10Q Summary:
* Every sub except BSD is losing money.
* Micropaint had sales of $368K and lost $1.6M. They wrote off $653K for bad debt.
* Cash on hand as of Sept 30th was $3.1M.
* Q3 loss from operations with stock based compensation expense was $6.7M; Excluding stock based compensation expense was $4.3M.
* Neom owes $2.5M to silent partners of 12snap on or before 12/31/06.
* Pro-forma 3Q sales increased from $5.4M to $6.2M (15%) - This pro-forma includes all the subsidiaries - Comparison is 3Q05 vs. 3Q06.
* 3Q sales decreased by $0.3M from 2Q level.
* Annualizing 9 month sales level is $26.7M.
* As of October 23 there were 663 million shares outstanding.
* On 9/20/06, the Compensation Committee changed from Chas Fritz, Chuck Jensen and JJ Keil to JJ Keil, A. Hayes Barclay and William Fritz.
* NeoMedia’s subsidiary Sponge has entered into purchase commitments to procure the functionality needed to support a sales agreement with a major customer. The purchase commitments require payments of $1,121,000 in the fourth quarter of 2006, and $2,200,000 in 2007. Revenues related to this program are expected to exceed the purchase commitments over the one-year life of the contract.
* Funding for acquisitions: NeoMedia has neither sufficient operating capital nor contractually committed capital from outside sources to adequately fund the purchase price guarantee at these levels. As a result, NeoMedia has sought other means to satisfy or eliminate the obligations, including an offer to pay the obligation with shares of its common stock. As of the date of this filing, there have been no formal agreements put in place with respect to alternate payment of any of the obligations. In the event that the obligations are not satisfied through the issuance of common stock or other non-cash means, NeoMedia could be forced to sell or otherwise divest of some of its subsidiaries in the near future, or be subject to potential litigation by the shareholders of the acquired companies.
* During the third and fourth quarters of 2006, Neom is implementing company wide cost reduction plans aimed at conserving its limited cash resources, including reductions of its workforce, termination of several month-to-month consulting arrangements, and other cost savings measures.
* Neom will also realize additional cost reductions upon the sale of its Micro Paint Repair business unit, which has operated at a loss since its acquisition in February 2004.
* Neom will continue to evaluate its cost base and reduce redundant or non-mission critical costs during the remainder of 2006 and into 2007.
* In the third quarter of 2006, NeoMedia incurred a non-cash charge to income in the amount of $13,256,000 to write off deferred equity financing costs related to its $100 million Standby Equity Distribution Agreement. The costs were originally recorded in March 2005 and represent the fair value of warrants issued as financing costs associated with the 2005 SEDA. The Company believes that it can no longer consider the 2005 SEDA a viable financing source due to the utilization of the preferred stock financing and the debenture financing.
* NeoMedia’s cash flow used in operations was $8.4 million (net of cash used in operations of discontinued Micro Paint Repair business unit of $2.0 million) for the nine months ended September 30, 2006.
* Based on cash currently available, and in the absence of any additional funding, NeoMedia expects to be able to sustain operations through December 31, 2006.
* In order to maintain operations for a 12-month period, and in the absence of a material increase in revenues, NeoMedia estimates that it would need to raise at least an additional $7-10 million to sustain operations. The most likely source of cash in the short term is from the sale of the Micro Paint business unit. To the extent that funds are not available from these sources, NeoMedia will seek alternate financing in another form, or attempt to sell its assets to meet its obligations.
* On March 15, 2006, NeoMedia received a letter from an unrelated third party alleging that the party performed independent consulting services leading up to the closing of the merger between NeoMedia and Mobot on February 17, 2006. The letter contends that NeoMedia and Mobot breached a consulting agreement whereby the party was to be paid $300,000, equal to 3% of the merger consideration paid by NeoMedia to Mobot. NeoMedia believes the claim is without merit and intends to vigorously defend.
* NeoMedia’s family of products and companies has run some of the most innovative and successful mobile marketing campaigns in the marketplace during 2006, such as:
· qode® technology will be featured in an interactive textbook published by Prentice Hall, in which students can link to mobile online content through the qode® reader on their mobile phones.
· 12Snap designs and runs mobile marketing campaigns for a plethora of clients, most notably McDonald’s, Coca-Cola, Adidas, Nokia, Lufthansa, MTV, Kraft Foods, and Ferrero. 12snap enables millions of consumers throughout the EMEA (Europe, Middle East & Africa) region to participate in high-quality and entertaining mobile marketing campaigns.
· Gavitec has run mobile marketing solutions for clients such as McDonald’s Portugal, Amnesty International, Malaysian Railways, World Soccer Games 2006, EMT (Empresa Malagueña de Transportes, a Spanish public transport provider) Ströer, a large media company. Gavitec also ran a mobile couponing campaign for Bitburger beer focusing on World Cup events.
· Sponge media successes included increased activity for IPC magazines and News International, as well as television program Big Brother in Sweden and Norway. Sponge has also worked on a number of brand promotions, including: a major specialist motorcycle magazine; on-pack text-to-win mechanics for a major soft drinks brand to coincide with the World Cup as well as other drinks and confectionary brands. Also launched was a pan-European, eight-country trade promotion for TaylorMade®-adidas® Golf.
· Mobot expanded its relationship with Hachette Filipacchi Media and delivered a first-of-its-kind nationwide (U.S. & Canada) campaign for Starbucks. Mobot also helped launch an interactive shopping program called EWish with ELLE magazine, and provided a direct link campaign for Acura.
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