-----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, QLxTkG0h4ILHrH72D2/TpAzCTnVSyb/hkQMpIC7dkbyROwzhEiZzJKPtlcg096tq uahEEO+Lif0hvbf38qfVCw== 0001016843-00-000281.txt : 20000331 0001016843-00-000281.hdr.sgml : 20000331 ACCESSION NUMBER: 0001016843-00-000281 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 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: 10KSB40 SEC ACT: SEC FILE NUMBER: 000-21743 FILM NUMBER: 585730 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 10KSB40 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB (Mark One) [x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD ________ TO ________ . COMMISSION FILE NUMBER 0-21743 NEOMEDIA TECHNOLOGIES, INC. (NAME OF SMALL BUSINESS ISSUER 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 SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ------------------- COMMON STOCK, PAR VALUE $.01 NASDAQ SMALL CAP MARKET 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 [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB [X] Issuer's consolidated revenue for its most recent fiscal year was $25,256,000. The aggregate market value of the voting stock held by non-affiliates of the issuer based on the price at which shares of common stock closed on March 3, 2000 ($14.50) was $132,008,348. Determination of stock ownership by non-affiliates is made solely for purposes of responding to the requirements of the form and the registrant is not bound by this determination for any other purpose. As of March 3, 2000, there were outstanding 12,531,431 shares of the issuer's Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of Registrant's Proxy Statement for the 2000 Annual Meeting of Shareholders to be filed with the Commission within 120 days of the end of Registrant's last fiscal year is incorporated by reference into Part III. ================================================================================ PART I ITEM 1. BUSINESS GENERAL ORGANIZATIONAL HISTORY. The Registrant, NeoMedia Technologies, Inc. ("NeoMedia"), was incorporated under the laws of the State of Delaware on July 29, 1996, to acquire by tax-free merger Dev-Tech Associates, Inc. ("Dev-Tech"), NeoMedia's predecessor, which was organized in Illinois in December, 1989. In March, 1996, Dev-Tech's common stock was split, with an aggregate of 2,551,120 shares of common stock being issued in exchange for the 164 then issued and outstanding shares of common stock. On August 5, 1996, NeoMedia acquired all of the shares of Dev-Tech in exchange for the issuance of shares of NeoMedia's common stock to Dev-Tech's stockholders ("Dev-Tech Merger"). Each stockholder of Dev-Tech received one share of NeoMedia's common stock in exchange for one share of Dev-Tech's common stock. The Dev-Tech Merger was effected under applicable provisions of the Internal Revenue Code as a tax-free transaction to the corporations and stockholders. As a result of the Dev-Tech Merger, holders of options and warrants to purchase Dev-Tech's common stock have the right to purchase NeoMedia's common stock. As an additional result of the Dev-Tech Merger, NeoMedia is the successor to the business and operations of Dev-Tech. In November, 1996, a reverse stock split was effected whereby each NeoMedia shareholder received .90386 shares of common stock for each one share of common stock then owned. In November, 1996, Dev-Tech Migration, Inc., an Illinois corporation ("DTM") and an affiliate of Dev-Tech, was merged into a subsidiary of NeoMedia. DTM provided migration services. Migration services consist of adapting computer software that operates only with a specific brand of hardware and operating and data base software (called a "legacy system"), to operate with most, if not all brands of hardware and operating software (called an "open system platform" or an "open system environment"). Management determined that DTM's services complimented Dev-Tech's services as a systems integrator, and that the synergies between the two companies would be beneficial. Accordingly, on November 20, 1996, DTM was merged ("Migration Merger") into NeoMedia Migration, Inc. ("Migration"), a wholly-owned subsidiary of NeoMedia in exchange for the issuance of shares of NeoMedia's common stock to Charles W. Fritz, the sole stockholder of DTM and a principal shareholder, officer and director of NeoMedia. Mr. Charles Fritz received an aggregate of 827,525 shares of common stock on the basis of one share of DTM's common stock for .90386 share of NeoMedia's Common Stock. As a result of the Migration Merger, holders of options to purchase DTM common stock have the right to purchase NeoMedia's common stock. The Migration Merger was also effected under applicable provisions of the Internal Revenue Code as a tax free transaction to the corporations and Mr. Fritz. As a result of Migration Merger, Migration is the successor to the business and operations of DTM. 1 These two mergers were 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. In August, 1996, Distribuidora Vallarta, S.A., a Guatemalan corporation was formed where by NeoMedia employs computer software developers and system integrators. Distribuidora Vallarta, S.A. is 80% owned by NeoMedia Technologies, Inc. and 20% owned by NeoMedia Migration, Inc. On September 25, 1997, in accordance with a Stock Purchase Agreement (the "Allegiant Merger") entered into between the parties, NeoMedia acquired from George G. Luntz and Gerald L. Willis all of the stock in Allegiant Legacy Solutions, Inc. ("Allegiant"), which was founded on February 16, 1996. Allegiant primarily sells licenses to proprietary software tools (including "ADAPT/2000") that identify, seek and automatically correct date data that is stored in various formats across both program code and specific data files. Mr. Luntz and Mr. Willis received an aggregate of 1,070,000 shares of common stock of NeoMedia. The number of shares of NeoMedia's common stock received by Mr. Luntz and Mr. Willis was determined through arms-length negotiations between the parties. Mr. Luntz entered into an employment agreement with NeoMedia. Mr. Willis entered into a consulting agreement with NeoMedia. The Allegiant Merger 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. On December 22, 1997, Allegiant was dissolved and merged into NeoMedia. During 1998 NeoMedia formed the following wholly-owned subsidiaries: NeoMedia Technologies of Canada, Inc., incorporated in Canada; NeoMedia Tech, Inc., incorporated in Delaware; NeoMedia EDV GMBH, incorporated in Austria; 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 Brazil Ltd., incorporated in Brazil, and NeoMedia Technologies UK Limited, incorporated in the United Kingdom. All significant intercompany accounts and transactions have been eliminated in the preparation of the consolidated financial statements. BUSINESS OVERVIEW Since inception, NeoMedia has been helping customers and partners assimilate new technology without discarding their investment in programs and processes. To help accomplish these objectives, NeoMedia operates as two distinct business units: Application Service Provider (NeoMedia ASP) and Systems Integration Services (NeoMedia SI). NeoMedia ASP's mission is to become the world's leading provider of systems and services that link print and print on products to web-based information, while the mission of NeoMedia SI is to provide the highest level of expertise and customer satisfaction through the utilization of new technologies and to provide resources to fund the Company's investment in NeoMedia ASP. 2 NEOMEDIA ASP NeoMedia ASP was launched to commercialize NeoMedia's patented technology for seamlessly linking printed material to the internet. This technology has been developed over the past four years. Management believes this technology has the potential to provide the industry standard for linking the worlds of print and electronic media. The commercialization of products using this technology was begun during 1999. There are three groups of technology in the ASP business unit: (I) NeoLink/trademark/ (II) PaperData, and (III) NeoSure: (I) NEOLINK/trademark/ NeoLink/trademark/ is technology (formerly called Intelligent Documents or IDOCs) that allows the user to use a bar code, word, or numbers on a printed page or product (like UPC/EAN codes) to link to a specific webpage by either scanning the code or typing in the word or number. NeoLink/trademark/ automatically launches the users web browser and takes the user to that specific webpage without the user having to log on to the web and type in the URL or use of a search engine to find the webpage. The technology also allows the gathering of information identifying the document or product being scanned as well as information regarding the demographics of the user making the inquiry. This demographic information can be compiled and marketed to companies who want to know who is viewing their websites, and also provide for custom profile routing. NeoLink/trademark/ technology is used in the following products: PAPERCLICK SERVICE FOR PUBLISHERS AND ADVERTISERS PaperClick/trademark/ Service is a web-based virtual portal (www.paperclick.com) for publishers and advertisers. It allows them to create their own links to webpages and print a Paperclick code that consists of a number or word as well as a barcode. Users type the short PaperClick code or scan a Paperclick barcode to connect directly to Web-related information. Using PaperClick codes, publishers are able to extend printed story scope with links to interactive content, and at the same time, deliver display ads, classified ads, directories, or direct marketing material. Advertisers can provide to potential customers direct access to a Webpage that can provide more information on the product, provide instant e-commerce to buy the product or even show videos about the product. Demographic information can be compiled and marketed to the publishers and advertisers. 3 [GRAPHIC OMITTED] PAPERCLICK ENTERPRISE/trademark/ PaperClick Enterprise is the enhanced version of PaperClick featuring the ability to create an unlimited number of PaperClick codes. Profiled Routing allows publishers to tailor content according to reader profile information, control bar display options, and measure commercial effectiveness through Demographic Reporting. PAPERCLICK TOGO/trademark/ FOR CELL PHONES PaperClick ToGo (www.paperclick.com) provides direct access to the World Wide Web via cell phones and personal data assistants (PDAs) employing wireless markup protocol (WAP). PaperClick ToGo converts any URL address, regardless of length, into a short telephone number-like PaperClick code. Use of the shorter PaperClick numeric codes provides simple and direct access to the Internet from small hand held devices with limited keypads. PaperClick ToGo compliments Paperclick for Publishers and Advertisers, giving consumer a convenient way to access Internet information using cellular service. [GRAPHIC OMITTED] PAPERCLICK TOGO/trademark/ FOR PALM OS PaperClick ToGo for Palm OS allows convenient capture and storage of Paperclick codes on a Palm Pilot (or any Palm OS device) at any time or location. After returning to a PC, the codes automatically transfer at synchronization of the Palm Pilot. This freeware application is a standard Palm OS application that works with Graffiti and the Palm's pop-up keyboards, in addition to the built-in numeric keypad included on the main screen. [GRAPHIC OMITTED] (II) PAPERDATA/trademark/ PaperData/trademark/ is a technology that addresses the problem of converting a digital file into a print image while maintaining all of the attributes of the file. During the process of converting a digital file to a print image, valuable information regarding attributes of the data itself are lost, such as font specifications, file identifiers, spreadsheet formulas and database references. In order to access an original digital document, the reader must either copy the original file to digital media (a computer disk) and then distribute it, or transfer the file over a data network (email). The Paperdata technology allows users to directly embed a digital 4 data file via a barcode on a printed document. This document can then be transmitted as a piece of paper would. The new user can scan the barcode and the digital version of the document is launched. This technology makes it possible for barcodes on paper to act as computer disks. The preproduction design of PaperData/trademark/ is complete, but the production design and future commercialization has not yet occurred. (III) NEOSURE/trademark/ NeoSure/trademark/ is a technology for protecting negotiable printed commercial documents, such as checks, money orders, coupons, food stamps and gift certificates, from counterfeit and forgery. This patent-pending technology incorporates NeoMedia's NeoLink/trademark/ and PaperData/trademark/ technologies with U.S. Checks patented UV-Smart/trademark/ paper stock identification techniques and an on-line registration database. When used concurrently, this system verifies that a document is authentic, has not been modified and that the transaction has not been duplicated. The system can also be used to automate the processing of printed transactional documents, such as checks and gift certificates, as well as link documents to specific individuals for specific transactions in order to prevent unauthorized use. NeoMedia has filed several extensive patent applications on the use of NeoSure/trademark/ and other related technologies for linking, securing and promoting web-commerce from print media, such as coupons, catalogs and direct mail. The preproduction design of NeoSure/trademark/ is complete, but the production design and future commercialization has not yet occurred. Other products sold by the ASP unit include: PACER ADVANTAGE 2000 Pacer Advantage 2000 is a comprehensive Internet tool that automates customer profiling and ordering processes for multi-level marketing directors. Specifically, Pacer Advantage 2000 calculates the recommended quantity and shipping schedule for prospective customers then links the information to an e-Commerce site for initial order processing and automatic product replenishment. MAXICODE ENCODER/trademark/ MaxiCode Encoder/trademark/ is a software program developed by NeoMedia to enable high speed /high volume printers to generate industry standard Maxicode barcodes. PDF417 ENCODER/trademark/ PDF417 Encoder/trademark/ is a software program developed by NeoMedia to enable high speed/high volume printers to generate industry standard PDF417 barcodes. This product has been developed to deliver the smallest possible PDF417 barcode for any given data set. (This process is known as optimal encoding) 5 NEOMEDIA SI NeoMedia SI re-markets equipment and software products from third-parties, renders system integration services, provides proprietary software for document management and production systems, migrates programs and databases from closed system to open system platforms, and adds customized applications to an existing system platform. This business unit is establishing itself in the technology industry by working closely with customers and business partners in integrating new technologies while leveraging previous system infrastructure investments. The following products are offered by NeoMedia SI: SUN MICROSYSTEMS EQUIPMENT NeoMedia SI provides sales and support of UNIX/trademark/ based solutions. The company's broad product knowledge and unique relationship with Sun Microsystems provides outstanding benefits for customers. NeoMedia is the first Sun-Netscape Alliance Channel Partner in the Midwest U.S. region to receive Level III certification for the iPlanet suite of software products. IBM COMPUTER EQUIPMENT NeoMedia SI provides solutions in systems integration, e-business, server consolidation and business intelligence of IBM products. THE INTEGRATED DOCUMENT FACTORY/trademark/ (IDF) The IDF is a suite of software tools that apply modern manufacturing principles and process controls at large print-to-mail centers. The IDF integrates computer and printer hardware with software programs to coordinate and streamline the entire print production process from design customization through production, assembly and distribution. WISP/trademark/ (WANG INTERCHANGE SOURCE PROCESSOR) WISP is a software toolkit for converting WANG VS COBOL applications so they can be run on Microsoft Windows or UNIX computers. This toolkit enables users an alternative to manually changing the applications. CUSTOMERS NEOMEDIA ASP. NeoMedia ASP has several customers using its products and services, including Amway and the Mexico City Government. However, there is no one significant customer to date. The Company is aggressively pursuing numerous other opportunities for its products and services. 6 NEOMEDIA SI. Although NeoMedia SI provides services and products to a spectrum of customers, ranging from closely-held companies to Fortune 500 companies, for the years ended December 31, 1999 and 1998, one customer, Ameritech Services, Inc. ("Ameritech"), accounted for 23.9% and 24.9%, respectively, of NeoMedia SI's revenue. NeoMedia SI expects sales to Ameritech as a percentage of total sales to decline in the future. Furthermore, NeoMedia does not have a written agreement with Ameritech and, therefore, there are no contractual provisions to prevent Ameritech from terminating its relationship with NeoMedia at any time. Accordingly, the loss of this customer, or a significant reduction by it in buying the products and services offered by NeoMedia, absent diversification, would materially and adversely affect NeoMedia SI's revenues and results of operations. In addition, the equipment and software which is re-marketed to this customer is supplied by a single supplier. Accordingly, the loss of this supplier would materially adversely affect NeoMedia SI. For these reasons, NeoMedia SI is seeking, and continues to seek, to diversify its sources of revenue and vendors from whom it purchases. SALES AND MARKETING NEOMEDIA ASP. NeoMedia ASP markets its products and services primarily through its direct sales force, which was composed of 10 personnel as of December 31, 1999. NeoMedia ASP currently maintains a domestic sales office in New York, New York and international sales offices in Monterey, Mexico and Vienna, Austria. NeoMedia ASP has built an extensive network of resellers (both VARs and agents) that are trained to resell the Paperclick products and services. During 1999, an agent agreement was entered into with A.T. Cross Company ("Cross"). The agreement allows Cross to bundle NeoMedia's NeoLink/trademark/ technology products with Cross's pen/scan device. NeoMedia ASP is currently working on other partnerships and agent relationships to collectively supplement the Company's internal sales and marketing staff. During 1998, NeoMedia acquired a customer list for total consideration of $1,155,000, including 120,000 shares of NeoMedia common stock valued at $827,000 (giving effect to the common stock being unregistered and "restricted" securities as such term is defined in Rule 144 of the rules and regulations promulgated under the Securities Act of 1933, as amended) and cash of $292,000. Additionally, there were legal and other expenses of $36,000 that were related to this transaction. The customer list is intended to be used to develop relationships for the sale of the Company's ASP business unit products. The cost of the customer list is being amortized on the straight-line method over its estimated useful life of five years. NEOMEDIA SI. NeoMedia SI markets its products and services, as well as those for which it acts as a re-marketer, primarily through its direct sales force, which was composed of 14 personnel as of December 31, 1999. NeoMedia SI currently maintains a domestic sales office in suburban Chicago, Illinois. The sales organization is responsible for achieving quarterly and annual sales quotas. NeoMedia SI also relies upon its strategic alliances with industry leaders to help market its products and services, provide lead referrals and 7 establish informal co-marketing arrangements. Representatives of NeoMedia SI attend seminar and trade shows, both as speakers and participants, to help market its products and services. In addition, NeoMedia SI has several agents and independent distributors in the United States, and in foreign countries that sell its products and services. NeoMedia SI anticipates that the indirect sales channel will account for an increasingly significant portion of NeoMedia SI's total revenue in future periods. Successful indirect sales efforts depend on the abilities, resources, reputations, motivations and strategies of third parties over which NeoMedia SI has little control. NeoMedia SI does not sell all its products and services through each distribution channel. RESEARCH AND DEVELOPMENT NEOMEDIA ASP. NeoMedia ASP believes that its success in the internet environment depends upon its ability to quickly develop new products and services, as well as make enhancements to its existing products. NeoMedia ASP employed 19 and 12 persons in the area of product development as of December 31, 1999 and December 31, 1998, respectively. During the years ended December 31, 1999 and 1998, NeoMedia ASP incurred total research and development costs of $1,722,000 and $1,150,000, respectively, of which $807,000 and $626,000, respectively, were capitalized as software development costs and $915,000 and $524,000, respectively, were expensed as research and development costs. NEOMEDIA SI. All significant research and development relating to NeoMedia SI products was discontinued at the end of 1999 when the Company discontinued its Y2K business. All employees that were in this area were reassigned or released during the fourth quarter of 1999. If any future research or development is needed for this area it will be performed by NeoMedia ASP's research and development division or by outside subcontractors. During the years ended December 31, 1999 and 1998, NeoMedia SI incurred total research and development costs of $135,000 and $818,000, respectively, of which $64,000 and $273,000, respectively, were capitalized as software development costs and $71,000 and $545,000 respectively, were expensed as research and development costs. INTELLECTUAL PROPERTY RIGHTS All current intellectual property is related to the ASP business unit and is managed as a corporate resource. NeoMedia received its first patent from the U.S. Patent and Trademark Office in August 1999. The patent, number 5,933,829, was allowed for the process invented by the Company for "automatic access of electronic information through secure machine-readable codes on printed documents." The Company received its second patent, number 5,978,773, in November 1999. The patent was allowed for the broad and innovative process that allows familiar print media such as magazines, catalogs, advertisements, even product labels themselves, to become the user interface to the Web. NeoMedia's proprietary 8 technology based on these patents enables everyone, regardless of training or experience, to easily access the World Wide Web on the Internet. These two patents and their related proprietary technologies, along with other pending applications, enhance the use of the Internet for E-commerce by making it much more user friendly as well as secure. NeoMedia also has numerous other domestic and international patents and continuations pending in these and other related areas. NeoMedia relies upon its patents, copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions, all of which afford only limited protection, to protect its proprietary technology and products. Although NeoMedia takes steps to protect its trade secrets, such as requiring employees with access to NeoMedia's proprietary information to execute confidentiality and non-disclosure agreements, it may be possible for unauthorized parties to copy or reverse engineer all or part of any one of NeoMedia's proprietary technology and products. Furthermore, just as there can be no assurance that a misappropriation of NeoMedia's proprietary technology and products will not occur, there can be no assurance that copyright, trademark and trade secret laws will be available in all circumstances to protect NeoMedia's rights. In addition, although the laws of the United States may protect NeoMedia's proprietary rights in its technology and products, the laws of foreign countries where NeoMedia's products may be used may not protect its proprietary rights at all or to the same extent as the laws of the United States. NeoMedia believes that its proprietary technology and products do not infringe upon the rights of any third parties; however, there can be no assurance that a third party will not in the future claim infringement by NeoMedia. Similarly, infringement claims could be asserted against products and technologies which NeoMedia licenses from third parties. NeoMedia may provide some of its products to end users using non-exclusive, non-transferable licenses which provide that the licensee may use the software solely for internal operations on designated computers at specific sites or by a specified number of users. NeoMedia generally does not make source codes available for its products. Due to the difficulty of doing so, NeoMedia has never policed, nor has it ever attempted to police, the unauthorized use of its products. Even though piracy of NeoMedia's proprietary rights could materially adversely affect it, NeoMedia believes that the threat of piracy, or the unavailability of protection under applicable laws, is less significant to its competitive and financial well being than its ability to respond to the rapid change in technology which characterizes the computer industry. COMPETITION NEOMEDIA ASP. The markets in which NeoMedia ASP competes are relatively new. The Company does not believe that it has any significant competition in the area. There are companies that offer similar products but do not necessarily offer the same level of functionality or scalability. NeoMedia also has a significant portfolio of both invented and acquired patents to support its proprietary technologies and provide a barrier to entry for potential competitors. 9 NEOMEDIA SI. The largest competition, in terms of number of competitors, is for customers desiring systems integration, including the re-marketing of another party's products, and document solutions. These competitors range from the local, small privately held companies to the large national and international organizations, including the large consulting firms. A large number of companies act as re-marketers of another party's products, and therefore, the competition in this area is intense. In some instances, NeoMedia, in acting as a re-marketer, may compete with the original manufacturer. PRODUCT LIABILITY INSURANCE NeoMedia has never had any product liability claim asserted against it. However, NeoMedia could be subject to product liability claims in connection with the use of the products and services that it sells. There can be no assurance that NeoMedia would have sufficient resources to satisfy any liability resulting from these claims or would be able to have its customers indemnify or insure NeoMedia against such claims. Although NeoMedia maintains insurance against such claims, there can be no assurance that such coverage will be adequate in terms and scope to protect NeoMedia against material adverse effects in the event of a successful claim. GOVERNMENT REGULATION Existing or future legislation could limit the growth of use of the Internet, which would curtail our revenue growth. Statutes and regulations directly applicable to Internet communications, commerce and advertising are becoming more prevalent. Congress recently passed laws regarding children's online privacy, copyrights and taxation. The law remains largely unsettled, even in areas where there has been legislative action. It may take years to determine whether and how existing laws governing intellectual property, privacy, libel and taxation apply to the Internet, e-commerce and online advertising. In addition, the growth and development of e-commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad. Our website allows for the storage of demographic data from our users. The European Union recently adopted a directive addressing data privacy that may limit the collection and use of certain information regarding Internet users. This directive may limit our ability to collect and use information in certain European countries. In addition, the Federal Trade Commission and several state governments have investigated the use by certain Internet companies of personal information. We could incur significant additional expenses if new regulations regarding the use of personal information are introduced or if our privacy practices are investigated. ENVIRONMENTAL PROTECTION COMPLIANCE NeoMedia has no knowledge of any federal, state or local environmental compliance regulations which affect its business activities. NeoMedia has not expended any capital to comply with any environmental protection statutes and does not anticipate that such expenditures will be necessary in the future. 10 EMPLOYEES As of December 31, 1999, NeoMedia employed 88 persons. Of the 88 employees, 44 are located at the Company's headquarters in Fort Myers, FL, 30 at other domestic locations and 14 are located outside the United States. Of the 88 employees, 35 are dedicated to NeoMedia ASP, 29 are dedicated to NeoMedia SI, and 24 provide shared services used by both business units. None of NeoMedia's employees are represented by a labor union or bound by a collective bargaining agreement. NeoMedia believes that its employee relations are good. NeoMedia's success depends to a significant extent on the performance of its senior management and certain key employees. Competition for highly skilled employees, including sales, technical and management personnel, is intense in the computer industry. NeoMedia's failure to attract additional qualified employees or to retain the services of key personnel could materially adversely affect NeoMedia's business. SAFE HARBOR PROVISION OF THE PRIVATE SECURITIES LITIGATION ACT OF 1995 NeoMedia operates in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. The market for software products is generally characterized by rapidly changing technology, frequent new product introductions and changes in customer requirements which can render existing products obsolete or unmarketable. The statements contained in Item 1 (Business) and Item 6 (Management's Discussion and Analysis of Financial Condition and Results of Operations) that are not historical facts may be forward-looking statements (as such term is defined in the rules promulgated pursuant to the Securities Exchange Act of 1934) that are subject to a variety of risks and uncertainties more fully described in NeoMedia's filings with the Securities and Exchange Commission including, without limitation, those described under "Risk Factors" in NeoMedia's Form S-3 Registration Statement , effective July 22, 1999. The forward-looking statements are based on the beliefs of the management of NeoMedia, as well as assumptions made by, and information currently available to, NeoMedia's management. Accordingly, these statements are subject to significant risks, uncertainties and contingencies which could cause NeoMedia's actual growth, results, performance and business prospects and opportunities in 2000 and beyond to differ materially from those expressed in, or implied by, any such forward-looking statements. Wherever possible, words such as "anticipate," "plan," "expect," "believe," "estimate," and similar expressions have been used to identify these forward-looking statements, but are not the exclusive means of identifying such statements. These risks, uncertainties and contingencies include, but are not limited to, NeoMedia's limited operating history on which expectations regarding its future performance can be based, competition from, among others, high technology companies that have greater financial, technical and marketing resources and distribution capabilities than NeoMedia, the availability of sufficient capital, NeoMedia's ability to identify the right product mix, , NeoMedia's ability to operate effectively in geographical areas in which it has no prior experience, the maturation and success of NeoMedia's strategy to develop, market and sell its products and services, risks inherent in conducting international 11 business, risks associated with selling proprietary licenses and conducting a consulting services business, changes in NeoMedia's product and service mix and product and service pricing, the effectiveness of NeoMedia's efforts to control operating expenses, general economic and business conditions affecting NeoMedia and its customers in the United States and other countries in which NeoMedia sells and anticipates to sell its products and services, and NeoMedia's ability to: (i) obtain additional financing on terms acceptable to the Company, or at all, to allow the Company to continue its operations as currently proposed; (ii) develop, market and sell existing and acquired products for its patented technology; (iii) adjust to changes in technology, customer preferences, enhanced competition and new competitors in the print-to-internet technology market; (iv) protect its proprietary patent rights from infringement or misappropriation; (v) maintain or enhance its relationships with business partners and vendors; and (vi) attract and retain key employees. There can be no assurance that NeoMedia will be able to identify, develop, market, sell or support new products or enhancements successfully, that any such new products or enhancements will gain market acceptance, or that NeoMedia will be able to respond effectively to technological changes. There can be no assurance that NeoMedia will not encounter technical or other difficulties that could delay introduction of new products in the future. If NeoMedia is unable to introduce new products or enhancements and respond to industry changes on a timely basis, its business could be materially adversely affected. NeoMedia is not obligated to update or revise these forward-looking statements to reflect new events or circumstances. ITEM 2. DESCRIPTION OF PROPERTIES NeoMedia's principal executive, development and administrative office is located at 2201 Second Street, Suite 600, Fort Myers, Florida 33901. NeoMedia occupies approximately 15,000 square feet under terms of a written lease from an unaffiliated party expiring on August 12, 2000. NeoMedia has a sales facility at 2150 Western Court, Suite 230, Lisle, Illinois 60532, where NeoMedia occupies approximately 6,000 square feet under the terms of a written lease from an unaffiliated party expiring on October 31, 2000. NeoMedia also leases space, where the principal sales facility was formerly located, at 280 West Shuman Boulevard, Suite 100, Naperville, Illinois 60563. This lease in Naperville covers approximately 9,300 square feet under the terms of a written lease from an unaffiliated party expiring on December 31, 2000. NeoMedia subleases all of the space in the Naperville facility under the terms of a written sublease to an unaffiliated party expiring on December 31, 2000. The Company also leases office space in one other domestic location and three international locations. These offices are primarily used for its sales efforts. NeoMedia leases from Charles W. Fritz (NeoMedia's President) and his wife, pursuant to a verbal, month-to-month lease, space at 6054 Timberwood Circle, #240, Fort Myers, Florida 33908, which it currently uses as temporary housing for employees relocating to or visiting Fort Myers. Although this lease is between affiliated parties, NeoMedia believes that it is on terms no less favorable to it than could be obtained from unaffiliated parties. 12 NeoMedia believes that its existing office space is adequate to meet its current and short-term requirements. ITEM 3. LEGAL PROCEEDINGS As of December 31, 1999, NeoMedia was not a party to any material legal proceedings except as follows: Gerald Willis, a former consultant to NeoMedia, has filed an arbitration claim against NeoMedia with the American Arbitration Association for an undetermined amount "in excess of $300,000" for an alleged breach by the Company of a Consulting Agreement dated August 1, 1997. The Consulting Agreement was entered into in connection with a stock purchase transaction, whereby the Company acquired all of the shares of stock in Allegiant Legacy Solutions, Inc. (ALS) from both ALS's stockholders, Gerald Willis and George Luntz. The Company believes that Mr. Willis has breached the Consulting Agreement, and disputes that it owes Mr. Willis any amounts thereunder. The company filed a counterclaim in the arbitration against Mr. Willis for $291,300, plus attorneys' fees. As of March 8, 2000, no settlement discussions have yet occurred between the Company and Mr. Willis' attorney. The arbitration of this case is scheduled for hearing May 22-24, 2000. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of NeoMedia security holders during the fourth quarter of the year ended December 31, 1999. 13 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) MARKET INFORMATION. NeoMedia's common stock and warrants began trading on The Nasdaq Small Cap Stock MarketSM under the symbol "NEOM" on November 25, 1996, the date of its initial public offering. Prior to such time there was no established public trading market for NeoMedia's common stock. The Company also trades on the Frankfurt Stock Exchange. Set forth below is the range of high and low sales prices for the common stock and warrants for the periods indicated as reported by NASDAQ. The quotations do not include retail markups, markdowns or commissions and may not represent actual transactions. TYPE OF SECURITY PERIOD ENDED HIGH LOW - ---------------- ------------ ---- --- Common Stock March 31, 1998 $ 9.13 $ 6.06 June 30, 1998 $ 10.13 $ 4.50 September 30, 1998 $ 6.00 $ 2.44 December 31, 1998 $ 3.00 $ 1.50 March 31, 1999 $ 5.25 $ 2.75 June 30, 1999 $ 7.25 $ 4.03 September 30, 1999 $ 9.88 $ 5.50 December 31, 1999 $ 7.00 $ 4.25 (b) HOLDERS. As of March 3, 2000, there were 149 holders of record of NeoMedia's common stock. NeoMedia believes that it has a greater number of shareholders because a substantial number of NeoMedia's common stock is held of record in street name by broker-dealers for their customers. (c) DIVIDENDS. As of March 3, 2000, NeoMedia has not paid any dividends on its common stock and does not expect to pay a cash dividend in the foreseeable future, but intends to devote all funds to the operation of its businesses. As of March 3, 2000, NeoMedia has a letter of credit with Bank One, Chicago, Illinois, the terms of which require Bank One's written permission prior to the declaration of cash dividends. NeoMedia's stock price has been and will continue to be subject to significant volatility. Past financial performance should not be considered a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. If revenues or earnings in any quarter fail to meet expectations of the investment community, there could be an immediate and significant impact on NeoMedia's stock price. In addition, NeoMedia's stock price may be affected by broader market trends that may be unrelated to NeoMedia's performance. In November 1998, NeoMedia borrowed $500,000, in two separate notes from unrelated third parties. These notes were due in November, 1999 with an interest rate of 20%. One $250,000 note was extended until January 6, 2000, and the other was extended 14 until February 25, 2000. These notes were secured by 375,000 shares of NeoMedia's common stock by placing them in an escrow account. These shares are considered issued but not outstanding. As part of obtaining the financing, 37,500 stock warrants, exercisable at $2.00 per share, were issued to the lender. These warrants were exercised in February 2000. As of March 3, 2000, both notes have been repaid and the 375,000 shares securing the notes are in the process of being released from escrow and retired by the Company. In January, 1999, the Company issued 82,372 shares of the Company's Common Stock to a related party at a price of $3.03 per share. In connection with the sale, the Company also issued 8,237 warrants with an exercise price of $3.04. In January, 1999, the Company issued 145,000 shares of the Company's Common Stock at a price of $3.50 per share to unrelated parties. In connection with the sale, the Company also issued 7,286 warrants with an exercise price of $3.50 and 170,000 warrants with an exercise price of $2.13. In January, 1999, the Company issued 42,857 shares of the Company's Common Stock at a price of $3.50 per share to a related party. In connection with the sale, the Company also issued 4,286 warrants with an exercise price of $3.50. In February, 1999, the Company issued 250,000 shares of the Company's Common Stock at a price of $4.00 per share to an unrelated party. In connection with the sale, the Company also issued 100,000 warrants with an exercise price of $5.00. In April, 1999, the Company issued 1,000,000 shares of the Company's Common Stock at a price of $3.45 per share to an unrelated party. In connection with the sale, the Company also issued 175,000 warrants with an exercise price of $3.45. In May, 1999, the Company issued 65,000 shares of the Company's Common Stock at a price of $4.75 per share to an unrelated party. In connection with the sale, the Company also issued 6,500 warrants with an exercise price of $5.00. In June, 1999, the Company issued 250,000 shares of the Company's Common Stock at a price of $4.00 per share to an unrelated party. In connection with the sale, the Company also issued 120,000 warrants with an exercise price of $7.00. In September, 1999, the Company issued 210,000 shares of the Company's Common Stock at a price of $7.00 per share to an unrelated party. In September, 1999, the Company issued 275,231 shares of the Company's Common Stock at a price of $5.75 per share to an unrelated party. In connection with the sale, the Company also issued 27,523 warrants with an exercise price of $6.75. In October, 1999, the Company issued 15,000 shares of the Company's Common Stock at a price of $4.38 per share to an unrelated party. In connection with the sale, the Company also issued 1,500 warrants with an exercise price of $4.38. In November, 1999, the Company issued 143,334 shares of the Company's Common Stock at a price of $3.75 per share to an unrelated party. In connection with the sale, the 15 Company also issued 5,067 warrants with an exercise price of $5.50, 1,267 warrants with an exercise price of $4.75, 5,333 warrants with an exercise price of $4.67, and 2,667 warrants with an exercise price of $5.84. In January, 2000, the Company issued 381,356 shares of the Company's Common Stock at a price of $3.75 per share to an unrelated party. In connection with the sale, the Company also issued 12,571 warrants with an exercise price of $7.19, 5,400 warrants with an exercise price of $6.44, and 12,166 warrants with an exercise price of $7.37. In February, 2000, the Company issued 39,535 shares of the Company's common stock at a price of $6.88 per share to an unrelated party. In connection with the sale, the Company also issued 2,500 warrants with an exercise price of $12.74 and 1,454 warrants with an exercise price of $9.56. In February, 2000, the Company issued 50,000 shares of the Company's Common Stock at a price of $6.00 per share to an unrelated party. In connection with the sale, the Company also issued 2,982 warrants with an exercise price of $10.06. In March, 2000, the Company issued 1,000,000 shares of the Company's Common Stock at a price of $7.50 per share to an unrelated party. In connection with the sale, the Company also issued 275,000 warrants with an exercise price of $7.50 and 125,000 warrants with an exercise price of $15.00. The above issuance's of securities were made by the Company in reliance on an exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended, as offerings not involving a public offering. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW During 1999, the Company's focus shifted from Systems Integration, Migration and Y2K toward its Applications Service Provider (ASP) business. The Company sold its first license with the internally-developed NeoLink technology during the year, and in December launched its PaperClick.com virtual portal. NeoMedia's strategy is to become the worlds leading provider of systems and services that link print and print on products to web based information. The Company discontinued its Y2K product line during the fourth quarter of 1999. RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1998 NET SALES. Total net sales for the year ended December 31, 1999 were $25.3 million, which represented a $1.8 million, or 7.7%, increase from $23.5 million for the year ended December 31, 1998. This increase primarily resulted from higher resales of technology equipment during the year, offset by lower services revenue. 16 LICENSE FEES. License fees remained unchanged at $2.4 million for the years ended December 31, 1999 and December 31, 1998. Cost of sales as a percentage of related sales was 26.4% during 1999 compared to 11.6% during 1998. This increase in the cost of sales as a percentage of related sales was primarily due to the increased sales of licenses with royalties. RESALES OF SOFTWARE AND TECHNOLOGY EQUIPMENT. Resales of software and technology equipment increased by $2.8 million, or 16.6%, to $19.7 million for the year ended December 31, 1999, as compared to $16.9 million for the year ended December 31, 1998. This increase primarily resulted from increased resales of Sun Microsystems equipment. Cost of sales as a percentage of related sales was 87.7% during 1999, compared to 86.6% during 1998. SERVICE FEES. NeoMedia's service fees decreased by $1.2 million, or 27.9%, to $3.1 million for the year ended December 31, 1999, compared to $4.3 million for the year ended December 31, 1998. This decrease was primarily due to lower sales of services related to the installation services of value-added equipment resales, as well as reduced revenue from referral fees for third-party services. Cost of service fees as a percentage of related sales increased to 109.1% during 1999 from 86.4% during 1998 primarily due to the decrease in services revenue. AMORTIZATION OF CAPITALIZED SOFTWARE AND PATENTS. Amortization of capitalized software and patents included in cost of sales was $1,142,000 in 1999 compared to $596,000 in 1998. This increase was primarily due to amortizing patent costs related to the acquired Solar patent in 1999 and expensing the Company's Y2K products at the end of 1999. 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 is paid as a commission, is directly related to sales volume. Sales and marketing expenses decreased $3.2 million, or 32.0%, to $6.8 million for the year ended December 31, 1999 from $10.0 million for the year ended December 31, 1998, as a result primarily of reductions in marketing expenses and a reduction in selling expenses related to Y2K products. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased $0.4 million, or 8.2%, to $5.3 million for the year ended December 31, 1999, from $4.9 million for the year ended December 31, 1998. This increase was due to an increase in the allowance for doubtful accounts at December 31, 1999. RESEARCH AND DEVELOPMENT. During the year ended December 31, 1999, NeoMedia charged to expense $986,000 of research and development expenses, a decrease of $83,000 or 7.8% compared to $1,069,000 charged to expense for the year ended December 31, 1998. This decrease was due to an increase in capitalization of development costs related to the ASP products. To the extent the Company can obtain additional capital, it will continue to make significant investments in research and development. 17 INTEREST EXPENSE (INCOME), 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 net of interest earned on cash equivalent investments. Interest (income)/expense increased by $347,000, or 287%, to $226,000 for the year ended December 31, 1999 from $(121,000) for the year ended December 31, 1998, due to the interest income earned in 1998 on the proceeds from common stock purchase warrants exercised in the fourth quarter of 1997, as well as higher interest payments on debt obtained at the end of 1998. NET LOSS. The net loss for the year ended December 31, 1999 was $10.5 million, which represented a $1.0 million, or 8.7% decrease from a $11.5 million loss for the year ended December 31, 1998. The decrease was primarily due to reduced marketing expenses and a decrease in selling expenses related to Y2K products. This was offset by a lower gross profit caused by lower service revenue and increased software amortization expense. LIQUIDITY AND CAPITAL RESOURCES For the period January 1, 2000 through March 17, 2000, the Company has successfully obtained approximately $9.5 million of equity financing and $2.9 million from exercises of warrants and employee stock options. The Company also received a commitment from an unrelated third party to invest up to $7.5 million in the Company through the purchase of unissued shares of common stock at a price of $7.50 per share. In connection with the additional financing, 125,000 warrants at an exercise price of $7.50 and 125,000 warrants at an exercise price of $15.00 will be issued. The unrelated party will also be nominated for a position on NeoMedia's Board of Directors. Management believes that this additional financing, together with revenue from operations, will be sufficient to sustain operations for the remainder of 2000. Subsequent to December 31, 1999, the Company has undertaken the following initiatives: o Through March 17, 2000, the Company has raised $9.5 million from private placements. o Through March 17, 2000, the Company has raised $2.7 million from the exercise of stock warrants. o Through March 17, 2000, the Company has raised $223,000 from the exercise of employee stock options. o Unrestricted cash on hand as of March 17, 2000, was $11.9 million. 18 Net cash used in operating activities for the year ended December 31, 1999 and 1998, was $7.5 million and $7.1 million, respectively. During 1999, trade accounts receivable inclusive of costs in excess billings decreased $1.8 million, while accounts payable, accrued expenses and deferred revenue decreased $1.7 million. During 1998, trade accounts receivable inclusive of costs in excess of billings decreased $197,000, while accounts payable, accrued expenses and deferred revenue increased $2.1 million. NeoMedia's net cash flow used in investing activities for the year ended December 31, 1999 and 1998, was $1.6 million and $2.4 million, respectively. This increase resulted from the decreased acquisition of property and equipment, as well as a decrease in purchases of intangible assets. YEAR 2000 ISSUES The Year 2000 (Y2K) issue (i.e. the ability of computer systems to recognize a date using "00" as the year rather than 1900) affects all companies and organizations. As a result of the Company's Y2K efforts, no significant internal problems have occurred to date. The Company has not experienced any problems with suppliers, vendors, customers, or financial institutions. There were no significant expenditures related to Y2K compliance, and the Company does not anticipate any further expenses associated with Y2K. ITEM 7. FINANCIAL STATEMENTS The Financial Statements to this Form 10-KSB are attached commencing on page F-1. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES On July 7, 1999, the Company filed a Report on Form 8-K reporting that KPMG LLP had resigned as the Company's independent auditors. In connection with the audit of the Company's financial statements for the fiscal year ended December 31, 1998 and in the subsequent interim periods, there were no disagreements with KPMG LLP on any matters of accounting principles or practice, financial statement disclosure, or auditing scope and procedures which, if not resolved to the satisfaction of KPMG LLP would have caused KPMG LLP to make reference to the matter in their report. Effective July 14, 1999, the Company engaged Arthur Andersen LLP to audit the Company's consolidated financial statements for the fiscal year ending December 31, 1999. 19 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To NeoMedia Technologies, Inc. We have audited the accompanying consolidated balance sheet of NeoMedia Technologies, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999, and the related consolidated statements of operations, shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NeoMedia Technologies, Inc. and subsidiaries as of December 31, 1999, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. /s/ ARTHUR ANDERSEN LLP - ----------------------- ARTHUR ANDERSEN LLP Tampa, Florida February 25, 2000 (except with respect to the matter discussed in Note 15, as to which the date is March 17, 1999) F-1 INDEPENDENT AUDITOR'S REPORT To the Shareholders and Board of Directors of NeoMedia Technologies, Inc. We have audited the accompanying consolidated balance sheet of NeoMedia Technologies, Inc. and subsidiaries (the "Company") as of December 31, 1998, and the related consolidated statements of operations, cash flows and shareholders' equity for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those stadards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 1998, and the consolidated results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 15 to the consolidated financial statements, the Company has suffered recurring losses from operations, has a significant accumulated deficit, and working capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 15. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ KPMG LLP - ------------ KPMG LLP Miami, Florida March 12, 1999 F-2 CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, --------------------------- 1999 1998 ------------ ------------ ASSETS Current assets: Cash and cash equivalents, including restricted amounts of $944 in 1999 and $750 in 1998..................................................... $ 3,404 $ 1,350 Short-term investments ................................................ 150 -- Trade accounts receivable, net of allowance for doubtful accounts of $888 in 1999 and $225 in 1998........................................ 3,419 5,690 Amounts due from related parties ...................................... -- 4 Costs and estimated earnings in excess of billings on uncompleted contracts ............................................... -- 222 Inventories ........................................................... 57 -- Prepaid expenses and other current assets ............................. 264 849 --------- --------- Total current assets ................................................ 7,294 8,115 --------- --------- Property and equipment, net ............................................ 545 786 Intangible assets, net ................................................. 5,296 3,729 Other long-term assets ................................................. 522 -- --------- --------- Total assets ........................................................ $ 13,657 $ 12,630 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ...................................................... $ 4,892 $ 5,898 Accrued expenses ...................................................... 720 1,000 Stock liability ....................................................... 1,863 -- Current portion of long-term debt ..................................... 625 577 Sales taxes payable ................................................... 454 430 Billings in excess of costs and estimated earnings on uncompleted contracts ............................................... 131 -- Deferred revenues ..................................................... 265 656 Other ................................................................. 11 7 --------- --------- Total current liabilities ........................................... 8,961 8,568 --------- --------- Long-term debt, net of current portion ................................. 676 801 --------- --------- Total liabilities ................................................... 9,637 9,369 --------- --------- Shareholders' equity: Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued or outstanding .......................................... -- -- Common stock, $.01 par value, 50,000,000 shares authorized, 12,398,389 shares issued in 1999 (12,023,389 outstanding) and 9,074,080 shares issued in 1998 (8,699,080 outstanding) ............. 119 87 Additional paid-in capital ............................................ 36,367 25,168 Accumulated deficit ................................................... (32,466) (21,994) --------- --------- Total shareholders' equity .......................................... 4,020 3,261 --------- --------- Total liabilities and shareholders' equity ......................... $ 13,657 $ 12,630 ========= =========
The accompanying notes are an integral part of these consolidated balance sheets. F-3 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 -------------- ------------ NET SALES: License fees ....................................................... $ 2,430 $ 2,362 Resales of software and technology equipment ....................... 19,678 16,854 Service fees ....................................................... 3,148 4,262 ---------- --------- Total net sales .................................................. 25,256 23,478 ---------- --------- COST OF SALES: License fees ....................................................... 648 275 Resales of software and technology equipment ....................... 17,247 14,596 Service fees ....................................................... 3,433 3,682 Amortization of capitalized software and patent costs .............. 1,142 596 ---------- --------- Total cost of sales .............................................. 22,470 19,149 ---------- --------- GROSS PROFIT ........................................................ 2,786 4,329 Sales and marketing expenses ........................................ 6,765 9,990 General and administrative expenses ................................. 5,281 4,886 Research and development costs ...................................... 986 1,069 ---------- --------- Loss from operations ................................................ (10,246) (11,616) Interest expense (income), net ...................................... 226 (121) ---------- --------- NET LOSS ............................................................ $ (10,472) $ (11,495) ========== ========= NET LOSS PER SHARE--BASIC AND DILUTED ............................... $ (1.01) $ (1.34) ========== ========= Weighted average number of common shares--basic and diluted ......... 10,377,478 8,560,849 ========== =========
The accompanying notes are an integral part of these consolidated financial statements. F-4 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ................................................................... $ (10,472) $ (11,495) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ............................................. 2,029 1,081 Provision for doubtful accounts ........................................... 665 547 Fair value of stock based compensation granted for professional services ................................................... 28 91 Changes in operating assets and liabilities Trade accounts receivable ................................................ 1,606 419 Costs and estimates earnings in excess of billings on uncompleted contracts .................................................. 222 (222) Other current assets ..................................................... 382 76 Long-term assets ......................................................... (522) -- Accounts payable and accrued expenses .................................... (1,286) 1,517 Billings in excess of costs and estimates earnings on uncompleted contracts .................................................. 131 -- Deferred revenue ......................................................... (391) 539 Other current liabilities ................................................ 76 378 --------- --------- Net cash used in operating activities ................................... (7,532) (7,069) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capitalization of software development and purchased intangible assets ..... (1,470) (1,980) Acquisition of property and equipment ...................................... (127) (428) --------- --------- Net cash used in investing activities ................................... (1,597) (2,408) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock, net of $148 issuance costs...... 8,172 -- Net proceeds from exercise of stock warrants ............................... 75 -- Net proceeds from exercise of stock options ................................ 1,061 280 Repayment from shareholder ................................................. -- 2 Borrowings under notes payable and long-term debt .......................... 2,000 464 Repayments on notes payable and long-term debt ............................. (125) (202) --------- --------- Net cash provided by financing activities ............................... 11,183 544 --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..................................................... 2,054 (8,933) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ............................... 1,350 10,283 --------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR ..................................... $ 3,404 $ 1,350 ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION: Restricted cash balances at December 31 ................................... $ 944 $ 750 Interest paid during the year ............................................. 146 156 Non-cash investing and financing activities: Fair value of shares issued to acquire customer list ..................... -- 827 Fair value of warrants granted in conjunction with acquisition of patents ............................................................. -- 432 Conversion of short-term debt to equity .................................. 2,000 -- Issuance costs for shares issued through private placements .............. 112 -- Stock liability due upon issuance of patent .............................. 1,863 --
The accompanying notes are an integral part of these consolidated financial statements. F-5 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL TOTAL ----------------------- PAID-IN ACCUMULATED SHAREHOLDERS' SHARES AMOUNT CAPITAL DEFICIT EQUITY ------------ -------- ----------- ------------- -------------- BALANCE, DECEMBER 31, 1997 ............... 8,295,291 $ 83 $23,542 $ (10,499) $ 13,126 Exercise of employee options ............. 273,789 3 277 -- 280 Fair value of shares issued in conjunction with the acquisition of a customer list ........................ 120,000 1 826 -- 827 Fair value of shares and options issued for professional services rendered ...................... 10,000 -- 54 -- 54 Fair value of warrants granted in conjunction with the acquisition of patents ............................. -- -- 432 -- 432 Fair value of warrants granted in conjunction with financing, net of $47 of issuance costs................... -- -- 37 -- 37 Net loss ................................. -- -- -- (11,495) (11,495) --------- ---- ------- --------- --------- BALANCE, DECEMBER 31, 1998 ............... 8,699,080 87 25,168 (21,994) 3,261 --------- ---- ------- --------- --------- Exercise of employee options ............. 611,854 6 1,055 -- 1,061 Common stock through private placement, net of $260 of issuance costs ......................... 1,978,794 20 8,039 -- 8,058 Fair value of options issued for professional services rendered ......... -- -- 28 -- 28 Exercise of warrants ..................... 231,764 1 74 -- 76 Fair value of stock granted in conjunction with financing ............. 501,897 5 2,003 -- 2,008 Net loss ................................. -- -- -- (10,472) (10,472) --------- ---- ------- --------- --------- BALANCE, DECEMBER 31, 1999 ............... 12,023,389 $119 $36,367 $ (32,466) $ 4,020 ========== ==== ======= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-6 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES 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., a Delaware corporation; Distribuidora Vallarta, S.A. incorporated in Guatemala; Allegiant Legacy Solutions, Inc. ("Allegiant") (which was merged into NeoMedia Technologies, Inc. in December 1997); NeoMedia Technologies of Canada, Inc. incorporated in Canada; NeoMedia Tech, Inc. incorporated in Delaware; NeoMedia EDV GmbH incorporated in Austria; 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. NATURE OF BUSINESS OPERATIONS Since inception, NeoMedia has been helping customers and partners assimilate new technology without discarding their investment in programs and processes. To help accomplish these objectives, NeoMedia operates as two distinct business units: Application Service Provider (NeoMedia ASP) and Systems Integration Services (NeoMedia SI). NeoMedia ASP provides systems and services that link print and print on products to web-based information. NeoMedia SI provides computer technology equipment and systems integration services to customers. NEOMEDIA ASP NeoMedia ASP was launched to commercialize NeoMedia's patented technology for seamlessly linking printed material to the internet. This technology has been developed over the past four years. Management believes this technology has the potential to provide the industry standard for linking the worlds of print and electronic media. The commercialization of products using this technology was begun during 1999. F-7 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 1. BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS--(CONTINUED) NEOMEDIA SI NeoMedia SI re-markets equipment and software products from third-parties, renders system integration services, provides proprietary software for document management and production systems, migrates programs and databases from closed system to open system platforms, and adds customized applications to an existing system platform. This business unit is establishing itself in the technology industry by working closely with customers and business partners in integrating new technologies while leveraging previous system infrastructure investments. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS For the purposes of the consolidated balance sheets and consolidated statements of cash flows, all highly liquid investments with original maturities of three months or less are considered cash equivalents. Cash equivalents includes restricted amounts of $944,000 as of December 31, 1999 and $750,000 as of December 31, 1998 (Note 6). ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. 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 F-8 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) 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. The substantial majority of software license revenue has been recognized on a percentage of completion basis, along with the associated services being provided. Software and technology equipment resale revenue is recognized when all of the components necessary to run software or hardware have been shipped and only insignificant post-delivery obligations remain. Historically, product returns and allowances have been insignificant. Service revenues include maintenance fees for providing system updates for software products, user documentation and technical support and are recognized over the life of the contract. Other service revenues, including training and consulting, are recognized as the services are performed. COMPREHENSIVE INCOME NeoMedia adopted the provisions of Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income" ("SFAS 130") effective January 1, 1998. SFAS 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. For the years ended December 31, 1999 and 1998, changes in NeoMedia's shareholders' equity consisted of its net loss, stock based compensation, certain equity offerings, along with the exercise of stock options. Accordingly, comprehensive loss as defined by SFAS 130 was the net loss in the accompanying consolidated statement of operations. INVENTORIES Inventories are stated at the lower of cost or market, and at December 31,1999 was comprised of purchased computer technology resale products. Cost is determined using the first-in, first-out method. PROPERTY AND EQUIPMENT Property and equipment are carried at cost less allowances for accumulated depreciation. Repairs and maintenance are charged to expense as incurred. Depreciation is generally computed using the straight-line method over the estimated useful lives of the F-9 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) related assets. The estimated useful lives range from three to five years for equipment and up to seven years for furniture and fixtures. Leasehold improvements are amortized over the shorter of the life of the lease or the useful lives of the related assets. Upon retirement or sale, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statement of operations. Depreciation expense was $367,000 and $290,000 for the years ended December 31, 1999 and 1998, respectively. INTANGIBLE ASSETS Intangible assets consist of capitalized software costs, patents, and an acquired customer list. Software development costs are accounted for in accordance with FASB SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." Costs associated with the planning and designing phase of software development, including coding and testing activities necessary to establish technological feasibility, are classified as research and development and expensed as incurred. Once technological feasibility has been determined, additional costs incurred in development, including coding, testing, quality assurance and documentation writing, are capitalized. Once a product is made available for sale, capitalization is stopped unless the related costs are associated with a technologically feasible enhancement to the product. Amortization of purchased and developed software is provided on a product-by-product basis over the estimated economic life of the software, generally not exceeding three years, using the straight-line method. Patents (including patents pending and intellectual property) and acquired customer lists are stated at cost, less accumulated amortization. The acquired customer list is being amortized over a five year period. Patents are generally amortized over periods ranging from five to seventeen years. Amortization expense was $1,662,000 and $791,000 for the years ended December 31, 1999 and 1998, respectively. F-10 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) EVALUATION OF LONG-LIVED ASSETS The Company periodically performs an evaluation of the carrying value of its long-lived assets in accordance with FASB SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". This evaluation consists primarily of a comparison to the future undiscounted net cash flows from the associated assets in comparison to the carrying value of the assets. As of December 31, 1999, the Company is of the opinion that no impairment of its long-lived assets has occurred. INCOME TAXES In accordance with SFAS No. 109, "Accounting for Income Taxes", income taxes are accounted for using the assets and liabilities approach. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be recognized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period of enactment. COMPUTATION OF NET LOSS PER SHARE Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. The Company has excluded all outstanding exercisable stock options and warrants from the calculation of diluted net loss per share because these securities are anti-dilutive for all years presented. The shares excluded from the calculation of diluted net loss per share are detailed in the table below:
DECEMBER 31, 1999 DECEMBER 31, 1999 ------------------- ------------------ Outstanding Exercisable Stock Options .......... 1,398,000 1,493,000 Outstanding Warrants ........................... 2,301,000 1,640,000
F-11 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) FINANCIAL INSTRUMENTS The Company believes that the fair value of its current assets and current liabilities approximate carrying value. Certain of the Company's long-term obligations are non-interest bearing and were discounted at an assumed interest rate of approximately 9% when the obligation was entered into during 1994 (see note 7). 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 $888,000 and $225,000 in its December 31, 1999 and 1998 consolidated balance sheets, respectively. NeoMedia had net sales to one major customer in the telecommunications industry (Ameritech) of $5,843,000 and $5,825,000 during the years ended December 31, 1999 and 1998, respectively, resulting in trade accounts receivable of $225,000 and $1,352,000 as of December 31, 1999 and 1998, respectively. Revenue generated from the remarketing of computer software and technology equipment has accounted for a significant percentage of NeoMedia's revenue. Such sales accounted for approximately 78% and 72% of NeoMedia's revenue for the years ended December 31, 1999 and 1998, respectively. ACCOUNTING FOR STOCK OPTIONS Effective January 1, 1996, NeoMedia adopted SFAS No. 123, "Accounting for Stock-Based Compensation" which requires certain disclosures about stock-based employee compensation arrangements, regardless of the method used to account for them, and defines a fair-value based method of accounting for an employee stock option or similar equity instrument and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. However, SFAS 123 also allows an entity to continue to measure compensation cost for stock-based compensation plans using the intrinsic-value method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Entities electing to continue using the accounting method in APB 25 must make pro forma disclosures of net income and earnings per share as if the fair-value method of accounting had been adopted. Under the fair-value method, compensation cost is measured at the grant date based on the F-12 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) value of the award and is recognized over the service period, which is usually the vesting period. Under the intrinsic-value based method, compensation cost is the excess, if any, of the quoted market price of the stock at grant date or other measurement date over the amount an employee must pay to acquire the stock. Because NeoMedia elected to continue using the accounting method in APB 25, no compensation expense was recognized in the consolidated statement of operations for the years ended December 31, 1999 and 1998 for stock-based employee compensation. Had compensation cost for NeoMedia's stock-based compensation plan been determined using the fair-value method of accounting, NeoMedia's net loss and loss per share would have been increased to $11,731,000 or ($1.13) per share in 1999, and $13,070,000 or ($1.53) per share, in 1998. For grants in 1999 and 1998, the following assumptions were used: (i) no expected dividends; (ii) a risk-free interest rate of 5% for 1999 and 5% for 1998; (iii) expected volatility of 70% for 1999 and 50% for 1998 and (iv) an expected life of 4 years for options granted in 1999 and 4 years for options granted in 1998. The fair-value was determined using the Black-Scholes option-pricing model. The volatility percentages used by the Company represent management's estimate of reasonable volatility based primarily upon an average of select industry competitors. The Company's actual stock price volatility was approximately 112% and 111% during the years ended December 31, 1999 and 1998, respectively. Management believes that the average volatility percentages are more appropriate given the relatively short trading history of the Company's common stock. The estimated fair value of grants of stock options and warrants to non-employees of NeoMedia is charged to expense in the consolidated financial statements. RECLASSIFICATIONS Certain reclassifications have been made to the 1998 financial statements to conform to the 1999 presentation. RECENT ACCOUNTING PRONOUNCEMENTS In June of 1998 the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". The FASB later issued in June 1999 SFAS No. 137, which deferred the effective date for SFAS No. 133 to all fiscal years beginning after June 15, 2000, with earlier application encouraged. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity to F-13 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Management does not believe the adoption of SFAS No. 133 will have a material impact on the Company's financial position or results of operations. On December 3, 1999 the Securities and Exchange Commission (SEC) staff released Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition". This SAB provides guidance on the recognition, presentation and disclosure of revenue in financial statements. The Company will implement SAB No. 101 for the quarter ended June 30, 2000. The Company is currently evaluating this SAB, but does not believe that it will have a material impact on the Company's results of operations. 3. CONTRACT ACCOUNTING NeoMedia periodically enters into long-term software development and consultation agreements with certain customers. As of December 31, 1999 and 1998, certain contracts were not completed and information regarding these uncompleted contracts was as follows:
1999 1998 ---------- --------- (IN THOUSANDS) Total amount of contracts in progress ................... $ 1,995 $1,755 ======== ====== Costs incurred to date on uncompleted contracts ......... 828 944 Estimated earnings on uncompleted contracts ............. 980 (4) -------- ------- Subtotal .............................................. 1,808 940 Less customer billings to date .......................... (1,939) (718) -------- ------ Costs and estimated earnings in excess of billings on uncompleted contracts ................................. $ -- $ 222 ======== ====== Billings in excess of costs and estimated earnings on uncompleted contracts ................................. $ 131 $ -- ======== ======
F-14 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 4. PROPERTY AND EQUIPMENT As of December 31, 1999 and 1998, property and equipment consisted of the following: 1999 1998 ----------- --------- (IN THOUSANDS) Furniture and fixtures .................... $ 420 $ 451 Leasehold improvements .................... 124 124 Equipment ................................. 1,290 1,164 -------- ------ Total ................................... 1,834 1,739 Less accumulated depreciation ............. (1,289) (953) -------- ------ Total property and equipment, net ......... $ 545 $ 786 ======== ====== 5. INTANGIBLE ASSETS As of December 31, 1999 and 1998, intangible assets consisted of the following: 1999 1998 -------- ------- (IN THOUSANDS) Capitalized and purchased software costs .. $ 4,663 $ 4,482 Customer list ............................. 1,155 1,155 Patents and related costs ................. 2,672 615 -------- ------- Total ................................... 8,490 6,252 Less accumulated amortization ............. (3,194) (2,523) -------- ------- Total intangible assets, net .............. $ 5,296 $ 3,729 ======== ======= In October 1994, the Company purchased, via seller financing, certain computer software from International Digital Scientific, Inc. ("IDSI"). The aggregate purchase price was $2,000,000 and was funded by an uncollateralized seller payable, without interest, in an amount equal to the greater of: (i) 5% of the collected gross revenues of NeoMedia Migration for the preceding month; or (ii) the minimum installment payment as defined, until paid in full. The minimum installment payment is the amount necessary to provide an average monthly payment for the most recent twelve month period of $16,000 per month. The present value of $2,000,000 discounted at 9% (the Company's then incremental borrowing rate) for 125 months was approximately $1,295,000, the capitalized cost of the assets acquired. The discount is being accreted to interest expense over the term of the note. The software acquired was amortized over its estimated useful life of three years. As of December 31, 1999 and 1998, the balance of the note payable, net of unamortized discount, was $801,000 and $931,000, respectively. F-15 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 5. INTANGIBLE ASSETS--(CONTINUED) During 1998, NeoMedia acquired a customer list for total consideration of $1,155,000, including 120,000 shares of NeoMedia common stock valued at $827,000 (giving effect to the common stock being unregistered and "restricted" securities as such term is defined in Rule 144 of the rules and regulations promulgated under the Securities Act of 1933, as amended) and cash of $292,000. Additionally, there were legal and other expenses of $36,000 that were related to this transaction. The customer list is intended to be used to develop relationships for the sale of the Company's products. The cost of the customer list is being amortized on the straight-line method over its estimated useful life of five years. During December 1998, the Company acquired the rights to certain patent filings. The Company paid a total of $125,000 in cash along with a warrant to purchase shares of the Company's common stock at a negligible value (such warrant was valued at approximately $432,000, the trading price of the underlying common stock). The Company is also liable to pay the seller an additional $1,862,500 six months from the date that the first U.S. patent application is granted. During November 1999, NeoMedia was awarded this patent by the US Patent and Trademark Office for a process that allows automatic access of electronic information through secure machine-readable codes on printed documents. As of December 31, 1999, the Company has recorded a liability for this transaction in the amount of $1,862,500. The payment may be settled by the Company either in cash or through the issuance of additional warrants to purchase Company common stock at negligible values. Based upon currently available working capital, the Company anticipates that the obligation will be settled through the issuance of additional warrants. 6. FINANCING AGREEMENTS The Company has 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. In addition, as of December 31, 1999, a $750,000 letter of credit was issued to the benefit of the commercial finance company. NeoMedia collateralized this letter of credit with a $750,000 certificate of deposit. As of December 31, 1999 and 1998, amounts due under this financing agreement included in accounts payable were $1,509,000 and $2,835,000, respectively. F-16 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 7. LONG-TERM DEBT As of December 31, 1999 and 1998, long-term debt consisted of the following:
1999 1998 --------- --------- (IN THOUSANDS) Note payable to IDSI, non-interest bearing with interest imputed at 9%, due with minimum monthly installments of $16,000 through March 2005 ................................................................ $1,008 $1,216 Note payable, interest bearing at 20% per annum, $250,000 due January 2000 and $250,000 due February 2000, secured by 375,000 shares of previously unissued Company common stock placed in escrow .............................................................. 500 500 ------ ------ Subtotal ............................................................ 1,508 1,716 Less: unamortized discount ............................................ (207) (338) ------ ------ Total long-term debt ................................................ 1,301 1,378 Less: current portion ................................................. (625) (577) ------ ------ Long-term debt, net of current portion ................................ $ 676 $ 801 ====== ======
The long-term debt repayments for each of the next five fiscal years ending December 31 are as follows:
(IN THOUSANDS) --------------- 2000 ................ $ 692 2001 ................ 192 2002 ................ 192 2003 ................ 192 2004 ................ 192 Thereafter .......... 48 ------ Total ............... $1,508 ======
F-17 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8. INCOME TAXES For the years ended December 31, 1999 and 1998, the components of income tax benefit were as follows: 1999 1998 --------- -------- (IN THOUSANDS) Current ......................................... $ -- $ (78) Deferred ........................................ -- -- --------- -------- Income tax benefit .............................. $ -- $ (78) ========= ======== For the years ended December 31, 1999 and 1998, the significant components of the deferred tax benefit were as follows: 1999 1998 --------- -------- (IN THOUSANDS) Deferred tax benefit ............................ $ (5,766) $ (3,983) Increase in valuation allowance ................. 5,766 3,983 --------- -------- Total ......................................... $ -- $ -- ========= ======== As of December 31, 1999 and 1998, the types of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts which gave rise to deferred taxes, and their tax effects were as follows: 1999 1998 --------- ---------- (IN THOUSANDS) Accrued employee benefits ....................... $ 31 $ 30 Provisions for doubtful accounts ................ 337 90 Deferred revenue ................................ -- 386 Capitalized software development costs .......... 98 600 Net operating loss carryforwards ................ 12,724 6,466 Research and development credit ................. 91 -- Other ........................................... 59 -- Alternative minimum tax credit carryforward ..... 45 47 --------- -------- Total deferred tax assets ....................... 13,385 7,619 Valuation allowance ............................. (13,385) (7,619) --------- -------- Net deferred income tax asset ................... $ -- $ -- ========= ======== F-18 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8. INCOME TAXES--(CONTINUED) NeoMedia will not record an income tax benefit due to the 100% valuation allowance. Because the realization of NeoMedia's NOL carryforwards is uncertain, a valuation allowance has been established against it and other deferred income tax assets. For the years ended December 31, 1999 and 1998, income tax benefit differed from the amount computed by applying the statutory federal rate of 34% as follows:
1999 1998 ------------------------ ----------------------- AMOUNT % AMOUNT % ------------ --------- ------------ -------- (DOLLARS IN THOUSANDS) Benefit at federal statutory rate ............ $ (3,561) (34)% $ (3,908) (34)% Foreign income taxes, net of federal ......... 61 1 -- -- Permanent and other, net ..................... 346 3 (75) (1) Change in valuation allowance ................ 3,154 30% 3,983 35 -------- --- -------- --- Income tax benefit ........................... $ -- --% $ -- --% ======== ==== ======== ====
As of December 31, 1999, NeoMedia had net operating loss carryforwards for federal tax purposes totaling approximately $34 million which may be used to offset future taxable income, or, if unused expire between 2011 and 2019. A portion of the net operating loss carryforwards are attributable to tax deductions related to the exercise of stock options. As a result of certain of NeoMedia's equity activities occurring during the year ended December 31, 1997, NeoMedia anticipates that the annual usage of its pre 1998 net operating loss carryforwards may be further restricted pursuant to the provisions of Section 382 of the Internal Revenue Code. The valuation allowance for deferred tax assets increased by approximately $1.9 million due to the exercise of stock options, which will result in future tax deductions. The related benefit is recorded to shareholders' equity as it is realized. 9. TRANSACTIONS WITH RELATED PARTIES During each of the years ended December 31, 1999 and 1998, NeoMedia leased office and residential facilities from related parties for rental payments totaling $13,000. During the years ended December 31, 1999 and 1998, the Company leased from a director of the Company a trade show booth for rental payments totaling $31,000 and $34,000, respectively. The lease expired during 1999. F-19 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 9. TRANSACTIONS WITH RELATED PARTIES--(CONTINUED) In January 1999, the spouse of a director of the Company purchased 82,372 shares of the Company's common stock from NeoMedia at a price of $3.03 per share. In January 1999, a director of the Company purchased 42,857 shares of the Company's common stock from NeoMedia at a price of $3.50 per share. As part of these purchases, the spouse of the director received a total of 8,237 warrants to purchase stock at $3.04 per share and the director received 4,286 warrants to purchase stock at $3.50 per share. In July 1999, the Company paid professional fees in the amount of $73,000 to a director of the Company, for services related to the recruitment of NeoMedia's President and Chief Operating Officer and one sales representative. 10. COMMITMENTS AND CONTINGENCIES NeoMedia leases its office facilities and certain office and computer equipment under various operating leases. These leases provide for minimum rents and generally include options to renew for additional periods. For the years ended December 31, 1999 and 1998, NeoMedia's rent expense was $1,268,000 and $1,057,000, respectively. Beginning December 1, 1996, NeoMedia subleased a portion of its office facilities until the lease expires. The following is a schedule of the future minimum lease payments and receipts under non-cancelable operating leases as of December 31, 1999: PAYMENTS RECEIPTS ---------- --------- (IN THOUSANDS) 2000 ............................................ $661 $183 2001 ............................................ 84 -- 2002 ............................................ 47 -- 2003 ............................................ 5 -- 2004 ............................................ 1 -- Thereafter ...................................... -- -- ---- ---- Total ........................................... $798 $183 ==== ==== The Company has entered into a migration contract (specifically Y2K remediation) with a Colombian customer related to the remediation of certain of the customer's computer systems to be Year 2000 compliant. The total contact is approximately $780,000, of which approximately $750,000 has been recognized as revenue by the Company as of December 31, 1999. As an element to the contract, the Company has guaranteed its work F-20 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 10. COMMITMENTS AND CONTINGENCIES--(CONTINUED) product and resulting Year 2000 compliance of the customer. To this end, during 1999 the Company established bank guarantees in the form of certificates of deposit totaling approximately $150,000 in favor of the customer. The Company believes that it has the ability and intent to complete such remediation in a satisfactory manner and is accounting for this project on a percentage of completion basis. The Company is party to certain litigation in the normal course of business including the following: o A former consultant to NeoMedia has filed an arbitration claim against NeoMedia for approximately $300,000 for an alleged breach by the Company of a consulting agreement. The company has filed a counterclaim in the arbitration. The arbitration of this case is scheduled for hearing in May 2000. Management of the Company, after consultation with legal counsel, is of the opinion that the ultimate resolution of this and other matters will have no material adverse impact on the Company's consolidated financial statements. NeoMedia has entered into various employment and consulting agreements which require an aggregate of approximately $850,000 in annual payments. These employment and consulting agreements extend to various dates through 2001. These agreements also provide for the payment of severance and other benefits under certain conditions. The Y2K issue (i.e. the ability of computer systems to recognize a date using "00" as the year rather than 1900) affects all companies and organizations. As a result of the Company's Y2K efforts, no significant internal problems have occurred to date. The Company has not experienced any problems with suppliers, vendors, customers, or financial institutions. There were no significant expenditures related to Y2K compliance, and the Company does not anticipate any further expenses associated with Y2K. Except as disclosed above, the Company anticipates no future commitments related to sales of its Y2K products. 11. DEFINED CONTRIBUTION SAVINGS PLAN NeoMedia maintains a defined contribution 401(k) savings plan covering substantially all eligible employees meeting certain minimum age and months of service requirements, as defined. Participants may make elective contributions up to established limits. All amounts contributed by participants and earnings on these contributions are fully vested at all times. F-21 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 11. DEFINED CONTRIBUTION SAVINGS PLAN--(CONTINUED) The plan provides for matching and discretionary contributions by NeoMedia, although no such contributions to the plan have been made to date. 12. EMPLOYEE STOCK OPTION PLAN Effective February 1, 1996, NeoMedia adopted the 1996 Stock Option Plan making available for grant to employees of NeoMedia options to purchase up to 1,500,000 shares of NeoMedia's common stock. The stock option committee of the board of directors has the authority to determine to whom options will be granted, the number of options, the related term, and exercise price. The option exercise price shall be equal to or in excess of the fair market value per share of NeoMedia's common stock on the date of grant. Options granted during 1998 and 1997 were granted at an exercise price equal to fair market value on the date of grant. Options granted can not be exercised during the year following the date of grant and must be exercised within ten years from the date of grant. Effective March 27, 1998, NeoMedia adopted the 1998 Stock Option Plan making available for grant to employees of NeoMedia options to purchase up to 8,000,000 shares of NeoMedia's common stock. The stock option committee of the board of directors has the authority to determine to whom options will be granted, the number of options, the related term, and exercise price. The option exercise price may be less than the fair market value per share of NeoMedia's common stock on the date of grant. Options granted during 1999 and 1998 were granted at an exercise price equal to fair market value on the date of grant. Options generally vest 20% upon grant and 20% per year thereafter. The options expire ten years from the date of grant. F-22 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 12. EMPLOYEE STOCK OPTION PLAN--(CONTINUED) A summary of the status of NeoMedia's 1996 and 1998 stock option plans as of and for the years ended December 31, 1999 and 1998 is as follows:
1999 1998 ----------------------------- --------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE EXERCISE EXERCISE SHARES PRICE SHARES PRICE ---------------- ---------- --------------- --------- (IN THOUSANDS) (IN THOUSANDS) Outstanding at beginning of year ......... 3,164 $ 4.40 1,405 $ 2.64 Granted .................................. 1,721 4.71 2,281 5.26 Exercised ................................ (599) 1.77 (274) 1.02 Forfeited ................................ (868) 5.79 (248) 6.02 ----- ------- ----- ------- Outstanding at end of year ............... 3,418 $ 4.43 3,164 $ 4.40 ===== ======= ===== ======= Options exercisable at year-end .......... 1,398 1,483 Weighted-average fair value of options granted during the year ................ $ 2.68 $ 2.33 Available for grant at the end of the year ............................ 5,162 6,015
The following table summarizes information about NeoMedia's stock options outstanding as of December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - --------------------------------------------------------------------------- ---------------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE - --------------------- ---------------- ------------------ ----------- --------------- ---------- (IN THOUSANDS) (IN THOUSANDS) $-- to $ .84 246 6.1 years $ .84 245 $ .84 1.88 to 2.91 518 8.8 years 2.61 243 2.52 3.00 to 4.91 1,171 8.4 years 3.42 389 3.70 5.00 to 7.88 1,327 9.2 years 6.19 452 6.57 8.00 to 10.88 156 8.7 years 8.81 69 9.06 - --------------------- ----- ------------------ ------ --- ------ $ .84 to $10.88 3,418 8.6 years $ 4.43 1,398 $ 4.19 ===================== ===== ================== ====== ===== ======
F-23 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 12. EMPLOYEE STOCK OPTION PLAN--(CONTINUED) In December 1998, the Company issued 30,000 options to buy shares of the Company's common stock to a director at a price of $2.00 per share for consulting services rendered, and recognized $25,000 in expense in its 1998 consolidated financial statements. In December 1999, the Company issued 20,000 options to buy shares of the Company's common stock to an outside consultant at a price of $7.00 per share for consulting services rendered, and recognized $28,200 in expense in its 1999 consolidated financial statements. 13. SEGMENT INFORMATION For the year ended December 31, 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). SFAS 131 supersedes Financial Accounting Standards Board's SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise." SFAS 131 establishes standards for the way that business enterprises report information about operating segments in annual financial statements. SFAS 131 also establishes standards for related disclosures about products and services, geographic areas and major customers. The adoption of SFAS 131 did not affect results of operations or financial position, but did affect the disclosure of segment information. The Company is organized into two primary business segments: (a) NeoMedia SI, and (b) NeoMedia ASP. Performance is evaluated and resources allocated based on specific segment requirements and measurable factors. Management uses the Companies internal income statements to evaluate each business unit's performance. Assets of the business units are not relevant for management of the business segments nor for disclosure. F-24 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 13. SEGMENT INFORMATION--(CONTINUED) Operational results for the two segments for the years ended December 31, 1999 and 1998 are presented below: NEOMEDIA SI NEOMEDIA ASP CONSOLIDATED ------------- -------------- ------------- YEAR ENDED DECEMBER 31, 1999 Revenue .................... $ 24,461 $ 795 $ 25,256 Net Loss ................... (4,556) (5,916) (10,472) YEAR ENDED DECEMBER 31, 1998 Revenue .................... $ 23,371 $ 107 $ 23,478 Net Loss ................... (8,786) (2,709) (11,495) 14. COMMON STOCK During the year ended December 31, 1999, the Company issued through private placements 1,978,794 shares of the Company's Common Stock for proceeds of $8.1 million. In connection with these private placements, the Company also issued 414,666 warrants. During the year ended December 31, 1999, 231,764 of the Company's outstanding warrants were exercised for proceeds of approximately $75,000. In 1999, an unrelated third party converted their $2.0 million note receivable from the Company into shares of the Company's common stock at a price of $4.00 per share. The unrelated third party also received 200,000 warrants. 15. LIQUIDITY AND SUBSEQUENT EVENTS During the years ended December 31, 1999 and 1998 the Company's net loss totaled approximately $10,472,000 and $11,495,000 respectively. As of December 31, 1999 the Company has an accumulated deficit of approximately $32,466,000, had a working capital deficit of approximately $1,667,000 and approximately $2,460,000 in unrestricted cash balances. Subsequent to December 31, 1999, the following events have occurred: o During January and February 2000, the Company repaid its two of its notes payable in the aggregate amount of $500,000. o In January, 2000, the Company issued 381,356 shares of the Company's common stock at a price of $3.75 per share to an unrelated party. In connection with the sale, the Company also issued 12,571 warrants with an exercise price of $7.19, 5,400 warrants with an exercise price of $6.44, and 12,166 warrants with an exercise price of $7.37. Proceeds from these transactions were $1.4 million. F-25 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 15. LIQUIDITY AND SUBSEQUENT EVENTS--(CONTINUED) o In February, 2000, the Company issued 39,535 shares of the Company's common stock at a price of $6.88 per share to an unrelated party. In connection with the sale, the Company also issued 2,500 warrants with an exercise price of $12.74 and 1,454 warrants with an exercise price of $9.56. Proceeds from these transactions were $272,000. o In February, 2000, the Company issued 50,000 shares of the Company's common stock at a price of $6.00 per share to an unrelated party. In connection with the sale, the Company also issued 2,982 warrants with an exercise price of $10.06. Proceeds from this transaction were $300,000. o In March, 2000, the Company issued 1,000,000 shares of the Company's common stock at a price of $7.50 per share to an unrelated party. In connection with the sale, the Company also issued 275,000 warrants with an exercise price of $7.50 and 125,000 warrants with an exercise price of $15.00. The Company must also nominate a person from this unrelated party to NeoMedia's Board of Directors. Proceeds from this transaction were $7.5 million. o [During the first quarter 2000 through March 17, 2000 the Company has raised $2.9 million from the exercise of stock warrants and options.] The Company's unrestricted cash balance at March 17, 2000 was approximately $11.9 million (unaudited). The Company also has an agreement from an unrelated third party to invest an additional $7.5 million in the Company through the purchase of unissued shares of common stock. F-26 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Information called for by Item 10 of Part III is incorporated by reference to the definitive Proxy Statement for the 2000 Annual Meeting of Shareholders to be held tentatively on June 20, 2000, to be filed with the Commission within 120 days of the end of the Company's last fiscal year. ITEM 10. EXECUTIVE COMPENSATION Information called for by Item 11 of Part III is incorporated by reference to the definitive Proxy Statement for the 2000 Annual Meeting of Shareholders to be held tentatively on June 20, 2000, to be filed with the Commission within 120 days of the end of the Company's last fiscal year. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information called for by Item 12 of Part III is incorporated by reference to the definitive Proxy Statement for the 2000 Annual Meeting of Shareholders to be held tentatively on June 20, 2000, to be filed with the Commission within 120 days of the end of the Company's last fiscal year. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information called for by Item 13 of Part III is incorporated by reference to the definitive Proxy Statement for the 2000 Annual Meeting of Shareholders to be held tentatively on June 20, 2000, to be filed with the Commission within 120 days of the end of the Company's last fiscal year. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (1) The following exhibits required by Item 601 of Regulation S-B to be filed herewith are hereby incorporated by reference:
EXHIBIT NO. DESCRIPTION ------- ----------- 3.1 Articles of Incorporation of Dev-Tech Associates, Inc. and amendment thereto (Incorporated by reference to Exhibit 3.1 to NeoMedia's Registration Statement No. 333-5534 (the "Registration Statement")). 3.2 By-laws of Dev-Tech Associates, Inc. (Incorporated by reference to Exhibit 3.2 to NeoMedia's Registration Statement).
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EXHIBIT NO. DESCRIPTION ------- ----------- 3.3 Restated Certificate of Incorporation of DevSys, Inc. (Incorporated by reference to Exhibit 3.3 to NeoMedia's Registration Statement). 3.4 By-laws of DevSys, Inc. (Incorporated by reference to Exhibit 3.4 to NeoMedia's Registration Statement). 3.5 Articles of Merger and Agreement and Plan of Merger of DevSys, Inc. and Dev-Tech Associates, Inc. (Incorporated by reference to Exhibit 3.5 to NeoMedia's Registration Statement). 3.6 Certificate of Merger of Dev-Tech Associates, Inc. into DevSys, Inc. (Incorporated by reference to NeoMedia's Registration Statement). 3.7 Articles of Incorporation of Dev-Tech Migration, Inc. and amendment thereto (Incorporated by reference to Exhibit 3.7 to NeoMedia's Registration Statement). 3.8 By-laws of Dev-Tech Migration, Inc. (Incorporated by reference to Exhibit 3.8 to NeoMedia's Registration Statement). 3.9 Restated Certificate of Incorporation of DevSys Migration, Inc. (Incorporated by reference to Exhibit 3.9 to NeoMedia's Registration Statement). 3.10 Form of By-laws of DevSys Migration, Inc. (Incorporated by reference to Exhibit 3.10 to NeoMedia's Registration Statement). 3.11 Form of Agreement and Plan of Merger of Dev-Tech Migration, Inc. into DevSys Migration, Inc. (Incorporated by reference to Exhibit 3.11 to NeoMedia's Registration Statement). 3.12 Form of Certificate of Merger of Dev-Tech Migration, Inc. into DevSys Migration, Inc. (Incorporated by reference to Exhibit 3.12 to NeoMedia's Registration Statement). 3.13 Certificate of Amendment to Certificate of Incorporation of DevSys, Inc. changing its name to NeoMedia Technologies, Inc. (Incorporated by reference to Exhibit 3.13 to NeoMedia's Registration Statement). 3.14 Form of Certificate of Amendment to Certificate of Incorporation of NeoMedia Technologies, Inc. authorizing a reverse stock split (Incorporated by reference to Exhibit 3.14 to NeoMedia's Registration Statement). 4.1 Form of Certificate for Common Stock of DevSys, Inc. (Incorporated by reference to Exhibit 4.1 to NeoMedia's Registration Statement). 4.2 Form of Joseph Charles' Warrant Agreement (Incorporated by reference to Exhibit 4.2 to NeoMedia's Registration Statement). 4.3 Form of Private Placement Financing Converted Securities Registration Rights Agreement (Incorporated by reference to Exhibit 4.4 to NeoMedia's Registration Statement). 4.4 Form of 10% Unsecured Subordinated Convertible Promissory Note (Incorporated by reference to Exhibit 4.5 to NeoMedia's Registration Statement). 4.5 Form of Principal Stockholder's Warrant (Incorporated by reference to Exhibit 4.6 to NeoMedia's Registration Statement). 4.6 Form of Placement Agent's Warrant Registration Rights Agreement (Incorporated by reference to Exhibit 4.7 to NeoMedia's Registration Statement). 4.7 Form of Placement Agent's Warrant for the Purchase of Shares of Common Stock and Warrants (Incorporated by reference to Exhibit 4.8 to NeoMedia's Registration Statement). 4.8 Form of Warrant Agreement and Warrant (Incorporated by reference to Exhibit 4.9 to NeoMedia's Registration Statement). 4.9 Form of Warrant to Charles W. Fritz (Incorporated by reference to Exhibit 4.10 to NeoMedia's Form 10-KSB for the year ended December 31, 1997) 4.11 Form of Warrant to Dominick & Dominick, Incorporated (Incorporated by reference to Exhibit 4.11 to NeoMedia's Form 10-KSB for the year ended December 31, 1997)
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EXHIBIT NO. DESCRIPTION ------- ----------- 4.12 Form of Warrant to Compass Capital, Inc. (Incorporated by reference to Exhibit 4.12 to NeoMedia's Form 10-KSB for the year ended December 31, 1997) 4.13 Form of Warrant to Thornhill Capital, L.L.C. (Incorporated by reference to Exhibit 4.10 to NeoMedia's Form 10-KSB for the year ended December 31, 1997) 4.14 Form of Warrant to Southeast Research Partners, Inc. (Incorporated by reference to Exhibit 4.14 to NeoMedia's Form 10-KSB for the year ended December 31, 1997) 4.15 Form of Warrant to Joseph Charles & Associates, Inc. (Incorporated by reference to Exhibit 4.15 to NeoMedia's Form 10-KSB for the year ended December 31, 1997) 10.1 Form of Nonsolicitation and Confidentiality Agreement (Incorporated by reference to Exhibit 10.2 to NeoMedia's Registration Statement). 10.2 Employment Agreement dated May 1, 1996 between Dev-Tech Associates, Inc. and Charles W. Fritz (Incorporated by reference to Exhibit 10.3 to NeoMedia's Registration Statement). 10.3 Employment Agreement dated April 1, 1996 between Dev-Tech Associates, Inc. and Robert T. Durst, Jr. (Incorporated by reference to Exhibit 10.4 to NeoMedia's Registration Statement). 10.4 Employment Agreement dated May 1, 1996 between Dev-Tech Associates, Inc. and Charles T. Jensen (Incorporated by reference to Exhibit 10.5 to NeoMedia's Registration Statement). 10.5 Lease dated August 29, 1995 for premises located at 280 Shuman Boulevard, Naperville, Illinois (Incorporated by reference to Exhibit 10.8 to NeoMedia's Registration Statement). 10.6 Guaranty (By Individual) dated October 20, 1992, to IBM Credit Corporation from Charles W. Fritz, as Guarantor (Incorporated by reference to Exhibit 10.40 to NeoMedia's Registration Statement). 10.7 Dev-Tech Associates, Inc. Annual Incentive Plan for Management (Incorporated by reference to Exhibit 10.43 to NeoMedia's Registration Statement). 10.8 Dev-Tech Associates, Inc. 1996 Stock Option Plan (Incorporated by reference to Exhibit 10.44 to NeoMedia's Registration Statement). 10.9 First Amendment and Restatement of Dev-Tech Associates, Inc. 1996 Stock Option Plan (Incorporated by reference to Exhibit 10.45 to NeoMedia's Registration Statement). 10.10 Form of Stock Option Agreement--Dev-Tech Associates, Inc. (Incorporated by reference to Exhibit 10.46 to NeoMedia's Registration Statement). 10.11 Dev-Tech Migration, Inc. 1996 Stock Option Plan (Incorporated by reference to Exhibit 10.47 to NeoMedia's Registration Statement). 10.12 First Amendment and Restatement of Dev-Tech Migration, Inc. 1996 Stock Option Plan (Incorporated by reference to Exhibit 10.48 to NeoMedia's Registration Statement). 10.13 Form of Stock Option Agreement--Dev-Tech Migration, Inc. (Incorporated by reference to Exhibit 10.49 to NeoMedia's Registration Statement). 10.14 Dev-Tech Associates, Inc. 401(k) Plan and amendments thereto (Incorporated by reference to Exhibit 10.50 to NeoMedia's Registration Statement). 10.15 Mutual General Release and Stock Purchase Agreement with the Estate of Thomas Ruberry (Incorporated by reference to Exhibit 10.52 to NeoMedia's Registration Statement). 10.16 First Amendment and Restatement of NeoMedia Technologies, Inc. 1996 Stock Option Plan (As Established Effective February 1, 1996, and as amended through November 18, 1996) (Incorporated by reference to Exhibit 10.60 to NeoMedia's Registration Statement). 10.17 Agreement of Lease Between First Union National Bank of Florida and NeoMedia Technologies, Inc. Dated November 27, 1996 (Incorporated by reference to Exhibit 10.43 to NeoMedia's Form 10-KSB for the year ended December 31, 1996).
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EXHIBIT NO. DESCRIPTION ------- ----------- 10.18 Sublease Agreement Between NeoMedia Technologies, Inc. and Lancaster Annuity Services Company Dated November 8, 1996 (Incorporated by reference to Exhibit 10.44 to NeoMedia's Form 10-KSB for the year ended December 31, 1996). 10.19 Master Lease Between William E. Fritz and NeoMedia Technologies, Inc. Dated November 6, 1996 (Incorporated by reference to Exhibit 10.46 to NeoMedia's Form 10-KSB for the year ended December 31, 1996). 10.20 Agreement for Wholesale Financing (Security Agreement) Between IBM Credit Corporation and NeoMedia Technologies, Inc. Dated February 20, 1997 (Incorporated by reference to Exhibit 10.47 to NeoMedia's Form 10-KSB for the year ended December 31, 1996). 10.21 Collateralized Guaranty Between IBM Credit Corporation and NeoMedia Migration, Inc. Dated February 20, 1997 (Incorporated by reference to Exhibit 10.48 to NeoMedia's Form 10-KSB for the year ended December 31, 1996). 10.22 Lease By and Between American National Bank and Trust Company of Chicago and NeoMedia Technologies, Inc. Dated February 25, 1997 (Incorporated by reference to Exhibit 10.50 to NeoMedia's Form 10-QSB for the quarter ended March 31, 1997). 10.23 Letter Agreement by and between Dominick & Dominick, Incorporated and NeoMedia Technologies, Inc. Dated March 20, 1997 (Incorporated by reference to Exhibit 10.51 to NeoMedia's Form 10-QSB for the quarter ended June 30, 1997). 10.24 Stock Purchase Agreement Dated August 30, 1997 By and Between NeoMedia Technologies, Inc. and George Luntz and Gerald L. Willis (Incorporated by reference to Exhibit 99.1 to NeoMedia's Form 8-K dated September 25, 1997). 10.25 Registration Rights Agreement Dated September 25, 1997 By and Between NeoMedia Technologies, Inc. and Gerald L. Willis and George G. Luntz (Incorporated by reference to Exhibit 99.2 to NeoMedia's Form 8-K dated September 25, 1997). 10.26 Consulting Agreement Dated August 30, 1997 By and Between NeoMedia Technologies, Inc. and Gerald L. Willis. (Incorporated by reference to Exhibit 99.3 to NeoMedia's Form 8-K dated September 25, 1997). 10.29 Purchase Agreement dated December 31, 1998, by and between NeoMedia Technologies, Inc. and Solar Communications, Inc. 10.30 NeoMedia Technologies, Inc. 1998 Stock Option Plan (Incorporated by reference to Appendix A to NeoMedia's Form 14A Filed on February 18, 1998). 10.31 Amendment to NeoMedia Technologies 1998 Stock Option Plan (Incorporated by reference to text of NeoMedia form 14A filed on July 2, 1999) 21 Subsidiaries (Incorporated by reference to description of Company's subsidiaries contained in Part I, Item I of this form 10-KSB. (2) The following exhibits required by Item 601 of Regulation S-B are hereby filed herewith: 10.32 Employment agreement dated August 2, 1999 between NeoMedia Technologies, Inc. and William Goins 23.1 Consent of Arthur Andersen LLP 23.2 Consent of KPMG LLP 27.1 Article 5 Financial Data
(b) Reports on Form 8-K N/A III-4 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Fort Myers, State of Florida, on the 28th day of March, 2000. NEOMEDIA TECHNOLOGIES, INC. REGISTRANT By: /s/ CHARLES W. FRITZ ----------------------------------------- Charles W. Fritz, Chief Executive Officer and Chairman of the Board In accordance with the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 28, 2000.
SIGNATURES TITLE ---------- ----- /s/ CHARLES W. FRITZ Chief Executive Officer, Chairman of the Board - ---------------------------------- and Director Charles W. Fritz /s/ WILLIAM F. GOINS President, Chief Operating Officer and Director - ---------------------------------- William F. Goins /s/ WILLIAM E. FRITZ Secretary and Director - ---------------------------------- William E. Fritz /s/ CHARLES T. JENSEN Chief Financial Officer, Treasurer and Director - ---------------------------------- Charles T. Jensen /s/ ROBERT T. DURST, JR. Director - ---------------------------------- Robert T. Durst, Jr. /s/ A. HAYES BARCLAY Director - ---------------------------------- A. Hayes Barclay /s/ JAMES J. KEIL Director - ---------------------------------- James J. Keil /s/ PAUL REECE Director - ---------------------------------- Paul Reece /s/ JOHN A. LOPIANO Director - ---------------------------------- John A. Lopiano
III-5 EXHIBIT INDEX SEQUENTIAL EXHIBIT PAGE NUMBER NUMBER DOCUMENT ----------- ------- -------- E-1 23.1 Independent Auditors' Consent E-2 23.2 Independent Auditors' Consent E-3 - E-15 10.32 Employment Agreement between NeoMedia Technologies, Inc. and William Goins E-16 27.1 Article 5 Financial Data Schedule for December 31, 1999 EX-23.1 2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accounts, we hereby consent to the incorportion of our report, included in this Form 10-K, into the Company's previously filed registration statement on Forms S-8 (File nos. 333-80591 and 333-42477). /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Tampa, Florida, March 27, 2000 E-1 EX-23.2 3 EXHIBIT 23.2 Independent Auditors' Consent The Board of Directors NeoMedia Technologies, Inc. We consent to incorporation by reference in the registration statements on Form S-8 (Nos.333-42477 and 333-80591) of NeoMedia Technologies, Inc. of our report dated March 12, 1999, relating to the consolidated balance sheet of NeoMedia Technologies, Inc. and subsidiaries (collectively referred to as the "Company") as of December 31, 1998, and the related consolidated statements of operations, cash flows and stockholders' equity for the year then ended, which report appears in the December 31, 1999 annual report on Form 10-KSB of NeoMedia Technologies, Inc. Our report dated March 12, 1999 contains an explanatory paragraph that states that the Company has suffered recurring losses from operations, has a significant accumulated deficit, and a working capital deficiency which raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty. /s/ KPMG LLP KPMG LLP Miami, Florida March 29, 2000 E-2 EX-10.32 4 EXHIBIT 10.32 E M P L O Y M E N T A G R E E M E N T THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of the 2nd day of August, 1999, by and between NeoMedia Technologies, Inc., a Delaware corporation with offices at 2201 Second Street, Suite 600, Fort Myers, Florida (the "Company") and William F. Goins III (hereinafter referred to as the "Executive"). WHEREAS, the Company desires to enter into an agreement for the employment of Executive by the Company to be assured of the continued services of Executive and Executive desires to enter into employment by the Company on the terms and subject to the conditions provided herein. NOW, THEREFORE, in consideration of the premises and of the terms, covenants and conditions hereinafter contained, the parties hereto agree as follows: 1. EMPLOYMENT, DUTIES AND AUTHORITY. 1.1 Duties and Responsibilities. The Company hereby employs Executive and Executive hereby accepts employment by the Company as President and Chief Operating Officer, on the terms and subject to the covenants and conditions herein contained and in accordance with all Company policy and procedures, which may vary from time to time at the discretion of the Company. The Executive shall have such duties, responsibilities and authority commensurate with his executive position and as the by-laws of the Company provide and as the Board of Directors of the Company shall, from time to time, prescribe. During the term of Executive's employment hereunder, Executive shall devote his full time to the performance of his duties and responsibilities hereunder and will perform such duties and responsibilities faithfully and with reasonable care for the welfare of the Company. Executive shall provide services to the Company principally at Company corporate headquarters. During the term of his employment hereunder, Executive shall not perform any services, whether or not for compensation, for any person, firm, partnership, corporation or other entity of any kind or nature whatsoever, other than the Company, without the express written consent of the President of the Company; provided, however, notwithstanding the foregoing provisions to the contrary, Executive may volunteer his services to charitable, religious and not-for-profit organizations and may write articles and books provided that such activities do not prevent Executive from performing his services hereunder and the entities to which he provides such services or the other activities in which he engages are not in competition with the Company. 2. COMPENSATION. 2.1 Base Salary. The Company shall pay to Executive during the Initial Term (as hereinafter defined) of employment hereunder, and each renewal term, a salary of one hundred eighty thousand ($180,000) dollars per annum ("Base Salary"). The Base Salary shall be subject to review from time to time, whereby the Executive shall be eligible for salary increases at the discretion of the Compensation Committee of the Company Board of Directors. The Base Salary, less all amounts which the Company is required to withhold from such payments for applicable federal, state or local laws or regulation, shall be paid by the Company to the Executive in accordance with the Company's policies and procedures. 2.2 Sign-on Bonus. In consideration of Executive's employment during the Initial Term, Company shall pay to Executive a cash sign-on bonus of twenty-five thousand ($25,000) dollars (the "Sign-on Bonus"). The Sign-on Bonus shall be paid with the Executive's first Base Salary paycheck, less all amounts which the Company is required to withhold from such payments for applicable federal, state or local laws or regulation. 2.3 Stock Options. In further consideration of Executive's employment, Company grants to Executive stock options, from the 1998 Stock Option Plan, for 100,000 shares of the Company's common stock (the "Stock Options"), subject to approval by the Stock Option Committee of the Company's Board of Directors. Such options shall have an exercise price equal to the closing NASDAQ price for such stock on Executive's first date of employment, and shall vest in accordance with the Company's standard vesting schedule of twenty percent immediately upon grant, and E-3 an additional twenty percent upon each of the four successive annual anniversaries of such grant. The Stock Options shall be subject to the terms and conditions of the Stock Option Agreement and the 1998 Stock Option Plan. Executive shall be eligible for additional stock option grants, anticipated to be 100,000 additional Stock Options annually, at the discretion of the Compensation Committee and the Stock Option Committee of the Board of Directors, subject to the terms and conditions stated herein. 2.4 Incentive Plan. Executive shall participate in, and be deemed an eligible employee of, the Company's Annual Incentive Plan for Management in accordance with the provisions of such plan. During the calendar year 1999, Executive shall be eligible for a performance bonus of 75% of Base Salary if the Company achieves 100% of its financial plan. Such bonus shall become payable at a reduced percentage rate if Company achieves 85% of its sales goal and 60% of its profitability goal. The 1999 bonus will be prorated based on the performance and length of employment of Executive during the calendar year 1999, and subject to all provisions of the Company's Plan. 2.5 Payment During Absences. If Executive shall be absent from work on account of personal injuries or sickness, he shall, subject to the provisions of Section 5.1(b), continue to receive the payments of Base Salary provided for in paragraph 2.1 hereof; provided, however, that any such payment may, at the Company's sole option, be reduced by the amount which the Executive may receive, for the period covered by any such payments, disability payments (i) pursuant to any disability insurance which the Company, in its sole discretion, may maintain, or (ii) under any governmental program for disability compensation. 3. BENEFITS; EXPENSE REIMBURSEMENT. Executive shall be entitled to those benefits described in this Section 3, and shall not be entitled to any other benefits of any kind or nature whatsoever. 3.1 Benefits. Executive shall receive all other benefits of employment available to other employees of the Company generally, including, without limitation, vacation time off, other time off, participation in any medical, dental or other group health plans or accident benefits, life insurance benefits, pension or profit-sharing plans, as shall be instituted by the Company, in its sole discretion. Set forth on Exhibit A hereto is a summary of the current benefits full time employees of the Company are entitled to receive. Any or all of such benefits may be modified or discontinued at any time or from time to time by the Company in its sole discretion (provided that such modification or discontinuance is applicable to all of the Company's full time employees) and the Company shall not have any obligation of any kind or nature whatsoever to provide Executive with any benefit in place of such modified or discontinued benefit (a substituted benefit), unless such substituted benefit is provided to all full time employees of the Company. 3.2 Relocation Benefits. Executive shall be reimbursed for actual relocation expenses incurred in relocating his household from Illinois to Sarasota, Florida. Relocation expenses shall be paid in accordance with the Company's Relocation Policy, but shall not exceed the sum of twenty-five thousand ($25,000) dollars ("Relocation Benefits"). Executive shall be afforded Relocation Benefits only once, unless the corporate headquarters of the Company shall be relocated at least eighty (80) miles from its present location. 3.3 Automobile Lease. Executive shall be eligible to participate in Company's Executive Automobile Leasing Program, and will be provided a vehicle in accordance with, and subject to, the terms of the Company's Executive Automobile Leasing policy. In accordance with applicable tax laws, the value of personal use of the company vehicle shall be reported as taxable income to the Executive. 3.4 Expense Reimbursement. During the term hereof, the Company shall reimburse Executive for all reasonable and necessary business related expenses incurred by Executive in the performance of his duties hereunder, including without limitation, travel, meals, lodging, office supplies or equipment subject to such limitations, restrictions, reporting standards and policies and procedures that the Company may from time to time establish. Executive shall provide to the Company promptly after incurring any such expenses a detailed report thereof and such documentation E-4 as the Company shall from time to time require and as shall be sufficient to support the deductibility of all such expenses by the Company for federal income tax purposes. 4. TERM. The employment of Executive hereunder shall be for a term commencing on August 1, 1999 and expiring on July 31, 2000 (the "Initial Term"). Upon the expiration of the Initial Term or any renewal term of Executive's employment hereunder, the term of such employment automatically shall be renewed for an additional term of one year unless Executive or the Company shall give notice of the termination of Executive's employment and this Agreement by written notice to the other no less than 60 days prior to the date of expiration of the Initial Term or any renewal term. 5. TERMINATION BY COMPANY. 5.1 Right To Terminate Prior To Expiration of Term. Notwithstanding any other provision herein contained to the contrary, the Company shall be entitled to terminate this Agreement and the employment of Executive prior to the expiration of the Initial Term or any renewal term: (a) for any reason (other than an event of default by the Executive) upon written notice to Executive; (b) immediately upon the occurrence of an event of default by Executive, as provided herein; or (c) upon Death or Disability of Executive, as defined herein. 5.2 Event of Default by Executive. For purposes of Section 5.1, an event of default with respect to Executive shall include: (a) any failure by Executive to perform his duties and responsibilities hereunder in a faithful and diligent manner or with reasonable care and, if such failure can be cured, the failure by Executive to cure such failure within five days after written notice thereof shall have been given to Executive by the Company; (b) violation of Company policy, as prescribed from time to time by Company, and if such violation can be cured, the failure by Executive to cure such violation within five days after written notice thereof shall have been given to Executive by the Company; (c) embezzlement or conversion by Executive of any funds of the Company or any customer of the Company; (d) destruction or conversion by Executive of any property of the Company, without the Company's consent; (e) Executive's conviction of a felony; (f) Executive's adjudication as an incompetent; (g) Executive's habitual intoxication; (h) Executive's drug addiction; (i) Conduct unbefitting an executive of Company which, in the discretion of the Board of Directors of the Company, casts the Company in a shameful light; (j) The commission by Executive of an act resulting in injury to the business, property or reputation of the Company; (k) The commission of an act by Executive in the performance of his duties hereunder which amounts to negligence; E-5 (l) The refusal by Executive to perform, or substantial neglect of, the duties assigned to Executive; (m) Any violation of any statutory or common law duty of loyalty to the Company; or (n) Executive's breach of paragraphs 7, 8, 9 or 10 hereof. 5.3 Disability. For purposes of this Agreement, the term Disability means any physical or mental condition of Executive which, as determined by the Company in its sole discretion, is expected to continue indefinitely and which renders Executive incapable of performing any substantial portion of the services contemplated hereunder. The mere effort by Executive to carry on the duties of his employment shall not be sufficient if it is determined by the Company, in its sole discretion, that Executive is not making a substantial full-time contribution to the Company or Executive's actions as a whole are detrimental to the Company. 5.4 Effect Of Termination. 5.4.1 Termination Without Cause. In the event of termination of this Agreement and Executive's employment pursuant to Paragraph 5.1(a) hereof, all rights and obligations of the Company and Executive hereunder shall terminate on the date of such termination, subject to the following: (a) Executive shall be entitled to receive (subject to a right of setoff or counterclaim by the Company) all Base Salary and benefits which shall have accrued prior to the date of such termination. Notwithstanding anything to the contrary, the obligation of the Company for the payment of Base Salary or benefits for the remainder of the then-current Term shall terminate as of the date of such termination; (b) Executive shall be entitled to receive severance pay in an amount equal to Executive's actual Base Salary for the six (6) months immediately preceding such termination (the "Severance Pay"). In the event Executive shall not have been employed by Company for six months preceding such termination, Executive shall nevertheless receive Severance Pay, calculated as Executive's actual Base Salary for the number of actual months thus employed, plus an additional sum of one-twelfth (1/12th) the Base Salary stated in Section 2.1 for each additional month which when added to actual months thus employed shall equal a total of six (6) months. Severance Pay shall be payable, at the Company's option, in a lump sum distribution or in accordance with the Company's regular pay cycle, and in either case shall be subject to withholding for applicable federal, state or local laws or regulations; and (c) All rights of the Company or Executive which shall have accrued hereunder prior to the date of such termination and all provisions of this Agreement which are to survive termination of employment of Executive hereunder, including those arising under Section 7, 8, 9 and 10 shall survive such termination, and the Company and Executive shall continue to be bound by such provisions in accordance with their terms. Notwithstanding anything to the contrary, for the purposes of this section, the right to receive Base Salary or other compensation for the remainder of the then-current Term of this Agreement shall not survive. 5.4.2 Termination For Cause. In the event of termination of this Agreement and Executive's employment pursuant to Paragraph 5.1(b) hereof, all rights and obligations of the Company and Executive hereunder shall terminate on the date of such termination, subject to the following: (a) Executive shall be entitled to receive (subject to a right of setoff or counterclaim by the Company) all Base Salary and benefits which shall have accrued prior to the date of such termination. Notwithstanding anything to the contrary, the obligation of the Company for the payment of Base Salary or benefits for the remainder of the then-current Term shall terminate as of the date of such termination; E-6 (b) In the event such termination shall occur prior to expiration of the Initial Term, Company shall be entitled to recover, by set off or by any other legal means, a pro rata share of the Sign-on Bonus and Relocation Benefits paid to Executive, in an amount proportionate to the remainder of the Initial Term rendered unfulfilled by reason of such termination; and (c) All rights of the Company or Executive which shall have accrued hereunder prior to the date of such termination and all provisions of this Agreement which are to survive termination of employment of Executive hereunder, including those arising under Section 7, 8, 9 and 10 shall survive such termination, and the Company and Executive shall continue to be bound by such provisions in accordance with their terms. Notwithstanding anything to the contrary, for the purposes of this section, the right to receive Base Salary or other compensation for the remainder of the then-current Term of this Agreement shall not survive. 5.5 Death of Executive. This Agreement and all rights and obligations of the parties hereunder shall terminate immediately upon the death of Executive except that the Company shall pay to the heirs, legatees or personal representative of Executive all compensation or benefits hereunder accrued but not paid to the date of Executive's death. 5.6 Right to Set Off. The Company shall have the right to offset against any payment due Executive under this Agreement such amount as shall compensate the Company, or its affiliates, for any losses, injury or other damage sustained as a result of any act or omission to act of Executive regardless of whether such conduct gave rise to such termination. In the event that any such loss, injury or other damage cannot be ascertained with certainty within fourteen days after the termination of Executive's employment, the Company shall escrow all payments due Executive which are being set-off pursuant to the provisions of this subsection in an interest-bearing account until the amount of loss, injury or other damage can be ascertained, at which time any amount in excess of such estimated loss, injury, or other damage will be paid, with interest thereon as earned in such interest-bearing account, to Executive; provided, however, payment of any such amount to Executive shall not, in any manner or way whatsoever, release Executive from liability to the Company for any amount of such loss, injury, or damage sustained by the Company as a result of Executive's acts or omissions to act, regardless of such payments. 6. TERMINATION BY EXECUTIVE. 6.1 Executive's Right to Terminate. In addition to Executive's right to terminate set forth in Section 4, Executive shall be entitled to terminate his employment with the Company under this Agreement for any reason (other than upon an event of default by the Company) upon (a) sixty (60) days prior written notice to Company, or (b) immediately upon the occurrence of an event of default by the Company. 6.2 Event of Default By Company. 6.2.1 For purposes of this Section 6, an event of default with respect to the Company shall mean: (a) Any failure by the Company to perform its obligations to Executive under this Agreement and (if such failure can be cured) the failure by the Company to cure such failure within thirty (30) days after written notice thereof shall have been given to the Company by Executive; (b) Company's filing a petition for relief under any chapter of Title a11 of the United States Code or a petition to take advantage of any insolvency laws of the United States of America or any state thereof; (c) Company's making an assignment for the benefit of its creditors; (d) Company's consent to the appointment of a receiver of itself or of the whole or any substantial part of its property; or E-7 (e) Company's filing a petition or answer seeking reorganization under the Federal Bankruptcy Laws or any other applicable law or statute of the United States of America or any state thereof. 6.2.2 For the purposes of this Section 6, an event of default by Company shall not occur merely if: (a) the Company should sell any or all of its assets, business units or lines of business; (b) the Company should acquire new assets, business units or lines of business; (c) the number of subordinates reporting to Executive shall increase or decrease; or (d) Executive is asked to assume reasonable additional or different job responsibilities not inconsistent with his expertise or job title. 6.3 Effect Of Termination. 6.3.1 Termination Without Cause. In the event of termination of the Agreement by Executive in accordance with the provisions of Section 6.1(a) hereof, all rights and obligations of the Company and Executive hereunder shall terminate on the date of such termination, subject to the following: (a) Executive shall be entitled to receive all Base Salary and benefits which shall have accrued prior to the date of such termination. Notwithstanding anything to the contrary, the obligation of the Company for the payment of Base Salary or benefits for the remainder of the then-current Term shall terminate as of the date of such termination; (b) In the event such termination shall occur prior to expiration of the Initial Term, Company shall be entitled to recover, by set off or by any other legal means, a pro rata share of the Sign-on Bonus and Relocation Benefits paid to Executive, in an amount proportionate to the remainder of the Initial Term rendered unfulfilled by reason of such termination; and (c) All rights of the Company or Executive which shall have accrued hereunder prior to the date of such termination and all provisions of this Agreement which are to survive termination of employment of Executive hereunder, including those arising under Section 7, 8, 9 and 10 shall survive such termination, and the Company and Executive shall continue to be bound by such provisions in accordance with their terms. Notwithstanding anything to the contrary, for the purposes of this section, the right to receive Base Salary or other compensation for the remainder of the then-current Term of this Agreement shall not survive. 6.3.2 Termination For Cause. In the event of termination of the Agreement by Executive in accordance with the provisions of Section 6.1(b) hereof, all rights and obligations of the Company and Executive hereunder shall terminate on the date of such termination, subject to the following: (a) Executive shall be entitled to receive all Base Salary and benefits which shall have accrued prior to the date of such termination. Notwithstanding anything to the contrary, the obligation of the Company for the payment of Base Salary or benefits for the remainder of the then-current Term shall terminate as of the date of such termination; (b) Executive shall be entitled to receive severance pay in an amount equal to Executive's actual Base Salary for the six (6) months immediately preceding such termination (the "Severance Pay"). In the event Executive shall not have been employed by Company for six months preceding such termination, Executive shall nevertheless receive Severance Pay, calculated as Executive's actual Base Salary for the number of actual months thus employed, plus an additional sum of one-twelfth (1/12th) the Base Salary stated in Section 2.1 for each additional month which when added to actual months thus employed shall equal a total of six (6) months. Severance Pay shall be payable, at the Company's option, in a lump sum distribution or in accordance with the Company's regular pay cycle, and in either case shall be subject to withholding for applicable federal, state or local laws or regulations. E-8 (c) All rights of the Company or Executive which shall have accrued hereunder prior to the date of such termination and all provisions of this Agreement which are to survive termination of employment of Executive hereunder, including those arising under Section 7, 8, 9 and 10 shall survive such termination, and the Company and Executive shall continue to be bound by such provisions in accordance with their terms. Notwithstanding anything to the contrary, for the purposes of this section, the right to receive Base Salary or other compensation for the remainder of the then-current Term of this Agreement shall not survive. 7. NON-COMPETITION AND NON-SOLICITATION. 7.1 Non-Competition and Non-Solicitation. Executive agrees that, so long as he is employed by Company pursuant to this Agreement, and for a period of twelve (12) months following expiration of the term or termination of this Agreement, other than termination by Executive upon the occurrence of an event of default by the Company, he will not, directly or indirectly, as a sole proprietor, member of a partnership, stockholder, investor, officer or director of a corporation, or as an employee, agent, associate, consultant or material creditor of any person, partnership, corporation, joint venture, trust, business trust, association, firm, business organization or other entity of any kind or nature (hereinafter collectively referred to as "Entity") other than the Company or in any other capacity do any of the following: (a) Executive will not, in any manner or way whatsoever, own, manage, operate, finance, join, control, participate in the ownership, management, operation or be connected with, in any manner or way whatsoever, perform services for or otherwise carry on a business anywhere in the world where NeoMedia does business or is negotiating to do business at the time of termination which performs any of the services provided at any time by, or which utilizes or sells any of the products, software or tools developed, sold or owned at any time by, the Company or engages in business similar to the business of the Company at any time during the term of this Agreement; (b) Executive will not, directly or indirectly, induce or attempt to persuade any employee of Company to terminate such employment relationship in order to enter into any relationship with such person or to enter into any such relationship on behalf of any Entity whether or not such Entity is in competition with Company or any of its affiliates; (c) Executive will not, directly or indirectly, solicit any business related to the business conducted by Company from any clients, agencies of clients, customers, or agencies of clients or customers of Company; and (d) Executive will not, directly or indirectly, perform services of any kind or nature for any Entity which engages in or conducts any business that competes with the business of the Company. For the purposes of this Agreement, the words "directly or indirectly" as used in Section 7.1 herein shall include, but not be limited to, (i) acting as an agent, officer, director, representative, consultant, independent contractor, or employee of any Entity or enterprise, and (ii) participating in any such competing Entity or enterprise as an owner, partner, limited partner, member, joint venturer, material creditor or stockholder (except as a stockholder holding less than five percent (5%) interest in a corporation whose shares are traded on a national securities exchange or in the over-the-counter market unless Executive controls such corporation, either alone or with others). 7.2 Acknowledgment. (a) Executive acknowledges that the restrictions set forth in Section 7 hereof are reasonable in scope and essential to the preservation of the Company's business and proprietary properties and interests, and that the enforcement thereof will not in any manner preclude Executive, in the event of Executive's termination of employment with the Company, from becoming gainfully employed in such manner and to such extent as to provide a standard of living for himself, the members of his family and those dependent upon him of at least to the sort and fashion to which he and they have become accustomed and may expect. Executive acknowledges that his expertise is of a special, unique, unusual, extraordinary and intellectual character, which gives said expertise a peculiar value, and that a breach by Executive of the provisions of this Section 7 cannot reasonably or adequately be compensated in damages in an action at law; and such a breach of any of these provisions will cause the Company irreparable injury and damage. Executive further E-9 acknowledges that he possesses unique skills, knowledge and abilities and that competition by him, in violation of the provisions of this Section 7 would be extremely detrimental to the Company. Accordingly, without limiting the right of the Company to pursue any and all legal and equitable rights available to it for violation of the covenants of this Section 7, the Company shall be entitled, in addition to any other remedies it may have under this Agreement or otherwise, to preliminary and permanent injunctive and other equitable relief, without the necessity of posting any bond, to prevent a breach or to curtail any breach or threatened breach of this Section 7 both while this Agreement is in force and thereafter with respect to obligations continuing after the expiration or termination of this Agreement; provided, however, notwithstanding any provision herein contained to the contrary, no specification herein of a specific legal or equitable remedy shall be construed as a waiver or prohibition against the pursuing of other legal or equitable remedies. (b) Executive acknowledges that: (i) the provisions of this Section 7 are a material inducement to the Company to enter this Agreement; and (ii) if the provisions of this Section 7 were not included in this Agreement, the Company would not have entered this Agreement. It is the intent and understanding of each party that if, in any action before any court or agency legally empowered to enforce this covenant, any term, restriction, covenant or promise is found to be unreasonable and for that reason unenforceable, then such term, restrictions, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such a court or agency. 8. CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY. 8.1. Confidential Information. "Confidential Information" means information disclosed by the Company to Executive, or developed or obtained by Executive during his employment by the Company, provided that such information is not generally known in the business and industry in which the Company is or may subsequently become engaged, relating to or concerning the business, projects, techniques or methods of the Company, whether relating to financial data, marketing, merchandising, selling or otherwise. Without limitation, Confidential Information shall include all know-how, technical and financial information, ideas, concepts and processes relating to the business of the Company, whether now existing or hereafter developed, and all prices, customer names and customer lists. 8.2 Intellectual Property. The term "Intellectual Property" shall mean all trade secrets, inventions, designs, developments, ideas, devices, methods and processes (whether or not patented or patentable, reduced to practice or included in the Confidential Information) and all patents and patent applications related thereto, all copyrights, copyrightable works and mark works (whether or not included in the Confidential Information) and all registrations and applications for registration related thereto, all Confidential Information, and all other proprietary rights contributed to, or conceived or created by, Executive (whether alone or jointly with others) at any time during Executive's employment by the Company that: (i) relate to the business or to the actual or anticipated research or development of the Company; (ii) result from any work that Executive performs for the Company; or (iii) are created using the equipment, supplies or facilities of the Company or any Confidential Information. 8.3 Ownership. Executive shall promptly disclose to the Company all Intellectual Property made or conceived by him alone or jointly with others, from the date of this Agreement until Executive's employment with the Company is terminated and within the two year period immediately following such termination, relevant or pertinent, in any way, whether directly or indirectly, to the business of the Company or resulting from or suggested by any work which he may have done for the Company. Executive shall, at all times during his employment with the Company, assist the Company in every proper way (entirely at the Company's expense) to obtain and develop for the Company's benefit patents on such Intellectual Property, whether or not patented; and shall do all such acts and execute, acknowledge and deliver all such instruments as may be necessary or desirable in the opinion of the Company to vest in the Company the entire interest in such Intellectual Property. All Intellectual Property is, shall be and shall remain the exclusive property of the Company. Executive assigns to the Company all right, title and interest in and to the Intellectual Property; provided, however, that, when applicable, Company shall own the copyrights in all copyrightable works included in the Intellectual Property pursuant to the work-made-for-hire doctrine (rather than by assignment), as such term is defined in the United States Code, Title 17, entitled "Copyrights". All Intellectual Property shall be owned by the Company irrespective of any copyright notices or confidentiality legends to the contrary which may have been placed on such works by Executive or by others. Executive E-10 shall ensure that all copyright notices and confidentiality legends on all work product authored by Executive shall conform to the Company's practices and shall specify the Company as the owner for the work. 8.4 Keep Records. Executive shall keep and maintain adequate and current written records of all Intellectual Property in the form of notes, sketches, drawings, computer files, reports or other documents relating thereto. Such records shall be and shall remain the exclusive property of the Company and shall be available to the Company at all times during Executive's employment and shall be turned over to Company at the conclusion of such employment. Executive shall keep all original documents and computer files at the office and the password to Executive's computer shall at all times be known by the Company's director of Human Resources. 8.5 Further Assurances. During the period of Executive's employment by the Company and at all times thereafter, Executive shall promptly execute any and all declarations, assignments, applications and other instruments which the Company shall deem necessary to apply for and obtain patents and copyright registrations in any country or otherwise to protect the Company's interests in the Intellectual Property. 9. NON-DISCLOSURE AND NON-USE. 9.1 Non-Disclosure. Executive acknowledges and agrees that Executive may have access and contribute to information and materials of a highly sensitive nature (including Confidential Information and Intellectual Property) and that a purpose of this Agreement is to protect the legitimate business interests of the Company therein. Executive agrees that, during the period of Executive's employment by the Company and at all times thereafter, unless Executive first secures the written consent of the Company, Executive shall not use for Executive or anyone else, and shall not disclose to others, any Confidential Information, except to the extent such use or disclosure is required in the performance of Executive's assigned duties for the Company or by law or court order. Executive further agrees to use Executive's best efforts and utmost diligence to safeguard the Confidential Information and to protect it against disclosure, misuse, espionage, loss and theft. 9.2 Required Disclosures. In the event that Executive is required by law or court order to disclose any Confidential Information, Executive: (i) shall notify the Company in writing as soon as possible, but in no event later than twenty (20) business days prior to any such disclosure except as required by court of law; (ii) shall cooperate with the Company to preserve the confidentiality of such Confidential Information consistent with applicable law; and (iii) shall use Executive's best efforts to limit any such disclosure to the minimum disclosure necessary to comply with such law or court order. 10. WRITINGS AND WORKING PAPERS. Executive covenants and agrees that any and all originals and copies of all records, books, textbooks, letters, pamphlets, drafts, memoranda or other writings of any kind written by him for or on behalf of the Company or in the performance of Executive's duties hereunder, Confidential Information referred to in Section 8 hereof, Intellectual property, all notes, records, including but not limited to financial statements, calculations, letters, papers, records, computer hardware, computer disks, computer print-outs, customer lists, customer account records, documents, instruments, designs, programs, brochures, sales literature, policy and procedures manuals, however such information might be obtained or recorded (including electronic data storage systems), or any copies thereof, or any information or instruments derived therefrom, and drawings or any similar information of any type or description received by Executive or made or kept by him of work performed in connection with his employment by the Company and all computers, software and data and materials maintained in a medium other than paper shall be and are the sole and exclusive property of the Company and the Company shall be entitled to any and all copyrights thereon or other rights relating thereto. Executive agrees to return to the Corporation such information immediately upon termination of employment regardless of the reason for termination and regardless of which party terminates, and to execute any and all documents or papers of any kind or nature which the Company or its successors, assigns or nominees deem necessary or appropriate to acquire, enhance, protect, perfect, assign, sell or transfer its rights under this Agreement. Executive also agrees that upon request he will place all such notes, records, drawings and other items specified herein in the Company's possession and will not take with him without the written consent of a duly authorized officer of the Company any notes, records, E-11 drawings, blueprints or other reproductions relating or pertaining to or connected with his employment of the business, books, textbooks, pamphlets, documents work or investigations of the Company. The obligations of this Section shall survive the term of employment hereunder or the termination or expiration of the Initial Term or any renewal term hereof. 11. INJUNCTIVE RELIEF. Without limiting the right of the Company to pursue all other legal and equitable rights available to them for violation of the covenants set forth in Sections, 8, 9 and 10, it is agreed that such other remedies cannot fully compensate the Company for such a violation and that the Company shall be entitled to injunctive relief to prevent violation or continuing violation hereof without the necessity of posting any bond; provided, however, notwithstanding any provision herein contained to the contrary, no specification in this Agreement of a specific legal or equitable remedy shall be construed as a waiver or prohibition against the pursuing of other legal or equitable remedies. It is the intent and understanding of each party that if, in any action before any court or agency legally empowered to enforce this covenant, any term, restriction, covenant or promise is found to be unreasonable and for that reason unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such a court or agency. 12. GENERAL. 12.1 Assignment. The rights and duties hereunder of Executive shall not be assignable, without the express written consent of the Company. The Company can assign this Agreement to any successor. This Agreement shall be binding upon any successor to Company. 12.2 Binding Effect. This Agreement shall be binding upon the parties hereto and their respective successors in interest, heirs and personal representatives and, to the extent permitted herein, their assigns. 12.3 Severability. If any provision of this Agreement or any part hereof or application hereof to any person or circumstance shall be finally determined by a court of competent jurisdiction to be invalid or unenforceable to any extent, the remainder of this Agreement, or the remainder of such provision or the application of such provision to persons or circumstances other than those as to which it has been held invalid or unenforceable, shall not be affected thereby and each provision of this Agreement shall remain in full force and effect to the fullest extent permitted by law. The parties also agree that, if any portion of this Agreement, or any part hereof or application hereof, to any person or circumstance shall be finally determined by a court of competent jurisdiction to be invalid or unenforceable to any extent, any court may so modify the objectionable provision so as to make it valid, reasonable and enforceable. 12.4 Survival. Except as otherwise explicitly set forth herein, Sections 5, 6 7, 8, 9, 10, 11, 12 and 13 shall survive any expiration or termination of this Agreement. 12.5 Notices. All notices or other communications required or permitted hereunder shall be in writing and shall be deemed given, delivered and received (a) when delivered, if delivered personally, (b) four days after mailing, when sent by registered or certified mail, return receipt requested and postage prepaid, and (c) the next business day after delivery to a private courier service, when delivered to a private courier service providing documented overnight service, in each case addressed as follows: If to the Company: NeoMedia Technologies, Inc. 2201 Second Street, Suite 600 Fort Myers, FL 33901 Attention: Chairman of the Board If to Executive: William F. Goins, III 7670 Solimar Circle Boca Raton, FL 33433 E-12 12.6 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior written or oral negotiations, representations, agreements, commitments, contracts or understandings with respect thereto and no modification, alteration or amendment to this Agreement may be made or shall be effective unless the same shall be in writing and signed by both of the parties hereto. 12.7 Waivers. No failure by either party to exercise any of such party's rights hereunder or to insist upon strict compliance with respect to any obligation hereunder, and no custom or practice of the parties at variance with the terms hereof, shall constitute a waiver by either party to demand exact compliance with the terms hereof. Waiver by either party of any particular default by the other party shall not affect or impair such party's rights in respect to any subsequent default of the same or a different nature, nor shall any delay or omission of either party to exercise any rights arising from any default by the other party affect or impair such party's rights as to such default or any subsequent default. 12.8 Governing Law; Jurisdiction. For purposes of construction, interpretation and enforcement, this Agreement shall be deemed to have been entered into under the laws of the State of Florida, without regard to its conflicts of laws rules or principles, and its validity, effect, performance, interpretation, construction and enforcement shall be governed by and be subject to the laws of the State of Florida. 12.9 Jurisdiction and Venue. Any and all suits for any and every breach of this Agreement shall only be instituted and maintained in any court of competent jurisdiction in the State of Florida and the parties hereto consent to the jurisdiction and venue in such court. The parties hereby waive the right to bring any action in any other jurisdiction. Executive waives any claim Executive may have that (a) Executive is not personally subject to the jurisdiction of any state or federal court located in the State of Florida, (b) Executive is immune from any legal process (whether through service or notice, attachment prior to judgment, attachment made in execution of judgment, execution or otherwise) with respect to Executive or Executive's property, (c) any such suit, action or proceeding is brought in an inconvenient forum, (d) the venue of any such suit, action or proceeding is improper, or (e) the provision of this section may not be enforced in or by such court. In any such action or proceeding, to the fullest extent permitted by applicable law, each of the parties hereby absolutely and irrevocably waives personal service of any summons, complaint, declaration or other process and hereby absolutely and irrevocably agrees that the service thereof may be made by certified or registered mail directed to such party at its address set forth herein. 12.10 Assistance in Pending or Threatened Actions. Both before and after termination of employment, Executive shall provide the Company (without additional compensation) with assistance in any proceeding or threatened proceeding in which the Company, or any affiliate, is or may be a party; provided, however, that Executive shall only be required to give assistance with respect to matters of which he has knowledge or experience. 12.11 Execution and Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be considered an original instrument, but all of which shall be considered one and the same agreement, and shall be binding when one or more counterparts have been signed by, and delivered to, each of the parties. 12.12 Headings. Descriptive headings of the several sections of this Agreement are inserted for convenience only and shall not, in any manner or way whatsoever, affect the meaning or construction of any provision of this Agreement. 12.13 Certain Terminology. Except where the context otherwise requires, references to "this Section" or words of similar import shall be deemed to refer to the entire section and not a particular subsection and references to "hereunder", "herein", "hereof" or words of similar import shall be deemed to refer to the entire Agreement and not the particular section or subsection. 12.14 Waiver of Construction Rule. Executive acknowledges and represents that Executive has read and understands the provisions of this Agreement, and has had the opportunity to consult with his legal advisor with respect E-13 to this Agreement and the provisions hereof. Accordingly, the rule of construction that an ambiguous provision shall be construed against the party drafting such provision shall not apply to this Agreement and the provisions hereof. 13. ACKNOWLEDGMENT. Executive acknowledges and agrees that Executive has fully read and understands this Agreement, has had the opportunity to discuss this Agreement with Executive's attorney, has had any questions regarding its effect or the meaning of its terms answered to Executive's satisfaction, and, intending to be legally bound hereby, has freely and voluntarily executed this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. NEOMEDIA TECHNOLOGIES, INC. Executive: By:____________________________ _______________________________ Charles W. Fritz William F. Goins, III Chairman of the Board and Chief Executive Officer E-14 EXHIBIT A NEOMEDIA STANDARD BENEFITS HEALTH INSURANCE & PRESCRIPTION DRUG CARD This P.P.O. plan will be effective on the first of the month following thirty days of employment. The cost is $14.00 per pay period for single coverage and up to $28.00 per pay period for family coverage. In network services are not subject to a deductible. Pre-existing conditions are covered! Office visits are $15 if you go to a panel provider. Prescriptions are $5.00 for generics. Excellent well child care addendum. DENTAL INSURANCE There is no cost for this benefit. Single or Family coverage. Effective on the same day as the health insurance. Benefit has numerous parts and the benefit increases with continued dental visits. SHORT TERM & LONG TERM DISABILITY INSURANCE There is no cost for this benefit. Effective on the same day as the health insurance. STD is 60% of salary or $500 per week max. Coverage up to 13 weeks. LTD continues for up to $10,000 per month to age 65. LIFE INSURANCE There is no cost for this benefit. Effective on the same day as the health insurance. Coverage is two times your annual base pay for life and four times your base pay for accidental death and dismemberment. LONG TERM CARE INSURANCE There is no cost for this benefit for individual coverage. Effective on the same day as the health insurance. You may be able to enroll your spouse, parents, or grandparents in this benefit by paying their premium yourself. Coverage for nursing home and/or home health care services. 401K PLAN Effective on date of hire. You may contribute up to 25% of your income up to $10,000 into a tax deferred investment plan. Contribution is 100% vested. PAY PERIODS Pay days are twenty-four (24) times per year. On the 15th of each month (pay for the 1st through 15th) and on the last day of the month (pay for the 16th through the last day of the month). VACATION TIME OFF New employees earn 3.333 hours per pay period. This increases to 5.000 hours per pay after 3 years service and 6.666 hours per pay after 5 full years of service. OTHER TIME OFF Employees earn 3.333 hours per pay for sickness/illness, 24.000 hours per year personal time off, and eight (8) holidays per year. There is no carry over and this is a calendar year basis. TUITION REIMBURSEMENT Full time employees may receive up to $2,200/yr in reimbursement for tuition, books and registration fees. FLEXIBLE SPENDING ACCOUNTS Employees may have pre tax income deferred for medical or dependent care expenses. EMPLOYEE ACTIVITIES NeoMedia sponsors several activities for you and your family including company picnics, weekend getaways, and professional sports outings. E-15 EX-27 5
5 12-MOS DEC-31-1999 DEC-31-1999 3,404 0 3,419 888 57 7,294 10,324 (4,483) 13,657 8,961 0 0 0 36,486 (32,466) 13,657 25,256 25,256 22,470 22,470 13,528 665 226 (10,472) 0 (10,472) 0 0 0 (10,472) (1.01) (1.01)
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