-----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, RGroVswBRvhnskeBiOylJ6BEPwffWeRZLk/6nRkdw5i28SDJsGz8WdX7L+hCDOS7 OXKPfyPY/LWkkNAxsi1eBw== 0001016843-97-000463.txt : 19970814 0001016843-97-000463.hdr.sgml : 19970814 ACCESSION NUMBER: 0001016843-97-000463 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NASD 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: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-21743 FILM NUMBER: 97657826 BUSINESS ADDRESS: STREET 1: 280 WEST SHUMAN BLVD STREET 2: STE 100 CITY: NAPERVILLE STATE: IL ZIP: 60563 BUSINESS PHONE: 6303554404 MAIL ADDRESS: STREET 1: 280 WEST SHUMAN BLVD SUITE 100 CITY: NAPERVILLE STATE: IL ZIP: 60563 FORMER COMPANY: FORMER CONFORMED NAME: DEVSYS INC DATE OF NAME CHANGE: 19960911 10QSB 1 U. S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------------- FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-21743 NEOMEDIA TECHNOLOGIES, INC. ----------------------------------------------------------------- (Exact Name of Small Business Issuer as Specified In Its Charter) DELAWARE 36-3680347 ------------------------------ ------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 2201 SECOND STREET, SUITE 600, FORT MYERS, FLORIDA 33901 - -------------------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Issuer's Telephone Number (Including Area Code) 941-337-3434 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of July 31, 1997, there were outstanding 5,381,701 shares of the issuer's Common Stock and 3,130,938 warrants.
PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS JUNE 30, DECEMBER ASSETS 1997 31, 1996 --------- -------- (In thousands) Current assets: Cash and cash equivalents ................................. $ 2,403 $ 4,159 Trade accounts receivable, net of allowance for doubtful accounts of $124 and $216 ............................. 6,425 4,983 Amounts due from related parties .......................... 7 496 Inventories ............................................... 67 105 Prepaid expenses and other ................................ 608 588 -------- -------- Total current assets .................................. 9,510 10,331 -------- -------- Property and equipment, net of accumulated depreciation ........ 548 278 Capitalized software costs, net of accumulated amortization .... 1,045 657 -------- -------- Total assets .............................................. $ 11,103 $ 11,266 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable .......................................... $ 5,251 $ 3,800 Accrued expenses .......................................... 1,142 1,043 Current portion of long-term debt ......................... 264 262 Other ..................................................... 315 245 -------- -------- Total current liabilities ............................. 6,972 5,350 -------- -------- Long-term debt, net of current portion ......................... 981 1,589 -------- -------- Total liabilities ..................................... 7,953 6,939 -------- -------- Shareholders' equity: Common stock, $.01 par value, 15,000,000 shares authorized, 5,378,085 and 5,114,316 shares outstanding ............ 54 51 Additional paid-in capital ................................ 10,120 8,801 Accumulated deficit ....................................... (7,024) (4,525) -------- -------- Total shareholders' equity ............................ 3,150 4,327 -------- -------- Total liabilities and shareholders' equity ................ $ 11,103 $ 11,266 ======== ========
The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements. 1 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, -------------------------- 1997 1996 ----------- ----------- (Dollars in thousands, except per share data) NET SALES: License fees ............................... $ 335 $ 460 Software product resales ................... 1,834 2,059 Technology equipment resales ............... 8,624 5,110 Service fees ............................... 1,032 1,250 ----------- ----------- Total net sales ........................ 11,825 8,879 ----------- ----------- COST OF SALES: License fees ............................... 139 140 Software product resales ................... 1,608 1,384 Technology equipment resales ............... 7,496 4,416 Service fees ............................... 915 927 Amortization of capitalized software costs . 307 281 ----------- ----------- Total cost of sales .................... 10,465 7,148 ----------- ----------- GROSS PROFIT .................................... 1,360 1,731 General and administrative expenses ............. 1,583 802 Sales and marketing expenses .................... 1,859 973 Research and development costs .................. 410 123 ----------- ----------- Loss from operations ............................ (2,492) (167) Interest expense, net ........................... 52 216 ----------- ----------- LOSS BEFORE INCOME TAXES ........................ (2,544) (383) Benefit for income taxes ........................ (45) (80) ----------- ----------- NET LOSS ........................................ $ (2,499) $ (303) =========== =========== PER SHARE DATA: Net loss per share ......................... $ (0.40) $ (.07) =========== =========== Weighted average number of common and common equivalent shares outstanding ......... 6,209,597 4,071,373 =========== =========== The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements. 2 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, -------------------------- 1997 1996 ----------- ----------- (Dollars in thousands, except per share data) NET SALES: License fees ............................... $ 117 $ 301 Software product resales ................... 1,770 769 Technology equipment resales ............... 4,929 2,210 Service fees ............................... 454 503 ----------- ----------- Total net sales ........................ 7,270 3,783 ----------- ----------- COST OF SALES: License fees ............................... 77 92 Software product resales ................... 1,559 537 Technology equipment resales ............... 4,282 1,863 Service fees ............................... 522 463 Amortization of capitalized software costs . 163 142 ----------- ----------- Total cost of sales .................... 6,603 3,097 ----------- ----------- GROSS PROFIT .................................... 667 686 General and administrative expenses ............. 827 418 Sales and marketing expenses .................... 1,058 504 Research and development costs .................. 233 59 ----------- ----------- Loss from operations ............................ (1,451) (295) Interest expense, net ........................... 41 112 ----------- ----------- LOSS BEFORE INCOME TAXES ........................ (1,492) (407) Benefit for income taxes ........................ -- (63) ----------- ----------- NET LOSS ........................................ $ (1,492) $ (344) =========== ============ PER SHARE DATA: Net loss per share ......................... $ (0.24) $ (.08) =========== =========== Weighted average number of common and common equivalent shares outstanding ......... 6,229,229 4,071,373 =========== =========== The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements. 3
NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, ------------------ 1997 1996 ------- ------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ................................................................................ $(2,499) $ (303) Adjustments to reconcile net loss to net cash used in operating activities: Provision for doubtful accounts .................................................... 60 -- Depreciation and amortization ...................................................... 368 167 Changes in operating assets and liabilities: Trade accounts receivable ...................................................... (1,502) (795) Other current assets ........................................................... 35 34 Accounts payable and accrued expenses .......................................... 1,550 884 Other current liabilities ...................................................... 70 (138) ------- ------- Net cash used in operating activities .......................................... (1,918) (151) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capitalization of software development costs and purchased software ..................... (713) (26) Acquisition of property and equipment ................................................... (313) (27) ------- ------- Net cash used in investing activities .......................................... (1,026) (53) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of units ..................................................... 1,315 -- Exercise of stock options ............................................................... 7 -- Repayment of advance to shareholder ..................................................... 472 -- Proceeds from advance to shareholder .................................................... -- (472) Borrowings under notes payable and long-term debt ....................................... -- 250 Repayments on notes payable and long-term debt .......................................... (134) (92) Borrowings from shareholders and related parties ........................................ -- 1,123 Repayments to shareholders and related parties .......................................... (472) (283) ------- ------- Net cash provided by financing activities ...................................... 1,188 526 ------- ------- NET INCREASE (DECREASE) IN CASH ......................................................... (1,756) 322 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .......................................... 4,159 11 ------- ------- CASH AND CASH EQUIVALENTS, END OF PERIOD ................................................ $ 2,403 $ 333 ======= ======= SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid......................................................................$ 90 $ 149 Income taxes paid .................................................................. -- 65
The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements. 4
NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ADDITIONAL ACCUMU- NUMBER COMMON PAID-IN- LATED OF STOCK CAPITAL DEFICIT SHARES --------- --------- --------- --------- (Dollars in thousands) Balance, December 31, 1996 ............. $ 51 $ 8,801 $ (4,525) 5,114,316 Exercise of stock options .............. -- 7 -- 8,769 Proceeds from issuance of 255,000 units, net of $215 of issuance costs ..... 3 1,312 -- 255,000 Net loss ............................... -- -- (2,499) -- --------- --------- --------- --------- Balance, June 30, 1997 ................. $ 54 $ 10,120 $ (7,024) 5,378,085 ========= ========= ========= =========
The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements. 5 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS BASIS OF PRESENTATION NeoMedia Technologies, Inc. ("Technologies") was incorporated under the laws of the state of Delaware in July, 1996, to acquire by merger Dev-Tech Associates, Inc. ("Dev-Tech"), an Illinois corporation, which was incorporated in December, 1989. On August 5, 1996, Technologies acquired all of the shares of Dev-Tech in exchange for the issuance of shares of Technologies' common stock to the shareholders of Dev-Tech. Dev-Tech Migration, Inc. ("DTM") was incorporated in June, 1994, in Illinois. On November 20, 1996, DTM was merged into NeoMedia Migration, Inc. ("Migration"), a Delaware corporation and a wholly owned subsidiary of Technologies (the "Migration Merger"). Technologies and Migration, since Migration's inception, have shared certain management and were controlled by common shareholders. These transactions have been accounted for in a manner similar to the pooling of interests method of accounting using historical book values rather than fair market value as all entities involved were under common control. Distribuidora Vallarta, S.P.A. ("DVSPA") is a wholly-owned subsidiary of Migration and was incorporated in Guatemala in August, 1996, to employ computer software developers and system integrators. Technologies, Migration and DVSPA are collectively referred to as "NeoMedia" or the "Company." As these transactions were completed as of December 31, 1996, the financial statements of NeoMedia have been presented on a consolidated basis for all periods presented. The financial position and results of NeoMedia as of and for the periods prior to these mergers have been combined in a manner consistent with NeoMedia's consolidation principles as of December 31, 1996. All significant intercompany accounts and transactions have been eliminated in preparation of the consolidated financial statements. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-QSB and do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, the consolidated financial statements reflect all adjustments which are of a normal recurring nature and which are necessary to present fairly the consolidated financial position of NeoMedia as of June 30, 1997 and December 31, 1996, and the results of operations for the six and three months ended June 30, 1997 and 1996, and cash flows for the six months ended June 30, 1997 and 1996. The results of operations for the six and three months ended June 30, 1997 are not necessarily indicative of the results which may be expected for the entire fiscal year. NATURE OF BUSINESS OPERATIONS NeoMedia operates in one business segment which is comprised of three principal applications markets: (i) Intelligent Document Solutions, (ii) Document Systems Solutions and (iii) Systems Transition Solutions. The INTELLIGENT DOCUMENT SOLUTIONS UNIT was established to assist clients in linking printed material to electronic media. NeoMedia has developed its own technology, and has rights to use the technology of others, to generate printed documents which can be automatically "read" by machines, such as computers equipped with scanners and appropriate software. These "machine readable" documents incorporate printed codes which contain thousands of bytes of information, including computer programs rendering them functionally equivalent to a computer floppy disk with a limited capacity to hold information. These codes are referred to in the industry as "high capacity symbologies" and "multi-dimensional" or "two-dimensional" bar codes. NeoMedia refers to documents that incorporate high capacity symbologies as "Intelligent Documents," and currently provides software and services to support the application of this technology. 6 The DOCUMENTS SYSTEMS SOLUTIONS UNIT was established to assist clients in definition, design, implementation and management of their document system environments. These services include strategic consulting to define and optimize enterprise wide documents strategies, as well as systems integration and development to implement effective document generation, archive and management systems. NeoMedia specializes in the technical areas of electronic forms management, document production systems and intelligent document solutions incorporating multi-dimensional bar code technologies. The document system process provided by NeoMedia also includes electronic media alternatives such as Internet and Intranet channels. The SYSTEMS TRANSITION SOLUTIONS UNIT was established to enable clients to migrate applications on closed, proprietary ("legacy") systems to more cost effective and extendable open systems platforms. NeoMedia has acquired and developed a line of proprietary products and tools utilized in its migration services. NeoMedia also provides strategic consulting, systems development, systems engineering and support services in connection with its systems transition solutions. In addition, in June, 1997, NeoMedia added a new set of Year 2000 Millennium solutions tools for the IBM DOS/VSE environment that automatically finds and converts two-digit date fields in both data and source code. As part of the services provided in connection with system transition solutions service engagements, NeoMedia acts as a reseller of purchased hardware in connection with open systems development and migrations. NeoMedia maintains relationships with a number of major companies under which NeoMedia sells third party purchased hardware and software products of those companies. NeoMedia has established several strategic alliances with third party software and hardware vendors, leading consulting firms and major system integrators. These alliances are integral to NeoMedia's business operations. NeoMedia principally markets and distributes its products through distributors in the United States (although it has distributors in Europe, Asia, the Middle East, Indonesia and Latin America), and currently has U. S. offices located in Illinois, California, Minnesota, and Florida. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES COMPUTATION OF EARNINGS PER SHARE The computation of earnings per share is based on the weighted average number of common and common equivalent shares outstanding during the period. Common stock equivalents consist of outstanding stock options which, pursuant to Staff Accounting Bulletin No. 83 of the Securities and Exchange Commission, are included in the weighted average shares as if they were outstanding for the entire period to the extent granted within the twelve months preceding the contemplated public offering date, using the treasury stock method until such time as shares are issued. For the six and three months ended June 30, 1997 and 1996, the computation of the weighted average number of common shares and common share equivalents outstanding was as follows: 1997 1996 --------------------- --------------------- SIX THREE SIX THREE MONTHS MONTHS MONTHS MONTHS --------- --------- --------- --------- Common stock ........... 5,351,814 5,375,842 3,133,378 3,133,378 Effect of stock options 857,783 853,387 937,995 937,995 --------- --------- --------- --------- Total .................. 6,209,597 6,229,229 4,071,373 4,071,373 ========= ========= ========= ========= For the six and three months ended June 30, 1997 and 1996, information regarding earnings per share computed on a historical basis under the provisions of Accounting Principles Board Opinion No. 15, "Earnings per Share," was as follows: 1997 1996 --------------------- --------------------- SIX THREE SIX THREE MONTHS MONTHS MONTHS MONTHS --------- --------- --------- --------- Net loss per share ...... $ (0.47) $ (0.28) $ (0.10) $ (0.11) ========== ========= ========= ========= Weighted average common shares outstanding .... 5,351,814 5,375,842 3,133,378 3,133,378 ========== ========= ========= ========= 7 In February, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"), which becomes effective for NeoMedia for the year ended December 31, 1997. FAS 128 replaces the presentation of primary earnings per share with a presentation of basic earnings per share which excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted earnings per share is computed similarly to fully diluted earnings per share pursuant to Accounting Principles Board Opinion No. 15, "Earnings Per Share." FAS 128 also requires dual presentation of basic and diluted earnings per share on the face of the income statement for all entities with complex capital structure and requires a reconciliation of the numerator and denominator of the basic earnings per share computation to the numerator and denominator of the diluted earnings per share computation. For the six and three months ended June 30, 1997, basic and diluted earnings per share would have been $(.47) and $(.28), respectively. CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject NeoMedia to concentrations of credit risk consist primarily of trade accounts receivable with customers. Credit risk is generally minimized as a result of the large number and diverse nature of NeoMedia's customers which are located throughout the United States. NeoMedia extends credit to its customers as determined on an individual basis and has included an allowance for doubtful accounts of $124,000 and $216,000 in its June 30, 1997 and December 31, 1996 consolidated balance sheets, respectively. NeoMedia had net sales to one major customer in the telecommunications industry of $3,982,000 and $2,016,000 during the six months ended June 30, 1997 and 1996, respectively, resulting in trade accounts receivable of $1,869,000 and $2,507,000 as of June 30, 1997 and December 31, 1996, respectively. Revenue generated from the remarketing of computer equipment has accounted for a significant percentage of NeoMedia's revenue. Such sales accounted for 72.9% and 57.5% of NeoMedia's revenue for the six months ended June 30, 1997 and 1996, respectively. 3. FINANCING AGREEMENTS Technologies entered into an agreement with a commercial finance company that provides short-term financing for certain computer hardware and software purchases. Under the agreement, there are generally no financing charges for amounts paid within 30 or 45 days, depending on the vendor used to source the product. Borrowings are collateralized by accounts receivable generated from the sales of merchandise to NeoMedia's customers and are personally guaranteed by certain shareholders of NeoMedia. As of June 30, 1997 and December 31, 1996, amounts due under this financing agreement included in accounts payable were $3,181,000 and $2,275,000, respectively. 4. BENEFIT FOR INCOME TAXES The benefits for income taxes recorded during the six and three months ended June 30, 1997 and 1996 represented the recovery of income taxes paid in prior years from the carryback of operating losses. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AS COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996 GENERAL. Total net sales for the six months ended June 30, 1997 were $11.8 million, which represented a $2.9 million or 33%, increase from $8.9 million for the six months ended June 30, 1996. This increase primarily resulted from a $3.5 million increase in equipment resales. Cost of sales for the six months ended June 30, 1997 were $10.5 8 million, which represented a $3.3 million increase from $7.2 million for the six months ended June 30, 1996. This increase primarily resulted from a $3.1 million increase in the cost of equipment resales. During the first quarter of 1996, NeoMedia decided to invest in the infra-structure needed to manage current and expected future growth. The total of general, administrative, sales, marketing, research and development expenses increased $2.0 million to $3.9 million for the six months ended June 30, 1997 from $1.9 million during the six months ended June 30, 1996. This increase primarily resulted from NeoMedia investing in the expansion of its infra-structure by hiring management, sales and other personnel to develop, market and sell new products. Using a portion of the proceeds from the Initial Public Offering ("IPO"), NeoMedia intends to continue to expand its development, sales and marketing positions to increase revenue in each of its three business units: Document Systems Solutions Unit, Systems Transition Solutions Unit and Intelligent Document Solutions Unit. The result of these activities was a net loss for the six months ended June 30, 1997 of $2.5 million as compared to a net loss of $303,000 during the six months ended June 30, 1996. LICENSE FEES. License fees for the six months ended June 30, 1997 were $335,000 compared to $460,000 for the six months ended June 30, 1996, a decrease of $125,000 or 27.1%. This decrease resulted primarily from the decrease in sales of existing software transition tools during the second quarter of 1997. Cost of sales for license fees consisted primarily of fees paid to an independent software developer for one of the existing software transition tools. Cost of sales as a percentage of related sales was 41.4% during 1997 compared to 30.3% during 1996. This increase in the cost of sales as a percentage of related sales was primarily due to the increased sales, as a percentage of total sales, in the software transition tool where fees are paid to an independent software developer. SOFTWARE RESALES. Software resales decreased by $225,000, or 11.0%, from $2.1 million for the six months ended June 30,1996 to $1.8 million for the six months ended June 30, 1997. This decrease primarily resulted from the discontinuation at the end of 1996 of PRS software sales which contributed $746,000 to sales for the six months ended June 30, 1996 and the $200,000 decrease in resales of UNIX client server administrative software, partially offset with the $778,000 increase in resales of software for micro-mainframe computers. Cost of sales as a percentage of related sales was 87.7% during 1997 compared to 67.2% during 1996. This increase in the cost of sales as a percentage of related sales was primarily due to the discontinuation of PRS software sales with its lower cost as a percentage of sales and the increase in resales of software for micro-mainframe with its higher cost as a percentage of sales. EQUIPMENT RESALES. Equipment resales increased by $3.5 million, or 68.8%, to $8.6 million for the six months ended June 30, 1997, as compared to $5.1 million for the six months ended June 30, 1996. This increase primarily resulted from equipment resales related to Sun Microsystems workstations and servers which increased $3.4 million (primarily due to increased resales to NeoMedia's largest customer -- see Note 2 of Unaudited Notes to Consolidated Financial Statements - Concentrations of Credit Risk) and IBM Corporation equipment which increased $591,000 (primarily due to IBM enhancing its line of 390 micro-mainframe computers to include the S390). These increases were partially offset with a $500,000 one-time shipment of desktop printers to a major customer in 1996. Cost of sales as a percentage of related sales was 86.9% during 1997, compared to 86.4% during 1996. SERVICE FEES. NeoMedia's service fees decreased by $218,000, or 17.5% to $1.0 million for the six months ended June 30, 1997, compared to $1.2 million for the six months ended June 30, 1996. This decrease was primarily due to the $472,000 decrease in services supplied in conjunction with the sales of existing software transition tools, partially offset with $261,000 increase in consulting fees for assisting companies to integrate printers. Cost of service fees as a percentage of related sales increased to 88.7% during 1997 from 74.1% during 1996 primarily due to reduction in the utilization of NeoMedia's system integrators. AMORTIZATION OF SOFTWARE. Amortization of software for the six months ended June 30, 1997, as compared to the six months ended June 30, 1996, increased $26,000 as a result of the amortization of software costs capitalized 9 during 1997 and 1996, and as a percentage of total net sales, decreased to 2.6% during 1997 from 3.2% during 1996 due to the increase in net sales. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased $781,000, or 97.5%, to $1.6 million for the six months ended June 30, 1997, from $802,000 for the six months ended June 30, 1996. This increase was due mainly to NeoMedia building its administrative infra-structure, including compensation and related expenses and legal and professional fees, to manage current and expected future growth. SALES AND MARKETING. A portion of the compensation to the sales and marketing staff constitutes salary and is fixed in nature and the rest of this compensation is directly related to sales volume. Sales and marketing expenses increased $886,,000, or 90.8%, to $1.9 million for the six months ended June 30, 1997 from $973,000 for the six months ended June 30, 1996, as a result primarily of hiring managers to direct current and expected future growth. NeoMedia anticipates that sales and marketing costs will increase as NeoMedia grows. RESEARCH AND DEVELOPMENT. During the six months ended June 30, 1997, NeoMedia charged to expense 3.5% of total net sales in research and development expenses as compared to 1.4% during the six months ended June 30, 1996. This percentage increase was due to an increase in the number of software developers employed by NeoMedia to expand its products lines. NeoMedia currently intends to continue to make significant investments in research and development. INTEREST EXPENSE, NET. Interest expense consists primarily of interest paid to creditors as part of financed purchases, capitalized leases and NeoMedia's asset-based collateralized line of credit. Interest expense decreased by $164,000, or 75.9%, to $52,000 for the six months ended June 30, 1997 from $216,000 for the six months ended June 30, 1996, due to the repayment of debt in the fourth quarter of 1996 and interest income earned on the proceeds from the IPO. BENEFIT FOR INCOME TAXES. The benefits for income taxes recorded during the six months ended June 30, 1997 and 1996 represented the recovery of income taxes paid in prior years from the carryback of operating losses. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AS COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1996. GENERAL. Total net sales for the three months ended June 30, 1997 were $7.3 million, which represented a $3.5 million, or 92%, increase from $3.8 million for the three months ended June 30, 1996. This increase primarily resulted from a $2.7 million increase in equipment resales and a $1.0 million increase in software resales. Cost of sales for the three months ended June 30, 1997 were $6.6 million, which represented a $3.5 million increase from $3.1 million for the three months ended June 30, 1996. This increase primarily resulted from a $2.4 million increase in the cost of equipment resales and a $1.0 million increase in the cost of software resales. During the first quarter of 1996, NeoMedia decided to invest in the infra-structure needed to manage current and expected future growth. The total of general, administrative, sales, marketing, research and development expenses increased $1.1 million to $2.1 million for the three months ended June 30, 1997 from $981,000 for the three months ended June 30, 1996. This increase primarily resulted from NeoMedia's investing in the expansion of its infra-structure by hiring management, sales and other personnel to develop, market and sell new products. The result of these activities was a net loss for the three months ended June 30, 1997 of $1.5 million as compared to a net loss of $344,000 during the three months ended June 30, 1996. LICENSE FEES. License fees for the three months ended June 30, 1997 were $117,000 compared to $301,000 for the three months ended June 30, 1996, a decrease of $184,000 or 61.1%. This decrease resulted primarily from the decrease in sales of existing software transition tools. Cost of sales for license fees consisted primarily of fees paid 10 to an independent software developer for one of the existing software transition tools. Cost of sales as a percentage of related sales was 65.4% during 1997 compared to 30.6% during 1996. This increase in the cost of sales as a percentage of related sales was primarily due to the increased sales, as a percentage of total sales, in the software transition tool where fees are paid to an independent software developer. SOFTWARE RESALES. Software resales increased by $1.0 million, or 130.2%, from $769,000 for the three months ended June 30, 1996 to $1.8 million for the three months ended June 30, 1997. This increase resulted primarily from $1.3 million of resales of software for micro-mainframe computers while there were no resales of such software during the same period in 1996. This increase was partially offset with the discontinuation at the end of 1996 of PRS software sales which contributed $155,000 to sales for the three months ended June 30, 1996 and the $162,000 decrease in resales of UNIX client server administrative software. Cost of sales as a percentage of related sales was 88.1% during 1997 compared to 69.8% during 1996. This increase in the cost of sales as a percentage of related sales was primarily due to the discontinuation of PRS software sales with its lower cost as a percentage of sales and the increase in resales of software for micro-mainframe with its higher cost as a percentage of sales. EQUIPMENT RESALES. Equipment resales increased by $2.7 million, or 123.1%, to $4.9 million for the three months ended June 30, 1997, as compared to $2.2 million for the three months ended June 30, 1996. This increase primarily resulted from equipment resales related to Sun Microsystems work stations and servers which increased $1.3 million (primarily due to increased resales to NeoMedia's largest customer) and IBM Corporation equipment which increased $1.4 million (primarily due to IBM enhancing its line of 390 micro-mainframe computers to include the S390). Cost of sales as a percentage of related sales was 86.9% during 1997, compared to 84.3% during 1996. SERVICE FEES. NeoMedia's service fees consisting of sales from consulting, education and postcontract support services decreased by $49,000, or 9.6%, to $454,000 for the three months ended June 30, 1997, compared to $503,000 for the three months ended June 30, 1996. This decrease primarily resulted from the $109,000 decrease in services supplies in conjunction with the sales of existing software transition tools, partially offset with $78,000 increase in consulting fees for assisting companies to integrate printer. Cost of service fees as a percentage of related sales increased to 115.0% during 1997 from 92.0% during 1996 primarily due to the reduction in the utilization of NeoMedia's system integrators. AMORTIZATION OF SOFTWARE. Amortization of software for the three months ended June 30, 1997, as compared to the three months ended June 30, 1996, increased $21,000 as a result of the amortization of software costs capitalized during 1997 and 1996, and, as a percentage of total net sales, decreased to 2.2% during 1997 from 3.7% during 1996 due to the increase in net sales. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased $409,000, or 98.2%, to $827,000 for the three months ended June 30, 1997, from $418,000 for the three months ended June 30, 1996. This increase was due mainly to NeoMedia building its administrative infra-structure, including compensation and related expenses and legal and professional fees, to manage current and expected future growth. SALES AND MARKETING. Sales and marketing expenses have increased $554,000, or 109.9%, to $1.1 million for the three months ended June 30, 1997 from $504,000 for the three months ended June 30, 1996, as a result primarily of hiring managers to direct current and expected future growth. NeoMedia anticipates that sales and marketing costs will increase as NeoMedia grows. RESEARCH AND DEVELOPMENT. During the three months ended June 30, 1997, NeoMedia charged to expense 3.2% of total net sales in research and development expenses as compared to 1.6% during the three months ended June 30, 1996. This percentage increase was due to an increase in the number of software developers employed by NeoMedia to expand its product line. NeoMedia currently intends to continue to make significant investments in research and development. 11 INTEREST EXPENSE, NET. Interest expense decreased by $71,000, or 63.8%, to $41,000 for the three months ended June 30, 1997 from $112,000 for the three months ended June 30, 1996, due to the repayment of debt in the fourth quarter of 1996 and interest income earned on the proceeds from the IPO. BENEFIT FOR INCOME TAXES. The benefit for income taxes recorded during the three months ended June 30, 1996 represented the recovery of income taxes paid in prior years from the carryback of operating losses. No benefit for income taxes was recorded during the three months ended June 30, 1997. LIQUIDITY AND CAPITAL RESOURCES Since inception, NeoMedia has financed its operation through shareholder loans and borrowings from a commercial bank and under a line of credit. In December, 1995 and in January, 1996, in several series of transactions between affiliates, funds were loaned and borrowed pursuant to promissory notes bearing interest at the rate of 8% per annum. In June, 1996, a shareholder lent additional funds to NeoMedia. In October, 1996, this shareholder contributed $738,000 of these notes to additional paid-in capital. In December, 1996 and February, 1997, NeoMedia repaid in full the balance of all of these related party loans. Also, in January, 1996, NeoMedia borrowed $250,000 from a commercial bank bearing interest at the bank's prime rate plus 0.5%. During 1995, NeoMedia had available a line of credit with a commercial bank that permitted borrowings up to the lesser of $2.0 million or 80% of eligible accounts receivable, as defined in the financing agreement. The line of credit had an interest rate equal to the bank's prime rate plus 1.0%. The line of credit was collateralized by accounts receivable and inventories, and required NeoMedia to maintain certain financial ratios. NeoMedia used this facility for funding its operations during 1995 and through the closing of the IPO shortly after which NeoMedia repaid in full the line of credit with its commercial bank. In November, 1996, NeoMedia completed its IPO receiving net proceeds of $5.7 million. In January, 1997, NeoMedia closed the IPO's over-allotment and received net proceeds of $1.3 million. As of June 30, 1997, NeoMedia's working capital was $2.5 million which represented a $2.4 million decrease from December 31, 1996. NeoMedia is currently in discussions with a number of financial institutions for a line of credit to replace the bank line repaid in November, 1996, and enhance the line of credit with a commercial finance company. Net cash used in operating activities for the six months ended June 30, 1997 and 1996, was $1.9 million and $151,000, respectively. During 1997, trade accounts receivable increased $1.5 million, while accounts payable increased $1.6 million. During 1996, trade accounts receivables increased $795,000, while accounts payables increased $884,000. NeoMedia's net cash flow used in investing activities for the six months ended June 30, 1997 and 1996, was $1.0 million and $53,000, respectively. Net cash provided by financing activities for the six months ended June 30, 1997 and 1996, was $1.2 million and $526,000, respectively. During January 1997, NeoMedia sold the over-allotment of its Initial Public Offering receiving net cash proceeds of $1.3 million. 12 PART II -- OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The exhibits required by Item 601 of Regulation S-B to be filed herewith are as follows: Articles of Incorporation, By-laws, instruments defining the rights of holders, including indentures, and material contracts have heretofore been filed with the Securities and Exchange Commission and are hereby incorporated by reference to NeoMedia's Registration Statement and Exhibits thereto (SEC registration number 333-5534), Form 10-KSB for the year ended December 31, 1996, and Form 10-QSB for the three months ended March 31, 1997. 10.51 Letter Agreement by and between Dominick & Dominick, Incorporated and NeoMedia Technologies, Inc. Dated March 20, 1997 10.52 Agreement for Implementation of Symbol Licensed Software Materials by and between Symbol Technologies, Inc. and NeoMedia Technologies, Inc. Dated April 29, 1997 10.53 Master Reseller Agreement by and between United States Check Company, Inc. and NeoMedia Technologies, Inc. Dated June 16, 1997 (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended June 30, 1997. 13 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NEOMEDIA TECHNOLOGIES, INC. --------------------------- Registrant Date AUGUST 1, 1997 By: /s/ CHARLES W. FRITZ ------------------------------ Charles W. Fritz, President, Chief Executive Officer and Chairman of the Board Date AUGUST 1, 1997 By: /s/ CHARLES T. JENSEN ------------------------------ Charles T. Jensen, Vice President, Chief Financial Officer, Treasurer and Director 14 EXHIBIT INDEX SEQUENTIAL EXHIBIT PAGE NUMBER NUMBER DOCUMENT - ----------- ------ -------- 16 10.51 Letter Agreement by and between Dominick & Dominick, Incorporated and NeoMedia Technologies, Inc. Dated March 20, 1997 20 10.52 Agreement for Implementation of Symbol Licensed Software Materials by and between Symbol Technologies, Inc. and NeoMedia Technologies, Inc. Dated April 29, 1997 35 10.53 Master Reseller Agreement by and between United States Check Company, Inc. and NeoMedia Technologies, Inc. Dated June 16, 1997 45 27.1 Article 5 Financial Data Schedule for June 30, 1997 15 EX-10.51 2 NeoMedia Technologies, Inc. Exhibit 10.51 Letter Agreement by and between Dominick & Dominick, Inc. and NeoMedia Technologies, Inc. Dated March 20, 1997 16 [LOGO] DOMINICK& DOMINICK INCORPORATED MEMBER PRINCIPAL EXCHANGES FINANCIAL SQUARE 32 OLD SLIP NEW YORK, NY 10005 TEL 212 558 8800 FAX 212 797 5268 March 20, 1997 Mr. Charles W. Friz Chairman, Chief Executive Officer & President NeoMedia Technologies, Inc. 2201 Second Street Suite 600 Ft. Myers, FL 33901 Dear Chas: You have requested that Dominick & Dominick, Incorporated ("Dominick") act as a non-exclusive financial advisor for NeoMedia Technologies, Inc.("NMT"), on an on-going basis. We have had certain discussions concerning our role as NMT's financial advisor and, in this regard, we are pleased to confirm the following: 1. Dominick will act as financial advisor for NMT. 2. In its capacity as financial advisor, Dominick will be available to advise NMT on investment banking and other matters such as mergers, acquisitions, joint ventures, potential public and private financings, bank borrowings, licensing and other business arrangements. 3. As part of its on-going financial advisory relationship, Dominick will be available to provide merger and acquisition or joint venture advisory services for NMT. In the event NMT uses Dominick's advisory services or sources and (a) acquires in excess of 25% of the stock or assets of another entity, or (b) another entity acquires in excess of 25% of the stock or assets of NMT, Dominick shall be entitled to its normal merger and acquisition fee of 3% of the total value of such transaction. Should NMT and such a merger or acquisition candidate undertake a sales, licensing, joint venture or other similar transaction which does not involve a merger or acquisition, NMT and Dominick agree to negotiate an appropriate closing fee, which would be anticipated to be in the range of $150,000 to $500,000. Such fees shall be payable in cash at the time of the consummation of any such transaction, and will be covered in a separate agreement. [LOGO] DOMINICK& DOMINICK INCORPORATED Mr. Charles W. Fritz MEMBER PRINCIPAL EXCHANGES Page 2 March 20, 1996 4. As part of its financial advisory relationship, Dominick will seek, at appropriate times, to introduce NMT to sources that will consider providing financing to NMT. Should NMT use such financing sources, Dominick shall be entitled to its normal cash placement fee for such transactions. Typical fees, as a percentage of the fair market value of consideration raised, are 1% for bank financing; 6% for public or private debt financing; and 8% for equity offerings. Payments of financing fees are to be made in cash at closing. Specific financing fees will be covered in a separate agreement. 5. Fees described in paragraphs three and four herein shall be payable to Dominick for any transaction described therein with any party or entity with whom discussions were held during the term of this engagement who was introduced by Dominick, and which is consummated during the first six month period following any termination of this engagement. Such fees shall be 60% of the indicated amount if the transaction is closed in the second six months, 30% in the third six months, and 15% in the fourth six months following termination of this engagement. 6. Dominick will receive reimbursement for all of its reasonable out-of-pocket expenses incurred as a result of its activities for and on behalf of NMT, to be reimbursed within 30 days of invoice. 7. Dominick and/or its assigns will purchase for $200.00 a warrant to purchase 375,000 common shares of NMT immediately upon approval of this agreement by the NMT Board of Directors. The warrant is exercisable at $7.375 per share at any time at the holder's option until November 25, 2001, and shall be substantially subject to the terms of the warrants described in the NMT prospectus dated November 25, 1996. The holders of any shares received upon exercise of the warrant will have typical "piggy-back" registration rights at any time NMT files a registration statement. 8. NMT will pay Dominick for its financial advisory services, over and above any transaction consummation fees, an initial engagement fee of $15,000 upon execution of this agreement. Further, NMT agrees to pay Dominick a quarterly retainer fee of $15,000, payable at the start of each quarterly period, commencing May 1, 1997. NMT will pay a supplemental $5,000 fee at the start of each quarterly period in which NMT is scheduled to visit Dominick's European branch offices. 9. NMT shall not issue any press release, statement, notice, document or other instrument referring to or mentioning Dominick without Dominick's prior written approval, except as required by securities laws. [LOGO] DOMINICK& DOMINICK INCORPORATED Mr. Charles W. Fritz Page 3 MEMBER PRINCIPAL EXCHANGES March 20, 1996 10. As Dominick will be acting on NMT's behalf, NMT agrees to indemnify and hold harmless Dominick (including any afffliated companies and respective officers, directors, employees and controlling persons) from and against all claims, liabilities, losses, damages and expenses (including reasonable expenses of counsel) as they are incurred in connection with any proceeding, whether or not Dominick is a party thereto, relating to or arising out of such engagement or Dominick's role in connection therewith. NMT will not, however, be responsible for any such claims, liabilities, losses, damages or expenses to the extent that they result primarily from actions taken or omitted to be taken by Dominick in bad faith or from its or their gross negligence. The foregoing indemnification is effective immediately in respect of all events occurring or omitted prior to or after the date hereof. 11. This agreement shall be governed by the laws of the State of New York. 12. This agreement, excluding the warrant described in paragraph seven above and the indemnification described in paragraph ten above, may be canceled by either NMT or Dominick at any time by notification of termination in writing; provided that if Dominick terminates its activities hereunder before October 1, 1997, then the number of warrants to which Dominick shall be entitled shall be reduced to 187,500. We look forward to a long and mutually rewarding relationship and we are confident that we can assist NMT in various aspects of its business and its intended growth. Very truly yours, DOMINICK & DOMINICK INCORPORATED By:/s/ JOHN R. DOSS --------------------------- John R. Doss Executive Vice President The foregoing is agreed to and accepted, subject to approval by NMT's Board of Directors: NEOMEDIA TECHNOLOGIES, INC. /s/ MR. CHARLES W. FRITZ By:------------------------ Mr. Charles W. Fritz Chairman, Chief Executive Officer and President EX-10.52 3 NeoMedia Technologies, Inc. Exhibit 10.52 Agreement for Implementation of Symbol Licensed Software materials by and between Symbol Technologies, Inc. and NeoMedia Technologies, Inc. Dated April 29, 1997 20 ================================================================================ [LOGO] AGREEMENT FOR IMPLEMENTATION OF SYMBOL LICENSED SOFTWARE MATERIALS ATTACHMENTS: Schedule A - License Fees and Royalty Payments. Schedule B - Licensee's Products. - -------------------------------------------------------------------------------- COMPANY NAME: NEOMEDIA TECHNOLOGIES, INC. ADDRESS: 2201 SECOND STREET, SUITE 600 CITY, STATE, ZIP: FORT MYERS, FLORIDA 33091 PHONE: (941) 337-3434 FAX: (941) 337-3361 - -------------------------------------------------------------------------------- CONTRACT COORDINATORS: SELLER: ALAN MELLING PHONE: (215)343-8551 BUYER: ROBERT DURST PHONE: (941)337-3434 ================================================================================ Page 1 AGREEMENT FOR IMPLEMENTATION OF SYMBOL LICENSED SOFTWARE MATERIALS THIS AGREEMENT, entered into this__ day of April, 1997 by and between Symbol Technologies, Inc., a corporation duly organized and existing under the laws of the State of Delaware, having it principal place of business at One Symbol Plaza, Holtsville NY 11742, NY 11716 (hereinafter "Symbol"), and NeoMedia Technologies, Inc. a Delaware Corporation (hereinafter "Licensee"), having its principal place of business at: 2201 SECOND STREET SUITE 600 - -------------------------------------------------------------------------------- (Street Address) FORT MYERS, FLORIDA 33091 - -------------------------------------------------------------------------------- (City, State, Zip) THE PARTIES AGREE AS FOLLOWS: 1. DEFINITIONS 1.1 AFFILIATE shall mean, as to any party, any entity that directly or indirectly is under common control with that party, including a subsidiary or parent company of that party. 1.2 BACKUP REMEDY shall have the meaning set forth in Article 12. 1.3 CLAIM shall mean any and all claims, counterclaims, cross claims and the like for monetary or injunctive relief in respect to any alleged or proven injury (including bodily injury or death) in or before any court, administrative agency, or other forum having the legal power to adjudicate such disputes, and any and all demands not yet matured into one or more of the foregoing, with the exception in the case of an intellectual property infringement claim of a claim solely for contributory and/or inducement for infringement. 1.4 COMBINATION USE shall mean the Use of the Licensed Software in combination or in conjunction with any of the following: 1.) any software not provided by Symbol; or 2.) any apparatus, device or equipment not provided by Symbol; or; 3.) any activity beyond the scope of the License Activities or engagement in any Licensed Activities by any person other than Licensee. 1.5 CUSTOMER shall mean any entity to which Licensee sublicenses the Licensed Software in combination with the sale, lease, transfer or license of Licensee's Product(s). 1.6 DATE OF DELIVERY shall have the meaning set forth in Article 4.1 1.7 INFRINGEMENT CLAIM shall have the meaning set forth in Article 11.1 1.8 LICENSE ACTIVITIES shall have the meaning set forth in Article 2.1 1.9 LICENSE COMMENCEMENT DATE shall mean the date of execution of this Agreement by Symbol. 1.10 LICENSED DOCUMENTATION shall mean documentation relating to Licensed Software, if any, but shall include documentation that describes the data flows, data structures, and control logic of Licensed Software. 1.11 LICENSED SOFTWARE shall mean the PaperData Application Software including PaperData decoder, (including Secure Macro), PaperData encoder (including Secure Macro), PDF417 Encode, and PDF417 Decode software available from Symbol. 1.12 LICENSEE'S PRODUCT(S) shall mean either or both of: (i) Software Products, as defined in Exhibit B hereto, that Licensee creates and/or owns and Page 2 that Licensee utilized the Licensed Software to operate in conjunction with; or (ii) Hardware Products as defined in Exhibit B hereto, in which the Licensed Software is Used but is inaccessible directly to the user and can be used only in conjunction with the use of the hardware product. Licensee's Product(s), whether hardware or software, shall include a substantial portion of software code that performs functions that do not duplicate in any way the functions of the Licensed Software, Licensee's Product(s) shall not include a "tool kit" or software routine "library" wherein the Licensed Software is or would be licensed to Customers by Licensee for code incorporation into Customer's software programs to perform the functions of the Licensed Software alone, or where Licensee's Product(s) are comprised of minimal software code or hardware that adds no significant value to the Licensed Software above the value of the Licensed Software itself. 1.13 PHYSICAL MEDIA WARRANTY shall have the meaning set forth in Article 10.1 1.14 SYMBOL shall mean Symbol Technologies, Inc. and its subsidiaries and Affiliates. 1.15 SYMBOL TRADEMARK shall mean the trademark PaperData registered by Symbol in respect of software programs. 1.16 TERRITORY shall mean all countries. 1.17 USE shall mean copying any portion of the Licensed Software into a machine and/or transmitting such software to a machine for processing of the machine instructions or statements contained in such software. 1.18 DERIVATIVE WORKS shall mean any software program sufficiently based on the Licensed Software such that copying it without permission would infringe the copyright and violate the license under which the Licensed Software, is provided. Further, the Licensed Software, or appropriate subset thereof, shall be sufficiently embedded in the software program to prevent an End User from accessing the Licensed Software shall derive its primary functionality from operations that are fundamentally different from the functions of the embedded Licensed Software. 1.19 SPECIFICATIONS shall mean requirements for the Licensed Software operation, function, capabilities and performance and the Licensed Documentation to be delivered therewith. 1.20 IMPROVEMENTS shall mean improvements in function and/or performance made for or by NeoMedia to the Licensed Software, but excluding those functions in the Licensee's Products that perform functions that do not duplicate in any way the functions of the Licensed Software. 2. LICENSED GRANT 2.1 LICENSED GRANT Subject to the terms and conditions of this Agreement, Symbol hereby grants to Licensee, and Licensee hereby accepts an exclusive license in respect of the PaperData (including Secure Macro) software for a period of twelve (12) months from the first delivery and a non-exclusive license in respect of the PDF417 encoder and decoder software (the "License") solely in the Territory, under any and all intellectual property rights in such software owned or otherwise assertable by Symbol, to engage in the following License Activities and no others: (1) Use TWENTY (20) copies of the Licensed Software on Licensee owned or leased equipment solely for Licensee's business, software engineering or demonstration purposes, solely with Licensee's business or enginering data, but not including renting or leasing. Use of the Licensed Software on Licensee owned or leased equipment, such as, for example, timesharing arrangements or data services; and (2) sublicensing distribution of Licensed Software in accordance with the requirements of Article 16, only in executable form and only in combination with the sale, lease, transfer or license of Licensee's Product(s); and (3) creation of Improvements subject to Article 9 and/or Derivative Works; and (4) copying the License Software as necessary to engage in sublicensing distribution rights and making one copy for archival and backup purposes; (5) distributing reasonable quantities of the Licensed Software without incurring royalty payments to Symbol for Page 3 promotional purposes only. It is agreed that Licensee will be able to develop and/or market Licensee's Products in which software containing the Licensed Software will be distributed by Licensee free or at a nominal charge, with revenues realized from other components of the Licensee's Products, only after the parties have negotiated and agreed upon a new basis for royalty payments to Symbol for such Licensee's Products, which shall be based on a mutually agreed upon target price, reflective of the value delivered by the software containing the Licensed Software or any component thereof, in the overall Licensee's Product. 2.2 SYMBOL RIGHT TO USE. It is specifically understood and agreed to by Licensee, that notwithstanding any exclusive rights granted to Licensee hereunder, Symbol retains the rights to use, modify, upgrade and update the Licensed Software. 2.3 EXTENSION OF EXCLUSIVITY. At the end of the twelve months period the parties hereto will negotiate in good faith the terms for an extension of the exclusive license rights granted hereunder for additional terms. Nothing contained herein will be construed as an obligation on Symbol's behalf to extend the exclusive license granted herein for any additional terms. 2.4 SYMBOL TRADEMARK. Subject to the terms and conditions of this Agreement, Symbol hereby grants to Licensee an option for an exclusive license to use the Symbol Trademark as defined in Section 1.15 of this Agreement in connection with the marketing and sale of the Licensee Products (the "Option"). The Option expires at the end of ninety (90) days from execution of this agreement by Licensee. 2.5 NO OTHER RIGHTS GRANTED. Apart from the License rights enumerated in this Agreement, the License does not include a grant to Licensee of any right to engage in any other activity (including Combination Use under any Symbol intellectual property rights and use of any Symbol trademark or tradename other than as required herein), nor any ownership right, title, or interest, nor any security interest or other interest, in any intellectual property rights relating to the Licensed Software nor in any copy of any part of the Licensed Software. 2.6 LICENSED SOFTWARE AS CONFIDENTIAL INFORMATION. The Licensed Software and Licensed Documentation shall be deemed Confidential Information. 2.7 Symbol represents that the Licensed Software is copyrighted and published by Symbol and that any markings or notices thereon are proper and authorized. Licensee agrees to reproduce any proper and authorized Symbol copyright notice or other proprietary legend of Symbol appearing thereon that is not inconsistent with this Agreement and to include the same on all copies it makes in whole or in part, and in the case of object code software embedded in EPROM or other semiconductor memory, to include a copyright notice on a label on such product or the packaging or specifications therefor. Symbol's copyright or proprietary notice may appear in several forms, including machine-readable form and Licensee agrees to reproduce such notice in each form it appears, to the extent it is physically possible to do so. With reference to Derivative Works Licensee creates, if any, Licensee agrees to produce a proper and authorized Symbol copyright notice thereon in accordance with this Article 2.7. 2.8 The Licensed Software delivered hereunder and any copies made by Licensee, in whole or part, and all of Symbol's intellectual property rights in such software shall remain the property solely of Symbol. 3. TERM AND TERMINATION 3.1 TERM OF LICENSE. The License shall be in effect until termination of the Licensed Software copyright unless otherwise terminated in accordance with this Agreement. 3.2 TERMINATION. In case of a breach of this Agreement by either party, other party shall have the right, without limitation of any other right it may have on account of such failure, to terminate this Agreement and the License granted herein by giving the breaching party at least sixty (60) days' written notice of its intention, specifying the default; provided, however, that if, the breaching party remedies such failure during such sixty (60) day period, then this Agreement and the License granted herein shall not be terminated on the date specified in such notice. Page 4 3.3 EFFECT OF TERMINATION. Upon termination, neither party shall have further obligation to the other hereunder, except as provided in the Articles herein entitled "Confidential Information" and "Improvements", and Licensee shall return all copies of the Licensed Software in Licensee's possession or under Licensee's control to Symbol forthwith, and the license granted herein shall be automatically canceled, provided, however, Customer's of Licensee who have already received Licensee's Product(s) which incorporate Licensed Software shall be permitted to continue to use the Licensed Software, subject to the terms and conditions of the sublicense Agreement between the Customer and Licensee involving the Licensed Software. Symbol may terminate Customer's right to use the Licensed Software and sue Customer if Customer fails to comply with the terms of its sublicense Agreement with Licensee. 4. DELIVERY OF LICENSED SOFTWARE 4.1 DELIVERY OF LICENSED SOFTWARE PRODUCT. Unless the Licensed Software has already been provided for evaluation, within fifteen (15) days following the execution hereof by Symbol, Symbol shall ship the Licensed Software (source code and object code) to Licensee. The date on which delivery is deemed complete is referred to herein as the "Date of Delivery" and shall be the later of the actual date the Licensed Software is received by Licensee or the License Commencement Date. 4.2 LICENSED SOFTWARE TESTING BY LICENSEE. Licensee shall have sixty (60) days from the Date of Delivery to test and examine the Licensed Software to ensure it meets Licensee's requirements. If for any reason whatsoever Licensee determines within the sixty (60) day testing period that the Licensed Software does not meet its requirements, Licensee shall notify Symbol in writing of that fact and this Agreement shall thereafter be terminated. It is specifically agreed by both parties that in the case of termination of the Agreement under this clause, there will be no reimbursement to Licensee of the first one half ($125,000) of the initial License Fee paid in accordance with the Exhibit A of this Agreement. 4.3 ACCEPTANCE BY LICENSEE. Absent written notice of non-acceptance by Licensee, acceptance of the Licensed Software by Licensee shall be deemed to have occurred on the sixty first (61st) day after the Date of Delivery. Symbol will have 30 business days, commencing upon receipt by Symbol of such non-acceptance notice, specifying in detail why the Licensed Software does not materially conform to the Specifications, to cure the reported nonconformity. 5. LICENSE FEE AND ROYALTY PAYMENTS 5.1 PAYMENTS. For rights granted under this Agreement, Licensee shall pay an Initial License Fee and Running Royalty Payments, in the amounts and at the terms stated in Exhibit A hereto (the "Fee Schedule"). 5.2 ROYALTY STATEMENTS. Within sixty (60) days after the end of each calendar year, Licensee shall furnish to Symbol a written statement signed by an authorized representative of Licensee (the "Royalty Statement") identifying: 5.2.1 the number of Licensed Products with which the Licensed Software is distributed by Licensee during such period; 5.2.2 the per Licensed Product royalty for such products; 5.2.3 the net amount of the royalty payment based upon the Fee Schedule. 5.3 PAYMENT DUE. Within such sixty (60) days of the end of each year, Licensee shall pay to Symbol the Running Royalty Payment due in accordance with Exhibit A for sales made by Licensee in the year as shown on the Royalty Statement. 5.4 ADDITIONAL INFORMATION. Licensee shall furnish whatever additional information Symbol may reasonably prescribe from time to time to enable Symbol to ascertain the amounts of any payments due hereunder. 5.5 RECORDS. Licensee shall keep full, clear and accurate records sufficient to prepare statements to Symbol as required hereunder. 6. UPGRADE VERSIONS Page 5 During the term Licensee has the exclusive License rights to the Licensed Software under this Agreement, Symbol will offer to Licensee for no additional fee, copies of upgrade versions of the Licensed Software, if available from Symbol. Upon expiration of Licensee's exclusivity to the Licensed Software, such offers, if available, may be conditioned on Licensee paying a charge to Symbol in an amount determined by Symbol in its sole discretion. Any copy of an upgrade version provided by Symbol shall be deemed to be Licensed Software. Nothing contained in this provision shall be interpreted as an undertaking by Symbol to come up with any upgrade versions to the Licensed Software. 7. ASSISTANCE AND RIGHTS IN DATA Licensee agrees that Symbol may, without additional cost, use all suggestions, inventions, Improvements, and written materials furnished in connection with this Agreement by Licensee to Symbol relating or applying to the Licensed Software but excluding all suggestions, inventions, improvements and written materials furnished by Licensee to Symbol in connection with this Agreement in the Licensee's Products which perform functions that do not duplicate in any way the functions of the Licensed Software, and that Symbol may include the foregoing in any software or products and claim the copyright thereon as part of Symbol's overall copyright on any software or products, without accounting to the Licensee. 8. SOFTWARE SUPPORT 8.1 Symbol shall provide two (2) weeks of initial training at its Holtsville, New York facility for up to three (3) of Licensee's associates. 8.2 Symbol shall provide telephone support for a period of three months from first delivery of the Licensed Software to Licensee for no additional charge to Licensee. Following this period support services shall be available at Symbol's then current standard software support rates. 9. IMPROVEMENTS As part of this Agreement, without additional compensation, and notwithstanding any other provisions hereof and notwithstanding any terminations of this Agreement, Licensee hereby grants to Symbol (subject to the terms of this Agreement) a fully paid up, royalty free, perpetual, non exclusive license to use, make, have made and sell the Improvements and Symbol may include the Improvements in any software or products and claim the copyright thereon as part of Symbol's overall copyright on any software or products, without accounting to the Licensee. 10. LIMITED WARRANTIES AND REPRESENTATION, AND LIMITED REMEDIES, CONCERNING THE LICENSED SOFTWARE. SYMBOL PROVIDES THE WARRANTIES AND REPRESENTATION SET FORTH BELOW IN THIS ARTICLE 10 ("SYMBOL'S WARRANTIES"), AND NO OTHER WARRANTIES OR REPRESENTATIONS, WITH RESPECT TO THE LICENSED SOFTWARE. 10.1 PHYSICAL MEDIA WARRANTY. Symbol warrants that the Licensed Software will perform in accordance with the Specifications. Symbol further warrants to Licensee, subject to the warranty exclusions set forth in this Article 10, that each copy of the Licensed Software provided by Symbol is and will be free from physical defects in the media that tangibly embodies the copy (the "Physical Media Warranty"), for a period of ninety (90) days following the Date of Delivery. The Physical Media Warranty does not apply to defects arising from acts of non-Symbol personnel, misuse, theft, vandalism, fire, water, acts of God, or other peril. Licensee's sole remedy for breach of the Physical Media Warranty, TO THE EXCLUSION OF ALL OTHER REMEDIES THEREFOR, shall be replacement by Symbol of any copy provided by Symbol that does not comply with the warranty, at Symbol's expense, including shipping and handling costs. 10.2 DISCLAIMER OF ALL OTHER WARRANTIES AND REPRESENTATIONS. THE EXPRESS WARRANTIES AND REPRESENTATIONS SET FORTH IN THIS ARTICLE 10 ARE IN LIEU OF, AND SYMBOL DISCLAIMS, ANY AND ALL OTHER WARRANTIES, CONDITIONS, OR REPRESEN- Page 6 TATIONS (EXPRESS OR IMPLIED, ORAL OR WRITTEN), WITH RESPECT TO THE LICENSED SOFTWARE OR ANY PART THEREOF, INCLUDING ANY AND ALL IMPLIED WARRANTIES OR CONDITIONS OF TITLE. NON-INFRINGEMENT, MERCHANTABILITY, OR FITNESS OR SUITABILITY FOR A PARTICULAR PURPOSE OR ANY PURPOSE (WHETHER OR NOT SYMBOL KNOWS, HAS REASON TO KNOW, HAS BEEN ADVISED, OR IS OTHERWISE IN FACT AWARE OF ANY SUCH PURPOSE), WHETHER ALLEGED TO ARISE BY LAW, BY REASON OF CUSTOM OR USAGE IN THE TRADE, OR BY COURSE OF DEALING. IN ADDITION, SYMBOL EXPRESSLY DISCLAIMS ANY WARRANTY OR REPRESENTATION TO ANY PERSON OTHER THAN LICENSEE, INCLUDING CUSTOMERS, WITH RESPECT TO THE LICENSED SOFTWARE OR ANY PART THEREOF. 11. INTELLECTUAL PROPERTY INFRINGEMENT DEFENSE 11.1 In the event a Claim is brought against Licensee by third parties, other than Affiliates of Licensee, alleging that the Use or sublicense of the Licensed Software constitutes an infringement of a United States patent or copyright in existence as of the License Commencement Date (an "Infringement Claim"), Symbol shall defend such Claim so long as Symbol is notified promptly in writing by Licensee as to any such claim and is given full authority, information and assistance (at Symbol's expense) for the defense. In addition to Symbol's obligation to defend, Symbol shall pay all damages and costs (except consequential damages) awarded therein against Licensee. The obligations set forth above shall not, however, extend to products delivered hereunder which would give rise to a claim, suit, proceeding, finding or conclusion solely for contributory infringement or inducement of infringement. Symbol shall not be responsible for any compromise made by Licensee without its consent. Notwithstanding the foregoing, in the event of an Infringement Claim, Symbol's obligation under this paragraph shall be fulfilled, at Symbol's sole option and expense, if Symbol at any time: (i) obtains a license for Licensee to continue the use or sublicense the infringing product licensed from Symbol, or (ii) refunds the Initial License Fee and Royalty Payments paid to Symbol by Licensee for such infringing product less a reasonable amount for use, damage, or obsolenscence, and removes such product, or (iii) replaces or modifies the infringing product so as to be substantially functionally equivalent to the infringing product but non- infringing. Symbol shall have no further liability to Licensee for any Infringement Claim based on Licensee's use or transfer of the product delivered hereunder, incurred after Symbol's notice that Licensee shall cease use or transfer of such product due to such Claim. 11.2 Licensee agrees that in the event an Infringement Claim is made against Symbol as a result of Licensee's exercise of License Activities or Symbol's compliance with Licensee's particular design requirements, specifications or instructions, Licensee shall indemnify Symbol for any and all damages and costs, including, but not limited to reasonable attorney's fees, arising therefrom. 11.3 Licensee grants to Symbol the benefit of any license to Licensee under any patent which may be the subject of an infringement allegation hereunder, to the extent permitted by said license. 11.4 Symbol shall have no liability to Licensee under this Article to the extent any Infringement Claim is based upon the (i) Combination Use of Licensed Software, or (ii) use of Licensed Software delivered hereunder in a manner for which the same were not designed, or (iii) modification by Licensee of the Licensed Software delivered hereunder to the extent such modification is the cause of the claim or suit. EXCEPT AS STATED ABOVE, SYMBOL DISCLAIMS ALL WARRANTIES AND INDEMNITIES, EXPRESS, IMPLIED, OR STATUTORY, FOR PATENT OR COPYRIGHT INFRINGEMENT. 12. BACKUP REMEDY DEFINITION Page 7 TO THE EXCLUSION OF ALL OTHER REMEDIES AVAILABLE TO LICENSEE EXCEPT AS EXPRESSLY STATED OTHERWISE IN THIS AGREEMENT, AND EXERCISABLE ONLY IN CONNECTION WITH A TERMINATION OF THE LICENSE BY THE LICENSEE UPON A FAILURE OF OTHER REMEDIES FOR BREACH OF A WARRANTY OR COVENANT MADE BY SYMBOL, the "Backup Remedy" shall be for Symbol to pay Licensee (and/or credit against any amounts owed to Symbol by Licensee) the INITIAL LICENSE fEE to the extent paid or owed to Symbol and for Licensee to return the Licensed Software, all copies thereof and all Licensed Documentation to Symbol. 13. LIMITATION OF LIABILITY 13.1 EXCLUSION OF INCIDENTAL AND CONSEQUENTIAL DAMAGE. INDEPENDENT OF, SEVERABLE FROM, AND TO BE ENFORCED INDEPENDENTLY OF ANY OTHER ENFORCEABLE OR UNENFORCEABLE PROVISION OF THIS AGREEMENT, OTHER THAN FOR INFRINGEMENT OF ONE PARTY'S INTELLECTUAL PROPERTY RIGHTS BY ANOTHER PARTY (INCLUDING ANY ENGAGEMENT IN ACTIVITIES BY LICENSEE BEYOND THE SCOPE OF THE LICENSE ACTIVITIES) OR FOR BREACH OF A NONCOMPETITION COVENANT OR FOR INDEMNIFICATION BY LICENSEE OF SYMBOL FOR A CLAIM OF INTELLECTUAL PROPERTY INFRINGEMENT, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY (NOR TO ANY PERSON CLAIMING RIGHTS DERIVED FROM THE OTHER PARTY'S RIGHTS) FOR INCIDENTAL, CONSEQUENTIAL, SPECIAL, PUNITIVE, OR EXEMPLARY DAMAGES OF ANY KIND, INCLUDING LOST PROFITS, LOSS OF BUSINESS, OR OTHER ECONOMIC DAMAGE, AND FURTHER INCLUDING INJURY TO PROPERTY, AS A RESULT OF BREACH OF ANY WARRANTY OR OTHER TERM OF THIS AGREEMENT, REGARDLESS OF WHETHER THE PARTY ALLEGEDLY LIABLE WAS ADVISED, HAD OTHER REASON TO KNOW, OR IN FACT KNEW OF THE POSSIBLITY THEREOF. EACH PARTY ACKNOWLEDGES THAT THE FOREGOING SENTENCE REFLECTS AND INFORMED, VOLUNTARY ALLOCATION BETWEEN THE PARTIES OF THE RISKS (KNOWN AND UNKNOWN) THAT MAY EXIST IN CONNECTION WITH THIS AGREEMENT, THAT SUCH VOLUNTARY RISK ALLOCATION WAS A MATERIAL PART OF THE BARGAIN BETWEEN THE PARTIES, AND THAT THE ECONOMIC AND OTHER TERMS OF THIS AGREEMENT WERE NEGOTIATED AND AGREED TO BY THE PARTIES IN RELIANCE ON SUCH VOLUNTARY RISK ALLOCATION. 13.2 MAXIMUM AGGREGATE LIABILITY. INDEPENDENT OF, SEVERABLE FROM, AND TO BE ENFORCED INDEPENDENTLY OF ANY OTHER ENFORCEABLE OR UNENFORCEABLE PROVISION OF THIS AGREEMENT, IN NO EVENT SHALL SYMBOL'S AGGREGATE LIABILITY TO LICENSEE (INCLUDING LIABILIITY TO ANY PERSON OR PERSONS WHOSE CLAIM OR CLAIMS ARE BASED ON OR DERIVED FROM A RIGHT OR RIGHTS CLAIMED BY LICENSEE), WITH RESPECT TO ANY AND ALL CLAIMS AT ANY AND ALL TIMES ARISING FROM OR RELATED TO THE SUBJECT MATTER OF THIS AGREEMENT, IN CONTRACT, TORT, OR OTHERWISE, EXCEED THE AGGREGATE AMOUNTS PAID TO SYMBOL BY LICENSEE, PLUS INTEREST AS PROVIDED HEREIN, COMPUTED AS OF THE DATE OF ANY FINAL JUDGMENT AGAINST SYMBOL. 14. INDEMNITY AND DEFENSE OBLIGATIONS APPLICABILITY OF THIS ARTICLE. Other than the indemnity obligations set forth in Article 11, there shall be no other indemnity obligations or right to indemnification based on this Agreement. 15. CONFIDENTIAL INFORMATION 15.1 NO CONFIDENTIAL DISCLOSURE BY LICENSEE. The parties do not intend that Licensee will disclose to Symbol, and agree that Licensee will refrain from disclosing to Symbol, any information that Licensee regards as confidential. Licensee warrants that all information disclosed to Symbol by Licensee is or will be free of any obligation of confidence. Page 8 15.2 DEFINITION OF CONFIDENTIAL INFORMATION. AS USED IN THIS AGREEMENT, the term "Confidential Information" means THE CONFIDENTIAL INFORMATION AS DEFINED IN SECTION 2.6 HEREUNDER and information that is disclosed in writing or other tangible form to Licensee by Symbol or a person or entity having an obligation of confidence to Symbol (or, if disclosure is made orally, is reduced to or summarized in such a writing or other tangible form within thirty (30) days after such oral disclosure). 15.3 Licensee agrees to keep in confidence and prevent the disclosure to any unauthorized person or persons of ALL CONFIDENTIAL INFORMATION and all written information, documentation, or software which is designated by an appropriate stamp or legend by Symbol to be of a proprietary nature and is received from Symbol under the terms hereof (including, but not limited to, the source code version of the Licensed Software,) provided that Licensee shall not be liable for any use or disclosure of such information if the same: (1) was in the public domain or copyrighted as a published work at the time it was disclosed; or (2) was known to Licensee prior to the time of receipt from Symbol, without any restrictions on its disclosure and the same is reported in writing to Symbol within ten (10) days of disclosure; or (3) is disclosed with the prior written approval of Symbol; or (4) is made available to a third party by Symbol without restriction on its further dissemination by the third party; or (5) becomes known to Licensee from a source other than Symbol without direct or indirect obligation restricting its use or disclosure. (6) is disclosed in response to a valid order of a court or government body of the USA or any political subdivision thereof, provided however, that Licensee shall: (a) immediately notify Symbol of such order; and (b) first make a good faith effort as an interested party to such proceeding to obtain a protective order or similar provision requiring that the Confidential Information so disclosed be used only for the purpose for which such order was issued. 15.4 APPROPRIATE MEASURES. Licensee shall take all appropriate measures, by instruction, agreement or otherwise, with employees and persons permitted access to Confidential Information, including, but not limited to, the source code version of the Licensed Software, to enable Licensee to satisfy its obligations under this Agreement. Such appropriate measures shall include at least the same measures Licensee uses to protect its own Confidential Information. 16. SUBLICENSING DISTRIBUTION 16.1 SUBLICENSE AGREEMENTS. Licensee shall enter into only such forms of sublicense agreement with Customers that provide adequate protection for Symbol's intellectual property rights in the Licensed Software, as set forth herein. 16.2 Subject to the limitations of this Article 16, Licensee may use any form of sublicense agreement that provides the same or equivalent protection for Symbols's intellectual property rights in the Licensed Software as for Licensee's intellectual property rights in its own proprietary software distributed to the public; provided that Licensee shall include a statement granting Symbol the right to enforce the sublicense agreement against Customers. 16.3 Licensee shall limit license rights of Customer in its sublicense agreements in accordance with following restrictions; (1) no right for any Customer(s) to sublicense the Licensed Software shall be granted; and (2) Customer(s) shall only be permitted to Use the License Software within the Territory; and (3) Customer(s) shall only be permitted to make one backup and/or archival copy of the Licensed Software. Licensee's failure to include the foregoing limitations of rights in its sublicense agreements with Customer(s) shall be deemed a material breach of this Agreement 16.4 Any form of sublicense agreement used by Licensee for Licensed Software shall include a disclaimer of any warranty or representation made by Symbol to the sublicensee, an exlusion of incidental, consequential, special, punitive, or exemplary damage remedies against Symbol, and a limitation of Symbol's maximum liability substantially as set forth in this Agreement. 16.5 If at any time Symbol gives Licensee notice of circumstances that in Symbol's business Page 9 judgment make continued use of Licensee's form of sublicense agreement inappropriate to protect Symbol's intellectual property rights, then Licensee shall discontinue use of that form. 16.6 Licensee acknowledges that; (1) any review by Symbol and/or Symbol's counsel of any form of sublicense agreement is intended solely to protect Symbol's interests for Symbol's benefit; and (2) neither Symbol nor its counsel warrants or represents that any form of sublicense agreement will protect Licensee's interest or otherwise meet any particular standard of suitability; and (3) no attorney-client relationship is established between Licensee and Symbol's counsel by virtue of any such review. 16.7 Symbol shall have no right to object to pricing terms in any proposed form of sublicense agreement. 16.8 Any form of sublicense agreement used by Licensee for transactions that involve the Licensed Software with U.S. Government departments or agencies shall include a restricted-rights clause conforming to the Federal Acquisition Regulations (FARs) then in effect that apply to software developed entirely at private expense. 17. MISCELLANEOUS 17.1 ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement and understanding between the parties as to the subject matter hereof, and supersedes and replaces all prior or contemporaneous Agreements, written or oral, as to such subject matter. This Agreement may be changed only in a writing stating that is is an amendment to this Agreement, and signed by an authorized representative of each of the parties hereto. 17.2 RELATIONSHIP OF PARTIES. This Agreement does not constitute a partnership, joint venture or agency between the parties thereto, nor shall either of the parties hold itself out as such contrary to the terms hereof by advertising or otherwise, nor shall wither of the parties become bound or become liable because of any representation, action or omission of the other. 17.3 OPERATING SYSTEMS. Licensee hereby acknowledges its understanding that the Licensed Software is intended to be used with computer equipment manufactured by other parties and manufacturer provided operating systems, and that such computer equipment and operating systems software are not provided under this Agreement. Licensee is sole responsible for acquiring and maintaining such equipment and software, the utilization rights of such software, and for the overall effectiveness and efficiency of the operating environment in which Licensed Software is to function. Symbol does not make any representations, warranties, or understanding concerning the suitability, availability, or performance of any computer or operating system software for use with the Licensed Software provided hereunder. 17.4 OTHER AGREEMENTS. This Agreement has been expressly requested by Licensee from Symbol, and has been negotiated between the parties to include all those rights which Licensee, at the present time, requires from Symbol. Except as expressly set forth herein, this Agreement is not conditioned upon, and does not require or contemplate, Licensee to purchase or license from Symbol any additional software, hardware, laser scanners and/or related subassemblies or components, or entry into any other agreement with Symbol, such as for software maintenance or service. Licensee is free to manufacture, or contract with other manufacturers and suppliers, for the procurement of software, hardware, laser scanner, and/or related subassemblies or components, or maintenance services, subject to any applicable intellectual property rights of Symbol or third parties pertaining thereto. 17.5 NO OTHER PATENT LICENSES. Other than as specifically set forth herein, no right or license is granted by this Agreement, either expressly or by implication, estoppel, otherwise, under any Symbol patent, patent application, or patent right. 17.6 SEVERABILITY. Should any part or provision of this Agreement be held unenforceable or in conflict with the law of any jurisdiction, the validity of the remaining parts or provisions shall not be affected by such holding, provided the intent of the parties can be given effect except for immaterial matters. Page 10 17.7 WAIVER. Any waiver of a default or condition held by either party shall not be deemed a continuing waiver of such default of condition or a waiver of any other default or condition. 17.8 NON-ASSIGNABILITY. The parties acknowledge that his agreement is personal in nature and agree that this Agreement shall not be assigned by the other, in whole or in part. Any purported assignment of this Agreement or any interest therein without the other party's written consent shall be void. 17.9 CAPTIONS. The headings of articles, sections and other subdivisions hereof are inserted only for the purpose of convenient reference and it is recognized that they may not adequately or accurately describe the contents of the paragraphs which they head. Such headings shall not be deemed to govern, limit, modify or in any other manner affect the scope, meaning or intent of the provisions of this agreement or any part or portion thereof, nor shall they otherwise be give any legal effect. 17.10 APPLICABLE LAW. This Agreement shall be governed by, performed under and construed in accordance with the laws of the State of New York, without giving effect to the conflict of law principles thereof. 17.11 CHOICE OF FORUM. Each party hereby irrevocably and unconditionally submits for itself and its property in any legal action or proceeding relating to this Agreement or for recognition and enforcement of any judgment in respect thereof, to the exclusive general jurisdiction of the courts of the United States of New York, and the courts of America for the Eastern District of New York, and appelate courts for any thereof. It is agreed that the party intending to so initiate such proceedings, prior to instituting any action or proceeding, will first offer to the other party the opportunity to submit the dispute(s) to a mutually acceptable mediator for non-binding mediation. If (i) the party to whom the offer is made fails to accept such offer within seven days of its receipt, or (ii) if the parties are unable to resolve their dispute(s) following the nonbinding decision of the mediator, then, either party may, at is descretion, thereafter pursue any remedy, legal or quasi-legal, available to it. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date below: LICENSEE Page 11 SIGNATURE: /s/ ROBERT T. DURST, JR. DATE: 4/22/97 ------------------------- NAME: Robert T. Durst, Jr. TITLE: EVP/CTO SYMBOL TECHNOLOGIES, INC. SIGNATURE: /s/ TONO HAZMILOVIC DATE: 4/29/97 -------------------- NAME: Tono Hazmilovic TITLE: President/COO Page 12 EXHIBIT A LICENSE FEES AND ROYALTY PAYMENTS INITIAL LICENSE FEE Licensee shall pay an Initial License Fee in the amount of $250,000, out of which $125,000 shall be paid on the Date of Delivery of the Licensed Software and the additional $125,000 shall be paid upon the acceptance of the Licensed Software by Licensee as specified in Section 4.3 of the Agreement. In the event the Licensed Software does not materially perform in accordance with the Specifications, after Symbol has had the opportunity to cure the non-conformity, all as specified in said Section 4.3, any amount paid as the Initial License Fee will be reimbursed to Licensee by Symbol. RUNNING ROYALTY. Licensee shall pay a Running Royalty of 5% of the sale price of all Licensee Products. Page 13 EXHIBIT B LICENSEE'S PRODUCTS SOFTWARE 1. AUTOMATED RELATIONAL INDEXING APPLICATION. 2. WEBLINK APPLICATION. 3. PAPERDATA ANNOTATION APPLICATION HARDWARE NONE. Page 14 EX-10.53 4 NeoMedia Technologies, Inc. Exhibit 10.53 Master Reseller Agreement by and between United States Check Company, Inc. and NeoMedia Technologies, Inc. Dated June 16, 1997 35 MASTER RESELLER AGREEMENT AGREEMENT made this 16th day of June 1997 by and between United States Check Company, Inc. 2001 Jefferson Davis Highway, Suite 504, Arlington, Virginia 22202 (hereinafter called U.S. Check) and NeoMedia Technologies, Inc. 2201 Second Ave., Ft. Myers, Florida (herenafter called NeoMedia). WHEREAS, U.S. Check has developed and patented data processing and security enhancements for machine readable documents and NeoMedia desires to introduce these products into a defined "product area" and Territory in accordance with the terms and conditions hereof, Now, THEREFORE, it is mutually agreed: DEFINITIONS (1) The "Product Area" mean non-micr forms(paper)having pre-coated non-visible snippets for use in desktop or high speed laser printing of gift certificates and money orders. (2) The "Territory" is Worldwide. (3) U.S. Check's Price List of the Products is appended hereto as Schedule A. (4) "Subsidiary" means any organization in which a substantial interest is held directly or indirectly by another organization; "Parent" means any organization which holds, directly or indirectly, an interest in another organization; and "Affiliates" means Subsidiaries, Parents, and other organizations which have a parent or subsidiary in common with an organization. I. RIGHTS GRANTED (A) U.S. Check hereby appoints NeoMedia Technologies as the exclusive Master Reseller of the Products in the Product Area and Territory except as limited herein. During the term of this Agreement, U.S. Check agrees not to appoint any other such Master Resellers or sell blank non-micr documents for use as gift certificates and/or money orders in desk top or laser printing systems and further undertakes to refer to NeoMedia any leads concerning prospective customers of the Products which, directly, or indirectly, come to the attention of U.S. Check. (B) In return for such appointment, NeoMedia shall pay U.S. Check an appointment fee of Two Hundred Thousand Dollars ($200,000.00) the receipt of which is acknowledged by U.S. Check. II. SALES AND DISTRIBUTION AGREEMENTS (A) NeoMedia acknowledges that Bottomline Technologies, Inc. is the only other authorized purchaser of non-micr blank forms used in desk top and laser printing systems for money orders and gift certificates. Nothing in this agreement shall limit U.S. Check or Bottomline Technologies from using the U.S. Check products for gift certificates and/or money orders in the Product Area or Territory. U.S. Check will pay NeoMedia 25% of the royalty paid by Bottomline for products that can be readily idenfified as gift certificates or money orders. III. TERMS OF SALE TO NEOMEDIA U.S. Check agrees to sell the Products to NeoMedia at the published Price(s) in Exhibit A. U.S. Check agrees to give NeoMedia thirty (30) days' written notice of any price changes, and U.S. Check further agrees to FAX to NeoMedia any changes that might be critical to ongoing bids being submitted by NeoMedia to prospective customers. Sales from U.S. Check to NeoMedia will be against irrevocable letters of credit, payable forty-five (45) days after shipment, unless the parties mutually agree to some other terms of payment as being more appropriate in any particular transaction. IV. PERFORMANCE BY NEOMEDIA NeoMedia agrees to devote its best efforts to promote the sale of the Products in the Territory. Without limiting the generality of the foregoing, NeoMedia agrees: (A) To place an initial order for the Products, the particulars of which are set forth in Exhibit B hereto. (B) To develop, in reasonable stages, a technically qualified sales force and/or Value Added Resellers (VARs) for the Products in the Territory, affording U.S. Check an opportunity to appraise and approve the appointment of potential dealers, which approval will not be unreasonably withheld by U.S. Check. U.S. Check will not withhold approval unless there is strong indication that security of its technology will be breached. (C) In order to maintain the defined exclusivity of its appointment granted herein, NeoMedia agrees to purchase minimum quantities of the Products as follows, each year being measured from January 1st through December 31st. PERIOD MINIINUM NUMBER OF DOCUMENTS PURCHASED Calendar 1997 None Calendar 1998 None Calendar 1999 One million Calendar 2000 Three million Calendar 2001 Five million Calendar 2002 Ten million Calendar 2003 and beyond Ten million (D) For years three through ten of this Agreement if actual sales by NeoMedia are fifteen percent (15% lower than the specified minimums during two (2) consecutive years, U.S. Check will have the option of terminating NeoMedia's exclusive rights within sixty (60) days following the end of the second of those years, in all or part of the Territory. (E) NeoMedia agrees to sponsor an advertising and promotional campaign. The campaign will include participation by NeoMedia in at least one appropriate trade show during each calendar year of this Agreement, at which the U.S. Check's technology will be prominently featured. (F) NeoMedia agrees to send U.S. Check quarterly operating statements, in the form U.S.Check suggests, not later than five days following the end of each calendar quarter and after such results have been made public. In preparing these operating statements, NeoMedia will follow all reasonable requests for information made by U.S. Check. V. PERFOMANCE BY U.S. CHECK: U.S. Check agrees to support NeoMedia's marketing and sales activities. Without limiting the generality of the foregoing, U.S. Check agrees: (A) To make available to NeoMedia, free of charge, a reasonable quantity of Product literature and promotional material used by U.S. Check in the United States and Canada. NeoMedia is hereby authorized to reproduce or edit this literature and material, and to make needed translations thereof, as may be appropriate in the Territory, at NeoMedia's expense; U.S. Check will have the right to approve all such literature and material prior to its exposure to potential customers, which approval will not unreasonably be withheld. (B) To promptly answer any queries concerning the Products or applications thereof which NeoMedia may submit to U.S. Check in connection with the proposed marketing campaigns or contemplated sales. (C) To endeavor to make the Products to meet NeoMedia's orders, but U.S. Check nevertheless reserves the right to allot its production as it deems best. NeoMedia agrees that any failure to supply those amounts of Products which may be agreed upon from time to time, or making only part shipment, or no shipment at all, against any order of NeoMedia, will not make U.S. Check liable or responsible to NeoMedia except as provided for herein. In all orders greater than $10,000 NeoMedia shall accompany such order with a deposit equal to 25% of such order. In the event there are terms in a purchase order that U.S. Check cannot meet, U.S. Check shall notify Neomedia within five (5) business days to that effect. In the event the purchase order is acceptable the order shall be confirmed and it shall be U.S. Check's responsibility to deliver per the terms of the purchase order. (D) To the best of U.S. Check's knowledge there are no claims of infringement against U.S. Check relating to products being sold by US Check to NeoMedia. If ever in the future, U.S. Check receives nofification of any such claim(s), U.S. Check will notify NeoMedia as soon as possible. VI. TERM AND TERMINATION This Agreement will have a term of ten (10) years from the date hereof. Not less than ninety (90) days prior to the expiration of the term, U.S. Check and NeoMedia agree to review with NeoMedia the operations under this Agreement to determine whether, and under what terms, this Agreernent is to continue. (A) This Agreement can be terminated by either party if, 1) There is a judicial determination of insolvency or bankruptcy of either party except that NeoMedia shall have the right of first refusal to purchase U.S. Check's technology in the event of insolvency or bankruptcy or 2) The other party fails to comply in any material way with any of the provisions of this Agreement, provided the aggrieved party has served upon the other party at least 30 days' prior notice of such noncompliance. The party upon which notice has been served shall have thirty days thereafter to cure the breach provision. Example of material breaches are: 1) The lack of payment per terms, 2) Failure to meet minimum purchase requirements, 3) Failure to receive U.S. Check's approval of potential dealers and/or 4) Failure by U.S. Check to cure defective product shall be considered material breaches under this Agreement. No other breach shall be considered material unless such breach undermines U.S. Check's technology. (B) In the event of termination, (if it is not sooner terminated) U.S. Check will hereafter stand wholly freed and discharged, and NeoMedia hereby expressly releases and discharges U.S. Check and U.S. Check hereby expressly releases and discharges Neomedia of and from any and all obligations or liability whatsoever, whether arising hereunder or from, or in connection with, any manner or thing relating to, or in any manner connected with, the subject matter of this Agreement. The foregoing right of termination and the additional right of non-renewal at the end of the stated term are absolute, and neither U.S. Check nor NeoMedia will be liable to the other because of the termination or non-renewal hereof (whether with or without cause) for compensation, reimbursement, or damages on account of the loss of prospective profits on anticipated sales, or on account of expenditures, investments, leases, or commitments in connection with the business or good will of U.S. Check or the NeoMedia, or for any other reason whatsoever except that U.S. Check shall remain liable to NeoMedia for all damages and expenses, including fees and reasonable attorney costs, for claims of patent, trademark and service mark infringement relating to products sold by U.S. Check to NeoMedia. NeoMedia will not be relieved, however, of any obligations for unpaid balances for goods shipped hereunder prior to termination or expiration. (C) The termination of this Agreement will operate as a cancellation, as of the date thereof, of all orders which have not been shipped by U.S. Check to NeoMedia. Thereafter, neither party will be under any obligation to the other with respect to orders so canceled. (E) Upon termination of this Agreement for any reason, U.S. Check will have the right to elect to repurchase from NeoMedia any and all of NeoMedia's existing inventory of new and unused Products. The repurchase price to U.S. Check for new and unused Products will be the net price paid by NeoMedia, but not including freight and import duties. U.S. Check can also elect to repurchase sales samples of the Products that have been used by NeoMedia at a ten percent (10%) reduction of the net price originally paid by NeoMedia, provided those Products are, in the opinion of U.S. Check, in good re-sellable condition. VII. WARRANTY NeoMedia will not modify insofar as ink and pre-coded areas within snippets are concerned any of the Products without the specific written permission of U.S. Check, which permission will not unreasonably be withheld if such modifications would be important to meet market or legal requirements within the Product Area while, at the same time, not adversely affecting the performance of the Products. Any modifications to the Products performed in the Product Area by NeoMedia pursuant to this paragraph will fall outside U.S. Check's original manufacturer (printer) standard warranty, and will be the sole responsibility of NeoMedia. VIII. TRADE (A) U.S. Check hereby grants permission to NeoMedia to display the trademark "UV SMART" and/or "U.S. Check" in relation to the Products at NeoMedia's place of business and otherwise as may be appropriate to market and sell the Products provided the Notice of U.S. Check's ownership of these trademarks is expressed. (B) Whether or not U.S. Check succeeds in obtaining Registrations of any or all of the aforesaid trademarks in the Product Area, NeoMedia hereby acknowledges U.S. Check's proprietary rights therein and undertakes not to do anything, during or after the term of this Agreement, which could adversely affect such proprietary rights or the distinctiveness of the aforesaid trademarks. NeoMedia also agrees to obtain the prior written approval of U.S. Check for the manner in which NeoMedia displays the aforesaid trademarks at NeoMedia's place of business, at trade shows, and in Product literature. IX. BEST EFFORTS NeoMedia hereby acknowledges that its concentrated and best effort is essential if this Agreement is to realize the degree of success contemplated by the parties and NeoMedia agrees to exert such best efforts. X. ARM'S LENGTH RELATIONSHIP During the term hereof, the relationship between U.S. Check and NeoMedia is that of vendor and vendee. NeoMedia its agents, employees, and dealers, under no circumstances will be deemed to be agents or representatives of U.S. Check, nor will any of them have the right to enter into any contracts or commitments in the name of U.S. Check or otherwise to bind or commit U.S. Check. XI. CONFIDENTIALITY The parties hereto agree to keep strictly confidential, and to bind their respective directors, officers, and employees to like covenants, the terms of this Agreement and all matters relating thereto, and to the Products. All parties undertake not to disclose any of those terms or matters to any other person except as may be necessary for the furtherance of this Agreement. No party to this Agreement is authorized to disclose the terms and conditions of this Agreement to any third party without the express prior written consent of the other party. XII. ASSIGNABILITY AND SURVIVAL OF AGREEMENT This Agreement is not assignable by NeoMedia without the prior written permission of U.S. Check except to an entity controlled by NeoMedia. This Agreement will survive any change of ownership, status, merger, tranfer, assignment or acquisition. The new entity, under its new form, shall be responsible for the administration and execution of this Agreement in its entirety. XIII. FORCE MAJEURE Neither party will be in default hereunder by reason of its delay in the performance of or failure to perform any of its obligations hereunder if the delay or failure is caused by strikes, acts of God or the public enemy, riots, incendiaries, interference by civil or military authorities, compliance with governmental laws, rules, or regulations, delays in transit or delivery, inability to secure governmental priorities for materials, or any fault beyond its control or without its fault or negligence. XIV. ARBITRATION Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, will be settled by arbitration in accordance with the Rules of the American Arbitration Association, and the judgment upon the award rendered by the Arbitrator can be entered in any court having jurisdiction thereof. XV. GOVERNING LAW (A) This Agreement shall be interpreted in accordance with the laws of The District of Columbia, Washington, D.C. (B) If any provisions hereunder are illegal or unenforceable under the laws of the Territory, this Agreement will be otherwise unaffected unless U.S. Check, in its sole discretion, believes that the deletion of those provisions goes to the heart of this Agreement, in which event this Agreement will be terminable forthwith by U.S. Check. XVI. GENERAL PROVISIONS (A) This Agreement contains all the understandings and representations between the parties relating to the matters referred to herein, supersedes any arrangements previously entered into between them with respect thereto, and can be amended only by a written supplement, duly executed on behalf of the respective parties. (B) This Agreement will be binding upon Affiliates of NeoMedia. (C) No term or condition of this Agreement will ever be considered as waived unless reduced to writing and duly executed by an officer of the waiving party. Any waiver by either party of a breach of any term or condition of this Agreement will not be considered as a waiver of any subsequent breach of the Agreement or any other term or condition hereof. (D) The effective date of this Agreement will be that set forth in the beginning hereof, any approvals of any of the terms or conditions of this Agreement required by the laws of the Territory will be obtained by NeoMedia prior to that effective date. (E) The paragraph headings are for convenience only and will not, be deemed to affect in any way the language of the provisions to which they refer. (F) All notices will be sent to the last known address of the other party which have been communicated in writing and will be deemed to take effect five (5) days following the mailing thereof. Each party agrees to inform the other if they have availability of FAX and/or email, and if so, to furnish the appropriate FAX or email addresses. In this event, important notices will be transmitted via FAX or email, and they will be deemed to have been received upon acknowledgment thereof immediately following correct dispatch. IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized officers of the respective parties, as of the date first above written. NEOMEDIA TECHNOLOGIES, INC. ATTEST: By: /s/ CHARLES W. FRITZ ---------------------------- Charles W. Fritz /s/ ROBERT V. CHRISTIANSEN Title: PRESIDENT - ------------------------- ------------------------- Robert V. Christiansen UNITED STATES CHECK COMPANY, INC. By: /s/ ILLEGIBLE ATTEST: ---------------------------- /s/ ILLEGIBLE Title: VICE PRESIDENT - ---------------------- ------------------------- EXHIBIT A PRICE LIST -------------------- To Be Determined. Prices are dependent on volumes. In the event U.S. Check permits licensees to manufacture non-micr forms for sale to end users, NeoMedia shall be permitted to purchase such UV Smart enhanced forms from said authorized manufacturers. EXHIBIT B NEOMEDIA'S INITIAL ORDER ---------------------------------- To Be Determined EX-27 5
5 6-MOS DEC-31-1997 DEC-31-1996 JUN-30-1997 2,403 0 6,425 124 67 9,510 3,776 2,183 11,103 6,972 0 0 0 10,174 (7,024) 11,103 11,825 11,825 10,465 10,465 3,792 60 52 (2,544) (45) (2,499) 0 0 0 (2,499) (0.40) (0.40)
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