Filed Pursuant to Rule 424(b)(3)
Registration No. 333-105182
PROSPECTUS SUPPLEMENT NO. 7
Island Pacific, Inc., a Delaware corporation
(formerly known as SVI Solutions, Inc.)
Common Stock
This Prospectus Supplement relates to the resale by the holders of
Common Stock.
The prospectus dated July 17, 2003, as supplemented by prospectus
supplement no. 1 dated November 10, 2003, prospectus supplement no. 2 dated
November 25, 2003, prospectus supplement no. 3 dated December 12, 2003,
prospectus supplement no. 4 dated December 17, 2003, prospectus supplement no. 5
dated February 4, 2004 and prospectus supplement no. 6 dated February 13, 2004
(the "Prospectus"), is hereby amended by the information contained in the
attached report on Form 8-K/A filed on March 5, 2004. If the information in the
attached report is inconsistent with any information contained in the Prospectus
or any prospectus supplement dated earlier than the date of this Supplement, the
Prospectus or any earlier supplement shall be deemed superceded by this
Supplement. In all other ways, the Prospectus and any prior supplement shall
remain unchanged.
This Prospectus Supplement should be read in conjunction with, and may
not be delivered or utilized without, the Prospectus.
This Prospectus Supplement is dated March 8, 2004.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 30, 2004
ISLAND PACIFIC, INC.
--------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
0-23049 33-0896617
------------------------ ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
19800 MacArthur Boulevard, Suite 1200, Irvine, California 92612
--------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(949) 476-2212
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired:
The financial statements required by Item 7(a) comprise pps. F-1
to F-11 of this report.
(b) Pro Forma Financial Information
The pro forma financial information required by Item 7(b) comprise
pps. F-12 - F-15 of this report.
(c) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
------ -----------
2.1 Agreement of Merger and Plan or Reorganization by and among
Island Pacific, Inc., Page Digital Incorporated and IPI
Acquisition, Inc. dated November 20, 2003, incorporated by
reference from the Company's Form 8-K filed on November 24,
2003.
99.1 Voting Agreement by and among Island Pacific, Inc., Lawrence
Page and David Joseph dated November 20, 2003, incorporated
by reference from the Company's Form 8-K filed on November 24,
2003.
================================================================================
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Page Digital Incorporated
We have audited the accompanying balance sheet of Page Digital Incorporated as
of October 31, 2003 and the related statements of operations, stockholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Page Digital Incorporated as of
October 31, 2003, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
January 9, 2004
F-1
FINANCIAL STATEMENTS
PAGE DIGITAL INCORPORATED
BALANCE SHEET
OCTOBER 31, 2003
ASSETS
Current assets
Cash and cash equivalents $ 463,861
Accounts receivable, net of allowance for
doubtful accounts of $100,000 963,637
Income tax refund receivable 2,595
Advances to employees 22,727
Inventories 16,170
Prepaid expenses 2,648
------------
Total current assets 1,471,638
Property and equipment, net 414,368
Security deposit - related party 170,244
Deposits 6,548
------------
Total assets $ 2,062,798
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Capital lease obligations $ 158,345
Note payable - related party 1,833
Accounts payable 474,365
Accrued expenses 621,034
Deferred revenue 1,181,740
------------
Total current liabilities 2,437,317
Capital lease obligations, less current maturities 163,961
------------
Total liabilities 2,601,278
------------
Commitments and contingencies
Stockholders' equity
Class A voting common stock, no par value,
50,000,000 shares authorized,
5,653,300 shares issued and outstanding 277,180
Stock subscription receivables (22,360)
Retained deficits (793,300)
------------
Total stockholders' equity (538,480)
------------
Total liabilities and stockholders' equity $ 2,062,798
============
The accompanying notes are an integral part of these financial statements.
F-2
PAGE DIGITAL INCORPORATED
STATEMENT OF OPERATIONS
Year ended October 31, 2003
Sales
Software $ 1,096,394
Hardware 285,118
Service 2,094,939
Maintenance 1,856,834
------------
Total sales 5,333,285
Cost of sales
Software 113,419
Hardware 172,589
Service and maintenance 2,435,885
------------
Total cost of sales 2,721,893
------------
Gross profit 2,611,392
Operating expenses:
Research and development 859,038
Depreciation and amortization 214,392
Selling and marketing 660,960
General and administrative 1,925,816
------------
Total operating expenses 3,660,206
------------
Loss from operations (1,048,814)
Other income (expense):
Interest income 12,094
Gain on disposal of property and equipment 9,495
Interest expense (28,090)
------------
Total other expense (6,501)
------------
Loss before provision for income taxes (1,055,315)
Provision for income tax --
------------
Net loss $(1,055,315)
============
The accompanying notes are an integral part of these financial statements.
F-3
PAGE DIGITAL INCORPORATED
STATEMENT OF STOCKHOLDERS' EQUITY
Year ended October 31, 2003
Common Stock Stock Retained
--------------------------- Subscription earnings
Shares Amount receivable (deficits) Total
------------ ------------ ------------ ------------ ------------
Balance at November 1, 2002 5,472,300 $ 269,680 $ (149,271) $ 262,015 $ 382,424
Issuance of common stock upon
exercise of stock options 187,000 9,300 -- -- 9,300
Redemption of common stock (6,000) (1,800) -- -- (1,800)
Write off of stock subscription due
from stockholder -- -- 126,911 -- 126,911
Net loss -- -- -- (1,055,315) (1,055,315)
------------ ------------ ------------ ------------ ------------
Balance at October 31, 2003 5,653,300 $ 277,180 $ (22,360) $ (793,300) $ (538,480)
============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-4
PAGE DIGITAL INCORPORATED
STATEMENT OF CASH FLOWS
Year ended October 31, 2003
Cash flows from operating activities:
Net loss $(1,055,315)
Adjustments to reconcile net loss to net cash provided for operating activities:
Depreciation and amortization 214,392
Write-off of stock subscription receivable and advances due from stockholder 227,997
Allowance for doubtful accounts 92,500
Gain on disposal of property and equipment (9,495)
Changes in assets and liabilities:
Accounts receivable (159,507)
Income tax refund receivable 141,405
Employee receivables 7,623
Inventories 7,767
Prepaid expenses and other assets 16,780
Accounts payable 244,412
Accrued expenses 267,041
Deferred revenue 290,615
------------
Net cash provided for operating activities 286,215
------------
Cash flows from investing activities:
Purchases of furniture and equipment (26,280)
Proceeds from disposal of property and equipment 25,644
------------
Net cash used for investing activities (636)
------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of redemption 7,500
Principal payments on capital lease obligations (172,935)
Payments on note-payable-stockholder (9,167)
------------
Net cash used for financing activities (174,602)
------------
Net increase in cash and cash equivalents 110,977
Cash and cash equivalents, beginning of period 352,884
------------
Cash and cash equivalents, end of period $ 463,861
============
Supplemental disclosure of cash flow information:
Interest paid $ 32,342
Income tax paid $ --
The accompanying notes are an integral part of these financial statements.
F-5
PAGE DIGITAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Page Digital Incorporated (the "Company") develops and markets software
solutions that enable medium to large size companies to effectively manage
direct commerce across multiple sales channels, including the Internet, call
centers and point of sale. The SYNARO(TM) products are comprehensive software
components engineered to integrate information, business processes and disparate
applications. The Company, located in Englewood, Colorado, generates revenues by
licensing its direct commerce product and providing related services and support
to clients throughout the United States. The Company was incorporated in the
State of Colorado in October 1994 and was previously incorporated in California
for over ten years.
USE OF ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost. Expenditures
for maintenance and repairs are charged to expense as incurred. Depreciation is
computed by the straight-line method over the estimated useful lives of five to
seven years
Property and equipment under capital leases are amortized on a straight-line
basis over the lesser of the economic useful life of the asset or the lease
term.
REVENUE RECOGNITION - The Company's revenue recognition policies are in
accordance with Statement of Position ("SOP") 97-2, Software Revenue
Recognition, as modified by SOP 98-9. In general, software license revenues are
recognized when a non-cancelable software agreement has been signed and the
customer acknowledges an unconditional obligation to pay, the software product
has been delivered, there are no uncertainties surrounding product acceptance,
the fees are fixed and determinable, and collection is considered probable;
professional service revenues are recognized as such services are performed; and
maintenance revenues, including revenues bundled with software agreements which
entitle the customers to supplemental service support and future upgrades and
unspecified enhancements to the Company's products, are deferred and recognized
ratably over the related contract period, generally one year.
When the Company enters into a software agreement with a customer requiring
significant customization of the software products, the Company recognizes
revenue related to the software licenses and any "fixed price" portion of the
contract using contract accounting. Under contract accounting, revenue is
recognized using the percentage of completion method by utilizing the ratio of
labor costs incurred to estimated final labor costs. The third party hardware
and software revenue is recognized upon delivery to the customer.
The Company records deferred income for software agreements when cash has been
received from the customer and the agreement does not qualify for revenue
recognition under the Company's revenue recognition policy.
ACCOUNTS RECEIVABLE - The majority of the Company's accounts receivable is due
from companies in the direct commerce sales industry. Credit is extended based
on evaluation of a customers' financial condition and, generally, collateral is
not required. Accounts receivables are due according to contractual terms and
are stated at amounts due from customers net of an allowance for doubtful
accounts. Accounts outstanding longer than the contractual payment terms are
considered past due. The Company determines its allowance by considering a
number of factors, including the length of time trade accounts receivable are
past due, the Company's previous loss history, the customer's ability to pay its
obligation to the Company, and the condition of the general economy and industry
as a whole. The Company writes-off accounts receivable when they become
uncollectible, and payments subsequently received on such receivables are
credited to the allowance for doubtful accounts.
INCOME TAXES - In accordance with Statement of Financial Accounting Standards
("SFAS") No. 109, Accounting for Income Taxes, deferred tax assets and
liabilities are recognized for future tax consequences attributable to
differences in the timing of the recognition of certain revenues and the
deduction of certain expenses for financial reporting and income tax reporting
purposes, based on tax rates currently in effect for such periods when the
differences become recoverable or settled.
ADVERTISING - The Company expenses advertising costs as they are incurred.
Advertising expenses totaled $31,819 for the year ended October 31, 2003.
CONCENTRATIONS OF CREDIT RISK - Financial assets that potentially subject the
Company to significant concentration of credit risk consist primarily of trade
F-6
accounts receivable. To minimize this risk, the Company performs ongoing credit
evaluations of its clients and maintains reserves for potential credit losses,
and historically such losses, in aggregate, have typically not exceeded existing
reserves. The Company does not require collateral from its clients.
CASH AND CASH EQUIVALENTS - For purposes of the statement of cash flows, all
bank accounts and other liquid investments with a maturity of three months or
less are considered cash equivalents. The Company maintains cash balances and
short-term investments at two financial institutions. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation up to
$100,000. As of October 31, 2003, the uninsured portion of these balances held
at financial institutions aggregated to approximately $366,796. We have not
experienced any losses in such accounts and believe we are not exposed to any
significant credit risk on cash and cash equivalents.
INVENTORY - Inventory is stated at the lower of cost or market, determined using
average cost, which approximates FIFO (first-in/first-out) method. Inventory is
composed entirely of computer hardware and software.
SOFTWARE RESEARCH & DEVELOPMENT - SFAS No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed, requires companies
that produce software to capitalize software development costs when
technological feasibility has been established. Company management believes that
technological feasibility is not established until a beta version of the product
exists and that costs incurred during the period from when a beta version is
available until general release are not material and therefore are not
capitalized.
NOTE B - PROPERTY AND EQUIPMENT
Property and equipment at October 31, 2003 consisted of the following:
Office equipment and fixture $ 1,110,564
Less accumulated depreciation and amortization 696,196
------------
Total $ 414,368
============
Included in the above are $712,218 of assets acquired through capital lease
obligations, which are net of accumulated amortization of $392,004 at October
31, 2003.
Depreciation and amortization expense was $214,392 in the year ended October 31,
2003.
NOTE C - RELATED PARTY TRANSACTIONS
During the fiscal year ended October 31, 2002, the Company advanced $101,086 to
its President and majority stockholder. The note receivable was unsecured and
bore interest at 5% and 6.5% for the years ended October 31, 2003 and 2002,
respectively. During the year ended October 31, 2003, the Company wrote off the
amount due.
In December 1999, the Company entered into a three-party lease agreement between
CAH Investments, LLC ("CAH"), wholly owned by the Company's President and
majority stockholder (and spouse), and Southfield Crestone, LLC (50% co-owner of
the leased property), whereby the Company agreed to lease a building for ten
years which was being constructed by Southfield Crestone, LLC and will
eventually be owned entirely by CAH. The Company occupied this
partially-completed building in February 2001; however, due to construction
delays and problems, the Company did not take full occupancy during the year
ended October 31, 2003 and leased the building on a month-to-month basis. The
building was completed subsequent to the year end and the ten year lease
commenced on January 1, 2004.
Related party rent expense, which includes certain building operating expenses
such as property taxes, was $772,829 for the year ended October 31, 2003.
Included in accrued liabilities at October 31, 2003 is approximately $183,875 of
accrued rent to CAH and $134,494 of accrued rent to Southfield Crestone, LLC. In
addition, security deposits of $170,244 relating to this lease are included in
total assets at October 31, 2003.
F-7
Upon commencement of the lease on January 1, 2004, the Company leases the
building for $71,015 per month under a non-cancellable agreement which expires
in December 2013 and contains a five-year renewal option. The minimum annual
rent for this facility is as follows:
YEAR ENDING OCTOBER 31:
2004 $ 739,525
2005 750,260
2006 772,829
2007 795,908
2008 819,793
Thereafter 4,643,428
-----------
$8,521,743
===========
NOTE D - STOCK SUBSCRIPTION RECEIVABLES
In March 2002, the President of the Company exercised 3,172,760 of stock options
with an exercise price of $0.04 per share, in exchange for a $126,911 stock
subscription receivable. The stock subscription receivable was classified in
stockholders' equity at October 31, 2002. The stock subscription receivable was
forgiven and written off in the fiscal year ended October 31, 2003.
During 2001, several officers of the Company exercised their stock options with
an exercise price of $0.04 per share, in exchange for stock subscription
receivables for a total of $22,360.
The stock subscription receivables have been classified as a reduction in
stockholders' equity at October 31, 2003.
NOTE E - INCOME TAXES
The net deferred tax asset in the accompanying balance sheet includes the
following components at October 31, 2003:
Deferred tax assets
Research and development tax credits $ 563,395
Deferred income 456,506
Accrued expenses and other 85,702
Net Operating loss carryforward 241,881
Accumulated depreciation 40,576
------------
$ 1,388,060
============
Deferred tax liabilities
State tax credit (29,187)
------------
Net deferred tax asset before valuation
Allowance 1,358,873
Valuation allowance (1,358,873)
------------
Net deferred tax asset $ --
============
No income tax expense was incurred during the year due to the net operating loss
at October 31, 2003 being incurred.
At October 31, 2003, the Company had federal net operating loss carryforwarrds
of approximately $664,273 which will begin expiring in 2022.
The Company also had federal research and development credit carryforwards of
approximately $563,395 which are scheduled to expire, if not utilized, during
the period from 2009 to 2022.
NOTE F - EMPLOYEE RETIREMENT SAVINGS PLAN
The Company has a 401(k) employee retirement plan under which eligible employees
may contribute up to 15% of their annual compensation up to a limitation of
F-8
$12,000 in 2003. The Company provides a 10% match up to 6% of employee
compensation on employee contributions. The Company contributions vest to the
employee over a five-year period. The Company also pays for the third-party
administration costs of the 401(k) plan. The Company recorded total
contributions and administrative fee expenses to the 401(k) plan of $9,922 for
the year ended October 31, 2003.
NOTE G - LINE OF CREDIT
As of October 31, 2003, the Company had a $500,000 revolving line of credit with
a bank which required monthly interest payments at prime plus 2(degree)/o, (6%
as of October 31, 2003) with the unpaid balance of principal and interest due in
December 2003. Borrowings are limited to eligible accounts receivable and
inventory, are collateralized by substantially all of the Company's assets, and
are guaranteed by the Company's President and majority stockholder, and CAH. At
October 31, 2003, the Company had $0 balance outstanding under the revolving
line of credit agreement and $500,000 was available under the borrowing base
limitations. The line required a quick ratio of at least 2 to 1 through May 31,
2003 and 1.6 to 1 beginning June 1, 2003. The line also required the Company to
attain a minimum profit before taxes of $100,000 on a rolling three-month basis.
If the Company meets the 1.6 to 1 quick ratio requirement beginning June 1,
2003, the interest rate on the line decreases to prime plus 1.25%; however, any
event of default can result in the interest rate increasing to 5% above the rate
in effect. As of October 31, 2003, the Company was in technical default of the
quick ratio and minimum profit covenants under the agreement in addition to
several other non-financial covenants.
NOTE H - CAPITAL LEASES
The Company leases certain office equipment and fixtures under capital leases
expiring from November 2004 through November 2006. The capital leases bear
interest at rates between 7% and 11% per annum and monthly lease payments range
between $695 to $8,185.
The future minimum lease payments under capital lease obligations, together with
the present value of the net minimum lease payments at October 31, 2003 were as
follows:
Year ending October 31,
----------------------------------
2004 $ 177,269
2005 161,220
2006 9,158
----------
Total minimum least payments 347,647
Less amount representing interest 25,341
----------
Present value of net minimum lease payments $ 322,306
==========
Current maturities $ 158,345
Non-current portion 163,961
----------
$ 322,306
==========
NOTE I - CONTINGENCIES
In September 2003, the Company engaged an investment-banking firm to act as its
agent in transactions involving the sale of the Company. The investment-banker's
fees were contingent upon a successful offering and were based on 3% of the
total value of the transaction. On January 30, 2004, Island Pacific, Inc.
("Island Pacific") completed the acquisition of the Company through a merger
transaction for a total consideration of $7.0 million, consisting of $2.0
million in cash and 2.5 million shares of Island Pacific's common stock valued
at $2.00 per share. Upon the consummation of this transaction, Lawrence Page and
Dave Joseph became executive officers of Island Pacific. Mr. Page received a
total consideration of $1.4 million and 1,755,784 shares of Island Pacific's
common stock in connection with the acquisition. Mr. Joseph received a total
consideration of $200,000 and 249,649 shares of Island Pacific's common stock in
connection with the acquisition. The balance of $395,755 and 494,526 shares of
common stock were paid to the remaining stockholders of Page Digital. Island
Pacific also entered two year employment agreements with both Mr. Page and Mr.
Joseph, and a two year non-competition agreement with Mr. Page. In connection
with this transaction and under the terms of the investment banking agreement, a
fee of $210,000 has been included in accrued expenses at October 31, 2003.
F-9
On April 29, 1999, the Company entered into an Anti-Dilution Agreement with the
Company's President. Pursuant to the Agreement, upon the issuance of any common
stock, or securities that could be converted to or exercised for common stock,
the President would be granted options to purchase the number of shares of
common stock to maintain his fully diluted ownership interest in the Company at
a minimum of 60%. In connection with the merger with Island Pacific on January
30, 2004, this agreement was terminated.
NOTE J - STOCK OPTION PLAN
On January 15, 1995, the Company adopted the 1995 Page Digital Incorporated
Stock Plan (the Plan), which provides for the granting of stock options to
employees, directors and consultants of the Company. Options granted under the
Plan may be either incentive stock options ("ISOs") or nonqualified stock
options ("NSOs"). ISOs may be granted only to employees (including officers and
directors who are also employees) of the Company. NSOs may be granted to
employees and consultants of the Company. No options were issued under this plan
during the year ended October 31, 2003.
On March 24, 2000, the Company amended the Plan and under the new terms,
6,000,000 shares of the Company's Class A voting common stock was authorized for
future grants to employees and consultants. As of October 31, 2003, there were
1,064,600 shares reserved for future issuance under the Plan. All ISOs granted
have ten-year terms and vest and become fully exercisable at the end of five
years of continued employment.
A summary of activity for the Company's option plan at October 31, 2003 is as
follows:
Weighted-
Number Average
of Options Exercise Price
----------- --------------
Balance, November 1, 2001 3,934,660 $0.05
Granted 11,000 0.30
Exercised (3,247,560) 0.04
Forfeited (49,500) 0.04
----------- --------------
Balance, October 30, 2002 648,600 0.09
Exercised (187,000) 0.05
Forfeited (115,500) 0.04
----------- --------------
Balance, October 31, 2003 346,100 $0.10
=========== ==============
Of those options outstanding at October 31, 2003, 148,830 are fully vested and
currently exercisable at an average exercise price of $0.10 per share,
respectively. Outstanding options have a weighted-average remaining contractual
life of approximately 5.65 years.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related interpretations
in accounting for its employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Although the Company accounts for its stock compensation arrangements under the
provisions of APB 25, and intends to continue to do so, pro forma information
regarding net income (loss) is required by SFAS No. 123, ACCOUNTING AND
DISCLOSURE OF STOCK-BASED COMPENSATION ("SFAS 123"), and has been determined as
if the Company had accounted for its employee stock options under the fair value
method. The fair value for these options was estimated at the date of grant
using the minimum value method available to nonpublic companies. Under this
method, option value is determined as the excess of the fair value of the stock
at the date of grant over the present value of both the exercise price lump sum)
and the expected dividend yields (0%), each discounted at the risk-free rate
1.3% for 2003, over the expected exercise life (5 years) of the option, with no
volatility.
F-10
The Company's pro forma net loss under SFAS 123 for the years ended October 31,
is as follows:
Net loss $(1,055,315)
Stock-based employee compensation expense,
net of related tax effects (12,149)
------------
Pro forma net loss $(1,067,464)
============
At January 30, 2004, there are no options outstanding in the Plan. Upon
completion of the merger with Island Pacific, the plan was terminated effective
January 30, 2004.
NOTE K - WARRANT TO PURCHASE COMMON STOCK
During 2000, and pursuant to the engagement of an outside investment banker to
perform an exclusive private placement of equity and/or debt securities on a
best efforts basis, the Company granted a warrant to purchase 25,000 shares of
Class A Voting Common Stock ("Warrant") as partial compensation for these
services. The Warrant provides for the purchase of the Company's common stock at
$10 per share and expires in September 2005. At October 31, 2003, none of these
warrants have been exercised. These warrants were canceled effective at January
30, 2004 in conjunction with the merger with Island Pacific.
NOTE L - MAJOR CUSTOMERS
The Company had sales to two customers of approximately $946,686 and $576,000,
respectively, for the year ended October 31, 2003, accounting for approximately
16% and 10% of total sales. The related account receivable balances as of
October 31, 2003 were $31,809 and $75,000, respectively.
F-11
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ISLAND PACIFIC, INC. AND SUBSIDIARIES
INTRODUCTION TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
On January 30, 2004, Island Pacific, Inc. (the "Company") acquired Page Digital
Incorporated ("Page Digital"), a developer of multi-channel commerce software,
through a merger transaction for a total consideration of $7.0 million,
consisting of $2.0 million in cash and 2,500,000 shares of the Company's common
shares valued at $2.00 per share. Upon the consummation of this transaction,
Lawrence Page and Dave Joseph became executive officers of the Company. Mr. Page
received a total consideration of $1,404,630 and 1,755,784 shares of the
Company's common stock in connection with the acquisition. Mr. Joseph received a
total consideration of $199,722 and 249,649 shares of the Company's common stock
in connection with the acquisition. The balance of $395,755 and 494,526 shares
of common stock were paid to the remaining shareholders of Page Digital. The
Company also entered two year employment agreements with both Mr. Page and Mr.
Joseph, and a two year non-competition agreement with Mr. Page.
The accompanying unaudited pro forma condensed consolidated balance sheet
includes the consolidated balance sheet of the Company and its subsidiaries as
of December 31, 2003 and the balance sheet of Page Digital as of December 31,
2003. The pro forma condensed consolidated balance sheet uses the purchase
method of accounting and is based on the assumptions set forth in the notes to
the statement.
The accompanying unaudited pro forma condensed consolidated statements of
operations for the nine months ended December 31, 2003 and twelve months ended
March 31, 2003 combine the consolidated operations of the Company and its
subsidiaries with the operations of Page Digital, which assumes the acquisition
of Page Digital occurred on April 1, 2002. The pro forma condensed consolidated
statements of operations use the purchase method of accounting and are based on
the assumptions set forth in the notes to these statements.
The Company is in the process of determining how the purchase price will be
allocated to the net assets acquired and accordingly, the accompanying pro forma
condensed consolidated financial statements represent a preliminary estimate of
the allocation. The actual purchase price allocation may vary significantly.
These pro forma condensed consolidated financial statements are not necessarily
indicative of future operations or the actual results which would have occurred
had the transaction been consummated on the date indicated or that may be
achieved in the future.
The unaudited pro forma condensed consolidated financial statements should be
read in conjunction with the historical consolidated financial statements of the
Company and the notes to such statements included in the Company's Form 10-K/A
for the fiscal year ended March 31, 2003, as well as the historical financial
statements of Page Digital included in this Form 8-K/A.
F-12
Island Pacific, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Balance Sheet (Unaudited)
As of December 31, 2003
(in thousands)
Island Page Pro forma Pro Forma
Pacific Digital Adjustments Notes Consolidated
------------- ------------- ------------- -------------
ASSETS
Current assets
Cash $ 5,131 $ 441 $ -- (A,B) $ 5,572
Accounts receivable, net 5,500 990 -- 6,490
Income tax refund receivable -- 3 -- 3
Advances to employee -- 22 -- 22
Other receivables 113 -- -- 113
Inventories 84 7 -- 91
Current portion of non-compete agreements 748 -- 250 (B) 998
Prepaid expenses and other current assets 965 80 -- 1,045
------------- ------------- ------------- -------------
Total current assets 12,541 1,543 250 14,334
Note receivable 162 -- -- 162
Furniture and equipment, net 367 383 -- 750
Purchase and capitalized software, net 19,854 -- 3,700 (B,C) 23,554
Goodwill on acquisition of subsidiaries, net 14,795 -- 1,445 (B) 16,240
Not-to-compete agreements, net 149 -- 562 (B,D) 711
Security deposit-related party -- 170 -- 170
Other assets 29 6 -- 35
------------- ------------- ------------- -------------
Total assets $ 47,897 $ 2,102 $ 5,957 $ 55,956
============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Convertible note $ 500 $ -- $ -- $ 500
Accounts payable 667 509 -- 1,176
Accrued expenses 2,454 273 -- 2,727
Deferred revenue 3,242 1,657 -- 4,899
Capital lease obligations -- 162 -- 162
Income taxes payable 64 -- -- 64
------------- ------------- ------------- -------------
Total current liabilities 6,927 2,601 -- 9,528
Capital lease obligations, less current maturities -- 136 -- 136
Long-term liabilities 65 -- -- 65
------------- ------------- ------------- -------------
Total liabilities 6,992 2,737 -- 9,729
------------- ------------- ------------- -------------
Stockholders' equity
Preferred stock 14,100 -- -- 14,100
Common stock 5 255 (255)(A,B) 5
Additional paid in capital 66,652 7,000 (A,B) 73,652
Retained earnings (deficit) (39,852) (890) (788)(B,C,D) (41,530)
------------- ------------- ------------- -------------
Total stockholders' equity 40,905 (635) 5,957 46,227
------------- ------------- ------------- -------------
Total liabilities and stockholders' equity $ 47,897 $ 2,102 $ 5,957 $ 55,956
============= ============= ============= =============
PRO FORMA ADJUSTMENTS:
(A) Sold 1,290,323 shares of common stock of Island Pacific
at $1.55 for cash portion of purchase price:
Common stock --
APIC $ (2,000)
Cash 2,000
(B) Payment for acquisition of Page Digital:
Cash (2,000)
Issuance of 2.5 million shares of common stock:
Common stock --
Paid in capital (5,000)
------------
Purchase price $ (7,000)
============
Net assets acquired:
Common stock on Page Digital's books $ 255
Stock subscription receivable --
Page Digital retained earnings at 3/31/03 300
Software (10 years life)- estimate 4,000
Non-compete agreements (4 years life) - estimate:
Current 250 250
Long-term 750 750
-------
1,000
Goodwill - estimate 1,445
------------
$ 7,000
============
(C) Amortization expense of software acquired from Page
Digital using straight line over 10 years life, for
the 9 months ended 12/31/03 $ 300
============
(D) 9 months amortization of non-compete agreements using
straight-line over 4 yrs $ 188
============
F-13
Island Pacific, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Statement of Operation (Unaudited)
For the Nine months Ended December 31, 2003
(in thousands, except for per share amounts)
Island Pro Forma Pro Forma
Pacific Page Digital Adjustments Notes Consolidated
------------- ------------- ------------- -------------
Net sales $ 17,273 $ 3,212 $ -- $ 20,485
Cost of goods sold 4,139 1,748 -- 5,887
------------- ------------- ------------- -------------
Gross profit 13,134 1,464 -- 14,598
Expenses
Research and development expenses 1,044 574 -- 1,618
Depreciation and amortization 2,688 153 488 (A,B) 3,329
Selling, general and admin. expenses 8,715 1,932 -- 10,647
------------- ------------- ------------- -------------
Total expenses 12,447 2,659 488 15,594
------------- ------------- ------------- -------------
Income (loss) from operations 687 (1,195) (488) (996)
Other income (expense):
Interest income 16 12 -- 28
Other income (expense) (66) 12 -- (54)
Interest expense (521) (19) -- (540)
------------- ------------- ------------- -------------
Total other income (expenses) (571) 5 -- (566)
------------- ------------- ------------- -------------
Income (loss) before income taxes 116 (1,190) (488) (1,562)
Provision for income tax benefits (522) -- -- (522)
------------- ------------- ------------- -------------
Net income (loss) 638 (1,190) (488) (1,040)
Cumulative preferred dividends 738 -- -- 738
------------- ------------- ------------- -------------
Net loss available to common stockholders $ (100) $ (1,190) $ (488) $ (1,778)
============= ============= ============= =============
Earnings per share based on net loss available to common stockholders:
Basic $ (0.00) $ (0.04)
Diluted $ (0.00) $ (0.04)
Shares outstanding:
Basic 38,656 3,790 (C) 42,446
Diluted 38,656 3,790 (C) 42,446
PRO FORMA ADJUSTMENTS:
(A) Amortization of software acquired in connection with the
acquisition of Page Digital (10 years life):
Software - cost $ 4,000
Amortization expenses for 9 months ended 12/31/03 $ 300
(B) Amortization of non-compete agreements acquired in connection
with the acquisition of Page Digital (4 years life):
Cost $ 1,000
Amortization expense for 9 months ended 12/31/03 $ 188
(C) Sold 1,290,323 shares of common stock of Island
Pacific to pay for cash portion of purchase price 1,290
Issued shares of common stock to pay for part
of purchase price 2,500
----------
3,790
==========
F-14
Island Pacific, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Statement of Operations (Unaudited)
For the Year Ended March 31, 2003
(in thousands, except for per share amounts)
Island Pro Forma Pro Forma
Pacific Page Digital Adjustments Notes Consolidated
------------- ------------- ------------- -------------
Net sales $ 22,296 $ 6,453 $ -- $ 28,749
Cost of goods sold 8,045 3,464 11,509
------------- ------------- ------------- -------------
Gross profit 14,251 2,989 -- 17,240
Expenses
Research and development expenses 4,643 1,173 5,816
Depreciation and amortization 4,148 210 650 (A,B) 5,008
Selling, general and admin. expenses 8,072 2,644 -- 10,716
------------- ------------- ------------- -------------
Total expenses 16,863 4,027 650 21,540
------------- ------------- ------------- -------------
Loss from operations (2,612) (1,038) (650) (4,300)
Other income (expense):
Interest income 1 16 -- 17
Other income (expense) 24 (2) -- 22
Interest expense (1,088) (49) -- (1,137)
------------- ------------- ------------- -------------
Total other expenses (1,063) (35) -- (1,098)
------------- ------------- ------------- -------------
Loss before income taxes (3,675) (1,073) (650) (5,398)
Provision for income taxes (benefits) 11 (67) -- (56)
------------- ------------- ------------- -------------
Loss before extraordinary item and change in
accounting principle (3,686) (1,006) (650) (5,342)
Extraordinary item - Gain on Debt Forgiveness 1,476 -- -- 1,476
Cumulative effect of changing accounting
principle -Goodwill valuation under
SFAS142 (627) -- -- (627)
------------- ------------- ------------- -------------
Loss from continuing operations (2,837) (1,006) (650) (4,493)
Income from discontinued operations 119 -- -- 119
------------- ------------- ------------- -------------
Net loss (2,718) (1,006) (650) (4,374)
Cumulative preferred dividends 1,015 -- -- 1,015
------------- ------------- ------------- -------------
Net loss available to common stockholders $ (3,733) $ (1,006) $ (650) $ (5,389)
============= ============= ============= =============
Earnings per share based on net loss available to common stockholders:
Basic $ (0.13) -- -- $ (0.16)
Diluted $ (0.13) -- -- $ (0.16)
Shares outstanding:
Basic 29,599 3,790 (C) 33,389
Diluted 29,599 3,790 (C) 33,389
PRO FORMA ADJUSTMENTS:
(A) Amortization of software acquired in connection with the
acquisition of Page Digital (10 years life):
Software - cost $ 4,000
Amortization expense for 12 months ended 3/31/03 $ 400
(B) Amortization of non-compete agreements acquired in connection
with the acquisition of Page Digital (4 years life):
Cost $ 1,000
Amortization expense for 12 months ended 3/31/03 $ 250
(C) Sold 1,290,323 shares of common stock of Island
Pacific to pay for cash portion of purchase price 1,290
Issued shares of common stock to pay for part
of purchase price 2,500
----------
3,790
==========
F-15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
Island Pacific, Inc.
Date: March 5, 2004 By: /s/ Ran Furman
--------------------------
Name: Ran Furman
Title: Chief Financial Officer