-----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, IPJo2wAh+I5fJ6EyW85DLhVWPO2D6YhQblbUTgDQwFyKQT5vXu8R3IXjxKAFOrXF pdDXStTJ1scxX0C8eGIQSQ== 0001016843-98-000302.txt : 19980511 0001016843-98-000302.hdr.sgml : 19980511 ACCESSION NUMBER: 0001016843-98-000302 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980508 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: SEC FILE NUMBER: 000-21743 FILM NUMBER: 98613106 BUSINESS ADDRESS: STREET 1: 2201 SECOND ST STE 600 STREET 2: STE 600 CITY: FORT MYERS STATE: FL ZIP: 33901 BUSINESS PHONE: 6303554404 MAIL ADDRESS: STREET 1: 2201 SECOND STREET STREET 2: SUITE 600 CITY: FORT MYERS STATE: FL ZIP: 33901 FORMER COMPANY: FORMER CONFORMED NAME: DEVSYS INC DATE OF NAME CHANGE: 19960911 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 MARCH 31, 1998 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 April 30, 1998, there were outstanding 8,575,156 shares of the issuer's Common Stock.
PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS MARCH DECEMBER ASSETS 31, 1998 31, 1997 -------- -------- (In thousands) Current assets: Cash and cash equivalents .................................... $ 9,097 $ 10,283 Trade accounts receivable, net of allowance for doubtful accounts of $221 and $191 ................................ 5,107 6,656 Amounts due from related parties ............................. 12 6 Inventories .................................................. -- 363 Prepaid expenses and other ................................... 552 562 -------- -------- Total current assets ..................................... 14,768 17,870 -------- -------- Property and equipment, net of accumulated depreciation .......... 673 651 Capitalized software costs, net of accumulated amortization ...... 1,312 1,278 -------- -------- Total assets ................................................. $ 16,753 $ 19,799 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ............................................. $ 2,361 $ 4,320 Accrued expenses ............................................. 957 931 Current portion of long-term debt ............................ 169 201 Other ........................................................ 453 306 -------- -------- Total current liabilities ................................ 3,940 5,758 -------- -------- Long-term debt, net of current portion ........................... 888 915 -------- -------- Total liabilities ........................................ 4,828 6,673 -------- -------- Shareholders' equity: Common stock, $.01 par value, 50,000,000 shares authorized, 8,384,732 and 8,295,291 shares issued and outstanding .... 84 83 Preferred stock. $.01 par value, 10,000,000 shares authorized, none issued and outstanding ........................... -- -- Additional paid-in capital ................................... 23,616 23,542 Accumulated deficit .......................................... (11,775) (10,499) -------- -------- Total shareholders' equity ............................... 11,925 13,126 -------- -------- Total liabilities and shareholders' equity ................... $ 16,753 $ 19,799 ======== ========
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 THREE MONTHS ENDED MARCH 31, ------------------------ 1998 1997 --------- ---------- (Dollars in thousands, except per share data) NET SALES: License fees ............................... $ 795 $ 319 Resales of software and technology equipment 3,966 3,760 Service fees ............................... 1,241 620 --------- ---------- Total net sales ........................ 6,002 4,699 --------- ---------- COST OF SALES: License fees ............................... 59 74 Resales of software and technology equipment 3,309 3,265 Service fees ............................... 511 402 Amortization of capitalized software costs . 103 146 --------- ---------- Total cost of sales .................... 3,982 3,887 --------- ---------- GROSS PROFIT ................................... 2,020 812 Sales and marketing expenses ................... 1,816 841 General and administrative expenses ............ 1,323 833 Research and development costs ................. 229 196 --------- ---------- Loss from operations ........................... (1,348) (1,058) Interest expense (income), net ................. (72) 12 --------- ---------- LOSS BEFORE INCOME TAXES ....................... (1,276) (1,070) Income tax expense (benefit) ................... -- (45) --------- ---------- NET LOSS ....................................... $ (1,276) $ (1,025) ========= ========== NET LOSS PER SHARE - BASIC AND DILUTED ......... $ (0.15) $ (0.16) ========= ========== Weighted average number of common shares ....... 8,310,850 6,397,785 ========= ========== The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements. 2
NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, --------------------- 1998 1997 -------- --------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ....................................................................... $ (1,276) $ (1,025) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization .............................................. 175 169 Provision for doubtful accounts ............................................ 80 30 Changes in operating assets and liabilities: Trade accounts receivable .............................................. 1,469 178 Other current assets ................................................... 367 19 Accounts payable and accrued expenses .................................. (1,933) (875) Other current liabilities .............................................. 147 177 -------- -------- Net cash used in operating activities .................................. (971) (1,327) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capitalization of software development costs and purchased software............. (110) (284) Acquisition of property and equipment .......................................... (121) (77) -------- -------- Net cash used in investing activities .................................. (231) (361) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of units ............................................ -- 1,315 Exercise of stock options ...................................................... 75 5 Repayment of advance to shareholder ............................................ -- (472) Proceeds from advance to shareholder ........................................... -- 472 Repayments on notes payable and long-term debt ................................. (59) (66) -------- -------- Net cash provided by financing activities .............................. 16 1,254 -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS ...................................... (1,186) (434) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................. 10,283 4,209 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD ....................................... $ 9,097 $ 3,775 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid .............................................................. $ 54 $ 42
The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements. 3 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS BASIS OF PRESENTATION The consolidated financial statements include the financial statements of NeoMedia Technologies, Inc. and its wholly-owned subsidiaries, NeoMedia Migration, Inc. ("Migration"), Distribuidora Vallarta, S.A. ("DVSA") incorporated in Guatemala, Allegiant Legacy Solutions, Inc. ("Allegiant")(which was merged into NeoMedia Technologies, Inc. in December 1997), NeoMedia Technologies Holding Company B.V. incorporated in the Netherlands, NeoMedia Technologies de Mexico S.A. de C.V. incorporated in Mexico, NeoMedia Migration de Mexico S.A. de C.V. incorporated in Mexico, NeoMedia Technologies do Brasil Ltd. incorporated in Brazil and NeoMedia Technologies UK Limited incorporated in the United Kingdom, and are collectively referred to as "NeoMedia" or the "Company". The consolidated financial statements of NeoMedia are presented on a consolidated basis for all periods presented. The merger with Allegiant on September 25, 1997 was accounted for as a pooling of interests, and accordingly, all financial information has been restated as if the entities were combined for all prior periods. All significant intercompany accounts and transactions have been eliminated in preparation of the consolidated financial statements. Foreign operations were not significant. 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, these 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 March 31, 1998 and December 31, 1997, and the results of operations for the three months ended March 31, 1998 and 1997, and cash flows for the three months ended March 31, 1998 and 1997. The results of operations for the three months ended March 31, 1998 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(TM) Solutions ("IDOCsTM") Unit, (ii) Document Systems Solutions Unit and (iii) Year 2000 / Migration Solutions Unit. The IDOCS UNIT assists clients in embedding active data elements in standard printed documents or on physical objects for the purpose of launching computer programs and creating automated links to the World Wide Web. NeoMedia has developed its own technology, and has rights to use the technology of others, to generate printed documents and enhance physical objects which can be automatically "read" by machines, such as computers equipped with scanners and appropriate software. These "machine readable" documents or physical objects incorporate printed codes which contain thousands of bytes of information, including computer programs rendering them functionally equivalent to a computer floppy disk. With this functionality, a user may access additional information about, assess validity of, or determine authenticity of, such document or object. These codes are referred to in the industry as "high capacity symbologies" and "multi-dimensional" or "two dimensional" bar codes and NeoMedia currently provides software and services to support the application of this technology. The DOCUMENTS SYSTEMS SOLUTIONS UNIT assists clients in optimizing the creation, production and management of printed documents and printed document processes. These efforts have historically focused on designing and providing complete, client specific, high speed and high volume document formatting and printing solutions. Recently, services of the Document Systems Solutions Unit have been expanded to include Integrated Document Factories ("IDF's"), a complete, client specific system solution for automating, monitoring and managing print-to-mail 4 processes. IDF's incorporate manufacturing principles and IDOCsTM technology, enabling clients not only to achieve maximum efficiencies in their print processes, but to also ensure document integrity and traceability. The YEAR 2000 / MIGRATION SOLUTIONS UNIT enables and assists clients to implement mass changes in computer software and hardware systems, such as (i) identifying, seeking and automatically correcting restrictive source and application fields which store data, including among other items, dates (adding two digits to a two-digit date field when four digits are required to correct the Year 2000 problem), stock prices (converting from a fractional to a decimal measurement system) and European currencies (converting to the new European Monetary Unit of Measure, commonly known as the "Eurodollar"), and (ii) conversions from closed, proprietary "legacy" systems to open systems. As part of the services provided in connection with the above solutions it offers, NeoMedia often recommends, specifies, supplies and installs equipment and software products from third-party software and hardware vendors, leading consulting firms and major system integrators, many of whom have strategic alliances with NeoMedia. 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 and Latin America which have not generated material sales), and currently has U. S. district offices located in Florida, Illinois, and Ohio. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REVENUE RECOGNITION License revenues represent revenue from the licensing of NeoMedia's proprietary software tools and applications products. NeoMedia licenses its development tools and application products pursuant to non-exclusive and non-transferable license agreements. Software and technology equipment resales represent revenue from the resale of purchased third party hardware and software products. Service fees represent revenue from consulting, education and post contract customer support services. Effective January 1, 1998, NeoMedia adopted the software license revenue recognition provisions of the American Institute of Certified Public Accountants ("AICPA") Statement of Position 97-2 "Software Revenue Recognition" ("SOP 97-2"), as amended, Specifically, license revenue is recognized if persuasive evidence of an agreement exists, delivery has occurred, pricing is fixed and determinable, and collectibility is probable. The impact of the adoption of SOP 97-2 was not material to NeoMedia's Consolidated Financial Statements. COMPREHENSIVE INCOME NeoMedia adopted the provisions of Financial Accounting Standards Board ("FASB") Statement of Accounting Standards No. 130 "Reporting Comprehensive Income" ("FAS 130") effective January 1, 1998. FAS 130 requires companies to report comprehensive income. Comprehensive income is defined as the change in equity of a business during a period from transactions and other events and circumstances from nonowner sources. During the three months ended March 31,1998, changes in NeoMedia's shareholders' equity consisted of its net loss and the exercise of stock options. Accordingly, comprehensive income as defined by FAS 130 was the net loss in the accompanying unaudited consolidated statement of operations. COMPUTATION OF LOSS PER SHARE Effective December 31, 1997, NeoMedia adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128") which replaces the presentation of primary earnings per share with basic earnings per share and which requires dual presentation of basic and diluted earnings per share on the Consolidated Statements of Operations. FAS 128 requires restatement of all prior period earnings per share data presented. Basic net earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period, and diluted net earnings per share includes the effect of unexercised stock options and warrants 5 using the treasury stock method. The treasury stock method assumes that common stock was purchased at the average market price during the period. Because the assumed exercise of stock options and warrants would have an antidilutive effect on the net loss per share for the three months ended March 31, 1998 and 1997, no exercise of stock options and warrants were assumed and diluted net loss per share was the same as basic net loss per share. 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 $221,000 and $191,000 in its March 31, 1998 and December 31, 1997 consolidated balance sheets, respectively. NeoMedia had net sales to one major customer in the telecommunications industry of $530,000 and $2,058,000 during the three months ended March 31, 1998 and 1997, respectively, resulting in trade accounts receivable of $399,000 and $3,116,000 as of March 31, 1998 and December 31, 1997, respectively. Revenue generated from the remarketing of software and technology equipment has accounted for a significant percentage of NeoMedia's revenue. Such sales accounted for 66.1% and 80.0% of NeoMedia's revenue for the three months ended March 31, 1998 and 1997, respectively. 3. BENEFIT FOR INCOME TAXES The benefits for income taxes recorded during the three months ended March 31, 1997 represented the recovery of income taxes paid in prior years from the carry back of operating losses. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AS COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1997 GENERAL. Total net sales for the three months ended March 31, 1998 were $6.0 million, which represented a $1.3 million, or 27.7%, increase from $4.7 million for the three months ended March 31, 1997. This increase primarily resulted from (i) a $1.2 million increase in sales of IBM S390 computer hardware, (ii) a $902,000 increase in sales of Year 2000 products including licenses and services, and (iii) a $626,000 increase in sales relating to the implementation of an integrated document factory. These increases were partially offset by a $1,528,000 decrease in sales to a NeoMedia customer in the telecommunications industry. The net loss for the three months ended March 31, 1998 was $1.3 million, which represented a $251,000, or 24.5%, increase from a $1.0 million loss for the three months ended March 31, 1997. The increase in the net loss primarily resulted from NeoMedia's continuing to invest in the infra-structure needed to manage current and expected future growth. The $1.4 million increase in the infra-structure costs during 1998 as compared to 1997 was partially offset with the increase in sales of the Year 2000 products which reduced losses by $754,000, and the increase in sales of the integrated document factory which reduced losses by $426,000. The total of general, administrative, sales, marketing, research and development expenses increased $1,498,000 to $3,368,000 for the three months ended March 31, 1998 from $1,870,000 during the three months ended March 31, 1997. 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. 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, Year 2000 / Migration Solutions Unit and Intelligent Document Solutions Unit. 6 LICENSE FEES. License fees for the three months ended March 31, 1998 were $795,000 compared to $319,000 for the three months ended March 31, 1997, an increase of $478,000 or 149.8%. This increase resulted primarily from the increase in sales of licenses of NeoMedia's Year 2000 proprietary software. 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 7.4% during 1998 compared to 23.1% during 1997. This decrease in the cost of sales as a percentage of related sales was primarily due to the increased sales of ADAPT/2000, which is proprietary software. RESALES OF SOFTWARE AND TECHNOLOGY EQUIPMENT. Resales of software and technology equipment increased by $206,000, or 5.5%, to $3,966,000 for the three months ended March 31, 1998, as compared to $3,760,000 for the three months ended March 31, 1997. This increase primarily resulted from equipment resales related to IBM's line of S390 micro-mainframe computers and was partially offset with the decrease in sales to a NeoMedia customer in the telecommunications business. Cost of sales as a percentage of related sales was 83.4% during 1998, compared to 86.8% during 1997. This decrease in the cost of sales as a percentage of related sales was primarily due to the sale of more S390 computers that have a higher profit margin. SERVICE FEES. NeoMedia's service fees increased by $621,000, or 100.1%, to $1,241,000 for the three months ended March 31, 1998, compared to $620,000 for the three months ended March 31, 1997. This increase was primarily due to a $341,000 increase in the Year 2000 services and the increase in consulting fees for integrated document factory services. Cost of service fees as a percentage of related sales decreased to 41.2% during 1998 from 64.8% during 1997 primarily due to higher margin on Year 2000 services. AMORTIZATION OF SOFTWARE. Amortization of software for the three months ended March 31, 1998, as compared to the three months ended March 31, 1997, decreased $43,000 as a result of certain migration software costs becoming fully amortized during 1997, and, as a percentage of total net sales, decreased to 1.7% during 1998 from 3.1% during 1997 due to the increase in net sales. SALES AND MARKETING. A portion of the compensation to the sales and marketing staff constitutes salary and is fixed in nature and the remainder of this compensation, which was paid as a commission, is directly related to sales volume. Sales and marketing expenses increased $975,000, or 115.9%, to $1,816,000 for the three months ended March 31, 1998 from $841,000 for the three months ended March 31, 1997, as a result primarily of hiring managers to direct current and expected future growth and increased commissions resulting from the increase in sales. NeoMedia anticipates that sales and marketing costs will increase as NeoMedia grows. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased $490,000, or 58.8%, to $1,323,000 for the three months ended March 31, 1998, from $833,000 for the three months ended March 31, 1997. This increase was due mainly to NeoMedia building its administrative infra-structure, which includes compensation and related expenses and legal and professional fees, to manage current and expected future growth. RESEARCH AND DEVELOPMENT. During the three months ended March 31, 1998, NeoMedia charged to expense 3.8% of total net sales in research and development expenses as compared to 4.2% during the three months ended March 31, 1997. This percentage decrease was due to a corresponding increase in the amount of software development costs that were capitalized during this period pursuant to FASB's Statement of Financial Accounting Standard No. 86. NeoMedia currently intends to continue to make significant investments in its development activities. INTEREST EXPENSE (INCOME), NET. Interest expense (income) consists primarily of interest paid to creditors as part of financed purchases, capitalized leases and NeoMedia's asset-based collateralized line of credit net of interest earned on cash equivalent investments. Interest expense (income) decreased by $84,000 to ($72,000) for the three months ended March 31, 1998 from $12,000 for the three months ended March 31, 1997, due to interest income earned on the proceeds from the warrants exercised in the fourth quarter of 1997. INCOME TAX EXPENSE (BENEFIT). The $45,000 benefit for income taxes recorded during the three months ended March 31, 1997 represented the recovery of income taxes paid in prior years from the carry back of operating losses. 7 LIQUIDITY AND CAPITAL RESOURCES As of March 31, 1998, NeoMedia's working capital was $10.8 million which represented a $1.3 million decrease from December 31, 1997. Net cash used in operating activities for the three months ended March 31, 1998 and 1997, was $971,000 and $1,327,000, respectively. During 1998, trade accounts receivable decreased $1.5 million, while accounts payable and accrued expenses decreased $1.9 million. During 1997, trade accounts receivables increased $178,000, while accounts payable and accrued expenses decreased $875,000. NeoMedia's net cash flow used in investing activities for the three months ended March 31, 1998 and 1997, was $231,000 and $361,000, respectively. Net cash provided by financing activities for the three months ended March 31, 1998 and 1997, was $16,000 and $1,254,000, respectively. In January, 1997, NeoMedia consummated the over-allotment of its initial public offering and received net proceeds of $1.3 million NeoMedia believes that its existing cash balances, funds expected to be generated from operations and available borrowings under its existing financing agreement, will be sufficient to finance NeoMedia's operations for the remainder of 1998. Thereafter, if NeoMedia has insufficient funds for its needs, there can be no assurance that additional funds can be obtained on acceptable terms, if at all. If necessary funds are not available, NeoMedia's business and operations would be materially adversely affected and in such event NeoMedia would attempt to reduce costs and adjust its business plan. PART II -- OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On March 27, 1998, NeoMedia held a Special Meeting of Stockholders at which the stockholders voted (i) on an amendment to NeoMedia's Certificate of Incorporation to increase the number of shares of authorized common stock, par value $.01, to 50,000,000 shares and to authorize the creation of 10,000,000 shares of preferred stock, par value $.01, and (ii) to approve the 1998 Stock Option Plan. The amendment to NeoMedia's Certificate of Incorporation and the 1998 Stock Option Plan were both approved. The number of votes cast was as follows: FOR AGAINST ABSTAINED --------- ------- --------- Amendment to Certificate of Incorporation... 5,727,510 216,797 9,412 1998 Stock Option Plan ..................... 5,676,322 264,857 12,540 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: 4.10 1998 Stock Option Plan as Amended (b) Reports on Form 8-K A Form 8-K dated February 9, 1998 was filed by NeoMedia reporting that NeoMedia dismissed Coopers & Lybrand L.L.P. and effective February 9, 1998 , engaged KPMG Peat Marwick LLP as its principal accountants. A Form 8-K dated March 27, 1998 was filed by NeoMedia reporting that NeoMedia's stockholders approved an amendment to NeoMedia's Certificate of Incorporation to increase the number of shares of authorized common stock , par value $.01, to 50,000,000 shares and to authorize the creation of 10,000,000 shares of preferred stock, par value $ .01, and approved the 1998 Stock Option Plan. 8 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 MAY 5, 1998 By: /s/ CHARLES W. FRITZ ----------------------- Charles W. Fritz, President, Chief Executive Officer and Chairman of the Board Date MAY 5, 1998 By: /s/ CHARLES T. JENSEN ----------------------- Charles T. Jensen, Vice President, Chief Financial Officer, Treasurer and Director 9 EXHIBIT INDEX SEQUENTIAL EXHIBIT PAGE NUMBER NUMBER DOCUMENT - ----------- ------- -------- 11 4.10 1998 Stock Option Plan as Amended 20 27.1 Article 5 Financial Data Schedule for March 31, 1998 10 EX-4.10 2 EXHIBIT 4.10 NeoMedia Technologies, Inc. Exhibit 4.10 1998 Stock Option Plan as Amended 11 NEOMEDIA TECHNOLOGIES, INC. 1998 STOCK OPTION PLAN AS AMENDED 1. PURPOSE OF THE PLAN This Stock Option Plan (the "Plan") is intended as an incentive to key employees, consultants and directors of NeoMedia Technologies, Inc. (the "Company") and its subsidiaries. The purpose of the Plan is to assist the Company in retaining its employees with a high degree of training, experience and ability, to attract new employees and consultants whose services are considered unusually valuable and to provide stock ownership opportunities to the members of the Board of Directors of the Company who are not employees of the Company or a subsidiary ("Nonemployee Directors"). 2. GENERAL PROVISIONS 2.1 Definitions As used in the Plan: (a) "Board of Directors" means the Board of Directors of the Company. (b) "Code" means the Internal Revenue Code of 1986, including any and all amendments thereto. (c) "Committee" means the options committee appointed by the Board of Directors from time to time to administer the Plan pursuant to Section 2.2. (d) "Common Stock" means the Company's Common Stock, $.01 par value. (e) "Participant" means a person to whom a Stock Option has been granted under the Plan. (f) "Rule 16b-3" means Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended from time to time, or any successor rule. (g) "Stock Option" means an option granted under the Plan. (h) "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of the granting of the Stock Option, each of the corporations other than the last corporation in the unbroken chain owns 50% or more of the total voting power of all classes of stock in one of the other corporations in such chain. 2.2 Administration of the Plan (a) The Plan shall be administered by the Committee which shall at all times consist of two (2) or more persons, each of whom shall be a member of the Board of Directors. Each member of the Committee shall be a disinterested person (as such term is defined in Rule 16b-3). The Board of Directors may from time to time remove members from, or add members to, the Committee. Vacancies on the Committee, howsoever caused, shall be filled by the Board of Directors. The Committee shall select one of its members as Chairman, and shall hold meetings at such times and places as it may determine. 12 (b) The Committee shall have the full power, subject to and within the limits of the Plan, to: (i) interpret and administer the Plan, and Stock Options granted under it; (ii) make and interpret rules and regulations for the administration of the Plan and to make changes in and revoke such rules and regulations (and in the exercise of this power, shall generally determine all questions of policy and expediency that may arise and may correct any defect, omission, or inconsistency in the Plan or any agreement evidencing the grant of any Stock Option in a manner and to the extent it shall deem necessary to make the Plan fully effective); (iii) determine those persons to whom Stock Options shall be granted and the number of Stock Options to be granted to any person; (iv) determine the terms of Stock Options granted under the Plan, consistent with the provisions of the Plan; and (v) generally, exercise such powers and perform such acts in connection with the Plan as are deemed necessary or expedient to promote the best interests of the Company. The interpretation and construction by the Committee of any provision of the Plan or of any Stock Option shall be final, binding and conclusive. Members of the Committee shall be subject to any additional restrictions necessary to satisfy the disinterested administration of the Plan as required in Rule 16b-3. (c) The Committee may act only by a majority of its members then in office; however, the Committee may authorize any one (1) or more of its members or any officer of the Company to execute and deliver documents on behalf of the Committee. (d) No member of the Committee shall be liable for any action taken or omitted to be taken or for any determination made by him or her in good faith with respect to the Plan, and the Company shall indemnify and hold harmless each member of the Committee against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Committee) arising out of any act or omission in connection with the administration or interpretation of the Plan, unless arising out of such person's own fraud or bad faith. 2.3 Effective Date The Plan shall become effective upon its adoption by the Board of Directors, and Stock Options may be granted upon such adoption and from time to time thereafter, subject, however, to approval of the Plan by affirmative vote of the holders of a majority of the shares of the Common Stock present in person or by proxy and entitled to vote at an annual meeting of the shareholders of the Company or at a special meeting of the shareholders of the Company expressly called for such purposes, or any adjournments thereof, within 12 months after the adoption of the Plan by the Board of Directors. If the Plan is not approved at such annual or special meeting or at any adjournments thereof, this Plan and all Stock Options previously granted thereunder shall become null and void. 2.4 Duration If approved by the shareholders of the Company, as provided in Section 2.3, unless sooner terminated by the Board of Directors, this Plan shall remain in effect for a period of ten (10) years following its adoption by the Board of Directors. 2.5 Shares Subject to the Plan The maximum number of shares of Common Stock which may be subject to Stock Options granted under the Plan shall be 8,000,000. The Stock Options shall be subject to adjustment in accordance with Section 5, as appropriate, and shares to be issued upon exercise of Stock Options may be either authorized and unissued shares of Common Stock or authorized and issued shares of Common Stock purchased or acquired by the Company for any purpose. If a Stock Option or portion thereof shall expire or is terminated, canceled or surrendered for any reason 13 without being exercised in full, the unpurchased shares of Common Stock which were subject to such Stock Option or portion thereof shall be available for future grants of Stock Options under the Plan. 2.6 Amendments The Plan may be suspended, terminated or reinstated, in whole or in part, at any time by the Board of Directors, provided however, that without the approval of NeoMedia's stockholders, no amendment shall be made which (i) increases the maximum number of shares of Common Stock which may be subject to stock options granted under the Plan, except for specified adjustment provisions, (ii) extends the term of the Plan, (iii) increases the period during which a stock option may be exercised beyond ten years from the date of the grant, (iv) materially increase the benefits accruing to participants under the Plan, (v) materially modifies the requirements as to eligibility for participation in the Plan, or (vi) will cause stock options granted under the Plan to fail to meet the requirements of Rule 16b-3. The Board of Directors may from time to time make such amendments to the Plan as it may deem advisable. Except as otherwise provided herein, termination or amendment of the Plan shall not, without the consent of a Participant, affect such Participant's rights under any Stock Options previously granted to such Participant. 2.7 Participants and Grants Stock Options may be granted by the Committee to (i) directors, officers and other full-time salaried employees of the Company and its Subsidiaries with managerial, professional or supervisory responsibilities and (ii) consultants and advisors who render bona fide services to the Company and its Subsidiaries, in each case, where the Committee determines that such officer, employee, consultant or advisor has the capacity to make a substantial contribution to the success of the Company. The Committee may grant Stock Options to purchase such number of shares of Common Stock (subject to the limitations of Sections 2.5) as the Committee may, in its sole discretion, determine. In granting Stock Options under the Plan, the Committee, on an individual basis, may vary the number of Stock Options as between Participants and may grant Stock Options to a Participant in such amounts as the Committee may determine in its sole discretion. 3. STOCK OPTIONS 3.1 General All Stock Options granted under the Plan shall be evidenced by written agreements executed by the Company and the Participant to whom granted, which agreement shall state the number of shares of Common Stock which may be purchased upon the exercise thereof and shall contain such investment representations and other terms and conditions as the Committee may from time to time determine. 3.2 Price The purchase price per share of Common Stock subject to a Stock Option shall be determined by the Committee which may be less than the fair market value on the date of grant. 3.3 Period The duration or term of each Stock Option granted under the Plan shall be for such period as the Committee shall determine but in no event more than ten (10) years from the date of grant thereof. 3.4 Exercise Stock Options may be exercisable at such time or times as the Committee shall specify when granting the Stock Options subject to satisfaction of all conditions for exercise recited herein and in the Option Agreement. Without limiting the foregoing, the Stock Options may not be exercised unless the Participant at the time of such 14 exercise shall have been in continuous employ of, or relationship with, the Company up to the date of exercise, subject to the other provisions herein. Once exercisable, a Stock Option shall be exercisable, in whole or in part, by delivery of a written notice of exercise to the Secretary of the Company at the principal office of the Company specifying the number of shares of Common Stock as to which the Stock Option is then being exercised together with payment of the full purchase price for the shares being purchased upon such exercise. Until the shares of Common Stock as to which a Stock Option is exercised are issued, the Participant shall have none of the rights of a shareholder of the Company with respect to such shares. 3.5 Payment The purchase price for shares of Common Stock as to which a Stock Option has been exercised and any amount required to be withheld, as contemplated by Section 6.1, may be paid: (a) In United States dollars in cash, or by check, bank draft or money order payable in United States dollars to the order of the Company; or (b) By the delivery by the Participant to the Company of whole "mature" shares of Common Stock ("mature shares" being defined as those having been owned and held by the Participant for a period equal to or in excess of six months) having an aggregate fair market value on the date of payment equal to the aggregate of the purchase price of Common Stock as to which the Stock Option is then being exercised; or (c) By a combination of both (a) and (b) above. The Committee may, in its discretion, impose limitations, conditions and prohibitions on the use by a Participant of shares of Common Stock to pay the purchase price payable by such Participant upon the exercise of a Stock Option. 3.6 Termination of Employment or Other Relationship (a) In the event a Participant's employment by, or relationship with, the Company shall terminate for any reason other than those reasons specified in Sections 3.6(b), (c), (d), (e) or (g) hereof while such Participant holds Stock Options granted under the Plan, then all rights of any kind under any outstanding Option held by such Participant which shall not have previously lapsed or terminated shall expire immediately. (b) If a Participant's employment by, or relationship with, the Company or its Subsidiaries shall terminate as a result of such Participant's total disability, each Stock Option held by such Participant (which has not previously lapsed or terminated) shall be exercisable by such Participant for a period of one year after termination but only to the extent the Option is otherwise exercisable during that period. For purposes of the foregoing sentence, "total disability" shall mean permanent mental or physical disability as determined by the Committee. (c) In the event of the death of a Participant, each Stock Option held by such Participant (which has not previously lapsed or terminated) shall be exercisable by the executor or administrator of the Participant's estate or by the person or persons to whom the deceased Participant's rights thereunder shall have passed by will or by the laws of descent or distribution, for a period of one year after such Participant's death but only to the extent the Option is otherwise exercisable during that period. 15 (d) In the case of a Participant who is an employee of the Company, if a Participant's employment by the Company shall terminate by reason of such Participant's retirement in accordance with Company policies, each Stock Option held by such Participant at the date of termination (which has not previously lapsed or terminated) shall be exercisable for a period of three (3) months after termination, but only to the extent the Option is otherwise exercisable during that period. (e) In the event the Company terminates the employment of a Participant who at the time of such termination was an officer of the Company and had been continuously employed by the Company during the two (2) year period immediately preceding such termination, for any reason except "good cause" (hereafter defined) and except upon such Participant's death, total disability or retirement in accordance with Company policies, each Stock Option held by such Participant (which has not previously lapsed or terminated and which has been held by such Participant for more than six (6) months prior to such termination) shall be exercisable for a period of three (3) months after such termination, but only to the extent the Option is otherwise exercisable during that period. A termination for "good cause" shall be deemed to have occurred only if the Participant in question (i) is terminated by written notice for dishonesty, because of his conviction of a felony, or because of his violation of any material provision of any employment or other agreement, written or oral, with the Company or any of its Subsidiaries, or (ii) shall voluntarily resign or terminate his employment with the Company or any of its Subsidiaries under or followed by such circumstances as would constitute a breach of any material provision of any employment or other agreement between him and the Company or any of its Subsidiaries, or (iii) shall have committed an act of dishonesty not discovered by the Company or any of its Subsidiaries prior to the cessation of his employment with the Company or any of its Subsidiaries, but which would have resulted in his discharge if discovered prior to such date, or (iv) shall, either before or after cessation of his employment with the Company or any of its Subsidiaries, without the written consent of the Company or any of its Subsidiaries, use (except for the benefit of the Company or any of its Subsidiaries) or disclose to any other person any confidential information relating to the continuation or proposed continuation of the business or any trade secrets of the Company of any of its Subsidiaries obtained as a result of or in connection with such employment. (f) Notwithstanding the foregoing, if at any time after termination a Participant engages in "detrimental activity" (as hereinafter defined), the Committee in its discretion may cause the Participant's right to exercise such option to be forfeited. If an allegation of detrimental activity by a Participant is made to the Committee, the exercisability of the Participant's options will be suspended for up to two months to permit the investigation of such allegation. For purposes of this section, "detrimental activity" means activity that is determined by the Committee in its sole and absolute discretion to be detrimental to the interests of the Company or any of its Subsidiaries, including but not limited to situations where such Participant: (1) divulges trade secrets of the Company, proprietary data or other confidential information relating to the Company or to the business of the Company and any Subsidiaries, (2) enters into employment with a competitor under circumstances suggesting that such Participant will be using unique or special knowledge gained as a Company employee to compete with the Company, (3) is convicted by a court of competent jurisdiction of any felony or a crime involving moral turpitude, (4) uses information obtained during the course of his or her employment for his or her own purposes, such as for the solicitation of business, (5) is determined to have engaged (whether or not prior to termination due to retirement) in either gross misconduct or criminal activity harmful to the Company, or (6) takes any action that harms the business interests, reputation, or goodwill of the Company and/or its subsidiaries. 16 (g) In the case of Stock Options granted to a nonemployee director who ceases to be a member of the Board of Directors, such Stock Options then held by such individual shall be exercisable within one year after such termination of service. 3.7 Effect of Leaves of Absence It shall not be considered a termination of employment when a Participant is on military or sick leave or such other type leave of absence which is considered as continuing intact the employment relationship of the Participant with the Company or any of its Subsidiaries. In case of such leave of absence, the employment relationship shall be deemed to have continued until the later of (i) the date when such leave shall have lasted ninety (90) days in duration, or (ii) the date as of which the Participant's right to employment shall have no longer been guaranteed either by statute or contract. 4. ASSIGNABILITY OF STOCK OPTIONS Stock Options granted under the Plan shall not be assignable or otherwise transferable by the recipient except by will or the laws of intestate succession, or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder. Otherwise, Stock Options granted under this Plan shall be exercisable during the lifetime of the Participant only by the Participant for his or her individual account, and no purported assignment or transfer of such Stock Options thereunder, whether voluntary or involuntary, by operation of law or otherwise, shall vest in the purported assignee or transferee any interest or right therein whatsoever but immediately upon any such purported assignment or transfer, or any attempt to make the same, such Stock Options thereunder shall terminate and become of no further effect. 5. REORGANIZATION AND RECAPITALIZATION OF THE COMPANY (a) The existence of this Plan and Stock Options granted hereunder shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalization, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. (b) Except as hereinafter provided, the issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services, either upon direct sale or upon exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Common Stock subject to Stock Options granted hereunder. (c) If, and whenever, prior to the delivery by the Company or a Subsidiary of all of the shares of Common Stock which are subject to the Stock Options or rights granted hereunder, the Company shall effect a subdivision or consolidation of shares or other capital readjustments, the payment of a stock dividend or other increase or reduction of the number of shares of the Common Stock outstanding without receiving compensation therefor in money, services or property, the number of shares subject to the Plan shall be proportionately adjusted and the number of shares with respect to which Stock Options granted hereunder may thereafter be exercised shall: 17 (i) in the event of an increase in the number of outstanding shares, be proportionately increased, and the cash consideration (if any) payable per share shall be proportionately reduced; and (ii) in the event of a reduction in the number of outstanding shares, be proportionately reduced, and the cash consideration (if any) payable per share shall be proportionately increased. (d) If the Company merges with one or more corporations, or consolidates with one or more corporations and the Company shall be the surviving corporation, thereafter, upon any exercise of Stock Options granted hereunder, the Participant shall, at no additional cost (other than the option price, if any) be entitled to receive (subject to any required action by stockholders) in lieu of the number of shares as to which such Stock Options shall then be exercisable the number and class of shares of stock or other securities to which the Participant would have been entitled pursuant to the terms of the agreement of merger or consolidation, if immediately prior to such merger or consolidation the Participant had been the holder of record of the number of shares of Common Stock of the Company equal to the number of shares as to which such Stock Options shall be exercisable. Upon any reorganization, merger or consolidation where the Company is not the surviving corporation, the Committee shall have the right to make all outstanding options vest and be exercisable immediately, by giving notice to each holder thereof or his or her personal representative and by permitting the exercise for a period not to exceed ninety (90) days from the date of such determination by the Committee. Upon liquidation or dissolution of the Company, all outstanding options shall be cancelled. 6. MISCELLANEOUS PROVISIONS 6.1 Withholding The Company's obligations under this Plan shall be subject to applicable federal, state and local tax withholding requirements. Federal, state and local withholding tax due at the time of a grant or upon the exercise of any Stock Option may, in the discretion of the Committee, be paid in shares of Common Stock already owned by the Participant or through the withholding of shares otherwise issuable to such Participant, upon such terms and conditions as the Committee shall determine. If the Participant shall fail to pay, or make arrangements satisfactory to the Committee for the payment, to the Company of all such federal, state and local taxes required to be withheld by the Company, then the Company shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to such Participant an amount equal to any federal, state or local taxes of any kind required to be withheld by the Company. 6.2 Compliance with Law and Approval of Regulatory Bodies No Stock Option shall be exercisable and no shares will be delivered under the Plan except in compliance with all applicable federal and state laws and regulations including, without limitation, compliance with all federal and state securities laws and withholding tax requirements and with the rules of the NASDAQ Small Cap Market and of all other domestic stock exchanges on which the Common Stock may be listed. Any share certificate issued to evidence shares for which a Stock Option is exercised may bear legends and statements the Committee shall deem advisable to assure compliance with federal and state laws and regulations. No Stock Option shall be exercisable and no shares will be delivered under the Plan, until the Company has obtained consent or approval from regulatory bodies, federal or state, having jurisdiction over such matters as the Committee may deem advisable. In the case of the exercise of a Stock Option by a person or estate acquiring the right to exercise the Stock Option as a result of the death of the Participant, the Committee may require reasonable evidence as to the ownership of the Stock Option and may require consents and releases of taxing authorities that it may deem advisable. 18 6.3 No Right to Employment Neither the adoption of the Plan nor its operation, nor any document describing or referring to the Plan, or any part thereof, nor the granting of any Stock Options hereunder, shall confer upon any Participant under the Plan any right to continue in the employ of the Company or any Subsidiary, or shall in any way affect the right and power of the Company or any Subsidiary to terminate the employment of any Participant at any time with or without assigning a reason therefore, to the same extent as might have been done if the Plan had not been adopted. 6.4 Exclusion from Pension Computations By acceptance of a grant of a Stock Option under the Plan, the Participant shall be deemed to agree that any income realized upon the receipt or exercise thereof or upon the disposition of the shares received upon exercise will not be taken into account as "base remuneration", "wages", "salary" or "compensation" in determining the amount of any contribution to or payment or any other benefit under any pension, retirement, incentive, profit-sharing or deferred compensation plan of the Company or any Subsidiary. 6.5 Abandonment of Options A Participant may at any time abandon a Stock Option prior to its expiration date. The abandonment shall be evidenced in writing, in such form as the Committee may from time to time prescribe. A Participant shall have no further rights with respect to any Stock Option so abandoned. 6.6 Severability as to Rule 16b-3 If any of the terms or provisions of the Plan conflict with the requirements of Rule 16b-3, then such terms or provisions shall be deemed inoperative to the extent they so conflict with the requirements of Rule 16b-3. 6.7 Interpretation of the Plan Headings are given to the Sections of the Plan solely as a convenience to facilitate reference. Such headings, numbering and paragraphing shall not in any case be deemed in any way material or relevant to the construction of the Plan or any provision hereof. The use of the masculine gender shall also include within its meaning the feminine. The use of the singular shall also include within its meaning the plural and vice versa. 6.8 Use of Proceeds Funds received by the Company upon the exercise of Stock Options shall be used for the general corporate purposes of the Company. 6.9 Construction of Plan The place of administration of the Plan shall be in the State of Florida, and the validity, construction, interpretation, administration and effect of the Plan and of its rules and regulations, and rights relating to the Plan, shall be determined solely in accordance with the laws of the State of Florida. 19 EX-27 3
5 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 9,097 0 5,107 221 0 14,768 4,560 2,575 16,753 3,940 0 0 0 23,700 (11,775) 16,753 6,002 6,002 3,982 3,982 3,288 80 (72) (1,276) 0 (1,276) 0 0 0 (1,276) (0.15) (0.15)
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