As filed with the Securities and Exchange Commission on January 30, 2006
SEC Registration No. 333-125239
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 4 TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Delaware NEOMEDIA TECHNOLOGIES, INC. 36-3680347
(State or other jurisdiction of (Name of issuer in its charter) (I.R.S. Employer
incorporation or organization) Identification No.)
Charles T. Jensen
2201 Second Street, Suite 600
2201 Second Street, Suite 600 Fort Myers, Florida 33901-3083
Fort Myers, Florida 33901 (239) 337-3434
(239) 337-3434 7373 Telecopier No.: (239) 337-3668
(Address and telephone number of Registrant's (Primary Standard Industrial (Name, address, and telephone number
principal executive offices) Classification Code Number) of agent for service)
With copies to:
Clayton E. Parker, Esq. Ronald S. Haligman, Esq.
Kirkpatrick & Lockhart LLP Kirkpatrick & Lockhart Nicholson Graham LLP
201 S. Biscayne Blvd., Suite 2000 201 S. Biscayne Blvd., Suite 2000
Miami, FL 33131 Miami, FL 33131
Telephone No.: (305) 539-3305 Telephone No.: (305) 539-3319
Telecopier No.: (305) 358-7095 Telecopier No.: (305) 358-7095
Approximate date of commencement of proposed sale to the public: From time to
time after this registration statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box.[ ]
If any of the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, please check the
following box.[ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[ ]
CALCULATION OF REGISTRATION FEE
--------------------------------------------------- ----------------- ----------------- ------------------- ----------------
Proposed Proposed
Maximum Maximum
Amount Offering Aggregate Amount of
To be Price per Offering Registration
Title of Securities to be Registered Registered(1) Share Price Fee(2)
--------------------------------------------------- ----------------- ----------------- ------------------- ----------------
Shares underlying warrants to purchase Common 54,000,000 $0.535 $28,890,000 $3,400.35
Stock, par value $0.01 per share
--------------------------------------------------- ----------------- ----------------- ------------------- ----------------
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f)(1), using the average of the closing bid and ask prices of
NeoMedia's common stock of $0.535 per share as reported in the
Over-the-Counter Bulletin Board on May 20, 2005.
(2) Registration fee was paid previously.
THE REGISTRANT HEREBY AMENDS THIS REGISTRAITON STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRAITON STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
Subject to Completion or Amendment
Dated ________, 2005
54,000,000 Shares
NEOMEDIA TECHNOLOGIES, INC.
Shares Underlying Warrants to Purchase Shares of Common Stock
--------------------------------------------------------------------------------
54,000,000 Shares Underlying Warrants to Purchase
Shares of Common Stock of NeoMedia Technologies, Inc.
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All of the shares of common stock offered in this Prospectus are being offered
by the selling security holders in transactions as described in the plan of
distribution. The Company will not receive any of the proceeds from the sales
(other than exercise prices received upon the exercise of currently outstanding
warrants, the underlying shares of which are being registered for sale
hereunder).
Our common stock is traded on the Over-the-Counter Bulletin Board under the
symbol "NEOM". The last reported sale price of our common stock on the
Over-the-Counter Bulletin Board on January 23, 2006 was $0.366 per share.
We currently have an additional offering outstanding in connection with our
prending acqusition of BSD Software, Inc. ("BSD") On April 5, 2005, we filed a
registration statement on Form S-4 (Registration No. 333-123848) to register up
to 20,000,000 shares to be issued to BSD shareholders in exchange for all the
outstanding shares of BSD. Because the number of shares to be issued in
connection with the acquisition of BSD is based on a formula that is dependent
on our stock price at the effective time of the merger, we will not know the
actual number of shares we will issue until the effective date of the merger. As
of January 23, 2006, based on 32,560,897 shares of BSD common stock outstanding,
a volume-weighted 5-day average closing price of NeoMedia stock of $0.384, and
the share exchange rate outlined in the merger agreement, we would issue an
estimated 5,938,580 shares in connection with the acquisition of BSD. This
calculation is given for reference only.
This investment in the common stock involves a high degree of risk. Please pay
careful attention to all of the information in this Prospectus. In particular,
you should carefully consider the discussion in the section entitled "Risk
Factors" beginning on page 2 of this registration statement.
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NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES REGULATOR HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE
DISTRIBUTED UNDER THIS REGISTRATION STATEMENT OR DETERMINED IF THIS REGISTRATION
STATEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The information in this registration statement is not complete and may be
changed. NeoMedia may not distribute these securities until the registration
statement filed with the United States Securities and Exchange Commission is
declared effective. The registration statement is not and shall not constitute
an offer to sell and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
The date of this Prospectus is ________, 2005.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS................................................1
ABOUT NEOMEDIA TECHNOLOGIES, INC.....................................1
RISK FACTORS.........................................................2
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS..........13
USE OF PROCEEDS.....................................................14
SELLING STOCKHOLDERS................................................15
PLAN OF DISTRIBUTION................................................20
EXPERTS.............................................................21
WHERE YOU CAN FIND MORE INFORMATION.................................22
INFORMATION WE INCORPORATE BY REFERENCE.............................23
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS..................II-1
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION..........II-1
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.............II-1
ITEM 16. EXHIBITS..............................................II-2
ITEM 17. UNDERTAKINGS..........................................II-4
ABOUT THIS PROSPECTUS
This Prospectus is part of a registration statement on Form S-3 that we
filed with the Securities and Exchange Commission ("SEC") registering for sale
up to an aggregate of 54,000,000 shares of our common stock underlying warrants
previously issued to the selling security holders. You should read both this
Prospectus and any Prospectus Supplement together with the additional
information under the heading "Where You can Find More Information."
You should rely only on the information contained or incorporated by
reference in this Prospectus and any Prospectus Supplement. We have not
authorized anyone to provide you with different information. We are not making
offers to sell or solicitations to buy the securities in any jurisdiction in
which an offer or solicitation is not authorized or in which the person making
that offer or solicitation is not qualified to do so or anyone to whom it is
unlawful to make an offer or solicitation.
You should not assume that the information contained in this
Prospectus, as well as the information we previously filed with the Securities
and Exchange Commission that is incorporated by reference herein, is accurate as
of any date other than its respective date.
The terms "NeoMedia," "we," "our," and "us" refer to NeoMedia
Technologies, Inc. and its subsidiaries unless the context suggests otherwise.
ABOUT NEOMEDIA TECHNOLOGIES, INC.
NeoMedia develops proprietary technologies that link physical
information and objects to the Internet marketed under our PaperClickTM brand
name.
NeoMedia is structured as three business units: NeoMedia Internet
Software Service ("NISS"), NeoMedia Consulting and Integration Services
("NCIS"), and NeoMedia Micro Paint Repair ("NMPR").
NISS is the core business and is based in the United States, with
development and operating facilities in Fort Myers, Florida. NISS develops and
supports our physical world to Internet core technology, including our linking
"switch" and NeoMedia's application platforms. NISS also manages our
intellectual property portfolio, including the identification and execution of
licensing opportunities surrounding the patents.
NCIS is the original business line upon which NeoMedia was organized.
This unit resells client-server equipment and related software, and general and
specialized consulting services. Systems integration services also identifies
prospects for custom applications based on our products and services. These
operations are based in Lisle, Illinois.
NMPR (micro paint repair offerings) is the business unit encompassing
the CSI International chemical line acquired during 2004. NMPR is attempting to
commercialize its unique micro-paint repair solution. We completed the
acquisition of CSI on February 6, 2004.
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RISK FACTORS
In addition to the other information included in this registration
statement, including the matters addressed in "Cautionary Statement Concerning
Forward-Looking Statements," you should carefully consider the following risks
before deciding whether to buy our common stock. If any of these risks actually
occur, our business, financial condition, operating results or cash flows could
be materially adversely affected. This could cause the trading price of our
common stock to decline and you may lose part or all of your investment.
Risks Related to NeoMedia's Business
NeoMedia has Historically Lost Money and Losses May Continue
We have incurred substantial losses since our inception, and anticipate
continuing to incur substantial losses for the foreseeable future. We incurred a
loss of $5,469,000 and $5,493,000 in the nine month periods ended September 30,
2005 and 2004, respectively, and a loss of $7,230,000 in the year ended December
31, 2004 and $5,382,000 in the year ended December 31, 2003. Our accumulated
losses were approximately $88,846,000 and $83,377,000 as of September 30, 2005
and December 31, 2004, respectively. As of September 30, 2005 and December 31,
2004 and 2003, we had a working capital (deficit) of approximately ($3,839,000),
($2,597,000) and ($6,526,000), respectively. We had stockholders' equity
(deficit) of $5,494,000, $4,392,000 and ($3,203,000) at September 30, 2005, and
December 31, 2004 and 2003, respectively. We generated revenues of $1,721,000,
$1,269,000, $1,700,000 and $2,400,000 for the nine month periods ended September
30, 2005 and 2004, and the years ended December 31, 2004 and 2003, respectively.
In addition, during the nine month periods ended September 30, 2005 and 2004,
and the years ended December 31, 2004 and 2003, we recorded negative cash flows
from operations of $5,951,000, $2,500,000, $4,650,000 and $2,979,000,
respectively. To succeed, we must develop new client and customer relationships
and substantially increase our revenue derived from improved products and
additional value-added services. We have expended, and to the extent we have
available financing, we intend to continue to expend, substantial resources to
develop and improve our products, increase our value-added services and to
market our products and services. These development and marketing expenses must
be incurred well in advance of the recognition of revenue. As a result, we may
not be able to achieve or sustain profitability.
Our Independent Registered Public Accounting Firm Have Added Going Concern
Language To Their Report On Our Consolidated Financial Statements, Which Means
That We May Not Be Able To Continue Operations
The report of Stonefield Josephson, Inc., our independent registered
public accounting firm, with respect to our consolidated financial statements
and the related notes for the years ended December 31, 2004 and 2003, indicates
that, at the date of their report, we had suffered significant recurring losses
from operations and our working capital deficit raised substantial doubt about
our ability to continue as a going concern. Our consolidated financial
statements do not include any adjustments that might result from this
uncertainty.
There is Limited Information Upon Which Investors Can Evaluate Our Business
Because The Physical-World-to-Internet Market Has Existed For Only A Short
Period Of Time
The physical-world-to-Internet market in which we operate is a recently
developed market. Further, we have conducted operations in this market only
since March 1996. Consequently, we have a relatively limited operating history
upon which an investor may base an evaluation of our primary business and
determine our prospects for achieving our intended business objectives. To date,
we have realized limited sales of our physical-world-to-Internet products. We
are prone to all of the risks inherent to the establishment of any new business
venture, including unforeseen changes in our business plan. An investor should
consider the likelihood of our future success to be highly speculative in light
of our limited operating history in our primary market, as well as the limited
resources, problems, expenses, risks, and complications frequently encountered
by similarly situated companies in new and rapidly evolving markets, such as the
physical-world-to-Internet space. To address these risks, we must, among other
things:
o maintain and increase our client base;
o implement and successfully execute our business and marketing
strategy;
o continue to develop and upgrade our products;
o continually update and improve service offerings and features;
2
o respond to industry and competitive developments; and
o attract, retain, and motivate qualified personnel.
We may not be successful in addressing these risks. If we are unable to
do so, its business, prospects, financial condition, and results of operations
would be materially and adversely affected.
Our Future Success Depends On The Timely Introduction Of New Products And The
Acceptance Of These New Products In The Marketplace
Rapid technological change and frequent new product introductions are
typical for the markets we serve. Our future success will depend in large part
on continuous, timely development and introduction of new products that address
evolving market requirements. To the extent that we fail to introduce new and
innovative products, we may lose market share to our competitors, which may be
difficult to regain. Any inability, for technological or other reasons, to
successfully develop and introduce new products could materially and adversely
affect our business.
Our Common Stock Is Deemed To Be "Penny Stock," Which May Make It More Difficult
For Investors To Sell Their Shares Due To Suitability Requirements
Our common stock is deemed to be "penny stock" as that term is defined
in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934, as
amended. These requirements may reduce the potential market for our common stock
by reducing the number of potential investors. This may make it more difficult
for investors in our common stock to sell shares to third parties or to
otherwise dispose of them. This could cause our stock price to decline. Penny
stocks are stock:
o with a price of less than $5.00 per share;
o that are not traded on a "recognized" national exchange;
o whose prices are not quoted on the NASDAQ automated quotation
system (NASDAQ listed stock must still have a price of not
less than $5.00 per share); or
o in issuers with net tangible assets less than $2 million (if
the issuer has been in continuous operation for at least three
years) or $10 million (if in continuous operation for less
than three years), or with average revenues of less than $6
million for the last three years.
Broker-dealers dealing in penny stocks are required to provide
potential investors with a document disclosing the risks of penny stocks.
Moreover, broker-dealers are required to determine whether an investment in a
penny stock is a suitable investment for a prospective investor.
We Are Uncertain Of The Success Of Our Internet Switching Software Business Unit
And The Failure Of This Unit Would Negatively Affect The Price Of Our Stock
We provide products and services that provide a link from physical
objects, including printed material, to the Internet. We can provide no
assurance that:
o this Internet Switching Software business unit will ever
achieve profitability;
o our current product offerings will not be adversely affected
by the focusing of its resources on the
physical-world-to-Internet space; or
o the products we develop will obtain market acceptance.
In the event that the Internet Switching Software business unit should
never achieve profitability, that our current product offerings should so
suffer, or that our products fail to obtain market acceptance, our business,
prospects, financial condition, and results of operations would be materially
adversely affected.
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A Large Percentage Of Our Assets Are Intangible Assets, Which Will Have Little
Or No Value If Our Operations Are Unsuccessful
At September 30, 2005, and December 31, 2004 and 2003, approximately
41%, 49% and 65%, respectively, of our total assets were intangible assets,
consisting primarily of rights related to our patents, other intellectual
property, and chemical formulations, and proprietary process and goodwill
related to the acquisition of CSI International, Inc. (now NeoMedia Micro Paint
Repair). If our operations are unsuccessful, these assets will have little or no
value, which would materially adversely affect the value of our stock and the
ability of our stockholders to recoup their investments in our capital stock.
Our Physical-World-To-Internet Marketing Strategy Has Not Been Tested And May
Not Result In Success
To date, we have conducted limited marketing efforts directly relating
to our NISS business unit. All of our marketing efforts have been largely
untested in the marketplace, and may not result in sales of our products and
services. To penetrate the markets in which it competes, we will have to exert
significant efforts to create awareness of, and demand for, our products and
services. With respect to our marketing efforts conducted directly, we intend to
expand our sales staff upon the receipt of sufficient operating capital. Our
failure to further develop our marketing capabilities and successfully market
our products and services would have a material adverse effect on our business,
prospects, financial condition, and results of operations.
Our Internally Developed Systems Are Inefficient And May Put Us At A Competitive
Disadvantage
We use internally developed technologies for a portion of its systems
integration services, as well as the technologies required to interconnect our
clients' and customers' physical-world-to-Internet systems and hardware with our
own. As we develop these systems in order to integrate disparate systems and
hardware on a case-by-case basis, these systems are inefficient and require a
significant amount of customization. Such client and customer-specific
customization is time consuming and costly and may place us at a competitive
disadvantage when compared to competitors with more efficient systems.
We Could Fail to Attract Or Retain Key Personnel
Our future success will depend in large part on its ability to attract,
train, and retain additional highly skilled executive level management,
creative, technical, and sales personnel. Competition is intense for these types
of personnel from other technology companies and more established organizations,
many of which have significantly larger operations and greater financial,
marketing, human, and other resources than we have. We may not be successful in
attracting and retaining qualified personnel on a timely basis, on competitive
terms, or at all. Our failure to attract and retain qualified personnel could
have a material adverse effect on its business, prospects, financial condition,
and results of operations.
We Depend Upon Our Senior Management And Their Loss Or Unavailability Could Put
Us At A Competitive Disadvantage
Our success depends largely on the skills of certain key management and
technical personnel, including Charles T. Jensen, NeoMedia's President, Chief
Executive Officer and Chief Operating Officer, and Charles W. Fritz, NeoMedia's
founder and Chairman of the Board of Directors. The loss of the services of
Messrs. Jensen or Fritz could materially harm our business because of the cost
and time necessary to replace and train a replacement. Such a loss would also
divert management attention away from operational issues. We do not presently
maintain a key-man life insurance policy on Messrs. Jensen or Mr. Fritz.
We May Be Unsuccessful In Integrating Our Micro Paint Repair Business With Our
Current Business
The success of our Micro Paint Repair business unit could depend on the
ability of our executive management to integrate the business plan with the
business plan of our NCSI and NISS business units. The NMPR business unit
operates in a separate industry from our other two business units.
We May Be Unable To Protect Our Intellectual Property Rights And May Be Liable
For Infringing The Intellectual Property Rights Of Others
Our success in the physical-world-to-Internet and the value-added
systems integration markets is dependent upon our proprietary technology,
including patents and other intellectual property, and on the ability to protect
proprietary
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technology and other intellectual property rights. In addition, we must conduct
our operations without infringing on the proprietary rights of third parties. We
also intend to rely upon unpatented trade secrets and the know-how and expertise
of its employees, as well as its patents. To protect our proprietary technology
and other intellectual property, we rely primarily on a combination of the
protections provided by applicable patent, copyright, trademark, and trade
secret laws as well as on confidentiality procedures and licensing arrangements.
We have seven patents for our physical-world-to-Internet technology, an
additional six patents acquired with the purchase of Secure Source Technologies
related to document security, and an additional four patents relating to mobile
search and location-based advertising acquired from Loyaltypoint, Inc. in 2005.
We also have several trademarks relating to our proprietary products. Although
we believe that it has taken appropriate steps to protect our unpatented
proprietary rights, including requiring that our employees and third parties who
are granted access to NeoMedia's proprietary technology enter into
confidentiality agreements, we can provide no assurance that these measures will
be sufficient to protect our rights against third parties. Others may
independently develop or otherwise acquire patented or unpatented technologies
or products similar or superior to ours.
We license from third parties certain software tools that are included
in our services and products. If any of these licenses were terminated, we could
be required to seek licenses for similar software from other third parties or
develop these tools internally. We may not be able to obtain such licenses or
develop such tools in a timely fashion, on acceptable terms, or at all.
Companies participating in the software and Internet technology industries are
frequently involved in disputes relating to intellectual property. We may in the
future be required to defend our intellectual property rights against
infringement, duplication, discovery, and misappropriation by third parties or
to defend against third party claims of infringement. Likewise, disputes may
arise in the future with respect to ownership of technology developed by
employees who were previously employed by other companies. Any such litigation
or disputes could result in substantial costs to, and a diversion of effort by,
us. An adverse determination could subject us to significant liabilities to
third parties, require us to seek licenses from, or pay royalties to, third
parties, or require us to develop appropriate alternative technology. Some or
all of these licenses may not be available to us on acceptable terms or at all,
and we may be unable to develop alternate technology at an acceptable price or
at all. Any of these events could have a material adverse effect on our
business, prospects, financial condition, and results of operations.
We Are Exposed To Product Liability Claims And An Uninsured Claim Could Have A
Material Adverse Effect On Our Business, Prospects, Financial Condition, And
Results Of Operations, As Well As The Value Of Our Stock
Many of our systems integration projects are critical to the operations
of our clients' businesses. Any failure in a client's information system could
result in a claim for substantial damages against us, regardless of our
responsibility for such failure. We could, therefore, be subject to claims in
connection with the products and services that we sell. We currently maintain
product liability insurance. There can be no assurance that:
o we have contractually limited our liability for such claims
adequately or at all; or
o we would have sufficient resources to satisfy any liability
resulting from any such claim.
The successful assertion of one or more large claims against us could
have a material adverse effect on its business, prospects, financial condition,
and results of operations.
We Will Not Pay Cash Dividends and Investors May Have To Sell Their Shares In
Order To Realize Their Investment
We have not paid any cash dividends on our common stock and do not
intend to pay cash dividends in the foreseeable future. We intend to retain
future earnings, if any, for reinvestment in the development and marketing of
our products and services. As a result, investors may have to sell their shares
of common stock to realize their investment.
Some Provisions Of Our Certificate of Incorporation And bylaws May Deter
Takeover Attempts, Which May Limit The Opportunity Of Our Stockholders To Sell
Their Shares At A Premium To The Then-Current Market Price
Some of the provisions of our Certificate of Incorporation and bylaws
could make it more difficult for a third party to acquire us, even if doing so
might be beneficial to our stockholders by providing them with the opportunity
to sell their shares at a premium to the then-current market price. On December
10, 1999, our Board of Directors adopted a stockholders rights plan and declared
a non-taxable dividend of one right to acquire Series A Preferred Stock of
NeoMedia, par value $0.01 per share, on each outstanding share of NeoMedia
common stock to stockholders of record on December 10, 1999 and each share of
common stock issued thereafter until a pre-defined hostile takeover date. The
stockholder rights plan was adopted as an anti-takeover measure, commonly
referred to as a "poison pill." The stockholder rights plan was designed to
enable all stockholders not engaged in a hostile takeover attempt to receive
fair and equal treatment in any proposed takeover
5
of NeoMedia and to guard against partial or two-tiered tender offers, open
market accumulations, and other hostile tactics to gain control of NeoMedia. The
stockholders rights plan was not adopted in response to any effort to acquire
control of NeoMedia at the time of adoption. This stockholders rights plan may
have the effect of rendering more difficult, delaying, discouraging, preventing,
or rendering more costly an acquisition of NeoMedia or a change in control of
NeoMedia. Certain of our directors, officers and principal stockholders, Charles
W. Fritz, William E. Fritz and The Fritz Family Limited Partnership and their
holdings were exempted from the triggering provisions of our "poison pill" plan,
as a result of the fact that, as of the plan's adoption, their holdings might
have otherwise triggered the "poison pill".
In addition, our Certificate of Incorporation authorizes the Board of
Directors to designate and issue preferred stock, in one or more series, the
terms of which may be determined at the time of issuance by the Board of
Directors, without further action by stockholders, and may include voting
rights, including the right to vote as a series on particular matters,
preferences as to dividends and liquidation, conversion, redemption rights, and
sinking fund provisions.
We are authorized to issue a total of 25,000,000 shares of Preferred
Stock, par value $0.01 per share. We have no present plans for the issuance of
any preferred stock. However, the issuance of any preferred stock could have a
material adverse effect on the rights of holders of our common stock, and,
therefore, could reduce the value of shares of our common stock. In addition,
specific rights granted to future holders of preferred stock could be used to
restrict our ability to merge with, or sell our assets to, a third party. The
ability of the Board of Directors to issue preferred stock could have the effect
of rendering more difficult, delaying, discouraging, preventing, or rendering
more costly an acquisition of NeoMedia or a change in NeoMedia's control thereby
preserving control by the current stockholders.
6
Risks Relating To Our Industry
The Security of the Internet Poses Risks To The Success Of Our Entire Business
Concerns over the security of the Internet and other electronic
transactions, and the privacy of consumers and merchants, may inhibit the growth
of the Internet and other online services generally, especially as a means of
conducting commercial transactions, which may have a material adverse effect on
our physical-world-to-Internet business.
We Will Only Be Able To Execute Our Physical-World-To-Internet Business Plan If
Mobile Internet Usage and Electronic Commerce Continue To Grow
Our future revenues and any future profits are substantially dependent
upon the widespread acceptance and use of the mobile Internet, cellular
telephones, and other online services as an effective medium of information and
commerce. If use of the Internet and other online services does not continue to
grow or grows more slowly than expected, or if the infrastructure for the mobile
Internet and other online services does not effectively support the growth that
may occur, or if the mobile Internet and other online services do not become a
viable commercial marketplace, our physical-world-to-Internet business, and
therefore our business, prospects, financial condition, and results of
operations, could be materially adversely affected. Rapid growth in the use of,
and interest in, the mobile Internet, the World Wide Web (the "Web"), and online
services is a recent phenomenon, and may not continue on a lasting basis. In
addition, customers may not adopt, and continue to use, the Internet, the Web
and other online services as a medium of information retrieval or commerce.
Demand and market acceptance for recently introduced services and products over
the Internet are subject to a high level of uncertainty, and few services and
products have generated profits. For us to be successful, consumers and
businesses must be willing to accept and use novel and cost efficient ways of
conducting business and exchanging information.
In addition, the public in general may not accept the Internet, the Web
and other online services as a viable commercial or information marketplace for
a number of reasons, including potentially inadequate development of the
necessary network infrastructure or delayed development of enabling technologies
and performance improvements. To the extent that the Internet, the Web and other
online networks continue to experience significant growth in the number of
users, their frequency of use, or in their bandwidth requirements, the
infrastructure for the Internet, the Web, and online networks may be unable to
support the demands placed upon them. In addition, the Internet, the Web or
other online networks could lose their viability due to delays in the
development or adoption of new standards and protocols required to handle
increased levels of Internet activity, or due to increased governmental
regulation. Significant issues concerning the commercial and informational use
of the Internet, the Web, and online networks technologies, including security,
reliability, cost, ease of use, and quality of service, remain unresolved and
may inhibit the growth of Internet business solutions that utilize these
technologies. Changes in, or insufficient availability of, telecommunications
services to support the Internet, the Web or other online services also could
result in slower response times and adversely affect usage of the Internet, the
Web and other online networks generally and NeoMedia's
physical-world-to-Internet product and networks in particular.
We May Not Be Able To Adapt As The Internet, Physical-World-To-Internet,
Equipment Resales And Systems Integrations Markets, And Customer Demands
Continue To Evolve
We may not be able to adapt as the Internet,
physical-world-to-Internet, equipment resales and systems integration markets,
and consumer demands continue to evolve. Our failure to respond in a timely
manner to changing market conditions or client requirements would have a
material adverse effect on our business, prospects, financial condition, and
results of operations. The Internet, physical-world-to-Internet, equipment
resales, and systems integration markets are characterized by:
o rapid technological change;
o changes in user and customer requirements and preferences;
o frequent new product and service introductions embodying new
technologies; and
o the emergence of new industry standards and practices that
could render proprietary technology and hardware and software
infrastructure obsolete.
7
Our success will depend, in part, on our ability to:
o enhance and improve the responsiveness and functionality of
its products and services;
o license or develop technologies useful in its business on a
timely basis;
o enhance its existing services, and develop new services and
technologies that address the increasingly sophisticated and
varied needs of our prospective or current customers; and
o respond to technological advances and emerging industry
standards and practices on a cost-effective and timely basis.
Our Competitors In The Micro Paint Repair Industry Could Duplicate Our
Proprietary Processes
Our success in the micro paint repair industry depends upon proprietary
chemical products and processes. There is no guarantee that our competitors will
not duplicate our proprietary processes.
We May Not Be Able To Compete Effectively In Markets Where Its Competitors Have
More Resources
While the market for physical-world-to-Internet technology is
relatively new, it is already highly competitive and characterized by an
increasing number of entrants that have introduced or developed products and
services similar to those offered by us. We believe that competition will
intensify and increase in the future. Our target market is rapidly evolving and
is subject to continuous technological change. As a result, our competitors may
be better positioned to address these developments or may react more favorably
to these changes, which could have a material adverse effect on our business,
prospects, financial condition, and results of operations.
In addition, the equipment resales and systems integration markets are
increasingly competitive. We compete in these industries on the basis of a
number of factors, including the attractiveness of the services offered, the
breadth and quality of these services, creative design and systems engineering
expertise, pricing, technological innovation, and understanding clients' needs.
A number of these factors are beyond our control. Existing or future competitors
may develop or offer products or services that provide significant
technological, creative, performance, price, or other advantages over the
products and services offered by us.
Many of our competitors in the Micro Paint Repair business have access
to more financial resources as well. We may not be able to penetrate markets or
market its products as effectively as our better-funded competitors.
Many of our competitors have longer operating histories, larger
customer bases, longer relationships with clients, and significantly greater
financial, technical, marketing, and public relations resources than us. Based
on total assets and annual revenues, we are significantly smaller than our two
largest competitors in the physical-world-to-Internet industry, the primary
focus of our business. Similarly, we compete against significantly larger and
better-financed companies in the systems integration and equipment resale
businesses, including the manufacturers of the equipment and technologies that
we integrate and resell. If we compete with our primary competitors for the same
geographical or institutional markets, their financial strength could prevent us
from capturing those markets. We may not successfully compete in any market in
which we conducts or may conduct operations. In addition, based on the
increasing consolidation, price competition and participation of equipment
manufacturers in the systems integration and equipment resales markets, we
believe that we may no longer be able to compete effectively in these markets in
the future. It is for this reason that we have increasingly focused its business
plan on competing in the emerging market for physical-world-to-Internet
products, as well as our micro paint repair business unit.
In The Future There Could Be Government Regulations And Legal Uncertainties
Which Could Harm Our Business
We are not currently subject to direct regulation by any government
agency other than laws or regulations applicable generally to electronic
commerce. Any new legislation or regulation, the application of laws and
regulations from jurisdictions whose laws do not currently apply to our
business, or the application of existing laws and regulations to the Internet
and other online services, could have a material adverse effect on our business,
prospects, financial condition, and results of operations. Due to the increasing
popularity and use of the Internet, the Web and other online services, federal,
state, and local governments may adopt laws and regulations, or amend existing
laws and regulations, with respect to the Internet or other online services
covering issues such as taxation, user privacy, pricing, content, copyrights,
distribution, and
8
characteristics and quality of products and services. The growth and development
of the market for electronic commerce may prompt calls for more stringent
consumer protection laws to impose additional burdens on companies conducting
business online. The adoption of any additional laws or regulations may decrease
the growth of the Internet, the Web or other online services, which could, in
turn, decrease the demand for our services and increase our cost of doing
business, or otherwise have a material adverse effect on our business,
prospects, financial condition, and results of operations. Moreover, the
relevant governmental authorities have not resolved the applicability to the
Internet, the Web and other online services of existing laws in various
jurisdictions governing issues such as property ownership and personal privacy
and it may take time to resolve these issues definitively.
Certain of our proprietary technology allow for the storage of
demographic data from our users. In 2000, the European Union adopted a directive
addressing data privacy that may limit the collection and use of certain
information regarding Internet users. This directive may limit our ability to
collect and use information collected by our technology in certain European
countries. In addition, the Federal Trade Commission and several state
governments have investigated the use by certain Internet companies of personal
information. We could incur significant additional expenses if new regulations
regarding the use of personal information are introduced or if our privacy
practices are investigated.
In addition, certain of our micro paint solutions could be subject to
environmental regulations.
9
Risks Specific To This Offering
As of January 23, 2006, we had 468,649,354 shares of common stock
outstanding, and options and warrants to purchase up to an aggregate 171,798,596
shares of common stock. We may also issue additional shares of common stock in
connection with our pending acquisition of BSD Software, Inc. ("BSD"). On March
30, 2005, we and Cornell entered into a Standby Equity Distribution Agreement
under which Cornell agreed to purchase up to $100 million of our common stock
over a two-year period, with the timing and amount of the purchase at our
discretion. No shares underlying the new Standby Equity Distribution Agreement
are registered with the SEC.
Upon Consummation Of The Pending Merger With BSD, Current BSD Stockholders May
Sell Their Shares Of NeoMedia Common Stock To Be Received In the Merger In The
Public Market, Which Sales May Cause Our Stock Price To Decline
BSD's shareholders will receive, for each share of BSD stock owned,
NeoMedia stock equivalent to .07 divided by the volume-weighted average price of
NeoMedia stock for the five days prior to the effective time of the merger.
Based on 32,560,897 outstanding shares of BSD common stock as of January 23,
2006, and assuming a NeoMedia stock price of $0.384 (the volume-weighted average
stock price for the five days preceding January 23, 2006), we would issue
5,938,580 shares of common stock to BSD shareholders. However, the actual
exchange ratio will vary due to changes in NeoMedia's stock price and any
additional issuances of common stock by BSD prior to the effective time of the
merger, and will not be known until such effective time of the merger. Such
holders may sell the shares of common stock being registered in this offering in
the public market, which may cause our stock price to decline.
The Market Price Of Our Securities May Be Volatile
As a result of the emerging and evolving nature of the markets in which
we compete, as well as the current nature of the public markets and our current
financial condition, our operating results may fluctuate materially, as a result
of which quarter-to-quarter comparisons of our results of operations may not be
meaningful. If in some future quarters, whether as a result of such a
fluctuation or otherwise, our results of operations fall below the expectations
of securities analysts and investors, the trading price of our common stock
would likely be materially and adversely affected. An investor should not rely
on our results of any interim period as an indication of our future performance.
Additionally, our quarterly results of operations may fluctuate significantly in
the future as a result of a variety of factors, many of which are outside our
control. Factors that may cause our quarterly results to fluctuate include,
among others:
o the ability to retain existing clients and customers;
o the ability to attract new clients and customers at a steady
rate;
o the ability to maintain client satisfaction;
o the ability to motivate potential clients and customers to
acquire and implement new technologies;
o the extent to which our products gain market acceptance;
o the timing and size of client and customer purchases;
o introductions of products and services by competitors;
o price competition in the markets in which we compete;
o the pricing of hardware and software that we resell or
integrate into our products;
o the level of use of the mobile Internet and online services,
as well as the rate of market acceptance of
physical-world-to-Internet marketing;
10
o the ability to upgrade and develop our systems and
infrastructure in a timely and effective manner;
o the ability to attract, train, and retain skilled management,
strategic, technical, and creative professionals;
o the amount and timing of operating costs and capital
expenditures relating to the expansion of our business,
operations, and infrastructure;
o unanticipated technical, legal, and regulatory difficulties
with respect to use of the Internet; and
o general economic conditions and economic conditions specific
to Internet technology usage and electronic commerce.
Our common stock has traded as low as $0.01 and as high as $0.722
between January 1, 2003 and January 23, 2006. Since April 5, 2005, the
approximate date that NeoMedia filed its initial information
statement/prospectus relative to its acquisition of and merger with BSD,
NeoMedia's stock has been subject to dramatic price volatility. Between April 5,
2005 and January 23, 2006, NeoMedia's stock has traded as low as $0.21 per share
and as high as $0.72 per share. From time to time after this offering, the
market price of our common stock may experience significant volatility. Our
quarterly results, failure to meet analysts' expectations, announcements by us
or our competitors regarding acquisitions or dispositions, loss of existing
clients, new procedures or technology, changes in general conditions in the
economy, and general market conditions could cause the market price of the
common stock to fluctuate substantially. In addition, the stock market has
experienced significant price and volume fluctuations that have particularly
affected the trading prices of equity securities of many technology companies.
These price and volume fluctuations often have been unrelated to the operating
performance of the affected companies.
NeoMedia common stock has been subject to dramatic price volatility since the
filing of the information statement/prospectus relating to the merger with BSD
Since April 5, 2005, the approximate date that NeoMedia filed its
initial information statement/prospectus relative to its acquisition of and
merger with BSD, NeoMedia's stock has been subject to dramatic price volatility.
Between April 5, 2005 and January 23, 2006, NeoMedia's stock has traded as low
as $0.21 per share and as high as $0.72 per share.
You May Suffer Significant Additional Dilution If Outstanding Options And
Warrants Are Exercised
As of January 23, 2006, we had outstanding stock options and warrants
to purchase 171,798,596 shares of common stock, some of which have exercise
prices at or below the price of our common shares on the public market. To the
extent such options or warrants are exercised, there will be further dilution.
In addition, in the event that any future financing should be in the form of, be
convertible into, or exchangeable for, equity securities, and upon the exercise
of options and warrants, investors may experience additional dilution.
You May Suffer Significant Dilution As A Result Of Our Standby Equity
Distribution Agreement With Cornell Capital Partner, LP
During the years ended December 31, 2004 and 2003, we sold 112,743,417
and 98,933,244 shares, respectively, under our Standby Equity Distribution
Agreement (and the predecessor of the Standby Equity Distribution Agreement
called an Equity Line of Credit) with Cornell Capital Partners, LP. To the
extent that cash generated from operations does not meet our cash needs, we
could continue to sell additional shares under the Standby Equity Distribution
Agreement.
On March 30, 2005, we entered into a new Standby Equity Distribution
Agreement with Cornell under which Cornell agreed to purchase up to $100 million
of our common stock over a two-year period, with the timing and amount of the
purchase at our discretion. Also on March 30, 2005, we borrowed from Cornell the
principal amount of $10,000,000 before discounts and fees in the form of a
secured promissory note.
Future Sales Of Common Stock By Our Stockholders Could Adversely Affect Our
Stock Price And Our Ability To Raise Funds In New Stock Offerings
The market price of our common stock could decline as a result of sales
of a large number of shares of our common stock in the market as a result of
this offering, or the perception that these sales could occur. These sales also
might make it more difficult for us to sell equity securities in the future at a
time and at a price that we deem appropriate. Following the pending acquisition
of BSD (assuming a NeoMedia stock price at the effective time of the merger of
$0.384, which was the
11
volume-weighted average closing price for the five days preceding December 5,
2005), if we sold to Cornell Capital Partners, LP the remainder of the
200,000,000 shares previously registered under its Standby Equity Distribution
Agreement, and if all options and warrants were exercised, we would have up to
691,905,662 shares outstanding.
Sales of our common stock in the public market following this offering
could lower the market price of our common stock. Sales may also make it more
difficult for us to sell equity securities or equity-related securities in the
future at a time and price that our management deems acceptable or at all. All
468,649,354 shares of common stock outstanding as of January 23, 2006, are, or
upon effectiveness of this registration statement will be, freely tradable
without restriction, unless held by our "affiliates."
12
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This registration statement contains or incorporates by reference
certain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that such
forward-looking statements are subject to risks and uncertainties, including
those described under the section of this registration statement entitled "Risk
Factors," many of which are beyond our control. Accordingly, actual results may
differ materially from those expressed or implied in any such forward-looking
statements. Words such as "estimate," "project," "plan," "believe," "expect,"
"anticipate," "intend" and similar expressions may identify forward-looking
statements.
All forward-looking statements are qualified by the risks described
under the section of this registration statement entitled "Risk Factors" which,
if they develop into actual events, could have a material adverse effect on our
business, financial condition or results of operations. In addition, investors
should consider the other information contained in or incorporated by reference
into this registration statement.
These forward-looking statements are subject to numerous assumptions,
risks and uncertainties. Factors that may cause actual results to differ from
those contemplated by the forward-looking statements include, among others, the
following possibilities:
o inability to protect intellectual property or license third
party patents;
o a significant increase in competitive pressures in the
industries in which we compete;
o less favorable than expected general economic or business
conditions, both domestic and foreign, resulting in, among
other things, lower than expected revenues;
o the impact of competitive products and pricing;
o the success of operating initiatives;
o availability of qualified personnel;
o changes in, or the failure to comply with, government
regulations; and
o adverse changes in the securities markets.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by forward-looking
statements. Stockholders are cautioned not to place undue reliance on these
statements, which speak only as of the date of this registration statement or,
in the case of documents incorporated by reference, the date of such documents.
We undertake no obligation and do not intend to make publicly available
any update or other revisions to any of the forward-looking statements contained
in this registration statement to reflect circumstances existing after the date
of this registration statement or to reflect the occurrence of future events
even if experience or future events make it clear that any expected results
expressed or implied by those forward-looking statements will not be realized,
except as may be required by securities law.
13
USE OF PROCEEDS
We will not receive nay proceeds from the sale of shares of common
stock by the selling securityholders. We will, however, receive proceeds from
the exercise of the warrants held by the selling security holders.
14
SELLING STOCKHOLDERS
The following table presents information regarding the selling
stockholders. The table identifies the selling stockholders. None of the selling
stockholders have held a position or office, or had any other material
relationship, with us, except as described below.
Absent registration under the Securities Act, the shares of common
stock offered herein are subject to certain limitations on resale. The
Registration Statement of which this Prospectus forms a part has been filed in
satisfaction of certain registration rights we granted to the entities listed
below. The following table assumes that the entities listed below will sell all
of the common stock offered herein set forth opposite their respective names.
o Cornell Capital Partners, LP is the holder of a warrant to
purchase 50,000,000 shares of our common stock. Mark Angelo,
the portfolio manager of Cornell Capital Partners LP, is the
natural person who exercises voting and/or dispositive powers
over the shares held by Cornell Capital Partners LP.
o Thornhill Capital LLC provides strategic advisement and
evaluation services relating to mergers, acquisitions and
financing opportunities for NeoMedia. The shares of common
stock being registered in the accompanying registration
statement were granted as compensation to Thornhill Capital
LLC for the securing of financing on behalf of NeoMedia.
Martha Refkin, the president of Thornhill Capital LLC, is the
natural person who exercises voting and/or dispositive powers
over the shares held by Thornhill Capital LLC.
The table follows:
Percentage of
Outstanding
Shares Percentage of
Shares Beneficially Shares
Beneficially Owned Shares to be Beneficially
Owned Before Before Sold in the Owned after
Selling Stockholders Offering Offering (1) Offering Offering (1)
------------------------------ ------------ -------------- ------------ --------------
Cornell Capital Partners LP 50,000,000 (2) 9.6% 50,000,000 0%
Thornhill Capital LLC 17,000,000 (3) 3.5% 4,000,000 2.7%
---------- ----- ---------- ----
TOTAL 67,000,000 13.1% 54,000,000 2.7%
========== ===== ========== ====
---------------------------
(1) Applicable percentage of ownership is based on 468,649,354 shares of
common stock outstanding as of January 23, 2006, together with
securities exercisable or convertible into shares of common stock
within 60 days of January 23, 2006, for each stockholder. Beneficial
ownership is determined in accordance with the rules of the Securities
and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to
securities exercisable or convertible into shares of common stock that
are currently exercisable or exercisable within 60 days of January 23,
2006, are deemed to be beneficially owned by the person holding such
securities for the purpose of computing the percentage of ownership of
such person, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person. The common
stock is the only outstanding class of equity securities of NeoMedia.
(2) Cornell Capital Partners LP holds a warrant to purchase up to
50,000,000 shares of NeoMedia common stock at an exercise price of
$0.20 per share. However, the warrant contains a provision that Cornell
may not own more than 9.9% of the outstanding shares of NeoMedia.
Beneficial ownership is therefore limited to 9.9% of NeoMedia's
outstanding shares. The address of the referenced shareholder is 101
Hudson Street, Suite 3606, Jersey City, NJ, 07302.
(3) Ownership before the offering consists of 9,000,000 warrants to
purchase shares of common stock at an exercise price of $0.01 per
share, 4,000,000 warrants to purchase shares of common stock at an
exercise price of $0.11 per share, and 4,000,000 warrants to purchase
shares of common stock at an exercise price of $0.227 per share. The
address of the referenced holder(s) is c/o Martha Refkin, 10435 Via
Balestri Dr., Miromar Lakes, FL 33913.
15
Material Transactions With Selling Stockholders
Standby Equity Distribution Agreement with Cornell
On February 11, 2003, NeoMedia and Cornell entered into an Equity Line of
Credit Agreement under which Cornell agreed to purchase up to $10 million of our
common stock over a two-year period, with the timing and amount of the purchase
at our discretion. The maximum amount of each purchase was $150,000 with a
minimum of seven days between purchases. The shares were valued at 98% of the
lowest closing bid price during the five-day period following the delivery of a
notice of purchase by NeoMedia. We paid 5% of the gross proceeds of each
purchase to Cornell.
On October 27, 2003, NeoMedia and Cornell entered into a $20 million
Standby Equity Distribution Agreement (the "2003 SEDA"). The terms of the
agreement are identical to the terms of the previous Equity Line of Credit,
except that the maximum "draw" under the new agreement is $280,000 per week, not
to exceed $840,000 in any 30-day period, and Cornell will purchase up to $20
million of our common stock over a two-year period. As a commitment fee for
Cornell to enter into the 2003 SEDA, we issued 10 million warrants to Cornell
with an exercise price of $0.05 per share, and a term of five years. Cornell
exercised the warrants in January 2004, resulting in $500,000 cash receipts to
us. In November 2003, we registered 200 million shares under the 2003 SEDA. In
April 2004, we registered 40 million shares of common stock underlying warrants
granted to Cornell in connection with a promissory note issued by us to Cornell
(see "Notes Payable to Cornell" below). The 2003 SEDA expired on January 9,
2006.
During the years ended December 31, 2004 and 2003, we sold 112,743,417 and
98,933,244 shares, respectively, of our common stock to Cornell under the
Standby Equity Distribution Agreement and Equity Line of Credit. The following
table summarizes funding received and from, and shares sold to, Cornell during
the years ended December 31, 2004 and 2003:
Year Ended December 31,
--------------------------------
2004 2003
-------------- --------------
Number of shares sold to Cornell 112,743,417 98,933,244
Gross Proceeds from sale of shares to
Cornell 10,123,000 9,565,000
Less: discounts and fees* (1,967,000) (6,772,000)
-------------- --------------
Net Proceeds from sale of shares to
Cornell $8,156,000 $2,793,000
-------------- --------------
* - Per Equity line of Credit Agreement, stock is valued at 98% of the lowest
closing bid price during the week it is sold
During the nine months ended September 30, 2005, we sold 19,337,119 shares of
our common stock to Cornell under the 2003 SEDA. The following table summarizes
funding received from Cornell during the three and nine month periods ended
September 30, 2005 and 2004:
2005
------------------------------------------------------------
Nine
Months
First Second Third Ended
Quarter Quarter Quarter Sept. 30
------------ ------------ ------------ ------------
Number of shares sold to Cornell 6,998,931 7,258,094 5,080,094 19,337,119
Gross Proceeds from sale of shares $ 1,709,000 $ 3,219,000 $ 2,130,000 $ 7,058,000
Less: discounts and fees* (204,000) (489,000) (170,000) (863,000)
------------ ------------ ------------ ------------
Net Proceeds from sale of
shares $ 1,505,000 $ 2,730,000 $ 1,960,000 $ 6,195,000
------------ ------------ ------------ ------------
2004
------------------------------------------------------------
Nine
Months
First Second Third Ended
Quarter Quarter Quarter Sept. 30
------------ ------------ ------------ ------------
Number of shares sold to Cornell 21,282,203 29,819,873 36,685,664 87,787,740
Gross Proceeds from sale of shares $ 2,332,000 $ 2,308,000 $ 2,734,000 $ 7,374,000
Less: discounts and fees* (500,000) (465,000) (483,000) (1,448,000)
------------ ------------ ------------ ------------
Net Proceeds from sale of
shares $ 1,832,000 $ 1,843,000 $ 2,251,000 $ 5,926,000
------------ ------------ ------------ ------------
* Pursuant to the terms of the 2003 SEDA , stock is valued at 98% of the lowest
closing bid price during the week it is sold
On March 30, 2005, NeoMedia and Cornell entered into a Standby Equity
Distribution Agreement (the "2005 SEDA") under which Cornell agreed to purchase
up to $100 million of our common stock over a two-year period, with the timing
and amount of the purchase at our discretion. The maximum amount of each
purchase would be $2,000,000 with a minimum of five business days between
advances. The shares would be valued at 98% of the lowest closing bid price
during the five-day period following the delivery of a notice of purchase by us,
and we would pay 5% of the gross proceeds of each purchase to Cornell.
Concurrent with the SEDA, we entered into an escrow agreement with Cornell and
an escrow agent, under which
16
the escrow agent holds in an escrow account shares of our common stock, and the
cash paid by Cornell for such shares, issued pursuant to an advance under the
SEDA. The shares and funds can only be released upon receipt by the escrow agent
of a joint disbursement instruction signed by NeoMedia and Cornell. The escrow
agent is David Gonzalez, Esq., who is also employed by Cornell.
As a commitment fee for Cornell to enter into the 2005 SEDA, we issued 50
million warrants to Cornell with an exercise price of $0.20 per share, and a
term of three years, and also paid a cash commitment fee of $1 million. If
shares of NeoMedia's common stock underlying the warrant are covered by an
effective registration statement and if the closing bid price of NeoMedia's
common stock is above $0.30 for five consecutive business days, NeoMedia may
force conversion of the warrant. We also issued 4 million warrants with an
exercise price of $0.227 to a consultant as a fee for negotiating and
structuring the 2005 SEDA. As of March 31, 2005, we recorded the $12.3 million
fair value of the warrants to "Deferred equity financing costs" and, upon
effectiveness of the 2005 SEDA, will amortize this amount to additional paid-in
capital straight-line over the two-year life of the 2005 SEDA.
The 2005 SEDA would become available at the time the SEC declares
effective a registration statement containing such shares.
Promissory Notes Payable to Cornell
On March 30, 2005, we borrowed from Cornell the principal amount of
$10,000,000 before discounts and fees in the form of a secured promissory note.
Cornell withheld structuring and escrow fees of $68,000 related to the note. The
note is scheduled to be repaid at a rate of $1,120,000 per month commencing May
1, 2005, which was subsequently changed to $840,000 per month, continuing until
principal and interest are paid in full. The note accrues interest at a rate of
8% per annum on any unpaid principal. We have the option to prepay any remaining
principal of the note in cash without penalty. In connection with the note, we
and Cornell entered into a Security Agreement under which the note is secured by
all of our assets other than our patents and patent applications. We also
escrowed 25,000,000 shares of its common restricted stock as security for the
note. As of January 23, 2006, we had made payments of $7,210,000 against the
principal.
On October 18, 2004, we borrowed from Cornell the gross amount of
$1,085,000 before discounts and fees. Cornell withheld a retention fee of
$85,000 related to the issuance of stock to pay off the debt in the future. We
paid this note in full during the first quarter of 2005. We invested the
proceeds from the note in iPoint-media pursuant to the investment agreement
between us and I-Point Media Ltd.
On August 6, 2004, we borrowed from Cornell the gross amount of
$2,000,000 before discounts and fees. Cornell withheld a retention fee of
$153,000 related to the issuance of stock to pay off the debt in the future. We
paid this note in full during 2004.
On July 2, 2004, we borrowed from Cornell the gross amount of
$1,000,000 before discounts and fees. Cornell withheld a $76,000 retention fee
related to the issuance of stock to pay off the debt in the future. We paid this
note in full during 2004.
On April 8, 2004, we borrowed from Cornell the gross amount of
$1,000,000 before discounts and fees. Cornell withheld a $76,000 retention fee
related to the issuance of stock to pay off the debt in the future. We paid this
note in full during 2004.
On January 20, 2004, we borrowed from Cornell the gross amount of
$4,000,000 before discounts and fees. Of the $4,000,000 funding, $2,500,000 was
used to fund the acquisition of CSI International, Inc. during February 2004.
Cornell withheld a $315,000 retention fee related to the issuance of stock to
pay off the debt in the future. We paid this note in full during 2004.
We also granted to Cornell 40,000,000 warrants to purchase shares of
our stock with an exercise price of $0.05 per share during January 2004. In
April 2004, we filed a Form SB-2 to register 40 million shares underlying
warrants granted to Cornell (and subsequently transferred by Cornell to Stone
Street Asset Management LLC) in connection with a promissory note issued by the
Company to Cornell. In May 2004, the Form SB-2 was declared effective by the
Securities and Exchange Commission. The fair value of the warrants using the
Black-Scholes pricing model was $5,000,000. In accordance with APB 14,
"Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants",
we have compared the relative fair values of the warrants and the face value of
the notes, and has allocated a value of $2.5 million to the warrants. Of the
$2.5 million, $2 million was allocated to the $4 million note issued in January
2004 and $0.5 million against the $1 million
17
note in April 2004. The $2.5 million was recorded as a discount against the
carrying value of the note. The $2.5 million that was allocated to the notes is
considered a discount on the promissory notes, and therefore was amortized over
the life of the notes using the effective interest method, in accordance with
Staff Accounting Bulletin No. 77, Topic 2.A.6, "Debt Issue Costs" of SFAS 141,
"Business Combinations". Accordingly, we recorded an amortization of discount of
$2,500,000 related to the warrants during the year ended December31, 2004. Stone
Street Asset Management LLC exercised the warrants during November 2004,
resulting in net funds to us of $2 million.
On September 11, 2003, we received funding in the form of a promissory
note from Cornell in the gross amount of $500,000 before discounts and fees. The
note was repaid in full during 2003.
On September 2, 2003, we borrowed from Cornell the gross amount of
$200,000 before discounts and fees. The note was repaid in full during 2003.
On August 1, 2003, we borrowed from Cornell the gross amount of
$200,000 before discounts and fees. The note was repaid in full during 2003.
On July 21, 2003, we borrowed from Cornell the gross amount of $200,000
before discounts and fees. The note was repaid in full during 2003.
On June 24, 2003, we borrowed from Cornell the gross amount of $400,000
before discounts and fees. The note was repaid in full during 2003.
On May 27, 2003, we borrowed from Cornell the gross amount of $245,000
before discounts and fees. The note was repaid in full during 2003.
On March 13, 2003, we borrowed from Cornell the gross amount of
$262,000 before discounts and fees. The note was repaid in full during 2003.
Thornhill Capital
On March 30, 2005 we issued 4 million warrants with an exercise price
of $0.227 to Thornhill as a fee for negotiating and structuring the $100 million
SEDA with Cornell.
On January 29, 2004, we entered into a consulting agreement with
Thornhill Capital LLP that pays Thornhill $15,000 per month for assistance in
connection with potential acquisitions transactions, and corporate strategy
planning. The contract has a term of two years and automatically renews for
successive one-year periods if not cancelled by either party.
18
PLAN OF DISTRIBUTION
The selling stockholders have advised us that the sale or distribution
of our common stock owned by the selling stockholders may be effected directly
to purchasers by the selling stockholders or by pledgees, transferees or other
successors in interest, as principals or through one or more underwriters,
brokers, dealers or agents from time to time in one or more transactions (which
may involve crosses or block transactions) (i) on the OTC Bulletin Board or in
any other market on which the price of our shares of common stock are quoted or
(ii) in transactions otherwise than on the OTC Bulletin Board or in any other
market on which the price of our shares of common stock are quoted. Any of such
transactions may be effected at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, at varying prices determined at
the time of sale or at negotiated or fixed prices, in each case as determined by
the selling stockholders or by agreement between the selling stockholders and
underwriters, brokers, dealers or agents, or purchasers. If the selling
stockholders effect such transactions by selling their shares of common stock to
or through underwriters, brokers, dealers or agents, such underwriters, brokers,
dealers or agents may receive compensation in the form of discounts, concessions
or commissions from the selling stockholders or commissions from purchasers of
common stock for whom they may act as agent (which discounts, concessions or
commissions as to particular underwriters, brokers, dealers or agents may be in
excess of those customary in the types of transactions involved). The selling
stockholders and any brokers, dealers or agents that participate in the
distribution of the common stock may be deemed to be underwriters, and any
profit on the sale of common stock by them and any discounts, concessions or
commissions received by any such underwriters, brokers, dealers or agents may be
deemed to be underwriting discounts and commissions under the Securities Act.
Under the securities laws of certain states, the shares of common stock
may be sold in such states only through registered or licensed brokers or
dealers. The selling stockholders are advised to ensure that any underwriters,
brokers, dealers or agents effecting transactions on behalf of the selling
stockholders are registered to sell securities in all fifty states. In addition,
in certain states the shares of common stock may not be sold unless the shares
have been registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with.
We will pay all the expenses incident to the registration, offering and
sale of the shares of common stock to the public hereunder other than
commissions, fees and discounts of underwriters, brokers, dealers and agents. We
estimate that the expenses of the offering to be borne by us will be
approximately $37,500. The offering expenses consist of: printing expenses of
$2,500, accounting fees of $15,000, legal fees of $15,000 and miscellaneous
expenses of $5,000. We will not receive any proceeds from the sale of any of the
shares of common stock by the selling stockholders. We will, however, receive
the exercise price of $0.20 per share upon exercise of 50,000,000 warrants being
registered in the name of Cornell Capital Partners LP, the exercise price of
$0.227 per share upon exercise of 4,000,000 warrants being registered in the
name of Thornhill Capital LLC and the exercise price of $0.01 per share upon
exercise of 9,000,000 warrants being registered in the name of Thornhill Capital
LLC.
The selling stockholders should be aware that the anti-manipulation
provisions of Regulation M under the Exchange Act will apply to purchases and
sales of shares of common stock by the selling stockholders, and that there are
restrictions on market-making activities by persons engaged in the distribution
of the shares. Under Registration M, the selling stockholders or their agents
may not bid for, purchase, or attempt to induce any person to bid for or
purchase, shares of our common stock while such selling stockholders are
distributing shares covered by this prospectus. Accordingly, except as noted
below, the selling stockholders are not permitted to cover short sales by
purchasing shares while the distribution is taking place. The selling
stockholders are advised that if a particular offer of common stock is to be
made on terms constituting a material change from the information set forth
above with respect to the Plan of Distribution, then, to the extent required, a
post-effective amendment to the accompanying registration statement must be
filed with the Securities and Exchange Commission.
19
LEGAL MATTERS
The validity of the shares of common stock offered hereby as to their
being fully paid, legally issued and non-assessable will be passed upon for
NeoMedia by Kirkpatrick & Lockhart Nicholson Graham LLP.
EXPERTS
The audited consolidated financial statements of NeoMedia Technologies,
Inc. and its subsidiaries for the years ended December 31, 2004 and 2003 have
been audited by Stonefield Josephson, Inc., independent registered public
accounting firm, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said report. Reference is made to said report, which includes an explanatory
paragraph with respect to the uncertainty regarding NeoMedia's ability to
continue as a going concern, as discussed in Note 1 to the consolidated
financial statements.
20
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements, and other
documents with the United States Securities and Exchange Commission (the "SEC").
You may read and copy any document we file at the SEC's public reference room at
100 F Street, N.E., Washington, D.C. 20549. You should call 1-800-SEC-0330 for
more information on the operation of the Public Reference Room. The SEC
maintains a website at www.sec.gov where certain information regarding issuers,
including NeoMedia, may be found. Our website is www.neom.com.
We have filed with the Commission a registration statement, which
contains this prospectus, on Form S-3 under the Securities Act of 1933. The
registration statement relates to the common stock offered by the selling
stockholders. This prospectus does not contain all of the information set forth
in the registration statement and the exhibits and schedules to the registration
statement. Please refer to the registration statement and its exhibits and
schedules for further information with respect to NeoMedia and the common stock.
Statements contained in this prospectus as to the contents of any contract or
other document are not necessarily complete and, in each instance, we refer you
to the copy of that contract or document filed as an exhibit to the registration
statement. You may read and obtain a copy of the registration statement and its
exhibits and schedules from the SEC, as described in the preceding paragraph.
As allowed by SEC rules, this registration statement does not contain
all the information you can find in the registration statement on Form S-3 filed
by NeoMedia and the exhibits to the registration statement. The SEC allows
NeoMedia to "incorporate by reference" information into this registration
statement, which means that NeoMedia can disclose important information to you
by referring you to other documents filed separately with the SEC. The
information incorporated by reference is deemed to be part of this registration
statement, except for any information superseded by information in this
registration statement. This registration statement incorporates by reference
the documents set forth below that NeoMedia has previously filed with the SEC.
These documents contain important information about the companies and their
financial condition.
This registration statement incorporates important business and
financial information about NeoMedia from documents that are not included in or
delivered with this registration statement. This information is available to you
without charge upon your written or oral request. You can obtain documents
incorporated by reference in this registration statement by requesting them in
writing, by telephone or by e-mail from the Company at the following address:
NeoMedia Technologies, Inc.
2201 Second Street, Suite 600
Ft. Myers, FL 33901
Attention: CFO
Telephone: (239) 337-3434
Telecopier: (239) 337-3668
21
INFORMATION WE INCORPORATE BY REFERENCE
Some of the important business and financial information that you may
want to consider is not included in this prospectus, but rather is "incorporated
by reference" to documents that have been filed by us with the Securities and
Exchange Commission pursuant to the Exchange Act of 1934. The information that
is incorporated by reference consists of:
o Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2004;
o Amendment No. 1 to our Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2004
o Quarterly Report on Form 10-QSB for the three months ended
March 31, 2005;
o Quarterly Report on Form 10-QSB for the three and six months
ended June 30, 2005
o Quarterly Report on Form 10-QSB for the three and nine months
ended September 30, 2005
o Current Reports on Form 8-K filed on December 15, 2005, October
6, 2005, September 29, 2005, August 31, 2005, August 1, 2005,
April 22, 2005, April 13, 2005, April 1, 2005, March 31, 2005,
March 24, 2005, and March 1, 2005;
o The description of our common stock contained in our Form 8-A
filed with SEC on November 18, 1996 (File No. 000-21743).
All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act, after the date of the initial registration statement and
prior to the effectiveness of the registration statement and subsequent to the
date of this prospectus and prior to the termination of this offering, shall be
deemed incorporated by reference in this prospectus and made a part hereof from
the date of filing of those documents. Any statement contained in a document
incorporated or deemed incorporated by reference in this prospectus shall be
deemed modified or superseded for purposes of this prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed incorporated by reference herein or in any prospectus
supplement modifies or supersedes that statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this prospectus.
Beginning on page F-1 hereto, we have provided audited financial
statements for the years ended December 31, 2004 and 2003, and unaudited interim
financial sstatements for the nine months ended September 30, 2005, for Mobot,
Inc., a material probable acquisition that is subject to a non-binding letter of
intent.
We will provide without charge to each person who is delivered a
prospectus, on written or oral request, a copy of any or all of the documents
incorporated by reference herein (other than exhibits to those documents unless
those exhibits are specifically incorporated by reference into those documents).
Requests for copies should be directed to Investor Relations, NeoMedia
Technologies, Inc., 2201 Second Street, Suite 600, Ft. Myers, FL, 33901,
Telephone: (239) 337-3434.
22
Report of Independent Registered Public Accounting Firm
To the Board of Directors of Mobot, Inc.
Lexington, Massachusetts
We have audited the accompanying balance sheet of Mobot, Inc. (a development
stage company) as of December 31, 2004, and the related statements of operations
and stockholders' deficit and cash flows for the year then ended and for the
period from September 8, 2003 (inception) to December 31, 2004. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mobot, Inc. as of December 31,
2004, and the results of its operations and its cash flows for the year then
ended and for the period from September 8, 2003 (inception) to December 31,
2004, in conformity with accounting principles generally accepted in the United
States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's significant operating losses and working
capital deficit raise substantial doubt about its ability to continue as a going
concern. Management's plans regarding those matters also are described in Note
1. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/ Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
Irvine, California
October 11, 2005
F-1
Mobot, Inc.
(A Development Stage Company)
Balance Sheet
--------------------------------------------------------------------------------
December 31,
2004
---------
Assets
Current assets:
Cash $ 290,000
Prepaid expenses 2,937
---------
Total current assets 292,937
---------
Property and equipment, net 4,055
Intangible assets, net 4,668
Security deposit 7,303
---------
Total assets $ 308,963
=========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 16,071
Accrued expenses 4,613
Accrued interest 5,945
---------
Total current liabilities 26,629
---------
Convertible debentures 500,000
Stockholders' deficit:
Common stock, $0.01 par value, 10,000 shares authorized,
1,659 shares outstanding 17
Additional paid-in capital 652
Deficit accumulated in the development stage (218,335)
---------
Total stockholders' deficit (217,666)
---------
Total liabilities and stockholders' deficit $ 308,963
=========
The accompanying notes form an integral part of these consolidated financial
statements.
F-2
Mobot, Inc.
(A Development Stage Company)
Statement of Operations
--------------------------------------------------------------------------------
From Inception
of Development
Stage
(September 8,
Year Ended 2003 to
December 31, December 31,
2004 2004)
--------- ---------
Net sales $ -- $ --
Cost of goods sold -- --
--------- ---------
Gross profit -- --
Operating, general and administrative expenses:
Selling and marketing expenses 22,448 22,448
General and administrative expenses 190,245 190,245
--------- ---------
Total operating expenses 212,693 212,693
--------- ---------
Operating loss (212,693) (212,693)
Interest expense (5,642) (5,642)
--------- ---------
Net loss $(218,335) $(218,335)
========= =========
The accompanying notes form an integral part of these consolidated financial
statements.
F-3
Mobot, Inc.
(A Development Stage Company)
Statement of Stockholders' Deficit
--------------------------------------------------------------------------------
From Inception of Development Stage (September 8, 2003 to December 31, 2004)
Deficit
Accumulated
Common Stock Additional in the
------------------------ Paid In Development
Shares Amount Capital Stage Totals
--------- --------- --------- --------- ---------
Balance at September 8, 2003
(inception), stock issued
at $0.01 per share 1,000 $ 10 $ -- $ -- $ 10
--------- --------- --------- --------- ---------
Balance, December 31, 2003 1,000 $ 10 $ -- $ -- $ 10
Restricted stock issued on
September 24, 2004 for sale
at $1.00 per share 70 1 69 -- 70
Restricted stock issued on
September 24, 2004 and
November 29, 2004 for sale at
$1.00 per share with a
forfeiture clause 560 6 554 -- 560
Restricted stock issued on
November 29, 2004 for sale
at $1.00 per share 29 -- 29 -- 29
Net loss -- -- -- (218,335) (218,335)
--------- --------- --------- --------- ---------
Balance, December 31, 2004 1,659 $ 17 $ 652 $(218,335) $(217,666)
========= ========= ========= ========= =========
The accompanying notes form an integral part of these consolidated financial
statements.
F-4
Mobot, Inc.
(A Development Stage Company)
Statement of Cash Flows
Increase (Decrease) in Cash
--------------------------------------------------------------------------------
From Inception
Of Development
Stage
(September 8,
Year Ended 2003 to
December 31, December 31,
2004 2004)
--------- ---------
Cash flows from operating activities:
Net loss $(218,335) $(218,335)
Adjustments to reconcile net loss to net cash
Provided by operating activities:
Depreciation and amortization 555 555
Changes in operating assets and liabilities:
Prepaid expenses (2,937) (2,937)
Security deposit (7,303) (7,303)
Accounts payable 16,071 16,071
Accrued expenses 4,613 4,613
Accrued interest 5,945 5,945
--------- ---------
Net cash used for operating activities (201,391) (201,391)
Cash flows used for investing activities:
Purchase of property and equipment (4,278) (4,278)
Purchase of intangible asset (5,000) (5,000)
--------- ---------
Net cash used for investing activities (9,278) (9,278)
Cash flows provided by financing activities:
Convertible debenture 500,000 500,000
Proceeds from issuance of stock 659 669
--------- ---------
Net cash provide by financing activities 500,659 500,669
Net increase in cash 289,990 290,000
Cash, beginning of period 10 --
--------- ---------
Cash, end of period $ 290,000 $ 290,000
========= =========
The accompanying notes form an integral part of these consolidated financial
statements.
F-5
Mobot, Inc.
(A Development Stage Company)
Notes to Financial Statements
Year Ended December 31, 2004
--------------------------------------------------------------------------------
(1) Basis of Presentation and Summary of Operations:
Basis of Presentation
Mobot, Inc., a Massachusetts corporation referred to as "Mobot" or the
"Company," was originally incorporated under the laws of Delaware under the
name Ilumena Corporation on September 8, 2003 (inception) and had no
activity during the year ended December 31, 2003. On September 16, 2004 the
Board of Directors approved to have the Company's name officially changed
to Mobot, Inc. Mobot is in the business of connecting consumers using any
camera phone on any wireless carrier to brands, mobile content and
commerce. No complex codes, navigation or changes to cross-media campaigns
are required.
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America,
which contemplate continuation of the Company as a going concern. However,
the Company has reported net losses of $218,335 for the year ended December
31, 2004, and has retained deficit of $218,335 as of December 31, 2004. In
addition, the Company has a cash balance of $290,000 and working capital of
$266,308 as of December 31, 2004.
Going Concern
The Company cannot be certain that anticipated revenues from operations
will be sufficient to satisfy its ongoing capital requirements.
Management's belief is based on the Company's operating plan, which in turn
is based on assumptions that may prove to be incorrect. If the Company's
financial resources are insufficient the Company may require additional
financing in order to execute its operating plan and continue as a going
concern. The Company cannot predict whether this additional financing will
be in the form of equity, debt, or another form. The Company may not be
able to obtain the necessary additional capital on a timely basis, on
acceptable terms, or at all. In any of these events, the Company may be
unable to implement its current plans for expansion, repay its debt
obligations as they become due or respond to competitive pressures, any of
which circumstances would have a material adverse effect on its business,
prospects, financial condition and results of operations.
(2) Summary of Significant Accounting Policies:
Development Stage Company
The Company has not generated any significant revenue since inception. The
accompanying financial statements have been prepared using the accounting
formats prescribed for development stage companies.
F-6
Mobot, Inc.
(A Development Stage Company)
Notes to Financial Statements
Year Ended December 31, 2004
--------------------------------------------------------------------------------
(2) Summary of Significant Accounting Policies (Continued):
Use of Estimates
The preparation of the financial statements in accordance with accounting
principles generally accepted in the United States of America requires the
Company's management to make a number of estimates and assumptions relating
to the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements, and the reported amounts of revenue and expenses during the
period. Significant items subject to such estimates and assumptions include
the carrying amount of property and equipment, intangibles, valuation
allowances for deferred income tax assets, accounts receivable, accruals
and other factors. Actual results could differ from those estimates.
Cash
For the purposes of the balance sheet and statement of cash flows, all
highly liquid investments with original maturities of three months or less
are considered cash equivalents. The Company maintains bank accounts with
balances which, at times, that may exceed federally insured limits. The
Company has not experienced any losses on such accounts. The Company
believes it is not exposed to any significant risk on bank deposit
accounts. The Company had a cash balance of $290,000 as of December 31,
2004, which exceeded federally insured limit.
Property and Equipment
Property and equipment consists primarily of computer equipment having a
useful life of 3 years and are carried at cost, net of accumulated
depreciation. Depreciation is calculated using the straight-line method
over the estimated useful lives of the related assets. Repairs and
maintenance are charged to expense as incurred. Upon retirement or sale,
cost and accumulated depreciation are removed from the accounts and any
gain or loss is reflected in the statement of operations. Material
expenditures, which increase the life of an asset, are capitalized and
depreciated over the estimated remaining life of the asset.
Intangible Asset
Intangible asset consists of a domain name and is carried at cost, net of
accumulated amortization. Amortization is calculated using the
straight-line method over estimated useful life of 5 years. Upon retirement
or sale, cost and accumulated amortization are removed from the accounts
and any gain or loss is reflected in the statement of operations.
F-7
Mobot, Inc.
(A Development Stage Company)
Notes to Financial Statements
Year Ended December 31, 2004
--------------------------------------------------------------------------------
(2) Summary of Significant Accounting Policies (Continued):
Income Taxes
In accordance with SFAS No. 109, "Accounting for Income Taxes", income
taxes are accounted for using the assets and liabilities approach. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities, and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all of the deferred tax assets
will not be recognized. The Company has recorded a 100% valuation allowance
as of December 31, 2004.
Advertising Costs
The Company expenses the cost of advertising and promoting its services as
incurred. There were no advertising expenses incurred for the year ended
December 31, 2004.
Fair Value of Financial Instruments
For certain of the Company's financial instruments, including cash,
short-term bank borrowings, accounts payable and other accrued liabilities,
the carrying amounts approximate fair value due to their short-term
maturities. The fair value of long-term obligations approximates its
carrying value as the existing contract interest rates are comparable to
market rates currently offered to the Company for similar debt instruments
with similar maturities.
(3) Recently Issued Accounting Pronouncements:
In May 2005, the FASB issued FASB Statement No. 154, Accounting Changes and
Error Corrections. This new standard replaces APB Opinion No. 20,
Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes
in Interim Financial Statements, and represents another step in the FASB's
goal to converge its standards with those issued by the IASB. Among other
changes, Statement 154 requires that a voluntary change in accounting
principle be applied retrospectively with all prior period financial
statements presented on the new accounting principle, unless it is
impracticable to do so. Statement 154 also provides that (1) a change in
method of depreciating or amortizing a long-lived nonfinancial asset be
accounted for as a change in estimate (prospectively) that was effected by
a change in accounting principle, and (2) correction of errors in
previously issued financial statements should be termed a "restatement."
The new standard is effective for accounting changes and correction of
errors made in fiscal years beginning after December 15, 2005.
F-8
Mobot, Inc.
(A Development Stage Company)
Notes to Financial Statements
Year Ended December 31, 2004
--------------------------------------------------------------------------------
(3) Recently Issued Accounting Pronouncements (Continued):
Early adoption of this standard is permitted for accounting changes and
correction of errors made in fiscal years beginning after June 1, 2005.
In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations" ("FIN 47"). FIN 47 provides
guidance relating to the identification of and financial reporting for
legal obligations to perform an asset retirement activity. The
Interpretation requires recognition of a liability for the fair value of a
conditional asset retirement obligation when incurred if the liability's
fair value can be reasonably estimated. FIN 47 also defines when an entity
would have sufficient information to reasonably estimate the fair value of
an asset retirement obligation. The provision is effective no later than
the end of fiscal years ending after December 15, 2005. The Company will
adopt FIN 47 beginning the first quarter of fiscal year 2006 and does not
believe the adoption will have a material impact on its consolidated
financial position or results of operations or cash flows. In March 2005,
the SEC released Staff Accounting Bulletin No. 107, "Share-Based Payment"
("SAB 107"), which provides interpretive guidance related to the
interaction between SFAS 123(R) and certain SEC rules and regulations. It
also provides the SEC staff's views regarding valuation of share-based
payment arrangements. In April 2005, the SEC amended the compliance dates
for SFAS 123(R), to allow companies to implement the standard at the
beginning of their next fiscal year, instead of the next reporting period
beginning after June 15, 2005. Management is currently evaluating the
impact SAB 107 will have on our consolidated financial statements.
In December 2004, the FASB issued SFAS No.153, "Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions." The amendments made by Statement 153 are based on the
principle that exchanges of nonmonetary assets should be measured based on
the fair value of the assets exchanged. Further, the amendments eliminate
the narrow exception for nonmonetary exchanges of similar productive assets
and replace it with a broader exception for exchanges of nonmonetary assets
that do not have commercial substance. Previously, Opinion 29 required that
the accounting for an exchange of a productive asset for a similar
productive asset or an equivalent interest in the same or similar
productive asset should be based on the recorded amount of the asset
relinquished. Opinion 29 provided an exception to its basic measurement
principle (fair value) for exchanges of similar productive assets. The
Board believes that exception required that some nonmonetary exchanges,
although commercially substantive, be recorded on a carryover basis. By
focusing the exception on exchanges that lack commercial substance, the
Board believes that SFAS 153 produces financial reporting that more
faithfully represents the economics of the transactions. SFAS 153 is
effective for nonmonetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005. Earlier application is permitted for
nonmonetary asset exchanges occurring in fiscal periods
F-9
Mobot, Inc.
(A Development Stage Company)
Notes to Financial Statements
Year Ended December 31, 2004
--------------------------------------------------------------------------------
(3) Recently Issued Accounting Pronouncements (Continued):
beginning after the date of issuance. The provisions of this Statement
shall be applied prospectively. The Company has evaluated the impact of the
adoption of SFAS 153, and does not believe the impact will be significant
to the Company's overall results of operations or financial position.
In December 2004, the FASB issued SFAS No.123 "Share-Based Payment". SFAS
123(R) will provide investors and other users of financial statements with
more complete and neutral financial information by requiring that the
compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on the
fair value of the equity or liability instruments issued. SFAS 123(R)
covers a wide range of share-based compensation arrangements including
share options, restricted share plans, performance-based awards, share
appreciation rights, and employee share purchase plans. SFAS 123(R)
replaces FASB Statement No. 123, Accounting for Stock-Based Compensation,
and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees. Statement 123, as originally issued in 1995, established as
preferable a fair-value-based method of accounting for share-based payment
transactions with employees. However, that Statement permitted entities the
option of continuing to apply the guidance in Opinion 25, as long as the
footnotes to financial statements disclosed what net income would have been
had the preferable fair-value-based method been used. Public entities
(other than those filing as small business issuers) will be required to
apply Statement 123(R) as of the first interim or annual reporting period
that begins after June 15, 2005. The adoption of this standard will not
have any impact on the Company's results of operations or financial
position as the Company does not participate in the related activities.
In December 2004 the Financial Accounting Standards Board issued two FASB
Staff Positions - FSP FAS 109-1, Application of FASB Statement 109
"Accounting for Income Taxes" to the Tax Deduction on Qualified Production
Activities Provided by the American Jobs Creation Act of 2004, and FSP FAS
109-2 Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004.
Neither of these affected the Company as it does not participate in the
related activities.
In November 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 151, "Inventory
Costs" an amendment of Accounting Research Bulletin ("ARB") No. 43, to
clarify the accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage). This SFAS requires
that those items be recognized as current-period charges regardless of
whether they meet the criterion of "so abnormal". In addition, this SFAS
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities.
Companies are required to adopt the provisions of this Statement for fiscal
years beginning after June 15, 2005. The adoption of this standard will not
have any impact on the Company's results of operations or financial
position.
F-10
Mobot, Inc.
(A Development Stage Company)
Notes to Financial Statements
Year Ended December 31, 2004
--------------------------------------------------------------------------------
(4) Property and Equipment:
December 31,
2004
------------------
Computer equipment $ 4,278
Less accumulated depreciation 223
------------------
Computer equipment, net $ 4,055
==================
Depreciation expense was $223 for the year ended December 31, 2004.
(5) Intangible Asset:
December 31,
2004
------------------
Domain name $ 5,000
Less accumulated amortization 332
------------------
Domain name, net $ 4,668
==================
Amortization expense was $332 for the year ended December 31, 2004.
(6) Income Taxes:
The Company had net operating loss carry forwards of approximately
$193,400. The loss expires in 2024. The Company believes it is more likely
than not that it will not realize the future tax benefits of its operating
loss carry forwards and has provided a full valuation allowance as of
December 31, 2004.
The components of current and deferred income tax expense (benefit) are as
follows:
December 31,
2004
------------------
Current:
State $ --
Federal --
Deferred:
State --
Federal --
------------------
Net income tax expense $ --
==================
F-11
Mobot, Inc.
(A Development Stage Company)
Notes to Financial Statements
Year Ended December 31, 2004
--------------------------------------------------------------------------------
(6) Income Taxes (Continued):
A reconciliation of income taxes between the statutory and effective tax
rates on income before income taxes is as follows:
December 31,
2004
---------------
Computed statutory income tax expense (benefit) $ (74,234)
State income tax, net of federal (20,742)
Meals and entertainment 720
Depreciation (179)
Accrual to cash 10,306
Change in valuation allowance (84,129)
---------------
$ --
===============
The components of deferred income taxes are as follows:
December 31,
2004
---------------
Deferred tax assets:
Net operating loss carry forward $ (84,129)
Deferred tax liabilities:
Accelerated depreciation
on property & equipment (179)
Accrual to cash 10,306
---------------
Net deferred tax assets (74,002)
Valuation allowance 74,002
---------------
$ --
===============
(7) Equity:
Common Stock
Each of the eight holders of our common stock are entitled to one vote for
each share held of record on each matter submitted to a vote of
stockholders. Holders of common stock have no preemptive rights and have no
rights to convert their common stock into any other securities. The
outstanding common stock is duly authorized and validly issued, fully-paid,
and non-assessable.
F-12
Mobot, Inc.
(A Development Stage Company)
Notes to Financial Statements
Year Ended December 31, 2004
--------------------------------------------------------------------------------
(7) Equity:
Forfeiture Clause
During the year, the Company issued 560 shares to key employees. If
employment with the Company terminates before four years from the date of
issuance, the employee will be required to forfeit a certain number of
shares, based upon a predetermined schedule. The Company retains the right
to purchasing back these forfeited shares at the original purchase price.
Equity Incentive Plan
On September 16, 2004, the Company adopted an incentive plan called the
"2004 Equity Incentive Plan" providing for the issuance of up to 900 shares
of the Company's common stock pursuant to grants of restricted stock or
stock options under the plan.
(8) Commitments and Contingencies:
The Company leases its office facility under an operating lease with an
expiration date of April 30, 2006. For the year ended December 31, 2004,
Mobot incurred rent expense of $5,817.
The following is a schedule of the future minimum payments under the
non-cancelable operating lease in effect as of December 31, 2004:
Operating
Leases
--------------
Year Ended December 31,
2005 $ 46,788
2006 17,577
--------------
Total minimum payments $ 64,365
==============
In the normal course of business the Company is subject to various
claims and litigation. The Company does not currently have any pending
or threatening litigation.
F-13
Mobot, Inc.
(A Development Stage Company)
Notes to Financial Statements
Year Ended December 31, 2004
--------------------------------------------------------------------------------
(9) Convertible Debentures:
In August and October of 2004, the Company entered into two five-year
$250,000 convertible debenture financing agreements. These agreements
accrue interest at 4% per annum and can be paid after twelve months with no
prepayment penalties. As of December 31, 2004, the Company recognized
accrued interest on the debentures in the amount of $5,945. Neither
agreement has a repayment schedule and are payable in full, including
accrued interest, at August and October of 2009.
The debentures have conversion rights that allows for the debentures to be
converted into 333 shares of the Company's common stock only as follows:
(1) from and after the date that is twelve months following the closing if
the Company has not completed a major equity financing producing proceeds
to the Company of at least $3 million prior to such date, (2) in the event
of an initial public offering, (3) in the event of a sale of the Company.
In the event of an initial public offering a sale of the Company, the
Company will notify the debenture holders they have the right to convert
the debentures within ten days of such notice at a conversion rate of
$1,500 per share. The debentures do not have a beneficial conversion
feature.
The debentures also have stock warrants that are issuable upon conversion
or exchange of the debentures at 50% of the number of shares converted to
common shares.
(10) Subsequent Events:
On July 27, 2005, Mobot signed a non-binding Letter of Intent to be
purchased by NeoMedia Technologies, Inc. ("NeoMedia"), of Fort Myers,
Florida. NeoMedia has three distinct business units, NeoMedia Internet
Software Service that offers technologies if linking the physical world to
the internet, NeoMedia Consulting and Intergration Services that offers
resale of computer hardware and software and NeoMedia Micro Paint Repair
that offers technologies in the micro paint industry.
The Letter of Intent calls for NeoMedia to acquire all of the outstanding
shares of Mobot in exchange for $3,500,000 cash and $6,500,000 in shares of
NeoMedia common stock. The LOI is subject to due diligence by both parties.
F-14
Mobot, Inc.
(A Development Stage Company)
Notes to Financial Statements
Year Ended December 31, 2004
--------------------------------------------------------------------------------
(10) Subsequent Events (Continued):
On July 28, 2005, Mobot borrowed from NeoMedia the principal amount of
$600,000 in the form of an unsecured promissory note. The Note accrues
interest at a rate of 6% per annum. The Note will be forgiven upon signing
of a definitive purchase agreement for the acquisition of all of the
outstanding shares of Mobot by NeoMedia, as contemplated by the Letter of
Intent. In the event the acquisition is not consummated, the Note will
become due 90 days after written notice of cancellation of the Letter of
Intent. In the event the Letter of Intent is terminated and the Note is not
repaid within 90 days of such cancellation, the note will convert into
shares of Mobot common stock with a value equal to the unpaid principal and
accrued interest on the Note.
In the event a definitive purchase agreement is not executed by the
parties, or the Letter of Intent is not terminated by September 26, 2005,
Mobot has the right to demand an additional $200,000 loan from NeoMedia. On
September 26, 2005, Mobot exercised its right and received the additional
$200,000 loan. Further, in the event a definitive purchase agreement is not
executed by the parties or the Letter of Intent is not terminated by
October 26, 2005, Mobot has the right to demand an additional $200,000 loan
from NeoMedia. On October 26, 2005, Mobot exercised its right and received
the additional $200,000 loan. Both of the additional loans are in the form
of unsecured promissory notes subject to the same terms as the original
$600,000 note.
F-15
SUPPLEMENTARY FINANCIAL INFORMATION
The following information presents Mobot, Inc.'s unaudited quarterly operating
results for the nine months ended September 30, 2005 and 2004. The data has been
prepared by Mobot, Inc. on a basis consistent with the Financial Statements
included elsewhere in this registration statement, and includes all adjustments,
consisting of normal recurring accruals, that we consider necessary for a fair
presentation thereof. These operating results are not necessarily indicative of
our future performance.
Mobot, Inc.
Balance Sheet - unaudited
September 30, 2005
--------------------------------------------------------------------------------
Assets
Current assets:
Cash $ 440,793
Accounts receivable 1,250
Prepaid expenses 5,636
-----------
Total current assets 447,679
-----------
Property and equipment, net 10,915
Intangible assets, net 9,031
Security deposit 7,303
-----------
$ 474,928
===========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 47,634
Accrued interest 20,945
Deferred revenue 52,639
Accrued salaries 188,917
Note payable 800,000
-----------
Total current liabilities 1,110,135
-----------
Convertible debentures 500,000
-----------
Stockholders' deficit:
Common stock, $0.01 par value, 10,000 shares authorized,
1,834 shares issued and outstanding 18
Additional paid-in capital 855
Accumulated deficit (1,136,080)
-----------
Total stockholders' deficit (1,135,207)
-----------
$ 474,928
===========
The accompanying notes form an integral part of these financial statements.
F-16
Mobot, Inc.
Statements of Operations - unaudited
--------------------------------------------------------------------------------------
Nine Months Nine Months
Ended Ended
September 30 September 30
2005 2004
----------- -----------
Net sales $ 143,961 $ --
Cost of goods sold -- --
----------- -----------
Gross profit 143,961 --
----------- -----------
Operating expenses:
Selling and marketing expenses 115,581 19,519
General and administrative expenses 930,829 57,019
----------- -----------
Total operating expenses 1,046,410 76,538
----------- -----------
Operating loss (902,449) (76,538)
Interest expense (15,296) 74
----------- -----------
Net loss $ (917,745) $ (76,464)
=========== ===========
The accompanying notes form an integral part of these financial statements.
F-17
Mobot, Inc.
Statements of Cash Flows - unaudited
Increase (Decrease) in Cash
-------------------------------------------------------------------------------------------------
Nine Months Nine Months
Ended Ended
September 30, September 30,
2005 2004
----------------- -----------------
Cash flows from operating activities:
Net loss $ (917,745) $ (76,464)
Adjustments to reconcile net loss to net cash
Provided by operating activities:
Depreciation and amortization 2,154 -
Changes in operating assets and liabilities:
Accounts receivable (1,250) -
Prepaid expenses (2,699) -
Security deposit - -
Accounts payable 31,563 25,596
Accrued interest 15,000 -
Deferred revenue 52,639 -
Deferred salaries 184,304 -
----------------- -----------------
Net cash used for operating
activities (636,034) (50,868)
----------------- -----------------
Cash flows used for investing activities:
Investment in patents (9,031) -
Purchase of property and equipment (4,346) -
Purchase of intangible asset - -
----------------- -----------------
Net cash used for investing
activities (13,377) -
----------------- -----------------
Cash flows provided by financing activities:
Proceeds from convertible debenture - 250,000
Loan 800,000 -
Proceeds from note payable 100,000 -
Repayment of note payable (100,000) -
Proceeds from issuance of stock 204 -
----------------- -----------------
Net cash provided by financing
activities 800,204 250,000
----------------- -----------------
Net increase in cash 150,793 199,132
Cash, beginning of period 290,000 10
----------------- -----------------
Cash, end of period $ 440,793 $ 199,142
================= =================
The accompanying notes form an integral part of these financial statements.
F-18
Mobot, Inc.
Notes to Financial Statements - unaudited
Nine Months Ended September 30, 2005 and 2004
(1) Basis of Presentation and Summary of Operations:
Basis of Presentation
Mobot, Inc., a Delaware corporation referred to as "Mobot" or the
"Company," was originally incorporated under the laws of Delaware
under the name Ilumena Corporation on September 8, 2003
(inception) and had no activity during the year ended December 31,
2003. On September 16, 2004 the Board of Directors approved to
have the Company's name officially changed to Mobot, Inc. Mobot is
in the business of connecting consumers using any camera phone on
any wireless carrier to brands, mobile content and commerce. No
complex codes, navigation or changes to cross-media campaigns are
required.
On July 27, 2005, Mobot signed a non-binding Letter of Intent
("Letter of Intent") to be purchased by NeoMedia Technologies,
Inc. ("NeoMedia"), of Fort Myers, Florida. NeoMedia has three
distinct business units, NeoMedia Internet Software Service that
offers technologies if linking the physical world to the
internet, NeoMedia Consulting and Integration Services that
offers resale of computer hardware and software and NeoMedia
Micro Paint Repair that offers technologies in the micro paint
industry. The Letter of Intent calls for NeoMedia to acquire all
of the outstanding shares of Mobot in exchange for $3,500,000
cash and $6,500,000 in shares of NeoMedia common stock. The LOI
is subject to due diligence by both parties.
Going Concern
The accompanying financial statements have been prepared in
conformity with accounting principles generally accepted in the
United States of America, which contemplate continuation of the
Company as a going concern. However, the Company has reported net
losses of $917,745 and $76,464 for the periods ended September 30,
2005 and 2004, respectively, and has retained deficits of
$1,136,080 and $76,464 as of September 30, 2005 and 2004,
respectively. In addition, the Company has cash balances of
$440,793 as of September 30, 2005.
The Company cannot be certain that anticipated revenues from
operations will be sufficient to satisfy its ongoing capital
requirements. Management's belief is based on the Company's
operating plan, which in turn is based on assumptions that may
prove to be incorrect. If the Company's financial resources are
insufficient the Company may require additional financing in order
to execute its operating plan and continue as a going concern. The
Company cannot predict whether this additional financing will be
in the form of equity, debt, or another form. The Company may not
be able to obtain the necessary additional capital on a timely
basis, on acceptable terms, or at all. In any of these events, the
Company may be unable to implement its current plans for
expansion, repay its debt obligations as they become due or
respond to competitive pressures, any of which circumstances would
have a material adverse effect on its business, prospects,
financial condition and results of operations.
F-19
(2) Summary of Significant Accounting Policies:
Revenue Recognition
The Company records revenue in accordance with SEC Staff
Accounting Bulletin No. 104 ("SAB 104") Revenue Recognition in
Financial Statements SAB No. 104 requires that sales be recognized
when a persuasive evidence of an arrangement exists, the price to
the customer is fixed and determinable price, delivery of the
service has occurred and collectibility is reasonably assured. The
Company records sales over the life of the contracts as certain
key services are performed in accordance with contract terms,
which state fixed prices and terms, and collection is reasonably
assured.
F-20
(3) Recently Issued Accounting Pronouncements:
In May 2005, the FASB issued FASB Statement No. 154, Accounting Changes
and Error Corrections. This new standard replaces APB Opinion No. 20,
Accounting Changes, and FASB Statement No. 3, Reporting Accounting
Changes in Interim Financial Statements, and represents another step in
the FASB's goal to converge its standards with those issued by the IASB.
Among other changes, Statement 154 requires that a voluntary change in
accounting principle be applied retrospectively with all prior period
financial statements presented on the new accounting principle, unless it
is impracticable to do so. Statement 154 also provides that (1) a change
in method of depreciating or amortizing a long-lived nonfinancial asset
be accounted for as a change in estimate (prospectively) that was
effected by a change in accounting principle, and (2) correction of
errors in previously issued financial statements should be termed a
"restatement." The new standard is effective for accounting changes and
correction of errors made in fiscal years beginning after December 15,
2005.
Early adoption of this standard is permitted for accounting changes and
correction of errors made in fiscal years beginning after June 1, 2005.
In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting
for Conditional Asset Retirement Obligations" ("FIN 47"). FIN 47 provides
guidance relating to the identification of and financial reporting for
legal obligations to perform an asset retirement activity. The
Interpretation requires recognition of a liability for the fair value of
a conditional asset retirement obligation when incurred if the
liability's fair value can be reasonably estimated. FIN 47 also defines
when an entity would have sufficient information to reasonably estimate
the fair value of an asset retirement obligation. The provision is
effective no later than the end of fiscal years ending after December 15,
2005. The Company will adopt FIN 47 beginning the first quarter of fiscal
year 2006 and does not believe the adoption will have a material impact
on its consolidated financial position or results of operations or cash
flows.
In March 2005, the SEC released Staff Accounting Bulletin No. 107,
"Share-Based Payment" ("SAB 107"), which provides interpretive guidance
related to the interaction between SFAS 123(R) and certain SEC rules and
regulations. It also provides the SEC staff's views regarding valuation
of share-based payment arrangements. In April 2005, the SEC amended the
compliance dates for SFAS 123(R), to allow companies to implement the
standard at the beginning of their next fiscal year, instead of the next
reporting period beginning after June 15, 2005. Management is currently
evaluating the impact SAB 107 will have on our consolidated financial
statements. In December 2004, the FASB issued SFAS No.153, "Exchanges of
Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for
Nonmonetary Transactions." The amendments made by Statement 153 are based
on the principle that exchanges of nonmonetary assets should be measured
based on the fair value of the assets exchanged. Further, the amendments
eliminate the narrow exception for nonmonetary exchanges of similar
productive assets and replace it with a broader exception for exchanges
of nonmonetary assets that do not have commercial substance. Previously,
Opinion 29 required that the
F-21
(3) Recently Issued Accounting Pronouncements (Continued):
accounting for an exchange of a productive asset for a similar productive
asset or an equivalent interest in the same or similar productive asset
should be based on the recorded amount of the asset relinquished. Opinion
29 provided an exception to its basic measurement principle (fair value)
for exchanges of similar productive assets. The Board believes that
exception required that some nonmonetary exchanges, although commercially
substantive, be recorded on a carryover basis. By focusing the exception
on exchanges that lack commercial substance, the Board believes that SFAS
153 produces financial reporting that more faithfully represents the
economics of the transactions. SFAS 153 is effective for nonmonetary
asset exchanges occurring in fiscal periods beginning after June 15,
2005. Earlier application is permitted for nonmonetary asset exchanges
occurring in fiscal periods beginning after the date of issuance. The
provisions of this Statement shall be applied prospectively. The Company
has evaluated the impact of the adoption of SFAS 153, and does not
believe the impact will be significant to the Company's overall results
of operations or financial position.
In December 2004, the FASB issued SFAS No.123 "Share-Based Payment". SFAS
123(R) will provide investors and other users of financial statements
with more complete and neutral financial information by requiring that
the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on
the fair value of the equity or liability instruments issued. SFAS 123(R)
covers a wide range of share-based compensation arrangements including
share options, restricted share plans, performance-based awards, share
appreciation rights, and employee share purchase plans. SFAS 123(R)
replaces FASB Statement No. 123, Accounting for Stock-Based Compensation,
and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees. Statement 123, as originally issued in 1995, established as
preferable a fair-value-based method of accounting for share-based
payment transactions with employees. However, that Statement permitted
entities the option of continuing to apply the guidance in Opinion 25, as
long as the footnotes to financial statements disclosed what net income
would have been had the preferable fair-value-based method been used.
Public entities (other than those filing as small business issuers) will
be required to apply Statement 123(R) as of the first interim or annual
reporting period that begins after June 15, 2005. The adoption of this
standard will not have any impact on the Company's results of operations
or financial position as the Company does not participate in the related
activities.
In December 2004 the Financial Accounting Standards Board issued two FASB
Staff Positions - FSP FAS 109-1, Application of FASB Statement 109
"Accounting for Income Taxes" to the Tax Deduction on Qualified
Production Activities Provided by the American Jobs Creation Act of 2004,
and FSP FAS 109-2 Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the American Jobs Creation Act of
2004. Neither of these affected the Company as it does not participate in
the related activities.
In November 2004, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 151,
"Inventory Costs" an amendment of Accounting Research Bulletin ("ARB")
No. 43, to clarify the accounting for abnormal amounts
F-22
(3) Recently Issued Accounting Pronouncements (Continued):
of idle facility expense, freight, handling costs, and wasted material
(spoilage). This SFAS requires that those items be recognized as
current-period charges regardless of whether they meet the criterion of
"so abnormal". In addition, this SFAS requires that allocation of fixed
production overheads to the costs of conversion be based on the normal
capacity of the production facilities. Companies are required to adopt
the provisions of this Statement for fiscal years beginning after June
15, 2005. The adoption of this standard will not have any impact on the
Company's results of operations or financial position.
(4) NOTE PAYABLE:
On July 28, 2005, Mobot borrowed the principal amount of $600,000 in
the form of an unsecured promissory note. The Note accrues interest at
a rate of 6% per annum. The Note will be forgiven upon signing of a
definitive purchase agreement for the acquisition of all of the
outstanding shares of Mobot by NeoMedia, as contemplated by the Letter
of Intent. In the event the acquisition is not consummated, the Note
will become due 90 days after written notice of cancellation of the
Letter of Intent. In the event the Letter of Intent is terminated and
the Note is not repaid within 90 days of such cancellation, the note
will convert into shares of Mobot common stock with a value equal to
the unpaid principal and accrued interest on the Note.
On September 26, 2005, NeoMedia loaned Mobot an additional $200,000
under the same terms as noted above.
(5) Convertible Debentures:
In August and October of 2004, the Company entered into two five-year
$250,000 convertible debenture financing agreements. These agreements
accrue interest at 4% per annum and can be paid after twelve months
with no prepayment penalties. As of September 30, 2005, the Company
recorded accrued interest on the debentures in the amount of $20,945.
Neither agreement has a repayment schedule and are payable in full,
including accrued interest, at August and October of 2009.
The debentures have conversion rights that allows for the debentures to
be converted into 333 shares of the Company's common stock only as
follows: (1) from and after the date that is twelve months following
the closing if the Company has not completed a major equity financing,
resulting in proceeds to the Company of at least $3 million prior to
such date, (2) in the event of an initial public offering, (3) in the
event of a sale of the Company. In the event of an initial public
offering or sale of the Company, the Company will notify the debenture
holders they have the right to convert the debentures within ten days
of such notice at a conversion rate of $1,500 per share. The debentures
do not have a beneficial conversion feature.
The debentures also have stock warrants that are issuable upon
conversion or exchange of the debentures at 50% of the number of shares
converted to common shares. The fair value of the warrants has been
determined to be nominal and has not been recorded by the Company.
(6) Subsequent Events:
On October 26, 2005, NeoMedia loaned Mobot an additional $200,000
under the same terms as discussed in notes payable. On December 15,
2005, NeoMedia advanced Mobot an additional $500,000. This advance
will be forgiven upon the earlier of signing of a definitive purchase
agreement for the acquisition of all of the outstanding shares of
Mobot by NeoMedia, or February 15, 2006.
F-23
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth estimated expenses expected to be
incurred in connection with the issuance and distribution of the securities
being registered. We will pay all expenses in connection with this offering.
Printing and Engraving Expenses $ 5,000
Accounting Fees and Expenses 25,000
Legal Fees and Expenses 25,000
Miscellaneous 5,000
------------
TOTAL $ 60,000
============
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Delaware General Corporation Law (the "DGCL"), we
have included in our Certificate of Incorporation a provision to eliminate the
personal liability of its directors for monetary damages for breach or alleged
breach of their fiduciary duties as directors, except for liability (i) for any
breach of the director's duty of loyalty to NeoMedia or its stockholders, (ii)
for acts or omissions not in good faith or which involved intentional misconduct
or a knowing violation of law, (iii) in respect of certain unlawful dividend
payments or stock redemptions or repurchases, as provided in Section 174 of the
DGCL, or (iv) for any transaction from which the director derived an improper
personal benefit. The effect of this provision is to eliminate the rights of
NeoMedia and our stockholders (through stockholders' derivative suits on behalf
of NeoMedia) to recover monetary damages against a director for breach of the
fiduciary duty of care as a director except in the situations described in
clauses (i) through (iv) above. This provision does not limit nor eliminate the
rights of NeoMedia or any stockholder to seek non-monetary relief such as an
injunction or rescission in the event of a breach of a director's duty of care.
These provisions will not alter the liability of directors under federal
securities laws.
The Certificate of Incorporation and the bylaws of NeoMedia provide
that it is required and permitted to indemnify our officers and directors,
employees and agents under certain circumstances. In addition, if permitted by
law, we are required to advance expenses to our officers and directors as
incurred in connection with proceedings against them in their capacity as a
director or officer for which they may be indemnified upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to
indemnification. At present, we are not aware of any pending or threatened
litigation or proceeding involving a director, officer, employee or agent of
NeoMedia in which indemnification would be required or permitted.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "1933 Act") may be permitted to directors, officers
or controlling persons of NeoMedia pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the United States
Securities and Exchange Commission such indemnification is against public policy
as expressed in the 1933 Act and is, therefore, unenforceable.
II-1
ITEM 16. EXHIBITS
(a) The following exhibits are filed herewith or incorporated herein by
reference:
Exhibit No. Description Location
----------- ----------------------------------------------------- -----------------------------------------------
5.1 Opinion re: legality Provided herewith
10.1 Consulting Agreement between NeoMedia and Thornhill Provided Herewith
Capital, dated December 5, 2001
10.2 First Agreement and Amendment to Consulting Agreement Provided Herewith
between NeoMedia and Thornhill Capital, dated January
29, 2004
10.3 Second Agreement and Amendment to Consulting Agreement Provided Herewith
between NeoMedia and Thornhill Capital, dated July 22,
2005
10.4 Standby Equity Distribution Agreement, dated October Incorporated by reference to Exhibit 10.91 to
27, 2003, between NeoMedia and Cornell Capital the Registrant's Form SB-2/A as filed on
Partners December 19, 2003
10.5 Form of Registration Rights Agreement, dated October Incorporated by reference to Exhibit 10.93 to
27, 2003, between NeoMedia and Cornell Capital the Registrant's Form SB-2/A as filed on
Partners December 19, 2003
10.6 Form of Escrow Agreement, dated October 27, 2003, Incorporated by reference to Exhibit 10.94 to
between NeoMedia and Cornell Capital Partners the Registrant's Form SB-2/A as filed on
December 19, 2003
10.7 $4 million Promissory note payable to Cornell Capital Incorporated by reference to Exhibit 10.49 to
Partners, dated January 15, 2004 the Registrant's Form 10-KSB as filed on March
9, 2004
10.8 Standby Equity Distribution Agreement, dated March Incorporated by reference to Exhibit 16.1 to
30,2005, between NeoMedia and Cornell the Registrant's Form 8-K as filed on April 1,
2005
10.9 Placement Agent Agreement, dated March 30, 2005, Incorporated by reference to Exhibit 16.2 to
between NeoMedia and Cornell the Registrant's Form 8-K as filed on April 1,
2005
10.10 Escrow Agreement, dated March 30, 2005, between Incorporated by reference to Exhibit 16.3 to
NeoMedia and Cornell the Registrant's Form 8-K as filed on April 1,
2005
10.11 Registration Rights Agreement, dated March 30, 2005, Incorporated by reference to Exhibit 16.4 to
between NeoMedia and Cornell the Registrant's Form 8-K as filed on April 1,
2005
10.12 Promissory Note, dated March 30, 2005, between Incorporated by reference to Exhibit 16.5 to
NeoMedia and Cornell the Registrant's Form 8-K as filed on April 1,
2005
10.13 Security Agreement, dated March 30, 2005, between Incorporated by reference to Exhibit 16.6 to
NeoMedia and Cornell the Registrant's Form 8-K as filed on April 1,
2005
II-2
Exhibit No. Description Location
----------- ----------------------------------------------------- -----------------------------------------------
10.14 Warrant dated March 30, 2005, granted by NeoMedia to Incorporated by reference to Exhibit 10. 12 to
Thornhill Capital LLC the Registrant's Amendment No. 1 to Form S-3 as
filed on July 18, 2005
10.15 Warrant dated March 30, 2005, granted by NeoMedia to Incorporated by reference to Exhibit 10. 13 to
Cornell Capital Partners LP the Registrant's Amendment No. 1 to Form S-3 as
filed on July 18, 2005
10.16 Promissory Note, dated March 13, 2003, between Provided Herewith
NeoMedia and Cornell
10.17 Promissory Note, dated May 27, 2003, between NeoMedia Provided Herewith
and Cornell
10.18 Promissory Note, dated June 24, 2003, between NeoMedia Provided Herewith
and Cornell
10.19 Promissory Note, dated July 21, 2003, between NeoMedia Provided Herewith
and Cornell
10.20 Promissory Note, dated August 1, 2003, between Provided Herewith
NeoMedia and Cornell
10.21 Promissory Note, dated September 2, 2003, between Provided Herewith
NeoMedia and Cornell
10.22 Promissory Note, dated September 11, 2003, between Provided Herewith
NeoMedia and Cornell
10.23 Promissory Note, dated April 8, 2004, between NeoMedia Provided Herewith
and Cornell
10.24 Promissory Note, dated July 2, 2004, between NeoMedia Provided Herewith
and Cornell
10.25 Promissory Note, dated August 6, 2004, between Provided Herewith
NeoMedia and Cornell
10.26 Promissory Note, dated October 18, 2004, between Provided Herewith
NeoMedia and Cornell
23.1 Consent of Stonefield Josephson, Inc., independent Provided herewith
Registered Public Accounting Firm of NeoMedia
Technologies, Inc.
23.2 Consent of Stonefield Josephson, Inc., independent Provided herewith
Registered Public Accounting Firm of Mobot, Inc.
II-3
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Sections
10(a)(3) of the Securities Act of 1933 (the "Act");
(ii) Reflect in the prospectus any facts or events
arising after the effective date of the
Registration Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement;
(iii) Include any additional or changed material
information on the plan of distribution;
(2) That, for the purpose of determining any liability under
the Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the bona fide
offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Ft. Myers, State of Florida, on January 24, 2006.
NEOMEDIA TECHNOLOGIES, INC.
By: /s/ Charles T. Jensen
------------------------------------------------
Charles T. Jensen
President, Chief Executive Officer and Director
/s/ David A. Dodge
------------------------------------------------
David A. Dodge
Vice-President, Chief Financial Officer, and
principal accounting officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURES TITLE DATE
------------------------------------- ----------------------------------- ----------------
/s/ Charles T. Jensen
------------------------------------ President, Chief Executive Officer,
Charles T. Jensen and Director January 24, 2006
/s/ Charles W. Fritz Chairman of the Board
------------------------------------
Charles W. Fritz January 24, 2006
/s/ David A. Dodge
------------------------------------ Vice-President, Chief Financial Officer,
David A. Dodge and principal accounting officer January 24, 2006
/s/ William E. Fritz Director
------------------------------------
William E. Fritz January 24, 2006
/s/ Hayes Barclay Director
------------------------------------
Hayes Barclay January 24, 2006
/s/ James J. Keil Director
------------------------------------
James J. Keil January 24, 2006