Results of operations - pages 49 to 52 of the 10Q:
Results Of Operations For The Three Months Ended June 30, 2006 As Compared To The Three Months Ended June 30, 2005
Net sales. Total net sales for the three months ended June 30, 2006 were $6,606,000, which represented a $6,068,000, or 1,128%, increase from $538,000 for the three months ended June 30, 2005. This increase primarily resulted from revenues of subsidiaries 12Snap, Sponge, Mobot, Gavitec, and BSD, all of which were acquired during the first quarter of 2006. NeoMedia could realize a material increase in revenue over the next 12 months relative to 2005 due to the acquisitions of Mobot, 12Snap, Sponge, Gavitec, and BSD for the entire quarter. NeoMedia could also realize a material increase in revenue over the next 12 months if the Company is successful in implementing its Qode® go-to-market strategy, if pending court cases involving its intellectual property are resolved in NeoMedia’s favor, or if it is successful in implementing the expansion of the Micro Paint Repair business unit into China and other geographies.
Technology license, service, product and licenses. Technology service, product and license sales increased $5,928,000, or 2,140% to $6,205,000 for the three months ended June 30, 2006 compared to $277,000 for the three months ended June 30, 2005. The increase was primarily the result of sales from subsidiaries 12Snap, Sponge, Mobot, Gavitec, and BSD, all of which were acquired during the first quarter of 2006. NeoMedia could realize an increase in license fees over the next 12 months due to the recent acquisitions of Mobot, 12Snap, Sponge, Gavitec, and BSD, if the Company is successful in implementing its Qode® go-to-market strategy, or if pending court cases involving its intellectual property are resolved in NeoMedia’s favor.
Micro Paint Repair products and services. Sales of Micro Paint Repair products and services were $401,000 for the three months ended June 30, 2006, compared with $261,000 for the three months ended June 30, 2005, an increase of $140,000, or 54%. The increase was primarily due to the growth of the Company’s US operations. In addition, during the fourth quarter of 2005 and first quarter of 2006, NeoMedia shipped and invoiced $757,000 of product to Beijing Sino-US Jinche Yingang Auto Technological Services Limited that has not yet been recognized as revenue as of June 30, 2006. Once collectibility is reasonably assured, NeoMedia expects to recognize revenue for these shipments. NeoMedia could realize a material increase in Micro Paint Repair revenue if the Company is successful in continuing the expansion of the business unit into China and other geographies.
Cost of technology license, service, product and licenses. Cost of technology services, products and licenses fees were $3,948,000 for the three months ended June 30, 2006 compared to $213,000 for the three months ended June 30, 2006, an increase of $3,735,000, or 1,754%. The increase was due primarily to the cost of increased sales from subsidiaries 12Snap, Sponge, Mobot, Gavitec, and BSD, all of which were acquired during the first quarter of 2006.
Cost of Micro Paint Repair products and services. Cost of Micro Paint Repair products and services was $569,000 for the three months ended June 30, 2006, compared with $237,000 for the three months ended June 30, 2005, an increase of $332,000, or 140%. This increase is the result of fixed cost of goods sold associated with NeoMedia’s corporate Micro Paint facility in Ft. Myers, Florida. The facility operated at a gross margin loss during the first half of 2006 as it gained market traction. Cost of micro paint repair products and services as a percentage of related sales was 142% in 2006, compared to 91% in 2005. NeoMedia expects cost of micro paint repair products and services to decrease as the corporate facility increases its customer base and profitability and product sales expand globally.
Gross Profit. Gross profit was $2,089,000 for the three months ended June 30, 2006, an increase of $2,001,000, or 2,274%, compared with gross profit of $88,000 for the three months ended June 30, 2005. This increase was primarily the result of the gross profit of the subsidiaries 12Snap, Sponge, Mobot, Gavitec, and BSD, all of which were acquired during the first quarter of 2006.
Sales and marketing. Sales and marketing expenses were $3,337,000 for the three months ended June 30, 2006, compared to $1,230,000 for the three months ended June 30, 2005, an increase of $2,107,000 or 171%. This increase resulted primarily from the addition of sales force and cost associated with added sales and marketing resources associated with Mobot, 12Snap, Sponge, Gavitec, and BSD. NeoMedia expects sales and marketing expense to increase over the next 12 months with the continued development and expansion of the NeoMedia Mobile, NeoMedia Micro Paint Repair, and NeoMedia Telecom product groups.
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General and administrative. General and administrative expenses increased by $2,253,000, or 5,074%, to $2,697,000 for the three months ended June 30, 2006, compared to $444,000 for the three months ended June 30, 2005. The increase resulted primarily from increased infrastructure expense coupled with the expenses of the subsidiaries 12Snap, Sponge, Mobot, Gavitec, and BSD, all of which were acquired during the first quarter of 2006. NeoMedia expects general and administrative expense to increase over the next 12 months with the continued expansion of the NeoMedia Mobile business.
Stock based compensation expense. Stock based compensation was $1,072,000 for the three months ended June 30, 2006, as compared with $418,000 for the three months ended June 30, 2005, an increase of $654,000, or 156%. The increase was due to the adoption of SFAS 123R (Share Based Payment) on January 1, 2006.
Research and development. During the three months ended June 30, 2006, NeoMedia charged to expense $896,000 of research and development costs, an increase of $736,000 or 460% compared to $160,000 for the three months ended June 30, 2005. The increase is primarily due to the addition of development staff hired and acquired in connection with the ongoing commercialization of the NeoMedia Mobile business unit. NeoMedia expects research and development costs to increase over the next 12 months with the continued development efforts of NeoMedia Mobile business unit products and services worldwide.
Gain (loss) on extinguishment of debt. Gain on extinguishment of debt was $106,000 for the three months ended June 30, 2006, an increase of $73,000, or 221%. The gains resulted from the difference between the cash or market value of stock issued to settle the debt and the carrying value of the debt at the time of settlement.
Interest income (expense). Interest income (expense) consists primarily of interest accrued for creditors as part of financed purchases, past due balances, and notes payable, net of interest earned on cash equivalent investments. Interest income (expense) decreased by $84,000, or 49%, to ($85,000) for the three months ended June 30, 2006 from ($169,000) for the three months ended June 30, 2005, due to the pay down of notes payable.
Gain on derivative financial instruments. Gain on derivative financial instruments was $11,026,000 for the three months ended June 30, 2006. The gain is on the derivatives associated with the preferred stock sale on February 17, 2006. Certain derivatives were created at the time of the offering and those derivatives are recorded at fair value on the accompanying balance sheet. The gain for the three months ended June 30, 2006 is the reduction in value of the derivative from March 31, 2006 to June 30, 2006 and is due almost entirely to a reduction in NeoMedia’s stock price from March 31, 2006 to June 30, 2006. There was no such gain or loss on derivative financial instruments for the three months ended June 30, 2005.
Net Income (Loss). The net income (loss) for the three months ended June 30, 2006 was $5,133,000, which represented a $7,433,000, or 323% increase from a ($2,300,000) loss for the three months ended June 30, 2005. The increase in net income is due primarily to the $11,025,000 gain on derivative financial instruments during 2006, partially offset by increased operating expenses from the expanded operations from the acquired subsidiaries.
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Results Of Operations For The Six Months Ended June 30, 2006 As Compared To The Six Months Ended June 30, 2005
Net sales. Total net sales for the six months ended June 30, 2006 were $8,658,000, which represented a $7,373,000, or 574%, increase from $1,285,000 for the six months ended June 30, 2005. This increase primarily resulted from revenues from subsidiaries 12Snap, Sponge, Mobot, Gavitec, and BSD, all of which were acquired during the first quarter of 2006. NeoMedia could realize a material increase in revenue over the next 12 months relative to 2005 due to the acquisitions of Mobot, 12Snap, Sponge, Gavitec, and BSD for the entire quarter. NeoMedia could also realize a material increase in revenue over the next 12 months if the Company is successful in implementing its Qode® go-to-market strategy, if pending court cases involving its intellectual property are resolved in NeoMedia’s favor, or if it is successful in implementing the expansion of the Micro Paint Repair business unit into China and other geographies.
Technology license, service, product and licenses. Technology service, product and license sales increased $7,311,000, or 1,285% to $7,880,000 for the six months ended June 30, 2006 compared to $569,000 for the six months ended June 30, 2005. The increase was primarily the result of sales of subsidiaries 12Snap, Sponge, Mobot, Gavitec, and BSD, all of which were acquired during the first quarter of 2006. NeoMedia could realize an increase in license fees over the next 12 months due to the recent acquisitions of Mobot, 12Snap, Sponge, Gavitec, and BSD, if the Company is successful in implementing its Qode® go-to-market strategy, or if pending court cases involving its intellectual property are resolved in NeoMedia’s favor.
Micro Paint Repair products and services. Sales of Micro Paint Repair products and services were $778,000 for the six months ended June 30, 2006, compared with $716,000 for the six months ended June 30, 2005, an increase of $62,000, or 9%. The increase was primarily due to the growth of the Company’s US operations. In addition, during the fourth quarter of 2005 and first quarter of 2006, NeoMedia shipped and invoiced $757,000 of product to Beijing Sino-US Jinche Yingang Auto Technological Services Limited that has not yet been recognized as revenue as of June 30, 2006. Once collectibility is reasonably assured, NeoMedia expects to recognize revenue for these shipments. NeoMedia could realize a material increase in Micro Paint Repair revenue if the Company is successful in continuing the expansion of the business unit into China and other geographies.
Cost of technology license, service, product and licenses. Cost of technology services, products and licenses fees were $4,775,000 for the six months ended June 30, 2006 compared to $389,000 for the six months ended June 30, 2006, an increase of $4,386,000, or 1,128%. The increase was due primarily to the cost of increased sales from subsidiaries 12Snap, Sponge, Mobot, Gavitec, and BSD, all of which were acquired during the first quarter of 2006.
Cost of Micro Paint Repair products and services. Cost of Micro Paint Repair products and services was $988,000 for the six months ended June 30, 2006, compared with $510,000 for the six months ended June 30, 2005, an increase of $478,000, or 94%. This increase is the result of fixed cost of goods sold associated with NeoMedia’s corporate Micro Paint facility in Ft. Myers, Florida coupled with volume related increased costs of sales. The facility operated at a gross margin loss during the first half of 2006 as it gained market traction. Cost of micro paint repair products and services as a percentage of related sales was 127% in 2006, compared to 71% in 2005. NeoMedia expects cost of micro paint repair products and services to decrease as the corporate facility increases its customer base and profitability and product sales expand globally.
Gross Profit. Gross profit was $2,895,000 for the six months ended June 30, 2006, an increase of $2,509,000, or 650%, compared with gross profit of $386,000 for the six months ended June 30, 2005. This increase was primarily the result of the gross profit of the subsidiaries 12Snap, Sponge, Mobot, Gavitec, and BSD, all of which were acquired during the first quarter of 2006.
Sales and marketing. Sales and marketing expenses were $4,879,000 for the six months ended June 30, 2006, compared to $2,025,000 for the six months ended June 30, 2005, an increase of $2,854,000 or 141%. This increase resulted primarily from the addition of sales force and cost associated with added sales and marketing resources associated with Mobot, 12Snap, Sponge, Gavitec, and BSD. NeoMedia expects sales and marketing expense to increase over the next 12 months with the continued development and expansion of the NeoMedia Mobile, NeoMedia Micro Paint Repair, and NeoMedia Telecom product groups.
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General and administrative. General and administrative expenses increased by $2,976,000, or 284%, to $4,023,000 for the six months ended June 30, 2006, compared to $1,047,000 for the six months ended June 30, 2005. The increase resulted primarily from increased infrastructure expense coupled with the expenses of the subsidiaries 12Snap, Sponge, Mobot, Gavitec, and BSD, all of which were acquired during the first quarter of 2006. NeoMedia expects general and administrative expense to increase over the next 12 months with the continued expansion of the NeoMedia Mobile business.
Stock based compensation expense. Stock based compensation was $2,589,000 for the six months ended June 30, 2006, as compared with $514,000 for the six months ended June 30, 2005, an increase of $2,075,000, or 404%. The increase was due to the adoption of SFAS 123R (Share Based Payment) on January 1, 2006.
Research and development. During the six months ended June 30, 2006, NeoMedia charged to expense $1,446,000 of research and development costs, an increase of $1,102,000 or 320% compared to $344,000 for the six months ended June 30, 2005. The increase is primarily due to the addition of development staff hired and acquired in connection with the ongoing commercialization of the NeoMedia Mobile business unit. NeoMedia expects research and development costs to increase over the next 12 months with the continued development efforts of NeoMedia Mobile business unit products and services worldwide.
Gain (loss) on extinguishment of debt. NeoMedia incurred a loss on extinguishment of debt of $1,858,000 for the six months ended June 30, 2006, primarily resulting from debt retired in connection with the Series C preferred stock issued and sold to Cornell on February 17, 2006. A loss was incurred on the surrender of a certain promissory note to Cornell dated March 30, 2005 in connection with the preferred stock sale. During the six months ended June 30, 2005, NeoMedia recognized a gain on extinguishment of debt of $171,000, resulting from the payment of debt at a discount to its book value.
Interest income (expense). Interest income (expense) consists primarily of interest accrued for creditors as part of financed purchases, past due balances, and notes payable, net of interest earned on cash equivalent investments. Interest income (expense) decreased by $67,000, or 46%, to ($79,000) for the six months ended June 30, 2006 from ($146,000) for the six months ended June 30, 2005, due to the pay down of notes payable.
Gain on derivative financial instruments. Gain on derivative financial instruments was $15,794,000 for the six months ended June 30, 2006. The gain is on the derivatives associated with the preferred stock sale on February 17, 2006. Certain derivatives were created at the time of the offering and those derivatives are recorded at fair value on the accompanying balance sheet. The gain for the six months ended June 30, 2006 is the reduction in value of the derivative from February 17, 2006 to June 30, 2006 and is due almost entirely to a reduction in NeoMedia’s stock price from February 17, 2006 to June 30, 2006. There was no such gain or loss on derivative financial instruments for the six months ended June 30, 2005.
Net Income (Loss). The net income (loss) for the six months ended June 30, 2006 was $3,815,000, which represented a $7,334,000, or 208% increase from a ($3,519,000) loss for the six months ended June 30, 2005. The increase in net income is due primarily to the $15,794,000 gain on derivative financial instruments during 2006, partially offset by increased operating expenses from the expanded operations from the acquired subsidiaries.
SS9173
