Skip to main content

Retailer-oriented software solutions company


(Nasdaq:RTLX) is being sued by its former partners in POS Restaurant Solutions, in which Retalix held 67%.

Nahum Lipkunsky and Oren Etzyon claim that Retalix violated agreements with them and concealed revenues from the sale of the software developed by the jointly-held company. Lipkunsky and Etzyon are represented by the law offices of Shibolet, Yisraeli, Roberts, and Zisman.

Lipkunsky and Etzyon claim that POS Restaurants Solutions was established based on an agreement signed in 1995 with Retalix, then called Point of Sale. Their stake in the venture was 31%.

POS Restaurants Solutions received software that Lipkunsky and Etzyon had developed, called Positive. They claim that today the software is being sold under the name C-Point.

Lipkunsky and Etzyon claim that the parties agreed that Retalix would receive the exclusive right to market Positive at prices agreed on by the parties. POS Restaurants Solutions would receive 60% of the sales proceeds. Retalix would get the rest as marketing fees.

Positive was a resounding success, they claim, and still contributes a substantial part of Retalix's revenue. But Retalix improperly finangled the books to show that POS was not showing a profit, they claim.

The lawsuit claims that in effect Retalix took over the management of the subsidiary and its books, in utter contradiction to the agreed-on terms. Lipkunsky and Etzyon claim that Retalix failed to book revenues generated by the sale of Positive, and inflated POS's ostensible expenses. They claim that Retalix's manipulations left POS with no apparent earnings and unable to handout the dividends to which they were entitled as partners.

Ultimately, they claim, Retalix concealed revenues estimated at millions of dollars. Moreover, Lipkunsky and Etzyon claim, Retalix repeated the process at other subsidiaries, such as NetPoint and



The claimants are petitioning the court to direct Retalix to give them access to view and copy documents related to POS's financials. They also want the courts to appoint a special investigative auditor to examine the books of both Retalix and POS.

The math

Lipkunsky and Etzyon demonstrate their allegations with figures. Partial examination of the company's reports for 1996 to 1999 show, they allege, that POS products generated sales of $8.47 million at least. Sixty percent of that sum, or $5.08 million, should have been transferred to POS. But Retalix only transferred $2.3 million, they claim. Lipkunsky and Etzyon say these figures are partial and in practice, the sums involved were greater.

The plaintiffs allege that a similar picture is drawn from a report compiled by American analyst William G. Dering of Towbin Unterberg. They say his report shows that convenience stores contributed 20% of Retalix's revenues in 1999, or, $4.97 million. POS's share of that should have been $2.98 million, but Retalix only handed over half a million dollars.

They also say that Retalix's own lawsuit attests to its misconduct. The contract between the parties stipulates that POS should get 60% of the proceeds of software sales. But in August 2000 Retalix sued them and RetailObjects, a company they jointly own with the English company XN, for NIS 3 million. in its suit, Retalix claims they stole trade secrets, breached an agreement and infinged copyrights - but Retalix's claim stipulated that POS's share was 25%, say Lipkunsky and Etzyon.

They also claim that Retalix retroactively amended and shrank revenue items in financial statements of the subsidiary. They claim that without notifying them, Retalix changed methods from accrued value to cash value, thus showing that for 1999, POS had negative revenues of NIS 2.9 million. They also claim that Retalix failed to show them documents pertaining to these calculations, even though it was its bounden duty to do so.

Retalix has yet to file a defense. The company commented that it has not received a copy of the claim and cannot respond at this time.

Restating results

On April 11 Retalix announced that under the generally accepted accounting principles in the United States (GAAP), it will be shifting $2.4 million capital gains previously recorded in the fourth quarter of 2000, to the first quarter of 2001.

It received the proceeds when Coca Cola Israel acquired 33% of

Storealliance Israel

(Hebrew site) for $5 million.

Retalix, which is listed for trade in both the United States and Tel Aviv, publishes two sets of financial results, to accord with the accounting rules of the two markets. The claim filed by Lipkunsky and Etzyon is not connected with the restatement of results.