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 September 30, 2005

                                       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 600, 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 November 9, 2005,  there were 463,382,141  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>
                                                                                  September 30,
                                                                                       2005
                                                                                  ---------------
<S>                                                                               <C>
ASSETS

Current assets:
        Cash and cash equivalents                                                     $    4,673
        Trade accounts receivable, net of allowance for doubtful accounts of $77             666
        Inventories, net of allowance for obsolete & slow-moving inventory of $0             110
        Investment in marketable securities                                                  117
        Prepaid expenses and other current assets                                            388
                                                                                  ---------------
        Total current assets
                                                                                           5,954
        Property and equipment, net                                                          165
        Leasehold improvements, net                                                           44
        Capitalized patents, net                                                           3,501
        Micro paint chemical formulations and proprietary process, net                     1,497
        Goodwill                                                                           1,099
        Other Intangible assets, net                                                         209
        Loan receivable from Mobot, Inc.                                                     800
        Investment in IPoint-media, Ltd.                                                   1,250
        Cash surrender value of life insurance policy                                        740
        Other long-term assets                                                                28
                                                                                  ---------------
             Total assets                                                             $   15,287
                                                                                  ===============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
        Accounts payable                                                              $    1,587
        Amounts payable under settlement agreements                                           77
        Liabilities of discontinued business unit                                            676
        Sales taxes payable                                                                   44
        Accrued expenses                                                                   1,724
        Deferred revenues and other                                                          360
        Notes payable                                                                      5,325
                                                                                  ---------------
             Total current liabilitie
                                                                                           9,793
                                                                                  ---------------
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,
          476,410,478 shares issued and 460,253,892 outstanding                            4,603
        Additional paid-in capital                                                       104,157
        Deferred stock-based compensation                                                  (216)

        Deferred equity financing costs                                                 (13,256)
        Accumulated deficit                                                             (88,846)
        Accumulated other comprehensive loss                                               (169)
        Treasury stock, at cost, 201,230 shares of common stock                            (779)
                                                                                  ---------------
        Total shareholders' equity                                                         5,494
                                                                                  ---------------
             Total liabilities and shareholders' equity                               $   15,287
                                                                                  ===============
</TABLE>

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



                                       2
<PAGE>

                  NeoMedia Technologies, Inc. and Subsidiaries
                 Condensed Consolidated Statements of Operations
                       and Comprehensive Loss (Unaudited)
                      (In Thousands, Except per Share Data)

<TABLE>
<CAPTION>
                                                                        Three Months Ended September 30,
                                                                        --------------------------------
                                                                             2005               2004
                                                                        -------------      -------------
<S>                                                                     <C>                <C>
NET SALES:
       License fees                                                     $          88      $          96
       Resale of software and technology equipment and service fees               105                138
       Micro paint repair products and services                                   243                237
                                                                        -------------      -------------
       Total net sales                                                            436                471
                                                                        -------------      -------------

COST OF SALES:
       License fees                                                                54                 79
       Resale of software and technology equipment and service fees                67                147
       Micro paint repair products and services                                   214                151
                                                                        -------------      -------------
       Total cost of sales                                                        335                377
                                                                        -------------      -------------

GROSS PROFIT                                                                      101                 94

       Sales and marketing expenses                                               834                514
       General and administrative expenses                                        856                516
       Research and development costs                                             285                114
                                                                        -------------      -------------

       Loss from operations                                                    (1,874)            (1,050)
       Gain \ (loss) on extinguishment of debt                                      1                  6
       Amortization of debt discount                                               --               (334)
       Interest (expense) \ income, net                                           (77)               (62)
                                                                        -------------      -------------

NET LOSS                                                                       (1,950)            (1,440)

       Other comprehensive loss:
         Unrealized gain/loss on marketable securities                             (4)                --
         Foreign currency translation adjustment                                   15                (31)
                                                                        -------------      -------------
COMPREHENSIVE LOSS                                                      $      (1,939)     $      (1,471)
                                                                        =============      =============
LOSS PER SHARE--BASIC AND DILUTED                                       $       (0.00)     $       (0.00)
                                                                        =============      =============
Weighted average number of common shares--basic and diluted               456,695,836        342,990,471
                                                                        =============      =============
</TABLE>



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



                                       3
<PAGE>

                  NeoMedia Technologies, Inc. and Subsidiaries
                 Condensed Consolidated Statements of Operations
                       and Comprehensive Loss (Unaudited)
                      (In Thousands, Except per Share Data)

<TABLE>
<CAPTION>
                                                                         Nine Months Ended September 30,
                                                                        --------------------------------
                                                                             2005               2004
                                                                        -------------      -------------
<S>                                                                     <C>                <C>
NET SALES:
       License fees                                                     $         426      $         256
       Resale of software and technology equipment and service fees               336                501
       Micro paint repair products and services                                   959                512
                                                                        -------------      -------------
       Total net sales                                                          1,721              1,269
                                                                        -------------      -------------
COST OF SALES:
       License fees                                                               302                249
       Resale of software and technology equipment and service fees               208                480
       Micro paint repair products and services                                   724                376
                                                                        -------------      -------------
       Total cost of sales                                                      1,234              1,105
                                                                        -------------      -------------
GROSS PROFIT                                                                      487                164

       Sales and marketing expenses                                             2,859              1,461
       General and administrative expenses                                      2,417              1,293
       Research and development costs                                             629                354
                                                                        -------------      -------------
       Loss from operations                                                    (5,418)            (2,944)
       Gain \ (loss) on extinguishment of debt                                    172                129
       Amortization of debt discount                                               --             (2,500)
       Interest expense, net                                                     (223)              (178)
                                                                        -------------      -------------
NET LOSS                                                                       (5,469)            (5,493)
       Other comprehensive loss:
         Unrealized gain/loss on marketable securities                           (133)                --
         Foreign currency translation adjustment                                   24                (47)
                                                                        -------------      -------------
COMPREHENSIVE LOSS                                                      $      (5,578)     $      (5,540)
                                                                        =============      =============
LOSS PER SHARE--BASIC AND DILUTED                                       $       (0.01)     $       (0.02)
                                                                        =============      =============
Weighted average number of common shares--basic and diluted               451,487,240        324,471,293
                                                                        =============      =============
</TABLE>


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



                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                 Nine Months Ended
                                                                                                    September 30,
                                                                                               ---------------------
                                                                                                 2005         2004
                                                                                               -------      --------
<S>                                                                                            <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net loss                                                                                 ($ 5,469)     ($ 5,493)
      Adjustments to reconcile net loss to net cash used in operating activities:
      Amortization of discount on note payable                                                       --         2,500
      Depreciation and amortization                                                                 545           367
      Provision for doubtful accounts                                                                --            24
      Expense (decrease of fair value) for repriced options                                          --          (240)
      Fair value of expense portion of stock-based
        compensation granted for professional services                                              623           545
      Interest expense allocated to debt                                                             --             3
      (Increase)/decrease in value of life insurance policies                                       (13)           17
      Changes in operating assets and liabilities:
        Trade accounts receivable, net                                                             (384)           (8)
        Inventory                                                                                     5           (54)
        Other current assets                                                                       (848)           90
        Accounts payable, amounts due under financing agreements, liabilities in excess
          of assets of discontinued business unit, accrued expenses and stock liability            (256)       (1,211)
        Deferred revenue and other current liabilities                                             (154)          (40)
                                                                                               --------      --------
          Net cash used in operating activities                                                  (5,951)       (3,500)
                                                                                               --------      --------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Investment in Pickups Plus, Inc./Intactis Software, Inc.                                     (500)           --
      Capitalization of software development and purchased intangible assets                     (1,639)         (109)
      Acquisition of property and equipment                                                        (187)         (103)
                                                                                               --------      --------
        Net cash used in investing activities                                                    (2,326)         (212)
                                                                                               --------      --------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Net proceeds from issuance of common stock, net of issuance costs of $115 in 2005
      and $620 in 2004                                                                            6,262         5,926
      Net proceeds from exercise of stock options and warrants                                      909           581
      Borrowings under notes payable and long-term debt                                           9,932         8,000
      Repayments on notes payable and long-term debt                                             (5,811)       (6,687)
      Cash commitment fee for $100 million Standby Equity Distribution Agreement                 (1,000)           --
      Cash paid to acquire CSI International, Inc. (net of cash acquired)                            --        (2,390)
                                                                                               --------      --------
        Net cash provided by financing activities                                                10,292         5,430
                                                                                               --------      --------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                              24           (47)

NET INCREASE IN CASH AND CASH EQUIVALENTS                                                         2,039         1,671

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                    2,634            61
                                                                                               --------      --------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                                       $  4,673      $  1,732
                                                                                               ========      ========
SUPPLEMENTAL CASH FLOW INFORMATION:
      Interest paid  during the period                                                         $     47      $     50
      Income taxes paid                                                                              --            --
      Non-cash investing and financing activities:
        Reduction in accounts payable and accruals due to debt paid with
          shares of common stock                                                                     --           190
        Fair value of stock issued for services and deferred to future periods                      239           585
        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                                                              349           129
        Direct costs associated with Standby Equity Distribution Agreement
          and Equity Line of Credit                                                               1,204         1,447
</TABLE>

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


                                       5
<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,  2004.  In the
opinion of management, these condensed consolidated financial statements reflect
all adjustments  which are of a normal  recurring nature and which are necessary
to  present  fairly  the  consolidated  financial  position  of  NeoMedia  as of
September 30, 2005, the results of operations for the three-month and nine-month
periods  ended  September 30, 2005 and 2004,  and cash flows for the  nine-month
periods  ended  September 30, 2005 and 2004.  The results of operations  for the
three-month  and  nine-month  periods ended  September 30, 2005 and 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.

Going Concern

       The accompanying  condensed  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 $1,950,000 and
$1,440,000 for the three months ended September 30, 2005 and 2004, respectively,
and net losses of $5,469,000 and $5,493,000 for the nine months ended  September
30, 2005 and 2004,  respectively,  and has an accumulated deficit of $88,846,000
as of September 30, 2005. In addition,  the Company had working  capital deficit
of $3,839,000 as of September 30, 2005.

       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.  The financial  statements do not include any adjustments
relating to the recoverability and reclassification of recorded asset amounts or
amounts and reclassification of liabilities that might be necessary,  should the
Company be unable to continue as a going concern.

       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 the profitability from
the Company's  PaperClick  business,  intellectual  property portfolio and Micro
Paint Repair business.



                                       6
<PAGE>

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
CSI  International  chemical  line acquired  during 2004.  NMPR is attempting to
commercialize its unique micro-paint repair solution.  The Company completed its
acquisition of CSI on February 6, 2004.

       In addition, on December 21, 2004, NeoMedia signed a definitive Agreement
and Plan of Merger to acquire and merge with BSD Software,  Inc. BSD owns 90% of
the outstanding shares of Triton Global Business  Services,  Inc., a provider of
live and automated operator calling services and e-business  support,  including
billing,  clearinghouse and information management services, to companies in the
telecommunications  industry. On April 4, 2005 NeoMedia and BSD filed an initial
joint  registration/information  statement with the United States Securities and
Exchange  Commission (the "SEC").  NeoMedia  expects to complete the merger when
the SEC review is  complete,  the  registration  is declared  effective  and the
information  statement is mailed to BSD's  shareholders of record. At this time,
the  exchange  rate will be  determined  and  closing  will be held.  Closing is
subject to the terms and conditions outlined in the merger agreement, as well as
regulatory approval of the merger and registration/information  statement by the
SEC. Upon the anticipated closing of the merger, NeoMedia expects to integrate a
new business  unit called  "NeoMedia  Telecom  Services"  encompassing  Triton's
business.

Reclassifications

     Certain  amounts in the 2004 condensed  consolidated  financial  statements
have been reclassified to conform to the 2005 presentation.

Standby  Equity  Distribution  Agreements  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.



                                       7
<PAGE>

     On October 27,  2003,  the Company and Cornell  entered  into a $20 million
Standby  Equity  Distribution  Agreement  (the  "2003  SEDA").  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 commitment
fee for  Cornell  to enter  into the 2003 SEDA,  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 registered
200 million  shares  underlying  this $20 million 2003 SEDA. In April 2004,  the
Company registered 40 million shares of common stock underlying warrants granted
to Cornell in connection with a promissory note issued by the Company to Cornell
(see "Notes Payable to Cornell" below).

     On March 30,  2005,  NeoMedia  and Cornell  entered  into a Standby  Equity
Distribution  Agreement (the "2005 SEDA") under which Cornell agreed to purchase
up to $100  million of NeoMedia  common stock over a two-year  period,  with the
timing and amount of the purchase at NeoMedia's  discretion.  The maximum amount
of each  purchase  would be  $2,000,000  with a minimum  of five  business  days
between  advances.  The shares would be valued at 98% of the lowest  closing bid
price during the five-day period  following the delivery of a notice of purchase
by NeoMedia, and NeoMedia would pay 5% of the gross proceeds of each purchase to
Cornell.  Concurrent with the SEDA,  NeoMedia  entered into an escrow  agreement
with  Cornell  and an escrow  agent,  under  which the escrow  agent holds in an
escrow account shares of NeoMedia common stock, and the cash paid by Cornell for
such shares,  issued pursuant to an advance under the SEDA. The shares and funds
can only be released  upon receipt by the escrow  agent of a joint  disbursement
instruction  signed  by  NeoMedia  and  Cornell.  NeoMedia  expects  to  file  a
registration  statement with the SEC to register the shares  underlying the 2005
SEDA.  The 2005  SEDA  would  become  available  at the  time  the SEC  declares
effective a registration statement containing such shares.

     As a  commitment  fee for  Cornell to enter  into the 2005  SEDA,  NeoMedia
issued 50 million warrants to Cornell with an exercise price of $0.20 per share,
and a term of three years, and also paid a cash commitment fee of $1 million. If
shares of  NeoMedia's  common  stock  underlying  the  warrant are covered by an
effective  registration  statement  and if the closing  bid price of  NeoMedia's
common stock is above $0.30 for five  consecutive  business  days,  NeoMedia may
force conversion of the warrant. NeoMedia also issued 4 million warrants with an
exercise  price of $0.227 to a consultant as a fee in  connection  with the 2005
SEDA.  As of March 31, 2005,  NeoMedia  recorded the $12.3 million fair value of
the warrants to "Deferred equity financing costs" and, upon effectiveness of the
2005 SEDA, will amortize this amount to additional paid-in capital straight-line
over the two-year life of the 2005 SEDA.

     During  the  nine  months  ended  September  30,  2005,  the  Company  sold
19,337,119  shares of its  common  stock to  Cornell  under the 2003  SEDA.  The
following table  summarizes  funding received from Cornell during the nine-month
periods ended September 30, 2005 and 2004:

<TABLE>
<CAPTION>
                                                                            2005
                                            ------------------------------------------------------------------
                                                                                                      Nine
                                                                                                     Months
                                                First            Second             Third            Ended
                                               Quarter          Quarter            Quarter          Sept. 30
                                            ------------      ------------      ------------      ------------
<S>                                         <C>               <C>               <C>               <C>
Number of shares sold to Cornell               6,998,931         7,258,094         5,080,094        19,337,119

Gross Proceeds from sale of shares          $  1,709,000      $  3,219,000      $  2,130,000      $  7,058,000
Less: discounts and fees*                       (204,000)         (489,000)         (170,000)         (863,000)
                                            ------------      ------------      ------------      ------------
   Net Proceeds from sale of shares         $  1,505,000      $  2,730,000      $  1,960,000      $  6,195,000
                                            ------------      ------------      ------------      ------------
</TABLE>


                                       8
<PAGE>

<TABLE>
<CAPTION>
                                                                         2004
                                         ------------------------------------------------------------------
                                                                                                   Nine
                                                                                                  Months
                                             First            Second            Third              Ended
                                            Quarter          Quarter           Quarter           Sept. 30
                                         ------------      ------------      ------------      ------------
<S>                                      <C>               <C>               <C>               <C>
Number of shares sold to Cornell           21,282,203        29,819,873        36,685,664        87,787,740

Gross Proceeds from sale of shares       $  2,332,000      $  2,308,000      $  2,734,000      $  7,374,000
Less: discounts and fees*                    (500,000)         (465,000)         (483,000)       (1,448,000)
                                         ------------      ------------      ------------      ------------
   Net Proceeds from sale of shares      $  1,832,000      $  1,843,000      $  2,251,000      $  5,926,000
                                         ------------      ------------      ------------      ------------
</TABLE>

* Pursuant  to the terms of the 2003 SEDA , stock is valued at 98% of the lowest
closing bid price during the week it is sold.

Promissory Notes Payable to Cornell

         On March 30, 2005,  NeoMedia borrowed from Cornell the principal amount
of  $10,000,000  before  discounts and fees in the form of a secured  promissory
note.  Cornell  withheld  structuring  and escrow fees of $68,000 related to the
note. The note was originally scheduled to be repaid at a rate of $1,120,000 per
month  commencing May 1, 2005,  which was  subsequently  changed to $840,000 per
month,  continuing  until  principal  and  interest  are paid in full.  The note
accrues interest at a rate of 8% per annum on any unpaid principal. NeoMedia has
the  option  to  prepay  any  remaining  principal  of the note in cash  without
penalty.  In  connection  with the note,  NeoMedia  and Cornell  entered  into a
Security  Agreement under which the note is secured by all of NeoMedia's  assets
other  than  its  patents  and  patent  applications.   NeoMedia  also  escrowed
25,000,000 shares of its restricted common stock as security for the note. As of
September  30,  2005,  NeoMedia  had made  payments  of  $4,690,000  against the
principal, reducing the principal balance to $5,310,000.

         On August 6, 2004,  NeoMedia  borrowed from Cornell the gross amount of
$2,000,000  before  discounts  and fees.  Cornell  withheld  $153,000  as a fee.
NeoMedia paid this note in full during 2004.

         On July 2, 2004,  NeoMedia  borrowed  from  Cornell the gross amount of
$1,000,000  before  discounts  and  fees.  Cornell  withheld  $76,000  as a fee.
NeoMedia paid this note in full during 2004.

         On April 8, 2004,  NeoMedia  borrowed  from Cornell the gross amount of
$1,000,000  before  discounts  and  fees.  Cornell  withheld  $76,000  as a fee.
NeoMedia paid this note in full during 2004.

         On January 20, 2004, NeoMedia borrowed from Cornell 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.
Cornell withheld $315,000 as a fee. NeoMedia paid this note in full during 2004.

         In connection with the January 20, 2004 note,  NeoMedia 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, NeoMedia registered 40 million
shares underlying the warrants granted to Cornell (and subsequently  transferred
by Cornell to Stone Street Asset Management LLC). 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",
NeoMedia compared the relative fair values of the warrants and the face value of
the notes,  and allocated a value of $2.5 million to the  warrants.  Of the $2.5
million,  $2 million was allocated to the $4 million note issued in January 2004
and $0.5 million against the $1 million note in April 2004. The $2.5 million was
recorded as a discount  against the carrying value of the note. The $2.5 million
that was  allocated  to the notes was  considered  a discount on the  promissory
notes,  and  therefore  was  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, NeoMedia recorded an amortization of discount of $2,500,000 related
to the  warrants  during the year ended  December31,  2004.  Stone  Street Asset
Management LLC exercised the warrants  during  November  2004,  resulting in net
funds to NeoMedia of $2 million.



                                       9
<PAGE>

Other Events

     During February 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). The contract was terminated during the second quarter of
2005,  accordingly,  the Company  recognized  professional  services  expense of
$267,000 to write off the remaining  deferred  stock  compensation.  The Company
recognized  $368,000 and $81,000 in expense  relating to the contract during the
six month periods ended June 30, 2005 and 2004, respectively.

         On February  25,  2005,  NeoMedia  invested  $250,000  in exchange  for
8,333,333 shares of Pickups Plus, Inc.  ("PUPS")(OTCBB:PUPS)  restricted  common
stock.  PUPS is a retail operator and franchiser of retail  automotive parts and
accessories  stores  catering to the light truck  market,  and also provides new
vehicle   preparation,   environmental   protection   packages,   detailing  and
reconditioning   products  and   services.   The  8,333,333   shares   represent
approximately  5.8% of PUPS outstanding shares (based on 125,249,954 PUPS shares
outstanding as of September 30, 2004).  Because the investment  represents  less
than 20% of PUPS  outstanding  shares,  NeoMedia has recorded the  investment at
cost and analyze it for  impairment  going  forward.  As of September  30, 2005,
NeoMedia  has  recorded an  impairment  of $133,000  due to the  decrease in the
quoted market price.

         On February 25, 2005, NeoMedia signed two non-binding Letters of Intent
to acquire up to 100% of Automotive Preservation,  Inc. ("AP"), a distributor of
automotive  paint and accessory  products,  from AP's parent company,  PUPS. The
first Letter of Intent  calls for  NeoMedia to  initially  acquire 30% of AP for
$1,600,000,  to be paid  $600,000  in  cash,  $554,000  in  shares  of  NeoMedia
restricted  common  stock,  and $446,000  through the  assumption  of AP debt by
NeoMedia.  Under the second Letter of Intent, upon completion of the acquisition
of the initial 30% of AP by NeoMedia,  NeoMedia would have the option to acquire
an additional 30% of AP for $1,650,000, payable in shares of NeoMedia restricted
common  stock.  The second  Letter of Intent also gives  NeoMedia  the option to
purchase the final 40% of AP for either:  (i)  $2,200,000,  payable in shares of
NeoMedia  restricted  common stock,  if NeoMedia  exercises this right within 12
months of  acquiring  the second 30% of AP, or (ii) a price  equivalent  to AP's
previous  quarter  EBITDA  multiplied  by  8,  payable  in  shares  of  NeoMedia
restricted  common stock.  Both Letter of Intent are  non-binding and subject to
due  diligence by NeoMedia and AP. On  September  21, 2005,  the BOD approved to
change the deal  structure for the  acquisition of AP, so that the Company would
acquire only 30% of AP for a total purchase price of $1.6 million of which $600K
would be paid in cash and $446K would be paid  through the  assumption  of debt,
and $554K through the issuance of restricted  Neomedia stock.  Neomedia will not
acquire the remaining 70% of AP under the new structure.

         On April 12,  2005,  NeoMedia  acquired  four  search-oriented  patents
issued in the U.S.  and pending in Europe and Japan from  LoyaltyPoint  Inc. for
$1.5  million  cash and 10%  royalties  on all future  sales for a period of ten
years.  The  first  patent  (U.S.  6,430,554  B1)  covers  technology  that uses
uniquely-coded  objects,  such as consumer  goods to  automatically  generate an
online search for information related to those objects or goods from a computer,
PDA, mobile phone or other device.  The second patent (U.S.  6,651,053 B1) is an
extension of the first,  covering  additional  mechanisms  for  performing  such
searches using mobile devices.  The third patent (U.S. 6,675,165 B1) covers uses
of  location-based  technology  to  deliver  content  that  is  based  both on a
particular  advertisement and the geographic location in which the advertisement
is  located.  The  fourth  patent  (U.S.  6,766,363  B1) covers  techniques  for
providing  information  to end  users  based on  objects,  goods or other  items
depicted in external media, such as video, audio, film or printed matter.



                                       10
<PAGE>

         On May 13, 2005,  the European  Patent  Office (EPO) issued a Notice of
Allowance  based  on  proceedings  conducted  during  April  2005 in The  Hague.
Recognition by the EPO extends the patents for NeoMedia's  core technology - the
use of bar codes and other unique  identifiers to automatically  link to content
on  the  Internet  -  to  Austria,  Belgium,  France,  Germany,   Liechtenstein,
Luxembourg, the Netherlands, Sweden, Switzerland and the United Kingdom.

         On June 20,  2005,  NeoMedia  announced  that it has signed a Letter of
Intent with WI-THO AS of Oslo, Norway, where WI-THO AS will become the exclusive
distributor of NeoMedia's micro paint repair  products,  systems and licenses to
automotive service facilities  throughout  Demark,  Sweden and Norway.  Based in
Oslo,  Norway,  WI-THO AS is a new company  formed to specialize in products and
services  involving micro paint repairs for  automobiles in Denmark,  Sweden and
Norway.

         On  June  29,  2005,   NeoMedia   announced  that  it  had  reached  an
out-of-court  agreement with Virgin  Entertainment  Group, Inc. whom it sued for
patent  infringement.  In the agreement,  Virgin agreed to purchase a license of
NeoMedia's PaperClick(R) technology platform through 2006.

         On July 8,  2005,  NeoMedia  reached  an  out-of-court  agreement  with
AirClic,  Inc. whom it sued for patent infringement.  In the agreement,  AirClic
agreed to compensate  NeoMedia for past and future  activities.  AirClic did not
receive a license to use NeoMedia's patented PaperClick(R) technology as part of
the settlement.

       On July 12,  2005,  NeoMedia  entered into a  consulting  agreement  with
Silicon  Space,  Inc.,  under  which  Silicon  Space  is  developing  NeoMedia's
PaperClick(R)   WordRegistry   interface.   Silicon   Space   replaces   Science
Applications  International,  Inc.,  who  NeoMedia  engaged in October 2004 on a
contingency basis to build and host the interface.  NeoMedia intends to host the
WordRegistry internally upon its completion.

       On July 27,  2005,  NeoMedia  signed a  non-binding  Letter  of Intent to
acquire Mobot(TM), Inc. ("Mobot"), of Lexington,  Massachusetts.  Mobot develops
and commercializes mobile visual search technologies. The Mobot letter of intent
calls for NeoMedia to acquire all of the outstanding shares of Mobot in exchange
for  $3,500,000  cash and  $6,500,000 in shares of NeoMedia  common  stock.  The
letter of intent is subject to due diligence by both parties.

         On July 28,  2005,  NeoMedia  loaned  Mobot  the  principal  amount  of
$600,000 in the form of an unsecured  promissory note. The Note accrues interest
at a rate  of 6% per  annum.  The  Note  will  be  forgiven  upon  signing  of a
definitive  purchase  agreement for the  acquisition  of all of the  outstanding
shares of Mobot by NeoMedia,  as  contemplated  by the Letter of Intent.  In the
event the acquisition is not consummated, the Note will become due 90 days after
written notice of cancellation of the Letter of Intent.  In the event the Letter
of  Intent  is  terminated  and the Note is not  repaid  within  90 days of such
cancellation,  the note will  convert  into shares of Mobot  common stock with a
value equal to the unpaid principal and accrued interest on the Note.

         In the event a  definitive  purchase  agreement  is not executed by the
parties,  or the Mobot letter of intent is not terminated by September 26, 2005,
Mobot has the right to demand an  additional  $200,000  loan from  NeoMedia.  On
September  26, 2005,  Mobot  exercised  its right and  received  the  additional
$200,000  loan.  Further,  in the event a definitive  purchase  agreement is not
executed by the parties or the Letter of Intent is not terminated by October 26,
2005,  Mobot has the right to demand an additional  $200,000 loan from NeoMedia.
On October 26, 2005,  Mobot  exercised  its right and  received  the  additional
$200,000  loan.  Both of the  additional  loans  are in the  form  of  unsecured
promissory notes subject to the same terms as the original $600,000 note.



                                       11
<PAGE>

         On August 30, 2005, NeoMedia signed a definitive distribution agreement
to bring its NeoMedia  Micro Paint Repair  business to the People's  Republic of
China, as well as be a distributor of other automotive aftermarket products. The
agreement,  signed  with  Beijing  Sino-US  Jinche  Yingang  Auto  Technological
Services  Limited  ("Jinche"),  a joint venture  operating under the laws of the
People's  Republic  of  China,  calls  for  Jinche  to serve as a  non-exclusive
distributor  and user of  NeoMedia's  micro paint repair  products,  systems and
licenses at its automotive  service  facilities  throughout China. The agreement
also  calls  for  Jinche  to  buy  certain  automotive  aftermarket  repair  and
environmental protection products from NeoMedia.

         On  September  27,  2005,  NeoMedia  signed a  definitive  distribution
agreement to bring its NeoMedia Micro Paint Repair  business to Mexico and Latin
America, as well as be a distributor of other automotive  aftermarket  products.
The agreement,  signed with Micropaint de Mexico, S.A. ("Micropaint de Mexico"),
calls  for  Micropaint  de  Mexico  to  serve  as an  exclusive  distributor  of
NeoMedia's  micro paint  repair  products,  systems and  licenses to  automotive
service facilities throughout Mexico and Latin America. The Agreement also calls
for  Micropaint  de Mexico to buy  certain  automotive  aftermarket  repair  and
environmental  protection products from NeoMedia.  Founded earlier this year and
based in  Monterrey,  Mexico,  Micropaint  de Mexico  specializes  in  providing
automotive aftermarket products throughout Mexico and Latin America.

         On  September  30,  2005,  NeoMedia  entered  into a  mobile  marketing
alliance and  co-marketing  agreement with  advertising  agency Arnold Worldwide
("Arnold"),  centered on NeoMedia's patented PaperClick(R)  technology platform.
The  agreement  calls for  Arnold  and  NeoMedia  to work  together  to  develop
opportunities  and  marketing  campaigns  utilizing  PaperClick.  NeoMedia  will
provide technical and sales support for  presentations,  marketing  programs and
campaigns conceived and developed by Arnold for its clients.

Investment in Marketable Securities

       On  February  25,  2005,  NeoMedia  invested  $250,000  in  exchange  for
8,333,333  shares,  or  approximately   5.8%  of  Pickups  Plus,  Inc.  ("PUPS")
restricted  common  stock.  PUPS is a retail  operator and  franchiser of retail
automotive parts and accessories  stores catering to the light truck market, and
also  provides  new  vehicle  preparation,  environmental  protection  packages,
detailing  and  reconditioning   products  and  services.   In  accordance  with
Statements of Financial  Accounting  Standards No. 115,  "Accounting for Certain
Investments  in Debt and Equity  Securities,"  the  investment  in PUPS is being
recorded  as   available-for-sale   securities   and  reported  at  fair  value.
Accordingly,  unrealized gains and losses on the equity securities are reflected
in the condensed  consolidated  statement of operations and comprehensive income
(loss).

       The investments in marketable securities are summarized as follows:

<TABLE>
<CAPTION>
                                                As of September 30, 2005
                      ----------------------------------------------------------------------------
                         Amortized           Unrealized         Unrealized              Fair
                           Cost             Holding Gain      Holding Losses            Value
                      ---------------     ---------------     ---------------      ---------------
<S>                   <C>                 <C>                 <C>                  <C>
Available-for-sale        $250,000            $   --             ($133,000)           $117,000
</TABLE>

Financial Instruments

      The  carrying   amount  of  the  Company's  cash   equivalents,   accounts
receivable, prepaid expenses, other current assets, cash surrender value of life
insurance policy,  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.



                                       12
<PAGE>

      Rates  currently  available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.

      It is not  practicable  to estimate  the fair value of the  Company's  17%
investment  in the common  stock of i-Point  Media Ltd. and its  investments  of
250,000 shares of preferred  stock of Intactis  Software,  Inc.,  because of the
lack of quoted  market  prices and the  inability to estimate fair value without
incurring excessive costs. However,  management believes that the total carrying
amount of  $1,250,000  in the  investments  in iPoint  Media Ltd.  and  Intactis
Software, Inc. at September 30, 2005 was not impaired.

      For all  available-for-sale  investment  securities,  the carrying  values
represents  fair value of the securities  and unrealized  gain (losses) that are
other than temporary are recognized as other  comprehensive  income (loss).  The
Company does not hold these securities for speculative or trading purposes.

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:

                                        September 30, 2005
                                        ------------------
        Outstanding Stock Options            77,629,221
        Outstanding Warrants                 72,775,000

Pro-forma Information Required by SFAS 148

     At  September  30,  2005,  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.

<TABLE>
<CAPTION>
                                            Three Months Ended        Nine Months Ended
                                               September 30,             September 30,
                                           --------------------      --------------------
                                             2005         2004         2005         2004
                                           -------      -------      -------      -------
<S>                                        <C>          <C>          <C>          <C>
Net Loss, as reported                      ($1,950)     ($1,440)     ($5,469)     ($5,493)
Compensation recognized under APB 25            --           --           --            9
Compensation recognized under SFAS 123      (1,080)        (372)      (2,760)      (1,073)
                                           -------      -------      -------      -------
  Pro-forma net loss                       ($3,030)     ($1,812)     ($8,229)     ($6,557)
                                           =======      =======      =======      =======
Net Loss per share:
Basic and diluted - as reported            ($ 0.00)     $  0.00      ($ 0.01)     ($ 0.02)
                                           =======      =======      =======      =======
Basic and diluted - pro-forma              ($ 0.01)     ($ 0.01)     ($ 0.02)     ($ 0.02)
                                           =======      =======      =======      =======
</TABLE>

Subsequent Events

         On October 4, 2005, NeoMedia signed a definitive distribution agreement
to bring its NeoMedia Micro Paint Repair business to Scandinavia. The agreement,
signed with WITHO-AS of Oslo, Norway  ("WITHO-AS"),  calls for WITHO-AS to serve
as an exclusive  distributor of NeoMedia's micro paint repair products,  systems
and licenses to automotive service facilities  throughout  Denmark,  Sweden, and
Norway.  Based in Oslo, Norway,  WI-THO AS is a new company formed to specialize
in products  and  services  involving  micro paint  repairs for  automobiles  in
Denmark, Sweden and Norway.

         During October 2005,  the copyright  lawsuit  brought by Scanbuy,  Inc.
against  NeoMedia  was  dismissed  by the U.S.  District  Court for the  Eastern
District of  Pennsylvania.  The court also issued an injunction  that  prohibits
LScan,  Inc., against whom NeoMedia won a default judgment in 2004 in its patent
infringement  case against LScan,  from using any technology or application that
employs any NeoMedia patents.



                                       13
<PAGE>

Segment Reporting

       As of September  30, 2005  NeoMedia was  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. The operations are based in Lisle, Illinois.

       NeoMedia Micro Paint Repair (NMPR) is the business unit  encompassing the
Company's micro paint repair products and services acquired in 2004.

       The Company's reportable segments are strategic business units that offer
different technology and marketing strategies.  NCIS operates principally in the
United States.  NISS operates  principally in the United States and Europe. NMPR
is headquartered  in Ft. Myers,  Florida,  and currently sells into Canada,  the
United  States,  Australia,  and New  Zealand,  and has entered  into letters of
intent to begin distribution in China and Scandinavia.

       Consolidated  net sales,  net operating losses by geographic area for the
three-month  and  nine-month  periods  ended  September  30, 2005 and 2004,  and
long-lived assets by geographic area as of September 30, 2005, were as follows:

<TABLE>
<CAPTION>
                                      (in thousands)
                        ----------------------------------------------
                          Three Months Ended        Nine Months Ended
                            September 30,             September 30,
                        --------------------      --------------------
                          2005         2004         2005         2004
                        -------      -------      -------      -------
<S>                     <C>          <C>          <C>          <C>
Net Sales:
      United States     $   244      $   234      $ 1,204      $   757
      Canada                192          237          517          512
                        -------      -------      -------      -------
                        $   436      $   471      $ 1,721      $ 1,269
                        -------      -------      -------      -------

Net (Loss)/Income:
      United States     ($2,029)     ($1,019)     ($4,911)     ($4,508)
      Canada                 79         (421)        (558)        (985)
                        -------      -------      -------      -------
                        ($1,950)     ($1,440)     ($5,469)     ($5,493)
                        -------      -------      -------      -------

Long-Lived Assets
      United States     $ 5,699
      Canada              2,834
                        -------
                        $ 8,533
                        -------
</TABLE>




                                       14
<PAGE>

       Consolidated  net sales,  net operating  losses for the  three-month  and
nine-month periods ended September 30, 2005 and 2004, and identifiable assets as
of September 30, 2005, were as follows:

<TABLE>
<CAPTION>
                                                                       (in thousands)
                                                     --------------------------------------------------
                                                        Three Months Ended          Nine Months Ended
                                                           September 30,              September 30,
                                                     ----------------------      ----------------------
                                                       2005          2004          2005          2004
                                                     --------      --------      --------      --------
<S>                                                  <C>           <C>           <C>           <C>
Net Sales:
      NeoMedia Consulting & Integration Services     $    158      $    230      $    554      $    711
      NeoMedia Internet Switching Service                  35             4           208            46
      NeoMedia Micro Paint Repair                         243           237           959           512
                                                     --------      --------      --------      --------
                                                     $    436      $    471      $  1,721      $  1,269
                                                     --------      --------      --------      --------

Net Loss:
      NeoMedia Consulting & Integration Services     ($   911)     ($   189)     ($ 2,299)     ($   682)
      NeoMedia Internet Switching Service                (640)         (482)       (1,863)       (1,326)
      NeoMedia Micro Paint Repair                        (399)         (421)       (1,307)         (985)
      Amortization of Cornell Debt Discount                --          (348)           --        (2,500)
                                                     --------      --------      --------      --------
                                                     ($ 1,950)     ($ 1,440)     ($ 5,469)     ($ 5,493)
                                                     --------      --------      --------      --------

Identifiable Assets
      NeoMedia Consulting & Integration Services     $    241
      NeoMedia Internet Switching Service               3,654
      NeoMedia Micro Paint Repair                       3,416
      Corporate                                         7,976
                                                     --------
                                                     $ 15,287
                                                     --------
</TABLE>

Effect Of Recently Issued Accounting Pronouncements

         In  December  2004,  the  FASB  issued  SFAS  No.123   (revised  2004),
         "Share-Based  Payment".  Statement  123(R) will provide  investors  and
         other users of  financial  statements  with more  complete  and neutral
         financial  information by requiring that the compensation cost relating
         to  share-based   payment   transactions  be  recognized  in  financial
         statements.  That cost will be measured  based on the fair value of the
         equity or liability instruments issued.  Statement 123(R) covers a wide
         range of share-based compensation arrangements including share options,
         restricted share plans,  performance-based  awards,  share appreciation
         rights,  and employee share purchase plans.  Statement  123(R) replaces
         FASB Statement No. 123,  Accounting for Stock-Based  Compensation,  and
         supersedes  APB  Opinion  No.  25,   Accounting  for  Stock  Issued  to
         Employees.  Statement 123, as originally issued in 1995, established as
         preferable a  fair-value-based  method of  accounting  for  share-based
         payment transactions with employees.  However, that Statement permitted
         entities the option of  continuing to apply the guidance in Opinion 25,
         as long as the  footnotes to financial  statements  disclosed  what net
         income would have been had the preferable  fair-value-based method been
         used.  Public  entities  (other  than  those  filing as small  business
         issuers)  will be  required to apply  Statement  123(R) as of the first
         interim or annual reporting period that begins after December 15, 2005.
         Management  is currently  evaluating  the impact SFAS 123R will have on
         our consolidated financial statements.



                                       15
<PAGE>

         In March 2005,  the SEC  released  Staff  Accounting  Bulletin No. 107,
         "Share-Based Payment" ("SAB 107"), which provides interpretive guidance
         related to the  interaction  between  SFAS 123(R) and certain SEC rules
         and  regulations.  It also  provides  the SEC staff's  views  regarding
         valuation of share-based payment  arrangements.  In April 2005, the SEC
         amended the  compliance  dates for SFAS 123(R),  to allow  companies to
         implement  the  standard at the  beginning  of their next fiscal  year,
         instead of the next  reporting  period  beginning  after June 15, 2005.
         Management is currently  evaluating the impact SAB 107 will have on our
         consolidated financial statements.

         In May 2005, the FASB issued FASB Statement No. 154, Accounting Changes
         and Error  Corrections.  This new standard replaces APB Opinion No. 20,
         Accounting  Changes,  and FASB  Statement No. 3,  Reporting  Accounting
         Changes in Interim Financial Statements, and represents another step in
         the FASB's  goal to converge  its  standards  with those  issued by the
         IASB.  Among other  changes,  Statement  154 requires  that a voluntary
         change in  accounting  principle  be applied  retrospectively  with all
         prior  period  financial  statements  presented  on the new  accounting
         principle,  unless it is  impracticable  to do so.  Statement  154 also
         provides  that (1) a change in method of  depreciating  or amortizing a
         long-lived  nonfinancial asset be accounted for as a change in estimate
         (prospectively) that was effected by a change in accounting  principle,
         and (2) correction of errors in previously issued financial  statements
         should be termed a  "restatement."  The new standard is  effective  for
         accounting  changes  and  correction  of errors  made in  fiscal  years
         beginning  after December 15, 2005.  Early adoption of this standard is
         permitted  for  accounting  changes  and  correction  of errors made in
         fiscal years beginning after June 1, 2005.

         In June 2005,  the  Emerging  Issues  Task  Force,  or EITF,  reached a
         consensus  on Issue  05-6,  Determining  the  Amortization  Period  for
         Leasehold  Improvements,  which  requires that  leasehold  improvements
         acquired  in a business  combination  or  purchased  subsequent  to the
         inception of a lease be amortized over the lesser of the useful life of
         the assets or a term that includes renewals that are reasonably assured
         at the date of the  business  combination  or  purchase.  EITF  05-6 is
         effective  for periods  beginning  after July 1, 2005. We do not expect
         the provisions of this  consensus to have a material  impact on the our
         financial position, results of operations or cash flows.

         In March 2005, the FASB issued FASB  Interpretation No. 47, "Accounting
         for  Conditional  Asset  Retirement  Obligations"  ("FIN  47").  FIN 47
         provides  guidance  relating  to the  identification  of and  financial
         reporting  for  legal   obligations  to  perform  an  asset  retirement
         activity.  The Interpretation  requires  recognition of a liability for
         the fair  value  of a  conditional  asset  retirement  obligation  when
         incurred if the liability's fair value can be reasonably estimated. FIN
         47 also  defines when an entity would have  sufficient  information  to
         reasonably  estimate the fair value of an asset retirement  obligation.
         The provision is effective no later than the end of fiscal years ending
         after  December  15,  2005.  The Company will adopt FIN 47 and does not
         believe the adoption  will have a material  impact on its  consolidated
         financial position or results of operations or cash flows.

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

Overview

PaperClick  Developments.

       Over   the   past   several   years,   NeoMedia   has   focused   on  the
commercialization of its Internet Switching Systems ("NISS") business unit. 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-Internet  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.



                                       16
<PAGE>

       On September 8, 2003,  NeoMedia  announced its  PaperClick(R)  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(R) 3650 model. During the second
quarter of 2004,  NeoMedia introduced its PaperClick(R)  Mobile  Go-WindowTM,  a
horizontal bar on the screen of a wireless  device where users can enter numeric
strings  from UPC or  other  bar  codes  to link  directly  to  targeted  online
information via patented PaperClick technology and software.

       During  2003,  NeoMedia  unveiled  the  go-to-market   strategy  for  its
PaperClick(R)  suite of  products.  Over the past several  months,  NeoMedia has
signed contracts with several key partners  outlined in the strategy,  including
agents and resellers Big Gig Strategies (United Kingdom), SRP Consulting (United
States), AURA Digital  Communications  (Australia),  Relyco (United States), E&I
Marketing  (Taiwan),  Deusto  Sistemas  (Spain),  Nextcode  Corporation  (United
States),  Jorge  Christen and  Partners  LLP  (Mexico),  and  IT-Global  (United
States).  NeoMedia has also teamed with  European  advertising  agency 12Snap to
provide click management services for PaperClick(R)  products in Europe. In June
2004, NeoMedia entered into a collaborative agreement with Intel Corporation for
NeoMedia's PaperClick(R) mobile connectivity platform to operate on the recently
introduced Intel PXA27x processor family-based cellular phones.

       In addition,  during June 2004 NeoMedia  signed a teaming  agreement with
IPSO, an integrator of proprietary solutions developed by its provider companies
for  financial  institution  members and a leader in meeting Check 21 standards.
Enacted by Congress  and signed into law last year,  Check 21 requires  banks to
begin  accepting   substitute   checks  (called  "IRDs"  for  image  replacement
documents) in lieu of original checks as of October 29, 2004.  NeoMedia and IPSO
could partner on proposals and presentations  surrounding Check 21. On March 10,
2005, NeoMedia and Intactis Software,  Inc., (IPSO's successor),  entered into a
business  development  agreement  under which the two  companies  will develop a
database  lookup system for validating  codes printed on negotiable  instruments
(checks). In addition, NeoMedia invested $250,000 in exchange for 250,000 shares
of Intactis  non-voting  convertible  preferred  stock.  In connection  with the
investment,  NeoMedia  received a warrant to purchase up to an additional 50,000
shares of Intactis.  Intactis  also placed an order for an initial 100 copies of
NeoMedia's PaperClick Print Encoder software.

       During January 2005,  NeoMedia  signed a Letter of Intent to enter into a
licensing  agreement  with Shelron  Group,  Inc. for  PaperClick(R)'s  family of
mobile  marketing  products to be used with  Shelron's  ActivShopper  comparison
shopping  toolbar.  The agreement  will give Shelron  Group,  Inc. the worldwide
rights to use  PaperClick(R)  on the new  ActivShopper  Mobile  Edition for cell
phones  and  PDA's.  ActivShopper  is  a  free  software  download  designed  to
automatically scan, locate and compare prices for items a consumer selects at an
e-commerce site.

         On March 18,  2005,  NeoMedia  and  Foote  Cone &  Belding  ("FCB"),  a
division of FCB  Worldwide LLC and part of the  Interpublic  Group of Companies,
Inc. (NYSE: IPG), entered into a Co-Marketing  Agreement surrounding  NeoMedia's
PaperClick(R)  technology  platform.  The  agreement  calls for FCB to work with
NeoMedia   to  create  and  develop   opportunities   and   programs   utilizing
PaperClick(R),  to integrate  PaperClick  into  marketing  campaigns for new and
existing clients,  and to facilitate the introduction of NeoMedia and PaperClick
in the mobile telecommunications  industry.  NeoMedia will provide technical and
sales support for  presentations  and marketing  programs  co-developed  for FCB
clients,  work  with FCB to  explore  and  create  marketing  opportunities  and
solutions,  and  introduce  FCB  to  its  business  customers,  including  brand
managers.  FCB and NeoMedia will team for  co-marketing and sales efforts in the
U.S., as well as in Europe, the Middle East, Africa and Latin America.



                                       17
<PAGE>

         On July 12, 2005,  NeoMedia  entered into a consulting  agreement  with
Silicon  Space,  Inc.,  under  which  Silicon  Space  is  developing  NeoMedia's
PaperClick(R)   WordRegistry   interface.   Silicon   Space   replaces   Science
Applications  International,  Inc.,  who  NeoMedia  engaged in October 2004 on a
contingency basis to build and host the interface.  NeoMedia intends to host the
WordRegistry internally upon its completion.

Patent Developments

         On April 12,  2005,  NeoMedia  acquired  four  search-oriented  patents
issued in the U.S.  and pending in Europe and Japan from  LoyaltyPoint  Inc. for
$1.5  million  cash and 10%  royalties  on all future  sales for a period of ten
years.  The  first  patent  (U.S.  6,430,554  B1)  covers  technology  that uses
uniquely-coded  objects,  such as consumer  goods to  automatically  generate an
online search for information related to those objects or goods from a computer,
PDA, mobile phone or other device.  The second patent (U.S.  6,651,053 B1) is an
extension of the first,  covering  additional  mechanisms  for  performing  such
searches using mobile devices.  The third patent (U.S. 6,675,165 B1) covers uses
of  location-based  technology  to  deliver  content  that  is  based  both on a
particular  advertisement and the geographic location in which the advertisement
is  located.  The  fourth  patent  (U.S.  6,766,363  B1) covers  techniques  for
providing  information  to end  users  based on  objects,  goods or other  items
depicted in external media, such as video, audio, film or printed matter.

         On  June  29,  2005,   NeoMedia   announced  that  it  had  reached  an
out-of-court  agreement with Virgin  Entertainment  Group, Inc. whom it sued for
patent  infringement.  In the agreement,  Virgin agreed to purchase a license of
NeoMedia's PaperClick(R) technology platform through 2016.

         On July 8,  2005,  NeoMedia  reached  an  out-of-court  agreement  with
AirClic,  Inc. whom it sued for patent infringement.  In the agreement,  AirClic
agreed to compensate  NeoMedia for past and future  activities.  AirClic did not
receive a license to use NeoMedia's patented PaperClick(R) technology as part of
the settlement.

NMPR (Micro Paint Repair) Business Unit Developments.

       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 currently has approximately
50 active paint repair end-user system agreements.

       On  June  1,  2004,  NeoMedia  announced  that  it  had  entered  into  a
Distribution  Agreement  with Micro Paint Systems  (Australasia)  Limited of New
Zealand for  exclusive  distribution  rights to  NeoMedia's  Micro Paint  Repair
products in  Australia  and New Zealand.  The  agreement  is  contingent  upon a
minimum  purchase of 500  systems  over five years in that  territory.  NeoMedia
received an initial  payment on signing of the contract,  which included the fee
for four initial systems.  During the first quarter of 2005,  NeoMedia shipped a
$290,000  order  for  paints  and  related  materials  to  Micro  Paint  Systems
(Australasia) Limited.

       On July 16, 2004, NeoMedia announced that its NeoMedia Micro Paint Repair
business  unit  added  five  additional  licensees  as part of a  private  label
contract  with  Crackmaster  Distributors  Ltd.,  a  Canadian  auto  aftermarket
company.

       On August  2,  2004,  NeoMedia  announced  that it signed a  Distribution
Agreement with Motor Dealer's  Association  Co-Auto Ltd.  ("MDA  Co-Auto"),  the
largest buying consortium for new car franchised  dealers in Western Canada. The
agreement  provides  exclusive rights for MDA Co-Auto to market NeoMedia's Micro
Paint Repair system to its member dealers.  MDA Co-Auto has 1,050 member dealers
in British Columbia, Alberta, Saskatchewan, Manitoba and the Yukon.



                                       18
<PAGE>

         On March 29,  2005,  NeoMedia's  Micro Paint Repair  business  signed a
National  Marketing and Sales Agreement with Restex,  Inc., of Dallas,  Texas, a
provider of products to automobile  dealerships.  The agreement calls for Restex
to sell and market  NeoMedia's  proprietary  micro  paint  repair  system to its
customers in the automotive industry.

         On August 30,  2005,  NeoMedia  signed a  distribution  agreement  with
Jinche Yingang Automobile Co. of Beijing,  China ("Jinche"),  under which Jinche
will act as a distributor of automotive  products in China.  Jinche is a Beijing
PRC-registered  company specializing in automobile sales,  financing,  insurance
and repair. NeoMedia will supply Jinche with its micro paint repair products, as
well as various other automotive aftermarket products from other manufacturers.

         On  September  27,  2005,  NeoMedia  signed a  definitive  distribution
agreement to bring its NeoMedia Micro Paint Repair  business to Mexico and Latin
America, as well as be a distributor of other automotive  aftermarket  products.
The agreement,  signed with Micropaint de Mexico, S.A. ("Micropaint de Mexico"),
calls  for  Micropaint  de  Mexico  to  serve  as an  exclusive  distributor  of
NeoMedia's  micro paint  repair  products,  systems and  licenses to  automotive
service facilities throughout Mexico and Latin America. The Agreement also calls
for  Micropaint  de Mexico to buy  certain  automotive  aftermarket  repair  and
environmental  protection products from NeoMedia.  Founded earlier this year and
based in  Monterrey,  Mexico,  Micropaint  de Mexico  specializes  in  providing
automotive aftermarket products throughout Mexico and Latin America.

         On October 4, 2005, NeoMedia signed a definitive distribution agreement
to bring its NeoMedia Micro Paint Repair business to Scandinavia. The agreement,
signed with WITHO-AS of Oslo, Norway  ("WITHO-AS"),  calls for WITHO-AS to serve
as an exclusive  distributor of NeoMedia's micro paint repair products,  systems
and licenses to automotive service facilities  throughout  Denmark,  Sweden, and
Norway.  Based in Oslo, Norway,  WI-THO AS is a new company formed to specialize
in products  and  services  involving  micro paint  repairs for  automobiles  in
Denmark, Sweden and Norway.

Acquisitions

         CSI  International,  Inc. On February 6, 2004,  NeoMedia  acquired 100%
ownership of CSI  International,  Inc., of Calgary,  Alberta,  Canada, a private
company in the micro paint repair industry.  NeoMedia issued 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 Fort Myers,
Florida headquarters, and maintains a sales office in Calgary, Alberta, Canada.

         BSD  Software,  Inc. On December  21,  2004,  NeoMedia and BSD signed a
definitive  Agreement and Plan of Merger. BSD owns 90% of the outstanding shares
of Triton  Global  Business  Services,  Inc.,  a provider of live and  automated
operator   calling   services  and  e-business   support,   including   billing,
clearinghouse  and  information   management  services,   to  companies  in  the
telecommunications  industry. BSD's shareholders will receive, for each share of
BSD stock owned, NeoMedia stock equivalent to .07 divided by the volume-weighted
average price of NeoMedia stock for the five days prior to the effective time of
the merger.  The agreement has been approved by holders of approximately  63% of
BSD's outstanding  shares and its Board of Directors.  On April 4, 2005 NeoMedia
and BSD  filed a Form S-4  registration/information  statement  with the  United
States  Securities  and Exchange  Commission  (the "SEC").  NeoMedia  expects to
complete  the  merger  when the SEC  review is  complete,  the  registration  is
declared  effective  and  the  information  statement  is  mailed  to the  BSD's
shareholders  of record.  At this time, the exchange rate will be determined and
closing will be held. Closing is subject to the terms and conditions outlined in
the Agreement and Plan of Merger,  as well as regulatory  approval of the merger
and the Form S-4 registration/information statement by the SEC.



                                       19
<PAGE>

       Mobot,  Inc. On July 27, 2005,  NeoMedia  signed a non-binding  Letter of
Intent to acquire  Mobot,  Inc.,  a pioneer and leader in mobile  visual  search
technologies.  The Letter of Intent  calls for  NeoMedia  to acquire  all of the
outstanding  shares of Mobot in exchange for  $3,500,000  cash and $6,500,000 in
shares of  NeoMedia  common  stock.  The  Letter of  Intent  is  subject  to due
diligence by both parties, currently in process.

iPoint-Media Ltd.

       On September 7, 2004, NeoMedia and iPoint-media Ltd.  ("iPoint-media") of
Tel Aviv, Israel, entered into a Business Development Agreement. In exchange for
entering into the  agreement,  NeoMedia  received 7% ownership in  iPoint-media,
consisting of 28,492  shares of  iPoint-media  common stock.  In addition to the
agreement,  NeoMedia  acquired an  additional  10%  ownership  of  iPoint-media,
consisting of 40,704 shares of common stock, for $1 million cash.

       iPoint-media  was founded in April 2001 as a spin-off from Imagine Visual
Dialog LTD, whose  shareholders  include  Israeli-based  Nisko group, an Israeli
holding company, Singapore-based Keppel T&T, and marketing and advertising group
WPP.  iPoint-media  specializes  in customer  interaction  management and is the
world's  first  developer of IP Video Call Centers for  Deutsche  Telecom.  Muki
Geller, the founder of Imagine Visual Dialog, is the founder, President & CEO of
iPoint-media.  iPoint-media  is  located  in Tel Aviv,  Israel,  with a European
customer support center in The Netherlands.  iPoint-media's mission is to become
the  video  access  platform  and  application  engine  of  choice  for  service
providers.

       On  October  26,  2004,  NeoMedia  announced  that  it  would  issue  its
first-ever stock dividend with the distribution of common shares of IPoint-media
Ltd. of Tel Aviv as a property  dividend.  NeoMedia intends to distribute 5% (or
20,435 shares) of iPoint-media's common stock to NeoMedia shareholders of record
as of November  17,  2004.  The date of the  property  dividend  payment will be
announced after the SEC declares  iPoint-media's  registration statement on Form
SB-2 effective. On July 1, 2005, IPoint filed a Form SB-2 registration statement
to  register  2,032,200  shares of its common  stock,  included in which are the
shares NeoMedia intends to distribute.

     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 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 impairment 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, allowance for doubtful accounts, and stock-based compensation. 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.



                                       20
<PAGE>

      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 Doubtful  Accounts.  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.

      Inventory.  Inventories  are stated at lower of cost (using the  first-in,
first-out method) or market.  NeoMedia continually  evaluates the composition of
its  inventories  assessing  slow-moving  and ongoing  products and  maintains a
reserve for  slow-moving  and  obsolete  inventory  as well as related  disposal
costs.

      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  option  pricing  model on 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 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.

      In December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
Payment".  Statement 123(R) will provide  investors and other users of financial
statements  with more complete and neutral  financial  information  by requiring
that the  compensation  cost relating to  share-based  payment  transactions  be
recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability  instruments issued.  Statement 123(R) covers a
wide range of share-based  compensation  arrangements  including  share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. Statement 123(R) replaces FASB Statement No. 123,
Accounting  for  Stock-Based  Compensation,  and  supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. Statement 123, as originally issued in
1995,  established  as preferable a  fair-value-based  method of accounting  for
share-based  payment  transactions  with  employees.   However,  that  Statement
permitted entities the option of continuing to apply the guidance in Opinion 25,
as long as the footnotes to financial statements disclosed what net income would
have been had the preferable  fair-value-based method been used. Public entities
(other than those filing as small  business  issuers)  will be required to apply
Statement  123(R) as of the first interim or annual reporting period that begins
after December 15, 2005.  The Company is currently  evaluating the impact of the
adoption of this Statement.



                                       21
<PAGE>

      In March  2005,  the SEC  released  Staff  Accounting  Bulletin  No.  107,
"Share-Based  Payment" ("SAB 107"), which provides interpretive guidance related
to the interaction between SFAS 123(R) and certain SEC rules and regulations. It
also provides the SEC staff's views regarding  valuation of share-based  payment
arrangements.  In April  2005,  the SEC amended  the  compliance  dates for SFAS
123(R),  to allow  companies to implement the standard at the beginning of their
next fiscal year,  instead of the next reporting period beginning after June 15,
2005.  Management  is currently  evaluating  the impact SAB 107 will have on our
consolidated financial statements.

      Estimate of Litigation-based  Liability.  NeoMedia is defendant in certain
litigation  in the  ordinary  course  of  business  (see  the  section  of  this
information statement/prospectus entitled "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,  and Statement of Position
              98-9,  Modification of SOP 97-2,  "Software  Revenue  Recognition,
              With  Respect  to  Certain  Transactions.".   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 SEC Staff
              Accounting  Bulletin  ("SAB") 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 including maintenance fees for providing
              system  updates for  software  products,  user  documentation  and
              technical  support 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 doubtful
              accounts on a customer-by-customer basis as appropriate.



                                       22
<PAGE>

         (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  September 30, 2005 As Compared
To The Three Months Ended September 30, 2004

     Net sales.  Total net sales for the three months ended  September  30, 2005
were $436,000, which represented a decrease of $35,000, or 7%, from $471,000 for
the three months ended September 30, 2004. This decrease primarily resulted from
reduced  recognition of deferred  revenue  relating to software  maintenance and
proprietary license revenue in the consulting and integration  services business
unit.  NeoMedia  could  realize an increase in net sales over the next 12 months
with the anticipated  acquisitions of BSD Software, Inc. and Mobot, Inc., and if
the Company is successful in implementing its PaperClick  go-to-market  strategy
and/or its business plan for its Micro Paint Repair business unit.

      License  fees.  License  fees  were  $88,000  for the three  months  ended
September 30, 2005,  compared with $96,000 for the three months ended  September
30, 2004, a decrease of $8,000, or 8%. The decrease was due primarily to reduced
recognition of deferred revenue  relating to proprietary  license revenue in the
consulting and  integration  services  business unit.  NeoMedia could realize an
increase in license fees over the next 12 months if the Company is successful in
implementing its PaperClick go-to-market strategy.

     Resales of software and technology  equipment and service fees.  Resales of
software and technology equipment and service fees decreased by $33,000, or 24%,
to $105,000  for the three  months  ended  September  30,  2005,  as compared to
$138,000 for the three months ended September 30, 2004. This decrease  primarily
resulted  from  reduced  recognition  of deferred  revenue  relating to software
maintenance products.  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 September 30, 2005,  rather than
the three months ended September 30, 2004.

     Micro paint  repair  products  and  services.  Sales of micro paint  repair
products and services  were  $243,000 for the three months ended  September  30,
2005,  compared with  $237,000 for the three months ended  September 30, 2004 an
increase  of $6,000 or 3%.  The  increase  resulted  primarily  from the sale of
additional micro paint repair systems since September 30, 2004. NeoMedia expects
micro  paint-related  sales to more  closely  resemble the results for the three
months ended September 30, 2005,  rather for the three months ended three months
ended  September 30, 2004.  NeoMedia could realize an increase in net sales over
the next 12 months if the Company is  successful  in  implementing  its business
plan  for  its  Micro  Paint  Repair  business  unit,   including  revenue  from
distribution  agreements signed in 2005 with distributors in China, New Zealand,
Scandinavia, and Mexico.

     Cost of  license  fees.  Cost of  license  fees was  $54,000  for the three
months ended September 30, 2005, an increase of $25,000,  or 32%,  compared with
$79,000 for the three months  ended  September  30,  2004.  Cost of license fees
represents amortizatin of revenue generating intangible assets.

     Cost of resales of software and technology equipment and service fees. Cost
of resales of software and technology equipment and service fees was $67,000 for
the three  months  ended  September  30,  2005,  a decrease of $80,000,  or 54%,
compared  with  $147,000  for the three  months ended  September  30, 2004.  The
decrease  resulted from  decreased  resales in 2005 compared with 2004.  Cost of
resales as a percentage of related resales was 64% in 2005,  compared to 107% in
2004.  This  decrease  has a direct  correlation  to the  decrease  in  revenue.
NeoMedia  expects  costs  of  resales  to  fluctuate  with  the mix of  sales of
equipment, software, and services over the next 12 months.



                                       23
<PAGE>

     Cost of micro  paint  repair  products  and  services.  Cost of micro paint
repair  products and services was $214,000 for the three months ended  September
30, 2005,  compared with $151,000 for the three months ended September 30, 2004,
an increase of $63,000 or 42%.  The increase  was  primarily  due to addition of
fixed costs  associated with the new micro paint facility located in Fort Myers,
Florida. NeoMedia expects cost of micro paint will increase proportionate to any
increase in sales of micro paint products over the next 12 months.

     Gross  Profit.  Gross  profit  was  $101,000  for the  three  months  ended
September 30, 2005, an increase of $7,000,  or 7%, compared with gross profit of
$94,000 for the three  months  ended  September  30,  2004.  This  increase  was
primarily the result of decreased resales in 2005 compared to 2004 offset by the
addition of fixed costs  associated with the new micro paint facility located in
Fort Myers, Florida.

     Sales and  marketing.  Sales and  marketing  expenses were $834,000 for the
three months ended September 30, 2005, compared to $514,000 for the three months
ended  September  30,  2004,  an increase of $320,000 or 62%.  The increase is a
result  of the  addition  of the  micro  paint  business  sales  force  and cost
associated  with  marketing and promotion of the Company's  PaperClick and micro
paint repair products.  NeoMedia expects sales and marketing expense to increase
over the next 12 months with the anticipated  acquisitions of BSD Software, Inc.
and Mobot,  Inc., and the continued  development and anticipated  rollout of the
PaperClick and Micro Paint Repair businesses.

     General  and administrative.  General and administrative expenses increased
by $340,000,  or 66%, to $856,000 for the three months ended September 30, 2005,
compared to $516,000 for the three months ended September 30, 2004. The increase
resulted  primarily from additional  personnel and higher legal and professional
fees in 2005  resulting  from pending  acquisitions  and  registration  filings.
NeoMedia expects general and administrative expense to increase over the next 12
months with the potential acquisition of BSD Software and Mobot, Inc.

     Research and development. During the three months ended September 30, 2005,
NeoMedia  charged to expense  $285,000 of research  and  development  costs,  an
increase of $171,000 or 150%  compared to $114,000  for the three  months  ended
September  30, 2004.  The increase is primarily due to the  amortization  of the
micro paint chemical  formulations and proprietary  process during 2005, as well
as  additional  development  resources  added to the  PaperClick  product  line.
NeoMedia  expects  research and  development  costs to increase over the next 12
months with the anticipated  acquisitions of BSD Software, Inc. and Mobot, Inc.,
and the continued  development  efforts  related to the  anticipated  rollout of
NeoMedia's PaperClick product suite.

     Gain/(loss)  on  extinguishment  of debt.  During  the three  months  ended
September  30, 2005,  NeoMedia  recognized a gain on  extinguishment  of debt of
$1,000,  a decrease  of $5,000 or 83%  compared  to a gain of $6,000  during the
three months ended  September 30, 2004.  These gains resulted from a discount in
settlement  of debt and/or the  difference  between the cash or market  value of
stock issued to settle the debt and the  carrying  value of the debt at the time
of settlement.

     Amortization of debt discount.  During the three months ended September 30,
2004,  NeoMedia  recognized an  amortization  of debt issuance cost of $334,000.
This cost is related to the  amortization of the fair value of warrants  granted
to Cornell  Capital  Partners in  connection  with  promissory  notes  issued to
Cornell  Capital  Partners by NeoMedia  during January 2004. No  amortization of
debt issuance cost was  recognized  during the three months ended  September 30,
2005.



                                       24
<PAGE>

     Interest  (expense)  /  income.  Interest  expense  consists  primarily  of
interest accrued on notes payable and past due account balances. Interest income
consists primarily of interest earned on cash equivalent investments. During the
three months ended September 30, 2005,  NeoMedia  recognized interest expense of
$77,000,  an increase of $15,000 or 24% compared to interest  expense of $62,000
during the three months ended September 30, 2004. The change is primarily due to
interest  accrued on a $10 million note payable to Cornell  Capital  Partners in
2005, offset by increased interest income resulting from higher cash balances in
2005.

     Net Loss.  The net loss for the three months ended  September  30, 2005 was
$1,950,000,  which  represented  increase  of  $510,000,  or 35%  from a loss of
$1,440,000 for the three months ended September 30, 2004. The increase  resulted
primarily  from expenses  relating to increased  sales,  marketing,  general and
administrative  expenses  relating to the rollout of the  Company's  micro paint
repair and PaperClick business units, as well as increased professional fees.

Results Of Operations  For The Nine Months Ended  September 30, 2005 As Compared
To The Nine Months Ended September 30, 2004

     Net sales.  Total net sales for the nine months  ended  September  30, 2005
were  $1,721,000,  which  represented  an increase  of  $452,000,  or 36%,  from
$1,269,000 for the nine months ended September 30, 2004. This increase  resulted
from  revenue  generated  by the  Company's  micro paint  repair  business  unit
acquired in February  2004, as well as licensing fees from the settlement of the
patent lawsuits lawsuit. This revenue increase was offset by reduced recognition
of deferred  revenue  relating to software  maintenance and proprietary  license
revenue in the consulting and integration services business unit. NeoMedia could
realize an increase  in net sales over the next 12 months  with the  anticipated
acquisitions  of BSD  Software,  Inc.  and Mobot,  Inc.,  and if the  Company is
successful in  implementing  its  PaperClick  go-to-market  strategy  and/or its
business plan for its Micro Paint Repair business unit.

     License  fees.  License  fees  were  $426,000  for the  nine  months  ended
September 30, 2005,  compared with $256,000 for the nine months ended  September
30,  2004,  an increase of $170,000,  or 66%. The increase was due  primarily to
licensing fees from  settlement of the patent  lawsuits in 2005.  NeoMedia could
realize an  increase  in license  fees over the next 12 months if the Company is
successful in implementing its PaperClick go-to-market strategy.

     Resales of software and technology  equipment and service fees.  Resales of
software and  technology  equipment and service fees  decreased by $165,000,  or
33%, to $336,000 for the nine months ended  September  30, 2005,  as compared to
$501,000 for the nine months ended September 30, 2004.  This decrease  primarily
resulted  from  reduced  recognition  of deferred  revenue  relating to software
maintenance  revenue in the consulting and integration  services  business unit.
NeoMedia intends to continue to pursue additional resales of equipment, software
and services.  NeoMedia expects resales to more closely resemble the results for
the nine months  ended  September  30,  2005,  rather than the nine months ended
September 30, 2004.

     Micro paint  repair  products  and  services.  Sales of micro paint  repair
products and services  were  $959,000  for the nine months ended  September  30,
2005,  compared with  $512,000 for the nine months ended  September 30, 2004, an
increase of $447,000 or 87%. The increase was primarily  from a $290,000 sale of
products  to Micro  Paint  Repair  Australasia,  NeoMedia's  distributor  in the
Australia and New Zealand market, as well as an increase in the number of active
paint systems since September 30, 2004. NeoMedia expects sales of micro paint to
more closely  resemble the results for the nine months ended September 30, 2005,
rather than the nine months ended September 30, 2004.

     Cost  of license  fees.  Cost of  license  fees was  $302,000  for the nine
months ended  September 30, 2005, a increase of $53,000,  or 21%,  compared with
$249,000 for the nine months  ended  September  30,  2004.  Cost of license fees
represents amortization of revenue generating intangible assets.



                                       25
<PAGE>

     Cost of resales of software and technology equipment and service fees. Cost
of resales of software and  technology  equipment  and service fees was $208,000
for the nine months ended  September  30, 2005, a decrease of $272,000,  or 57%,
compared  with  $480,000  for the nine months  ended  September  30,  2004.  The
decrease  resulted from  decreased  resales in 2005 compared with 2004.  Cost of
resales as a percentage of related  resales was 62% in 2005,  compared to 96% in
2004.   This  decrease  is  mainly  due  to  revenue  in  2005   resulting  from
higher-margin  maintenance  contracts.  NeoMedia  expects  costs of  resales  to
fluctuate  with the mix of sales of equipment,  software,  and services over the
next 12 months.

     Cost of micro  paint  repair  products  and  services.  Cost of micro paint
repair  products and  services was $724,000 for the nine months ended  September
30, 2005, compared with $376,000 for the period between February 6, 2004 through
September  30, 2004,  an increase of $348,000 or 93%. The increase was primarily
due to of the  cost of sale of  products  to  Micro  Paint  Repair  Australasia,
NeoMedia's distributor in the Australia and New Zealand market, the cost of sale
of products in relation to increased  sales and the fixed costs  associated with
the new micro paint facility  located in Fort Myers,  Florida.  NeoMedia expects
cost of micro  paint will  increase  proportionate  to any  increase in sales of
micro paint products over the next 12 months.

     Gross Profit. Gross profit was $487,000 for the nine months ended September
30,  2005,  an increase of  $323,000,  or 197%,  compared  with gross  profit of
$164,000  for the nine months  ended  September  30,  2004.  This  increase  was
primarily  the result of increased  micro paint sales,  and  high-margin  patent
license fees in 2005 compared with 2004.

     Sales and marketing.  Sales and marketing  expenses were $2,859,000 for the
nine months ended September 30, 2005, compared to $1,461,000 for the nine months
ended  September  30, 2004,  an increase of $1,398,000 or 96%. The increase is a
result of the  addition  of the  micro  paint  business  sales  force,  non-cash
recognition  of  professional  services  expense  due  to  the  cancellation  of
consulting contract originally recorded as deferred stock compensation, and cost
associated  with  marketing and promotion of the Company's  PaperClick and micro
paint repair products.  NeoMedia expects sales and marketing expense to increase
over the next 12 months with the anticipated  acquisitions of BSD Software, Inc.
and Mobot,  Inc., and the continued  development and anticipated  rollout of the
PaperClick and Micro Paint Repair businesses.

     General and administrative.  General and administrative  expenses increased
by  $1,124,000,  or 87%, to $2,417,000  for the nine months ended  September 30,
2005,  compared to $1,293,000 for the nine months ended  September 30, 2004. The
increase  resulted  primarily  from  additional  personnel  and higher legal and
professional  fees in 2005 resulting from pending  acquisitions and registration
filings.  NeoMedia expects general and  administrative  expense to increase over
the next 12 months with the  potential  acquisition  of BSD  Software and Mobot,
Inc.

     Research and development.  During the nine months ended September 30, 2005,
NeoMedia  charged to expense  $629,000 of research  and  development  costs,  an
increase  of $275,000 or 78%  compared  to  $354,000  for the nine months  ended
September  30, 2004.  The increase is primarily due to the  amortization  of the
micro paint chemical  formulations and proprietary  process during 2005, as well
as  additional  development  resources  added to the  PaperClick  product  line.
NeoMedia  expects  research and  development  costs to increase over the next 12
months with the anticipated  acquisitions of BSD Software, Inc. and Mobot, Inc.,
and the continued  development  efforts  related to the  anticipated  rollout of
NeoMedia's PaperClick product suite.

     Gain on  extinguishment of debt. During the nine months ended September 30,
2005,  NeoMedia  recognized a gain on  extinguishment  of debt of  $172,000,  an
increase of $43,000 or 33% compared to a gain of $129,000 during the nine months
ended September 30, 2004.  These gains resulted from the difference  between the
cash or market value of stock  issued to settle the debt and the carrying  value
of the debt at the time of settlement.



                                       26
<PAGE>

     Amortization  of debt discount.  During the nine months ended September 30,
2004,  NeoMedia  recognized an amortization of debt issuance cost of $2,500,000.
This cost is related to the  amortization of the fair value of warrants  granted
to Cornell  Capital  Partners in  connection  with  promissory  notes  issued to
Cornell  Capital  Partners by NeoMedia  during January 2004. No  amortization of
debt issuance  cost was  recognized  during the nine months ended  September 30,
2005.

     Interest  (expense)  /  income.  Interest  expense  consists  primarily  of
interest accrued on notes payable and past due account balances. Interest income
consists primarily of interest earned on cash equivalent investments. During the
nine months ended September 30, 2005,  NeoMedia  recognized  interest expense of
$223,000, an increase of $45,000 or 25% compared to interest expense of $178,000
during the nine months ended  September 30, 2004. The change is primarily due to
interest  accrued on a $10 million note payable to Cornell  Capital  Partners in
2005, offset by increased interest income resulting from higher cash balances in
2005.

     Net Loss.  The net loss for the nine months  ended  September  30, 2005 was
$5,469,000,  which  represented  a  decrease  of  $24,000,  or 1% from a loss of
$5,493,000  for the nine months ended  September  30, 2004.  The decrease in net
loss resulted  primarily from increased revenue and gross margin relating to the
micro paint  repair  business  and  settlement  of patent  lawsuits,  as well as
expenses  relating to the amortization of debt discount in 2004. These increases
were offset by increased sales,  marketing,  general and administrative expenses
relating  to the rollout of the  Company's  micro  paint  repair and  PaperClick
business units in 2005.

Liquidity and Capital Resources

     Net cash used in operating  activities  was  $5,951,000 for the nine months
September 30, 2005, compared with $3,500,000 for the nine months ended September
30, 2004.  NeoMedia's  net cash flow used in investing  activities  for the nine
months  ended   September  30,  2005  and  2004  was  $2,326,000  and  $212,000,
respectively.  Net cash  provided by  financing  activities  for the nine months
ended September 30, 2005 and 2004 was $10,292,000 and $5,430,000, respectively.

     During the nine months ended  September 30, 2005 and 2004,  NeoMedia's  net
loss totaled $5,469,000 and $5,493,000,  respectively. As of September 30, 2005,
NeoMedia had accumulated  losses from  operations of $88,846,000,  had a working
capital deficit of $3,839,000, and $4,673,000 in cash balances.

     The  accompanying  condensed  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.

     On March 30, 2005, NeoMedia obtained $9.9 million cash from Cornell Capital
Partners in the form of a promissory  note with a face value of $10 million.  As
of September 30, 2005,  NeoMedia had made payments totaling $4.7 million against
the principal of the note.

     As of September  30, 2005,  NeoMedia  had drawn $14.3  million  against its
current $20 million  2003 Standby  Equity  Distribution  Agreement  with Cornell
Capital  Partners,  leaving an  available  balance of $5.7  million.  During the
three-  and  nine-month   periods  ended  September  30,  2005,   NeoMedia  sold
approximately  5.1 million and 19.3  million  shares,  respectively,  to Cornell
under the 2003  SEDA.  NeoMedia  expects to use  proceeds  from the 2003 SEDA to
repay all or a portion of the $10 million promissory note funded by Cornell. The
Company  expects to use the cash proceeds as future working  capital and to fund
potential acquisitions.



                                       27
<PAGE>

      On March 30, 2005,  NeoMedia and Cornell Capital  Partners  entered into a
Standby  Equity  Distribution  Agreement  under which Cornell  Capital  Partners
agreed to purchase up to $100 million of NeoMedia's common stock over a two-year
period, with the timing and amount of the purchase at NeoMedia's discretion. The
maximum  amount of each  purchase  would be  $2,000,000  with a minimum  of five
business  days  between  advances.  NeoMedia  expects  to  file  a  registration
statement  with the SEC during 2005 to register the shares  underlying  the $100
million  2005 SEDA.  The 2005 SEDA would  become  available  at the time the SEC
declares effective a registration statement containing such shares. In addition,
Cornell  Capital  Partners  holds 50  million  warrants  to  purchase  shares of
NeoMedia  common  stock at an  exercise  price of $0.20 per share.  NeoMedia  is
currently in the process of registering the shares underlying the warrants. Upon
registration,  NeoMedia  can force  exercise of the  warrants,  resulting  in an
additional $10 million cash to NeoMedia.

     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.



                                       28
<PAGE>

ITEM 3.  CONTROLS AND PROCEDURES

Evaluation of Disclosure  Controls and  Procedures.  As of the end of the period
covered  by this  report,  the  Company  carried  out an  evaluation,  under the
supervision  and with the  participation  of the Company's  Principal  Executive
Officer and Principal  Financial  Officer of the effectiveness of the design and
operation of the Company's  disclosure  controls and  procedures.  The Company's
disclosure controls and procedures are designed to provide a reasonable level of
assurance  of  achieving  the  Company's  disclosure  control  objectives.   The
Company's  Principal  Executive  Officer and  Principal  Financial  Officer have
concluded that the Company's  disclosure  controls and procedures  are, in fact,
effective at this reasonable assurance level as of the end of period covered. In
addition,  the Company  reviewed its internal  controls,  and there have been no
significant  changes in its  internal  controls or in other  factors  that could
significantly  affect  those  controls  subsequent  to the  date of  their  last
evaluation  or from the end of the  reporting  period  to the date of this  Form
10-QSB.

Changes in Internal Controls. In connection with the evaluation of the Company's
internal  controls  during the  Company's  first  three  fiscal  quarters  ended
September 30, 2005,  the  Company's  Principal  Executive  Officer and Principal
Financial  Officer have  determined  that there were no changes to the Company's
internal controls over financial reporting that have materially affected, or are
reasonably  likely to materially  effect,  the Company's  internal controls over
financial  reporting  during the first three fiscal quarters ended September 30,
2005, or subsequent to the date of their last evaluation, or from the end of the
reporting period to the date of this Form 10-QSB.

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

On November 9, 2005, NeoMedia filed a definitive proxy statement,  submitting to
a vote of securities holders the following items: (i) re-election of its current
five directors,  (ii) ratification of Stonefield  Josephson,  Inc. as NeoMedia's
auditors for the fiscal year ended  December 31, 2005,  and (iii)  approval of a
2005 stock option plan that would  reserve up to 60 million  shares to be issued
underlying  employee stock  options.  The  shareholder  meeting is scheduled for
December 16, 2005.



                                       29
<PAGE>

                          PART II -- OTHER INFORMATION

ITEM 1.  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.

Scanbuy, Inc.

     On January 23, 2004, NeoMedia filed suit against Scanbuy,  Inc. ("Scanbuy")
in the Northern District of Illinois, claiming that Scanbuy 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  stated that on  information  and belief,  Scanbuy had actual and
constructive notice of the existence of the  patents-in-suit,  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 suits against Scanbuy for lack of personal jurisdiction.

     On April 20,  2004,  NeoMedia  re-filed  its suit  against  Scanbuy  in the
Southern  District of New York alleging patent  infringement.  Scanbuy filed its
answer on June 2, 2004.  NeoMedia filed its answer and  affirmative  defenses on
July 23, 2004.

Other Litigation

         On May 2,  2005,  three  shareholders  of BSD  Software,  Inc.  filed a
complaint against BSD and NeoMedia, claiming that the purchase price as outlined
in the purchase  agreement  between  NeoMedia and BSD is too low. The plaintiffs
are  seeking  unspecified  damages  and  injunctive  relief  against the merger.
NeoMedia  has moved to dismiss the  complaint  as  frivolous.  The case is still
pending.

         On October 19, 2005,  Wachovia  Bank,  N.A.  filed a complaint  against
NeoMedia in the twentieth judicial circuit court of Lee County, Florida, seeking
payment  of $97,000 of rent from  previous  years.  NeoMedia  is  preparing  its
response.

ITEM 2.  UNREGISTERED  SALES OF EQUITY  SECURITIES  AND USE OF PROCEEDS (a),
         (b), (c) AND (d)

         None.

ITEM 3.  DEFAULT UPON SENIOR SECURITIES

         None.

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

         None.

ITEM 5.  OTHER INFORMATION

         None.



                                       30
<PAGE>

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 August 1, 2005 with  respect to
Item 8.01 and 1.01,  reporting that it had entered into a non-binding  Letter of
Intent to acquire  Mobot,  Inc, and had loaned Mobot  $600,000 in the form of an
unsecured promissory note.

         NeoMedia  filed a report on Form 8-K on August 31, 2005 with respect to
Item 1.01,  reporting  that it had entered into a paint  distribution  agreement
with Beijing Sino-US Jinche Yingang Auto Technological  Services Limited,  under
which  Jinche  would  distribute  NeoMedia's  paint  products  to its  locations
throughout China.

         NeoMedia  filed a report on Form 8-K on September 29, 2005 with respect
to Item 1.01, reporting that it had entered into a paint distribution  agreement
with  Micropaint de Mexico,  under which  Micropaint de Mexico would  distribute
NeoMedia's paint products throughout Mexico and Latin America.

         NeoMedia  filed a report on Form 8-K, on October 6, 2005,  with respect
to Item 1.01, reporting that it had entered into a paint distribution  agreement
with WI-THO AS, under which WI-THO AS would distribute NeoMedia's paint products
throughout Scandinavia.



                                       31
<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:    November 17 2005                  By:    /s/ Charles T. Jensen
         -----------------                 --------------------------------
                                           Charles T. Jensen, President, Chief
                                           Executive Officer, and Director


Date:    November 17, 2005                 By:    /s/ David A. Dodge
         -----------------                 --------------------------------
                                           David A. Dodge, Vice President,
                                           Chief Financial Officer and
                                           principal accounting officer




                                       32