U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM 10 - QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO 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 402, FORT MYERS, FLORIDA 33901
(Address of Principal Executive Offices) (Zip Code)
239-337-3434 Issuer's Telephone Number (Including Area Code)
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 25, 2004, there were 371,137,314 outstanding shares of
the issuer's Common Stock.
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30,
2004
------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,732
Trade accounts receivable, net of allowance for
doubtful accounts of $54 208
Inventories, net of allowance for obsolete &
slow-moving inventory of $13 111
Prepaid expenses and other current assets 432
--------
Total current assets 2,483
Property and equipment, net 122
Capitalized patents, net 2,229
Capitalized and purchased software costs, net 94
Excess of purchase price over tangible assets of CSI 3,056
Investment in IPoint-media, Ltd. 1,000
Other long-term assets 737
--------
Total assets $ 9,721
========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,667
Amounts payable under settlement agreements 477
Liabilities of discontinued business unit 664
Sales taxes payable 131
Accrued expenses 1,490
Deferred revenues and other 475
Investment payable 1,000
Notes payable 2,117
--------
Total current liabilities 8,021
--------
Shareholders' equity:
Preferred stock, $0.01 par value, 25,000,000 shares
authorized, none issued and outstanding --
Common stock, $0.01 par value, 1,000,000,000 shares
authorized, 390,382,372 shares issued and
361,204,990 outstanding 3,612
Additional paid-in capital 81,012
Deferred stock-based compensation (458)
Accumulated deficit (81,640)
Accumulated other comprehensive loss - foreign
currency translation adjustment (47)
Treasury stock, at cost, 201,230 shares of common stock (779)
--------
Total shareholders' equity 1,700
--------
Total liabilities and shareholders' equity $ 9,721
========
The accompanying notes are an integral part of this condensed
consolidated balance sheet.
2
NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2004 2003
------------- -------------
NET SALES:
License fees $ 96 $ 69
Resale of software and technology equipment and service fees 138 392
Micro paint repair products and services 237 --
------------- -------------
Total net sales 471 461
------------- -------------
COST OF SALES:
License fees 79 76
Resale of software and technology equipment and service fees 147 378
Micro paint repair products and services 151 --
------------- -------------
Total cost of sales 377 454
------------- -------------
GROSS PROFIT (LOSS) 94 7
Sales and marketing expenses 514 146
General and administrative expenses 516 1,940
Research and development costs 114 78
------------- -------------
Loss from operations (1,050) (2,157)
OTHER INCOME (EXPENSE)
Gain (loss) on extinguishment of debt 6 (24)
Amortization of debt discount (334) --
Interest expense, net (62) (24)
------------- -------------
NET LOSS (1,440) (2,205)
Other comprehensive loss:
Foreign currency translation adjustment (31) --
------------- -------------
COMPREHENSIVE LOSS $ (1,471) $ (2,205)
============= =============
LOSS PER SHARE--BASIC AND DILUTED $ (0.00) $ (0.01)
============= =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES--BASIC AND DILUTED 342,990,471 151,698,465
============= =============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2004 2003
------------- -------------
NET SALES:
License fees $ 256 $ 338
Resale of software and technology equipment and service fees 501 1,671
Micro paint repair products and services 512 --
------------- -------------
Total net sales 1,269 2,009
------------- -------------
COST OF SALES:
License fees 249 227
Resale of software and technology equipment and service fees 480 1,566
Micro paint repair products and services 376 --
------------- -------------
Total cost of sales 1,105 1,793
------------- -------------
GROSS PROFIT (LOSS) 164 216
Sales and marketing expenses 1,461 407
General and administrative expenses 1,293 3,409
Research and development costs 354 243
------------- -------------
Loss from operations (2,944) (3,843)
OTHER INCOME (EXPENSE)
Gain (loss) on extinguishment of debt 129 (24)
Amortization of debt discount (2,500) --
Interest expense, net (178) (193)
------------- -------------
NET LOSS (5,493) (4,060)
Other comprehensive loss:
Foreign currency translation adjustment (47) --
------------- -------------
COMPREHENSIVE LOSS $ (5,540) $ (4,060)
============= =============
LOSS PER SHARE--BASIC AND DILUTED $ (0.02) $ (0.05)
============= =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES--BASIC AND DILUTED 324,471,293 89,440,869
============= =============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
2004 2003
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($5,493) ($4,060)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of discount on note payable 2,500 --
Depreciation and amortization 367 368
Provision for doubtful accounts 24
Expense (decrease of fair value) for repriced options (240) 748
Fair value of expense portion of stock-based
compensation granted for professional services 545 442
Interest expense allocated to debt 3 75
Discount related to issuance of employee common stock -- 688
Loss on payment of accounts payable in stock -- 24
(Increase)/decrease in value of life insurance policies 17 (10)
Changes in operating assets and liabilities
Trade accounts receivable, net (8) 149
Inventory (54) --
Other current assets 90 217
Accounts payable, amounts due under financing agreements, liabilities in excess
of assets of discontinued business unit, accrued expenses and stock liability (1,211) (395)
Deferred revenue other current liabilities (40) (303)
------- -------
Net cash used in operating activities (3,500) (2,057)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalization of software development and purchased intangible assets (109) (22)
Acquisition of property and equipment (103) (42)
------- -------
Net cash used in investing activities (212) (64)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock, net of issuance costs of $620 in 2004
and $308 in 2003 5,926 2,409
Net proceeds from cash advances payable through the issuance of common stock -- 1,135
Net proceeds from exercise of stock options and warrants 581 340
Borrowings under notes payable and long-term debt 8,000 75
Repayments on notes payable and long-term debt (6,687) (260)
Transfer to restricted cash for long-term debt -- (600)
Cash paid to acquire CSI International, Inc. (net of cash acquired) (2,390) --
------- -------
Net cash provided by financing activities 5,430 3,099
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (47) --
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,671 978
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 61 70
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,732 $ 1,048
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid/(received) during the period $ 50 $ 6
Income taxes paid -- --
Non-cash investing and financing activities:
Reduction in accounts payable and accruals for debt paid in stock 190 72
Fair value of stock and warrants issued with debt -- 56
Fair value of stock issued for services and deferred to future periods 585 64
Fair value of shares issued to acquire CSI Int'l (net of costs of registration) 695 --
Change in net assets resulting from acquisition of CSI (net of cash acquired) 3,090 --
Gain on extinguishment of debt 129 --
Direct costs associated with Standby Equity Distribution Agreement 1,447 5,693
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
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
("NeoMedia" or the "Company"). 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
accounting principles generally accepted in the United States of America 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, 2003. 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, 2004, the results of operations for the three-month and nine-month
periods ended September 30, 2004 and 2003, and cash flows for the nine-month
periods ended September 30, 2004 and 2003. The results of operations for the
three-month and nine-month periods ended September 30, 2004 and 2003 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
NeoMedia is structured as three distinct business units: NeoMedia
Internet Software Service (NISS), NeoMedia Consulting and Integration Services
(NCIS), and NeoMedia Micro Paint Repair (NMPR).
NISS (physical world-to-Internet offerings) is the core business and is
based in the United States, with development and operating facilities in Fort
Myers, Florida. NISS develops and supports NeoMedia's physical world to Internet
core technology, including the linking "switch" and application platforms. NISS
also manages NeoMedia's intellectual property portfolio, including the
identification and execution of licensing opportunities surrounding the patents.
NCIS (systems integration service offerings) is the original business
line upon which NeoMedia was organized. This unit resells client-server
equipment and related software, and general and specialized consulting services.
Systems integration services also identifies prospects for custom applications
based on NeoMedia's products and services. These operations are based in Lisle,
Illinois.
NMPR (micro paint repair offerings) is the business unit encompassing the
recently-acquired CSI International chemical line. NMPR is attempting to
commercialize its unique micro-paint repair solution. The Company completed its
acquisition of CSI on February 6, 2004.
RECLASSIFICATIONS
Certain amounts in the 2003 condensed consolidated financial statements
have been reclassified to conform to the 2004 presentation.
6
ACQUISITION OF CSI INTERNATIONAL, INC. ("CSI")
On February 6, 2004, NeoMedia acquired 100% ownership of CSI
International, Inc., of Calgary, Alberta, Canada, a private technology products
company in the micro paint repair industry. NeoMedia paid a purchase price
including an issuance of 7,000,000 shares of its common stock, and cash of
$2,500,000 in exchange for all outstanding shares of CSI. The shares were valued
at $0.10 per share, which was the market price of NeoMedia's common stock on the
Over-the-counter Bulletin Board exchange around the acquisition date. NeoMedia
also incurred direct costs of the business combination totaling $5,000, which
are included in the purchase price for purposes of allocating assets acquired
and liabilities assumed.
The acquisition was accounted for under the purchase method. The actual
purchase price was based on cash paid, the fair value of NeoMedia stock around
the date of the acquisition, and direct costs associated with the combination.
The purchase price was allocated as follows:
(Dollars in
Thousands)
-------------
Value of 7 Million Shares Issued ($0.10 per share) $700
Cash paid 2,500
Direct costs of acquisition 5
-------------
Total Fair Value of Purchase Price $3,205
-------------
Assets Purchased:
Cash $115
Accounts receivable, net 67
Inventory 54
Other current assets 12
Investments 25
Property, plant & equipment 8
Excess of purchase price over net tangible assets 3,059
-------------
Total Assets Purchased 3,340
-------------
Less Liabilities Assumed:
Accounts payable (23)
Accrued liabilities (12)
Notes payable (100)
-------------
Total Liabilities Assumed (135)
-------------
The combination is being accounted for as a purchase business
combination as defined by Statement of Financial Accounting Standards No. 141,
Business Combinations. The allocation of the purchase price is preliminary and
is subject to revision as the Company continues to evaluate the allocations. The
Company has not amortized the excess of purchase price over net tangible assets
since the allocation is not yet final. With limited operation history of CSI,
the Company expects to evaluate the results of operations of CSI in the coming
months in order to accurately finalize the allocation. The Company expects to
finalize this process in the second half of 2004. If the excess of purchase
price over net tangible assets is determined to be allocated fully or partially
to intangible assets with definite lives upon final allocation, the Company will
determine the economic useful lives based on its best estimate and amortize such
assets accordingly. The Company will continue to evaluate this asset for
impairment until such time as the purchase price allocation is final.
7
The accompanying consolidated statement of operations presented herein
contains the results of operations for CSI for the period February 6, 2004,
through September 30, 2004.
Pro-forma results of operations as if NeoMedia and CSI had combined as
of January 1, 2004 are as follows:
THREE MONTHS ENDED SEPTEMBER 30, 2004 NINE MONTHS ENDED SEPTEMBER 30, 2004
-------------------------------------------- --------------------------------------------
(A) (A)
PRO-FORMA PRO-FORMA
CSI ADJUST- PRO-FORMA CSI ADJUST- PRO-FORMA
NEOMEDIA INT'L MENTS COMBINED NEOMEDIA INT'L MENTS COMBINED
----------- ----- --------- ------------ ---------- ------- ---------- ----------
Total net sales $471 -- -- (A) $471 $1,269 (A) $1,333
574 (510)
Loss from operations ($1,050) -- -- (A) ($1,050) ($2,944) (1,011) 985 (A) ($2,970)
Net loss ($1,440) -- -- (A) ($1,440) ($5,493) (1,011) 985 (A) ($5,519)
Net loss per share-basic and
diluted ($0.00) ($0.00) ($0.02) (A) ($0.02)
Weighted average number of
common shares - basic and
diluted 342,990,471 -- 342,990,471 324,471,293 919,708 (B) 325,391,001
Pro-forma Adjustments
(A) - Adjustments are to reflect operations of CSI from February 6, 2004 through
September 30, 2004, which are included in NeoMedia's operations for the
three months ended September 30, 2004.
(B) - To adjust weighted average shares outstanding as if the 7,000,000 shares
issued as part of the purchase price of CSI on February 6, 2004, had been
issued on January 1, 2004
Pro-forma results of operations as if NeoMedia and CSI had combined as
of January 1, 2003 are as follows:
THREE MONTHS ENDED SEPTEMBER 30, 2003 NINE MONTHS ENDED SEPTEMBER 30, 2003
-------------------------------------------- -------------------------------------------
(A) (A)
PRO-FORMA PRO-FORMA
CSI ADJUST- PRO-FORMA CSI ADJUST- PRO-FORMA
NEOMEDIA INT'L MENTS COMBINED NEOMEDIA INT'L MENTS COMBINED
----------- ------ ---------- ---------- ---------- -------- -------- ----------
Total net sales $461 $158 -- $619 $2,009 $426 -- $2,435
Income (loss) from operations ($2,157) $28 -- ($2,129) ($3,843) $37 -- ($3,806)
Net income (loss) ($2,205) $28 -- ($2,177) ($4,060) $37 -- ($4,023)
Net loss per share-basic and
diluted ($0.01) ($0.01) ($0.05) ($0.04)
Weighted average number of
common shares - basic and
diluted 151,698,465 7,000,000 (C) 158,698,465 89,440,869 7,000,000(C) 96,440,869
Pro-forma Adjustments
(C) - To adjust weighted average shares outstanding as if the 7,000,000 shares
issued as part of the purchase price of CSI on February 6, 2004, had been
issued on January 1, 2003
8
STANDBY EQUITY DISTRIBUTION AGREEMENT WITH CORNELL CAPITAL PARTNERS, LP
("CORNELL")
On February 11, 2003, NeoMedia and Cornell entered into an Equity Line of
Credit Agreement under which Cornell agreed to purchase up to $10 million of
NeoMedia's common stock over a two-year period, with the timing and amount of
the purchase at the Company's discretion. The maximum amount of each purchase
was $150,000 with a minimum of seven days between purchases. The shares were
valued at 98% of the lowest closing bid price during the five-day period
following the delivery of a notice of purchase by NeoMedia. The Company paid 5%
of the gross proceeds of each purchase to Cornell.
On October 27, 2003, the Company and Cornell entered into a $20 million
Standby Equity Distribution Agreement. The terms of the agreement are identical
to the terms of the previous Equity Line of Credit, except that the maximum
"draw" under the new agreement is $280,000 per week, not to exceed $840,000 in
any 30-day period, and Cornell will purchase up to $20 million of the Company's
common stock over a two-year period. As a consideration fee for Cornell to enter
into the agreement, the Company issued 10 million warrants to Cornell with an
exercise price of $0.05 per share, and a term of five years. Cornell exercised
the warrants in January 2004, resulting in $500,000 cash receipts to the
Company. In November 2003, the Company filed a Form SB-2 to register 200 million
shares under this $20 million Standby Equity Distribution Agreement. In January
2004, the Form SB-2 was declared effective by the Securities and Exchange
Commission. In April 2004, the Company filed a Form SB-2 to register 40 million
shares underlying warrants granted to Cornell in connection with a promissory
note issued by the Company to Cornell (see "Notes Payable to Cornell" below). In
May 2004, the Form SB-2 was declared effective by the Securities and Exchange
Commission.
During the nine months ended September 30, 2004, the Company sold
87,787,740 shares of its common stock to Cornell under the Standby Equity
Distribution Agreement. The following table summarizes funding received from
Cornell during the nine months ended September 30, 2004:
THREE THREE THREE NINE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
2004 2004 2004 2004
------------ ------------ ------------ ------------
Number of shares sold to Cornell 21,282,203 29,819,873 36,685,664 87,787,740
Gross Proceeds from sale of shares
to Cornell $ 2,332,000 $ 2,308,000 $ 2,734,270 7,374,270
Less: discounts and fees* (500,000) (465,000) (483,000) (1,448,000)
------------ ------------ ------------ ------------
Net Proceeds from sale of shares
to Cornell $ 1,832,000 $ 1,843,000 $ 2,251,270 $ 5,926,270
------------ ------------ ------------ ------------
* - Per Standby Equity Distribution Agreement, stock is valued at 98% of the
lowest closing bid price during the week it is sold
9
PROMISSORY NOTES PAYABLE TO CORNELL
On January 20, 2004, the Company borrowed from Cornell the gross amount of
$4,000,000 before Cornell discounts and fees. Of the $4,000,000 funding,
$2,500,000 was used to fund the acquisition of CSI International, Inc. during
February 2004. Cornell withheld a $315,000 retention fee related to the issuance
of stock to pay off the debt in the future. The Company paid this note in full
during the third quarter of 2004.
On April 8, 2004, the Company borrowed from Cornell the gross amount of
$1,000,000 before Cornell discounts and fees. Cornell withheld a $76,000
retention fee related to the issuance of stock to pay off the debt in the
future. The Company paid this note in full during the third quarter of 2004.
On July 2, 2004, the Company borrowed from Cornell the gross amount of
$1,000,000 before Cornell discounts and fees. Cornell withheld a $76,000
retention fee related to the issuance of stock to pay off the debt in the
future. The Company paid this note in full during the third quarter of 2004.
On August 6, 2004, the Company borrowed from Cornell the gross amount of
$2,000,000 before Cornell discounts and fees. Cornell withheld a retention fee
of $153,000 related to the issuance of stock to pay off the debt in the future.
As of September 30, 2004, the Company had not made any payments against the
principal. The note matures on December 13, 2004. The note accrues interest at a
rate of 12% per annum, increasing to 14% per annum upon maturity, if not paid
off. The Company has the option to repay any remaining principal of the note in
cash. The Company expects to pay the remaining note balance by applying the
proceeds from the sale of stock under the terms of the Standby Equity
Distribution Agreement toward the outstanding principal on the notes.
The Company also granted to Cornell 40,000,000 warrants to purchase shares
of NeoMedia stock with an exercise price of $0.05 per share during January 2004.
In April 2004, the Company filed a Form SB-2 to register 40 million shares
underlying warrants granted to Cornell in connection with a promissory note
issued by the Company to Cornell. In May 2004, the Form SB-2 was declared
effective by the Securities and Exchange Commission. The fair value of the
warrants using the Black/Scholes pricing model was $5,000,000. In accordance
with APB 14, "Accounting for Convertible Debt and Debt Issued with Stock
Purchase Warrants", the Company has compared the relative fair values of the
warrants and the face value of the notes, and has allocated a value of $2.5
million to the warrants. Of the $2.5 million, $2 million was allocated to the $4
million note issued in January 2004 and $0.5 million against the $1 million note
in April 2004. The $2.5 million was recorded as a discount against the carrying
value of the note. The $2.5 million that was allocated to the notes is
considered a discount on the promissory notes, and therefore was amortized over
the life of the notes using the effective interest method, in accordance with
Staff Accounting Bulletin No. 77, Topic 2.A.6, "Debt Issue Costs" of SFAS 141,
"Business Combinations". Accordingly, the Company recorded an amortization of
discount of $334,000 and $2,500,000 related to the warrants during the three
months and nine months ended September 30, 2004, respectively.
10
iPOINT-MEDIA LTD.
On September 7, 2004, NeoMedia and iPoint-media Ltd. ("iPoint-media")
of Tel Aviv, Israel, entered into a business development agreement whereby
NeoMedia will provide the following services to iPoint-media:
- NeoMedia and iPoint-media will jointly pursue select opportunities in
the areas of distributing video, audio and data over an interactive
broadband media access platform.
- NeoMedia may serve as a reseller of iPoint-media's products and
services in North America on a non-exclusive basis with special focus
on the government (including state and local).
- NeoMedia will seek to introduce iPoint-media to NeoMedia's other
channel and alliance partners which may have interest in doing business
with iPoint-media.
o NeoMedia and iPoint-media will reciprocate contracts to each
of the respective parties' partners and clients for
opportunities of synergy where reseller of finder's fee
compensation may apply.
o NeoMedia will make available appropriate resources for market
analysis and tactical evaluations for achieving business goals
surrounding iPoint-media operations in North America.
o NeoMedia will provide resources in order to market
iPoint-media technology in strategic industry verticals
including government and telecommunications.
o NeoMedia will contribute sales activities, both
conceptual/planning and direct, for iPoint-media products
including branding and repackaging initiatives, if desired by
iPoint, to further advance distribution of the iPoint-media
product suite.
o NeoMedia will supply resources to manage accounts and perform
post sale support activities for iPoint-media technology
implementations.
- Where appropriate, NeoMedia will support iPoint-media's efforts to
assist in securing approvals for iPoint-media's technology within
appropriate government and industry standards groups.
In exchange for entering into the service agreement, NeoMedia received
7% ownership in iPoint-media, consisting of 28,492 shares of iPoint-media common
stock. NeoMedia had not performed any services under the agreement as of
September 30, 2004.
In addition to the business development agreement, NeoMedia acquired an
additional 10% ownership of iPoint-media, consisting of 40,704 shares of common
stock, for $1 million cash. The $1 million investment is being funded to
NeoMedia in the form of a note payable to Cornell Capital Partners in the amount
of $1,085,000, with net proceeds to NeoMedia of $1,000,000. The note was funded
on October 18, 2004, and the funds were subsequently transferred to iPoint. As a
result, as of September 30, 2004, NeoMedia has recorded an "Investment in
IPoint-media, Ltd" of $1,000,000 in the accompanying condensed consolidated
balance sheet, and "Investment payable" of $1,000,000 in the accompanying
condensed consolidated balance sheet.
iPoint-media was founded in April 2001 as a spin off from Imagine
Visual Dialog LTD, whose shareholders include Israeli-based Nisko group, a
leading Israeli holding company, Singapore-based Keppel T&T, and marketing and
advertising group WPP. iPoint-media specializes in Customer Interaction
Management and is the world's 1st developer of IP Video Call Centers for
Deutsche Telecom. Muki Geller, the founder of Imagine Visual Dialog, is the
founder, President & CEO of iPoint-media. iPoint-media is located in Tel Aviv,
Israel, with a European customer support center in The Netherlands.
iPoint-media's mission is to become the video access platform and application
engine of choice for service providers.
11
OPTION REPRICING PROGRAM
During May 2003, the Company re-priced approximately 8.0 million stock
options under a 6-month repricing program. Under the terms of the program, the
exercise price for outstanding options under the Company's 2002, 1998, and 1996
Stock Option Plans was restated to $0.01 per share. During June 2004, the
deadline for the option repricing was extended to December 31, 2004 by the Stock
Option Committee of NeoMedia's Board of Directors. In accordance with FASB
Interpretation, FIN 44, "Accounting for Certain Transactions Involving Stock
Transactions", the award has been accounted for as variable from May 19, 2003
through the period ended September 30, 2004. The closing price of the Company's
common stock on September 30, 2004, June 30, 2004, March 31, 2004, and December
31, 2003 was $0.068, $0.067, $0.09, and $0.137 per share, respectively. As a
result, the Company recorded a charge/(reduction) to general and administrative
expense of ($163,000), ($80,000), and $3,000 during the three months ended March
31, 2004, June 30, 2004, and September 30, 2004, respectively. The adjustment
was recorded in order to reflect the increase/(decrease) of the fair value of
options still unexercised under the repricing program under variable accounting.
OTHER EVENTS
On August 31, 2004, the Company's Board of Directors named Charles T.
Jensen as the Company's permanent Chief Executive Officer. Jensen, president and
Chief Operating Officer of NeoMedia since June 2002, had also been acting CEO
since that time. Jensen joined NeoMedia in 1995 as Chief Financial Officer, and
acted in that capacity until June 2002.
On August 30, 2004, the Company entered into a consulting agreement with an
unrelated third party, under which the consultant provides tax advisory services
to the Company. As consideration for the contract, the Company issued 183,129
shares of common stock to the consultant. The fair value of the stock at the
time of issuance was $13,000. The Company recognized $13,000 in expense relating
the contract during the nine months ended September 30, 2004.
On August 2, 2004, NeoMedia announced that it signed a distribution
agreement with Motor Dealer's Association (MDA) Co-Auto Ltd., the largest buying
consortium for new car franchised dealers in Western Canada. The agreement
provides exclusive rights for MDA Co-Auto to market NeoMedia's micro paint
repair system to its member dealers. MDA Co-Auto has 1,050 member dealers in
British Columbia, Alberta, Saskatchewan, Manitoba and the Yukon.
On July 30, 2004, the Company entered into a consulting agreement with an
unrelated third party, under which the consultant agreed to provide sales and
marketing services relating to the Company's PaperClick business for the period
from July 2004 through September 2004. As consideration for the contract, the
Company issued 258,104 shares of common stock to the consultant. The fair value
of the stock at the time of issuance was $18,000. The Company recognized this
amount as sales and marketing expense during the three months ended September
30, 2004.
On June 25, 2004, the Company issued 322,228 shares of its common stock
valued at $24,000, plus $8,000 cash to an unrelated distributor of the Company's
micro paint repair products, in exchange for the forfeiture by the distributor
of exclusive distribution rights in the greater Edmonton, Alberta, Canada area.
The distributor had purchased the exclusivity rights in 1992 from CSI
International, Inc.
On February 6, 2004, the Company entered into a consulting agreement with
an unrelated third party, under which the consultant will provide sales and
marketing services relating to the Company's Micro Paint business unit over a
period of three years. As consideration for the contract, the Company issued
12
6,055,556 options with an exercise price of $0.01 to the consultant. The fair
value of the options at the time of issuance was $550,000. The Company is
recognizing the fair value as sales and marketing expense over the term of the
contract (three years). Accordingly, the Company recognized $50,000 and $131,000
in expense relating the contract during the three and nine months ended
September 30, 2004, respectively.
During January 2004, the Company entered into a consulting agreement with
James J. Keil, a member of the Company's board of directors, for consulting
services to be provided over a period of six months in connection with
NeoMedia's sales strategies and processes. The contract calls for monthly
payments of $4,500 during the term of the contract. The Company recognized
$27,000 in general and administrative expense relating to the contract during
the nine months ended September 30, 2004.
SUBSEQUENT EVENTS
On October 18, 2004, the Company borrowed from Cornell the gross amount of
$1,085,000 before Cornell discounts and fees. Cornell withheld a retention fee
of $85,000 related to the issuance of stock to pay off the debt in the future.
The note matures on January 20, 2005. The note accrues interest at a rate of 12%
per annum, increasing to 14% per annum upon maturity, if not paid off. The
Company has the option to repay any remaining principal of the note in cash. The
Company expects to pay the remaining note balance by applying the proceeds from
the sale stock under the terms of the Standby Equity Distribution Agreement
toward the outstanding principal on the notes. The Company invested the proceeds
from the note in iPoint pursuant to the investment agreement between NeoMedia
and iPoint (see "iPoint-Media Ltd." for description of agreement).
On October 27 2004, NeoMedia announced that it had entered into a marketing
alliance with Science Applications International Corporation (SAIC) to jointly
establish, launch, promote and manage the new worldwide mobile "PaperClick
WordRegistry," a linking and switching platform for use on Web-enabled cell
phones and PDA's. When used with PaperClick Mobile Go-Window, NeoMedia's new
wireless product which creates a text-entry window on a phone or PDA screen,
registered words (or registered phrases) are entered to bring up an automatic
link to specific targeted products and promotions. No date has been set for the
launch of the WordRegistry.
13
PRO-FORMA INFORMATION REQUIRED BY SFAS 148
At September 30, 2004, the Company has five stock-based employee
compensation plans (the 2003 Stock Incentive Plan, the 2003 Stock Option Plan,
the 2002 Stock Option Plan, the 1998 Stock Option Plan, and the 1996 Stock
Option Plan). The Company accounts for those plans under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. No stock-based employee compensation
cost is reflected in net loss, except when options granted under those plans had
an exercise price less than the market value of the underlying common stock on
the date of grant. The following table illustrates the effect on net loss and
loss per share if the Company had applied the fair value recognition provisions
of FASB Statement No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------------
2004 2003 2004 2003
---- ---- ---- ----
Net Loss, as reported ($1,440) ($2,205) ($5,493) ($4,060)
Compensation recognized under APB 25 -- 623 9 623
Compensation recognized under SFAS 123 (372) (925) (1,073) (1,361)
-------------------------- ---------------------------
Pro-forma net loss ($1,812) ($2,507) ($6,557) ($4,798)
========================== ===========================
Net Loss per share:
Basic and diluted - as reported ($0.00) ($0.01) ($0.02) ($0.05)
========================== ===========================
Basic and diluted - pro-forma ($0.01) ($0.02) ($0.02) ($0.05)
========================== ===========================
SEGMENT REPORTING
The Company is structured and evaluated by its Board of Directors and
Management as three distinct business units:
NeoMedia Internet Switching Services (NISS), is based in the United
States, with development and operating facilities in Fort Myers, Florida. NISS
develops and supports the Company's physical world to Internet core technology,
including NeoMedia's linking "switch" and application platforms. NISS also
manages the Company's valuable intellectual property portfolio, including the
identification and execution of licensing opportunities surrounding the patents.
NeoMedia Consulting and Integration Services (NCIS) is the Company's
systems integration business unit. This unit resells client-server equipment and
related software, and general and specialized consulting services. NCIS also
identifies prospects for custom applications based on NeoMedia's products and
services. The operations are based in Lisle, Illinois.
NeoMedia Micro Paint Repair (NMPR) is the business unit encompassing the
Company's recently-acquired CSI International micro paint repair line. NMPR is
attempting to commercialize its micro-paint repair solution. The Company
completed its acquisition of CSI on February 6, 2004
The Company's reportable segments are strategic business units that offer
different technology and marketing strategies. NCIS operates principally in the
United States. NISS operates principally in the United States and Europe. NMPR
is headquartered in Ft. Myers, Florida, and currently sells into Canada, the
United States, Australia, and New Zealand. During the three and nine months
ended September 30, 2004, NeoMedia derived 44% and 36%, respectively, of its
revenue from customers based in Canada.
14
Consolidated net sales, net operating losses for the three-month and
nine-month periods ended September 30, 2004 and 2003, and identifiable assets as
of September 30, 2004, were as follows:
(in thousands)
-----------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ---------------------
2004 2003 2004 2003
---- ---- ---- ----
NET SALES:
NeoMedia Consulting & Integration Services $230 $448 $711 $1,971
NeoMedia Internet Switching Service 4 13 46 38
NeoMedia Micro Paint Repair 237 -- 512 --
----------- ---------- ---------- ----------
$471 $461 $1,269 $2,009
----------- ---------- ---------- ----------
NET LOSS:
NeoMedia Consulting & Integration Services ($189) ($1,855) ($682) ($3,310)
NeoMedia Internet Switching Service (482) (350) (1,326) (750)
NeoMedia Micro Paint Repair (421) -- (985) --
Amortization of Cornell Debt Discount (348) -- (2,500) --
----------- ---------- ---------- ----------
($1,440) ($2,205) ($5,493) ($4,060)
----------- ---------- ---------- ----------
IDENTIFIABLE ASSETS:
NeoMedia Consulting & Integration Services $264
NeoMedia Internet Switching Service 2,332
NeoMedia Micro Paint Repair 3,313
Corporate 3,812
-----------
$9,721
-----------
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
NISS (PHYSICAL-WORLD-TO-INTERNET OFFERINGS) BUSINESS UNIT DEVELOPMENTS.
Over the past several years, NeoMedia's focus has been aimed toward the
commercialization of its Internet Switching Systems (NISS) business unit.
NISS consists of the patented PaperClickTM technology that enables users
to link directly from the physical to the digital world, as well as the
patents surrounding certain physical-world-to-web linking processes.
NeoMedia's mission is to invent, develop, and commercialize technologies
and products that effectively leverage the integration of the physical
and electronic to provide clear functional value for its end-users,
competitive advantage for their business partners and
return-on-investment for their investors.
On September 8, 2003, NeoMedia announced its PaperClick for Camera Cell
PhonesTM product, which reads and decodes UPC/EAN or other bar codes to
link users to the Internet, providing information and enabling e-commerce
on a compatible camera cell phone, such as the Nokia 3650 model. During
the second quarter of 2004, NeoMedia introduced its PaperClick Mobile
Go-WindowTM, a horizontal bar on the screen of a wireless device where
users can enter numeric strings from UPC or other bar codes to link
directly to targeted online information via patented PaperClick
technology and software. The PaperClick Mobile Go-WindowTM currently
works with Palm(TM) Tungsten C PDA, the Handspring(TM) Treo 270 and 600
Smartphones, Pocket PC(R), Java MIDP 2.0 (Mobile Independent Device
Profile) standard, and Microsoft Windows Mobile(TM)-based Smartphones.
On October 30, 2003, NeoMedia unveiled the go-to-market strategy for its
PaperClick suite of products. Over the past several months, NeoMedia has
signed contracts with several key partners outlined in the strategy,
including agents Big Gig Strategies and SRP Consulting, resellers AURA
Digital Communications and Relyco, systems integrator Science
Applications International Corporation (SAIC), and European advertising
agency 12Snap. In June 2004, NeoMedia entered into a collaborative
agreement with Intel Corporation for NeoMedia's PaperClick mobile
connectivity platform to operate on the recently introduced Intel PXA27x
processor family-based cellular phones.
On June 3, 2004, NeoMedia announced that it signed a teaming agreement
with IPSO, an integrator of proprietary solutions developed by its
provider companies for financial institution members and a leader in
meeting Check 21 standards. Enacted by Congress and signed into law last
year, Check 21 requires banks to begin accepting substitute checks
(called IRDs for image replacement documents) in lieu of original checks
as of October 29, 2004. NeoMedia and IPSO could partner on proposals and
presentations surrounding Check 21.
During October 2004, NeoMedia and SAIC entered into a marketing alliance
to jointly establish, launch, promote and manage the new worldwide mobile
"PaperClick WordRegistry," a linking and switching platform for use on
Web-enabled cell phones and PDA's. When used with PaperClick Mobile
Go-Window, NeoMedia's new wireless product which creates a text-entry
window on a phone or PDA screen, registered words (or registered phrases)
are entered to bring up an automatic link to specific targeted products
and promotions. No date has been set for the launch of the WordRegistry.
16
NMPR (MICRO PAINT REPAIR) BUSINESS UNIT DEVELOPMENTS.
On February 6, 2004, NeoMedia acquired 100% ownership of CSI
International, Inc., of Calgary, Alberta, Canada, a private technology
products company in the micro paint repair industry. NeoMedia currently
has approximately 50 active paint repair end-user system agreements.
On June 1, 2004, NeoMedia announced that it had entered into a
distribution agreement with Micro Paint Systems (Australasia) Limited of
New Zealand for exclusive distribution rights to NeoMedia's micro paint
repair products in Australia and New Zealand. The agreement is contingent
upon a minimum purchase of 500 systems over five years in that territory.
NeoMedia received an initial payment on signing of the contract, which
included the fee for four initial systems.
On June 22, 2004, NeoMedia announced its new product called "Silver
Solutions," a process created specifically to mend the popular high
metallic and pearl paint finishes on new cars.
On July 7, 2004, NeoMedia announced the appointment of Arthur W. Gilfus
to the newly-created position of global vice president of sales for the
Micro Paint Repair Business Unit.
On July 16, 2004, NeoMedia announced that its NeoMedia Micro Paint Repair
business unit added five more licensees as part of a private label
contract with Crackmaster Distributors Ltd., a Canadian auto aftermarket
company.
On August 2, 2004, NeoMedia announced that it signed a distribution
agreement with Motor Dealer's Association (MDA) Co-Auto Ltd., the largest
buying consortium for new car franchised dealers in Western Canada. The
agreement provides exclusive rights for MDA Co-Auto to market NeoMedia's
micro paint repair system to its member dealers. MDA Co-Auto has 1,050
member dealers in British Columbia, Alberta, Saskatchewan, Manitoba and
the Yukon.
NCIS (SYTEMS INTEGRATION) BUSINESS UNIT DEVELOPMENTS.
NCIS (systems integration service offerings) is the original business
line upon which the Company was organized. This unit resells
client-server equipment and related software, and general and specialized
consulting services. Systems integration services also identifies
prospects for custom applications based on NeoMedia's products and
services. These operations are based in Lisle, Illinois.
SEC INQUIRY
During 2003, NeoMedia received requests from the SEC's Southeast Regional
Office for certain documents including those concerning negotiations and
arrangements with certain strategic partners and consultants, patents, recent
issuances of securities, investor relations, and the stock ownership by
NeoMedia's officers and directors. NeoMedia responded promptly and fully and
will cooperate with any further requests. The SEC's letter states that the
staff's inquiry is informal and should not be construed as an indication of any
violation of law or as a reflection on any person, entity, or security.
17
ACQUISITIONS
CSI INTERNATIONAL, INC. On February 6, 2004, NeoMedia acquired 100%
ownership of CSI International, Inc., of Calgary, Alberta, Canada, a
private company in the micro paint repair industry. NeoMedia paid 7,000,000
shares of its common stock, plus $2.5 million cash in exchange for all
outstanding shares of CSI. NeoMedia has centralized the administrative
functions in its Ft. Myers, Florida headquarters, and maintains a sales
office in Calgary, Alberta, Canada.
BSD SOFTWARE, INC. On December 9, 2003, NeoMedia signed a non-binding
letter of intent ("LOI") to acquire Triton Global Business Services Inc.
and its parent company, BSD Software Inc. (Pink Sheets: BSDS), both of
Calgary, Alberta, Canada. The LOI outlined terms, including an exchange of
one share of NeoMedia common stock for each share of BSD Software, not to
exceed 40 million shares. The transaction is dependent on due diligence by
both companies, approval by NeoMedia's Board of Directors, BSD Software's
Board of Directors and shareholders, and any required regulatory approvals.
Triton, formed in 1998 and acquired by BSD in 2002, is an Internet
Protocol-enabled provider of live and automated operator calling services,
e-business support, billing and clearinghouse functions and information
management services to telecommunications, Internet and e-business service
providers. The companies are currently completing their due diligence.
NeoMedia's 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 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.
CRITICAL ACCOUNTING POLICIES
The U.S. Securities and Exchange Commission ("SEC") issued Financial
Reporting Release No. 60, "Cautionary Advice Regarding Disclosure About Critical
Accounting Policies" ("FRR 60"), suggesting companies provide additional
disclosure and commentary on their most critical accounting policies. In FRR 60,
the SEC defined the most critical accounting policies as the ones that are most
important to the portrayal of a company's financial condition and operating
results, and require management to make its most difficult and subjective
judgments, often as a result of the need to make estimates of matters that are
inherently uncertain. Based on this definition, NeoMedia's most critical
accounting policies include: inventory valuation, which affects cost of sales
and gross margin; and the valuation of intangibles, which affects amortization
and write-offs of goodwill and other intangibles. NeoMedia also has other key
accounting policies, such as policies for revenue recognition, including the
deferral of a portion of revenues on sales to distributors, allowance for bad
debt, and stock-based compensation. The methods, estimates and judgments
NeoMedia uses in applying these most critical accounting policies have a
significant impact on the results it reports in its consolidated financial
statements..
Intangible Asset Valuation. The determination of the fair value of certain
acquired assets and liabilities is subjective in nature and often involves the
use of significant estimates and assumptions. Determining the fair values and
useful lives of intangible assets especially requires the exercise of judgment.
While there are a number of different generally accepted valuation methods to
estimate the value of intangible assets acquired, NeoMedia primarily uses the
weighted-average probability method outlined in SFAS 144. This method requires
significant management judgment to forecast the future operating results used in
the analysis. In addition, other significant estimates are required such as
residual growth rates and discount factors. The estimates NeoMedia has used are
consistent with the plans and estimates that NeoMedia uses to manage its
business, based on available historical information and industry averages. The
18
judgments made in determining the estimated useful lives assigned to each class
of assets acquired can also significantly affect NeoMedia's net operating
results.
Allowance for Bad Debt. NeoMedia maintains an allowance for doubtful
accounts for estimated losses resulting from the inability of its customers to
make required payments. Allowance for doubtful accounts is based on NeoMedia's
assessment of the collectibility of specific customer accounts, the aging of
accounts receivable, NeoMedia's history of bad debts, and the general condition
of the industry. If a major customer's credit worthiness deteriorates, or
NeoMedia's customers' actual defaults exceed historical experience, NeoMedia's
estimates could change and impact its reported results.
Stock-based Compensation. NeoMedia records stock-based compensation to
outside consultants at fair market value in general and administrative expense.
NeoMedia does not record expense relating to stock options granted to employees
with an exercise price greater than or equal to market price at the time of
grant. NeoMedia reports pro-forma net loss and loss per share in accordance with
the requirements of SFAS 123 and 148. This disclosure shows net loss and loss
per share as if NeoMedia had accounted for its employee stock options under the
fair value method of those statements. Pro-forma information is calculated using
the Black-Scholes pricing method at the date of grant. This option valuation
model requires input of highly subjective assumptions. Because NeoMedia's
employee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
model does not necessarily provide a reliable single measure of fair value of
its employee stock options.
Estimate of Litigation-based Liability. NeoMedia is defendant in certain
litigation in the ordinary course of business (see "Legal Proceedings").
NeoMedia accrues liabilities relating to these lawsuits on a case-by-case basis.
NeoMedia generally accrues attorney fees and interest in addition to the
liability being sought. Liabilities are adjusted on a regular basis as new
information becomes available. NeoMedia consults with its attorneys to determine
the viability of an expected outcome. The actual amount paid to settle a case
could differ materially from the amount accrued.
Revenue Recognition. NeoMedia derives revenues from three primary sources:
(1) license revenues and (2) resale of software and technology equipment and
service fee revenues, and (3) sale of its proprietary micro paint repair
solution.
(1) License fees, including Intellectual Property licenses, 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. Resales of software and
technology equipment represent revenue from the resale of
purchased third party hardware and software products and from
consulting, education, maintenance and post contract customer
support services.
The basis for license fee revenue recognition is substantially
governed by American Institute of Certified Public Accountants
("AICPA") Statement of Position 97-2 "Software Revenue
Recognition" ("SOP 97-2"), as amended. License revenue is
recognized if persuasive evidence of an agreement exists, delivery
has occurred, pricing is fixed and determinable, and
collectibility is probable.
(2) Revenue for resale of software and technology equipment and
service fee is recognized based on guidance provided in Securities
and Exchange Commission (SEC) Staff Accounting Bulletin No. 104,
"Revenue Recognition in Financial Statements," as amended (SAB
104). Software and technology equipment resale revenue is
recognized when all of the components necessary to run software or
19
hardware have been shipped. Service revenues including maintenance
fees for providing system updates for software products, user
documentation and technical support are recognized over the life
of the contract. Software license revenue from long-term contracts
has been recognized on a percentage of completion basis, along
with the associated services being provided. Other service
revenues, including training and consulting, are recognized as the
services are performed. NeoMedia uses stand-alone pricing to
determine an element's vendor specific objective evidence (VSOE)
in order to allocate an arrangement fee amongst various pieces of
a multi-element contract. NeoMedia records an allowance for
uncollectible accounts on a customer-by-customer basis as
appropriate.
In December 2003, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB") No. 104, "Revenue
Recognition." SAB 104 supersedes SAB 101, "Revenue Recognition in
Financial Statements." SAB 104's primary purpose is to rescind
accounting guidance contained in SAB 101 related to multiple
element revenue arrangements, superseded as a result of the
issuance of EITF 00-21, "Accounting for Revenue Arrangements with
Multiple Deliverables." Additionally, SAB 104 rescinds the SEC's
Revenue Recognition in Financial Statements Frequently Asked
Questions and Answers ("the FAQ") issued with SAB 101 that had
been codified in SEC Topic 13, Revenue Recognition. Selected
portions of the FAQ have been incorporated into SAB 104. While the
wording of SAB 104 has changed to reflect the issuance of EITF
00-21, the revenue recognition principles of SAB 101 remain
largely unchanged by the issuance of SAB 104, which was effective
upon issuance. The adoption of SAB 104 did not impact the
consolidated financial statements.
(3) Revenue for training and certification on NeoMedia's Micro Paint
Repair systems is recognized equally over the term of the
contract, which is currently one year. A portion of the initial
fee paid by the customer is allocated to training costs and
initial products sold with the system, and is recognized upon
completion of training and shipment of the products. Ongoing
product and service revenue is recognized as products are shipped
and services performed.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AS COMPARED
TO THE THREE MONTHS ENDED SEPTEMBER 30, 2003
Net sales. Total net sales for the three months ended September 30, 2004
were $471,000, which represented an increase of $10,000, or 2%, from $461,000
for the three months ended September 30, 2003. This increase resulted from
revenue generated by the Company's micro paint repair business unit acquired in
February 2004. This increase in micro paint revenue was offset by reduced
resales of Sun Microsystems equipment due to increased competition and general
economic conditions. NeoMedia could realize an increase in license fees over the
next 12 months if the Company is successful in implementing its PaperClick
go-to-market strategy, or if pending court cases involving its intellectual
property are resolved in NeoMedia's favor. NeoMedia could also realize a
material increase in micro paint repair revenue if the Company is successful in
implementing its business plan for that business unit.
License fees. License fees were $96,000 for the three months ended
September 30, 2004, compared with $69,000 for the three months ended September
30, 2003, an increase of $27,000, or 39%. The increase was due to higher sales
of internally developed software licenses in 2004. NeoMedia could realize an
increase in license fees over the next 12 months if the Company is successful in
implementing its PaperClick go-to-market strategy, or if pending court cases
involving its intellectual property are resolved in NeoMedia's favor.
20
Resales of software and technology equipment and service fees. Resales of
software and technology equipment and service fees decreased by $254,000, or
65%, to $138,000 for the three months ended September 30, 2004, as compared to
$392,000 for the three months ended September 30, 2003. This decrease primarily
resulted from reduced resales of Sun Microsystems equipment due to increased
competition and general economic conditions. NeoMedia intends to continue to
pursue additional resales of equipment, software and services. NeoMedia expects
resales to more closely resemble the results for the three months ended
September 30, 2004, rather than the three months ended September 30, 2003.
Micro paint repair products and services. Sales of micro paint repair
products and services were $237,000 for the three months ended September 30,
2004. NeoMedia acquired this business on February 6, 2004, and as a result there
were no sales of micro paint repair products and services during the three
months ended September 30, 2003. NeoMedia could realize a material increase in
micro paint repair revenue if the Company is successful in implementing its
business plan for that business unit.
Cost of license fees. Cost of license fees was $79,000 for the three months
ended September 30, 2004, an increase of $3,000, or 4%, compared with $76,000
for the three months ended September 30, 2003. The increase resulted from
increased amortization of capitalized patent costs during 2004.
Cost of resales of software and technology equipment and service fees. Cost
of resales of software and technology equipment and service fees was $147,000
for the three months ended September 30, 2004, a decrease of $231,000, or 61%,
compared with $378,000 for the three months ended September 30, 2003. The
decrease resulted from decreased resales in 2004 compared with 2003. Cost of
resales as a percentage of related resales was 107% in 2004, compared to 96% in
2003. This increase is due to revenue declining more rapidly than the fixed
portion of costs of resales. NeoMedia expects costs of resales to fluctuate with
the mix of sales of equipment, software, and services over the next 12 months.
Cost of micro paint repair products and services. Cost of micro paint
repair products and services was $151,000 for the three months ended September
30, 2004. NeoMedia acquired this business on February 6, 2004, and as a result
there were no cost of sales of micro paint repair products and services during
the three months ended September 30, 2003. Cost of micro paint repair products
and services as a percentage of related sales was 64%. NeoMedia expects cost of
micro paint repair products and services to increase over the next 12 months as
revenue continues to increase with the roll-out.
Gross Profit. Gross profit was $94,000 for the three months ended
September 30, 2004, an increase of $87,000, or 1,243%, compared with gross
profit of $7,000 for the three months ended September 30, 2003. This increase
was primarily the result of increased sales of higher-margin micro paint repair
products and internally developed software licenses during 2004.
Sales and marketing. Sales and marketing expenses were $514,000 for the
three months ended September 30, 2004, compared to $146,000 for the three months
ended September 30, 2003, an increase of $368,000 or 252%. The increase is a
result of the addition of the micro paint business sales force in February 2004,
and cost associated with marketing and promotion of the Company's PaperClick and
micro paint repair products. NeoMedia expects sales and marketing expense to
increase over the next 12 months with the continued development and anticipated
rollout of the PaperClick and Micro Paint Repair product suites.
General and administrative. General and administrative expenses decreased
by $1,424,000, or 73%, to $516,000 for the three months ended September 30,
2004, compared to $1,940,000 for the three months ended September 30, 2003. The
decrease resulted primarily from non-cash expenses relating to the Company's
option repricing program, expense for stock options issued with exercise prices
below market price, and higher stock-based professional service expense in 2003
21
as compared with 2004. NeoMedia expects general and administrative expense to
increase over the next 12 months with the recent acquisition of CSI
International and the potential acquisition of BSD Software.
Research and development. During the three months ended September 30, 2004,
NeoMedia charged to expense $114,000 of research and development costs, an
increase of $36,000 or 46% compared to $78,000 for the three months ended
September 30, 2003. The increase is primarily due to the addition of one
developer and development computer systems during 2004. NeoMedia expects
research and development costs to increase over the next 12 months with the
continued development efforts, and the anticipated rollout of NeoMedia's
PaperClick product suite.
Gain on extinguishment of debt. During the six months ended June 30, 2004,
NeoMedia recognized a gain on extinguishment of debt of $6,000, an increase of
$30,000 or 125% compared to a loss of $24,000 during the three months ended
September 30, 2003. These gains resulted from a difference between the cash or
market value of stock issued to settle the debt and the carrying value of the
debt at the time of settlement.
Amortization of debt discount. During the three months ended September 30,
2004, NeoMedia recognized an amortization of debt issuance cost of $334,000
relating to the amortization of the fair value of warrants granted to Cornell
Capital Partners in connection with promissory notes issued to Cornell by
NeoMedia during January 2004. NeoMedia did not recognize any such expense during
the three months ended September 30, 2003. During the nine months ended
September 30, 2004, NeoMedia amortized the full $2.5 million discount value
relating to the Cornell warrants, and as a result does not expect to recognize
such expense in the next 12 months.
Interest expense. Interest expense consists primarily of interest accrued
for creditors as part of financed purchases, past due balances, notes payable
and interest earned on cash equivalent investments. Interest expense increased
by $38,000, or 158%, to $62,000 for the three months ended September 30, 2004
from $24,000 for the three months ended September 30, 2003, due to higher
expense associated with notes payable in 2004 compared with 2003.
Net Loss. The net loss for the three months ended September 30, 2004 was
$1,440,000, which represented a decrease of $765,000, or 35% from a loss of
$2,205,000 for the three months ended September 30, 2003. The decrease resulted
primarily from expenses relating to the Company's option repricing program and
expense for stock options issued with exercise prices below market price in
2003, combined with increased gross profit from the company's micro paint repair
business. These items were offset by increased sales and marketing expenses
relating to the rollout of the Company's micro paint repair and PaperClick
business units.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 2004 AS COMPARED TO THE
NINE MONTHS ENDED JUNE 30, 2003
Net sales. Total net sales for the nine months ended September 30, 2004
were $1,269,000, which represented a decrease of $740,000, or 37%, from
$2,009,000 for the nine months ended September 30, 2003. This decrease primarily
resulted from reduced resales of Sun Microsystems equipment due to increased
competition and general economic conditions, offset by new sales from the
Company's micro paint repair business acquired during February 2004. NeoMedia
could realize an increase in license fees over the next 12 months if the Company
is successful in implementing its PaperClick go-to-market strategy, or if
pending court cases involving its intellectual property are resolved in
NeoMedia's favor. NeoMedia could also realize a material increase in micro paint
repair revenue if the Company is successful in implementing its business plan
for that business unit.
22
License fees. License fees were $256,000 for the nine months ended
September 30, 2004, compared with $338,000 for the nine months ended September
30, 2003, a decrease of $82,000, or 24%. The decrease was due to lower sales of
internally developed software licenses in 2004. NeoMedia could realize an
increase in license fees over the next 12 months if the Company is successful in
implementing its PaperClick go-to-market strategy, or if pending court cases
involving its intellectual property are resolved in NeoMedia's favor.
Resales of software and technology equipment and service fees. Resales of
software and technology equipment and service fees decreased by $1,170,000, or
70%, to $501,000 for the nine months ended September 30, 2004, as compared to
$1,671,000 for the nine months ended September 30, 2003. This decrease primarily
resulted from reduced resales of Sun Microsystems equipment due to increased
competition and general economic conditions. NeoMedia intends to continue to
pursue additional resales of equipment, software and services. NeoMedia expects
resales to more closely resemble the results for the nine months ended September
30, 2004, rather than the nine months ended September 30, 2003.
Micro paint repair products and services. Sales of micro paint repair
products and services were $512,000 for the nine months ended September 30,
2004. NeoMedia acquired this business on February 6, 2004, and as a result there
were no sales of micro paint repair products and services during the nine months
ended September 30, 2003. NeoMedia could realize a material increase in micro
paint repair revenue if the Company is successful in implementing its business
plan for that business unit.
Cost of license fees. Cost of license fees was $249,000 for the nine months
ended September 30, 2004, an increase of $22,000, or 10%, compared with $227,000
for the nine months ended September 30, 2003. The increase resulted from
increased amortization of capitalized patent costs during 2004.
Cost of resales of software and technology equipment and service fees. Cost
of resales of software and technology equipment and service fees was $480,000
for the nine months ended September 30, 2004, a decrease of $1,086,000, or 69%,
compared with $1,566,000 for the nine months ended September 30, 2003. The
decrease resulted from decreased resales in 2004 compared with 2003. Cost of
resales as a percentage of related resales was 96% in 2004, compared to 94% in
2003. This increase is due to revenue declining more rapidly than the fixed
portion of costs of resales. NeoMedia expects costs of resales to fluctuate with
the mix of sales of equipment, software, and services over the next 12 months.
Cost of micro paint repair products and services. Cost of micro paint
repair products and services was $376,000 for the nine months ended September
30, 2004. Cost of micro paint repair products and services as a percentage of
related sales was 73%. NeoMedia acquired this business on February 6, 2004, and
as a result there were no cost of sales of micro paint repair products and
services during the nine months ended September 30, 2003. NeoMedia expects cost
of micro paint repair products and services to increase over the next 12 months
as revenue continues to increase with the roll-out.
Gross Profit. Gross profit was $164,000 for the nine months ended
September 30, 2004, a decrease of $52,000, or 24%, compared with gross profit of
$216,000 for the nine months ended September 30, 2003. This decrease was
primarily the result of reduced resales of Sun Microsystems equipment due to
increased competition and general economic conditions, offset by profit form the
micro paint repair business acquired in February 2004.
Sales and marketing. Sales and marketing expenses were $1,461,000 for the
nine months ended September 30, 2004, compared to $407,000 for the nine months
ended September 30, 2003, an increase of $1,054,000 or 259%. This increase
resulted primarily from the addition of recently-acquired micro paint business
sales force and cost associated with marketing, as well as promotion of the
Company's PaperClick and Micro Paint Repair products. NeoMedia expects sales and
marketing expense to increase over the next 12 months with the continued
development and anticipated rollout of the PaperClick and Micro Paint Repair
product suites.
23
General and administrative. General and administrative expenses decreased
by $2,116,000, or 62%, to $1,293,000 for the nine months ended September 30,
2004, compared to $3,409,000 for the nine months ended September 30, 2003. The
decrease resulted primarily from non-cash expenses relating to the Company's
option repricing program, expense for stock options issued with exercise prices
below market price, and higher stock-based professional service expense in 2003
as compared with 2004. NeoMedia expects general and administrative expense to
increase over the next 12 months with the recent acquisition of CSI
International and the potential acquisition of BSD Software
Research and development. During the nine months ended September 30, 2004,
NeoMedia charged to expense $354,000 of research and development costs, an
increase of $111,000 or 46% compared to $243,000 for the nine months ended
September 30, 2003. The increase is primarily due to the addition of a developer
and development computer systems during 2004. NeoMedia expects research and
development costs to increase over the next 12 months with the continued
development efforts, and the anticipated rollout of NeoMedia's PaperClick
product suite.
Gain on extinguishment of debt. During the nine months ended September 30,
2004, NeoMedia recognized a gain on extinguishment of debt of $129,000,
resulting from the payment of debt at a discount to the book value of the debt,
an increase of $153,000, or 638%, compared with a loss on extinguishment of debt
of $24,000 for the nine months ended September 30, 2003. These gains resulted
from a difference between the cash or market value of stock issued to settle the
debt and the carrying value of the debt at the time of settlement.
Amortization of debt discount. During the nine months ended September 30,
2004, NeoMedia recognized an amortization of debt issuance cost of $2,500,000
relating to the fair value of warrants granted to Cornell Capital Partners in
connection with promissory notes issued to Cornell by NeoMedia during January
2004. NeoMedia did not recognize any such expense during the nine months ended
September 30, 2003. During the nine months ended September 30, 2004, NeoMedia
amortized the full $2.5 million discount value relating to the Cornell warrants,
and as a result does not expect to recognize such expense in the next 12 months.
Interest expense. Interest expense consists primarily of interest accrued
for creditors as part of financed purchases, past due balances, notes payable
and interest earned on cash equivalent investments. Interest expense decreased
by $15,000, or 8%, to $178,000 for the nine months ended September 30, 2004 from
$193,000 for the nine months ended September 30, 2003, due to reduced expense
associated with vendor settlements and debt in 2004 compared with 2003.
Net Loss. The net loss for the nine months ended September 30, 2004 was
$5,493,000, which represented a $1,433,000, or 35% increase from a $4,060,000
loss for the nine months ended September 30, 2003. The increase resulted
primarily from the amortization of debt issuance cost of $2,500,000 in 2004,
offset by reduced general and administrative costs in 2004.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $3,500,000 for the nine months
September 30, 2004, compared with $2,057,000 for the nine months ended September
30, 2003. NeoMedia's net cash flow used in investing activities for the nine
months ended September 30, 2004 and 2003 was $212,000 and $64,000, respectively.
Net cash provided by financing activities for the nine months ended September
30, 2004 and 2003 was $5,430,000 and $3,099,000, respectively.
During the nine months ended September 30, 2004 and 2003, NeoMedia's net
loss totaled $5,493,000 and $4,060,000, respectively. As of September 30, 2004,
NeoMedia had accumulated losses from operations of $81,640,000, had a working
capital deficit of $5,538,000, and $1,732,000 in cash balances.
24
The accompanying consolidated financial statements have been prepared
assuming NeoMedia will continue as a going concern. Accordingly, the
consolidated financial statements do not include any adjustments that might
result from NeoMedia's inability to continue as a going concern.
NeoMedia may obtain up to $20 million over the next year and a half through
its Standby Equity Distribution Agreement with Cornell Capital Partners. As of
September 30, 2004, NeoMedia had drawn $7 million against the Standby Equity
Distribution Agreement in the form of promissory notes which may be repaid from
the proceeds of sale of common stock.
In addition, if the average closing bid price of NeoMedia's common stock
for any five day period exceeds $0.10, NeoMedia may force the exercise of 40
million warrants held by Cornell, resulting in additional cash to the Company of
$2 million. In the absence of any major sales from its Micro Paint Repair or
PaperClick products, management believes that it has sufficient funding to
sustain operations through December 31, 2004, however, there can be no
assurances that the market for NeoMedia's stock will support the sale of
sufficient shares of NeoMedia's common stock to raise sufficient capital to
sustain operations for such a period, or that actual revenue will meet
management's expectations. 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.
25
ITEM 3. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. NeoMedia's Chief Executive
Officer and Chief Financial Officer, after evaluating the effectiveness of
NeoMedia's "disclosure controls and procedures" (as defined in Sections
13a-14(c) of the Securities Exchange Act of 1934) as of the end of the period
reported in this annual report (the "Evaluation Date"), concluded that
NeoMedia's disclosure controls and procedures were effective and designed to
ensure that material information relating to NeoMedia and its consolidated
subsidiaries is accumulated and would be made known to them by others within
those entities as appropriate to allow timely decisions regarding required
disclosures.
CHANGES IN INTERNAL CONTROLS. NeoMedia does not believe that there are
significant deficiencies in the design or operation of its internal controls
that could adversely affect its ability to record, process, summarize and report
financial data. Although there were no significant changes in NeoMedia's
internal controls or in other factors that could significantly affect those
controls subsequent to the Evaluation Date, NeoMedia's senior management, in
conjunction with its Board of Directors, continuously reviews overall company
policies and improves documentation of important financial reporting and
internal control matters. NeoMedia is committed to continuously improving the
state of its internal controls, corporate governance and financial reporting.
LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS. NeoMedia's management, including
the Chief Executive Officer and Chief Financial Officer, does not expect that
its disclosure or internal controls will prevent all errors or fraud. A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
26
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NeoMedia is involved in the following legal actions arising in the
normal course of business, both as claimant and defendant.
AIRCLIC, INC., SCANBUY, INC., AND LSCAN TECHNOLOGIES, INC.
On January 23, 2004, NeoMedia filed a patent infringement lawsuit against
AirClic, Inc., Scanbuy, Inc., and LScan Technologies, Inc. in the Northern
District of Illinois, claiming that each of the parties has manufactured, or has
manufactured for it, and has used, or actively induced others to use, technology
which allows customers to use a built-in UPC bar code scanner to scan individual
items and access information, thereby infringing NeoMedia's patents. The
complaint states that on information and belief, AirClic, Scanbuy and LScan have
had actual and constructive notice of the existence of the patents-in-suit, and,
despite such notice, failed to cease and desist their acts of infringement, and
continue to engage in acts of infringement of the patents-in-suit. On April 15,
2004, the court dismissed the suit against AirClic and Scanbuy for lack of
personal jurisdiction.
On April 19, 2004, AirClic filed a declaratory judgment action against
NeoMedia in the Eastern District of Pennsylvania. NeoMedia answered and
counterclaimed on May 18, 2004. AirClic answered NeoMedia's counterclaim on June
10, 2004. On April 20, 2004, NeoMedia re-filed its suit against AirClic in
Pennsylvania for patent infringement. AirClic answered and counterclaimed on May
13, 2004. NeoMedia filed its answer to AirClic's counterclaims on June 2, 2004.
NeoMedia filed an amended complaint on July 1, 2004, and AirClic answered and
counterclaimed on July 20, 2004. NeoMedia's answer to AirClic's counterclaims
was filed on August 3, 2004.
NeoMedia voluntarily dismissed the suit against LScan in the Northern
District of Illinois and re-filed the suit on May 26, 2004, in the Eastern
District of Pennsylvania. After LScan failed to answer, NeoMedia filed and
served its motion for default judgment on July 6, 2004.
On March 29, 2004, Scanbuy filed suit against NeoMedia in the Southern
District of New York alleging that NeoMedia infringed Scanbuy's copyrights,
violated the Lanham Act and committed deceptive trade practices and tortious
interference. Scanbuy filed an amended complaint on June 23, 2004. NeoMedia
filed its answer and affirmative defenses on July 23, 2004. On April 20, 2004,
NeoMedia re-filed its suit against Scanbuy in the Southern District of New York
alleging patent infringement. Scanbuy filed its answer on June 2, 2004. NeoMedia
filed its answer and affirmative defenses on July 23, 2004.
VIRGIN ENTERTAINMENT GROUP
On January 2, 2004, NeoMedia filed a patent infringement lawsuit against
Virgin(R) Entertainment Group, Inc., Virgin Megastore Online and Virgin
Megastore ("Virgin"). The complaint for Patent Infringement and Damages was
filed in the United States District Court for the Northern District of Illinois,
by Baniak Pine & Gannon, NeoMedia's intellectual property law firm. The
complaint claims that Virgin has infringed four of NeoMedia's patents - U.S.
Patents Nos. 5,933,829, 5,978,773, 6,108,656, and 6,199,048. The complaint
alleges that the Virgin Megaplay Stations located in Virgin's Megastores
infringe NeoMedia's patents by using Virgin's Megascan technology to allow
customers to scan UPC codes from in-store CDs and DVDs to access Internet-based
product information, such as music and movie previews, and album and video art.
The complaint also alleges that Virgin had notice of NeoMedia's patents since
the latter part of 2002 or before, yet it continued with its infringing
27
activities. The complaint seeks compensatory damages for Virgin's infringement,
with those damages to be trebled due to the willful and wanton nature of the
infringement. NeoMedia also seeks to preliminarily and permanently enjoin Virgin
from its infringing activities. Virgin answered NeoMedia's complaint on March 1,
2004.
OTHER LITIGATION
On September 12, 2002, R. R. Donnelley & Sons Company filed a summons in
the Circuit Court of The Twentieth Judicial Circuit in and for Lee County,
Florida, seeking payment of approximately $92,000 in past due professional
services bills, plus interest and attorney fees. During July 2003, NeoMedia
settled the suit for cash payments over a period of approximately one year.
NeoMedia had an accrued liability of approximately $27,000 relating to this
matter as of September 30, 2004.
On October 28, 2002, Merrick & Klimek, P.C., filed a complaint against
NeoMedia seeking payment of approximately $170,000 in past due legal services.
The amount in question is subject to an unsecured promissory note that matured
unpaid on February 28, 2002. On May 1, 2003, NeoMedia settled the suit for cash
payments totaling approximately $196,000, to be paid at a rate of $30,000 per
quarter until the balance is satisfied. NeoMedia had a remaining liability of
approximately $54,000 relating to this matter as of September 30, 2004, which
was included in notes payable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (A), (B), (C) AND (D)
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
(a) NeoMedia is in default on an unsecured promissory note payable held
by Merrick & Klimek, P.C. During 2002, Merrick & Klimek, P.C. sued NeoMedia for
nonpayment of the note. During 2003, the two parties settled the suit and
NeoMedia is making installment payments against the balance through December 31,
2004.
28
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 14, 2004, NeoMedia filed a proxy statement in which the
Company is asking its shareholders to vote on the re-election of current
directors. The meeting is schedule for October 29, 2004.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------
31.1 Certification by Chief Executive Officer pursuant to Provided herewith
15 U.S.C. Section 7241, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification by Chief Financial Officer pursuant to Provided herewith
15 U.S.C. Section 7241, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification by Chief Executive Officer pursuant to Provided herewith
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification by Chief Financial Officer pursuant to Provided herewith
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(b) REPORTS ON FORM 8-K:
NeoMedia filed a Form 8-K on September 17, 2004, reporting that it had
entered into a business development agreement with, and invested $1 million in,
iPoint-media Ltd., in exchange for 17% ownership in iPoint-media.
NeoMedia filed a Form 8-K on September 7, 2004, reporting that its
Board of Directors named Charles T. Jensen as the Company's permanent Chief
Executive Officer.
29
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: November 4, 2004 By: /s/ Charles T. Jensen
---------------- ------------------------------
Charles T. Jensen, President, Chief Executive
Officer, Chief Operating Officer, and Director
Date: November 4, 2004 By: /s/ David A. Dodge
---------------- ---------------------------
David A. Dodge, Vice President,
Chief Financial Officer, and Controller
30