CORRESP 14 filename14.txt December 22, 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. 4 TO REGISTRATION STATEMENT ON FORM S-4/A FILED NOVEMBER 7, 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 FORM 10-QSB FOR THE QUARTER ENDED JUNE 30, 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 November 18, 2005 with respect to the amendment No. 4 to Registration Statement on Form S-4/A filed November 7, 2005 by NeoMedia Technologies, Inc. FORM S-4, AS AMENDED ON NOVEMBER 7, 2005 AMENDMENT NO. 4 TO FORM S-4 Comment 1: Include currently dated consents of all independent accountants in the next amended --- registration statement Response: We have included currently dated consents for all independent accountants in this amendment. PRO FORMA FINANCIAL INFORMATION, PAGES F-69 TO F-76 Comment 2: Revised all captions and references to the Pro Forma Financial Information to include the word "Unaudited". Response: We have revised the captions and references as requested. Comment 3: Your description of the basis of presentation does not appear to have been updated to refer to the periods, and entities, presented. For example, remove references to CSI since the entity is already included in NeoMedia's historical financial statements for more than nine months. Revise accordingly Response: We have revised the description of the basis of presentation as requested. Comment 4: Revised to present an unaudited pro forma condensed balance sheet as of September 30, 2005. Response: We have updated the pro forma financial information to include an unaudited pro forma condensed balance sheet as of September 30, 2005. Comment 5: Revise to provide unaudited pro forma condensed statements of operations for the nine months ended September 30, 2005. Response: We have updated the pro forma financial information to include an unaudited pro forma condensed statement of operations for the nine months ended September 30, 2005. Comment 6: With regard to your pro forma adjustment "D", revise to reflect the allocation of the entire expected purchase price for the BSD and Mobot acquisitions. That is, the adjustment appears to exclude the $3.5 million cash portion of the consideration to be paid for Mobot, Inc. Additionally, disclose the value of all shares and options issued for the acquisition. Indicate how the fair values were determined. Include a schedule showing the calculation of each purchase price Response: We have revised the disclosure of adjustment "D" as requested. Comment 7: Expand the disclosure to show the allocation of the purchase price to the tangible and intangible assets acquired. Also, for each class of intangibles acquired disclose the related amortization period. In this regard, indicate why no value has been assigned to any intangible assets besides goodwill. Furthermore, clarify why Mobot is not being considered a shell company since it appears to have nominal operations. Also, provide us with an analysis of whether Mobot is a business under EITF 98-3. In either case, the acquisition would not be accounted for as a business combination and would be treated as a recapitalization if it is deemed a shell or as an asset acquisition if it does not meet the definition of a business. Be advised that goodwill is only recognized in a business combination and not in a recapitalization or an asset acquisition. See paragraph 9 of SFAS 141. Response: We have revised the disclosure to show the allocation of the purchase price to the tangible and intangible assets acquired, and shown the related amortization period for each class of intangibles. We have allocated the expected excess of fair value paid over net assets acquired (net liabilities assumed) for each acquisition to intangible asset classes based on management's best judgment and estimate of how this excess will be broken out in the final purchase price allocation. We have not commissioned an independent appraisal of the assets as of this time. We expect to have an independent appraisal performed after the consummation of the acquisitions of BSD and Mobot, and we will perform a final allocation of the intangible assets at that time. We have shown the expected purchase price allocation in tabular form in the footnotes to the balance sheet, and we have also noted that the final allocation will be based on an independent valuation and could vary materially from the numbers presented in the pro forma financial section. Under Rule 405 of the Securities Act of 1933, a shell company is defined as, "a registrant that has: (1) no or nominal operations; and (2) either (i) no or nominal assets, (ii) assets consisting solely of cash and cash equivalents, or (iii) assets consisting of any amount of cash and cash equivalents and nominal other assets." During the nine months ended September 30, 2005, Mobot recognized revenue of $144,000, generated operating expenses of $1,046,000, and employed six people. As a result of these operations, Mobot does not meet requirement (1) above, and is therefore not considered a shell company. Additionally, we have performed an analysis of whether Mobot is a business under EITF 98-3. Pursuant to EITF 98-3, "a business is a self-sustaining integrated set of activities and assets conducted and managed for the purpose of providing a return to investors. A business consists of (a) inputs, (b) processes applied to those inputs, and (c) resulting outputs that are used to generate revenues. For a transferred set of activities and assets to be a business, it must contain all of the inputs and processes necessary for it to continue to conduct normal operations after the transferred set is separated from the transferor, which includes the ability to sustain a revenue stream by providing its outputs to customers." Pursuant to EITF 98-3, the determination of whether a transferred set of assets and activities is or is not a business is a three-step process: 1. Identify the elements included in the transferred set 2. Compare the identified elements in the transferred set to the complete set of elements necessary for the transferred set to conduct normal operations in order to identify any missing elements 3. If there are missing elements, one must make an assessment as to whether the missing elements cause one to conclude that the transferred set is not a business We evaluated each of the elements as follows:
------------------------------------------------------------------------------------------------------------------------------------ Element (as defined in EITF 98-3) Mobot Attributes to Satisfy Element ------------------------------------------------------------------------------------------------------------------------------------ (1) Inputs ------------------------------------------------------------------------------------------------------------------------------------ - Long-lived assets - We believe the value of Mobot's image recognition software, linking system, trade name, and other intangible long-lived assets is significant ------------------------------------------------------------------------------------------------------------------------------------ - Intellectual property - Mobot currently has one patent filing, several trademark filings, and critical industry know-how in the image-recognition field ------------------------------------------------------------------------------------------------------------------------------------ - Ability to obtain access to necessary materials or rights - Mobot has developed, or has access to, all rights and materials required to sell its product to customers. Accordingly, they have a complete product offering and recorded revenue of $144,000 in the nine months ended September 30, 2005, relating to such products ------------------------------------------------------------------------------------------------------------------------------------ - Employees - Mobot currently has 6 full-time employees ------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------ (2) Processes (The existence of systems, standards, protocols, - Mobot has in place appropriate strategic management, conventions, and rules that act to define the processes necessary for operational, resource management, financial normal, self-sustaining operations, such as (i) strategic management reporting, and other processes that support its processes, (ii) operational processes, and (iii) resource management classification as a business under EITF 98-3 processes ------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------------ (3) Outputs (the ability to obtain access to the customers that - Mobot's outputs include a service offering that has purchase the outputs of the transferred set) generated substantial revenue during 2005, as well as a sales force to obtain access to customers ------------------------------------------------------------------------------------------------------------------------------------
We believe Mobot satisfies all of the elements, and as such have determined that it is a business pursuant to EITF 98-3. As such, we intend to record the acquisition of Mobot as a business combination under the guidelines of SFAS 141. Comment 8: Please address the impact, if any, of the acquisition of Mobot by NeoMedia on Mobot's outstanding convertible debentures and the warrants issuable upon conversion or exchange of the debentures. That is, clarify whether the holders intend, if known, to convert the debentures to Mobot shares and warrants. Please provide additional pro forma presentation to the extent that there are a range of possible outcomes with regard to the convertible debentures and warrants. Response: Based on discussions with Mobot management, NeoMedia believes the debentures will be converted prior to closing of the acquisition of Mobot by NeoMedia. We have revised the pro forma balance sheet to reflect this pro forma adjustment. Additionally, we have added footnote disclosure (F), which explains the impact to the pro forma balance sheet in the event that the debentures are not converted prior to closing. With respect to the warrants, based on discussion with Mobot management, NeoMedia expects the warrants to be forfeited by the warrant holders prior to closing. We have added footnote (G) to discuss the warrants and the expected conversion. FINANCIAL STATEMENTS OF MOBOT, INC. Comment 9: Revise to include interim financial statements in accordance with Regulation S-B Item 310(g). Response: We have added interim financial statements for Mobot for the nine months ended September 30, 2005, in accordance with Regulation S-B Item 310(g). Comment 10: Revise to include a signed report in accordance with Rule 2-02(a) of Regulations S-X. Response: We have revised to include a signed report in accordance with Rule 2-02(a) of Regulation S-X. Very truly yours, /S/ Charles T. Jensen Charles T. Jensen President, Chief Executive Officer & Director