U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
FORM 10 - QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21743
NEOMEDIA TECHNOLOGIES, INC.
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(Exact Name of Small Business Issuer as Specified In Its Charter)
DELAWARE 36-3680347
- ------------------------------ -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2201 SECOND STREET, SUITE 600, FORT MYERS, FLORIDA 33901
- -------------------------------------------------- ---------
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number (Including Area Code) 941-337-3434
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of April 30, 1998, there were outstanding 8,575,156 shares of the
issuer's Common Stock.
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
MARCH DECEMBER
ASSETS 31, 1998 31, 1997
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(In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................... $ 9,097 $ 10,283
Trade accounts receivable, net of allowance for doubtful
accounts of $221 and $191 ................................ 5,107 6,656
Amounts due from related parties ............................. 12 6
Inventories .................................................. -- 363
Prepaid expenses and other ................................... 552 562
-------- --------
Total current assets ..................................... 14,768 17,870
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Property and equipment, net of accumulated depreciation .......... 673 651
Capitalized software costs, net of accumulated amortization ...... 1,312 1,278
-------- --------
Total assets ................................................. $ 16,753 $ 19,799
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................. $ 2,361 $ 4,320
Accrued expenses ............................................. 957 931
Current portion of long-term debt ............................ 169 201
Other ........................................................ 453 306
-------- --------
Total current liabilities ................................ 3,940 5,758
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Long-term debt, net of current portion ........................... 888 915
-------- --------
Total liabilities ........................................ 4,828 6,673
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Shareholders' equity:
Common stock, $.01 par value, 50,000,000 shares authorized,
8,384,732 and 8,295,291 shares issued and outstanding .... 84 83
Preferred stock. $.01 par value, 10,000,000 shares authorized,
none issued and outstanding ........................... -- --
Additional paid-in capital ................................... 23,616 23,542
Accumulated deficit .......................................... (11,775) (10,499)
-------- --------
Total shareholders' equity ............................... 11,925 13,126
-------- --------
Total liabilities and shareholders' equity ................... $ 16,753 $ 19,799
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The accompanying unaudited notes are an integral part of these unaudited
consolidated financial statements.
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NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS
ENDED MARCH 31,
------------------------
1998 1997
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(Dollars in thousands,
except per share data)
NET SALES:
License fees ............................... $ 795 $ 319
Resales of software and technology equipment 3,966 3,760
Service fees ............................... 1,241 620
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Total net sales ........................ 6,002 4,699
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COST OF SALES:
License fees ............................... 59 74
Resales of software and technology equipment 3,309 3,265
Service fees ............................... 511 402
Amortization of capitalized software costs . 103 146
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Total cost of sales .................... 3,982 3,887
--------- ----------
GROSS PROFIT ................................... 2,020 812
Sales and marketing expenses ................... 1,816 841
General and administrative expenses ............ 1,323 833
Research and development costs ................. 229 196
--------- ----------
Loss from operations ........................... (1,348) (1,058)
Interest expense (income), net ................. (72) 12
--------- ----------
LOSS BEFORE INCOME TAXES ....................... (1,276) (1,070)
Income tax expense (benefit) ................... -- (45)
--------- ----------
NET LOSS ....................................... $ (1,276) $ (1,025)
========= ==========
NET LOSS PER SHARE - BASIC AND DILUTED ......... $ (0.15) $ (0.16)
========= ==========
Weighted average number of common shares ....... 8,310,850 6,397,785
========= ==========
The accompanying unaudited notes are an integral part of these unaudited
consolidated financial statements.
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NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS
ENDED MARCH 31,
---------------------
1998 1997
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(In thousands)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ....................................................................... $ (1,276) $ (1,025)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization .............................................. 175 169
Provision for doubtful accounts ............................................ 80 30
Changes in operating assets and liabilities:
Trade accounts receivable .............................................. 1,469 178
Other current assets ................................................... 367 19
Accounts payable and accrued expenses .................................. (1,933) (875)
Other current liabilities .............................................. 147 177
-------- --------
Net cash used in operating activities .................................. (971) (1,327)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalization of software development costs and purchased software............. (110) (284)
Acquisition of property and equipment .......................................... (121) (77)
-------- --------
Net cash used in investing activities .................................. (231) (361)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of units ............................................ -- 1,315
Exercise of stock options ...................................................... 75 5
Repayment of advance to shareholder ............................................ -- (472)
Proceeds from advance to shareholder ........................................... -- 472
Repayments on notes payable and long-term debt ................................. (59) (66)
-------- --------
Net cash provided by financing activities .............................. 16 1,254
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS ...................................... (1,186) (434)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................. 10,283 4,209
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ....................................... $ 9,097 $ 3,775
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid .............................................................. $ 54 $ 42
</TABLE>
The accompanying unaudited notes are an integral part of these unaudited
consolidated financial statements.
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NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS
BASIS OF PRESENTATION
The consolidated financial statements include the financial statements of
NeoMedia Technologies, Inc. and its wholly-owned subsidiaries, NeoMedia
Migration, Inc. ("Migration"), Distribuidora Vallarta, S.A. ("DVSA")
incorporated in Guatemala, Allegiant Legacy Solutions, Inc. ("Allegiant")(which
was merged into NeoMedia Technologies, Inc. in December 1997), NeoMedia
Technologies Holding Company B.V. incorporated in the Netherlands, NeoMedia
Technologies de Mexico S.A. de C.V. incorporated in Mexico, NeoMedia Migration
de Mexico S.A. de C.V. incorporated in Mexico, NeoMedia Technologies do Brasil
Ltd. incorporated in Brazil and NeoMedia Technologies UK Limited incorporated in
the United Kingdom, and are collectively referred to as "NeoMedia" or the
"Company". The consolidated financial statements of NeoMedia are presented on a
consolidated basis for all periods presented. The merger with Allegiant on
September 25, 1997 was accounted for as a pooling of interests, and accordingly,
all financial information has been restated as if the entities were combined for
all prior periods. All significant intercompany accounts and transactions have
been eliminated in preparation of the consolidated financial statements. Foreign
operations were not significant.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and do not include
all of the information and footnotes required by generally accepted accounting
principles for complete consolidated financial statements. In the opinion of
management, these consolidated financial statements reflect all adjustments
which are of a normal recurring nature and which are necessary to present fairly
the consolidated financial position of NeoMedia as of March 31, 1998 and
December 31, 1997, and the results of operations for the three months ended
March 31, 1998 and 1997, and cash flows for the three months ended March 31,
1998 and 1997. The results of operations for the three months ended March 31,
1998 are not necessarily indicative of the results which may be expected for the
entire fiscal year.
NATURE OF BUSINESS OPERATIONS
NeoMedia operates in one business segment which is comprised of three
principal applications markets: (i) Intelligent Document(TM) Solutions
("IDOCsTM") Unit, (ii) Document Systems Solutions Unit and (iii) Year 2000 /
Migration Solutions Unit.
The IDOCS UNIT assists clients in embedding active data elements in
standard printed documents or on physical objects for the purpose of launching
computer programs and creating automated links to the World Wide Web. NeoMedia
has developed its own technology, and has rights to use the technology of
others, to generate printed documents and enhance physical objects which can be
automatically "read" by machines, such as computers equipped with scanners and
appropriate software. These "machine readable" documents or physical objects
incorporate printed codes which contain thousands of bytes of information,
including computer programs rendering them functionally equivalent to a computer
floppy disk. With this functionality, a user may access additional information
about, assess validity of, or determine authenticity of, such document or
object. These codes are referred to in the industry as "high capacity
symbologies" and "multi-dimensional" or "two dimensional" bar codes and NeoMedia
currently provides software and services to support the application of this
technology.
The DOCUMENTS SYSTEMS SOLUTIONS UNIT assists clients in optimizing the
creation, production and management of printed documents and printed document
processes. These efforts have historically focused on designing and providing
complete, client specific, high speed and high volume document formatting and
printing solutions. Recently, services of the Document Systems Solutions Unit
have been expanded to include Integrated Document Factories ("IDF's"), a
complete, client specific system solution for automating, monitoring and
managing print-to-mail
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processes. IDF's incorporate manufacturing principles and IDOCsTM technology,
enabling clients not only to achieve maximum efficiencies in their print
processes, but to also ensure document integrity and traceability.
The YEAR 2000 / MIGRATION SOLUTIONS UNIT enables and assists clients to
implement mass changes in computer software and hardware systems, such as (i)
identifying, seeking and automatically correcting restrictive source and
application fields which store data, including among other items, dates (adding
two digits to a two-digit date field when four digits are required to correct
the Year 2000 problem), stock prices (converting from a fractional to a decimal
measurement system) and European currencies (converting to the new European
Monetary Unit of Measure, commonly known as the "Eurodollar"), and (ii)
conversions from closed, proprietary "legacy" systems to open systems.
As part of the services provided in connection with the above solutions it
offers, NeoMedia often recommends, specifies, supplies and installs equipment
and software products from third-party software and hardware vendors, leading
consulting firms and major system integrators, many of whom have strategic
alliances with NeoMedia. These alliances are integral to NeoMedia's business
operations. NeoMedia principally markets and distributes its products through
distributors in the United States (although it has distributors in Europe and
Latin America which have not generated material sales), and currently has U. S.
district offices located in Florida, Illinois, and Ohio.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
License revenues represent revenue from the licensing of NeoMedia's
proprietary software tools and applications products. NeoMedia licenses its
development tools and application products pursuant to non-exclusive and
non-transferable license agreements. Software and technology equipment resales
represent revenue from the resale of purchased third party hardware and software
products. Service fees represent revenue from consulting, education and post
contract customer support services. Effective January 1, 1998, NeoMedia adopted
the software license revenue recognition provisions of the American Institute of
Certified Public Accountants ("AICPA") Statement of Position 97-2 "Software
Revenue Recognition" ("SOP 97-2"), as amended, Specifically, license revenue is
recognized if persuasive evidence of an agreement exists, delivery has occurred,
pricing is fixed and determinable, and collectibility is probable. The impact of
the adoption of SOP 97-2 was not material to NeoMedia's Consolidated Financial
Statements.
COMPREHENSIVE INCOME
NeoMedia adopted the provisions of Financial Accounting Standards Board
("FASB") Statement of Accounting Standards No. 130 "Reporting Comprehensive
Income" ("FAS 130") effective January 1, 1998. FAS 130 requires companies to
report comprehensive income. Comprehensive income is defined as the change in
equity of a business during a period from transactions and other events and
circumstances from nonowner sources. During the three months ended March
31,1998, changes in NeoMedia's shareholders' equity consisted of its net loss
and the exercise of stock options. Accordingly, comprehensive income as defined
by FAS 130 was the net loss in the accompanying unaudited consolidated statement
of operations.
COMPUTATION OF LOSS PER SHARE
Effective December 31, 1997, NeoMedia adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("FAS 128") which replaces
the presentation of primary earnings per share with basic earnings per share and
which requires dual presentation of basic and diluted earnings per share on the
Consolidated Statements of Operations. FAS 128 requires restatement of all prior
period earnings per share data presented. Basic net earnings per share is
computed by dividing net income by the weighted average number of shares of
common stock outstanding during the period, and diluted net earnings per share
includes the effect of unexercised stock options and warrants
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using the treasury stock method. The treasury stock method assumes that common
stock was purchased at the average market price during the period. Because the
assumed exercise of stock options and warrants would have an antidilutive effect
on the net loss per share for the three months ended March 31, 1998 and 1997, no
exercise of stock options and warrants were assumed and diluted net loss per
share was the same as basic net loss per share.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject NeoMedia to concentrations
of credit risk consist primarily of trade accounts receivable with customers.
Credit risk is generally minimized as a result of the large number and diverse
nature of NeoMedia's customers which are located throughout the United States.
NeoMedia extends credit to its customers as determined on an individual basis
and has included an allowance for doubtful accounts of $221,000 and $191,000 in
its March 31, 1998 and December 31, 1997 consolidated balance sheets,
respectively. NeoMedia had net sales to one major customer in the
telecommunications industry of $530,000 and $2,058,000 during the three months
ended March 31, 1998 and 1997, respectively, resulting in trade accounts
receivable of $399,000 and $3,116,000 as of March 31, 1998 and December 31,
1997, respectively. Revenue generated from the remarketing of software and
technology equipment has accounted for a significant percentage of NeoMedia's
revenue. Such sales accounted for 66.1% and 80.0% of NeoMedia's revenue for the
three months ended March 31, 1998 and 1997, respectively.
3. BENEFIT FOR INCOME TAXES
The benefits for income taxes recorded during the three months ended March
31, 1997 represented the recovery of income taxes paid in prior years from the
carry back of operating losses.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AS COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 1997
GENERAL. Total net sales for the three months ended March 31, 1998 were
$6.0 million, which represented a $1.3 million, or 27.7%, increase from $4.7
million for the three months ended March 31, 1997. This increase primarily
resulted from (i) a $1.2 million increase in sales of IBM S390 computer
hardware, (ii) a $902,000 increase in sales of Year 2000 products including
licenses and services, and (iii) a $626,000 increase in sales relating to the
implementation of an integrated document factory. These increases were partially
offset by a $1,528,000 decrease in sales to a NeoMedia customer in the
telecommunications industry.
The net loss for the three months ended March 31, 1998 was $1.3 million,
which represented a $251,000, or 24.5%, increase from a $1.0 million loss for
the three months ended March 31, 1997. The increase in the net loss primarily
resulted from NeoMedia's continuing to invest in the infra-structure needed to
manage current and expected future growth. The $1.4 million increase in the
infra-structure costs during 1998 as compared to 1997 was partially offset with
the increase in sales of the Year 2000 products which reduced losses by
$754,000, and the increase in sales of the integrated document factory which
reduced losses by $426,000.
The total of general, administrative, sales, marketing, research and
development expenses increased $1,498,000 to $3,368,000 for the three months
ended March 31, 1998 from $1,870,000 during the three months ended March 31,
1997. This increase primarily resulted from NeoMedia investing in the expansion
of its infra-structure by hiring management, sales and other personnel to
develop, market and sell new products. NeoMedia intends to continue to expand
its development, sales and marketing positions to increase revenue in each of
its three business units: Document Systems Solutions Unit, Year 2000 / Migration
Solutions Unit and Intelligent Document Solutions Unit.
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LICENSE FEES. License fees for the three months ended March 31, 1998 were
$795,000 compared to $319,000 for the three months ended March 31, 1997, an
increase of $478,000 or 149.8%. This increase resulted primarily from the
increase in sales of licenses of NeoMedia's Year 2000 proprietary software. Cost
of sales for license fees consisted primarily of fees paid to an independent
software developer for one of the existing software transition tools. Cost of
sales as a percentage of related sales was 7.4% during 1998 compared to 23.1%
during 1997. This decrease in the cost of sales as a percentage of related sales
was primarily due to the increased sales of ADAPT/2000, which is proprietary
software.
RESALES OF SOFTWARE AND TECHNOLOGY EQUIPMENT. Resales of software and
technology equipment increased by $206,000, or 5.5%, to $3,966,000 for the three
months ended March 31, 1998, as compared to $3,760,000 for the three months
ended March 31, 1997. This increase primarily resulted from equipment resales
related to IBM's line of S390 micro-mainframe computers and was partially offset
with the decrease in sales to a NeoMedia customer in the telecommunications
business. Cost of sales as a percentage of related sales was 83.4% during 1998,
compared to 86.8% during 1997. This decrease in the cost of sales as a
percentage of related sales was primarily due to the sale of more S390 computers
that have a higher profit margin.
SERVICE FEES. NeoMedia's service fees increased by $621,000, or 100.1%, to
$1,241,000 for the three months ended March 31, 1998, compared to $620,000 for
the three months ended March 31, 1997. This increase was primarily due to a
$341,000 increase in the Year 2000 services and the increase in consulting fees
for integrated document factory services. Cost of service fees as a percentage
of related sales decreased to 41.2% during 1998 from 64.8% during 1997 primarily
due to higher margin on Year 2000 services.
AMORTIZATION OF SOFTWARE. Amortization of software for the three months
ended March 31, 1998, as compared to the three months ended March 31, 1997,
decreased $43,000 as a result of certain migration software costs becoming fully
amortized during 1997, and, as a percentage of total net sales, decreased to
1.7% during 1998 from 3.1% during 1997 due to the increase in net sales.
SALES AND MARKETING. A portion of the compensation to the sales and
marketing staff constitutes salary and is fixed in nature and the remainder of
this compensation, which was paid as a commission, is directly related to sales
volume. Sales and marketing expenses increased $975,000, or 115.9%, to
$1,816,000 for the three months ended March 31, 1998 from $841,000 for the three
months ended March 31, 1997, as a result primarily of hiring managers to direct
current and expected future growth and increased commissions resulting from the
increase in sales. NeoMedia anticipates that sales and marketing costs will
increase as NeoMedia grows.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$490,000, or 58.8%, to $1,323,000 for the three months ended March 31, 1998,
from $833,000 for the three months ended March 31, 1997. This increase was due
mainly to NeoMedia building its administrative infra-structure, which includes
compensation and related expenses and legal and professional fees, to manage
current and expected future growth.
RESEARCH AND DEVELOPMENT. During the three months ended March 31, 1998,
NeoMedia charged to expense 3.8% of total net sales in research and development
expenses as compared to 4.2% during the three months ended March 31, 1997. This
percentage decrease was due to a corresponding increase in the amount of
software development costs that were capitalized during this period pursuant to
FASB's Statement of Financial Accounting Standard No. 86. NeoMedia currently
intends to continue to make significant investments in its development
activities.
INTEREST EXPENSE (INCOME), NET. Interest expense (income) consists primarily
of interest paid to creditors as part of financed purchases, capitalized leases
and NeoMedia's asset-based collateralized line of credit net of interest earned
on cash equivalent investments. Interest expense (income) decreased by $84,000
to ($72,000) for the three months ended March 31, 1998 from $12,000 for the
three months ended March 31, 1997, due to interest income earned on the proceeds
from the warrants exercised in the fourth quarter of 1997.
INCOME TAX EXPENSE (BENEFIT). The $45,000 benefit for income taxes recorded
during the three months ended March 31, 1997 represented the recovery of income
taxes paid in prior years from the carry back of operating losses.
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LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, NeoMedia's working capital was $10.8 million which
represented a $1.3 million decrease from December 31, 1997. Net cash used in
operating activities for the three months ended March 31, 1998 and 1997, was
$971,000 and $1,327,000, respectively. During 1998, trade accounts receivable
decreased $1.5 million, while accounts payable and accrued expenses decreased
$1.9 million. During 1997, trade accounts receivables increased $178,000, while
accounts payable and accrued expenses decreased $875,000. NeoMedia's net cash
flow used in investing activities for the three months ended March 31, 1998 and
1997, was $231,000 and $361,000, respectively.
Net cash provided by financing activities for the three months ended March
31, 1998 and 1997, was $16,000 and $1,254,000, respectively. In January, 1997,
NeoMedia consummated the over-allotment of its initial public offering and
received net proceeds of $1.3 million
NeoMedia believes that its existing cash balances, funds expected to be
generated from operations and available borrowings under its existing financing
agreement, will be sufficient to finance NeoMedia's operations for the remainder
of 1998. Thereafter, if NeoMedia has insufficient funds for its needs, there can
be no assurance that additional funds can be obtained on acceptable terms, if at
all. If necessary funds are not available, NeoMedia's business and operations
would be materially adversely affected and in such event NeoMedia would attempt
to reduce costs and adjust its business plan.
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 27, 1998, NeoMedia held a Special Meeting of Stockholders at
which the stockholders voted (i) on an amendment to NeoMedia's Certificate of
Incorporation to increase the number of shares of authorized common stock, par
value $.01, to 50,000,000 shares and to authorize the creation of 10,000,000
shares of preferred stock, par value $.01, and (ii) to approve the 1998 Stock
Option Plan. The amendment to NeoMedia's Certificate of Incorporation and the
1998 Stock Option Plan were both approved. The number of votes cast was as
follows:
FOR AGAINST ABSTAINED
--------- ------- ---------
Amendment to Certificate of Incorporation... 5,727,510 216,797 9,412
1998 Stock Option Plan ..................... 5,676,322 264,857 12,540
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits required by Item 601 of Regulation S-B to be filed herewith
are as follows:
4.10 1998 Stock Option Plan as Amended
(b) Reports on Form 8-K
A Form 8-K dated February 9, 1998 was filed by NeoMedia reporting that
NeoMedia dismissed Coopers & Lybrand L.L.P. and effective February 9, 1998 ,
engaged KPMG Peat Marwick LLP as its principal accountants.
A Form 8-K dated March 27, 1998 was filed by NeoMedia reporting that
NeoMedia's stockholders approved an amendment to NeoMedia's Certificate of
Incorporation to increase the number of shares of authorized common stock , par
value $.01, to 50,000,000 shares and to authorize the creation of 10,000,000
shares of preferred stock, par value $ .01, and approved the 1998 Stock Option
Plan.
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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 MAY 5, 1998 By: /s/ CHARLES W. FRITZ
-----------------------
Charles W. Fritz, President, Chief Executive
Officer and Chairman of the Board
Date MAY 5, 1998 By: /s/ CHARLES T. JENSEN
-----------------------
Charles T. Jensen, Vice President, Chief
Financial Officer, Treasurer and Director
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EXHIBIT INDEX
SEQUENTIAL EXHIBIT
PAGE NUMBER NUMBER DOCUMENT
- ----------- ------- --------
11 4.10 1998 Stock Option Plan as Amended
20 27.1 Article 5 Financial Data Schedule for March 31, 1998
10
EXHIBIT 4.10
NeoMedia Technologies, Inc.
Exhibit 4.10
1998 Stock Option Plan as Amended
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NEOMEDIA TECHNOLOGIES, INC.
1998 STOCK OPTION PLAN AS AMENDED
1. PURPOSE OF THE PLAN
This Stock Option Plan (the "Plan") is intended as an incentive to
key employees, consultants and directors of NeoMedia Technologies, Inc. (the
"Company") and its subsidiaries. The purpose of the Plan is to assist the
Company in retaining its employees with a high degree of training, experience
and ability, to attract new employees and consultants whose services are
considered unusually valuable and to provide stock ownership opportunities to
the members of the Board of Directors of the Company who are not employees of
the Company or a subsidiary ("Nonemployee Directors").
2. GENERAL PROVISIONS
2.1 Definitions
As used in the Plan:
(a) "Board of Directors" means the Board of Directors of the
Company.
(b) "Code" means the Internal Revenue Code of 1986, including
any and all amendments thereto.
(c) "Committee" means the options committee appointed by the
Board of Directors from time to time to administer the
Plan pursuant to Section 2.2.
(d) "Common Stock" means the Company's Common Stock, $.01
par value.
(e) "Participant" means a person to whom a Stock Option has
been granted under the Plan.
(f) "Rule 16b-3" means Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended from time to
time, or any successor rule.
(g) "Stock Option" means an option granted under the Plan.
(h) "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning
with the Company if, at the time of the granting of the
Stock Option, each of the corporations other than the
last corporation in the unbroken chain owns 50% or more
of the total voting power of all classes of stock in one
of the other corporations in such chain.
2.2 Administration of the Plan
(a) The Plan shall be administered by the Committee which
shall at all times consist of two (2) or more persons,
each of whom shall be a member of the Board of Directors.
Each member of the Committee shall be a disinterested
person (as such term is defined in Rule 16b-3). The Board
of Directors may from time to time remove members from,
or add members to, the Committee. Vacancies on the
Committee, howsoever caused, shall be filled by the Board
of Directors. The Committee shall select one of its
members as Chairman, and shall hold meetings at such
times and places as it may determine.
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(b) The Committee shall have the full power, subject to and
within the limits of the Plan, to: (i) interpret and
administer the Plan, and Stock Options granted under it;
(ii) make and interpret rules and regulations for the
administration of the Plan and to make changes in and
revoke such rules and regulations (and in the exercise of
this power, shall generally determine all questions of
policy and expediency that may arise and may correct any
defect, omission, or inconsistency in the Plan or any
agreement evidencing the grant of any Stock Option in a
manner and to the extent it shall deem necessary to make
the Plan fully effective); (iii) determine those persons
to whom Stock Options shall be granted and the number of
Stock Options to be granted to any person; (iv) determine
the terms of Stock Options granted under the Plan,
consistent with the provisions of the Plan; and (v)
generally, exercise such powers and perform such acts in
connection with the Plan as are deemed necessary or
expedient to promote the best interests of the Company.
The interpretation and construction by the Committee of
any provision of the Plan or of any Stock Option shall be
final, binding and conclusive. Members of the Committee
shall be subject to any additional restrictions necessary
to satisfy the disinterested administration of the Plan
as required in Rule 16b-3.
(c) The Committee may act only by a majority of its members
then in office; however, the Committee may authorize any
one (1) or more of its members or any officer of the
Company to execute and deliver documents on behalf of the
Committee.
(d) No member of the Committee shall be liable for any action
taken or omitted to be taken or for any determination
made by him or her in good faith with respect to the
Plan, and the Company shall indemnify and hold harmless
each member of the Committee against any cost or expense
(including counsel fees) or liability (including any sum
paid in settlement of a claim with the approval of the
Committee) arising out of any act or omission in
connection with the administration or interpretation of
the Plan, unless arising out of such person's own fraud
or bad faith.
2.3 Effective Date
The Plan shall become effective upon its adoption by the Board of
Directors, and Stock Options may be granted upon such adoption and from time to
time thereafter, subject, however, to approval of the Plan by affirmative vote
of the holders of a majority of the shares of the Common Stock present in person
or by proxy and entitled to vote at an annual meeting of the shareholders of the
Company or at a special meeting of the shareholders of the Company expressly
called for such purposes, or any adjournments thereof, within 12 months after
the adoption of the Plan by the Board of Directors. If the Plan is not approved
at such annual or special meeting or at any adjournments thereof, this Plan and
all Stock Options previously granted thereunder shall become null and void.
2.4 Duration
If approved by the shareholders of the Company, as provided in
Section 2.3, unless sooner terminated by the Board of Directors, this Plan shall
remain in effect for a period of ten (10) years following its adoption by the
Board of Directors.
2.5 Shares Subject to the Plan
The maximum number of shares of Common Stock which may be subject
to Stock Options granted under the Plan shall be 8,000,000. The Stock Options
shall be subject to adjustment in accordance with Section 5, as appropriate, and
shares to be issued upon exercise of Stock Options may be either authorized and
unissued shares of Common Stock or authorized and issued shares of Common Stock
purchased or acquired by the Company for any purpose. If a Stock Option or
portion thereof shall expire or is terminated, canceled or surrendered for any
reason
13
<PAGE>
without being exercised in full, the unpurchased shares of Common Stock which
were subject to such Stock Option or portion thereof shall be available for
future grants of Stock Options under the Plan.
2.6 Amendments
The Plan may be suspended, terminated or reinstated, in whole or
in part, at any time by the Board of Directors, provided however, that without
the approval of NeoMedia's stockholders, no amendment shall be made which (i)
increases the maximum number of shares of Common Stock which may be subject to
stock options granted under the Plan, except for specified adjustment
provisions, (ii) extends the term of the Plan, (iii) increases the period during
which a stock option may be exercised beyond ten years from the date of the
grant, (iv) materially increase the benefits accruing to participants under the
Plan, (v) materially modifies the requirements as to eligibility for
participation in the Plan, or (vi) will cause stock options granted under the
Plan to fail to meet the requirements of Rule 16b-3. The Board of Directors may
from time to time make such amendments to the Plan as it may deem advisable.
Except as otherwise provided herein, termination or amendment of the Plan shall
not, without the consent of a Participant, affect such Participant's rights
under any Stock Options previously granted to such Participant.
2.7 Participants and Grants
Stock Options may be granted by the Committee to (i) directors,
officers and other full-time salaried employees of the Company and its
Subsidiaries with managerial, professional or supervisory responsibilities and
(ii) consultants and advisors who render bona fide services to the Company and
its Subsidiaries, in each case, where the Committee determines that such
officer, employee, consultant or advisor has the capacity to make a substantial
contribution to the success of the Company. The Committee may grant Stock
Options to purchase such number of shares of Common Stock (subject to the
limitations of Sections 2.5) as the Committee may, in its sole discretion,
determine. In granting Stock Options under the Plan, the Committee, on an
individual basis, may vary the number of Stock Options as between Participants
and may grant Stock Options to a Participant in such amounts as the Committee
may determine in its sole discretion.
3. STOCK OPTIONS
3.1 General
All Stock Options granted under the Plan shall be evidenced by
written agreements executed by the Company and the Participant to whom granted,
which agreement shall state the number of shares of Common Stock which may be
purchased upon the exercise thereof and shall contain such investment
representations and other terms and conditions as the Committee may from time to
time determine.
3.2 Price
The purchase price per share of Common Stock subject to a Stock
Option shall be determined by the Committee which may be less than the fair
market value on the date of grant.
3.3 Period
The duration or term of each Stock Option granted under the Plan
shall be for such period as the Committee shall determine but in no event more
than ten (10) years from the date of grant thereof.
3.4 Exercise
Stock Options may be exercisable at such time or times as the
Committee shall specify when granting the Stock Options subject to satisfaction
of all conditions for exercise recited herein and in the Option Agreement.
Without limiting the foregoing, the Stock Options may not be exercised unless
the Participant at the time of such
14
<PAGE>
exercise shall have been in continuous employ of, or relationship with, the
Company up to the date of exercise, subject to the other provisions herein.
Once exercisable, a Stock Option shall be exercisable, in whole or
in part, by delivery of a written notice of exercise to the Secretary of the
Company at the principal office of the Company specifying the number of shares
of Common Stock as to which the Stock Option is then being exercised together
with payment of the full purchase price for the shares being purchased upon such
exercise. Until the shares of Common Stock as to which a Stock Option is
exercised are issued, the Participant shall have none of the rights of a
shareholder of the Company with respect to such shares.
3.5 Payment
The purchase price for shares of Common Stock as to which a Stock
Option has been exercised and any amount required to be withheld, as
contemplated by Section 6.1, may be paid:
(a) In United States dollars in cash, or by check, bank draft
or money order payable in United States dollars to the
order of the Company; or
(b) By the delivery by the Participant to the Company of
whole "mature" shares of Common Stock ("mature shares"
being defined as those having been owned and held by the
Participant for a period equal to or in excess of six
months) having an aggregate fair market value on the date
of payment equal to the aggregate of the purchase price
of Common Stock as to which the Stock Option is then
being exercised; or
(c) By a combination of both (a) and (b) above.
The Committee may, in its discretion, impose limitations, conditions and
prohibitions on the use by a Participant of shares of Common Stock to pay the
purchase price payable by such Participant upon the exercise of a Stock Option.
3.6 Termination of Employment or Other Relationship
(a) In the event a Participant's employment by, or
relationship with, the Company shall terminate for any
reason other than those reasons specified in Sections
3.6(b), (c), (d), (e) or (g) hereof while such
Participant holds Stock Options granted under the Plan,
then all rights of any kind under any outstanding Option
held by such Participant which shall not have previously
lapsed or terminated shall expire immediately.
(b) If a Participant's employment by, or relationship with,
the Company or its Subsidiaries shall terminate as a
result of such Participant's total disability, each Stock
Option held by such Participant (which has not previously
lapsed or terminated) shall be exercisable by such
Participant for a period of one year after termination
but only to the extent the Option is otherwise
exercisable during that period. For purposes of the
foregoing sentence, "total disability" shall mean
permanent mental or physical disability as determined by
the Committee.
(c) In the event of the death of a Participant, each Stock
Option held by such Participant (which has not previously
lapsed or terminated) shall be exercisable by the
executor or administrator of the Participant's estate or
by the person or persons to whom the deceased
Participant's rights thereunder shall have passed by will
or by the laws of descent or distribution, for a period
of one year after such Participant's death but only to
the extent the Option is otherwise exercisable during
that period.
15
<PAGE>
(d) In the case of a Participant who is an employee of the
Company, if a Participant's employment by the Company
shall terminate by reason of such Participant's
retirement in accordance with Company policies, each
Stock Option held by such Participant at the date of
termination (which has not previously lapsed or
terminated) shall be exercisable for a period of three
(3) months after termination, but only to the extent the
Option is otherwise exercisable during that period.
(e) In the event the Company terminates the employment of a
Participant who at the time of such termination was an
officer of the Company and had been continuously employed
by the Company during the two (2) year period immediately
preceding such termination, for any reason except "good
cause" (hereafter defined) and except upon such
Participant's death, total disability or retirement in
accordance with Company policies, each Stock Option held
by such Participant (which has not previously lapsed or
terminated and which has been held by such Participant
for more than six (6) months prior to such termination)
shall be exercisable for a period of three (3) months
after such termination, but only to the extent the Option
is otherwise exercisable during that period. A
termination for "good cause" shall be deemed to have
occurred only if the Participant in question (i) is
terminated by written notice for dishonesty, because of
his conviction of a felony, or because of his violation
of any material provision of any employment or other
agreement, written or oral, with the Company or any of
its Subsidiaries, or (ii) shall voluntarily resign or
terminate his employment with the Company or any of its
Subsidiaries under or followed by such circumstances as
would constitute a breach of any material provision of
any employment or other agreement between him and the
Company or any of its Subsidiaries, or (iii) shall have
committed an act of dishonesty not discovered by the
Company or any of its Subsidiaries prior to the cessation
of his employment with the Company or any of its
Subsidiaries, but which would have resulted in his
discharge if discovered prior to such date, or (iv)
shall, either before or after cessation of his employment
with the Company or any of its Subsidiaries, without the
written consent of the Company or any of its
Subsidiaries, use (except for the benefit of the Company
or any of its Subsidiaries) or disclose to any other
person any confidential information relating to the
continuation or proposed continuation of the business or
any trade secrets of the Company of any of its
Subsidiaries obtained as a result of or in connection
with such employment.
(f) Notwithstanding the foregoing, if at any time after
termination a Participant engages in "detrimental
activity" (as hereinafter defined), the Committee in its
discretion may cause the Participant's right to exercise
such option to be forfeited. If an allegation of
detrimental activity by a Participant is made to the
Committee, the exercisability of the Participant's
options will be suspended for up to two months to permit
the investigation of such allegation. For purposes of
this section, "detrimental activity" means activity that
is determined by the Committee in its sole and absolute
discretion to be detrimental to the interests of the
Company or any of its Subsidiaries, including but not
limited to situations where such Participant: (1)
divulges trade secrets of the Company, proprietary data
or other confidential information relating to the Company
or to the business of the Company and any Subsidiaries,
(2) enters into employment with a competitor under
circumstances suggesting that such Participant will be
using unique or special knowledge gained as a Company
employee to compete with the Company, (3) is convicted by
a court of competent jurisdiction of any felony or a
crime involving moral turpitude, (4) uses information
obtained during the course of his or her employment for
his or her own purposes, such as for the solicitation of
business, (5) is determined to have engaged (whether or
not prior to termination due to retirement) in either
gross misconduct or criminal activity harmful to the
Company, or (6) takes any action that harms the business
interests, reputation, or goodwill of the Company and/or
its subsidiaries.
16
<PAGE>
(g) In the case of Stock Options granted to a nonemployee
director who ceases to be a member of the Board of
Directors, such Stock Options then held by such
individual shall be exercisable within one year after
such termination of service.
3.7 Effect of Leaves of Absence
It shall not be considered a termination of employment when a
Participant is on military or sick leave or such other type leave of absence
which is considered as continuing intact the employment relationship of the
Participant with the Company or any of its Subsidiaries. In case of such leave
of absence, the employment relationship shall be deemed to have continued until
the later of (i) the date when such leave shall have lasted ninety (90) days in
duration, or (ii) the date as of which the Participant's right to employment
shall have no longer been guaranteed either by statute or contract.
4. ASSIGNABILITY OF STOCK OPTIONS
Stock Options granted under the Plan shall not be assignable or
otherwise transferable by the recipient except by will or the laws of intestate
succession, or pursuant to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act, or the rules
thereunder. Otherwise, Stock Options granted under this Plan shall be
exercisable during the lifetime of the Participant only by the Participant for
his or her individual account, and no purported assignment or transfer of such
Stock Options thereunder, whether voluntary or involuntary, by operation of law
or otherwise, shall vest in the purported assignee or transferee any interest or
right therein whatsoever but immediately upon any such purported assignment or
transfer, or any attempt to make the same, such Stock Options thereunder shall
terminate and become of no further effect.
5. REORGANIZATION AND RECAPITALIZATION OF THE COMPANY
(a) The existence of this Plan and Stock Options granted
hereunder shall not affect in any way the right or power
of the Company or its stockholders to make or authorize
any or all adjustments, recapitalization, reorganizations
or other changes in the Company's capital structure or
its business, or any merger or consolidation of the
Company, or any issue of bonds, debentures, preferred or
prior preference stocks ahead of or affecting the Common
Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of
all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar
character or otherwise.
(b) Except as hereinafter provided, the issue by the Company
of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash
or property, or for labor or services, either upon direct
sale or upon exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of
the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of
shares of Common Stock subject to Stock Options granted
hereunder.
(c) If, and whenever, prior to the delivery by the Company or
a Subsidiary of all of the shares of Common Stock which
are subject to the Stock Options or rights granted
hereunder, the Company shall effect a subdivision or
consolidation of shares or other capital readjustments,
the payment of a stock dividend or other increase or
reduction of the number of shares of the Common Stock
outstanding without receiving compensation therefor in
money, services or property, the number of shares subject
to the Plan shall be proportionately adjusted and the
number of shares with respect to which Stock Options
granted hereunder may thereafter be exercised shall:
17
<PAGE>
(i) in the event of an increase in the number of
outstanding shares, be proportionately increased,
and the cash consideration (if any) payable per
share shall be proportionately reduced; and
(ii) in the event of a reduction in the number of
outstanding shares, be proportionately reduced, and
the cash consideration (if any) payable per share
shall be proportionately increased.
(d) If the Company merges with one or more corporations, or
consolidates with one or more corporations and the
Company shall be the surviving corporation, thereafter,
upon any exercise of Stock Options granted hereunder, the
Participant shall, at no additional cost (other than the
option price, if any) be entitled to receive (subject to
any required action by stockholders) in lieu of the
number of shares as to which such Stock Options shall
then be exercisable the number and class of shares of
stock or other securities to which the Participant would
have been entitled pursuant to the terms of the agreement
of merger or consolidation, if immediately prior to such
merger or consolidation the Participant had been the
holder of record of the number of shares of Common Stock
of the Company equal to the number of shares as to which
such Stock Options shall be exercisable. Upon any
reorganization, merger or consolidation where the Company
is not the surviving corporation, the Committee shall
have the right to make all outstanding options vest and
be exercisable immediately, by giving notice to each
holder thereof or his or her personal representative and
by permitting the exercise for a period not to exceed
ninety (90) days from the date of such determination by
the Committee. Upon liquidation or dissolution of the
Company, all outstanding options shall be cancelled.
6. MISCELLANEOUS PROVISIONS
6.1 Withholding
The Company's obligations under this Plan shall be subject to
applicable federal, state and local tax withholding requirements. Federal, state
and local withholding tax due at the time of a grant or upon the exercise of any
Stock Option may, in the discretion of the Committee, be paid in shares of
Common Stock already owned by the Participant or through the withholding of
shares otherwise issuable to such Participant, upon such terms and conditions as
the Committee shall determine. If the Participant shall fail to pay, or make
arrangements satisfactory to the Committee for the payment, to the Company of
all such federal, state and local taxes required to be withheld by the Company,
then the Company shall, to the extent permitted by law, have the right to deduct
from any payment of any kind otherwise due to such Participant an amount equal
to any federal, state or local taxes of any kind required to be withheld by the
Company.
6.2 Compliance with Law and Approval of Regulatory Bodies
No Stock Option shall be exercisable and no shares will be
delivered under the Plan except in compliance with all applicable federal and
state laws and regulations including, without limitation, compliance with all
federal and state securities laws and withholding tax requirements and with the
rules of the NASDAQ Small Cap Market and of all other domestic stock exchanges
on which the Common Stock may be listed. Any share certificate issued to
evidence shares for which a Stock Option is exercised may bear legends and
statements the Committee shall deem advisable to assure compliance with federal
and state laws and regulations. No Stock Option shall be exercisable and no
shares will be delivered under the Plan, until the Company has obtained consent
or approval from regulatory bodies, federal or state, having jurisdiction over
such matters as the Committee may deem advisable. In the case of the exercise of
a Stock Option by a person or estate acquiring the right to exercise the Stock
Option as a result of the death of the Participant, the Committee may require
reasonable evidence as to the ownership of the Stock Option and may require
consents and releases of taxing authorities that it may deem advisable.
18
<PAGE>
6.3 No Right to Employment
Neither the adoption of the Plan nor its operation, nor any
document describing or referring to the Plan, or any part thereof, nor the
granting of any Stock Options hereunder, shall confer upon any Participant under
the Plan any right to continue in the employ of the Company or any Subsidiary,
or shall in any way affect the right and power of the Company or any Subsidiary
to terminate the employment of any Participant at any time with or without
assigning a reason therefore, to the same extent as might have been done if the
Plan had not been adopted.
6.4 Exclusion from Pension Computations
By acceptance of a grant of a Stock Option under the Plan, the
Participant shall be deemed to agree that any income realized upon the receipt
or exercise thereof or upon the disposition of the shares received upon exercise
will not be taken into account as "base remuneration", "wages", "salary" or
"compensation" in determining the amount of any contribution to or payment or
any other benefit under any pension, retirement, incentive, profit-sharing or
deferred compensation plan of the Company or any Subsidiary.
6.5 Abandonment of Options
A Participant may at any time abandon a Stock Option prior to its
expiration date. The abandonment shall be evidenced in writing, in such form as
the Committee may from time to time prescribe. A Participant shall have no
further rights with respect to any Stock Option so abandoned.
6.6 Severability as to Rule 16b-3
If any of the terms or provisions of the Plan conflict with the
requirements of Rule 16b-3, then such terms or provisions shall be deemed
inoperative to the extent they so conflict with the requirements of Rule 16b-3.
6.7 Interpretation of the Plan
Headings are given to the Sections of the Plan solely as a
convenience to facilitate reference. Such headings, numbering and paragraphing
shall not in any case be deemed in any way material or relevant to the
construction of the Plan or any provision hereof. The use of the masculine
gender shall also include within its meaning the feminine. The use of the
singular shall also include within its meaning the plural and vice versa.
6.8 Use of Proceeds
Funds received by the Company upon the exercise of Stock Options
shall be used for the general corporate purposes of the Company.
6.9 Construction of Plan
The place of administration of the Plan shall be in the State of
Florida, and the validity, construction, interpretation, administration and
effect of the Plan and of its rules and regulations, and rights relating to the
Plan, shall be determined solely in accordance with the laws of the State of
Florida.
19
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