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, 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.
-----------------------------------------------------------------
(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 May 4, 2000, there were outstanding 14,388,531 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>
MARCH 31, DECEMBER 31,
2000 1999
-------- --------
(Unaudited) (Audited)
ASSETS (Dollars in thousands
except share data)
<S> <C> <C>
Current assets:
Cash and cash equivalents, including restricted amounts of $944 in 2000
and $944 in 1999 ..................................................................... $ 12,071 $ 3,404
Short-term investments ................................................................... 150 150
Trade accounts receivable, net of allowance for doubtful
accounts of $906 in 2000 and $888 in 1999............................................. 1,642 3,419
Costs and Estimated earnings in excess of billings on uncompleted contracts .............. 8 --
Inventories .............................................................................. 69 57
Prepaid expenses and other current assets ................................................ 224 264
-------- --------
Total current assets ................................................................. 14,164 7,294
-------- --------
Property and equipment, net ................................................................... 486 545
Intangible assets, net ........................................................................ 5,370 5,296
Other long-term assets ........................................................................ 522 522
-------- --------
Total assets .................................................................................. $ 20,542 $ 13,657
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................................................... $ 2,638 $ 4,892
Accrued expenses ......................................................................... 954 720
Accrued patent cost ...................................................................... 1,863 1,863
Current portion of long-term debt ........................................................ 128 625
Sales taxes payable ...................................................................... 345 454
Billings in excess of costs and estimated earnings on uncompleted contracts .............. -- 131
Deferred revenues ........................................................................ 308 265
Other .................................................................................... 10 11
-------- --------
Total current liabilities ............................................................ 6,246 8,961
-------- --------
Long-term debt, net of current portion ........................................................ 643 676
-------- --------
Total liabilities .................................................................... 6,889 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,
14,300,763 shares issued in 2000 (13,925,763 outstanding) and
12,398,389 shares issued in 1999 (12,023,389 outstanding) ............................ 139 119
Additional paid-in capital ............................................................... 48,416 36,367
Accumulated deficit ...................................................................... (34,902) (32,466)
-------- --------
Total shareholders' equity ........................................................... 13,653 4,020
-------- --------
Total liabilities and shareholders' equity .................................................... $ 20,542 $ 13,657
======== ========
</TABLE>
The accompanying unaudited notes are an integral part of these unaudited
condensed consolidated financial statements.
2
<PAGE>
NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------------------
2000 1999
------------ ------------
(Dollars in thousands,
except per share data)
<S> <C> <C>
NET SALES:
License fees ............................................... $ 208 $ 1,033
Resales of software and technology equipment ............... 3,663 5,405
Service fees ............................................... 223 1,366
------------ ------------
Total net sales ........................................ 4,094 7,804
------------ ------------
COST OF SALES:
License fees ............................................... 1 234
Resales of software and technology equipment ............... 3,052 4,472
Service fees ............................................... 286 1,249
Amortization of capitalized software costs ................. 215 165
------------ ------------
Total cost of sales .................................... 3,554 6,120
------------ ------------
GROSS PROFIT .................................................... 540 1,684
Sales and marketing expenses .................................... 1,264 1,815
General and administrative expenses ............................. 1,396 1,343
Research and development costs .................................. 335 220
------------ ------------
Loss from operations ............................................ (2,455) (1,694)
Interest expense (income), net .................................. (19) 72
------------ ------------
LOSS BEFORE INCOME TAXES ........................................ (2,436) (1,766)
Income tax (benefit) ............................................ -- --
------------ ------------
NET LOSS ........................................................ $ (2,436) $ (1,766)
============ ============
NET LOSS PER SHARE - BASIC AND DILUTED .......................... $ (0.19) $ (0.20)
============ ============
Weighted average number of common shares - basic and diluted .... 12,752,000 8,848,340
============ ============
</TABLE>
The accompanying unaudited notes are an integral part of these unaudited
condensed consolidated financial statements.
3
<PAGE>
NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ...................................................................... $ (2,436) $ (1,766)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ............................................ 391 376
Loss on disposal of property and equipment ............................... 7 --
Provision for doubtful accounts .......................................... 162 90
Fair value of stock based compensation granted for professional services
Changes in operating assets and liabilities
Trade accounts receivable ............................................ 1,615 (504)
Costs and est. earnings in excess of billings on uncompleted contracts (8) --
Other current assets ................................................. 28 (118)
Accounts payable and accrued expenses ................................ (2,234) 46
Billings in excess of costs and est. earnings on uncompleted contracts (131) --
Deferred revenue ..................................................... 43 --
Other current liabilities ............................................ (1) 179
-------- --------
Net cash used in operating activities ................................ (2,564) (1,697)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalization of software development and purchased intangible assets ........ (386) (341)
Acquisition of property and equipment ......................................... (27) (40)
-------- --------
Net cash used in investing activities ................................ (413) (381)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock, net of $153 issuance costs ........ 9,154 905
Net proceeds from exercise of stock warrants .................................. 2,786 --
Net proceeds from exercise of stock options ................................... 234 41
Borrowings under notes payable and long-term debt ............................. -- 1,000
Repayments on notes payable and long-term debt ................................ (530) (28)
-------- --------
Net cash provided by financing activities ............................ 11,644 1,918
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......................... 8,667 (160)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR .................................. 3,404 1,350
-------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR ........................................ $ 12,071 $ 1,190
SUPPLEMENTAL CASH FLOW INFORMATION:
Restricted cash balances at March 31 ..................................... $ 944 $ 900
Interest paid/(received) ................................................. (35) 78
Non-cash investing and financing activities:
Fair value of warrants granted in conjunction with acquisition
of patents ......................................................... -- 432
Issuance costs for shares issued through private placements ........ 105 --
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<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 March 31, 2000 and December 31, 1999, and the results of
operations for the three months ended March 31, 2000 and 1999, and cash flows
for the three months ended March 31, 2000 and 1999. The results of operations
for the three months ended March 31, 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.
5
<PAGE>
2. SUBSEQUENT EVENTS
On April 7, 2000, NeoMedia Technologies, Inc. (the "Company") purchased
substantially all of the assets of DayStar Services, L.L.C., a Tennessee limited
liability company. The assets consisted of DayStar's rights under a license
agreement between DayStar and the Company dated June 30, 1999 for the Company's
NeoLink Information Server and DayStar's rights under an Agent Agreement between
DayStar and the Company dated June 30, 1999 for NeoLink. The assets purchased
also included all of DayStar's software and hardware and source codes used in
the operation of the DayStar website and existing customer/vendor relationships.
The purchase price for the assets was $4,000,000; $3,520,000 paid through the
transfer of 321,829 shares of NeoMedia's Common Stock and $480,000 paid through
the forgiveness of a receivable due from DayStar.
William Fritz and Charles Fritz, officers, directors and principal
shareholders of the Company are also principal equity holders of DayStar.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Through the three months ended March 31, 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 quarter of 2000, the Company's focus continued to shift
from Systems Integration and Migration products toward its Applications Service
Provider (ASP) business. During 1999, the Company sold its first license with
the internally-developed NeoLink technology, and in December launched its
PaperClick.com virtual portal. 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 THREE MONTHS ENDED MARCH 31, 2000 AS COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 1999
NET SALES. Total net sales for the three months ended March 31, 2000 were
$4.1 million, which represented a $3.7 million, or 47.4%, decrease from $7.8
million for the three months ended March 31, 1999. This decrease primarily
resulted from reduced resales of Sun and IBM equipment, as well as the
discontinuation of the Company's Y2K product line.
LICENSE FEES. License fees for the three months ended March 31, 2000 were
$0.2 million compared to $1.0 million for the three months ended March 31, 1999,
a decrease of $0.8 million or 80.0%. This decrease resulted primarily from the
discontinuation of the Company's Y2K product line. There were no costs related
to license sales during 2000. Cost of sales as a percentage of related sales was
22.6% 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.
6
<PAGE>
RESALES OF SOFTWARE AND TECHNOLOGY EQUIPMENT. Resales of software and
technology equipment decreased by $1.7 million, or 31.5%, to $3.7 million for
the three months ended March 31, 2000, as compared to $5.4 million for the three
months ended March 31, 1999. This decrease primarily resulted from fewer sales
of IBM and Sun Microsystems hardware due to sales in 1999 to customers in
preparation for Y2K . Cost of sales as a percentage of related sales was 83.3%
during 2000, compared to 82.7 % during 1999.
SERVICE FEES. NeoMedia's service fees decreased by $1.2 million or 85.7%,
to $0.2 million for the three months ended March 31, 2000, compared to $1.4
million for the three months ended March 31, 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 224.7% during 2000 from 103.5%
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 $1.3 million for the three months
ended March 31, 2000, compared to $1.8 million for the three months ended March
31, 1999, a decrease of $0.5 million or 27.8%. This decrease primarily resulted
from an overall reduction in the sales staff during the second half of 1999.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by $0.1 million, or 7.7%, to $1.4 million for the three months ended March 31,
2000, compared to $1.3 million for the three months ended March 31, 1999.
RESEARCH AND DEVELOPMENT. During the three months ended March 31, 2000,
NeoMedia charged to expense $335,000 of research and development costs, an
increase of $115,000 or 52.3% compared to $220,000 charged to expense for the
three months ended March 31, 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 (income)/expense
decreased by $91,000, or 126.4%, to $(19,000) for the three months ended March
31, 2000 from $72,000 for the three months ended March 31, 1999, 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 2000.
NET LOSS. The net loss for the quarter ended March 31, 2000 was $2.5
million, which represented a $0.7 million, or 38.9% increase from a $1.8 million
loss for the three months ended March 31, 1999. The increase in net loss
primarily resulted from in increased investment by NeoMedia in the ASP business
offset by increased profit in the systems integration business as a result of
discontinuation of the Y2K business.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 2000, the Company has successfully obtained
approximately $9.2 million of equity financing and $3.0 million from exercises
of warrants and employee stock options. The Company also received a commitment
from an unrelated third party to invest up to $7.5 million in the Company
through the purchase of unissued shares of common stock at a price of $7.50 per
share. In connection with the additional financing, 275,000 warrants at an
exercise price of $7.50 and 125,000 warrants at an exercise price of $15.00 were
issued. Management believes that this additional financing together with revenue
from operations, will be sufficient to sustain operations for the remainder of
2000.
Net cash used in operating activities for the three months ended March 31,
2000 and 1999, was $2.6 million and $1.7 million, respectively. During 2000,
trade accounts receivable inclusive of costs in excess of billings decreased
$1.6 million, while accounts payable and accrued expenses and deferred revenue
decreased $2.2 million. During 1999, trade accounts receivable increased
$504,000, while accounts payable and accrued expenses and other current
liabilities increased $225,000. NeoMedia's net cash flow used in investing
activities for the three months ended March 31, 2000 and 1999, was $413,000 and
$381,000, respectively.
Net cash provided by financing activities for the three months ended March
31, 2000 and 1999, was $11.6 million and $1.9 million, respectively. The
increase was 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, of which approximately $759,000 has been recognized as
revenue by the Company as of March 31, 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 believes that it has the ability and intent to
complete such remediation in a satisfactory manner and is accounting for this
project on a percentage of completion basis.
YEAR 2000 ISSUES
The Year 2000(Y2K) issue (i.e. the ability of computer systems to recognize
a date using "00" as the year rather than 1900) affects all companies and
organizations. As a result of the Company's Y2K efforts, no significant internal
problems have occurred to date. The Company has not experienced any problems
with suppliers, vendors, customers, or financial institutions. There were no
significant expenditures related to Y2K compliance, and the Company does not
anticipate any further expenses associated with Y2K.
8
<PAGE>
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Article 5 Financial Data Schedule for March 31, 2000
(b) Reports on Form 8-K
On April 24, 2000, the Company filed a Form 8-K Current Report
to disclose that it acquired the assets of Daystar Services, L.L.C.
9
<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 MAY 3, 2000 By: /s/ CHARLES W. FRITZ
----------- -------------------------------------------------
Charles W. Fritz, President, Chief Executive
Officer and Chairman of the Board
Date MAY 3, 2000 By: /s/ CHARLES T. JENSEN
----------- -------------------------------------------------
Charles T. Jensen, Vice President, Chief
Financial Officer, Treasurer and Director
10
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT
- ------ --------
27.1 Article 5 Financial Data Schedule for March 31, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 12,071
<SECURITIES> 0
<RECEIVABLES> 1,642
<ALLOWANCES> 906
<INVENTORY> 69
<CURRENT-ASSETS> 14,164
<PP&E> 10,706
<DEPRECIATION> (4,850)
<TOTAL-ASSETS> 20,542
<CURRENT-LIABILITIES> 6,246
<BONDS> 0
0
0
<COMMON> 48,555
<OTHER-SE> (34,902)
<TOTAL-LIABILITY-AND-EQUITY> 20,542
<SALES> 4,094
<TOTAL-REVENUES> 4,094
<CGS> 3,554
<TOTAL-COSTS> 3,554
<OTHER-EXPENSES> 2,995
<LOSS-PROVISION> 162
<INTEREST-EXPENSE> (19)
<INCOME-PRETAX> (2,436)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,436)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,436)
<EPS-BASIC> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
