U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
AMENDMENT NO. 1 TO
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): February 23, 2006
NEOMEDIA TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 0-21743 36-3680347
---------------------------- ------------ -------------------
(State or Other Jurisdiction (Commission (IRS Employer
Incorporation) File Number) Identification No.)
2201 SECOND STREET, SUITE 600,
FORT MYERS, FLORIDA 33901
------------------------------- ----------
(Address of Principal Executive
Offices) (Zip Code)
(239) - 337-3434
----------------------------------------------------
(Registrant's Telephone Number, including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under
the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under
the Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
COMPLETION OF ACQUISITION OF SPONGE LIMITED
On February 20, 2006, NeoMedia Technologies, Inc. ("NeoMedia) and Sponge
Limited ("Sponge") of London (www.spongegroup.com) 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 (pound)6,550,000 (approximately $11.4
million) in shares of NeoMedia common stock. The (pound)6,550,000 stock portion
of the purchase price is represented by 33,097,135 shares of NeoMedia common
stock, calculated by dividing (pound)6,550,000 by the volume-weighted average
closing price of NeoMedia common stock for the ten days up to and including
February 8, 2006. 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.
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
On February 23, 2006, NeoMedia and Sponge completed the closing
requirements and the acquisition became effective.
Founded in 2001, Sponge has grown to become a U.K. market leader in
providing mobile applications to agencies and media groups, and gain recognition
as one of Europe's top independent developers of mobile applications and
content. Today, Sponge counts more than 40 agencies, including WPP, Aegis and
BBH, as clients, and supplies services for over 100 world-class brands,
including Coca Cola(R), Heineken(R) and Diageo. Sponge also supplies a range of
mobile services to media groups, including News International, Trinity Mirror,
Endemol and IPC.
This Form 8-K/A is being filed as Amendment No. 1 to NeoMedia's Form 8-K
filed with the SEC on February 24, 2006, in order to provide the financial
statements required by Items 7(a) and (b) of Form 8-K.
2
ITEM 9.01. FINANCIAL STATEMENTS, PRO FORMA INFORMATION AND EXHIBITS
(A) FINANCIAL STATEMENTS OF ACQUIRED BUSINESSES - SPONGE LTD.
Interim Financial Statements for the three months ended December 31, 2005 and
2004 (unaudited): Balance sheet as of December 31, 2005 Statements of income
for the three months ended December 31, 2005 and 2004 Statements of cash
flows for the three months ended December 31, 2005 and 2004 Notes to
financial statements
Audited Financial Statements for the years ended September 30, 2005 and 2004:
Report of Independent Auditors
Balance sheet as of September 30, 2005
Statements of income for the years ended September 30, 2005 and 2004
Statements of changes in stockholders' deficit for the years ended September
30, 2005 and 2004 Statements of cash flows for the years ended September 30,
2005 and 2004 Notes to financial statements
(B) PRO FORMA FINANCIAL INFORMATION
Notes to pro forma combined financial statements Pro forma combined
balance sheet as of December 31, 2005 (unaudited)
Pro forma combined statement of operations for the twelve months ended
December 31, 2005 (unaudited)
(C) EXHIBITS
23.1 - Consent of Brebner Allen & Trapp, Independent Auditors of Sponge Ltd.
EXPLANATORY NOTE: A portion of Sponge's sales for the periods presented in this
filing are presented gross with an accompanying cost of goods sold. In
connection with its first quarter 2006 review, NeoMedia is evaluating the
technical aspects of the revenue recognition treatment as it relates to Sponge's
sales and cost of sales. Any adjustments to sales and cost of sales resulting
from such evaluation that relate to the periods presented herein will be
reflected in an amendment to this 8-K. NeoMedia expects that any such potential
adjustment would affect sales and cost of sales only, and would not change
Sponge's net income (loss) for periods shown herein.
3
(A) FINANCIAL STATEMENTS OF ACQUIRED BUSINESS - SPONGE LTD.
INTERIM FINANCIAL STATEMENTS FOR THE
THREE MONTHS ENDED DECEMBER 31, 2005 AND 2004 (UNAUDITED)
4
SUPPLEMENTARY FINANCIAL INFORMATION
The following information presents Sponge Ltd.'s unaudited quarterly operating
results for the three months ended December 31, 2005 and 2004. The data has been
prepared by Sponge Ltd. on a basis consistent with the consolidated financial
statements included elsewhere in this Form 8-K/A, and includes all adjustments,
consisting of normal recurring accruals, that we consider necessary for a fair
presentation thereof. These operating results are not necessarily indicative of
our future performance.
--------------------------------------------------------------------------------
SPONGE LIMITED
BALANCE SHEETS
AS AT DECEMBER 31, 2005 AND SEPTEMBER 30, 2005
--------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30,
2005 2005
$ $
ASSETS (UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents 439,210 1,077,138
Accounts receivable 223,210 254,373
Accrued income 238,756 563,471
Other receivables 26,487 41,737
Prepaid expenses 47,978 36,592
----------- -----------
Total current assets 975,641 1,973,311
----------- -----------
PROPERTY AND EQUIPMENT
Equipment and furniture 96,957 99,680
Accumulated depreciation (48,611) (44,123)
----------- -----------
Total property and equipment 48,346 55,557
----------- -----------
TOTAL ASSETS $ 1,023,987 $ 2,028,868
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 298,010 1,255,479
Accrued expenses 266,444 317,320
Taxes payable 89,693 87,685
Other current liabilities 22,742 21,695
Customer deposits 50,390 39,009
Deferred taxes -- 1,744
----------- -----------
TOTAL CURRENT LIABILITIES 727,279 1,722,932
----------- -----------
Long-term debt 104,969 107,915
----------- -----------
TOTAL LONG-TERM LIABILITIES 104,969 107,915
----------- -----------
SHAREHOLDERS' EQUITY
Common stock 631 631
Additional paid in capital 10,781 10,781
Accumulated earnings/(deficit) 220,536 221,425
Accumulated foreign exchange (40,209) (34,816)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY/(DEFICIT) 191,739 198,021
=========== ===========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,023,987 $ 2,028,868
=========== ===========
These financial statements were approved by the directors on 5th May 2006 and
are signed on their behalf by:
...................................
/s/ A T J Meisl
Director
The accompanying notes are an integral part of these statements.
5
SPONGE LIMITED
STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 2005 AND 2004 (UNAUDITED)
--------------------------------------------------------------------------------
2005 2004
$ $
Sales 804,274 738,430
Cost of sales (441,849) (377,188)
--------- ---------
Gross Profit 362,425 361,242
General and administrative expenses (389,371) (252,343)
--------- ---------
Operating income (26,946) 108,899
--------- ---------
Other income 21,400 --
Interest 4,657 1,317
--------- ---------
Total Other Income 26,057 1,317
--------- ---------
(Loss)/income before taxes (889) 110,216
Tax expense -- --
--------- ---------
Net (loss)/income $ (889) $ 110,216
========= =========
The accompanying notes are an integral part of these statements.
6
SPONGE LIMITED
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2005 AND 2004 (UNAUDITED)
--------------------------------------------------------------------------------
2005 2004
$ $
OPERATING ACTIVITIES
Net (loss)/income (889) 110,216
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 4,488 3,720
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable 31,163 (21,025)
Other current assets 328,579 (39,420)
Accounts payable (957,469) (204,572)
Accrued expenses and other current liabilities (38,184) 60,731
----------- -----------
Net cash used by operating activities (632,312) (90,350)
=========== ===========
INVESTING ACTIVITIES:
(Purchase) disposal of equipment 2,723 (6,670)
----------- -----------
Net cash used in investing activities 2,723 (6,670)
=========== ===========
FINANCING ACTIVITIES:
Issuance (payment) of long-term debt (2,946) 7,137
----------- -----------
Net cash provided by financing activities (2,946) 7,137
=========== ===========
Net decrease in cash (632,535) (89,883)
Foreign currency adjustment (5,393) (1,149)
Cash at beginning of year 1,077,138 541,660
----------- -----------
Cash at end of period $ 439,210 $ 450,628
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest received 4,657 1,317
Taxes paid 97,035 67,861
=========== ===========
The accompanying notes are an integral part of these statements.
7
SPONGE LIMITED
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004 (UNAUDITED)
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Sponge Limited (the Company) was incorporated on September 12, 1995. The
company is engaged in the provision of marketing services via the
telecommunications industry.
BASIS OF PRESENTATION
These condensed consolidated financial statements and related notes
should be read in conjunction with the Company's audited financial
statements and related footnotes for the fiscal years ended September 30,
2005 and 2004. In the opinion of management, these financial statements
reflect all adjustments which are of a normal recurring nature and which
are necessary to present fairly the financial position of the Company as
of December 31, 2005, the results of operations for the three-month
periods ended December 31, 2005 and 2004, and cash flows for the
three-month periods ended December 31, 2005 and 2004. The results of
operations for the three-month periods ended December 31, 2005 are not
necessarily indicative of the results which may be expected for the entire
fiscal year.
REVENUE RECOGNITION
The company records sales for services provided as a principal when the
service has been provided to the customer, the sales price is fixed and
determinable, and the collection is reasonably assured.
Revenue can be divided into two main sources:-
(i) Media - a premium rate text promotional service
(ii) Brand - a standard rate promotional text service
In both cases Revenue is dependent on message volumes and recognised
according to the date of the message.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
8
SPONGE LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONT'D)
DECEMBER 31, 2005 AND 2004 (UNAUDITED)
--------------------------------------------------------------------------------
CREDIT CONCENTRATIONS
The company's customers are concentrated in the telecommunications
industry. Concentrations of credit risk with respect to trade receivables
are limited to major network providers within the industry.
FOREIGN CURRENCIES
The functional currency of the company's operations is sterling. The
financial statements are reported in United States dollars and are
translated to United States dollars at the exchange rates in effect at the
balance sheet date for assets and liabilities and at average rates for the
period for revenues and expenses. Resulting exchange differences are
accumulated as a component of accumulated other comprehensive income.
Transaction foreign exchange gains and losses are included in the income
statement.
FINANCIAL INSTRUMENTS
The carrying amount of the Company's cash equivalents, accounts
receivable, prepaid expenses, other current assets, cash surrender value
of life insurance policy, accounts payable and accrued expenses, accrued
salaries and benefits, and payables to merchants approximates their
estimated fair values due to the short-term maturities of those financial
instruments.
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
2. SALES
The sales and profit before tax are attributable to the one principal
activity of the company. An analysis of sales is given below:
3 MONTHS ENDED DECEMBER 31
--------------------------
2005 2004
$ $
United Kingdom 694,476 506,646
USA 1,780 231,784
Other 108,018 --
------- -------
804,274 738,430
======= =======
3. TAXES PAYABLE
DECEMBER 2005 SEPTEMBER 2005
------------- --------------
$ $
Employment taxes 33,819 31,989
Corporation tax 55,874 55,696
------ ------
89,693 87,685
====== ======
9
4. LEASE COMMITMENTS
The company's office space lease commenced May 27, 2005 and expires on May
26, 2015. Rental expense in respect of this lease totalled $32,698 and
$Nil for the three months ended December 31, 2005 and 2004, respectively.
The company is obligated to pay (pound)59,025 in the first year of the
lease and (pound)78,700 thereafter until the first review date on the
fifth anniversary.
10
SPONGE LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONT'D)
DECEMBER 31, 2005 AND 2004 (UNAUDITED)
--------------------------------------------------------------------------------
5. RELATED PARTY TRANSACTIONS
Included in Other Receivables is an amount of $Nil (September 2005:
$8,846) due from A Meisl (Director) in respect of a loan made. The maximum
balance outstanding during the period was $8,846.
Included in Other Receivables is an amount of $Nil (September 2005:
$8,846) due from D Parker (Director) in respect of a loan made. The
maximum balance outstanding during the period was $8,846.
Included in Accrued Expenses is an amount of $2,323 (September 2005:
$1,592) due to A Meisl (Director) in respect of business expenses incurred
but not reimbursed.
Included in Accrued Expenses is an amount of $2,323 (September 2005
$1,592) due to D Parker (Director) in respect of business expenses
incurred but not reimbursed.
Included in Cost of Sales is an amount of $6,560 (September 2005: $6,996)
paid to P Trelease (Director) in respect of consultancy services rendered.
P. Trelease resigned as a director of Sponge Limited on February 23, 2006.
There are no set interest or repayment terms in respect of outstanding
balances.
CONTROL
Control of the company rested with A Meisl and D Parker, directors, during
the three months ended December 31, 2005 and 2004.
6. LONG-TERM DEBT
On December 16, 2004 the company issued 61,000, out of an authorised
100,000, non-voting 1% preference shares of (pound)1 each. These
preference shares were allotted at par via conversion of an existing long
term loan.
11
SPONGE LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONT'D)
SEPTEMBER 30, 2005 AND 2004 (UNAUDITED)
--------------------------------------------------------------------------------
7. COMMON STOCK
Authorised Common Stock
AS OF DECEMBER 31,
2005
(POUND)
1,000,000 Ordinary shares of (pound)1 each 1,000,000
=========
Allotted, called up and fully paid:
AS OF DECEMBER 31,
2005
NO. $
Ordinary shares of (pound)1 each 423 631
=== ===
Issued share capital is recorded at the historic rate. There were no
changes in the authorised or issued share capital during the three months
ended December 31, 2005.
8. POST BALANCE SHEET EVENTS
In March 2006 the directors paid a final dividend on the Ordinary Shares
for the year ended 30th September 2005 of (pound)105,000 (2004: Nil).
In February 2006 the company's Issued Common Stock was purchased by
Neomedia Technologies Inc, a company incorporated and operating in the
United States of America.
12
AUDITED FINANCIAL STATEMENTS FOR THE
YEARS ENDED SEPTEMBER 30, 2005 AND 2004
13
SPONGE LIMITED
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
--------------------------------------------------------------------------------
We have audited the accompanying balance sheets of Sponge Limited as at
September 30 2005 and 2004 and the related statements of income, retained
earnings, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
This report is made solely to the company's directors, as a body and its
shareholders. Our audit work has been undertaken so that we might state to them
those matters we are required to state to them in an auditor's report and for no
other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the addresses, for our audit work,
for this report, or for the opinions we have formed.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sponge Limited as at September
30 2005 and 2004, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
/s/ Brebner, Allen & Trapp
Chartered Accountants and Registered Auditors
The Quadrangle
180 Wardour Street
London W1F 8LB
5th May 2006
14
SPONGE LIMITED
BALANCE SHEETS
AS AT SEPTEMBER 30, 2005 AND 2004
--------------------------------------------------------------------------------
2005 2004
$ $
ASSETS
CURRENT ASSETS
Cash and cash equivalents 1,077,138 541,660
Accounts receivable 254,373 268,863
Accrued income 563,471 179,643
Other receivables 41,737 28,612
Prepaid expenses 36,592 4,205
----------- -----------
Total current assets 1,973,311 1,022,983
----------- -----------
PROPERTY AND EQUIPMENT
Equipment and furniture 99,680 41,780
Accumulated depreciation (44,123) (28,888)
----------- -----------
Total property and equipment 55,557 12,892
----------- -----------
TOTAL ASSETS $ 2,028,868 $ 1,035,875
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 1,255,479 755,029
Accrued expenses 317,320 212,960
Taxes payable 87,685 18,584
Other current liabilities 21,695 12,048
Customer deposits 39,009 --
Deferred taxes 1,744 --
----------- -----------
TOTAL CURRENT LIABILITIES 1,722,932 998,621
----------- -----------
Long-term debt 107,915 110,386
----------- -----------
TOTAL LONG-TERM LIABILITIES 107,915 110,386
----------- -----------
SHAREHOLDERS' EQUITY
Common stock 631 631
Additional paid in capital 10,781 10,781
Accumulated earnings/(deficit) 221,425 (60,156)
Accumulated foreign exchange (34,816) (24,388)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY/(DEFICIT) 198,021 (73,132)
=========== ===========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,028,868 $ 1,038,875
=========== ===========
These financial statements were approved by the directors on 5th May 2006 and
are signed on their behalf by:
.......................
/s/ A T J Meisl
Director
The accompanying notes are an integral part of these statements.
15
SPONGE LIMITED
STATEMENT OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 2005 AND 2004
--------------------------------------------------------------------------------
2005 2004
$ $
Sales 4,600,169 2,243,180
Cost of sales (3,649,232) (1,851,045)
----------- -----------
Gross Profit 950,937 392,135
General and administrative expenses (659,107) (345,260)
----------- -----------
Operating income 291,830 46,875
----------- -----------
Other income 35,764 --
Interest 13,999 2,145
----------- -----------
Total Other Income 49,763 2,145
----------- -----------
Income before taxes 341,593 49,020
Tax expense (60,012) --
----------- -----------
Net income $ 281,581 $ 49,020
=========== ===========
The accompanying notes are an integral part of these statements.
16
SPONGE LIMITED
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2005 AND 2004
--------------------------------------------------------------------------------
2005 2004
$ $
OPERATING ACTIVITIES
Net income 281,581 49,020
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 16,592 11,770
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable 8,852 (141,232)
Other current assets (393,178) (79,486)
Accounts payable 540,509 597,438
Accrued expenses and other current liabilities 179,228 (29,759)
----------- -----------
Net cash provided by operating activities 633,584 407,751
=========== ===========
INVESTING ACTIVITIES:
Purchase of equipment (58,835) (8,905)
----------- -----------
Net cash used in investing activities (58,835) (8,905)
=========== ===========
FINANCING ACTIVITIES:
Net proceeds from issuance of common stock -- 10,792
----------- -----------
Net cash provided by financing activities -- 10,792
=========== ===========
Net increase in cash 574,749 409,638
Foreign currency adjustment (39,271) 15,631
Cash at beginning of year 541,660 116,391
----------- -----------
Cash at end of year $ 1,077,138 $ 541,660
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest received 13,999 2,144
Taxes paid 323,523 77,238
=========== ===========
The accompanying notes are an integral part of these statements.
17
SPONGE LIMITED
STATEMENT OF SHAREHOLDERS' EQUITY/(DEFICIT)
--------------------------------------------------------------------------------
COMMON TOTAl
STOCK ADDITIONAL ACCUMULATED ACCUMULATED SHAREHOLDERS'
SHARES OF PAID IN FOREIGN EARNINGS/ EQUITY/
(POUND)1 EACH CAPITAL EXCHANGE (DEFICIT) (DEFICIT)
$ $ $ $ $
Balance September 30, 2003 620 -- (14,132) (109,176) (122,688)
Issuance of common stock 11 10,781 -- -- 10,792
Comprehensive income:
Net income -- -- -- 49,020 49,020
Foreign currency adjustment -- -- (10,256) -- (10,256)
--------- --------- --------- --------- ---------
Balance September 30, 2004 631 10,781 (24,388) (60,156) (73,132)
Comprehensive income:
Net income -- -- -- 281,581 281,581
Foreign currency adjustment -- -- (10,428) -- (10,428)
--------- --------- --------- --------- ---------
Balance September 30, 2005 $ 631 $ 10,781 $ (34,816) $ 221,425 $ 198,021
========= ========= ========= ========= =========
The accompanying notes are an integral part of these statements.
18
SPONGE LIMITED
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Sponge Limited (the Company) was incorporated on September 12, 1995. The
company is engaged in the provision of marketing services via the
telecommunications industry.
REVENUE RECOGNITION
The company records sales for services provided as a principal when the
service has been provided to the customer, the sales price is fixed and
determinable, and the collection is reasonably assured.
Revenue can be divided into two main sources:-
(i) Media - a premium rate text promotional service
(ii) Brand - a standard rate promotional text service
In both cases Revenue is dependent on message volumes and recognised
according to the date of the message.
EQUIPMENT AND FURNITURE
Equipment and furniture are recorded at cost. Provisions for depreciation
are computed using the straight-line method over the estimated useful
lives of the assets of three years.
INCOME TAXES
The company accounts for income taxes under the liability method.
DEFERRED TAXES
Deferred tax is recognised in respect of all timing differences between
the financial statements carrying amounts of assets and liabilities and
their respective tax basis that have originated but not reversed at the
balance sheet date where transactions or events have occurred at that date
that will result in an obligation to pay more, or a right to pay less or
to receive more tax.
Deferred tax assets are also recognised for operating losses for which the
directors consider that it is more likely than not that there will be
suitable taxable profits from which the future reversal of the underlying
timing differences can be deducted.
Deferred tax assets and liabilities are measured at the tax rates that are
expected to apply in the periods in which timing differences reverse,
based on tax rates and laws enacted or substantively enacted at the
balance sheet date.
19
ADVERTISING
The company has elected to expense all advertising costs, as incurred.
Advertising costs charged to expense totalled $8,354 and $4,335 for the
years ended September 30, 2005 and 2004 respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
20
SPONGE LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONT'D)
SEPTEMBER 30, 2005 AND 2004
--------------------------------------------------------------------------------
CREDIT CONCENTRATIONS
The company's customers are concentrated in the telecommunications
industry. Concentrations of credit risk with respect to trade receivables
are limited to major network providers within the industry.
FOREIGN CURRENCIES
The functional currency of the company's operations is sterling. The
financial statements are reported in United States dollars and are
translated to United States dollars at the exchange rates in effect at the
balance sheet date for assets and liabilities and at average rates for the
period for revenues and expenses. Resulting exchange differences are
accumulated as a component of accumulated other comprehensive income.
Transaction foreign exchange gains and losses are included in the income
statement.
FINANCIAL INSTRUMENTS
The carrying amount of the Company's cash equivalents, accounts
receivable, prepaid expenses, other current assets, cash surrender value
of life insurance policy, accounts payable and accrued expenses, accrued
salaries and benefits, and payables to merchants approximates their
estimated fair values due to the short-term maturities of those financial
instruments.
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
2. SALES
The sales and profit before tax are attributable to the one principal
activity of the company. An analysis of sales is given below:
2005 2004
$ $
United Kingdom 4,299,713 2,138,885
USA 294,541 104,295
Other 5,915 --
--------- ---------
4,600,169 2,243,180
========= =========
3. OTHER INCOME
2005 2004
$ $
Rent 35,764 --
========= =========
21
SPONGE LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONT'D)
SEPTEMBER 30, 2005 AND 2004
--------------------------------------------------------------------------------
4. PARTICULARS OF EMPLOYEES
The average number of staff employed by the company during the financial
year amounted to:
2005 2004
NO NO
Number of commercial staff 4 2
Number of technical staff 4 2
Number of administrative staff 2 1
Number of management staff 3 3
-- --
13 8
== ==
The aggregate payroll costs of the above were:
2005 2004
$ $
Wages and salaries 824,961 375,321
Social security costs 91,960 40,550
------- -------
916,921 415,871
======= =======
5. DIRECTORS' EMOLUMENTS
The directors' aggregate emoluments in respect of qualifying services
were:
2005 2004
$ $
Emoluments receivable 266,155 166,457
======= =======
6. INTEREST
2005 2004
$ $
Bank interest 13,999 2,145
====== ======
22
7. TAX EXPENSE
2005 2004
$ $
Current tax:
In respect of the year:
UK Corporation tax based on the results for the year
at 19% (2004 - 19%) 58,190 --
------ ------
Total current tax 58,190 --
Deferred tax
Deferred tax:
Origination and reversal of timing differences 1,822 --
----- ------
Tax on income 60,012 --
====== ======
23
SPONGE LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONT'D)
SEPTEMBER 30, 2005 AND 2004
--------------------------------------------------------------------------------
8. TAXES PAYABLE
2005 2004
$ $
Employment taxes 31,989 18,584
Corporation tax 55,696 --
------ ------
87,685 18,584
====== ======
9. LEASE COMMITMENTS
The company's office space lease commenced May 27, 2005 and expires on May
26, 2015. Rental expense in respect of this lease totalled $46,063 and
$Nil for the years ended September 30, 2005 and 2004, respectively. The
company is obligated to pay (pound)59,025 in the first year of the lease
and (pound)78,700 thereafter until the first review date on the fifth
anniversary.
10. RELATED PARTY TRANSACTIONS
Included in Other Receivables is an amount of $8,846 (2004: $10,858) due
from A Meisl (Director) in respect of a loan made. The maximum balance
outstanding during the year was $10,858.
Included in Other Receivables is an amount of $8,846 (2004: $5,429) due
from D Parker (Director) in respect of a loan made. The maximum balance
outstanding during the year was $8,846.
Included in Accrued Expenses is an amount of $1,592 (2004: $4,343) due to
A Meisl (Director) in respect of business expenses incurred but not
reimbursed.
Included in Accrued Expenses is an amount of $1,592 (2004: $4,343) due to
D Parker (Director) in respect of business expenses incurred but not
reimbursed.
Included in Cost of Sales is an amount of $34,009 (2004: $5,807) paid to P
Trelease (Director) in respect of consultancy services rendered. P.
Trelease resigned as a director of Sponge Limited on February 23, 2006.
During the previous year the company paid $10,721 in respect of server
hosting costs to Jingo Digital Limited, a company of which M Gibbons is a
director. M Gibbons resigned as a director of Sponge Limited on May 4,
2004.
There are no set interest or repayment terms in respect of outstanding
balances.
CONTROL
Control of the company rested with A Meisl and D Parker, directors, during
the year.
11. LONG-TERM DEBT
On December 16, 2004 the company issued 61,000, out of an authorised
100,000, non-voting 1% preference shares of (pound)1 each. These
preference shares were allotted at par via conversion of an existing long
term loan.
24
SPONGE LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONT'D)
SEPTEMBER 30, 2005 AND 2004
--------------------------------------------------------------------------------
12. DEFERRED TAXATION
The movement in the deferred taxation provision during the year was:
2005 2004
$ $
Charge arising during the year 1,822 -
Foreign currency adjustment (78) -
------- -------
Liability carried forward 1,744 -
======= =======
The deferred taxation liability consists of the tax effect of timing
differences in respect of:
2005 2004
$ $
Excess of taxation allowances over depreciation on
property and equipment 1,744 -
===== =====
13. COMMON STOCK
Authorised Common Stock
2005 2004
(POUND) (POUND)
1,000,000 Ordinary shares of (pound)1 each 1,000,000 1,000,000
========= =========
Allotted, called up and fully paid:
2005 2004
NO. $ NO. $
Ordinary shares of (pound)1 each 423 631 423 631
=== === === ===
Issued share capital is recorded at the historic rate. There have been no
changes in the authorised or issued share capital in the year. In the
previous year six Ordinary Shares of (pound)1 each were issued for A total
cash consideration of (pound)6,000.
14. POST BALANCE SHEET EVENTS
In March 2006 the directors paid a final dividend on the Ordinary Shares
for the year ended 30th September 2005 of (pound)105,000 (2004: Nil).
In February 2006 the company's Issued Common Stock was purchased by
Neomedia Technologies Inc, a company incorporated and operating in the
United States of America.
25
(B) PRO FORMA FINANCIAL INFORMATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
ACQUISITION 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.
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
ACQUISITION 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, calculated by dividing $5,400,000 by the
volume-weighted average closing price of NeoMedia common stock for the ten days
up to and including February 16, 2006. 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.
ACQUISITION 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. 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.
26
ACQUISITION OF MOBOT, INC.
On February 17, 2006, NeoMedia Technologies, Inc. ("NeoMedia) acquired all of
the outstanding shares of Mobot, Inc. (www.mobot.com) ("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. 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. This amount is considered other
additional consideration in the purchase price allocation.
Audited financials statements for Mobot were included in amendment no. 1 to form
8-K filed with SEC on May 3, 2006. Audited financials statements for 12Snap were
included in amendment no. 1 to form 8-K filed with SEC on May 8, 2006. Audited
financials statements for Gavitec were included in amendment no. 1 to form 8-K
filed with SEC on May 8, 2006. Gavitec, Mobot and 12Snap balance sheets as of
December 31, 2005 and statements of operations for the year ended December 31,
2005 are shown for pro forma purposes only.
27
PRESENTATION
The unaudited pro forma condensed combined historical statement of operations
for the year ended December 31, 2005 gives effect to the acquisitions of Sponge,
Gavitec, 12Snap and Mobot as if they had occurred as of January 1, 2005,
combining the historical results of NeoMedia for the year ended December 31,
2005 with the historical results of Sponge, Gavitec, 12Snap and Mobot for the
year ended December 31, 2005. The unaudited pro forma condensed combined balance
sheet as of December 31, 2005 gives effect to the acquisitions of Sponge,
Gavitec, 12Snap and Mobot as if they had occurred as of December 31, 2005.
The unaudited pro forma combined financial statements included in this filing
have been prepared by the managements of NeoMedia, Sponge, Gavitec, 12Snap, and
Mobot without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. However, the
managements of NeoMedia, Sponge, Gavitec, 12Snap, and Mobot believe that the
disclosures are adequate to make the information not misleading.
The pro forma adjustments are based on currently available information and upon
estimates and assumptions that we believe are reasonable under the
circumstances. The unaudited pro forma financial data do not purport to
represent what NeoMedia's financial position or results of operations would
actually have been if such transactions had occurred on those dates and are not
necessarily representative of NeoMedia's financial position or results of
operations for any future period. The unaudited pro forma financial statements
should be read in conjunction with the separate historical financial statements
and footnotes of NeoMedia included in Form 10-KSB for the year ended December
31, 2005, and with the separate historical financial statements and footnotes of
Sponge for the years ended September 30, 2005 and 2004 (included herein), with
the separate historical financial statements and footnotes of Gavitec for the
years ended December 31, 2005 and 2004 (in Form 8-K/A filed with the SEC on May
8, 2006), with the separate historical financial statements and footnotes of
12Snap for the years ended December 31, 2005 and 2004 (included in Form 8-K/A
filed with the SEC on May 8, 2006), and with the separate historical financial
statements and footnotes of Mobot for the years ended December 31, 2005 and 2004
(included in Form 8-K/A filed with the SEC on May 3, 2006).
2. PRELIMINARY PURCHASE PRICE ALLOCATION
A final determination of the allocation of the purchase price to the assets
acquired and liabilities assumed has not been made for Sponge, Gavitec, 12Snap
and Mobot. The allocation reflected in the unaudited pro forma combined
financial statements is based on management's best judgment and estimate of the
fair values of intangible assets being acquired, and should be considered
preliminary and is subject to the completion of a comprehensive independent
valuation of the assets acquired and liabilities assumed. The final allocation
of purchase price could differ materially from the pro forma allocation included
herein. NeoMedia expects to obtain the final independent valuation, currently in
process, prior to the filing of the 2nd quarter Form 10 Q in August 2006.
Any additional consideration issued pursuant to the stock purchase price
protection clause would also change the purchase price allocation.
3. PRO FORMA NET LOSS PER SHARE
The pro forma basic and dilutive net loss per share are based on the weighted
average number of shares of pro forma NeoMedia's common stock as if the shares
issued to acquire Sponge, Gavitec, 12Snap and Mobot had been issued at the
beginning of the period shown. Dilutive shares are not included in the
computation of pro forma dilutive net loss per share as their effect would be
anti-dilutive.
28
NEOMEDIA TECHNOLOGIES, INC.
UNAUDITED PRO-FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 2005
(In thousands of US Dollars)
PRO PRO
FORMA FORMA
(A) (A) (A) (A) (A) ADJUST- CONSOL-
ASSETS NEOMEDIA MOBOT SPONGE GAVITEC 12SNAP MENTS IDATED
---------------------------------------------------------- ----------- ----------
Current assets: * * (unaudited)** * * (unaudited) (unaudited)
Cash and cash equivalents $ 2,291 $ 909 $ 439 $ 95 $ 1,341 ($ 13,941) (G) ($ 8,866)
Trade accounts receivable, net 341 78 223 172 2,117 -- 2,931
Inventories, net 423 -- -- 182 -- -- 605
Investment in marketable securities 104 -- -- -- 52 -- 156
Prepaid expenses and other current
assets 151 8 314 64 751 -- 1,288
--------------------------------------------------------- --------- ---------
Total current assets 3,310 995 976 513 4,261 (13,941) (3,886)
Property and equipment, net 236 22 48 17 224 -- 547
Capitalized patents, net 3,134 -- -- -- -- -- 3,134
Micro paint repair chemical formulations
and -- -- -- -- --
proprietary process 1,450 1,450
Customer contracts and relationships -- -- -- -- -- 1,200 (C) 1,200
Capitalized software platform -- -- -- -- -- 16,300 (C) 16,300
Other intangible assets 246 20 -- 3 98 2,750 (C) 3,118
Goodwill 1,099 -- -- -- -- 42,026 (C) 43,125
Advances to Mobot, Inc. 1,500 -- -- -- -- (1,500) --
Cash surrender value of life insurance
policy 769 -- -- -- -- -- 769
Other long-term assets 667 -- -- -- -- (220) (D) 447
--------------------------------------------------------- --------- ---------
TOTAL ASSETS $ 12,411 $ 1,037 $ 1,024 $ 533 $ 4,583 $ 46,615 $ 66,203
========================================================= ========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,574 $ 344 $ 298 $ 160 $ 775 $-- $ 3,151
Accrued expenses 1,844 148 266 50 2,153 -- 4,461
Amounts payable under settlement
agreements 97 -- -- -- -- -- 97
Taxes payable 80 -- 90 -- -- -- 170
Deferred revenues and other 898 236 73 362 1,780 -- 3,349
Liabilities in excess of assets of
discontinued 676 -- -- -- -- -- 676
business unit
Notes and loans payable 3,015 1,500 -- -- 4,145 (1,500) (E) 7,160
--------------------------------------------------------- --------- ---------
TOTAL CURRENT LIABILITIES 8,184 2,228 727 572 8,853 (1,500) 19,064
--------------------------------------------------------- --------- ---------
Long-term debt and convertible
debentures -- 500 105 -- -- (500) (F) 105
Minority Interest -- -- -- 7 -- 7
Shareholders' deficit:
Preferred stock -- -- -- -- -- -- --
Common stock (B) 4,676 0 1 263 5,825 (4,614) (C) 6,151
Additional paid-in capital 106,456 1 11 1,180 49,675 (9,542) (C) 147,781
Deferred equity financing costs (13,256) -- -- -- -- -- (13,256)
Deferred stock-based compensation (169) -- -- -- -- -- (169)
Accumulated other comprehensive income
(loss) (177) -- (40) -- 946 (906) (C) (177)
Retained earnings (accumulated deficit) (92,524) (1,692) 220 (1,482) (60,158) 63,112 (C) (92,524)
Treasury stock (779) -- -- -- (565) 565 (779)
--------------------------------------------------------- --------- ---------
Total shareholders' deficit 4,227 (1,691) 192 (39) (4,277) 48,615 47,027
--------------------------------------------------------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
DEFICIT $ 12,411 $ 1,037 $ 1,024 $ 533 $ 4,583 $ 46,615 $ 66,203
========================================================= ========= =========
* - Derived from audited financial statements
** - Sponge balances taken from December 31, 2005 interim unaudited balance
sheet
29
PRO-FORMA ADJUSTMENTS
(A) - All balance sheets are presented as of December 31, 2005. For pro forma
presentation purposes, Gavitec and 12Snap balances are converted from Euro
to US Dollars at a rate of 0.8444 Euros/US Dollar, which was the exchange
rate as of December 31, 2005.
(B) - As of December 31, 2005, NeoMedia's $0.01 par value common stock consists
of 1,000,000,000 authorized shares, 475,387,910 historical shares and
622,974,117 pro forma shares issued; and 467,601,717 historical shares and
615,187,924 pro forma shares outstanding
(C) - Adjustment for stock and cash issued to acquire Mobot, Gavitec, 12Snap,
and Sponge assuming acquisitions occurred as of December 31, 2005.
Adjustment includes the elimination of $1,475 common stock and $41,325
paid-in capital of the subsidiaries. The purchase price for each
acquisition was calculated as follows:
MOBOT SPONGE GAVITEC 12SNAP
----- ------ ------- ------
Pro forma number of shares of NeoMedia to be treated
as purchase price consideration 22,413,793 39,310,345 18,620,690 67,241,379
x NeoMedia closing stock price around December 31, 2005
(measurement date) $ 0.290 $ 0.290 $ 0.290 $ 0.290
--------------------------------------------------------
Total stock consideration $ 6,500,000 $11,400,000 $ 5,400,000 $19,500,000
Plus cash consideration $ 3,500,000 $ 6,141,000 $ 1,800,000 $ 2,500,000
--------------------------------------------------------
Pro forma purchase price $10,000,000 $17,541,000 $ 7,200,000 $22,000,000
========================================================
In accordance with SFAS 141 and EITF 99-12, for the purposes of this
unaudited pro forma balance sheet, the fair value of the stock to be
issued as purchase price consideration is assumed to be $0.29 per share,
which was the average closing price of NeoMedia common stock for the three
days up to and including December 31, 2005 (the measurement date). There
are no additional options, warrants, or other stock-based consideration
expected to be issued as part of the purchase price for either
acquisition. Each of the above transactions was completed in the first
quarter of 2006. The actual number of shares issued as stock consideration
is shown in the following table:
MOBOT GAVITEC 12SNAP SPONGE
----- ------- ------ ------
Actual Shares Issued as Stock Consideration 16,931,493 13,660,511 49,294,581 33,097,135
30
Based on NeoMedia's stock price around the measurement date of December
31, 2005, and the balance sheets of NeoMedia, Mobot, Gavitec, 12Snap, and
Sponge as of December 31, 2005, the pro forma purchase price for each
acquisition would be allocated as follows:
(in thousands of US dollars,
except share amounts)
MOBOT SPONGE GAVITEC 12SNAP
PURCHASE PRICE CONSIDERATION
Cash $ 3,500 $ 6,141 $ 1,800 $ 2,500
Pro forma number of shares of NeoMedia common stock issued 22,413,793 39,310,345 18,620,690 67,241,379
/ NeoMedia closing stock price around December 31, 2005
(measurement date) $ 0.29 $ 0.29 $ 0.29 $ 0.29
--------------------------------------------------------
Pro forma fair value of shares issued as purchase price $ 6,500 $ 11,400 $ 5,400 $ 19,500
consideration
Purchase-related costs 8 73 26 113
Other purchase consideration 1,500 -- -- --
--------------------------------------------------------
Total fair value expected to be treated as purchase price
consideration $ 11,508 $ 17,614 $ 7,226 $ 22,113
========================================================
ASSETS PURCHASED
Cash and cash equivalents $ 909 $ 439 $ 95 $ 1,341
Investment in marketable securities -- -- -- 52
Trade accounts receivable, net 78 223 172 2,117
Inventory -- -- 182 --
Prepaid expenses and other current assets 8 314 64 751
Property and equipment, net 22 48 17 224
Customer contracts and relationships (i)(ii) 400 400 -- 400
Capitalized software platform (i)(iii) 5,000 1,300 5,600 4,400
Other intangible assets (i)(iv) 220 550 554 1,548
Goodwill (i)(v) 5,599 15,172 1,115 20,140
--------------------------------------------------------
12,236 18,446 7,798 30,973
--------------------------------------------------------
LIABILITIES ASSUMED
Accounts payable 344 298 160 775
Accrued expenses 148 266 50 2,153
Taxes payable -- 90 -- --
Deferred revenues and other current liabilities 236 73 362 1,780
Notes payable -- -- -- 4,145
Long-term debt -- 105 -- 7
--------------------------------------------------------
728 832 572 8,860
--------------------------------------------------------
(i) - For purposes of these unaudited pro forma financial
statements, the excess of fair value of consideration paid
over net book value for Mobot, Gavitec, 12Snap, and Sponge is
allocated to the following intangible asset categories:
customer contracts and relationships, capitalized software
platform, other intangible assets, and goodwill. The
allocation is made based on NeoMedia management's judgment and
best estimate of the value of each category for each business.
As of this filing, NeoMedia has not completed an independent
valuation of such intangible assets. NeoMedia is in the
process of performing an independent valuation of the
intangible assets, and a final allocation of the purchase
price of each entity will be made based on the results of such
valuation, to be completed no more than one year from closing.
It is important to note that the final independent valuation,
could vary materially from the pro forma allocation presented
above. NeoMedia expects to obtain the final independent
valuation, currently in process, prior to the filing of the
2nd quarter Form 10 Q in August 2006.
(ii) - Customer contracts and relationships consist of the
customers of each business that are under contract, as well as
prospects identified for potential future business, the fair
value of which is calculated as the discounted after-tax
expected earnings from current and identified customers.
NeoMedia expects to assign an amortization period of 5 years
to this class of assets.
(iii) - Capitalized software platforms consist of proprietary
software systems acquired. NeoMedia expects to assign an
amortization period of 7 years to this class of assets.
(iv) - Other intangible assets consist of brand names and other
proprietary copyrighted materials. NeoMedia expects to assign
an amortization period of 7-10 years to this class of assets.
(v) - The remaining excess of purchase price paid over fair value
of assets and liabilities assumed is allocated to goodwill,
and as such, is not assigned a depreciable life. Goodwill will
be tested for impairment as defined by Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets.
31
PRO-FORMA ADJUSTMENTS (CONT'D)
(D) - Adjustment to eliminate acquisition-related costs paid by NeoMedia in
2005 that are included in the purchase price allocation
(E) - Adjustment to eliminate note payable from Mobot to NeoMedia that was
forgiven at closing.
(F) - Adjustment to eliminate Mobot convertible debentures that were converted
prior to closing. As a result, the above unaudited condensed consolidated
pro forma balance sheet is shown assuming the debentures are converted
prior to the pro forma closing date.
(G) - Negative cash balance is shown for pro forma purposes only. During
February 2006, NeoMedia obtained $27 million gross financing in the form of
a convertible preferred stock sale, a portion of the proceeds of which were
used to acquire Mobot, Gavitec, 12Snap, and Sponge.
32
NEOMEDIA TECHNOLOGIES, INC.
UNAUDITED PRO-FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2005
(In thousands of US Dollars, except per share data)
PRO PRO
FORMA FORMA
(A) (A) (A) (A) (A) ADJUST- CONSOL-
NEOMEDIA MOBOT SPONGE GAVITEC 12SNAP MENTS IDATED
----------- ---------- ---------- ---------- ---------- ---------- -----------
NET SALES: * * (unaudited)** * * (unaudited) (unaudited)
License fees $ 523 -- -- -- -- -- $ 523
Resale of software and
technology equipment and
service fees 354 -- -- -- -- -- 354
Micro paint revenue 1,279 -- -- -- -- -- 1,279
Technology product and service
revenue -- 300 4,666 772 7,396 -- 13,134
-------------------------------------------------------- -------- --------
Total net sales 2,156 300 4,666 772 7,396 -- 15,290
-------------------------------------------------------- -------- --------
COST OF SALES:
License fees 453 -- -- -- -- -- 453
Resale of software and
technology equipment and
service fees 206 -- -- -- -- -- 206
Micro paint direct cost of revenue 913 -- -- -- -- -- 913
Technology product and service
revenue -- 3,714 722 -- 2,329 (B) 6,765
-------------------------------------------------------- -------- --------
Total cost of sales 1,572 -- 3,714 722 -- 2,329 8,337
-------------------------------------------------------- -------- --------
GROSS PROFIT 584 300 952 50 7,396 (2,329) 6,953
Selling, general and
administrative expenses 7,561 1,180 796 972 7,147 650 (B) 18,306
Impairment charge 335 -- -- -- -- -- 335
Research and development costs 934 552 -- 503 1,515 -- 3,504
-------------------------------------------------------- -------- --------
Income (loss) from operations (8,246) (1,432) 156 (1,425) (1,266) (2,979) (15,192)
Loss on extinguishment of debt, net 172 -- -- -- -- -- 172
Other income (loss) -- -- 57 296 230 -- 583
Impairment charge on investments (780) -- -- -- -- -- (780)
Interest income (expense), net (293) (42) 18 -- (515) -- (832)
-------------------------------------------------------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES (9,147) (1,474) 231 (1,129) (1,551) (2,979) (16,049)
Provision for income taxes -- -- (60) -- -- -- --
-------------------------------------------------------- -------- --------
NET INCOME (LOSS) (9,147) (1,474) 171 (1,129) (1,551) (2,979) (16,049)
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized loss on marketable
securities (146) -- -- -- -- -- (146)
Foreign currency translation
adjustment 29 -- -- -- -- -- 29
-------------------------------------------------------- -------- --------
COMPREHENSIVE INCOME (LOSS) ($ 9,264) ($ 1,474) $ 171 ($ 1,129) ($ 1,551) ($ 2,979) ($16,166)
======================================================== ======== ========
NET INCOME (LOSS) PER
SHARE--BASIC AND DILUTED ($0.02) ($0.03)
======== =======
COMPREHENSIVE INCOME (LOSS)
PER SHARE--BASIC AND DILUTED ($0.02) ($0.03)
========= =======
Weighted average number
of common shares-basic and diluted 451,857,851 163,984,674 (C) 615,842,525
======================================================= =========== ===========
* - Derived from audited financial statements
** - Sponge fiscal year end is September 30. Results shown are for the year
ended December 31, 2005, compiled from Sponge's audited financial statements for
the year ended September 30, 2005 and interim financial statements for the three
months ended December 31, 2005 and 2004.
33
PRO-FORMA ADJUSTMENTS
(A) - All results shown are for the year ended December 31, 2005. For pro forma
presentation purposes, Gavitec and 12Snap results are converted from Euro
to US Dollars at a rate of 0.80844 Euro/US Dollar, which was the average
exchange rate for the period January 1, 2005 - December 31, 2005.
(B) - Adjustment to reflect amortization of acquired intangible assets for the
year ended December 31, 2005, as if the acquisitions had occurred on
January 1, 2005. It is important to note that the actual allocation and
estimated useful lives of intangible assets acquired that will be adopted
based on an independent valuation could vary from the estimates presented
herein (see note C(i) to the pro forma balance sheet for a discussion on
useful lives). Such a difference could cause a material difference between
the actual periodic amortization charges that NeoMedia will record in its
statement of operations, and the amortization amount shown above. Estimated
useful lives are based on management's best estimate of the purchase price
allocation, and will not be finalized until the results of an independent
valuation are received.
(C) - Adjustment for shares that would have been issued in connection with
acquisitions if they had occurred on January 1, 2005, calculated as
follows:
MOBOT SPONGE GAVITEC 12SNAP TOTAL
---------- ---------- ---------- ----------- ----------
NeoMedia stock price around January 1, 2005 (measurement $0.261 $0.261 $0.261 $0.261
date)
Total stock consideration $6,500,000 $11,400,000 $5,400,000 $19,500,000 $42,800,000
---------- ---------- ---------- ----------- ----------
Pro forma number of shares of NeoMedia to be treated
as purchase price consideration 24,904,215 43,678,161 20,689,655 74,712,644 163,984,674
========== ========== ========== =========== ==========
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NeoMedia Technologies, Inc.
-------------------------------------
(Registrant)
Date: May 9, 2006 By: /s/ Charles T. Jensen
----------- ---------------------------------
Charles T. Jensen, President,
Chief Executive Officer and Director
35
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
23.1 Consent of Brebner Allen & Trapp, Independent Auditors of
Sponge Ltd.
36