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

                                   FORM 10 - Q
                                   (Mark One)
                [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002

                                       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 600, 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  November  8, there  were  25,141,298  outstanding  shares of the
issuer's Common Stock.








                                       1
<PAGE>

<TABLE>
<CAPTION>
                                         PART I -- FINANCIAL INFORMATION

       ITEM 1.  FINANCIAL STATEMENTS

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

                                                                                SEPTEMBER 30,     DECEMBER 31,
                                                                                   2002              2001
                                                                                   ----              ----
ASSETS                                                                          (Unaudited)         (Audited)
<S>                                                                             <C>              <C>
Current assets:
   Cash and cash equivalents..............................................      $         9      $        134
   Trade accounts receivable, net of allowance for doubtful
      account of $81 in 2002 and $65 in 2001..............................            3,230             2,583
   Costs and estimated earnings in excess of billings on
      uncompleted contracts...............................................                6                43
   Inventories............................................................              141               197
   Assets held for sale...................................................              ---               210
   Prepaid expenses and other current assets..............................              786               582
                                                                                -----------      ------------
         Total current assets.............................................            4,172             3,749

Property and equipment, net...............................................              121               205
Capitalized patents, net..................................................            2,311             2,500
Capitalized and purchased software costs, net.............................              184             1,828
Other long-term assets....................................................              677               757
                                                                                -----------      ------------

         Total assets.....................................................      $     7,465      $      9,039
                                                                                ===========      ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable.......................................................      $     3,939      $      2,886
   Amounts due under financing agreements.................................            2,375             2,283
   Liabilities in excess of assets of discontinued business unit..........            1,489               ---
   Accrued expenses.......................................................            2,351             1,922
   Current portion of long-term debt......................................              160               149
   Notes payable..........................................................              785               750
   Sales taxes payable....................................................              356               135
   Billings in excess of costs and estimated earnings on
      uncompleted contracts...............................................                2                13
   Deferred revenues......................................................              913               767
   Other..................................................................               10                 7
                                                                                -----------      ------------

         Total current liabilities........................................           12,380             8,912

Long-term debt, net of current portion....................................              268               390
                                                                                -----------      ------------

         Total liabilities................................................           12,648             9,302
                                                                                -----------      ------------

Shareholders' equity:
   Preferred stock, $.01 par value, 25,000,000 shares authorized, none issued
      and outstanding in 2002, 452,489 issued and outstanding in 2001.....              ---                 5
   Additional paid-in capital, preferred stock............................              ---               878
   Common stock, $.01 par value, 200,000,000 shares authorized,
      26,782,724 shares issued and 25,141,298 outstanding in 2002
      and 17,446,343 shares issued and 15,804,917 outstanding in 2001.....              251               188
   Additional paid-in capital.............................................           65,237            63,029
   Stock subscription receivable..........................................              ---             (240)
   Deferred stock-based compensation......................................             (47)               ---
   Accumulated deficit....................................................         (69,845)          (63,344)
   Treasury stock, at cost, 201,230 shares of common stock..................          (779)             (779)
                                                                                -----------      ------------
         Total shareholders' equity.......................................          (5,183)             (263)
                                                                                -----------      ------------

            Total liabilities and shareholders' equity....................      $     7,465      $      9,039
                                                                                ===========      ============

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

</TABLE>
                                                      2
<PAGE>

<TABLE>
<CAPTION>

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

                                                                                     NINE MONTHS ENDED SEPTEMBER 30,

                                                                                      2002           2001
                                                                                      ----           ----
<S>                                                                              <C>             <C>
NET SALES:
   License fees..............................................................    $         303   $        522
   Resale of software and technology equipment and service fees..............            8,149          3,268
                                                                                 -------------   ------------
         Total net sales.....................................................            8,452          3,790
                                                                                 -------------   ------------
COST OF SALES:
   License fees..............................................................              764          1,996
   Resale of software and technology equipment and service fees..............            6,607          2,737
                                                                                 -------------   ------------
         Total cost of sales.................................................            7,371          4,733
                                                                                 -------------   ------------

GROSS PROFIT (LOSS)..........................................................            1,081          (943)

Sales and marketing expenses.................................................              719          2,100
General and administrative expenses..........................................            3,556          3,409
Research and development costs...............................................              683            280
Loss on impairment of assets.................................................            1,003          2,871
Loss on Digital:Convergence license contract.................................              ---          7,354
                                                                                 -------------   ------------

Loss from operations.........................................................          (4,880)       (16,957)
Interest expense (income), net...............................................               99           (30)
                                                                                 -------------   ------------

Loss from continuing operations..............................................          (4,979)       (16,927)
Discontinued operations (Note 1):
     Loss from operations of discontinued business unit......................              ---        (3,653)
     Loss on disposal of discontinued business unit, including provision of
       $424 in 2001 for operating losses during phase-out period.............          (1,523)        (3,197)
                                                                                 -------------   ------------

NET LOSS.....................................................................    $     (6,502)   $   (23,777)
                                                                                 =============   ============

NET LOSS PER SHARE FROM CONTINUING OPERATIONS-
     BASIC AND DILUTED.......................................................    $      (0.24)   $     (1.12)
                                                                                 =============   ============

NET LOSS PER SHARE FROM DISCONTINUED OPERATIONS-
     BASIC AND DILUTED.......................................................    $      (0.07)   $     (0.45)
                                                                                 =============   ============

NET LOSS PER SHARE--BASIC AND DILUTED.........................................   $      (0.31)   $     (1.57)
                                                                                 =============   ============

Weighted average number of common shares--basic and diluted ..................      20,736,080     15,142,312
                                                                                 =============   ============

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

</TABLE>
                                                      3
<PAGE>


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

                                                                               THREE MONTHS ENDED SEPTEMBER 30,

                                                                                      2002           2001
                                                                                      ----           ----
<S>                                                                                <C>           <C>
NET SALES:
   License fees..............................................................    $         150   $         92
   Resale of software and technology equipment and service fees..............            3,254            816
                                                                                 -------------   ------------
         Total net sales.....................................................            3,404            908
                                                                                 -------------   ------------
COST OF SALES:
   License fees..............................................................               80            668
   Resale of software and technology equipment and service fees..............            2,742            743
                                                                                 -------------   ------------
         Total cost of sales.................................................            2,822          1,411
                                                                                 -------------   ------------
GROSS PROFIT (LOSS)..........................................................              582          (503)

Sales and marketing expenses.................................................              207            721
General and administrative expenses..........................................              996            818
Research and development costs...............................................              150            137
Loss on impairment of assets.................................................              ---          2,871

Loss from operations.........................................................            (771)        (5,050)
Interest expense (income), net...............................................                2             22
                                                                                 -------------   ------------
Loss from continuing operations..............................................            (773)        (5,072)
Discontinued operations (Note 1):
     Loss from operations of discontinued business unit......................              ---        (1,041)
     Loss on disposal of discontinued business unit, including provision of
       $424 in 2001 for operating losses during phase-out period                           ---        (3,197)
                                                                                 -------------   ------------
NET LOSS.....................................................................    $       (773)   $    (9,310)
                                                                                 =============   ============

NET LOSS PER SHARE FROM CONTINUING OPERATIONS-
     BASIC AND DILUTED.......................................................    $      (0.03)   $     (0.33)
                                                                                 =============   ============

NET LOSS PER SHARE FROM DISCONTINUED OPERATIONS-
     BASIC AND DILUTED.......................................................    $         ---   $     (0.27)
                                                                                 =============   ============

NET LOSS PER SHARE--BASIC AND DILUTED.........................................   $      (0.03)   $     (0.60)
                                                                                 =============   ============

Weighted average number of common shares--basic and diluted ..................      22,979,755     15,570,693
                                                                                 =============     ==========

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

</TABLE>
                                                      4
<PAGE>

<TABLE>
<CAPTION>
                  NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                                                               NINE MONTHS ENDED SEPTEMBER 30,
                                                                                     2002          2001
                                                                                     ----          ----
<S>                                                                              <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................................................   $    (6,502)   $  (23,777)
Adjustments to reconcile net loss to net cash used in operating activities:
   Depreciation and amortization..............................................            938         2,932
   Loss on disposal of discontinued business unit.............................          1,523         2,773
   Loss on impairment of assets...............................................          1,003         2,871
   Effect of Digital Convergence write-off....................................            ---         7,354
   Preferred stock issued to pay advertising expense..........................            ---           882
   Expense associated with warrant repricing..................................             38           845
   Stock options and warrants granted for services............................            383            94
   Changes in operating assets and liabilities:
      Trade accounts receivable...............................................          (610)         1,299
      Prepaid - Digital:Convergence...........................................          ---             118
      Other current assets....................................................            491         (167)
      Accounts payable, amounts due under financing agreements, liabilities in
          excess of assets of discontinued business unit, and accrued expenses          1,916         (235)
      Deferred revenue........................................................            148           174
      Other current liabilities...............................................              3          (11)
                                                                                 ------------   -----------
         Net cash used in operating activities................................          (669)       (4,848)
                                                                                 ------------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalization of patent costs, software development and purchased
  intangible assets                                                                      (24)       (2,939)
(Increase)/decrease in value of life insurance policies.......................             80           (3)
Acquisition of property and equipment.........................................            ---          (81)
                                                                                 ------------   -----------
         Net cash used in investing activities................................             56       (3,023)
                                                                                 ------------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock
     net of $0 issuance costs in 2002 and $10 in 2001.........................            198         1,637
Net proceeds from exercise of stock warrants..................................             43         1,034
Net proceeds from exercise of stock options...................................            272           139
Net proceeds from release of restricted cash held for line of credit..........            ---           750
Net proceeds from issuance of notes payable...................................             21           500
Issuance of stock-based deferred compensation.................................           (46)           ---
Repayments on notes payable and long-term debt................................            ---         (352)
                                                                                 ------------   -----------
         Net cash provided by financing activities............................            488         3,708
                                                                                 ------------   -----------
NET INCREASE (DECREASE) IN CASH
   AND CASH EQUIVALENTS.......................................................          (125)       (4,163)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR..................................            134         4,453
                                                                                 ------------   -----------
CASH AND CASH EQUIVALENTS, SEPTEMBER 30, 2001.................................   $          9   $       290
                                                                                 ============   ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
   Interest paid/(received) during the nine months ended September 30 (net)...   $       (66)   $      (31)
   Non-cash investing and financing activities:
     Net assets acquired as part of Qode purchase agreement
         in exchange for common stock and forgiveness of note.................            ---         1,800
     Issuance costs for shares issued through private placements..............            ---            10
     Shares earned by Qode under purchase agreement...........................            ---            13
     Common stock issued to settle debt.......................................             27           ---
     Cancellation of common stock issued
         in 2001 to offset stock subscription receivable......................          (240)           ---
     Net effect of issuance and subsequent
         cancellation of common stock underlying notes receivable ............          (190)
       Accounts payable converted to note payable.............................            ---           170


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

</TABLE>

                                                     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. The
accompanying  unaudited condensed  consolidated  financial  statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the  information  and  footnotes  required by generally  accepted  accounting
principles  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,
2001.  In the opinion of  management,  these  condensed  consolidated  financial
statements  reflect all adjustments  which are of a normal  recurring nature and
which are necessary to present  fairly the  consolidated  financial  position of
NeoMedia as of September 30, 2002,  and the results of operations for the three-
and nine-month periods ended September 30, 2002 and 2001, and cash flows for the
nine-month  period ended  September 30, 2002 and 2001. The results of operations
for  the  three-  and  nine-month  periods  ended  September  30,  2002  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 Service
(NISS) and NeoMedia Consulting and Integration Service (NCIS).

         NEOMEDIA INTERNET SWITCHING SERVICE (NISS)

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

         NEOMEDIA CONSULTING AND INTEGRATION SERVICES (NCIS)

         NCIS (systems  integration  service offerings) 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 identify  prospects for custom  applications
         based on the Company'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.

RECLASSIFICATIONS

Certain  amounts in the 2001 condensed  consolidated  financial  statements have
been reclassified to conform to the 2002 presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

      On  July  21,  2001,  the  Financial  Accounting  Standards  Board  issued
Statements of Financial  Accounting  Standards No. 141 (SFAS No. 141), "Business
Combinations",  and No.  142  (SFAS No.  142),  "Goodwill  and Other  Intangible
Assets." SFAS No. 141 addresses financial  accounting and reporting for goodwill
and other intangible  assets acquired in a business  combination at acquisition.
SFAS No. 141  requires  the  purchase  method of  accounting  to be used for all
business  combinations  initiated after June 30, 2001 and  establishes  specific
criteria for the recognition of intangible assets separately from goodwill; SFAS
No. 142  addresses  financial  accounting  and  reporting for goodwill and other


                                       6
<PAGE>

intangible  assets subsequent to their  acquisition.  SFAS No. 142 provides that
goodwill and intangible  assets which have  indefinite  useful lives will not be
amortized,  but rather will be tested at least annually for impairment.  It also
provides that  intangible  assets that have finite useful lives will continue to
be amortized over their useful lives,  but those lives will no longer be limited
to forty years.  SFAS No. 141 is effective for all business  combinations  after
June 30, 2001. The provisions of SFAS No. 142 are effective beginning January 1,
2002. The Company has implemented the provisions of SFAS No. 141 and No. 142 and
has concluded that the adoption does not have a material impact on the Company's
financial statements.

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

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

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

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

PURCHASE AND DISPOSAL OF QODE.COM, INC.

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

      The Company  accounted  for this  purchase  using the  purchase  method of
accounting  in  accordance  with  Accounting  Principles  Board  Opinion No. 16,
"Business Combinations". The excess fair market value of the net assets acquired



                                       7
<PAGE>


over the  purchase  price was  allocated  to reduce  proportionately  the values
assigned to  noncurrent  assets.  The  accompanying  consolidated  statements of
operations  include the operations of Qode from March 1, 2001, through September
30, 2002.





                                       8
<PAGE>


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


        Original Shares: 274,699 issued at $4.95                     1,360,000
        Contingent shares: 35,074 issued at $0.39                    $  13,000
                                                                --------------
          Total purchase price                                     $ 1,373,000
                                                                --------------
        PURCHASE PRICE ALLOCATED AS FOLLOWS:
        ASSETS PURCHASED
          Trade receivables                                          $   5,000
          Inventory                                                    144,000
          Prepaid expenses                                              49,000
          Furniture & fixtures                                         913,000
          Capitalized development costs                              2,132,000
          Capitalized software                                          83,000
          Refundable deposits - non-current                             38,000

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

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

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

CONTINGENT CONSIDERATION

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

      At the end of each of certain  interim periods as outlined in the purchase
agreement,  the number of  cumulative  shares  earned by Qode.com is  calculated
based on  revenue  and page views and the shares  are  released.  The  resulting
financial impact on NeoMedia is a proportionate increase in the long-term assets
acquired from Qode, with a corresponding  increase in depreciation  expense from
that point forward.  The amount of the increase in long-term assets is dependent
upon the number of shares released from escrow, as well as the value of NeoMedia
stock at the time of measurement.  The first such  measurement  date was July 1,
2001. At the end of the 12-month  measurement  period  (February 28, 2002),  the
number of shares  issued to Qode under the earn-out  was  309,773,  allocated as
outlined in the table above.  The remaining  1,641,426  shares are being held in
escrow  pending  the results of  negotiations  between the Company and Qode with
respect to a disagreement  over the  performance of, and investment in, the Qode
business  unit for the period  March 1, 2001 through  February  28,  2002.  As a
result, all such shares may be released to Qode.


                                       9
<PAGE>


INTANGIBLE ASSETS

      Intangible assets acquired from Qode.com include:

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

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

OTHER

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

DISPOSAL OF QODE BUSINESS UNIT

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

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

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

IMPAIRMENT OF PAPERCLICK ASSET

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

OTHER EVENTS

      During  January  2002,  certain  of the  Company'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, the Company filed its response  claiming that the Company 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.

      During  January  2002,  NeoMedia  announced  that it had  entered  into an
agreement  with  Baniak  Pine and  Gannon,  a law firm  specializing  in  patent
licensing  and  litigation,  under  which the firm will  represent  NeoMedia  in
seeking out potential licensees of the Company's patent portfolio.

      During  February  2002,  the Company sold 19 million  shares of its common
stock to five individuals and two  institutional  unrelated parties at $0.17 per
share in exchange for promissory  notes maturing at the earlier of i) August 12,
2002, or ii) 30 days from  registration of the shares.  Assuming full payment of
the notes,  proceeds from this transaction would have been $3,230,000,  of which
$190,000  par value was paid  during the first  quarter of 2002.  During  August
2002, the


                                       10
<PAGE>

notes matured without  payment,  and the Company  subsequently  cancelled the 19
million shares issued in connection  with such notes.  The Company has accrued a
liability  in the third  quarter of  $190,000  relating to the par value paid in
connection with the issuance of the shares.

      During  February 2002, the Company issued  1,646,987  shares of its common
stock to two separate  vendors as settlement of past due  liabilities and future
payments relating to equipment leases.

      During  March 2002,  the Company  repriced 1.2 million of its common stock
warrants  for a period of six months.  During the term of the warrant  repricing
program, participating holders are entitled to exercise qualified warrants at an
exercise  price per share  equal to the  greater  of (1) $0.12 or (2) 50% of the
last sale price of shares of Common  Stock on the  OTCBB,  on the  trading  date
immediately preceding the date of exercise.  Approximately 370,000 warrants were
exercised  in  connection   with  the  program,   and  the  Company   recognized
approximately  $38,000  in expense  relating  to the  repricing  during the nine
months ended September 30, 2002.

      On March 20, 2002, IOS Capital,  Inc. filed a summons seeking full payment
of  approximately  $38,700  relating  to past due and future  payments  under an
office  equipment  lease.  The Company  returned the  equipment  and settled the
liability for cash payments totaling $30,000.

      During  April 2002,  the Company  repriced 7.4 million of its common stock
options held by employees,  consultants and advisors for a period of six months.
During the term of the  option  repricing  program,  participating  holders  are
entitled to exercise subject options at an exercise price per share equal to the
greater of (1) $0.12 or (2) 50% of the last sale price of shares of Common Stock
on the OTCBB,  on the trading date  immediately  preceding the date of exercise.
Shortly after the  announcement of the repricing  program,  the market price for
the  Company's  common  stock fell below  $0.12,  and has not closed above $0.12
since. As a result, no options were exercised under the terms of the program and
the Company did not  recognize  any expense  relating to the  repricing  program
during the nine months ended September 30, 2002 due to immaterial  effect on the
financial statements.

      On May 16, 2002, the Company received notification from the Nasdaq Listing
Qualifications  Panel that its shares were delisted  effective May 17, 2002, due
to failure to meet  either the  minimum  net  tangible  assets  ($2,000,000)  or
minimum  stockholders'  equity ($2,500,000)  criteria for continued listing. The
Company's  shares  are  now  trading  on  the  Over-the-Counter  Bulletin  Board
("OTCBB").

      During May 2002, the Company  settled its lawsuit with William Goins,  its
former  President and Chief  Operating  Officer (see "Legal  Proceedings").  The
Company is obligated to make cash payments of $90,000  directly to the plaintiff
from 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,  Mr.  Goins was granted  360,000  options to purchase
shares of NeoMedia  common stock at an exercise  price of $0.08.  These  options
were valued at approximately  $36,000.  The Company had a remaining liability of
approximately $72,000 as of September 30, 2002.

      During  May  2002,  the  Company  entered  into an  Equity  Line of Credit
Agreement with Cornell Capital  Partners LP ("Cornell").  Under the terms of the
agreement,  Cornell has agreed to purchase up to $5.0 million of NeoMedia common
stock over the next two years at the Company's discretion.

      During May 2002, the Company granted a personal, worldwide, non-exclusive,
limited   intellectual   property   licensing   agreement  to  Brandkey  Systems
Corporation.  Brandkey will pay the Company $50,000  upfront  licensing fee plus
2.5 % of all royalty-based  revenues earned by Brandkey,  with minimum royalties
of $25,000  in 2003,  $50,000 in 2004,  and  $75,000 in 2005 and after.  Royalty
revenue earned by the Company may not exceed $1.0 million in any given year. The
Company  recognized  approximately  $16,000 in revenue relating to this contract
during the nine months ended September 20, 2002.

      On June 6, 2002, the Company held its annual meeting of  shareholders,  at
which shareholders  approved  proposals to: i.) amend NeoMedia's  Certificate of
Incorporation  to increase the number of shares of authorized  common stock, par
value $.01, from 50,000,000 to 200,000,000  shares and to increase the number of
shares of  authorized  preferred  stock,  par value $0.01,  from  10,000,000  to
25,000,000;  and ii.)  implement  the 2002 Stock  Option  Plan,  under which the
Company is authorized to grant to employees,  directors,  and  consultants up to
10,000,000 options to purchase shares of its common stock.


                                       11
<PAGE>


      On June 26, 2002,  the Company  announced  that its  chairman,  Charles W.
Fritz, had been granted a 90-day leave of absence from his  responsibilities  as
Chief Executive  Officer by the company's Board,  which,  concurrently,  elected
Charles T. Jensen  president  and Chief  Operating  Officer,  and also named him
acting CEO. The Company also  announced  that it had promoted  David Dodge,  its
Controller,  to Vice  President and Chief  Financial  Officer.  On September 23,
2002, Mr. Fritz officially  resigned his duties as Chief Executive  Officer.  He
will remain Chairman of the Board of Directors and a part-time  executive of the
Company. Mr. Jensen has assumed the role of acting CEO.

      On August 9, 2002, the Company settled its lawsuit with 2150 Western Court
L.L.C.,  the property manager for the Company's Lisle, IL, office, in which 2150
Western Court L.L.C. was seeking payment of past due rent plus possession of the
premises. The settlement calls for past due rents of approximately $72,000 to be
paid over a 15-month period, as well as reduced rents for the period August 2002
through March 2003. As additional  consideration in the settlement,  the Company
issued  900,000  shares of its common  stock to 2150 Western  Court  L.L.C.  The
Company had a liability of  approximately  $61,000 relating to this matter as of
September 30, 2002.

2.    LIQUIDITY AND CAPITAL RESOURCES

      The  accompanying   unaudited  financial  statements  have  been  prepared
assuming  the  Company  will  continue  as a  going  concern.  Accordingly,  the
financial  statements do not include any adjustments  that might result from the
Company's  inability  to  continue  as a going  concern.  Based on current  cash
balances  and  operating  budgets,  the  Company  believes it will need to raise
operating capital in the next 30 days. If the Company's  financial resources are
insufficient,  the Company may be forced to seek  protection  from its creditors
under the United States Bankruptcy Code or analogous state statutes unless it is
able to engage in a merger or other corporate finance  transaction with a better
capitalized entity. The Company cannot predict whether additional financing will
be available, its form, whether equity or debt, or be in another form, or if the
Company will be successful in identifying  entities with which it may consummate
a merger or other corporate finance transactions.

3.    GOING CONCERN

      The accompanying consolidated financial statements have been prepared on a
going  concern  basis,  which  contemplates  the  realization  of assets and the
satisfaction of liabilities in the normal course of business.

      Through  September  30,  2002,  the  Company has not been able to generate
significant  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 the
Company 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 an offering of its common stock or alternative
sources of financing.  However,  no assurances can be given as to the success of
these  plans.  The  consolidated   financial   statements  do  not  include  any
adjustments that might result from the outcome of these uncertainties.

4.    SUBSEQUENT EVENTS

      On October 28, 2002,  the Company  settled its lawsuit with Wachovia Bank,
N.A., the owner of the building in which the Company's  headquarters is located.
Wachovia was seeking  payment of past due rents under its lease  agreement  with
the  Company.  The  settlement  calls  for cash  payments  of past due  rents of
approximately  $250,000 over a period of 16 months. The Company will also vacate
approximately 70% of the unused space in its headquarters,  and the rent for the
remainder of the lease, which expires in January 2004, will be reduced according
to square  footage  used.  The Company has accrued a liability of  approximately
$250,000 relating to this matter as of September 30, 2002.

      On November  12,  2002,  the Company  settled the lawsuit  with its former
General  Counsel over payment of the 2000  executive  incentive,  severance  and
unpaid  vacation days in the amount of  approximately  $154,000.  The settlement
calls for cash  payments  totaling  approximately  $100,000  over a period of 10
months,  plus 250,000 vested options to purchase shares of the Company's  common


                                       12
<PAGE>


stock at an exercise price of $0.01 and a term of five years.

     During  November 2002, the Company issued  Convertible  Secured  Promissory
Notes with an aggregate face value of $60,000 to 3 separate  parties,  including
Charles W. Fritz, Chairman of the Board of Directors;  William E. Fritz, outside
director; and James J. Keil, outside director. The notes bear interest at a rate
of 15% per annum,  and mature at the  earlier of i.) four  months,  or ii.) that
date the shares underlying the Cornell Equity Line of Credit are registered with
the SEC.  The notes are  convertible,  at the option of the holder,  into either
cash or shares of the Company's  common stock at a 30% discount to either market
price upon closing,  or upon  conversion,  whichever is lower.  The Company will
also grant to the holders an additional  192,000 shares of the Company's  common
stock and 60,000  warrants to purchase  shares of the Company's  common stock at
$0.03 per share,  with a term of three years. In the event the Company  defaults
on the note, the Company will issue an additional 1,404,330 shares of its common
stock to the note holders.  The notes are secured by the Company's  intellectual
property,  which  is  subject  to  first  lien  by  AirClic,  Inc.  (see  "Legal
Proceedings").


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


                                       13
<PAGE>


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

OVERVIEW

      Beginning in the second quarter of 2002, the Company's 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 the Company's end-users,  competitive  advantage for their business partners
and return-on-investment for their investors. To this end, the Company signed an
intellectual  property  license with Brandkey  Systems  Corporation,  the fourth
intellectual  property  license into which the Company has entered.  The Company
also  continued its movement into the Storage Area Network (SAN) market  through
its NeoMedia Consulting and Integration Services (NCIS) business unit.

      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.


RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AS COMPARED
TO THE NINE MONTHS ENDED SEPTEMBER 30, 2001

      NET SALES.  Total net sales for the nine months ended  September  30, 2002
were $8.5 million, which represented a $4.7 million, or 124%, increase from $3.8
million for the nine months ended  September 30, 2001.  This increase  primarily
resulted from revenues  relating to the Company's  newly created SAN practice in
2002. The Company will continue to pursue  additional  sales of SAN products and
services,  and to the extent that such sales can be made,  the  Company  expects
total net sales to more  closely  resemble the results for the first nine months
of 2002, rather than the first nine months of 2001.

      LICENSE  FEES.  License  fees were $0.3  million for the nine months ended
September  30,  2002,  a decrease  of $0.2  million or 40%,  compared  with $0.5
million for the nine months ended  September  30, 2001.  The decrease was due to
lower sales of internally  developed  software licenses in 2002. Demand for such
licenses has  historically  fluctuated from year to year. The Company intends to
continue to increase sales efforts of its internally developed software licenses
in the future.

      RESALES OF SOFTWARE AND TECHNOLOGY  EQUIPMENT AND SERVICE FEES. Resales of
software and technology equipment and service fees increased by $4.8 million, or
145%, to $8.1 million for the nine months ended  September 30, 2002, as compared
to $3.3 million for the nine months ended  September  30,  2001.  This  increase
primarily  resulted  from revenues  relating to the Company's  newly created SAN
practice in 2002.  The Company will continue to pursue  additional  sales of SAN
products  and  services.

      COST OF SALES.  Cost of license  fees was $0.8 million for the nine months
ended  September  30, 2002, a decrease of $1.2 million,  or 150%,  compared with
$2.0 million for the nine months ended September 30, 2001. The decrease resulted
from  reduced  amortization  expense of  capitalized  development  costs in 2002
relating to the  PaperClick,  MLM/Affinity,  and Qode products that were written
off during  2002.  Cost of resales was $6.6  million  for the nine months  ended
September  30, 2002, an increase of $3.9  million,  or 144%,  compared with $2.7
million for the nine months ended September 30, 2001. The increase resulted form
increased resales in 2002 compared with 2001. Cost of resales as a percentage of
related resales was 81% in 2002 and 84% in 2001. The Company expects the cost of
resales as a percentage of related  resales to remain  relatively  stable in the
next 12 months.


                                       14
<PAGE>


      GROSS  PROFIT.  Gross  profit was $1.1  million for the nine months  ended
September  30,  2002,  an increase of $2.0  million,  or 222%,  compared  with a
negative  gross profit of ($0.9) million in 2001. The increase was due to higher
SAN-related sales in 2002, as well as lower software  amortization costs in 2002
due to the write-off of  Qode-related  assets at the end of 2001, and PaperClick
assets in the second quarter of 2002.

      SALES AND  MARKETING.  Sales and marketing  expenses were $0.7 million for
the nine months ended September 30, 2002,  compared to $2.1 million for the nine
months  ended  September  30,  2001,  a decrease  of $1.4  million or 67%.  This
decrease  resulted from a reduction in sales and marketing  personnel  following
the Company's cost-reduction  initiative started in the second half of 2001. The
Company does not expect sales and marketing  expenses to fluctuate  dramatically
from 2002 levels over the next 12 months.

      GENERAL AND ADMINISTRATIVE.  General and administrative expenses were $3.6
million for the nine months ended  September  30, 2002 compared with general and
administrative  expenses of $3.4 million for the nine months ended September 30,
2001, an increase of $0.2 million or 6%. The increase  resulted  primarily  from
increased  legal and  professional  service.  The  Company  expects  general and
administrative expense to decrease slightly in the next 12 months due to reduced
professional  service expenses,  lease  restructuring,  and other cost reduction
efforts.

      RESEARCH AND DEVELOPMENT. During the nine months ended September 30, 2002,
NeoMedia  charged to expense  $0.7 million of research  and  development  costs,
compared to $0.3  million for the nine  months  ended  September  30,  2001,  an
increase of $0.4 million or 133%. The increase is primarily due to the fact that
the Company was  capitalizing the majority of its product  development  costs in
2001 as the Qode Commerce Solution was being implemented. The implementation was
cancelled and the product  discontinued in the third quarter of 2001. During the
third quarter of 2002,  development  resources were devoted  primarily to system
maintenance.  The Company expects  research and  development  costs will decline
over the next 12 months.

      LOSS ON IMPAIRMENT OF ASSETS.  During the nine months ended  September 30,
2002, the Company  recognized a loss on impairment of assets of $1.0 million for
the  write-off   capitalized   development  costs  relating  to  its  PaperClick
physical-world-to-internet  software. Due to capital constraints, the Company is
not  currently  able  to  devote  full-time   resources  and  infrastructure  to
commercializing  the  technology.  The  Company  intends to  re-focus  sales and
marketing  efforts  surrounding  the  product  upon the  receipt  of  sufficient
capital. The Company does not expect any additional losses from asset impairment
in the next 12 months.

      WRITE-OFF  OF  DIGITAL  CONVERGENCE  LICENSE  CONTRACT.  During the second
quarter of 2001,  the Company took a $7.4 million  charge to income to write off
the net assets  associated with the Digital  Convergence  intellectual  property
license  contract.  There were no charges  related to the  contract in 2002.  No
charges are expected in the next 12 months.

      INTEREST   EXPENSE/(INCOME),   NET.  Interest   expense/(income)  consists
primarily of interest  paid to creditors  as part of financed  purchases,  notes
payable and NeoMedia's asset-based collateralized line of credit net of interest
earned on cash equivalent investments. Interest expense increased by $129,000 to
$99,000 for the nine months  ended  September  30, 2002 from income of $(30,000)
for the nine months  ended  September  30, 2001,  due to lower cash  balances in
2002,  as well as interest  charges in 2002  relating to notes  payable not held
during 2001.  The Company  expects net interest  expense  similar to 2002 levels
over the next 12 months, due to capital constraints and borrowing costs.

      LOSS FROM CONTINUING  OPERATIONS.  The loss from continuing operations for
the nine months ended September 30, 2002 was $5.0 million,  which  represented a
$12.0  million,  or 71% decrease  from a $17.0  million loss for the nine months
ended September 30, 2001. The decrease resulted  primarily from the $7.4 million
write-off of the Digital  Convergence license contract during the second quarter
of  2001,  combined  with a loss on  impairment  of the  Company's  MLM/Affinity
product line of $2.9 million in 2001 and decrease of sales and marketing expense
by $1.4 million due to reduction of sales force.

      LOSS  FROM  OPERATIONS  OF  DISCONTINUED   BUSINESS  UNITS.   The  Company
discontinued  operations of its Qode business unit in 2001,  resulting in a loss
from  operations  of  discontinued  business  units of $3.7 million for the nine
months ended  September 30, 2001.  The business  unit's assets were purchased in
March 2001 and the  implementation  was cancelled  during the second  quarter of
2001. The Company does not expect any charges relating to the Qode business unit
in the next 12 months.

                                       15
<PAGE>


      LOSS ON DISPOSAL OF DISCONTINUED  BUSINESS UNITS. During the third quarter
of  2001,  the  Company  discontinued  operations  of its  Qode  business  unit,
resulting in a loss on disposal of  discontinued  business unit of $3.2 million.
The  remaining  Qode  system  assets  were held for sale  subject to a letter of
intent with the Finx Group,  Inc. As of September  30, 2001,  December 31, 2001,
and March 31, 2002, the Company recorded on its  consolidated  balance sheet net
assets held for sale in the amount of $210,000, which was the estimated value to
be received by the Company  from the Finx Group in exchange for the Qode assets.
During the second quarter of 2002, the Finx group withdrew its letter of intent.
As a result,  during the nine  months  ended  September  30,  2002,  the Company
recognized an additional loss on disposal of discontinued  business unit of $1.5
million to write off the  remaining  Qode-related  assets.  The Company does not
expect any charges relating to the Qode business unit in the next 12 months.

      NET LOSS.  The net loss for the nine months ended  September  30, 2002 was
$6.5 million,  which  represented a $17.3 million,  or 73% decrease from a $23.8
million  loss for the  nine  months  ended  September  30,  2001.  The  decrease
primarily  resulted from the $7.4 million  write-off of the Digital  Convergence
license  contract during the second quarter of 2001, a loss on impairment of the
Company's  MLM/Affinity  product  line  of  $2.9  million  in  2001,  loss  from
discontinued  Qode  operations  of $6.9  million  in 2001,  and a  reduction  in
overhead  expenses  resulting  from a reduction in force  initiated in the third
quarter of 2001.


RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AS COMPARED
TO THE THREE MONTHS ENDED SEPTEMBER 30, 2001

      NET SALES.  Total net sales for the three months ended  September 30, 2002
were $3.4 million, which represented a $2.5 million, or 278%, increase from $0.9
million for the three months ended September 30, 2001.  This increase  primarily
resulted from revenues  relating to a $1.7 million  equipment and software order
in 2002.  The  Company  intends to continue to pursue  additional  software  and
equipment  sales, as well as sales of its SAN products and services,  and to the
extent that such sales can be made, the Company expects future net sales to more
closely resemble the results for the first nine months of 2002,  rather than the
first nine months of 2001.

      LICENSE  FEES.  License  fees were $0.2 million for the three months ended
September  30,  2002,  an increase of $0.1 million or 100%,  compared  with $0.1
million for the three months ended  September 30, 2001.  The increase was due to
higher sales of internally  developed software licenses in 2002. Demand for such
licenses has  historically  fluctuated  from year to year.  The Company  intends
continue to increase sales efforts of its internally developed software licenses
in the future.

      RESALES OF SOFTWARE AND TECHNOLOGY  EQUIPMENT AND SERVICE FEES. Resales of
software and technology equipment and service fees increased by $2.5 million, or
313%, to $3.3 million for the three months ended September 30, 2002, as compared
to $0.8 million for the three months ended  September  30, 2001.  This  increase
primarily  resulted  from  revenues  relating to a $1.7  million  equipment  and
software  order in 2002.  The Company  intends to continue to pursue  additional
software and equipment sales, as well as sales of its SAN products and services.

      COST OF SALES.  Cost of license fees was $0.1 million for the three months
ended September 30, 2002, a decrease of $0.6 million, or 86%, compared with $0.7
million for the three months ended  September  30, 2001.  The decrease  resulted
from  reduced  amortization  expense of  capitalized  development  costs in 2002
relating to the  PaperClick,  MLM/Affinity,  and Qode products that were written
off during  2002.  Cost of resales was $2.7  million  for the nine months  ended
September  30, 2002, an increase of $2.0  million,  or 286%,  compared with $0.7
million for the nine months ended September 30, 2001. The increase resulted form
increased resales in 2002 compared with 2001. Cost of resales as a percentage of
related  resales for the three months ended September 30 was 84% in 2002 and 91%
in 2001.  This decrease is primarily due to a higher sales mix of  higher-margin
equipment, software, and services in 2002.

      GROSS  PROFIT.  Gross  profit was $0.6  million for the three months ended
September  30,  2002,  an increase of $1.1  million,  or 220%,  compared  with a
negative  gross profit of ($0.5) million in 2001. The increase was due to higher
SAN-related sales in 2002, as well as lower software  amortization costs in 2002
due to the write-off of  Qode-related  assets at the end of 2001, and PaperClick
assets in the second quarter of 2002


                                       16
<PAGE>


      SALES AND  MARKETING.  Sales and marketing  expenses were $0.2 million for
the three months  ended  September  30,  2002,  compared to $0.7 million for the
three months ended  September  30, 2001, a decrease of $0.5 million or 71%. This
decrease  resulted from a reduction in sales and marketing  personnel  resulting
from the Company's cost-reduction initiative started in the second half of 2001.
The  Company  does  not  expect  sales  and  marketing   expenses  to  fluctuate
dramatically from 2002 levels over the next 12 months.

      GENERAL AND ADMINISTRATIVE.  General and administrative expenses increased
by $0.2  million,  or 25%, to $1.0 million for the three months ended  September
30, 2002,  compared to $0.8 million for the three  months  ended  September  30,
2001. The increase  resulted  primarily from  increased  legal and  professional
service.  The Company  expects  general and  administrative  expense to decrease
slightly  in the next 12 months due to reduced  professional  service  expenses,
lease restructuring, and other cost reduction efforts.

      RESEARCH AND  DEVELOPMENT.  During the three months  ended  September  30,
2002, NeoMedia charged to expense $150,000 of research and development costs, an
increase of $13,000,  or 9%,  compared to $137,000  for the three  months  ended
September 30, 2001. The company expects research and development costs to remain
materially constant over the next 12 months.

      LOSS ON IMPAIRMENT OF ASSETS.  During the three months ended September 30,
2002,  the Company did not recognize a loss on impairment of assets.  During the
three months ended September 30, 2001, the Company recognized an impairment loss
of $2.9 million relating to its MLM/Affinity  product line. The Company does not
expect any additional losses from asset impairment in the next 12 months.

      INTEREST   EXPENSE/(INCOME),   NET.  Interest   expense/(income)  consists
primarily of interest  paid to creditors  as part of financed  purchases,  notes
payable and NeoMedia's asset-based collateralized line of credit net of interest
earned on cash equivalent investments.  Interest expense decreased by $20,000 to
$2,000 for the three months ended  September 30, 2002 from $22,000 for the three
months ended  September  30,  2001.  The Company  expects net  interest  expense
similar to 2002 levels over the next 12 months,  due to capital  constraints and
borrowing costs.

      LOSS FROM CONTINUING  OPERATIONS.  The loss from continuing operations for
the three months ended September 30, 2002 was $0.8 million,  which represented a
$4.3  million,  or 84%  decrease  from a $5.1  million loss for the three months
ended  September 30, 2001.  The decrease  resulted  primarily from an impairment
loss of $2.9 million relating to the Company's  MLM/Affinity product line during
the second quarter of 2001, combined with continued  company-wide cost reduction
efforts during the last quarter of 2001 and the first three quarters of 2002.

      LOSS  FROM  OPERATIONS  OF  DISCONTINUED   BUSINESS  UNITS.   The  Company
discontinued  operations of its Qode business unit in 2001,  resulting in a loss
from  operations of  discontinued  business  units of $1.0 million for the three
months ended  September 30, 2001.  The business  unit's assets were purchased in
March 2001 and the  implementation  was cancelled  during the second  quarter of
2001. The Company does not expect any charges relating to the Qode business unit
in the next 12 months.

      NET LOSS.  The net loss for the three months ended  September 30, 2002 was
$0.8 million,  which  represented  an $8.5 million,  or 91% decrease from a $9.3
million  loss for the three  months  ended  September  30,  2001.  The  decrease
resulted  from the $7.4  million  write-off of the Digital  Convergence  license
contract  and an  impairment  loss of $2.9  million  relating  to the  Company's
MLM/Affinity product line during the second quarter of 2001.

FINANCIAL CONDITION

      As of September 30, 2002, the Company's  cash balance was $9,000  compared
to $10,000 at June 30, 2002 and $134,000 at December 31, 2001.

      Net cash used in operating  activities for the nine months ended September
30, 2002 and 2001, was $0.7 million and $4.8 million,  respectively.  During the
nine months ended September 30, 2002, trade accounts  receivable  increased $0.6
million,  while  accounts  payable  inclusive  of  amounts  due under  financing
agreements,  liabilities  in excess of assets  of  discontinued  business  unit,
accrued  expenses and deferred revenue  increased $2.0 million.  During the nine


                                       17
<PAGE>


months ended  September  30, 2001,  trade  accounts  receivable  decreased  $1.3
million,  while  accounts  payable  inclusive  of  amounts  due under  financing
agreements,  accrued  expenses  and deferred  revenue  decreased  $0.1  million.
NeoMedia's net cash flow from/(used in) investing activities for the nine months
ended September 30, 2002 and 2001 was $0.1 and ($3.0) million, respectively.

      Net cash  provided  by  financing  activities  for the nine  months  ended
September 30, 2002 and 2001,  was $0.5 million and $3.7  million,  respectively.
The decrease  was due to $1.6 million  proceeds for the sale of common stock and
$1.2 million from the exercise of stock options and warrants in 2001. During the
nine months ended  September 30, 2002, the Company sold 19 million shares of its
common stock at $0.17 per share in exchange for promissory notes maturing at the
earlier of i), August 12, 2002, or ii) 30 days from  registration of the shares.
During  August  2002,  the  notes  matured  without  payment,  and  the  Company
subsequently  cancelled the 19 million  shares  issued in  connection  with such
notes.  The Company has  accrued a  liability  in the third  quarter of $190,000
relating to the par value paid in connection with the issuance of the shares.

      The  accompanying   unaudited  financial  statements  have  been  prepared
assuming  the  Company  will  continue  as a  going  concern.  Accordingly,  the
financial  statements do not include any adjustments  that might result from the
Company's  inability  to  continue  as a going  concern.  Based on current  cash
balances  and  operating  budgets,  the  Company  believes it will need to raise
operating capital in the next 30 days. If the Company's  financial resources are
insufficient,  the Company may be forced to seek  protection  from its creditors
under the United States Bankruptcy Code or analogous state statutes unless it is
able to engage in a merger or other corporate finance  transaction with a better
capitalized entity. The Company cannot predict whether additional financing will
be available, its form, whether equity or debt, or be in another form, or if the
Company will be successful in identifying  entities with which it may consummate
a merger or other corporate finance transactions.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Market risk is the potential  loss arising from adverse  changes in market
rates and  prices,  such as  foreign  currency  exchange,  interest  rates and a
decline in the stock  market.  The Company  does not enter into  derivatives  or
other financial instruments for trading or speculative purposes. The Company has
limited  exposure  to market  risks  related to changes  in  interest  rates and
foreign currency exchange rates. The Company does not currently invest in equity
instruments of public or private companies for business or strategic purposes.


      The  Company  generally  conducts  business,  including  sales to  foreign
customers,  in U.S.  dollars,  and as a result,  has  limited  foreign  currency
exchange  rate risk.  The effect of an  immediate  10 percent  change in foreign
exchange  rates  would not have a  material  impact on the  Company's  financial
condition or results of operations.

ITEM 4.  CONTROLS AND PROCEDURES

      EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Within the 90 days prior
to the filing date of this report,  the Company carried out an evaluation of the
effectiveness  of the  design  and  operation  of its  disclosure  controls  and
procedures  pursuant to Exchange Act Rule 13a-14. This evaluation was done under
the supervision and with the participation of the Company's  President and Chief
Financial Officer. Based upon that evaluation, they concluded that the Company's
disclosure  controls and  procedures  are effective in gathering,  analyzing and
disclosing  information needed to satisfy the Company's  disclosure  obligations
under the Exchange Act.

      CHANGES IN INTERNAL  CONTROLS.  There were no  significant  changes in the
Company's internal controls or in other factors that could significantly  affect
those controls since the most recent evaluation of such controls.



                                       18
<PAGE>


FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

      The Company  operates in a dynamic and rapidly  changing  environment that
involves numerous risks and  uncertainties.  The market for software products is
generally  characterized  by rapidly changing  technology,  frequent new product
introductions  and changes in customer  requirements  which can render  existing
products  obsolete or  unmarketable.  The statements  contained in this document
that are not historical facts may be forward-looking statements (as such term is
defined in the rules  promulgated  pursuant to the  Securities  Exchange  Act of
1934)  that are  subject  to a variety  of risks and  uncertainties  more  fully
described in the Company's filings with the Securities and Exchange  Commission.
The forward-looking statements are based on the beliefs of the management of the
Company, as well as assumptions made by, and information currently available to,
the  Company's  management.   Accordingly,   these  statements  are  subject  to
significant  risks,  uncertainties  and  contingencies  which  could  cause  the
Company's  actual  growth,  results,  performance  and  business  prospects  and
opportunities  to differ  materially  from those expressed in or implied by, any
such forward-looking statements.  Wherever possible, words such as "anticipate,"
"plan," "expect," "believe,"  "estimate," and similar expressions have been used
to identify these forward-looking statements, but are not the exclusive means of
identifying  such  statements.  These  risks,  uncertainties  and  contingencies
include,  but are not limited to, the  Company's  limited  operating  history on
which expectations  regarding its future  performance can be based,  competition
from,  among others,  high  technology  companies  that have greater  financial,
technical  and  marketing  resources  and  distribution  capabilities  than  the
Company,  the  availability  of sufficient  capital,  the  effectiveness  of the
Company's efforts to control operating  expenses,  the Company's ability to sell
its products and general economic and business conditions  affecting the Company
and its customers in the United States and other  countries in which the Company
sells and  anticipates  to sell its products and services.  The Company does not
undertake  any  obligation  to publicly  release the results of any revisions to
these  forward-looking  statements that may be made to reflect any future events
or circumstances.








                                       19
<PAGE>


PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

      On September 6, 2001,  AirClic,  Inc.  ("AirClic")  filed suit against the
Company in the Court of Common Pleas, Montgomery County, Pennsylvania,  seeking,
among other things, the accelerated  repayment of a $500,000 loan it advanced to
the Company under the terms of a letter of intent  entered into between  AirClic
and the Company. The letter of intent was subsequently abandoned on the basis of
the Company's alleged breach of certain  representations  made by the Company in
the promissory note issued by the Company to AirClic in respect of such advance.
The note  issued by the  Company  in respect of  AirClic's  $500,000  advance is
secured by substantially all of the Company's intellectual  property,  including
its core physical  world-to-Internet  technologies.  If the Company is deemed to
have defaulted under the note, and does not pay the judgment,  AirClic, which is
one  of the  NeoMedia's  key  competitors,  could  acquire  the  Company's  core
intellectual  property,  which  would  have a  material  adverse  effect  on the
Company's business,  prospects,  financial condition, and results of operations.
The  Company  is   vigorously   defending   this  lawsuit  and  has   interposed
counterclaims against AirClic. Whether or not AirClic is successful in asserting
its claims that the Company breached certain representations made by the Company
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 the Company,  payment
of the note and related  interest  would have a material  adverse  effect on the
Company's  financial  condition.  If the Company fails to pay such note, AirClic
could proceed  against the Company's  intellectual  property  securing the note,
which would have a material adverse effect on the Company's business, prospects,
financial  condition,  and results of  operations.  The Company is  aggressively
seeking  bridge  financing  to  enable  it to pay  the  principal  and  interest
remaining under the note following the resolution of the  counterclaims  against
AirClic. The Company has not accrued any additional liability over and above the
note  payable  and  related  accrued  interest.  As of the date of this  filing,
pleadings were closed and the parties have engaged in written discovery.

      AirClic also filed suit against the Company in the United States  District
Court for the Eastern District of Pennsylvania.  In this second action,  AirClic
sought a declaration that certain core  intellectual  property securing the note
issued by the Company to AirClic, some of which is patented and others for which
a patent  application  is pending  is invalid  and  unenforceable.  On  November
21,2001,  the Company filed a motion to dismiss the  complaint.  On December 19,
2001,  AirClic filed a response  opposing that position.  On September 18, 2002,
the court ruled in favor of the Company and dismissed AirClic's  complaint.  The
Company has not accrued any liability in connection with this matter.

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

      In April 2001,  the former  President  and  director  of NeoMedia  filed a
lawsuit against the Company and several of its directors.  The suit was filed in
the Circuit Court of the Twentieth Judicial Circuit for Sarasota,  Florida.  The
claim alleges the individual was fraudulently  induced into accepting employment
and that  the  Company  breached  the  employment  agreement.  The  individual's
employment with the Company ended in January 2001.  During May 2002, the Company
settled the suit.  The  Company is  obligated  to make cash  payments of $90,000
directly to the plaintiff  during the period May 2002 through December 2002, and
cash  payments  to the  plaintiff's  attorney  for legal  fees in the  amount of
$45,000 due in July and August 2002.  In  addition,  the  plaintiff  was granted
360,000 options to purchase shares of NeoMedia common stock at an exercise price
of $0.08.  As of March 31,  2002,  the Company had accrued a $347,000  liability
relating to the suit.  As a result,  the Company  recognized  an increase to net
income of  approximately  $176,000 during the three-month  period ended June 30,
2002 to adjust the liability to the settlement  amount.  As of September 30, the
Company had an accrued liability of $72,000 relating to this matter.

      On August 20, 2001,  Ripfire,  Inc.  filed suit against the Company in the
San Francisco County Superior Court seeking payment of $138,000 under a software
license  agreement  entered  into  between  the  Company and Ripfire in May 2001
relating to implementation of the Qode Universal Commerce Solution. On September
6, 2002,  the Company  settled  this suit for $133,000 of the  Company's  common
stock, to be valued at the average closing price for the five days preceding the
date  that  such  shares  are  registered  for  resale  with the  United  States
Securities and Exchange Commission. The Company has accrued a $133,000 liability
relating to this matter as of September 30, 2002.


                                       20
<PAGE>


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

      On July 22, 2002, 2150 Western Court, L.L.C., the property manager for the
Company's  Lisle,  IL, office,  filed a summons seeking payment of approximately
$72,000 for all past due rents on the facility. The summons asked for a judgment
for the above amount plus  possession  of the premises.  On August 9, 2002,  the
Company  settled  this  matter.  The  settlement  calls  for past  due  rents of
approximately  $72,000  to be paid over a  15-month  period,  as well as reduced
rents for the period August 2002 through March 2003. As additional consideration
in the settlement, the Company issued 900,000 shares of its common stock to 2150
Western  Court  L.L.C.  The  Company had a liability  of  approximately  $61,000
relating to this matter as of September 30, 2002.

      On July 27, 2002, the Company's  former General Counsel filed suit in U.S.
District  Court,  Ft.  Myers  division,  seeking  payment of the 2000  executive
incentive,  severance and unpaid  vacation  days in the amount of  approximately
$154,000.  In June  2001,  the  Company's  compensation  committee  approved  an
adjustment  to the 2000  executive  incentive  plan that  reduced the  executive
incentive  payout  as a  result  of the  write-off  of  the  Digital:Convergence
intellectual  property  license  contract  in the second  quarter of 2001.  As a
result,  the Company  reduced the  accrual  for such payout by an  aggregate  of
approximately  $1.1  million in the second  quarter of 2002.  The  plaintiff  is
seeking payment of the entire original  incentive  payout. On November 12, 2002,
the Company settled the lawsuit. The settlement calls for cash payments totaling
approximately  $90,000 over a period of ten months,  plus 250,000 vested options
to purchase  shares of the Company's  common stock at an exercise price of $0.01
with a term of five years. The Company had a liability of approximately $100,000
relating to this matter as of September 30, 2002.

      On September 12, 2002,  R. R.  Donnelley & Sons Company filed a summons in
the  Circuit  Court of The  Twentieth  Judicial  Circuit in and for Lee  County,
Florida,  seeking  payment of  approximately  $92,000  in past due  professional
services bills. The Company is attempting to negotiate  settlement of this issue
out of court  prior to the court date.  The  Company  has accrued  approximately
$92,000 relating to this matter as of September 30, 2002.

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


                                       21
<PAGE>


ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

      In January  2002,  the Company  issued  452,489  shares of common stock to
About.com,  Inc.  The shares were issued upon  conversion  of 452,489  shares of
Series B Preferred  Stock issued to About.com,  Inc. as payment for  advertising
expense incurred during 2001.

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

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

      In February 2002, the Company issued  19,000,000 shares of common stock at
a price of $0.17 per share to five individuals and two  institutional  unrelated
parties.  The shares  were issued in exchange  for limited  recourse  promissory
notes  maturing at the earlier of i.) August 12, 2002,  or ii.) 30 days from the
date of registration of the shares.  The gross proceeds of such transaction were
expected  to be  approximately  $3,040,000  upon  maturity  of the  notes,  as a
purchase price of $0.01 per share,  or $190,000 in aggregate,  was paid in cash.
During  August  2002,  the  notes  matured  without  payment,  and  the  Company
subsequently  cancelled the 19 million  shares  issued in  connection  with such
notes.  The Company has  accrued a  liability  in the third  quarter of $190,000
relating to the par value paid in connection with the issuance of the shares.

      In March 2002,  NeoMedia issued an aggregate of 228,675 shares of NeoMedia
common stock upon the exercise of outstanding  warrants by an unrelated party at
a price  of $0.12  per  share.  The  gross  proceeds  of such  transaction  were
approximately $27,000.

      In April 2002,  NeoMedia issued an aggregate of 140,775 shares of NeoMedia
common stock upon the exercise of outstanding  warrants by Charles W. Fritz, its
Chairman and Chief Executive  Officer,  at a price of $0.12 per share. Mr. Fritz
subsequently  sold the  shares  into the  market.  The  gross  proceeds  of such
transaction were  approximately  $17,000.  In accordance with Section 16(b), all
proceeds from the sales were retained by the Company.

      In April  2002,  NeoMedia  issued  an  aggregate  of  1,962,255  shares of
NeoMedia common stock upon the exercise of outstanding  options by two unrelated
parties at a price of $0.12 per share.  The gross  proceeds of such  transaction
were approximately $235,000.

      In April 2002,  NeoMedia  issued an aggregate of 40,000 shares of NeoMedia
common  stock upon the  exercise  of  outstanding  options by James J. Keil,  an
outside  director.  Mr. Keil  purchased  25,000  shares at an exercise  price of
$0.135 and 15,000 shares at $0.20.  The gross proceeds of such  transaction were
approximately $6,000.

      In May 2002, NeoMedia issued an aggregate of 200 shares of NeoMedia common
stock upon the  exercise  of  outstanding  options by an  employee at a price of
$0.12 per share. The gross proceeds of such transaction were $24.

      In June 2002,  the Company  issued  900,000  shares of common stock to two
unrelated  consultants as payment for  consulting  services to be performed from
June 2002  through June 2003.  There were no cash  proceeds to NeoMedia in these
transactions.

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

      In July 2002,  the Company  issued 575,980 shares of common stock upon the
exercise of outstanding  options by an unrelated  consultant at a price of $0.01
per share. The gross proceeds of such transaction were approximately $6,000.


                                       22
<PAGE>


      In August 2002, the Company issued  1,262,218  shares of common stock upon
the exercise of  outstanding  options by an unrelated  consultant  at a price of
$0.01 per share.  The gross  proceeds  of such  transaction  were  approximately
$13,000.

      In August 2002,  the Company  cancelled  19,000,000  shares  issued during
February  2002 in exchange for  promissory  notes  maturing at the earlier of i)
August 12, 2002, or ii) 30 days from  registration of the shares.  During August
2002, the notes matured without payment, and the Company subsequently  cancelled
the 19,000,000 shares issued in connection with such notes.

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

      In September  2002,  the Company issued  1,161,402  shares of common stock
upon the exercise of outstanding  options by an unrelated  consultant at a price
of $0.01 per share. The gross proceeds of such  transaction  were  approximately
$12,000.

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





                                       23
<PAGE>


                                  RISK FACTORS

RISKS SPECIFIC TO NEOMEDIA

      CURRENTLY PENDING LEGAL ACTIONS THREATEN TO DIVEST THE COMPANY OF CRITICAL
      INTELLECTUAL PROPERTY

      On September 6, 2001,  AirClic filed suit against the Company in the Court
of Common Pleas, Montgomery County,  Pennsylvania,  seeking, among other things,
the  accelerated  repayment of a $500,000  loan it advanced to the Company under
the terms of a letter of intent  entered into  between  AirClic and the Company.
The letter of intent was  subsequently  abandoned on the basis of the  Company's
alleged breach of certain  representations made by the Company in the promissory
note  issued to  AirClic  in respect  of such  advance.  The note  issued by the
Company in respect of AirClic's $500,000 advance is secured by substantially all
of  the  Company's  property,  including  its  core  physical  world-to-Internet
technologies.  If the Company is deemed to have  defaulted  under such note, and
does  not  pay  the  judgment,  AirClic,  which  is  one of  the  Company's  key
competitors,  could acquire the Company's core  intellectual  property and other
assets,  which would have a material  adverse effect on the Company's  business,
prospects,  financial  condition,  and  results of  operations.  The  Company is
vigorously  defending  this  claim  and  has  interposed  counterclaims  against
AirClic.  As of the date of this filing,  pleadings  were closed and the parties
have  engaged in written  discovery.  Whether or not  AirClic is  successful  in
asserting its claims that the Company 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 the Company,  payment
of the note and related  interest  would have a material  adverse  effect on the
Company's  financial  condition.  See  "Management's  Discussion and Analysis of
Financial Condition and Results of Operations". If the Company fails to pay such
note,  AirClic could proceed  against the  Company's  intellectual  property and
other assets securing the note which would have a material adverse effect on the
Company's business,  prospects,  financial condition, and results of operations.
The Company is  aggressively  seeking bridge  financing to enable it to pay such
principal and interest that remains under the note  following the  resolution of
the Company's  counterclaims against AirClic. See "Risk Factors - Risks Specific
to NeoMedia - The Company  Cannot  Predict Its Capital Needs And May Not Be Able
To Secure Additional Financing".

      THE  COMPANY'S  SHARES  HAVE  BEEN  DE-LISTED  FROM  TRADING ON THE NASDAQ
SMALLCAP  MARKET,  WHICH MAY HAVE A  MATERIAL  ADVERSE  EFFECT ON AN  INVESTOR'S
ABILITY TO RESELL SHARES OR OBTAIN ACCURATE PRICE QUOTATIONS

      On March 11,  2002,  the  Company  received a Nasdaq  Staff  Determination
stating  that,  as of December 31, 2001,  it did not meet either the minimum net
tangible  assets  ($2,000,000)  or  minimum  stockholders'  equity  ($2,500,000)
criteria for continued  listing on the Nasdaq SmallCap Market and advising that,
accordingly,  the Company's  shares were subject to de-listing from such market.
On May 16,  2002,  The Company  received  notification  from the Nasdaq  Listing
Qualifications  Panel that the Company's shares were delisted  effective May 17,
2002. The Company's shares are now trading on the OTC Bulletin Board.

THE COMPANY HAS AN ACCUMULATED  DEFICIT; THE COMPANY ANTICIPATES FUTURE LOSSES.

      The Company has  incurred  substantial  losses  since its  inception,  and
anticipates  continuing to incur substantial losses for the foreseeable  future.
The Company incurred a loss of $6,502,000 in the nine months ended September 30,
2002, $25,469,000 in the year ended December 31, 2001. The Company's accumulated
losses were approximately  $69,845,000 as of September 30, 2002, and $63,344,000
as of December  31,  2001.  As of  September  30, 2002 and December 31, 2001 and
2000, the Company had a working capital (deficit) of approximately $(8,208,000),
$(5,163,000) and $8,426,000,  respectively. The Company had stockholders' equity
of $(5,183,000),


                                       24
<PAGE>


      $(263,000) and  $19,110,000  at September 30, 2002,  December 31, 2001 and
2000,  respectively.  The Company generated  revenues of $8,452,000 for the nine
months ended  September 30, 2002 and  $8,142,000 and  $27,565,000  for the years
ended  December  31, 2001 and 2000.  In  addition,  during the nine months ended
September  30, 2002,  and years ended  December  31, 2001 and 2000,  the Company
recorded  negative  cash flows  from  operations  of  $669,000,  $5,202,000  and
$6,775,000,  respectively.  To succeed,  the Company must develop new client and
customer  relationships  and  substantially  increase  its revenue  derived from
improved products and additional  value-added services. The Company has expended
and intends to continue to expend  substantial  resources to develop and improve
its products,  increase its value-added  services and to market its products and
services.  These  development  and  marketing  expenses must be incurred well in
advance of the recognition of revenue.  As a result, the Company may not be able
to achieve or sustain profitability.

      THE  COMPANY'S  AUDITORS  HAVE  QUALIFIED  THEIR  REPORT  ON  THE  COMPANY
      FINANCIAL  STATEMENTS WITH RESPECT TO THE COMPANY'S ABILITY TO CONTINUE AS
      A GOING CONCERN.

      The  report  of  Stonefield   Josephson,   Inc.,  the  Company's   current
independent auditors, with respect to the Company's financial statements and the
related notes for the year ended  December 31, 2001,  indicate that, at the date
of their report,  the Company had suffered  recurring losses from operations and
the Company's current cash position raised substantial doubt about the Company's
ability to continue as a going concern.  The Company's  financial  statements do
not include any adjustments that might result from this uncertainty.  The report
of Arthur Andersen LLP, the Company's former independent auditors,  with respect
to the Company's financial  statements and the related notes for the years ended
December 31, 2000 and 1999,  indicate  that,  at the date of their  report,  the
Company had suffered  recurring losses from operations and the Company's current
cash position raised  substantial  doubt about the Company's ability to continue
as a going  concern.  The  Company's  financial  statements  do not  include any
adjustments that might result from this uncertainty.

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

      The physical  world-to-Internet  market in which the Company operates is a
recently developed market. Further, the Company has conducted operations in this
market only since March 1996. Consequently,  the Company may be deemed to have a
relatively limited operating history upon which investors may base an evaluation
of the  Company's  primary  business and  determine  its prospects for achieving
intended  business  objectives.  To date,  the  Company  has  sold its  physical
world-to-Internet  products to only 13  companies.  Further,  on March 22, 2002,
Digital:Convergence   Corporation,   the  Company's  primary  customer  for  the
Company's  physical  world-to-Internet  products,  filed  for  bankruptcy  under
Chapter 7 of the United States  Bankruptcy  Code. The Company is prone to all of
the risks inherent to the establishment of any new business  venture,  including
unforeseen  changes  in  its  business  plan.   Investors  should  consider  the
likelihood of the company's future success to be highly  speculative in light of
the Company's  limited  operating  history in its primary market, as well as the
limited  resources,  problems,  expenses,  risks, and  complications  frequently
encountered by similarly  situated companies in the early stages of development,
particularly companies in new and rapidly evolving markets, such as the physical
world-to-Internet  space. To address these risks,  the Company must, among other
things,

      o Maintain and increase the Company's client base;
      o Implement and successfully  execute the Company's business and marketing
        strategy;
      o Continue to develop and upgrade the Company's products;
      o Continually  update and  improve the  Company's  service  offerings  and
        features;
      o Respond to industry and competitive developments; and
      o Attract, retain, and motivate qualified personnel.

      The  Company may not be  successful  in  addressing  these  risks.  If the
Company  is  unable to do so, the  Company's  business,  prospects,  financial
condition, and results of operations would be materially and adversely affected.


                                       25
<PAGE>


      FLUCTUATIONS IN THE COMPANY'S OPERATING RESULTS MAY AFFECT THE COMPANY'S
      STOCK PRICE.

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

      o The Company's ability to retain existing clients and customers;
      o The  Company's  ability to attract new clients and customers at a steady
        rate;
      o The Company's ability to maintain client satisfaction;
      o The  Company's  ability to motivate  potential  clients and customers to
        acquire and implement new technologies;
      o The extent to which the Company's products gain market acceptance;
      o The timing and size of client and customer purchases;
      o Introductions of products and services by competitors;
      o Price competition in the markets in which the Company competes;
      o The  pricing of  hardware  and  software  which the  Company  resells or
        integrates into its products;
      o The level of use of the  Internet  and online  services  and the rate of
        market acceptance of physical world-to-Internet marketing;
      o The   Company's   ability  to  upgrade   and  develop  its  systems  and
        infrastructure in a timely and effective manner;
      o The Company's ability to attract,  train, and retain skilled management,
        strategic, technical, and creative professionals;
      o The  amount  and  timing of  operating  costs and  capital  expenditures
        relating to the expansion of the  Company's  business,  operations,  and
        infrastructure;
      o Unanticipated technical, legal, and regulatory difficulties with respect
        to use of the Internet; and
      o General economic conditions and economic conditions specific to Internet
        technology usage and electronic commerce.

      THE COMPANY IS UNCERTAIN OF THE SUCCESS OF ITS INTERNET SWITCHING SERVICES
      BUSINESS  UNIT AND THE  FAILURE  OF THIS UNIT WOULD  NEGATIVELY AFFECT THE
      PRICE OF THE COMPANY'S STOCK.

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

      o This application services business unit will ever achieve profitability;
      o The Company's current product  offerings will not be adversely  affected
        by   the   focusing   of  the   Company   resources   on  the   physical
        world-to-Internet space; or
      o The products the Company develops will obtain market acceptance.

      In the event that the  application  Services  business  unit should  never
achieve  profitability,  that the Company's  current product offerings should so
suffer,  or that the Company's  products fail to obtain market  acceptance,  the
Company's business,  prospects,  financial condition,  and results of operations
would be materially adversely affected.

      THE COMPANY  DEPENDS ON THE RESALE OF SOFTWARE AND  EQUIPMENT  FOR REVENUE
      AND A  REDUCTION  IN THESE  SALES WOULD  MATERIALLY  ADVERSELY  AFFECT THE
      COMPANY'S OPERATIONS AND THE VALUE OF THE COMPANY'S STOCK.

      During  the nine  months  ended  September  30,  2002 and the years  ended
December 31, 2001,  2000, 1999, 1998, and 1997, the Company derived 96%, 73% and
66%,  respectively,  of its  revenues  from the resale of computer  software and
technology  equipment.  A loss or a  reduction  of  this  revenue  would  have a
material adverse effect on the Company's business,


                                       26
<PAGE>


prospects,  financial  condition,  and  results  of  operations,  as well as the
Company's stock price. The Company can provide no assurance that:

      o The market for the Company's products and services will continue;
      o The Company  will be  successful  in  marketing  these  products  due to
        competition and other factors;
      o The Company will continue to be able to obtain short-term  financing for
        the purchase of the products that the Company resells; or
      o The Company's relationship with companies whose products and services it
        sells, such as Sun Microsystems Computer Company, will continue.

      Further,  the  technology  and  equipment  resale  business  is becoming a
commodity  industry for products  undifferentiated  by  value-added  proprietary
elements  and  services.  A large  number of companies  act as  re-marketers  of
another  party's  products,  and  therefore,  the  competition  in this  area is
intense.  Resale operations are also being compressed as equipment manufacturers
consolidate their  distribution  channels.  In some instances,  the Company,  in
acting  as a  re-marketer,  may  compete  with  the  original  manufacturer.  An
inability to  effectively  compete and generate  revenues in this industry would
have a material adverse effect on the Company's business,  prospects,  financial
condition, and results of operations.

      A LARGE PERCENTAGE OF THE COMPANY'S  ASSETS ARE INTANGIBLE  ASSETS,  WHICH
      WILL HAVE LITTLE OR NO VALUE IF THE COMPANY'S OPERATIONS ARE UNSUCCESSFUL.

      At September 30, 2002,  approximately  33% of the  Company's  total assets
were intangible assets,  consisting primarily of rights related to the Company's
patents  and  other  intellectual   property.  If  the  Company  operations  are
unsuccessful,  these assets will have little or no value,  which will materially
adversely  affect  the  value of the  Company's  stock  and the  ability  of the
Company's  stockholders  to recoup their  investments  in the Company's  capital
stock.

      THE COMPANY'S MARKETING STRATEGY HAS NOT BEEN TESTED AND MAY NOT RESULT IN
      SUCCESS.

      To date, the Company has conducted limited-marketing efforts directly. All
of  the  Company's   marketing   efforts  have  been  largely  untested  in  the
marketplace, and may not result in sales of the Company's products and services.
To penetrate the markets in which the Company competes, the Company will have to
exert significant  efforts to create awareness of, and demand for, the Company's
products and services. With respect to the Company's marketing efforts conducted
directly,  the Company  intends to expand the Company's sales staff upon receipt
of adequate  financing.  The Company's  failure to further develop its marketing
capabilities  and  successfully  market its products  and services  would have a
material  adverse  effect  on  the  Company's  business,  prospects,   financial
condition, and results of operations.

      THE COMPANY  RELIES ON  INTERNALLY  DEVELOPED  SYSTEMS,  WHICH MAY PUT THE
      COMPANY AT A COMPETITIVE DISADVANTAGE.

      The Company uses internally  developed  technologies  for a portion of its
systems  integration   services,   as  well  as  the  technologies  required  to
interconnect its clients' and customers' physical  world-to-Internet systems and
hardware with the Company's  own. As the Company has developed  these systems in
order to integrate disparate systems and hardware on a case-by-case basis, these
systems are inefficient and require a significant amount of customization.  Such
client and customer specific  customization is time-consuming and costly and may
place the Company at a competitive  disadvantage  when  compared to  competitors
with more  efficient  systems.  The  Company  intends to upgrade  and expand its
systems  and  technologies  and  to  integrate   newly-developed  and  purchased
technologies  with its own in order to improve the  efficiency  of the Company's
systems and  technologies,  although  the  Company is unable to predict  whether
these upgrades will improve the Company's  competitive position when compared to
its competitors.

      THE COMPANY HAS LIMITED HUMAN RESOURCES;  THE COMPANY NEEDS TO ATTRACT AND
      RETAIN  HIGHLY  SKILLED PERSONNEL;  AND  THE  COMPANY  MAY  BE  UNABLE  TO
      EFFECTIVELY MANAGE COMPANY GROWTH WITH THE COMPANY'S LIMITED RESOURCES.

      The  Company's  future  success will depend in large part on the Company's
ability to attract,  train, and retain additional highly skilled executive level
management, creative, technical, and sales personnel. Competition is intense for
these types of personnel from other  technology  companies and more  established
organizations,  many of which have  significantly  larger operations and greater
financial, marketing, human, and other resources than the Company has currently.


                                       27
<PAGE>


The  Company  may  not be  successful  in  attracting  and  retaining  qualified
personnel on a timely basis, on competitive  terms, or at all. If the Company is
not successful in attracting and retaining  qualified  personnel,  its business,
prospects,  financial  condition,  and results of operations would be materially
adversely affected.

      THE  COMPANY  DEPENDS  UPON  ITS  SENIOR  MANAGEMENT  AND  THEIR  LOSS  OR
      UNAVAILABILITY COULD PUT THE COMPANY AT A COMPETITIVE DISADVANTAGE.

      The  Company's  success  depends  largely  on the  skills of  certain  key
management and technical  personnel.  The loss or unavailability of any of these
individuals  for any  significant  period of time could have a material  adverse
effect on the Company's business, prospects, financial condition, and results of
operations.  None of the  Company's  key  management  or technical  personnel is
presently  subject to employment  agreements.  The Company has recently  awarded
stock options to key members of  management.  All key  management  personnel are
required to sign non-solicitation and confidentiality agreements. However, there
is no guarantee that these option  incentives or contractual  restrictions  will
discourage the Company's key management and technical personnel from leaving. If
the Company were not  successful in retaining its key  personnel,  the Company's
business,  prospects,  financial  condition,  and results of operations would be
materially adversely affected.


      THE COMPANY MAY BE UNABLE TO PROTECT THE COMPANY'S  INTELLECTUAL  PROPERTY
      RIGHTS AND THE  COMPANY  MAY BE LIABLE  FOR  INFRINGING  THE  INTELLECTUAL
      PROPERTY RIGHTS OF OTHERS.

      The  Company's   success  in  the  physical   world-to-Internet   and  the
value-added   systems  integration  markets  is  dependent  upon  the  Company's
proprietary  technology,  including the Company's patents and other intellectual
property,  and on the  Company's  ability to protect the  Company's  proprietary
technology and other intellectual property rights. In addition, the Company must
conduct the Company's operations without infringing on the proprietary rights of
third parties.  The Company also intends to rely upon  unpatented  trade secrets
and the  know-how  and  expertise  of the  Company's  employees,  as well as the
Company's  patents.  To protect the Company's  proprietary  technology and other
intellectual  property,  the Company  relies  primarily on a combination  of the
protections  provided by  applicable  patent,  copyright,  trademark,  and trade
secret laws as well as on confidentiality procedures and licensing arrangements.
The  Company  has  four  issued  patents  for  its  physical   world-to-Internet
technology.  On July 25, 2002, the Company received an Issue  Notification  from
the U.S.  Patent  and  Trademark  Office  that a fifth  patent  surrounding  the
Company's  technology  would be issued on August 13, 2002.  The Company also has
several trademarks relating to the Company's proprietary products.  Although the
Company  believes  that the Company has taken  appropriate  steps to protect the
Company's unpatented proprietary rights,  including requiring that the Company's
employees and third parties who are granted access to the Company's  proprietary
technology enter into  confidentiality  agreements with the Company, the Company
can provide no assurance  that these  measures will be sufficient to protect the
Company's  rights against third  parties.  Others may  independently  develop or
otherwise  acquire  patented or unpatented  technologies or products  similar or
superior to the Company.

      The Company  licenses from third parties  certain  software  tools that it
includes in its services and products. If any of these licenses were terminated,
the Company could be required to seek  licenses for similar  software from other
third parties or develop these tools internally.  The Company may not be able to
obtain such  licenses or develop such tools in a timely  fashion,  on acceptable
terms,  or  at  all.  Companies  participating  in  the  software  and  Internet
technology   industries  are  frequently   involved  in  disputes   relating  to
intellectual  property.  The Company may in the future be required to defend its
intellectual property rights against infringement,  duplication,  discovery, and
misappropriation  by third parties or to defend  against  third-party  claims of
infringement.  Likewise,  disputes  may  arise in the  future  with  respect  to
ownership of technology  developed by employees who were previously  employed by
other  companies.  Any such  litigation or disputes  could result in substantial


                                       28
<PAGE>


costs to, and a diversion  of effort by, the Company.  An adverse  determination
could subject the Company to significant  liabilities to third parties,  require
the Company to seek  licenses  from,  or pay  royalties  to, third  parties,  or
require the Company to develop appropriate alternative  technology.  Some or all
of these licenses may not be available to the Company on acceptable  terms or at
all,  and the  Company  may be  unable to  develop  alternate  technology  at an
acceptable  price or at all. Any of these  events could have a material  adverse
effect on the Company's business, prospects, financial condition, and results of
operations.  See "Risks  Specific To NeoMedia - Currently  Pending Legal Actions
Threaten To Divest The Company Of Critical Intellectual Property."

      THE  COMPANY IS EXPOSED TO PRODUCT  LIABILITY  CLAIMS FOR WHICH  INSURANCE
      COVERAGE IS LIMITED, POTENTIALLY INADEQUATE AND IN SOME CASES UNAVAILABLE,
      AND AN  UNINSURED  CLAIM  COULD  HAVE A  MATERIAL  ADVERSE  EFFECT  ON THE
      COMPANY'S  BUSINESS,  PROSPECTS,   FINANCIAL  CONDITION,  AND  RESULTS  OF
      OPERATIONS, AS WELL AS THE VALUE OF THE COMPANY STOCK.

      Many of the  Company's  projects  are  critical to the  operations  of the
Company's  clients'  businesses.  Any failure in a client's  information  system
could result in a claim for substantial damages against the Company,  regardless
of the Company's  responsibility for such failure. The Company could, therefore,
be subject to claims in connection with the products and services that it sells.
The Company currently maintains product liability insurance:

      o The Company has  contractually  limited  its  liability  for such claims
        adequately or at all;
      o The Company  would have  sufficient  resources to satisfy any  liability
        resulting from any such claim;
      o The Company coverage,  if available,  will be adequate in term and scope
        to  protect  it  against  material  adverse  effects  in the  event of a
        successful claim; or
      o The Company insurer will not disclaim coverage as to any future claim.

      The  successful  assertion of one or more large claims against the Company
that exceed available  insurance coverage could materially  adversely affect the
Company's business, prospects, financial condition, and results of operations.

      THE COMPANY CANNOT PREDICT ITS FUTURE CAPITAL NEEDS AND THE COMPANY MAY
      NOT BE ABLE TO SECURE ADDITIONAL FINANCING.

      During  May  2002,  the  Company  entered  into an  Equity  Line of Credit
Agreement  with Cornell  Capital  Partners LP  ("Cornell").  The  agreement  was
terminated  and a new  agreement  was entered into in November  2002.  Under the
terms of the  revised  agreement,  Cornell  has agreed to  purchase  up to $10.0
million  of  NeoMedia  common  stock  over the next two  years at the  Company's
discretion.  The maximum  amount of each  purchase is  $150,000,  with a minimum
seven days  between  purchases.  The shares  will be valued at 98% of the lowest
closing bid price during the five-day period  following the delivery of a notice
of purchase by NeoMedia.  The Company will pay 5% of the gross  proceeds of each
purchase to Cornell as a  commission.  According to the terms of the  agreement,
the Company  cannot draw on the line of credit until the shares  underlying  the
agreement  are  registered  for with  Securities  and Exchange  Commission.  The
Company  has not secured  any other  financing  as of the date of this filing to
fund operations until such shares are registered.

      The  Company's  cash balance as of September 30, 2002,  was  approximately
$9,000.  Based on current  cash  balances  and  operating  budgets,  the Company
believes  it will need to raise  operating  capital in the next 30 days.  If the
Company's  financial  resources are  insufficient,  the Company may be forced to
seek protection  from its creditors  under the United States  Bankruptcy Code or
analogous  state  statutes  unless  it is able to  engage  in a merger  or other
corporate  finance  transaction with a better  capitalized  entity.  The Company
cannot predict whether additional financing will be available, its form, whether
equity or debt,  or be in another  form, or if the Company will be successful in
identifying  entities with which it may  consummate a merger or other  corporate
finance transactions.


                                       29
<PAGE>


      THE COMPANY'S COMMON STOCK TRADES SPORADICALLY, THE OFFERING PRICE OF THE
      COMMON STOCK IS ARBITRARY,  AND THE MARKET PRICE OF THE SECURITIES MAY BE
      VOLATILE

      The Company's common stock currently trades sporadically on the OTCBB. The
market for the  Company's  common stock may  continue to be an inactive  market.
Accordingly,  unless and until an active public market  develops,  investors may
have  difficulty  selling  their shares of common stock into which the preferred
stock offered is automatically  convertible at a price that is attractive to the
investor.

      The Company's common stock has traded as low as $0.02 and as high as $6.75
between  September  30, 2000 and October 29, 2002.  From time to time after this
filing,  the  market  price  of the  common  stock  may  experience  significant
volatility.   The  Company's   quarterly  results,   failure  to  meet  analysts
expectations,   announcements  by  the  Company  or  the  Company's  competitors
regarding acquisitions or dispositions, loss of existing clients, new procedures
or technology,  changes in general conditions in the economy, and general market
conditions  could  cause  the  market  price of the  common  stock to  fluctuate
substantially.  In addition, the stock market has experienced  significant price
and volume  fluctuations that have  particularly  affected the trading prices of
equity  securities  of  many  technology  companies.   These  price  and  volume
fluctuations  often have been  unrelated  to the  operating  performance  of the
affected companies.

                                       30
<PAGE>


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

      As of September  30, 2002,  the Company had  outstanding  stock options to
purchase  approximately  8.8  million  shares of common  stock and  warrants  to
purchase  approximately 7.7 million shares of common stock, some of which may in
the future, but do not currently,  have exercise prices at or below the price of
the Company's common shares on the public market.  To the extent such options or
warrants are  exercised,  there will be further  dilution.  In addition,  in the
event that any future financing  should be in the form of, be convertible  into,
or  exchangeable  for, equity  securities,  and upon the exercise of options and
warrants, investors may experience additional dilution.

      FUTURE SALES OF COMMON STOCK BY THE COMPANY'S EXISTING  STOCKHOLDERS COULD
      ADVERSELY AFFECT THE COMPANY'S STOCK PRICE.

      The market price of the  Company's  common stock could decline as a result
of sales of a large number of shares of the Company's common stock in the market
as a result of offerings of common stock or securities convertible,  exercisable
or  exchangeable  for common  stock,  or the  perception  that these sales could
occur.  These  sales also might make it more  difficult  for the Company to sell
equity  securities in the future at a time and at a price that the Company deems
appropriate.  The Company's  officers and  directors  are  currently  subject to
lock-up  agreements  preventing  them from selling their  shares.  Additionally,
shares  issued upon the exercise of stock  options  granted  under the Company's
stock option plans will be eligible for resale in the public market from time to
time subject to vesting.  As of September 30, 2002, the Company had  outstanding
options to purchase up to 8.8 million shares of its common stock,  with exercise
prices ranging from $0.01 to $10.88. Of the 8.8 million options outstanding, 8.2
million were vested as of  September  30,  2002.  As of  September  30, 2002 the
Company also had outstanding  7.7 million  warrants to purchase shares of common
stock, with exercise prices ranging from $0.00 to $15.00.

      In addition,  the Company may offer for sale  additional  shares of common
stock,  as  necessary  to raise  capital to sustain  Company  operations.  While
applicable law provides that unregistered securities may not generally be resold
within one year of their purchase,  market conditions may require the Company to
register  such shares for public sale earlier  than such shares would  otherwise
become freely tradable,  thereby creating the possibility of further dilution to
purchasers of the Company's shares.

RISKS RELATING TO THE COMPANY'S INDUSTRY

      INTERNET SECURITY POSES RISKS TO THE COMPANY'S ENTIRE BUSINESS.

      Concerns   over  the  security  of  the  Internet  and  other   electronic
transactions  and the privacy of consumers  and merchants may inhibit the growth
of the Internet and other online  services  generally,  especially as a means of
conducting commercial transactions,  which may have a material adverse effect on
the Company's physical world-to-Internet business.

      THE COMPANY  WILL ONLY BE ABLE TO EXECUTE ITS  PHYSICAL  WORLD-TO-INTERNET
      BUSINESS PLAN IF INTERNET USAGE AND ELECTRONIC COMMERCE CONTINUE TO GROW.

      The Company's  future  revenues and any future  profits are  substantially
dependent  upon the  widespread  acceptance  and use of the  Internet  and other
online services as an effective  medium of information  and commerce.  If use of
the Internet and other online  services  does not continue to grow or grows more
slowly than the Company  expects,  if the  infrastructure  for the  Internet and
other online services does not effectively support the growth that may occur, or
if the  Internet  and other  online  services do not become a viable  commercial
marketplace,  the Company's physical  world-to-Internet  business, and therefore
the  Company's  business,   prospects,   financial  condition,  and  results  of
operations,  could be materially adversely affected. Rapid growth in the use of,
and  interest  in,  the  Internet,  the Web,  and  online  services  is a recent
phenomenon, and may not continue on a lasting basis. In addition,  customers may
not adopt,  and continue to use,  the  Internet  and other online  services as a
medium of information  retrieval or commerce.  Demand and market  acceptance for
recently  introduced  services and  products  over the Internet are subject to a
high level of uncertainty, and few services and products have generated profits.


                                       31
<PAGE>


For the Company to be successful,  consumers and  businesses  must be willing to
accept  and use  novel  and  cost  efficient  ways of  conducting  business  and
exchanging information.

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

      The  Company  may  not  be  able  to  adapt  as  the  Internet,   physical
world-to-Internet,  equipment  resales  and  systems  integration  markets,  and
consumer  demands,  continue to evolve.  The  Company's  failure to respond in a
timely manner to changing market conditions or client  requirements would have a
material  adverse  effect  on  the  Company's  business,  prospects,   financial
condition, and results of operations. The Internet,  physical world-to-Internet,
equipment resales, and systems integration markets are characterized by:

      o Rapid technological change;
      o Changes in user and customer requirements and preferences;
      o Frequent   new   product  and  service   introductions   embodying   new
        technologies; and
      o The emergence of new industry  standards and practices that could render
        proprietary   technology   and  hardware  and  software   infrastructure
        obsolete.

The Company's success will depend, in part, on its ability to:

      o Enhance  and  improve  the   responsiveness  and  functionality  of  the
        Company's products and services;
      o License or develop  technologies  useful in the Company's  business on a
        timely basis;
      o Enhance the Company's  existing  services,  and develop new services and
        technologies  that  address the  increasingly  sophisticated  and varied
        needs of the Company's prospective or current customers; and
      o Respond to technological  advances and emerging  industry  standards and
        practices on a cost-effective and timely basis.

      THE COMPANY MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN THE MARKETS IN WHICH
      IT COMPETES.

      While the market for physical  world-to-Internet  technology is relatively
new, it is already highly  competitive and characterized by an increasing number
of entrants that have introduced or developed  products and services  similar to
those offered by the Company.  NeoMedia believes that competition will intensify
and increase in the future.  The Company's target market is rapidly evolving and
is  subject to  continuous  technological  change.  As a result,  the  Company's
competitors may be better positioned to address these  developments or may react
more favorably to these changes,  which could have a material  adverse effect on
the  Company's  business,   prospects,   financial  condition,  and  results  of
operations.

      In addition,  the equipment  resales and systems  integration  markets are
increasingly competitive.  The Company competes in these industries on the basis
of a number of factors,  including the  attractiveness  of the services offered,
the  breadth  and  quality  of  these  services,  creative  design  and  systems
engineering  expertise,  pricing,  technological  innovation,  and understanding
clients'  needs.  A number of these  factors are beyond the  Company's  control.
Existing or future  competitors  may develop or offer  products or services that
provide  significant  technological,  creative,  performance,  price,  or  other
advantages over the products and services offered by NeoMedia.


                                       32
<PAGE>


      Many of the Company's competitors have longer operating histories,  larger
customer bases, and longer relationships with clients, and significantly greater
financial, technical, marketing, and public relations resources than the Company
does.  Based on total assets and annual  revenues,  the Company is significantly
smaller  than its two  largest  competitors  in the  physical  world-to-Internet
industry,  the primary focus of the Company's business.  Similarly,  the Company
competes  against  significantly  larger and  better-financed  companies  in the
Company's   systems   integration   and  resales   businesses,   including   the
manufacturers of the equipment and technologies that the Company  integrates and
resells.  If  NeoMedia  competes  with  its  primary  competitors  for the  same
geographical or institutional  markets,  their financial  strength could prevent
the Company  from  capturing  those  markets.  The Company may not  successfully
compete  in any  market  in which it  conducts  or may  conduct  operations.  In
addition,  based  on  the  increasing  consolidation,   price  competition,  and
participation  of  equipment   manufacturers  in  the  systems  integration  and
equipment  resales  markets,  the Company  believes  that it will not be able to
compete  effectively in these markets in the future. It is for this reason, that
the Company has  increasingly  focused its  business  plan on  competing  in the
emerging market for physical world-to-Internet products.

      REGULATORY AND LEGAL UNCERTAINTIES COULD HARM THE COMPANY'S BUSINESS.

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

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





                                       33
<PAGE>


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         10.20  Mutual settlement agreement by and between     Provided herewith
                the Company and 2150 Western Court Company,
                LLC

         10.21  Mutual settlement agreement by and between     Provided herewith
                the Company and Ripfire, Inc.

         10.22  Mutual settlement agreement by and between     Provided herewith
                the Company and Wachovia Bank, N.A.

         10.23  Mutual settlement agreement by and between     Provided herewith
                the Company and Marianne LePera, the
                Company's former General Counsel

         10.24  Revised Equity Line of Credit Agreement        Provided herewith
                with Cornell Capital Partners LP


(b)      Reports on Form 8-K

         No  reports  on Form 8-K were  filed  during  the  three  months  ended
September 30, 2002.






                                       34
<PAGE>


                                   SIGNATURES

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


                                           NEOMEDIA TECHNOLOGIES, INC.
                                                   Registrant

Date November 13, 2002         By: /s/  Charles T. Jensen
                               -------------------------------------------------
                               Charles T. Jensen, President and Chief
                               Operating Officer


Date November 13, 2002         By: /s/ David A. Dodge
                               -------------------------------------------------
                               David A. Dodge, Vice President, Chief Financial
                               Officer, and Controller


                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection  with the  Quarterly  Report of NeoMedia  Technologies,  Inc. (the
"Company")  on Form 10-Q for the period ended  September  30, 2002 as filed with
the Securities and Exchange  Commission on the date hereof (the "Report"),  each
of the undersigned,  in the capacities and on the dates indicated below,  hereby
certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operation of the Company.


<TABLE>
<S>                                                                    <C>
By: /s/ Charles T. Jensen                                              Date November 13, 2002
----------------------------------------------------------             ----------------------
Charles T. Jensen, President and Chief Operating Officer

By: /s/ David A. Dodge                                                 Date November 13, 2002
----------------------------------------------------------             ----------------------
David A. Dodge, Vice President, Chief Financial Officer,
and Controller
</TABLE>






                                       35
<PAGE>


                                  CERTIFICATION
                             PURSUANT TO SECTION 302

I, Charles T. Jensen, certify that:

1. I have reviewed this quarterly report on Form 10-Q of NeoMedia Technologies,
Inc.;

2. Based on my  knowledge,  this  quarterly  report  does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

         a) designed  such  disclosure  controls and  procedures  to ensure that
         material  information   relating  to  the  registrant,   including  its
         consolidated  subsidiaries,  is made known to us by others within those
         entities, particularly during the period in which this quarterly report
         is being prepared;

         b) evaluated the effectiveness of the registrant's  disclosure controls
         and  procedures as of a date within 90 days prior to the filing date of
         this quarterly report (the "Evaluation Date"); and

         c)  presented  in this  quarterly  report  our  conclusions  about  the
         effectiveness  of the disclosure  controls and procedures  based on our
         evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

         a) all significant  deficiencies in the design or operation of internal
         controls  which  could  adversely  affect the  registrant's  ability to
         record,   process,   summarize  and  report  financial  data  and  have
         identified  for the  registrant's  auditors any material  weaknesses in
         internal controls; and

         b) any fraud,  whether or not  material,  that  involves  management or
         other  employees  who  have a  significant  role  in  the  registrant's
         internal controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.


Date: November 13, 2002               By: /s/ Charles T. Jensen
                                          ----------------------------------
                                          Charles T. Jensen
                                          President, Chief Operating Officer,
                                          and Acting Chief Executive Officer





                                       36
<PAGE>


                                  CERTIFICATION
                             PURSUANT TO SECTION 302


I, David A. Dodge, certify that:

1. I have reviewed this quarterly report on Form 10-Q of NeoMedia  Technologies,
Inc.;

2. Based on my  knowledge,  this  quarterly  report  does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

         a) designed  such  disclosure  controls and  procedures  to ensure that
         material  information   relating  to  the  registrant,   including  its
         consolidated  subsidiaries,  is made known to us by others within those
         entities, particularly during the period in which this quarterly report
         is being prepared;

         b) evaluated the effectiveness of the registrant's  disclosure controls
         and  procedures as of a date within 90 days prior to the filing date of
         this quarterly report (the "Evaluation Date"); and

         c)  presented  in this  quarterly  report  our  conclusions  about  the
         effectiveness  of the disclosure  controls and procedures  based on our
         evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

         a) all significant  deficiencies in the design or operation of internal
         controls  which  could  adversely  affect the  registrant's  ability to
         record,   process,   summarize  and  report  financial  data  and  have
         identified  for the  registrant's  auditors any material  weaknesses in
         internal controls; and

         b) any fraud,  whether or not  material,  that  involves  management or
         other  employees  who  have a  significant  role  in  the  registrant's
         internal controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.


Date: November 13, 2002            By: /s/ David A. Dodge
                                       --------------------------
                                       David A. Dodge
                                       Vice President, Chief Financial Officer,
                                       Controller and Principle Accounting
                                       Officer








                                       37