NeoMedia Technologies, Inc (NEOM)

[jrod]

Proof That Persistence (& Experience) Pays Off:
APDN, MSFT, & NEOM Examined
By James E. Brumley
Aug 22, 2012 8:32:18 AM PDT

http://www.smallcapnetwork.com/Proof-That-Persistence-Experience-Pays-Off-APDN-MSFT-NEOM-Examined/s/via/10/article/view/p/mid/3/id/183/

JAMES E. BRUMLEY

The unfortunate fact of the matter is, most bulletin board-listed stocks never graduate from the bulletin board. Though the estimates vary widely, on average, experts say more than half of all startups fail; a bunch of experts say the failure rate is 90%. Every once in a while, however, you get a company like Applied DNA Sciences Inc. (OTC:APDN) or NeoMedia Technologies, Inc. (PINK:NEOM), that survives the 'trial by fire' that destroys most other comparably-sized businesses, and makes it a stage in the company's development that isn't a perpetually-uphill battle. Of course, having a fiend like Microsoft Corporation (NASDAQ:MSFT) or the Department of Defense throw you a bone doesn't hurt either.

With just a quick glance, casual observers may deem NEOM and APDN just lucky... in the right place at the right time. Applied DNA Sciences, for instance, is the beneficiary of a recent decision from the Department of Defense to require all of its technology suppliers/contractors to use an ant-counterfeit control process that's - ta-da - only made by Applied DNA Sciences. Since it's a patented technology, the company is in the proverbial cat-bird's seat. As for NeoMedia Technologies, Microsoft Corporation recently agreed to be a licensee of its barcode-reading technology patents. One can only presume that this technology is going to be one of the many features available on any upcoming Windows 8 (for mobile) devices. It may even be a tacit clue that Microsoft is getting directly into the smartphone business, which wouldn't be a stretch considering it's already waded into the tablet business, via its 'Surface' device.

Take a closer look at these two small cap companies though. It may look like luck on the surface, but ask the people working for - and leading - NeoMedia Technologies or Applied DNA Sciences. It's not a matter of luck. It's a matter of taking a good idea, and working it, and working it, and working it, and then selling it, and then working it, and then selling it, and then selling it, and then working it..... you get the idea. APDN and NEOM win coveted, lottery-sized business largely because they managed to stick around under circumstances where other outfits would have folded. Welcome to the modern world of startups.

For Applied DNA Sciences, that good idea was a botanical-based DNA marker. It's proprietary and patented, but more important, practical. A tiny bit of that plant DNA material is dabbed/brushed/sprayed into a tag, label, or package, and using the company's specialized scanning equipment, it can determine the presence - or lack of presence - of said DNA. It has value to high-end brand names who want to protect their reputation from subpar items produced by counterfeiters, who have gotten very good at knocking-off name brand items... right down to a perfect reproduction of the label. The label or tag may look like the real deal, but if the APDN scanners don't find that particular botanical DNA on it (which is invisible to the naked eye), a fake good can be identified.

NeoMedia Technologies' offer is clearer. It can turn a smartphone's camera into a barcode reader, which can then direct a smartphone to display a particular webpage. It's not a new technology, and it's not even the only player in that game. Apple's iPhones and several Samsung phones and tablets already have a barcode reader that does the same. Microsoft clearly likes Neomedia's though, and the reader technology may well become one of the centerpieces of what Microsoft hope will become its own mobile ecosystem.

All that being said, the key that investors must soak in - the part of the story that's easy to overlook - is that both of these small cap companies have been working on these 'big deals' for years.

Applied DNA Sciences, for instance, began rolling its DNA-driven ball way back in 2007, starting with no sales at the time, but armed great idea about how to protect companies from piracy and counterfeiting. In fact, APDN was one of 2007's top Featured Stocks of the Small Cap Network; here's our initial recommendation. Now, a 'mere five years later', the Department of Defense saw the value.

NeoMedia Technologies has been around since 2006, when the founder first installed the tool on a smartphone and successfully pulled up a web page based on the barcode in question. As cool - and expected - as the idea seems now, the crowd didn't come running. It's taken several years of tepid licensing and service revenue ($7 million, in total) and a long patent fight to keep NEOM in a position to where it could be around to become a Microsoft partner today. The Microsoft licensing deal, however, could be worth tens of millions if the normal licensing fees and royalties of between 0.5% and 5% apply to this deal.

The point is, none of this recent success from either company actually happened recently. It's taken years to get here, with a lot of money, and a lot of sweat-equity.

More important for investors is the lesson behind these recent deals.

At the heart of both companies is a very practical, marketable idea. And, behind both companies are people that understand success rarely 'just happens'. It's built. That's why who's developing the business model is just as important as the idea itself.

One has to wonder if the investment potential of Facebook [Facebook is a great idea, by the way] would be much more compelling if a seasoned veteran who understood that growth can never be taken for granted was at the helm. While Mark Zuckerberg isn't a dumb guy, at 28 years old, he was only 16 when the dot-com bubble burst, and all he's largely seen from the world of technology (excluding the real-estate-implosion-driven bust of 2008) was apparently-easy success. That's not the way it really is all the time though, when you dig deeper into what makes companies tick. It's interesting that both NeoMedia and Applied DNA were helmed by seasoned veterans (Jim Hayward at APDN, and Iain McCready-then-Laura Marriott at NEOM) that most sub-30-something's would consider past their prime. They're not past their prime. They just know how to build something for the long haul that would eventually be self-sustaining.

Just some food for thought the next time you get interested in a tech company led by someone under the age of 30 that doesn't actually have a business/revenue model.