-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L5Et+IWZv2Sh5olIJaVHBvRp37eieaWq/gKOdynQJcUBqpv7r8rCxpsgIqmYNyLj k8o3+66XF41wwUshVZ4B6A== 0001021408-01-501133.txt : 20010517 0001021408-01-501133.hdr.sgml : 20010517 ACCESSION NUMBER: 0001021408-01-501133 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010301 ITEM INFORMATION: FILED AS OF DATE: 20010516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEOMEDIA TECHNOLOGIES INC CENTRAL INDEX KEY: 0001022701 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 363680347 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-21743 FILM NUMBER: 1641324 BUSINESS ADDRESS: STREET 1: 2201 SECOND ST STE 600 STREET 2: STE 600 CITY: FORT MYERS STATE: FL ZIP: 33901 BUSINESS PHONE: 6303554404 MAIL ADDRESS: STREET 1: 2201 SECOND STREET STREET 2: SUITE 600 CITY: FORT MYERS STATE: FL ZIP: 33901 FORMER COMPANY: FORMER CONFORMED NAME: DEVSYS INC DATE OF NAME CHANGE: 19960911 8-K/A 1 d8ka.txt FORM 8-K AMENDMENT NO. 1 PRELIMINARY AND TENTATIVE U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------- FORM 8-K/A AMENDMENT NO. 1 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 1, 2001 NEOMEDIA TECHNOLOGIES, INC. --------------------------- (Exact Name of Registrant as Specified in its Charter) Delaware 0-21743 36-3680347 - -------- ------------------------ ---------- (State or Other (Commission File Number) (IRS Employer Jurisdiction Identification No.) Incorporation) 2201 Second Street, Suite 600, Fort Myers, Florida 33901 -------------------------------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) (941) - 337-3434 ---------------- (Registrant's Telephone Number, including Area Code) Item 7. Financial Statements, Pro Forma Information and Exhibits - ------- (a) Financial Statements of Business Acquired Report of Arthur Andersen LLP, Independent Certified Public Accountants Consolidated balance sheet as of December 31, 2000 Consolidated statements of operations for the year ended December 31, 2000 Notes to consolidated financial statements as of December 31, 2000 Report of Ernst & Young LLP, Independent Certified Public Accountants Balance sheets as of December 31, 1999 Statement of operations for the period from March 29, 1999 (Inception) through December 31, 1999 Statement of changes in redeemable preferred stock and stockholders' deficit for the period from March 29, 1999 (inception) through December 31, 1999 Statement of cash flows for the period from March 29, 1999 (inception) through December 31, 1999 Notes to consolidated financial statements as of December 31, 1999 (b) Pro Forma Financial Information Pro Forma Condensed Combined Consolidated Financial Statements (unaudited) (c) Exhibits 23.1 Consent of Ernst & Young LLP, Independent Certified Public Accountants 23.2 Consent of Arthur Andersen LLP, Independent Auditors Item 7(a) Financial Statements of Business Acquired Report of Independent Certified Public Accountants To Qode.com, Inc.: We have audited the accompanying balance sheet of Qode.com, Inc. (a Florida corporation in the development stage) as of December 31, 2000, and the related statements of operations, changes in redeemable preferred stock and stockholders' deficit, and cash flows for the year then ended and the related statements of operations and cash flows for the period from inception (March 29, 1999) to December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of Qode.com, Inc. for the period from inception to December 31, 1999. Such statements are included in the cumulative inception to December 31, 2000, totals of the statements of operations and cash flows and reflect total revenues and net loss of zero percent and 13 percent, respectively, of the related cumulative totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it related to amounts for the period from inception to December 31, 1999, included in the cumulative totals, is based solely upon the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require the 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 and the reports of these auditors provide a reasonable basis for our opinion. In our opinion, based on our audit and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Qode.com, Inc. as of December 31, 2000, and the results of its operations and its cash flows for the year then ended and for the period from inception to December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP Tampa, Florida, May 4, 2001 QODE.COM, INC. -------------- (A Development Stage Enterprise) BALANCE SHEET - DECEMBER 31, 2000 --------------------------------- ASSETS Amount - ---------------------------------------------------------------- ---------- CURRENT ASSETS: Cash and cash equivalents $ 18,686 Accounts receivable 6,041 Inventory 218,690 Other current assets 13,499 ------------- Total current assets 256,916 PROPERTY AND EQUIPMENT, net 875,263 CAPITALIZED SOFTWARE DEVELOPMENT COSTS, net 2,359,932 DEPOSITS 39,539 ------------- Total assets $3,531,650 ============= QODE.COM, INC. -------------- (A Development Stage Enterprise) BALANCE SHEET - DECEMBER 31, 2000 --------------------------------- (continued)
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT Amount - -------------------------------------------------------------------------------- ---------- CURRENT LIABILITIES: Accounts payable $ 982,610 Dividends payable 94,119 Accrued expenses 425,103 Current portion of notes payable 3,617,323 Current portion of capital lease obligations 368,574 Loans from officers 224,740 ------------- Total current liabilities 5,712,469 NOTES PAYABLE, net of current portion 5,857 CAPITAL LEASE OBLIGATIONS, net of current portion 168,176 ------------- Total liabilities 5,886,502 ------------- COMMITMENTS AND CONTINGENCIES SERIES A 15% CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK, $.0001 par value; 3,000,000 shares authorized, 2,044,560 shares issued and outstanding, liquidation value of $2,502,641 2,480,991 ------------- STOCKHOLDERS' DEFICIT: Common stock, $.0001 par value; 25,000,000 shares authorized, 8,023,000 shares issued and outstanding 802 Additional paid-in capital - common stock 1,927,313 Series U convertible preferred stock, $.0001 par value; 1,500,000 shares authorized, issued and outstanding 150 Additional paid-in capital - preferred stock 2,999,850 Accumulated deficit (9,763,958) ------------- Total stockholders' deficit (4,835,843) ------------- Total liabilities, redeemable preferred stock and stockholders' deficit $ 3,531,650 =============
The accompanying notes are an integral part of this balance sheet. QODE.COM, INC. -------------- (A Development Stage Enterprise) STATEMENT OF OPERATIONS ----------------------- FOR THE YEAR ENDED DECEMBER 31, 2000 AND THE PERIOD --------------------------------------------------- FROM MARCH 29, 1999 (DATE OF INCEPTION), THROUGH DECEMBER 31, 2000 ------------------------------------------------------------------ Cumulative from Inception March 29, 1999 Year Ended to December 31, December 31 2000 2000 ----------------- --------------- REVENUE $ 211,952 $ 211,952 COST OF GOODS SOLD 213,345 213,345 --------------- --------------- GROSS MARGIN (1,393) (1,393) --------------- --------------- COSTS AND EXPENSES: Research and development 1,109,686 1,505,928 Sales and marketing 556,541 598,516 General and administrative 5,839,413 6,686,825 --------------- --------------- Total costs and expenses 7,505,640 8,791,269 --------------- --------------- NET INTEREST EXPENSE 1,008,938 971,296 --------------- --------------- NET LOSS (8,515,971) (9,763,958) PREFERRED STOCK DIVIDENDS (356,203) (552,200) ACCRETION OF BENEFICIAL CONVERSION FEATURE ON PREFERRED STOCK (15,296) (20,010) --------------- --------------- Net LOSS AVAILABLE TO COMMON STOCKHOLDERS $(8,887,470) $(10,336,168) =============== =============== NET LOSS PER SHARE - BASIC AND DILUTED $ (1.11) $ (1.29) =============== =============== WEIGHTED AVERAGE NUMBER OF COMMON SHARES 8,023,000 8,018,071 =============== ===============
The accompanying notes are an integral part of these statements. QODE.COM, INC. -------------- (A Development Stage Enterprise) STATEMENT OF CHANGES IN REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT ---------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 2000 ------------------------------------
Additional Series A Paid-in Series U Convertible Redeemable Capital for Preferred Stock Preferred Common Stock Common --------------------- Stock Shares Amount Stock Shares Amount ------------ -------- -------- ------------- -------- -------- BALANCE, December 31, 1999 $2,154,711 8,023,000 $802 $ (49,557) -- $ -- Issuance of 19,560 shares of Series A preferred stock in exchange for services 48,900 -- -- -- -- -- Issuance of Series U preferred stock -- -- -- -- 1,500,000 150 Issuance of 372,780 warrants in exchange for services -- -- -- 1,126,790 -- -- Issuance of 326,666 warrants attached with notes payable -- -- -- 675,681 -- -- Issuance of employee stock options with exercise price below market -- -- -- 150,216 -- -- value Re-pricing of employee stock options -- -- -- 395,682 -- -- Series A preferred stock dividends 262,084 -- -- (262,084) -- -- Series U preferred stock dividends -- -- -- (94,119) -- -- Accretion of beneficial conversion feature on preferred stock 15,296 -- -- (15,296) -- -- Net loss -- -- -- -- -- -- ------------ ------------ ------- ------------ ----------- ------- BALANCE, December 31, 2000 $2,480,991 8,023,000 $802 $1,927,313 1,500,000 $150 ============ ============ ======= ============ =========== ======= Additional Paid-in Capital for Total Preferred Accumulated Stockholders' Stock Deficit Deficit ------------- ------------- --------------- BALANCE, December 31, 1999 -- $(1,247,987) $(1,296,742) Issuance of 19,560 shares of Series A preferred stock in exchange for services -- -- -- Issuance of Series U preferred stock 2,999,850 -- 3,000,000 Issuance of 372,780 warrants in exchange for services -- -- 1,126,790 Issuance of 326,666 warrants attached with notes payable -- -- 675,681 Issuance of employee stock options with exercise price below market -- -- 150,216 value Re-pricing of employee stock options -- -- 395,682 Series A preferred stock dividends -- -- (262,084) Series U preferred stock dividends -- -- (94,119) Accretion of beneficial conversion feature on preferred stock -- -- (15,296) Net loss -- (8,515,971) (8,515,971) ------------ ------------- -------------- BALANCE, December 31, 2000 $2,999,850 $(9,763,958) $(4,835,843) ============ ============= ==============
The accompanying notes are integral part of this statement. QODE.COM, INC. -------------- (A Development Stage Enterprise) -------------------------------- STATEMENT OF CASH FLOWS ----------------------- FOR THE YEAR ENDED DECEMBER 31, 2000 AND THE PERIOD --------------------------------------------------- FROM MARCH 29, 1999 (DATE OF INCEPTION), THROUGH DECEMBER 31, 2000 ------------------------------------------------------------------
Cumulative from Inception Year Ended (March 29, 1999) December 31, to 2000 December 31, 2000) ------------- ------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(8,515,971) $(9,763,958) Adjustments to reconcile net loss to net cash used in operating activities- Depreciation and amortization 417,410 434,932 Series A preferred stock issued for services 48,900 48,900 Warrants issued in exchange for services 1,126,790 1,884,627 Stock options issued with exercise price below market value 150,216 150,216 Expense related to the re-pricing of employee stock options 395,682 395,682 Changes in assets and liabilities- Accounts receivable (6,041) (6,041) Inventory (218,690) (218,690) Other current assets 4,652 (13,499) Deposits (9,310) (39,539) Accounts payable 831,022 982,610 Accrued expenses 377,857 425,103 ------------- ------------ Net cash used in operating activities (5,397,483) (5,719,657) ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (382,222) (509,013) Capitalization of software development costs (2,498,752) (2,498,752) ------------- ------------- Net cash used in investing activities (2,880,974) (3,007,765) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of notes payable and detachable warrants 4,298,861 3,623,180 Proceeds from loans from officers 151,407 224,740 Principal repayments of capital lease (125,612) (125,612) Proceeds from the issuance of common stock -- 23,800 Proceeds from the issuance of Series A redeemable preferred stock net of issuance costs of $25,000 -- 2,000,000 Proceeds from issuance of Series U convertible preferred stock 3,000,000 3,000,000 ------------- ------------- Net cash provided by financing activities 7,324,656 8,746,108 ------------- ------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (953,801) 18,686 CASH AND CASH EQUIVALENTS, beginning of year 972,487 -- ------------- ------------- CASH AND CASH EQUIVALENTS, end of year $ 18,686 18,686 ============= =============
QODE.COM, INC. -------------- A Development Stage Enterprise STATEMENT OF CASH FLOWS ----------------------- FOR THE YEAR ENDED DECEMBER 31, 2000 AND THE PERIOD FROM MARCH 29, 1999 (DATE OF INCEPTION), THROUGH DECEMBER 31, 2000 ------------------------------------ (continued)
Cumulative from Inception (March 29, 1999) Year Ended To December 31, December 31, 2000 2000 ------------ ----------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 180,000 $ 160,189 SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: Accretion of redeemable preferred stock $ 15,296 20,010 Accrued dividends on Series A preferred stock $ 262,084 458,081 Accrued dividends on Series U preferred stock $ 94,119 94,119 Property and equipment acquired under capital lease $ 662,362 662,362
The accompanying notes are an integral part of these statements. QODE.COM, INC. (A Development Stage Enterprise) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 1 NATURE OF BUSINESS ORGANIZATION - ------------------------------------ Qode.com, Inc. (Qode.com or the Company) commenced operations on March 29, 1999, and is incorporated in the State of Florida. Qode.com is a development stage company, as defined in Statement of Financial Accounting Standards (SFAS) No. 7, "Accounting and Reporting By Development Stage Enterprises". The Company intends to provide manufacturers, retailers, advertisers and users a unique tool for website navigation through the use of imbedded standard bar codes and Uniform Product Codes (UPC). It is the Company's mission to develop, operate, maintain and promote the use of Qode.com technologies to enable any bar code to interface with their technology. The Company's financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred losses since its inception and during its development stage as it has devoted substantially all of its efforts toward building network infrastructure, internal staffing, developing systems, expanding into new markets, building a proprietary database and raising capital. The Company has generated little revenue to date and is subject to a number of risks, including dependence on key individuals, the ability to demonstrate technological feasibility, and the need to obtain adequate additional financing necessary to fund the development and marketing of its products and services, and customer acceptance. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may results from the outcome of this uncertainty. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ----------------------------------------------- Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents For purposes of reporting cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Inventory Inventory is stated at the lower of cost or market, and at December 31, 2000 was comprised of QoderTM handheld scanning systems. Cost is determined using the weighted average method. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Repairs and maintenance are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Computer hardware and purchased software are being depreciated over a three-year period, and furniture and fixtures are being depreciated over a five-year period. Depreciation expense was $278,590 for the year ended December 31, 2000. Capitalized Software Development Costs In accordance with the American Institute of Certified Public Accountants Statement of Position No. 98-1, "Accounting for Costs of Computer Software Developed or Obtained for Internal Use," all costs related to the development or purchase of internal use software other than those incurred during the application development stage are to be expensed as incurred. Costs incurred during the application development stage are required to be capitalized and amortized over the useful life of the software. The Company has expensed $1,109,686 in research and development costs for the year ended December 31, 2000. The Company has capitalized $2,498,752 in software development costs for the year ended December 31, 2000. Amortization expense was $138,820 for the year ended December 31, 2000. Redeemable Preferred Stock Redeemable preferred stock is carried at the net consideration to the Company at time of issuance, increased by accrued and unpaid cumulative dividends and periodic accretion to redemption value using the interest method. Accrued and unpaid dividends and redemption accretion are affected by charges against retained earnings, or, in the absence of retained earnings, additional paid-in capital. Revenue Recognition Revenue is generated from the sale of Qode's proprietary hand held bar code scanners. Revenue is recognized when the product is delivered to the customer. Income Taxes In accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", income taxes are accounted for using the assets and liabilities approach. 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. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be recognized. The Company has recorded a 100% valuation allowance as of December 31, 2000. Computation of Net Loss Per Share Basic and diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. The Company has excluded all common stock equivalents from the calculation of diluted net loss per share because these securities are anti-dilutive. The shares excluded from the calculation of diluted net loss per share and reserved for future issuance are detailed in the table below: 2000 ------------- Outstanding stock options 1,540,511 Outstanding warrants 1,229,146 Shares issuable on conversion of notes payable 6,800,000 Shares issuable on conversion of Series A preferred stock 4,049,701 Financial Instruments The Company believes that the fair value of its financial instruments approximate carrying value. Concentration of Credit Risk Revenue was generated from the selling of barcode scanners with approximately 91 percent of those sales to one customer. Accounting for Stock-based Compensation The Company has adopted SFAS No. 123, "Accounting for Stock-Based Compensation." The provisions of SFAS 123 allow companies to either expense the estimated fair value of stock options or to continue to follow the intrinsic value method set forth in Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), but disclose the pro forma effects on net income or loss as if the fair value had been expensed. The Company has elected to apply APB 25 in accounting for its employee stock options and, accordingly recognizes compensation expense for the difference between the fair value of the underlying common stock and the grant price of the option at the measurement date. Recent Accounting Pronouncements In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS No. 137 and SFAS 138. SFAS No. 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets of liabilities in the balance sheet and measure those instruments at fair value. The adoption of these new accounting standareds did not have an impact on the Company's financial position or results of operations. On December 3, 1999 the Securities and Exchange Commission (SEC) staff Shares issuable on conversion of notes payable were calculated based on the terms of the notes as if they were converted on December 31, 2000. released Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition". This SAB provides guidance on the recognition, presentation and disclosure of revenue in financial statements. The Company implemented SAB No. 101 for the quarter ended June 30, 2000. It did not have an impact on the Company's results of operations. Comprehensive Income For the year ended December 31, 2000, there were no differences between the balance sheet and income statement and therefore no comprehensive income. 3 LOANS FROM OFFICERS - ------------------------ Between October and December 2000, several of the Company's officers elected to defer their salaries due to cash flow difficulties experienced by the Company. The total amount deferred was $83,154. On November 28, 2000, the Company issued promissory notes to officers totaling $135,000, with an interest rate of 6.09 percent. The principal and interest are payable on February 26, 2001 4 PROPERTY AND EQUIPMENT - --------------------------- Property and equipment consists of the following as of December 31, 2000: 2000 -------------- Computer hardware and purchased software $1,139,578 Furniture and fixtures 31,797 -------------- 1,171,375 Less- Accumulated depreciation (296,112) -------------- $ 875,263 ============== 5 NOTES PAYABLE - ------------------ Convertible Notes On January 18, 2000, the Company entered into a note purchase agreement with an investor for $3,000,000, with an interest rate of 12 percent. The principal and interest were due July 17, 2000. The principal and interest are convertible at the option of the holder upon or after a $10 million financing. The conversion rate is 85 percent of the price per share in the financing. In connection with this note, 200,000 warrants were issued with an exercise price of $4.50 per share for the Company's common stock. These warrants may be exercised at anytime following the closing of a $10 million financing and expire January 17, 2005. The Company allocated the proceeds from the issuance of the note between the note and warrants based on the relative fair value method. The difference between the face amount of the note and the amount allocated to it was recorded as a discount, and amortized to interest expense over the life of the note. On August 1, 2000, the Company extended this note to November 17, 2000. As additional consideration for the extension of the note, the Company reduced the exercise price of the 200,000 warrants to $1.00. The additional expense of $63,180 that resulted from the re-pricing was charged to interest expense. As of December 31, 2000, the note had not been repaid. During 2000, the Company entered into four separate note purchase agreements with investors totaling $400,000 with interest rates of 12 percent. The principal and interest on three of the notes were due October 9, 2000 through November 4, 2000, and principal and interest on the other note is due January 6, 2001. The principal and interest are convertible at the option of the holder upon or after a $7 million financing. The conversion rate is 85 percent of the price per share in the financing. In connection with these notes, 26,666 warrants were issued with an exercise price of $2.00 per share for the Company's common stock. These warrants may be exercised at anytime following the closing of a $7 million financing. The proceeds from the issuance of these notes and warrants were allocated between the two using the relative fair value method. The resulting discount on the notes was amortized to interest expense over the life of the notes. Other Note Payable During March 2000, the Company entered into a note agreement in the amount of $42,500, bearing interest at a rate of 11 percent per year and expiring on March 15, 2002, to finance its phone system. The note is secured by telephone equipment. On November 28, 2000 and December 14, 2000, the Company signed two promissory notes in the amounts of $20,000 and $200,000, bearing interest at a rate of 6.09 percent and 15 percent per year, with principal and accrued interest payable February 26, 2001 and January 28, 2001, respectively. In connection with the December 14, 2000 note, 100,000 warrants were issued with an exercise price of $.50 per share for the Company's common stock. These warrants may be exercised at anytime following the closing of the Next Financing, as defined in the warrant agreement. The proceeds from the issuance of this note and warrants were allocated between the two using the relative fair value method. The resulting discount on the note is being amortized to interest expense over the life of the note. Notes payable consists of the following: Amount ----------- Convertible notes, interest bearing at 12% per annum $ 3,400,000 Note payable, interest bearing at 11% per annum, due in monthly installments through March 2002 27,679 Note payable, unsecured interest bearing at 6.09% per annum, due February 2001 20,000 Note payable, unsecured interest bearing at 15% per annum, due January 2001 200,000 ----------- Total notes payable 3,647,679 Less discount (24,499) Less- Current portion (3,617,323) ----------- Notes payable, net of current portion $ 5,857 =========== As of December 31, 2000 there was $197,740 of accrued interest. 6 INCOME TAXES - --------------------- For the years ended December 31, 2000, the components of income tax expense were as follows: 2000 -------- Current $ - Deferred - -------- Income tax expense $ - ======== The net amounts of deferred tax assets recorded in the balance sheet at December 31, 2000, are as follows: 2000 ----------- Deferred tax asset: Depreciation of property and equipment $ 17,901 Start-up costs 199,566 Net operating loss carryforward 3,443,643 Less- Valuation allowance (3,661,110) ----------- Total deferred tax asset $ -- Deferred tax liabilities: $ -- ----------- Total net deferred taxes $ -- =========== SFAS No. 109 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not, that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, management has determined that a $3,661,110 valuation allowance at December 31, 2000 is necessary to reduce the deferred tax assets to the amount that will more likely than not be realized. The change in the valuation allowance for the current year is $3,194,880. At December 31, 2000, the Company has available net operating loss carryforwards of $9,151,323, which expire in the year 2020 and 2019. A reconciliation of income taxes computed at the U.S. federal statutory tax rate to income tax expense for the year ended December 31, 2000, is as follows: 2000 ----------- Taxes at the U.S. statutory rate $(2,895,430) State taxes, net of federal benefit (309,129) Nondeductible items 9,679 Change in valuation allowance 3,194,880 ----------- Total income tax expense $ - =========== 7 COMMITMENTS AND CONTINGENCIES - -------------------------------------- Legal Proceedings The Company is not presently a party to any significant litigation. From time to time, however, the Company is involved in various legal actions arising in the normal course of business, which the Company believes will not materially affect the financial position or results of operations. Employment Contracts The Company has employment contracts with William Carpenter, Greg Miller and Michael Miller beginning November 1, 2000. Future payments under the above employment contracts are: 2001 $ 450,000 2002 450,000 2003 375,000 -------------- Total $1,275,000 ============== Capital Lease Obligations During April 2000, the Company acquired computer equipment for $662,362 under a capital lease, expiring on April 26, 2002. Accumulated depreciation on this equipment was approximately $166,000 at December 31,2001 Future minimum lease payments on capital lease obligations as of December 31,2000, are as follows: Year Amount ---- ---------- 2001 $ 415,358 2002 173,519 ---------- 588,877 Less - Amount representing interest on obligations under capital leases (15%) (52,127) Current portion of capital lease obligations (368,574) ---------- Capital lease obligations, net of current portion $ 168,176 ========== Operating Lease Obligations The Company leases its office facility under a non-cancelable operating lease expiring in March 2005. Rental expense, net of sub-lease income, was $73,036 for the year ended December 31, 2000. Lease commitments under this non-cancelable operating leases as of December 31, 2000, are as follows: Year Ending Amount ----------- --------- 2001 $ 391,399 2002 233,876 2003 154,905 2004 117,768 2005 5,103 --------- $ 903,051 ========= 8 REDEEMABLE PREFERRED STOCK - ----------------------------------- Series A 15% Cumulative Convertible Redeemable Preferred Stock The Board of Directors (the Board) has authorized the issuance of up to 3,000,000 shares of Series A 15 percent $.0001 par value, voting, cumulative, redeemable, convertible preferred stock (the Series A Preferred Stock). Series A Preferred Stock is convertible at any time at the option of the holder prior to the closing of a Public Offering, as defined in the agreement, or within 20 days following receipt of a Notice of Redemption, as defined in the agreement, into the Company's common stock for each share of the Series A Preferred Stock held plus accrued and unpaid dividends on the Series A Preferred Shares. The Series A Preferred Stock has a liquidation preference of $1 per share and is mandatorily redeemable on April 15, 2004. In June 2000, the Company issued 19,560 shares of the Series A Preferred Stock at $2.50 per share for services rendered. Dividends on the Series A Preferred Stock accrue, on a daily basis, commencing on the date of issuance at an interest rate of 15 percent per annum and are payable on a semi-annual basis. The Company, at its option, may pay dividends either in cash or by the issuance of additional shares of Series A Preferred Stock. Aggregate cumulative dividends in arrears at December 31, 2000 totaled $458,081, and are included in Series A 15 % cumulative convertible redeemable preferred stock on the accompanying balance sheet. Series U Convertible Preferred Stock The Board has authorized the issuance of up to 1,500,000 shares of Series U, 8 percent $.0001 par value, voting, cumulative, convertible preferred stock (the Series U Preferred Stock). Series U Preferred Stock is convertible at any time at the option of the holder prior to the closing of a Public Offering into the Company's common stock for each share of the Series U Preferred Stock held plus accrued and unpaid dividends on the Series U Preferred Shares. Between May and October 2000, the Company issued 1,500,000 at $2 per share, with proceeds to the Company of $3,000,000. Dividends on the Series U Preferred Stock accrue, on a daily basis, commencing on the date of issuance at an interest rate of 8 percent per annum and are payable on a semi-annual basis. The Company, at its option, may pay dividends either in cash or by the issuance of additional shares of Series U Preferred Stock. Aggregate cumulative dividends in arrears at December 31, 2000, totaled $94,119. 9 COMMON STOCK - --------------- The Company is authorized to issue up to 25,000,000 shares of its $.0001 par value common stock. During 2000, no shares of common stock were issued. As of December 31, 2000, 8,023,000 shares were issued and outstanding. 10 STOCK BASED COMPENSATION - --------------------------- Stock Warrants Granted in Exchange for Services During 2000, the Company granted 372,780 warrants, with exercise prices ranging from $1.00 to $4.50 per share, to consultants for certain advisory and consulting services. The warrants vest immediately upon issuance and can be exercised over a five-year period. In August 2000, 250,000 warrants granted at $4.50 were re-priced to $1.00 per share. In September 2000, 100,000 warrants granted at $1.50 were re-priced to $0.01 per share. The Company valued these warrants, and their re-pricing, at $1,126,790 in accordance with SFAS 123, and recognized the entire amount in 2000 as general and administrative expenses in the accompanying statement of operations. Stock Warrants Granted Attached to Debt Agreements During 2000, the Company granted 326,666 warrants, with exercise prices ranging from $.50 to $4.50, attached to various debt agreements. The warrants vest immediately upon issuance and can be exercised over a five-year period. The Company applied APB Opinion No.14, "Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants", and accounted for the portion of the proceeds of the debt issued with warrants, which was allocable to the warrants, as additional paid-in capital based on the relative fair values of the securities at the time of issuance, and also recognized a discount on the debt as a result. In September 2000, 200,000 warrants granted at $4.50 were re-priced to $1.00 per share in connection with an extension of the term date of the debt. The Company valued the re-pricing at $63,180, and recognized the entire amount in 2000 as interest expense in the accompanying statement of operations. Warrant activity for the year ended December 31, 2000, is as follows: Balance December 31, 1999 529,700 Issued 699,446 Exercised - Expired - ------------ Balance December 31, 2000 1,229,146 The following table summarizes information about warrants outstanding at December 31, 2000, all of which are exercisable:
Weighted Average Number of Remaining Range of Exercise Outstanding Contractual Life Weighted Average Prices Warrants (Years) Exercise Price - ------------------------ ---------------------- ---------------------- ---------------------- $ 0.01 to $ 0.50 200,000 3.3 $ 0.26 $ 1.00 527,780 4.2 $ 1.00 $ 1.50 429,700 3.8 $ 1.50 $ 2.00 26,666 4.3 $ 2.00 $ 2.50 45,000 4.2 $ 2.50 ------ --- ------ 1,229,146 3.9 $ 1.13
Stock Options The Board approves all issuances of stock options. All stock options expire five years from the grant date. In general, options vest and become exercisable one third on the one year anniversary of the date of grant, and the remainder vest evenly over the two years subsequent to that date. The following table summarizes stock option activity for the year ended December 31, 2000: 2000 Wtd Avg Options Exercise (in 000's) Price Outstanding at Beginning of Year 881 $ 1.36 Granted 1,000 1.10 Exercised -- 0.00 Forfeited (340) 1.63 ---------- -------- Outstanding at end of year 1,541 $ 1.15 ========== ======== Vested Options 846 $ 0.56 ========== ======== Remaining Options available for Grant 3,459 In June 2000, the Company reduced the exercise price on all its outstanding stock options. As a result, the Company recognized $395,682 in compensation expense in 2000 for the vested portion of these options, and will recognize $933,568 in subsequent periods as these options vest. The Company accounts for issuances to employees under APB 25, and accordingly, $545,898 of compensation expense, including the amount discussed above, has been recognized for the year ended December 31, 2000. SFAS 123 requires pro forma information regarding net income as if the Company has accounted for its employee stock options under the fair value method of that statement. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions: (i) risk-free interest rate of 6 percent, which approximates the four-year U.S. Treasury Bill rate at the date of grant, (ii) dividend yield of 0 percent (iii) expected volatility of 80 percent (iv) and an average expected life of the option of four years. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information is as follows: Year Ended December 31, 2000 ------------ Net loss: As reported $ (8,515,971) SFAS 123 pro forma $ (8,902,427) The following table summarizes the weighted average fair value of options granted to employees during the year ended December 31, 2000: 2000 -------------- Stock Price Greater than Exercise Price Weighted Average Fair Value $2.98 Stock Price Equal to Exercise Price Weighted Average Fair Value $0.84 Stock Price Less than Exercise Price Weighted Average Fair Value $0.82 The following table summarizes information about Company's stock options outstanding as of December 31, 2000:
Options Outstanding Options Exercisable ------------------- ------------------- Shares Wtd. Avg Wtd. Avg Options Wtd. Avg. Range of Exercise Outstanding Remaining Exercise Exercisable Exercise Prices (in 000's) Life Price (in 000's) Price ------ ---------------------------------------------------------- $.25 350 3.5 $0.25 239 $0.25 $.50 371 4.3 $0.50 341 $0.50 $.75 375 4.2 $0.75 185 $0.75 $1.00 to $1.50 445 4.4 $1.05 81 $1.26 --- -- 1,541 846 $0.56
11 RELATED PARTIES - ------------------- The Company's primary legal counsel holds 3,200,000 shares of the Company's common stock in trust for the law firm's partners. During 2000, the Company recorded expenses of approximately $123,000 related to services performed by its primary legal counsel. The Company owed its primary legal counsel approximately $61,000 at December 31, 2000. During 2000, Q Productions, Inc., whose owners also own 4,800,000 shares of the Company, provided various information technology services to the Company. The Company recorded approximately $930,364 in expenses related to services performed by Q Productions, Inc. for the year ended December 31, 2000. The Company owed Q Productions, Inc. approximately $171,000 at December 31, 2000. Q Productions, Inc. rented space from Qode.com in 2000 for $43,167 in total. During 2000, the Company granted 20,000 warrants with an exercise price of $1.00 per share to Q Productions, Inc. The Company has issued several promissory notes to officers (see Note 3). 12 SUBSEQUENT EVENTS - --------------------- On January 11, 2001, the Company entered into a note purchase agreement with an investor for $300,000, with an interest rate of 18 percent. The principal and interest are due March 1, 2001. In January 2001, the Company entered into a short-term loan agreement with NeoMedia Technologies, Inc. ("NeoMedia") for the amount of $440,000. The note was forgiven in March 2001 upon the acquisition of substantially all of the Company's assets by NeoMedia. On March 1, 2001, NeoMedia purchased all of the assets of the Company other than cash including but not limited to, contracts, customer lists, licenses and intellectual property. In consideration for these assets, the Company received 1,676,500 shares of NeoMedia's Common Stock. In addition, NeoMedia issued 274,699 of its Common Stock to certain creditors of the Company, for the repayment of $1,561,037 of debt, forgave the $440,000 short-term note due from the Company (see above paragraph), and assumed approximately $1,407,000 of the Company's liabilities. The 1,676,500 shares paid to the Company are to be held in escrow for one year, and are subject to downward adjustment, based upon the achievement of certain performance targets over the period of March 1, 2001 to February 28, 2002. Notes payable as of December 31, 2000 that were not acquired as part of the March 1, 2001 sale totalled 3,000,000 as of December 31, 2000. FINANCIAL STATEMENTS Qode.com, Inc. (A Development Stage Enterprise) Period from March 29, 1999 (inception) to December 31, 1999 with Report of Independent Auditors Qode.com, Inc. (A Development Stage Enterprise) Financial Statements Period from March 29, 1999 (inception) to December 31, 1999 Contents Report of Independent Certified Public Accountants 1 Audited Financial Statements Balance Sheet 2 Statement of Operations 3 Statement of Changes in Redeemable Preferred Stock and Stockholders' Deficit 4 Statement of Cash Flows 5 Notes to Financial Statements 6 Report of Independent Certified Public Accountants The Stockholders and Board of Directors Qode.com, Inc. We have audited the accompanying balance sheet of Qode.com, Inc. (the Company) (a development stage enterprise) as of December 31, 1999 and the related statement of operations, and statement of changes in redeemable preferred stock and stockholders' deficit, and statement of cash flows for the period from March 29, 1999 (inception) through December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Qode.com, Inc. at December 31, 1999, and the results of its operations and its cash flows for the period March 29, 1999 (inception) through December 31, 1999, in conformity with accounting standards generally accepted in the United States. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As more fully described in Note 1, the Company, which is in the developmental stages has incurred a net operating loss, experienced negative cash flow from operations and has a net capital deficit. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regards to these matters are also described in Note 1. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. [GRAPHIC] July 21, 2000 Qode.com, Inc. (A Development Stage Enterprise) Balance Sheet December 31, 1999
Assets Current assets: Cash and cash equivalents $ 972,487 Other current assets 18,151 ----------- Total current assets 990,638 Property and equipment, net 109,269 Deposits 30,229 ----------- Total assets $ 1,130,136 =========== Liabilities, redeemable preferred stock and stockholders' deficit Current liabilities: Accounts payable $ 151,588 Accrued expenses 47,246 Due to officers 73,333 ----------- Total current liabilities 272,167 15% cumulative convertible redeemable preferred stock, $.0001 par value, 3,000,000 shares authorized, 2,025,000 shares issued and outstanding, liquidation value of $2,221,000 2,154,711 Commitments Stockholders' deficit: Common stock, $.0001 par value, 25,000,000 shares authorized, 8,023,000 shares issued and outstanding 802 Capital deficiency (49,557) Deficit accumulated during the development stage (1,247,987) ----------- Total stockholders' deficit (1,296,742) ----------- Total liabilities, redeemable preferred stock and stockholders' deficit $ 1,130,136 ===========
See accompanying notes. Qode.com, Inc. (A Development Stage Enterprise) Statement of Operations Period from March 29, 1999 (inception) to December 31, 1999 Costs and expenses: Research and development $ 396,242 Sales and marketing 41,975 General and administrative 847,412 ----------- Total costs and expenses 1,285,629 Net interest income (37,642) ----------- Net loss (1,247,987) Preferred dividends and redemption accretion (200,711) ----------- Net loss applicable to common stockholders $(1,448,698) =========== See accompanying notes. Qode.com, Inc. (A Development Stage Enterprise) Statement of Changes in Redeemable Preferred Stock and Stockholders' Deficit Period from March 29, 1999 (inception) to December 31, 1999
Deficit Accumulated Redeemable Common Stock During the Total Preferred ----------------------------- Capital Development Stockholders' Stock Shares Amount Deficiency Stage Deficit ---------------- -------------------------------------------------------------------------- Issuance of common stock on March 29, 1999 $ -- 8,000,000 $800 $ -- $ -- $ 800 (inception) Issuance of redeemable preferred stock with detachable warrants valued at $46,000, net of issuance costs of 1,954,000 -- -- 46,000 -- 46,000 $25,000 Issuance of common stock -- 23,000 2 22,998 -- 23,000 Issuance of warrants in exchange for services -- -- -- 82,156 -- 82,156 Preferred dividends and redemption accretion 200,711 -- -- (200,711) -- (200,711) Net loss -- -- -- -- (1,247,987) (1,247,987) ---------------- -------------------------------------------------------------------------- Balance at December 31, 1999 $2,154,711 8,023,000 $802 $ (49,557) $(1,247,987) $(1,296,742) ================ ==========================================================================
See accompanying notes. Qode.com, Inc. (A Development Stage Enterprise) Statement of Cash Flows Period from March 29, 1999 (inception) to December 31, 1999 Operating activities Net loss $(1,247,987) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 17,522 Issuance of warrants in exchange for services 82,156 Changes in assets and liabilities: Other current assets (18,151) Deposits (30,229) Accounts payable 151,588 Accrued expenses 47,246 Due to officers 73,333 ----------- Net cash used in operating activities (924,522) Investing activities Purchases of property and equipment (126,791) ----------- Net cash used in investing activity (126,791) Financing activities Proceeds from the issuance of redeemable preferred stock, net of issuance costs of $25,000 2,000,000 Proceeds from the issuance of common stock 23,800 ----------- Net cash provided by financing activities 2,023,800 ----------- Net increase in cash and cash equivalents 972,487 Cash at beginning of period -- ----------- Cash at end of period $ 972,487 =========== Supplemental disclosure of cash flow information Interest paid $ 171 =========== Noncash financing and investing activities Accrued dividends on redeemable preferred stock $ 195,997 =========== Accretion of redeemable preferred stock $ 4,714 ===========
See accompanying notes. Qode.com, Inc. (A Development Stage Enterprise) Notes to Financial Statements Period from March 29, 1999 (inception) to December 31, 1999 1. Nature of Business Organization Qode.com, Inc. (the Company) commenced operations on March 29, 1999 and is incorporated in the state of Florida. Qode.com is a development stage company, as defined in Statement of Financial Accounting Standards (SFAS) No. 7, Accounting and Reporting By Development Stage Enterprises. The Company intends to provide manufactures, retailers, advertisers, and users a unique tool for Web site navigation by the use of imbedded standard bar codes and Uniform Product Codes (UPC). It is the Company's mission to develop, operate, maintain and promote the use of Qode.com technologies to enable any bar code to interface with their technology. The Company has incurred losses since its inception as it has devoted substantially all of its efforts toward building network infrastructure, internal staffing, developing systems, expanding into new markets, building a proprietary database and raising capital. The Company has generated no revenue to date and is subject to a number of risks similar to those of other development stage companies, including dependence on key individuals, the ability to demonstrate technological feasibility, and the need to obtain adequate additional financing necessary to fund the development and marketing of its products and services, and customer acceptance. The Company's financial statements have been prepared assuming that the Company will continue as a going concern. The Company has a limited operating history and intends to significantly increase its operational expenses in fiscal year 2000 to pursue certain sales and marketing plans. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may results from the outcome of this uncertainty. In fiscal year 2000, the Company plans to raise additional financing from private equity financing. The Company entered into a financing agreement subsequent to year end that will provide the Company with an additional $3 million, see Note 8. Qode.com, Inc. (A Development Stage Enterprise) Notes to Financial Statements (continued) 2. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents For purposes of reporting cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Property and Equipment Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Computer hardware and software are being depreciated over a three year period and furniture and fixtures are being depreciated over a five year period. Software Development Costs In accordance with the AICPA SOP No. 98-1, Accounting for Costs of Computer Software Developed or Obtained for Internal Use, all costs related to the development or purchase of internal use software other than those incurred during the application development stage are to be expensed as incurred. Costs incurred during the application development stage are required to be capitalized and amortized over the useful life of the software. The Company has incurred $259,480 in software development costs for the period from March 29, 1999 (inception) through December 31, 1999. All costs have been expensed since the Company has not entered the application development stage as of December 31, 1999. Qode.com, Inc. (A Development Stage Enterprise) Notes to Financial Statements (continued) 2. Summary of Significant Accounting Policies (continued) Income Taxes The Company accounts for income taxes under the liability method, which requires the establishment of a deferred tax asset or liability for the recognition of future deductions or taxable amounts, and operating loss and tax credit carryforwards. Deferred tax expense or benefit is recognized as a result of the change in the deferred asset or liability during the year. If necessary, the Company will establish a valuation allowance to reduce any deferred tax asset to an amount which will, more likely than not, be realized. Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash and cash equivalents. The Company maintains its cash and cash equivalents with high quality financial institutions to mitigate this credit risk. Redeemable Preferred Stock Redeemable preferred stock is carried at the net consideration to the Company at time of issuance (fair value), increased by accrued and unpaid cumulative dividends and periodic accretion to redemption value using the interest method. Accrued and unpaid dividends and redemption accretion are affected by charges against retained earnings, or, in the absence of retained earnings, paid-in capital (capital deficiency). Accounting for Stock-Based Compensation The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. The provisions of SFAS 123 allow companies to either expense the estimated fair value of stock options or to continue to follow the intrinsic value method set forth in Accounting Public Bulletin (APB) Opinion 25, Accounting for Stock Issued to Employees but disclose the pro forma effects on net income or loss as if the fair value had been expensed. The Company has elected to apply APB 25 in accounting for its employee stock options and, accordingly, recognizes compensation expense for the difference between the fair value of the underlying common stock and the grant price of the option at the date of grant. Qode.com, Inc. (A Development Stage Enterprise) Notes to Financial Statements (continued) 3. Property and Equipment Property and equipment consists of the following: December 31, 1999 ------------ Computer hardware and software $120,791 Furniture and fixtures 6,000 ------------ 126,791 Less accumulated depreciation (17,522) ------------ $109,269 ============ Depreciation and amortization expense was $17,939 for the period from March 29, 1999 (inception) to December 31, 1999. 4. Income Taxes The net amounts of deferred tax assets recorded in the balance sheet at December 31, 1999 are as follows: 1999 ----------- Deferred tax asset: Net operating loss carryforward $469,050 Less valuation allowance (466,230) ----------- Total deferred tax asset $ 2,820 =========== Deferred tax liabilities: Fixed assets $ (2,820) ----------- Total net deferred taxes $ - =========== FASB 109 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, management has determined that a $466,230 valuation allowance at December 31, 1999 is Qode.com, Inc. (A Development Stage Enterprise) Notes to Financial Statements (continued) 4. Income Taxes (continued) necessary to reduce the deferred tax assets to the amount that will more likely than not be realized. The change in the valuation allowance for the current year is $466,230. At December 31, 1999, the Company has available net operating loss carryforwards of $1,246,478, which expire in the year 2019. A reconciliation of income taxes computed at the U.S. federal statutory tax rate to income tax expense for the year ended December 31, 1999 is as follows: 1999 ----------- Taxes at the U.S. statutory rate $ (424,315) State taxes, net of federal benefit (44,975) Nondeductible items 3,060 Change in valuation allowance 466,230 ----------- Total income tax expense $ - =========== 5. Commitments The Company leases its office facility under a non-cancelable operating lease expiring March 2005. Rental expense was $19,711 for the period from March 29, 1999 (inception) to December 31, 1999. Lease commitments under these non-cancelable operating leases as of December 31, 1999 are as follows: 2000 $100,656 2001 104,682 2002 108,876 2003 113,238 2004 117,768 ---------- $545,220 ========== Qode.com, Inc. (A Development Stage Enterprise) Notes to Financial Statements (continued) 6. Stockholders' Equity 15% Cumulative Convertible Redeemable Preferred Stock Series A The Board of Directors has authorized the issuance of up to 3,000,000 shares of Series A 15% $.0001 par value, voting, cumulative, redeemable, convertible, preferred stock (the Preferred Stock) which may be issued in series from time to time with such designations, rights, preferences and limitations as the Board of Directors may declare by resolution. In May 1999, the Company issues 2,025,000 shares of Preferred Stock at $1.00 per share, less issuance costs of $25,000. One detachable warrant was attached to each share of the Preferred Stock. The Preferred Stock was recorded at $1,954,000, net of the value of the detachable warrants which was estimated to be $46,000. The detachable warrants were valued in accordance with SFAS No. 123 at $.23 per share and are convertible into common stock at $1.50 per share. The Preferred Stock is convertible at any time at the option of the holder prior to the closing of a Public Offering, as defined in the agreement, or within 20 days following receipt of a Notice of Redemption, as defined in the agreement, into the Company's common stock for each share of the Preferred Stock held plus accrued and unpaid dividends on the Series A Preferred Shares. The Preferred Stock has a liquidation preference of $1 per share and is mandatorily redeemable on April 15, 2004. As of December 31, 1999, all 2,025,000 shares of the Preferred Stock and related 202,500 detachable warrants remain outstanding. Dividends on the preferred stock accrue on a daily basis commencing on the date of issuance at an interest rate of 15% per annum and are payable on a semi-annual basis. The Company, at its option, may pay dividends either in cash or by the issuance of additional shares of Series A Preferred Stock. Aggregate cumulative dividends in arrears at December 31, 1999 totaled $195,997. Common Stock The Company is authorized to issue up to 20,000,000 shares of its $.0001 par value common stock. On March 29, 1999 (inception) the Company received $800 by issuing 8,000,000 shares of its common stock to its founders. Qode.com, Inc. (A Development Stage Enterprise) Notes to Financial Statements (continued) 6. Stockholders' Equity (continued) Additionally, the Company issued 13,000 shares of common stock to a Company employee in lieu of relocation expense reimbursement of $13,000, and 10,000 shares of common stock to an executive recruiter for a corporate staffing fee of $10,000. These amounts were expensed. Stock Options and Warrants Granted in Exchange for Services During 1999, the Company granted 327,200 common stock warrants with an exercise price of $1.50 per share to consultants for certain advisory and consulting services performed during the Company's start-up phase. The warrants vest immediately upon issuance and can be exercised over a five year period. The Company valued the warrants at $82,156 in accordance with SFAS No. 123, and recognized the entire amount as a general and administrative expense in the accompanying statement of operations. The Company had 327,200 warrants outstanding at December 31, 1999. During 1999, the Company granted 400,000 in common stock options to purchase shares of common stock at an exercise price of $.10 per share to an investment advisor in exchange for investment advisory services. The options expired on June 30, 2000 without being exercised and accordingly no expense has been recorded. Stock Options In 1999, the Company's Board of Directors and shareholders approved the 1999 Equity Compensation Plan (the Plan). The Plan provides for the issuance of incentive stock options, nonqualified stock options and restricted stock to directors, officers, and key employees of the Company as well as non-employee directors, advisors, and consultants. The Board administers the Plan. The Company has reserved 5,000,000 shares of common stock to be issued under the Plan. The exercise price (as established by the Board) of the stock options granted is in excess of fair market value of the Company's Common Stock on the date of the grant. All stock options expire five years from the grant date in 2004. Options granted under the Plan are exercisable as determined by the Board. Qode.com, Inc. (A Development Stage Enterprise) Notes to Financial Statements (continued) 6. Stockholders' Equity (continued) The following table summarizes stock option activity for the period from March 29, 1999 (inception) to December 31, 1999:
Weighted Number of Average Shares Exercise Price ------------------------------------ Outstanding at March 29, 1999 (inception) - $ - Granted 880,600 1.36 Exercised - - Forfeited - - ------------------------------------ Outstanding at December 31, 1999 880,600 $1.36 ====================================
At December 31, 1999, 142,642 options are exercisable, at a weighted average exercise price of $1.28 per share. The weighted-average remaining contractual life of the options is 4.7 years. During 1999, all of the stock options issued were granted to employees of the Company. The Company accounts for issuances to employees under APB 25 and accordingly, no compensation cost has been recognized for the period from March 29, 1999 (inception) to December 31, 1999. SFAS No. 123 requires pro forma information regarding net income as if the Company has accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions: risk-free interest rates equal to the three-year U.S. Treasury Bill rate on the grant date, dividend yield of 0%, expected volatility of 81.1%, and an average expected life of the option of three years. Qode.com, Inc. (A Development Stage Enterprise) Notes to Financial Statements (continued) 6. Stockholders' Equity (continued) For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. All employee options granted to date vest over a one to three year period. The Company's pro forma information is as follows: Period from March 29, 1999 (inception) to December 31, 1999 --------------------- Net loss: As reported $(1,247,987) SFAS No. 123 pro forma $(1,305,831) The weighted average fair value of options granted to employees during the period from March 29, 1999 to December 31, 1999 for which the estimated fair value of the stock is less than the exercise price is $0.29 per share. The weighted average fair value of options granted to employees during the period from March 29, 1999 to December 31, 1999 for which the estimated fair value of the stock equals the exercise price is $0.47 per share. Shares Reserved for Future Issuance At December 31, 1999, the Company has reserved the following shares of stock for issuance: Common stock 11,977,000 Convertible preferred stock 975,000 -------------- 12,952,000 Qode.com, Inc. (A Development Stage Enterprise) Notes to Financial Statements (continued) 7. Related Parties The Company's primary legal counsel holds 3,200,000 shares of the Company's common stock in trust for the firm's partners. During 1999, the Company recorded expenses of approximately $32,000 related to services performed by its primary legal counsel. The Company owed its primary legal counsel approximately $3,000 at December 31, 1999. During 1999, Q Productions, Inc. provided various information technology services to the Company. Two owners of Q Productions, Inc. also aggregately own 4,800,000 shares of the Company. The Company recorded approximately $129,000 in expenses related to services performed by Q Productions, Inc. The Company owed Q Productions, Inc. approximately $97,000 at December 31, 1999. 8. Subsequent Events On January 18, 2000, the Company issued a convertible subordinated promissory note for $3 million with a fixed interest rate of 12% to Novus Holding Corporation. Principal and accrued interest on the note are payable upon the earlier of a) the day immediately following the closing of financing or successive financings which cumulatively aggregate proceeds of $10,000,000 or b) 180 days from the date of the note. The debt is convertible into common stock at a price equal to 85% of the purchase price per share paid by investors in the next financing or successive financings of $5,000,000 or more. On February 11, 2000, the Company entered into a letter of intent with a major supplier to produce portable bar code scanning devices in exchange for payments ranging from $32,000,000 to $35,000,000 over a 16 month period commencing April 28, 2000 through August 1, 2001. On March 15, 2000, the Company entered into a two year term note with a major lender. The principal amount of the note was $42,500 with a fixed interest rate of 11%. Principal and interest payments of $1,984 are due monthly through maturity on March 15, 2002. On March 24, 2000, the Company obtained a letter of credit for $1,400,000 with the lender of their term note. Qode.com, Inc. (A Development Stage Enterprise) Notes to Financial Statements (continued) 8. Subsequent Events (continued) On March 27, 2000, the Company entered into a consulting agreement with a consultant for a five month period in return for 250,000 common stock options convertible into the Company's common stock. The options have a term of five years and an exercise price of $2 per share. 125,000 options vest 45 days from the commencement of the agreement based on the fulfillment of certain contractual obligations. The remaining 125,000 options vest 90 days from the commencement of the agreement based on the fulfillment of certain contractual obligations. Additionally, the Company will pay the consultants $100,000 over the period of the contract. On May 22, 2000, the Board of Directors authorized the issuance of 1,500,000 shares of Series U Convertible Preferred Stock (the Series U Preferred Stock). Dividends on the preferred stock accrue on a daily basis commencing on the date of issuance at an interest rate of 8% per annum. The Series U Preferred Stock is convertible at any time at the option of the holder prior to the closing of a Public Offering, as defined in the agreement, into one share of the Company's common stock for each share of the Company's Series U Preferred Stock held plus accrued and unpaid dividends on the Series U Preferred Shares. In the event of the closing of the next financing of $4,000,000 or more within 90 days from the authorization of the Series U Preferred Stock, the holder of the Series U Preferred Stock shall have the right to convert all Series U Preferred Shares into a number of shares of stock issued in the next financing which represents the equivalent amount for the consideration paid for the Series U Preferred Stock. The Series U Preferred Stock has a liquidation preference of $2.00 per share. On May 22, 2000, the Company entered into an agreement for the issuance of 1,500,000 shares of Series U Preferred Stock in exchange for $3,000,000. The shares will be issued in three separate financings. The initial 500,000 shares are to be issued on the date of the agreement. The next 500,000 shares are to be issued upon the Company meeting certain performance goals defined in the agreement. The remaining 500,000 shares are to be issued, not earlier than August 1, 2000 nor later than October 15, 2000, upon the Company meeting certain performance goals defined in the agreement. ITEM 7(b) PRO FORMA FINANCIAL INFORMATION The unaudited pro forma condensed combined financial statements give effect to the acquisition by Neomedia Technologies, Inc. of the assets of Qode.com, Inc. The pro forma condensed combined balance sheet gives effect to the acquisition as if it had occurred on December 31, 2000. The pro forma condensed combined statement of operations gives effect to the acquisition as if it had occurred as of January 1, 2000, combining the results of Neomedia Technologies, Inc. for the year ended December 31, 2000 with those of the same period for Qode.com, Inc. The pro forma adjustments are based on estimates, available information and certain assumptions that management deems appropriate. The pro forma financial data do not purport to represent what our financial position or results of operations would actually have been if such transactions had occurred on those dates and are not necessarily representative of our financial position or results of operations for any future period. The pro forma financial statements should be read in conjunction with the separate historical financial statements and footnotes of Neomedia Technologies, Inc. and Qode.com, Inc. Pro-forma Condensed Combined Consolidated Balance Sheet (In thousands, except per share data)
Pro-forma Pro-forma NeoMedia Qode.com Adjustments Combined -------- -------- ----------- --------- Cash $ 5,203 $ 19 $ (19) (c) $ 5,203 Accounts receivable, net 4,370 6 (2) (c) 4,374 Digital Convergence receivable 5,144 -- -- 5,144 Other current assets 1,151 232 (488) (b) 895 -------- -------- -------- --------- Total current assets 15,868 257 (509) 15,616 Capitalized software development costs 5,296 2,360 (334) 7,322 Digital Convergence receivable 10,288 -- -- 10,288 Intangible assets 3,747 -- -- 3,747 Other long-term assets 5,395 915 68 (c) 6,378 -------- -------- -------- --------- TOTAL ASSETS $ 40,594 $ 3,532 $ (775) $ 43,351 ======== ======== ======== ========= Current liabilities 7,442 5,712 (4,319) (a) 8,835 Long-term liabilities 14,042 174 (170) (a) 14,046 -------- -------- -------- -------- Total Liabilities 21,484 5,886 (4,489) 22,881 Series A preferred stock - 2,481 (2,481) (d) Common Stock 57,764 1,928 (568) (d) 59,124 Series U preferred stock - 3,000 (3,000) (d) - Accumulated deficit (37,875) (9,763) 9,763 (d) (37,875) Treasury stock (779) -- -- (779) -------- -------- -------- -------- Total shareholders' equity 19,110 (4,835) 6,195 20,470 Total liabilities and shareholders' equity $ 40,594 $ 3,532 $ (775) $ 43,351 ======== ======== ======== =========
Pro-forma adjustments - --------------------- (a) adjustment for liabilities not assumed (b) adjustment for assets not assumed and forgiveness of NeoMedia's note receivable from Qode.com (c) adjustment for assets not assumed (d) adjustment to eliminate preferred and common stock of Qode.com and record NeoMedia shares issued in purchase Qode.com, Inc. (A Development Stage Enterprise) Notes to Financial Statements (continued) Pro-forma Condensed Combined Consolidated Statement of Operations (In thousands, except per share data)
Pro-forma Pro-forma NeoMedia Qode.com Adjustments Combined ------------ ------------ ----------- ------------ Revenue License fees $ 8,417 $ -- $ -- $ 8,417 Resales of software and technology equipment and service fees 19,148 212 -- 19,360 ------------ ------------ ------------ ------------ Total Revenue 27,565 212 -- 27,777 Cost of goods sold License fees 1,296 -- -- 1,296 Resales of software and technology 17,237 213 -- 17,450 ------------ ------------ ------------ ------------ Total cost of goods sold 18,533 213 -- 18,746 Gross profit 9,032 (1) -- 9,031 Selling & marketing expense 6,504 557 -- 7,061 General & administrative expense 7,010 5,839 (27)(a) 12,822 Research & development expense 1,101 1,110 -- 2,211 ------------ ------------ ------------ ------------ Loss from operations (5,583) (7,507) 27 (13,063) Interest expense/(income) (174) 1,009 -- 835 ------------ ------------ ------------ ------------ Net loss (5,409) (8,516) 27 (13,898) Dividends & accretion -- 371 -- 371 ------------ ------------ ------------ ------------ Net income applicable to common shareholders $ (5,409) $ (8,887) $ 27 $ (14,269) Loss per share $ (0.39) (1.11) $ (1.00) Weighted average shares outstanding 13,931,104 8,023,000 14,205,803 Pro-forma adjustments - -------------------- (a) adjustment of amortization of assets
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. NeoMedia Technologies, Inc. ------------------------------ (Registrant) Date: May 15, 2001 By: /s/ Charles W. Fritz ------------------------------ Charles W. Fritz, Chairman EX-23.1 2 dex231.txt CONSENT OF ERNST & YOUNG Exhibit 23.1 Consent of Independent Certified Public Accountants We consent to the incorporation by reference of our report dated July 21, 2000, with respect to the financial statements of Qode.com, Inc. as of December 31, 1999 and for the period from March 29, 1999 (inception) through December 31, 1999 included in the Current Report (Form 8-KSB/A) dated March 1, 2001 in the Registration Statements (Form S-8 Nos. 333-80591, Form S-8 No. 333-42477, Form S-8 No. 333-36098, Form S-3/A No. 333-51811, Form S-3/A No. 333-77659, and Form S-3/A No. 333-33738) of Neomedia Technologies, Inc. West Palm Beach, Florida, /s/ ERNST & YOUNG LLP May/15/2001 EX-23.2 3 dex232.txt CONSENT OF ARTHUR ANDERSEN EXHIBIT 23.2 Consent of Independent Certified Public Accountants As independent certified public accountants, we hereby consent to the incorporation of our report, included in this Form 8-K, into the Company's previously filed Registration Statement File nos. 333-80591, 333-42477, 333- 36098, 333-51811, 333-77659, and 333-33738. /s/ ARTHUR ANDERSEN LLP Tampa, Florida, May 14, 2001 -----END PRIVACY-ENHANCED MESSAGE-----