Neomedia 2004
Quarterly Report
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Over the past several years, NeoMedia's focus has been aimed toward theintellectual property commercialization unit of its Internet Switching Systems(NISS, formerly NAS) business. NISS consists of the patented PaperClickTMtechnology that enables users to link directly from the physical to the digitalworld, as well as the patents surrounding certain physical-world-to-web linkingprocesses. NeoMedia's mission is to invent, develop, and commercializetechnologies and products that effectively leverage the integration of thephysical and electronic to provide clear functional value for its end-users,competitive advantage for their business partners and return-on-investment fortheir investors. To this end, NeoMedia has signed four intellectual propertylicenses since inception, and also acquired additional patents as part of theacquisition of Secure Source Technologies, Inc. during 2003. On September 8,2003, NeoMedia announced its PaperClick for Camera Cell PhonesTM product, whichreads 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. On October 30, 2003, NeoMedia unveiled itsgo-to-market strategy for the product. Over the past several months, NeoMediasigned contracts with several key partners outlined in the strategy, includingagents Big Gig Strategies, SRP Consulting, and Relyco, systems integratorScience Applications International Corporation (SAIC), and European advertisingagency 12Snap. NeoMedia has also entered into letters of intent with globalbrand communication company Seven Worldwide, and marketing organizations iCouponand Digital Rum.
SEC INQUIRY
During 2003, NeoMedia received requests from the SEC's Southeast RegionalOffice for certain documents including those concerning negotiations andarrangements with certain strategic partners and consultants, patents, recentissuances of securities, investor relations, and the stock ownership byNeoMedia's officers and directors. NeoMedia responded promptly and fully andwill cooperate with any further requests. The SEC's letter states that thestaff's inquiry is informal and should not be construed as an indication of anyviolation of law or as a reflection on any person, entity, or security.
ACQUISITIONS
CSI INTERNATIONAL, INC. 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 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 maintain the sales and operations office in Calgary, Alberta, Canada.
SECURE SOURCE TECHNOLOGIES, INC. On October 8, 2003, the Company acquired 100% ownership of SST, a provider of security solutions and covert security technology for the manufacturing and financial services industries, in exchange for 3.5 million shares of the Company's common stock. With the purchase of SST, the Company acquired additional patents that compliment its existing intellectual property portfolio, as well as a security software platform, and computer equipment. Prior to the acquisition, SST was inactive and had minimal operating activities.
BSD SOFTWARE, INC. On December 9, 2003,NeoMedia signed a non-binding letter of intent 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.
NeoMedia's operating results have been subject to variation and willcontinue to be subject to variation, depending upon factors, such as the mix ofbusiness among services and products, the cost of material, labor andtechnology, particularly in connection with the delivery of business services,the costs associated with initiating new contracts, the economic condition ofNeoMedia's target markets, and the cost of acquiring and integrating newbusinesses.
CRITICAL ACCOUNTING POLICIES
The U.S. Securities and Exchange Commission ("SEC") issued FinancialReporting Release No. 60, "Cautionary Advice Regarding Disclosure About CriticalAccounting Policies" ("FRR 60"), suggesting companies provide additionaldisclosure and commentary on their most critical accounting policies. In FRR 60,the SEC defined the most critical accounting policies as the ones that are mostimportant to the portrayal of a company's financial condition and operatingresults, and require management to make its most difficult and subjectivejudgments, often as a result of the need to make estimates of matters that areinherently uncertain. Based on this definition, NeoMedia's most criticalaccounting policies include: inventory valuation, which affects cost of salesand gross margin; and the valuation of intangibles, which affects amortizationand write-offs of goodwill and other intangibles. NeoMedia also has other keyaccounting policies, such as policies for revenue recognition, including thedeferral of a portion of revenues on sales to distributors, and allowance forbad debt. The methods, estimates and judgments NeoMedia uses in applying thesemost critical accounting policies have a significant impact on the results itreports in its consolidated financial statements..
Intangible Asset Valuation. The determination of the fair value of certainacquired assets and liabilities is subjective in nature and often involves theuse of significant estimates and assumptions. Determining the fair values anduseful lives of intangible assets especially requires the exercise of judgment.While there are a number of different generally accepted valuation methods toestimate the value of intangible assets acquired, NeoMedia primarily uses theweighted-average probability method outlined in SFAS 144. This method requiressignificant management judgment to forecast the future operating results used inthe analysis. In addition, other significant estimates are required such asresidual growth rates and discount factors. The estimates NeoMedia has used areconsistent with the plans and estimates that NeoMedia uses to manage itsbusiness, based on available historical information and industry averages. Thejudgments made in determining the estimated useful lives assigned to each classof assets acquired can also significantly affect NeoMedia's net operatingresults.
Allowance for Bad Debt. NeoMedia maintains an allowance for doubtfulaccounts for estimated losses resulting from the inability of its customers tomake required payments. Allowance for doubtful accounts is based on NeoMedia'sassessment of the collectibility of specific customer accounts, the aging ofaccounts receivable, NeoMedia's history of bad debts, and the general conditionof the industry. If a major customer's credit worthiness deteriorates, orNeoMedia's customers' actual defaults exceed historical experience, NeoMedia'sestimates could change and impact its reported results.
Stock-based Compensation. NeoMedia records stock-based compensation tooutside consultants at fair market value in general and administrative expense.NeoMedia does not record expense relating to stock options granted to employeeswith an exercise price greater than or equal to market price at the time ofgrant. NeoMedia reports pro-forma net loss and loss per share in accordance withthe requirements of SFAS 123 and 148. This disclosure shows net loss and lossper share as if NeoMedia had accounted for its employee stock options under thefair value method of those statements. Pro-forma information is calculated usingthe Black-Scholes pricing method at the date of grant. This option valuationmodel requires input of highly subjective assumptions. Because NeoMedia'semployee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions canmaterially affect the fair value estimate, in management's opinion, the existingmodel does not necessarily provide a reliable single measure of fair value ofits employee stock options.
Estimate of Litigation-based Liability. NeoMedia is defendant in certainlitigation 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 theliability being sought. Liabilities are adjusted on a regular basis as newinformation becomes available. NeoMedia consults with its attorneys to determinethe viability of an expected outcome. The actual amount paid to settle a casecould 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 andservice fee revenues, and (3) sale of its proprietary micro paint repairsolution.
(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 hardware have been shipped. Service revenues include maintenance fees for providing system updates for software products, user documentation and technical support and 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 MARCH 31, 2004 AS COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 2003
Net sales. Total net sales for the three months ended March 31, 2004 were$350,000, which represented a $524,000, or 60%, decrease from $874,000 for thethree months ended March 31, 2003. This decrease primarily resulted from reducedresales of Sun Microsystems equipment due to increased competition and generaleconomic conditions. NeoMedia intends to continue to pursue additional resalesof equipment, software and services. NeoMedia expects resales to more closelyresemble the results for the three months ended March 31, 2004, rather than thethree months ended March 31, 2003. With the sales from its recently-acquiredMicro Paint Repair business unit, the Company expects sales in 2004 to be higherthan in 2003.
License fees. License fees were $72,000 for the three months ended March31, 2004, compared with $109,000 for the three months ended March 31, 2003, adecrease of $37,000, or 34%. The decrease was due to lower sales of internallydeveloped software licenses in 2004. NeoMedia will continue to attempt toincrease sales of these high-margin products, and expects license fees to remainmaterially constant over the next 12 months.
Resales of software and technology equipment and service fees. Resales ofsoftware and technology equipment and service fees decreased by $573,000, or75%, to $192,000 for the three months ended March 31, 2004, as compared to$765,000 for the three months ended March 31, 2003. This decrease primarilyresulted from reduced resales of Sun Microsystems equipment due to increasedcompetition and general economic conditions. NeoMedia intends to continue topursue additional resales of equipment, software and services. NeoMedia expectsresales to more closely resemble the results for the three months ended March31, 2004, rather than the three months ended March 31, 2003.
Micro paint repair products and services. Sales of micro paint repairproducts and services were $86,000 for the three months ended March 31, 2004,the first period for which the results of this business unit were included inNeoMedia's consolidated financial statements. NeoMedia expects sales of micropaint repair products and services to increase during 2004 as the Companyimplements its business to rollout its Micro Paint Repair solution.
Cost of sales. Cost of license fees was $89,000 for the three months endedMarch 31, 2004, a increase of $13,000, or 17%, compared with $76,000 for thethree months ended March 31, 2003. The increase resulted from the amortizationof the acquired intangible micro paint asset. Cost of resales was $160,000 forthe three months ended March 31, 2004, a decrease of $542,000, or 77%, comparedwith $702,000 for the three months ended March 31, 2003. The decrease resultedfrom decreased resales in 2004 compared with 2003. Cost of resales as apercentage of related resales was 83% in 2004, compared to 92% in 2003. Thisdecrease is due to an increased mix of higher-margin software maintenanceproducts in 2004 compared with 2003. NeoMedia expects costs of resales to
fluctuate with the mix of sales of equipment, software, and services over thenext 12 months. Cost of micro paint repair products and services was $57,000 forthe three months ended March 31, 2004, a the first period for which the resultsof this business unit were included in NeoMedia's consolidated financialstatements. Cost of micro paint repair products and services as a percentage ofrelated sales was 68%. With the expected increase in sales from itsrecently-acquired Micro Paint Repair business, the Company expects overall costof sales in 2004 to be higher than in 2003.
Gross Profit. Gross profit was $44,000 for the three months ended March31, 2004, a decrease of $52,000, or 54%, compared with gross profit of $96,000for the three months ended March 31, 2003. This decrease was primarily theresult of reduced resales of Sun Microsystems equipment due to increasedcompetition and general economic conditions.
Sales and marketing. Sales and marketing expenses were $425,000 for thethree months ended March 31, 2004, compared to $139,000 for the three monthsended March 31, 2003, an increase of $286,000 or 206%. This increase resultedprimarily from the addition of recently-acquired micro paint business salesforce and cost associated with marketing and promotion of the Company'sPaperClick products. NeoMedia expects sales and marketing expense to increaseover the next 12 months with the acquisition of CSI and the potentialacquisition of BSD Software, as well as with the continued development andanticipated rollout of NeoMedia's PaperClick product suite.
General and administrative. General and administrative expenses decreasedby $341,000, or 47%, to $378,000 for the three months ended March 31, 2004,compared to $719,000 for the three months ended March 31, 2003. The decreaseresulted primarily from a decrease in stock-based professional services expensein 2004 compared with 2003, as well as a reduction to general and administrativeexpense of $163,000 relating to the Company's option repricing program duringthe three months ended March 31, 2004. NeoMedia expects general andadministrative expense to increase over the next 12 months with the acquisitionof CSI International and the potential acquisition of BSD Software.
Research and development. During the three months ended March 31, 2004,NeoMedia charged to expense $118,000 of research and development costs, anincrease of $29,000 or 33% compared to $89,000 for the three months ended March31, 2003. The increase is primarily due to addition of developers anddevelopment computer systems. NeoMedia expects research and development costs toincrease slightly over the next 12 months with the continued development andanticipated rollout of NeoMedia's PaperClick product suite.
Gain on extinguishment of debt. During the three months ended March 31,2004, NeoMedia recognized a gain on extinguishments of debt of $126,000,resulting from the payment of debt at a discount to the book value of the debt.NeoMedia did not recognize gain or loss on extinguishment of debt during thethree months ended March 31, 2003.
Amortization of debt discount. During the three months ended March 31,2004, NeoMedia recognized an amortization of debt issuance cost of $1,394,000relating to the amortization of the fair value of warrants granted to CornellCapital Partners in connection with promissory notes issued to Cornell byNeoMedia during the three months ended March 31, 2004. NeoMedia did notrecognize any such expense during the three months ended March 31, 2003.
Interest expense. Interest expense consists primarily of interest accruedfor creditors as part of financed purchases, past due balances, notes payableand interest earned on cash equivalent investments. Interest expense increasedby $25,000, or 48%, to $77,000 for the three months ended March 31, 2004 from$52,000 for the three months ended March 31, 2003, due to increased expenseassociated with notes payable in 2004.
Net Loss. The net loss for the three months ended March 31, 2004 was$2,222,000, which represented a $1,319,000, or 146% increase from a $903,000loss for the three months ended March 31, 2003. The increase resulted primarilyfrom the non-cash amortization of debt issuance cost to funding provided ByCornell Capital Partners during the three months ended March 31, 2004, as well
as reduced resales of software and technology equipment and service fees in 2004compared with 2003. These items were partially offset by a reduction to generaland administrative expense relating to the Company's option repricing programand a gain on extinguishment of debt during 2004.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was approximately $1,130,000 for thethree months ended March 31, 2004, compared with $253,000 for the three monthsended March 31, 2003. NeoMedia's net cash flow used in investing activities forthe three months ended March 31, 2004 and 2003 was $129,000 and $5,000,respectively. Net cash provided by financing activities for the three monthsended March 31, 2004 and 2003 was $1,855,000 and $196,000, respectively.
During the three months ended March 31, 2004 and 2003, NeoMedia's net losstotaled $2,222,000 and $903,000, respectively. As of March 31, 2004, NeoMediahad accumulated losses from operations of $78,369,000, had a working capitaldeficit of $6,264,000, and $635,000 in cash balances.
The accompanying consolidated financial statements have been preparedassuming NeoMedia will continue as a going concern. Accordingly, theconsolidated financial statements do not include any adjustments that mightresult from NeoMedia's inability to continue as a going concern. NeoMedia mayobtain up to $20 million over the next two years through its Standby EquityDistribution Agreement with Cornell Capital Partners LP. As of May 10, 2004,NeoMedia had obtained approximately $3.6 million under its previous $10 millionEquity Line of Credit Agreement with Cornell, and an additional $5 million inpromissory notes, which may be repaid from the proceeds of sale of common stockunder the current $20 million Standby Equity Distribution Agreement withCornell. In addition, if the average closing bid price of NeoMedia's commonstock for any five day period exceeds $0.10, NeoMedia may force the exercise of40 million warrants held by Cornell, resulting in additional cash to the Companyof $2 million. Management believes that it has sufficient funding to sustainoperations through December 31, 2004, however, there can be no assurances thatthe market for NeoMedia's stock will support the sale of sufficient shares ofNeoMedia's common stock to raise sufficient capital to sustain operations forsuch a period, or that actual revenue will meet management's expectations. Ifnecessary funds are not available, NeoMedia's business and operations would bematerially adversely affected and in such event, NeoMedia would attempt toreduce costs and adjust its business plan.
Quarterly Report
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Over the past several years, NeoMedia's focus has been aimed toward theintellectual property commercialization unit of its Internet Switching Systems(NISS, formerly NAS) business. NISS consists of the patented PaperClickTMtechnology that enables users to link directly from the physical to the digitalworld, as well as the patents surrounding certain physical-world-to-web linkingprocesses. NeoMedia's mission is to invent, develop, and commercializetechnologies and products that effectively leverage the integration of thephysical and electronic to provide clear functional value for its end-users,competitive advantage for their business partners and return-on-investment fortheir investors. To this end, NeoMedia has signed four intellectual propertylicenses since inception, and also acquired additional patents as part of theacquisition of Secure Source Technologies, Inc. during 2003. On September 8,2003, NeoMedia announced its PaperClick for Camera Cell PhonesTM product, whichreads 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. On October 30, 2003, NeoMedia unveiled itsgo-to-market strategy for the product. Over the past several months, NeoMediasigned contracts with several key partners outlined in the strategy, includingagents Big Gig Strategies, SRP Consulting, and Relyco, systems integratorScience Applications International Corporation (SAIC), and European advertisingagency 12Snap. NeoMedia has also entered into letters of intent with globalbrand communication company Seven Worldwide, and marketing organizations iCouponand Digital Rum.
SEC INQUIRY
During 2003, NeoMedia received requests from the SEC's Southeast RegionalOffice for certain documents including those concerning negotiations andarrangements with certain strategic partners and consultants, patents, recentissuances of securities, investor relations, and the stock ownership byNeoMedia's officers and directors. NeoMedia responded promptly and fully andwill cooperate with any further requests. The SEC's letter states that thestaff's inquiry is informal and should not be construed as an indication of anyviolation of law or as a reflection on any person, entity, or security.
ACQUISITIONS
CSI INTERNATIONAL, INC. 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 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 maintain the sales and operations office in Calgary, Alberta, Canada.
SECURE SOURCE TECHNOLOGIES, INC. On October 8, 2003, the Company acquired 100% ownership of SST, a provider of security solutions and covert security technology for the manufacturing and financial services industries, in exchange for 3.5 million shares of the Company's common stock. With the purchase of SST, the Company acquired additional patents that compliment its existing intellectual property portfolio, as well as a security software platform, and computer equipment. Prior to the acquisition, SST was inactive and had minimal operating activities.
BSD SOFTWARE, INC. On December 9, 2003,NeoMedia signed a non-binding letter of intent 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.
NeoMedia's operating results have been subject to variation and willcontinue to be subject to variation, depending upon factors, such as the mix ofbusiness among services and products, the cost of material, labor andtechnology, particularly in connection with the delivery of business services,the costs associated with initiating new contracts, the economic condition ofNeoMedia's target markets, and the cost of acquiring and integrating newbusinesses.
CRITICAL ACCOUNTING POLICIES
The U.S. Securities and Exchange Commission ("SEC") issued FinancialReporting Release No. 60, "Cautionary Advice Regarding Disclosure About CriticalAccounting Policies" ("FRR 60"), suggesting companies provide additionaldisclosure and commentary on their most critical accounting policies. In FRR 60,the SEC defined the most critical accounting policies as the ones that are mostimportant to the portrayal of a company's financial condition and operatingresults, and require management to make its most difficult and subjectivejudgments, often as a result of the need to make estimates of matters that areinherently uncertain. Based on this definition, NeoMedia's most criticalaccounting policies include: inventory valuation, which affects cost of salesand gross margin; and the valuation of intangibles, which affects amortizationand write-offs of goodwill and other intangibles. NeoMedia also has other keyaccounting policies, such as policies for revenue recognition, including thedeferral of a portion of revenues on sales to distributors, and allowance forbad debt. The methods, estimates and judgments NeoMedia uses in applying thesemost critical accounting policies have a significant impact on the results itreports in its consolidated financial statements..
Intangible Asset Valuation. The determination of the fair value of certainacquired assets and liabilities is subjective in nature and often involves theuse of significant estimates and assumptions. Determining the fair values anduseful lives of intangible assets especially requires the exercise of judgment.While there are a number of different generally accepted valuation methods toestimate the value of intangible assets acquired, NeoMedia primarily uses theweighted-average probability method outlined in SFAS 144. This method requiressignificant management judgment to forecast the future operating results used inthe analysis. In addition, other significant estimates are required such asresidual growth rates and discount factors. The estimates NeoMedia has used areconsistent with the plans and estimates that NeoMedia uses to manage itsbusiness, based on available historical information and industry averages. Thejudgments made in determining the estimated useful lives assigned to each classof assets acquired can also significantly affect NeoMedia's net operatingresults.
Allowance for Bad Debt. NeoMedia maintains an allowance for doubtfulaccounts for estimated losses resulting from the inability of its customers tomake required payments. Allowance for doubtful accounts is based on NeoMedia'sassessment of the collectibility of specific customer accounts, the aging ofaccounts receivable, NeoMedia's history of bad debts, and the general conditionof the industry. If a major customer's credit worthiness deteriorates, orNeoMedia's customers' actual defaults exceed historical experience, NeoMedia'sestimates could change and impact its reported results.
Stock-based Compensation. NeoMedia records stock-based compensation tooutside consultants at fair market value in general and administrative expense.NeoMedia does not record expense relating to stock options granted to employeeswith an exercise price greater than or equal to market price at the time ofgrant. NeoMedia reports pro-forma net loss and loss per share in accordance withthe requirements of SFAS 123 and 148. This disclosure shows net loss and lossper share as if NeoMedia had accounted for its employee stock options under thefair value method of those statements. Pro-forma information is calculated usingthe Black-Scholes pricing method at the date of grant. This option valuationmodel requires input of highly subjective assumptions. Because NeoMedia'semployee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions canmaterially affect the fair value estimate, in management's opinion, the existingmodel does not necessarily provide a reliable single measure of fair value ofits employee stock options.
Estimate of Litigation-based Liability. NeoMedia is defendant in certainlitigation 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 theliability being sought. Liabilities are adjusted on a regular basis as newinformation becomes available. NeoMedia consults with its attorneys to determinethe viability of an expected outcome. The actual amount paid to settle a casecould 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 andservice fee revenues, and (3) sale of its proprietary micro paint repairsolution.
(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 hardware have been shipped. Service revenues include maintenance fees for providing system updates for software products, user documentation and technical support and 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 MARCH 31, 2004 AS COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 2003
Net sales. Total net sales for the three months ended March 31, 2004 were$350,000, which represented a $524,000, or 60%, decrease from $874,000 for thethree months ended March 31, 2003. This decrease primarily resulted from reducedresales of Sun Microsystems equipment due to increased competition and generaleconomic conditions. NeoMedia intends to continue to pursue additional resalesof equipment, software and services. NeoMedia expects resales to more closelyresemble the results for the three months ended March 31, 2004, rather than thethree months ended March 31, 2003. With the sales from its recently-acquiredMicro Paint Repair business unit, the Company expects sales in 2004 to be higherthan in 2003.
License fees. License fees were $72,000 for the three months ended March31, 2004, compared with $109,000 for the three months ended March 31, 2003, adecrease of $37,000, or 34%. The decrease was due to lower sales of internallydeveloped software licenses in 2004. NeoMedia will continue to attempt toincrease sales of these high-margin products, and expects license fees to remainmaterially constant over the next 12 months.
Resales of software and technology equipment and service fees. Resales ofsoftware and technology equipment and service fees decreased by $573,000, or75%, to $192,000 for the three months ended March 31, 2004, as compared to$765,000 for the three months ended March 31, 2003. This decrease primarilyresulted from reduced resales of Sun Microsystems equipment due to increasedcompetition and general economic conditions. NeoMedia intends to continue topursue additional resales of equipment, software and services. NeoMedia expectsresales to more closely resemble the results for the three months ended March31, 2004, rather than the three months ended March 31, 2003.
Micro paint repair products and services. Sales of micro paint repairproducts and services were $86,000 for the three months ended March 31, 2004,the first period for which the results of this business unit were included inNeoMedia's consolidated financial statements. NeoMedia expects sales of micropaint repair products and services to increase during 2004 as the Companyimplements its business to rollout its Micro Paint Repair solution.
Cost of sales. Cost of license fees was $89,000 for the three months endedMarch 31, 2004, a increase of $13,000, or 17%, compared with $76,000 for thethree months ended March 31, 2003. The increase resulted from the amortizationof the acquired intangible micro paint asset. Cost of resales was $160,000 forthe three months ended March 31, 2004, a decrease of $542,000, or 77%, comparedwith $702,000 for the three months ended March 31, 2003. The decrease resultedfrom decreased resales in 2004 compared with 2003. Cost of resales as apercentage of related resales was 83% in 2004, compared to 92% in 2003. Thisdecrease is due to an increased mix of higher-margin software maintenanceproducts in 2004 compared with 2003. NeoMedia expects costs of resales to
fluctuate with the mix of sales of equipment, software, and services over thenext 12 months. Cost of micro paint repair products and services was $57,000 forthe three months ended March 31, 2004, a the first period for which the resultsof this business unit were included in NeoMedia's consolidated financialstatements. Cost of micro paint repair products and services as a percentage ofrelated sales was 68%. With the expected increase in sales from itsrecently-acquired Micro Paint Repair business, the Company expects overall costof sales in 2004 to be higher than in 2003.
Gross Profit. Gross profit was $44,000 for the three months ended March31, 2004, a decrease of $52,000, or 54%, compared with gross profit of $96,000for the three months ended March 31, 2003. This decrease was primarily theresult of reduced resales of Sun Microsystems equipment due to increasedcompetition and general economic conditions.
Sales and marketing. Sales and marketing expenses were $425,000 for thethree months ended March 31, 2004, compared to $139,000 for the three monthsended March 31, 2003, an increase of $286,000 or 206%. This increase resultedprimarily from the addition of recently-acquired micro paint business salesforce and cost associated with marketing and promotion of the Company'sPaperClick products. NeoMedia expects sales and marketing expense to increaseover the next 12 months with the acquisition of CSI and the potentialacquisition of BSD Software, as well as with the continued development andanticipated rollout of NeoMedia's PaperClick product suite.
General and administrative. General and administrative expenses decreasedby $341,000, or 47%, to $378,000 for the three months ended March 31, 2004,compared to $719,000 for the three months ended March 31, 2003. The decreaseresulted primarily from a decrease in stock-based professional services expensein 2004 compared with 2003, as well as a reduction to general and administrativeexpense of $163,000 relating to the Company's option repricing program duringthe three months ended March 31, 2004. NeoMedia expects general andadministrative expense to increase over the next 12 months with the acquisitionof CSI International and the potential acquisition of BSD Software.
Research and development. During the three months ended March 31, 2004,NeoMedia charged to expense $118,000 of research and development costs, anincrease of $29,000 or 33% compared to $89,000 for the three months ended March31, 2003. The increase is primarily due to addition of developers anddevelopment computer systems. NeoMedia expects research and development costs toincrease slightly over the next 12 months with the continued development andanticipated rollout of NeoMedia's PaperClick product suite.
Gain on extinguishment of debt. During the three months ended March 31,2004, NeoMedia recognized a gain on extinguishments of debt of $126,000,resulting from the payment of debt at a discount to the book value of the debt.NeoMedia did not recognize gain or loss on extinguishment of debt during thethree months ended March 31, 2003.
Amortization of debt discount. During the three months ended March 31,2004, NeoMedia recognized an amortization of debt issuance cost of $1,394,000relating to the amortization of the fair value of warrants granted to CornellCapital Partners in connection with promissory notes issued to Cornell byNeoMedia during the three months ended March 31, 2004. NeoMedia did notrecognize any such expense during the three months ended March 31, 2003.
Interest expense. Interest expense consists primarily of interest accruedfor creditors as part of financed purchases, past due balances, notes payableand interest earned on cash equivalent investments. Interest expense increasedby $25,000, or 48%, to $77,000 for the three months ended March 31, 2004 from$52,000 for the three months ended March 31, 2003, due to increased expenseassociated with notes payable in 2004.
Net Loss. The net loss for the three months ended March 31, 2004 was$2,222,000, which represented a $1,319,000, or 146% increase from a $903,000loss for the three months ended March 31, 2003. The increase resulted primarilyfrom the non-cash amortization of debt issuance cost to funding provided ByCornell Capital Partners during the three months ended March 31, 2004, as well
as reduced resales of software and technology equipment and service fees in 2004compared with 2003. These items were partially offset by a reduction to generaland administrative expense relating to the Company's option repricing programand a gain on extinguishment of debt during 2004.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was approximately $1,130,000 for thethree months ended March 31, 2004, compared with $253,000 for the three monthsended March 31, 2003. NeoMedia's net cash flow used in investing activities forthe three months ended March 31, 2004 and 2003 was $129,000 and $5,000,respectively. Net cash provided by financing activities for the three monthsended March 31, 2004 and 2003 was $1,855,000 and $196,000, respectively.
During the three months ended March 31, 2004 and 2003, NeoMedia's net losstotaled $2,222,000 and $903,000, respectively. As of March 31, 2004, NeoMediahad accumulated losses from operations of $78,369,000, had a working capitaldeficit of $6,264,000, and $635,000 in cash balances.
The accompanying consolidated financial statements have been preparedassuming NeoMedia will continue as a going concern. Accordingly, theconsolidated financial statements do not include any adjustments that mightresult from NeoMedia's inability to continue as a going concern. NeoMedia mayobtain up to $20 million over the next two years through its Standby EquityDistribution Agreement with Cornell Capital Partners LP. As of May 10, 2004,NeoMedia had obtained approximately $3.6 million under its previous $10 millionEquity Line of Credit Agreement with Cornell, and an additional $5 million inpromissory notes, which may be repaid from the proceeds of sale of common stockunder the current $20 million Standby Equity Distribution Agreement withCornell. In addition, if the average closing bid price of NeoMedia's commonstock for any five day period exceeds $0.10, NeoMedia may force the exercise of40 million warrants held by Cornell, resulting in additional cash to the Companyof $2 million. Management believes that it has sufficient funding to sustainoperations through December 31, 2004, however, there can be no assurances thatthe market for NeoMedia's stock will support the sale of sufficient shares ofNeoMedia's common stock to raise sufficient capital to sustain operations forsuch a period, or that actual revenue will meet management's expectations. Ifnecessary funds are not available, NeoMedia's business and operations would bematerially adversely affected and in such event, NeoMedia would attempt toreduce costs and adjust its business plan.
Die Web-Adressen werden gemäß ISO/IEC 16022 in zweidimensionale Barcodes gewandelt. Das Resultat ist ein quadratisches Raster, dessen Fläche mit der Länge der Adresse zunimmt. Die lesende Applikation ist für Smartphones mit dem Symbian-Betriebssystem sowie der Nokia-Oberfläche "Serie 60" gedacht. Ånpassungen für andere Geräte seien aber in Arbeit, heisst es. "Java wird unterstützt, sobald die Gerätehersteller die API in Java 2 Micro Edition implementiert haben. Bisher ist der Kamerazugriff in J2ME noch zu sehr eingeschränkt", sagte Woodside gegenüber heise online.
(dz/c't)
http://www.heise.de/newsticker/meldung/47781
http://semacode.org/
Das gibts sogar zum free download, ist aber nicht von Neom.
Yours sincerly, TheArtistFormerlyKnownAsRalph
Optionen
| Boardmail an "tafkar" |
Wertpapier: NeoMedia Technologies I |
Yours sincerly, TheArtistFormerlyKnownAsRalph
Optionen
| Boardmail an "tafkar" |
Wertpapier: NeoMedia Technologies I |
Yours sincerly, TheArtistFormerlyKnownAsRalph
Optionen
| Boardmail an "tafkar" |
Wertpapier: NeoMedia Technologies I |
NeoMedia Signs Teaming Agreement with Check 21 Standard-Bearer IPSO
Thursday June 3, 8:30 am ET
FT. MYERS, Fla.--(BUSINESS WIRE)--June 3, 2004--NeoMedia Technologies, Inc. (OTCBB: NEOM - News), the developer of the patented PaperClick® technology platform that links physical objects to targeted online information, announced today that it has signed a teaming agreement with IPSO (www.ipso-inc.org), an integrator of proprietary solutions developed by its provider companies for its financial institution members and a leader in meeting Check 21 standards.
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Last month, NeoMedia demonstrated how PaperClick met standards of the "Check Clearing for the 21st Century Act" (Check 21) in IPSO's BAI TransPay 2004 trade show booth. 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.
Under today's agreement, NeoMedia and IPSO will partner on proposals and presentations, sharing information and data pertinent to the solution being developed and implemented.
PaperClick supports MICR (magnetic ink character recognition) technology, with codes on checks scanned and transmitted through a secure electronic gateway into the payments system, and then through the Internet or an institution's intranet. PaperClick provides quick and accurate access to audit trails of checks in keeping with the mission of Check 21.
IPSO's IRD/Image Placement Network is designed to convert checks to IRDs at point-of-sale, lock box and check processing.. The IPSO System supports digitized images, evaluates them for re-scanning, transmits them to IRD providers, pulls them from archives for IRDs, and provides quality assurance and warranty of images and imaged data for all.
"Teaming with IPSO is a great opportunity for NeoMedia and our PaperClick technology platform to make valuable inroads within the financial community and the emerging Check 21/IRD marketplace," said Charles T. Jensen, NeoMedia's president, COO and acting CEO. "With more than 7,600 banks and 5,000 credit unions in the U.S. required to accept IRDs as of October 29, PaperClick codes on IRDs can be instrumental and valuable in establishing control and authenticity of the documents."
IPSO 'Excited' About PaperClick Platform
Chris Dowdell, IPSO's president and also chairman of the Accredited Standards Committee X9B (www.x9.org), said both organizations "have worked to establish a standard for IRDs which will serve all businesses involved with the U.S. Payments System.
"IPSO has accepted the challenge of providing a robust, efficient and cost-effective infrastructure for IRDs," he said. "We believe PaperClick can be instrumental in helping deliver an important and reliable platform and capability for the validation of IRD authenticity to our member companies and all financial industry participants in the transaction life-cycle."
NeoMedia Refiles Patent Infringement Law Suit vs. LScan
In non-related news, NeoMedia said it has refiled a Patent Infringement and Damages suit against LScan Technologies Inc of Conshohocken, Pennsylvania, in the Eastern District Court of Pennsylvania after asking the Northern District Court of Illinois, Eastern Division, to dismiss the suit it filed in late January "without prejudice."
The Complaint claims infringement on four valid and subsisting patents which it owns - U.S. Patents No. 5,933,829, No. 5,978,773, No. 6,108,656, and No. 6,199,048 - alleging that LScan (www.lscan.com) 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, such as market data and pharmaceutical products.
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FUNDSACHE
Strichcode für Patienten
Strichcodes - die kennt man aus dem Supermarkt. An der Kasse fahren die Kassierer mit einem Gerät über den Barcode an Nudeln, Ölsardinen oder Waschpulver, und die Kasse hat alle nötigen Informationen. Genauso läuft es jetzt auch bei Patienten im Charing Cross Hospital in London, berichtet BBC online.
Die Patienten bekommen ein Armband mit einem Strichcode. Wenn die Krankenschwestern Medikamente austeilen, kommen sie mit einem computerisierten Wagen, dem "Smart Cart", an die Betten. Sie fahren mit einem Lesegerät über den Barcode der Patienten, und der High-Tech-Wagen wirft die Medikamente aus, die jeder Patient verschrieben bekommen hat.
In einer Pilotstudie soll am Charing Cross Hospital getestet werden, ob dieses System mehr Sicherheit bringt. Denn immerhin hätten neue Statistiken ergeben, daß bei einer von 100 Medikamentenverabreichungen in englischen Krankenhäusern etwas schief läuft, so BBC. (ug)