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 22, 2006
NEOMEDIA TECHNOLOGIES, INC.
---------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-21743 36-3680347
----------------------------- ------------------------ ---------------------------------
(State or Other Jurisdiction
Incorporation) (Commission File Number) (IRS Employer Identification No.)
2201 Second Street, Suite 600,
Fort Myers, Florida 33901
-------------------------------- -----
(Address of Principal Executive
Offices) (Zip Code)
(239) - 337-3434
----------------------------
(Registrant's Telephone
Number, including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[_] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
Completion of Acquisition of 12Snap AG.
On February 10, 2006, NeoMedia and 12Snap AG ("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 $19,500,000 in shares of NeoMedia common stock. The
$19,500,000 stock portion of the purchase price is represented by 49,294,581
shares of NeoMedia common stock, calculated by dividing $19,500,000 by the
volume-weighted average closing price of NeoMedia common stock for the ten days
up to and including February 9, 2006.
On February 28, 2006, NeoMedia and 12Snap completed the closing
requirements and the acquisition became effective.
12snap AG is a non-public incorporated company headquartered in Munich
with branches in Timisoara, New York, London, Milan, Stockholm and Vienna. As an
expert in innovative marketing and entertainment for mobile phones, 12snap
combines know-how in mobile applications, mobile loyalty and mobile marketing.
In the mobile marketing space, 12snap creates and implements national and
pan-European mobile marketing campaigns for international brands; its mobile
loyalty business unit offers customer loyalty programs for companies and brands,
and its mobile applications business unit is the center for development and
software. 12snap sells and licenses a wide spectrum of mobile solutions to
satisfy the demands of the current growing market and the new uses of the third
mobile phone generation from dynamic video services and multiplayer games to
personalized messaging applications. 12snap has 75 employees, and services to
companies including McDonald's, MTV(R), Coca-Cola, Ferrero, Wella, adidas,
Unilever and Gillette(R).
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
Report of Independent Auditors
Consolidated Statement of Operations for the Years Ended December 31, 2005
and 2004
Consolidated Balance Sheets as of December 31, 2005 and 2004
Consolidated Statements of Shareholders' Deficit for the Years Ended
December 31, 2005 and 2004
Consolidated Statements of Cash Flow for theYears ended December 31, 2005
and 2004
Notes to financial statements for the years ended December 31, 2005 and
2004
(b) Pro Forma Financial Information
Notes to Unaudited Pro Forma Condensed 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 12Snap AG
3
(a) Financial Statements of Acquired Business - 12 Snap AG
Report of Independent Auditors
The Board of Directors and Shareholders of l2snap AG, Munich
We have audited the accompanying consolidated balance sheets of l2snap AG as of
December 31, 2005 and 2004 and the related consolidated statements of
operations, shareholders' 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 consolidated financial position of l2snap AG at
December 31, 2005 and 2004 and the consolidated 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 the
Company will continue as a going concern. As more fully described in Note 2, the
Company has incurred recurring operating losses which have resulted in a
significant accumulated deficit as well as a shareholders' deficit as of
December 31, 2005. The Company may also require additional financing and cannot
predict whether such financing will be available. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The 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.
/s/ Ernst & Young AG
Wirtschaftsprufungsgesellschaft
Munich, Germany
April 21, 2006
/s/ Moser /s/ Buhl
Wirtschaftsprufer Wirtschaftsprufer
(Certified German Public Accountant) (Certified German Public Accountant)
4
12snap AG
Consolidated Statements of Operations
For the Years Ended December 31, 2005 and 2004
2005 2004
KEUR KEUR
------ ------
Revenues 5,979 5,429
------ ------
Operating expenses:
Marketing and selling expenses (2,920) (2,458)
General and administrative expenses (1,499) (1,371)
Technology and development expenses (1,225) (640)
Other operating expenses (1,359) (1,515)
------ ------
Total operating expenses (7,003) (5,984)
------ ------
Other income 170 102
Interest income 114 233
Interest expense (530) (516)
------ ------
Loss before income taxes and minority interest (1,270) (736)
------ ------
Income tax expense -- (18)
Loss attributable to minority shareholders 16 16
------ ------
Net loss (1,254) (738)
====== ======
The accompanying notes are an integral part of the consolidated
financial statements.
5
12snap AG
Consolidated Balance Sheets as of December 31, 2005 and 2004
December 31, 2005 December 31, 2004
KEUR KEUR
----------------- -------------------
Assets
Current assets:
Cash and cash equivalents 1,132 1,456
Short-term investments 44 1,331
Accounts receivable 1,788 1,751
Prepaid expenses and other current assets 634 254
------- -------
Total current assets 3,598 4,792
------- -------
Non-current assets:
Property, plant and equipment, net 189 186
Intangible assets, net 83 99
------- -------
Total non-current assets 272 285
------- -------
Total assets 3,870 5,077
======= =======
Liabilities and shareholders' deficit
Current liabilities:
Accounts payable 654 724
Silent partnership arrangements 3,500 --
Accrued interest 1,144 --
Accrued expenses and other current liabilities 674 582
Prepayments from customers and deferred revenue 1,503 1,663
------- -------
Total current liabilities 7,475 2,969
------- -------
Non-current liabilities:
Silent partnership arrangements -- 3,500
Accrued interest -- 893
-------
Total non-current liabilities -- 4,393
-------
Total liabilities 7,475 7,362
------- -------
6
Minority interest 6 10
Shareholders' deficit:
Common stock (no par value shares, EUR 1 stated value, 4,917 4,917
4,917,163 shares authorized; 4,417,212 and 4,425,447 issued
and outstanding in 2005 and 2004, respectively)
Additional paid-in capital 41,933 41,933
Treasury stock (477) (463)
Accumulated deficit (50,783) (49,529)
Cumulative translation adjustments 799 847
------- -------
Total shareholders' deficit (3,611) (2,295)
------- -------
Total liabilities and shareholders' deficit 3,870 5,077
======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
7
12snap AG
Consolidated Statements of Shareholders' Deficit
Common Stock Treasury Stock
-------------------------- -------------------------
Shares KEUR Shares KEUR
---------- ----------- --------- -----------
As of January 1, 2004 4,917,163 4,917 491,716 (463)
Stock compensation - - - -
Foreign currency translation
adjustment - - - -
Net loss - - - -
---------- ----------- --------- -----------
As of December 31, 2004 4,917,163 4,917 491,716 (463)
========== =========== ========= ===========
Purchase of treasury shares - - 8,235 (14)
Foreign currency translation
adjustment - - - -
Net loss - - - -
---------- ----------- --------- -----------
As of December 31, 2005 4,917,163 4,917 499,951 (477)
========== =========== ========= ===========
8
Additional Accumulated Cumulative Total
paid-in deficit translation
capital adjustments
KEUR KEUR KEUR KEUR
-------------- ------------- -------------- --------------
As of January 1, 2004 41,930 (48,791) 793 (1,614)
Stock compensation 3 -- -- 3
Foreign currency translation adjustment -- -- 54 54
Net loss -- (738) -- (738)
------- ------- ------- -------
As of December 31, 2004 41,933 (49,529) 847 (2,295)
======= ======= ======= =======
Purchase of treasury shares -- -- -- (14)
Foreign currency translation adjustment -- -- (48) (48)
Net loss -- (1,254) -- (1,254)
------- ------- ------- -------
As of December 31, 2005 41,933 (50,783) 799 (3,611)
======= ======= ======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
9
12snap AG
Consolidated Statements of Cash Flow
For the year ended
December 31, 2005 December 31, 2004
KEUR KEUR
---------------------- ----------------------
Cash flows from operating activities:
Net loss (1,254) (738)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation & amortization 219 229
Loss from sale of non-current assets -- 2
Change in minority interest (4) 10
Stock option exercisements and purchase of treasury shares (14) 3
Changes in operating assets and liabilities, net of effect from acquisitions:
Accounts receivable (37) (1,052)
Accrued interest 251 226
Prepaid expenses and other current assets (380) (179)
Accounts payable (70) 183
Accrued expenses and other current liabilities 92 82
Prepayments and deferred revenue (160) (307)
------ ------
Net cash used in operating activities (1,357) (1,541)
------ ------
Cash flows from investing activities:
Purchase of property and equipment (180) (146)
Purchase of intangible assets (53) (117)
Short-term investments 1,287 181
Purchase of financial assets -- (55)
Proceeds from disposals of non-current assets 27 192
------ ------
Net cash provided by investing activities 1,081 55
------ ------
Effect of exchange rates (48) 53
------ ------
Net increase / (decrease) in cash and cash equivalents (324) (1,433)
Cash and cash equivalents, beginning of period 1,456 2,889
------ ------
Cash and cash equivalents, end of period 1,132 1,456
====== ======
Supplemental disclosures of cash flow information:
Interest paid 225 225
Taxes paid 20 7
The accompanying notes are an integral part of the
consolidated financial statements.
10
12snap AG, Munich
Notes to the consolidated financial statements 2005
--------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS:
The Company:
12snap AG, incorporated in Munich, Germany, and its subsidiaries (the
"Company"), offer mobile marketing and mobile Customer Related Management
("CRM") services as well as mobile applications. Services are developed by the
Company for use by consumer brands, mobile network operators, aggregators and
media companies.
The consolidated financial statements as of December 31, 2005, include the
accounts of 12snap AG (parent company) and the following subsidiaries in which
the parent company had a controlling interest:
12snap Germany GmbH, Munich, Germany (100% ownership)
12snap Italy s.r.l., Milan, Italy (99% ownership)
12snap-Lokomobil AB, Stockholm, Sweden (51% ownership)
12snap Media Ltd, London, UK (100% ownership)
12snap UK Ltd, London, UK (100% ownership)
The Wireless Marketing Company Ltd, London, UK (100% ownership with
12snap UK Ltd.)
12snap CEE GmbH, Vienna, Austria (75% ownership)
12snap Inc., New York, USA (80% ownership)
12snap s.r.l., Timisoara, Romania (100% ownership)
12snap CEE GmbH, Vienna, 12snap Inc. New York, and 12snap s.r.l., Timisoara,
have been founded in 2005 and thus are newly included in the 2005 consolidation.
2. GOING CONCERN:
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America and have been based on the assumption that the entity will be able to
continue as a going concern.
However, the Group incurred net losses of KEUR 1,254 for the year ended December
31, 2005, and of KEUR 738 for the year ended December 31, 2004, which resulted
in a significant accumulated deficit of KEUR 50,783 as of December 31, 2005 and
a total shareholders' deficit of KEUR 3,611.
11
In addition, 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, repay its silent partnership
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. As a consequence the company
might be subject to insolvency procedures. The financial statements do not
include any adjustments relating to the recoverability and reclassification of
recorded asset amounts or amounts and reclassification of liabilities that may
be necessary, should the Company be unable to continue as a going concern.
As more fully described in note 7 to these consolidated financial statements,
all of the Companys outstanding shares were acquired by NeoMedia Technologies
Inc., Fort Myers/FL, USA ("Neomedia") on February 28, 2006.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Presentation
Certain amounts in the prior year financial statements have been reclassified to
conform to their current year presentation.
Basis of Consolidation
The accompanying consolidated financial statements of the Company have been
prepared in accordance with accounting principles generally accepted in the
United States ("US GAAP"). The assets, liabilities and results of operations of
the above mentioned companies in which the Company has controlling interest have
been consolidated. All significant intercompany balances have been eliminated.
Revenue Recognition
The Company generates revenues primarily by providing mobile marketing services
to its customers. For mobile marketing projects, revenues are recognized after
completion of the project and acceptance by the customer. Response and
messaging-based revenues are recognized at the time that such responses are
received and processed. Consulting revenues and revenues for periodic services
are recognized as services are performed.
12
Foreign currency translation
The Company's consolidated financial statements are prepared in euros. The
functional currency of each of the Company's subsidiaries is the local currency
in which each subsidiary is located. Assets and liabilities denominated in
foreign currencies are translated at rates of exchange in effect at the balance
sheet date. Revenues and expenses are translated at average rates of exchange in
effect during the year. Differences arising from translation are recorded to
"Cumulative translation adjustments". Transactions in foreign currencies are
translated at the exchange rate in effect at the date of each transaction.
Differences in exchange rates during the period between the date a transaction
denominated in a foreign currency is consummated and the date on which it is
either settled or translated for inclusion in the consolidated balance sheet are
recognized in the statement of operations and are included in other income or
other expenses for that period.
The foreign exchange rates as of the last business day of the year used to
translate the assets and liabilities in the balance sheets, and the average
foreign exchange rates used to translate the profit and loss statements were as
follows:
Currency rate, Balance Sheet
Dec. 31, 2005 Dec. 31, 2004
----------------- -----------------
EUR / GBP 0.68822 0.70794
EUR / SEK 9.40999 9.01713
EUR / USD 1.18426 n/a
EUR / RON 3.69372 n/a
Currency rate, Profit and loss statement
2005 2004
----------------- -----------------
EUR / GBP 0.68366 0.67807
EUR / SEK 9.27816 9.02935
EUR / USD 1.24296 n/a
EUR / RON 3.58938 n/a
The net foreign currency exchange gain/loss recognized in the profit and loss
statement was a net gain of KEUR 53 for the year ended December 31, 2005, and a
net loss of KEUR 38 for the year ended December 31, 2004, respectively.
13
Use of Estimates
In preparing consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America, management makes
certain estimates and assumptions, where applicable, that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the consolidated financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. While
actual results may differ from those estimates, management does not expect such
variances, if any, to have a material effect on the consolidated financial
statements.
Cash and cash equivalents
All short-term liquid financial assets with an original term of three months or
less at the date of purchase, are classified as cash and cash equivalents. Cash
and cash equivalents consist of bank balances, cash on hand and money market
funds. Cash and cash equivalents are carried at market value.
Short-Term Investments
The Company accounts for its securities using SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". Management determines the
proper classifications of securities at the time of the purchase and
re-evaluates such designations as of each balance sheet date. Those trading
securities are carried at market value with gains and losses reported in the
statement of operations.
Prepaid expenses and other current assets
Prepaid expenses primarily represent insurance dues paid in advance, rent
deposits and deferred cost of sales for external costs related to certain
customer contracts which have not yet been completed for which the Company has
also deferred an amount of revenue. Other current assets primarily represent
deposits for rented office space and VAT receivables.
14
Fair value of financial instruments
The carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable,
accrued compensation and other accrued liabilities, approximate fair value
because of their short maturities or available market prices. The amounts
borrowed under silent partnership agreements are valued at their accreted
principal value which approximates their fair value.
Property, plant and equipment and intangible assets
Property, plant and equipment is stated at cost and is depreciated on a
straight-line basis over its estimated useful life. The estimated useful life
ranges between 3 to 5 years for computer hardware, 3 to 23 years for office
equipment and other machinery, and 5 to 8 years for fixtures in leased buildings
in line with the estimated useful lives of the respective assets.
The historical cost of assets that are either sold or scrapped is removed from
the accounting records after deduction of accumulated depreciation. Gains and
losses on the sale of fixed assets are shown as "other income" or "other
expenses" respectively. Maintenance and repair costs are expensed when incurred.
Intangible assets consist of software and acquired customer relationships.
Software is amortized over a 3 to 5 year period which approximates the useful
lives of the assets. Customer relationships are amortized over a 10 year period
which also approximates its useful life.
Impairment of long-lived and identifiable intangible assets
The Company reviews its long-lived identifiable intangible assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The Company assesses the recoverability of the
long-lived assets by comparing the estimated undiscounted cash flow associated
with the related asset or group of assets with their respective carrying
amounts. An impairment loss is defined as the amount by which the carrying
amount exceeds its fair value. Fair values are usually determined by discounted
expected future cash flows. As of December 31, 2005 and 2004, the Company
believes that no such impairment exists.
15
Concentrations of credit and other risks
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash, cash equivalents and trade receivables.
The Company places its cash and cash equivalents with high credit-quality
financial institutions. The Company has not experienced any losses on its
deposits of cash and cash equivalents.
The Company performs ongoing credit evaluations of its customers' financial
condition and maintains an allowance for doubtful accounts based upon the
expected collectibility of all accounts receivables. The Company does not
require any collateral from its customers.
The Company is not able to predict changes in the financial stability of
customers. Any material change in the financial status of any one or a group of
customers could have a material effect on the Company's results of operations
and financial condition. Although such losses have been within management's
expectations to date, there can be no assurance that such allowances will
continue to be adequate.
For the year ended December 31, 2005, one customer accounted for 18% of total
sales, another customer for 13% and one further customer for 13%. The remaining
56% of total sales were contributed by various smaller customers. For the year
ended December 31, 2004, one customer accounted for 17% of total sales, another
customer for 14% and one further customer for 13%. The remaining 56% of total
sales were contributed by various smaller customers.
Research and Development
Research and development costs are expensed in the period in which they are
incurred and are included in technology & development expenses. For the years
ended December 31, 2005 and 2004, research and development costs amounted to
KEUR 619 and KEUR 442, respectively. These costs are included in "technology and
development expenses".
The company has received government assistance in the form of technology expense
reimbursements. These subsidies are recorded as a reduction in technology and
development expenses in the period the respective subsidies are received. The
Company has received and recorded in the profit and loss statement KEUR 49 for
2005 and KEUR 293 for 2004, respectively. The amounts received are not subject
to any unfilled conditions.
16
Income Taxes
The Company bases its "Accounting for Income Taxes" on SFAS 109, which requires
the use of the asset and liability approach of providing for income taxes. This
statement requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the differences between the financial
statement and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. Under
Statement 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date. Net deferred tax assets are reduced by a valuation allowance if it is more
likely than not that they can not be realized.
Allowances for doubtful accounts
The Company performs ongoing credit evaluations of its customers' financial
condition. The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability or unwillingness of its customers to make
required payments. The Company evaluates the collectability of its accounts
receivable based on a combination of factors. In cases where the Company is
aware of circumstances that may impair a specific customer's ability to meet its
financial obligations to the Company, the Company records a specific allowance
against the amounts due to the Company, and thereby reduces the net recognized
receivable to the amount the Company reasonably believes will be collected. For
all other customers, the Company recognizes allowances for doubtful accounts
based on the length of time the receivables are past due, industry and
geographic concentrations, the current business environment and the Company's
historical experience. The Company records its bad debt expenses as general and
administrative expenses.
As of December 31, 2005 management concluded that no allowance for doubtful
accounts was necessary. As of December 31, 2004, allowances for doubtful
accounts amounted to KEUR 12 and included provisions made by 12snap UK Ltd. for
an amount of KEUR 9 and by 12snap Italy s.r.l. for an amount of KEUR 3 for
doubtful accounts receivable due from clients.
Marketing Costs
Marketing costs are expensed as incurred. Advertising expenses amounted to KEUR
111 and KEUR 150 for the years ended December 31, 2005 and 2004, respectively.
17
Stock-based compensation
The Company accounts for its stock-based compensation arrangements under the
provisions of APB 25, and has included the pro forma disclosures required under
SFAS No. 123 later in the notes to these consolidated financial statements.
Derivative Instruments
The Company follows the guidance of SFAS No 133, "Accounting for Derivative
Instruments and Hedging Activities" for the recognition and measurement of
embedded derivatives that must be bifurcated from the host debt instrument and
accounted for separately. Statement 133 requires all derivatives to be recorded
on the consolidated balance sheet at fair value.
Long-Term Debt
The Company accrued in 2004 the principal of long-term debt to the amount due at
termination of the agreements. This includes certain lump sum amounts that the
Company may be obliged to pay under the provisions of its long-term debt
agreements in the form of silent partnerships. According to the signed
agreements end of February 2006 all amounts in connection with the silent
partnership are classified as short-term debt.
4. RECENT ACCOUNTING PRONOUNCEMENTS:
In December 2004, the FASB issued SFAS No.153, "Exchanges of Nonmonetary Assets,
an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions."
The amendments made by Statement 153 are based on the principle that exchanges
of nonmonetary assets should be measured based on the fair value of the assets
exchanged. Further, the amendments eliminate the narrow exception for
nonmonetary exchanges of similar productive assets and replace it with a broader
exception for exchanges of nonmonetary assets that do not have commercial
substance. Previously, Opinion 29 required that the accounting for an exchange
of a productive asset for a similar productive asset or an equivalent interest
in the same or similar productive asset should be based on the recorded amount
of the asset relinquished. Opinion 29 provided an exception to its basic
measurement principle (fair value) for exchanges of similar productive assets.
The Board believes that exception required that some nonmonetary exchanges,
although commercially substantive, be recorded on a carryover basis. By focusing
the exception on exchanges that lack commercial substance, the Board believes
that SFAS 153 produces financial reporting that more faithfully represents the
economics of the transactions. SFAS 153 is effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier
application is permitted for nonmonetary asset exchanges occurring in fiscal
periods beginning after the date of issuance. The provisions of this Statement
shall be applied prospectively.
18
In December 2004, the FASB issued SFAS No.123 "Share-Based Payment". SFAS 123(R)
will provide investors and other users of financial statements with more
complete and neutral financial information by requiring that the compensation
cost relating to share-based payment transactions be recognized in financial
statements. That cost will be measured based on the fair value of the equity or
liability instruments issued. SFAS 123(R) covers a wide range of share-based
compensation arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights, and employee share purchase
plans. SFAS 123(R) replaces FASB Statement No. 123, Accounting for Stock-Based
Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees. Statement 123, as originally issued in 1995, established as
preferable a fair-value-based method of accounting for share-based payment
transactions with employees. However, that Statement permitted entities the
option of continuing to apply the guidance in Opinion 25, as long as the
footnotes to financial statements disclosed what net income would have been had
the preferable fair-value-based method been used. Public entities (other than
those filing as small business issuers) will be required to apply Statement
123(R) as of the first interim or annual reporting period that begins after June
15, 2005.
In May 2005, the FASB issued FASB Statement No. 154, Accounting Changes and
Error Corrections. This new standard replaces APB Opinion No. 20, Accounting
Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim
Financial Statements, and represents another step in the FASB's goal to converge
its standards with those issued by the IASB. Among other changes, Statement 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. Statement 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.
19
In June 2005, the Emerging Issues Task Force, or EITF, reached a consensus on
Issue 05-6, Determining the Amortization Period for Leasehold Improvements,
which requires that leasehold improvements acquired in a business combination or
purchased subsequent to the inception of a lease be amortized over the lesser of
the useful life of the assets or a term that includes renewals that are
reasonably assured at the date of the business combination or purchase. EITF
05-6 is effective for periods beginning after July 1, 2005.
The Company does not expect the adoption of above-mentioned changes in
accounting standards to have a significant impact on its financial position,
results of operations or cash flows.
5. CERTAIN BALANCE SHEET COMPONENTS:
Securities held for trading:
The Company holds units in short-term investment funds. The Company classifies
its short-term securities as trading securities in accordance with the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities". These securities are
carried at fair market value.
As of December 31, 2005, the Company does not hold any derivative financial or
commodity instruments, forward contracts or hedging arrangements.
As of December 31, 2004, the Company held five reverse convertible bonds on blue
chip DAX30 companies. These instruments paid fixed interest rates with the
principal optionally to be repaid in stock, if the market value of the indexed
stock falls below a defined threshold. These bonds were traded on the German
stock exchange on a daily basis. The market value of these bonds as of December
31, 2004 was KEUR 1,083 and exceeded the book value by KEUR 1. In 2005, the
bonds were converted in to stock and the stock then sold, resulting in a gain of
KEUR 14.
In its statement of operations for the year ended December 31, 2005 the Company
recognized an unrealized net loss on securities held for trading of KEUR 11, for
the year ended December 31, 2004 the Company recognized unrealized net gains of
an amount of KEUR 23.
Accumulated unrealized net gains on securities held for trading accumulated to
an amount of KEUR 33 and KEUR 44 on December 31, 2005 and 2004, respectively.
Cost of securities sold was determined on the first-in-first-out method. No
transfers from the securities held for trading category to other categories
suggested by Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" had to be considered
during the fiscal years 2005 or 2004.
20
Intangible assets, property and equipment:
Intangible assets relate to purchased software and acquired customer
relationships. In connection with the acquisition of a controlling interest in
the subsidiary 12snap-Lokomobil AB in September 2004 the allocation of the
purchase price to the assets and liabilities resulted in the recognition of
intangible assets of KEUR 37.
Purchased software is amortized on a straight-line basis over a period of three
to five years (carrying value at December 31, 2005: KEUR 51; at December 31,
2004: 63).
Customer related intangible assets are amortized on a straight-line basis over a
ten-year year period. As of December 31, 2005, the carrying value of customer
related intangibles amounted to KEUR 32 (as of December 31, 2004 KEUR 36). The
amortization expense for the succeeding five years is estimated as follows:
Dec. 31, 2006 KEUR 41
Dec. 31, 2007 KEUR 43
Dec. 31, 2008 KEUR 46
Dec. 31, 2009 KEUR 50
Dec. 31, 2010 KEUR 53
The schedule of long-lived assets as of December 31, 2005 is as follows:
Acquisition cost
-----------------------------------------------------------------------------------------------
Currency
Jan. 1, 2005 Additions Disposals adjustments Dec. 31, 2005
KEUR KEUR KEUR KEUR KEUR
---------------- --------------- --------------- ---------------- --------------
Tangible assets:
Technical equipment 278 67 42 2 305
Other equipment, factory and
office equipment 332 113 132 2 315
----- ----- ----- ----- -----
610 180 174 4 620
----- ----- ----- ----- -----
Intangible assets:
Concessions, industrial and similar
rights and assets and licenses
in such rights and assets 332 53 146 4 243
Customer relationship 37 -- -- -- 37
----- ----- ----- ----- -----
369 53 146 4 280
----- ----- ----- ----- -----
Financial assets:
Investments 69 -- 69 -- --
----- ----- -----
1,048 233 389 8 900
===== ===== ===== ===== =====
21
Accumulated amortization and depreciation Net book value
---------------------------------------------------- --------------------------------
Currency Dec. 31, Dec. 31, Dec. 31,
Jan. 1, 2005 Additions Disposals adjustments 2005 2005 2004
KEUR KEUR KEUR KEUR KEUR KEUR KEUR
----------- ---------- ---------- ----------- ----------- ----------- ----------
Tangible assets:
Technical equipment 189 71 33 2 229 76 89
Other equipment, factory and
office equipment 235 80 115 2 202 113 97
--- --- --- --- --- --- ---
424 151 148 4 431 189 186
--- --- --- --- --- --- ---
Intangible assets:
Concessions, industrial and similar
rights and assets and licenses
in such rights and assets 269 64 145 4 192 51 63
Customer relationship 1 4 -- -- 5 32 36
--- --- --- --- ---
270 68 145 4 197 83 99
--- --- --- --- --- --- ---
Financial assets:
Investments 69 -- 69 -- -- -- --
--- --- --- --- --- --- ---
763 219 362 8 628 272 285
=== === === === === === ===
Accrued expenses and other current liabilities:
Accrued liabilities include the following items:
December 31, 2005 December 31, 2004
KEUR KEUR
----------------------- ----------------------
Outstanding vacation and salary 168 172
Other accrued liabilities 157 80
Financial closing, audit fees and tax fees 119 25
Tax liabilities resulting from VAT 94 190
Social security liabilities 74 54
Retirement payments 31 31
Liabilities for wages and salaries 27 25
Other liabilities 4 5
----------------------- ----------------------
Total accrued expenses and other current liabilities 674 582
======================= ======================
Liabilities related to silent partnership arrangements:
The Company has entered into three silent partnership arrangements in 2000 with
principal borrowing amounts, totaling KEUR 3,500. Silent partnerships are a
common form of investment in Germany. The purpose of a silent partnership is to
financially support the Company in its efforts to research, design and develop
its product and services, while allowing the lenders not to become a legal owner
of the company and thus not become liable for the obligation of the company. The
lenders are not involved in the management of the Company, but significant
business decisions such as changes in the articles of incorporation, mergers and
acquisitions or significant contractual matters are subject to their approval.
22
Interest charges consist of the following:
o a nonrecurring process fee of 1%;
o a minimum interest charge of 5,0%-8,0% p.a., which is independent from the
net income or loss generated by the Company;
o at the termination of the agreement, the silent partner has the right to
receive a final interest payment of 30%-35% of the principal amount of its
silent interest, plus another 6%-9% p.a. for each year begun after the
first five years of the partnership.
o one of the three agreements entitles the silent partner to an additional
8% share in the Company's profits, calculated according to the partnership
agreement. This profit sharing interest amount will be not less than 4 %
of the principal amount of the contribution, and not more than 10% of it.
Additionally, this profit share will not exceed the percent share of the
silent partnership in the total equity of the Company. The minimum profit
sharing interest amount of 4% of the principal amount will cumulate itself
in the years when it can not be paid out of the Company's profits and will
be paid as soon as sufficient profits are generated.
Two of the company's silent partnership agreements include a covenant requiring
the Company's financial statements to be audited pursuant to the provisions of
the German Commercial Code for big public limited companies, whereas the Company
qualifies as a small entity pursuant to sec. 267 HGB. No other covenants,
financial or non-financial, were included in the partnership agreements.
All three silent partnerships represent state-sponsored finance granted for the
specific innovation intend pursued by the Company as defined in its articles of
association. As of December 31, 2005, none of the amounts described above was
secured by any collateral by the Company, or by any guarantee from a third
party. All three partnership liabilities have equal priority.
Interest expense paid for these partnerships amounted to KEUR 225 respectively
in each of the years ended December 31, 2005 and 2004.
All three partnership agreements include certain clauses that may accelerate the
due date, including certain conditions (e.g. change in ownership), under which
the partnership amounts become immediately due for repayment.
The partnership agreements regularly terminate on December 31, 2008 and 2009.
However, due to the acquisition of all shares of 12snap AG by Neomedia, an early
termination has been agreed on for all silent partnership agreements after
balance sheet date. Those silent partnerships have thus terminated as of
February 28, 2006. According to the termination agreements KEUR 1,750 have been
repaid to the silent partners in March 2006. Another installment amounting to
KEUR 1,750 (plus interest) will be due as of December 31, 2006. The later
payment of the principal of KEUR 1,750 is guaranteed by the new owner of 12snap
AG, Neomedia.
23
Accrued Interest
The Company accounts for all the above agreements using the effective interest
rate method. Under this method, interest expense in each period is based upon
the effective interest rate considering all future expected cash flows.
For the years ending on December 31, 2005 and 2004, the Company recorded
approximately KEUR 251 and KEUR 226 respectively, in accrued interest expense
related to the silent partnership agreements. Accrued interest as of December
31, 2005 and 2004 was approximately KEUR 1,144 and KEUR 893, respectively. As
the early termination of the partnership agreements occurred after balance sheet
date, any possible adjustment of interest that may be due in conjunction with
these termination agreements has not been reflected in the consolidated
financial statements as of December 31, 2005.
Shareholders' Equity:
As of December 31, 2005 and 2004, a total of 4,917,163 ordinary registered
shares were issued in the form of shares without a par value, which for
accounting purposes each represented EUR 1.00 of the capital stock. The Company
holds 499,951 of those as treasury stock (as of December 31, 2004 491.716). In
2005 8.235 share were bought back from a former managing director of 12snap UK
with a purchase price of 1.70(euro) per share. Thus, 4,417,212 shares were
outstanding as of December 31, 2005.
At the shareholders' meeting on June 29, 2004, the management board's
authorization to increase, with the approval of the supervisory board, the
capital stock by issuing at most 55,804 new no par ordinary registered shares,
once or several times, in return for contribution in cash by a total of at most
KEUR 56, for the realization of the Stock Option Program of the Company,
including the part of it that relates to external consultants and the members of
the Company's supervisory board as granted by the shareholders' meetings on
November 16, 1999, February 25, 2000, and June 26, 2001, was extended until
December 31, 2008.
Furthermore, the Company's shareholders' meeting on June 29, 2004 cancelled the
authorization of the management board to increase, with the approval of the
supervisory board, the capital stock by January 31, 2005, by issuing at most
12,660 new no par ordinary registered shares, once or several times, in return
for contribution in cash by totaling at the most KEUR 13 (Authorized Capital
III).
At the shareholders' meeting on June 29, 2000, the management board was
authorized, with the approval of the supervisory board to increase the capital
stock by June 30, 2005, by a total of at most KEUR 174 (Authorized Capital IV).
In connection with Authorized Capital IV, the management board was authorized to
exclude shareholders from subscription rights.
24
At the shareholders' meeting on November 16, 1999, the capital stock of the
Company was conditionally increased by at most KEUR 195 by issuing at most
194,832 no par ordinary registered shares for the realization of the Stock
Option Program I of the Company (see chapter Stock Options) (Conditional Capital
I).
At the annual shareholders' meeting on June 29, 2004, the conditional increase
of the capital stock of the Company by at most KEUR 4 by issuing at most 4,379
no par ordinary registered shares for the realization of the Stock Option
Program of the Company (Conditional Capital II) was cancelled.
At the same shareholders' meeting, the capital stock of the Company was
conditionally increased by at most KEUR 84 by issuing at most 84,460 no par
ordinary registered shares for the realization of the Stock Option Program II of
the Company (Conditional Capital III).
Furthermore, the Company's shareholders' meeting on June 29, 2004, conditionally
increased the capital by at most KEUR 212 by issuing at most 212,424 new no par
ordinary registered shares for the realization of newly established Stock Option
Program III (Conditional Capital IV).
Income taxes:
Within the German tax jurisdiction, for the fiscal years ended December 31,
2005, and December 31, 2004, 12snap AG (and domestic subsidiaries) is subject to
German corporate income tax at a rate of 26.375% (including surcharges). In
addition to this, the Company is exposed to a trade tax of effectively 14.5%,
which results in a combined income tax rate of approximately 40.9% for 2005 and
2004.
25
Deferred tax assets and liabilities are summarized as follows:
2005 2004
KEUR KEUR
------------ -------------
Current deferred tax asset
Deferred revenue 369 603
Accrued interest 302 235
------ ------
Gross deferred tax asset 671 838
Current deferred tax liability
Financial instruments -- 18
Customer relationship 14 14
------ ------
Gross deferred tax liability 14 32
Deferred tax asset on loss carry-forward 14,625 14,843
------ ------
Total 15,282 15,649
Less valuation allowance -15,282 -1,649
------ ------
Net deferred tax asset -- --
------ ------
The future realizability of the tax benefits of the existing tax-deductible
temporary differences or tax loss carry-forwards depends on the existence of
sufficient taxable income. The gross deferred tax assets are reduced to an
amount that is more likely than not to be realized. A valuation allowance for
all deferred tax assets has been recorded, as the realization of deferred tax
assets is not considered more likely than not. The judgment of the management of
the Company about realizability of this tax asset may change in future periods.
In evaluating the ability to recover deferred tax assets, the Company considers
all available positive and negative evidence including but not limited to past
operating results, the existence of cumulative losses in the most recent fiscal
years, forecasts of future taxable income and existing deferred tax liabilities.
The tax loss carry forwards, and the origin of the tax loss carry forwards as of
December 31, 2005 and 2004 are presented below:
Country of Origin 2005 2004
KEUR KEUR
------------------------------------- ----------------- -----------------
Germany 27,423 25,825
Italy 4,855 7,809
United Kingdom 9,380 8,887
Sweden 3 54
USA 52 -
Austria 25 -
Romania - -
26
Tax loss carry-forwards do not expire in Germany, the UK and in Sweden. In
Italy, tax loss carry-forwards expire after five years. As a consequence, 12snap
Italy s.r.l. lost significant tax loss carry-forwards in 2005 (TEUR 3,034
generated in 2000) and may loose significant tax loss carry-forwards in later
years as: KEUR 2,852 of available tax loss carry-forwards originated in 2001,
KEUR 1,640 in 2002, KEUR 283 in 2003, and KEUR 80 in 2005.
However, in some jurisdictions a change in ownership may lead to a loss of
certain tax attributes, including tax loss carry forwards; the change in
owenership of 12snap AG in 2006 might restrict the utilization of this entity's
tax loss carry-forwards.
6. OPERATIONAL INFORMATION:
Sales:
The Company's operations are in a single industry segment and involve mobile
marketing services. The Company's assets are located in Germany, Italy, the
United Kingdom, Scandinavia, Austria, USA and Romania. The geographic
distribution of sales was as follows:
Revenues 2005 2004
KEUR KEUR
-------------------------------------- ----------------- -----------------
Germany 3,982 3,212
Italy 909 1,268
UK 570 873
Scandinavia 421 76
Austria (from May 2005) 97 -
----------------- -----------------
Total 5,979 5,429
================= =================
27
Leases and other financial commitments:
The Company leases primarily premises, office equipment and cars under
non-cancelable operating lease agreements. Based on these lease agreements and
long-term debt terms, the financial obligations for the years following December
31, 2005 are as follows:
Year ending December 31, KEUR
--------------------------
-----------------
2006 4.849
2007 98
2008 84
2009 43
Thereafter 3
-----------------
5,077
-----------------
The majority of the commitments in 2006 relate to the interest payment (KEUR
1,144) and the repayment obligations (KEUR 3,500) on the Company's formerly
long-term debt concerning silent partnership agreements.
The rental expenses for the year ended December 31, 2005 and 2004 amounted to
KEUR 397 and KEUR 178, respectively.
Contingent liabilities and litigation:
The Company may be subject to litigation from time to time in the ordinary
course of business. As of December 31, 2005 and 2004, the Company's management
and its legal advisors are not aware of any claims which could have a material
adverse effect on the business, net assets, financial position or results of the
Company.
On November 24, 2005, 12snap AG exercised its special right of termination
according to 12snap's stock options conditions ss. 10 (3) and cancelled all but
11,236 of the Company's outstanding stock options which were owned by 12snap
externals and had not been exercised yet. Except for two all other beneficiaries
did not veto the cancellation.
28
Investments:
The minority interest of 1% in the equity of 12snap Italy s.r.l., Rome, Italy
was fully offset by the respective minority share in this company's net loss for
the fiscal year. The excess of the net loss minority share over the minority
equity share was charged against the majority interest, as there is no
obligation for reimbursement of the minority interest.
On January 4, 2005 12snap CEE GmbH, Vienna/Austria, was founded by 12snap AG
(75% equity stake) and a private individual (25% equity stake). The total share
capital paid in was KEUR 50. 12snap CEE GmbH's main task is to market 12snap's
services in Central Eastern Europe.
On May 10, 2005, 12snap s.r.l., Timisoara/Romania, was established as a wholly
owned subsidiary of 12snap AG. The total share capital of 12snap s.r.l. amounts
to KEUR 10. The purpose of 12snap s.r.l. is to provide software development
services to 12snap Group companies.
On May 12, 2005, 12snap Inc., New York, NY/USA, was established as an 80%
subsidiary of 12snap AG. The total share capital of 12snap Inc. is KUSD 150 of
which 12snap AG is providing KUSD 120 via a promissory note and a private
individual is providing KUSD 30. 12snap Inc. is acting as 12snap's
representative in the U.S. with the goal to market 12snap's services in Northern
America.
6. RELATED PARTY TRANSACTIONS:
Shares sold to employees:
The Company did not sell any shares to employees, but has issued stock options
under the Company's Stock Option Plans (SOP) in their latest versions of June
26, 2001 and June 29, 2004.
29
Stock option plans:
The Company has a group-wide Stock Option Plan ("SOP"), which was established by
the shareholders meeting on November 16, 1999, and amended by the shareholders
meetings on February 25, 2000, June 26, 2001, and on June 29, 2004. The SOP
provides for the grant of stock options to the Company's employees and
management board members, as well as to its supervisory board members and
external consultants. Options granted under this plan generally have a term of
ten years and generally vest linear graded annually over four years from the
date of issuance of the respective stock option certificate. Some stock options
issued to management of the Company's foreign subsidiaries under Stock Option
Program II vest linear graded quarterly over four years. Some stock options
issued to the management team members of the Company's subsidiaries under Stock
Option Program III vest with one half at issuance of the stock option
certificate and linear graded annually over four years with the other half.
Irrespective of this service requirement, options granted may be exercised not
earlier than two years after grant date, and only if the following performance
condition is met: on at least 10 trading days running during the month before
the option is exercised, the share price of the Company must have exceeded the
exercise price of the stock option by at least 20% in the first year after the
vesting date, and by another 10% for every subsequent year. The exercise price
is subject to an increasing rate of 5% per year for the period of time until
exercise of the option. The management board of the Company and the supervisory
board are authorized to determine the number of options to be granted and their
specific vesting periods, as well as further details.
In the four shareholders meetings on said dates, the Company has been authorized
by the shareholders to grant options for up to 547,520 shares of common stock
under the SOP whereby 194,832 shares are reserved for management board members
and employees (Stock Option Plan I or ESOP I), 84,460 shares are reserved for
management team members of the Company's subsidiaries (Stock Option Plan II or
ESOP II), particularly of 12snap Italy s.r.l. and 12snap UK Ltd., 212,424 shares
are reserved for management team members of the Company or its subsidiaries
(Stock Option Plan III or ESOP III), and 55,804 shares are reserved for external
consultants and supervisory board members. In order to implement the Company's
SOP, the shareholders resolved to create Conditional Capital I in the amount of
KEUR 195, Conditional Capital III in the amount of KEUR 84, and Conditional
Capital IV in the amount of KEUR 212 to cover the above-mentioned corresponding
grants of shares. The formerly existing Conditional Capital II was canceled by
the shareholders in the ordinary annual meeting on June 29, 2004.
Furthermore, the shareholders resolved to create Authorized Capital II in the
amount of KEUR 56 to cover the grant of 55,804, respectively, which can be
issued at the request of stock option holders. Alternatively, the Company can
settle stock options in cash as they are exercised, whereas the cash payment
will be the average share price on the last 10 Frankfurt stock exchange trading
days preceding the exercise, or, if the Company will not have been listed by the
time options are exercised, the fair value of 12snap AG share determined as the
latest known share price paid by third parties or the issue price applied in the
course of the latest capital increase, less the exercise price of the option.
On November 24, 2005, 12snap AG exercised its special right of termination
according to 12snap's stock option conditions ss. 10 (3) and cancelled all but
109,596 of the Company's outstanding stock options which were owned by 12snap
externals and had not been exercised yet.
30
The following tables provide information with respect to the Stock Option Plan
as of and for the fiscal years ended December 31, 2005 and 2004:
Options Outstanding Weighted Average
Exercise Price in
EUR
--------------------- ---------------------
As of January 1, 2004 173,089 8.96
Granted 104,315 3.42
Cancelled (18,010) 18.60
--------------------- ---------------------
As of December 31, 2004, outstanding 259,394 6.06
===================== =====================
As of December 31, 2004, exercisable 141,494 9.84
===================== =====================
As of January 1, 2005 259,394 6.06
Granted 0 0
Cancelled (149,708) 8.84
--------------------- ---------------------
As of December 31, 2005, outstanding 109,596 2.27
===================== =====================
As of December 31, 2005, exercisable 19,596 8.10
===================== =====================
Weighted Average
Remaining Contract
Options Outstanding Life, In Years Number
Exercise Price Vested
--------------------------------------- -------------------- ----------------------- ---------------------
EUR 1.00 (ESOP II) 84,460 6.17 67,172
EUR 1.00 (ESOP III) 90,000 9.75 45,000
EUR 8.65 8,415 4.79 8,415
EUR 15.17 6,805 5.26 6,805
EUR 16.00 28,750 6.50 22,500
EUR 18.60 40,964 6.09 36,982
-------------------- ----------------------- ---------------------
As of December 31, 2004 259,394 7.37 186,873
==================== ======================= =====================
31
Weighted Average
Remaining Contract
Options Outstanding Life, In Years Number
Exercise Price Vested
--------------------------------------- -------------------- ----------------------- ---------------------
EUR 1.00 (ESOP II) 11,526 7.33 11,526
EUR 1.00 (ESOP III) 90,000 8.75 56,250
EUR 15.17 825 4.17 825
EUR 18.60 7,245 5.85 6,130
-------------------- ----------------------- ---------------------
As of December 31, 2005 109,596 8.37 74,131
==================== ======================= =====================
Some stock options outstanding and not yet vested as of December 31, 2005, had
positive intrinsic values calculated based on the current fair value of stock.
In 2004, the last vesting period for the stock options, compensation expenses
were recognized under APB 25 amounting to KEUR 3. No expenses had to be
recognized for 2005.
The following schedule shows the Company's net loss for the years ended December
31, 2004 and 2005 as if compensation cost had been determined consistent with
SFAS No. 123.
December 31, 2005 December 31, 2004
EUR EUR
------------------------ -------------------------
Net loss:
As reported (1,254,153) (738,199)
Pro forma (1,254,153) (738,199)
In compliance with SFAS No. 123, "Accounting for Stock-Based Compensation", the
fair value of stock options granted by the Company was estimated at the date of
grant using the black scholes option pricing model with expected dividends and
volatility of zero. The expected life with stock options was estimated to amount
to 7 years. The risk-free interest rate was determined separately for each of
the numerous grant dates during the fiscal year and ranged between 3.9% and
4.6%.
32
6. SUBSEQUENT EVENTS:
On February 10, 2006, 12Snap AG and Neomedia signed a definitive sale and
purchase agreement under which Neomedia acquired all of the outstanding shares
of 12snap AG in exchange for $2,500,000 cash and $19,500,000 in shares of
Neomedia common stock. The $19,500,000 stock portion of the purchase price is
represented by 49,294,581 shares of Neomedia common stock, calculated by
dividing $19,500,000 by the volume-weighted average closing price of Neomedia
common stock for the ten day period up to and including February 9, 2006. On
February 28, 2006, Neomedia and 12snap AG completed the closing requirements and
the acquisition became effective.
At the same date the Company's silent partnerships in the amount of KEUR 3,500
have been terminated. An amount of KEUR 1,750 of the principal of these silent
partnerships has been repaid in March 2006. The remaining amount of KEUR 1,750
plus interest is due on December 31, 2006 as stipulated in the early termination
agreements that have been signed with the two silent partners. Neomedia has
guaranteed for the remaining principal amount of KEUR 1,750 due at the end of
2006. A dispute with one of the silent partners over additional interest that
may be possibly due at the termination date will be decided by a court of
arbitration. The silent partners' additional interest has been accrued for as of
December 31, 2005.
In March 2006, 12snap AG has started to prepare for winding down 12snap Inc.,
New York, USA, following the change in ownership described above.
33
(b) Pro Forma Financial Information
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
1. Basis of Presentation
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.
12snap AG is headquartered in Munich with branches in Timisoara, New York,
London, Milan, Stockholm and Vienna. As an expert in innovative marketing and
entertainment for mobile phones, 12snap combines know-how in mobile
applications, mobile loyalty and mobile marketing. In the mobile marketing
space, 12snap creates and implements national and pan-European mobile marketing
campaigns for international brands; its mobile loyalty business unit offers
customer loyalty programs for companies and brands, and its mobile applications
business unit is the center for development and software. 12snap sells and
licenses a wide spectrum of mobile solutions to satisfy the demands of the
current growing market and the new uses of the third mobile phone generation
from dynamic video services and multiplayer games to personalized messaging
applications. 12snap has 75 employees, and services to companies including
McDonald's, MTV(R), Coca-Cola, Ferrero, Wella, adidas, Unilever and Gillette(R).
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. Mobot balance sheet as of December 31, 2005
and statement of operations for the year ended December 31, 2005 are shown for
pro forma purposes only.
34
Presentation
The unaudited pro forma condensed combined historical statement of operations
for the year ended December 31, 2005 gives effect to the acquisitions of 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 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 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, 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, 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
12Snap for the years ended December 31, 2005 and 2004 (included herein), 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 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.
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 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.
35
NeoMedia Technologies, Inc.
Unaudited Pro-forma Condensed Combined Balance Sheet
December 31, 2005
(In thousands of US Dollars)
(A) (A) (A)
Pro forma Pro-forma
ASSETS NeoMedia Mobot 12Snap Adjustments Consolidated
---------------------------------- ------------- --------------
Current assets: * * * (unaudited) (unaudited)
Cash and cash equivalents $ 2,291 $ 909 $ 1,341 ($ 6,000) (G) ($ 1,459)
Trade accounts receivable, net 341 78 2,117 -- 2,536
Inventories, net 423 -- -- -- 423
Investment in marketable securities 104 -- 52 -- 156
Prepaid expenses and other current assets 151 8 751 -- 910
--------- --------- --------- --------- ---------
Total current assets 3,310 995 4,261 (6,000) 2,566
Property and equipment, net 236 22 224 -- 482
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 -- -- -- 9,400 (C) 9,400
Other intangible assets 246 20 98 1,650 (C) 2,014
Goodwill 1,099 -- -- 25,739 (C) 26,838
Advances to Mobot, Inc. 1,500 -- -- (1,500) --
Cash surrender value of life insurance policy 769 -- -- -- 769
Other long-term assets 667 -- -- (121) (D) 546
--------- --------- --------- --------- ---------
Total assets $ 12,411 $ 1,037 $ 4,583 $ 29,968 $ 47,999
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,574 $ 344 $ 775 $ -- $ 2,693
Accrued expenses 1,844 148 2,153 -- 4,145
Amounts payable under settlement agreements 97 -- -- -- 97
Taxes payable 80 -- -- -- 80
Deferred revenues and other 898 236 1,780 -- 2,914
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 8,853 (1,500) 17,765
--------- --------- --------- --------- ---------
Convertible debentures -- 500 -- (500) (F) --
Minority Interest -- -- 7 -- 7
Shareholders' deficit:
Preferred stock -- -- -- -- --
Common stock (B) 4,676 -- 5,825 (4,927) (C) 5,572
Additional paid-in capital 106,456 1 49,675 (24,557) (C) 131,560
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) (60,158) 61,833 (C) (92,524)
Treasury stock (779) (565) 565 (779)
--------- --------- --------- --------- ---------
Total shareholders' deficit 4,227 (1,691) (4,277) 31,968 30,227
--------- --------- --------- --------- ---------
Total liabilities and shareholders' deficit $ 12,411 $ 1,037 $ 4,583 $ 29,968 $ 47,999
========= ========= ========= ========= =========
* - Derived from audited financial statements
36
Pro-forma Adjustments
(A)- All balance sheets are presented as of December 31, 2005. For pro forma
presentation purposes, 12Snap balances are converted from Euro to US
Dollars at a rate of 0.8444 Euro/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
565,043,082 pro forma shares issued; and 467,601,717 historical shares and
557,256,889 pro forma shares outstanding
(C)- Adjustment for stock and cash issued to acquire Mobot and 12Snap, assuming
acquisitions occurred as of December 31, 2005. Adjustment includes the
elimination of $896 common stock and $25,104 paid-in capital of the
subsidiaries. The purchase price for each acquisition was calculated as
follows:
Mobot 12Snap
----- ------
Pro forma number of shares of NeoMedia to be issued as purchase price
consideration 22,413,793 67,241,379
x NeoMedia closing stock price around December 31, 2005 (measurement date) $0.290 $0.290
------------ -------------
Total stock consideration $6,500,000 $19,500,000
Plus cash consideration $3,500,000 $2,500,000
------------ -------------
Pro forma purchase price $10,000,000 $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 in connection with the
acquisition. The acquisitions of Mobot and 12Snap were completed on
February 17, 2006 and February 28, 2006, respectively. The actual number
of shares issued as stock consideration in the acquisition of Mobot and
12Snap was 16,931,493 and 49,294,581, respectively.
Based on NeoMedia's stock price around the measurement date of December
31, 2005, and the balance sheets of NeoMedia, Mobot, 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 12Snap
----- ------
Purchase Price Consideration
Cash $3,500 $2,500
Pro forma number of shares of NeoMedia common stock issued 22,413,793 67,241,379
/ NeoMedia closing stock price around December 31, 2005 (measurement
date) $0.29 $0.29
------------ ------------
Pro forma fair value of shares issued as purchase price consideration $6,500 $19,500
Purchase-related costs 8 113
Other purchase consideration 1,500 --
------------ ------------
Total fair value expected to be treated as purchase price
consideration $11,508 $22,113
============ ============
Assets Purchased
Cash and cash equivalents $909 $1,341
Investment in marketable securities -- 52
Trade accounts receivable, net 78 2,117
Prepaid expenses and other current assets 8 751
Property and equipment, net 22 224
Customer contracts and relationships (i)(ii) 400 400
Capitalized software platform (i)(iii) 5,000 4,400
Other intangible assets (i)(iv) 220 1,548
Goodwill (i)(v) 5,599 20,140
------------ ------------
12,236 30,973
------------ ------------
Liabilities Assumed
Accounts payable 344 775
Accrued expenses 148 2,153
Taxes payable -- --
Deferred revenues and other current liabilities 236 1,780
Notes payable -- 4,145
Long-term debt -- 7
------------ ------------
728 8,860
------------ ------------
37
Pro-forma Adjustments (cont'd)
(i)- (i) - For purposes of these unaudited pro forma financial
statements, the excess of fair value of consideration paid
over net book value for Mobot 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 fair value paid over net book
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."
(D)- Adjustment to eliminate acquisition-related costs paid by NeoMedia in 2005
that are included in the purchase price allocation
(E)- Adjustment to eliminate note payable from Mobot to NeoMedia that was
forgiven at closing.
(F)- Adjustment to eliminate Mobot convertible debentures that were converted
prior to closing. As a result, the above unaudited condensed consolidated
pro forma balance sheet is shown assuming the debentures are converted
prior to the pro forma closing date.
(G)- Negative cash balance is shown for pro forma purposes only. During
February 2006, NeoMedia obtained $27 million gross financing in the form
of a convertible preferred stock sale, a portion of the proceeds of which
were used to acquire Mobot and 12Snap.
38
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-forma
(A) (A) (A) Adjust- Pro-forma
NeoMedia Mobot 12Snap ments Consolidated
------------ ------------ ------------ ------------- -------------
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 license and service
revenue -- 300 7,396 -- 7,696
------------- ------------- ------------- ------------- -------------
Total net sales 2,156 300 7,396 -- 9,852
------------- ------------- ------------- ------------- -------------
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 license and service
revenue -- -- 1,343 (B) 1,343
------------- ------------- ------------- ------------- -------------
Total cost of sales 1,572 -- -- 1,343 2,915
------------- ------------- ------------- ------------- -------------
GROSS PROFIT 584 300 7,396 (1,343) 6,937
Selling, general and administrative
expenses 7,561 1,180 7,147 413 (B) 16,301
Impairment charge 335 -- -- -- 335
Research and development costs 934 552 1,515 -- 3,001
------------- ------------- ------------- ------------- -------------
Income (loss) from operations (8,246) (1,432) (1,266) (1,755) (12,699)
Loss on extinguishment of debt, net 172 -- -- -- 172
Other income (loss) -- -- 230 -- 230
Impairment charge on investments (780) -- -- -- (780)
Interest income (expense), net (293) (42) (515) -- (850)
------------- ------------- ------------- ------------- -------------
Income before provision for income taxes (9,147) (1,474) (1,551) (1,755) (13,927)
Provision for income taxes -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Net income (loss) (9,147) (1,474) (1,551) (1,755) (13,927)
Other comprehensive income (loss):
Unrealized loss on marketable
securities (146) -- -- -- (146)
Foreign currency translation
adjustment 29 -- -- -- 29
------------- ------------- ------------- ------------- -------------
Comprehensive income (loss) ($ 9,264) ($ 1,474) ($ 1,551) ($ 1,755) ($ 14,044)
============= ============= ============= ============= =============
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 99,616,858 (C) 551,474,709
============= ============ ============ ============ ============
* - Derived from audited financial statements
39
Pro-forma Adjustments
(A)- All results shown are for the year ended December 31, 2005. For pro forma
presentation purposes, 12Snap results are converted from Euro to US
Dollars at an exchange rate of 0.80844 Euro/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 have not been finalized based on the
results of an independent valuation.
(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 12Snap Total
------------ ------------ -------------
NeoMedia stock price around January 1, 2005 (measurement date) $0.261 $0.261
Total stock consideration $6,500,000 $19,500,000 $26,000,000
------------ ------------ -------------
Pro forma number of shares of NeoMedia to be treated as purchase
price consideration 24,904,215 74,712,644 99,616,858
============ ============ =============
40
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 5, 2006 By: /s/ Charles T. Jensen
----------- --------------------------------
Charles T. Jensen, President,
Chief Executive Officer and Director
41
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
23.1 Consent of Ernst & Young AG, Independent Auditors of 12Snap AG