..
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): March 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
Incorporation) 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 BSD Software, Inc.
On March 21, 2006, NeoMedia Technologies, Inc. ("NeoMedia") (OTCBB:NEOM)
acquired all of the outstanding common shares of BSD Software Inc. ("BSD")
(OTCBB: BSDS). Pursuant to the terms of the merger, BSD was merged with and into
NeoMedia Telecom Services, Inc., a wholly-owned subsidiary of NeoMedia. The
separate corporate existence of BSD ceased as of the effective time of the
merger, and NeoMedia Telecom Services, Inc. continues as the surviving
corporation.
In exchange for all of the outstanding shares of BSD, NeoMedia issued
7,123,698 shares of its common stock, valued at $0.3467, which is the
volume-weighted average closing price of NeoMedia stock for the five days prior
to the effective time of the merger. Each BSD shareholder received approximately
0.2019 share of NeoMedia common stock for each share of BSD common stock held.
BSD was the holder of 90% of the outstanding shares of Triton Global
Business Services, Inc. ("Triton"), a provider of live and automated operator
calling services and e-business support, including billing, clearinghouse and
information management services, to companies in the telecommunications
industry. With the merger, NeoMedia Telecom Services, inc., a wholly-owned
subsidiary of NeoMedia, now owns 90% of Triton.
This Form 8-K/A is being filed as Amendment No. 1 to NeoMedia's Form 8-K
filed with the SEC on March 23, 2006, in order to provide the financial
statements required by Items 9(a) and (b) of Form 8-K.
2
ITEM 9.01. FINANCIAL STATEMENTS, PRO FORMA INFORMATION AND EXHIBITS
(a) Financial Statements of Acquired Businesses -BSD Software, Inc.
Interim Financial Statements for the three and six months ended January 31, 2006
and 2005 (unaudited):
Balance sheet as of January 31, 2006 (unaudited)
Statements of income for the three and six months ended January 31, 2006 and
2005 (unaudited) Statements of cash flows for the six months ended January 31,
2006 and 2005 (unaudited)
Notes to financial statements for the six months ended January 31, 2006 and 2005
(unaudited)
Audited Financial Statements for the years ended July 31, 2005 and 2004:
Report of Independent Registered Public Accounting Firm
Balance sheet as of July 31, 2005
Statements of income for the years ended July 31, 2005 and 2004
Statements of changes in stockholders' deficit for the years ended July 31, 2005
and 2004
Statements of cash flows for the years ended July 31, 2005 and 2004
Notes to financial statements for the year ended July 31, 2005
(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 Stonefield Josephson, Inc., Independent Registered Public
Accounting Firm
3
(a) Financial Statements of Acquired Business - BSD Software, Inc.
Supplementary Financial Information
The following information presents BSD Software, Inc.'s unaudited quarterly
operating results for the three and six months ended January 31, 2006 and 2005.
The data has been prepared by BSD Software, Inc. on a basis consistent with the
consolidated financial statements included elsewhere in this Form 8-K/A, and
includes all adjustments, consisting of normal recurring accruals, that
considered necessary for a fair presentation thereof. These operating results
are not necessarily indicative of our future performance.
--------------------------------------------------------------------------------
BSD SOFTWARE, INC.
Interim Consolidated Balance Sheet (Unaudited)
January 31, 2006
--------------------------------------------------------------------------------
(U.S. dollars)
--------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 52,264
Accounts receivable 1,566,393
Prepaid expenses 13,383
- ------------------------------------------------------------ ----------------
Total current assets 1,632,040
Property and equipment, net 69,747
- ------------------------------------------------------------ ----------------
Total assets $ 1,701,787
- ------------------------------------------------------------ ----------------
Liabilities and Stockholders' Deficiency
Current liabilities:
Accounts payable and accrued liabilities $ 3,328,715
Shareholder loans 207,705
Due to Officer 518,050
Due to Wayside Solutions Inc. 920,678
Notes payable 68,621
- ----------------------------------------------------------- ----------------
5,043,769
Commitments and contingencies
Stockholders' deficiency:
Share capital:
Authorized:
Preferred stock 5,000,000 shares at $.001 par value
Common stock 50,000,000 shares at $.001 par value
Issued and outstanding:
32,560,897 common shares 32,561
Additional paid-in capital 3,193,697
Accumulated deficit (5,694,867)
Accumulated other comprehensive loss (873,373)
------------------------------------------------------------ ----------------
Total stockholders' deficit (3,341,982)
------------------------------------------------------------ ----------------
Total liabilities and stockholders' deficit $ 1,701,787
---------------------------------------------------------- ----------------
The accompanying notes are an integral part of these consolidated financial
statements.
4
BSD SOFTWARE, INC.
Consolidated Statements of Operations and Comprehensive Income (Unaudited)
Three Months Ended Six Months Ended
January 31 January 31
-----------------------------------------------------------------------------------------------------------------
(U.S. dollars) 2006 2005 2006 2005
-----------------------------------------------------------------------------------------------------------------
Revenue $ 2,049,676 $ 1,679,171 $ 4,344,686 $ 3,257,503
Cost of revenue (exclusive of depreciation
shown separately below) 1,665,359 1,379,583 3,671,838 2,555,498
-----------------------------------------------------------------------------------------------------------------
384,317 299,588 672,848 702,005
Operating expenses:
Administration 45,900 34,633 82,604 69,897
Professional fees 88,926 18,340 132,336 98,215
Rent 16,395 15,953 33,487 31,042
Payroll 189,587 122,621 329,207 245,019
Depreciation and amortization 12,649 19,094 28,425 38,623
-----------------------------------------------------------------------------------------------------------------
353,457 210,641 606,059 482,796
-----------------------------------------------------------------------------------------------------------------
Income from operations 30,860 88,947 66,789 219,209
Other expenses
Interest expense (28,478) (30,317) (57,114) (61,178)
Loss on sale of assets -- (9,167) -- (9,167)
Total other expenses (28,478) (39,484) (57,114) (70,354)
Net income before provision for taxes 2,382 49,463 9,675 148,864
Income taxes -- -- -- --
-----------------------------------------------------------------------------------------------------------------
Net income 2,382 49,463 9,675 148,864
Other comprehensive income (loss):
Foreign currency translation adjustment (120,046) 63,573 (233,833) (222,600)
-----------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) (117,664) 113,036 (224,158) (73,736)
-----------------------------------------------------------------------------------------------------------------
Basic income per share $ 0.00 $ 0.00 $ 0.00 $ 0.00
Diluted income per share $ 0.00 $ 0.00 $ 0.00 $ 0.00
----------------------------------------------------------------------------------------------------------------
Weighted average common shares and common
share equivalents:
Basic 32,560,897 31,684,597 32,560,897 31,734,705
Diluted 32,560,897 32,684,597 32,560,897 32,734,705
----------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
5
BSD SOFTWARE, INC.
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended
January 31
----------------------------------------------------------------------------------------------------
(U.S. dollars) 2006 2005
----------------------------------------------------------------------------------------------------
Cash flows from (used in):
Operations:
Net income $ 9,675 $ 148,864
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Loss on sale of assets -- 9,167
Depreciation and amortization 28,425 38,623
Change in operating working capital:
Decrease (Increase) in accounts receivable 130,463 (147,700)
Decrease in prepaid expenses -- 10,654
Increase (Decrease) in accounts payable and accrued liabilities (324,258) 21,480
-----------------------------------------------------------------------------------------------------
(155,695) 81,088
Investing:
Proceeds on sale of property and equipment -- 16,677
Purchase of property and equipment (4,989) --
-----------------------------------------------------------------------------------------------------
(4,989) 16,677
Financing:
Repayment of shareholder loans (51,207) (23,106)
Repayment of notes payable (34,250) (8,752)
Repayment of due to Wayside Solutions Inc. -- (68,117)
-----------------------------------------------------------------------------------------------------
(85,457) (99,975)
-----------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 275,221 (81,993)
-----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 29,080 (84,203)
Cash and cash equivalents, beginning of period 23,184 128,945
-----------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 52,264 $ 44,742
-----------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid $ 3,574 $ 6,402
Income taxes paid $ -- $ --
The accompanying notes are an integral part of these consolidated financial
statements.
6
BSD SOFTWARE, INC.
Notes to Consolidated Interim Financial Statements
(U.S. Dollars)
Six month period ended January 31, 2006
(Unaudited)
1. Nature of business:
BSD Software, Inc. (the "Company") operates as a holding company for the
purposes of investing in Triton Global Communications Inc. ("TGCI"), which
is a provider of billings, clearing house and information management
services to the tele-communications industry.
The accompanying unaudited consolidated interim financial statements have
been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information and with
the instructions to Form 10-QSB and Regulation S-B of the Securities and
Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements
and should be read in conjunction with Notes to Financial Statements
contained in the Company's audited consolidated financial statements on
Amendment No. 1 of Form 10-KSB for the period ended July 31, 2005. In the
opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included in the consolidated financial position of the Company as of
January 31, 2006 and the operating results for the three and six month
periods ended January 31, 2006 and 2005 and cash flows for the six month
period ended January 31, 2006 and 2005 are not necessarily indicative of
the results that may be expected for the year ended July 31, 2006.
These financial statements have been prepared on a going concern basis in
accordance with United States generally accepted accounting principles.
The going concern basis of presentation assumes that the Company will
continue in operation for the foreseeable future and be able to realize
its assets and discharge its liabilities and commitments in the normal
course of business. The Company has reported net income of $271,350 and
$44,549 for the years ended July 31, 2005 and 2004 respectively and has an
accumulated deficit of $5,704,542 as of July 31, 2005. As of July 31, 2005
the Company had a working capital deficit of $3,205,216. For the six
months ended January 31, 2006 and 2005 the Company has reported net income
of $9,675 and $148,864 respectively and has an accumulated deficit of
$5,694,867 as of January 31, 2006. As of January 31, 2006 the Company had
a working capital deficit of $3,411,729. These factors, amongst others,
raise substantial doubt about the Company's ability to continue as a going
concern.
The Company's ability to continue as a going concern is dependent upon
management's ability to raise additional financing and continue profitable
operations. During the period ended January 31, 2006, management continued
to take actions to reduce operating losses.
The ability of the Company to continue as a going concern and to realize
the carrying value of its assets and discharge its liabilities when due is
dependent on the successful completion of the actions taken or planned,
some of which are described above, which management believes will mitigate
the adverse conditions and events which raise substantial doubt about the
validity of the "going concern" assumption used in preparing these
financial statements. There is no certainty that these and other
strategies will be sufficient to permit the Company to continue to meet
its obligations in the normal course of business.
The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty. If the going concern
basis was not appropriate for these financial statements, adjustments
would be necessary to the carrying value of assets and liabilities, the
reported revenues and expenses, and the balance sheet classifications
used.
7
BSD SOFTWARE, INC.
Notes to Consolidated Interim Financial Statements
(U.S. Dollars)
Six month period ended January 31, 2006
(Unaudited)
1. Nature of business (continued):
The preparation of financial statements in accordance with United States
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from those estimates.
On December 21, 2004, NeoMedia Technologies, Inc. (NeoMedia) and the
Company signed a definitive Agreement and Plan of Merger. Upon the closing
of the merger transaction discussed therein, the Company's shareholders
will receive, for each share of the Company's stock owned, NeoMedia common
stock equivalent to $0.07 divided by the volume-weighted average price of
NeoMedia common stock for the five trading days immediately prior to the
effective time of the merger. The agreement has been approved by holders
of approximately 63% of the Company's outstanding shares and its Board.
Closing is subject to the terms and conditions outlined in the merger
agreement, as well as regulatory approval of the merger and
registration/information statement by the United States Securities and
Exchange Commission. Prior to closing, the merger can be terminated by the
Company if more than 5% of the Company's outstanding shares dissent to the
merger. The merger can be terminated prior to closing by NeoMedia if, at
the time of closing, the Company has: (i) less than $850,000 in assets,
(ii) more than $5,000,000 in liabilities, or (iii) more than 38,000,000
shares of common stock outstanding. Either party can terminate the merger
if the merger has not closed by December 31, 2005, which date may be
extended by mutual consent of NeoMedia and the Company. On February 17,
2006, the Company mailed an information statement to its shareholders
providing details of the merger agreement and is waiting the allotted time
for shareholders to assert their dissenters rights as required under the
Florida Business Corporations Act before proceeding. There is no assurance
that the merger will be completed.
2. Significant accounting policies:
(a) Principles of consolidation:
The unaudited condensed consolidated interim financial statements
include the accounts of Triton Global Communications Inc. ("TGCI")
and Triton Global Business Services Inc. ("TGBSI"). All significant
inter-company balances and transactions have been eliminated upon
consolidation.
(b) Translation of foreign currency:
The functional currency of the operations is the Canadian dollar.
The financial statements are reported in United States dollars and
are translated to United States dollars at the exchange rates in
effect at the balance sheet date for assets and liabilities and at
average rates for the period for revenues and expenses. Resulting
exchange differences are accumulated as a component of accumulated
other comprehensive loss.
Revenue and expense transactions originating in U.S. dollars are
translated to Canadian dollars at rates in effect at the time of the
transaction. Foreign exchange losses of $23,751 for the six month
period ending January 31, 2006 and foreign exchange gains of $61,578
for the six month period ending January 31, 2005 are included in
income.
(c) Reclassification:
Certain reclassifications have been made to the prior year unaudited
consolidated interim financial statements to conform to the current
year presentation.
8
BSD SOFTWARE, INC.
Notes to Consolidated Interim Financial Statements
(U.S. Dollars)
Six month period ended January 31, 2006
(Unaudited)
2. Significant accounting policies (continued):
(d) Revenue recognition:
We record revenue in accordance with SEC SAB No. 104 "Revenue
Recognition in Financial Statements." SAB No. 104 requires that
service sales be recognized when there is persuasive evidence of an
arrangement which states a fixed and determinable price and terms,
delivery of the product has occurred in accordance with the terms of
the sale without any further material performance obligation, and
collectibility of the sale is reasonably assured. Revenue is
recognized at the time that calls are accepted by the clearing house
for billing to customers.
(e) Stock-based compensation:
Under the fair value based method, stock-based payments to
non-employees are measured at the fair value of the consideration
received, or the fair value of the equity instruments issued, or
liabilities incurred, whichever is more reliably measurable. The
fair value of stock-based payments to non-employees is periodically
re-measured until counterparty performance is complete, and any
change therein is recognized over the period and in the same manner
as if the Company had paid cash instead of paying with or using
equity instruments. The cost of stock-based payments to
non-employees that are fully vested and non-forfeitable at the grant
date is measured and recognized at that date. Pro forma income is
the same as net income as no options were granted or vested during
the periods.
(f) Income per common share:
Basic net income per common share is calculated by dividing the net
income (loss) by the weighted average number of common shares
outstanding during the period. Diluted income (loss) per common
share is calculated by dividing the applicable net income (loss) by
the sum of the weighted average number of common shares outstanding
and all additional common shares that would have been outstanding if
potentially dilutive common shares had been issued during the
period.
(g) Deferred Income Taxes
The company uses the asset and liability method of accounting for
income taxes. Under the asset and 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. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the date of enactment.
To the extent that realization of deferred tax assets is not
considered to be "more likely than not", a valuation allowance is
provided.
(h) Minority Interest
Although the Company currently owns only 90% of TGBSI, operations
have resulted in cumulative losses to January 31, 2006 and as a
result, the entire amount of these losses have been reflected in
these financial statements and no minority interest allocation has
been calculated. Until such time as operations recover the
deficiency in minority interest of $ 98,591, the full 100% of the
operating results of Triton Global Business Services Inc. will be
reported in these consolidated financial statements with no
allocation to minority interest.
9
BSD SOFTWARE, INC.
Notes to Consolidated Interim Financial Statements
(U.S. Dollars)
Six month period ended January 31, 2006
(Unaudited)
2. Significant accounting policies (continued):
(i) New Accounting Pronouncements In December 2004, the FASB issued SFAS
No.123 (revised 2004), "Share-Based Payment". Statement 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.
Statement 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. Statement 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
December 15, 2005. Management is currently evaluating the impact
SFAS 123(R), will have on our consolidated financial statements.
In March 2005, the SEC released Staff Accounting Bulletin No. 107,
"Share-Based Payment" ("SAB 107"), which provides interpretive
guidance related to the interaction between SFAS 123(R) and certain
SEC rules and regulations. It also provides the SEC staff's views
regarding valuation of share-based payment arrangements. In April
2005, the SEC amended the compliance dates for SFAS 123(R), to allow
companies to implement the standard at the beginning of their next
fiscal year, instead of the next reporting period beginning after
June 15, 2005. Management is currently evaluating the impact SAB 107
will have on our consolidated financial statements.
3. Commitments and contingencies:
The Company leases its business premises and certain office
equipment under operating leases. Total lease payments during the
current six month period totaled $33,386 (2005- $31,922), net of
sublease revenue of $80,511 (2005 -$75,434). Future lease payments
will aggregate $209,210 as follows:
2007 $ 67,138
2008 64,602
2009 64,029
2010 13,441
---------------
$ 209,210
===============
Included in the above, the Company leases premises with future lease
payments of approximately: 2007 - $156,216; 2008 - $155,044; 2009 -
$59,549; 2010 - $0.00 which are subleased for corresponding amounts
over corresponding lease terms.
10
BSD SOFTWARE, INC.
Notes to Consolidated Interim Financial Statements
(U.S. Dollars)
Six month period ended January 31, 2006
(Unaudited)
3. Commitments and contingencies: (continued)
In the normal course of operations the Company is subject to claims
and lawsuits, which they are defending. As of March 7, 2006 the
Company is aware of the following legal proceedings: In December
2002, TGCI sued CanTalk for breach of contract. The action was
brought before the Court of Queen's Bench, Winnipeg, Canada. The
case is styled "Triton Global Communications v. CanTalk." The action
alleges that CanTalk failed to perform under an outsource agreement
pursuant to which CanTalk was to provide support for Triton's entry
into the international operator service market. In response to the
suit, CanTalk filed a counterclaim against TGCI for $10,000 alleging
breach of contract. TGCI believes that CanTalk's counterclaim is
without merit and it intends to defend the counterclaim. The case is
still pending.
On May 2, 2005, four shareholders of BSD Software, Inc. filed a
complaint against BSD and NeoMedia, claiming that the purchase price
as outlined in the purchase agreement between NeoMedia and BSD is
too low. The plaintiffs are seeking unspecified damages and
injunctive relief against the merger. BSD has moved to have the
action dismissed and believes the claim is without merit and intends
to defend the claim. The case is still pending.
In July of 2005 Broad Reach Network Inc. (BRN) filed a Statement of
Claim against Triton Global Business Services Inc. (TGBSI). The
action was brought before the court of Queen's Bench, Calgary,
Alberta. BRN is suing for damages and judgment in the amount of CDN
$81,000. TGBSI has filed a statement of defense denying the amount
of the indebtedness to BRN and filed a countersuit in the amount of
CDN $50,000 for breach of contract. The Company has accrued an
amount in its liabilities to cover this contingency.
4. Related party transactions:
Wayside Solutions, Inc., a Corporation affiliated with the Company,
provided financing services to the Company. Amounts due to Wayside
Solutions Inc., bear interest at 10% per annum and are due on
demand. A general security agreement against all current and future
assets of the Company has been provided by TGBSI to Wayside
Solutions Inc. as collateral. Accrued interest relating to these
services is included in interest and finance charges, aggregating
$30,836 in the current period (2005 - $32,572).
Amounts due to Guy Fietz, CEO, President and a shareholder of the
Company, bear interest at 10% per annum, are unsecured and due on
demand. Included in interest and finance charges is accrued interest
of $18,797 (2005 - $17,721).
Amounts due to shareholders bear interest at rates varying from
0%-10% per annum, are unsecured and due on demand. Payments in the
current six month period totaled $54,781, including interest of
$3,574 (2005 - $52,280, including interest of $6,402).
A bonus of $42,500 was paid in the current period to Guy Fietz, CEO,
President and a shareholder of the Company.
These transactions are in the normal course of operations and are
measured at the exchange amount of consideration established and
agreed to by the related parties.
11
5. Concentration of Risk:
Accounts receivable with three customers represent approximately 81%
(2005 - two customers accounted for 75%) of the balance of accounts
receivable as at January 31, 2006. While management recognizes the
concentration risks, it is the opinion of management that these
accounts do not represent a significant credit risk as all of the
customers are large corporations that have been in business for
several years and never defaulted on any payments to the company.
Management carefully and regularly reviews billings and collections
from these companies as well as continues to monitor and assess
credit risk by looking at the publicly available financial
information of these customers.
A majority of the Company's purchases are from four (2005 - four)
specific vendors. The Company has significant sales and purchases
denominated in U.S. currency, and is therefore exposed to financial
risk resulting from fluctuations in exchange rates and the degree of
volatility of these rates.
12
Report of Independent Registered Public Accounting Firm
To the Board of Directors of BSD Software, Inc and Subsidiaries
We have audited the accompanying consolidated balance sheet of BSD Software,
Inc. (the "Company") as of July 31, 2005, and the related consolidated
statements of operations and comprehensive loss, cash flows, and shareholders'
deficit for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (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. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.
In our opinion, the 2005 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of July 31, 2005, and the results of its operations and its cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has experienced operating losses
and has a working capital deficiency that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
Irvine, California
September 28, 2005, except for Note 11,
(which is as of December 15, 2005).
13
REPORT OF INDEPENDENT PUBLIC ACCOUNTING FIRM
To the Board of Directors of BSD Software, Inc.
We have audited the accompanying statements of operations and comprehensive
loss, shareholders' deficit and cash flows of BSD Software, Inc. (the "Company")
for the year ended July 31, 2004. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects the results of the Company's operations and its
cash flows for the year ended July 31, 2004 in conformity with U.S. generally
accepted accounting principles.
The consolidated financial statements described above have been restated from
those previously issued as described in note 11.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has experienced operating losses
and has a working capital deficiency that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ KPMG LLP
Chartered Accountants
Regina, Canada
September 24, 2004, except for note 11, which is as of December 15. 2005
14
BSD SOFTWARE, INC.
Consolidated Balance Sheet, as restated
--------------------------------------------------------------------------------
(U.S. dollars) July 31, 2005
--------------------------------------------------------------------------------
Assets
Current assets:
Cash $ 23,184
Accounts receivable 1,582,891
Prepaid expenses 12,452
----------------------------------------------------------------------------------------
1,618,527
Property and equipment 87,392
----------------------------------------------------------------------------------------
$ 1,705,919
----------------------------------------------------------------------------------------
Liabilities and Stockholders' Deficiency
Current liabilities:
Accounts payable and accrued liabilities $ 3,187,028
Shareholder loans 243,256
Due to Officer 463,973
Due to Wayside Solutions Inc. 827,041
Notes payable 102,445
----------------------------------------------------------------------------------------
4,823,743
Stockholders' deficiency:
Share capital:
Authorized:
Preferred stock 5,000,000 shares at $.001 par value Common stock
50,000,000 shares at $.001 par value Issued and outstanding:
32,560,897 common shares (July 31, 2004 - 31,684,597) 32,561
Additional paid-in capital (as restated - Note 11) 3,193,697
Accumulated Deficit (5,704,542)
Accumulated other comprehensive loss (as restated - Note 11) (639,540)
----------------------------------------------------------------------------------------
(3,117,824)
Commitments and contingencies
----------------------------------------------------------------------------------------
$ 1,705,919
----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
15
BSD SOFTWARE, INC.
Consolidated Statements of Operations and Comprehensive Income, as restated
Years Ended July 31,
-----------------------------------------------------------------------------------------------------
(U.S. dollars) 2005 2004
-----------------------------------------------------------------------------------------------------
Revenue $ 7,350,409 $ 6,091,101
Cost of revenues 5,855,723 4,618,371
-----------------------------------------------------------------------------------------------------
1,494,686 1,472,730
Operating expenses:
Administration 140,209 182,938
Professional fees 186,736 334,946
Rent 57,244 90,396
Payroll 603,260 537,391
Depreciation and amortization 73,187 77,093
-----------------------------------------------------------------------------------------------------
1,060,636 1,222,764
-----------------------------------------------------------------------------------------------------
Income from operations 434,050 249,966
Other income (expenses)
Interest expense (153,533) (253,328)
Loss on sales of assets (9,167) (3,179)
Gain on sale of contracts -- 51,090
-----------------------------------------------------------------------------------------------------
Total other income (expense) (162,700) (205,417)
Income before provision for taxes 271,350 44,549
Income taxes -- --
-----------------------------------------------------------------------------------------------------
Net Income 271,350 44,549
Other comprehensive loss
Foreign currency translation adjustment (as restated - Note 11) (266,642) (220,584)
-----------------------------------------------------------------------------------------------------
Comprehensive income (loss) (as restated - Note 11) $ 4,708 $ (176,035)
-----------------------------------------------------------------------------------------------------
Basic and diluted earnings per share $ 0.01 $ 0.00
-----------------------------------------------------------------------------------------------------
Weighted average shares outstanding, basic 31,780,707 30,494,009
-----------------------------------------------------------------------------------------------------
Weighted average shares outstanding, diluted 31,921,884 31,494,009
-----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
16
BSD SOFTWARE, INC.
Consolidated Statements of Cash Flows, as restated
Years Ended July 31,
-------------------------------------------------------------------------------------------------
(U.S. dollars) 2005 2004
-------------------------------------------------------------------------------------------------
Cash flows from (used in):
Operations:
Net income $ 271,350 $ 44,549
Items not involving cash:
Adjustments to reconcile net income to cash provided by (used in)
operating activities:
Non-cash financing costs -- 98,550
Shares issued to non-executive employees 30,000 --
Loss on sale of assets 9,167 3,179
Depreciation and amortization 73,187 77,093
Change in non-cash operating working capital:
Accounts receivable (683,317) (305,947)
Income taxes recoverable -- 33,048
Prepaid expenses 10,709 2,092
Accounts payable and accrued liabilities 493,251 169,927
-------------------------------------------------------------------------------------------------
204,347 122,491
Investing:
Proceeds on sale of property and equipment 16,677 35,188
Purchase of property and equipment -- (2,259)
-------------------------------------------------------------------------------------------------
16,677 32,929
Financing:
Repayment of shareholder loans (93,952) (38,395)
Repayment of notes payable (69,027) (10,599)
Repayment of due to Wayside Solutions Inc. (68,806) (63,706)
-------------------------------------------------------------------------------------------------
(231,785) (112,700)
-------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (95,000) 11,295
-------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (105,761) 54,015
Cash, beginning of period 128,945 74,930
-------------------------------------------------------------------------------------------------
Cash, end of period $ 23,184 $ 128,945
-------------------------------------------------------------------------------------------------
Supplemental Cash Flow Information
Interest Paid $ 11,527 $ 723
Taxes Paid $ -- $ --
Non-cash investing and financing activities:
Reduction of accounts payable and accrued liabilities
in lieu of stock issuance $ 4,348 $ --
Reduction of shareholder loans in lieu of stock issuance $ 39,153 $ --
Shares issued to employees $ 30,000 $ --
The accompanying notes are an integral part of these consolidated financial
statements.
17
BSD SOFTWARE, INC.
Consolidated Statements of Shareholders' Deficit, as restated
Accumulated
Other Additional
Common Stock Paid-in Comprehensive Accumulated
Shares Amount Capital Loss Deficit Total
---------------------------------------------------------------------------------------------------------------------------------
Balance July 31, 2003, as
originally reported 30,710,427 $ 30,710 $ 2,213,161 $ (349,020) $ (6,020,441) $ (4,125,590)
Correction of error $ (196,706) $ 196,706 $ --
--------------------------------------------------------------------------------------------------------------------------------
Balance July 31, 2003, as restated 30,710,427 $ 30,710 $ 2,016,455 $ (152,314) $ (6,020,441) $ (4,125,590)
Shares issued of subsidiary company $ 886,964 $ 886,964
Stock issued re: extension of
financing agreements 252,170 $ 253 $ 100,616 $ 100,869
Stock issued for employee salary 30,000 $ 30 $ 9,527 $ 9,557
Stock issued for professional
services rendered 35,000 $ 35 $ 13,965 $ 14,000
Stock issued re: Accomodation Agreements 657,000 $ 657 $ 97,893 $ 98,550
Comprehensive loss - foreign currency
translation adjustment $ (220,584) $ (220,584)
Net Income $ -- $ 44,549 $ 44,549
--------------------------------------------------------------------------------------------------------------------------------
Balance July 31, 2004 31,684,597 31,685 3,125,420 (372,898) (5,975,892) (3,191,685)
Stock issued to pay debt 126,300 $ 126 $ 39,027 $ 39,153
Restricted stock issued to employees 750,000 $ 750 $ 29,250 $ 30,000
Comprehensive loss - foreign currency
translation adjustment $ (266,642) $ (266,642)
Net Income $ 271,350 $ 271,350
--------------------------------------------------------------------------------------------------------------------------------
Balance July 31, 2005 32,560,897 $ 32,561 $ 3,193,697 $ (639,540) $ (5,704,542) $ (3,117,824)
--------------------------------------------------------------------------------------------------------------------------------
18
The accompanying notes are an integral part of these consolidated financial
statements.
BSD SOFTWARE, INC.
Notes to Consolidated Financial Statements
(U. S. Dollars)
Periods ended July 31, 2005 and July 31, 2004
1. Nature of business:
BSD Software, Inc. (the "Company") operates as a holding company of Triton
Global Communications Inc. ("TGCI"), which is a provider of billings,
clearing house and information management services to the
tele-communications industry.
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America for financial information. The preparation of financial
statements in accordance with United States generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual
results could differ from those estimates.
On December 21, 2004, NeoMedia Technologies, Inc. (NeoMedia) and the
Company signed a definitive Agreement and Plan of Merger. Upon the closing
of the merger transaction discussed therein, the Company's shareholders
will receive, for each share of the Company's stock owned, NeoMedia common
stock equivalent to $0.07 divided by the volume-weighted average price of
NeoMedia common stock for the five trading days immediately prior to the
effective time of the merger. The agreement has been approved by holders
of approximately 63% of the Company's outstanding shares and its Board.
Closing is subject to the terms and conditions outlined in the merger
agreement, as well as regulatory approval of the merger and
registration/information statement by the United States Securities and
Exchange Commission. Prior to closing, the merger can be terminated by the
Company if more than 5% of the Company's outstanding shares dissent to the
merger. The merger can be terminated prior to closing by NeoMedia if, at
the time of closing, the Company has: (i) less than $850,000 in assets,
(ii) more than $5,000,000 in liabilities, or (iii) more than 38,000,000
shares of common stock outstanding. Either party can terminate the merger
if the merger has not closed by December 31, 2005, which date may be
extended by mutual consent of NeoMedia and the Company. There is no
assurance that the merger will be completed.
2. Going concern:
These financial statements have been prepared on a going concern basis in
accordance with United States generally accepted accounting principles.
The going concern basis of presentation assumes that the Company will
continue in operation for the foreseeable future and be able to realize
its assets and discharge its liabilities and commitments in the normal
course of business. The Company has reported net income of $271,350 and
$44,549 for the years ended July 31, 2005 and 2004 respectively and has an
accumulated deficit of $5,704,542 as of July 31, 2005. As of July 31, 2005
the Company had a working capital deficit of $3,205,216.
The Company's ability to continue as a going concern is dependent upon
management's ability to raise additional financing and continue profitable
operations. During the year ended July 31, 2005, management continued to
take actions to reduce operating losses and is in the process of securing
additional financing. There is no assurance that additional financing will
be obtained.
19
2. Going concern (continued):
The ability of the Company to continue as a going concern and to realize
the carrying value of its assets and discharge its liabilities when due is
dependent on the successful completion of the actions taken or planned,
some of which are described above, which management believes will mitigate
the adverse conditions and events which raise substantial doubt about the
validity of the "going concern" assumption used in preparing these
financial statements. There is no certainty that these and other
strategies will be sufficient to permit the Company to continue to meet
its obligations in the normal course of business.
The financial statements do not reflect adjustments that would be
necessary if the "going concern" assumption were not appropriate. If the
"going concern" basis was not appropriate for these financial statements,
adjustments would be necessary to the carrying value of assets and
liabilities, the reported revenues and expenses, and the balance sheet
classifications used.
3. Significant accounting policies:
(a) Principles of consolidation:
The consolidated financial statements include the accounts of Triton
Global Communications Inc. ("TGCI") and Triton Global Business
Services Inc. ("TGBSI"). TGCI was acquired by TGBSI on October 22,
2002 and these financial statements reflect the results of
operations for TGCI from that date forward. TGBSI acquired the
Company in a reverse takeover transaction effective November 4,
2002. As a result, the Company changed its year end to July 31,
2003. These statements reflect the consolidated operations of TGBSI
from August 1, 2002 forward consolidated with the Company from
November 4, 2002. All significant inter-company balances and
transactions have been eliminated upon consolidation.
Use of Estimates:
The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and
expenses during the reporting period. Significant estimates made by
management include, among others, realization of long lived assets,
accrued liabilities, and valuation allowance for defined income
taxes. Actual results could differ from those estimates.
Fair Value of Financial Instruments:
The Company has adopted SFAS No. 107, "Disclosures About Fair Value
of Financial Instruments." SFAS No. 107 requires disclosure of fair
value information about financial instruments when it is practicable
to estimate that value.
For certain of the Company's financial instruments including cash,
accounts receivable, and accounts payable and accrued liabilities,
the carrying amounts approximate fair value due to their short
maturities. The amounts shown for notes payable also approximate
fair value because current interest rates and terms offered to the
Company for similar debt are substantially the same.
20
3. Significant accounting policies (continued):
(b) Property and equipment:
Property and equipment are stated at cost, net of accumulated
depreciation and amortization. Amortization is provided using the
straight-line method at the following rates:
---------------------------------------------------------------------------------------------------------------------
Asset Method
---------------------------------------------------------------------------------------------------------------------
Office furniture and equipment Straight line 5 years
Computer equipment Straight line 5 years
Computer software Straight line 3 years
Leasehold improvements Straight line 5 years
---------------------------------------------------------------------------------------------------------------------
Property and equipment are assessed for potential impairment when
triggering events occur that indicate the carrying value may not be
recoverable. If the undiscounted estimated future net cash flows are
less than the carrying value of the asset, the impairment loss is
calculated as the amount by which the carrying value of the asset
exceeds its fair value. Fair value has been calculated as the
present value of estimated future net cash flows.
(c) Translation of foreign currency:
The functional currency of the operations is the Canadian dollar.
The financial statements are reported in United States dollars and
are translated to United States dollars at the exchange rates in
effect at the balance sheet date for assets and liabilities and at
average rates for the period for revenues and expenses. Resulting
exchange differences are accumulated as a component of accumulated
other comprehensive loss.
Revenue and expense transactions originating in U.S. dollars are
translated to Canadian dollars at rates in effect at the time of the
transaction. Foreign exchange gains and losses are included in
income.
(d) Revenue recognition:
We record revenue in accordance with SEC SAB No. 104 "Revenue
Recognition in Financial Statements." SAB No. 104 requires that
service sales be recognized when there is persuasive evidence of an
arrangement which states a fixed and determinable price and terms,
delivery of the product has occurred in accordance with the terms of
the sale, and collectibility of the sale is reasonably assured.
Revenue is recognized at the time that calls are accepted by the
clearing house for billing to customers.
(e) Reclassification:
Certain reclassifications have been made to the prior year balance
sheet to conform to the current year presentation.
21
3. Significant accounting policies (continued):
(f) Stock-based compensation:
Under the fair value based method, stock-based payments to
non-employees are measured at the fair value of the consideration
received, or the fair value of the equity instruments issued, or
liabilities incurred, whichever is more reliably measurable. The
fair value of stock-based payments to non-employees is periodically
re-measured until counterparty performance is complete, and any
change therein is recognized over the period and in the same manner
as if the Company had paid cash instead of paying with or using
equity instruments. The cost of stock-based payments to
non-employees that are fully vested and non-forfeitable at the grant
date is measured and recognized at that date. In November of 2004
the Company issued 126,300 common shares to pay down debt owed to
shareholders of Triton Global Business Services Inc. In July of 2005
the Company issued 750,000 common shares to employees. These
transactions were recorded at their fair value and are included in
the statements of the company.
July 31, 2005 July 31, 2004
Outstanding Stock Options 150,000 750,000
Outstanding Warrants 1,000,000 1,000,000
(g) Earnings (loss) per common share:
Basic earnings (loss) per common share is calculated by dividing the
net earnings (loss) by the weighted average number of common shares
outstanding during the period. Diluted earnings (loss) per common
share is calculated by dividing the applicable net earnings (loss)
by the sum of the weighted average number of common shares
outstanding and all additional common shares that would have been
outstanding if potentially dilutive common shares had been issued
during the period. The treasury stock method is used to compute the
dilutive effect of options, warrants and similar instruments.
(h) Deferred Income Taxes:
The company uses the asset and liability method of accounting for
income taxes. Under the asset and 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. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the date of enactment. To the extent that
realization of deferred tax assets is not considered to be "more
likely than not", a valuation allowance is provided.
(i) Minority Interest:
Although the Company currently owns only 90% of TGBSI, operations
have resulted in cumulative losses to July 31, 2005 and as a result
the entire amount of these losses have been reflected in these
financial statements and no minority interest has been calculated.
Until such time as operations recover the deficiency in minority
interest of $212,804 the full 100% of operating results will be
reported with no off-setting minority interest.
22
3. Significant accounting policies (continued):
(j) New Accounting Pronouncements:
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an
amendment of ARB No. 43, Chapter 4". The amendments made by
Statement 151 clarify that abnormal amounts of idle facility
expense, freight, handling costs, and wasted materials (spoilage)
should be recognized as current period charges and require the
allocation of fixed production overheads to inventory based on the
normal capacity of the production facilities. The guidance is
effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. Earlier application is permitted for inventory
costs incurred during fiscal years beginning after November 23,
2004. The Company has evaluated the impact of the adoption of SFAS
151, and does not believe the impact will be significant to the
Company's overall results of operations or financial position.
In December 2004, the FASB issued SFAS No.152, "Accounting for Real
Estate Time-Sharing Transactions, an amendment of FASB Statements
No. 66 and 67 (SFAS 152)". The amendments made by Statement 152
amend FASB Statement No. 66, Accounting for Sales of Real Estate, to
reference the financial accounting and reporting guidance for real
estate time-sharing transactions that is provided in AICPA Statement
of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing
Transactions. This Statement also amends FASB Statement No. 67,
Accounting for Costs and Initial Rental Operations of Real Estate
Projects, to state that the guidance for (a) incidental operations
and (b) costs incurred to sell real estate projects does not apply
to real estate time-sharing transactions. The accounting for those
operations and costs is subject to the guidance in SOP 04-2. This
Statement is effective for financial statements for fiscal years
beginning after June 15, 2005, with earlier application encouraged.
The Company has evaluated the impact of the adoption of SFAS 152,
and does not believe the impact will be significant to the Company's
overall results of operations or financial position.
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 this
Statement produces financial reporting that more faithfully
represents the economics of the transactions. The Statement 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. The Company has evaluated
the impact of the adoption of SFAS 152, and does not believe the
impact will be significant to the Company's overall results of
operations or financial position.
23
3. Significant accounting policies (continued):
(j) New Accounting Pronouncements (continued):
In December 2004, the FASB issued SFAS No.123 (revised 2004),
"Share-Based Payment". Statement 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. Statement
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. Statement 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
December 15, 2005. The Company has evaluated the impact of the
adoption of SFAS 123(R), and does not believe the impact will be
significant to the Company's overall results of operations or
financial position.
In March 2005, the SEC released Staff Accounting Bulletin No. 107,
"Share-Based Payment" ("SAB 107"), which provides interpretive
guidance related to the interaction between SFAS 123(R) and certain
SEC rules and regulations. It also provides the SEC staff's views
regarding valuation of share-based payment arrangements. In April
2005, the SEC amended the compliance dates for SFAS 123(R), to allow
companies to implement the standard at the beginning of their next
fiscal year, instead of the next reporting period beginning after
June 15, 2005. Management is currently evaluating the impact SAB 107
will have on our consolidated financial statements.
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.
In March 2005, the FASB issued FASB Interpretation No. 47,
"Accounting for Conditional Asset Retirement Obligations" ("FIN
47"). FIN 47 provides guidance relating to the identification of and
financial reporting for legal obligations to perform an asset
retirement activity. The Interpretation requires recognition of a
liability for the fair value of a conditional asset retirement
obligation when incurred if the liability's fair value can be
reasonably estimated. FIN 47 also defines when an entity would have
sufficient information to reasonably estimate the fair value of an
asset retirement obligation. The provision is effective no later
than the end of fiscal years ending after December 15, 2005. The
Company will adopt FIN 47 and does not believe the adoption will
have a material impact on its consolidated financial position or
results of operations or cash flows.
24
4. Property and equipment:
--------------------------------------------------------------------------------
Accumulated
Cost Amortization Net Book Value
--------------------------------------------------------------------------------
Office furniture and equipment $ 68,301 $ 46,780 $ 21,521
Computer equipment 151,630 95,493 56,137
Computer software 66,366 62,761 3,605
Leasehold improvements 17,978 11,849 6,129
--------------------------------------------------------------------------------
$ 304,275 $ 216,883 $ 87,392
--------------------------------------------------------------------------------
Estimated depreciation expense over the next 5 years is as follows:
2006 $ 49,822
2007 34,724
2008 2,846
2009 --
2010 --
---------------
$ 87,392
===============
5. Notes payable:
Notes payable bear interest at rates varying from 0%-5% per annum, are
unsecured and due on demand. Payments in 2005 totaled $69,290, including
interest of $321 (2004 - $16,814, including interest of $723).
6. Income taxes:
Income tax recovery differs from the amount that would be computed by
applying the statutory income tax rate of 35% (2004 - 35%) for the
following reasons:
--------------------------------------------------------------------------------
2005 2004
--------------------------------------------------------------------------------
Computed income tax (recovery) $ 94,973 15,592
Non taxable items and other differences (144,426) (305,289)
Adjustment to future tax assets for
enacted changes in tax losses and rates 20,038 20,038
Change in valuation allowance 29,415 269,659
--------------------------------------------------------------------------------
$ -- $ --
--------------------------------------------------------------------------------
25
6. Income taxes (continued):
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities are presented below:
-----------------------------------------------------------------------------------------------------
2005 2004
-----------------------------------------------------------------------------------------------------
Deferred tax assets:
Non-capital losses carried forward $ 785,520 $ 788,659
Property, plant and equipment - difference in net book value
and undepreciated capital cost 155,261 181,537
Tax value of investment greater than accounting 450,621 450,621
-----------------------------------------------------------------------------------------------------
1,391,402 1,420,817
Less valuation allowance (1,391,402) (1,420,817)
-----------------------------------------------------------------------------------------------------
Deferred tax liabilities -- --
-- --
-----------------------------------------------------------------------------------------------------
Net deferred tax assets $ -- $ --
-----------------------------------------------------------------------------------------------------
The Corporation had approximately $2,337,856 of non-capital losses
available at July 31, 2005 to reduce taxable income of future years. These
losses expire in periods from 2006 through 2020.
7. Commitments and contingencies:
Operating Leases
The Company leases its business premises and certain office equipment
under operating leases under non-cancelable operating lease agreements
expiring through 2009. Total lease payments during the current period
totaled $59,028 (2004 - $91,950), net of sublease revenue of $152,157(2004
- $81,977). Future lease payments will aggregate $226,406 as follows:
2006 $ 64,155
2007 60,111
2008 59,933
2009 42,207
2010 --
---------------
$ 226,406
===============
In addition, the Company leases premises with future lease payments of
approximately: 2006 - $153,417; 2007 - $130,041; 2008 - $121,051 which are
subleased for corresponding amounts over corresponding lease terms.
26
7. Commitments and contingencies (continued):
Payment Commitments
The company has made certain commitments to pay down some of its current
liabilities. All of the items are shown as current even though these
commitments extend over a one year period as the Company would be subject
to immediate repayment terms if the commitments are not kept.
Accounts Payable Notes Payable Shareholder Loan Total
2006 $201,380 $ 68,500 $105,397 $375,277
2007 163,754 34,484 36,909 235,147
2008 -- -- 4,849 4,849
2009 -- -- -- --
-------- -------- -------- --------
$365,134 $102,984 $147,155 $615,273
======== ======== ======== ========
Litigation
In the normal course of operations the Company is subject to claims and
lawsuits. The Company is currently involved in various claims and
litigation, which they are defending. The Company or its subsidiaries are
aware of the following legal proceedings:
In December 2002, TGCI sued CanTalk for breach of contract. The action was
brought before the Court of Queen's Bench, Winnipeg, Canada. The case is
styled "Triton Global Communications v. CanTalk." The action alleges that
CanTalk failed to perform under an outsource agreement pursuant to which
CanTalk was to provide support for Triton's entry into the international
operator service market. In response to the suit, CanTalk filed a
counterclaim against TGCI for $10,000 alleging breach of contract. TGCI
believes that CanTalk's counterclaim is without merit and it intends to
defend the counterclaim.
On May 2, 2005, four shareholders of BSD Software, Inc. filed a complaint
against BSD and NeoMedia, claiming that the purchase price as outlined in
the purchase agreement between NeoMedia and BSD is too low. The plaintiffs
are seeking unspecified damages and injunctive relief against the merger.
BSD is currently reviewing the case with its attorneys. BSD believes that
the action is without merit and intends to defend the claim.
8. Stock Options and Warrants:
On May 14, 2003 the Company entered into an agreement to issue warrants
for 1,000,000 common shares, at an exercise price of $0.25 to a
corporation as consideration for consulting services. These warrants were
issued on August 20, 2003. Management's best estimate of the fair value of
the shares at the time of the Agreement was approximately $0.40, as a
result a charge for $150,000 was recorded as professional fees expense for
the year ended July 31, 2003. These warrants were excluded from the
Diluted Weighted Average Shares Outstanding for the year ended July 31,
2005, since the strike price exceeds the average annual market price.
On August 2, 2003 the Board of Directors granted stock options to purchase
150,000 shares at a strike price of $0.01 per share to a non-employee for
services performed that are to expire on August 2, 2005. Subsequent to
year end the options have expired.
27
8. Stock Options and Warrants (continued):
On August 2, 2003 the Board of Directors granted stock options to purchase
450,000 shares at a strike price of $0.01 per share to key employees. On
December 19, 2003 the Board of Directors approved stock options to
purchase 150,000 shares at a strike price of $0.01 per share to a key
employee. At the present time the Company had not adopted a Stock Option
Plan, thus no granted stock options could be exercised. As a result of
this, the Company did not recognize the compensation cost in accordance
with Accounting Principles Board ("APB") Opinion No. 25. "Accounting for
Stock Issued to Employees" as the Company did not have a qualified plan.
In July of 2005, the Company's Board of Directors adopted and approved a
Stock Bonus Plan, which included the issuance of 750,000 restricted shares
to key employees of the Company at a price of $0.04 per share. The Stock
Bonus Plan included a provision that replaced the options granted to key
employees in August and December 2003 aforementioned.
9. Related party transactions:
Wayside Solutions, Inc., a Corporation affiliated with the Company,
provided financing services to the Company. Amounts due to Wayside
Solutions Inc., bear interest at 10% per annum and are due on demand. A
general security agreement against all current and future assets of the
Company has been provided by TGBSI to Wayside Solutions Inc. as
collateral. Accrued interest relating to these services is included in
interest and finance charges, aggregating $61,485 in the current period
(2004 - $66,766).
Amounts due to Guy Fietz, CEO, President and a shareholder of the Company,
bear interest at 10% per annum, are unsecured and due on demand. Included
in interest and finance charges is accrued interest of $35,335 (2004 -
$34,119).
Amounts due to shareholders bear interest at rates varying from 0%-10% per
annum, are unsecured and due on demand. Payments in 2005 totaled $105,158,
including interest of $11,206 (2004 - $12,000, principal only). During the
current year 126,300 shares were issued to pay down amounts owing to
shareholders of $39,153 including interest of $4,353. A similar
transaction did not occur in the prior year.
These transactions are in the normal course of operations and are measured
at the exchange amount of consideration established and agreed to by the
related parties.
10. Concentration of Risk:
Accounts receivable with three customers represent approximately 90% (2004
- 2 customers represented 73%) of the balance of accounts receivable as at
July 31, 2005. It is the opinion of management that these accounts do not
represent a significant credit risk.
A majority (47%) (2004 - 57%) of the Company's purchases are from three
(2004 - three) specific vendors. The Company has significant sales and
purchases denominated in U.S. currency, and is therefore exposed to
financial risk resulting from fluctuations in exchange rates and the
degree of volatility of these rates.
28
11. Restatement of previously reported financial information:
The Company, in reviewing its accounting practices with respect to
translating the foreign currency statements of its subsidiary Triton
Global Business Services Inc., became aware that it incorrectly applied
SFAS 52 in accounting for foreign currency translations related to the net
assets of its subsidiary. As the functional currency of the Company and
its subsidiaries is the Canadian dollar, the net assets of its subsidiary
were to be translated using the historical exchange rate in effect when
the merger with its subsidiary occurred. As a result, the company had
overstated the Additional Paid in Capital balance as well as overstated
the Accumulated Other Comprehensive Loss balance. Both of these accounts
form part of the equity section of the balance sheet. The foreign currency
translations were reported correctly for all asset and liability accounts
as well as revenue, and expenses and other items in arriving at Net
Income. At the same time the company realized that it was not following
the recommendations in SFAS 95 paragraph 25 which states that the effect
of exchange rate changes should be presented as a separate part of the
statement cash flows. The Company had netted these changes in the related
line items in the cash flows from operations section.
As a result, the Company has restated certain financial information that
was previously reported in the Company's Annual Report on Form 10-KSB for
the fiscal year ended July 31, 2005. The following tables provide a
reconciliation of amounts previously reported by the Company.
Items affected in the shareholders' deficiency section of the Consolidated Balance Sheet
--------------------------------------------------------------------------------------------
At July 31, 2005
--------------------------------------
Previously Restatement Restated
Reported Adjustment Total
--------------------------------------
Additional paid in capital $ 3,762,704 $(569,007) 1 $ 3,193,697
Accumulated deficit $(5,704,542) $ -- $(5,704,542)
--------------------------------------
At October 31, 2004
--------------------------------------
Previously Restatement Restated
Reported Adjustment Total
--------------------------------------
Additional paid in capital $ 3,710,928 $(585,507) 1 $ 3,125,421
Accumulated other comprehensive loss $(1,244,578) $ 585,507 1 $ (659,071)
--------------------------------------
--------------------------------------
At January 31, 2005
--------------------------------------
Previously Restatement Restated
Reported Adjustment Total
--------------------------------------
Additional paid in capital $ 3,688,028 $(523,581) 1 $ 3,164,447
Accumulated other comprehensive loss $(1,119,079) $ 523,581 1 $ (595,498)
--------------------------------------
--------------------------------------
At April 30, 2005
--------------------------------------
Previously Restatement Restated
Reported Adjustment Total
--------------------------------------
Additional paid in capital $ 3,643,368 $(478,921) 1 $ 3,164,447
Accumulated other comprehensive loss $(1,031,172) $ 478,921 1 $ (552,251)
--------------------------------------
1 Reflects the exchange rate translations on the net assets of the Company's
subsidiary using the historical rate in effect at the time the shares were
issued
29
11. Restatement of previously reported financial information (continued):
-------------------------------------------------------------------------------------------------------------------------
The effect on comprehensive income of the Consolidated Statements of Operations and Comprehensive
Income
-------------------------------------------------------------------------------------------------------------------------
For the Year Ended July 31, 2005 For the Year Ended July 31, 2004
-----------------------------------------------------------------------
Previously Restatement Restated Previously Restatement Restated
Reported Adjustment Total Reported Adjustment Total
-----------------------------------------------------------------------
Net Income $ 271,350 $ -- $ 271,350 $ 44,549 $ -- $ 44,549
Other comprehensive income (loss)
Foreign currency translation
adjustment $(527,944) $ 261,302 1 $(266,642) $(331,583) $ 110,999 1 $ (220,584)
-----------------------------------------------------------------------
Comprehensive Income (Loss) $(256,594) $ 261,302 $ 4,708 $(287,034) $ 110,999 $ (176,035)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
For the 3 Months Ended For the 3 Months Ended
October 31, 2004 October 31, 2003
-----------------------------------------------------------------------
Previously Restatement Restated Previously Restatement Restated
Reported Adjustment Total Reported Adjustment Total
-----------------------------------------------------------------------
Net Income $ 99,401 $ -- $ 99,401 $ (16,193) $ -- $ (16,193)
Other comprehensive income (loss)
Foreign currency translation
adjustment $(563,975) $ 277,802 1 $(286,173) $(380,625) $ 134,667 1 $ (245,958)
-----------------------------------------------------------------------
Comprehensive Income (Loss) $(464,574) $ 277,802 $(186,772) $(396,818) $ 134,667 $ (262,151)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
For the 3 Months Ended For the 3 Months Ended
January 31, 2005 January 31, 2004
-----------------------------------------------------------------------
Previously Restatement Restated Previously Restatement Restated
Reported Adjustment Total Reported Adjustment Total
-----------------------------------------------------------------------
Net Income $ 49,463 $ -- $ 49,463 $ 78,269 $ -- $ 78,269
Other comprehensive income (loss)
Foreign currency translation
adjustment $ 125,499 $ (61,926) 1 $ 63,573 $ 27,318 $ (10,163) 1 $ 17,155
-----------------------------------------------------------------------
Comprehensive Income (Loss) $ 174,962 $ (61,926) $ 113,036 $ 105,587 $ (10,163) $ 95,424
-----------------------------------------------------------------------
-----------------------------------------------------------------------
For the 3 Months Ended For the 3 Months Ended
April 30, 2005 April 30, 2004
-----------------------------------------------------------------------
Previously Restatement Restated Previously Restatement Restated
Reported Adjustment Total Reported Adjustment Total
-----------------------------------------------------------------------
Net Income $ 52,472 $ -- $ 52,472 $ 258,465 $ -- $ 258,465
Other comprehensive income (loss)
Foreign currency translation
adjustment $ 87,907 $ (44,660) 1 $ 43,247 $ 197,450 $(107,706) 1 $ 89,744
-----------------------------------------------------------------------
Comprehensive Income (Loss) $ 140,379 $ (44,660) $ 95,719 $ 455,915 $(107,706) $ 348,209
-----------------------------------------------------------------------
1 Reflects the exchange rate translations related to the net assets of the
Company's subsidiary for the period
30
11. Restatement of previously reported financial information (continued):
The effect of foreign currency translation adjustments on the consolidated
statements of cash flows
For the Year Ended July 31, 2004
-------------------------------------------------------------------------------------------------------------------
Previously Restatement Restated Total
Reported Adjustment
------------------------------------------------------
Cash flows from (used in):
Operations:
Net income $ 44,549 $ -- $ 44,549
Items not involving cash:
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Non-cash financing costs $ 98,550 $ -- $ 98,550
Loss on sale of assets $ 3,179 $ -- $ 3,179
Depreciation and amortization $ 77,093 $ -- $ 77,093
Changes in operating working capital: $ --
Increase in accounts receivable $ (350,352) $ 44,405 1 $ (305,947)
Decrease in income taxes recoverable $ 33,048 $ -- $ 33,048
Decrease in prepaid expenses $ 2,053 $ 39 1 $ 2,092
Increase in accounts payable and accrued
liabilities $ 225,666 $ (55,739) 1 $ 169,927
-------------------------------------------------------------------------------------------------------------------
$ 133,786 $ (11,295) $ 122,491
Investing:
Proceeds on sale of property and equipment $ 35,188 $ -- $ 35,188
Purchase of property and equipment $ (2,259) $ -- $ (2,259)
-------------------------------------------------------------------------------------------------------------------
$ 32,929 $ -- $ 32,929
Financing:
Repayment of shareholder loans $ (38,395) $ -- $ (38,395)
Repayment of notes payable $ (10,599) $ -- $ (10,599)
Repayment of due to Wayside Solutions Inc. $ (63,706) $ -- $ (63,706)
--------------------------------------------------------------------------------------------------------------------
$ (112,700) $ -- $ (112,700)
Effect of exchange rate changes on cash and cash
equivalents $ -- $ 11,295 1 $ 11,295
--------------------------------------------------------------------------------------------------------------------
Net decrease (increase) in cash and cash equivalents $ 54,015 $ -- $ 54,015
Cash and cash equivalents, beginning of period $ 74,930 $ -- $ 74,930
--------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 128,945 $ -- $ 128,945
--------------------------------------------------------------------------------------------------------------------
1 Reflects the exchange rate translations related to current assets and
liabilities of the Company's subsidiary for the stated period
31
11. Restatement of previously reported financial information (continued):
The effect of foreign currency translation adjustments on the
consolidated statements of cash flows
For the Year Ended July 31, 2005
--------------------------------------------------------------------------------------------------------------------
Previously Restatement Restated Total
Reported Adjustment
-------------------------------------------------------
Cash flows from (used in):
Operations:
Net income $ 271,350 $ -- $ 271,350
Items not involving cash:
Adjustments to reconcile net income to cash provided
by (used in) operating activities:
Shares issued to non-executive employees $ 30,000 $ -- $ 30,000
Loss on sale of assets $ 9,167 $ -- $ 9,167
Depreciation and amortization $ 73,187 $ -- $ 73,187
Changes in operating working capital:
Increase in accounts receivable $ (747,954) $ 64,637 1 $ ( 683,317)
Decrease in prepaid expenses $ 9,013 $ 1,696 1 $ 10,709
Increase in accounts payable and accrued liabilities $ 464,584 $ 28,667 1 $ 493,251
--------------------------------------------------------------------------------------------------------------------
$ 109,347 $ 95,000 $ 204,347
Investing:
Proceeds on sale of property and equipment $ 16,677 $ -- $ 16,677
--------------------------------------------------------------------------------------------------------------------
Financing:
Repayment of shareholder loans $ (93,952) $ -- $ (93,952)
Repayment of notes payable $ (69,027) $ -- $ (69,027)
Repayment of due to Wayside Solutions Inc. $ (68,806) $ -- $ (68,806)
--------------------------------------------------------------------------------------------------------------------
$ (231,785) $ -- $ (231,785)
Effect of exchange rate changes on cash and cash
equivalents $ -- $ (95,000) 1 $ (95,000)
--------------------------------------------------------------------------------------------------------------------
Net decrease (increase) in cash and cash equivalents $ (105,761) $ -- $ (105,761)
Cash and cash equivalents, beginning of period $ 128,945 $ -- $ 128,945
--------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 23,184 $ -- $ 23,184
--------------------------------------------------------------------------------------------------------------------
1 Reflects the exchange rate translations related to current assets and
liabilities of the Company's subsidiary for the stated period
32
11. Restatement of previously reported financial information (continued):
The effect of foreign currency translation
adjustments on the consolidated statements of cash
flows
------------------------------------------------------------------------------------------------------------------
For the 3 months ended October 31, 2004 October 31, 2003
-----------------------------------------------------------------------
Previously Restatement Restated Previously Restatement Restated
Reported Adjustment Total Reported Adjustment Total
-----------------------------------------------------------------------
Cash from (used in)
Operations $ 228,492 $ 40,956 1 $ 269,448 $ 30,615 $(156,522) 1 $ (125,907)
Investing $ -- $ -- $ -- $ 35,188 $ -- $ 35,188
Financing $ (82,293) $ -- $ (82,293) $ -- $ -- $ --
Effect of exchange rate changes on cash
and cash equivalents $ -- $(40,956) 1 $ (40,956) $ -- $ 156,522 1 $ 156,522
------------------------------------------------------------------------------------------------------------------
Net decrease (increase) in cash and cash
equivalents $ 146,199 $ -- $ 146,199 $ 65,803 $ -- $ 65,803
Cash and cash equivalents, beginning of
period $ 128,945 $ -- $ 128,945 $ 74,930 $ -- $ 74,930
------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 275,144 $ -- $ 275,144 $ 140,733 $ -- $ 140,733
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
For the 6 months ended January 31, 2005 January 31, 2004
-----------------------------------------------------------------------
Previously Restatement Restated Previously Restatement Restated
Reported Adjustment Total Reported Adjustment Total
-----------------------------------------------------------------------
Cash from (used in)
Operations $ (905) $ 81,993 1 $ 81,088 $ (17,945) $(159,855) 1 $ (177,800)
Investing $ 16,677 $ -- $ 16,677 $ 35,188 $ -- $ 35,188
Financing $ (99,975) $ -- $ (99,975) $ (52,838) $ -- $ (52,838)
Effect of exchange rate changes on cash
and cash equivalents $ -- $(81,993) 1 $ (81,993) $ -- $ 159,855 1 $ 159,855
------------------------------------------------------------------------------------------------------------------
Net decrease (increase) in cash and cash
equivalents $ (84,203) $ -- $ (84,203) $ (35,595) $ -- $ (35,595)
Cash and cash equivalents, beginning of
period $ 128,945 $ -- $ 128,945 $ 74,930 $ -- $ 74,930
------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 44,742 $ -- $ 44,742 $ 39,335 $ -- $ 39,335
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
For the 9 months ended April 30, 2005 April 30, 2004
-----------------------------------------------------------------------
Previously Restatement Restated Previously Restatement Restated
Reported Adjustment Total Reported Adjustment Total
-----------------------------------------------------------------------
Cash from (used in)
Operations $ 19,291 $ 74,858 1 $ 94,149 $ 58,109 $ 139,439 1 $ 197,548
Investing $ 16,677 $ -- $ 16,677 $ 32,999 $ -- $ 32,999
Financing $(159,703) $ -- $(159,703) $(142,272) $ -- $ (142,272)
Effect of exchange rate changes on cash
and cash equivalents $ -- $(74,858) 1 $ (74,858) $ -- $(139,439) 1 $ (139,439)
------------------------------------------------------------------------------------------------------------------
Net decrease (increase) in cash and cash
equivalents $(123,735) $ -- $(123,735) $ (51,164) $ -- $ (51,164)
Cash and cash equivalents, beginning of
period $ 128,945 $ -- $ 128,945 $ 74,930 $ -- $ 74,930
------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 5,210 $ -- $ 5,210 $ 23,766 $ -- $ 23,766
------------------------------------------------------------------------------------------------------------------
1 Reflects the exchange rate translations related to current
assets and liabilities of the Company's subsidiary for the
stated period
33
(b) Pro Forma Financial Information
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
1. Basis of Presentation
Acquisition of BSD Software, Inc.
On March 21, 2006, NeoMedia acquired all of the outstanding common shares
of BSD. Pursuant to the terms of the merger, BSD was merged with and into
NeoMedia Telecom Services, Inc., a wholly-owned subsidiary of NeoMedia. The
separate corporate existence of BSD ceased as of the effective time of the
merger, and NeoMedia Telecom Services, Inc. continues as the surviving
corporation. In exchange for all of the outstanding shares of BSD, NeoMedia
issued 7,123,698 shares of its common stock, valued at $0.3467, which is the
volume-weighted average closing price of NeoMedia stock for the five days prior
to the effective time of the merger. Each BSD shareholder received approximately
0.2019 share of NeoMedia common stock for each share of BSD common stock held.
Acquisition of Sponge Ltd.
On February 20, 2006, NeoMedia and Sponge Ltd. of London ("Sponge") signed
a definitive share purchase agreement, subject to closing conditions, under
which NeoMedia acquired all of the outstanding shares of Sponge in exchange for
(pound)3,450,000 (approximately $6 million) cash and 33,097,135 shares of
NeoMedia common stock. The agreement also calls for Sponge to earn an additional
(pound)2,500,000 (approximately $4.4 million) in the form of NeoMedia common
stock if, during the two-year period beginning at closing, the Sponge business
earns in excess of (pound)1,300,000 (approximately $2.3 million) in net profits.
On February 23, 2006, NeoMedia and Sponge completed the closing requirements and
the acquisition became effective. Pursuant to the terms of the merger agreement,
the number of shares of NeoMedia common stock to be issued as consideration was
calculated using a share price of $0.384. In the event that NeoMedia's stock
price (at the time the consideration shares are saleable) is less than $0.384,
NeoMedia is obligated to compensate Sponge shareholders in cash for the
difference between the price at the time the shares become saleable and $0.384.
Assuming a stock price at the time the shares become saleable of $0.22, which
was the last sale price on May 25, 2006, NeoMedia would have a cash liability of
$5.4 million resulting from this clause.
Acquisition of Gavitec AG
On February 17, 2006, NeoMedia and Gavitec AG of Wuerselen, Germany ("Gavitec")
signed a definitive sale and purchase agreement, subject to closing conditions,
under which NeoMedia acquired all of the outstanding shares of Gavitec in
exchange for $1,800,000 cash and 13,660,511 shares of NeoMedia common stock. 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 $0.384, NeoMedia is
obligated to compensate Gavitec shareholders in cash for the difference between
the price at the time the shares become saleable and $0.384. Assuming a stock
price at the time the shares become saleable of $0.22, which was the last sale
price on May 25, 2006, NeoMedia would have a cash liability of $2.4 million
resulting from this clause.
Acquisition of 12Snap AG
On February 10, 2006, NeoMedia and 12Snap AG of Munich, Germany ("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.
Assuming a stock price at the time the shares become saleable of $0.22, which
was the last sale price on May 25, 2006, NeoMedia would have a cash liability of
$8.7 million resulting from this clause.
34
Acquisition of Mobot, Inc.
On February 17, 2006, NeoMedia acquired all of the outstanding shares of Mobot,
Inc. of Lexington, MA, ("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. Assuming a stock price at the time the
shares become saleable of $0.22, which was the last sale price on May 25, 2006,
NeoMedia would have a cash liability of $2.8 million resulting from this clause.
In addition to cash and stock, at closing NeoMedia forgave notes payable
totaling $1,500,000 due from Mobot. This amount is considered other additional
consideration in the purchase price allocation.
Audited financials statements for Mobot were included in amendment no. 1 to form
8-K filed with SEC on May 3, 2006. Audited financials statements for 12Snap were
included in amendment no. 1 to form 8-K filed with SEC on May 8, 2006. Audited
financials statements for Gavitec were included in amendment no. 1 to form 8-K
filed with SEC on May 8, 2006. Audited financials statements for Sponge were
included in amendment no. 1 to form 8-K filed with SEC on May 9, 2006. Gavitec,
Mobot, 12Snap, and Sponge 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.
Presentation
The unaudited pro forma condensed combined historical statement of operations
for the year ended December 31, 2005 gives effect to the acquisitions of BSD,
Sponge, Gavitec, 12Snap and Mobot as if they had occurred as of January 1, 2005,
combining the historical results of NeoMedia for the year ended December 31,
2005 with the historical results of BSD, Sponge, Gavitec, 12Snap and Mobot for
the year ended December 31, 2005. The unaudited pro forma condensed combined
balance sheet as of December 31, 2005 gives effect to the acquisitions of BSD,
Sponge, Gavitec, 12Snap and Mobot as if they had occurred as of December 31,
2005.
The unaudited pro forma combined financial statements included in this filing
have been prepared by the managements of NeoMedia, BSD, Sponge, Gavitec, 12Snap,
and Mobot without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. However, the
managements of NeoMedia, BSD, Sponge, Gavitec, 12Snap, and Mobot believe that
the disclosures are adequate to make the information not misleading.
The pro forma adjustments are based on currently available information and upon
estimates and assumptions that we believe are reasonable under the
circumstances. The unaudited pro forma financial data do not purport to
represent what NeoMedia's financial position or results of operations would
actually have been if such transactions had occurred on those dates and are not
necessarily representative of NeoMedia's financial position or results of
operations for any future period. The unaudited pro forma financial statements
should be read in conjunction with the separate historical financial statements
and footnotes of NeoMedia included in Form 10-KSB for the year ended December
31, 2005; with the separate historical financial statements and footnotes of BSD
for the years ended July 31, 2005 and 2004 (included herein); with the separate
historical financial statements and footnotes of Sponge for the years ended
September 30, 2005 and 2004 (in Form 8-K/A filed with the SEC on May 9, 2006);
with the separate historical financial statements and footnotes of Gavitec for
the years ended December 31, 2005 and 2004 (in Form 8-K/A filed with the SEC on
May 8, 2006); with the separate historical financial statements and footnotes of
12Snap for the years ended December 31, 2005 and 2004 (included in Form 8-K/A
filed with the SEC on May 8, 2006); and with the separate historical financial
statements and footnotes of Mobot for the years ended December 31, 2005 and 2004
(included in Form 8-K/A filed with the SEC on May 3, 2006).
35
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 BSD, Sponge, Gavitec,
12Snap and Mobot. The allocation reflected in the unaudited pro forma combined
financial statements is based on management's best judgment and estimate of the
fair values of intangible assets being acquired, and should be considered
preliminary and is subject to the completion of a comprehensive independent
valuation of the assets acquired and liabilities assumed. The Company expects to
obtain an independent valuation, currently in process, by the filing of its
second quarter 2006 Form 10-Q in August 2006. 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 contingent consideration issued pursuant to the stock purchase
agreements could 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 BSD, Sponge, Gavitec, 12Snap and Mobot had been issued at the
beginning of the period shown. Dilutive shares are not included in the
computation of pro forma dilutive net loss per share as their effect would be
anti-dilutive.
36
NeoMedia Technologies, Inc.
Unaudited Pro-forma Condensed Combined Balance Sheet
December 31, 2005
(In thousands of US Dollars)
Pro Pro
Forma Forma
(A) (A) Adjust- Consol-
ASSETS NeoMedia Mobot Sponge Gavitec 12Snap BSD ments idated
--------- -------- ----------- --------- -------- ----------- ---------- ----------
Current assets: * * (unaudited)** * * (unaudited)*** (unaudited) (unaudited)
Cash and cash equivalents $2,291 $909 $439 $95 $1,341 $52 ($13,941) (G) ($8,814)
Trade accounts receivable, net 341 78 223 172 2,117 1,567 -- 4,498
Inventories, net 423 -- -- 182 -- -- -- 605
Investment in marketable
securities 104 -- -- -- 52 -- -- 156
Prepaid expenses and other
current assets 151 8 314 64 751 13 -- 1,301
--------- -------- ----------- --------- -------- ----------- ---------- ----------
Total current assets 3,310 995 976 513 4,261 1,632 (13,941) (2,254)
Property and equipment, net 236 22 48 17 224 69 -- 616
Capitalized patents, net 3,134 -- -- -- -- -- -- 3,134
Micro paint repair chemical
formulations and proprietary
process 1,450 -- -- -- -- -- -- 1,450
Customer contracts and
relationships -- -- -- -- -- -- 2,800 (C) 2,800
Capitalized software platform -- -- -- -- -- -- 16,300 (C) 16,300
Other intangible assets 246 20 -- 3 98 -- 2,900 (C) 3,267
Goodwill 1,099 -- -- -- -- -- 45,906 (C) 47,005
Advances to Mobot, Inc. 1,500 -- -- -- -- -- (1,500) --
Cash surrender value of life
insurance policy 769 -- -- -- -- -- -- 769
Other long-term assets 667 -- -- -- -- -- (229) (D) 438
--------- -------- ----------- --------- -------- ----------- ---------- ----------
Total assets $12,411 $1,037 $1,024 $533 $4,583 $1,701 $52,236 $73,525
========= ======== =========== ========= ======== =========== ========== ==========
LIABILITIES AND SHAREHOLDERS'
DEFICIT
Current liabilities:
Accounts payable $1,574 $344 $298 $160 $775 $3,328 $-- $6,479
Accrued expenses 1,844 148 266 50 2,153 -- -- 4,461
Amounts payable under
settlement agreements 97 -- -- -- -- -- -- 97
Taxes payable 80 -- 90 -- -- -- -- 170
Deferred revenues and other 898 236 73 362 1,780 -- -- 3,349
Liabilities of discontinued
business unit 676 -- -- -- -- -- -- 676
Notes and loans payable 3,015 1,500 -- -- 4,145 1,715 (1,500) (E) 8,875
--------- -------- ----------- --------- -------- ----------- ---------- ----------
Total current liabilities 8,184 2,228 727 572 8,853 5,043 (1,500) 24,107
--------- -------- ----------- --------- -------- ----------- ---------- ----------
Long-term debt and convertible
debentures -- 500 105 -- -- -- (500) (F) 105
Minority Interest -- -- -- -- 7 -- -- 7
Shareholders' deficit:
Preferred stock -- -- -- -- -- -- -- --
Common stock (B) 4,676 -- 1 263 5,825 32 (4,567) (C) 6,230
Additional paid-in capital 106,456 1 11 1,180 49,675 3,194 (10,535) (C) 149,982
Deferred equity financing costs (13,256) -- -- -- -- -- -- (13,256)
Deferred stock-based compensation (169) -- -- -- -- -- -- (169)
Accumulated other comprehensive
income (loss) (177) -- (40) -- 946 (873) (33) (C) (177)
Retained earnings (accumulated
deficit) (92,524) (1,692) 220 (1,482) (60,158) (5,695) 68,806 (C) (92,525)
Treasury stock (779) -- -- -- (565) -- 565 (779)
--------- -------- ----------- --------- -------- ----------- ---------- ----------
Total shareholders' deficit 4,227 (1,691) 192 (39) (4,277) (3,342) 54,236 49,306
--------- -------- ----------- --------- -------- ----------- ---------- ----------
Total liabilities and
shareholders' deficit $12,411 $1,037 $1,024 $533 $4,583 $1,701 $52,236 $73,525
========= ======== =========== ========= ======== =========== ========== ==========
* - Derived from audited financial statements
** - Sponge balances taken from December 31, 2005 interim unaudited balance
sheet
*** - BSD balances taken from January 31, 2006 interim unaudited balance sheet
Pro-forma Adjustments
(A) - For pro forma presentation purposes, Gavitec and 12Snap balances are
converted from Euro to US Dollars at a rate of 0.8444 Euros/US Dollar,
which was the exchange rate as of December 31, 2005.
(B) - As of December 31, 2005, NeoMedia's $0.01 par value common stock consists
of 1,000,000,000 authorized shares, 475,387,910 historical shares and
622,974,117 pro forma shares issued; and 467,601,717 historical shares
and 615,187,924 pro forma shares outstanding
(C) - Adjustment for stock and cash issued to acquire Mobot, Sponge, Gavitec,
12Snap, and BSD, assuming acquisitions occurred as of December 31, 2005.
Adjustment includes the elimination of $1,554 common stock and $43,525
paid-in capital of the subsidiaries. The purchase price for each
acquisition was calculated as follows:
37
Mobot Sponge Gavitec 12Snap BSD
----- ------ ------- ------ ---
Pro forma number of shares of NeoMedia
to be treated as purchase price
consideration 22,413,793 39,310,345 18,620,690 67,241,379 7,859,527
x NeoMedia closing stock price around
December 31, 2005 (measurement date) $0.290 $0.290 $0.290 $0.290 $0.290
------------- ------------ ------------- ------------ ------------
Total stock consideration $6,500,000 $11,400,000 $5,400,000 $19,500,000 $2,279,263
Plus cash consideration $3,500,000 $6,141,000 $1,800,000 $2,500,000 $---
------------- ------------ ------------- ------------ ------------
Pro forma purchase price $10,000,000 $17,541,000 $7,200,000 $22,000,000 $2,279,263
============= ============ ============= ============ ============
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 Sponge Gavitec 12Snap BSD
----- ------ ------- ------ ---
Actual Shares Issued as Stock 16,931,493 33,097,135 13,660,511 49,294,581 7,123,698
Consideration
38
Based on NeoMedia's stock price around the measurement date of December 31,
2005, and the balance sheets of NeoMedia, Mobot, Sponge, Gavitec, 12Snap,
and BSD as of December 31, 2005, the pro forma purchase price for each
acquisition would be allocated as follows:
(in thousands of US dollars, except share amounts
Mobot Sponge Gavitec 12Snap BSD
----- ------ ------- ------ ---
Purchase Price Consideration
Cash $3,500 $6,141 $1,800 $2,500 $--
Pro forma number of shares of NeoMedia common stock issued 22,413,793 39,310,345 18,620,690 67,241,379 7,859,527
/ NeoMedia closing stock price around December 31, 2005
(measurement date) $0.29 $0.29 $0.29 $0.29 $0.29
------------ ----------- ------------ ------------ ----------
Pro forma fair value of shares issued as purchase price $6,500 $11,400 $5,400 $19,500 $2,279
consideration
Purchase-related costs 8 73 26 113 8
Other purchase consideration 1,500 -- -- -- --
------------ ----------- ------------ ------------ ----------
Total fair value expected to be treated as purchase price
consideration $11,508 $17,614 $7,226 $22,113 $2,287
============ =========== ============ ============ ==========
Assets Purchased
Cash and cash equivalents $909 $439 $95 $1,341 $52
Investment in marketable securities -- -- -- 52 --
Trade accounts receivable, net 78 223 172 2,117 1,566
Inventory -- -- 182 -- --
Prepaid expenses and other current assets 8 314 64 751 13
Property and equipment, net 22 48 17 224 70
Customer contracts and relationships (i)(ii) 400 400 -- 400 1,600
Capitalized software platform (i)(iii) 5,000 1,300 5,600 4,400 --
Other intangible assets (i)(iv) 220 550 553 1,548 150
Goodwill (i)(v) 5,599 15,172 1,116 20,140 3,879
------------ ----------- ------------ ------------ ----------
12,236 18,446 7,798 30,973 7,330
------------ ----------- ------------ ------------ ----------
Liabilities Assumed
Accounts payable 344 298 160 775 3,328
Accrued expenses 148 266 50 2,153 --
Taxes payable -- 90 -- -- --
Deferred revenues and other current liabilities 236 73 362 1,780 --
Notes payable -- -- -- 4,145 1,715
Long-term debt -- 105 -- 7 --
------------ ----------- ------------ ------------ ----------
728 832 572 8,860 5,043
------------ ----------- ------------ ------------ ----------
(i) - For purposes of these unaudited pro forma financial
statements, the excess of fair value of consideration paid
over net book value for Mobot, Sponge, Gavitec, 12Snap, and
BSD 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.
39
(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.
(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 $22 million gross financing in the form
of a convertible preferred stock sale, a portion of the proceeds of which
were used to acquire Mobot, Gavitec, 12Snap, and Sponge.
40
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
(B) (A) (A) Forma Forma
NeoMedia Mobot Sponge Gavitec 12Snap BSD Adjustments Consolidated
------------- ------- ------- ------- ------- ------- ------------- -------------
* * (unaudited)** * * (unaudited)*** (unaudited) (unaudited)
NET SALES:
Technology license, service
and products $ 877 $ 300 $ 2,248 $ 772 $ 7,396 $ 8,437 $ -- $ 20,030
Micro paint repair products
and services 1,279 -- -- -- -- -- -- 1,279
------------- ------- ------- ------- ------- ------- ------------- -------------
Total net sales 2,156 300 2,248 772 7,396 8,437 -- 21,309
------------- ------- ------- ------- ------- ------- ------------- -------------
COST OF SALES:
Technology license, service
and products 659 -- 1,296 722 -- 6,973 2,329(B) 11,979
Micro paint repair products
and services 913 -- -- -- -- -- -- 913
------------- ------- ------- ------- ------- ------- ------------- -------------
Total cost of sales 1,572 -- 1,296 722 -- 6,973 2,329 12,892
------------- ------- ------- ------- ------- ------- ------------- -------------
GROSS PROFIT 584 300 952 50 7,396 1,464 (2,329) 8,417
Selling, general and
administrative expenses 7,561 1,180 796 972 7,147 1,184 992(B) 19,832
Impairment charge 335 -- -- -- -- -- -- 335
Research and development
costs 934 552 -- 503 1,515 -- -- 3,504
------------- ------- ------- ------- ------- ------- ------------- -------------
Income (loss) from operations (8,246) (1,432) 156 (1,425) (1,266) 280 (3,321) (15,254)
Loss on extinguishment
of debt, net 172 -- -- -- -- -- -- 172
Other income (loss) -- -- 57 296 230 -- -- 583
Impairment charge on
investments (780) -- -- -- -- -- -- (780)
Interest income (expense),
net (293) (42) 18 -- (515) (150) -- (982)
------------- ------- ------- ------- ------- ------- ------------- -------------
Income before provision for
income taxes (9,147) (1,474) 231 (1,129) (1,551) 130 (3,321) (16,261)
Provision for income taxes -- -- (60) -- -- -- -- --
------------- ------- ------- ------- ------- ------- ------------- -------------
Net income (loss) (9,147) (1,474) 171 (1,129) (1,551) 130 (3,321) (16,261)
Other comprehensive income (loss):
Unrealized loss on marketable
securities (146) -- -- -- -- -- -- (146)
Foreign currency translation
adjustment 29 -- -- -- -- (277) -- (248)
------------- ------- ------- ------- ------- ------- ------------- -------------
Comprehensive income (loss) $ (9,264) $(1,474) $ 171 $(1,129) $(1,551) $ (147) $ (3,321) $ (16,655)
============= ======= ======= ======= ======= ======= ============= =============
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 451,857,851 172,717,482(C) 624,575,333
============= =============
* - Derived from audited financial statements
** - Sponge fiscal year end is September 30. Results shown are for the year
ended December 31, 2005, compiled from Sponge's audited financial
statements for the year ended September 30, 2005 and interim financial
statements for the three months ended December 31, 2005 and 2004.
*** - BSD fiscal year end is July 31. Results shown are for the year ended
January 31, 2006, compiled from BSD's audited financial statements for the
year ended July 31, 2005 and interim financial statements for the six
months ended January 31, 2006 and 2005
41
Pro-forma Adjustments
(A)- 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)- A portion of Sponge's sales are shown net of payments made to customers.
(C)- 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.
(D)- Adjustment for shares that would have been issued in connection with
acquisitions if they had occurred on January 1, 2005, calculated as
follows:
Mobot Sponge Gavitec 12Snap BSD Total
---------- ----------- ---------- ----------- ----------- -----------
NeoMedia stock price around January 1, 2005 $0.261 $0.261 $0.261 $0.261 $0.261
(measurement date)
Total stock consideration $6,500,000 $11,400,000 $5,400,000 $19,500,000 $2,279,263 $45,079,263
---------- ----------- ---------- ----------- ----------- -----------
Pro forma number of shares of NeoMedia to be
treated as purchase price consideration 24,904,215 43,678,161 20,689,655 74,712,644 8,732,808 172,717,482
========== =========== ========== =========== =========== ===========
42
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: June 2, 2006 By: /s/ Charles T. Jensen
------------ --------------------------------
Charles T. Jensen, President,
Chief Executive Officer and Director
43
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
23.1 Consent of Stonefield Josephson, Inc., Independent Registered
Public Accounting Firm
44