<PAGE>

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

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

                                  FORM 10 - QSB
                                   (Mark One)

                [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

                                       OR

               [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                         COMMISSION FILE NUMBER 0-21743

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

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

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

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

      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 August 6, 2003,  there were  157,650,104  outstanding  shares of the
issuer's Common Stock.


<PAGE>

                         PART I -- FINANCIAL INFORMATION

      ITEM 1. FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                                                                                            JUNE 30,
                                                                                                                             2003
                                                                                                                           --------
ASSETS
<S>                                                                                                                        <C>
Current assets:
            Cash and cash equivalents                                                                                      $    153
            Trade accounts receivable, net of allowance for doubtful accounts of $27                                            227
            Inventories, net                                                                                                     13
            Prepaid expenses and other current assets                                                                           627
                                                                                                                           --------
            Total current assets                                                                                              1,020
            Property and equipment, net                                                                                          94
            Capitalized patents, net                                                                                          2,122
            Capitalized and purchased software costs, net                                                                        87
            Other long-term assets                                                                                              702
                                                                                                                           --------
                 Total assets                                                                                              $  4,025
                                                                                                                           ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
            Accounts payable                                                                                               $  3,206
            Amounts due under financing agreements                                                                              372
            Liabilities in excess of assets of discontinued business unit                                                     1,363
            Sales taxes payable                                                                                                 271
            Accrued expenses                                                                                                  2,539
            Notes payable                                                                                                       771
            Current portion of long-term debt                                                                                   535
            Deferred revenues                                                                                                   798
            Other                                                                                                                37
                                                                                                                           --------
                 Total current liabilities                                                                                    9,892
Long-term debt, net of current portion                                                                                          139
                                                                                                                           --------
                 Total liabilities                                                                                           10,031
                                                                                                                           --------
Shareholders' deficit:
            Preferred stock, $0.01 par value, 25,000,000 shares authorized, none issued
                and outstanding                                                                                                --
            Additional paid-in capital, preferred stock                                                                        --
            Common stock, $0.01 par value, 200,000,000 shares authorized, 120,096,032
                shares issued and 116,727,842 outstanding                                                                     1,167
            Additional paid-in capital                                                                                       66,319
            Deferred stock-based compensation                                                                                   (93)
            Accumulated deficit                                                                                             (72,620)
            Treasury stock, at cost, 201,230 shares of common stock                                                            (779)
                                                                                                                           --------
            Total shareholders' deficit                                                                                      (6,006)
                                                                                                                           --------
                 Total liabilities and shareholders' deficit                                                               $  4,025
                                                                                                                           ========
</TABLE>

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


                                       2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                    THREE MONTHS ENDED JUNE 30,
                                                                                                 ------------          ------------
                                                                                                     2003                  2002
                                                                                                 ------------          ------------
<S>                                                                                              <C>                   <C>
NET SALES:
         License fees                                                                            $        160          $         41
         Resale of software and technology equipment and service fees                                     514                 3,611
                                                                                                 ------------          ------------
         Total net sales                                                                                  674                 3,652
                                                                                                 ------------          ------------
COST OF SALES:
         License fees                                                                                      75                   336
         Resale of software and technology equipment and service fees                                     486                 2,899
                                                                                                 ------------          ------------
         Total cost of sales                                                                              561                 3,235
                                                                                                 ------------          ------------
GROSS PROFIT                                                                                              113                   417
         Sales and marketing expenses                                                                     122                   280
         General and administrative expenses                                                              750                 1,575
         Research and development costs                                                                    76                   317
         Loss on impairment of assets                                                                    --                   1,003
                                                                                                 ------------          ------------
         Loss from operations                                                                            (835)               (2,758)
         Interest expense (income), net                                                                   117                    66
                                                                                                 ------------          ------------
Loss from continuing operations                                                                          (952)               (2,824)
         Loss on disposal of discontinued business unit (Note 1)                                         --                  (1,523)
                                                                                                 ------------          ------------
NET LOSS                                                                                         $       (952)         $     (4,347)
                                                                                                 ============          ============
NET LOSS PER SHARE FROM
         CONTINUING OPERATIONS--BASIC AND DILUTED                                                $      (0.01)         $      (0.07)
                                                                                                 ============          ============
NET LOSS PER SHARE FROM
         DISCONTINUED OPERATIONS--BASIC AND DILUTED                                              $       --            $      (0.04)
                                                                                                 ============          ============
NET LOSS PER SHARE--BASIC AND DILUTED                                                            $      (0.01)         $      (0.11)
                                                                                                 ============          ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES--BASIC AND DILUTED                                        78,404,148            39,412,368
                                                                                                 ============          ============
</TABLE>

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


                                       3

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                     SIX MONTHS ENDED JUNE 30,
                                                                                                 ------------          ------------
                                                                                                     2003                  2002
                                                                                                 ------------          ------------
<S>                                                                                              <C>                   <C>
NET SALES:
         License fees                                                                            $        269          $        153
         Resale of software and technology equipment and service fees                                   1,279                 4,895
                                                                                                 ------------          ------------
         Total net sales                                                                                1,548                 5,048
                                                                                                 ------------          ------------
COST OF SALES:
         License fees                                                                                     151                   684
         Resale of software and technology equipment and service fees                                   1,188                 3,865
                                                                                                 ------------          ------------
         Total cost of sales                                                                            1,339                 4,549
                                                                                                 ------------          ------------
GROSS PROFIT                                                                                              209                   499
         Sales and marketing expenses                                                                     261                   512
         General and administrative expenses                                                            1,469                 2,560
         Research and development costs                                                                   165                   533
         Loss on impairment of assets                                                                    --                   1,003
                                                                                                 ------------          ------------
         Loss from operations                                                                          (1,686)               (4,109)
         Interest expense (income), net                                                                   169                    97
                                                                                                 ------------          ------------
Loss from continuing operations                                                                        (1,855)               (4,206)
         Loss on disposal of discontinued business unit (Note 1)                                         --                  (1,523)
                                                                                                 ------------          ------------
NET LOSS                                                                                         $     (1,855)         $     (5,729)
                                                                                                 ============          ============
NET LOSS PER SHARE FROM
         CONTINUING OPERATIONS--BASIC AND DILUTED                                                $      (0.03)         $      (0.12)
                                                                                                 ============          ============
NET LOSS PER SHARE FROM
         DISCONTINUED OPERATIONS--BASIC AND DILUTED                                              $       --            $      (0.05)
                                                                                                 ============          ============
NET LOSS PER SHARE--BASIC AND DILUTED                                                            $      (0.03)         $      (0.17)
                                                                                                 ============          ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES--BASIC AND DILUTED                                        57,796,124            34,291,781
                                                                                                 ============          ============
</TABLE>

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


                                       4

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                      SIX MONTHS ENDED JUNE 30,
                                                                                                         2003          2002
                                                                                                       -------       -------
<S>                                                                                                    <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
        Net loss                                                                                       ($1,855)      ($5,729)
        Adjustments to reconcile net loss to net cash used in operating activities:
        Depreciation and amortization                                                                      247           805
        Loss on disposal of discontinued business unit                                                    --           1,523
        Loss on impairment of assets                                                                      --           1,003
        Expense associated with option and warrant repricing                                               204            38
        Fair value of expense portion of stock-based
                 compensation granted for professional services                                            348           383
        Interest expense allocated to debt                                                                  60          --
        Discount related to common stock issuance                                                           65          --
        (Increase)/decrease in value of life insurance policies                                             (8)           47
        Changes in operating assets and liabilities
            Trade accounts receivable, net                                                                 100        (1,030)
            Other current assets                                                                           101           563
            Accounts payable, amounts due under financing agreements, liabilities in excess
                of assets of discontinued business unit, accrued expenses and stock liability             (120)        1,933
            Deferred revenue other current liabilities                                                     (81)          203
                                                                                                       -------       -------
                Net cash used in operating activities                                                     (939)         (261)
                                                                                                       -------       -------
CASH FLOWS FROM INVESTING ACTIVITIES:
        Capitalization of software development and purchased intangible assets                             (19)          (20)
        Acquisition of property and equipment                                                              (40)         --
                                                                                                       -------       -------
            Net cash used in investing activities                                                          (59)          (20)
                                                                                                       -------       -------
CASH FLOWS FROM FINANCING ACTIVITIES:
        Net proceeds from issuance of common stock, net of issuance costs of $298                        1,170           198
        Net proceeds from exercise of stock warrants                                                      --              43
        Net proceeds from exercise of stock options                                                         71           242
        Borrowings under notes payable and long-term debt                                                 --              21
        Repayments on notes payable and long-term debt                                                    (160)         --
        Issuance of deferred stock-based compensation                                                     --            (347)
                                                                                                       -------       -------
            Net cash provided by financing activities                                                    1,081           157
                                                                                                       -------       -------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                                                   83          (124)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                                                70           134
                                                                                                       -------       -------
CASH AND CASH EQUIVALENTS, JUNE 30, 2003                                                               $   153       $    10
                                                                                                       =======       =======
SUPPLEMENTAL CASH FLOW INFORMATION:
        Interest paid/(received) during the year                                                       $     6       $     1
        Non-cash investing and financing activities:
            Fair value of common stock and options issued to settle debt                                  --             309
            Cancellation  of  common  stock  issued  in 2001 to
              offset  stock subscription  receivable                                                      --            (240)
            Stock and  warrants  issued with convertible  promissory  notes                                 37          --
            Stock  issued in  exchange  for limited recourse promissory note                              --           3,040
</TABLE>


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


                                       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-K for the fiscal year ended December 31, 2002. In the opinion
of management,  these condensed  consolidated  financial  statements reflect all
adjustments  which are of a normal  recurring  nature and which are necessary to
present fairly the  consolidated  financial  position of NeoMedia as of June 30,
2003,  and the results of  operations  and  cashflows  for the  three-month  and
six-month  periods ended June 30, 2003 and 2002.  The results of operations  for
the  three-month  and six-month  periods ended June 30, 2003 are not necessarily
indicative of the results which may be expected for the entire fiscal year.  All
significant  intercompany  accounts and  transactions  have been  eliminated  in
preparation of the condensed consolidated financial statements.

NATURE OF BUSINESS OPERATIONS

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

         NeoMedia  Internet  Switching  Services (NISS) (formerly named NeoMedia
Application Services), and

         NeoMedia  Consulting and Integration  Services  (NCIS)  (formerly named
NeoMedia SI)

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

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

RECLASSIFICATIONS

Certain  amounts in the 2002 condensed  consolidated  financial  statements have
been reclassified to conform to the 2003 presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

      In April 2002,  the FASB issued  Statement  No. 145,  "Rescission  of FASB
Statements No. 4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and
Losses from  Extinguishment  of Debt," and an amendment of that Statement,  FASB
Statement  No.  64,  "Extinguishments  of  Debt  Made  to  Satisfy  Sinking-Fund
Requirements"  and FASB Statement No. 44,  "Accounting for Intangible  Assets of
Motor  Carriers." This Statement  amends


                                       6

<PAGE>

FASB Statement No. 13,  "Accounting  for Leases," to eliminate an  inconsistency
between the required accounting for sale-leaseback transactions and the required
accounting for certain lease  modifications  that have economic effects that are
similar to sale-leaseback  transactions.  NeoMedia has implemented the provision
of SFAS No. 145 and has  concluded  that the  adoption  does not have a material
impact on the Company's financial statements.

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

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

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

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

      In April 2003,  the FASB issued SFAS No. 149,  "Amendment of Statement 133
on Derivative  Instruments and Hedging  Activities".  This Statement  amends and
clarifies  financial  accounting  and  reporting  for  derivative   instruments,
including   certain   derivative   instruments   embedded  in  other   contracts
(collectively  referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative  Instruments and Hedging  Activities".  This
Statement amends Statement 133 for decisions made (1) as part of the Derivatives
Implementation  Group process that effectively  required amendments to Statement
133,  (2) in  connection  with  other  Board  projects  dealing  with  financial
instruments, and (3) in connection with implementation issues raised in relation
to the application of the definition of a derivative, in particular, the meaning
of an initial net  investment  that is smaller  than would be required for other
types of contracts that would be expected to have a similar  response to changes
in market  factors,  the meaning of  underlying,  and the  characteristics  of a
derivative


                                       7
<PAGE>

that contains  financing  components.  The Company does not anticipate  that the
adoption  of  this  Statement  will  have a  material  effect  on the  financial
statements.

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

PROPOSED ACQUISITION AND MERGER WITH LOCH ENERGY, INC. ("LOCH")

      On March 13, 2003, the Company  announced that it has reached an agreement
in  principle to acquire and merge with Loch,  an oil and gas provider  based in
Humble,  Texas. Loch currently owns mineral and lease rights to five properties,
totaling approximately 130 acres, near Houston, Texas. Per the terms outlined in
the Memorandum of Terms,  the merger would provide for one share of common stock
of the Company to be exchanged  for every four shares of Loch common stock on an
adjusted  basis,  and  additional  "earn  out"  shares  to  be  issued  to  Loch
shareholders  based on actual oil  production  in the first year after  closing.
Total shares to be issued to Loch  shareholders  will not exceed 50% of NeoMedia
outstanding  shares.  The  merger  is  subject  to  negotiations  of  definitive
contracts,  corporate  filing  requirements,  completion  of due  diligence  and
approval by the Boards of Directors  and  shareholders  of each  company.  It is
anticipated that closing would occur approximately 30 days after such conditions
are satisfied.

EQUITY LINE OF CREDIT WITH CORNELL CAPITAL PARTNERS, LP ("CORNELL")

      On February 11, 2003,  NeoMedia  and Cornell  terminated  its November 12,
2002  Equity  Line of Credit  Agreement  and  entered  into a new Equity Line of
Credit  Agreement  under which Cornell agreed to purchase up to $10.0 million of
NeoMedia's  common stock over a two-year  period,  with the timing and amount of
the purchase at the Company's discretion. The maximum amount of each purchase is
$150,000 with a minimum of seven days between  purchases.  The shares are valued
at 98% of the lowest closing bid price during the five-day period  following the
delivery of a notice of purchase by  NeoMedia.  The Company pays 5% of the gross
proceeds of each  purchase to Cornell.  On February 14,  2003,  the SEC declared
effective  the  S-1  registration   statement   containing  102  million  shares
underlying the Equity Line of Credit.

      During the six months ended June 30, 2003,  the Company has received gross
funding of  $997,000  from the sale of stock  under the  Equity  Line of Credit,
through the sale of 31,864,244  shares of its common stock.  The following table
summarizes funding received from the Equity line of Credit during the six months
ended June 30, 2003:

                                                                 SIX MONTHS
                                      FIRST          SECOND         ENDED
                                     QUARTER        QUARTER     JUNE 30, 2003
                                  ------------   ------------   ------------
Number of shares sold by Cornell     3,452,373     28,411,871     31,864,244

Gross funds received by NeoMedia  $    312,000   $    685,000   $    997,000
Less: discount                         (28,000)       (50,000)       (78,000)
                                  ------------------------------------------
Net funding received by NeoMedia  $    284,000   $    635,000   $    919,000
                                  ------------------------------------------

      In addition to the $78,000  discount  netted from the funding  received by
the  Company as  outlined  above,  the Company  recognized  a $136,000  discount
relating to the sale of stock by Cornell during the six-month  period


                                       8
<PAGE>

ended June 30, 2003.  Both amounts  were  recorded as a reduction to  additional
paid-in  capital.  In  accordance  with  the  terms  of  Equity  Line of  Credit
Agreement,  Cornell  sells the  Company's  stock at a 2%  discount to the lowest
closing bid price of the  Company's  common stock during the week in which it is
sold.  Accordingly,  the Company records the difference between the market price
and contract valuation price as a reduction to additional paid-in capital.

      Subsequent  to June 30,  2003  (through  July 31,  2003),  the Company has
received additional funding,  and sold additional shares,  under the Equity line
of Credit as follows:

       Number of shares sold by Cornell during July 2003       8,562,864
       Gross funds received by NeoMedia during July 2003     $   200,000
       Less: discount                                            (32,000)
                                                             -----------
       Net funding received by NeoMedia                      $   168,000
                                                             -----------

In  addition  to the $32,000  discount  netted from the funding  received by the
Company as outlined above, the Company  recorded a $16,000 discount  relating to
the sale of the Stock by  Cornell  for the  subsequent  period to June 30,  2003
(through July 31, 2003) in accordance with the term of the Equity Line of Credit
Agreement.

OPTION REPRICING

      During May 2003,  the Company  re-priced  approximately  8.0 million stock
options under a 6-month repricing program.  Under the terms of the program,  the
exercise price for outstanding  options under the Company's 2002, 1998, and 1996
Stock Option Plans was restated to $0.01 per share for a period of 6 months.  In
accordance with FASB Interpretation, FIN 44, Accounting for Certain Transactions
Involving Stock Transactions,  the award has been accounted for as variable from
May 19, 2003 through the period ended June 30, 2002. Accordingly,  approximately
$178,000  was recorded as  compensation  in general and  administrative  expense
during the three months ended June 30, 2003.

DISPOSAL OF QODE BUSINESS UNIT

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

      During June 2002,  the Finx Group  notified  the  Company  that it did not
intend  to carry  out the  letter of intent  due to  capital  constraints.  As a
result,  during the three-month period ended June 30, 2002, the company recorded
an  additional  expense of $1.5  million for the  write-off  of  remaining  Qode
assets.  As of June 30,  2003,  the  Company  had  approximately  $1,363,000  of
liabilities relating to the Qode system remaining on its books.

OTHER EVENTS

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

      On April 2,  2003,  the  Company  was  issued  its  sixth US  Patent.  The
technology  covered  by  the  patent  allows  for  a  connection  from  human-or
machine-readable  input to  generate  a  tailored  response  that can  utilize a
profile of the person making the link between the code-carrying  physical object
and the desired electronic information.


                                       9
<PAGE>

      On April 17,  2003,  the Board of  Directors  of the Company  approved the
payment in full of approximately  $154,000 of liabilities owed by the Company to
Charles W. Fritz, the Company's  Founder and Chairman of the Board of Directors,
through  the  issuance  of  15,445,967  shares  of  common  stock.  The  Company
recognized  a  discount  expense  in  general  and  administrative  expenses  of
approximately $15,000 relating to this transaction with Mr. Fritz.

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

      During April 2003, the Company repriced approximately 1.9 million warrants
held by  Thornhill  Capital  LLC  ("Thornhill"),  an outside  consultant  to the
Company. Of the 1.9 million warrants, 1.5 million had an exercise price of $0.05
per share,  and  approximately  0.4 million  had an exercise  price of $2.09 per
share.  All 1.9 million  warrants were repriced to $0.00 per share.  The Company
recognized  an  expense of  approximately  $27,000  related to this  transaction
during the second quarter of 2003.  These  warrants were  exercised  immediately
after the repricing.

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

PRO-FORMA INFORMATION REQUIRED BY SFAS 148

At June 30, 2003, the Company has three stock-based employee  compensation plans
(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                      SIX MONTHS
                                               ENDED JUNE 30,                   ENDED JUNE 30,
                                         --------------------------       --------------------------
                                           2003               2002          2003               2002
                                         -------            -------       -------            -------
<S>                                      <C>                <C>           <C>                <C>
Net Loss, as reported                    ($  952)           ($4,347)      ($1,855)           ($5,729)
Compensation recognized under APB 25        --                 --            --                 --
Compensation recognized under SFAS 123      (118)              (131)         (236)              (242)
                                         --------------------------       --------------------------
     Pro-forma net loss                  ($1,070)           ($4,478)      ($2,091)           ($5,971)
                                         ==========================       ==========================
Net Loss per share:
Basic and diluted - as reported          ($ 0.01)           ($ 0.11)      ($ 0.03)           ($ 0.17)
                                         ==========================       ==========================
Basic and diluted - pro-forma            ($ 0.01)           ($ 0.11)      ($ 0.04)           ($ 0.17)
                                         ==========================       ==========================
</TABLE>

SEGMENT REPORTING

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


                                       10
<PAGE>

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

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

      The Company's  reportable segments are strategic business units that offer
different technology and marketing strategies. The Company's areas of operations
are  principally in the United States.  No single foreign  country or geographic
area is significant to the consolidated financial statements

      Consolidated net sales, net operating losses for the six months ended June
30, 2003 and 2002, and identifiable assets as of June 30, 2003 and 2002, were as
follows:

<TABLE>
<CAPTION>
                                                                                        (in thousands)
                                                                    -------------------------------------------------------
                                                                            SIX MONTHS                    THREE MONTHS
                                                                          ENDED JUNE 30,                 ENDED JUNE 30,
                                                                    -----------------------         -----------------------
                                                                      2003            2002            2003            2002
                                                                    -------         -------         -------         -------
<S>                                                                 <C>             <C>             <C>             <C>
NET SALES:
       NeoMedia Consulting & Integration Services                   $ 1,523         $ 5,033         $   662         $ 3,648
       NeoMedia Internet Switching Service                               25              15              12               4
                                                                    -------         -------         -------         -------
                                                                    $ 1,548         $ 5,048         $   674         $ 3,652
                                                                                                                    -------
NET LOSS:
       NeoMedia Consulting & Integration Services                   ($  154)        ($  208)        ($  726)        ($   34)
       NeoMedia Internet Switching Service                           (1,701)         (5,521)           (226)         (4,313)
                                                                    -------         -------         -------         -------
                                                                    ($1,855)        ($5,729)        ($  952)        ($4,347)
                                                                                                                    -------
IDENTIFIABLE ASSETS
       NeoMedia Consulting & Integration Services                   $   816                         $   816
       NeoMedia Internet Switching Service                            2,209                           2,209
       Corporate                                                      1,000                           1,000
                                                                    -------                         -------
                                                                    $ 4,025                         $ 4,025
                                                                    -------                         -------
</TABLE>

SUBSEQUENT EVENTS

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

      On July 28,  2003,  the  Company  signed a  binding  letter  of  intent to
purchase Secure Source  Technologies  ("SST"),  a provider of security solutions
and covert  security  technology for the  manufacturing  and financial  services
industries.  Pending  completion of due diligence  and required  approvals,  the
planned  acquisition and merger would be completed through an exchange of common
stock from NeoMedia to SST. SST owns patents that compliment NeoMedia's existing
intellectual property portfolio.


                                       11
<PAGE>

      On July 16, 2003, the Company's  Board of Directors voted to authorize the
issuance of  approximately  31.7 million stock options to employees,  contingent
upon the passage at the  Company's  annual  meeting on September  24, 2003, of a
proposal to adopt a 2003 Stock  Option  Plan,  under  which 150 million  options
would be allocated for future issuance. The Company filed a form Pre-14(a) proxy
statement  on August 7, 2003,  which  included  the  proposal for the new option
plan. The options will only be issued upon approval by the  shareholders  of the
2003 Stock Option Plan.

      On July 21, 2003, the Company entered into a consulting  agreement with an
unrelated  party under which the Company paid the  consultant 3.6 million shares
of the Company's  common stock for services to be performed over a period of one
year.

CRITICAL ACCOUNTING POLICIES

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

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

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

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

      Stock-based Compensation.  The Company records stock-based compensation to
outside consultants at fair market value in general and administrative  expense.
The  Company  does not  record  expense  relating  to stock  options  granted to
employees  with an exercise  price  greater than or equal to market price at the
time of


                                       12
<PAGE>

grant.  The Company reports  pro-forma net loss and loss per share in accordance
with the  requirements of SFAS 148 (see above).  This disclosure  shows net loss
and loss per  share as if the  Company  had  accounted  for its  employee  stock
options under the fair value method of those statements.  Pro-forma  information
is calculated using the Black-Scholes  pricing method at the date of grant. This
option valuation model requires input of highly subjective assumptions.  Because
the  Company's  employee  stock  options  have   characteristics   significantly
different from those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  model does not  necessarily  provide a reliable  single
measure of fair value of its employee stock options.

INTANGIBLE ASSETS

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

FINANCING AGREEMENTS

      As of June 30,  2003,  the  Company  was party to a  commercial  financing
agreement with GE Access that provides short-term financing for certain computer
hardware and software purchases.  This arrangement allows the Company to re-sell
high-dollar  technology equipment and software without committing cash resources
to financing  the purchase.  The Company and GE Access are  currently  operating
under an  additional  arrangement  under  which  GE  Access  retains  50% of the
Company's  proceeds from sales financed by GE Access, and applies the portion of
proceeds  toward  past  due  balances.  This  arrangement  reduces  by half  the
Company's  cash flow from  resales of  equipment  and  software  financed  by GE
Access, until the balance owed to GE Access is paid in full.  Termination of the
Company's  financing  relationship  with GE Access  could  materially  adversely
affect the Company's  financial  condition.  Management expects the agreement to
remain in place in the near  future.  As of June 30,  2003,  the amount  payable
under this financing arrangement was approximately $372,000.

OTHER DEBTS

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

      During November 2002, NeoMedia issued Convertible Secured Promissory Notes
with an aggregate face value of $60,000 to 3 separate parties, including Charles
W. Fritz,  Chairman of the Board of Directors of NeoMedia;  William E. Fritz, an
outside  director;  and James J.  Keil,  an  outside  director.  The notes  bear
interest  at a rate of 15% per annum,  and  matured  at the  earlier of i.) four
months, or ii.) the date the shares underlying the Cornell Equity Line of Credit
are registered  with the SEC. The notes were  convertible,  at the option of the
holder,  into  either  cash or shares of our common  stock at a 30%  discount to
either  market  price upon  closing,  or upon  conversion,  whichever  is lower.
NeoMedia  also  granted to the  holders an  additional  1,355,670  shares of its
common stock and 60,000 warrants to purchase shares of its common stock at $0.03
per share,  with a term of three  years.  The warrants and shares were issued in
January 2003.  In addition,  since this debt is  convertible  into equity at the
option of the note holder at beneficial conversion rates, an embedded beneficial
conversion  feature was  recorded as a debt  discount  and  amortized  using the
effective interest rate over the life of the debt in accordance with EITF 00-27.
Total cost of beneficial conversion feature, fair value of the stock and cost of
warrants  issued  exceed the face value of the notes  payable,  therefore,  only
$60,000,  the face amount of the note, was  recognizable  as debt discount,  and
amortized  over the life of the notes  payable.  During  March 2003,  two of


                                       13
<PAGE>

the affiliated  parties,  Mr.  William Fritz and Mr. Keil,  agreed to extend the
maturity  date due to the  Company's  capital  constraints.  The Company  repaid
Charles  Fritz's note in full during March 2003, and repaid James J. Keil's note
in full during April 2003.  The Company paid $30,000 of the principal on William
Fritz's note during  April 2003,  and entered into a new note with Mr. Fritz for
the remaining  $10,000.  The new note bears  interest at a rate of 10% per annum
and matures in April 2004.  The new note also includes a provision  under which,
as consideration for the loan, Mr. Fritz will receive a 3% royalty on all future
revenue generated from the Company's intellectual property.

GOING CONCERN

      The accompanying  condensed  consolidated  financial  statements have been
prepared on a going concern basis,  which contemplates the realization of assets
and the  satisfaction  of liabilities in the normal course of business.  Through
June 30,  2003,  the Company has not been able to generate  sufficient  revenues
from its  operations  to cover its costs and  operating  expenses.  Although the
Company  has been  able to issue  its  common  stock  or other  financing  for a
significant  portion of its expenses,  it is not known whether  NeoMedia will be
able to continue this practice, or if its revenue will increase significantly to
be able to meet its cash operating  expenses.  This, in turn, raises substantial
doubt about the  Company's  ability to continue as a going  concern.  Management
believes that the Company will be able to raise additional funds through its $10
million Equity Line of Credit with Cornell.  However, there can be no assurances
that the market for the  Company's  stock will  support  the sale of  sufficient
shares of NeoMedia's  stock to raise sufficient  capital to sustain  operations.
The condensed  consolidated  financial statements do not include any adjustments
that might result from the outcome of these uncertainties.

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

OVERVIEW

      Beginning in the second quarter of 2002, the NeoMedia Technologies, Inc.'s
("NeoMedia")   continued  focus  was  aimed  toward  the  intellectual  property
commercialization  unit of its Internet  Switching Systems (NISS,  formerly NAS)
business.  NISS consists of the patented  PaperClickTM  technology  that enables
users to link  directly from the physical to the digital  world,  as well as the
patents surrounding certain physical-world-to-web linking processes.  NeoMedia's
mission is to invent, develop, and commercialize  technologies and products that
effectively  leverage the  integration of the physical and electronic to provide
clear functional value for NeoMedia's end-users, competitive advantage for their
business  partners and  return-on-investment  for their investors.  To this end,
NeoMedia has signed four  intellectual  property  licenses  since its inception.
NeoMedia also  continued its movement into the Storage Area Network (SAN) market
through its NeoMedia Consulting and Integration Services (NCIS) business unit.

      Additionally,  during the first quarter of 2003,  NeoMedia  announced that
that it had reached an  agreement  in  principle  to acquire and merge with Loch
Energy,  Inc.  ("Loch"),  an oil and gas provider based in Humble,  Texas.  Loch
currently   owns  mineral  and  lease  rights  to  five   properties,   totaling
approximately  130 acres,  near  Houston,  Texas.  Loch's  portion of the proven
reserves on the five  properties  is  estimated  at  7,707,247  barrels.  Loch's
portion of the  probable  reserves on the five  properties  is  estimated  at an
additional 5,963,748 barrels. Per the terms outlined in the Memorandum of Terms,
the  merger  would  provide  for one share of  common  stock of  NeoMedia  to be
exchanged for every four shares of Loch common stock on an adjusted  basis,  and
additional "earn out" shares to be issued to Loch  shareholders  based on actual
oil  production  in the first year after  closing.  Total shares to be issued to
Loch shareholders will not exceed 50% of NeoMedia outstanding shares. The merger
is  subject  to  negotiations   of  definitive   contracts,   corporate   filing
requirements,  completion  of due  diligence  and any  required  approval by the
Boards of Directors and  shareholders  of each company.  It is anticipated  that
closing would occur approximately 30 days after such conditions are satisfied.

      NeoMedia's  quarterly operating results have been subject to variation and
will continue to be subject to variation,  depending  upon factors,  such as the
mix of business among  NeoMedia's  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.


                                       14
<PAGE>

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

      Net sales.  Total net sales for the three  months ended June 30, 2003 were
$674,000,  which represented a $2,978,000,  or 82%, decrease from $3,652,000 for
the three months ended June 30, 2002.  This  decrease  primarily  resulted  from
reduced resales of Sun Microsystems  equipment due to increased  competition and
general economic  conditions.  NeoMedia intends to continue to pursue additional
resales of equipment,  software and services,  and to the extent that such sales
can be made,  NeoMedia  expects resales to more closely resemble the results for
the three months  ended June 30,  2002,  rather than the three months ended June
30, 2003.

      License  fees.  License fees were $160,000 for the three months ended June
30, 2003,  compared with  $41,000,  for the three months ended June 30, 2002, an
increase of $119,000,  or 290%.  NeoMedia  will  continue to attempt to increase
sales of these  high-margin  products.  NeoMedia  expects license fees to remain
materially constant over the next 12 months.

      Resales of software and technology  equipment and service fees. Resales of
software and technology  equipment and service fees decreased by $3,097,000,  or
86%,  to  $514,000  for the three  months  ended June 30,  2003,  as compared to
$3,611,000  for the three months ended June 30, 2002.  This  decrease  primarily
resulted from increased  competition and general economic  conditions.  NeoMedia
intends to continue to pursue  additional  resales of  equipment,  software  and
services,  and to the  extent  that  such  sales can be made,  NeoMedia  expects
resales to more closely resemble the results for the three months ended June 30,
2002, rather than the three months ended June 30, 2003.

      Cost of Sales. Cost of license fees was $75,000 for the three months ended
June 30, 2003, a decrease of $261,000,  or 78%,  compared  with $336,000 for the
three  months  ended  June  30,  2002.   The  decrease   resulted  from  reduced
amortization  expense in 2003 of capitalized  development  costs relating to the
PaperClick,  MLM/Affinity,  and Qode products that were written off during 2002.
Cost of  resales  was  $486,000  for the three  months  ended June 30,  2003,  a
decrease of $2,413,000,  or 83%,  compared with  $2,899,000 for the three months
ended June 30, 2002. The decrease  resulted from  decreased  resales for the six
months  ended  June 30,  2003  compared  with the same  period in 2002.  Cost of
resales as a percentage of related  resales was 95% in 2003,  compared to 80% in
2002. This increase is due to an increased  sales mix of lower-margin  equipment
products  sold in 2003 compared to 2002,  combined  with the general  erosion of
margins in the resale  sector.  NeoMedia  expects  costs of resales to fluctuate
with the sales of its equipment software, and services over the next 12 months.

      Gross  Profit.  Gross  profit was $113,000 for the three months ended June
30, 2003,  compared with $417,000 for the three months ended June 30, 2002. This
decrease of  $304,000,  or 73%,  was  primarily  the result of lower  resales of
computer equipment, software, and services in 2003 relative to 2002.

      Sales and  marketing.  Sales and marketing  expenses were $122,000 for the
three months ended June 30, 2003, a decrease of $158,000,  or 56%, compared with
$280,000  for the three  months  ended June 30,  2002.  This  decrease  resulted
primarily  from  reduced  sales  commissions  earned  on lower  sales in 2003 as
compared with 2002.  NeoMedia  expects sales and marketing  expense to fluctuate
with sales of it proprietary and resold products over the next 12 months.

      General and administrative.  General and administrative expenses decreased
by  $825,000,  or 52%, to $750,000  for the three  months  ended June 30,  2003,
compared to  $1,575,000  for the three months ended June 30, 2002.  The decrease
resulted primarily from reduced professional service expense in 2003 relating to
the  recognition of deferred stock  compensation.  NeoMedia  expects general and
administrative  expense to remain  constant or decrease  slightly with continued
cost reduction  efforts until the consummation of the Loch merger, at which time
general and administrative costs would be expected to rise.

      Research  and  development.  During the three  months ended June 30, 2003,
NeoMedia  charged to expense  $76,000  of  research  and  development  costs,  a
decrease  of $241,000  or 76%  compared  to $317,000  charged to expense for the
three months ended June 30, 2002.  The decrease is primarily  due to a continued
reduction in research and development  overhead since the first quarter of 2002.
NeoMedia  expects research and development  costs will not fluctuate  materially
over the next 12 months.

                                       15
<PAGE>

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

      Interest  expense  (income),  net.  Interest   expense/(income)   consists
primarily of interest accrued for creditors as part of financed purchases,  past
due balances,  notes payable and NeoMedia's  asset-based  collateralized line of
credit  net  of  interest  earned  on  cash  equivalent  investments.   Interest
expense/(income)  increased by $51,000, or 77%, to $117,000 for the three months
ended June 30, 2003 from $66,000 for the three  months ended June 30, 2002,  due
to interest  expense  during the second quarter of 2003  associated  with vendor
settlements.

      Net  Loss.  The net loss for the  three  months  ended  June 30,  2003 was
$952,000,  which  represented  a  $3,395,000,  or 78%  decrease  from a loss  of
$4,347,000  for the three  months ended June 30,  2002.  The  decrease  resulted
primarily  from the  impairment  charge of $1.0 million  relating to  NeoMedia's
PaperClick assets during 2002,  combined with a continued reduction of sales and
marketing, general and administrative, and development costs during 2003.

RESULTS OF OPERATIONS  FOR THE SIX MONTHS ENDED JUNE 30, 2003 AS COMPARED TO THE
SIX MONTHS ENDED JUNE 30, 2002

      Net  sales.  Total net sales for the six months  ended June 30,  2003 were
$1,548,000, which represented a $3,500,000, or 69%, decrease from $5,048,000 for
the six months  ended June 30,  2002.  This  decrease  primarily  resulted  from
reduced resales of Sun Microsystems  equipment due to increased  competition and
general economic  conditions.  NeoMedia intends to continue to pursue additional
resales of equipment,  software and services,  and to the extent that such sales
can be made,  NeoMedia  expects resales to more closely resemble the results for
the six months  ended June 30,  2002,  rather than the six months ended June 30,
2003.

      License fees. License fees were $269,000 for the six months ended June 30,
2003, compared with $153,000, for the six months ended June 30, 2002, a increase
of $116,000,  or 76%.  NeoMedia  will  continue to attempt to increase  sales of
these high-margin  products.  NeoMedia expects license fees to remain materially
constant over the next 12 months.

      Resales of software and technology  equipment and service fees. Resales of
software and technology  equipment and service fees decreased by $3,616,000,  or
74%,  to  $1,279,000  for the six months  ended June 30,  2003,  as  compared to
$4,895,000  for the six months  ended June 30,  2002.  This  decrease  primarily
resulted from increased  competition and general economic  conditions.  NeoMedia
intends to continue to pursue  additional  resales of  equipment,  software  and
services,  and to the  extent  that  such  sales can be made,  NeoMedia  expects
resales to more  closely  resemble the results for the six months ended June 30,
2002, rather than the six months ended June 30, 2003.

      Cost of Sales.  Cost of license fees was $151,000 for the six months ended
June 30, 2003, a decrease of $533,000,  or 78%,  compared  with $684,000 for the
six months ended June 30, 2002. The decrease resulted from reduced  amortization
expense in 2003 of capitalized  development  costs  relating to the  PaperClick,
MLM/Affinity,  and Qode  products  that were  written off during  2002.  Cost of
resales was  $1,188,000  for the six months  ended June 30,  2003, a decrease of
$2,677,000,  or 69%,  compared with $3,865,000 for the six months ended June 30,
2002. The decrease  resulted from decreased  resales in 2003 compared with 2002.
Cost of resales as a  percentage  of related  resales was 93% for the six months
ended June 30, 2003,  compared to 79% for the same period in 2002. This increase
is due to an increased sales mix of lower-margin equipment products sold in 2003
compared to 2002,  combined  with the  general  erosion of margins in the resale
sector.  NeoMedia  expects  costs of resales to fluctuate  with the sales of its
equipment, software, and services over the next 12 months.

      Gross Profit.  Gross profit was $209,000 for the six months ended June 30,
2003,  compared  with  $499,000  for the six months  ended June 30,  2002.  This
decrease of  $290,000,  or 58%,  was  primarily  the result of lower  resales of
computer equipment, software, and services in 2003 relative to 2002.

      Sales and  marketing.  Sales and marketing  expenses were $261,000 for the
six months ended June 30, 2003, a decrease of $251,000,  or 49%,  compared  with
$512,000  for the six  months  ended  June  30,  2002.  This


                                       16
<PAGE>

decrease resulted primarily from reduced sales commissions earned on lower sales
in 2003 as compared with 2002.  NeoMedia expects sales and marketing  expense to
fluctuate  with sales of its  proprietary  and resold  products over the next 12
months.

      General and administrative.  General and administrative expenses decreased
by  $1,091,000,  or 43%, to  $1,469,000  for the six months ended June 30, 2003,
compared to  $2,560,000  for the six months  ended June 30,  2002.  The decrease
resulted primarily from reduced professional service expense in 2003 relating to
the  recognition of deferred stock  compensation.  NeoMedia  expects general and
administrative  expense to remain  constant or decrease  slightly with continued
cost reduction  efforts until the consummation of the Loch merger, at which time
general and administrative costs could increase.

      Research  and  development.  During  the six months  ended June 30,  2003,
NeoMedia  charged to expense  $165,000  of research  and  development  costs,  a
decrease of $368,000 or 69% compared to $533,000  charged to expense for the six
months  ended June 30,  2002.  The  decrease  is  primarily  due to a  continued
reduction  in  research  and  development  overhead  since first  quarter  2002.
NeoMedia  expects research and development  costs will not fluctuate  materially
over the next 12 months.

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

      Interest  expense  (income),  net.  Interest   expense/(income)   consists
primarily of interest accrued for creditors as part of financed purchases,  past
due balances, and notes payable and NeoMedia's  asset-based  collateralized line
of credit,  net of  interest  earned on cash  equivalent  investments.  Interest
expense/(income)  increased  by $72,000,  or 74%, to $169,000 for the six months
ended June 30, 2003 from $97,000 for the six months ended June 30, 2002,  due to
interest  expense  during the  second  quarter of 2003  associated  with  vendor
settlements.

      Net  Loss.  The net  loss  for the six  months  ended  June  30,  2003 was
$1,855,000,  which  represented  a  $3,874,000,  or 68% decrease  from a loss of
$5,729,000  for the six  months  ended  June 30,  2002.  The  decrease  resulted
primarily  from the  impairment  charge of  $1,003,000  relating  to  NeoMedia's
PaperClick assets during 2002, a loss on disposal of the Company's Qode business
unit of $1,523,000 in 2002,  and a continued  reduction of sales and  marketing,
general and administrative, and development costs during 2003.

LIQUIDITY AND CAPITAL RESOURCES

      The  accompanying   unaudited  financial  statements  have  been  prepared
assuming NeoMedia will continue as a going concern.  Accordingly,  the financial
statements  do not include any  adjustments  that might  result from  NeoMedia's
inability  to  continue  as a going  concern.  NeoMedia  may  obtain up to $10.0
million over the next two years through its Equity Line of Credit agreement with
Cornell  Capital  Partners LP. As of July 31, 2003,  NeoMedia had obtained  $1.2
million under such agreement. Management believes that this additional financing
will be sufficient to sustain  operations  through September 30, 2003,  however,
there can be no assurances that the market for NeoMedia's stock will support the
sale of sufficient shares of NeoMedia's common stock to raise sufficient capital
to sustain  operations for such a period.  If necessary funds are not available,
NeoMedia's business and operations would be materially adversely affected and in
such event, NeoMedia would attempt to reduce costs and adjust its business plan.

      Net cash used in operating  activities was approximately  $939,000 for the
six-month  period ended June 30, 2003,  compared with $261,000 for the six-month
period  ended June 30, 2002.  During the six months  ended June 30, 2003,  trade
accounts receivable inclusive of costs in excess of billings decreased $100,000,
while  accounts  payable,  amounts  due under  financing  arrangements,  accrued
expenses,  and deferred revenue decreased $201,000.  During the six months ended
June 30, 2002, trade accounts receivable  increased  $1,030,000,  while accounts
payable,  amounts  due  under  financing  arrangements,  accrued  expenses,  and
deferred revenue increased  $2,136,000.  NeoMedia's net cash flow from/(used in)
investing  activities  for the six  months  ended  June 30,  2003 and 2002,  was
($59,000) and ($20,000), respectively. Net cash provided by financing activities
for the six months ended June 30, 2003 and 2002,  was  $1,081,000  and $157,000,
respectively.


                                       17
<PAGE>

      During the six months  ended June 30,  2003 and 2002  NeoMedia's  net loss
totaled approximately  $1,855,000 and $5,729,000,  respectively.  As of June 30,
2003  NeoMedia  had  accumulated   losses  from   operations  of   approximately
$72,620,000,  had a working capital  deficit of  approximately  $8,872,000,  and
approximately $153,000 in cash balances.

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

ITEM 3.  CONTROLS AND PROCEDURES

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

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

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


                                       18
<PAGE>

                          PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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

      NEOMEDIA SHAREHOLDERS

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

      AIRCLIC, INC. LITIGATION

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

      On September 6, 2001,  AirClic filed suit against NeoMedia in the Court of
Common Pleas, Montgomery County, Pennsylvania,  seeking, among other things, the
accelerated repayment of a $500,000 loan it advanced to NeoMedia under the terms
of a letter of intent entered into between  AirClic and NeoMedia.  The letter of
intent was subsequently  abandoned on the basis of NeoMedia's  alleged breach of
certain  representations  made by  NeoMedia  in the  promissory  note  issued to
AirClic in respect of such  advance.  The note  issued by NeoMedia in respect of
AirClic's  $500,000  advance  is  secured  by  substantially  all of  NeoMedia's
property, including NeoMedia's core physical world-to-Internet  technologies. If
NeoMedia is unsuccessful in this litigation, AirClic, which is one of NeoMedia's
key competitors,  could acquire NeoMedia's core intellectual  property and other
assets,  which  would have a material  adverse  effect on  NeoMedia's  business,
prospects,   financial  condition,  and  results  of  operations.   NeoMedia  is
vigorously defending this claim and has filed counterclaims  against AirClic. As
of the date of this  filing,  discovery  has closed and the  parties  expect the
matter to be tried in the fall of 2003.  Whether or not AirClic is successful in
asserting its claims that NeoMedia breached certain  representations  made by it
in the note,  the note  became due and payable in  accordance  with its terms on
January 11, 2002.  Based on the cash  currently  available  to NeoMedia,  in the
absence of additional financing,  payment of the note and related interest would
have a material adverse effect on NeoMedia's  financial  condition.  If NeoMedia
fails to pay such note,  AirClic could proceed against  NeoMedia's  intellectual
property and other assets securing the note which would have a material  adverse
effect on NeoMedia's business,  prospects,  financial condition,  and results of
operations. NeoMedia has not accrued any additional liability over and above the
note payable and related accrued interest.

      DIGITAL:CONVERGENCE LITIGATION

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


                                       19
<PAGE>

      OTHER LITIGATION

      In April 2001,  the former  President  and  director  of NeoMedia  filed a
lawsuit against NeoMedia and several of its directors. The suit was filed in the
Circuit Court of the Twentieth Judicial Circuit for Sarasota, Florida. The claim
alleges the individual was  fraudulently  induced into accepting  employment and
that NeoMedia  breached the employment  agreement.  The individual's  employment
with NeoMedia ended in January 2001. During May 2002, NeoMedia settled the suit.
NeoMedia  was  obligated  to make  cash  payments  of  $90,000  directly  to the
plaintiff during the period May 2002 through December 2002, and cash payments to
the plaintiff's attorney for legal fees in the amount of $45,000 due in July and
August 2002. In addition,  the plaintiff was granted 360,000 options to purchase
shares of NeoMedia  common stock at an exercise price of $0.08.  As of March 31,
2002,  NeoMedia  had accrued a $347,000  liability  relating  to the suit.  As a
result,  NeoMedia recognized an increase to net income of approximately $176,000
during the three-month period ended June 30, 2002 to adjust the liability to the
settlement  amount.  As of June 30, 2003,  NeoMedia had an accrued  liability of
$5,000 relating to this matter.

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

      On November 30, 2001,  Orsus Solutions USA, Inc.,  filed a summons seeking
payment in full of  approximately  $525,000  relating to a software and services
contract associated with implementation of the Qode Universal Commerce Solution.
NeoMedia  is  currently  attempting  to  negotiate  settlement  of this  matter.
NeoMedia has accrued a liability of $525,000 as of June 30, 2003.

      On January 22,  2002,  Rapidigm,  Inc.  sued  NeoMedia  to collect  unpaid
professional  service  expense  incurred in 2001 in the amount of  approximately
$15,000. NeoMedia and Rapdigm reached a settlement in February 2002, under which
NeoMedia  made  payments  totaling  approximately  $7,000.  On April  22,  2003,
Rapidigm  obtained a judgment for the remaining  balance of the  liability  plus
court fees and interest.  NeoMedia has  continued to make  payments  against the
liability,  and has a remaining accrued liability of approximately  $7,000 as of
June 30, 2003.

      On July 22, 2002,  2150 Western Court,  L.L.C.,  the property  manager for
NeoMedia's  Lisle, IL, office,  filed a summons seeking payment of approximately
$72,000 for all past due rents on the facility. The summons asked for a judgment
for the above  amount  plus  possession  of the  premises.  On  August 9,  2002,
NeoMedia  settled  this  matter.  The  settlement  calls  for past due  rents of
approximately  $72,000  to be paid over a  15-month  period,  as well as reduced
rents for the period August 2002 through March 2003. As additional consideration
in the  settlement,  NeoMedia  issued 900,000 shares of its common stock to 2150
Western Court L.L.C.  NeoMedia had a liability of approximately $53,000 relating
to this matter as of June 30, 2003.

      On July 27, 2002,  NeoMedia's  former  General  Counsel filed suit in U.S.
District  Court,  Ft.  Myers  division,  seeking  payment of the 2000  executive
incentive,  severance and unpaid  vacation  days in the amount of  approximately
$154,000. In June 2001, NeoMedia's compensation committee approved an adjustment
to the 2000 executive incentive plan that reduced the executive incentive payout
as a result of the write-off of the  Digital:Convergence  intellectual  property
license  contract in the second quarter of 2001. As a result,  NeoMedia  reduced
the accrual for such payout by an aggregate of approximately $1.1 million in the
second quarter of 2002. The plaintiff is seeking  payment of the entire original
incentive  payout.  On November 12,  2002,  NeoMedia  settled the  lawsuit.  The
settlement calls for cash payments totaling  approximately $90,000 over a period
of ten months,  plus 250,000  vested  options to purchase  shares of  NeoMedia's
common stock at an exercise  price of $0.01 with a term of five years.  NeoMedia
had a liability of approximately  $21,000 relating to this matter as of June 30,
2003.


                                       20
<PAGE>

      On August 23, 2002, Dell Marketing LP filed suit against  NeoMedia seeking
payment of  approximately  $5,000  relating to equipment  purchased by NeoMedia.
NeoMedia  made  payments  against the  liability in the amount of  approximately
$4,000 during 2002. The plaintiff has received a default  judgment in the amount
of approximately $4,000 for the remaining balance plus interest and court costs.
This amount is accrued as of June 30, 2003.

      On September 12, 2002,  R. R.  Donnelley & Sons Company filed a summons in
the  Circuit  Court of The  Twentieth  Judicial  Circuit in and for Lee  County,
Florida,  seeking  payment of  approximately  $92,000  in past due  professional
services  bills,  plus interest and attorney  fees.  During July 2003,  NeoMedia
settled  the suit for cash  payments  over a period of  approximately  one year.
NeoMedia has an accrued  liability of  approximately  $112,000  relating to this
matter as of June 30, 2003.

      On September 13, 2002, Wachovia Bank, N.A., owner of the building in which
NeoMedia's  Ft. Myers,  Florida  headquarters  is located,  filed a complaint in
Circuit Court of The Twentieth Judicial Circuit in and for Lee County,  Florida,
seeking payment of approximately  $225,000 in past due rents. The complaint also
seeks payment of all future rent payments under the lease term, which expires in
January  2004,  as well as  possession  of the  premises.  On October 28,  2002,
NeoMedia and Wachovia reached a settlement on this matter.  The settlement calls
for cash payments of past due rents of  approximately  $250,000 over a period of
16 months.  NeoMedia will also vacate  approximately  70% of the unused space in
its headquarters,  and the rent for the remainder of the lease, which expires in
January 2004,  will be reduced  according to square  footage used.  NeoMedia has
accrued a liability of approximately $202,000 relating to this matter as of June
30, 2003.

      On October 21, 2002, International Digital Scientific, Inc. ("IDSI") filed
a demand for  arbitration  relating to past due payments on an  uncollateralized
note payable by NeoMedia to IDSI dated  October 1, 1994.  The note was issued in
exchange for the purchase by NeoMedia of computer  software from IDSI.  The note
calls for NeoMedia to make  payments of the greater of: (i) 5% of the  collected
gross revenues from sales of software or (ii) $16,000 per month.  As of June 30,
2003,  NeoMedia  had  recorded  a current  portion  of long term debt to IDSI of
approximately  $535,000.  The net carrying value of future  obligation under the
note was  approximately  $674,000  as of June 30,  2003.  NeoMedia  has  filed a
counterclaim  with the  arbitrator  relating  to this  matter.  The  parties are
currently proceeding with discovery.

      On October 28, 2002,  Merrick & Klimek,  P.C.,  filed a complaint  against
NeoMedia seeking payment of  approximately  $170,000 in past due legal services.
The amount in question is subject to an unsecured  promissory  note that matured
unpaid on February 28, 2002. On May 1, 2003,  NeoMedia settled the suit for cash
payments totaling  approximately  $196,000,  to be paid at a rate of $30,000 per
quarter until the balance is  satisfied.  If the balance is paid within one year
of the  settlement,  NeoMedia  will not pay  interest  charges.  NeoMedia  has a
remaining liability of approximately $176,000 relating to this matter as of June
30, 2003.

      On November  11, 2002,  Avnet/Hallmark  Computer  Marketing  Group filed a
complaint against NeoMedia seeking payment of approximately  $66,000 in past due
amounts relating to hardware and software  re-sold by NeoMedia.  During December
2002,  NeoMedia  made payment of  approximately  $30,000 to Avnet,  reducing the
balance owed to approximately  $37,000. On April 1, 2003, the plaintiff received
a  judgment  from the  circuit  court for the  remaining  balance.  NeoMedia  is
attempting to negotiate a payment plan for the judgment balance of approximately
$57,000,  including  court  costs and  interest.  NeoMedia  had a  liability  of
approximately $47,000 relating to this matter as of June 30, 2003.

      On December 30, 2002,  Brooks  Automation,  Inc. filed a complaint against
NeoMedia seeking payment of  approximately  $37,000 in past due amounts relating
to software  re-sold by  NeoMedia.  On January  16,  2003,  NeoMedia  and Brooks
Automation reached a settlement under which NeoMedia will pay the amount owed to
Brooks  Automation over a period of  approximately  15 months,  with the payment
amount increasing after three months.  NeoMedia had a liability of approximately
$35,000 relating to this matter as of June 30, 2003.

      On February 6, 2003, Allen Norton & Blue, P.A., filed a complaint  against
NeoMedia  seeking payment of  approximately  $25,000 in past due legal services.
NeoMedia is attempting to negotiate  settlement of this issue out of court prior
to the court date. NeoMedia had a liability of approximately $23,000 relating to
this matter as of June 30, 2003.

      On April 18, 2003, a former  participant in NeoMedia's  2001  self-insured
health plan sued  NeoMedia  to recover  approximately  $46,000 in unpaid  health
claims from 2001.  NeoMedia is attempting to negotiate


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<PAGE>

a settlement prior to the court date. NeoMedia had accrued the claims related to
this suit in the amount of approximately $40,000 as of June 30, 2003.

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

      None.

ITEM 3.  DEFAULT UPON SENIOR SECURITIES

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

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

      None.

ITEM 5.  OTHER INFORMATION

      None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

      (A) EXHIBITS:

Exhibit No.   Description                                        Location
-----------   -------------------------------------              --------
31.1          Certification by Chief Executive                   Provided
              Officer pursuant to 15 U.S.C. Section              herewith
              7241, as adopted pursuant to Section
              302 of the Sarbanes-Oxley Act of 2002

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

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

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

99.5          Letter of intent to purchase Secure                Provided
              Source Technologies                                herewith

      (B)   REPORTS ON FORM 8-K:

      NeoMedia filed a report on Form 8-K on April 24, 2003,  reporting that: i)
the  Board of  Directors  had  approved  the  payment  in full of  approximately
$154,000 of liabilities  owed by the Company to Charles W. Fritz,  the Company's
Founder  and  Chairman  of the  Board of  Directors,  through  the  issuance  of
15,445,967  shares of common  stock,  and ii) the  Company  had sold  25,000,000
shares of its common stock,  par value $0.01, in a private  placement at a price
of $0.01 per share to William E. Fritz,  an outside  director.  The Company also


                                       22
<PAGE>

granted 25,000,000  warrants to purchase shares of the Company's common stock at
$0.01 per share to William Fritz as part of the purchase.


                                       23
<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:             August 13, 2003      By: /s/ Charles T. Jensen
                                       ---------------------------------------
                                       Charles T. Jensen, President, Acting
                                       Chief Executive Officer, Chief
                                       Operating Officer, and Director


Date:             August 13, 2003      By: /s/ David A. Dodge
                                       ------------------------------------
                                       David A. Dodge, Vice President,
                                       Chief Financial Officer, and Controller


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