As filed with the Securities and Exchange Commission on September 8, 2006
SEC Registration No. 333-__________
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 (Primary Standard Industrial (Name, address, and telephone number
Registrant's principal Classification Code Number) of agent for service)
executive offices)
WITH COPIES TO:
Clayton E. Parker, Esq. Ronald S. Haligman, Esq.
Kirkpatrick & Lockhart Nicholson Graham 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
TITLE OF SECURITIES TO BE PRICE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) SHARE PRICE FEE
------------------------------------------------------- ------------- -------------- ---------------- ---------------
Shares underlying Series C Convertible Preferred 335,000,000 $0.13 $43,550,000.00 $5,125.84
Stock, convertible into Common Shares, par value
$0.01 per share
------------------------------------------------------- ------------- -------------- ---------------- ---------------
Shares underlying Secured Convertible Debentures,
convertible into Common Shares, par value $0.01 per 76,277,650 $0.13 $9,916,094.50 $1,167.12
share
------------------------------------------------------- ------------- -------------- ---------------- ---------------
Common Stock, par value $0.01 per share 118,217,511 $0.13 $15,368,276.43 $1,808.85
------------------------------------------------------- ------------- -------------- ---------------- ---------------
Shares underlying warrants to purchase Common Stock, 276,150,000 $0.13 $35,899,500.00 $4,225.37
par value $0.01 per share
------------------------------------------------------- ------------- -------------- ---------------- ---------------
TOTALS 805,645,161 $104,733,870.93 $12,327.18
------------------------------------------------------- ------------- -------------- ---------------- ---------------
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(c), using the average of the high and low
prices of NeoMedia's common stock of $0.13 per share as reported in
the Over-the-Counter Bulletin Board on September 6, 2006.
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 _______ __, 2006
805,645,161 SHARES
NEOMEDIA TECHNOLOGIES, INC.
--------------------------------------------------------------------------------
UP TO 335,000,000 SHARES UNDERLYING SERIES C CONVERTIBLE PREFERRED STOCK
UP TO 76,277,650 SHARES UNDERLYING CONVERTIBLE DEBENTURES
118,217,511 SHARES OF COMMON STOCK
276,150,000 SHARES UNDERLYING WARRANTS TO PURCHASE SHARES OF COMMON STOCK
--------------------------------------------------------------------------------
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 August 24, 2006 was $0.134per share.
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 4 OF THIS REGISTRATION STATEMENT.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
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 ________, 2006.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS..........................................................1
ABOUT NEOMEDIA TECHNOLOGIES, INC...............................................2
RISK FACTORS...................................................................4
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS....................16
USE OF PROCEEDS...............................................................17
DILUTION......................................................................18
SELLING STOCKHOLDERS..........................................................19
PLAN OF DISTRIBUTION..........................................................30
DESCRIPTION OF SECURITIES.....................................................31
EXPERTS.......................................................................35
MATERIAL CHANGES..............................................................36
WHERE YOU CAN FIND MORE INFORMATION...........................................38
INFORMATION WE INCORPORATE BY REFERENCE.......................................39
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-8
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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 805,645,161 shares issued or to be issued for the
following purposes:
Shares underlying Series C Convertible Preferred Stock 335,000,000
Shares underlying Convertible Debenture 76,277,650
Shares underlying warrants to purchase shares of common stock 276,150,000
Shares of common stock previously issued for the following purposes:
Stock consideration issued to acquire Mobot, Inc. 16,931,493
Stock consideration issued to acquire Sponge Ltd. 33,097,135
Stock consideration issued to acquire Gavitec AG 13,660,511
Stock consideration issued to acquire 12Snap AG 49,294,581
To retire debt 5,233,791 118,217,511
--------------- ----------------
TOTAL SHARES BEING REGISTERED HEREUNDER 805,645,161
================
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.
1
ABOUT NEOMEDIA TECHNOLOGIES, INC.
NEOMEDIA TECHNOLOGIES, INC.
2201 SECOND STREET, SUITE 600
FORT MYERS, FL 33901
P : (239) 337-3434
NeoMedia (www.neom.com) is a diversified, global company offering
leading-edge, technologically advanced products and solutions for companies and
consumers, built upon its solid family of patented products and processes, and
management experience and expertise.
NeoMedia operates under the following three business units:
o NeoMedia Mobile (NMM) - encompassing NeoMedia's
physical-world-to-internet and mobile marketing technologies branded
under qode(R), 12Snap AG, Sponge Ltd., Gavitec AG and Mobot, Inc.
o NeoMedia Micro Paint Repair (NMPR) - encompassing the micro paint
and auto aftermarket accessories manufactured and distributed by
NeoMedia.
o NeoMedia Telecom Services (NTS) - encompassing the billing,
clearinghouse and information management services of
recently-acquired BSD Software, Inc.
NEOMEDIA MOBILE
NeoMedia's mobile services group of companies offer end-to-end mobile
enterprise and mobile marketing solutions, through its flagship
direct-to-mobile-web qode(R) technology, and ground-breaking products and
services from five of the USA's and Europe's leading mobile marketing providers.
By linking consumers and companies to the interactive electronic world, NeoMedia
delivers one-to-one, permission-based, personalized and profiled
dialogue--anytime and anywhere.
The qode(R) suite of easy-to-use, market-driven products and
applications are based on a strong foundation of patented technology, comprising
the qode(R) (www. qode.com) platform, qode(R) for Camera Phones(TM) and the
qode(R) Mobile GoWindow(TM) and CodeWindow(TM), all of which provide One Click
to Content(TM) connectivity for products, print, packaging and other physical
objects to link directly to specific desired content on the mobile Internet.
NeoMedia's recently acquired companies and offerings include 12Snap AG
(www.12snap.com), a Munich, Germany-based award-winning leader in mobile
marketing and entertainment applications; Mobot, Inc. (www.Mobot.com), a
Lexington, Massachusetts-based pioneer in mobile visual recognition technology;
Sponge Ltd. (www.spongegroup.com), a London, UK-based leader in developing and
implementing mobile marketing applications and content delivery; and Gavitec AG
- mobile digit (www.gavitec.com), a Wurselen, Germany-based leading provider of
mobile technology and marketing solutions.
NEOMEDIA MICRO PAINT REPAIR
NeoMedia Micro Paint Repair, Inc. (www.micropaint.net) is an
international developer, supplier and trainer to the automotive aftermarket
industry, offering a comprehensive line of technologically advanced automotive
rejuvenation and preservation products, processes and systems. NMPR focuses on
quality, efficiency, innovativeness and environmentally sound products and
technologies so that its clients are able to deliver expert solutions and a
positive experience to the end consumer.
NMPR offers its clients a "one-stop shop" to obtain a comprehensive line
of technologically and environmentally advanced products and processes for
interior and exterior automotive rejuvenation. Its proprietary Micro Paint
Repair system can dramatically reduce costs for current auto body repair
facilities, or create a new profit center for auto-related businesses that do
not currently offer paint repair. Likewise, NMPR can help automotive repair
businesses offer complementary services beyond micro paint, not only through its
product line, but also through training on how to do additional interior and
exterior repairs.
2
NMPR markets its comprehensive automotive rejuvenation system to a myriad
of automotive industry businesses, from auto dealers to body shops to glass
repair shops, and more. Two facilities, NMPR's headquarters in Fort Myers,
Florida and its Canadian head office in Calgary, Alberta offer repairs directly
to customers, and on-site training to business clients.
Geographically, outside of the United States NeoMedia has expanded its
micro paint repair offering into: China through partnerships with Jinche
(Automart), DuPont and PPG; Scandinavia, through its distribution agreement with
WI-THO AS in Norway; Mexico and Latin America, through its distribution
agreement with Micropaint de Mexico; Australia and New Zealand, through a
distribution agreement with Micro Paint Systems (Australasia) Limited of New
Zealand; and Canada, through a distribution agreement with MDA Co-Auto.
On August 30, 2006, NeoMedia signed a non-binding letter of intent to
sell its Micro Paint Repair business unit to Jose Sada, a technology partner of
NeoMedia Micro Paint Repair, backed by Global Emerging Markets Group ("GEM") of
New York City. The letter of intent calls for execution of a definitive purchase
agreement by October 27, 2006, with closing on or before November 24, 2006. GEM
is a $1.8B private investment group specializing in control, minority, and
public market investing. Its activities are both domestic and international,
spanning a diverse array of industries and transactional structures, with
offices in New York, London and Paris.
NEOMEDIA TELECOM SERVICES
NeoMedia Telecom (www.tritonglobal.ca), including its majority-owned
Triton Global subsidiary, is a business unit of NeoMedia Technologies, Inc., and
is a leading provider of network access, billing, clearinghouse and information
management services to the telecommunications industry. NeoMedia Telecom helps
its clients improve services and profitability by enabling them to streamline
their operations and make quicker, more informed business decisions.
Triton was incorporated in April 1998 as a next generation Internet
Protocol (IP) enabled provider of live and automated operator calling services,
e-Business support, billing and clearinghouse functions and information
management services to telecommunications, internet and e-business service
providers. Triton was acquired by NeoMedia in March 2006, at which time NeoMedia
established the NeoMedia Telecom Services (NTS) business unit, consisting solely
of Triton's business.
3
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
NeoMedia has incurred substantial operating losses since inception, and
anticipates continuing to incur substantial losses for the foreseeable future.
Net income (unaudited) for the six months ended June 30, 2006, was $3,815,000
which includes a gain on derivative financial instruments of $15,794,000.
NeoMedia also reported net losses of $9,147,000 and $7,230,000 for the years
ended December 31, 2005 and 2004, respectively. NeoMedia's accumulated losses
were approximately $88,709,000 (unaudited) and $92,524,000 as of June 30, 2006
and December 31, 2005, respectively. As of June 30, 2006 and December 31, 2005
and 2004, NeoMedia had a working capital deficit of approximately $18,877,000
(unaudited), $4,874,000 and $2,597,000, respectively. NeoMedia had stockholders'
equity of $56,473,000 (unaudited), $4,227,000 and $4,392,000 as of June 30, 2006
and December 31, 2005 and 2004, respectively. NeoMedia generated revenues of
$8,658,000, $1,285,000, $2,156,000 and $1,700,000 for the six months (unaudited)
ended June 30, 2006 and 2005 and the years ended December 31, 2005 and 2004,
respectively. In addition, during the six months (unaudited) ended June 30, 2006
and 2005 and the years ended December 31, 2005 and 2004, NeoMedia recorded
negative cash flows from operations of $6,429,000, $3,455,000, $6,509,000 and
$4,650,000, respectively. To succeed, NeoMedia must develop new client and
customer relationships and substantially increase its revenue derived from
improved products and additional value-added services. NeoMedia has expended,
and to the extent it has available financing, NeoMedia intends to continue to
expend, substantial resources to develop and improve its products, increase its
value-added services and to market its products and services. These development
and marketing expenses must be incurred well in advance of the recognition of
revenue. As a result, NeoMedia may not be able to achieve or sustain
profitability.
NEOMEDIA'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM HAVE ADDED SUBSTANTIAL
DOUBTS ABOUT NEOMEDIA'S ABILITY TO CONTINUE AS A GOING CONCERN LANGUAGE TO THEIR
REPORT ON NEOMEDIA'S CONSOLIDATED FINANCIAL STATEMENTS, WHICH MEANS THAT
NEOMEDIA MAY NOT BE ABLE TO CONTINUE OPERATIONS
The report of Stonefield Josephson, Inc., NeoMedia's independent
registered public accounting firm, with respect to NeoMedia's consolidated
financial statements and the related notes for the years ended December 31, 2005
and 2004, indicates that, at the date of their report, NeoMedia had suffered
significant recurring losses from operations and its working capital deficit
raised substantial doubt about its ability to continue as a going concern.
NeoMedia's consolidated financial statements do not include any adjustments that
might result from this uncertainty.
NEOMEDIA HAS GUARANTEED THE VALUE OF STOCK ISSUED IN CONNECTION WITH RECENT
MERGERS THROUGH THE REGISTRATION OF THE SHARES, WHICH COULD RESULT IN A MATERIAL
CASH LIABILITY
Pursuant to the terms of the merger agreements with Mobot, Sponge,
Gavitec, and 12Snap, in the event that NeoMedia's stock price at the time the
consideration shares issued in connection with each acquisition are saleable is
less than the price at which they were valued for purposes of the respective
merger agreements (between $0.3839 and $0.3956 per share), NeoMedia is obligated
to compensate the sellers in cash for the difference between the price at the
time the shares become saleable and the price the shares were valued for
purposes of the merger agreement. Subsequent to the closing of the acquisitions,
NeoMedia's stock has traded as low as $0.124 per share. Assuming a stock price
at the time the shares become saleable of $0.134, which was the last sale price
on August 24, 2006, NeoMedia would have a cash liability of $29 million
resulting from these clauses.
NEOMEDIA'S OBLIGATIONS UNDER THE SECURED CONVERTIBLE DEBENTURES ARE SECURED BY
ALL OF OUR ASSETS WHICH CAUSE OUR OPERATIONS TO CEASE IF WE DEFAULT
4
NeoMedia's obligations under the secured convertible debentures issued
to Cornell Capital Partners are secured by all of our assets. As a result, if we
default under the terms of the secured convertible debentures, Cornell Capital
Partners could foreclose its security interest and liquidate all of our assets.
This would cause us to cease operations.
NEOMEDIA HAS CONTRACTUAL COMMITMENTS TO PAY SILENT PARTNERS
Resulting from the acquisition of 12 Snap, NeoMedia has a commitment to pay EUR
1,750,000 (approximately $2.1M US), at the end of 2006 to the Silent Partners of
12 Snap. If NeoMedia's financial resources are insufficient, NeoMedia may
require additional financing in order to meet this obligation. There is no
guarantee that NeoMedia will be able to obtain the necessary additional capital
to meet this obligation on a timely basis, on acceptable terms, or at all. In
any of these events, NeoMedia may be unable to repay this obligation when it
becomes due.
THERE IS LIMITED INFORMATION UPON WHICH INVESTORS CAN EVALUATE NEOMEDIA'S
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 NeoMedia operates is a
recently developed market. Further, NeoMedia has conducted operations in this
market only since March 1996. Consequently, NeoMedia has a relatively limited
operating history upon which an investor may base an evaluation of NeoMedia's
primary business and determine NeoMedia's prospects for achieving its intended
business objectives. To date, NeoMedia has sold its physical-world-to-Internet
products to only 12 companies. NeoMedia is prone to all of the risks inherent to
the establishment of any new business venture, including unforeseen changes in
its business plan. An investor should consider the likelihood of NeoMedia's
future success to be highly speculative in light of its limited operating
history in its 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, NeoMedia must, among
other things:
o maintain and increase its client base;
o implement and successfully execute its business and marketing
strategy;
o continue to develop and upgrade its products;
o continually update and improve service offerings and features;
o respond to industry and competitive developments; and
o attract, retain, and motivate qualified personnel.
NeoMedia may not be successful in addressing these risks. If NeoMedia
is unable to do so, its business, prospects, financial condition, and results of
operations would be materially and adversely affected, and we could be forced to
curtail or cease our business operations.
NEOMEDIA'S 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 NeoMedia serves. NeoMedia's 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 NeoMedia fails to
introduce new and innovative products, it may lose market share to its
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 NeoMedia's business, and we could be forced to
curtail or cease our business operations.
NEOMEDIA'S COMMON STOCK IS DEEMED TO BE "PENNY STOCK," WHICH MAY MAKE IT MORE
DIFFICULT FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS
NeoMedia's 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 NeoMedia's
common stock by reducing the number of potential investors. This may make it
more difficult for investors in NeoMedia's common stock to sell shares to third
parties or to otherwise dispose of them. This could cause NeoMedia's stock price
to decline. Penny stocks are stock:
5
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.
EXISTING SHAREHOLDERS WILL EXPERIENCE SIGNIFICANT DILUTION WHEN CERTAIN
INVESTORS CONVERT THEIR PREFERRED STOCK AND CONVERTIBLE DEBENTURES TO COMMON
STOCK OR WHEN THE INVESTORS EXERCISE THEIR WARRANTS AND RECEIVE COMMON STOCK
UNDER THE INVESTMENT AGREEMENT WITH THE INVESTORS
The issuance of shares of common stock upon conversion of Series C
Convertible Preferred Stock pursuant to our transaction with Cornell Capital
Partners, the issuance of shares of common stock upon the exercise of warrants,
and the issuance of shares of common stock upon the conversion of the secured
convertible debentures will have a dilutive impact on our stockholders. As a
result, our net income or loss per share could decrease in future periods, and
the market price of our common stock could decline. In addition, the lower our
stock price is, the more shares of common stock we will have to issue pursuant
to the conversion of our preferred stock or secured convertible debenture. If
our stock price is lower, then our existing stockholders would experience
greater dilution.
DUE TO THE ACCOUNTING TREATMENT OF CERTAIN CONVERTIBLE PREFERRED STOCK AND
CONVERTIBLE DEBENTURE INSTRUMENTS ISSUED BY NEOMEDIA, A FLUCTUATION IN
NEOMEDIA'S STOCK PRICE COULD HAVE A MATERIAL IMPACT ON NEOMEDIA'S RESULTS OF
OPERATIONS
During the first and second quarters of 2006, NeoMedia recognized
income (unaudited) in the amount of $4,768,000 and $11,026,000, respectively,
from adjustments recorded to reflect the change in fair value of derivatives
issued in connection with its Series C Convertible Preferred Shares. The income
results from a decrease in NeoMedia's share price from $0.389 per share at the
time of issuance of the Series C Convertible Preferred Shares (February 17,
2006) to $0.345 at March 31, 2006 to $0.231 at June 30, 2006. An increase to
NeoMedia's shares price would result in a charge to income. NeoMedia will adjust
the carrying value of the derivative instruments to market at each balance sheet
date. As a result, NeoMedia could experience significant fluctuations in its net
income (loss) in future periods as a result of such charges.
NEOMEDIA IS UNCERTAIN OF THE SUCCESS OF ITS NEOMEDIA MOBILE BUSINESS UNIT AND
THE FAILURE OF THIS UNIT WOULD NEGATIVELY AFFECT THE PRICE OF NEOMEDIA'S STOCK
NeoMedia provides products and services that provide a link from
physical objects, including printed material, to the mobile Internet. NeoMedia
can provide no assurance that:
o its NeoMedia Mobile business unit will ever achieve profitability;
o its 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 NeoMedia develops will obtain market acceptance.
In the event that the NeoMedia Mobile business unit should never
achieve profitability, that NeoMedia's current product offerings should so
suffer, or that NeoMedia's products fail to obtain market acceptance, NeoMedia's
business, prospects, financial condition, and results of operations would be
materially adversely affected, and we could be forced to curtail or cease our
business operations.
6
A LARGE PERCENTAGE OF NEOMEDIA'S ASSETS ARE INTANGIBLE ASSETS, WHICH WILL HAVE
LITTLE OR NO VALUE IF NEOMEDIA'S OPERATIONS ARE UNSUCCESSFUL
At June 30, 2006 and December 31, 2005 and 2004, approximately 84%, 48%
and 49%, respectively, of NeoMedia's total assets were intangible assets,
consisting primarily of rights related to NeoMedia's patents, other intellectual
property, and excess of purchase price over fair market value paid for Mobot,
Sponge, Gavitec, 12Snap, BSD, and CSI International, Inc. If NeoMedia's
operations are unsuccessful, these assets will have little or no value, which
would materially adversely affect the value of NeoMedia's stock and you could
lose your entire investment in NeoMedia.
NeoMedia reviews its amortizable intangible assets for impairment when
events or changes in circumstances indicate the carrying value may not be
recoverable. Goodwill is required to be tested for impairment at least annually.
NeoMedia may be required to record a significant charge to earnings in its
financial statements during the period in which any impairment of our goodwill
or amortizable intangible assets is determined, resulting in an impact on
results of operations.
CERTAIN OF NEOMEDIA'S EMERGING PRODUCTS AND SERVICES HAVE LIMITED HISTORY AND
MAY NOT RESULT IN SUCCESS
Certain of NeoMedia's emerging products and services have limited
history upon which an investor may evaluate their prospects. In addition, to
date, NeoMedia has conducted limited marketing efforts directly relating to its
emerging technology products, consisting primarily of the PaperClick suite of
products, and certain products of recent acquisitions Mobot and Gavitec. Many of
NeoMedia's marketing efforts with respect to these emerging technologies have
been largely untested in the marketplace, and may not result in materially
increased sales of these emerging products and services. To penetrate the
emerging markets in which it competes, NeoMedia expects that it will have to
exert significant efforts to create awareness of, and demand for, its emerging
products and services. NeoMedia intends to continue to expand its sales and
marketing resources as the market continues to mature. NeoMedia's failure to
further develop its sales and marketing capabilities and successfully market its
emerging products and services would have a material adverse effect on its
business, prospects, financial condition, and results of operations, and we
could be forced to curtail or cease our business operations.
NEOMEDIA'S INTERNALLY DEVELOPED SYSTEMS ARE INEFFICIENT AND MAY PUT NEOMEDIA AT
A COMPETITIVE DISADVANTAGE
NeoMedia uses internally developed technologies for a portion of its
systems integration services, as well as the technologies required to
interconnect its clients' and customers' physical-world-to-Internet systems and
hardware with its own. As NeoMedia develops 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
NeoMedia at a competitive disadvantage when compared to competitors with more
efficient systems. If NeoMedia cannot compete effectively, we could be forced to
curtail or cease our business operations.
NEOMEDIA COULD FAIL TO ATTRACT OR RETAIN KEY PERSONNEL
NeoMedia's 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 NeoMedia has. NeoMedia may not be
successful in attracting and retaining qualified personnel on a timely basis, on
competitive terms, or at all. NeoMedia's failure to attract and retain qualified
personnel could have a material adverse effect on its business, prospects,
financial condition, and results of operations, and could force us to curtail or
cease our business operations.
NEOMEDIA DEPENDS UPON ITS SENIOR MANAGEMENT AND THEIR LOSS OR UNAVAILABILITY
COULD PUT NEOMEDIA AT A COMPETITIVE DISADVANTAGE
NeoMedia's success depends largely on the skills of certain key
management and technical personnel, including Charles T. Jensen, NeoMedia's
President and Chief Executive Officer, Charles W. Fritz, NeoMedia's founder and
Chairman of the Board of Directors, Martin N. Copus, NeoMedia's Chief Operating
Officer and head of the NMM business unit, and David A. Dodge, NeoMedia's Chief
Financial Officer. The loss of the services of Messrs. Jensen, Fritz, Copus, or
Dodge could materially harm NeoMedia's 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. NeoMedia does not presently
maintain a key-man life insurance policy on Messrs. Jensen, Fritz, Copus, or
Dodge.
7
NEOMEDIA MAY BE UNSUCCESSFUL IN INTEGRATING ITS RECENTLY COMPLETED ACQUISITIONS
WITH ITS CURRENT BUSINESS
The success of the acquisitions of Mobot, 12Snap, Sponge, Gavitec, and
BSD could depend on the ability of NeoMedia's executive management to integrate
the business plan of each company with NeoMedia's overall business plan. Failure
to properly integrate the business could have a material adverse effect on the
expected revenue and operations of the acquisitions, as well as the expected
return on investment for NeoMedia. If we are unsuccessful in integrating our
recent acquisitions, we could be forced to curtail or cease our business
operations
NEOMEDIA MAY BE UNABLE TO PROTECT ITS INTELLECTUAL PROPERTY RIGHTS AND MAY BE
LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS
NeoMedia's success in the physical-world-to-Internet market is
dependent upon its proprietary technology, including patents and other
intellectual property, and on the ability to protect proprietary technology and
other intellectual property rights. In addition, NeoMedia must conduct its
operations without infringing on the proprietary rights of third parties.
NeoMedia also intends to rely upon unpatented trade secrets and the know-how and
expertise of its employees, as well as its patents. To protect its proprietary
technology and other intellectual property, NeoMedia relies 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. Although NeoMedia believes that it has taken appropriate
steps to protect its unpatented proprietary rights, including requiring that its
employees and third parties who are granted access to NeoMedia's proprietary
technology enter into confidentiality agreements, NeoMedia can provide no
assurance that these measures will be sufficient to protect its rights against
third parties. Others may independently develop or otherwise acquire patented or
unpatented technologies or products similar or superior to NeoMedia's.
NeoMedia licenses from third parties certain software tools that are
included in NeoMedia's services and products. If any of these licenses were
terminated, NeoMedia could be required to seek licenses for similar software
from other third parties or develop these tools internally. NeoMedia 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. NeoMedia may in the future be required to defend its
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, NeoMedia. An adverse determination could
subject NeoMedia to significant liabilities to third parties, require NeoMedia
to seek licenses from, or pay royalties to, third parties, or require NeoMedia
to develop appropriate alternative technology. Some or all of these licenses may
not be available to NeoMedia on acceptable terms or at all, and NeoMedia 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 NeoMedia's business,
prospects, financial condition, and results of operations, and we could be
forced to curtail or cease our business operations.
NEOMEDIA IS EXPOSED TO PRODUCT LIABILITY CLAIMS AND AN UNINSURED CLAIM COULD
HAVE A MATERIAL ADVERSE EFFECT ON NEOMEDIA'S BUSINESS, PROSPECTS, FINANCIAL
CONDITION, AND RESULTS OF OPERATIONS, AS WELL AS THE VALUE OF NEOMEDIA'S STOCK
Many of NeoMedia's projects are critical to the operations of its
clients' businesses. Any failure in a client's information system could result
in a claim for substantial damages against NeoMedia, regardless of NeoMedia's
responsibility for such failure. NeoMedia could, therefore, be subject to claims
in connection with the products and services that it sells. NeoMedia currently
maintains product liability insurance. There can be no assurance that:
o NeoMedia has contractually limited its liability for such claims
adequately or at all; or
o NeoMedia would have sufficient resources to satisfy any liability
resulting from any such claim.
The successful assertion of one or more large claims against NeoMedia
could have a material adverse effect on its business, prospects, financial
condition, and results of operations, and we could be forced to curtail or cease
our business operations.
8
NEOMEDIA WILL NOT PAY CASH DIVIDENDS AND INVESTORS MAY HAVE TO SELL THEIR SHARES
IN ORDER TO REALIZE THEIR INVESTMENT
NeoMedia has not paid any cash dividends on its common stock and does
not intend to pay cash dividends in the foreseeable future. NeoMedia intends to
retain future earnings, if any, for reinvestment in the development and
marketing of NeoMedia's products and services. As a result, investors may have
to sell their shares of common stock to realize their investment.
SOME PROVISIONS OF NEOMEDIA'S CERTIFICATE OF INCORPORATION AND BYLAWS MAY DETER
TAKEOVER ATTEMPTS, WHICH MAY LIMIT THE OPPORTUNITY OF NEOMEDIA'S STOCKHOLDERS TO
SELL THEIR SHARES AT A PREMIUM TO THE THEN-CURRENT MARKET PRICE
Some of the provisions of NeoMedia's Certificate of Incorporation and
bylaws could make it more difficult for a third party to acquire NeoMedia, even
if doing so might be beneficial to NeoMedia's stockholders by providing them
with the opportunity to sell their shares at a premium to the then-current
market price. On December 10, 1999, NeoMedia's 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's 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 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 NeoMedia's 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 NeoMedia's
"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, NeoMedia's 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.
NeoMedia is authorized to issue a total of 25,000,000 shares of
Preferred Stock, par value $0.01 per share. The issuance of any preferred stock
could have a material adverse effect on the rights of holders of NeoMedia's
common stock, and, therefore, could reduce the value of shares of NeoMedia's
common stock. In addition, specific rights granted to future holders of
preferred stock could be used to restrict NeoMedia's ability to merge with, or
sell NeoMedia's 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.
9
RISKS RELATING TO NEOMEDIA'S INDUSTRY
THE SECURITY OF THE INTERNET POSES RISKS TO THE SUCCESS OF NEOMEDIA'S 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
NeoMedia's physical-world-to-Internet business.
NEOMEDIA WILL ONLY BE ABLE TO EXECUTE ITS PHYSICAL-WORLD-TO-INTERNET BUSINESS
PLAN IF INTERNET USAGE AND ELECTRONIC COMMERCE CONTINUE TO GROW
NeoMedia's future revenues and any future profits are substantially
dependent upon the widespread acceptance and use of the Internet and camera
devices on mobile telephones. If use of the Internet and camera devices on
mobile telephones does not continue to grow or grows more slowly than expected,
or if the infrastructure for the Internet and camera devices on mobile
telephones does not effectively support the growth that may occur, or does not
become a viable commercial marketplace, NeoMedia's physical-world-to-Internet
business, and therefore NeoMedia's business, prospects, financial condition, and
results of operations, could be materially adversely affected, and we could be
forced to curtail or cease our business operations. Rapid growth in the use of,
and interest in, the Internet and camera devices on mobile telephones is a
recent phenomenon, and may not continue on a lasting basis. In addition,
customers may not adopt, and continue to use mobile telephones as a medium of
information retrieval or commerce. Demand and market acceptance for recently
introduced services and products over the mobile Internet are subject to a high
level of uncertainty, and few services and products have generated profits. For
NeoMedia 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 use of the
Internet and camera devices on mobile telephones 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 mobile phone Internet usage continues to experience significant growth in
the number of users, their frequency of use, or in their bandwidth requirements,
the infrastructure for the mobile Internet may be unable to support the demands
placed upon them. In addition, the mobile Internet and mobile interactivity
could lose its viability due to delays in the development or adoption of new
standards and protocols required to handle increased levels of mobile Internet
activity, or due to increased governmental regulation. Significant issues
concerning the commercial and informational use of the mobile Internet, 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.
NEOMEDIA MAY NOT BE ABLE TO ADAPT AS THE INTERNET, PHYSICAL-WORLD-TO-INTERNET,
AND CUSTOMER DEMANDS CONTINUE TO EVOLVE
NeoMedia may not be able to adapt as the mobile Internet and
physical-world-to-Internet markets and consumer demands continue to evolve.
NeoMedia's failure to respond in a timely manner to changing market conditions
or client requirements would have a material adverse effect on its business,
prospects, financial condition, and results of operations, and we could be
forced to curtail or cease our business operations. The mobile Internet and
physical-world-to-Internet 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.
10
NeoMedia's success will depend, in part, on its 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 NeoMedia's prospective or current customers; and
o respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis.
NEOMEDIA'S COMPETITORS IN THE MICRO PAINT REPAIR INDUSTRY COULD DUPLICATE
NEOMEDIA'S PROPRIETARY PROCESSES
NeoMedia's success in the micro paint repair industry depends upon
proprietary chemical products and processes. There is no guarantee that
NeoMedia's competitors will not duplicate NeoMedia's proprietary processes.
NEOMEDIA 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 NeoMedia. NeoMedia believes that
competition will intensify and increase in the near future. NeoMedia's target
market is rapidly evolving and is subject to continuous technological change. As
a result, NeoMedia's 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 NeoMedia's business, prospects, financial condition,
and results of operations, and we could be forced to curtail or cease our
business operations.
Some of NeoMedia's competitors have longer operating histories, larger
customer bases, longer relationships with clients, and significantly greater
financial, technical, marketing, and public relations resources than NeoMedia.
NeoMedia may not successfully compete in any market in which it conducts or may
conduct operations. Many of NeoMedia's competitors in the Micro Paint Repair
business have a longer operating history in the industry, as well as access to
greater financial resources. NeoMedia may not be able to penetrate markets or
market its products as effectively as NeoMedia's better-funded more-established
competitors.
IN THE FUTURE THERE COULD BE GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES
WHICH COULD HARM NEOMEDIA'S BUSINESS
Any new legislation or regulation, the application of laws and
regulations from jurisdictions whose laws do not currently apply to NeoMedia's
business, or the application of existing laws and regulations to the Internet
and other online services, could have a material adverse effect on NeoMedia's
business, prospects, financial condition, and results of operations, and we
could be forced to curtail or cease our business 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 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
NeoMedia's services and increase NeoMedia's cost of doing business, or otherwise
have a material adverse effect on NeoMedia's business, prospects, financial
condition, and results of operations, and we could be forced to curtail or cease
our business 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.
11
Certain of NeoMedia's proprietary technology allows for the storage of
demographic data from NeoMedia's 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
NeoMedia's ability to collect and use information collected by NeoMedia's
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. NeoMedia could incur significant
additional expenses if new regulations regarding the use of personal information
are introduced or if NeoMedia's privacy practices are investigated.
In addition, certain of NeoMedia's micro paint solutions could be
subject to environmental regulations, which could impose significant additional
expenses to NeoMedia for compliance with such new regulations.
12
RISKS SPECIFIC TO THIS OFFERING
As of August 24, 2006, we had 644,279,245 shares of common stock
outstanding, and options and warrants to purchase up to an aggregate 394,901,549
shares of common stock. During February 2006, we sold to Cornell Capital
Partners $22,000,000 of Series C Convertible Preferred Stock that is convertible
into shares of our common stock at the lower of (i) or 97% of the lowest closing
bid prices of the common stock for the 30 trading days immediately preceding the
conversion date, or (ii) $0.50 per share. During August 2006, we sold to Cornell
Capital Partners a $5,000,000 Secured Convertible Debenture that is convertible
into shares of our common stock at the lower of (i) or 90% of the lowest closing
bid prices of the common stock for the 30 trading days immediately preceding the
conversion date, or (ii) $0.15 per share. Up to 335,000,000 common shares
underlying the Series C Convertible Preferred Stock and an additional 76,277,650
common shares underlying the Secured Convertible Debenture are being registered
hereunder. On March 30, 2005, we entered into a Standby Equity Distribution
Agreement with Cornell Capital Partners, whereby Cornell Capital Partners 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 2005 Standby Equity Distribution Agreement are registered with the
Securities and Exchange Commission.
EXISTING SHAREHOLDERS WILL EXPERIENCE SIGNIFICANT DILUTION WHEN CERTAIN
INVESTORS CONVERT THEIR PREFERRED STOCK OR CONVERTIBLE DEBENTURES TO COMMON
STOCK, OR WHEN THE INVESTORS EXERCISE THEIR WARRANTS AND RECEIVE SHARES OF
COMMON STOCK UNDER THE INVESTMENT AGREEMENT WITH THE INVESTORS
The issuance of shares of common stock pursuant to the conversion of
Series C Convertible Preferred Stock or Secured Convertible Debentures pursuant
to our transactions with Cornell Capital Partners and the issuance of shares of
common stock in connection with the exercise of warrants will have a dilutive
impact on our stockholders. As a result, our net income or loss per share could
decrease in future periods, and the market price of our common stock could
decline. In addition, the lower our stock price is, the more shares of common
stock we will have to issue pursuant to the conversion of our preferred stock.
If our stock price is lower, then our existing stockholders would experience
greater dilution.
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;
13
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;
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 August 24, 2006. Since February 9, 2006, NeoMedia's
stock has been subject to dramatic price volatility. Between February 9, 2006
and August 24, 2006, NeoMedia's stock has traded as low as $0.124per share and
as high as $0.42 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
NeoMedia's stock has been subject to dramatic price volatility. Between
January 1, 2005 and August 24, 2006, NeoMedia's stock has traded as low as
$0.124 per share and as high as $0.722 per share. The last sale price of
NeoMedia common stock on August 24, 2006 was $0.134.
YOU MAY SUFFER SIGNIFICANT ADDITIONAL DILUTION IF OUTSTANDING OPTIONS AND
WARRANTS ARE EXERCISED
As of August 24, 2006, we had outstanding stock options and warrants to
purchase 394,901,549 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.
14
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. The potential aggregate dilutive
effect on stockholders of financing and acquisition arrangements in place as of
the date of this filing, assuming various stock prices at the time of the
transactions, are as follows:
ASSUMED NEOMEDIA STOCK PRICE (6)
-------------------------------------------------------------------------
$0.100 $0.200 $0.300 $0.400
------- ------- ------- -------
Shares of common stock outstanding as of August 24,
2006 644,279,245 644,279,245 644,279,245 644,279,245
Plus pro forma common shares issued upon:
Conversion of outstanding options and warrants
(1) 394,901,549 394,901,549 394,901,549 394,901,549
Completion of pending acquisition of Auto
Preservation (2) 10,000,000 5,000,000 3,333,333 2,500,000
Conversion of convertible preferred shares (3) 226,804,124 113,402,062 75,601,375 56,701,031
Conversion of convertible debentures (4) 33,333,333 27,777,778 18,518,519 13,888,889
Draw-down of $100 million SEDA balance (5) 1,020,408,163 510,204,082 340,136,054 255,102,041
--------------- --------------- ---------------- ----------------
Pro forma shares outstanding after all
transactions 2,329,726,414 1,695,564,716 1,476,770,075 1,367,372,755
=============== =============== ================ ================
(1) Outstanding options and warrants include 75 million warrants
issued to Cornell Capital Partners in connection with the
convertible preferred shares, 175 million warrants issued to
Cornell Capital Partners in connection with the convertible
debenture, and 10 million warrants issued to Cornell Capital
Partners in connection with the $100 million SEDA agreement. These
warrants are not included in the pro forma share calculation for
conversion of convertible preferred shares or the convertible
debenture shares, or for the draw-down of $100 million SEDA
balance
(2) Acquisition of 30% of Auto Preservation is subject to a
non-binding letter of intent. Number of shares shown above is
calculated as the $1,000,000 stock portion of contemplated
purchase price divided by the pro forma assumed stock price.
(3) Convertible preferred shares convert into common shares at 97% of
the lowest closing bid price for the 30-day period prior to
conversion.
(4) Convertible debenture shares convert into common shares at 90% of
the lowest closing bid price for the 30-day period prior to
conversion.
(5) Shares sold under the SEDA are valued at 98% of the lowest closing
bid price during the week they are sold. NeoMedia is not obligated
to draw any amounts against the $100 million limit.
(6) This table reflects the number of shares that would be issued to
satisfy current financing and acquisition transactions to which
NeoMedia is a party at different prices of NeoMedia stock at the
time the transaction is effected. The last sale price of NeoMedia
common stock on August 24, 2006 was $0.134. Amounts are shown for
pro forma informational purposes only.
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
644,279,245 shares of common stock outstanding as of August 24, 2006, are, or
upon effectiveness of this registration statement will be, freely tradable
without restriction, unless held by our "affiliates."
15
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements regarding
management's plans and objectives for future operations including plans and
objectives relating to our planned marketing efforts and future economic
performance. The forward-looking statements and associated risks set forth in
this Prospectus include or relate to, among other things, (a) our projected
sales and profitability, (b) our growth strategies, (c) anticipated trends in
our industry, (d) our ability to obtain and retain sufficient capital for future
operations, and (e) our anticipated needs for working capital. These statements
May be found under "About NeoMedia Technologies, Inc." as well as in this
Prospectus generally. Actual events or results may differ materially from those
discussed in forward-looking statements as a result of various factors,
including, without limitation, the risks outlined under "Risk Factors" and
matters described in this Prospectus generally. In light of these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this Prospectus will in fact occur.
The forward-looking statements herein are based on current expectations
that involve a number of risks and uncertainties. Such forward-looking
statements are based on assumptions that there will be no material adverse
competitive or technological change in conditions in our business, that demand
for our products will significantly increase, that our executive officers will
remain employed as such, that our forecasts accurately anticipate market demand,
and that there will be no material adverse change in our operations or business
or in governmental regulations affecting us or our manufacturers and/or
suppliers. The foregoing assumptions are based on judgments with respect to,
among other things, future economic, competitive and market conditions, and
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond our control. Accordingly, although we
believe that the assumptions underlying the forward-looking statements are
reasonable, any such assumption could prove to be inaccurate and therefore there
can be no assurance that the results contemplated in forward-looking statements
will be realized. In addition, as disclosed elsewhere in the "Risk Factors"
section of this Prospectus, there are a number of other risks inherent in our
business and operations which could cause our operating results to vary markedly
and adversely from prior results or the results contemplated by the
forward-looking statements. Growth in absolute and relative amounts of cost of
goods sold and selling, general and administrative expenses or the occurrence of
extraordinary events could cause actual results to vary materially from the
results contemplated by the forward-looking statements. Management decisions,
including budgeting, are subjective in many respects and periodic revisions must
be made to reflect actual conditions and business developments, the impact of
which May cause us to alter marketing, capital investment and other
expenditures, which May also materially adversely affect our results of
operations. In light of significant uncertainties inherent in the
forward-looking information included in this Prospectus, the inclusion of such
information should not be regarded as a representation by us or any other person
that our objectives or plans will be achieved.
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. Any statement in
this prospectus and in the documents incorporated by reference into this
prospectus that is not a statement of an historical fact constitutes a
"forward-looking statement" Further, when we use the words " may", "expect",
"anticipate", "plan", "believe", "seek", "estimate", "internal", and similar
words, we intend to identify statements and expressions that may be
forward-looking statements. We believe it is important to communicate certain of
our expectations to our investors. Forward-looking statements are not guarantees
of future performance. They involve risks, uncertainties and assumptions that
could cause our future results to differ materially from those expressed in any
forward-looking statements. Many factors are beyond our ability to control or
predict. You are accordingly cautioned not to place undue reliance on such
forward-looking statements. Important factors that May cause our actual results
to differ from such forward-looking statements include, but are not limited to,
the risk factors discussed below. Before you invest in our common stock, you
should be aware that the occurrence of any of the events described under "Risk
Factors" below or elsewhere in this Prospectus could have a material adverse
effect on our business, financial condition and results of operation. In such a
case, the trading price of our common stock could decline and you could lose all
or part of your investment.
16
USE OF PROCEEDS
We will not receive any 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.
For illustrative purposes, we have set forth below our intended use
of proceeds for the net proceeds to be received upon exercise of warrants being
registered hereunder. The table assumes estimated offering expenses of $50,000.
PROCEEDS
------------------------------
NUMBER OF EXERCISE ALL IN-THE-MONEY
HOLDER WARRANTS PRICE WARRANTS WARRANTS (1)
------ -------- ----- -------- ------------
Cornell Capital Partners LP 50,000,000 $0.250 $12,500,000 $ ---
Cornell Capital Partners LP 50,000,000 $0.200 10,000,000 ---
Cornell Capital Partners LP 25,000,000 $0.150 3,750,000 ---
Cornell Capital Partners LP 25,000,000 $0.150 3,750,000 ---
Cornell Capital Partners LP 30,000,000 $0.100 3,000,000 3,000,000
Cornell Capital Partners LP 50,000,000 $0.050 2,500,000 2,500,000
Cornell Capital Partners LP 20,000,000 $0.100 2,000,000 2,000,000
Cornell Capital Partners LP 10,000,000 $0.100 1,000,000 1,000,000
Thornhill Capital 4,000,000 $0.227 908,000 ---
Thornhill Capital 2,000,000 $0.328 656,000 ---
Thornhill Capital 4,000,000 $0.110 440,000 440,000
Chas Fritz 1,500,000 $0.050 75,000 75,000
Thornhill Capital 2,000,000 $0.010 20,000 20,000
William Fritz 2,500,000 $0.010 25,000 25,000
David Kaminer 100,000 $0.102 10,200 10,200
William Fritz 40,000 $0.030 1,200 1,200
Chas Fritz 10,000 $0.030 300 300
------------- ---------------
Gross proceeds $40,635,700 $9,071,700
Less: estimated offering expenses (50,000) (50,000)
------------- ---------------
NET PROCEEDS $40,585,700 $9,021,700
============= ===============
(1) A significant portion of the potential proceeds relate to
warrants that were not in-the-money based on a stock price of $0.134,
which was the last sale price on August 24, 2006. As a result, for
informational purposes we have shown the total proceeds from warrants
that were in-the-money as of August 24, 2006.
NeoMedia expects to use the proceeds from any warrant exercises for
general working capital purposes, or in the event it is required, to meet
obligations arising from the purchase price guarantees relating to Mobot,
Sponge, 12Snap, and Gavitec.
17
DILUTION
NeoMedia's net tangible book value as of June 30, 2006 was
$(18,020,000) or $(0.0283) per share of common stock. Net tangible book value
per share is determined by dividing the tangible book value of NeoMedia (total
tangible assets less total liabilities) by the number of outstanding shares of
our common stock. Our net tangible book value will be impacted by the common
stock to be issued upon conversion of the Series C Convertible Preferred Stock
and the Secured Convertible Debenture, as well as upon conversion of warrants
for which the underlying shares are being registered hereunder. Because the
Series C Convertible Preferred Stock and the Secured Convertible Debenture
convert at a discount to the market price of NeoMedia stock at the time of
conversion, the amount of dilution will depend on NeoMedia's share price at the
time that the Series C Convertible Preferred Stock or the Secured Convertible
Debenture are converted. In addition, we expect that certain warrants being
registered hereunder will not be exercised if the market price of our common
stock is less than the exercise price of the warrants. The following example
shows the dilution to new investors at an offering price of $0.15 per share (net
of 3% discount to Cornell Capital Partners).
If we assume that Cornell Capital Partners had converted all 22,000 of
its Series C Convertible Preferred shares and its Secured Convertible Debenture
at an assumed offering price of $0. 15 per share (net of 3% and 10% discount to
Cornell Capital Partners relative to the Series C Convertible Preferred shares
and its Secured Convertible Debenture, respectively), and all in-the-money
warrants being registered hereunder were converted, less offering expenses of
$50,000, our net tangible book value as of June 30, 2006 would have been
$5,766,000 or $0. 0061 per share. Such an offering would represent an immediate
increase in net tangible book value to existing stockholders of $0.0344 per
share and an immediate dilution to new stockholders of $0. 1439 per share. The
following table illustrates the per share dilution:
Assumed public offering price per share $0.1500
Net tangible book value per share before this offering ($0.0283)
Increase attributable to new investors $0.0344
--------
Net tangible book value per share after this offering $0.0061
Dilution per share to new stockholders $0.1439
-------
The offering price of our common stock is based on the then-existing
market price. In order to give prospective investors an idea of the dilution per
share they may experience, we have prepared the following table showing the
dilution per share at various assumed offering prices:
ASSUMED DILUTION PER
OFFERING NO. OF SHARES SHARE TO
PRICE TO BE ISSUED (1) NEW INVESTORS
----- ---------------- -------------
$0.25 354,908,686 $0.2256
$0.20 323,589,099 $0.1862
$0.15 311,389,786 $0.1439
$0.10 341,409,680 $0.1007
$0.05 572,269,358 $0.0527
---------------------
(1) Represents the number of shares of common stock that would be issued at
the given market price, assuming (i) the entire $22 million Series C
Convertible Preferred Stock outstanding is converted at a price equal
to 97% of the applicable price, (ii) the entire $5 million Convertible
Debenture is converted at a price equal to 90% of the applicable price,
and (iii) all in-the-money warrants being registered hereunder are
converted at their respective exercise price.
18
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.
o Cornell Capital Partners, LP is the holder of: (i) 22,000 shares of
Series C Convertible Preferred Stock that is convertible into shares
of common stock, (ii) a $5,000,000 Secured Convertible Debenture,
and (iii) warrants to purchase 260,000,000 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 Russell Gocht, Kevin Wells, Thai Tjen, Eric Hedman, and Mark Bees
were shareholders of Mobot, Inc., and as such are currently the
holders of shares issued as stock consideration in connection with
our acquisition of Mobot. These holders were employed by NeoMedia as
of the date of this filing.
o Helen Beare, Matthew Knox, Douglas MacDonald, Alexander Meisl, and
Daniel Parker were shareholders of Sponge Ltd., and as such are
currently the holders of shares issued as stock consideration in
connection with our acquisition of Sponge. These holders were
employed by NeoMedia as of the date of this filing.
o Ralph Schraven and Christian Steinborn were shareholders of Gavitec
AG, and as such are currently the holders of shares issued as stock
consideration in connection with our acquisition of Gavitec. Mr.
Steinborn was employed by NeoMedia as of the date of this filing,
and Mr. Schraven works for NeoMedia on a consulting basis.
o Dr. Michael Birkel and Bernd Muhlfriedel were shareholders of 12Snap
AG, and as such are currently the holders of shares issued as stock
consideration in connection with our acquisition of 12Snap. These
holders were employed by NeoMedia as of the date of this filing.
o Thornhill Capital LLC provides strategic advisment and evaluation
services relating to mergers, acquisitions and financing
opportunities for NeoMedia. The shares of common stock being
registered in the accompanying registration statement have been
granted from time to time 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.
o Shares being registered hereunder in the name of Wayside Solutions,
Inc. were issued by NeoMedia as repayment of debt owed to Wayside by
BSD Software, Inc., which was acquired by NeoMedia in March 2006.
Blair McInnes, the managing member Wayside Solutions, is the natural
person who exercises voting and/or dispositive powers over the
shares held by Wayside Solutions. During portions of 2004 and 2005,
Blair McInnes was an outside sales consultant to NeoMedia. He is not
currently affiliated with NeoMedia.
o Charles W. Fritz is a founder and the Chairman of the Board of
Directors of NeoMedia. The shares being registered underly warrants
held by Mr. Fritz granted during 2002 and 2003.
o William E. Fritz is a founder and a member of the Board of Directors
of NeoMedia. The shares being registered underly warrants held by
Mr. Fritz granted during 2003.
o David Kaminer performs contracted public relations and investor
relations services for us. The shares being registered underly
warrants held by Mr. Kaminer granted during 2004 as payment of
professional services rendered to NeoMedia.
19
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.
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 (1) OFFERING (1) OFFERING OFFERING (1)
-------------------- ------------ ------------ -------- ------------
Cornell Capital Partners, LP 32,149,534 (2) 4.99% 671,277,650 *
Russell Gocht 8,718,181 (3) 1.35% 8,718,181 ---
Kevin Wells 1,856,041 (3) * 1,769,791 *
Thai Tjen 510,205 (3) * 457,705 *
Eric Hedman 1,201,216 (3) * 1,122,466 *
Lauren Bigelow 456,334 (3) * 377,584 *
Mark Bees 497,223 (3) * 418,473 *
John Puopolo 392,318 (3) * 392,318 ---
Maureen Murphy 43,591 (3) * 43,591 ---
Eric Healy 34,873 (3) * 34,873 ---
Mark Freitas 1,960,370 (3) * 1,960,370 ---
Robert Fiondella 1,636,141 (3) * 1,636,141 ---
Helen Beare 849,963 (4) * 842,463 *
Thomas Buck 70,207 (4) * 70,207 ---
Samantha Flint 2,246,561 (4) * 2,246,561 ---
Mark Gibbons 702,049 (4) * 702,049 ---
Matthew Knox 1,148,281 (4) * 1,123,281 *
Douglas McDonald 260,616 (4) * 210,616 *
Theresa Meisl 1,263,689 (4) * 1,263,689 ---
Alexander Meisl 10,837,900 (4) 1.68% 10,756,650 *
Daniel Parker 9,855,029 (4) 1.53% 9,773,779 *
Justin Shaw 5,686,609 (4) * 5,686,609 ---
Philip Trelease 140,409 (4) * 140,409 ---
George Greig 280,822 (4) * 280,822 ---
GZ Paul Partners BV 5,083,002 (5)(6) * 5,083,002 ---
Julicher Kapital Beteiligungsgesellschaft mbH 557,989 (5)(7) * 557,989 ---
Jorg Kuchen 4,131,566 (5) * 4,131,566 ---
Richard Rolf Reuter 1,245,814 (5) * 1,245,814 ---
Ralph Schraven 1,073,030 (5) * 1,033,030 *
Franz-Josef Titz 1,043,245 (5) * 1,043,245 ---
Christian Steinborn 499,170 (5) * 399,170 *
Laurens Nunnink 166,695 (5) * 166,695 ---
Apax Europe IV - A L.P. 10,597,166 (8)(9) 1.64% 10,597,166 ---
Argo II, L.P. 10,108,589 (8)(10) 1.57% 10,108,589 ---
ARGO II The Wireless Internet Fund (Europe)
L.P. 360,704 (8)(10) * 360,704 ---
ARGC IV, L.P. 105,751 (8)(10) * 105,751 ---
Nokia Ventures, L.P. 5,885,865 (8)(11) * 5,885,865 ---
Sirios Capital Partners, L.P. 191,552 (8)(12) * 191,552 ---
Sirios Capital Partners II, L.P. 1,083,443 (8)(12) * 1,083,443 ---
Sirios Overseas Fund Ltd. 1,686,862 (8)(12) * 1,686,862 ---
Sirios/QP Partners L.P. 4,440,671 (8)(12) * 4,440,671 ---
BCAP AG 2,115,008 (8)(13) * 2,115,008 ---
CDB Web Tech International L.P. 2,115,008 (8)(14) * 2,115,008 ---
Bernd M. Michael 2,525,818 (8) * 2,525,818 ---
Dr. Michael Birkel 3,020,156 (8) * 2,720,156 *
Bernd Muhlfriedel 2,804,883 (8) * 2,504,883 *
Cyriac Roeding 742,981 (8) * 742,981 ---
Alexander Brand 362,126 (8) * 362,126 ---
Andreas Muller 362,126 (8) * 362,126 ---
Moritz Winter 1,459,495 (8) * 1,385,872 *
Thornhill Capital LLC 12,000,000 (15) 1.83% 12,000,000 ---
Guy Fietz 7,807,042 (16) 1.20% 1,512,093 *
Wayside Solutions 3,721,698 (17) * 3,721,698 ---
Charles W. Fritz 31,763,555 (18) 4.77% 1,510,000 2.06%
William E. Fritz 53,150,944 (19) 8.17% 2,540,000 3.48%
David Kaminer 100,000 (20) * 100,000 ---
--------------- ------ --------------- ------------- ---------------
TOTAL 255,110,116 36.98% 805,645,161 8.16%
=============== ====== =============== ============= ===============
---------------------------
* Indicates less than 1%.
20
(1) Applicable percentage of ownership is based on 644,279,245 shares of common
stock outstanding as of August 24, 2006, together with securities
exercisable or convertible into shares of common stock within 60 days of
August 24, 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 August 24, 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 (i) 22,000 shares of Series C
Convertible Preferred Stock that is convertible into shares of NeoMedia
common stock at the lesser of 97% of the lowest closing bid price for the
30 trading days immediately prior to conversion, or $0.50; (ii) warrants to
purchase up to 50,000,000 shares of NeoMedia common stock at an exercise
price of $0.05 per share; (iii) warrants to purchase up to 60,000,000
shares of NeoMedia common stock at an exercise price of $0.10 per share;
(iv) warrants to purchase up to 50,000,000 shares of NeoMedia common stock
at an exercise price of $0.15 per share, (v) warrants to purchase up to
50,000,000 shares of NeoMedia common stock at an exercise price of $0.20
per share, and (vi) warrants to purchase up to 50,000,000 shares of
NeoMedia common stock at an exercise price of $0.25 per share. The Series C
Convertible Preferred Stock and certain of the warrant agreements contain
provisions whereby Cornell Capital Partners may not own more than 4.99% of
the outstanding shares of NeoMedia, and beneficial ownership is therefore
limited to 4.99% of NeoMedia's outstanding shares. Shares being registered
hereunder include 335,000,000 shares underlying the Series C Convertible
Preferred Stock,,260,000,000 shares underlying warrants held by Cornell
Capital Partners, and 76,277,650 shares underlying the Secured Convertible
Debenture.
(3) Shares owned before offering consist of 16,931,493 shares issued in
connection with the acquisition of Mobot, Inc. in February 2006, which are
being registered hereunder, as well as 375,000 shares underlying currently
exercisable options held by former Mobot shareholders who are currently
employees of NeoMedia.
(4) Shares owned before offering consist of 33,097,135 shares issued in
connection with the acquisition of Sponge Ltd. in February 2006, which are
being registered hereunder, as well as 245,000 shares underlying currently
exercisable options held by former Sponge shareholders who are currently
employees of NeoMedia.
(5) Shares owned before offering consist of 13,660,511 shares issued in
connection with the acquisition of Gavitec AG in February 2006, which are
being registered hereunder, as well as 140,000 shares underlying currently
exercisable options held by former Gavitec shareholders who are currently
employees of NeoMedia.
(6) Dispositive control over the shares held by GZ Paul Partners BV rests with
Florus Mouthaan and Helmut A. Krueger in their respective capacities with
GZ Paul.
(7) Dispositive control over the shares held by Julicher Kapital
Beteiligungsgesellschaft mbH rests with Dr. Michael Gramm.
(8) Shares owned before offering consist of 49,294,581 shares issued in
connection with the acquisition of 12Snap AG in February 2006, which are
being registered hereunder, as well as 673,623 shares underlying currently
exercisable options held by former 12Snap shareholders who are currently
employees of NeoMedia.
(9) Dispositive control of the shares rests with Connie Helyar, Denise
Fallaize, Jeremy Arnold, Andrew Barrett, and Stephen Tilton, in their
capacities as directors of Apax Europe IV GP Co. Ltd., general partner to
Apax Europe IV - A L.P.
(10) Dispositive control of the shares rests with Henry Haight in his capacity
as President and CEO of Argo Global Capital, and Nancy Baron in her
capacity as VP Finance of Argo Global Capital.
(11) Nokia Ventures, L.P. is a Delaware limited partnership managed by its
general partner, N.V. I, L.L.C. Nokia Ventures, L.P. was formed to invest
in the securities of early-stage, privately-held companies in the Internet,
software, communications and related sectors. The limited partner of Nokia
Ventures, L.P. is a corporation that has no decision-making authority over
the management of the partnership. N.V. I, L.L.C. is a Delaware limited
liability company, which is managed by John A. Malloy, John E. Gardner, W.
Peter Buhl, Jonathan R. Ebinger and Tantti Oy, a Finnish corporation owned
and controlled by Antti S. Kokkinen, under its operating agreement. The
address of Nokia Ventures, L.P. is 545 Middlefield Road, Suite 210, Menlo
Park, CA 94025.
(12) Dispositive control of the shares rests with John F. Brennan, Jr. in his
capapcity as CFO of Sirios Capital Management.
(13) Dispositive control of the shares rests with Andreas Meyer, Bruno Reihl,
and Dieter Spaelti in their capacities as members of the board of directors
of BCAP AG.
21
(14) Dispositive control of the shares rests with Mr. Douglas Paterson in his
capacity as Chairman and Miss Charlotte Westley in her capacity as Company
Secretary.
(15) Shares owned before offering consist of 12,000,000 warrants to purchase
shares of common stock granted between 2003 and 2006, which are being
registered hereunder.
(16) Shares owned before offering consist of (i) 1,512,093 shares issued to
satisfy debt to Mr. Fietz, which are being registered hereunder, (ii)
4,500,000 currently exercisable options held by Mr. Fietz as an employee of
NeoMedia, and (ii) 1,794,949 previously registered shares issued in
connection with the acquisition of BSD Software by NeoMedia in March 2006.
(17) Shares owned before offering consist of 3,721,698 shares issued to satisfy
debt to Wayside Solutions which are being registered hereunder.
(18) Charles W. Fritz is NeoMedia's founder and the Chairman of the Board of
Directors. Shares beneficially owned include 100 shares owned by each of
Mr. Fritz's four children for an aggregate of 400 shares, 20,000,000 shares
(15,500,000 of which are tradable within 60 days of August 24, 2006) of
common stock issuable upon exercise of stock options held by Mr. Fritz,
1,510,000 shares issuable upon exercise of stock warrants, 8,097,397 shares
of common stock owned by Mr. Charles W. Fritz directly, and 1,542,969
shares of common stock held by the CW/LA II Family Limited Partnership, a
family limited partnership for the benefit of Mr. Fritz's family.
(19) William E. Fritz, a member of the Board of Directors, and his wife, Edna
Fritz, are the general partners of the Fritz Family Limited Partnership and
therefore each are deemed to be the beneficial owners of the 1,511,742
shares held in the Fritz Family Partnership. As trustee of each of the
Chandler R. Fritz 1994 Trust, Charles W. Fritz 1994 Trust and Debra F.
Schiafone 1994 Trust, William E. Fritz is deemed to be the beneficial owner
of the 165,467 shares of NeoMedia held in these trusts. Additionally, Mr.
Fritz is deemed to own: 45,433,735 shares held directly by Mr. Fritz or his
spouse, 2,540,000 shares to be issued upon the exercise of warrants held by
Mr. Fritz or his spouse, and 3,500,000 shares (all exercisable) to be
issued upon the exercise of options held by Mr. Fritz or his spouse. Mr.
William E. Fritz may be deemed to be a parent and promoter of NeoMedia, as
those terms are defined in the Securities Act.
(20) Shares owned before offering consist of 100,000 shares underlying warrants
issued in exchange for professional services rendered to NeoMedia.
22
MATERIAL TRANSACTIONS WITH SELLING STOCKHOLDERS
CORNELL CAPITAL PARTNERS
SECURITIES PURCHASE AGREEMENT - SERIES C CONVERTIBLE PREFERRED STOCK
We entered into a Securities Purchase Agreement, dated February 17,
2006 (the "Agreement") with Cornell Capital Partners LP, an accredited investor
(the "Purchaser"). Pursuant to the Agreement, the Purchaser agreed to purchase
8% cumulative Series C convertible preferred stock to be fully converted three
(3) years from the date of issuance in the aggregate amount of $27,000,000 ($22
million of which was funded at closing and an additional $5 million which was to
be funded upon effectiveness of a registration covering the common shares
underlying the Series C convertible preferred stock). During August 2006, the
obligation to fund the remaining $5 million that was scheduled to be funded upon
effectiveness of a registration covering the common shares underlying the Series
C convertible preferred stock was terminated. Net consideration from the Series
C Preferred Stock arrangement amounted to $17,854,000, comprised of cash of
$14,066,000, marketable securities with a calculated fair value of $579,000 and
a purchase value of $2,000,000, and the extinguishment of $3,209,000 of
preexisting indebtedness. In addition, the Purchasers withheld $2,725,000
commitment and structuring fees from the gross proceeds. The Agreement also
provided for the issuance to the Purchasers, at no additional cost to the
Purchasers, warrants to purchase shares of the Company's common stock. In
connection with the Agreement, the Company also entered into a Registration
Rights Agreement with the Purchasers that requires the Company to (i) file a
registration statement with the SEC registering the resale of the shares of
common stock issuable upon conversion of the preferred stock and the exercise of
the warrants, (ii) achieve effectiveness within 180 days of such filing and
(iii) maintain effectiveness of the registration statement. Failure to meet
these requirements will require the Company to incur liquidating damages
amounting to 1.0% for each month, but in no event shall consideration paid as
liquidating damages exceed $1,200,000.
The Company has issued the Purchasers $22,000,000 in aggregate
principal amount of such 8% cumulative Series C convertible preferred stock. At
any time prior to February 17, 2009, the Purchasers have the right to convert
the preferred stock, in whole or in part, into common stock of the Company at
the then effective conversion price, which varies relative to the Company's
trading stock price, as follows: $0.50 per share, or 97% of the lowest closing
bid prices (as reported by Bloomberg) of the common stock for the 30 trading
days immediately preceding the conversion date. The conversions are limited such
that the holder cannot exceed 4.99% ownership, unless the holders waive their
right to such limitation. The limitation will terminate under any event of
default.
The 8% cumulative Series C convertible preferred stock also affords the
Purchasers anti-dilution protection should, at any time while the Series C
preferred stock are outstanding, the Company offers, sells or grants any option
to purchase or offers, sells or grants any right to re-price its securities, or
otherwise disposes of or issue any common stock or common stock equivalents,
entitles any person to acquire shares of common stock at an effective price per
share less than the then effective conversion price (excluding employee stock
options), as calculated by the formula described above; then, in such instance,
the conversion price for the Series C convertible preferred stock shares shall
be reduced to the lower price. In case of any such adjustment in the effective
conversion price for the Series C convertible preferred shares, this could
significantly dilute existing investors.
Under the Agreement, the Purchasers also received "A" warrants, "B"
warrants and "C" warrants to purchase an aggregate of up to 75,000,000 shares of
common stock, exercisable in three separate traunches at an original exercise
price of $0.50, $0.40 and $0.35, respectively per share, subject to adjustment,
and include under anti-dilution protection similar to that described above. The
warrants have a five-year term. NeoMedia can force exercise of the warrants if
the closing bid price of NeoMedia stock is more than $0.10 greater than the
exercise price of any of the warrants for 15 consecutive trading days. These
warrants were amended as part of the August 24, 2006 secured convertible
debenture transaction (see "Secured Convertible Debenture").
The 8% cumulative Series C convertible preferred stock contains
consequences in case of an event of default. Events of default which could
subject the Company to penalties and liabilities as specified in the Agreement
include:
o Any case or action of bankruptcy or insolvency commenced by the
Company or any subsidiary, against the Company or adjudicated by a
court against the Company for the benefit of creditors;
o Any default in its obligations under a mortgage or debt in excess of
$100,000;
o Any cessation in the eligibility of the Company's stock to be quoted
on a trading market;
23
o Any lapse in the effectiveness of the registration statement
covering the shares related to the conversion option, the warrants
as described and transacted in the securities purchase agreement and
accompanying documents;
o Any failure to deliver certificates within the specified time; and
o Any failure, by the Company, to pay in full the amount of cash due
pursuant to a buy-in or failure to pay any amounts owed on account
on account of an event of default within 10 days of the date due.
Additional provisions of the Agreement include the following:
o The 8% cumulative Series C convertible preferred stock is
convertible into common stock, at the option of the Purchaser, at
any time after the effective date.
o Conversions can be made in increments and from time to time.
o The 8% cumulative Series C convertible preferred stock has voting
rights on an "as converted" basis, meaning the Purchaser is entitled
to vote the number of shares of common stock into which the 8%
cumulative Series C convertible preferred stock was convertible as
of the record date for a meeting of shareholders
o As promptly as practicable after any conversion date, the Company
shall cause its transfer agent to deliver a certificate representing
the converted shares, free of any legends and trading restrictions
for the number of shares converted;
o The Company will reserve and keep available authorized and unissued
registered shares available to be issued upon conversion;
o Purchaser will not be responsible for any transfer taxes relative to
issuance of shares;
o If the Company offers, sells or grants stock at an effective per
share price less than the then Conversion Price, then the Conversion
Price shall be reduced to equal the effective conversion, exchange
or purchase price for such common stock or common stock equivalents;
SECURED CONVERTIBLE DEBENTURE
On August 24, 2006, NeoMedia entered into a Securities Purchase
Agreement (the "SPA") with Cornell Capital Partners, LP, a Delaware limited
partnership (the "Buyer" and together with NeoMedia, the "Parties"). Pursuant to
the terms and subject to the conditions contained in the SPA, NeoMedia will
issue and sell to the Buyer, and the Buyer shall purchase from NeoMedia, Five
Million Dollars ($5,000,000) of secured convertible debentures (the "Secured
Convertible Debentures"), which shall be convertible into shares of NeoMedia's
common stock, par value $0.01 (the "Common Stock"), and which was funded on
August 24, 2006 for a total purchase price equal to Five Million Dollars
($5,000,000).
Contemporaneously with the execution and delivery of the SPA and the
issuance by NeoMedia to the Buyer of the Secured Convertible Debentures, the
Parties executed and delivered (i) an Investor Registration Rights Agreement,
pursuant to which NeoMedia has agreed to provide certain registration rights
under the Securities Act of 1933, as amended and the rules and regulations
promulgated there under and applicable state securities laws and (ii) a Pledge
and Security Agreement (the "Security Agreement"), pursuant to which NeoMedia
agreed to provide to Buyer a security interest in certain Pledged Collateral (as
this term is defined in the Security Agreement) to secure NeoMedia's obligations
under the SPA, the Transaction Documents (as such term is defined in the SPA),
or any other obligations of NeoMedia to the Buyer.
In connection with the SPA, NeoMedia also issued to the Buyer (a) a
warrant to purchase twenty-five million (25,000,000) shares of NeoMedia's Common
Stock, exercisable for a period of five (5) years at an exercise price of
Fifteen Cents ($0.15) per share (the "A Warrant"); (b) a warrant to purchase
fifty million (50,000,000) shares of NeoMedia's Common Stock, exercisable for a
period of five (5) years at an exercise price of Twenty-Five Cents ($0.25) per
share (the "B Warrant"); (c) a warrant to purchase fifty million (50,000,000)
shares of NeoMedia's Common Stock, exercisable for a period of five (5) years at
an exercise price of Twenty Cents ($0.20) per share (the "C Warrant"); and (d) a
warrant to purchase fifty million (50,000,000) shares of NeoMedia's Common
Stock, exercisable for a period of five (5) years at an exercise price of Five
Cents ($0.05) per share (the "D Warrant", and together with the A Warrant, the B
Warrant and the C Warrant, the "Warrants"). The Common Stock issuable under the
Warrants shall have "piggy-back" and demand registration rights.
24
Furthermore, on August 24, 2006, NeoMedia entered into four (4)
amendment agreements to reprice certain warrants which had been previously
issued by NeoMedia to the Buyer. Pursuant to Amendment to Warrant No. CCP-002,
the Parties amended a certain warrant, dated March 15, 2005, to purchase
50,000,000 shares at an exercise price of $0.20 to modify the warrant exercise
price therein to $0.10 per share. Pursuant to Amendment to "A" Warrant No.
CCP-001, the Parties amended a certain "A" warrant, dated February 17, 2006, to
purchase 20,000,000 shares at an exercise price of $0.50 to modify the warrant
exercise price therein to $0.10 per share. Pursuant to Amendment to "B" Warrant
No. CCP-002, the Parties amended a certain "B" warrant, dated February 17, 2006,
to purchase 25,000,000 shares at an exercise price of $0.40 to modify the
warrant exercise price therein to $0.15 per share. Pursuant to Amendment to "C"
Warrant No. CCP-003, the Parties amended a certain "C" warrant, dated February
17, 2006, to purchase 30,000,000 shares at an exercise price of $0.35 to modify
the warrant exercise price therein to $0.10 per share.
Additionally, effective as of September 8, 2006, NeoMedia and Cornell
Capital Partners entered into an agreement pursuant to which the parties agreed
to terminate all further obligations of Cornell Capital Partners to fund an
additional $5 million in the form of Series C Convertible Preferred Stock, as
contemplated by the Series C Convertible Preferred Stock transaction documents
dated February 17, 2006.
STANDBY EQUITY DISTRIBUTION AGREEMENTS
On February 11, 2003, NeoMedia and Cornell Capital Partners entered
into an Equity Line of Credit Agreement under which Cornell Capital Partners
agreed to purchase up to $10 million of NeoMedia's common stock over a two-year
period, with the timing and amount of the purchase at the Company's 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. The Company paid 5% of the gross proceeds of each purchase to Cornell
Capital Partners.
On October 27, 2003, NeoMedia and Cornell Capital Partners entered into a
$20 million Standby Equity Distribution Agreement (the "2003 SEDA"). The
agreement provides for a maximum "draw" of $280,000 per week, not to exceed
$840,000 in any 30-day period, and Cornell Capital Partners will purchase up to
$20 million of our common stock over a two-year period. The SEDA became
effective during January 2004, and expired after a two-year term in January
2006. During the six months ended June 30, 2006 and 2005, we sold 751,880 and
14,257,025 shares of our common stock to Cornell Capital Partners pursuant to
the 2003 SEDA. The following table summarizes funding received from Cornell
Capital Partners during the six months ended June 30, 2006 and 2005, and the
years ended December 31, 2005, 2004, and 2003:
25
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
------------------------ --------------------------------------
2006 2005 2005 2004 2003
---- ---- ---- ---- ----
Number of shares sold to Cornell 751,880 14,257,025 26,435,512 112,743,417 98,933,244
Gross Proceeds from sale of shares to Cornell $234,000 $4,928,000 $9,527,000 $10,123,000 $9,565,000
Less: discounts and fees* (24,000) (693,000) (1,022,000) (1,967,000) (6,772,000)
---------- ------------- ------------ ------------ ------------
Net Proceeds from sale of shares to Cornell $210,000 $4,235,000 $8,505,000 $8,156,000 $2,793,000
---------- ------------- ------------ ------------ ------------
* Pursuant to the terms of the 2003 SEDA , stock is valued at
98% of the lowest closing bid price during the week it was
sold.
On March 30, 2005, NeoMedia and Cornell Capital Partners entered into
a Standby Equity Distribution Agreement (the "2005 SEDA") under which
Cornell Capital Partners agreed to purchase up to $100 million of NeoMedia
common stock over a two-year period, with the timing and amount of the
purchase at NeoMedia's 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
NeoMedia, and NeoMedia would pay 5% of the gross proceeds of each purchase
to Cornell Capital Partners. Concurrent with the SEDA, we entered into an
escrow agreement with Cornell Capital Partners and an escrow agreement,
under which the escrow agent holds in an escrow account shares of our
common stock, and the cash paid by Cornell Capital Partners 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 Capital Partners.
The 2005 SEDA would become available at the time the SEC declares effective
a registration statement containing such shares.
As a commitment fee for Cornell Capital Partners to enter into the
2005 SEDA, we issued 50 million warrants to Cornell Capital Partners 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. During the three months ended
March 31, 2006, Cornell Capital Partners exercised 40 million of the
warrants, generating cash proceeds of $8 million to NeoMedia. We also
issued 4 million warrants with an exercise price of $0.227 to a consultant
as a fee in connection with the 2005 SEDA, which have not been exercised.
PROMISSORY NOTES PAYABLE TO CORNELL CAPITAL PARTNERS
On May 27, 2003, we borrowed from Cornell Capital Partners the gross
amount of $245,000 before discounts and fees. The note was repaid in full during
2003.
On June 24, 2003, we borrowed from Cornell Capital Partners the gross
amount of $400,000 before discounts and fees. The note was repaid in full during
2003.
On July 21, 2003, we borrowed from Cornell Capital Partners 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 Capital Partners the gross
amount of $200,000 before discounts and fees. The note was repaid in full during
2003.
On September 2, 2003, we borrowed from Cornell Capital Partners the
gross amount of $200,000 before discounts and fees. The note was repaid in full
during 2003.
On September 11, 2003, we received funding in the form of a promissory
note from Cornell Capital Partners in the gross amount of $500,000 before
discounts and fees. The note was repaid in full during 2003.
On January 20, 2004, we borrowed from Cornell Capital Partners 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 Capital Partners 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.
26
We also granted to Cornell Capital Partners 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 Capital Partners (and subsequently
transferred by Cornell Capital Partners to Stone Street Asset Management LLC) in
connection with a promissory note issued by the Company to Cornell Capital
Partners. 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 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 April 8, 2004, we borrowed from Cornell Capital Partners the gross
amount of $1,000,000 before discounts and fees. Cornell Capital Partners
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 July 2, 2004, we borrowed from Cornell Capital Partners the gross
amount of $1,000,000 before discounts and fees. Cornell Capital Partners
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 August 6, 2004, we borrowed from Cornell Capital Partners the gross
amount of $2,000,000 before discounts and fees. Cornell Capital Partners
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 October 18, 2004, we borrowed from Cornell Capital Partners the
gross amount of $1,085,000 before discounts and fees. Cornell Capital Partners
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 March 30, 2005, we borrowed from Cornell Capital Partners the
principal amount of $10,000,000 before discounts and fees in the form of a
secured promissory note. Cornell Capital Partners withheld structuring and
escrow fees of $68,000 related to the note. The note accrued interest at 8% per
annum on any unpaid principal and was secured by all of our assets other than
patents and patent application. We paid this note in full during the first
quarter of 2006.
THORNHILL CAPITAL
On September 3, 2003, we issued 10 million warrants with an exercise
price of $0.01 to Thornhill as a fee for negotiating and structuring the 2003
SEDA.
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. On July 22, 2005,
the agreement was amended to pay Thornhill $19,500 per month and the term was
extended until July 22, 2007.
On March 8, 2004, we issued 4 million warrants with an exercise price
of $0.11 to Thornhill as a fee for negotiating and structuring a $7 million
advance funding under the 2003 SEDA.
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.
On February 14, 2006, we issued 2 million warrants with an exercise
price of $0.328 to Thornhill as a fee for negotiating and structuring the $27
million Series C Convertible Preferred Stock sale.
27
FORMER SHAREHOLDERS OF SPONGE LTD.
On February 20, 2006, NeoMedia and Sponge signed a definitive share
purchase agreement, subject to closing conditions, under which NeoMedia acquired
all of the outstanding shares of Sponge in exchange for (pound)3,450,000
(approximately $6 million) cash and 33,097,135 shares of NeoMedia common stock,
being registered hereunder. The agreement also calls for Sponge to earn an
additional (pound)2,500,000 (approximately $4.4 million) in the form of NeoMedia
common stock if, during the two-year period beginning at closing, the Sponge
business earns in excess of (pound)1,300,000 (approximately $2.3 million) in net
profits. On February 23, 2006, NeoMedia and Sponge completed the closing
requirements and the acquisition became effective. Pursuant to the terms of the
merger agreement, the number of shares of NeoMedia common stock to be issued as
consideration was calculated using a share price of $0.384. In the event that
NeoMedia's stock price at the time the consideration shares are saleable is less
than $0.384, NeoMedia is obligated to compensate Sponge shareholders in cash for
the difference between the price at the time the shares become saleable and
$0.384. Assuming a stock price at the time the shares become saleable of $0.134,
which was the last sale price on August 24, 2006, NeoMedia would have a cash
liability of $8.3 million resulting from this clause.
FORMER SHAREHOLDERS OF GAVITEC AG
On February 17, 2006, NeoMedia and Gavitec signed a definitive sale and
purchase agreement, subject to closing conditions, under which NeoMedia acquired
all of the outstanding shares of Gavitec in exchange for $1,800,000 cash and
13,660,511 shares of NeoMedia common stock, being registered hereunder. On
February 23, 2006, NeoMedia and Gavitec completed the closing requirements and
the acquisition became effective. In the event that NeoMedia's stock price at
the time the consideration shares are saleable is less than $0.389, NeoMedia is
obligated to compensate Gavitec shareholders in cash for the difference between
the price at the time the shares become saleable and $0.389. Assuming a stock
price at the time the shares become saleable of $0.134, which was the last sale
price on August 24, 2006, NeoMedia would have a cash liability of $3.6 million
resulting from this clause.
FORMER SHAREHOLDERS OF 12SNAP AG
On February 10, 2006, NeoMedia and 12Snap signed a definitive sale and
purchase agreement, subject to closing conditions, under which NeoMedia acquired
all of the outstanding shares of 12Snap in exchange for $2,500,000 cash and
49,294,581 shares of NeoMedia common stock, being registered hereunder. On
February 28, 2006, NeoMedia and 12Snap completed the closing requirements and
the acquisition became effective. Pursuant to the terms of the merger agreement,
the number of shares of NeoMedia common stock to be issued as consideration was
calculated using a share price of $0.3956. In the event that NeoMedia's stock
price at the time the consideration shares are saleable is less than $0.3956,
NeoMedia is obligated to compensate 12Snap shareholders in cash for the
difference between the price at the time the shares become saleable and $0.3956.
Assuming a stock price at the time the shares become saleable of $0.134, which
was the last sale price on August 24, 2006, NeoMedia would have a cash liability
of $12.9 million resulting from this clause.
FORMER SHAREHOLDERS OF MOBOT, INC.
On February 17, 2006, NeoMedia acquired 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 $6,500,000 stock portion of the purchase price is represented
by 16,931,493 shares of NeoMedia common stock, being registered hereunder.
Pursuant to the terms of the merger agreement, the number of shares of NeoMedia
common stock to be issued as stock consideration was calculated using a share
price of $0.3839. In the event that NeoMedia's stock price at the time the
consideration shares are saleable is less than $0.3839, NeoMedia is obligated to
compensate Mobot shareholders in cash for the difference between the price at
the time the shares become saleable and $0.3839. In addition to cash and stock,
at closing NeoMedia forgave notes payable totaling $1,500,000 due from Mobot.
Assuming a stock price at the time the shares become saleable of $0.134, which
was the last sale price on August 24, 2006, NeoMedia would have a cash liability
of $4.2 million resulting from this clause.
28
On June 8, 2006, Mark Freitas ("Plaintiff"), a former Mobot
shareholder, filed a complaint in Massachusetts state court against NeoMedia
alleging that NeoMedia breached the merger agreement between NeoMedia and Mobot
by failing to file a registration statement with the SEC that included his
shares by May 9, 2006. Plaintiff's complaint requested that the Court issue a
preliminary injunction prohibiting NeoMedia from: (1) causing its charter to be
amended so as to increase the number of shares of authorized common stock in
excess of one billion shares; (2) entering into any contract, agreement, or
other undertaking in which NeoMedia shares are used as payment; (3) issuing a
warrant or option to acquire NeoMedia common stock with an exercise price of
less than $0.3839; and (4) filing a registration statement with the SEC that
does not include the Mobot shareholder's shares. Plaintiff also seeks costs and
attorney's fees in his complaint.
A hearing on the request for preliminary injunctive relief was held on
June 21, 2006. During the hearing, Plaintiff changed his request for relief by
asking that the Court enjoin NeoMedia from amending the Registration Statement
it filed on June 21, 2006 to add any additional shares or from filing any
further registration statements until the one filed on June 21, 2006 becomes
effective. On June 26, 2006, the Court issued a Memorandum of Decision and Order
on Plaintiff's Request for Preliminary Injunction and denied Plaintiff's request
for a preliminary injunction.
NeoMedia plans to file a motion to dismiss the complaint, but the
parties have agreed to extend the deadline for the submission of those papers to
the Court. NeoMedia may also join Plaintiff's request that the action be
transferred to the Business Litigation Session of the Suffolk Superior Court.
NeoMedia intends to defend the lawsuit vigorously.
FORMER DEBTHOLDERS OF BSD SOFTWARE, INC.
On March 21, 2006, NeoMedia acquired all of the outstanding shares of
BSD Software, Inc. Subsequent to the acquisition, NeoMedia retired debt owed by
BSD to Guy Fietz, the former CEO of BSD and current Vice President and General
Manager of the NeoMedia Telecom Services business unit, and Wayside Solutions, a
shareholder in BSD. NeoMedia retired the debt through issuance of 1,512,093
shares of common stock to Guy Fietz and 3,721,698 shares to Wayside Solutions.
29
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 $50,000. The offering expenses consist of: printing and engraving
expenses of $5,000, accounting fees of $20,000, legal fees of $20,000 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 upon exercise of warrants for which the
underlying shares are being registered hereunder. If all warrants being
registered hereunder were exercised, we would receive proceeds of $40,585,700
(net of registration fees). However, the exercise price of a significant number
of the warrants is higher than the current stock price. If only in-the-money
warrants were exercised, we would receive proceeds of $591,700 (net of
registration fees).
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 Regulation 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. 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.
30
DESCRIPTION OF SECURITIES
The following description of our capital stock and certain provisions
of our Certificate of Incorporation and By-Laws is a summary. For additional
information, please refer to our Certificate of Incorporation, as amended, and
By-Laws.
COMMON STOCK
On June 28, 2006, our shareholders voted to increase our number of
shares of authorized common stock, par value $0.01 per share, from 1,000,000,000
to 5,000,000,000. As of August 24, 2006, 644,279,245 common shares were
outstanding. Holders of common stock are entitled to one vote for each share
held of record on each matter submitted to a vote of stockholders. Holders of
the common stock do not have cumulative voting rights, which means that the
holders of more than one half of our outstanding shares of common stock, subject
to the rights of the holders of preferred stock, can elect all of our directors,
if they choose to do so. In this event, the holders of the remaining shares of
common stock would not be able to elect any directors. Subject to the prior
rights of any class or series of preferred stock which may from time to time be
outstanding, if any, holders of common stock are entitled to receive ratably,
dividends when, as, and if declared by the Board of Directors out of funds
legally available for that purpose and, upon our liquidation, dissolution, or
winding up, are entitled to share ratably in all assets remaining after payment
of liabilities and payment of accrued dividends and liquidation preferences on
the preferred stock, if any. 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
nonassessable. In the event we were to elect to sell additional shares of common
stock following this offering, investors in this offering would have no right to
purchase additional shares. As a result, their percentage equity interest in us
would be diluted.
Except as otherwise permitted by Delaware law, and subject to the
rights of the holders of preferred stock, all stockholder action is taken by the
vote of a majority of the outstanding shares of common stock voted as a single
class present at a meeting of stockholders at which a quorum consisting of a
majority of the outstanding shares of common stock is present in person or
proxy.
PREFERRED STOCK
NeoMedia is authorized to issue 25,000,000 shares of preferred stock,
par value $0.01 per share. The Company may issue preferred stock in one or more
series and having the rights, privileges, and limitations, including voting
rights, conversion rights, liquidation preferences, dividend rights and
preferences and redemption rights, as may, from time to time, be determined by
the Board of Directors. Preferred stock may be issued in the future in
connection with acquisitions, financings, or other matters, as the Board of
Directors deems appropriate. In the event that the Company determines to issue
any shares of preferred stock, a certificate of designation containing the
rights, privileges, and limitations of this series of preferred stock shall be
filed with the Secretary of State of the State of Delaware. The effect of this
preferred stock designation power is that the Board of Directors alone, subject
to Federal securities laws, applicable blue sky laws, and Delaware law, may be
able to authorize the issuance of preferred stock which could have the effect of
delaying, deferring, or preventing a change in control of NeoMedia without
further action by its stockholders, and may adversely affect the voting and
other rights of the holders of the Company's common stock. The issuance of
preferred stock with voting and conversion rights may also adversely affect the
voting power of the holders of the Company's common stock, including the loss of
voting control to others.
SERIES A PREFERRED STOCK. During December 1999, the Board of Directors
approved a Certificate of Resolutions Designating Rights and Preferences of
Preferred Stock, filed with the Secretary of State of the State of Delaware on
December 20, 1999. By this approval and filing, 200,000 shares of Series A
Preferred Stock were designated. Series A Preferred carries the following
rights:
o The right to receive mandatory cash dividends equal to the greater
of $0.001 per share or 100 times the amount of all dividends (cash
or non-cash, other than dividends of shares of common stock) paid to
holders of the common stock, which dividend is payable 30 days after
the conclusion of each calendar quarter and immediately following
the declaration of a dividend on common stock;
o One hundred votes per each share of Series A Preferred on each
matter submitted to a vote of the Company's stockholders;
31
o The right to elect two directors at any meeting at which directors
are to be elected, and to fill any vacancy on the Board of Directors
previously filled by a director appointed by the Series A Preferred
holders;
o The right to receive an amount, in preference to the holders of
common stock, equal to the amount per share payable to holders of
common stock, plus all accrued and unpaid dividends, and following
payment of 1/100th of this liquidation preference to the holders of
each share of common stock, an additional amount per share equal to
100 times the per share amount paid to the holders of common stock.
o The right to exchange each share of Series A Preferred for 100 times
the consideration received per share of common stock in connection
with any merger, consolidation, combination or other transaction in
which shares of common stock are exchanged for or converted into
cash, securities or other property.
o The right to be redeemed in accordance with the Company's
stockholders rights plan.
While accrued mandatory dividends are unpaid, we may not declare or pay
dividends or distributions on, or redeem, repurchase or reacquire, shares of any
class or series of junior or parity stock.
The Series A Preferred was created in connection with the Company's
stockholders rights plan. No shares of Series A Preferred were outstanding as of
August 24, 2006.
SERIES A CONVERTIBLE PREFERRED STOCK. On June 19, 2001, the Board of
Directors approved a Certificate of Designations to Create 500,000 shares of a
Class of Series A Convertible Preferred Stock for NeoMedia Technologies, Inc.,
filed with the Secretary of State of the State of Delaware on June 20, 2001. By
this approval and filing, 47,511 shares are designated as Series A Convertible
Preferred Stock and remain to be issued. The Company's Series A Convertible
Preferred Stock, par value $0.01 per share, has the following rights:
o Series A Convertible Preferred is convertible into shares of
common stock at a one-to-one ratio, subject to proportional
adjustments in the event of stock splits or combinations, and
dividends or distributions of shares of common stock, at the
option of the holder; shares are subject to automatic conversion
as determined in each agreement relating to the purchase of
shares of Series A Convertible Preferred;
o Each share of Series A Convertible Preferred is entitled to
receive a liquidation preference equal to the original purchase
price of such share in the event of liquidation, dissolution, or
winding up;
o Upon merger or consolidation, or the sale, lease or other
conveyance of all or substantially all of the Company's assets,
shares of Series A Convertible Preferred are automatically
convertible into the number of shares of stock or other
securities or property (including cash) to which the common stock
into which it is convertible would have been entitled;
o Shares of Series A Convertible Preferred are entitled to one vote
per share, and vote together with holders of common stock.
In June 2001, 452,489 shares of Series A Convertible Preferred were
issued to About.com, Inc. pursuant to a certain Agreement for Payment in Common
Stock, in lieu of cash payment to About.com for online advertising services. On
January 2, 2002, such shares were converted into 452,489 shares of common stock.
SERIES B CONVERTIBLE REDEEMABLE PREFERRED STOCK. On January 16, 2002,
the Board of Directors approved a Certificate of Designation, Preferences,
Rights and Limitations of Series B 12% Convertible Redeemable Preferred Stock of
NeoMedia Technologies, Inc., filed with the Secretary of State of the State of
Delaware on February 28, 2002. By this approval and filing, 100,000 shares were
designated as Series B 12% Convertible Redeemable Preferred Stock. The Company's
Series B 12% Convertible Redeemable Preferred Stock, par value $0.01 per share,
has the following rights:
o Series B Preferred shares accrue dividends at a rate of 12% per
annum, or $1.20 per share, between the date of issuance and the
first anniversary of issuance;
32
o Series B Preferred is redeemed to the maximum extent permitted by
law (based on funds legally available for redemption) at a price
per share of $15.00, plus accrued dividends (a total of $16.20
per share) on the first anniversary of issuance;
o Series B Preferred receive proceeds of $12.00 per share upon the
Company's liquidation, dissolution or winding up;
o To the extent, not redeemed on the first anniversary of issuance,
Series B Preferred is automatically convertible into then
existing general class of common stock on the first anniversary
of issuance at a price equal to $16.20 divided by the greater of
$0.20 and the lowest publicly-sold share price during the 90 day
period preceding the conversion date, but in no event more than
19.9% of the Company's outstanding capital stock as of the date
immediately prior to conversion.
o Upon merger or consolidation, or the sale, lease or other
conveyance of all or substantially all of the Company's assets,
shares of Series B Preferred are automatically convertible into
the number of shares of stock or other securities or property
(including cash) to which the common stock into which it is
convertible would have been entitled; and
o Shares of Series B Preferred are entitled to one vote per share
and vote with common stock, except where the proposed action
would adversely affect the Series B Preferred or where the
non-waivable provisions of applicable law mandate that the Series
B Preferred vote separately, in which case Series B Preferred
vote separately as a class, with one vote per share.
No shares of the Series B Convertible Redeemable Preferred Stock have
been issued or are currently outstanding.
SERIES C CONVERTIBLE PREFERRED STOCK. On February 22, 2006, NeoMedia
filed with the Secretary of State of the State of Delaware a Certificate of
Designation of Series C Convertible Redeemable Preferred Stock of NeoMedia
Technologies, Inc. By the approval and filing, 27,000 shares were designated as
Series C Convertible Preferred Stock. The Company's Series C Convertible
Preferred Stock, par value $0.01 per share, has the following rights:
o Series C Convertible Preferred shares accrue dividends at a rate
of 8% per annum;
o Series C Convertible Preferred receive proceeds of $1,000 per
share upon the Company's liquidation, dissolution or winding up;
o Each share of Series C Convertible Preferred shares shall be
convertible, at the option of the holder, into shares of the
Company's common stock at the lesser of (i) Fifty Cents ($0.50)
or (ii) 97% of the lowest closing bid price of the Company's
common stock for the thirty (30) trading days immediately
preceding the date of conversion; and
o At the Option of the Holders, if there are outstanding Series C
Convertible Preferred shares on February 17, 2009, each share of
Series C Preferred stock shall convert into shares of common
stock at the Conversion Price then in effect on February 17,
2009; and
o Series C Convertible Preferred shares shall have voting rights on
an as converted basis.
As of August 24, 2006, 22,000 shares of Series Convertible Preferred
Stock are issued and outstanding. We have no present agreements relating to or
requiring the designation or issuance of additional shares of preferred stock.
33
WARRANTS AND OPTIONS
As of August 24, 2006, we had outstanding options and warrants to
purchase 118,576,549 and 276,325,000, shares of NeoMedia's common stock,
respectively, with exercise prices ranging from $0.01 to $6.00. The number of
shares issuable upon exercise and the exercise prices of the warrants are
subject to adjustment in the event of certain events such as stock dividends,
splits and combinations, capital reorganization and with respect to certain
warrants, issuance of shares of common stock at prices below the then exercise
price of the warrants.
On March 30, 2005, NeoMedia issued 50 million warrants to Cornell
Capital Partners with an exercise price of $0.20 per share, and a term of three
years, as a commitment fee for Cornell Capital Partners to enter into a $100
million Standby Equity Distribution Agreement with NeoMedia, of which 40 million
had been exercised. On February 17, 2006, in connection with the Series C
Convertible Preferred Stock transaction, NeoMedia issued to Cornell Capital
Partners 20 million warrants with an exercise price of $0.50 per share, 25
million warrants with an exercise price of $0.40 per share, and 30 million
warrants with an exercise price of $0.35 per share. On August 24, 2006, NeoMedia
entered into a $5 million Secured Convertible Debenture arrangement with Cornell
Capital Partners, pursuant to which NeoMedia repriced all outstanding warrants
held by, and issued new warrants to, Cornell Capital Partners, as follows:
SHARES ORIGINAL NEW
UNDERLYING EXERCISE EXERCISE
ORIGINAL ISSUE DATE WARRANT PRICE PRICE
------------------- ------- ----- -----
March 30, 2005 10,000,000 $0.20 $0.10
February 17, 2006 20,000,000 $0.50 $0.10
February 17, 2006 25,000,000 $0.40 $0.15
February 17, 2006 30,000,000 $0.35 $0.10
August 24, 2006 25,000,000 $0.15 n/a
August 24, 2006 50,000,000 $0.25 n/a
August 24, 2006 50,000,000 $0.20 n/a
August 24, 2006 50,000,000 $0.05 n/a
In addition to repricing the warrants held by Cornell prior to the $5
million Secured Convertible Debenture arrangement, NeoMedia also issued to
Cornell Capital Partners new warrants as follows: 25 million warrants with an
exercise price of $0.15 per share, 50 million warrants with an exercise price of
$0.25 per share, 50 million warrants with an exercise price of $0.20 per share,
and 50 million warrants with an exercise price of $0.05 per share.
On September 24, 2003, NeoMedia's shareholders approved the 2003 Stock
Option Plan. Under this plan, NeoMedia is authorized to grant to employees,
directors, and consultants up to 150,000,000 options to purchase shares of
common stock. As of June 30, 2006, NeoMedia had issued approximately 153,000,000
options under the 2003 Stock Option Plan, of which approximately 26,000,000 had
been exercised, and 8,000,000 had been forfeited.
On December 16, 2005, NeoMedia's shareholders approved the 2005 Stock
Option Plan. Under this plan, NeoMedia is authorized to grant to employees,
directors, and consultants up to 60,000,000 options to purchase shares of common
stock. As of June 30, 2006, NeoMedia not had issued any options under the 2005
Stock Option Plan.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION
On December 10, 1999, the Board of Directors adopted a stockholders
rights plan and declared a non-taxable dividend of one right on each outstanding
share of the Company's common stock to stockholders of record on December 10,
1999 and each share of common stock issued prior to the rights plan trigger
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 to receive fair and equal treatment in any
proposed takeover of the corporation and to guard against partial or two-tiered
tender offers, open market accumulations and other hostile takeover tactics to
gain control of NeoMedia. The stockholders rights plan, which is similar to
plans adopted by many leading public companies, was not adopted in response to
any effort to acquire control of NeoMedia at the time of adoption. Certain of
the Company's 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 the Company's "poison pill"
plan, as a result of the fact that, as of the plans adoption, their holdings
might have otherwise triggered the "poison pill".
34
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 consolidated financial statements of NeoMedia Technologies, Inc.
and its subsidiaries for the years ended December 31, 2005 and 2004, appearing
in Form 10-KSB filing dated March 30, 2006, have been audited by Stonefield
Josephson, Inc., independent registered public accounting firm, as set forth in
their report thereon ( which contains an explanatory paragraph describing
conditions that raise substantial doubt about NeoMedia's ability to continue as
a going concern as described in Note 1 to the financial statements), to the
extent and for the period indicated and included therein, and incorporated
herein by reference. Such financial statements are incorporated herein by
reference in reliance upon such firm given upon their authority as experts in
accounting and auditing.
The financial statements of Mobot, Inc. for the years ended December
31, 2005 and 2004, appearing in Amendment No. 1 to Form 8-K filing dated May 3,
2006, have been audited by Stonefield Josephson, Inc., independent registered
public accounting firm, as set forth in their report thereon ( which contains an
explanatory paragraph describing conditions that raise substantial doubt about
Mobot's ability to continue as a going concern as described in Note 1 to the
financial statements), to the extent and for the period indicated and included
therein, and incorporated herein by reference. Such financial statements are
incorporated herein by reference in reliance upon such firm given upon their
authority as experts in accounting and auditing.
The financial statements of 12Snap AG as of December 31, 2005 and 2004
and for the years then ended appearing in Amendment No.1 to Form 8-K filing
dated May 8, 2006, have been audited by Ernst & Young AG, independent auditors,
as set forth in their report thereon ( which contains an explanatory paragraph
describing conditions that raise substantial doubt about 12Snap AG's ability to
continue as a going concern described in Note 2 to the financial statements),
included therein and incorporated herein by reference. Such financial statements
are incorporated herein by reference in reliance upon such report given the
authority of such firm as experts in accounting and auditing.
The financial statements of Gavitec AG as of December 31, 2005 and 2004
and for the years then ended appearing in Amendment No. 1 to Form 8-K filing
dated May 9, 2006, have been audited by Ernst & Young AG, independent auditors,
as set forth in their report thereon (which contains an explanatory paragraph
describing conditions that raise substantial doubt about Gavitec AG's ability to
continue as a going concern as described in Note 1 to the financial statements),
included therein and incorporated herein by reference. Such financial statements
are incorporated herein by reference in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
The audited consolidated financial statements of Sponge Limited for the
years ended September 30, 2005 and 2004 have been audited by Brebner, Allen &
Trapp, 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.
The consolidated financial statements of BSD Software, Inc. and its
subsidiaries for the year ended July 31, 2005, appearing in Amendment No. 1 to
Form 8-K filing dated June 2, 2006, have been audited by Stonefield Josephson,
Inc., independent registered public accounting firm, as set forth in their
report thereon ( which contains an explanatory paragraph describing conditions
that raise substantial doubt about BSD Software Inc's ability to continue as a
going concern as described in Note 1 to the financial statements), to the extent
and for the period indicated and included therein, and incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon such firm given upon their authority as experts in accounting and
auditing.
The audited consolidated financial statements of BSD Software, Inc. and
its subsidiaries for the year ended July 31, 2004 have been audited by KPMG LLP,
chartered accountants, as indicated in their report with respect thereto, and
are incorporated by reference herein in reliance upon the authority of said firm
as experts in accounting and auditing. Reference is made to said report, which
includes explanatory paragraphs with respect to (a) the consolidated financial
statements having been restated as described in note 11, and (b) the uncertainty
regarding BSD's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of that uncertainty.
35
MATERIAL CHANGES
LAWSUIT
On June 8, 2006, Mark Freitas ("Plaintiff"), a former Mobot
shareholder, filed a complaint in Massachusetts state court against NeoMedia
alleging that NeoMedia breached the merger agreement between NeoMedia and Mobot
by failing to file a registration statement with the SEC that included his
shares by May 9, 2006. Plaintiff's complaint requested that the Court issue a
preliminary injunction prohibiting NeoMedia from (1) causing its charter to be
amended so as to increase the number of shares of authorized common stock in
excess of one billion shares; (2) entering into any contract, agreement, or
other undertaking in which NeoMedia shares are used as payment; (3) issuing a
warrant or option to acquire NeoMedia common stock with an exercise price of
less than $0.3839; and (4) filing a registration statement with the SEC that
does not include the Mobot shareholder's shares. Plaintiff also seeks costs and
attorney's fees.
A hearing on the request for preliminary injunctive relief was held on
June 21, 2006. During the hearing, Plaintiff changed his request for relief by
asking that the Court enjoin NeoMedia from amending the Registration Statement
it filed on June 21, 2006 to add any additional shares or from filing any
further registration statements until the one filed on June 21, 2006 becomes
effective. On June 26, 2006, the Court issued a Memorandum of Decision and Order
on Plaintiff's Request for Preliminary Injunction and denied Plaintiff's request
for a preliminary injunction.
NeoMedia plans to file a motion to dismiss the complaint, but the
parties have agreed to extend the deadline for the submission of those papers to
the Court. NeoMedia may also join Plaintiff's request that the action be
transferred to the Business Litigation Session of the Suffolk Superior Court.
NeoMedia intends to defend the lawsuit vigorously.
CONVERTIBLE DEBENTURE
On August 24, 2006, NeoMedia entered into a Securities Purchase
Agreement (the "SPA") with Cornell Capital Partners, LP, a Delaware limited
partnership (the "Buyer" and together with NeoMedia, the "Parties"). Pursuant to
the terms and subject to the conditions contained in the SPA, NeoMedia will
issue and sell to the Buyer, and the Buyer shall purchase from NeoMedia, Five
Million Dollars ($5,000,000) of secured convertible debentures (the "Secured
Convertible Debentures"), which shall be convertible into shares of NeoMedia's
common stock, par value $0.01 (the "Common Stock"), and which was funded on
August 24, 2006 for a total purchase price equal to Five Million Dollars
($5,000,000).
Contemporaneously with the execution and delivery of the SPA and the
issuance by NeoMedia to the Buyer of the Secured Convertible Debentures, the
Parties executed and delivered (i) an Investor Registration Rights Agreement,
pursuant to which NeoMedia has agreed to provide certain registration rights
under the Securities Act of 1933, as amended and the rules and regulations
promulgated there under and applicable state securities laws and (ii) a Pledge
and Security Agreement (the "Security Agreement"), pursuant to which NeoMedia
agreed to provide to Buyer a security interest in certain Pledged Collateral (as
this term is defined in the Security Agreement) to secure NeoMedia's obligations
under the SPA, the Transaction Documents (as such term is defined in the SPA),
or any other obligations of NeoMedia to the Buyer.
In connection with the SPA, NeoMedia also issued to the Buyer (a) a
warrant to purchase twenty-five million (25,000,000) shares of NeoMedia's Common
Stock, exercisable for a period of five (5) years at an exercise price of
Fifteen Cents ($0.15) per share (the "A Warrant"); (b) a warrant to purchase
fifty million (50,000,000) shares of NeoMedia's Common Stock, exercisable for a
period of five (5) years at an exercise price of Twenty-Five Cents ($0.25) per
share (the "B Warrant"); (c) a warrant to purchase fifty million (50,000,000)
shares of NeoMedia's Common Stock, exercisable for a period of five (5) years at
an exercise price of Twenty Cents ($0.20) per share (the "C Warrant"); and (d) a
warrant to purchase fifty million (50,000,000) shares of NeoMedia's Common
Stock, exercisable for a period of five (5) years at an exercise price of Five
Cents ($0.05) per share (the "D Warrant", and together with the A Warrant, the B
Warrant and the C Warrant, the "Warrants"). The Common Stock issuable under the
Warrants shall have "piggy-back" and demand registration rights.
36
Furthermore, on August 24, 2006, NeoMedia entered into four (4)
amendment agreements to reprice certain warrants which had been previously
issued by NeoMedia to the Buyer. Pursuant to Amendment to Warrant No. CCP-002,
the Parties amended a certain warrant, dated March 15, 2005, to purchase
50,000,000 shares at an exercise price of $0.20 to modify the warrant exercise
price therein to $0.10 per share. Pursuant to Amendment to "A" Warrant No.
CCP-001, the Parties amended a certain "A" warrant, dated February 17, 2006, to
purchase 20,000,000 shares at an exercise price of $0.50 to modify the warrant
exercise price therein to $0.10 per share. Pursuant to Amendment to "B" Warrant
No. CCP-002, the Parties amended a certain "B" warrant, dated February 17, 2006,
to purchase 25,000,000 shares at an exercise price of $0.40 to modify the
warrant exercise price therein to $0.15 per share. Pursuant to Amendment to "C"
Warrant No. CCP-003, the Parties amended a certain "C" warrant, dated February
17, 2006, to purchase 30,000,000 shares at an exercise price of $0.35 to modify
the warrant exercise price therein to $0.10 per share.
Additionally, effective as of September 8, 2006, NeoMedia and Cornell
Capital Partners entered into an agreement pursuant to which the parties agreed
to terminate all further obligations of Cornell Capital Partners to fund an
additional $5 million in the form of Series C Convertible Preferred Stock, as
contemplated by the Series C Convertible Preferred Stock transaction documents
dated February 17, 2006.
TERMINATION OF NON-BINDING LETTER OF INTENT TO ACQUIRE HIP CRICKET, INC.
On August 24, 2006, NeoMedia terminated a non-binding letter of intent
(the "LOI") to acquire HipCricket, Inc. ("HipCricket") of Essex, CT
(www.hipcricket.com), due to an inability of the parties to come to terms on a
definitive purchase price. On February 16, 2006, NeoMedia and Hip Cricket signed
the LOI, under which NeoMedia intended to acquire all of the outstanding shares
of Hip Cricket in exchange for $500,000 cash and $4,000,000 of NeoMedia common
stock. The LOI was subject to due diligence and signing of a mutually agreeable
definitive purchase agreement by both parties.
In addition to signing the LOI, NeoMedia loaned HipCricket the
principal amount of $500,000 in the form of a) a promissory note, dated February
16, 2006, in the amount of $250,000 and (b) that certain promissory note, dated
March 20, 2006, in the amount of $250,000 (collectively, the "Notes"). The Notes
accrue interest at a rate of 8% per annum. The notes were to be applied toward
the cash portion of the purchase price upon signing of a definitive purchase
agreement for the acquisition of all of the outstanding shares of HipCricket by
NeoMedia, as contemplated in the LOI. Due to the termination of the LOI, and
pursuant to the terms of the Notes, the face amount of the Notes, plus any and
all interest accrued thereon, will become payable and due within ninety (90)
days from the date the Parties terminated negotiations on the definitive
purchase agreement. In the event the Notes are not repaid within 90 days of the
termination, the notes will convert into shares of HipCricket common stock
assuming a valuation of $4.5 million for HipCricket.
LETTER OF INTENT TO SELL MICRO PAINT REPAIR BUSINESS UNIT
On August 30, 2006, NeoMedia signed a non-binding letter of intent to
sell its Micro Paint Repair business unit to Jose Sada, a technology partner of
NeoMedia Micro Paint Repair, backed by Global Emerging Markets Group ("GEM") of
New York City. The letter of intent calls for execution of a definitive purchase
agreement by October 27, 2006, with closing on or before November 24, 2006.
GEM is a $1.8B private investment group specializing in control,
minority, and public market investing. Its activities are both domestic and
international, spanning a diverse array of industries and transactional
structures. GEM has offices in New York, London and Paris.
37
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
38
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,
2005;
o Quarterly Report on Form 10-Q for the three and six months ended
June 30, 2006;
o Quarterly Report on Form 10-Q for the three months ended March 31,
2006;
o Quarterly Report on Form 10-QSB for the three and nine months ended
September 30, 2005
o Current Reports on Form 8-K as filed on February 10, 2006, February
14, 2006, February 17, 2006, February 21, 2006 (as amended on May 3,
2006), February 22, 2006, February 24, 2006 (as amended May 8, 2006,
May 9, 2006, and June 21, 2006), March 2, 2006, March 22, 2006 (as
amended June 2, 2006 ), March 23, 2006, April 3, 2006, July 27,
2006, August 30, 2006 (two separate filings), and August 31, 2006;
o Proxy statement on Form 14A as filed on May 2, 2006
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.
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.
39
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 20,000
Legal Fees and Expenses 20,000
Miscellaneous 5,000
TOTAL $ 50,000
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
------------- ----------------------------------------------------- -------------------------------------------------
3.1 Articles of Incorporation of Dev-Tech Associates, Inc. Incorporated by reference to Exhibit 3.1 to
and amendment thereto Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
3.2 Bylaws of DevSys, Inc. Incorporated by reference to Exhibit 3.2 to
Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
3.3 Restated Certificate of Incorporation of DevSys, Inc. Incorporated by reference to Exhibit 3.3 to
Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
3.4 By-laws of DevSys, Inc. Incorporated by reference to Exhibit 3.4 to
Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
3.5 Articles of Merger and Agreement and Plan of Merger of Incorporated by reference to Exhibit 3.5 to
DevSys, Inc and Dev-Tech Associates, Inc. Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
3.6 Certificate of Merger of Dev-Tech Associates, Inc. Incorporated by reference to Exhibit 3.6 to
into DevSys, Inc. Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
3.7 Articles of Incorporation of Dev-Tech Migration, Inc. Incorporated by reference to Exhibit 3.7 to
and amendment thereto Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
3.8 By-laws of Dev-Tech Migration, Inc. Incorporated by reference to Exhibit 3.8 to
Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
3.9 Restated Certificate of Incorporation of DevSys Incorporated by reference to Exhibit 3.9 to
Migration, Inc. Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
3.10 Form of By-laws of DevSys Migration, Inc. Incorporated by reference to Exhibit 3.10 to
Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
3.11 Form of Agreement and Plan of Merger of Dev-Tech Incorporated by reference to Exhibit 3.11 to
Migration, Inc. into DevSys Migration, Inc. Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
3.12 Form of Certificate of Merger of Dev-Tech Migration, Incorporated by reference to Exhibit 3.12 to
Inc. into DevSys Migration, Inc. Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
II-2
EXHIBIT NO. DESCRIPTION LOCATION
------------- ----------------------------------------------------- -------------------------------------------------
3.13 Certificate of Amendment to Certificate of Incorporated by reference to Exhibit 3.13 to
Incorporation of DevSys, Inc. changing its name to Registrant's Registration Statement No.
NeoMedia Technologies, Inc. 333-5534 as filed with the SEC on November 25,
1996
3.14 Form of Certificate of Amendment to Certificate of Incorporated by reference to Exhibit 3.14 to
Incorporation of NeoMedia Technologies, Inc. Registrant's Registration Statement No.
authorizing a reverse stock split 333-5534 as filed with the SEC on November 25,
1996
3.15 Form of Certificate of Amendment to Restated Incorporated by reference to Exhibit 3.5 to
Certificate of Incorporation of NeoMedia Technologies, Registrant's Annual Report as filed with the
Inc. increasing authorized capital and creating SEC on November 2, 2001
preferred stock
5.1 Opinion re: legality Provided herewith
10.1 Consulting Agreement between NeoMedia and Thornhill Incorporated by reference to Exhibit 10. 1 to
Capital, dated December 5, 2001 the Registrant's Form S-3/A as filed on January
30, 2006
10.2 First Agreement and Amendment to Consulting Agreement Incorporated by reference to Exhibit 10. 2 to
between NeoMedia and Thornhill Capital, dated January the Registrant's Form S-3/A as filed on January
29, 2004 30, 2006
10.3 Second Agreement and Amendment to Consulting Agreement Incorporated by reference to Exhibit 10. 3 to
between NeoMedia and Thornhill Capital, dated July 22, the Registrant's Form S-3/A as filed on January
2005 30, 2006
10.4 Standby Equity Distribution Agreement, dated Incorporated by reference to Exhibit 10.91 to
October 27, 2003, between NeoMedia and Cornell the Registrant's Form SB-2/A as filed on
Capital Partners December 19, 2003
10.5 Form of Registration Rights Agreement, dated Incorporated by reference to Exhibit 10.93 to
October 27, 2003, between NeoMedia and Cornell the Registrant's Form SB-2/A as filed on
Capital 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 Capital the Registrant's Form 8-K as filed on
Partners April 1, 2005
10.9 Placement Agent Agreement, dated March 30, 2005, Incorporated by reference to Exhibit 16.2 to
between NeoMedia and Cornell Capital Partners 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 Capital Partners 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 Capital Partners the Registrant's Form 8-K as filed on April 1,
2005
II-3
EXHIBIT NO. DESCRIPTION LOCATION
------------- ----------------------------------------------------- -------------------------------------------------
10.12 Promissory Note, dated March 30, 2005, between Incorporated by reference to Exhibit 16.5 to
NeoMedia and Cornell Capital Partners 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
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 Incorporated by reference to Exhibit 10.16 to
NeoMedia and Cornell Capital Partners the Registrant's Form S-3/A as filed on January
30, 2006
10.17 Promissory Note, dated May 27, 2003, between NeoMedia Incorporated by reference to Exhibit 10.17 to
and Cornell Capital Partners the Registrant's Form S-3/A as filed on January
30, 2006
10.18 Promissory Note, dated June 24, 2003, between NeoMedia Incorporated by reference to Exhibit 10.18 to
and Cornell Capital Partners the Registrant's Form S-3/A as filed on January
30, 2006
10.19 Promissory Note, dated July 21, 2003, between NeoMedia Incorporated by reference to Exhibit 10.19 to
and Cornell Capital Partners the Registrant's Form S-3/A as filed on January
30, 2006
10.20 Promissory Note, dated August 1, 2003, between Incorporated by reference to Exhibit 10.20 to
NeoMedia and Cornell Capital Partners the Registrant's Form S-3/A as filed on January
30, 2006
10.21 Promissory Note, dated September 2, 2003, between Incorporated by reference to Exhibit 10.21 to
NeoMedia and Cornell Capital Partners the Registrant's Form S-3/A as filed on January
30, 2006
10.22 Promissory Note, dated September 11, 2003, between Incorporated by reference to Exhibit 10.22 to
NeoMedia and Cornell Capital Partners the Registrant's Form S-3/A as filed on January
30, 2006
10.23 Promissory Note, dated April 8, 2004, between NeoMedia Incorporated by reference to Exhibit 10.23 to
and Cornell Capital Partners the Registrant's Form S-3/A as filed on January
30, 2006
10.24 Promissory Note, dated July 2, 2004, between NeoMedia Incorporated by reference to Exhibit 10.24 to
and Cornell Capital Partners the Registrant's Form S-3/A as filed on January
30, 2006
10.25 Promissory Note, dated August 6, 2004, between Incorporated by reference to Exhibit 10 25 to
NeoMedia and Cornell Capital Partners the Registrant's Form S-3/A as filed on January
30, 2006
II-4
EXHIBIT NO. DESCRIPTION LOCATION
------------- ----------------------------------------------------- -------------------------------------------------
10.26 Definitive Merger Agreement between NeoMedia and Mobot Incorporated by reference to Exhibit 16.1 to
the Registrant's Form 8-K as filed on February
10, 2006
10.27 Definitive Sale and Purchase Agreement between Incorporated by reference to Exhibit 16.1 to
NeoMedia and 12Snap the Registrant's Form 8-K as filed on February
14, 2006
10.28 Definitive Sale and Purchase Agreement between Incorporated by reference to Exhibit 16.1 to
NeoMedia and Gavitec the Registrant's Form 8-K as filed on February
21, 2006
10.29 Definitive Sale and Purchase Agreement between Incorporated by reference to Exhibit 16.1 to
NeoMedia and Sponge the Registrant's Form 8-K as filed on February
22, 2006
10.30 Promissory Note, dated October 18, 2004, between Incorporated by reference to Exhibit 10.26 to
NeoMedia and Cornell Capital Partners the Registrant's Form S-3/A as filed on January
30, 2006
10.31 Investment Agreement, dated February 17, 2006 by and Incorporated by reference to Exhibit 10.1 to
between NeoMedia and Cornell Capital Partners the Registrant's Form 8-K as filed on February
21, 2006
10.32 Investor Registration Rights Agreement, dated February Incorporated by reference to Exhibit 10.2 to
17, 2006 by and between NeoMedia and Cornell Capital the Registrant's Form 8-K as filed on February
Partners 21, 2006
10.33 Irrevocable Transfer Agent Instruction, dated Incorporated by reference to Exhibit 10.3 to
February 17, 2006, by and among NeoMedia, Cornell the Registrant's Form 8-K as filed on February
Capital Partners and American Stock Transfer & Trust 21, 2006
Co.
10.34 Warrant, dated February 17, 2006 Incorporated by reference to Exhibit 10.4 to
the Registrant's Form 8-K as filed on February
21, 2006
10.35 Warrant, dated February 17, 2006 Incorporated by reference to Exhibit 10.5 to
the Registrant's Form 8-K as filed on February
21, 2006
10.36 Warrant, dated February 17, 2006 Incorporated by reference to Exhibit 10.6 to
the Registrant's Form 8-K as filed on February
21, 2006
10.37 Assignment Agreement, dated February 17, 2006 by Incorporated by reference to Exhibit 10.7 to
NeoMedia and Cornell Capital Partners the Registrant's Form 8-K as filed on February
21, 2006
10.38 Assignment of Common Stock, dated February 17, 2006 by Incorporated by reference to Exhibit 10.8 to
and between NeoMedia and Cornell Capital Partners the Registrant's Form 8-K as filed on February
21, 2006
II-5
EXHIBIT NO. DESCRIPTION LOCATION
------------- ----------------------------------------------------- -------------------------------------------------
10.39 Securities Purchase Agreement, dated August 24, 2006, Incorporated by reference to Exhibit 10.1 to
by and between the Company and Cornell Capital the Registrant's Form 8-K as filed on August
Partners, LP 30, 2006
10.40 Investor Registration Rights Agreement, dated August Incorporated by reference to Exhibit 10.2 to
24, 2006, by and between the Company and Cornell the Registrant's Form 8-K as filed on August
Capital Partners, LP 30, 2006
10.41 Pledge and Security Agreement, dated August 24, 2006, Incorporated by reference to Exhibit 10.3 to
by and between the Company and Cornell Capital the Registrant's Form 8-K as filed on August
Partners, LP 30, 2006
10.42 Secured Convertible Debenture, dated August 24, 2006, Incorporated by reference to Exhibit 10.4 to
issued by the Company to Cornell Capital Partners, LP the Registrant's Form 8-K as filed on August
30, 2006
10.43 Irrevocable Transfer Agent Instructions, dated August Incorporated by reference to Exhibit 10.5 to
24, 2006, by and among the Company, Cornell Capital the Registrant's Form 8-K as filed on August
Partners, LP and American Stock Transfer & Trust Co. 30, 2006
10.44 A Warrant, dated August 24, 2006 Incorporated by reference to Exhibit 10.6 to
the Registrant's Form 8-K as filed on August
30, 2006
10.45 B Warrant, dated August 24, 2006 Incorporated by reference to Exhibit 10.7 to
the Registrant's Form 8-K as filed on August
30, 2006
10.46 C Warrant, dated August 24, 2006 Incorporated by reference to Exhibit 10.8 to
the Registrant's Form 8-K as filed on August
30, 2006
10.47 D Warrant, dated August 24, 2006 Incorporated by reference to Exhibit 10.9 to
the Registrant's Form 8-K as filed on August
30, 2006
10.48 Amendment to Warrant No. CCP-002, dated August 24, Incorporated by reference to Exhibit 10.10 to
2006, by and between the Company and Cornell Capital the Registrant's Form 8-K as filed on August
Partners, LP 30, 2006
10.49 Amendment to "A" Warrant No. CCP-001, dated August Incorporated by reference to Exhibit 10.11 to
24, 2006, by and between the Company and Cornell the Registrant's Form 8-K as filed on August
Capital Partners, LP 30, 2006
10.50 Amendment to "B" Warrant No. CCP-002, dated August 24, Incorporated by reference to Exhibit 10.12 to
2006, by and between the Company and Cornell Capital the Registrant's Form 8-K as filed on August
Partners, LP 30, 2006
10.51 Amendment to "C" Warrant No. CCP-003, dated August Incorporated by reference to Exhibit 10.13 to
24, 2006, by and between the Company and Cornell the Registrant's Form 8-K as filed on August
Capital Partners, LP 30, 2006
10.52 Letter of intent amongst the Company, Global Emerging Incorporated by reference to Exhibit 16.1 to
Markets, and Jose Sada the Registrant's Form 8-K as filed on August
31, 2006
II-6
EXHIBIT NO. DESCRIPTION LOCATION
------------- ----------------------------------------------------- -------------------------------------------------
10.53 Termination Agreement between NeoMedia Technologies, Provided herewith
Inc, and CORNELL CAPITAL PARTNERS, LP
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.
23.3 Consent of Ernst & Young AG, independent auditors of Provided herewith
Gavitec AG
23.4 Consent of Brebner, Allen & Trapp., independent Provided herewith
auditors of Sponge Ltd.
23.5 Consent of Ernst & Young AG, independent auditors of Provided herewith
12Snap AG
23.6 Consent of Stonefield Josephson, Inc., independent Provided herewith
Registered Public Accounting Firm of BSD Software, Inc.
23.7 Consent of KPMG, LLP, independent auditors of BSD Provided herewith
Software, Inc.
II-7
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this 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 this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in the 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; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;
provided, however, that paragraphs (i), (ii) and (iii) above do not apply
if the information required to be included in a post-effective amendment
by those paragraphs is contained in reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in
this Registration Statement or is contained in a form of prospectus filed
pursuant to Rule 424(b) that is part of this Registration Statement.
(2) That, for the purposes of determining any liability under the
Securities Act of 1933, each 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 the time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(4) That, for the purpose of determining liability under the Securities
Act of 1933 to any purchaser:
(i) each prospectus filed by the Registrant pursuant to Rule
424(b)(3) shall be deemed to be part of a registration statement as of the
date the filed prospectus was deemed part of and included in the
registration statement; and
(ii) each prospectus required to be filed pursuant to Rule
424(b)(2), (b)(5) or (b)(7) as part of a registration statement in
reliance on Rule 430B relating to an offering made pursuant to Rule
415(a)(1)(i), (vii) or (x) for the purpose of providing the information
required by Section 10(a) of the Securities Act of 1933 shall be deemed to
be part of and included in the registration statement as of the earlier of
the date such form of prospectus is first used after effectiveness and the
date of the first contract of sale of securities in the offering described
in the prospectus. As provided in Rule 430B, for liability purposes of the
issuer and any person that is at that date an underwriter, such date shall
be deemed to be a new effective date of the registration statement
relating to the securities in the registration statement to which that
prospectus relates, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof; provided, however,
that no statement made in a registration statement or prospectus that is
part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such effective date,
supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or
made in any such document immediately prior to such effective date.
(5) That, for the purpose of determining liability of the Registrant under
the Securities Act of 1933 to any purchaser in the initial distribution of
the securities, the undersigned Registrant undertakes that in a primary
offering of securities of the undersigned Registrant pursuant to this
registration statement, regardless of the underwriting method used to sell
the securities to the purchaser, if the securities are offered or sold to
such purchaser by means of any of the following communications, the
undersigned Registrant will be a seller to the purchaser and will be
considered to offer or sell such securities to such purchaser:
II-8
(i) any preliminary prospectus or prospectus of the undersigned
Registrant relating to the offering required to be filed pursuant to Rule
424;
(ii) any free writing prospectus relating to the offering prepared
by or on behalf of the undersigned Registrant or used or referred to by
the undersigned Registrant;
(iii) the portion of any other free writing prospectus relating to
the offering containing material information about the undersigned
Registrant or its securities provided by or on behalf of the undersigned
Registrant; and
(iv) any other communication that is an offer in the offering made
by the undersigned Registrant to the purchaser.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement 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 initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, directors, officers and controlling
persons of the Registrant pursuant to the provision described under Item 15 of
this registration statement, or otherwise (other than insurance), the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
trustee, director, officer or controlling person in connection with the
securities being registered, the Registrant 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 or
them is against public policy as expressed in the Securities Act of 1933 and
will be governed by the final adjudication of such issue.
II-9
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 September 7, 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,
------------------------------------ and Director
Charles T. Jensen September 7, 2006
/s/ Charles W. Fritz Chairman of the Board
------------------------------------
Charles W. Fritz September 7, 2006
/s/ David A. Dodge Vice-President, Chief Financial Officer,
------------------------------------ and Principal Accounting Officer
David A. Dodge September 7, 2006
/s/ William E. Fritz Director
------------------------------------
William E. Fritz September 7, 2006
/s/ Hayes Barclay Director
Hayes Barclay September 7, 2006
/s/ James J. Keil Director
------------------------------------
James J. Keil September 7, 2006
II-10