-----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, UsRyFp72Buh7k21ndvD2eugyVWEkAYBAn9mVURb0NjSqFY/XUvFJtsj8o06e0L2L me/H8NB5kz5Nc5uwzp2Neg== 0001016843-98-000460.txt : 19980813 0001016843-98-000460.hdr.sgml : 19980813 ACCESSION NUMBER: 0001016843-98-000460 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEOMEDIA TECHNOLOGIES INC CENTRAL INDEX KEY: 0001022701 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 363680347 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-21743 FILM NUMBER: 98683470 BUSINESS ADDRESS: STREET 1: 2201 SECOND ST STE 600 STREET 2: STE 600 CITY: FORT MYERS STATE: FL ZIP: 33901 BUSINESS PHONE: 6303554404 MAIL ADDRESS: STREET 1: 2201 SECOND STREET STREET 2: SUITE 600 CITY: FORT MYERS STATE: FL ZIP: 33901 FORMER COMPANY: FORMER CONFORMED NAME: DEVSYS INC DATE OF NAME CHANGE: 19960911 10QSB 1 U. S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------------- FORM 10 - QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1998 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-21743 NEOMEDIA TECHNOLOGIES, INC. ----------------------------------------------------------------- (Exact Name of Small Business Issuer as Specified In Its Charter) DELAWARE 36-3680347 - ------------------------------- ------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 2201 SECOND STREET, SUITE 600, FORT MYERS, FLORIDA 33901 - -------------------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Issuer's Telephone Number (Including Area Code) 941-337-3434 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of July 31, 1998, there were outstanding 8,648,080 shares of the issuer's Common Stock. PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS
JUNE DECEMBER ASSETS 30, 1998 31, 1997 -------- -------- (In thousands) Current assets: Cash and cash equivalents ................................................... $ 6,155 $ 10,283 Trade accounts receivable, net of allowance for doubtful accounts of $234 and $191 ............................................... 4,652 6,656 Amounts due from related parties ............................................ 13 6 Inventories ................................................................. -- 363 Prepaid expenses and other .................................................. 866 562 -------- -------- Total current assets .................................................... 11,686 17,870 -------- -------- Property and equipment, net of accumulated depreciation .......................... 814 651 Intangible asset - acquired customer list, net of accumulated amortization ....... 1,104 -- Capitalized software costs, net of accumulated amortization ...................... 1,686 1,278 -------- -------- Total assets ................................................................ $ 15,290 $ 19,799 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ............................................................ $ 3,355 $ 4,320 Accrued expenses ............................................................ 1,499 931 Current portion of long-term debt ........................................... 130 201 Other ....................................................................... 480 306 -------- -------- Total current liabilities ............................................... 5,464 5,758 Long-term debt, net of current portion ........................................... 859 915 -------- -------- Total liabilities ....................................................... 6,323 6,673 -------- -------- Shareholders' equity: Preferred stock. $.01 par value, 10,000,000 shares authorized, none issued and outstanding ............................................. -- -- Common stock, $.01 par value, 50,000,000 shares authorized, 8,643,080 and 8,295,291 shares issued and outstanding ................... 86 83 Additional paid-in capital .................................................. 24,607 23,542 Accumulated deficit ......................................................... (15,726) (10,499) -------- -------- Total shareholders' equity .............................................. 8,967 13,126 -------- -------- Total liabilities and shareholders' equity................................... $ 15,290 $ 19,799 ======== ========
The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements. 1 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, ----------------------- 1998 1997 ---- ---- (Dollars in thousands, except per share data) NET SALES: License fees .................................. $ 1,395 $ 889 Resales of software and technology equipment .. 7,537 10,471 Service fees .................................. 2,117 1,175 -------- -------- Total net sales ........................... 11,049 12,535 -------- -------- COST OF SALES: License fees .................................. 114 162 Resales of software and technology equipment .. 6,360 9,100 Service fees .................................. 1,622 949 Amortization of capitalized software costs .... 224 307 -------- -------- Total cost of sales ....................... 8,320 10,518 -------- -------- GROSS PROFIT ....................................... 2,729 2,017 Sales and marketing expenses ....................... 4,617 2,038 General and administrative expenses ................ 2,996 1,777 Research and development costs ..................... 480 446 -------- -------- Loss from operations ............................... (5,364) (2,244) Interest expense (income), net ..................... (137) 52 -------- -------- LOSS BEFORE INCOME TAXES ........................... (5,227) (2,296) Income tax expense (benefit) ....................... -- (45) -------- -------- NET LOSS ........................................... $ (5,227) $ (2,251) ======== ======== NET LOSS PER SHARE - BASIC AND DILUTED ............. $ (0.62) $ (0.35) ======== ======== Weighted average number of common shares outstanding........................................ 8,438,804 6,421,814 ========= ========= The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements. 2
NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, -------------- 1998 1997 ---- ---- (Dollars in thousands, except per share data) NET SALES: License fees ........................................ $ 600 $ 570 Resales of software and technology equipment ........ 3,571 6,711 Service fees ........................................ 876 555 ----------- ----------- Total net sales ................................. 5,047 7,836 ----------- ----------- COST OF SALES: License fees ........................................ 55 88 Resales of software and technology equipment ........ 3,051 5,835 Service fees ........................................ 1,111 547 Amortization of capitalized software costs .......... 121 161 ----------- ----------- Total cost of sales ............................. 4,338 6,631 ----------- ----------- GROSS PROFIT ............................................. 709 1,205 Sales and marketing expenses ............................. 2,801 1,197 General and administrative expenses ...................... 1,673 944 Research and development costs ........................... 251 250 ----------- ----------- Loss from operations ..................................... (4,016) (1,186) Interest expense (income), net ........................... (65) 40 ----------- ----------- NET LOSS ................................................. $ (3,951) $ (1,226) =========== =========== NET LOSS PER SHARE - BASIC AND DILUTED ................... $ (0.46) $ (0.19) =========== =========== Weighted average number of common shares outstanding ..... 8,566,143 6,445,842 =========== ===========
The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements. 3
NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, --------------------- 1998 1997 --------- --------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss .................................................................. $ (5,227) $ (2,251) Adjus///TM///ents to reconcile net loss to net cash used in operating activities: Depreciation and amortization ........................................ 424 372 Provision for doubtful accounts ...................................... 250 95 Changes in operating assets and liabilities: Trade accounts receivable ........................................ 1,754 (1,696) Other current assets ............................................. 52 25 Accounts payable and accrued expenses ............................ (397) 1,696 Other current liabilities ........................................ 174 91 -------- -------- Net cash used in operating activities ............................ (2,970) (1,668) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capitalization of software development costs and purchased software ....... (632) (713) Acquisition of customer list .............................................. (292) -- Acquisition of property and equipment ..................................... (349) (346) -------- -------- Net cash used in investing activities ............................ (1,273) (1,059) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of units ....................................... -- 1,315 Exercise of stock options ................................................. 242 7 Repayment of advance to shareholder ....................................... -- (472) Proceeds from advance to shareholder ...................................... -- 472 Repayments on notes payable and long-term debt ............................ (127) (134) -------- -------- Net cash provided by financing activities ........................ 115 1,188 -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS ................................. (4,128) (1,539) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............................ 10,283 4,209 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD .................................. $ 6,155 $ 2,670 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid ........................................................ $ 79 $ 90 Stock issued to acquire customer list ................................ 826 --
The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements. 4 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS BASIS OF PRESENTATION The consolidated financial statements include the financial statements of NeoMedia Technologies, Inc. and its wholly-owned subsidiaries, NeoMedia Migration, Inc., 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. Foreign operations were not significant. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-QSB and do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, these consolidated financial statements reflect all adjustments which are of a normal recurring nature and which are necessary to present fairly the consolidated financial position of NeoMedia as of June 30, 1998 and December 31, 1997, and the results of operations for the six and three months ended June 30, 1998 and 1997, and cash flows for the six months ended June 30, 1998 and 1997. The results of operations for the six and three months ended June 30, 1998 are not necessarily indicative of the results which may be expected for the entire fiscal year. NATURE OF BUSINESS OPERATIONS NeoMedia operates in one business segment which is comprised of three principal applications markets: (i) Intelligent Document/TM/ Solutions ("IDOC/TM/") Unit, (ii) Integrated Technology Systems Solutions Unit and (iii) Year 2000 / Migration (Mass Change) Solutions Unit. The IDOCs UNIT assists clients in linking the worlds of print and electronic media/SM/. NeoMedia's patent-pending NeoLink/TM/ technology simplifies electronic commerce by hyperlinking printed material directly to on-line information and electronic commerce sites. Using this technology, common publications and products, such as magazines, catalogs, direct mail pieces and barcoded consumer products, become direct extensions of the Web, eliminating the well publicized limitations of search engines and broadcast "push" applications. In addition, the IDOCs Unit assists clients in embedding active data elements in standard printed documents or on physical objects for the purpose of launching computer programs and creating automated links to the World Wide Web. The Integrated Technology Systems Solutions Unit assists clients in optimizing the creation, production and management of printed documents and printed document processes. These efforts have historically focused on designing and providing complete, client specific, high speed and high volume document formatting and printing solutions. Recently, services of the Integrated Technology Systems Solutions Unit have been expanded to include Integrated Document Factories ("IDF's"), a complete, client specific system solution for automating, monitoring and managing print-to-mail processes. IDF's incorporate manufacturing principles and IDOCs/TM/ technology, enabling clients not only to achieve maximum efficiencies in their print processes, but to also ensure document integrity and traceability. 5 The YEAR 2000 / MIGRATION (MASS CHANGE) SOLUTIONS UNIT enables and assists clients to implement mass changes in computer software and hardware systems, such as (i) identifying, seeking and automatically correcting restrictive source and application fields which store data, including among other items, dates (adding two digits to a two-digit date field when four digits are required to correct the Year 2000 problem), stock prices (converting from a fractional to a decimal measurement system) and European currencies (converting to the new European Monetary Unit of Measure, commonly known as the "Eurodollar"), and (ii) conversions from closed, proprietary "legacy" systems to open systems. As part of the services provided in connection with the above solutions it offers, NeoMedia often recommends, specifies, supplies and installs equipment and software products from third-party software and hardware vendors, leading consulting firms and major system integrators, many of whom have strategic alliances with NeoMedia. These alliances are integral to NeoMedia's business operations. NeoMedia principally markets and distributes its products through distributors in the United States (although it has distributors in Europe and Latin America which have not generated material sales), and currently has U. S. district offices located in Florida, California, Illinois, New York and Ohio. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REVENUE RECOGNITION License revenues represent revenue from the licensing of NeoMedia's proprietary software tools and applications products. NeoMedia licenses its development tools and application products pursuant to non-exclusive and non-transferable license agreements. Software and technology equipment resales represent revenue from the resale of purchased third party hardware and software products. Service fees represent revenue from consulting, education and post contract customer support services. Effective January 1, 1998, NeoMedia adopted the software license revenue recognition provisions of the American Institute of Certified Public Accountants ("AICPA") Statement of Position 97-2 "Software Revenue Recognition" ("SOP 97-2"), as amended. Specifically, license revenue is recognized if persuasive evidence of an agreement exists, delivery has occurred, pricing is fixed and determinable, and collectibility is probable. The impact of the adoption of SOP 97-2 was not material to NeoMedia's consolidated financial statements. COMPREHENSIVE INCOME NeoMedia adopted the provisions of Financial Accounting Standards Board ("FASB") Statement of Accounting Standards No. 130 "Reporting Comprehensive Income" ("FAS 130") effective January 1, 1998. FAS 130 requires companies to report comprehensive income. Comprehensive income is defined as the change in equity of a business during a period from transactions and other events and circumstances from nonowner sources. During the six and three months ended June 30,1998, changes in NeoMedia's shareholders' equity consisted of its net loss, the exercise of stock options and the issuance of common stock to acquire a customer list. Accordingly, comprehensive income as defined by FAS 130 was the net loss in the accompanying unaudited consolidated statement of operations. COMPUTATION OF LOSS PER SHARE Effective December 31, 1997, NeoMedia adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128") which replaces the presentation of primary earnings per share with basic earnings per share and which requires dual presentation of basic and diluted earnings per share on the Consolidated Statements of Operations. FAS 128 requires restatement of all prior period earnings per share data presented. Basic net earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period, and diluted net earnings per share includes the effect of unexercised stock options and warrants using the treasury stock method. The treasury stock method assumes that common stock was purchased at the average market price during the period. Because the assumed exercise of stock options and warrants would have an antidilutive effect on the net loss per share for the six and three months ended June 30, 1998 and 1997, no exercise of stock options and warrants were assumed and diluted net loss per share was the same as basic net loss per share. 6 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 $234,000 and $191,000 in its June 30, 1998 and December 31, 1997 consolidated balance sheets, respectively. NeoMedia had net sales to one major customer in the telecommunications industry of $1,331,000 and $3,982,000 during the six months ended June 30, 1998 and 1997, respectively, resulting in trade accounts receivable of $542,000 and $3,116,000 as of June 30, 1998 and December 31, 1997, respectively. Revenue generated from the remarketing of software and technology equipment has accounted for a significant percentage of NeoMedia's revenue. Such sales accounted for 68.2% and 83.5% of NeoMedia's revenue for the six months ended June 30, 1998 and 1997, respectively. INTANGIBLE ASSET - ACQUIRED CUSTOMER LIST During the three months ended June 30, 1998, NeoMedia acquired a customer list for total consideration of $1,118,000, including 120,000 shares of NeoMedia common stock valued at $826,000 (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. The cost of the customer list is being amortized on the straight-line method over its estimated useful life of five years. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AS COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997 GENERAL. Total net sales for the six months ended June 30, 1998 were $11.0 million, which represented a $1.5 million, or 11.9%, decrease from $12.5 million for the six months ended June 30, 1997. This decrease primarily resulted from (i) a $2.7 million decrease in sales to a NeoMedia customer in the telecommunications industry, and (ii) a $1.8 million one-time sale of a IBM S390 computer in 1997 which did not recur in 1998. These decreases were partially offset with (i) a $1.2 million increase in sales of IBM S390 computer hardware, (ii) a $1.0 million increase in sales of Year 2000 products including licenses and services, and (iii) a $670,000 increase in sales relating to the implementation of an integrated document factory. The net loss for the six months ended June 30, 1998 was $5.2 million, which represented a $2.9 million, or 132.2%, increase from a $2.3 million loss for the six months ended June 30, 1997. This increase in the net loss primarily resulted from NeoMedia's continuing to invest in the infra-structure needed to manage current and expected future growth. The $3.6 million increase in the infra-structure costs during 1998 as compared to 1997 was partially offset with the increase in sales of the Year 2000 products which reduced losses by $700,000, and the increase in sales of the integrated document factory which reduced losses by $277,000. The total of general, administrative, sales, marketing, research and development expenses increased $3.8 million to $8.1 million for the six months ended June 30, 1998 from $4.3 million during the six months ended June 30, 1997. This increase primarily resulted from NeoMedia investing in the expansion of its infra-structure by hiring management, sales and other personnel to develop, market and sell new products. LICENSE FEES. License fees for the six months ended June 30, 1998 were $1,395,000 compared to $889,000 for the six months ended June 30, 1997, an increase of $506,000 or 56.9%. This increase resulted primarily from the increase in sales of licenses of NeoMedia's Year 2000 proprietary software. Cost of sales for license fees consisted primarily of fees paid to an independent software developer for one of the existing software transition tools. Cost of sales as a percentage of related sales was 8.2% during 1998 compared to 18.2% during 1997. This decrease in the 7 cost of sales as a percentage of related sales was primarily due to the increased sales of ADAPT/2000, which is proprietary software. RESALES OF SOFTWARE AND TECHNOLOGY EQUIPMENT. Resales of software and technology equipment decreased by $2,934,000, or 28.0%, to $7,537,000 for the six months ended June 30, 1998, as compared to $10,471,000 for the six months ended June 30, 1997. This decrease primarily resulted from (i) a $2.7 million decrease in sales to a NeoMedia customer in the telecommunications industry, and (ii) a $1.8 million one-time sale of a IBM S390 computer in 1997 which did not recur in 1998. These decreases were partially offset with a $1.2 million increase in sales of IBM S390 computer hardware. Cost of sales as a percentage of related sales was 84.4% during 1998, compared to 86.9% during 1997. This decrease in the cost of sales as a percentage of related sales was primarily due to the sale of more IBM S390 computers that have a higher profit margin. SERVICE FEES. NeoMedia's service fees increased by $942,000, or 80.2%, to $2,117,000 for the six months ended June 30, 1998, compared to $1,175,000 for the six months ended June 30, 1997. This increase was primarily due to a $573,000 increase in the Year 2000 service fees and the $444,000 increase in consulting fees for integrated document factory services. Cost of service fees as a percentage of related sales decreased to 76.6% during 1998 from 80.8% during 1997 primarily due to higher margin on Year 2000 services. AMORTIZATION OF SOFTWARE. Amortization of software for the six months ended June 30, 1998, as compared to the six months ended June 30, 1997, decreased $83,000 as a result of certain migration software costs becoming fully amortized during 1997, and, as a percentage of total net sales, decreased to 2.0% during 1998 from 2.4% during 1997. 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 increased $2,579,000, or 126.5%, to $4,617,000 for the six months ended June 30, 1998 from $2,038,000 for the six months ended June 30, 1997, as a result primarily of hiring additional direct sales personnel to build future revenue growth. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased $1,219,000, or 68.6%, to $2,996,000 for the six months ended June 30, 1998, from $1,777,000 for the six months ended June 30, 1997. This increase was due mainly to NeoMedia building its administrative infra-structure, which includes $298,000 of compensation and related expenses, $342,000 of legal and professional fees, $141,000 of bad debt provisions, $131,000 of rent expense and $110,000 of depreciation expense, to manage expected future growth. RESEARCH AND DEVELOPMENT. During the six months ended June 30, 1998, NeoMedia charged to expense 4.3% of total net sales in research and development expenses as compared to 3.6% during the six months ended June 30, 1997. This percentage increase was due to a decrease in sales, partially offset with an increase in the amount of software development costs that were capitalized during 1998 pursuant to FASB's Statement of Financial Accounting Standard No. 86. NeoMedia currently intends to continue to make significant inves/TM/ents in its development activities. INTEREST EXPENSE (INCOME), NET. Interest expense (income) consists primarily of interest paid to creditors as part of financed purchases, capitalized leases and NeoMedia's asset-based collateralized line of credit, net of interest earned on cash equivalent inves/TM/ents. Interest expense (income) decreased by $189,000 to ($137,000) for the six months ended June 30, 1998 from $52,000 for the six months ended June 30, 1997, due to interest income earned on the proceeds from common stock purchase warrants exercised in the fourth quarter of 1997. INCOME TAX EXPENSE (BENEFIT). The $45,000 benefit for income taxes recorded during the six months ended June 30, 1997 represented the recovery of income taxes paid in prior years from the carry back of operating losses. 8 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AS COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1997 GENERAL. Total net sales for the three months ended June 30, 1998 were $5.0 million, which represented a $2.8 million, or 35.6%, decrease from $7.8 million for the three months ended June 30, 1997. This decrease primarily resulted from (i) a $1.3 million decrease in sales to a NeoMedia customer in the telecommunications industry, and (ii) a $1.8 million one-time sale of a IBM S390 computer in 1997 which did not recur in 1998. The net loss for the three months ended June 30, 1998 was $4.0 million, which represented a $2.8 million, or 222.3%, increase from a $1.2 million loss for the three months ended June 30, 1997. This increase in the net loss primarily resulted from NeoMedia's continuing to invest in the infra-structure needed to manage current and expected future growth. These infra-structure costs increased $2.2 million during 1998 as compared to 1997. In addition, the decrease in hardware sales impacted net loss by $200,000 and consulting costs for the Year 2000 / Migration Solutions Unit increased $300,000 during 1998 as compared to 1997. The total of general, administrative, sales, marketing, research and development expenses increased $2.3 million to $4.7 million for the three months ended June 30, 1998 from $2.4 million during the three months ended June 30, 1997. This increase primarily resulted from NeoMedia investing in the expansion of its infra-structure by hiring management, sales and other personnel to develop, market and sell new products. LICENSE FEES. License fees for the three months ended June 30, 1998 were $600,000 compared to $570,000 for the three months ended June 30, 1997, an increase of $30,000 or 5.3%. This increase resulted primarily from the increase in sales of licenses of NeoMedia's Year 2000 proprietary software. Cost of sales for license fees consisted primarily of fees paid to an independent software developer for one of the existing software transition tools. Cost of sales as a percentage of related sales was 9.2% during 1998 compared to 15.4% during 1997. This decrease in the cost of sales as a percentage of related sales was primarily due to the increased sales of ADAPT/2000, which is proprietary software. RESALES OF SOFTWARE AND TECHNOLOGY EQUIPMENT. Resales of software and technology equipment decreased by $3,140,000, or 46.8%, to $3,571,000 for the three months ended June 30, 1998, as compared to $6,711,000 for the three months ended June 30, 1997. This decrease primarily resulted from (i) a $1.3 million decrease in sales to a NeoMedia customer in the telecommunications industry, and (ii) a $1.8 million one-time sale of a IBM S390 computer in 1997 which did not recur in 1998. Cost of sales as a percentage of related sales was 85.4% during 1998, compared to 86.9% during 1997. SERVICE FEES. NeoMedia's service fees increased by $321,000, or 57.8%, to $876,000 for the three months ended June 30, 1998, compared to $555,000 for the three months ended June 30, 1997. This increase was primarily due to a $231,000 increase in the Year 2000 service fees and the $63,000 increase in consulting fees for integrated document factory services. Cost of service fees as a percentage of related sales increased to 126.8% during 1998 from 98.6% due to the cost of consultants for Year 2000 services. AMORTIZATION OF SOFTWARE. Amortization of software for the three months ended June 30, 1998, as compared to the three months ended June 30, 1997, decreased $40,000 as a result of certain migration software costs becoming fully amortized during 1997, and, as a percentage of total net sales, increased to 2.4% during 1998 from 2.1% during 1997 due to the decrease in net sales. SALES AND MARKETING. Sales and marketing expenses increased $1,604,000, or 134.0%, to $2,801,000 for the three months ended June 30, 1998 from $1,197,000 for the three months ended June 30, 1997, as a result primarily of hiring additional direct sales personnel to build future revenue growth. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased $729,000, or 77.2%, to $1,673,000 for the three months ended June 30, 1998, from $944,000 for the three months ended June 30, 1997. This increase was due mainly to NeoMedia building its administrative infra-structure, which includes $141,000 of compensation 9 and related expenses, $193,000 of legal and professional fees and $140,000 of bad debt provisions, to manage expected future growth. RESEARCH AND DEVELOPMENT. During the three months ended June 30, 1998, NeoMedia charged to expense 5.0% of total net sales in research and development expenses as compared to 3.2% during the three months ended June 30, 1997. This percentage increase was due to a decrease in sales, partially offset with an increase in the amount of software development costs that were capitalized during 1998 pursuant to FASB's Statement of Financial Accounting Standard No. 86. INTEREST EXPENSE (INCOME), NET. Interest expense (income) decreased by $105,000 to ($65,000) for the three months ended June 30, 1998 from $40,000 for the three months ended June 30, 1997, due to interest income earned on the proceeds from common stock purchase warrants exercised in the fourth quarter of 1997. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1998, NeoMedia's working capital was $6.2 million which represented a $5.9 million decrease from December 31, 1997. As of June 30, 1998, NeoMedia's cash and cash equivalents were $6.2 million, which represented a $4.1 million decrease from December 31, 1997. Net cash used in operating activities for the six months ended June 30, 1998 and 1997, was $2,970,000 and $1,668,000, respectively. During 1998, trade accounts receivable decreased $1,754,000, while accounts payable and accrued expenses increased $397,000. During 1997, trade accounts receivables increased $1,696,000, while accounts payable and accrued expenses increased $1,696,000. NeoMedia's net cash flow used in investing activities for the six months ended June 30, 1998 and 1997, was $1,273,000 and $1,059,000, respectively. Net cash provided by financing activities for the six months ended June 30, 1998 and 1997, was $115,000 and $1,188,000, respectively. In April, 1998, NeoMedia acquired a customer list for $1,118,000, of which $826,000 of the consideration was given in NeoMedia common stock. In January, 1997, NeoMedia consummated the over-allo/TM/ent of its initial public offering and received net proceeds of $1.3 million NeoMedia anticipates that its existing cash balances and funds available from borrowings under its existing financing agreement may have to be supplemented with additional funds, through loans and / or capital contributions, to finance NeoMedia's operations for the remainder of 1998. If NeoMedia has insufficient funds for its needs, there can be no assurance that additional funds can be obtained on acceptable terms, if at all. If necessary funds are not available, NeoMedia's business and operations would be materially adversely affected and in such event NeoMedia would attempt to reduce costs and adjust its business plan. YEAR 2000 ISSUES In the next 18 months, many companies, including NeoMedia, will face potentially serious issues associated with the inability of existing data processing hardware and software to appropriately recognize calendar dates beginning in the year 2000. Many computer programs that can only distinguish the final two digits of the year entered may read entries for the year 2000 as the year 1900. In 1996, NeoMedia began the process of identifying the many software applications used internally and hardware devices expected to be impacted by this issue. The software programs used internally by NeoMedia (primarily its general ledger accounting package which is not year 2000 compliant) were purchased from third party vendors. NeoMedia believes that the hardware devices which were not year 2000 compliant have been replaced with those which are year 2000 compliant. NeoMedia has purchased for approximately $400,000 of a new general ledger accounting package which is year 2000 compliant and which is anticipated to begin to be installed during 1998 and completed in 1999. However, there can be no assurance that NeoMedia will not be adversely affected by the failure of the existing general ledger accounting package if the new package is not installed timely or by the failure of the new package to be fully year 2000 compliant as represented by the vendor. NeoMedia believes that its propriety software, for which it is currently selling licenses, is year 2000 compliant. 10 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The exhibits required by Item 601 of Regulation S-B to be filed herewith are as follows: 10.28 Employment Agreement Dated January 26, 1998 By and Between NeoMedia Technologies, Inc. and James Marshall (b) Reports on Form 8-K A Form 8-K dated April 27, 1998 was filed by NeoMedia reporting that NeoMedia invested approximately $1.0 million through a combination of NeoMedia common stock and cash to acquire a customer list of Ernestine Technology, LLC. A Form 8-K/A dated February 9, 1998 was filed by NeoMedia amending the Form 8-K reporting the dismissal of Coopers & Lybrand L.L.P. and engaging KPMG Peat Marwick LLP as the principal accountants of NeoMedia. 11 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NEOMEDIA TECHNOLOGIES, INC. --------------------------- Registrant Date August 7, 1998 By: /s/ CHARLES W. FRITZ -------------- ----------------------- Charles W. Fritz, President, Chief Executive Officer and Chairman of the Board Date August 7, 1998 By: /s/ CHARLES T. JENSEN -------------- ----------------------- Charles T. Jensen, Vice President, Chief Financial Officer, Treasurer and Director 12 EXHIBIT INDEX SEQUENTIAL EXHIBIT PAGE NUMBER NUMBER DOCUMENT - ----------- ------- -------- 14 10.28 Employment Agreement Dated January 26, 1998 By and Between NeoMedia Technologies, Inc. and James Marshall 30 27.1 Article 5 Financial Data Schedule for June 30, 1998 13 EX-10.28 2 NeoMedia Technologies, Inc. Exhibit 10.28 Employment Agreement Dated January 26, 1998 By and Between NeoMedia Technologies, Inc. and James Marshall 14 E M P L O Y M E N T A G R E E M E N T THIS AGREEMENT is made and entered into as of the 26th day of January, 1998, by and between NeoMedia Technologies, Inc., a Delaware corporation with offices at 2201 Second Street, Suite 600, Fort Myers, Florida (the "Company") and James Marshall (hereinafter referred to as the "Employee"). WHEREAS, the Company desires to enter into an agreement for the employment of Employee by the Company to be assured of the continued services of Employee and Employee 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 Employee and Employee hereby accepts employment by the Company as Executive Vice President of Sales and Business Development on the terms and subject to the covenants and conditions herein contained. The Employee shall have such duties, responsibilities and authority as the Board of Directors and the President of the Company may, from time to time, prescribe. During the term of Employee's employment hereunder, Employee 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. During the term of his employment hereunder, Employee 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. 1.2 SUBSTANTIAL CHANGE. Company shall not effect a substantial and material change in the duties and responsibilities of Employee (hereinafter, "Substantial Change") without Employee's consent. For the purposes of this Agreement, a Substantial Change shall have occurred if (a) Employee is demoted to a position for which the title is subordinate to "Executive Vice President"; (b) Employee's direct reporting responsibility is to an officer of the company other than the President, (c) Employee's primary management responsibility and authority should exclude both disciplines of sales and marketing; (d) Company appoints an officer simultaneously responsible for the same disciplines as Employee; or (e) the Company's primary business shall change to a line of business not generally regarded as part of the computer/software industry. A Substantial Change shall not occur merely if (f) the Company should sell any or all of its business units or lines of business; (g) the Company should acquire new business units or lines of business; (h) the number of subordinates reporting to Employee is either increased or decreased; or (i) Employee is asked to assume reasonable additional or different responsibilities not inconsistent with his expertise and job title. 2. COMPENSATION. 2.1 BASE SALARY. The Company shall pay to Employee during the Initial Term, as hereinafter defined, of employment hereunder, and each renewal term, a salary of $163,000 per annum (Base Salary). The Base Salary shall be subject to review on an annual basis, and the Employee shall be eligible for salary increases upon the recommendation of the President of the Company and at the discretion of the Compensation Committee of the 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 Employee in accordance with the Company's policies and procedures. 2.2 BONUS. Employee shall be eligible for an annual bonus based on quarterly determinations of revenue of the Company as recited on Exhibit A. 2.3 STOCK OPTIONS. In further consideration of Employee's employment, Company grants to Employee, from the 1998 Stock Option Plan (subject to approval of such Plan by the Company's Board of Directors 15 and shareholders), 70,000 stock options for the Company's common stock. Such options shall have an exercise price equal to the closing NASDAQ price for such stock on Employee s first date of employment. Additionally, Employee will be eligible to participate with other senior executives of the Company in an annual stock option compensation plan under the 1998 Stock Option Plan to the extent such a compensation plan is provided for in the 1998 Stock Option Plan (subject to approval of such Plan by the Company's Board of Directors and shareholders). 2.4 INCENTIVE PLAN. In addition to the bonus contemplated by paragraph 2.2 herein, Employee shall be entitled to participate in Company's Management Incentive Plan based on his Base Salary at the same level as similarly situated officers of the Company. 2.5 PAYMENT DURING ABSENCES. If Employee 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 Employee 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. Except as set forth in this Section 3, and as may otherwise be agreed in writing between the Company and Employee, Employee shall not be entitled to any benefits of any kind or nature whatsoever. 3.1 BENEFITS. Employee shall be entitled to lease a vehicle under Company's Executive Vehicle Leasing Plan. Additionally, Employee 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 B 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 Employee 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 EXPENSE REIMBURSEMENT. During the term hereof, the Company shall reimburse Employee for all reasonable and necessary business related expenses incurred by Employee 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. Employee shall provide to the Company promptly after incurring any such expenses a detailed report thereof and such documentation 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 Employee hereunder shall be for a term commencing on January 26, 1998, and expiring on January 25, 2001 (the Initial Term). Upon the expiration of the Initial Term or any renewal term of Employee's employment hereunder, the term of such employment automatically shall be renewed for an additional term of one year unless Employee or the Company shall give notice of the termination of Employee's employment and this Agreement by written notice to the other no less than 30 days prior to the date of expiration of the Initial Term or any renewal term. 5. TERMINATION BY COMPANY. 16 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 immediately terminate this Agreement prior to the expiration of the Initial Term or any renewal term on the occurrence of either: (a) an event of default with respect to Employee, as provided herein, or (b) Death or Disability of Employee, as defined herein. 5.2 EVENT OF DEFAULT BY EMPLOYEE. For purposes of Section 5.1, an event of default with respect to Employee shall include: (a) any failure by Employee to perform his duties, responsibilities hereunder in a faithful and diligent manner or with reasonable care and, if such failure can be cured, the failure by Employee to cure such failure within 30 days after written notice thereof shall have been given to Employee by the Company; (b) embezzlement or conversion by Employee of any funds of the Company or any customer of the Company; (c) destruction or conversion by Employee of any property of the Company, without the Company's consent; (d) Employee's conviction of a felony; (e) Employee's adjudication as an incompetent; (f) Employee's habitual intoxication; (g) Employee's drug addiction; (h) Conduct unbefitting an employee of Company which, in the discretion of the Board of Directors of the Company, casts the Company in a shameful light; (i) The commission by Employee of an act resulting in injury to the business, property or reputation of the Company; (j) The commission of an act by Employee in the performance of his duties hereunder which amounts to willful or wanton negligence; (k) The refusal by Employee to perform, or substantial neglect of, the duties assigned to Employee; (l) Any violation of any statutory or common law duty of loyalty to the Company; or (m) Employee'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 Employee which, as determined by two physicians selected by the Company, is expected to continue indefinitely and which renders Employee incapable of performing any substantial portion of the services contemplated hereunder. The mere effort by Employee to carry on the duties of his employment shall not be sufficient if it is determined by the Company, in its sole discretion, that Employee is not making a substantial full-time contribution to the Company or Employee's actions as a whole are detrimental to the Company. 17 5.4 EFFECT OF TERMINATION. In the event of termination of this Agreement and Employee's employment pursuant to Paragraph 5.1 hereof, all rights and obligations of the Company and Employee hereunder shall terminate on the date of such termination, subject to the following: (a) Employee shall be entitled to receive (subject to any rights of setoff or counterclaim by the Company) all salary, commissions and benefits which shall have accrued prior to the date of such termination, and the obligation of the Company for the payment of salary, commissions or benefits shall terminate as of the date of such termination; and (b) All rights of the Company or Employee 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 Employee hereunder, shall survive such termination, and the Company and Employee shall continue to be bound by such provisions in accordance with the terms thereof. The Company shall have the right to offset against any payment due Employee 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 Employee 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 Employee s employment, the Company shall escrow all payments due Employee which are being set-off pursuant to the provisions of this subparagraph 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 Employee; provided, however, payment of any such amount to Employee shall not, in any manner or way whatsoever, release Employee from liability to the Company for any amount of such loss, injury, or damage sustained by the Company as a result of Employee's acts or omissions to act, regardless of such payments. 5.5 DEATH OF EMPLOYEE. This Agreement and all rights and obligations of the parties hereunder shall terminate immediately upon the death of Employee except that the Company shall pay to the heirs, legatees or personal representative of Employee all compensation or benefits hereunder accrued but not paid to the date of Employee's death. 6. TERMINATION BY EMPLOYEE. 6.1 EMPLOYEE'S RIGHT TO TERMINATE. In addition to Employee's right to terminate set forth in Section 4, Employee 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) six months 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. For purposes of this Section 6, an event of default with respect to the Company shall include: (a) Any failure by the Company to perform its obligations to Employee 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 Employee; (b) Company's filing a petition for relief under any chapter of Title 11 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 appoin/TM/ent of a receiver of itself or of the whole or any substantial part of its property; or 18 (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; or Company's effecting of a Substantial Change, as defined in Section 1.2 herein. 6.3 EFFECT OF TERMINATION. (a) In the event of termination of the Agreement by Employee in accordance with the provisions of Section 6.1(a) hereof, all rights and obligations of the Company and Employee hereunder shall terminate on the date of such termination, subject to the following: (i) Employee shall be entitled to receive all Base Salary, commissions and benefits which shall have accrued prior to the date of such termination; and (ii) All rights of the Company or Employee 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 Employee hereunder shall survive such termination, and the Company and Employee 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 term of this Agreement shall not survive. (b) In the event of termination of the Agreement by Employee in accordance with the provisions of Section 6.1(b) hereof, all rights and obligations of the Company and Employee hereunder shall terminate on the date of such termination, subject to the following: (i) Employee shall be entitled to all Base Salary, commissions and benefits which have accrued prior to the date of such termination; and (ii) Employee shall be entitled to receive severance pay in an amount equal to Employee's actual Base Salary for the twelve months prior to termination, plus a sum equal to the actual Bonus paid or earned pursuant to Section 2.2 herein during the twelve months prior to termination ("Severance"). In the event Employee shall not yet have been employed by Company for twelve months upon termination, Employee shall nevertheless receive Severance, calculated as Employee's actual Base Salary for the number of actual months thus employed, plus an additional number of months, which when added to the actual months thus employed shall equal twelve (12), at one-twelfth (1/12th) the Base Salary stated in Section 2.1 herein, plus, actual Bonus paid or earned pursuant to Section 2.2 only for the months thus employed. Severance shall be paid in a lump-sum distribution, within sixty (60) days of the date of termination, and shall be subject to withholding for applicable federal, state or local laws or regulations. Payments pursuant to the provisions of Section 6.3(a)(i) and (ii) and 6.3(b)(i) shall be paid in accordance with the Company's policies and procedures then in effect. 7. NON-COMPETITION AND NON-SOLICITATION. 7.1 NON-COMPETITION AND NON-SOLICITATION. Employee agrees that, so long as he is employed by Company pursuant to this Agreement, and for a period of twenty-four (24) months following expiration of the term or termination of this Agreement, other than termination by Employee 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: 19 (a) Employee 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 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) Employee 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) Employee 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) Employee 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 Employee controls such corporation, either alone or with others). 7.2 ACKNOWLEDGMENT. Employee 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 Employee, in the event of Employee'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. Employee 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 Employee 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. Employee further 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. 8. CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY. 8.1. CONFIDENTIAL INFORMATION. "Confidential Information" means information disclosed by the Company to Employee, or developed or obtained by Employee 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 20 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, Employee (whether alone or jointly with others) at any time during Employee'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 Employee performs for the Company; or (iii) are created using the equipment, supplies or facilities of the Company or any Confidential Information. 8.3 OWNERSHIP. Employee 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 Employee'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. Employee 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. Employee 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 Employee or by others. Employee shall ensure that all copyright notices and confidentiality legends on all work product authored by Employee shall conform to the Company's practices and shall specify the Company as the owner for the work. 8.4 KEEP RECORDS. Employee 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 Employee's employment and shall be turned over to Company at the conclusion of such employment. Employee shall keep all original documents and computer files at the office and the password to Employee's computer shall at all times be known by the Company's director of Human Resources. 8.5 FURTHER ASSURANCES. During the period of Employee's employment by the Company and at all times thereafter, Employee 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. Employee acknowledges and agrees that Employee 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. Employee agrees that, during the period of Employee's employment by the Company and at all times thereafter, unless 21 Employee first secures the written consent of the Company, Employee shall not use for Employee 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 Employee's assigned duties for the Company or by law or court order. Employee further agrees to use Employee's best efforts and u/TM/ost 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 Employee is required by law or court order to disclose any Confidential Information, Employee: (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 Employee'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. Employee 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 Employee'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 Employee 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. Employee 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. Employee 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, 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 Paragraphs 7, 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. 22 12.1 ASSIGNMENT. The rights and duties hereunder of Employee shall not be assignable, without the express written consent of the Company. The Company can assign this Agreement to any successor. 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, paragraphs 7, 8, 9, 10, 11, 12.9, 12.10 and 12.14 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, (c) the next business day after delivery to a private courier service, when delivered to a private courier service providing documented overnight service, and (d) on the date of delivery, if delivered by telecopy, receipt confirmed, provided that a confirmation copy is sent on the next business day by registered or certified mail, return receipt requested and postage prepaid, in each case addressed as follows: If to the Company: NeoMedia Technologies, Inc. 2201 Second Street, Suite 600 Fort Myers, FL 33901 Attention: Charles W. Fritz If to Employee: James Marshall ----------------------------- ----------------------------- 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, commi/TM/ents, contracts or understandings with respect thereto and no modification, alteration or amendment to this Agreement may be made 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 23 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. Employee waives any claim Employee may have that (a) Employee is not personally subject to the jurisdiction of any state or federal court located in the State of Florida, (b) Employee 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 Employee or Employee'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 paragraph 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, Employee 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 Employee 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. Employee acknowledges and represents that Employee has read and understands the provisions of this Agreement, and has had the opportunity to consult with his legal advisor with respect 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. Employee acknowledges and agrees that Employee has fully read and understands this Agreement, has had the opportunity to discuss this Agreement with Employee's attorney, has had any questions regarding its effect or the meaning of its terms answered to Employee's satisfaction, and, intending to be legally bound hereby, has freely and voluntarily executed this Agreement. 24 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. NEOMEDIA TECHNOLOGIES, INC. EMPLOYEE: By: /s/ CHARLES W. FRITZ /s/ JAMES MARSHALL - --------------------------- ------------------ Charles W. Fritz, President James Marshall 25 EXHIBIT A ANNUAL BONUS PLAN 26 ANNUAL SALE REVENUE BONUS PLAN FOR EXECUTIVE VICE PRESIDENT OF SALES AND BUSINESS DEVELOPMENT TThe annual target bonus is $40,000 provided 100% of the annual planned revenue is obtained in each quarter and year-to-date. This will be measured quarterly and annually. The bonus can fluctuate depending on if the targets are exceeded or fall behind. For example, if 120% or higher, of the target is achieved, the bonus would be 20% higher. If 70% or less of the target is achieved, there will be no bonus paid. TARGET BONUS PAID QTD AND YTD - ------ ---------------------- < 70% $0 70% to 89% 8,000 to 8,900 90% to 99% 9,000 to 9,990 100% 10,000 101% to 110% 10,100 to 11,000 111% to 120% 11,100 to 12,000 >120% 12,000 Example of quarterly versus year-to-date analysis for bonus Quarters Targets (in millions) 1st 2nd 3rd 4th --------------------------------------- $2.50 $4.70 $3.90 $6.30 Actual (in millions) .......... $1.97 $5.80 $3.80 $7.30 Over / under .................. -21.2% +23.4% -2.56% +15.87 Quarterly bonus ............... $0.00 $12,000 $9,744 $11,587 Note: On the above example, there was no bonus paid in the first quarter since the goal was not met. Note: Actual 1998 quarterly targets (in millions) are $6.1, $11.8, $12.5 and $17.9 for a $48.3 total. (Chas is looking at a final revision of this plan so it's not set in stone. It will be done by January 26, 1998.) Guaranteed home purchase (bought after 120 days on market on or before September 1, 1998.) 27 EXHIBIT B NEOMEDIA STANDARD BENEFITS 28 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 $7.50 per pay period for single coverage and $12.50 per pay period for family coverage. Services are subject to calendar year 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 $1,000 max. Coverage up to 26 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. Insurance on the employee only in the amount of two times your annual base pay. 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 20% of your income up to $10,000 into a tax deferred inves/TM/ent plan. Over 20 investment plans to chose. Contribution is 100% vested. PAY PERIODS Pay days are twenty-four (24) times per year. On the 15th of each month and on the last day of the month. VACATION TIME OFF New employees earn ten (10) days off per year. This increases to fifteen (15) days after 3 years service and twenty (20) days after 5 full years of service. OTHER TIME OFF Employees earn ten (10) sick days off per year, three (3) personal days per year, and eight (8) holidays per year. 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 NFL football games. 29 EX-27 3
5 1,000 3-MOS DEC-31-1998 JUN-30-1998 6,155 0 4,652 234 0 11,686 5,302 2,802 15,290 5,464 0 0 0 24,693 (15,726) 8,967 11,049 11,049 8,320 8,320 7,843 250 (137) (5,227) 0 (5,227) 0 0 0 (5,227) (.62) (.62)
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