As filed with the Securities and Exchange Commission on January 10, 2006
An Exhibit List can be found on page II-6.
Registration No. 333-126342
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
----------------------------
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------
IPOINT U.S.A. CORPORATION
(Name of small business issuer in its charter)
Delaware 4899 98-0459403
(State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)
2a Habarzel Street
Tel-Aviv 61132, Israel
+972-3-7657265
(Address and telephone number of principal executive offices
and principal place of business)
Muki Geller, CEO
IPOINT U.S.A. CORP.
2a Habarzel Street
Tel-Aviv 61132, Israel
+972-3-7657265
(Name, address and telephone number of agent for service)
Copies to:
Gregory Sichenzia, Esq.
Stephen M. Fleming, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas, 21st Flr.
New York, New York 10018
(212) 930-9700
(212) 930-9725 (fax)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
Upon this Registration Statement being declared effective.
If any 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, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) 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 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 this Form is a post-effective amendment filed pursuant to Rule 462(d) 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. _________
ii
CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------
Title of each class of Amount to be Proposed Proposed Amount of
securities to be registered(1) maximum maximum registration fee
registered offering aggregate
price per offering price
share(1)
- ----------------------------------------------------------------------------------------------------------------
Common Stock 2,035,200 $0.000033 $67.16 $0.0079
- ----------------------------------------------------------------------------------------------------------------
Total 2,035,200 $67.16 $0.0079*
- ----------------------------------------------------------------------------------------------------------------
*Previously paid
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(2) under the Securities Act of 1933. The shares included
herein are being distributed to the stockholders of Neomedia Technologies, Inc.
No consideration will be received by iPoint U.S.A. Corp. in consideration for
such distribution and there is no market for the shares being distributed.
Accordingly, for purposes of calculating the registration fee, iPoint U.S.A.
Corp. has used $0.000033 per share as the current estimated fair value of the
shares being distributed.
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 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.
iii
Preliminary Prospectus Subject to Completion, Dated January 10, 2006
IPOINT U.S.A. CORP.
2,035,200 SHARES OF
COMMON STOCK
This prospectus relates to the distribution by dividend, or spin-off, to
all of the stockholders of Neomedia Technologies, Inc. ("Neomedia") of 2,035,200
shares of common stock of our company. We are not selling any shares of common
stock in this offering and therefore will not receive any proceeds from this
offering. All costs associated with this registration will be borne by us.
Holders of Neomedia common stock, other than affiliates of Neomedia, will
receive one share of our common stock for every 202 shares of Neomedia common
stock that they hold. Holders of less than 202 shares of Neomedia common stock
will not receive any shares of our common stock. The 2,035,200 shares of common
stock represent 5.0% of the total outstanding shares of our common stock. After
the spin-off, we will be an independent public company.
The distribution of our shares is a taxable transaction to you and,
accordingly, you may be required to pay income tax on the value of our shares of
common stock received by you in connection with this distribution.
Currently, no public market exists for our common stock. We can provide no
assurance that a public market for out securities will develop and ownership of
our securities is likely to be an illiquid investment.
Investing in these securities involves significant risks. See "Risk
Factors" beginning on page 3.
Neither the Securities and 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.
No underwriter or person has been engaged to facilitate the distribution
of the shares of common stock in this offering.
The Securities and Exchange Commission and state securities regulators
have not 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 information in this prospectus is not complete and may be changed. The
dividend, or spin-off shall not occur until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus is not
an offer to buy these securities in any state where the offer or sale is not
permitted.
The date of this prospectus is ________________, 2006.
1
Table of Contents
QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION AND RELATED
MATTERS.......................................................................3
PROSPECTUS SUMMARY............................................................5
REASONS FOR FURNISHING THIS DOCUMENT..........................................7
SUMMARY OF THE DISTRIBUTION...................................................8
RISK FACTORS.................................................................11
USE OF PROCEEDS..............................................................17
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.....................17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS......................................................18
BUSINESS.....................................................................24
MANAGEMENT...................................................................29
EXECUTIVE COMPENSATION.......................................................32
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................33
PRINCIPAL STOCKHOLDERS.......................................................33
DESCRIPTION OF SECURITIES....................................................35
INDEMNIFICATION FOR SECURITIES ACT VIOLATIONS................................35
SELLING STOCKHOLDER..........................................................36
THE DISTRIBUTION.............................................................36
LEGAL MATTERS................................................................41
EXPERTS .....................................................................41
FINANCIAL STATEMENTS........................................................F-1
2
Prospectus Summary
Overview
iPoint is a software company that, through its wholly-owned subsidiary,
develops a video application platform, which serves as a foundation to range of
video based applications developed and provided by iPoint to vertical markets
such as education communities, telecom operators and healthcare providers.
iPoint delivers integrated communications and software solutions for video based
remote teaching, patient virtual visiting using video and video interaction
center solutions for 3G mobile operators. Our operations are conducted through
our wholly-owned subsidiary, iPoint-Media Ltd., an Israeli corporation
("iPoint-Israel"). Nisko Projects Electronics and Communication (1990) Ltd.
("Nisko Projects 1990"), an Israeli corporation, is our majority shareholder.
Several of our officers and directors also serve as officers and directors of
Nisko Projects 1990.
To date, substantially all of our revenue has been derived from one
customer, Deutsche Telecom AG, which cancelled its agreement with us during the
fourth quarter of 2004. In 2005, we received three purchase orders from new
customers in the amount of US $250,000, which we are scheduled to fulfill and
receive payment by March 2006. As a result of recurring losses from operations
and a net deficit in both working capital and stockholders' equity, our
auditors, in their report dated May 20, 2005, have expressed substantial doubt
about our ability to continue as going concern.
Corporate History
In September and October 2004, iPoint-Israel entered into the following
agreements:
o an Investment Agreement and a related registration rights
agreement with each of Neomedia and Cornell Capital Partners,
LP ("Cornell") whereby iPoint-Israel sold 40,704 ordinary
shares to each Neomedia and Cornell for aggregate
consideration of $2,000,000 and required that, iPoint-Israel,
which requirement was assigned to our company, register with
the Securities and Exchange Agreement the issued securities;
o a Standby Distribution Agreement and related registration
rights agreement with Cornell whereby iPoint-Israel may, upon
the effectiveness of the registration statement registering
the shares underlying the Standby Distribution Agreement, at
its discretion, periodically sell to Cornell shares of common
stock for a total purchase price of up to $10,000,000 which
such sale is subject to the listing on the Over the Counter
Bulletin Board or other acceptable market. As we do not have a
registration statement registering the shares underlying the
Standby Distribution Agreement and we are not listed on the
Over the Counter Bulletin Board, Cornell is not obligated to
provide us with further funding at this time; and
o a Business Development Agreement with Neomedia whereby
Neomedia agreed to provide services to iPoint-Israel in
connection with the joint pursuit of select opportunities in
the areas of distributing video, audio and data in
consideration of 28,492 ordinary shares of iPoint-Israel.
On May 24, 2005, we entered into a Share Exchange Agreement with the
shareholders of iPoint-Israel. In consideration for all of the issued and
outstanding capital stock of iPoint-Israel, we issued 40,690,000 shares of
common stock. As a result, iPoint-Israel became our wholly-owned subsidiary
through which we conduct all of our operations. All obligations, rights and
responsibilities under the Investment Agreements and related registration rights
agreements, as amended and modified, Standby Distribution Agreement and the
Business Development Agreement were assigned by iPoint-Israel to iPoint. The
registration rights agreements entered with Neomedia and Cornell require that we
have a registration statement registering the shares of common stock they
purchased filed by September 30, 2005 and declared effective by October 30,
2005. We have not satisfied this obligation and, as a result, are incurring
penalties equal to 2% of the purchase price on a monthly basis or $40,000.
Our principal offices are located at 2a Habarzel Street, Tel-Aviv 61132,
Israel, and our telephone number is +972-3-7657265. Our corporate website is
located both at http://www.ipoint-media.com. Information on our website does not
constitute part of this prospectus. We are a Delaware corporation.
3
- --------------------------------------------------------------------------------
Common stock to be distributed to 2,035,200 shares of common stock.
the stockholders of Neomedia
This number represents 5.0% of our
current outstanding common stock.
- --------------------------------------------------------------------------------
Use of proceeds We will not receive any proceeds from
the sale of the common stock.
- --------------------------------------------------------------------------------
Symbol We are currently not listed on an
exchange and do not have a stock
symbol.
- --------------------------------------------------------------------------------
The above information regarding common stock to be outstanding is based on
40,690,000 shares of common stock outstanding as of December 30, 2005.
4
Summary of the Distribution
Distributing Company
Neomedia Technologies, Inc., a Delaware corporation. In 2004, a consultant
responsible for identifying acquisitions and strategic investments identified
and approached iPoint-Israel. In September 2004, iPoint-Israel entered an
Investment Agreement and a related registration rights agreement with Neomedia
whereby iPoint-Israel sold 40,704 ordinary shares to Neomedia for aggregate
consideration of $1,000,000 and required that iPoint-Israel, which requirement
was assigned to our company, register with the Securities and Exchange Agreement
the issued securities. In addition, iPoint-Israel also entered into a Business
Development Agreement with Neomedia whereby Neomedia agreed to provide services
to iPoint-Israel in connection with the joint pursuit of select opportunities in
the areas of distributing video, audio and data in consideration of 28,492
ordinary shares of iPoint-Israel. On May 24, 2005, we entered into a Share
Exchange Agreement with the shareholders of iPoint-Israel. In consideration for
all of the issued and outstanding capital stock of iPoint-Israel, we issued
40,690,000 shares of common stock. Accordingly, Neomedia exchanged its ordinary
shares in iPoint-Israel for 6,919,600 shares of our common stock and intends to
dividend to its shareholders 2,035,200 shares of common stock of iPoint.
Neoemedia will only be able to resell the remaining shares it will hold after
the dividend pursuant to Rule 144 or an effective registration statement. When
such shares are available for sale, Neomedia has advised that it will evaluate
our business prospects, its own cash requirements and the risks related to the
sale or the holding of the shares, in order to determine whether it will sell or
retain such shares. As these facts may not be determined at this time, Neomedia
is unable to determine what its or iPoint's position will be when such shares
are available for sale.
Distributed Company
iPoint U.S.A. Corp., a Delaware corporation. As used in this prospectus, the
term iPoint, we, our, us, and similar terms means iPoint U.S.A. Corp., as of the
relevant date, unless the context otherwise requires.
IPoint Shares to be Distributed
Neomedia will distribute to Neomedia stockholders an aggregate of 2,035,200
shares of Common Stock of iPoint.
Record Date
If you own Neomedia shares at the close of business on November 17, 2004 (the
"Record Date"), then you will receive iPoint Shares in the Distribution.
Distribution Date
We currently anticipate that the Distribution will occur near the effective date
of the registration statement (the "Distribution Date"). If you are a record
holder of Neomedia stock, instead of physical stock certificates you will
receive from iPoint's transfer agent shortly after the effective date of the
registration statement a statement of your book entry account for the iPoint
shares distributed to you. If you are not a record holder of Neomedia stock
because such shares are held on your behalf by your stockbroker or other
nominee, your iPoint Shares should be credited to your account with your
stockbroker or other nominee after the effective date of the registration
statement. Following the Distribution, you may request physical stock
certificates if you wish, and instructions for making that request will be
furnished with your account statement.
Distribution
On the Distribution Date, the distribution agent identified below will begin
distributing certificates representing our Common Stock to Neomedia
stockholders. You will not be required to make any payment or take any other
action to receive your shares of our Common Stock. The distributed shares of our
Common Stock will be freely transferable unless you are one of our affiliates or
you are issued shares in respect of restricted shares of Neomedia common stock.
5
Distribution Ratio
Neomedia will distribute to Neomedia stockholders an aggregate of 2,035,200
shares of Common Stock of iPoint. In the Distribution, for every 202 shares of
common stock of Neomedia that you own as of November 17, 2004, you will receive
one share of common stock of iPoint.
Distribution Agent Worldwide Stock Transfer, LLC
885 Queen Anne Rd
Teaneck, New Jersey 07666
Phone: 201-357-4809
Fax: 201-836-6461
Transfer Agent and Registrar Worldwide Stock Transfer, LLC
for the iPoint Shares 885 Queen Anne Rd
Teaneck, New Jersey 07666
Phone: 201-357-4809
Fax: 201-836-6461
Fractional Shares of our Common Stock
Neomedia will not distribute any fractional shares of iPoint common stock. In
lieu of distributing a fraction of a share of our Common Stock to any Neomedia
stockholder, fractional shares will be rounded up to the next higher whole
number of shares.
Trading Market
We anticipate that our common stock will be traded on the Over The Counter
Bulletin Board. We expect that a market maker will apply for quotation on the
Over the Counter Bulletin Board on our behalf prior to the Distribution. No
public trading market for our common stock currently exists. However, a trading
market for the entitlement to receive shares of our common stock in the
Distribution, referred to as a when-issued market, may develop on or after the
record date for the Distribution.
Dividend Policy
Neomedia has not paid dividends in the past, and we anticipate that immediately
following the Distribution, neither iPoint nor Neomedia will pay cash dividends.
However, no formal action has been taken with respect to future dividends, and
the declaration and payment of dividends by iPoint and Neomedia will be at the
sole discretion of their respective boards of directors.
Risk Factors
The distribution and ownership of our common stock involve various risks. You
should read carefully the factors discussed under Risk Factors beginning on page
11. Several of the most significant risks of the Distribution include:
o The Distribution may cause the trading price of Neomedia Common
Stock to decline.
o Substantial sales of iPoint Shares may have an adverse impact on the
trading price of the iPoint common stock.
o There has not been a prior trading market for iPoint Shares and a
trading market for the iPoint Shares may not develop.
o The Distribution of iPoint Shares may result in substantial tax
liability.
6
Federal Income Tax Consequences
Neomedia and iPoint do not intend for the Distribution to be tax-free for U.S.
federal income tax purposes. You may be required to pay income tax on the value
of your shares of iPoint common stock received as a dividend. We expect that the
dividend will be taxed as ordinary income to the extent of the value of the
shares you receive. You are advised to consult your own tax advisor as to the
specific tax consequences of the Distribution.
Our Relationship with Neomedia after the Distribution
In October 2004, Neomedia and iPoint-Israel entered into a Business Development
Agreement dated in October 2004 whereby Neomedia is obligated to provide
iPoint-Israel with certain services to enhance the business of iPoint-Israel. As
compensation for the services, iPoint-Israel issued Neomedia 28,492 ordinary
shares or 7% of its issued and outstanding ordinary shares. In addition, also in
October 2004, Neomedia and iPoint-Israel entered into an Investment Agreement
whereby Neomedia purchased 40,704 ordinary shares or 7% of its issued and
outstanding ordinary shares of iPoint-Israel in consideration for $1,000,000.
iPoint subsequently assumed all rights and obligations pursuant to the Business
Development Agreement, the Investment Agreement and the Registration Rights
Agreement entered with Neomedia and, pursuant to the share exchange agreement
entered between iPoint and the shareholders of iPoint-Israel, all the
outstanding ordinary shares and warrants to purchase ordinary shares of
iPoint-Israel were converted into shares of common stock and warrants to
purchase common stock of iPoint. As a result, immediately prior to the
Distribution, Neomedia holds 6,919,600 shares of common stock of iPoint. Upon
completion of the Distribution, Neomedia will retain 4,884,400 shares of
iPoint's issued and outstanding common stock. Upon completion of the
Distribution, Neomedia will continue to provide the services contemplated in the
Business Development Agreement.
Stockholder Inquiries
Any persons having inquiries relating to the distribution should contact the
Shareholder Service department of the distribution agent at 201-357-4809 or
Neomedia at (239) 337-3434.
7
RISK FACTORS
You should carefully consider each of the following risk factors and all
of the other information in this document. The following risks relate
principally to the Distribution and our business.
If any of the following risks and uncertainties develops into actual
events, our business, financial condition or results of operations could be
materially adversely affected. If that happens, the trading prices of our shares
could decline significantly.
The risk factors below contain forward-looking statements regarding the
Distribution and our company. Actual results could differ materially from those
set forth in the forward-looking statements.
Risks Relating to Our Business:
We have a history of incurring net losses; we expect our net losses to continue
as a result of planned increases in operating expenses; and, therefore, we may
never achieve profitability which may cause us to seek additional financing or
to cease operations which would dilute your ownership in our company, result in
a decrease in our stock price and/or result in the entire loss of your
investment.
We have generated limited revenues to date including $43,629 during the nine
months ended September 30, 2005, $514,189 during the year ended December 31,
2004 and $618,103 during the year ended December 31, 2003. We have a history of
operating losses and have incurred significant net losses in each fiscal quarter
since our inception. We had a loss of $1,147,984 for the nine month ended
September 30,2005 and $1,396,653 for the year ended December 31, 2004. We expect
to continue to incur net losses and negative cash flows for the foreseeable
future. In addition, we anticipate losses to continue because we expect to incur
additional costs and expenses related to:
o Competition by large and well established companies, which may
enter our markets;
o The market for our products does not develop or develops
slower then expected;
o Our products may take additional time to develop;
o We are unable to develop substantial sales; and
o We are unable to generate substantial orders.
We will need to generate significant additional revenue to achieve
profitability. Our ability to generate and sustain significant additional
revenues or achieve profitability will depend upon numerous factors outside of
our control, including the market acceptance of our horseshoes and the economy.
It is possible that we may never achieve profitability and, even if we do
achieve profitability, we may not sustain or increase profitability in the
future. If we do not achieve sustained profitability, we may be unable to
continue our operations.
We have a limited operating history, therefore it is difficult to evaluate our
financial performance and prospects.
We are a development stage company and we have only recently commenced
operations in April 2001 through iPoint-Israel, our wholly-owned subsidiary. We
are, therefore, subject to all of the risks inherent in a new business
enterprise. Our limited operating history makes it difficult to evaluate our
financial performance and prospects. We cannot assure you that in the future we
will generate revenues, operate profitably or that we will have adequate working
capital to meet our obligations as they become due. Because of our limited
financial history, we believe that period-to-period comparisons of our results
of operations will not be meaningful in the short term and should not be relied
upon as indicators of future performance.
iPoint has no operating history as a public company and may be unable to operate
profitably.
We do not have an operating history as a public company. We may not be
able to successfully put in place the financial, administrative and managerial
structure necessary to operate as a public company, and the development of such
structure may require a significant amount of management's time and other
resources. Accordingly, if we are not able to implement such structure or if the
implementation of such structure proves to be costly, we may not be able to
enter into future financings available to public companies and management may
not be able to focus on our operations, which may result in a decrease in our
revenues.
8
iPoint shareholders may experience significant dilution if future equity
offering are used to fund operations.
If we obtain working capital by issuing equity securities, such as through
the Standby Equity Distribution Agreement with Cornell Capital Partners, LP, of
which there is no guarantee, our shareholders could experience significant
dilution. In addition, securities issued in connection with future financing
activities may have rights and preferences senior to the rights and preferences
of the iPoint Shares. Further, the conversion of outstanding debt obligations
into equity securities could have a dilutive effect on iPoint shareholders.
Because of our recurring operating losses, stockholders' deficit, working
capital deficit and negative cash flow from operations our auditor has raised
substantial doubt about our ability to continue as a going concern.
We have received a report from our independent auditors on our financial
statements for fiscal years ended December 31, 2004 and 2003, in which our
auditors have included explanatory paragraphs indicating that our recurring net
losses, stockholders' deficit, working capital deficit, and negative cash flow
from operations cause substantial doubt about our ability to continue as a going
concern. By issuing an opinion stating that there is substantial doubt about our
ability to continue as a going concern, our auditors have indicated that they
are uncertain as to whether we have the capability to continue our operations
and, further, in order to avoid ceasing our operations, we must either generate
additional revenue and/or raise additional funding. If our recurring operating
losses, stockholders' deficit, working capital deficit and negative cash flow
from operations continue, our business could be materially adversely affected.
If we do not obtain financing when needed, our business will fail
We have entered into a Standby Equity Distribution Agreement with Cornell
Capital Partners LP. However, we will not be able to obtain funding under such
financing until such time that shares issubale under the Standby Equity
Distribution Agreement are registered with the Securities and Exchange
Commission and our shares are listed on the Over the Counter Bulletin Board. Our
current operating funds will allow us to continue our operations until March
2006. In order for us to further develop our products, we will need to obtain
additional financing. As of September 30, 2005, we had cash and cash equivalents
in the amount of $76,190. In addition, we have an unused line of credit in the
amount of approximately $61,600, which is guaranteed by Nisko Projects 1990.
Such guarantee may be revoked by Nisko Projects 1990. Several of our officers
and directors also serve as officers and directors of Nisko Projects 1990.
Our business plan calls for significant expenses of $130,000 per month in
connection with the development, manufacturing and marketing and additional
expenses of $50,000 in connection with the registration of our securities. We
will also require additional financing if our costs are greater than
anticipated. We will require additional financing to sustain our business
operations if we are not successful in earning revenues once we commence the
marketing of our products. We currently do not have any arrangements for
additional financing and we may not be able to obtain financing when required.
The market for software based interactive video applications and 3G mobile video
applications is in an early stage. The market may develop slower than
anticipated, and large and well established companies may enter the market in
the future. The standards and technology are also evolving which implies that
additional development efforts are required in order to complete the development
and introduce up to date products which are inline with the newest standards.
Nisko Projects 1990, our majority shareholder of our company, also guarantees
our credit line, and, as a result, we are highly dependent upon Nisko Projects
1990 and any termination of our relationship with Nisko Projects 1990 could
result in our ceasing or curtailing our operations.
Historically, we have been dependent upon financing from Nisko Projects 1990,
which is our majority shareholder. Several of our officers and directors also
serve as officers and directors of Nisko Projects 1990. Nisko Projects 1990
guaranteed a credit line for us in the amount of $1,521,000 of which as of
December 30, 2005 we have drawn down approximately $1,153,000. Such guarantee
may be revoked by Nisko Projects 1990. In the event that Nisko Projects 1990
revokes its guarantee, we may be forced to cease or curtail our operations or
seek financing of which we may not be able to obtain on favorable terms or at
all. Further, as a result of our relationship with Nisko Projects 1990,
including its stock ownership in our company and the fact that it serves as a
guarantor of our credit, we are highly dependent upon Nisko Projects 1990 and
the termination of our relationship with Nisko Projects 1990 could result in our
ceasing or curtailing our operations.
9
Several of our officers and directors also serve as officers and directors of
Nisko Projects 1990, our majority shareholder, and, as a result, it may be
difficult to remove or replace current management.
Efi Sagi, Effi Bazia, and Itzhak Nitzan, certain of our executive officers and
directors, serve as executive officers and/or directors for Nisko Projects 1990,
a majority shareholder of our company. Accordingly, if the need should arise, it
may be difficult to remove any of these officers and directors from their
positions and we may be forced to expend considerable expenses to terminate such
parties.
We have historically derived substantially all of our revenue from one client,
which has recently terminated our relationship with us and if we are unable to
generate new sales of offset such loss, we may be forced to cease or curtail our
operations.
In October 2001, we entered into a Memorandum of Understanding (the "MOU") with
Deutsche Telekom ("DT") whereby we agreed to install and setup a server for DT
and provide monthly maintenance for set compensation. The MOU was amended
various times to provide for additional services on our part and increases in
the compensation payable by DT. On April 14, 2003, we entered into an amendment
of the MOU pursuant to which we agreed to install multi port servers in a two
stage project. DT subsequently paid for the first stage of the project but then
cancelled the second stage and ceased all payments to us. During the 12 months
ended December 31, 2003, December 31, 2004 and the nine months ended September
31, 2005, we derived 100%, 96% and 0%, respectively, of our revenues from DT,
which terminated its relationship with our company. After DT terminated its
relationship with our company, we commenced legal action for breach of contract
against it in Germany. DT has filed an answer to our claim asserting that the
MOU was not an agreement and was not signed by an authorized party. In addition,
DT also claims that the hardware and software were defective. We filed a
response to their answer disagreeing with each of their claims. In October 2005,
we entered a settlement agreement with DT pursuant to which DT paid us
approximately $584,000. Although we have generated revenues from new clients, if
we are unable to generate new sales or offset such loss, we may be forced to
cease or curtail our operations.
We have entered into a Business Development Agreement and Investment Agreement
with Neomedia pursuant to which Neomedia agreed to provide our company with
various services and invested $1,000,000 in our company and, our inability to
satisfy all conditions of the Investment Agreement may negatively impact our
Business Development Agreement and, in turn, may result in a decrease in
revenue.
In 2004, a consultant responsible for identifying acquisitions and strategic
investments identified and approached iPoint-Israel. In September 2004,
iPoint-Israel entered an Investment Agreement and a related registration rights
agreement with Neomedia whereby iPoint-Israel sold 40,704 ordinary shares to
Neomedia for aggregate consideration of $1,000,000 and required that
iPoint-Israel, which requirement was assigned to our company, register with the
Securities and Exchange Agreement the issued securities. In addition,
iPoint-Israel also entered into a Business Development Agreement with Neomedia
whereby Neomedia agreed to provide services to iPoint-Israel in connection with
the joint pursuit of select opportunities in the areas of distributing video,
audio and data in consideration of 28,492 ordinary shares of iPoint-Israel. On
May 24, 2005, we entered into a Share Exchange Agreement with the shareholders
of iPoint-Israel. In consideration for all of the issued and outstanding capital
stock of iPoint-Israel, we issued 40,690,000 shares of common stock.
Accordingly, Neomedia exchanged its ordinary shares in iPoint-Israel for
6,919,600 shares of our common stock and intends to dividend to its shareholders
2,035,200 shares of common stock of iPoint. Neoemedia will only be able to
resell the remaining shares it will hold after the dividend pursuant to Rule 144
or an effective registration statement. When such shares are available for sale,
Neomedia has advised that it will evaluate our business prospects, its own cash
requirements and the risks related to the sale or the holding of the shares, in
order to determine whether it will sell or retain such shares. As these facts
may not be determined at this time, Neomedia is unable to determine what its or
iPoint's position will be when such shares are available for sale.
10
We are required to pay penalties as a result of our not having a registration
statement effective with respect to the shares of common stock purchase by
Cornell and Neomedia which will result in the further increase of our losses
from operations if paid.
We were required to file a registration statement registering the shares
purchased by Cornell and Neomedia by September 30, 2005. Moreover, we were
required to have such registration statement declared effective by October 30,
2005. We have failed to satisfy either obligation and, as a result we are
incurring penalties as a result. Penalties are equal to 2% of the purchase
price, which are required to be paid on a monthly basis. As a result, we are
incurring penalties in the aggregate amount of $40,000 per month and our loss
from operations will increase as a result of the payment associated with such
penalties.
Conditions in the Middle East and in Israel may harm our operations resulting in
reduced revenue and an increase in our net losses.
Our principal offices and research and development facilities are located
in Israel. Political, economic and military conditions in Israel directly affect
our operations. Since the establishment of the State of Israel in 1948, a number
of armed conflicts have taken place between Israel and its Arab neighbors, as
well as incidents of civil unrest, military conflicts and terrorist actions.
There has been a significant increase in violence since September 2000, which
has continued with varying levels of severity through to the present. This state
of hostility has caused security and economic problems for Israel. To date, we
do not believe that the political and security situation has had a material
adverse impact on our business but we cannot give you any assurance that this
will continue to be the case. Any hostilities involving Israel or the
interruption or curtailment of trade between Israel and its present trading
partners could adversely affect our operations and could make it more difficult
for us to raise capital.
Our insurance does not cover losses that may occur as a result of events
associated with the security situation in the Middle East. Although the Israeli
government currently covers the reinstatement value of direct damages that are
caused by terrorist attacks or acts of war, we cannot assure you that this
government coverage will be maintained. Any losses or damages incurred by us
could have a material adverse effect on our business. Any armed conflicts or
political instability in the region would likely negatively affect business
conditions and could harm our results of operations.
Further, in the past, the State of Israel and Israeli companies have been
subjected to an economic boycott. Several countries still restrict business with
the State of Israel and with Israeli companies. These restrictive laws and
policies may have an adverse impact on our operating results, financial
condition or the expansion of our business.
Our results of operations may be negatively affected and our revenues reduced by
the obligation of key employees to perform military service.
Some of our key employees are obligated to perform military reserve duty
and are subject to being called to active duty for extended periods of time
under emergency conditions. To date, any calls to active duty have not affected
us materially. However, it is possible that there will be additional call-ups in
the future, which may have a material effect on us. The absence of one or more
of our key employees due to military service could disrupt our operations. Any
disruption in our operations may have an adverse impact on our business.
Our results of operations may be adversely affected and our net losses
exacerbated by inflation and currency fluctuations.
The functional currency for our company is the U.S. dollar as the U.S.
dollar is the primary currency of the economic environment in which we will
operate in the foreseeable future. The majority of our operations are currently
conducted in Israel and most of our Israeli expenses are currently paid in New
Israel Shekels ("NIS"); however, most of these expenses are denominated in U.S.
dollars. Financing activities including equity transaction are made in U.S.
dollars. We generate a substantial portion of our revenues and hold most of our
cash, cash equivalents in Euros. As a result, we are exposed to the risk that
the Euro will be devalued against the U.S. dollar. In addition, we are exposed
to the risk that the rate of inflation in the United States will exceed the rate
of devaluation of the U.S. dollar in relation to the Euro or that the timing of
any devaluation may lag behind inflation in the United States. However, since a
significant portion of our expenses are the cost of our salaries, which we pay
in NIS, we believe that this risk is not significant. If the Euro cost of our
operations in Israel increases, our dollar-measured results of operations will
be adversely affected. Our operations could also be adversely affected if we are
unable to guard against currency fluctuations in the future. To date, our
business has not been materially adversely affected by changes in the Israeli
rate of inflation or by fluctuations in the Euro - U.S. dollar exchange rate. We
do not currently hedge against fluctuations in the Euro - U.S. dollar exchange
rate with financial instruments.
11
It may be difficult to enforce a US judgment against our officers and directors
or to assert US securities law claims in Israel.
Service of process upon our directors and officers and our Israeli
auditors, almost all of whom reside outside the United States, may be difficult
to obtain within the United States. In addition, because substantially all of
our assets and almost all of our directors and officers are located outside the
United States, any judgment obtained in the United States against us or any of
our directors and officers may not be collectible within the United States.
Changes in technology and video application software may make it difficult for
us to adapt and compete with better-funded competitors.
We have developed and are continuing to further develop video application
software. However, technology and video application software is characterized by
rapid technological developments, evolving industry standards, changing customer
demands and frequent introductions of new products, services and enhancements.
Our success depends upon our ability to improve the performance and reliability
of our products in response to both evolving demands of the business and
consumer communities and competitive product offerings. We cannot assure you
that we will be able to do so successfully or that any enhancements or new
products that we introduce will gain acceptance in the marketplace. If we are
not successful or if our products are not accepted, we could lose potential
customers to our competitors.
Risks Relating to the Distribution
The Distribution of iPoint Shares may result in substantial tax liability
You may be required to pay income tax on the value of your shares of iPoint
common stock received in the Distribution as a dividend. The dividend will be
taxed as ordinary income to the extent of the value of the shares you receive.
In addition, you may have to pay taxes on any shares that you receive as a
result of the rounding up of fractional shares. You are advised to consult your
own tax advisor as to the specific tax consequences of the Distribution.
The Distribution may cause the trading price of Neomedia common stock to decline
Following the Distribution, Neomedia expects that its common stock will continue
to be listed and traded on the Over The Counter Bulletin Board under the symbol
NEOM. A trading market may not develop for the iPoint Shares. As a result of the
Distribution, the trading price of Neomedia common stock immediately following
the Distribution may be lower than the trading price of Neomedia common stock
immediately prior to the Distribution.
Further, the combined trading prices of Neomedia common stock and the iPoint
Shares after the Distribution may be less than the trading price of Neomedia
common stock immediately prior to the Distribution.
Substantial sale of iPoint shares may have an adverse impact on the trading
price of the iPoint common stock
Based on the number of shares of Neomedia common stock anticipated to be
outstanding on the record date, Neomedia will distribute to Neomedia
stockholders a total of approximately 2,035,200 iPoint shares. Under the United
States federal securities laws, substantially all of these shares may be resold
immediately in the public market, except for (1) iPoint Shares held by
affiliates of iPoint or (2) shares which are issued in respect of restricted
shares of Neomedia common stock. iPoint cannot predict whether stockholders will
resell large numbers of iPoint Shares in the public market following the
Distribution or how quickly they may resell these iPoint Shares. In addition,
iPoint anticipates issuing significant numbers of shares of common stock to
Cornell Capital Partners, L.P. under the terms of a standby equity distribution
agreement for a maximum of $10,000,000, which shares we are required to register
under the United States federal securities laws. We may only utilize the standby
equity distribution agreement in the event that we have registered shares of
common stock in connection with the standby equity distribution agreement and we
are listed on the Over the Counter Bulletin Board or other acceptable trading
platform. As of the date hereof, we have not satisfied either of these
conditions and, therefore, this financing is not available. In addition, we are
required to register 4,070,400 shares that have been issued to Cornell Capital
Partners, L.P. pursuant to the Investment Agreement entered in October 2004 and
4,884,400 shares that have been issued to Neomedia pursuant to the Investment
Agreement and Business Development Agreement entered in September 2004, which
were subsequently assigned to our company by iPoint-Israel in May 2005. If
iPoint stockholders sell large numbers of iPoint Shares over a short period of
time, or if investors anticipate large sales of iPoint Shares over a short
period of time, this could adversely affect the trading price of the iPoint
Shares.
12
Holders of less than 202 shares of Neomedia shares of common stock will no
longer hold any interest in the assets that Neomedia will transfer as a result
of the distribution
If you own less than 202 shares of Neomedia common stock, you will not receive
any of our shares of common stock in the Distribution.
Risks Relating to Our Common Stock:
There has not been any prior trading market for the iPoint Shares and a trading
market for the iPoint Shares may not develop
There is no current trading market for the iPoint Shares, although a
when-issued trading market may develop prior to completion of the Distribution.
We anticipate that the iPoint Shares will be listed on the Over The Counter
Bulletin Board.
iPoint Shares may not be actively traded or the prices at which the iPoint
Shares will trade may be low. Until the iPoint Shares are fully distributed and
an orderly market develops, the prices at which the iPoint Shares trade may
fluctuate significantly and may be lower than the price that would be expected
for a fully distributed issue. Prices for iPoint Shares will be determined in
the marketplace and may be influenced by many factors, including the depth and
liquidity of the market for the shares, iPoint's results of operations, what
investors think of iPoint and general economic and market conditions. Some of
the Neomedia stockholders who receive shares of our common stock may decide that
they do not want shares in a company engaged in our business, and may sell their
shares of common stock following the Distribution. This may delay the
development of an orderly trading market in our shares of common stock for a
period of time following the Distribution. Until an orderly market develops, the
prices at which our shares of common stock trade may fluctuate significantly and
may be lower than the price that would be expected with a fully developed
market. Market fluctuations could have a material adverse impact on the trading
price of the iPoint Shares.
Our Common Stock is Subject to the "Penny Stock" Rules of the SEC and the
Trading Market in Our Securities is Limited, Which Makes Transactions in Our
Stock Cumbersome and May Reduce the Value of an Investment in Our Stock.
The Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require:
o that a broker or dealer approve a person's account for transactions
in penny stocks; and
o the broker or dealer receive from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the
broker or dealer must:
o obtain financial information and investment experience objectives of
the person; and
13
o make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the
suitability determination; and
o that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities
subject to the "penny stock" rules. This may make it more difficult for
investors to dispose of our common stock and cause a decline in the market value
of our stock.
Disclosure also has to be made about the risks of investing in penny
stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
14
Questions and Answers About the Distribution and Related Matters
The following section answers various questions that you may have about the pro
rata distribution to Neomedia stockholders of 2,035,200 shares of iPoint common
stock owned by Neomedia. We refer to this distribution in this document as the
"Distribution."
Q1: What is the Distribution?
A: The Distribution is the method by which Neomedia will distribute a
significant portion of the shares held by it in iPoint resulting in iPoint
becoming a publicly-held company. According to the terms of the Distribution,
Neomedia will distribute to its stockholders, as of the close of business on
November 17, 2004, in a dividend, shares of iPoint. In the Distribution, for
every 202 shares of common stock of Neomedia that you own as of November 17,
2004, you will receive one share of common stock of iPoint. After the
distribution Neomedia will continue to own 4,884,400 shares (12%) and the
shareholders of Neomedia will own 2,035,200 (5%) of the issued and outstanding
common stock of iPoint.
Neomedia will distribute the iPoint shares by book entry. If you are a record
holder of Neomedia stock, instead of physical stock certificates, you will
receive from iPoint's transfer agent shortly after the effective date of the
registration statement, a statement of your book entry account for the iPoint
shares distributed to you. Following the Distribution, you may request physical
stock certificates if you wish, and instructions for making that request will be
furnished with your account statement. If you are not a record holder of
Neomedia stock because your shares are held on your behalf by your stockbroker
or other nominee, your iPoint shares should be credited to your account with
your stockbroker or nominee after the effective date of the registration
statement.
Q2: Why is Neomedia effecting the Distribution?
A: Neomedia is effecting the Distribution because it believes that the
Distribution may provide potential value to Neomedia's stockholders that may
exceed the value to such stockholders when holding iPoint shares through
Neomedia.
Q3: What is iPoint?
A: iPoint is a software company that, through its wholly-owned subsidiary,
develops a video application server, which serves as a foundation to range of
video based services to be operated by mobile operators, landline operators and
service providers. These in turn would offer hosted video services to their
customers. To date, most of the installations of iPoint software conducted have
been experimental and did not result in commercial activity. In addition, our
primary customer also terminated its relationship with us in 2004. We have
entered into several agreements in 2005 with telcom companies and content
providers pursuant to which we have received orders. Pursuant to such
agreements, we will receive on a revenue sharing or licensing basis, a fee for
providing our clients with the ability to incorporate our Vitrage technology
into their products.
Q4: What is the tax effect of the Distribution?
A: Dividends and distributions received are taxable as ordinary income for
federal income tax purposes pursuant to the Internal Revenue Code of 1986, as
amended, provided that Neomedia has current or accumulated earnings and profits.
The fair market value of iPoint's shares received in the Distribution will be
established by subsequent trading, if any, that develops with respect to such
shares. However, the Distribution is taxable to Neomedia's shareholders even if
a trading market for the shares never develops.
The foreign, state and local tax consequences of receiving the
Distribution may differ materially from the federal income tax consequences
described above. Shareholders should consult their tax advisor.
Q5: What will Neomedia stockholders receive in the Distribution?
A: In the Distribution, for every 202 shares of common stock of Neomedia that
you own as of November 17, 2004, you will receive one share of common stock of
iPoint. Immediately after the Distribution, Neomedia's stockholders will still
own their shares of Neomedia common stock. Shares of Neomedia common stock will
represent stockholders' interests in the business of Neomedia, and shares of
iPoint common stock that stockholders receive in the Distribution will represent
their interests in the iPoint business.
15
Q6: What happens to Neomedia shares after the Distribution?
A: After the Distribution, shares of Neomedia common stock will continue to
represent ownership of the businesses of Neomedia and will continue to be quoted
under the ticker symbol "NEOM.OB"
Q7: What does a Neomedia stockholder need to do now?
A: Neomedia stockholders do not need to take any action. The approval of the
Neomedia stockholders is not required to effect the Distribution, and Neomedia
is not seeking a proxy from any stockholders. Neomedia stockholders should not
send in their Neomedia share certificates to effect the Distribution. Neomedia
stockholders will automatically receive their shares of iPoint common stock
shortly following the Distribution.
Q8: Where can Neomedia stockholders get more information?
A: Neomedia stockholders with additional questions related to the Distribution
should contact David Dodge, CFO. Neomedia's telephone number is (239) 337-3434.
16
Use of Proceeds
We will not receive proceeds from the distribution of securities in the
Distribution.
Market For Common Equity and Related Stockholder Matters
There is no market for our common stock.
As of December 30, 2005, there were seven holders of record of our common
stock.
We have appointed Worldwide Stock Transfer, LLC, as transfer agent for our
shares of common stock.
Equity Compensation Plan Information
As of December 31, 2004, we have not had any equity compensation plans
outstanding.
17
Management's Discussion and Analysis of
Financial Condition and Plan of Operations
Some of the information in this Form SB-2 contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue," or similar words. You should
read statements that contain these words carefully because they:
o discuss our future expectations;
o contain projections of our future results of operations or of our
financial condition; and
o state other "forward-looking" information.
We believe it is important to communicate our expectations. However, there
may be events in the future that we are not able to accurately predict or over
which we have no control. Our actual results and the timing of certain events
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under "Risk
Factors," "Business" and elsewhere in this prospectus. See "Risk Factors."
Critical Accounting Policies and Estimates
Critical Accounting Policies and Estimates
Use of estimates. The preparation of the financial information in
conformity with generally accepted accounting principles requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, mainly related to
account receivables, inventories, long-lived assets, restructuring charges,
revenues and contingencies. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
Revenues. We generate revenues from license fees for our software products
and from maintenance and support arrangements.
We recognize software license revenue in accordance with Statement of
Position 97-2, "Software Revenue Recognition" ("SOP 97-2"), as amended. Revenue
from license fees is recognized when persuasive evidence of an agreement exists,
delivery of the product has occurred, no significant obligations with regard to
implementation remain, the fee is fixed or determinable, and collectibility is
probable.
Maintenance revenues are deferred and recognized on a straight-line basis
over the term of the maintenance and support agreement.
Where arrangements involve multiple elements, such as maintenance,
installation and training services, we allocate the revenue to each element
based on vendor specific objective evidence ("VSOE") of the relative fair value
of each element in the arrangement. When fair value of an element can not be
determined, revenues from the entire arrangement are deferred until such element
is delivered
Overview
Our financial statements are stated in United States Dollars (US$) and are
prepared in accordance with the Public Company Accounting Oversight Board
(United States).
You should read the following discussion of our financial condition and
results of operations together with the audited financial statements and the
notes to audited financial statements included elsewhere in this filing prepared
in accordance the Public Company Accounting Oversight Board (United States).
This discussion contains forward-looking statements that reflect our plans,
estimates and beliefs. Our actual results could differ materially from those
anticipated in these forward-looking statements.
18
Our Business
We develop, through our wholly-owned subsidiary - iPoint Israel, a video
application server, which serves as a foundation to range of video based
services to be operated by mobile operators, landline operators and service
providers. These in turn would offer hosted video services to their customers.
To date, most of the installations of iPoint software conducted have been
experimental and did not result in commercial activity. In addition, our primary
customer also terminated its relationship with us in 2004. We have entered into
several agreements in 2005 with telcom companies and content providers pursuant
to which we have received orders. Pursuant to such agreements, we will receive
on a revenue sharing or licensing basis, a fee for providing our clients with
the ability to incorporate our Vitrage technology into their products.
We intend to market and sell our products primarily through system
integrators and other indirect sales channels, including value-added resellers,
original equipment manufactures (OEMs), service providers supported by our sales
and sales engineering team.
The market for software based interactive video applications and 3G mobile
video applications is in an early stage. The market may develop slower than
anticipated, and large and well established companies may enter the market. The
standards and technology are also evolving which implies that additional
development efforts are required in order to complete the development and
introduce up to date products which are inline with the newest standards. To
date most of the installations of iPoint software conducted have been
experimental and did not result in commercial activity. As set forth above, we
have entered agreements with telcom companies and content providers.
We devote substantially all of our efforts toward conducting research,
development and marketing of our software. Most of the installations of iPoint
software conducted so far has been experimental and did not result in commercial
activity. Our activities also include raising capital and recruiting personnel.
In the course of these activities, we have sustained operating losses and expect
such losses to continue in the foreseeable future. To date, we have not
generated sufficient revenues to achieve profitable operations or positive cash
flow from operations. At December 31, 2004, we had a working capital deficiency
of $396,458 and an accumulated deficit of $2,916,577. There is no assurance that
profitable operations, if ever achieved, will be sustained on a continuing
basis. During the 12 months ended December 31, 2004 and the nine months ended
September 30, 2005, we derived 96% and 0%, respectively, of our revenues from a
major customer, which terminated its relationship with our company.
Results of Operations - Fiscal Nine Months Ended September 30, 2005 Compared to
the Fiscal Nine Months Ended September 2004
Revenues and Cost of Revenues
Total revenues for the period ended September 30, 2005 decreased by 91.4%
to $43,629 from $506,552 for the period ended September 30, 2004. The decrease
in revenues from sales of software applications and maintenance was due to the
end of the commercial relationship with a major customer of our company. In the
first quarter of 2005 we focused our marketing efforts in new products which are
still in early stage of marketing and did not derive substantial revenues.
The majority of revenues derived during the year ended December 31, 2004
were from a single customer - Deutsche Telekom AG for which we developed custom
video applications. The commercial relationship between Deutsche Telekom AG and
iPoint-Israel ended in 2004. The decrease in revenues was due to cut of the
payments from our main client (Deutsche Telecom)
Cost of revenues for the period ended September 30, 2005 decreased by
37.8% to $19,635 from $31,559 for the period ended September 30, 2004. Gross
profit decreased by 95.0% for the period ended September 30, 2005 to $23,994
from $474,993 for the same period in 2004. The decrease in cost of revenues is
mostly attributable to decrease in revenues.
19
Research and Development
Research and development expenses for the period ended September 30, 2005
increased by 20.4% to $365,566 from $303,743 for period ended September 30,
2004. The increase in research and development expenses was the result of the
employment of additional developers for the developing of new products for the
markets of Education, Healtcare and 3G operators.
Sales and Marketing
Selling and marketing regular expenses for the period ended September 30,
2005 increased by 110.3% to $469,383 from $223,209, for the period ended
September 30, 2004. The increase in sales and marketing expenses is mainly
attributable to establishment of marketing operations in the USA in the amount
of $72,000, increases in labor costs and travel expenses resulting from an
increase in the number of employees.
General and Administrative
General and administrative expenses for the period ended September 30,
2005 increased by 144.2% to $390,682 from $159,996 for the period ended
September 30, 2004. The increase in general and administrative expenses is
primarily attributable to one time expenses of 150,000$ in connection with the
registration of our securities.
Net Loss and Net Loss Per Share
For the period ended September 30, 2005 and 2004, we incurred net loss of
$1,147,984 ($0.0282 per share) and $264,761 ($0.0089 per share), respectively.
The loss in 2005 was partially attributable to decrease in the revenues and
increase in operating expenses.
Results of Operations - Fiscal Year Ended December 31, 2004 Compared to the
Fiscal Year Ended December 31, 2003
Revenues and Cost of Revenues
Total revenues for the year ended December 31, 2004 decreased by 16.8% to
$514,189 from $618,103 for the year ended December 31, 2003. Revenues from sales
of software applications for the year ended December 31, 2004 increased by 19.4%
to $327,581 from $274,258 for the year ended December 31, 2003. Revenues from
sales of maintenance for the year ended December 31, 2004 decreased by 54.3% to
$186,608 compared to $343,845 for the year ended December 31, 2003. The increase
in revenues from sales of software applications was due to the increase in
number of clients in Europe.
The majority of past revenues were from a single client - Deutsche Telekom
AG for which we developed custom video applications. The commercial relationship
between Deutsche Telekom AG and iPoint-Israel ended in 2004. The decrease in
revenues from maintenance was due to cut of the payments from our main
client(Deutsche Telecom).
Cost of revenues for the year ended December 31, 2004 decreased by 35.8%
to $39,875 from $62,082 for the year ended December 31, 2003. The decrease in
cost of revenues is mostly attributable to decrease in installation costs
because of decrease in the number of projects.
Research and Development
Research and development expenses for the year ended December 31, 2004
increased by 4.4% to $402,383 from $385,265 for the year ended December 31,
2003. The increase in research and development expenses was as a result of a
minor increase in labor cost and related expenses.
20
Sales and Marketing
Selling and marketing expenses for the year ended December 31, 2004
increased by 220% to $1,046,593 from $327,012, for the year ended December 31,
2003. The increase in sales and marketing expenses is mostly attributable to a
one time expense of $700,000 in 2004 for business development services agreement
with Neomedia
General and Administrative
General and administrative expenses for the year ended December 31, 2004
increased by 53.4% to $317,841 from $205,066 for the year ended December 31,
2003. The increase in general and administrative expenses is primarily
attributable to an increase in legal and audit expenses and investor relations
expenses..
Net Loss and Net Loss Per Share
For the period ended September 30, 2005 and 2004, we incurred net loss of
$1,147,984 ($0.0282 per share) and $264,761 ($0.0089 per share), respectively.
The loss in 2005 was partially attributable to decrease in the revenues and
increase in operating expenses.
Liquidity and Capital Resources
As of December 31, 2004, total current assets were $978,025 and total
current liabilities were $1,374,483. At December 31, 2004, we had a working
capital deficiency of $396,458 and an accumulated deficit of $2,916,577.
Historically, we financed our operations with bank credit under parent company
guarantee and a combination of stock issuances and private placements and
revenues from product and maintenance sales.
On October, 2004, we completed a $2 million private placement of common
stock with two investors. The private placement consisted of units offered at a
price of $24.57 per unit. Total issuance expenses related to the private
placement amounted to $195,000. In addition, we issued additional shares in
exchange for business development services which would be supplied by one of the
investors.
Our management believes that our ability to continue operating in the next
12 months, requires the receipt of additional funds. We are currently utilizing
approximately $130 to support our operations. We will be able to continue our
operations for approximately 3 months based on our current capital resources.
Nisko Projects 1990 guaranteed a credit line for us in the amount of $1,521,000
of which as of December 30, 2005 we have drawn down approximately $1,153,000
(include cash deposit) and, as a result, we currently have $368,000 available on
such credit line. We intend to utilize the credit line in the event that we
experience a deficiency in cash. . We received purchase orders from new
customers (Comverse, Materna) in amount of approximately 250,000$ as of December
30, 2005 which will be paid during the first quartile of 2006. We expect to
increase our income from new customers and to reach a positive cash flow from
operating activity. Other way, we will be required to raise additional funding
in the amount of $ 1,170,000in order for us to continue our operations for a
period of 12 months. We presently do not have plans or arrangements for the
additional funding. If we do not raise adequate funding, then we will be
required to cease operations. Our credit line guarantee may be revoked by Nisko
Projects 1990. In the event that Nisko Projects 1990 revokes its guarantee, we
may be forced to cease or curtail our operations or seek financing of which we
may not be able to obtain on favorable terms or at all. Further, as a result of
our relationship with Nisko Projects 1990, including its stock ownership in our
company and the fact that it serves as a guarantor of our credit, we are highly
dependent upon Nisko Projects 1990 and the termination of our relationship with
Nisko Projects 1990 could result in our ceasing or curtailing our operations.
Nonetheless, we intend to raise additional funds in order to broaden our
financial strength and liquidity.
Recent Financings
In September and October 2004, iPoint Media Ltd., an Israeli corporation
("iPoint-Israel") and our wholly-owned subsidiary, entered into the following
agreements:
21
o an Investment Agreement and a related registration rights
agreement with each of Neomedia and Cornell Capital Partners,
LP ("Cornell") whereby iPoint-Israel sold 40,704 ordinary
shares to each Neomedia and Cornell for aggregate
consideration of $2,000,000 and required that, iPoint-Israel,
which requirement was assigned to our company, register with
the Securities and Exchange Agreement the issued securities;
o a Standby Distribution Agreement and related registration
rights agreement with Cornell whereby iPoint-Israel may, upon
the effectiveness of the registration statement registering
the shares underlying the Standby Distribution Agreement, at
its discretion, periodically sell to Cornell shares of common
stock for a total purchase price of up to $10,000,000 which
such sale is subject to the listing on the Over the Counter
Bulletin Board or other acceptable market. As we do not have a
registration statement registering the shares underlying the
Standby Distribution Agreement and we are not listed on the
Over the Counter Bulletin Board, Cornell is not obligated at
this time to provide us with further funding at this time; and
o a Business Development Agreement with Neomedia whereby
Neomedia agreed to provide services to iPoint-Israel in
connection with the joint pursuit of select opportunities in
the areas of distributing video, audio and data in
consideration of 28,492 ordinary shares of iPoint-Israel. In
addition, iPoint-Israel agreed to indemnify Neomieda against
any losses arising out of or in connection with any action
instituted by a debt-holder of Neomedia relating to the
distribution of the Ipoint Shares to the shareholders of
Neomedia pursuant to a registered dividend distribution.
On May 24, 2005, we entered into a Share Exchange Agreement with the
shareholders of iPoint-Israel. In consideration for all of the issued and
outstanding capital stock of iPoint-Israel, we issued 40,690,000 shares of
common stock. As a result, iPoint-Israel became our wholly-owned subsidiary
through which we conduct all of our operations. All obligations, rights and
responsibilities under the Investment Agreements and related registration rights
agreements, as amended and modified, Standby Distribution Agreement and the
Business Development Agreement were assigned by iPoint-Israel to iPoint.
In addition, also in May 2005, we entered into amendments of the
registration rights agreements entered with Cornell and Neomedia. Pursuant to
such amendments, the filing date for the registration statement covering the
securities underlying the Investment Agreements entered with Neomedia and
Cornell was set at no later than ten days following the effective date of this
registration statement, but in no event later than September 30, 2005. The
effective date for the registration statement covering the securities underlying
the Investment Agreements entered with Neomedia and Cornell is to be no later
than 60 days following the filing thereof. The registration rights agreements
entered with Neomedia and Cornell require that we have a registration statement
registering the shares of common stock they purchased filed by September 30,
2005 and declared effective by October 30, 2005. We have not satisfied this
obligation and, as a result, are incurring penalties equal to 2% of the purchase
price on a monthly basis or $40,000.
Pursuant to the Standby Equity Distribution Agreement, we may, upon the
effectiveness of the registration statement covering the shares of common stock
underlying the Standby Equity Distribution Agreement and the listing of our
shares of common stock with the Over the Counter Bulletin Board or another
acceptable exchange, at our discretion, periodically sell to Cornell shares of
common stock for a total purchase price of up to $10,000,000. As of the date
hereof, we do not have shares of common stock registered for use in connection
with the Standby Equity Distribution Agreement and we are not listed on an
acceptable trading platform. Accordingly, we are not entitled to sell shares to
Cornell under the Standby Equity Distribution Agreement until such time that a
registration statement registering the shares of common stock under the Standby
Equity Distribution Agreement has been declared effective and we are listed on
an acceptable trading market. For each share of common stock purchased under the
Standby Equity Distribution Agreement, Cornell will pay 98% of the lowest volume
weighted average price of the common stock during the five consecutive trading
days immediately following the notice date. In addition, Cornell will retain 5%
of each advance under the Standby Equity Distribution Agreement. For example,
assuming that the 98% of lowest volume weighted average price of our common
stock during the five consecutive trading days immediately following a notice
date is $.25, if we request an advance in the amount of $200,000, Cornell will
be entitled to the following:
22
o $10,000, which represents the 5% commitment fee; and
o 800,000 shares of our common stock, which is calculated by
dividing $200,000 by $.25.
We are not registering shares of common stock in this offering pertaining
to the Standby Equity Distribution Agreement. Cornell is a private limited
partnership whose business operations are conducted through its general partner,
Yorkville Advisors, LLC. Cornell is restricted from owing in excess of 9.9% of
our outstanding common stock. In the event that Cornell is unable to sell shares
of common stock that it acquires under the Standby Equity Distribution Agreement
and its ownership equals 9.9% of our outstanding common stock, then we will not
be able to draw down money under the Standby Distribution Agreement. As a
result, Cornell would be purchasing shares under the Standby Equity Distribution
Agreement with an intent to sell or distribute its shares to the public. Upon
the listing of our common stock on the Over the Counter Bulletin Board, we will,
subject to certain exceptions and modifications, be required to issue to Cornell
shares of our common stock in an amount equal to $200,000 divided by the greater
of the initial bid price or the closing bid price on the 60th day following our
initial listing of our common stock, as quoted by Bloomberg, LP. In addition, we
engaged Newbridge Securities Corporation, a registered broker-dealer, to advise
us in connection with the Standby Equity Distribution Agreement. For its
services, Newbridge Securities Corporation received $10,000.
The outstanding shares are issued based on a discount to the market rate.
As a result, the lower the stock price around the time Cornell is issued shares,
the greater chance that it receives more shares. This could result in
substantial dilution to the interests of other holders of common stock.
To the extent Cornell sells its common stock, the common stock price may
decrease due to the additional shares in the market. This could allow Cornell to
sell greater amounts of common stock, the sales of which would further depress
the stock price. Further, Cornell may sell shares during the pricing period
which is the five consecutive trading days immediately following the notice
date. The purchase price that Cornell will pay is determined during the pricing
period. As a result, Cornell may sell shares during the pricing period, which
may cause the market price to decrease and, in turn, additional shares to be
issued to Cornell due to a decreased purchase price.
Outlook
We believe that our future success will depend upon our ability to enhance
the development of our existing products and solutions and introduce new
commercially viable products and solutions addressing the demands of the
evolving markets. As part of the product development process, we work closely
with current and potential customers, distribution channels and leaders in our
industry segments to identify market needs and define appropriate product
specifications. Our current anticipated levels of revenue and cash flow are
subject to many uncertainties and cannot be assured. In order to have sufficient
cash to meet our anticipated requirements for the next twelve months, we may be
dependent upon our ability to obtain additional financing. The inability to
generate sufficient cash from operations or to obtain the required additional
funds could require that we cease operations.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements that are reasonably
likely to have a current or future effect on our financial condition, revenues,
results of operations, liquidity or capital expenditures.
23
BUSINESS
Overview
IPoint U.S.A. Corp. ("iPoint") was formed in March 2005 as a Delaware
corporation. In May 2005, we entered into a Share Exchange Agreement whereby we
acquired all of the issued and outstanding ordinary shares of iPoint Media,
Ltd., an Israeli corporation ("iPoint-Israel"). As a result, iPoint-Israel
became our wholly-owned subsidiary. In consideration for all of the issued and
outstanding capital stock of iPoint-Israel, we issued 40,690,000 shares of
common stock. All of our operations with regard to software development are
presently conducted through iPoint-Israel. All obligations, rights and
responsibilities under the Investment Agreements, Registration Rights Agreement,
Standby Distribution Agreement and the Business Development Agreement (including
any amendment thereof) were assigned by iPoint-Israel to iPoint. iPoint-Israel
was founded in April 2001 and is engaged in the business of developing,
marketing and selling of a video application software.
We develop, through our wholly-owned subsidiary - iPoint Israel, a video
application server, which serves as a foundation to range of video based
services to be operated by mobile operators, landline operators and service
providers. These in turn would offer hosted video services to their customers.
To date, most of the installations of iPoint software conducted have been
experimental and did not result in commercial activity. In addition, our primary
customer also terminated its relationship with us in 2004. We have entered into
several agreements in 2005 with telcom companies and content providers pursuant
to which we have received orders. Pursuant to such agreements, we will receive
on a revenue sharing or licensing basis, a fee for providing our clients with
the ability to incorporate our Vitrage technology into their products.
Agreement with Neomedia
In 2004, a consultant responsible for identifying acquisitions and
strategic investments identified and approached iPoint-Israel. In September
2004, iPoint-Israel entered an Investment Agreement and a related registration
rights agreement with Neomedia whereby iPoint-Israel sold 40,704 ordinary shares
to Neomedia for aggregate consideration of $1,000,000 and required that
iPoint-Israel, which requirement was assigned to our company, register with the
Securities and Exchange Agreement the issued securities. In addition,
iPoint-Israel also entered into a Business Development Agreement with Neomedia
whereby Neomedia agreed to provide services to iPoint-Israel in connection with
the joint pursuit of select opportunities in the areas of distributing video,
audio and data in consideration of 28,492 ordinary shares of iPoint-Israel. On
May 24, 2005, we entered into a Share Exchange Agreement with the shareholders
of iPoint-Israel. In consideration for all of the issued and outstanding capital
stock of iPoint-Israel, we issued 40,690,000 shares of common stock.
Accordingly, Neomedia exchanged its ordinary shares in iPoint-Israel for
6,919,600 shares of our common stock and intends to dividend to its shareholders
2,035,200 shares of common stock of iPoint. Neoemedia will only be able to
resell the remaining shares it will hold after the dividend pursuant to Rule 144
or an effective registration statement. When such shares are available for sale,
Neomedia has advised that it will evaluate our business prospects, its own cash
requirements and the risks related to the sale or the holding of the shares, in
order to determine whether it will sell or retain such shares. As these facts
may not be determined at this time, Neomedia is unable to determine what its or
iPoint's position will be when such shares are available for sale.
iPoint is based in Tel Aviv, Israel and NeoMedia is headquartered in Ft.
Myers, FL. As the mobile Web and mobile marketing began to evolve into viable
commercial opportunities, due to salesforce constraints common to growing
companies, NeoMedia spent the bulk of its upfront efforts on US market
development. However, as it became clear that Europe was a market more prepared
to adopt mobile marketing technology, NeoMedia took an indirect approach to
sales in that region by engaging sales agents, and partnering with other
technology leaders in that geography. iPoint was one such partner, who offered
existing relationships with large multi-national system integrators and mobile
device manufacturers such as Siemens, Sony and Ericsson, a
technologically-superior product, and a knowledgeable sales team. At the same
time, iPoint was also looking to take their technology to the US and capitalize
on NeoMedia's relationships with mobile carriers, device manufacturers, and
system integrators that NeoMedia had built.
NeoMedia decided to invest $1 million in iPoint's common stock, and to
team with iPoint to help commercialize one another's technology in their
respective markets. To date, NeoMedia and iPoint management have had several
discussions and meetings to form a strategy as to how the two companies can
combine their strengths in both the US and European market. The strategy is
still a work in progress, and no extensive technical integration has been
performed, but both companies believe as the market and technologies continue to
emerge, they will be able to make a combined offering.
24
Pursuant to the Business Development Agreement, iPoint and Neomedia intend
to pursue the following opportunities,
o NeoMedia and iPoint will jointly pursue select opportunities in the
areas of distributing video, audio and data over an interactive
broadband media access platform;
o NeoMedia would serve as a reseller of iPoint's products and services
in North America on a non-exclusive basis with special focus on the
government (including state and local);
o NeoMedia would seek to introduce iPoint to NeoMedia's other channel
and alliance partners which may have interest in doing business with
iPoint;
o NeoMedia and iPoint will reciprocate contracts to each of the
respective parties' partners and clients for opportunities of
synergy where reseller or finder's fee compensation may apply;
o NeoMedia will make available appropriate resources for market
analysis and tactical evaluations for achieving business goals
surrounding iPoint operations in North America;
o NeoMedia will provide resources in order to market iPoint technology
in strategic industry verticals including government and
telecommunications;
o NeoMedia will contribute sales activities, both conceptual/planning
and direct, for iPoint products including branding and repackaging
initiatives, if desired by iPoint, to further advance distribution
of the iPoint product suite;
o NeoMedia will supply resources to manage accounts and perform post
sale support activities for iPoint-media technology implementations;
and
o NeoMedia will support iPoint's efforts to assist in securing
approvals for iPoint's technology within appropriate government and
industry standards groups.
Industry Background
Video conferencing technology was available from the early nineties. At
the time the technology used ISDN as the communication infrastructure, and was
mainly used in conference room. The technology was too expensive and complicated
to deploy on a large scale. High cost and communication infrastructure which was
not widely available limited the market in terms of potential and growth.
A promising market for video communications is the 3G mobile
communications, with video enabled handsets. 3G mobile operators have invested
significant amount of money in 3G licenses and technology, and are determined to
push the technology forward. The number of 3G video enabled handsets is expected
to grow in the future, and enable more people to use video communications.
iPoint's Strategy
Availability of 3G video enabled handsets allows us to offer a video
application platform which enables mobile operators, landline operator and
service providers to introduce value added and premium services to their
customers. Availability of applications and services helps drive the usage of 3G
video communications and provide new paths for growth and additional revenues.
We believe our developments incorporate multipoint data and rich media
collaboration into an open, standard, scalable and completely software based
client-server architecture.
We believe that the platform being developed by us has been designed to be
cost effective and scalable to address a broad spectrum of organizations -- from
enterprises with only a few people to service providers with millions of
potential users.
25
Ease use has been a cornerstone in the design of our products. The user
interface of our products functions within a familiar, non-intimidating
environment -- the PC browser and 3G handsets.
Our software runs on industry-standard hardware platforms, standard
computer operating systems, including Windows and Linux, and popular network
operating systems. Our products leverage the existing infrastructure of an
enterprise by interoperating with its existing video conferencing platforms.
Additionally, interoperability provided by our Video Interaction Center products
connected to 3G (third generation UMTS network gateways) users allow them to
interact with video desktops of Enterprises simply with their 3G telephones.
Services and Products
Our video access platform allows distributing video, audio and data over
IP networks, and through 3rd party gateways - over 3G circuit switched networks.
The video media distribution is based on conferencing standards, such as H.323,
the industry standard for video over IP communication, and designed to work 3G
handsets, to provide real-time two-way interactive user experience. In this
respect, the platform is fundamentally different from streaming solutions, which
provide one-way video and audio. The platform provides an infrastructure for
video services, and can be customized to develop a wide range of applications.
We develop products and services (most of which are, currently, subject to
ongoing development) for the following markets:
o Telecom - Video Call Center for 3G operators: The 3G Video
interaction Center is a solution for providing a live and
interactive service by an operator or service provider over
video to 3G video enabled handsets. The solution is designed
to be deployed at a 3G operator, and integrate with various
back office systems as required.
o Application service providers, or 3G service providers
(referred to as "aggregators"): these business organizations
host the 3G video application server and host applications for
their customers which would like to focus on service delivery
without the investment in infrastructure
o Content providers and media companies: these organizations
would use the video application platform to enable additional
channels of content delivery, namely video over 3G handsets
Vitrage - video application platform for 3G mobile operators
Vitrage(TM) is a complete suite of applications designed for implementing
video telephony enabled contact and or services centers. Vitrage is used by the
operator to provide services such as customer-operator meeting point, help desk,
support centre, sales centre etc. Designed for a hosting environment, Vitrage
allows the mobile operator to license video contact centre functions to business
organizations which can in turn start video services without the need to invest
a significant amount of money in infrastructure, which is inline with the
CENTREX model.. Vitrage VIC is the Video Interaction Center component of
Vitrage. Vitrage VIC allows the operator to establish a multimedia contact
centre with video enabled customer service representatives. The customer call
flow is completely customizable and includes greeting media clips, putting the
call on queue with overflow rules and skill based routing. The call routing is
controlled by a full featured ACD. The Interaction Center functions are provided
in the context of a "Service Partition" in which the system administrator can
group together customer service representatives with a custom look and feel,
reporting, routing rules and media. Multiple service partitions allow the system
operator to host and sub license capacity to multiple business organizations,
each with its own look and feel. The live agents can be connected behind a
firewall and feature a sophisticated tool to stream pre-recorded content to the
customer while in call. Vitrage VIC provides interfaces to CRM applications for
delivering a complete contact centre solution. A supervisor application is also
included.
Vitrage MiVR. is Multimedia Interactive Video Response is a self service
solution which performs similarly to the familiar (Voice) IVR, with a new
dimension provided by video. Its purpose is to allow the caller to navigate
through menus, pre-recorded content, and finally select the service. Vitrage
MiVR features customizable call flows with pre-built menus and media clips.
26
Vitrage O2M is the Live and Interactive One2many Casting solution of
Vitrage. Vitrage O2M allows a provider to connect multiple subscribers to a
single video and audio feed, ("Presenter") in a "One to Many" mode. Unlike video
streaming Vitrage O2M allows each one of the subscribers to interact with the
presenter or with the rest of the session participants.
Customer Support and Services
We intend to provide support to our reseller channels on a global basis
through our Customer Service and Technical Support Organizations. The support
and service products shall include subscriptions, pursuant to which customers
may receive updates to software products during the subscription period,
typically one year, telephone and on-site support, repair of hardware products,
installation and training.
Marketing and Sales
We intend to market and sell our products primarily through System
Integrators and other indirect sales channels, including value-added resellers,
original equipment manufactures (OEMs), service providers supported by our sales
and sales engineering team. We have Support Engineering team in the Europe
(Netherlands) and Israel. Although real-time rich media communications is still
an emerging technology and sales activities require extensive involvement by its
direct sales force, we will work primarily through partners because of the
reach, access and support infrastructure they provide. We also intend to expand
our business by marketing our products to a variety of additional potential OEM
customers.
Research and Development
We recognize that a strong technical base is essential to our long-term
success, and we have made a substantial investment in research and development.
We intend to continue to make substantial investments in product development and
to participate in the development of industry standards. We monitor changing
customer needs and works closely with our partners, end-user customers and
market research organizations to track changes in the marketplace, including
emerging industry standards. We intend to maintain our product development focus
on software products for the real-time rich media communications market. The
focus of the development efforts will include continued integration with other
infrastructure and desktop products, increased scalability, support of emerging
standards.
Competition
The market for real-time rich media solutions and infrastructure is
competitive. We expect continued growth in the industry and the entrance of new
competitors in the future.
iPoint media product portfolio addresses different market segments, and
therefore the completion needs to be analyzed per market segment.
We currently compete, or expect to compete, directly or indirectly with
the following categories:
o Vitrage VIC - competitors which offer Video enabled interaction
center are NETCENTREX, and COSMOCOM. Vitrage VIC offers a complete
suite which includes also the video endpoints, in a way which is
easier to deploy on a large scale. Vitrage also include an
integrated content repository which provides a complete media
solution to the customer
o Vitrage O2M: competition comes indirectly from streaming solutions.
RADVSION provides media server which can be used to stream
prerecorded content to multiple viewers, but the session is non
interactive - viewers can not interact with the presenter (video
source)
27
Many of our current and potential competitors have longer operating
histories and significantly greater managerial, financial, marketing, technical
and other competitive resources, as well as greater name recognition, than our
company. As a result, these companies may be able to adapt more quickly to new
or emerging technologies and changes in customer requirements and may be able to
devote greater resources to the development, promotion and sale of their
conferencing products and services.
To remain competitive, we must continue to invest in research and
development and sales and marketing. We may not have sufficient resources to
make those investments or may not succeed in making the technological advances
necessary to be competitive. In addition, current and potential competitors have
established or may in the future establish collaborative relationships among
themselves or with third parties, including third parties with which we have a
relationship, to increase the visibility and utility of their products and
services. Accordingly, it is possible that new competitors or alliances may
emerge and rapidly acquire a significant market share, which could have a
material adverse effect on our business, financial condition and results of
operations.
Manufacturing
We currently produce our products at our facility in Tel Aviv, Israel by
transferring images of the software to CD-ROM discs and shipping them directly
to our customers. Some customers also are provided software through electronic
download over the Internet. In the future, it is likely that we will also use
third parties to perform some, or all, of these activities.
Employees
As of December 20, 2005, we employed 13 individuals full-time and 1
consultant. In addition, we employ a number of temporary, contract employees.
Our employees are not represented by a collective bargaining agreement and we
believe our relationships with our employees are good. In addition, there are
several extension orders which apply or might apply to our employees regarding,
life pension, the reduction of the working week to 5 days, and the payments of
recreation pay and transportation allowance.
Legal Proceedings
In October 2001, we entered into a MOU with DT whereby we agreed to supply
a server for DT and provide monthly maintenance for set compensation. The MOU
was amended various times to provide for additional services on our part and
increases in the compensation payable by DT. On April 14, 2003, we entered into
an amendment of the MOU pursuant to which we agreed to install multi port
servers in a two stage project. DT subsequently paid for the first stage of the
project but then cancelled the second stage and ceased all payments to us. On
December 3, 2004, we filed suit in the Landgericht Bonn (chamber of commerce)
against DT for breach of contract. . In October 2005, we entered a settlement
agreement with DT pursuant to which DT paid us approximately $584,000.
We are not a party to any other pending legal proceeding, nor is our
property the subject of a pending legal proceeding, that is not in the ordinary
course of business or otherwise material to the financial condition of our
business. None of our directors, officers or affiliates is involved in a
proceeding adverse to our business or has a material interest adverse to our
business.
28
Management
Executive Officers, Directors and Key Employees
The following table sets forth the names and ages of the members of our
Board of Directors and our executive officers and the positions held by each.
- --------------------------------------------------------------------------------
Name Age Position
- --------------------------------------------------------------------------------
Shmuel Geller 57 Director, Chief Executive Officer, President and
Secretary
- --------------------------------------------------------------------------------
Efi Sagi 49 Director
- --------------------------------------------------------------------------------
Avi Kanetti 47 Director and R&D Manager
- --------------------------------------------------------------------------------
Itzhak Nitzan 66 Director
- --------------------------------------------------------------------------------
Effi Bazia 41 Chief Financial Officer and Treasurer
- --------------------------------------------------------------------------------
Avi Sless 43 Chief Technology Officer
- --------------------------------------------------------------------------------
Officers are elected annually by the Board of Directors (subject to the
terms of any employment agreement), to hold such office until an officer's
successor has been duly appointed and qualified, unless an officer sooner dies,
resigns or is removed by the Board. Some of our directors and executive officers
also serve in various capacities with related companies (subsidiaries, our
owners and such owner's subsidiaries). There are no family relationships among
any of our directors and executive officers.
Background of Executive Officers and Directors
Shmuel Geller, serves as CEO, President, Secretary and a director of our
company. Mr. Geller also serves as the CEO, President, Secretary and a director
of iPoint Israel. From 1995 through 2003, Mr. Geller served as a Director and
the President for Imagine Visual Dialog Ltd ("Imagine"), a subsidiary of Nisko
Projects 1990. Prior to founding Imagine, Mr. Geller was the General Manager and
co-founder of FG & Co. Technology Transfer, a high tech marketing consulting
firm that specialized in the European telecommunications markets.
Efi Sagi, serves as a director in our company and in iPoint Israel. In
addition, currently, and during the past five years, Efi Sagi also served as the
President, CEO and director of Nisko Industries (1992) Ltd. ("Nisko
Industries"), which holds, indirectly, 51.6% of our issued capital. Mr. Sagi
serves as a director and as CEO in Nisko Projects and Electronics (1999) Ltd.
and as a director and/or as executive officer in other various subsidiaries of
Nisko Industries.
Avi Kanetti, a director and the R&D manager in iPoint Israel and a
director in iPoint. Prior to joining our company, Mr. Kanetti served as the Vice
President of R&D for Imagine from 1996 to 2001.
Itzhak Nitzan, is a director in our company and iPoint Israel. In addition
currently, and during the past five years, Itzhak Nitzan also served as a
chairman of the board of Nisko Industries and a director and executive officer
in various companies of the Nisko - Ardan Group.
Effi Bazia, is the CFO and Treasurer of iPoint and iPoint Israel, and also
serves as the CFO of Nisko Industries and various subsidiaries of Nisko
Industries and Director in Arazim Investments Ltd. Prior to 2000, Mr. Bazia was
a partner in an Israeli accounting firm. Since 2000, Mr. Bazia served as the CFO
of Nisko Industries, Nisko Projects 1990 and Nisko High Tech. Mr. Bazia holds a
BA in economics and accounting from Tel-Aviv University.
Avi Sless, is the Chief Technology Officer of iPoint Israel. Prior to
joining our company, Mr. Sless served as the served as the Product Manager for
Imagine and also served as an independent IT consultant. Mr. Sless holds a B.Sc.
and M.Sc. degree in Industrial Engineering and Management from Tel Aviv
University.
Board Composition
At each annual meeting of our stockholders, all of our directors are
elected to serve from the time of election and qualification until the next
annual meeting of stockholders following election. The exact number of directors
is to be determined from time to time by resolution of the board of directors.
29
Corporate Governance and Nominating Committee
The purpose of the Corporate Governance and Nominating Committee is to
ensure that the Board of Directors is properly constituted to meet its fiduciary
obligations to stockholders and our business and that we have and follow
appropriate governance standards. Our Corporate Governance and Nominating
Committee is composed of Efi Sagi and Itzhak Nitzan. Efi Sagi is the Chair of
the committee.
Responsibilities of the Corporate Governance and Nominating Committee
include: evaluating the current composition, organization and governance of the
Board of Directors and its other committees; determining the desired
qualifications, expertise and characteristics for potential directors and
conducting searches for director candidates that have corresponding attributes;
Evaluating, proposing and approving nominees for election to the Board of
Directors, overseeing the Board of Directors' performance evaluation process,
evaluating the participation of members of the Board of Directors in continuing
education activities in accordance with SEC rules. The Corporate Governance and
Nominating Committee in empowered to form and delegate authority to
subcommittees when appropriate, evaluate and recommend termination of service of
individual members of the Board of Directors as appropriate, make regular
written reports to the Board of Directors, review annually our corporate
governance guidelines and make recommendations to the Board of Directors with
respect to any proposed changes and review annually its own performance.
Audit Committee
The Audit Committee is appointed by the Board of Directors in fulfilling
its responsibilities to oversee: (1) the integrity of our financial statements
and disclosure controls; (2) the qualifications and independence of our
independent accountants; (3) the performance of our independent accountants and
internal auditors; and (4) compliance with legal and regulatory requirements.
Efi Sagi and Itzhak Nitzan are the members of our Audit Committee. The Audit
Committee is chaired by Efi Sagi.
The Audit Committee is authorized to retain our independent accountants
and conduct any investigation appropriate to fulfilling its purposes and
responsibilities. It has, at all times, direct access to the independent
accountants and to our executive officers and employees. The Audit Committee
also has the authority and responsibility to engage outside legal, accounting
and other advisors, as it deems appropriate, without first seeking authorization
from the Board.
Compensation Committee
The Compensation Committee is appointed by the Board of Directors to
discharge the responsibilities of the Board relating to compensation of our
executive officers. Efi Sagi and Itzhak Nitzan are the members of our
Compensation Committee. The Chairman of the Compensation Committee is Efi Sagi.
The Compensation Committee, among other duties, establishes our overall
compensation philosophy, reviews management's recommendations for compensation
of all senior officers and approves such compensation, determines any long-term
incentive compensation for our Chief Executive Officer and our President. The
Compensation Committee reviews and recommends for Board or voting shareholder
approval, as appropriate, all incentive compensation plans and equity-based
plans, and approves any awards to our Chief Executive Officer, our President and
other senior officers under any such plan. The Compensation Committee approves
all grants of stock options, determines the terms and conditions of such awards,
carries out the administrative responsibilities given to the committee in such
plans and establishes and periodically reviews policies in the area of
perquisites. In connection with employee benefit plans, the Compensation
Committee approves the adoption or amendment of any deferred compensation plan
or non qualified employee benefit plan, approves the adoption or amendment of
any tax-qualified employee retirement plan, including any 401(k) savings plan or
their related trust agreements, which involves a significant substantive change
in the employee retirement or savings plan benefits and approves the appointment
of the administrators of such plans. The Compensation Committee also approves
contracts or transactions with current and former corporate executives,
exercises the sole authority to retain and terminate any compensation or
benefits consultant or other outside advisor used to assist us in evaluating
director, Chief Executive Officer, President and senior officer compensation,
including the sole authority to approve any such consultant's or advisor's fees
and other terms of the engagement and report regularly to the Board.
30
Employment Agreements
We have entered into the following employment agreements:
o On June 1, 2004, iPoint-Israel entered into an employment
agreement with Avi Kanetti that commenced in March 2001 and
terminates upon 30 days notice. Pursuant to such agreement,
Mr. Kanetti is to provide services to iPoint-Israel as the R&D
Manager. The agreement requires that iPoint-Israel pay Mr.
Kanetti compensation of 24,000 NIS per month.
o On June 1, 2004, iPoint-Israel entered into an employment
agreement with Etay Geller that commenced in March 2001 and
terminates upon 30 days notice. Pursuant to such agreement,
Mr. Geller is to provide services to iPoint-Israel as a
developer. The agreement requires that iPoint-Israel pay Mr.
Geller compensation of 16,000 NIS per month. Etay Geller is
the son of Shmeul Geller, our CEO and a director.
o On June 1, 2004, iPoint-Israel entered into an employment
agreement with Avi Sless that commenced in March 2001 and
terminates upon 30 days notice. Pursuant to such agreement,
Mr. Sless is to provide services to iPoint-Israel as Chief
Technology Officer. The agreement requires that iPoint-Israel
pay Mr. Sless compensation of 24,000 NIS per month.
o In October 2004, iPoint-Israel entered into an employment
agreement with Yosef Daniel that commenced in October 2004 and
terminates upon 30 days notice. Pursuant to such agreement,
Mr. Daniel is to provide services to iPoint-Israel as a Vice
President of Sales. The agreement requires that iPoint-Israel
pay Mr. Daniel compensation of 25,000 NIS per month. In
addition, following our capital raising and the approval of a
general stock option plan, Mr. Daniel shall be entitled to
receive an option to purchase 0.6% of iPoint-Israel's
outstanding stock based on its capital structure prior to the
above financing. In addition, Mr. Daniel is entitled to
receive commissions on sales that he generates.
Compensation of Directors
Our directors are reimbursed for any out-of-pocket expenses incurred by
them for attendance at meetings of the Board of Directors or committees thereof.
Code of Ethics
We have adopted a Code of Ethics and Business Conduct for Officers,
Directors and Employees that applies to all of our officers, directors and
employees.
Executive Compensation
The following table sets forth information concerning the annual and
long-term compensation of our Chief Executive Officer and the named executive
officers, for services as executive officers for the last three fiscal years.
31
Summary Compensation Table
Long-Term
Compensation
------------------------------ ------------
Annual Compensation Awards Payouts
------------------------------------- ------------------------------ ------------
Securities
Other Under- All
Annual Restricted lying Other
Name and Compen- Stock Options/ LTIP Compen-
Principal Position Year Salary ($) Bonus ($) sation ($) Award(s) ($) SARs (#) Payouts ($) sation ($)
- ------------------------- ----------- ------------- ---------- ------------ ----------------- ------------ ------------ -----------
Muki Geller, Chief 2004 $72,000 $36,000 -0- -0- -0- -0- -0-
Executive Officer, 2003 $72,000 $36,000 -0- -0- -0- -0- -0-
President, Secretary 2002 $54,000 $27,000 -0- -0- -0- -0- -0-
And a director
Efi Bazia, Chief 2004 -0- -0- -0- -0- -0- -0- -0-
Financial Officer, 2003 -0- -0- -0- -0- -0- -0- -0-
and Treasurer 2002 -0- -0- -0- -0- -0- -0- -0-
Stock Option Grants in Last Fiscal Year
We did not grant any options during the last fiscal year except for the
commitment to grant options to our Vice President of Sales as described under
the employment agreement section.
Aggregate Option Exercises in Last Fiscal Year
None of the named executive officers exercised options during the year
ended December 31, 2004.
32
Certain Relationships and Related Transactions
Efi Sagi, Effi Bazia, and Itzhak Nitzan, certain of our executive officers
and directors, serve as executive officers and/or directors for Nisko Industries
and its subsidiaries.
We have entered into the following transactions with related companies:
o iPoint Israel leases its current office space from Nisko
Projects 1990 at the rate of approximately $37,000 per year.
The lease expires in December 2007 but may be renewed for an
additional two year period; and
o iPoint Israel entered into a management agreement with Nisko
Projects 1990, whereby iPoint Israel is required to pay Nisko
Projects 1990 a management fee of $8,500 per year (V.A.T
excluded).
o On April 29, 2002, Nisko Projects 1990, a shareholder of our
company, issued an unlimited guarantee in favor of the Mizrahi
Bank, which guarantees the repayment of iPoint Israel's debt
toward the Mizrahi Bank. In a letter dated July 7, 2004,
Projects 1990 informed the bank that such guarantee is limited
to NIS 7,000,000. The said limitation has not been approved by
the bank.
o On June 25, 2001, iPoint-Israel and Imagine signed a Software
License Agreement under which Imagine granted Ipoint-Israel a
royalty free, worldwide, irrevocable license to utilize the
proprietary processes, systems, know-how, designs and software
in connection with a certain program developed by Imagine as
specified in the agreement (the "IP"). As consideration for
such license, Ipoint-Israel issued to Imagine 750 ordinary
shares of Ipoint-Israel, par value NIS 1.00 each. On December
29, 2003, Nisko Projects 1990 acquired all of the assets and
activities of Imagine including the IP. Nisko Projects 1990
subsequently assigned to us the IP for no consideration.
In September and October 2004, iPoint-Israel entered into the following
agreements:
o an Investment Agreement and a related registration rights
agreement with each of Neomedia and Cornell Capital Partners,
LP ("Cornell") whereby iPoint-Israel sold 40,704 ordinary
shares to each Neomedia and Cornell for aggregate
consideration of $2,000,000 and required that, iPoint-Israel,
which requirement was assigned to our company, register with
the Securities and Exchange Agreement the issued securities.
The registration rights agreements entered with Neomedia and
Cornell require that we have a registration statement
registering the shares of common stock they purchased filed by
September 30, 2005 and declared effective by October 30, 2005.
We have not satisfied this obligation and, as a result, are
incurring penalties equal to 2% of the purchase price on a
monthly basis or $40,000;
o a Standby Distribution Agreement and related registration
rights agreement with Cornell whereby iPoint-Israel may, upon
the effectiveness of the registration statement registering
the shares underlying the Standby Distribution Agreement, at
its discretion, periodically sell to Cornell shares of common
stock for a total purchase price of up to $10,000,000 which
such sale is subject to the listing on the Over the Counter
Bulletin Board or other acceptable market. As we do not have a
registration statement registering the shares underlying the
Standby Distribution Agreement and we are not listed on the
Over the Counter Bulletin Board, Cornell is not obligated at
this time to provide us with further funding at this time; and
o a Business Development Agreement with Neomedia whereby
Neomedia agreed to provide services to iPoint-Israel in
connection with the joint pursuit of select opportunities in
the areas of distributing video, audio and data in
consideration of 28,492 ordinary shares of iPoint-Israel.
33
o In addition, iPoint-Israel agreed to indemnify Neomieda
against any losses arising out of or in connection with any
action instituted by a debt-holder of Neomedia relating to the
distribution of the Ipoint Shares to the shareholders of
Neomedia pursuant to a registered dividend distribution.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the beneficial
ownership of our common stock as of December 19, 2005. The information in this
table provides the ownership information for:
o each person known by us to be the beneficial owner of more than 5%
of our Common Stock;
o each of our directors;
o each of our executive officers; and
o our executive officers and directors as a group.
Beneficial ownership has been determined in accordance with the rules and
regulations of the SEC and includes voting or investment power with respect to
the shares. Unless otherwise indicated, the persons named in the table below
have sole voting and investment power with respect to the number of shares
indicated as beneficially owned by them. Common stock beneficially owned and
percentage ownership is based on 40,690,000 shares outstanding on December 19,
2005, and assuming the exercise of any options or warrants or conversion of any
convertible securities held by such person, which are presently exercisable or
will become exercisable within 60 days after December , 2005.
- ----------------------------------------------------------------------------------------------------
Number of Shares Beneficially
Name and Address Owned Percent of Class
- ----------------------------------------------------------------------------------------------------
Muki Geller(1)(2) 6,000,000 14.7%
- ----------------------------------------------------------------------------------------------------
Efi Sagi(1) (2) (5) 21,000,000 51.6%
- ----------------------------------------------------------------------------------------------------
Avi Kanetti(1) (2) 1,200,000 2.9%
- ----------------------------------------------------------------------------------------------------
Itzhak Nitzan(1) (2) (5) 21,000,000 51.6%
- ----------------------------------------------------------------------------------------------------
Effi Bazia(1) (2) 0 0.0%
- ----------------------------------------------------------------------------------------------------
Avi Sless(1) (2) 1,200,000 2.9%
- ----------------------------------------------------------------------------------------------------
Nisko Projects 1990 21,000,000 51.6%
2 A Habarzel St
Tel Aviv 69710 Israel
- ----------------------------------------------------------------------------------------------------
Neomedia Technologies, Inc. (3) 6,919,600 17.0%
2201 Second Street, Suite 402
Fort Myers, Florida 33901
- ----------------------------------------------------------------------------------------------------
Cornell Capital Partners, LP (4) 4,070,400 10.0%
101 Hudson Street, Suite 3606
Jersey City, NJ 07302
- ----------------------------------------------------------------------------------------------------
All officers and directors as a 29,400,000 72.25%
Group (6 people)
- ----------------------------------------------------------------------------------------------------
34
*Less than one percent
(1) Officer and/or director of our company.
(2) Address is c/o IPoint U.S.A. Corp., 2a Habarzel Street, Tel-Aviv
61132, Israel
(3) Neomedia Technologies, Inc. is traded on the Over the Counter Bulletin
Board. As a publicly traded company, NeoMedia's investment decisions are made by
its Board of Directors and those decisions are implemented by Charles Jensen in
his capacity as NeoMedia's President and CEO.
(4) Cornell is the investor under the Standby Equity Distribution
Agreement and a holder of our shares of common stock it purchase pursuant to an
Investment Agreement entered in October 2004. All investment decisions of
Cornell are made by its general partner, Yorkville Advisors, LLC. Mark Angelo,
the managing member of Yorkville Advisors, makes the investment decisions on
behalf of Yorkville Advisors. Mr. Angelo does not have voting control over the
shares beneficially owned by Cornell.
(5) Both Mr. Sagi and Mr. Nitzan are deemed to beneficially own the
21,000,000 shares of common stock held by Nisko Projects 1990, which is a wholly
owned subsidiary of Nisko Industries, due to their ownership interest and their
positions as executive officers and/or directors of Nisko Industries. In
accordance with Rule 13-d as adopted under the Securities Exchange Act of 1934,
as amended, as a result of their positions within Nisko Industries and their
ownership of Nisko Industries, both Mr. Sagi and Mr. Nitzan are deemed to have
dispositive and voting control of our shares of common stock held by Nisko
Industries.
Description of Securities to be Registered
Common Stock
We are authorized to issue up to 300,000,000 shares of common stock,
$.0001 par value per share. As of May 24, 2005, there were 40,690,000 shares of
common stock outstanding. Holders of the common stock are entitled to one vote
per share on all matters to be voted upon by the stockholders. Holders of common
stock are entitled to receive ratably such dividends, if any, as may be declared
by the Board of Directors out of funds legally available therefor. Upon the
liquidation, dissolution, or winding up of our company, the holders of common
stock are entitled to share ratably in all of our assets which are legally
available for distribution after payment of all debts and other liabilities and
liquidation preference of any outstanding common stock. Holders of common stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are validly issued, fully paid and
nonassessable.
We have appointed Worldwide Stock Transfer, LLC, as transfer agent for our
shares of common stock.
Indemnification for Securities Act Liabilities
Our Certificate of Incorporation, as amended, provide to the fullest
extent permitted by Delaware law, that our directors or officers shall not be
personally liable to us or our shareholders for damages for breach of such
director's or officer's fiduciary duty. The effect of this provision of our
Certificate of Incorporation, as amended, is to eliminate our rights and our
shareholders (through shareholders' derivative suits on behalf of our company)
to recover damages against a director or officer for breach of the fiduciary
duty of care as a director or officer (including breaches resulting from
negligent or grossly negligent behavior), except under certain situations
defined by statute. We believe that the indemnification provisions in our
Articles of Incorporation, as amended, are necessary to attract and retain
qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act" or "Securities Act") may be permitted to directors,
officers or persons controlling us pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
35
Selling Stockholder
This prospectus also relates to the Distribution of 2,035,200 shares of
our common stock by Neomedia.
The following table provides certain information concerning the resale of
shares of common stock by the selling stockholder in connection with the
Distribution and assumes that all shares offered by the selling stockholder will
be sold. We will not receive any proceeds from the resale of the common stock by
the selling stockholders.
Shares Beneficially
Owned
After the Offering (2)
-------------------------
Number of Shares
Beneficially Owned Number of Shares Offered
Name Prior to the Offering (1) Pursuant to this Prospectus Number Percent
- -------------------------------- --------------------------- ----------------------------- ----------- -----------
Neomedia Technologies, Inc. (3) 6,919,600 2,035,200 (4) 4,884,400 12.0%
2201 Second Street, Suite 402
Fort Myers, Florida 33901
(1) Represents the number of shares acquired from iPoint in connection with that
certain Investment Agreement entered in September 2004 and Business Development
Agreement in September 2004.
(2) Represents the numbers of shares of iPoint common stock to be held by
Neomedia Technologies, Inc. upon completion of the Distribution.
(3) Neomedia Technologies, Inc. is traded on the Over the Counter Bulletin
Board. Investment authority the shares, and voting power over the shares, is
held by the board of directors of Neomedia and, in the absence of specific board
action, by various executive officers of Neomedia pursuant to the implied
authority of their positions with Neomedia.
(4) Represents shares of iPoint acquired pursuant to the Business Development
Agreement whereby Neomedia acquired 2,849,200 shares of common stock in exchange
for services provided to iPoint.
The Distribution
Introduction
In November 2004, Neomedia's board of directors declared a distribution
payable to the holders of record of outstanding Neomedia common stock at the
close of business of the Record Date. Neomedia will distribute to Neomedia
stockholders an aggregate of 2,035,200 iPoint Shares. Accordingly, the
Distribution will consist of one iPoint Share for approximately every 202 shares
of Neomedia common stock outstanding on the Record Date. We currently anticipate
that the Distribution will be effected near the effective date of the
registration statement. The Distribution Date may change based on the timing of
the effectiveness with the Securities and Exchange Commission of the
registration statement of which this information statement is a part.
Neomedia is the beneficial holder of 4,884,600 shares of iPoint's Common
Stock. As a result of the Distribution, Neomedia will distribute 2,035,200
shares of iPoint Common Stock to Neomedia stockholders. Immediately following
the Distribution, Neomedia will still be the beneficial owner of 4,884,600
shares of iPoint Common Stock. The iPoint Shares will be distributed by book
entry. Instead of stock certificates, each Neomedia stockholder that is a record
holder of Neomedia shares will receive a statement of such stockholder's book
entry account for the iPoint Shares distributed to such stockholder. Account
statements reflecting ownership of the iPoint Shares will be mailed shortly
after the Distribution Date. iPoint Shares should be credited to accounts with
stockbrokers, banks or nominees of Neomedia stockholders that are not record
holders after the effective date of the distribution.
Our executive offices are located at 2a Habarzel Street, Tel-Aviv 61132,
Israel and our telephone number is +972-3-7657265.
36
Reasons For The Distribution
The board of directors and management of Neomedia believe that the
Distribution is in the best interests of Neomedia and Neomedia stockholders.
Neomedia believes that the Distribution will reduce the risk that Neomedia may
be classified as an Investment Company under the Investment Company Act of 1940.
iPoint's board of directors and management believe that the Distribution
will enhance its ability to focus on strategic initiatives and new business
opportunities, improve cost structures and operating efficiencies and design
equity-based compensation programs targeted to its own performance. In addition,
iPoint's board of directors expects that the transition to a public company will
create greater access to capital by allowing the financial community to focus
solely on iPoint, and allow the investment community to measure iPoint's
performance relative to its peers.
The Distribution will give iPoint direct access to the capital markets as
a stand alone company.
Manner Of Effecting The Distribution
The Distribution will be made on the basis of one iPoint Share for
approximately every 202 shares of Neomedia common stock outstanding on the
Record Date. The Distribution Ratio may change depending on the number of
outstanding shares of Neomedia common stock on the Record Date. An aggregate of
2,035,200 iPoint Shares will be distributed to Neomedia stockholders regardless
of the number of shares of Neomedia common stock outstanding as of the Record
Date. The iPoint Shares to be distributed will constitute 5% of the outstanding
iPoint Shares. The iPoint Shares will be fully paid and non-assessable and the
holders thereof will not be entitled to preemptive rights.
Neomedia will use a book entry system to distribute the iPoint Shares in
the Distribution. Following the Distribution, each record holder of Neomedia
stock on the Record Date will receive from the Distribution Agent a statement of
the iPoint Shares credited to the stockholder's account. If you are not a record
holder of Neomedia stock because your shares are held on your behalf by your
stockbroker or other nominee, your iPoint shares should be credited to your
account with your stockbroker or nominee after the effective date of the
registration statement. After the Distribution, stockholders may request stock
certificates from iPoint's transfer agent instead of participating in the book
entry system.
No fractional iPoint Shares will be issued. If you own a fractional share
of Neomedia common stock as of the Record Date or own a number of Neomedia
shares that is not a multiple of 202, you will receive the next lowest whole
number of iPoint Shares in the Distribution, unless you own less than 202
shares, in which case you will not receive any iPoint Shares or any other
consideration.
No Neomedia stockholder will be required to pay any cash or other
consideration for the iPoint Shares received in the Distribution, or to
surrender or exchange Neomedia shares in order to receive iPoint Shares. The
Distribution will not affect the number of, or the rights attaching to,
outstanding Neomedia shares. No vote of Neomedia stockholders is required or
sought in connection with the Distribution, and Neomedia stockholders will have
no appraisal rights in connection with the Distribution.
In order to receive iPoint Shares in the Distribution, Neomedia
stockholders must be stockholders at the close of business on the Record Date.
Results Of The Distribution
After the Distribution, iPoint will be a separate public company.
Immediately after the Distribution, iPoint expects to have approximately 8,513
holders of record of iPoint Shares, and 2,035,200 iPoint Shares in the public
float, regardless of the number of stockholders of record and outstanding
Neomedia shares as of the Record Date. The Distribution will not affect the
number of outstanding Neomedia shares or any rights of Neomedia stockholders.
37
Listing And Trading Of The iPoint Shares
Neither iPoint nor Neomedia makes recommendations on the purchase,
retention or sale of shares of Neomedia common stock or iPoint Shares. You
should consult with your own financial advisors, such as your stockbroker, bank
or tax advisor.
If you do decide to purchase or sell any Neomedia or iPoint shares, you
should make sure your stockbroker, bank or other nominee understands whether you
want to purchase or sell Neomedia common stock or iPoint Shares, or both. The
following information may be helpful in discussions with your stockbroker, bank
or other nominee.
There is not currently a public market for the iPoint Shares, although a
when-issued market may develop prior to completion of the Distribution.
When-issued trading refers to a transaction made conditionally because the
security has been authorized but is not yet issued or available. Even though
when-issued trading may develop, none of these trades would settle prior to the
effective date of the Distribution, and if the Distribution does not occur, all
when-issued trading will be null and void. On the first trading day following
the date of the Distribution, when-issued trading in respect of iPoint Shares
will end and regular-way trading will begin. Regular-way trading refers to
trading after a security has been issued and typically involves a transaction
that settles on the third full business day following the date of a transaction.
We anticipate that the iPoint Shares will trade on the Over-the-Counter Bulletin
Board.
The iPoint Shares distributed to Neomedia stockholders will be freely
transferable, except for (i) iPoint Shares received by persons who may be deemed
to be affiliates of iPoint under the Securities Act of 1933, as amended (the
Securities Act), and (ii) iPoint Shares received by persons who hold restricted
shares of Neomedia common stock. Persons who may be deemed to be affiliates of
iPoint after the Distribution generally include individuals or entities that
control, are controlled by, or are under common control with iPoint and may
include certain directors, officers and significant stockholders of iPoint.
Persons who are affiliates of iPoint will be permitted to sell their iPoint
Shares only pursuant to an effective registration statement under the Securities
Act or an exemption from the registration requirements of the Securities Act,
such as the exemptions afforded by Section 4(1) of the Securities Act and the
provisions of Rule 144 thereunder.
There can be no assurance as to whether the iPoint Shares will be actively
traded or as to the prices at which the iPoint Shares will trade. Some of the
Neomedia stockholders who receive iPoint Shares may decide that they do not want
shares in a company which is in the enterprise software business, and may sell
their iPoint Shares following the Distribution. This may delay the development
of an orderly trading market in the iPoint Shares for a period of time following
the Distribution. Until the iPoint Shares are fully distributed and an orderly
market develops, the prices at which the iPoint Shares trade may fluctuate
significantly and may be lower than the price that would be expected for a fully
distributed issue. Prices for iPoint Shares will be determined in the
marketplace and may be influenced by many factors, including the depth and
liquidity of the market for the shares, iPoint's results of operations, what
investors think of iPoint and its industry, the amount of dividends that iPoint
pays, changes in economic conditions in the industry and general economic and
market conditions.
Following the Distribution, Neomedia's common stock will continue to be
listed and traded on the Over-the-Counter Bulletin Board under the symbol
"NEOM". As a result of the Distribution, the trading price of Neomedia common
stock immediately following the Distribution may be lower than the trading price
of Neomedia common stock immediately prior to the Distribution. Following the
distribution, Neomedia operating assets will consist of its proprietary
technologies that link physical information and objects to the Internet. These
retained businesses represented approximately 100% of Neomedia's consolidated
assets and 100% of Neomedia's consolidated revenues as of and for the year ended
December 31, 2004. The combined trading prices of Neomedia common stock and the
iPoint Shares after the Distribution may be less than the trading prices of
Neomedia common stock immediately prior to the Distribution.
Even though Neomedia is currently a publicly held company, there can be no
assurance as to the prices at which the Neomedia common stock will trade after
the Distribution. Neomedia stockholders may sell their Neomedia common stock
following the Distribution. These and other factors may delay or hinder the
return to an orderly trading market in the Neomedia common stock following the
Distribution. The prices for Neomedia common stock will be determined in the
marketplace and may be influenced by many factors, including the depth and
liquidity of the market for the shares, Neomedia's results of operations, what
investors think of Neomedia and its businesses, changes in economic conditions
in its businesses and general economic and market conditions.
38
In addition, the stock market often experiences significant price
fluctuations that are unrelated to the operating performance of the specific
companies whose stock is traded. Market fluctuations could have a material
adverse impact on the trading price of the iPoint Shares and/or Neomedia common
stock.
Federal Income Tax Consequences of the Distribution
The following discussion summarizes the material U.S. federal income tax
consequences resulting from the Distribution. This discussion is based upon the
U.S. federal income tax laws and regulations now in effect and as currently
interpreted by courts or the Internal Revenue Service and does not take into
account possible changes in such tax laws or such interpretations, any of which
may be applied retroactively.
The following summary is for general information only and may not be
applicable to stockholders who received their shares of Neomedia stock pursuant
to an employee benefit plan or who are not citizens or residents of the United
States or who are otherwise subject to special treatment under the Internal
Revenue Code of 1986, as amended (the "Code"). Each stockholder's individual
circumstances may affect the tax consequences of the Distribution to such
stockholder. In addition, no information is provided with respect to tax
consequences under any applicable foreign, state or local laws. Consequently,
each Neomedia stockholder is advised to consult his/her/its own tax advisor as
to the specific tax consequences of the Distribution and the affect of possible
changes in tax laws.
General
This Distribution does not qualify as a tax-free distribution under
Section 355 of the Code. The corporate-level tax would be based upon the excess
of the fair market value of the iPoint Shares on the Distribution Date, over
Neomedia's adjusted tax basis for such shares on such date. Each Neomedia
stockholder who receives iPoint Shares in the Distribution would generally be
treated as receiving a taxable distribution in an amount equal to the fair
market value of such shares on the Distribution Date, taxed first as a dividend
to the extent of such holder's pro rata share of Neomedia's current and
accumulated earnings and profits (as increased to reflect any Neomedia gain on a
taxable distribution as discussed above), and then as a nontaxable return of
capital to the extent of such holder's tax basis in the shares of Neomedia
stock, with any remaining amount being taxed as capital gain (provided that the
Neomedia shares were held by the stockholder as a capital asset on the
Distribution Date). Stockholders which are corporations may be subject to
additional special provisions dealing with taxable distributions, such as the
dividends received deduction and the extraordinary dividend rules.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE PARTICULAR CONSEQUENCES OF THE
DISTRIBUTION TO YOU, INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX
LAWS.
Reasons For Furnishing This Document
This document is being furnished solely to provide information to Neomedia
stockholders who will receive iPoint Shares in the Distribution. It is not, and
is not to be construed as, an inducement or encouragement to buy or sell any
securities of Neomedia or iPoint. Neither Neomedia nor iPoint will update the
information contained in this document except in the normal course of their
respective public disclosure practices. However, this document will be amended
if there is any material change in the terms of the Distribution.
39
Penny Stock
The Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require:
o that a broker or dealer approve a person's account for transactions
in penny stocks; and
o the broker or dealer receive from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks,
the broker or dealer must
o obtain financial information and investment experience objectives of
the person; and
o make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prescribed by the Commission relating to the
penny stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the
suitability determination; and
o that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny
stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
40
Legal Matters
Sichenzia Ross Friedman Ference LLP, New York, New York will issue an
opinion with respect to the validity of the shares of common stock being offered
hereby.
Experts
The consolidated financial statements of iPoint U.S.A. Corp. at December
31, 2004, and for each of the two years in the period ended December 31, 2004,
appearing in this Registration Statement have been audited by Kost Forer Gabbay
& Kasierer, independent registered public accounting firm, a member of Ernst &
Young Global, as set forth in their report thereon appearing elsewhere herein,
and are included in reliance upon such report given on the authority of such
firm as experts in accounting and auditing.
Available Information
We have filed a registration statement on Form SB-2 under the Securities
Act of 1933, as amended, relating to the shares of common stock being offered by
this prospectus, and reference is made to such registration statement. This
prospectus constitutes the prospectus of IPoint U.S.A. Corp., filed as part of
the registration statement, and it does not contain all information in the
registration statement, as certain portions have been omitted in accordance with
the rules and regulations of the Securities and Exchange Commission.
We are subject to the informational requirements of the Securities
Exchange Act of 1934 which requires us to file reports, proxy statements and
other information with the Securities and Exchange Commission. Such reports,
proxy statements and other information may be inspected at public reference
facilities of the SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington D.C.
20549. Copies of such material can be obtained from the Public Reference Section
of the SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549 at
prescribed rates. Because we file documents electronically with the SEC, you may
also obtain this information by visiting the SEC's Internet website at
http://www.sec.gov or by phone at 1-800-SEC-0330.
41
INDEX TO FINANCIAL STATEMENTS
IPOINT U.S.A. CORP.
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report for the year ended December 31, 2004 F-2
Consolidated Balance Sheets as of September 30, 2005 (unaudited) and
December 31, 2004 (audited) F-3
Consolidated Statement of Operations for the nine months ended
September 30, 2005 and 2004 (unaudited) and the years ended
December 31, 2004 and December 31, 2003 (audited) and the
period from April 3, 2001 (commencement of operations) through
December 31, 2004 (audited) F-4
Statement of Changes in Stockholders' Deficiency F-5
Consolidated Statement of Cash Flows for the nine months ended
September 30, 2005 and 2004 (unaudited) and the years ended
December 31, 2004 and December 31, 2003 (audited) and the
period from April 3, 2001 (commencement of operations) through
December 31, 2004 (audited) F-6
Notes to Financial Statements F-7 - 21
42
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of
IPOINT U.S.A. CORP.
(A development stage company)
We have audited the accompanying consolidated balance sheet of iPoint
U.S.A. Corp. (a development stage company) ("the Company") and its subsidiary as
of December 31, 2004, and the related consolidated statements of operations,
changes in stockholders' deficiency and cash flows for each of the two years in
the period ended December 31, 2004 and for the period from April 3, 2001 (date
of inception) through December 31, 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company's internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company and its subsidiary as of December 31, 2004, and the consolidated results
of their operations and their cash flows for each of the two years in the period
ended December 31, 2004 and for the period from April 3, 2001 (date of
inception) through December 31, 2004, in conformity with accounting principles
generally accepted in the U.S.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As more fully
described in Note 1c, to the accompanying consolidated financial statements, the
Company has incurred recurring net losses, negative cash flows from operations
and a negative working capital. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. The financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
Tel-Aviv, Israel KOST FORER GABBAY & KASIERER
May 20, 2005 A Member of Ernst & Young Global
F-1
IPOINT U.S.A. CORP. AND ITS SUBSIDIARY
(A development stage company)
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
U.S. dollars
September 30, December 31,
2005 2004
------------ ------------
Unaudited
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 76,190 $ 952,892
Trade receivables -- 5,457
Other accounts receivable and prepaid expenses 52,953 19,676
------------ ------------
Total current assets 129,143 978,025
------------ ------------
LONG-TERM PREPAID EXPENSES 6,389 6,819
------------ ------------
SEVERANCE PAY FUND 106,317 82,856
------------ ------------
PROPERTY AND EQUIPMENT, NET 59,926 56,079
------------ ------------
Total assets $ 301,775 $ 1,123,779
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Short-term bank credit $ 1,460,806 $ 1,219,038
Deferred revenues 22,878 1,500
Trade payables 25,314 42,096
Other accounts payable and accruals 130,008 110,690
Related party - Nisko 25,352 1,159
------------ ------------
Total current liabilities 1,664,358 1,374,483
------------ ------------
LONG-TERM LIABILITIES:
Accrued severance pay 125,057 88,952
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' DEFICIENCY:
Common stock of $ 0.0001 par value per share-
Authorized: 300,000,000 shares at December 31, 2004 and
September 30, 2005; Issued and outstanding:
40,690,000 shares at December 31, 2004 and September 30, 2005 4,069 4,069
Preferred stock of $ 0.0001 par value per share -
Authorized: 10,000,000 shares at December 31, 2004 and
September 30, 2005; Issued and outstanding: 0
shares at December 31, 2004 and September 30, 2005 -- --
Additional paid-in capital 2,572,852 2,572,852
Deficit accumulated during the development stage (4,064,561) (2,916,577)
------------ ------------
Total stockholders' deficiency (1,487,640) (339,656)
------------ ------------
Total liabilities and stockholders' deficiency $ 301,775 $ 1,123,779
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
IPOINT U.S.A. CORP. AND ITS SUBSIDIARY
(A development stage company)
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
U.S. dollars
Nine months ended Year ended
September 30, December 31,
---------------------------- ----------------------------
2005 2004 2004 2003
------------ ------------ ------------ ------------
Unaudited
----------------------------
Revenues:
Software license $ 26,408 $ 324,491 $ 327,581 $ 274,258
Maintenance services 17,221 182,061 186,608 343,845
------------ ------------ ------------ ------------
Total revenues 43,629 506,552 514,189 618,103
Cost of revenues 19,635 31,559 39,875 62,082
------------ ------------ ------------ ------------
Gross profit 23,994 474,993 474,314 556,021
------------ ------------ ------------ ------------
Operating expenses:
Research and development 365,566 303,743 402,383 385,265
Selling and marketing 469,383 223,209 1,046,593 327,012
General and administrative 390,682 159,996 317,841 205,066
------------ ------------ ------------ ------------
Total operating expenses 1,225,631 686,948 1,766,817 917,343
------------ ------------ ------------ ------------
Operating loss (1,201,637) (211,955) (1,292,503) (361,322)
Financial income (expenses), net 53,653 52,806) (104,150) (189,205)
------------ ------------ ------------ ------------
Net loss $ (1,147,984) $ (264,761) $ (1,396,653) $ (550,527)
============ ============ ============ ============
Basic and diluted loss per share $ (0.0282) $ (0.0089) $ (0.0440) $ (0.0185)
============ ============ ============ ============
Weighted average number of Common stock used in
computing basic and diluted loss per share 40,690,000 29,700,000 31,687,230 29,700,000
============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
IPOINT U.S.A. CORP. AND ITS SUBSIDIARY
(A development stage company)
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
U.S. dollars
Period From Period From
April 3, 2001 April 3, 2001
(commencement of (commencement
operations) of operation)
through through
September 30, December 31,
2005 2004
------------ ------------
Unaudited
------------
Revenues:
Software license $ 951,804 $ 925,396
Maintenance services 757,303 740,082
------------ ------------
Total revenues 1,709,107 1,665,478
Cost of revenues 153,664 134,029
------------ ------------
Gross profit 1,555,443 1,531,449
------------ ------------
Operating expenses:
Research and development 1,839,260 1,473,694
Selling and marketing 2,345,749 1,876,366
General and administrative 1,181,954 791,272
------------ ------------
Total operating expenses 5,366,963 4,141,332
------------ ------------
Operating loss (3,811,520) (2,609,883)
Financial income (expenses), net (253,041) (306,694)
------------ ------------
Net loss $ (4,064,561) $ (2,916,577)
============ ============
Basic and diluted loss per share
Weighted average number of Common stock used in
computing basic and diluted loss per share
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
IPOINT U.S.A. CORP. AND ITS SUBSIDIARY
(A development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
- -------------------------------------------------------------------------------
U.S. dollars (except share data)
Deficit
accumulated
Additional during the Total
Common Stock paid-in development stockholders'
stock capital capital stage deficiency
------------ ------------ ------------ ------------ ------------
Number Amount
------------ ------------
Issuance of Common stock on April 3,
2001 22,200,000 $ 2,220 $ 48,270 $ -- $ 50,490
Issuance of Common stock to a company
under common control 7,500,000 750 (750) -- --
Fair value of operating services
provided by Nisko to the Company at
no charge -- -- 4,950 -- 4,950
Net loss -- -- -- (506,578) (506,578)
------------ ------------ ------------ ------------ ------------
Balance as of December 31, 2001 29,700,000 2,970 52,470 (506,578) (451,138)
Fair value of operating services
provided by Nisko to the Company at
no charge -- -- 6,600 -- 6,600
Net loss -- -- -- (462,819) (462,819)
------------ ------------ ------------ ------------ ------------
Balance as of December 31, 2002 29,700,000 2,970 59,070 (969,397) (907,357)
Fair value of operating services
provided by Nisko to the Company at
no charge -- -- 6,600 -- 6,600
Net loss -- -- -- (550,527) (550,527)
------------ ------------ ------------ ------------ ------------
Balance as of December 31, 2003 29,700,000 2,970 65,670 (1,519,924) (1,451,284)
Fair value of operating services
provided by Nisko to the Company at
no charge -- -- 3,300 -- 3,300
Issuance of shares net of $ 194,999 of
issuance expenses, on October 27, 2004 8,140,800 814 1,804,187 -- 1,805,001
Issuance of shares to a service
provider in consideration for
business development services on
October 27, 2004 2,849,200 285 699,695 -- 699,980
Net loss -- -- -- (1,396,653) (1,396,653)
------------ ------------ ------------ ------------ ------------
Balance as of December 31, 2004 40,690,000 4,069 2,572,852 (2,916,577) (339,656)
Net loss -- -- -- (1,147,984) (1,147,984)
------------ ------------ ------------ ------------ ------------
Balance as of September 30, 2005
(unaudited) 40,690,000 $ 4,069 $ 2,572,852 $ (4,064,561) $ (1,487,640)
============ ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
IPOINT U.S.A. CORP. AND ITS SUBSIDIARY
(A development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
U.S. dollars
Period from Period from
April 3, 2001 April 3, 2001
(commencement (commencement
Nine months ended Year ended of operations) of operations)
September 30, December 31, through through
---------------------------- ---------------------------- September 30, December 31,
2005 2004 2004 2003 2005 2004
------------ ------------ ------------ ------------ ------------ ------------
Unaudited Unaudited
---------------------------- ------------
Cash flows from operating
activities:
Net loss $ (1,147,984) $ (264,761) $ (1,396,653) $ (550,527) $ (4,064,561) $ (2,916,577)
Adjustments required to
reconcile net loss to net
cash provided by (used in)
operating activities:
Depreciation 16,660 19,337 24,744 28,099 98,946 82,286
Decrease (increase) in
trade and other accounts
receivable and prepaid
expenses (27,390) 24,782 20,385 111,713 (52,523) (25,133)
Increase (decrease) in
deferred revenues 21,378 (143,813) (168,561) 170,061 22,878 1,500
Fair value of operating
services provided by
Nisko to the Company at
no charge -- 3,300 3,300 6,600 21,450 21,450
Increase (decrease) in
trade payables (16,782) 4,001 27,969 3,629 25,314 42,096
Increase (decrease) in
other accounts payables
and accruals 19,318 (4,211) 36,216 4,385 130,008 110,690
Increase (decrease) in
related party 24,193 (5,379) (4,220) 5,379 25,352 1,159
Increase (decrease) in
advance payments from
customers -- (286,823) (286,823) 286,823 -- --
Accrued severance pay ,net 12,644 (140) (1,808) 2,934 18,740 6,096
Compensation related to
issuance of shares to a
service provider in
consideration for
business development
services -- -- 699,980 -- 699,980 699,980
------------ ------------ ------------ ------------ ------------ ------------
Net cash provided by (used
in) operating activities (1,097,963) (653,707) (1,045,471) 69,096 (3,074,416) (1,976,453)_
------------ ------------ ------------ ------------ ------------ ------------
Cash flows from investing
activities:
Purchase of property and
equipment (20,507) (1,143) (18,826) (40,086) (158,872) (138,365)
Long-term prepaid expenses -- -- (4,106) 2,185 (6,819) (6,819)
------------ ------------ ------------ ------------ ------------ ------------
Net cash used in investing
activities (20,507) (1,143) (22,932) (37,901) (165,691) (145,184)
------------ ------------ ------------ ------------ ------------ ------------
Cash flows from financing
activities:
Issuance of shares, net -- -- 1,805,001 -- 1,855,491 1,855,491
Short-term bank credit, net 241,768 626,610 188,054 (2,955) 1,460,806 1,219,038
------------ ------------ ------------ ------------ ------------ ------------
Net cash provided by (used
in) financing activities 241,768 626,610 1,993,055 (2,955) 3,316,297 3,074,529
------------ ------------ ------------ ------------ ------------ ------------
Increase (decrease) in cash
and cash equivalents (876,702) (28,240) 924,652 28,240 76,190 952,892
Cash and cash equivalents at
beginning of period 952,892 28,240 28,240 -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at
end of period $ 76,190 $ -- $ 952,892 $ 28,240 $ 76,190 $ 952,892
============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
IPOINT U.S.A. CORP. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. dollars
NOTE 1:- GENERAL
a. iPoint U.S.A. Corp. ("iPoint U.S.A." or "the Company") was
incorporated under the laws of the State of Delaware on March 21,
2005. iPoint Media Ltd. a fully owned subsidiary of iPoint U.S.A
("iPoint Israel"), was incorporated under the laws of the State of
Israel on April 3, 2001 (jointly: "iPoint") (see Note 1e).
The Company is controlled by a major shareholder, Nisko Projects
(1990) Ltd. ("Nisko"), an Israeli corporation, publicly traded at
the Tel-Aviv Stock Exchange.
iPoint is engaged in the development, marketing and sales of
software video solutions that provide live customer interactive
centers with customer relationship management over the Internet.
Since its inception, iPoint has devoted substantially all its
efforts to business planning, research and development, marketing,
recruiting management and technical staff, acquiring assets and
raising capital. In addition, the Company has not generated
significant revenues. Accordingly, the Company is considered to be
in the development stage, as defined in Statement of Financial
Accounting Standards No. 7, "Accounting and Reporting by Development
Stage Enterprises" ("SFAS No. 7").
b. In 2003 and 2004, the Company derived 100% and 96% of its revenues,
respectively, from a single customer, Deutsche Telecom. During the
fourth quarter of 2004, Deutsche Telecom notified the Company of its
intention to cancel the second phase of the agreement. During the
fourth quarter of 2004, the Company entered into a legal proceeding
with Deutsche Telecom. (see Note 12).
c. The Company is devoting substantially all of its efforts towards
conducting research and development of software video solutions. In
the course of such activities, the Company and its subsidiary have
sustained operating losses and expect such losses to continue in the
foreseeable future. The Company and its subsidiary have not
generated significant revenues and have not achieved profitable
operations or positive cash flows from operations. The Company's
deficit accumulated during the development stage aggregated to $
4,064,561 and $ 2,916,577 as of September 30, 2005 and December 31,
2004 respectively, the negative working capital aggregated to $
1,535,215 and $ 396,458 as of September 30, 2005 and December 31,
2004, respectively, and the negative cash flow from operations
aggregated to $ 1,097,963 and $ 1,045,471 for the periods ended
September 30, 2005 and December 31, 2004, respectively. There is no
assurance that profitable operations, if ever achieved, could be
sustained on a continuing basis.
The Company plans to continue to finance its operations with a
combination of stock issuances and private placements and, in the
longer term, revenues from product and maintenance sales. There are
no assurances, however, that the Company will be successful in
obtaining the adequate level of financing needed for the long-term
development and commercialization of its planned products. As of
September 30, 2005 the Company has a credit line in the amount of
NIS 7 million (approximately $ 1.52 million), of which $ 1.46
million is utilized. In respect of the credit line, Nisko has
provided collateral to the bank (see Note 8d).
F-7
IPOINT U.S.A. CORP. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. dollars
NOTE 1:- GENERAL (Cont.)
These conditions raise substantial doubt about the Company's ability
to continue as a going concern. The consolidated financial
statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
d. In September and October 2004, iPoint Israel entered into investment
agreements with two investors, Neomedia Technologies Inc.
("Neomedia") and Cornell Capital Partners L.P. ("Cornell"). Pursuant
to the agreements, iPoint Israel issued to each of these investors
4,070,400 shares of Common stock for a consideration of $ 1 million
from each. In addition, iPoint Israel entered into a business
development service arrangement with Neomedia in consideration of
2,849,200 fully vested shares. The additional shares granted to
Neomedia for the business development were accounted for under
Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), EITF 96-18, "Accounting
for Equity Instruments That are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services" ("EITF
96-18") and EITF Issue No. 00-18, "Accounting for Certain
Transactions Involving Equity Instruments Granted to Other Than
Employees". Accordingly, the fair value ascribed to the share
consideration in an amount of $ 699,980, was charged to operating
expenses.
Pursuant to the investment agreement, iPoint Israel has undertaken
to register its shares with the SEC within a 270-day period from the
date of closing (October 12, 2004). If iPoint Israel does not comply
with its obligation, it will be obligated to pay liquidation damages
to the investors, at the investors' option, either in cash or shares
of iPoint Israel equal to 2% of the purchase price for each 30 day
period after the scheduled filing deadline (July 9, 2005). On May
24, 2005, the Company signed amendments to the investment agreements
with Neomedia and Cornell according to which, Neomedia and Cornell
waived their rights to any penalties or damages that may have
accrued thorough September 30, 2005. As of September 30, 2005, the
Company has not fulfilled the above conditions and as a result, the
Company is incurring penalties equal to 2% of the purchase price for
each 30 day period beginning as of October 1, 2005.
Pursuant to the investment agreement, the Company signed a standby
distribution agreement ("SDA") with Cornell, whereby iPoint-Israel
may, upon the effectiveness of the registration statement
registering the shares underlying the SDA, at its discretion
periodically sell to Cornell shares of Common stock for a total
purchase price of up to $ 10 million. According to the SDA the
Company is not entitled to sell shares to Cornell until such time
that a registration statement registering the shares of Common stock
under the SDA has been declared effective. For each share of Common
stock purchased under the SDA, Cornell will pay 98% of the lowest
daily weighted average price of the Common stock during the five
consecutive trading days immediately following the notice date. In
addition, Cornell will retain 5% of each advance transferred to the
Company under the SDA. For example, assuming that the 98% of lowest
daily weighted average price of the Common stock during the five
consecutive trading days immediately following a notice date is $
0.25, should the Company request an advance in the amount of $
200,000, Cornell will be entitled to $ 10,000, which represents the
5% commitment fee and 800,000 shares of Common stock, which is
calculated by dividing $ 200,000 by $ 0.25.
F-8
IPOINT U.S.A. CORP. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. dollars
NOTE 1:- GENERAL (Cont.)
In addition, Cornell is restricted from owing in excess of 9.9% of
the Company's outstanding Common stock. In the event that Cornell is
unable to sell shares of Common stock that it acquires under the SDA
and its ownership equals 9.9% of the Company's outstanding Common
stock, the Company will not be able to draw down money under the
SDA.
e. Reincorporation of iPoint
As a condition to the investment agreement, iPoint Israel has
committed to effect reorganization and reincorporate as a U.S.
parent company. As part of the reorganization, a new Delaware
corporation, iPoint U.S.A. Corp ("the Company"), was established. In
April 2005, the former shareholders of iPoint Israel transferred
their holdings in iPoint Israel to the new U.S. company in exchange
for newly issued shares of iPoint U.S.A., maintaining the same
proportionate holding interest as existed in iPoint Israel.
This transaction has been accounted for as an exchange of equity
interests between entities under common control in accordance with
FASB Statement No 141, "Business Combinations" ("FASB 141").
Accordingly, the financial statements of the Company for all periods
have been prepared using the historical consolidated carrying cost
of the assets and liabilities and the consolidated results of
operations of iPoint Israel.
f. On March 10, 2005, iPoint Israel received a tax ruling with respect
to the reincorporation according to which, the transfer of shares by
iPoint Israel's shareholders to iPoint U.S.A. Corp. would be tax
exempted until the sale of the shares by the Company to third
parties, subject to iPoint Israel receiving an approval from the
Office of Chief Scientist ("OCS"), due to its status as a
development stage company, within 180 days from the approval's date.
On July 27, 2005, the Company received the aforesaid approval from
the OCS.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
a. Basis of presentation:
The consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United States
("U.S. GAAP").
b. Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. Inter-company transactions
and balances have been eliminated upon consolidation.
F-9
IPOINT U.S.A. CORP. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. dollars
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
c. Unaudited information:
The consolidated financial statements include the unaudited
consolidated balance sheet as of September 30, 2005, the related
unaudited consolidated statements of operations and cash flows for
the nine months periods ended September 30, 2004 and September 30,
2005 and the related statements of change in stockholders'
deficiency for the nine months period ended September 30, 2005
presented in accordance with accounting principles generally
accepted for interim financial reporting. This unaudited information
has been prepared by the Company on the same basis as the audited
annual consolidated financial statements and, in management's
opinion, reflects all adjustments (consisting only of normal
recurring accruals) necessary for fair presentation of the financial
information, for the periods presented. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for audited financial statements.
Results for interim periods are not necessarily indicative of
results expected for the entire year.
c. Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
d. Financial statements in U.S. dollars:
The functional currency of the Company is the U.S. dollar, as the
U.S. dollar is the currency of the primary economic environment in
which the Company will operate in the foreseeable future. The
majority of the Company's operations are currently conducted in
Israel and most of the Israeli expenses are currently paid in new
Israeli shekels ("NIS"); however, most of these expenses are
denominated and determined in U.S. dollars. Financing activities,
including equity transactions, are made in U.S. dollars.
The Company's transactions and balances denominated in U.S. dollars
are presented at their original amounts. Non-dollar transactions and
balances have been remeasured to U.S. dollars in accordance with
Statement No. 52 of the Financial Accounting Standards Board
("SFAS"). All transaction gains and losses from remeasurement of
monetary balance sheet items denominated in non-dollar currencies
are reflected in the statements of operations as financial income or
expenses, as appropriate.
e. Cash equivalents:
Cash equivalents are short-term highly liquid investments that are
readily convertible to cash with original maturities of three months
or less.
f. Property and equipment, net:
Property and equipment are stated at cost, net of accumulated
depreciation. Depreciation is computed using the straight-line
method, over the estimated useful lives of the assets, at the
following annual rates:
%
-----------------
Computers and peripheral equipment 20 - 33
Office furniture and equipment 6 - 15
Motor vehicles 15
The Company's long-lived assets are reviewed for impairment in
accordance with Statement of Financial Accounting Standard No. 144,
"Accounting for the Impairment or Disposal of Long- Lived Assets"
("SFAS No. 144") whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. During 2004, and 2003, no impairment losses have been
identified.
F-10
IPOINT U.S.A. CORP. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. dollars
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
g. Severance pay:
The subsidiary's liability for severance pay in respect to its
Israeli employees is calculated pursuant to Israel's Severance Pay
Law based on the most recent salary of the employees multiplied by
the number of years of employment as of the balance sheet date.
Israeli employees are entitled to one month's salary for each year
of employment, or a portion thereof. The subsidiary's liability for
its employees is fully provided by monthly deposits with severance
pay funds, insurance policies and by an accrual. The value of these
policies is recorded as an asset in the Company's balance sheet.
The deposited funds may be withdrawn only upon the fulfillment of
the obligation pursuant to Israel's Severance Pay Law or labor
agreements. The value of the deposited funds is based on the cash
surrendered value of these policies, and includes immaterial
profits.
Severance expense for the years ended December 31, 2004 and 2003
amounts to $ 23,445 and $ 27,830, respectively.
h. Revenue recognition:
The Company's revenues are derived from license fees for its
software products, from installation and training and from
maintenance and support arrangements.
The Company recognizes software license revenue in accordance with
Statement of Position 97-2, "Software Revenue Recognition" ("SOP
97-2"), as amended. Revenue from license fees is recognized when
persuasive evidence of an agreement exists, delivery of the product
has occurred, no significant obligations with regard to
implementation remain, the fee is fixed or determinable, and
collectibility is probable.
Maintenance revenues are deferred and recognized on a straight-line
basis over the term of the maintenance and support agreement.
Where arrangements involve multiple elements such as maintenance,
installations and training services, revenue is allocated to each
element based on vendor specific objective evidence ("VSOE") of the
relative fair value of each element in the arrangement. When fair
value of an element can not be determined, revenues from the entire
arrangement are deferred until such element is delivered.
For the periods ended September 30, 2005, December 31, 2004 and
December 31, 2003, the Company could not establish VSOE.
Accordingly, all revenues including maintenance, installation and
training services are recognized ratably over the period of
maintenance. In 2003 and 2004, the Company derived 100% and 96% of
its revenues, respectively, from a single customer, Deutsche Telecom
(see Note 1b).
F-11
IPOINT U.S.A. CORP. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. dollars
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
i. Research and development costs:
SFAS No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed", requires capitalization of
certain software development costs subsequent to the establishment
of technological feasibility.
Based on the Company's product development process, technological
feasibility is established upon the completion of a working model.
The Company does not incur material costs between the completion of
the working model and the point at which the product is ready for
general release. Therefore, research and development costs are
charged to the statement of operations as incurred.
j. Income taxes:
The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"). This Statement prescribes the use of the
liability method whereby deferred tax assets and liability account
balances are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The Company and its subsidiary
provide a valuation allowance, if necessary, to reduce deferred tax
assets to their estimated realizable value.
k. Concentrations of credit risk:
Financial instruments that potentially subject the Company and its
subsidiary to concentrations of credit risk consist principally of
cash and cash equivalents and trade receivables and other accounts
receivable. The majority of the Company's cash and cash equivalents
are invested with major banks in Israel. Management believes that
the financial institutions that hold the Company's investments are
financially sound and, accordingly, minimal credit risk exists with
respect to these investments.
The Company and its subsidiary have no off-balance-sheet
concentration of credit risk such as foreign exchange contracts,
option contracts or other foreign hedging arrangements.
l. Fair value of financial instruments:
The following methods and assumptions were used by the Company and
its subsidiary in estimating their fair value disclosures for
financial instruments:
The carrying amounts of cash and cash equivalents, trade
receivables, other accounts receivable, short-term bank credit,
trade payables and other accounts payable approximate their fair
value due to the short-term maturity of such instruments.
F-12
IPOINT U.S.A. CORP. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. dollars
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
m. Loss per share:
Basic loss per share is computed based on the weighted average
number of shares of Common stock outstanding during each year.
Diluted loss per share is computed based on the weighted average
number of shares of Common stock outstanding during each year, plus
dilutive potential shares of Common stock considered outstanding
during the year, in accordance with SFAS No. 128, "Earnings per
Share".
During 2004 and 2003, shares attributable to outstanding warrants
(see Note 7c) have been excluded from the calculation of the diluted
loss per share of Common stock because such securities were
anti-dilutive.
n. Stock-based compensation:
The Company has elected to follow APB No. 25, "Accounting for Stock
Issued to Employees" and FIN No. 44, "Accounting for Certain
Transactions Involving Stock Compensation" in accounting for its
employee stock option plan. Under APB No. 25, when the exercise
price of the Company's options is less than the market value of the
underlying shares on the date of grant, compensation expense is
recognized and amortized ratably over the vesting period of the
options.
The Company adopted the disclosure provisions of SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and
Disclosure", which amended certain provisions of SFAS No. 123. The
Company continues to apply the provisions of APB No. 25, in
accounting for stock-based compensation.
Pro forma information required by SFAS 123 was not prepared due to
the fact that the Company has not granted any options as of
September 30, 2005. See also Note 7d.
o. Accounting for stock-based compensation related to warrants granted
to non-employees:
The Company applies SFAS No. 123, EITF 96-18 and EITF 00-18. SFAS
123 requires use of an option valuation model to measure the fair
value of the options on the date of grant.
F-13
IPOINT U.S.A. CORP. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. dollars
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
p. Recently issued accounting pronouncements:
On December 16, 2004, the Financial Accounting Standards Board
(FASB) issued Statement No. 123 (revised 2004), "Share-Based
Payment" ("Statement 123R"), which is a revision of FASB Statement
No. 123, "Accounting for Stock-Based Compensation" ("Statement
123"). Generally, the approach in Statement 123R is similar to the
approach described in Statement 123. However, Statements 123
permitted, but did not require, share-based payments to employees to
be recognized based on their fair values while Statement 123R
requires all share-based payments to employees to be recognized
based on their fair values. Statement 123R also revises, clarifies
and expands guidance in several areas, including measuring fair
value, classifying an award as equity or as a liability and
attributing compensation cost to reporting periods. The new Standard
will be effective for the Company in the first fiscal year beginning
after December 15, 2005. On March 29, 2005, the SEC published Staff
Accounting Bulletin ("SAB") No. 107, which provides the staff's
views on a variety of matters relating to stock-based payments. SAB
107 requires stock-based compensation to be classified in the same
expense line items as cash compensation. The Company will adopt
Statement 123R and SAB 107 as of the financial statements of the
first quarter of 2006.
2. In May 2005, the FASB issued Statement of Financial Accounting
Standard No. 154 ("FAS 154"), "Accounting Changes and Error
Corrections" - a replacement of APB No. 20, Accounting Changes" and
FAS No. 3, "Reporting Accounting Changes in Interim Financial
Statements" . FAS 154 provides guidance on the accounting for and
reporting of accounting changes and error corrections. APB Opinion
20 previously required that most voluntary changes in accounting
principle be recognized by including in net income of the period of
the change the cumulative effect of changing to the new accounting
principle. FAS 154 requires retrospective application to prior
periods' financial statements of a voluntary change in accounting
principle unless it is impracticable.
FAS 154 is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005. The
Group is currently assessing the impact of FAS 154 on its results of
operations, financial condition and liquidity.
NOTE 3:- PROPERTY AND EQUIPMENT
December 31,
2004
------------
Cost:
Computers and peripheral equipment $ 102,382
Office furniture and equipment 10,688
Motor vehicles 25,295
------------
138,365
Accumulated depreciation: 82,286
------------
Depreciated cost $ 56,079
============
Depreciation expense amounted to $ 24,744 and $ 28,099 for the years
ended December 31, 2004 and 2003, respectively.
F-14
IPOINT U.S.A. CORP. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. dollars
NOTE 4:- SHORT-TERM BANK CREDIT
The short-term bank credit amounted to $ 1,219,038 as of December
31, 2004. The bank credit has no maturity date and the credit line
is linked to the NIS and bears interest of 5.2% per annum. The
credit line is guaranteed by collateral from Nisko (see Note 8d).
The Company's unused line of credit is approximately $ 406 thousand
as of December 31, 2004.
NOTE 5:- OTHER ACCOUNTS PAYABLES AND ACCRUALS
December 31,
2004
------------
Payroll and related employees accruals $ 103,720
Other 6,970
------------
$ 110,690
============
NOTE 6:- COMMITMENTS AND CONTINGENT LIABILITIES
Regarding the lease commitment to a related party, see Note 8c.
Regarding legal proceeding see Note 12.
NOTE 7:- STOCK CAPITAL
a. The Common stock confers upon the holders the right to participate
and vote in general meetings of the Company and the right to receive
dividends, if declared.
b. In September and October 2004, iPoint Israel entered into
investments agreements with two investors for a total consideration
of $ 2,000,000. For further information see Note 1d.
c. Warrants to service provider:
On November 3, 2002, iPoint Israel had granted to a service provider
fully vested warrants to purchase 1,500 shares of Common stock of
iPoint Israel with an exercise price of NIS 1.00 per warrant. As a
result of the exchange of shares between iPoint Israel and the
Company, the said warrants were exchanged by warrants to purchase
150,000 shares of Common stock of the Company. These warrants are
exercisable, in whole or in part, at any time commencing on the date
of grant and ending upon the end of the fourth anniversary of such
date. The fair value ascribed to the warrants was immaterial.
F-15
IPOINT U.S.A. CORP. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. dollars
NOTE 7:- STOCK CAPITAL (Cont.)
d. Options to an employee:
During October 2004, the Company has committed to grant to one of
its employees, options to purchase 0.6% of the iPoint Israel's
outstanding Common stock based on its capital structure prior to the
equity financing as described in Note 1d. The grant is subject to an
approval of the Company's employee stock option plan by its Board of
Directors. The exercise price is $ 17 per option. The options will
vest during a period of four years commencing October 2004. As of
September 30, 2005, no options were granted.
NOTE 8:- RELATED PARTY BALANCES AND TRANSACTIONS
a. Related party balances:
December 31,
2004
---------
Accounts payables - Nisko $ 1,159
=========
b. Related party transactions:
Year ended
December 31,
-------------------
2004 2003
-------- --------
Payroll and related expenses to an executive $134,315 $133,465
======== ========
Management fees *) - Nisko $ 51,000 $ --
======== ========
Rent and maintenance - Nisko $ 42,800 $ 29,230
======== ========
Deemed fair value of operating services provided by Nisko
to the Company at no charge *) $ 3,300 $ 6,600
======== ========
*) According to an agreement signed in June 2004, the Company is
committed to pay Nisko management fees in the amount of $ 8,500 per
month for certain general and administrative operating services.
Prior to June 2004, certain operating services were provided at no
charge. In accordance with SAB Topic 1B, the Company recorded the
deemed fair value of these expenses relating to such services to the
statement of operations and as a contribution to additional paid-in
capital.
F-16
IPOINT U.S.A. CORP. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. dollars
NOTE 8:- RELATED PARTY BALANCES AND TRANSACTIONS (Cont.)
c. iPoint Israel leases its facilities under lease agreements from
Nisko. The lease is for a period of three years, commencing December
15, 2004. The future minimum lease commitments are approximately:
Year ended
December 31,
------------------
In thousands
------------------
2005 $ 37
2006 $ 37
2007 $ 35
d. Nisko granted the Company collateral limited to NIS 7 million
(approximately $ 1.62 million) to ensure iPoint Israel's bank credit
line. The collateral has no maturity date. As of December 31, 2004,
the Company's credit line amounted to approximately $ 1.2 million.
e. On June 25, 2001, iPoint Israel and Imagine, a company under common
control ("Imagine"), signed a software license agreement under which
Imagine granted Ipoint Israel a royalty-free, worldwide, irrevocable
license to utilize the proprietary processes, systems, know-how,
designs and software in connection with a certain program developed
by Imagine as specified in the agreement. As consideration for such
license, Ipoint Israel issued to Imagine 750 shares of Ipoint Israel
Common stock. On December 29, 2003, Nisko acquired all of the
remaining assets and activities of Imagine including the
aforementioned proprietary processes. Nisko subsequently transferred
to iPoint Israel the proprietary processes at no consideration.
As the transaction was between two entities under common control,
the transaction was recorded at its book value which was $ 0.
NOTE 9:- INCOME TAXES
a. Measurement of taxable income under the Income Tax Law (Inflationary
Adjustments), 1985:
Results for tax purposes of the Israeli subsidiary are measured in
terms of earnings in NIS, after certain adjustments for increases in
the Israeli Consumer Price Index ("CPI"). As explained in Note 2d,
the financial statements are measured in U.S. dollars. The
difference between the annual change in the Israeli CPI and in the
NIS/dollar exchange rate causes a further difference between taxable
income and the income before taxes shown in the financial
statements. In accordance with paragraph 9(f) of SFAS No. 109, the
Israeli subsidiary has not provided deferred income taxes on the
difference between the functional currency and the tax basis of
assets and liabilities.
F-17
IPOINT U.S.A. CORP. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. dollars
NOTE 9:- INCOME TAXES (Cont.)
b. Reform in the Israeli tax system:
Until December 31, 2003, the regular tax rate applicable to income
of companies was 36%. In June 2004, an amendment to the Income Tax
Ordinance was passed by the Israeli parliament, which determines,
among other things, that the corporate tax rate is to be gradually
reduced to the following tax rates: 2004 - 35%, 2005 - 34%, 2006 -
32% and 2007 and thereafter - 30%. On July 25, 2005, the Knesset
passed the Law for the Amendment of the Income Tax Ordinance (No.
147), 2005, which prescribes, among others, a gradual decrease in
the corporate tax rate in Israel to the following tax rates: in 2006
- 31%, in 2007 - 29%, in 2008 - 27%, in 2009 - 26% and in 2010 and
thereafter - 25%.
c. Net operating losses carryforwards:
The Israeli subsidiary has accumulated losses for tax purposes as of
December 31, 2004, in the amount of approximately $ 1.8 million,
which may be carried forward and offset against taxable income in
the future, for an indefinite period.
IPoint U.S.A. has no accumulated losses for tax purposes as of
December 31, 2004.
d. Deferred income taxes:
Deferred income taxes reflect the net tax effects of net operating
tax loss carryforwards between the carrying amounts of assets and
liabilities for financial reporting purposes and amounts used for
income tax purposes. The Company's deferred tax assets resulting
from tax loss carryforwards are as follows:
December 31,
----------------------
2004 2003
--------- ---------
Net operating loss carryforwards $ 541,985 $ 385,917
Reserves and allowances 707 132
--------- ---------
Net deferred tax asset before valuation allowance 542,692 386,049
Valuation allowance (542,692) (386,049)
--------- ---------
$ -- $ --
========= =========
The Company provided valuation allowances in respect of the
aforementioned deferred tax assets since management currently
believes that it is not more likely than not that the deferred tax
assets will be realized. The change in the valuation allowance as of
December 31, 2004 was an increase of $ 156,643.
F-18
IPOINT U.S.A. CORP. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. dollars
NOTE 9:- INCOME TAXES (Cont.)
e. Loss before taxes on income from continuing operations:
Year ended
December 31,
---------------------------
2004 2003
------------ ------------
Foreign $ 1,396,653 $ 550,527
============ ============
NOTE 10:- FINANCIAL EXPENSES
Financial expenses:
Interest on short-term bank loans $ 64,313 $ 87,759
Foreign currency translation differences 39,837 101,446
------------ ------------
$ 104,150 $ 189,205
============ ============
NOTE 11:- GEOGRAPHIC AND SEGMENT INFORMATION
a. Revenues by geographic areas:
The Company and its subsidiary operate in one reportable segment:
marketing and sales of software video solution (see brief
description in Note 1). Following is a summary of revenues by
geographic area. Revenues are attributed to geographic area, based
on the location of the end customers, and in accordance with FAS
131:
Year ended
December 31,
---------------------------
2004 2003
------------ ------------
Europe - Germany $ 514,189 $ 593,379
Other -- 24,724
------------ ------------
$ 514,189 $ 618,103
============ ============
b. The Group's long-lived assets are located as follows:
December 31,
2004
------------
Israel $ 56,079
============
F-19
IPOINT U.S.A. CORP. AND ITS SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. dollars
NOTE 12:- SUBSEQUENT EVENTS (UNAUDITED)
During the fourth quarter of 2004, the Company entered into a legal
proceeding with Deutsche Telecom, a former customer. The Company alleged a
breach of a maintenance contract by Deutsche Telecom on behalf of the
latter. On October 2, 2005, the Company and Deutsche Telecom reached a
settlement according to which the Company received approximately $ 584
thousand.
- - - - - - - - - -
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Certificate of Incorporation, as amended, provide to the fullest
extent permitted by Delaware law, our directors or officers shall not be
personally liable to us or our shareholders for damages for breach of such
director's or officer's fiduciary duty. The effect of this provision of our
Certificate of Incorporation, as amended, is to eliminate our right and our
shareholders (through shareholders' derivative suits on behalf of our company)
to recover damages against a director or officer for breach of the fiduciary
duty of care as a director or officer (including breaches resulting from
negligent or grossly negligent behavior), except under certain situations
defined by statute. We believe that the indemnification provisions in its
Certificate of Incorporation, as amended, are necessary to attract and retain
qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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, the Company 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 and will be governed by the final
adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of all estimated expenses,
all of which we will pay, in connection with the issuance and distribution of
the securities being registered:
NATURE OF EXPENSE AMOUNT
SEC Registration fee $ .01
Accounting fees and expenses 110,000.00*
Legal fees and expenses 40,000.00*
Miscellaneous 5,000.00
-----------
TOTAL $155,000.01*
===========
* Estimated.
II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On May 24, 2005, we entered into a Share Exchange Agreement with the
shareholders of iPoint Media Ltd., an Israeli corporation ("iPoint-Israel") our
wholly-owned subsidiary. In consideration for all of the issued and outstanding
capital stock of iPoint-Israel, we issued an aggregate 40,690,000 shares of
common stock to seven shareholders of iPoint-Israel. In addition, we issued a
warrant to purchase 150,000 shares of common stock in exchange for a warrant to
purchase 1,500 ordinary shares of iPoint-Israel. As a result, iPoint-Israel
became our wholly-owned subsidiary through which we conduct all of our
operations. This exchange was deemed to be exempt under rule 506 of Regulation D
and Section 4(2) of the Securities Act of 1933, as amended, with respect to all
investors located in the United States and Regulation S for all investors
located outside of the United States. No advertising or general solicitation was
employed in offering the securities. The offering was made to a limited number
of persons. The offering to residents in the United States was to accredited
investors that were business associates of our company or executive officers of
our company, and transfer was restricted by our company in accordance with the
requirements of the Securities Act of 1933. In connection with the parties that
received securities in accordance with Regulation S, each party represented that
that they were outside of the United States when receiving and executing the
Share Exchange Agreement.
Except as expressly set forth above, the individuals and entities to whom
we issued securities as indicated in this section of the registration statement
are unaffiliated with us.
II-2
ITEM 27. EXHIBITS.
The following exhibits are included as part of this Form SB-2. References
to "the Company" in this Exhibit List mean IPoint U.S.A. Corp., a Delaware
corporation.
Exhibit
Number Description
- ------ -----------
3.1 Certificate of Incorporation. (1)
3.2 Bylaws (1)
4.1 Investment Agreement entered between iPoint Media Ltd and
Neomedia Technologies, Inc. dated September 7, 2004
4.2 Registration Rights Agreement entered between iPoint Media Ltd
and Neomedia Technologies, Inc. dated September 7, 2004
4.3 Investment Agreement entered between iPoint Media Ltd and
Cornell Capital Partners LP dated October 12, 2004
4.4 Registration Rights Agreement entered between iPoint Media Ltd
and Cornell Capital Partners LP dated October 12, 2004
4.5 Escrow Agreement entered between iPoint Media Ltd, Cornell
Capital Partners LP and David Gonzalez, Esq. dated October 12,
2004
4.6 Standby Equity Distribution Agreement entered between iPoint
Media Ltd and Cornell Capital Partners LP dated October 12,
2004
4.7 Registration Rights Agreement entered between iPoint Media Ltd
and Cornell Capital Partners LP dated October 12, 2004
4.8 Intentionally Left Blank
4.9 Placement Agent Agreement entered between iPoint Media Ltd,
Cornell Capital Partners LP and Newbridge Securities
Corporation dated October 12, 2004
4.10 Amendment to Registration Rights Agreement entered between
iPoint Media Ltd and Cornell Capital Partners LP
4.11 Amendment to Registration Rights Agreement entered between
iPoint Media Ltd and Neomedia Technologies, Inc.
4.12 Assignment Agreement entered between iPoint U.S.A. Corp.,
iPoint Media Ltd and Neomedia Technologies, Inc.
4.13 Assignment Agreement entered between iPoint U.S.A. Corp.,
iPoint Media Ltd and Cornell Capital Partners LP
5.1 Sichenzia Ross Friedman Ference LLP Opinion and Consent (1)
10.1 Stock Exchange Agreement dated May 24, 2005 2005 by and
between IPoint U.S.A. Corp., a Delaware corporation, and the
Stockholders of IPoint Media Ltd., an Israeli corporation
10.2 Indemnification Agreement entered between iPoint Media Ltd and
Neomedia Technologies, Inc. dated September 7, 2004
II-3
10.3 Business Development Agreement entered between iPoint Media
Ltd and Neomedia Technologies, Inc. dated September 7, 2004
10.4 Management Services Agreement dated June 14, 2004 entered by
and between Nisko Projects Electronics and Communications
(1990) Ltd and iPoint Media Ltd.
10.5 Contract of SubLease dated February 24, 2005 entered by and
between Nisko Projects Electronics and Communications (1990)
Ltd and iPoint Media Ltd.
10.6 Continuing Limited Guarantee by Nisko Projects Electronics and
Communications (1990) Ltd
10.7 Letter Agreement dated September 20, 2005 by and between
United Mizrahi Bank Ltd. and Nisko Projects Electronics and
Communications (1990) Ltd
10.8 Letter of Nisko Projects Electronics and Communications (1990)
Ltd to United Mizrahi Bank Ltd. dated July 7, 2004
14.1 Code of Ethics (1)
21.1 List of Subsidiaries (1)
23.1 Consent of KOST FORER GABBAY & KASIERER
23.2 Consent of legal counsel (see Exhibit 5.1).
- ---------------------------------
(i) Incorporated by reference to the Form SB-2 Registration Statement filed with
the Securities and Exchange Commission dated July 1, 2005.
ITEM 28. UNDERTAKINGS.
The undersigned Company hereby undertakes to:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of the 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) under the
Securities Act 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 the effective registration
statement, and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
II-4
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For purposes of determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company 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, the
Company 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 and will be governed by the final adjudication
of such issue.
II-5
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe that it meets all of
the requirements of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of Tel
Aviv, Israel, on January 10, 2006.
IPOINT U.S.A. CORP.
By: /s/ Muki Geller
------------------------------------
Muki Geller, Chief Executive Officer
President, Secretary and Director
By: /s/ Effi Bazia
------------------------------------
Effi Bazia, Chief Financial Officer
and Principal Accounting Officer
In accordance with the requirements of the Securities Act, this
Registration Statement has been signed below by the following persons on behalf
of the Company in the capacities and on the dates indicated.
Signature Title Date
- ------------------------------------ --------------------- -------------------
/s/Muki Geller Director January 10, 2006
- -----------------------------------
Muki Geller
/s/ Muki Geller as attorney in fact Director January 10, 2006
- -----------------------------------
Efi Sagi
/s/ Muki Geller as attorney in fact Director January 10, 2006
- -----------------------------------
Avi Kanetti
/s/ Muki Geller as attorney in fact Director January 10, 2006
- -----------------------------------
Itzhan Nitzan
II-6