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

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

                                   FORM 10-QSB

                                   (Mark One)
             [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003

                                       OR

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                         COMMISSION FILE NUMBER 0-21743

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

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

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

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


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


         As of November 10, 2003, there were 235,783,873  outstanding  shares of
the issuer's Common Stock.






                                       1
<PAGE>


                         PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

                                                                   SEPTEMBER 30,
                                                                        2003
                                                                   -------------
ASSETS
Current assets:
      Cash and cash equivalents                                      $  1,048
      Restricted cash                                                     600
      Trade accounts receivable, net of allowance for doubtful
        accounts of $28                                                   178
      Inventories, net                                                     13
      Prepaid expenses and other current assets                           511
                                                                     --------
      Total current assets                                              2,350

      Property and equipment, net                                          72
      Capitalized patents, net                                          2,055
      Capitalized and purchased software costs, net                        60
      Other long-term assets                                              704
                                                                     --------

           Total assets                                              $  5,241
                                                                     ========

LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
      Accounts payable                                               $  3,096
      Amounts due under financing agreements                              345
      Liabilities in excess of assets of discontinued business
        unit                                                              996
      Sales taxes payable                                                 194
      Accrued expenses                                                  2,782
      Deferred revenues                                                   576
      Cash advances payable through
        the issuance of common stock                                    1,135
      Notes payable                                                       732
      Current portion of long-term debt                                   591

      Other                                                                37
                                                                     --------
           Total current liabilities                                   10,484

Long-term debt, net of current portion                                     94
                                                                     --------

           Total liabilities                                           10,578
                                                                     --------

Shareholders' deficit:
      Preferred stock, $0.01 par value, 25,000,000 shares
        authorized, none issued and outstanding                            --
      Additional paid-in capital, preferred stock                          --
      Common stock, $0.01 par value, 1,000,000,000 shares
        authorized, 207,764,771 shares issued and 205,781,109
        outstanding             2,058
      Additional paid-in capital                                       68,469
      Deferred stock-based compensation                                  (260)
      Accumulated deficit                                             (74,825)
      Treasury stock, at cost, 201,230 shares of common stock            (779)
                                                                     --------
      Total shareholders' deficit                                      (5,337)
                                                                     --------
           Total liabilities and shareholders' deficit               $  5,241
                                                                     ========


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


                                       2
<PAGE>


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

<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED SEPTEMBER 30,
                                                                    ------------------------------
                                                                         2003             2002
                                                                    -------------    -------------
<S>                                                                 <C>              <C>
NET SALES:
     License fees                                                   $          69    $         150
     Resale of software and technology equipment and service fees             392            3,254
                                                                    -------------    -------------
     Total net sales                                                          461            3,404
                                                                    -------------    -------------

COST OF SALES:
     License fees                                                              76               80
     Resale of software and technology equipment and service fees             378            2,742
                                                                    -------------    -------------
     Total cost of sales                                                      454            2,822
                                                                    -------------    -------------

GROSS PROFIT                                                                    7              582

     Sales and marketing expenses                                             146              207
     General and administrative expenses                                    1,940              996
     Research and development costs                                            78              150
                                                                    -------------    -------------

     Loss from operations                                                  (2,157)            (771)

     Other expenses:
     Loss on extinguishment of debt                                            24               --
     Interest expense                                                          24                2
                                                                    -------------    -------------

NET LOSS                                                            $      (2,205)   $        (773)
                                                                    =============    =============

NET LOSS PER SHARE--BASIC AND DILUTED                               $       (0.01)   $       (0.03)
                                                                    =============    =============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES--BASIC AND DILUTED           151,698,465       22,979,755
                                                                    =============    =============
</TABLE>


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



                                       3
<PAGE>


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

<TABLE>
<CAPTION>
                                                                   NINE MONTHS ENDED SEPTEMBER 30,
                                                                    ----------------------------
                                                                        2003            2002
                                                                    ------------    ------------
<S>                                                                 <C>             <C>
NET SALES:
     License fees                                                   $        338    $        303
     Resale of software and technology equipment and service fees          1,671           8,149
                                                                    ------------    ------------
     Total net sales                                                       2,009           8,452
                                                                    ------------    ------------

COST OF SALES:
     License fees                                                            227             764
     Resale of software and technology equipment and service fees          1,566           6,607
                                                                    ------------    ------------
     Total cost of sales                                                   1,793           7,371
                                                                    ------------    ------------

GROSS PROFIT                                                                 216           1,081

     Sales and marketing expenses                                            407             719
     General and administrative expenses                                   3,409           3,556
     Research and development costs                                          243             683
     Loss on impairment of assets                                             --           1,003
                                                                    ------------    ------------

     Loss from operations                                                 (3,843)         (4,880)

     Other expenses:
     Loss on extinguishment of debt                                           24              --
     Interest expense                                                        193              99
                                                                    ------------    ------------

Loss from continuing operations                                           (4,060)         (4,979)

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

NET LOSS                                                            $     (4,060)   $     (6,502)
                                                                    ============    ============

NET LOSS PER SHARE FROM
     CONTINUING OPERATIONS--BASIC AND DILUTED                       $      (0.05)   $      (0.24)
                                                                    ============    ============

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

NET LOSS PER SHARE--BASIC AND DILUTED                               $      (0.05)   $      (0.31)
                                                                    ============    ============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES--BASIC AND DILUTED           89,440,869      20,736,080
                                                                    ============    ============
</TABLE>


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



                                       4
<PAGE>


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

<TABLE>
<CAPTION>
                                                                                 NINE MONTHS ENDED SEPTEMBER 30,
                                                                                       2003          2002
                                                                                     -------       -------
<S>                                                                                  <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                                         ($4,060)      ($6,502)
    Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation and amortization                                                        368           938
    Loss on disposal of discontinued business unit                                        --         1,523
    Loss on impairment of assets                                                          --         1,003
    Expense associated with option and warrant repricing                                 748            38
    Fair value of expense portion of stock-based
      compensation granted for professional services                                     442           383
    Interest expense allocated to debt                                                    75            --
    Discount related to issuance of employee common stock                                688            --
    Loss on payments of accounts payable in stock                                         24            --
    (Increase)/decrease in value of life insurance policies                              (10)           80
    Changes in operating assets and liabilities
      Trade accounts receivable, net                                                     149          (610)
      Other current assets                                                               217           491
      Accounts payable, amounts due under financing agreements, liabilities in
        excess of assets of discontinued business unit, accrued expenses and
        stock liability                                                                 (395)        1,916
      Deferred revenue other current liabilities                                        (303)          151
                                                                                     -------       -------
        Net cash used in operating activities                                         (2,057)         (589)
                                                                                     -------       -------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Capitalization of software development and purchased intangible assets               (22)          (24)
    Acquisition of property and equipment                                                (42)           --
                                                                                     -------       -------
      Net cash used in investing activities                                              (64)          (24)
                                                                                     -------       -------

CASH FLOWS FROM FINANCING ACTIVITIES:

    Net proceeds from issuance of common stock                                         2,405           198
    Ner proceeds payable through the issuance of common stock                          1,135            --
    Net proceeds from exercise of stock warrants                                         250            43
    Net proceeds from exercise of stock options                                           90           272
    Borrowings under notes payable and long-term debt                                     75            21
    Transfer to restriced cash for long-term debt                                       (600)           --
    Repayments on notes payable and long-term debt                                      (260)           --
    Issuance of deferred stock-based compensation                                         --           (46)
                                                                                     -------       -------
      Net cash provided by financing activities                                        3,099           488
                                                                                     -------       -------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                                978          (125)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                              70           134
                                                                                     -------       -------

CASH AND CASH EQUIVALENTS                                                            $ 1,048       $     9
                                                                                     =======       =======

SUPPLEMENTAL CASH FLOW INFORMATION:
    Interest paid/(received) during the year                                         $     6       ($   66)
    Income taxes paid                                                                     --            --
    Non-cash investing and financing activities:
      Reduction in accounts payable for debt paid in stock                                72            --
      Cancellation of common stock issued in 2001 to offset stock subscription
        receivable                                                                        --          (240)
      Fair value of stock and warrants issued with debt                                   56            --
      Fair value of stock issued for services                                            148            --
      Fair value of stock compensation deferred to future periods                         64            --
      Direct costs associated with Equity Line of Credit                               5,693            --
      Net effect of issuance and subsequent
        cancellation of common stock underlying notes receivable                          --          (190)
</TABLE>


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




                                       5
<PAGE>


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

1.   BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS

BASIS OF PRESENTATION

     The  condensed  consolidated  financial  statements  include the  financial
statements  of NeoMedia  Technologies,  Inc. and its  wholly-owned  subsidiaries
("NeoMedia" or the "Company"). The accompanying unaudited condensed consolidated
financial  statements have been prepared in accordance with the  instructions to
Form 10-QSB and do not include all of the information and footnotes  required by
accounting  principles  generally  accepted in the United  States of America for
complete  consolidated   financial  statements.   These  condensed  consolidated
financial  statements and related notes should be read in  conjunction  with the
Company's  Form 10-K for the fiscal year ended December 31, 2002. In the opinion
of management,  these condensed  consolidated  financial  statements reflect all
adjustments  which are of a normal  recurring  nature and which are necessary to
present fairly the consolidated  financial  position of NeoMedia as of September
30, 2003,  and the results of operations and cashflows for the  three-month  and
nine-month  periods ended September 30, 2003 and 2002. The results of operations
for the  three-month  and  nine-month  periods ended  September 30, 2003 are not
necessarily  indicative  of the  results  which may be  expected  for the entire
fiscal year. All significant  intercompany  accounts and transactions  have been
eliminated in preparation of the condensed consolidated financial statements.


NATURE OF BUSINESS OPERATIONS

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

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

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

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

       NCIS (systems  integration  service  offerings) is the original  business
line upon which the  Company  was  organized.  This unit  resells  client-server
equipment and related software, and general and specialized consulting services.
Systems integration  services also identifies  prospects for custom applications
based on our products and services. During 2002, this unit expanded its business
offerings to include a higher  Value-Add called Storage Area Networks (SAN). The
operations are based in Lisle, Illinois.

RECLASSIFICATIONS

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

RECENT ACCOUNTING PRONOUNCEMENTS

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



                                       6
<PAGE>


have economic effects that are similar to sale-leaseback transactions.  NeoMedia
has  implemented  the  provision  of SFAS  No.  145 and has  concluded  that the
adoption does not have a material impact on the Company's financial statements.

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

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

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

     In November 2002, the FASB issued FASB  Interpretation No. 45, "Guarantor's
accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees  of  Indebtedness  of Others"  (FIN 45).  FIN 45  requires  that upon
issuance of a guarantee,  a guarantor  must  recognize a liability  for the fair
value  of an  obligation  assumed  under  a  guarantee.  FIN  45  also  requires
additional  disclosures  by a  guarantor  in its  interim  and annual  financial
statements  about  the  obligations   associated  with  guarantees  issued.  The
recognition  provisions  of FIN 45 are effective  for any  guarantees  issued or
modified after December 31, 2002. The disclosure  requirements are effective for
financial  statements  of interim or annual  periods  ending after  December 15,
2002.  The  adoption  of FIN45 did not have a material  effect on the  Company's
financial position, results of operations, or cash flows.

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

     During October 2003,  the FASB issued Staff Position No. FIN 46,  deferring
the  effective  date for applying the  provisions of FIN 46 until the end of the
first interim or annual period ending after December 31, 2003 if the



                                       7
<PAGE>


variable  interest was created  prior to February 1, 2003 and the public  entity
has not issued financial  statements  reporting that variable interest entity in
accordance  with  FIN 46.  The  FASB  also  indicated  it  would  be  issuing  a
modification  to FIN 46 prior to the end of 2003.  Accordingly,  the Company has
deferred the  adoption of FIN 46 with respect to VIEs created  prior to February
1, 2003.  Management is currently  assessing the impact, if any, FIN 46 may have
on the Company; however,  management does not believe there will be any material
impact on its  consolidated  financial  statements,  results  of  operations  or
liquidity resulting from the adoption of this interpretation.

     In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative  Instruments  and  Hedging  Activities".  This  Statement  amends and
clarifies  financial  accounting  and  reporting  for  derivative   instruments,
including   certain   derivative   instruments   embedded  in  other   contracts
(collectively  referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative  Instruments and Hedging  Activities".  This
Statement amends Statement 133 for decisions made (1) as part of the Derivatives
Implementation  Group process that effectively  required amendments to Statement
133,  (2) in  connection  with  other  Board  projects  dealing  with  financial
instruments, and (3) in connection with implementation issues raised in relation
to the application of the definition of a derivative, in particular, the meaning
of an initial net  investment  that is smaller  than would be required for other
types of contracts that would be expected to have a similar  response to changes
in market  factors,  the meaning of  underlying,  and the  characteristics  of a
derivative that contains  financing  components.  The adoption of this statement
did not have a material impact to the Company's financial position or results of
operations.

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


LOCH ENERGY, INC. ("LOCH")

         On March 7,  2003,  NeoMedia  announced  that  that it had  reached  an
agreement in  principle to acquire and merge with Loch,  an oil and gas provider
based in Humble, Texas. On October 1, 2003, NeoMedia discovered that the royalty
interest  from  future  sales of oil owned by Loch were  oversold,  which  would
likely  result in  materially  lower  projected  available  cashflow from Loch's
operations.  This  projected  available  cashflow was the basis for the proposed
acquisition by NeoMedia. On October 2, 2003, NeoMedia's Board of Directors voted
to cancel the  Memorandum  of Terms signed on March 13, 2003,  and terminate the
acquisition and merger.

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

     On February 11, 2003,  NeoMedia and Cornell  entered into an Equity Line of
Credit  Agreement  under which  Cornell  agreed to purchase up to $10 million of
NeoMedia's  common stock over a two-year  period,  with the timing and amount of
the purchase at the Company's discretion. The maximum amount of each purchase is
$150,000 with a minimum of seven days between  purchases.  The shares are valued
at 98% of the lowest closing bid price during the five-day period  following the
delivery of a notice of purchase by  NeoMedia.  The Company pays 5% of the gross
proceeds of each  purchase to Cornell.  On February 14,  2003,  the SEC declared
effective  the  S-1  registration   statement   containing  100  million  shares
underlying the Equity Line of Credit.

     During the nine months ended  September 30, 2003,  the Company has received
gross  funding of  $3,597,000  from the sale of stock  under the Equity  Line of
Credit, through the sale of 87,933,244 shares of its common



                                       8
<PAGE>


stock. The following table  summarizes  funding received from the Equity Line of
Credit during the nine months ended September 30, 2003:

<TABLE>
<CAPTION>
                                                                                      NINE MONTHS
                                                                                          ENDED
                                          FIRST          SECOND           THIRD       SEPTEMBER 30,
                                         QUARTER         QUARTER         QUARTER           2003
                                      ------------    ------------    ------------    ------------
<S>                                      <C>            <C>             <C>             <C>
Number of shares sold to Cornell         3,452,373      28,411,871      56,069,000      87,933,244

Gross funds received by NeoMedia      $    312,000    $    685,000    $  2,600,000    $  3,597,000
Less: discount and fees*                   (28,000)        (50,000)       (226,000)       (304,000)
                                      ------------    ------------    ------------    ------------
   Net funding received by NeoMedia   $    284,000    $    635,000    $  2,374,000    $  3,293,000
                                      ------------    ------------    ------------    ------------
</TABLE>

* - Includes  placement fees,  escrow fees, and a 5% reduction in gross proceeds
retained by Cornell.

       Subsequent  to  September  30,  2003,  the  Company  sold  an  additional
12,066,756  shares to Cornell  under the Equity Line of Credit,  resulting in an
additional discount of $1,172,000.

     Funding  received from Cornell  during the nine months ended  September 30,
2003,  was in the form of a debt  instrument,  under which the Company would pay
down the  principal  on the  promissory  note  through the issuance of "puts" of
common stock to Cornell over a period of several  weeks.  Under this  structure,
the Company also has the option to repay any remaining  balances on the advances
from operating  cash, and cancel all future puts against that  promissory  note.
The Company did not elect to make any cash payments to against  advances  during
2003.

     On September 11, 2003, the Company received and advance from Cornell in the
gross amount of $500,000 before Cornell  discounts and fees. As of September 30,
2003,  the Company had not issued any shares  against  this  advance to Cornell.
Accordingly,  the company has recorded the advance  balance of $500,000 in "Cash
advances  payable  through  the  issuance  of  common  stock"  on its  condensed
consolidated  balance sheet as of September 30, 2003.  During  October 2003, the
Company issued  1,066,756  shares to Cornell against this advance,  reducing the
balance to approximately $376,000.

     On September 29, 2003, the Company  received an advance from Cornell in the
gross amount of $1,500,000  before  Cornell  discounts and fees. As of September
30,  2003,  the  Company  had issued to Cornell  15,000,000  shares  against the
advance,  valued at approximately  $865,000. The Company has recorded the unpaid
advance  amount of $635,000 as "Cash  advances  payable  through the issuance of
common  stock" on the condensed  consolidated  balance sheet as of September 30,
2003. During October 2003, the Company issued an additional 11,000,000 shares to
Cornell to pay off the advance in full.

     On October 27,  2003,  the Company and Cornell  entered  into a $20 million
Standby Equity Distribution Agreement.  The terms of the agreement are identical
to the terms of the  previous  Equity  Line of Credit,  except  that the maximum
"draw" under the new agreement is $280,000 per week,  not to exceed  $840,000 in
any 30-day period,  and Cornell will purchase up to $20 million of the Company's
common stock.  As a  consideration  fee for Cornell to enter into the agreement,
the  Company  issued 10 million  warrants to Cornell  with an exercise  price of
$0.05 per share, and a term of five years.


OPTION REPRICING

      During May 2003,  the Company  re-priced  approximately  8.0 million stock
options under a 6-month repricing program.  Under the terms of the program,  the
exercise price for outstanding  options under the Company's 2002, 1998, and 1996
Stock Option Plans was restated to $0.01 per share for a period of 6 months.  In
accordance with FASB Interpretation, FIN 44, Accounting for Certain Transactions
Involving Stock Transactions,  the award has been accounted for as variable from
May 19, 2003 through the period ended June 30,  2002.  Accordingly,  the Company
recognized  approximately  $544,000 and $710,000 as  compensation in general and
administrative  expense during the three and nine month periods ended  September
30, 2003.  Approximately  4.4 million options were exercised under the repricing
program during the nine months ended September 30, 2003.  During September 2003,
the deadline for the option  repricing  was extended to December 31, 2003 by the
Stock Option Committee of NeoMedia's Board of Directors.

DISPOSAL OF QODE BUSINESS UNIT

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

         During June 2002,  the Finx Group  notified the Company that it did not
intend  to carry  out the  letter of intent  due to  capital  constraints.  As a
result,  during the three-month period ended June 30, 2002, the Company recorded
an  additional  expense of $1.5  million for the  write-off  of  remaining  Qode
assets.  As of September  30, 2003,  the Company had  approximately  $996,000 of
liabilities relating to the Qode system remaining on its books.

OTHER EVENTS

     On March 13, 2003, the Company repaid the remaining balance of $85,000 on a
note due to Michael  Kesselbrenner,  a private  investor.  The original note had
been issued in the amount of  $165,000  on December 2, 2002,  with a term of 150
days. In connection with the default  provision of the note, the Company entered
into a Pledge Agreement,  dated December 2, 2002, under which the Company issued
53,620,020 shares of common



                                       9
<PAGE>

stock to an unrelated  third party as collateral  for the note. The note balance
of  $85,000  was paid off on March 13,  2003,  and the  53,620,020  shares  were
returned to the Company on April 4, 2003 and retired.

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

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

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

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

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

      On July 9, 2003, the Company  borrowed  $25,000 from William E. Fritz, one
of its outside  directors.  This amount was added to the  principal of a $10,000
note payable to Mr.  Fritz that  matures in April 2004,  with all other terms of
the note remaining the same. As consideration  for the loan, the Company granted
Mr. Fritz 2,500,000 warrants to purchase shares of the Company's common stock at
an  exercise  price  of  $0.01  per  share.  The  warrants  had a fair  value of
approximately  $74,000.  In accordance with EITF 00-27, the Company recorded the
relative  fair value of the  warrants  as a discount  against  the note,  and is
amortizing the discount over the life of the note.

      On July 16, 2003, the Company's  Board of Directors voted to authorize the
issuance of  approximately  34.4 million stock options to employees,  contingent
upon the passage at the  Company's  annual  meeting on September  24, 2003, of a
proposal to adopt a 2003 Stock  Option  Plan,  under  which 150 million  options
would be  allocated  for future  issuance.  The Company  expensed  approximately
$624,000  related to the  issuance of these  options  during the  quarter  ended
September  30,  2003.  The 2003 Stock  Option Plan was  approved  by  NeoMedia's
shareholders.  Subsequent  to September  30, 2003,  the Company  issued the 34.4
million options.

      On July 21, 2003, the Company entered into a consulting  agreement with an
unrelated  party under which the Company paid the  consultant 3.6 million shares
of the Company's  common stock for services to be performed over a period of one
year.  The Company  recorded  expense of $19,000 and the  remaining  $81,000 was
recorded as deferred compensation.

      On July 28,  2003,  the  Company  signed a  binding  letter  of  intent to
purchase Secure Source  Technologies  ("SST"),  a provider of security solutions
and covert security technology for the manufacturing and financial



                                       10
<PAGE>


services industries,  in exchange for 3.5 million shares of the Company's common
stock. On October 8, 2003, the merger was completed,  and the Company issued 3.5
million shares to the stockholders of SST. With the purchase of SST, the Company
acquired eight  additional  patents that  compliment  its existing  intellectual
property portfolio.

      On August 29, 2003,  the Company  borrowed  $50,000 from William E. Fritz,
one of its outside directors, under an unsecured note payable. The note was paid
in full during September 2003.

      On  September  3,  2003,  the  Company  issued 10 million  warrants  to an
unrelated consultant for professional  services rendered in the third and fourth
quarter of 2003. The warrants have an exercise price of $0.01 and a term of five
years. Services provided by the consultant include  capital-raising  services in
the third  quarter of 2003,  advisory  services  relating to our Standby  Equity
Distribution Agreement with Cornell Capital Partners, and merger and acquisition
advisement  provided  during the third and fourth  quarters of 2003. The Company
recorded approximately $19,000 as expense, $74,000 as deferred compensation, and
$47,000 as cost of raising capital against additional paid in capital.

     On September 24, 2003, the Company's shareholders voted to (i) increase the
number of shares of common stock, par value $0.01 per share, that the Company is
authorized to issue from  200,000,000 to  1,000,000,000;  and (ii) implement the
2003 Stock  Option  Plan,  under  which the  Company is  authorized  to grant to
employeees,  directors,  and  consultants up to 150,000,000  options to purchase
shares of its common stock.

     On  September  29,  2003,  the  Company  transferred  $600,000 to an escrow
account to be used to pay principal and interest relating to its note payable to
AirClic,  Inc. ("AirClic") which is subject to a lawsuit between the Company and
AirClic (see "Legal Proceedings"). On October 3, 2003, NeoMedia paid AirClic the
principal plus interest in the  approximate  amount of $610,000.  On November 3,
2003,  NeoMedia  reached a settlement  agreement with AirClic which will end the
suit.  The parties are  currently  drafting the release  document and expect the
suit to be dismissed by the end of November 2003.

     On  September  30,  2003,  the  Company  received  requests  from the SEC's
Southeast  Regional  Office for certain  documents  including  those  concerning
negotiations and arrangements with certain  strategic  partners and consultants,
patents,  recent  issuances of  securities,  investor  relations,  and the stock
ownership  by the  Company's  officers  and  directors.  The  Company  responded
promptly  and fully and will  cooperate  with any  further  requests.  The SEC's
letter  states that the staff's  inquiry is informal and should not be construed
as an  indication  of any  violation  of law or as a  reflection  on any person,
entity, or security.


PRO-FORMA INFORMATION REQUIRED BY SFAS 148

     At  September  30,  2003,  the  Company  has  four   stock-based   employee
compensation  plans (the 2003 Stock Option Plan, the 2002 Stock Option Plan, the
1998 Stock Option Plan,  and the 1996 Stock Option Plan).  The Company  accounts
for those plans under the recognition and measurement  principles of APB Opinion
No. 25, Accounting for Stock Issued to Employees,  and related  Interpretations.
No stock-based employee  compensation cost is reflected in net loss, except when
options  granted  under those  plans had an exercise  price less than the market
value of the underlying  common stock on the date of grant.  The following table
illustrates the effect on net loss and loss per share if the company had applied
the fair value recognition  provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation, to stock-based employee compensation.

<TABLE>
<CAPTION>
                                             THREE MONTHS             NINE MONTHS
                                          ENDED SEPTEMBER 30,     ENDED SEPTEMBER 30,
                                          -------------------     -------------------
                                            2003        2002        2003        2002
                                          -------     -------     -------     -------
<S>                                       <C>         <C>         <C>         <C>
Net Loss, as reported                     ($2,205)    ($  773)    ($4,060)    ($6,502)
Compensation recognized under APB 25          623          --         623          --
Compensation recognized under SFAS 123       (925)       (313)     (1,361)       (629)
                                          -------     -------     -------     -------
  Pro-forma net loss                      ($2,507)    ($1,086)    ($4,798)    ($7,131)
                                          =======     =======     =======     =======

Net Loss per share:
Basic and diluted - as reported           ($ 0.01)    ($ 0.03)    ($ 0.05)    ($ 0.31)
                                          =======     =======     =======     =======
Basic and diluted - pro-forma             ($ 0.02)    ($ 0.05)    ($ 0.05)    ($ 0.34)
                                          =======     =======     =======     =======
</TABLE>


SEGMENT REPORTING

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

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

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

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

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

<TABLE>
<CAPTION>
                                                                 (in thousands)
                                                  -------------------------------------------
                                                     THREE MONTHS             NINE MONTHS
                                                  ENDED SEPTEMBER 30,     ENDED SEPTEMBER 30,
                                                  -------------------     -------------------
                                                    2003        2002        2003       2002
                                                  -------     -------     -------     -------
<S>                                               <C>         <C>         <C>         <C>
NET SALES:
    NeoMedia Consulting & Integration Services    $   448     $ 3,391     $ 1,971     $ 8,424
    NeoMedia Internet Switching Service                13          13          38          28
                                                  -------     -------     -------     -------
                                                  $   461     $ 3,404     $ 2,009     $ 8,452
                                                  -------     -------     -------     -------

NET LOSS:
    NeoMedia Consulting & Integration Services    ($1,855)    ($  338)    ($3,310)    ($  546)
    NeoMedia Internet Switching Service              (350)       (435)       (750)     (5,956)
                                                  -------     -------     -------     -------
                                                  ($2,205)    ($  773)    ($4,060)    ($6,502)
                                                  -------     -------     -------     -------
</TABLE>

                                                         AS OF
                                                     SEPTEMBER 30,
IDENTIFIABLE ASSETS                                      2003
    NeoMedia Consulting & Integration Services          $   603
    NeoMedia Internet Switching Service                   2,115
    Corporate                                             2,523
                                                        -------
                                                        $ 5,241
                                                        -------




                                       11
<PAGE>


SUBSEQUENT EVENTS

         On October 8, 2003,  the Company  completed its  acquisition  of Secure
Source Technologies,  Inc., a provider of security solutions and covert security
technology for the  manufacturing  and financial  services  industries,  for 3.5
million shares of NeoMedia  common stock.  With the purchase of SST, the Company
acquired eight  additional  patents that  compliment  its existing  intellectual
property portfolio.

         On October 20, 2003,  the Company  entered into a consulting  agreement
with an unrelated third party to provide services related to the  implementation
of the Company's PaperClick for Camera Cell Phone business plan in Europe over a
12-month  period.  The consultant  was paid  1,000,000  options with an exercise
price of $0.01 per share and a term of three years.

         On October 20, 2003,  the Company  entered into a consulting  agreement
with an unrelated third party to provide services related to the  implementation
of the Company's  domestic  business plan relating to PaperClick patent business
plan over a 12-month  period.  The consultant  was paid 500,000  options with an
exercise price of $0.01 per share and a term of three years.

         On  October  27,  2003,  The  Company  entered  into a  Standby  Equity
Distribution  Agreement  with  Cornell  Capital  Partners,  LP.  Pursuant to the
Standby  Equity  Distribution  Agreement,  the Company  may, at its  discretion,
periodically  sell to Cornell  shares of common stock for a total purchase price
of up to $20 million. For each share of common stock purchased under the Standby
Equity  Distribution  Agreement,  Cornell  Capital  Partners will pay 98% of the
lowest closing bid price of the Company's common stock on the OTC Bulletin Board
or other principal  market on which our common stock is traded for the 5 trading
days  immediately  following  the notice  date.  The  amount of each  advance is
subject to a maximum of $280,000 per week, not to exceed  $840,000 in any 30-day
period,  with a minimum of 6 trading days between  advances.  As a consideration
fee for  Cornell  to enter into the  agreement,  the  Company  issued 10 million
warrants  to Cornell  with an exercise  price of $0.05 per share,  and a term of
five years.  On November 7, 2003 the Company filed a  Registration  Statement on
Form SB-2 to register  the sale of up to  200,000,000  shares  under the Standby
Equity  Distribution  Agreement,  as well as the 10,000,000  warrants  issued to
Cornell Capital Partners.

         Effective  October 31, 2003,  NeoMedia adopted the 2003 Stock Incentive
Plan.  Under  the  terms of the Plan,  30,000,000  shares  of  common  stock are
initially authorized to be issued to pay compensation and other expenses related
to employees,  former employees,  consultants,  and non-employee  directors.  On
November 3, 2003,  NeoMedia filed a Form S-8 to register all  30,000,000  shares
under the 2003 Stock Incentive Plan.

         On November 10, 2003,  the Company  announced that that it has signed a
non-binding letter of intent to acquire and merge with CSI  International,  Inc.
("CSI"), of Calgary,  Alberta, Canada, a private technology products company and
worldwide  leader  in the micro  paint  repair  industry.  The LOI calls for the
issuance  of  7,000,000  shares of the  Company's  common  stock to be issued in
exchange for all  outstanding  shares of CSI. In addition,  the Company will pay
$3.5 million cash.  The merger is subject to completion of due diligence by both
sides.

CRITICAL ACCOUNTING POLICIES

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

         INTANGIBLE  ASSET  VALUATION.  The  determination  of the fair value of
certain  acquired  assets  and  liabilities  is  subjective  in nature and often
involves the use of significant estimates and assumptions.  Determining the fair
values and useful lives of intangible assets especially requires the exercise of
judgment. While there are a



                                       12
<PAGE>


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

      STOCK-BASED COMPENSATION.  The Company records stock-based compensation to
outside consultants at fair market value in general and administrative  expense.
The  Company  does not  record  expense  relating  to stock  options  granted to
employees  with an exercise  price  greater than or equal to market price at the
time of grant.  The  Company  reports  pro-forma  net loss and loss per share in
accordance with the requirements of SFAS 148 (see above).  This disclosure shows
net loss and loss per share as if the Company  had  accounted  for its  employee
stock  options  under  the fair  value  method  of those  statements.  Pro-forma
information is calculated using the Black-Scholes  pricing method at the date of
grant.   This  option  valuation  model  requires  input  of  highly  subjective
assumptions.  Because the Company's employee stock options have  characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially  affect the fair value estimate,  in
management's opinion, the existing model does not necessarily provide a reliable
single measure of fair value of its employee stock options.

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

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

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

      Revenue for resale of software and technology equipment and service fee is
recognized  based on guidance  provided in  Securities  and Exchange  Commission
(SEC) Staff  Accounting  Bulletin  No. 101,  "Revenue  Recognition  in Financial
Statements,"  as amended (SAB 101).  Software and  technology  equipment  resale
revenue is recognized  when all of the  components  necessary to run software or
hardware  have been  shipped.  Service  revenues  include  maintenance  fees for
providing system updates for software products, user documentation and technical
support  and are  recognized  over the life of the  contract.  Software  license
revenue  from  long-term  contracts  has  been  recognized  on a  percentage  of
completion  basis,  along with the  associated  services being  provided.  Other
service  revenues,  including  training and  consulting,  are  recognized as the
services are  performed.  The Company uses  stand-alone  pricing to determine an
element's  vendor  specific  objective  evidence  (VSOE) in order to allocate an
arrangement  fee amongst various pieces of a  multi-element  contract.  NeoMedia
records an allowance for uncollectible accounts on a customer-by-customer  basis
as appropriate.


INTANGIBLE ASSETS

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



                                       13
<PAGE>


FINANCING AGREEMENTS

     As of September 30, 2003,  the Company was party to a commercial  financing
agreement with GE Access that provides short-term financing for certain computer
hardware and software purchases.  This arrangement allows the Company to re-sell
high-dollar  technology equipment and software without committing cash resources
to financing  the purchase.  The Company and GE Access are  currently  operating
under an  additional  arrangement  under  which  GE  Access  retains  50% of the
Company's  proceeds from sales financed by GE Access, and applies the portion of
proceeds  toward  past  due  balances.  This  arrangement  reduces  by half  the
Company's  cash flow from  resales of  equipment  and  software  financed  by GE
Access,  until the  balance  owed to GE Access is paid in full.  During  October
2003,  the Company and GE entered into an additional  agreement  under which the
Company also makes regular payment against its past due balances. Termination of
the  Company's  financing  relationship  with GE Access  could  have a  material
adverse  effect  the  Company's  financial  condition.  Management  expects  the
agreement to remain in place in the near future.  As of September 30, 2003,  the
amount payable under this financing arrangement was approximately $345,000.

OTHER DEBTS

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

      During November 2002, NeoMedia issued Convertible Secured Promissory Notes
with an aggregate face value of $60,000 to 3 separate parties, including Charles
W. Fritz,  Chairman of the Board of Directors of NeoMedia;  William E. Fritz, an
outside  director;  and James J.  Keil,  an  outside  director.  The notes  bear
interest  at a rate of 15% per annum,  and  matured  at the  earlier of i.) four
months, or ii.) the date the shares underlying the Cornell Equity Line of Credit
were registered with the SEC. The notes were  convertible,  at the option of the
holder,  into  either  cash or shares of our common  stock at a 30%  discount to
either  market  price upon  closing,  or upon  conversion,  whichever  is lower.
NeoMedia  also  granted to the  holders an  additional  1,355,670  shares of its
common stock and 60,000 warrants to purchase shares of its common stock at $0.03
per share,  with a term of three  years.  The warrants and shares were issued in
January 2003.  In addition,  since this debt is  convertible  into equity at the
option of the note holder at beneficial conversion rates, an embedded beneficial
conversion  feature was  recorded as a debt  discount  and  amortized  using the
effective interest rate over the life of the debt in accordance with EITF 00-27.
Total cost of beneficial conversion feature, fair value of the stock and cost of
warrants  issued  exceed the face value of the notes  payable,  therefore,  only
$60,000,  the face amount of the note, was  recognizable  as debt discount,  and
amortized  over the life of the notes  payable.  During  March 2003,  two of the
affiliated  parties,  Mr.  William  Fritz and Mr.  Keil,  agreed  to extend  the
maturity  date due to the  Company's  capital  constraints.  The Company  repaid
Charles  Fritz's note in full during March 2003, and repaid James J. Keil's note
in full during April 2003.  The Company paid $30,000 of the principal on William
Fritz's note during  April 2003,  and entered into a new note with Mr. Fritz for
the remaining  $10,000.  The new note bears  interest at a rate of 10% per annum
and matures in April 2004.  The new note also includes a provision  under which,
as consideration for the loan, Mr. Fritz will receive a 3% royalty on all future
revenue generated from the Company's intellectual property.


GOING CONCERN

      The accompanying  condensed  consolidated  financial  statements have been
prepared on a going concern basis,  which contemplates the realization of assets
and the  satisfaction  of liabilities in the normal course of business.  Through
September  30,  2003,  the  Company  has not been  able to  generate  sufficient
revenues from its operations to cover its costs and operating expenses. Although
the Company  has been able to issue its common  stock or other  financing  for a
significant  portion of its expenses,  it is not known whether  NeoMedia will be
able to continue this practice, or if its revenue will increase significantly to
be able to meet its cash



                                       14
<PAGE>


operating expenses.  This, in turn, raises substantial doubt about the Company's
ability to continue as a going  concern.  Management  believes  that the Company
will be able to raise additional  funds through its Standby Equity  Distribution
Agreement with Cornell.  However, there can be no assurances that the market for
the  Company's  stock will support the sale of  sufficient  shares of NeoMedia's
stock  to  raise  sufficient  capital  to  sustain  operations.   The  condensed
consolidated  financial  statements  do not include any  adjustments  that might
result from the outcome of these uncertainties.





                                       15
<PAGE>


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

OVERVIEW

      Over the past several years,  NeoMedia  Technologies,  Inc.'s ("NeoMedia")
focus has been aimed toward the intellectual property  commercialization unit of
its Internet Switching Systems (NISS,  formerly NAS) business.  NISS consists of
the patented  PaperClickTM  technology  that enables users to link directly from
the physical to the digital world,  as well as the patents  surrounding  certain
physical-world-to-web  linking  processes.  NeoMedia's  mission  is  to  invent,
develop,  and commercialize  technologies and products that effectively leverage
the integration of the physical and electronic to provide clear functional value
for NeoMedia's end-users,  competitive advantage for their business partners and
return-on-investment  for their investors. To this end, NeoMedia has signed four
intellectual  property licenses since its inception,  and also recently acquired
eight   additional   patents  as  part  of  its  acquisition  of  Secure  Source
Technologies,  Inc. On September 8, 2003,  NeoMedia announced its PaperClick for
Camera Cell Phones  product,  which reads and decodes UPC/EAN or other bar codes
to link users to the Internet,  providing information and enabling e-commerce on
a  compatible  camera cell phone,  such as the Nokia 3650 model.  On October 30,
2003, NeoMedia unveiled its go-to-market strategy for the product.  NeoMedia has
already  established  relationships  with several key  partners  outlined in the
strategy,  including  agents Big Gig  Strategies  and SRP  Consulting,  European
advertising agency 12Snap, and worldwide brand communication company Seven.

      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 THREE MONTHS ENDED  SEPTEMBER 30, 2003 AS COMPARED
TO THE THREE MONTHS ENDED SEPTEMBER 30, 2002

      NET SALES.  Total net sales for the three months ended  September 30, 2003
were $461,000, which represented a $2,943,000,  or 86%, decrease from $3,404,000
for the three months ended September 30, 2002. This decrease  primarily resulted
from reduced resales of Sun Microsystems  equipment due to increased competition
and  general  economic  conditions.  NeoMedia  intends  to  continue  to  pursue
additional resales of equipment,  software and services,  and to the extent that
such sales can be made,  NeoMedia  expects resales to more closely  resemble the
results for the three months  ended  September  30, 2003,  rather than the three
months ended September 30, 2002.

      LICENSE  FEES.  License  fees  were  $69,000  for the three  months  ended
September 30, 2003, compared with $150,000, for the three months ended September
30, 2002, a decrease of $81,000,  or 54%.  NeoMedia  will continue to attempt to
increase  license  sales.  NeoMedia  expects  license fees to remain  materially
constant over the next 12 months.

      RESALES OF SOFTWARE AND TECHNOLOGY  EQUIPMENT AND SERVICE FEES. Resales of
software and technology  equipment and service fees decreased by $2,862,000,  or
88%, to $392,000 for the three months ended  September  30, 2003, as compared to
$3,254,000  for the  three  months  ended  September  30,  2002.  This  decrease
primarily resulted from increased  competition and general economic  conditions.
NeoMedia intends to continue to pursue additional resales of equipment, software
and services,  and to the extent that such sales can be made,  NeoMedia  expects
resales  to more  closely  resemble  the  results  for the  three  months  ended
September 30, 2003, rather than the three months ended September 30, 2002.

      COST OF SALES. Cost of license fees was $76,000 for the three months ended
September 30, 2003, a decrease of $4,000, or 0.5%, compared with $80,000 for the
three months ended  September 30, 2002. The decrease is consistent with 2003 and
NeoMedia  expects  license fees will not fluctuate  materially  over the next 12
months.  Cost of resales was $378,000 for the three months ended  September  30,
2003, a decrease of $2,364,000,  or 86%,  compared with $2,742,000 for the three
months ended  September 30, 2002. The decrease  resulted from decreased  resales
for the three months ended  September  30, 2003 compared with the same period in
2002.  Cost of  resales as a  percentage  of  related  resales  was 96% in 2003,
compared  to 84% in 2002.  This  increase  is due to an  increased  sales mix of
lower-margin equipment products sold in 2003 compared to 2002, combined with the
general erosion



                                       16
<PAGE>


of margins in the resale sector.  NeoMedia expects costs of resales to fluctuate
with the sales of its equipment, software, and services over the next 12 months.

      GROSS PROFIT. Gross profit was $7,000 for the three months ended September
30, 2003,  compared with $582,000 for the three months ended September 30, 2002.
This decrease of $575,000, or 99%, was the result of lower resales of, and lower
margins on, computer equipment, software, and services in 2003 relative to 2002.

      SALES AND  MARKETING.  Sales and marketing  expenses were $146,000 for the
three months ended September 30, 2003, a decrease of $61,000,  or 29%,  compared
with  $207,000 for the three  months ended  September  30, 2002.  This  decrease
resulted  primarily from reduced sales commissions earned on lower sales in 2003
as  compared  with  2002,  as well as a smaller  sales  force in 2003.  NeoMedia
expects sales and marketing  expense to fluctuate  with sales of it  proprietary
and resold products over the next 12 months.

      GENERAL AND ADMINISTRATIVE.  General and administrative expenses increased
by $944,000,  or 95%, to  $1,940,000  for the three months ended  September  30,
2003,  compared to $996,000 for the three months ended  September 30, 2002.  The
increase  resulted  primarily from non-cash  expenses  relating to the Company's
option repricing program,  expense for stock options issued with exercise prices
below market price,  and  stock-based  professional  service  expense.  NeoMedia
expects general and  administrative  expense to remain materially  constant over
the next 12 months.

      RESEARCH AND  DEVELOPMENT.  During the three months  ended  September  30,
2003,  NeoMedia charged to expense $78,000 of research and development  costs, a
decrease of $72,000 or 48% compared to $150,000 charged to expense for the three
months ended  September  30, 2002.  The decrease is primarily due to a continued
reduction in research and development  overhead since the first quarter of 2002.
NeoMedia  expects research and development  costs will not fluctuate  materially
over the next 12 months.

      (GAIN)  LOSS ON  EXTINGUISHMENT  OF DEBT.  During the three  months  ended
September 30, 2003,  the Company  recognized a net loss from  extinguishment  of
debt of $24,000 due to the difference  between the cash or market value of stock
issued  to  settle  debt  and the  carrying  value  of the  debt at the  time of
settlement.

      INTEREST   EXPENSE/(INCOME),   NET.  Interest   expense/(income)  consists
primarily of interest accrued for creditors as part of financed purchases,  past
due balances,  notes payable and interest earned on cash equivalent investments.
Interest  expense/(income)  increased by $22,000 to $24,000 for the three months
ended  September  30, 2003 from $2,000 for the three months ended  September 30,
2002, due to interest  expense during the third quarter of 2003  associated with
notes payable and past due trade accounts payable.

      NET LOSS.  The net loss for the three months ended  September 30, 2003 was
$2,205,000,  which  represented  a  $1,432,000,  or 185% increase from a loss of
$773,000 for the three months ended  September 30, 2002.  The increase  resulted
primarily  from  non-cash  expenses  in 2003  relating to the  company's  option
repricing  program,  expense for stock options issued with exercise prices below
market price, and stock-based  professional  service  expense,  as well as lower
sales and gross profit in 2003 compared to 2002.

RESULTS OF OPERATIONS  FOR THE NINE MONTHS ENDED  SEPTEMBER 30, 2003 AS COMPARED
TO THE NINE MONTHS ENDED SEPTEMBER 30, 2002

      NET SALES.  Total net sales for the nine months ended  September  30, 2003
were  $2,009,000,   which  represented  a  $6,443,000,  or  76%,  decrease  from
$8,452,000 for the nine months ended September 30, 2002. This decrease primarily
resulted  from reduced  resales of Sun  Microsystems  equipment due to increased
competition and general  economic  conditions.  NeoMedia  intends to continue to
pursue additional resales of equipment, software and services, and to the extent
that such sales can be made,  NeoMedia  expects resales to more closely resemble
the results for the nine months ended  September 30, 2003,  rather than the nine
months ended September 30, 2002.

      LICENSE  FEES.  License  fees  were  $338,000  for the nine  months  ended
September 30, 2003, compared with $303,000,  for the nine months ended September
30, 2002, an increase of $35,000,  or 12%.  NeoMedia will continue to attempt to
increase sales of these high-margin  products.  NeoMedia expects license fees to
remain materially constant over the next 12 months.



                                       17
<PAGE>


      RESALES OF SOFTWARE AND TECHNOLOGY  EQUIPMENT AND SERVICE FEES. Resales of
software and technology  equipment and service fees decreased by $6,478,000,  or
79%, to $1,671,000 for the nine months ended  September 30, 2003, as compared to
$8,149,000 for the nine months ended September 30, 2002. This decrease primarily
resulted from increased  competition and general economic  conditions.  NeoMedia
intends to continue to pursue  additional  resales of  equipment,  software  and
services,  and to the  extent  that  such  sales can be made,  NeoMedia  expects
resales to more closely resemble the results for the nine months ended September
30, 2003, rather than the nine months ended September 30, 2002.

      COST OF SALES. Cost of license fees was $227,000 for the nine months ended
September 30, 2003, a decrease of $537,000,  or 70%,  compared with $764,000 for
the nine months ended  September  30, 2002.  The decrease  resulted from reduced
amortization  expense in 2003 of capitalized  development  costs relating to the
PaperClick,  MLM/Affinity,  and Qode products that were written off during 2002.
Cost of resales was $1,566,000  for the nine months ended  September 30, 2003, a
decrease of  $5,041,000,  or 76%,  compared with  $6,607,000 for the nine months
ended September 30, 2002. The decrease  resulted from decreased  resales in 2003
compared with 2002.  Cost of resales as a percentage of related  resales was 94%
for the nine  months  ended  September  30,  2003,  compared to 82% for the same
period in 2002.  This increase is due to an increased  sales mix of lower-margin
equipment  products  sold in 2003  compared to 2002,  combined  with the general
erosion of margins in the resale  sector.  NeoMedia  expects costs of resales to
fluctuate with the sales of its equipment,  software, and services over the next
12 months.

      GROSS  PROFIT.  Gross  profit  was  $216,000  for the  nine  months  ended
September 30, 2003, compared with $1,081,000 for the nine months ended September
30, 2002.  This decrease of $865,000,  or 80%, was primarily the result of lower
resales of, and lower margin on, computer equipment,  software,  and services in
2003 relative to 2002.

      SALES AND  MARKETING.  Sales and marketing  expenses were $407,000 for the
nine months ended September 30, 2003, a decrease of $312,000,  or 43%,  compared
with  $719,000  for the nine months ended  September  30,  2002.  This  decrease
resulted  primarily from reduced sales commissions earned on lower sales in 2003
as  compared  with  2002,  as well as a smaller  sales  force in 2003.  NeoMedia
expects sales and marketing  expense to fluctuate  with sales of it  proprietary
and resold products over the next 12 months.

      GENERAL AND ADMINISTRATIVE.  General and administrative expenses decreased
by $147,000,  or 4%, to $3,409,000 for the nine months ended September 30, 2003,
compared to  $3,556,000  for the nine  months  ended  September  30,  2002.  The
increase  resulted  primarily from non-cash  expenses  relating to the company's
option repricing program,  expense for stock options issued with exercise prices
below market price,  and  stock-based  professional  service  expense.  NeoMedia
expects general and  administrative  expense to remain materially  constant over
the next 12 months.

      RESEARCH AND DEVELOPMENT. During the nine months ended September 30, 2003,
NeoMedia  charged to expense  $243,000  of research  and  development  costs,  a
decrease of $440,000 or 64% compared to $683,000 charged to expense for the nine
months ended  September  30, 2002.  The decrease is primarily due to a continued
reduction  in  research  and  development  overhead  since first  quarter  2002.
NeoMedia  expects research and development  costs will not fluctuate  materially
over the next 12 months.

      LOSS ON IMPAIRMENT OF ASSETS.  During the nine months ended  September 30,
2002,  NeoMedia  recognized a loss on impairment of assets of $1,003,000 for the
write-off   capitalized   development   costs   relating   to   its   PaperClick
physical-world-to-internet  software. NeoMedia did not take an impairment charge
during the nine months ended September 30, 2003.

      (GAIN)  LOSS ON  EXTINGUISHMENT  OF DEBT.  During the three  months  ended
September 30, 2003,  the Company  recognized a net loss from  extinguishment  of
debt of $24,000, due to the difference between the cash or market value of stock
issued  to  settle  debt  and the  carrying  value  of the  debt at the  time of
settlement.

      INTEREST  EXPENSE  (INCOME),  NET.  Interest   expense/(income)   consists
primarily of interest accrued for creditors as part of financed purchases,  past
due balances,  notes payable and interest earned on cash equivalent investments.
Interest expense/(income) increased by $94,000, or 95%, to $193,000 for the nine
months ended September 30, 2003 from $99,000 for the nine months ended September
30, 2002, due to interest  expense  during the third quarter of 2003  associated
with notes payable and past due trade accounts payable.



                                       18
<PAGE>


      LOSS ON DISPOSAL OF  DISCONTINUED  BUSINESS  UNIT.  During the nine months
ended  September  30,  2002,  the  Company  recognized  a loss  on  disposal  of
discontinued business unit of $1,523,000 to write off the remaining Qode-related
assets. No disposal loss was recognized in 2003.

      NET LOSS.  The net loss for the nine months ended  September  30, 2003 was
$4,060,000,  which  represented  a  $2,442,000,  or 38% decrease  from a loss of
$6,502,000 for the nine months ended  September 30, 2002. The decrease  resulted
primarily  from an  impairment  charge  of  $1,003,000  relating  to  NeoMedia's
PaperClick  assets and a loss on disposal of the Company's Qode business unit of
$1,523,000 in 2002. The decrease was offset by higher non-cash  expenses in 2003
relating to the company's  option repricing  program,  expense for stock options
issued with exercise  prices below market price,  and  stock-based  professional
service  expense,  as well as lower sales and gross  profit in 2003  compared to
2002.

LIQUIDITY AND CAPITAL RESOURCES

      The  accompanying   unaudited  financial  statements  have  been  prepared
assuming NeoMedia will continue as a going concern.  Accordingly,  the financial
statements  do not include any  adjustments  that might  result from  NeoMedia's
inability to continue as a going concern.  NeoMedia may obtain up to $20 million
over the next two years through its Standby Equity  Distribution  Agreement with
Cornell Capital Partners LP. As of October 31, 2003, NeoMedia had obtained gross
funding of $3.6 million under its previous Equity Line of Credit  Agreement with
Cornell Capital  Partners.  Management  believes that this additional  financing
will be sufficient to sustain  operations  through  December 31, 2003,  however,
there can be no assurances that the market for NeoMedia's stock will support the
sale of sufficient shares of NeoMedia's common stock to raise sufficient capital
to sustain  operations  beyond that date. If necessary  funds are not available,
NeoMedia's business and operations would be materially adversely affected and in
such event, NeoMedia would attempt to reduce costs and adjust its business plan.

      Net cash used in operating activities was approximately $2,057,000 for the
nine-month  period ended  September  30, 2003,  compared  with  $589,000 for the
nine-month  period  ended  September  30,  2002.  During the nine  months  ended
September 30, 2003,  trade accounts  receivable  inclusive of costs in excess of
billings decreased $149,000, while accounts payable, amounts due under financing
arrangements,  accrued expenses, and deferred revenue decreased $698,000. During
the nine months ended September 30, 2002,  trade accounts  receivable  increased
$610,000,  while accounts  payable,  amounts due under  financing  arrangements,
accrued expenses, and deferred revenue increased $2,067,000. NeoMedia's net cash
flow from/(used in) investing activities for the nine months ended September 30,
2003 and 2002, was ($64,000) and ($24,000),  respectively.  Net cash provided by
financing  activities for the nine months ended September 30, 2003 and 2002, was
$3,099,000 and $488,000, respectively.

      During the nine months ended  September 30, 2003 and 2002  NeoMedia's  net
loss  totaled  approximately  $4,060,000  and  $6,502,000,  respectively.  As of
September  30,  2003  NeoMedia  had   accumulated   losses  from  operations  of
approximately  $74,825,000,  had a  working  capital  deficit  of  approximately
$8,134,000,  and approximately  $1,048,000 in cash balances. As of September 30,
2003, the Company also had $600,000 of restricted  cash that was used in October
to pay off the majority of the AirClic promissory note and accrued interest (see
"Legal Proceedings").

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




                                       19
<PAGE>


ITEM 3.  CONTROLS AND PROCEDURES


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

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

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




                                       20
<PAGE>


                          PART II -- OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

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

      NEOMEDIA SHAREHOLDERS

      During January 2002, certain of NeoMedia's  shareholders filed a complaint
with the Securities and Exchange Commission, alleging that the shareholders were
not included in the special  shareholders  meeting of November 25, 2001, to vote
on the  issuance of 19 million  shares of NeoMedia  common  stock.  On March 11,
2002, NeoMedia filed its response claiming that NeoMedia had fully complied with
all of its  obligations  under  the laws  and  regulations  administered  by the
Securities  and  Exchange  Commission,  as  well as with  its  obligation  under
Delaware General  Corporation Law. No further action has been taken with respect
to this matter.

      AIRCLIC, INC. LITIGATION

      On  September  6, 2001,  AirClic,  Inc.  ("AirClic")  filed  suit  against
NeoMedia in the Court of Common Pleas, Montgomery County, Pennsylvania, seeking,
among other things, the accelerated  repayment of a $500,000 loan it advanced to
NeoMedia  pursuant  to the terms of a Secured  Promissory  Note made on July 11,
2003 and a non-binding  Letter of Intent dated July 3, 2001 between  AirClic and
NeoMedia.  The note was secured by substantially all of NeoMedia's  intellectual
property,  including the core physical  world-to-Internet  technologies.  In the
suit,  NeoMedia  acknowledged  our  obligations  under  the  note  but  filed  a
counterclaim   against   AirClic   seeking   damages   for   fraud,    negligent
misrepresentation and promissory estoppel.

      On October 3, 2003,  NeoMedia paid AirClic the principal  plus interest in
the  approximate  amount of $610,000.  On November 3, 2003,  NeoMedia  reached a
settlement  agreement  with  AirClic  which will end the suit.  The  parties are
currently  drafting the release  document and expect the suit to be dismissed by
the end of November 2003. As of September 30, 2003, the Company had  transferred
$600,000  into a  restricted  cash  account  to be used to satisfy  the  AirClic
obligation.  This restricted  cash, along with additional funds of approximately
$10,000 transferred subsequently, was used to pay the principal plus interest on
October 3, 2003.  The  Company  had an  additional  accrual  of  $100,000  as of
September 30, 2003, to pay AirClic's legal fees.

      DIGITAL:CONVERGENCE LITIGATION

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

      OTHER LITIGATION

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



                                       21
<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.
On October 23,  2003,  we settled  this matter for 3 million  shares of NeoMedia
common  stock,  subject to  registration,  plus $10,000 cash payments to be made
over a period of 6 months.  If the  shares  are not  registered  for  re-sale by
February  14,  2004,  Orsus has the option to return the shares and receive cash
payments in lieu of the stock. The Company has an accrued  liability of $331,000
relating to this matter as of September 30, 2003.

      On January 22,  2002,  Rapidigm,  Inc.  sued  NeoMedia  to collect  unpaid
professional  service  expense  incurred in 2001 in the amount of  approximately
$15,000. NeoMedia and Rapdigm reached a settlement in February 2002, under which
NeoMedia  made  payments  totaling  approximately  $7,000.  On April  22,  2003,
Rapidigm  obtained a judgment for the remaining  balance of the  liability  plus
court fees and interest.  NeoMedia has  continued to make  payments  against the
liability,  and has a remaining accrued liability of approximately  $3,000 as of
September 30, 2003.

      On July 27, 2002,  NeoMedia's  former  General  Counsel filed suit in U.S.
District  Court,  Ft.  Myers  division,  seeking  payment of the 2000  executive
incentive,  severance and unpaid  vacation  days in the amount of  approximately
$154,000. In June 2001, NeoMedia's compensation committee approved an adjustment
to the 2000 executive incentive plan that reduced the executive incentive payout
as a result of the write-off of the  Digital:Convergence  intellectual  property
license  contract in the second quarter of 2001. As a result,  NeoMedia  reduced
the accrual for such payout by an aggregate of approximately $1.1 million in the
second quarter of 2002. The plaintiff is seeking  payment of the entire original
incentive  payout.  On November 12,  2002,  NeoMedia  settled the  lawsuit.  The
settlement calls for cash payments totaling  approximately $90,000 over a period
of ten months,  plus 250,000  vested  options to purchase  shares of  NeoMedia's
common stock at an exercise  price of $0.01 with a term of five years.  NeoMedia
had a liability of approximately  $7,000 relating to this matter as of September
30, 2003.

      On September 12, 2002,  R. R.  Donnelley & Sons Company filed a summons in
the  Circuit  Court of The  Twentieth  Judicial  Circuit in and for Lee  County,
Florida,  seeking  payment of  approximately  $92,000  in past due  professional
services  bills,  plus interest and attorney  fees.  During July 2003,  NeoMedia
settled  the suit for cash  payments  over a period of  approximately  one year.
NeoMedia has an accrued  liability  of  approximately  $97,000  relating to this
matter as of September 30, 2003.

      On September 13, 2002, Wachovia Bank, N.A., owner of the building in which
NeoMedia's  Ft. Myers,  Florida  headquarters  is located,  filed a complaint in
Circuit Court of The Twentieth Judicial Circuit in and for Lee County,  Florida,
seeking payment of approximately  $225,000 in past due rents. The complaint also
seeks payment of all future rent payments under the lease term, which expires in
January  2004,  as well as  possession  of the  premises.  On October 28,  2002,
NeoMedia and Wachovia reached a settlement on this matter.  The settlement calls
for cash payments of past due rents of  approximately  $250,000 over a period of
16 months.  NeoMedia also vacated  approximately  70% of the unused space in its
headquarters,  and the rent for the  remainder  of the lease,  which  expires in
January 2004, was reduced according to square footage used. NeoMedia has accrued
a liability of  approximately  $180,000  relating to this matter as of September
30, 2003.

     On October 21, 2002, International Digital Scientific,  Inc. ("IDSI") filed
a demand for  arbitration  relating to past due payments on an  uncollateralized
note payable by NeoMedia to IDSI dated  October 1, 1994.  The note was issued in
exchange for the purchase by NeoMedia of computer  software from IDSI.  The note
calls for NeoMedia to make  payments of the greater of: (i) 5% of the  collected
gross revenues from sales of software or (ii) $16,000 per month. As of September
30, 2003,  NeoMedia had recorded a current  portion of long term debt to IDSI of
approximately  $591,000.  The net carrying value of future  obligation under the
note was  approximately  $684,000 as of September 30, 2003. On October 31, 2003,
NeoMedia  paid off all past due and  future  obligations  under the note to IDSI
through the issuance of 8,000,000  shares of its common stock. If the shares are
not registered  for re-sale by February 14, 2004,  IDSI has the option to return
the shares and proceed under the terms of the original purchase agreement. .

      On October 28, 2002,  Merrick & Klimek,  P.C.,  filed a complaint  against
NeoMedia seeking payment of  approximately  $170,000 in past due legal services.
The amount in question is subject to an unsecured  promissory  note that matured
unpaid on February 28, 2002. On May 1, 2003,  NeoMedia settled the suit for cash
payments totaling  approximately  $196,000,  to be paid at a rate of $30,000 per
quarter until the balance is



                                       22
<PAGE>


satisfied.  If the balance is paid within one year of the  settlement,  NeoMedia
will  not  pay  interest  charges.   NeoMedia  has  a  remaining   liability  of
approximately $120,000 relating to this matter as of September 30, 2003.

      On November  11, 2002,  Avnet/Hallmark  Computer  Marketing  Group filed a
complaint against NeoMedia seeking payment of approximately  $66,000 in past due
amounts relating to hardware and software  re-sold by NeoMedia.  During December
2002,  NeoMedia  made payment of  approximately  $30,000 to Avnet,  reducing the
balance owed to approximately  $37,000. On April 1, 2003, the plaintiff received
a judgment from the circuit court for the remaining balance.  NeoMedia and Avnet
have agreed to a payment  plan under  which the Company  will pay the balance in
full by April 2004.  NeoMedia had a liability of approximately  $37,000 relating
to this matter as of September 30, 2003.

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

      On February 6, 2003, Allen Norton & Blue, P.A., filed a complaint  against
NeoMedia  seeking payment of  approximately  $25,000 in past due legal services.
The parties  have agreed to a payment  plan  relating to this matter under which
the balance will be paid over approximately 12 months.  NeoMedia had a liability
of approximately $19,000 relating to this matter as of September 30, 2003.

      On April 18, 2003, a former  participant in NeoMedia's  2001  self-insured
health plan sued  NeoMedia  to recover  approximately  $40,000 in unpaid  health
claims from 2001.  NeoMedia is attempting to negotiate a settlement prior to the
court date.  NeoMedia had accrued the claims  related to this suit in the amount
of approximately $51,000 as of September 30, 2003.


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

      On September 24, 2003,  the Company's  shareholders  voted to increase the
number of shares of common stock, par value $0.01 per share, that the Company is
authorized to issue from 200,000,000 to 1,000,000,000.


ITEM 3.  DEFAULT UPON SENIOR SECURITIES

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





                                       23
<PAGE>


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

      On September 24, 2003,  the Company held a shareholder  meeting,  at which
its shareholders approved the following three proposals:

          a)   To re-elect the current Board of Directors  until the next annual
               meeting of shareholders.

          b)   To increase the number of  authorized  common  shares,  $0.01 par
               value, from 200,000,000 to 1,000,000,000

          c)   To approve the 2003 Stock Option Plan, under which the Company is
               authorized to issue options to purchase up to 150,000,000  shares
               of common stock


ITEM 5.  OTHER INFORMATION

         None.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      EXHIBITS:


<TABLE>
<CAPTION>
EXHIBIT NO.    DESCRIPTION                                             LOCATION
-----------    -----------                                             --------

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

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

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

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


         (b)      REPORTS ON FORM 8-K:

NeoMedia  filed a report on Form 8-K on October 3, 2003,  reporting  that it had
terminated its letter of intent to merge with Loch Energy, Inc.

NeoMedia  filed a report on Form 8-K on October 9, 2003,  reporting  that it had
completed its pending merger with Secure Source Technologies, Inc.




                                       24
<PAGE>


                                   SIGNATURES


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


                            NEOMEDIA TECHNOLOGIES, INC.
                            Registrant

Date: November 17, 2003     By: /s/ Charles T. Jensen
                            ----------------------------------------------------
                            Charles T. Jensen, President, Acting Chief Executive
                            Officer, Chief Operating Officer, and Director


Date: November 17, 2003     By: /s/ David A. Dodge
                            ----------------------------------------------------
                            David A. Dodge, Vice President,
                            Chief Financial Officer, and Controller






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