CORRESP 11 filename11.txt August 17, 2005 Barbara C. Jacobs Assistant Director United States Securities and Exchange Commission Mail Stop 4-6 Washington, D.C. 20549 Re: NeoMedia Technologies, Inc. Amendment No. 2 to Registration Statement on Form S-4/A Filed July 18, 2005 File No. 333-123848 Form 10-KSB for the fiscal year ended December 31, 2004, as amended Form 10-QSB for the quarter ended March 31, 2005 File No. 0-32262 Dear Ms. Jacobs: This letter has been prepared in response to your request for NeoMedia Technologies, Inc. to respond to the staff's comments in the letter dated August 5, 2005 with respect to the amendment No. 2 to Registration Statement on Form S-4/A filed July 18, 2005 by NeoMedia Technologies, Inc. Form S-4 Recent Developments Comment 1: Please revise to disclose the terms of the unsecured promissory note and the letter of intent with Mobot, Inc. signed July 26, 2005. Further, under Rule 3-05 and Rule 11-01 of Regulation S-X, financial statements and pro forma financial information of Mobot may be required depending on the level of significance. Please provide us with a determination of the significance level of this acquisition. Response: We have determined that Mobot falls below the level of significance outlined in Rule 3-05 and Rule 11-01 of Regulation S-X, and have concluded that financial statements and pro forma financial information of Mobot are not required at this time. We have added a disclosure on the Mobot letter of intent and promissory note in this section. United States Securities And Exchange Commission August 12, 2005 Page 2 Prospectus Cover Page Comment 2: We refer you to prior comment 3 of our letter dated June 20, 2005. Similar to disclosure in your amended Form S-3 filed on July 18, 2005, please revise your Prospectus Cover Page to disclose the concurrent registration statement. Response: We have revised the disclosure as requested. Where You Can Find Additional Information, page 106 Comment 3: We note disclosure that "[t]his information statement/prospectus incorporates by reference the documents set forth below that NeoMedia and BSD have previously filed with the SEC." Please revise to either list the filings you had intended to incorporate by reference or remove related disclosure in this section. Please tell us the specific items of Form S-4 that you are following to provide the information about the registrant and company being acquired. See Part I (A) and (B) of Form S-4. Response: We have revised the disclosure as requested. Previously, we inadvertently included language about the incorporation of prior filings by reference. We have corrected the disclosure. Additionally, we are following Item 14 of Form S-4 with respect to NeoMedia and Item 17 with respect to BSD. Exhibits Exhibit 8.1 Comment 4: We refer you to comment 7 of our letter dated June 20, 2005. We note that the opinion continues to discuss "assumptions that are customary in opinion letters of this kind," and contains a non-exclusive list of assumptions made in connection with delivering the opinion. Please revise to state that the assumptions contained in the opinion are the only ones you relied upon or disclose all additional assumptions. Response: We have revised Exhibit 8.1 as requested. United States Securities And Exchange Commission August 12, 2005 Page 3 Form 10-KSB/A for the Year Ended December 31, 2004 Comment 5: Note that the accounting staff has reviewed your above Forms 10-KSB and 10-QSB and have the following comments. Please note that the accounting staff has limited its review to the matters addressed in the comments below. All outstanding staff comments will need to be resolved prior to the effectiveness of your registration statement on Forms S-4 and S-3, amended on July 18, 2005. In addition, please be sure to make conforming changes to all of your filings to the extent that changes to your periodic reports under the Exchange Act resulting from the comment process are also applicable to the registration statement, or vice versa. Response: We respectfully acknowledge that all outstanding staff comments must be resolved prior to the effectiveness of the S-3 and S-4. Additionally, we will make conforming changes to all of our filings to the extent that changes to our periodic reports under the Exchange Act resulting from the comment process are also applicable to the registration statement, or vice versa. Audited Financial Statements Note 2. Summary of Significant Account Policies Financial Instruments, page F-8 Comment 6: We note your statement that it is not practicable to estimate the fair value of the Company's investment in the common stock of iPoint-Media Ltd. because of the lack of quoted market prices and the inability to estimate fair value without incurring excessive costs. In light of the lack of fair value information, tell us how you determined that the investment was not impaired. In this regard, we note from iPoint's Form SB-2 filed on July 1, 2005 that iPoint has sustained operating losses, expects such losses to continue in the foreseeable future, has not generated sufficient revenues to achieve profitable operations or positive cash flow from operations, has a working capital deficiency and an accumulated deficit, the relationship from which iPoint derived 96% of its revenues in 2004 was terminated, and the independent auditors have expressed substantial doubt about iPoint's ability to continue as going concern. Address how you considered the guidance in SFAS No. 144. Response: The investment in iPoint is an investment in available for sale securities, accounted for under the cost method. As such, NeoMedia tests the investment for impairment under the guidelines of SFAS 115, rather than SFAS 144. United States Securities And Exchange Commission August 12, 2005 Page 4 In accordance with SFAS 115, NeoMedia periodically performs impairment tests on each of its investments to determine if any decline in fair value of the investment is other than temporary. With respect to the investment in iPoint, NeoMedia analyzed the estimated fair value of the investment as of December 31, 2004, March 31, 2005, and June 30, 2005. We considered many factors, both positive and negative, including: o At the time of our investment in iPoint in September 2004, NeoMedia understood that iPoint was still in a development stage, was losing money, and that those losses would likely incur in the near-term. Our decision to invest was based on the ability of iPoint's management to capitalize on the potential of their technology in an emerging market. o We believe that, once a public market is established for iPoint's stock, the market value will reflect the future expected revenue streams, not solely the limited operating history. We believe that value will be sufficient for NeoMedia to, at a minimum, recoup its investment. We currently hold 6,919,600 shares, which equates to a stock price of approximately $0.15 per share required for NeoMedia to realize $1 million upon the sale of its stock. We believe it is reasonable to assume the iPoint can achieve a stock price of $0.15. o Our expectation for iPoint's stock price is based on our expectation that the mobile phone videoconferencing market in which iPoint participates has a large potential, especially in the European market where iPoint focuses. We further understand that this market is not fully developed, and that revenues in the near-term may be minimal and operating losses substantial. o We expect that iPoint will be able to raise additional capital, if needed, to bridge to profitability. We also believe that iPoint's access to the public market will enhance its ability to raise addition capital if required. o The fact that iPoint has sustained operating losses, expects such losses to continue in the foreseeable future, has not generated sufficient revenues to achieve profitable operations or positive cash flow from operations, that iPoint has a working capital deficiency and an accumulated deficit, the fact that the relationship from which iPoint derived 96% of its revenues in 2004 was terminated, and that iPoint's independent auditors have expressed substantial doubt about iPoint's ability to continue as going concern United States Securities And Exchange Commission August 12, 2005 Page 5 After careful consideration of these factors, NeoMedia determined that there was not a permanent impairment of the investment. As such, we did not recognize an impairment charge for the periods ended December 31, 2004, March 31, 2005, or June 30, 2005. We will continue to analyze the investment for impairment on a regular basis in accordance with SFAS 115. United States Securities And Exchange Commission August 12, 2005 Page 6 Shipping and Handling Fees, page F-10 Comment 7: We note that shipping and handling costs are netted in cost of goods sold. Tell us how your accounting complies with Issue 1 of EITF 00-10 which states that shipping and handling fees should be classified as revenue. Include a schedule of all shipping and handling costs incurred and passed through to customers for the past two years in your response. Response: Shipping and handling costs incurred and passed through to customers since January 1, 2003 are as follows:
Three Months Year Ended Ended December 31, March 31, ------------------------ --------- 2003 2004 2005 ------------------------ --------- Amount billed by NeoMedia to customers $ 1,551 $ 4,426 $ 975 Amount charged from vendors to NeoMedia ($ 1,551) ($ 4,426) ($ 975) Percent of revenue for period reported 0.06% 0.26% 0.13%
All shipping and handling costs were passed through directly to customers. NeoMedia was previously netting the shipping and handling costs to cost of goods sold, which was not in accordance with EITF 00-10. NeoMedia has corrected this oversight beginning with the quarter ended June 30, 2005, and will update its disclosure accordingly in its Form 10-KSB for the year ended December 31, 2005. These fees were immaterial to NeoMedia's financial statements for the periods in which they were reported. However, on a prospective basis, NeoMedia will comply with the requirements of ETIF 00-10. Very truly yours, /S/ Charles T. Jensen Charles T. Jensen President, Chief Executive Officer & Director