SHM notes and commentary:
1) It was great meeting JP, Success622, Hangdog, DrMyke, Madcat, Gleanings, Crusher, N E O M, NumberCruncher, Smoke20, Bigs, and other Ihub lurkers. This is truly an impressive group of individuals – a “Smart Mob” of sorts.
2) Management was impressive as well. They were open, sincere, enthusiastic, professional and well prepared – not just with their words, but body language as well. I believe that they have and will continue to demonstrate high business ethics in all their behaviors.
3) Scott Shaffer (the PP) was also present. It appeared to me and others that whatever misgivings Scott and Management might have had in the past has been “patched up”. Scott and Chas had a relatively lengthy one-on-one side-bar discussion. Chuck seemed to go out of his way during the introduction to indicate that Scott was a friend of Neomedia. It will be interesting to see if Scott now begins to write about Neom once again,
4) The offsite venue was first class - excellent facilities and comfortable. I would estimate that there were more than 50 shareholders in attendance – perhaps up more than three fold from the December meeting. Management’s hospitality was well appreciated by all as well.
5) Prior to the presentations, we toured displays of each of the business units with one or more of their executives. During this time period, we learned that Lauren Bigelow has left Mobot for another career opportunity. We also learned that Mobot will soon announce a new campaign with Starbucks. Gavitec explained how McDonald’s Portugal is an important pilot program, which could lead to more expansion into other McDonald’s restaurants in other parts of the world if the ROI proves attractive. He stated that early indications are positive.
6) Chuck Jensen started the presentation portion of the meeting introducing what he called “Special Guests”:
a. Chas Fritz, Dr. Kevin Hunter and Rob Durst – the inventors and authors of the physical world to the electronic world.
b. Stan Hill – Founder of CSI International; now Neomedia Micropaint.
c. Ronnie Haligman – outside legal counsel.
7) Next there was the formality of forward looking statements.
8) Chuck Jensen then went into his presentation – The Launch. The key takeaway here was that Paperclick (forevermore to be called “Qode”) will be hard launched this year – possibly starting during Q3, but for sure during Q4. He emphasized this will include a consumer launch. They are lining up the three circles (brands, carriers, and media companies) with the various platforms (Symbian, Java 2.0, Palm / Microsoft, Java 1.0, and BREW) – see Martin Copus presentation for the relevant slide on enabling technologies.
9) The introduction of Qode by Martin Copus became the PR for the day at approximately 11:00 AM EDT.
10) Another key explanation in Jensen’s presentation was the discussion on the Mobile Marketing Ecosystem and Direct vs. Indirect. Direct is when the barcode contains the URL in the code, whereas with Indirect the barcode contains a number or word that connects to a database, which connects to the URL. Neomedia’s capability replaces 2 steps of the Ecosystem. More specifically, Qode is indirect, which has many advantages – principally Neom becomes the application provider and Qode will replace the network aggregator. This is important as network aggregators such as M-Qube, who was acquired by Verisign, will some day become obsolete; thereby perhaps forcing Verisign to eventually license Qode sometime in the future (this last statement is entirely my speculation and was not discussed at the SHM).
11) Another key message by Jensen was that we are working to launch Qode in China, and China has over 19% of the worldwide cellular subscribers.
12) Chas Fritz then made his presentation – The Vision, which is to link the physical world to the electronic world – what some call “Internet Phase 2”.
13) I thought his analogy of “first things first” was well thought-out – the rights to build the house, right designers / carpenters, strong foundation, and having the ability to pay for it. Our “rights to build” includes 28 patents across 14 countries, earliest core art, blocking patents, built for defense, and with a strategy.
14) Fritz explained on a flipchart “How big is the opportunity” – obviously he didn’t want this in print in the presentation. He said there were 2 to 4 billion UPC codes worldwide. If we assume that Neomedia activates only 0.1% of these codes and charges $500 / year per unique UPC code, this will equal $1 billion potential revenue per year. One would think these are very conservative estimates, and this is only one part of the business.
15) Martin Copus followed Chas Fritz’s presentation discussing Neomedia Mobile. As stated earlier, he introduced Qode to us – essentially stating the Paperclick as a brand name was not standing out from the competition; that they wanted to create a new brand name that was shorter and catchy. He emphasized that Neom is targeting the young adults. He indicated that Mobot’s expansion from Elle Girl to Elle is very important and exciting. Another interesting tidbit was that Sponge has now 11,000 applications under their belt. He ended his presentation stating that their goal is to become the Global Leader in Mobile Marketing Solutions.
16) Paul G., formerly of DuPont, gave an overview of NMPR. The pilot facility near the Fort Myers Airport has grown their monthly sales from $15K to $45K over the last 4 months. He said that they are increasing their market share – now 30% for the airport region. Look for NMPR to change their name in the near future as they have expanded their product offerings well beyond just paint. There are clearly strong ties with DuPont, and they are well positioned for profitable growth. It was stated later in the Q&A session that Neom had no plans to spin off NMPR – at least for now – perhaps as their revenue model increases substantially they would consider this (again, this is my speculation – officially, there is no plan to spin off this business).
17) Next we heard about the Triton Global Business Services. Guy Fietz was proud to claim that they have tripled their sales over the last 3 years ($3M to over $10M), and they are averaging over $1 million sales per employee – the best in the industry. Lavalife and Vox-Tel are among their major customers. If you read between the lines, it is apparent that Triton’s 3rd party billing capability will have synergy with the other Neomedia business units over time.
18) Chuck Jensen then went into a Q&A session – first with some presentation slides, and then we were able to ask questions. The questions he formally showed came from the email that I sent to him (based on much of your input). A summary of their answers are shown below:
a. They are committed to increasing shareholder value.
b. They will pursue a major stock exchange as soon as they qualify for it.
c. They do not believe the increase in A/S will impact their plans to become listed on NASDAQ.
d. A reverse split is not being considered.
e. “Custody only” is not a viable option.
f. They are working to engage a financial analyst during Q3 with coverage beginning during Q4.
g. No plans to divest NMPR.
h. HipCricket negotiations and DD are continuing. No timeframe disclosed.
i. They have 183 employees before the HipCricket acquisition. Their cash burn rate is $1 million per month.
j. The Scanbuy lawsuit is proceeding through the courts. But it was also mentioned that Scanbuy’s new CEO has traveled to Neom Headquarters – possible settlement discussions were inferred.
k. Chas Fritz stated that he stopped his insider selling of stock in early June as it “was the right thing to do”.
l. Neom believes their share price is much undervalued. They compared themselves with M-Qube which sold to Verisign for $250M and they believe they are worth a lot more than M-Qube.
m. It appeared to me that they are seeking to invest in the business rather than seeking near-term positive cash flow. This implies to me that there will be a round two of acquisitions sometime during the 2nd half of this year. Look at the relevant slides in the PowerPoint presentation for possible future acquisition candidates.
n. Chuck Jensen emphasized that this vote to increase the A/S was “painful” and that he did not want to have to go back and ask for any further increases in A/S in the future. He inferred that they don’t need 5 billion now…that they need about 1.5 billion shares depending on pps. What we don’t know is how many additional shares they would need for our presumed assumption that more acquisition activity is planned or underway.
o. Hangdog challenged them to find a way to end the toxic Cornell financing. He presented a proposal that Management seemed to be willing to give further consideration. I will let him explain how this would work in his postings. I would recommend that he follow-up with a formal letter to Management and the BOD reiterating this proposal.
p. There was a question dealing with the structure of stock options. The answer was that the board reviews the structure with other industry practices and makes sure they are in line. Personally, I wasn’t satisfied with that answer.
q. We had planned to ask a question about increasing the number of members on the BOD. We ran out of time to do this publicly, and at the present time I am unsure if this was discussed during individual discussions.
19) David Dodge led the formal shareholder meeting. As expected all of the issues presented on the proxy passed. The A/S increase from 1 billion to 5 billion was clearly not a mandate as only 72% of the shares were voted in favor of it.
20) One executive, whose name I will keep confidential, indicated that Q2 and Q3 will continue to show very positive financial results on an overall basis.
21) Following the meeting, several of us drove to the Micropaint facility near the airport for a tour. The personnel and the facility were first-rate. They are working hard to achieve a major launch in North America with some big players in the auto rejuvenation business. And the more I understand about this business, the more I see synergy with Neom’s Mobile business unit. This is clearly a “diamond in the rough” that has huge upside potential with relatively little downside risk IMO. It has my full personal support as a shareholder.
22) Final thoughts: I believe we will see a lot of interesting and positive developments during the 2nd half of 2006. Launch of Qode is imminent - Neom has got or will soon have “all their ducks in a row” for a successful launch campaign. The overseas market is ready. This is clearly what we have been all waiting for. The level of outstanding shares is going to no doubt increase as Neomedia fulfills their goal of becoming the Global Leader in Mobile Marketing Solutions. Significant revenue growth is clearly possible over the next 12 months, and must happen in order to offset the increased dilution. I think if you have a relatively long time horizon for this investment, you will do just fine. However, if your investment time horizon is relatively short (say less than 6 months), the risk of pps decline or stagnation for the near-term is potentially an issue as we wait for increased revenues in the face of further dilution. Neom has a great vision, an excellent business plan; they just need to execute well what they have outlined. We should hold Management accountable to launch Qode by the end of this year such that it will substantially build revenues going forward. If they do that - and I personally believe they will - their credibility will remain high with this investor. Overall, I found this to be a very rewarding and worthwhile experience…I would recommend that anyone on this board that hasn’t attended a SHM to consider doing so in the future.
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