Item 1.
Business
Overview
Pinpoint Advance Corp. (the “Company”, “we”, “our”, or “us”) was incorporated in Delaware on September 6, 2006 as a blank check company for the purpose of acquiring, merging with, engaging in a capital stock exchange with, purchasing all or substantially all of the assets of, or engaging in any other similar business combination (“Business Combination”) with a business that has operations or facilities located in Israel or which is a company operating outside of Israel, specifically in Europe, which management believes would benefit from establishing operations or facilities in Israel, preferably in the technology sector. All activity from inception (September 6, 2006) through May 19, 2009 was related to the Company’s formation and capital raising activities and seeking a suitable Business Combination. Following the approval of our stockholders to continue our existence at a meeting of stockholders held on May 15, 2009, our objective is to achieve long-term growth potential through one or more combinations with operating companies or businesses. We will not restrict our search for potential candidates to companies engaged in any specific business, industry or geographical location and, thus, may acquire any type of business. We also will continue to pursue certain claims of the Company against a third party, as described below.
The Company’s current management continues to seek acquisition targets or other uses for the Company, subject to several important factors, including the availability of financing and the future role and level of involvement of the Company’s current board of directors and management. We cannot assure you we will be able to acquire an operating business. As an alternative, the Company might seek to obtain value from its status as a public company through a sale to or combination with a private operating company seeking such status as a means of “going public.” As of the date of this annual report, the Company has no arrangements in place with any acquisition candidates.
Our executive offices are located at 4 Maskit Street, Herzeliya, Israel 46700 and our telephone number at that location is 972 9-9500245. We currently have a website at www.pinpointac.com and consequently we make available on the Internet materials that we file with or furnish to the Securities and Exchange Commission. We will provide electronic or paper copies of such materials free of charge upon request.
Business
The Company’s principal activities from inception through May 19, 2009 were related to the Company’s formation, capital raising activities and seeking and attempting to close a Business Combination of the Company. The registration statement for the Company’s initial public offering was declared effective on April 19, 2007 (“Offering”). On April 25, 2007, the Company completed a private placement (“Private Placement”) and received net proceed of $1.5 million. The Company consummated the Offering on April 25, 2007 for net proceeds of approximately $27 million (including the over allotment).
In the Offering, the Company sold to the public 2,875,000 Units (the “Units” or a “Unit”) at a price of $10.00 per Unit. Each Unit consisted of one share of common stock and one warrant. Each warrant entitled the holder to purchase one share of the Company's common stock at a price of $7.50. Proceeds from the Offering and the private placement totaled approximately $28.5 million, which was net of approximately $1.6 million in underwriting fees and other expenses paid at closing. The Company also sold to the underwriters for $100 an option to purchase up to 125,000 Units.
The Company’s management intended to apply substantially all of the net proceeds of the Offering toward consummating a Business Combination.
Management had agreed that $28.37 million, or $9.91 per Unit sold in the Offering, was to be held in a trust account (“Trust Account”) and invested in permitted United States government securities, of which $0.30 per unit of the compensation to underwriters was deferred until consummation of the Business Combination. The deferred compensation to underwriters was forfeited due to the Company’s inability to consummate a Business Combination within the time allotted in its amended and restated certificate of incorporation. All deferred legal fees and deferred underwriter fees were distributed to stockholders as part of the trust distribution.
On October 27, 2008, the Company announced it had executed a letter of intent to effectuate a Business Combination with a privately-held company with its headquarters in Israel (the “LOI”). All parties to the LOI negotiated the terms of a definitive agreement and in fact, a definitive agreement (the “Agreement”) was executed by all parties to the LOI. However, one of the parties (the “Objecting Party”) to the Agreement claimed it never released its signature thereto and has since indicated that it no longer wished to pursue the proposed business combination.
The Company believes a binding, definitive agreement was executed by all parties. However, because one of the parties had indicated its position that no binding agreement existed and that it did not wish to continue with negotiations, the Company determined to liquidate the Trust Account established by the Company for the benefit of its public stockholders, and return funds to the holders of shares of the Company’s common stock issued in the Offering, in accordance with its Offering prospectus and the terms of its amended and restated certificate of incorporation.
The Company’s Amended and Restated Certificate of Incorporation provided for mandatory liquidation of the Company in the event that the Company did not consummate a Business Combination within 18 months from the date of the consummation of its Offering, or 24 months from the consummation of the Offering if certain extension criteria had been satisfied. In October 2008 the Company announced its termination of a letter of intent for potential business combinations plans as well as its plan to distribute the amount held in the Trust Fund to its stockholders and to adopt a plan for continued corporate existence.
At a Special Meeting held on May 15, 2009, a majority of the Company’s stockholders voted in favor of the proposal to remove the blank check company restrictions from the Company’s charter, thereby allowing the Company to continue its corporate existence.
In accordance with stockholder approval of the Company’s proposals, on May 19, 2009 the Company effectuated the redemption (“Redemption”) of the shares of common stock issued in the Offering in the amount of $9.91 per share from the Trust Account, and distributed one share of new common stock (“New Common Stock”) for every eight shares of Company common stock redeemed, for an aggregate of 359,402 shares of New Common Stock. The stockholders also approved the creation of a new class of common stock called Class A Common Stock (“Class A Stock”) and the Company’s founders exchanged each share of common stock held by them for five shares of Class A Stock, for an aggregate of 3,125,000 shares of Class A Stock.
On December 8, 2009, the Company and others, filed a lawsuit against the Objecting Party, Elbit Systems Holdings Ltd. ("Elbit") and others, in the Petah Tikva District Court of Israel (“Court”), for damages in the amount of NIS 37.7 million (USD $10 million) (the "Lawsuit"). The Lawsuit is based on the following factual background:
a.
That following a period of extensive negotiations between inter alia, the Company and Elbit, a July 2008 Letter of Intent was signed, which contemplated inter alia, the Company purchase from Elbit of 31% of Kinetics, Ltd., i.e. 18,716 Ordinary Shares of Kinetics Ltd. (the "Kinetics Shares"), for a price of $26 million. Following said purchase, a merger between the Company and Kinetics was to be effectuated;
b.
That the Company, as a blank check company and in order to fulfill its duty to obtain timely shareholders' approval, was compelled to finalize a Business Combination by October 18, 2008;
c.
That based on the Letter of Intent, and a belief at the time of Elbit's good faith, the Company continued negotiating a definitive agreement with all parties involved in the transaction;
d.
That after lengthy negotiations, a definitive agreement was finalized and signed in early October 2008;
e.
That Elbit's signature on the definitive agreement was withheld based on Elbit's claim that it had "just received" information about a new order that would raise the forecast of Kinetics' profits in 2009;
The Lawsuit seeks reparation for damages caused to plaintiffs as a result of defendants' lack of good faith in negotiations, and requests that the Court hold that defendants materially breached the definitive agreement, that defendants are estopped from denying that the definitive agreement was finalized, and that defendants acted with fraud, and alternatively, with recklessness. The Lawsuit also alleges that Elbit was unjustly enriched by its conduct, and that any enrichment as a result of Elbit's retention of the Kinetics Shares belongs to the Company.
The Lawsuit is in preliminary stages and the Company cannot determine on the likelihood of success at the present time.
The analysis of new business opportunities has and will be undertaken by or under the supervision of our officers and directors. We have unrestricted flexibility in seeking, analyzing and participating in potential business opportunities. In our efforts to analyze potential target companies or businesses, we will consider, among others, the following factors:
(i)
Potential for growth, indicated by new technology, anticipated market expansion or new products;
(ii)
Competitive position as compared to other firms of similar size and experience within the relevant industry segment as well as within the industry as a whole;
(iii)
Strength and diversity of management, either in place or scheduled for recruitment;
(iv)
Capital requirements and anticipated availability of required funds, to be provided by us or from operations, through the sale of additional securities, through joint ventures or similar arrangements or from other sources;
(v)
The cost of participation by us as compared to the perceived tangible and intangible values;
(vi)
The extent to which the business opportunities can be advanced;
(vii)
The accessibility of required management expertise, personnel, raw materials, services, professional assistance and other required items; and
(viii)
Other relevant factors that we identify.
In applying the foregoing criteria, no one of which will be controlling, management will attempt to analyze all factors and circumstances and make a determination based upon reasonable investigative measures and available data. Potentially available business opportunities may occur in many different industries, and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex. Due to our limited capital we may not discover or adequately evaluate adverse facts about any opportunity evaluated or, ultimately, any transaction consummated.
Form of Acquisition
The manner in which we participate in an opportunity will depend upon the nature of the opportunity, our respective needs and desires and the promoters of the opportunity, and our relative negotiating strength and that of such promoters.
In the event the Company enters into a definitive agreement to acquire an operating company, the acquisition may not require stockholder approval, even if it constituted a change in control of the Company, provided the Company’s common stock is not then listed on a national exchange and the acquisition is structured so as not to require a stockholder vote under the Delaware code. Accordingly, shareholders may not be entitled to vote on any future acquisitions by the Company.
It is likely that we will acquire our participation in a business opportunity through the issuance of our common stock or other securities. Although the terms of any such transaction cannot be predicted, it should be noted that in certain circumstances the criteria for determining whether or not an acquisition is a so-called “tax free” reorganization under Section 368(a)(l) of the Internal Revenue Code of 1986, as amended (the “Code”), depends upon whether the owners of the acquired business own 80% or more of the voting stock of the surviving entity. If a transaction were structured to take advantage of these provisions rather than other “tax free” provisions provided under the Code, our then-existing stockholders would, in such circumstances retain 20% or less of the total issued and outstanding shares of the surviving entity. Under other circumstances, depending upon the relative negotiating strength of the parties, our then-existing stockholders may retain substantially less than 20% of the total issued and outstanding shares of the surviving entity. This will result in substantial additional dilution to the equity of our then-existing stockholders.
If we were to pursue a “tax-free” reorganization as described above, our then-existing stockholders would not have control of a majority of our voting shares following a reorganization transaction. As part of such a transaction, all or a majority of our directors may resign and new directors may be appointed without any vote by our stockholders.
In the case of an acquisition of stock or assets not involving a statutory merger or consolidation directly involving us, the transaction may be accomplished upon the sole determination of management without any vote or approval by our stockholders. In the case of a statutory merger or consolidation directly involving us, it will likely be necessary to call a stockholders’ meeting and obtain the approval of the holders of a majority of our outstanding shares. The necessity to obtain such stockholder approval may result in delay and additional expense in the consummation of any proposed transaction and will also give rise to certain appraisal rights to dissenting stockholders. Most likely, management will seek to structure any such transaction so that no stockholder approval is required.
It is anticipated that the investigation of specific business opportunities and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial costs for third party professionals, accountants, attorneys and others. If a decision is made not to participate in a specific business opportunity, these costs theretofore incurred in the related investigation would not be recoverable. Furthermore, even if an agreement is reached for the participation in a specific business opportunity, the failure to consummate that transaction may result in our loss of the related costs incurred.
We presently have no employees apart from the officers named elsewhere herein. Our officers and directors are engaged in outside business activities and anticipate that they will devote very limited time to our business until a business opportunity has been identified. We expect no significant changes in the number of our employees other than such changes, if any, incident to a business combination transaction.
Item 1A.
Item 1A. Risk Factors
Statements in this annual report on Form 10-K that are not strictly historical in nature and are forward-looking statements. These statements may include, but are not limited to, statements about the timing of the commencement, enrollment, and completion of our clinical trials for our product candidates; the progress or success of our product development programs; the status of regulatory approvals for our product candidates; the timing of product launches; our ability to protect our intellectual property, if any and operate our business without infringing upon the intellectual property rights of others; and our estimates for future performance, anticipated operating losses, future revenues, capital requirements, and our needs for additional financing. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” “goal,” or other variations of these terms (including their use in the negative) or by discussions of strategies, plans or intentions. These statements are only predictions based on current information and expectations and involve a number of risks and uncertainties. The underlying information and expectations are likely to change over time.
Factors that could cause actual results to differ materially from what is expressed or forecasted in our forward-looking statements include, but are not limited to, the following:
Risks Associated With Our Business
Our business is difficult to evaluate because we have no operating history.
As we have no operating history or revenue and only minimal assets following the liquidation of our Trust Account, there is a risk that we will be unable to continue as a going concern and consummate a business combination transaction. We have had no recent operating history nor any revenues or earnings from operations since inception. Following the distribution of the Trust Account, we have had no significant assets or financial resources. We will, in all likelihood, sustain operating expenses without corresponding revenues, at least until the consummation of a business combination transaction. We cannot assure you that we can identify a suitable business opportunity and consummate a business combination transaction and, therefore, our net operating losses may increase significantly.
Our business will have no revenues unless and until we execute a business combination transaction with an operating company or business.
We are a development stage shell company and have had no revenues from operations. We may not realize any revenues unless and until we successfully execute a business combination transaction with an operating company or business.
There is competition for those private companies suitable for a business combination transaction of the type contemplated by management.
We are in a highly competitive market for a small number of business opportunities which could reduce the likelihood of consummating a successful business combination. We are and will continue to be an insignificant participant in the business of seeking business combination transactions with small private and public entities. A large number of established and well-financed entities, including small public companies and venture capital firms, are active in mergers and acquisitions of companies that may be desirable target candidates for us. Nearly all these entities have significantly greater financial resources, technical expertise and managerial capabilities than we do; consequently, we will be at a competitive disadvantage in identifying possible business opportunities and successfully completing a business combination. These competitive factors may reduce the likelihood of our identifying and consummating a successful business combination transaction.
There are relatively low barriers to becoming a blank check company or shell company, thereby increasing the competitive market for a small number of business opportunities.
There are relatively low barriers to becoming a blank check company or shell company. A newly incorporated company with a single stockholder and sole officer and director may become a blank check company or shell company by voluntarily subjecting itself to the SEC reporting requirements by filing and seeking effectiveness of a Form 10 with the SEC, thereby registering its common stock pursuant to Section 12(g) of the Exchange Act. Assuming no comments to the Form 10 have been received from the SEC, the registration statement is automatically deemed effective 60 days after filing the Form 10 with the SEC. The relative ease and low cost with which a company can become a blank check or shell company can increase the already highly competitive market for a limited number of private businesses that seek to consummate a business combination with a public company.
Because a majority of our management's prior business experience has been limited to segments of the technology industry, they may lack the necessary experience to consummate an acquisition with a business in other segments or an alternative industry.
A significant portion of our management’s prior business experience has been limited to certain segments of the technology industry, notably software, telecommunication, media services, IT services, Internet and consumer products. If we locate an attractive business combination unrelated to these segments of the technology industry, our management may not have the necessary experience to adequately assess the merits or risks of the industries or segments in which the business operates.
We have no existing agreement for a business combination or other transaction.
We have no arrangement, agreement or understanding with respect to engaging in a business combination transaction with a private or public entity. No assurances can be given that we will successfully identify and evaluate suitable business opportunities or that we will conclude a business combination transaction. Management has not identified any particular industry or specific business within an industry for evaluation. We cannot guarantee that we will be able to negotiate a business combination transaction on favorable terms, and there is consequently a risk that funds allocated to the purchase of our shares will not be invested in a company with active business operations.
The time and cost of preparing the target to prepare financial statements necessary to consummate a business combination with us may preclude us from entering into a business combination transaction with the most attractive target companies.
Target companies that fail to comply with SEC reporting requirements may delay or preclude a business combination transaction. Sections 13 and 15(d) of the Exchange Act require reporting companies to provide certain information about significant acquisitions, including certified financial statements for the acquired company, covering one, two, or three years, depending on the relative size of the acquisition. The time and additional costs that may be incurred by some target entities to prepare such statements may significantly delay or essentially preclude consummation of a business combination transaction. Otherwise suitable prospects that do not have or are unable to obtain the required audited statements may be inappropriate for a business combination transaction so long as the reporting requirements of the Exchange Act are applicable.
Any potential business combination transaction with a foreign company may subject us to additional risks.
If we enter into a business combination transaction with a foreign concern, we will be subject to risks inherent in business operations outside of the United States. These risks include, for example, currency fluctuations, regulatory problems, punitive tariffs, unstable local tax policies, trade embargoes, risks related to shipment of raw materials and finished goods across national borders and cultural and language differences. Foreign economies may differ favorably or unfavorably from the United States economy in growth of gross national product, rate of inflation, market development, rate of savings, and capital investment, resource self-sufficiency and balance of payments positions, and in other respects.
Our stockholders may be held liable for claims by third parties against us to the extent of distributions received by them.
Under the Delaware General Corporation Law, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in the distribution of the Trust Account. If the corporation complies with certain procedures set forth in Section 280 of the Delaware General Corporation Law intended to ensure that it makes reasonable provision for all claims against it, including a 60-day notice period during which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution. We did not comply with those procedures in the liquidation and distribution of the Trust Account. Because we did not comply with Section 280, we obtained stockholder approval to comply with Section 281(b) of the Delaware General Corporation Law, requiring us to adopt a plan of dissolution that will provide for our payment, based on facts known to us at such time, of (i) all existing claims, (ii) all pending claims and (iii) all claims that may be potentially brought against us within the subsequent 10 years. Because we are a blank check company, the claims that could be made against us are significantly limited and the likelihood that any claim that would result in any liability extending to the trust is minimal. However, because we did not comply with Section 280, our public stockholders could potentially be liable for any claims to the extent of distributions received by them in the Trust Account liquidation and any such liability of our stockholders will likely extend beyond the third anniversary of such dissolution. Accordingly, we cannot assure you that third parties will not seek to recover from our public stockholders amounts owed to them by us.
We may choose to redeem our outstanding warrants at a time that is disadvantageous to our warrant holders.
Subject to there being a current prospectus under the Securities Act of 1933 as amended (the “Securities Act”) with respect to the shares of common stock issuable upon exercise of the warrants, we may redeem the warrants issued as a part of our Units at any time after the warrants become exercisable in whole and not in part, at a price of $.01 per warrant, upon a minimum of 30 days’ prior written notice of redemption, if and only if, the last sales price of our common stock equals or exceeds $14.25 per share for any 20 trading days within a 30 trading day period ending three business days before we send the notice of redemption. Redemption of the warrants could force the warrant holders (i) to exercise the warrants and pay the exercise price thereafter at a time when it may be disadvantageous for the holders to do so, (ii) to sell the warrants at the then current market price when they might otherwise wish to hold the warrants, or (iii) to accept the nominal redemption price which, at the time the warrants are called for redemption, is likely to be substantially less than the market value of the warrants. The foregoing does not apply to the 1,500,000 insider warrants purchased by certain of our officers and directors prior to our IPO, as such warrants are not subject to redemption while held by the initial holder or any permitted transferee of such initial holder.
Although we are required to use our best efforts to have an effective registration statement covering the issuance of the shares underlying the warrants at the time that our warrant holders exercise their warrants, we cannot guarantee that a registration statement will be effective, in which case our warrant holders may not be able to exercise our warrants.
Holders of our warrants will be able to exercise the warrant only if (i) a current registration statement under the Securities Act relating to the shares of our common stock underlying the warrants is then effective and (ii) such shares are qualified for sale or exempt from qualification under the applicable securities law of the states in which the various holders of warrants reside. Although we have undertaken in the warrant agreement, and therefore have a contractual obligation, to use our best efforts to maintain a current registration statement covering the shares underlying the warrants following completion of our IPO to the extent required by federal securities law, and we intend to comply with such undertaking, we cannot assure you that we will be able to do so. In addition, we have agreed to use our reasonable efforts to register the shares underlying the warrants under the blue sky laws of the states of residence of the exercising warrant holders, to the extent an exemption is not available. The value of the warrants may be greatly reduced if a registration statement covering the shares issuable upon the exercise of the warrants is not kept current or if the securities are not qualified, or exempt from qualification, in the states in which the holders of warrants reside. Holders of warrants who reside in jurisdictions in which the shares underlying the warrants are not qualified and in which there is no exemption will be unable to exercise their warrants and would either have to sell their warrants in the open market or allow them to expire unexercised. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to qualify the underlying securities for sale under all applicable state securities laws.
Because the warrants sold in the private placement were originally issued pursuant to an exemption from the registration requirements under the federal securities laws, holders of such warrants will be able to exercise their warrants even if, at the time of exercise, a prospectus relating to the common stock issuable upon exercise of such warrants is not current. As a result, the holders of the warrants purchased in the private placement will not have any restrictions with respect to the exercise of their warrants. As described above, the holders of the warrants purchased in our IPO will not be able to exercise them unless we have a current registration statement covering the shares issuable upon their exercise.
We may issue shares of our capital stock or debt securities to complete an acquisition, which would reduce the equity interest of our stockholders and likely cause a change in control of our ownership.
Our Second Amended and Restated Certificate of Incorporation authorizes the issuance of up to 15,000,000 shares of common stock, par value $.0001 per share, 5,000,000 shares of Class A Stock, par value $.0001 per share, and 1,000,000 shares of preferred stock, par value $.0001 per share. As of December 31, 2009, there were 14,640,598 authorized but unissued shares of our common stock available for issuance, 1,875,000 shares of Class A Stock and all of the 1,000,000 shares of preferred stock available for issuance. The issuance of additional shares of our common stock, Class A Stock or any number of shares of our preferred stock:
·
may significantly reduce the equity interest of our stockholders;
·
will likely cause a change in control if a substantial number of our shares of common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and most likely also result in the resignation or removal of our present officers and directors; and
·
may adversely affect prevailing market prices for our common stock.
Additionally, if we finance the purchase of assets or operations through the issuance of debt securities, it could result in:
·
default and foreclosure on our assets if our operating revenues after an acquisition were insufficient to pay our debt obligations;
·
acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if the debt security contained covenants that required the maintenance of certain financial ratios or reserves and any such covenant were breached without a waiver or renegotiation of that covenant;
·
our immediate payment of all principal and accrued interest, if any, if the debt security was payable on demand; and
·
our inability to obtain additional financing, if necessary, if the debt security contained covenants restricting our ability to obtain additional financing while such security was outstanding.
We may have insufficient resources to cover our operating expenses and the expenses of consummating an acquisition.
Following the distribution of the Trust Account, we are in need of additional financing to fund our operating expenses. If we do not have sufficient funds available to fund our expenses, we may be forced to obtain additional financing, either from our management or the existing stockholders or from third parties. We may not be able to obtain additional financing and our existing stockholders and management are not obligated to provide any additional financing. If we do not have sufficient proceeds and cannot find additional financing, we may be forced to dissolve and liquidate prior to consummating a business combination.
We may be unable to obtain additional financing, if required, to complete a business combination or to fund the operations and growth of the target business, which could compel us to restructure the transaction or abandon a particular business combination.
To the extent that additional financing proves to be unavailable when and if needed to consummate a particular business combination, we would be compelled to restructure the transaction or abandon that particular business combination and seek an alternative target business candidate. In addition, if we consummate a business combination, we may require additional financing to fund the operations or growth of the target business. The failure to secure additional financing could have a material adverse effect on the continued development or growth of the target business. None of our officers, directors or stockholders is required to provide any financing to us prior to, in connection with or after a business combination.
Our ability to effect a business combination and to execute any potential business plan afterwards will be dependent upon the efforts of our key personnel, some of whom may join us following a business combination and whom we would have only a limited ability to evaluate.
Our ability to effect a business combination will be totally dependent upon the efforts of our key personnel. The future role of our key personnel following an acquisition, however, cannot presently be fully ascertained. Although we expect most of our management and other key personnel to remain associated with us following an acquisition, we may employ other personnel following the business combination. While we intend to closely scrutinize any additional individuals we engage after a business combination, we cannot assure you that our assessment of these individuals will prove to be correct. Moreover, our current management will only be able to remain with the combined company after the consummation of a business combination if they are able to negotiate terms with the combined company as part of any such combination. If we acquired a target business in an all-cash transaction, it would be more likely that current members of management would remain with us if they chose to do so. If a business combination were structured as a merger whereby the stockholders of the target company were to control the combined company following a business combination, it may be less likely that management would remain with the combined company unless it was negotiated as part of the transaction via the acquisition agreement, an employment or consulting agreement or other arrangement. The determination to remain as officers of the resulting business will be made prior to the completion of the transaction and will depend upon the appropriateness or necessity of current management to remain. In making the determination as to whether current management should remain with us following the business combination, management will analyze the experience and skill set of the target business’ management and negotiate as part of the business combination that certain members of current management remain if it is believed that it is in the best interests of the combined company post-business combination. If management negotiates to be retained post-business combination as a condition to any potential business combination, such negotiations may result in a conflict of interest.
An acquisition of an operating company may not require the approval of our shareholders, so you may not be entitled to vote on such a business combination.
In the event the Company enters into a definitive agreement to acquire an operating company, the acquisition may not require stockholder approval, even if it constitutes a change in control of the Company, provided the Company’s common stock is not then listed on a national exchange and the acquisition is structured so as not to require a stockholder vote under the Delaware code. Accordingly, shareholders may not be entitled to vote on any future acquisition by, or of, the Company.
Other than their relationship with us, none of our officers or directors has ever been associated with a blank check company which could adversely affect our ability to consummate a business combination.
Other than their relationship with us, none of our officers or directors has ever been associated with a blank check company. Accordingly, you may not have sufficient information with which to evaluate the ability of our management team to identify and complete a business combination. Our management’s limited experience in operating a blank check company could adversely affect our ability to consummate a business combination and force us to dissolve and liquidate.
Our officers and directors may allocate their time to other businesses thereby causing conflicts of interest in their determination as to how much time to devote to our affairs. This could have a negative impact on our ability to consummate a business combination.
Our officers and directors are not required to commit their full time to our affairs, which may result in a conflict of interest in allocating their time between our operations and other businesses. We do not intend to have any full time employees prior to the consummation of a business combination. Each of our officers are engaged in several other business endeavors and are not obligated to contribute any specific number of hours per week to our affairs. If our officers’ other business affairs require them to devote more substantial amounts of time to such affairs, it could limit their ability to devote time to our affairs and could have a negative impact on our ability to consummate a business combination. We cannot assure you that these conflicts will be resolved in our favor.
If our common stock becomes subject to the SEC’s penny stock rules, broker-dealers may experience difficulty in completing customer transactions and trading activity in our securities may be adversely affected.
After the distribution of the Trust Account, our net tangible assets are less than $5,000,000 and, if our common stock has a market price per share of less than $5.00, transactions in our common stock may be subject to the “penny stock” rules promulgated under the Securities Exchange Act of 1934, as amended. Under these rules, broker-dealers who recommend such securities to persons other than institutional accredited investors must:
·
make a special written suitability determination for the purchaser;
·
receive the purchaser’s written agreement to a transaction prior to sale;
·
provide the purchaser with risk disclosure documents which identify certain risks associated with investing in “penny stocks” and which describe the market for these “penny stocks” as well as a purchaser’s legal remedies; and
·
obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in a “penny stock” can be completed.
If our common stock becomes subject to these rules, broker-dealers may find it difficult to effectuate customer transactions and trading activity in our securities may be adversely affected. As a result, the market price of our securities may be depressed, and you may find it more difficult to sell our securities.
Our officers and directors currently own shares of our Class A Stock and thus may influence certain actions requiring a stockholder vote.
Our officers and directors collectively hold approximately 80% of our voting power by virtue of their ownership of Class A Stock. This ownership interest, together with any other acquisitions of our shares of common stock (or warrants which are subsequently exercised), could allow our officers or directors to influence the outcome of matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions after completion of our initial business combination. The interests of our officers or directors and your interests may not always align and taking actions which require approval of a majority of our stockholders, such as selling our company, may be more difficult to accomplish.
If our existing stockholders (including those officers and directors who have purchased warrants in the private placement) exercise their registration rights, it may have an adverse effect on the market price of our common stock and the existence of these rights may make it more difficult to effect a business combination.
Our existing stockholders, including our officers and directors who have purchased warrants in the private placement, are entitled to require us to register the resale of such warrants as well as their shares of common stock at any time after the date on which their shares are released from escrow. If such existing stockholders exercise their registration rights with respect to all of their shares of common stock (including those 1,500,000 shares of common stock issuable upon exercise of warrants included as part of the insider warrants), then there will be an additional 2,125,000 shares of common stock eligible for trading in the public market and we will bear the costs of registering such securities. The presence of this additional number of shares of common stock eligible for trading in the public market may have an adverse effect on the market price of our common stock. In addition, the existence of these rights may make it more difficult to effectuate a business combination or increase the cost of the target business, as the stockholders of the target business may be discouraged from entering into a business combination with us or will request a higher price for their securities as a result of these registration rights and the potential future effect their exercise may have on the trading market for our common stock.
There has been a very limited public trading market for our securities, and the market for our securities may continue to be limited and may be sporadic and highly volatile.
Prior to May 19, 2009, there was a limited public market for our common stock, which was quoted on the Over the Counter Bulletin Board (“OTCBB”). Following the liquidation of our Trust Account, there has not been any public trading in the common stock and sporadic trading in our warrants. We cannot assure you that an active market for our shares will be established or maintained in the future. If we are unable to establish a public market for our common stock, holders will have no or limited liquidity. Holders of our common stock may have to bear a complete loss of the value of their investment in us.
If we are able to establish a public market, the market price of our common stock may be volatile, which could cause the value of our common stock to decline. Securities markets experience significant price and volume fluctuations. This market volatility, as well as general economic conditions, could cause the market price of our common stock to fluctuate substantially. Many factors beyond our control may significantly affect the market price of our shares. These factors include:
·
price and volume fluctuations in the stock markets;
·
changes in our earnings or variations in operating results;
·
any shortfall in revenue or increase in losses from levels expected by securities analysts;
·
changes in regulatory policies or law;
·
operating performance of companies comparable to us; and
·
general economic trends and other external factors.
Even if an active market for our common stock is established, stockholders may have to sell their shares at prices substantially lower than the price they paid for the shares or might otherwise receive than if an active public market existed.
Item 1B.
Item 1B.
Unresolved Staff Comments.
Not applicable.
Item 2.
Item 2.
Properties.
Until October 25, 2008, the 18 month anniversary of the completion of our IPO, we leased office space at which we maintain our executive offices at 4 Maskit Street, Herzeliya, Israel. The costs for this space was included in the $7,500 per-month fee New Pole Ltd., an affiliate of Ronen Zadok, our Chief Financial Officer, charged us for general and administrative services. After October 25, 2008 and until December 31, 2009, New Pole Ltd. continued to permit our use of such space, and to provide us with general and administrative services, upon the same terms and conditions. Currently, New Pole Ltd. permits our continued use of this space and provides general and administrative services free of charge. We consider our current office space adequate for our current operations.
Item 3.
Item 3.
Legal Proceedings.
On December 8, 2009, the Company, filed the Lawsuit. The Lawsuit is based on the following factual background:
·
Following a period of extensive negotiations between inter alia, the Company and Elbit, a July 2008 Letter of Intent was signed, which contemplated inter alia, the Company purchase from Elbit 31% of Kinetics, i.e. 18,716 Ordinary Shares of Kinetics Ltd. (the “Kinetics Shares”), for a price of $26 million. Following said purchase, a merger between the Company and Kinetics was to be effectuated;
·
That the Company, as a blank check company and in order to fulfill its duty to obtain timely shareholders' approval, was compelled to finalize a Business Combination by October 18, 2008;
·
That based on the Letter of Intent, and a belief at the time of Elbit's good faith, the Company continued negotiating a definitive agreement with all parties involved in the transaction;
·
That after lengthy negotiations, a definitive agreement was finalized, and signed in early October 2008;
·
That Elbit's signature on the definitive agreement was withheld, based on Elbit's claim that it had "just received" information about a new order that would raise the forecast of Kinetics' profits in 2009;
The Lawsuit seeks reparation for damages caused to plaintiffs as a result of defendants' lack of good faith in negotiations, and requests that the Court hold that defendants materially breached the definitive agreement, that defendants are estopped from denying that the definitive agreement was finalized, and that defendants acted with fraud, and alternatively, with recklessness. The Lawsuit also alleges that Elbit was unjustly enriched by its conduct, and that any enrichment as a result of Elbit's retention of the Kinetics Shares belongs to the Company.
The Lawsuit is in preliminary stages and the Company cannot determine on the likelihood of success at the present time.
Item 4.
Item 4.
Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our warrants are traded on the OTC Bulletin Board (“OTC BB”) under the symbols PPACW. On May 19, 2009, all Units were split into their respective warrant and common stock. On May 19, 2009, holders of the Company’s common stock had their stock exchanged eight for one for shares of New Common Stock. On May 19, 2009, holders of our founder stock were issued Class A Stock in exchange for such founder stock. As of May 19, 2009, there was no public market for our New Common Stock and Class A Stock. Our warrants commenced public trading on June 1, 2007. Following the distribution of the Trust Account on May 19, 2009, there has been no market for our warrants due to the sporadic and limited trading in such warrants.
Holders
On March 23, 2010, there were 6 holders of record of our common stock, including the Class A Stock and five holders of record of our warrants.
Dividends
We have not paid any dividends on our common stock to date and do not intend to pay dividends prior to the completion of a business combination. The payment of dividends in the future will be contingent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of a business combination. The payment of any dividends subsequent to a business combination will be within the discretion of the board of directors. It is the present intention of our board of directors to retain all earnings, if any, for use in our business operations and, accordingly, our board does not anticipate declaring any dividends in the foreseeable future.
Recent Sales of Unregistered Equity Securities
None.
Securities Authorized for Issuance Under Equity Compensation Plans
None.
Repurchases of Equity Securities
None.
Item 6.
Item 6.
Selected Financial Data
Not applicable.
Item 7.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Caution Regarding Forward-Looking Information
Certain statements contained in this annual filing, including, without limitation, statements containing the words "believes", "anticipates", "expects" and words of similar import, constitute forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
Such factors include, among others, the following: international, national and local general economic and market conditions: our ability to successfully make and integrate acquisitions; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; and other factors referenced in this and previous filings.
Given these uncertainties, readers of this Form 10-K and investors are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.
The following discussion should be read in conjunction with the Company’s Financial Statements and footnotes thereto contained in this report.
Overview
We were formed as a blank check company on September 6, 2006 for the purpose of acquiring, merging with, engaging in a capital stock exchange with, purchasing all or substantially all of the assets of, or engaging in any other similar business combination with a business that has operations or facilities located in Israel or which is a company operating outside of Israel, which management believes would benefit from establishing operations or facilities in Israel, preferably in the technology sector. From inception to October 2008, our principal business activities related to our formation, capital raising and seeking a Business Combination target.
The Company’s principal activities from inception through May 19, 2009 were related to the Company’s formation, capital raising activities and the Business Combination.
In the Offering, the Company sold to the public 2,875,000 Units at a price of $10.00 per Unit. Each Unit consisted of one share and one warrant. Each warrant entitled the holder to purchase one share of the Company's common stock at a price of $7.50. Proceeds from the Offering and the Private Placement totaled approximately $28.5 million, which was net of approximately $1.6 million in underwriting fees and other expenses paid at closing. The Company also sold to the underwriters for $100 an option to purchase up to 125,000 Units.
The Company had agreed that $28.37 million or $9.91 per Unit sold in the Offering, was to be held in the Trust Account, of which $0.30 per Unit of the compensation to underwriters was deferred until consummation of the Business Combination. The deferred compensation to underwriters was forfeited due to the Company’s inability to consummate a Business Combination within the time allotted in its Amended and Restated Certificate of Incorporation.
On October 27, 2008, the Company announced it had executed an LOI to effectuate a Business Combination with Elbit. All parties to the LOI negotiated the terms of a definitive agreement and in fact, a definitive agreement was executed by all parties to the LOI. However, Elbit claimed it never released its signature thereto and indicated it no longer wished to pursue the proposed Business Combination.
The Company believes a binding, definitive agreement was executed by all parties. However, Elbit indicated its position that no binding agreement existed and that it did not wish to continue with negotiations, the Company was unable to consummate the Business Combination.
On December 8, 2009, the Company and others, filed the Lawsuit.
The Lawsuit seeks reparation for damages caused to plaintiffs as a result of defendants' lack of good faith in negotiations and requests that the Court hold that defendants materially breached the definitive agreement, that defendants are estopped from denying that the definitive agreement was finalized, and that defendants acted with fraud, and alternatively, with recklessness. The Lawsuit also alleges that Elbit was unjustly enriched by its conduct, and that any enrichment as a result of Elbit's retention of the Kinetics Shares belongs to the Company.
The Lawsuit is in preliminary stages, and the Company cannot determine on the likelihood of success at the present time.
On May 19, 2009 the Company effectuated the redemption of the shares of common stock issued in the Offering in the amount of $9.91 per share from the Trust Account and distributed one share of New Common Stock for every eight common shares then held for an aggregate of 359,402 shares of New Common Stock. The stockholders also approved the creation of a new class of common stock called Class A Stock. The founders of the Company exchanged each share of common stock held by them for five shares of Class A Stock, for an aggregate of 3,125,000 shares of Class A Stock.
Results of Operations
Net income (Loss) of $(45,682) and $(387,073) reported for the years ended December 31, 2009 and 2008 respectively, consists for each year primarily of $221,804 and $805,334 of expenses for administrative services which consisted of $7,500 for leased office space through December 2008; $22,290 and $43,775 for franchise taxes; and $204,596 and $4,397 for federal income taxes, respectively. Changes to the franchise taxes for the 2009 tax year include a tax credit which was not reflected in the 2008 tax year. Interest income from the Trust Account was $5,953 and $467,816 for the years ended December 31, 2009 and 2008 respectively. The change in interest income resulted from the Company’s distribution of cash held in the Trust Account.
Gross proceeds from the IPO were $30,250,000 (including the over-allotment option and warrants sold privately). We paid a total of $1,349,900 in underwriting discounts and commissions, and approximately $449,000 was paid for costs and expenses related to the IPO. After deducting the underwriting discounts and commissions and the offering expenses, the total net proceeds to us from the IPO were approximately $28,451,000, of which $28,366,000 was deposited into the Trust Account. The remaining proceeds were used for business, legal and accounting due diligence on prospective acquisitions and general and administrative expenses prior to the redemption of the common stock.
Commencing on April 19, 2007 and terminating at the eighteen month anniversary of our IPO in October 2008 and extended through December 2008, we began incurring a fee from New Pole Ltd., an affiliate of Ronen Zadok, our chief financial officer, of $7,500 per month for providing us with office space and certain general and administrative services. Currently, New Pole Ltd. permits our continued use of the office space free of charge. In addition, Mr. Zadok advanced $151,210 to us for payment on our behalf of IPO expenses. This amount was repaid following the IPO from the net proceeds of the IPO.
On May 19, 2009 the Company effectuated the redemption of the shares of common stock issued in the Offering in the amount of $9.91 per share from the Trust Account.
Liquidity and Capital Resources
At December 31, 2009, the Company had $8,071 in cash, current liabilities of $148,995 and working capital deficit of $64,182. Further, the Company has incurred, and expects to continue to incur, costs. These factors, among others, indicate that the Company may be unable to continue operations as a going concern unless further financing from related parties is consummated. The Company did not hold any cash equivalents as of December 31, 2009.
The Company's restricted cash and cash equivalents was held in the Trust Account until May 19, 2009 and was invested in a money market fund. The Company recognized interest income of $1,359,678 from inception (September 6, 2006) to May 19, 2009. The Company distributed all cash from its Trust Account as part of the Redemption.
The cash and cash equivalent held in the Trust Account prior to May 19, 2009 was generated by the proceeds from the Offering of approximately $28,750,000, the proceeds of the sale of founder securities of $1,500,000, and $1,365,361 of interest earned on the funds since the Offering.
The warrants issued in the Offering are currently outstanding in accordance with their terms and will become exercisable upon the consummation of any business combination.
In connection with the IPO, our underwriter agreed to defer payment of the remaining three percent (3%) of the gross proceeds ($862,500) until completion of a Business Combination. Due to the inability of the Company to consummate a Business Combination, the 3% deferred fee was forfeited by the underwriter and was returned to our public stockholders from the Trust Account upon the distribution of the Trust Account.
Following the distribution of the Trust Account, we are in need of additional financing to fund our operating expenses. If we do not have sufficient funds available to fund our expenses, we may be forced to obtain additional financing, either from our management or from third parties. We may not be able to obtain additional financing and our existing stockholders and management are not obligated to provide any additional financing. If we do not have sufficient proceeds and cannot find additional financing, we may be forced to dissolve and liquidate prior to consummating a business combination.
We may need additional financing to complete a business combination. We cannot assure you that such financing would be available on acceptable terms, if at all. To the extent additional financing proves to be unavailable when needed to consummate a particular business combination, we would be compelled to restructure the transaction or abandon that particular business combination and seek an alternative target business candidate. In addition, if we consummate a business combination, we may require additional financing to fund the operations or growth of the target business.
Other than contractual obligations incurred in the ordinary course of business, we do not have any other long-term contractual obligations.
Critical Accounting Policies
Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. These generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our significant accounting policies are described in the notes to the consolidated financial statements included in this report. Judgments and estimates of uncertainties are required in applying our accounting policies in many areas. Management has discussed the development and selection of these policies with the Company’s Board of Directors and the Board of Directors has reviewed the Company’s disclosures of these policies. There have been no material changes to the critical accounting policies or estimates reported in the Management’s Discussion and Analysis section of the audited financial statements for the year ended December 31, 2008 as filed with the Securities and Exchange Commission.
Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued the FASB Accounting Standards Codification (“Codification”). The Codification became the single authoritative source for US GAAP and changed the way in which the accounting literature is organized. As applicable to the Company, the Codification became effective commencing in the third quarter of 2009. The Codification does not change US GAAP and does not have an effect on our financial position or results of operations.
In May 2009, the FASB established a general standard of accounting for disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. As applicable to the Company, this standard became effective as of June 15, 2009. In accordance with this standard, the Company has evaluated subsequent events up to the filing date of these financial statements.
In April 2009, the FASB issued additional requirements regarding interim disclosures about the fair value of financial instruments which were previously only disclosed on an annual basis. Entities are now required to disclose the fair value of financial instruments which are not recorded at fair value in the financial statements in both interim and annual financial statements. The new requirements were effective for interim and annual periods ending after June 15, 2009 on a prospective basis. There was no impact on the financial results.
The Company does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
Off-Balance Sheet Arrangements
None.
Contractual Obligations
We do not have any long term debt, capital lease obligations, operating lease obligations, purchase obligations or other long term liabilities. We entered into a Service Agreement with New Pole Ltd., requiring us to pay $7,500 per month. The agreement terminated on the eighteen month anniversary of our IPO in October 2008. However, New Pole Ltd. continued to permit our use of our office space and provided general and administrative services upon the same terms and conditions until December 2008. Currently, New Pole Ltd. permits our continued use of this space free of charge.
Other than contractual obligations incurred in the ordinary course of business, we do not have any other long-term contractual obligations.
Item 7A.
Item 7A.
Quantitative and Qualitative Disclosure about Market Risk
Not applicable.
Item 8.
Item 8.
Financial Statements and Supplementary Data
Reference is made to our financial statements beginning on page of this report.
Item 9.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A.
Item 9A.
Controls and Procedures
Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, (together, the “Certifying Officers”), we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on the foregoing, our Certifying Officers concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Certifying Officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Controls Over Financial Reporting
Our Certifying Officers are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Internal control over financial reporting is promulgated under the Exchange Act as a process designed by, or under the supervision of, our Certifying Officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
·
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
·
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
·
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition or disposition of our assets that could have a material effect on the financial statements.
Readers are cautioned that internal control over financial reporting, no matter how well designed, has inherent limitations and may not prevent or detect misstatements. Therefore, even effective internal control over financial reporting can only provide reasonable assurance with respect to the financial statement preparation and presentation.
Our management, under the supervision and with the participation of our Certifying Officers, has evaluated the effectiveness of our internal controls over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) as of the end of the period covered by this annual report based upon the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on such evaluation, our management has made an assessment that our internal control over financial reporting is not effective as of December 31, 2009.
There is a lack of segregation of duties at the Company due to the small number of employees dealing with general administrative and financial matters and general controls over information technology security and user access. This constitutes a material weakness in internal controls over financial reporting. Furthermore, the Company’s Chief Financial Officer is the only person with an appropriate level of accounting knowledge, experience and training in the selection, application and implementation of generally accepted accounting principles as it relates to complex transactions and financial reporting requirements. Management will continue to evaluate the segregation of duties issues considering the cost involved to remediate them.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Changes in Internal Controls
During the quarter ended December 31, 2009, there have been no changes in our internal control over financial reporting (as defined in Rule 13-15(f) of the Securities Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Item 9B. Other Information.
None.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance.
Directors and Executive Officers
Our current directors and executive officers are listed below. None of such persons are, or have been, involved with any other blank check companies.
Name
Age
Position
Adiv Baruch
President, Chief Executive Officer and Director
Ronen Zadok
Chief Financial Officer, Secretary and Director
Yoav Schwalb
Director
Yaron Schwalb
Chief Technology Officer and Director
Mr. Adiv Baruch has been our President, Chief Executive Officer and a Director since inception. Since February 2004, he has been a director, and from January 1, 2004 until November 2006, he served as the President and CEO, of B.O.S., a company publicly traded on both NASDAQ and the Tel Aviv Stock Exchange (BOSC). Through its wholly owned subsidiaries, B.O.S. delivers connectivity from IBM iSeries computers to personal computers and mobile devices and provides solutions in RFID, semiconductors, electronic components, CCD, imaging, networking, telecom and automation. From 1999 to 2003, he served as Executive Vice President, Business Development of Ness Technologies (NASDAQ: NSTC), an international provider of comprehensive end-to-end IT services and solutions. Ness offers a unique global delivery model of innovative, high-quality, value-added services that enable organizations to attain sustainable competitive advantage. He has served as founder and an executive or director for several information technology companies and Internet start-ups. Mr. Baruch is actively involved as the chairman of The Israel Export and International Cooperation Institute, Hi-Tech and Telecom Division, and a board member of the IEIC. Mr. Baruch serves as a director in several public and private companies, including., Rabintex Industries Ltd, an international leading manufacturer of personal protection equipment and armored systems and Tapuz, the Israeli community and mobile portal, all of which are public traded companies listed on the Tel Aviv Stock Exchange. He is also a director of Win Gaming Media, Inc., which is quoted on the OTC Bulletin Board under the symbol WGMI. Win Gaming Media, Inc. is a software and technology developer and provider to companies that service the interactive gaming industry, delivering cross-platform systems that are built for mass participation gaming over mobile devices, TV and the internet. Mr. Baruch has a B.Sc. in Information Systems and Industrial Engineering from the Technion - Israel Institute of Technology. He is also Chairman of Mate Video Analytics. Since 2004 he has been a partner in Signum Ltd.
Mr. Ronen Zadok has been our Chief Financial Officer, Secretary and Director since inception. Since October 1999 to 2005 he has been a managing partner in Signum Ltd., a privately held company focusing on turnaround management services for corporations. Currently, he is a Director in Applisonix, a listed company on the Tel Aviv Stock Exchange (TASE: APLS). He is also a managing partner of New Pole Ltd., a newly formed, privately held investment company and, since 2005, a director of SiMetra Farm Ltd., an Israeli biotech company. From October 2002 to May 2004, he was a director of Ness Technologies (NASDAQ: NSTC). From 1995 to October 1999, Mr. Zadok was CEO and a Director of Clal-Ipex, a joint venture company with Clal (Israel's largest conglomerate at that time), specializing in IT professional and outsourcing services. From July 1992 to 1995, Mr. Zadok was the CFO and Co-Founder of Ipex Israel Ltd., a software and IT services company which was acquired by Ness Technologies. From 1990 to 1992, Mr. Zadok was Director of Marketing - financial services for Ipex ITG Australia, an IT products, services and outsourcing company. Mr. Zadok holds a B.A. in Economics and Business Administration, a B.A. in accounting and an MBA in finance and accounting, all from Tel Aviv University.
Mr. Yoav Schwalb has been a Director of our company since inception. From February 2004 to February 2005, he served as a director of Volante (recently acquired by Commander Communications) (ASX: CDR), one of Australia's largest information technology providers. Mr. Schwalb has been a director of SiMetra Farm Ltd., an Israeli biotech company, since 2006. From October 2002 through February 2004, Mr. Schwalb was an Executive Vice President of Ipex ITG Australia, leading the business development unit. In such capacity, Mr. Schwalb was charged with overall control of sales and marketing as well as the development and initiation of new business areas. From October 1999 to February 2002, he served as a Director of Ness Technologies (NASDAQ: NSTC). From October 1993 to October 1999, Mr. Schwalb served as the CEO and Director of Ipex Israel Ltd., an Israeli high-tech company (which later merged with Ness Technologies). Yoav Schwalb is the brother of Yaron Schwalb, our Chief Technology Officer and a director.
Mr. Yaron Schwalb has been our Chief Technology Officer and a Director since inception. Mr. Schwalb has been a director of SiMetra Farm Ltd., an Israeli biotech company, since 2006. From February 2004 to September 2005, Mr. Schwalb was CTO and Technical Director of the Ipex division of Volante (AMEX: VGL), one of Australia's largest information technology providers. From 2006, he has served as a partner of New Pole Ltd., a newly formed, privately held investment company. From 1985 to 2004, he was co-founder and CTO of Ipex ITG Australia. Mr. Schwalb received his B.Com from Melbourne University (Australia). Yaron Schwalb is the brother of Yoav Schwalb, a director of our company.
Number and Terms of Office of Directors.
Our board of directors consists of four members: Messrs. Yaron Schwalb, Yoav Schwalb, Adiv Baruch and Ronen Zadok. Member of our board of directors will serve for a term of one year or until the next annual meeting of our stockholders at which their successors will be duly elected and qualified.
None of these individuals has been a principal of or affiliated with a public company or blank check company that executed a business plan similar to our business plan and none of these individuals is currently affiliated with such an entity.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our officers, directors and persons who beneficially own more than ten percent of our common stock to file reports of ownership and changes in ownership with the SEC. These reporting persons are also required to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based solely upon our review of the copies of such reports furnished to us, we believe that all of our officers, directors and greater than ten percent stockholders have complied with the applicable Section 16(a) reporting requirements in a timely manner.
Board Committees.
Our board of directors in its entirety will act as the audit committee and compensation committee. We may establish an audit committee and a compensation committee upon consummation of a business combination. At that time our board of directors intends to adopt charters for these committees. Prior to such time we do not intend to establish either one. Accordingly, there will not be a separate committee comprised of some members of our board of directors with specialized accounting and financial expertise to meet, analyze and discuss solely financial matters concerning potential target businesses. We do not feel a compensation committee is necessary prior to a business combination as there is no salary, fees or other compensation being paid to our officers or directors prior to a business combination other than as disclosed in this annual report.
The Company has not implemented any changes to the procedures by which stockholders may recommend nominees for the Company’s board of directors.
Audit Committee Pre-Approval Policies
The Board of Directors, which is performing the equivalent functions of an audit committee, has pre-approved all audit services provided by the independent auditors, and the compensation, fees and terms for such services. No permitted non-audit services were provided or approved by the Board of Directors.
Code of Conduct.
We have adopted a code of conduct and ethics applicable to our directors, officers and employees in accordance with applicable federal securities laws. We have filed copies of our code of ethics and committee charters as an exhibit to our registration statement on Form S-1, which we filed with the Securities and Exchange Commission on October 20, 2006. This document may be reviewed by accessing such filing at the SEC Web site at www.sec.gov. In addition, a copy of the code of ethics shall be provided without charge upon request to us.
Item 11.
Item 11. Executive Compensation.
The Company’s officers and directors do not currently receive any compensation for services rendered to the Company. In future periods, subsequent to the consummation of a business combination transaction, the Company anticipates that it will pay compensation to its officers and directors.
Compensation Committee Interlocks and Insider Participation
We do not feel a compensation committee is necessary prior to a business combination as there is no salary, fees or other compensation currently being paid to our officers or directors other than as disclosed in this annual report. The entire board has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and based on the review and discussions of this item, the board of directors believes the Compensation Discussion and Analysis be included in this annual report.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth information regarding the beneficial ownership of the New Common Stock and Class A Stock as of March 22, 2010, based on information obtained from the persons named below, with respect to the beneficial ownership of shares of such securities by:
•
each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock;
•
each of our officers and directors; and
•
all our officers and directors as a group.
Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.
Beneficial Ownership of Securities
(1)
Unless otherwise indicated, the business address of each of the individuals is 4 Maskit Street, Herzeliya, Israel 46700.
(2)
Unless otherwise indicated, all ownership is direct beneficial ownership of Class A Stock.
(3)
The percentage ownership is calculated based on 3,484,402 shares of New Common Stock and Class A Stock that have voting rights and; does not include the shares of common stock underlying the insider warrants sold in the private placement. Assumes that that none of the (a) 2,875,000 Warrants to purchase shares of our common stock included in the Company’s IPO units were exercised and (b) none of the 1,500,000 warrants to purchase shares of our common stock sold to our directors as described were exercised.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Immediately after our Offering, our existing stockholders, which include all of our officers and directors, collectively, beneficially owned 20.0% of the then issued and outstanding shares of our common stock. On May 19, 2009, our executive officers and directors and their affiliates who purchased or received shares of our common stock prior to our IPO, increased their beneficial ownership from 20% to approximately 90% and the aggregate percentage of the Company’s outstanding voting securities and the ownership of all other stockholders decreased from 80% to approximately 10%. Because of this ownership change, holders of Class A Stock will be able to effectively influence the outcome of all matters requiring approval by our stockholders, including the election of directors and approval of significant corporate transactions other than approval of a business combination.
Our officers and directors or entities wholly owned by them, purchased equal amounts of an aggregate of 1,500,000 warrants from us at a price of $1.00 per warrant in a private placement prior to the commencement of our Offering. Each warrant is exercisable into one share of common stock at $7.50 and will become exercisable on the later of (i) the completion of a business combination with a target business or (ii) one year from the date of the prospectus, and expiring four years from the date of the prospectus relating to our IPO. The insider warrants will not be subject to redemption and may be exercised on a “cashless” basis if held by the initial holder thereof or its permitted assigns. No commissions, fees or other compensation will be payable in connection with such private placement.
We have granted the holders of such warrants demand and “piggy-back” registration rights with respect to the shares of common stock underlying such warrants at any time commencing on the date we announce we have entered into a letter of intent with respect to a proposed a business combination, provided, however, any such registration will not become effective prior to completion of our initial business combination. The demand registration may be exercised by the holders of a majority of such warrants. We will bear the expenses incurred in connection with the filing of any such registration statements.
Messrs. Baruch, Zadok, Yoav Schwalb, Yaron Schwalb and Perry are deemed our “parents” and “promoters” as these terms are defined under the federal securities laws.
Director Independence.
Although the Company’s securities are listed on the Over-the-Counter Bulletin Board and we are therefore not required to have a majority of independent directors, we apply the NYSE AMEX standard for independent directors to determine which, if any, of our directors are independent pursuant to such definition. The NYSE AMEX defines an independent director generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, which, in the opinion of the company’s board of directors would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director.
The Company has determined that all of our directors are not independent directors as defined under the NYSE AMEX Rule 803.
Any affiliated transactions will be on terms no less favorable to us than could be obtained from independent parties. Any affiliated transactions must be approved by a majority of our independent and disinterested directors.
Item 14.
Item 14. Principal Accounting Fees and Services.
During the fiscal year ended December 31, 2009, the firm of BDO Seidman LLP which we refer to as BDO, was our principal accountant. BDO manages and supervises the audit and audit staff, and is exclusively responsible for the opinion rendered in connection with its examination. The following is a summary of fees paid or to be paid to BDO for services rendered.
Audit Fees. Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements and services that are normally provided by BDO LLP in connection with statutory and regulatory filings. We have been billed approximately $5,000 in connection with our December 31, 2009 year end audit.
Audit-Related Fees. Audit-related services consist of fees billed for assurance and related services that are reasonably related to performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards. There were no aggregate fees billed for audit-related services rendered by BDO.
Tax Fees. Fees for professional services rendered by BDO for tax compliance, tax planning and tax advice for the fiscal year ended December 31, 2009 were approximately $5,000.
All Other Fees. There were no fees billed by BDO for any other professional services rendered from the date of our inception through December 31, 2009.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules.
(a) The following documents are filed as part of this report:
(1) Financial Statements.
The following financial statements of the Company are referenced in Item 8 and begin on page of this report:
(2) Financial Statement Schedules.
All schedules are omitted for the reason that the information is included in the financial statements or the notes thereto or that they are not required or are not applicable.
(3) Exhibits.
Exhibit No.
Description
1.1
Underwriting Agreement. (1)
3.1
Second Amended and Restated Certificate of Incorporation. (5)
3.2
Bylaws. (2)
4.1
Specimen Unit Certificate. (2)
4.2
Specimen Common Stock Certificate. (2)
4.3
Specimen Warrant Certificate. (2)
4.4
Warrant Agreement between American Stock Transfer & Trust Company and the Registrant. (1)
4.5
Unit Option Purchase Agreement between the Registrant and Maxim Group LLC. (1)
10.1.1
Letter Agreement among the Registrant, Maxim Group LLC and Adiv Baruch. (2)
10.1.2
Letter Agreement among the Registrant, Maxim Group LLC and Yoav Schwalb. (2)
10.1.3
Letter Agreement among the Registrant, Maxim Group LLC and Ronen Zadok. (2)
10.1.4
Letter Agreement among the Registrant, Maxim Group LLC and Yaron Schwalb. (2)
10.1.5
Letter Agreement among the Registrant, Maxim Group LLC and Jacob Perry. (2)
10.2
Investment Management Trust Agreement between American Stock Transfer & Trust Company and the Registrant. (1)
10.3
Stock Escrow Agreement between the Registrant, American Stock Transfer & Trust Company and the founding stockholders. (1)
10.4
Registration Rights Agreement among the Registrant and the founding stockholders. (1)
10.5
Lease/Office Services Agreement dated October 18, 2006 by and among the Registrant and New Pole Ltd. (4)
10.6
Amended and Restated Subscription Agreement between the Registrant and certain officers and directors of the Registrant. (2)
Code of Ethics (3)
23.1
Consent of Ziv Haft, a BDO member firm.*
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002*
*
Filed herewith.
(1)
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on April 27, 2007.
(2)
Incorporated by reference to the Registrant’s Registration Statement of Form S-1 filed on February 21, 2007.
(3)
Incorporated by reference to the Registrant’s Registration Statement on Form S-1 filed on November 30, 2006.
(4)
Incorporated by reference to the Registrant’s Registration Statement on Form S-1 filed on October 20, 2006.
(5)
Incorporated by reference to the Registrant’s Proxy Statement on Form 14A filed on April 8, 2009.
PINPOINT ADVANCE CORP.
(A development stage corporation)
FINANCIAL STATEMENTS
as of December 31, 2009
In U.S. Dollars
INDEX
PINPOINT ADVANCE CORP.
(A development stage corporation)
BALANCE SHEETS
The accompanying notes should be read in conjunction with the financial statements
PINPOINT ADVANCE CORP.
(A development stage corporation)
STATEMENTS OF OPERATIONS
The accompanying notes should be read in conjunction with the financial statements
PINPOINT ADVANCE CORP.
(A development stage corporation)
STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY
For the period from September 6, 2006 (inception) to December 31, 2009
PINPOINT ADVANCE CORP.
(A development stage corporation)
STATEMENTS OF CASH FLOWS
The accompanying notes should be read in conjunction with the financial statements
PINPOINT ADVANCE CORP.
(A development stage corporation)
NOTES TO FINANCIAL STATEMENTS
NOTE 1-DISCUSSION OF THE COMPANY’S ACTIVITIES
Organization and activities: Pinpoint Advance Corp. (the “Company”) was incorporated in Delaware on September 6, 2006, as a blank check company that was formed for the purpose of acquiring, merging with, engaging in a capital stock exchange with, purchasing all or substantially all of the assets of, or engaging in any other similar business combination with a business that has operations or facilities located in Israel or which is a company operating outside of Israel, specifically in Europe, which management believes would benefit from establishing operations or facilities in Israel, preferably in the technology sector (“Target Business”). All activity from inception (September 6, 2006) through December 31, 2009 was related to the Company’s formation and capital raising activities and to seeking a business combination. The Company has selected December 31 as its fiscal year end.
The Company is considered to be a development stage company and as such the financial statements presented herein are presented in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 7.
The registration statement for the Company’s initial public offering (“Offering”) was declared effective on April 19, 2007. On April 25, 2007, the Company completed a private placement ("Private placement") and received net proceeds of $1.5 million. The Company consummated the Offering on April 25, 2007 for net proceeds of approximately $27 million (including the over allotment).The Company’s management intends to apply substantially all of the net proceeds of the Offering toward consummating a Business Combination. The initial Target Business must have a fair market value equal to at least 80% of our net assets (excluding the amount held in the trust account representing a portion of the underwriters’ deferred discount) at the time of such acquisition.
Management has agreed that $28.37 million or $9.91 per Unit sold in the Offering was to be held in a trust account (“Trust Account”) and invested in permitted United States government securities, of which $0.3 per Unit will be paid to the underwriter upon the consummation of a Business Combination. The placing of funds in the Trust Account may not protect those funds from third party claims against the Company. Although the Company sought to have all vendors, prospective acquisition targets or other entities it engaged, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account, the Company may not have been successful in obtaining all such agreements.
On October 27, 2008, the Company announced it has executed a letter of intent to effectuate a business combination with a privately-held company with its headquarters in Israel (the "LOI"). All parties to the LOI negotiated the terms of a definitive agreement and in fact, a definitive agreement (the "Agreement") was executed by all parties to the LOI. However, one of the parties to the Agreement claimed it never released its signature thereto and has since indicated that it no longer wished to pursue the proposed business combination.
The Company believes a binding, definitive agreement was executed by all parties. However, because one of the parties has indicated its position that no binding agreement currently exists and that it did not wish to continue with negotiations at this time, the Company determined to liquidate the trust account established by the Company for the benefit of its public stockholders, and to return funds to the holders of shares of the Company common stock issued in its initial public offering, in accordance with its IPO prospectus and the terms of its amended and restated certificate of incorporation. See Note 4 for a description of the Lawsuit filed by the Company with respect thereto.
At a Special Meeting held on May 15, 2009, a majority of the Company stockholders voted in favor of the proposal to remove the blank check company restrictions from the Company’s charter, thereby allowing the Company to continue its corporate existence. In accordance with stockholder approval of the Company’s proposals, on May 19, 2009 the Company effectuated the redemption of the shares of common stock issued in the Company’s initial public offering in an amount of $9.91 per share from the Company’s trust account and distribution of one share of new common stock for every eight shares of common stock not redeemed. The stockholders also approved the creation of a new class of common stock called Class A Common Stock and exchanged each share of common stock held by them for five shares of Class A Common Stock. The Class A share rights are identical to the New Common Stock rights
The warrants that issued in the initial public offering remain outstanding with no changes in the original terms.
Going concern consideration As indicated in the accompanying financial statements, at December 31, 2009, the Company had $8,071 in cash, current liabilities of $148,995 and working capital deficit of $64,182. Further, the Company has incurred and expects to continue to incur costs. These factors, among others, indicate that the Company may be unable to continue operations as a going concern unless further financing from related parties is consummated.
PINPOINT ADVANCE CORP.
(A development stage corporation)
NOTES TO FINANCIAL STATEMENTS-Continued
NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents-Cash and cash equivalents are deposits with financial institutions as well as short-term money market instruments with maturities of three months or less when purchased. The Company did not hold any cash equivalents as of December 31, 2009.
Trust Account-The Company's restricted cash and cash equivalents was held in the Trust Account until May 19, 2009 and was invested in a money market fund. The Company recognized interest income $1,359,678 from inception (September 6, 2006) to May 19, 2009 on such money market fund, which is included in interest income on the accompanying statements of operations.
Concentration of Credit Risk-financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents. The Company may maintain deposits in federally insured financial institutions in excess of federally insured limits. However, management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.
Net Income per Share-Basic earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Basic earnings per share subject to possible conversion is calculated by dividing accretion of Trust Account relating to common stock subject to possible conversion by 862,212 common shares subject to possible conversion. Diluted earnings per share reflect the additional dilution for all potentially dilutive securities such as stock warrants and options. The effect of the 1,500,000 outstanding warrants, issued in connection with the private placement described in Note 1 and the warrants issued in connection with the public offering has not been considered in the diluted net earnings per share since the warrants are contingently exercisable. The effect of the 125,000 units included in the underwriters purchase option, as described in Note 5, along with the warrants underlying such units, has not been considered in the diluted earnings per share calculation since the market price of the unit was less than the exercise price during the period.
Fair Value of Financial Instruments-the fair values of the Company’s assets and liabilities that qualify as financial instruments under ASC 825 "Financial Instrument" (SFAS No. 107) “Disclosures about Fair Value of Financial Instrument,” approximate their carrying amounts presented in the balance sheet at December 31, 2009.
Use of Estimates-The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that effect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Income Taxes-Deferred income tax assets and liabilities are computed for differences between the financial statement and tax basis of assets and liabilities that will result in future taxable or deductible amounts and are based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized.
PINPOINT ADVANCE CORP.
(A development stage corporation)
NOTES TO FINANCIAL STATEMENTS-Continued
NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
New Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued the FASB Accounting Standards Codification (“Codification”). The Codification became the single authoritative source for US GAAP and changed the way in which the accounting literature is organized. As applicable to the Company, the Codification became effective commencing in the third quarter of 2009. The Codification does not change US GAAP and does not have an effect on our financial position or results of operations.
In May 2009, the FASB established a general standard of accounting for disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. As applicable to the Company, this standard became effective as of June 15, 2009. In accordance with this standard, the Company has evaluated subsequent events up to the filing date of these financial statements.
In April 2009, the FASB issued additional requirements regarding interim disclosures about the fair value of financial instruments which were previously only disclosed on an annual basis. Entities are now required to disclose the fair value of financial instruments which are not recorded at fair value in the financial statements in both interim and annual financial statements. The new requirements were effective for interim and annual periods ending after June 15, 2009 on a prospective basis. There was no impact on the financial results.
The Company does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
NOTE 3-DEFFERED UNDERWRITING FEE
In connection with the Offering, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with the underwriters in the Offering.
Pursuant to the Underwriting Agreement, the Company was obligated to the underwriters for certain fees and expenses related to the Offering, including underwriting discounts of $2.2 million (with over allotment exercised). The Company paid $1.4 million, of the underwriting discount upon closing of the Offering (including the over allotment). The Company and the underwriters agreed that payment of the balance of the underwriting discount of $862.5 thousand would be deferred until consummation of the Business Combination.
In connection with the Offering, the Company entered into an engagement agreement (the “Engagement Agreement”) with its legal counsel in the Offering. Pursuant to the Engagement Agreement, the Company was obligated to its legal counsel for certain fees and expenses related to the Offering, including an aggregate legal fee of $250 thousands. The Company paid $150 thousand, of the legal fee upon closing of the Offering.
The Company was unable to consummate a business combination within the time allotted and all deferred legal fees and deferred underwriter fees were distributed to stockholders as part of the trust distribution.
As discussed in note 1, those fees have been reclassified to the Additional Paid-in capital and will not be payable upon liquidation.
PINPOINT ADVANCE CORP.
(A development stage corporation)
NOTES TO FINANCIAL STATEMENTS-Continued
NOTE 4- COMMITMENTS AND CONTINGENCIES
On December 8, 2009, the Company and others, filed a lawsuit against Elbit Systems Holdings Ltd. ("Elbit") and others, in the Petah Tikva District Court of Israel, for damages in the amount of NIS 37.7 million ($10 million) (the "Lawsuit"). The Lawsuit is based on the following factual background:
·
That following a period of extensive negotiations between inter alia, the Company and Elbit, a July 2008 Letter of Intent was signed, which contemplated inter alia, the Company purchase from Elbit of 31% of Kinetics, i.e. 18,716 Ordinary Shares of Kinetics Ltd. (the "Kinetics Shares"), in the amount of $ 26 million Following said purchase, a merger between the Company and Kinetics was to be effectuated;
·
That the Company, as a Blank Check company and in order to fulfill its duty to obtain timely shareholders' approval, was compelled to finalize the deal by October 18, 2008;
·
That based on the Letter of Intent, and a belief at the time of Elbit's good faith, the Company continued negotiating a definitive agreement with all parties involved in the transaction;
·
That after lengthy negotiations, a definitive agreement was finalized, and signed, in early October 2008;
·
That Elbit's signature on the definitive agreement was withheld, based on Elbit's claim that it had "just received" information about a new order that would raise the forecast of Kinetics' profits in 2009;
The Lawsuit seeks reparation for damages caused to plaintiffs as a result of defendants' lack of good faith in negotiations, and requests that the Court hold that defendants materially breached the definitive agreement, that defendants are estopped from denying that the definitive agreement was finalized, and that defendants acted with fraud, and alternatively, with recklessness. The Lawsuit also alleges that Elbit was unjustly enriched by its conduct, and that any enrichment as a result of Elbit's retension of the Kinetics Shares belongs to the Company.
The Lawsuit is in preliminary stages, and the Company cannot opine on the likelihood of success at the present time.
NOTE 5-STOCKHOLDER’S EQUITY
In its initial public offering, effective April 19, 2007 (closed on April 25, 2007), the Company sold to the public 2,875,000 Units (the “Units” or a “Unit”) at a price of $10.00 per Unit. Each Unit consisted of one share and one warrant. Each warrant entitles the holder to purchase one share of the Company's common stock at a price of $7.50. Proceeds from the initial public offering and the Private Placement totaled approximately $28.5 million, which was net of approximately $1.6 million in underwriting fees and other expenses paid at closing.
The Company also sold to underwriters for $100 an option to purchase up to 125,000 Units.
On May 19, 2009, in accordance with stockholder consent, the Company effectuated the exchange and redemption of its capital stock whereby holders of stock in the Company’s initial public offering received one share of New Common Stock for eight shares held and issued one share of Class A Common Stock for each share of common stock purchased prior to the Company’s offering for an aggregate of 359,402 shares of New Common Stock and 3,125,000 shares of Class A Common Stock. The Class A Share rights are identical to the new common share rights.
The warrants issued in the initial public offering remain outstanding with no changes in the original terms.
PINPOINT ADVANCE CORP.
(A development stage corporation)
NOTES TO FINANCIAL STATEMENTS-Continued
NOTE 6- WARRANTS AND OPTION TO PURCHASE COMMON STOCK
The Company has agreed to pay the underwriter in the Offering an underwriting discount of 7% of the gross proceeds of the Offering and a non-accountable expense allowance of 1% of the gross proceeds (excluding the over-allotment option) of the Offering. However, the underwriter has agreed that 3% of the underwriting discounts will not be payable unless and until the Company completes a business combination, and has waived its right to receive such payment upon the Company’s liquidation if the Company is unable to complete a business combination. The Company has sold to the Underwriter for $100, an option to purchase up to 125,000 units at $11 per unit. The units issuable upon exercise of this option are identical to those offered by the Public Offering. This option commences on the later of the consummation of a business combination or 180-days from the date of the prospectus with respect to the Proposed Offering and expires five years from the date of the prospectus. The Company estimates that the fair value of the Underwriter’s Option is approximately $738.7 thousand ($5.91per Unit) using a Black-Scholes option-pricing model. The fair value of the Underwriter's Option has been estimated using the following assumptions: (1) expected volatility of 69.95% (2) risk-free interest rate of 4.8% and (3) contractual life of 5 years. The expected volatility in the preceding sentence was calculated as an average of the volatilities of Israeli technology companies with market capitalizations between $50 million - $100 million that trade on US Stock Exchanges. In calculating volatility for the representative companies, the Company used daily historical volatilities for the period of time equal to the term of the option (5 years) .The Company has accounted for these purchase options as a cost of raising capital and has included the instrument as equity in its financial statements. Accordingly, there was no net impact on the Company’s financial position or results of operations, except for the recording of the $100 proceeds from the sale.
The Company was unable to effectuate the Business Combination within the time allotted and the deferred underwriting discount was distributed to stockholders as part of the trust distribution. Immediately prior to the Initial Public Offering the Company sold to certain of the initial Stockholders 1,500,000 warrants ("Private Warrants"), for an aggregate purchase price of $1.5 million. All of the proceeds received from the sale of the Insider Units were placed in the Trust Account. The Insider Units are identical to the units offered in the Initial Public Offering except that the warrants included therein are not redeemable while held by the insider or his permitted transferees. All of the Company’s stockholders prior to the Proposed Offering (“Initial Stockholders”) agreed to vote the shares of common stock owned by them immediately before the offering and the private placement in accordance with the majority of the shares of common stock voted by the public stockholders and the holders of the shares of common stock included in the Insider Units agreed to vote in favor of a business combination proposed to the Company’s stockholders. All of such holders have waived their rights to participate in any liquidation distribution occurring upon failure of the Company to consummate a business combination.
The public warrants, and the underwriter's unit purchase option and the warrants included in the underwriter’s unit purchase option, are not subject to net cash settlement in the event the Company is unable to maintain an effective 1933 Act registration statement. The Company must use best efforts to file and maintain the effectiveness of the registration statement for the warrants set forth above as well as the securities issuable upon exercise of the underwriter’s unit purchase option. Such warrants are only exercisable to the extent the Company is able to maintain such effectiveness. The unit purchase option (but not the underlying warrants), however, may be exercised by means of cashless exercise even in the absence of an effective registration statement for the underlying securities. If a holder of public warrants or the holder of the underwriter’s unit purchase option, or warrants underlying the underwriter’s unit purchase option, does not, or is not able to, exercise such warrants, underwriter’s unit purchase option or warrants underlying such underwriter’s unit purchase option, as applicable, such warrants, underwriter unit purchase option or underlying warrants, as applicable, will expire worthless.
PINPOINT ADVANCE CORP.
(A development stage corporation)
NOTES TO FINANCIAL STATEMENTS-Continued
NOTE 7-CAPITAL STOCK
Preferred Stock
The Company is authorized to issue up to 1,000,000 shares of Preferred Stock with such designations, voting, and other rights and preferences as may be determined from time to time by the Board of Directors
Common Stock
On February 20, 2007, the number of outstanding shares decreased from 828,125 shares to 625,000 shares as a result of a reverse split of the Company's common stock.
On April 25, 2007, the number of outstanding shares was 3,125,000 after consummating the initial public offering.
On May 2, 2007, the number of outstanding shares was 3,500,000 after exercising the over-allotment option.
On May 19, 2009, the number of outstanding shares was decreased from 3,500,000 to 359,402 as a result of reverse split of 8 to 1 of the IPO shares, and as result of returned cancellation of initial stockholders common stock
Class A, Common Stock
On May 19, 2009, the number of outstanding share was 3,125,000 after issuance of common stock to initial stockholders.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Adiv Baruch
President and Chief Executive Officer
March 31, 2010
Adiv Baruch
(principal executive officer)
/s/ Ronen Zadok
Chief Financial Officer and Secretary
March 31, 2010
Ronen Zadok
(principal financial and accounting officer)
/s/ Yoav Schwalb
Director
March 31, 2010
Yoav Schwalb
/s/ Yaron Schwalb
Director
March 31, 2010
Yaron Schwalb