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 SEPTEMBER 30, 2000
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
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2201 SECOND STREET, SUITE 600, FORT MYERS, FLORIDA 33901
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(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 October 9, 2000, there were outstanding 14,426,284 shares of the
issuer's Common Stock .
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------- --------
(Unaudited) (Audited)
(Dollars in thousands
except share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, including restricted amounts of $750 in 2000
and $944 in 1999 ...................................................... $ 3,403 $ 3,404
Short-term investments .................................................... -- 150
Trade accounts receivable, net of allowance for doubtful
accounts of $385 in 2000 and $888 in 1999 ............................. 3,022 3,419
Inventories ............................................................... 176 57
Prepaid expenses and other current assets ................................. 455 264
-------- --------
Total current assets .................................................. 7,056 7,294
-------- --------
Property and equipment, net .................................................... 419 545
Intangible assets, net ......................................................... 5,456 5,296
Other long-term assets ......................................................... 4,363 522
-------- --------
Total assets ................................................................... $ 17,294 $ 13,657
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................................... $ 2,677 $ 4,892
Accrued expenses .......................................................... 1,326 720
Accrued patent cost ....................................................... -- 1,863
Current portion of long-term debt ......................................... 150 625
Sales taxes payable ....................................................... 303 454
Billings in excess of costs and estimated earnings on uncompleted contracts 135 131
Deferred revenues ......................................................... 166 265
Other ..................................................................... 17 11
-------- --------
Total current liabilities ............................................. 4,774 8,961
-------- --------
Long-term debt, net of current portion ......................................... 575 676
-------- --------
Total liabilities ..................................................... 5,349 9,637
-------- --------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized,
none issued or outstanding ............................................ -- --
Common stock, $.01 par value, 50,000,000 shares authorized,
14,421,984 shares issued and outstanding in 2000 and
12,398,389 shares issued in 1999 (12,023,389 outstanding) ............. 144 119
Additional paid-in capital ................................................ 52,533 36,367
Accumulated deficit ....................................................... (40,548) (32,466)
Treasury Stock, at cost, 37,580 shares of common stock .................... (184) --
-------- --------
Total shareholders' equity ............................................ 11,945 4,020
-------- --------
Total liabilities and shareholders' equity ..................................... $ 17,294 $ 13,657
======== ========
</TABLE>
The accompanying unaudited notes are an integral part of these
condensed consolidated financial statements.
2
<PAGE>
NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
-------------------------------
2000 1999
------------ ------------
(Dollars in thousands,
except per share data)
<S> <C> <C>
NET SALES:
License fees ............................................... $ 457 $ 2,329
Resales of software and technology equipment ............... 16,427 15,047
Service fees ............................................... 806 2,789
------------ ------------
Total net sales ........................................ 17,690 20,165
------------ ------------
COST OF SALES:
License fees ............................................... 23 530
Resales of software and technology equipment ............... 14,531 13,249
Service fees ............................................... 842 2,813
Amortization of capitalized software costs ................. 829 631
------------ ------------
Total cost of sales .................................... 16,225 17,223
------------ ------------
GROSS PROFIT .................................................... 1,465 2,942
Sales and marketing expenses .................................... 4,573 5,127
General and administrative expenses ............................. 4,172 3,463
Research and development costs .................................. 945 780
------------ ------------
Loss from operations ............................................ (8,225) (6,428)
Interest expense (income), net .................................. (149) 163
------------ ------------
LOSS BEFORE INCOME TAXES ........................................ (8,076) (6,591)
Income tax (benefit) ............................................ -- --
------------ ------------
NET LOSS ........................................................ $ (8,076) $ (6,591)
============ ============
NET LOSS PER SHARE - BASIC AND DILUTED .......................... $ (0.59) $ (0.67)
============ ============
Weighted average number of common shares - basic and diluted .... 13,802,381 9,882,097
============ ============
</TABLE>
The accompanying unaudited notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE>
NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SEPTEMBER 30,
-------------------------------
2000 1999
------------ ------------
(Dollars in thousands,
except per share data)
NET SALES:
<S> <C> <C>
License fees ............................................... $ 117 $ 357
Resales of software and technology equipment ............... 3,653 4,158
Service fees ............................................... 279 504
------------ ------------
Total net sales ........................................ 4,049 5,019
------------ ------------
COST OF SALES:
License fees ............................................... 22 151
Resales of software and technology equipment ............... 3,457 3,990
Service fees ............................................... 227 643
Amortization of capitalized software costs ................. 301 246
------------ ------------
Total cost of sales .................................... 4,007 5,030
------------ ------------
GROSS PROFIT .................................................... 42 (11)
Sales and marketing expenses .................................... 1,570 1,596
General and administrative expenses ............................. 1,819 1,010
Research and development costs .................................. 273 277
------------ ------------
Loss from operations ............................................ (3,620) (2,894)
Interest expense (income), net .................................. (65) 43
------------ ------------
LOSS BEFORE INCOME TAXES ........................................ (3,555) (2,937)
Income tax (benefit) ............................................ -- --
------------ ------------
NET LOSS ........................................................ $ (3,555) $ (2,937)
============ ============
NET LOSS PER SHARE - BASIC AND DILUTED .......................... $ (0.25) $ (0.27)
============ ============
Weighted average number of common shares - basic and diluted .... 14,412,405 10,837,138
============ ============
</TABLE>
The accompanying unaudited notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE>
NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................................................... $ (8,076) $ (6,591)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ................................................. 2,157 1,067
Loss on disposal of property and equipment .................................... 8 --
Provision for doubtful accounts ............................................... (503) (6)
Changes in operating assets and liabilities:
Trade accounts receivable ................................................. 420 504
Other current assets ...................................................... 22 (5)
Accounts payable and accrued expenses ..................................... (3,553) (2,093)
Billings in excess of costs and est. earnings on uncompleted contracts .... 4 --
Deferred revenue .......................................................... (99) --
Other current liabilities ................................................. -- (48)
-------- --------
Net cash used in operating activities ..................................... (9,620) (7,172)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalization of software development and purchased intangible assets ............. (1,739) (891)
Long Term Assets ................................................................... (194) --
Acquisition of property and equipment .............................................. (108) (96)
-------- --------
Net cash used in investing activities ..................................... (2,041) (987)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of issuance costs ...................... 9,137 7,666
Proceeds from exercise of stock warrants ........................................... 2,876 --
Proceeds from exercise of stock options ............................................ 407 955
Borrowings under short term debt ................................................... -- 2,000
Repayments on notes payable and long-term debt ..................................... (576) (84)
Treasury stock repurchased ......................................................... (184) --
-------- --------
Net cash provided by financing activities ................................. 11,660 10,537
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS .......................................... (1) 2,378
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ....................................... 3,404 1,350
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ........................................... $ 3,403 $ 3,728
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Restricted cash balances at September 30 ...................................... $ 175 $ 900
Interest paid/(received) ...................................................... (30) 102
Non-cash activities:
Issuance costs for shares issued through private placements ............... 74 --
Fixed assets purchased with shares of common stock ........................ 3,520 --
Prepaid expenses paid with shares of common stock ......................... 182 --
Accrued expenses paid with shares of common stock ......................... 70 --
Accounts receivable converted to fixed asset .............................. 480 --
Conversion of short-term debt to equity ................................... -- 2,000
</TABLE>
The accompanying unaudited notes are an integral part of these
consolidated financial statements.
5
<PAGE>
NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS
BASIS OF PRESENTATION
The condensed consolidated financial statements include the financial
statements of NeoMedia Technologies, Inc. and its wholly-owned subsidiaries. The
accompanying unaudited condensed 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. These condensed
consolidated financial statements and related notes should be read in
conjunction with the Company's Form 10-KSB for the fiscal year ended December
31, 1999. In the opinion of management, these condensed 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 September 30, 2000 and December 31, 1999, and the results of
operations for the three months and nine months ended September 30, 2000 and
1999, and cash flows for the nine months ended September 30, 2000 and 1999. The
results of operations for the nine months ended September 30, 2000 are not
necessarily indicative of the results which may be expected for the entire
fiscal year. All significant intercompany accounts and transactions have been
eliminated in preparation of the condensed consolidated financial statements.
NATURE OF BUSINESS OPERATIONS
Since inception, NeoMedia has been helping customers and partners
assimilate new technology without discarding their investment in programs and
processes. To help accomplish these objectives, NeoMedia operates as two
distinct business units: Application Service Provider (NeoMedia ASP) and Systems
Integration Services (NeoMedia SI). NeoMedia ASP provides systems and services
that link print and print on products to web-based information. NeoMedia SI
provides computer technology equipment and systems integration services to
customers.
NEOMEDIA ASP
NeoMedia ASP was launched to commercialize NeoMedia's patented technology
for seamlessly linking printed material to the internet. This technology has
been developed over the past four years. Management believes this technology has
the potential to provide the industry standard for linking the worlds of print
and electronic media. The commercialization of products using this technology
was begun during 1999.
NEOMEDIA SI
NeoMedia SI re-markets equipment and software products from third-parties,
renders system integration services, provides proprietary software for document
management and production systems, migrates programs and databases from closed
system to open system platforms, and adds customized applications to an existing
system platform. This business unit is establishing itself in the technology
industry by working closely with customers and business partners in integrating
new technologies while leveraging previous system infrastructure investments.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Through the nine months ended September 30, 2000, a substantial part of
NeoMedia's revenue was derived from resales of software and technology
equipment. NeoMedia couples its proprietary software products with independent
vendor products it resells, enabling it to provide a complete "turn-key" service
for its customers. Currently, NeoMedia's revenue consists of (i) software
license fees, (ii) resales of software and technology equipment from independent
vendors and (iii) service fees, including consulting and post contract software
support.
During the first three quarters of 2000, the Company's focus continued to
shift from Systems Integration and Migration products toward its Applications
Service Provider (ASP) business. NeoMedia's strategy is to become the world's
leading provider of systems and services that link print and print on products
to web based information. The Company discontinued its Y2K product line during
the fourth quarter of 1999.
NeoMedia's quarterly operating results have been subject to variation and
will continue to be subject to variation, depending upon factors, such as the
mix of business among NeoMedia's services and products, the cost of material,
labor and technology, particularly in connection with the delivery of business
services, the costs associated with initiating new contracts, the economic
condition of NeoMedia's target markets, and the cost of acquiring and
integrating new businesses.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AS COMPARED
TO THE NINE MONTHS ENDED SEPTEMBER 30, 1999
NET SALES. Total net sales for the nine months ended September 30, 2000
were $17.7 million, which represented a $2.5 million, or 12%, decrease from
$20.2 million for the nine months ended September 30, 1999. This decrease
primarily resulted from discontinuation of the Company'sY2K product line.
LICENSE FEES. License fees for the nine months ended September 30, 2000
were $0.5 million compared to $2.3 million for the nine months ended September
30, 1999, a decrease of $1.8 million or 78%. This decrease resulted primarily
from discontinuation of the Company'sY2K product line. There were insignificant
costs related to license sales during 2000. Cost of sales as a percentage of
related sales was 22.8% during 1999. This decrease in the cost of sales as a
percentage of related sales was primarily due to the sale in 1999 of Y2K
licenses on which the Company paid royalties.
RESALES OF SOFTWARE AND TECHNOLOGY EQUIPMENT. Resales of software and
technology equipment increased by $1.4 million, or 9%, to $16.4 million for the
nine months ended September 30, 2000, as compared to $15.0 million for the nine
months ended September 30, 1999. This increase primarily resulted from greater
sales of Sun Microsystems hardware in 2000 as customers chose the Sun platform
for the implementation of their E-business applications. Cost of sales as a
percentage of related sales was 88.5% during 2000, compared to 88.1% during
1999.
SERVICE FEES. NeoMedia's service fees decreased by $2.0 million or 71%, to
$0.8 million for the nine months ended September 30, 2000, compared to $2.8
million for the nine months ended September 30, 1999. This decrease was
primarily due to the discontinuation of the Company's Y2K services. Cost of
service fees as a percentage of related sales increased to 104.5% during 2000
from 100.1% during 1999 primarily due to the fixed nature of consulting costs
coupled with an overall decline in service fee revenue.
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 were $4.6 million for the nine months ended
September 30, 2000, compared to $5.1 million for the nine months ended September
30, 1999, a decrease of $0.5 million or 10%. This decrease primarily resulted
from an overall reduction in the sales staff during the second half of 1999 due
to the discontinuation of the Company's Y2K business.
7
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by $0.7 million, or 20%, to $4.2 million for the nine months ended September 30,
2000, compared to $3.5 million for the nine months ended September 30, 1999.
This increase was primarily due to legal expenses of $0.5 million that were
capitalized during the year related to a specific transaction. These costs were
subsequently expensed as a result of the transaction not occurring.
RESEARCH AND DEVELOPMENT. During the nine months ended September 30, 2000,
NeoMedia charged to expense $0.9 million of research and development costs, an
increase of $0.1 million or 13% compared to $0.8 million charged to expense for
the nine months ended September 30, 1999. This increase was due to increased
resources directed toward the development of the ASP business.
INTEREST EXPENSE (INCOME), NET. Interest expense consists primarily of
interest paid to creditors as part of financed purchases, capitalized leases,
notes payable and NeoMedia's asset-based collateralized line of credit net of
interest earned on cash equivalent investments. Interest expense decreased by
$312,000, or 191.4%, to an income of $(149,000) for the nine months ended
September 30, 2000 from $163,000 expense for the nine months ended September 30,
1999. This was due to reduced interest expense resulting from the repayment of
notes in the first quarter of 2000, as well as interest income from higher cash
balances during the first half of 2000.
NET LOSS. The net loss for the nine months ended September 30, 2000 was
$8.1 million, which represented a $1.5 million, or 23% increase from a $6.6
million loss for the nine months ended September 30, 1999. The increase in net
loss primarily resulted from an increased investment by NeoMedia in the ASP
business and higher legal expenses offset by increased profit in the systems
integration business as a result of discontinuation of the unprofitable Y2K
business.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AS COMPARED
TO THE THREE MONTHS ENDED SEPTEMBER 30, 1999
NET SALES. Total net sales for the three months ended September 30, 2000
were $4.0 million, which represented a $1.0 million, or 20% decrease from $5.0
million for the three months ended September 30, 1999. This decrease primarily
resulted from discontinuation of the Company'sY2K product line, as well as a
decrease in resales of IBM software and technology equipment
LICENSE FEES. License fees for the three months ended September 30, 2000
were $0.1 million compared to $0.4 million for the three months ended September
30, 1999, a decrease of $0.3 million or 75%. This decrease resulted primarily
from the discontinuation of the Company'sY2K product line. Cost of sales as a
percentage of related sales was 18.8% during 2000, compared to 42.3% during
1999. This decrease in the cost of sales as a percentage of related sales was
primarily due to the sale in 1999 of Y2K licenses on which the Company paid
royalties.
RESALES OF SOFTWARE AND TECHNOLOGY EQUIPMENT. Resales of software and
technology equipment decreased by $0.5 million, or 12%, to $3.7 million for the
three months ended September 30, 2000, as compared to $4.2 million for the three
months ended September 30, 1999. This decrease primarily resulted from lower
resales of IBM software and technology equipment. Cost of sales as a percentage
of related sales was 94.6% during 2000, compared to 96.0% during 1999.
SERVICE FEES. NeoMedia's service fees decreased by $0.2 million or 40%, to
$0.3 million for the three months ended September 30, 2000, compared to $0.5
million for the three months ended September 30, 1999. This decrease was
primarily due to the discontinuation of the Company's Y2K services. Cost of
service fees as a percentage of related sales decreased to 81.4% during 2000
from 127.6% during 1999 primarily due to the reduction in workforce related to
the discontinuation of the Y2K product line.
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 of $1.6 million for the three months ended
September 30, 2000, remained steady compared to $1.6 million for the three
months ended September 30, 1999. Decreases due to the discontinuation of the Y2K
product line were offset by increases related to an increasing emphasis on the
application service provider (ASP) side of the business.
8
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by $0.8 million, or 80%, to $1.8 million for the three months ended September
30, 2000, compared to $1.0 million for the three months ended September 30,
1999. The increase is primarily the result of legal expenses of $0.5 million
that were capitalized during the year related to a specific transaction. These
costs were subsequently expensed as a result of the transaction not occurring.
RESEARCH AND DEVELOPMENT. Research and development expenses of $0.3 million
for the three months ended September 30, 2000, remained steady compared to $0.3
million for the three months ended September 30, 1999. Decreases due to the
discontinuation of the Y2K product line were offset by increases related to an
increasing emphasis on the application service provider (ASP) side of the
business.
INTEREST EXPENSE (INCOME), NET. Interest expense consists primarily of
interest paid to creditors as part of financed purchases, capitalized leases,
notes payable and NeoMedia's asset-based collateralized line of credit net of
interest earned on cash equivalent investments. Interest expense decreased by
$108,000, or 251.2 %, to an income of $(65,000) for the three months ended
September 30, 2000 from $43,000 expense for the three months ended September 30,
1999. This was due to reduced interest expense resulting from the repayment of
notes in the first quarter of 2000, as well as interest income from higher cash
balances in the first half of 2000.
NET LOSS. The net loss for the quarter ended September 30, 2000 was $3.6
million, which represented a $0.7 million, or 24% increase from a $2.9 million
loss for the three months ended September 30, 1999. The increase in net loss
primarily resulted from higher legal expenses offset by increased profit in the
systems integration business as a result of discontinuation of the Y2K business.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 2000, the Company successfully obtained
approximately $9.2 million of equity financing and $3.0 million from exercises
of warrants and employee stock options. As of October 23, 2000, the Company has
total cash of $7.8 million. Of this amount, $5.0 million is the result of the
first installment due under the October 18, 2000 license agreement entered into
with Digital:Convergence Corporation (see Subsequent Events below).
Net cash used in operating activities for the nine months ended September
30, 2000 and 1999, was $9.6 million and $7.2 million, respectively. An increase
of $1.9 million was attributable to a non-recurring payment for a patent during
the second quarter of 2000. During 2000, trade accounts receivable, inclusive of
costs in excess of billings, decreased $420,000 due to decreased sales in the
third quarter, while accounts payable, accrued expenses and deferred revenue
decreased $3.7 million. During 1999, trade accounts receivable decreased
$504,000, while accounts payable and accrued expenses and other current
liabilities decreased $2.1 million.
NeoMedia's net cash flow used in investing activities for the nine months
ended September 30, 2000 and 1999, was $2.0 million and $1.0 million,
respectively. The increase was primarily due to cash used in developing the ASP
business. Net cash provided by financing activities for the nine months ended
September 30, 2000 and 1999, was $11.7 million and $10.5 million, respectively.
The increase was primarily due to $12.2 million raised during the first quarter
of 2000 through the issuance of common stock, as well as the exercise of
warrants and stock options.
The Company has entered into a migration contract (specifically Year 2000
remediation) with a Colombian customer related to the remediation of certain of
the customer's computer systems to be Year 2000 compliant. The total contract is
approximately $780,000, all of which has been recognized as revenue by the
Company as of September 30, 2000. As an element to the contract, the Company has
guaranteed its work product and resulting Year 2000 compliance of the customer.
To this end, during 1999 the Company established bank guarantees in the form of
certificates of deposit totaling approximately $150,000 in favor of the
customer. The Company has satisfied this guarantee and the bank guarantee has
been released.
9
<PAGE>
SUBSEQUENT EVENTS
On October 18, 2000, NeoMedia Technologies, Inc. (the "Company") entered
into an agreement with Digital:Convergence Corporation ("DC"), granting to DC a
worldwide, non-exclusive license of Company's extensive patent portfolio for
directly linking documents, objects and transactions to the Internet. The
license agreement provides for payment to the Company of minimum annual
royalties over a 10-year period, aggregating in excess of $100,000,000 in cash
and equity in DC. Specifically, the agreement provides:
(i) for $15 million in cash and/or common stock of DC
(minimum of $8 million payable in cash) payable
during the first contract year;
(ii) for a yearly royalty during years 2-10 equal to the
greater of (a) $10,000,000 or (b) 1.5% of DC
revenues up to $2.0 billion and 1% over $2 billion;
the first $10 million of royalty each year being
payable in cash and/or DC common stock (minimum of
$3 million payable in cash); and
(iii) for the issuance to the Company of 1,415,760 shares
of DC common stock within the first year, or
payment to the Company of $15,431,784 payable in 3
equal annual installments commencing on the first
annual anniversary of the license agreement.
In connection with the license agreement, the Company granted DC warrants to
purchase up to 1.4 million shares of the Company's common stock at a price of
$6.00 per share.
The Company further announced that it is presently discussing with DC the
possibility of coordinating their respective efforts to achieve interoperability
between DC's systems and the Company's PaperClick system.
10
<PAGE>
SAFE HARBOR PROVISION OF THE PRIVATE SECURITIES LITIGATION ACT OF 1995
NeoMedia operates in a dynamic and rapidly changing environment that
involves numerous risks and uncertainties. The market for software products is
generally characterized by rapidly changing technology, frequent new product
introductions and changes in customer requirements which can render existing
products obsolete or unmarketable. The statements contained in Item 2
(Management's Discussion and Analysis of Financial Condition and Results of
Operations) that are not historical facts may be forward-looking statements (as
such term is defined in the rules promulgated pursuant to the Securities
Exchange Act of 1934) that are subject to a variety of risks and uncertainties
more fully described in NeoMedia's filings with the Securities and Exchange
Commission including, without limitation, those described under "Risk Factors"
in NeoMedia's Form S-3/A Registration Statement , effective May 2, 2000. The
forward-looking statements are based on the beliefs of the management of
NeoMedia, as well as assumptions made by, and information currently available
to, NeoMedia's management. Accordingly, these statements are subject to
significant risks, uncertainties and contingencies which could cause NeoMedia's
actual growth, results, performance and business prospects and opportunities in
2000 and beyond to differ materially from those expressed in, or implied by, any
such forward-looking statements. Wherever possible, words such as "anticipate,"
"plan," "expect," "believe," "estimate," and similar expressions have been used
to identify these forward-looking statements, but are not the exclusive means of
identifying such statements. These risks, uncertainties and contingencies
include, but are not limited to, NeoMedia's limited operating history on which
expectations regarding its future performance can be based, competition from,
among others, high technology companies that have greater financial, technical
and marketing resources and distribution capabilities than NeoMedia, the
availability of sufficient capital, NeoMedia's ability to identify the right
product mix , NeoMedia's ability to operate effectively in geographical areas in
which it has no prior experience, the maturation and success of NeoMedia's
strategy to develop, market and sell its products and services, risks inherent
in conducting international business, risks associated with selling proprietary
licenses and conducting a consulting services business, changes in NeoMedia's
product and service mix and product and service pricing, the effectiveness of
NeoMedia's efforts to control operating expenses, general economic and business
conditions affecting NeoMedia and its customers in the United States and other
countries in which NeoMedia sells and anticipates to sell its products and
services, and NeoMedia's ability to: (i) obtain additional financing on terms
acceptable to the Company, or at all, to allow the Company to continue its
operations as currently proposed; (ii) develop, market and sell existing and
acquired products for its patented technology; (iii) adjust to changes in
technology, customer preferences, enhanced competition and new competitors in
the print-to-internet technology market; (iv) protect its proprietary patent
rights from infringement or misappropriation; (v) maintain or enhance its
relationships with business partners and vendors; and (vi) attract and retain
key employees. There can be no assurance that NeoMedia will be able to identify,
develop, market, sell or support new products or enhancements successfully, that
any such new products or enhancements will gain market acceptance, or that
NeoMedia will be able to respond effectively to technological changes. There can
be no assurance that NeoMedia will not encounter technical or other difficulties
that could delay introduction of new products in the future. If NeoMedia is
unable to introduce new products or enhancements and respond to industry changes
on a timely basis, its business could be materially adversely affected. NeoMedia
is not obligated to update or revise these forward-looking statements to reflect
new events or circumstances.
11
<PAGE>
PART II -- OTHER INFORMATION
ITEM 3. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Licensing Agreement dated October 18, 2000 by and
between NeoMedia Technologies, Inc and Digital:Convergence
Corporation.
(b) Reports on Form 8-K
(None)
12
<PAGE>
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 October 23 , 2000 By: /s/ CHARLES W. FRITZ
-------------------------------------
Chief Executive Officer,
Chairman of the Board and Director
Date October 23 , 2000 By: /s/ CHARLES T. JENSEN
-------------------------------------
Vice President, Chief Financial Officer,
Treasurer and Director
13
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT
------ --------
10.1 Licensing Agreement dated October 18, 2000 by and between NeoMedia
Technologies, Inc and Digital:Convergence Corporation.
27.1 Article 5 Financial Data Schedule for September 30, 2000
