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

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

                                  FORM 10 - QSB
                                   (Mark One)

|X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004

                                       OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                         COMMISSION FILE NUMBER 0-21743

                           NEOMEDIA TECHNOLOGIES, INC.
        (Exact Name of Small Business Issuer as Specified In Its Charter)

         DELAWARE                                                36-3680347
(State or Other Jurisdiction of                              (I.R.S. Employer
Incorporation or Organization)                               Identification No.)

2201 SECOND STREET, SUITE 402, FORT MYERS, FLORIDA                 33901
   (Address of Principal Executive Offices)                     (Zip Code)

239-337-3434 Issuer's Telephone Number (Including Area Code)


         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days. Yes X No

         As of May 10, 2004,  there were 300,450,338  outstanding  shares of the
issuer's Common Stock.

                                       1
<PAGE>


                                       PART I -- FINANCIAL INFORMATION

       ITEM 1.  FINANCIAL STATEMENTS

                               NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
                             CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)

                                    (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                     MARCH 31
                                                                                       2004
                                                                                   ------------
<S>                                                                                <C>
ASSETS

Current assets:

        Cash and cash equivalents                                                  $        635
        Trade accounts receivable, net of allowance for doubtful accounts of $62            174
        Inventories, net of allowance for obsolete & slow-moving inventory of $13            80
        Prepaid expenses and other current assets                                           453
                                                                                   ------------
        Total current assets                                                              1,342
        Property and equipment, net                                                         130
        Capitalized patents, net                                                          2,348
        Capitalized and purchased software costs, net                                       111
        Excess of purchase price over tangible assets of CSI                              3,056
        Other long-term assets                                                              746
                                                                                   ------------
             Total assets                                                          $      7,733
                                                                                   ============
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
        Accounts payable                                                           $      2,030
        Amounts due under financing agreements                                              127
        Amounts payable under settlement agreements                                         598
        Liabilities of discontinued business unit                                           650
        Sales taxes payable                                                                 107
        Accrued expenses                                                                  1,451
        Deferred revenues and other                                                         576
        Notes payable, net of unamortized discount of $606                                2,067
                                                                                   ------------
             Total current liabilities                                                    7,606
Long-term portion of amounts payable under settlement agreements, net of
current portion                                                                              35
                                                                                   ------------

             Total liabilities                                                            7,641
                                                                                   ------------
Shareholders' equity:
        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,
          298,811,499 shares issued and 291,628,580 outstanding                           2,916
        Additional paid-in capital                                                       77,841
        Deferred stock-based compensation                                                  (696)
        Deferred debt issuance and equity financing costs                                  (799)
        Accumulated deficit                                                             (78,369)
        Accumulated other comprehensive loss - foreign currency
        translation adjustment                                                              (22)
        Treasury stock, at cost, 201,230 shares of common stock                            (779)
                                                                                   ------------
           Total shareholders' equity                                                        92
                                                                                   ------------
             Total liabilities and shareholders' equity                            $      7,733
                                                                                   ============
</TABLE>

        The   accompanying   notes  are  an  integral  part  of  this  condensed
consolidated balance sheet.


                                       2
<PAGE>



                  NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                    THREE MONTHS ENDED MARCH 31,
                                                                                   -----------------------------
                                                                                        2004            2003
                                                                                   ------------    ------------
<S>                                                                                <C>             <C>
NET SALES:
         License fees                                                              $         72    $        109
         Resale of software and technology equipment and service fees                       192             765
         Micro paint repair products and services                                            86              --
                                                                                   ------------    ------------
         Total net sales                                                                    350             874
                                                                                   ------------    ------------
COST OF SALES:
         License fees                                                                        89              76
         Resale of software and technology equipment and service fees                       160             702
         Micro paint repair products and services                                            57              --
                                                                                   ------------    ------------
         Total cost of sales                                                                306             778
                                                                                   ------------    ------------
GROSS PROFIT (LOSS)                                                                          44              96
         Sales and marketing expenses                                                       425             139
         General and administrative expenses                                                378             719
         Research and development costs                                                     118              89
                                                                                   ------------    ------------
         Loss from operations                                                              (877)           (851)

OTHER INCOME (EXPENSES)
         Gain on extinguishment of debt                                                     126              --
         Amortization of debt discount                                                   (1,394)             --
         Interest expense net                                                               (77)            (52)
                                                                                   ------------    ------------
NET LOSS                                                                                 (2,222)           (903)
         Other comprehensive loss:                                                          (22)             --
            Foreign currency translation adjustment                                ------------    ------------
                                                                                   $     (2,244)   $       (903)
COMPREHENSIVE LOSS                                                                 ============    ============
LOSS PER SHARE--BASIC AND DILUTED                                                  $      (0.01)   $      (0.03)
                                                                                   ============    ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES--BASIC AND DILUTED                         270,139,433      31,519,083
                                                                                   ============    ============

</TABLE>



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

                                       3
<PAGE>


                  NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                      THREE MONTHS ENDED
                                                                                                          MARCH 31,
                                                                                                ----------------------------
                                                                                                    2004            2003
                                                                                                ------------    ------------
<S>                                                                                                  <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net loss                                                                                       ($2,222)          ($903)
      Adjustments to reconcile net loss to net cash used in operating
      activities:
      Amortization of discount on note payable                                                         1,394              --
      Depreciation and amortization                                                                      140             126
      Fair value of expense portion of stock-based
               compensation granted for professional services                                            190             278
      Interest expense allocated to debt                                                                   3              37
      (Increase)/decrease in value of life insurance policies                                              8              16
      Decrease of fair value of repriced options                                                        (163)             --
      Changes in operating assets and liabilities
        Trade accounts receivable, net                                                                    26             (82)
        Inventory                                                                                        (24)             91
        Other current assets                                                                             104            (131)
        Accounts payable, amounts due under financing agreements, liabilities
          in excess of assets of discontinued business unit, accrued expenses
          and stock liability                                                                           (648)            190
        Deferred revenue other current liabilities                                                        62             125
                                                                                                ------------    ------------
          Net cash used in operating activities                                                       (1,130)           (253)
                                                                                                ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Capitalization of software development and purchased intangible assets                             (50)             (5)
      Acquisition of property and equipment                                                              (79)             --
                                                                                                ------------    ------------
        Net cash used in investing activities                                                           (129)             (5)
                                                                                                ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Net proceeds from issuance of common stock, net of issuance costs of $315                        1,832              81
      Net proceeds from exercise of stock warrants                                                       500              --
      Net proceeds from exercise of stock options                                                         75              --
      Borrowings under notes payable and long-term debt                                                4,000             262
      Repayments on notes payable and long-term debt                                                  (2,162)           (147)
      Cash paid to acquire CSI International, Inc. (net of cash acquired)                             (2,390)             --
                                                                                                ------------    ------------
        Net cash provided by financing activities                                                      1,855             196
                                                                                                ------------    ------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                                  (22)             --

NET INCREASE IN CASH AND CASH EQUIVALENTS                                                                574             (62)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                            61              70
                                                                                                ------------    ------------
                                                                                                $        635    $          8
CASH AND CASH EQUIVALENTS, END OF PERIOD                                                        ============    ============

SUPPLEMENTAL CASH FLOW INFORMATION:
      Interest paid/(received) during the period                                                $         47    $          1
      Income taxes paid                                                                                   --              --
      Non-cash investing and financing activities:
        Reduction in accounts payable and accruals for debt paid in stock                                221              60
        Fair value of stock issued for services and deferred to future periods                           549              --
        Fair value of shares issued to acquire CSI Int'l (net of costs of registration)                  695              --
        Change in net assets resulting from acquisition of CSI (net of cash acquired)                  3,090              --
        Gain on extinguishment of debt                                                                   126              --
        Direct costs associated with Equity Line of Credit                                               500              --
</TABLE>

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

                                       4
<PAGE>


                  NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
         UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.    BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS

BASIS OF PRESENTATION

      The  condensed  consolidated  financial  statements  include the financial
statements  of NeoMedia  Technologies,  Inc. and its  wholly-owned  subsidiaries
("NeoMedia" or the "Company"). The accompanying unaudited condensed consolidated
financial  statements have been prepared in accordance with the  instructions to
Form 10-QSB and do not include all of the information and footnotes  required by
accounting  principles  generally  accepted in the United  States of America for
complete  consolidated   financial  statements.   These  condensed  consolidated
financial  statements and related notes should be read in  conjunction  with the
Company's  Form  10-KSB for the fiscal  year ended  December  31,  2003.  In the
opinion of management, these condensed consolidated financial statements reflect
all adjustments  which are of a normal  recurring nature and which are necessary
to present fairly the  consolidated  financial  position of NeoMedia as of March
31,  2004,  and the results of  operations  and  cashflows  for the  three-month
periods  ended  March 31,  2004 and 2003.  The  results  of  operations  for the
three-month  period ended March 31, 2004 are not  necessarily  indicative of the
results  which may be  expected  for the entire  fiscal  year.  All  significant
intercompany  accounts and  transactions  have been eliminated in preparation of
the condensed consolidated financial statements.

NATURE OF BUSINESS OPERATIONS

      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 NeoMedia's physical world to Internet
core technology,  including the linking "switch" and application platforms. NISS
also  manages  NeoMedia's   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 NeoMedia 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. 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 unique micro-paint repair solution.  The Company completed its
acquisition of CSI on February 6, 2004.

RECLASSIFICATIONS

      Certain amounts in the 2003 condensed  consolidated  financial  statements
have been reclassified to conform to the 2004 presentation.

                                       5
<PAGE>


ACQUISITION OF CSI INTERNATIONAL, INC. ("CSI")

      On  February  6,  2004,   NeoMedia   acquired   100%   ownership   of  CSI
International,  Inc., of Calgary, Alberta, Canada, a private technology products
company in the micro  paint  repair  industry.  NeoMedia  paid a purchase  price
including  an  issuance of  7,000,000  shares of its common  stock,  and cash of
$2,500,000 in exchange for all outstanding shares of CSI. The shares were valued
at $0.10 per share, which was the market price of NeoMedia's common stock on the
Over-the-counter  Bulletin Board exchange around the acquisition date.  NeoMedia
also incurred direct costs of the business  combination  totaling $5,000,  which
are included in the purchase  price for purposes of allocating  assets  acquired
and liabilities assumed.

      The  acquisition was accounted for under the purchase  method.  The actual
purchase  price was based on cash paid,  the fair value of NeoMedia stock around
the date of the  acquisition,  and direct costs associated with the combination.
The purchase price was allocated as follows:

                                                            (Dollars in
                                                             Thousands)
                                                            ------------
Value of 7 Million Shares Issued ($0.10 per share)          $        700
Cash paid                                                          2,500
Direct costs of acquisition                                            5
                                                            ------------
   Total Fair Value of Purchase Price                       $      3,205
                                                            ------------

Assets Purchased:

   Cash                                                     $        115
   Accounts receivable, net                                           67
   Inventory                                                          54
   Other current assets                                               12
   Investments                                                        25
   Property, plant & equipment                                         8
   Excess of purchase price over net tangible assets               3,059
                                                            ------------
      Total Assets Purchased                                       3,340
                                                            ------------

Less Liabilities Assumed:

   Accounts payable                                                  (23)
   Accrued liabilities                                               (12)
   Notes payable                                                    (100)
                                                            ------------
      Total Liabilities Assumed                                     (135)
                                                            ------------

      The combination is being accounted for as a purchase business  combination
as defined by Statement  of Financial  Accounting  Standards  No. 141,  Business
Combinations. The allocation of the purchase price is preliminary and is subject
to revision as the Company  continues to evaluate the  allocations.  The Company
has not  amortized the excess of purchase  price over net tangible  assets since
the  allocation  is not yet final.  With limited  operation  history of CSI, the
Company  expects to  evaluate  the  results of  operations  of CSI in the coming
months in order to accurately  finalize the  allocation.  The Company expects to
finalize  this  process in the second  half of 2004.  If the excess of  purchase
price over net tangible  assets is determined to be allocated fully or partially
to intangible assets with definite lives upon final allocation, the Company will
determine the economic useful lives based on its best estimate and amortize such
assets  accordingly.  The  Company  will  continue  to  evaluate  this asset for
impairment until such time as the purchase price allocation is final.

      The  accompanying  consolidated  statement of operations  presented herein
contains  the  results of  operations  for CSI for the period  February 6, 2004,
through March 31, 2004.


                                       6
<PAGE>


      Pro-forma  results of operations as if NeoMedia and CSI had combined as of
January 1, 2004 are as follows:


<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED MARCH 31, 2004
                                     -------------------------------------------------------
                                                              (A)
                                                           PRO-FORMA
                                                   CSI      ADJUST-              PRO-FORMA
                                      NEOMEDIA    INT'L      MENTS               COMBINED
                                     ------------ ------- -----------         --------------
<S>                                         <C>     <C>        <C>                     <C>
Total net sales                             $350    $150       ($86)  (A)              $414
Loss from operations                      ($877)  ($167)        $141  (A)            ($903)
Net loss                                ($2,222)  ($192)        $166  (A)          ($2,248)
Net loss per share-basic and
diluted                                  ($0.01)                      (A)           ($0.01)
Weighted average number of
       Common shares - basic and
       diluted                       270,139,433           2,769,231  (B)       272,908,664
</TABLE>

Pro-forma Adjustments

(A) - Adjustments  are to reflect  operations  of CSI from  February 6, 2004
      through March 31, 2004,  which are included in NeoMedia's  operations for
      the three months ended March 31, 2004.

(B) - To adjust  weighted  average  shares  outstanding  as if the  7,000,000
      shares  issued as part of the purchase  price of CSI on February 6, 2004,
      had been issued on January 1, 2004

      Pro-forma  results of operations as if NeoMedia and CSI had combined as of
January 1, 2003 are as follows:

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED MARCH 31, 2003
                                     ------------------------------------------------------
                                                             (A)
                                                          PRO-FORMA
                                                   CSI     ADJUST-              PRO-FORMA
                                      NEOMEDIA    INT'L     MENTS               COMBINED
                                     ------------ ------ -----------         --------------
<S>                                         <C>    <C>                              <C>
Total net sales                             $874   $127         ---                 $1,001
Income (loss) from operations             ($851)     $2         ---                 ($849)
Net income (loss)                         ($903)     $2         ---                 ($901)
Net loss per share-basic and
diluted                                  ($0.03)                                   ($0.02)
Weighted average number of
       common shares - basic and
       diluted                        31,519,083          7,000,000  (C)        38,519,083
</TABLE>

Pro-forma Adjustments

(C) - To adjust  weighted  average  shares  outstanding  as if the  7,000,000
      shares  issued as part of the purchase  price of CSI on February 6, 2004,
      had been issued on January 1, 2003

                   STANDBY EQUITY DISTRIBUTION AGREEMENT WITH
                    CORNELL CAPITAL PARTNERS, LP ("CORNELL")

      On February 11, 2003,  NeoMedia and Cornell entered into an Equity Line of
Credit  Agreement  under which  Cornell  agreed to purchase up to $10 million of
NeoMedia's  common stock over a two-year  period,  with the timing and amount of
the purchase at the Company's  discretion.  The maximum  amount of each purchase
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

      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.  In April 2004, the Company filed a Form SB-2 to register 40 million
shares  underlying  warrants  granted to Cornell in connection with a promissory
note issued by the Company to Cornell (see "Notes Payable to Cornell" below). In
May 2004,  the Form SB-2 was declared  effective by the  Securities and Exchange
Commission.

      During the three months ended March 31, 2004, the Company sold  21,282,203
shares of its common  stock to Cornell  under the  Standby  Equity  Distribution
Agreement.  The following table summarizes  funding received from Cornell during
the three months ended March 31, 2004:

                                                               THREE
                                                               MONTHS
                                                                ENDED
                                                              MARCH 31,
                                                                2004
                                                            ------------
Number of shares sold to Cornell                              21,282,203

Gross Proceeds from sale of shares to
Cornell                                                     $  2,332,000
Less: discounts and fees*                                       (500,000)
                                                            ------------
   Net Proceeds from sale of shares to
Cornell                                                     $  1,832,000
                                                            ------------

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

PROMISSORY NOTES PAYABLE TO CORNELL

      On January 20, 2004, the Company borrowed from Cornell the gross amount of
$4,000,000 before Cornell discounts and fees.  Cornell also committed to fund an
additional  $1,000,000  in the form of a  promissory  note,  which was funded on
April  8,  2004.  Of the  $4,000,000  funding,  $2,500,000  was used to fund the
acquisition of CSI  International,  Inc. during February 2004.  Cornell withheld
$315,000  retention  fee related to the issuance of stock to pay off the debt in
the future.

      As of March 31, 2004,  the Company had reduced the balance  payable on the
$4,000,000  note to $2,400,000.  As of May 10, 2004, the Company further reduced
the outstanding principal on the $4,000,000 note to $1,760,000.  The Company had
not made any  payments  against the  principal of the  $1,000,000  note that was
issued on April 8, 2004. All assets of the Company are pledged as collateral for
the $4,000,000  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 of either note in cash.
The Company  expects to pay the remaining  note balance by applying the proceeds
from the sale stock under the terms of the Standby Equity Distribution Agreement
toward the outstanding principal on the notes.

      The Company also granted to Cornell 40,000,000 warrants to purchase shares
of NeoMedia stock with an exercise price of $0.05 per share.  In April 2004, the
Company  filed a Form SB-2 to register  40 million  shares  underlying  warrants
granted to Cornell in connection with a promissory note issued by the Company to
Cornell. In May 2004, the Form SB-2 was declared effective by the Securities and
Exchange Commission. 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


                                       8
<PAGE>


Cornell to exercise the warrants,  resulting in additional  funds to the Company
of $2,000,000.  The fair value of the warrants using the  Black/Scholes  pricing
model was  $5,000,000.  In accordance  with APB 14,  "Accounting for Convertible
Debt and Debt Issued with Stock Purchase Warrants", the Company has compared the
relative  fair values of the warrants  and the face value of the notes,  and has
allocated  a value of $2.5  million to the  warrants.  Of the $2.5  million,  $2
million was allocated to the $4 million note and recorded as a discount  against
the carrying  value of the note as of March 31,  2004,  and the  remaining  $0.5
million was recorded as deferred debt issuance and equity  financing costs which
will be recorded as discount  against the $1 million note when issued during the
second  quarter  of 2004.  The $2.5  million  being  allocated  to the  notes is
considered a discount on the promissory  notes, and therefore is being amortized
over the life of the notes using the effective  interest  method,  in accordance
with Staff Accounting  Bulletin No. 77, Topic 2.A.6,  "Debt Issue Costs" of SFAS
141, "Business Combinations".  Accordingly, the Company recorded an amortization
of discount of  $1,394,000  during the three months ended March 31, 2004 related
to the warrants.

OPTION REPRICING PROGRAM

      During May 2003,  the Company  re-priced  approximately  8.0 million stock
options under a 6-month repricing program.  Under the terms of the program,  the
exercise price for outstanding  options under the Company's 2002, 1998, and 1996
Stock  Option  Plans was  restated  to $0.01 per share for a period of 6 months.
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.  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 March 31, 2004. On March 31,
2004, the closing price of the Company's common stock was lower than the closing
price on December 31,  2004.  As a result,  the Company  recorded a reduction to
general and administrative expense of $163,000 under variable accounting for the
decrease of fair value of options still unexercised under the repricing program.

OTHER EVENTS

      During January 2004, the Company entered into a consulting  agreement with
James J. Keil, a member of the  Company's  board of  directors,  for  consulting
services  to be  provided  over  a  period  of six  months  in  connection  with
NeoMedia's  sales  strategies  and  processes.  The  contract  calls for monthly
payments of $4,500 during the term of the contract.

      On February 6, 2004, the Company entered into a consulting  agreement with
an unrelated  third party,  under which the  consultant  will provide  sales and
marketing  services  relating to the Company's  Micro Paint business unit over a
period of three years.  As  consideration  for the contract,  the Company issued
6,055,556  options with an exercise price of $0.01 to the  consultant.  The fair
value of the  options  at the time of  issuance  was  $550,000.  The  Company is
recognizing  the fair value as sales and marketing  expense over the term of the
contract (three years).  Accordingly,  the Company recognized $27,000 in expense
relating the contract during the three months ended March 31, 2004.

      On March 13, 2003, the Company repaid the remaining  balance of $85,000 on
a note due to Michael  Kesselbrenner,  a private investor. The original note had
been issued in the amount of  $165,000  on December 2, 2002,  with a term of 150
days. In connection with the default  provision of the note, the Company entered
into a Pledge Agreement,  dated December 2, 2002, under which the Company issued
53,620,020  shares of common stock to an unrelated third party as collateral for
the note.  The note balance of $85,000 was paid off on March 13,  2003,  and the
53,620,020 shares were returned to the Company on April 4, 2003 and retired.


                                       9
<PAGE>


PRO-FORMA INFORMATION REQUIRED BY SFAS 148

      At March 31, 2004, the Company has five stock-based employee  compensation
plans (the 2003 Stock Incentive Plan, the 2003 Stock Option Plan, the 2002 Stock
Option Plan,  the 1998 Stock Option Plan,  and the 1996 Stock Option Plan).  The
Company   accounts  for  those  plans  under  the  recognition  and  measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employees,  and
related Interpretations.  No stock-based employee compensation cost is reflected
in net loss, except when options granted under those plans had an exercise price
less than the market value of the underlying  common stock on the date of grant.
The following table illustrates the effect on net loss and loss per share if the
Company had applied the fair value recognition  provisions of FASB Statement No.
123,   Accounting  for  Stock-Based   Compensation,   to  stock-based   employee
compensation.

                                                       THREE MONTHS ENDED
                                                            MARCH 31,
                                                  ---------------------------
                                                      2004           2003
                                                  ------------   ------------
Net Loss, as reported                             ($     2,222)  ($       903)
Compensation recognized under APB 25                      --             --
Compensation recognized under SFAS 123                    (455)          (218)
                                                  ------------   ------------
   Pro-forma net loss                             ($     2,677)  ($     1,121)
                                                  ============   ============

Net Loss per share:

Basic and diluted - as reported                   ($      0.01)  ($      0.03)
                                                  ============   ============
Basic and diluted - pro-forma                     ($      0.01)  ($      0.04)
                                                  ============   ============


SEGMENT REPORTING

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

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

      NeoMedia  Consulting  and  Integration  Services  (NCIS) is the  Company's
systems integration business unit. This unit resells client-server equipment and
related software,  and general and specialized  consulting  services.  NCIS also
identifies  prospects for custom  applications based on NeoMedia's  products and
services.  This unit  recently  added to its  business  offerings  a much higher
Value-Add called Storage Area Networks (SAN). The operations are based in Lisle,
Illinois.

      NeoMedia Micro Paint Repair (NMPR) is the business unit  encompassing  the
Company's  recently-acquired  CSI International micro paint repair line. NMPR is
attempting  to  commercialize  its  micro-paint  repair  solution.  The  Company
completed its acquisition of CSI on February 6, 2004

      The Company's  reportable segments are strategic business units that offer
different technology and marketing strategies. NISS and NCIS operate principally
in the United States. NMPR operates out of Canada. During the three months ended
March 31,  2004,  NeoMedia  derived 24% of its revenue from  customers  based in
Canada.


                                       10
<PAGE>


      Consolidated  net sales,  net operating  losses for the three months ended
March 31, 2004 and 2003, and  identifiable  assets as of March 31, 2004, were as
follows:

                                                         (in thousands)
                                                     -------------------------
                                                       THREE MONTHS ENDED
                                                            MARCH 31,
                                                     -------------------------
                                                        2004          2003
                                                     ------------- -----------
NET SALES:

      NeoMedia Consulting & Integration Services             $251        $861
      NeoMedia Internet Switching Service                      13          13
      NeoMedia Micro Paint Repair                              86         ---
                                                     ------------- -----------
                                                             $350        $874
                                                     ------------- -----------

NET LOSS:

      NeoMedia Consulting & Integration Services           ($722)      ($729)
      NeoMedia Internet Switching Service                   (870)       (174)
      NeoMedia Micro Paint Repair                           (630)         ---
                                                     ------------- -----------
                                                         ($2,222)      ($903)

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

IDENTIFIABLE ASSETS

      NeoMedia Consulting & Integration Services             $302
      NeoMedia Internet Switching Service                   2,351
      NeoMedia Micro Paint Repair                           3,260
      Corporate                                             1,820
                                                     -------------
                                                           $7,733

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


                                       11
<PAGE>


ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

      Over the past several  years,  NeoMedia's  focus has been aimed toward the
intellectual property  commercialization  unit of its 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.   NeoMedia's  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 its  end-users,
competitive advantage for their business partners and  return-on-investment  for
their investors.  To this end,  NeoMedia has signed four  intellectual  property
licenses since inception,  and also acquired  additional  patents as part of the
acquisition  of Secure Source  Technologies,  Inc.  during 2003. On September 8,
2003, NeoMedia announced its 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,  NeoMedia  unveiled  its
go-to-market  strategy for the product.  Over the past several months,  NeoMedia
signed contracts with several key partners  outlined in the strategy,  including
agents Big Gig  Strategies,  SRP  Consulting,  and  Relyco,  systems  integrator
Science Applications  International Corporation (SAIC), and European advertising
agency  12Snap.  NeoMedia  has also  entered  into letters of intent with global
brand communication company Seven Worldwide, and marketing organizations iCoupon
and Digital Rum.

SEC INQUIRY

      During 2003,  NeoMedia 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
NeoMedia's  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,  NeoMedia  acquired  100%
      ownership of 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
      maintain the sales and operations office in Calgary, Alberta, Canada.

      SECURE SOURCE TECHNOLOGIES,  INC. 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.

      BSD  SOFTWARE,  INC.  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.  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 dependent on due diligence by
      both companies,  approval by NeoMedia's Board of Directors, BSD Software's


                                       12
<PAGE>


      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.

      NeoMedia's  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
NeoMedia's  target  markets,  and the  cost of  acquiring  and  integrating  new
businesses.

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,  NeoMedia's  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.  NeoMedia also has 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  NeoMedia uses in applying these
most critical  accounting  policies have a significant  impact on the results it
reports in its 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,  NeoMedia  primarily uses the
weighted-average  probability  method outlined in SFAS 144. This method requires
significant management judgment to forecast the future operating results used in
the  analysis.  In addition,  other  significant  estimates are required such as
residual growth rates and discount factors.  The estimates NeoMedia has used are
consistent  with the plans  and  estimates  that  NeoMedia  uses to  manage  its
business,  based on available historical  information and industry averages. The
judgments made in determining the estimated  useful lives assigned to each class
of assets  acquired  can also  significantly  affect  NeoMedia's  net  operating
results.

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

      Stock-based  Compensation.  NeoMedia records  stock-based  compensation to
outside consultants at fair market value in general and administrative  expense.
NeoMedia does not record expense  relating to stock options granted to employees
with an  exercise  price  greater  than or equal to market  price at the time of
grant. NeoMedia reports 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 NeoMedia 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  NeoMedia's
employee stock options have characteristics significantly different from those


                                       13
<PAGE>


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.  NeoMedia is defendant in certain
litigation  in the  ordinary  course  of  business  (see  "Legal  Proceedings").
NeoMedia accrues liabilities relating to these lawsuits on a case-by-case basis.
NeoMedia  generally  accrues  attorney  fees and  interest  in  addition  to the
liability  being  sought.  Liabilities  are  adjusted on a regular  basis as new
information becomes available. NeoMedia consults 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. NeoMedia derives revenues from three primary sources:
(1) license  revenues and (2) resale of software and  technology  equipment  and
service  fee  revenues,  and (3)  sale of its  proprietary  micro  paint  repair
solution.

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

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

      (2)   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.  104,
            "Revenue Recognition in Financial Statements," as amended (SAB 104).
            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.  NeoMedia 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.

            In December 2003, the  Securities  and Exchange  Commission  ("SEC")
            issued  Staff  Accounting   Bulletin   ("SAB")  No.  104,   "Revenue
            Recognition."  SAB 104 supersedes SAB 101,  "Revenue  Recognition in
            Financial  Statements."  SAB 104's  primary  purpose  is to  rescind
            accounting guidance contained in SAB 101 related to multiple element
            revenue arrangements, superseded as a result of the issuance of EITF
            00-21,   "Accounting   for  Revenue   Arrangements   with   Multiple
            Deliverables."  Additionally,  SAB 104  rescinds  the SEC's  Revenue
            Recognition in Financial  Statements  Frequently Asked Questions and
            Answers  ("the FAQ")  issued with SAB 101 that had been  codified in
            SEC Topic 13, Revenue Recognition. Selected portions of the FAQ have


                                       14
<PAGE>


            been  incorporated  into SAB 104.  While the  wording of SAB 104 has
            changed  to  reflect  the  issuance  of  EITF  00-21,   the  revenue
            recognition  principles of SAB 101 remain  largely  unchanged by the
            issuance of SAB 104, which was effective upon issuance. The adoption
            of SAB 104 did not impact the consolidated financial statements.

      (3)   Revenue for training and  certification  on  NeoMedia's  Micro Paint
            Repair systems is recognized  equally over the term of the contract,
            which is  currently  one year.  A portion of the initial fee paid by
            the  customer is allocated  to training  costs and initial  products
            sold with the system,  and is recognized upon completion of training
            and shipment of the products. Ongoing product and service revenue is
            recognized as products are shipped and services performed.

RESULTS OF  OPERATIONS  FOR THE THREE MONTHS ENDED MARCH 31, 2004 AS COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 2003

      Net sales.  Total net sales for the three months ended March 31, 2004 were
$350,000,  which represented a $524,000,  or 60%, decrease from $874,000 for the
three months ended March 31, 2003. This decrease primarily resulted from reduced
resales of Sun Microsystems  equipment due to increased  competition and general
economic  conditions.  NeoMedia intends to continue to pursue additional resales
of equipment,  software and services.  NeoMedia  expects resales to more closely
resemble the results for the three months ended March 31, 2004,  rather than the
three  months ended March 31,  2003.  With the sales from its  recently-acquired
Micro Paint Repair business unit, the Company expects sales in 2004 to be higher
than in 2003.

     License  fees.  License  fees were $72,000 for the three months ended March
31, 2004,  compared  with  $109,000 for the three months ended March 31, 2003, a
decrease of $37,000,  or 34%. The decrease was due to lower sales of  internally
developed  software  licenses  in 2004.  NeoMedia  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 $573,000,  or
75%, to $192,000  for the three  months  ended  March 31,  2004,  as compared to
$765,000  for the three months ended March 31,  2003.  This  decrease  primarily
resulted  from reduced  resales of Sun  Microsystems  equipment due to increased
competition and general  economic  conditions.  NeoMedia  intends to continue to
pursue additional resales of equipment,  software and services. NeoMedia expects
resales to more  closely  resemble  the results for the three months ended March
31, 2004, rather than the three months ended March 31, 2003.

     Micro paint  repair  products  and  services.  Sales of micro paint  repair
products  and  services  were $86,000 for the three months ended March 31, 2004,
the first period for which the results of this  business  unit were  included in
NeoMedia's  consolidated  financial statements.  NeoMedia expects sales of micro
paint  repair  products  and  services  to  increase  during 2004 as the Company
implements its business to rollout its Micro Paint Repair solution.

     Cost of sales.  Cost of license fees was $89,000 for the three months ended
March 31, 2004,  a increase of $13,000,  or 17%,  compared  with $76,000 for the
three months ended March 31, 2003. The increase  resulted from the  amortization
of the acquired  intangible micro paint asset.  Cost of resales was $160,000 for
the three months ended March 31, 2004, a decrease of $542,000,  or 77%, compared
with $702,000 for the three months ended March 31, 2003.  The decrease  resulted
from  decreased  resales  in 2004  compared  with  2003.  Cost of  resales  as a
percentage  of related  resales was 83% in 2004,  compared to 92% in 2003.  This
decrease  is  due to an  increased  mix of  higher-margin  software  maintenance
products  in 2004  compared  with  2003.  NeoMedia  expects  costs of resales to


                                       15
<PAGE>


fluctuate  with the mix of sales of equipment,  software,  and services over the
next 12 months. Cost of micro paint repair products and services was $57,000 for
the three  months ended March 31, 2004, a the first period for which the results
of this  business  unit  were  included  in  NeoMedia's  consolidated  financial
statements.  Cost of micro paint repair products and services as a percentage of
related  sales  was  68%.   With  the  expected   increase  in  sales  from  its
recently-acquired  Micro Paint Repair business, the Company expects overall cost
of sales in 2004 to be higher than in 2003.

      Gross  Profit.  Gross  profit was $44,000 for the three months ended March
31, 2004, a decrease of $52,000,  or 54%,  compared with gross profit of $96,000
for the three months  ended March 31, 2003.  This  decrease  was  primarily  the
result  of  reduced  resales  of Sun  Microsystems  equipment  due to  increased
competition and general economic conditions.

      Sales and  marketing.  Sales and marketing  expenses were $425,000 for the
three  months  ended March 31,  2004,  compared to $139,000 for the three months
ended March 31, 2003, an increase of $286,000 or 206%.  This  increase  resulted
primarily  from the addition of  recently-acquired  micro paint  business  sales
force  and  cost  associated  with  marketing  and  promotion  of the  Company's
PaperClick  products.  NeoMedia expects sales and marketing  expense to increase
over  the  next  12  months  with  the  acquisition  of CSI  and  the  potential
acquisition  of BSD  Software,  as well as with the  continued  development  and
anticipated rollout of NeoMedia's PaperClick product suite.

      General and administrative.  General and administrative expenses decreased
by  $341,000,  or 47%, to $378,000  for the three  months  ended March 31, 2004,
compared to $719,000 for the three  months  ended March 31,  2003.  The decrease
resulted primarily from a decrease in stock-based  professional services expense
in 2004 compared with 2003, as well as a reduction to general and administrative
expense of $163,000  relating to the Company's option  repricing  program during
the  three  months  ended  March  31,  2004.   NeoMedia   expects   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 three months ended March 31, 2004,
NeoMedia  charged to expense  $118,000 of research  and  development  costs,  an
increase of $29,000 or 33%  compared to $89,000 for the three months ended March
31,  2003.  The  increase  is  primarily  due  to  addition  of  developers  and
development computer systems. NeoMedia expects research and development costs to
increase  slightly  over the next 12 months with the continued  development  and
anticipated rollout of NeoMedia's PaperClick product suite.

      Gain on  extinguishment  of debt.  During the three months ended March 31,
2004,  NeoMedia  recognized  a gain on  extinguishments  of  debt  of  $126,000,
resulting  from the payment of debt at a discount to the book value of the debt.
NeoMedia did not  recognize  gain or loss on  extinguishment  of debt during the
three months ended March 31, 2003.

      Amortization  of debt  discount.  During the three  months ended March 31,
2004,  NeoMedia  recognized an  amortization of debt issuance cost of $1,394,000
relating to the  amortization  of the fair value of warrants  granted to Cornell
Capital  Partners  in  connection  with  promissory  notes  issued to Cornell by
NeoMedia  during  the three  months  ended  March  31,  2004.  NeoMedia  did not
recognize any such expense during the three months ended March 31, 2003.

      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 $25,000,  or 48%, to $77,000 for the three  months  ended March 31, 2004 from
$52,000 for the three  months ended March 31,  2003,  due to  increased  expense
associated with notes payable in 2004.

      Net  Loss.  The net loss for the three  months  ended  March 31,  2004 was
$2,222,000,  which  represented a  $1,319,000,  or 146% increase from a $903,000
loss for the three months ended March 31, 2003. The increase resulted  primarily
from the non-cash  amortization  of debt  issuance  cost to funding  provided By
Cornell  Capital  Partners during the three months ended March 31, 2004, as well


                                       16
<PAGE>


as reduced resales of software and technology equipment and service fees in 2004
compared with 2003.  These items were partially offset by a reduction to general
and  administrative  expense relating to the Company's option repricing  program
and a gain on extinguishment of debt during 2004.

LIQUIDITY AND CAPITAL RESOURCES

      Net cash used in operating activities was approximately $1,130,000 for the
three months ended March 31, 2004,  compared  with $253,000 for the three months
ended March 31, 2003.  NeoMedia's net cash flow used in investing activities for
the  three  months  ended  March  31,  2004 and 2003 was  $129,000  and  $5,000,
respectively.  Net cash  provided by financing  activities  for the three months
ended March 31, 2004 and 2003 was $1,855,000 and $196,000, respectively.

      During the three months ended March 31, 2004 and 2003, NeoMedia's net loss
totaled $2,222,000 and $903,000,  respectively.  As of March 31, 2004,  NeoMedia
had accumulated  losses from  operations of  $78,369,000,  had a working capital
deficit of $6,264,000, and $635,000 in cash balances.

      The  accompanying  consolidated  financial  statements  have been prepared
assuming   NeoMedia  will  continue  as  a  going  concern.   Accordingly,   the
consolidated  financial  statements  do not include any  adjustments  that might
result from  NeoMedia's  inability to continue as a going concern.  NeoMedia may
obtain up to $20 million  over the next two years  through  its  Standby  Equity
Distribution  Agreement  with Cornell  Capital  Partners LP. As of May 10, 2004,
NeoMedia had obtained  approximately $3.6 million under its previous $10 million
Equity Line of Credit  Agreement  with Cornell,  and an additional $5 million in
promissory notes,  which may be repaid from the proceeds of sale of common stock
under the  current  $20  million  Standby  Equity  Distribution  Agreement  with
Cornell.  In addition,  if the average  closing bid price of  NeoMedia's  common
stock for any five day period exceeds $0.10,  NeoMedia may force the exercise of
40 million warrants held by Cornell, resulting in additional cash to the Company
of $2 million.  Management  believes that it has  sufficient  funding to sustain
operations through December 31, 2004,  however,  there can be no assurances that
the market for  NeoMedia's  stock will support the sale of sufficient  shares of
NeoMedia's  common stock to raise sufficient  capital to sustain  operations for
such a period,  or that actual revenue will meet management's  expectations.  If
necessary funds are not available,  NeoMedia's  business and operations would be
materially  adversely  affected  and in such event,  NeoMedia  would  attempt to
reduce costs and adjust its business plan.


                                       17
<PAGE>


ITEM 3.  CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE  CONTROLS AND  PROCEDURES.  NeoMedia's  Chief Executive
Officer and Chief  Financial  Officer,  after  evaluating the  effectiveness  of
NeoMedia's   "disclosure  controls  and  procedures"  (as  defined  in  Sections
13a-14(c)  of the  Securities  Exchange Act of 1934) as of the end of the period
reported  in  this  annual  report  (the  "Evaluation  Date"),   concluded  that
NeoMedia's  disclosure  controls and  procedures  were effective and designed to
ensure that  material  information  relating to  NeoMedia  and its  consolidated
subsidiaries  is  accumulated  and would be made known to them by others  within
those  entities as  appropriate  to allow timely  decisions  regarding  required
disclosures.

CHANGES  IN  INTERNAL  CONTROLS.  NeoMedia  does  not  believe  that  there  are
significant  deficiencies  in the design or operation  of its internal  controls
that could adversely affect its ability to record, process, summarize and report
financial  data.  Although  there  were no  significant  changes  in  NeoMedia's
internal  controls or in other  factors  that could  significantly  affect those
controls  subsequent to the Evaluation Date,  NeoMedia's senior  management,  in
conjunction  with its Board of Directors,  continuously  reviews overall company
policies  and  improves  documentation  of  important  financial  reporting  and
internal  control matters.  NeoMedia is committed to continuously  improving the
state of its internal controls, corporate governance and financial reporting.

LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS.  NeoMedia's management,  including
the Chief Executive  Officer and Chief Financial  Officer,  does not expect that
its disclosure or internal  controls will prevent all errors or fraud. A control
system, no matter how well conceived and operated,  can provide only reasonable,
not  absolute,  assurance  that the  objectives  of the control  system are met.
Further,  the design of a control  system  must  reflect the fact that there are
resource  constraints,  and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in a cost-effective  control
system, misstatements due to error or fraud may occur and not be detected.


                                       18
<PAGE>


                          PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

      NeoMedia is 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, NeoMedia filed a patent infringement  lawsuit against
AirClic,  Inc.,  Scanbuy,  Inc.,  and LScan  Technologies,  Inc. in the Northern
District of  Illinois,  Eastern  Region,  claiming  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,  thereby  infringing
NeoMedia's  patents.  The  complaint  states  that on  information  and  belief,
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. On April 15, 2004, the court dismissed the
suit  against  AirClic and Scanbuy for lack of personal  jurisdiction.  The suit
against LScan remains in the Northern  District of Illinois,  Eastern Region. On
April 20, 2004,  NeoMedia  refiled the suit against AirClic in Pennsylvania  and
the suit against Scanbuy in New York, both for patent infringment.  On April 19,
2004,   AirClic  filed  suit  against   NeoMedia  in  the  Eastern  District  of
Pennsylvania  claiming that some of the NeoMedia  patents are invalid.  On March
29, 2004,  Scanbuy filed suit against  NeoMedia in the Southern  District of New
York alleging that NeoMedia infringed Scanbuy's copyrights,  violated the Lanham
Act and committed deceptive trade practices and tortuous interference.

      VIRGIN ENTERTAINMENT GROUP

      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,  NeoMedia'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.  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. NeoMedia also seeks to preliminarily and permanently
enjoin Virgin from its infringing activities.

      OTHER LITIGATION

      On August 20, 2001,  Ripfire,  Inc. filed suit against NeoMedia in the San
Francisco  County  Superior  Court seeking  payment of $138,000 under a software
license agreement entered into between NeoMedia and Ripfire in May 2001 relating
to implementation of the Qode Universal Commerce Solution. On September 6, 2002,
NeoMedia  settled  this suit for $133,000 of common  stock,  to be valued at the
time  of   registration  of  the  shares.   NeoMedia's   stock  was  trading  at
approximately $0.05 at that time. NeoMedia included for registration 2.7 million
shares in the name of Ripfire in its Form S-1 that was declared effective by the


                                       19
<PAGE>


SEC on February 14, 2003. NeoMedia'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,  NeoMedia  issued  the 2.7  million  shares of common  stock that had been
registered  in the S-1 to Ripfire.  During  April 2004,  the Company and Ripfire
settled this matter for cash payments totaling $30,000. NeoMedia had a remaining
accrued liability of $30,000 relating to this matter as of March 31, 2004.

      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,  NeoMedia
settled  the suit for cash  payments  over a period of  approximately  one year.
NeoMedia had an accrued  liability  of  approximately  $67,000  relating to this
matter as of March 31, 2004.

      On October 28, 2002,  Merrick & Klimek,  P.C.,  filed a complaint  against
NeoMedia 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,  NeoMedia 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,  NeoMedia  will not pay  interest  charges.  NeoMedia  had a
remaining liability of approximately $81,000 relating to this matter as of March
31, 2004, which was included in notes payable.

      On February 6, 2003, Allen Norton & Blue, P.A., filed a complaint  against
NeoMedia  seeking payment of  approximately  $25,000 in past due legal services.
NeoMedia  has agreed to a payment  plan  relating to this matter under which the
balance will be paid over  approximately 12 months.  NeoMedia had a liability of
approximately $5,000 relating to this matter as of March 31, 2004.

      On April 18, 2003, a former  participant in NeoMedia's  2001  self-insured
health plan sued  NeoMedia  to recover  approximately  $46,000 in unpaid  health
claims  from 2001.  On  December 1, 2003,  NeoMedia  settled  this suit for cash
payments  over  a  period  of  approximately  one  year.  NeoMedia  had  accrued
approximately $24,000 as of March 31, 2004.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (A), (B), (C) AND (D)

      None.

ITEM 3. DEFAULT UPON SENIOR SECURITIES

      (a)  NeoMedia is in default on the note  payable held by Merrick & Klimek,
P.C., as more fully described in Item 1, Legal Proceedings.


                                       20
<PAGE>


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.

ITEM 5.  OTHER INFORMATION

         None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (A)      EXHIBITS:

<TABLE>
<CAPTION>
EXHIBIT NO.    DESCRIPTION                                                 LOCATION
------------   --------------------------------------------------------    --------------------
<S>            <C>                                                         <C>
      31.1     Certification by Chief Executive Officer pursuant to        Provided herewith
               15 U.S.C. Section 7241, as adopted pursuant to
               Section 302 of the Sarbanes-Oxley Act of 2002

      31.2     Certification by Chief Financial Officer pursuant to        Provided herewith
               15 U.S.C. Section 7241, as adopted pursuant to
               Section 302 of the Sarbanes-Oxley Act of 2002

      32.1     Certification by Chief Executive Officer pursuant to        Provided herewith
               18 U.S.C. Section 1350, as adopted pursuant to
               Section 906 of the Sarbanes-Oxley Act of 2002

      32.2     Certification by Chief Financial Officer pursuant to        Provided herewith
               18 U.S.C. Section 1350, as adopted pursuant to
               Section 906 of the Sarbanes-Oxley Act of 2002
</TABLE>


(b) REPORTS ON FORM 8-K:

NeoMedia  filed a report on Form 8-K on February 10, 2004,  with respect to Item
5, reporting that it had completed its acquisition of CSI International, Inc.

NeoMedia filed a report on Form 8-K/A on April 12, 2004, with respect to Items 2
and 7, amending the Form 8-K filed on February 10, 2004, including the financial
statements of the acquired business, CSI International, Inc.


                                       21
<PAGE>


                                                SIGNATURES

         In accordance with the  requirements of the Securities  Exchange Act of
1934,  the  Registrant  has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                         NEOMEDIA TECHNOLOGIES, INC.

                                         Registrant

   Date:    May 19, 2004                 By: /s/ Charles T. Jensen
                                         ------------------------------
                                         Charles T. Jensen, President, Acting
                                         Chief Executive Officer, Chief
                                         Operating Officer, and Director

   Date:    May 19, 2004                 By: /s/ David A. Dodge
                                         ---------------------------
                                         David A. Dodge, Vice President,
                                         Chief Financial Officer, and Controller


                                       22