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.
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE DECEMBER
ASSETS 30, 1998 31, 1997
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(In thousands)
<S> <C> <C>
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
======== ========
</TABLE>
The accompanying unaudited notes are an integral part of these unaudited
consolidated financial statements.
1
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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
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<TABLE>
<CAPTION>
NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS
ENDED JUNE 30,
--------------
1998 1997
---- ----
(Dollars in thousands,
except per share data)
<S> <C> <C>
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
=========== ===========
</TABLE>
The accompanying unaudited notes are an integral part of these unaudited
consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS
ENDED JUNE 30,
---------------------
1998 1997
--------- ---------
(In thousands)
<S> <C> <C>
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 --
</TABLE>
The accompanying unaudited notes are an integral part of these unaudited
consolidated financial statements.
4
<PAGE>
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.
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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
<PAGE>
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
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<PAGE>
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.
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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
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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.
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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.
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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
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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
NeoMedia Technologies, Inc.
Exhibit 10.28
Employment Agreement Dated January 26, 1998 By and Between
NeoMedia Technologies, Inc. and James Marshall
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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
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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.
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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.
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<PAGE>
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
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<PAGE>
(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:
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(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
<PAGE>
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
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<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
EXHIBIT A
ANNUAL BONUS PLAN
26
<PAGE>
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
<PAGE>
EXHIBIT B
NEOMEDIA STANDARD BENEFITS
28
<PAGE>
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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,155
<SECURITIES> 0
<RECEIVABLES> 4,652
<ALLOWANCES> 234
<INVENTORY> 0
<CURRENT-ASSETS> 11,686
<PP&E> 5,302
<DEPRECIATION> 2,802
<TOTAL-ASSETS> 15,290
<CURRENT-LIABILITIES> 5,464
<BONDS> 0
0
0
<COMMON> 24,693
<OTHER-SE> (15,726)
<TOTAL-LIABILITY-AND-EQUITY> 8,967
<SALES> 11,049
<TOTAL-REVENUES> 11,049
<CGS> 8,320
<TOTAL-COSTS> 8,320
<OTHER-EXPENSES> 7,843
<LOSS-PROVISION> 250
<INTEREST-EXPENSE> (137)
<INCOME-PRETAX> (5,227)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,227)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,227)
<EPS-PRIMARY> (.62)
<EPS-DILUTED> (.62)
</TABLE>
