AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 2003
REGISTRATION NO. ___________
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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
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(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization Number)
7379
----
(Primary Standard Industrial
Classification Code Number)
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19800 MACARTHUR BOULEVARD
IRVINE, CALIFORNIA 92612
(949) 476-2212
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(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
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HARVEY BRAUN
CHIEF EXECUTIVE 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
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after this registration statement becomes effective.
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(3)
------------------------- -------------------- -------------------- -------------------- ---------------------
Common Stock, $.0001
par value 7,177,500 N/A N/A $2,239
------------------------- -------------------- -------------------- -------------------- ---------------------
(1) The registrant is hereby registering a number of shares of common
stock equal to (a) 5,275,000 shares of common stock held by
MicroCapital Fund, L.P., The Pinnacle Fund, L.P., Atlas Capital (Q.P.)
L.P., Atlas Capital Master Fund, Ltd., Westpark Capital, L.P., Gruber
& McBain International, Lagunitas Partners, L.P., Jon D. Gruber and
Linda W. Gruber, J. Patterson McBaine, Bonaza Master Fund Ltd., Sandor
Capital Master Fund, L.P., Southwell Partners, L.P. and Glacier
Partners, L.P. all of whom have registration rights, plus (b) 902,500
shares of common stock issuable upon the conversion of warrants held
by Midsummer Investment, Ltd., Omicron Master Trust, Islandia, L.P.,
Crestview Capital Fund I, L.P., Crestview Fund II, L.P., Crestview
Capital Offshore Fund, Inc., and Roth Capital Partners, LLC all of
whom have registration rights, plus (c) 1,000,000 shares of common
stock held by or issuable to 033 Growth Partners I, L.P., 033 Growth
Partners II, L.P., Oyster Pond Partners, L.P., 033 Growth
International Fund, LTD., Midsummer Investment, Ltd., Omicron Master
Trust, Crestview Capital Fund I, LP, Crestview Capital Fund II, LP,
Crestview Capital Offshore fund, Inc. and Glacier Partners, LP, which
has registration rights. This number of shares is subject to
adjustment to prevent dilution resulting from stock splits, stock
dividends or similar events. Therefore, pursuant to Rule 416, this
Registration Statement also registers such indeterminate number of
shares as may be issuable in connection with stock splits, stock
dividends or similar transactions.
(2) It is not known how many of such shares of Common Stock will be
purchased under this Registration Statement or at what price such
shares will be purchased.
(3) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) promulgated under the
Securities Act of 1933, as amended (the "Securities Act") based upon
the average of the high and low prices of our common stock on July 30,
2003 as reported on the American Stock Exchange, which was $3.39 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.
PROSPECTUS
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.
ISLAND PACIFIC, INC.
7,177,500 SHARES
COMMON STOCK
We are registering 7,177,500 shares of our common stock for resale by
the selling stockholders identified in this prospectus on pages 14 through 16.
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 registration of the sale of the shares.
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 July 30, 2003 was $3.49 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 July 31, 2003, subject to completion.
TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.........................................................1
THE OFFERING...............................................................2
RISK FACTORS...............................................................3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................13
FORWARD LOOKING STATEMENTS.................................................14
SELLING STOCKHOLDERS.......................................................14
PLAN OF DISTRIBUTION.......................................................17
USE OF PROCEEDS............................................................18
DIVIDEND POLICY............................................................18
DESCRIPTION OF CAPITAL STOCK...............................................18
LEGAL MATTERS..............................................................19
MATERIAL CHANGES...........................................................19
EXPERTS....................................................................20
WHERE YOU CAN FIND MORE INFORMATION........................................20
PART II, INFORMATION NOT REQUIRED IN PROSPECTUS............................II-1
EXHIBIT INDEX..............................................................II-10
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.
We are an independent provider of multi-channel application software
technology and associated services for the retail industry including enterprise,
direct-to-consumer and store solutions and related training products and
professional and support services. Our applications and services represent a
full suite of offerings that provide retailers with a complete end-to-end
business solutions. We also develop and distribute PC courseware and skills
assessment products for both desktop and retail applications.
Our offerings consist of the following components:
The ISLAND PACIFIC MERCHANDISE MANAGEMENT suite of applications builds
on our long history in retail software design and development and provides our
customers with a comprehensive and fully integrated merchandise management
solution. Our complete enterprise-level offering of applications and services is
designed to assist our customers in maximizing their business potential. The
foundation of our application suite is the individual modules that comprise the
offering. The core modules are:
o IP GLADIATOR;
o IP GLOBAL NETWORK;
o IP INTEGRATOR;
o IP BUYER'S WORKMATE;
o IP WEATHER IMPACT;
o IP BUSINESS PROCESS OPTIMIZATION;
o IP CONSUMER RESEARCH;
o IP PROFILING;
o IP FORECASTING AND REPLENISHMENT;
o IP OMNICARD;
o IP STORE PEOPLE PRODUCTIVITY;
o MERCHANDISING MANAGEMENT;
o THE EYE (TM) ANALYSIS AND PLANNING;
o REPLENISHMENT AND FORECASTING;
o PROMOTION AND EVENTS;
o WAREHOUSE;
o TICKETING; AND
o FINANCIALS
The ISLAND PACIFIC STORE SOLUTION suite of applications builds on our
long history of providing multi-platform, client server in-store solutions. We
market this set of applications under the name "OnePointe," and "OnePointe
International" which is a full business to consumer software infrastructure
encompassing a range of integrated store solutions. "OnePointe" is a complete
application providing all point-of-sale ("POS") and in-store processor (server)
functions for traditional "brick and mortar" retail operations.
1
Our PROFESSIONAL SERVICES provide our customers with expert retail
business consulting, project management, implementation, application training,
technical and documentation services. This offering ensures that our customers'
technology selection and implementation projects are planned and implemented
timely and effectively. We also provide development services to customize our
applications to meet specific requirements of our customers and ongoing support
and maintenance services.
We market our applications and services through an experienced
professional direct sales force in the United States and in the United Kingdom.
We believe our knowledge of the complete needs of multi-channel retailers
enables us to help our customers identify the optimal systems for their
particular businesses. The customer relationships we develop build recurring
support, maintenance and professional service revenues and position us to
continuously recommend changes and upgrades to existing systems.
Our executive offices are located at 19800 MacArthur Boulevard, Irvine,
California, 92612, telephone number (949) 476-2212.
THE OFFERING
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Common stock to be offered
by the selling stockholders 7,177,500 shares (1)
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Common stock outstanding
as of July 1, 2003 36,906,490 shares
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Use of proceeds We will not receive any proceeds
from the sale of shares of common stock
covered by this prospectus.
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American Stock Exchange symbol IPI
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(1) The registrant is hereby registering a number of shares of common stock
equal to (a) 5,275,000 shares of common stock held by to MicroCapital Fund,
L.P., The Pinnacle Fund, L.P., Atlas Capital (Q.P.) L.P., Atlas Capital
Master Fund, Ltd., Westpark Capital, L.P., Gruber & McBain International,
Lagunitas Partners, L.P., Jon D. Gruber and Linda W. Gruber, J. Patterson
McBaine, Bonaza Master Fund Ltd., Sandor Capital Master Fund, L.P.,
Southwell Partners, L.P. and Glacier Partners, L.P. all of whom have
registration rights, plus (b) 902,500 shares of common stock issuable upon
the conversion of warrants held by Midsummer Investment, Ltd., Omicron
Master Trust, Islandia, L.P., Crestview Capital Fund I, L.P., Crestview
Fund II, L.P., Crestview Capital Offshore Fund, Inc., and Roth Capital
Partners, LLC all of whom have registration rights, plus (c) 1,000,000
shares of common stock held by or issuable to 033 Growth Partners I, L.P.,
033 Growth Partners II, L.P., Oyster Pond Partners, L.P., 033 Growth
International Fund, LTD., Midsummer Investment, Ltd., Omicron Master Trust,
Crestview Capital Fund I, LP, Crestview Capital Fund II, LP, Crestview
Capital Offshore Fund, Inc. and Glacier Partners, LP, which has
registration rights. This number of shares is subject to adjustment to
prevent dilution resulting from stock splits, stock dividends or similar
events. Therefore, pursuant to Rule 416, this Registration Statement also
registers such indeterminate number of shares as may be issuable in
connection with stock splits, stock dividends or similar transactions.
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 2003, 2002, 2001 and 2000.
We incurred losses of $2.7 million, $14.7 million, $28.9 million and
$4.1 million in the fiscal years ended March 31, 2003, 2002, 2001, and 2000
respectively. The losses in the past four years have generally been due to
difficulties completing sales for new application software licenses, the
resulting change in sales mix toward lower margin services, and debt service
expenses. We will need to generate additional revenue to achieve profitability
in future periods. Failure to achieve profitability, or maintain profitability
if achieved, may have a material adverse effect on our business and stock price.
WE HAVE NEGATIVE WORKING CAPITAL, AND WE HAVE EXTENDED PAYMENT TERMS WITH A
NUMBER OF OUR SUPPLIERS.
At March 31, 2003, 2002 and 2001, we had negative working capital of
$4.1 million, $5.3 million and $2.8 million, respectively. We have had
difficulty meeting operating expenses, including interest payments on debt,
lease payments and supplier obligations. We have at times deferred payroll for
our executives offices, and borrowed from related parties to meet payroll
obligations. We have extended payment terms with our trade creditors wherever
possible.
As a result of extended payment arrangements with suppliers, we may be
unable to secure products and services necessary to continue operations at
current levels from these suppliers. In that event, we will have to obtain these
products and services from other parties, which could result in adverse
consequences to our business, operations and financial condition.
OUR NET SALES HAVE DECLINED. WE EXPERIENCED A SUBSTANTIAL DECREASE IN
APPLICATION SOFTWARE LICENSE SALES. OUR GROWTH AND PROFITABILITY IS DEPENDENT ON
THE SALE OF HIGHER MARGIN LICENSES.
Our net sales decreased by 16% in the fiscal year ended March 31, 2003,
compared to the fiscal year ended March 31, 2002. Our net sales decreased by 5%
in the fiscal year ended March 31, 2002 compared to the fiscal year ended March
31, 2001. We experienced a substantial decrease in application license software
sales, which typically carry a much higher margin than other revenue sources. We
must improve new application license sales to become profitable. We have taken
steps to refocus our sales strategy on core historic competencies, but our
typically long sales cycles make it difficult to evaluate whether and when sales
will improve. We cannot be sure that the decline in sales has not been due to
factors which might continue to negatively affect sales.
3
OUR FINANCIAL CONDITION MAY INTERFERE WITH OUR ABILITY TO SELL NEW APPLICATION
SOFTWARE LICENSES.
Future sales growth may depend on our ability to improve our financial
condition. Our current financial condition has made it more difficult for us to
complete sales of new application software licenses. Because our applications
typically require lengthy implementation and extended servicing arrangements,
potential customers require assurance that these services will be available for
the expected life of the application. These potential customers may defer buying
decisions until our financial condition improves, or may choose the products of
our competitors whose financial condition is or is perceived to be stronger.
Customer deferrals or lost sales will adversely affect our business, financial
conditions and results of operations.
OUR SALES CYCLES ARE LONG AND PROSPECTS ARE UNCERTAIN. THIS MAKES IT DIFFICULT
FOR US TO PREDICT REVENUES AND BUDGET EXPENSES.
The length of sales cycles in our business makes it difficult to
evaluate the effectiveness of our sales strategies. Our sales cycles
historically has ranged from three to twelve months, which has caused
significant fluctuations in revenues from period to period. Due to our
difficulties in completing new application software sales in recent periods and
our refocused sales strategy, it is difficult to predict revenues and properly
budget expenses.
Our software applications are complex and perform or directly affect
mission-critical functions across many different functional and geographic areas
of the retail enterprise. In many cases, our customers must change established
business practices when they install our software. Our sales staff must dedicate
significant time consulting with a potential customer concerning the substantial
technical and business concerns associated with implementing our products. The
purchase of our products is often discretionary, so lengthy sales efforts may
not result in a sale. Moreover, it is difficult to predict when a license sale
will occur. All of these factors can adversely affect our business, financial
condition and results of operations.
OUR OPERATING RESULTS HAVE FLUCTUATED SIGNIFICANTLY IN THE PAST, AND THEY MAY
CONTINUE TO DO SO IN THE FUTURE, WHICH COULD ADVERSELY AFFECT OUR STOCK PRICE.
Our quarterly operating results have fluctuated significantly in the
past and may fluctuate in the future as a result of several factors, many of
which are outside of our control. If revenue declines in a quarter, our
operating results will be adversely affected because many of our expenses are
relatively fixed. In particular, sales and marketing, application development
and general and administrative expenses do not change significantly with
variations in revenue in a quarter. It is likely that in some future quarter our
net sales or operating results will be below the expectations of public market
analysts or investors. If that happens, our stock price will likely decline.
OUR REVENUE MAY VARY FROM PERIOD TO PERIOD, WHICH MAKES IT DIFFICULT TO PREDICT
FUTURE RESULTS.
Factors outside our control that could cause our revenue to fluctuate
significantly from period to period include:
o THE SIZE AND TIMING OF INDIVIDUAL ORDERS, PARTICULARLY WITH
RESPECT TO OUR LARGER CUSTOMERS;
o GENERAL HEALTH OF THE RETAIL INDUSTRY AND THE OVERALL ECONOMY;
o TECHNOLOGICAL CHANGES IN PLATFORMS SUPPORTING OUR SOFTWARE
PRODUCTS; AND
o MARKET ACCEPTANCE OF NEW APPLICATIONS AND RELATED SERVICES.
In particular, we usually deliver our software applications when
contracts are signed, so order backlog at the beginning of any quarter may
represent only a portion of that quarter's expected revenues. As a result,
application license revenues in any quarter are substantially dependent on
orders booked and delivered in that quarter, and this makes it difficult for us
to accurately predict revenues. We have experienced, and we expect to continue
to experience, quarters or periods where individual application license or
services orders are significantly larger than our typical application license or
service orders. Because of the nature of our offerings, we may get one or more
large orders in one quarter from a customer and then no orders the next quarter.
4
OUR EXPENSES MAY VARY FROM PERIOD TO PERIOD, WHICH COULD AFFECT QUARTERLY
RESULTS AND OUR STOCK PRICE.
If we incur additional expenses in a quarter in which we do not
experience increased revenue, our results of operations would be adversely
affected and we may incur losses for that quarter. Factors that could cause our
expenses to fluctuate from period to period include:
o THE EXTENT OF MARKETING AND SALES EFFORTS NECESSARY TO PROMOTE
AND SELL OUR APPLICATIONS AND SERVICES;
o THE TIMING AND EXTENT OF OUR DEVELOPMENT EFFORTS; AND
o THE TIMING OF PERSONNEL HIRING.
IT IS DIFFICULT TO EVALUATE OUR PERFORMANCE BASED ON PERIOD TO PERIOD
COMPARISONS OF OUR RESULTS.
The many factors which can cause revenues and expenses to vary make
meaningful period to period comparisons of our results difficult. We do not
believe period to period comparisons of our financial performance are
necessarily meaningful, and you cannot rely on them as an indication of our
future performance.
WE MAY EXPERIENCE SEASONAL DECLINES IN SALES, WHICH COULD CAUSE OUR OPERATING
RESULTS TO FALL SHORT OF EXPECTATIONS IN SOME QUARTERS.
We may experience slower sales of our applications and services from
October through December of each year as a result of retailers' focus on the
holiday retail-shopping season. This can negatively affect revenues in our third
fiscal quarter and in other quarters, depending on our sales cycles.
OUR DEBT COULD ADVERSELY AFFECT US.
As of June 30, 2003, our debt is as follows:
o $3.5 MILLION IN CONVERTIBLE DEBENTURES ISSUED ON MARCH 31, 2003 TO
MIDSUMMER INVESTMENT, LTD., OMICRON MASTER TRUST, AND ISLANDIA,
L.P. DUE IN FULL IN MAY 2005, WITH MONTHLY REDEMPTIONS TO COMMENCE
IN FEBRUARY 2004.
o $400,000 IN CONVERTIBLE DEBENTURES ISSUED ON APRIL 1, 2003 TO MBSJ
INVESTORS LLC DUE IN FULL IN OCTOBER 2005, WITH MONTHLY
REDEMPTIONS TO COMMENCE IN FEBRUARY 2004.
o $300,000 IN CONVERTIBLE DEBENTURES ISSUED ON MAY 7, 2003 TO
CRESTVIEW CAPITAL FUND I, L.P., CRESTVIEW CAPITAL
FUND II, L.P., AND CRESTVIEW CAPITAL OFFSHORE FUND, INC.,
WITH MONTHLY REDEMPTIONS TO COMMENCE IN FEBRUARY 2004 AND DUE IN
FULL IN SEPTEMBER 2005.
o $1.25 MILLION IN CONVERTIBLE NOTES REISSUED IN JULY 2002 TO
ENTITIES RELATED TO ICM ASSET MANAGEMENT, INC. DUE SEPTEMBER
30, 2003.
o $500,000 IN A CONVERTIBLE NOTE ISSUED TO UNION BANK OF CALIFORNIA
NA ON MARCH 31, 2003, DUE MARCH 31, 2004.
The substantial amount of our indebtedness impacts us in a number of
ways:
o WE HAVE TO DEDICATE A PORTION OF CASH FLOW FROM OPERATIONS TO
PRINCIPAL AND INTEREST PAYMENTS ON THE DEBT, WHICH REDUCES FUNDS
AVAILABLE FOR OTHER PURPOSES.
5
o WE MAY NOT HAVE SUFFICIENT FUNDS TO PAY PRINCIPAL AND/OR INTEREST
PAYMENT WHEN THEY BECOME DUE, WHICH COULD LEAD TO A DEFAULT.
These are just some factors pertaining to our debt that generally place
us at a disadvantage to our less leveraged competitors. Any or all of these
factors could cause our stock price to decline.
WE HAVE RELIED ON CAPITAL CONTRIBUTED BY RELATED PARTIES, AND SUCH CAPITAL MAY
NOT BE AVAILABLE IN THE FUTURE.
Our cash from operations has not been sufficient to meet our
operational needs, and we have relied on capital from related parties. A company
affiliated with Donald S. Radcliffe, one of our directors, made short-term loans
to us in fiscal 2002 and in fiscal 2003 to meet payroll when cash on hand was
not sufficient. Softline loaned us $10 million to make a required principal
payment on our Union Bank term loan in July 2000. A subsidiary of Softline
loaned us an additional $600,000 in November 2000 to meet working capital needs.
This loan was repaid in February 2001, in part with $400,000 we borrowed from
Barry M. Schechter, our former Chairman. We borrowed an additional $164,000 from
Mr. Schechter in March 2001 for operational needs related to our Australian
subsidiary, which was repaid in July 2001.
We may not be able to obtain capital from related parties in the
future. Neither Softline, Mr. Schechter, Mr. Radcliffe nor any other officers,
directors, stockholders or related parties are under any obligation to continue
to provide cash to meet our future liquidity needs.
WE MAY NEED TO RAISE CAPITAL TO REPAY DEBT AND GROW OUR BUSINESS. OBTAINING THIS
CAPITAL COULD IMPAIR THE VALUE OF YOUR INVESTMENT.
We may need to raise capital to discharge our aged payables and grow
our business. We will also likely need to raise capital to pay our $1.25 million
convertible note obligations to the entities related to ICM Asset Management,
Inc. due in full in September 2003, our $3.5 million and $300,000 convertible
debenture obligations due in full in May 2005, with monthly redemptions
commencing in February 2004, our $400,000 convertible debenture obligations due
in full in October 2005, with monthly redemptions commencing in February 2004,
and our $500,000 convertible note obligation due in full in March 2004. We may
also need to raise further capital to:
o SUPPORT UNANTICIPATED CAPITAL REQUIREMENTS;
o TAKE ADVANTAGE OF ACQUISITION OR EXPANSION OPPORTUNITIES;
o CONTINUE OUR CURRENT DEVELOPMENT EFFORTS;
o DEVELOP NEW APPLICATIONS OR SERVICES; OR
o ADDRESS WORKING CAPITAL NEEDS.
Our future capital requirements depend on many factors including our
application development, sales and marketing activities. We do not know whether
additional financing will be available when needed, or available on terms
acceptable to us. If we cannot raise needed funds for the above purposes on
acceptable terms, we may be forced to curtail some or all of the above
activities and we may not be able to grow our business or respond to competitive
pressures or unanticipated developments.
We may raise capital through public or private equity offerings or debt
financings. To the extent we raise additional capital by issuing equity
securities or convertible debt securities, our stockholders may experience
substantial dilution and the new securities may have greater rights, preferences
or privileges than our existing common stock.
6
INTANGIBLE ASSETS MAY BE IMPAIRED MAKING IT MORE DIFFICULT TO OBTAIN FINANCING.
Goodwill, capitalized software, non-compete agreements and other
intangible assets represent approximately 83% of our total assets as of March
31, 2003 and represent more than our stockholders' equity. We may have to impair
or write-off these assets, which will cause a charge to earnings and could cause
our stock price to decline.
Any such impairments will also reduce our assets, as well as the ratio
of our assets to our liabilities. These balance sheet effects could make it more
difficult for us to obtain capital, and could make the terms of capital we do
obtain more unfavorable to our existing stockholders.
FOREIGN CURRENCY FLUCTUATIONS MAY IMPAIR OUR COMPETITIVE POSITION AND AFFECT OUR
OPERATING RESULTS.
Fluctuations in currency exchange rates affect the prices of our
applications and services and our expenses, and foreign currency losses will
negatively affect profitability or increase losses. Approximately 12%, 9% and 8%
of our net sales were outside North America, principally in Australia and the
United Kingdom, in the fiscal years ended March 31, 2003, 2002 and 2001,
respectively. Many of our expenses related to foreign sales, such as corporate
level administrative overhead and development, are denominated in U.S. dollars.
When accounts receivable and accounts payable arising from international sales
and services are converted to U.S. dollars, the resulting gain or loss
contributes to fluctuations in our operating results. We do not hedge against
foreign currency exchange rate risks.
WE HAVE A SINGLE CUSTOMER REPRESENTING A SIGNIFICANT AMOUNT OF OUR BUSINESS.
Toys accounted for 31%, 47% and 33% of our net sales for the fiscal
years ended March 31, 2003, 2002 and 2001, respectively. While we have a
development agreement with this customer, Toys has the right to terminate the
agreement without cause with limited advance notice. A reduction, delay or
cancellation of orders from Toys would significantly reduce our revenues and
force us to substantially curtail operations. We cannot provide any assurances
that Toys or any of our current customers will continue at current or historical
levels or that we will be able to obtain orders from new customers.
IF WE LOSE THE SERVICES OF ANY MEMBER OF OUR SENIOR MANAGEMENT OR KEY TECHNICAL
AND SALES PERSONNEL, OR IF WE ARE UNABLE TO RETAIN OR ATTRACT ADDITIONAL
TECHNICAL PERSONNEL, OUR ABILITY TO CONDUCT AND EXPAND OUR BUSINESS WILL BE
IMPAIRED.
On July 23, 2003, Barry Schechter, our former Chairman, resigned, but
remains a consultant to the Company. We are heavily dependent on Mr. Schechter's
expertise who had been employed by us on a full-time basis for several years. We
are also heavily dependent on Harvey Braun, our Chairman and Chief Executive
Officer, and Steven Beck, our President and Chief Operating Officer. We do not
have any written employment agreements with Mr. Braun or Mr. Beck. We also
believe our future success will depend largely upon our ability to attract and
retain highly-skilled software programmers, managers, and sales and marketing
personnel. Competition for personnel is intense, particularly in international
markets. The software industry is characterized by a high level of employee
mobility and aggressive recruiting of skilled personnel. We compete against
numerous companies, including larger, more established companies, for our
personnel. We may not be successful in attracting or retaining skilled sales,
technical and managerial personnel. The loss of key employees or our inability
to attract and retain other qualified employees could negatively affect our
financial performance and cause our stock price to decline.
WE ARE DEPENDENT ON THE RETAIL INDUSTRY, AND IF ECONOMIC CONDITIONS IN THE
RETAIL INDUSTRY FURTHER DECLINE, OUR REVENUES MAY ALSO DECLINE. RETAIL SALES
HAVE BEEN AND MAY CONTINUE TO BE SLOW.
Our future growth is critically dependent on increased sales to the
retail industry. We derive the substantial majority of our revenues from the
licensing of software applications and the performance of related professional
and consulting services to the retail industry. Demand for our applications and
services could decline in the event of consolidation, instability or more
downturns in the retail industry. This decline would likely cause reduced sales
and could impair our ability to collect accounts receivable. The result would be
reduced earnings and weakened financial condition, each or both of which would
likely cause our stock price to decline.
7
The success of our customers is directly linked to economic conditions
in the retail industry, which in turn are subject to intense competitive
pressures and are affected by overall economic conditions. In addition, the
retail industry may be consolidating, and it is uncertain how consolidation will
affect the industry. The retail industry as a whole is currently experiencing
increased competition and weakening economic conditions that could negatively
impact the industry and our customers' ability to pay for our products and
services. Such consolidation and weakening economic conditions have in the past,
and may in the future, negatively impact our revenues, reduce the demand for our
products and may negatively impact our business, operating results and financial
condition. Weakening economic conditions and the September 11, 2001 terrorist
attack have adversely impacted sales of our software applications, and we
believe mid-tier specialty retailers may be reluctant during the current
economic slowdown to make the substantial infrastructure investment that
generally accompanies the implementation of our software applications. Also, the
recent war in Iraq and the anticipated burden of rebuilding that country's
infrastructure has led to some uncertainty in the economic climate, which may
adversely impact our business.
THERE MAY BE AN INCREASE IN CUSTOMER BANKRUPTCIES DUE TO WEAK ECONOMIC
CONDITIONS.
We have in the past and may in the future be impacted by customer
bankruptcies. During weak economic conditions, such as those currently being
experienced in many geographic regions around the world, there is an increased
risk that certain of our customers will file bankruptcy. When our customers file
bankruptcy, we may be required to forego collection of pre-petition amounts
owed, and to repay amounts remitted to us during the 90-day preference period
preceding the filing. Accounts receivable balances related to pre-petition
amounts may in certain of these instances be large due to extended payment terms
for software license fees, and significant billings for consulting and
implementation services on large projects. The bankruptcy laws, as well as the
specific circumstances of each bankruptcy, may severely limit our ability to
collect pre-petition amounts, and may force us to disgorge payments made during
the 90-day preference period. We also face risk from international customers
which file for bankruptcy protection in foreign jurisdictions, in that the
application of foreign bankruptcy laws may be less certain or harder to predict.
Although we believe that we have sufficient reserves to cover anticipated
customer bankruptcies, there can be no assurance that such reserves will be
adequate, and if they are not adequate, our business, operating results and
financial condition would be adversely affected.
WE MAY NOT BE ABLE TO MAINTAIN OR IMPROVE OUR COMPETITIVE POSITION BECAUSE OF
THE INTENSE COMPETITION IN THE RETAIL SOFTWARE INDUSTRY.
We conduct business in an industry characterized by intense
competition. Most of our competitors are very large companies with an
international presence. We must also compete with smaller companies which have
been able to develop strong local or regional customer bases. Many of our
competitors and potential competitors are more established, benefit from greater
name recognition and have significantly greater resources than us. Our
competitors may also have lower cost structures and better access to the capital
markets than us. As a result, our competitors may be able to respond more
quickly than we can to new or emerging technologies and changes in customer
requirements. Our competitors may:
o INTRODUCE NEW TECHNOLOGIES THAT RENDER OUR EXISTING OR FUTURE
PRODUCTS OBSOLETE, UNMARKETABLE OR LESS COMPETITIVE;
o MAKE STRATEGIC ACQUISITIONS OR ESTABLISH COOPERATIVE RELATIONSHIPS
AMONG THEMSELVES OR WITH OTHER SOLUTION PROVIDERS, WHICH WOULD
INCREASE THE ABILITY OF THEIR PRODUCTS TO ADDRESS THE NEEDS OF OUR
CUSTOMERS; AND
o ESTABLISH OR STRENGTHEN COOPERATIVE RELATIONSHIPS WITH OUR CURRENT
OR FUTURE STRATEGIC PARTNERS, WHICH WOULD LIMIT OUR ABILITY TO
COMPETE THROUGH THESE CHANNELS.
8
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.
OUR MARKETS ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE, SO OUR SUCCESS DEPENDS
HEAVILY ON OUR ABILITY TO DEVELOP AND INTRODUCE NEW APPLICATIONS AND RELATED
SERVICES.
The retail software industry is characterized by rapid technological
change, evolving standards and wide fluctuations in supply and demand. We must
cost-effectively develop and introduce new applications and related services
that keep pace with technological developments to compete. If we do not gain
market acceptance for our existing or new offerings or if we fail to introduce
progressive new offerings in a timely or cost-effective manner, our financial
performance will suffer.
The success of application enhancements and new applications depends on
a variety of factors, including technology selection and specification, timely
and efficient completion of design, and effective sales and marketing efforts.
In developing new applications and services, we may:
o FAIL TO RESPOND TO TECHNOLOGICAL CHANGES IN A TIMELY OR
COST-EFFECTIVE MANNER;
o ENCOUNTER APPLICATIONS, CAPABILITIES OR TECHNOLOGIES DEVELOPED BY
OTHERS THAT RENDER OUR APPLICATIONS AND SERVICES OBSOLETE OR
NON-COMPETITIVE OR THAT SHORTEN THE LIFE CYCLES OF OUR EXISTING
APPLICATIONS AND SERVICES;
o EXPERIENCE DIFFICULTIES THAT COULD DELAY OR PREVENT THE SUCCESSFUL
DEVELOPMENT, INTRODUCTION AND MARKETING OF THESE NEW APPLICATIONS
AND SERVICES; OR
o FAIL TO ACHIEVE MARKET ACCEPTANCE OF OUR APPLICATIONS AND
SERVICES.
The life cycles of our applications are difficult to estimate,
particularly in the emerging electronic commerce market. As a result, new
applications and enhancements, even if successful, may become obsolete before we
recoup our investment.
OUR PROPRIETARY RIGHTS OFFER ONLY LIMITED PROTECTION AND OUR COMPETITORS MAY
DEVELOP APPLICATIONS SUBSTANTIALLY SIMILAR TO OUR APPLICATIONS AND USE SIMILAR
TECHNOLOGIES WHICH MAY RESULT IN THE LOSS OF CUSTOMERS. WE MAY HAVE TO BRING
COSTLY LITIGATION TO PROTECT OUR PROPRIETARY RIGHTS.
Our success and competitive position is dependent in part upon our
ability to develop and maintain the proprietary aspects of our intellectual
property. Our intellectual property includes our trademarks, trade secrets,
copyrights and other proprietary information. Our efforts to protect our
intellectual property may not be successful. Effective copyright and trade
secret protection may be unavailable or limited in some foreign countries. We
hold no patents. Consequently, others may develop, market and sell applications
substantially equivalent to ours or utilize technologies similar to those used
by us, so long as they do not directly copy our applications or otherwise
infringe our intellectual property rights.
We may find it necessary to bring claims or litigation against third
parties for infringement of our proprietary rights or to protect our trade
secrets. These actions would likely be costly and divert management resources.
These actions could also result in counterclaims challenging the validity of our
proprietary rights or alleging infringement on our part. The ultimate outcome of
any litigation will be difficult to predict.
OUR APPLICATIONS MAY BE SUBJECT TO CLAIMS THEY INFRINGE ON THE PROPRIETARY
RIGHTS OF THIRD PARTIES, WHICH MAY EXPOSE US TO LITIGATION.
9
We may become involved in litigation involving patents or proprietary
rights. Patent and proprietary rights litigation entails substantial legal and
other costs, and we do not know if we will have the necessary financial
resources to defend or prosecute our rights in connection with any such
litigation. Responding to and defending claims related to our intellectual
property rights, even ones without merit, can be time consuming and expensive
and can divert management's attention from other business matters. In addition,
these actions could cause application delivery delays or require us to enter
into royalty or license agreements. Royalty or license agreements, if required,
may not be available on terms acceptable to us, if they are available at all.
Any or all of these outcomes could have a material adverse effect on our
business, operating results and financial condition.
DEVELOPMENT AND MARKETING OF OUR OFFERINGS DEPENDS ON STRATEGIC RELATIONSHIPS
WITH OTHER COMPANIES. OUR EXISTING STRATEGIC RELATIONSHIPS MAY NOT ENDURE AND
MAY NOT DELIVER THE INTENDED BENEFITS, AND WE MAY NOT BE ABLE TO ENTER INTO
FUTURE STRATEGIC RELATIONSHIPS.
Since we do not possess all of the technical and marketing resources
necessary to develop and market our offerings to their target markets, our
business strategy substantially depends on our strategic relationships. While
some of these relationships are governed by contracts, most are non-exclusive
and all may be terminated on short notice by either party. If these
relationships terminate or fail to deliver the intended benefits, our
development and marketing efforts will be impaired and our revenues may decline.
We may not be able to enter into new strategic relationships, which could put us
at a disadvantage to those of our competitors which do successfully exploit
strategic relationships.
OUR PRIMARY COMPUTER AND TELECOMMUNICATIONS SYSTEMS ARE IN A LIMITED NUMBER OF
GEOGRAPHIC LOCATIONS, WHICH MAKES THEM MORE VULNERABLE TO DAMAGE OR
INTERRUPTION. THIS DAMAGE OR INTERRUPTION COULD HARM OUR BUSINESS.
Substantially all of our primary computer and telecommunications
systems are located in two geographic areas. These systems are vulnerable to
damage or interruption from fire, earthquake, water damage, sabotage, flood,
power loss, technical or telecommunications failure or break-ins. Our business
interruption insurance may not adequately compensate us for our lost business
and will not compensate us for any liability we incur due to our inability to
provide services to our customers. Although we have implemented network security
measures, our systems are vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions. These disruptions could lead to
interruptions, delays, loss of data or the inability to service our customers.
Any of these occurrences could impair our ability to serve our customers and
harm our business.
IF PRODUCT LIABILITY LAWSUITS ARE SUCCESSFULLY BROUGHT AGAINST US, WE MAY INCUR
SUBSTANTIAL LIABILITIES AND MAY BE REQUIRED TO LIMIT COMMERCIALIZATION OF OUR
APPLICATIONS.
Our business exposes us to product liability risks. Any product
liability or other claims brought against us, if successful and of sufficient
magnitude, could negatively affect our financial performance and cause our stock
price to decline.
Our applications are highly complex and sophisticated and they may
occasionally contain design defects or software errors that could be difficult
to detect and correct. In addition, implementation of our applications may
involve customer-specific customization by us or third parties, and may involve
integration with systems developed by third parties. These aspects of our
business create additional opportunities for errors and defects in our
applications and services. Problems in the initial release may be discovered
only after the application has been implemented and used over time with
different computer systems and in a variety of other applications and
environments. Our applications have in the past contained errors that were
discovered after they were sold. Our customers have also occasionally
experienced difficulties integrating our applications with other hardware or
software in their enterprise.
10
We are not currently aware of any defects in our applications that
might give rise to future lawsuits. However, errors or integration problems may
be discovered in the future. Such defects, errors or difficulties could result
in loss of sales, delays in or elimination of market acceptance, damage to our
brand or to our reputation, returns, increased costs and diversion of
development resources, redesigns and increased warranty and servicing costs. In
addition, third-party products, upon which our applications are dependent, may
contain defects which could reduce or undermine entirely the performance of our
applications.
Our customers typically use our applications to perform
mission-critical functions. As a result, the defects and problems discussed
above could result in significant financial or other damage to our customers.
Although our sales agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims, we do not
know if these limitations of liability are enforceable or would otherwise
protect us from liability for damages to a customer resulting from a defect in
one of our applications or the performance of our services. Our product
liability insurance may not cover all claims brought against us.
SOFTLINE LIMITED HAS THE RIGHT TO ACQUIRE A CONTROLLING PERCENTAGE OF OUR COMMON
STOCK, SO WE MAY BE EFFECTIVELY CONTROLLED BY SOFTLINE, AND OUR OTHER
STOCKHOLDERS ARE UNABLE TO AFFECT THE OUTCOME OF STOCKHOLDER VOTING.
Softline Limited beneficially owns 49.6% of our outstanding common
stock, including shares Softline has the right to acquire upon conversion of its
Series A Convertible Preferred Stock. Ivan M. Epstein, Softline's Chief
Executive Officer, and Robert P. Wilkie, Softline's Chief Financial Officer,
serve on our board of directors. If Softline converts its Series A Preferred
Stock, it may have effective control over all matters affecting us, including:
o THE ELECTION OF ALL OF OUR DIRECTORS;
o THE ALLOCATION OF BUSINESS OPPORTUNITIES THAT MAY BE SUITABLE FOR
SOFTLINE AND US;
o ANY DETERMINATIONS WITH RESPECT TO MERGERS OR OTHER BUSINESS
COMBINATIONS INVOLVING US;
o THE ACQUISITION OR DISPOSITION OF ASSETS OR BUSINESSES BY US;
o DEBT AND EQUITY FINANCING, INCLUDING FUTURE ISSUANCE OF OUR
COMMON STOCK OR OTHER SECURITIES;
o AMENDMENTS TO OUR CHARTER DOCUMENTS;
o THE PAYMENT OF DIVIDENDS ON OUR COMMON STOCK; AND
o DETERMINATIONS WITH RESPECT TO OUR TAX RETURNS.
OUR BUSINESS MAY BE DISADVANTAGED OR HARMED IF SOFTLINE'S INTERESTS RECEIVE
PRIORITY OVER OUR INTERESTS.
Conflicts of interest have and will continue to arise between Softline
and us in a number of areas relating to our past and ongoing relationships.
Conflicts may not be resolved in a manner that is favorable to us, and such
conflicts may result in harmful consequences to our business or prospects.
SOFTLINE'S INFLUENCE ON OUR COMPANY COULD MAKE IT DIFFICULT FOR ANOTHER COMPANY
TO ACQUIRE US, WHICH COULD DEPRESS OUR STOCK PRICE.
Softline's potential voting control could discourage others from
initiating any potential merger, takeover or other change of control transaction
that may otherwise be beneficial to our business or our stockholders. As a
result, Softline's control could reduce the price that investors may be willing
to pay in the future for shares of our stock, or could prevent any party from
attempting to acquire us at any price.
11
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.
WE HAVE NEVER PAID A DIVIDEND ON OUR COMMON STOCK AND WE DO NOT INTEND TO PAY
DIVIDENDS IN THE FORESEEABLE FUTURE.
We have not previously paid any cash or other dividend on our common
stock. We anticipate that we will use our earnings and cash flow for repayment
of indebtedness, to support our operations, and for future growth, and we do not
have any plans to pay dividends in the foreseeable future. Softline is entitled
to dividends on its Series A Convertible Preferred Stock in preference and
priority to common stockholders. Future equity financing(s) may further restrict
our ability to pay dividends.
THE TERMS OF OUR PREFERRED STOCK MAY REDUCE THE VALUE OF YOUR COMMON STOCK.
We are authorized to issue up to 5,000,000 shares of preferred stock in
one or more series. We issued 141,000 shares of Series A Convertible Preferred
Stock to Softline in May 2002. Our board of directors may determine the terms of
subsequent series of preferred stock without further action by our stockholders.
If we issue additional preferred stock, it could affect your rights or reduce
the value of your common stock. In particular, specific rights granted to future
holders of preferred stock could be used to restrict our ability to merge with
or sell our assets to a third party. These terms may include voting rights,
preferences as to dividends and liquidation, conversion and redemption rights,
and sinking fund provisions. We are actively seeking capital, and some of the
arrangements we are considering may involve the issuance of preferred stock.
FAILURE TO COMPLY WITH THE AMERICAN STOCK EXCHANGE'S LISTING STANDARDS COULD
RESULT IN OUR DELISTING FROM THAT EXCHANGE AND LIMIT THE ABILITY TO SELL ANY OF
OUR COMMON STOCK.
Our stock is currently traded on the American Stock Exchange. The
Exchange has published certain guidelines it uses in determining whether a
security warrants continued listing. These guidelines include financial, market
capitalization and other criteria, and as a result of our financial condition or
other factors, the American Stock Exchange could in the future determine that
our stock does not merit continued listing. If our stock were delisted from the
American Stock Exchange, the ability of our stockholders to sell our common
stock could become limited, and we would lose the advantage of some state and
federal securities regulations imposing lower regulatory burdens on
exchange-traded issuers.
DELAWARE LAW AND SOME PROVISIONS OF OUR CHARTER AND BYLAWS MAY ADVERSELY AFFECT
THE PRICE OF YOUR STOCK.
Special meetings of our stockholders may be called only by the Chairman
of the Board, the Chief Executive Officer or the Board of Directors.
Stockholders have no right to call a meeting. Stockholders must also comply with
advance notice provisions in our bylaws in order to nominate directors or
propose matters for stockholder action. These provisions of our charter
documents, as well as certain provisions of Delaware law, could delay or make
more difficult certain types of transactions involving a change in control of
the Company or our management. Delaware law also contains provisions that could
delay or make more difficult change in control transactions. As a result, the
price of our common stock may be adversely affected.
12
SHARES ISSUED UPON THE EXERCISE OF OPTIONS, WARRANTS, DEBENTURES AND CONVERTIBLE
NOTES COULD DILUTE YOUR STOCK HOLDINGS AND ADVERSELY AFFECT OUR STOCK PRICE.
We have issued options and warrants to acquire common stock to our
employees and certain other persons at various prices, some of which are or may
in the future have exercise prices at below the market price of our stock. We
currently have outstanding options and warrants for 16,967,480 shares. Of these
options and warrants, 831,821 have exercise prices above the recent market price
of $2.45 per share (as of July 10, 2003), and 16,135,659 have exercise prices at
below that recent market price. If exercised, these options and warrants will
cause immediate and possibly substantial dilution to our stockholders.
Our existing stock option plan currently has approximately 2,251,242
shares available for issuance as of July 10, 2003. Future options issued under
the plan may have further dilutive effects.
We issued to Toys "R" Us, our major customer, a note convertible into
2,500,000 shares of common stock. This note has a conversion price of $0.553.
This note will have a dilutive effect on stockholders if converted.
We issued to entities related to ICM Asset Management notes that are
convertible into 2,083,333 shares of common stock. These notes have a conversion
price of $0.60 per share, which is currently below the recent market price of
$2.45 (as of July 10, 2003). These notes will have a dilutive effect on
stockholders if converted.
We also recently issued to a group of investors debentures that are
convertible into 4,103,165 shares of common stock. These debentures have a
conversion price of $1.0236, which is currently below the recent market price of
$2.45. These debentures will have a dilutive effect on stockholders of
converted. We also issued these investors warrants to purchase 2,205,381 shares
of common stock at exercise prices ranging from $1.0236 to $1.65. These warrants
will have a dilutive effect on stockholders if converted.
We issued to Union Bank of California, N.A. an unsecured note that is
convertible into shares of common stock at a price per share of eighty percent
(80%) of the average share closing price of our common stock for the ten trading
day period immediately preceding the maturity date of the note. This note will
have a dilutive effect on stockholders if converted.
We issued to Roth Capital partners a warrant to purchase 527,500 shares
of common stock. This warrant has an exercise price of $1.65 per share. This
warrant will have a dilutive effect on Stockholders if exercised.
Sales of shares pursuant to exercisable options, warrants, convertible
notes, and convertible debentures could lead to subsequent sales of the shares
in the public market, and could depress the market price of our stock by
creating an excess in supply of shares for sale. Issuance of these shares and
sale of these shares in the public market could also impair our ability to raise
capital by selling equity securities.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our
consolidated financial position, results of operations or cash flows. We are
exposed to market risks, which include changes in interest rates and changes in
foreign currency exchange rate as measured against the U.S. dollar.
FOREIGN CURRENCY EXCHANGE RATE RISK
We conduct business in various foreign currencies, primarily in Europe
and until February 2002, Australia. Sales are typically denominated in the local
foreign currency, which creates exposures to changes in exchange rates. These
changes in the foreign currency exchange rates as measured against the U.S.
dollar may positively or negatively affect our sales, gross margins and retained
earnings. We attempt to minimize currency exposure risk through decentralized
sales, development, marketing and support operations, in which substantially all
costs are local-currency based. There can be no assurance that such an approach
will be successful, especially in the event of a significant and sudden decline
in the value of the foreign currency. We do not hedge against foreign currency
risk. Approximately 12%, 9% and 8% of our total net sales were denominated in
currencies other than the U.S. dollar for the periods ended March 31, 2003, 2002
and 2001, respectively.
EQUITY PRICE RISK
We have no direct equity investments.
13
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.
SELLING STOCKHOLDERS
We are registering 7,177,500 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. See "Registration Rights" and below for a more
complete description of our agreements with selling stockholders in connection
with their registration rights.
BACKGROUND
In this registration statement, 5,275,000 shares of common stock held
by MicroCapital Fund, L.P., The Pinnacle Fund, L.P., Atlas Capital (Q.P.) L.P.,
Atlas Capital Master Fund, Ltd., Westpark Capital, L.P., Gruber & McBain
International, Lagunitas Partners, L.P., Jon D. Gruber and Linda W. Gruber, J.
Patterson McBaine, Bonanza Master Fund Ltd., Sandor Capital Master Fund, L.P.,
Southwell Partners, L.P. and Glacier Partners (collectively, the "Common Stock
Institutional Investors") are being registered herein pursuant to a registration
rights agreement. We previously sold shares of common stock to these investors
under a Securities Purchase Agreement dated June 27, 2003.
We also issued to Midsummer Investment, Ltd., Omicron Master Trust,
Islandia, L.P., Crestview Capital Fund I, L.P., Crestview Capital Fund II, L.P.,
and Crestview Offshore Fund, Inc., all of whom are holders of our 9% convertible
debentures (collectively, the "Debenture Holders"), warrants to purchase an
aggregate of 375,000 of common stock in consideration for obtaining their
required consents to the sale of shares of common stock to the Common Stock
Institutional Investors and to waive their participation rights in that sale. We
also agreed to grant to these Debenture Holders registration rights with respect
to the warrants. Accordingly, we are registering for the Debenture Holders
375,000 shares of common stock issuable upon the exercise of the warrants.
We also issued to Roth Capital Partners, LLC ("Roth Capital"), a
warrant to Purchase 527,500 shares of common stock in connection with its
services as a placement agent for the Common Stock Institutional Investors. We
agreed to grant Roth Capital registration rights for the shares underlying this
warrant. Accordingly, we are registering 527,500 shares of common stock issuable
upon the exercise of the warrant.
In addition, 1,000,000 shares of common stock are being registered for
033 Growth Partners I, L.P., 033 Growth Partners II, L.P., Oyster Pond Partners,
L.P., 033 Growth International Fund, LTD., Midsummer Investment, Ltd, Omicron
Master Trust, Crestview Capital Fund I, LP, Crestview Capital Fund II, LP,
Crestview Capital Offshore Fund, Inc. and Glacier Partners, LP, all of whom have
registration rights for these shares.
14
The following table, which reflects stockholdings as of July 1, 2003,
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 offering for
resale of any of the shares or 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; and
(iv) the percentage of shares of common stock to be held by the selling
stockholders after the offering of the resale shares (assuming all of the resale
shares are sold by the selling stockholders).
--------------------------------------- ------------------------- -------------------------- -------------------------
NUMBER OF SHARES OF IPI NUMBER OF SHARES OF IPI PERCENTAGE OF COMMON
COMMON STOCK COMMON STOCK TO BE STOCK OUTSTANDING AFTER
SELLING STOCKHOLDERS BENEFICIALLY OWNED (1) RESOLD IN THE OFFERING THE OFFERING (2)
--------------------------------------- ------------------------- -------------------------- -------------------------
MicroCapital Fund. L.P. 875,000 875,000 0%
--------------------------------------- ------------------------- -------------------------- -------------------------
The Pinnacle Fund, L.P. (3) 1,919,500 1,400,000 1.4%
--------------------------------------- ------------------------- -------------------------- -------------------------
Atlas Capital (Q.P.) L.P. 154,000 154,000 0%
--------------------------------------- ------------------------- -------------------------- -------------------------
Atlas Capital Master Fund, Ltd. 546,000 546,000 0%
--------------------------------------- ------------------------- -------------------------- -------------------------
Westpark Capital, L.P. 250,000 250,000 0%
--------------------------------------- ------------------------- -------------------------- -------------------------
Gruber & McBain International (4) 1,500,000 300,000 0%
--------------------------------------- ------------------------- -------------------------- -------------------------
Lagunitas Partners LP (4) 1,500,000 900,000 0%
--------------------------------------- ------------------------- -------------------------- -------------------------
Jon D. Gruber & Linda W. Gruber (5) 1,350,000 150,000 0%
--------------------------------------- ------------------------- -------------------------- -------------------------
J. Patterson McBaine (6) 1,350,000 150,000 0%
--------------------------------------- ------------------------- -------------------------- -------------------------
Bonanza Master Fund Ltd. 225,000 225,000 0%
--------------------------------------- ------------------------- -------------------------- -------------------------
Sandor Capital Master Fund, L.P. 75,000 75,000 0%
--------------------------------------- ------------------------- -------------------------- -------------------------
Southwell Partners, LP 150,000 150,000 0%
--------------------------------------- ------------------------- -------------------------- -------------------------
Glacier Partners 100,000 125,000 0%
--------------------------------------- ------------------------- -------------------------- -------------------------
Midsummer Investment, Ltd. (7) 2,260,023 263,158 5.0%
--------------------------------------- ------------------------- -------------------------- -------------------------
Omicron Master Trust (8) 2,487,524 348,026 5.4%
--------------------------------------- ------------------------- -------------------------- -------------------------
Islandia, L.P. (9) 915,110 59,211 2.2%
--------------------------------------- ------------------------- -------------------------- -------------------------
Crestview Capital Fund I, L.P. (10) 174,599 43,201 <1%
--------------------------------------- ------------------------- -------------------------- -------------------------
Crestview Capital Fund II, L.P. (11) 305,550 75,603 <1%
--------------------------------------- ------------------------- -------------------------- -------------------------
Crestview Capital Offshore Fund, Inc. (12) 43,651 10,801 <1%
--------------------------------------- ------------------------- -------------------------- -------------------------
Roth Capital Partners, LLC (13) 527,500 527,500 0%
--------------------------------------- ------------------------- -------------------------- -------------------------
033 Growth Partners I, L.P. (14) 550,000 297,300 0%
--------------------------------------- ------------------------- -------------------------- -------------------------
033 Growth Partners II, L.P. (14) 550,000 79,100 0%
--------------------------------------- ------------------------- -------------------------- -------------------------
Oyster Pond Partners, L.P. (14) 550,000 38,500 0%
--------------------------------------- ------------------------- -------------------------- -------------------------
033 Growth International Fund, LTD. (14) 550,000 135,100 0%
--------------------------------------- ------------------------- -------------------------- -------------------------
(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.
15
(2) Percentage of shares of common stock outstanding after the offering (a) is
based upon 36,906,490 shares of our common stock outstanding as of July 1, 2003,
plus 902,500 shares of our common stock issuable upon the conversion or exercise
of the warrants which shares are being registered in this prospectus, and (b)
assumes that the selling stockholders sell all shares of our common stock that
are registered pursuant to this prospectus.
(3) Includes 49,500 shares held by Barry M. Kitt and his immediate family
members. Mr. Kitt is the general partner of Pinnacle Advisors, L.P., which is
the general partner of The Pinnacle Fund.
(4) Includes 900,000 shares held by Lagunitas Partners, L.P., 300,000 shares
held by Gruber & McBaine International, 150,000 shares held by Jon D. and Linda
W. Gruber, and 150,000 shares held by J. Patterson McBaine. Jon D. Gruber, J.
Patterson McBaine, and Eric Swergold are the partners of Gruber & McBaine
Corporate Management, which is the general partner of Lagunitas Partners, L.P.
and attorney-in-fact for Gruber & McBaine International.
(5) Includes 900,000 shares held by Lagunitas Partners, L.P. and 300,000 shares
held by Gruber & McBaine International. Jon D. Gruber is a partner of Gruber &
McBaine Corporate Management, which is the general partner of Lagunitas
Partners, L.P. and attorney-in-fact for Gruber & McBaine International.
(6) Includes 900,000 shares held by Lagunitas Partners, L.P. and 300,000 shares
held by Gruber & McBaine International. Mr. McBaine is a partner of Gruber &
McBaine Corporate Management, which is the general partner of Lagunitas
Partners, L.P. and attorney-in-fact for Gruber & McBaine International.
(7) Includes 1,367,722 shares issuable upon conversion of debentures and 768,301
shares issuable upon exercise of warrants. We are registering 138,158 shares of
common stock issuable upon the exercise of a warrant and 125,000 shares of
common stock held by Midsummer Investment, Ltd.
(8) Includes 1,465,416 shares issuable upon conversion of debentures and 822,108
shares issuable upon exercise of warrants. We are registering 148,026 shares of
common stock issuable upon the exercise of a warrant and 200,000 shares held by
Omicron Master Trust.
(9) Includes 586,166 shares issuable upon conversion of debentures and 328,944
shares issuable upon exercise of warrants. We are registering 59,211 shares of
common stock issuable upon the exercise of a warrant.
(10) Includes 97,694 shares issuable upon conversion of debentures and 43,572
shares issuable upon conversion of warrants. We are registering 9,868 shares of
common stock issuable upon the exercise of a warrant and 33,333 shares of common
stock held by Crestview Capital Fund I, LP.
(11) Includes 170,965 shares issuable upon conversion of debentures and 76,252
shares issuable upon exercise of warrants. We are registering 17,270 shares of
common stock issuable upon the exercise of a warrant and 58,333 shares of common
stock held by Crestview Capital Fund II, LP.
(12) Includes 24,424 shares issuable upon conversion of debentures and 10,893
shares issuable upon exercise of warrants. We are registering 2,467 shares of
common stock issuable upon the exercise of a warrant and 8,334 shares of common
stock held by Crestview Capital Offshore Fund, Inc.
(13) Includes 527,500 shares issuable upon the exercise of a warrant. We are
registering all of these shares.
(14) Includes 297,300 shares held by 033 Growth Partners I, L.P., 79,100 shares
held by 033 Growth Partners II, L.P., 38,500 shares held by Oyster Pond
Partners, L.P., and 135,100 shares held by 033 Growth International Fund, Ltd.
033 Asset Management, LLC has voting and dispositive power of all of these
shares.
16
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.
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.
17
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 $83,000.
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.
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.
DIVIDEND POLICY
We have never declared any dividends. We currently intend to retain any
future earnings to discharge indebtedness and finance the growth and development
of the business. We therefore we do not anticipate paying any cash dividends in
the foreseeable future. Furthermore, our Amended and Restated Certificate of
Incorporation restricts us from declaring dividends on our common stock until we
first declare and pay all accrued and unpaid dividends to the holders of Series
A Preferred Stock. Any future determination to pay cash dividends when we are
permitted to do so will be at the discretion of the board of directors and will
be dependent upon the future financial condition, results of operations, capital
requirements, general business conditions and other factors that the board of
directors may deem relevant.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of (1) 100,000,000 authorized
shares of common stock, $0.001 par value, and (2) 5,000,000 shares of preferred
stock of which 141,000 are designated Series A Preferred Stock. As of July 1,
2003, there were 36,906,490 shares of common stock outstanding and 141,000
shares of Series A Preferred Stock outstanding. The following description of our
capital stock is a summary and is qualified by the provisions of our amended and
restated certificate of incorporation, as amended and our bylaws, as amended,
copies of which have been filed as exhibits to the registration statement.
COMMON STOCK
Holders of our common stock are entitled to one vote for each share on
all matters submitted to a shareholder vote. Holders of our common stock have no
conversion, preemptive or subscription rights and there are no redemption
provisions applicable to our common stock. The rights of the holders of common
stock are subject to the rights of holders of preferred stock. All outstanding
shares of common stock are, and the shares underlying all options and warrants
will be, duly authorized, validly issued, fully paid and non-assessable.
WARRANTS
Warrants to purchase 905,000 shares of common stock that are being
registered in this statement expire on July 1, 2008 and have an exercise price
of $1.65 per share. The exercise prices are subject to adjustment to reflect
stock dividends, splits, reverse splits, and other similar events.
18
REGISTRATION RIGHTS
GENERAL
The following is only a summary of the terms and conditions of the agreements
involving parties which have registration rights. Copies of the actual
agreements have been filed as exhibits to this registration statement. We will
pay for all expenses incurred in connection with these registrations, other than
underwriting discounts and commissions.
GRANTED TO THE COMMON STOCK INSTITUTIONAL INVESTORS
We have granted MicroCapital Fund L.P., The Pinnacle Fund, L.P., Atlas
Capital (Q.P.) L.P., Atlas Capital Master Fund, Ltd., Westpark Capital, L.P.,
Gruber & McBain International, Lagunitas Partners, L.P., Jon D. Gruber and Linda
W. Gruber, J. Patterson McBaine, Bonaza Master Fund Ltd., Sandor Capital Master
Fund, L.P., Southwell Partners, L.P. and Glacier Partners, L.P. certain
registration rights with respect to 5,275,000 of our securities. We are
registering all of these shares.
GRANTED TO CERTAIN DEBENTURE HOLDERS
We granted to Midsummer Investment, Ltd., Omicron Master Trust,
Islandia, L.P., Crestview Capital Fund I, L.P., Crestview Capital Fund II, L.P.
and Crestview Capital Offshore Fund, Inc. registration rights with respect an
aggregate of 375,000 Shares of common stock underlying warrants held by them. We
are registering all of these shares.
GRANTED TO ROTH CAPITAL PARTNERS, LLC
We granted Roth Capital Partners, LLC registration rights with respect
to 527,500 shares of common stock underlying a warrant held by it. We are
registering all of these shares.
GRANTED TO OTHER STOCKHOLDERS
We granted 033 Growth Partners I, L.P., 033 Growth Partners II, L.P.,
Oyster Pond Partners, L.P., 033 Growth International Fund, LTD., Midsummer
Investment, Ltd., Omicron Master Trust, Crestview Capital Fund I, LP, Crestview
Capital Fund II, LP, Crestview Capital Offshore fund, Inc. and Glacier Partners,
LP registration rights with respect to an aggregate of 1,000,000 shares of
common stock held by them. We are registering all of these shares.
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.
MATERIAL CHANGES
On July 23, 2003, we promoted Harvey Braun, our Chief Executive
Officer, to the position of Chairman of the Board. Mr. Braun assumed the
position in addition to his role as Chief Executive Officer. Barry Schechter,
our former Chairman, remains a consultant to the company. We also hired Ran H.
Furman as our new Chief Financial Officer. Mr. Furman joined Island Pacific from
San Diego-based e.Digital Corporation, where he had been its Chief Financial
Officer since 2001. Prior to that, he was a Managing Director at DP Securities,
Inc. He was also a Senior Vice President at Jesup & Lamont Securities between
1995 and 2000, and previously held positions at Bank of Montreal/Nesbitt Burns
and Deloitte & Touche. He was awarded a Bachelor of Arts from the University of
Washington and an M.B.A. from Columbia Business School.
19
EXPERTS
The consolidated financial statements of Island Pacific, Inc. appearing
in its Annual Report on Form 10K for the years ended March 31, 2003 and 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 such a part given on the
authority of such firm as experts in accounting and auditing.
The consolidated statements of operations, stockholders' equity and
cash flows for the year ended March 31, 2001 incorporated in this prospectus by
reference from Island Pacific, Inc.'s Annual Report on Form 10-K have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon 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.
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 26, 2003;
o Our Current Reports on Form 8-K filed on July 2, 2003 and July 15,
2003;
o The description of our common stock on Form S-1 filed on May 12, 2003,
including any amendments or reports filed for the purpose of updating
that 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.
20
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........................ $ 2,239
Legal fees and expenses..................... $ 5,000
Accounting fees and expenses................ $ 10,000
Printing & Engraving........................ $ 0
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 provides 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.
II-1
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.
ITEM 16. EXHIBITS.
EXHIBIT DESCRIPTION
------- -----------
2.1 Agreement of Merger and Plan of Reorganization dated as of
July 1, 1998 among the Company and its wholly-owned
subsidiary; Applied Retail Solutions, Inc., and the
shareholders of Applied Retail Solutions, Inc.,incorporated
by reference to exhibit 2.1 to the Company's 8-K filed on
September 16, 1998.
2.2 First Amendment to the Agreement and Plan of Reorganization
dated January 28, 1999 among the Company and its wholly-
owned subsidiary, Applied Retail Solutions, Inc., and the
shareholders of Applied Retail Solutions, Inc., incorporated
by reference to exhibit 2.1 to the Company's Form 10-QSB for
the quarter ended December 31, 1998.
2.3 Second Amendment to the Agreement and Plan of Reorganization
dated May 24, 1999 among the Company and its wholly-owned
subsidiary, Applied Retail Solutions, Inc., and the
shareholders of Applied Retail Solutions, Inc., incorporated
by reference to exhibit 2.12 to the Company's 10-KSB for the
fiscal year ended March 31, 1999.
2.4 Stock Purchase Agreement dated June 1, 1999 among the
Company, Island Pacific Systems Corporation, and the
shareholders of Island Pacific Systems Corporation,
incorporated by reference to exhibit 2.1 to the Company's
Form 8-K filed on June 18, 1999.
2.5 Asset Purchase Agreement dated March 16, 2000 among the
Company, MarketPlace Systems Corporation and Jay Fisher,
incorporated by reference to exhibit 2.15 to the Company's
10-K for the fiscal year ended March 31, 2000.
2.6 Agreement and Plan of Merger of Island Pacific, Inc. and SVI
Holdings, Inc. dated February 20, 2001, incorporated by
reference to exhibit 2.8 to the Company's 10-K for the
fiscal year ended March 31, 2001.
2.7 Purchase and Exchange Agreement dated as of January 1, 2002
between the Company and Softline Limited, incorporated by
reference to exhibit 2.1 to the Company's 8-K filed May 16,
2002. Exhibits and schedules have been omitted pursuant to
Item 601(b)(2) of Regulation S-K, but a copy will be
furnished supplementally to the Securities and Exchange
Commission upon request.
2.8 Deed of Appointment dated February 20, 2002 between the bank
and the receivers of SVI Retail (Pty) Limited, incorporated
by reference to exhibit 2.2 to the Company's 10-K filed July
16, 2002. Exhibits and schedules have been omitted pursuant
to Item 601(b)(2) of Regulation S-K, but a copy will be
furnished supplementally to the Securities and Exchange
Commission upon request.
2.9 Business Sale Agreement dated May 3, 2002 among the
receivers and managers of the assets of SVI Retail (Pty)
Limited and QQQ Systems PTY Limited, incorporated by
reference to exhibit 2.3 to the Company's 10-K filed July16,
2002. Exhibits and schedules have been omitted pursuant to
Item 601(b)(2) of Regulation S-K, but a copy will be
furnished supplementally to the Securities and Exchange
Commission upon request.
II-2
2.10 Securities Purchase Agreement dated March 31, 2003 by and
among the Company, Midsummer Investment, Ltd., Omicron
Master Trust, and Islandia, L.P., incorporated by reference
to exhibit 2.1 to the Company's Form 8-K filed April 15,
2003.
2.11 Securities Purchase Agreement dated April 1, 2003 by and
among the Company and MBSJ Investors, LLC, incorporated by
reference to exhibit 2.2 to the Company's Form 8-K filed on
April 15, 2003.
2.12 Agreement dated May 6, 2003 by and among the Company,
Crestview Capital Fund I, L.P., Crestview Capital Fund II,
L.P. and Crestview Capital Offshore Fund, Inc., incorporated
by reference to exhibit 2.12 to Company's Form S-1 filed May
12, 2003.
2.13 Securities Purchase Agreement dated June 27, 2003 by and
among the Company and the purchasers named therein,
incorporated by reference to exhibit 2.1 to the Company's
Form 8-K filed on July 2, 2003.
3.1 Amended and Restated Certificate of Incorporation,
incorporated by reference to exhibit 3.1 to the Company's
8-K filed on July 15, 2003.
3.2 Certificate of Designation, incorporated by reference to
exhibit 4.1 of the Company's 8-K filed May 16, 2002.
3.3 Restated Bylaws, incorporated by reference to exhibit 3.2 to
the Company's 10-K for the fiscal year ended March 31, 2001.
4.1 Registration Rights Agreement dated as of March 31, 2003 by
and among the Company, Midsummer Investment, Ltd., Omicron
Master Trust, and Islandia, L.P., incorporated by reference
to exhibit 4.1 to the Company's Form 8-K filed April 15,
2003.
4.2 Registration Rights Agreement dated as of April 1, 2003
between the Company and MBSJ Investors LLC., incorporated by
reference to exhibit 4.2 to the Company's Form 8-K filed
April 15, 2003.
4.3 Registration Rights Agreement dated June 27, 2003 by and
among the Company and the parties named therein,
incorporated by reference to exhibit 4.1 to the Company's
Form 8-K filed on July 2, 2003.
5.1 Opinion of Solomon Ward Seidenwurm & Smith, LLP (included
herewith).
10.1 Incentive Stock Option Plan, as amended April 1, 1998,
incorporated by reference to exhibit 10.1 to the Company's
10-QSB for the quarter ended September 30, 1998.
10.2 1998 Incentive Stock Plan, as amended, incorporated by
reference to exhibit 10.4 to the Company's 10-K for the
fiscal year ended March 31, 2001.
10.3 Employment Agreement of Barry M. Schechter dated effective
October 1, 2000, incorporated by reference to exhibit 10.2
to the Company's 10-K for the fiscal year ended March 31,
2001.
10.4 Term Loan Agreement dated June 3, 1999 between the Company
and Union Bank of California, N.A., incorporated by
reference to exhibit 10.1 to the Company's 8-K filed on June
18, 1999.
II-3
10.5 Amendment No. 1 to Term Loan Agreement between the Company
and Union Bank of California, N.A., dated May 31, 2000,
incorporated by reference to exhibit 10.24 to the Company's
10-K for the fiscal year ended March 31, 2000.
10.6 Revolving Note between the Company and Union Bank of
California, N.A., dated May 31, 2000, incorporated by
reference to exhibit 10.25 to the Company's 10-K for the
fiscal year ended March 31, 2000.
10.7 Amendment No. 2 to Term Loan Agreement between the Company
and Union Bank of California, N.A., dated July 13, 2000,
incorporated by reference to exhibit 10.26 to the Company's
10-K for the fiscal year ended March 31, 2000.
10.8 Term Loan Note of the Company in favor of Union Bank of
California, N.A. dated July 13, 2000, incorporated by
reference to exhibit 10.27 to the Company's 10-K for the
fiscal year ended March 31, 2000.
10.9 Common Stock Purchase Agreement dated December 22, 2000
between the Company, Koyah Leverage Partners, L.P., Koyah
Partners, L.P., Nigel Davey, and Brian Cathcart,
incorporated by reference as exhibit 10.2 to the Company's
8-K filed on January 8, 2001.
10.10 Amendment No. 3 to Term Loan Agreement, incorporated by
reference to exhibit 10.6 to the Company's 10-Q filed
February 14, 2001.
10.11 Letter Agreement between the Company and Union Bank of
California, N.A. dated April 24, 2001, incorporated by
reference to exhibit 10.18 to the Company's 10-K for the
fiscal year ended March 31, 2001.
10.12 Letter Agreement between the Company and Union Bank of
California, N.A. dated June 22, 2001, incorporated by
reference to exhibit 10.19 to the Company's 10-K for the
fiscal year ended March 31, 2001.
10.13 Amended and Restated Term Loan Agreement between the Company
and Union Bank of California, N.A. dated as of June 29,
2001, incorporated by reference to exhibit 10.20 to the
Company's 10-K for the fiscal year ended March 31, 2001.
10.14 First Amendment to Amended and Restated Term Loan Agreement
between the Company and Union Bank of California, N.A. dated
as of March 18, 2002, and First Amendment to Amended and
Restated Pledge Agreement between the Company, Sabica
Ventures, Inc., SVI Retail, Inc., SVI Training Products,
Inc., and Union Bank of California, N.A. dated as of March
18, 2002, each incorporated by reference to exhibit 10.4 to
the Company's 10-K filed on July 16, 2002.
10.15 Second Amendment to Amended and Restated Term Loan Agreement
between the Company and Union Bank of California, N.A. dated
as of May 21, 2001, incorporated by reference to exhibit
10.5 to the Company's 10-K filed on July 16, 2002.
10.16 Third Amendment to Amended and Restated Term Loan Agreement
between the Company and Union Bank of California, N.A. dated
as of July 15, 2002, incorporated by reference to exhibit
10.6 to the Company's 10-K filed on July 16, 2002.
10.17 Fourth Amendment to Amended and Restated Term Loan Agreement
between the Company and Union Bank of California, N.A. dated
as of November 15, 2002, incorporated by reference to
exhibit 10.3 to the Company's 10-Q filed on February 14,
2003.
10.18 Warrant in favor of UNIONBANCAL EQUITIES, Inc. dated January
2, 2003, incorporated by reference to exhibit 10.4 to the
Company's 10-Q filed on February 14, 2003.
II-4
10.19 Common Stock Purchase Agreement between the Company and AMRO
International, S.A. dated March 13, 2000, incorporated by
reference to exhibit 10.28 to the Company's 10-K for the
fiscal year ended March 31, 2000.
10.20 Registration Rights Agreement between the Company and AMRO
International, S.A. dated March 13, 2000, incorporated by
reference to exhibit 10.29 to the Company's 10-K for the
fiscal year ended March 31, 2000.
10.21 Letter Agreement between the Company and AMRO International,
S.A.dated March 1, 2000, incorporated by reference to
exhibit 10.23 to the Company's 10-K for the fiscal year
ended March 31, 2001.
10.22 Common Stock Option Agreement dated May 24, 1999 between the
Company and Softline Limited, incorporated by reference to
exhibit 10.30 to the Company's 10-K for the fiscal year
ended March 31, 2000.
10.23 Amended and Restated Subordinated Promissory Note of the
Company in favor of Softline Limited dated June 30, 2001,
incorporated by reference to exhibit 10.26 to the Company's
10-K for the fiscal year ended March 31, 2001.
10.24 Investor Rights Agreement between the Company and Softline
Limited dated as of January 1, 2002, incorporated by
reference to exhibit 4.2 to the Company's 8-K filed May 16,
2002.
10.25 Investors' Rights Agreement among SVI Holdings, Inc., Koyah
Leverage Partners, L.P. and Koyah Partners, L.P. dated July
19, 2002, incorporated by reference to exhibit 10.25 to
Company's Form S-1 filed May 12, 2003.
10.26 Investors' Rights Agreement among SVI Holdings, Inc., Koyah
Leverage Partners, L.P. and Koyah Partners, L.P., dated
December 22, 2000, incorporated by reference to exhibit 10.3
to the Company's 8-K filed January 8, 2001.
10.27 Amendment Agreement between the Company, Koyah Leverage
Partners, Koyah Partners, L.P., Raven Partners, L.P., Nigel
Davey, and Brian Cathcart dated July 15, 2002, incorporated
by reference to exhibit 10.11 to the Company's 10-K filed on
July 16, 2002.
10.28 First Amendment to Amendment Agreement between the Company,
Koyah Leverage Partners, Koyah Partners, L.P., Raven
Partners, L.P., Nigel Davey, and Brian Cathcart dated
December 5, 2002, incorporated by reference to exhibit 10.6
to the Company's 10-Q filed on February 14, 2003.
10.29 Second Amendment to Amendment Agreement between the Company,
Koyah Leverage Partners, Koyah Partners, L.P., and Raven
Partners, L.P. dated March 14, 2003, incorporated by
reference to exhibit 10.29 to Company's Form S-1 filed May
12, 2003.
10.30 Third Amendment to Amendment Agreement between the Company,
Koyah Leverage Partners, Koyah Partners, L.P., and Raven
Partners, L.P. dated March 28, 2003, incorporated by
reference to exhibit 10.30 to Company's Form S-1 filed May
12, 2003.
10.31 Fourth Amendment to Amendment Agreement between the Company,
Koyah Leverage Partners, Koyah Partners, L.P., and Raven
Partners, L.P. dated April 3, 2003, incorporated by
reference to exhibit 10.31 to Company's Form S-1 filed May
12, 2003.
10.32 Fifth Amendment to Amendment Agreement between the Company,
Koyah Leverage Partners, Koyah Partners, L.P., and Raven
Partners, L.P. dated June 27, 2003 (included herewith).
II-5
10.33 Convertible Promissory Note and Grant of Security Interest
between SVI Holdings, Inc. and Koyah Leverage Partners L.P.,
dated December 14, 2000, incorporated by reference to
exhibit 10.1 to the Company's 8-K filed January 8, 2001.
10.34 Form of Warrant To Purchase Common Stock, incorporated by
reference to exhibit 10.4 to the Company's 8-K filed
January 8, 2001.
10.35 Form of Convertible Promissory Note for entities related to
ICM Asset Management, Inc., incorporated by reference to
exhibit 10.31 to the Company's 10-K for the fiscal year
ended March 31, 2001.
10.36 Loan Note in Favor of Datafaction, as amended, incorporated
by reference to exhibit 10.5 to the Company's 10-Q filed
February 14, 2001.
10.37 Promissory Note in favor of Barry Schechter, dated February
13, 2001, incorporated by reference to exhibit 10.33 to the
Company's 10-K for the fiscal year ended March 31, 2001.
10.38 Umbrella Agreement with Toys `R Us, incorporated by
reference to exhibit 10.34 to the Company's 10-K for the
fiscal year ended March 31, 2001. Portions of this exhibit
(indicated by asterisks) have been omitted pursuant to a
request for confidential treatment pursuant to Rule 24b-2
under the Securities Exchange Act of 1934.
10.39 License Agreement for Software Products with Toys `R Us,
incorporated by reference to exhibit 10.35 of the Company's
10-K for the fiscal year ended March 31, 2002. Portions of
this exhibit (indicated by asterisks) have been omitted
pursuant to a request for confidential treatment pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934.
10.40 Modification Agreement with Toys `R Us, as amended,
incorporated by reference to exhibit 10.36 of the Company's
10-K for the fiscal year ended March 31, 2002. Portions of
this exhibit (indicated by asterisks) have been omitted
pursuant to a request for confidential treatment pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934.
10.41 Services Agreement with Toys "R" Us, incorporated by
reference to exhibit 10.37 of the Company's 10-K for the
fiscal year ended March 31, 2001. Portions of this exhibit
(indicated by asterisks) have been omitted pursuant to a
request for confidential treatment pursuant to Rule 24b-2
under the Securities Exchange Act of 1934.
10.42 Professional Services Agreement between SVI Retail, Inc. and
Toys "R" Us dated July 10, 2001, incorporated by reference
to exhibit 10.2 to the Company's 10-Q for the quarter ended
September 30, 2001. Portions of this exhibit (indicated by
asterisks) have been omitted pursuant to a request for
confidential treatment pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
10.43 Purchase Agreement between the Company and Toys "R" Us, Inc.
dated May 29, 2002, incorporated by reference to exhibit 10.
14 to the Company's 10-K filed on July 16, 2002.
10.44 Convertible Note in favor of Toys "R" Us, Inc. dated May 29,
2002, incorporated by reference to exhibit 10.15 to the
Company's 10-K filed on July 16, 2002.
10.45 Warrant in favor of Toys "R" Us, Inc. dated May 29, 2002,
incorporated by reference to exhibit 10.16 to the Company's
10-K filed on July 16, 2002.
10.46 Development Agreement between the Company and Toys "R" Us,
Inc. dated May 29, 2002, incorporated by reference to
exhibit 10.17 to the Company's 10-K filed on July 16, 2002.
Portions of this exhibit (indicated by asterisks) have been
omitted pursuant to a request for confidential treatment
pursuant to Rule 24b-2 of the Securities Exchange Act of
1934.
II-6
10.47 Discounted Loan Payoff Agreement dated March 31, 2003 by and
among Union Bank of California, N.A., the Company, SVI
Retail, Inc., Sabica Ventures, Inc., and SVI Training
Products, Inc., incorporated by reference to exhibit 10.3 to
the Company's Form 8-K filed April 15, 2003.
10.48 Unsecured Promissory Note dated March 31, 2003 in favor of
Union Bank of California, incorporated by reference to
exhibit 10.48 to Company's Form S-1 filed May 12, 2003.
10.49 Summary of loan transactions between the Company and World
Wide Business Centres, incorporated by reference to exhibit
10.12 to the Company's 10-K filed on July 16, 2002.
21.1 List of Subsidiaries incorporated by reference to exhibit
21.1 to Company's Form S-1 filed May 12, 2003.
23.1 Consent of Deloitte & Touche LLP, independent auditors
(included herewith).
23.3 Consent of Singer Lewak Greenbaum & Goldstein LLP,
independent auditors (included herewith).
23.4 Consent of Solomon Ward Seidenwurm & Smith, LLP. Reference
is made to Exhibit 5.1.
24.5 Power of Attorney. Reference is made to the signature page
hereof.
II-7
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) 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;
(2) That, for the purpose 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; and
(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.
We hereby undertake 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.
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-8
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 July 31, 2003.
ISLAND PACIFIC, INC., A DELAWARE CORPORATION
By: /s/ Harvey Braun
----------------------------------------
Harvey Braun, Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
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
/s/ Harvey Braun Chief Executive Officer and 7/31/03
---------------------------- Chairman of the Board
Harvey Braun
/s/ Steven Beck President and Director 7/31/03
----------------------------
Steven Beck
/s/ Donald S. Radcliffe Director 7/31/03
----------------------------
Donald S. Radcliffe
/s/ Ivan M. Epstein Director 7/31/03
----------------------------
Ivan M. Epstein
/s/ Ian Bonner Director 7/31/03
----------------------------
Ian Bonner
/s/ Michael Silverman Director 7/31/03
----------------------------
Michael Silverman
/s/ Robert P. Wilkie Director 7/31/03
----------------------------
Robert P. Wilkie
II-9
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
2.1 Agreement of Merger and Plan of Reorganization dated as of
July 1, 1998 among the Company and its wholly-owned
subsidiary; Applied Retail Solutions, Inc., and the
shareholders of Applied Retail Solutions, Inc., incorporated
by reference to exhibit 2.1 to the Company's 8-K filed on
September 16, 1998.
2.2 First Amendment to the Agreement and Plan of Reorganization
dated January 28, 1999 among the Company and its wholly-
owned subsidiary, Applied Retail Solutions, Inc., and the
shareholders of Applied Retail Solutions, Inc., incorporated
by reference to exhibit 2.1 to the Company's Form 10-QSB for
the quarter ended December 31, 1998.
2.3 Second Amendment to the Agreement and Plan of Reorganization
dated May 24, 1999 among the Company and its wholly-owned
subsidiary, Applied Retail Solutions, Inc., and the
shareholders of Applied Retail Solutions, Inc., incorporated
by reference to exhibit 2.12 to the Company's 10-KSB for the
fiscal year ended March 31, 1999.
2.4 Stock Purchase Agreement dated June 1, 1999 among the
Company, Island Pacific Systems Corporation, and the
shareholders of Island Pacific Systems Corporation,
incorporated by reference to exhibit 2.1 to the Company's
Form 8-K filed on June 18, 1999.
2.5 Asset Purchase Agreement dated March 16, 2000 among the
Company, MarketPlace Systems Corporation and Jay Fisher,
incorporated by reference to exhibit 2.15 to the Company's
10-K for the fiscal year ended March 31, 2000.
2.6 Agreement and Plan of Merger of Island Pacific, Inc. and SVI
Holdings, Inc. dated February 20, 2001, incorporated by
reference to exhibit 2.8 to the Company's 10-K for the
fiscal year ended March 31, 2001.
2.7 Purchase and Exchange Agreement dated as of January 1, 2002
between the Company and Softline Limited, incorporated by
reference to exhibit 2.1 to the Company's 8-K filed May 16,
2002. Exhibits and schedules have been omitted pursuant to
Item 601(b)(2) of Regulation S-K, but a copy will be
furnished supplementally to the Securities and Exchange
Commission upon request.
2.8 Deed of Appointment dated February 20, 2002 between the bank
and the receivers of SVI Retail (Pty) Limited, incorporated
by reference to exhibit 2.2 to the Company's 10-K filed July
16, 2002. Exhibits and schedules have been omitted pursuant
to Item 601(b)(2) of Regulation S-K, but a copy will be
furnished supplementally to the Securities and Exchange
Commission upon request.
2.9 Business Sale Agreement dated May 3, 2002 among the
receivers and managers of the assets of SVI Retail (Pty)
Limited and QQQ Systems PTY Limited, incorporated by
reference to exhibit 2.3 to the Company's 10-K filed July
16, 2002. Exhibits and schedules have been omitted pursuant
to Item 601(b)(2) of Regulation S-K, but a copy will be
furnished supplementally to the Securities and Exchange
Commission upon request.
II-10
2.10 Securities Purchase Agreement dated as of March 31, 2003 by
and among the Company, Midsummer Investment, Ltd., Omicron
Master Trust and Islandia, L.P., incorporated by reference
to exhibit 2.1 to the Company's Form 8-K filed on April 15,
2003.
2.11 Securities Purchase Agreement dated as of March 31, 2003
between the Company and MBSJ Investors LLC, incorporated by
reference to exhibit 2.2 to the Company's Form 8-K filed on
April 15, 2003.
2.12 Agreement dated May 6, 2003 by and among the Company,
Crestview Capital Fund I, L.P., Crestview Capital Fund II,
L.P. and Crestview Capital Offshore Fund, Inc, incorporated
by reference to exhibit 2.12 to Company's Form S-1 filed May
12, 2003.
2.13 Securities Purchase Agreement dated June 27, 2003 by and
among the Company and the purchasers named therein,
incorporated by reference to exhibit 2.1 to the Company's
Form 8-K filed on July 2, 2003.
3.1 Amended and Restated Certificate of Incorporation,
incorporated by reference to exhibit 3.1 to the Company's
10-K for the fiscal year ended March 31, 2001.
3.2 Certificate of Designation, incorporated by reference to
exhibit 4.1 of the Company's 8-K filed May 16, 2002.
3.3 Restated Bylaws, incorporated by reference to exhibit 3.2 to
the Company's 10-K for the fiscal year ended March 31, 2001.
4.1 Registration Rights Agreement dated as of March 31, 2003 by
and among the Company, Midsummer Investment, Ltd., Omicron
Master Trust and Islandia, L.P., incorporated by reference
to exhibit 4.1 to the Company's Form 8-K filed April 15,
2003.
4.2 Registration Rights Agreement dated as of April 1, 2003
between the Company and MBSJ Investors LLC, incorporated by
reference to exhibit 4.2 to the Company's Form 8-K filed
April 15, 2003.
4.3 Registration Rights Agreement dated June 27, 2003 by and
among the Company and the parties named therein,
incorporated by reference to exhibit 4.1 to the Company's
Form 8-K filed on July 2, 2003.
5.1 Opinion of Solomon Ward Seidenwurm & Smith, LLP (included
herewith).
10.1 Incentive Stock Option Plan, as amended April 1, 1998,
incorporated by reference to exhibit 10.1 to the Company's
10-QSB for the quarter ended September 30, 1998.
10.2 1998 Incentive Stock Plan, as amended, incorporated by
reference to exhibit 10.4 to the Company's 10-K for the
fiscal year ended March 31, 2001.
10.3 Employment Agreement of Barry M. Schechter dated effective
October 1, 2000, incorporated by reference to exhibit 10.2
to the Company's 10-K for the fiscal year ended March 31,
2001.
10.4 Term Loan Agreement dated June 3, 1999 between the Company
and Union Bank of California, N.A., incorporated by
reference to exhibit 10.1 to the Company's 8-K filed on June
18, 1999.
10.5 Amendment No. 1 to Term Loan Agreement between the Company
and Union Bank of California, N.A., dated May 31, 2000,
incorporated by reference to exhibit 10.24 to the Company's
10-K for the fiscal year ended March 31, 2000.
II-11
10.6 Revolving Note between the Company and Union Bank of
California, N.A., dated May 31, 2000, incorporated by
reference to exhibit 10.25 to the Company's 10-K for the
fiscal year ended March 31, 2000.
10.7 Amendment No. 2 to Term Loan Agreement between the Company
and Union Bank of California, N.A., dated July 13, 2000,
incorporated by reference to exhibit 10.26 to the Company's
10-K for the fiscal year ended March 31, 2000.
10.8 Term Loan Note of the Company in favor of Union Bank of
California, N.A. dated July 13, 2000, incorporated by
reference to exhibit 10.27 to the Company's 10-K for the
fiscal year ended March 31, 2000.
10.9 Common Stock Purchase Agreement dated December 22, 2000
between the Company, Koyah Leverage Partners, L.P., Koyah
Partners, L.P., Nigel Davey, and Brian Cathcart,
incorporated by reference to exhibit 10.2 to the Company's
8-K filed on January 8, 2001.
10.10 Amendment No. 3 to Term Loan Agreement, incorporated by
reference to exhibit 10.6 to the Company's 10-Q filed
February 14, 2001.
10.11 Letter Agreement between the Company and Union Bank of
California, N.A. dated April 24, 2001, incorporated by
reference to exhibit 10.18 to the Company's 10-K for the
fiscal year ended March 31, 2001.
10.12 Letter Agreement between the Company and Union Bank of
California, N.A. dated June 22, 2001, incorporated by
reference to exhibit 10.19 to the Company's 10-K for the
fiscal year ended March 31, 2001.
10.13 Amended and Restated Term Loan Agreement between the Company
and Union Bank of California, N.A. dated as of June 29,
2001, incorporated by reference to exhibit 10.20 to the
Company's 10-K for the fiscal year ended March 31, 2001.
10.14 First Amendment to Amended and Restated Term Loan Agreement
between the Company and Union Bank of California, N.A. dated
as of March 18, 2002, and First Amendment to Amended and
Restated Pledge Agreement between the Company, Sabica
Ventures, Inc., SVI Retail, Inc., SVI Training Products,
Inc., and Union Bank of California, N.A. dated as of March
18, 2002, each incorporated by reference to exhibit 10.4 to
the Company's 10-K filed on July 16, 2002.
10.15 Second Amendment to Amended and Restated Term Loan Agreement
between the Company and Union Bank of California, N.A. dated
as of May 21, 2001, incorporated by reference to exhibit
10.5 to the Company's 10-K filed on July 16, 2002.
10.16 Third Amendment to Amended and Restated Term Loan Agreement
between the Company and Union Bank of California, N.A. dated
as of July 15, 2002, incorporated by reference to exhibit
10.6 to the Company's 10-K filed on July 16, 2002.
10.17 Fourth Amendment to Amended and Restated Term Loan Agreement
between the Company and Union Bank of California, N.A. dated
as of November 15, 2002, incorporated by reference to
exhibit 10.3 to the Company's 10-Q filed on February 14,
2003.
10.18 Warrant in favor of UNIONBANCAL EQUITIES, Inc. dated January
2, 2003, incorporated by reference to exhibit 10.4 to the
Company's 10-Q filed on February 14, 2003.
10.19 Common Stock Purchase Agreement between the Company and AMRO
International, S.A. dated March 13, 2000, incorporated by
reference to exhibit 10.28 to the Company's 10-K for the
fiscal year ended March 31, 2000.
II-12
10.20 Registration Rights Agreement between the Company and AMRO
International, S.A. dated March 13, 2000, incorporated by
reference to exhibit 10.29 to the Company's 10-K for the
fiscal year ended March 31, 2000.
10.21 Letter Agreement between the Company and AMRO International,
S.A. dated March 1, 2000, incorporated by reference to
exhibit 10.23 to the Company's 10-K for the fiscal year
ended March 31, 2001.
10.22 Common Stock Option Agreement dated May 24, 1999 between the
Company and Softline Limited, incorporated by reference to
exhibit 10.30 to the Company's 10-K for the fiscal year
ended March 31, 2000.
10.23 Amended and Restated Subordinated Promissory Note of the
Company in favor of Softline Limited dated June 30, 2001,
incorporated by reference to exhibit 10.26 to the Company's
10-K for the fiscal year ended March 31, 2001.
10.24 Investor Rights Agreement between the Company and Softline
Limited dated as of January 1, 2002, incorporated by
reference to exhibit 4.2 to the Company's 8-K filed May 16,
2002.
10.25 Investors' Rights Agreement among SVI Holdings, Inc., Koyah
Leverage Partners, L.P. and Koyah Partners, L.P. dated July
19, 2002, incorporated by reference to exhibit 10.25 to
Company's Form S-1 filed May 12, 2003.
10.26 Investors' Rights Agreement among SVI Holdings, Inc., Koyah
Leverage Partners, L.P. and Koyah Partners, L.P., dated
December 22, 2000, incorporated by reference to exhibit 10.3
to the Company's 8-K filed January 8, 2001.
10.27 Amendment Agreement between the Company, Koyah Leverage
Partners, Koyah Partners, L.P., Raven Partners, L.P., Nigel
Davey, and Brian Cathcart dated July 15, 2002, incorporated
by reference to exhibit 10.11 to the Company's 10-K filed on
July 16, 2002.
10.28 First Amendment to Amendment Agreement between the Company,
Koyah Leverage Partners, Koyah Partners, L.P., Raven
Partners, L.P., Nigel Davey, and Brian Cathcart dated
December 5, 2002, incorporated by reference to exhibit 10.6
to the Company's 10-Q filed on February 14, 2003.
10.29 Second Amendment to Amendment Agreement between the Company,
Koyah Leverage Partners, Koyah Partners, L.P., and Raven
Partners, L.P. dated March 14, 2003 incorporated by
reference to exhibit 10.29 to Company's Form S-1 filed May
12, 2003.
10.30 Third Amendment to Amendment Agreement between the Company,
Koyah Leverage Partners, Koyah Partners, L.P., and Raven
Partners, L.P. dated March 28, 2003 incorporated by
reference to exhibit 10.30 to Company's Form S-1 filed May
12, 2003.
10.31 Fourth Amendment to Amendment Agreement between the Company,
Koyah Leverage Partners, Koyah Partners, L.P., and Raven
Partners, L.P. dated April 3, 2003, incorporated by
reference to exhibit 10.31 to Company's Form S-1 filed May
12, 2003.
10.32 Fifth Amendment to Amendment Agreement between the Company,
Koyah Leverage Partners, Koyah Partners, L.P., and Raven
Partners, L.P. dated June 27, 2003, incorporated by
reference to exhibit 10.32 to Company's Form S-1 filed May
12, 2003.
10.33 Convertible Promissory Note and Grant of Security Interest
between SVI Holdings, Inc. and Koyah Leverage Partners L.P.,
dated December 14, 2000, incorporated by reference to
exhibit 10.1 to the Company's 8-K filed January 8, 2001.
II-13
10.34 Form of Warrant To Purchase Common Stock, incorporated by
reference to exhibit 10.4 to the Company's 8-K filed January
8, 2001.
10.35 Form of Convertible Promissory Note for entities affiliated
with ICM Asset Management, Inc., incorporated by reference
to exhibit 10.31 to the Company's 10-K for the fiscal year
ended March 31, 2001.
10.36 Loan Note in Favor of Datafaction, as amended, incorporated
by reference to exhibit 10.5 to the Company's 10-Q filed
February 14, 2001.
10.37 Promissory Note in favor of Barry Schechter, dated February
13, 2001, incorporated by reference to exhibit 10.33 to the
Company's 10-K for the fiscal year ended March 31, 2001.
10.38 Umbrella Agreement with Toys 'R Us, incorporated by
reference to exhibit 10.34 to the Company's 10-K for the
fiscal year ended March 31, 2001. Portions of this exhibit
(indicated by asterisks) have been omitted pursuant to a
request for confidential treatment pursuant to Rule 24b-2
under the Securities Exchange Act of 1934.
10.39 License Agreement for Software Products with Toys 'R Us,
incorporated by reference to exhibit 10.35 of the Company's
10-K for the fiscal year ended March 31, 2002. Portions of
this exhibit (indicated by asterisks) have been omitted
pursuant to a request for confidential treatment pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934.
10.40 Modification Agreement with Toys 'R Us, as amended,
incorporated by reference to exhibit 10.36 of the Company's
10-K for the fiscal year ended March 31, 2002. Portions of
this exhibit (indicated by asterisks) have been omitted
pursuant to a request for confidential treatment pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934.
10.41 Services Agreement with Toys 'R Us, incorporated by
reference to exhibit 10.37 of the Company's 10-K for the
fiscal year ended March 31, 2001. Portions of this exhibit
(indicated by asterisks) have been omitted pursuant to a
request for confidential treatment pursuant to Rule 24b-2
under the Securities Exchange Act of 1934.
10.42 Professional Services Agreement between SVI Retail, Inc. and
Toys "R" Us dated July 10, 2001, incorporated by reference
to exhibit 10.2 to the Company's 10-Q for the quarter ended
September 30, 2001. Portions of this exhibit (indicated by
asterisks) have been omitted pursuant to a request for
confidential treatment pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
10.43 Purchase Agreement between the Company and Toys "R" Us, Inc.
dated May 29, 2002, incorporated by reference to exhibit
10.14 to the Company's 10-K filed on July 16, 2002.
10.44 Convertible Note in favor of Toys "R" Us, Inc. dated May 29,
2002, incorporated by reference to exhibit 10.15 to the
Company's 10-K filed on July 16, 2002.
10.45 Warrant in favor of Toys "R" Us, Inc. dated May 29, 2002,
incorporated by reference to exhibit 10.16 to the Company's
10-K filed on July 16, 2002.
II-14
10.46 Development Agreement between the Company and Toys "R" Us,
Inc. dated May 29, 2002, incorporated by reference to
exhibit 10.17 to the Company's 10-K filed on July 16, 2002.
Portions of this exhibit (indicated by asterisks) have been
omitted pursuant to a request for confidential treatment
pursuant to Rule 24b-2 of the Securities Exchange Act of
1934.
10.47 Discounted Loan Payoff Agreement dated March 31, 2003 by and
among Union Bank of California, N.A., the Company, SVI
Retail, Inc., Sabica Ventures, Inc. and SVI Training
Products, Inc., incorporated by reference to exhibit 10.47
to Company's Form S-1 filed May 12, 2003.
10.48 Unsecured Promissory Note dated March 31, 2003 in favor of
Union Bank of California, incorporated by reference to
exhibit 10.48 to Company's Form S-1 filed May 12, 2003.
10.49 Summary of loan transactions between the Company and World
Wide Business Centres, incorporated by reference to exhibit
10.12 to the Company's 10-K filed on July 16, 2002.
21.1 List of Subsidiaries incorporated by reference to exhibit
21.1 to Company's Form S-1 filed on May 12, 2003.
24.1 Power of Attorney. Reference is made to the signature page
hereof.
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