Edgar Filing: NEOMEDIA TECHNOLOGIES INC

As filed with the Securities and Exchange Commission on April 1, 2004

SEC Registration No. ___________
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

DELAWARE NEOMEDIA TECHNOLOGIES, INC. 36-3680347
(State or other (Name of issuer in its (I.R.S. Employer
jurisdiction of charter) Identification No.)
incorporation or
organization)

2201 SECOND STREET, 7373 CHARLES T. JENSEN
SUITE 402 (Primary Standard 2201 SECOND STREET,
FORT MYERS, FLORIDA 33901 Industrial Classification SUITE 402
(239) 337-3434 Code Number) FORT MYERS, FLORIDA
(Address and telephone 33901-3083
number of Registrant's (239) 337-3434
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., 201 S. Biscayne Blvd.,
Suite 2000 Suite 2000
Miami, FL 33131 Miami, FL 33131
Telephone No.: Telephone No.:
(305) 539-3305 (305) 539-3305
Telecopier No.: Telecopier No.:
(305) 358-7095 (305) 358-7095

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PROPOSED PROPOSED
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MAXIMUM MAXIMUM
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AMOUNT OFFERING AGGREGATE AMOUNT OF
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TITLE OF SECURITIES TO BE PRICE PER OFFERING REGISTRATION
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TO BE REGISTERED REGISTERED SHARE (1) PRICE (1) FEE
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Shares underlying warrants to purchase Common
Stock, par value $0.01 per share 44,150,000 $0.106 $4,679,900 $592.94
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Common Stock, par value $0.01 per share 7,103,199 $0.106 $752,939 $95.40
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TOTAL 51,253,199 $5,432,839 $688.34

(1) In accordance with Rule 457(c), the price represents the average of the
high and low sale prices of the registrant's common stock on March 19,
2004, on the Over-the-Counter Bulletin Board.

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. |_|
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

PROSPECTUS

NEOMEDIA TECHNOLOGIES, INC.

51,253,199 SHARES OF COMMON STOCK

This prospectus relates to the sale of up to 51,253,199 shares of
NeoMedia's common stock by persons who are, or will become, stockholders of
NeoMedia. Please refer to "Selling Shareholders" beginning on page 14. NeoMedia
will receive proceeds from the exercise of warrants to purchase 44,150,000
shares of common stock being registered hereunder. 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 March
8, 2004, the last reported sale price of our common stock on the OTC Bulletin
Board was $0.11 per share.

The selling stockholders consist of:

o Stone Street Asset Management LLC, which intends to sell up to
40,000,000 shares of common stock upon the exercise of warrants with
an exercise price of $0.05 per share. These warrants were originally
issued to Cornell Capital Partners LP in January 2004, and were
assigned by Cornell to Stone Street Asset Management during March
2004.

o Former shareholders of CSI International, Inc., who received a total
of 7,000,000 shares upon NeoMedia's acquisition of CSI on February
6, 2004.

o Thornhill Capital LLC, which intends to sell 4,000,000 shares of
common stock upon the exercise of warrants with an exercise price of
$0.11 per share.

o David Kaminer, who intends to sell up to 253,199 shares of common
stock, of which 150,000 will be sold upon the exercise of warrants
with an exercise price of $0.102 per share.

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 3, WE HAVE LISTED SEVERAL RISK FACTORS WHICH YOU SHOULD
CONSIDER. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY BEFORE YOU MAKE YOUR
INVESTMENT DECISION.

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 March __, 2004.

TABLE OF CONTENTS

PAGE NO.

USE OF PROCEEDS 16
DILUTION 17
DIVIDEND POLICY 18
CAPITALIZATION 19
PLAN OF DISTRIBUTION 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 21
DESCRIPTION OF BUSINESS 29
MANAGEMENT 38
AUDIT COMMITTEE 41
EXECUTIVE COMPENSATION 42
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTIONS VALUES 43
LEGAL PROCEEDINGS 47
PRINCIPAL STOCKHOLDERS 49
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 51
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER STOCKHOLDER MATTERS 53
DESCRIPTION OF SECURITIES 57
LEGAL MATTERS 62
EXPERTS 62
HOW TO GET MORE INFORMATION 63
INDEX OF FINANCIAL STATEMENTS F-1
PART II INFORMATION NOT REQUIRED IN PROSPECTUS II-1

Our audited consolidated financial statements for the fiscal years December 31,
2003 and December 31, 2002, were contained in our Annual Report on Form 10-KSB.

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 three distinct business units: NeoMedia Internet
Software Service (NISS), NeoMedia Consulting and Integration Services (NCIS),
and NeoMedia Micro Paint Repair (NMPR).

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 our physical world to Internet core
technology, including our linking "switch" and NeoMedia's application platforms.
NISS also manages our 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 we were 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. These operations are based in Lisle, Illinois.

NMPR (micro paint repair offerings) is the business unit encompassing the
recently-acquired CSI International chemical line. NMPR is attempting to
commercialize its micro-paint repair solution. We completed our acquisition of
CSI on February 6, 2004.

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 Former shareholders of CSI International, Inc., who received a total
of 7,000,000 shares upon NeoMedia's acquisition of CSI on February
6, 2004.

o Thornhill Capital LLC, which intends to sell 4,000,000 shares of
common stock upon the exercise of warrants with an exercise price of
$0.11 per share.

o David Kaminer, who intends to sell up to 253,199 shares of common
stock

COMMON STOCK OFFERED 51,253,199 shares

OFFERING PRICE Market Price

COMMON STOCK OUTSTANDING PRIOR TO THIS
OFFERING(1) 283,586,629 shares

USE OF PROCEEDS The shares of common stock offered
pursuant to this prospectus are
offered by the Selling Stockholders
listed on page 14. We will receive
proceeds from the exercise of
warrants of which the underlying
shares are being registered
hereunder, 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. See
"Risk Factors" and "Dilution"
sections.

OTC BULLETIN BOARD SYMBOL NEOM

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

(1) This table is presented as of March 8, 2004 and excludes options and
warrants to purchase 54,193,149 and 60,345,000 shares of common stock,
respectively.

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
continuing to incur substantial losses for the foreseeable future. We incurred a
loss of $5,382,000 in the year ended December 31, 2003 and $7,421,000 in the
year ended December 31, 2002. Our accumulated losses were approximately
$76,147,000 as of December 31, 2003. As of December 31, 2003 and 2002, we had a
working capital deficit of approximately $6,526,000 and $8,985,000,
respectively. We had stockholders' deficit of $(3,203,000) and $(6,026,000) at
December 31, 2003 and 2002, respectively. We generated revenues of $2,400,000
and $9,399,000 for the years ended December 31, 2003 and 2002, respectively. In
addition, during the years ended December 31, 2003 and 2002, we recorded
negative cash flows from operations of $2,979,000 and $535,000, respectively. To
succeed, we must develop new client and customer relationships and substantially
increase our revenue derived from improved products and additional value-added
services. We have expended and to the extent it has available financing, we
intend to continue to expend substantial resources to develop and improve our
products, increase our value-added services and to market our products and
services. These development and marketing expenses often must be incurred well
in advance of the recognition of revenue. As a result, we may not be able to
achieve or sustain profitability.

OUR INDEPENDENT ACCOUNTANTS HAVE ADDED GOING CONCERN LANGUAGE TO THEIR REPORT ON
OUR CONSOLIDATED 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 consolidated financial statements and the related notes for the
years ended December 31, 2003 and 2002, indicates that, at the date of their
report, we had suffered recurring losses from operations and that our current
cash position raised substantial doubt about our ability to continue as a going
concern. Our consolidated 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 an investor 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 12 companies. We
are prone to all of the risks inherent to the establishment of any new business
venture, including unforeseen changes in our business plan. An investor 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 COMMON STOCK IS SUBJECT TO PRICE VOLATILITY

As a result of the emerging and evolving nature of the markets in which we
competes, as well as the current nature of the public markets and our current
financial condition, we believes 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. An investor
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 competes;

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

o the level of use of the Internet and online services, as well as 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 SOFTWARE BUSINESS UNIT
AND THE FAILURE OF THIS UNIT WOULD NEGATIVELY AFFECT THE PRICE OF OUR STOCK

We provide products and services that provide a link from physical
objects, including printed material, to the Internet. We can provide no
assurance that:

o this Internet Switching Software 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 Software business unit should
never achieve profitability, that our current product offerings should so
suffer, or that our products fail to obtain market acceptance, our business,
prospects, financial condition, and results of operations would be materially
adversely affected.

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 years ended December 31, 2003 and 2002, we derived 83% and 95%,
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. We can provide no assurance
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 it resells; or

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

Further, we believe that 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 would
have a material adverse effect on our business, prospects, financial condition,
and results of operations.

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

At December 31, 2003, approximately 65% 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 ISS 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 would have a material adverse effect on our business, prospects,
financial condition, and results of 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 has. 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, Acting Chief
Executive Officer and Chief Operating Officer, and Charles W. Fritz, our founder
and Chairman of the Board of Directors. 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 UNSUCCESSFUL IN INTEGRATING OUR MICRO PAINT REPAIR BUSINESS WITH OUR
CURRENT BUSINESS

The success of our Micro Paint Repair business unit could depend on the
ability of our executive management to integrate the business plan with the
business plan of our NCSI and NISS business units. The NMPR business unit
operates in a separate industry from our other two business units.

WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND 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 six patents for our physical world-to-Internet
technology, and an additional six patents acquired with the purchase of Secure
Source Technologies related to document security. 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 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 do not currently maintain product
liability insurance. There can be no assurance that:

o we have contractually limited our liability for such claims
adequately or at all;

o 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. 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 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, 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 plan's adoption, their holdings might have otherwise
triggered the "poison pill".

In addition, our certificate of incorporation authorizes the Board of
Directors to designate and issue preferred stock, in one or more series, the
terms of which may be determined at the time of issuance by the Board of
Directors, without further action by stockholders, and may include voting
rights, including the right to vote as a series on particular matters,
preferences as to dividends and liquidation, conversion, and redemption rights,
and sinking fund provisions.

We are authorized to issue a total of 25,000,000 shares of Preferred
Stock, par value $0.01 per share. We have no present plans for the issuance of
any preferred stock. However, the issuance of any preferred stock could have a
material adverse effect on the rights of holders of our common stock, and,
therefore, could reduce the value of shares of our common stock. In addition,
specific rights granted to future holders of preferred stock could be used to
restrict NeoMedia's ability to merge with, or sell our assets to, a third party.
The ability of the Board of Directors to issue preferred stock could have the
effect of rendering more difficult, delaying, discouraging, preventing, or
rendering more costly an acquisition of NeoMedia or a change in our control
thereby preserving control by the current stockholders.

RISKS RELATING TO OUR INDUSTRY

THE SECURITY OF THE INTERNET POSES RISKS TO THE SUCCESS OF OUR ENTIRE BUSINESS

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, which may have a material adverse effect on
our physical world-to-Internet business.

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. In
addition, customers may not adopt, and 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 novel and cost efficient 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 potentially inadequate development of the necessary
network infrastructure or 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, or 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 or 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, or due to
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.

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 would have a material adverse effect on our
business, prospects, financial condition, and results of 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.

OUR COMPETITORS IN THE MICRO PAINT REPAIR INDUSTRY COULD DUPLICATE OUR
PROPRIETARY PROCESSES

Our success in the micro paint repair industry depends upon proprietary
chemical products and processes. There is no guarantee that our competitors will
not duplicate our proprietary processes.

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 have a material adverse effect on our business, prospects, financial
condition, and results of 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 understanding clients' needs.
A number of these factors are beyond our control. Existing or future 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 NeoMedia.

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, the primary
focus of our business. Similarly, we compete against significantly larger and
better-financed companies in our systems integration and equipment resale
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 or may conduct operations. 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 may 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.

Many of our competitors in our Micro Paint Repair business have access to
more financial resources as well. We may not be able to penetrate markets or
market our products as effectively as our better-funded competitors.

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 have a material adverse effect on our business,
prospects, financial condition, and results of 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 allows 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.

Certain of our micro paint solutions could be subject to environmental
regulations.

RISKS SPECIFIC TO THIS OFFERING

As of March 8, 2004, we had 283,586,629 shares of common stock
outstanding, and options and warrants to purchase up to an aggregate 114,538,149
shares of common stock. Up to an additional 188,934,629 previously-registered
shares of common stock may be issued under our Standby Equity Distribution
Agreement with Cornell Capital Partners.

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
51,253,199 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.

THE MARKET PRICE OF OUR SECURITIES MAY BE VOLATILE

Our common stock has traded as low as $0.01 and as high as $0.55 between
January 1, 2002 and March 8, 2004. 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 March 8, 2004, we had outstanding stock options to purchase
54,193,149 shares of common stock and warrants to purchase 60,345,000 shares of
common stock, some of which 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.

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 previously registered under the Standby Equity
Distribution Agreement, and if all options and warrants were exercised, we would
have up to 587,059,407 shares outstanding.

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
283,586,629 shares of common stock outstanding as of March 8, 2004, 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 Stone Street Asset Management is the holder of 40 million warrants
that were originally issued to Cornell Capital Partners LP in
January 2004, and were assigned by Cornell Capital Partners to Stone
Street Asset Management during March 2004. Mark Angelo, the managing
member of Stone Street Asset Management, is the natural person who
exercises voting and/or dispositive powers over the shares held by
Stone Street Asset Management.

o On February 6, 2004, we purchased CSI International, Inc. for $2.5
million cash and 7 million shares of common stock. Stanton Hill is
the founder and former CEO of CSI International, Inc. Linda Hill is
Stanton Hill's wife. Shares being registered hereunder in the name
of Stanton and Linda Hill were acquired from NeoMedia as part of the
purchase price paid by us for CSI. Stanton Hill is currently the
Director of Operations of NeoMedia's Micro Paint Repair business
unit.

o Shares being registered hereunder in the name of 3980716 Manitoba
Ltd. were acquired from NeoMedia as part of the purchase price paid
by us for CSI. Blair McInnes, the managing member 3980716 Manitoba
Ltd., is the natural person who exercises voting and/or dispositive
powers over the shares held by 3980716 Manitoba Ltd. Blair McInnes
is also currently an outside sales consultant to NeoMedia, and is
operating under a three-year consulting agreement.

o Thornhill Capital LLC provides financial consulting services for us.
Stock being registered hereunder c/o Martha Refkin was granted as
compensation for services rendered.

o David Kaminer performs contracted public relations and investor
relations services for us. Stock being registered hereunder in the
name of David Kaminer was granted as payment of past due
liabilities.

The table follows:

----------------------------------------------------------------------------------------
PERCENTAGE OF
========================================================================================
OUSTANDING
========================================================================================
SHARES PERCENTAGE OF
========================================================================================
SHARES BENEFICIALLY SHARES
========================================================================================
BENEFICIALLY OWNED SHARES TO BE BENEFICIALLY
========================================================================================
OWNED BEFORE BEFORE SOLD IN THE OWNED AFTER
========================================================================================
SELLING STOCKHOLDERS OFFERING OFFERING (1) OFFERING OFFERING (1)
-------------------- -------- - ------------ -------- ------------

Stone Street Asset Management, LLC 31,159,907 (2) 9.9% 40,000,000 ---

Stanton and Linda Hill 4,300,000 (3) 1.5% 3,300,000 0.35%

3980716 Manitoba Ltd. 4,200,000 (4) 1.5% 3,700,000 0.18%

David Kaminer 253,199 (5) * 253,199 ---

Thornhill Capital LLC 14,000,000 (6) 4.7% 4,000,000 3.41%

TOTAL 53,913,106 19.0% 51,253,199 3.90%
========================================================================================

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

* Indicates less than 1%.

(1) Applicable percentage of ownership is based on 283,586,629 shares of
common stock outstanding as of March 8, 2004, together with securities
exercisable or convertible into shares of common stock within 60 days
of March 8, 2004, 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 March 8, 2004,
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 the offering consists of 31,159,907 warrants to
purchase shares of our common stock at an exercise price of $0.05 per
share. Stone Street Asset Management holds a warrant to purchase up to
40,000,000 shares of NeoMedia common stock. However, the warrant
contains a provision that Stone Street Asset Management may not own
more than 9.9% of the outstanding shares of NeoMedia. Beneficial
ownership is therefore limited to 9.9% of NeoMedia's outstanding
shares. The address of the referenced shareholder is 101 Hudson
Street, Suite 3606, Jersey City, NJ, 07302.

(3) Ownership before the offering consists of: 3,300,000 shares granted in
connection with our acquisition of CSI International, Inc. on February
6, 2004; and 1,000,000 options to purchase shares of our common stock
at an exercise price of $0.10 per share. The address of the referenced
shareholder is 78 Kinkora Drive,Winnipeg, Manitoba, Canada, R3R-2L6.

(4) Ownership before the offering consists of: 3,700,000 shares granted in
connection with our acquisition of CSI International, Inc. on February
6, 2004; and 500,000 options to purchase shares of our common stock at
an exercise price of $0.10 per share. The address of the referenced
shareholder is #1-343 Forge Rd. SE, Calgary, Alberta, Canada, T2H-0S9.

(5) Ownership before the offering consists of 103,199 shares of common
stock and 150,000 warrants to purchase shares of common stock at an
exercise price of $0.102 per share. The address of the referenced
shareholder is 108 Ralph Avenue, White Plains, NY, 10606.

(6) Ownership before the offering consists of 14,000,000 warrants to
purchase shares of common stock. The address of the referenced
holder(s) is c/o Martha Refkin, 3709 Fielding Drive, Springfield, IL,
62707.

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. We will receive the
exercise price of 44,150,000 warrants being registered hereunder.

For illustrative purposes, we have set forth below our intended use of
proceeds for the net proceeds to be received upon exercise of warrants being
registered hereunder. The table assumes estimated offering expenses of $50,000.

Stone Street Asset Management - 40,000,000 warrants with exercise price of $0.05 $2,000,000
Thornhill Capital - 4,000,000 warrants with exercise price of $0.11 440,000
David Kaminer - 150,000 warrants with exercise price of $0.102 15,300
GROSS PROCEEDS $2,455,300
Less offering expenses (50,000)
--------
NET PROCEEDS 2,405,300

USE OF PROCEEDS:
General Working Capital $2,405,300

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

DILUTION

The net tangible book value of our company as of December 31, 2003 was
$(5,736,000) or $(0.0235) 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. Our net tangible book value will be impacted by the common
stock to be issued upon the exercise of 44,150,000 warrants being registered
hereunder.

If we assume the exercise of all 44,150,000 warrants being registered
hereunder at their respective exercise prices, less offering expenses of
$50,000, our net tangible book value as of December 31, 2003 would have been
($3,330,700) or ($0.0116) per share. The exercise of these warrants would
represent an immediate increase in net tangible book value to existing
stockholders of $0.0119 per share and an immediate dilution to new stockholders
of $0.0672 per share. The following table illustrates the per share dilution:

Weighted average exercise price per share $0.0556
Net tangible book value per share before this offering ($0.0235)
Increase attributable to new investors $0.0119
--------
Net tangible book value per share after this offering ($0.0116)
--------
Dilution per share to new stockholders $0.0672
--------

DIVIDEND POLICY

We have not declared or paid any dividends on our common stock during the
years ended December 31, 2003, 2002, or 2001. 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. 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 December 31, 2003, NeoMedia's actual
capitalization and pro forma capitalization after giving effect to the issuance
of 44,150,000 shares of common stock upon exercise of warrants being registered
hereunder. This table assumes the 40,000,000 warrants held by Stone Street Asset
Management are exercised at an exercise price of $0.05 per share, the 4,000,000
warrants held by Thornhill Capital are exercised at an exercise price of $0.11
per share, and the 150,000 warrants held by David Kaminer are exercised at
$0.102 per share. The table assumes total estimated offering expenses of
$50,000. 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.

DECEMBER 31, 2003
ACTUAL PROFORMA
------ --------

Long-term debt, net of current portion --- ---
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,
247,041,675 shares issued and 243,991,257 outstanding (1)(2) 2,439,913 2,881,413
Treasury stock, at cost, 201,230 shares of common stock (779,000) (779,000)
Additional paid-in capital:
Preferred stock -- --
Common stock 71,565,000 73,528,800
Deferred stock-based compensation (282,000) (282,000)
Accumulated deficit (76,147,000) (76,147,000)
-------------- --------------
Total stockholders' deficit ($3,203,087) ($797,787)
-------------- --------------
Total capitalization ($3,203,087) ($797,787)
============== ==============

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

(1) This table excludes outstanding options and warrants, aside from warrants
held by Stone Street Asset Management, Thornhill Capital, and David
Kaminer, which if exercised into shares of common stock would result in
NeoMedia issuing 54,193,149 and 16,195,000, respectively, additional
shares of common stock.

(2) Assuming the issuance of 44,150,000 shares of common stock, the Company's
proforma number of shares issued and outstanding would be 291,191,675
issued and 288,141,257, respectively.

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.

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
estimate that the expenses of the offering to be borne by us will be
approximately $50,000. The offering expenses consist of: a SEC registration fee
of $688, printing expenses of $2,500, accounting fees of $15,000, legal fees of
$25,000 and miscellaneous expenses of $6,812. 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 the exercise price of $0.05 upon exercise of
40,000,000 warrants being registered in the name of Stone Street Asset
Management, the exercise price of $0.11 upon exercise of 4,000,000 warrants
being registered in the name of Thornhill Capital, and the exercise price of
$0.102 upon exercise of 150,000 warrants being registered in the name of David
Kaminer.

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 additional patents as part of our
acquisition of Secure Source Technologies, Inc. On September 8, 2003, we
announced our PaperClick for Camera Cell PhonesTM 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. During 2003, we signed contracts with several key partners
outlined in the strategy, including agents Big Gig Strategies and SRP
Consulting, and European advertising agency 12Snap. We have also entered into
letters of intent with global brand communication company Seven Worldwide, and
markting organizations iCoupon and Digital Rum.

LOCH ENERGY, INC.

During the first quarter of 2003, we announced that we had reached an
agreement in principle to acquire and merge with Loch Energy, Inc., 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 fundamental basis for the
acquisition. On October 2, 2003, Our Board of Directors voted to terminate the
acquisition and merger proceedings.

SEC INQUIRY

We 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 our officers and
directors. NeoMedia 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.

ACQUISITIONS

CSI INTERNATIONAL, INC. On February 6, 2004, we acquired CSI
International, Inc., of Calgary, Alberta, Canada, a private technology products
company in the micro paint repair industry. We paid 7,000,000 shares of our
common stock, plus $2.5 million cash in exchange for all outstanding shares of
CSI. We have centralized the administrative functions in our Ft. Myers, Florida
headquarters, and maintain the sales and operations office in Calgary, Alberta,
Canada.

BSD SOFTWARE, INC. 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 and shareholders, and any required
regulatory approvals. Triton, formed in 1998 and acquired by BSD in 2002, is an
Internet Protocol-enabled provider of live and automated operator calling
services,

e-business support, billing and clearinghouse functions and information
management services to telecommunications, Internet and e-business service
providers.

Our 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 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 YEAR ENDED DECEMBER 31, 2003 AS COMPARED TO THE
YEAR ENDED DECEMBER 31, 2002

Net sales. Total net sales for the year ended December 31, 2003 were
$2,400,000, which represented a $6,999,000, or 74%, decrease from $9,399,000 for
the year ended December 31, 2002. This decrease primarily resulted from reduced
resales of Sun Microsystems equipment due to increased competition and general
economic conditions. We intend to continue to pursue additional resales of
equipment, software and services. We expect resales to more closely resemble the
results for the year ended December 31, 2003, rather than the year ended
December 31, 2002. With the acquisition of CSI, the Company expects sales in
2004 from this new segment of business to be substantially higher than in 2003.

License fees. License fees were $414,000 for the year ended December 31,
2003, compared with $446,000 for the year ended December 31, 2002, a decrease of
$32,000, or 7%. The decrease was due to slightly lower sales of internally
developed software licenses in 2003. We will continue to attempt to increase
sales of these high-margin products, and 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 $6,967,000, or
78%, to $1,986,000 for the year ended December 31, 2003, as compared to
$8,953,000 for the year ended December 31, 2002. This decrease primarily
resulted from reduced resales of Sun Microsystems equipment due to increased
competition and general economic conditions. We intend to continue to pursue
additional resales of equipment, software and services. We expect resales to
more closely resemble the results for the year ended December 31, 2003, rather
than the year ended December 31, 2002.

Cost of Sales. Cost of license fees was $300,000 for the year ended
December 31, 2003, a decrease of $541,000, or 64%, compared with $841,000 for
the year ended December 31, 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 $1,829,000 for the year ended December 31, 2003, a decrease
of $5,594,000, or 75%, compared with $7,423,000 for the year ended December 31,
2002. The decrease resulted from decreased resales in 2003 compared with 2002.
Cost of resales as a percentage of related resales was 92% in 2003, compared to
83% 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. We expect costs of resales to fluctuate
with the sales of our equipment, software, and services over the next 12 months.
With the acquisition of CSI, the Company expects cost of sales in 2004 from this
new segment of business to be substantially higher than in 2003.

Gross Profit. Gross profit was $271,000 for the year ended December 31,
2003, a decrease of $864,000, or 76%, compared with gross profit of $1,135,000
for the year ended December 31, 2002. This decrease 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 $523,000 for the
year ended December 31, 2003, compared to $1,009,000 for the year ended December
31, 2002, a decrease of $486,000 or 48%. 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 during 2003. We expect sales and marketing
expense to increase over the next 12 months with the acquisition of CSI
International and the potential acquisition of BSD Software, as well as with the
continued development and potential rollout of our PaperClick product suite.

General and administrative. General and administrative expenses increased
by $202,000, or 5%, to $4,270,000 for the year ended December 31, 2003, compared
to $4,068,000 for the year ended December 31, 2002. The increase resulted
primarily from non-cash expenses relating to our option repricing program,
expense for stock options issued with exercise

prices below market price, and stock-based professional service expense. We
expect general and administrative expense to increase over the next 12 months
with the acquisition of CSI International and the potential acquisition of BSD
Software.

Research and development. During the year ended December 31, 2003, we
charged to expense $332,000 of research and development costs, a decrease of
$443,000 or 57% compared to $775,000 charged to expense for the year ended
December 31, 2002. The decrease is primarily due to a continued reduction in
research and development overhead since first quarter 2002. We expect research
and development costs to increase slightly over the next 12 months with the
continued development and potential rollout of our PaperClick product suite.

Loss on Impairment of Assets. During the year ended December 31, 2002, we
recognized a loss on impairment of assets of $1,003,000 for the write-off
capitalized development costs relating to our PaperClick
physical-world-to-internet software. We did not take an impairment charge during
the year ended December 31, 2003.

Loss on extinguishment of debt. During the year ended December 31, 2003,
we recognized a loss on extinguishments of debt of $152,000, resulting primarily
from the payment of debt through the issuance of shares of common stock.

Interest expense. Interest expense 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 increased
by $198,000, or 111%, to $376,000 for the year ended December 31, 2003 from
$178,000 for the year ended December 31, 2002, due to interest expense incurred
during 2003 associated with notes payable, lawsuits, and past due trade accounts
payable.

Loss on disposal of discontinued operations. During the year ended
December 31, 2002, we 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 during the year ended December 31, 2003.

Net Loss. The net loss for the year ended December 31, 2003 was
$5,382,000, which represented a $2,039,000, or 27% decrease from a $7,421,000
loss for the year ended December 31, 2002. The decrease resulted primarily from
an impairment charge of $1,003,000 relating to our PaperClick assets and a loss
on disposal of our Qode business unit of $1,523,000 in 2002. The decrease was
offset by higher non-cash expenses in 2003 relating to our 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.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2003, our cash balance was $61,000 compared to $70,000
at December 31, 2002, and $134,000 at December 31, 2001.

Net cash used in operating activities was approximately $2,979,000 for the
year ended December 31, 2003, compared with $535,000 for the year ended December
31, 2002. During the year ended December 31, 2003, trade accounts receivable
decreased $212,000, while accounts payable, amounts due under financing
arrangements, accrued expenses, and deferred revenue decreased $749,000. During
the year ended December 31, 2002, trade accounts receivable decreased
$2,299,000, while accounts payable, amounts due under financing arrangements,
accrued expenses, and deferred revenue decreased $442,000. Our net cash flow
used in investing activities for the years ended December 31, 2003 and 2002, was
$281,000 and $21,000, respectively. Net cash provided by financing activities
for the years ended December 31, 2003 and 2002 was $3,251,000 and $492,000,
respectively.

During the years ended December 31, 2003 and 2002, our net loss totaled
$5,382,000 and $7,421,000, respectively. As of December 31, 2003, we had
accumulated losses from operations of $76,147,000, had a working capital deficit
of $6,526,000, and shareholders' deficit of $3,203,000.

The accompanying consolidated financial statements have been prepared
assuming we will continue as a going concern. Accordingly, the consolidated
financial statements do not include any adjustments that might result from our
inability to continue as a going concern. We may obtain up to $20 million over
the next two years through our Standby Equity Distribution Agreement with
Cornell Capital Partners. As of March 8, 2004, we had obtained approximately
$3.6 million

under our previous $10 million Equity Line of Credit Agreement with Cornell
Capital Partners, and an additional $4.0 million promissory note, which we
expect to repay from the proceeds of sales of our common stock under the $20
million Standby Equity Distribution Agreement with Cornell Capital Partners. We
also issued 40 million warrants with an exercise price of $0.05 per share to
Cornell in connection with the financing. During March 2004, Cornell assigned
the warrants to Stone Street Asset Management. We are entitled to receive an
additional $1.0 million from Cornell Capital Partners in the form of a
promissory note within 15 days of filing a registration statement to register
the warrants. Once the warrants are registered, and if the average closing bid
price of our common stock for any five day period exceeds $0.10, we can force
Stone Street Asset Management to exercise the warrants, resulting in an
additional $2.0 million cash to us. With this funding, management believes that
it has sufficient funding to sustain operations through December 31, 2004,
however, there can be no assurances that the market for our stock will support
the sale of sufficient shares of our common stock to raise sufficient capital to
sustain operations for such a period, or that actual revenue will meet
management's expectations. If necessary funds are not available, our business
and operations would be materially adversely affected and in such event, we
would attempt to reduce costs and adjust our business plan.

Management believes it will need to have access to additional capital from
the Standby Equity Distribution Agreement or other financing sources, or we will
need to generate additional cash from our current operations to sustain
operations in 2004. The failure of management to accomplish these initiatives
will adversely affect our business, financial conditions, and results of
operations and our 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, 2004. If our financial
resources are insufficient, we may be forced to seek protection from our
creditors under the United States Bankruptcy Code or analogous state statutes
unless we are 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 it will be successful in identifying entities with which it may consummate a
merger or other corporate finance transactions.

CONTRACTUAL OBLIGATIONS

The following table presents our contractual obligations as of December 31, 2003
over the next five years and thereafter:

Payments by Period
(in thousands)
--------------------------------------------------------------------------
LESS
THAN
1 1-3 4-5 AFTER 5
AMOUNT YEAR YEARS YEARS YEARS
Legal Settlements $249 $249 $--- $--- $---
Vendor Settlements & Agreements 841 760 81 --- ---
Operating Leases 30 30 --- --- ---
Short Term Debt 732 732 --- --- ---
----------------------------------------
Total Contractual Cash
Obligations $1,852 $1,771 $81 $--- $---
========================================

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 our
intangible assets, which include goodwill, 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 year ended December 31, 2003. During the year ended December
31, 2002, we recognized an impairment charge of $1.0 million relating to our
PaperClick software product.

FINANCING AGREEMENTS

As of December 31, 2003 and 2002, 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, we and GE entered into an
additional agreement under which we also makes regular payment against our past
due balances. Termination of this 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 December 31, 2003, the
amount payable under this financing arrangement was approximately $196,000.

NOTES PAYABLE TO CORNELL CAPITAL PARTNERS

On September 11, 2003, we received funding in the form of a promissory
note from Cornell Capital Partners in the gross amount of $500,000 before
discounts and fees. As of December 31, 2003, we had not made any payment against
the principal of this note. Accordingly, we have recorded the balance of
$500,000 in "Notes Payable" on our condensed consolidated balance sheet as of
December 31, 2003. The original maturity date of this note was October 26, 2003.
As of March 8, 2004, we had reduced the balance to approximately $187,000.

On January 20, 2004, we received funding in the form of a promissory note
from Cornell Capital Partners in the gross amount of $4,000,000 before discounts
and fees. Of the $4,000,000 funding, $2,500,000 was used to fund the acquisition
of CSI International, Inc. during February 2004. As of March 8, 2004, we had
reduced the balance payable to $2,880,000. All assets of the Company are pledged
as collateral for the note, which matures on June 18, 2004. The note has a
60-day cure period after maturity during which the Company can cure any defaults
without penalty. The note accrues interest at a rate of 24% upon default only.

GOING CONCERN

The accompanying 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 December
31, 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 our common stock or other financing for a significant portion of our
expenses, it is not known whether we will be able to continue this practice, or
if revenue will increase significantly to be able to meet 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 its $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 stock to raise enough capital to
sustain operations. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.

Based on current cash balances and operating budgets, we believe we only
have sufficient financing to last until December 31, 2004. If our financial
resources are insufficient, we may be forced to seek protection from our
creditors under the United States Bankruptcy Code or analogous state statutes
unless we are 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 we will be successful in identifying entities with which we may consummate a
merger or other corporate finance transactions.

CRITICAL ACCOUNTING POLICIES

The U.S. Securities and Exchange Commission ("SEC") 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 cost of sales and gross margin; and the
valuation of intangibles, which affects amortization and write-offs of goodwill
and other intangibles. We also have other key accounting policies, such as
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 use in applying these most critical accounting
policies have a significant impact on the results we report in our consolidated
financial statements..

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 our 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 123 and 148. 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.

Estimate of Litigation-based Liability. We are defendant in certain
litigation in the ordinary course of business (see "Legal Proceedings"). We
accrue liabilities relating to these lawsuits on a case-by-case basis. We
generally accrue attorney fees and interest in addition to the liability being
sought. Liabilities are adjusted on a regular basis as new information becomes
available. We consult with its attorneys to determine the viability of an
expected outcome. The actual amount paid to settle a case could differ
materially from the amount accrued.

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

License fees, including Intellectual Property license, represent revenue
from the licensing of our proprietary software tools and applications products.
We license our 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.

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. We use 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. We record an allowance
for uncollectible accounts on a customer-by-customer basis as appropriate.

DISPOSAL OF QODE BUSINESS UNIT

On August 31, 2001, we signed a non-binding letter of intent to sell the
assets and liabilities of our Ft. Lauderdale-based Qode business unit, which we
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, we 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 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. As of December 31, 2003, we
had approximately $657,000 of liabilities relating to the Qode system on our
books.

IMPAIRMENT OF PAPERCLICK ASSET

During the year ended December 31, 2002, we recognized an impairment
charge of approximately $1.0 million relating to our PaperClick
physical-world-to-internet software solution.

EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46). FIN 46 changes the criteria by which one
company includes another entity in its consolidated financial statements.
Previously, the criteria were based on control through voting interest. FIN 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
FIN 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.

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.

On December 24, 2003, the FASB issued FASB Interpretation No. 46 (Revised
December 2003), "Consolidation of Variable Interest Entities," (FIN-46R)
primarily to clarify the required accounting for interests in variable interest
entities. FIN-46R replaces FIN-46 that was issued in January 2003. FIN-46R
exempts certain entities from its requirements and provides for special
effective dates for entities that have fully or partially applied FIN-46 as of
December 24, 2003. In certain situations, entities have the option of applying
or continuing to apply FIN-46 for a short period of time before applying
FIN-46R. While FIN-46R modifies or clarifies various provisions of FIN-46, it
also incorporates many FASB Staff Positions previously issued by the FASB. 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 to our financial position, 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." SFAS 149 amends and clarifies
financial accounting and reporting of derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities." This Statement is effective for
contracts entered into or modified after June 30, 2003, except for certain
hedging relationships designated after June 30, 2003. The adoption of this
Statement is not expected to have a material impact on our financial position,
results of operations, or cash flows.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that issuers classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). With certain exceptions,
this Statement is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption of this Statement is
not expected to have a material impact on our financial position, results of
operations, or cash flows.

In December 2003, the FASB issued Statement of Financial Accounting
Standards (FAS) No. 132 (Revised 2003) "Employers' Disclosures about Pensions
and Other Postretirement Benefits." This standard replaces FAS-132 of the same
title which was previously issued in February 1998. The revised FAS-132 was
issued in response to concerns expressed by financial statement users about
their need for more transparency of pension information. The revised standard
increases the existing GAAP disclosures for defined benefit pension plans and
other defined benefit postretirement plans. However, it does not change the
measurement or recognition of those plans as required under: FAS-87, "Employers'
Accounting for Pensions"; FAS-88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits"; and
FAS-106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." Specifically, the revised standard requires companies to provide
additional disclosures about pension plan assets, benefit obligations, cash
flows, and benefit costs of defined benefit pension plans and other defined
benefit postretirement plans. Also, for the first time, companies are required
to provide a breakdown of plan assets by category, such as debt, equity and real
estate, and to provide certain expected rates of return and target allocation
percentages for these asset categories. The revised FAS-132 is effective for
financial statements with fiscal years ending after December 15, 2003 and for
interim periods beginning after December 15, 2003. The adoption of this
Statement is not expected to have a material impact on our financial position,
results of operations, or cash flows.

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 also have the following wholly-owned subsidiaries: NeoMedia Migration,
Inc., incorporated in Delaware; 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 Brazil Ltd., incorporated in Brazil, and NeoMedia
Technologies UK Limited, incorporated in the United Kingdom. In January 2004,
the Company established NeoMedia Micro Paint Repair, Inc. in Nevada.

OUR PRODUCTS AND SERVICES

NEOMEDIA INTERNET SWITCHING SOFTWARE

Resolution Server Software. The Resolution Server Software is our server
software suite used to map PaperClick Identifiers(TM), and UPC, EAN, ISBN and
SKU codes on physical objects (products) to URL addresses on the Internet or to
data on other computer networks.

Client Software. Client Software is installed on personal computers or
wireless communication devices (i.e. camera phones, PDA's, etc.) enabling them
to read and store identifiers and display the corresponding web content.
Identifiers currently recognized by our suite of Client Software include
PaperClick codes, UPC/EAN codes, and ISBN codes. We anticipate adding support
for additional types of identifiers in the future. For organizations wishing to
create "closed systems", we offer customized versions of the Client Software
with the licensee's brand identity, rather than the generic PaperClick brand
identity.

PAPERCLICK LINKING SERVICES.

PaperClick Linking Services(TM) are simple and powerful. Simple, because
consumer product companies doing advertising and promotions simply pay for
"activation" of UPC, EAN, ISBN and other bar codes on their products and printed
materials. When clicked with a PaperClick-enabled device, these identifiers
provide easy-to-use and accurate links between products and consumers. Powerful,
because instead of sending out broad hit-or-miss TV or magazine campaigns to the
masses, consumer product companies may offer focused campaigns tailored to
individuals based on their demographics captured when they use the system. We
believe that the result is a technique for brand managers, media buyers, and
major enterprises to roll out targeted messages directly from packaged products,
print ads, editorials, direct mail, or from a variety of labels and printed
materials, directly to customers worldwide.

PaperClick Linking Services include Click Management Services(TM) -
ongoing management of the PaperClick Access Infrastructure(TM) through our
United States and European partners on behalf of clients. Specifically, our
partners will:

o Handle the hosting, setup and ongoing management of the PaperClick
Resolution Server hardware, software, and database.

o Manage new releases of the software and access to our internally
controlled PaperClick Global Routing Server.

o Assist clients in establishing and maintaining the linkages between
codes and web sites.

o Consult with clients on the proper preparation of web-based material
for display on mobile and wireless devices.

With Click Management Services as the single source, from initial rollout
through full implementation, links can be dynamically changed, and integrity and
reliability of clicks ensured, all without requiring brand managers or other
organizations to make large investments in staff, training or infrastructure.

Seven Worldwide has signed a Letter of Intent to complete a contract with
us to offer Click Management Services to consumer products companies. Seven
Worldwide is a $424 million company with 60 years of experience bringing brands
and associated graphics to markets for clients including several Fortune 500
companies. Upon completion of the contract, we and Seven Worldwide intend to
manage authentication and authorization of "clicks" to Internet or other network
content and intend to offer separately demographic reporting services and
consulting for project implementation and management.

PaperClick Linking Services fall into two broad categories: Services for
existing industry codes, and services for created codes.

(A) LINKING SERVICES FOR EXISTING INDUSTRY CODES: On a fee-per-link
basis, consumer product companies may activate or
"PaperClick-enable" the existing industry codes on or in all their
existing products or other printed materials. These codes may then
be "clicked" or "read" by PaperClick-enabled devices and immediately
linked to specific promotions, additional information, in-depth
editorials, or even on-line purchase and promotion fulfillment
functions on the Internet or other networks. Consumer product
companies determine what information they want linked.

At present, PaperClick supports the enabling of existing UPC, EAN,
and ISBN barcodes. We plan to add support for additional types of
industry-standard identifiers in the future.

(B) LINKING SERVICES FOR CREATED CODES: Created codes are appropriate
for situations in which clients wish to take advantage of the power
of the PaperClick system, but do not have existing codes, such as
UPC, EAN or ISBN barcodes, on the products, materials or items that
they would like to PaperClick-enable.

On a fee-per-link basis, consumer product companies can create and
activate PaperClick Codes on or in all their products or other
printed materials. These codes may then be "clicked" or "read" by a
PaperClick-enabled device and immediately linked to specific
promotions, additional information, in-depth editorials, or even
on-line purchase and promotion fulfillment functions on the Internet
or other networks. Consumer product companies determine what
information they want linked.

The fee includes all benefits as offered through PaperClick(TM)
Linking Services for Existing Product Codes through our US and
European partners - Click Management Services. In addition, Click
Management Services will consult with clients on how to best
integrate created codes into their products and/or materials,
ensuring that they will be able to be properly read by
PaperClick-enabled devices.

INTELLECTUAL PROPERTY LICENSING.

We currently hold six U.S. patents relating to the physical
world-to-Internet marketplace, and an additional six patents acquired with the
purchase of Secure Source Technologies related to document security. Our core
physical-world-to-Internet patent portfolio (Patent No. 5,933,829, No.
5,978,773, No. 6,108,656, No. 6,199,048, No. 6,434,561, and No. 6,542,933) is
comprised of "system and method" patents that cover the use of machine-readable
data for information retrieval. Among the identifiers that could be classified
as machine-readable are PaperClick-enabled(TM) 2D barcodes, 1D barcodes, UPC/EAN
barcodes, magnetic stripes, OCR/ICR, RFID, smartcards, numbers, hot words, and
voice. 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,
Symbol Technologies, and Brandkey Systems Corporation. During 2002, we entered
into an agreement with Baniak Pine and Gannon, a law firm specializing in

patent licensing and litigation, under which the firm will represent us in
seeking out potential licensees of our patent portfolio.

NEOMEDIA CONSULTING AND INTEGRATION SERVICES

NCIS is a group of highly skilled application developers thoroughly
familiar with systems integration, storage networks, and other associated
technologies who contract to develop custom applications for clients.

System integration project management & consulting services are offered through
our NCIS business unit. These services fall into two broad categories:

A. FOR IMPLEMENTATION OF PAPERCLICK(TM)PLATFORM SOFTWARE

B. FOR DEVELOPMENT AND IMPLEMENTATION OF CUSTOMIZED APPLICATIONS

(A) SERVICES FOR IMPLEMENTATION OF PAPERCLICK(TM) PLATFORM SOFTWARE The
NCIS business unit is comprised of the executive team, technical
team, and project managers to establish and deploy a common set of
processes and templates, presenting an organized, unified
implementation from each project manager. These reusable project
management components enable fast, efficient PaperClick project
deployment. Key functions of the NCIS business unit are to:

o Create PaperClick Implementation Vision.

o Develop methodology including updating and deployment of
best practices.

o Facilitate team communication through common processes,
deliverables, and terminology.

o Support a common repository so that prior project
management deliverables can be candidates for reuse by
similar projects.

o Provide clients (and internal management) continual
training to build core project management competencies,
a common set of experiences, and an understanding of
PaperClick technical development.

o Track status of PaperClick projects, and provide project
visibility to management in a common and consistent
manner.

Services complementary to a PaperClick project implementation
are also provided. They may consist of consulting or hardware
services that are part of the project, such as additional servers,
network configurations etc., or totally separate from the project
due to a parallel need. Services may also include continuation and
maintenance of completed projects. Post implementation change
orders, training, and code alterations are handled through this
division of the System Integration Business Unit.

(B) SERVICES FOR DEVELOPMENT AND IMPLEMENTATION OF CUSTOMIZED
APPLICATIONS: Our NCIS business assists clients in developing and
implementing their own customized PaperClick applications.

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 Local Area Networks (LANs) and
Wide Area Networks (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.

NEOMEDIA MICRO PAINT REPAIR

NMPR is our micro paint repair suite of products recently acquired through
our purchase of CSI International, Inc. NMPR's system utilizes state-of-the-art
proprietary technology to repair cosmetic automobiles damage such as chips,
scratches, spots, blemishes, and oxidized paint. While competitive paint repair
products utilize a mechanical fix, the NMPR system chemically alters the paint
to make the repair invisible to the naked eye, even with the most lustrous metal
flake and pearlized auto paints. Repairs can be completed in a fraction of the
time of conventional methods, and all of NMPR's products are free of harmful
icocyanates.

The products offered through NMPR include:

NMPR Paint Systems. NMPR offers a license to use its proprietary NMPR
Paint System, along with a training program and ongoing technical support
relating to the system.

NMPR Paint System Products. NMPR supplies the products necessary for a
paint system operator to implement an NMPR Paint System. Products include NMPR's
proprietary chemicals, auto paint, and application hardware.

NMPR Specialty Products. NMPR offers a variety of non-paint related
specialty products, including dent repair, interior cleaning, corrosion
protection, windshield repair, and warranty programs.

NMPR Paint Repair Services. NMPR currently operates a paint repair
facility in its Calgary office. The facility utilizes the NMPR Paint System to
make cosmetic repairs to automobiles.

OUR MARKETS

NEOMEDIA INTERNET SWITCHING SOFTWARE

The goal of our Internet Switching Software business segment is to promote
mass adoption of our switch and background computer process to link physical
world objects to the Internet. Our switching platform is a state-of-the-art open
and extensible cross-media publishing tool that applies to 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 several 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.

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. We believe that
camera-enabled cellular telephones are a key device in the development of the
market. Our product and service offerings differ from those of our 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. Management believes that we are positioned to provide solutions
that preserve a customer's brand and also provide tailored solutions to fit the
customer needs.

NEOMEDIA CONSULTING AND INTEGRATION SERVICES

We believe that the technology and equipment resale business is 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, offer a competitive value-add
to our NCIS business. We believe that we have unique offerings, which, to the
extent that they meet market needs, should offer the potential for growth in
this industry. In addition, our addition of Storage Area Network Solutions
allows us to participate in the higher-margin area of the open systems
marketplace.

The NCIS division 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.

NEOMEDIA MICRO PAINT REPAIR

We believe that our NMPR paint systems offer a low-cost,
environmentally-friendly alternative to traditional cosmetic automobile repair.
We believe our system can increase profits, or create a new profit center, for
auto body shops, new and used car dealers, and any other business that deals in
automobile repair.

RECENT DEVELOPMENTS

AIRCLIC, INC.

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 then
initiated two lawsuits against us, one of which was dismissed, the other of
which was settled (see "Legal Proceedings").

On January 23, 2004, we filed a patent infringement lawsuit against
AirClic, Scanbuy, Inc., and LScan Technologies, Inc. The suit claims that each
of the parties has manufactured, or has manufactured for it, and has used, or
actively induced others to use, technology which allows customers to use a
built-in UPC bar code scanner to scan individual items and access information.
The Complaint states that AirClic, Scanbuy and LScan have had actual and
constructive notice of the existence of the patents-in-suite, and, despite such
notice, failed to cease and desist their acts of infringement, and continue to
engage in acts of infringement of the patents in suit. Our Complaint seeks
compensatory damages for infringement by AirClic, Scanbuy and LScan, with those
damages to be trebled due to the willful and wanton nature of the infringement.
We also seek to preliminarily and permanently enjoin AirClic, Scanbuy and LScan
from their infringing activities. On March 30, 2004, Scanbuy filed suit against
us in the Southern District of New York, alleging that we used certain of
Scanbuy's copyrighted work to develop our camera-enabled barcode-decoding
technology. The suit asks for damages and an order enjoining us from using the
copyrighted work in question. We are in the process of reviewing the case and
preparing our response.

BRANDKEY SYSTEMS CORP. PATENT LICENSE

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

LOCH ENERGY, INC.

On March 7, 2003, we announced that we had reached an agreement in
principal to acquire and merge with Loch Energy, Inc., 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 fundamental basis for the acquisition. On
October 3, 2003, we cancelled the Memorandum of Terms signed on March 7, 2003,
and terminated the acquisition and merger proceedings.

PAPERCLICK BUSINESS PARTNERSHIPS

On September 8, 2003, we announced our PaperClick for Camera CellphonesTM,
a mobile version of our PaperClickTM software that links physical objects to the
Internet. On October 30, 2003, we announced our go-to-market strategy for
PaperClick for Camera Cellphones, under which consumer product manufacturers and
retailers will register their product codes, such as Universal Product Codes
("UPC") and European Article Numbering ("EAN") codes, with a "click management
services" provider, who will activate and route the codes to the proper location
on the Internet. Consumers with PaperClick for Camera CellphonesTM and mobile
web access can then take a picture of registered barcodes and be immediately
linked to an Internet location of the manufacturer's or retailer's choice. To
this end, we signed an agreement

with 12Snap UK Ltd. in January 2004, under which 12Snap will market and promote
the PaperClick for Camera CellphonesTM technology in Europe. We have also signed
letters of intent with Seven Worldwide to enter into contracts to provide click
management services in Europe, and with iCoupon and Digital Rum to provide
marketing and promotion services associated with PaperClick for Camera
CellphonesTM. We have engaged Big Gig Strategies and SRP Consulting Group LLC to
act as agents to promote and sell the offering in Europe and the US,
respectively.

SECURE SOURCE TECHNOLOGIES, INC.

On October 8, 2003, we acquired Secure Source Technologies, a provider of
security solutions and covert security technology for the manufacturing and
financial services industries, in exchange for 3.5 million shares of our common
stock. With the purchase of SST, we acquired additional patents that compliment
its existing intellectual property portfolio, as well as a security software
platform, and computer equipment.

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. 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. The LOI outlined
terms, including an exchange of one share of NeoMedia common stock for each
share of BSD Software, not to exceed 40 million shares. The transaction is
contingent upon, among other things, satisfactory due diligence investigation by
both companies, approval by NeoMedia's Board of Directors, approval by BSD
Software's Board of Directors and shareholders, and any required regulatory
approvals.

VIRGIN ENTERTAINMENT GROUP

On January 2, 2004, we filed a patent infringement lawsuit against
Virgin(R) Entertainment Group, Inc., Virgin Megastore Online and Virgin
Megastore. The Complaint for Patent Infringement and Damages was filed in the
United States District Court for the Northern District of Illinois, Eastern
Division. The Complaint claims that Virgin has infringed four of our patents -
U.S. Patents Nos. 5,933,829, 5,978,773, 6,108,656, and 6,199,048. The Complaint
alleges that the Virgin Megaplay Stations located in Virgin's Megastores
infringe our patents by using Virgin's Megascan technology to allow customers to
scan UPC codes from in-store CDs and DVDs to access Internet-based product
information, such as music and movie previews, and album and video art. The
Complaint also alleges that Virgin had notice of our patents since the latter
part of 2002 or before, yet it continued with its infringing activities. Our
Complaint seeks compensatory damages for Virgin's infringement, with those
damages to be trebled due to the willful and wanton nature of the infringement.
We also seek to preliminarily and permanently enjoin Virgin from its infringing
activities.

CSI INTERNATIONAL, INC.

On February 6, 2004, we acquired CSI International, Inc., of Calgary,
Alberta, Canada, a private technology products company in the micro paint repair
industry. We paid 7,000,000 shares of our common stock, plus $2.5 million cash
in exchange for all outstanding shares of CSI. We have centralized the
administrative functions in its Ft. Myers, Florida headquarters, and maintain
the sales and operations office in Calgary, Alberta, Canada.

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 bridges these environments. We recently announced our PaperClick
for Camera Cell PhonesTM product and go-to-market strategy. We are strategically
pursuing potential licensees of the PaperClickTM 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. On January 2,
2004, we filed a patent infringement lawsuit against Virgin(R) Entertainment
Group, Inc., Virgin Megastore Online and Virgin Megastore; and on January 23,
2004, filed a patent infringement lawsuit against AirClic, Scanbuy, Inc., and
LScan Technologies, Inc.

On February 6, 2004, we acquired CSI and created our Micro Paint Repair
business unit. We intend to promote our line of NMPR products to local and
international auto body shops and chains, new and used car dealers, and other
members of the auto repair industry.

OUR STRATEGIC RELATIONSHIPS

NEOMEDIA INTERNET SWITCHING SOFTWARE

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. To date, we have not recognized any
revenue relating to this contract.

In May 2001, we entered into an agreement with Symbol Technologies, Inc.,
granting Symbol a worldwide, non-exclusive license of its 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. To
date, we have not recognized any revenue relating to this contract.

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 its 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 paid us a $50,000 licensing fee in 2002, a $25,000 royalty in 2003, and
is obligated to pay 2.5% of all future royalty-based revenues earned by
Brandkey, with minimum royalties of $50,000 in 2004, and $75,000 in 2005 and
after.

During September 2003, we engaged Big Gig Strategies and SRP Consulting
Group LLC as agents to promote and sell our PaperClickTM and PaperClick for
Camera CellphonesTM technology, products and services in Europe and the US,
respectively.

During January 2004, we contracted with Seven Worldwide to provide
European click management services for our PaperClick for Camera CellphonesTM
technology, and also signed letters of intent with Seven Worldwide to enter into
contracts to provide click management services in Europe, and with iCoupon and
Digital Rum to provide marketing and promotion services associated with
PaperClick for Camera CellphonesTM.

NEOMEDIA 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
year ended December 31, 2002, one customer, SBC/Ameritech Services, Inc.,
accounted for 36% of our revenue. During 2003, SBC/Ameritech centralized its
purchasing function, resulting in a material decrease in sales to SBC/Ameritech.
For the year ended December 31, 2003 sales to SBC/Ameritech accounted for only
4% of our revenue. We expect sales to SBC/Ameritech as a percentage of total
sales to decline, or potentially stop altogether, in 2004. 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. In addition, a single supplier supplies the equipment and software, which
is re-marketed to this customer. Accordingly, the loss of this customer or
supplier could materially adversely affect NeoMedia's business, prospects,
financial condition, and results of operations. For these reasons, NeoMedia is
seeking, and continue to seek, to diversify its sources of revenue and vendors
from whom it purchases.

SALES AND MARKETING

NEOMEDIA INTERNET SWITCHING SOFTWARE

PaperClickTM. During 2003, we implemented an agent strategy to sell and
market our PaperClick suite of products. To this end, during 2003 we engaged Big
Gig Strategies and SRP Consulting Group LLC as an agent to promote and sell our
PaperClickTM and PaperClick for Camera CellphonesTM technology, products and
services in Europe and the US, respectively. Also during 2003, we reached a
partnering agreement with Tibbs Information Systems, Inc., under which the two
companies intend to team up to compete for government and homeland security
projects. We will contribute our Physical-world-to-Internet platform,
intellectual property, and industry know-how. No assurances can be given that
any successful association will result.

NEOMEDIA CONSULTING AND INTEGRATION SERVICES

Through our systems integration services segment, we 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 four individuals as of
December 31, 2003. In addition, this business unit also relies upon strategic
alliances 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 three agents in
the United States that sell our products and services.

NEOMEDIA MICRO PAINT REPAIR

We market our Micro paint Repair products and services primarily through a
direct sales force, which was composed of four employees and one consultant as
of March 8, 2004. In addition, this business unit is exploring strategic
alliances to help market products and services, provide lead referrals, and
establish informal co-marketing arrangements. This business segment is also
establishing an agent network in the United States and Canada to sell our
products and services.

CUSTOMERS

NEOMEDIA INTERNET SWITCHING SOFTWARE

PaperClickTM. Our customers for our physical world-to-Internet offerings
have included Amway, Solar Communications, Inc., and NYCO Products Company.

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.

NEOMEDIA MICRO PAINT REPAIR

We currently provide our NMPR paint systems, products and services to a
variety of customers in the auto repair industry, including international car
rental agencies, new and used car dealers, body shops, and others.

RESEARCH AND DEVELOPMENT

NEOMEDIA INTERNET SWITCHING SOFTWARE

NISS employed 2 persons in the area of product development as of December
31, 2003 and 2002. During the years ended December 31, 2003 and 2002, NISS
incurred total software development costs of $332,000 and $775,000,
respectively, none of which were capitalized as software development costs.

NEOMEDIA CONSULTING AND INTEGRATION SERVICES

Any future research or development of products relating to the NCIS
business unit will be performed by the application services division or outside
contractors.

NEOMEDIA MICRO PAINT REPAIR

Research and development of paint system products and chemicals are
performed at the Calgary office.

COMPETITION

NEOMEDIA INTERNET SWITCHING SOFTWARE

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.

NEOMEDIA 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, in acting as a re-marketer, we may
compete with the original manufacturer.

NEOMEDIA MICRO PAINT REPAIR

Competition in the micro paint repair industry consists of auto repair
shops and car dealers who do not use the NMPR Paint System.

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. We 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 six patents for our physical
world-to-Internet technology, and an additional six patents acquired with the
purchase of Secure Source Technologies related to document security. We also
have several trademarks relating to our proprietary software products.

EMPLOYEES

As of December 31, 2003, we employed 14 persons. Of the 14 employees, 7
are located at our headquarters in Fort Myers, Florida, and 7 at other domestic
locations. Of the 14 employees, 3 are dedicated to the Internet Switching
Software business unit, 7 are dedicated to the Consulting & Integration Services
business unit, and 4 provide shared services used by both business units. During
February 2004, we added 12 employees with the acquisition of our NMPR business
unit. 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 29 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 our directors
and executive officers:

CHARLES W. FRITZ is a founder of NeoMedia and has served as an officer and
as a Director of NeoMedia since NeoMedia's 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 NeoMedia's 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 approximately 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. Our 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 fiscal year ended December 31, 2003, our Board of Directors
held 5 meetings, and acted by unanimous consent 38 times. All members of the
Board of Directors attended at least 75% of such meetings.

COMMITTEES OF THE BOARD OF DIRECTORS

Our 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 our
independent accountants for approval by the Board of Directors, reviewing the
scope, results and costs of the audit with our independent accountants, and
reviewing the consolidated financial statements, audit practices and internal
controls. During 2003, members of the Audit Committee were non-employee
directors James J. Keil and A. Hayes Barclay. During 2003, the Audit Committee
held 2 meetings. Due to financial constraints, we do not have an audit committee
financial expert serving on our audit committee.

COMPENSATION COMMITTEE. The Compensation Committee is responsible for
recommending compensation and benefits for our executive officers to the Board
of Directors and for administering our Incentive Plan for Management. Charles W.
Fritz, Charles T. Jensen, and James J. Keil were members of the Compensation
Committee during 2003. This Committee held one meeting throughout 2003.

STOCK OPTION COMMITTEE. The Stock Option Committee, which is comprised of
non-employee directors, is responsible for administering our Stock Option Plans.
A. Hayes Barclay and James J. Keil are the current members of the Stock Option
Committee. During 2003, this Committee held one meeting, and acted by written
consent 7 times.

DIRECTOR COMPENSATION

During October 2003, each outside director was 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 our 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. We do not have a written compensation policy for its
outside directors at this time.

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 2003 all Section 16(a) filing
requirements applicable to NeoMedia's officers, directors and ten percent
beneficial owners were complied with.

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
consolidated 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 consolidated
financial statements contained in NeoMedia's Annual Report to Stockholders and
other related matters.

The Audit Committee has reviewed and discussed with management the
consolidated financial statements for fiscal year 2003 audited by Stonefield
Josephson, Inc., NeoMedia's independent auditors. The Audit Committee has
discussed with Stonefield Josephson, Inc. various matters related to the
consolidated 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 consolidated financial
statements be included in NeoMedia's Annual Report on Form 10-KSB for the fiscal
year ending December, 2003 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 to (i) NeoMedia's Chief Executive Officer and (ii) each of
NeoMedia's other executive officers who received aggregate cash compensation in
excess of $100,000 for services rendered to NeoMedia (collectively, "the Named
Executive Officers") during the years ended December 31, 2003, 2002 and 2001:

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 2003 $145,255 $110,322(2) $60,568(3) - 10,000,000 - --
Chairman of the Board 2002 144,583 - 4,470(4) - 1,800,000 -
2001 221,758 - 21,532(4) - 400,000 -

Charles T. Jensen 2003 162,318 91,618(2) 1,072(4) - 10,000,000 -
Chief Operating Officer, 2002 163,542 - 5,079(4) - 800,000 -
President, Acting Chief 2001 144,239 - 17,794(4) - 240,000 -
Executive Officer

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

(1) Represents options granted under NeoMedia's 2003, 2002 and 1998
Stock Option Plans and warrants granted at the discretion of the
Stock Option Committee of NeoMedia's Board of Directors.

(2) During 2003, the Company paid past due Year 2000 Executive Incentive
liability through the issuance of shares of its common stock. The
amounts reported in this table represent the market value of the
shares on the date of issuance.

(3) During 2003, the Company paid Charles W. Fritz unpaid salary from
2002 through the issuance of shares of its common stock. The amounts
reported in this table represent the market value of the shares on
the date of issuance.

(4) Includes automobile expenses attributable to personal use and the
corresponding income tax effects, and life insurance premiums where
policy benefits are payable to beneficiary of the Named Executive
Officer.

OPTION GRANTS IN LAST FISCAL YEAR

The following presents certain information on stock options for the Named
Executive Officers for the year ended December 31, 2003:

PERCENT OF
NUMBER OF TOTAL
SECURITES 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 10,000,000 16.6% $0.01 October 20, 2013 $641,473 $1,625,617

Charles T. Jensen 10,000,000 16.6% $0.01 October 20, 2013 641,473 1,625,617

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 the year ended December 31, 2003, 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, 2003 DECEMBER 31, 2003 (1)
------------------------------------ -------------------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------------- ---------------- ------------- ------------------------------------ -------------------------------------

Charles W. Fritz - $ - 13,059,000 - $1,658,493 -

Charles T. Jensen - $ - 11,505,386 - $1,461,184 -

(1) Based on the closing price of $0.137 of our common stock as quoted
on OTC Bulletin Board on December 31, 2003 and the exercise price of
the option/SAR. During May 2003, the Option Committee of the our
Board of Directors repriced all outstanding stock options to an
exercise price of $0.01 per share for a period of six months. The
Option Committee subsequently extended the option repricing through
June 30, 2004. As a result, as of December 31, 2003, Mr. Fritz and
Mr. Jensen held 3,059,000 and 1,505,386, respectively, with restated
exercises prices, for which the exercise prices will revert to the
original amounts if not exercised by June 30, 2004. All of the
restated options were out-of-the-money at their original exercise
prices.

OPTION AND WARRANT REPRICING PROGRAMS

In June 2002, we repriced 3 million of our common stock warrants from
$0.12 to $0.05 per share. All of the warrants were exercised immediately. We
recognized an expense of $132,000 related to this repricing during the year
ended December 31, 2002.

During March 2002, we repriced approximately 1.2 million of our 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 we recognized
approximately $63,000 in expense relating to the repricing during the year ended
December 31, 2002.

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 April 2003, we repriced approximately 1.9 million warrants held by
Thornhill Capital LLC, an outside consultant. 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. We 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 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 December 31, 2003. Accordingly, we recognized
approximately $746,000 as compensation in general and administrative expense
during the year ended December 31, 2003. Approximately 4.4 million options were
exercised under the repricing program during the year ended December 31, 2003.
During December 2003, the deadline for the option repricing was extended to June
30, 2004 by the Stock Option Committee of our Board of Directors.

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

We do not currently have any employment agreements with any of our
officers or employees.

INCENTIVE PLAN FOR MANAGEMENT

Effective as of January 1, 1996, we 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 our 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 our 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 our 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 or 2003.

During 2003, we settled approximately $300,000 in past due incentive
awards relating to our executive incentive plan for fiscal 2000, through the
issuance of common stock. We had a remaining liability of approximately $80,000
as of December 31, 2003 relating to this executive incentive. During January
2004, we paid an additional $74,000 toward the balance through the issuance of
common stock.

STOCK OPTION PLANS

Effective February 1, 1996, we adopted the 1996 Stock Option Plan making
available for grant to our employees 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 our 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, we adopted the 1998 Stock Option Plan making
available for grant to our employees options to purchase up to 8,000,000 shares
of our 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 our 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, we adopted our 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 September 24, 2003, we adopted our 2003 Stock Option Plan. The
2003 Stock Option Plan provides for authority for the Board of Directors to
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, we adopted the 2003 Stock Incentive Plan.
Under the terms of the Plan, we have 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,
we filed a Form S-8 to register all 30,000,000 shares underlying the options in
the 2003 Stock Incentive Plan.

401(K) PLAN

We maintain 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, we have 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, 2005, with monthly rent totaling approximately
$7,000. 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 $3,000. The Company also prepaid
approximately $63,000 of rent under the current lease through the issuance of
common stock during 2003. The Company recognizes approximately $5,000 per month
in additional rent expense relating to the stock issuance.. During February
2004, we acquired CSI International, with a sales office in Calagary, Alberta,
Canada, where we occupy approximately 4,800 square feet with monthly rent
totaling $2,400. The owner and landlord of the Calgary office is Stanton Hill,
the founder and former CEO of CSI International, and current Director of
Operations for our paint repair business unit.

The Company believes that existing office space is adequate to meet
current and short-term requirements.

LEGAL PROCEEDINGS

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

AIRCLIC, INC., SCANBUY, INC., AND LSCAN TECHNOLOGIES, INC.

On January 23, 2004, we filed a patent infringement lawsuit against
AirClic, Scanbuy, Inc., and LScan Technologies, Inc. The suit claims that each
of the parties has manufactured, or has manufactured for it, and has used, or
actively induced others to use, technology which allows customers to use a
built-in UPC bar code scanner to scan individual items and access information.
The complaint states that AirClic, Scanbuy and LScan have had actual and
constructive notice of the existence of the patents-in-suite, and, despite such
notice, failed to cease and desist their acts of infringement, and continue to
engage in acts of infringement of the patents in suit. Our complaint seeks
compensatory damages for infringement by AirClic, Scanbuy and LScan, with those
damages to be trebled due to the willful and wanton nature of the infringement.
We also seek to preliminarily and permanently enjoin AirClic, Scanbuy and LScan
from their infringing activities. On March 30, 2004, Scanbuy filed suit against
us in the Southern District of New York, alleging that we used certain of
Scanbuy's copyrighted work to develop our camera-enabled barcode-decoding
technology. The suit asks for damages and an order enjoining us from using the
copyrighted work in question. We are in the process of reviewing the case and
preparing our response.

VIRGIN ENTERTAINMENT GROUP

On January 2, 2004, we filed a patent infringement lawsuit against
Virgin(R) Entertainment Group, Inc., Virgin Megastore Online and Virgin
Megastore ("Virgin"). The complaint for Patent Infringement and Damages was
filed in the United States District Court for the Northern District of Illinois,
Eastern Division, by Baniak Pine & Gannon, our intellectual property law firm.
The complaint claims that Virgin has infringed four of our patents - U.S.
Patents Nos. 5,933,829, 5,978,773, 6,108,656, and 6,199,048. The complaint
alleges that the Virgin Megaplay Stations located in Virgin's Megastores
infringe NeoMedia's patents by using Virgin's Megascan technology to allow
customers to scan UPC codes from in-store CDs and DVDs to access Internet-based
product information, such as music and movie previews, and album and video art.
The complaint also alleges that Virgin had notice of our patents since the
latter part of 2002 or before, yet it continued with its infringing activities.
The complaint seeks compensatory damages for Virgin's infringement, with those
damages to be trebled due to the willful and wanton nature of the infringement.
We also seek to preliminarily and permanently enjoin Virgin from its infringing
activities.

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 NeoMedia. 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.

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
its 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 attempting to negotiate settlement of the remaining balance. We had a
remaining accrued liability of $106,000 relating to this matter as of December
31, 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 over time,
plus 3,000,000 shares of common stock. We had accrued a liability of $7,000 as
of December 31, 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 $82,000 relating to this matter as of
December 31, 2003.

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 $116,000 relating to this matter as of December 31, 2003, which
was included in notes payable.

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 $13,000
relating to this matter as of December 31, 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 $36,000 as of December 31,
2003.

On January 26, 2004, Day West & Associates, Inc., filed a complaint
against us seeking payment of approximately $6,000 in past due legal services.
We settled this amount with cash during March 2004.

PRINCIPAL STOCKHOLDERS

The following table sets forth, as of March 8, 2004, 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.

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

Charles W. Fritz (2)(3) 34,316,467 11.4%
William Fritz(2)(4) 56,674,776 19.7%
Charles T. Jensen(2)(5) 15,506,886 5.2%
David A. Dodge(2)(6) 4,300,000 1.5%
A. Hayes Barclay(2)(7) 1,139,000 *
James J. Keil(2)(8) 1,442,642 *
--------------------- --------

Officers and Directors as a Group
(6 Persons)(9) 113,379,771 34.8%
--------------------- --------

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

* Indicates less than 1%.

(1) Applicable percentage of ownership is based on 283,586,629 shares of
common stock outstanding as of March 8, 2004, together with securities
exercisable or convertible into shares of common stock within 60 days of
March 8, 2004, 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 March 8, 2004, 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 our 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, 15,549,000
shares of common stock issuable upon exercise of options granted under our
2003, 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.

(4) William E. Fritz, our 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.

(5) Charles T. Jensen is President, Chief Operating Officer, Acting Chief
Executive Officer, and a member of the Board of Directors. Beneficial
ownership includes 15,505,386 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 sons.

(6) David A. Dodge is Vice President, Chief Financial Officer, and Controller.
Beneficial ownership includes 4,300,000 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 30,642 shares of common stock issuable upon exercise of
options granted under NeoMedia's stock option plans, 10,000 shares
issuable upon exercise of warrants, and 1,402,000 shares owned by Mr. Keil
directly.

(9) Includes an aggregate of 37,804,028 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 71,515,743 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 called 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.

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

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 shares trade on the OTC Bulletin Board under the symbol "NEOM." As of
March 8, 2004, we had 283,586,629 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. $)
--------------------------------------------------------------------------------
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
Fourth Quarter 0.23 0.10

HOLDERS OF COMMON EQUITY

As of March 8, 2004, we had approximately 3,500 recordholders of common
stock.

DIVIDENDS

We have not declared or paid any dividends on our common stock during the
years ended December 31, 2003, 2002, or 2001. 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 March 8, 2004, we issued to Cornell Capital Partners, LP, 40,000,000
warrants to purchase shares of our common stock at an exercise price of $0.11
per share. The market price at the time of issuance was $0.11.

On February 25, 2004, we issued 103,199 shares of stock to David Kaminer,
as payment of past due professional services. The shares were valued at $0.097.
The market price at the time of the agreement was $0.102.

On February 6, 2004, we issued 7,000,000 shares of common stock to CSI
International, Inc. shareholders in connection with NeoMedia's purchase of CSI.
The closing market price on the date of issuance was $0.10.

On January 15, 2004, we issued to Cornell Capital Partners, LP, 40,000,000
warrants to purchase shares of our common stock at an exercise price of $0.05
per share. The market price at the time of issuance was $0.125.

On October 31, 2003, we entered into an agreement to issue 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. The shares were
valued at $0.113. The market price at the time of the agreement was $0.113.

On October 23, 2003, we entered into an agreement to issue 3,000,000
shares of stock to Orsus Solutions, USA, Inc., an unrelated vendor, as payment
of past due liabilities of $331,000. The shares were valued at $0.107. The
market price at the time of the agreement was $0.107.

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. The shares were valued at $0.105, the
market price on the date of issuance.

On October 27, 2003, we issued 7,279 shares of stock to one unrelated
vendor as payment of past due liabilities of $1,000. The shares were valued at
$0.105, the market price on the date of issuance.

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 NeoMedia.

On October 3, 2003, we finalized our purchase of Secure Source
Technologies, Inc. for 3,500,000 shares of stock. The shares were valued at
$0.14, the market price on the date of closing.

On October 20, 2003, we issued 66,841 shares of stock to one unrelated
vendor as payment of past due liabilities of $10,000. The shares were valued at
$0.10. The market price on the date of the agreement was $0.10.

On October 7, 2003, we issued 103,907 shares of stock to one unrelated
vendor as payment of past due liabilities of $16,000. The shares were valued at
$0.13. The market price on the date of the agreement was $0.13.

On October 6, 2003, we issued 37,743 shares of stock to one unrelated
vendor as payment of past due liabilities of $5,000. The shares were valued at
$0.14. The market price on the date of issuance was $0.16.

On September 25, 2003, we issued 875,855 shares of stock to an unrelated
vendor as payment of past due liabilities totaling $34,000. The shares were
valued at $0.23 based on the market price on the grant date. The market price on
the date of issuance was $0.20.

On August 26, 2003, we issued 1,600,000 shares of stock to a former
employee as payment of past due incentive compensation in the amount of $29,000.
The shares were valued at $0.02. The market price on the date of issuance was
$0.02.

On August 26, 2003, we entered into an agreement to issue 450,000 shares
of stock an unrelated vendor as payment of past due liabilities totaling $9,000.
The shares were valued at $0.02. The market price on the date of the agreement
was $0.02.

On July 9, 2003, we 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, we granted Mr. Fritz
2,500,000 warrants to purchase shares of our common stock at an exercise price
of $0.01 per share.

On April 21, 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 its 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 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.

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. The shares were valued at $0.01. The market
price on the date of issuance was $0.011. We recognized an expense in general
and administrative expenses of approximately $15,000 relating to this
transaction with Mr. Fritz.

In August 2002, we issued 900,000 shares of common stock to 2150 Western
Court L.L.C, the landlord of its 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.

In June 2002, we issued 10,000 shares of common stock to an unrelated
vendor as an interest payment on past-due accounts payable. The shares were
valued at $0.09. The market price on the date of issuance was $0.09.

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 were to 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 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, and such amount remained
unpaid as of December 31, 2003.

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 a credit agreement.

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. The market price on the date of issuance was
$0.15. 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. The market price on the date
of issuance was $0.14. Cash proceeds to NeoMedia were $7,150.

In January 2002, we issued 1,614,501 shares of common stock to an
unrelated vendor as settlement of past-due accounts payable and future payments
under equipment lease agreements. The shares were valued at $0.17. The market
price on the date of issuance was $0.17.

In January 2002, we issued 32,486 shares of common stock to an unrelated
vendor as settlement of past-due accounts payable in the amount of $5,000. The
shares were valued at $0.15. The market price on the date of issuance was $0.17.

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 March 8, 2004, we had 283,586,629 shares of common stock
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 March 8, 2004, we had outstanding options and warrants to purchase
54,193,149 and 60,345,000, 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 June 30, 2004. 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.

On September 24, 2003, our shareholders approved the 2003 Stock Option
Plan. Under this plan, we are authorized to grant to employees, directors, and
consultants up to 150,000,000 options to share of common stock. As of March 8,
2004, we had issued 63,804,323 options under the 2003 Stock Option Plan, of
which 13,480,556 had been exercised.

Certain Transactions Involving Stock Transactions, the award has been accounted
for as variable from May 19, 2003 through the period ended December 31, 2003.
Accordingly, we recognized approximately $755,000 as compensation in general and
administrative expense during the year ended December 31, 2003. Approximately
4.4 million options were exercised under the repricing program during the year
ended December 31, 2003. During December 2003, the deadline for the option
repricing was extended to June 30, 2004 by the Stock Option Committee of our
Board of Directors.

In June 2002, we repriced 3 million of our common stock warrants from $0.12
to $0.05 per share. All of the warrants were exercised immediately. We
recognized an expense of $132,000 related to this repricing during the year
ended December 31, 2002.

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, we repriced approximately 1.2 million of our 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 we recognized approximately
$63,000 in expense relating to the repricing during the year ended December 31,
2002.

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, 2003 and 2002,
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 1 to the consolidated
financial statements.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES

None

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, 2003 and 2002......................................F-1

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheet of Neomedia
Technolgies, Inc. (a Delaware Corporation) and subsidiaries as of December 31,
2003, and the related consolidated statements of operations, stockholders'
deficit, and cash flows for the years ended December 31, 2003 and 2002. 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, 2003, and the results of its operations
and its cash flows for the years ended December 31, 2003 and 2002 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
1 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 1. 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
February 27, 2004

F-1

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

DECEMBER 31,
ASSETS 2003
----
Current assets:
Cash and cash equivalents $ 61
Trade accounts receivable, net of allowance
for doubtful accounts of $49 133
Inventories, net of allowance for obsolete &
slow-moving inventory of $143 3

Prepaid expenses and other current assets 356
--------
Total current assets 553

Property and equipment, net 61
Capitalized patents, net 2,415
Capitalized and purchased software costs, net 118
Other long-term assets 729
--------
Total assets $ 3,876
========

LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 2,327

Amounts due under financing agreements 196
Amounts payable under settlement agreements 772
Liabilities of discontinued business unit 657
Sales taxes payable 137
Accrued expenses 1,743
Deferred revenues and other 515
Notes payable 732
--------
Total current liabilities 7,079

Commitments and contingencies --

Shareholders' deficit:
Preferred stock, $0.01 par value, 25,000,000
shares authorized, none issued
and outstanding --
Common stock, $0.01 par value, 1,000,000,000
shares authorized,
247,041,675 shares issued and 243,991,257
outstanding 2,440
Additional paid-in capital 71,565
Deferred stock-based compensation (282)
Accumulated deficit (76,147)
Treasury stock, at cost, 201,230 shares of
common stock (779)
--------
Total shareholders' deficit (3,203)
--------
Total liabilities and shareholders'
deficit $ 3,876
========

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

F-2

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

YEARS ENDED DECEMBER 31,
--------------------------
2003 2002
------------ ------------
NET SALES:
License fees $ 414 $ 446
Resale of software and technology equipment
and service fees 1,986 8,953
------------ ------------
Total net sales 2,400 9,399
------------ ------------
COST OF SALES:
License fees 300 841
Resale of software and technology equipment
and service fees 1,829 7,423
------------ ------------
Total cost of sales 2,129 8,264
------------ ------------

GROSS PROFIT 271 1,135

Sales and marketing expenses 523 1,009
General and administrative expenses 4,270 4,068
Research and development costs 332 775
Loss on impairment of assets --- 1,003
------------ ------------

Loss from operations (4,854) (5,720)
Loss on extinguishment of debt, net (152) -
Interest expense, net (376) (178)
------------ ------------

Loss from continuing operations (5,382) (5,898)

Loss on disposal of discontinued business unit
(Note 12) --- (1,523)
------------ ------------

NET LOSS $ (5,382) $ (7,421)
============ ============
NET LOSS PER SHARE FROM CONTINUING
OPERATIONS--BASIC AND DILUTED $ (0.04) $ (0.26)
============ ============
NET LOSS PER SHARE FROM DISCONTINUED
OPERATIONS--BASIC AND DILUTED $ - $ (0.07)
============ ============
NET LOSS PER SHARE--BASIC AND DILUTED
$ (0.04) $ (0.33)
============ ============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES--BASIC
AND DILUTED 125,029,723 22,330,485
============ ============

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

F-3

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

YEARS ENDED DECEMBER 31,
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($5,382) ($7,421)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 470 1,061
Inventory reserve 13 130
Provision for doubtful accounts and notes
receivable 191 --
Loss on disposal of discontinued business unit -- 1,523
Loss on impairment of assets -- 1,003
Expense associated with option and warrant
repricing 773 195
Fair value of expense portion of stock-based
compensation granted for professional
services 1,000 685
Interest expense allocated to debt 56 23
Discount related to common stock issuance 50 --
(Gain) loss on payment of accounts payable in
stock 152 --
(Increase)/decrease in value of life insurance
policies (35) 63
Changes in operating assets and liabilities
Trade accounts receivable, net 212 2,299
Inventory (3) --
Other current assets 273 346
Accounts payable, amounts due under financing
agreements, amounts due under
Settlement agreements, liabilities in excess
of assets of discontinued business unit,
accrued expenses and stock liability (383) (584)
Deferred revenue other current liabilities (366) 142
------- -------
Net cash used in operating activities (2,979) (535)
------- -------

CASH FLOWS FROM INVESTING ACTIVITIES:
Amounts issued under notes receivable (209) --
Capitalization of software development and
purchased intangible assets (28) (21)
Acquisition of property and equipment (44) --
------- -------
Net cash used in investing activities (281) (21)
------- -------

CASH FLOWS FROM FINANCING ACTIVITIES:

Net proceeds from issuance of common stock, net
of issuance costs of $226 250 8
Net proceeds from exercise of stock warrants 250 45
Net proceeds from exercise of stock options 156 274
Borrowings under notes payable and long-term debt 3,350 165
Repayments on notes payable and long-term debt (755) --
------- -------
Net cash provided by financing activities 3,251 492
------- -------

NET INCREASE IN CASH AND CASH EQUIVALENTS (9) (64)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 70 134
------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 61 $ 70
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid/(received) during the year $ 6 $ 15
Income taxes paid -- --
Non-cash investing and financing activities:
Value of stock granted to acquire Secure Source
Technologies, Inc. 500 --
Fair value of warrants issued as a direct
incremental cost of financing 93 --
Reduction in accounts payable and accruals for
debt paid in stock 1,509 --
Reduction of long-term debt paid and accrued
interest with stock 904 --
Fair value of stock compensation deferred to
future periods 282 --
Discount recognized on the issuance of stock
with notes payable 56 --
Cancellation of common stock issued in 2001 to
offset stock subscription receivable -- (240)
Shares issued in accordance with Equity Line of
Credit to repay Notes Payable, net of issuance
costs of $6,772 2,793 --
Net effect of issuance and subsequent
cancellation of common stock underlying notes
receivable -- (190)

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

F-4

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, 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 (2,945,000) (29) (203) - -
Expense associated
with warrant
repricing - - 195 - -
Fair value stock
issued for
professional
services rendered 4,900,000 49 915 - -

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
debt 1,355,670 14 46 - -
Stock Subscription
Receivable - - - 240 -
Change in Deferred
Stock Compensation - - - - (231)

Net Loss - - - - -
------------------- -------------- ----------------- ------------------- ----------------------

BALANCE, DECEMBER
31, 2002 30,746,968 $307 $65,442 0 (231)
Shares issued to
Cornell Capital
Partners under
Equity Line of
Credit (Gross) 98,933,244 $990 $8,575 - -
Fees & discounts
associated with
Shares issued to
Cornell Capital
Partners under
Equity Line of
Credit - (6,772) - -
Issuance of Common
Stock through
private Placement, 25,000,000 250 50 - -
Exercise of
employee options 15,599,175 156 - - -

Exercise of Warrants 28,904,900 289 (39) - -
Expense associated
with option &
warrant repricing - - 773 - -
Fair value of
stock, options, &
warrants issued for
professional
services rendered 4,030,424 40 385 - -
Stock issued to pay
past due liabilities 37,276,546 373 2,040 - -
Issuance of shares
to purchase Secure
Source
Technologies, Inc. 3,500,000 35 465 - -
Issuance of
warrants and stock
with debt - - 19 - -
Expense recognized
for options issued
with exercise price
below market price - - 627 -
Change in Deferred
Stock Compensation - - - - (51)

Net Loss - - - - -
------------------- -------------- ----------------- ------------------- ----------------------

BALANCE, DECEMBER
31, 2003 243,991,257 $2,440 $71,565 - (282)
------------------- -------------- ----------------- ------------------- ----------------------

PREFERRED STOCK TREASURY STOCK
--------------------------------------------------- -----------------------------
ADDITIONAL
PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT
------ ------ ------- ------- ------ ------

BALANCE, DECEMBER
31, 2001 452,489 $5 $878 ($63,344) 201,230 ($779)
Exercise of
employee options - - - - - -
Issuance of Common
Stock through
private Placement,
Net of $0 of
issuance costs - - - - - -
Expense associated
with warrant
repricing - - - - - -
Fair value stock
issued for
professional
services rendered - - - - - -

Exercise of Warrants - - - - - -
Stock issued to pay
liabilities - - - - - -
Conversion of
preferred stock to
common stock (452,489) (5) (878) - - -
Issuance of
warrants and stock
with convertible
debt - - - - - -
Stock Subscription
Receivable - - - - - -
Change in Deferred
Stock Compensation - - - - - -

Net Loss - - - (7,421) - -
---------------- ------------- ------------------ -------------------- ------------- --------------

BALANCE, DECEMBER
31, 2002 0 $0 $0 ($70,765) 201,230 ($779)
Shares issued to
Cornell Capital
Partners under
Equity Line of
Credit (Gross) - - - - - -
Fees & discounts
associated with
Shares issued to
Cornell Capital
Partners under
Equity Line of
Credit - - - - - -
Issuance of Common
Stock through
private Placement, - - - - - -
Exercise of
employee options - - - - - -

Exercise of Warrants - - - - - -
Expense associated
with option &
warrant repricing - - - - - -
Fair value of
stock, options, &
warrants issued for
professional
services rendered - - - - - -
Stock issued to pay
past due liabilities - - - - - -
Issuance of shares
to purchase Secure
Source
Technologies, Inc. - - - - - -
Issuance of
warrants and stock
with debt - - - - - -
Expense recognized
for options issued
with exercise price
below market price - - - - -
Change in Deferred
Stock Compensation - - - - - -

Net Loss - - - (5,382) - -
---------------- ------------- ------------------ -------------------- ------------- --------------

BALANCE, DECEMBER
31, 2003 - $- $- ($76,147) 201,230 ($779)
---------------- ------------- ------------------ -------------------- ------------- --------------

TOTAL
STOCKHOLDERS'
EQUITY
------

BALANCE, DECEMBER
31, 2001 ($263)
Exercise of
employee options 274
Issuance of Common
Stock through
private Placement,
Net of $0 of
issuance costs (232)
Expense associated
with warrant
repricing 195
Fair value stock
issued for
professional
services rendered 964

Exercise of Warrants 45
Stock issued to pay
liabilities 343
Conversion of
preferred stock to
common stock -
Issuance of
warrants and stock
with convertible
debt 60
Stock Subscription
Receivable 240
Change in Deferred
Stock Compensation (231)

Net Loss (7,421)
---------------------

BALANCE, DECEMBER
31, 2002 ($6,026)
Shares issued to
Cornell Capital
Partners under
Equity Line of
Credit (Gross) 9,565
Fees & discounts
associated with
Shares issued to
Cornell Capital
Partners under
Equity Line of
Credit (6,772)
Issuance of Common
Stock through
private Placement, 300
Exercise of
employee options 156

Exercise of Warrants 250
Expense associated
with option &
warrant repricing 773
Fair value of
stock, options, &
warrants issued for
professional
services rendered 425
Stock issued to pay
past due liabilities 2,413
Issuance of shares
to purchase Secure
Source
Technologies, Inc. 500
Issuance of
warrants and stock
with debt 19
Expense recognized
for options issued
with exercise price
below market price 627
Change in Deferred
Stock Compensation (51)

Net Loss (5,382)
---------------------

BALANCE, DECEMBER
31, 2003 ($3,203)
---------------------

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

F-6

NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of the Company as a going concern.
However, the Company has reported net losses of $5,382,000 and $7421,000 for the
years ended December 31, 2003 and 2002, respectively, and has an accumulated
deficit of $76,147,000 as of December 31, 2003. In addition, the Company has
cash balance of $61,000 and working capital deficit of $6,526,000 as of December
31, 2003.

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. On February 6, 2004, NeoMedia acquired CSI
International, Inc., ("CSI") of Calgary, Alberta, Canada, a private technology
products company in the micro paint repair industry. NeoMedia paid 7,000,000
shares of its common stock, plus $2.5 million cash in exchange for all
outstanding shares of CSI. NeoMedia has centralized the administrative functions
in its Ft. Myers, Florida headquarters, and maintains the sales and operations
office in Calgary, Alberta, Canada. Through the acquisition of CSI, the Company
expects the revenue for 2004 to be substantially higher than that for 2003 and
expects this division will generate positive cash in 2004.

NATURE OF BUSINESS OPERATIONS

During the yearss ended December 31, 2003 and 2002, the Company was
structured and evaluated by its Board of Directors and Management as two
distinct business units:

NeoMedia Internet Switching Software (NISS), and

NeoMedia Consulting and Integration Services (NCIS)

On February 6, 2004, the Company acquired CSI International, Inc. ("CSI"),
of Calgary, Alberta, Canada, a private technology products company in the micro
paint repair industry. NeoMedia has centralized the administrative functions in
its

F-7

Ft. Myers, Florida headquarters, and maintains the sales and operations office
in Calgary, Alberta, Canada. CSI-related operations will be evaluated as a
separate business unit during the year ended December 31, 2004.

NeoMedia Internet Switching Software (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
NeoMedia's linking "switch" and application platforms. NISS also manages the
Company's 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) 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 NeoMedia's
products and services. The operations are based in Lisle, Illinois.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ESTIMATES

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

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.

FINANCIAL INSTRUMENTS

The carrying amount of the Company's cash equivalents, accounts receivable,
prepaid expenses, other current assets, accounts payable and accrued expenses,
accrued salaries and benefits, and payable to merchants approximates their
estimated fair values due to the short-term maturities of those financial
instruments. Rates currently available to the Company for debt with similar
terms and remaining maturities are used to estimate fair value of existing debt.

ACCOUNTS RECEIVABLE

The Company reports accounts receivable at net realizable value. The
Company's terms of sale provide the basis for when accounts become delinquent or
past due. The Company provides an allowance for doubtful accounts equal to the
estimated uncollectible amounts. The Company's estimate is based on historical
collection experience and a review of the current status of accounts receivable.
Receivables are generally charged off and sent to a collections agency after
ninety days past due. It is at least reasonably possible that the Company's
estimate of the allowance for doubtful accounts will change in the near-term. At
December 31, 2003, the allowance for doubtful accounts was $49,000.

INVENTORIES

Inventories are stated at the lower of cost or market, and at December 31,
2003 was comprised of purchased computer technology resale products. Cost is
determined using the first-in, first-out method. At December 31, 2003, the
reserve for obsolescence was $143,000.

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. 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. The cost of normal
maintenance and repairs is charged

F-8

to operations as incurred. Material expenditures, which increase the life of an
asset, are capitalized and depreciated over the estimated remaining life of the
asset.

The estimated service lives of property and equipment are as follows:

Furniture and fixtures 7 years
Computer equipment 3 to 5 years

CAPITALIZED PATENTS

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

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 consolidated financial
statements.

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. NeoMedia
adopted this new statement on January 1, 2002, and concluded that the effect of
adopting this statement had no material impact on NeoMedia's financial position,
results of operations, or cash flows.

AMOUNTS DUE UNDER SETTLEMENT AGREEMENTS

NeoMedia is party to various settlement agreements with certain of its
vendors relating to past due accounts payable. The settlement agreements
generally call for monthly payment installments against such past due amounts.

REVENUE RECOGNITION

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

F-9

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.

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.

SHIPPING AND HANDLING COSTS

Shipping and handling costs are passed through to the Company's customers,
and are netted in cost of goods sold.

RESEARCH AND DEVELOPMENT

Costs associated with the planning and designing phase of software
development, including coding and testing activities, and related overhead,
necessary to establish technological feasibility of the Company's
internally-developed software products, are classified as research and
development and expensed as incurred.

STOCK BASED COMPENSATION

The Company accounts for stock-based compensation in accordance with
Accounting Principles Board ("APB") Opinion No. 25. "Accounting for Stock Issued
to Employees," and complies with the disclosure provisions of SFAS No. 123.
"Accounting for Stock-Based Compensation." Under APB No. 25, compensation cost
is recognized over the vesting period based on the excess, if any, on the date
of grant of the fair value of the Company's shares over the employee's exercise
price. When the exercise price of the option is less than the fair value price
of the underlying shares on the grant date, deferred stock compensation is
recognized and amortized to expense in accordance with Financial Accounting
Standards Board ("FASB") Interpretation No. 44 over the vesting period of the
individual options. Accordingly, if the exercise price of the Company's employee
options equals or exceeds the market price of the underlying shares on the date
of grant no compensation expense is recognized. Options or shares awards issued
to non-employees and directors are valued using the Black-Scholes pricing model
and expensed over the period services are provided.

In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure," which amends, SFAS 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, SFAS No. 148 expands the
disclosure requirements of SFAS No. 123 to require more 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 provisions of SFAS No. 148 are effective for fiscal
years ended after December 15, 2002. The transition provisions do not currently
have an impact on the Company's consolidated financial position and results of
operations as the Company has not elected to adopt the fair value-based method
of accounting for stock-based employee compensation under SFAS NO. 123. The
disclosure provisions of SFAS No. 148 are effective for financial statements for
interim periods beginning after December 15, 2002. The Company adopted the
disclosure requirements in the first quarter of 2003.

F-10

The Company accounts for its stock option 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.

YEARS ENDED
DECEMBER 31,
------------------
2003 2002
---- ----
Net Loss, as reported ($5,382) ($7,421)
Compensation recognized under APB
25 623 ---
Compensation recognized under
SFAS 123 (962) (1,277)
------------------
Pro-forma net loss ($5,721) ($8,698)
==================

Net Loss per share:
Basic and diluted - as reported ($0.04) ($0.33)
==================
Basic and diluted - pro-forma ($0.05) ($0.39)
==================

For grants in 2003 and 2002, the following assumptions were used: (i) no
expected dividends; (ii) a risk-free interest rate of 4.5%; (iii) expected
volatility ranging from 253% to 457% for 2003 and 135% to 211% for 2002, and
(iv) an expected life of the shorter of 3 years or the stated life of the option
for options granted in 2003, and 5 years or the stated life of the option for
options granted in 2002. 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.

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, 2003.

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, DECEMBER 31,
2003 2002
---- ----
Outstanding Stock
Options 33,512,507 10,801,219
Outstanding Warrants 26,195,000 7,433,758

COMPREHENSIVE INCOME

For the years ended December 31, 2003 and 2002, the Company did not have
other comprehensive income and therefore has not included the statement of
comprehensive income in the accompanying consolidated financial statements.

RECLASSIFICATIONS

F-11

Certain reclassifications have been made to the 2002 consolidated financial
statements to conform to the 2003 presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

On December 24, 2003, the FASB issued FASB Interpretation No. 46 (Revised
December 2003), "Consolidation of Variable Interest Entities," (FIN-46R)
primarily to clarify the required accounting for interests in variable interest
entities. FIN-46R replaces FIN-46 that was issued in January 2003. FIN-46R
exempts certain entities from its requirements and provides for special
effective dates for entities that have fully or partially applied FIN-46 as of
December 24, 2003. In certain situations, entities have the option of applying
or continuing to apply FIN-46 for a short period of time before applying
FIN-46R. While FIN-46R modifies or clarifies various provisions of FIN-46, it
also incorporates many FASB Staff Positions previously issued by the FASB. 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 to the Company's financial position, 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." SFAS 149 amends and clarifies
financial accounting and reporting of derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities." This Statement is effective for
contracts entered into or modified after June 30, 2003, except for certain
hedging relationships designated after June 30, 2003. The adoption of this
Statement is not expected to have a material impact on the Company's financial
position, results of operations, or cash flows.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that issuers classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). With certain exceptions,
this Statement is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption of this Statement is
not expected to have a material impact on the Company's financial position,
results of operations, or cash flows.

F-12

such as debt, equity and real estate, and to provide certain expected rates of
return and target allocation percentages for these asset categories. The revised
FAS-132 is effective for financial statements with fiscal years ending after
December 15, 2003 and for interim periods beginning after December 15, 2003. The
adoption of this Statement is not expected to have a material impact on the
Company's financial position, results of operations, or cash flows.

3. EQUITY LINE OF CREDIT WITH CORNELL CAPITAL PARTNERS ("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
was $150,000 with a minimum of seven days between purchases. The shares were
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 paid 5%
of the gross proceeds of each purchase to Cornell

During the year ended December 31, 2003, the Company sold 98,933,244 shares
of its common stock to Cornell under the Equity Line of Credit. The following
table summarizes funding received from Cornell during the year ended December
31, 2003:

FIRST SECOND THIRD FOURTH DECEMBER 31,
QUARTER QUARTER QUARTER QUARTER 2003
------- ------- ------- ------- ----

Number of shares sold to Cornell 3,990,342 27,873,902 56,069,000 11,000,000 98,933,244

Gross Proceeds from sale of shares to Cornell $ 84,000 $ 633,000 $ 7,088,000 $ 1,760,000 $ 9,565,000
Less: discounts and fees* (29,000) (189,000) (5,429,000) (1,125,000) ($ 6,772,000)
----------------------------------------------------------------------------
Net Proceeds from sale of shares to Cornell $ 55,000 $ 444,000 $ 1,659,000 $ 635,000 $ 2,793,000
----------------------------------------------------------------------------

* - Per Equity line of Credit Agreement, stock is valued at 98% of the lowest closing bid price during the week it is sold

As of December 31, 2003, the Company had a promissory note payable to Cornell
in the amount of $500,000

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 over a two-year period. 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. Cornell exercised
the warrants in January 2004, resulting in $500,000 cash receipts to the
Company. In November 2003, the Company filed a Form SB-2 to register 200 million
shares under this $20 million Standby Equity Distribution Agreement. In January
2004, the Form SB-2 was declared effective by the Securities and Exchange
Commission.

4. PROPERTY AND EQUIPMENT

As of December 31, 2003, property and equipment consisted of the following:

(dollars
in thousands)
-------------
2003
----

Furniture and fixtures $266
Equipment 41
----------
Total 307
Less: accumulated depreciation
Furniture and fixtures (237)
Equipment (9)
----------
Total property and
equipment, net $61
==========

Depreciation expense was $83,000 and $108,000 for the years ended December 31,
2003 and 2002, respectively.

F-13

5. INTANGIBLE ASSETS

As of December 31, 2003, intangible assets consisted of the following:

(dollars
in
thousands)
---------
2003
----
Capitalized and purchased software costs $575
Patents and related costs 3,566
---------
Total 4,141
Less: accumulated amortization
Capitalized and purchased software costs (456)
Patents and related costs (1,152)
---------
Intangible assets, net $2,533
=========

Capitalized patent activity for the year ended December 31, 2003 was as
follows:

(dollars
in
thousands)
--------
2003
----
Beginning balance $2,244
Additions 22
Acquisition of Secure Source
Technologies, Inc. Patents 422
Amortization (273)
--------
Ending balance $2,415
========

Amortization expense of capitalized patents was $273,000 and $276,000 for
the years ended December 31, 2003 and 2002, respectively. The weighted-average
amortization period of capitalized patents as of December 31, 2003 was 15.8
years.

Capitalized and purchased software activity for the year ended December 31,
2003 was as follows:

(dollars
in
thousands)
--------
2003
----
Beginning balance $149
Additions 6
Acquisition of Secure Source Technologies,
Inc. software 77
Amortization (114)
--------
Ending balance $118
========

Amortization expense of capitalized and purchased software costs was
$114,000 and $677,000 for the years ended December 31, 2003 and 2002,
respectively. The weighted-average amortization period of capitalized and
purchased software costs as of December 31, 2003 was 6.1 years.

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 in its NISS business unit. The
impairment charge was the result of a funding shortage during 2002 that forced
the Company to terminate the majority of its workforce, including the selling,
marketing, and development functions supporting PaperClick. During 2003, the
Company reinstituted its PaperClick selling, marketing and development efforts.

F-14

As of December 31, 2003, the Company estimated future amortization expense
of capitalized patents and software for the next five years to be:

(IN THOUSANDS)
--------------
2004 $353
2005 275
2006 228
2007 211
2008 187

6. ALLOWANCE FOR DOUBTFUL ACCOUNTS AND INVENTORY RESERVE

Allowance for doubtful accounts activity for the year ended December 31,
2003 was as follows:

(dollars
in thousands)
-------------
2003
----
Beginning balance $55

Bad debt expense -

Write-off of uncollectible accounts -
Collection of accounts previously
written off (18)

Adjustment to general allowance 12
-------------
Ending balance $49
=============

Inventory reserve activity for the year ended December 31, 2003 was as
follows:

(dollars
in thousands)
-------------
2003
----
Beginning balance $130
Allowance for slow-moving parts
inventory 13
-------------
Ending balance $143
=============

7. FINANCING AGREEMENTS

RESALE FINANCING ARRANGEMENT

As of December 31, 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 December 31, 2003 and
2002, the amount payable under this financing arrangement was approximately
$196,000 and $430,000, respectively.

8. NOTES PAYABLE

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 was repaid in
April 2003.

F-15

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.

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 was repaid in April
2003.

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 NeoMedia 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.

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. 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 which had been held
in escrow as collateral for the loan were returned. The Company has not incurred
further obligation under this note agreement.

On March 13, 2003, the Company borrowed from Cornell the gross amount of
$262,000 before Cornell discounts and fees. As of December 31, 2003, the Company
had sold 18,535,039 shares to Cornell under the Equity Line of Credit and the
proceeds were used to repay this obligation in full.

On May 27, 2003, the Company borrowed from Cornell the gross amount of
$245,000 before Cornell discounts and fees. As of December 31, 2003, the Company
had sold 8,922,467 shares to Cornell under the Equity Line of Credit and the
proceeds were used to repay this obligation in full.

On June 24, 2003, the Company borrowed from Cornell the gross amount of
$400,000 before Cornell discounts and fees. As of December 31, 2003, the Company
had sold 18,426,808 shares to Cornell under the Equity Line of Credit and the
proceeds were used to repay this obligation in full.

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 the $10,000
note payable to Mr. Fritz entered into during April 2003, 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. The note matures in April
2004.

On July 21, 2003, the Company borrowed from Cornell the gross amount of
$200,000 before Cornell discounts and fees. As of December 31, 2003, the Company
had sold 10,806,998 shares to Cornell under the Equity Line of Credit and the
proceeds were used to repay this obligation in full.

On August 1, 2003, the Company borrowed from Cornell the gross amount of
$200,000 before Cornell discounts and fees. As of December 31, 2003, the Company
had sold 5,915,410 shares to Cornell under the Equity Line of Credit and the
proceeds were used to repay this obligation in full.

F-16

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 2, 2003, the Company borrowed from Cornell the gross amount of
$200,000 before Cornell discounts and fees. As of December 31, 2003, the Company
had sold 5,919,784 shares to Cornell under the Equity Line of Credit and the
proceeds were used to repay this obligation in full.

On September 11, 2003, the Company received funding in the form of a
promissory note from Cornell in the gross amount of $500,000 before Cornell
discounts and fees. As of December 31, 2003, the Company had not made any
payment against the principal of this note. Accordingly, the company has
recorded the advance balance of $500,000 in "Notes Payable" on its condensed
consolidated balance sheet as of December 31, 2003. During January 2004, the
Company sold 1,408,992 shares to Cornell, reducing the balance to approximately
$337,000. The Company has the option to repay any remaining principal in cash.

On September 29, 2003, the Company borrowed from Cornell the gross amount of
$1,500,000 before Cornell discounts and fees. As of December 31, 2003, the
Company had sold 26,000,000 shares to Cornell under the Equity Line of Credit
and the proceeds were used to repay this obligation in full.

9. 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 was accreted to interest
expense over the term of the note. The software acquired was amortized over its
estimated useful life of three years.

On October 21, 2002, IDSI filed a demand for arbitration relating to past
due payments on the note payable. On October 31, 2003, the Company paid off all
past due and future obligations under the note to IDSI through the issuance of
8,000,000 shares of NeoMedia common stock. The Company has no future obligation
under the note. The Company incurred a loss of $187,000 which is included in the
Loss on Extinguishment of Debt.

10. 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 $49,000 in its December
31, 2003 consolidated balance sheet. 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. During 2004, the Company
will attempt to diversify its customer base to offset the decrease in sales to
SBC/Ameritech. 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 83% and 87% of NeoMedia's
revenue for the years ended December 31, 2003 and 2002, respectively.

11. ACQUISITIONS

SECURE SOURCE TECHNOLOGIES, INC. ("SST")

On October 8, 2003, the Company acquired 100% ownership of SST, a provider
of security solutions and covert security technology for the manufacturing and
financial services industries, in exchange for 3.5 million shares of the
Company's common stock. With the purchase of SST, the Company acquired
additional patents that compliment its existing intellectual property portfolio,
as well as a security software platform, and computer equipment. Prior to the
acquisition, SST was inactive and had minimal operating activities. The
acquisition was accounted for under the purchase method. The actual purchase
price was based on the fair value of the Company's stock on the dates of the
grant. The purchase price was allocated as follows:

F-17

(Dollars in
Thousands)
Value of 3.5 Million Shares Issued
(Purchase Price) $500

Assets Purchased:
Computer Equipment 1
Software Platform 77
Patents 422
-----------
Total Purchase Price Allocation $500
-----------

The allocation of the purchase price is preliminary and is subject to
revision, which is not expected to be material, based on the final valuation of
the net assets acquired. Merger related cost was expensed as incurred.

The proforma financial information is not presented as this acquisition was
not considered significant or material to the combined financial statements on
the date of the acquisition.

The values assigned to intangible assets are subject to amortization. The
acquired software platform has no residual value and a weighted-average
amortization period of 3 years. The acquired patents have no residual value and
a weighted-average amortization period of 11.1 years. The results of SST are
included in the consolidated financial statements for the period October 8, 2003
through December 31, 2003.

LOCH ENERGY, INC.

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.

12. 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 year ended December 31, 2002, the Company recorded an
additional expense of $1.5 million for the write-off of remaining Qode assets.
As of December 31, 2003, the Company had approximately $769,000 of liabilities
relating to the Qode system remaining on its books.

13. 2000 EXECUTIVE INCENTIVE

During the year ended December 31, 2003, the Company satisfied a portion
of its 2000 accrued executive incentive obligation through the issuance of
common stock to current and former employees who had participated in the plan.
The Company relieved approximately $592,000 of the liability through the
issuance of approximately 5.4 million shares during the year ended December 31,
2003. The excess of the fair value of the common stock issued over the
outstanding accrued bonuses was included in the loss on extinguishment of debt.

F-18

14. INCOME TAXES

For the years ended December 31, 2003 and 2002, the components of income tax
expense were as follows:

2003 2002
---- ----
(IN THOUSANDS)
Current. $ -- $ --
Deferred $ -- $ --
Income tax ==== ====
expense/(benefit) $ -- $ --
==== ====

As of December 31, 2003, 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:

2003 2002
---- ----
Accrued employee benefits $ 8 $ 26
Provisions for doubtful accounts 20 22
Capitalized software development costs
and fixed assets 740 821
Net operating loss carryforwards (NOL) 27,014 25,134
Accruals 578 468
Write-off of long-lived assets 2,070 2,070
State taxes 107 95
Alternative minimum tax credit
carryforward 45 45
----------------
Total deferred tax assets 30,582 28,681
Valuation Allowance (30,582)(28,681)
----------------
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, 2003 and 2002, the income tax benefit
differed from the amount computed by applying the statutory federal rate of 34%
as follows:

2003 2002
---- ----
Benefit at federal statutory rate $(1,830) $(2,523)
State income taxes, net of federal (213) (294)
Permanent and other, net 142 (609)
Change in valuation allowance 1,901 3,426
----------------
Income tax expense/(benefit) $ --- $ ---
================

As of December 31, 2003, NeoMedia had net operating loss carryforwards for
federal tax purposes totaling approximately $68 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, NeoMedia anticipates that the
annual usage of its pre-1998 net operating loss carryforwards should be further
restricted pursuant to the provisions of Section 382 of the Internal Revenue
Code.

F-19

15. TRANSACTIONS WITH RELATED PARTIES

During August 2003, the Company borrowed $50,000 from William E. Fritz,
one of its 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, 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 its common stock at an
exercise price of $0.01 per share.

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 called 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.

During April 2003, the Company's Board of Directors approved the payment
in full of approximately $154,000 of liabilities owed by NeoMedia 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.

During April 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 to William
Fritz. In connection with the sale, the Company also granted 25,000,000 warrants
to purchase shares of NeoMedia 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 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 November 2002, the Company 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 had an
interest 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 the Company's common stock at a 30%
discount to either market price upon closing, or upon conversion, whichever is
lower. The Company 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 NeoMedia'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.

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 was repaid in April 2003.

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 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 was repaid in April 2003.

F-20

During October 2001, the Company borrowed $4,000 from Charles W. Fritz,
NeoMedia's Chairman, its 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.

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

16. 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, 2003 and 2002, NeoMedia's rent expense was $265,000 and
$853,000, respectively.

NeoMedia is party to various payment arrangements with its vendors that call
for fixed payments on past due liabilities. NeoMedia is also party to various
consulting agreements that carry payment obligations into future years.

The following is a schedule of the future minimum payments under
non-cancelable operating leases in effect as of December 31, 2003:

PAYMENTS
(IN
THOUSANDS)
-----------
2004 $30
Thereafter ---
------------
Total $30
============

As of December 31, 2003, none of the Company's employees were under
contract. Additionally, as of December 31, 2003, 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.

AIRCLIC, INC. LITIGATION

On September 6, 2001, AirClic, Inc. 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
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 the Company.
The note was secured by substantially all of the Company's intellectual
property, including the core physical world-to-Internet technologies. In the
suit, the Company acknowledged its obligations under the note but filed a
counterclaim against AirClic seeking damages for fraud, negligent
misrepresentation and promissory estoppel.

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

F-21

infringement by AirClic, Scanbuy and LScan, with those damages to be trebled due
to the willful and wanton nature of the infringement. NeoMedia also seeks to
preliminarily and permanently enjoin AirClic, Scanbuy and LScan from their
infringing activities. On March 30, 2004, Scanbuy filed suit against us in the
Southern District of New York, alleging that we used certain of Scanbuy's
copyrighted work to develop our camera-enabled barcode-decoding technology. The
suit asks for damages and an order enjoining us from using the copyrighted work
in question. We are in the process of reviewing the case and preparing our
response.

OTHER LITIGATION

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 NeoMedia common stock, to
be valued at the time of registration of the shares. The Company's stock was
trading at approximately $0.05 at that time. The Company included for
registration 2.7 million shares in the name of Ripfire in its form S-1 that was
declared effective by the SEC on February 14, 2003. The Company's 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, the Company issued the 2.7 million
shares of common stock that had been registered in the S-1 to Ripfire. The
Company is attempting to negotiate settlement of the remaining balance. The
Company had a remaining accrued liability of $106,000 relating to this matter as
of December 31, 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, the Company settled this matter for $10,000 cash payments over
time, plus 3,000,000 shares of common stock. The Company had accrued a liability
of $7,000 as of December 31, 2003.

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 was
seeking payment of the entire original incentive payout. On November 12, 2002,
NeoMedia 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 NeoMedia common stock at an exercise price of $0.01 with a
term of five years. The Company had a liability of approximately $3,000 relating
to this matter as of December 31, 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, the Company settled
the suit for cash payments over a period of approximately one year. The Company
had an accrued liability of approximately $82,000 relating to this matter as of
December 31, 2003.

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. On May 1, 2003, the Company 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, the Company will not pay interest charges. The Company
had a remaining liability of approximately $116,000 relating to this matter as
of December 31, 2003.

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/Hallmark, 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. The Company has agreed to a payment plan for the balance over a period
of approximately nine months. The Company had a liability of approximately
$17,000 relating to this matter as of December 31, 2003.

On February 6, 2003, Allen Norton & Blue, P.A., filed a complaint against
the Company seeking payment of approximately $25,000 in past due legal services.
The Company has agreed to a payment plan relating to this matter under which the
balance will be paid over approximately 12 months. The Company had a liability
of approximately $13,000 relating to this matter as of December 31, 2003.

F-22

On April 18, 2003, a former participant in the Company's 2001 self-insured
health plan sued the Company to recover approximately $46,000 in unpaid health
claims from 2001. On December 1, 2003, the Company settled this suit for cash
payments over a period of approximately one year. The Company had accrued
approximately $36,000 as of December 31, 2003.

On January 26, 2004, Day West & Associates, Inc., filed a complaint
against the Company seeking payment of approximately $6,000 in past due legal
services. The Company is attempting to negotiate settlement of the suit. The
Company had not accrued any liability relating to his matter as of December 31,
2003.

17. 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.

18. STOCK OPTIONS AND WARRANTS

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 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.

F-24

The following table summarizes the status of NeoMedia's 2003, 2002, 1998
and 1996 stock option plans as of and for the years ended December 31, 2003 and
2002:

2003 2002
------------------ -----------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
(In (In
thousands ) thousands)

Outstanding at beginning
of year 10,801 $1.11 4,214 $2.96
Granted
39,018 $0.01 12,306 $0.06
Exercised
(15,605) $0.01 (5,252) $0.07
Forfeited
(702) $1.26 (467) $2.75
------------------ -----------------
Outstanding at end of
year 33,512 $0.23* 10,801 $1.11
================== =================

Options exercisable at
year-end 33,512 10,272

Weighted-average fair
value of options
granted during the year $0.10 $0.10

Available for grant at
the end of the year 114,025 2,319

* - Includes 3,644,382 options that have a restated exercise price of $0.01
under option repricing program that extends through June 30, 2004. For
purposes of this table,options subject to repricing are show at their original
exercise price.

The following table summarizes information about NeoMedia's stock options
outstanding as of December 31, 2003:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- -------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exerciseable Price
--------------- ----------- ---------------- ----- ------------ -----
(In thousands) (In thousands)

$-- to $0.10 31,068 9.7 years $0.01 31,068 $0.01
0.11 to 0.84 742 6.2 years $0.24 742 $0.24
0.85 to 3.63 955 5.6 years $2.99 955 $2.99
3.64 to 5.13 437 6.1 years $4.83 437 $4.83
5.14 to 7.31 310 4.3 years $7.29 310 $7.29
-------------------------------------------------- -------------------------------------
$-- to $7.31 33,512 9.4 years $0.23 33,512 $0.23
================================================== =====================================

In March 2002, the Company issued 2,946,310 options to buy shares of its
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. The options were all exercised during 2002
and 2003.

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 general and administrative 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 two outside consultant at a price of $0.01 per
share for consulting services rendered over a twelve-month period. The Company

F-25

recognized approximately $57,000 and $5,000 in general and administrative
expense in the accompanying consolidated financial statements for the years
ended December 31, 2003 and 2002, respectively. The options vested 100% upon
grant. All 2,000,000 options were exercised during 2003.

In June 2003, the Company issued 375,000 options to buy shares of the
Company's common stock to two outside consultants at a price of $0.01 per share
for consulting services rendered. The Company recognized approximately $13,000
in general and administrative expense in the accompanying consolidated financial
statements for the year ended December 31, 2003.

In October 2003, the Company issued 125,000 options to buy shares of the
Company's common stock to two outside consultants at a price of $0.01 per share
for consulting services rendered. The Company recognized approximately $13,000
in general and administrative expense in the accompanying consolidated financial
statements for the year ended December 31, 2003.

In October 2003, the Company issued 1,000,000 options to buy shares of the
Company's common stock to an outside consultant at a price of $0.01 per share
for consulting to be provided over a period of one year. The options were valued
at approximately $102,000, of which the Company recognized approximately $20,000
in general and administrative expense in the accompanying consolidated financial
statements for the year ended December 31, 2003.

In October 2003, the Company issued 500,000 options to buy shares of the
Company's common stock to an outside consultant at a price of $0.01 per share
for consulting to be provided over a period of one year. The options were valued
at approximately $51,000, of which the Company recognized approximately $10,000
in general and administrative expense in the accompanying consolidated financial
statements for the year ended December 31, 2003.

In November 2003, the Company issued 50,000 options to buy shares of the
Company's common stock to an outside consultant at a price of $0.06 per share
for consulting services rendered. The Company recognized approximately $7,000 in
general and administrative expense in the accompanying consolidated financial
statements for the year ended December 31, 2003.

In November 2003, the Company issued 150,000 options to buy shares of the
Company's common stock to an outside consultant at a price of $0.16 per share
for consulting services rendered. The Company recognized approximately $3,000 in
general and administrative expense in the accompanying consolidated financial
statements for the year ended December 31, 2003.

In December 2003, the Company issued 50,000 options to buy shares of the
Company's common stock to an outside consultant at a price of $0.052 per share
for consulting services rendered. The Company recognized approximately $7,000 in
general and administrative expense in the accompanying consolidated financial
statements for the year ended December 31, 2003.

In December 2003, the Company issued 43,125 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. The Company recognized approximately $6,000 in
general and administrative expense in the accompanying consolidated financial
statements for the year ended December 31, 2003.

Warrants

Warrant activity as of December 31, 2003 and 2002 was as follows:

Warrants Outstanding as of December 31, 2001 3,239,897
Warrants issued 5,000,000
Warrants exercised (369,450)
Warrants expired (436,689)
-----------

Warrants Outstanding as of December 31, 2002 7,433,758
Warrants issued 48,060,000
Warrants exercised (28,904,900)
Warrants expired (393,858)
-----------

Warrants Outstanding as of December 31, 2003 26,195,000
============

F-26

The following table summarizes information about warrants outstanding at
December 31, 2003, all of which are exercisable:

WEIGHTED-
AVERAGE WEIGHTED-
RANGE OF REMAINING AVERAGE
EXERCISE WARRANTS CONTRACTUAL EXERCISE
PRICES OUTSTANDING LIFE PRICE
------------ ---------- ------------ ----------
(In thousands)

$--- to
$0.05 24,560 4.6 years $0.03
0.06 to
3.56 225 4.6 years $3.47
3.57 to
6.54 1,410 1.8 years $6.00
------------ ---------- ------------ ----------
$--- to
$6.54 26,195 4.5 years $0.38
============ ========== ============ ==========

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 exercised
during the year ended December 31, 2003.

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, 2003.

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, 2003.

During January 2003, the Company granted 40,000, 10,000, and 10,000
warrants with an exercise price of $0.03 per share to William E Fritz, Charles
W. Fritz, and James J. Keil, respectively, in connection with funding provided
to the Company by these individuals during November 2002.

During February 2003, the Company granted 500,000 warrants to GE Access,
its primary equipment supplier, as payment of interest relating to a commercial
credit agreement between GE Access and NeoMedia. The Company recognized
approximately $7,000 in interest expense in the 2003 consolidated financial
statements relating to the warrant issuance. The warrants were not exercised as
of December 31, 2003.

During April 2003, the Company granted 25,000,000 warrants to purchase
shares of NeoMedia common stock at an exercise price of $0.01 per share to
William E. Fritz, an outside director, in connection with financing provided to
the Company by Mr. Fritz. The warrants were not exercised as of December 31,
2003.

During July 2003, the Company granted 2,500,000 warrants to purchase
shares of NeoMedia common stock at an exercise price of $0.01 per share to
William E. Fritz, an outside director, in connection with financing provided to
the Company by Mr. Fritz. The warrants were not exercised as of December 31,
2003.

During September 2003, the Company granted 10,000,000 warrants to purchase
shares of NeoMedia common stock at an exercise price of $0.01 per share to an
outside consultant for consulting, advisory, and financing services performed
during the third and fourth quarters of 2003. The Company recognized
approximately $93,000 in expense in the 2003 consolidated financial statements
relating to the warrant issuance. The warrants were not exercised as of December
31, 2003.

F-27

During October 2003, the Company granted to Cornell 10,000,000 warrants to
purchase shares of the Company's common stock at an exercise price of $0.05 per
share, in connection with the $20 million Standby Equity Distribution Agreement
entered into between the Company and Cornell. The warrants were not exercised as
of December 31, 2003. Cornell exercised the warrants during January 2004.

OPTION AND WARRANT REPRICING PROGRAMS

In June 2002, the Company repriced 3 million of its common stock warrants
from $0.12 to $0.05 per share. All of the warrants were exercised immediately.
The Company recognized an expense of $132,000 related to this repricing during
the year ended December 31, 2002.

In April 2002, in order to encourage the exercise of options, NeoMedia's
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 NeoMedia
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.

During April 2003, the Company repriced approximately 1.9 million warrants
held by Thornhill Capital LLC, 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 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 December 31, 2003. Accordingly, the
Company recognized approximately $746,000 as compensation in general and
administrative expense during the year ended December 31, 2003. Approximately
4.4 million options were exercised under the repricing program during the year
ended December 31, 2003. During December 2003, the deadline for the option
repricing was extended to June 30, 2004 by the Stock Option Committee of
NeoMedia's Board of Directors.

19. 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-28

Operational results for the two segments for the years ended December 31,
2003 and 2002 are presented below (in thousands):

(in thousands)
-------------------
YEARS ENDED
DECEMBER 31,
-------------------
2003 2002
---- ----
NET SALES:
NeoMedia Consulting &
Integration Services $2,354 $9,370
NeoMedia Internet Switching
Service 46 29
-------------------
$2,400 $9,399
-------------------

NET LOSS:
NeoMedia Consulting &
Integration Services ($4,331) ($1,275)
NeoMedia Internet Switching
Service (1,051) (6,146)
-------------------
($5,382) ($7,421)
-------------------

IDENTIFIABLE ASSETS
NeoMedia Consulting &
Integration Services $426
NeoMedia Internet Switching
Service 2,537
Corporate 913
----------
$3,876
----------

20. 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 NeoMedia's outstanding shares of common stock, subject to the
rights of the holders of preferred stock, can elect all of NeoMedia's 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 NeoMedia's 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.

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.

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 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, the Company's Board
of Directors 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.

F-29

21. 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.

22. SUBSEQUENT EVENTS

On January 2, 2004, NeoMedia filed a patent infringement lawsuit against
Virgin(R) Entertainment Group, Inc., Virgin Megastore Online and Virgin
Megastore ("Virgin"). The Complaint for Patent Infringement and Damages was
filed in the United States District Court for the Northern District of Illinois,
Eastern Division, by Baniak Pine & Gannon, the Company's intellectual property
law firm. The Complaint claims that Virgin has infringed four of NeoMedia's
patents - U.S. Patents Nos. 5,933,829, 5,978,773, 6,108,656, and 6,199,048. The
Complaint alleges that the Virgin Megaplay Stations located in Virgin's
Megastores infringe NeoMedia's patents by using Virgin's Megascan technology to
allow customers to scan UPC codes from in-store CDs and DVDs to access
Internet-based product information, such as music and movie previews, and album
and video art. The Complaint also alleges that Virgin had notice of NeoMedia's
patents since the latter part of 2002 or before, yet it continued with its
infringing activities. NeoMedia's Complaint seeks compensatory damages for
Virgin's infringement, with those damages to be trebled due to the willful and
wanton nature of the infringement. NeoMedia also seeks to preliminarily and
permanently enjoin Virgin from its infringing activities.

On January 20, 2004, the Company borrowed from Cornell the gross amount of
$4,000,000 before Cornell discounts and fees. Cornell has also committed to fund
an additional $1,000,000 in the form of a promissory note. As consideration for
the advance, the Company granted to Cornell 40,000,000 warrants to purchase
shares of NeoMedia stock with an exercise price of $0.05 per share. The
additional $1,000,000 promissory note will be funded within 15 days of the
filing of a registration statement by the Company to register the warrants. Upon
registration of the warrants, if the average closing bid price of NeoMedia's
common stock for any five day period exceeds $0.10, the Company has the option
to force Cornell to exercise the warrants, resulting in additional funds to the
Company of $2,000,000. Of the $4,000,000 funding, $2,500,000 was used to fund
the acquisition of CSI International, Inc. during February 2004. As of February
2, 2004, the Company had sold to Cornell 2,868,313 shares under the Standby
Equity Distribution Agreement, reducing the balance payable to $3,680,000. All
assets of the Company are pledged as collateral for the note, which matures on
June 18, 2004. The note has a 60-day cure period after maturity during which the
Company can cure any defaults without penalty. The note accrues interest at a
rate of 24% upon default only. The Company has the option to repay any remaining
principal in cash.

On January 23, 2004, NeoMedia filed a patent infringement lawsuit against
AirClic, Scanbuy, Inc., and LScan Technologies, Inc. The suit claims that each
of the parties has manufactured, or has manufactured for it, and has used, or
actively induced others to use, technology which allows customers to use a
built-in UPC bar code scanner to scan individual items and access information.
The Complaint states that AirClic, Scanbuy and LScan have had actual and
constructive notice of the existence of the patents-in-suite, and, despite such
notice, failed to cease and desist their acts of infringement, and continue to
engage in acts of infringement of the patents in suit. NeoMedia's Complaint
seeks compensatory damages for infringement by AirClic, Scanbuy and LScan, with
those damages to be trebled due to the willful and wanton nature of the
infringement. NeoMedia also seeks to preliminarily and permanently enjoin
AirClic, Scanbuy and LScan from their infringing activities. On March 30, 2004,
Scanbuy filed suit against us in the Southern District of New York, alleging
that we used certain of Scanbuy's copyrighted work to develop our camera-enabled
barcode-decoding technology. The suit asks for damages and an order enjoining us
from using the copyrighted work in question. We are in the process of reviewing
the case and preparing our response.

On February 6, 2004, NeoMedia acquired CSI International, Inc., of
Calgary, Alberta, Canada, a private technology products company in the micro
paint repair industry. NeoMedia paid 7,000,000 shares of its common stock, plus
$2.5 million cash in exchange for all outstanding shares of CSI. NeoMedia has
centralized the administrative functions in its Ft. Myers, Florida headquarters,
and maintains the sales and operations office in Calgary, Alberta, Canada.

F-30

On December 9, 2003, NeoMedia signed a non-binding letter of intent to
acquire Triton Global Business Services Inc. and its parent company, BSD
Software Inc. (Pink Sheets: BSDS), both of Calgary, Alberta, Canada. 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. The LOI outlined
terms, including an exchange of one share of NeoMedia common stock for each
share of BSD Software, not to exceed 40 million shares. The transaction is
contingent upon, among other things, satisfactory due diligence investigation by
both companies, approval by NeoMedia's Board of Directors, approval by BSD
Software's Board of Directors and shareholders, and any required regulatory
approvals. As of February 27, 2004, the Company has not yet entered into any
definitive purchase agreement with BSD.

F-31

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: PROSPECTUS

[ ] except the common stock offered by ---------------------
this prospectus;

[ ] in any jurisdiction in which the offer
or solicitation is not authorized;
51,253,199 SHARES OF COMMON STOCK
[ ] in any jurisdiction where the dealer
or other salesperson is not qualified to
make the offer or solicitation;
NEOMEDIA TECHNOLOGIES, INC.
[ ] 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.
_____, 2004
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 _____, 2004, 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.

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 $688

Printing and Engraving Expenses 2,500

Accounting Fees and Expenses 15,000

Legal Fees and Expenses 25,000
Miscellaneous 6,812
-------
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 of $1,000. The shares were valued at
$0.105, the market price on the date of issuance.

On October 3, 2003, we finalized our purchase of Secure Source
Technologies, Inc. for 3,500,000 shares of stock. The shares were valued at
$0.14, the market price on the date of closing.

II-2

shares of common stock. The shares were valued at $0.01. The market price on the
date of issuance was $0.011. We recognized an expense in general and
administrative expenses of approximately $15,000 relating to this transaction
with Mr. Fritz.

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 a credit agreement.

II-3

EXHIBITS

EXHIBIT
NO. DESCRIPTION LOCATION

3.1 Articles of Incorporation of Incorporated by reference
Dev-Tech Associates, Inc. to and Exhibit 3.1 to
amendment thereto Registrant's Registration
Statement No. 333-5534 as
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
Incorporation of DevSys, Inc. Exhibit 3.3 to 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
and Plan of Merger of DevSys, Exhibit 3.5 to Registrant's
Inc and Dev-Tech Associates, Inc. Registration Statement No.
333-5534 as filed with the SEC
on November 25, 1996

3.6 Certificate of Merger of Incorporated by reference to
Dev-Tech Associates, Inc. into Exhibit 3.6 to Registrant's
DevSys, Inc. Registration Statement No.
333-5534 as filed with the
SEC on November 25, 1996

3.7 Articles of Incorporation of Incorporated by reference to
Dev-Tech Migration, Inc. and Exhibit 3.7 to Registrant's
amendment thereto Registration Statement No.
333-5534 as filed with the SEC
on November 25, 1996

3.8 By-laws of Dev-Tech Migration, Incorporated by reference to
Inc. Exhibit 3.8 to 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
Incorporation of DevSys Exhibit 3.9 to Registrant's
Migration, Inc. Registration Statement No.
333-5534 as filed with the SEC
on November 25, 1996

3.10 Form of By-laws of DevSys Incorporated by reference to
Migration, Inc. Exhibit 3.10 to Registrant's
Registration Statement No.
333-5534 as filed with the SEC
on November 25, 1996

II-4

3.11 Form of Agreement and Plan of Incorporated by reference to
Merger of Dev-Tech Migration, Exhibit 3.11 to Registrant's
Inc. into DevSys Migration, Inc. Registration Statement No.
333-5534 as filed with the
SEC on November 25, 1996

3.12 Form of Certificate of Merger of Incorporated by reference to
Dev-Tech Migration, Inc. into Exhibit 3.12 to Registrant's
DevSys Migration, Inc. Registration Statement No.
333-5534 as filed with the
SEC on November 25, 1996

3.13 Certificate of Amendment to Incorporated by reference to
Certificate of Incorporation of Exhibit 3.13 to Registrant's
DevSys, Inc. changing its name Registration Statement No.
to NeoMedia Technologies, Inc. 333-5534 as filed with the
SEC on November 25, 1996

3.14 Form of Certificate of Amendment Incorporated by reference to
to Certificate of Incorporation Exhibit 3.14 to Registrant's
of NeoMedia Technologies, Inc. Registration Statement No.
authorizing a reverse stock 333-5534 as filed with the
split SEC on November 25, 1996

3.15 Form of Certificate of Amendment Incorporated by reference to
to Restated Certificate of Exhibit 3.5 to Registrant's
Incorporation of NeoMedia Annual Report as filed with
Technologies, Inc. increasing the SEC on November 2, 2001
authorized capital and creating
preferred stock

5 Opinion re: legality Provided herewith

10.1 Dev-Tech Associates, Inc. 1996 Incorporated by reference to
Stock Option Plan Exhibit 10.44 to the
Registrant's Registration
Statement No. 333-5534 as
filed with the SEC on
November 25, 1996

10.2 First Amendment and Restatement Incorporated by reference to
of Dev-Tech Associates, Inc. Exhibit 10.45 to the
1996 Stock Option Plan Registrant's Registration
Statement No. 333-5534 as
filed with the SEC on
November 25, 1996

10.3 Form of Stock Option Agreement - Incorporated by reference to
Dev-Tech Associates, Inc. Exhibit 10.46 to the
Registrant's Registration
Statement No. 333-5534 as
filed with the SEC on
November 25, 1996

10.4 Dev-Tech Migration, Inc. 1996 Incorporated by reference to
Stock Option Plan Exhibit 10.47 to the
Registrant's Registration
Statement No. 333-5534 as
filed with the SEC on
November 25, 1996

10.5 First Amendment and Restatement Incorporated by reference to
of Dev-Tech Migration, Inc. Exhibit 10.48 to the
Registrant's Registration
Statement No. 333-5534 as
filed with the SEC on
November 25, 1996

10.6 Form of Stock Option Agreement - Incorporated by reference to
Dev-Tech Migration, Inc. Exhibit 10.49 to the
Registrant's Registration
Statement No. 333-5534 as
filed with the SEC on
November 25, 1996

II-5

10.7 Dev-Tech Associates, Inc. 401(k) Incorporated by reference to
Plan and amendments Exhibit 10.50 to the
Registrant's Registration
Statement No. 333-5534 as
filed with the SEC on
November 25, 1996

10.8 First Amendment and Restatement Incorporated by reference to
of NeoMedia Technologies, Inc. Exhibit 10.60 to the
1996 Stock Option Plan Registrant's Registration
Statement No. 333-5534 as
filed with the SEC on
November 25, 1996
10.9 NeoMedia Technologies, Inc. 1998 Incorporated by reference to
Stock Option Plan Exhibit 10.9 to the
Registrant's Form 10-KSB as
filed on March 9, 2004

10.10 Amendment to NeoMedia Incorporated by reference to
Technologies 1998 Stock Option Form 14A as filed with the SEC
Plan on July 2, 1999

10.11 Sale and Purchase Agreement Incorporated by reference to
between Qode.com, Inc. and Exhibit 10.48 to the
NeoMedia Technologies, Inc. Registrant's Current Report
on Form 8-K as filed with
the SEC on March 15, 2001

10.12 Warrant repricing letter dated Incorporated by reference to
March 19, 2002 Exhibit 1.2 to the
Registrant's Current Report
on Form 8-K as filed with
the SEC on April 2, 2002

10.13 Option repricing letter dated Incorporated by reference to
April 3, 2002 Exhibit 1.2 to the
Registrant's Current Report
on Form 8-K as filed with
the SEC on April 15, 2002

10.14 Intellectual Property licensing Incorporated by reference to
agreement between NeoMedia and Exhibit 10.18 to the
A.T. Cross Company Registrant's Form S-1/A as
filed with the SEC on April
24, 2002

10.15 Intellectual Property licensing Incorporated by reference to
agreement between NeoMedia and Exhibit 10.19 to the
Symbol Technologies, Inc. Registrant's Form S-1/A as
filed with the SEC on April
24, 2002

10.16 Sponsorship and Advertising Incorporated by reference to
Agreement between NeoMedia and Exhibit 10.20 to the
About.com, Inc. Registrant's Form S-1/A as
filed with the SEC on April
24, 2002

10.17 Letter of Intent regarding Incorporated by reference to
proposed strategic transaction Exhibit 10.21 to the
between NeoMedia and AirClic, Registrant's Form S-1/A as
Inc. filed with the SEC on April
24, 2002

10.18 Form of Promissory Note issued Incorporated by reference to
to AirClic, Inc. Exhibit 10.22 to the
Registrant's Form S-1/A as
filed with the SEC on April
24, 2002

10.19 Form of Limited Recourse Incorporated by reference to
Promissory Note issued in Exhibit 10.23 to the
exchange for 19 Million Shares Registrant's Form S-1/A as
of Common Stock filed with the SEC on April
24, 2002

II-6

10.20 Nasdaq Staff Determination Incorporated by reference to
Letter with respect to Exhibit 10.24 to the
de-listing of NeoMedia Registrant's Form S-1/A as
securities from the Nasdaq filed with the SEC on April
SmallCap market 24, 2002

10.21 Revised warrant repricing letter Incorporated by reference to
dated April 3, 2002 Exhibit 10.25 to the
Registrant's Form S-1/A as
filed with the SEC on April
24, 2002

10.22 Equity Line of Credit Agreement, Incorporated by reference to
dated May 6, 2002, between Exhibit 10.17 to the
NeoMedia Technologies and Registrant's Quarterly
Cornell Capital Partners, LP Report on Form 10-Q as filed
with the SEC on August 14,
2002

10.23 Nasdaq Staff delisting Incorporated by reference to
notification letter dated May Exhibit 10.18 to the
16, 2002 Registrant's Quarterly
Report on Form 10-Q as filed
with the SEC on August 14,
2002

10.24 Settlement Agreement relating Incorporated by reference to
to wrongful termination Exhibit 10.19 to the and
lawsuit brought by former Registrant's Form 10-Q as
president Chief Operating filed with the SEC on August
Officer 14, 2002

10.25 Mutual settlement agreement by Incorporated by reference to
and between NeoMedia Exhibit 10.20 to the
Technologies and 2150 Western Registrants Form 10-Q as
Court Company, LLC filed on November 14, 2002

10.26 Mutual settlement agreement by Incorporated by reference to
and between NeoMedia Exhibit 10.21 to the
Technologies and Ripfire, Inc. Registrants Form 10-Q as
filed on November 14, 2002

10.27 Mutual settlement agreement by Incorporated by reference to
and between NeoMedia Exhibit 10.22 to the
Technologies and Wachovia Bank, Registrants Form 10-Q as
N.A. filed on November 14, 2002

10.28 Mutual settlement agreement by Incorporated by reference to
and between NeoMedia Exhibit 10.23 to the
Technologies and Marianne Registrants Form 10-Q as
LePera, NeoMedia Technologies' filed on November 14, 2002
former General Counsel

10.29 Equity Line of Credit Incorporated by reference to
Agreement, dated February 11, Exhibit 10.80 to the
2003, between NeoMedia Registrants Form S-1/A as
Technologies and Cornell filed on February 14, 2003
Capital Partners

10.30 Sponsorship and Advertising Incorporated by reference to
Agreement, dated May 23, 2001, Exhibit 23.7 to the
between About.com and NeoMedia Registrants Form S-1/A as
filed on November 16, 2001

10.31 Promissory Note dated December Incorporated by reference to
2, 2002 between Michael Exhibit 99.1 of the
Kesselbrenner and NeoMedia Registrant's Form 8-K as
filed with the SEC on
December 12, 2002.

10.32 Pledge Agreement dated December Incorporated by reference to
2, 2002, between Michael Exhibit 99.2 of the
Kesselbrenner and NeoMedia Registrant's Form 8-K as
filed with the SEC on
December 12, 2002.

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10.33 Form of Placement Agent Incorporated by reference to
Agreement, dated November 2002, Exhibit 10.84 to the
between NeoMedia Technologies Registrant's Form S-1 as
and Westrock Advisors, Inc. filed on February 12, 2003

10.34 Form of Escrow Agreement, Incorporated by reference to
dated November 2002, between Exhibit 10.85 to the
NeoMedia Technologies and Registrant's Form S-1 as filed
Cornell Capital Partners on February 12, 2003

10.35 Form of Registration Rights Incorporated by reference to
Agreement, dated November Exhibit 10.86 to the
2002, between NeoMedia Registrant's Form S-1 as filed
Technologies and Cornell on February 12, 2003
Capital Partners

10.36 Promissory Note, dated Incorporated by reference to
February 23, 2001, between Exhibit 10.87 to the
Digital Convergence Registrant's Form S-1 as filed
Corporation and NeoMedia on February 12, 2003

10.37 Termination Agreement, dated Incorporated by reference to
August 21, 2001, between Exhibit 10.88 to the
About.com and NeoMedia Registrant's Form S-1 as filed
on February 12, 2003

10.38 Memorandum of Terms to merge, Incorporated by reference to
dated March 7, 2003, between Exhibit 3.1 to the
NeoMedia and Loch Energy, Inc. Registrant's Form 8-K as
filed on March 19, 2003

10.39 Binding Letter of Intent to Incorporated by reference to
merge, dated July 25, 2003, Exhibit 99.5 to the
between NeoMedia and Secure Registrant's Form 10-QSB as
Source Technologies, Inc. filed on August 14, 2003

10.40 Definitive Merger Agreement, Incorporated by reference to
dated October 3, 2003, between Exhibit 99.1 to the
NeoMedia and Secure Source Registrant's Form 8-K as filed
Technologies, Inc on October 8, 2003

10.41 Standby Equity Incorporated by reference
Distribution Agreement, to Exhibit 10.91 to the
dated October 27, 2003, Registrant's Form SB-2/A
between NeoMedia and as filed on December 19,
Cornell Capital Partners 2003

10.42 Form of Placement Agent Incorporated by reference
Agreement, dated October to Exhibit 10.92 to the
27, 2003, between Registrant's Form SB-2/A
NeoMedia and Newbridge as filed on December 19,
Securities Corporation 2003

10.43 Form of Registration Incorporated by reference
Rights Agreement, dated to Exhibit 10.93 to the
October 27, 2003, between Registrant's Form SB-2/A
NeoMedia and Cornell as filed on December 19,
Capital Partners 2003

10.44 Form of Escrow Agreement, Incorporated by reference
dated October 27, 2003, to Exhibit 10.94 to the
between NeoMedia and Registrant's Form SB-2/A
Cornell Capital Partners as filed on December 19,
2003

10.45 2003 Stock Compensation Plan Incorporated by reference to
Exhibit 4.1 to the
Registrant's Form S-8 as
filed on October 31, 2003

10.46 Letter of Intent to acquire CSI Incorporated by reference to
International, Inc., dated Exhibit 3.1 to the
November 8, 2003 Registrant's Form 8-K as
filed on November 13, 2003

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10.47 Letter of Intent to acquire BSD Incorporated by reference to
Software, Inc., dated December Exhibit 3.1 to the
9, 2003 Registrant's Form 8-K as
filed on December 11, 2003

10.48 Definitive Merger Agreement, Incorporated by reference to
dated February 6, 2004, between Exhibit 3.1 to the
NeoMedia and CSI International, Registrant's Form 8-K as
Inc. filed on February 10, 2004

10.49 $4 million Promissory Incorporated by reference
note payable to Cornell to Exhibit 10.49 to the
Capital Partners, dated Registrant's Form 10-KSB
January 15, 2004 as filed on March 9, 2004

23.1 Consent of Stonefield Josephson, Provided Herewith
Inc.

II-9

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.

II-10

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 March 23, 2004.

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

President, Chief Executive
/s/ Charles T. Jensen Officer,
------------------------
Chief Operating Officer
Charles T. Jensen and Director March 23, 2004

/s/ William E. Fritz Director and Secretary March 23, 2004
------------------------
William E. Fritz

/s/ Charles W. Fritz Chairman of the Board
------------------------
Charles W. Fritz March 23, 2004

Vice-President, Chief
/s/ David A. Dodge Financial
------------------------
David A. Dodge Officer and Controller March 23, 2004

/s/ Hayes Barclay Director March 23, 2004
------------------------
Hayes Barclay

/s/ James J. Keil Director March 23, 2004
------------------------
James J. Keil

II-11