Around two years ago, I came across an interesting IT “toy” which I first thought was made by AT&T. The product, called “Ogo” is a like a pocket-sized laptop, and it can be used to send emails, SMS messages, browse the Internet and other things that young people like to amuse themselves with.
It turns out that the Ogo is an Israeli product, or to be more precise, a product that was developed by Israelis based in California who formed a company by the name of IXI Mobile. The Ogo, a battery-powered wireless device, was originally marketed by AT&T as device for teenagers who like sending SMS messages. As I am no longer in that age group, I thought that it wouldn’t work, especially seeing that it was clear by as early as 2004 that developments in cellular technology would produce handsets fitted with functions to suit every conceivable need including, obviously, messaging, which the advertising people at AT&T had originally focused on. But I got it wrong, probably because of my age, and it now appears that the Ogo is indeed catching on. “The young people of today use messaging rather than their voices to communicate with one another,” says IXI co-founder president and CEO Amit Haller. Judging by my grandchildren, he’s right, and if that’s the case then he has a huge captive audience.
IXI Mobile is the company which developed the Ogo and several other IT gadgets. It is a privately held company founded in California in 2000 by Amit Haller and Gidi Barak, two people with an impressive background in innovation and development, with the aim of bringing wireless applications to the markets. The Ogo product suite is its first such range and it quite definitely fits into this category.
IXI’s founders feel that data transmission devices will eventually replace cellular handsets (and not vice versa as some other people think). If they are right, IXI’s upcoming reverse merger with shell company Israel Technology Acquisition Corporation (ITAC) (ISLT.OB), will no doubt be of interest to venture capital investors. But before we look at ITAC, I will say a few more words on IXI Mobile.
The company received initial financing from several leading venture capital funds, among them Intel Capital, Texas Instruments Inc. (NYSE: TXN), Landa Ventures, which was founded by Benny Landa, founder of Indigo, Gemini Israel Funds, Concord Ventures and others. IXI’s business progress has also been impressive, and last Tuesday it announced that it had reached an agreement with instant messaging provider ICQ, owned by AOL, to offer ICQ instant messaging services to its customers.It also recently signed OEM agreements with Swiss telecommunications company Swisscom Mobile and several other companies in Africa and the East.
At the beginning of 2006 IXI announced that it had entered an agreement to merge with a wholly owned subsidiary of ITAC, ITAC Acquisition Subsidiary Corp. The agreement will enable IXI to use ITAC’s $34 million plus in cash. The deal is based on the meeting of performance milestones and will therefore take time. IXI’s shareholders will receive ITAC shares in accordance with their company’s performance. If, for example, IXI’s revenue for 2006 reaches $45 million, they will receive one million ITAC shares, and if its net profit tops the $15 million mark, they will be entitled to another million shares, and so on.
In the meantime, IXI has continued to make good progress and needed funding, so in June 2006 it secured $20 million in interim financing from Southpoint Master Fund LP, an affiliate of Southpoint Capital Advisors LP. The company said in its announcement that around $1 million of the net proceeds would be used to refinance debt, with the balance to be used to fund IXI Mobile's working capital needs, and support repeat orders from existing customers and orders from new customers that need to be met before the closing of the merger with ITAC.
IXI’s orders backlog rose from one million sets at the end of 2005 to 14 million in May 2006. In addition to the aforementioned financing, the company’s initial investors also managed to obtain an $8 million loan from Bank Leumi (TASE: LUMI), repayable within 60 days from the completion of the merger with the ITAC subsidiary. If IXI meets all the milestones under the deal by the end of 2008, its shareholders will become the owners of ITAC. Given the timeline that has been set for the reaching of the milestones, there is a good chance that the stock will perform in line with IXI’s success (if indeed, it delivers the expected results). Once the deal is complete, the public company formed by the merger will be posting sales and profit that will most certainly justify a price far removed from what it is at present. So it looks to me like ITAC is definitely one stock to watch.
What went wrong at Pharmos Corp. (Nasdaq: PARSD)? Nothing that was unexpected, much to my regret. I have said time and again that investing in stocks of this kind is a 50:50 gamble, and in Pharmos’ case, given the experience to date, it is 60:40 in favor of the investor. Either way, during the course of the Phase II clinical trials for its molecule cannabinor, it became apparent that the drug did not deliver the expected results so the company decided to abandon the trials on human subjects.
As the people of Israel has already endured far greater trauma at the hands of Pharmos, the company’s announcement was greeted by a lot less anger and vitriol than would have been the case in the past and it’s just as well too. All that can be said is that this amounts to the usual hiccup during the course of drug development, but the company still has some cash as well as more developments in the pipeline. So for those who believe that Pharmos will make the breakthrough, this is an opportunity to buy the stock at a low price. Having said this, I must stress once again that these stocks are only suitable for speculators who are aware that the odds of success are less than 10:1.
Published by Globes [online], Israel business news - www.globes.co.il - on January 23, 2007
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