Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.   20549

FORM 10 - Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) 
OF THE SECURITIES EXCHANGE ACT OF 1934
 
         For the quarterly period ended June 30, 2011

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIESEXCHANGE ACT OF 1934
 
        For the transition period from __________ to ____________
 
Commission File Number 0-21743

NeoMedia Technologies, Inc.
(Exact Name of Issuer as Specified In Its Charter)

Delaware
36-3680347
(State or other jurisdiction of
 incorporation or organization)
(I.R.S. Employer
 Identification No.)
 
Two Concourse Parkway, Suite 500, Atlanta, GA 30328
    (Address, including zip code, of principal executive offices)

678-638-0460
(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 Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.
Yes x   No o

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 o   No o

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 o Accelerated filer o Non-accelerated filer o Smaller Reporting Company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o    No x

The number of outstanding shares of the registrant’s Common Stock on August 8, 2011 was 219,257,318.

 
 

 
 
NeoMedia Technologies, Inc.
Form 10-Q
For the Quarterly Period Ended June 30, 2011
Index

     
Page
PART I
Financial Information
 
2
       
ITEM 1.
Financial Statements
 
2
ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
28
ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk
 
33
ITEM 4.
Controls and Procedures
 
33
       
PART II
Other Information
 
35
       
ITEM 1.
Legal Proceedings
 
35
ITEM 1A.
Risk Factors
 
36
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
36
ITEM 3.
Defaults Upon Senior Securities
 
36
ITEM 4.
(Removed and Reserved)
 
36
ITEM 5.
Other Information
 
36
ITEM 6.
Exhibits
 
37
       
Signatures
 
48

 
1

 

PART I — FINANCIAL INFORMATION
ITEM 1.  Financial Statements

NeoMedia Technologies, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)

   
June 30,
2011
   
December 31,
2010
 
ASSETS
 
(unaudited)
       
Current assets:
           
Cash and cash equivalents
  $ 68     $ 80  
Trade accounts receivable, net of allowance of $5 and $0
    246       345  
Inventories, net of allowance of $122 and $114
    145       112  
Prepaid expenses and other current assets
    211       151  
Total current assets
    670       688  
                 
Property and equipment, net
    83       96  
Goodwill
    3,418       3,418  
Proprietary software, net
    1,085       1,414  
Patents and other intangible assets, net
    1,905       2,048  
Cash surrender value of life insurance policies
    740       738  
Other long-term assets
    171       171  
Total assets
  $ 8,072     $ 8,573  
                 
LIABILITIES AND SHAREHOLDERS’ DEFICIT
               
Current liabilities:
               
Accounts payable
  $ 311     $ 435  
Taxes payable
    38       126  
Accrued expenses
    10,381       9,413  
Deferred revenues and customer prepayments
    1,927       1,417  
Note payable
    15       69  
Accrued purchase price guarantee
    4,535       4,535  
Deferred tax liability
    706       706  
Derivative financial instruments - warrants
    973       2,213  
Derivative financial instruments - Series C and D preferred stock and debentures payable
    56,947       28,092  
Debentures payable - carried at amortized cost
    15,140       14,560  
Debentures payable - carried at fair value
    38,755       27,484  
Total current liabilities
    129,728       89,050  
                 
Commitments and contingencies (Note 6)
               
                 
Series C convertible preferred stock, $0.01 par value, 27,000 shares authorized, 6,104 and 8,336 shares issued and outstanding, liquidation value of $6,104 and $8,336
    6,104       8,336  
Series D convertible preferred stock, $0.01 par value, 25,000 shares authorized, 25,000 and 25,000 shares issued and outstanding, liquidation value of $2,500 and $2,500
    2,500       2,500  
                 
Shareholders’ deficit:
               
Common stock, $0.001 par value, 5,000,000,000 shares authorized, 183,478,429 and 25,695,392 shares issued and 183,462,016 and 25,678,978 shares outstanding as of June 30, 2011 and December 31, 2010, respectively
    183       26  
Additional paid-in capital
    161,954       153,974  
Accumulated deficit
    (291,466 )     (244,395 )
Accumulated other comprehensive loss
    (152 )     (139 )
Treasury stock, at cost, 2,012 shares of common stock
    (779 )     (779 )
Total shareholders’ deficit
    (130,260 )     (91,313 )
Total liabilities and shareholders’ deficit
  $ 8,072     $ 8,573  

The accompanying notes are an integral part of these condensed consolidated financial statements.

 
2

 

NeoMedia Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
 (in thousands, except share and per share data)

    Three Months Ended  
   
June 30,
2011
   
June 30,
2010
 
Revenues
  $ 767     $ 221  
Cost of revenues
    237       255  
Gross profit
    530       (34 )
                 
Sales and marketing expenses
    305       262  
General and administrative expenses
    827       1,041  
Research and development costs
    429       418  
                 
Operating loss
    (1,031 )     (1,755 )
                 
Loss on extinguishment of debt
    -       (363 )
Gain (loss) from change in fair value of hybrid financial instruments
    (15,899 )     1,180  
Gain (loss) from change in fair value of derivative liability - warrants
    (87 )     4,305  
Gain (loss) from change in fair value of derivative liability -
               
Series C and D preferred stock and debentures
    (37,941 )     6,645  
Interest expense related to convertible debt
    (904 )     (510 )
                 
Net Income (loss)
    (55,862 )     9,502  
                 
Net Income (loss) attributable to common shareholders
    (55,862 )     9,502  
                 
Comprehensive income (loss):
               
Net income (loss)
    (55,862 )     9,502  
Other comprehensive loss -
               
foreign currency translation adjustment
    (4 )     (26 )
                 
Comprehensive Income (loss)
  $ (55,866 )   $ 9,476  
                 
Net income (loss) per share, basic and diluted:
               
Basic
  $ (0.41 )   $ 0.42  
Fully diluted
  $ (0.41 )   $ (0.01 )
                 
Weighted average number of common shares:
               
Basic
    137,692,460       22,675,678  
Fully diluted
    137,692,460       302,104,430  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
3

 

NeoMedia Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
 (in thousands, except share and per share data)

   
Six Months Ended
 
   
June 30,
2011
   
June 30,
2010
 
Revenues
  $ 1,136     $ 576  
Cost of revenues
    475       594  
Gross profit
    661       (18 )
                 
Sales and marketing expenses
    621       581  
General and administrative expenses
    1,621       2,136  
Research and development costs
    830       701  
                 
Operating loss
    (2,411 )     (3,436 )
                 
Loss on extinguishment of debt
    -       (6,006 )
Gain (loss) from change in fair value of hybrid financial instruments
    (13,428 )     19,552  
Gain from change in fair value of derivative liability - warrants
    1,695       10,856  
Gain (loss) from change in fair value of derivative liability -
               
Series C and D preferred stock and debentures
    (31,270 )     46,824  
Interest expense related to convertible debt
    (1,657 )     (956 )
                 
Net Income (loss)
    (47,071 )     66,834  
                 
Dividends on convertible preferred stock
    -       (2,500 )
                 
Net Income (loss) attributable to common shareholders
    (47,071 )     64,334  
                 
Comprehensive income (loss):
               
Net income (loss)
    (47,071 )     66,834  
Other comprehensive loss -
               
foreign currency translation adjustment
    (13 )     (50 )
                 
Comprehensive Income (loss)
  $ (47,084 )   $ 66,784  
                 
Net income (loss) per share, basic and diluted:
               
Basic
  $ (1.02 )   $ 2.84  
Fully diluted
  $ (1.02 )   $ (0.02 )
                 
Weighted average number of common shares:
               
Basic
    46,114,822       22,675,678  
Fully diluted
    46,114,822       299,092,068  

The accompanying notes are an integral part of these condensed consolidated financial statements.

 
4

 

NeoMedia Technologies, Inc. and Subsidiaries
Consolidated Statement of Shareholders’ Deficit (Unaudited)
(in thousands, except share data)

   
Common Stock
     Additional Paid-in      Accumulated Other Comprehensive Income      Accumulated    
Treasury
Stock
         
Total
Shareholders'
 
   
Shares
   
Amount
   
Capital
   
(Loss)
   
Deficit
   
Shares
   
Amount
   
 Deficit
 
Balance, December 31, 2010
    25,678,978     $ 26     $ 153,974     $ (139 )   $ (244,395 )     2,012     $ (779 )   $ (91,313 )
                                                                 
Shares issued for acquisition of patent rights
    5,000,000       5       345       -       -       -       -       350  
                                                                 
Shares issued upon conversions of Series C preferred stock
    152,783,038       152       7,583       -       -       -       -       7,735  
                                                                 
Stock-based compensation expense
    -       -       52       -       -       -       -       52  
                                                                 
Comprehensive income - foreign currency translation adjustment
    -       -       -       (13 )     -       -       -       (13 )
                                                                 
Net loss
    -       -       -       -       (47,071 )     -       -       (47,071 )
Balance, June 30, 2011
    183,462,016     $ 183     $ 161,954     $ (152 )   $ (291,466 )     2,012     $ (779 )   $ (130,260 )

The accompanying notes are an integral part of these condensed consolidated financial statements.

 
5

 

NeoMedia Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)

   
Six Months Ended
 
   
June 30,
 
   
2011
   
2010
 
Cash Flows from Operating Activities:
           
Net Income (loss)
  $ (47,071 )   $ 66,834  
Adjustments to reconcile net income (loss) to net cash used in operating activities:
               
Depreciation and amortization
    489       497  
Loss on extinguishment of debt
    -       6,006  
(Gain) loss from change in fair value of hybrid financial instruments
    13,428       (19,552 )
(Gain) loss from change in fair value of derivative liability - warrants
    (1,695 )     (10,856 )
(Gain) loss from change in fair value of derivative liability -
               
Series C and D preferred stock and debentures
    31,270       (46,824 )
Interest expense related to convertible debt
    1,657       956  
Interest paid on convertible debt
    (1,000 )     -  
Stock-based compensation expense
    52       98  
Increase in value of life insurance policies
    (2 )     47  
                 
Changes in operating assets and liabilities
               
Trade and other accounts receivable
    99       138  
Inventories
    (33 )     24  
Prepaid expenses and other assets
    (60 )     142  
Accounts payable and accrued liabilities
    (116 )     (537 )
Deferred revenue and other current liabilities
    510       (332 )
Net cash used in operating activities
    (2,472 )     (3,359 )
                 
Cash Flows from Investing Activities:
               
                 
Acquisition of property and equipment
    (5 )     (7 )
Net cash used in investing activities
    (5 )     (7 )
                 
Cash Flows from Financing Activities:
               
Proceeds from issuance of Series D preferred stock
    -       2,500  
Costs attributed to issuance of Series D convertible preferred stock
    -       (100 )
Borrowing (repayment) of note payable - YA Global
    -       (500 )
Borrowings under convertible debt instruments, net
    2,460       1,885  
Net cash provided by financing activities
    2,460       3,785  
                 
Effect of exchange rate changes on cash
    5       56  
                 
Net increase (decrease) in cash and cash equivalents
    (12 )     475  
                 
Cash and cash equivalents, beginning of period
    80       198  
Cash and cash equivalents, end of period
  $ 68     $ 673  
                 
Supplemental cash flow information:
               
Interest paid during the period
  $ 1     $ 1  
Series C preferred stock converted to common stock
  $ 7,736     $ -  
Deemed dividend on Series D preferred stock issued
  $ -     $ 2,500  
Shares issued for acquisition of patent rights
  $ 350     $ -  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
6

 

NeoMedia Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - General

Business NeoMedia Technologies, Inc., a Delaware corporation (“NeoMedia”, and also referred to herein as “us”, “we” and “our”), is an innovator and a global market leader in 2D mobile barcode technology and solutions that enable the mobile barcode ecosystem world-wide.  NeoMedia harnesses the power of the mobile phone with state-of-the art mobile barcode technology. With this technology, mobile phones with cameras become barcode scanners and this enables a range of applications including consumer oriented marketing and advertising, mobile ticketing and couponing, and business-to-business commercial track and trace solutions.

As a technology pioneer in the global mobile barcode industry, our suite of products, services and IP portfolio allows us to offer a comprehensive end-to-end mobile barcode solution. We offer barcode management and infrastructure technology solutions, barcode reader solutions and IP licensing, as well as mobile couponing and ticketing products and services. NeoMedia has been a pioneer in the mobile barcode field since the mid 1990s, and during that time has spearheaded the development of a robust IP portfolio that encompasses many preferred mobile barcode implementations. We have an IP portfolio currently consisting of over sixty issued and pending patents.

Going Concern – We have historically incurred net losses from operations and we expect that we will continue to have 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 consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which contemplates our continuation as a going concern. Net loss for the six months ended June 30, 2011 was $47.1 million and our net income for the six months ended June 30, 2010 was $66.8 million, respectively, of which $43.0 million were net losses, and $71.2 million were net gains related to our financing instruments, respectively.   Net cash used by operations during the six months ended June 30, 2011 and 2010 was $2.5 million and $3.4 million, respectively. At June 30, 2011, we have an accumulated deficit of $291.5 million. We also have a working capital deficit of $129.1 million, of which $111.8 million is related to our financing instruments, including $39.7 million related to the fair value of warrants and those debentures that are recorded as hybrid financial instruments, and $72.1 million related to the amortized cost carrying value of certain of our debentures and the fair value of the associated derivative liabilities. We also have a continuing purchase price guarantee obligation of $4.5 million associated with an acquisition of a business in 2006, which we subsequently sold in 2007.

The items discussed above raise substantial doubt about our ability to continue as a going concern.

We currently do not have sufficient cash or commitments for financing, to sustain our operations for the next twelve months and therefore, we will require additional financing in order to execute our operating plan and continue as a going concern.  Our management’s plan is to attempt to secure adequate funding to bridge the commercialization of our patent licensing and barcode ecosystem businesses. 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 these financing sources do not materialize, 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 as they become due or respond to competitive pressures, any of which circumstances would have a material adverse effect on our business, prospects, financial condition and results of operations. Should our lender, YA Global Investments, L.P. (“YA Global”) choose not to provide us with continued financing, or if we do not find alternative sources of financing to fund our operations or if we are unable to generate significant product revenues, we only have sufficient funds to sustain our current operations through approximately September 1, 2011.
 
The 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.
 
 
7

 
 
Note 2 - Summary of Significant Accounting Policies

The accompanying unaudited financial statements have been prepared in accordance with US GAAP for interim financial information and Rule 8.03 of Regulation S-X. They do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. For further information, refer to our financial statements as of December 31, 2010 and 2009, and for the years then ended, including notes thereto in the Company’s Annual Report on Form 10-K, for the year ended December 31, 2010.

Basis of Presentation – The consolidated financial statements include the accounts of NeoMedia Technologies, Inc. and our wholly-owned subsidiaries.  We operate as one reportable segment.  All significant intercompany accounts and transactions have been eliminated.

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. Actual results could differ from those estimates.  Changes in facts and circumstances may result in revised estimates, which are recorded in the period in which they become known.

Stock-Based Compensation - FASB ASC 718, Stock Compensation, requires that all stock-based compensation be recognized as an expense in the financial statements and that such cost be measured at the grant date fair value of the award.  We account for modifications of terms of existing option grants as exchanges of the existing equity instruments for new instruments.  The fair value of the modified option at the grant date is compared with the value at that date of the original option immediately before its terms are modified.  Any excess fair value of the modified option over the original option is recognized as additional compensation expense.

Basic and Diluted Net Income (Loss) Per Share – Basic net income (loss) per share is computed by dividing net income (loss) attributable to common shareholders by the weighted average number of shares of common stock outstanding during the period. During the three and six months ended June 30, 2011, we reported a net loss per share, and as such, basic and diluted loss per share were equivalent. During the three and six months ended June 30, 2010, we reported net income per share and included dilutive instruments in the fully diluted net income per share calculation.
 
 
8

 
 
The following is a reconciliation of the numerator and denominator of the basic and diluted net income (loss) per share calculations for each period:

   
Three Months Ended
June 30,
   
Six Months Ended
 June 30,
 
   
2011
   
2010
   
2011
   
2010
 
      (in thousands except share and per share data)  
Numerator:
                       
Net income (loss)
  $ (55,862 )   $ 9,502     $ (47,071 )   $ 66,834  
Adjustments to reconcile net income to income (loss) applicable to common stockholders:
                               
Accretion of Series D Preferred stock
    -       -       -       (2,500 )
Numerator for basic earnings per share - income available to common stockholders
    (55,862 )     9,502       (47,071 )     64,334  
                                 
Effect of dilutive securities:
                               
Adjustment for change in fair value of derivative liability-Series C and D preferred stock and debentures
    -       (6,645 )     -       (46,824 )
Adjustment for change in fair value of derivative liability- warrants
    -       (4,305 )     -       (10,856 )
Adjustment for change in fair value of hybrid financial instruments
    -       (1,180 )     -       (19,552 )
Adjustment for dividends on convertible preferred stock
    -       -       -       -  
Adjustment for interest expense related to convertible debt
    -       478       -       927  
      -       (11,652 )     -       (70,662 )
Numerator for diluted earnings per share- income available for common stockholders after assumed conversions of debentures and exercise of warrants
  $ (55,814 )   $ (2,150 )   $ (47,071 )   $ (6,328 )
                                 
Denominator:
                               
Weighted average shares used to compute basic EPS
    137,692,460       22,675,678       46,114,822       22,675,678  
Effect of dilutive securities:
                               
Employee stock options
    -       76,319       -       118,522  
Derivative warrants
    -       -       -       -  
Convertible debentures
    -       202,777,415       -       200,102,566  
Convertible preferred stock
    -       76,575,018       -       76,195,302  
Dilutive potential common shares
    -       279,428,752       -       276,416,389  
                                 
Denominator for diluted earnings per share- adjusted weighted average shares and assumed conversions
    137,692,460       302,104,430       46,114,822       299,092,067  
                                 
Basic earning per share
  $ (0.41 )   $ 0.42     $ (1.02 )   $ 2.84  
Diluted earnings per share
  $ (0.41 )   $ (0.01 )   $ (1.02 )   $ (0.02 )

The above table includes only dilutive instruments and their effects on earnings per common share.

The following outstanding stock options, warrants, convertible debt and convertible preferred securities for the three and six months ended June 30, 2011 and 2010, are anti-dilutive and therefore have been excluded from diluted net income (loss) per share:

   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Stock options
    1,289,481       839,830       1,289,481       872,662  
Warrants
    28,595,000       13,465,035       28,595,000       12,459,085  
Convertible debt
    2,571,618,911       -       2,523,689,224       -  
Convertible preferred stock
    656,768,321       -       656,768,321       -  
      3,258,271,713       14,304,865       3,210,342,026       13,331,747  

 
9

 

Inventories – Inventories are stated at the lower of cost or market and are comprised of barcode-reading equipment at our NeoMedia Europe location.  Cost is determined using the first-in, first-out method.

Recent Accounting Pronouncements - The following Accounting Standards Codification Updates have recently been issued:

Pronouncement
 
Issued
 
Title
ASU No. 2011-02
 
April 2011
 
Receivables (Topic 310): A Creditor’s Determination of Whether a
       
Restructuring Is a Troubled Debt Restructuring
         
ASU No. 2011-03
 
April 2011
 
Update No. 2011-03—Transfers and Servicing (Topic 860): Reconsideration of
       
Effective Control for Repurchase Agreements
         
ASU No. 2011-04
 
May 2011
 
Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair
       
Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs
         
ASU No. 2011-05
 
June 2011
 
Comprehensive Income (Topic 220): Presentation of Comprehensive Income
         
ASU No. 2011-06
 
July 2011
 
Other Expenses (Topic 720): Fees Paid to the Federal Government by Health
       
Insurers (a consensus of the FASB Emerging Issues Task Force)
         
ASU No. 2011-07
 
July 2011
 
Health Care Entities (Topic 954): Presentation and Disclosure of Patient
       
Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful
       
Accounts for Certain Health Care Entities (a consensus of the FASB Emerging
       
Issues Task Force)

To the extent appropriate, the guidance in the above Accounting Standards Codification Updates is already reflected in our consolidated financial statements and management does not anticipate that these accounting pronouncements will have any material future effect on our consolidated financial statements.

Note 3 – Financing

At June 30, 2011, our financing transactions with YA Global, an accredited investor, included shares of our Series C preferred stock issued in February 2006, Series D preferred stock issued in January 2010, a series of twenty five secured convertible debentures issued between August 2006 and June 2011 and various warrants to purchase shares of our common stock. All of our assets are pledged to secure our obligations under these 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. As of June 30, 2011, approximately $826,000 has been assigned or distributed by YA Global to other holders which represents approximately 2% of YA Global’s holdings.

Conversions – Our preferred stock and convertible debentures are convertible into shares of our common stock. However, the conversion of each of these securities is limited such that the holder cannot exceed 9.99% beneficial ownership of our common stock, unless the holder waives their right to such limitation. Cumulatively, as of June 30, 2011, the holders of our Series C preferred stock have converted 15,896 shares of the original 22,000 shares of Series C preferred stock into 151,826,899 shares of common stock. YA Global has converted $888,000 of principal and accrued interest of those debentures into 1,317,747 shares of our common stock.  Holders, other than YA Global, converted $197,000 of principal and accrued interest of debentures into 15,798,675 shares of common stock.

Debenture Interest Payments– On December 23, 2010 and again on February 18, 2011, we made payments to YA Global of $1.0 million each of accrued interest related to the March 27, 2007 debenture.
 
 
10

 
 
Secured Debentures - The underlying agreements for each of the twenty five debentures issued to YA Global are essentially the same, except in regard to the interest rate, varying conversion prices per share, and the number of warrants that were issued in conjunction with each of the debentures. The 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, 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 AG, 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 which have been executed in connection with each of the 2010 and 2011 financings.

2011 Financing Transactions - On January 10, 2011, February 8, 2011, March 11, 2011, April 13, 2011, May 31, 2011 and June 28, 2011, we entered into Securities Purchase Agreements to issue and sell debentures to YA Global in the principal amounts of $450,000, $650,000, $450,000, $450,000, $450,000 and $250,000, respectively. On June 28, 2011, we entered into a Securities Purchase agreement to issue and sell secured debentures to YA Global that combined will have an aggregate principal amount of $1,050,000 upon their issuance. As noted above, the first debenture in the principal amount of $250,000 was issued on June 28, 2011, a second convertible debenture in the amount of $450,000 was issued on July 13, 2011 and in accordance with the terms of the agreement, a third convertible debenture with a principal amount of $350,000 will be issued on or before August 15, 2011. The debentures are convertible, at the option of the holder, at a conversion price equal to the lesser of (i) $0.10 or (ii) 95% of the lowest closing bid price of our common stock for the 60 trading days preceding the date of conversion. The debentures bear interest at 14% and mature on July 29, 2012. The six debentures issued prior to June 30, 2011, provided net proceeds of $2,460,000 after payment of $240,000 in fees. These financing fees included a prepayment of $75,000 related to the debenture issued on July 13, 2011, and the debenture to be issued on or before August 15, 2011. We have the right to redeem a portion or all amounts outstanding under the debentures at a redemption premium of 10%, plus accrued interest.  In connection with the six debentures issued prior to June 30, 2011, we also issued warrants to YA Global to purchase 1,250,000, 1,250,000, 1,000,000, 1,000,000, 1,000,000 and 3,000,000 shares of common stock, respectively. The warrants issued from January 2011 through April 2011 have an exercise price of $0.10 per share, and the warrants issued subsequently have an exercise price of $0.15 per share.  All warrants issued during 2011 have a term of five years. 

At inception, a summary of the allocation of the components of the new debentures and warrants issued this quarter was as follows:

   
April 13, 2011 debenture
   
May 31, 2011 debenture
   
June 28, 2011 debenture
 
   
(in thousands)
 
Gross proceeds
  $ 450     $ 450     $ 250  
Structuring and due diligence fee
    (25 )     (25 )     (25 )
    $ 425     $ 425     $ 225  
                         
Derivative liabilities:
                       
Investor warrants
  $ (18 )   $ (90 )   $ (105 )
Compound derivative
    (284 )     (310 )     (525 )
Total derivative liabilities
    (302 )     (400 )     (630 )
                         
Day one derivative loss
    -       -       405  
Convertible debenture-initial carrying
                       
value
    (123 )     (25 )     -  
    $ (425 )   $ (425 )   $ (225 )
 
 
11

 
 
The compound derivatives were valued using the Monte Carlo Simulation valuation method. Significant assumptions used to value the compound derivatives as of inception of the financings included exercise estimates/behaviors and the following significant estimates:

   
April 13, 2011 Financing
   
May 31, 2011 Financing
   
June 28, 2011 Financing
 
Conversion price
  $ 0.0152     $ 0.0688     $ 0.0128  
Equivalent volatility
    127 %     122 %     190 %
Equivalent interest risk
    14.00 %     14.00 %     14.00 %
Equivalent credit risk
    7.40 %     7.54 %       7.40%

The warrants are valued using a binomial option valuation methodology. Significant assumptions used to value the warrants as of their inception included the following significant estimates:

   
April 13,
2011
   
May 31,
2011
   
June 28,
2011
 
Exercise price
  $ 0.02     $ 0.11     $ 0.04  
Expected life
 
5 years
   
5 years
 
5 years
 
Estimated volatility
    254 %     278 %     271 %
Risk free rate of return
    0.92 %     0.64 %     0.63 %
Dividend yield
                 

For the risk-free rates of return, we use the published yields on zero-coupon Treasury Securities with maturities consistent with the term of the warrants and volatility is based upon our expected stock price volatility over the term of the warrants.
 
 
12

 
 
The table below summarizes the significant terms of each of the debentures as of June 30, 2011:

                       
Conversion Price – Lower of Fixed Price or Percentage of VWAP for Preceding Period
Debenture Issue Date
 
Face Amount
 
Maturity
 
Interest
 Rate
   
Default Interest Rate
   
Fixed Price
   
%
   
Default %
 
Preceding Period
August 24, 2006
  $ 5,000,000  
7/29/2012
    10 %     n/a     $ 2.00       90 %     n/a  
125 Days
December 29, 2006
  $ 2,500,000  
7/29/2012
    10 %     n/a     $ 2.00       90 %     n/a  
125 Days
March 27, 2007
  $ 7,458,651  
7/29/2012
    13 %     n/a     $ 2.00       90 %     n/a  
125 Days
August 24, 2007
  $ 1,775,000  
7/29/2012
    14 %     n/a     $ 2.00       80 %     n/a  
125 Days
April 11, 2008
  $ 390,000  
7/29/2012
    15 %     24 %   $ 1.50       80 %     75 %
125 Days
May 16, 2008
  $ 500,000  
7/29/2012
    15 %     24 %   $ 1.50       80 %     50 %
125 Days
May 29, 2008
  $ 790,000  
7/29/2012
    15 %     24 %   $ 1.00       80 %     50 %
125 Days
July 10, 2008
  $ 137,750  
7/29/2012
    15 %     24 %   $ 1.00       80 %     50 %
125 Days
July 29, 2008
  $ 2,325,000  
7/29/2012
    14 %     24 %   $ 2.00       95 %     50 %
125 Days
October 28, 2008
  $ 2,325,000  
7/29/2012
    14 %     20 %   $ 2.00       95 %     50 %
125 Days
May 1, 2009
  $ 258,037  
7/29/2012
    14 %     20 %   $ 2.00       95 %     50 %
125 Days
June 5, 2009
  $ 715,000  
7/29/2012
    14 %     20 %   $ 2.00       95 %     50 %
125 Days
July 15, 2009
  $ 535,000  
7/29/2012
    14 %     20 %   $ 2.00       95 %     50 %
125 Days
August 14, 2009
  $ 475,000  
7/29/2012
    14 %     20 %   $ 2.00       95 %     50 %
125 Days
May 27, 2010
  $ 2,006,137  
7/29/2012
    14 %     20 %   $ 0.30       95 %     50 %
60 Days
August 13, 2010
  $ 550,000  
7/29/2012
    14 %     20 %   $ 0.20       95 %     50 %
60 Days
September 29, 2010
  $ 475,000  
7/29/2012
    14 %     20 %   $ 0.20       95 %     50 %
60 Days
October 28, 2010
  $ 400,000  
7/29/2012
    14 %     20 %   $ 0.20       95 %     50 %
60 Days
December 15, 2010
  $ 450,000  
7/29/2012
    14 %     20 %   $ 0.10       95 %     50 %
60 Days
January 10, 2011
  $ 450,000  
7/29/2012
    14 %     20 %   $ 0.10       95 %     50 %
60 Days
February 8, 2011
  $ 650,000  
7/29/2012
    14 %     20 %   $ 0.10       95 %     50 %
60 Days
March 11, 2011
  $ 450,000  
7/29/2012
    14 %     20 %   $ 0.10       95 %     50 %
60 Days
April 13, 2011
  $ 450,000  
7/29/2012
    14 %     20 %   $ 0.10       95 %     50 %
60 Days
May 31, 2011
  $ 450,000  
7/29/2012
    14 %     20 %   $ 0.10       95 %     50 %
60 Days
June 28, 2011
  $ 250,000  
7/29/2012
    14 %     20 %   $ 0.10       95 %     50 %
60 Days
 
All debentures with YA Global contain provisions for acceleration of principal and interest upon default. Certain debentures also contain default interest rates and conversion prices, as reflected in the table above.
 
In our evaluation of these financing transactions, we concluded that the conversion features were not afforded the exemption for conventional convertible instruments due to the variable conversion rate, and they did not otherwise meet the conditions set forth in current accounting standards for equity classification. Because equity classification was not available for the conversion features, we elected to bifurcate the compound derivatives, and carry them as derivative liabilities, at fair value. Each compound derivative consists of (i) the embedded conversion feature, (ii) down-round anti-dilution protection features, and (iii) default, non-delivery and buy-in puts which were combined into one compound instrument that is carried as a component of derivative liabilities.

Fair Value Considerations - In accordance with FASB ASC 815, Derivatives and Hedging, we determined that the conversion features of the Series C and Series D preferred stock, and the August 2006, December 2006, July 2008, October 2008, April 2009, May 2009, June 2009, July 2009, August 2009, May 2010, August 2010, September 2010, October 2010, December 2010, January 2011, February 2011, March 2011, April 2011, May 2011 and June 2011 Debentures met the criteria of embedded derivatives and that the conversion features of these instruments required bifurcation and accounting as derivative instrument liabilities. Changes in the fair value of the compound derivative liability, including the embedded conversion option, are charged or credited to income each period. As permitted by FASB ASC 815-15-25, Recognition of Embedded Derivatives, we elected not to bifurcate the embedded derivatives in the March 2007, August 2007, April 2008 or May 2008 Debentures and accordingly, these convertible instruments are being carried in their entirety at their fair values, with the changes in the fair value of the debentures charged or credited to income each period.
 
 
13

 
 
Derivative financial instruments arising from the issuance of convertible financial instruments are initially recorded, and continuously carried, at fair value. Upon conversion of any of the convertible financial instruments, the carrying amount of the debt, including any unamortized premium or discount, and the related derivative instrument liability are credited to the capital accounts upon conversion to reflect the stock issued and no gain or loss is recognized.


Embedded Derivative Instruments – Series C and Series D preferred stock and August 2006, December 2006, July 2008, October 2008, April 2009, May 2009, June 2009, July 2009, August 2009, May 2010, August 2010, September 2010, October 2010, December 2010, January 2011, February 2011, March 2011, April 2011, May 2011 and June 2011 Convertible Debentures - Embedded derivative financial instruments arising from the convertible instruments consist of multiple individual features that were embedded in each instrument. For each convertible instrument, we evaluated all significant features and, as required under current accounting standards, aggregated the components into one compound derivative financial instrument for financial reporting purposes. For financings recorded in accordance with FASB ASC 815, 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.

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 in the agreement, the conversion price adjusts to that lower amount.

 
14

 
 
The assumptions included in the calculations are highly subjective and subject to interpretation.  Assumptions used as of June 30, 2011 included exercise estimates/behaviors and the following other significant estimates:

   
Conversion Prices
   
Remaining
Term
(years)
   
Equivalent
Volatility
   
Equivalent
Interest-Risk
Adjusted Rate
   
Equivalent
Credit-Risk
Adjusted Rate
 
Series C preferred Stock
  $ 0.01       1.08       190 %     8.00 %     7.40 %
Series D preferred Stock
  $ 0.01       1.08       190 %     8.00 %     7.40 %
                                         
August 24, 2006
  $ 0.01       1.08       190 %     10.00 %     7.40 %
December 29, 2006
  $ 0.01       1.08       190 %     10.00 %     7.40 %
July 10, 2008
  $ 0.01       1.08       190 %     15.00 %     7.40 %
July 29, 2008
  $ 0.01       1.08       190 %     14.00 %     7.40 %
October 28, 2008
  $ 0.01       1.08       190 %     14.00 %     7.40 %
May 1, 2009
  $ 0.01       1.08       190 %     14.00 %     7.40 %
June 5, 2009
  $ 0.01       1.08       190 %     14.00 %     7.40 %
July 15, 2009
  $ 0.01       1.08       190 %     14.00 %     7.40 %
August 14, 2009
  $ 0.01       1.08       190 %     14.00 %     7.40 %
May 27, 2010
  $ 0.01       1.08       190 %     14.00 %     7.40 %
August 13, 2010
  $ 0.01       1.08       190 %     14.00 %     7.40 %
September 29, 2010
  $ 0.01       1.08       190 %     14.00 %     7.40 %
October 28, 2010
  $ 0.01       1.08       190 %     14.00 %     7.40 %
December 15, 2010
  $ 0.01       1.08       190 %     14.00 %     7.40 %
January 10, 2011
  $ 0.01       1.08       190 %     14.00 %     7.40 %
February 8, 2011
  $ 0.01       1.08       190 %     14.00 %     7.40 %
March 11, 2011
  $ 0.01       1.08       190 %     14.00 %     7.40 %
April 13, 2011
  $ 0.01       1.08       190 %     14.00 %     7.40 %
May 31, 2011
  $ 0.01       1.08       190 %     14.00 %     7.40 %
June 28, 2011
  $ 0.01       1.08       190 %     14.00 %     7.40 %
 
Equivalent amounts reflect the net results of multiple modeling simulations that the Monte Carlo Simulation methodology applies to underlying assumptions.
 
 
15

 
 
Due to the variable component of the conversion price, rapid fluctuations in the trading market price may result in significant variations to the calculated conversion price. For each debenture, we analyze the ratio of the conversion price (as calculated based on the percentage of VWAP for the appropriate look back period) to the trading market price for a period of time equal to the term of the debenture to determine the average ratio for the term of the note. Each quarter, the ratio in effect on the date of the valuation is compared with the average ratio over the term of the debenture to determine if the calculated conversion price is representative of past trends or if it is considered unrepresentative due to a large fluctuation in the stock price over a short period of time. If the calculated conversion price results in a ratio that deviates significantly from the average ratio over the term of the agreement, the average ratio of the conversion price to the trading market price is then multiplied by the current trading market price to determine the variable portion of the conversion price for use in the fair value calculations. This variable conversion price is then compared with the fixed conversion price and, as required by the terms of the debentures, the lower of the two amounts is used as the conversion price in the Monte Carlo Simulation model used for valuation purposes. On June 30, 2011, the fixed conversion price for each of the debentures was equal to or higher than the calculated variable conversion price. Accordingly, the variable conversion price was used in the Monte Carlo Simulation model. This analysis is performed each quarter to determine if the calculated conversion price is reasonable for purposes of determining the fair value of the embedded conversion features (for instruments recorded under FASB ASC 815-15-25-1) or the fair value of the hybrid instrument (for instruments recorded under FASB ASC 815-15-25-4).

Hybrid Financial Instruments Carried at Fair Value – 2007 and 2008 Convertible Debentures - The March 2007, August 2007, April 2008 and May 2008 convertible debentures are recorded in accordance with FASB ASC 815-15-25-4 and the entire hybrid instrument was initially recorded at fair value, with subsequent changes in fair value charged or credited to income each period. These financial instruments are valued using the common stock equivalent approach. The common stock equivalent is calculated using the shares indexed to the debentures valued at the market price of our stock and the present value of the coupon.

Subsequent to a January 5, 2010 amendment, the shares indexed to the debentures were calculated using the variable conversion price based on the 125 day look-back period and the present value of the coupon from inception of the debentures to the revised maturity date of July 29, 2012.

Current Period Valuations - For the Series C and D preferred stock and the August 2006, December 2006, July 2008, October 2008, May 2009, June 2009, July 2009, August 2009, May 2010, August 2010, September 2010, October 2010, December 2010, January 2011, February 2011, March 2011, April 2011, May 2011 and June 2011 debentures, the embedded derivative instrument, primarily the conversion feature, has been separated and accounted for as a derivative instrument liability, as discussed above. This derivative instrument liability is marked-to-market each reporting period.

The March 2007, August 2007, April 2008 and May 2008 debentures were each initially recorded at their full fair value pursuant to FASB ASC 815-15-25-4. That fair value is marked-to-market each reporting period, with any changes in the fair value charged or credited to income.

On January 5, 2010, the terms of all of the debentures issued prior to that date were modified to increase the look-back period used to calculate the variable conversion price per share for all debentures to a period of 125 days and to extend the stated maturity date to July 29, 2012, which increased our future anticipated cash flows related to those instruments.  Because that increase exceeded the threshold prescribed by FASB ASC 470-50, Debt Modifications and Extinguishments, the modification of the amounts due under these instruments was accounted for as an extinguishment. Accordingly, the original convertible debentures were considered extinguished and the revised convertible debentures were recorded at their fair value, resulting in an extinguishment loss of approximately $5.6 million.

For instruments which were recorded under FASB ASC 815-15-25-4, the instruments were first adjusted to fair value as of January 5, 2010 using the conversion rate and maturity date prior to the amendment. The fair value of the instrument was then calculated using the modified conversion rate and maturity date to determine the fair value of the instrument subsequent to the amendment. The difference in the fair value before and after the amendment was recorded as an extinguishment loss.

 
16

 

For instruments recorded under FASB ASC 815-15-25-1, the embedded conversion feature was first adjusted to fair value as of the date of the amendment using the conversion rate and maturity date prior to the amendment. The carrying value of the host instrument and the embedded conversion feature, less any deferred financing costs, was then compared with the fair value of the hybrid instrument subsequent to the amendment and the difference was recorded as an extinguishment loss.

For our Series C and Series D preferred stock and our convertible debentures, the following table reflects the face value of the instruments and, as appropriate, either their amortized cost carrying value and the fair value of the separately-recognized compound embedded derivative or, for those debentures recorded in their entirety at fair value, their fair value, as well as for each of the instruments the number of common shares (in thousands) into which the instruments are convertible as of June 30, 2011 and December 31, 2010.
 
June 30, 2011
 
Face
Value
   
Carrying
Value
   
Accrued
Interest
   
Embedded
Conversion
Feature
   
Fair Value
   
Common
Stock
Shares
 
    (in thousands)  
Series C preferred Stock
  $ 6,104     $ 6,104     $ -     $ 10,204     $ -       465,929  
Series D preferred Stock
  $ 2,500     $ 2,500     $ -       4,179       -       190,840  
                                                 
August 24, 2006
  $ 5,000     $ 5,000     $ 2,125       9,682       -       583,985  
December 29, 2006
    2,500       2,500       1,064       4,840       -       292,092  
March 27, 2007
    7,312       n/a       n/a       n/a       23,778       611,365  
August 24, 2007
    1,775       n/a       n/a       n/a       6,890       164,352  
April 11, 2008
    390       n/a       n/a       n/a       1,883       36,111  
May 16 ,2008
    500       n/a       n/a       n/a       2,406       46,296  
May 29, 2008
    790       n/a       n/a       n/a       3,798       73,148  
July 10, 2008
    138       138       62       334       -       18,526  
July 29, 2008
    2,325       2,325       953       4,382       -       256,130  
October 23, 2008
    2,325       2,325       871       4,389       -       249,702  
May 1, 2009
    258       258       109       465       -       31,493  
June 5, 2009
    715       682       209       1,386       -       72,195  
July 15, 2009
    535       535       149       1,012       -       53,435  
August 14, 2009
    475       475       127       902       -       47,009  
May 27, 2010
    2,006       548       307       4,966       -       180,715  
August 13, 2010
    550       43       68       1,294       -       48,259  
September 29, 2010
    475       32       50       1,100       -       41,009  
October 28, 2010
    400       23       38       917       -       34,199  
December 15, 2010
    450       24       34       1,015       -       37,826  
January 10, 2011
    450       16       30       1,006       -       37,476  
February 8, 2011
    650       22       36       1,438       -       53,567  
March 11, 2011
    450       12       19       984       -       36,667  
April 13, 2011
    450       153       14       972       -       36,222  
May 31, 2011
    450       27       5       955       -       35,561  
June 28, 2011
    250       2       -       525       -       19,554  
Total
  $ 31,619     $ 15,140     $ 6,270     $ 56,947     $ 38,755       3,753,663  
 
 
17

 
 
December 31, 2010
 
Face
Value
   
Carrying
Value
   
Accrued
Interest
   
Embedded
Conversion
Feature
   
Fair Value
   
Common
Stock
Shares
 
    (in thousands)  
Series C preferred Stock
  $ 8,336     $ 8,336     $ -     $ 6,706     $ -       125,348  
Series D preferred Stock
  $ 2,500     $ 2,500     $ -       1,918       -       36,819  
                                                 
August 24, 2006
  $ 5,000     $ 5,000     $ 1,876       5,007       -       109,154  
December 29, 2006
    2,500       2,500       940       2,502       -       54,596  
March 27, 2007
    7,459       n/a       n/a       n/a       17,905       118,391  
August 24, 2007
    1,775       n/a       n/a       n/a       4,888       31,696  
April 11, 2008
    390       n/a       n/a       n/a       1,106       6,964  
May 16 ,2008
    500       n/a       n/a       n/a       1,392       8,929  
May 29, 2008
    790       n/a       n/a       n/a       2,193       14,107  
July 10, 2008
    138       138       51       180       -       3,387  
July 29, 2008
    2,325       2,325       792       2,381       -       46,873  
October 23, 2008
    2,325       2,325       709       2,279       -       46,873  
May 1, 2009
    258       258       92       237       -       5,249  
June 5, 2009
    715       668       158       771       -       13,139  
July 15, 2009
    535       535       111       404       -       9,719  
August 14, 2009
    475       475       93       482       -       8,546  
May 27, 2010
    2,006       302       168       2,785       -       32,690  
August 13, 2010
    550       13       29       732       -       8,715  
September 29, 2010
    475       9       17       620       -       7,398  
October 28, 2010
    400       6       10       517       -       6,163  
December 15, 2010
    450       6       3       571       -       6,811  
Total
  $ 29,066     $ 14,560     $ 5,049     $ 28,092     $ 27,484       701,567  

The terms of the embedded conversion features in the convertible instruments presented above provide for variable conversion rates that are indexed to our 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 preferred stock was convertible as of June 30, 2011 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. The number of shares of common stock into which the embedded conversion feature in the convertible debentures was convertible as of June 30, 2011 was calculated as the face value of each instrument divided by the variable conversion price using the appropriate look-back period.

The March 2007, August 2007, April 2008 and May 2008 debentures are carried in their entirety at fair value in accordance with FASB ASC 815-15-25-4 and the value of the embedded conversion feature is effectively embodied in those fair values.

 
18

 

Changes in the fair value of convertible instruments that are carried in their entirety at fair value (the March 2007, August 2007, April 2008 and May 2008 debentures) are reported as “Gain (loss) from change in fair value of hybrid financial instruments” in the accompanying consolidated statements of operations. The changes in fair value of these hybrid financial instruments were as follows:

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
   
(in thousands)
   
(in thousands)
 
March 27, 2007
  $ (9,606 )   $ 717     $ (8,030 )   $ 12,805  
August 24, 2007
    (2,446 )     227       (2,002 )     3,439  
April 11, 2008
    (893 )     55       (777 )     768  
May 16, 2008
    (1,145 )     69       (1,014 )     984  
May 29, 2008
    (1,809 )     112       (1,605 )     1,556  
Gain (loss) from changes in fair value of
                               
hybrid instruments
  $ (15,899 )   $ 1,180     $ (13,428 )   $ 19,552  
 
The carrying value of our liability for convertible instruments carried at fair value increased $14.8 million during the three month period ended June 30, 2011. However, the fair values of these liabilities increased $15.9 million. The difference between the change in carrying value and change in fair value was due to the conversion of $147,121 in principal and $50,000 in accrued interest related to the March 2007 debenture which resulted in a decrease in fair value of approximately $1.1 million.

The carrying value of our liability for convertible instruments carried at fair value increased $11.3 million during the six month period ended June 30, 2011. However, the fair values of these liabilities increased $13.4 million. The difference between the change in carrying value and change in fair value was due to the payment of $1.0 million in interest and the conversion of $147,121 in principal and $50,000 in accrued interest related to the March 2007 debenture which resulted in a decrease in fair value of approximately $1.1 million.

Changes in the fair value of derivative instrument liabilities related to the bifurcated embedded derivative features of convertible instruments not carried at fair value are reported as “Gain (loss) from change in fair value of derivative liability – Series C and Series D preferred stock and debentures” in the accompanying consolidated statement of operations.

 
19

 

The changes in fair value of these derivative financial instruments were as follows:

 
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
   
(in thousands)
   
(in thousands)
 
Series C preferred Stock
  $ (10,285 )   $ 907     $ (7,845 )   $ 15,536  
Series D preferred Stock
    (2,813 )     262       (2,261 )     4,302  
                                 
August 24, 2006
    (5,934 )     2,118       (4,675 )     13,080  
December 29, 2006
    (2,967 )     1,060       (2,338 )     6,403  
July 10, 2008
    (187 )     61       (154 )     328  
July 29, 2008
    (2,659 )     875       (2,001 )     4,372  
October 28, 2008
    (2,657 )     792       (2,110 )     4,092  
May 1, 2009
    (296 )     102       (228 )     572  
June 5, 2009
    (809 )     192       (615 )     1,188  
July 15, 2009
    (610 )     485       (608 )     990  
August 14, 2009
    (545 )     112       (420 )     865  
May 27, 2010
    (2,511 )     426       (2,181 )     425  
August 13, 2010
    (655 )     -       (562 )     -  
September 29, 2010
    (557 )     -       (480 )     -  
October 28, 2010
    (464 )     -       (400 )     -  
December 15, 2010
    (515 )     -       (444 )     -  
January 10, 2011
    (510 )     -       (433 )        
February 8, 2011
    (730 )     -       (694 )        
March 11, 2011
    (499 )     -       (307 )        
April 13, 2011
    (688 )     -       (688 )        
May 31, 2011
    (645 )     -       (645 )        
June 28, 2011
    -       -       -          
      (37,536 )     7,392       (30,089 )     52,153  
Less: Day-one loss from Series D Convertible Preferred financing
    -       -       -       (4,582 )
Less: Day-one loss from May 27, 2010 financing
            (747 )             (747 )
Less: Day-one loss from January 10, 2011 financing
    -       -       (292 )     -  
Less: Day-one loss from February 8, 2011 financing
    -       -       (193 )     -  
Less: Day-one loss from March 11, 2011 financing
    -       -       (291 )     -  
Less: Day-one loss from June 28, 2011 financing
    (405 )     -       (405 )     -  
Gain (loss) from change in fair value of derivative liability
  $ (37,941 )   $ 6,645     $ (31,270 )   $ 46,824  

The carrying value of the derivative liabilities-Series C and Series D preferred stock and debentures increased  $34.5 million during the three month period ended June 30, 2011 resulting from i) $37.5 million increase in the fair value of the derivative liability, as shown in the table above, ii) less conversion of a portion of the Series C preferred stock resulting in a reduction of $4.2 million, iii) an increase of $284,000, $310,000 and $525,000 due to the inception date fair value of the derivative liabilities resulting from the April 13, 2011, May 31, 2011 and June 28, 2011 financings, respectively.

The carrying value of the derivative liabilities-Series C and Series D preferred stock and debentures increased  $28.9 million during the six month period ended June 30, 2011 resulting from i) $30.1 million increase in the fair value of the derivative liability, as shown in the table above, ii) less conversion of a portion of the Series C preferred stock resulting in a reduction of $4.3 million, iii) an increase of $573,000, $744,000, $677,000, $284,000, $310,000 and $525,000 due to the inception date fair value of the derivative liabilities resulting from the January 10, 2011, February 8, 2011, March 11, 2011, April 13, 2011, May 31, 2011 and June 28, 2011 financings, respectively.

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 preferred stock. The warrants are exercisable at the lower of a fixed exercise price or a specified percentage of the current market price. From time to time, the fixed exercise prices of the warrants held by YA Global have been reduced as an inducement for YA Global to enter into subsequent financing arrangements.

The warrants issued to YA Global do not meet all of the established criteria for equity classification in FASB 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.
 
 
20

 
 
The following table summarizes the warrants outstanding (in thousands) and their fair value:

   
June 30,
2011
   
December 31,
2010
     
June 30,
2011
   
December 31,
2010
 
   
Exercise
Price
   
Exercise
Price
 
Expiration
Date
 
Warrants
   
Fair
Value
   
Warrants
   
Fair
Value
 
                 
(in thousands)
   
(in thousands)
 
Series C preferred Stock
    n/a     $ 0.06  
2/17/2011
    -     $ -       750     $ 53  
Series D preferred Stock
    0.01       0.10  
1/5/2017
    2,250       77       2,250       255  
                                                   
August 24, 2006
    0.01       0.06  
8/24/2011
    1,750       45       1,750       148  
December 29, 2006
    0.01       0.06  
12/29/2011
    420       13       420       37  
March 27, 2007
    0.01       0.06  
3/27/2012
    1,250       40       1,250       122  
August 24, 2007
    0.01       0.06  
8/24/2012
    750       25       750       72  
May 16, 2008
    0.01       0.06  
5/16/2015
    75       2       75       8  
May 29, 2008
    0.01       0.06  
5/29/2015
    500       17       500       56  
July 29, 2008
    0.01       0.07  
7/29/2015
    1,000       53       1,000       112  
July 29, 2008
    0.01       0.10  
7/29/2015
    3,500       104       3,500       383  
May 27, 2010
    0.01       0.10  
5/27/2015
    5,000       174       5,000       563  
August 13, 2010
    0.01       0.10  
8/13/2015
    1,000       35       1,000       113  
September 29, 2010
    0.01       0.10  
9/29/2015
    750       26       750       84  
October 15, 2010
    0.01       0.10  
10/15/2015
    600       21       600       67  
December 15, 2010
    0.01       0.10  
12/15/2015
    1,250       43       1,250       140  
January 10, 2011
    0.01       n/a  
1/10/2016
    1,250       44       -       -  
February 8, 2011
    0.01       n/a  
2/8/2016
    1,250       44       -       -  
March 11, 2011
    0.01       n/a  
3/11/2016
    1,000       35       -       -  
April 13, 2011
    0.01       n/a  
4/13/2016
    1,000       35       -       -  
May 31, 2011
    0.01       n/a  
5/31/2016
    1,000       35       -       -  
June 28, 2011
    0.01       n/a  
6/28/2016
    3,000       105       -       -  
Other warrants
    n/a       1.10  
1/16/2011
    -       -       1       -  
                 
Total
    28,595     $ 973       20,846     $ 2,213  

The warrants are valued using a binomial option valuation methodology because that model embodies all of the relevant assumptions that address the features underlying these instruments. Significant assumptions used in this model as of June 30, 2011 included an expected life equal to the remaining term of the warrants, an expected dividend yield of zero, estimated volatility ranging from 224% to 328%, and risk-free rates of return of 0.03% to 1.09%. 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 stock price volatility over the remaining term of the warrants. To encompass the value of the anti-dilution provisions, the exercise price input into the model equals the lowest price of any subsequently issued common share indexed instruments with a conversion price below the stated exercise price of the warrant.

Changes in the fair value of the warrants are reported as "(Gain) loss from change in fair value of derivative liability - warrants" in the accompanying consolidated statement of operations.

 
21

 

The changes in the fair value of the warrants were as follows:

   
Three Months Ended
June 30,
   
Six Months Ended
 June 30,
 
   
2011
   
2010
   
2011
   
2010
 
   
(in thousands)
   
(in thousands)
 
Series C preferred Stock
  $ -     $ 171     $ 53     $ 645  
Series D preferred Stock
    (11 )   $ 806       178       2,088  
                                 
August 24, 2006
    (10 )     581       103       1,508  
December 29, 2006
    (3 )     139       24       357  
March 27, 2007
    (9 )     423       82       1,074  
August 24, 2007
    (5 )     246       47       644  
May 16, 2008
    -       26       6       66  
May 28, 2008
    (2 )     176       39       441  
July 29, 2008
    (23 )     1,551       338       3,836  
May 27, 2010
    (26 )     186       389       186  
August 13, 2010
    (5 )     -       78       -  
September 29, 2010
    (3 )     -       58       -  
October 28, 2010
    (3 )     -       46       -  
December 15, 2010
    (6 )     -       97       -  
January 10, 2011
    (7 )     -       100       -  
February 8, 2011
    (7 )     -       15       -  
March 11, 2011
    (5 )     -       4       -  
April 13, 2011
    (17 )     -       (17 )     -  
May 31, 2011
    55       -       55       -  
June 28, 2011
    -       -       -       -  
Other warrants
    -       -       -       11  
Total
  $ (87 )   $ 4,305     $ 1,695     $ 10,856  

The carrying value of warrants decreased during the three months ended June 30, 2011 due to warrant fair value adjustments of $87,000 as shown in the table above, less the issuance of warrants on April 13, 2011, May 31, 2011 and June 30, 2011 with a fair value of $18,000, $90,000 and $104,700 respectively.

The carrying value of warrants increased during the six months ended June 30, 2011 due to warrant fair value adjustments of $1.7 million as shown in the table above, less the issuance of warrants on January 10, 2011, February 8, 2011, March 31, 2011, April 13, 2011, May 31, 2011 and June 30, 2011 with a fair value of $143,700, $58,800, $38,600, $18,000, $90,000 and $104,700 respectively.

 Fair Value Considerations – As required by FASB ASC 820, 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 under FASB ASC 815 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.

 
22

 

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 and six months ended June 30, 2011:

   
Compound Embedded Derivatives
   
Warrant Derivatives
   
Total
 
Beginning balance, December 31, 2010:
  $ 28,092     $ 2,213     $ 30,305  
                         
Issuances:
                       
January 10, 2011
    573       144       717  
February 8, 2011
    744       59       803  
March 11, 2011
    677       39       716  
                         
Fair value adjustments:
                       
Compound embedded derivatives
    (7,447 )     -       (7,447 )
Warrant derivatives
    -       (1,782 )     (1,782 )
                         
Conversions:
                       
Series C Convertible Preferred Stock
    (157 )     -       (157 )
                         
Ending balance, March 31, 2011
    22,482       673       23,155  
                         
Issuances:
                       
April 13, 2011
    284       18       302  
May 31, 2011
    310       90       400  
June 28, 2011
    525       105       630  
                         
Fair value adjustments:
                       
Compound embedded derivatives
    37,536       -       37,536  
Warrant derivatives
    -       87       87  
                         
Conversions:
                       
Series C Convertible Preferred Stock
    (4,190 )     -       (4,190 )
Ending balance, June 30, 2011
  $ 56,947     $ 973     $ 57,920  

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.

Subsequent events

As noted above, a secured convertible debenture in the amount of $450,000 was issued on July 13, 2011 in accordance with the terms of the Securities Purchase Agreement dated June 28, 2011. The debenture is convertible, at the option of the holder, at a conversion price equal to the lesser of (i) $0.10 or (ii) 95% of the lowest closing bid price of our common stock for the 60 trading days preceding the date of conversion. The stated maturity date of the debenture is July 29, 2012.

Subsequent to June 30, 2011, holders of convertible debentures, other than YA Global converted $272,176 of principal and accrued interest of those debentures into 21,946,237 shares of our common stock.

 
23

 

Note 4 – Stock-Based Compensation
 
A total of 1,010,105 stock options were issued to employees during the six months ended June 30, 2011, exercisable at strike prices ranging from $0.017 to $0.14 per share.
 
On April 7, 2011, the Board approved the 2011 Stock Incentive Plan (the “2011 Plan”) and on April 22, 2011, we filed a registration statement on Form S-8 to register the shares of our common stock, $0.001 par value, underlying the Plan.

On April 7, 2011, the Board approved and issued option agreements with two employees and a contractor for a total of 210,000 shares of our common stock from our 2003 Stock Option Plan at an exercise price of $0.017 per share. The grants to employees vest in equal annual installments over a four year period. The grant to the contractor vests over the term of the contract.

The Board also approved the cancellation of substantially, but not all, outstanding option agreements under the 2003 Stock Option Plan and 2003 Stock Incentive Plan with our directors and employees whose exercise prices were $1.00 or greater and the issuance of replacement option agreements at an exercise price of $0.017. The replacement option agreements restates the respective terms of each prior agreement giving consideration to our reverse stock split and in regard to vesting. The impact to our statement of operations from this transaction was not material.

Further, on April 7, 2011, the Board approved and issued option agreements with three members of our Board for a total of 300,000 shares of our common stock from our 2011 Stock Incentive Plan at an exercise price of $0.017 per share. Two of the three grantees’ options vest in equal monthly installments over an 18 month period, and the third grantee’s options vested on the date of the grant.

During the quarter ended June 30, 2011, we cancelled 422,503 vested and non-vested stock options held by 17 employees, directors, officers and consultants, and granted 500,105 replacement stock options to employees, directors, officers, and consultants under the 2011 Plan on April 7, 2011 at an exercise price of $0.017 per share. The replacement options were issued to most, but not all employees whose exercise prices were $1.00 or greater
 
The grant date fair values of the options issued during the three months ended June 30, 2011 was $8,000, which amount is being recognized over the vesting period of the options. Total stock-based compensation expense recorded in the statement of operations was $25,000 and $39,700 for the three months ended June 30, 2011 and 2010 and $52,000 and $97,500 for the six months ended June 30, 2011 and 2010, respectively.

We used the following assumptions to value the stock options granted during the six months ended June 30, 2011 and 2010:

   
Six Months Ended
June 30,
 
   
2011
   
2010
 
Volatility
    148-169 %     168-210 %
Expected dividends
    -       -  
Expected term (in years)
    5.66       6.5  
Risk-free rate
    2.70-2.89 %     0.50 %
 
 
24

 
 
A summary of the transactions and status of our granted, vested and exercisable options during the six months ended June 30, 2011 with respect to our stock option plans follows:
 
   
Shares
   
Weighted- Average Exercise Price
   
Aggregate Intrinsic Value
   
Weighted- Average Contractual Life Remaining in Years
 
   
(in thousands)
   
(in thousands)
 
Outstanding at December 31, 2010
    702     $ 1.23              
Granted
    1,010     $ 0.03              
Exercised
    -     $ -              
Forfeited
    (423 )   $ 1.72              
Outstanding at June 30, 2011
    1,289     $ 0.30     $ 13       9.0  
Exercisable at June 30, 2011
    742     $ 0.49     $ 6       8.5  

A summary of the status of our non-vested options as of June 30, 2011 and changes during the six months ended is presented below:

Nonvested Shares
 
Shares
   
Weighted Average Grant Date Fair Value
 
   
(in thousands)
 
Nonvested at December 31, 2010
    120     $ 0.71  
Granted
    1,010     $ 0.04  
Vested
    (373 )   $ 0.01  
Forfeited
    (210 )   $ 0.71  
Nonvested at June 30, 2011
    547     $ 0.03  

The following table summarizes information about our stock options outstanding at June 30, 2011:

  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)
       
  $0.017 to $0.39       949       9.7     $ 0.04       402     $ 0.03  
  $1.00       331       7.2     $ 1.00       331     $ 1.00  
  $2.00       9       7.8     $ 2.00       9     $ 2.00  
          1,289       9.0     $ 0.30       742     $ 0.49  

There were no stock options exercised during the six months ended June 30, 2011.
 
 
25

 
Note 5 – Accrued Liabilities
 
Accrued liabilities consist of the following as of June 30, 2011 and December 31, 2010:
 
   
June 30,
2011
   
December 31,
2010
 
   
(in thousands)
 
Accruals for disputed services
  $ 2,318     $ 2,318  
Accrued operating expenses
    1,682       2,042  
Accrued payroll related expenses
    107       -  
Accrued interest
    6,274       5,053  
Total
  $ 10,381     $ 9,413  

Note 6 – Contingencies

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, it is the opinion of management that the eventual resolution of the following legal actions is unlikely to have a material adverse effect on our financial position or operating results.

William Klawonn v. Y.A. Global Investments, L.P. and NeoMedia Technologies, Inc. – On April 28, 2010, William Klawonn, a shareholder of NeoMedia, filed a derivative action, in the United States District Court for the District of New Jersey, against YA Global and us claiming trading activities that violated section 15 U.S.C. § 78p(b).  On July 8, 2010, an order was granted in the case stipulating that the plaintiff had agreed that we have no liability in the action.  The order also stipulated that we will be considered a nominal party to the action, and as such we remain subject to the discovery rights and obligations of the action. On December 6, 2010, an order was granted in the case to dismiss for the plaintiff’s failure to state a valid claim for relief, without prejudice. However the order also allowed the plaintiff 45 days to amend the complaint. On January 20, 2011, the plaintiff filed an amended complaint. On February 4, 2011, a further order was granted in the case again stipulating that the plaintiff had agreed that we have no liability in the action. The order also again stipulated that we will continue to be considered a nominal party to the action, and as such we remain subject to the discovery rights and obligations of the action. On March 24, 2011, YA Global filed a motion to dismiss the amended complaint and on May 9, 2011, plaintiff filed a memorandum of law in opposition to YA Global’s motion to dismiss the amended complaint. On June 8, 2011, YA Global filed a reply memorandum of law in further support of its motion to dismiss the amended complaint.   The Court heard oral argument on the motion on August 4, 2011. On August 10, 2011, the Court issued an opinion and order granting the motion to dismiss as to some claims and denying it as to others.  We are not able to predict with any certainty the outcome of this litigation, including the merits or value of the amended complaint.

The Webb Law Firm On August 25, 2010, we were notified by The Webb Law Firm that they had filed a request for ex parte reexamination with the United States Patent and Trademark Office (USPTO), of our ‘048 patent. The request for reexamination asserted that certain claims in our patent are invalid over prior art references not previously before the USPTO. On November 23, 2010, the USPTO issued an office action agreeing to the ex parte reexamination. On November 30, 2010, the USPTO issued a further communication indicating the extent to which the reexamination will evaluate the patent and which claims of the patent would be addressed. On January 29, 2011, we filed an amendment of the ‘048 patent with the USPTO in response to the reexamination. The amendment proposed several minor changes and clarifications to the ‘048 patent to address the issues enumerated in the reexamination. On May 23, 2011, the USPTO issued a communication which included a Notice of Intention to Issue Ex Parte Reexamination Certificate, which accepted our proposed amendment to the ‘048 patent. In so doing, the USPTO has affirmed the validity of the patent. We expect that the USPTO will issue the formal reexamination certificate in the coming months, and The Webb Law Firm has no appeal rights in this matter, and therefore we consider this matter to be closed.  
 
 
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Baniak Pine & Gannon, LLC, Valauskas & Pine LLC, and McDonnell Boehnen Hulbert & Berghoff LLP - On February 18, 2011, Baniak Pine & Gannon, LLC, Valauskas & Pine LLC, and McDonnell Boehnen Hulbert & Berghoff LLP filed a complaint for injunctive and other relief against us and a member of our Board of Directors, Mr. George G. O'Leary in The United States District Court For The Northern District Of Illinois, Eastern Division. The complaint seeks to recover certain legal fees related to the plaintiff's services to us and other damages for tortuous interference by Mr. O'Leary. On April 21, 2011, we filed a motion to dismiss Mr. O'Leary from the lawsuit and on April 25, 2011, we filed an answer to the complaint. Our bylaws provide for the indemnification of our Directors against complaints such as this and we also have in place directors' and officers' liability insurance.  On July 6, 2011, the District Court dismissed the claims against Mr. O'Leary with prejudice.  We are however unable to predict with any certainty the outcome of the complaint against us, including its merits or value.  
 
Note 7 – Geographic Reporting

We are structured and evaluated by our Board of Directors and management as one business unit.
 
Consolidated net revenues and net income for the three and six months ended June 30, 2011 and 2010, and the identifiable assets as of June 30, 2011, and December 31, 2010, by geographic area were as follows:
 
   
Three Months Ended
 June 30,
   
Six Months Ended
June 30,
   
2011
   
2010
   
2011
   
2010
 
   
(in thousands)
   
(in thousands)
 
Revenue:
                       
United States
  $ 454     $ 165     $ 773     $ 333  
Germany
    313       56       363       243  
Total
  $ 767     $ 221     $ 1,136     $ 576  
                                 
Net income (loss):
                               
United States
  $ (55,664 )   $ 9,872     $ (46,421 )   $ 67,542  
Germany
    (198 )     (370 )     (650 )     (708 )
Total
  $ (55,862 )   $ 9,502     $ (47,071 )   $ 66,834  

   
June 30,
   
December 31,
 
   
2011
   
2010
 
Identifiable assets:
           
United States
  $ 7,658     $ 8,179  
Germany
    414       394  
Total
  $ 8,072     $ 8,573  

Note 8 – Transactions with Related Parties

Ms. Laura A. Marriott serves as our Chairperson of the Board of Directors and Acting Chief Executive Officer. Ms. Marriot is also a member of the Compensation Committee and Stock Option Committee of the Board of Directors. In addition to her compensation as a non-executive member of our Board, Ms Marriot is compensated as our acting Chief Executive Officer under a consulting agreement for which she received $90,000 and $162,000 in compensation from us during the three and six months ended June 30, 2011, respectively.

Mr. George G. O’Leary serves as a member of the Board of Directors and as acting Chief Operating Officer. Mr. O’Leary is also the Chairman of our Audit Committee, Compensation Committee and a member of our Stock Option Committee. In addition to his compensation as a member of our Board, Mr O’Leary is compensated as our acting Chief Operating Officer under a consulting agreement for which he received $15,000 and $36,000 in compensation from us during the three and six months ended June 30, 2011, respectively.

 
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Overview
 
NeoMedia Technologies, Inc., a Delaware corporation (“NeoMedia”, and also referred to herein as “us”, “we” and “our”), is a pioneer and a global market leader in 2D mobile barcode technology and infrastructure solutions that enable the mobile barcode ecosystem world-wide.  NeoMedia strives to harness the power of the mobile phone in innovative ways with state-of-the-art mobile barcode technology. With this technology, mobile phones with cameras become barcode scanners and this enables a range of practical applications including consumer oriented advertising, mobile ticketing and couponing, and business-to-business commercial track and trace solutions. As a leading technology pioneer in the global mobile barcode industry, we believe that our suite of products, services and IP portfolio makes us the only provider able to offer a comprehensive end-to-end mobile barcode solution.  We offer barcode management and infrastructure, reader solutions and IP licensing, as well as mobile couponing and ticketing products and services.  Our current direct customers include brand owners and agencies looking to offer innovative mobile barcode solutions to their customer base.  Our partners include handset manufacturers, mobile marketing platform providers and value added resellers.
 
NeoMedia provides a full end-to-end solution for global mobile 2D barcode implementations.  NeoMedia is able to provide comprehensive solutions for mobile barcode creation, resolution, and management as well as mobile coupon, ticketing and hardware scanning solutions.  We believe that this comprehensive end-to-end offering is unmatched by any other provider in the marketplace. NeoMedia has been an innovator in the mobile barcode field since the mid-1990s, and during that time has spearheaded the development of a robust IP portfolio that encompasses many preferred mobile barcode implementations.  We have an IP portfolio currently consisting of over sixty issued and pending patents.  We are willing and able to license our IP and solutions to the entire ecosystem, to facilitate the growth of the mobile barcode ecosystem world-wide.  We have also worked closely with the standards bodies to help overcome the hurdles to full market development and will continue to do so. We promote an open and interoperable approach to the market to empower the mobile ecosystem. NeoMedia offers “one stop” for all of our customers’ mobile barcode needs.
 
The market for barcode services is rapidly developing in several regions around the world: as reported in “eMarketer”, May 2011. As companies of all sizes are recognizing the enormous potential for mobile barcodes, we continue to focus our efforts on positioning ourselves to take part in this growing marketplace. We are focusing our sales activities primarily in the United States and Europe with a goal to maximize our five key solution portfolios.  We are expanding our business development activities, through partnerships, to markets in Africa and South America. We also continue to drive broad scale market adoption through ongoing evangelization around education and best practices through public relations as well as by working with our customers to help increase brand and consumer awareness and overall adoption of mobile barcodes.
 
From our perspective, two of our strategic approaches continue to show success. The first is the maximization of our patent portfolio through IP licensing, and the second is to partner with key mobile marketing agencies and mobile platform resellers to maximize the reach of our barcode management and infrastructure solutions.  However, we also continue to accelerate our sales activities by selling direct to brand owners and we are seeing success on this approach as well.
 
Our NeoMedia Europe business continues to focus on building the opportunities for mobile couponing, ticketing and hardware scanning solutions in Europe.  NeoMedia Europe has had success in markets in Europe and Asia and we plan to build on these successes, with heavy emphasis in Europe, which we believe will continue to contribute to our overall revenue mix.
 
We have entered into strategic agreements with mobile marketing agencies and mobile platform resellers for our services.  These companies typically represent brands and mobile technology solutions in Europe and the United States. Currently there are nine such agreements and we have been seeing increasing campaign activity through these partnerships with leading consumer brands. NeoMedia solutions are now used by a number of Fortune 500 brands in the United States and abroad through both our indirect and direct sales channel.
 
 
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Given the need to drive consumer adoption of barcode scanning, we are also seeking to have the barcode reader scanning software pre-installed on mobile phones in order to make it easy for the consumer to access the barcode reader application. Thus far, we have entered a strategic relationship with Sony Ericsson and Samsung Electronics Italy.  Our NeoReader scanning product is also available for download in the key “app stores” including Android, Apple, Blackberry, Nokia and Ovi.
 
We will continue to take this diversified sales approach to ensure that we maximize all revenue opportunities for our business in this time of tremendous market growth and opportunity.
 
Management Changes
 
Effective July 19, 2011, Mr. Michael W. Zima resigned his position as Chief Financial Officer and Corporate Secretary of the Company.
 
On July 19, 2011, the Board of Directors of the Company appointed Mr. Robert W. Thomson to serve as interim Chief Financial Officer and Corporate Secretary of the Company. Mr. Thomson had previously served as the Company’s Corporate Controller.
 
Comparison of the Three and Six Months Ended June 30, 2011 and 2010
 
Results of Operations
 
We continue to focus on the development of our patent licensing and barcode ecosystem technology. During the three months ended June 2011 and 2010, our operating losses were $1.0 million and $1.8 million, respectively. Our net loss was $55.9 million and net income was $9.5 million for the three months ended June 2011 and 2010, respectively. During the six months ended June 2011 and 2010, our operating losses were $2.4 million and $3.4 million, respectively. Our net loss was $47.1 million and net income was $66.8 million for the six months ended June 2011 and 2010, respectively. Our operating results include gains and losses from the change in fair value of our hybrid financial instruments, warrants and debentures. We incur these gains and losses principally as a result of changes in the market value of our common stock. During the three and six months ended June 30, 2011, we reported losses on our hybrid financial instruments, warrants and debentures, totaling $53.9 and $43.0 million, respectively.
 
The following table sets forth certain data derived from our consolidated statements of operations:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2011
 
2010
 
2011
 
2010
 
 
(in thousands)
 
(in thousands)
 
Revenues:
               
Barcode Reader
  $ 292     $ 22     $ 342     $ 68  
Barcode Management & Infrastructure
    52       5       88       11  
IP Licensing
    270       165       512       330  
Consulting
    2       -       2       -  
Hardware
    25       28       34       162  
Other
    126       1       158       5  
Total revenues
  $ 767     $ 221     $ 1,136     $ 576  
 
 
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Revenues. Revenues for the three months ended June 2011 and 2010, respectively, were $767,000 and $221,000, an increase of $546,000, or 247%. Revenues for the six months ended June 2011 and 2010, respectively were $1.1 million and $576,000, an increase of $560,000 or 97%.  Our revenues and product mix have changed as a result of changes in our operations and business strategy. For the three months ended June 2011 and 2010, respectively, our Barcode Reader product sales were $292,000 and $22,000, an increase of $270,000 or 1,227%, as a result of increased demand for these products and services. Barcode Reader product sales for the six months ended June 2011 and 2010, respectively, were $342,000 and $68,000, an increase of $274,000, or 403%. For the three months ended June 2011 and 2010, respectively, our Barcode Management & Infrastructure revenue was $52,000 and $5,000, respectively, an increase of $47,000 or 940%. Barcode Management & Infrastructure revenue was $88,000 and $11,000 during the six months ended June 2011 and 2010, respectively, an increase of $77,000 or 700%. We are focusing additional sales resources on this category in response to important opportunities with both agencies and brands in the U.S. and Europe. Revenues related to patent licensing agreements were $270,000 and $165,000 during the three months ended June 2011 and 2010, respectively, as a result of licensing agreements we entered into in 2009, 2010 and 2011. Revenues related to patent licensing agreements were $512,000 and $330,000 during the six months ended June 2011 and 2010, respectively. We continue to expect our revenues to change as we focus of our efforts toward patent licensing, and the barcode ecosystem. We believe this focus will deliver the most value in the future. For the three months ended June 2011 and 2010, respectively, our hardware product sales were $25,000 and $28,000, a decrease of $3,000 or 11%. For the six months ended June 2011 and 2010, respectively, hardware product sales were $34,000 and $162,000, a decrease of $128,000 or 79%. Our hardware products tend to be sold in large transactions and revenues can fluctuate significantly from period to period.
 
Cost of Revenues. Cost of revenues was $237,000 for the three months ended June 30, 2011 compared with $255,000 for the three months ended June 30, 2010, a decrease of $18,000, or 7%.  Cost of revenues was $475,000 for the six months ended June 30, 2011 compared with $594,000 for the six months ended June 30, 2010, a decrease of $119,000, or 20%. Cost of revenues for NeoMedia Europe, related to our hardware products, was $3,000 and $23,000 for the three months ended June 2011 and 2010, respectively, and was $5,000 and $128,000 for the six months ended June 2011 and 2010, respectively. Amortization costs related to our patents and the proprietary software of NeoMedia Europe was $234,000 and $232,000 for the three months ended June 2011 and 2010, respectively, and was $470,000 and $466,000 for the six months ended June 2011 and 2010, respectively.
 
Sales and Marketing. Sales and marketing expenses were $305,000 and $262,000 for the three months ended June 2011 and 2010, respectively, an increase of $43,000, or 16%, and $621,000 and $581,000 for the six months ended June 2011 and 2010, respectively, an increase of $40,000, or 7%. We expect that our sales and marketing expense will increase slowly in 2011 as we promote our business strategy and core technology.
 
General and Administrative. General and administrative expenses were $827,000 and $1.0 million for the three months ended June 2011 and 2010, respectively, a decrease of $214,000, or 21%, and $1.6 million and $2.1 million for the six months ended June 2011 and 2010, respectively, a decrease of $515,000, or 24%. Expenses decreased as a result of decreased professional services fees related to legal and accounting, as well as business related travel as we continue our efforts to control expenses.
 
Research and Development.  Research and development expenses were $429,000 and $418,000 for the three months ended June 2011 and 2010, respectively, an increase of $11,000, or 3%, and $830,000 and $701,000 for the six months ended June 2011 and 2010, respectively, and increase of $129,000, or 18%. Research and development increased as we continued the development of our barcode ecosystem products.
 
Loss from Operations.  For the three months ended June 2011 and 2010, respectively, our loss from operations decreased to $1.0 million, from $1.8 million. This improvement was primarily the result of increases in our gross margin and decreased general and administrative expenses, partially offset by increases in sales and marketing and research and development costs. For the six months ended June 2011 and 2010, respectively, our loss from operations decreased to $2.4 million, from $3.4 million. This improvement was primarily the result of increases in our gross margin and decreased general and administrative expenses, partially offset by increases in sales and marketing and research and development costs.
 
Gain (Loss) from Change in Fair Value of Hybrid Financial Instruments. We carry certain of 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 June 2011 and 2010, the liability related to these hybrid instruments increased during 2011, and decreased during 2010, resulting in a loss of $15.9 million and a gain of $1.2 million, respectively. For the six months ended June 2011 and 2010, the liability related to these hybrid instruments increased during 2011 and decreased during 2010, resulting in a loss of $13.4 million and a gain of $19.6 million, respectively. These fair value changes were primarily the result of fluctuations in the value of our common stock during the periods. Because our stock price has been volatile and because many of our hybrid financial instruments include relatively low fixed conversion prices, it is possible that further fluctuations in the market price of our stock could cause the fair value of our hybrid financial instruments to change significantly in future periods.
 
 
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Gain (Loss) from Change in Fair Value of Derivative Liabilities - Warrants.  We account for our outstanding common stock warrants that were issued in connection with the preferred stock and our debentures, at fair value. For the three months ended June 2011 and 2010, the liability related to warrants fluctuated resulting in a loss of $87,000 and a gain of $4.3 million, respectively. For the six months ended June 2011 and 2010, the liability related to warrants decreased resulting in a gain of $1.7 million and $10.9 million, respectively. These fair value changes were primarily the result of fluctuations in the value of our common stock during the period. Because our stock price has been volatile and because many of our warrants include relatively low fixed exercise prices it is possible that further fluctuations in the market price of our common stock could cause the fair value of our warrants to change significantly in future periods.
 
Gain (Loss) from Change in Fair Value of Derivative Liabilities - Series C and D Preferred Stock and Debentures. For our Series C and D preferred stock, and certain of our 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 June 2011 and 2010, the liability related to the derivative instruments embedded in the Series C and D preferred stock and these debentures increased during 2011 and decreased during 2010, resulting in a loss of $37.9 million and a gain of $6.6 million, respectively. For the six months ended June 2011 and 2010, the liability related to the derivative instruments embedded in the Series C and D preferred stocks and these debentures increased during 2011 and decreased during 2010, resulting in a loss of $31.3 million and a gain of $46.8 million, respectively. These fair value changes were primarily the result of fluctuations in the value of our common stock during the period. Because our stock price has been volatile and because many of our derivative financial instruments include relatively low fixed conversion prices, it is possible that further fluctuations in the market price of our common stock could cause the fair value of our derivative financial instruments to change significantly in future periods.
 
Interest Expense Related to Convertible Debt. Interest expense related to debentures that are carried at amortized cost and which are not carried as hybrid financial instruments at fair value was $904,000 and $510,000 for the three months ended June 2011 and 2010, respectively, and $1.7 million and $956,000 for the six months ended June 2011 and 2010. These fluctuations in interest expense were primarily the result of increased debenture financing during the three and six months ended June 2011.
 
Net Income.  As a result of the above, during the three months ended June 2011 and 2010, we experienced a net loss of $55.9 million and net income of $9.5 million, respectively. This decrease in net income resulted primarily from losses in the fair value of our hybrid and derivative instruments during the three months ended June 2011 compared with gains in 2010. During the six months ended June 2011 and 2010, we experienced a net loss of $47.1 million and net income of $66.8 million, respectively. This decrease in net income resulted primarily from losses in the fair value of our hybrid and derivative instruments during the six months ended June 2011 compared with gains in 2010, partially offset by a loss on extinguishment of debt of approximately $6.0 million during the six months ended June 2010.
 
Liquidity and Capital Resources
 
As of June 30, 2011, we had $68,000 in cash and cash equivalents, a decrease of $12,000, or 15%, compared with $80,000 as of December 31, 2010.
 
Cash used in operating activities decreased to $2.5 million for the six months ended June 30, 2011 compared with $3.4 million for the period ended June 30,  2010, representing decreased operational expenses.
 
 
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Cash used in investing activities was $5,000 and $7,000 for the six months ended June 30, 2011 and 2010, respectively, representing the purchase of equipment.
 
Cash provided by financing activities during the six months ended June 2011 was $2.5 million, which included the following:
 
 
·
Gross proceeds of $450,000 in connection with a Secured Debenture entered into with YA Global on January 10, 2011, accruing interest at 14% per annum and payable on the maturity date of July 29, 2012, less structuring and due diligence fees of $25,000, resulting in net proceeds of $425,000; and
 
 
·
Gross proceeds of $650,000 in connection with a Secured Debenture entered into with YA Global on February 8, 2011, accruing interest at 14% per annum and payable on the maturity date of July 29, 2012, less structuring and due diligence fee of $40,000, resulting in net proceeds of $610,000; and
 
 
·
Gross proceeds of $450,000 in connection with a Secured Debenture entered into with YA Global on March 11, 2011, accruing interest at 14% per annum and payable on the maturity date of July 29, 2012, less structuring and due diligence fee of $25,000, resulting in net proceeds of $425,000; and
 
 
·
Gross proceeds of $450,000 in connection with a Secured Debenture entered into with YA Global on April 13, 2011, accruing interest at 14% per annum and payable on the maturity date of July 29, 2012, less structuring and due diligence fees of $25,000, resulting in net proceeds of $425,000; and
 
 
·
Gross proceeds of $450,000 in connection with a Secured Debenture entered into with YA Global on May 31, 2011, accruing interest at 14% per annum and payable on the maturity date of July 29, 2012, less structuring and due diligence fee of $25,000, resulting in net proceeds of $425,000; and
 
 
·
Gross proceeds of $250,000 in connection with a Secured Debenture entered into with YA Global on June 28, 2011, accruing interest at 14% per annum and payable on the maturity date of July 29, 2012, less structuring and due diligence fee of $100,000, resulting in net proceeds of $150,000. The structuring and due diligence fees in connection with this debenture, will also be applied to satisfy and provide for the next two scheduled debenture financings; the first of which occurred on July 13, 2011, and the second of which is scheduled to occur on or before August 15, 2011.
 
Subsequent Event
On July 13, 2011, we entered into a Securities Purchase Agreement and issued and sold a secured debenture to YA Global in the principal amount of $450,000.  The debenture is convertible at the option of the holder, at a conversion price equal to the lesser of (i) $0.10 or (ii) 95% of the lowest closing bid price of our common stock for the 60 trading days preceding the date of conversion. The stated maturity date of the debenture is July 29, 2012.
 
Going Concern – We have historically incurred net losses from operations and we expect that we will continue to have 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 consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which contemplates our continuation as a going concern. Net loss for the six months ended June 30, 2011 was $47.1 million and our net income for the six months ended June 30, 2010 was $66.8 million, respectively, of which $43.0 million were net losses, and $71.2 million were net gains related to our financing instruments, respectively.   Net cash used by operations during the six months ended June 30, 2011 and 2010 was $2.5 million and $3.4 million, respectively. At June 30, 2011, we have an accumulated deficit of $291.5 million. We also have a working capital deficit of $129.1 million, of which $111.8 million is related to our financing instruments, including $39.7 million related to the fair value of warrants and those debentures that are recorded as hybrid financial instruments, and $72.1 million related to the amortized cost carrying value of certain of our debentures and the fair value of the associated derivative liabilities. We also have a continuing purchase price guarantee obligation of $4.5 million associated with an acquisition of a business in 2006, which we subsequently sold in 2007.
 
The items discussed above raise substantial doubt about our ability to continue as a going concern.
 
 
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We currently do not have sufficient cash, or commitments for financing, to sustain our operations for the next twelve months. We will require additional financing in order to execute our operating plan and continue as a going concern.  Our management’s plan is to secure adequate funding to bridge the commercialization of our patent licensing and barcode ecosystem businesses. 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 these financing sources do not materialize, 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 as they become due or respond to competitive pressures, any of which circumstances would have a material adverse effect on our business, prospects, financial condition and results of operations. Should our lender, YA Global choose not to provide us with continued financing, as they have in the past, or if we do not find alternative sources of financing to fund our operations or if we are unable to generate significant product revenues, we only have sufficient funds to sustain our current operations through approximately September 1, 2011.
 
The 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.
 
Sources of Cash and Projected Cash Requirements - As of June 30, 2011, our cash balance was $68,000. NeoMedia’s reliance on YA Global as our primary financing source has certain ramifications that could affect future liquidity and business operations.  For example, pursuant to the terms of the debenture agreements between us and YA Global, without YA Global’s consent we cannot (i) issue or sell any shares of our common stock or our preferred stock without consideration or for consideration per share less than the closing bid price immediately prior to its issuance, (ii) issue or sell any preferred stock, warrant, option, right, contract, call, or other security or instrument granting the holder thereof the right to acquire our common stock for consideration per share less than the closing bid price immediately prior to its issuance, (iii) enter into any security instrument granting the holder a security interest in any of our assets or (iv) file any registration statements on Form S-8.  In addition, pursuant to security agreements between us and YA Global, YA Global has a security interest in all of our assets.  Such covenants could severely harm our ability to raise additional funds from sources other than YA Global, and would likely result in a higher cost of capital in the event we secured funding.
 
Additionally, pursuant to the terms of the Investment Agreement between us and YA Global in connection with our Series C preferred stock, we cannot (i) enter into any debt arrangements in which we are the borrower, (ii) grant any security interest in any of our assets or (iii) grant any security below market price.
 
Critical Accounting Policies and Estimates
 
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.
 
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
 
We are a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act and are not required to provide information under this item.
 
ITEM 4. Controls and Procedures
 
Disclosure Controls and Procedures - Our management, with the participation of our Acting CEO and our Interim CFO, have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report.
 
These controls are designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Acting CEO and Interim CFO, as appropriate, to allow timely decisions regarding required disclosure.
 
 
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Based on this evaluation, our Acting CEO and Interim CFO concluded that our disclosure controls and procedures were not effective as of June 30, 2011 at a reasonable assurance level, because of material weaknesses with respect to entity level controls over financial reporting, identified as of December 31, 2010, which we are in the process of remediating.  Such weaknesses were:
 
 
Our senior management did not establish and maintain a proper tone as to internal control over financial reporting as of December 31, 2010. Specifically, our senior management was unable, due to time constraints, to promptly address all of the control weaknesses brought to their attention throughout this and the previous year’s audit; and
 
 
We, through our senior management, failed to maintain formalized accounting policies and procedures as of December 31, 2010. Once implemented, the polices and procedures should provide guidance to accounting personnel in the proper treatment and recording of financial transactions, as well as proper internal controls over financial reporting.
 
As noted, we have commenced efforts to address the material weaknesses in our internal control over financial reporting and the ineffectiveness of our disclosure controls and procedures and, although remediation efforts are underway, the above material weaknesses will not be considered remediated until new controls over financial reporting are fully designed and operating effectively for an adequate period of time.
 
Notwithstanding the material weaknesses described above, we believe that our consolidated financial statements presented in this Quarterly Report on Form 10−Q fairly present, in all material respects, our financial position, results of operations, and cash flows as of the end of the period covered herein.
 
Inherent Limitations - Our management, including our Acting CEO and Interim CFO, does not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of any system of controls is based in part upon 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. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. In particular, many of our current processes rely upon manual reviews and processes to ensure that neither human error nor system weakness has resulted in erroneous reporting of financial data.
 
Changes in Internal Control over Financial Reporting - There were no changes in the Company’s internal control over financial reporting during the period ended June 30, 2011 which were identified in conjunction with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
 
34

 
 
PART II - OTHER INFORMATION
 
ITEM 1.  Legal Proceedings
 
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, it is the opinion of management that the eventual resolution of the following legal actions is unlikely to have a material adverse effect on our financial position or operating results.
 
William Klawonn v. Y.A. Global Investments, L.P. and NeoMedia Technologies, Inc. – On April 28, 2010, William Klawonn, a shareholder of NeoMedia, filed a derivative action, in the United States District Court for the District of New Jersey, against YA Global and us claiming trading activities that violated section 15 U.S.C. § 78p(b).  On July 8, 2010, an order was granted in the case stipulating that the plaintiff had agreed that we have no liability in the action.  The order also stipulated that we will be considered a nominal party to the action, and as such we remain subject to the discovery rights and obligations of the action. On December 6, 2010, an order was granted in the case to dismiss for the plaintiff’s failure to state a valid claim for relief, without prejudice. However the order also allowed the plaintiff 45 days to amend the complaint. On January 20, 2011, the plaintiff filed an amended complaint. On February 4, 2011, a further order was granted in the case again stipulating that the plaintiff had agreed that we have no liability in the action. The order also again stipulated that we will continue to be considered a nominal party to the action, and as such we remain subject to the discovery rights and obligations of the action. On March 24, 2011, YA Global filed a motion to dismiss the amended complaint and on May 9, 2011, plaintiff filed a memorandum of law in opposition to YA Global’s motion to dismiss the amended complaint. On June 8, 2011, YA Global filed a reply memorandum of law in further support of its motion to dismiss the amended complaint.   The Court heard oral argument on the motion on August 4, 2011. On August 10, 2011, the Court issued an opinion and order granting the motion to dismiss as to some claims and denying it as to others.  We are not able to predict with any certainty the outcome of this litigation, including the merits or value of the amended complaint.
 
The Webb Law Firm On August 25, 2010, we were notified by The Webb Law Firm that they had filed a request for ex parte reexamination with the United States Patent and Trademark Office (USPTO), of our ‘048 patent. The request for reexamination asserted that certain claims in our patent are invalid over prior art references not previously before the USPTO. On November 23, 2010, the USPTO issued an office action agreeing to the ex parte reexamination. On November 30, 2010, the USPTO issued a further communication indicating the extent to which the reexamination will evaluate the patent and which claims of the patent would be addressed. On January 29, 2011, we filed an amendment of the ‘048 patent with the USPTO in response to the reexamination. The amendment proposed several minor changes and clarifications to the ‘048 patent to address the issues enumerated in the reexamination. On May 23, 2011, the USPTO issued a communication which included a Notice of Intention to Issue Ex Parte Reexamination Certificate, which accepted our proposed amendment to the ‘048 patent. In so doing, the USPTO has affirmed the validity of the patent. We expect that the USPTO will issue the formal reexamination certificate in the coming months, and The Webb Law Firm has no appeal rights in this matter, and therefore we consider this matter to be closed.  
 
Baniak Pine & Gannon, LLC, Valauskas & Pine LLC, and McDonnell Boehnen Hulbert & Berghoff LLP - On February 18, 2011, Baniak Pine & Gannon, LLC, Valauskas & Pine LLC, and McDonnell Boehnen Hulbert & Berghoff LLP filed a complaint for injunctive and other relief against us and a member of our Board of Directors, Mr. George G. O'Leary in The United States District Court For The Northern District Of Illinois, Eastern Division. The complaint seeks to recover certain legal fees related to the plaintiff's services to us and other damages for tortuous interference by Mr. O'Leary. On April 21, 2011, we filed a motion to dismiss Mr. O'Leary from the lawsuit and on April 25, 2011, we filed an answer to the complaint. Our bylaws provide for the indemnification of our Directors against complaints such as this and we also have in place directors' and officers' liability insurance.  On July 6, 2011, the District Court dismissed the claims against Mr. O'Leary with prejudice.  We are however unable to predict with any certainty the outcome of the complaint against us, including its merits or value.  
 
 
35

 
ITEM 1A.  Risk Factors
 
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.
 
ITEM 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
None
 
ITEM 3.  Defaults Upon Senior Securities
 
None
 
ITEM 4.  (Removed and Reserved)
 
Not Applicable
 
ITEM 5.  Other Information
 
None
 
 
36

 
 
ITEM 6.  Exhibits
 
(a) Exhibits:
 
Exhibit
     
Filed
          Filing 
Number
 
Description
 
Herewith
 
Form
 
Exhibit
 
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 NeoMedia Technologies, Inc.
     
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
               
   
NeoMedia Technologies, Inc. authorizing a reverse stock split
     
SB-2
 
3.14
 
11/25/1996
3.12
 
Form of Certificate of Amendment to Restated Certificate of
               
   
Incorporation of NeoMedia Technologies, Inc. increasing authorized
               
   
capital and creating preferred stock
     
SB-2
 
3.15
 
11/25/1996
3.13
 
Certificate of Amendment to the Certificate of Designation of the Series "C" Convertible Preferred Stock date January 5, 2010.
     
8-K
 
3.1
 
1/11/2010
3.14
 
Certificate of Designation of the Series "D" Convertible Preferred Stock
               
   
date January 5, 2010.
     
8-K
 
3.2
 
1/11/2010
3.15
 
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
3.16
 
Certificate of amendment to the certificate of designation of the series D
               
   
convertible preferred stock issued by the Company to YA Global dated
               
   
January 5, 2010.
     
8-K
 
3.1
 
3/11/2010
10.1
 
Warrant dated March 30, 2005, granted by NeoMedia to Thornhill
               
   
Capital LLC
     
S-3/A
 
10.12
 
7/18/2005
10.2
 
Warrant dated March 30, 2005, granted by NeoMedia to Cornell Capital
               
   
Partners LP
     
S-3/A
 
10.13
 
7/18/2005
10.3
 
Definitive Sale and Purchase Agreement between NeoMedia and
               
   
Gavitec
     
8-K
 
16.1
 
2/21/2006
10.4
 
Definitive Sale and Purchase Agreement between NeoMedia and
               
   
Sponge
     
8-K
 
16.1
 
2/22/2006
10.5
 
Investment Agreement, dated February 17, 2006 between NeoMedia
               
   
and Cornell Capital Partners
     
8-K
 
10.1
 
2/21/2006
10.6
 
Investor Registration Rights Agreement, dated February 17, 2006
               
   
between NeoMedia and Cornell Capital Partners
     
8-K
 
10.2
 
2/21/2006
10.7
 
Irrevocable Transfer Agent Instruction, dated February 17, 2006, by and
               
   
among NeoMedia, Cornell Capital Partners and American Stock
               
   
Transfer & Trust Co.
     
8-K
 
10.3
 
2/21/2006

 
37

 
 
Exhibit
     
Filed
          Filing
Number
 
Description
 
Herewith
 
Form
 
Exhibit
 
 Date
                     
10.8
 
Warrant, dated February 17, 2006
     
8-K
 
10.4
 
2/21/2006
10.9
 
Warrant, dated February 17, 2006
     
8-K
 
10.5
 
2/21/2006
10.10
 
Warrant, dated February 17, 2006
     
8-K
 
10.6
 
2/21/2006
10.11
 
Assignment Agreement, dated February 17, 2006 by NeoMedia
               
   
and Cornell Capital Partners
     
8-K
 
10.7
 
2/21/2006
10.12
 
Assignment of Common Stock, dated February 17, 2006
               
   
between NeoMedia and Cornell Capital Partners
     
8-K
 
10.8
 
2/21/2006
10.13
 
Securities Purchase Agreement, dated August 24, 2006, between
               
   
the Company and Cornell Capital Partners, LP
     
8-K
 
10.1
 
8/30/2006
10.14
 
Investor Registration Rights Agreement, dated August 24, 2006,
               
   
between the Company and Cornell Capital Partners, LP
     
8-K
 
10.2
 
8/30/2006
10.15
 
Pledge and Security Agreement, dated August 24, 2006,
               
   
between the Company and Cornell Capital Partners, LP
     
8-K
 
10.3
 
8/30/2006
10.16
 
Secured Convertible Debenture, dated August 24, 2006, issued
               
   
by the Company to Cornell Capital Partners, LP
     
8-K
 
10.4
 
8/30/2006
10.17
 
Irrevocable Transfer Agent Instructions, dated August 24, 2006,
               
   
by and among the Company, Cornell Capital Partners, LP and
               
   
American Stock Transfer & Trust Co.
     
8-K
 
10.5
 
8/30/2006
10.18
 
A Warrant, dated August 24, 2006
     
8-K
 
10.6
 
8/30/2006
10.19
 
B Warrant, dated August 24, 2006
     
8-K
 
10.7
 
8/30/2006
10.20
 
C Warrant, dated August 24, 2006
     
8-K
 
10.8
 
8/30/2006
10.21
 
D Warrant, dated August 24, 2006
     
8-K
 
10.9
 
8/30/2006
10.22
 
Amendment to Warrant No. CCP-002, dated August 24, 2006,
               
   
between the Company and Cornell Capital Partners, LP
     
8-K
 
10.1
 
8/30/2006
10.23
 
Amendment to “A” Warrant No. CCP-001, dated August 24,
               
   
2006, between the Company and Cornell Capital Partners, LP
     
8-K
 
10.11
 
8/30/2006
10.24
 
Amendment to “B” Warrant No. CCP-002, dated August 24,
               
   
2006, between the Company and Cornell Capital Partners, LP
     
8-K
 
10.12
 
8/30/2006
10.25
 
Amendment to “C” Warrant No. CCP-003, dated August 24,
               
   
2006, between the Company and Cornell Capital Partners, LP
     
8-K
 
10.13
 
8/30/2006
10.26
 
Definitive share purchase and settlement agreement between
               
   
NeoMedia and Sponge, dated November 14, 2006
     
8-K
 
16.1
 
11/20/2006
10.27
 
Securities Purchase Agreement, dated December 29, 2006,
               
   
between the Company and Cornell Capital Partners, LP
     
8-K
 
10.1
 
1/8/2007
10.28
 
Investor Registration Rights Agreement, dated December 29,
               
   
2006, between the Company and Cornell Capital Partners, LP
     
8-K
 
10.2
 
1/8/2007
10.29
 
Secured Convertible Debenture, dated December 29, 2006,
               
   
issued by the Company to Cornell Capital Partners, LP
     
8-K
 
10.3
 
1/8/2007
10.30
 
Irrevocable Transfer Agent Instructions, dated December 29,
               
   
2006, by and among the Company, Cornell Capital Partners, LP
               
   
and American Stock Transfer & Trust Co.
     
8-K
 
10.4
 
1/8/2007
10.31
 
A Warrant, dated December 29, 2006
     
8-K
 
10.5
 
1/8/2007
10.32
 
Amendment to Warrant No. CCP-002, dated December 29,
               
   
2006, between the Company and Cornell Capital Partners, LP
     
8-K
 
10.6
 
1/8/2007
10.33
 
Amendment to “A” Warrant No. CCP-001, dated December 29,
               
   
2006, between the Company and Cornell Capital Partners, LP
     
8-K
 
10.7
 
1/8/2007
10.34
 
Amendment to “B” Warrant No. CCP-002, dated December 29,
               
   
2006, between the Company and Cornell Capital Partners, LP
     
8-K
 
10.8
 
1/8/2007
10.35
 
Amendment to “C” Warrant No. CCP-003, dated December 29,
               
   
2006, between the Company and Cornell Capital Partners, LP
     
8-K
 
10.9
 
1/8/2007
10.36
 
Amendment to “A” Warrant No. CCP-001, dated December 29,
               
   
2006, between the Company and Cornell Capital Partners, LP
     
8-K
 
10.1
 
1/8/2007
10.37
 
Amendment to “B” Warrant No. CCP-001, dated December 29,
               
   
2006, between the Company and Cornell Capital Partners, LP
     
8-K
 
10.11
 
1/8/2007
10.38
 
Amendment to “C” Warrant No. CCP-001, dated December 29,
               
   
2006, between the Company and Cornell Capital Partners, LP
     
8-K
 
10.12
 
1/8/2007
 
 
38

 
 
Exhibit
     
Filed
          Filing
Number
 
Description
 
Herewith
 
Form
 
Exhibit
 
Date
                     
10.39
 
Securities Purchase Agreement, dated December 29, 2006,
               
   
between the Company and Cornell Capital Partners, LP
     
8-K
 
10.13
 
1/8/2007
10.40
 
Amendment Agreement I to the Sale and Purchase Agreement
               
   
between NeoMedia and certain former shareholders of Gavitec
               
   
AG, dated January 23, 2007
     
8-K
 
10.1
 
1/29/2007
10.41
 
Consulting Agreement between the Company and SKS Consulting
               
   
of South Florida Corp.
     
8-K
 
10.1
 
2/6/2007
10.42
 
Securities Purchase Agreement between NeoMedia and Cornell
               
   
Capital Partners LP, dated March 27, 2007
     
8-K
 
10.1
 
3/27/2007
10.43
 
Investor Registration Rights Agreement between NeoMedia and
               
   
Cornell Capital Partners LP, dated March 27, 2007
     
8-K
 
10.2
 
3/27/2007
10.44
 
Secured Convertible Debenture, issued by NeoMedia to Cornell
               
   
Capital Partners, LP, dated March 27, 2007
     
8-K
 
10.3
 
3/27/2007
10.45
 
Irrevocable Transfer Agent Instructions, by and among NeoMedia,
               
   
Cornell Capital Partners, LP and Worldwide Stock Transfer, dated
               
   
March 27, 2007
     
8-K
 
10.4
 
3/27/2007
10.46
 
Warrant, issued by NeoMedia to Cornell Capital Partners, LP,
               
   
dated March 27, 2007
     
8-K
 
10.5
 
3/27/2007
10.47
 
Master Amendment Agreement, by and between NeoMedia and
               
   
Cornell Capital Partners, LP, dated March 27, 2007
     
8-K
 
10.6
 
3/27/2007
10.48
 
Security Agreement, by and between NeoMedia and Cornell
               
   
Capital Partners, LP, dated on or about August 24, 2006
     
8-K
 
10.7
 
3/27/2007
10.49
 
Security Agreement, by and between NeoMedia and Cornell
               
   
Capital Partners, LP, dated March 27,2007
     
8-K
 
10.8
 
3/27/2007
10.50
 
Security Agreement (Patent), by and between NeoMedia and
               
   
Cornell Capital Partners, LP, dated March 27, 2007
     
8-K
 
10.9
 
3/27/2007
10.51
 
Pledge Shares Escrow Agreement, by and between NeoMedia and
               
   
Cornell Capital Partners, dated March 27, 2007
     
8-K
 
10.1
 
3/27/2007
10.52
 
Completion of Acquisition of Disposition of Assets of BSD
               
   
Software Inc.
     
8-K/A
 
10.1
 
6/8/2007
10.53
 
Registration Rights Agreement, by and between NeoMedia and
               
   
YA Global Investments, L.P., dated August 24, 2007
     
8-K
 
10.1
 
8/30/2007
10.54
 
Secured Convertible Debenture, issued by NeoMedia to YA
               
   
Global Investments, dated August 24, 2007
     
8-K
 
10.2
 
8/30/2007
10.55
 
Irrevocable Transfer Agent Instructions, by and among NeoMedia,
               
   
YA Global Investments, L.P. and Worldwide Stock Transfer,
               
   
LLC, dated August 24, 2007
     
8-K
 
10.3
 
8/30/2007
10.56
 
Warrant issued by NeoMedia to YA Global Investments, L.P.,
               
   
dated August 24, 2007
     
8-K
 
10.4
 
8/30/2007
10.57
 
Repricing Agreement, by and between NeoMedia and YA Global
               
   
Investments, L.P., dated August 24, 2007
     
8-K
 
10.5
 
8/30/2007
10.58
 
Security Agreement, by and between NeoMedia and YA Global
               
   
Investments, L.P., dated August 24, 2007
     
8-K
 
10.6
 
8/30/2007
10.59
 
Security Agreement (Patent), by and between NeoMedia and YA
               
   
Global Investments, L.P., dated August 24, 2007
     
8-K
 
10.7
 
8/30/2007
10.60
 
Secured Convertible Debenture, dated April 11, 2008, issued by
               
   
the Company to YA Global Investments, L.P.
     
8-K
 
10.1
 
4/17/2008
10.61
 
Secured Convertible Debenture, dated May 16, 2008, issued by
               
   
the Company to YA Global Investments, L.P.
     
8-K
 
10.1
 
5/22/2008
10.62
 
Warrant, dated May 16, 2008, issued by the Company to YA
               
   
Global Investments, L.P.
     
8-K
 
10.2
 
5/22/2008
 
 
39

 
 
Exhibit
     
Filed
          Filing
Number
 
Description
 
Herewith
 
Form
 
Exhibit
 
Date
                     
10.63
 
Secured Convertible Debenture, dated May 30, 2008, issued by the
               
   
Company to YA Global Investments, L.P.
     
8-K
 
10.1
 
6/5/2008
10.64
 
Warrant, dated May 30, 2008, issued by the Company to YA Global
               
   
Investments, L.P.
     
8-K
 
10.2
 
6/5/2008
10.65
 
Settlement Agreement and Release, dated June 3, 2008, by and
               
   
between the Company and William Hoffman
     
8-K
 
10.5
 
6/5/2008
10.66
 
Employment Agreement, dated June 10, 2008, by and between
               
   
NeoMedia Technologies, Inc. and Iain McCready
     
8-K
 
10.1
 
6/16/2008
10.67
 
Secured Convertible Debenture, dated July 10, 2008, issued by the
               
   
Company to YA Global Investments, L.P.
     
8-K
 
10.1
 
7/16/2008
10.68
 
Securities Purchase Agreement, dated July 29, 2008, by and
               
   
between the Company and YA Global Investments, L.P.
     
8-K
 
10.1
 
8/4/2008
10.69
 
Secured Convertible Debenture, dated July 29, 2008, issued by the
               
   
Company to YA Global Investments, L.P.
     
8-K
 
10.2
 
8/4/2008
10.70
 
Security Agreement, dated July 29, 2008, by and among the
               
   
Company, each of the Company’s subsidiaries made a party thereto
               
   
and YA Global Investments, L.P.
     
8-K
 
10.3
 
8/4/2008
10.71
 
Patent Security Agreement, dated July 29, 2008, by and among the
               
   
Company, each of the Company’s subsidiaries made a party thereto
               
   
and YA Global Investments, L.P.
     
8-K
 
10.4
 
8/4/2008
10.72
 
Warrant 9-1A, dated July 29, 2008, issued by the Company to YA
               
   
Global Investments, L.P.
     
8-K
 
10.5
 
8/4/2008
10.73
 
Warrant 9-1B, dated July 29, 2008, issued by the Company to YA
               
   
Global Investments, L.P.
     
8-K
 
10.6
 
8/4/2008
10.74
 
Warrant 9-1C, dated July 29, 2008, issued by the Company to YA
               
   
Global Investments, L.P.
     
8-K
 
10.7
 
8/4/2008
10.75
 
Warrant 9-1D, dated July 29, 2008, issued by the Company to YA
               
   
Global Investments, L.P.
     
8-K
 
10.8
 
8/4/2008
10.76
 
Escrow Agreement, dated July 29, 2008, by and among the
               
   
Company, YA Global Investments, L.P., Yorkville Advisors, LLC
               
   
and David Gonzalez, Esq.
     
8-K
 
10.9
 
8/4/2008
10.77
 
Irrevocable Transfer Agent Instructions, dated July 29, 2008, by and
               
   
among the Company, the Investor, David Gonzalez, Esq. and
               
   
WorldWide Stock Transfer, LLC
     
8-K
 
10.1
 
8/4/2008
10.78
 
Letter Agreement, dated September 24, 2008, by and among
               
   
NeoMedia Technologies, Inc. and YA Global Investments, L.P.
     
8-K
 
10.1
 
10/1/2008
10.79
 
Second Secured Convertible Debenture, dated October 28, 2008,
               
   
issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.3
 
11/3/2008
10.80
 
Revised Exhibit A to Escrow Agreement, dated October 28, 2008
     
8-K
 
10.12
 
11/3/2008
10.81
 
Letter Agreement, dated March 27, 2009, by and between the
               
   
Company and YA Global Investments, L.P.
     
8-K
 
10.13
 
4/13/2009
10.82
 
Amendment Agreement, dated April 6, 2009, by and between the
               
   
Company and YA Global Investments, L.P.
     
8-K
 
10.14
 
4/13/2009
10.83
 
Third Secured Convertible Debenture (first closing), dated April 6,
               
   
2009, issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.15
 
4/13/2009
10.84
 
Waiver, effective as of December 31, 2008, by and between the
               
   
Company and YA Global Investments, L.P.
     
8-K
 
10.16
 
4/13/2009
10.85
 
Fourth Secured Convertible Debenture (second amended third
               
   
closing), dated May 1, 2009, issued by the Company to YA Global
               
   
Investments, L.P.
     
8-K
 
10.15
 
5/7/2009

 
40

 

Exhibit
     
Filed
          Filing
Number
 
Description
 
Herewith
 
Form
 
Exhibit
 
Date
                     
10.86
 
Agreement, dated June 5, 2009 (Additional Agreement), by
               
   
and between the Company and YA Global Investments, L.P.
     
8-K
 
10.16
 
6/5/2009
10.87
 
Fifth Convertible Debenture (Additional Agreement closing),
               
   
dated June 5, 2009, issued by the Company to YA Global
               
   
Investments, L.P.
     
8-K
 
10.17
 
6/5/2009
10.88
 
Agreement, dated July 15, 2009 (Second Additional
               
   
Agreement), by and between the Company and YA Global
               
   
Investments, L.P.
     
8-K
 
10.18
 
7/21/2009
10.89
 
Sixth Convertible Debenture dated July 15, 2009, (Second
               
   
Additional Debenture), issued by the Company to YA Global
               
   
Investments, L.P.
     
8-K
 
10.19
 
7/21/2009
10.90
 
Agreement, dated July 17, 2009, by and between the Company
               
   
and Silver Bay Software, LLC.
     
8-K
 
10.20
 
7/21/2009
10.91
 
Agreement, dated July 17, 2009, by and between the Company
               
   
and Mr. Greg Lindholm.
     
8-K
 
10.21
 
7/21/2009
10.92
 
Non-Exclusive License Agreement between the Company and
               
   
Mobile Tag, Inc. dated July 28, 2009
     
8-K
 
10.1
 
7/30/2009
10.93
 
Agreement dated August 14, 2009 (Third Additional
               
   
Agreement) by and between the Company and Y.A. Global
               
   
Investments, L.P.
     
10-Q
 
10.124
 
8/14/2009
10.94
 
Seventh Convertible Debenture dated August 14, 2009 (Fifth
               
   
Additional Debenture) issued by the Company to Y.A. Global
               
   
Investments, L.P.
     
10-Q
 
10.125
 
8/14/2009
10.95
 
Non-exclusive License Agreement with exclusive right to sub-
               
   
license provision between Company and Neustar, Inc. dated
               
   
October 2, 2009.
     
8-K
 
10.1
 
10/6/2009
10.96
 
Non-Exclusive License Agreement to use the Licenced
               
   
Platform between the Company and Brand Extension Mobile
               
   
Solutions, S.A., a Madrid (Spain) corporation (“BEMS"),
               
   
dated October 7, 2009.
     
8-K
 
10.1
 
10/13/2009
10.97
 
Settlement Agreement and non-exclusive license and a
               
   
sublicense between the Company and Scanbuy, Inc., dated
               
   
October 16, 2009.
     
8-K
 
10.1
 
10/20/2009
10.98
 
Investment Agreement between Company and YA Global
               
   
dated January 5, 2010.
     
8-K
 
10.1
 
1/11/2010
10.99
 
Irrevocable Transfer Agent Instructions letter issued by
               
   
Company to WorldWide Stock Transfer, LLC dated January
               
   
5, 2010.
     
8-K
 
10.2
 
1/11/2010
10.100
 
Monitoring Fee Escrow Agreement between Company and
               
   
YA Global dated January 5, 2010.
     
8-K
 
10.3
 
1/11/2010
10.101
 
Investor Registration Rights Agreement between Company
               
   
and YA Global dated January 5, 2010.
     
8-K
 
10.4
 
1/11/2010
10.102
 
Issuance of Warrants by Company to YA Global dated
               
   
January 5, 2010.
     
8-K
 
10.5
 
1/11/2010
10.103
 
Amendment to the August 24, 2006 Secured Convertible
               
   
Debenture No. CCP-1 between the Company and YA Global
     
8-K
 
10.6
 
1/11/2010
10.104
 
Amendment to the December 29, 2006 Secured Convertible
               
   
Debenture No. CCP-2 between the Company and YA Global
               
   
dated January 5, 2010.
     
8-K
 
10.7
 
1/11/2010
10.105
 
Amendment to the March 27, 2007 Secured Convertible
               
   
Debenture No. NEOM-4-1 between the Company and YA
               
   
Global dated January 5, 2010.
     
8-K
 
10.8
 
1/11/2010

 
41

 

Exhibit
     
Filed
          Filing
Number
 
Description
 
Herewith
 
Form
 
Exhibit
 
Date
                     
10.106
 
Amendment to the August 24, 2007 Secured Convertible
               
   
Debenture No. NEOM-1-1 between the Company and YA
               
   
Global dated January 5, 2010.
     
8-K
 
10.9
 
1/11/2010
10.107
 
Amendment to the April 11, 2008 Secured Convertible
               
   
Debenture No. NEO-2008-1 between the Company and YA
               
   
Global dated January 5, 2010.
     
8-K
 
10.10
 
1/11/2010
10.108
 
Amendment to the May 16, 2008 Secured Convertible
               
   
Debenture No. NEO-2008-2 between the Company and YA
               
   
Global dated January 5, 2010.
     
8-K
 
10.11
 
1/11/2010
10.109
 
Amendment to the May 29, 2008 Secured Convertible
               
   
Debenture No. NEO-2008-3 between the Company and YA
               
   
Global dated January 5, 2010.
     
8-K
 
10.12
 
1/11/2010
10.110
 
Amendment to the July 10, 2008 Secured Convertible Debenture
               
   
No. NEO-2008-4 between the Company and YA Global dated
               
   
January 5, 2010.
     
8-K
 
10.13
 
1/11/2010
10.111
 
Amendment to the July 29, 2008 Secured Convertible Debenture
               
   
No. NEOM-9-1 between the Company and YA Global dated
               
   
January 5, 2010.
     
8-K
 
10.14
 
1/11/2010
10.112
 
Amendment to the October 28, 2008 Secured Convertible
               
   
Debenture No. NEOM-9-2 between the Company and YA
               
   
Global dated January 5, 2010.
     
8-K
 
10.15
 
1/11/2010
10.113
 
Amendment to the May 1, 2009 Secured Convertible Debenture
               
   
No. NEOM-9-4 between the Company and YA Global dated
               
   
January 5, 2010.
     
8-K
 
10.16
 
1/11/2010
10.114
 
Amendment to the June 5, 2009 Secured Convertible Debenture
               
   
No. NEOM-9-5 between the Company and YA Global dated
               
   
January 5, 2010.
     
8-K
 
10.17
 
1/11/2010
10.115
 
Amendment to the July 15, 2009 Secured Convertible Debenture
               
   
No. NEOM-9-6 between the Company and YA Global dated
               
   
January 5, 2010.
     
8-K
 
10.18
 
1/11/2010
10.116
 
Amendment to the August 14, 2009 Secured Convertible
               
   
Debenture No. NEOM-9-7 between the Company and YA
               
   
Global dated January 5, 2010.
     
8-K
 
10.19
 
1/11/2010
10.117
 
Amendment to the July 29, 2008 Secured Convertible Debenture
               
   
No. NEOM-9-1B between the Company and YA Global dated
               
   
January 5, 2010.
     
8-K
 
10.20
 
1/11/2010
10.118
 
Amendment to the July 29, 2008 Secured Convertible Debenture
               
   
No. NEOM-9-1C between the Company and YA Global dated
               
   
January 5, 2010.
     
8-K
 
10.21
 
1/11/2010
10.119
 
Amendment to the July 29, 2008 Secured Convertible Debenture
               
   
No. NEOM-9-1D between the Company and YA Global dated
               
   
January 5, 2010.
     
8-K
 
10.22
 
1/11/2010
10.120
 
Amendment of employment agreement entered into on June 10,
               
   
2008 between the company and Iain A. McCready.
     
8-K
 
10.2
 
1/20/2010
10.121
 
Amended and restated licensing agreement dated October 2,
               
   
2009 with NeuStar, Inc.
     
8-K
 
10.1
 
1/28/2010
10.122
 
Agreement with Neu Star, Inc., dated February 12, 2010 (the
               
   
Neu Star Mobile Codes Pilot Program Agreement).
     
8-K
 
10.1
 
2/16/2010
10.123
 
First amendment to the investment agreement between Company
               
   
and YA Global dated January 5, 2010.
     
8-K
 
10.1
 
3/11/2010
10.124
 
Special meeting of shareholders held March 30, 2010.
     
8-K
 
10.1
 
4/2/2010
10.125
 
Notification of new trading symbol "NEOMD" beginning May
               
   
10, 2010.
     
8-K
      5/11/2010 
 
 
42

 
 
Exhibit
Number
 
Description
 
Filed Herewith
 
Form
 
Exhibit
 
Filing Date
                     
10.126
 
Securities Purchase Agreement, dated May 27, 2010, by and between the Company and YA Global Investments, L.P.
     
8-K
 
10.1
 
6/3/2010
10.127
 
Secured Convertible Debenture, dated May 27, 2010,  issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.2
 
6/3/2010
10.128
 
Warrant No. 0510, dated May 27, 2010, issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.3
 
6/3/2010
10.129
 
Global Warrant Amendment, dated May 27, 2010, issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.4
 
6/3/2010
10.130
 
Ratification Agreement, dated May 27, 2010, by and among the Company, each of the Company’s subsidiaries made a party thereto and YA Global Investments, L.P.
     
8-K
 
10.7
 
6/3/2010
10.131
 
Irrevocable Transfer Agent Instructions, dated May 27, 2010, by and among the Company, the Investor, David Gonzalez, Esq. and WorldWide Stock Transfer, LLC
     
8-K
 
10.1
 
6/3/2010
10.132
 
Agreement, dated August 13, 2010, by and between the Company and YA Global Investments, L.P.
     
8-K
 
10.1
 
8/19/2010
10.133
 
Secured Convertible Debenture, No. NEOM-10-2, dated August 13, 2010,  issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.2
 
8/19/2010
10.134
 
Warrant, No. NEOM-0810, dated August 13, 2010, issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.3
 
8/19/2010
10.135
 
Agreement on the Pledge of Intellectual Property Rights as Collateral, dated August 13, 2010, by and between the Company’s wholly-owned subsidiary NeoMedia Europe AG, and YA Global Investments, L.P.
     
8-K
 
10.6
 
8/19/2010
10.136
 
Second Ratification Agreement, dated August 13, 2010, by and among the Company, each of the Company’s subsidiaries made a party thereto, and YA Global Investments, L.P.
     
8-K
 
10.7
 
8/19/2010
10.137
 
Irrevocable Transfer Agent Instructions, dated August 13, 2010, by and among the Company, the Buyer, David Gonzalez, Esq. and WorldWide Stock Transfer, LLC
     
8-K
 
10.8
 
8/19/2010
10.138
 
Security Transfer of Moveable Assets, dated August 13, 2010, by and between the Company’s wholly-owned subsidiary NeoMedia Europe AG, and YA Global Investments, L.P.
     
8-K
 
10.9
 
8/19/2010
10.139
 
Agreement, dated September 29, 2010, by and between the Company and YA Global Investments, L.P.
     
8-K
 
10.1
 
10/1/2010
10.140
 
Secured Convertible Debenture, No. NEOM-10-3, dated September 29, 2010,  issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.2
 
10/1/2010
10.141
 
Warrant, No. NEOM-0910, dated September 29, 2010, issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.3
 
10/1/2010
10.142
 
Third Ratification Agreement, dated September 29, 2010, by and among the Company, each of the Company’s subsidiaries made a party thereto, and YA Global Investments, L.P.
     
8-K
 
10.6
 
10/1/2010
10.143
 
Irrevocable Transfer Agent Instructions, dated September 29, 2010, by and among the Company, the Buyer, David Gonzalez, Esq. and WorldWide Stock Transfer, LLC
     
8-K
 
10.7
 
10/1/2010

 
43

 

Exhibit
Number
 
Description
 
Filed Herewith
 
Form
 
Exhibit
 
Filing Date
                     
10.144
 
Compromise Agreement dated October 19, 2010, executed by Iain A. McCready
     
8-K
 
10.1
 
10/20/2010
10.145
 
Resignation Letter dated October 19, 2010, executed by Iain A. McCready
     
8-K
 
10.2
 
10/20/2010
10.146
 
Agreement, dated October 28, 2010, by and between the Company and YA Global Investments, L.P.
     
8-K
 
10.1
 
11/3/2010
10.147
 
Secured Convertible Debenture, No. NEOM-10-4, dated October 28, 2010,  issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.2
 
11/3/2010
10.148
 
Warrant, No. NEOM-1010, dated October 28, 2010, issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.3
 
11/3/2010
10.149
 
Fourth Ratification Agreement, dated October 28, 2010, by and among the Company, each of the Company’s subsidiaries made a party thereto, and YA Global Investments, L.P.
     
8-K
 
10.6
 
11/3/2010
10.150
 
Irrevocable Transfer Agent Instructions, dated October 28, 2010, by and among the Company, the Buyer, David Gonzalez, Esq. and WorldWide Stock Transfer, LLC
     
8-K
 
10.7
 
11/3/2010
10.151
 
Agreement, dated December 14, 2010, by and between the Company and Rothschild Trust Holdings, LLC; BP BL Section 3.4, LLC; and Leigh M. Rothschild
     
8-K
 
10.1
 
12/15/2010
10.152
 
Bylaws of Neomedia Technologies, Inc. adopted December 16, 2010
     
8-K
 
3.2
 
12/21/2010
10.153
 
Agreement, dated December 15, 2010, by and between the Company and YA Global Investments, L.P.
     
8-K
 
10.1
 
12/21/2010
10.154
 
Secured Convertible Debenture, No. NEOM-10-5, dated December 15, 2010,  issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.2
 
12/21/2010
10.155
 
Warrant, No. NEOM-1210, dated December 15, 2010, issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.3
 
12/21/2010
10.156
 
Fifth Ratification Agreement, dated December 15, 2010, by and among the Company, each of the Company’s subsidiaries made a party thereto, and YA Global Investments, L.P.
     
8-K
 
10.6
 
12/21/2010
10.157
 
Irrevocable Transfer Agent Instructions, dated December 15, 2010, by and among the Company, the Buyer, David Gonzalez, Esq. and WorldWide Stock Transfer, LLC
     
8-K
 
10.7
 
12/21/2010
10.158
 
Agreement, dated December 21, 2010, by and between the Company and eBay Inc.
     
8-K
 
10.1
 
12/22/2010
10.159
 
Agreement, dated January 10, 2011, by and between the Company and YA Global Investments, L.P.
     
8-K
 
10.1
 
1/14/2011
10.160
 
Secured Convertible Debenture, No. NEOM-11-1, dated January 10, 2011,  issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.2
 
1/14/2011
10.161
 
Warrant, No. NEOM-0111, dated January 10, 2011, issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.3
 
1/14/2011
10.162
 
Sixth Ratification Agreement, dated January 10, 2011, by and among the Company, each of the Company’s subsidiaries made a party thereto, and YA Global Investments, L.P.
     
8-K
 
10.6
 
1/14/2011
 
 
44

 
 
Exhibit
Number
 
Description
 
Filed Herewith
 
Form
 
Exhibit
 
Filing Date
                     
10.163
 
Irrevocable Transfer Agent Instructions, dated January 10, 2011, by and among the Company, the Buyer, David Gonzalez, Esq. and WorldWide Stock Transfer, LLC
     
8-K
 
10.7
 
1/14/2011
10.164
 
Agreement, dated February 8, 2011, by and between the Company and YA Global Investments, L.P.
     
8-K
 
10.1
 
2/11/2011
10.165
 
Secured Convertible Debenture, No. NEOM-11-2, dated February 8, 2011,  issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.2
 
2/11/2011
10.166
 
Warrant, No. NEOM-0211, dated February 8, 2011, issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.3
 
2/11/2011
10.167
 
Seventh Ratification Agreement, dated February 8, 2011, by and among the Company, each of the Company’s subsidiaries made a party thereto, and YA Global Investments, L.P.
     
8-K
 
10.6
 
2/11/2011
10.168
 
Irrevocable Transfer Agent Instructions, dated February 8, 2011, by and among the Company, the Buyer, David Gonzalez, Esq. and WorldWide Stock Transfer, LLC
     
8-K
 
10.7
 
2/11/2011
10.169
 
Confidential License Agreement, dated December 21, 2010, by and between the Company and eBay Inc.
     
8-K
 
10.1
 
2/22/2011
10.170
 
Appointment of Ms. Sarah Fay to serve as a member of the Board of Directors.  Accepted notification of the retirement of James J. Keil as a member of the Board of Directors.
     
8-K
 
99.1
 
3/2/2011
10.171
 
Agreement, dated March 11, 2011, by and between the Company and YA Global Investments, L.P.
     
8-K
 
10.1
 
3/17/2011
10.172
 
Secured Convertible Debenture, No. NEOM-11-3, dated March 11, 2011,  issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.2
 
3/17/2011
10.173
 
Warrant, No. NEOM-0311, dated March 11, 2011, issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.3
 
3/17/2011
10.174
 
Ratification Agreement, dated March 11, 2011, by and among the Company, each of the Company’s subsidiaries made a party thereto, and YA Global Investments, L.P.
     
8-K
 
10.6
 
3/17/2011
10.175
 
Irrevocable Transfer Agent Instructions, dated March 11, 2011, by and among the Company, the Buyer, David Gonzalez, Esq. and WorldWide Stock Transfer, LLC
     
8-K
 
10.7
 
3/17/2011
10.176
 
Agreement, dated April 13, 2011, by and between the Company and YA Global Investments, L.P.
     
8-K
 
10.1
 
4/13/2011
10.177
 
Secured Convertible Debenture, No. NEOM-11-4, dated April 13, 2011,  issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.2
 
4/13/2011
10.178
 
Warrant, No. NEOM-0411, dated April 13, 2011, issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.3
 
4/13/2011
 
 
45

 

Exhibit
Number
 
Description
 
Filed Herewith
 
Form
 
Exhibit
 
Filing Date
                     
10.179
 
Ratification Agreement, dated April 13, 2011, by and among the Company, each of the Company’s subsidiaries made a party thereto, and YA Global Investments, L.P.
     
8-K
 
10.6
 
4/13/2011
10.180
 
Irrevocable Transfer Agent Instructions, dated April 13, 2011, by and among the Company, the Buyer, David Gonzalez, Esq. and WorldWide Stock Transfer, LLC
     
8-K
 
10.7
 
4/13/2011
10.181
 
2011 Stock Incentive Plan
     
S-8
 
4.1
 
4/22/2011
10.182
 
Agreement, dated May 31, 2011, by and between the Company and YA Global Investments, L.P.
     
8-K
 
10.1
 
5/31/2011
10.183
 
Secured Convertible Debenture, No. NEOM-11-5, dated May 31, 2011,  issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.2
 
5/31/2011
10.184
 
Warrant, No. NEOM-0511, dated May 31, 2011, issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.3
 
5/31/2011
10.185
 
Security Agreement, dated July 29, 2008, by and among the Company, each of the Company’s subsidiaries made a party thereto and YA Global Investments, L.P.
     
8-K
 
10.4
 
5/31/2011
10.186
 
Patent Security Agreement, dated July 29, 2008, by and among the Company, each of the Company’s subsidiaries made a party thereto and YA Global Investments, L.P.
     
8-K
 
10.5
 
5/31/2011
10.187
 
Ratification Agreement, dated May 31, 2011, by and among the Company, each of the Company’s subsidiaries made a party thereto, and YA Global Investments, L.P.
     
8-K
 
10.6
 
5/31/2011
10.188
 
Irrevocable Transfer Agent Instructions, dated May 31, 2011, by and among the Company, YA Global Investments, L.P., David Gonzalez, Esq. and WorldWide Stock Transfer, LLC
     
8-K
 
10.7
 
5/31/2011
10.189
 
Agreement, dated June 28, 2011, by and between the Company and YA Global Investments, L.P.
     
8-K
 
10.1
 
6/28/2011
10.190
 
Secured Convertible Debenture, No. NEOM-11-6, dated June 28, 2011,  issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.2
 
6/28/2011
10.191
 
Warrant, No. NEOM-0611, dated June 28, 2011, issued by the Company to YA Global Investments, L.P.
     
8-K
 
10.3
 
6/28/2011
10.192
 
Security Agreement, dated July 29, 2008, by and among the Company, each of the Company’s subsidiaries made a party thereto and YA Global Investments, L.P.
     
8-K
 
10.4
 
6/28/2011
10.193
 
Patent Security Agreement, dated July 29, 2008, by and among the Company, each of the Company’s subsidiaries made a party thereto and YA Global Investments, L.P.
     
8-K
 
10.5
 
6/28/2011
10.194
 
Eleventh Ratification Agreement, dated June 28, 2011, by and among the Company, each of the Company’s subsidiaries made a party thereto, and YA Global Investments, L.P.
     
8-K
 
10.6
 
6/28/2011
10.195
 
Irrevocable Transfer Agent Instructions, dated June 28, 2011, by and among the Company, YA Global Investments, L.P., David Gonzalez, Esq. and WorldWide Stock Transfer, LLC
     
8-K
 
10.7
 
6/28/2011
 
 
46

 

Exhibit
     
Filed
          Filing
Number
 
Description
 
Herewith
 
Form
 
Exhibit
 
Date
                     
10.196
 
Secured Convertible Debenture, No. NEOM-11-7, dated July
               
   
13, 2011, issued by the Company to YA Global Investments,
               
   
L.P.
     
8-K
 
10.1
 
7/13/2011
10.197
 
Agreement, dated June 28, 2011, by and between the Company
               
   
and YA Global Investments, L.P.
     
8-K
 
10.2
 
7/13/2011
10.198
 
Secured Convertible Debenture, No. NEOM-11-6, dated June
               
   
28, 2011, issued by the Company to YA Global Investments,
               
   
L.P.
     
S-8
 
10.3
 
7/13/2011
10.199
 
Eleventh Ratification Agreement, dated June 28, 2011, by and
               
   
among the Company, each of the Company’s subsidiaries made
               
   
a party thereto, and YA Global Investments, L.P.
     
8-K
 
10.4
 
7/13/2011
10.200
 
Security Agreement, dated July 29, 2008, by and among the
               
   
Company, each of the Company’s subsidiaries made a party
               
   
thereto and YA Global Investments, L.P.
     
8-K
 
10.5
 
7/13/2011
10.201
 
Patent Security Agreement, dated July 29, 2008, by and among
               
   
the Company, each of the Company’s subsidiaries made a party
               
   
thereto and YA Global Investments, L.P.
     
8-K
 
10.6
 
7/13/2011
10.202
 
Irrevocable Transfer Agent Instructions, dated June 28, 2011, by
               
   
and among the Company, YA Global Investments, L.P., David
               
   
Gonzalez, Esq. and WorldWide Stock Transfer, LLC
     
8-K
 
10.7
 
7/13/2011
10.203
 
Resignation of Mr. Michael W. Zima, Chief Financial Officer
               
   
and Corporate Secretary. Appointment of Mr. Robert W.
               
   
Thomson as interim Chief Financial Officer and Corporate
               
   
Secretary.
     
8-K
 
99.1
 
7/19/2011
                     
14
 
Code of Professional Ethics
     
10-K
 
14.1
 
4/3/2007
31.1
 
Certification of Chief Executive Officer Pursuant to Section 302
               
   
of the Sarbanes-Oxley Act of 2002
 
X
           
31.2
 
Certification of Chief Financial Officer Pursuant to Section 302
               
   
of the Sarbanes-Oxley Act of 2002
 
X
           
32.1
 
Certification of Chief Executive Officer Pursuant to Section 906
               
   
of the Sarbanes-Oxley Act of 2002
 
X
           
32.2
 
Certification of Chief Financial Officer Pursuant to Section 906
               
   
of the Sarbanes-Oxley Act of 2002
 
X
           
 
 
47

 
 
SIGNATURES
 
In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
NEOMEDIA TECHNOLOGIES, INC.
 
 
(Registrant)
 
       
Dated:   August 12, 2011
 
/s/ Robert W. Thomson
 
   
Robert W. Thomson
 
   
Interim Chief Financial Officer & Principal Finance Officer
and Principal Accounting Officer
 
       
 
 
48