I have re-reviewed the last 3 10Q filings in regards to Sponge financials.
Sponge was profitable when Neomedia acquired them. For the first 3 months of 2006, Sponge had revenues of $811,000 and net income of $151,000. In fact, there were clauses in the original agreement that Sponge would be entitled to an additional $4.35MM if they met pre-determined earnings targets over the next two years.
Sponge financials have gotten steadily worse each quarter thereafter.
For Q2, Sponge had revenues of $420,000 and a net loss of ($156,000).
For the most recent quarter, Q3, Sponge had even worse revenues and profitabiliy...revenues were $265,000 and net loss was ($420,000).
Clearly Sponge has performed far below expectations since Neomedia first acquired them. It would be reasonable to assume that Neom would have projected Sponge to be cash flow positive with financials improving more so over time. Something is awry now. Only those on the inside can know why Sponge has performed so poorly over the last 6 months.
Based on Q3 performance, Sponge would lose $1.6MM over the next 12 months. Neom has its own challenges to get qode launched and accepted by the market. It doesn't have time nor the financial wherewithal to deal with a subsidiary that isn't performing and essential to its qode launch.
Now, we do need to bear in mind that the Q2-10Q stated In June, Sponge also reached agreement to supply marketing solutions to Vodafone for their customers. This Vodafone agreement may have the potential for large future revenues. This development, and perhaps others unknown to us, were most likely taken into account when we agreed to only a 7.5% ownership for the $6 million payment. IMO, there would have to be some sizable future revenues projected for Neom to agree to these terms; otherwise, Neom would have paid too much for that level of ownership.
In summary, it appears both Sponge and Neom are pleased that the acquisition will not proceed to completion. I believe, with all things taken into consideration, Neom made a wise move.
ss9173
