Edgar Filing: NEOMEDIA TECHNOLOGIES INC

As filed with the Securities and Exchange Commission on December __, 2003

SEC Registration No. _________

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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

DELAWARE NEOMEDIA TECHNOLOGIES, INC. 36-3680347

(State or other jurisdiction of (Name of issuer in its charter) (I.R.S. Employer
incorporation or organization) Identification No.)

2201 SECOND STREET, SUITE 402 7373 CHARLES T. JENSEN
FORT MYERS, FLORIDA 33901 (Primary Standard Industrial 2201 SECOND STREET, SUITE 402
(239) 337-3434 Classification Code Number) FORT MYERS, FLORIDA 33901-3083
(Address and telephone number of (239) 337-3434
Registrant's principal executive offices) TELECOPIER NO.: (239) 337-3668
(Name, address, and telephone number
of agent for service)

With copies to:

Clayton E. Parker, Esq. Ronald S. Haligman, Esq.
Kirkpatrick & Lockhart LLP Kirkpatrick & Lockhart LLP
201 S. Biscayne Blvd., Suite 2000 201 S. Biscayne Blvd., Suite 2000
Miami, FL 33131 Miami, FL 33131
Telephone No.: (305) 539-3305 Telephone No.: (305) 539-3305
Telecopier No.: (305) 358-7095 Telecopier No.: (305) 358-7095

Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. |X|

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|

PROSPECTUS

NEOMEDIA TECHNOLOGIES, INC.

308,648,500 SHARES OF COMMON STOCK

This prospectus relates to the sale of up to 308,648,500 shares of
NeoMedia's common stock by persons who are, or will become, stockholders of
NeoMedia. Please refer to "Selling Shareholders" beginning on page 17. NeoMedia
will receive proceeds from the sale of common stock under the Standby Equity
Distribution Agreement, and from the proceeds from the exercise of warrants for
24,560,000 shares of common stock. All costs associated with this registration
will be borne by NeoMedia.

The shares of common stock are being offered for sale by the selling
stockholders at prices established on the Over the Counter Bulletin Board. The
prices will fluctuate based on the demand for the shares of common stock. Our
common stock trades on the OTC Bulletin Board under the symbol "NEOM." On
December 12, 2003, the last reported sale price of our common stock on the OTC
Bulletin Board was $0.16 per share.

The selling stockholders consist of:

o Cornell Capital Partners, L.P., which intends to sell up to
210,000,000 shares of common stock.

o William Fritz, a member of our Board of Directors, who intends
to sell 53,443,780 shares of common stock

o Charles W. Fritz, the Chairman of our Board of Directors, who
intends to sell 17,181,912 shares of common stock

o Other selling stockholders, who intend to sell up to
28,022,808 shares of common stock.

Cornell Capital Partners is an "underwriter" within the meaning of the
Securities Act of 1933 in connection with the sale of common stock under the
Standby Equity Distribution Agreement Agreement. Cornell Capital Partners will
pay NeoMedia 98% of the market price of our common stock. In addition, Cornell
Capital Partners is entitled to retain 5% of each advance under the Standby
Equity Distribution Agreement. The 2% discount, the one-time commitment fee and
the 5% retention are underwriting discounts.

NeoMedia has engaged Newbridge Securities Corporation, an unaffiliated
registered broker-dealer, to advise us in connection with the Standby Equity
Distribution Agreement. Newbridge Securities Corporation was paid a fee of
95,238 shares of NeoMedia's common stock.

Brokers or dealers effecting transactions in these shares should
confirm that the shares are registered under applicable state law or that an
exemption from registration is available.

THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
BEGINNING ON PAGE 4, WE HAVE LISTED SEVERAL RISK FACTORS WHICH YOU SHOULD
CONSIDER. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY BEFORE YOU MAKE YOUR
INVESTMENT DECISION.

With the exception of Cornell Capital Partners which is an
"underwriter" within the meaning of the Securities Act of 1933, no other
underwriter or person has been engaged to facilitate the sale of shares of
common stock in this offering. This offering will terminate 24 months after the
accompanying registration statement is declared effective by the Securities and
Exchange Commission. None of the proceeds from the sale of stock by the selling
stockholders will be placed in escrow, trust or any similar account.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

The date of this prospectus is December __, 2003.

TABLE OF CONTENTS

PAGE NO.

PROSPECTUS SUMMARY 1
RISK FACTORS 4
FORWARD-LOOKING STATEMENTS 15
SELLING STOCKHOLDERS 16
USE OF PROCEEDS 20
DILUTION 21
DIVIDEND POLICY 22
CAPITALIZATION 23
STANDBY EQUITY DISTRIBUTION AGREEMENT 24
PLAN OF DISTRIBUTION 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 28
DESCRIPTION OF BUSINESS 43
MANAGEMENT 51
AUDIT COMMITTEE 55
EXECUTIVE COMPENSATION 56
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTIONS VALUES 57
LEGAL PROCEEDINGS 60
PRINCIPAL STOCKHOLDERS 63
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 65
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER STOCKHOLDER MATTERS 67
DESCRIPTION OF SECURITIES 71
LEGAL MATTERS 76
EXPERTS 76
HOW TO GET MORE INFORMATION 77
INDEX OF FINANCIAL STATEMENTS 1
PART II INFORMATION NOT REQUIRED IN PROSPECTUS 1

Our audited financial statements for the fiscal year December 31, 2002, were
contained in our Annual Report on Form 10-K, and were distributed to our
shareholders prior to our annual shareholder meeting that was held on September
24, 2003.

PROSPECTUS SUMMARY

OVERVIEW

NeoMedia develops proprietary technologies that link physical
information and objects to the Internet marketed under its "PaperClickTM" brand
name.

NeoMedia is structured as two distinct business units: Internet
Switching Service and Consulting and Integration Services.

NeoMedia Internet Switching Service (NISS), our physical
world-to-Internet offerings, is our core business and is based in the United
States, with development and operating facilities in Fort Myers, Florida.
Application services develops and supports all of our physical world to Internet
technology, including our linking "switch" and our application platforms, and
manages our patent portfolio surrounding our technology. NISS also provides the
systems integration resources needed to design and build custom customer
solutions predicated on our infrastructure technology.

NeoMedia Consulting and Integration Services (NCIS) is the original
business line upon which we were organized. This unit resells client-server
equipment and related software. The unit also provides general and specialized
consulting services targeted at software driven print applications. NCIS also
identifies prospects for custom applications based on our products and services.
These operations are based in Lisle, Illinois.

ABOUT US

Our principal executive offices are located at 2201 Second Street,
Suite 402, Fort Myers, Florida 33901. Our general telephone number is (239)
337-3434. Our Web site is located at www.neom.com. Information contained on our
Web site is not part of this prospectus.

THE OFFERING

This offering relates to the sale of common stock by certain persons
who are, or will become, our stockholders. The selling stockholders consist of:

o Cornell Capital Partners, which intends to sell up to
210,000,000 shares of common stock.

o William Fritz, a member of our Board of Directors, who intends
to sell 53,443,780 shares of common stock

o Charles W. Fritz, the Chairman of our Board of Directors, who
intends to sell 17,181,912 shares of common stock

o Other selling stockholders, who intend to sell up to
28,022,808 shares of common stock

Pursuant to a Standby Equity Distribution Agreement entered into on
October 27, 2003 between Cornell Capital Partners and us, we may, at our
discretion, periodically issue and sell to Cornell Capital Partners shares of
common stock for a total purchase price of $20 million. For each share of common
stock purchased under the Standby Equity Distribution Agreement, Cornell Capital
Partners will pay 98% of the lowest closing bid price of our common stock on the
Over the Counter Bulletin Board for the five trading days immediately following
the notice date. The amount of each advance is subject to a maximum of $280,000
per advance, up to a maximum of $840,000 in any 30-day period. In addition,
Cornell Capital Partners will retain 5% of each advance under the Standby Equity
Distribution Agreement. Cornell Capital Partners intends to sell any shares
purchased under the Standby Equity Distribution Agreement at the then prevailing
market price. This prospectus relates to the shares of our common stock to be
issued under the Standby Equity Distribution Agreement, as well as shares of
common stock issued upon the exercise of warrants issued as a commitment fee
pursuant to the Standby Equity Distribution Agreement, shares of common stock to
be acquired pursuant to the exercise of warrants previously issued by NeoMedia,
and shares of common stock previously issued by NeoMedia.

We have engaged Newbridge Securities Corporation, an unaffiliated
registered broker-dealer, to advise us in connection with the Standby Equity
Distribution Agreement. Newbridge Securities Corporation was paid a fee of
95,238 shares of our common stock.

On February 14, 2003, the SEC declared effective a registration
statement on Form S-1 registering 100 million shares of our common stock
registered under a $10 million Equity line of Credit Agreement, dated February
11, 2003, with Cornell Capital Partners. Since that date and through December
12, 2003, we have received gross proceeds from Cornell Capital Partners of
$3,597,000, resulting in the sale to Cornell of 100,000,000 shares of our common
stock

COMMON STOCK OFFERED 308,648,500 shares

OFFERING PRICE Market Price

COMMON STOCK OUTSTANDING PRIOR TO THIS OFFERING(1) 243,878,428 shares

USE OF PROCEEDS The shares of common stock offered pursuant to this prospectus
are offered by the Selling Stockholders listed on page 17. We
will not receive any proceeds from the sale of the shares offered
hereby, except the exercise price of warrants being registered
hereunder. We will also receive proceeds from the sale of common
stock to Cornell Capital Partners under the Standby Equity
Distribution Agreement, which will be used for general working
capital. See "Use of Proceeds."

RISK FACTORS An investment in our common stock is highly speculative and
involves a high degree of risk and immediate substantial
dilution. You should read the "Risk Factors" and "Dilution"
sections.

OTC BULLETIN BOARD SYMBOL NEOM

---------------

(1) This table excludes options and warrants to purchase 33,605,007 and
26,195,000 shares of common stock, respectively, and up to 200,000,000
additional shares of common stock to be issued under the Standby Equity
Distribution Agreement.

RISK FACTORS

We are subject to various risks which may materially harm our business,
financial condition and results of operations. Before purchasing our shares of
common stock, you should carefully consider the risks described below in
addition to the other information in this prospectus. If any of these risks or
uncertainties actually occur, our business, prospects, financial condition, and
results of operations could be materially and adversely affected. In that case,
the trading price of our common stock could decline and you could lose all or
part of your investment.

RISKS SPECIFIC TO NEOMEDIA

WE HAVE HISTORICALLY LOST MONEY AND LOSSES MAY CONTINUE

We have incurred substantial losses since our inception, and anticipate
incurring substantial losses for the foreseeable future. We incurred a loss of
$4,060,000 in the nine months ended September 30, 2003, $7,421,000 in the year
ended December 31, 2002, $25,469,000 in the year ended December 31, 2001, and
$5,409,000 in the year ended December 31, 2000. Our accumulated deficit was
approximately $74,825,000 as of September 30, 2003, $70,765,000 as of December
31, 2002, and $63,344,000 as of December 31, 2001. We had a working capital
deficit of approximately $8,134,000 as September 30, 2003, $8,985,000 as of
December 31, 2002, and $5,163,000 as of December 31, 2001. We had shareholders'
deficit of $5,337,000, $6,026,000, and $263,000 at September 30, 2003, December
31, 2002 and December 31, 2001, respectively. We generated revenues of
$2,009,000 for the nine months ended September 30, 2003, $9,399,000 for the year
ended December 31, 2002, $8,142,000 for the year ended December 31, 2001, and
$27,565,000 for the year ended December 31, 2000. In addition, cash flows used
in operating activities totaled $2,057,000 during the nine months ended
September 30, 2003, $598,000 for the year ended December 31, 2002, $5,202,000
for the year ended December 31, 2001, and $6,775,000 for the year ended December
31, 2000. To succeed, we must develop new client and customer relationships and
substantially increase our revenue derived from improved products and additional
value-added services. To the extent we have available financing, we intend to
expend substantial resources to develop and improve our products, increase our
valued-added services and to market our products and services. These development
and marketing expenses must be incurred well in advance of the recognition of
revenue. As a result, we may not be able to achieve or sustain profitability.

WE WILL NEED TO RAISE ADDITIONAL CAPITAL TO FINANCE OPERATIONS

On October 27, 2003, we entered into a $20 million Standby Equity
Distribution Agreement with Cornell Capital Partners L.P. Under the terms of the
agreement, Cornell Capital Partners has agreed to purchase up to $20 million of
our common stock over the next two years at our discretion. The maximum amount
of purchases in any 7-day period is $280,000, not to exceed $840,000 in any
30-day period. For each share of common stock purchased under the Standby Equity
Distribution Agreement, Cornell Capital Partners will pay 98% of the lowest
closing bid price on the Over-the-Counter Bulletin Board during the five-day
period following the delivery of a notice by NeoMedia. We will pay 5% of the
gross proceeds of each purchase to Cornell Capital Partners as a commission, and
$500 of escrow fees for each advance.

Because we cannot predict when, or if, we will realize material revenue
from our intellectual property or PaperClick software products, we anticipate
that we will need to raise additional capital to fund our anticipated operating
expenses in the short term. Among other things, external financing will be
required to cover our operating costs. We cannot assure you that financing,
whether from external sources or related parties, will be available if needed or
on favorable terms. In the absence of financing, we believe that we will have
sufficient capital to sustain operations for approximately 90 days. Our belief
is based on our operating plan, which in turn is based on assumptions that may
prove to be incorrect. If capital raised from financing efforts and our
financial resources are insufficient we may require additional financing in
order to execute on our operating plan and continue as a going concern. We may
not be able to obtain the necessary additional capital on a timely basis, on
acceptable terms, or at all. In any of these events, 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 could
force us to reduce or cease operations. In the event that any future financing
should take the form of a sale of equity securities, the holders of the common
stock may experience additional dilution.

OUR INDEPENDENT ACCOUNTANTS HAVE ADDED GOING CONCERN LANGUAGE TO THEIR REPORT ON
OUR FINANCIAL STATEMENTS, WHICH MEANS THAT WE MAY NOT BE ABLE TO CONTINUE
OPERATIONS

The report of Stonefield Josephson, Inc., our independent auditors,
with respect to our financial statements and the related notes for the years
ended December 31, 2002 and 2001, indicates that, at the date of their report,
we had suffered recurring losses from operations and our current cash position
raised substantial doubt about our ability to continue as a going concern. Our
financial statements do not include any adjustments that might result from this
uncertainty.

THERE IS LIMITED INFORMATION UPON WHICH INVESTORS CAN EVALUATE OUR BUSINESS
BECAUSE THE PHYSICAL WORLD - TO - INTERNET MARKET HAS EXISTED FOR A SHORT PERIOD
OF TIME

The physical world-to-Internet market in which we operate is a recently
developed market. Further, we have conducted operations in this market only
since March 1996. Consequently, we have a relatively limited operating history
upon which you may base an evaluation of our primary business and determine our
prospects for achieving our intended business objectives. To date, we have sold
our physical world-to-Internet products to only 13 companies. Further, Digital
Convergence, our primary customer for our physical world-to-Internet products,
has filed Chapter 7 of the United States Bankruptcy Code and is presently being
sued by us for default on a promissory note issued to us in lieu of payment. We
are prone to all of the risks inherent to the establishment of any new business
venture, including unforeseen changes in our business plan. You should consider
the likelihood of our future success to be highly speculative in light of our
limited operating history in our primary market, as well as the limited
resources, problems, expenses, risks, and complications frequently encountered
by similarly situated companies in the early stages of development, particularly
companies in new and rapidly evolving markets, such as the physical
world-to-Internet space. To address these risks, we must, among other things,

o maintain and increase our client base;

o implement and successfully execute our business and marketing
strategy;

o continue to develop and upgrade our products;

o continually update and improve our service offerings and
features;

o respond to industry and competitive developments; and

o attract, retain, and motivate qualified personnel.

We may not be successful in addressing these risks. If we are unable to
do so, our business, prospects, financial condition, and results of operations
would be materially and adversely affected.

OUR SHARES WERE DE-LISTED FROM TRADING ON THE NASDAQ SMALLCAP MARKET, WHICH MAY
HAVE A MATERIAL ADVERSE EFFECT ON YOUR ABILITY TO RESELL YOUR SHARES OR OBTAIN
ACCURATE PRICE QUOTATIONS

On March 11, 2002, we received a Nasdaq Staff Determination stating
that, as of December 31, 2001, we did not meet either the minimum net tangible
assets ($2,000,000) or minimum stockholders' equity ($2,500,000) criteria for
continued listing on the Nasdaq SmallCap Market and advising that, accordingly,
our shares were subject to de-listing from such market. On May 16, 2002, we
received notification from the Nasdaq Listing Qualifications Panel that our
shares were delisted effective May 17, 2002. Our shares are now trading on the
OTC Bulletin Board. Your ability to resell shares of our stock, obtain accurate
or timely price quotations on our shares, and, potentially, our ability to sell
shares for our own account in order to raise equity financing could possibly be
materially adversely affected by this delisting.

WE ARE SUBJECT TO PRICE VOLATILITY DUE TO OUR OPERATIONS MATERIALLY FLUCTUATING

As a result of the emerging and evolving nature of the markets in which
we compete, as well as the current nature of the public markets and our current
financial condition, we believe that our operating results may fluctuate
materially, as a result of which quarter-to-quarter comparisons of our results
of operations may not be meaningful. If in some future quarter, whether as a
result of such a fluctuation or otherwise, our results of operations fall below
the expectations of securities analysts and investors, the trading price of our
common stock would likely be materially and adversely affected. You should not
rely on our results of any interim period as an indication of our future
performance. Additionally, our quarterly results of operations may fluctuate
significantly in the future as a result of a variety of factors, many of which
are outside our control. Factors that may cause our quarterly results to
fluctuate include, among others:

o our ability to retain existing clients and customers;

o our ability to attract new clients and customers at a steady
rate;

o our ability to maintain client satisfaction;

o our ability to motivate potential clients and customers to
acquire and implement new technologies;

o the extent to which our products gain market acceptance;

o the timing and size of client and customer purchases;

o introductions of products and services by competitors;

o price competition in the markets in which we compete;

o the pricing of hardware and software which we resell or
integrate into our products;

o the level of use of the Internet and online services and the
rate of market acceptance of physical world-to-Internet
marketing;

o our ability to upgrade and develop our systems and
infrastructure in a timely and effective manner;

o our ability to attract, train, and retain skilled management,
strategic, technical, and creative professionals;

o the amount and timing of operating costs and capital
expenditures relating to the expansion of our business,
operations, and infrastructure;

o unanticipated technical, legal, and regulatory difficulties
with respect to use of the Internet; and

o general economic conditions and economic conditions specific
to Internet technology usage and electronic commerce.

OUR COMMON STOCK IS DEEMED TO BE "PENNY STOCK," WHICH MAY MAKE IT MORE DIFFICULT
FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS

Our common stock is deemed to be "penny stock" as that term is defined
in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. These
requirements may reduce the potential market for our common stock by reducing
the number of potential investors. This may make it more difficult for investors
in our common stock to sell shares to third parties or to otherwise dispose of
them. This could cause our stock price to decline. Penny stocks are stock:

o With a price of less than $5.00 per share;

o That are not traded on a "recognized" national exchange;

o Whose prices are not quoted on the NASDAQ automated quotation
system (NASDAQ listed stock must still have a price of not
less than $5.00 per share); or

o In issuers with net tangible assets less than $2.0 million (if
the issuer has been in continuous operation for at least three
years) or $10.0 million (if in continuous operation for less
than three years), or with average revenues of less than $6.0
million for the last three years.

Broker/dealers dealing in penny stocks are required to provide
potential investors with a document disclosing the risks of penny stocks.
Moreover, broker/dealers are required to determine whether an investment in a
penny stock is a suitable investment for a prospective investor.

WE ARE UNCERTAIN OF THE SUCCESS OF OUR INTERNET SWITCHING SERVICES BUSINESS UNIT
AND THE FAILURE OF THIS UNIT WOULD NEGATIVELY AFFECT OUR OPERATIONS

We provide products and services that provide a seamless link from
physical objects, including printed material, to the Internet. Our operations
are subject to the risk that:

o this Internet Switching Services business unit will ever
achieve profitability;

o our current product offerings will not be adversely affected
by the focusing of our resources on the physical
world-to-Internet space; or

o the products we develop will obtain market acceptance.

In the event that the Internet Switching Services business unit should
never achieve profitability, that our current product offerings should so
suffer, or that our products fail to obtain market acceptance, we could be
forced to reduce or cease operations.

OUR SUCCESS IS DEPENDENT UPON THE RESALE OF SOFTWARE AND EQUIPMENT FOR REVENUE;
A REDUCTION IN THESE SALES WOULD MATERIALLY ADVERSELY AFFECT OUR OPERATIONS AND
THE PRICE OF OUR STOCK

During the three month periods ended September 30, 2003 and 2002, the
nine month periods ended September 30, 2003 and 2002, and the years ended
December 31, 2002, 2001, and 2000, we derived 85%, 83%, 83%, 97%, 95%, 93%, and
70%, respectively, of our revenues from the resale of computer software and
technology equipment. A loss or a reduction of this revenue would have a
material adverse effect on our business, prospects, financial condition, and
results of operations, as well as our stock price. The revenue from the resale
of software and equipment is subject to the risks that:

o the market for our products and services will continue;

o we will be successful in marketing these products due to
competition and other factors;

o we will continue to be able to obtain short-term financing for
the purchase of the products that we resell; or

o our relationship with companies whose products and services we
sell will continue, including our relationship with Sun
Microsystems Computer Company.

Further, the technology and equipment resale business is becoming a
commodity industry for products undifferentiated by value-added proprietary
elements and services. A large number of companies act as re-marketers of
another party's products, and therefore, the competition in this area is
intense. Resale operations are also being compressed as equipment manufacturers
consolidate their distribution channels. In some instances, we, in acting as a
re-marketer, may compete with the original manufacturer. An inability to
effectively compete and generate revenues in this industry could force us to
reduce or cease operations.

A LARGE PERCENTAGE OF OUR ASSETS ARE INTANGIBLE ASSETS, WHICH WILL HAVE LITTLE
OR NO VALUE IF OUR OPERATIONS ARE UNSUCCESSFUL

At September 30, 2003, approximately 40% of our total assets were
intangible assets, consisting primarily of rights related to our patents and
other intellectual property. If our operations are unsuccessful, these assets
will have little or no value, which will materially adversely affect the value
of our stock and the ability of our stockholders to recoup their investments in
our capital stock.

OUR ISS BUSINESS UNIT MARKETING STRATEGY HAS NOT BEEN TESTED AND MAY NOT RESULT
IN SUCCESS

To date, we have conducted limited marketing efforts directly relating
to our NISS business unit. All of our marketing efforts have been largely
untested in the marketplace, and may not result in sales of our products and
services. To penetrate the markets in which we compete, we will have to exert
significant efforts to create awareness of, and demand for, our products and
services. With respect to our marketing efforts conducted directly, we intend to
expand our sales staff upon the receipt of sufficient operating capital. Our
failure to further develop our marketing capabilities and successfully market
our products and services could force us to reduce or cease operations.

OUR INTERNALLY DEVELOPED SYSTEMS ARE INEFFICIENT AND MAY PUT US AT A COMPETITIVE
DISADVANTAGE

We use internally developed technologies for a portion of our systems
integration services, as well as the technologies required to interconnect our
clients' and customers' physical world-to-Internet systems and hardware with our
own. As we developed these systems in order to integrate disparate systems and
hardware on a case-by-case basis, these systems are inefficient and require a
significant amount of customization. Such client and customer specific
customization is time-consuming and costly and may place us at a competitive
disadvantage when compared to competitors with more efficient systems.

WE COULD FAIL TO ATTRACT OR RETAIN KEY PERSONNEL

Our future success will depend in large part on our ability to attract,
train, and retain additional highly skilled executive level management,
creative, technical, and sales personnel. Competition is intense for these types
of personnel from other technology companies and more established organizations,
many of which have significantly larger operations and greater financial,
marketing, human, and other resources than we have. We may not be successful in
attracting and retaining qualified personnel on a timely basis, on competitive
terms, or at all. Our failure to attract and retain qualified personnel would
have a material adverse effect on our business, prospects, financial condition,
and results of operations will be materially adversely affected.

WE DEPEND UPON OUR SENIOR MANAGEMENT AND THEIR LOSS OR UNAVAILABILITY COULD PUT
US AT A COMPETITIVE DISADVANTAGE

Our success depends largely on the skills of certain key management and
technical personnel, including Charles T. Jensen, our President, Chief Operating
Officer, and acting Chief Executive Officer, and Charles W. Fritz, the Chairman
of the Board and the leader of our intellectual property licensing efforts. The
loss of the services of Mr. Jensen or Mr. Fritz could materially harm our
business because of the cost and time necessary to replace and train a
replacement. Such a loss would also divert management attention away from
operational issues. We do not presently maintain a key-man life insurance policy
on Mr. Jensen or Mr. Fritz.

WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND WE MAY BE
LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS

Our success in the physical world-to-Internet and the value-added
systems integration markets is dependent upon our proprietary technology,
including our patents and other intellectual property, and on our ability to
protect our proprietary technology and other intellectual property rights. In
addition, we must conduct our operations without infringing on the proprietary
rights of third parties. We also intend to rely upon unpatented trade secrets
and the know-how and expertise of our employees, as well as our patents. To
protect our proprietary technology and other intellectual property, we rely
primarily on a combination of the protections provided by applicable patent,
copyright, trademark, and trade secret laws as well as on confidentiality
procedures and licensing arrangements. We have 14 patents for our physical
world-to-Internet technology, including 8 patents recently acquired as part of
our acquisition of Secure Source Technologies, Inc. We also have several
trademarks relating to our proprietary products. Although we believe that we
have taken appropriate steps to protect our unpatented proprietary rights,
including requiring that our employees and third parties who are granted access
to our proprietary technology enter into confidentiality agreements with us, we
can provide no assurance that these measures will be sufficient to protect our
rights against third parties. Others may independently develop or otherwise
acquire patented or unpatented technologies or products similar or superior to
ours.

We license from third parties certain software tools that we include in
our services and products. If any of these licenses were terminated, we could be
required to seek licenses for similar software from other third parties or
develop these tools internally. We may not be able to obtain such licenses or
develop such tools in a timely fashion, on acceptable terms, or at all.
Companies participating in the software and Internet technology industries are
frequently involved in disputes relating to intellectual property. We may in the
future be required to defend our intellectual property rights against
infringement, duplication, discovery, and misappropriation by third parties or
to defend against third-party claims of infringement. Likewise, disputes may
arise in the future with respect to ownership of technology developed by
employees who were previously employed by other companies. Any such litigation
or disputes could result in substantial costs to, and a diversion of effort by,
us. An adverse determination could subject us to significant liabilities to
third parties, require us to seek licenses from, or pay royalties to, third
parties, or require us to develop appropriate alternative technology. Some or
all of these licenses may not be available to us on acceptable terms or at all,
and we may be unable to develop alternate technology at an acceptable price or
at all. Any of these events could have a material adverse effect on our
business, prospects, financial condition, and results of operations.

WE ARE EXPOSED TO PRODUCT LIABILITY CLAIMS FOR WHICH WE DO HAVE COVERAGE AND AN
UNINSURED CLAIM COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, PROSPECTS,
FINANCIAL CONDITION, AND RESULTS OF OPERATIONS, AS WELL AS THE VALUE OF OUR
STOCK

Many of our projects are critical to the operations of our clients'
businesses. Any failure in a client's information system could result in a claim
for substantial damages against us, regardless of our responsibility for such
failure. We could, therefore, be subject to claims in connection with the
products and services that we sell. We currently do not maintain product
liability insurance. We do not currently maintain errors and omissions
insurance. There can be no assurance that: we have contractually limited our
liability for such claims adequately or at all; or we would have sufficient
resources to satisfy any liability resulting from any such claim.

The successful assertion of one or more large claims against us could
have a material adverse effect on our business, prospects, financial condition,
and results of operations.

WE WILL NOT PAY CASH DIVIDENDS AND INVESTORS MAY HAVE TO SELL THEIR SHARES IN
ORDER TO REALIZE THEIR INVESTMENT

We have not paid any cash dividends on our common stock and do not
intend to pay cash dividends in the foreseeable future. We intend to retain
future earnings, if any, for reinvestment in the development and marketing of
our products and services. Any future credit agreements into which we may enter
with institutional lenders may similarly restrict our ability to pay dividends.
As a result, investors may have to sell their shares of common stock to realize
their investment.

SOME PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BY-LAWS MAY DETER
TAKEOVER ATTEMPTS, WHICH MAY LIMIT THE OPPORTUNITY OF OUR STOCKHOLDERS TO SELL
THEIR SHARES AT A PREMIUM TO THE THEN MARKET PRICE

Some of the provisions of our Certificate of Incorporation and By-Laws
could make it more difficult for a third party to acquire us, even if doing so
might be beneficial to our stockholders by providing them with the opportunity
to sell their shares at a premium to the then market price. On December 10,
1999, our Board of Directors adopted a stockholders rights plan and declared a
non-taxable dividend of one right to acquire Series A Preferred Stock of
NeoMedia, par value $0.01 per share, on each outstanding share of our common
stock to stockholders of record on December 10, 1999 and each share of common
stock issued thereafter until a pre-defined hostile takeover date. The
stockholder rights plan was adopted as an anti-takeover measure, commonly
referred to as a "poison pill." The stockholder rights plan was designed to
enable all stockholders not engaged in a hostile takeover attempt to receive
fair and equal treatment in any proposed takeover of NeoMedia and to guard
against partial or two-tiered tender offers, open market accumulations and other
hostile tactics to gain control of NeoMedia. The stockholders rights plan, which
is similar to plans adopted by many leading public companies, was not adopted in
response to any effort to acquire control of NeoMedia at the time of adoption.
This stockholders rights plan may have the effect of rendering more difficult,
delaying, discouraging, preventing, or rendering more costly an acquisition of
NeoMedia or a change in control of NeoMedia. Certain of our directors, officers
and principal stockholders, including Charles W. Fritz, William E. Fritz and The
Fritz Family Limited Partnership and their holdings were exempted from the
triggering provisions of our "poison pill" plan, as their holdings as of the
date of plans adoption might have otherwise triggered the "poison pill."

In addition, our Certificate of Incorporation authorizes the issuance
of blank-check preferred stock (that is, preferred stock which our Board of
Directors can create and issue without prior stockholder approval) with rights
senior to those of our common stock. This provision may have the effect of
delaying or preventing changes of control or management of NeoMedia, even if
such transactions would have significant benefits to our stockholders. As a
result, this could limit the price some investors might be willing to pay in the
future for shares of our common stock.

RISKS RELATING TO OUR INDUSTRY

WE WILL ONLY BE ABLE TO EXECUTE OUR PHYSICAL WORLD-TO-INTERNET BUSINESS PLAN IF
INTERNET USAGE AND ELECTRONIC COMMERCE CONTINUE TO GROW

Our future revenues and any future profits are substantially dependent
upon the widespread acceptance and use of the Internet and other online services
as an effective medium of information and commerce. If use of the Internet and
other online services does not continue to grow or grows more slowly than we
expect, if the infrastructure for the Internet and other online services does
not effectively support the growth that may occur, or if the Internet and other
online services do not become a viable commercial marketplace, our physical
world-to-Internet business, and therefore our business, prospects, financial
condition, and results of operations, could be materially adversely affected.
Rapid growth in the use of, and interest in, the Internet, the Web, and online
services is a recent phenomenon, and may not continue on a lasting basis.
Concerns over the security of the Internet and other electronic transactions and
the privacy of consumers and merchants may inhibit the growth of the Internet
and other online services generally, especially as a means of conducting
commercial transactions. In addition, new consumers may not adopt, and existing
consumers may not continue to use, the Internet and other online services as a
medium of information retrieval or commerce. Demand and market acceptance for
recently introduced services and products over the Internet are subject to a
high level of uncertainty, and few services and products have generated profits.
For us to be successful, consumers and businesses must be willing to accept and
use new ways of conducting business and exchanging information.

In addition, the public in general may not accept the Internet and
other online services as a viable commercial or information marketplace for a
number of reasons, including, but not limited to, potentially inadequate
development of the necessary network infrastructure and delayed development of
enabling technologies and performance improvements. To the extent that the
Internet and other online networks continue to experience significant growth in
the number of users, their frequency of use, and in their bandwidth
requirements, the infrastructure for the Internet and online networks may be
unable to support the demands placed upon them. In addition, the Internet and
other online networks could lose their viability due to delays in the
development or adoption of new standards and protocols required to handle
increased levels of Internet activity and increased governmental regulation.
Significant issues concerning the commercial and informational use of the
Internet and online networks technologies, including security, reliability,
cost, ease of use, and quality of service, remain unresolved and may inhibit the
growth of Internet business solutions that utilize these technologies. Changes
in, or insufficient availability of, telecommunications services to support the
Internet or other online services also could result in slower response times and
adversely affect usage of the Internet and other online networks generally and
our physical world-to-Internet product and networks in particular. In the event
that we are unable to successfully execute our physical world-to-Internet
business plan, we could be forced to reduce or cease operations.

WE MAY NOT BE ABLE TO ADAPT AS THE INTERNET, PHYSICAL WORLD-TO-INTERNET,
EQUIPMENT RESALES AND SYSTEMS INTEGRATIONS MARKETS, AND CUSTOMER DEMANDS
CONTINUE TO EVOLVE

We may not be able to adapt as the Internet, physical
world-to-Internet, equipment resales and systems integration markets, and
consumer demands continue to evolve. Our failure to respond in a timely manner
to changing market conditions or client requirements could force us to reduce or
cease operations. The Internet, physical world-to-Internet, equipment resales,
and systems integration markets are characterized by:

o rapid technological change;

o changes in user and customer requirements and preferences;

o frequent new product and service introductions embodying new
technologies; and

o the emergence of new industry standards and practices that
could render proprietary technology and hardware and software
infrastructure obsolete.

Our success will depend, in part, on our ability to:

o enhance and improve the responsiveness and functionality of
our products and services;

o license or develop technologies useful in our business on a
timely basis;

o enhance our existing services, and develop new services and
technologies that address the increasingly sophisticated and
varied needs of our prospective or current customers; and

o respond to technological advances and emerging industry
standards and practices on a cost-effective and timely basis.

WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN MARKETS WHERE OUR COMPETITORS HAVE
MORE RESOURCES

While the market for physical world-to-Internet technology is
relatively new, it is already highly competitive and characterized by an
increasing number of entrants that have introduced or developed products and
services similar to those offered by us. We believe that competition will
intensify and increase in the future. Our target market is rapidly evolving and
is subject to continuous technological change. As a result, our competitors may
be better positioned to address these developments or may react more favorably
to these changes, which could force us to reduce or cease operations.

In addition, the equipment resales and systems integration markets are
increasingly competitive. We compete in these industries on the basis of a
number of factors, including the attractiveness of the services offered, the
breadth and quality of these services, creative design and systems engineering
expertise, pricing, technological innovation, and response to clients' needs. A
number of these factors are beyond our control. Our competitors may develop or
offer products or services that provide significant technological, creative,
performance, price, or other advantages over the products and services offered
by us.

Many of our competitors have longer operating histories, larger
customer bases, longer relationships with clients, and significantly greater
financial, technical, marketing, and public relations resources than NeoMedia.
Based on total assets and annual revenues, we are significantly smaller than our
two largest competitors in the physical world-to-Internet industry, which is the
primary focus of our business. Similarly, we compete against significantly
larger and better-financed companies in our systems integration and resales
businesses, including the manufacturers of the equipment and technologies that
we integrate and resell. If we compete with our primary competitors for the same
geographical or institutional markets, their financial strength could prevent us
from capturing those markets. We may not successfully compete in any market in
which we conduct currently or in the future. In addition, based on the
increasing consolidation, price competition and participation of equipment
manufacturers in the systems integration and equipment resales markets, we
believe that we will no longer be able to compete effectively in these markets
in the future. It is for this reason, that we have increasingly focused our
business plan on competing in the emerging market for physical world-to-Internet
products. In the event that we do not successfully execute our physical
world-to-Internet business plan, we could be forced to reduce or cease
operations.

IN THE FUTURE THERE COULD BE GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES
WHICH COULD HARM OUR BUSINESS

We are not currently subject to direct regulation by any government
agency other than laws or regulations applicable generally to electronic
commerce. Any new legislation or regulation, the application of laws and
regulations from jurisdictions whose laws do not currently apply to our
business, or the application of existing laws and regulations to the Internet
and other online services, could have a material adverse effect on our business,
prospects, financial condition, and results of operations. Due to the increasing
popularity and use of the Internet and other online services, federal, state,
and local governments may adopt laws and regulations, or amend existing laws and
regulations, with respect to the Internet or other online services covering
issues such as taxation, user privacy, pricing, content, copyrights,
distribution, and characteristics and quality of products and services. The
growth and development of the market for electronic commerce may prompt calls
for more stringent consumer protection laws to impose additional burdens on
companies conducting business online. The adoption of any additional laws or
regulations may decrease the growth of the Internet or other online services,
which could, in turn, decrease the demand for our services and increase our cost
of doing business, or otherwise force us to reduce or cease operations.
Moreover, the relevant governmental authorities have not resolved the
applicability to the Internet and other online services of existing laws in
various jurisdictions governing issues such as property ownership and personal
privacy and it may take time to resolve these issues definitively.

Certain of our proprietary technology allow for the storage of
demographic data from our users. In 2000, the European Union adopted a directive
addressing data privacy that may limit the collection and use of certain
information regarding Internet users. This directive may limit our ability to
collect and use information collected by our technology in certain European
countries. In addition, the Federal Trade Commission and several state
governments have investigated the use by certain Internet companies of personal
information. We could incur significant additional expenses if new regulations
regarding the use of personal information are introduced or if our privacy
practices are investigated.

RISKS SPECIFIC TO THIS OFFERING

As of December 12, 2003, we had 243,878,428 shares of common stock
outstanding and options and warrants to purchase up to an aggregate 59,800,007
shares of common stock. Up to an additional 200,000,000 shares of common stock
may be issued under the Standby Equity Distribution Agreement.

THE INVESTOR UNDER THE STANDBY EQUITY DISTRIBUTION AGREEMENT WILL PAY LESS THAN
THE THEN-PREVAILING MARKET PRICE OF OUR COMMON STOCK

The common stock to be issued under the Standby Equity Distribution
Agreement with Cornell will be issued at a 2% discount to the lowest closing bid
price for the 5 trading days immediately following the notice date of an
advance. These discounted sales could cause the price of our common stock to
decline.

THE SALE OF OUR STOCK UNDER OUR STANDBY EQUITY DISTRIBUTION AGREEMENT COULD
ENCOURAGE SHORT SALES BY THIRD PARTIES, WHICH COULD CONTRIBUTE TO THE FURTHER
DECLINE OF OUR STOCK PRICE

The significant downward pressure on the price of our common stock
caused by the sale of significant amounts of common stock under the Standby
Equity Distribution Agreement could encourage short sales by third parties. Up
to 200,000,000 shares of our common stock are being registered in this offering
for re-sale under the Standby Equity Distribution Agreement. Such an event could
place further downward pressure on the price of our common stock. We previously
registered 100,000,000 shares for resale under a separate $10 million Equity
Line of Credit. This previous registration was declared effective by the SEC on
February 14, 2003. Since that date, we have sold 100,000,000 shares to Cornell
Capital Partners under the Equity Line of Credit.

THE PRICE YOU PAY IN THIS OFFERING WILL FLUCTUATE AND MAY BE HIGHER OR LOWER
THAN THE PRICES PAID BY OTHER PEOPLE PARTICIPATING IN THIS OFFERING

The price in this offering will fluctuate based on the prevailing
market price of the common stock on the OTC Bulletin Board. Accordingly, the
price you pay in this offering may be higher or lower than the prices paid by
other people participating in this offering.

THE SELLING STOCKHOLDERS INTEND TO SELL THEIR SHARES OF COMMON STOCK IN THE
PUBLIC MARKET, WHICH SALES MAY CAUSE OUR STOCK PRICE TO DECLINE

The selling stockholders intend to sell the shares of common stock
being registered in this offering in the public market. That means that up to
308,648,500 shares of common stock, the number of shares being registered in
this offering, may be sold. Such sales may cause our stock price to decline.

OUR COMMON STOCK TRADES SPORADICALLY; THE MARKET PRICE OF OUR SECURITIES MAY BE
VOLATILE

Our common stock currently trades sporadically on the OTC Bulletin
Board. The market for our common stock may continue to be an inactive market.
Accordingly, unless and until an active public market develops, you may have
difficulty selling your shares of common stock at a price that is attractive to
you.

Our common stock has traded as low as $0.01 and as high as $0.41
between September 30, 2001 and December 12, 2003. From time to time after this
offering, the market price of our common stock may experience significant
volatility. Our quarterly results, failure to meet analysts expectations,
announcements by us or our competitors regarding acquisitions or dispositions,
loss of existing clients, new procedures or technology, changes in general
conditions in the economy, and general market conditions could cause the market
price of the common stock to fluctuate substantially. In addition, the stock
market has experienced significant price and volume fluctuations that have
particularly affected the trading prices of equity securities of many technology
companies. These price and volume fluctuations often have been unrelated to the
operating performance of the affected companies.

YOU MAY SUFFER SIGNIFICANT ADDITIONAL DILUTION IF OUTSTANDING OPTIONS AND
WARRANTS ARE EXERCISED

As of December 12, 2003, we had outstanding stock options to purchase
approximately 33.6 million shares of common stock and warrants to purchase
approximately 26.2 million shares of common stock, some of which may in the
future, but do not currently, have exercise prices at or below the price of our
common shares on the public market. To the extent such options or warrants are
exercised, there will be further dilution. In addition, in the event that any
future financing should be in the form of, be convertible into, or exchangeable
for, equity securities, and upon the exercise of options and warrants, investors
may experience additional dilution.

EXISTING STOCKHOLDERS WILL EXPERIENCE SIGNIFICANT DILUTION FROM THE SALE OF
SHARES UNDER THE STANDBY EQUITY DISTRIBUTION AGREEMENT

The sale of shares of common stock pursuant to the Standby Equity
Distribution Agreement will have a dilutive impact on our stockholders. As a
result, our net income per share could decrease in future periods, and the
market price of our common stock could decline. In addition, for a given
advance, we will need to issue a greater number of shares of common stock under
the Standby Equity Distribution Agreement as our stock price declines. If our
stock price is lower, then our existing stockholders would experience greater
dilution. For example, if we assume that we will issue 200,000,000 shares of
common stock under the Standby Equity Distribution Agreement at an assumed
offering price of $0.10 (net of 2% discount to Cornell Capital Partners), then
new shareholders would experience dilution of $0.0717 per share

FUTURE SALES OF COMMON STOCK BY OUR STOCKHOLDERS COULD ADVERSELY AFFECT OUR
STOCK PRICE AND OUR ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS

The market price of our common stock could decline as a result of sales
of a large number of shares of our common stock in the market as a result of
this offering, or the perception that these sales could occur. These sales also
might make it more difficult for us to sell equity securities in the future at a
time and at a price that we deem appropriate. If we sold to Cornell Capital
Partners all 200,000,000 shares being registered under the Standby Equity
Distribution Agreement, and if all options and warrants were exercised, we would
have up to 503,678,435 shares outstanding. Up to 200,000,000 of the shares being
registered in this offering underlie our Standby Equity Distribution Agreement
with Cornell Capital Partners. Under the terms of the agreement, Cornell Capital
Partners is obligated to buy up to $280,000 worth of our common stock every
seven days, up to a maximum of $840,000 in a 30-day period, at a price equal to
98% of the lowest closing bid price during the five-day period subsequent to
delivery by us of an advance notice. Assuming the market price is $0.16 (closing
price on December 12, 2003) on the day this registration statement becomes
effective, and that we deliver an advance notice of purchase of $280,000 worth
of our common stock, we would issue 1,785,714 shares of our common stock.
Remaining shares would become outstanding as we continue to sell them under the
agreement, with the number of shares dependent on the market price of our common
stock at the time of the put. The number of shares to be issued upon each put is
dependent on the stock price and cannot be determined exactly at this time.

Sales of our common stock in the public market following this offering could
lower the market price of our common stock. Sales may also make it more
difficult for us to sell equity securities or equity-related securities in the
future at a time and price that our management deems acceptable or at all. All
243,878,428 shares of common stock outstanding as of December 12, 2003 are, or
upon effectiveness of this registration statement will be, freely tradable
without restriction, unless held by our "affiliates."

FORWARD-LOOKING STATEMENTS

Information included or incorporated by reference in this prospectus
may contain forward-looking statements. This information may involve known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different from the future
results, performance or achievements expressed or implied by any forward-looking
statements. Forward-looking statements, which involve assumptions and describe
our future plans, strategies and expectations, are generally identifiable by use
of the words "may," "will," "should," "expect," "anticipate," "estimate,"
"believe," "intend" or "project" or the negative of these words or other
variations on these words or comparable terminology.

This prospectus contains forward-looking statements, including
statements regarding, among other things, (a) our projected sales and
profitability, (b) our growth strategies, (c) anticipated trends in our
industry, (d) our future financing plans and (e) our anticipated needs for
working capital. These statements may be found under "Management's Discussion
and Analysis or Plan of Operations" and "Business," as well as in this
prospectus generally. Actual events or results may differ materially from those
discussed in forward-looking statements as a result of various factors,
including, without limitation, the risks outlined under "Risk Factors" and
matters described in this prospectus generally. In light of these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this prospectus will in fact occur.

SELLING STOCKHOLDERS

The following table presents information regarding the selling
stockholders. The table identifies the selling stockholders. None of the selling
stockholders have held a position or office, or had any other material
relationship, with NeoMedia, except as follows:

o Cornell Capital Partners, L.P. is the investor under the
Standby Equity Distribution Agreement. All investment
decisions of Cornell Capital Partners are made by its general
partner, Yorkville Advisors, LLC. Mark Angelo, the managing
member of Yorkville Advisors, is the natural person who
exercises voting and/or dispositive powers over the shares
held by Yorkville Advisors.

o Newbridge Securities Corporation is an unaffiliated registered
broker/dealer that has been retained by us. It has provided
advice to us in connection with the Standby Equity
Distribution Agreement. Doug Agualilla is the natural person
who exercises voting and/or dispositive powers over the shares
held by Newbridge Securities Corporation. For its services,
Newbridge Securities Corporation received 95,238 shares of
NeoMedia's common stock.

o William E. Fritz is our corporate secretary and a member of
our board of directors. Of the 53,443,780 shares being
registered hereunder on behalf of William E. Fritz, 50,903,780
were outstanding as of this filing, and the remaining
2,540,000 are issuable upon exercise of warrants held by
William E. Fritz.

o Charles W. Fritz is the founder of NeoMedia, and currently
serves as Chairman of the board of directors. Mr. Fritz also
served as President and CEO from August 1996 through June
2002. Of the 17,181,912 shares being registered hereunder on
behalf of Charles W. Fritz, 15,671,912 were outstanding as of
this filing, and the remaining 1,510,000 are issuable upon
exercise of warrants held by Charles W. Fritz.

o James J. Keil is a member of our board of directors. Of the
235,945 shares being registered hereunder on behalf of James
J. Keil, 225,945 were outstanding as of this filing, and the
remaining 10,000 are issuable upon exercise of warrants held
by James J. Keil.

o James Walker is the natural person who exercises voting and/or
dispositive powers over the shares held by MRA Systems, Inc
d/b/a GE Access. The 500,000 shares being registered hereunder
on behalf of MRA Systems, Inc d/b/a GE Access are issuable
upon exercise of warrants held by MRA Systems, Inc d/b/a GE
Access, and were therefore not outstanding as of the date of
this filing.

o Dean Karkazis is the former Vice-President and General Manager
of our NISS business unit. He is no longer employed by
NeoMedia. The 1,600,000 shares being registered hereunder on
behalf of Dean Karkazis were outstanding as of the date of
this filing.

o Steven McFarland is the natural person who exercises voting
and/or dispositive powers over the shares held by Orsus
Solutions U.S.A., Inc. The 3,000,000 shares being registered
hereunder on behalf of Orsus Solutions U.S.A., Inc. were
outstanding as of the date of this filing.

o The 500,000 shares being registered hereunder on behalf of
Jonathon D. Greene were outstanding as of the date of this
filing.

o The 50,000 shares being registered hereunder on behalf of Mark
F. Bielski were outstanding as of the date of this filing.

o The 2,950,000 shares being registered hereunder on behalf of
Jonathon D. Greene/Mark F. Bielski TEN COM were outstanding as
of the date of this filing.

o Serguey G. Kondratieff is the natural person who exercises
voting and/or dispositive powers over the shares held by
Dolphin Multimedia, Inc. The 103,907 shares being registered
hereunder on behalf of Dolphin Multimedia, Inc. were
outstanding as of the date of this filing.

o Gregory Rice is the natural person who exercises voting and/or
dispositive powers over the shares held by R.B. Publishing,
Inc. The 66,841 shares being registered hereunder on behalf of
R.B. Publishing, Inc. were outstanding as of the date of this
filing.

o Martha Refkin is the natural person who exercises voting
and/or dispositive powers over the shares held by Thornhill
Capital LLC. The 10,000,000 shares being registered hereunder
on behalf of Thornhill Capital LLC are issuable upon exercise
of warrants held by Thornhill Capital LLC, and were therefore
not outstanding as of the date of this filing.

o Michael Pritchett is the natural person who exercises voting
and/or dispositive powers over the shares held by 2150 Western
Court LLC. The 1,325,855 shares being registered hereunder on
behalf of 2150 Western Court LLC were outstanding as of the
date of this filing.

o Michael Philip E. Croke is the natural person who exercises
voting and/or dispositive powers over the shares held by Voice
Processing, Inc. d/b/a Information Network for Southwest
Florida. The 7,279 shares being registered hereunder on behalf
of Voice Processing, Inc. d/b/a Information Network for
Southwest Florida were outstanding as of the date of this
filing.

o Gregory L. Adams and S. Cooper Rounds are the natural persons
who exercise voting and/or dispositive powers over the shares
held by International Digital Scientific, Inc. The 8,000,000
shares being registered hereunder on behalf of International
Digital Scientific, Inc. were outstanding as of the date of
this filing.

The table follows:

PERCENTAGE OF
OUSTANDING PERCENTAGE OF
SHARES SHARES TO BE OUSTANDING PERCENTAGE OF
SHARES BENEFICIALLY ACQUIRED SHARES TO BE SHARES
BENEFICIALLY OWNED UNDER THE ACQUIRED UNDER SHARES TO BE BENEFICIALLY
OWNED BEFORE BEFORE EQUITY LINE THE EQUITY LINE SOLD IN THE OWNED AFTER
SELLING STOCKHOLDERS OFFERING OFFERING (1) OF CREDIT OF CREDIT OFFERING OFFERING (1)
-------------------- -------- ------------ --------- --------- -------- ------------

Cornell Capital Partners, L.P. 10,000,000(2) 3.9% 200,000,000 45.1% 210,000,000 ---
Newbridge Securities Corporation 95,238(3) * --- 0.0% 95,238 ---
William E. Fritz 56,674,776(4) 22.9% --- 0.0% 53,443,780 1.31%
Charles W. Fritz 30,316,467(5) 11.8% --- 0.0% 17,181,912 5.11%
James J. Keil 1,485,000(6) * --- 0.0% 235,945 0.51%
Orsus Solutions U.S.A., Inc. 3,000,000(7) 1.2% --- 0.0$ 3,000,000 ---
Steven R. Whitley 450,000(8) * --- 0.0% 450,000 ---
Mark F. Bielski 50,000(9) * --- 0.0% 50,000 ---
Jonathon D. Greene 500,000(9) * --- 0.0% 500,000 ---
Jonathon D. Greene/Mark F.
Bielski TEN COM 2,950,000(9) 1.2% --- 0.0% 2,950,000 ---
MRA Systems d/b/a G.E. Access 500,000(10) * --- 0.0% 500,000 ---
Dean Karkazis 1,600,000(11) * --- 0.0% 1,600,000 ---
Dolphin Multimedia, Inc. 103,907(12) * --- 0.0% 103,907 ---
R.B. Publishing, Inc. 66,841(13) * --- 0.0% 66,841 ---
Anthony Barkume 37,743(14) * --- 0.0% 37,743 ---
Thornhill Capital LLC 10,000,000(15) 3.9% --- 0.0% 10,000,000 ---
2150 Western Court L.L.C. 1,325,855(16) * --- 0.0% 425,855 0.37%
Voice Processing, Inc.
d/b/a Information
Network for Southwest Florida 7,279(17) * --- 0.0% 7,279 ---
International Digital Scientific,
Inc. 8,000,000(18) 3.3% --- 0.0% 8,000,000 ---
--------------------------------------------------------------------------------------------------

TOTAL 127,163,106 52.1% 200,000,000 45.1% 308,648,500 7.06%
==================================================================================================

---------------------------
(1) Applicable percentage of ownership is based on 243,878,428 shares of common
stock outstanding as of December 12, 2003, together with securities
exercisable or convertible into shares of common stock within 60 days of
December 12, 2003, for each stockholder. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities.
Shares of common stock subject to securities exercisable or convertible
into shares of common stock that are currently exercisable or exercisable
within 60 days of December 12, 2003, are deemed to be beneficially owned by
the person holding such securities for the purpose of computing the
percentage of ownership of such person, but are not treated as outstanding
for the purpose of computing the percentage ownership of any other person.
The common stock is the only outstanding class of equity securities of
NeoMedia.

(2) Ownership before offering consists of 10,000,000 warrants to purchase
shares of our common stock at an exercise price of $0.05 per share, issued
in connection with the $20 million Standby Equity Distribution Agreement
between NeoMedia and Cornell Capital Partners.

(3) The address of the referenced holder(s) is: 1451 Cypress Creek Road, Suite
204, Fort Lauderdale, FL, 33309. The shares were issued for advice provided
in connection with our $20 million Standby Equity Distribution Agreement
with Cornell Capital Partners

(4) William E. Fritz, the Company's corporate secretary and a director, and his
wife, Edna Fritz, are the general partners of the Fritz Family Limited
Partnership and therefore each are deemed to be the beneficial owners of
the 1,511,742 shares held in the Fritz Family Partnership. As trustee of
each of the Chandler R. Fritz 1994 Trust, Charles W. Fritz 1994 Trust and
Debra F. Schiafone 1994 Trust, William E. Fritz is deemed to be the
beneficial owner of the 165,467 shares of NeoMedia held in these trusts.
Additionally, Mr. Fritz is deemed to own: 51,172,567 shares held directly
by Mr. Fritz or his spouse, 2,540,000 shares to be issued upon the exercise
of warrants held by Mr. Fritz or his spouse, and 1,285,000 shares to be
issued upon the exercise of options held by Mr. Fritz or his spouse. Mr.
William E. Fritz may be deemed to be a parent and promoter of NeoMedia, as
those terms are defined in the Securities Act. Shares being registered
include 25,000,000 shares purchased in a private placement of unregistered
securities in April 2003, 25,000,000 shares issued upon the exercise of
warrants in August 2003 issued with the private placement, 903,780 shares
issued with a convertible promissory note entered in to during November
2002, and 2,540,000 shares issuable upon the exercise of warrants issued
with promissory notes during 2003.

(5) Charles W. Fritz is the Company's founder and the Chairman of the Board of
Directors. Shares beneficially owned include 100 shares owned by each of
Mr. Fritz's four minor children for an aggregate of 400 shares, 11,549,000
shares of common stock issuable upon exercise of options granted under our
2002 and 1998 stock option plans, 1,510,000 shares issuable upon exercise
of stock warrants, 15,714,098 shares of common stock owned by Mr. Charles
W. Fritz directly, and 1,542,969 shares of common stock held by the CW/LA
II Family Limited Partnership, a family limited partnership for the benefit
of Mr. Fritz's family. Shares being registered include 15,445,967 shares
issued in April 2003 as payment of past due compensation liabilities,
225,945 shares issued with a convertible promissory note entered in to
during November 2002, and 1,510,000 shares issuable upon the exercise of
warrants issued with promissory notes during 2003.

(6) James J. Keil is a member of the Board of Directors. Shares beneficially
owned includes 10,000 shares issuable upon exercise of warrants, 1,000,000
shares issuable upon the exercise of options, and 475,000 shares owned by
Mr. Keil directly. Shares being registered include 225,945 shares issued
with a convertible promissory note entered in to during November 2002, and
10,000 shares issuable upon the exercise of warrants issued with promissory
notes during 2003.

(7) The address of the referenced holder(s) is: Orsus Solutions U.S.A, Inc.,
1616 N. Shoreline Blvd, Mountain View, CA, 94043. Shares being registered
were issued in October 2003 as payment of past due invoices that were
subject to a lawsuit.

(8) The address of the referenced holder(s) is: c/o Wiltshire Whitley
Richardson & English, 2075 West First St., Ft. Myers, FL, 33901. Shares
being registered were issued in October 2003 as payment of past due
professional services.

(9) Shares issued to holders of Secure Source Technologies, Inc.'s ("SST")
outstanding shares, as part of NeoMedia's purchase of SST. The addresses of
the referenced holders are: Mark F. Bielski, 4600 Duke Street, Suite 428,
Alexandria, VA, 22304; Jonathon D. Greene, 8016 Aberdeen Rd., Bethesda, MD,
20814; and Jonathon D. Greene/Mark F. Bielski TEN COM, 7507 Arlington Rd.,
Bethesda, MD, 20814. Shares being registered were issued in October 2003 in
exchange for all of the outstanding shares of SST.

(10) The address of the referenced holder(s) is: 11300 Westmoor Circle,
Westminster, CO, 80021. Shares being registered are issuable upon warrants
issued in February 2003 as payment of interest relating to a commercial
credit agreement between GE Access and NeoMedia.

(11) The address of the referenced holder(s) is: 3606 Monarch Circle,
Naperville, IL, 60564. Shares being registered were issued in September
2003 as payment of past due compensation liabilities.

(12) The address of the referenced holder(s) is: 1900 Embarcadero Road, Suite
101, Palo Alto, CA, 94303. Shares being registered were issued in October
2003 as payment of past due professional services.

(13) The address of the referenced holder(s) is: PO Box 8685, Madison, WI,
53708. Shares being registered were issued in October 2003 as payment of
past due professional services.

(14) The address of the referenced holder(s) is: 20 Gateway Lane, Manorville, NY
11949. Shares being registered were issued in October 2003 as payment of
past due professional services.

(15) Beneficial ownership is comprised of 10,000,000 shares issuable upon
exercise of stock warrants. The address of the referenced holder(s) is c/o
Martha Refkin, 3709 Fielding Drive, Springfield, IL, 62707. Shares being
registered are issuable upon warrants issued in September 2003 as payment
for professional services.

(16) The address of the referenced holder(s) is 2777 Finley Rd., Suite 23,
Downer's Grove, IL, 60515. Shares being registered were issued in September
2003 as payment of past due rent.

(17) The address of the referenced holder(s) is 13515 Bell Tower Drive, Suite
202, Ft. Myers, FL, 33907. Shares being registered were issued in October
2003 as payment for professional services.

(18) The address of the referenced holder(s) is 24307 Magic Mountain Parkway,
#297, Valencia, CA, 91355. Shares being registered were issued in October
2003 as payment of a note payable issued in 1994 in connection with our
purchase of certain software products from International Digital
Scientific, Inc. The payment of the note was subject to arbitration
proceedings initiated by International Digital Scientific, Inc.

USE OF PROCEEDS

This prospectus relates to shares of our common stock that may be
offered and sold from time to time by certain selling stockholders. There will
be no proceeds to us from the sale of shares of common stock in this offering.
However, we will receive the proceeds from the sale of shares of common stock to
Cornell Capital Partners under the Standby Equity Distribution Agreement. The
purchase price of the shares purchased under the Standby Equity Distribution
Agreement is equal to 98% of the lowest closing bid price of our common stock on
the OTC Bulletin Board for the 5 trading days immediately following the notice
date.

On February 14, 2003, the SEC declared effective a registration
statement on Form S-1 containing 100 million shares registered under a $10
million Equity Line of Credit Agreement with Cornell Capital Partners. Since
that date and through December 12, 2003, we have received gross proceeds from
Cornell Capital Partners of $3,597,000, resulting in the sale to Cornell Capital
Partners of 100,000,000 shares of our common stock

For illustrative purposes, we have set forth below our intended use of
proceeds for the range of net proceeds indicated below to be received under the
Standby Equity Distribution Agreement. The table assumes estimated offering
expenses of $50,000 and 5% retention of the gross proceeds raised under the
Standby Equity Distribution Agreement.

GROSS PROCEEDS $1,000,000 $5,000,000 $8,403,000

NET PROCEEDS 900,000 4,700,000 7,932,850

USE OF PROCEEDS:

Research and development -- 250,000 750,000
Accounts payable 100,000 1,500,000 3,000,000
Management Compensation 200,000 250,000 400,000
General Working Capital 600,000 2,700,000 3,782,850

TOTAL $ 900,000 $4,700,000 $7,932,850

Any proceeds received upon exercise of outstanding options will be used
for general working capital purposes.

DILUTION

The net tangible book value of our company as of September 30, 2003 was
$(7,452,000) or $(0.0362) per share of common stock. Net tangible book value per
share is determined by dividing the tangible book value of NeoMedia (total
tangible assets less total liabilities) by the number of outstanding shares of
our common stock. Since this offering is being made solely by the selling
stockholders and none of the proceeds will be paid to NeoMedia, our net tangible
book value will be unaffected by this offering. Our net tangible book value,
however, will be impacted by the common stock to be issued under the Standby
Equity Distribution Agreement. The amount of dilution will depend on the
offering price and number of shares to be issued under the Standby Equity
Distribution Agreement. The following example shows the dilution to new
investors at an offering price of $0.10 per share (net of 2% discount to Cornell
Capital Partners).

If we assume that NeoMedia had issued 200,000,000 shares of common
stock under the Standby Equity Distribution Agreement at an assumed offering
price of $0.10 per share, net of 2% discount to Cornell Capital Partners (i.e.,
the maximum number of shares registered in this offering under the Standby
Equity Distribution Agreement), less retention fees of $1,000,000 and offering
expenses of $50,000, our net tangible book value as of September 30, 2003 would
have been $11,498,000 or $0.0283 per share. Note that at an offering price of
$0.10 per share (net of 2% discount to Cornell Capital Partners), NeoMedia would
receive gross proceeds of $20,000,000, or the entire amount available under the
Standby Equity Distribution Agreement. Such an offering would represent an
immediate increase in net tangible book value to existing stockholders of
$0.0645 per share and an immediate dilution to new stockholders of $0.0717 per
share. The following table illustrates the per share dilution:

Assumed public offering price per share (net of 2% discount
to Cornell Capital Partners) $0.1000
Net tangible book value per share before this offering ($0.0362)
Increase attributable to new investors $0.0645
-------
Net tangible book value per share after this offering $0.0283
-------
Dilution per share to new stockholders $0.0717
-------

The offering price of our common stock is based on the then-existing
market price. In order to give prospective investors an idea of the dilution per
share they may experience, we have prepared the following table showing the
dilution per share at various assumed offering prices:

ASSUMED DILUTION PER
OFFERING NO. OF SHARES SHARE TO
PRICE (1) TO BE ISSUED (2) NEW INVESTORS
--------- ----------------- -------------

$0.50 40,000,000 $0.4532
$0.25 80,000,000 $0.2098
$0.10 200,000,000 $0.0717
$0.05 200,000,000 $0.0451
$0.01 200,000,000 $0.0238

---------------------

(1) Offering price net of 2% discount to Cornell Capital Partners.

(2) This represents the maximum number of shares of common stock that are
being registered under the Standby Equity Distribution Agreement.

DIVIDEND POLICY

We have not declared or paid any dividends on our common stock during
the years ended December 31, 2002, 2001 or 2000. Following this offering, our
dividend practices with respect to our common stock will be determined and may
be changed from time to time by our board of directors. We will base any
issuance of dividends upon contractual ability, earnings, financial condition,
capital requirements and other factors considered important by our board of
directors. Delaware law and our Certificate of Incorporation do not require our
Board of Directors to declare dividends on our common stock. In addition, we
have a letter of credit with Bank One, Chicago, Illinois, which requires Bank
One's written consent prior to the declaration of cash dividends. We expect to
retain all earnings, if any, generated by our operations for the development and
growth of our business and do not anticipate paying any dividends to our
stockholders for the foreseeable future.

CAPITALIZATION

The following table sets forth as of September 30, 2003, NeoMedia's actual
capitalization and pro forma capitalization after giving effect to the issuance
of 200,000,000 shares of common stock under the Standby Equity Distribution
Agreement. This information assumes a purchase price under the Standby Equity
Distribution Agreement of $0.10 per share, less estimated offering expenses of
$50,000 and a retention of $1,000,000. This table should be read in conjunction
with the information contained in "Management's Discussion and Analysis or Plan
of Operation" and the consolidated financial statements and the notes thereto
included elsewhere in this prospectus.

SEPTEMBER 30, 2003
ACTUAL PROFORMA
------------ ------------

Long-term debt, net of current portion $ 94,000 $ 94,000
Stockholders' equity:

Preferred stock, $0.01 par value, 25,000,000 authorized, no
issued and outstanding shares(2) -- --
Common stock, $0.01 par value, 1,000,000,000 authorized,
207,764,771 shares issued and 205,781,109 outstanding (1)(2) 2,057,811 4,057,811
Treasury stock, at cost, 201,230 shares of common stock (779,000) (779,000)
Additional paid-in capital:
Preferred stock -- --
Common stock 68,469,000 85,419,000
Deferred stock-based compensation (260,000) (260,000)
Accumulated deficit (74,825,000) (74,825,000)
------------ ------------
Total stockholders' deficit ($ 5,337,189) $ 13,612,811
------------ ------------
Total capitalization ($ 5,243,189) $ 13,706,811
============ ============

---------------------

(1) This table excludes outstanding options and warrants which if exercised
into shares of common stock would result in NeoMedia issuing 33,605,007
and 26,195,000, respectively, additional shares of common stock.

(2) On September 24, 2003, our stockholders approved an amendment to our
articles of incorporation that increased the authorized capital stock
to 1,000,000,000 shares of common stock.

STANDBY EQUITY DISTRIBUTION AGREEMENT

SUMMARY. On October 27, 2003, we entered into a Standby Equity
Distribution Agreement with Cornell Capital Partners, LP. Pursuant to the
Standby Equity Distribution Agreement, we may, at our discretion, periodically
sell to Cornell shares of common stock for a total purchase price of up to $20
million. For each share of common stock purchased under the Standby Equity
Distribution Agreement, Cornell Capital Partners will pay 98% of the lowest
closing bid price of our common stock on the OTC Bulletin Board or other
principal market on which our common stock is traded for the 5 trading days
immediately following the notice date. Cornell Capital Partners is a private
limited partnership whose business operations are conducted through its general
partner, Yorkville Advisors, LLC. Further, Cornell Capital Partners will retain
a fee of 5% of each advance under the Standby Equity Distribution Agreement. In
addition, we engaged Newbridge Securities Corporation, an unaffiliated
registered broker-dealer, to advise us in connection with the Standby Equity
Distribution Agreement. For its services, Newbridge Securities Corporation
received 95,238 shares of our common stock.

On February 14, 2003, the SEC declared effective a registration
statement on Form S-1 containing 100 million shares registered under a $10
million Equity line of Credit Agreement with Cornell Capital Partners. Since
that date and through December 12, 2003, we have received gross proceeds from
Cornell Capital Partners of $3,597,000, resulting in the sale to Cornell Capital
Partners of 100,000,000 shares of our common stock.

At an assumed stock price of $0.16 per share (the closing price on
December 12, 2003), we would need to issue 127,551,020 shares of common stock to
draw the entire $20 million available under the Standby Equity Distribution
Agreement. This would represent approximately 34% of our outstanding shares of
common stock upon issuance, based on 243,878,428 shares outstanding as of
December 12, 2003. If this occurs, current NeoMedia shareholders will experience
dilution of their current NeoMedia holdings.

STANDBY EQUITY DISTRIBUTION AGREEMENT EXPLAINED. Pursuant to the
Standby Equity Distribution Agreement, we may periodically sell shares of common
stock to Cornell Capital Partners to raise capital to fund our working capital
needs. The periodic sale of shares is known as an advance. We may request an
advance every 7 days. A closing will be held 7 days after such written notice at
which time we will deliver shares of common stock and Cornell Capital Partners
will pay the advance amount, less the 5% retention.

We may request advances under the Standby Equity Distribution Agreement
once the underlying shares are registered with the Securities and Exchange
Commission. Thereafter, we may continue to request advances until the earlier
of: (i) the date Cornell Capital Partners has advanced $20 million under the
Standby Equity Distribution Agreement, or (ii) until two years from the date
this registration is declared effective by the Securities and Exchange
Commission.

The amount of each advance is subject to a maximum of $280,000 per
week, not to exceed $840,000 in any 30-day period, with a minimum of 6 trading
days between advances. The amount available under the Standby Equity
Distribution Agreement is not dependent on the price or volume of our common
stock. Cornell Capital Partners may not own more than 9.9% of our outstanding
common stock at any time.

We cannot predict the actual number of shares of common stock that will
be issued pursuant to the Standby Equity Distribution Agreement, in part,
because the purchase price of the shares will fluctuate based on prevailing
market conditions and we have not determined the total amount of advances we
intend to draw. Nonetheless, we can estimate the number of shares of our common
stock that will be issued using certain assumptions. Since our previous
registration including 100 million shares under a $10 million Equity Line of
Credit for Cornell Capital Partners was declared effective by the SEC on
February 14, 2003, we have received gross proceeds from Cornell Capital Partners
of $3,597,000, resulting in the sale to Cornell Capital Partners of 100,000,000
shares of our common stock. Proceeds used under the Standby Equity Distribution
Agreement will be used in the manner set forth in the "Use of Proceeds" section
of this prospectus. We cannot predict the total amount of proceeds to be raised
in this transaction because we have not determined the total amount of the
advances we intend to draw.

We expect to incur expenses of approximately $50,000 in connection with
this registration, consisting primarily of professional fees. In addition,
Cornell Capital Partners will retain 5% of each advance, and will pay us 98% of
the lowest closing bid price of our common stock on the OTC Bulletin Board or
other principal trading market on which our common stock is traded for the 5
trading days immediately following the advance date. In connection with the
Standby Equity Distribution Agreement, we issued Cornell Capital Partners an
additional 10 million warrants to purchase shares of our common stock at an
exercise price of $0.05 per share. In addition, we issued 95,238 shares of
common stock, valued at $10,000, to Newbridge Securities Corporation, an
unaffiliated registered broker-dealer, as a placement agent fee.

PLAN OF DISTRIBUTION

The selling stockholders have advised us that the sale or distribution
of our common stock owned by the selling stockholders may be effected directly
to purchasers by the selling stockholders or by pledgees, transferees or other
successors in interest, as principals or through one or more underwriters,
brokers, dealers or agents from time to time in one or more transactions (which
may involve crosses or block transactions) (i) on the OTC Bulletin Board or in
any other market on which the price of our shares of common stock are quoted or
(ii) in transactions otherwise than on the OTC Bulletin Board or in any other
market on which the price of our shares of common stock are quoted. Any of such
transactions may be effected at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, at varying prices determined at
the time of sale or at negotiated or fixed prices, in each case as determined by
the selling stockholders or by agreement between the selling stockholders and
underwriters, brokers, dealers or agents, or purchasers. If the selling
stockholders effect such transactions by selling their shares of common stock to
or through underwriters, brokers, dealers or agents, such underwriters, brokers,
dealers or agents may receive compensation in the form of discounts, concessions
or commissions from the selling stockholders or commissions from purchasers of
common stock for whom they may act as agent (which discounts, concessions or
commissions as to particular underwriters, brokers, dealers or agents may be in
excess of those customary in the types of transactions involved). The selling
stockholders and any brokers, dealers or agents that participate in the
distribution of the common stock may be deemed to be underwriters, and any
profit on the sale of common stock by them and any discounts, concessions or
commissions received by any such underwriters, brokers, dealers or agents may be
deemed to be underwriting discounts and commissions under the Securities Act.

Cornell Capital Partners is an "underwriter" within the meaning of the
Securities Act of 1933 in connection with the sale of common stock under the
Standby Equity Distribution Agreement. Cornell Capital Partners will pay us 98%
of the lowest closing bid price of our common stock on the OTC Bulletin Board or
other principal trading market on which our common stock is traded for the 5
trading days immediately following the advance date. In addition, Cornell
Capital Partners will retain 5% of the proceeds received by us under the Standby
Equity Distribution Agreement. The 2% discount and the 5% retention are
underwriting discounts. In addition, we issued 95,238 shares of common stock,
valued at $10,000, to Newbridge Securities Corporation, an unaffiliated
registered broker-dealer, as a placement agent fee.

Cornell Capital Partners, L.P. was formed in February 2000 as a
Delaware limited partnership. Cornell Capital Partners is a domestic hedge fund
in the business of investing in and financing public companies. Cornell Capital
Partners does not intend to make or market in NeoMedia's stock or to otherwise
engage in stabilizing or other transactions intended to help support the stock
price. Prospective investors should take these factors into consideration before
purchasing NeoMedia's common stock.

Under the securities laws of certain states, the shares of common stock
may be sold in such states only through registered or licensed brokers or
dealers. The selling stockholders are advised to ensure that any underwriters,
brokers, dealers or agents effecting transactions on behalf of the selling
stockholders are registered to sell securities in all fifty states. In addition,
in certain states the shares of common stock may not be sold unless the shares
have been registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with.

We will pay all the expenses incident to the registration, offering and
sale of the shares of common stock to the public hereunder other than
commissions, fees and discounts of underwriters, brokers, dealers and agents. We
have agreed to indemnify Cornell Capital Partners and its controlling persons
against certain liabilities, including liabilities under the Securities Act. We
estimate that the expenses of the offering to be borne by us will be
approximately $50,000, and a one-time fee payable by the issuance of 10,000,000
warrants to purchase shares of common stock at an exercise price of $0.05 per
share. In addition, we engaged Newbridge Securities Corporation, a registered
broker-dealer, to advise us in connection with the Standby Equity Distribution
Agreement. For its services, Newbridge Securities Corporation received 95,238
shares of our common stock, valued at $10,000. The offering expenses consist of:
a SEC registration fee of $348, printing expenses of $2,500, accounting fees of
$15,000, legal fees of $25,000 and miscellaneous expenses of $7,152. We will not
receive any proceeds from the sale of any of the shares of common stock by the
selling stockholders. We will, however, receive proceeds from the sale of common
stock under the Standby Equity Distribution Agreement.

The selling stockholders should be aware that the anti-manipulation
provisions of Regulation M under the Exchange Act will apply to purchases and
sales of shares of common stock by the selling stockholders, and that there are
restrictions on market-making activities by persons engaged in the distribution
of the shares. Under Registration M, the selling stockholders or their agents
may not bid for, purchase, or attempt to induce any person to bid for or
purchase, shares of our common stock while such selling stockholders are
distributing shares covered by this prospectus. Accordingly, except as noted
below, the selling stockholders are not permitted to cover short sales by
purchasing shares while the distribution is taking place. The selling
stockholders are advised that if a particular offer of common stock is to be
made on terms constituting a material change from the information set forth
above with respect to the Plan of Distribution, then, to the extent required, a
post-effective amendment to the accompanying registration statement must be
filed with the Securities and Exchange Commission.

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following information should be read in conjunction with the
consolidated financial statements of NeoMedia and the notes thereto appearing
elsewhere in this filing. Statements in this Management's Discussion and
Analysis or Plan of Operation and elsewhere in this prospectus that are not
statements of historical or current fact constitute "forward-looking
statements."

OVERVIEW

Over the past several years, our focus has been aimed toward the
intellectual property commercialization unit of our Internet Switching Systems
(NISS, formerly NAS) business. NISS consists of the patented PaperClickTM
technology that enables users to link directly from the physical to the digital
world, as well as the patents surrounding certain physical-world-to-web linking
processes. Our mission is to invent, develop, and commercialize technologies and
products that effectively leverage the integration of the physical and
electronic to provide clear functional value for our end-users, competitive
advantage for their business partners and return-on-investment for their
investors. To this end, we have signed four intellectual property licenses since
our inception, and also recently acquired eight additional patents as part of
our acquisition of Secure Source Technologies, Inc. On September 8, 2003, we
announced our PaperClick for Camera Cell Phones product, which reads and decodes
UPC/EAN or other bar codes to link users to the Internet, providing information
and enabling e-commerce on a compatible camera cell phone, such as the Nokia
3650 model. On October 30, 2003, we unveiled our go-to-market strategy for the
product. We have already established relationships with several key partners
outlined in the strategy, including agents Big Gig Strategies and SRP
Consulting, European advertising agency 12Snap, and worldwide brand
communication company Seven.

During the first quarter of 2003, we announced that that we had reached
an agreement in principle to acquire and merge with Loch, an oil and gas
provider based in Humble, Texas. On October 1, 2003, we discovered that the
royalty interest from future sales of oil owned by Loch were oversold, which
would likely result in materially lower projected available cashflow from Loch's
operations. This projected available cashflow was the basis for the acquisition.
On October 2, 2003, the our Board of Directors voted to cancel the Memorandum of
Terms, and terminate the acquisition and merger proceedings.

The Company recently received requests from the SEC's Southeast
Regional Office for certain documents including those concerning negotiations
and arrangements with certain strategic partners and consultants, patents,
recent issuances of securities, investor relations, and the stock ownership by
the Company's officers and directors. The Company responded promptly and fully
and will cooperate with any further requests. The SEC's letter states that the
staff's inquiry is informal and should not be construed as an indication of any
violation of law or as a reflection on any person, entity, or security.

We recently announced the pending acquisitions of two companies:

o CSI INTERNATIONAL, INC. - On November 7, 2003, we signed a
non-binding letter of intent to acquire CSI International,
Inc. ("CSI"), of Calgary, Alberta, Canada, a private
technology products company in the micro paint repair
industry. The LOI calls for the issuance of 7,000,000 shares
of our common stock to be issued in exchange for all
outstanding shares of CSI. In addition, we will pay $2.5
million cash. CSI is a private technology and products company
in the micro paint repair industry.

o BSD SOFTWARE/TRITON GLOBAL BUSINESS SERVICES - On December 9,
2003, we signed a non-binding letter of intent to acquire
Triton Global Business Services Inc. and its parent company,
BSD Software Inc. (Pink Sheets: BSDS), both of Calgary,
Alberta, Canada. The LOI outlined terms, including an exchange
of one share of our common stock for each share of BSD
Software, not to exceed 40 million shares. The transaction is
dependent on due diligence by both companies, approval by our
Board of Directors, BSD Software's Board of Directors,
shareholders, required regulatory approvals, and other
conditions. Triton, formed in 1998 and acquired by BSD in
2002, is an Internet Protocol-enabled provider of live and
automated operator calling services, e-business support,
billing and clearinghouse functions and information management
services to telecommunications, Internet and e-business
service providers.

Our quarterly operating results have been subject to variation and will
continue to be subject to variation, depending upon factors, such as the mix of
business among our services and products, the cost of material, labor and
technology, particularly in connection with the delivery of business services,
the costs associated with initiating new contracts, the economic condition of
our target markets, and the cost of acquiring and integrating new businesses.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AS COMPARED
TO THE THREE MONTHS ENDED SEPTEMBER 30, 2002

Net sales. Total net sales for the three months ended September 30, 2003
were $461,000, which represented a $2,943,000, or 86%, decrease from $3,404,000
for the three months ended September 30, 2002. This decrease primarily resulted
from reduced resales of Sun Microsystems equipment due to increased competition
and general economic conditions. NeoMedia intends to continue to pursue
additional resales of equipment, software and services, and to the extent that
such sales can be made, NeoMedia expects resales to more closely resemble the
results for the three months ended September 30, 2003, rather than the three
months ended September 30, 2002.

License fees. License fees were $69,000 for the three months ended
September 30, 2003, compared with $150,000, for the three months ended September
30, 2002, a decrease of $81,000, or 54%. NeoMedia will continue to attempt to
increase license sales. NeoMedia expects license fees to remain materially
constant over the next 12 months.

Resales of software and technology equipment and service fees. Resales of
software and technology equipment and service fees decreased by $2,862,000, or
88%, to $392,000 for the three months ended September 30, 2003, as compared to
$3,254,000 for the three months ended September 30, 2002. This decrease
primarily resulted from increased competition and general economic conditions.
NeoMedia intends to continue to pursue additional resales of equipment, software
and services, and to the extent that such sales can be made, NeoMedia expects
resales to more closely resemble the results for the three months ended
September 30, 2003, rather than the three months ended September 30, 2002.

Cost of Sales. Cost of license fees was $76,000 for the three months ended
September 30, 2003, a decrease of $4,000, or 0.5%, compared with $80,000 for the
three months ended September 30, 2002. The decrease is consistent with 2003 and
NeoMedia expects license fees will not fluctuate materially over the next 12
months. Cost of resales was $378,000 for the three months ended September 30,
2003, a decrease of $2,364,000, or 86%, compared with $2,742,000 for the three
months ended September 30, 2002. The decrease resulted from decreased resales
for the three months ended September 30, 2003 compared with the same period in
2002. Cost of resales as a percentage of related resales was 96% in 2003,
compared to 84% in 2002. This increase is due to an increased sales mix of
lower-margin equipment products sold in 2003 compared to 2002, combined with the
general erosion of margins in the resale sector. NeoMedia expects costs of
resales to fluctuate with the sales of its equipment, software, and services
over the next 12 months.

Gross Profit. Gross profit was $7,000 for the three months ended September
30, 2003, compared with $582,000 for the three months ended September 30, 2002.
This decrease of $575,000, or 99%, was the result of lower resales of, and lower
margins on, computer equipment, software, and services in 2003 relative to 2002.

Sales and marketing. Sales and marketing expenses were $146,000 for the
three months ended September 30, 2003, a decrease of $61,000, or 29%, compared
with $207,000 for the three months ended September 30, 2002. This decrease
resulted primarily from reduced sales commissions earned on lower sales in 2003
as compared with 2002, as well as a smaller sales force in 2003. NeoMedia
expects sales and marketing expense to fluctuate with sales of it proprietary
and resold products over the next 12 months.

General and administrative. General and administrative expenses increased
by $944,000, or 95%, to $1,940,000 for the three months ended September 30,
2003, compared to $996,000 for the three months ended September 30, 2002. The
increase resulted primarily from non-cash expenses relating to the Company's
option repricing program, expense for stock options issued with exercise prices
below market price, and stock-based professional service expense. NeoMedia
expects general and administrative expense to remain materially constant over
the next 12 months.

Research and development. During the three months ended September 30, 2003,
NeoMedia charged to expense $78,000 of research and development costs, a
decrease of $72,000 or 48% compared to $150,000 charged to expense for the three
months ended September 30, 2002. The decrease is primarily due to a continued
reduction in research and development overhead since the first quarter of 2002.
NeoMedia expects research and development costs will not fluctuate materially
over the next 12 months.

(Gain) loss on extinguishment of debt. During the three months ended
September 30, 2003, the Company recognized a net loss from extinguishment of
debt of $24,000 due to the difference between the cash or market value of stock
issued to settle debt and the carrying value of the debt at the time of
settlement.

Interest expense/(income), net. Interest expense/(income) consists
primarily of interest accrued for creditors as part of financed purchases, past
due balances, notes payable and interest earned on cash equivalent investments.
Interest expense/(income) increased by $22,000 to $24,000 for the three months
ended September 30, 2003 from $2,000 for the three months ended September 30,
2002, due to interest expense during the third quarter of 2003 associated with
notes payable and past due trade accounts payable.

Net Loss. The net loss for the three months ended September 30, 2003 was
$2,205,000, which represented a $1,432,000, or 185% increase from a loss of
$773,000 for the three months ended September 30, 2002. The increase resulted
primarily from non-cash expenses in 2003 relating to the company's option
repricing program, expense for stock options issued with exercise prices below
market price, and stock-based professional service expense, as well as lower
sales and gross profit in 2003 compared to 2002.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AS COMPARED
TO THE NINE MONTHS ENDED SEPTEMBER 30, 2002

Net sales. Total net sales for the nine months ended September 30, 2003
were $2,009,000, which represented a $6,443,000, or 76%, decrease from
$8,452,000 for the nine months ended September 30, 2002. This decrease primarily
resulted from reduced resales of Sun Microsystems equipment due to increased
competition and general economic conditions. NeoMedia intends to continue to
pursue additional resales of equipment, software and services, and to the extent
that such sales can be made, NeoMedia expects resales to more closely resemble
the results for the nine months ended September 30, 2003, rather than the nine
months ended September 30, 2002.

License fees. License fees were $338,000 for the nine months ended
September 30, 2003, compared with $303,000, for the nine months ended September
30, 2002, an increase of $35,000, or 12%. NeoMedia will continue to attempt to
increase sales of these high-margin products. NeoMedia expects license fees to
remain materially constant over the next 12 months.

Resales of software and technology equipment and service fees. Resales of
software and technology equipment and service fees decreased by $6,478,000, or
79%, to $1,671,000 for the nine months ended September 30, 2003, as compared to
$8,149,000 for the nine months ended September 30, 2002. This decrease primarily
resulted from increased competition and general economic conditions. NeoMedia
intends to continue to pursue additional resales of equipment, software and
services, and to the extent that such sales can be made, NeoMedia expects
resales to more closely resemble the results for the nine months ended September
30, 2003, rather than the nine months ended September 30, 2002.

Cost of Sales. Cost of license fees was $227,000 for the nine months ended
September 30, 2003, a decrease of $537,000, or 70%, compared with $764,000 for
the nine months ended September 30, 2002. The decrease resulted from reduced
amortization expense in 2003 of capitalized development costs relating to the
PaperClick, MLM/Affinity, and Qode products that were written off during 2002.
Cost of resales was $1,566,000 for the nine months ended September 30, 2003, a
decrease of $5,041,000, or 76%, compared with $6,607,000 for the nine months
ended September 30, 2002. The decrease resulted from decreased resales in 2003
compared with 2002. Cost of resales as a percentage of related resales was 94%
for the nine months ended September 30, 2003, compared to 82% for the same
period in 2002. This increase is due to an increased sales mix of lower-margin
equipment products sold in 2003 compared to 2002, combined with the general
erosion of margins in the resale sector. NeoMedia expects costs of resales to
fluctuate with the sales of its equipment, software, and services over the next
12 months.

Gross Profit. Gross profit was $216,000 for the nine months ended September
30, 2003, compared with $1,081,000 for the nine months ended September 30, 2002.
This decrease of $865,000, or 80%, was primarily the result of lower resales of,
and lower margin on, computer equipment, software, and services in 2003 relative
to 2002.

Sales and marketing. Sales and marketing expenses were $407,000 for the
nine months ended September 30, 2003, a decrease of $312,000, or 43%, compared
with $719,000 for the nine months ended September 30, 2002. This decrease
resulted primarily from reduced sales commissions earned on lower sales in 2003
as compared with 2002, as well as a smaller sales force in 2003. NeoMedia
expects sales and marketing expense to fluctuate with sales of it proprietary
and resold products over the next 12 months.

General and administrative. General and administrative expenses decreased
by $147,000, or 4%, to $3,409,000 for the nine months ended September 30, 2003,
compared to $3,556,000 for the nine months ended September 30, 2002. The
increase resulted primarily from non-cash expenses relating to the company's
option repricing program, expense for stock options issued with exercise prices
below market price, and stock-based professional service expense. NeoMedia
expects general and administrative expense to remain materially constant over
the next 12 months.

Research and development. During the nine months ended September 30, 2003,
NeoMedia charged to expense $243,000 of research and development costs, a
decrease of $440,000 or 64% compared to $683,000 charged to expense for the nine
months ended September 30, 2002. The decrease is primarily due to a continued
reduction in research and development overhead since first quarter 2002.
NeoMedia expects research and development costs will not fluctuate materially
over the next 12 months.

Loss on Impairment of Assets. During the nine months ended September 30,
2002, NeoMedia recognized a loss on impairment of assets of $1,003,000 for the
write-off capitalized development costs relating to its PaperClick
physical-world-to-internet software. NeoMedia did not take an impairment charge
during the nine months ended September 30, 2003.

(Gain) loss on extinguishment of debt. During the three months ended
September 30, 2003, the Company recognized a net loss from extinguishment of
debt of $24,000, due to the difference between the cash or market value of stock
issued to settle debt and the carrying value of the debt at the time of
settlement.

Interest expense (income), net. Interest expense/(income) consists
primarily of interest accrued for creditors as part of financed purchases, past
due balances, notes payable and interest earned on cash equivalent investments.
Interest expense/(income) increased by $94,000, or 95%, to $193,000 for the nine
months ended September 30, 2003 from $99,000 for the nine months ended September
30, 2002, due to interest expense during the third quarter of 2003 associated
with notes payable and past due trade accounts payable.

Loss on Disposal of Discontinued Business Unit. During the nine months
ended September 30, 2002, the Company recognized a loss on disposal of
discontinued business unit of $1,523,000 to write off the remaining Qode-related
assets. No disposal loss was recognized in 2003.

Net Loss. The net loss for the nine months ended September 30, 2003 was
$4,060,000, which represented a $2,442,000, or 38% decrease from a loss of
$6,502,000 for the nine months ended September 30, 2002. The decrease resulted
primarily from an impairment charge of $1,003,000 relating to NeoMedia's
PaperClick assets and a loss on disposal of the Company's Qode business unit of
$1,523,000 in 2002. The decrease was offset by higher non-cash expenses in 2003
relating to the company's option repricing program, expense for stock options
issued with exercise prices below market price, and stock-based professional
service expense, as well as lower sales and gross profit in 2003 compared to
2002.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002 AS COMPARED TO THE
YEAR ENDED DECEMBER 31, 2001

NET SALES. Total net sales for the year ended December 31, 2002 were $9.4
million, which represented a $1.3 million, or 16%, increase from $8.1 million
for the year ended December 31, 2001. This increase primarily resulted from
revenues relating to our newly created SAN practice in 2002. We will continue to
pursue additional sales of SAN products and services, and to the extent that
such sales can be made, we expect total net sales to more closely resemble the
results for the first nine months of 2002, rather than the first nine months of
2001.

LICENSE FEES. License fees were $0.4 million for the year ended December
31, 2002, compared with $0.6 million for the year ended December 31, 2001, a
decrease of $0.2 million, or 33%. The decrease was due to lower sales of
internally developed software licenses in 2002. Demand for such licenses has
historically fluctuated from year to year. We intend to continue to increase
sales efforts of its internally developed software licenses in the future.

RESALES OF SOFTWARE AND TECHNOLOGY EQUIPMENT AND SERVICE FEES. Resales of
software and technology equipment and service fees increased by $1.4 million, or
18%, to $9.0 million for the year ended December 31, 2002, as compared to $7.6
million for the year ended December 31, 2001. This increase primarily resulted
from revenues relating to our newly created SAN practice in 2002. We will
continue to pursue additional sales of SAN products and services, and to the
extent that such sales can be made, we expect resales to more closely resemble
the results for the first nine months of 2002, rather than the first nine months
of 2001.

COST OF SALES. Cost of license fees was $0.8 million for the year ended
December 31, 2002, a decrease of $1.6 million, or 67%, compared with $2.4
million for the year ended December 31, 2001. The decrease resulted from reduced
amortization expense of capitalized development costs in 2002 relating to the
PaperClick, MLM/Affinity, and Qode products that were written off during 2002.
Cost of resales was $7.4 million for the year ended December 31, 2002, an
increase of $0.9 million, or 14%, compared with $6.5 million for the year ended
December 31, 2001. The increase resulted form increased resales in 2002 compared
with 2001. Cost of resales as a percentage of related resales was 83% in 2002,
compared to 86% in 2001. This decrease is due to an increased sales mix of
higher-margin equipment products sold in 2002 compared to 2001.

GROSS PROFIT. Gross profit was $1.1 million for the year ended December 31,
2002, an increase of $1.8 million, or 257%, compared with negative gross profit
of $(0.7) million for the year ended December 31, 2001. This increase primarily
resulted from revenues relating to our higer-margin SAN practice in 2002.

SALES AND MARKETING. Sales and marketing expenses were $1.0 million for the
year ended December 31, 2002, compared to $2.5 million for the year ended
December 31, 2001, a decrease of $1.5 million or 60%. This decrease resulted
from a reduction in sales and marketing personnel following our cost-reduction
initiative started in the second half of 2001. We do not expect sales and
marketing expenses to fluctuate dramatically from 2002 levels over the next 12
months.

GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
by $0.7 million, or 15%, to $4.1 million for the year ended December 31, 2001,
compared to $4.8 million for the year ended December 31, 2001. The decrease
resulted primarily from a smaller administrative staff after the cost reduction
initiative of late 2001. We expect general and administrative expense to
decrease slightly during 2003 due to reduced professional service expenses,
lease restructuring, and other cost reduction efforts.

RESEARCH AND DEVELOPMENT. During the year ended December 31, 2002, we
charged to expense $0.8 million of research and development costs, an increase
of $0.3 million or 60% compared to $0.5 million charged to expense for the year
ended December 31, 2000. The increase is primarily due to the fact that we were
capitalizing the majority of its product development costs in 2001 as the Qode
Commerce Solution was being implemented. The implementation was cancelled and
the product discontinued in the third quarter of 2001. During the third quarter
of 2002, development resources were devoted primarily to system maintenance. We
expect research and development costs will decline during 2003.

LOSS ON IMPAIRMENT OF ASSETS. During 2002, we wrote off all assets
associated with its PaperClickTM product line, resulting in an impairment charge
of $1.0 million. During 2001, we wrote off all assets associated with its
discontinued MLM/Affinity product line, resulting in an impairment charge of
$2.9 million. We do not expect to take any additional losses form the impairment
of capitalized software products during 2003.

LOSS ON DIGITAL:CONVERGENCE CONTRACT. During 2001, we wrote off all assets
and liabilities relating to its intellectual property license with
Digital:Convergence, resulting in a net charge of $7.4 million. There were no
charges related to this contract in 2002. We do not expect any charges relating
to this contract in the future.

INTEREST EXPENSE (INCOME), NET. Interest expense/(income) consists
primarily of interest paid to creditors as part of financed purchases, notes
payable and our asset-based collateralized line of credit net of interest earned
on cash equivalent investments. Interest expense/(income) increased by $199,000,
or 948%, to $178,000 for the year ended December 31, 2002 from $(21,000) for the
year ended December 31, 2001, due to reduced cash balances and the resulting
increased borrowing costs associated with notes payable and other borrowing
instruments throughout 2002 as compared to 2001.

LOSS FROM CONTINUING OPERATIONS. During the year ended December 31, 2002,
our loss from continuing operations decreased by $12.9 million or 69% from $18.8
million in 2001 to $5.9 million in 2002. The decrease resulted primarily from
the $7.4 million write-off of the Digital Convergence license contract during
the second quarter of 2001, combined with a loss on impairment of our
MLM/Affinity product line of $2.9 million in 2001 and a decrease of sales and
marketing expense by $1.4 million in 2002 due to a reduction of the sales and
marketing force.

LOSS FROM OPERATIONS OF DISCONTINUED OPERATIONS. We discontinued operations
of its Qode business unit in 2001, resulting in a loss from operations of
discontinued business units of $3.6 million. There was no loss from operations
of this unit during 2002.

LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS. We sustained a loss of $3.1
million in 2001 from the disposal of its Qode business unit in 2001. As of
December 31, 2001, we reported net assets held for sale of $210,000 relating to
this business unit, the sale of which was subject to a non-binding letter of
intent with The Finx Group, Inc., a holding company based in Elmsford, NY. The
Finx Group was to assume $620,000 in Qode payables and $800,000 in long-term
leases in exchange for 500,000 shares of the Finx Group, right to use and sell
Qode services, and up to $5 million in affiliate revenues over a five-year
period. During June 2002, the Finx Group notified us that it did not intend to
carry out the letter of intent due to capital constraints. As a result, during
the year ended December 31, 2002, we recorded an additional expense of $1.5
million for the write-off of remaining Qode assets and liabilities.

NET LOSS. The net loss for the year ended December 31, 2002 was $7.4
million, which represented a $18.1 million, or 71% decrease from a $25.5 million
loss for the year ended December 31, 2001. The decrease primarily resulted from
the $7.4 million write-off of the Digital Convergence license contract during
the second quarter of 2001, a loss on impairment of our MLM/Affinity product
line of $2.9 million in 2001, loss from discontinued Qode operations of $6.9
million in 2001, and a reduction in overhead expenses resulting from a reduction
in force initiated in the third quarter of 2001.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001 AS COMPARED TO THE
YEAR ENDED DECEMBER 31, 2000

NET SALES. Total net sales for the year ended December 31, 2001 were
$8.1 million, which represented a $19.5 million, or 70.1%, decrease from $27.6
million for the year ended December 31, 2000. This decrease primarily resulted
from reduced resales of Sun Microsystems equipment due to increased competition
and general economic conditions. Additionally, we recognized $7.8 million of
revenue in 2000 related to the DC license contract. No revenue was recognized
related to this contract in 2001. We expect net sales in 2002 will increase
significantly from 2001, due to a resurgence in demand for software and
technology equipment and services, combined with anticipated revenue streams
from intellectual property licenses.

Total net sales during the fourth quarter of 2001 were $4.5 million,
compared with $0.9 million in the third quarter of 2001, $1.2 million in the
second quarter of 2001, and $1.5 million in the first quarter of 2001. The
fourth-quarter increase is primarily due to a large Storage Area Network (SAN)
sale of $1.1 million in that quarter. Additionally, sales from our Consulting
and Integration Services business unit have been historically higher in the
fourth quarter of the calendar year.

LICENSE FEES. License fees were $0.6 million for the year ended
December 31, 2001, compared with $8.4 million for the year ended December 31,
2000, a decrease of $7.8 million, or 92.9%. The decrease resulted primarily from
the recognition of $7.8 million revenue during 2000 related to the
Digital:Convergence license contract. No revenue was recognized related to this
contract in 2001. We are anticipating license revenue growth in 2002 compared
with 2001 as we aggressively pursue license contracts relating to our
intellectual property.

RESALES OF SOFTWARE AND TECHNOLOGY EQUIPMENT AND SERVICE FEES. Resales
of software and technology equipment and service fees decreased by $11.5
million, or 63.4%, to $7.6 million for the year ended December 31, 2001, as
compared to $19.1 million for the year ended December 31, 2000. This decrease
primarily resulted from fewer sales of Sun Microsystems hardware due to
increased competition and general economic conditions. We believe that resurgent
demand for such products, combined with our movement into higher margin and
Value-Add products and services such as Storage Area Networks, will result in
increased revenue from resales of software and technology equipment and service
fees during 2002.

COST OF SALES. Cost of resales as a percentage of related resales was
86.0% in 2001, compared to 90% in 2000. This decrease is substantially due to a
sales mix of higher-margin products such as service fees and maintenance
contracts.

SALES AND MARKETING. A portion of the compensation to the sales and
marketing staff constitutes salary and is fixed in nature and the remainder of
this compensation, which is paid as a commission, is directly related to sales
volume. Sales and marketing expenses were $2.5 million for the year ended
December 31, 2001, compared to $6.5 million for the year ended December 31,
2000, a decrease of $4.0 million or 61.5%. This decrease primarily resulted from
fewer marketing personnel in 2001, coupled with a decrease in sales commissions
from reduced sales. Sales and marketing expense will continue to decrease in
2002 as we move away from its applications service provider model.

GENERAL AND ADMINISTRATIVE. General and administrative expenses
decreased by $2.2 million, or 30.1%, to $4.8 million for the year ended December
31, 2001, compared to $7.0 million for the year ended December 31, 2000. The
decrease is primarily related to a reduction in personnel as a result of our
cost reduction initiative. We expect general and administrative expenses will
continue to decline in 2002 as we realize the full-year benefit of
cost-reduction measures begun in the fourth quarter of 2001.

RESEARCH AND DEVELOPMENT. During the year ended December 31, 2001, we
charged to expense $0.5 million of research and development costs, a decrease of
$0.6 million or 54.5% compared to $1.1 million charged to expense for the year
ended December 31, 2000. This decrease is predominately associated with
decreased personnel devoted to our development during the second half of 2001,
combined with increased capitalization of software development costs associated
with our "switching" platform and the Qode Universal Commerce Solution during
the first half of 2001. We expect research and development expense to continue
to decrease in 2002 as we move away from its applications service provider model

LOSS ON IMPAIRMENT OF ASSETS. During the third quarter of 2001, we
wrote off all assets associated with its discontinued MLM/Affinity product line,
resulting in an impairment charge of $2.9 million.

LOSS ON DIGITAL:CONVERGENCE. During the second quarter of 2001, we
wrote off all assets and liabilities relating to its intellectual property
license with Digital:Convergence, resulting in a net charge of $7.4 million.

INTEREST EXPENSE (INCOME), NET. Interest expense/(income) consists
primarily of interest paid to creditors as part of financed purchases, notes
payable and our asset-based collateralized line of credit net of interest earned
on cash equivalent investments. Interest (income) decreased by $153,000, or
87.9%, to $(21,000) for the year ended December 31, 2001 from $(174,000) for the
year ended December 31, 2000, due to reduced cash balances throughout 2001 as
compared to 2000.

LOSS FROM CONTINUING OPERATIONS. During the year ended December 31,
2001, our loss from continuing operations increased by $13.4 million or 248.1%
from $5.4 million in 2000 to $18.8 million in 2001. This increase is primarily
due to the loss on the Digital:Convergence license contract of $7.4 in the
second quarter of 2001 and an impairment loss of $2.8 million in the third
quarter of 2001 related to the discontinuation of our MLM/Affinity product line.

LOSS FROM OPERATIONS AND DISPOSAL OF DISCONTINUED OPERATIONS. We
discontinued operations of our Qode business unit in 2001, resulting in a loss
from operations of discontinued business units of $3.6 million. There was no
loss from this business unit during 2000. The business unit's assets were
purchased in March 2001 and the implementation was cancelled during the second
quarter of 2001.

LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS. We sustained a loss of
$3.1 million in 2001 from the disposal of the Qode business unit in 2001.

NET LOSS. Our net loss for the year ended December 31, 2001 was $25.5
million, which represented a $20.1 million, or 372.2% increase from a $5.4
million loss for the year ended December 31, 2000. The increase in net loss is
due primarily to the loss on the Digital:Convergence contract, an impairment
loss of in the third quarter of 2001 related to the discontinuation of our
MLM/Affinity product line and the discontinuation of our Qode business unit, and
reduced resales of software and technology equipment and service fees resulting
from increased competition and general economic conditions, offset by lower
expenses as a result of our cost reduction effort.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2003, our cash balance was $1,048,000 compared to
$9,000 at September 30, 2002, $70,000 at December 31, 2002, and $134,000 at
December 31, 2001.

Net cash used in operating activities was approximately $2,057,000 for
the nine-month period ended September 30, 2003, compared with $589,000 for the
nine-month period ended September 30, 2002. During the nine months ended
September 30, 2003, trade accounts receivable inclusive of costs in excess of
billings decreased $149,000, while accounts payable, amounts due under financing
arrangements, accrued expenses, and deferred revenue decreased $698,000. During
the nine months ended September 30, 2002, trade accounts receivable increased
$610,000, while accounts payable, amounts due under financing arrangements,
accrued expenses, and deferred revenue increased $2,067,000. NeoMedia's net cash
flow from/(used in) investing activities for the nine months ended September 30,
2003 and 2002, was ($64,000) and ($24,000), respectively. Net cash provided by
financing activities for the nine months ended September 30, 2003 and 2002, was
$3,099,000 and $488,000, respectively.

During the nine months ended September 30, 2003 and 2002 and the years
ended December 31, 2002, 2001, and 2000, our net loss totaled approximately
$4,060,000, $5,729,000, $7,421,000, $25,469,000, and $5,409,000, respectively.
As of September 30, 2003, we had accumulated losses from operations of
approximately $74,825,000, had a working capital deficit of approximately
$8,134,000, and approximately $1,048,000 in cash balances.

Net cash used in operating activities for the year ended December 31,
2002, 2001, and 2000, was $0.6, $5.2 million, and $6.8 million, respectively.
During 2002, trade accounts receivable decreased $2.3 million, while accounts
payable, accrued expenses and deferred revenue decreased $0.5 million. During
2001, trade accounts receivable inclusive of costs in excess of billings
increased $0.7 million, while accounts payable, accrued expenses and deferred
revenue increased $2.8 million. During 2000, trade accounts receivable inclusive
of costs in excess billings increased $1.3 million, while accounts payable,
accrued expenses and deferred revenue decreased $2.6 million. Our net cash flow
provided by (used in) investing activities for the years ended December 31,
2002, 2001, and 2000, was $42,000, ($2.8 million), and ($2.6 million),
respectively. This decrease resulted from reduced capital spending in an effort
to control costs.

During the years ended December 31, 2002, 2001, and 2000 our net loss
totaled approximately $7,421,000, $25,469,000, and $5,409,000, respectively. As
of December 31, 2002 we had accumulated losses from operations of approximately
$70,765,000, had a working capital deficit of approximately $8,985,000, and
approximately $70,000 in cash balances.

The accompanying unaudited financial statements have been prepared assuming
NeoMedia will continue as a going concern. Accordingly, the financial statements
do not include any adjustments that might result from NeoMedia's inability to
continue as a going concern. NeoMedia may obtain up to $20 million over the next
two years through its Standby Equity Distribution Agreement agreement with
Cornell Capital Partners LP. As of December 12, 2003, NeoMedia had obtained
approximately $3.6 million under its previous $10 million Equity Line of Credit
Agreement with Cornell. Management believes that it has sufficient funding to
sustain operations through December 31, 2003, however, there can be no
assurances that the market for NeoMedia's stock will support the sale of
sufficient shares of NeoMedia's common stock to raise sufficient capital to
sustain operations for such a period. If necessary funds are not available,
NeoMedia's business and operations would be materially adversely affected and in
such event, NeoMedia would attempt to reduce costs and adjust its business plan.

Management believes it will need to have access to additional capital from
the Cornell Standby Equity Distribution Agreement agreement or other financing
sources, or we will need to generate additional cash from our current operations
to sustain our operations in 2003. The failure of management to accomplish these
initiatives will adversely affect our business, financial conditions, and
results of operations and its ability to continue as a going concern.

Based on current cash balances and operating budgets, we believe we only
have sufficient financing to last until December 31, 2003. If our financial
resources are insufficient, we may be forced to seek protection from its
creditors under the United States Bankruptcy Code or analogous state statutes
unless it is able to engage in a merger or other corporate finance transaction
with a better capitalized entity. We cannot predict whether additional financing
will be available, its form, whether equity or debt, or be in another form, or
if NeoMedia will be successful in identifying entities with which it may
consummate a merger or other corporate finance transactions.

INTANGIBLE ASSETS

At the end of each quarter, or upon occurrence of material events
relating to a specific intangible item, we perform impairment tests on each of
its intangible assets, which include capitalized patent costs, and capitalized
and purchased software costs. In doing so, we evaluate the carrying value of
each intangible asset with respect to several factors, including historical
revenue generated from each intangible asset, application of the assets in our
current business plan, and projected revenue to be derived from the asset.
Intangible asset balances are then adjusted to their current net realizable
value based on these criteria if impaired. No impairment charges were taken
during the three-month or nine-month periods ended September 30, 2003. During
the nine months ended September 30, 2002, we recognized an impairment charge of
$1.0 million relating to our PaperClick software product.

FINANCING AGREEMENTS

As of September 30, 2003, we were party to a commercial financing
agreement with GE Access that provides short-term financing for certain computer
hardware and software purchases. This arrangement allows us to re-sell
high-dollar technology equipment and software without committing cash resources
to financing the purchase. We and GE Access are currently operating under an
additional arrangement under which GE Access retains 50% of our proceeds from
sales financed by GE Access, and applies the portion of proceeds toward past due
balances. This arrangement reduces by half our cash flow from resales of
equipment and software financed by GE Access, until the balance owed to GE
Access is paid in full. During October 2003, the Company and GE entered into an
additional agreement under which the Company also makes regular payment against
its past due balances. Termination of our financing relationship with GE Access
could materially adversely affect our financial condition. Management expects
the agreement to remain in place in the near future. As of September 30, 2003,
the amount payable under this financing arrangement was approximately $345,000.

OTHER DEBTS

On December 2, 2002, we issued to Michael Kesselbrenner, a private
investor, a promissory note in the principal amount of $165,000, bearing
interest at a rate of 12% per annum, with a maturity of 150 days. In connection
with the default provision of the promissory note, we entered into a pledge
agreement, dated December 2, 2002, under which we issued 53,620,020 shares of
common stock to an unrelated third party as collateral for the Promissory Note.
The investor only funded $84,000 of the principal amount of the note. We repaid
this note during March 2003, and the shares held in escrow were returned during
April 2003. We have no further obligation under this note.

During November 2002, we issued Convertible Secured Promissory Notes with
an aggregate face value of $60,000 to 3 separate parties, including Charles W.
Fritz, Chairman of the Board of Directors of NeoMedia; William E. Fritz, an
outside director; and James J. Keil, an outside director. The notes bear
interest at a rate of 15% per annum, and matured at the earlier of i.) four
months, or ii.) the date the shares underlying the Cornell Standby Equity
Distribution Agreement are registered with the SEC. The notes were convertible,
at the option of the holder, into either cash or shares of our common stock at a
30% discount to either market price upon closing, or upon conversion, whichever
is lower. We also granted to the holders an additional 1,355,670 shares of its
common stock and 60,000 warrants to purchase shares of its common stock at $0.03
per share, with a term of three years. The warrants and shares were issued in
January 2003. In addition, since this debt is convertible into equity at the
option of the note holder at beneficial conversion rates, an embedded beneficial
conversion feature was recorded as a debt discount and amortized using the
effective interest rate over the life of the debt in accordance with EITF 00-27.
Total cost of beneficial conversion feature, fair value of the stock and cost of
warrants issued exceed the face value of the notes payable, therefore, only
$60,000, the face amount of the note, was recognizable as debt discount, and
amortized over the life of the notes payable. During March 2003, two of the
affiliated parties, Mr. William Fritz and Mr. Keil, agreed to extend the
maturity date due to our capital constraints. We repaid Charles Fritz's note in
full during March 2003, and repaid James J. Keil's note in full during April
2003. We paid $30,000 of the principal on William Fritz's note during April
2003, and entered into a new note with Mr. Fritz for the remaining $10,000. The
new note bears interest at a rate of 10% per annum and matures in April 2004.
The new note also includes a provision under which, as consideration for the
loan, Mr. Fritz will receive a 3% royalty on all future revenue generated from
our intellectual property.

GOING CONCERN

The accompanying condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. Through
September 30, 2003, we have not been able to generate sufficient revenues from
our operations to cover our costs and operating expenses. Although we have been
able to issue its common stock or other financing for a significant portion of
its expenses, it is not known whether we will be able to continue this practice,
or if our revenue will increase significantly to be able to meet our cash
operating expenses. This, in turn, raises substantial doubt about our ability to
continue as a going concern. Management believes that we will be able to raise
additional funds through our $20 million Standby Equity Distribution Agreement
with Cornell. However, there can be no assurances that the market for our stock
will support the sale of sufficient shares of our stock to raise sufficient
capital to sustain operations. The accompanying condensed consolidated financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.

CRITICAL ACCOUNTING POLICIES

The U.S. Securities and Exchange Commission ("SEC") recently issued
Financial Reporting Release No. 60, "Cautionary Advice Regarding Disclosure
About Critical Accounting Policies" ("FRR 60"), suggesting companies provide
additional disclosure and commentary on their most critical accounting policies.
In FRR 60, the SEC defined the most critical accounting policies as the ones
that are most important to the portrayal of a company's financial condition and
operating results, and require management to make its most difficult and
subjective judgments, often as a result of the need to make estimates of matters
that are inherently uncertain. Based on this definition, our most critical
accounting policies include: inventory valuation, which affects our cost of
sales and gross margin; the valuation of intangibles, which affects our
amortization and write-offs of goodwill and other intangibles. We also have
other key accounting policies, such as our policies for revenue recognition,
including the deferral of a portion of revenues on sales to distributors, and
allowance for bad debt. The methods, estimates and judgments we us in applying
these most critical accounting policies have a significant impact on the results
we report in our financial statements.

Inventory Valuation. Our policy is to value inventories at the lower of
cost or market on a part-by-part basis. This policy requires management to make
estimates regarding the market value of our inventories, including an assessment
of excess or obsolete inventories. We determine excess and obsolete inventories
based on an estimate of the future demand for our products within a specified
time horizon, generally 12 months. The estimates we use for demand are also used
for near-term capacity planning and inventory purchasing and are consistent with
revenue forecasts. If our demand forecast is greater than its actual demand we
may be required to take additional excess inventory charges, which will decrease
gross margin and net operating results in the future. In addition, as a result
of the downturn in demand for our products, we have excess capacity in our
facilities. Currently, we are not capitalizing any inventory costs related to
this excess capacity as the recoverability of such costs is not certain. The
application of this policy adversely affects our gross margin.

Intangible Asset Valuation. The determination of the fair value of certain
acquired assets and liabilities is subjective in nature and often involves the
use of significant estimates and assumptions. Determining the fair values and
useful lives of intangible assets especially requires the exercise of judgment.
While there are a number of different generally accepted valuation methods to
estimate the value of intangible assets acquired, we primarily use the
weighted-average probability method outlined in SFAS 144. This method requires
significant management judgment to forecast the future operating results used in
the analysis. In addition, other significant estimates are required such as
residual growth rates and discount factors. The estimates we have used are
consistent with the plans and estimates that we use to manage its business,
based on available historical information and industry averages. The judgments
made in determining the estimated useful lives assigned to each class of assets
acquired can also significantly affect our net operating results.

Allowance for Bad Debt. We maintain an allowance for doubtful accounts for
estimated losses resulting from the inability of our customers to make required
payments. Our allowance for doubtful accounts is based on our assessment of the
collectibility of specific customer accounts, the aging of accounts receivable,
our history of bad debts, and the general condition of the industry. If a major
customer's credit worthiness deteriorates, or our customers' actual defaults
exceed our historical experience, our estimates could change and impact our
reported results.

Stock-based Compensation. We record stock-based compensation to outside
consultants at fair market value in general and administrative expense. We do
not record expense relating to stock options granted to employees with an
exercise price greater than or equal to market price at the time of grant. We
report pro-forma net loss and loss per share in accordance with the requirements
of SFAS 148 (see above). This disclosure shows net loss and loss per share as if
we had accounted for its employee stock options under the fair value method of
those statements. Pro-forma information is calculated using the Black-Scholes
pricing method at the date of grant. This option valuation model requires input
of highly subjective assumptions. Because our employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing model does not
necessarily provide a reliable single measure of fair value of its employee
stock options.

EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In April 2002, the FASB issued Statement No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and
Losses from Extinguishment of Debt," and an amendment of that Statement, FASB
Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements" and FASB Statement No. 44, "Accounting for Intangible Assets of
Motor Carriers." This Statement amends FASB Statement No. 13, "Accounting for
Leases," to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. NeoMedia has implemented the provision of SFAS No. 145 and has
concluded that the adoption does not have a material impact on our financial
statements.

In July 2002, the FASB issued SFAS No. 146 "Accounting for Exit or
Disposal Activities." The provisions of this statement are effective for
disposal activities initiated after December 31, 2002, with early application
encouraged. NeoMedia has implemented the provision of SFAS No. 146 and has
concluded that the adoption does not have a material impact on our financial
statements.

In October 2002, the FASB issued Statement No. 147, "Acquisitions of
Certain Financial Institutions-an amendment of FASB Statements No. 72 and 144
and FASB Interpretation No. 9," which removes acquisitions of financial
institutions from the scope of both Statement 72 and Interpretation 9 and
requires that those transactions be accounted for in accordance with Statements
No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible
Assets. In addition, this Statement amends SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, to include in its scope long-term
customer-relationship intangible assets of financial institutions such as
depositor- and borrower-relationship intangible assets and credit cardholder
intangible assets. The requirements relating to acquisitions of financial
institutions is effective for acquisitions for which the date of acquisition is
on or after October 1, 2002. The provisions related to accounting for the
impairment or disposal of certain long-term customer-relationship intangible
assets are effective on October 1, 2002. The adoption of this Statement did not
have a material impact to our financial position or results of operations as the
Company has not engaged in either of these activities.

In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure," which amends FASB Statement
No. 123, Accounting for Stock-Based Compensation, to provide alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of Statement 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The transition guidance and annual disclosure
provisions of Statement 148 are effective for fiscal years ending after December
15, 2002, with earlier application permitted in certain circumstances. The
interim disclosure provisions are effective for financial reports containing
financial statements for interim periods beginning after December 15, 2002. The
adoption of this statement did not have a material impact on our financial
position or results of operations as the Company has not elected to change to
the fair value based method of accounting for stock-based employee compensation.

In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that upon
issuance of a guarantee, a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 are effective for any guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002. The adoption of FIN45 did not have a material effect on our financial
position, results of operations, or cash flows.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities." Interpretation 46 changes the criteria by which
one company includes another entity in its consolidated financial statements.
Previously, the criteria was based on control through voting interest.
Interpretation 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. A company that consolidates a variable
interest entity is called the primary beneficiary of that entity. The
consolidation requirements of Interpretation 46 apply immediately to variable
interest entities created after January 31, 2003. The consolidation requirements
apply to older entities in the first fiscal year or interim period beginning
after June 15, 2003. Certain of the disclosure requirements apply in all
financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The adoption of this Statement did not
have a material impact to our financial position or results of operations as the
Company.

During October 2003, the FASB issued Staff Position No. FIN 46,
deferring the effective date for applying the provisions of FIN 46 until the end
of the first interim or annual period ending after December 31, 2003 if the
variable interest was created prior to February 1, 2003 and the public entity
has not issued financial statements reporting that variable interest entity in
accordance with FIN 46. The FASB also indicated it would be issuing a
modification to FIN 46 prior to the end of 2003. Accordingly, we have deferred
the adoption of FIN 46 with respect to VIEs created prior to February 1, 2003.
Management is currently assessing the impact, if any, FIN 46 may have on us;
however, management does not believe there will be any material impact on our
consolidated financial statements, results of operations or liquidity resulting
from the adoption of this interpretation.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". This
Statement amends Statement 133 for decisions made (1) as part of the Derivatives
Implementation Group process that effectively required amendments to Statement
133, (2) in connection with other Board projects dealing with financial
instruments, and (3) in connection with implementation issues raised in relation
to the application of the definition of a derivative, in particular, the meaning
of an initial net investment that is smaller than would be required for other
types of contracts that would be expected to have a similar response to changes
in market factors, the meaning of underlying, and the characteristics of a
derivative that contains financing components. The Company does not anticipate
that the adoption of this Statement will have a material effect on the financial
statements.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. Some of the provisions
of this Statement are consistent with the current definition of liabilities in
FASB Concepts Statement No. 6, Elements of Financial Statements. The remaining
provisions of this Statement are consistent with the Board's proposal to revise
that definition to encompass certain obligations that a reporting entity can or
must settle by issuing its own equity shares, depending on the nature of the
relationship established between the holder and the issuer. While the Board
still plans to revise that definition through an amendment to Concepts Statement
6, the Board decided to defer issuing that amendment until it has concluded its
deliberations on the next phase of this project. That next phase will deal with
certain compound financial instruments including puttable shares, convertible
bonds, and dual-indexed financial instruments. The Company does not anticipate
that the adoption of this Statement will have a material effect on the financial
statements.

PURCHASE AND DISPOSAL OF QODE.COM, INC.

On March 1, 2001, NeoMedia purchased all of the net assets of Qode.com,
Inc. (Qode), except for cash. Qode is a development stage company, as defined in
Statement of Financial Accounting Standards (SFAS) No. 7, "Accounting and
Reporting By Development Stage Enterprises". In consideration for these assets,
NeoMedia issued 274,699 shares of common stock, valued at $1,359,760.
Additionally, the Company placed in escrow 1,676,500 shares of its common stock
valued at $8,298,675 at the time of issuance. Stock issued was valued at $4.95
per share, which is the average closing price for the few days before and after
the measurement date of March 1, 2001. As of December 31, 2001 NeoMedia had
released 35,074 shares of common stock from escrow for performance for the
period March 1, 2001 to August 31, 2001. The remaining 1,641,426 shares are
being held in escrow pending the results of negotiations between the Company and
Qode with respect to the performance of the Qode business unit for the period
March 1, 2001 through February 28, 2002. As a result, all such shares may be
released to Qode.

NeoMedia accounted for this purchase using the purchase method of
accounting in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations". The excess fair market value of the net assets acquired
over the purchase price was allocated to reduce proportionately the values
assigned to noncurrent assets. The accompanying consolidated statements of
operations include the operations of Qode from March 1, 2001, through September
30, 2002.

The purchase price at the original purchase date was calculated and
allocated as follows:

Original Shares: 274,699 issued at $4.95 1,360,000
Contingent shares: 35,074 issued at $0.39 $ 13,000

Total purchase price $ 1,373,000

PURCHASE PRICE ALLOCATED AS FOLLOWS:
ASSETS PURCHASED
Trade receivables $ 5,000
Inventory 144,000
Prepaid expenses 49,000
Furniture & fixtures 913,000
Capitalized development costs 2,132,000
Capitalized software 83,000
Refundable deposits - non-current 38,000

LIABILITIES ASSUMED
Accounts payable (981,000)
Forgiveness of note receivable (440,000)
Interest receivable (10,000)
Current portion of long-term debt (117,000)
Note payable (24,000)
Capitalized lease obligation (419,000)

Total purchase price allocated $ 1,373,000

During the third quarter of 2001, NeoMedia issued an additional 35,074
shares under the terms of the earn-out with Qode.com, Inc. (see explanation
below). The value of these shares in the amount of $13,000 was allocated $9,000
to capitalized development costs and $4,000 to furniture and fixtures.

CONTINGENT CONSIDERATION

In accordance with the purchase of the assets of Qode.com, Inc.,
NeoMedia has placed 1,676,500 shares of its common stock in escrow for a period
of one year, subject to downward adjustment, based upon the achievement of
certain performance targets over the period of March 1, 2001 to February 28,
2002. As of March 1, 2002, these performance targets were not met and therefore,
the remaining 1,641,426 shares held in escrow were not issued. The criteria used
to determine the number of shares released from escrow is a weighted combination
of revenue, page views, and fully allocated earnings before taxes relating to
the Qode Universal Commerce Solution.

At the end of each of certain interim periods as outlined in the
purchase agreement, the number of cumulative shares earned by Qode.com is
calculated based on revenue and page views and the shares are released. The
resulting financial impact on NeoMedia is a proportionate increase in the
long-term assets acquired from Qode, resulting in an increase in depreciation
expense from that point forward. The amount of the increase in long-term assets
is dependent upon the number of shares released from escrow, as well as the
value of NeoMedia stock at the time of measurement. The first such measurement
date was July 1, 2001. At the end of the 12-month measurement period (February
28, 2002), the number of shares issued to Qode under the earn-out was 35,074,
allocated as outlined in the table above. The remaining 1,641,426 shares are
being held in escrow pending the results of negotiations between the Company and
Qode with respect to a disagreement over the performance of, and investment in,
the Qode business unit for the period March 1, 2001 through February 28, 2002.
As a result, all such shares may be released to Qode.

INTANGIBLE ASSETS

Intangible assets acquired from Qode.com include:

(i) Purchased software licenses relating to the development of the Qode
Universal Commerce Solution, amortized on a straight-line basis over three
years.

(ii) Capitalized software development costs relating to the development
of the Qode Universal Commerce Solution.

All Qode related assets were written off during the third and fourth
quarters of 2001.

OTHER

On May 31, 2001, three creditors of Qode.com, Inc. filed in the U.S.
Bankruptcy Court an involuntary bankruptcy petition for Qode.com, Inc. On July
22, 2002, the case was converted to Chapter 7, U.S. Bankruptcy Code.

DISPOSAL OF QODE BUSINESS UNIT

On August 31, 2001, the Company signed a non-binding letter of intent
to sell the assets and liabilities of its Ft. Lauderdale-based Qode business
unit, which it acquired in March 2001, to The Finx Group, Inc., a holding
company based in Elmsford, NY. The Finx Group was to assume $620,000 in Qode
payables and $800,000 in long-term leases in exchange for 500,000 shares of the
Finx Group, right to use and sell Qode services, and up to $5 million in
affiliate revenues over the next five years. During the third and fourth
quarters of 2001 and the first quarter of 2002, NeoMedia recorded a $2.6 million
expense from the write-down of the Qode assets/liabilities to net realizable
value.

The loss for discontinued operations during the phase-out period from
August 31, 2001 (measurement date) to September 30, 2001 was $439,000. No
further loss is anticipated.

During June 2002, the Finx Group notified NeoMedia that it did not
intend to carry out the letter of intent due to capital constraints. As a
result, during the three-month period ended June 30, 2002, the Company recorded
an additional expense of $1.5 million for the write-off of remaining Qode
assets. As of December 31, 2002, NeoMedia had $1.5 million of liabilities
relating to the Qode system on its books.

IMPAIRMENT OF PAPERCLICK ASSET

During the nine months ending September 30, 2002, NeoMedia recognized
an impairment charge of $1.0 million relating to its PaperClick
physical-world-to-internet software solution. Due to capital constraints, the
Company is not currently able to devote full-time resources and infrastructure
to commercializing the technology. NeoMedia intends to re-focus sales and
marketing efforts surrounding the product upon the receipt of sufficient
capital.

DESCRIPTION OF BUSINESS

COMPANY HISTORY

NeoMedia was incorporated under the laws of the State of Delaware on
July 29, 1996, to acquire by tax-free merger Dev-Tech Associates, Inc. ,
NeoMedia's predecessor, which was organized in Illinois in December 1989. In
March 1996, Dev-Tech's common stock was split, with an aggregate of 2,551,120
shares of common stock being issued in exchange for the 164 then issued and
outstanding shares of common stock. On August 5, 1996, NeoMedia acquired all of
the shares of Dev-Tech in exchange for the issuance of shares of NeoMedia's
common stock to Dev-Tech's stockholders.

We develop proprietary technologies that link physical information and
objects to the Internet marketed under our "PaperClickTM" brand name and
automate print production operations. We are structured as two distinct business
units: Internet Switching Service and Consulting and Integration Service.

NeoMedia Internet Switching Service (NISS) is our core business and is
based in the United States, with development and operating facilities in Fort
Myers, Florida. Application services develops and supports all of our physical
world to Internet technology as well as its suite of application service
provider services, including our linking "switch" and our application platforms.
NISS also provides the systems integration resources needed to design and build
custom customer solutions predicated on our infrastructure technology.

NeoMedia Consulting and Integration Service (NCIS) is the original
business line upon which we were organized. This unit resells client-server
equipment and related software. The unit also provides general and specialized
consulting services targeted at software driven print applications, and
especially at process automation of production print facilities through its
integrated document factory solution. NCIS also identifies prospects for custom
applications based on our products and services. The operations are based in
Lisle, Illinois.

In addition to our NISS and NCIS business units, we recently announced
the pending acquisitions of two companies:

o CSI INTERNATIONAL, INC. - On November 7, 2003, we signed a
non-binding letter of intent to acquire CSI International,
Inc. ("CSI"), of Calgary, Alberta, Canada, a private
technology products company in the micro paint repair
industry. The LOI calls for the issuance of 7,000,000 shares
of our common stock to be issued in exchange for all
outstanding shares of CSI. In addition, we will pay $3.5
million cash. CSI is a private technology and products company
in the micro paint repair industry.

OUR PRODUCTS AND SERVICES

INTERNET SWITCHING SERVICE

PAPERCLICKTM SWITCHING SERVICE. PaperClickTM is a state-of-the-art
application-switching platform that links physical objects to digital media
through the use of scanned UPC, EAN, or custom PaperClickTM codes. This dynamic
open solution serves a wide variety of customers in industrial, commercial, and
educational applications.

INTELLECTUAL PROPERTY LICENSING. We currently hold 14 U.S. patents
relating to the physical world-to-Internet marketplace, eight of which were
acquired as part of our recent purchase of Secure Source Technologies, Inc. We
intend to license this intellectual property portfolio to companies endeavoring
to tap the potential of this emerging market. To date, we have entered into such
agreements with Digital:Convergence, A.T. Cross Company, and Symbol
Technologies. During January 2002, we announced that we had entered into an
agreement with Baniak Pine and Gannon, a law firm specializing in patent
licensing and litigation, under which the firm will represent NeoMedia in
seeking out potential licensees of our patent portfolio.

CONSULTING AND INTEGRATION SERVICE

NCIS is a group of highly skilled application developers thoroughly
familiar with MSS and other associated NeoMedia technologies who contract to
develop custom applications for clients.

STORAGE AREA NETWORKS (SAN). SAN is a Storage Management solutions and
consultancy offering consisting of tools and services that insure data
integrity, efficiency and accessibility, achieved through moving data backup,
access and archival functions off of traditional LANs/WANs that are added on to
a highly reliable independent managed network.

PRODUCT SALES AND EQUIPMENT RE-SALES. NCIS markets and sells
proprietary software products, including high-density symbology encoders (e.g.
PDF417 and UPS Maxicode) and resells client-server hardware and related systems
such as Sun Microsystems, IBM and others , as well as related applications
software and services.

INTEGRATED DOCUMENT FACTORY (IDF). The IDF solution provides design and
implementation of a collection of tested hardware and software solutions
utilizing Xerox's printers and Sun servers to turn document creation,
production, and printing into an assembly line manufacturing process. The system
particularly assists financial service concerns such as banks, insurance
companies, and brokerage firms as well as helps to manage high-volume printing
of statements on a frequent basis.

OUR MARKETS

INTERNET SWITCHING SERVICE

We believe that our switching platform is a state-of-the-art open and
extensible cross-media publishing tool serving customers in a variety of
industrial, commercial, and educational applications. This business segment is
also responsible for licensing our intellectual property to others as a means of
promoting this new market as well as providing a revenue and cash resource. We
have been developing our physical world-to-Internet technology and offerings
since 1996 and consider ourselves an innovator and pioneer in this industry. In
the past two years, we have seen similar technologies and concepts emerge in the
marketplace, and see these events as a positive validation of the physical
world-to-internet concept.

Press from competitors is expected to continue to raise consumer
awareness of physical-to-Web convergence. We believe the key to the adoption of
physical world-to-Internet technologies in the marketplace will be in the
development of real world applications that provide the end user a valuable
experience. Our service offering, however, differs from those of AirClic and
other competitors in that, unlike their products and services, our products do
not require the use of a proprietary or specified device, and we offer our
service on a private label basis. We believe that we are positioned to provide
solutions that preserve the customer's brand and also provide tailored solutions
to fit the customer needs.

CONSULTING AND INTEGRATION SERVICE

The technology and equipment resale business is becoming a commodity
industry for products undifferentiated by value added proprietary elements and
services. Resale operations are also being compressed as equipment manufacturers
consolidate their distribution channels.

Proprietary products, such as our encoders, systems integration
services, and integrated document factory solutions, offer a competitive
value-add to our consulting and integration business. We believe that we have
unique offerings, which, to the extent that they meet market needs, offer the
potential for growth in this industry.

This segment also sells migration products, tools designed to migrate
software code from one platform to another platform, primarily to mid-sized to
large corporations and government agencies. The products include proprietary
products and software tools to migrate Wang, HP3000, Data General, DEC and IBM
DOS/VSE platforms, legacy systems, to a Unix or NT open system platform.

RECENT DEVELOPMENTS

QODE.COM ASSETS

In March 2001, we acquired the assets of Qode.com, a Web-based commerce
facilitation service. On September 7, 2001, we announced that we had signed a
non-binding letter of intent to sell the assets of our Fort Lauderdale-based
Qode business unit, which we acquired in March 2001, to The Finx Group, Inc., a
holding company in Elmsford, New York. The agreement called for The Finx Group
to assume approximately $620,000 of Qode's payables and approximately $800,000
in long-term assets. We were expecting to receive 500,000 shares of The Finx
Group common stock, a five-year license to use and sell Qode Services, and up to
$5 million in affiliate revenues from The Finx Group from Qode sales over the
next five years. In connection with the sale of Qode assets, we recognized a
loss of approximately $3.1 million in 2001.

During June 2002, the Finx Group notified us that it did not intend to
carry out the letter of intent due to capital constraints. As a result, during
the nine months ended September 30, 2002, we recorded an additional expense of
$1.5 million for the write-off of remaining Qode assets. As of September 30,
2003, we had $1.0 million of liabilities relating to the Qode system on our
books.

ABOUT.COM, INC. RELATIONSHIP

In June 2001, we announced that we entered into a one-year license
agreement with About.com, Inc. to provide our Qode Universal Commerce SolutionTM
to About.com's estimated 36 million worldwide users. We and About.com intended
to promote the co-branded shopping service throughout the About.com network. In
June 2001, About.com ran banner ads on its site promoting the Qode Universal
Commerce SolutionTM. As part of the emerging About.com and NeoMedia
relationship, About.com received 452,489 shares of our Series A Convertible
Preferred Stock, par value $0.01 per share, of the 500,000 total Series A
Convertible Preferred shares which we are authorized to issue, in consideration
for these promotions. On January 2, 2002, these 452,489 shares were converted
into 452,489 shares of common stock, which are being registered for resale in
this prospectus. Those shares are currently subject to a right of first refusal
in favor of us prior to resale. See "Principal and Selling Stockholders." We
recorded an expense of $882,000 associated with this transaction in the second
quarter of 2001 in sales and marketing expense in the accompanying consolidated
statements of operations. The agreement with About.com was terminated on August
31, 2001, in anticipation of the sale of the Qode assets to the Finx Group.

AIRCLIC, INC. RELATIONSHIP

On July 3, 2001, we entered into a non-binding letter of intent with
AirClic, Inc., which contemplated an intellectual property cross-licensing
transaction between us and AirClic. Under the terms of the letter of intent,
AirClic was to provide us with bridge financing of $2,000,000, which was to be
paid to us in installments. On July 11, 2001, AirClic advanced $500,000 in
bridge financing to us in return for a promissory note secured by all of our
assets. During the negotiation of a definitive set of agreements, the parties
decided not to proceed with the cross-licensing transaction. AirClic has since
initiated two lawsuits against us, one of which was dismissed, the other of
which was settled (see "Legal Proceedings).

DIGITAL:CONVERGENCE CORPORATION RELATIONSHIP

We entered into an agreement with a competitor, Digital:Convergence
Corporation, a private company located in the US, in October 2000, granting them
a worldwide, non-exclusive license of our patent portfolio for directly linking
documents, objects, transaction and voice commands to the internet. The
agreement provided for annual license fees over a period of ten years in excess
of $100 million through a combination of cash and equity. We recognized $7.8
million of revenue in 2000 related to this contract, including a $5.0 million
cash payment received in October 2000 for royalties earned before contract
execution, $2.5 million related to the $10 million of payments in Digital
Convergence common stock and cash expected to be received in the first year of
the contract, and $0.3 million related to DC stock received by us to be
recognized over the life of the contract.

As part of the contract, we issued to Digital Convergence a warrant to
purchase 1.4 million shares of our common stock.

In the first quarter of 2001, Digital Convergence issued us an interest
bearing $3 million note payable in lieu of a $3 million cash payment due in
January 2001. We also received shares of Digital Convergence stock in January
with a contractual value of $2 million as part of the first contract-year
royalties due. The note was originally due on April 24, 2001, however, on that
date we agreed to extend it until June 24, 2001. We also partially wrote down,
in the first quarter of 2001, the value of the remaining Digital Convergence
stock receivable, and Digital Convergence stock that had been received in
January, to a value that management believed was reasonable at the time (50% of
the valuation stipulated in the contract). The write-down consisted of a
reduction in assets of $7.7 million and a corresponding reduction in liabilities
of $7.7 million. The Digital Convergence stock received in January 2001 was
valued at $1 million and the Digital Convergence receivable was valued at $9.2
million. In April 2001, we received additional shares of Digital Convergence
stock with a $5 million value based on the valuation method stipulated in the
contract. No revenue was recognized related to these shares and the shares were
not recorded as an asset due to Digital Convergence's worsening financial
condition. All assets and liabilities relating to the contract were subsequently
written off in the second quarter of 2001.

Also in April 2001, an agreement was entered into with Digital
Convergence whereby for a period from the date of registration of the shares
underlying the warrant to purchase 1.4 million shares of our common stock until
October 24, 2001, if we would identify a purchaser for our shares, Digital
Convergence would exercise the warrant and purchase 1.4 million shares of common
stock and sell the shares to the identified purchaser. One third of the net
proceeds received by Digital Convergence on the sale of our common stock shall
be paid to us toward repayment of Digital Convergence's obligations under the
note to us in the amount of $3 million. In consideration for this, the warrant
exercise price was reduced during this period to 38 percent of the closing sale
price of our common stock on the day prior to the date of exercise, subject to a
minimum price. Because the exercise of the warrants at this reduced price is
contingent upon our finding a purchaser of the underlying 1.4 million shares,
the value of this re-pricing will be measured and recorded at the time the
shares are sold. As of October 24, 2001, we were not able to locate a purchaser
and therefore, the warrant was not exercised.

On June 24, 2001, Digital Convergence did not pay the note that was
due, and on June 26, 2001, we filed a $3 million lawsuit against Digital
Convergence for breach of contract regarding the $3 million promissory note. It
was also learned in the second quarter of 2001 that Digital Convergence's
capital raising efforts and business operations were having difficulty, and we
decided to write off all remaining amounts related to the Digital Convergence
contract. The net effect of the write-off is a $7,354,000 non-cash charge to
income during the second quarter of 2001, which is included in Loss on
Digital:Convergence License Contract in our consolidated statements of
operations for the year ending December 31, 2001. Any future revenues related to
this contract will be recorded as payments are received.

On March 22, 2002, Digital:Convergence filed for bankruptcy under
Chapter 7 of the United States Bankruptcy Code.

LOCH ENERGY, INC.

On March 7, 2003, we announced that that we had reached an agreement in
principal to acquire and merge with Loch Energy, Inc. ("Loch"), an oil and gas
provider based in Humble, Texas.

On October 1, 2003, we discovered that the royalty interest from future
sales of oil owned by Loch were oversold, which would likely result in
materially lower projected available cashflow from Loch's operations. This
projected available cashflow was the basis for the acquisition. On October 2,
2003, our Board of Directors voted to cancel the Memorandum of Terms signed on
March 7, 2003, and terminate the acquisition and merger proceedings.

CSI INTERNATIONAL, INC.

On November 7, 2003, we signed a non-binding letter of intent to
acquire CSI International, Inc. ("CSI"), of Calgary, Alberta, Canada, a private
technology products company in the micro paint repair industry. The LOI calls
for the issuance of 7,000,000 shares of our common stock to be issued in
exchange for all outstanding shares of CSI. In addition, we will pay $2.5
million cash. CSI is a private technology and products company in the micro
paint repair industry.

BSD SOFTWARE/TRITON GLOBAL BUSINESS SERVICES

On December 9, 2003, we signed a non-binding letter of intent to
acquire Triton Global Business Services Inc. and its parent company, BSD
Software Inc. (Pink Sheets: BSDS), both of Calgary, Alberta, Canada. The LOI
outlined terms, including an exchange of one share of our common stock for each
share of BSD Software, not to exceed 40 million shares. The transaction is
dependent on due diligence by both companies, approval by our Board of
Directors, BSD Software's Board of Directors, shareholders, required regulatory
approvals, and other conditions. Triton, formed in 1998 and acquired by BSD in
2002, is an Internet Protocol-enabled provider of live and automated operator
calling services, e-business support, billing and clearinghouse functions and
information management services to telecommunications, Internet and e-business
service providers.

OUR STRATEGY

We have spent the past seven years developing and patenting the now
confirmed space of linking the physical and Internet environments, and
developing and implementing five generations of continuously refined switch
technology that seamlessly bridges these environments. We are strategically
pursuing potential licensees of the PaperClick switching platform, as well as
intellectual property licensing opportunities with organizations attempting to
commercialize physical world-to-Internet technology, such as Symbol
Technologies, A.T. Cross Company and Brandkey Systems Corporation.

While pursing these goals we remain aware of strategic issues,
opportunities, and constraints that will govern the interplay of competition and
alliances in this rapidly emerging market.

OUR STRATEGIC RELATIONSHIPS

INTERNET SWITCHING SERVICES

In this segment, we have a number of customers who have used or are
using our products and services, including Amway, Solar, A.T. Cross Company,
NYCO and two universities in Latin America. During the year ended December 31,
2000, we entered into a license agreement with Digital:Convergence. This
customer accounted for 28.2% of NeoMedia's total revenue and 96.1% of our
Application Services revenue during such year. During the year ended December
31, 2001, we did not recognize any revenue related to the Digital:Convergence
contract, and we wrote off approximately $7.4 million in net assets and
liabilities related to the contract. In March 2002, Digital Convergence filed
for bankruptcy under Chapter 7. We are aggressively pursuing numerous additional
opportunities for our products and services.

In January 2001, we entered into a patent license with A.T. Cross
Company, a major international manufacturer of fine writing instruments and pen
computing products. A.T. Cross Company obtained the rights under our physical
world-to-Internet patents for personal portable scanning devices used to link
bar codes on documents and other physical consumer goods to corresponding
Internet content. A.T. Cross Company will pay a royalty per device to us for
license rights granted under this agreement. We have not recognized any revenue
relating to this contract as of the date of this prospectus.

In May 2001, we entered into an agreement with Symbol Technologies,
Inc., granting Symbol a worldwide, non-exclusive license of our patents
surrounding the sale and use of scanning devices used in physical
world-to-Internet technologies. Symbol will pay us a royalty per qualified
device shipped. We have not recognized any revenue relating to this contract as
of the date of this filing.

During January 2002, we engaged Baniak Pine and Gannon, a Chicago law
firm specializing in intellectual property licensing and litigation. The firm
will assist us in seeking out potential licensees of our intellectual property
portfolio, including any resulting litigation.

During May 2002, we granted a personal, worldwide, non-exclusive,
limited intellectual property licensing agreement to Brandkey Systems
Corporation. Brandkey has paid us a $50,000 upfront licensing fee and is
obligated to pay 2.5% of all royalty-based revenues earned by Brandkey, with
minimum royalties of $25,000 in 2003, $50,000 in 2004, and $75,000 in 2005 and
after.

On September 8, 2003, we announced our PaperClick for Camera Cell
Phones product, which reads and decodes UPC/EAN or other bar codes to link users
to the Internet, providing information and enabling e-commerce on a compatible
camera cell phone, such as the Nokia 3650 model.

On October 30, 2003, we unveiled our go-to-market strategy for the
product. We have already established relationships with several key partners
outlined in the strategy, including agents Big Gig Strategies and SRP
Consulting, European advertising agency 12Snap, and worldwide brand
communication company Seven.

CONSULTING AND INTEGRATION SERVICES

Through this segment, we provide services and products to a spectrum of
customers, ranging from closely held companies to Fortune 500 companies. For the
years ended December 31, 2002, 2001, and 2000, one customer, SBC/Ameritech
Services, Inc., accounted for 36%, 37%, and 30%, respectively, of our revenue.
We expect sales to Ameritech as a percentage of total sales to decline in the
future. Furthermore, we do not have a written agreement with Ameritech and,
therefore, there are no contractual provisions to prevent Ameritech from
terminating its relationship with us at any time. Accordingly, the loss of this
customer, or a significant reduction by it in buying the products and services
offered by us, absent diversification, would materially and adversely affect of
our business, prospects, financial condition, and results of operations. In
addition, a single supplier supplies the equipment and software, which is
re-marketed to this customer. Accordingly, the loss of this supplier would
materially adversely affect our business, prospects, financial condition, and
results of operations. For these reasons, we are seeking, and continue to seek,
to diversify our sources of revenue and vendors from whom we purchase.

SALES AND MARKETING

INTERNET SWITCHING SERVICE

PAPERCLICKTM. While we eliminated the majority of our sales and
marketing staff during the third quarter of 2001, we continue to promote our
PaperClickTM line of products to potential customers in a wide array of
industries. On September 8, 2003, we announced our PaperClick for Camera Cell
Phones product, which reads and decodes UPC/EAN or other bar codes to link users
to the Internet, providing information and enabling e-commerce on a compatible
camera cell phone, such as the Nokia 3650 model. We have refocused our sales
efforts by focusing on signing up channel partners who have industry market
presence. No assurances can be given that any successful association will
result.

INTELLECTUAL PROPERTY LICENSING. During January 2002, we engaged Baniak
Pine and Gannon, a law firm specializing in intellectual property licensing and
litigation. The firm will assist us in seeking out potential licensees of our
intellectual property portfolio, including any resulting litigation. On August
13, 2002, our fifth patent surrounding our Physical-World-to-Internet technology
was issued by the U.S. Patent and Trademark Office. On April 2, 2003, we were
issued our sixth US Patent, which allows for a connection from human-or
machine-readable input to generate a tailored response that can utilize a
profile of the person making the link between the code-carrying physical object
and the desired electronic information

CONSULTING AND INTEGRATION SERVICE

We, through or systems integration services segment, market our
products and services, as well as those for which we act as a re-marketer,
primarily through a direct sales force, which was composed of five individuals
as of December 31, 2001. In addition, this business unit also relies upon
strategic alliances with industry leaders to help market products and services,
provide lead referrals, and establish informal co-marketing arrangements. Our
representatives attend seminars and trade shows, both as speakers and
participants, to help market products and services. In addition, this business
segment has two agents in the United States that sell our products and services.

CUSTOMERS

INTERNET SWITCHING SERVICES

PAPERCLICKTM. Our customers for our physical world-to-Internet
offerings have included Amway, Solar Communications, Inc., NYCO Products
Company, and several large organizations in Latin America, including several
prestigious universities.

INTELLECTUAL PROPERTY LICENSING. To date, we have entered into IP
licensing agreements with Digital:Convergence Corporation, A.T. Cross Company,
Symbol Technologies, and Brandkey Systems Corporation. We intend to pursue
additional license agreements in the future.

CONSULTING AND INTEGRATION SERVICES

We provide equipment and software reselling and integration and
automation consulting services to a variety of customers across a range of
industries, including telecommunications, insurance, financial services,
manufacturing, government entities, and more.

RESEARCH AND DEVELOPMENT

INTERNET SWITCHING SERVICE

NISS employed 2, 3, and 24 persons in the area of product development
as of December 31, 2002, 2001, and 2000, respectively. During the years ended
December 31, 2002, 2001, and 2000, NeoMedia ISS incurred total software
development costs of $775,000, $2,064,000, and $2,888,000, respectively, of
which $0, $1,515,000, and $1,787,000, respectively, were capitalized as software
development costs and $775,000, $549,000, and $1,101,000, respectively, were
expensed as research and development costs.

CONSULTING AND INTEGRATION SERVICES

All significant research and development relating to our consulting and
integration products was discontinued at December 31, 1999 when we discontinued
our Y2K business. All employees that were in this area were reassigned or
released at or prior to such time. If any future research or development of
products is needed, it will be performed by the application services division or
outside contractors.

COMPETITION

INTERNET SWITCHING SERVICES

Although, we have been developing our physical world-to-Internet
technology and offerings since 1996, the physical world-to-Internet market in
which we compete is relatively new. In the past year, new technologies and
concepts have emerged in the physical world-to-Internet space. We view the
increased development of other products in this space as a validation of the
physical world-to-Internet concept and believe that the increased promotion of
these products and services by us and other companies in this space, including
AirClic, Inc., will raise consumer awareness of this technology, resulting in a
larger market. We believe that the significant portfolio of physical
world-to-Internet technologies that we have developed over the last five years
will provide a barrier to entry for most potential competitors.

CONSULTING AND INTEGRATION SERVICES

The largest competition, in terms of number of competitors, is for
customers desiring systems integration, including the re-marketing of another
party's products, and document solutions. These competitors range from local,
small privately held companies to large national and international
organizations, including large consulting firms. A large number of companies act
as re-marketers of another party's products, and therefore, the competition in
this area is intense. In some instances, we, in acting as a re-marketer, may
compete with the original manufacturer.

INTELLECTUAL PROPERTY

Our success in the physical world-to-Internet and the value-added
systems integration markets is dependent upon our proprietary technology,
including patents, and other intellectual property, and on our ability to
protect our proprietary technology and other intellectual property rights. In
addition, we must conduct our operations without infringing on the proprietary
rights of third parties. We also intend to rely upon unpatented trade secrets
and the know-how and expertise of our employees. To protect our proprietary
technology and other intellectual property, we rely primarily on a combination
of the protections provided by applicable patent, copyright, trademark, and
trade secret laws as well as on confidentiality procedures and licensing
arrangements. We have 14 patents for our physical world-to-Internet technology,
eight of which were recently acquired as part of our purchase of Secure Source
Technologies, Inc.. We also have several trademarks relating to our proprietary
software products. In addition, we license from third parties certain software
tools that we include in our services and products. We require our employees and
third parties who are granted access to our proprietary technology to enter into
confidentiality agreements with us in order to attempt to protect our unpatented
proprietary rights.

EMPLOYEES

As of December 12, 2003, we employed 14 persons. Of the 14 employees, 6
are located at our headquarters in Fort Myers, Florida, and 8 at other domestic
locations. Of the 14 employees, 3 are dedicated to the Application Services
business unit, 7 are dedicated to the Systems Integration Services business
unit, and 4 provide shared services used by both business units. None of our
employees are represented by a labor union or bound by a collective bargaining
agreement. We believe that our employee relations are good.

MANAGEMENT

DIRECTORS AND OFFICERS

Our directors and executive officers, their respective ages, and their
positions held with us are as follows:

NAME AGE POSITION
--------------------------------------------------------------------------------

Charles W. Fritz 47 Chairman of the Board of Directors
Charles T. Jensen 60 President, Chief Operating Officer, Acting Chief Executive Officer and Director
David A. Dodge 28 Vice-President, Chief Financial Officer and Controller
William E. Fritz 73 Secretary and Director
James J. Keil 76 Director
A. Hayes Barclay 73 Director

The following is certain summary information with respect to the
directors and executive officers of NeoMedia:

CHARLES W. FRITZ, is a founder of NeoMedia and has served as an officer
and as a Director of NeoMedia since our inception. On August 6, 1996, Mr. Fritz
was appointed Chief Executive Officer and Chairman of the Board of Directors. On
April 2, 2001, Mr. Fritz was appointed as President where he served until June
2002. Mr. Fritz is currently a member of the Compensation Committee. Prior to
founding NeoMedia, Mr. Fritz was an account executive with IBM Corporation from
January 1986 to January 1988, and Director of Marketing and Strategic Alliances
for the information consulting group from February 1988 to January 1989. Mr.
Fritz holds an M.B.A. from Rollins College and a B.A. in finance from the
University of Florida. Mr. Fritz is the son of William E. Fritz, a Director of
NeoMedia.

CHARLES T. JENSEN was Chief Financial Officer, Treasurer and
Vice-President of NeoMedia since May 1, 1996. Mr. Jensen has been a Director
since August 6, 1996, and currently is a member of the Compensation Committee.
During June 2002, Mr. Jensen was promoted to President, Chief Operating Officer,
and Acting Chief Executive Officer. Prior to joining NeoMedia in November 1995,
Mr. Jensen was Chief Financial Officer of Jack M. Berry, Inc., a Florida
corporation which grows and processes citrus products, from December 1994 to
October 1995, and at Viking Range Corporation, a Mississippi corporation which
manufactures gas ranges, from November 1993 to December 1994. From December 1992
to February 1994, Mr. Jensen was Treasurer of Lin Jensen, Inc., a Virginia
corporation specializing in ladies clothing and accessories. Prior to that, from
January 1982 to March 1993, Mr. Jensen was Controller and Vice-President of
Finance of The Pinkerton Tobacco Co., a tobacco manufacturer. Mr. Jensen holds a
B.B.A. in accounting from Western Michigan University and is a Certified Public
Accountant.

DAVID A. DODGE joined NeoMedia in 1999 as the Financial Reporting
Manager. Since then, Mr. Dodge has acted as NeoMedia's Director of Financial
Planning and Controller, and currently holds the title of Vice President, Chief
Financial Officer and Controller. Prior to joining NeoMedia in 1999, Mr. Dodge
was an auditor with Ernst & Young LLP for 2 years. Mr. Dodge holds a B.A. in
economics from Yale University and an M.S. in accounting from the University of
Hartford, and is also a Certified Public Accountant.

WILLIAM E. FRITZ is a founder of NeoMedia and has served as Secretary
and Director of NeoMedia since our inception. Mr. Fritz also served as Treasurer
of NeoMedia from its inception until May 1, 1996. Since February 1981, Mr. Fritz
has been an officer and either the sole stockholder or a majority stockholder of
G.T. Enterprises, Inc. (formerly Gen-Tech, Inc.), D.M., Inc. (formerly Dev-Mark,
Inc.) and EDSCO, three railroad freight car equipment manufacturing companies.
Mr. Fritz holds a B.S.M.E. and a Bachelor of Naval Science degree from the
University of Wisconsin. Mr. Fritz is the father of Charles W. Fritz, NeoMedia's
former Chief Executive Officer and Chairman of the Board of Directors.

JAMES J. KEIL has been a Director of NeoMedia since August 6, 1996. Mr.
Keil currently is a member of the Compensation Committee, the Stock Option
Committee and the Audit Committee. He is founder and President of Keil & Keil
Associates, a business and marketing consulting firm located in Washington,
D.C., specializing in marketing, sales, document application strategies,
recruiting and electronic commerce projects. Prior to forming Keil & Keil
Associates in 1990, Mr. Keil worked for 38 years at IBM Corporation and Xerox
Corporation in various marketing, sales and senior executive positions. From
1989-1995, Mr. Keil was on the Board of Directors of Elixir Technologies
Corporation (a non-public corporation), and from 1990-1992 was the Chairman of
its Board of Directors. From 1992-1996, Mr. Keil served on the Board of
Directors of Document Sciences Corporation. Mr. Keil holds a B.S. degree from
the University of Dayton and did Masters level studies at the Harvard Business
School and the University of Chicago in 1961/62.

A. HAYES BARCLAY has been a Director of NeoMedia since August 6, 1996,
and currently is a member of the Stock Option Committee and the Audit Committee.
Mr. Barclay has practiced law for approximately 37 years and, since 1967, has
been an officer, owner and employee of the law firm of Barclay & Damisch, Ltd.
and its predecessor, with offices in Chicago, Wheaton and Arlington Heights,
Illinois. Mr. Barclay holds a B.A. degree from Wheaton College, a B.S. from the
University of Illinois and a J.D. from the Illinois Institute of Technology -
Chicago Kent College of Law.

ELECTION OF DIRECTORS AND OFFICERS

Directors are elected at each annual meeting of stockholders and hold
office until the next succeeding annual meeting and the election and
qualification of their respective successors. Officers are elected annually by
the Board of Directors and hold office at the discretion of the Board of
Directors. NeoMedia's By-Laws permit the Board of Directors to fill any vacancy
and such director may serve until the next annual meeting of shareholders and
the due election and qualification of his successor.

MEETINGS OF THE BOARD OF DIRECTORS

During the year ended December 31, 2002, we held 7 directors' meetings
and each director attended more than seventy-five percent of the total of
meetings of the Board of Directors and the Committees of which he is a member.

COMMITTEES OF THE BOARD OF DIRECTORS

NeoMedia's Board of Directors has an Audit Committee, Compensation
Committee and a Stock Option Committee. The Board of Directors does not have a
standing Nominating Committee.

AUDIT COMMITTEE. The Audit Committee is responsible for nominating
NeoMedia's independent accountants for approval by the Board of Directors,
reviewing the scope, results and costs of the audit with NeoMedia's independent
accountants, and reviewing the financial statements, audit practices and
internal controls of NeoMedia. During 2002, members of the Audit Committee were
nonemployee directors James J. Keil and A. Hayes Barclay. During 2002, the Audit
Committee held one meeting.

COMPENSATION COMMITTEE. The Compensation Committee is responsible for
recommending compensation and benefits for the executive officers of NeoMedia to
the Board of Directors and for administering NeoMedia's Incentive Plan for
Management. Charles W. Fritz, Charles T. Jensen, A. Hayes Barclay, and James J.
Keil, were members of NeoMedia's Compensation Committee during 2002. This
Committee held one meeting during 2002.

STOCK OPTION COMMITTEE. The Stock Option Committee, which is comprised
of non-employee directors, is responsible for administering NeoMedia's Stock
Option Plans. A. Hayes Barclay and James J. Keil are the current members of
NeoMedia's Stock Option Committee. During 2002, this Committee held five
meetings.

COMPENSATION OF DIRECTORS

Each outside director will be granted 1,000,000 options at an exercise
price of $0.01 per share from the 2003 Stock Option Plan. The last grant to
outside directors was at NeoMedia's previous annual meeting held on June 6,
2002, at which each outside director received 100,000 options with an exercise
price of $0.05 per share. NeoMedia does not have a written compensation policy
for its outside directors at this time.

COMPENSATION COMMITTEE REPORT TO STOCKHOLDERS

The Compensation Committee, which meets on a periodic basis, is
comprised of Messrs. Charles W. Fritz and Charles T. Jensen, officers of
NeoMedia and James J. Keil, a non-employee member of the Board of Directors. The
Compensation Committee formulates and administers compensation policies for the
President and Chief Executive Officer and all vice presidents of NeoMedia. (A
Stock Option Committee consisting of two non-employee Directors is responsible
for determining to whom and under what terms stock options should be granted,
other than options which are automatically granted to members of the Board of
Directors, under the Plan.)

REPORT OF THE COMPENSATION COMMITTEE

OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION

The following is a report of the Compensation Committee of the Board of
Directors (the "Committee") describing the compensation policies applicable to
NeoMedia's executive officers during the fiscal year ended December 31, 2002.

The Committee is responsible for establishing and monitoring the
general compensation policies and compensation plans of NeoMedia, as well as the
specific compensation levels for executive officers.

GENERAL COMPENSATION PHILOSOPHY

Under the supervision of the Committee, NeoMedia's compensation policy
is designed to attract, motivate and retain qualified key executives critical to
NeoMedia's success. It is the objective of NeoMedia to have a portion of each
executive's compensation dependent upon NeoMedia's performance as well as upon
the executive's individual performance. Accordingly, each executive officer's
compensation package is comprised of three elements: (i) base salary which
reflects individual performance and expertise, (ii) variable bonus payable in
cash and tied to the achievement of certain annual performance goals and (iii)
stock options which are designed to align the long-term interests of the
executive officer with those of NeoMedia's stockholders. NeoMedia did not pay
any bonuses during 2001 or 2002.

The Committee considers the total compensation of each executive
officer in establishing each element of compensation, other than stock options
which are the responsibility of the Stock Option Committee. All incentive
compensation plans are reviewed at least annually to assure they meet the
current strategies and needs of NeoMedia.

The summary below describes in more detail the factors that the
Committee considers in establishing each of the three primary components of the
compensation package provided to the executive officers.

BASE SALARY

Base salary ranges are established based on benchmark data from
nationally recognized surveys of similar high-technology companies that compete
with NeoMedia for executive officers and NeoMedia's research of peer companies.
Each executive officer's base salary is established on the basis of the
individual's qualifications and relevant experience.

VARIABLE BONUS

The Committee believes that a substantial portion of the annual
compensation of each executive should be in the form of variable incentive pay
to reinforce the attainment of NeoMedia's goals. The Incentive Plan rewards
achievement of specified levels of corporate profitability. A pre- determined
formula, which takes into account profitability against the annual plan approved
by the Board of Directors, is used to determine the bonus award. The individual
executive officer's bonus award is based upon discretionary assessment of each
officer's performance during the prior fiscal year. NeoMedia did not pay any
bonuses during 2001 or 2002.

COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER

Charles W. Fritz served as NeoMedia's Chairman of the Board and Chief
Executive Officer from August 1996 until June 2002. During June 2002, Mr. Fritz
resigned his duties as Chief Executive Officer, and Charles T. Jensen,
NeoMedia's former Chief Financial Officer, was elected president and Chief
Operating Officer, and also named acting CEO.

BASE SALARY: The Committee reviews the Chief Executive Officer's major
accomplishments and reported base salary information for the chief executive
officers of other companies in NeoMedia's peer group. Mr. Jensen's salary is
currently $175,00 per year. During the period from May 1, 2003 through July 15,
2003, Mr. Jensen's salary was reduced to $120,000 per year in an effort to
reduce costs. He is not under contract with NeoMedia.

CASH INCENTIVE: The Chief Executive Officer's incentive target is at
the discretion of the Committee. Achievement of the target is based on overall
company income versus annual Plan income. Neither Mr. Fritz nor Mr. Jensen
earned a bonus relating to fiscal 2002 or 2001. During June 2001, the Committee
approved an adjustment, relating to the Digital:Convergence patent license fees,
to the 2000 Incentive Plan that reduced the bonus payout by approximately $1.1
million. Mr. Fritz's incentive relating to fiscal 2000 was reduced from $430,800
to $148,800. The award was paid in April 2003 with shares of NeoMedia's common
stock. NeoMedia did not recognize or pay a bonus to any employees during fiscal
2001 or 2002.

COMPENSATION COMMITTEE
-----------------------------------
Charles W. Fritz
Charles T. Jensen
James J. Keil

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Board of Directors currently consists
of Messrs. Fritz, Jensen, and Keil. During the last fiscal year, no interlocking
relationship existed between NeoMedia's Board of Directors or Compensation
Committee and the board of directors or compensation committee of any other
company.

REPORT OF THE AUDIT COMMITTEE

The Audit Committee for the last fiscal year consisted of two
nonemployee Directors. The Board of Directors has determined that none of the
members of the Audit Committee has a relationship to NeoMedia that may interfere
with his independence from NeoMedia and its management. The Audit Committee has
a written charter, a copy of which was filed as Appendix A to NeoMedia proxy
statement filed on May 23, 2001.

The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing financial
reports and other financial information provided by NeoMedia to any governmental
body or the public, NeoMedia's systems of internal controls regarding finance,
accounting, legal compliance and ethics that management and the Board of
Directors have established, and NeoMedia's auditing, accounting and financial
processes generally. The Audit Committee annually recommends to the Board of
Directors the appointment of a firm of independent auditors to audit the
financial statements of NeoMedia and meets with such personnel of NeoMedia to
review the scope and the results of the annual audit, the amount of audit fees,
NeoMedia's internal accounting controls, NeoMedia's financial statements
contained in NeoMedia's Annual Report to Stockholders and other related matters.

The Audit Committee has reviewed and discussed with management the
financial statements for fiscal year 2002 audited by Stonefield Josephson, Inc.,
NeoMedia's independent auditors. The Audit Committee has discussed with
Stonefield Josephson, Inc. various matters related to the financial statements,
including those matters required to be discussed by SAS 61 (Codification of
Statements on Auditing Standards, AU ss. 380). The Audit Committee has also
received the written disclosures and the letter from Stonefield Josephson, Inc.
required by Independence Standards Board Standard No. 1 (Independence Standards
Board Standard No. 1, Independence Discussions with Audit Committees), and has
discussed with the firm its independence. Based upon such review and discussions
the Audit Committee recommended to the Board of Directors that the audited
financial statements be included in NeoMedia's Annual Report on Form 10-K for
the fiscal year ending December, 2002 for filing with the Securities and
Exchange Commission.

AUDIT COMMITTEE
-------------------------------
James J. Keil
A. Hayes Barclay

The report of the Audit Committee shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the filing
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.

EXECUTIVE COMPENSATION

The following table sets forth certain information with respect to the
compensation paid during the years ended December 31, 2002, 2001, and 2000 to:
(i) NeoMedia's Chief Executive Officer and (ii) each of NeoMedia's other
executive officers as of December 31, 2002 who received aggregate cash
compensation during the year ended December 31, 2001 in excess of $100,000 for
services rendered to NeoMedia (collectively, "the Named Executive Officers"):

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION LONG-TERM COMPENSATION
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING
COMPENS- STOCK OPTIONS/ LTIP ALL OTHER
NAME AND SALARY BONUS ATION AWARD(S) SARS (1) PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
------------------------------------------------------------------------------------------------------------------------------------

Charles W. Fritz 2002 $ 144,583 $ -- $ -- $ -- 1,800,000 $ -- $ 4,470(3)
Chairman of the Board 2001 221,758 -- -- -- 400,000 -- 21,532(3)
2000 250,000 148,800(2) -- -- 49,000 -- 22,502(3)

Charles T. Jensen 2002 163,542 -- -- -- 800,000 -- 5,079(3)
Chief Operating Officer, 2001 144,239 -- -- -- 240,000 -- 17,794(3)
President, Acting Chief 2000 150,000 87,860(2) -- -- 37,000 -- 29,767(3)
Executive Officer

(1) Represents options granted under NeoMedia's 2002 and 1998 Stock Option
Plans and warrants granted at the discretion of NeoMedia's Board of
Directors.

(2) In June 2001, NeoMedia's Compensation Committee approved an adjustment,
relating to the Digital:Convergence patent license fees, to the Annual
Incentive Plan for Management that reduced the 2000 bonus payout by
approximately $1.1 million. The original amount recorded in 2000 and
reported on NeoMedia's Form 10-KSB for 2000 was $430,800 for Charles W.
Fritz and $193,860 for Charles T. Jensen. The adjusted amounts are
presented in the table above.

(3) Includes life insurance premiums where policy benefits are payable to
his beneficiary and automobile expenses attributable to personal use
and the corresponding income tax effects.

OPTION GRANTS IN LAST FISCAL YEAR

The following table contains information concerning the grant of
options, all of which are nonqualified, and warrants to the Named Executive
Officers during the year ended December 31, 2002:

PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/ POTENTIAL REALIZABLE VALUE
UNDERLYING SARS AT ASSUMED ANNUAL RATES
OPTIONS GRANTED TO EXERCISE OR OF STOCK PRICE APPRECIATION
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION FOR OPTION TERM
NAME (#) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)

Charles W. Fritz 50,000 0.3% $0.14 January 9, 2012 $ 4,245 $10,758
250,000 1.4% $0.05 June 6, 2012 $ 7,861 $19,922
1,500,000 8.7% $0.05 June 6, 2007 $20,721 $45,788

Charles T. Jensen 50,000 0.3% $0.14 January 9, 2012 $ 4,245 $10,758
250,000 1.4% $0.05 June 6, 2012 $ 7,861 $19,922
500,000 2.9% $0.05 June 6, 2012 $15,722 $39,844

----------

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTIONS VALUES

The following table sets forth options exercised by NeoMedia Named
Executive Officers during fiscal 2002, and the number and value of all
unexercised options at fiscal year end.

NUMBER OF UNEXERCISED
SHARES SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-
ACQUIRED VALUE OPTIONS/SARS AT THE-MONEY OPTIONS/SARS AT
ON EXERCISE REALIZED DECEMBER 31, 2002 DECEMBER 31, 2002 (1)
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-----------------------------------------------------------------------------------------------------------------------------

Charles W. Fritz 140,775 $1,408 2,829,400 219,600 -- --

Charles T. Jensen -- -- 1,400,586 104,800 -- --

(1) The value of the in the money options is calculated by the difference
between the market price of the stock at December 31, 2002 ($0.01) and
the exercise price of the options. No options held by the Named
Executive Officers were "In-the-money" as of December 31, 2002.

OPTION REPRICING PROGRAM

To encourage the exercise of options, our Board of Directors in April
2002 adopted an option repricing program. Under the program, those persons
holding options granted under the 1996, 1998 and 2002 Stock Option Plans, to the
extent their options are exercisable during the period ending October 9, 2002,
were allowed to exercise the option at a price which is the greater of $0.12 per
share or 50% of the last sale price of a share of our common stock on the OTC
Bulletin Board on the trading date immediately preceding the date of exercise.
No options were exercised under the program.

During May 2003, the Company re-priced approximately 8.0 million stock
options under a 6-month repricing program. Under the terms of the program, the
exercise price for outstanding options under the Company's 2002, 1998, and 1996
Stock Option Plans was restated to $0.01 per share for a period of 6 months. In
accordance with FASB Interpretation, FIN 44, Accounting for Certain Transactions
Involving Stock Transactions, the award has been accounted for as variable from
May 19, 2003 through the period ended September 30, 2003. Accordingly,
approximately $544,000 and $710,000 was recorded as compensation in general and
administrative expense during the three months and nine months ended September
30, 2003.

Under applicable provisions of the Internal Revenue Code, to the extent
the nonqualified options are exercised, the holders will be deemed to have the
taxable income to the extent of the difference between the fair market value and
the exercise price and we will suffer a comparable charge to our earnings.
Alpine Securities Inc., a broker-dealer registered under the Securities Exchange
Act has agreed to assist option holders in the option exercise and the sale of
shares acquired and the payment to us of the exercise price from the sale
proceeds.

EMPLOYMENT AGREEMENTS

NeoMedia does not currently have any unexpired employment agreements
with any of its officers or employees.

INCENTIVE PLAN FOR MANAGEMENT

Effective as of January 1, 1996, NeoMedia adopted an Annual Incentive
Plan for Management ("Incentive Plan"), which provides for annual bonuses to
eligible employees based upon the attainment of certain corporate and/or
individual performance goals during the year. The Incentive Plan is designed to
provide additional incentive to NeoMedia's management to achieve these growth
and profitability goals. Participation in the Incentive Plan is limited to those
employees holding positions assigned to incentive eligible salary grades and
whose participation is authorized by NeoMedia's Compensation Committee which
administers the Incentive Plan, including determination of employees eligible
for participation or exclusion. The Board of Directors can amend, modify or
terminate the Incentive Plan for the next plan year at any time prior to the
commencement of such next plan year.

To be eligible for consideration for inclusion in the Incentive Plan,
an employee must be on NeoMedia's payroll for the last three months of the year
involved. Death, total and permanent disability or retirement are exceptions to
such minimum employment, and awards in such cases are granted on a pro-rata
basis. In addition, where employment is terminated due to job elimination, a pro
rata award may be considered. Employees who voluntarily terminate their
employment, or who are terminated by NeoMedia for unacceptable performance,
prior to the end of the year are not eligible to participate in the Incentive
Plan. All awards are subject to any governmental regulations in effect at the
time of payment.

Performance goals are determined for both NeoMedia's and/or the
employee's performance during the year, and if performance goals are attained,
eligible employees are entitled to an award based upon a specified percentage of
their base salary.

No incentive plan was in place for fiscal year 2002.

STOCK OPTION PLANS

Effective February 1, 1996 (and amended and restated effective July 18,
1996 and further amended through November 18, 1996), NeoMedia adopted its 1996
Stock Option Plan ("1996 Stock Option Plan"). The 1996 Stock Option Plan
provides for the granting of non-qualified stock options and "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, and provides for the issuance of a maximum of 1,500,000 shares of
common stock.

Effective March 27, 1998, NeoMedia adopted its 1998 Stock Option Plan
("1998 Stock Option Plan"). The 1998 Stock Option Plan provides for the granting
of non-qualified stock options and provides for the issuance of a maximum of
8,000,000 shares of common stock.

Effective June 6, 2002, NeoMedia adopted its 2002 Stock Option Plan.
The 2002 Stock Option Plan provides for authority for the Board of Directors to
the grant non-qualified stock options with respect to a maximum of 10,000,000
shares of common stock.

Effective September 24, 2003, NeoMedia adopted its 2003 Stock Option
Plan. The 2003 Stock Option Plan provides for authority for the Board of
Directors to the grant non-qualified stock options with respect to a maximum of
150,000,000 shares of common stock. On October 17, 2003, NeoMedia filed a Form
S-8 to register all 150,000,000 shares underlying the options in the 2003 Stock
Option Plan.

STOCK INCENTIVE PLAN

Effective October 31, 2003, NeoMedia adopted the 2003 Stock Incentive
Plan. Under the terms of the Plan, NeoMedia has set aside up to 30,000,000
shares of common stock to be issued to pay compensation and other expenses
related to employees, former employees, consultants, and non-employee directors.
On November 3, 2003, NeoMedia filed a Form S-8 to register all 30,000,000 shares
underlying the options in the 2003 Stock Incentive Plan.

401(K) PLAN

NeoMedia maintains a 401(k) Profit Sharing Plan and Trust (the "401(k)
Plan"). All employees of NeoMedia who are 21 years of age and who have completed
three months of service are eligible to participate in the 401(k) Plan. The
401(k) Plan provides that each participant may make elective contributions of up
to 20% of such participant's pre-tax salary (up to a statutorily prescribed
annual limit) to the 401(k) Plan, although the percentage elected by certain
highly compensated participants may be required to be lower. All amounts
contributed to the 401(k) Plan by employee participants and earnings on these
contributions are fully vested at all times. The 401(k) Plan also provides for
matching and discretionary contributions by NeoMedia. To date, NeoMedia has not
made any such contributions.

PROPERTIES

Our principal executive, development and administrative office is
located at 2201 Second Street, Suite 402, Fort Myers, Florida 33901. We occupy
approximately 5,000 square feet under terms of a written lease from an
unaffiliated party which expires on January 31, 2004, with monthly rent totaling
approximately $7,000. During September 2002, we entered into an agreement with
the landlord of this facility under which we vacated approximately 70% of our
previously rented space in exchange for reduced rent. We maintain a sales
facility at 2150 Western Court, Suite 230, Lisle, Illinois 60532, where we
occupy approximately 6,000 square feet under the terms of a written lease from
an unaffiliated party expiring on October 31, 2004, with monthly rent totaling
approximately $8,000.

LEGAL PROCEEDINGS

We are involved in the following legal actions arising in the normal
course of business, both as claimant and defendant.

NEOMEDIA SHAREHOLDERS

During January 2002, certain of our shareholders filed a complaint with the
Securities and Exchange Commission, alleging that the shareholders were not
included in the special shareholders meeting of November 25, 2001, to vote on
the issuance of 19 million shares of our common stock. On March 11, 2002, we
filed our response claiming that we had fully complied with all of its
obligations under the laws and regulations administered by the Securities and
Exchange Commission, as well as with its obligation under Delaware General
Corporation Law. No further action has been taken with respect to this matter.

AIRCLIC, INC. LITIGATION

On September 6, 2001, AirClic, Inc. filed suit against us in the Court of
Common Pleas, Montgomery County, Pennsylvania, seeking, among other things, the
accelerated repayment of a $500,000 loan it advanced to us pursuant to the terms
of a Secured Promissory Note made on July 11, 2003 and a non-binding Letter of
Intent dated July 3, 2001 between AirClic and us. The note was secured by
substantially all of our intellectual property, including the core physical
world-to-Internet technologies. In the suit, we acknowledged our obligations
under the note but filed a counterclaim against AirClic seeking damages for
fraud, negligent misrepresentation and promissory estoppel.

On October 3, 2003, we paid AirClic the principal plus interest in the
approximate amount of $610,000. On December 5, 2003, we paid an additional
$115,000 in legal fees and entered into a settlement agreement with AirClic
under which the suit was dismissed. We have no further obligation relating to
this matter.

DIGITAL:CONVERGENCE LITIGATION

On June 26, 2001, we filed a $3 million lawsuit in the U.S. District
Court, Northern District of Texas, Dallas Division, against Digital:Convergence
Corporation for breach of contract regarding a $3 million promissory note due on
June 24, 2001 that was not paid. We are seeking payment of the $3 million note
plus interest and attorneys fees. We have not accrued any gain contingency
related to this matter. On March 22, 2002, Digital:Convergence filed under
Chapter 7 of the United States Bankruptcy Code. The matter is pending before the
bankruptcy court.

OTHER LITIGATION

On August 20, 2001, Ripfire, Inc. filed suit against us in the San
Francisco County Superior Court seeking payment of $138,000 under a software
license agreement entered into between us and Ripfire in May 2001 relating to
implementation of the Qode Universal Commerce Solution. On September 6, 2002, we
settled this suit for $133,000 of our common stock, to be valued at the time of
registration of the shares. Our stock was trading at approximately $0.05 at that
time. We included for registration 2.7 million shares in the name of Ripfire in
our form S-1 that was declared effective by the SEC on February 14, 2003. Our
stock was trading at approximately $0.02 on February 14, 2003. The actual number
of shares to be issued to Ripfire per the pricing outlined in the agreement was
approximately 9.8 million. On March 31, 2003, we issued the 2.7 million shares
of common stock that had been registered in the S-1 to Ripfire. We are
negotiating settlement of the remaining balance. We had a remaining accrued
liability of $106,000 relating to this matter as of September 30, 2003.

On November 30, 2001, Orsus Solutions USA, Inc., filed a summons seeking
payment in full of approximately $525,000 relating to a software and services
contract associated with implementation of the Qode Universal Commerce Solution.
In October 2003, we settled this matter for $10,000 cash payments plus 3,000,000
shares of common stock being registered hereunder. Under the terms of the
agreement, Orsus has the right to return the shares to us if the shares are not
registered for resale by February 14, 2003. Orsus will have until March 15, 2003
to return the shares under this arrangement. If they opt to return the shares,
we will pay up to $200,000 in cash over a period of approximately 20 months. We
had accrued a liability of $331,000 as of September 30, 2003.

On July 27, 2002, our former General Counsel filed suit in U.S. District
Court, Ft. Myers division, seeking payment of the 2000 executive incentive,
severance and unpaid vacation days in the amount of approximately $154,000. In
June 2001, our compensation committee approved an adjustment to the 2000
executive incentive plan that reduced the executive incentive payout as a result
of the write-off of the Digital:Convergence intellectual property license
contract in the second quarter of 2001. As a result, we reduced the accrual for
such payout by an aggregate of approximately $1.1 million in the second quarter
of 2002. The plaintiff is seeking payment of the entire original incentive
payout. On November 12, 2002, we settled the lawsuit. The settlement calls for
cash payments totaling approximately $90,000 over a period of ten months, plus
250,000 vested options to purchase shares of our common stock at an exercise
price of $0.01 with a term of five years. We had a liability of approximately
$7,000 relating to this matter as of September 30, 2003.

On September 12, 2002, R. R. Donnelley & Sons Company filed a summons in
the Circuit Court of The Twentieth Judicial Circuit in and for Lee County,
Florida, seeking payment of approximately $92,000 in past due professional
services bills, plus interest and attorney fees. During July 2003, we settled
the suit for cash payments over a period of approximately one year. We had an
accrued liability of approximately $97,000 relating to this matter as of
September 30, 2003.

On September 13, 2002, Wachovia Bank, N.A., owner of the building in which
our Ft. Myers, Florida headquarters is located, filed a complaint in Circuit
Court of The Twentieth Judicial Circuit in and for Lee County, Florida, seeking
payment of approximately $225,000 in past due rents. The complaint also seeks
payment of all future rent payments under the lease term, which expires in
January 2004, as well as possession of the premises. On October 28, 2002,
NeoMedia and Wachovia reached a settlement on this matter. The settlement calls
for cash payments of past due rents of approximately $250,000 over a period of
16 months. We also vacated approximately 70% of the unused space in our
headquarters, and the rent for the remainder of the lease, which expires in
January 2004, was reduced according to square footage used. We had accrued a
liability of approximately $180,000 relating to this matter as of September 30,
2003.

On October 21, 2002, International Digital Scientific, Inc. ("IDSI") filed
a demand for arbitration relating to past due payments on an uncollateralized
note payable by us to IDSI dated October 1, 1994. The note was issued in
exchange for the purchase by us of computer software from IDSI. The note calls
for us to make payments of the greater of: (i) 5% of the collected gross
revenues from sales of software or (ii) $16,000 per month. As of September 30,
2003, we had recorded a current portion of long term debt to IDSI of
approximately $591,000. The net carrying value of future obligation under the
note was approximately $684,000 as of September 30, 2003. On October 31, 2003,
we paid off all past due and future obligations under the note to IDSI through
the issuance of 8,000,000 shares of our common stock, being registered for
resale hereunder. Under the terms of the agreement, IDSI has the right to return
the shares to us if the shares are not registered for resale by February 14,
2003. IDSI will have until March 15, 2003 to return the shares under this
arrangement. If they opt to return the shares, then enforcement will be governed
by the original purchase agreement from 1994.

On October 28, 2002, Merrick & Klimek, P.C., filed a complaint against us
seeking payment of approximately $170,000 in past due legal services. The amount
in question is subject to an unsecured promissory note that matured unpaid on
February 28, 2002. On May 1, 2003, we settled the suit for cash payments
totaling approximately $196,000, to be paid at a rate of $30,000 per quarter
until the balance is satisfied. If the balance is paid within one year of the
settlement, we will not pay interest charges. We had a remaining liability of
approximately $120,000 relating to this matter as of September 30, 2003.

On November 11, 2002, Avnet/Hallmark Computer Marketing Group filed a
complaint against us seeking payment of approximately $66,000 in past due
amounts relating to hardware and software re-sold by us. During December 2002,
we made payment of approximately $30,000 to Avnet, reducing the balance owed to
approximately $37,000. On April 1, 2003, the plaintiff received a judgment from
the circuit court for the remaining balance. We have agreed to a payment plan
for the balance over a period of approximately nine months. We had a liability
of approximately $37,000 relating to this matter as of September 30, 2003.

On February 6, 2003, Allen Norton & Blue, P.A., filed a complaint against
us seeking payment of approximately $25,000 in past due legal services. We have
agreed to a payment plan relating to this matter under which the balance will be
paid over approximately 12 months. We had a liability of approximately $19,000
relating to this matter as of September 30, 2003.

On April 18, 2003, a former participant in our 2001 self-insured health
plan sued us to recover approximately $46,000 in unpaid health claims from 2001.
On December 1, 2003, we settled this suit for cash payments over a period of
approximately one year. We had accrued approximately $51,000 as of September 30,
2003

On November 21, 2003 we received a letter from Day West & Associates,
threatening litigation for approximately $7,000 relating to staffing services
provided in connection with our due diligence review of Loch Energy, Inc. we are
currently negotiating a resolution to this matter with Day West's attorney.

PRINCIPAL STOCKHOLDERS

The following table sets forth, as of December 12, 2003, certain information
regarding beneficial ownership of NeoMedia's common stock by: (i) each person
known by NeoMedia to be the beneficial owner of more than 5% of NeoMedia's
outstanding common stock; (ii) each director; (iii) each named executive
officer; and (iv) all executive officers and directors as a group.

AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNERSHIP (1) CLASS (1)
------------------------ ---------

Charles W. Fritz (2)(3) 30,316,467 11.8%
William Fritz(2)(4) 56,674,776 22.9%
Charles T. Jensen(2)(5) 11,506,886 4.5%
David A. Dodge(2)(6) 2,300,000 *
A. Hayes Barclay(2)(7) 1,139,000 *
James J. Keil(2)(8) 1,485,000 *
----------- -------

Officers and Directors as a Group (9 Persons)(9) 103,422,129 37.4%
----------- -------

---------------

* Indicates less than 1%.

(1) Applicable percentage of ownership is based on 243,878,428 shares of
common stock outstanding as of December 12, 2003, together with
securities exercisable or convertible into shares of common stock within
60 days of December 12, 2003, for each stockholder. Beneficial ownership
is determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect
to securities. Shares of common stock subject to securities exercisable
or convertible into shares of common stock that are currently exercisable
or exercisable within 60 days of December 12, 2003, are deemed to be
beneficially owned by the person holding such securities for the purpose
of computing the percentage of ownership of such person, but are not
treated as outstanding for the purpose of computing the percentage
ownership of any other person. The common stock is the only outstanding
class of equity securities of NeoMedia.

(2) Address of the referenced individual is c/o NeoMedia Technologies, Inc.,
2201 Second Street, Suite 402, Fort Myers, FL, 33901.

(3) Charles W. Fritz is the Company's founder and the Chairman of the Board
of Directors. Shares beneficially owned include 100 shares owned by each
of Mr. Fritz's four minor children for an aggregate of 400 shares,
11,549,000 shares of common stock issuable upon exercise of options
granted under our stock option plans, 1,510,000 shares issuable upon
exercise of stock warrants, 15,714,098 shares of common stock owned by
Mr. Charles W. Fritz directly, and 1,542,969 shares of common stock held
by the CW/LA II Family Limited Partnership, a family limited partnership
for the benefit of Mr. Fritz's family.

(5) Charles T. Jensen is President, Chief Operating Officer, Acting Chief
Executive Officer, and a member of the Board of Directors. Beneficial
ownership includes 11,505,386 shares of common stock issuable upon
exercise of options granted under NeoMedia's stock option plans, and
1,500 shares owned by Mr. Jensen's son.

(6) David A. Dodge is Vice President, Chief Financial Officer, and
Controller. Beneficial ownership includes 2,300,000 shares of common
stock issuable upon exercise of options granted under NeoMedia's stock
option plans.

(7) A. Hayes Barclay is a member of the Board of Directors. Ownership
includes 1,134,000 shares of common stock issuable upon exercise of
options granted under NeoMedia's stock option plans, and 5,000 shares
owned by Mr. Barclay directly.

(8) James J. Keil is a member of the Board of Directors. Shares benficially
owned includes 10,000 shares issuable upon exercise of warrants,
1,000,000 shares issuable upon the exercise of options, and 475,000
shares owned by Mr. Keil directly.

(9) Includes an aggregate of 28,773,386 currently exercisable options to
purchase shares of common stock granted under NeoMedia's stock option
plans, 4,060,000 currently exercisable warrants to purchase shares of
common stock, and 70,588,743 shares owned directly by NeoMedia's officers
and directors.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During August 2003, we borrowed $50,000 from William E. Fritz, one of
our outside directors, under an unsecured note payable with a term of 30 days.
The note was repaid in full during September 2003.

During July 2003, we borrowed $25,000 from William E. Fritz, one of our
outside directors. This amount was added to the principal of a $10,000 note
payable to Mr. Fritz that matures in April 2004, with all other terms of the
note remaining the same. As consideration for the loan, we granted Mr. Fritz
2,500,000 warrants to purchase shares of our common stock at an exercise price
of $0.01 per share.

During April 2003, we entered into a consulting agreement with William
Fritz, an outside director, for consulting and advisement services relating to
the merger with Loch Energy, Inc., and to the subsequent implementation of
various management programs surrounding the business. The agreement calls for
total payments of $250,000 over a period of one year. During August 2003, we
paid the consulting contract in full. During September 2003, the consulting
contract was rescinded and the full $250,000 was returned to us.

During April 2003, our Board of Directors approved the payment in full
of approximately $154,000 of liabilities owed by NeoMedia to Charles W. Fritz,
our Founder and Chairman of the Board of Directors, through the issuance of
15,445,967 shares of common stock. We recognized a discount expense in general
and administrative expenses of approximately $15,000 relating to this
transaction with Mr. Fritz.

During April 2003, we sold 25,000,000 shares of its common stock, par
value $0.01, in a private placement at a price of $0.01 per share. In connection
with the sale, we also granted the purchaser 25,000,000 warrants to purchase
shares of our common stock at an exercise price of $0.01 per share. The warrants
had a fair value of $298,000 and have been recorded as a cost of issuance. The
purchaser was William E. Fritz, a member of our Board of Directors. Proceeds to
us from sale of the shares were $250,000. We recognized a discount expense in
general and administrative expenses of approximately $50,000 relating to this
transaction with Mr. Fritz. On August 6, 2003, Mr. Fritz exercised his warrants
and purchased 25,000,000 additional shares of common stock at a price of $0.01
per share.

During November 2002, we issued Convertible Secured Promissory Notes
with an aggregate face value of $60,000 to 3 separate parties, including Charles
W. Fritz, Chairman of the Board of Directors of NeoMedia; William E. Fritz, an
outside director; and James J. Keil, an outside director. The notes bear
interest at a rate of 15% per annum, and matured at the earlier of i.) four
months, or ii.) the date the shares underlying the Cornell Equity Line of Credit
are registered with the SEC. The notes were convertible, at the option of the
holder, into either cash or shares of our common stock at a 30% discount to
either market price upon closing, or upon conversion, whichever is lower. We
also granted to the holders an additional 1,355,670 shares of its common stock
and 60,000 warrants to purchase shares of its common stock at $0.03 per share,
with a term of three years. The warrants and shares were issued in January 2003.
In addition, since this debt is convertible into equity at the option of the
note holder at beneficial conversion rates, an embedded beneficial conversion
feature was recorded as a debt discount and amortized using the effective
interest rate over the life of the debt in accordance with EITF 00-27. Total
cost of beneficial conversion feature, fair value of the stock and cost of
warrants issued exceed the face value of the notes payable, therefore, only
$60,000, the face amount of the note, was recognizable as debt discount, and
amortized over the life of the notes payable. During March 2003, two of the
affiliated parties, Mr. William Fritz and Mr. Keil, agreed to extend the
maturity date due to our capital constraints. We repaid Charles Fritz's note in
full during March 2003, and repaid James J. Keil's note in full during April
2003. We paid $30,000 of the principal on William Fritz's note during April
2003, and entered into a new note with Mr. Fritz for the remaining $10,000. The
new note bears interest at a rate of 10% per annum and matures in April 2004.
The new note also includes a provision under which, as consideration for the
loan, Mr. Fritz will receive a 3% royalty on all future revenue generated from
our intellectual property.

During April 2002, we borrowed $11,000 from William E. Fritz under a
note payable bearing interest at 8% per annum with a term of 60 days. The note
was repaid in April 2003.

During March 2002, we borrowed $190,000 from William E. Fritz under a
note payable bearing interest at 8% per annum with a term of 16 days. The note
was repaid during March 2002.

During February 2002, we borrowed $10,000 from William E. Fritz under a
note payable bearing interest at 8% per annum with a term of 30 days. The note
was repaid in April 2003.

During October 2001, we borrowed $4,000 from Charles W. Fritz, our
Chairman, our former Chief Executive Officer and a director, under a note
payable bearing interest at 10% per annum with a term of six months. The note
was repaid in April 2003.

We believe that all of the above transactions were conducted at "arm's
length", representing what we believe to be fair market value for those
services.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires
NeoMedia's officers and directors, and persons who own more than ten percent of
a registered class of NeoMedia's equity securities, to file reports of ownership
and changes in ownership with the Securities and Exchange Commission. Officers,
directors and greater than ten-percent shareholders are required by SEC
regulation to furnish NeoMedia with copies of all Section 16(a) forms they file.

Based solely on a review of the copies of such forms furnished to
NeoMedia, NeoMedia believes that during 2002 there was no delinquency in the
Section 16(a) filing obligations of NeoMedia's officers, directors and ten
percent beneficial owners.

MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER STOCKHOLDER MATTERS

Our common stock began trading on The Nasdaq SmallCap Market under the
symbol "NEOM" on November 25, 1996, the date of our initial public offering. On
March 11, 2002, we received a Nasdaq Staff Determination stating that, as of
December 31, 2001, we did not meet either the minimum net tangible assets
($2,000,000) or minimum stockholders' equity ($2,500,000) criteria for continued
listing on the Nasdaq SmallCap Market and advising that, accordingly, our shares
were subject to de-listing from such market. Our shares are now trading on the
OTC Bulletin Board under the symbol "NEOM." As of December 12, 2003 there were
243,878,428 common shares outstanding.

The following table summarizes the high and low closing sales prices
per share of the common stock for the periods indicated as reported on The
Nasdaq SmallCap Market or OTC Bulletin Board:

(U.S. $)
--------------------------------------------------------------------------------
2000 HIGH LOW
--------------------------------------------------------------------------------

First Quarter $ 14.50 $ 5.69
Second Quarter 11.12 5.00
Third Quarter 6.75 4.12
Fourth Quarter 6.50 1.94
--------------------------------------------------------------------------------

2001 HIGH LOW
--------------------------------------------------------------------------------
First Quarter $ 6.00 $ 2.50
Second Quarter 4.50 1.76
Third Quarter 1.85 0.16
Fourth Quarter 0.24 0.11
--------------------------------------------------------------------------------

2002 HIGH LOW
--------------------------------------------------------------------------------
First Quarter $ 0.41 $ 0.14
Second Quarter 0.17 0.05
Third Quarter 0.10 0.02
Fourth Quarter 0.05 0.01
--------------------------------------------------------------------------------

2003 HIGH LOW
--------------------------------------------------------------------------------
First Quarter $ 0.06 $ 0.01
Second Quarter 0.04 0.01
Third Quarter 0.29 0.01
--------------------------------------------------------------------------------

HOLDERS OF COMMON EQUITY

As of December12, 2003, NeoMedia had approximately 3,500 recordholders
of common stock.

DIVIDENDS

We have not declared or paid any dividends on our common stock during
the nine months ended September 30, 2003 or the years ended December 31, 2002,
2001 or 2000. Following this offering, our dividend practices with respect to
our common stock will be determined and may be changed from time to time by our
board of directors. We will base any issuance of dividends upon our earnings,
financial condition, capital requirements and other factors considered important
by our board of directors. Delaware law and our certificate of incorporation do
not require our board of directors to declare dividends on our common stock. In
addition, we have a letter of credit with Bank One, Chicago, Illinois, the terms
of which require Bank One's written consent prior to the declaration of cash
dividends. We expect to retain all earnings, if any, generated by our operations
for the development and growth of our business and do not anticipate paying any
dividends to our stockholders for the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

On November 4, 2003, we issued 8,000,000 shares of stock to
International Digital Scientific, Inc., as payment of all past and future
amounts owed under a note payable from 1994. These shares are being included for
registration hereunder.

On October 28, 2003, we issued 3,000,000 shares of stock to Orsus
Solutions, USA, Inc., an unrelated vendor, as payment of past due liabilities.
These shares are being included for registration hereunder.

On October 28, 2003, we issued 95,238 shares of stock to Newbridge
Securities Corporation, an unrelated advisor, for services relating to the
Standby Equity Distribution Agreement. These shares are being included for
registration hereunder.

On October 27, 2003, we issued 7,279 shares of stock to one unrelated
vendor as payment of past due liabilities. These shares are being included for
registration hereunder.

On October 27, 2003, we issued to Cornell Capital Partners, LP,
10,000,000 warrants to purchase shares of our common stock at an exercise price
of $0.05 per share. The warrants were issued as a one-time commitment fee
relating to the Standby Equity Distribution Agreement between Cornell and us.
The shares underlying these warrants are being included for registration
hereunder.

On October 27, 2003, we issued 3,500,000 shares of stock to the holders
of all of the outstanding shares of Secure Source Technologies, Inc. ("SST"), in
exchange for all the outstanding shares of common stock of SST. These shares are
being included for registration hereunder.

On October 22, 2003, we issued 66,841 shares of stock to one unrelated
vendor as payment of past due liabilities. These shares are being included for
registration hereunder.

On October 7, 2003, we issued 103,907 shares of stock to one unrelated
vendor as payment of past due liabilities. These shares are being included for
registration hereunder.

On October 6, 2003, we issued 37,743 shares of stock to one unrelated
vendor as payment of past due liabilities. These shares are being included for
registration hereunder.

On September 25, 2003, we issued 875,855 shares of stock to two
unrelated vendors as payment of past due liabilities. These shares are being
included for registration hereunder.

On September 25, 2003, we issued 1,600,000 shares of stock to a former
employee as payment of past due incentive compensation. These shares are being
included for registration hereunder.

On July 9, 2003, we borrowed $25,000 from William E. Fritz, one of our
outside directors. This amount was added to the principal of a $10,000 note
payable to Mr. Fritz that matures in April 2004, with all other terms of the
note remaining the same. As consideration for the loan, we granted Mr. Fritz
2,500,000 warrants to purchase shares of the Company's common stock at an
exercise price of $0.01 per share. The shares underlying the warrants are being
included for registration hereunder.

On April 21, 2003, we sold 25,000,000 shares of our common stock, par
value $0.01, in a private placement at a price of $0.01 per share. In connection
with the sale, we also granted the purchaser 25,000,000 warrants to purchase
shares of our common stock at an exercise price of $0.01 per share. The warrants
had a fair value of $298,000 and have been recorded as a cost of issuance. The
purchaser was William E. Fritz, a member of our Board of Directors. Proceeds to
us from sale of the shares were $250,000. We recognized a discount expense in
general and administrative expenses of approximately $50,000 relating to this
transaction with Mr. Fritz. On August 6, 2003, Mr. Fritz exercised his warrants
and purchased 25,000,000 additional shares of common stock at a price of $0.01
per share. The shares, and the shares underlying the warrants, are being
included for registration hereunder.

On April 17, 2003, our Board of Directors approved the payment in full
of approximately $154,000 of liabilities owed by us to Charles W. Fritz, our
Founder and Chairman of the Board of Directors, through the issuance of
15,445,967 shares of common stock. We recognized a discount expense in general
and administrative expenses of approximately $15,000 relating to this
transaction with Mr. Fritz. These shares are being included for registration
hereunder.

In August 2002, we issued 900,000 shares of common stock to 2150
Western Court L.L.C, the landlord of our Lisle, Illinois sales office, as
settlement of a lawsuit relating to past-due and future building rents. The
shares were valued at $0.03 per share, the market price at the date of issuance.
There were no cash proceeds to NeoMedia in this transaction.

In June 2002, we issued 10,000 shares of common stock to an unrelated
vendor as an interest payment on past-due accounts payable. There were no cash
proceeds to us in these transactions.

In February 2002, we issued 19,000,000 shares of our common stock at a
price of $0.17 per share to five individuals and two institutional unrelated
parties. The shares were issued in exchange for limited recourse promissory
notes maturing at the earlier of i.) 90 days from the date of issuance, or ii.)
30 days from the date of registration of the shares. The gross proceeds of such
transaction will be approximately $3,040,000 upon maturity of the notes, as a
purchase price of $0.01 per share, or $190,000 in aggregate, was paid in cash.
During August 2002, the notes matured without payment, and we subsequently
cancelled the 19 million shares issued in connection with such notes. We have
accrued a liability in the third quarter of 2001 of $190,000 relating to the par
value paid in connection with the issuance of the shares.

In February 2002, we issued 500,000 warrants to a provider of
commercial financing services, in exchange for interest due to the provider on
past due amounts under our credit agreement. The shares underlying the warrants
are being included for registration hereunder.

In January 2002, we issued 452,489 shares of common stock to About.com,
Inc. The shares were issued upon conversion of 452,489 shares of Series A
Convertible Preferred Stock issued to About.com, Inc. as payment for advertising
expenses incurred during 2001. This issuance was made pursuant to Section
3(a)(9) of the Act.

In January 2002, we issued 55,000 shares of common stock at a price of
$0.13 per share to an individual unrelated party. Cash proceeds to NeoMedia were
$7,150.

In January 2002, we issued 1,646,987 shares of common stock to two
unrelated vendors as settlement of past-due accounts payable and future payments
under equipment lease agreements. There were no cash proceeds to us in these
transactions.

In March and April 2001, we issued 316,500 shares of our common stock
at a price of $3.40 per share to four foreign institutional unrelated parties.
The gross proceeds of such transaction were approximately $1,076,000. In
connection with the sale, we issued as a commission 50,000 warrants to purchase
shares of our common stock at an exercise price of $3.56 per share to a foreign
individual.

In March 2001, we issued 18,000 shares of our common stock at a price
of $3.41 per share to a foreign institutional unrelated party. The gross
proceeds of such transaction were $61,000.

In March 2001, we issued 156,250 shares of our common stock at a price
of $3.20 per share to a foreign institutional unrelated party. The gross
proceeds of such transaction were $500,000.

In March 2000, we issued an aggregate of 1,000,000 shares of our common
stock at a price of $7.50 per share to 20 foreign individuals and one foreign
institutional unrelated party. The gross proceeds of such transaction were
approximately $7,500,000. In connection with the sale, we issued as a commission
125,000 warrants to purchase shares of our common stock at an exercise price of
$7.50 per share, 125,000 warrants to purchase shares of our common stock at an
exercise price of $15.00 per share, and 100,000 warrants to purchase shares of
our common stock at an exercise price of $7.20 per share to the institutional
investor and an independent consultant.

In February 2000, we issued 39,535 shares of our common stock at a
price of $6.88 per share to one individual and one institutional unrelated
party. In connection with the sale, we also issued 2,500 warrants with an
exercise price of $12.74 and 1,454 warrants with an exercise price of $9.56. The
gross proceeds of such transaction were approximately $272,000.

In February 2000, we issued 50,000 shares of our common stock at a
price of $6.00 per share to an institutional unrelated party. In connection with
the sale, we also issued 2,982 warrants with an exercise price of $10.06. The
gross proceeds of such transaction were approximately $300,000.

In February 2000, we issued 37,500 shares of our common stock upon the
exercise of outstanding warrants at a price of $2.00 per share, originally
issued in connection with the transaction described above in March 2002. The
gross proceeds of such transaction were approximately $75,000.

In January 2000, we issued an aggregate of 301,368 shares of our common
stock at a price of $3.75 per share to 14 unrelated parties, 3 of which were
institutions and 11 of which were individuals, of which two were foreign. In
connection with the sale, we also issued an aggregate of 12,570 warrants with an
exercise price of $7.19, 5,400 warrants with an exercise price of $6.44, and
12,167 warrants with an exercise price of $7.37. The gross proceeds of such
transaction were approximately $1,130,000. In connection with the sale, we
issued as commissions 9,502 shares of its common stock valued at $7.09 per
share.

We relied upon the exemption provided in Section 4(2) of the Securities
Act and/or Rule 506 thereunder, which cover "transactions by an issuer not
involving any public offering," to issue securities discussed above without
registration under the Securities Act of 1933. We made a determination in each
case that the person to whom the securities were issued did not need the
protection that registration would afford. The certificates representing the
securities issued displayed a restrictive legend to prevent transfer except in
compliance with applicable laws, and our transfer agent was instructed not to
permit transfers unless directed to do so by us, after approval by our legal
counsel. We believe that the investors to whom securities were issued had such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of the prospective investment. We also believe
that the investors had access to the same type of information as would be
contained in a registration statement.

DESCRIPTION OF SECURITIES

The following description of our capital stock and certain provisions
of our Certificate of Incorporation and By-Laws is a summary and is qualified in
its entirety by the provisions of our Certificate of Incorporation and By-Laws,
which have been filed as exhibits to our registration statement of which this
prospectus is a part.

On September 24, 2003, our shareholders voted to (i) increase the
number of shares of common stock, par value $0.01 per share, that we are
authorized to issue from 200,000,000 to 1,000,000,000; and (ii) implement the
2003 Stock Option Plan, under which NeoMedia is authorized to grant to
employeees, directors, and consultants up to 150,000,000 options to purchase
shares of its common stock. On October, 30, 2003, our Board of Diretors approved
the 2003 Stock Incentive Plan, under which the Company can issue up to 30
million shares of stock to employees, non-employee directors, consultants for
incentive purposes. As of December 12, 2003, 243,878,428 shares of common stock
were outstanding, and no shares of preferred stock were outstanding.

COMMON STOCK

Holders of common stock are entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders. Holders of the common
stock do not have cumulative voting rights, which means that the holders of more
than one half of our outstanding shares of common stock, subject to the rights
of the holders of preferred stock, can elect all of our directors, if they
choose to do so. In this event, the holders of the remaining shares of common
stock would not be able to elect any directors. Subject to the prior rights of
any class or series of preferred stock which may from time to time be
outstanding, if any, holders of common stock are entitled to receive ratably,
dividends when, as, and if declared by the Board of Directors out of funds
legally available for that purpose and, upon our liquidation, dissolution, or
winding up, are entitled to share ratably in all assets remaining after payment
of liabilities and payment of accrued dividends and liquidation preferences on
the preferred stock, if any. Holders of common stock have no preemptive rights
and have no rights to convert their common stock into any other securities. The
outstanding common stock is duly authorized and validly issued, fully paid, and
nonassessable. In the event we were to elect to sell additional shares of common
stock following this offering, investors in this offering would have no right to
purchase additional shares. As a result, their percentage equity interest in us
would be diluted.

The shares of our common stock offered in this offering will be, when
issued and paid for, fully paid and not liable for further call and assessment.
Except as otherwise permitted by Delaware law, and subject to the rights of the
holders of preferred stock, all stockholder action is taken by the vote of a
majority of the outstanding shares of common stock voted as a single class
present at a meeting of stockholders at which a quorum consisting of a majority
of the outstanding shares of common stock is present in person or proxy.

PREFERRED STOCK

We may issue preferred stock in one or more series and having the
rights, privileges, and limitations, including voting rights, conversion rights,
liquidation preferences, dividend rights and preferences and redemption rights,
as may, from time to time, be determined by the Board of Directors. Preferred
stock may be issued in the future in connection with acquisitions, financings,
or other matters, as the Board of Directors deems appropriate. In the event that
we determine to issue any shares of preferred stock, a certificate of
designation containing the rights, privileges, and limitations of this series of
preferred stock shall be filed with the Secretary of State of the State of
Delaware. The effect of this preferred stock designation power is that our Board
of Directors alone, subject to Federal securities laws, applicable blue sky
laws, and Delaware law, may be able to authorize the issuance of preferred stock
which could have the effect of delaying, deferring, or preventing a change in
control of NeoMedia without further action by our stockholders, and may
adversely affect the voting and other rights of the holders of our common stock.
The issuance of preferred stock with voting and conversion rights may also
adversely affect the voting power of the holders of our common stock, including
the loss of voting control to others.

During December 1999, our Board of Directors approved a Certificate of
Resolutions Designating Rights and Preferences of Preferred Stock, filed with
the Secretary of State of the State of Delaware on December 20, 1999. By this
approval and filing, 200,000 shares of Series A Preferred Stock were designated.
Series A Preferred carries the following rights:

o The right to receive mandatory cash dividends equal to the
greater of $0.001 per share or 100 times the amount of all
dividends (cash or non-cash, other than dividends of shares of
common stock) paid to holders of the common stock, which
dividend is payable 30 days after the conclusion of each
calendar quarter and immediately following the declaration of
a dividend on common stock;

o One hundred votes per each share of Series A Preferred on each
matter submitted to a vote of our stockholders;

o The right to elect two directors at any meeting at which
directors are to be elected, and to fill any vacancy on the
Board of Directors previously filled by a director appointed
by the Series A Preferred holders;

o The right to receive an amount, in preference to the holders
of common stock, equal to the amount per share payable to
holders of common stock, plus all accrued and unpaid
dividends, and following payment of 1/100th of this
liquidation preference to the holders of each share of common
stock, an additional amount per share equal to 100 times the
per share amount paid to the holders of common stock.

o The right to exchange each share of Series A Preferred for 100
times the consideration received per share of common stock in
connection with any merger, consolidation, combination or
other transaction in which shares of common stock are
exchanged for or converted into cash, securities or other
property.

o The right to be redeemed in accordance with our stockholders
rights plan.

While accrued mandatory dividends are unpaid, we may not declare or pay
dividends or distributions on, or redeem, repurchase or reacquire, shares of any
class or series of junior or parity stock.

The Series A Preferred was created to be issued in connection with our
stockholders rights plan, described below. No shares of Series A Preferred have
been issued to date.

On June 19, 2001, our Board of Directors approved a Certificate of
Designations to Create a Class of Series A Convertible Preferred Stock for
NeoMedia Technologies, Inc., filed with the Secretary of State of the State of
Delaware on June 20, 2001. By this approval and filing, 47,511 shares are
designated as Series A Convertible Preferred Stock. Our Series A Convertible
Preferred Stock, par value $0.01 per share, has the following rights:

o Series A Convertible Preferred is convertible into shares of
our common stock at a one-to-one ratio, subject to
proportional adjustments in the event of stock splits or
combinations, and dividends or distributions of shares of
common stock, at the option of the holder; shares are subject
to automatic conversion as determined in each agreement
relating to the purchase of shares of Series A Convertible
Preferred;

o Each share of Series A Convertible Preferred is entitled to
receive a liquidation preference equal to the original
purchase price of such share in the event of liquidation,
dissolution, or winding up;

o Upon merger or consolidation, or the sale, lease or other
conveyance of all or substantially all of our assets, shares
of Series A Convertible Preferred are automatically
convertible into the number of shares of stock or other
securities or property (including cash) to which the common
stock into which it is convertible would have been entitled;

o Shares of Series A Convertible Preferred are entitled to one
vote per share, and vote together with holders of common
stock.

In June 2001, 452,489 shares of Series A Convertible Preferred were
issued to About.com, Inc. pursuant to a certain Agreement for Payment in Common
Stock, in lieu of cash payment to About.com for online advertising services. On
January 2, 2002, such shares were converted into 452,489 shares of common stock.

On January 16, 2002, our Board of Directors approved a Certificate of
Designation, Preferences, Rights and Limitations of Series B 12% Convertible
Redeemable Preferred Stock of NeoMedia Technologies, Inc., filed with the
Secretary of State of the State of Delaware on February 28, 2002. By this
approval and filing, 100,000 shares are designated as Series B 12% Convertible
Redeemable Preferred Stock. Our Series B 12% Convertible Redeemable Preferred
Stock, par value $0.01 per share, has the following rights:

o Series B Preferred shares accrue dividends at a rate of 12%
per annum, or $1.20 per share, between the date of issuance
and the first anniversary of issuance;

o Series B Preferred is redeemed to the maximum extent permitted
by law (based on our funds legally available for redemption)
at a price per share of $15.00, plus accrued dividends (a
total of $16.20 per share) on the first anniversary of
issuance;

o Series B Preferred receive proceeds of $12.00 per share upon
our liquidation, dissolution or winding up;

o To the extent, not redeemed on the first anniversary of
issuance, Series B Preferred is automatically convertible into
our then existing general class of common stock on the first
anniversary of issuance at a price equal to $16.20 divided by
the greater of $0.20 and the lowest publicly-sold share price
during the 90 day period preceding the conversion date, but in
no event more than 19.9% of our outstanding capital stock as
of the date immediately prior to conversion.

o Upon merger or consolidation, or the sale, lease or other
conveyance of all or substantially all of our assets, shares
of Series B Preferred are automatically convertible into the
number of shares of stock or other securities or property
(including cash) to which the common stock into which it is
convertible would have been entitled; and

o Shares of Series B Preferred are entitled to one vote per
share and vote with common stock, except where the proposed
action would adversely affect the Series B Preferred or where
the non-waivable provisions of applicable law mandate that the
Series B Preferred vote separately, in which case Series B
Preferred vote separately as a class, with one vote per share.

Our Preferred Stock is currently comprised of 25,000,000 shares, par
value $0.01 per share, of which 200,000 shares are designated as Series A
Preferred Stock, none of which are issued or outstanding, and, following the
conversion into common stock of 452,489 shares of Series A Convertible Preferred
Stock issued to About.com, of which 47,511 shares are designated as Series A
Convertible Preferred Stock, none of which are issued and outstanding, and of
which 100,000 shares of Series B 12% Convertible Redeemable Preferred Stock,
none of which are issued and outstanding. We have no present agreements relating
to or requiring the designation or issuance of additional shares of preferred
stock.

WARRANTS AND OPTIONS

As of December 12, 2003 there were outstanding options and warrants to
purchase 33,605,007 and 26,195,000, shares of our common stock, respectively,
with original exercise prices ranging from $0.01 to $7.31. All options granted
under our 1996, 1998, and 2002 Stock Option Plans are currently subject to a
repricing under which the exercise prices were restated to $0.01 per share from
May 2003 through December 31, 2003. The number of shares issuable upon exercise
and the exercise prices of the warrants are subject to adjustment in the event
of certain events such as stock dividends, splits and combinations, capital
reorganization and with respect to certain warrants, issuance of shares of
common stock at prices below the then exercise price of the warrants.

As of September 24, 2003, NeoMedia shareholders approved the 2003 Stock
Option Plan. Under this plan, NeoMedia is authorized to grant to employees,
directors, and consultants up to 150,000,000 options to share of its common
stock. As of September 25, 2003, we had issued approximately 34.4 million
options under the 2003 Stock Option Plan, none of which had been exercised.

In March 2002, we adopted a warrant repricing program. The program
entitled holders of up to 1.2 million warrants to exercise the warrants within a
period ending the earlier of September 19, 2002 or the expiration date of the
warrant at a price per share equal to the greater of $0.12 or 50% of the closing
sales per share price on the OTC Bulletin Board of our common stock on the
trading date immediately preceding the date of exercise. Approximately 0.4
million of the warrants placed in the program were exercised. We recognized
approximately $38,000 in expense relating to the program during the first nine
months of 2002.

During April 2002, we repriced 7.4 million of our common stock options
held by employees, consultants and advisors for a period of six months. During
the term of the option repricing program, participating holders were entitled to
exercise subject options at an exercise price per share equal to the greater of
(1) $0.12 or (2) 50% of the last sale price of shares of Common Stock on the
OTCBB, on the trading date immediately preceding the date of exercise. Shortly
after the announcement of the repricing program, the market price for our common
stock fell below $0.12. As a result, no options were exercised under the term of
the program and we did not recognize any expense relating to the repricing
program during 2002.

During May 2003, we re-priced approximately 8.0 million stock options
under a 6-month repricing program. Under the terms of the program, the exercise
price for outstanding options under our 2002, 1998, and 1996 Stock Option Plans
was restated to $0.01 per share for a period of 6 months. In accordance with
FASB Interpretation, FIN 44, Accounting for Certain Transactions Involving Stock
Transactions, the award has been accounted for as variable from May 19, 2003
through the period ended September 30, 2003. Accordingly, we recognized
approximately $544,000 and $710,000 as compensation in general and
administrative expense during the three and nine month periods ended September
30, 2003. Approximately 4.4 million options were exercised under the repricing
program during the nine months ended September 30, 2003. During September 2003,
the deadline for the option repricing was extended to December 31, 2003 by the
Stock Option Committee of our Board of Directors.

ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE ARTICLES OF INCORPORATION

On December 10, 1999, our Board of Directors adopted a stockholders
rights plan and declared a non-taxable dividend of one right on each outstanding
share of our common stock to stockholders of record on December 10, 1999 and
each share of common stock issued prior to the rights plan trigger date. The
stockholder rights plan was adopted as an anti-takeover measure, commonly
referred to as a "poison pill." The stockholder rights plan was designed to
enable all stockholders to receive fair and equal treatment in any proposed
takeover of the corporation and to guard against partial or two-tiered tender
offers, open market accumulations and other hostile takeover tactics to gain
control of NeoMedia. The stockholders rights plan, which is similar to plans
adopted by many leading public companies, was not adopted in response to any
effort to acquire control of NeoMedia at the time of adoption. Certain of our
directors, officers and principal stockholders, Charles W. Fritz, William E.
Fritz and The Fritz Family Limited Partnership and their holdings were exempted
from the triggering provisions of our "poison pill" plan, as a result of the
fact that, as of the plans adoption, their holdings might have otherwise
triggered the "poison pill".

TRANSFER AGENT

The transfer agent and registrar for our common stock is American Stock
Transfer, located in New York, New York. The transfer agent's phone number is
(718) 921-8293.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

As permitted by the Delaware General Corporation Law ("DGCL"), we have
included in our Certificate of Incorporation a provision to eliminate the
personal liability of our directors for monetary damages for breach or alleged
breach of their fiduciary duties as directors, except for liability (i) for any
breach of the director's duty of loyalty to NeoMedia or its stockholders, (ii)
for acts or omissions not in good faith or which involved intentional misconduct
or a knowing violation of law, (iii) in respect of certain unlawful dividend
payments or stock redemptions or repurchases, as provided in Section 174 of the
DGCL, or (iv) for any transaction from which the director derived an improper
personal benefit. The effect of this provision is to eliminate the rights of
NeoMedia and its stockholders (through stockholders' derivative suits on behalf
of NeoMedia) to recover monetary damages against a director for breach of the
fiduciary duty of care as a director except in the situations described in (i)
through (iv) above. This provision does not limit nor eliminate the rights of
NeoMedia or any stockholder to seek non-monetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care. These
provisions will not alter the liability of directors under federal securities
laws.

The certificate of incorporation and the by-laws of NeoMedia provide
that we are required and permitted to indemnify our officers and directors,
employees and agents under certain circumstances. In addition, if permitted by
law, we are required to advance expenses to our officers and directors as
incurred in connection with proceedings against them in their capacity as a
director or officer for which they may be indemnified upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to
indemnification. At present, we are not aware of any pending or threatened
litigation or proceeding involving a director, officer, employee or agent of
NeoMedia in which indemnification would be required or permitted.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers or controlling
persons of NeoMedia pursuant to the foregoing provisions, or otherwise, NeoMedia
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.

LEGAL MATTERS

The validity of the shares of common stock offered hereby as to their
being fully paid, legally issued and non-assessable will be passed upon for us
by Kirkpatrick and Lockhart LLP, Miami, Florida.

EXPERTS

The audited consolidated financial statements of NeoMedia Technologies,
Inc. and its subsidiaries for the years ended December 31, 2002 and 2001,
included in this prospectus and elsewhere in the registration statement have
been audited by Stonefield Josephson, Inc., independent certified public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report. Reference is made to said report, which includes an explanatory
paragraph with respect to the uncertainty regarding NeoMedia's ability to
continue as a going concern, as discussed in Note 3 to the financial statements.

The audited consolidated financial statements of NeoMedia Technologies,
Inc. and its subsidiaries for the year ended December 31, 2000, included in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent certified public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report. Reference is made to
said report, which includes an explanatory paragraph with respect to the
uncertainty regarding NeoMedia's ability to continue as a going concern, as
discussed in Note 3 to the financial statements. In accordance with Securities
Act Rule 437a, the consent of Arthur Andersen LLP has not been included as an
exhibit herewith. NeoMedia has been unable to obtain a consent of Arthur
Andersen LLP due to the departure of their engagement team leaders from such
firm. Any recovery by investors posed by the lack of consent is limited by
Securities Act Rule 437a.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES

On June 7, 1999, we filed a Report on Form 8-K reporting that KPMG LLP
had resigned as our independent auditors. In connection with the audit of
NeoMedia's financial statements for the fiscal year ended December 31, 1998 and
in the subsequent interim periods, there were no disagreements with KPMG LLP on
any matters of accounting principles or practice, financial statement
disclosure, or auditing scope and procedures which, if not resolved to the
satisfaction of KPMG LLP, would have caused KPMG LLP to make reference to the
matter in their report. In their report ended March 18, 1998 for the year ended
December 31, 1997, KPMG LLP did not issue a qualified or adverse opinion.
Effective July 14, 1999, we engaged Arthur Andersen LLP to audit our
consolidated financial statements for the fiscal year ending December 31, 1999.

On October 29, 2001, we filed a Report on Form 8-K reporting that we
had dismissed Arthur Andersen LLP as our independent auditors. In connection
with the audit of NeoMedia's financial statements for the fiscal years ended
December 31, 2000 and 1999 and in the subsequent interim periods, there were no
disagreements with Arthur Andersen LLP on any matters of accounting principles
or practice, financial statement disclosure, or auditing scope and procedures
which, if not resolved to the satisfaction of Arthur Andersen LLP would have
caused Arthur Andersen LLP, to make reference to the matter in their report. In
their report dated March 30, 2001, for the years ended December 31, 2000 and
1999, Arthur Andersen LLP did not issue an adverse opinion, but did issue a
qualified opinion with a "going concern" clause. Effective October 25, 2001 we
engaged Stonefield Josephson, Inc. as our new independent accountants.

HOW TO GET MORE INFORMATION

We file annual, quarterly, and current reports, proxy statements, and
other documents with the Securities and Exchange Commission. You may read and
copy any document we file at the SEC's public reference room at Judiciary Plaza
Building, 450 Fifth Street, N.W., Washington, D.C. 20549. You should call
1-800-SEC-0330 for more information on the operation of the Public Reference
Room. The SEC maintains an Internet site at http://www.sec.gov where certain
information regarding issuers, including NeoMedia, may be found. Our Web site is
http://www.neom.com.

This prospectus is part of a registration statement that we filed with
the SEC. The registration statement contains more information than this
prospectus regarding NeoMedia and its common stock, including certain exhibits
and schedules. You can get a copy of the registration statement from the SEC at
the address listed above or from its Internet site, www.sec.gov.

INDEX OF FINANCIAL STATEMENTS

NeoMedia Technologies, Inc. consolidated financial statements for the years
ended December 31, 2002, 2001 and 2000,....................................... F-1
NeoMedia Technologies, Inc. consolidated financial statements for the nine months
ended September 30, 2003 and 2002............................................. F-36

THIS IS A COPY OF THE AUDIT REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP IN
CONNECTION WITH NEOMEDIA TECHNOLOGIES, INC.'S FILING FOR THE YEAR ENDED DECEMBER
31, 2000 AND 1999. THIS AUDIT REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN
LLP IN CONNECTION WITH THIS FORM 10-K. SEE EXHIBIT 23.2 FOR FURTHER DISCUSSION.

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To NeoMedia Technologies, Inc.:

We have audited the accompanying consolidated balance sheets of NeoMedia
Technologies, Inc. (a Delaware corporation) and subsidiaries as of December 31,
2000 and 1999, and the related consolidated statements of operations,
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NeoMedia Technologies, Inc. and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and the current cash position of the Company raises substantial
doubt about its ability to continue as a going concern. Management's plans in
regards to these matters are also described in Note 3. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

/s/ ARTHUR ANDERSEN LLP

Tampa, Florida
March 30, 2001

F-1

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and
Stockholders of Neomedia Technologies, Inc.

We have audited the accompanying consolidated balance sheets of Neomedia
Technolgies, Inc. (a Delaware Corporation) and subsidiaries as of December 31,
2002 and 2001, and the related consolidated statements of operations,
stockholders' deficit, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Neomedia
Technologies, Inc. as of December 31, 2002 and 2001, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the Company's significant operating losses,
working capital deficit, and current cash flow position raise substantial doubt
about its ability to continue as a going concern. Management's plans regarding
those matters also are described in Note 3. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

/s/ STONEFIELD JOSEPHSON, INC.

CERTIFIED PUBLIC ACCOUNTANTS

Irvine, California
April 2, 2003

F-2

NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

DECEMBER 31,
---------------------------------
2002 2001
------------ ------------
ASSETS

Current assets:

Cash and cash equivalents $ 70 $ 134
Trade accounts receivable, net of allowance for doubtful accounts
of $55 in 2002 and $65 in 2001 327 2,626
Inventories 112 197
Current assets of discontinued business unit -- 210
Prepaid expenses and other current assets 629 582
------------ ------------
Total current assets 1,138 3,749

Property and equipment, net 98 205
Capitalized patents, net 2,244 2,500
Capitalized and purchased software costs, net 149 1,828
Other long-term assets 694 757
------------ ------------

Total assets $ 4,323 $ 9,039
============ ============

LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
Accounts payable $ 3,313 $ 2,886
Amounts due under financing agreements 430 2,283
Liabilities in excess of assets of discontinued business unit 1,495 --
Accrued expenses 2,325 1,922
Current portion of long-term debt 425 149
Notes payable 893 750
Sales taxes payable 326 148
Deferred revenues 879 767
Other 37 7
------------ ------------
Total current liabilities 10,123 8,912

Long-term debt, net of current portion 226 390
------------ ------------

Total liabilities 10,349 9,302
------------ ------------

Shareholders' deficit:
Preferred stock, $0.01 par value, 25,000,000 shares authorized,
none issued and outstanding in 2002, 452,489 issued and outstanding
in 2001 -- 5
Additional paid-in capital, preferred stock -- 878
Common stock, $0.01 par value, 200,000,000 shares authorized,
87,136,802 shares issued and 30,746,968 outstanding in 2002,
20,446,343 shares shares issued and 18,804,917 outstanding in 2001 307 188
Additional paid-in capital 65,442 63,029
Stock subscription receivable -- (240)
Deferred stock-based compensation (231) --
Accumulated deficit (70,765) (63,344)
Treasury stock, at cost, 201,230 shares of common stock (779) (779)
------------ ------------
Total shareholders' deficit (6,026) (263)
------------ ------------
Total liabilities and shareholders' deficit $ 4,323 $ 9,039
============ ============

The accompanying notes are an integral part of these
consolidated balance sheets.

F-3

NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEARS ENDED DECEMBER 31,
----------------------------------------------------
2002 2001 2000
------------ ------------ ------------

NET SALES:
License fees $ 446 $ 576 $ 8,417
Resale of software and technology equipment and service fees 8,953 7,566 19,148
------------ ------------ ------------
Total net sales 9,399 8,142 27,565
------------ ------------ ------------

COST OF SALES:
License fees 841 2,355 1,296
Resale of software and technology equipment and service fees 7,423 6,511 17,237
------------ ------------ ------------
Total cost of sales 8,264 8,866 18,533
------------ ------------ ------------

GROSS PROFIT (LOSS) 1,135 (724) 9,032

Sales and marketing expenses 1,009 2,519 6,504
General and administrative expenses 4,068 4,772 7,010
Research and development costs 775 549 1,101
Loss on impairment of assets 1,003 2,871 --
Loss on Digital: Convergence license contract -- 7,354 --
------------ ------------ ------------

Loss from operations (5,720) (18,789) (5,583)
Interest expense (income), net 178 (21) (174)
------------ ------------ ------------

Loss from continuing operations (5,898) (18,768) (5,409)
Discontinued operations (Note 2):
Loss from operations of discontinued business unit -- (3,613) --
Loss on disposal of discontinued business unit,
including provision of $0 in 2002 and $439
in 2001 for operating losses during phase-out period (1,523) (3,088) --
------------ ------------ ------------

NET LOSS $ (7,421) $ (25,469) $ (5,409)
============ ============ ============

NET LOSS PER SHARE FROM CONTINUING OPERATIONS-
BASIC AND DILUTED ($ 0.26) ($ 1.14) ($ 0.39)
============ ============ ============

NET LOSS PER SHARE FROM DISCONTINUED OPERATIONS-
BASIC AND DILUTED ($ 0.07) ($ 0.41) --
============ ============ ============

NET LOSS PER SHARE--BASIC AND DILUTED ($ 0.33) ($ 1.55) ($ 0.39)
============ ============ ============

Weighted average number of common shares--basic and diluted 22,330,485 16,410,246 13,931,104

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

F-4

NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

YEARS ENDED DECEMBER 31,
----------------------------------------
2002 2001 2000
-------- -------- --------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($ 7,421) ($25,469) ($ 5,409)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,061 3,369 2,336
Inventory reserve 130 -- --
Loss on disposal of discontinued business units 1,523 2,649 --
Loss on disposal of and impairment of assets 1,003 2,871 58
Effect of loss on Digital:Convergence contract -- 7,354 --
Preferred stock issued to pay advertising expense -- 882 --
Expense associated with warrant repricing 195 947 --
Fair value of expense portion of stock based
compensation granted for professional services 685 69 437
Amortization of discount on convertible debt 23 -- --
Changes in operating assets and liabilities
Trade accounts receivable, net 2,299 (663) 1,459
Digital Convergence receivable -- -- (2,767)
Prepaid - Digital Convergence -- 118 --
Other current assets 346 (109) (121)
Other long-term assets -- -- (194)
Accounts payable, amounts due under financing agreements,
liabilities in excess of assets of discontinued business
unit, accrued expenses and stock liability (584) 2,466 (2,758)
Deferred revenue 112 318 184
Other current liabilities
30 (4) --
-------- -------- --------
Net cash used in operating activities (598) (5,202) (6,775)
-------- -------- --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalization of software development and purchased intangible assets (21) (2,883) (2,317)
(Increase)/decrease in value of life insurance policies 63 158 (199)
Acquisition of property and equipment -- (81) (123)
-------- -------- --------
Net cash provided by/(used in) investing activities 42 (2,806) (2,639)
-------- -------- --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock, net of issuance
costs of $0 in 2002, $149 in 2001, and $74 in 2000 8 1,638 9,203
Net proceeds from exercise of stock warrants 45 1,045 2,877
Net proceeds from exercise of stock options 274 138 537
Common stock repurchased -- -- (779)
Borrowings under notes payable and long-term debt 165 504 --
Change in restricted cash -- 750 194
Repayments on notes payable and long-term debt -- (386) (625)
-------- -------- --------
Net cash provided by financing activities 492 3,689 11,407
-------- -------- --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (64) (4,319) 1,993

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 134 4,453 2,460
-------- -------- --------

CASH AND CASH EQUIVALENTS, END OF YEAR $ 70 $ 134 $ 4,453
======== ======== ========

SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid/(received) during the year $ 15 ($ 61) $ 170
Income tax paid -- -- --
Non-cash investing and financing activities:
Net assets acquired as part of Qode purchase agreement in exchange
for common stock and forgiveness of note -- 1,800 --
Shares earned by Qode.com under purchase agreement -- 13
Accounts payable converted to note payable -- 246 --
Common stock issued in exchange for note receivable -- 240 --
Net assets classified as "Liabilities held for sale" -- 210 --
Daystar assets purchased with shares of common stock -- -- 3,520
Warrants issued for license contract -- -- 4,704
Deferred revenue relating to license contract -- -- 15,432
Common stock and options issued to settle debt 343 -- --
Cancellation of common stock issued in 2001 to offset stock
subscription receivable (240) -- --
Net effect of issuance and subsequent
cancellation of common stock underlying notes receivable (190) -- --
Beneficial conversion features 23
Stock and warrants issued with convertible promissory notes 37 -- --

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

F-5

NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)

COMMON STOCK
---------------------------------------------
ADDITIONAL STOCK DEFERRED
PAID-IN SUBSCRIPTION STOCK
SHARES AMOUNT CAPITAL RECEIVABLE COMPENSATION
----------------------------------------------------------------------------------------------------------------------

BALANCE, DECEMBER 31,
1999 12,023,389 $ 119 $ 36,367 -- --
Exercise of stock
options 182,787 2 535 -- --
Issuance of common
stock through Private
placement, net of
$170 of Issuance costs 1,415,279 15 9,188 -- --
Fair value of
warrants issued for
Professional services
rendered -- -- 253 -- --
Fair value of stock
issued for
professional Services
rendered 21,500 1 183 -- --
Fair value of
warrants issued
Related to license
agreement With
Digital Convergence -- -- 4,704 -- --
Exercise of warrants 495,600 5 2,872 -- --
Stock issued to
purchase assets 321,829 3 3,517 -- --
Treasury stock at cost -- -- -- -- --
Net Loss -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31,
2000 14,460,384 $ 145 $ 57,619 -- --
----------------------------------------------------------------------------------------------------------------------
Exercise of employee -- -- -- -- --
options 38,560 138 138
Issuance of Common
Stock through private
Placement, Net of
$149 of issuance costs 3,490,750 35 1,843 -- --
Expense associated
with warrant repricing -- -- 947 -- --
Fair value of options
issued for
Professional services
rendered -- -- 69 -- --
Exercise of Warrants 505,450 5 1,040 -- --
Stock issued to
purchase assets 309,773 3 1,373 -- --
Issuance of Preferred
Stock for services -- -- -- -- --
Stock Subscription
Receivable (240) -- (240)
Net Loss -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31,
2001 18,804,917 $ 188 $ 63,029 (240) 0
----------------------------------------------------------------------------------------------------------------------
Exercise of employee
options 5,252,455 52 222 -- --
Issuance of Common
Stock through private
Placement, Net of $0
of issuance costs 55,000 1 7 -- --
Cancellation of
Private Placement
Shares (3,000,000) (30) (210) -- --
Expense associated
with warrant repricing -- -- 195 -- --
Fair value of stock
issued for
professional services
rendered 4,900,000 49 192 -- --
Fair value of options
and warrants issued
for professional
services rendered -- -- 723 -- --
Exercise of Warrants 369,450 4 41 -- --
Stock issued to pay
liabilities 2,556,987 24 319 -- --
Conversion of
preferred stock to
common stock 452,489 5 878 -- --
Issuance of warrants
and stock with
convertible notes
payable 1,355,670 14 23 -- --
Benefical conversion
feature embedded in
convertible notes
payable -- -- 23 -- --
Stock Subscription
Receivable -- -- -- 240 --
Deferred Stock
Compensation -- -- -- -- (231)
Net Loss -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31,
2002 30,746,968 $ 307 $ 65,442 0 (231)
----------------------------------------------------------------------------------------------------------------------

F-6

PREFERRED STOCK TREASURY STOCK
------------------------------------------ ----------------------------------------
ADDITIONAL TOTAL
PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT EQUITY
------------------------------------------------------------------------------------------------------------------------------------

BALANCE, DECEMBER 31,
1999 -- -- -- ($ 32,466) -- -- $ 4,020
Exercise of stock
options -- -- -- -- -- -- 537
Issuance of common
stock through Private
placement, net of
$170 of Issuance costs -- -- -- -- -- -- 9,203
Fair value of
warrants issued for
Professional services
rendered -- -- -- -- -- -- 253
Fair value of stock
issued for
professional Services
rendered -- -- -- -- -- -- 184
Fair value of
warrants issued
Related to license
agreement With
Digital Convergence -- -- -- -- -- -- 4,704
Exercise of warrants -- -- -- -- -- -- 2,877
Stock issued to
purchase assets -- -- -- -- -- -- 3,520
Treasury stock at cost -- -- -- -- 201,230 (779) (779)
Net Loss -- -- -- (5,409) -- -- (5,409)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31,
2000 -- -- -- ($ 37,875) 201,230 ($ 779) $ 19,110
-----------------------------------------------------------------------------------------------------------------------------------
Exercise of employee -- -- -- --
options
Issuance of Common
Stock through private
Placement, Net of
$149 of issuance costs -- -- -- -- -- -- 1,878
Expense associated
with warrant repricing -- -- -- -- -- -- 947
Fair value of options
issued for
Professional services
rendered -- -- -- -- -- -- 69
Exercise of Warrants -- -- -- -- -- -- 1,045
Stock issued to
purchase assets -- -- -- -- -- -- 1,376
Issuance of Preferred
Stock for services 452,489 5 878 -- -- -- 883
Stock Subscription
Receivable
Net Loss -- -- -- (25,469) -- -- (25,469)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31,
2001 452,489 $ 5 $ 878 ($ 63,344) 201,230 ($ 779) ($ 263)
-----------------------------------------------------------------------------------------------------------------------------------
Exercise of employee
options -- -- -- -- -- -- 274
Issuance of Common
Stock through private
Placement, Net of $0
of issuance costs -- -- -- -- -- -- 8
Cancellation of
Private Placement
Shares -- -- -- -- -- -- (240)
Expense associated
with warrant repricing -- -- -- -- -- -- 195
Fair value of stock
issued for
professional services
rendered -- -- -- -- -- -- 241
Fair value of options
and warrants issued
for professional
services rendered -- -- -- -- -- -- 723
Exercise of Warrants -- -- -- -- -- -- 45
Stock issued to pay
liabilities -- -- -- -- -- -- 343
Conversion of
preferred stock to
common stock (452,489) (5) (878) -- -- -- --
Issuance of warrants
and stock with
convertible notes
payable -- -- -- -- -- -- 37
Benefical conversion
feature embedded in
convertible notes
payable -- -- -- -- -- -- 23
Stock Subscription
Receivable -- -- -- -- -- -- 240
Deferred Stock
Compensation -- -- -- -- -- -- (231)
Net Loss -- -- -- (7,421) -- -- (7,421)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31,
2002 0 $ 0 $ 0 ($ 70,765) 201,230 ($ 779) ($ 6,026)
-----------------------------------------------------------------------------------------------------------------------------------

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

F-7

1. BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS

BASIS OF PRESENTATION

The consolidated financial statements include the financial statements
of NeoMedia Technologies, Inc. and its wholly-owned subsidiaries, NeoMedia
Migration, Inc., a Delaware corporation; Distribuidora Vallarta, S.A.
incorporated in Guatemala; NeoMedia Technologies of Canada, Inc. incorporated in
Canada; NeoMedia Tech, Inc. incorporated in Delaware; NeoMedia EDV GmbH
incorporated in Austria; NeoMedia Technologies Holding Company B.V. incorporated
in the Netherlands; NeoMedia Technologies de Mexico S.A. de C.V. incorporated in
Mexico; NeoMedia Migration de Mexico S.A. de C.V. incorporated in Mexico;
NeoMedia Technologies do Brasil Ltd. incorporated in Brazil and NeoMedia
Technologies UK Limited incorporated in the United Kingdom, and are collectively
referred to as "NeoMedia" or the "Company". The consolidated financial
statements of NeoMedia are presented on a consolidated basis for all periods
presented. All significant intercompany accounts and transactions have been
eliminated in preparation of the consolidated financial statements.

NATURE OF BUSINESS OPERATIONS

The Company is structured and evaluated by its Board of Directors
and Management as two distinct business units:

NeoMedia Internet Switching Services (NISS), and

NeoMedia Consulting and Integration Services (NCIS)

NEOMEDIA INTERNET SWITCHING SERVICES (NISS)

NISS (physical world-to-Internet offerings) is the core business and is
based in the United States, with development and operating facilities in Fort
Myers, Florida. NISS develops and supports the Company's physical world to
Internet core technology, including our linking "switch" and application
platforms. NISS also manages the Company's valuable intellectual property
portfolio, including the identification and execution of licensing opportunities
surrounding the patents.

NEOMEDIA CONSULTING AND INTEGRATION SERVICES (NCIS)

NCIS (systems integration service offerings) resells client-server
equipment and related software, and general and specialized consulting services
targeted at software driven print applications, especially at process automation
of production print facilities through its integrated document factory solution.
Systems integration services also identifies prospects for custom applications
based on our products and services. This unit recently moved its business
offerings to a much higher Value-Add called Storage Area Networks (SAN). The
operations are based in Lisle, Illinois.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

For the purposes of the consolidated balance sheets and consolidated
statements of cash flows, all highly liquid investments with original maturities
of three months or less are considered cash equivalents.

ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from those estimates.

REVENUE RECOGNITION

We derive revenues from two primary sources: (1) license revenues and
(2) resale of software and technology equipment and service fee revenues.

F-8

License fees, including Intellectual Property license, represent revenue
from the licensing of NeoMedia's proprietary software tools and applications
products. NeoMedia licenses its development tools and application products
pursuant to non-exclusive and non-transferable license agreements. Resales of
software and technology equipment represent revenue from the resale of purchased
third party hardware and software products and from consulting, education,
maintenance and post contract customer support services.

The basis for license fee revenue recognition is substantially governed
by American Institute of Certified Public Accountants ("AICPA") Statement of
Position 97-2 "Software Revenue Recognition" ("SOP 97-2"), as amended. License
revenue is recognized if persuasive evidence of an agreement exists, delivery
has occurred, pricing is fixed and determinable, and collectibility is probable.

Revenue for resale of software and technology equipment and service fee
is recognized based on guidance provided in Securities and Exchange Commission
(SEC) Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements," as amended (SAB 101). Software and technology equipment resale
revenue is recognized when all of the components necessary to run software or
hardware have been shipped. Service revenues include maintenance fees for
providing system updates for software products, user documentation and technical
support and are recognized over the life of the contract. Software license
revenue from long-term contracts has been recognized on a percentage of
completion basis, along with the associated services being provided. Other
service revenues, including training and consulting, are recognized as the
services are performed. The Company uses stand-alone pricing to determine an
element's vendor specific objective evidence (VSOE) in order to allocate an
arrangement fee amongst various pieces of a multi-element contract. NeoMedia
records an allowance for uncollectible accounts on a customer-by-customer basis
as appropriate.

PURCHASE AND DISPOSAL OF QODE.COM, INC.

On March 1, 2001, NeoMedia purchased all of the net assets of
Qode.com, Inc. (Qode), except for cash. Qode is a development stage company, as
defined in Statement of Financial Accounting Standards (SFAS) No. 7, "Accounting
and Reporting By Development Stage Enterprises". In consideration for these
assets, NeoMedia issued 274,699 shares of common stock, valued at $1,359,760.
Additionally, the Company placed in escrow 1,676,500 shares of its common stock
valued at $8,298,675 at the time of issuance. Stock issued was valued at $4.95
per share, which is the average closing price for the few days before and after
the measurement date of March 1, 2001. As of December 31, 2001 the Company had
released 35,074 shares of common stock from escrow for performance for the
period March 1, 2001 to August 31, 2001. The remaining 1,641,426 shares are
being held in escrow pending the results of negotiations between the Company and
Qode with respect to the performance of the Qode business unit for the period
March 1, 2001 through February 28, 2002. As a result, all such shares may be
released to Qode.

The Company accounted for this purchase using the purchase method of
accounting in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations". The excess fair market value of the net assets acquired
over the purchase price was allocated to reduce proportionately the values
assigned to noncurrent assets. The accompanying consolidated statements of
operations include the operations of Qode from March 1, 2001, through September
30, 2002.

F-9

The purchase price at the original purchase date was calculated and allocated as
follows:

Original Shares: 274,699 issued at $4.95 1,360,000
Contingent shares: 35,074 issued at $0.39 $ 13,000
-----------
Total purchase price $ 1,373,000
-----------
PURCHASE PRICE ALLOCATED AS FOLLOWS:

ASSETS PURCHASED
Trade receivables $ 5,000
Inventory 144,000
Prepaid expenses 49,000
Furniture & fixtures 913,000
Capitalized development costs 2,132,000
Capitalized software 83,000
Refundable deposits - non-current 38,000

Total purchase price allocated $ 1,373,000
===========

During the third quarter of 2001, the Company issued an additional
35,074 shares under the terms of the earn-out with Qode.com, Inc. (see
explanation below). The value of these shares in the amount of $13,000 was
allocated $9,000 to capitalized development costs and $4,000 to furniture and
fixtures.

CONTINGENT CONSIDERATION

At the end of each of certain interim periods as outlined in the
purchase agreement, the number of cumulative shares earned by Qode.com is
calculated based on revenue and page views and the shares are released. The
resulting financial impact on NeoMedia is a proportionate increase in the
long-term assets acquired from Qode, with a corresponding increase in
depreciation expense from that point forward. The amount of the increase in
long-term assets is dependent upon the number of shares released from escrow, as
well as the value of NeoMedia stock at the time of measurement. The first such
measurement date was July 1, 2001. At the end of the 12-month measurement period
(February 28, 2002), the number of shares issued to Qode under the earn-out was
35,074, allocated as outlined in the table above. The remaining 1,641,426 shares
are being held in escrow pending the results of negotiations between the Company
and Qode with respect to a disagreement over the performance of, and investment
in, the Qode business unit for the period March 1, 2001 through February 28,
2002. As a result, all such shares may be released to Qode.

F-10

Intangible assets

Intangible assets acquired from Qode.com include:

i). Purchased software licenses relating to the development of the
Qode Universal Commerce Solution, amortized on a straight-line basis over three
years.

ii). Capitalized software development costs relating to the
development of the Qode Universal Commerce Solution.

Other

Disposal of Qode Business Unit

On August 31, 2001, the Company signed a non-binding letter of
intent to sell the assets and liabilities of its Ft. Lauderdale-based Qode
business unit, which was acquired in March 2001, to The Finx Group, Inc., a
holding company based in Elmsford, NY. The Finx Group was to assume $620,000 in
Qode payables and $800,000 in long-term leases in exchange for 500,000 shares of
the Finx Group, right to use and sell Qode services, and up to $5 million in
affiliate revenues over the next five years. During the third and fourth
quarters of 2001 and the first quarter of 2002, the company recorded a $2.6
million expense from the write-down of the Qode assets/liabilities to net
realizable value.

The loss for discontinued operations during the phase-out period
from August 31, 2001 (measurement date) to September 30, 2001 was $439,000. No
further loss is anticipated.

During June 2002, the Finx Group notified the Company that it did
not intend to carry out the letter of intent due to capital constraints. As a
result, during the nine months ended September 30, 2002, the Company recorded an
additional expense of $1.5 million for the write-off of remaining Qode assets.
As of December 31, 2002, the Company had $1.5 million of liabilities relating to
the Qode system on its books.

DIGITAL:CONVERGENCE CORPORATION INTELLECTUAL PROPERTY LICENSE AGREEMENT

The Company entered into an agreement with a competitor,
Digital:Convergence Corporation ("DC"), a private company located in the United
States, in October 2000, granting them a worldwide, non-exclusive license of the
Company's extensive patent portfolio for directly linking documents, objects,
transaction and voice commands to the internet. The agreement provided for
annual license fees over a period of ten years in excess of $100 million through
a combination of cash and equity. The Company recognized $7.8 million of revenue
in 2000 related to this contract, including a $5.0 million cash payment received
in October 2000 for royalties earned before contract execution, $2.5 million
related to the $10 million of payments in DC common stock and cash expected to
be received in the first year of the contract, and $0.3 million related to DC
stock received by NeoMedia to be recognized over the life of the contract.

As part of the contract, the Company issued to DC a warrant to purchase
1.4 million shares of NeoMedia common stock.

In the first quarter of 2001, DC issued the Company an interest bearing
$3 million note payable in lieu of a $3 million cash payment due in January
2001. The Company also received shares of DC stock in January with a contractual
value of $2 million as part of the first contract-year royalties due. The note
was originally due on April 24, 2001, however, on that date the Company agreed
to extend it until June 24, 2001. The Company also partially wrote down, in the
first quarter of 2001, the value of the remaining DC stock receivable, and DC
stock that had been received in January, to a value that management believed was
reasonable at the time (50% of the valuation stipulated in the contract). The
write-down consisted of a reduction in assets of $7.7 million and a
corresponding reduction in liabilities of $7.7 million. The DC stock received in
January 2001 was valued at $1 million and the DC receivable was valued at $9.2
million. In April 2001, the Company received additional shares of DC stock with
a $5 million value based on the valuation method stipulated in the contract. No
revenue was recognized related to these shares and the shares were not recorded
as an asset due to DC's worsening financial condition. All assets and
liabilities relating to the contract were subsequently written off in the second
quarter of 2001

F-11

Also in April, an agreement was entered into with DC whereby for a
period from the date of registration of the shares underlying the warrant to
purchase 1.4 million shares of the Company's common stock until October 24,
2001, if the Company would identify a purchaser for the Company's shares, DC
would exercise the warrant and purchase 1.4 million shares of common stock and
sell the shares to the identified purchaser. One third of the net proceeds
received by DC on the sale of the Company's common stock shall be paid to the
Company toward repayment of DC's obligations under the note to the Company in
the amount of $3 million. In consideration for this, the warrant exercise price
was reduced during this period to 38 percent of the closing sale price of the
Company's common stock on the day prior to the date of exercise, subject to a
minimum price. Because the exercise of the warrants at this reduced price is
contingent upon the Company finding a purchaser of the underlying 1.4 million
shares, the value of this re-pricing will be measured and recorded at the time
the shares are sold. As of October 24, the Company was not able to locate a
purchaser and therefore, the warrant was not exercised.

On June 24, 2001, DC did not pay the note that was due, and on June 26,
2001, the Company filed a $3 million lawsuit against DC for breach of contract
regarding the $3 million promissory note. It was also learned in the second
quarter of 2001 that DC's capital raising efforts and business operations were
having difficulty, and the Company decided to write off all remaining amounts
related to the DC contract. The following table represents balance sheet
balances at December 31, 2000 and March 31, 2001, as well as all amounts written
off during the second quarter of 2001:

March 31,
December 31, 2001 Balances Write-off
2000 Balances (Unaudited) June 30, 2001
------------- ----------- -------------
(Dollars in thousands)
-----------------------------------------
ASSETS

Available for sale securities - Digital Convergence $ -- $ 1,000 $ 1,000
Trade Accounts Receivable
2,500 1,500 1,500
Digital Convergence receivable 5,144 5,144 5,144
Prepaid expenses (current portion) 470 470 470
Digital Convergence receivable, net of current portion 10,288 2,572 2,572
Prepaid DC (long-term portion) 4,116 3,998 3,998
------- ------- -------
Total assets $22,518 $14,684 $14,684
======= ======= =======

LIABILITIES

Deferred revenues DC $ 1,543 $ 772 $ 772
Long-term deferred revenues - DC 13,503 6,558 6,558
------- ------- -------
Total liabilities $15,046 $ 7,330 $ 7,330
======= ======= =======

The net effect of the write-off was a $7,354,000 non-cash charge to
income during the second quarter of 2001, which is included in Loss on
Digital:Convergence License Contract in the consolidated statements of
operations for the year ending December 31, 2001. Any future revenues related to
this contract will be recorded as payments are received.

AIRCLIC, INC. RELATIONSHIP

On July 3, 2001, NeoMedia signed a non-binding letter of intent with
AirClic, Inc. to cross-license the companies' intellectual property. The terms
of the proposed agreement called for NeoMedia to: (i) acquire an equity interest
in AirClic, and (ii) issue a significant equity interest in NeoMedia to AirClic,
which interest would likely have exceeded 50% of NeoMedia's outstanding equity
securities. Further terms of the agreement called for NeoMedia to acquire
AirClic's Connect2 comparison shopping business unit, which was to be combined
with NeoMedia's Qode business unit. AirClic has loaned NeoMedia $500,000 under a
secured note due on the earlier of (i) the date on which NeoMedia raises $5
million in equity financing from a source other than AirClic, (ii) a change in
control of NeoMedia, or (iii) January 11, 2002.

F-12

During the negotiation of a definitive set of agreements between the
companies, it was determined that the consummation of the transaction as
provided in the non-binding letter of intent would not be completed. As a
result, additional notes aggregating $1,500,000 will not be executed between the
companies.

On September 6, 2001, AirClic filed suit against the Company in the
Court of Common Pleas, Montgomery County, PA, for breach of contract relating to
the July 3, 2001 non-binding letter of intent signed by the Company and AirClic.
AirClic claims that the Company violated express representations and warranties
relating to the Company's assets and state of business affairs. AirClic seeks a
judgment to accelerate repayment of the $500,000 note due January 11, 2002, and
to relieve AirClic from any obligation to make further loans to the Company as
outlined in the letter of intent. On October 3, 2003, we paid AirClic the
principal plus interest in the amount of approximately $610,000. On December 5,
2003, we paid an additional $115,000 in legal fees and entered into a settlement
agreement with AirClic under which the suit was dismissed. We have no further
obligation relating to this matter.

AirClic also filed suit against the Company in the United States
District Court for the Eastern District of Pennsylvania. In this second action,
AirClic seeks a declaration that certain core intellectual property securing the
note issued by the Company to AirClic, some of which is patented and others for
which a patent application is pending, is invalid and in the public domain. Any
declaration that the Company's core patented or patentable technology is
non-protectable and in the public domain would have a material adverse effect on
the Company's business, prospects, financial condition, and results of
operations. The Company is vigorously defending this second action as well. On
November 21,2001, the Company filed a motion to dismiss the complaint. On
December 19, 2001, AirClic filed a response opposing that position. On September
18, 2002, the court ruled in favor of the Company and dismissed AirClic's
complaint.

ADVERTISING EXPENSE

During the year ended December 31, 2001, the Company entered into a one-year
license agreement with About.com, Inc. to provide the Qode Universal Commerce
SolutionTM to About.com's users. In June 2001, About.com ran banner ads on its
site promoting the Qode Universal Commerce SolutionTM. As part of this
transaction, About.com received 452,489 shares of the Series B Convertible
Preferred Stock, par value $0.01 per share, of the 500,000 total Series B
Convertible Preferred shares the Company is authorized to issue, in
consideration for these promotions. The Company recorded an advertising expense
of $882,000 associated with this transaction in sales and marketing expense in
the accompanying consolidated statements of operations. The agreement with
About.com was terminated on August 31, 2001, in anticipation of the sale of the
Qode assets to the Finx Group. Total advertising expense for the years ended
December 31, 2002, 2001, and 2000 was $4,000, $883,000, and $70,000,
respectively.

SEVERANCE EXPENSE

During the third quarter of 2001, the Company laid off 55 employees,
including the chief technology officer and the chief operating officer,
representing a 60% decrease in its total workforce. In connection with the
layoffs, the Company recognized a severance expense of approximately $494,000
during the third quarter of 2001. The layoffs were part of a company-wide cost
reduction initiative.

EXECUTIVE INCENTIVE EXPENSE

In June 2001, the Company's compensation committee approved an
adjustment, relating to the Digital:Convergence patent license fees, to the 2000
executive incentive plan that reduced the bonus payout by approximately $1.1
million. This was recorded as a negative expense in the accompanying
consolidated statement of operations.

OPTION AND WARRANT REPRICING PROGRAMS

In May 2001, the Company re-priced approximately 1.5 million
additional warrants subject to a limited exercise period and other conditions,
including certain warrants issued in connection with NeoMedia's initial public
offering in 1996, which will expire at the end of 2001. The repricing program
allowed the warrant exercise price to be reduced to 33 percent of the closing
sale price of the Company's common stock (subject to a minimum) on the day prior
to the date of exercise for a period of six months from the date the repricing
program began. The exercise of the warrants and sale of the underlying common
stock was at the discretion of a broker selected by the Company, within the
parameters of the repricing arrangement. In accordance with FASB Interpretation,
FIN 44, Accounting for Certain Transactions Involving Stock Transactions, the
award was accounted for as variable from the date of modifications on May 1,
2001. Accordingly, $181,000 was recorded as compensation in the accompanying
consolidated statement of operations.

F-13

In June 2002, the Company repriced 3 million of its common stock
warrants from $0.12 to $.05 per share. All of the warrants were exercised
immediately. The Company recognized an expense of $132,000 related to this
repricing.

In April 2002, in order to encourage the exercise of options, our Board
of Directors adopted an option repricing program. Under the program, those
persons holding options granted under the 1996, 1998 and 2002 Stock Option
Plans, to the extent their options were exercisable during the period ending
October 9, 2002, were allowed to exercise the option at a price which is the
greater of $0.12 per share or 50% of the last sale price of a share of our
common stock on the OTC Bulletin Board on the trading date immediately preceding
the date of exercise. No options were exercised under the program and no expense
was recognized relating to the program.

During March 2002, the Company repriced approximately1.2 million of its
common stock warrants for a period of six months. During the term of the warrant
repricing program, participating holders were entitled to exercise qualified
warrants at an exercise price per share equal to the greater of (1) $0.12 or (2)
50% of the last sale price of shares of Common Stock on the OTCBB, on the
trading date immediately preceding the date of exercise. Approximately 370,000
warrants were exercised in connection with the program, and NeoMedia recognized
approximately $63,000 in expense relating to the repricing during the year ended
December 31, 2002.

WARRANT ISSUANCE

In June 2001, the Board of Directors approved the issuance of 414,000
warrants for Charles W. Fritz, NeoMedia's Chairman, CEO, and President at an
exercise price of $2.09. The warrant grant was later rescinded during 2001 and
the warrants were not issued.

In June 2002, the Board of Directors approved the issuance of 1,500,000
warrants for Charles W. Fritz, NeoMedia's Chairman, at an exercise price of
$0.05, to replace warrants exercised in the Company's warrant repricing program
for which Mr. Fritz received no profit. The Company recognized an expense of
approximately $66,000 relating to the issuance of these warrants in the
accompanying consolidated statement of operations.

VALUATION AND RESERVES

Allowance for doubtful accounts activity for the years ended December 31, 2002
and 2001 was as follows:

(dollars in thousands)
----------------------
2002 2001
----- -----

Beginning balance $ 65 $ 484
Bad debt expense 41 --
Write-off of uncollectible accounts -- (68)
Collection of accounts previously written off -- (182)
Adjustment to general allowance (51) (169)
----- -----
Ending balance $ 55 $ 65
===== =====

INVENTORIES

Inventories are stated at the lower of cost or market, and at December
31, 2002 and 2001 were comprised of purchased computer technology resale
products. Cost is determined using the first-in, first-out method. At December
31, 2002, the reserve for obsolescence was $130,000. Reserves for obsolescence
were increased by $130,000 for 2002.

F-14

PROPERTY AND EQUIPMENT

Property and equipment are carried at cost less allowance for
accumulated depreciation. Repairs and maintenance are charged to expense as
incurred. Depreciation is generally computed using the straight-line method over
the estimated useful lives of the related assets. The estimated useful lives
range from three to five years for equipment and seven years for furniture and
fixtures. Leasehold improvements are amortized over the shorter of the life of
the lease or the useful lives of the related assets. Upon retirement or sale,
cost and accumulated depreciation are removed from the accounts and any gain or
loss is reflected in the consolidated statements of operations.

Depreciation expense was $108,000, $249,000, and $263,000 for the years
ended December 31, 2002, 2001, and 2000, respectively.

CAPITALIZED AND PURCHASED SOFTWARE COSTS

Intangible assets consist of capitalized software development costs and
patents.

Software development costs are accounted for in accordance with
Statement of Accounting Standards (SFAS) No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed." Costs associated
with the planning and designing phase of software development, including coding
and testing activities necessary to establish technological feasibility, are
classified as research and development and expensed as incurred. Once
technological feasibility has been determined, additional costs incurred in
development, including coding, testing, quality assurance and documentation are
capitalized. Once a product is made available for sale, capitalization is
stopped unless the related costs are associated with a technologically feasible
enhancement to the product. Amortization of purchased and developed software is
provided on a product-by-product basis over the estimated economic life of the
software, generally three years, using the straight-line method.

In accordance with SFAS No. 86, at the end of each quarterly reporting
period, the Company evaluates each of its software products for impairment by
adjusting the unamortized capitalized costs of each computer software product to
its net realizable value. Net realizable value is equal to the estimated future
gross revenues from each product reduced by the estimated future costs of
completing and disposing of that product, including the costs of performing
maintenance and customer support required to satisfy the Company's
responsibility set forth at the time of sale. It is reasonably possible that the
estimates underlying the impairment analysis could change in the near term, and
the effect of the change could be material to the financial statements.

Patents (including patents pending and intellectual property) and
acquired customer lists are stated at cost, less accumulated amortization.
Patents are generally amortized over periods ranging from five to seventeen
years.

Intangible assets activity for the years ended December 31, 2002 and
2001 were as follows:

(dollars in thousands)
-------------------------
2002 2001
------- -------
CAPITALIZED PATENTS

Beginning balance $ 2,500 $ 2,661
Additions 17 102
Amortization (273) (263)
------- -------
Ending balance $ 2,244 $ 2,500
=======

CAPITALIZED & PURCHASED SOFTWARE COSTS
Beginning balance $ 1,828 $ 6,382
Additions 4 2,391
Intangible assets moved
(to)/from "Assets Held for Sale" 1,027 (1,027)
Disposals/write-offs (2,030) (3,061)
Amortization (680) (2,857)
------- -------
Ending balance $ 149 $ 1,828
======= =======

Amortization expense of intangible assets was $953,000, $3,120,000, and
$2,073,000 for the years ended December 31, 2002, 2001, and 2000, respectively.

F-15

LOSS ON IMPAIRMENT OF ASSETS

In connection with the Company's reduction in work force during the
third quarter 2001, the Company sold the rights to its Pacer Advantage end-user
software product for $40,000 cash. Accordingly, the Company wrote off all its
assets aggregating $2.9 million related to the MLM/Affinity program including
assets pertaining to the purchase of Daystar services, LLC and a customer list
purchased in 1998. Revenue related to the MLM/Affinity program was $0, $92,000,
and $259,000 for the years ended December 31, 2002, 2001, and 2000,
respectively. Net loss allocated to the MLM/Affinity program was $0, $832,000,
and $1,075,000, for the years ended December 31, 2002, 2001, and 2000,
respectively.

During the year ended December 31, 2002, the Company recognized an
impairment charge of $1.0 million relating to its PaperClick
physical-world-to-internet software solution. Due to capital constraints, the
Company is not currently able to devote full-time resources and infrastructure
to commercializing the technology.

EVALUATION OF LONG-LIVED ASSETS

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of." Although retaining many of the fundamental
recognition and measurement provisions of SFAS 121, the new rules significantly
change the criteria that would have to be met to classify an asset as
held-for-sale. The statement also supersedes certain provisions of Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations--Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions," and will require expected
future operating losses from discontinued operations to be displayed in
discontinued operations in the period or periods in which the losses are
incurred rather than as of the measurement date, as presently required. We
adopted this new statement on January 1, 2002, and concluded that the effect of
adopting this statement had no material impact on our financial position,
results of operations, or cash flows.

INCOME TAXES

In accordance with SFAS No. 109, "Accounting for Income Taxes", income
taxes are accounted for using the assets and liabilities approach. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities, and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be recognized. The
Company has recorded a 100% valuation allowance as of December 31, 2002, 2001,
and 2000.

COMPUTATION OF NET LOSS PER SHARE

Basic net loss per share is computed by dividing net loss by the
weighted average number of shares of common stock outstanding during the period.
The Company has excluded all outstanding stock options and warrants from the
calculation of diluted net loss per share because these securities are
anti-dilutive for all years presented. The shares excluded from the calculation
of diluted net loss per share are detailed in the table below:

DECEMBER 31, 2002 DECEMBER 31, 2001 DECEMBER 31, 2000
----------------- ----------------- -----------------

Outstanding Stock Options 10,801,219 4,214,000 4,294,000
Outstanding Warrants 7,433,758 3,240,000 3,968,000

FINANCIAL INSTRUMENTS

The Company believes that the fair value of its financial instruments
approximate carrying value.

F-16

CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject NeoMedia to
concentrations of credit risk consist primarily of trade accounts receivable
with customers. NeoMedia extends credit to its customers as determined on an
individual basis and has included an allowance for doubtful accounts of $55,000,
$65,000, and $484,000 in its December 31, 2002, 2001, and 2000 consolidated
balance sheets, respectively. NeoMedia had net sales to one major customer in
the telecommunications industry (Ameritech) of $3,362,000, $2,983,000, and
$5,824,000 during the years ended December 31, 2002, 2001, and 2000,
respectively, resulting in trade accounts receivable of $47,000, $1,499,000, and
$229,000 as of December 31, 2002, 2001, and 2000, respectively. In addition, a
single company supplies the majority of the Company's resold equipment and
software, which is re-marketed to this customer. Accordingly, the loss of this
customer or supplier would materially adversely affect the Company's operations.
Revenue generated from the remarketing of computer software and technology
equipment has accounted for a significant percentage of NeoMedia's revenue. Such
sales accounted for approximately 87%, 73%, and 66% of NeoMedia's revenue for
the years ended December 31, 2002, 2001, and 2000, respectively. NeoMedia had
license fees to one major customer (DC) of $7,768,000 during the year ended
December 31, 2000, resulting in an accounts receivable of $2,500,000 as of
December 31, 2000. Revenue generated from this licensing agreement accounted for
approximately 28% of NeoMedia revenue for the year ended December 31, 2000. No
revenue was recognized under this agreement during the years ended December 31,
2002 or 2001.

RECLASSIFICATIONS

Certain reclassifications have been made to the 2000 and 2001 financial
statements to conform to the 2002 presentation.

COMPREHENSIVE INCOME

For the years ended December 31, 2002, 2001, and 2000, the Company did
not have other comprehensive income and therefore has not included the statement
of comprehensive income in the accompanying financial statements.

RECENT ACCOUNTING PRONOUNCEMENTS

On July 21, 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141 (SFAS No. 141), "Business
Combinations", and No. 142 (SFAS No. 142), "Goodwill and Other Intangible
Assets." SFAS No. 141 addresses financial accounting and reporting for goodwill
and other intangible assets acquired in a business combination at acquisition.
SFAS No. 141 requires the purchase method of accounting to be used for all
business combinations initiated after June 30, 2001 and establishes specific
criteria for the recognition of intangible assets separately from goodwill; SFAS
No. 142 addresses financial accounting and reporting for goodwill and other
intangible assets subsequent to their acquisition. SFAS No. 142 provides that
goodwill and intangible assets which have indefinite useful lives will not be
amortized, but rather will be tested at least annually for impairment. It also
provides that intangible assets that have finite useful lives will continue to
be amortized over their useful lives, but those lives will no longer be limited
to forty years. SFAS No. 141 is effective for all business combinations after
June 30, 2001. The provisions of SFAS No. 142 are effective beginning January 1,
2002. NeoMedia has implemented the provisions of SFAS No. 141 and No. 142 and
has concluded that the adoption does not have a material impact on the Company's
financial statements.

In October 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which requires companies to record the fair value of a
liability for asset retirement obligations in the period in which they are
incurred. The statement applies to a company's legal obligations associated with
the retirement of a tangible long-lived asset that results from the acquisition,
construction, and development or through the normal operation of a long-lived
asset. When a liability is initially recorded, the company would capitalize the
cost, thereby increasing the carrying amount of the related asset. The
capitalized asset retirement cost is depreciated over the life of the respective
asset while the liability is accreted to its present value. Upon settlement of
the liability, the obligation is settled at its recorded amount or the company
incurs a gain or loss. The statement is effective for fiscal years beginning
after June 30, 2002. NeoMedia does not expect the adoption to have a material
impact to NeoMedia's financial position or results of operations.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". Statement 144 addresses the
accounting and reporting for the impairment or disposal of long-lived assets.
The statement provides a single accounting model for long-lived assets to be
disposed of. New criteria must be met to classify the asset as an asset
held-for-sale. This statement also focuses on reporting the effects of a
disposal of a segment of a business. This statement is effective for fiscal
years beginning after December 15, 2001. The Company does not expect the
adoption to have a material impact to its financial position or results of
operations. Neomedia has implemented the provision of SFAS No. 144 and has
concluded that the adoption does not have a material impact on the Company's
financial statements.

F-17

In April 2002, the FASB issued Statement No. 145, "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." This Statement rescinds FASB Statement No. 4, "Reporting
Gains and Losses from Extinguishment of Debt," and an amendment of that
Statement, FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements" and FASB Statement No. 44, "Accounting for Intangible
Assets of Motor Carriers." This Statement amends FASB Statement No. 13,
"Accounting for Leases," to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. NeoMedia does not expect the adoption to have a
material impact to NeoMedia's financial position or results of operations.

In July 2002, the FASB issued SFAS No. 146 "Accounting for Exit or
Disposal Activities." The provisions of this statement are effective for
disposal activities initiated after December 31, 2002, with early application
encouraged. The Company does not expect the adoption of FASB No. 146 to have a
material impact on the Company's financial position or results of operations.

In October 2002, the FASB issued Statement No. 147, "Acquisitions of
Certain Financial Institutions-an amendment of FASB Statements No. 72 and 144
and FASB Interpretation No. 9", which removes acquisitions of financial
institutions from the scope of both Statement 72 and Interpretation 9 and
requires that those transactions be accounted for in accordance with Statements
No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible
Assets. In addition, this Statement amends SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, to include in its scope long-term
customer-relationship intangible assets of financial institutions such as
depositor- and borrower-relationship intangible assets and credit cardholder
intangible assets. The requirements relating to acquisitions of financial
institutions is effective for acquisitions for which the date of acquisition is
on or after October 1, 2002. The provisions related to accounting for the
impairment or disposal of certain long-term customer-relationship intangible
assets are effective on October 1, 2002. The adoption of this Statement did not
have a material impact to the Company's financial position or results of
operations as the Company has not engaged in either of these activities.

In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure", which amends FASB Statement
No. 123, Accounting for Stock-Based Compensation, to provide alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of Statement 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The transition guidance and annual disclosure
provisions of Statement 148 are effective for fiscal years ending after December
15, 2002, with earlier application permitted in certain circumstances. The
interim disclosure provisions are effective for financial reports containing
financial statements for interim periods beginning after December 15, 2002. The
adoption of this statement did not have a material impact on the Company's
financial position or results of operations as the Company has not elected to
change to the fair value based method of accounting for stock-based employee
compensation.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." Interpretation 46 changes the criteria by which one
company includes another entity in its consolidated financial statements.
Previously, the criteria was based on control through voting interest.
Interpretation 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. A company that consolidates a variable
interest entity is called the primary beneficiary of that entity. The
consolidation requirements of Interpretation 46 apply immediately to variable
interest entities created after January 31, 2003. The consolidation requirements
apply to older entities in the first fiscal year or interim period beginning
after June 15, 2003. Certain of the disclosure requirements apply in all
financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The Company does not expect the
adoption to have a material impact to the Company's financial position or
results of operations.

3. LIQUIDITY

During the years ended December 31, 2002, 2001, and 2000 the
Company's net loss totaled approximately $7,421,000, $25,469,000, and
$5,409,000, respectively. As of December 31, 2002 the Company had an accumulated
deficit of approximately $70,765,000 and approximately $70,000 in unrestricted
cash balances. As of December 31, 2002, the Company had negative working capital
of $8,985,000 and negative cashflow from operations of $598,000. The Company's
unrestricted cash balance as of February 5, 2003 was approximately $44,000
(unaudited).

F-18

On November 12, 2002, the Company entered into an Equity Line of Credit
Agreement with Cornell under which Cornell agreed to purchase up to $10.0
million of NeoMedia's common stock and over the next two years, with the timing
and amount of the purchase at the Company's discretion. The maximum amount of
each purchase is $150,000 with a minimum of seven days between purchases. The
shares will be valued at 98% of the lowest closing bid price during the five-day
period following the delivery of a notice of purchase by NeoMedia. The Company
will pay 5% of the gross proceeds of each purchase to Cornell as a commission.
According to the terms of the agreement, the Company cannot draw on the line of
credit until the shares underlying the agreement are registered for trading with
the Securities and Exchange Commission. On February 14, 2003, the SEC declared
effective the S-1 registration statement containing 100 million shares
underlying the Equity Line of Credit.

The Company cannot be certain that anticipated revenues from operations
will be sufficient to satisfy its ongoing capital requirements. Management's
belief is based on the Company's operating plan, which in turn is based on
assumptions that may prove to be incorrect. If the Company's financial resources
are insufficient the Company may require additional financing in order to
execute its operating plan and continue as a going concern. The Company cannot
predict whether this additional financing will be in the form of equity, debt,
or another form. The Company may not be able to obtain the necessary additional
capital on a timely basis, on acceptable terms, or at all. In any of these
events, the Company may be unable to implement its current plans for expansion,
repay its debt obligations as they become due or respond to competitive
pressures, any of which circumstances would have a material adverse effect on
its business, prospects, financial condition and results of operations.

Should these financing sources fail to materialize, management would
seek alternate funding sources through sale of common and/or preferred stock.
Management's plan is to secure adequate funding to bridge to revenue generation
from the Company's valuable intellectual property portfolio and PaperClickTM
internet "switching" software. To this end, the Company has retained the law
firm of Baniak Pine & Gannon to pursue potential license agreements, and plans
to implement a sales strategy for PaperClickTM upon receipt of adequate funding.
Additionally, on March 13, 2003, the Company announced that it has reached an
agreement in principal to acquire and merge with Loch Energy, Inc. ("Loch"), an
oil and gas provider based in Humble, Texas. Loch currently owns mineral and
lease rights to five properties, totaling approximately 130 acres, near Houston,
Texas. Loch's portion of the proven reserves on the five properties is estimated
at 7,707,247 barrels. Loch's portion of the probable reserves on the five
properties is estimated at an additional 5,963,748 barrels. The merger would
provide for one share of common stock of the Company to be exchanged for every
four shares of Loch common stock on an adjusted basis, and additional "earn out"
shares to be issued to Loch shareholders based on actual oil production in the
first year after closing. Total shares to be issued to Loch shareholders will
not exceed 50% of NeoMedia outstanding shares. The merger is subject to
negotiations of definitive contracts, corporate filing requirements, completion
of due diligence and any required approval by the Boards of Directors and
shareholders of each company. It is anticipated that closing would occur
approximately 30 days after such conditions are satisfied.

4. CONTRACT ACCOUNTING

NeoMedia periodically enters into long-term software development and
consultation agreements with certain customers. As of December 31, 2002 and
2001, certain contracts were not completed and information regarding these
uncompleted contracts was as follows:

(dollars in thousands)
-------------------
2002 2001
---- ----

Costs incurred on contracts $ 7 $ 50
Profit to date 3 15
---- ----
Total costs and estimated earnings 10 65

Less - billings to date (8) (35)
---- ----
Costs and estimated earnings in excess of billings $ 2 $ 30
==== ====

The above figures are grouped in the accompanying consolidated balance sheets
under the following captions:

(dollars in thousands)
-------------------
2002 2001
---- ----

Accounts receivable $ 3 $ 43
Deferred revenue (1) (13)
---- ----
Costs and estimated earnings in excess of billings, net $ 2 $ 30
==== ====

5. PROPERTY AND EQUIPMENT

As of December 31, 2002 and 2001, property and equipment consisted of
the following:

(dollars in thousands)
-------------------------
2002 2001
------- -------

Furniture and fixtures $ 274 $ 643
Leasehold improvements -- 109
Equipment 166 326
------- -------
Total 440 1,078

Less: accumulated depreciation
Furniture and fixtures (208) (273)
Leasehold improvements -- (109)
Equipment (134) (226)

Less property and equipment held for sale -- (265)
------- -------
Total property and equipment, net $ 98 $ 205
======= =======

During the years ended December 31, 2002 and 2001, the Company took an
impairment charge against property and equipment of $0.3 million and $0.6
million, respectively, relating to the discontinuation of its Qode business
unit.

6. INTANGIBLE ASSETS

As of December 31, 2002 and 2001, intangible assets consisted of the
following:

(dollars in thousands)
---------------------------
2002 2001
-------- --------

Cost:
Capitalized and purchased software costs $ 672 $ 8,520
Patents and related costs 3,142 3,125
-------- --------
Total 3,814 11,645
-------- --------
Less: accumulated amortization:
Capitalized and purchased software costs (523) (5,665)
Patents and related costs (898) (625)
-------- --------
Total (1,421) (6,290)
-------- --------
Carrying value:
Capitalized and purchased software costs 149 2,855
Patents and related costs 2,244 2,500
-------- --------
2,393 5,355

Less intangible assets of discontinued business unit -- (1,027)
-------- --------
Intangible assets, net $ 2,393 $ 4,328
======== ========

As of December 31, 2002, the Company estimated future amortization
expense be $389,000 for 2003, $294,000 for 2004, $205,000 for 2005, $157,000 for
2006 and $148,000 for 2007.

F-19

During the years ended December 31, 2002 and 2001, the Company took an
impairment charge against intangible assets of $0 and $2.1 million,
respectively, relating to the discontinuation of its Qode business unit.

7. FINANCING AGREEMENTS

RESALE FINANCING ARRANGEMENT

The Company has an agreement with a commercial finance company that
provides short-term financing for certain computer hardware and software
purchases. Under the agreement, there are generally no financing charges for
amounts paid within 30 or 45 days, depending on the vendor used to source the
product. Under this agreement there are two separate lines of credit. The first
line has credit availability of $750,000. The second line has credit
availability of up to $2,000,000, based upon the Company's customer credit
rating. The commercial finance company currently applies 50% of the Company's
proceeds from re-sales of equipment and software toward past due balances owed
by the Company to the commercial finance company. The Company expects to begin
receiving 100% of its proceeds during 2003.

Borrowings are collateralized by all inventory, property and equipment,
and accounts receivable. As of December 31, 2002 and 2001, amounts due under
this financing agreement included in accounts payable were $430,000 and
$2,283,000, respectively.

NOTES PAYABLE

On March 1, 2001, the Company assumed a bank note agreement in its
purchase of Qode for approximately $15,000, bearing interest at 11% per annum.
The note matured on March 15, 2002. As of December 31, 2002 and 2001, the
outstanding balance of this note was $15,000. Accrued interest amounted to
$3,000 and $1,400, respectively, as of December 31, 2002 and 2001.

On July 11, 2001, the Company entered into a note payable agreement with
AirClic, Inc., in the amount of $500,000, bearing interest at 8% per annum. The
note matured on January 5, 2002. As of December 31, 2002 and 2001, the
outstanding balance of this note was $500,000, and accrued interest payable
amounted to $59,000 and $19,000, respectively. This note is subject to
litigation between the Company and AirClic (see "Legal Proceedings, Note 11).

On September 21, 2001, the Company entered into a note payable agreement
with a law firm for approximately $76,000, bearing interest at 10% per annum.
The note matured on February 28, 2002. As of December 31, 2002 and 2001, the
outstanding balance of this note was $76,000, and accrued interest payable
amounted to $8,900 and $1,300, respectively.

On September 28, 2001, the Company entered into a note payable agreement
with a law firm for approximately $170,000, bearing interest at 10% per annum.
The note matured on February 28, 2002. As of December 31, 2002 and 2001, the
outstanding balance of this note was $170,000, and accrued interest payable
amounted to $21,000 and $4,300, respectively. The note is subject to a legal
action by the holder against the Company (see "Legal Proceedings").

On October 16, 2001, the Company borrowed $4,000 from Charles W. Fritz,
its Chairman and Chief Executive Officer, under a note payable bearing interest
at 10% per annum. The note matured, on April 16, 2002. As of December 31, 2002
and 2001, the outstanding balance of this note was $4,000, and accrued interest
payable amounted to $300 and $100, respectively.

On February 26, 2002, the Company borrowed $10,000 from William E. Fritz
under a note payable bearing interest at 8% per annum. The note matured on March
28, 2002. As of December 31, 2002, the outstanding balance of this note was
$10,000 and accrued interest payable amounted to $1,700.

On April 5, 2002, the Company borrowed $11,000 from William E. Fritz
under a note payable bearing interest at 8% per annum. The note matured on June
4, 2002. As of December 31, 2002, outstanding balance of this note was $11,000
and accrued interest payable amounted to $1,800.

On March 1, 2001, the Company assumed a note of $104,000 in relation to
purchase of Qode assets. The note payable bears interest at 5.5% per annum. The
note matured on December 31, 2001. As of December 31, 2002 and 2001, the
outstanding balance was $0 and $104,000, respectively, and accrued interest
payable amounted to $0 and $4,700, respectively.

F-20

During November 2002, NeoMedia issued Convertible Secured Promissory
Notes with an aggregate face value of $60,000 to 3 separate parties, including
Charles W. Fritz, Chairman of the Board of Directors of NeoMedia; William E.
Fritz, an outside director; and James J. Keil, an outside director. The notes
bear interest at a rate of 15% per annum, and mature at the earlier of i.) four
months, or ii.) the date the shares underlying the Cornell Equity Line of Credit
are registered with the SEC. The notes are convertible, at the option of the
holder, into either cash or shares of our common stock at a 30% discount to
either market price upon closing, or upon conversion, whichever is lower.
NeoMedia also granted to the holders an additional 1,355,670 shares of its
common stock and 60,000 warrants to purchase shares of its common stock at $0.03
per share, with a term of three years. The warrants and shares were issued in
January 2003. In addition, since this debt is convertible into equity at the
option of the note holder at beneficial conversion rates, an embedded beneficial
conversion feature will be recorded as a debt discount and amortized using the
effective interest rate over the life of the debt in accordance with EITF 00-27.
Total cost of beneficial conversion feature, fair value of the stock and cost of
warrants issued exceed the face value of the notes payable, therefore, only
$60,000, the face amount of the note, is recognizable as debt discount, and is
being amortized over the life of the notes payable. Any unamortized debt
discount related to beneficial conversion feature will be charged to expense
upon conversion, as interest expense. In the event NeoMedia defaults on the
note, NeoMedia will issue an additional 1,483,318 shares of its common stock to
the note holders. The notes are secured by the Company's intellectual property,
which is subject to first lien by AirClic, Inc. During the year ended December
31, 2002, the Company amortized discount of $23,000 related to these convertible
notes. During March 2002, two of the affiliated parties, Mr. William Firtz and
Mr. Keil, agreed to extend the maturity date due to the Company's capital
constraints. The Company repaid Mr. Charles Fritz's note in full during March
2003. NeoMedia will continue to pursue additional capital through the issuance
of Convertible Secured Promissory Notes with the same terms as above.

On December 2, 2002, the Company issued to Michael Kesselbrenner, a
private investor, a Promissory Note in the principal amount of $165,000, bearing
interest at a rate of 12% per annum, with a maturity of 150 days. In connection
with the default provision of the Promissory Note, the Company entered into a
Pledge Agreement, dated December 2, 2002, under which the Company issued
53,620,020 shares of common stock to an unrelated third party as collateral for
the Promissory Note. The investor only funded to the Company $84,000 of the
principal amount of the note. The Company repaid this note during March 2003,
and the shares held in escrow were returned. The Company has not incurred
further obligation under this note agreement.

8. LONG-TERM DEBT

In October 1994, the Company purchased, via seller financing, certain
computer software from International Digital Scientific, Inc. ("IDSI"). The
aggregate purchase price was $2,000,000 and was funded by the seller with an
uncollateralized note payable, without interest, in an amount equal to the
greater of: (i) 5% of the collected gross revenues of NeoMedia Migration for the
preceding month; or (ii) the minimum installment payment as defined, until paid
in full. The minimum installment payment is the amount necessary to provide an
average monthly payment for the most recent twelve month period of $16,000 per
month. The present value of $2,000,000 discounted at 9% (the Company's then
incremental borrowing rate) for 125 months was approximately $1,295,000, the
capitalized cost of the assets acquired. The discount is being accreted to
interest expense over the term of the note. The software acquired was amortized
over its estimated useful life of three years. As of December 31, 2002 and 2001,
the balance of the note payable, net of unamortized discount, was $651,000 and
$540,000, respectively.

As of December 31, 2002, the Company included $425,000 in "Current
portion of long-term debt" on the accompanying balance sheet relating to past
due payments under the arrangement with IDSI. On October 21, 2002, IDSI filed a
demand for arbitration relating to past due payments on the note. The Company
has filed a counterclaim with the arbitrator relating to this matter. The
arbitration hearing has been scheduled for June 25, 2003.

F-21

As of December 31, 2002 and 2001, long-term debt consisted of the
following:

2002 2001
----- -----

Note payable to International Digital Scientific, Inc. (IDSI),
non-interest bearing with interest imputed at 9%, due with
minimum monthly installments of $16,000 through March 2005 $ 665 $ 624
Less: unamortized discount (14) (85)
----- -----
Total long-term debt 651 539
Less: current portion (425) (149)
----- -----

Long-term debt, net of current portion $ 226 $ 390
===== =====

The long-term debt repayments for each of the next five fiscal years
ending December 31 are as follows:

(IN THOUSANDS)

2003.............................................. $ 425
2004.............................................. 192
2005.............................................. 48
2006.............................................. ----
2007.............................................. ----
------------

Total...................................... $ 665
============

9. INCOME TAXES

For the years ended December 31, 2002, 2001, and 2000, the components of
income tax expense were as follows:

2002 2001 2000
------------- ------------- -------------
(IN THOUSANDS)

Current .................... $ -- $ -- $ --
Deferred ................... -- -- --
------------- ------------- -------------
Income tax expense/(benefit) $ -- $ -- $ --
============= ============= =============

As of December 31, 2002, 2001, and 2000, the types of temporary
differences between the tax basis of assets and liabilities and their financial
reporting amounts which gave rise to deferred taxes, and their tax effects were
as follows:

2002 2001 2000
-------- -------- --------

Accrued employee benefits $ 26 $ 62 $ 30
Provisions for doubtful accounts 22 26 182
Deferred revenue -- -- 13
Capitalized software development costs and fixed assets 821 676 284
Net operating loss carryforwards (NOL) 25,134 22,916 15,021
Accruals 468 470 864
Write-off of long-lived assets 2,070 1,060 --
Other 95 -- 17
Alternative minimum tax credit carryforward 45 45 45
-------- -------- --------
Total deferred tax assets 28,681 25,255 16,456
Valuation Allowance (28,681) (25,255) (16,456)
-------- -------- --------

Net deferred income tax asset $ -- $ -- $ --
======== ======== ========

Because it is more likely than not that NeoMedia will not realize the
benefit of its deferred tax assets, a valuation reserve has been established
against them.

For the years ended December 31, 2002, 2001, and 2000, the income tax
benefit differed from the amount computed by applying the statutory federal rate
of 34% as follows:

F-22

2002 2001 2000
------- ------- -------

Benefit at federal statutory rate $(2,523) $(8,659) $(1,839)
State income taxes, net of federal (294) (1,009) (196)
Exercise of non-qualified stock options -- (17) (176)
Permanent difference - write-off of Digtal Convergence stock 1,190
------- ------- -------
Permanent and other, net (609) (304) (860)
Change in valuation allowance 3,426 8,799 3,071
------- ------- -------
Income tax expense/(benefit) $ -- $ -- $ --
======= ======= =======

As of December 31, 2002, NeoMedia had net operating loss carryforwards
for federal tax purposes totaling approximately $62.8 million which may be used
to offset future taxable income, or, if unused expire between 2011 and 2020. As
a result of certain of NeoMedia's equity activities occurring during the year
ended December 31, 1997, NeoMedia anticipates that the annual usage of its
pre-1998 net operating loss carryforwards may be further restricted pursuant to
the provisions of Section 382 of the Internal Revenue Code.

10. TRANSACTIONS WITH RELATED PARTIES

In June 1999, the Company sold a license for the right to utilize its
Neolink Information Server to Daystar Services L.L.C. ("Daystar") a Tennessee
limited liability company, owned in part by an officer and one of the Company's
board members, for $500,000. The original business purpose of the sale was to
generate revenue through the sale of an exclusive license to Daystar. In April
2000, in anticipation of either a potential acquisition of the Company by
Digital:Convergence ("DC") (which subsequently did not occur), or a long-term
intellectual property license with DC, the Company purchased substantially all
the assets of Daystar, including the rights to the license it sold to Daystar in
1999, for approximately $3.5 million of our common stock. In order to enter into
a 10-year intellectual property license agreement with DC, the Company was
required to re-purchase the exclusive license agreement. Additional Daystar
assets purchased were to be employed in our MLM/Affinity licensing program. The
assets purchased were recorded as intangible assets at approximately $3.5
million on the accompanying consolidated balance sheets. The Company believes
this transaction was conducted on terms as good as favorable as those would have
been derived from an arm's length negotiation.

During the year ended December 31, 2000, the Company leased office and
residential facilities from related parties for rental payments totaling $5,000.
The lease expired during 2000.

During October 2001, the Company borrowed $4,000 from Charles W. Fritz,
its Chairman and Chief Executive Officer, under a note payable bearing interest
at 10% per annum with a term of six months.

During February 2002, the Company borrowed $10,000 from William E. Fritz
under a note payable bearing interest at 8% per annum with a term of 30 days.
The note has not been repaid as of the date of this filing and continues to
accrue interest.

During March 2002, the Company borrowed $190,000 from William E. Fritz
under a note payable bearing interest at 8% per annum with a term of 16 days.
The note was repaid during March 2002.

During April 2002, the Company borrowed $11,000 from William E. Fritz
under a note payable bearing interest at 8% per annum with a term of 60 days.
The note had not been repaid as of the date of this filing and continues to
accrue interest.

During November 2002, NeoMedia issued Convertible Secured Promissory
Notes with an aggregate face value of $60,000 to 3 separate parties, including
Charles W. Fritz, Chairman of the Board of Directors of NeoMedia; William E.
Fritz, an outside director; and James J. Keil, an outside director. The notes
bear interest at a rate of 15% per annum, and mature at the earlier of i.) four
months, or ii.) the date the shares underlying the Cornell Equity Line of Credit
are registered with the SEC. The notes are convertible, at the option of the
holder, into either cash or shares of our common stock at a 30% discount to
either market price upon closing, or upon conversion, whichever is lower.
NeoMedia also granted to the holders an additional 1,355,670 shares of its
common stock and 60,000 warrants to purchase shares of its common stock at $0.03
per share, with a term of three years. The warrants and shares were issued in
January 2003. In addition, since this debt is convertible into equity at the
option of the note holder at beneficial conversion rates, an embedded beneficial
conversion feature will be recorded as a debt discount and amortized using the
effective interest rate over the life of the debt in accordance with EITF 00-27.
Total cost of beneficial conversion feature, fair value of the stock and cost of
warrants issued exceed the face value of the notes payable, therefore, only
$60,000, the face amount of the note, is recognizable as debt discount, and is
being amortized over the life of the notes payable. Any unamortized debt
discount related to beneficial conversion feature will be charged to expense
upon conversion, as interest expense. In the event NeoMedia defaults on the
note, NeoMedia will issue an additional 1,483,318 shares of its common stock to
the note holders. The notes are secured by the Company's intellectual property,
which is subject to first lien by AirClic, Inc. During March 2002, two of the
affiliated parties, Mr. William Firtz and Mr. Keil, agreed to extend the
maturity date due to the Company's capital constraints. The Company repaid Mr.
Charles Fritz's note in full during March 2003. NeoMedia will continue to pursue
additional capital through the issuance of Convertible Secured Promissory Notes
with the same terms as above.

F-23

The Company believes that all of the above transactions were conducted
at "arm's length", representing what it believes to be fair market value for
those services.

11. COMMITMENTS AND CONTINGENCIES

NeoMedia leases its office facilities and certain office and computer
equipment under various operating leases. These leases provide for minimum rents
and generally include options to renew for additional periods. For the years
ended December 31, 2002, 2001, and 2000, NeoMedia's rent expense was $853,000,
$1,246,000, and $1,067,000, respectively.

The following is a schedule of the future minimum lease payments under
non-cancelable operating leases as of December 31, 2002:

PAYMENTS
(IN THOUSANDS)

2003 ............................................. $170
2004.............................................. 7
2005 ............................................. --
2006 ............................................. --
2007 ............................................. --
----
Total ............................................ $177
====

As of December 31, 2002, none of the Company's employees were under
contract. Additionally, as of December 31, 2002, the Company was not a party to
any long-term consulting agreements that are to be paid in cash.

LEGAL PROCEEDINGS

The Company is involved in various legal actions arising in the normal
course of business, both as claimant and defendant. While 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 could
have a material adverse effect on the Company's financial position or operating
results.

NEOMEDIA SHAREHOLDERS

During January 2002, certain of NeoMedia's shareholders filed a
complaint with the Securities and Exchange Commission, alleging that the
shareholders were not included in the special shareholders meeting of November
25, 2001, to vote on the issuance of 19 million shares of NeoMedia common stock.
On March 11, 2002, NeoMedia filed its response claiming that NeoMedia had fully
complied with all of its obligations under the laws and regulations administered
by the Securities and Exchange Commission, as well as with its obligation under
Delaware General Corporation Law.

AIRCLIC, INC. LITIGATION

On July 3, 2001, the Company entered into a non-binding letter of
intent with AirClic which contemplated an intellectual property cross-licensing
transaction between the Company and AirClic. Under the terms of the letter of
intent, AirClic was to provide the Company with bridge financing of $2,000,000,
which was to be paid to the Company in installments. On July 11, 2001, AirClic
advanced $500,000 in bridge financing to the Company in return for a promissory
note from the Company secured by all of its assets, including its physical
world-to-Internet patents. During the negotiation of definitive agreements, the
letter of intent was abandoned on the basis of the Company's alleged breach of
certain representations made by the Company in the promissory note.

F-24

On September 6, 2001, AirClic filed suit against the Company in the
Court of Common Pleas, Montgomery County, Pennsylvania, seeking, among other
things, the accelerated repayment of a $500,000 loan it advanced to the Company
under the terms of a letter of intent entered into between AirClic and the
Company. The letter of intent was subsequently abandoned on the basis of the
Company's alleged breach of certain representations made by the Company in the
promissory note issued to AirClic in respect of such advance. The note issued by
the Company in respect of AirClic's $500,000 advance is secured by substantially
all of the Company's property, including the Company's core physical
world-to-Internet technologies. On October 3, 2003, we paid AirClic the
principal plus interest in the amount of approximately $610,000. On November 3,
2003, we reached a settlement agreement with AirClic which will end the suit.
The parties are currently drafting the release document and expect the suit to
be dismissed by the end of November 2003. .

AirClic has also filed suit against the Company in the United States
District Court for the Eastern District of Pennsylvania. In this second action,
AirClic seeks a declaration that certain core intellectual property securing the
note issued by the Company to AirClic, some of which is patented and others for
which a patent application is pending, is invalid and in the public domain. Any
declaration that the Company's core patented or patentable technology is
non-protectable and in the public domain would have a material adverse effect on
the Company's business, prospects, financial condition, and results of
operations. The Company is vigorously defending this second action as well. On
November 21,2001, the Company filed a motion to dismiss the complaint. On
December 19, 2001, AirClic filed a response opposing that position. On September
18, 2002, the court ruled in favor of the Company and dismissed AirClic's
complaint. The Company has not accrued any liability in connection with this
matter.

DIGITAL: CONVERGENCE LITIGATION

On June 26, 2001, the Company filed a $3 million lawsuit in the U.S.
District Court, Northern District of Texas, Dallas Division, against
Digital:Convergence Corporation for breach of contract regarding a $3 million
promissory note due on June 24, 2001 that was not paid. The Company is seeking
payment of the $3 million note plus interest and attorneys fees. The Company has
not accrued any gain contingency related to this matter. On March 22, 2002,
Digital:Convergence filed under Chapter 7 of the United States Bankruptcy Code.

OTHER LITIGATION

In April 2001, the former President and director of NeoMedia filed a
lawsuit against the Company and several of its directors. The suit was filed in
the Circuit Court of the Twentieth Judicial Circuit for Sarasota, Florida. The
claim alleges the individual was fraudulently induced into accepting employment
and that the Company breached the employment agreement. The individual's
employment with the Company ended in January 2001. During May 2002, the Company
settled the suit. The Company is obligated to make cash payments of $90,000
directly to the plaintiff during the period May 2002 through December 2002, and
cash payments to the plaintiff's attorney for legal fees in the amount of
$45,000 due in July and August 2002. In addition, the plaintiff was granted
360,000 options to purchase shares of NeoMedia common stock at an exercise price
of $0.08. As of March 31, 2002, the Company had accrued a $347,000 liability
relating to the suit. As a result, the Company recognized an increase to net
income of approximately $176,000 during the three-month period ended June 30,
2002 to adjust the liability to the settlement amount. As of December 31, the
Company had an accrued liability of approximately $33,000 relating to this
matter.

On August 20, 2001, Ripfire, Inc. filed suit against the Company in the
San Francisco County Superior Court seeking payment of $138,000 under a software
license agreement entered into between the Company and Ripfire in May 2001
relating to implementation of the Qode Universal Commerce Solution. On September
6, 2002, the Company settled this suit for $133,000 of the Company's common
stock. On March 31, 2003, the Company issued 2,700,000 shares of common stock to
Ripfire under this arrangement. The Company has accrued a $133,000 liability
relating to this matter as of December 31, 2002.

On November 30, 2001, Orsus Solutions USA, Inc., filed a summons seeking
payment in full of approximately $525,000 relating to a software and services
contract associated with implementation of the Qode Universal Commerce Solution.
The Company is currently attempting to negotiate settlement of this matter. The
Company has accrued a liability of $525,000 as of December 31, 2002.

On July 22, 2002, 2150 Western Court, L.L.C., the property manager for
the Company's Lisle, IL, office, filed a summons seeking payment of
approximately $72,000 for all past due rents on the facility. The summons asked
for a judgment for the above amount plus possession of the premises. On August
9, 2002, the Company settled this matter. The settlement calls for past due
rents of approximately $72,000 to be paid over a 15-month period, as well as
reduced rents for the period August 2002 through March 2003. As additional
consideration in the settlement, the Company issued 900,000 shares of its common
stock to 2150 Western Court L.L.C. The Company had a liability of approximately
$49,000 relating to this matter as of December 31, 2002.

F-25

On July 27, 2002, the Company's former General Counsel filed suit in
U.S. District Court, Ft. Myers division, seeking payment of the 2000 executive
incentive, severance and unpaid vacation days in the amount of approximately
$154,000. In June 2001, the Company's compensation committee approved an
adjustment to the 2000 executive incentive plan that reduced the executive
incentive payout as a result of the write-off of the Digital:Convergence
intellectual property license contract in the second quarter of 2001. As a
result, the Company reduced the accrual for such payout by an aggregate of
approximately $1.1 million in the second quarter of 2002. The plaintiff is
seeking payment of the entire original incentive payout. On November 12, 2002,
the Company settled the lawsuit. The settlement calls for cash payments totaling
approximately $90,000 over a period of ten months, plus 250,000 vested options
to purchase shares of the Company's common stock at an exercise price of $0.01
with a term of five years. The Company had a liability of approximately $70,000
relating to this matter as of December 31, 2002.

On September 12, 2002, R. R. Donnelley & Sons Company filed a summons in
the Circuit Court of The Twentieth Judicial Circuit in and for Lee County,
Florida, seeking payment of approximately $92,000 in past due professional
services bills. The Company is attempting to negotiate settlement of this issue
out of court prior to the court date. The Company has accrued approximately
$92,000 relating to this matter as of December 31, 2002.

On September 13, 2002, Wachovia Bank, N.A., owner of the building in
which the Company's Ft. Myers, Florida headquarters is located, filed a
complaint in Circuit Court of The Twentieth Judicial Circuit in and for Lee
County, Florida, seeking payment of approximately $225,000 in past due rents.
The complaint also seeks payment of all future rent payments under the lease
term, which expires in January 2004, as well as possession of the premises. On
October 28, 2002, the Company and Wachovia reached a settlement on this matter.
The settlement calls for cash payments of past due rents of approximately
$250,000 over a period of 16 months. The Company will also vacate approximately
70% of the unused space in its headquarters, and the rent for the remainder of
the lease, which expires in January 2004, will be reduced according to square
footage used. The Company has accrued a liability of approximately $270,000
relating to this matter as of December 31, 2002.

On October 21, 2002, International Digital Scientific, Inc. ("IDSI") filed
a demand for arbitration relating to past due payments on an uncollateralized
note payable from us to IDSI dated October 1, 1994. The note was issued in
exchange for the purchase by us of computer software from IDSI. The note calls
for the Company to make payments of the greater of: (i) 5% of the collected
gross revenues from sales of software or (ii) $16,000 per month. As of December
31, 2002, the Company had a past due balance under the IDSI note of
approximately $304,000. The net carrying value of future obligation under the
note was $390,000 as of December 31, 2002. On October 31, 2003, we paid off all
past due and future obligations under the note to IDSI through the issuance of
8,000,000 shares of common stock being registered for resale hereunder.

On October 28, 2002, Merrick & Klimek, P.C., filed a complaint against
the Company seeking payment of approximately $170,000 in past due legal
services. The amount in question is subject to an unsecured promissory note that
matured unpaid on February 28, 2002. The Company is attempting to negotiate
settlement of this issue out of court prior to the court date. The Company has
recorded the note payable amount of approximately $170,000 and accrued interest
of approximately $21,000 relating to this matter as of December 31, 2002.

On November 11, 2002, Avnet/Hallmark Computer Marketing Group filed
a complaint against the Company seeking payment of approximately $66,000 in past
due amounts relating to hardware and software re-sold by the Company. During
December 2002, the Company made payment of approximately $30,000 to Avnet,
reducing the balance owed to approximately $37,000. On April 1, 2003, the
Company received a judgment from the circuit court for the remaining balance.
The Company had a liability of approximately $37,000 relating to this matter as
of December 31, 2002.

On December 30, 2002, Brooks Automation, Inc. filed a complaint against
the Company seeking payment of approximately $37,000 in past due amounts
relating to software re-sold by the Company. On January 16, 2003, the Company
and Brooks Automation reached a settlement under which the Company will pay the
amount owed to Brooks Automation over a period of approximately 15 months, with
the payment amount increasing after three months. The Company had a $37,000
liability relating to this matter as of December 31, 2002.

On February 6, 2003, Norton Allen & Blue, P.A., filed a complaint
against the Company seeking payment of approximately $25,000 in past due legal
services. The Company is attempting to negotiate settlement of this issue out of
court prior to the court date.

F-26

On March 10, 2003, IBM Credit Corporation filed a complaint against the
Company seeking payment of approximately $9,000 in past due amounts relating to
computer equipment leased by the Company. The Company is attempting to negotiate
settlement of this issue out of court prior to the court date.

12. DEFINED CONTRIBUTION SAVINGS PLAN

NeoMedia maintains a defined contribution 401(k) savings plan.
Participants may make elective contributions up to established limits. All
amounts contributed by participants and earnings on these contributions are
fully vested at all times. The plan provides for matching and discretionary
contributions by NeoMedia, although no such contributions to the plan have been
made to date.

13. EMPLOYEE STOCK OPTION PLAN

Effective February 1, 1996, NeoMedia adopted the 1996 Stock Option Plan
making available for grant to employees of NeoMedia options to purchase up to
1,500,000 shares of NeoMedia's common stock. The stock option committee of the
board of directors has the authority to determine to whom options will be
granted, the number of options, the related term, and exercise price. The option
exercise price shall be equal to or in excess of the fair market value per share
of NeoMedia's common stock on the date of grant. These options granted expired
ten years from the date of grant. These options vest 100% one year from the date
of grant.

Effective March 27, 1998, NeoMedia adopted the 1998 Stock Option Plan
making available for grant to employees of NeoMedia options to purchase up to
8,000,000 shares of NeoMedia's common stock. The stock option committee of the
board of directors has the authority to determine to whom options will be
granted, the number of options, the related term, and exercise price. The option
exercise price may be less than the fair market value per share of NeoMedia's
common stock on the date of grant. Options generally vest 20% upon grant and 20%
per year thereafter. The options expire ten years from the date of grant.

Effective June 6, 2002, NeoMedia adopted its 2002 Stock Option Plan. The
2002 Stock Option Plan provides for authority for the stock option committee of
the board of directors to grant non-qualified stock options with respect to a
maximum of 10,000,000 shares of common stock. The option exercise price may be
less than the fair market value per share of NeoMedia's common stock on the date
of grant, and may be granted with any vesting schedule as approved by the stock
option committee.

Effective January 1, 1996, NeoMedia adopted SFAS No. 123, "Accounting
for Stock-Based Compensation" defines a fair-value based method of accounting
for an employee stock option or similar equity instrument and encourages all
entities to adopt that method of accounting for all of their employee stock
compensation plans. However, SFAS 123 also allows an entity to continue to
measure compensation cost for stock-based compensation plans using the
intrinsic-value method of accounting prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Entities
electing to continue using the accounting method in APB 25 must make pro forma
disclosures of net income and earnings per share as if the fair-value method of
accounting had been adopted. Because NeoMedia elected to continue using the
accounting method in APB 25, no compensation expense was recognized in the
consolidated statements of operations for the years ended December 31, 2002,
2001, and 2000 for stock-based employee compensation.

For grants in 2002, 2001, and 2000, the following assumptions were used:
(i) no expected dividends; (ii) a risk-free interest rate of 4.5% for 2002, 4.5%
for 2001, and 6% for 2000; (iii) expected volatility ranging from 135% to 211%
for 2002, 135% for 2001, and 80% for 2000, and (iv) an expected life of the
shorter of 5 years or the stated life of the option for options granted in 2002,
the shorter of 5 years or the stated life of the option for options granted in
2002, and the shorter of 4 years or the stated life of the option for options
granted in 2000. The fair-value was determined using the Black-Scholes
option-pricing model.

The estimated fair value of grants of stock options and warrants to
non-employees of NeoMedia is charged to expense in the consolidated financial
statements. These options vest in the same manner as the employee options
granted under each of the option plans as described above.

Utilizing the assumptions detailed above, our net loss and loss per
share, as reported, would have been the following pro forma amounts ($ in
thousands except per share data).

F-27

2002 2001 2000
---- ---- ----

NET LOSS
As reported ($7,421) ($25,469) ($5,409)
Pro forma ($8,420) ($27,888) ($7,498)

NET LOSS PER SHARE
As reported ($0.33) ($1.55) ($0.39)
Pro forma ($0.38) ($1.70) ($0.54)

A summary of the status of NeoMedia's 2002, 1998 and 1996 stock option
plans as of and for the years ended December 31, 2002, 2001, and 2000 is as
follows:

2002 2001 2000
---------------------- --------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- -------- --------- --------- ---------
(In (In (In
thousands) thousands) thousands)

Outstanding at beginning of year 4,214 $ 2.96 4,294 $ 4.71 3,418 $ 4.43
Granted 12,306 $ 0.06 3,499 $ 2.00 1,192 $ 4.87
Exercised (5,252) $ 0.07 (38) $ 3.60 (170) $ 2.83
Forfeited (467) $ 2.75 (3,541) $ 4.13 (146) $ 5.78
--------- --------- -------- --------- --------- ---------
Outstanding at end of year 10,801 $ 1.11 4,214 $ 2.96 4,294 $ 4.71
========= ========= ======== ========= ========= =========

Options exercisable at year-end 10,272 2,452 2,140

Weighted-average fair value of options
granted during the year $ 0.10 $ 1.40 $ 3.05

Available for grant at the end of the year 2,319 4,158 4,116

The following table summarizes information about NeoMedia's stock
options outstanding as of December 31, 2002:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------------------------- ---------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ----------------- ----- ------------ -----
(In thousands) (In thousands)

$-- to $0.10 5,705 6.6 years $0.04 5,705 $0.04
0.11 to 0.22 2,449 5.0 years $0.18 2,449 $0.18
0.23 to 4.88 1,753 6.8 years $3.18 1,300 $3.15
4.89 to 7.88 801 6.2 years $6.18 729 $6.27
7.89 to 10.88 93 6.7 years $8.86 89 $8.88
-----------------------------------------------------------------------------------------------------------------------------------
$0.84 to $10.88 10,801 6.2 years $1.11 10,272 $0.98
===================================================================================================================================

In October 2000, the Company issued 80,000 options to buy shares of the
Company's common stock to an outside consultant at a price of $4.13 per share
for consulting services rendered, and recognized approximately $253,000 in
expense in its 2000 consolidated financial statements. These warrants vest in
the same manner as the employee options granted under the 1998 Stock Option
Plan. All these warrants were outstanding and 48,000 were vested at December 31,
2002.

In September 2001, the Company issued 150,000 options to buy shares of
the Company's common stock to an outside consultant at a price of $0.20 per
share for consulting services rendered, and recognized $18,800 in expense in the
2001 consolidated financial statements. The warrants vested 40% upon grant and
the remaining 60% in September 2002. As of December 31, 2002, all 150,000
options were outstanding and vested.

F-28

In March 2002, the Company issued 2,946,310 options to buy shares of the
Company's common stock to two outside consultants at a price of $0.17 per share
for consulting services rendered over a six-month period, and recognized
approximately $407,000 in expense in the 2002 consolidated financial statements.
The options vested 100% upon grant. As of December 31, 2002, 984,055 of the
options were still outstanding and vested.

In June 2002, the Company issued 3,000,000 options to buy shares of the
Company's common stock to an outside consultant at a price of $0.01 per share
for consulting services rendered over a one-year period, and recognized
approximately $125,000 in expense in the 2002 consolidated financial statements.
The options vested 100% upon grant. All 3,000,000 options were exercised during
2002, resulting in proceeds to the Company of $30,000.

In December 2002, the Company issued 2,000,000 options to buy shares of
the Company's common stock to an outside consultant at a price of $0.01 per
share for consulting services rendered over a twelve-month period, and
recognized approximately $78,000 in expense in the 2002 consolidated financial
statements. The options vested 100% upon grant. All 2,000,000 options were still
outstanding and vested as of December 31, 2002.

F-29

Warrants

Warrant activity as of December 31, 2002, 2001, and 2000, is as follows:

Balance December 31, 1999 2,676,362
Warrants issued 1,787,073
Warrants exercised (495,600)
----------

Balance December 31, 2000 3,967,835
Warrants issued 887,512
Warrants exercised (505,450)
Warrants expired (1,110,000)
----------

Balance December 31, 2001 3,239,897
Warrants issued 5,000,000
Warrants exercised (369,450)
Warrants expired (436,689)
----------

Balance December 31, 2002 7,433,758
==========

During October 2000, the Company issued 1,400,000 warrants as part of a
ten-year license of the Company's intellectual property to DC. These warrants
were immediately vested and exercisable. The associated expense was initially
being recognized over the life of the contract, and was written off as part of
the "Loss on Digital:Convergence license contract" recognized in 2000. All
1,400,000 warrants were outstanding as of December 31, 2002. DC is currently
proceeding under Chapter 7 of the U.S. Bankruptcy Code.

During 2001, the Company re-priced approximately 1.5 million additional
warrants subject to a limited exercise period and other conditions, including
certain warrants issued in connection with NeoMedia's initial public offering in
1996, which expired at the end of 2001. The repricing program allowed the
warrant exercise price to be reduced to 33 percent of the closing sale price of
the Company's common stock (subject to a minimum) on the day prior to the date
of exercise for a period of six months from the date the repricing program
began. The exercise of the warrants and sale of the underlying common stock was
at the discretion of a broker selected by the Company, within the parameters of
the repricing arrangement. In accordance with FASB Interpretation, FIN 44,
Accounting for Certain Transactions Involving Stock Transactions, the award was
accounted for as variable from the date of modifications on May 1, 2001.
Accordingly, $181,000 was recorded in during 2001 as compensation expense.

In June 2001, the Company issued 404,900 warrants to an outside
consultant at an exercise price of $2.09. During 2001, the Company recognized an
expense of approximately $742,000 related to this transaction, which is included
in general and administrative expense in the accompanying consolidated
statements of operations. The Company used the Black-Scholes option-pricing
model to value the shares, with the following assumptions: (i) no expected
dividends (ii) a risk-free interest rate of 4.5% (iii) expected volatility of
135% and (iv) an expected life of 3 years. All of these warrants were still
outstanding as of December 31, 2002.

In June 2002, the Company issued 2,000,000 warrants to an outside
consultant at an exercise price of $0.00. During 2002, the Company recognized an
expense of approximately $100,000 related to this transaction, which is included
in general and administrative expense in the accompanying consolidated
statements of operations. The Company used the Black-Scholes option-pricing
model to value the shares, with the following assumptions: (i) no expected
dividends (ii) a risk-free interest rate of 4.5% (iii) expected volatility of
135% and (iv) an expected life of 1 year. All 2,000,000 warrants were still
outstanding as of December 31, 2002.

In June 2002, the Company issued 1,500,000 warrants to buy shares of the
Company's common stock at a price of $0.05 per share to Charles W. Fritz, the
Company's Chairman of the Board and former CEO, as replacement for warrants
exercised in the Company's warrant repricing program for which Mr. Fritz
received no profit. The Company recognized approximately $66,000 in expense in
the 2002 consolidated financial statements relating to the warrant issuance. All
1,500,000 warrants were outstanding as of December 31, 2002.

F-30

In June 2002, the Company issued 1,500,000 warrants to buy shares of the
Company's common stock at a price of $0.05 per share to an outside consultant,
as replacement for warrants exercised in the Company's warrant repricing program
for which the outside consultant received no profit. The Company recognized
approximately $66,000 in expense in the 2002 consolidated financial statements
relating to the warrant issuance. All 1,500,000 warrants were outstanding as of
December 31, 2002.

The following table summarizes information about warrants outstanding at
December 31, 2002, all of which are exercisable:

WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
RANGE OF WARRANTS REMAINING EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE
--------------- ----------- ---------------- -----
(In thousands)

$--- to $0.05 5,009 2.8 years $0.03
0.06 to 2.13 485 0.4 years $2.10
2.14 to 3.56 241 5.3 years $3.46
3.57 to 7.37 1,443 2.7 years $6.03
7.38 to 15.00 256 0.2 years $11.24
------------------ ----------- ---------------- ------------
$--- to $15.00 7,434 2.6 years $1.83
================== =========== ================ ============

14. SEGMENT INFORMATION

Beginning with the year ended December 31, 1999, the Company adopted
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131). SFAS 131 supersedes Financial Accounting Standards
Board's SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise." SFAS 131 establishes standards for the way that business
enterprises report information about operating segments in annual financial
statements. SFAS 131 also establishes standards for related disclosures about
products and services, geographic areas and major customers.

The Company is organized into two business segments: (a) NeoMedia ISS,
and (b) NeoMedia CIS. Performance is evaluated and resources allocated based on
specific segment requirements and measurable factors. Management uses the
Company's internal income statements to evaluate each business unit's
performance. Assets of the business units are not available for management of
the business segments or for disclosure.

F-31

Operational results for the two segments for the years ended December
31, 2002, 2001, and 2000 and are presented below (in thousands):

--------------------------------------------------------------------------------------------------
NEOMEDIA ISS NEOMEDIA CIS
(FORMERLY (FORMERLY
NEOMEDIA ASP) NEOMEDIA SI) CONSOLIDATED
------------- ------------ ------------
YEAR ENDED DECEMBER 31, 2002
Net Sales

License fees $ 29 $ 417 $ 446
Software and equipment resales
and related services -- 8,953 8,953
Total net sales 29 9,370 9,399

Loss from Continuing Operations (4,623) (1,275) (5,898)
Loss from disposal of
discontinued business unit (1,523) -- (1,523)
Net Loss (6,146) (1,275) (7,421)

YEAR ENDED DECEMBER 31, 2001
Net Sales
Qode Business Unit $ 13 $ -- $ 13
Paperclick/Amway/MLM 140 140
Software and equipment resales
and related services -- 8,002 8,002
Total gross sales 153 8,002 8,155
Less: Qode Business Unit Sales (13) -- (13)

Total net sales 140 8,002 8,142

Loss from Continuing Operations (17,639) (1,129) (18,768)
Loss from operations of and disposal of
discontinued business unit (6,701) -- (6,701)
Net Loss (24,340) (1,129) (25,469)

YEAR ENDED DECEMBER 31, 2000

Net Sales
Patent license fees $ 7,768 $ -- $ 7,768
Other license fees 315 334 649
Software and equipment resales
and related services -- 19,148 19,148
Total net sales 8,083 19,482 27,565

Net Loss (4,225) (1,184) (5,409)

F-32

15. QUARTERLY INFORMATION (UNAUDITED)

The summarized quarterly financial data presented below reflects all
adjustments which, in the opinion of management, are of a normal and recurring
nature necessary to present fairly the results of operations for the periods
presented.

(dollars in thousands except per share data)
-----------------------------------------------------------------------------
TOTAL FOURTH THIRD SECOND FIRST
2002

Total net sales $ 9,399 $ 947 $ 3,404 $ 3,652 $ 1,396
Gross profit $ 1,135 $ 54 $ 582 $ 417 $ 82
(Loss) before income taxes
and discontinued operations ($ 5,720) ($ 741) ($ 773) ($ 2,824) ($ 1,382)
Net (loss) ($ 7,421) ($ 919) ($ 773) ($ 4,347) ($ 1,382)
Net (loss) per share:
basic and diluted ($ 0.33) ($ 0.03) ($ 0.03) ($ 0.11) ($ 0.05)
Segment operating income (loss):
NeoMedia ISS ($ 6,147) ($ 145) ($ 464) ($ 4,301) ($ 1,237)
NeoMedia CIS ($ 1,274) ($ 774) ($ 309) ($ 46) ($ 145)

2001
Total net sales $ 8,142 $ 4,459 $ 908 $ 1,237 $ 1,538
Gross profit ($ 724) $ 597 ($ 503) ($ 404) ($ 414)
(Loss) before income taxes
and discontinued operations ($18,768) $ 771 ($ 5,072) ($11,042) ($ 3,425)
Net (loss) ($25,469) ($ 1,692) ($ 9,310) ($11,042) ($ 3,425)
Net (loss) per share:
basic and diluted ($ 1.55) ($ 0.11) ($ 0.60) ($ 0.72) ($ 0.24)
Segment operating income (loss):
NeoMedia ISS ($24,340) ($ 1,660) ($ 8,956) ($10,931) ($ 2,793)
NeoMedia CIS ($ 1,129) ($ 32) ($ 354) ($ 111) ($ 632)

2000
Total net sales $ 27,565 $ 9,875 $ 4,049 $ 9,547 $ 4,094
Gross profit $ 9,032 $ 7,571 $ 42 $ 879 $ 540
(Loss) before income taxes
and discontinued operations ($ 5,409) $ 2,667 ($ 3,555) ($ 2,085) ($ 2,436)
Net income (loss) ($ 5,409) $ 2,667 ($ 3,555) ($ 2,085) ($ 2,436)
Net (loss) per share:
basic and diluted ($ 0.39) $ 0.21 ($ 0.25) ($ 0.15) ($ 0.19)
Segment operating income (loss):
NeoMedia ISS ($ 4,225) $ 4,061 ($ 3,051) ($ 2,818) ($ 2,417)
NeoMedia CIS ($ 1,184) ($ 1,394) ($ 504) $ 733 ($ 19)

16. COMMON STOCK

Holders of common stock are entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders. Holders of the common
stock do not have cumulative voting rights, which means that the holders of more
than one half of our outstanding shares of common stock, subject to the rights
of the holders of preferred stock, can elect all of our directors, if they
choose to do so. In this event, the holders of the remaining shares of common
stock would not be able to elect any directors. Subject to the prior rights of
any class or series of preferred stock which may from time to time be
outstanding, if any, holders of common stock are entitled to receive ratably,
dividends when, as, and if declared by the Board of Directors out of funds
legally available for that purpose and, upon our liquidation, dissolution, or
winding up, are entitled to share ratably in all assets remaining after payment
of liabilities and payment of accrued dividends and liquidation preferences on
the preferred stock, if any. Holders of common stock have no preemptive rights
and have no rights to convert their common stock into any other securities. The
outstanding common stock is duly authorized and validly issued, fully-paid, and
nonassessable. In the event we were to elect to sell additional shares of common
stock following this offering, investors in this offering would have no right to
purchase additional shares. As a result, their percentage equity interest in us
would be diluted.

F-33

On June 6, 2002, the Company's shareholders voted to increase the number
of shares of common stock, par value $0.01 per share, that the Company is
authorized to issue from 50,000,000 to 200,000,000 and the number of share of
preferred stock, par value $0.01 per share, that the Company is authorized to
issue from 10,000,000 to 25,000,000.

17. PREFERRED STOCK

The Company's Preferred Stock is currently comprised of 25,000,000
shares, par value $0.01 per share, of which 200,000 shares are designated as
Series A Preferred Stock, none of which are issued or outstanding, and,
following the conversion into common stock of 452,489 shares of Series A
Convertible Preferred Stock issued to About.com, 47,511 shares are designated as
Series A Convertible Preferred Stock, none of which are issued and outstanding,
and 100,000 shares of Series B 12% Convertible Redeemable Preferred Stock, none
of which are issued and outstanding. The Company has no present agreements
relating to or requiring the designation or issuance of additional shares of
preferred stock.

18. SUBSEQUENT EVENTS

On February 14, 2003, the SEC declared effective the S-1 registration
statement containing 100 million shares underlying the Company's Equity Line of
Credit. As of March 17, 2003 the Company had issued 1,342,642 shares of common
stock under the Equity Line of Credit and received cash of approximately
$150,000.

On March 13, 2003, the Company announced that that it had reached an
agreement in principal to acquire and merge with Loch Energy, Inc. ("Loch"), an
oil and gas provider based in Humble, Texas. On October 1, 2003, we discovered
that the royalty interest from future sales of oil owned by Loch were oversold,
which would likely result in materially lower projected available cashflow from
Loch's operations. This projected available cashflow was the basis for the
acquisition. On October 2, 2003, our Board of Directors voted to cancel the
Memorandum of Terms, and terminate the acquisition and merger proceedings.

On April 2, 2003, the Company was issued its sixth US Patent. The
technology covered by the patent allows for a connection from human-or
machine-readable input to generate a tailored response that can utilize a
profile of the person making the link between the code-carrying physical object
and the desired electronic information. The patent allowed 58 claims.

On October 27, 2003, we entered into a Standby Equity Distribution
Agreement with Cornell Capital Partners, LP ("Cornell"). Pursuant to the Standby
Equity Distribution Agreement, we may, at our discretion, periodically sell to
Cornell shares of common stock for a total purchase price of up to $20 million.
For each share of common stock purchased under the Standby Equity Distribution
Agreement, Cornell Capital Partners will pay 98% of the lowest closing bid price
of our common stock on the OTC Bulletin Board or other principal market on which
our common stock is traded for the 5 trading days immediately following the
notice date.

F-34

On November 10, 2003, we announced that that we had signed a
non-binding letter of intent to acquire CSI International, Inc. ("CSI"), of
Calgary, Alberta, Canada, a private technology products company in the micro
paint repair industry. The LOI calls for the issuance of 7,000,000 shares of our
common stock to be issued in exchange for all outstanding shares of CSI. In
addition, we will pay $3.5 million cash. The acquisition is subject to
completion of due diligence by both sides, as well as Board approval and other
conditions.

F-35

NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)

SEPTEMBER 30,
2003
----
ASSETS
Current assets:

Cash and cash equivalents $ 1,048
Restricted cash 600
Trade accounts receivable, net of allowance for doubtful accounts of $28 178
Inventories, net 13
Prepaid expenses and other current assets 511
--------
Total current assets 2,350

Property and equipment, net 72
Capitalized patents, net 2,055
Capitalized and purchased software costs, net 60
Other long-term assets 704
--------

Total assets $ 5,241
========

LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
Accounts payable $ 3,096
Amounts due under financing agreements 345
Liabilities in excess of assets of discontinued business unit 996
Sales taxes payable 194
Accrued expenses 2,782
Deferred revenues 576
Notes payable 732
Cash advances payable through the issuance of common stock 1,135
Current portion of long-term debt 591
Other 37
--------
Total current liabilities 10,484

Long-term debt, net of current portion 94
--------

Total liabilities 10,578
--------

Shareholders' deficit:
Preferred stock, $0.01 par value, 25,000,000 shares authorized, none issued
and outstanding --
Additional paid-in capital, preferred stock --
Common stock, $0.01 par value, 1,000,000,000 shares authorized,
207,764,771 shares issued and 205,781,109 outstanding 2,058
Additional paid-in capital 68,469
Deferred stock-based compensation (260)
Accumulated deficit (74,825)
Treasury stock, at cost, 201,230 shares of common stock (779)
--------
Total shareholders' deficit (5,337)
--------
Total liabilities and shareholders' deficit $ 5,241
========

The accompanying notes are an integral part of this
condensed consolidated balance sheet.

F-36

NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

THREE MONTHS ENDED SEPTEMBER 30,
-----------------------------------
2003 2002
------------- -------------
NET SALES:

License fees $ 69 $ 150
Resale of software and technology equipment and service fees 392 3,254
------------- -------------
Total net sales 461 3,404
------------- -------------

COST OF SALES:
License fees 76 80
Resale of software and technology equipment and service fees 378 2,742
------------- -------------
Total cost of sales 454 2,822
------------- -------------

GROSS PROFIT 7 582
Sales and marketing expenses 146 207
General and administrative expenses 1,940 996
Research and development costs 78 150
------------- -------------

Loss from operations (2,157) (771)
Other expenses:
Loss on extinguishment of debt 24 --
Interest expense 24 2
------------- -------------

NET LOSS $ (2,205) $ (773)
============= =============

NET LOSS PER SHARE--BASIC AND DILUTED $ (0.01) $ (0.03)
============= =============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES--BASIC AND DILUTED 151,698,465 22,979,755
============= =============

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

F-37

NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
2003 2002
------------ ------------
NET SALES:

License fees $ 338 $ 303
Resale of software and technology equipment and service fees 1,671 8,149
------------ ------------
Total net sales 2,009 8,452
------------ ------------

COST OF SALES:
License fees 227 764
Resale of software and technology equipment and service fees 1,566 6,607
------------ ------------
Total cost of sales 1,793 7,371
------------ ------------

GROSS PROFIT 216 1,081
Sales and marketing expenses 407 719
General and administrative expenses 3,409 3,556
Research and development costs 243 683
Loss on impairment of assets -- 1,003
------------ ------------

Loss from operations (3,843) (4,880)

Other expenses:
Loss on extinguishment of debt 24 --
Interest expense 193 99
------------ ------------

Loss from continuing operations (4,060) (4,979)

Loss on disposal of discontinued business unit (Note 1) -- (1,523)
------------ ------------

NET LOSS $ (4,060) $ (6,502)
============ ============

NET LOSS PER SHARE FROM
CONTINUING OPERATIONS--BASIC AND DILUTED $ (0.05) $ (0.24)
============ ============

NET LOSS PER SHARE FROM
DISCONTINUED OPERATIONS--BASIC AND DILUTED $ -- $ (0.07)
============ ============

NET LOSS PER SHARE--BASIC AND DILUTED $ (0.05) $ (0.31)
============ ============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES--BASIC AND DILUTED 89,440,869 20,736,080
============ ============

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

F-38

NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2003 2002
------- -------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($4,060) ($6,502)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 368 938
Loss on disposal of discontinued business unit -- 1,523
Loss on impairment of assets -- 1,003
Expense associated with option and warrant repricing 748 38
Fair value of expense portion of stock-based
compensation granted for professional services 442 383
Interest expense allocated to debt 75 --
Discount related to issuance of employee common stock 688 --
Loss on payments of accounts payable in stock 24 --
(Increase)/decrease in value of life insurance policies (10) 80
Changes in operating assets and liabilities
Trade accounts receivable, net 149 (610)
Other current assets 217 491
Accounts payable, amounts due under financing agreements, liabilities
in excess of assets of discontinued business unit, accrued expenses
and stock liability (395) 1,916
Deferred revenue other current liabilities (303) 151
------- -------
Net cash used in operating activities (2,057) (589)
------- -------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalization of software development and purchased intangible assets (22) (24)
Acquisition of property and equipment (42) --
------- -------
Net cash used in investing activities (64) (24)
------- -------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 2,409 198
Net proceeds from cash advances payable through the issuance of common stock 1,135 --
Net proceeds from exercise of stock warrants 250 43
Net proceeds from exercise of stock options 90 272
Borrowings under notes payable and long-term debt 75 21
Transfer to restriced cash for long-term debt (600) --
Repayments on notes payable and long-term debt (260) --
Issuance of deferred stock-based compensation -- (46)
------- -------
Net cash provided by financing activities 3,099 488
------- -------

NET INCREASE IN CASH AND CASH EQUIVALENTS (125)
978

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
70 134
------- -------

CASH AND CASH EQUIVALENTS $ 1,048 $ 9
======= =======

SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid/(received) during the year $ 6 ($ 66)
Income taxes paid -- --
Non-cash investing and financing activities:
Reduction in accounts payable for debt paid in stock 72 --
Cancellation of common stock issued in 2001 to offset stock subscription receivable -- (240)
Fair value of stock and warrants issued with debt 56 --
Fair value of stock issued for services 148 --
Fair value of stock compensation deferred to future periods 64 --
Direct costs associated with Equity Line of Credit 5,693 --
Net effect of issuance and subsequent
cancellation of common stock underlying notes receivable -- (190)

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

F-39

NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS

BASIS OF PRESENTATION

The condensed consolidated financial statements include the financial
statements of NeoMedia Technologies, Inc. and its wholly-owned subsidiaries
("NeoMedia" or the "Company"). The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with the instructions to
Form 10-QSB and do not include all of the information and footnotes required by
accounting principles generally accepted in the United States of America for
complete consolidated financial statements. These condensed consolidated
financial statements and related notes should be read in conjunction with the
Company's Form 10-K for the fiscal year ended December 31, 2002. In the opinion
of management, these condensed consolidated financial statements reflect all
adjustments which are of a normal recurring nature and which are necessary to
present fairly the consolidated financial position of NeoMedia as of September
30, 2003, and the results of operations and cashflows for the three-month and
nine-month periods ended September 30, 2003 and 2002. The results of operations
for the three-month and nine-month periods ended September 30, 2003 are not
necessarily indicative of the results which may be expected for the entire
fiscal year. All significant intercompany accounts and transactions have been
eliminated in preparation of the condensed consolidated financial statements.

NATURE OF BUSINESS OPERATIONS

The Company is structured and evaluated by its Board of Directors and
Management as two distinct business units:

NeoMedia Internet Switching Services (NISS) (formerly named NeoMedia
Application Services), and

NeoMedia Consulting and Integration Services (NCIS) (formerly named
NeoMedia SI)

NISS (physical world-to-Internet offerings) is the Company's core business
and is based in the United States, with development and operating facilities in
Fort Myers, Florida. NISS develops and supports the Company's physical world to
Internet core technology, including our linking "switch" and our application
platforms. NISS also manages the Company's valuable intellectual property
portfolio, including the identification and execution of licensing opportunities
surrounding the patents.

NCIS (systems integration service offerings) is the original business line
upon which the Company was organized. This unit resells client-server equipment
and related software, and general and specialized consulting services. Systems
integration services also identifies prospects for custom applications based on
our products and services. During 2002, this unit expanded its business
offerings to include a higher Value-Add called Storage Area Networks (SAN). The
operations are based in Lisle, Illinois.

RECLASSIFICATIONS

Certain amounts in the 2002 condensed consolidated financial statements
have been reclassified to conform to the 2003 presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

F-40

In October 2002, the FASB issued Statement No. 147, "Acquisitions of
Certain Financial Institutions-an amendment of FASB Statements No. 72 and 144
and FASB Interpretation No. 9," which removes acquisitions of financial
institutions from the scope of both Statement 72 and Interpretation 9 and
requires that those transactions be accounted for in accordance with Statements
No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible
Assets. In addition, this Statement amends SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, to include in its scope long-term
customer-relationship intangible assets of financial institutions such as
depositor- and borrower-relationship intangible assets and credit cardholder
intangible assets. The requirements relating to acquisitions of financial
institutions is effective for acquisitions for which the date of acquisition is
on or after October 1, 2002. The provisions related to accounting for the
impairment or disposal of certain long-term customer-relationship intangible
assets are effective on October 1, 2002. The adoption of this Statement did not
have a material impact to the Company's financial position or results of
operations as the Company has not engaged in either of these activities.

In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure," which amends FASB Statement
No. 123, Accounting for Stock-Based Compensation, to provide alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of Statement 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The transition guidance and annual disclosure
provisions of Statement 148 are effective for fiscal years ending after December
15, 2002, with earlier application permitted in certain circumstances. The
interim disclosure provisions are effective for financial reports containing
financial statements for interim periods beginning after December 15, 2002. The
adoption of this statement did not have a material impact on the Company's
financial position or results of operations as the Company has not elected to
change to the fair value based method of accounting for stock-based employee
compensation.

In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that upon
issuance of a guarantee, a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 are effective for any guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002. The adoption of FIN45 did not have a material effect on the Company's
financial position, results of operations, or cash flows.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." Interpretation 46 changes the criteria by which one
company includes another entity in its consolidated financial statements.
Previously, the criteria was based on control through voting interest.
Interpretation 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. A company that consolidates a variable
interest entity is called the primary beneficiary of that entity. The
consolidation requirements of Interpretation 46 apply immediately to variable
interest entities created after January 31, 2003. The consolidation requirements
apply to older entities in the first fiscal year or interim period beginning
after June 15, 2003. Certain of the disclosure requirements apply in all
financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The adoption of this statement did not
have a material impact to the Company's financial position or results of
operations.

During October 2003, the FASB issued Staff Position No. FIN 46, deferring
the effective date for applying the provisions of FIN 46 until the end of the
first interim or annual period ending after December 31, 2003 if the variable
interest was created prior to February 1, 2003 and the public entity has not
issued financial statements reporting that variable interest entity in
accordance with FIN 46. The FASB also indicated it would be issuing a
modification to FIN 46 prior to the end of 2003. Accordingly, the Company has
deferred the adoption of FIN 46 with respect to VIEs created prior to February
1, 2003. Management is currently assessing the impact, if any, FIN 46 may have
on the Company; however, management does not believe there will be any material
impact on its consolidated financial statements, results of operations or
liquidity resulting from the adoption of this interpretation.

F-41

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities". This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". This
Statement amends Statement 133 for decisions made (1) as part of the Derivatives
Implementation Group process that effectively required amendments to Statement
133, (2) in connection with other Board projects dealing with financial
instruments, and (3) in connection with implementation issues raised in relation
to the application of the definition of a derivative, in particular, the meaning
of an initial net investment that is smaller than would be required for other
types of contracts that would be expected to have a similar response to changes
in market factors, the meaning of underlying, and the characteristics of a
derivative that contains financing components. The adoption of this statement
did not have a material impact to the Company's financial position or results of
operations.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. Some of the provisions
of this Statement are consistent with the current definition of liabilities in
FASB Concepts Statement No. 6, Elements of Financial Statements. The remaining
provisions of this Statement are consistent with the Board's proposal to revise
that definition to encompass certain obligations that a reporting entity can or
must settle by issuing its own equity shares, depending on the nature of the
relationship established between the holder and the issuer. While the Board
still plans to revise that definition through an amendment to Concepts Statement
6, the Board decided to defer issuing that amendment until it has concluded its
deliberations on the next phase of this project. That next phase will deal with
certain compound financial instruments including puttable shares, convertible
bonds, and dual-indexed financial instruments. The adoption of this statement
did not have a material impact on the Company's financial position or results of
operations.

LOCH ENERGY, INC. ("LOCH")

On March 7, 2003, NeoMedia announced that that it had reached an
agreement in principle to acquire and merge with Loch, an oil and gas provider
based in Humble, Texas. On October 1, 2003, NeoMedia discovered that the royalty
interest from future sales of oil owned by Loch were oversold, which would
likely result in materially lower projected available cashflow from Loch's
operations. This projected available cashflow was the basis for the proposed
acquisition by NeoMedia. On October 2, 2003, NeoMedia's Board of Directors voted
to cancel the Memorandum of Terms signed on March 13, 2003, and terminate the
acquisition and merger.

EQUITY LINE OF CREDIT WITH CORNELL CAPITAL PARTNERS, LP ("CORNELL")

On February 11, 2003, NeoMedia and Cornell entered into an Equity Line of
Credit Agreement under which Cornell agreed to purchase up to $10 million of
NeoMedia's common stock over a two-year period, with the timing and amount of
the purchase at the Company's discretion. The maximum amount of each purchase is
$150,000 with a minimum of seven days between purchases. The shares are valued
at 98% of the lowest closing bid price during the five-day period following the
delivery of a notice of purchase by NeoMedia. The Company pays 5% of the gross
proceeds of each purchase to Cornell. On February 14, 2003, the SEC declared
effective the S-1 registration statement containing 100 million shares
underlying the Equity Line of Credit.

During the nine months ended September 30, 2003, the Company has received
gross funding of $3,597,000 from the sale of stock under the Equity Line of
Credit, through the sale of 87,933,244 shares of its common stock. The following
table summarizes funding received from the Equity line of Credit during the nine
months ended September 30, 2003:

F-42

NINE MONTHS
ENDED
FIRST SECOND THIRD SEPTEMBER 30,
QUARTER QUARTER QUARTER 2003
------------ ------------ ------------ ------------

Number of shares sold to Cornell 3,452,373 28,411,871 56,069,000 87,933,244

Gross funds received by NeoMedia $ 312,000 $ 685,000 $ 2,600,000 $ 3,597,000
Less: discount and fees* (28,000) (50,000) (226,000) (304,000)
------------ ------------ ------------ ------------
Net funding received by NeoMedia $ 284,000 $ 635,000 $ 2,374,000 $ 3,293,000
------------ ------------ ------------ ------------

* - Includes placement fees, escrow fees, and a 5% reduction in gross proceeds
retained by Cornell

Subsequent to September 30, 2003, the Company sold an additional
12,066,756 shares to Cornell under the Equity Line of Credit, resulting in an
additional discount of $1,172,000.

Funding received from Cornell during the nine months ended September 30,
2003, was in the form of a debt instrument, under which the Company had the
option to pay down the principal on the promissory note through the issuance of
"puts" of common stock to Cornell over a period of several weeks, or by making
payments in cash.

On September 11, 2003, the Company received an advance from Cornell in the
gross amount of $500,000 before Cornell discounts and fees. As of September 30,
2003, the Company had not issued any shares against this advance to Cornell.
Accordingly, the company has recorded the advance balance of $500,000 in "Cash
advances payable through the issuance of common stock" on its condensed
consolidated balance sheet as of September 30, 2003. During October 2003, the
Company issued 1,066,756 shares to Cornell against this advance, reducing the
balance to approximately $376,000.

On September 29, 2003, the Company received an advance from Cornell in the
gross amount of $1,500,000 before Cornell discounts and fees. As of September
30, 2003, the Company had issued to Cornell 15,000,000 shares against the
advance, valued at approximately $865,000. The Company has recorded the unpaid
advance amount of $635,000 as "Cash advances payable through the issuance of
common stock" on the condensed consolidated balance sheet as of September 30,
2003. During October 2003, the Company issued an additional 11,000,000 shares to
Cornell to pay off the advance in full.

On October 27, 2003, the Company and Cornell entered into a $20 million
Standby Equity Distribution Agreement. The terms of the agreement are identical
to the terms of the previous Equity Line of Credit, except that the maximum
"draw" under the new agreement is $280,000 per week, not to exceed $840,000 in
any 30-day period, and Cornell will purchase up to $20 million of the Company's
common stock. As a consideration fee for Cornell to enter into the agreement,
the Company issued 10 million warrants to Cornell with an exercise price of
$0.05 per share, and a term of five years.

OPTION REPRICING

During May 2003, the Company re-priced approximately 8.0 million stock
options under a 6-month repricing program. Under the terms of the program, the
exercise price for outstanding options under the Company's 2002, 1998, and 1996
Stock Option Plans was restated to $0.01 per share for a period of 6 months. In
accordance with FASB Interpretation, FIN 44, Accounting for Certain Transactions
Involving Stock Transactions, the award has been accounted for as variable from
May 19, 2003 through the period ended June 30, 2002. Accordingly, the Company
recognized approximately $544,000 and $710,000 as compensation in general and
administrative expense during the three and nine month periods ended September
30, 2003. Approximately 4.4 million options were exercised under the repricing
program during the nine months ended September 30, 2003. During September 2003,
the deadline for the option repricing was extended to December 31, 2003 by the
Stock Option Committee of NeoMedia's Board of Directors.

DISPOSAL OF QODE BUSINESS UNIT

On August 31, 2001, the Company signed a non-binding letter of intent to
sell the assets and liabilities of its former Ft. Lauderdale-based Qode business
unit, which it acquired in March 2001, to The Finx Group, Inc., a holding
company based in Elmsford, NY. The Finx Group was to assume $620,000 in Qode
payables and $800,000 in long-term leases in exchange for the issuance of
500,000 shares of the Finx Group, right to use and sell Qode services, and up to
$5 million in affiliate revenues over the next five years. During the third and
fourth quarters of 2001 and the first quarter of 2002, the company recorded a
$2.6 million expense from the write-down of the Qode assets/liabilities to net
realizable value.

During June 2002, the Finx Group notified the Company that it did not
intend to carry out the letter of intent due to capital constraints. As a
result, during the three-month period ended June 30, 2002, the Company recorded
an additional expense of $1.5 million for the write-off of remaining Qode
assets. As of September 30, 2003, the Company had approximately $996,000 of
liabilities relating to the Qode system remaining on its books.

F-43

OTHER EVENTS

On March 13, 2003, the Company repaid the remaining balance of $85,000
on a note due to Michael Kesselbrenner, a private investor. The original note
had been issued in the amount of $165,000 on December 2, 2002, with a term of
150 days. In connection with the default provision of the note, the Company
entered into a Pledge Agreement, dated December 2, 2002, under which the Company
issued 53,620,020 shares of common stock to an unrelated third party as
collateral for the note. The note balance of $85,000 was paid off on March 13,
2003, and the 53,620,020 shares were returned to the Company on April 4, 2003
and retired.

On April 17, 2003, the Board of Directors of the Company approved the
payment in full of approximately $154,000 of liabilities owed by the Company to
Charles W. Fritz, the Company's Founder and Chairman of the Board of Directors,
through the issuance of 15,445,967 shares of common stock. The Company
recognized a discount expense in general and administrative expenses of
approximately $15,000 relating to this transaction with Mr. Fritz.

On April 21, 2003, the Company sold 25,000,000 shares of its common
stock, par value $0.01, in a private placement at a price of $0.01 per share. In
connection with the sale, the Company also granted the purchaser 25,000,000
warrants to purchase shares of the Company's common stock at an exercise price
of $0.01 per share. The warrants had a fair value of $298,000 and have been
recorded as a cost of issuance. The purchaser was William E. Fritz, a member of
the Company's Board of Directors. Proceeds to the Company from sale of the
shares were $250,000. The Company recognized a discount expense in general and
administrative expenses of approximately $50,000 relating to this transaction
with Mr. Fritz. On August 6, 2003, Mr. Fritz exercised his warrants and
purchased 25,000,000 additional shares of common stock at a price of $0.01 per
share.

During April 2003, the Company repriced approximately 1.9 million
warrants held by Thornhill Capital LLC ("Thornhill"), an outside consultant to
the Company. Of the 1.9 million warrants, 1.5 million had an exercise price of
$0.05 per share, and approximately 0.4 million had an exercise price of $2.09
per share. All 1.9 million warrants were repriced to $0.00 per share. The
Company recognized an expense of approximately $27,000 related to this
transaction during the second quarter of 2003. These warrants were exercised
immediately after the repricing.

During April 2003, the Company entered into a consulting agreement with
William Fritz, an outside director, for consulting and advisement services
relating to the merger with Loch Energy, Inc., and to the subsequent
implementation of various management programs surrounding the business. The
agreement calls for total payments of $250,000 over a period of one year. During
August 2003, the Company paid the consulting contract in full. During September
2003, the consulting contract was rescinded and the full $250,000 was returned
to us.

On July 9, 2003, the Company borrowed $25,000 from William E. Fritz, one
of its outside directors. This amount was added to the principal of a $10,000
note payable to Mr. Fritz that matures in April 2004, with all other terms of
the note remaining the same. As consideration for the loan, the Company granted
Mr. Fritz 2,500,000 warrants to purchase shares of the Company's common stock at
an exercise price of $0.01 per share. The warrants had a fair value of
approximately $74,000. In accordance with EITF 00-27, the Company recorded the
relative fair value of the warrants as a discount against the note, and is
amortizing the discount over the life of the note.

On July 16, 2003, the Company's Board of Directors voted to authorize
the issuance of approximately 34.4 million stock options to employees,
contingent upon the passage at the Company's annual meeting on September 24,
2003, of a proposal to adopt a 2003 Stock Option Plan, under which 150 million
options would be allocated for future issuance. The Company expensed
approximately $624,000 related to the issuance of these options during the
quarter ended September 30, 2003. The 2003 Stock Option Plan was approved by
NeoMedia's shareholders. Subsequent to September 30, 2003, the Company issued
the 34.4 million options.

On July 21, 2003, the Company entered into a consulting agreement with
an unrelated party under which the Company paid the consultant 3.6 million
shares of the Company's common stock for services to be performed over a period
of one year. The Company recorded expense of $19,000 and the remaining $81,000
was recorded as deferred compensation.

F-44

On July 28, 2003, the Company signed a binding letter of intent to
purchase Secure Source Technologies ("SST"), a provider of security solutions
and covert security technology for the manufacturing and financial services
industries, in exchange for 3.5 million shares of the Company's common stock. On
October 8, 2003, the merger was completed, and the Company issued 3.5 million
shares to the stockholders of SST. With the purchase of SST, the Company
acquired eight additional patents that compliment its existing intellectual
property portfolio.

On August 29, 2003, the Company borrowed $50,000 from William E. Fritz,
one of its outside directors, under an unsecured note payable. The note was paid
in full during September 2003.

On September 3, 2003, the Company issued 10 million warrants to an
unrelated consultant for professional services rendered in the third and fourth
quarter of 2003. The warrants have an exercise price of $0.01 and a term of five
years. Services provided by the consultant include capital-raising services in
the third quarter of 2003, advisory services relating to our Standby Equity
Distribution Agreement with Cornell Capital Partners, and merger and acquisition
advisement provided during the third and fourth quarters of 2003. The Company
recorded approximately $19,000 as expense, $74,000 as deferred compensation, and
$47,000 as cost of raising capital against additional paid in capital.

On September 24, 2003, the Company's shareholders voted to (i) increase
the number of shares of common stock, par value $0.01 per share, that the
Company is authorized to issue from 200,000,000 to 1,000,000,000; and (ii)
implement the 2003 Stock Option Plan, under which the Company is authorized to
grant to employeees, directors, and consultants up to 150,000,000 options to
purchase shares of its common stock.

On September 29, 2003, the Company transferred $600,000 to an escrow
account to be used to pay princiapal and interest relating to its note payable
to AirClic, Inc. ("AirClic") which is subject to a lawsuit between the Company
and AirClic (see "Legal Proceedings"). On October 3, 2003, NeoMedia paid AirClic
the principal plus interest in the approximate amount of $610,000. On December
5, 2003, we paid an additional $115,000 in legal fees and entered into a
settlement agreement with AirClic under suit was dismissed. We have no further
obligation relating to this matter.

On September 30, 2003, the Company received requests from the SEC's
Southeast Regional Office for certain documents including those concerning
negotiations and arrangements with certain strategic partners and consultants,
patents, recent issuances of securities, investor relations, and the stock
ownership by the Company's officers and directors. The Company responded
promptly and fully and will cooperate with any further requests. The SEC's
letter states that the staff's inquiry is informal and should not be construed
as an indication of any violation of law or as a reflection on any person,
entity, or security.

PRO-FORMA INFORMATION REQUIRED BY SFAS 148

At September 30, 2003, the Company has four stock-based employee
compensation plans (the 2003 Stock Option Plan, the 2002 Stock Option Plan, the
1998 Stock Option Plan, and the 1996 Stock Option Plan). The Company accounts
for those plans under the recognition and measurement principles of APB Opinion
No. 25, Accounting for Stock Issued to Employees, and related Interpretations.
No stock-based employee compensation cost is reflected in net loss, except when
options granted under those plans had an exercise price less than the market
value of the underlying common stock on the date of grant. The following table
illustrates the effect on net loss and loss per share if the company had applied
the fair value recognition provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation, to stock-based employee compensation.

THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------- ----------------------
2003 2002 2003 2002
------- ------- ------- -------

Net Loss, as reported ($2,205) ($ 773) ($4,060) ($6,502)
Compensation recognized under APB 25 623 -- 623 --
Compensation recognized under SFAS 123 (925) (313) (1,361) (629)
------- ------- ------- -------
Pro-forma net loss ($2,507) ($1,086) ($4,798) ($7,131)
======= ======= ======= =======

Net Loss per share:

Basic and diluted - as reported ($ 0.01) ($ 0.03) ($ 0.05) ($ 0.31)
======= ======= ======= =======
Basic and diluted - pro-forma ($ 0.02) ($ 0.05) ($ 0.05) ($ 0.34)
======= ======= ======= =======

F-45

SEGMENT REPORTING

The Company is structured and evaluated by its Board of Directors
and Management as two distinct business units:

NeoMedia Internet Switching Services (NISS), is based in the United
States, with development and operating facilities in Fort Myers, Florida. NISS
develops and supports the Company's physical world to Internet core technology,
including our linking "switch" and our application platforms. NISS also manages
the Company's valuable intellectual property portfolio, including the
identification and execution of licensing opportunities surrounding the patents.

NeoMedia Consulting and Integration Services (NCIS) is the Company's
systems integration business unit. This unit resells client-server equipment and
related software, and general and specialized consulting services. NCIS also
identifies prospects for custom applications based on NeoMedia's products and
services. This unit recently added to its business offerings a much higher
Value-Add called Storage Area Networks (SAN). The operations are based in Lisle,
Illinois.

The Company's reportable segments are strategic business units that
offer different technology and marketing strategies. The Company's areas of
operations are principally in the United States. No single foreign country or
geographic area is significant to the consolidated financial statements

Consolidated net sales, net operating losses for the nine months
ended September 30, 2003 and 2002, and identifiable assets as of September 30,
2003, were as follows:

(in thousands)
-------------------------------------------------------------
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------- -------------------------
2003 2002 2003 2002
------- ------- ------- -------

NET SALES:
NeoMedia Consulting & Integration Services $ 448 $ 3,391 $ 1,971 $ 8,424
NeoMedia Internet Switching Service 13 13 38 28
------- ------- ------- -------
$ 461 $ 3,404 $ 2,009 $ 8,452
------- ------- ------- -------

NET LOSS:
NeoMedia Consulting & Integration Services ($1,855) ($ 338) ($3,310) ($ 546)
NeoMedia Internet Switching Service (350) (435) (750) (5,956)
------- ------- ------- -------
($2,205) ($ 773) ($4,060) ($6,502)
------- ------- ------- -------

AS OF
SEPTEMBER 30,
IDENTIFIABLE ASSETS 2003

NeoMedia Consulting & Integration Services $ 603
NeoMedia Internet Switching Service 2,115
Corporate 2,523
------
$5,241
------

SUBSEQUENT EVENTS

On October 8, 2003, the Company completed its acquisition of Secure
Source Technologies, Inc., a provider of security solutions and covert security
technology for the manufacturing and financial services industries, for 3.5
million shares of NeoMedia common stock. With the purchase of SST, the Company
acquired eight additional patents that compliment its existing intellectual
property portfolio.

F-46

On October 20, 2003, the Company entered into a consulting agreement
with an unrelated third party to provide services related to the implementation
of the Company's PaperClick for Camera Cell Phone business plan in Europe over a
12-month period. The consultant was paid 1,000,000 options with an exercise
price of $0.01 per share and a term of three years.

On October 20, 2003, the Company entered into a consulting agreement
with an unrelated third party to provide services related to the implementation
of the Company's domestic business plan relating to PaperClick patent business
plan over a 12-month period. The consultant was paid 500,000 options with an
exercise price of $0.01 per share and a term of three years.

On October 27, 2003, The Company entered into a Standby Equity
Distribution Agreement with Cornell Capital Partners, LP. Pursuant to the
Standby Equity Distribution Agreement, the Company may, at its discretion,
periodically sell to Cornell shares of common stock for a total purchase price
of up to $20 million. For each share of common stock purchased under the Standby
Equity Distribution Agreement, Cornell Capital Partners will pay 98% of the
lowest closing bid price of the Company's common stock on the OTC Bulletin Board
or other principal market on which our common stock is traded for the 5 trading
days immediately following the notice date. The amount of each advance is
subject to a maximum of $280,000 per week, not to exceed $840,000 in any 30-day
period, with a minimum of 6 trading days between advances. As a consideration
fee for Cornell to enter into the agreement, the Company issued 10 million
warrants to Cornell with an exercise price of $0.05 per share, and a term of
five years. On November 7, 2003 the Company filed a Registration Statement on
Form SB-2 to register the sale of up to 200,000,000 shares under the Standby
Equity Distribution Agreement, as well as the 10,000,000 warrants issued to
Cornell Capital Partners.

Effective October 31, 2003, NeoMedia adopted the 2003 Stock
Incentive Plan. Under the terms of the Plan, 30,000,000 shares of common stock
are initially authorized to be issued to pay compensation and other expenses
related to employees, former employees, consultants, and non-employee directors.
On November 3, 2003, NeoMedia filed a Form S-8 to register all 30,000,000 shares
under the 2003 Stock Incentive Plan.

On November 10, 2003, the Company announced that that it has signed
a non-binding letter of intent to acquire and merge with CSI International, Inc.
("CSI"), of Calgary, Alberta, Canada, a private technology products company and
worldwide leader in the micro paint repair industry. The LOI calls for the
issuance of 7,000,000 shares of the Company's common stock to be issued in
exchange for all outstanding shares of CSI. In addition, the Company will pay
$2.5 million cash. The merger is subject to completion of due diligence by both
sides.

CRITICAL ACCOUNTING POLICIES

The U.S. Securities and Exchange Commission ("SEC") recently issued
Financial Reporting Release No. 60, "Cautionary Advice Regarding Disclosure
About Critical Accounting Policies" ("FRR 60"), suggesting companies provide
additional disclosure and commentary on their most critical accounting policies.
In FRR 60, the SEC defined the most critical accounting policies as the ones
that are most important to the portrayal of a company's financial condition and
operating results, and require management to make its most difficult and
subjective judgments, often as a result of the need to make estimates of matters
that are inherently uncertain. Based on this definition, our most critical
accounting policies include: stock-based compensation; and the valuation of
intangibles, which affects our amortization and write-offs of goodwill and other
intangibles. The Company also has other key accounting policies, such as our
policies for revenue recognition, including the deferral of a portion of
revenues on sales to distributors, and allowance for bad debt. The methods,
estimates and judgments the Company uses in applying these most critical
accounting policies have a significant impact on the results the Company reports
in our financial statements.

F-47

Intangible Asset Valuation. The determination of the fair value of
certain acquired assets and liabilities is subjective in nature and often
involves the use of significant estimates and assumptions. Determining the fair
values and useful lives of intangible assets especially requires the exercise of
judgment. While there are a number of different generally accepted valuation
methods to estimate the value of intangible assets acquired, the Company
primarily uses the weighted-average probability method outlined in SFAS 144.
This method requires significant management judgment to forecast the future
operating results used in the analysis. In addition, other significant estimates
are required such as residual growth rates and discount factors. The estimates
the Company has used are consistent with the plans and estimates that the
Company uses to manage its business, based on available historical information
and industry averages. The judgments made in determining the estimated useful
lives assigned to each class of assets acquired can also significantly affect
our net operating results.

Stock-based Compensation. The Company records stock-based compensation
to outside consultants at fair market value in general and administrative
expense. The Company does not record expense relating to stock options granted
to employees with an exercise price greater than or equal to market price at the
time of grant. The Company reports pro-forma net loss and loss per share in
accordance with the requirements of SFAS 148 (see above). This disclosure shows
net loss and loss per share as if the Company had accounted for its employee
stock options under the fair value method of those statements. Pro-forma
information is calculated using the Black-Scholes pricing method at the date of
grant. This option valuation model requires input of highly subjective
assumptions. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing model does not necessarily provide a reliable
single measure of fair value of its employee stock options.

Revenue Recognition. We derive revenues from two primary sources: (1)
license revenues and (2) resale of software and technology equipment and service
fee revenues.

INTANGIBLE ASSETS

At the end of each quarter, or upon occurrence of material events
relating to a specific intangible item, the Company performs impairment tests on
each of its intangible assets, which include capitalized patent costs, and
capitalized and purchased software costs. In doing so, the Company evaluates the
carrying value of each intangible asset with respect to several factors,
including historical revenue generated from each intangible asset, application
of the assets in our current business plan, and projected revenue to be derived
from the asset. Intangible asset balances are then adjusted to their current net
realizable value based on these criteria if impaired. No impairment charges were
taken during the three-month or nine-month periods ended September 30, 2003.
During the nine months ended September 30, 2002, the Company recognized an
impairment charge of $1.0 million relating to its PaperClick software product.

F-48

FINANCING AGREEMENTS

As of September 30, 2003, the Company was party to a commercial
financing agreement with GE Access that provides short-term financing for
certain computer hardware and software purchases. This arrangement allows the
Company to re-sell high-dollar technology equipment and software without
committing cash resources to financing the purchase. The Company and GE Access
are currently operating under an additional arrangement under which GE Access
retains 50% of the Company's proceeds from sales financed by GE Access, and
applies the portion of proceeds toward past due balances. This arrangement
reduces by half the Company's cash flow from resales of equipment and software
financed by GE Access, until the balance owed to GE Access is paid in full.
During October 2003, the Company and GE entered into an additional agreement
under which the Company also makes regular payment against its past due
balances. Termination of the Company's financing relationship with GE Access
could have a material adverse effect the Company's financial condition.
Management expects the agreement to remain in place in the near future. As of
September 30, 2003, the amount payable under this financing arrangement was
approximately $345,000.

OTHER DEBTS

On December 2, 2002, the Company issued to Michael Kesselbrenner, a
private investor, a promissory note in the principal amount of $165,000, bearing
interest at a rate of 12% per annum, with a maturity of 150 days. In connection
with the default provision of the promissory note, the Company entered into a
pledge agreement, dated December 2, 2002, under which the Company issued
53,620,020 shares of common stock to an unrelated third party as collateral for
the Promissory Note. The investor only funded $84,000 of the principal amount of
the note. The Company repaid this note during March 2003, and the shares held in
escrow were returned during April 2003. The Company has no further obligation
under this note.

During November 2002, NeoMedia issued Convertible Secured Promissory Notes
with an aggregate face value of $60,000 to 3 separate parties, including Charles
W. Fritz, Chairman of the Board of Directors of NeoMedia; William E. Fritz, an
outside director; and James J. Keil, an outside director. The notes bear
interest at a rate of 15% per annum, and matured at the earlier of i.) four
months, or ii.) the date the shares underlying the Cornell Equity Line of Credit
were registered with the SEC. The notes were convertible, at the option of the
holder, into either cash or shares of our common stock at a 30% discount to
either market price upon closing, or upon conversion, whichever is lower.
NeoMedia also granted to the holders an additional 1,355,670 shares of its
common stock and 60,000 warrants to purchase shares of its common stock at $0.03
per share, with a term of three years. The warrants and shares were issued in
January 2003. In addition, since this debt is convertible into equity at the
option of the note holder at beneficial conversion rates, an embedded beneficial
conversion feature was recorded as a debt discount and amortized using the
effective interest rate over the life of the debt in accordance with EITF 00-27.
Total cost of beneficial conversion feature, fair value of the stock and cost of
warrants issued exceed the face value of the notes payable, therefore, only
$60,000, the face amount of the note, was recognizable as debt discount, and
amortized over the life of the notes payable. During March 2003, two of the
affiliated parties, Mr. William Fritz and Mr. Keil, agreed to extend the
maturity date due to the Company's capital constraints. The Company repaid
Charles Fritz's note in full during March 2003, and repaid James J. Keil's note
in full during April 2003. The Company paid $30,000 of the principal on William
Fritz's note during April 2003, and entered into a new note with Mr. Fritz for
the remaining $10,000. The new note bears interest at a rate of 10% per annum
and matures in April 2004. The new note also includes a provision under which,
as consideration for the loan, Mr. Fritz will receive a 3% royalty on all future
revenue generated from the Company's intellectual property.

GOING CONCERN

The accompanying condensed consolidated financial statements have
been prepared on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
Through September 30, 2003, the Company has not been able to generate sufficient
revenues from its operations to cover its costs and operating expenses. Although
the Company has been able to issue its common stock or other financing for a
significant portion of its expenses, it is not known whether NeoMedia will be
able to continue this practice, or if its revenue will increase significantly to
be able to meet its cash operating expenses. This, in turn, raises substantial
doubt about the Company's ability to continue as a going concern. Management
believes that the Company will be able to raise additional funds through its
Standby Equity Distribution Agreement with Cornell. However, there can be no
assurances that the market for the Company's stock will support the sale of
sufficient shares of NeoMedia's stock to raise sufficient capital to sustain
operations. The condensed consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.

F-49

WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO PROVIDE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS ABOUT NEOMEDIA TECHNOLOGIES, INC. EXCEPT
THE INFORMATION OR REPRESENTATIONS CONTAINED IN THIS PROSPECTUS. YOU SHOULD NOT
RELY ON ANY ADDITIONAL INFORMATION OR REPRESENTATIONS IF MADE.

-----------------------

This prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy any securities:

/ / except the common stock offered by this prospectus;

/ / in any jurisdiction in which the offer or solicitation is not authorized;

/ / in any jurisdiction where the dealer or other salesperson is not qualified
to make the offer or solicitation;

/ / to any person to whom it is unlawful to make the offer or solicitation; or

/ / to any person who is not a United States resident or who is outside the
jurisdiction of the United States.

The delivery of this prospectus or any accompanying sale does not imply that:

/ / there have been no changes in the affairs of NeoMedia Technologies, Inc.
after the date of this prospectus; or

/ / the information contained in this prospectus is correct after the date of
this prospectus.

-----------------------

Until _____, 2003, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters.

----------------------

PROSPECTUS

---------------------

308,648,500 SHARES OF COMMON STOCK

NEOMEDIA TECHNOLOGIES, INC.

_____, 2003

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth estimated expenses expected to be
incurred in connection with the issuance and distribution of the securities
being registered. NeoMedia will pay all expenses in connection with this
offering.

Securities and Exchange Commission Registration Fee $ 348
Printing and Engraving Expenses 2,500
Accounting Fees and Expenses 15,000
Legal Fees and Expenses 25,000
Miscellaneous 7,152
-------
TOTAL $50,000
=======

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

As permitted by the Delaware General Corporation Law, we have
included in our Certificate of Incorporation a provision to eliminate the
personal liability of our directors for monetary damages for breach or alleged
breach of their fiduciary duties as directors, except for liability (i) for any
breach of the director's duty of loyalty to NeoMedia or its stockholders, (ii)
for acts or omissions not in good faith or which involved intentional misconduct
or a knowing violation of law, (iii) in respect of certain unlawful dividend
payments or stock redemptions or repurchases, as provided in Section 174 of the
DGCL, or (iv) for any transaction from which the director derived an improper
personal benefit. The effect of this provision is to eliminate the rights of
NeoMedia and its stockholders (through stockholders' derivative suits on behalf
of NeoMedia) to recover monetary damages against a director for breach of the
fiduciary duty of care as a director except in the situations described in (i)
through (iv) above. This provision does not limit nor eliminate the rights of
NeoMedia or any stockholder to seek non-monetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care. These
provisions will not alter the liability of directors under federal securities
laws.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers or
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.

RECENT SALES OF UNREGISTERED SECURITIES

II-1

On October 27, 2003, we issued 7,279 shares of stock to one
unrelated vendor as payment of past due liabilities. These shares are being
included for registration hereunder.

On October 27, 2003, we issued to Cornell Capital Partners, LP,
10,000,000 warrants to purchase shares of our common stock at an exercise price
of $0.05 per share. The warrants were issued as a one-time commitment fee
relating to the Standby Equity Distribution Agreement between Cornell and us.
The shares underlying the warrants are being included for registration
hereunder.

On October 27, 2003, we issued 3,500,000 shares of stock to the
holders of all of the outstanding shares of Secure Source Technologies, Inc.
("SST"), in exchange for all the outstanding shares of common stock of SST.
These shares are being included for registration hereunder.

On October 22, 2003, we issued 66,841 shares of stock to one
unrelated vendor as payment of past due liabilities. These shares are being
included for registration hereunder.

On October 7, 2003, we issued 103,907 shares of stock to one
unrelated vendor as payment of past due liabilities. These shares are being
included for registration hereunder.

On October 6, 2003, we issued 37,743 shares of stock to one
unrelated vendor as payment of past due liabilities. These shares are being
included for registration hereunder.

On September 25, 2003, we issued 875,855 shares of stock to two
unrelated vendors as payment of past due liabilities. These shares are being
included for registration hereunder.

On September 25, 2003, we issued 1,600,000 shares of stock to a
former employee as payment of past due incentive compensation. These shares are
being included for registration hereunder.

On July 9, 2003, we borrowed $25,000 from William E. Fritz, one of
our outside directors. This amount was added to the principal of a $10,000 note
payable to Mr. Fritz that matures in April 2004, with all other terms of the
note remaining the same. As consideration for the loan, we granted Mr. Fritz
2,500,000 warrants to purchase shares of the Company's common stock at an
exercise price of $0.01 per share. The shares underlying the warrants are being
included for registration hereunder.

On April 21, 2003, we sold 25,000,000 shares of our common stock,
par value $0.01, in a private placement at a price of $0.01 per share. In
connection with the sale, we also granted the purchaser 25,000,000 warrants to
purchase shares of our common stock at an exercise price of $0.01 per share. The
warrants had a fair value of $298,000 and have been recorded as a cost of
issuance. The purchaser was William E. Fritz, a member of our Board of
Directors. Proceeds to us from sale of the shares were $250,000. We recognized a
discount expense in general and administrative expenses of approximately $50,000
relating to this transaction with Mr. Fritz. On August 6, 2003, Mr. Fritz
exercised his warrants and purchased 25,000,000 additional shares of common
stock at a price of $0.01 per share. The shares, and the shares underlying the
warrants, are being included for registration hereunder

On April 17, 2003, our Board of Directors approved the payment in
full of approximately $154,000 of liabilities owed by us to Charles W. Fritz,
our Founder and Chairman of the Board of Directors, through the issuance of
15,445,967 shares of common stock. We recognized a discount expense in general
and administrative expenses of approximately $15,000 relating to this
transaction with Mr. Fritz. These shares are being included for registration
hereunder.

II-2

In June 2002, we issued 10,000 shares of common stock to an
unrelated vendor as an interest payment on past-due accounts payable. There were
no cash proceeds to us in these transactions.

In February 2002, we issued 19,000,000 shares of our common stock at
a price of $0.17 per share to five individuals and two institutional unrelated
parties. The shares were issued in exchange for limited recourse promissory
notes maturing at the earlier of i.) 90 days from the date of issuance, or ii.)
30 days from the date of registration of the shares. The gross proceeds of such
transaction will be approximately $3,040,000 upon maturity of the notes, as a
purchase price of $0.01 per share, or $190,000 in aggregate, was paid in cash.
During August 2002, the notes matured without payment, and we subsequently
cancelled the 19 million shares issued in connection with such notes. We have
accrued a liability in the third quarter of $190,000 relating to the par value
paid in connection with the issuance of the shares.

In January 2002, we issued 452,489 shares of common stock to
About.com, Inc. The shares were issued upon conversion of 452,489 shares of
Series A Convertible Preferred Stock issued to About.com, Inc. as payment for
advertising expenses incurred during 2001. This issuance was made pursuant to
Section 3(a)(9) of the Act.

In January 2002, we issued 55,000 shares of common stock at a price
of $0.13 per share to an individual unrelated party. Cash proceeds to NeoMedia
were

$7,150.

In March and April 2001, we issued 316,500 shares of our common
stock at a price of $3.40 per share to four foreign institutional unrelated
parties. The gross proceeds of such transaction were approximately $1,076,000.
In connection with the sale, we issued as a commission 50,000 warrants to
purchase shares of our common stock at an exercise price of $3.56 per share to a
foreign individual.

In March 2001, we issued 18,000 shares of our common stock at a
price of $3.41 per share to a foreign institutional unrelated party. The gross
proceeds of such transaction were $61,000.

In March 2001, we issued 156,250 shares of our common stock at a
price of $3.20 per share to a foreign institutional unrelated party. The gross
proceeds of such transaction were $500,000.

In March 2000, we issued an aggregate of 1,000,000 shares of our
common stock at a price of $7.50 per share to 20 foreign individuals and one
foreign institutional unrelated party. The gross proceeds of such transaction
were approximately $7,500,000. In connection with the sale, we issued as a
commission 125,000 warrants to purchase shares of our common stock at an
exercise price of $7.50 per share, 125,000 warrants to purchase shares of our
common stock at an exercise price of $15.00 per share, and 100,000 warrants to
purchase shares of our common stock at an exercise price of $7.20 per share to
the institutional investor and an independent consultant.

II-3

In February 2000, we issued 37,500 shares of our common stock upon
the exercise of outstanding warrants at a price of $2.00 per share, originally
issued in connection with the transaction described above in March 2002. The
gross proceeds of such transaction were approximately $75,000.

In January 2000, we issued an aggregate of 301,368 shares of our
common stock at a price of $3.75 per share to 14 unrelated parties, 3 of which
were institutions and 11 of which were individuals, of which two were foreign.
In connection with the sale, we also issued an aggregate of 12,570 warrants with
an exercise price of $7.19, 5,400 warrants with an exercise price of $6.44, and
12,167 warrants with an exercise price of $7.37. The gross proceeds of such
transaction were approximately $1,130,000. In connection with the sale, we
issued as commissions 9,502 shares of its common stock valued at $7.09 per
share.

We relied upon the exemption provided in Section 4(2) of the
Securities Act and/or Rule 506 thereunder, which cover "transactions by an
issuer not involving any public offering," to issue securities discussed above
without registration under the Securities Act of 1933. We made a determination
in each case that the person to whom the securities were issued did not need the
protection that registration would afford. The certificates representing the
securities issued displayed a restrictive legend to prevent transfer except in
compliance with applicable laws, and our transfer agent was instructed not to
permit transfers unless directed to do so by us, after approval by our legal
counsel. We believe that the investors to whom securities were issued had such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of the prospective investment. We also believe
that the investors had access to the same type of information as would be
contained in a registration statement.

II-4

EXHIBITS

EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------

3.1 Articles of Incorporation of Incorporated by reference to Exhibit 3.1 to
Dev-Tech Associates, Inc. and Registrant's Registration Statement No. 333-5534 as
amendment thereto filed with the SEC on November 25, 1996

3.2 Bylaws of DevSys, Inc. Incorporated by reference to Exhibit 3.2 to
Registrant's Registration Statement No. 333-5534 as
filed with the SEC on November 25, 1996

3.3 Restated Certificate of Incorporated by reference to Exhibit 3.3 to
Incorporation of DevSys, Inc. Registrant's Registration Statement No. 333-5534 as
filed with the SEC on November 25, 1996

3.4 By-laws of DevSys, Inc. Incorporated by reference to Exhibit 3.4 to
Registrant's Registration Statement No. 333-5534 as
filed with the SEC on November 25, 1996

3.5 Articles of Merger and Agreement Incorporated by reference to Exhibit 3.5 to
and Plan of Merger of DevSys, Registrant's Registration Statement No. 333-5534 as
Inc and Dev-Tech Associates, Inc. filed with the SEC on November 25, 1996

3.6 Certificate of Merger of Incorporated by reference to Exhibit 3.6 to
Dev-Tech Associates, Inc. into Registrant's Registration Statement No. 333-5534 as
DevSys, Inc. filed with the SEC on November 25, 1996

3.7 Articles of Incorporation of Incorporated by reference to Exhibit 3.7 to
Dev-Tech Migration, Inc. and Registrant's Registration Statement No. 333-5534 as
amendment thereto filed with the SEC on November 25, 1996

3.8 By-laws of Dev-Tech Migration, Incorporated by reference to Exhibit 3.8 to
Inc. Registrant's Registration Statement No. 333-5534
as filed with the SEC on November 25, 1996

3.9 Restated Certificate of Incorporated by reference to Exhibit 3.9 to
Incorporation of DevSys Registrant's Registration Statement No. 333-5534 as
Migration, Inc. filed with the SEC on November 25, 1996

3.10 Form of By-laws of DevSys Incorporated by reference to Exhibit 3.10 to
Migration, Inc. Registrant's Registration Statement No. 333-5534 as
filed with the SEC on November 25, 1996

II-4

EXHIBITS

EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------

3.11 Form of Agreement and Plan of Incorporated by reference to Exhibit 3.11 to
Merger of Dev-Tech Migration, Registrant's Registration Statement No. 333-5534 as
Inc. into DevSys Migration, Inc. filed with the SEC on November 25, 1996

3.12 Form of Certificate of Merger of Incorporated by reference to Exhibit 3.12 to
Dev-Tech Migration, Inc. into Registrant's Registration Statement No. 333-5534 as
DevSys Migration, Inc. filed with the SEC on November 25, 1996

3.13 Certificate of Amendment to Incorporated by reference to Exhibit 3.13 to
Certificate of Incorporation of Registrant's Registration Statement No. 333-5534 as
DevSys, Inc. changing its name filed with the SEC on November 25, 1996
to NeoMedia Technologies, Inc.

3.14 Form of Certificate of Amendment Incorporated by reference to Exhibit 3.14 to
to Certificate of Incorporation Registrant's Registration Statement No. 333-5534 as
of NeoMedia Technologies, Inc. filed with the SEC on November 25, 1996
authorizing a reverse stock
split

3.15 Form of Certificate of Amendment Incorporated by reference to Exhibit 3.5 to
to Restated Certificate of Registrant's Annual Report as filed with the SEC on
Incorporation of NeoMedia November 2, 2001
Technologies, Inc. increasing
authorized capital and creating
preferred stock

4.1 Form of Certificate for Common Incorporated by reference to Exhibit 4.1 to the
Stock of DevSys, Inc. Registrant's Registration Statement No. 333-5534 as
filed with the SEC on November 25, 1996

4.2 Form of Joseph Charles' Warrant Incorporated by reference to Exhibit 4.2 to the
Agreement Registrant's Registration Statement No. 333-5534 as
filed with the SEC on November 25, 1996

4.3 Form of Private Placement Incorporated by reference to Exhibit 4.4 to the
Financing Converted Securities Registrant's Registration Statement No. 333-5534 as
Registration Rights Agreement filed with the SEC on November 25, 1996

4.4 Form of 10% Unsecured Incorporated by reference to Exhibit 4.5 to the
Subordinate Convertible Registrant's Registration Statement No. 333-5534 as
Promissory Note filed with the SEC on November 25, 1996

4.5 Form of Principal Stockholder's Incorporated by reference to Exhibit 4.6 to the
Warrant Registrant's Registration Statement No. 333-5534 as
filed with the SEC on November 25, 1996

4.6 Form of Placement Agent's Incorporated by reference to Exhibit 4.7 to the
Registration Rights Agreement Registrant's Registration Statement No. 333-5534 as
filed with the SEC on November 25, 1996

II-5

EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------

4.7 Form of Placement Agent's Incorporated by reference to Exhibit 4.8 to the
Warrant for the Purchase of Registrant's Registration Statement No. 333-5534 as
Shares of Common Stock and filed with the SEC on November 25, 1996
Warrants

4.8 Form of Warrant Agreement and Incorporated by reference to Exhibit 4.9 to the
Warrant Registrant's Registration Statement No. 333-5534 as
filed with the SEC on November 25, 1996

4.9 NeoMedia Technologies, Inc. 1998 Incorporated by reference to Appendix A to the
Stock Option Plan Registrant's Form 14A as filed with the SEC on
February 18, 1998

4.10 Form of Warrant to Charles W. Incorporated by reference to Exhibit 4.10 to the
Fritz Registrant's Registration Statement on Form 10-KSB
as filed with the SEC on March 31, 1998

4.11 Form of Warrant to Dominick & Incorporated by reference to Exhibit 4.11 to the
Dominick, Incorporated Registrant's Annual Report on Form 10-KSB as filed
with the SEC on March 31, 1998

4.12 Form of Warrant to Compass Incorporated by reference to Exhibit 4.12 to the
Capital LLC Registrant's Annual Report on Form 10-KSB as filed
with the SEC on March 31, 1998

4.13 Form of Warrant to Thornhill Incorporated by reference to Exhibit 4.13 to the
Capital, LLC Registrant's Annual Report on Form 10-KSB as filed
with the SEC on March 31, 1998

4.14 Form of Warrant to Southeast Incorporated by reference to Exhibit 4.14 to the
Research Partners, Inc. Registrant's Annual Report on Form 10-KSB as filed
with the SEC on March 31, 1998

4.15 Form of Warrant to Joseph Incorporated by reference to Exhibit 4.15 to the
Charles & Associates, Inc. Registrant's Annual Report on Form 10-KSB as filed
with the SEC on March 31, 1998

5 Opinion re: Legality *

10.1 Form of "Lock Up" Agreement to Incorporated by reference to Exhibit 10.1 to the
be entered into by NeoMedia and Registrant's Registration Statement No. 333-5534 as
its Officers, Directors, and filed with the SEC on November 25, 1996
Shareholders

10.2 Form of Nonsolicitation and Incorporated by reference to Exhibit 10.2 to the
Confidentiality Agreement Registrant's Registration Statement No. 333-5534 as
filed with the SEC on November 25, 1996

10.3 Employment Agreement, dated May Incorporated by reference to Exhibit 10.3 to the
1, 1996 between Dev-Tech Registrant's Registration Statement No. 333-5534 as
Associates, Inc. and Charles W. filed with the SEC on November 25, 1996
Fritz

II-6

EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------

10.4 Employment Agreement, dated Incorporated by reference to Exhibit 10.4 to the
April 1, 1996 between Dev-Tech Registrant's Registration Statement No. 333-5534 as
Associates, Inc. and Robert T. filed with the SEC on November 25, 1996
Durst, Jr.

10.5 Employment Agreement, dated May Incorporated by reference to Exhibit 10.5 to the
1, 1996, between Dev-Tech Registrant's Registration Statement No. 333-5534 as
Associates, Inc. and Charles T. filed with the SEC on November 25, 1996
Jensen

10.6 Lease Agreement dated September Incorporated by reference to Exhibit 10.6 to the
1, 1994 for 112 South Tryon Registrant's Registration Statement No. 333-5534 as
Street, Charlotte, North filed with the SEC on November 25, 1996
Carolina

10.7 Lease dated August 29, 1995 for Incorporated by reference to Exhibit 10.8 to the
280 Shuman Boulevard, Registrant's Registration Statement No. 333-5534 as
Naperville, Illinois filed with the SEC on November 25, 1996

10.8 Promissory Note, dated as of Incorporated by reference to Exhibit 10.9 to the
December 31, 1994, in the Registrant's Registration Statement No. 333-5534 as
principal amount of $413,000 filed with the SEC on November 25, 1996
from Dev-Tech Associates, Inc.
payable to William E. Fritz

10.9 Promissory Note, dated as of Incorporated by reference to Exhibit 10.10 to the
December 31, 1994, in the Registrant's Registration Statement No. 333-5534 as
principal amount of $75,000 from filed with the SEC on November 25, 1996
Dev-Tech Associates, Inc.
payable to Dev-Mark, Inc.

10.11 Promissory Note, dated as of Incorporated by reference to Exhibit 10.12 to the
December 31, 1994, in the Registrant's Registration Statement No. 333-5534 as
principal amount of $90,000 from filed with the SEC on November 25, 1996
Dev-Tech Migration, Inc. payable
to William E. Fritz

10.12 Promissory Note, dated as of Incorporated by reference to Exhibit 10.13 to the
December 31, 1994, in the Registrant's Registration Statement No. 333-5534 as
principal amount of $10,000 from filed with the SEC on November 25, 1996
Dev-Tech Migration, Inc. payable
to Charles W. Fritz

10.13 Demand Promissory Note, dated as Incorporated by reference to Exhibit 10.14 to the
of December 9, 1994, in the Registrant's Registration Statement No. 333-5534 as
principal amount of $500,000 filed with the SEC on November 25, 1996
from Dev-Tech Migration, Inc.
payable to Dev-Tech Associates,
Inc.

10.14 Promissory Note, dated as of Incorporated by reference to Exhibit 10.15 to the
December 28, 1995, in the Registrant's Registration Statement No. 333-5534 as
principal amount of $450,000 filed with the SEC on November 25, 1996
from Dev-Tech Migration, Inc.
payable to Charles W. Fritz

10.15 Promissory Note, dated as of Incorporated by reference to Exhibit 10.16 to the
January 2, 1996, in the Registrant's Registration Statement No. 333-5534 as
principal amount of $360,000 filed with the SEC on November 25, 1996
from Dev-Tech Associates, Inc.
to Dev-Tech Migration, Inc.

II-7

EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------

10.16 Promissory Note, dated as of Incorporated by reference to Exhibit 10.17 to the
January 2, 1996, in the Registrant's Registration Statement No. 333-5534 as
principal amount of $472,000 filed with the SEC on November 25, 1996
from William E. Fritz to
Dev-Tech Associates, Inc.

10.17 Promissory Note, dated as of Incorporated by reference to Exhibit 10.18 to the
January 2, 1996, in the Registrant's Registration Statement No. 333-5534 as
principal amount of $750,000 filed with the SEC on November 25, 1996
from Dev-Tech Migration, Inc. to
Charles W. Fritz

10.18 Promissory Note, dated as of Incorporated by reference to Exhibit 10.19 to the
December 31, 1994, in the Registrant's Registration Statement No. 333-5534 as
principal amount of $46,748 from filed with the SEC on November 25, 1996
Dev-Tech Migration, Inc. to
Brandon Edenfield

10.19 Promissory Note, dated as of Incorporated by reference to Exhibit 10.20 to the
June 19, 1995, in the principal Registrant's Registration Statement No. 333-5534 as
amount of $20,000 from Dev-Tech filed with the SEC on November 25, 1996
Migration, Inc. to Brandon
Edenfield

10.20 Security Agreement, dated as of Incorporated by reference to Exhibit 10.21 to the
December 9 1994, between Registrant's Registration Statement No. 333-5534 as
Dev-Tech Associates, Inc. and filed with the SEC on November 25, 1996
Dev-Tech Migration, Inc

10.21 Agreement for Wholesale Incorporated by reference to Exhibit 10.35 to the
Financing (Security Agreement), Registrant's Registration Statement No. 333-5534 as
dated October 20, 1992, to IBM filed with the SEC on November 25, 1996
Credit Corporation from Dev-Tech
Associates, Inc.

10.22 Guaranty from Gen-Tech, Inc. to Incorporated by reference to Exhibit 10.36 to the
IBM Credit Corporation Registrant's Registration Statement No. 333-5534 as
filed with the SEC on November 25, 1996

10.23 Guaranty from Dev-Mark, Inc. to Incorporated by reference to Exhibit 10.37 to the
IBM Credit Corporation Registrant's Registration Statement No. 333-5534 as
filed with the SEC on November 25, 1996

10.24 Amendment to Agreement for Incorporated by reference to Exhibit 10.38 to the
Wholesale Financing and Addendum Registrant's Registration Statement No. 333-5534 as
to Agreement for Wholesale filed with the SEC on November 25, 1996
Financing

10.25 Assignment Agreement, dated Incorporated by reference to Exhibit 10.39 to the
September 15, 1994, from Registrant's Registration Statement No. 333-5534 as
Dev-Tech Associates, Inc. to IBM filed with the SEC on November 25, 1996
Credit Corporation

10.26 Guaranty dated October 20, 1992 Incorporated by reference to Exhibit 10.40 to the
to IBM Credit Corporation from Registrant's Registration Statement No. 333-5534 as
Charles W. Fritz filed with the SEC on November 25, 1996

II-8

EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------

10.27 Collateralized Guaranty, dated Incorporated by reference to Exhibit 10.41 to the
August 16, 1994, to IBM Credit Registrant's Registration Statement No. 333-5534 as
Corporation from Charles W. filed with the SEC on November 25, 1996
Fritz, as Guarantor

10.28 Collateralized Guaranty, dated Incorporated by reference to Exhibit 10.42 to the
August 16, 1994, to IBM Credit Registrant's Registration Statement No. 333-5534 as
Corporation from Dev-Mark, Inc. filed with the SEC on November 25, 1996

10.29 Dev-Tech Associates, Inc. Annual Incorporated by reference to Exhibit 10.43 to the
Incentive Plan for Management Registrant's Registration Statement No. 333-5534 as
filed with the SEC on November 25, 1996

10.30 Dev-Tech Associates, Inc. 1996 Incorporated by reference to Exhibit 10.44 to the
Stock Option Plan Registrant's Registration Statement No. 333-5534 as
filed with the SEC on November 25, 1996

10.31 First Amendment and Restatement Incorporated by reference to Exhibit 10.45 to the
of Dev-Tech Associates, Inc. Registrant's Registration Statement No. 333-5534 as
1996 Stock Option Plan filed with the SEC on November 25, 1996

10.32 Form of Stock Option Agreement - Incorporated by reference to Exhibit 10.46 to the
Dev-Tech Associates, Inc. Registrant's Registration Statement No. 333-5534 as
filed with the SEC on November 25, 1996

10.33 Dev-Tech Migration, Inc. 1996 Incorporated by reference to Exhibit 10.47 to the
Stock Option Plan Registrant's Registration Statement No. 333-5534 as
filed with the SEC on November 25, 1996

10.34 First Amendment and Restatement Incorporated by reference to Exhibit 10.48 to the
of Dev-Tech Migration, Inc. Registrant's Registration Statement No. 333-5534 as
filed with the SEC on November 25, 1996

10.35 Form of Stock Option Agreement - Incorporated by reference to Exhibit 10.49 to the
Dev-Tech Migration, Inc. Registrant's Registration Statement No. 333-5534 as
filed with the SEC on November 25, 1996

10.36 Dev-Tech Associates, Inc. 401(k) Incorporated by reference to Exhibit 10.50 to the
Plan and amendments Registrant's Registration Statement No. 333-5534 as
filed with the SEC on November 25, 1996

10.37 Engagement Letter, dated March Incorporated by reference to Exhibit 10.51 to the
13, 1995, with Compass Capital, Registrant's Registration Statement No. 333-5534 as
Inc. and Amendments thereto filed with the SEC on November 25, 1996

II-9

EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------

10.38 Mutual General Release and Stock Incorporated by reference to Exhibit 10.52 to the
Purchase Agreement with the Registrant's Registration Statement No. 333-5534 as
Estate of Thomas Ruberry filed with the SEC on November 25, 1996

10.39 Form of "Lock-Up" Agreement with Incorporated by reference to Exhibit 10.53 to the
Bridge Financing Selling Registrant's Registration Statement No. 333-5534 as

Stockholders and Form of filed with the SEC on November 25, 1996
Addendum to Subscription
Agreement

10.40 Forms of Agreements Not to Sell Incorporated by reference to Exhibit 10.58 to the
Registrant's Registration Statement No. 333-5534 as
filed with the SEC on November 25, 1996

10.41 Letter of Intent dated October Incorporated by reference to Exhibit 10.59 to the
11, 1996 between NeoMedia Registrant's Registration Statement No. 333-5534 as
Technologies, Inc. and E-Stamp filed with the SEC on November 25, 1996
Corporation

10.42 First Amendment and Restatement Incorporated by reference to Exhibit 10.60 to the
of NeoMedia Technologies, Inc. Registrant's Registration Statement No. 333-5534 as
1996 Stock Option Plan filed with the SEC on November 25, 1996

10.43 Agreement of Lease, dated Incorporated by reference to Exhibit 10.43 to the
November 27, 1996, between First Registrant's Annual Report on Form 10-KSB as filed
Union National Bank of Florida with the SEC on March 27, 1997
and NeoMedia Technologies, Inc.

10.44 Sublease Agreement between Incorporated by reference to Exhibit 10.44 to the
NeoMedia Technologies, Inc. and Registrant's Annual Report on Form 10-KSB as filed
Lancaster Annuity Services with the SEC on March 27, 1997
Company dated November 8, 1996

10.45 Agreement for Sale of Assets Incorporated by reference to Exhibit 10.45 to the
between Basic Developments, Inc. Registrant's Annual Report on Form 10-KSB as filed
and Meja Sistemas C.A. and with the SEC on March 27, 1997
NeoMedia Technologies, dated
February 12, 1997

10.46 Master Lease between William E. Incorporated by reference to Exhibit 10.46 to the
Fritz and NeoMedia Technologies, Registrant's Annual Report on Form 10-KSB as filed
Inc., dated November 6, 1996 with the SEC on March 27, 1997

10.47 Agreement for Wholesale Incorporated by reference to Exhibit 10.47 to the
Financing, dated February 20, Registrant's Annual Report on Form 10-KSB as filed
1997, between IBM Credit with the SEC on March 27, 1997
Corporation and
NeoMedia Technologies, Inc.

10.48 Collateralized Guaranty, dated Incorporated by reference to Exhibit 10.48 to the
February 20, 1997, between IBM Registrant's Annual Report on Form 10-KSB as filed
Credit Corporation and NeoMedia with the SEC on March 27, 1997
Technologies, Inc.

10.49 Lease by and between American Incorporated by reference to Exhibit 10.50 to the
National Bank and Trust Company Registrant's Quarterly Report on Form 10-QSB as
of Chicago and NeoMedia filed with the SEC on March 31, 1997
Technologies, Inc., February 25,
1997

II-10

EXHIBITS

EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------

10.50 Letter Agreement by and between Incorporated by reference to Exhibit 10.51 to the
Dominick & Dominick, Registrant's Quarterly Report on Form 10-QSB as
Incorporated and NeoMedia filed with the SEC on June 30, 1997
Technologies, Inc. dated March
20, 1997

10.51 Stock Purchase Agreement dated Incorporated by reference to Exhibit 99.1 to the
August 30, 1997 by and between Registrant's Current Report on Form 8-K as filed
NeoMedia Technologies, Inc. and with the SEC on September 25, 1997
George Luntz and Gerald L. Willis

10.52 Registration Rights Agreement Incorporated by reference to Exhibit 99.2 to the
dated September 25, 1997 by and Registrant's Current Report on Form 8-K as filed
between NeoMedia Technologies, with the SEC on September 25, 1997
Inc., Gerald L. Willis and
George G. Luntz

10.53 Consulting Agreement dated Incorporated by reference to Exhibit 99.3 to the
August 30, 1997 by and between Registrant's Current Report on Form 8-K as filed
NeoMedia Technologies, Inc. and with the SEC on September 25, 1997
George Luntz

10.54 Employment Agreement dated Incorporated by reference to Exhibit 99.4 to the
August 30, 1997 by and between Registrant's Current Report on Form 8-K as filed
NeoMedia Technologies, Inc. and with the SEC on September 25, 1997
George Luntz

10.55 Termination of Collaterized Incorporated by reference to Exhibit 10.49 to the
Guaranty between IBM Credit Registrant's Annual Report on Form 10-KSB as filed
Corporation, Gen-Tech, Inc. and with the SEC on March 27, 1997
Dev-Mark, Inc., dated February
5, 1997

10.56 Purchase Agreement dated Incorporated by reference to Exhibit 10.30 to the
December 31, 1998, by and Registrant's Annual Report on Form 10-KSB as filed
between NeoMedia Technologies, with the SEC on April 15, 1999
Inc. and Solar Communications,
Inc.

10.57 NeoMedia Technologies, Inc. 1998 Incorporated by reference to Appendix A of the
Stock Option Plan Registrant's Form 14A as filed with the SEC on
February 18, 1998

10.58 Amendment to NeoMedia Incorporated by reference to Form 14A as filed with
Technologies 1998 Stock Option the SEC on July 2, 1999
Plan

10.59 Employment Agreement dated Incorporated by reference to Exhibit 10.32 to the
August 2, 1999 between NeoMedia Registrant's Annual Report on Form 10-KSB as filed
Technologies, Inc. and William with the SEC on March 30, 2000
Goins

10.60 Licensing Agreement between Incorporated by reference to Exhibit 10.1 to the
Digital Convergence Corporation Registrant's Quarterly Report on Form 10-QSB as
and NeoMedia Technologies, Inc. filed with the SEC on October 30, 2000

10.61 Sale and Purchase Agreement Incorporated by reference to Exhibit 10.48 to the
between Qode.com, Inc. and Registrant's Current Report on Form 8-K as filed
NeoMedia Technologies, Inc. with the SEC on March 15, 2001

10.62 Warrant repricing letter dated Incorporated by reference to Exhibit 1.2 to the
March 19, 2002 Registrant's Current Report on Form 8-K as filed
with the SEC on April 2, 2002

10.63 Option repricing letter dated Incorporated by reference to Exhibit 1.2 to the
April 3, 2002 Registrant's Current Report on Form 8-K as filed
with the SEC on April 15, 2002

II-11

EXHIBITS

EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------

10.64 Intellectual Property licensing Incorporated by reference to Exhibit 10.18 to the
agreement between NeoMedia and Registrant's Form S-1/A as filed with the SEC on
A.T. Cross Company April 24, 2002

10.65 Intellectual Property licensing Incorporated by reference to Exhibit 10.19 to the
agreement between NeoMedia and Registrant's Form S-1/A as filed with the SEC on
Symbol Technologies, Inc. April 24, 2002

10.66 Sponsorship and Advertising Incorporated by reference to Exhibit 10.20 to the
Agreement between NeoMedia and Registrant's Form S-1/A as filed with the SEC on
About.com, Inc. April 24, 2002

10.67 Letter of Intent regarding Incorporated by reference to Exhibit 10.21 to the
proposed strategic transaction Registrant's Form S-1/A as filed with the SEC on
between NeoMedia and AirClic, April 24, 2002
Inc.

10.68 Form of Promissory Note issued Incorporated by reference to Exhibit 10.22 to the
to AirClic, Inc. Registrant's Form S-1/A as filed with the SEC on
April 24, 2002

10.69 Form of Limited Recourse Incorporated by reference to Exhibit 10.23 to the
Promissory Note issued in Registrant's Form S-1/A as filed with the SEC on
exchange for 19 Million Shares April 24, 2002 of Common Stock

10.70 Nasdaq Staff Determination Incorporated by reference to Exhibit 10.24 to the
Letter with respect to Registrant's Form S-1/A as filed with the SEC on
de-listing of NeoMedia April 24, 2002 securities from the Nasdaq SmallCap market

10.71 Revised warrant repricing letter Incorporated by reference to Exhibit 10.25 to the
dated April 3, 2002 Registrant's Form S-1/A as filed with the SEC on
April 24, 2002

10.72 Equity Line of Credit Agreement, Incorporated by reference to Exhibit 10.17 to the
dated May 6, 2002, between Registrant's Quarterly Report on Form 10-Q as filed
NeoMedia Technologies and with the SEC on August 14, 2002
Cornell Capital Partners, LP

10.73 License Agreement, dated October Incorporated by reference to Exhibit 10.1 to the
18, 2000, between Digital Registrants Form 10-QSB as filed on October 30, 2000
Convergence Corporation and
NeoMedia

10.74 Nasdaq Staff delisting Incorporated by reference to Exhibit 10.18 to the
notification letter dated May Registrant's Quarterly Report on Form 10-Q as filed
16, 2002 with the SEC on August 14, 2002

10.75 Settlement Agreement relating to Incorporated by reference to Exhibit 10.19 to
the wrongful termination lawsuit Registrant's Form 10-Q as filed with the SEC on
brought by former president and August 14, 2002
Chief Operating Officer

10.76 Mutual settlement agreement by Incorporated by reference to Exhibit 10.20 to the
and between NeoMedia Registrants Form 10-Q as filed on November 14, 2002
Technologies and 2150 Western
Court Company, LLC

10.77 Mutual settlement agreement by Incorporated by reference to Exhibit 10.21 to the
and between NeoMedia Registrants Form 10-Q as filed on November 14, 2002
Technologies and Ripfire, Inc.

II-12

EXHIBITS

EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------

10.78 Mutual settlement agreement by Incorporated by reference to Exhibit 10.22 to the
and between NeoMedia Registrants Form 10-Q as filed on November 14, 2002
Technologies and Wachovia Bank,
N.A.

10.79 Mutual settlement agreement by Incorporated by reference to Exhibit 10.23 to the
and between NeoMedia Registrants Form 10-Q as filed on November 14, 2002
Technologies and Marianne LePera,
NeoMedia Technologies' former
General Counsel

10.80 Revised Equity Line of Credit Incorporated by reference to Exhibit 10.80 to the
Agreement, dated February 11, Registrants Form S-1/A as filed on February 14, 2003
2003, between NeoMedia
Technologies and Cornell
Capital Partners LP

10.81 Sponsorship and Advertising Incorporated by reference to Exhibit 23.7 to the
Agreement, dated May 23, 2001, Registrants Form S-1/A as filed on November 16, 2001
between About.com and NeoMedia

10.82 Promissory Note dated December Incorporated by reference to Exhibit 99.1 of the
2, 2002 between Michael Registrant's Form 8-K as filed with the SEC on
Kesselbrenner and NeoMedia December 12, 2002.

10.83 Pledge Agreement dated December Incorporated by reference to Exhibit 99.2 of the
2, 2002, between Michael Registrant's Form 8-K as filed with the SEC on
Kesselbrenner and NeoMedia December 12, 2002.

10.84 Form of Placement Agent Incorporated by reference to Exhibit 10.84 to the
Agreement, dated November 2002, Registrant's Form S-1 as filed on February 12, 2003
between NeoMedia Technologies
and Westrock Advisors, Inc.

10.85 Form of Escrow Agreement, dated Incorporated by reference to Exhibit 10.85 to the
November 2002, between NeoMedia Registrant's Form S-1 as filed on February 12, 2003
Technologies and Cornell
Capital Partners

10.86 Form of Registration Rights Incorporated by reference to Exhibit 10.86 to the
Agreement, dated November 2002, Registrant's Form S-1 as filed on February 12, 2003
between NeoMedia Technologies and
Cornell Capital Partners

10.87 Promissory Note, dated February Incorporated by reference to Exhibit 10.87 to the
23, 2001, between Digital Registrant's Form S-1 as filed on February 12, 2003
Convergence Corporation and
NeoMedia

10.88 Termination Agreement, dated Incorporated by reference to Exhibit 10.88 to the
August 21, 2001, between Registrant's Form S-1 as filed on February 12, 2003
About.com and NeoMedia

10.89 Memorandum of Terms to merge, Incorporated by reference to Exhibit 3.1 to the dated
March 7, 2003, between Registrant's Form 8-K as filed on March 19, 2003
NeoMedia and Loch Energy, Inc.

10.89 Binding Letter of Intent to Incorporated by reference to Exhibit 99.5 to the
merge, dated July 25, 2003, Registrant's Form 10-QSB as filed on August 14, 2003
between NeoMedia and Secure
Source Technologies, Inc.

10.90 Definitive Merger Agreement, Incorporated by reference to Exhibit 99.1 to the
dated October 3, 2003, between Registrant's Form 8-K as filed on October 8, 2003
NeoMedia and Secure Source
Technologies, Inc

II-13

EXHIBITS

EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------

10.91 Standby Equity Distribution Filed Herewith
Agreement, dated October 27,
2003, between NeoMedia and

Cornell Capital Partners, LP

10.92 Form of Placement Agent Filed Herewith
Agreement, dated October 27,
2003, between NeoMedia and
Newbridge Securities Corporation

10.93 Form of Registration Rights Filed Herewith
Agreement, dated October 27,
2003, between NeoMedia and

Cornell Capital Partners, LP

10.94 Form of Escrow Agreement, dated Filed Herewith
October 27, 2003, between
NeoMedia and Cornell Capital
Partners, LP

10.95 2003 Stock Compensation Plan Incorporated by reference to Exhibit 4.1 to the
Registrant's Form S-8 as filed on October 31, 2003

10.96 Letter of Intent to acquire CSI Incorporated by reference to Exhibit 3.1 to the
International, Inc., dated Registrant's Form 8-K as filed on November 13, 2003
November 8, 2003

10.97 Letter of Intent to acquire BSD Incorporated by reference to Exhibit 3.1 to the
Software, Inc., dated December Registrant's Form 8-K as filed on December 11, 2003
9, 2003

21.0 Subsidiaries Provided Herewith

23.1 Consent of Stonefield Josephson, Provided Herewith
Inc.

23.2 Consent of Kirkpatrick & Incorporated by reference to Exhibit 5 of this
Lockhart, LLP filing

* Included in the SB-2 filed with the Commission on November 7, 2003. II-14

UNDERTAKINGS

The undersigned registrant hereby undertakes:

(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:

(i) Include any prospectus required by Sections 10(a)(3) of
the Securities Act of 1933 (the "Act");

(ii) Reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement;

(iii) Include any additional or changed material information
on the plan of distribution;

(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities that remain unsold at the end of the offering.

Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

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SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on our behalf by the undersigned, on December 17, 2003.

NEOMEDIA TECHNOLOGIES, INC.

By: /s/ Charles T. Jensen
-------------------------
Charles T. Jensen
President, Chief Operating Officer,
Acting Chief Executive Officer and Director

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.

SIGNATURES TITLE DATE
---------- ----- ----

/s/ Charles T. Jensen President, Chief Executive Officer,
------------------------------------
Charles T. Jensen Chief Operating Officer and Director December 17, 2003

/s/ William E. Fritz Director and Secretary December 17, 2003
------------------------------------
William E. Fritz

/s/ Charles W. Fritz Chairman of the Board
------------------------------------
Charles W. Fritz December 17, 2003

/s/ David A. Dodge Vice-President, Chief Financial
------------------------------------
David A. Dodge Officer and Controller December 17, 2003

/s/ Hayes Barclay Director December 17, 2003
------------------------------------
Hayes Barclay

/s/ James J. Keil Director December 17, 2003
------------------------------------
James J. Keil

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