENT ON A SMALL NUMBER OF CUSTOMERS FOR A
SIGNIFICANT AMOUNT OF OUR BUSINESS.
QQQ Systems Ltd. ("QQQ Systems") accounted for 18% of our net sales for
the fiscal year ended March 31, 2004. The software license sale to QQQ Systems
was a one-time transaction. Toys "R" Us ("Toys") accounted for 7%, 31%, and 47%
of our net sales from continuing operations for the fiscal years ended March 31,
2004, 2003, and 2002, respectively. In November 2003, Toys terminated their
software development and services agreement with us. We cannot provide any
assurances that QQQ Systems 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 our President and Chief Operating Officer,
Michael Tomczak and our Chief Technology Officer, Jeffrey Boone. We are also
heavily dependent on our former Chairman, Barry Schechter, who remains a
consultant to us. 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, which could
negatively affect our financial performance and cause our stock price to
decline.
WE ARE DEPENDENT ON THE RETAIL INDUSTRY. IF ECONOMIC CONDITIONS IN THE RETAIL
INDUSTRY FURTHER DECLINE, OUR REVENUES MAY ALSO DECLINE. RETAIL SALES HAVE BEEN
AND MAY CONTINUE TO BE SLOW.
Our future growth is critically dependent on increased sales to the
retail industry. We derive the substantial majority of our revenues from the
licensing of software applications and the performance of related professional
and consulting services to the retail industry. The retail industry as a whole
is currently experiencing increased competition and weakening economic
conditions that could negatively impact the industry and our customers' ability
to pay for our products and services. In addition, the retail industry may be
consolidating, and it is uncertain how consolidation will affect the industry.
Such consolidation and weakening economic conditions have in the past, and may
in the future, negatively impact our revenues and reduce the demand for our
products and may negatively impact our business, operating results and financial
condition. Specifically, uncertain economic conditions and the specter of
terrorist activities have adversely impacted sales of our software applications,
and we believe mid-tier specialty retailers may be reluctant during the current
economic climate to make the substantial infrastructure investment that
generally accompanies the implementation of our software applications, which may
adversely impact our business.
6
THERE MAY BE AN INCREASE IN CUSTOMER BANKRUPTCIES DUE TO WEAK ECONOMIC
CONDITIONS.
We have in the past and may in the future be impacted by customer
bankruptcies. During weak economic conditions, such as those currently being
experienced in many geographic regions around the world, there is an increased
risk that certain of our customers will file bankruptcy. When our customers file
bankruptcy, we may be required to forego collection of pre-petition amounts owed
and to repay amounts remitted to us during the 90-day preference period
preceding the filing. Accounts receivable balances related to pre-petition
amounts may in certain of these instances be large due to extended payment terms
for software license fees and significant billings for consulting and
implementation services on large projects. We also face risk from international
customers who may file for bankruptcy protection in foreign jurisdictions - the
application of foreign bankruptcy laws may be less certain or harder to predict.
Although we believe that we have sufficient reserves to cover anticipated
customer bankruptcies, there can be no assurance that such reserves will be
adequate, and if they are not adequate, our business, operating results and
financial condition would be adversely affected.
WE MAY NOT BE ABLE TO MAINTAIN OR IMPROVE OUR COMPETITIVE POSITION BECAUSE OF
THE INTENSE COMPETITION IN THE RETAIL SOFTWARE INDUSTRY.
We conduct business in an industry characterized by intense
competition. Most of our competitors are very large companies with an
international presence. We must also compete with smaller companies that have
established strong local or regional customer bases. Many of our competitors and
potential competitors are more established, benefit from greater name
recognition, and have significantly greater resources than us. Our competitors
may also have lower cost structures and better access to the capital markets
than us. As a result, our competitors may be able to respond more quickly than
we can to new or emerging technologies and changes in customer requirements. Our
competitors may:
o Introduce new technologies that render our existing or future
products obsolete, unmarketable, or less competitive;
o Make strategic acquisitions or establish cooperative
relationships among themselves or with other solution
providers, which would increase the ability of their products
to address the needs of our customers; and
o Establish or strengthen cooperative relationships with our
current or future strategic partners, which would limit our
ability to compete through these channels.
We could be forced to reduce prices and suffer reduced margins and
market share due to increased competition from providers of offerings similar
to, or competitive with, our applications, or from service providers that
provide services similar to our services. Competition could also render our
technology obsolete. For a further discussion of competitive factors in our
industry, see "Description of Business - Competition" below.
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;
7
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. OUR COMPETITORS MAY
DEVELOP APPLICATIONS SUBSTANTIALLY SIMILAR TO OUR APPLICATIONS AND USE SIMILAR
TECHNOLOGIES, WHICH MAY RESULT IN US LOSING CUSTOMERS. WE MAY HAVE TO INITIATE
COSTLY LITIGATION TO PROTECT OUR PROPRIETARY RIGHTS.
Our success and competitive position is dependent in part upon our
ability to develop and maintain the proprietary aspects of our intellectual
property. Our intellectual property includes our trademarks, trade secrets,
copyrights, and other proprietary information. Our efforts to protect our
intellectual property may not be successful. Effective copyright and trade
secret protection may be unavailable or limited in some foreign countries. We
hold no patents. Consequently, others may develop, market, and sell applications
substantially equivalent to ours or utilize technologies similar to those used
by us, so long as they do not directly copy our applications or otherwise
infringe our intellectual property rights.
We may find it necessary to bring claims or initiate litigation against
third parties for infringement of our proprietary rights or to protect our trade
secrets. These actions would likely be costly and divert management resources.
These actions could also result in counterclaims challenging the validity of our
proprietary rights or alleging infringement on our part. The ultimate outcome of
any litigation will be difficult to predict.
OUR APPLICATIONS MAY BE SUBJECT TO CLAIMS THEY INFRINGE ON THE PROPRIETARY
RIGHTS OF THIRD PARTIES, WHICH MAY EXPOSE US TO LITIGATION.
We may become subject to litigation involving patents or proprietary
rights. Patent and proprietary rights litigation entail substantial legal and
other costs. We do not know if we will have the necessary financial resources to
defend or prosecute our rights in connection with any such litigation.
Responding to and defending claims related to our intellectual property rights,
even ones without merit, can be time consuming and expensive and can divert
management's attention from other business matters. In addition, these actions
could cause application delivery delays or require us to enter into royalty or
license agreements. Royalty or license agreements, if required, may not be
available on terms acceptable to us, if they are available at all. Any or all of
these outcomes could have a material adverse effect on our business, operating
results, and financial condition.
DEVELOPMENT AND MARKETING OF OUR OFFERINGS DEPENDS ON STRATEGIC RELATIONSHIPS
WITH OTHER COMPANIES. OUR EXISTING STRATEGIC RELATIONSHIPS MAY NOT ENDURE AND
MAY NOT DELIVER THE INTENDED BENEFITS, AND WE MAY NOT BE ABLE TO ENTER INTO
FUTURE STRATEGIC RELATIONSHIPS.
Since we do not possess all of the technical and marketing resources
necessary to develop and market our offerings to their target markets, our
business strategy substantially depends on our strategic relationships,
including licensing software and technology that is integrated into our
applications. 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.
8
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 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. 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 or 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 material 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.
THE SAGE GROUP, PLC (THE "SAGE GROUP") HAS THE RIGHT TO ACQUIRE A SIGNIFICANT
PERCENTAGE OF OUR COMMON STOCK. IF SUCH STOCK IS ACQUIRED BY THE SAGE GROUP, IT
MAY BE ABLE TO EXERCISE EFFECTIVE CONTROL OF US.
On November 14, 2003, the Sage Group acquired substantially all of the
assets of Softline, including Softline's 141,000 shares of our Series A
Convertible Preferred Stock, which are convertible into 19,130,780 shares of our
common stock within 60 days of August 9, 2004, 8,923,915 shares of our common
stock, and options to purchase 71,812 shares of our common stock. The Sage Group
beneficially owns approximately 34.1% of our outstanding common stock, including
shares the Sage Group has the right to acquire upon conversion of its Series A
Convertible Preferred Stock and exercise of its outstanding options. Although
the Series A Convertible Preferred Stock is non-voting as to most matters and is
redeemable by us, if the Sage Group converts its Series A Convertible Preferred
Stock to common stock, it may have effective control over all matters affecting
us, including:
o The election of all of our directors;
o The allocation of business opportunities that may be suitable
for the Sage Group and us;
9
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.
THE SAGE GROUP'S POTENTIAL INFLUENCE ON US COULD MAKE IT DIFFICULT FOR ANOTHER
COMPANY TO ACQUIRE US, WHICH COULD DEPRESS OUR STOCK PRICE.
The Sage Group beneficially owns a significant percentage of our common
stock. The Sage Group's potential effective voting control could discourage
others from initiating any potential merger, takeover or other change of control
transaction that may otherwise be beneficial to our business or our
stockholders. As a result, the Sage Group's potential effective control could
reduce the price that investors may be willing to pay for shares of our stock in
the future or could prevent any party from attempting to acquire us at any
price.
OUR STOCK PRICE HAS BEEN HIGHLY VOLATILE.
The market price of our common stock has been, and is likely to
continue to be, volatile. When we or our competitors announce new customer
orders or services, change pricing policies, experience quarterly fluctuations
in operating results, announce strategic relationships or acquisitions, change
earnings estimates, experience government regulatory actions, or suffer from
generally adverse economic conditions, our stock price could be affected. Some
of the volatility in our stock price may be unrelated to our performance.
Recently, companies similar to ours have experienced extreme price fluctuations,
often for reasons unrelated to their performance.
ALL OF OUR AUTHORIZED COMMON STOCK IS ISSUED AND OUTSTANDING OR IS RESERVED FOR
ISSUANCE PURSUANT TO EXERCISE OF OUTSTANDING OPTIONS OR WARRANTS OR CONVERSION
OF DEBENTURES OR PREFERRED STOCK. OUR INABILITY TO ISSUE ADDITIONAL SHARES OF
COMMON STOCK MAY LIMIT OUR ABILITY TO RAISE CAPITAL, ENTER STRATEGIC
TRANSACTIONS, AND SATISFY CONTRACTUAL OBLIGATIONS.
Our authorized capital stock under our Amended and Restated Certificate
of Incorporation is 100,000,000 shares of common stock, 54,809,255 of which were
issued and outstanding as of July 31, 2004, and 5,000,000 shares of preferred
stock consisting of 141,000 shares of Series A Preferred Stock, all of which
were issued and outstanding as of July 31, 2004, and 2,517,232 shares of Series
B Preferred Stock, all of which were issued and outstanding as of July 31, 2004.
We have 47,237,225 shares of common stock reserved for issuance upon exercise of
options or warrants or conversion of debentures or preferred stock. As a result,
we have 102,046,480 shares of common stock outstanding or reserved for issuance,
which exceeds our authorized shares of common stock by 2,046,480 shares. In
addition, the Company has contractual obligations to issue additional shares of
common stock to holders of its Series A Preferred Stock and Series B Preferred
Stock and to maintain sufficient shares of common stock available for issuances
on exercise of options and warrants and conversion of convertible securities
pursuant to employment compensation arrangements with certain members of
management and securities purchase agreements with certain investors, which are
not currently reserved. We submitted a proposal to amend our Certificate of
Incorporation to increase the number of shares of Common Stock we are authorized
to issue from 100,000,000 to 250,000,000 to our stockholders at our annual
meeting on August 11, 2004. We did not receive sufficient votes to approve the
amendment to the Certificate of Incorporation at that time and have adjourned
the meeting until August 27, 2004 to provide us time to secure additional votes
sufficient to effect such amendment. However, there can be no assurances that
such a proposal will be approved by the requisite vote of the stockholders. If
we are unable to increase our authorized Common Stock our ability to obtain
additional capital through sales of our common stock, to engage in acquisitions
or other strategic transactions and to satisfy contractual commitments will be
severely limited.
10
ALL OF OUR ASSETS OUR PLEDGED TO SECURE THE SECURED CONVERTIBLE TERM NOTE ISSUED
TO LAURUS AND DUE ON SEPTEMBER 1, 2004 UNLESS EXTENDED (THE "LAURUS NOTE"). WE
DO NOT HAVE SUFFICIENT FUNDS AVAILABLE TO PAY THE LAURUS NOTE IN FULL ON
SEPTEMBER 1, 2004. IF THE TERM OF THE LAURUS NOTE IS NOT EXTENDED, LAURUS COULD
ASSUME CONTROL OF ALL OF OUR ASSETS.
We issued a security interest in all of our assets to Laurus as
security for the Laurus Note in the principal amount of $7 million. The Laurus
Note is due and payable in full on September 1, 2004, unless extended
automatically upon an increase to the number of shares of common stock we are
authorized to issue to 250,000,000 or extended in Laurus' discretion. We
submitted a proposal to increase our authorized common stock to 250,000,000 to
our stockholders at our annual stockholders meeting on August 11, 2004, but did
not receive sufficient votes to authorize the increase. We adjourned the annual
meeting until August 27, 2004, to secure the additional votes necessary to
authorize the increase. There can be no assurances that we will secure
sufficient votes to authorize the increase.
If the increase to the authorized shares is not approved prior to
September 1, 2004 or the term of the Laurus Note is not otherwise extended, the
Laurus Note will be in default and Laurus will be entitled to exercise all
remedies available to it under the terms of the Laurus Note and applicable law.
Such remedies include assuming control of all of our assets.
WE HAVE NEVER PAID A DIVIDEND ON OUR COMMON STOCK AND WE DO NOT INTEND TO PAY
DIVIDENDS ON OUR COMMON STOCK 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 on our common stock in the foreseeable future.
Holders of our Series A Convertible Preferred Stock are entitled to dividends in
preference and priority to common stockholders. Future equity financing(s) may
further restrict our ability to pay dividends.
THE TERMS OF OUR PREFERRED STOCK MAY REDUCE THE VALUE OF YOUR COMMON STOCK.
We are authorized to issue up to 5,000,000 shares of preferred stock in
one or more series. We issued 141,000 shares of Series A Convertible Preferred
Stock in May 2002 and 2,517,232 shares of Series B Convertible Preferred Stock
in June 2004. Our board of directors may determine the terms of subsequent
series of preferred stock without further action by our stockholders. If we
issue additional preferred stock, it could affect your rights or reduce the
value of your common stock. In particular, specific rights granted to future
holders of preferred stock could be used to restrict our ability to merge with
or sell our assets to a third party. These terms may include voting rights,
preferences as to dividends and liquidation, conversion and redemption rights,
and sinking fund provisions. We are actively seeking capital and some of the
arrangements we are considering may involve the issuance of preferred stock.
FAILURE TO COMPLY WITH THE AMERICAN STOCK EXCHANGE'S LISTING STANDARDS COULD
RESULT IN OUR DELISTING FROM THAT EXCHANGE AND LIMIT THE ABILITY TO SELL ANY OF
OUR COMMON STOCK.
Our stock is currently traded on the American Stock Exchange. The
Exchange has published certain guidelines it uses in determining whether a
security warrants continued listing. Pursuant to these guidelines the Exchange
will consider suspending trading in a listed security or delisting a security
when, in the opinion of the Exchange: (i) the financial condition and/or
operating results of the issuer appear to be unsatisfactory; (ii) the aggregate
market value of the security has become so reduced as to make further dealings
on the Exchange inadvisable; (iii) the issuer has sold or otherwise disposed of
its principal operating assets, or has ceased to be an operating company; (iv)
the issuer has failed to comply with its listing agreements with the Exchange;
or (v) any other event shall occur or any condition shall exist which makes
further dealings on the Exchange unwarranted. As a result of our financial
condition or other factors, the American Stock Exchange could in the future
determine that our stock does not merit continued listing. If our stock were
delisted from the American Stock Exchange, the ability of our stockholders to
sell our common stock could become limited and we would lose the advantage of
some state and federal securities regulations imposing lower regulatory burdens
on exchange-traded issuers.
11
SHARES ISSUABLE UPON THE EXERCISE OF OPTIONS OR WARRANTS, CONVERSION OF
DEBENTURES, AS DIVIDENDS ON CONVERTIBLE PREFERRED STOCK, AS INTEREST ON
DEBENTURES, OR UNDER ANTI-DILUTION PROVISIONS IN CERTAIN AGREEMENTS COULD DILUTE
YOUR STOCK HOLDINGS AND ADVERSELY AFFECT OUR STOCK PRICE.
We have issued options and warrants to acquire common stock to our
employees and certain other persons at various prices, some of which are or may
in the future have exercise prices below the market price of our stock. We
currently have outstanding options and warrants for 31,838,810 shares as of
August 9, 2004. Of these options and warrants, as of August 9, 2004, 26,859,043
have exercise prices above the recent market price of $0.44 per share (as of
August 9, 2004), and 4,979,767 have exercise prices at or below that recent
market price.
There are no shares available for issuance under our existing stock
option plan. We will reserve 10,000,000 shares for issuance under our new 2004
Equity Incentive Plan, which was approved by our stockholders at our annual
meeting on August 11, 2004, once it becomes effective after an increase to our
authorized shares of common stock. Future options issued under the plan may have
further dilutive effects.
The issuance of additional shares pursuant to these options, warrants,
convertible debentures, or anti-dilution provisions will cause immediate and
possibly substantial dilution to our stockholders. Further, subsequent sales of
such shares in the public market 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.
WE MAY BE UNABLE TO SUCCESSFULLY INTEGRATE OUR OPERATIONS WITH PAGE DIGITAL
INCORPORATED ("PAGE DIGITAL") OR RTI OR REALIZE ALL OF THE ANTICIPATED BENEFITS
OF THESE ACQUISITIONS.
On January 30, 2004, we acquired Page Digital and pursuant to an
agreement dated June 1, 2004, we acquired RTI These acquisitions involve
integrating two companies that previously operated independently into Island
Pacific. These integrations will be complex, costly, and time-consuming
processes. The difficulties of combining these companies' operations include,
among other things:
o Coordinating geographically disparate organizations, systems,
and facilities;
o Strain on management resources due to integration demands;
o Integrating personnel with diverse business backgrounds;
o Consolidating corporate and administrative functions;
o Coordinating product development;
o Coordinating sales and marketing functions;
o Retaining key employees; and
o Preserving relationships with key customers.
BUSINESS RISKS FACED BY PAGE DIGITAL COULD DISADVANTAGE OUR BUSINESS.
Page Digital is a developer of multi-channel commerce software and
faces several business risks that could disadvantage our business. These risks
include many of the risks that we face, described above, as well as:
o LONG AND VARIABLE SALES CYCLES MAKE IT DIFFICULT TO PREDICT
OPERATING RESULTS - Historically, the period between initial
contact with a prospective customer and the licensing of Page
Digital's products has ranged from one to twelve months. Page
Digital's average sales cycle is currently three months. The
licensing of Page Digital's products is often an enterprise
wide decision by customers, which involves a significant
commitment of resources by Page Digital and its prospective
customer. Customers generally consider a wide range of issues
12
before committing to purchase Page Digital's products,
including product benefits, cost and time of implementation,
ability to operate with existing and future computer systems,
ability to accommodate increased transaction volume, and
product reliability. As a part of the sales process, Page
Digital spends a significant amount of resources informing
prospective customers about the use and benefits of Page
Digital products, which may not result in a sale, therefore
increasing operating expenses. As a result of this sales
cycle, Page Digital's revenues are unpredictable and could
vary significantly from quarter to quarter causing our
operating results to vary significantly from quarter to
quarter.
o DEFECTS IN PRODUCTS COULD DIMINISH DEMAND FOR PRODUCTS AND
RESULT IN LOSS OF REVENUES - From time to time errors or
defects may be found in Page Digital's existing, new, or
enhanced products, resulting in delays in shipping, loss of
revenues, or injury to Page Digital's reputation. Page
Digital's customers use its products for business critical
applications. Any defects, errors, or other performance
problems could result in damage to Page Digital's customers'
businesses. These customers could seek significant
compensation from Page Digital for any losses. Further, errors
or defects in Page Digital's products may be caused by defects
in third-party software incorporated into Page Digital
products. If so, Page Digital may not be able to fix these
defects without the assistance of the software providers.
o FAILURE TO FORMALIZE AND MAINTAIN RELATIONSHIPS WITH SYSTEMS
INTEGRATORS COULD REDUCE REVENUES AND HARM PAGE DIGITAL'S
ABILITY TO IMPLEMENT PRODUCTS - A significant portion of Page
Digital's sales are influenced by the recommendations of
systems integrators, consulting firms, and other third
parties, who assist with the implementation and maintenance of
Page Digital's products. These third parties are under no
obligation to recommend or support Page Digital's products.
Failing to maintain strong relationships with these third
parties could result in a shift by these third parties toward
favoring competing products, which could negatively affect
Page Digital's software license and service revenues.
o PAGE DIGITAL'S PRODUCT MARKETS ARE SUBJECT TO RAPID
TECHNOLOGICAL CHANGE, SO PAGE DIGITAL'S SUCCESS DEPENDS
HEAVILY ON ITS 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. Page Digital must cost-effectively develop and
introduce new applications and related services that keep pace
with technological developments to compete. If Page Digital
fails to gain market acceptance for its existing or new
offerings or if Page Digital fails to introduce progressive
new offerings in a timely or cost-effective manner, our
financial performance may suffer.
o PAGE DIGITAL'S FAILURE TO PROTECT PROPRIETARY RIGHTS OR
INTELLECTUAL PROPERTY OR INTELLECTUAL PROPERTY INFRINGEMENT
CLAIMS AGAINST PAGE DIGITAL, COULD RESULT IN PAGE DIGITAL
LOSING VALUABLE ASSETS OR BECOMING SUBJECT TO COSTLY AND
TIME-CONSUMING LITIGATION - Page Digital's success and ability
to compete depend on its proprietary rights and intellectual
property. Page Digital relies on trademark, trade secret, and
copyright laws to protect its proprietary rights and
intellectual property. Page Digital also has one issued
patent. Despite Page Digital's efforts to protect intellectual
property, a third party could obtain access to Page Digital's
software source code or other proprietary information without
authorization, or could independently duplicate Page Digital's
software. Page Digital may need to litigate to enforce
intellectual property rights. If Page Digital is unable to
protect its intellectual property it may lose a valuable
asset. Further, third parties could claim Page Digital has
infringed their intellectual property rights. Any claims,
regardless of merit, could be costly and time-consuming to
defend.
13
o COMPETITION IN THE SOFTWARE MARKET IS INTENSE AND COULD REDUCE
PAGE DIGITAL'S SALES OR PREVENT THEM FROM ACHIEVING
PROFITABILITY - The market for Page Digital's products is
intensely competitive and subject to rapid technological
change. Competition is likely to result in price reductions,
reduced gross margins, and loss of Page Digital's market
share, any one of which could reduce future revenues or
earnings. Further, most of Page Digital's competitors are
large companies with greater resources, broader customer
relationships, greater name recognition, and an international
presence. As a result, Page Digital's competitors may be able
to better respond to new and emerging technologies and
customer demands.
BUSINESS RISKS FACED BY RTI COULD DISADVANTAGE OUR BUSINESS.
RTI is a provider of retail management store solutions to small through
mid-tier retailers via an international network of retailers and faces several
business risks that could disadvantage our business. These risks include many of
the risks that we face, described above, as well as:
o RTI FACES INTENSE COMPETITION IN THE RETAIL POINT OF SALE
INDUSTRY - RTI operates in an extremely competitive industry,
which is subject to rapid technological and market changes. We
anticipate that the competition will increase as more
companies focus on providing technology solutions to small and
mid-tier retailers. Many of our current and potential
competitors, such as Microsoft, have more resources to devote
to product development, marketing, and distribution. While RTI
believes that it has competitive strengths in its market,
there can be no assurance that RTI will continue to compete
successfully against larger more established competitors.
o RTI IS DEPENDENT ON THEIR VALUE-ADDED RESELLLERS (VARS) - RTI
does not have a direct sales force and relies on VARs to
distribute and sell its products. RTI currently has
approximately 67 VARs - 27 in North America, 7 in South
America, 11 in Asia, 19 in Europe and the Middle East, 1 in
Africa, and 1 each in Australia and New Zealand. Combined,
RTI's four largest VARs account for approximately 35% of its
revenues, although no one is over 15%. RTI's VARs are
independently owned businesses and there can be no assurance
that one or more will not go out of business or cease to sell
RTI products. Until a replacement VAR could be recruited, and
trained, or until an existing VAR could expand into the
vacated territory, such a loss could result in a disruption in
RTI's revenue and profitability. Furthermore, there can be no
assurance that an adequate replacement could be located.
o A PROLONGED SLOWDOWN IN THE GLOBAL ECONOMY COULD ADVERSELY
IMPACT RTI'S REVENUES - A slowdown in the global economy might
lead to decreased capital spending, fewer new retail business
start ups, and slower new store expansion at existing retail
businesses. Such conditions, even on a regional basis could
severely impact one or more of RTI's VARs and result to a
disruption in RTI's revenues and profitability.
o RTI'S PRODUCT MARKETS ARE SUBJECT TO RAPID TECHNOLOGICAL
CHANGE, SO RTI'S SUCCESS DEPENDS HEAVILY ON ITS ABILITY TO
DEVELOP AND INTRODUCE NEW APPLICATIONS AND RELATED SERVICES -
We believe RTI's ability to succeed in its market is partially
dependent on its ability to identify new product opportunities
and rapidly, cost-effectively bring them to market. However,
there is no guarantee that they will be able to gain market
acceptance for any new products. In addition, there is no
guarantee that one of RTI competitors will not be able to
bring competing applications to market faster or market them
more effectively. Failure to successfully develop new
products, bring them to market and gain market acceptance
could result in decreased market share and ultimately have a
material adverse affect on RTI.
14
o RTI DOES NOT HOLD ANY PATENTS OR COPYRIGHTS, ANY TERMINATION
OF OR ADVERSE CHANGE TO RTI'S LICENSE RIGHTS COULD HAVE A
MATERIAL ADVERSE EFFECT ON ITS BUSINESS - RTI has a license to
develop, modify, market, sell, and support its core technology
from a third party. Any termination of, or disruption in, this
license could have a material adverse affect on RTI's
business. Further, we believe that most of the technology used
in the design and development of RTI's core products is widely
available to others. Consequently, there can be no assurance
that others will not develop and market applications that are
similar to RTI's or utilize technologies that are equivalent
to RTI's. Likewise, while RTI believes that its products do
not infringe on any third party's intellectual property, there
can be no assurance that they will not become involved in
litigation involving intellectual property rights. If such
litigation did occur, it could have a material adverse affect
on RTI's business.
FORWARD LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF SECTION 27a OF THE SECURITIES ACT AND SECTION 21e OF THE EXCHANGE ACT. 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 INCLUDE, BUT ARE NOT LIMITED TO
THE ITEMS DISCUSSED UNDER "RISK FACTORS" AND OTHER SECTIONS OF THIS PROSPECTUS.
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.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale by the selling
stockholders of any of the shares of common stock covered by this prospectus.
All proceeds from the resale of the shares of our common stock described in this
prospectus will be for the accounts of the selling stockholders.
SELLING STOCKHOLDERS
We are registering 6,846,332 shares of our common stock for resale by
the selling stockholders named below. The term "selling stockholders" includes
each stockholder named below and such stockholder's transferees, pledgees,
donees, or other successors. The selling stockholders, including their
transferees, pledges, donees, or their successors, may from time to time offer
and sell pursuant to this prospectus any or all of the shares registered
hereunder.
In this registration statement we are registering 1,546,733 shares of
common stock held by Intuit, 84,000 shares of common stock issuable to Lilios
Group, Inc. upon exercise of warrants, 239,739 shares of common stock held by
Roth Capital Partners, LLC, 600,000 shares of common stock held by Midsummer,
2,901,786 shares of common stock, which constitute 130% of the shares issuable
to Midsummer upon conversion of the 9% Convertible Debenture issued to Midsummer
on March 15, 2004 ("March 2004 Debenture"), as amended, 434,783 shares of common
stock issuable to Midsummer upon exercise of the Series A Warrant issued on
March 15, 2004, 608,696 shares of common stock issuable to Omicron Master Trust
("Omicron") upon exercise of the Series A Warrant issued on March 15, 2004 and
430,595 shares of common stock issuable to the Sage Group as accrued interest on
its Series A Convertible Preferred Stock.
15
The following table, which reflects stockholdings as of August 9, 2004,
is based in part upon information provided by the selling stockholders and sets
forth (i) the names of the selling stockholders; (ii) the number of shares of
our common stock that the selling stockholders owned prior to the resale of any
of the shares of our common stock being registered hereby; (iii) the maximum
number of shares of our common stock that may be offered for resale for the
accounts of the selling stockholders pursuant to this prospectus; (iv) the
number of shares of our common stock owned by the selling stockholders after the
offering (assuming all of the shares registered for each selling stockholder are
sold in the offering); and (v) the percentage of our common stock that will be
held by the selling stockholders after the offering (assuming all of the shares
registered for each selling stockholder are sold in the offering).
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES OF PERCENTAGE OF
OF IPI OF IPI COMMON IPI COMMON STOCK COMMON STOCK
COMMON STOCK STOCK TO BE BENEFICIALLY OWNED AFTER BENEFICIALLY OWNED
SELLING STOCKHOLDER BENEFICIALLY OWNED (1) RESOLD IN THE OFFERING THE OFFERING AFTER THE OFFERING (2)
------------------- ---------------------- ---------------------- ------------ ----------------------
Intuit Inc. 1,546,733 1,546,733 0 0%
Midsummer Investments, Ltd. (3)* 7,575,894 3,936,569* 4,308,968 6.8%
Omicron Master Trust (4) 6,389,137 608,696 5,780,441 8.9%
Roth Capital Partners, LLC (5) 1,164,530 239,739 924,791 1.5%
Liolios Group, Inc. (6) 86,500 84,000 2,500 <1%
The Sage Group, plc (7) 28,126,507 430,595 27,695,912 35.6%
* 130% of the shares of common stock issuable to Midsummer on conversion of the
March 2004 Debenture are being registered to account for additional shares
issuable upon the trigger of certain anti-dilution provisions, as required by
the registration rights agreement executed in connection with the sale of the
March 2004 Debenture.
(1) The number of shares does not include an indeterminate number of additional
shares that may be registered and issued in accordance with Rule 416 under the
Securities Act to prevent dilution of the common stock resulting from stock
splits, stock dividends, or other events.
(2) Percentage of shares of common stock outstanding after the offering (a) is
based upon 55,205,108 shares of our common stock outstanding as of August 9,
2004, plus 1,127,479 shares of common stock issuable upon the exercise of
options and warrants, which shares are being registered in this prospectus, plus
2,232,143 shares of common stock issuable upon conversion of the March 2004
Debenture, which shares are being registered in this prospectus, plus 430,595
shares issuable to the Sage Group as accrued dividends on the Series A
Convertible Preferred Stock, which shares are being registered in this
prospectus, plus all shares issuable to such stockholder within 60 days of
August 9, 2004 pursuant to outstanding options, warrants, and convertible
securities; (b) assumes that the selling stockholders sell all shares of our
common stock that are registered pursuant to this prospectus, excluding the
additional 30% of the shares of common stock issuable upon conversion of the
March 2004 Debenture, which are required to be registered pursuant to the
registration rights agreement entered in connection with the issuance of the
March 2004 Debenture but will only be issued if certain anti-dilution provisions
are triggered and (c) assumes that the selling stockholders sell all shares of
our common stock that are registered pursuant to this prospectus.
(3) Includes 2,232,143 shares of common stock issuable upon conversion of the
March 2004 Debenture within 60 days of August 9, 2004, 669,643 shares of common
stock, which constitute 30% of the shares issuable to Midsummer upon conversion
of the March 2004 Debenture and are required to be registered pursuant to the
registration rights agreement entered in connection with the issuance of the
March 2004 Debenture, and 4,743,751 shares issuable on exercise of warrants
within 60 days of August 9, 2004, 434,783 of which are being registered in this
prospectus. Midsummer's beneficial ownership is limited to 4.99% pursuant to
limitations in the March 2004 Debenture and related warrants.
16
(4) Includes 6,389,137 shares of common issuable upon exercise of warrants
within 60 days of August 9, 2004, 608,696 of which are being registered in this
prospectus. Omicron's beneficial ownership is limited to 4.99% pursuant to
limitations in its warrants.
(5) Includes 809,565 shares of common issuable upon exercise of warrants within
60 days of August 9, 2004.
(6) Includes 84,000 shares of common stock issuable upon exercise of warrants
within 60 days of August 9, 2004, which are being registered in this prospectus.
(7) Includes 71,812 shares of common issuable upon exercise of options within 60
days of August 9, 2004 and 19,130,780 shares of common issuable upon conversion
of Series A Convertible Preferred Stock within 60 days of August 9, 2004,
430,595 of which are included in this registration.
PLAN OF DISTRIBUTION
The shares of common stock offered for resale through this prospectus
may be sold from time to time by the selling stockholders in one or more
transactions at fixed prices, at market prices at the time of sale, at varying
prices determined at the time of sale, or at negotiated prices. The selling
stockholders may offer their shares of common stock in one or more of the
following transactions:
o On any national securities exchange or quotation service at
which the common stock may be listed or quoted at the time of
sale, including the American Stock Exchange;
o In the over-the-counter market;
o In private transactions;
o Through options;
o By pledge to secure debts and other obligations;
o Ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchases;
o Block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o Purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o An exchange distribution in accordance with the rules of the
applicable exchange;
o Settlement of short sales;
o The sale of a specified number of shares at a stipulated price
per share by agreement between broker-dealers and the selling
shareholders; or
o A combination of any of the above methods.
If required, we will distribute a supplement to this prospectus to
describe material changes in the terms of the offering.
The shares of common stock described in this prospectus may be sold
from time to time directly by the selling stockholders. Alternatively, the
selling stockholders may from time to time offer shares of common stock to or
through underwriters, broker/dealers, or agents. The selling stockholders and
any underwriters, broker/dealers, or agents that participate in the distribution
of the shares of common stock may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933 (the "Securities Act"). Any profits on the
resale of shares of common stock and any compensation received by any
underwriter, broker/dealer, or agent may be deemed to be underwriting discounts
and commissions under the Securities Act.
17
The selling stockholders may from time to time pledge or grant a
security interest in some or all of the shares and, if they default in the
performance of any of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock from time to time under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provisions of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.
The selling stockholders may also transfer the shares of common stock
in other circumstances, in which case the transferees, pledgees, or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus.
Any shares covered by this prospectus which qualify for sale pursuant
to Rule 144 under the Securities Act may be sold under Rule 144 rather than
pursuant to this prospectus. The selling stockholders may not sell all of the
shares we are registering. The selling stockholders may transfer, devise, or
gift such shares by other means not described in this prospectus.
To comply with the securities laws of certain jurisdictions, the common
stock must be offered or sold only through registered or licensed brokers or
dealers. In addition, in certain jurisdictions, the shares may not be offered or
sold unless they have been registered or qualified for sale or an exemption is
available and the selling stockholder complies with the exemption.
Under the Securities Exchange Act of 1934 (the "Exchange Act"), any
person engaged in a distribution of the common stock may not simultaneously
engage in market-making activities with respect to the common stock for nine
business days prior to the start of the distribution. In addition, each selling
stockholder and any other person participating in a distribution will be subject
to the Exchange Act which may limit the timing of purchases and sales of common
stock by the selling stockholders or any such other person. These factors may
affect the marketability of the common stock and the ability of brokers or
dealers to engage in market-making activities.
We will pay all expenses of this registration. These expenses include
the Securities Exchange Commission's (the "SEC's") filing fees, fees under state
securities or "blue sky" laws, and accounting and legal fees. We estimate that
our expenses in connection with this registration will be approximately $10,000.
All expenses for the issuance of any supplement to this prospectus will be paid
by us. The selling stockholders may pay selling commissions or brokerage fees
with respect to the sale of the resale shares by them. Some of the selling
stockholders will be indemnified by us against certain civil liabilities under
securities laws or will be entitled to contribution in connection therewith. We
will be indemnified by some of the selling stockholders against certain
liabilities under securities laws or will be entitled to contribution in
connection therewith.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will by
passed on for us by Solomon Ward Seidenwurm & Smith, LLP, 401 B Street, Suite
1200, San Diego, California 92101.
EXPERTS
The consolidated financial statements of Island Pacific, Inc. appearing
in its Annual Report on Form 10-K for the years ended March 31, 2004 and 2003
and for the three years ended March 31, 2004, March 31, 2003, and March 31,
2002, have been audited by Singer, Lewak, Greenbaum, Goldstein, LLP, independent
accountants as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon the report of such firm, given
on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly, and current reports, proxy statements, and
other information with the Securities and Exchange Commission. You may read and
copy materials that we have filed with the Securities and Exchange Commission at
the Securities and Exchange Commission's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the public reference
rooms. Our Securities and Exchange Commission filings are also available to the
public on the Securities and Exchange Commission's Internet website at
http://www.sec.gov.
18
This prospectus provides you with a general description of the common
stock being registered. This prospectus is part of a registration statement that
we have filed with the Securities and Exchange Commission. To see more detail,
you should read the exhibits and schedules filed with, or incorporated by
reference into, our registration statement.
We incorporate by reference into this prospectus the documents listed
below and any future filings we make with the Securities and Exchange Commission
under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act, including any
filings after the date of this prospectus, until this offering is completed. The
information incorporated by reference is an important part of this prospectus.
Any statement in a document incorporated by reference into this prospectus will
be deemed to be modified or superseded to the extent a statement contained in
(1) this prospectus or any prospectus supplement or (2) any other subsequently
filed document that is incorporated by reference into this prospectus or any
prospectus supplement, in either case, modifies or supersedes such statement.
o Our Annual Report on Form 10-K filed on June 29, 2004;
o Our quarterly report on Form 10-Q filed August 13, 2004;
o Our Current Reports on Form 8-K filed on June 14, 2004, July
21, 2004 and August 16, 2004; and
o The description of the Registrant's Common Stock par value
$0.0001, which is contained in a registration statement filed
under the Exchange Act on June 30, 1998 including any
amendment or report filed for the purpose of updating such
description.
You may request a copy of these filings at no cost by contacting us in
writing or telephonically at following address and/or phone number: 19800
MacArthur Boulevard, Irvine, California 92612, (949) 476-2212.
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
any person to make a statement that differs from what is included or
incorporated by reference in this prospectus. If any person does make a
statement that differs from what is included or incorporated by reference in
this prospectus, you should not rely on it. Neither we nor any underwriter or
agent will make an offer to sell these securities in any state in which the
offer or sale is not permitted. The information in this prospectus is complete
and accurate as of its date, but the information may change after that date.
19
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the issuance and distribution of the securities
being registered are set forth in the following table (all amounts except the
registration fee are estimated):
SEC Registration Fee....................... $ 390
Legal fees and expenses.................... $ 15,000
Accounting fees and expenses............... $ 7,000
Printing & Engraving....................... $ 500
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Section 102(b)(7) of the Delaware General
Corporation Law (the "DGCL"), which permits a corporation in its certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty, except
(i) for any breach of the director's fiduciary duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the DGCL (providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions), or
(iv) for any transaction from which the director derived an improper personal
benefit. Our Restated Certificate of Incorporation contains provisions permitted
by Section 102(b)(7) of the DGCL.
Reference is made to Section 145 of the DGCL which provides that a
corporation may indemnify any persons, including directors and officers, who
are, or are threatened to be made, parties to any threatened, pending, or
completed legal action, suit or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by or in the right of
such corporation), by reason of the fact that such person is or was a director,
officer, employee, or agent of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee, or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorney's fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit, or
proceeding, provided such director, officer, employee, or agent acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal actions or
proceedings, had no reasonable cause to believe that his conduct was unlawful. A
Delaware corporation may indemnify directors and/or officers in an action or
suit by or in the right of the corporation under the same conditions, except
that no indemnification is permitted without judicial approval, if the director
or officer is adjudged to be liable to the corporation. Where a director or
officer is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him or her against the
expenses which such director or officer actually and reasonably incurred.
Our Restated Certificate of Incorporation provides indemnification of
our directors and officers to the fullest extent permitted by the DGCL. Our
Restated Bylaws provide for indemnification by the Company of its directors,
officers, and certain non-officer employees under certain circumstances against
expenses, including attorney's fees, judgments, fines, and amounts paid in
settlement actually and reasonably incurred in connection with any threatened,
pending, or completed action, suit or proceeding, in which such person was or is
a party or is threatened to be made a party by reason of the fact that such
person is or was an employee or agent of the Company.
We have obtained liability insurance for each of our directors and
officers for certain losses arising from claims or charges made against them
while acting in their capacities as our directors or officers.
The above discussion of our Restated Certificate of Incorporation and
Restated Bylaws and Sections 102(b)(7) and 145 of the DGCL is not intended to be
exhaustive and is qualified in its entirety by such Restated Certificate of
Incorporation, Restated Bylaws and statutes.
At present, there is no pending litigation or proceeding involving our
directors or officers as to which indemnification is being sought nor are we
aware of any threatened litigation that may result in claims for indemnification
by any officer or director.
II-1
ITEM 16. EXHIBITS.
EXHIBIT DESCRIPTION
------- -----------
2.1 Amended and Restated Agreement of Merger and Plan of Reorganization
dated June 1, 2004 by and between Island Pacific, Inc., Retail
Technologies International, Inc., IPI Merger Sub, Inc., IPI Merger Sub
II, Inc., Michael Tomczak and Jeffrey Boone, incorporated by reference
to exhibit 2.1 to the Company's Form 8-K filed on June 14, 2004.
2.2 Agreement of Merger dated June 1, 2004 between IPI Merger Sub II, Inc.
and Retail Technologies International, Inc., incorporated by reference
to exhibit 2.2 to the Company's Form 8-K filed on June 14, 2004.
4.1 Securities Purchase Agreement dated March 15, 2004 by and among Island
Pacific, Inc., Omicron Master Trust and Midsummer Investments, Ltd,
incorporated by reference to exhibit 4.1 to the Company's Form 8-K
filed on March 17, 2004.
4.2 Securities Purchase Agreement dated July 12, 2004 by and among Island
Pacific, Inc. and Laurus Master Fund, Ltd., incorporated by reference
to exhibit 4.1 to the Company's Form 8-K filed on July 21, 2004.
4.3 Registration Rights Agreement dated March 15, 2004 by and among the
Company, Omicron Master Trust and Midsummer Investments, Ltd.,
incorporated by reference to exhibit 4.2 to the Company's Form 8-K
filed on March 17, 2004.
4.4 Amendment No. 1 to the 9% Convertible Debenture dated July 30, 2004 by
and between Island Pacific, Inc. and Midsummer Investments, Ltd.
4.5 Secured Convertible Term Note issued by Island Pacific, Inc. in favor
of Laurus Master Fund. Ltd., incorporated by reference to exhibit 4.2
to the Company's Form 8-K filed on July 21, 2004.
4.5 Common Stock Purchase Warrant dated July 12, 2004 issued to Laurus
Master Fund, Ltd. by Island Pacific, Inc., incorporated by reference to
exhibit 4.3 to the Company's Form 8-K filed on July 21, 2004.
4.7 Registration Rights Agreement dated July 12, 2004 between Island
Pacific, Inc. and Laurus Master Fund, Ltd., incorporated by reference
to exhibit 4.4 to the Company's Form 8-K filed on July 21, 2004.
4.8 Registration Rights Agreement dated June 1, 2004 by and between Island
Pacific, Inc., Michael Tomczak, Jeffrey Boone and Intuit, Inc.,
incorporated by reference to exhibit 4.1 to the Company's Form 8-K
filed on June 14, 2004.
4.9 Form of Voting Agreement, incorporated by reference to exhibit 4.2 to
the Company's Form 8-K filed on June 14, 2004.
5.1 Opinion of Solomon Ward Seidenwurm & Smith, LLP
23.1 Consent of Solomon Ward Seidenwurm & Smith, LLP, reference is made to
exhibit 5.1 above.
23.2 Consent of Singer Lewak Greenbaum & Goldstein, LLP, independent
auditors.
24.1 Power of Attorney, reference is made to the signature page hereto.
ITEM 17. UNDERTAKINGS
We hereby undertake:
(1) To file, during any period in which offers or sales are being made
pursuant to this registration statement, a post-effective amendment to this
registration statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
II-2
(ii) to reflect in the prospectus any facts or events arising
after the effective date of this registration statement (or the most
recent post-effective amendment thereof) which, individually or in
aggregate, represent a fundamental change in the information set forth
in this registration statement. Notwithstanding the foregoing, any
increase of decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in this registration statement
as effective; and
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in this registration
statement or any material change to such information in this
registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8, or Form F-3, and the
information required to be included in a post-effective amendment by such
clauses is contained in periodic reports filed with or furnished to the
Securities and Exchange Commission by the Registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) We hereby undertake that, for the purpose of determining any
liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities and Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification by us for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling persons
of the registrant pursuant to the provisions referenced above or otherwise, we
have been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act of 1933, as amended, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by us of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered
hereunder, we will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933, as amended, and will be governed by the
final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Irvine,
State of California, on August 24, 2004.
ISLAND PACIFIC, INC., A DELAWARE CORPORATION
By: /s/ Michael Tomczak
----------------------------------------
Michael Tomczak, President and Chief
Operating Officer
(Principal Executive Officer)
By: /s/ Ran Furman
----------------------------------------
Ran Furman, Chief Financial Officer
(Principal Financial and Accounting
Officer)
POWER OF ATTORNEY
EACH PERSON WHOSE SIGNATURE APPEARS BELOW CONSTITUTES AND APPOINTS
MICHAEL SILVERMAN AND RAN FURMAN, AND EACH OF THEM, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION AND EACH OF THEM WITH FULL POWER TO ACT WITHOUT
THE OTHER, HIS OR HER ATTORNEY-IN-FACT AND AGENT, FOR HIM OR HER AND IN HIS OR
HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL
AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT
AND ANY REGISTRATION STATEMENT RELATING TO THIS REGISTRATION STATEMENT UNDER
RULE 462 UNDER THE SECURITIES ACT OF 1933, AND TO FILE THE SAME, WITH ALL
EXHIBITS THERETO, AND ALL OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT
OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR, HIS, OR HER SUBSTITUTES
OR SUBSTITUTE, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES CAPACITY DATE
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.
SIGNATURES CAPACITY DATE
/s/ Michael Silverman Chairman of the Board August 24, 2004
------------------------------
Michael Silverman
/s/ Michael Tomczak President, Chief Operating Officer August 24, 2004
------------------------------ and Director
Michael Tomczak
/s/ Donald S. Radcliffe Director August 24, 2004
------------------------------
Donald S. Radcliffe
/s/ Lawrence Page Executive Vice-President, Special August 24, 2004
------------------------------ Projects and Director
Lawrence Page
/s/ Julia Eakes Director August 24, 2004
------------------------------
Julia Eakes
/s/ Steven Spector Director August 24, 2004
------------------------------
Steven Spector
/s/ Ian Bonner Director August 24, 2004
------------------------------
Ian Bonner
II-4
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
2.1 Amended and Restated Agreement of Merger and Plan of Reorganization
dated June 1, 2004 by and between Island Pacific, Inc., Retail
Technologies International, Inc., IPI Merger Sub, Inc., IPI Merger Sub
II, Inc., Michael Tomczak and Jeffrey Boone, incorporated by reference
to exhibit 2.1 to the Company's Form 8-K filed on June 14, 2004.
2.2 Agreement of Merger dated June 1, 2004 between IPI Merger Sub II, Inc.
and Retail Technologies International, Inc., incorporated by reference
to exhibit 2.2 to the Company's Form 8-K filed on June 14, 2004.
4.1 Securities Purchase Agreement dated March 15, 2004 by and among Island
Pacific, Inc., Omicron Master Trust and Midsummer Investments, Ltd,
incorporated by reference to exhibit 4.1 to the Company's Form 8-K
filed on March 17, 2004.
4.2 Securities Purchase Agreement dated July 12, 2004 by and among Island
Pacific, Inc. and Laurus Master Fund, Ltd., incorporated by reference
to exhibit 4.1 to the Company's Form 8-K filed on July 21, 2004.
4.3 Registration Rights Agreement dated March 15, 2004 by and among the
Company, Omicron Master Trust and Midsummer Investments, Ltd.,
incorporated by reference to exhibit 4.2 to the Company's Form 8-K
filed on March 17, 2004.
4.4 Amendment No. 1 to the 9% Convertible Debenture dated July 30, 2004 by
and between Island Pacific, Inc. and Midsummer Investments, Ltd.
4.5 Secured Convertible Term Note issued by Island Pacific, Inc. in favor
of Laurus Master Fund. Ltd., incorporated by reference to exhibit 4.2
to the Company's Form 8-K filed on July 21, 2004.
4.5 Common Stock Purchase Warrant dated July 12, 2004 issued to Laurus
Master Fund, Ltd. by Island Pacific, Inc., incorporated by reference to
exhibit 4.3 to the Company's Form 8-K filed on July 21, 2004.
4.7 Registration Rights Agreement dated July 12, 2004 between Island
Pacific, Inc. and Laurus Master Fund, Ltd., incorporated by reference
to exhibit 4.4 to the Company's Form 8-K filed on July 21, 2004.
4.8 Registration Rights Agreement dated June 1, 2004 by and between Island
Pacific, Inc., Michael Tomczak, Jeffrey Boone and Intuit, Inc.,
incorporated by reference to exhibit 4.1 to the Company's Form 8-K
filed on June 14, 2004.
4.9 Form of Voting Agreement, incorporated by reference to exhibit 4.2 to
the Company's Form 8-K filed on June 14, 2004.
5.1 Opinion of Solomon Ward Seidenwurm & Smith, LLP
23.1 Consent of Solomon Ward Seidenwurm & Smith, LLP, reference is made to
exhibit 5.1 above.
23.2 Consent of Singer Lewak Greenbaum & Goldstein, LLP, independent
auditors.
24.1 Power of Attorney, reference is made to the signature page hereto.
II-5