As filed with the Securities and Exchange Commission on June 21, 2006
SEC Registration No. 333-125239
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
DELAWARE NEOMEDIA TECHNOLOGIES, INC. 36-3680347
(State or other jurisdiction (Name of issuer (I.R.S. Employer
of incorporation or organization) in 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 number of (Primary Standard (Name, address,
Registrant's principal executive Industrial and telephone number
offices) Classification of agent for service)
Code Number)
WITH COPIES TO:
Clayton E. Parker, Esq. Ronald S. Haligman, Esq.
Kirkpatrick & Lockhart LLP Kirkpatrick & Lockhart Nicholson Graham LLP
201 S. Biscayne Blvd., Suite 2000 201 S. Biscayne Blvd., Suite 2000
Miami, FL 33131 Miami, FL 33131
Telephone No.: (305) 539-3305 Telephone No.: (305) 539-3319
Telecopier No.: (305) 358-7095 Telecopier No.: (305) 358-7095
Approximate date of commencement of proposed sale to the public: From time to
time after this registration statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. |_|
If any of the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, please check the
following box. |_|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
---------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF SECURITIES TO BE PRICE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) SHARE PRICE FEE
---------------------------------------------------------------------------------------------------------------------
Shares underlying Series C Convertible Preferred 110,000,000 $0.22 $24,200,000.00 $2,848.34
Stock, convertible into Common Shares, par value
$0.01 per share
---------------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.01 per share 118,217,511 $0.22 $26,007,852.42 $3,061.12
---------------------------------------------------------------------------------------------------------------------
Shares underlying warrants to purchase Common Stock, 98,150,000 $0.22 $21,593,000.00 $2,541.50
par value $0.01 per share
---------------------------------------------------------------------------------------------------------------------
TOTALS 326,367,511 $71,800,852.42 $8,450.96
---------------------------------------------------------------------------------------------------------------------
(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 $0.22 per share as reported in the Over-the-Counter
Bulletin Board on June 19, 2006.
THE REGISTRANT HEREBY AMENDS THIS REGISTRAITON STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRAITON STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
2
SUBJECT TO COMPLETION OR AMENDMENT
DATED JUNE __, 2006
326,367,511 SHARES
NEOMEDIA TECHNOLOGIES, INC.
--------------------------------------------------------------------------------
UP TO 110,000,000 SHARES UNDERLYING SERIES C CONVERTIBLE PREFERRED STOCK
118,217,511 SHARES OF COMMON STOCK
98,150,000 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 June 15, 2006 was $0.227 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.............................................2
RISK FACTORS.................................................................4
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS..................16
USE OF PROCEEDS.............................................................17
DILUTION....................................................................18
SELLING STOCKHOLDERS........................................................19
PLAN OF DISTRIBUTION........................................................28
DESCRIPTION OF SECURITIES...................................................29
EXPERTS.....................................................................33
MATERIAL CHANGES............................................................34
WHERE YOU CAN FIND MORE INFORMATION.........................................35
INFORMATION WE INCORPORATE BY REFERENCE.....................................36
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-6
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 326,367,511 shares issued or to be issued for the
following purposes:
Shares underlying Series C Convertible Preferred Stock 110,000,000
Shares underlying warrants to purchase shares of common stock 98,150,000
Shares of common stock previously issued for the following purposes:
Stock consideration issued to acquire Mobot, Inc. 16,931,493
Stock consideration issued to acquire Sponge Ltd. 33,097,135
Stock consideration issued to acquire Gavitec AG 13,660,511
Stock consideration issued to acquire 12Snap AG 49,294,581
To retire debt 5,233,791 118,217,511
--------------- ----------------
TOTAL SHARES BEING REGISTERED HEREUNDER 326,367,511
================
You should read both this Prospectus and any Prospectus Supplement
together with the additional information under the heading "Where You can Find
More Information."
You should rely only on the information contained or incorporated by
reference in this Prospectus and any Prospectus Supplement. We have not
authorized anyone to provide you with different information. We are not making
offers to sell or solicitations to buy the securities in any jurisdiction in
which an offer or solicitation is not authorized or in which the person making
that offer or solicitation is not qualified to do so or anyone to whom it is
unlawful to make an offer or solicitation.
You should not assume that the information contained in this Prospectus,
as well as the information we previously filed with the Securities and Exchange
Commission that is incorporated by reference herein, is accurate as of any date
other than its respective date.
The terms "NeoMedia," "we," "our," and "us" refer to NeoMedia
Technologies, Inc. and its subsidiaries unless the context suggests otherwise.
1
ABOUT NEOMEDIA TECHNOLOGIES, INC.
NEOMEDIA TECHNOLOGIES, INC.
2201 SECOND STREET, SUITE 600
FORT MYERS, FL 33901
P : (239) 337-3434
NeoMedia (www.neom.com) is a diversified, global company offering
leading-edge, technologically advanced products and solutions for companies and
consumers, built upon its solid family of patented products and processes, and
management experience and expertise.
NeoMedia operates under the following three business units:
o NeoMedia Mobile (NMM) - encompassing NeoMedia's
physical-world-to-internet and mobile marketing technologies branded
under PaperClick, 12Snap AG, Sponge Ltd., Gavitec AG and Mobot, Inc.
o NeoMedia Micro Paint Repair (NMPR) - encompassing the micro paint
and auto aftermarket accessories manufactured and distributed by
NeoMedia.
o NeoMedia Telecom Services (NTS) - encompassing the billing,
clearinghouse and information management services of
recently-acquired BSD Software, Inc.
NEOMEDIA MOBILE
NeoMedia's mobile services group of companies offer end-to-end mobile
enterprise and mobile marketing solutions, through its flagship
direct-to-mobile-web PaperClick(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 PaperClick suite of easy-to-use, market-driven products and
applications are based on a strong foundation of patented technology, comprising
the PaperClick (www.PaperClick.com) platform, PaperClick for Camera Phones(TM)
and the PaperClick Mobile GoWindow(TM) and CodeWindow(TM), all of which provide
One Click to Content(TM) connectivity for products, print, packaging and other
physical objects to link directly to specific desired content on the mobile
Internet.
NeoMedia's recently acquired companies and offerings include 12Snap AG
(www.12snap.com), a Munich, Germany-based award-winning leader in mobile
marketing and entertainment applications; Mobot, Inc. (www.Mobot.com), a
Lexington, Massachusetts-based pioneer in mobile visual recognition technology;
Sponge Ltd. (www.spongegroup.com), a London, UK-based leader in developing and
implementing mobile marketing applications and content delivery; and Gavitec AG
- mobile digit (www.gavitec.com), a Wurselen, Germany-based leading provider of
mobile technology and marketing solutions.
NEOMEDIA MICRO PAINT REPAIR
NeoMedia Micro Paint Repair, Inc. (www.micropaint.net) is an international
developer, supplier and trainer to the automotive aftermarket industry, offering
a comprehensive line of technologically advanced automotive rejuvenation and
preservation products, processes and systems. NMPR focuses on quality,
efficiency, innovativeness and environmentally sound products and technologies
so that its clients are able to deliver expert solutions and a positive
experience to the end consumer.
NMPR offers its clients a "one-stop shop" to obtain a comprehensive line
of technologically and environmentally advanced products and processes for
interior and exterior automotive rejuvenation. Its proprietary Micro Paint
Repair system can dramatically reduce costs for current auto body repair
facilities, or create a new profit center for auto-related businesses that do
not currently offer paint repair. Likewise, NMPR can help automotive repair
businesses offer complementary services beyond micro paint, not only through its
product line, but also through training on how to do additional interior and
exterior repairs.
2
NMPR markets its comprehensive automotive rejuvenation system to a myriad
of automotive industry businesses, from auto dealers to body shops to glass
repair shops, and more. Two facilities, NMPR's headquarters in Fort Myers,
Florida and its Canadian head office in Calgary, Alberta offer repairs directly
to customers, and on-site training to business clients.
Geographically, outside of the United States NeoMedia has expanded its
micro paint repair offering into: China through partnerships with Jinche
(Automart), DuPont and PPG; Scandinavia, through its distribution agreement with
WI-THO AS in Norway; Mexico and Latin America, through its distribution
agreement with Micropaint de Mexico; Australia and New Zealand, through a
distribution agreement with Micro Paint Systems (Australasia) Limited of New
Zealand; and Canada, through a distribution agreement with MDA Co-Auto.
NEOMEDIA TELECOM SERVICES
NeoMedia Telecom (www.tritonglobal.ca), including its majority-owned
Triton Global subsidiary, is a business unit of NeoMedia Technologies, Inc., and
is a leading provider of network access, billing, clearinghouse and information
management services to the telecommunications industry. NeoMedia Telecom helps
its clients improve services and profitability by enabling them to streamline
their operations and make quicker, more informed business decisions.
Triton was incorporated in April 1998 as a next generation Internet
Protocol (IP) enabled provider of live and automated operator calling services,
e-Business support, billing and clearinghouse functions and information
management services to telecommunications, internet and e-business service
providers. Triton was acquired by NeoMedia in March 2006, at which time NeoMedia
established the NeoMedia Telecom Services (NTS) business unit, consisting solely
of Triton's business.
3
RISK FACTORS
In addition to the other information included in this registration
statement, including the matters addressed in "Cautionary Statement Concerning
Forward-Looking Statements," you should carefully consider the following risks
before deciding whether to buy our common stock. If any of these risks actually
occur, our business, financial condition, operating results or cash flows could
be materially adversely affected. This could cause the trading price of our
common stock to decline and you may lose part or all of your investment.
RISKS RELATED TO NEOMEDIA'S BUSINESS
NEOMEDIA HAS HISTORICALLY LOST MONEY AND LOSSES MAY CONTINUE
NeoMedia has incurred substantial losses since inception, and anticipates
continuing to incur substantial losses for the foreseeable future. NeoMedia
incurred a loss of $1,317,000, $1,219,000, $9,147,000 and $7,230,000 for the
three months ended March 31, 2006 and 2005, and the years ended December 31,
2005 and 2004, respectively. NeoMedia's accumulated losses were approximately
$93,843,000 and $92,524,000 as of March 31, 2006 and December 31, 2005,
respectively. As of March 31, 2006 and December 31, 2005 and 2004, NeoMedia had
a working capital deficit of approximately $26,478,000, $4,874,000 and
$2,597,000, respectively. NeoMedia had stockholders' equity of $49,427,000,
$4,227,000 and $4,392,000 as of March 31, 2006 and December 31, 2005 and 2004,
respectively. NeoMedia generated revenues of $2,052,000, $747,000, $2,156,000
and $1,700,000 for the three months ended March 31, 2006 and 2005 and the years
ended December 31, 2005 and 2004, respectively. In addition, during the three
months ended March 31, 2006 and 2005 and the years ended December 31, 2005 and
2004, NeoMedia recorded negative cash flows from operations of $2,586,000,
$1,660,000, $6,509,000 and $4,650,000, respectively. To succeed, NeoMedia must
develop new client and customer relationships and substantially increase its
revenue derived from improved products and additional value-added services.
NeoMedia has expended, and to the extent it has available financing, NeoMedia
intends to continue to expend, substantial resources to develop and improve its
products, increase its value-added services and to market its products and
services. These development and marketing expenses must be incurred well in
advance of the recognition of revenue. As a result, NeoMedia may not be able to
achieve or sustain profitability.
NEOMEDIA'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM HAVE ADDED GOING
CONCERN LANGUAGE TO THEIR REPORT ON NEOMEDIA'S CONSOLIDATED FINANCIAL
STATEMENTS, WHICH MEANS THAT NEOMEDIA MAY NOT BE ABLE TO CONTINUE OPERATIONS
The report of Stonefield Josephson, Inc., NeoMedia's independent
registered public accounting firm, with respect to NeoMedia's consolidated
financial statements and the related notes for the years ended December 31, 2005
and 2004, indicates that, at the date of their report, NeoMedia had suffered
significant recurring losses from operations and its working capital deficit
raised substantial doubt about its ability to continue as a going concern.
NeoMedia's consolidated financial statements do not include any adjustments that
might result from this uncertainty.
NEOMEDIA HAS GUARANTEED THE VALUE OF STOCK ISSUED IN CONNECTION WITH RECENT
MERGERS THROUGH THE REGISTRATION OF THE SHARES, WHICH COULD RESULT IN A MATERIAL
CASH LIABILITY
Pursuant to the terms of the merger agreements with Mobot, Sponge,
Gavitec, and 12Snap, in the event that NeoMedia's stock price at the time the
consideration shares issued in connection with each acquisition are saleable is
less than the price at which they were valued for purposes of the respective
merger agreements (between $0.3839 and $0.3956 per share), NeoMedia is obligated
to compensate the sellers in cash for the difference between the price at the
time the shares become saleable and the price the shares were valued for
purposes of the merger agreement. Subsequent to the closing of the acquisitions,
NeoMedia's stock has traded as low as $0.202 per share. Assuming a stock price
at the time the shares become saleable of $0.227, which was the last sale price
on June 15, 2006, NeoMedia would have a cash liability of $18.5 million
resulting from these clauses.
4
THERE IS LIMITED INFORMATION UPON WHICH INVESTORS CAN EVALUATE NEOMEDIA'S
BUSINESS BECAUSE THE PHYSICAL-WORLD-TO-INTERNET MARKET HAS EXISTED FOR ONLY A
SHORT PERIOD OF TIME
The physical-world-to-Internet market in which NeoMedia operates is a
recently developed market. Further, NeoMedia has conducted operations in this
market only since March 1996. Consequently, NeoMedia has a relatively limited
operating history upon which an investor may base an evaluation of NeoMedia's
primary business and determine NeoMedia's prospects for achieving its intended
business objectives. To date, NeoMedia has sold its physical-world-to-Internet
products to only 12 companies. NeoMedia is prone to all of the risks inherent to
the establishment of any new business venture, including unforeseen changes in
its business plan. An investor should consider the likelihood of NeoMedia's
future success to be highly speculative in light of its limited operating
history in its primary market, as well as the limited resources, problems,
expenses, risks, and complications frequently encountered by similarly situated
companies in new and rapidly evolving markets, such as the
physical-world-to-Internet space. To address these risks, NeoMedia must, among
other things:
o maintain and increase its client base;
o implement and successfully execute its business and marketing
strategy;
o continue to develop and upgrade its products;
o continually update and improve service offerings and features;
o respond to industry and competitive developments; and
o attract, retain, and motivate qualified personnel.
NeoMedia may not be successful in addressing these risks. If NeoMedia is
unable to do so, its business, prospects, financial condition, and results of
operations would be materially and adversely affected, and we could be forced to
curtail or cease our business operations.
NEOMEDIA'S FUTURE SUCCESS DEPENDS ON THE TIMELY INTRODUCTION OF NEW PRODUCTS AND
THE ACCEPTANCE OF THESE NEW PRODUCTS IN THE MARKETPLACE.
Rapid technological change and frequent new product introductions are
typical for the markets NeoMedia serves. NeoMedia's future success will depend
in large part on continuous, timely development and introduction of new products
that address evolving market requirements. To the extent that NeoMedia fails to
introduce new and innovative products, it may lose market share to its
competitors, which may be difficult to regain. Any inability, for technological
or other reasons, to successfully develop and introduce new products could
materially and adversely affect NeoMedia's business, and we could be forced to
curtail or cease our business operations.
NEOMEDIA'S COMMON STOCK IS DEEMED TO BE "PENNY STOCK," WHICH MAY MAKE IT MORE
DIFFICULT FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS
NeoMedia's common stock is deemed to be "penny stock" as that term is
defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934, as
amended. These requirements may reduce the potential market for NeoMedia's
common stock by reducing the number of potential investors. This may make it
more difficult for investors in NeoMedia's common stock to sell shares to third
parties or to otherwise dispose of them. This could cause NeoMedia's stock price
to decline. Penny stocks are stock:
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.
5
EXISTING SHAREHOLDERS WILL EXPERIENCE SIGNIFICANT DILUTION WHEN CERTAIN
INVESTORS CONVERT THEIR PREFERRED STOCK TO COMMON STOCK OR WHEN THE INVESTORS
EXERCISE THEIR WARRANTS AND RECEIVE COMMON STOCK UNDER THE INVESTMENT AGREEMENT
WITH THE INVESTORS
The issuance of shares of common stock pursuant to the conversion of
Series C Convertible Preferred Stock pursuant to our transaction with Cornell
Capital Partners and the issuance of shares of common stock upon 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.
DUE TO THE ACCOUNTING TREATMENT OF CERTAIN CONVERTIBLE PREFERRED STOCK
INSTRUMENTS ISSUED BY NEOMEDIA, A FLUCTUATION IN NEOMEDIA'S STOCK PRICE COULD
HAVE A MATERIAL IMPACT ON NEOMEDIA'S RESULTS OF OPERATIONS
During the first quarter of 2006, NeoMedia recognized income in the amount
of $4,768,000 from adjustments recorded to reflect the change in fair value of
derivatives issued in connection with its Series C Convertible Preferred Shares.
The income results from a decrease in NeoMedia's share price from $0.389 per
share at the time of issuance of the Series C Convertible Preferred Shares
(February 17, 2006) to $0.345 at March 31, 2006. NeoMedia will adjust the
carrying value of the derivative instruments to market at each balance sheet
date. As a result, NeoMedia could experience significant fluctuations in its net
income (loss) in future periods as a result of such charges.
NEOMEDIA IS UNCERTAIN OF THE SUCCESS OF ITS NEOMEDIA MOBILE BUSINESS UNIT AND
THE FAILURE OF THIS UNIT WOULD NEGATIVELY AFFECT THE PRICE OF NEOMEDIA'S STOCK
NeoMedia provides products and services that provide a link from physical
objects, including printed material, to the mobile Internet. NeoMedia can
provide no assurance that:
o its NeoMedia Mobile business unit will ever achieve profitability;
o its current product offerings will not be adversely affected by the
focusing of its resources on the physical-world-to-Internet space;
or
o the products NeoMedia develops will obtain market acceptance.
In the event that the NeoMedia Mobile business unit should never achieve
profitability, that NeoMedia's current product offerings should so suffer, or
that NeoMedia's products fail to obtain market acceptance, NeoMedia's business,
prospects, financial condition, and results of operations would be materially
adversely affected, and we could be forced to curtail or cease our business
operations.
A LARGE PERCENTAGE OF NEOMEDIA'S ASSETS ARE INTANGIBLE ASSETS, WHICH WILL HAVE
LITTLE OR NO VALUE IF NEOMEDIA'S OPERATIONS ARE UNSUCCESSFUL
At March 31, 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 you could
lose your entire investment in NeoMedia.
NeoMedia reviews its amortizable intangible assets for impairment when
events or changes in circumstances indicate the carrying value may not be
recoverable. Goodwill is required to be tested for impairment at least annually.
NeoMedia may be required to record a significant charge to earnings in its
financial statements during the period in which any impairment of our goodwill
or amortizable intangible assets is determined, resulting in an impact on
results of operations.
6
CERTAIN OF NEOMEDIA'S EMERGING PRODUCTS AND SERVICES HAVE LIMITED HISTORY AND
MAY NOT RESULT IN SUCCESS
Certain of NeoMedia's emerging products and services have limited history
upon which an investor may evaluate their prospects. In addition, to date,
NeoMedia has conducted limited marketing efforts directly relating to its
emerging technology products, consisting primarily of the PaperClick suite of
products, and certain products of recent acquisitions Mobot and Gavitec. Many of
NeoMedia's marketing efforts with respect to these emerging technologies have
been largely untested in the marketplace, and may not result in materially
increased sales of these emerging products and services. To penetrate the
emerging markets in which it competes, NeoMedia expects that it will have to
exert significant efforts to create awareness of, and demand for, its emerging
products and services. NeoMedia intends to continue to expand its sales and
marketing resources as the market continues to mature. NeoMedia's failure to
further develop its sales and marketing capabilities and successfully market its
emerging products and services would have a material adverse effect on its
business, prospects, financial condition, and results of operations, and we
could be forced to curtail or cease our business operations.
NEOMEDIA'S INTERNALLY DEVELOPED SYSTEMS ARE INEFFICIENT AND MAY PUT NEOMEDIA AT
A COMPETITIVE DISADVANTAGE
NeoMedia uses internally developed technologies for a portion of its
systems integration services, as well as the technologies required to
interconnect its clients' and customers' physical-world-to-Internet systems and
hardware with its own. As NeoMedia develops these systems in order to integrate
disparate systems and hardware on a case-by-case basis, these systems are
inefficient and require a significant amount of customization. Such client and
customer-specific customization is time consuming and costly and may place
NeoMedia at a competitive disadvantage when compared to competitors with more
efficient systems. If NeoMedia cannot compete effectively, we could be forced to
curtail or cease our business operations.
NEOMEDIA COULD FAIL TO ATTRACT OR RETAIN KEY PERSONNEL
NeoMedia's future success will depend in large part on its ability to
attract, train, and retain additional highly skilled executive level management,
creative, technical, and sales personnel. Competition is intense for these types
of personnel from other technology companies and more established organizations,
many of which have significantly larger operations and greater financial,
marketing, human, and other resources than NeoMedia has. NeoMedia may not be
successful in attracting and retaining qualified personnel on a timely basis, on
competitive terms, or at all. NeoMedia's failure to attract and retain qualified
personnel could have a material adverse effect on its business, prospects,
financial condition, and results of operations, and could force us to curtail or
cease our business operations.
NEOMEDIA DEPENDS UPON ITS SENIOR MANAGEMENT AND THEIR LOSS OR UNAVAILABILITY
COULD PUT NEOMEDIA AT A COMPETITIVE DISADVANTAGE
NeoMedia's success depends largely on the skills of certain key management
and technical personnel, including Charles T. Jensen, NeoMedia's President and
Chief Executive Officer, Charles W. Fritz, NeoMedia's founder and Chairman of
the Board of Directors, Martin N. Copus, NeoMedia's Chief Operating Officer and
head of the NMM business unit, and David A. Dodge, NeoMedia's Chief Financial
Officer. The loss of the services of Messrs. Jensen, Fritz, Copus, or Dodge
could materially harm NeoMedia's business because of the cost and time necessary
to replace and train a replacement. Such a loss would also divert management
attention away from operational issues. NeoMedia does not presently maintain a
key-man life insurance policy on Messrs. Jensen, Fritz, Copus, or Dodge.
NEOMEDIA MAY BE UNSUCCESSFUL IN INTEGRATING ITS RECENTLY COMPLETED AND PENDING
ACQUISITIONS WITH ITS CURRENT BUSINESS
The success of the acquisitions of Mobot, 12Snap, Sponge, Gavitec, and BSD
could depend on the ability of NeoMedia's executive management to integrate the
business plan of each company with NeoMedia's overall business plan. Failure to
properly integrate the business could have a material adverse effect on the
expected revenue and operations of the acquisitions, as well as the expected
return on investment for NeoMedia. If we are unsuccessful in integrating our
recent acquisitions, we could be forced to curtail or cease our business
operations
NEOMEDIA MAY BE UNABLE TO PROTECT ITS INTELLECTUAL PROPERTY RIGHTS AND MAY BE
LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS
NeoMedia's success in the physical-world-to-Internet market is dependent
upon its proprietary technology, including patents and other intellectual
property, and on the ability to protect proprietary technology and other
intellectual property rights. In addition, NeoMedia must conduct its operations
without infringing on the proprietary rights of third parties. NeoMedia also
intends to rely upon unpatented trade secrets and the know-how and expertise of
its employees, as well as its patents. To protect its proprietary technology and
other intellectual property, NeoMedia relies primarily on a combination of the
protections provided by applicable patent, copyright, trademark, and trade
secret laws as well as on confidentiality procedures and licensing arrangements.
Although NeoMedia believes that it has taken appropriate steps to protect its
unpatented proprietary rights, including requiring that its employees and third
parties who are granted access to NeoMedia's proprietary technology enter into
confidentiality agreements, NeoMedia can provide no assurance that these
measures will be sufficient to protect its rights against third parties. Others
may independently develop or otherwise acquire patented or unpatented
technologies or products similar or superior to NeoMedia's.
7
NeoMedia licenses from third parties certain software tools that are
included in NeoMedia's services and products. If any of these licenses were
terminated, NeoMedia could be required to seek licenses for similar software
from other third parties or develop these tools internally. NeoMedia may not be
able to obtain such licenses or develop such tools in a timely fashion, on
acceptable terms, or at all. Companies participating in the software and
Internet technology industries are frequently involved in disputes relating to
intellectual property. NeoMedia may in the future be required to defend its
intellectual property rights against infringement, duplication, discovery, and
misappropriation by third parties or to defend against third party claims of
infringement. Likewise, disputes may arise in the future with respect to
ownership of technology developed by employees who were previously employed by
other companies. Any such litigation or disputes could result in substantial
costs to, and a diversion of effort by, NeoMedia. An adverse determination could
subject NeoMedia to significant liabilities to third parties, require NeoMedia
to seek licenses from, or pay royalties to, third parties, or require NeoMedia
to develop appropriate alternative technology. Some or all of these licenses may
not be available to NeoMedia on acceptable terms or at all, and NeoMedia may be
unable to develop alternate technology at an acceptable price or at all. Any of
these events could have a material adverse effect on NeoMedia's business,
prospects, financial condition, and results of operations, and we could be
forced to curtail or cease our business operations.
NEOMEDIA IS EXPOSED TO PRODUCT LIABILITY CLAIMS AND AN UNINSURED CLAIM COULD
HAVE A MATERIAL ADVERSE EFFECT ON NEOMEDIA'S BUSINESS, PROSPECTS, FINANCIAL
CONDITION, AND RESULTS OF OPERATIONS, AS WELL AS THE VALUE OF NEOMEDIA'S STOCK
Many of NeoMedia's projects are critical to the operations of its clients'
businesses. Any failure in a client's information system could result in a claim
for substantial damages against NeoMedia, regardless of NeoMedia's
responsibility for such failure. NeoMedia could, therefore, be subject to claims
in connection with the products and services that it sells. NeoMedia currently
maintains product liability insurance. There can be no assurance that:
o NeoMedia has contractually limited its liability for such claims
adequately or at all; or
o NeoMedia would have sufficient resources to satisfy any liability
resulting from any such claim.
The successful assertion of one or more large claims against NeoMedia
could have a material adverse effect on its business, prospects, financial
condition, and results of operations, and we could be forced to curtail or cease
our business operations.
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.
8
SOME PROVISIONS OF NEOMEDIA'S CERTIFICATE OF INCORPORATION AND BYLAWS MAY DETER
TAKEOVER ATTEMPTS, WHICH MAY LIMIT THE OPPORTUNITY OF NEOMEDIA'S STOCKHOLDERS TO
SELL THEIR SHARES AT A PREMIUM TO THE THEN-CURRENT MARKET PRICE
Some of the provisions of NeoMedia's Certificate of Incorporation and
bylaws could make it more difficult for a third party to acquire NeoMedia, even
if doing so might be beneficial to NeoMedia's stockholders by providing them
with the opportunity to sell their shares at a premium to the then-current
market price. On December 10, 1999, NeoMedia's Board of Directors adopted a
stockholders rights plan and declared a non-taxable dividend of one right to
acquire Series A Preferred Stock of NeoMedia, par value $0.01 per share, on each
outstanding share of NeoMedia's common stock to stockholders of record on
December 10, 1999 and each share of common stock issued thereafter until a
pre-defined hostile takeover date. The stockholder rights plan was adopted as an
anti-takeover measure, commonly referred to as a "poison pill." The stockholder
rights plan was designed to enable all stockholders not engaged in a hostile
takeover attempt to receive fair and equal treatment in any proposed takeover of
NeoMedia and to guard against partial or two-tiered tender offers, open market
accumulations, and other hostile tactics to gain control of NeoMedia. The
stockholders rights plan was not adopted in response to any effort to acquire
control of NeoMedia at the time of adoption. This stockholders rights plan may
have the effect of rendering more difficult, delaying, discouraging, preventing,
or rendering more costly an acquisition of NeoMedia or a change in control of
NeoMedia. Certain of NeoMedia's directors, officers and principal stockholders,
Charles W. Fritz, William E. Fritz and The Fritz Family Limited Partnership and
their holdings were exempted from the triggering provisions of NeoMedia's
"poison pill" plan, as a result of the fact that, as of the plan's adoption,
their holdings might have otherwise triggered the "poison pill".
In addition, NeoMedia's Certificate of Incorporation authorizes the Board
of Directors to designate and issue preferred stock, in one or more series, the
terms of which may be determined at the time of issuance by the Board of
Directors, without further action by stockholders, and may include voting
rights, including the right to vote as a series on particular matters,
preferences as to dividends and liquidation, conversion, redemption rights, and
sinking fund provisions.
NeoMedia is authorized to issue a total of 25,000,000 shares of Preferred
Stock, par value $0.01 per share. The issuance of any preferred stock could have
a material adverse effect on the rights of holders of NeoMedia's common stock,
and, therefore, could reduce the value of shares of NeoMedia's common stock. In
addition, specific rights granted to future holders of preferred stock could be
used to restrict NeoMedia's ability to merge with, or sell NeoMedia's assets to,
a third party. The ability of the Board of Directors to issue preferred stock
could have the effect of rendering more difficult, delaying, discouraging,
preventing, or rendering more costly an acquisition of NeoMedia or a change in
NeoMedia's control thereby preserving control by the current stockholders.
9
RISKS RELATING TO NEOMEDIA'S INDUSTRY
THE SECURITY OF THE INTERNET POSES RISKS TO THE SUCCESS OF NEOMEDIA'S ENTIRE
BUSINESS
Concerns over the security of the Internet and other electronic
transactions, and the privacy of consumers and merchants, may inhibit the growth
of the Internet and other online services generally, especially as a means of
conducting commercial transactions, which may have a material adverse effect on
NeoMedia's physical-world-to-Internet business.
NEOMEDIA WILL ONLY BE ABLE TO EXECUTE ITS PHYSICAL-WORLD-TO-INTERNET BUSINESS
PLAN IF INTERNET USAGE AND ELECTRONIC COMMERCE CONTINUE TO GROW
NeoMedia's future revenues and any future profits are substantially
dependent upon the widespread acceptance and use of the Internet and camera
devices on mobile telephones. If use of the Internet and camera devices on
mobile telephones does not continue to grow or grows more slowly than expected,
or if the infrastructure for the Internet and camera devices on mobile
telephones does not effectively support the growth that may occur, or does not
become a viable commercial marketplace, NeoMedia's physical-world-to-Internet
business, and therefore NeoMedia's business, prospects, financial condition, and
results of operations, could be materially adversely affected, and we could be
forced to curtail or cease our business operations. Rapid growth in the use of,
and interest in, the Internet and camera devices on mobile telephones is a
recent phenomenon, and may not continue on a lasting basis. In addition,
customers may not adopt, and continue to use mobile telephones as a medium of
information retrieval or commerce. Demand and market acceptance for recently
introduced services and products over the mobile Internet are subject to a high
level of uncertainty, and few services and products have generated profits. For
NeoMedia to be successful, consumers and businesses must be willing to accept
and use novel and cost efficient ways of conducting business and exchanging
information.
In addition, the public in general may not accept the use of the Internet
and camera devices on mobile telephones as a viable commercial or information
marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and performance improvements. To the extent that mobile
phone Internet usage continues to experience significant growth in the number of
users, their frequency of use, or in their bandwidth requirements, the
infrastructure for the mobile Internet may be unable to support the demands
placed upon them. In addition, the mobile Internet and mobile interactivity
could lose its viability due to delays in the development or adoption of new
standards and protocols required to handle increased levels of mobile Internet
activity, or due to increased governmental regulation. Significant issues
concerning the commercial and informational use of the mobile Internet, and
online networks technologies, including security, reliability, cost, ease of
use, and quality of service, remain unresolved and may inhibit the growth of
Internet business solutions that utilize these technologies. Changes in, or
insufficient availability of, telecommunications services to support the
Internet, the Web or other online services also could result in slower response
times and adversely affect usage of the Internet, the Web and other online
networks generally and NeoMedia's physical-world-to-Internet product and
networks in particular.
NEOMEDIA MAY NOT BE ABLE TO ADAPT AS THE INTERNET, PHYSICAL-WORLD-TO-INTERNET,
AND CUSTOMER DEMANDS CONTINUE TO EVOLVE
NeoMedia may not be able to adapt as the mobile Internet and
physical-world-to-Internet markets and consumer demands continue to evolve.
NeoMedia's failure to respond in a timely manner to changing market conditions
or client requirements would have a material adverse effect on its business,
prospects, financial condition, and results of operations, and we could be
forced to curtail or cease our business operations. The mobile Internet and
physical-world-to-Internet markets are characterized by:
o rapid technological change;
o changes in user and customer requirements and preferences;
o frequent new product and service introductions embodying new
technologies; and
o the emergence of new industry standards and practices that could
render proprietary technology and hardware and software
infrastructure obsolete.
10
NeoMedia's success will depend, in part, on its ability to:
o enhance and improve the responsiveness and functionality of its
products and services;
o license or develop technologies useful in its business on a timely
basis;
o enhance its existing services, and develop new services and
technologies that address the increasingly sophisticated and varied
needs of NeoMedia's prospective or current customers; and
o respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis.
NEOMEDIA'S COMPETITORS IN THE MICRO PAINT REPAIR INDUSTRY COULD DUPLICATE
NEOMEDIA'S PROPRIETARY PROCESSES
NeoMedia's success in the micro paint repair industry depends upon
proprietary chemical products and processes. There is no guarantee that
NeoMedia's competitors will not duplicate NeoMedia's proprietary processes.
NEOMEDIA MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN MARKETS WHERE ITS COMPETITORS
HAVE MORE RESOURCES
While the market for physical-world-to-Internet technology is relatively
new, it is already highly competitive and characterized by an increasing number
of entrants that have introduced or developed products and services similar to
those offered by NeoMedia. NeoMedia believes that competition will intensify and
increase in the near future. NeoMedia's target market is rapidly evolving and is
subject to continuous technological change. As a result, NeoMedia's competitors
may be better positioned to address these developments or may react more
favorably to these changes, which could have a material adverse effect on
NeoMedia's business, prospects, financial condition, and results of operations,
and we could be forced to curtail or cease our business operations.
Some of NeoMedia's competitors have longer operating histories, larger
customer bases, longer relationships with clients, and significantly greater
financial, technical, marketing, and public relations resources than NeoMedia.
NeoMedia may not successfully compete in any market in which it conducts or may
conduct operations. Many of NeoMedia's competitors in the Micro Paint Repair
business have a longer operating history in the industry, as well as access to
greater financial resources. NeoMedia may not be able to penetrate markets or
market its products as effectively as NeoMedia's better-funded more-established
competitors.
11
IN THE FUTURE THERE COULD BE GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES
WHICH COULD HARM NEOMEDIA'S BUSINESS
Any new legislation or regulation, the application of laws and regulations
from jurisdictions whose laws do not currently apply to NeoMedia's business, or
the application of existing laws and regulations to the Internet and other
online services, could have a material adverse effect on NeoMedia's business,
prospects, financial condition, and results of operations, and we could be
forced to curtail or cease our business operations. Due to the increasing
popularity and use of the Internet, the Web and other online services, federal,
state, and local governments may adopt laws and regulations, or amend existing
laws and regulations, with respect to the Internet or other online services
covering issues such as taxation, user privacy, pricing, content, copyrights,
distribution, and characteristics and quality of products and services. The
growth and development of the market for electronic commerce may prompt calls
for more stringent consumer protection laws to impose additional burdens on
companies conducting business online. The adoption of any additional laws or
regulations may decrease the growth of the Internet, the Web or other online
services, which could, in turn, decrease the demand for NeoMedia's services and
increase NeoMedia's cost of doing business, or otherwise have a material adverse
effect on NeoMedia's business, prospects, financial condition, and results of
operations, and we could be forced to curtail or cease our business operations.
Moreover, the relevant governmental authorities have not resolved the
applicability to the Internet, the Web and other online services of existing
laws in various jurisdictions governing issues such as property ownership and
personal privacy and it may take time to resolve these issues definitively.
Certain of NeoMedia's proprietary technology allows for the storage of
demographic data from NeoMedia's users. In 2000, the European Union adopted a
directive addressing data privacy that may limit the collection and use of
certain information regarding Internet users. This directive may limit
NeoMedia's ability to collect and use information collected by NeoMedia's
technology in certain European countries. In addition, the Federal Trade
Commission and several state governments have investigated the use by certain
Internet companies of personal information. NeoMedia could incur significant
additional expenses if new regulations regarding the use of personal information
are introduced or if NeoMedia's privacy practices are investigated.
In addition, certain of NeoMedia's micro paint solutions could be subject
to environmental regulations, which could impose significant additional expenses
to NeoMedia for compliance with such new regulations.
12
RISKS SPECIFIC TO THIS OFFERING
As of June 15, 2006, we had 636,093,744 shares of common stock
outstanding, and options and warrants to purchase up to an aggregate 229,512,049
shares of common stock. During 2006, we sold to Cornell Capital Partners
$27,000,000 of Series C Convertible Preferred Stock that is convertible into
shares of our common stock at the lower of (i) or 97% of the lowest closing bid
prices (as reported by Bloomberg) of the common stock for the 30 trading days
immediately preceding the conversion date, or (ii) $0.50 per share. Up to
110,000,000 common shares underlying the Series C Convertible Preferred Stock
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 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 pursuant to our transaction 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;
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;
13
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 June 15, 2006. Since February 9, 2006, NeoMedia's stock has
been subject to dramatic price volatility. Between February 9, 2006 and June 15,
2006, NeoMedia's stock has traded as low as $0.21 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.
NEOMEDIA COMMON STOCK HAS BEEN SUBJECT TO DRAMATIC PRICE VOLATILITY SINCE THE
FILING OF THE INFORMATION STATEMENT/PROSPECTUS RELATING TO THE MERGER WITH BSD
NeoMedia's stock has been subject to dramatic price volatility. Between
January 1, 2005 and June 15, 2006, NeoMedia's stock has traded as low as $0.189
per share and as high as $0.722 per share. The last sale price of NeoMedia
common stock on June 15, 2006 was $0.227.
YOU MAY SUFFER SIGNIFICANT ADDITIONAL DILUTION IF OUTSTANDING OPTIONS AND
WARRANTS ARE EXERCISED
As of June 15, 2006, we had outstanding stock options and warrants to
purchase 229,512,049 shares of common stock, some of which have exercise prices
at or below the price of our common shares on the public market. To the extent
such options or warrants are exercised, there will be further dilution. In
addition, in the event that any future financing should be in the form of, be
convertible into, or exchangeable for, equity securities, and upon the exercise
of options and warrants, investors may experience additional dilution.
YOU MAY SUFFER SIGNIFICANT DILUTION AS A RESULT OF OUR STANDBY EQUITY
DISTRIBUTION AGREEMENT WITH CORNELL CAPITAL PARTNERS
On March 30, 2005, we entered into a Standby Equity Distribution Agreement
(SEDA) with Cornell Capital Partners under which 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. Funds will be available
under the SEDA at such time when we have registered shares underlying the SEDA
arrangement. To date, NeoMedia has not registered any shares underlying the
SEDA, and has not drawn any funds against the SEDA.
14
FUTURE SALES OF COMMON STOCK BY OUR STOCKHOLDERS COULD ADVERSELY AFFECT OUR
STOCK PRICE AND OUR ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS
The market price of our common stock could decline as a result of sales of
a large number of shares of our common stock in the market as a result of this
offering, or the perception that these sales could occur. These sales also might
make it more difficult for us to sell equity securities in the future at a time
and at a price that we deem appropriate. The potential aggregate dilutive effect
on stockholders of financing and acquisition arrangements in place as of the
date of this filing, assuming various stock prices at the time of the
transactions, are as follows:
ASSUMED NEOMEDIA STOCK PRICE (6)
-------------------------------------------------------------------------
$0.100 $0.200 $0.300 $0.400
------ ------ ------ ------
Shares of common stock outstanding as of June 15, 2006 636,093,744 636,093,744 636,093,744 636,093,744
Plus pro forma common shares issued upon:
Conversion of outstanding options and warrants (1) 229,512,049 229,512,049 229,512,049 229,512,049
Completion of pending acquisition of Hip Cricket (2) 40,000,000 20,000,000 13,333,333 10,000,000
Completion of pending acquisition of Auto
Preservation (3) 10,000,000 5,000,000 3,333,333 2,500,000
Conversion of convertible preferred shares (4) 278,350,515 139,175,258 92,783,505 69,587,629
Draw-down of $100 million SEDA balance (5) 1,020,408,163 510,204,082 340,136,054 255,102,041
--------------- --------------- ---------------- ----------------
Pro forma shares outstanding after all
transactions 2,214,364,471 1,539,985,133 1,315,192,018 1,202,795,463
=============== =============== ================ ================
(1) Outstanding options and warrants include 75 million warrants issued
to Cornell Capital Partners in connection with the convertible
preferred shares, and 10 million warrants issued to Cornell Capital
Partners n connection with the $100 million SEDA agreement. These
warrants are not included in the pro forma share calculation for
Conversion of convertible preferred shares or draw-down of $100
million SEDA balance
(2) Acquisition is subject to a non-binding letter of intent. To date,
NeoMedia has advanced to Hip Cricket $500,000 in the form of two
promissory notes that will be applied to the purchase price if the
acquisition is completed. Number of shares shown above is calculated
as the $4,000,000 stock portion of the contemplated purchase price
divided by the pro forma assumed stock price.
(3) Acquisition of 30% of Auto Preservation is subject to a non-binding
letter of intent. Number of shares shown above is calculated as the
$1,000,000 stock portion of contemplated purchase price divided by
the pro forma assumed stock price.
(4) Convertible preferred shares convert into common shares at 97% of
the lowest closing bid price for the 30-day period prior to
conversion.
(5) Shares sold under the SEDA are valued at 98% of the lowest closing
bid price during the week they are sold. NeoMedia is not obligated
to draw any amounts against the $100 million limit.
(6) This table reflects the number of shares that would be issued to
satisfy current financing and acquisition transactions to which
NeoMedia is a party at different prices of NeoMedia stock at the
time the transaction is effected. The last sale price of NeoMedia
common stock on June 15, 2006 was $0.227. 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
636,093,744 shares of common stock outstanding as of June 15, 2006, are, or upon
effectiveness of this registration statement will be, freely tradable without
restriction, unless held by our "affiliates."
15
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements regarding
management's plans and objectives for future operations including plans and
objectives relating to our planned marketing efforts and future economic
performance. The forward-looking statements and associated risks set forth in
this Prospectus include or relate to, among other things, (a) our projected
sales and profitability, (b) our growth strategies, (c) anticipated trends in
our industry, (d) our ability to obtain and retain sufficient capital for future
operations, and (e) our anticipated needs for working capital. These statements
May be found under "About NeoMedia Technologies, Inc." as well as in this
Prospectus generally. Actual events or results may differ materially from those
discussed in forward-looking statements as a result of various factors,
including, without limitation, the risks outlined under "Risk Factors" and
matters described in this Prospectus generally. In light of these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this Prospectus will in fact occur.
The forward-looking statements herein are based on current expectations
that involve a number of risks and uncertainties. Such forward-looking
statements are based on assumptions that there will be no material adverse
competitive or technological change in conditions in our business, that demand
for our products will significantly increase, that our executive officers will
remain employed as such, that our forecasts accurately anticipate market demand,
and that there will be no material adverse change in our operations or business
or in governmental regulations affecting us or our manufacturers and/or
suppliers. The foregoing assumptions are based on judgments with respect to,
among other things, future economic, competitive and market conditions, and
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond our control. Accordingly, although we
believe that the assumptions underlying the forward-looking statements are
reasonable, any such assumption could prove to be inaccurate and therefore there
can be no assurance that the results contemplated in forward-looking statements
will be realized. In addition, as disclosed elsewhere in the "Risk Factors"
section of this Prospectus, there are a number of other risks inherent in our
business and operations which could cause our operating results to vary markedly
and adversely from prior results or the results contemplated by the
forward-looking statements. Growth in absolute and relative amounts of cost of
goods sold and selling, general and administrative expenses or the occurrence of
extraordinary events could cause actual results to vary materially from the
results contemplated by the forward-looking statements. Management decisions,
including budgeting, are subjective in many respects and periodic revisions must
be made to reflect actual conditions and business developments, the impact of
which May cause us to alter marketing, capital investment and other
expenditures, which May also materially adversely affect our results of
operations. In light of significant uncertainties inherent in the
forward-looking information included in this Prospectus, the inclusion of such
information should not be regarded as a representation by us or any other person
that our objectives or plans will be achieved.
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. Any statement in
this prospectus and in the documents incorporated by reference into this
prospectus that is not a statement of an historical fact constitutes a
"forward-looking statement" Further, when we use the words " may", "expect",
"anticipate", "plan", "believe", "seek", "estimate", "internal", and similar
words, we intend to identify statements and expressions that may be
forward-looking statements. We believe it is important to communicate certain of
our expectations to our investors. Forward-looking statements are not guarantees
of future performance. They involve risks, uncertainties and assumptions that
could cause our future results to differ materially from those expressed in any
forward-looking statements. Many factors are beyond our ability to control or
predict. You are accordingly cautioned not to place undue reliance on such
forward-looking statements. Important factors that May cause our actual results
to differ from such forward-looking statements include, but are not limited to,
the risk factors discussed below. Before you invest in our common stock, you
should be aware that the occurrence of any of the events described under "Risk
Factors" below or elsewhere in this Prospectus could have a material adverse
effect on our business, financial condition and results of operation. In such a
case, the trading price of our common stock could decline and you could lose all
or part of your investment.
16
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares of common stock
by the selling securityholders. We will, however, receive proceeds from the
exercise of the warrants held by the selling security holders.
For illustrative purposes, we have set forth below our intended use of
proceeds for the net proceeds to be received upon exercise of warrants being
registered hereunder. The table assumes estimated offering expenses of $50,000.
NUMBER OF EXERCISE
HOLDER WARRANTS PRICE PROCEEDS
------ -------- ----- --------
Cornell Capital Partners, LP 20,000,000 $0.500 $10,000,000
Cornell Capital Partners, LP 25,000,000 $0.400 10,000,000
Cornell Capital Partners, LP 30,000,000 $0.350 10,500,000
Thornhill Capital LLC 2,000,000 $0.328 656,000
Thornhill Capital LLC 4,000,000 $0.227 908,000
Thornhill Capital LLC 4,000,000 $0.110 440,000
David Kaminer 100,000 $0.102 10,200
Charles W. Fritz 1,500,000 $0.050 75,000
Charles W. Fritz 10,000 $0.030 300
William E. Fritz 40,000 $0.030 1,200
Thornhill Capital LLC 9,000,000 $0.010 90,000
William E. Fritz 2,500,000 $0.010 25,000
--------------
Gross proceeds $32,705,700
Less: estimated offering expenses (50,000)
--------------
Net Proceeds $32,655,700
==============
Net proceeds from in-the-money warrants $591,700 (1)
==============
(1) A significant portion of the potential proceeds relate to
warrants that were not in-the-money based on a stock price of $0.227,
which was the last sale price on June 15, 2006. As a result, for
informational purposes we have shown the total proceeds from warrants that
were in-the-money as of June 15, 2006.
If proceeds from the exercise of all warrants are received, NeoMedia
expects to use a portion of such proceeds to fund additional acquisitions in the
mobile marketing, cosmetic auto repair, and telecom billing industries. In the
event that NeoMedia's stock price does not reach $0.40, $30,500,000 of the
proceeds outlined above will not be received. In such a case, NeoMedia would use
the proceeds for general working capital purposes.
17
DILUTION
NeoMedia's net tangible book value as of March 31, 2006 was $(24,958,000)
or $(0.0397) 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, as well as
upon conversion of warrants for which the underlying shares are being registered
hereunder. Because the Series C Convertible Preferred Stock 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 is 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
$0.25 per share (net of 3% discount to Cornell Capital Partners).
If we assume that Cornell Capital Partners had converted all 27,000 of its
Series C Convertible Preferred shares at an assumed offering price of $0.25 per
share, net of 3% discount to Cornell Capital Partners, and all in-the-money
warrants being registered hereunder were converted, less offering expenses of
$50,000, our net tangible book value as of March 31, 2006 would have been
$(26,300) or $0.0001 per share. Such an offering would represent an immediate
increase in net tangible book value to existing stockholders of $0.0396 per
share and an immediate dilution to new stockholders of $0.2499 per share. The
following table illustrates the per share dilution:
Assumed public offering price per share $0.2500
Net tangible book value per share before this offering ($0.0397)
Increase attributable to new investors $0.0396
--------
Net tangible book value per share after this offering ($0.0001)
---------
Dilution per share to new stockholders $0.2499
-------
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 NUMBER OF SHARES SHARE TO
PRICE TO BE ISSUED (1) NEW INVESTORS
----- ---------------- -------------
$0.75 135,263,402 $0.7093
$0.50 133,820,103 $0.4723
$0.40 122,737,629 $0.3852
$0.25 132,490,206 $0.2499
$0.10 291,400,515 $0.1015
---------------------
(1) Represents the number of shares of common stock that would be issued at
the given market price, assuming (i) the entire $27 million Series C
Convertible Preferred Stock outstanding is converted at a price equal to
97% of the applicable price, and (ii) all in-the-money warrants being
registered hereunder are converted at their respective exercise price.
18
SELLING STOCKHOLDERS
The following table presents information regarding the selling
stockholders. The table identifies the selling stockholders. None of the selling
stockholders have held a position or office, or had any other material
relationship, with us, except as described below.
o Cornell Capital Partners, LP is the holder of: (i) 27,000 shares of
Series C Convertible Preferred Stock that is convertible into shares
of common stock, and warrants to purchase 85,000,000 shares of our
common stock. Mark Angelo, the portfolio manager of Cornell Capital
Partners, LP, is the natural person who exercises voting and/or
dispositive powers over the shares held by Cornell Capital Partners,
LP.
o Russell Gocht, Kevin Wells, Thai Tjen, Eric Hedman, and Mark Bees
were shareholders of Mobot, Inc., and as such are currently the
holders of shares issued as stock consideration in connection with
our acquisition of Mobot. These holders were employed by NeoMedia as
of the date of this filing.
o Helen Beare, Matthew Knox, Douglas MacDonald, Alexander Meisl, and
Daniel Parker were shareholders of Sponge Ltd., and as such are
currently the holders of shares issued as stock consideration in
connection with our acquisition of Sponge. These holders were
employed by NeoMedia as of the date of this filing.
o Ralph Schraven and Christian Steinborn were shareholders of Gavitec
AG, and as such are currently the holders of shares issued as stock
consideration in connection with our acquisition of Gavitec. Mr.
Steinborn was employed by NeoMedia as of the date of this filing,
and Mr. Schraven works for NeoMedia on a consulting basis.
o Dr. Michael Birkel and Bernd Muhlfriedel were shareholders of 12Snap
AG, and as such are currently the holders of shares issued as stock
consideration in connection with our acquisition of 12Snap. These
holders were employed by NeoMedia as of the date of this filing.
o Thornhill Capital LLC provides strategic advisment and evaluation
services relating to mergers, acquisitions and financing
opportunities for NeoMedia. The shares of common stock being
registered in the accompanying registration statement have been
granted from time to time as compensation to Thornhill Capital LLC
for the securing of financing on behalf of NeoMedia. Martha Refkin,
the President of Thornhill Capital LLC, is the natural person who
exercises voting and/or dispositive powers over the shares held by
Thornhill Capital LLC.
o Shares being registered hereunder in the name of Wayside Solutions,
Inc. were issued by NeoMedia as repayment of debt owed to Wayside by
BSD Software, Inc., which was acquired by NeoMedia in March 2006.
Blair McInnes, the managing member Wayside Solutions, is the natural
person who exercises voting and/or dispositive powers over the
shares held by Wayside Solutions. During portions of 2004 and 2005,
Blair McInnes was an outside sales consultant to NeoMedia. He is not
currently affiliated with NeoMedia.
o Charles W. Fritz is a founder and the Chairman of the Board of
Directors of NeoMedia. The shares being registered underly warrants
held by Mr. Fritz granted during 2002 and 2003.
o William E. Fritz is a founder and a member of the Board of Directors
of NeoMedia. The shares being registered underly warrants held by
Mr. Fritz granted during 2003.
o David Kaminer performs contracted public relations and investor
relations services for us. The shares being registered underly
warrants held by Mr. Kaminer granted during 2004 as payment of
professional services rendered to NeoMedia.
19
Absent registration under the Securities Act, the shares of common stock
offered herein are subject to certain limitations on resale. The Registration
Statement of which this Prospectus forms a part has been filed in satisfaction
of certain registration rights we granted to the entities listed below. The
following table assumes that the entities listed below will sell all of the
common stock offered herein set forth opposite their respective names.
The table follows:
PERCENTAGE OF
OUSTANDING
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 31,731,320 (2) 4.99% 185,000,000 2.04%
Russell Gocht 8,718,181 (3) 1.37% 8,718,181 ---
Kevin Wells 1,856,041 (3) * 1,769,791 *
Thai Tjen 510,205 (3) * 457,705 *
Eric Hedman 1,201,216 (3) * 1,122,466 *
Lauren Bigelow 456,334 (3) * 377,584 *
Mark Bees 497,223 (3) * 418,473 *
John Puopolo 392,318 (3) * 392,318 ---
Maureen Murphy 43,591 (3) * 43,591 ---
Eric Healy 34,873 (3) * 34,873 ---
Mark Freitas 1,960,370 (3) * 1,960,370 ---
Robert Fiondella 1,636,141 (3) * 1,636,141 ---
Helen Beare 849,963 (4) * 842,463 *
Thomas Buck 70,207 (4) * 70,207 ---
Samantha Flint 2,246,561 (4) * 2,246,561 ---
Mark Gibbons 702,049 (4) * 702,049 ---
Matthew Knox 1,148,281 (4) * 1,123,281 *
Douglas McDonald 260,616 (4) * 210,616 *
Theresa Meisl 1,263,689 (4) * 1,263,689 ---
Alexander Meisl 10,837,900 (4) 1.70% 10,756,650 *
Daniel Parker 9,855,029 (4) 1.55% 9,773,779 *
Justin Shaw 5,686,609 (4) * 5,686,609 ---
Philip Trelease 140,409 (4) * 140,409 ---
George Greig 280,822 (4) * 280,822 ---
GZ Paul Partners BV 5,083,002 (5)(6) * 5,083,002 ---
Julicher Kapital Beteiligungsgesellschaft mbH 557,989 (5)(7) * 557,989 ---
Jorg Kuchen 4,131,566 (5) * 4,131,566 ---
Richard Rolf Reuter 1,245,814 (5) * 1,245,814 ---
Ralph Schraven 1,073,030 (5) * 1,033,030 *
Franz-Josef Titz 1,043,245 (5) * 1,043,245 ---
Christian Steinborn 499,170 (5) * 399,170 *
Laurens Nunnink 166,695 (5) * 166,695 ---
Apax Europe IV - A L.P. 10,597,166 (8)(9) 1.67% 10,597,166 ---
Argo II, L.P. 10,108,589 (8)(10) 1.59% 10,108,589 ---
ARGO II The Wireless Internet Fund (Europe) L.P. 360,704 (8)(10) * 360,704 ---
ARGC IV, L.P. 105,751 (8)(10) * 105,751 ---
Nokia Ventures, L.P. 5,885,865 (8)(11) * 5,885,865 ---
Sirios Capital Partners, L.P. 191,552 (8)(12) * 191,552 ---
Sirios Capital Partners II, L.P. 1,083,443 (8)(12) * 1,083,443 ---
Sirios Overseas Fund Ltd. 1,686,862 (8)(12) * 1,686,862 ---
Sirios/QP Partners L.P. 4,440,671 (8)(12) * 4,440,671 ---
BCAP AG 2,115,008 (8)(13) * 2,115,008 ---
CDB Web Tech International L.P. 2,115,008 (8)(14) * 2,115,008 ---
Bernd M. Michael 2,525,818 (8) * 2,525,818 ---
Dr. Michael Birkel 3,020,156 (8) * 2,720,156 *
Bernd Muhlfriedel 2,804,883 (8) * 2,504,883 *
Cyriac Roeding 742,981 (8) * 742,981 ---
Alexander Brand 362,126 (8) * 362,126 ---
Andreas Muller 362,126 (8) * 362,126 ---
Moritz Winter 1,459,495 (8) * 1,385,872 *
Thornhill Capital LLC 19,000,000 (15) 2.90% 19,000,000 ---
Guy Fietz 7,807,042 (16) 1.22% 1,512,093 *
Wayside Solutions 3,721,698 (17) * 3,721,698 ---
Charles W. Fritz 31,763,555 (18) 4.83% 1,510,000 3.08%
William E. Fritz 53,150,944 (19) 8.28% 2,540,000 5.24%
David Kaminer 100,000 (20) * 100,000 ---
--------------------------------------------------------------------
TOTAL 261,701,660 38.00% 326,367,511 12.13%
====================================================================
20
---------------------------
* Indicates less than 1%.
(1) Applicable percentage of ownership is based on 636,093,744 shares of
common stock outstanding as of June 15, 2006, together with securities
exercisable or convertible into shares of common stock within 60 days of
June 15, 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 June 15, 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) 27,000 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) a warrant
to purchase up to 30,000,000 shares of NeoMedia common stock at an
exercise price of $0.35 per share; (iii) a warrant to purchase up to
25,000,000 shares of NeoMedia common stock at an exercise price of $0.40
per share; (iv), a warrant to purchase up to 20,000,000 shares of NeoMedia
common stock at an exercise price of $0.50 per share; (v) a warrant to
purchase up to 10,000,000 shares of NeoMedia common stock at an exercise
price of $0.20 per share; and (vi) one share of NeoMedia common stock held
in street name. The Series C Convertible Preferred Stock and certain of
the warrant agreements contain provisions whereby Cornell Capital Partners
may not own more than 4.99% of the outstanding shares of NeoMedia.
Beneficial ownership is therefore limited to 4.99% of NeoMedia's
outstanding shares. Shares being registered hereunder include 75 million
shares underlying warrants held by Cornell Capital Partners issued in
connection with the Series C Convertible Preferred Stock and 110,000,000
shares underlying the Series C Convertible Preferred Stock.
(3) Shares owned before offering consist of 16,931,493 shares issued in
connection with the acquisition of Mobot, Inc. in February 2006, which are
being registered hereunder, as well as 375,000 shares underlying currently
exercisable options held by former Mobot shareholders who are currently
employees of NeoMedia.
(4) Shares owned before offering consist of 33,097,135 shares issued in
connection with the acquisition of Sponge Ltd. in February 2006, which are
being registered hereunder, as well as 245,000 shares underlying currently
exercisable options held by former Sponge shareholders who are currently
employees of NeoMedia.
(5) Shares owned before offering consist of 13,660,511 shares issued in
connection with the acquisition of Gavitec AG in February 2006, which are
being registered hereunder, as well as 140,000 shares underlying currently
exercisable options held by former Gavitec shareholders who are currently
employees of NeoMedia.
(6) Dispositive control over the shares held by GZ Paul Partners BV rests with
Florus Mouthaan and Helmut A. Krueger in their respective capacities with
GZ Paul.
(7) Dispositive control over the shares held by Julicher Kapital
Beteiligungsgesellschaft mbH rests with Dr. Michael Gramm.
(8) Shares owned before offering consist of 49,294,581 shares issued in
connection with the acquisition of 12Snap AG in February 2006, which are
being registered hereunder, as well as 673,623 shares underlying currently
exercisable options held by former 12Snap shareholders who are currently
employees of NeoMedia.
(9) Dispositive control of the shares rests with Connie Helyar, Denise
Fallaize, Jeremy Arnold, Andrew Barrett, and Stephen Tilton, in their
capacities as directors of Apax Europe IV GP Co. Ltd., general partner to
Apax Europe IV - A L.P.
(10) Dispositive control of the shares rests with Henry Haight in his capacity
as President and CEO of Argo Global Capital, and Nancy Baron in her
capacity as VP Finance of Argo Global Capital.
(11) Nokia Ventures, L.P. is a Delaware limited partnership managed by its
general partner, N.V. I, L.L.C. Nokia Ventures, L.P. was formed to invest
in the securities of early-stage, privately-held companies in the
Internet, software, communications and related sectors. The limited
partner of Nokia Ventures, L.P. is a corporation that has no
decision-making authority over the management of the partnership. N.V. I,
L.L.C. is a Delaware limited liability company, which is managed by John
A. Malloy, John E. Gardner, W. Peter Buhl, Jonathan R. Ebinger and Tantti
Oy, a Finnish corporation owned and controlled by Antti S. Kokkinen, under
its operating agreement. The address of Nokia Ventures, L.P. is 545
Middlefield Road, Suite 210, Menlo Park, CA 94025.
21
(12) Dispositive control of the shares rests with John F. Brennan, Jr. in his
capapcity as CFO of Sirios Capital Management.
(13) Dispositive control of the shares rests with Andreas Meyer, Bruno Reihl,
and Dieter Spaelti in their capacities as members of the board of
directors of BCAP AG.
(14) Dispositive control of the shares rests with Mr Douglas Paterson in his
capacity as Chairman and Miss Charlotte Westley in her capacity as Company
Secretary.
(15) Shares owned before offering consist of 19,000,000 warrants to purchase
shares of common stock granted between 2003 and 2006, which are being
registered hereunder.
(16) Shares owned before offering consist of (i) 1,512,093 shares issued to
satisfy debt to Mr. Fietz, which are being registered hereunder, (ii)
4,500,000 currently exercisable options held by Mr. Fietz as an employee
of NeoMedia, and (ii) 1,794,949 previously registered shares issued in
connection with the acquisition of BSD Software by NeoMedia in March 2006.
(17) Shares owned before offering consist of 3,721,698 shares issued to satisfy
debt to Wayside Solutions which are being registered hereunder.
(18) Charles W. Fritz is NeoMedia's founder and the Chairman of the Board of
Directors. Shares beneficially owned include 100 shares owned by each of
Mr. Fritz's four children for an aggregate of 400 shares, 20,000,000
shares (15,500,000 of which are tradable within 60 days hereof) of common
stock issuable upon exercise of stock options held by Mr. Fritz, 1,510,000
shares issuable upon exercise of stock warrants, 8,710,186 shares of
common stock owned by Mr. Charles W. Fritz directly, and 1,542,969 shares
of common stock held by the CW/LA II Family Limited Partnership, a family
limited partnership for the benefit of Mr. Fritz's family.
(19) William E. Fritz, a member of the Board of Directors, and his wife, Edna
Fritz, are the general partners of the Fritz Family Limited Partnership
and therefore each are deemed to be the beneficial owners of the 1,511,742
shares held in the Fritz Family Partnership. As trustee of each of the
Chandler R. Fritz 1994 Trust, Charles W. Fritz 1994 Trust and Debra F.
Schiafone 1994 Trust, William E. Fritz is deemed to be the beneficial
owner of the 165,467 shares of NeoMedia held in these trusts.
Additionally, Mr. Fritz is deemed to own: 45,433,735 shares held directly
by Mr. Fritz or his spouse, 2,540,000 shares to be issued upon the
exercise of warrants held by Mr. Fritz or his spouse, and 3,500,000 shares
(all exercisable) to be issued upon the exercise of options held by Mr.
Fritz or his spouse. Mr. William E. Fritz may be deemed to be a parent and
promoter of NeoMedia, as those terms are defined in the Securities Act.
(20) Shares owned before offering consist of 100,000 shares underlying warrants
issued in exchange for professional services rendered to NeoMedia.
22
MATERIAL TRANSACTIONS WITH SELLING STOCKHOLDERS
CORNELL CAPITAL PARTNERS
SECURITIES PURCHASE AGREEMENT - SERIES C CONVERTIBLE PREFERRED STOCK
We entered into a Securities Purchase Agreement, dated February 17, 2006
(the "Agreement") with Cornell Capital Partners LP, an accredited investor (the
"Purchasers"). Pursuant to the 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 $27,000,000 ($22
million of which was funded at closing and an additional $5 million to be funded
upon effectiveness of a registration covering the common shares underlying the
Series C convertible preferred stock). Net consideration from this arrangement
amounted to $17,854,000, comprised of cash of $14,066,000, marketable securities
with a calculated fair value of $579,000 and a purchase value of $2,000,000, and
the extinguishment of $3,209,000 of preexisting indebtedness. In addition, the
Purchasers withheld $2,725,000 commitment and structuring fees from the gross
proceeds. The Agreement also provides for the issuance to the Purchasers, at no
additional cost to the Purchasers, warrants to purchase shares of the Company's
common stock. In connection with the Agreement, the Company also entered into a
Registration Rights Agreement with the Purchasers that requires the Company to
(i) file a registration statement with the SEC registering the resale of the
shares of common stock issuable upon conversion of the preferred stock and the
exercise of the warrants, (ii) achieve effectiveness within 180 days of such
filing and (iii) maintain effectiveness of the registration statement. Failure
to meet these requirements will require the Company to incur liquidating damages
amounting to 1.0% for each month, but in no event shall consideration paid as
liquidating damages exceed $1,200,000.
The Company has issued the Purchasers $27,000,000 in aggregate principal
amount of such 8% cumulative Series C convertible preferred stock. At any time
prior to February 17, 2009, the Purchasers have the right to convert the
preferred stock, in whole or in part, into common stock of the Company at the
then effective conversion price, which varies relative to the Company's trading
stock price, as follows: $0.50 per share, or 97% of the lowest closing bid
prices (as reported by Bloomberg) of the common stock for the 30 trading days
immediately preceding the conversion date. The conversions are limited such that
the holder cannot exceed 4.99% ownership, unless the holders waive their right
to such limitation. The limitation will terminate under any event of default.
The 8% cumulative Series C convertible preferred stock also affords the
Purchasers anti-dilution protection should, at any time while the Series C
preferred stock are outstanding, the Company offers, sells or grants any option
to purchase or offers, sells or grants any right to re-price its securities, or
otherwise disposes of or issue any common stock or common stock equivalents,
entitles any person to acquire shares of common stock at an effective price per
share less than the then effective conversion price (excluding employee stock
options), as calculated by the formula described above; then, in such instance,
the conversion price for the Series C convertible preferred stock shares shall
be reduced to the lower price. In case of any such adjustment in the effective
conversion price for the Series C convertible preferred shares, this could
significantly dilute existing investors.
Under the Agreement, the Purchasers also received "A" warrants, "B"
warrants and "C" warrants to purchase an aggregate of up to 75,000,000 shares of
common stock. The warrants are exercisable in three separate traunches at a
price of $0.50, $0.40 and $0.35, respectively per share, subject to adjustment,
and include under anti-dilution protection similar to that described above. The
warrants have a five-year term. NeoMedia can force exercise of the warrants if
the closing bid price of NeoMedia stock is more than $0.05 greater than the
exercise price of any of the warrants for 15 consecutive trading days.
The 8% cumulative Series C convertible preferred stock contains
consequences in case of an event of default. Events of default which could
subject the Company to penalties and liabilities as specified in the Agreement
include:
o Any case or action of bankruptcy or insolvency commenced by the
Company or any subsidiary, against the Company or adjudicated by a
court against the Company for the benefit of creditors;
o Any default in its obligations under a mortgage or debt in excess of
$100,000;
o Any cessation in the eligibility of the Company's stock to be quoted
on a trading market;
o Any lapse in the effectiveness of the registration statement
covering the shares related to the conversion option, the warrants
as described and transacted in the securities purchase agreement and
accompanying documents;
23
o Any failure to deliver certificates within the specified time; and
o Any failure, by the Company, to pay in full the amount of cash due
pursuant to a buy-in or failure to pay any amounts owed on account
on account of an event of default within 10 days of the date due.
Additional provisions of the Agreement include the following:
o The 8% cumulative Series C convertible preferred stock is
convertible into common stock, at the option of the Purchaser, at
any time after the effective date.
o Conversions can be made in increments and from time to time.
o The 8% cumulative Series C convertible preferred stock has voting
rights on an "as converted" basis, meaning the Purchaser is entitled
to vote the number of shares of common stock into which the 8%
cumulative Series C convertible preferred stock was convertible as
of the record date for a meeting of shareholders
o As promptly as practicable after any conversion date, the Company
shall cause its transfer agent to deliver a certificate representing
the converted shares, free of any legends and trading restrictions
for the number of shares converted;
o The Company will reserve and keep available authorized and unissued
registered shares available to be issued upon conversion;
o Purchaser will not be responsible for any transfer taxes relative to
issuance of shares;
o If the Company offers, sells or grants stock at an effective per
share price less than the then Conversion Price, then the Conversion
Price shall be reduced to equal the effective conversion, exchange
or purchase price for such common stock or common stock equivalents;
STANDBY EQUITY DISTRIBUTION AGREEMENTS WITH CORNELL CAPITAL PARTNERS
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 three months ended March 31, 2006 and 2005, we sold 751,880 and
6,998,931 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 three months ended March 31, 2006 and 2005:
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------------ --------------------------------------
2006 2005 2005 2004 2003
---- ---- ---- ---- ----
Number of shares sold to Cornell Capital Partners 751,880 6,998,931 26,435,512 112,743,417 98,933,244
Gross Proceeds from sale of shares to Cornell Capital
Partners $234,000 $1,709,000 $9,527,000 $10,123,000 $9,565,000
Less: discounts and fees* (24,000) (204,000) (1,022,000) (1,967,000) (6,772,000)
----------- ------------ ------------ ------------ ------------
Net Proceeds from sale of shares to Cornell Capital
Partners $210,000 $1,505,000 $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.
24
On March 30, 2005, NeoMedia and Cornell Capital Partners entered into a
Standby Equity Distribution Agreement (the "2005 SEDA") under which Cornell
Capital Partners agreed to purchase up to $100 million of NeoMedia common stock
over a two-year period, with the timing and amount of the purchase at NeoMedia's
discretion. The maximum amount of each purchase would be $2,000,000 with a
minimum of five business days between advances. The shares would be valued at
98% of the lowest closing bid price during the five-day period following the
delivery of a notice of purchase by NeoMedia, and NeoMedia would pay 5% of the
gross proceeds of each purchase to Cornell Capital Partners. Concurrent with the
SEDA, we entered into an escrow agreement with Cornell Capital Partners and an
escrow agreement, under which the escrow agent holds in an escrow account shares
of our common stock, and the cash paid by Cornell Capital Partners for such
shares, issued pursuant to an advance under the SEDA. The shares and funds can
only be released upon receipt by the escrow agent of a joint disbursement
instruction signed by NeoMedia and Cornell Capital Partners. We expect to file a
registration statement with the SEC to register the shares underlying the 2005
SEDA during 2006. The 2005 SEDA would become available at the time the SEC
declares effective a registration statement containing such shares.
As a commitment fee for Cornell Capital Partners to enter into the 2005
SEDA, we issued 50 million warrants to Cornell Capital Partners with an exercise
price of $0.20 per share, and a term of three years, and also paid a cash
commitment fee of $1 million. During the three months ended March 31, 2006,
Cornell Capital Partners exercised 40 million of the warrants, generating cash
proceeds of $8 million to NeoMedia. We also issued 4 million warrants with an
exercise price of $0.227 to a consultant as a fee in connection with the 2005
SEDA, which have not been exercised.
PROMISSORY NOTES PAYABLE TO CORNELL CAPITAL PARTNERS
On May 27, 2003, we borrowed from Cornell Capital Partners the gross
amount of $245,000 before discounts and fees. The note was repaid in full during
2003.
On June 24, 2003, we borrowed from Cornell Capital Partners the gross
amount of $400,000 before discounts and fees. The note was repaid in full during
2003.
On July 21, 2003, we borrowed from Cornell Capital Partners the gross
amount of $200,000 before discounts and fees. The note was repaid in full during
2003.
On August 1, 2003, we borrowed from Cornell Capital Partners the gross
amount of $200,000 before discounts and fees. The note was repaid in full during
2003.
On September 2, 2003, we borrowed from Cornell Capital Partners the gross
amount of $200,000 before discounts and fees. The note was repaid in full during
2003.
On September 11, 2003, we received funding in the form of a promissory
note from Cornell Capital Partners in the gross amount of $500,000 before
discounts and fees. The note was repaid in full during 2003.
On January 20, 2004, we borrowed from Cornell Capital Partners the gross
amount of $4,000,000 before discounts and fees. Of the $4,000,000 funding,
$2,500,000 was used to fund the acquisition of CSI International, Inc. during
February 2004. Cornell Capital Partners withheld a $315,000 retention fee
related to the issuance of stock to pay off the debt in the future. We paid this
note in full during 2004.
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.
25
On April 8, 2004, we borrowed from Cornell Capital Partners the gross
amount of $1,000,000 before discounts and fees. Cornell Capital Partners
withheld a $76,000 retention fee related to the issuance of stock to pay off the
debt in the future. We paid this note in full during 2004.
On July 2, 2004, we borrowed from Cornell Capital Partners the gross
amount of $1,000,000 before discounts and fees. Cornell Capital Partners
withheld a $76,000 retention fee related to the issuance of stock to pay off the
debt in the future. We paid this note in full during 2004.
On August 6, 2004, we borrowed from Cornell Capital Partners the gross
amount of $2,000,000 before discounts and fees. Cornell Capital Partners
withheld a retention fee of $153,000 related to the issuance of stock to pay off
the debt in the future. We paid this note in full during 2004.
On October 18, 2004, we borrowed from Cornell Capital Partners the gross
amount of $1,085,000 before discounts and fees. Cornell Capital Partners
withheld a retention fee of $85,000 related to the issuance of stock to pay off
the debt in the future. We paid this note in full during the first quarter of
2005. We invested the proceeds from the note in iPoint-media pursuant to the
investment agreement between us and I-Point Media Ltd.
On March 30, 2005, we borrowed from Cornell Capital Partners the principal
amount of $10,000,000 before discounts and fees in the form of a secured
promissory note. Cornell Capital Partners withheld structuring and escrow fees
of $68,000 related to the note. The note accrued interest at 8% per annum on any
unpaid principal and was secured by all of our assets other than patents and
patent application. We paid this note in full during the first quarter of 2006.
THORNHILL CAPITAL
On September 3, 2003, we issued 10 million warrants with an exercise price
of $0.01 to Thornhill as a fee for negotiating and structuring the 2003 SEDA.
On January 29, 2004, we entered into a consulting agreement with Thornhill
Capital LLP that pays Thornhill $15,000 per month for assistance in connection
with potential acquisitions transactions, and corporate strategy planning. The
contract has a term of two years and automatically renews for successive
one-year periods if not cancelled by either party. On July 22, 2005, the
agreement was amended to pay Thornhill $19,500 per month and the term was
extended until July 22, 2007.
On March 8, 2004, we issued 4 million warrants with an exercise price of
$0.11 to Thornhill as a fee for negotiating and structuring a $7 million advance
funding under the 2003 SEDA.
On March 30, 2005, we issued 4 million warrants with an exercise price of
$0.227 to Thornhill as a fee for negotiating and structuring the $100 million
SEDA.
On February 14, 2006, we issued 2 million warrants with an exercise price
of $0.328 to Thornhill as a fee for negotiating and structuring the $27 million
Series C Convertible Preferred Stock sale.
26
FORMER SHAREHOLDERS OF SPONGE LTD.
On February 20, 2006, NeoMedia and Sponge signed a definitive share
purchase agreement, subject to closing conditions, under which NeoMedia acquired
all of the outstanding shares of Sponge in exchange for (pound)3,450,000
(approximately $6 million) cash and 33,097,135 shares of NeoMedia common stock,
being registered hereunder. The agreement also calls for Sponge to earn an
additional (pound)2,500,000 (approximately $4.4 million) in the form of NeoMedia
common stock if, during the two-year period beginning at closing, the Sponge
business earns in excess of (pound)1,300,000 (approximately $2.3 million) in net
profits. On February 23, 2006, NeoMedia and Sponge completed the closing
requirements and the acquisition became effective. Pursuant to the terms of the
merger agreement, the number of shares of NeoMedia common stock to be issued as
consideration was calculated using a share price of $0.384. In the event that
NeoMedia's stock price at the time the consideration shares are saleable is less
than $0.384, NeoMedia is obligated to compensate Sponge shareholders in cash for
the difference between the price at the time the shares become saleable and
$0.384. Assuming a stock price at the time the shares become saleable of $0.227,
which was the last sale price on June 15, 2006, NeoMedia would have a cash
liability of $5.2 million resulting from this clause.
FORMER SHAREHOLDERS OF GAVITEC AG
On February 17, 2006, NeoMedia and Gavitec signed a definitive sale and
purchase agreement, subject to closing conditions, under which NeoMedia acquired
all of the outstanding shares of Gavitec in exchange for $1,800,000 cash and
13,660,511 shares of NeoMedia common stock, being registered hereunder. On
February 23, 2006, NeoMedia and Gavitec completed the closing requirements and
the acquisition became effective. In the event that NeoMedia's stock price at
the time the consideration shares are saleable is less than $0.389, NeoMedia is
obligated to compensate Gavitec shareholders in cash for the difference between
the price at the time the shares become saleable and $0.389. Assuming a stock
price at the time the shares become saleable of $0.227, which was the last sale
price on June 15, 2006, NeoMedia would have a cash liability of $2.3 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 $0.227, which
was the last sale price on June 15, 2006, NeoMedia would have a cash liability
of $8.3 million resulting from this clause.
FORMER SHAREHOLDERS OF MOBOT, INC.
On February 17, 2006, NeoMedia acquired all of the outstanding shares of
Mobot in exchange for $3,500,000 cash and $6,500,000 in shares of NeoMedia
common stock. The $6,500,000 stock portion of the purchase price is represented
by 16,931,493 shares of NeoMedia common stock, being registered hereunder.
Pursuant to the terms of the merger agreement, the number of shares of NeoMedia
common stock to be issued as stock consideration was calculated using a share
price of $0.3839. In the event that NeoMedia's stock price at the time the
consideration shares are saleable is less than $0.3839, NeoMedia is obligated to
compensate Mobot shareholders in cash for the difference between the price at
the time the shares become saleable and $0.3839. In addition to cash and stock,
at closing NeoMedia forgave notes payable totaling $1,500,000 due from Mobot.
Assuming a stock price at the time the shares become saleable of $0.227, which
was the last sale price on June 15, 2006, NeoMedia would have a cash liability
of $2.7 million resulting from this clause.
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 hregistered hereunder. If all warrants being
registered hereunder were exercised, we would receive proceeds of $32,655,700
(net of registration fees). However, the exercise price of a signifiact number
of the warrants is higher than the current stock price. If only in-the-money
warrants were exercised, we would receive proceeds of $591,700 (net of
registration fees).
The selling stockholders should be aware that the anti-manipulation
provisions of Regulation M under the Exchange Act will apply to purchases and
sales of shares of common stock by the selling stockholders, and that there are
restrictions on market-making activities by persons engaged in the distribution
of the shares. Under Regulation M, the selling stockholders or their agents may
not bid for, purchase, or attempt to induce any person to bid for or purchase,
shares of our common stock while such selling stockholders are distributing
shares covered by this prospectus. Accordingly, except as noted below, the
selling stockholders are not permitted to cover short sales by purchasing shares
while the distribution is taking place. The selling stockholders are advised
that if a particular offer of common stock is to be made on terms constituting a
material change from the information set forth above with respect to the Plan of
Distribution, then, to the extent required, a post-effective amendment to the
accompanying registration statement must be filed with the Securities and
Exchange Commission.
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
NeoMedia is authorized to issue 1,000,000,000 shares of common stock, par
value $0.01 per share, of which 636,093,744 shares were issued and outstanding
as of June 15, 2006. 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 to be issued in connection with the
Company's stockholders rights plan. No shares of Series A Preferred have been
issued as of June 15, 2006.
SERIES A CONVERTIBLE PREFERRED STOCK. On June 19, 2001, the Board of
Directors approved a Certificate of Designations to Create 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. 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:
30
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;
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., filed on February 28, 2002. 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 not have voting
rights until converted into shares of common stock.
As of June 15, 2006, 27,000 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 June 15, 2006, we had outstanding options and warrants to purchase
121,187,049 and 108,325,000, 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 February 17, 2006, in connection with the $27 million 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. Each of the warrants has a
term of three years. The shares underlying the warrants are being registered for
resale hereunder.
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. As of June 15, 2006,
Cornell Capital Partners had exercised 40 million of the warrants, generating
proceeds of $8 million to NeoMedia.
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 March 31, 2006, NeoMedia had issued approximately 152
million options under the 2003 Stock Option Plan, of which approximately 24
million had been exercised, and 4 million had been forfeited.
On December 16, 2005, NeoMedia's shareholders approved the 2005 Stock
Option Plan. Under this plan, NeoMedia is authorized to grant to employees,
directors, and consultants up to 60,000,000 options to purchase shares of common
stock. As of March 31, 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 audited consolidated financial statements of NeoMedia Technologies,
Inc. and its subsidiaries for the years ended December 31, 2005 and 2004 have
been audited by Stonefield Josephson, Inc., independent registered public
accounting firm, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said report. Reference is made to said report, which includes an explanatory
paragraph with respect to the uncertainty regarding NeoMedia's ability to
continue as a going concern, as discussed in Note 1 to the consolidated
financial statements.
The audited consolidated financial statements of Mobot, Inc. for the years
ended December 31, 2005 and 2004 have been audited by Stonefield Josephson,
Inc., independent registered public accounting firm, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report. Reference is made to
said report, which includes an explanatory paragraph with respect to the
uncertainty regarding Mobot's ability to continue as a going concern, as
discussed in Note 1 to the financial statements.
The financial statements of 12Snap AG as of December 31, 2005 and 2004 and
for the years then ended appearing in Amendment No.1 to Form 8-K filing dated
May 8, 2006, have been audited by Ernst & Young AG, independent auditors, as set
forth in their report thereon ( which contains an explanatory paragraph
describing conditions that raise substantial doubt about 12Snap AG's ability to
continue as a going concern described in Note 2 to the financial statements),
included therein and incorporated herein by reference. Such financial statements
are incorporated herein by reference in reliance upon such report given the
authority of such firm as experts in accounting and auditing.
The financial statements of Gavitec AG as of December 31, 2005 and 2004
and for the years then ended appearing in Amendment No. 1 to Form 8-K filing
dated May 9, 2006, have been audited by Ernst & Young AG, independent auditors,
as set forth in their report thereon (which contains an explanatory paragraph
describing conditions that raise substantial doubt about Gavitec AG's ability to
continue as a going concern as described in Note 1 to the financial statements),
included therein and incorporated herein by reference. Such financial statements
are incorporated herein by reference in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
The audited consolidated financial statements of Sponge Limited for the
years ended September 30, 2005 and 2004 have been audited by Brebner, Allen &
Trapp, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
The audited consolidated financial statements of BSD Software, Inc. and
its subsidiaries for the year ended July 31, 2005 have been audited by
Stonefield Josephson, Inc., independent registered public accounting firm, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
Reference is made to said report, which includes an explanatory paragraph with
respect to the uncertainty regarding BSD's ability to continue as a going
concern, as discussed in Note 1 to the consolidated financial statements.
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 included herein in reliance upon the authority of said firm as experts in
giving said report. Reference is made to said report, which includes an
explanatory paragraph with respect to the uncertainty regarding BSD's ability to
continue as a going concern.
33
MATERIAL CHANGES
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 injunctive relief is being held on June 22,
2006. NeoMedia will be opposing the request. A responsive pleading is not yet
due, but NeoMedia will respond to the Complaint in a timely manner.
NeoMedia does intend to defend the lawsuit vigorously.
34
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
35
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-QSB for the three and nine months ended
September 30, 2005
o Quarterly Report on Form 10-QSB for the three and six months ended
June 30, 2005
o Current Reports on Form 8-K as filed on February 10, 2006, February
14, 2006, February 17, 2006, February 21, 2006 (as amended on May 3,
2006), February 22, 2006, February 24, 2006 (as amended May 8, 2006,
May 9, 2006, and June 20, 2006), March 2, 2006, March 22, 2006 (as
amended June 2, 2006 ), March 23, 2006, and 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.
36
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth estimated expenses expected to be incurred
in connection with the issuance and distribution of the securities being
registered. We will pay all expenses in connection with this offering.
Printing and Engraving Expenses $ 5,000
Accounting Fees and Expenses 20,000
Legal Fees and Expenses 20,000
Miscellaneous 5,000
------------
TOTAL $ 50,000
============
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Delaware General Corporation Law (the "DGCL"), we have
included in our Certificate of Incorporation a provision to eliminate the
personal liability of its directors for monetary damages for breach or alleged
breach of their fiduciary duties as directors, except for liability (i) for any
breach of the director's duty of loyalty to NeoMedia or its stockholders, (ii)
for acts or omissions not in good faith or which involved intentional misconduct
or a knowing violation of law, (iii) in respect of certain unlawful dividend
payments or stock redemptions or repurchases, as provided in Section 174 of the
DGCL, or (iv) for any transaction from which the director derived an improper
personal benefit. The effect of this provision is to eliminate the rights of
NeoMedia and our stockholders (through stockholders' derivative suits on behalf
of NeoMedia) to recover monetary damages against a director for breach of the
fiduciary duty of care as a director except in the situations described in
clauses (i) through (iv) above. This provision does not limit nor eliminate the
rights of NeoMedia or any stockholder to seek non-monetary relief such as an
injunction or rescission in the event of a breach of a director's duty of care.
These provisions will not alter the liability of directors under federal
securities laws.
The Certificate of Incorporation and the bylaws of NeoMedia provide that
it is required and permitted to indemnify our officers and directors, employees
and agents under certain circumstances. In addition, if permitted by law, we are
required to advance expenses to our officers and directors as incurred in
connection with proceedings against them in their capacity as a director or
officer for which they may be indemnified upon receipt of an undertaking by or
on behalf of such director or officer to repay such amount if it shall
ultimately be determined that such person is not entitled to indemnification. At
present, we are not aware of any pending or threatened litigation or proceeding
involving a director, officer, employee or agent of NeoMedia in which
indemnification would be required or permitted.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "1933 Act") may be permitted to directors, officers
or controlling persons of NeoMedia pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the United States
Securities and Exchange Commission such indemnification is against public policy
as expressed in the 1933 Act and is, therefore, unenforceable.
II-1
ITEM 16. EXHIBITS
(a) The following exhibits are filed herewith or incorporated herein by
reference:
EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------
3.1 Articles of Incorporation of Dev-Tech Associates, Inc. Incorporated by reference to Exhibit 3.1 to
and amendment thereto Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
3.2 Bylaws of DevSys, Inc. Incorporated by reference to Exhibit 3.2 to
Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
3.3 Restated Certificate of Incorporation of DevSys, Inc. Incorporated by reference to Exhibit 3.3 to
Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
3.4 By-laws of DevSys, Inc. Incorporated by reference to Exhibit 3.4 to
Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
3.5 Articles of Merger and Agreement and Plan of Merger of Incorporated by reference to Exhibit 3.5 to
DevSys, Inc and Dev-Tech Associates, Inc. Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
3.6 Certificate of Merger of Dev-Tech Associates, Inc. Incorporated by reference to Exhibit 3.6 to
into DevSys, Inc. Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
3.7 Articles of Incorporation of Dev-Tech Migration, Inc. Incorporated by reference to Exhibit 3.7 to
and amendment thereto Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
3.8 By-laws of Dev-Tech Migration, Inc. Incorporated by reference to Exhibit 3.8 to
Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
3.9 Restated Certificate of Incorporation of DevSys Incorporated by reference to Exhibit 3.9 to
Migration, Inc. Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
3.10 Form of By-laws of DevSys Migration, Inc. Incorporated by reference to Exhibit 3.10 to
Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
3.11 Form of Agreement and Plan of Merger of Dev-Tech Incorporated by reference to Exhibit 3.11 to
Migration, Inc. into DevSys Migration, Inc. Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
3.12 Form of Certificate of Merger of Dev-Tech Migration, Incorporated by reference to Exhibit 3.12 to
Inc. into DevSys Migration, Inc. Registrant's Registration Statement No.
333-5534 as filed with the SEC on November 25,
1996
II-2
3.13 Certificate of Amendment to Certificate of Incorporated by reference to Exhibit 3.13 to
Incorporation of DevSys, Inc. changing its name to Registrant's Registration Statement No.
NeoMedia Technologies, Inc. 333-5534 as filed with the SEC on November 25,
1996
3.14 Form of Certificate of Amendment to Certificate of Incorporated by reference to Exhibit 3.14 to
Incorporation of NeoMedia Technologies, Inc. Registrant's Registration Statement No.
authorizing a reverse stock split 333-5534 as filed with the SEC on November 25,
1996
3.15 Form of Certificate of Amendment to Restated Incorporated by reference to Exhibit 3.5 to
Certificate of Incorporation of NeoMedia Technologies, Registrant's Annual Report as filed with the
Inc. increasing authorized capital and creating SEC on November 2, 2001
preferred stock
5.1 Opinion re: legality To be filed by amendment
10.1 Consulting Agreement between NeoMedia and Thornhill Incorporated by reference to Exhibit 10. 1 to
Capital, dated December 5, 2001 the Registrant's Form S-3/A as filed on January
30, 2006
10.2 First Agreement and Amendment to Consulting Agreement Incorporated by reference to Exhibit 10. 2 to
between NeoMedia and Thornhill Capital, dated January the Registrant's Form S-3/A as filed on January
29, 2004 30, 2006
10.3 Second Agreement and Amendment to Consulting Agreement Incorporated by reference to Exhibit 10. 3 to
between NeoMedia and Thornhill Capital, dated July 22, the Registrant's Form S-3/A as filed on January
2005 30, 2006
10.4 Standby Equity Distribution Agreement, dated October Incorporated by reference to Exhibit 10.91 to
27, 2003, between NeoMedia and Cornell Capital Partners the Registrant's Form SB-2/A as filed on
December 19, 2003
10.5 Form of Registration Rights Agreement, dated October Incorporated by reference to Exhibit 10.93 to
27, 2003, between NeoMedia and Cornell Capital Partners the Registrant's Form SB-2/A as filed on
December 19, 2003
10.6 Form of Escrow Agreement, dated October 27, 2003, Incorporated by reference to Exhibit 10.94 to
between NeoMedia and Cornell Capital Partners the Registrant's Form SB-2/A as filed on
December 19, 2003
10.7 $4 million Promissory note payable to Cornell Capital Incorporated by reference to Exhibit 10.49 to
Partners, dated January 15, 2004 the Registrant's Form 10-KSB as filed on March
9, 2004
10.8 Standby Equity Distribution Agreement, dated March Incorporated by reference to Exhibit 16.1 to
30,2005, between NeoMedia and Cornell the Registrant's Form 8-K as filed on April 1,
2005
10.9 Placement Agent Agreement, dated March 30, 2005, Incorporated by reference to Exhibit 16.2 to
between NeoMedia and Cornell Capital Partners the Registrant's Form 8-K as filed on April 1, 2005
10.10 Escrow Agreement, dated March 30, 2005, between Incorporated by reference to Exhibit 16.3 to
NeoMedia and Cornell Capital Partners the Registrant's Form 8-K as filed on April 1,
2005
10.11 Registration Rights Agreement, dated March 30, 2005, Incorporated by reference to Exhibit 16.4 to
between NeoMedia and Cornell Capital Partners the Registrant's Form 8-K as filed on April 1,
2005
II-3
10.12 Promissory Note, dated March 30, 2005, between Incorporated by reference to Exhibit 16.5 to
NeoMedia and Cornell Capital Partners the Registrant's Form 8-K as filed on April 1,
2005
10.13 Security Agreement, dated March 30, 2005, between Incorporated by reference to Exhibit 16.6 to
NeoMedia and Cornell the Registrant's Form 8-K as filed on April 1,
2005
10.14 Warrant dated March 30, 2005, granted by NeoMedia to Incorporated by reference to Exhibit 10. 12 to
Thornhill Capital LLC the Registrant's Amendment No. 1 to Form S-3 as
filed on July 18, 2005
10.15 Warrant dated March 30, 2005, granted by NeoMedia to Incorporated by reference to Exhibit 10. 13 to
Cornell Capital Partners LP the Registrant's Amendment No. 1 to Form S-3 as
filed on July 18, 2005
10.16 Promissory Note, dated March 13, 2003, between Incorporated by reference to Exhibit 10.16 to
NeoMedia and Cornell Capital Partners the Registrant's Form S-3/A as filed on January
30, 2006
10.17 Promissory Note, dated May 27, 2003, between NeoMedia Incorporated by reference to Exhibit 10.17 to
and Cornell Capital Partners the Registrant's Form S-3/A as filed on January
30, 2006
10.18 Promissory Note, dated June 24, 2003, between NeoMedia Incorporated by reference to Exhibit 10.18 to
and Cornell Capital Partners the Registrant's Form S-3/A as filed on January
30, 2006
10.19 Promissory Note, dated July 21, 2003, between NeoMedia Incorporated by reference to Exhibit 10.19 to
and Cornell Capital Partners the Registrant's Form S-3/A as filed on January
30, 2006
10.20 Promissory Note, dated August 1, 2003, between Incorporated by reference to Exhibit 10.20 to
NeoMedia and Cornell Capital Partners the Registrant's Form S-3/A as filed on January
30, 2006
10.21 Promissory Note, dated September 2, 2003, between Incorporated by reference to Exhibit 10.21 to
NeoMedia and Cornell Capital Partners the Registrant's Form S-3/A as filed on January
30, 2006
10.22 Promissory Note, dated September 11, 2003, between Incorporated by reference to Exhibit 10.22 to
NeoMedia and Cornell Capital Partners the Registrant's Form S-3/A as filed on January
30, 2006
10.23 Promissory Note, dated April 8, 2004, between NeoMedia Incorporated by reference to Exhibit 10.23 to
and Cornell Capital Partners the Registrant's Form S-3/A as filed on January
30, 2006
10.24 Promissory Note, dated July 2, 2004, between NeoMedia Incorporated by reference to Exhibit 10.24 to
and Cornell Capital Partners the Registrant's Form S-3/A as filed on January
30, 2006
10.25 Promissory Note, dated August 6, 2004, between Incorporated by reference to Exhibit 10 25 to
NeoMedia and Cornell Capital Partners the Registrant's Form S-3/A as filed on January
30, 2006
II-4
10.26 Definitive Merger Agreement between NeoMedia and Mobot Incorporated by reference to Exhibit 16.1 to
the Registrant's Form 8-K as filed on February
10, 2006
10.27 Definitive Sale and Purchase Agreement between Incorporated by reference to Exhibit 16.1 to
NeoMedia and 12Snap the Registrant's Form 8-K as filed on February
14, 2006
10.28 Definitive Sale and Purchase Agreement between Incorporated by reference to Exhibit 16.1 to
NeoMedia and Gavitec the Registrant's Form 8-K as filed on February
21, 2006
10.29 Definitive Sale and Purchase Agreement between Incorporated by reference to Exhibit 16.1 to
NeoMedia and Sponge the Registrant's Form 8-K as filed on February
22, 2006
10.30 Promissory Note, dated October 18, 2004, between Incorporated by reference to Exhibit 10.26 to
NeoMedia and Cornell Capital Partners the Registrant's Form S-3/A as filed on January
30, 2006
23.1 Consent of Stonefield Josephson, Inc., independent Provided herewith
Registered Public Accounting Firm of NeoMedia
Technologies, Inc.
23.2 Consent of Stonefield Josephson, Inc., independent Provided herewith
Registered Public Accounting Firm of Mobot, Inc.
23.3 Consent of Ernst & Young AG, independent auditors of Provided herewith
Gavitec AG
23.4 Consent of Brebner, Allen & Trapp., independent Provided herewith
auditors of Sponge Ltd.
23.5 Consent of Ernst & Young AG, independent auditors of Provided herewith
12Snap AG
23.6 Consent of Stonefield Josephson, Inc., independent Provided herewith
Registered Public Accounting Firm of BSD Software, Inc.
23.7 Consent of KPMG, LLP, independent auditors of BSD Provided herewith
Software, Inc.
II-5
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Sections 10(a)(3) of
the Securities Act of 1933 (the "Act");
(ii) Reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement;
(iii) Include any additional or changed material information
on the plan of distribution;
(2) That, for the purpose of determining any liability under the
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-6
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 June 19, 2006.
NEOMEDIA TECHNOLOGIES, INC.
By: /s/ Charles T. Jensen
-----------------------------------------
Charles T. Jensen
President, Chief Executive Officer
and Director
/s/ David A. Dodge
-----------------------------------------
David A. Dodge
Vice-President, Chief Financial
Officer, and Principal Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURES TITLE DATE
--------------------- ---------------------------------------- -------------
/s/ Charles T. Jensen President, Chief Executive Officer,
---------------------
Charles T. Jensen and Director June 19, 2006
/s/ Charles W. Fritz Chairman of the Board
---------------------
Charles W. Fritz June 19, 2006
/s/ David A. Dodge Vice-President, Chief Financial Officer,
---------------------
David A. Dodge and Principal Accounting Officer June 19, 2006
/s/ William E. Fritz Director
---------------------
William E. Fritz June 19, 2006
/s/ Hayes Barclay Director
---------------------
Hayes Barclay June 19, 2006
/s/ James J. Keil Director
---------------------
James J. Keil June 19, 2006
II-7