U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
AMENDMENT NO. 1 TO
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): February 23, 2006
NEOMEDIA TECHNOLOGIES, INC.
---------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-21743 36-3680347
---------------------------- ---------------------------- ---------------------------------
(State or Other Jurisdiction (Commission File Number) (IRS Employer Identification No.)
Incorporation)
2201 Second Street, Suite 600, Fort 33901
------------------------------------ ----------
Myers, Florida (Zip Code)
(Address of Principal Executive Offices)
(239) - 337-3434
--------------------------------
(Registrant's Telephone
Number, including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
Completion of Acquisition of Gavitec AG.
On February 17, 2006, NeoMedia and Gavitec AG ("Gavitec") of Wurselen,
Germany (www.gavitec.com) 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 $5,400,000 in
shares of NeoMedia common stock. The $5,400,000 stock portion of the purchase
price is represented by 13,660,511 shares of NeoMedia common stock, calculated
by dividing $5,400,000 by the volume-weighted average closing price of NeoMedia
common stock for the ten days up to and including February 16, 2006.
On February 23, 2006, NeoMedia and Gavitec completed the closing
requirements and the acquisition became effective.
Gavitec was founded in 1997 as a specialized provider and manufacturer of
products and solutions for mobile marketing and mobile information technology.
As a technology leader in code-reading systems and software for mobile
applications, Gavitec offers its clients standardized or individual solutions in
the areas of mobile marketing, mobile ticketing, mobile couponing, and mobile
payment systems.
This Form 8-K/A is being filed as Amendment No. 1 to NeoMedia's Form 8-K
filed with the SEC on February 24, 2006, in order to provide the financial
statements required by Items 7(a) and (b) of Form 8-K.
2
ITEM 9.01. FINANCIAL STATEMENTS, PRO FORMA INFORMATION AND EXHIBITS
(a) Financial Statements of Acquired Businesses - Gavitec AG
Report of Independent Auditors
Balance sheets as of December 31, 2005 and 2004
Statements of operations for the years ended December 31, 2005 and 2004
Statements of stockholders' equity (deficit) for the years ended December
31, 2005 and 2004 Statements of cash flows for the years ended December
31, 2005 and 2004 Notes to financial statements
(b) Pro Forma Financial Information
Notes to pro forma combined financial statements Pro forma combined
balance sheet as of December 31, 2005 (unaudited)
Pro forma combined statement of operations for the twelve months ended
December 31, 2005 (unaudited)
(c) Exhibits
23.1 - Consent of Ernst & Young AG, Independent Auditors of Gavitec AG
3
(a) Financial Statements of Acquired Business - Gavitec AG.
Report of Independent Auditors
The Supervisory Board and Shareholders of Gavitec AG
We have audited the accompanying balance sheets of Gavitec AG as of December 31,
2005 and 2004, and the related statements of operations, stockholders' equity
(deficit), and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. We were not engaged to perform an audit of the
Company's internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Gavitec AG at December 31, 2005
and 2004, and the results of its operations and its cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States.
The accompanying financial statements have been prepared assuming that Gavitec
AG will continue as a going concern. As more fully described in Note 1, the
Company has incurred recurring operating losses and has working capital and net
capital deficiencies. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The accompanying financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
Mannheim, April 5, 2006
/s/ Ernst & Young AG
Wirtschaftsprufungsgesellschaft
Julie Teigland Thorsten Reiter
4
Gavitec AG
Balance Sheets
December 31
---------------------------------
2005 2004
ASSETS
Current assets
Cash and cash equivalents (euro) 80,434 (euro) 123,213
Trade receivables, net of doubtful accounts (euro) 73,292 in
2005 and (euro) 69,250 in 2004 145,150 95,548
Inventory 154,035 341,873
Prepaid expenses, current 8,255 3,287
Other assets,
current 45,703 51,856
---------------- ---------------
Total current assets 433,577 615,777
---------------- ---------------
Non-current assets
Property and equipment, net 13,963 25,203
Intangible assets, net 2,926 3,375
---------------- ---------------
Total non-current assets 16,889 28,578
---------------- ---------------
Total ASSETS (euro) 450,466 (euro) 644,355
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Trade payables (euro) 134,703 (euro) 43,803
Liabilities to
banks 46 0
Accrued
liabilities 42,600 246,900
Deferred revenue 108,966 0
Other current liabilities 197,230 15,584
---------------- ---------------
Total current liabilities 483,545 306,287
---------------- ---------------
Stockholders' equity (deficit)
Common stock, shares with a nominal value (euro) 1 each, 222,000 and 146,450
shares issued and outstanding as of December 31, 2005 and 2004, respectively 222,000 146,450
Additional paid-in capital 996,119 529,300
Accumulated deficit -1,251,198 -337,682
---------------- ---------------
Total stockholders' equity (deficit) -33,079 338,068
---------------- ---------------
Total LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) (euro) 450,466 (euro) 644,355
================ ===============
The accompanying notes are an integral part of these
financial statements.
5
Gavitec AG
Statements of Operations
Year ended December 31
----------------------------------
2005 2004
------------- -------------
Net sales (euro) 624,051 (euro) 733,408
Cost of sales 583,710 469,411
-------------- --------------
Gross margin 40,341 263,997
Research and development costs 407,487 311,028
Sales and marketing expenses 468,407 253,399
General and administrative expenses 316,453 415,589
-------------- --------------
Total operating expenses 1,192,347 980,016
-------------- --------------
Results of operations -1,152,006 -716,019
Other income (See Note 8) 238,584 208,252
Interest income 875 26,428
Interest expenses 969 962
-------------- --------------
Net loss before taxes -913,516 -482,301
Provision for income taxes 0 0
-------------- --------------
Net loss (euro)-913,516 (euro)-482,301
============== ==============
The accompanying notes are an integral part of these
financial statements.
6
Gavitec AG
Statements of Stockholder's Equity (Deficit)
Accumulated
Common Stock Additional Earnings
Shares Amount Paid-in-Capita (Deficit) Total
-------------- -------------- ---------------- ---------------- ----------------
Balance at January 1, 2004 146,450 (euro) 146,450 (euro) 529,300 (euro) 1,744,619 (euro) 2,420,369
-------------- -------------- -------------- ---------------- ----------------
Dividends declared and paid -- -- -- -1,600,000 -1,600,000
Net loss -- -- -- -482,301 -482,301
----------------
Comprehensive loss -482,301
------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2004 146,450 (euro) 146,450 (euro) 529,300 (euro) -337,682 (euro) 338,068
Net loss -- -- -- -913,516 -913,516
----------------
Comprehensive loss -913,516
Capital increase by cash
subscription, July 2005
net of capital procurement
costs of (euro) 57,631 75,550 75,550 466,819 -- 542,369
------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2005 222,000 (euro) 222,000 (euro) 996,119 (euro) -1,251,198 (euro) -33,079
========================================================================================================================
The accompanying notes are an integral part of these
financial statements.
7
Gavitec AG
Statements of Cash Flows
Year ended December 31
----------------------------------
2005 2004
-------------- ---------------
Operating activities
Net loss (euro)-913,516 (euro) -482,301
Adjustments to reconcile net loss to net cash used
in operating activities:
Net loss from the disposal of property and
equipment 3,894 891
Depreciation and amortization 23,808 2,598
Changes in operating assets and liabilities:
Trade receivables -49,602 173,994
Inventory 187,838 -260,878
Prepaid expenses -4,968 422
Other assets 6,153 -2,294
Trade payables 90,900 -316,480
Accrued liabilities -204,300 -255,871
Other current liabilities, including deferred
revenue 290,613 -519
-------------- ---------------
Net cash used in operating activities -569,180 -1,140,438
-------------- ---------------
Investing activities
Investments in property and equipment -15,204 -21,323
Investments in intangible assets -810 -2,541
-------------- ---------------
Net cash used in investing activities -16,014 -23,864
-------------- ---------------
Financing activities
Cash received from equity contributions, net 542,369 0
Cash received/(paid to) from banks 46 -242
Cash paid for dividends 0 -1,600,000
-------------- ---------------
Net cash provided by (used in) financing activities 542,415 -1,600,242
-------------- ---------------
Decrease in cash and cash equivalents -42,779 -2,764,544
Cash and cash equivalents at the beginning of the
period 123,213 2,887,757
-------------- ---------------
Cash and cash equivalents at the end of the period (euro) 80,434 (euro) 123,213
============== ===============
Supplemental disclosures of cash flow information:
Interest paid: (euro) 967 (euro) 962
The accompanying notes are an integral part of these
financial statements.
8
Gavitec AG
Notes to Financial Statements
--------------------------------------------------------------------------------
December 31, 2005
(1) Basis of Presentation and Summary of Operations:
Basis of Presentation
Gavitec AG, a German corporation referred to as "Gavitec" or the
"Company," was originally incorporated in Wurselen in 1997 and is
a specialized provider and manufacturer of products and solutions
for mobile marketing and mobile information technology. Gavitec
offers its clients standardized or individual solutions in the
areas of mobile marketing, mobile ticketing, mobile couponing, and
mobile payment systems..
The accompanying financial statements have been prepared in
conformity with accounting principles generally accepted in the
United States of America.
Going Concern
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. This basis of
accounting contemplates the recovery of the Company's assets and
the satisfaction of its liabilities in the normal course of
business. The Company recorded a net loss of (euro) 913,516 for
the year ended December 31, 2005 and a net loss of (euro) 482,301
for the year ended December 31, 2004. The Company has an
accumulated deficit of (euro) 1,251,198 and a working capital
deficit of (euro) 49,968 as of December 31, 2005. The Company
cannot be certain that anticipated revenues from operations will
be sufficient to satisfy its ongoing capital requirements.
Management's belief is based on the Company's operating plan,
which in turn is based on assumptions that may prove to be
incorrect. If the Company's financial resources are insufficient
the Company may require additional financing in order to execute
its operating plan and continue as a going concern. The Company
cannot predict whether this additional financing will be in the
form of equity, debt, or another form. The Company may not be able
to obtain the necessary additional capital on a timely basis, on
acceptable terms, or at all. In any of these events, the Company
may be unable to implement its current plans for expansion, pay
its current obligations as they become due or respond to
competitive pressures, any of which circumstances would have a
material adverse effect on its business, prospects, financial
condition and results of operations.
(2) Summary of Significant Accounting Policies:
Estimates
The preparation of the financial statements in accordance with
accounting principles generally accepted in the United States of
America requires the Company's management to make a number of
estimates and assumptions relating to the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenue and expenses during the period.
Significant items subject to such estimates and assumptions
include the carrying amount of property and equipment,
intangibles, valuation allowances for deferred income tax assets,
accounts receivable, accruals and other factors. Actual results
could differ from those estimates.
Cash
For the purposes of the balance sheet and statement of cash flows,
all highly liquid investments with original maturities of three
months or less are considered cash equivalents.
9
Gavitec AG
Notes to Financial Statements
--------------------------------------------------------------------------------
(continued)
Revenue Recognition
Software and technology equipment revenue is recognized when
persuasive evidence of an arrangement exists, the price to the
customer is fixed and determinable, delivery of the service has
occurred and collectability is reasonably assured. Fees for
providing system updates for software products, user documentation
and technical support and are recognized over the life of the
contract. Other service revenues, including training and
consulting, are recognized as the services are performed.
In cases where the Company delivers multiple products or services
within the same contractual arrangement (a "multiple element
arrangement"), the individual deliverables within the contract are
separated and recognized upon delivery based upon their fair
values relative to the total contract value, to the extent that
the fair values are readily determinable and to the extent that
the deliverables have stand-alone value to the customer (the
"relative fair value method"). In cases where the fair value is
not determinable, or the deliverables do not have stand-alone
value to the customer, the individual elements are considered to
be one unit of accounting and revenue is recognized when all the
revenue recognition criteria have been met for the particular
contract.
Shipping and Handling Costs
The Company's contractual agreements stipulate the Company to
deliver the goods at the Company's place of business. All other
transportation costs and risks are assumed by the buyer.
Reimbursements for shipping and handling costs are included in net
sales and cost of sales respectively.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is the Company's estimate of
uncollectible accounts receivable. The Company periodically
reviews its receivables and assesses an allowance based upon
historical collection experience and a review of the current
status of the accounts receivables. Account balances are charged
off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote. It
is at least reasonably possible that the Company's estimate of the
allowance for doubtful accounts will change in the near-term.
Inventory
Inventories are stated at the lower of cost or market. At December
31, 2005 and December 31, 2004 inventory was comprised of raw
material, work in progress and finished products. Cost is
determined using the first-in, first-out method.
Property and Equipment
Property and equipment consists primarily of computer hardware and
telecommunication equipment having useful lives of 3 years for the
computer hardware and 10 years for the telecommunication
equipment. The assets are carried at cost, net of accumulated
depreciation. Depreciation is calculated using the straight-line
method over the estimated useful lives of the related assets.
Repairs and maintenance are charged to expense as incurred. Upon
retirement or sale, cost and accumulated depreciation are removed
from the accounts and any gain or loss is reflected in the
statements of operations.
10
Gavitec AG
Notes to Financial Statements
--------------------------------------------------------------------------------
(continued)
Intangible Assets
Intangible assets consist of acquired software products. These
intangible assets are carried at cost, net of accumulated
amortization. Amortization is calculated using the straight-line
method over estimated useful life of 3 years. The software
products are utilized in revenue producing activities, as well as
research and development activities.
Impairment of Long-Lived and Intangible Assets
The Company has adopted Statement of Financial Accounting Standard
("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-lived assets", which requires that long-lived and intangible
assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may no
longer be recoverable. In the event that facts and circumstances
indicate an impairment, the carrying amount of the asset is
compared with the asset's fair value to determine whether a
write-down to fair value must be recorded. The fair value is
calculated based on the estimated sales and market prices of
long-lived assets and, in the case of intangible assets, based on
discounted cash-flows expected over their estimated useful lives.
No impairment charges have been recognized in the years ended
December 31, 2005 and December 31, 2004.
Income Taxes
In accordance with SFAS No. 109, "Accounting for Income Taxes",
income taxes are accounted for using the liability method.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities, and
their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of
the deferred tax assets will not be recognized.
Advertising Costs
The Company expenses the cost of advertising and promoting as
incurred. Advertising expenses incurred for the year ended
December 31, 2005 and December 31, 2004 were (euro) 95,987 and
(euro) 26,431, respectively and are included in sales and
marketing expenses in the statements of operations.
Research and Development Expenses
Costs associated with the planning and designing phase of software
development, including coding and testing activities, and related
overhead, necessary to establish technological feasibility of the
Company's internally-developed software products, are classified
as research and development and expensed as incurred.
11
Gavitec AG
Notes to Financial Statements
--------------------------------------------------------------------------------
(continued)
Concentration of Credit Risks
The Company's accounts receivable are unsecured and thus the
Company is at risk to the extent such amounts become
uncollectible. In the years ended December 31, 2005 and December
31, 2004 the Company generated revenue with three customers
aggregating approximately 42.7 % and 59.5 % of total revenues,
respectively. There are no amounts outstanding from these
customers in accounts receivable at December 31, 2005 and a total
of (euro) 1,340 outstanding in accounts receivable as of December
31, 2004.
Comprehensive Income (Loss)
Comprehensive loss amounted to (euro) 913,516 and (euro) 482,301
for the years ended December 31, 2005 and December 31, 2004,
respectively. There are currently no differences between net loss
and comprehensive loss.
Recently Issued Accounting Pronouncements:
In May 2005, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 154, Accounting Changes and Error Corrections.
This new standard replaces APB Opinion No. 20, Accounting Changes,
and SFAS No. 3, Reporting Accounting Changes in Interim Financial
Statements. Among other changes, SFAS 154 requires that a
voluntary change in accounting principle be applied
retrospectively with all prior period financial statements
presented on the new accounting principle, unless it is
impracticable to do so. SFAS 154 also provides that (1) a change
in method of depreciating or amortizing a long-lived nonfinancial
asset be accounted for as a change in estimate (prospectively)
that was effected by a change in accounting principle, and (2)
correction of errors in previously issued financial statements
should be termed a "restatement." The new standard is effective
for accounting changes and correction of errors made in fiscal
years beginning after December 15, 2005. Early adoption of this
standard is permitted for accounting changes and correction of
errors made in fiscal years beginning after June 1, 2005.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs",
an amendment of Accounting Research Bulletin ("ARB") No. 43, to
clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage).
SFAS 151 requires that those items be recognized as current-period
charges regardless of whether they meet the criterion of "so
abnormal", as defined in the statement. In addition, SFAS 151
requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the
production facilities. Companies are required to adopt the
provisions of this Statement for fiscal years beginning after June
15, 2005. The adoption of this standard will not have any impact
on the Company's results of operations or financial position.
12
Gavitec AG
Notes to Financial Statements
--------------------------------------------------------------------------------
(continued)
(3) Inventory:
Inventory is comprised of the following at December 31:
2005 2004
-------------- --------------
Raw Materials (euro) 51,350 (euro) 45,001
Work in process 10,913 177,287
Finished Goods 91,772 119,585
-------------- --------------
Total (euro) 154,035 (euro) 341,873
============== ==============
(4) Property and Equipment:
Property and equipment consist of the following at December 31:
2005 2004
-------------- --------------
Computer and
telecommunication equipment (euro) 120,113 (euro)210,841
Less accumulated
depreciation -106,150 -185,638
-------------- -------------
Property and equipment, net (euro) 13,963 (euro) 25,203
============== =============
Depreciation expense totaled (euro) 22,550 and (euro) 27, 816 for the
years ended December 31, 2005 and December 31, 2004, respectively. In
2005 property, plant and equipment of (euro) 105,932 and accumulated
depreciation of (euro) 102,038 was retired. The respective loss of
(euro) 3,894 was recorded in general and administrative expenses.
13
Gavitec AG
Notes to Financial Statements
--------------------------------------------------------------------------------
(continued)
(5) Intangible Assets:
Intangible assets consist of the following at December 31:
2005 2004
------------- -------------
Purchased software (euro) 11,891 (euro) 11,082
Less accumulated amortization -8,965 -7,707
------------- -------------
Intangible assets, net (euro) 2,926 (euro) 3,375
============= =============
Amortization expense totaled (euro) 1,258 and (euro) 1,410 for the
years ended December 31, 2005 and December 31, 2004, respectively.
Amortization expense is estimated as follows in future years :
2006 (euro) 1,395
2007 1,395
2008 136
-------------
Total (euro) 2,926
=============
(6) Deferred Revenue
The Company has recorded a total of (euro) 108,966 in deferred revenue
at December 31, 2005. This revenue relates to post customer support
services contractually granted by the Company in connection with
multi-element software contracts. The Company will recognize this
revenue in the upcoming 12 month period.
14
Gavitec AG
Notes to Financial Statements
--------------------------------------------------------------------------------
(continued)
(7) Other Current Liabilities
Other current liabilities comprised of the following at December 31:
2005 2004
-------------- -------------
Cognex (euro)144,613 (euro) --
Supervisory Board compensation 32,000 --
Social insurance liability 10,333 7,610
Wage tax liability 9,001 7,974
Other 1,283 --
-------------- -------------
Total (euro) 197,230 (euro) 15,584
============== =============
The liability to Cognex relates to an overpayment received in 2005 from
the sale of the Company's industrial products division in 2003 to
Cognex.
(8) Other Income
Other income recorded in 2005 related primarily to a payment of (euro)
200,000 related to additional consideration from the release of held
back amounts for potential patent infringement matters relating to the
sale of the Company's industrial products division in 2003. There are
no further indemnifications provided for these matters and no further
amounts to be received by the Company.
Other income in 2004 related primarily to a payment from High-Tech
Trade GmbH for the fulfillment of contractual obligations in the amount
of (euro) 50,000, as well as a payment received of (euro) 100,000
related to additional consideration from the release of held back
amounts for potential patent infringement matters in the sale of the
industrial products division in 2003.
15
Gavitec AG
Notes to Financial Statements
--------------------------------------------------------------------------------
(continued)
(9) Income Taxes
As a result of the net losses incurred by the Company, no provision for
income taxes has been recorded. As of December 31, 2005 and 2004, the
Company had accumulated tax net operating loss carry forwards in
Germany of approximately of (euro) 1,373,000 and (euro) 530,383,
respectively. Under German tax law, these loss carry forwards generally
have an indefinite life and may be used to offset the Company's future
taxable income. However, the loss carry forward deduction is limited to
60% of the Company's annuals net taxable income. Net operating loss
carry forwards are subject to review and possible adjustment by the
German taxing authorities. Furthermore, under current German law,
certain substantial changes in the Company's ownership may limit the
amount of net operating loss carry forwards which could be used to
offset future taxable income.
Significant components of the Company's deferred tax assets and consist
of the following at December 31:
2005 2004
------------- --------------
Net operating loss carry
forwards (NOL) (euro)535,592 (euro) 206,849
Deferred revenue 42,497 --
------------- --------------
Total deferred tax assets 578,089 206,849
Valuation allowance -578,089 -199,342
------------- --------------
Net deferred income tax asset (euro) -- (euro) 7,507
============= ==============
Deferred tax liabilities (euro) -- (euro) 7,507
============= ==============
Net deferred tax asset and
liabilities (euro) -- (euro) --
============= ==============
Due to the degree of uncertainty related to the ultimate utilization
and recoverability of the loss carry forwards and other deferred tax
assets, the Company has reserved for the deferred tax assets to the
extent it exceeds any tax liabilities.
For the years ended December 31, 2005 and 2004, the income tax benefit
derived from the net loss reported is computed by applying the
statutory German combined tax rate of 39% (considering both corporate
tax of 25%, solidarity surcharge of an additional 5.5 % and the German
trade tax of approximately 13%) as follows:
2005 2004
--------------- ---------------
Benefit at federal statutory rate (euro) -356,271 (euro) -188,097
Permanent Differences
(costs of capital) -22,476 --
Changes in valuation allowance 378,747 188,097
--------------- ---------------
Provision for income taxes (euro) -- (euro) --
=============== ===============
16
Gavitec AG
Notes to Financial Statements
--------------------------------------------------------------------------------
(continued)
(10) Equity
Common Stock
Each of the stockholders of the Company's common stock are entitled
to one vote for each share held of record on each matter submitted to
a vote of stockholders. Holders of common stock have preemptive
rights as provided under German stock corporation law. Common
stockholders have no rights to convert their common stock into any
other securities. The outstanding common stock is duly authorized and
validly issued and fully-paid.
In 2005 the company issued 75,550 new shares, with a nominal value of
(euro) 1 each for a total capital contribution of (euro) 600,000. In
connection with this capital issuance the Company incurred
procurement costs of (euro) 57,631 which have been deducted directly
from the contribution received.
Dividends
In 2004 the Company declared and paid a dividend in the amount of
(euro) 1,600,000 to its common shareholders.
(11) Commitments and Contingencies
The Company leases its office facility under an operating lease with
an expiration date in September 2008. For the years ended December
31, 2005 and December 31, 2004, Gavitec incurred rent expense of
(euro) 29,745 and (euro) 23,220 respectively. In addition, Gavitec
leases company cars.
The following is a schedule of the future minimum payments under the
non-cancelable operating leases in effect as of December 31, 2005:
2006 (euro) 76,035
2007 70,440
2008 47,646
2009 1,220
--------------
Total minimum payments (euro) 195,341
(12) Related Party
The Company has a contractual arrangement governing consulting services
which were performed by a significant shareholder during the years 2005
and 2004. The total amounts paid and expensed under this arrangement
amounted to (euro) 84,113 in 2005 and (euro) 162,604 in 2004. The
Company believes the prices for the consulting services were based on
current market rates.
(13) Litigation
The Company is involved in various legal actions arising in the normal
course of business as a claimant. While it is not possible to determine
with certainty the outcome of these matters, it is the opinion of
management that the eventual resolution will not have a material
adverse effect on the Company's financial position or operating
results.
17
Gavitec AG
Notes to Financial Statements
--------------------------------------------------------------------------------
(continued)
(14) Subsequent Events
The Company was acquired by Neomedia Technologies, Inc. on February 23,
2006 in exchange for a total of USD 7,200,000, of which USD 1,800,00 is
a cash payment and the remainder in shares of Neomedia Technologies,
Inc.
18
(b) Pro Forma Financial Information
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
1. Basis of Presentation
Acquisition of Gavitec AG
On February 17, 2006, NeoMedia and Gavitec signed a definitive sale and purchase
agreement, subject to closing conditions, under which NeoMedia acquired all of
the outstanding shares of Gavitec in exchange for $1,800,000 cash and $5,400,000
in shares of NeoMedia common stock. The $5,400,000 stock portion of the purchase
price is represented by 13,660,511 shares of NeoMedia common stock, calculated
by dividing $5,400,000 by the volume-weighted average closing price of NeoMedia
common stock for the ten days up to and including February 16, 2006. On February
23, 2006, NeoMedia and Gavitec completed the closing requirements and the
acquisition became effective. In the event that NeoMedia's stock price at the
time the consideration shares are saleable is less than $0.389, NeoMedia is
obligated to compensate Gavitec shareholders in cash for the difference between
the price at the time the shares become saleable and $0.389.
Acquisition of 12Snap AG
On February 10, 2006, NeoMedia and 12Snap signed a definitive sale and purchase
agreement, subject to closing conditions, under which NeoMedia acquired all of
the outstanding shares of 12Snap in exchange for $2,500,000 cash and 49,294,581
shares of NeoMedia common stock. On February 28, 2006, NeoMedia and 12Snap
completed the closing requirements and the acquisition became effective.
Pursuant to the terms of the merger agreement, the number of shares of NeoMedia
common stock to be issued as consideration was calculated using a share price of
$0.3956. In the event that NeoMedia's stock price at the time the consideration
shares are saleable is less than $0.3956, NeoMedia is obligated to compensate
12Snap shareholders in cash for the difference between the price at the time the
shares become saleable and $0.3956.
Acquisition of Mobot, Inc.
On February 17, 2006, NeoMedia Technologies, Inc. ("NeoMedia) acquired all of
the outstanding shares of Mobot, Inc. (www.mobot.com) ("Mobot") in exchange for
$3,500,000 cash and $6,500,000 in shares of NeoMedia common stock. The
$6,500,000 stock portion of the purchase price is represented by 16,931,493
shares of NeoMedia common stock. Pursuant to the terms of the merger agreement,
the number of shares of NeoMedia common stock to be issued as stock
consideration was calculated using a share price of $0.3839. In the event that
NeoMedia's stock price at the time the consideration shares are saleable is less
than $0.3839, NeoMedia is obligated to compensate Mobot shareholders in cash for
the difference between the price at the time the shares become saleable and
$0.3839. In addition to cash and stock, at closing NeoMedia forgave notes
payable totaling $1,500,000 due from Mobot. This amount is considered other
additional consideration in the purchase price allocation.
Audited financials statements for Mobot were included in amendment no. 1 to form
8-K filed with SEC on May 3, 2006. Audited financials statements for 12Snap were
included in amendment no. 1 to form 8-K filed with SEC on May 8, 2006. Mobot and
12Snap balance sheets as of December 31, 2005 and statements of operations for
the year ended December 31, 2005 are shown for pro forma purposes only.
19
Presentation
The unaudited pro forma condensed combined historical statement of operations
for the year ended December 31, 2005 gives effect to the acquisitions of
Gavitec, 12Snap and Mobot as if they had occurred as of January 1, 2005,
combining the historical results of NeoMedia for the year ended December 31,
2005 with the historical results of Gavitec, 12Snap and Mobot for the year ended
December 31, 2005. The unaudited pro forma condensed combined balance sheet as
of December 31, 2005 gives effect to the acquisitions of Gavitec, 12Snap and
Mobot as if they had occurred as of December 31, 2005.
The unaudited pro forma combined financial statements included in this filing
have been prepared by the managements of NeoMedia, Gavitec, 12Snap, and Mobot
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. However, the
managements of NeoMedia, Gavitec, 12Snap, and Mobot believe that the disclosures
are adequate to make the information not misleading.
The pro forma adjustments are based on currently available information and upon
estimates and assumptions that we believe are reasonable under the
circumstances. The unaudited pro forma financial data do not purport to
represent what NeoMedia's financial position or results of operations would
actually have been if such transactions had occurred on those dates and are not
necessarily representative of NeoMedia's financial position or results of
operations for any future period. The unaudited pro forma financial statements
should be read in conjunction with the separate historical financial statements
and footnotes of NeoMedia included in Form 10-KSB for the year ended December
31, 2005, and with the separate historical financial statements and footnotes of
Gavitec for the years ended December 31, 2005 and 2004 (included herein), with
the separate historical financial statements and footnotes of 12Snap for the
years ended December 31, 2005 and 2004 (included in Form 8-K/A filed with the
SEC on May 5, 2006), and with the separate historical financial statements and
footnotes of Mobot for the years ended December 31, 2005 and 2004 (included in
Form 8-K/A filed with the SEC on May 3, 2006).
2. Preliminary Purchase Price Allocation
A final determination of the allocation of the purchase price to the assets
acquired and liabilities assumed has not been made for Gavitec, 12Snap and
Mobot. The allocation reflected in the unaudited pro forma combined financial
statements is based on management's best judgment and estimate of the fair
values of intangible assets being acquired, and should be considered preliminary
and is subject to the completion of a comprehensive independent valuation of the
assets acquired and liabilities assumed. The final allocation of purchase price
could differ materially from the pro forma allocation included herein. NeoMedia
expects to obtain the final independent valuation, currently in process, prior
to the filing of the 2nd quarter Form 10 Q in August 2006.
Any additional consideration issued pursuant to the stock purchase price
protection clause would also change the purchase price allocation.
3. Pro forma Net Loss Per Share
The pro forma basic and dilutive net loss per share are based on the weighted
average number of shares of pro forma NeoMedia's common stock as if the shares
issued to acquire Gavitec, 12Snap and Mobot had been issued at the beginning of
the period shown. Dilutive shares are not included in the computation of pro
forma dilutive net loss per share as their effect would be anti-dilutive.
20
NeoMedia Technologies, Inc.
Unaudited Pro-forma Condensed Combined Balance Sheet
December 31, 2005
(In thousands of US Dollars)
Pro Pro
Forma Forma
(A) (A) (A) (A) Adjust- Consol-
ASSETS NeoMedia Mobot Gavitec 12Snap ments idated
--------- --------- --------- --------- --------- ----------
Current assets: * * * * (unaudited) (unaudited)
Cash and cash equivalents $ 2,291 $ 909 $ 95 $ 1,341 $ (7,800)(G) $ (3,164)
Trade accounts receivable, net 341 78 172 2,117 -- 2,708
Inventories, net 423 -- 182 -- -- 605
Investment in marketable securities 104 -- -- 52 -- 156
Prepaid expenses and other current assets 151 8 64 751 -- 974
--------- --------- --------- --------- --------- ---------
Total current assets 3,310 995 513 4,261 (7,800) 1,279
Property and equipment, net 236 22 17 224 -- 499
Capitalized patents, net 3,134 -- -- -- -- 3,134
Micro paint repair chemical formulations and
proprietary process 1,450 -- -- -- -- 1,450
Customer contracts and relationships -- -- -- -- 800(C) 800
Capitalized software platform -- -- -- -- 15,000(C) 15,000
Other intangible assets 246 20 3 98 2,200(C) 2,568
Goodwill 1,099 -- -- -- 26,854(C) 27,953
Advances to Mobot, Inc. 1,500 -- -- -- (1,500) --
Cash surrender value of life insurance policy 769 -- -- -- -- 769
Other long-term assets 667 -- -- -- (147)(D) 520
--------- --------- --------- --------- --------- ---------
Total assets $ 12,411 $ 1,037 $ 533 $ 4,583 $ 35,407 $ 53,971
========= ========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,574 $ 344 $ 160 $ 775 $ -- $ 2,853
Accrued expenses 1,844 148 50 2,153 -- 4,195
Amounts payable under settlement agreements 97 -- -- -- -- 97
Taxes payable 80 -- -- -- -- 80
Deferred revenues and other 898 236 362 1,780 -- 3,276
Liabilities in excess of assets of discontinued
business unit 676 -- -- -- -- 676
Notes and loans payable 3,015 1,500 -- 4,145 (1,500)(E) 7,160
--------- --------- --------- --------- --------- ---------
Total current liabilities 8,184 2,228 572 8,853 (1,500) 18,337
--------- --------- --------- --------- --------- ---------
Long-term debt and convertible debentures -- 500 -- -- (500)(F) --
Minority Interest -- -- -- 7 -- 7
Shareholders' deficit:
Preferred stock -- -- -- -- -- --
Common stock (B) 4,676 -- 263 5,825 (5,006)(C) 5,758
Additional paid-in capital 106,456 1 1,180 49,675 (20,538)(C) 136,774
Deferred equity financing costs (13,256) -- -- -- -- (13,256)
Deferred stock-based compensation (169) -- -- -- -- (169)
Accumulated other comprehensive income (loss) (177) -- -- 946 (946)(C) (177)
Retained earnings (accumulated deficit) (92,524) (1,692) (1,482) (60,158) 63,332(C) (92,524)
Treasury stock (779) -- -- (565) 565 (779)
--------- --------- --------- --------- --------- ---------
Total shareholders' deficit 4,227 (1,691) (39) (4,277) 37,407 35,627
--------- --------- --------- --------- --------- ---------
Total liabilities and shareholders'
deficit $ 12,411 $ 1,037 $ 533 $ 4,583 $ 35,407 $ 53,971
* - Derived from audited ========= ========= ========= ========= ========= =========
financial statements
21
Pro-forma Adjustments
(A) - All balance sheets are presented as of December 31, 2005. For pro forma
presentation purposes, Gavitec and 12Snap balances are converted from Euro
to US Dollars at a rate of 0.8444 Euros/US Dollar, which was the exchange
rate as of December 31, 2005 .
(B) - As of December 31, 2005, NeoMedia's $0.01 par value common stock consists
of 1,000,000,000 authorized shares, 475,387,910 historical shares and
583,663,772 pro forma shares issued; and 467,601,717 historical shares and
575,877,579 pro forma shares outstanding
(C) - Adjustment for stock and cash issued to acquire Mobot, Gavitec, and
12Snap, assuming acquisitions occurred as of December 31, 2005. Adjustment
includes the elimination of $1,082 common stock and $30,318 paid-in capital
of the subsidiaries. The purchase price for each acquisition was calculated
as follows:
Mobot Gavitec 12Snap
Pro forma number of shares of NeoMedia to be treated as purchase price
consideration 22,413,793 18,620,690 67,241,379
x NeoMedia closing stock price around December 31, 2005 (measurement date) $0.290 $0.290 $0.290
---------------------------------------
Total stock consideration $6,500,000 $5,400,000 $19,500,000
Plus cash consideration $3,500,000 $1,800,000 $2,500,000
---------------------------------------
Pro forma purchase price $10,000,000 $7,200,000 $22,000,000
=======================================
In accordance with SFAS 141 and EITF 99-12, for the purposes of this
unaudited pro forma balance sheet, the fair value of the stock to be issued
as purchase price consideration is assumed to be $0.29 per share, which was
the average closing price of NeoMedia common stock for the three days up to
and including December 31, 2005 (the measurement date). There are no
additional options, warrants, or other stock-based consideration expected
to be issued as part of the purchase price for either acquisition. Each of
the above transactions was completed in the first quarter of 2006. The
actual number of shares issued as stock consideration is shown in the
following table:
Mobot Gavitec 12Snap
Actual Shares Issued as Stock Consideration 16,931,493 13,660,511 49,294,581
22
Based on NeoMedia's stock price around the measurement date of December 31,
2005, and the balance sheets of NeoMedia, Mobot, Gavitec, and 12Snap as of
December 31, 2005, the pro forma purchase price for each acquisition would
be allocated as follows:
(in thousands of US dollars,
except share amounts)
----------------------------------------
Mobot Gavitec 12Snap
Purchase Price Consideration
Cash $ 3,500 $ 1,800 $ 2,500
Pro forma number of shares of NeoMedia common stock issued 22,413,793 18,620,690 67,241,379
/ NeoMedia closing stock price around December 31, 2005
(measurement date) $ 0.29 $ 0.29 $ 0.29
----------- ----------- -----------
Pro forma fair value of shares issued as purchase price $ 6,500 $ 5,400 $ 19,500
consideration
Purchase-related costs 8 26 113
Other purchase consideration 1,500 -- --
----------- ----------- -----------
Total fair value expected to be treated as purchase price
consideration $ 11,508 $ 7,226 $ 22,113
=========== =========== ===========
Assets Purchased
Cash and cash equivalents $ 909 $ 95 $ 1,341
Investment in marketable securities -- -- 52
Trade accounts receivable, net 78 172 2,117
Inventory 0 182 --
Prepaid expenses and other current assets 8 64 751
Property and equipment, net 22 17 224
Customer contracts and relationships (i)(ii) 400 -- 400
Capitalized software platform (i)(iii) 5,000 5,600 4,400
Other intangible assets (i)(iv) 220 554 1,548
Goodwill (i)(v) 5,599 1,115 20,140
----------- ----------- -----------
12,236 7,798 30,973
----------- ----------- -----------
Liabilities Assumed
Accounts payable 344 160 775
Accrued expenses 148 50 2,153
Taxes payable -- -- --
Deferred revenues and other current liabilities 236 362 1,780
Notes payable -- -- 4,145
Long-term debt -- -- 7
----------- ----------- -----------
728 572 8,860
----------- ----------- -----------
(i) - For purposes of these unaudited pro forma financial
statements, the excess of fair value of consideration paid
over net book value for Mobot, Gavitec, and 12Snap is
allocated to the following intangible asset categories:
customer contracts and relationships, capitalized software
platform, other intangible assets, and goodwill. The
allocation is made based on NeoMedia management's judgment and
best estimate of the value of each category for each business.
As of this filing, NeoMedia has not completed an independent
valuation of such intangible assets. NeoMedia is in the
process of performing an independent valuation of the
intangible assets, and a final allocation of the purchase
price of each entity will be made based on the results of such
valuation, to be completed no more than one year from closing.
It is important to note that the final independent valuation,
could vary materially from the pro forma allocation presented
above. NeoMedia expects to obtain the final independent
valuation, currently in process, prior to the filing of the
2nd quarter Form 10 Q in August 2006.
(ii) - Customer contracts and relationships consist of the
customers of each business that are under contract, as well as
prospects identified for potential future business, the fair
value of which is calculated as the discounted after-tax
expected earnings from current and identified customers.
NeoMedia expects to assign an amortization period of 5 years
to this class of assets.
(iii) - Capitalized software platforms consist of proprietary
software systems acquired. NeoMedia expects to assign an
amortization period of 7 years to this class of assets.
(iv) - Other intangible assets consist of brand names and other
proprietary copyrighted materials. NeoMedia expects to assign
an amortization period of 7-10 years to this class of assets.
(v) - The remaining excess of purchase price paid over fair value
of assets and liabilities assumed is allocated to goodwill,
and as such, is not assigned a depreciable life. Goodwill will
be tested for impairment as defined by Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets.
23
Pro-forma Adjustments (cont'd)
(D) - Adjustment to eliminate acquisition-related costs paid by NeoMedia in
2005 that are included in the purchase price allocation
(E) - Adjustment to eliminate note payable from Mobot to NeoMedia that was
forgiven at closing.
(F) - Adjustment to eliminate Mobot convertible debentures that were converted
prior to closing. As a result, the above unaudited condensed consolidated
pro forma balance sheet is shown assuming the debentures are converted
prior to the pro forma closing date.
(G) - Negative cash balance is shown for pro forma purposes only. During
February 2006, NeoMedia obtained $27 million gross financing in the form
of a convertible preferred stock sale, a portion of the proceeds of which
were used to acquire Gavitec, Mobot and 12Snap.
24
NeoMedia Technologies, Inc.
Unaudited Pro-forma Combined Condensed Statement of Operations
For the Year Ended December 31, 2005
(In thousands of US Dollars, except per share data)
Pro Pro
Forma Forma
(A) (A) (A) (A) Adjust- Consol-
NeoMedia Mobot Gavitec 12Snap ments idated
------------- -------- -------- -------- ------------- -------------
NET SALES: * * * * (unaudited) (unaudited)
License fees $ 523 -- -- -- -- $ 523
Resale of software and
technology equipment and
service fees 354 -- -- -- -- 354
Micro paint revenue 1,279 -- -- -- -- 1,279
Technology product and service
revenue -- 300 772 7,396 -- 8,468
------------- -------- -------- -------- ------------- -------------
Total net sales 2,156 300 772 7,396 -- 10,624
------------- -------- -------- -------- ------------- -------------
COST OF SALES:
License fees 453 -- -- -- -- 453
Resale of software and
technology equipment and -- -- -- --
service fees 206 -- -- -- -- 206
Micro paint direct cost of revenue 913 -- -- -- -- 913
Technology product and service
revenue -- -- 722 -- 2,143(B) 2,865
------------- -------- -------- -------- ------------- -------------
Total cost of sales 1,572 -- 722 -- 2,143 4,437
------------- -------- -------- -------- ------------- -------------
GROSS PROFIT 584 300 50 7,396 (2,143) 6,187
Selling, general and
administrative expenses 7,561 1,180 972 7,147 492(B) 17,352
Impairment charge 335 -- -- -- -- 335
Research and development costs 934 552 503 1,515 -- 3,504
------------- -------- -------- -------- ------------- -------------
Income (loss) from operations (8,246) (1,432) (1,425) (1,266) (2,635) (15,004)
Loss on extinguishment of debt, net 172 -- -- -- -- 172
Other income (loss) -- -- 296 230 -- 526
Impairment charge on investments (780) -- -- -- -- (780)
Interest income (expense), net (293) (42) -- (515) -- (850)
------------- -------- -------- -------- ------------- -------------
Income before provision for income taxes (9,147) (1,474) (1,129) (1,551) (2,635) (15,936)
Provision for income taxes -- -- -- -- -- --
------------- -------- -------- -------- ------------- -------------
Net income (loss) (9,147) (1,474) (1,129) (1,551) (2,635) (15,936)
Other comprehensive income (loss):
Unrealized loss on marketable
securities (146) -- -- -- -- (146)
Foreign currency translation
adjustment 29 -- -- -- -- 29
------------- -------- -------- -------- ------------- -------------
Comprehensive income (loss) ($9,264) ($1,474) ($1,129) ($1,551) ($2,635) ($16,053)
============= ======== ======== ======== ============= =============
NET INCOME (LOSS) PER
SHARE--BASIC AND DILUTED ($0.02) ($0.03)
============= =============
COMPREHENSIVE INCOME (LOSS)
PER SHARE--BASIC AND DILUTED ($0.02) ($0.03)
============= =============
Weighted average number
of common shares-basic and diluted 451,857,851 120,306,513(C) 572,164,364
============= ======== ======== ======== ============= =============
* - Derived from audited financial statements
25
Pro-forma Adjustments
---------------------
(A) - All results shown are for the year ended December 31, 2005. For pro forma
presentation purposes, Gavitec and 12Snap results are converted from Euro
to US Dollars at a rate of 0.80844 Euro/US Dollar, which was the average
exchange rate for the period January 1, 2005 - December 31, 2005.
(B) - Adjustment to reflect amortization of acquired intangible assets for the
year ended December 31, 2005, as if the acquisitions had occurred on
January 1, 2005. It is important to note that the actual allocation and
estimated useful lives of intangible assets acquired that will be adopted
based on an independent valuation could vary from the estimates presented
herein (see note C(i) to the pro forma balance sheet for a discussion on
useful lives). Such a difference could cause a material difference between
the actual periodic amortization charges that NeoMedia will record in its
statement of operations, and the amortization amount shown above.Estimated
useful lives are based on management's best estimate of the purchase price
allocation, and will not be finalized until the results of an independent
valuation are received.
(C) - Adjustment for shares that would have been issued in connection with
acquisitions if they had occurred on January 1, 2005, calculated as
follows:
Mobot Gavitec 12Snap Total
----------- ---------- ----------- -----------
NeoMedia stock price around January 1, 2005 $0.261 $0.261 $0.261
(measurement date)
Total stock consideration $6,500,000 $5,400,000 $19,500,000 $31,400,000
----------- ---------- ----------- -----------
Pro forma number of shares of NeoMedia to be
treated as purchase price consideration 24,904,215 20,689,655 74,712,644 120,306,513
=========== ========== =========== ===========
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NeoMedia Technologies, Inc.
-------------------------------------------
(Registrant)
Date: May 8, 2006 By: /s/ Charles T. Jensen
----------- ----------------------------------------
Charles T. Jensen, President,
Chief Executive Officer and Director
27
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
23.1 Consent of Ernst & Young AG, Independent Auditors of Gavitec AG
28