As filed with the Securities and Exchange Commission on December 8, 2006
SEC Registration No. 333-137227
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Delaware NEOMEDIA TECHNOLOGIES, INC. 36-3680347
(State or other jurisdiction of (Name of issuer in (I.R.S. Employer
incorporation or organization) its charter) 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 (Primary Standard Industrial (Name, address, and telephone
number of Registrant's Classification Code Number) number of agent for service)
principal 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(2)
---------------------------------------- ------------- --------- -------------- ------------
Shares underlying Series C Convertible
Preferred Stock, convertible into Common
Shares, par value $0.01 per share 335,000,000 $0.060 $20,100,000.00 $2,365.77
Shares underlying Secured Convertible
Debentures, convertible into Common
Shares, par value $0.01 per share 76,277,650 $0.060 $ 4,576,659.00 $ 538.67
Common Stock, par value $0.01 per share 68,188,883 $0.060 $ 4,091,332.98 $ 481.55
Shares underlying warrants to purchase
Common Stock, par value $0.01 per share 274,150,000 $0.060 $16,449,000.00 $1,936.05
----------- -------------- ---------
TOTALS 753,616,533 $45,216,991.98 $5,322.04
----------- -------------- ---------
(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 $0.06 per share as reported in the Over-the-Counter
Bulletin Board on December 6, 2006.
(2) Registration fee was paid previously.
THE REGISTRANT HEREBY AMENDS THIS REGISTRAITON STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRAITON STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
2
Subject to Completion or Amendment
Dated _______ __, 2006
753,616,533 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
68,188,883 Shares of Common Stock
274,150,000 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 November 24, 2006 was $0.063 per 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......................................... 3
RISK FACTORS............................................................. 4
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS............... 15
USE OF PROCEEDS.......................................................... 16
DILUTION................................................................. 17
SELLING STOCKHOLDERS..................................................... 18
PLAN OF DISTRIBUTION..................................................... 28
DESCRIPTION OF SECURITIES................................................ 29
EXPERTS.................................................................. 33
MATERIAL CHANGES......................................................... 34
WHERE YOU CAN FIND MORE INFORMATION...................................... 37
INFORMATION WE INCORPORATE BY REFERENCE.................................. 38
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
i
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 753,616,533 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 274,150,000
Shares of common stock previously issued for the following purposes:
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 68,188,883
---------- -----------
Total shares being registered hereunder 753,616,533
===========
Series C Convertible Preferred Stock
On February 17, 2006, we sold to Cornell Capital Partners 8%
cumulative Series C convertible perefrered stock with a face value of
$22,000,000. At any time until February 17, 2009, the holders have the right to
convert the preferred stock, in whole or in part, into NeoMedia common stock of
at the then effective conversion price, which varies relative to the trading
stock price, as follows: $0.50 per share, or 97% of the lowest closing bid price
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.
In connection with the Series C convertible perefrered stock, we
issued to Cornell Capital Partners warrants to purchase shares of our common
stock as follows: 20,000,000 warrants with an exercise price of $0.50 per share,
25,000,000 warrants with an exercise price of $0.40 per share, and 30,000,000
warrants with an exercise price of $0.35 per share. The exercise prices of these
warrants were subsequently repriced to $0.10, $0.15, and $0.10, respectively, in
connection with a convertible debenture financing in August 2006.
The fair value of net proceeds received by NeoMedia in the
transaction was $17,854,000, and the balance of $4,146,000 was afforded to the
Purchasers as a discount. The discount afforded to the Purchasers, including the
fair value of warrants granted, is substantial and could have a negative afffect
on current and future stockholders due to additional dilution shareholders may
experience if and when the Purchasers exercise such warrants.
Convertible Debentures
On August 24, 2006, we sold to Cornell Capital Partners 10% secured
convertible debentures maturing two years from the date of issuance with a face
value of $5,000,000. At any time until August 24, 2008, the holders have the
right to convert the secured convertible debentures, in whole or in part, into
NeoMedia common stock at the then effective conversion price, which varies
relative to the trading stock price, as follows: $0.15 per share, or 90% of the
lowest closing bid price 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 debentures are secured by substantially all of the Company's
assets.
In connection with the secured convertible debentures, we issued to
Cornell warrants to purchase shares of our common stock as follows: 50,000,000
warrants with an exercise price of $0.05 per share, 25,000,000 warrants with an
exercise price of $0.15 per share, 50,000,000 warrants with an exercise price of
$0.20 per share, and 50,000,000 warrants with an exercise price of $0.25 per
share. In addition, NeoMedia repriced warrants perviously isseud to Cornell as
follows: 10,000,000 warrants were repriced from $0.20 to $0.10, 20,000,000
warrants were repriced from $0.50 to $0.10, 25,000,000 warrants were repriced
from $0.40 to $0.15, and 30,000,000 warrants were repriced from $0.30 to $0.10.
1
Acquisition Consideration Shares
During February and March 2006, NeoMedia completed the acquisitions
of Gavitec and 12Snap. The aggregate purchase price for Gavitec was $7,187,000,
consisting of $1,800,000 cash, $114,000 acquisition-related costs, and
$5,273,000 fair value of 13,660,511 shares issued as consideration. The
aggregate purchase price for 12Snap was $22,036,000, consisting of $2,500,000
cash, $114,000 acquisition-related costs, and $19,422,000 fair value of
49,294,581 shares issued as consideration. Pursuant to the terms of the sale and
purchase agreements with each company, 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 merger agreement ($0.389 per share with respect to Gavitec and $0.3956 per
share with respect to 12Snap), 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 and through November
24, 2006, NeoMedia's stock has closed as low as $0.06 per share. Assuming a
stock price at the time the shares become saleable of $0.063, which was the last
sale price on November 24, 2006, NeoMedia would have a cash liability of $20.9
million resulting from these clauses. During November and December 2006,
NeoMedia eliminated similar obligations to Sponge Limited and Mobot, Inc., both
of which were also acquired during the first quarter of 2006, through the
divestiture of each business.
It is important to note that of the 753,616,533 shares being
registered, 671,277,650, or 89%, are being registered on behalf of one
shareholder, Cornell Capital Partners.
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.
2
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 two business units:
o NeoMedia Mobile (NMM) - encompassing NeoMedia's
physical-world-to-internet and mobile marketing technologies
branded under qode(R), 12Snap AG, and Gavitec AG
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, and Gavitec AG - mobile digit
(www.gavitec.com), a Wurselen, Germany-based leading provider of mobile
technology and marketing solutions.
During the fourth quarter of 2006, NeoMedia divested of the majority
of its ownership of Sponge Limited of London, and Mobot, Inc. of Lexington,
Massachusetts, both of which were acquired in February 2006.
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.
NeoMedia Micro Paint Repair
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 of New York City. The letter of intent called for
completion of the transaction on or before November 24, 2006. The
transaction has not been completed as of the date hereof.
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 loss for the nine months ended September 30, 2006, was $27,094,000
(unaudited), which includes a $6,523,000 gain from the change in fair value from
revaluation of warrants and embedded conversion features associated with the
preferred stock and convertible debenture financing and a $13,256,000 charge to
write off deferred equity financing costs associated with the 2005 SEDA.
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 $119,618,000 (unaudited) and $92,524,000 as of September 30,
2006 and December 31, 2005, respectively. As of September 30, 2006 and December
31, 2005 and 2004, NeoMedia had a working capital deficit of approximately
$30,222,000, $4,874,000 and $2,597,000, respectively. NeoMedia had stockholders'
equity of $40,854,000 (unaudited), $4,227,000 and $4,392,000 (unaudited) as of
September 30, 2006 and December 31, 2005 and 2004, respectively. NeoMedia
generated revenues of $14,129,000 (unaudited), $762,000 (unaudited), $2,156,000
and $1,700,000 for the nine months ended September 30, 2006 and 2005 and the
years ended December 31, 2005 and 2004, respectively. In addition, during the
nine months ended September 30, 2006 and 2005 and the years ended December 31,
2005 and 2004, NeoMedia recorded negative cash flows from continuing operations
of $8,381,000 (unaudited), $4,323,000 (unaudited), $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 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 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 merger agreement ($0.389 per
share with respect to Gavitec and $0.3956 per share with respect to 12Snap),
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 and through November 24, 2006, NeoMedia's stock has
closed as low as $0.06 per share. Assuming a stock price at the time the shares
become saleable of $0.063, which was the last sale price on November 24, 2006,
NeoMedia would have a cash liability of $20.9 million resulting from these
clauses. As a result, NeoMedia is attempting to negotiate for payment of the
purchase price guarantees in another non-cash form, including additional shares
of common stock. There is no guarantee that NeoMedia will be successful in
negotiating such an agreement with any or all of the parties involved.
4
All Of The Company's Assets Are Pledged To Secure Certain Debt Obligations,
Which The Company Could Fail To Repay
Pursuant to secured convertible debentures, dated as of August 24,
2006 in the principal amount of $5,000,000 issued to Cornell Capital Partners,
LP, the Company was required to secure such secured convertible debentures'
repayment with substantially all of its assets. In the event the Company is
unable to repay the secured convertible debentures, it could lose all of its
assets and be forced to cease its operations. If the Company is found to be in
default under the debentures, the full principal amount of the debentures,
together with interest and other amounts owing, may become immediately due and
payable.
NeoMedia Has Contractual Commitments To Pay Silent Partners
Resulting from the acquisition of 12 Snap, NeoMedia has a commitment
to pay approximately $2.1 million plus accrued interest and penalties of
approximately $0.4 million, at the end of 2006 to the Silent Partners of 12Snap.
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.
NeoMedia Could Identify Material Internal Control Weaknesses As Part Of Its
Sarbanes-Oxley Internal Control Review For Its Fiscal Year Ended December 31,
2006,
The regulations implementing Section 404 of the Sarbanes-Oxley Act
of 2002 require an assessment of the effectiveness of the Company's internal
controls over financial reporting beginning with our Annual Report on Form 10-K
for the fiscal year ending December 31, 2006. The Company's independent auditors
will be required to confirm in writing whether management's assessment of the
effectiveness of the internal controls over financial reporting is fairly stated
in all material respects, and separately report on whether they believe
management maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2006. As part of the assessment of our
internal controls in connection with the process required by Section 404 of the
Sarbanes-Oxley Act of 2002, management intends to continue to review, evaluate
and strengthen our controls and processes. Management cannot state that material
weaknesses in internal controls will not be determined. Management also cannot
state that the process of evaluation and the auditor's attestation will be
completed on time. If a material weakness is discovered, corrective action may
be time consuming, costly and further divert the attention of management. The
disclosure of a material weakness, even if quickly remedied, could reduce the
market's confidence in the Company's financial statements and harm the Company's
stock price, especially if a restatement of financial statements for past
periods is required.
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 had limited sales of its
physical-world-to-Internet products. 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.
5
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.
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.
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:
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 to Common Stock, Convert Outstanding
Convertible Debentures, Or When the Investors Exercise Their Warrants and
Receive Common Stock Shares 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 the conversion of convertible debentures
pursuant to our transactions with Cornell Capital Partners 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
the convertible debentures. 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 three months ended March 31, 2006, June 30, 2006, and
September 30, 2006, NeoMedia recognized income (expense) in the amount of
$4,768,000, $11,026,000, and ($9,271,000), respectively, from adjustments
recorded to reflect the change in fair value from revaluation of warrants and
embedded conversion features in connection with its Series C convertible
preferred shares and its convertible debenture. NeoMedia will adjust the
carrying value of its 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 from such charges based on corresponding
movement in NeoMedia's share price.
6
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.
A Large Percentage Of NeoMedia's Assets Are Intangible Assets, Which Will Have
Little Or No Value If NeoMedia's Operations Are Unsuccessful
At September 30, 2006 and December 31, 2005 and 2004, approximately
81%, 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
the ability of NeoMedia's stockholders to recoup their investments in NeoMedia's
capital stock.
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
To date, NeoMedia has conducted limited marketing efforts directly
relating to its emerging technology products, consisting primarily of the Qode
suite of products, and certain products of recent acquisition of 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. To the extent funding is available, 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.
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.
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.
7
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.
NeoMedia May Be Unsuccessful In Integrating Its Recently Completed and Pending
Acquisitions With Its Current Business
The success of the acquisitions of 12Snap, 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.
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.
8
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.
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. 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. 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.
NeoMedia's success will depend, in part, on its ability to:
o enhance and improve the responsiveness and functionality of
its products and services;
10
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 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.
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. 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. 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. Moreover, the relevant governmental
authorities have not resolved the applicability to the Internet, the Web and
other online services of existing laws in various jurisdictions governing issues
such as property ownership and personal privacy and it may take time to resolve
these issues definitively.
Certain of 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.
11
Risks Specific To This Offering
As of November 24, 2006, we had 630,296,966 shares of common stock
outstanding, and options and warrants to purchase up to an aggregate 390,376,761
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) 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) 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;
12
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 November 24, 2006. Since February 9, 2006,
NeoMedia's stock has been subject to dramatic price volatility. Between February
9, 2006 and November 24, 2006, NeoMedia's stock has traded as low as $0.06 per
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.
You May Suffer Significant Additional Dilution If Outstanding Options And
Warrants Are Exercised
As of November 24, 2006, we had outstanding stock options and
warrants to purchase 390,376,761 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.
13
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 (4)
-------------------------------------------------------------
$0.050 $0.100 $0.250 $0.500
------------- ------------- ------------- -------------
Shares of common stock outstanding as of November 24, 2006 630,296,966 630,296,966 630,296,966 630,296,966
Plus pro forma common shares issued upon:
Conversion of outstanding options and warrants (1) 390,376,761 390,376,761 390,376,761 390,376,761
Conversion of convertible preferred shares (2) 484,806,722 242,403,361 96,961,344 48,480,672
Conversion of convertible debentures (3) 113,888,889 56,944,444 34,166,667 34,166,667
------------- ------------- ------------- -------------
Pro forma shares outstanding after all transactions 1,619,369,338 1,320,021,532 1,151,801,738 1,103,321,066
============= ============= ============= =============
(1) Outstanding options and warrants include 260 million warrants held
by Cornell Capital Partners that were issued in connection with the
Series C convertible preferred stock and convertible debenture
financings. 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) Convertible preferred shares convert into common shares at 97% of
the lowest closing bid price for the 30-day period prior to
conversion.
(3) Convertible debenture shares convert into common shares at 90% of
the lowest closing bid price for the 30-day period prior to
conversion.
(4) 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 November 24, 2006 was $0.063. 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 630,296,966 shares of common stock outstanding as of November 24, 2006,
are, or upon effectiveness of this registration statement will be, freely
tradable without restriction, unless held by our "affiliates."
14
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.
15
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)
------ ---------- -------- ----------- ------------
William E. Fritz 2,500,000 $0.010 $ 25,000 $ 25,000
William E. Fritz 40,000 $0.030 1,200 1,200
Charles W. Fritz 10,000 $0.030 300 300
Cornell Capital Partners 50,000,000 $0.050 2,500,000 2,500,000
Charles W. Fritz 1,500,000 $0.050 75,000 75,000
Cornell Capital Partners 60,000,000 $0.100 6,000,000 --
David Kaminer 100,000 $0.102 10,200 --
Thornhill Capital 4,000,000 $0.110 440,000 --
Cornell Capital Partners 50,000,000 $0.150 7,500,000 --
Cornell Capital Partners 50,000,000 $0.200 10,000,000 --
Thornhill Capital 4,000,000 $0.227 908,000 --
Cornell Capital Partners 50,000,000 $0.250 12,500,000 --
Thornhill Capital 2,000,000 $0.328 656,000 --
----------- ----------
Gross proceeds $40,615,700 $2,601,500
Less: estimated offering expenses (50,000) (50,000)
----------- ----------
Net Proceeds $40,565,700 $2,551,500
=========== ==========
(1) A significant portion of the potential proceeds relate to
warrants that were not in-the-money based on a stock price of $0.063,
which was the last sale price on November 24, 2006. As a result, for
informational purposes we have shown the total proceeds from warrants that
were in-the-money as of November 24, 2006.
It is important to note that the warrants held by Cornell Capital Partners
contain a provision that, if at the time of exercise, the shares underlying the
warrant are not subject to an effective registration statement or if NeoMedia is
in default of the warrant agreement, the holder can perform a "cashless"
exercise of the warrants and in lieu of making payment of the exercise price in
cash, elect instead withhold shares as consideration for the exercise price. In
the event of such a "cashless" exercise, NeoMedia would not receive any cash
proceeds upon the exercise of such warrants.
NeoMedia expects to use any proceeds from 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 12Snap and Gavitec and
the silent partner agreements of 12Snap.
16
DILUTION
NeoMedia's net tangible book value as of September 30, 2006 was
$(6,280,000) or $(0.0096) 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 $0.10 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 $0.10 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 September 30, 2006 would
have been ($725,000) or ($0.0007) per share. Such an offering would represent an
immediate increase in net tangible book value to existing stockholders of
$0.0089 per share and an immediate dilution to new stockholders of $0.1007 per
share. The following table illustrates the per share dilution:
Assumed public offering price per share $0.1000
Net tangible book value per share before this offering ($0.0096)
Increase attributable to new investors $0.0089
--------
Net tangible book value per share after this offering ($0.0007)
Dilution per share to new stockholders $0.1007
--------
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
-------- ---------------- -------------
$0.20 318,589,099 $0.1864
$0.15 306,389,786 $0.1440
$0.10 336,409,680 $0.1007
$0.05 567,269,358 $0.0526
----------
(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.
17
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 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 12 Snap
AG, a wholly owned subsidiary of 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.
18
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 31,451,819(2) 4.99% 671,277,650 *
GZ Paul Partners BV 5,083,002(3)(4) * 5,083,002 --
Julicher Kapital Beteiligungsgesellschaft mbH 557,989(3)(5) * 557,989 --
Jorg Kuchen 4,131,566(3) * 4,131,566 --
Richard Rolf Reuter 1,245,814(3) * 1,245,814 --
Ralph Schraven 1,073,030(3) * 1,033,030 *
Franz-Josef Titz 1,043,245(3) * 1,043,245 --
Christian Steinborn 499,170(3) * 399,170 *
Laurens Nunnink 166,695(3) * 166,695 --
Apax Europe IV - A L.P. 10,597,166(6)(7) 1.68% 10,597,166 --
Argo II, L.P. 10,108,589(6)(8) 1.60% 10,108,589 --
ARGO II The Wireless Internet Fund (Europe) L.P. 360,704(6)(8) * 360,704 --
ARGC IV, L.P. 105,751(6)(8) * 105,751 --
Nokia Ventures, L.P. 5,885,865(6)(9) * 5,885,865 --
Sirios Capital Partners, L.P. 191,552(6)(10) * 191,552 --
Sirios Capital Partners II, L.P. 1,083,443(6)(10) * 1,083,443 --
Sirios Overseas Fund Ltd. 1,686,862(6)(10) * 1,686,862 --
Sirios/QP Partners L.P. 4,440,671(6)(10) * 4,440,671 --
BCAP AG 2,115,008(6)(11) * 2,115,008 --
CDB Web Tech International L.P. 2,115,008(6)(12) * 2,115,008 --
Bernd M. Michael 2,525,818(6) * 2,525,818 --
Dr. Michael Birkel 3,020,156(6) * 2,720,156 *
Bernd Muhlfriedel 2,804,883(6) * 2,504,883 *
Cyriac Roeding 742,981(6) * 742,981 --
Alexander Brand 362,126(6) * 362,126 --
Andreas Muller 362,126(6) * 362,126 --
Moritz Winter 1,459,495(6) * 1,385,872 *
Thornhill Capital LLC 10,800,000(13) 1.69% 10,000,000 *
Guy Fietz 8,554,195(14) 1.35% 1,512,093 *
Wayside Solutions 3,721,698(15) * 3,721,698 --
Charles W. Fritz 31,150,766(16) 4.78% 1,510,000 2.22%
William E. Fritz 53,150,944(17) 8.35% 2,540,000 3.84%
David Kaminer 100,000(18) * 100,000 --
----------- ----- ----------- ----
TOTAL 202,698,136 31.88% 753,616,533 7.43%
=========== ===== =========== ====
----------
* Indicates less than 1%.
(1) Applicable percentage of ownership is based on 630,296,966 shares of
common stock outstanding as of November 24, 2006, together with securities
exercisable or convertible into shares of common stock within 60 days of
November 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 November 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) $5,000,000
face value secured convertible debenture that is convertible into shares
of NeoMedia common stock at the lesser of 90% of the lowest closing bid
price for the 30 trading days immediately prior to conversion, or $0.15;
(iii) warrants to purchase up to 50,000,000 shares of NeoMedia common
stock at an exercise price of $0.05 per share; (iv) warrants to purchase
up to 60,000,000 shares of NeoMedia common stock at an exercise price of
$0.10 per share; (v) warrants to purchase up to 50,000,000 shares of
NeoMedia common stock at an exercise price of $0.15 per share, (vi)
warrants to purchase up to 50,000,000 shares of NeoMedia common stock at
an exercise price of $0.20 per share, and (vii) 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, the convertible
debenture, 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, 76,277,650 shares underlying the secured convertible
debenture, and 260,000,000 shares underlying warrants held by Cornell
Capital Partners.
19
(3) Shares owned before offering consist of (i) 13,660,511 shares issued in
connection with the acquisition of Gavitec AG in February 2006, which are
being registered hereunder, and (ii) 140,000 shares underlying currently
exercisable options held by former Gavitec shareholders who are currently
employees of NeoMedia, which are not being registered hereunder.
(4) 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.
(5) Dispositive control over the shares held by Julicher Kapital
Beteiligungsgesellschaft mbH rests with Dr. Michael Gramm.
(6) Shares owned before offering consist of (i) 49,294,581 shares issued in
connection with the acquisition of 12Snap AG in February 2006, which are
being registered hereunder, and (ii) 673,623 shares underlying currently
exercisable options held by former 12Snap shareholders who are currently
employees of NeoMedia, which are not being registered hereunder.
(7) 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.
(8) 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.
(9) 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.
(10) Dispositive control of the shares rests with John F. Brennan, Jr. in his
capapcity as CFO of Sirios Capital Management.
(11) 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.
(12) 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.
(13) Shares owned before offering consist of (i) 10,000,000 shares underlying
warrants to purchase shares of common stock granted between 2003 and 2006,
all of which are being registered hereunder, and (ii) 800,000 shares held
in teh name of Thornhill Capital that are not being registered hereunder.
(14) 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 BSD, a wholly owned subsidiary of NeoMedia, which are not being
registered hereunder, and (ii) 2,542,102 previously registered shares
issued in connection with the acquisition of BSD Software by NeoMedia in
March 2006 and through NeoMedia's 2003 Stock Incentive Plan, which are not
being registered hereunder.
(15) Shares owned before offering consist of 3,721,698 shares issued to satisfy
debt to Wayside Solutions, which are being registered hereunder.
(16) 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 (16,000,000 of which are tradable within 60 days of November 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. Shares being registered hereunder include only the 1,510,000
shares issuable upon exercise of stock warrants.
(17) 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.
Shares being registered hereunder include only the 2,540,000 shares
issuable upon exercise of stock warrants.
(18) Shares owned before offering consist of 100,000 shares underlying warrants
issued in exchange for professional services rendered to NeoMedia, all of
which are being registered hereunder.
20
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 "Series C Agreement") with Cornell Capital Partners LP, an accredited
investor (the "Purchasers"). Pursuant to the Series C Agreement, the Purchasers
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 $22,000,000, consisting of cash of $14,066,000, marketable securities
with a purchase value of $2,000,000, commitment and structuring fees paid to the
Purchaser in the amount of $2,725,000, and the extinguishment of $3,209,000 of
preexisting indebtedness owed by us to the Purchasers. The marketable securities
received consisted of 20,000,000 shares of common stock of Pickups Plus, Inc.
("PUPS") and various promissory notes payable by PUPS to the holder with a face
value of $1,365,000. The aggregate fair value of the PUPS common shares and
notes was determined to be $579,000 as of February 17, 2006. NeoMedia was
previously party to a non-binding letter of intent to acquire a subsidiary of
PUPS for a combination of cash and stock. NeoMedia's Micro Paint Repair business
unit (currently subject to a pending sale) also acts as a distributor for
certain of PUPS' products in China.
The Series C Agreement also provided for the issuance to the
Purchasers, at no additional cost to the purchasers, warrants to purchase shares
of our common stock. The Series C Agreement also called for the purchasers to
acquire an additional $5,000,000 of Series C convertible preferred stock on the
date a registration statement filed by us was declared effective by the U.S.
Securities and Exchange Commission. The requirement to fund this additional
$5,000,000 was subsequently waived in connection with a secured convertible
debenture entered into between us and the purchaser in August 2006.
In connection with the Series C Agreement, we also entered into a
registration rights agreement with the Purchasers that requires us 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 by December 1, 2006, and (iii) maintain
effectiveness of the registration statement. Failure to meet these requirements
will require us to incur liquidating damages amounting to 1% of the outstanding
amount of Series C preferred stock per month, but in no event shall
consideration paid as liquidating damages exceed $1,200,000.
On February 17, 2006, we issued the Purchasers $22,000,000 in
aggregate amount of such 8% cumulative Series C convertible preferred stock. At
any time from the closing date until February 17, 2009, the Purchasers have the
right to convert the preferred stock, in whole or in part, into our common stock
at the then effective conversion price, which varies relative to our trading
stock price, as follows: $0.50 per share, or 97% of the lowest closing bid price
(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 Series C convertible preferred stock, at the option of the
holder, affords the Purchasers anti-dilution protection should, at any time
while the Series C preferred stock instruments are outstanding, we offer, sell
or grant any option to purchase or offer, sell or grant any right to re-price
its securities, or otherwise dispose of or issue any common stock or common
stock equivalents, entitle 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 convertible
preferred stock shares shall be reduced to the lower price. In case of any such
adjustment in the effective conversion price for the convertible preferred
shares, this could significantly dilute existing investors.
Under the Series C Agreement, the Purchasers also received "A"
warrants, "B" warrants and "C" warrants to purchase 20,000,000, 25,000,000, and
30,000,000 shares of our common stock, respectively, exercisable in three
separate traunches at a price of $0.50, $0.40 and $0.35, respectively, per
share, subject to adjustment, included under anti-dilution protection similar to
that described above. As an inducement to enter into subsequent financing
arrangements related to Cornell Debentures, the warrants were repriced on August
24, 2006 to $0.10, $0.15, and $0.10, respectively, subject to all the original
terms and conditions of the respective warrant agreements. The warrants have a
five-year contractual life. 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. All 75,000,000 of
these warrants are being registered for resale hereunder. It is important to
note that the warrants held by Cornell Capital Partners contain a provision
that, if at the time of exercise, the shares underlying the warrant are not
subject to an effective registration statement or if NeoMedia is in default of
the warrant agreement, the holder can perform a "cashless" exercise of the
warrants and in lieu of making payment of the exercise price in cash, elect
instead withhold shares as consideration for the exercise price. In the event of
such a "cashless" exercise, NeoMedia would not receive any cash proceeds upon
the exercise of such warrants.
21
The fair value of net proceeds received by NeoMedia in the
transaction was $17,854,000, and the balance of $4,146,000 was afforded to the
Purchasers as a discount. The discount afforded to the Purchasers, including the
fair value of warrants granted, is substantial and could have a negative effect
on current and future stockholders due to additional dilution shareholders may
experience if and when the Purchasers exercise such warrants.
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 Series C
Agreement include:
o Any case or action of bankruptcy or insolvency commenced by us
or any subsidiary, against us or adjudicated by a court
against us for the benefit of creditors;
o Any default in our obligations under a mortgage or debt in
excess of $100,000;
o Any cessation in the eligibility of our stock to be quoted on
a trading market;
o Failure to timely file the registration statement covering the
shares related to the conversion option, or failure to make
the registration statement effective timely.
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 Series C Agreement
and accompanying documents;
o Any failure to deliver certificates within the specified time;
and
o Any failure by us 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.
Other provisions included in the Series C 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 We 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 we offer, sell or grant 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;
We filed the registration statement covering the shares related to
the conversion option beyond the date stipulated in the investor registration
rights agreement. As such, we accrued $161,000 of liquidated damages relating to
the Series C convertible stock during the three months ended September 30, 2006.
22
Secured Convertible Debenture
We entered into a Securities Purchase Agreement, dated August 24,
2006, (the "Debenture Agreement") with the Purchasers. Pursuant to the Debenture
Agreement, the Purchasers agreed to purchase 10% secured convertible debentures
maturing two years from the date of issuance in the aggregate amount of
$5,000,000. The Debenture Agreement also provided for the issuance to the
Purchasers, at no additional cost to the purchasers, warrants to purchase shares
of our common stock. In connection with the Debenture Agreement, we also entered
into a registration rights agreement with the Purchasers that requires us to (i)
file a registration statement with the SEC registering the resale of the shares
of common stock issuable upon conversion of the convertible debenture and the
exercise of the warrants, (ii) achieve effectiveness within a stated period and
(iii) maintain effectiveness of the registration statement. Failure to meet
these requirements will require us to incur liquidating damages amounting to 2%
of the principal per month, but in no event shall consideration paid as
liquidating damages exceed $1,000,000. The debentures are secured by
substantially all of our assets.
On August 24, 2006, we issued the Purchasers $5,000,000 in aggregate
principal amount of such convertible debentures. At any time from the closing
date until August 24, 2008, the Purchasers have the right to convert the
convertible debenture into our common stock at the then effective conversion
price, which varies relative to our trading stock price, as follows: $0.15 per
share, or 90% of the lowest closing bid price (as reported by Bloomberg) of the
common stock for the 30 trading days immediately preceding the conversion date.
The conversion is 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 convertible debenture, at the option of the holder, affords the
Purchasers anti-dilution protection should, at any time while the convertible
debenture is outstanding, we offer, sell or grant any option to purchase or
offer, sell or grant any right to re-price its securities, or otherwise dispose
of or issue any common stock or common stock equivalents, entitle 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 convertible debenture shall be reduced to the lower
price. In case of any such adjustment in the effective conversion price for the
convertible debenture, this could significantly dilute existing investors.
Under the Debenture Agreement, the Purchasers also received "A"
warrants, "B" warrants, "C" warrants and "D" warrants to purchase an aggregate
of up to 175,000,000 shares of common stock. The warrants are exercisable in
four separate traunches at a price of $0.15, $0.25, $0.20 and $0.05 respectively
per share, subject to adjustment, included under anti-dilution protection
similar to that described above. The warrants have a five-year contractual life.
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. All 175,000,000 of these warrants are being
registered for resale hereunder.
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 $5,000,000 in the form of Series C Convertible Preferred Stock, as
contemplated by the Series C Agreement dated February 17, 2006.
23
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:
Nine Months
Ended September 30, Years Ended December 31,
---------------------- ----------------------------------------
2006 2005 2005 2004 2003
-------- ----------- ----------- ------------ -----------
Number of shares sold to Cornell 751,880 19,337,119 26,435,512 112,743,417 98,933,244
Gross Proceeds from sale of shares to Cornell $234,000 $ 7,058,000 $ 9,527,000 $ 10,123,000 $ 9,565,000
Less: discounts and fees* (24,000) (863,000) (1,022,000) (1,967,000) (6,772,000)
Net Proceeds from sale of shares to Cornell $210,000 $ 6,195,000 $ 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 entered into a Standby Equity
Distribution Agreement (the "2005 SEDA") under which Cornell 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. Based on NeoMedia's current market capitalization and other outstanding
securities, NeoMedia does not believe that the 2005 SEDA is currently a viable
source of financing.
As a commitment fee for Cornell to enter into the 2005 SEDA, NeoMedia
issued 50 million warrants to Cornell with an exercise price of $0.20 per share
for a term of three (3) years, and also paid a cash commitment fee of $1
million. During the nine months ended September 30, 2006, Cornell exercised 40
million of the warrants, generating cash proceeds of $8 million to NeoMedia.
During August 2006, in connection with the Convertible Debenture, NeoMedia
repriced the remaining 10 million warrants to an exercise price of $0.10 per
share. These remaining 10 million warrants are being registered for resale
hereunder. NeoMedia 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. NeoMedia recorded the $13,256,000 fair value of the warrants to
"Deferred equity financing costs" at inception. This amount was written off
during the three months ended September 30, 2006 because the Company believes
that it can no longer consider the SEDA a viable financing source due to the
utilization of the preferred stock financing and the debenture financing.
24
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.
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.
25
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, of which 1 million were exercised in 2004 and 9 million during 2006.
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, none of which have been exercised.
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, none of which have been exercised.
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, none of which have been
exercised.
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 $0.063, which was the last
sale price on November 24, 2006, NeoMedia would have a cash liability of $4.5
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 $0.063, which
was the last sale price on November 24, 2006, NeoMedia would have a cash
liability of $16.4 million resulting from this clause.
Prior to the acquisition of 12Snap by NeoMedia, 12Snap entered into
three silent partnership arrangements with principal borrowing amounts totaling
EUR 3,500,000 (approximately $4.2 million as of February 28, 2006, the date of
closing of the acquisition of 12Snap by NeoMedia). Silent partnerships are a
common form of investment in Germany. The purpose of a silent partnership was to
financially support the company in its efforts to research, design and develop
its product and services, while allowing the lenders not to become a legal owner
of the company and thus not become liable for the obligation of the company. The
lenders are not involved in the management of 12Snap, but significant business
decisions such as changes in the articles of incorporation, mergers and
acquisitions or significant contractual matters are subject to their approval.
26
The partnership agreements were scheduled to terminate on December
31, 2008 and 2009. However, due to the acquisition of all shares of 12Snap by
NeoMedia, an early termination has been agreed on for all silent partnership
agreements. Those silent partnerships have thus terminated as of February 28,
2006. According to the termination agreements EUR 1,750,000 (approximately $2.1
million at the time of payment in March 2006) were repaid to the silent partners
in March 2006. Another installment amounting to EUR 1,750,000 (approximately
$2.1 million as of September 30, 2006) plus interest will be due as of December
31, 2006.
In addition, one of the silent partners initiated arbitration
proceedings during 2006 claiming the amount of EUR 353,000 (approximately
$443,000 as of September 30, 2006) plus interest of 5% per annum since March 1,
2006 arising out of a change in control clause of the silent partnership
agreement. The matter was subject to German arbitration proceedings, and the
parties settled under the condition that 12Snap pay EUR 240,000 (approximately
$320,000 as of the date hereof), of which EUR 120,000 (approximately $160,000 as
of the date hereof) was due and paid by October 31, 2006 and EUR 120,000
(approximately $160,000 as of the date hereof) is due by December 31, 2006.
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.
27
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 $40,565,700
(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 $2,551,500 (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.
28
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 November 24, 2006, 630,296,966 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;
29
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
November 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;
30
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 November 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.
31
Warrants And Options
As of November 24, 2006, we had outstanding options and warrants to
purchase 116,051,761 and 274,325,000 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
were 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 September 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 10,000,000 had been forfeited
and placed back into the pool of options available for grant.
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".
32
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 Brebners, 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.
33
MATERIAL CHANGES
Separation of Mobot, Inc.
On February 17, 2006, we acquired all of the outstanding shares of
Mobot in exchange for $3,500,000 cash and 16,931,493 shares of NeoMedia common
stock, plus forgiveness of notes payable totaling $1,500,000 due from Mobot.
Pursuant to the terms of the merger agreement, the number of shares of NeoMedia
common stock that were issued as stock consideration was calculated using a
share price of $0.3839, which was the volume-weighted average closing price of
NeoMedia common stock for the ten days up to and including February 8, 2006. The
merger agreement with Mobot also contained a provision that, in the event that
our stock price at the time the consideration shares become saleable is less
than $0.3839, we would be obligated to compensate Mobot shareholders in cash for
the difference between the price at the time the shares become saleable and
$0.3839. Assuming a stock price at the time the shares become saleable of
$0.063, which was the last sale price on November 24, 2006, we would have had a
cash liability of $5.4 million resulting from this clause.
On December 6, 2006, NeoMedia and FMS Group, Inc. ("FMS"), a group
consisting of former shareholders of Mobot, completed a transaction pursuant to
which we divested of a material portion of our ownership interest in Mobot. The
material terms of the transaction are as follows:
o we transferred 100% of our ownership interest in Mobot to FMS,
and in return received 18% ownership in FMS, which will
operate the Mobot business;
o All obligations under the original merger agreement, including
the Purchase Price Guarantee Obligation, were terminated;
o we contributed $67,000 cash to FMS at closing, and entered
into a promissory note for an additional $200,000 payable to
FMS at the earlier of the sale of our Micro Paint Repair
business unit or December 31, 2006;
o we received 16,931 preference shares in FMS that can be
redeemed to reacquire the 16,931,493 original consideration
shares originally issued to acquire Mobot. Each preference
share can be redeemed for 1,000 shares of the NeoMedia common
stock at our discretion within 15 months of the closing of
this transaction. After 15 months, the preference shares can
be redeemed upon a liquidation event of FMS, for either 1,000
shares of NeoMedia common stock each, or for the current cash
equivalent of the shares, at FMS' discretion;
o we entered into a license agreement with Mobot, pursuant to
which we received a license to use the Mobot image recognition
service for barcode-related applications. The license is
exclusive in the Americas, Europe and Australia, restricted in
Japan, Korea, and Singapore, and non-exclusive in other areas
of the world. The exclusivity is subject to our meeting
certain minimum transaction volume requirements or making
minimum cash payments; and
o we entered into a mutual release with each of the former Mobot
shareholders in which the parties released each other from the
terms of the original Mobot merger agreement, and the former
Mobot shareholders consented to the release of the pending
legal action against us.
Separation of Sponge Ltd.
On February 20, 2006, we acquired all of the outstanding shares of
Sponge in exchange for (i) approximately $6 million cash, (ii) 33,097,135 shares
of NeoMedia common stock with a fair market value at the time of acquisition of
approximately $13.1 million, and (iii) approximately $4.4 million contingent
consideration in the form of NeoMedia common stock if, during the two-year
period beginning at closing, the Sponge business earned in excess of
approximately $2.3 million in net profits. Pursuant to the terms of the original
merger agreement, the number of shares of NeoMedia common stock to be issued as
consideration was calculated using a share price of $0.384, which was the
volume-weighted average closing price of NeoMedia common stock for the ten days
up to and including February 8, 2006. The merger agreement stipulated that, in
the event that our stock price at the time the consideration shares became
saleable was less than $0.384, we would have been obligated to compensate Sponge
shareholders in cash for the difference between the price at the time the shares
became saleable and $0.384.
On November 14, 2006, NeoMedia and Sponge signed a definitive share
purchase and settlement agreement, pursuant to which we divested of a material
portion of our ownership interest in Sponge. The material terms of the share
purchase and settlement agreement are as follows: (i) we returned 92.5% of our
ownership interest in Sponge, retaining 7.5% ownership of Sponge, (ii) we
relinquished our Board of Directors positions at Sponge, (iii) the 33,097,135
shares of NeoMedia common stock that were issued as consideration to acquire
Sponge were returned to us and retired; (iv) all obligations under the original
merger agreement, including the purchase price guarantee obligation, were
terminated, and (v) Sponge returned $100,000 cash (net of attorney fees) to
NeoMedia at closing and $150,000 cash to NeoMedia on March 7, 2007.
34
Series C Convertible Preferred Stock
On February 17, 2006, we sold to Cornell Capital Partners 8%
cumulative Series C convertible perefrered stock with a face value of
$22,000,000. At any time until February 17, 2009, the holders have the right to
convert the preferred stock, in whole or in part, into NeoMedia common stock of
at the then effective conversion price, which varies relative to the trading
stock price, as follows: $0.50 per share, or 97% of the lowest closing bid price
of the common stock for the 30 trading days immediately preceding the conversion
date. Except in the event of a default, the conversions are limited such that
the holder cannot exceed 4.99% ownership, unless the holders waive their right
to such limitation.
In connection with the Series C convertible perefrered stock, we
issued to Cornell Capital Partners warrants to purchase shares of our common
stock as follows: 20,000,000 warrants with an exercise price of $0.50 per share,
25,000,000 warrants with an exercise price of $0.40 per share, and 30,000,000
warrants with an exercise price of $0.35 per share. The exercise prices of these
warrants were subsequently repriced to $0.10, $0.15, and $0.10, respectively, in
connection with a convertible debenture financing in August 2006.
The fair value of net proceeds received by NeoMedia in the
transaction was $17,854,000, and the balance of $4,146,000 was afforded to the
Purchasers as a discount. The discount afforded the Purchasers, including the
fair value of warrants granted, is substantial and could have a negative effect
on current and future stockholders due to additional dilution shareholders may
experience if and when the Purchasers exercise such warrants.
Convertible Debenture
On August 24, 2006, we sold to Cornell Capital Partners LP 10%
secured convertible debentures maturing two years from the date of issuance with
a face value of $5,000,000. At any time until August 24, 2008, the holders have
the right to convert the secured convertible debenture, in whole or in part,
into NeoMedia common stock of at the then effective conversion price, which
varies relative to the trading stock price, as follows: $0.15 per share, or 90%
of the lowest closing bid price of the common stock for the 30 trading days
immediately preceding the conversion date. Except in the event of a default, the
conversions are limited such that the holder cannot exceed 4.99% ownership,
unless the holders waive their right to such limitation. The debentures are
secured by substantially all of the Company's assets.
In connection with the secured convertible debentures, we issued to
Cornell warrants to purchase shares of our common stock as follows: 50,000,000
warrants with an exercise price of $0.05 per share, 25,000,000 warrants with an
exercise price of $0.15 per share, 50,000,000 warrants with an exercise price of
$0.20 per share, and 50,000,000 warrants with an exercise price of $0.25 per
share. In addition, NeoMedia repriced warrants perviously isseud to Cornell as
follows: 10,000,000 warrants were repriced from $0.20 to $0.10, 20,000,000
warrants were repriced from $0.50 to $0.10, 25,000,000 warrants were repriced
from $0.40 to $0.15, and 30,000,000 warrants were repriced from $0.30 to $0.10.
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.
35
On December 6, 2006, NeoMedia and FMS completed a transaction
whereby NeoMedia transferred the majority of its ownership in Mobot to FMS,
which is a group consisting of former Mobot shareholders. In connection with the
transaction, the former Mobot shareholders entered into releases with NeoMedia
in which the parties released each other from the terms of the original Mobot
merger agreement, and the former Mobot shareholders consented to the release of
this legal action against NeoMedia.
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, NeoMedia has the right to convert the notes 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. The transaction has not been completed as of the date hereof. 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.
12Snap Arbitration Settlement
During 2006, one of the silent partners of 12Snap initiated
arbitration proceedings claiming the amount of EUR 353,000 (approximately
$443,000 as of September 30, 2006) plus interest of 5% per annum since March 1,
2006 arising out of a change in control clause of the silent partnership
agreement. The matter was subject to German arbitration proceedings, and the
parties settled under the condition that 12Snap pay EUR 240,000 (approximately
$320,000 as of the date hereof), of which EUR 120,000 (approximately $160,000 as
of the date hereof) was due and paid by October 31, 2006 and EUR 120,000
(approximately $160,000 as of the date hereof) is due by December 31, 2006.
36
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
37
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 months ended March
31, 2006;
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 and nine months
ended September 30, 2006
o Current Reports on Form 8-K as filed on:
o February 10, 2006 o May 3, 2006 (amended 8-K)
o February 10, 2006 o May 8, 2006 (amended 8-K)
o February 14, 2006 o May 9, 2006 (amended 8-K)
o February 17, 2006 o May 9, 2006 (amended 8-K)
o February 21, 2006 o June 2, 2006 (amended 8-K)
o February 21, 2006 o June 21, 2006 (amended 8-K)
o February 21, 2006 o July 27, 2006
o February 22, 2006 o August 30, 2006
o February 24, 2006 o August 30, 2006
o March 2, 2006 o August 31, 2006
o March 22, 2006 o November 20, 2006
o March 23, 2006 o December 7, 2006
o April 3, 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.
38
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. and Incorporated by reference to Exhibit 3.1 to
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 DevSys, Incorporated by reference to Exhibit 3.5 to
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. into DevSys, Incorporated by reference to Exhibit 3.6 to
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. and Incorporated by reference to Exhibit 3.7 to
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 Migration, Inc. Incorporated by reference to Exhibit 3.9 to
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 Migration, Incorporated by reference to Exhibit 3.11 to
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, Inc. into Incorporated by reference to Exhibit 3.12 to
DevSys Migration, Inc. Registrant's Registration Statement No. 333-5534 as
filed with the SEC on November 25, 1996
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Exhibit No. Description Location
----------- --------------------------------------------------------------- ----------------------------------------------------
3.13 Certificate of Amendment to Certificate of Incorporation of Incorporated by reference to Exhibit 3.13 to
DevSys, Inc. changing its name to NeoMedia Technologies, Inc. Registrant's Registration Statement No. 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. authorizing a Registrant's Registration Statement No. 333-5534 as
reverse stock split filed with the SEC on November 25, 1996
3.15 Form of Certificate of Amendment to Restated Certificate of Incorporated by reference to Exhibit 3.5 to
Incorporation of NeoMedia Technologies, Inc. increasing Registrant's Annual Report as filed with the SEC on
authorized capital and creating preferred stock November 2, 2001
5.1 Opinion re: legality Provided herewith
10.1 Consulting Agreement between NeoMedia and Thornhill Capital, Incorporated by reference to Exhibit 10.1 to the
dated December 5, 2001 Registrant's Form S-3/A as filed on January 30, 2006
10.2 First Agreement and Amendment to Consulting Agreement between Incorporated by reference to Exhibit 10.2 to the
NeoMedia and Thornhill Capital, dated January 29, 2004 Registrant's Form S-3/A as filed on January 30, 2006
10.3 Second Agreement and Amendment to Consulting Agreement between Incorporated by reference to Exhibit 10.3 to the
NeoMedia and Thornhill Capital, dated July 22, 2005 Registrant's Form S-3/A as filed on January 30, 2006
10.4 Standby Equity Distribution Agreement, dated October 27, 2003, Incorporated by reference to Exhibit 10.91 to the
between NeoMedia and Cornell Capital Partners Registrant's Form SB-2/A as filed on December 19,
2003
10.5 Form of Registration Rights Agreement, dated October 27, 2003, Incorporated by reference to Exhibit 10.93 to the
between NeoMedia and Cornell Capital Partners Registrant's Form SB-2/A as filed on December 19,
2003
10.6 Form of Escrow Agreement, dated October 27, 2003, between Incorporated by reference to Exhibit 10.94 to the
NeoMedia and Cornell Capital Partners Registrant's Form SB-2/A as filed on December 19,
2003
10.7 $4 million Promissory note payable to Cornell Capital Partners, Incorporated by reference to Exhibit 10.49 to the
dated January 15, 2004 Registrant's Form 10-KSB as filed on March 9, 2004
10.8 Standby Equity Distribution Agreement, dated March 30, 2005, Incorporated by reference to Exhibit 16.1 to the
between NeoMedia and Cornell Capital Partners Registrant's Form 8-K as filed on April 1, 2005
10.9 Placement Agent Agreement, dated March 30, 2005, between Incorporated by reference to Exhibit 16.2 to the
NeoMedia and Cornell Capital Partners Registrant's Form 8-K as filed on April 1, 2005
10.10 Escrow Agreement, dated March 30, 2005, between NeoMedia and Incorporated by reference to Exhibit 16.3 to the
Cornell Capital Partners Registrant's Form 8-K as filed on April 1, 2005
10.11 Registration Rights Agreement, dated March 30, 2005, between Incorporated by reference to Exhibit 16.4 to the
NeoMedia and Cornell Capital Partners Registrant's Form 8-K as filed on April 1, 2005
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Exhibit No. Description Location
----------- --------------------------------------------------------------- ----------------------------------------------------
10.12 Promissory Note, dated March 30, 2005, between NeoMedia and Incorporated by reference to Exhibit 16.5 to the
Cornell Capital Partners Registrant's Form 8-K as filed on April 1, 2005
10.13 Security Agreement, dated March 30, 2005, between NeoMedia and Incorporated by reference to Exhibit 16.6 to the
Cornell Registrant's Form 8-K as filed on April 1, 2005
10.14 Warrant dated March 30, 2005, granted by NeoMedia to Thornhill Incorporated by reference to Exhibit 10.12 to the
Capital LLC 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 Cornell Incorporated by reference to Exhibit 10.13 to the
Capital Partners LP Registrant's Amendment No. 1 to Form S-3 as filed on
July 18, 2005
10.16 Promissory Note, dated March 13, 2003, between NeoMedia and Incorporated by reference to Exhibit 10.16 to the
Cornell Capital Partners Registrant's Form S-3/A as filed on January 30, 2006
10.17 Promissory Note, dated May 27, 2003, between NeoMedia and Incorporated by reference to Exhibit 10.17 to the
Cornell Capital Partners Registrant's Form S-3/A as filed on January 30, 2006
10.18 Promissory Note, dated June 24, 2003, between NeoMedia and Incorporated by reference to Exhibit 10.18 to the
Cornell Capital Partners Registrant's Form S-3/A as filed on January 30, 2006
10.19 Promissory Note, dated July 21, 2003, between NeoMedia and Incorporated by reference to Exhibit 10.19 to the
Cornell Capital Partners Registrant's Form S-3/A as filed on January 30, 2006
10.20 Promissory Note, dated August 1, 2003, between NeoMedia and Incorporated by reference to Exhibit 10.20 to the
Cornell Capital Partners Registrant's Form S-3/A as filed on January 30, 2006
10.21 Promissory Note, dated September 2, 2003, between NeoMedia and Incorporated by reference to Exhibit 10.21 to the
Cornell Capital Partners Registrant's Form S-3/A as filed on January 30, 2006
10.22 Promissory Note, dated September 11, 2003, between NeoMedia and Incorporated by reference to Exhibit 10.22 to the
Cornell Capital Partners Registrant's Form S-3/A as filed on January 30, 2006
10.23 Promissory Note, dated April 8, 2004, between NeoMedia and Incorporated by reference to Exhibit 10.23 to the
Cornell Capital Partners Registrant's Form S-3/A as filed on January 30, 2006
10.24 Promissory Note, dated July 2, 2004, between NeoMedia and Incorporated by reference to Exhibit 10.24 to the
Cornell Capital Partners Registrant's Form S-3/A as filed on January 30, 2006
10.25 Promissory Note, dated August 6, 2004, between NeoMedia and Incorporated by reference to Exhibit 10 25 to the
Cornell Capital Partners 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 NeoMedia and Incorporated by reference to Exhibit 16.1 to the
12Snap Registrant's Form 8-K as filed on February 14, 2006
10.28 Definitive Sale and Purchase Agreement between NeoMedia and Incorporated by reference to Exhibit 16.1 to the
Gavitec Registrant's Form 8-K as filed on February 21, 2006
10.29 Definitive Sale and Purchase Agreement between NeoMedia and Incorporated by reference to Exhibit 16.1 to the
Sponge Registrant's Form 8-K as filed on February 22, 2006
10.30 Promissory Note, dated October 18, 2004, between NeoMedia and Incorporated by reference to Exhibit 10.26 to the
Cornell Capital Partners Registrant's Form S-3/A as filed on January 30, 2006
10.31 Investment Agreement, dated February 17, 2006 by and between Incorporated by reference to Exhibit 10.1 to the
NeoMedia and Cornell Capital Partners Registrant's Form 8-K as filed on February 21, 2006
10.32 Investor Registration Rights Agreement, dated February 17, 2006 Incorporated by reference to Exhibit 10.2 to the
by and between NeoMedia and Cornell Capital Partners Registrant's Form 8-K as filed on February 21, 2006
10.33 Irrevocable Transfer Agent Instruction, dated February 17, Incorporated by reference to Exhibit 10.3 to the
2006, by and among NeoMedia, Cornell Capital Partners and Registrant's Form 8-K as filed on February 21, 2006
American Stock Transfer & Trust 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 NeoMedia and Incorporated by reference to Exhibit 10.7 to the
Cornell Capital Partners Registrant's Form 8-K as filed on February 21, 2006
10.38 Assignment of Common Stock, dated February 17, 2006 by and Incorporated by reference to Exhibit 10.8 to the
between NeoMedia and Cornell Capital Partners 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, by and Incorporated by reference to Exhibit 10.1 to the
between the Company and Cornell Capital Partners, LP Registrant's Form 8-K as filed on August 30, 2006
10.40 Investor Registration Rights Agreement, dated August 24, 2006, Incorporated by reference to Exhibit 10.2 to the
by and between the Company and Cornell Capital Partners, LP Registrant's Form 8-K as filed on August 30, 2006
10.41 Pledge and Security Agreement, dated August 24, 2006, by and Incorporated by reference to Exhibit 10.3 to the
between the Company and Cornell Capital Partners, LP Registrant's Form 8-K as filed on August 30, 2006
10.42 Secured Convertible Debenture, dated August 24, 2006, issued by Incorporated by reference to Exhibit 10.4 to the
the Company to Cornell Capital Partners, LP Registrant's Form 8-K as filed on August 30, 2006
10.43 Irrevocable Transfer Agent Instructions, dated August 24, 2006, Incorporated by reference to Exhibit 10.5 to the
by and among the Company, Cornell Capital Partners, LP and Registrant's Form 8-K as filed on August 30, 2006
American Stock Transfer & Trust Co.
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, 2006, by and Incorporated by reference to Exhibit 10.10 to the
between the Company and Cornell Capital Partners, LP Registrant's Form 8-K as filed on August 30, 2006
10.49 Amendment to "A" Warrant No. CCP-001, dated August 24, 2006, by Incorporated by reference to Exhibit 10.11 to the
and between the Company and Cornell Capital Partners, LP Registrant's Form 8-K as filed on August 30, 2006
10.50 Amendment to "B" Warrant No. CCP-002, dated August 24, 2006, by Incorporated by reference to Exhibit 10.12 to the
and between the Company and Cornell Capital Partners, LP Registrant's Form 8-K as filed on August 30, 2006
10.51 Amendment to "C" Warrant No. CCP-003, dated August 24, 2006, by Incorporated by reference to Exhibit 10.13 to the
and between the Company and Cornell Capital Partners, LP Registrant's Form 8-K as filed on August 30, 2006
10.52 Letter of intent amongst the Company, Global Emerging Markets, Incorporated by reference to Exhibit 16.1 to the
and Jose Sada Registrant's Form 8-K as filed on August 31, 2006
II-6
Exhibit No. Description Location
----------- --------------------------------------------------------------- ----------------------------------------------------
10.53 Termination Agreement between NeoMedia Technologies, Inc, and Provided herewith
Cornell Capital Partners, LP
10.54 Definitive share purchase and settlement agreement between Incorporated by reference to Exhibit 16.1 to the
NeoMedia and Sponge, dated November 14, 2006 Registrant's Form 8-K as filed on November 20, 2006
10.55 Agreement between NeoMedia and FMS Incorporated by reference to Exhibit 16.1 to the
Registrant's Form 8-K as filed on December 7, 2006
10.56 Escrow agreement amongst NeoMedia, Mobot, FMS, and Kirkpatrick Incorporated by reference to Exhibit 16.2 to the
and Lockhart Nicholson Graham Registrant's Form 8-K as filed on December 7, 2006
10.57 Description of Special Preference Stock Incorporated by reference to Exhibit 16.3 to the
Registrant's Form 8-K as filed on December 7, 2006
10.58 Promissory note payable from NeoMedia to FMS Incorporated by reference to Exhibit 16.4 to the
Registrant's Form 8-K as filed on December 7, 2006
10.59 License agreement between NeoMedia and Mobot Incorporated by reference to Exhibit 16.5 to the
Registrant's Form 8-K as filed on December 7, 2006
23.1 Consent of Stonefield Josephson, Inc., independent Registered Provided herewith
Public Accounting Firm of NeoMedia Technologies, Inc.
23.2 Consent of Stonefield Josephson, Inc., independent Registered Provided herewith
Public Accounting Firm of Mobot, Inc.
23.3 Consent of Ernst & Young AG, independent auditors of Gavitec AG Provided herewith
23.4 Consent of Brebners, independent auditors of Sponge Ltd. Provided herewith
23.5 Consent of Ernst & Young AG, independent auditors of 12Snap AG Provided herewith
23.6 Consent of Stonefield Josephson, Inc., independent Registered Provided herewith
Public Accounting Firm of BSD Software, Inc.
23.7 Consent of KPMG, LLP, independent auditors of BSD Software, Provided herewith
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:
(i) any preliminary prospectus or prospectus of the
undersigned Registrant relating to the offering required to be filed
pursuant to Rule 424;
II-8
(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 December 6, 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 December 6, 2006
------------------------- Officer, and Director
Charles T. Jensen
/s/ Charles W. Fritz Chairman of the Board December 6, 2006
-------------------------
Charles W. Fritz
/s/ David A. Dodge Vice-President, Chief Financial December 6, 2006
------------------------- Officer, and Principal Accounting
David A. Dodge Officer
/s/ William E. Fritz Director December 6, 2006
-------------------------
William E. Fritz
/s/ Hayes Barclay Director December 6, 2006
-------------------------
Hayes Barclay
/s/ James J. Keil Director December 6, 2006
-------------------------
James J. Keil
II-10