UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q/A

(1st Amendment)

 

  x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
    For the quarterly period ended March 31, 2014

 

Or

 

  ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
    For the transition period from __________ to ____________

 

Commission File Number 000-21743

 

NeoMedia Technologies, Inc.

(Exact Name of Issuer as Specified In Its Charter)

 

Delaware   36-3680347
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

1515 Walnut Street, Suite 100, Boulder, Colorado 80302

(Address, including zip code, of principal executive offices)

 

303-546-7946

(Registrants’ telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x    No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ¨   Accelerated filer  ¨    Non-accelerated filer  ¨ Smaller Reporting Company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No x

 

Shares outstanding of the Registrant’s common stock on April 25, 2014 was 4,984,827,279.

 

 
 

 

EXPLANATORY NOTE

 

We are filing this amendment to amend our quarterly report on Form 10-Q for the quarterly period ended March 31, 2014 which was originally filed with the Securities and Exchange Commission on April 30, 2014.

 

During the three month period ended March 31, 2014, for fair value accounting of the derivative financial instruments and debentures payable, we reassessed the valuation techniques used to estimate the liability fair values.  Based on the assessment, we determined that the valuation technique should be modified to consider the potentially dilutive impact on the stock price resulting from the issuance of additional shares of common stock upon the conversion of the instruments as well as the resulting value in comparison to our market capitalization.

 

On July 16, 2014, after a series of comment letters beginning November 22, 2013, we received correspondence from the Securities and Exchange Commission (“SEC”), requesting that (i) we restate certain of our financial statements by filing amendments to the reports containing such financials, and (ii) we file an 8-K to report non- reliance on such financials. In its correspondence, the SEC asserted that certain modifications in our valuation methodology, deemed as accounting estimates, contained errors with respect to the valuation of convertible debentures issued by us, in that such methodology did not capture the debentures’ potentially dilutive effect upon their conversion into common stock.

 

We agreed with the SEC’s assertion that certain modifications in our valuation methodology contained errors with respect to the valuation of convertible debentures issued by us.  Thus, we are restating our financial statements for the fiscal year ended December 31, 2013 and sections related therewith to reflect the change in valuation technique and correction of the fair value accounting of the derivative financial instruments and debentures payable.

 

Our operational performance remains unchanged. All other information included in our quarterly report on Form 10-Q for the quarterly period ended March 31, 2014 has not been amended. Except for the matter described above, this amendment does not modify or update disclosures in the originally filed quarterly report on Form 10-Q, or reflect events occurring after April 30, 2014, which is the date of the filing of the originally filed quarterly report on Form 10-Q.

 

 

 
 

 

NeoMedia Technologies, Inc.

Form 10-Q/A

(1ST Amendment)

For the Quarterly Period Ended March 31, 2014

Index

 

    Page
     
PART I Financial Information 3
     
ITEM 1. Financial Statements 3
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
ITEM 4. Controls and Procedures 25
     
PART II Other Information  
ITEM 6. Exhibits 26
     
Signatures 28

 

Page 2
 

 

PART I — FINANCIAL INFORMATION

 

ITEM 1. Financial Statements  

 

Restatement of 2014 and 2013 Financial Statements - During the three month period ended March 31, 2014, for fair value accounting of the derivative financial instruments and debentures payable, we reassessed the valuation techniques used to estimate the liability fair values. Based on the assessment, we determined that the valuation technique should be modified to consider the potentially dilutive impact on the stock price resulting from the issuance of additional shares of common stock upon the conversion of the instruments as well as the resulting value in comparison to our market capitalization.

 

On July 16, 2014, after a series of comment letters beginning November 22, 2013, we received correspondence from the Securities and Exchange Commission, requesting that (i) we restate certain of our financial statements by filing amendments to the reports containing such financials, and (ii) we file an 8-K to report non-reliance on such financials. In its correspondence, the SEC asserted that certain modifications in our valuation methodology, deemed as accounting estimates, contained errors with respect to the valuation of convertible debentures issued by us, in that such methodology did not capture the debentures’ potentially dilutive effect upon their conversion into common stock.

 

We agreed with the SEC’s assertion that certain modifications in our valuation methodology contained errors with respect to the valuation of convertible debentures issued by us. Thus, we restated our financial statements as of and for the year ended December 31, 2013 and to reflect the change in valuation technique and correction of the fair value accounting of the derivative financial instruments and debentures payable. As discussed in Note 1 and Note 2 to the Condensed Consolidated Financial Statements we also restated our results of operations for the three months ended March 31, 2014 and 2013.

 

NeoMedia Technologies, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

   March 31,   December 31, 
   2014   2013 
   (UNAUDITED)   (RESTATED) 
ASSETS          
Current assets:          
Cash and cash equivalents  $266   $267 
Accounts receivable   386    295 
Prepaid expenses and other current assets   88    107 
Total current assets   740    669 
Property and equipment, net   4    5 
Goodwill   3,418    3,418 
Patents and other intangible assets, net   1,144    1,213 
Other long-term assets   20    - 
Total assets  $5,326   $5,305 
           
LIABILITIES AND SHAREHOLDERS’ DEFICIT          
Current liabilities:          
Accounts payable  $334   $236 
Accrued expenses   473    291 
Deferred revenues and customer prepayments   1,971    2,252 
Notes payable   28    56 
Derivative financial instruments – warrants   247    620 
Derivative financial instruments - Series C and D Convertible Preferred Stock and debentures payable   159    296 
Debentures payable - carried at fair value   38,795    38,250 
Total current liabilities   42,007    42,001 
           
Commitments and contingencies   -    - 
           
Series C convertible preferred stock, $0.01 par value, 27,000 shares authorized, 4,816 shares issued and outstanding and a liquidation value of $4,816 at March 31, 2014 and December 31, 2013   4,816    4,816 
Series D convertible preferred stock, $0.01 par value, 25,000 shares authorized, 3,481 shares issued and outstanding with a liquidation value of $348 at March 31, 2014 and December 31, 2013   348    348 
           
Shareholders’ deficit:          
Common stock, $0.001 par value, 5,000,000,000 shares authorized, 4,984,827,279 and 332,321,819 shares issued and outstanding as of March 31, 2014 and December 31, 2013   4,985    4,985 
Additional paid-in capital   190,946    190,946 
Accumulated deficit   (236,895)   (236,910)
Accumulated other comprehensive loss   (102)   (102)
Treasury stock, at cost, 2,012 shares of common stock   (779)   (779)
Total shareholders’ deficit   (41,845)   (41,860)
Total liabilities and shareholders’ deficit  $5,326   $5,305 

 

See accompanying notes.

 

Page 3
 

 

NeoMedia Technologies, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)

(in thousands, except share and per share data)

 

   Three Months 
Ended March 31,
 
   2014   2013 
   (RESTATED)   (RESTATED) 
Revenues  $1,003   $602 
Cost of revenues   158    31 
Gross profit   845    571 
           
Sales and marketing expenses   15    61 
General and administrative expenses   603    857 
Research and development costs   177    212 
           
Operating income (loss)   50    (559)
           
Gain (loss) from change in fair value of hybrid financial instruments   (545)   24,487 
Gain from change in fair value of derivative liability – warrants   373    3,166 
Gain from change in fair value of derivative liability - Series C and D Convertible Preferred Stock and debentures   137    1,943 
           
Net income  $15   $29,037 
           
Comprehensive income:          
Net income  $15   $29,037 
Foreign currency translation adjustment   -    111 
           
Comprehensive income  $15   $29,148 
           
Net income per common share, basic and diluted:          
Basic  $0.000   $0.010 
Fully diluted  $0.000   $0.001 
           
Weighted average number of common shares:          
Basic   4,984,827,279    2,789,315,439 
Fully diluted   266,001,250,808    27,931,664,140 

 

See accompanying notes. 

  

Page 4
 

 

NeoMedia Technologies, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

   Three Months 
Ended March 31,
 
   2014   2013 
   (RESTATED)   (RESTATED) 
Cash Flows from Operating Activities:          
Net income  $15   $29,037 
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
          
Depreciation and amortization   70    179 
(Gain) loss from change in fair value of hybrid financial instruments   545    (24,487)
Gain from change in fair value of derivative liability – warrants   (373)   (3,166)
Gain from change in fair value of derivative liability - Series C and D Convertible Preferred Stock and debentures   (137)   (1,943)
           
Changes in operating assets and liabilities          
Accounts receivable   (91)   (59)
Prepaid expenses and other assets   (1)   175 
Accounts payable and accrued expenses   280    105 
Deferred revenues and customer prepayments   (281)   (388)
           
Net cash provided by (used in) operating activities   27    (547)
           
Cash Flows from Investing Activities:          
Net cash from investing activities   -    - 
           
Cash Flows from Financing Activities:          
Payments on short-term notes payable   (28)   - 
Net cash used in financing activities   (28)   - 
           
Effect of exchange rate changes on cash   -    (2)
           
Net change in cash and cash equivalents   (1)   (549)
           
Cash and cash equivalents, beginning of period   267    611 
Cash and cash equivalents, end of period  $266   $62 
           
Supplemental cash flow information:          
Convertible debentures converted to common stock  $-   $320 

 

See accompanying notes.

 

Page 5
 

 

NeoMedia Technologies, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(Unaudited)

 

Note 1 – General

 

NeoMedia Technologies, Inc. (the “Company,” “NeoMedia,” “we,” “us,” “our,” and similar terms), a Delaware corporation, was founded in 1989 and is headquartered in Boulder, Colorado. We have positioned ourselves to lead the development of 2D mobile barcode technology and infrastructure solutions that enable the mobile barcode ecosystem world-wide. NeoMedia harnesses the power of the mobile phone in innovative ways with state-of-the-art mobile barcode technology solutions. With this technology, mobile devices with cameras become barcode scanners, enabling a range of practical applications including mobile marketing and mobile commerce. In addition, we offer licensing of our extensive intellectual property portfolio. 

 

The accompanying unaudited condensed consolidated financial statements have been prepared without audit pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. We believe these statements include all adjustments, which are of a normal and recurring nature, considered necessary for a fair presentation of the financial statements. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the financial statements and notes thereto included in our annual report on Form 10-K filed with the SEC on March 17, 2014 and its subsequent amendment. The results of operations for the three months ended March 31, 2014 are not necessarily indicative of the results to be expected for the full year. In addition, as we communicated in a Periodic Report on Form 8-K on July 29, 2014, we are restating certain of our financial statements by filing amendments to our previously filed Form 10-K for December 31, 2013 (and interim periodic reports on Form 10-Q).   We and the SEC have concluded that certain modifications in the Company’s valuation methodology, deemed as accounting estimates by the Company, contained errors with respect to the valuation of convertible debentures issued by the Company, in that such methodology did not capture the debentures’ potentially dilutive effect upon their conversion into common stock.  Please see the disclosure immediately below entitled “Restatement to 2014 and 2013 Interim Reporting and of the December 31, 2013 Balance Sheet” for further information as these changes in valuation methodology has affected our previously filed interim report on Form 10-Q for March 31, 2014.

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation – The condensed consolidated financial statements include the accounts of NeoMedia and its wholly-owned subsidiaries. We operate as one reportable segment. All intercompany accounts, transactions and profits have been eliminated in consolidation.  Certain prior period amounts in the condensed consolidated financial statements and notes thereto have been reclassified to conform to the current year's presentation.  

  

Use of Estimates – The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Changes in facts and circumstances may result in revised estimates, which are recorded in the period in which they become known.

 

Change in Estimates – For the three month period ended March 31, 2013 fair value accounting of the derivative financial instruments and debentures payable, we reassessed the valuation techniques used to estimate the liability fair values. Based on the assessment, including discussions with the third-party valuation firm assisting us with the calculation, we determined that the valuation technique should be modified to consider the potentially dilutive impact on the stock price resulting from the issuance of additional shares of common stock upon the conversion of the instruments as well as the resulting value in comparison to our market capitalization.

 

Page 6
 

 

The modification of the valuation technique represents a change in accounting estimate as discussed in Accounting Standards Codification (“ASC”) Topic 250-10-45-17, Accounting Changes and Error Corrections. The impact from the modification in valuation technique has therefore been reflected in the period of change and will be reflected in future periods. See Note 3 – Financing for additional discussion.

 

Going Concern – We have historically incurred operating losses, and we may continue to generate negative cash flows as we implement our business plan. There can be no assurance that our continuing efforts to execute our business plan will be successful and that we will be able to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared in conformity with US GAAP, which contemplates our continuation as a going concern given fair value accounting related to our debentures. Our net income for the three months ended March 31, 2014 and 2013 was $15,000 as compared to $29.0 million, respectively, including $35,000 and $29.6 million, respectively, of net gains related to our financing instruments.

 

Net cash provided by operations during the three months ended March 31, 2014 was $27,000 as compared to net cash used in operations of $0.5 million during the three months ended March 31, 2013. As of March 31, 2014, we have an accumulated deficit of $236.9 million. We also have a working capital deficit of $41.3 million, including $39.2 million in current liabilities for our derivative and debenture financing instruments.

  

We currently do not have sufficient cash or commitments for financing to sustain our operations for the next twelve months if we are unable to generate sufficient cash flows from operations. Our plan is to develop new client and customer relationships and substantially increase our revenue derived from our products/services and IP licensing. If our revenues do not reach the level anticipated in our plan, we may require additional financing in order to execute our operating plan. If additional financing is required, we cannot predict whether this additional financing will be in the form of equity, debt, or another form, and we may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In the event that financing sources are not available, or that we are unsuccessful in increasing our revenues and profits, we may be unable to implement our current plans for expansion, repay our debt obligations or respond to competitive pressures, any of which would have a material adverse effect on our business, prospects, financial condition and results of operations.

 

The convertible debentures and preferred stock used to finance the Company, which may be converted into common stock at the sole option of the holders, have a highly dilutive impact when they are converted, greatly increasing the number of shares of common stock outstanding. During 2013, there were 2,879 million shares of common stock issued for these conversions. We cannot predict if or when each holder may or may not elect to convert into shares of common stock.

 

Our financial statements do not include any adjustments relating to the recoverability and reclassification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

 

Restatement to 2014 and 2013 Interim Reporting – As noted above and disclosed initially in our Periodic Report on Form 8-K on July 29, 2014, during the three month period ended March 31, 2014, for fair value accounting of the derivative financial instruments and debentures payable, we reassessed the valuation techniques used to estimate the liability fair values. Based on the assessment, including discussions with the third-party valuation firm assisting us with the calculation, we determined that the valuation technique should be modified to consider the potentially dilutive impact on the stock price resulting from the issuance of additional shares of common stock upon the conversion of the instruments as well as the resulting value in comparison to our market capitalization.

 

We agree with the SEC’s assertion that certain modifications in our valuation methodology contained errors with respect to the valuation of convertible debentures issued by us. We are restating the March 31, 2014 and 2013 three month periods to reflect the change in valuation technique and correction of the fair value accounting of the derivative financial instruments and debentures payable. In addition, we are also restating our December 31, 2013 Balance Sheet as it pertains to the Fair Value of our Warrants, Preferred Series C & D and Convertible Debentures to amounts as stated below from how they were reported as of December 31, 2013 in our 10-K: 

 

Page 7
 

 

   December 31, 2013       December 31, 2013 
   (as previously reported)   Adjustments   (Restated) 
             
Derivative Financial Instruments – warrants  $684   $(64)  $620 
                
Derivative Financial Instruments – Series C and D PS and DP  $23,606   $(23,310)  $296 
                
Debentures payable – carried at fair value  $257,451   $(219,201)  $38,250 
                
Total Liabilities  $284,576   $(242,575)  $42,001 
                
Accumulated deficit  $(479,485)  $242,575   $(236,910)
                
Total shareholders’ deficit  $(284,435)  $242,575   $(41,860)

 

The table below reflects the changes in restating the derivative liabilities for the three months ended March 31, 2014 (in thousands):

 

Derivative Liability Restatement for the 3 months ended March 31, 2014:

 

   3 Months. March 31,
2014
       3 Months. March 31, 2014 
   (as previously reported)   Adjustments   (Restated) 
             
Gain (loss) from change in fair value of hybrid financial instruments
  $218,656   $(219,201)  $(545)
                
Gain (loss) from change in fair value of derivative liability – warrants
  $437   $(64)  $373 
                
Gain (loss) from change in fair value of derivative liability – Series C & D
  $23,447   $(23,310)  $137 
                
Net income  $242,590   $(242,575)  $15 
                
Net income available to common shareholders
  $242,590   $(242,575)  $15 
                
Comprehensive income  $242,590   $(242,575)  $15 

 

Page 8
 

 

Statement of Cash Flow:

 

   3 Months. March 31,
2014
       3 Months. March 31, 2014 
   (as previously reported)   Adjustments   (Restated) 
             
Net income  $242,590   $(242,575)  $15 
                
Gain (loss) from change in fair value of hybrid financial instruments  $(218,656  $219,201  $545
                
Gain (loss) from change in fair value of derivative liability – warrants  $(437  $64  $(373) 
                
Gain (loss) from change in fair value of derivative liability – Series C & D  $(23,447  $23,310  $(137
                
Net cash used in operating activities  $27   $-   $27 

 

The table below reflects the changes in restating the derivative liabilities for the three months ended March 31, 2013 (in thousands):

 

Derivative Liability Restatement for the 3 months ended March 31, 2013:

 

   3 Months. March 31,
2013
       3 Months. March 31, 2013 
   (as previously reported)   Adjustments   (Restated) 
             
Gain (loss) from change in fair value of hybrid financial instruments  $6,774   $17,713   $24,487 
                
Gain (loss) from change in fair value of derivative liability – warrants  $3,122   $44   $3,166 
                
Gain (loss) from change in fair value of derivative liability – Series C & D  $(299)  $2,242   $1,943 
                
Net income  $9,038   $19,999   $29,037 
                
Net income available to common shareholders  $9,038   $19,999   $29,037 
                
Comprehensive income  $9,149   $19,999   $29,148 

 

Page 9
 

 

Statement of Cash Flow:

 

   3 Months. March 31,
2013
       3 Months. March 31, 2013 
   (as previously reported)   Adjustments   (Restated) 
             
Net income  $9,038   $19,999   $29,037 
                
Gain (loss) from change in fair value of hybrid financial instruments  $(6,774)  $(17,713)  $(24,487)
                
Gain (loss) from change in fair value of derivative liability – warrants  $(3,122)  $(44)  $(3,166)
                
Gain (loss) from change in fair value of derivative liability – Series C & D  $299   $(2,242)  $(1,943)
                
Net cash used in operating activities  $(547)  $-   $(547)

 

In addition to the material misstatement related to our change in valuation methodologies described above, and of the December 31, 2013 Balance Sheet, in connection with the completion of our third quarter 2013 and first quarter 2013 reporting, we identified certain errors associated with our first quarter 2013 interim reporting. We assessed the impact of these errors and concluded that the errors did not result in a material misstatement.  To correct the errors, we have restated the three months ended March 31, 2013 reporting as discussed below. Our assessment considered the guidance provided by ASC Topic 250, Accounting Changes and Error Corrections and ASC Topic 250-10-S99-1, Assessing Materiality. Based on our conclusion that the errors were not material individually or in aggregate to any of the prior reporting periods, we determined amendments to previously filed financial statement reports were not required in accordance with the applicable ASC guidance. We also concluded that the revisions applicable to prior periods should be reflected herein and will be reflected in future filings containing such information.

 

The condensed consolidated statements of operations for the three months ended March 31, 2013 included a clerical error resulting in the foreign currency translation adjustment within comprehensive income (loss) reflecting a $111,000 loss but should have reflected a $111,000 gain. The reporting has been revised herein to reflect the proper amounts.

 

The condensed consolidated statements of cash flows for the three months ended March 31, 2013 overstated net cash used in operating activities and the effect of exchange rate changes on cash by approximately $113,000.  The revised net cash used in operating activities was approximately $547,000 and the effect of exchange rate changes on cash was negative $2,000. The amounts have been restated herein to reflect the proper amounts.

 

As discussed in Note 4 – Financing, we are limited to issuing shares of common stock in connection with preferred stock and debenture conversions at no less than par value.  The methodology used to determine the number of common stock shares issued for debentures and preferred stock is based upon the market value received for the shares issued, and any short-fall between the par value of the shares issued and the market value of the shares is recorded as a deemed dividend.  During the three months ended March 31, 2013, the conversion of debentures and Series C Preferred Stock resulted in deemed dividends of $681,000 and $16,000, respectively, and the deemed dividend amounts were not reflected in the net loss available to common shareholders.  The reporting herein has been revised to reflect the proper amounts. 

 

Page 10
 

 

Basic and Diluted Net Income Per Common Share – The components of basic and diluted income per share attributable to the Company’s common stock shareholders were as follows (in thousands, except share and per share data): 

 

   Three Months Ended 
   March 31, 
   2014   2013 
   (RESTATED)   (RESTATED) 
Numerator:          
Net income available to common shareholders  $15   $29,037 
Effect of dilutive securities:          
Hybrid financial instruments   (545)   (24,487)
Derivative liability – warrants   373)   3,166 
Derivative liability - Series C and D Convertible          
Preferred Stock and debentures   137)   1,943 
Numerator for diluted income per common share  $(20)  $9,659 
           
Denominator:          
Weighted average shares used to compute basic income per common share   4,984,827,279    2,789,315,439 
Effect of dilutive securities:          
Hybrid financial instruments   233,957,214,103    32,949,714 
Derivative liability - warrants   440,652,725    2,083,292 
Derivative liability - Series C and D preferred stock and debentures   26,618,556,701    3,398,694 
Denominator for diluted income per common share   266,001,250,808    27,931,664,140 
           
Basic income per common share  $0.000   $0.010 
Diluted income per common share  $0.000   $0.001 

 

We excluded approximately 1,173,000 and 1,883,833,000 dilutive securities from the calculation of diluted income per common share for the three months ended March 31, 2014 and 2013, respectively, because inclusion of these securities would be antidilutive. 

 

Recent Accounting Pronouncements – From time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We believe that the impact of recently issued standards that are not yet effective will not have a material impact on our results of operations and financial position.

 

Note 3 – Financing

 

At March 31, 2014, financial instruments arising from our financing transactions with YA Global Investments, L.P. (“YA Global”), an accredited investor, included shares of our Series C Convertible Preferred Stock issued in February 2006, Series D Convertible Preferred Stock issued in January 2010, a series of six consolidated secured convertible debentures (the “Consolidated Debentures”) issued July 1, 2013 and various warrants to purchase shares of our common stock. All of our assets are pledged to secure our obligations under the debt securities. At various times, YA Global has assigned or distributed portions of its holdings of these securities to other holders, including persons who are officers of YA Global and its related entities, as well as to other holders who are investors in YA Global’s funds.

 

Secured Debentures – We had originally entered into financing transactions with YA Global, which included a series of twenty-seven secured convertible debentures issued between August 2006 and July 2012. Effective July 1, 2013, the terms of the debentures held by YA Global were modified to consolidate the principal and interest amounts outstanding under all of the outstanding secured convertible debentures previously issued by us to YA Global, such that, upon the issuance of the Consolidated Debentures and cancellation of the prior debentures, the amount of outstanding debentures issued to YA Global decreased from twenty-seven to six debentures. The maturity dates of these secured convertible debentures were also extended from August 1, 2014 to August 1, 2015.

 

Page 11
 

 

The underlying agreements for each of the Consolidated Debentures are very similar in form. The Consolidated Debentures are convertible into our common stock, at the option of the holder, at the lower of a fixed conversion price per share or a percentage of the lowest volume-weighted average price (“VWAP”) for a specified number of days prior to the conversion (the “look-back period”). The conversion is limited such that the holder cannot exceed 9.99% ownership of the outstanding common stock, unless the holder waives their right to such limitation. All of the debentures are secured according to the terms of a Security Pledge Agreement dated August 23, 2006, which was entered into in connection with the first convertible debenture issued to YA Global and which provides YA Global with a security interest in substantially all of our assets. The debentures are also secured by a Patent Security Agreement dated July 29, 2008. On August 13, 2010, our wholly owned subsidiary, NeoMedia Europe GmbH, became a guarantor of all outstanding financing transactions between us and YA Global, through pledges of their intellectual property and other movable assets. As security for our obligations to YA Global, all of our Pledged Property, Patent Collateral and other collateral is affirmed through the several successive Ratification Agreements executed in connection with each of the 2010, 2011 and 2012 financings. The 2013 modification and consolidation of the outstanding secured convertible debentures as well as the execution of an Amended and Restated Patent Security Agreement in 2013 reaffirmed the Pledged Property, Patent Collateral and other collateral pledged as security for our obligations to YA Global.

 

We evaluated the financing transactions in accordance with ASC 815, Derivatives and Hedging, and determined that the conversion features of the Series C and Series D Convertible Preferred Stock and the Consolidated Debentures were not afforded the exemption for conventional convertible instruments due to their variable conversion rates. The contracts have no explicit limit on the number of shares issuable, so they did not meet the conditions set forth in current accounting standards for equity classification. Accordingly, either the embedded derivative instruments, including the conversion option, must be bifurcated and accounted for as derivative instrument liabilities or, as permitted by ASC 815-15-25-4, Recognition of Embedded Derivatives, the instruments may be carried in their entirety at fair value.

 

At inception, we elected to bifurcate the embedded derivatives related to the Series C and Series D Convertible Preferred Stock, while electing the fair value option for the Consolidated Debentures. ASC 825, Financial Instruments, allows us to elect the fair value option for recording financial instruments when they are initially recognized or if there is an event that requires re-measurement of the instruments at fair value, such as a significant modification of the debt.

 

On February 4, 2013, we entered into a Debenture Extension Agreement with YA Global to extend the maturity dates of the secured convertible debentures to August 1, 2014.   Because the effect of the extension did not exceed a significance threshold relative to cash flows prescribed by ASC 470-50, Debt Modifications and Extinguishments, extinguishment accounting was not applicable. On July 1, 2013, in addition to consolidating the secured debentures into six Consolidated Debentures, the maturity date was extended to August 1, 2015. Four of the Consolidated Debentures are non-interest bearing while the remaining two Consolidated Debentures accrue interest at 9.5% as outlined in further detail below. Debentures assigned to other investors by YA Global were also modified effective July 1, 2013 to extend the maturity date to August 1, 2015. We evaluated the impact of the modification on the accounting for the Consolidated Debentures in accordance with ASC 470-50-40-6 through 12 to determine whether extinguishment accounting was appropriate. Because the effect of the extension did not exceed a significance threshold relative to cash flows prescribed by ASC 470-50, Debt Modifications and Extinguishments, extinguishment accounting was not applicable.

 

Page 12
 

 

The following table summarizes the significant terms of each of the debentures for which the entire hybrid instrument is recorded at fair value as of March 31, 2014:

 

                Conversion Price – Lower of Fixed
Price or Percentage of VWAP for
Look-back period
 
                Anti-         
                Dilution         
Debenture   Face   Interest   Fixed   Adjusted         Look-back 
Issuance Year   Amount   Rate   Price   Price   %     Period 
    (in thousands)                     
 2006   $1,962    9.5%  $2.00   $0.00018    90%   125 Days 
 2007    567    9.5%  $2.00   $0.00018    90%   125 Days 
 2007    272    -   $2.00   $0.00019    95%   125 Days 
 2008    1,217    9.5%  $2.00   $0.00018    90%   125 Days 
 2008    830    -   $2.00   $0.00019    95%   125 Days 
 2009    134    9.5%  $2.00   $0.00018    90%   125 Days 
 2011    852    9.5%  $2.00   $0.00018    90%   125 Days 
 2012    762    9.5%  $2.00   $0.00018    90%   125 Days 
 2012    210    -   $2.00   $0.00019    95%   125 Days 
 2013    22,084    9.5%  $2.00   $0.00018    90%   125 Days 
 2013    12,127    -   $2.00   $0.00019    95%   125 Days 
 Total    $41,017                          

 

We bifurcate the compound embedded derivatives related to the Series C and Series D Convertible Preferred Stock and carry these financial instruments as liabilities in the accompanying balance sheet.  Election to carry the instruments at fair value in their entirety is not available since their terms have not been modified. Significant components of the compound embedded derivative include (i) the embedded conversion feature, (ii) down-round anti-dilution protection features and (iii) default, non-delivery and buy-in puts, all of which were combined into one compound instrument that is carried at fair value as a derivative liability. Changes in the fair value of the compound derivative liability are recorded within income each period.

 

Conversions and Repayments – Our preferred stock and convertible debentures are convertible into shares of our common stock. Upon conversion of any of the convertible financial instruments in which the compound embedded derivative is bifurcated, the carrying amount of the instrument and the related derivative liability are credited to the capital accounts upon conversion to reflect the stock issued and no gain or loss is recognized. For instruments that are recorded in their entirety at the fair value of the hybrid instrument, the fair value of the hybrid instrument converted is credited to the capital accounts upon conversion to reflect the stock issued and no gain or loss is recognized. The trading market price of our common stock (and the conversion price) has been less than its par value from time to time. We are limited to issuing shares of common stock at no less than the par value, and all shares of our common stock issued in those conversions were issued at par value. However, the methodology used to estimate the number of shares of convertible debentures and preferred stock converted during this time are based upon the value received for the shares issued, with the difference between that value and the par value recorded as a deemed dividend.

 

The following table provides a summary of the preferred stock conversions that have occurred since inception and the number of common shares issued upon conversion.

 

   Preferred
shares
   Preferred
shares
   Preferred
shares
   Common
shares
 
   issued   converted   remaining   issued 
   (in thousands) 
                 
Series C Convertible Preferred Stock   22    17    5    314,619 
Series D Convertible Preferred Stock   25    22    3    245,162 

 

Page 13
 

 

The outstanding principal and accrued interest for the debentures as of March 31, 2014 is reflected in the following table in addition to the principal and interest converted since inception and the number of shares of common stock issued upon conversion.

 

   Outstanding
principal and
accrued interest
at March
 31, 2014
   Principal and
accrued interest
converted since
inception
   Common
Shares
issued
 
   (in thousands) 
Debentures  $43,468   $11,747    4,403,415 

 

Warrants – YA Global holds warrants to purchase shares of our common stock that were issued in connection with the convertible debentures and the Series C and Series D Convertible Preferred Stock. The warrants are exercisable at a fixed exercise price which, from time to time, has been reduced due to anti-dilution provisions when we have entered into subsequent financing arrangements with a lower price. The exercise prices may be reset again in the future if we subsequently issue stock or enter into a financing arrangement with a lower price. In addition, upon each adjustment in the exercise price, the number of warrant shares issuable is adjusted to the number of shares determined by multiplying the warrant exercise price in effect prior to the adjustment by the number of warrant shares issuable prior to the adjustment divided by the warrant exercise price resulting from the adjustment.

 

The warrants issued to YA Global do not meet all of the established criteria for equity classification in ASC 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity, and accordingly, are recorded as derivative liabilities at fair value. Changes in the fair value of the warrants are charged or credited to income each period.

 

Effective February 1, 2013, 1.4 billion of the 1.9 billion warrants held by YA Global were cancelled and the remaining 500 million had their exercise price reduced to $0.0001 per share. These changes resulted in a decrease in fair value of the warrants of approximately $1.6 million during the first quarter of 2013 as reflected in the gain from change in fair value of derivative liabilities - warrants.

 

Fair value disclosures for Series C and D Bifurcated Embedded Derivative Instruments – For financings in which the embedded derivative instruments are bifurcated and recorded separately, the compound embedded derivative instruments are valued using a Monte Carlo Simulation methodology because that model embodies certain relevant assumptions (including, but not limited to, interest rate risk, credit risk, and conversion/redemption privileges) that are necessary to value these complex derivatives.

 

Assumptions used in calculating the preferred share values as of March 31, 2014 included remaining equivalent term of 1.34 years, annualized volatility of 187%, stated dividend of 8%, equivalent credit-risk adjusted rate of 13.0% and conversion price of $0.000194. Equivalent amounts reflect the net results of multiple modeling simulations that the Monte Carlo Simulation methodology applies to underlying assumptions. We modified the valuation technique to consider the potentially dilutive impact on the stock price resulting from the issuance of additional common shares upon the conversion of the preferred shares and convertible debentures. Approximately $23.3 million of the gain from change in fair value of derivative liability – Series C and D Convertible Preferred Stock and debentures was attributable to the change in valuation technique for the three months ended March 31, 2014. The Company determined inclusion of the impact from potentially dilutive shares in the valuation technique to be a change in accounting estimate as discussed in ASC Topic 250-10-45-17, Accounting Changes and Error Corrections, and is therefore reflected in the period of change and will be reflected in future periods.

 

Page 14
 

 

The following table reflects the face value of the instruments and the fair value of the separately-recognized compound embedded derivative, as well the number of common shares into which the instruments are convertible as of March 31, 2014 and December 31, 2013.

 

March 31, 2014                
   Face   Carrying   Embedded
Conversion
   Common
Stock
 
   Value   Value   Feature   Shares 
   (in thousands) 
                 
Series C Convertible Preferred Stock  $4,816   $4,816   $148    24,823,015 
Series D Convertible Preferred Stock   348    348    11    1,794,330 
Total  $5,164   $5,164   $159    26,617,345 

 

December 31, 2013 (Restated)                
   Face   Carrying   Embedded
Conversion
   Common
Stock
 
   Value   Value   Feature   Shares 
   (in thousands) 
                 
Series C Convertible Preferred Stock  $4,816   $4,816   $276    24,823,015 
Series D Convertible Preferred Stock   348    348    20    1,794,330 
Total  $5,164   $5,164   $296    26,617,345 

 

The terms of the embedded conversion features in the convertible instruments presented above provide for variable conversion rates that are indexed to our quoted common stock price. As a result, the number of indexed shares is subject to continuous fluctuation. For presentation purposes, the number of shares of common stock into which the embedded conversion feature of the Series C and Series D Convertible Preferred Stock was convertible as of March 31, 2014 and 2013 was calculated as face value plus assumed dividends (if declared), divided by the lesser of the fixed rate or the calculated variable conversion price using the 125 day look-back period.  

 

Changes in the fair value of derivative instrument liabilities related to the bifurcated embedded derivative features of the convertible instruments are reported as Gain (loss) from Change in Fair Value of Derivative Liability – Series C and Series D Convertible Preferred Stock and Debentures in the accompanying condensed consolidated statements of operations.

 

Restated gain from change in fair value of derivative liability – Series C and D Convertible Preferred Stock and debentures

 

   Three months ended
March 31,
 
   2014   2013 
   (Restated)     (Restated) 
   (in thousands) 
Series C Convertible Preferred Stock  $128   $1,798 
Series D Convertible Preferred Stock   9    129 
           
Debentures:          
2006   -    16 
Gain (loss) from change in fair value of derivative liability -  Series C and D Convertible Preferred Stock and debentures  $137   $1,943 

 

Page 15
 

 

Hybrid Financial Instruments Carried at Fair Value – At inception, the March 2007, August 2007, April 2008, May 2008 and April 2012 convertible debentures were recorded in their entirety at fair value as hybrid instruments in accordance with ASC 815-15-25-4 with subsequent changes in fair value charged or credited to income each period. As of May 25, 2012, we elected the fair value option for all other convertible debentures held by YA Global upon a re-measurement date that was triggered by significant modifications of the financial instruments.  The convertible debentures continued to be recorded in their entirety at fair value upon their consolidation into six Consolidated Debentures effective July 1, 2013. The conversion price in each of the convertible debentures is subject to adjustment for down-round, anti-dilution protection. Accordingly, if we sell common stock or common share indexed financial instruments below the stated or variable conversion price of the debenture, the conversion price adjusts to that lower amount.

 

Because these debentures are carried in their entirety at fair value, the value of the embedded conversion feature is embodied in those fair values. We estimate the fair value of the hybrid instrument as the present value of the cash flows of the instrument, using a risk-adjusted interest rate, enhanced by the value of the conversion option, valued using a Monte Carlo model. This method was considered by our management to be the most appropriate method of encompassing the credit risk and exercise behavior that a market participant would consider when valuing the hybrid financial instrument. Inputs used to value the hybrid instruments as of March 31, 2014 included: (i) present value of future cash flows for the debentures using an effective market interest rate of 13.0%, (ii) remaining term of 1.34 years, (iii) annualized volatility of 187%, and (iv)anti-dilution adjusted conversion prices ranging from $0.00018 - $0.00019. We also modified the valuation technique to consider the potentially dilutive impact on the stock price from the issuance of common shares upon the conversion of the debentures. Approximately $217.4 million of the gain from change in fair value of hybrid financial instruments was attributable to the change in valuation technique for the three months ended March 31, 2014. The Company determined inclusion of the impact from potentially dilutive shares in the valuation technique to be a change in accounting estimate as discussed in ASC Topic 250-10-45-17, Accounting Changes and Error Corrections, and is therefore reflected in the period of change and will be reflected in future periods.

 

The following table reflects the face value of the financial instruments, the fair value of the hybrid financial instrument and the number of shares of common stock into which the instruments are convertible as of March 31, 2014 and December 31, 2013.

 

March 31, 2014          Common 
   Face   Fair   Stock 
   Value   Value   Shares 
   (in thousands) 
Debentures:               
2006  $1,962   $2,041    12,285,288 
2007   839    950    3,244,058 
2008   2,047    1,898    11,689,415 
2009   134    155    923,440 
2011   852    866    5,226,562 
2012   972    1,013    8,524,582 
2013   34,211    31,872    192,394,516 
Total  $41,017   $38,795    234,287,861 

 

Page 16
 

 

December 31, 2013 (Restated)          Common 
   Face   Fair   Stock 
   Value   Value   Shares 
   (in thousands) 
Debentures:               
2006  $1,962   $2,008    819,019 
2007   839    533    216,720 
2008   2,047    1,905    779,294 
2009   134    151    61,563 
2011   852    854    348,437 
2012   972    1,392    568,305 
2013   34,211    31,407    12,826,301 
Total  $41,017   $38,250    15,619,639 

 

Changes in the fair value of convertible instruments that are carried in their entirety at fair value are reported as gain from change in fair value of hybrid financial instruments in the accompanying condensed consolidated statements of operations. The changes in fair value of these hybrid financial instruments were as follows:

 

Restated gain (loss) from change in fair value of hybrid financial instruments

 

   Three months ended
March 31,
 
   2014   2013 
   (in thousands) 
   (Restated)   (Restated) 
2006  $(33)  $5,682 
2007   (417)   6,789 
2008   7    4,776 
2009   (4)   1,448 
2010   -    2,571 
2011   (12)   1,729 
2012   379    1,492 
2013   (465)   - 
Gain from changes in fair value of hybrid instruments  $(545)  $24,487 

 

Warrants – The following table summarizes the warrants outstanding, their fair value and their exercise price after adjustment for anti-dilution provisions:

 

       March 31, 2014   December 31, 2013 
       Anti-
Dilution
           Anti-
Dilution
         
       Adjusted           Adjusted       Fair 
   Expiration   Exercise       Fair   Exercise       Value  
   Year   Price ($)   Warrants   Value   Price ($)   Warrants   (RESTATED) 
           (in thousands)       (in thousands) 
Warrants issued with preferred stock:                                   
Series D Convertible Preferred Stock   2017    0.000100    87,368   $44    0.000100    87,368   $110 
                                    
Warrants issued with debentures:                                   
2008   2015    0.000100    238,079    117    0.000100    238,079    294 
2010   2015    0.000100    81,340    40    0.000100    81,340    101 
2011   2016    0.000100    58,256    29    0.000100    58,256    72 
2012   2017    0.000100    34,947    17    0.000100    34,947    43 
                                    
Total             499,990   $247         499,990   $620 

 

Page 17
 

 

The warrants are valued using a binomial lattice option valuation methodology because that model embodies all of the significant relevant assumptions that address the features underlying these instruments. Significant assumptions used in this model as of March 31, 2014 included an expected life equal to the remaining term of the warrants, an expected dividend yield of zero, estimated volatility ranging from 165% to 194%, and risk-free rates of return ranging from 0.14% to 1.04%. For the risk-free rates of return, we use the published yields on zero-coupon Treasury Securities with maturities consistent with the remaining term of the warrants and volatility is based upon our expected common stock price volatility over the remaining term of the warrants. The exercise price of the warrants is currently $0.0001, which was also estimated to be the exercise price for purposes of the valuation technique.  The anti-dilution provisions of the warrants allow for the fixed exercise price to be reset to the lowest price of any subsequently issued common share indexed instruments with a conversion price below the current exercise price of the warrant. However, the likelihood of the Company issuing additional equity below the current strike price was deemed impractical and as a result, the anti-dilutive protection was not factored into the calculation. We also modified the valuation technique to consider the potentially dilutive impact on the stock price from the issuance of shares of common stock upon the exercise of the warrants on the fair value estimate of the warrants. We estimated that the exercise of the warrants would result in 7.6% decline in the stock price and a corresponding decline in the fair value of the warrants of approximately $20,000 as compared to the fair value assuming no dilution. The Company determined inclusion of the impact from potentially dilutive shares in the valuation technique to be a change in accounting estimate as discussed in ASC Topic 250-10-45-17, Accounting Changes and Error Corrections, and is therefore reflected in the period of change and will be reflected in future periods.

 

Changes in the fair value of the warrants are reported as gain from change in fair value of derivative liability – warrants in the accompanying condensed consolidated statement of operations. The changes in the fair value of the warrants were as follows:

 

Page 18
 

 

Restated gain from change in fair value of derivative liability – warrants

 

   Three months ended
March 31,
 
   2014   2013 
   (Restated)     (Restated) 
   (in thousands) 
Warrants issued with preferred stock:          
Series D Convertible Preferred Stock  $66   $71 
           
Warrants issued with debentures:          
2008   177    1,409 
2010   61    1,080 
2011   43    385 
2012   26    221 
Gain from change in fair value of derivative liability – warrants  $373   $3,166 

 

Reconciliation of changes in fair value – Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. Our derivative financial instruments that are measured at fair value on a recurring basis are all measured at fair value using Level 3 inputs. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

The following represents a reconciliation of the changes in fair value of financial instruments measured at fair value using Level 3 inputs during the three months ended March 31, 2014 (in thousands):

 

   Compound             
   Embedded   Warrant   Hybrid     
   Derivatives   Derivatives   Instruments   Total 
                 
Beginning balance, December 31, 2013 (Restated):  $296   $620   $38,250   $39,166 
                     
Fair value adjustments: (Restated)                    
Compound embedded derivatives   (137)   -    -    (137)
Warrant derivatives   -    (373)   -    (373)
Hybrid instruments   -    -    545    545 
Ending balance, March 31, 2014  $159   $247   $38,795   $39,201 

 

Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, valuation techniques are sensitive to changes in the trading market price of our common stock, which has a high estimated historical volatility. Because derivative financial instruments are initially and subsequently carried at fair values, our income will reflect the volatility in these estimate and assumption changes.

 

Note 4 – Stock-Based Compensation

 

The status of our outstanding, vested and exercisable options during the three months ended March 31, 2014 is as follows:

 

               Weighted- 
               Average 
       Weighted-       Contractual 
       Average   Aggregate   Life 
       Exercise   Intrinsic   Remaining 
   Shares   Price   Value   in Years 
   (in
thousands)
       (in
thousands)
     
Outstanding at December 31, 2013   1,173   $0.017    -      
Outstanding at March 31, 2014   1,173   $0.017   $-    7.5 
Exercisable at March 31, 2014   972   $0.018   $-    7.3 

 

Page 19
 

 

The following table summarizes information about our stock options outstanding at March 31, 2014:

 

Options Outstanding  Options Exercisable 
Exercise Prices  Number of Shares   Weighted-
Average
Remaining
Life
   Weighted-
Average Exercise
Price
   Number of Shares   Weighted-
Average
Exercise Price
 
   (in thousands)   (in years)       (in thousands)     
                     
$0.008   200    8.5   $0.008    65   $0.008 
$0.014 to $0.03   884    7.3    0.015    818    0.016 
$0.050   89    6.9    0.047    89    0.047 
    1,173    7.5   $0.017    972   $0.018 

 

Note 5 – Accrued Liabilities

 

The following table summarized our accrued liabilities (in thousands):

 

   March 31,   December 31, 
   2014   2013 
     
Accrued operating expenses  $112   $112 
Accrued payroll related expenses   134    65 
Accrued legal fees   227    114 
Total  $473   $291 

 

Note 6 – Contingencies

 

Legal – From time to time, we are involved in various legal actions arising in the normal course of business, both as claimant and defendant. Although it is not possible to determine with certainty the outcome of these matters, we believe the eventual resolution of any ongoing legal actions is unlikely to have a material impact on our financial position or operating results.

 

Other – On February 21, 2014, the Company received a correspondence (the “Delta Notice”) from Delta Capital Partners LLC (“Delta”), asserting a claim for certain amounts owed under a secured convertible debenture. The principal amount outstanding and conversion rights under such instrument had been assigned to Delta by YA Global (the “Assignment”), several years subsequent to the original issuance of the instrument by the Company to YA Global. The Company’s understanding is that pursuant to the terms of the Assignment, YA Global, as collateral agent, retained all rights in connection with the enforcement of any claims under Delta’s secured convertible debenture.  YA Global has indicated that it does not intend to assert any of the claims described by Delta in the Delta Notice.

 

Page 20
 

 

Note 7 – Geographic Information

 

Revenue, classified by geographic location from which the revenue was originated, is as follows:

 

   Three Months 
Ended March 31,
 
   2014   2013 
   (in thousands) 
United States  $1,003   $589 
Germany   -    13 
Total revenue  $1,003   $602 

 

Approximately $64,000 and $142,000 of total assets were located in Germany as of March 31, 2014 and December 31, 2013, respectively. All other assets were located in the U.S.

 

Note 8 – Plan of Merger

 

On February 21, 2014, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Qode Services Corporation (“Qode”), a wholly owned subsidiary of the Company. Under the terms of the Merger Agreement, Qode will be merged into the Company and will cease to exist upon the completion of certain conditions.  The Company shall continue as the surviving corporation.

 

Under the terms of the Merger Agreement, the Company’s charter shall be amended to provide for an increase in the amount of common stock authorized shares, and each share of the Company’s common stock issued and outstanding immediately prior to merger shall continue to remain outstanding and remain unchanged, except that (i) the par value shall change from $0.001 per share to no par value per share, and (ii) each fifteen (15) shares of common stock issued and outstanding shall be combined and converted into one (1) share of common stock. Upon the consummation of the merger and reverse stock split effected thereunder, the amount of authorized shares of common stock shall be increased from 5 billion to 7.5 billion shares. 

 

The Company’s Board of Directors determined that the Merger Agreement was the only option available to avoid default after the holder of a majority of the outstanding secured convertible debentures communicated its intent to foreclose on all of the Company’s assets in the event that the Company’s share reserves were not sufficient to honor conversions under such instruments (a potential default thereunder). Further, the holder of the secured convertible debentures agreed to enter into amendments to the secured convertible debentures to decrease the aggregate amount of debt by $5.0 million if the Company resolved the issue.

 

The Company anticipates closing the merger on May 11, 2014.

 

Note 9 – Subsequent Events

 

On April 25, 2014, the Company entered into a Reaffirmation and Ratification Agreement with YA Global. Under the terms of the agreement, YA Global agreed to reduce the outstanding principal for certain of the Consolidated Debentures by $5.0 million. The agreement also summarizes and affirms all principal amounts presently outstanding and owed by the Company to YA Global under all of the outstanding financing documents and debentures issued by the Company to YA (the “Financing Documents”). Pursuant to the agreement, the Company (i) ratified the terms of the Financing Documents and agreed that they remain in full force and effect, (ii) confirmed that the collateral rights granted to YA Global under the Financing Documents secure the obligations created thereunder, (iii) confirmed that the occurrence of an “event of default” under any of the Financing Documents would constitute an “event of default” under all of the Financing Documents, and (iv) agreed to execute and deliver to YA Global all such additional documents as reasonably required by YA Global to correct any document deficiencies, or to vest or perfect the Financing Documents and the collateral granted therein, and authorized YA Global to file any financing statements and take any other actions necessary to perfect YA Global’s security interests in any such collateral.

 

Page 21
 

 

ITEM 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

NeoMedia has positioned itself to lead the world in mobile barcode technology and solutions that enable the mobile ecosystem. NeoMedia harnesses the power of the mobile device in innovative ways with state-of-the-art mobile barcode technology. With this technology, mobile devices with cameras become barcode scanners, enabling a range of practical applications including mobile marketing and mobile commerce. In addition, we offer licensing of our extensive intellectual property portfolio.  We are focusing our activities primarily in the United States and Europe, although we are also active in other markets via partners or our self service products.

 

Our key focus areas are to: 1) maximize our patent portfolio through IP licensing monetization and enforcement; 2) provide service to enterprises, brands and retailers to maximize the reach of our barcode creation and reader solutions; and, 3) partner with key mobile marketing entities to expand the depth of our offering to provide full end-to-end solutions for our customers.

 

NeoMedia has been active in, and strives to be an innovator in, the mobile barcode field since the mid-1990s, and during that time has spearheaded the development of a robust IP portfolio. In September 2011, we announced an agreement with Global IP Law Group to help further monetize our patent portfolio, focusing on the US market. During the first quarter of 2014, we closed nine (9) new IP agreements bringing the total quantity of deals closed to approximately fifty (50).

 

On the product side of our business, our barcode management solutions include our barcode reader (NeoReader) as well as our barcode creation solutions (NeoSphere and QodeScan). Mobile barcodes continue to be an increasingly important activation element for brands and marketers and we continue to see growth in terms of new customer additions and traffic across our network.

 

We believe that NeoMedia remains strong and consistent in its approach to market and that we will continue to differentiate ourselves on the basis of our high quality product and service offerings, our responsive customer service and support organization, our customizable and full service solutions and our robust intellectual property portfolio.

 

NeoReader has experienced continued growth particularly in enterprise implementations.  NeoReader continues to be pre-installed on Sony Mobile devices and is available for download from the key “app stores” including Apple App Store™, Google Play™, Nokia Ovi Store, BlackBerry App World™, Windows® Marketplace, Facebook and Amazon.  Our barcode reader now has approximately 50+ million installations world-wide.  Our reader is offered to consumers free of charge, leveraging an ad supported model, and we anticipate the growth in consumer utilization will continue as barcodes continue to be utilized for a wide variety of vertical applications.  We also offer NeoReader SDK for enterprise opportunities.  Our research suggests that we are one of the few providers in the global ecosystem to offer Aztec code support, in addition to QR, Data Matrix, Code 39, PDF417 and a variety of 1D symbologies.

 

In 2013, we launched QodeScan, our low cost self-service barcode creation product.  QodeScan is for those users who don’t have high scan volumes but would like the insight into analytics that a managed service provides.  In addition to QodeScan, we continue to offer our NeoSphere product intended for enterprises, agencies and other large volume users.  We have many Fortune 500 brands using our NeoSphere product in their global barcode operations.  Our QR creation services utilize an indirect methodology for our customer, which is also embodied in our intellectual property.

 

Legal costs continue to be high for us.  The costs to maintain our public company status, our IP licensing initiatives, satisfy our investor obligations as well as participate in an unexpected arbitration catapulted our legal fees to approximately thirty percent (30%) of total operating expenses for us in 2013.  We expect the significant legal expenditures to continue in 2014. Unfortunately, this has meant that funds earmarked for sales and marketing investment were spent on legal fees.

 

Page 22
 

 

Results of Operations

 

Income (Loss) from Operations

 

The following table sets forth certain data derived from our condensed consolidated statements of operations (in thousands):

 

   Three Months
Ended March 31,
 
   2014   2013 
         
Revenues  $1,003   $602 
Cost of revenues   158    31 
Gross profit   845    571 
           
Sales and marketing expenses   15    61 
General and administrative expenses   603    857 
Research and development costs   177    212 
           
Income (loss) from operations  $50   $(559)

 

Revenues – Revenues for the three months ended March 31, 2014 and 2013 were $1,003,000 and $602,000, respectively, an increase of $401,000, or 67%. The increase in revenue was primarily attributable to an increase in the quantity of IP licensing agreements executed in the current quarter as compared to the same prior year quarter.

 

Cost of Revenues – Cost of revenues was $158,000 for the three months ended March 31, 2014 compared with $31,000 for the three months ended March 31, 2013, an increase of $127,000 or 410%. Cost of revenues primarily relate to third-party professional fees incurred in connection with the sale of our IP licenses. The increase in the costs are due to the corresponding increase in IP licensing revenues.

 

Sales and Marketing – Sales and marketing expenses were $15,000 compared to $61,000 for the three months ended March 31, 2014 and 2013, respectively, representing a decline of approximately $46,000 or 75%. The decline in costs was primarily due to less press and investor relations activities associated with cost reduction efforts.

 

General and Administrative – General and administrative expenses were $603,000 and $857,000 for the three months ended March 31, 2014 and 2013, respectively, reflecting a decrease of $254,000 or 30%. The decline in expenses was primarily due to lower general legal expenses as well as a decline in amortization expenses associated with certain intangible assets that became fully amortized in the prior year.

 

Research and Development – Research and development costs were $177,000 and $212,000 for the three months ended March 31, 2014 and 2013, respectively, reflecting a decrease of approximately $35,000, or 17%. Research and development expenses decreased due to cost containment efforts and were primarily focused on the research and development activities in Germany.

 

Other Income (Expense)

 

The following table sets forth certain data derived from our condensed consolidated statements of operations (in thousands):

 

   Three Months
 Ended March 31,
 
   2014   2013 
   (Restated)   (Restated) 
Gain (loss) from change in fair value of hybrid financial instruments  $(545)  $24,487 
Gain from change in fair value of derivative liability - warrants   373    3,166 
Gain from change in fair value of derivative liability - Series C and D preferred stock and debentures   137    1,943 
           
Total other income  $(35)  $29,596 

   

Page 23
 

 

Gain (loss) from Change in Fair Value of Hybrid Financial Instruments – We record our debentures at fair value, in accordance with FASB ASC 815-15-25, and do not separately account for the embedded conversion feature. The change in the fair value of these liabilities includes changes in the value of the accrued interest due under these instruments, as well as changes in the fair value of the common stock underlying the instruments. For the three months ended March 31, 2014 and 2013, the liability related to these hybrid instruments fluctuated, resulting in wloss of $.5 million and a gain of $24.5 million, respectively. The loss for the three months ended March 31, 2014 was primarily due to fluctuations in our stock price and the impact of those fluctuations on the fair value determination of the hybrid financial instruments. The gain for the three months ended March 31, 2013 was primarily due to a change in our valuation technique used to estimate the liability. See the Change in Estimates discussion within Note 2 – Summary of Significant Accounting Policies in the Notes to the Condensed Consolidated Financial Statements for additional description.

 

Gain from Change in Fair Value of Derivative Liabilities – Warrants – We account for our outstanding common stock warrants that were issued in connection with our preferred stock and our debentures, at fair value. For the three months ended March 31, 2014 and 2013, the liability related to the securities fluctuated resulting in a gain of $0.4 million and $3.2 million, respectively. The increase during the three months ended March 31, 2014 was primarily due to fluctuations in our stock price and the impact of those fluctuations on the fair value determination of the hybrid financial instruments. The gain during the three months ended March 31, 2013 was primarily the result of the cancellation of approximately 1.5 billion warrants in February 2013.

 

Gain from Change in Fair Value of Derivative Liabilities – Series C and D Convertible Preferred Stock and Debentures – For our Series C and D Convertible Preferred Stock, and certain of our historical debentures, we account for the embedded conversion feature separately as a derivative financial instrument. We carry these derivative financial instruments at fair value. For the three months ended March 31, 2014 and 2013, the liability related to these hybrid instruments fluctuated, resulting in a gain of $0.1 million as compared to a gain of $1.9 million, respectively. The gain for the three months ended March 31, 2014 was primarily due to fluctuations in our stock price and the impact of those fluctuations on the fair value determination of the hybrid financial instruments. The gain for the three months ended March 31, 2013 was primarily due to a change in our valuation technique used to estimate the liability. See the Change in Estimates discussion within Note 2 – Summary of Significant Accounting Policies in the Notes to the Condensed Consolidated Financial Statements for additional description.

 

Liquidity and Capital Resources

 

As of March 31, 2014, we had $266,000 in cash and cash equivalents compared with $267,000 as of December 31, 2013. Cash provided by operating activities was $27,000 for the three months ended March 31, 2014 compared with $547,000 used in operations for the three months ended March 31, 2013. The improvement in cash flows from operations is primarily due to improved operating results from higher revenues and reduced expenses.

 

Payments on short-term notes payable within cash flows from financing activities reflects disbursements for opportunistic low interest rate borrowings that occurred in 2013 in order to pay annual insurance premiums.

 

Going Concern – We have historically incurred operating losses, and we may continue to generate negative cash flows as we implement our business plan. There can be no assurance that our continuing efforts to execute on our business plan will be successful and that we will be able to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared in conformity with US GAAP, which contemplates our continuation as a going concern given fair value accounting related to our debentures. Our net income for the three months ended March 31, 2014 and 2013 was $15,000 and $29.0 million, respectively, including $35,000 and $29.6 million, respectively, of net gains related to our financing instruments.

 

Net cash provided by operations during the three months ended March 31, 2014 was $27,000 as compared to net cash used in operations of $0.5 million during the three months ended March 31, 2013. As of March 31, 2014, we have an accumulated deficit of $236.9 million. We also have a working capital deficit of $41.3 million, including $39.2 million in current liabilities for our derivative and debenture financing instruments.

  

Page 24
 

 

We currently do not have sufficient cash or commitments for financing to sustain our operations for the next twelve months if we are unable to generate sufficient cash flows from operations. Our plan is to develop new client and customer relationships and substantially increase our revenue derived from our products/services and IP licensing. If our revenues do not reach the level anticipated in our plan, we may require additional financing in order to execute our operating plan. If additional financing is required, we cannot predict whether this additional financing will be in the form of equity, debt, or another form, and we may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In the event that financing sources are not available, or that we are unsuccessful in increasing our revenues and profits, we may be unable to implement our current plans for expansion, repay our debt obligations or respond to competitive pressures, any of which would have a material adverse effect on our business, prospects, financial condition and results of operations.

 

The convertible debentures and preferred stock used to finance the Company, which may be converted into common stock at the sole option of the holders, have a highly dilutive impact when they are converted, greatly increasing the number of shares of common stock outstanding. During 2013, there were 2,879 million shares of common stock issued for these conversions. We cannot predict if or when each holder may or may not elect to convert into shares of common stock.

 

Our financial statements do not include any adjustments relating to the recoverability and reclassification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

 

Critical Accounting Policies and Estimates

 

The significant accounting policies set forth in Note 2 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013, as updated by Note 2 to the Unaudited Condensed Consolidated Financial Statements included herein, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2013, appropriately represent, in all material respects, the current status of our critical accounting policies and estimates, the disclosure with respect to which is incorporated herein by reference.  

 

ITEM 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

Based on management’s evaluation, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as of the end of the period covered by this report, our CEO and CFO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, were deemed not effective based upon valuation revisions required in our 2013 filings in providing reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

On July 25, 2014, management concluded, after consultation with the Audit Committee and external auditors that the Company had not properly assessed the underlying assumptions in its fair value accounting. This error had a material effect on our previously issued consolidated financial statements for the year ended December 31, 2013 and the quarters ended March 31, 2013, June 30, 2013 and September 30, 2013, which is requiring us to restate the financial statements for such periods.

 

Changes in Internal Control over Financial Reporting

 

In conjunction with the matter described above, management has re-evaluated its previously provided assessments as of March 31, 2013, June 30, 2013, September 30, 2013 and December 31, 2013 regarding the effectiveness of the Company’s disclosure controls and procedures and determined that as of these periods, the disclosure controls and procedures were properly designed to detect a material misstatement of its financial statements from occurring in the future. However, due to a misinterpretation of an accounting standard on beneficial conversion features, the filings and disclosures made on the financial statements representing March 31, 2013, June 30, 2013, September 30, 2013 and December 31, 2013, the disclosure control was not effective.

 

Page 25
 

 

Inherent Limitations on Effectiveness of Controls

Our management, including our CEO and CFO, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. 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. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

 

ITEM 6. Exhibits

 

(a) Exhibits:

 

Exhibit
No.
  Description   Filed
Herewith
  Form   Exhibit   Filing
Date
                     
3.1   Articles of Incorporation of Dev-Tech Associates, Inc. and amendment thereto       SB-2   3.1   11/25/1996
                     
3.2   By-laws of the Company       8-K   3.2   12/21/2010
                     
3.3   Restated Certificate of Incorporation of DevSys, Inc.       SB-2   3.3   11/25/1996
                     
3.4   Articles of Merger and Agreement and Plan of Merger of DevSys, Inc. and Dev-Tech Associates, Inc.       SB-2   3.5   11/25/1996
                     
3.5   Certificate of Merger of Dev-Tech Associates, Inc. into DevSys, Inc.       SB-2   3.6   11/25/1996
                     
3.6   Articles of Incorporation of Dev-Tech Migration, Inc. and amendment thereto       SB-2   3.7   11/25/1996
                     
3.7   Restated Certificate of Incorporation of DevSys Migration, Inc.       SB-2   3.9   11/25/1996
                     
3.8   Form of Agreement and Plan of Merger of Dev-Tech Migration, Inc. into DevSys Migration, Inc.       SB-2   3.11   11/25/1996
                     
3.9   Form of Certificate of Merger of Dev-Tech Migration, Inc. into DevSys Migration, Inc.       SB-2   3.12   11/25/1996
                     
3.10   Certificate of Amendment to Certificate of Incorporation of DevSys, Inc. changing our name to NeoMedia Technologies, Inc.       SB-2   3.13   11/25/1996
                     
3.11   Form of Certificate of Amendment to Certificate of Incorporation of the Company authorizing a reverse stock split       SB-2   3.14   11/25/1996

 

Page 26
 

 

3.12   Form of Certificate of Amendment to Restated Certificate of Incorporation of the Company increasing authorized capital and creating preferred stock       SB-2   3.15   11/25/1996
                     
3.13   Certificate of Designation of the Series C Convertible Preferred Stock dated February 17, 2006       8-K   10.9   2/21/2006
                     
3.14   Certificate of Amendment to the Certificate of Designation of the Series C Convertible Preferred Stock dated January 5, 2010       8-K   3.1   1/11/2010
                     
3.15   Certificate of Designation of the Series D Convertible Preferred Stock dated January 5, 2010       8-K   10.1   1/8/2010
                     
3.16   Certificate of Amendment to the Certificate of Designation of the Series D Convertible Preferred Stock dated January 7, 2010       8-K   3.3   1/11/2010
                     
3.17   Certificate of Amendment to the Certificate of Designation of the Series D Convertible Preferred Stock dated March 5, 2010       8-K   3.1   3/11/2010
                     
10.1   Agreement and Plan of Merger dated February 21, 2014, by and between the Company and Qode Services Corporation       10-Q   10.1   4/30/2014
                     
10.2   Reaffirmation and Ratification Agreement dated April 25, 2014, by and between the Company and YA Global Investments, L.P.       10-Q   10.2   4/30/2014
                     
31.1   Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002       X        
                     
31.2   Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002       X        
                     
32.1   Certification by Chief Executive Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002       X        
                     
32.2   Certification by Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002       X        
                     
101.INS   XBRL Instance Document       X        
                     
101.SCH   XBRL Taxonomy Extension Schema Document       X        
                     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document       X        
                     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document       X        
                     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document       X        
                     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document       X        

 

Page 27
 

 

SIGNATURE

 

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)
     
Dated: September 19, 2014   /s/ Laura A. Marriott
   

Laura A. Marriott

Chief Executive Officer

 

September 19, 2014   /s/ Colonel Barry S. Baer
   

Colonel (Ret.) Barry S. Baer

Chief Financial Officer and Principal Financial and Accounting Officer

  

Page 28



 

EXHIBIT 31.1

 

CERTIFICATION

 

I, Laura A. Marriott, certify that:

 

1.   I have reviewed this Quarterly Report on Form 10-Q/A (1st Amendment) for the quarter ended March 31, 2014 of NeoMedia Technologies, Inc.

 

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

 

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

 

4.   The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and

 

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

 

(c)  Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)  Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

 

5.   The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: September 19, 2014 By: /s/ Laura A. Marriott  
    Laura A. Marriott  
    Chief Executive Officer  

 

 

 



 

EXHIBIT 31.2

 

CERTIFICATION

 

I, Barry S. Baer, certify that:

 

1.   I have reviewed this Quarterly Report on Form 10-Q/A (1st Amendment) for the quarter ended March 31, 2014 of NeoMedia Technologies, Inc.

 

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

 

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

 

4.   The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and

 

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

 

(c)  Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)  Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

 

5.   The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: September 19, 2014 By: /s/ Colonel Barry S. Baer  
    Colonel (Ret.) Barry S. Baer  
    Chief Financial Officer and Principal  
    Financial and Accounting Officer  

 

 

 



 

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

 

In connection with the Quarterly Report of NeoMedia Technologies, Inc., a Delaware corporation (the “Company”) on Form 10-Q/A (1st Amendment) for the quarter ended March 31, 2014 as filed with the Securities and Exchange Commission (the “Report”), Laura A. Marriott, does hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that to her knowledge:

 

1.              The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.              The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

 

/s/   Laura A. Marriott  
Laura A. Marriott  
Chief Executive Officer,  
Principal Executive Officer  
September 19, 2014  

 

 

 



 

EXHIBIT 32.2

 

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

 

In connection with the Quarterly Report of NeoMedia Technologies, Inc., a Delaware corporation (the “Company”) on Form 10-Q/A (1st Amendment) for the quarter ended March 31, 2014 as filed with the Securities and Exchange Commission (the “Report”), Barry S. Baer, does hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that to his knowledge:

 

1.              The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.              The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

 

/s/ Colonel Barry S. Baer  
Colonel (Ret.) Barry S. Baer, Chief Financial Officer and Principal Financial and Accounting Officer,  
September 19, 2014  

 

 

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