UNITED STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.   20549





FORM
10 - Q





x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934





For
the quarterly period ended June 30, 2009





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





For
the transition period from __________ to ____________





Commission
File Number 0-21743





NeoMedia
Technologies, Inc.


(Exact
Name of Issuer as Specified In Its Charter)





Delaware
              
              36-3680347(State
      or other jurisdiction of
              
              (I.R.S.
      Employerincorporation
      or organization)
              
              Identification
      No.)





Two
Concourse Parkway, Suite 500, Atlanta, GA 30328


(Address,
including zip code, of principal executive offices)





678-638-0460


(Registrants’
telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12
months, and (2) has been subject to such filing requirements for the past 90
days. Yes x   No  ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files. Yes  ̈   No  ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
accelerated filer  ̈  Accelerated
filer  ̈   Non-accelerated
filer  ̈Smaller
Reporting Company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes  ̈    No
x





The
number of outstanding shares of the registrant’s Common Stock on August 11, 2009
was 2,048,912,609.









NeoMedia
Technologies, Inc.


Form
10-Q


For
the Quarterly Period Ended June 30, 2009


Index





PagePART
      I
              Financial
      Information
              2ITEM
      1.
              Financial
      Statements
              2ITEM
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              20ITEM
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk
              25ITEM
      4T.
              Controls
      and Procedures
              25PART
      II
              Other
      Information
              27ITEM
      1.
              Legal
      Proceedings
              27ITEM
      1A.
              Risk
      Factors
              27ITEM
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              27ITEM
      3.
              Defaults
      Upon Senior Securities
              27ITEM
      4.
              Submission
      of Matters to A Vote of Security Holders
              27ITEM
      5.
              Other
      Information
              27ITEM
      6.
              Exhibits
              28Signatures
              34





FORWARD-LOOKING
STATEMENTS





This Form
10-Q contains “forward-looking statements” relating to NeoMedia Technologies,
Inc., a Delaware corporation, which represent our current expectations or
beliefs including, but not limited to, statements concerning our operations,
performance, financial condition and growth. For this purpose, any statements
contained in this Form 10-Q that are not statements of historical fact are
forward-looking statements. Without limiting the generality of the foregoing,
words such as “may”, “anticipate”, “intend”, “could”, “estimate”, or “continue”
or the negative or other comparable terminology are intended to identify
forward-looking statements. These statements, by their nature, involve
substantial risks and uncertainties, such as credit losses, dependence on
management and key personnel, variability of quarterly results, the ability to
continue our growth strategy and competition, certain of which are beyond our
control. Should one or more of these risks or uncertainties materialize or
should the underlying assumptions prove incorrect, actual outcomes and results
could differ materially from those indicated in the forward-looking
statements.





Any
forward-looking statement speaks only as of the date on which such statement is
made, and we undertake no obligation to update any forward-looking statement or
statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time and it is not possible for us to predict all of
such factors, nor can we assess the impact of each such factor on the business
or the extent to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any forward-looking
statements.


1


PART
I - FINANCIAL INFORMATION


ITEM
1.  Financial Statements





NeoMedia
Technologies, Inc. and Subsidiaries


Condensed
Consolidated Balance Sheets


(in
thousands, except share and per share data)





June 30,
                
                
                December 31,2009
                
                
                2008(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                
                $
                303
                
                
                $
                1,259Trade
      accounts receivable, net of allowance for doubtful accounts of $0 and $0,
      respectively
                
                
                56
                
                
                
                102Inventories,
      net of allowance for obsolete & slow-moving inventory of $65 and $81
      respectively
                
                
                167
                
                
                
                117Prepaid
      expenses and other current assets
                
                
                444
                
                
                
                544Total
      current assets
                
                
                970
                
                
                
                2,022Property,
      equipment and leasehold improvements, net
                
                
                73
                
                
                
                79Goodwill
                
                
                3,418
                
                
                
                3,418Proprietary
      software, net
                
                
                2,406
                
                
                
                2,738Patents
      and other intangible assets, net
                
                
                2,143
                
                
                
                2,293Cash
      surrender value of life insurance policies
                
                
                566
                
                
                
                508Other
      long-term assets
                
                
                417
                
                
                
                430Total
      assets
                
                $
                9,993
                
                
                $
                11,488LIABILITIES
      AND SHAREHOLDERS’ DEFICITCurrent
      liabilities:Accounts
      payable
                
                $
                217
                
                
                $
                134Taxes
      payable
                
                
                9
                
                
                
                7Accrued
      expenses
                
                
                7,206
                
                
                
                5,787Deferred
      revenues and customer prepayments
                
                
                314
                
                
                
                403Notes
      payable
                
                
                15
                
                
                
                50Accrued
      purchase price guarantee
                
                
                4,535
                
                
                
                4,614Deferred
      tax liability
                
                
                706
                
                
                
                706Derivative
      financial instruments - warrants
                
                
                13,591
                
                
                
                1,189Derivative
      financial instruments - debentures payable
                
                
                34,471
                
                
                
                26,256Debentures
      payable - carried at amortized cost
                
                
                11,593
                
                
                
                11,227Debentures
      payable - carried at fair value
                
                
                19,580
                
                
                
                19,892Total
      current liabilities
                
                
                92,237
                
                
                
                70,265Commitments
      and contingencies (Note 7)Series
      C convertible preferred stock, $0.01 par value, 30,000 shares authorized,
      18,424 and 19,144 shares issued and outstanding, liquidation value of
      $18,424 and $19,144
                
                
                18,424
                
                
                
                19,144Shareholders’
      deficit:Common
      stock, $0.01 par value, 5,000,000,000 shares authorized, 1,803,018,412 and
      1,375,056,229 shares issued and 1,799,867,143 and 1,371,904,960
      outstanding, respectively
                
                
                17,999
                
                
                
                13,719Additional
      paid-in capital
                
                
                123,355
                
                
                
                120,430Accumulated
      deficit
                
                
                (241,178
                )
                
                
                (211,305
                )Accumulated
      other comprehensive loss
                
                
                (65
                )
                
                
                14Treasury
      stock, at cost, 201,230 shares of common stock
                
                
                (779
                )
                
                
                (779
                )Total
      shareholders’ deficit
                
                
                (100,668
                )
                
                
                (77,921
                )Total
      liabilities and shareholders’ deficit
                
                $
                9,993
                
                
                $
                11,488





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


2


NeoMedia
Technologies, Inc. and Subsidiaries


Condensed
Consolidated Statements of Operations (Unaudited)


(in
thousands, except share and per share data)





For the three months endedJune 30,
                
                
                June 30,2009
                
                
                2008Net
      sales
                
                $
                136
                
                
                $
                207Cost
      of sales
                
                
                281
                
                
                
                292Gross
      deficit
                
                
                (145
                )
                
                
                (85
                )Sales
      and marketing expenses
                
                
                178
                
                
                
                655General
      and administrative expenses
                
                
                863
                
                
                
                1,367Research
      and development costs
                
                
                350
                
                
                
                655Operating
      loss
                
                
                (1,536
                )
                
                
                (2,762
                )Gain
      on extinguishment of debt
                
                
                -
                
                
                
                18Gain
      from change in fair value of hybrid financial instruments
                
                
                23,343
                
                
                
                4,052Gain
      from change in fair value of derivative liability -
    warrants
                
                
                20,879
                
                
                
                1,473Gain
      (loss) from change in fair value of derivative liability -
      debentures
                
                
                37,978
                
                
                
                (8,006
                )Other
      interest expense, net
                
                
                (2,600
                )
                
                
                (4,126
                )Income
      (loss) from continuing operations
                
                
                78,064
                
                
                
                (9,351
                )Income
      from discontinued operations
                
                
                -
                
                
                
                154Net
      income (loss)
                
                
                78,064
                
                
                
                (9,197
                )Dividends
      on convertible preferred stock
                
                
                (368
                )
                
                
                (399
                )Net
      income (loss) attributable to common shareholders
                
                
                77,696
                
                
                
                (9,596
                )Comprehensive
      income (loss):Net
      income (loss)
                
                
                78,064
                
                
                
                (9,197
                )Other
      comprehensive loss:Foreign
      currency translation adjustment
                
                
                (22
                )
                
                
                (14
                )Comprehensive
      income (loss)
                
                $
                78,042
                
                
                $
                (9,211
                )Net
      income (loss) per share, basic:Continuing
      operations
                
                $
                0.05
                
                
                $
                (0.01
                )Discontinued
      operations
                
                $
                -
                
                
                $
                -Net
      income (loss) per share, basic
                
                $
                0.05
                
                
                $
                (0.01
                )Net
      income (loss) per share, fully diluted:Continuing
      operations
                
                $
                -
                
                
                $
                (0.01
                )Discontinued
      operations
                
                $
                -
                
                
                $
                -Net
      income (loss) per share, fully diluted
                
                $
                -
                
                
                $
                (0.01
                )Weighted
      average number of common shares:Basic
                
                
                1,588,281,567
                
                
                
                1,076,657,151Fully
      diluted
                
                
                6,792,874,000
                
                
                
                1,076,657,151





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


3


NeoMedia
Technologies, Inc. and Subsidiaries


Condensed
Consolidated Statements of Operations (Unaudited)


(in
thousands, except share and per share data)


For the six months endedJune 30,
                
                
                June 30,2009
                
                
                2008Net
      sales
                
                $
                626
                
                
                $
                471Cost
      of sales
                
                
                808
                
                
                
                605Gross
      deficit
                
                
                (182
                )
                
                
                (134
                )Sales
      and marketing expenses
                
                
                464
                
                
                
                1,283General
      and administrative expenses
                
                
                1,787
                
                
                
                2,573Research
      and development costs
                
                
                673
                
                
                
                1,217Operating
      loss
                
                
                (3,106
                )
                
                
                (5,207
                )Gain
      on extinguishment of debt
                
                
                -
                
                
                
                22Gain
      from change in fair value of hybrid financial instruments
                
                
                312
                
                
                
                2,708Gain
      (loss) from change in fair value of derivative liability -
      warrants
                
                
                (12,402
                )
                
                
                3,466Loss
      from change in fair value of derivative liability -
    debentures
                
                
                (9,676
                )
                
                
                (4,646
                )Other
      interest expense, net
                
                
                (3,663
                )
                
                
                (1,657
                )Income
      (loss) from continuing operations
                
                
                (28,535
                )
                
                
                (5,314
                )Loss
      from discontinued operations
                
                
                -
                
                
                
                (291
                )Net
      income (loss)
                
                
                (28,535
                )
                
                
                (5,605
                )Dividends
      on convertible preferred stock
                
                
                (743
                )
                
                
                (798
                )Net
      income (loss) attributable to common shareholders
                
                
                (29,278
                )
                
                
                (6,403
                )Comprehensive
      income (loss):Net
      income (loss)
                
                
                (28,535
                )
                
                
                (5,605
                )Other
      comprehensive loss:Foreign
      currency translation adjustment
                
                
                (79
                )
                
                
                (14
                )Comprehensive
      income (loss)
                
                $
                (28,614
                )
                
                $
                (5,619
                )Net
      income (loss) per share, basic:Continuing
      operations
                
                $
                (0.02
                )
                
                $
                (0.01
                )Discontinued
      operations
                
                $
                -
                
                
                $
                -Net
      income (loss) per share, basic
                
                $
                (0.02
                )
                
                $
                (0.01
                )Net
      income (loss) per share, fully diluted:Continuing
      operations
                
                $
                (0.02
                )
                
                $
                (0.01
                )Discontinued
      operations
                
                $
                -
                
                
                $
                -Net
      income (loss) per share, fully diluted
                
                $
                (0.02
                )
                
                $
                (0.01
                )Weighted
      average number of common shares:Basic
      and fully diluted
                
                
                1,478,574,562
                
                
                
                1,052,767,667





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


4


NeoMedia
Technologies, Inc. and Subsidiaries


Condensed
Consolidated Statements of Cash Flows (Unaudited)


(in
thousands)


For the six months ended
                          June 30,2009
                        
                        
                        2008Cash
      Flows from Operating Activities:Loss
      from continuing operations
                        
                        $
                        (28,535
                        )
                        
                        $
                        (5,605
                        )Adjustments
      to reconcile net income (loss) to net cash used in operating
      activities:Loss
      from discontinued operations
                        
                        
                        -
                        
                        
                        
                        291Depreciation
      and amortization
                        
                        
                        512
                        
                        
                        
                        539Loss
      on sale of assets
                        
                        
                        -
                        
                        
                        
                        229Gain
      on early extinguishment of debt
                        
                        
                        -
                        
                        
                        
                        (22
                        )(Gain)
      loss from change in fair value of hybrid financial
    instruments
                        
                        
                        (312
                        )
                        
                        
                        2,343(Gain)
      loss from change in fair value of warrants
                        
                        
                        12,402
                        
                        
                        
                        (2,708
                        )Loss
      from change in fair value of debentures
                        
                        
                        9,676
                        
                        
                        
                        -Other
      interest expense, net
                        
                        
                        3,663
                        
                        
                        
                        -Stock-based
      compensation expense
                        
                        
                        177
                        
                        
                        
                        987Decrease/
      (increase) in value of life insurance policies
                        
                        
                        (58
                        )
                        
                        
                        -Changes
      in operating assets and liabilitiesTrade
      and other accounts receivable
                        
                        
                        46
                        
                        
                        
                        213Inventories
                        
                        
                        (50
                        )
                        
                        
                        (14
                        )Prepaid
      expenses and other assets
                        
                        
                        113
                        
                        
                        
                        82Accounts
      payable and accrued liabilities
                        
                        
                        (198
                        )
                        
                        
                        599Deferred
      revenue and other current liabilities
                        
                        
                        (124
                        )
                        
                        
                        (86
                        )Net
      cash used in operating activities
                        
                        
                        (2,688
                        )
                        
                        
                        (3,152
                        )Cash
      Flows from Investing Activities:Acquisition
      of property and equipment
                        
                        
                        (24
                        )
                        
                        
                        (73
                        )Expenses
      of discontinued operations
                        
                        
                        -
                        
                        
                        
                        (286
                        )Proceeds
      from sale of investments
                        
                        
                        -
                        
                        
                        
                        751Payment
      of purchase price guarantee obligations
                        
                        
                        -
                        
                        
                        
                        (14
                        )Net
      cash used in investing activities
                        
                        
                        (24
                        )
                        
                        
                        378Cash
      Flows from Financing Activities:Repayments
      on notes payable
                        
                        
                        -
                        
                        
                        
                        (29
                        )Net
      proceeds from exercise of stock options
                        
                        
                        116
                        
                        
                        
                        -Borrowings
      under convertible debt instruments, net
                        
                        
                        1,660
                        
                        
                        
                        1,477Net
      cash provided by (used in) financing activities
                        
                        
                        1,776
                        
                        
                        
                        1,448Effect
      of exchange rate changes on cash for continuing operations
                        
                        
                        (20
                        )
                        
                        
                        (14
                        )Net
      Increase (Decrease) in cash and cash equivalents from continuing
      operations
                        
                        
                        (956
                        )
                        
                        
                        (1,340
                        )Cash
      and cash equivalents, beginning of period
                        
                        
                        1,259
                        
                        
                        
                        1,415Cash
      and cash equivalents, end of period
                        
                        $
                        303
                        
                        
                        $
                        75Supplemental
      cash flow information:Interest
      paid during the period
                        
                        $
                        3
                        
                        
                        $
                        14Accretion
      of dividends on Series C Convertible Preferred Stock
                        
                        
                        743
                        
                        
                        
                        798Series
      C Convertible Preferred Stock converted to common stock
                        
                        
                        720
                        
                        
                        
                        423Deemed
      dividend on preferred stock conversions
                        
                        
                        1,337
                        
                        
                        
                        631Fair
      value of common shares issued to satisfy purchase price guarantee
      obligations
                        
                        
                        445
                        
                        
                        
                        12,721





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


5


NeoMedia
Technologies, Inc. and Subsidiaries


Notes
to Condensed Consolidated Financial Statements


(Unaudited)


Note 1 - General





Business –
NeoMedia utilizes the mobile phone by leveraging barcodes (printed symbols) as a
seamless mechanism to link brands, advertisers, carriers, retailers and
consumers using the power of the mobile internet.





With our
barcode ecosystem technology, NeoMedia transforms mobile phones with cameras
into barcode scanners which provide instant access to mobile web content
whenever a barcode is scanned. A barcode makes any medium immediately
interactive – the code links consumers to the multimedia capability of the
mobile Web. Combining this technology with analytics and reporting capabilities
improves the way advertisers market to mobile consumers.





NeoMedia
provides the infrastructure to facilitate mobile barcode scanning and its
associated commerce worldwide. Our mobile barcode ecosystem software reads and
transmits data from 1D and 2D barcodes to its intended destination. Our code
management and clearinghouse platforms create, connect, record, and transmit the
transactions embedded in the barcodes, like web-URLs, text messages (SMS), and
telephone calls, ubiquitously and reliably.





In order
to provide complete mobile marketing solutions, NeoMedia also offers barcode
scanning hardware that reads barcodes displayed on mobile phone screens.
NeoMedia provides infrastructure solutions to enable mobile ticketing and
couponing programs – including scanner hardware and system support software for
seamless implementation.





This
technology is supported by our patents. In addition, NeoMedia has an open
standards philosophy designed to make integration and use of the technology easy
for handset manufacturers, mobile operators and advertisers; and the consumer’s
experience safe, reliable and interoperable.







Going
Concern – We have historically incurred net losses and losses from
operations and we expect that we will continue to have negative cash flows as we
implement our business plan.  There can be no assurance that our
continuing efforts to execute our business plan will be successful and that we
will be able to continue as a going concern. The accompanying consolidated
financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America (“US GAAP”), which
contemplate our continuation as a going concern.  Net loss from
continuing operations for the six months ended June 30, 2009 and 2008 was $28.6
million and $5.3 million, respectively.  Net cash used for operations
during the same periods was $2.7 million and $3.2 million, respectively. We also
have an accumulated deficit of $241.2 million and a working capital deficit of
$91.3 million as of June 30, 2009, much of which is related to the derivative
value of our financing instruments including $67.7 million related to the fair
value of hybrid and derivative financial instruments, and $11.6 million related
to the carrying value of debentures carried at amortized cost.





The items
discussed above raise substantial doubt about our ability to continue as a going
concern.





We
currently do not have sufficient cash to sustain us for the next twelve
months.  We will require additional financing in order to execute our
operating plan and continue as a going concern.  Our management’s plan
is to attempt to secure adequate funding to bridge the commercialization of our
barcode ecosystem business. We cannot predict whether this additional financing
will be in the form of equity, debt, or another form and we may not be able to
obtain the necessary additional capital on a timely basis, on acceptable terms,
or at all.  We believe that we can obtain additional financing, but in
the event that these financing sources do not materialize, or that we are
unsuccessful in increasing our revenues and profits, we may be unable to
implement our current plans for expansion, repay our debt obligations as they
become due or continue as a going concern, any of which circumstances would have
a material adverse effect on our business, prospects, financial condition and
results of operations.





Including
funding received subsequent to June 30, 2009, we have received $2.6 million in
financing from YA Global Investments, L.P (“YA Global”) in 2009. While Y.A.
Global has informally told us that they intend to continue to fund our
operations on a month-to-month basis, should YA Global choose not to
provide us with additional capital financing, as they have in the past, or
if Y.A. Global does not object and we seek funding from alternative sources but
are unsuccessful, or if we are unable to generate significant product revenues,
we only have sufficient funds to sustain our current operations through
approximately September 15, 2009.


6


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




Note 2 - Summary of Significant Accounting
Policies





Basis of
Presentation–The accompanying condensed balance sheet as of December 31, 2008,
which was derived from audited consolidated financial statements, and the
unaudited condensed consolidated financial statements as of and for the periods
ended June 30, 2009 and 2008, have been prepared in accordance with US GAAP for
interim financial information and with the instructions to Form 10-Q and
Article 8 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by US GAAP for complete financial
statements. In our opinion, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. Our
operations consist of one reportable segment. For further information, refer to
the consolidated financial statements and footnotes thereto included in our
Annual Report on Form 10-K for the year ended December 31,
2008.  The net effect of discontinued operations is reported
separately from the results of our continuing operations.  Operating
results for the six month periods ended June 30, 2009 and 2008 are not
necessarily indicative of the results that may be expected for the full fiscal
year.




Use of
Estimates – The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect
amounts reported therein, including those related to revenue recognition,
valuation of accounts receivable, property, plant and equipment, long-lived
assets, intangible assets, derivative liabilities and contingencies. Due to the
inherent uncertainty involved in making estimates, actual results reported in
future periods may differ from those estimates.





Basic and Diluted
Income (Loss) Per Share – Basic net income (loss) per share is computed
by dividing net income (loss) by the weighted average number of shares of common
stock outstanding during the period. During the six months ended June 30, 2009
and 2008 and the three months ended June 30, 2008, we reported a net loss per
share, and as such basic and diluted loss per share were equivalent. We excluded
all outstanding stock options, warrants, convertible debt and convertible
preferred stock from the calculation of diluted net loss per share because these
securities are anti-dilutive.  During the three months ended June 30,
2009, we reported net income per share and included all dilutive instruments in
the fully diluted net income per share calculation.  The following is
a reconciliation of the numerator and denominator of the basic and diluted
earnings per share calculation for this period:


7


Three months endedJune 30, 2009(in
      thousands, except per share data)Numerator:Net
      income
                            
                            $
                            78,065Preferred
      dividends
                            
                            
                            (368
                            )Numerator
      for basic earnings per share, income available to common
      shareholders
                            
                            
                            77,697Effect
      of dilutive securities:Adjustment
      for change in fair value of embedded conversion feature
                            
                            
                            (37,978
                            )Adjustment
      for debentures recorded at fair value
                            
                            
                            (23,344
                            )Adjustment
      for preferred stock dividends
                            
                            
                            368(60,954
                            )Numerator
      for diluted earnings per share, income available for common stockholders
      after conversion
                            
                            $
                            16,743Denominator:Weighted
      average shares used to compute basic EPS
                            
                            
                            1,588,282Effect
      of diluted securities:Employee
      stock options
                            
                            
                            37,041Derivative
      warrants
                            
                            
                            702,575Convertible
      debentures
                            
                            
                            2,482,917Convertible
      preferred stock
                            
                            
                            1,982,059Dilutive
      potential common shares
                            
                            
                            5,204,592Denominator
      for diluted earnings per share, adjusted weighted average shares and
      assumed conversion
                            
                            
                            6,792,874Basic
      earnings per share
                            
                            $
                            0.05Diluted
      earnings per share
                            
                            $
                            -




The above
table includes only dilutive instruments and their effects on earnings per
common share.





The
following outstanding stock options, warrants, convertible debt and convertible
preferred securities for the three and six months ended June 30, 2009 and 2008,
are anti-dilutive and therefore have been excluded from diluted earnings per
share. The following shares were excluded from the calculation of net income
(loss) per share because they were anti-dilutive, and are detailed in the table
below:





Three months ended June 30,
                    
                    
                    Six months ended June 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Outstanding
      stock options
                    
                    
                    73,707,111
                    
                    
                    
                    117,504,426
                    
                    
                    
                    90,455,396
                    
                    
                    
                    117,504,426Outstanding
      warrants
                    
                    
                    6,758,334
                    
                    
                    
                    566,970,834
                    
                    
                    
                    1,006,370,834
                    
                    
                    
                    566,970,834Convertible
      debt
                    
                    
                    -
                    
                    
                    
                    11,886,202,000
                    
                    
                    
                    2,482,917,000
                    
                    
                    
                    11,886,202,000Convertible
      preferred stock
                    
                    
                    -
                    
                    
                    
                    11,171,184,000
                    
                    
                    
                    1,982,059,000
                    
                    
                    
                    11,171,184,00080,465,445
                    
                    
                    
                    23,741,861,260
                    
                    
                    
                    5,561,802,230
                    
                    
                    
                    23,741,861,260





As
discussed in Note 4, we issued $535,000 of convertible notes on July 15, 2009.
The notes are convertible at the then effective conversion price, which varies
relative to the our trading stock price, as follows: $0.02 per share, or 95% of
the lowest weighted average price of the Company’s common stock during the ten
days preceding the conversion date.





On July
21, 2009, July 23, 2009, July 29, 2009 and August 4, 2009, 250 shares, 169
shares, 1,000 shares, and 941 shares respectively, of our Series C
preferred stock were converted into 22.1 million, 15.0 million, 90.0 million,
and 85.5 million shares, respectively, of common stock.


8


In
addition to net income (loss) per share, we have also reported per share amounts
on the separate income statement components required by APB 30, “Reporting the
Results of Operations – Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions,” as the disposal activities of our discontinued operations were
initiated prior to our adoption of FAS 144.





Inventories
- Inventories, consisting of material, material overhead, labor and
processing costs, are stated at the lower of cost (first-in, first-out) or
market.




Note
3 – Discontinued Operations




MicroPaint
Repair, 12Snap & Telecom Services – During 2006, we acquired and in
2007 we subsequently disposed of our Micro Paint Repair (MPR), 12Snap, Mobot and
Sponge business units. During the three and six months ended June 30, 2008, we
incurred wind-down expenses related to these discontinued
businesses.




Note
4 – Financing





On
February 17, 2006, the Company issued Series C convertible preferred stock to YA
Global, an accredited investor, and between August 24, 2006 and June 5, 2009,
has entered into thirteen secured convertible debentures with YA Global. In
addition, in connection with these debentures and preferred stock, the Company
also issued common stock warrants to YA Global. The significant terms of
the Series C convertible preferred stock, the convertible debentures and the
warrants are set out in Note 5 to our December 31, 2008 consolidated financial
statements, included in our Annual Report on Form 10-K for the year ended
December 31, 2008, and are summarized below.





Series C
Convertible Preferred Stock-On February 17, 2006, we
issued 22,000 shares of $1,000 Series C 8% convertible preferred stock, with a
face value of $22,000,000, to YA Global. The Series C convertible preferred
stock is convertible into our common stock at the lower of $0.02 per share, or
97% of the lowest closing bid price of the common stock for the 30 trading days
immediately preceding the conversion date.





As of
June 30, 2009, YA Global has converted 3,576.1 shares of the original 22,000
shares of Series C preferred stock, leaving 18,423.9 shares, with a face value
of $18,423,900, outstanding, as follows:





Series C SharesConversion
      Date
                          
                          Converted
                          
                          
                          Common Shares
                            Issued(in
      thousands)Prior
      Years
                          
                          
                          2,856.1
                          
                          
                          
                          448,2281/13/2009
                          
                          
                          33.0
                          
                          
                          
                          30,0002/5/2009
                          
                          
                          22.0
                          
                          
                          
                          20,0002/11/2009
                          
                          
                          22.0
                          
                          
                          
                          20,0002/19/2009
                          
                          
                          156.0
                          
                          
                          
                          120,0003/4/2009
                          
                          
                          91.0
                          
                          
                          
                          70,0003/25/2009
                          
                          
                          84.0
                          
                          
                          
                          64,6154/1/2009
                          
                          
                          150.0
                          
                          
                          
                          38,4614/22/2009
                          
                          
                          162.0
                          
                          
                          
                          36,8183,576.1
                          
                          
                          
                          848,122




Secured
Convertible Debentures -The underlying agreements for each of the
debentures issued to YA Global are essentially the same, except in regard to the
interest rate, varying conversion prices per share, and the number of warrants
that were issued in conjunction with each of the debentures. The debentures are
convertible into our common stock at the lower of a fixed conversion price per
share or a percentage of the lowest volume-weighted average price (“VWAP”) for a
specified number of trading days prior to conversion. All of the convertible
debentures are secured according to the terms of a Security Pledge Agreement
dated August 23, 2006, which was entered into in connection with the first
convertible debenture with YA Global and which provides YA Global with a
security interest in substantially all of our assets.


9


The table
below summarizes the significant terms of each of the debentures:





Conversion Price – Lower of Fixed Price orPercentage of VWAP for Preceding PeriodFace
                  
                  
                  
                  Interest
                  
                  
                  Fixed
                  
                  
                  
                  
                  PrecedingDebenture Issue Date
                  
                  Amount
                  
                  Maturity
                  
                  Rate
                  
                  
                  Price
                  
                  
                  %
                  
                  PeriodAugust
      24, 2006
                  
                  $
                  5,000,000
                  
                  7/29/2010
                  
                  
                  10
                  %
                  
                  $
                  0.01
                  
                  
                  
                  90
                  %
                  30
      DaysDecember
      29, 2006
                  
                  
                  2,500,000
                  
                  7/29/2010
                  
                  
                  10
                  %
                  
                  $
                  0.01
                  
                  
                  
                  90
                  %
                  30
      DaysMarch
      27, 2007
                  
                  
                  7,458,651
                  
                  7/29/2010
                  
                  
                  13
                  %
                  
                  $
                  0.01
                  
                  
                  
                  90
                  %
                  30
      DaysAugust
      24, 2007
                  
                  
                  1,775,000
                  
                  7/29/2010
                  
                  
                  14
                  %
                  
                  $
                  0.01
                  
                  
                  
                  80
                  %
                  10
      DaysApril
      11, 2008
                  
                  
                  390,000
                  
                  4/11/2010
                  
                  
                  15
                  %
                  
                  $
                  0.01
                  
                  
                  
                  80
                  %
                  10
      DaysMay
      16, 2008
                  
                  
                  500,000
                  
                  5/16/2010
                  
                  
                  15
                  %
                  
                  $
                  0.01
                  
                  
                  
                  80
                  %
                  10
      DaysMay
      29, 2008
                  
                  
                  790,000
                  
                  5/30/2010
                  
                  
                  15
                  %
                  
                  $
                  0.01
                  
                  
                  
                  80
                  %
                  10
      DaysJuly
      10, 2008
                  
                  
                  137,750
                  
                  7/1/2010
                  
                  
                  15
                  %
                  
                  $
                  0.01
                  
                  
                  
                  80
                  %
                  10
      DaysJuly
      29, 2008
                  
                  
                  2,325,000
                  
                  7/29/2010
                  
                  
                  14
                  %
                  
                  $
                  0.02
                  
                  
                  
                  95
                  %
                  10
      DaysOctober
      28, 2008
                  
                  
                  2,325,000
                  
                  7/29/2010
                  
                  
                  14
                  %
                  
                  $
                  0.02
                  
                  
                  
                  95
                  %
                  10
      DaysApril
      6, 2009
                  
                  
                  550,000
                  
                  7/29/2010
                  
                  
                  14
                  %
                  
                  $
                  0.02
                  
                  
                  
                  95
                  %
                  10
      DaysMay
      1, 2009
                  
                  
                  550,000
                  
                  7/29/2010
                  
                  
                  14
                  %
                  
                  $
                  0.02
                  
                  
                  
                  95
                  %
                  10
      DaysJune
      5, 2009
                  
                  
                  715,000
                  
                  7/29/2010
                  
                  
                  14
                  %
                  
                  $
                  0.02
                  
                  
                  
                  95
                  %
                  10
      Days





The
debentures issued prior to May 29, 2008 were originally issued with higher fixed
exercise prices but because those debentures include full-ratchet anti-dilution
provisions, their fixed conversion price was reduced to $0.01 as of May 29,
2008.





Effective
September 24, 2008, the maturity dates of the August 24, 2006 and December 29,
2006 debentures, which originally matured after two years, were extended to July
29, 2010. On April 6, 2009 (effective March 27, 2009) the maturity date of the
March 27, 2007 debenture was extended to July 29, 2010. On August 14, 2009, the
maturity date of the August 24, 2007 debenture was extended to July 29,
2010.





On July
29, 2008, we entered into a Securities Purchase Agreement (the “July 29 SPA”)
with YA Global in the principal amount of $8,650,000. The July 29 SPA provided
for the amount to be drawn through three separate secured convertible debentures
in the amounts of $2,325,000, $2,325,000, and $4,000,000 respectively. The first
and second debentures were issued on July 29, 2008 and October 28, 2008. Upon
the achievement of certain milestones, the remaining debenture was scheduled to
be issued no earlier than January 1, 2009. On April 6, 2009, we entered into an
Amendment Agreement to the July 29 SPA, whereby the third scheduled debenture
was reduced from $4,000,000 to $1,100,000, and was divided into two separate
closings of $550,000 each, on April 6, 2009 and May 1, 2009. In connection with
these two debentures, YA Global retained fees for each debenture of $50,000,
resulting in net proceeds to us of $500,000 for each debenture. Further, on June
5, 2009, we entered into a secured convertible debenture with Y.A. Global in the
amount of $715,000. Y.A. Global retained fees of $50,000, and structuring fees
of $5,000, resulting in net proceeds to us of $660,000.





Default Events
and Waiver -As of August 23, 2008, we were in default on our August 23,
2006 Convertible Debenture due to non-payment of principal and interest in
accordance with the terms of the agreement. On September 24, 2008, we entered
into a Letter Agreement with YA Global which extended the maturity dates of the
August 24, 2006 and the December 29, 2006 debentures to July 29, 2010. The
extension was considered a one-time extension for the specific period indicated
but was not considered a waiver of existing events of default. However, a waiver
was subsequently obtained from YA Global, effective as of December 31, 2008,
which waiver is discussed further below.





All the
debentures with YA Global contain provisions for acceleration of principal and
interest upon default. Certain of the debentures also contain default interest
rates and conversion prices, as follows:


10





April 11, 2008
                  
                  
                  May 16,
                    2008
                  
                  
                  May 29,
                    2008
                  
                  
                  July 10,
                    2008
                  
                  
                  July 29,
                    2008
                  
                  
                  October 28,
                    2008
                  
                  
                  April 6,
                    2009
                  
                  
                  May 1, 2009
                  
                  
                  June 5, 2009Default
      interest rate
                  
                  
                  24
                  %
                  
                  
                  24
                  %
                  
                  
                  24
                  %
                  
                  
                  24
                  %
                  
                  
                  20
                  %
                  
                  
                  20
                  %
                  
                  
                  20
                  %
                  
                  
                  20
                  %
                  
                  
                  20
                  %Convertible
      into our common stock at the lower of:Fixed
      conversion price per share
                  
                  $
                  0.01
                  
                  
                  $
                  0.01
                  
                  
                  $
                  0.01
                  
                  
                  $
                  0.01
                  
                  
                  $
                  0.02
                  
                  
                  $
                  0.02
                  
                  
                  $
                  0.02
                  
                  
                  $
                  0.02
                  
                  
                  $
                  0.02or
      percent of lowest volume weighted average price
                  
                  
                  75
                  %
                  
                  
                  50
                  %
                  
                  
                  50
                  %
                  
                  
                  50
                  %
                  
                  
                  50
                  %
                  
                  
                  50
                  %
                  
                  
                  50
                  %
                  
                  
                  50
                  %
                  
                  
                  50
                  %for
      days preceding conversion
                  
                  30
      days
                  
                  
                  10
      days
                  
                  
                  10
      days
                  
                  
                  10
      days
                  
                  
                  10
      days
                  
                  
                  10
      days
                  
                  
                  10
      days
                  
                  
                  10
      days
                  
                  
                  10
      days





We
obtained a waiver from YA Global, effective as of December 31, 2008 in
which all prior events of default and the related cross default provisions of
other financing instruments with YA Global were waived. YA Global waived the
right to collect any liquidated damages, penalties or fines which had not
previously been paid by us and also acknowledged that as of December 31, 2008,
we were not under any obligation to file a registration statement under any of
the financing arrangements. YA Global does, however, still have demand rights
under certain agreements which would require us to file registration statements
in accordance with the terms of the agreements.





Fair Value
Considerations -In accordance with
FAS 133 we determined that the conversion features of the Series C
convertible preferred stock, and the August 2006, December 2006, July 2008,
October 2008, April 2009, May 2009 and June 2009 Debentures met the criteria of
embedded derivatives and that the conversion features of these instruments
needed to be bifurcated and accounted for as derivative instrument liabilities.
Changes in the fair value of the derivative liability for the embedded
conversion option are charged or credited to income. As permitted by FAS 155, we
have elected not to bifurcate the embedded derivatives in the March 2007, August
2007, April 2008 or May 2008 Debentures and accordingly these convertible
instruments are being carried in their entirety at their fair values, with the
changes in the fair value of the Debentures charged or credited to income each
period.




Derivative
financial instruments arising from the issuance of fair value convertible
financial instruments are initially recorded, and continuously carried, at fair
value. Upon conversion of any derivative financial instrument, the carrying
amount of the debt, including any unamortized premium or discount is credited to
the capital accounts upon conversion to reflect the stock issued and no gain or
loss is recognized.





Embedded
Derivative Instruments – Series C Preferred Stock and August 2006, December
2006, July 2008, October 2008, April 2009, May 2009, and June 2009 Convertible
Debentures -Embedded derivative financial instruments arising from the
convertible instruments consist of multiple individual features that were
embedded in each instrument. For each convertible instrument, we evaluated all
significant features and, as required under current accounting standards,
aggregated the components into one compound derivative financial instrument for
financial reporting purposes. For financings recorded in accordance with FAS
133, the compound embedded derivative instruments are valued using the Flexible
Monte Carlo methodology because that model embodies certain relevant assumptions
(including, but not limited to, interest rate risk, credit risk, and
conversion/redemption privileges) that are necessary to value these complex
derivatives.





Assumptions
used as of June 30, 2009 included exercise estimates/behaviors and the following
other significant estimates:




Series C
                  Convertible
                  PreferredStock
                
                
                August 24,
                  2006
                  Debenture
                
                
                December 29,
                  2006Debenture
                
                
                July 10,2008
                  Debenture
                
                
                July 29,2008
                  DebentureConversion
      prices
                
                $
                0.012
                
                
                $
                0.010
                
                
                $
                0.010
                
                
                $
                0.010
                
                
                $
                0.012Remaining
      terms (years)
                
                
                1.08
                
                
                
                1.08
                
                
                
                1.08
                
                
                
                1.03
                
                
                
                1.08Equivalent
      volatility
                
                
                233
                %
                
                
                233
                %
                
                
                233
                %
                
                
                236
                %
                
                
                233
                %Equivalent
      interest-risk adjusted rate
                
                
                9.45
                %
                
                
                12.56
                %
                
                
                12.56
                %
                
                
                13.67
                %
                
                
                10.92
                %Equivalent
      credit-risk adjusted yield rate
                
                
                15.56
                %
                
                
                15.56
                %
                
                
                15.56
                %
                
                
                15.56
                %
                
                
                15.56
                %


11





October 28,2008
                    Debenture
                  
                  
                  April 6,2009
                    Debenture
                  
                  
                  May 1, 2009
                    Debenture
                  
                  
                  June 5,2009
                    DebentureConversion
      prices
                  
                  $
                  0.012
                  
                  
                  $
                  0.012
                  
                  
                  $
                  0.012
                  
                  
                  $
                  0.012Remaining
      terms (years)
                  
                  
                  1.08
                  
                  
                  
                  1.08
                  
                  
                  
                  1.08
                  
                  
                  
                  1.08Equivalent
      volatility
                  
                  
                  233
                  %
                  
                  
                  233
                  %
                  
                  
                  233
                  %
                  
                  
                  233
                  %Equivalent
      interest-risk adjusted rate
                  
                  
                  10.92
                  %
                  
                  
                  10.92
                  %
                  
                  
                  10.92
                  %
                  
                  
                  10.92
                  %Equivalent
      credit-risk adjusted yield rate
                  
                  
                  15.56
                  %
                  
                  
                  15.56
                  %
                  
                  
                  15.56
                  %
                  
                  
                  15.56
                  %





Equivalent
amounts reflect the net results of multiple modeling simulations that the
Flexible Monte Carlo Simulation methodology applies to underlying assumptions.
The assumptions included in the calculation are highly subjective and subject to
interpretation.





Due to
the variable component of the conversion price, rapid fluctuations in the
trading market price may result in significant variations to the calculated
conversion price. For each debenture, we analyze the ratio of the conversion
price (as calculated based on the percentage of VWAP for the 30 day or 10 day
prior period) to the trading market price for a period of time equal to the term
of the debenture to determine the average ratio for the term of the note. Each
quarter, the ratio in effect on the date of the valuation is compared with the
average ratio over the term of the debenture to determine if the calculated
conversion price is representative of past trends or if it is considered
unrepresentative due to a large fluctuation in the stock price over a short
period of time.  If the calculated conversion price results in a ratio
which deviates significantly from the average ratio over the term of the
agreement, the average ratio of the conversion price to the trading market price
is then multiplied by the current trading market price to determine the variable
portion of the conversion price for use in the fair value calculations. This
variable conversion price is then compared with the fixed conversion price and,
as required by the terms of the debentures, the lower of the two amounts is used
as the conversion price in the Monte Carlo model used for valuation
purposes. On June 30, 2009, the fixed conversion price for each of the
debentures was equal to or higher than the calculated variable conversion price.
Accordingly, the variable conversion price was used in the Monte
Carlo valuation model. This analysis is performed each quarter to determine
if the calculated conversion price is reasonable for purposes of determining the
fair value of the embedded conversion features (for instruments recorded under
FAS133) or the fair value of the hybrid instrument (for instruments recorded
under FAS155).





Hybrid Financial
Instruments Carried at Fair Value – 2007 and 2008 Convertible Debentures -The March 2007, August 2007, April 11, 2008, May 16, 2008 and May 29,
2008 convertible debentures are recorded in accordance with SFAS 155 and the
entire hybrid instrument was initially recorded at fair value, with subsequent
changes in fair value recognized in earnings. These financial instruments are
valued using the common stock equivalent approach. The common stock
equivalent is calculated using the shares indexed to the debentures valued at
the market price of our stock and the present value of the coupon.





Current Period
Valuations -For the Series C Convertible Preferred Stock and the August
2006 and December 2006 debentures, due to our previous default position with
respect to these instruments, the carrying value of each instrument in effect as
of December 31, 2006 was written up to its full face value during the fourth
quarter of 2006. For these instruments and the July 2008, October 2008, April
2009, May 2009 and June 2009 Debentures, the embedded derivative instrument,
primarily the conversion feature, has been separated and accounted for as a
derivative instrument liability, as discussed above. This derivative instrument
liability is marked to market each reporting period.





The March
2007, August 2007, April 2008 and May 2008 debentures were each initially
recorded at their full fair value pursuant to FAS 155. That fair value is
marked-to-market each reporting period, with any changes in the fair value
charged or credited to income.




The face
value and the carrying value or fair value, as appropriate, of each instrument
as of June 30, 2009 and December 31, 2008 was:


12





Face
                        
                        
                        CarryingJune 30, 2009
                        
                        Value
                        
                        
                        Value
                        
                        
                        Fair value
                        
                        
                        Total(in
      thousands)Series C Convertible Preferred Stock
                        
                        $
                        18,424
                        
                        
                        $
                        18,424
                        
                        
                        $
                        -
                        
                        
                        $
                        18,424August 24,
      2006 debenture
                        
                        $
                        5,000
                        
                        
                        $
                        5,000
                        
                        
                        $
                        -
                        
                        
                        $
                        5,000December 29,
      2006 debenture
                        
                        
                        2,500
                        
                        
                        
                        2,500
                        
                        
                        
                        -
                        
                        
                        
                        2,500March
      27, 2007 debenture
                        
                        
                        7,459
                        
                        
                        
                        -
                        
                        
                        
                        13,588
                        
                        
                        
                        13,588August
      24, 2007 debenture
                        
                        
                        1,775
                        
                        
                        
                        -
                        
                        
                        
                        3,060
                        
                        
                        
                        3,060April
      11, 2008 debenture
                        
                        
                        390
                        
                        
                        
                        -
                        
                        
                        
                        687
                        
                        
                        
                        687May
      16, 2008 debenture
                        
                        
                        500
                        
                        
                        
                        -
                        
                        
                        
                        872
                        
                        
                        
                        872May
      29, 2008 debenture
                        
                        
                        790
                        
                        
                        
                        -
                        
                        
                        
                        1,373
                        
                        
                        
                        1,373July
      10, 2008 debenture
                        
                        
                        137
                        
                        
                        
                        118
                        
                        
                        
                        -
                        
                        
                        
                        118July
      29, 2008 debenture
                        
                        
                        2,325
                        
                        
                        
                        1,916
                        
                        
                        
                        -
                        
                        
                        
                        1,916October
      28, 2008 debenture
                        
                        
                        2,325
                        
                        
                        
                        1,931
                        
                        
                        
                        -
                        
                        
                        
                        1,931April
      6, 2009 debenture
                        
                        
                        550
                        
                        
                        
                        13
                        
                        
                        
                        -
                        
                        
                        
                        13May
      1, 2009 debenture
                        
                        
                        550
                        
                        
                        
                        105
                        
                        
                        
                        -
                        
                        
                        
                        105June
      5, 2009 debenture
                        
                        
                        715
                        
                        
                        
                        10
                        
                        
                        
                        -
                        
                        
                        
                        10Total
                        
                        $
                        25,016
                        
                        
                        $
                        11,593
                        
                        
                        $
                        19,580
                        
                        
                        $
                        31,173





Face
                        
                        
                        CarryingDecember 31, 2008
                        
                        Value
                        
                        
                        Value
                        
                        
                        Fair value
                        
                        
                        Total(in
      thousands)Series C Convertible Preferred Stock
                        
                        $
                        19,144
                        
                        
                        $
                        19,144
                        
                        
                        $
                        -
                        
                        
                        $
                        19,144August 24,
      2006 debenture
                        
                        $
                        5,000
                        
                        
                        $
                        5,000
                        
                        
                        $
                        -
                        
                        
                        $
                        5,000December 29,
      2006 debenture
                        
                        
                        2,500
                        
                        
                        
                        2,500
                        
                        
                        
                        -
                        
                        
                        
                        2,500March
      27, 2007 debenture
                        
                        
                        7,459
                        
                        
                        
                        -
                        
                        
                        
                        13,478
                        
                        
                        
                        13,478August
      24, 2007 debenture
                        
                        
                        1,775
                        
                        
                        
                        -
                        
                        
                        
                        3,217
                        
                        
                        
                        3,217April
      11, 2008 debenture
                        
                        
                        390
                        
                        
                        
                        -
                        
                        
                        
                        736
                        
                        
                        
                        736May
      16 ,2008 debenture
                        
                        
                        500
                        
                        
                        
                        -
                        
                        
                        
                        955
                        
                        
                        
                        955May
      29, 2008 debenture
                        
                        
                        790
                        
                        
                        
                        -
                        
                        
                        
                        1,506
                        
                        
                        
                        1,506July
      10, 2008 debenture
                        
                        
                        137
                        
                        
                        
                        109
                        
                        
                        
                        -
                        
                        
                        
                        109July
      29, 2008 debenture
                        
                        
                        2,325
                        
                        
                        
                        1,785
                        
                        
                        
                        -
                        
                        
                        
                        1,785October
      23, 2008 debenture
                        
                        
                        2,325
                        
                        
                        
                        1,833
                        
                        
                        
                        -
                        
                        
                        
                        1,833Total
                        
                        $
                        23,201
                        
                        
                        $
                        11,227
                        
                        
                        $
                        19,892
                        
                        
                        $
                        31,119





The
following table reflects the number of common shares (in thousands) into which
the Series C preferred stock and debentures are convertible and the fair values
of the embedded conversion features in those debentures that are carried at
amortized cost, at June 30, 2009 and December 31, 2008:


13





June 30, 2009
                        
                        
                        December 31, 2008Common
                        
                        
                        Embedded
                        
                        
                        Common
                        
                        
                        EmbeddedStock
                        
                        
                        Conversion
                        
                        
                        Stock
                        
                        
                        ConversionShares
                        
                        
                        Feature
                        
                        
                        Shares
                        
                        
                        Feature(in thousands)Series
      C Convertible Preferred Stock
                        
                        
                        1,982,059
                        
                        
                        $
                        19,027
                        
                        
                        
                        21,456,650
                        
                        
                        $
                        10,728August
      24, 2006
                        
                        
                        500,000
                        
                        
                        
                        6,641
                        
                        
                        
                        5,555,556
                        
                        
                        
                        7,260December
      29, 2006
                        
                        
                        333,356
                        
                        
                        
                        3,267
                        
                        
                        
                        3,703,957
                        
                        
                        
                        3,556March
      27, 2007
                        
                        
                        745,865
                        
                        
                        
                        -
                        
                        
                        
                        8,287,390
                        
                        
                        
                        -August
      24, 2007
                        
                        
                        177,500
                        
                        
                        
                        -
                        
                        
                        
                        1,972,222
                        
                        
                        
                        -April
      11, 2008
                        
                        
                        39,000
                        
                        
                        
                        -
                        
                        
                        
                        433,333
                        
                        
                        
                        -May
      16, 2008
                        
                        
                        50,000
                        
                        
                        
                        -
                        
                        
                        
                        555,556
                        
                        
                        
                        -May
      29, 2008
                        
                        
                        79,000
                        
                        
                        
                        -
                        
                        
                        
                        877,778
                        
                        
                        
                        -July
      10, 2008
                        
                        
                        13,775
                        
                        
                        
                        141
                        
                        
                        
                        153,056
                        
                        
                        
                        158July
      29, 2008
                        
                        
                        195,789
                        
                        
                        
                        1,966
                        
                        
                        
                        2,325,000
                        
                        
                        
                        2,327October
      28, 2008
                        
                        
                        195,789
                        
                        
                        
                        1,938
                        
                        
                        
                        2,325,000
                        
                        
                        
                        2,227April
      6, 2009
                        
                        
                        46,316
                        
                        
                        
                        452
                        
                        
                        
                        -
                        
                        
                        
                        -May
      1, 2009
                        
                        
                        46,316
                        
                        
                        
                        452
                        
                        
                        
                        -
                        
                        
                        
                        -June
      5, 2009
                        
                        
                        60,211
                        
                        
                        
                        587
                        
                        
                        
                        -
                        
                        
                        
                        -Total
                        
                        
                        4,464,976
                        
                        
                        $
                        34,471
                        
                        
                        
                        47,645,498
                        
                        
                        $
                        26,256





The
carrying value of the embedded conversion feature related to the April 6, 2009,
May 1, 2009 and June 5, 2009 financings at inception was approximately $531,000,
$419,000 and $679,000, respectively.





The terms
of the embedded conversion features in the convertible instruments presented
above provide for variable conversion rates that are indexed to our trading
common stock price. As a result, the number of indexed shares is subject to
continuous fluctuation. For presentation purposes, the number of shares of
common stock into which the embedded conversion feature of the Series C
convertible stock was convertible as of June 30, 2009 was calculated as face
value plus assumed dividends (if declared), divided by the lesser of the fixed
rate ($.02) or the market price multiplied by the average ratio of market price
to conversion price over the term of the note. The number of shares of common
stock into which the embedded conversion feature in the convertible debentures
was convertible as of June 30, 2009 was calculated as the face value of each
instrument divided by the conversion price as of June 30, 2009.





The March
2007, August 2007, April 2008 and May 2008 debentures are carried in their
entirety at fair value in accordance with FAS 155 and the value of the embedded
conversion feature is effectively embodied in those fair
values.




Changes
in the fair value of convertible instruments that are carried at fair value (the
March 2007 Debenture, August 2007 Debenture, April 2008 Debenture and May 2008
Debentures) are reported as “Gain (loss) from change in fair value of hybrid
financial instruments” in the accompanying consolidated statement of operations.
The following represents a reconciliation of the changes in fair value of
financial instruments measured at fair value under FAS 155:


14





Three Months Ended June 30,
                
                
                Six Months Ended June 30,2009
                
                
                2008
                
                
                2009
                
                
                2008(in thousands)
                
                
                (in thousands)Debenture Issue DateMarch
      27, 2007 debenture
                
                $
                15,915
                
                
                $
                3,135
                
                
                $
                (110
                )
                
                $
                2,056August
      24, 2007 debenture
                
                
                3,797
                
                
                
                715
                
                
                
                156
                
                
                
                450April
      11, 2008 debenture
                
                
                844
                
                
                
                19
                
                
                
                49
                
                
                
                19May
      16, 2008 debenture
                
                
                1,081
                
                
                
                29
                
                
                
                84
                
                
                
                29May
      29, 2008 debenture
                
                
                1,706
                
                
                
                154
                
                
                
                133
                
                
                
                154Total
                
                $
                23,343
                
                
                $
                4,052
                
                
                $
                312
                
                
                $
                2,708





Changes
in the fair value of derivative instrument liabilities related to the bifurcated
embedded derivative features of convertible instruments not carried at fair
value are reported as “Gain (loss) from change in fair value of debentures” in
the accompanying consolidated statement of operations. The following represents
a reconciliation of the changes in fair value of these derivative financial
instruments recorded under FAS 133:





Three Months Ended June 30,
                  
                  
                  Six Months Ended June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008(in thousands)
                  
                  
                  (in thousands)Series C Convertible Preferred Stock
                  
                  $
                  15,851
                  
                  
                  $
                  (5,480
                  )
                  
                  $
                  (11,389
                  )
                  
                  $
                  (4,533
                  )Debenture
      Issue DateAugust
      24, 2007
                  
                  
                  12,694
                  
                  
                  
                  (1,684
                  )
                  
                  
                  619
                  
                  
                  
                  (75
                  )December 29,
      2006
                  
                  
                  6,454
                  
                  
                  
                  (842
                  )
                  
                  
                  289
                  
                  
                  
                  (38
                  )July
      10, 2008
                  
                  
                  273
                  
                  
                  
                  -
                  
                  
                  
                  17
                  
                  
                  
                  -July
      29, 2008
                  
                  
                  1,275
                  
                  
                  
                  -
                  
                  
                  
                  361
                  
                  
                  
                  -October
      28, 2008
                  
                  
                  1,293
                  
                  
                  
                  -
                  
                  
                  
                  289
                  
                  
                  
                  -April
      6, 2009
                  
                  
                  79
                  
                  
                  
                  -
                  
                  
                  
                  79
                  
                  
                  
                  -May
      1, 2009
                  
                  
                  (33
                  )
                  
                  
                  -
                  
                  
                  
                  (33
                  )
                  
                  
                  -June
      5, 2009
                  
                  
                  92
                  
                  
                  
                  -
                  
                  
                  
                  92
                  
                  
                  
                  -Total
                  
                  $
                  37,978
                  
                  
                  $
                  (8,006
                  )
                  
                  $
                  (9,676
                  )
                  
                  $
                  (4,646
                  )





Warrants -YA Global holds warrants to purchase shares of our common stock that were
issued in connection with the convertible debentures and the Series C
convertible preferred stock. The warrants are exercisable at the lower of a
fixed exercise price or a specified percentage of the current market price. From
time to time, the fixed exercise prices of the warrants held by YA Global have
been reduced as an inducement for YA Global to enter into subsequent financing
arrangements. In addition to the warrants issued to YA Global, certain other
warrants have been issued to consultants and other service
providers.





The
warrants issued to YA Global and others do not meet all of the established
criteria for equity classification in EITF Issue 00-19 and, accordingly, are
recorded as derivative liabilities at fair value. Changes in the fair value of
the warrants are charged or credited to income or expense each
period.





A summary
of the warrants outstanding (in thousands) follows:


15





June 30, 2009
                    
                    
                    December 31, 2008Common
                    
                    
                    
                    
                    
                    CommonExercise
                    
                    Expiration
                    
                    Stock
                    
                    
                    Fair
                    
                    
                    Stock
                    
                    
                    FairPrice
                    
                    Date
                    
                    Warrants
                    
                    
                    Value
                    
                    
                    Warrants
                    
                    
                    Value(in thousands)Series
      C Convertible Preferred Stock
                    
                    $
                    0.0100
                    
                    2/17/2011
                    
                    
                    75,000
                    
                    
                    $
                    930
                    
                    
                    
                    75,000
                    
                    
                    $
                    23August
      24, 2006 debenture
                    
                    
                    0.0100
                    
                    8/24/2011
                    
                    
                    175,000
                    
                    
                    
                    2,293
                    
                    
                    
                    175,000
                    
                    
                    
                    193December
      29, 2006 debenture
                    
                    
                    0.0100
                    
                    12/29/2011
                    
                    
                    42,000
                    
                    
                    
                    554
                    
                    
                    
                    42,000
                    
                    
                    
                    50March
      27, 2007 debenture
                    
                    
                    0.0100
                    
                    3/27/2012
                    
                    
                    125,000
                    
                    
                    
                    1,650
                    
                    
                    
                    125,000
                    
                    
                    
                    150August
      24, 2007 debenture
                    
                    
                    0.0100
                    
                    8/24/2012
                    
                    
                    75,000
                    
                    
                    
                    997
                    
                    
                    
                    75,000
                    
                    
                    
                    90May
      16, 2008 debenture
                    
                    
                    0.0100
                    
                    5/16/2015
                    
                    
                    7,500
                    
                    
                    
                    106
                    
                    
                    
                    7,500
                    
                    
                    
                    10May
      29, 2008 debenture
                    
                    
                    0.0100
                    
                    5/29/2015
                    
                    
                    50,000
                    
                    
                    
                    705
                    
                    
                    
                    50,000
                    
                    
                    
                    70July
      29, 2008 debenture
                    
                    
                    0.0184
                    
                    7/29/2015
                    
                    
                    450,000
                    
                    
                    
                    6,300
                    
                    
                    
                    450,000
                    
                    
                    
                    602Other
      warrants
                    
                    
                    0.011-.48
                    
                    Various
                    
                    
                    6,696
                    
                    
                    
                    56
                    
                    
                    
                    8,471
                    
                    
                    
                    1Total
                    
                    
                    
                    
                    
                    
                    
                    1,006,196
                    
                    
                    $
                    13,591
                    
                    
                    
                    1,007,971
                    
                    
                    $
                    1,189





The
warrants are valued using the Black-Scholes-Merton valuation methodology because
that model embodies all of the relevant assumptions that address the features
underlying these instruments. Significant assumptions used in this model as of
June 30, 2009 included an expected life equal to the remaining term of the
warrants, an expected dividend yield of zero, estimated volatility of 173% to
234%, and risk-free rates of return of 0.56% to 3.19%.





Fair Value
Considerations –We adopted the
provisions of FAS 157 as of January 1, 2008, with respect to financial
instruments. As required by FAS 157, assets and liabilities measured at fair
value are classified in their entirety based on the lowest level of input that
is significant to their fair value measurement. Our derivative financial
instruments which are required to be measured at fair value on a recurring basis
under FAS 155 or FAS 133 and as of June 30, 2009 and December 31, 2008 are all
measured at fair value using Level 3 inputs. Level 3 inputs are unobservable
inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.





The
following represents a reconciliation of the changes in fair value of financial
instruments measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) during the six months ended June 30, 2009, in
thousands:





Beginning
      balance: Derivative financial instruments
                      
                      $
                      27,445Total
      gains (losses)
                      
                      
                      9,988Transfers
      in/out of Level 3
                      
                      
                      10,629Ending
      balance
                      
                      $
                      48,062




Subsequent
Events




Secured
Convertible Debenture - On July 15, 2009 and August 14, 2009, we entered
into additional Secured Convertible Debentures with YA Global for principal
amounts of $535,000 and $475,000, respectively. The debentures accrue interest
at 14% per annum and are payable on the maturity date (July 29, 2010) in cash,
or provided that certain equity conditions are satisfied, in shares of common
stock.  At any time from the closing date until the maturity date, YA
Global has the right to convert the convertible debentures into our common
stock  at the then effective conversion price, which varies relative
to the our trading stock price, at the lesser of, $0.02 per share, or 95% of the
lowest weighted average price of the Company’s common stock during the ten days
preceding the conversion date, and adjusts to 50% of the lowest weighted average
price of the Company’s common stock during the ten days preceding the conversion
date in the event of a default. The conversion is limited such that the holder
cannot exceed 4.99% ownership, unless the holders waive their right to such
limitation. We have the right to redeem a portion or the entire outstanding note
at a 10% premium plus accrued interest. The debentures are secured by certain
Pledged Property, as such term is defined in the Security Agreement, dated July
29, 2008, and certain Patent Collateral, as defined in a security agreement
(patent), entered into on July 29, 2008.




16


Note 5 – Stock-Based Compensation




A total
of 22,173,540 stock options were issued to employees and directors during the
six months ended June 30, 2009. A total of 32,126,763 stock options were issued
to employees during the six months ended June 30, 2008.  The grant
date fair values of these options were $157,000 and $170,000, respectively,
which amounts are being recognized over the vesting period of the
options.  For the three and six months ended June 30, 2009 and 2008,
respectively, total stock-based compensation expense recorded in the statement
of operations was $98,000 and $631,000 for the three months ended June 30, 2009
and 2008, and $177,000 and $987,000 for the six months ended June 30, 2009 and
2008, respectively.




We used
the following assumptions to value the stock options granted during the six
months ended June 30, 2009 and 2008:





Six months ended June 30,2009
                  
                  
                  2008Volatility
                  
                  
                  138% - 282%
                  
                  
                  
                  88% - 120%Expected
      dividends
                  
                  
                  -
                  
                  
                  
                  -Expected
      term (in years)
                  
                  
                  5.6
                  
                  
                  
                  3Risk-free
      rate
                  
                  
                  0.50%
                  
                  
                  
                  4.35%




During
the six months ended June 30, 2009 options to purchase 11,600,000 shares of our
common stock were exercised. The exercise price of these options was $0.01 per
share, providing us with proceeds of $116,000. There were no stock option
exercises during the six months ended June 30, 2008.




On April
29, 2009 the Stock Option Committee of the Board of Directors approved a
resolution granting 6,548,540 stock options to 14 of our employees and directors
to partially compensate them for reductions in salaries and fees related to our
cost control measures. The exercise price of these options was $0.02 per share.
In addition, the resolution included a change in control provision, under which
all options held by these employees and directors would vest upon such change in
control of the company.




Note 6 – Accrued Liabilities




Accrued
liabilities consist of the following as of June 30, 2009 and December 31,
2008:




June 30,
                    
                    
                    December 31,2009
                    
                    
                    2008(in
      thousands)Accruals
      for disputed services
                    
                    $
                    2,280
                    
                    
                    $
                    2,224Accrued
      operating expenses
                    
                    
                    1,475
                    
                    
                    
                    1,791Accrued
      payroll related expenses
                    
                    
                    117
                    
                    
                    
                    -Accrued
      interest
                    
                    
                    3,334
                    
                    
                    
                    1,772Total
                    
                    $
                    7,206
                    
                    
                    $
                    5,787




Note 7 –Contingencies





We are
involved in various legal actions arising in the normal course of business, both
as claimant and defendant. Although it is not possible to determine with
certainty the outcome of these matters, it is the opinion of management that the
eventual resolution of the following legal actions will not have a material
adverse effect on our financial position or operating results. We expense
professional fees associated with our legal proceedings as they are incurred
according to the terms negotiated between us and the respective professional who
represents our interests. We have not accrued a loss contingency in relation to
any of our pending litigation.


17


Scanbuy,
Inc. - On January 23, 2004, we filed suit against Scanbuy, Inc.
(“Scanbuy”) in the Northern District of Illinois, claiming that Scanbuy has
manufactured, or has had manufactured for it, and has used, or actively induced
others to use, technology which allows customers to use a built-in UPC bar code
scanner to scan individual items and access information, thereby infringing our
patents.  The complaint stated that on information and belief, Scanbuy had
actual and constructive notice of the existence of the patents-in-suit, and,
despite such notice, failed to cease and desist their acts of infringement and
continue to engage in acts of infringement of the patents-in-suit.  On
April 15, 2004, the court dismissed the suits against Scanbuy for lack of
personal jurisdiction.




On April
20, 2004, we re-filed our suit against Scanbuy in the Southern District of New
York alleging patent infringement. Scanbuy filed their answer on June 2, 2004.
We filed our answer on July 23, 2004. On February 13, 2006, Scanbuy filed an
amended answer to the complaint. We filed our reply to Scanbuy’s amended answer
on March 6, 2006. On January 20, 2007, the court dismissed Scanbuy's request for
a summary judgment. On February 17, 2009, the USPTO sent NeoMedia a Notice of
Intent to Issue Ex Parte Reexamination Certificate, and on June 9, 2009 NeoMedia
received a Reexamination Certificate for the ‘048 patent.  NeoMedia
requested that the stay be lifted and a joint summary status of the case was
provided to the court.  On April 17, 2009 both parties met with the court
to discuss the status of the case. On August 3, 2009 the Court issued an order
lifting the stay and granting our request to proceed with discovery, which is
now in progress.





Ephrian Saguy,
iPoint – media, plc. and iPoint – media, Ltd. – On or around March 5,
2008 we received a summons and notice that the plaintiffs had commenced a third
party action in the Magistrate Court in Tel-Aviv-Jaffa, Israel seeking damages
from us and YA Global for breach of contract and unjust enrichment related to
services provided by iPoint and investment by us and YA Global. We have entered
into an assignment agreement with YA Global and have retained legal counsel in
Israel to represent us. At this time we are unable to determine a probable
outcome in this matter.





Rothschild Trust
Holdings, LLC– On September 19, 2008, we were served a complaint by
Rothschild Trust Holding, LLC alleging we owed royalty payments for the use of
certain patents. On February 25, 2009 we filed an answer to the complaint. On
July 20, 2009 we entered into non-binding mediation and an interim agreement
which requires us to provide documentation for review by Rothschild Trust
Holding, LLC. This process is on-going, and we believe the complaint is
without merit and we intend to vigorously defend against it.





Scanbuy and
Marshall Feature Recognition, LLC – On or around December 19, 2008, we
received a complaint filed in the Eastern District of Texas by Scanbuy and
Marshall Feature Recognition, LLC (“MFR”) alleging infringement of certain
patents. On January 8, 2009, we filed an answer denying infringement and
asserting that the patents of Scanbuy and MFR are invalid. On or about May 8,
2009 the parties agreed and the case was transferred to the Southern District of
New York due to lack of personal jurisdiction in the Eastern District of Texas.
On August 3, 2009 the New York Court assigned the case to the same judge
responsible for our suit against Scanbuy, described above. However, because of
significant differences between the cases each will be tried separately. The
Court’s order also established a timetable for discovery in this case. We
believe the complaint is without merit and we intend to vigorously defend
against it.





The Hudson
Consulting Group, Inc.– On June 30, 2009 we received from the Superior
Court of Fulton County, in the State of Georgia a Notice of Filing of Foreign
Judgment related to the judgment granted against us but the Superior Court,
Judicial District of Middlesex, in the State of Connecticut, granted on August
22, 2008.  The Notice of Filing seeks to collect on the Judgment which
was granted in Connecticut. We are seeking to settle this matter.





Dennis G.
Priddy – On July 30, 2009, we and our Chief Executive Officer were served
with a Writ of Summons filed in the Northern District Superior Court of
Hillsborough County, New Hampshire. The allegations in the Writ included several
employment related matters. We believe the complaint is without merit and we
intend to vigorously defend against it.




Note
8 – Geographic Reporting





We are
structured and evaluated by our Board of Directors and management as one
business unit.


18


Consolidated
net sales and net loss from continuing operations for the three and six month
ended June 30, 2009 and 2008, and the identifiable assets as of June 30, 2009
and December 31, 2008 by geographic area were as follows:





Three Months Ended June 30,
                    
                    
                    Six Months Ended June 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008(in
      thousands)
                    
                    
                    (in
      thousands)Net
      Sales:United
      States
                    
                    $
                    88
                    
                    
                    $
                    91
                    
                    
                    $
                    155
                    
                    
                    $
                    207Germany
                    
                    
                    48
                    
                    
                    
                    116
                    
                    
                    
                    471
                    
                    
                    
                    264Total
                    
                    $
                    136
                    
                    
                    $
                    207
                    
                    
                    $
                    626
                    
                    
                    $
                    471Net
      income (loss) from continuing operations:United
      States
                    
                    
                    78,524
                    
                    
                    
                    (8,799
                    )
                    
                    
                    (27,752
                    )
                    
                    
                    (4,308
                    )Germany
                    
                    
                    (460
                    )
                    
                    
                    (552
                    )
                    
                    
                    (783
                    )
                    
                    
                    (1,006
                    )Total
                    
                    $
                    78,064
                    
                    
                    $
                    (9,351
                    )
                    
                    $
                    (28,535
                    )
                    
                    $
                    (5,314
                    )




June
      30,
                    
                    
                    December
      31,2009
                    
                    
                    2008Identifiable
      assets:United
      States
                    
                    $
                    9,526
                    
                    
                    $
                    10,920Germany
                    
                    
                    467
                    
                    
                    
                    568Total
                    
                    $
                    9,993
                    
                    
                    $
                    11,488




Note
9 - Subsequent Events




Asset Purchase
and Sale Agreement – On July 17, 2009, the Company entered into an Asset
Purchase and Sale Agreement to dispose of certain assets in connection with our
legacy Maxicode, PDF 417 and WISP software product lines. Neither the assets
sold, nor the revenue to be acquired in connection with the asset sale, are
material to the Company.


19




ITEM
2.Management’s Discussion and Analysis of Financial Condition
and Results of Operations





Special
Note About Forward-Looking Statements





Certain
statements in Management’s Discussion and Analysis, other than purely historical
information, including estimates, projections, statements relating to our
business plans, objectives, and expected operating results, and the assumptions
upon which those statements are based, are “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of 1995,
Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended. These
forward-looking statements generally are identified by the words “believe,”
“project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,”
“may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely
result,” and similar expressions. Forward-looking statements are based on
current expectations and assumptions that are subject to risks and
uncertainties, which may cause actual results to differ materially from the
forward-looking statements. For a detailed discussion of risks and uncertainties
that could cause actual results and events to differ materially from such
forward looking statements, please refer to the section titled “Risk Factors” in
the Company’s 2008 Form 10-K filed on April 14, 2009 with the SEC.  We
undertake no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events, or
otherwise.





Overview





NeoMedia
provides the infrastructure to make mobile barcode scanning and its associated
commerce easy, universal, and reliable – worldwide. Our barcode ecosystem
products including mobile barcode reading software, NeoReader, read and transmit
data from 1D and 2D barcodes to its intended destination. Our Code Management
(NeoSphere) and Code Clearinghouse (NeoRouter) platforms create, connect,
record, and transmit the transactions embedded in the barcodes, like web-URLs,
text messages (SMS), and telephone calls, ubiquitously and
reliably.





In order
to provide complete mobile marketing solutions, NeoMedia also offers barcode
scanning hardware that reads barcodes displayed on mobile phone screens.
NeoMedia provides infrastructure solutions to enable mobile ticketing and
couponing programs – including scanner hardware and system support software for
seamless implementation.





This technology
is supported by our patents. In addition, NeoMedia has an open standards
philosophy designed to make integration and use of the technology easy for
handset manufacturers, mobile operators and advertisers; and the user experience
safe, reliable and interoperable for consumers.




In 2006,
we began divesting our non-core businesses in order to focus our efforts on the
area that we believe will deliver the most value - our code-reading business and
the related intellectual property. In the fourth quarter of 2006, we disposed of
two subsidiaries, Mobot and Sponge. During April 2007, we sold the 12Snap
business unit and in October 2007, we completed the sale of our Telecom Services
business.  In November 2007, we sold our Micro Paint Repair business
unit.  As a consequence of these divestitures, we evaluate our
continuing business as one consolidated business.  These divestitures
were integral to our turnaround plan and the proceeds received from the sale of
our non-core business units have been used to continue the development of our
code-reading business.  A major goal of ours is to provide the
industrial and carrier-grade infrastructure to enable reliable, scalable and
billable commerce that is customer-focused and drives revenue
growth.





During
2008 and early 2009 we have made significant changes to strengthen our
management team. In June 2008, Mr. Iain A. McCready became our Chief Executive
Officer and Chairman of our Board of Directors; in September 2008, Mr. Michael
W. Zima became our Chief Financial Officer and Secretary; in January 2009, Ms.
Laura Marriott became a Member of our Board of Directors; and in March 2009, Mr.
Dean Wood became our Vice President - Business Development.





On July
28, 2009, we entered into a non-exclusive patent licensing agreement with Mobile
Tag, Inc., for machine readable mobile codes under our patent portfolio. This is
the first contract to be announced under our recently launched licensing
program. Under the terms of the agreement, we will receive a percentage of
revenue generated by Mobile Tag, Inc., through the use and licensing of our
patent portfolio.


20




Comparison
of the Three and Six Months Ended June 30, 2009 and 2008





Results
of Continuing Operations





Beginning
in late 2008 and continuing in 2009 we have taken aggressive steps to control
our costs. These efforts have resulted in reduced operating losses in the three
months ended June 30, 2009 compared to the three months ended June 30, 2008,
respectively, of $1.5 million compared to $2.8 million, and reduced operating
losses in the six months ended June 30, 2009, compared to the six months ended
June 30, 2008, respectively, of $3.1 million compared to $5.2 million. However,
our loss from continuing operations was $28.5 million during the six months
ended June 30, 2009 compared to $5.3 million during the six months ended June
30, 2008. The overall loss incurred in the six months ended June 30, 2009, was
primarily the result of non-cash losses and gains from the change in fair value
of our hybrid financial instruments, warrants and debentures, totaling $22
million. For the three months ended March 31, 2009, the non-cash loss totaled
$104 million, and non-cash gain for the three months ended June 30, 2009 totaled
$82 million.  We incurred these non-cash losses and gains principally
as a result of the recent fluctuations in the market value of our common stock
during the three and six months ended June 30, 2009. During the six months ended
June 30, 2008 we reported non-cash gains on our hybrid financial instruments,
warrants and debentures, totaling $1.5 million. These non-cash gains were
principally the result of declines in the market value of our common
stock.




A summary
of our net sales for the three and six months ended June 30, 2009 and 2008 is
presented below:





Three Months Ended June 30,
                    
                    
                    Increase (decrease)2009
                    
                    
                    2008
                    
                    
                    $
                    
                    
                    %(in
      thousands)Hardware
      sales
                    
                    
                    36
                    
                    
                    $
                    82
                    
                    
                    
                    (46
                    )
                    
                    
                    -56
                    %Lavasphere
      revenue
                    
                    
                    8
                    
                    
                    
                    15
                    
                    
                    
                    (7
                    )
                    
                    
                    -47
                    %Neo-Reader
      revenue
                    
                    
                    2
                    
                    
                    
                    -
                    
                    
                    
                    2
                    
                    
                    
                    -Legacy
      product revenue
                    
                    
                    88
                    
                    
                    
                    91
                    
                    
                    
                    (3
                    )
                    
                    
                    -3
                    %Other
      revenue
                    
                    
                    2
                    
                    
                    
                    19
                    
                    
                    
                    (17
                    )
                    
                    
                    -89
                    %Net
      Sales
                    
                    $
                    136
                    
                    
                    $
                    207
                    
                    
                    
                    (71
                    )
                    
                    
                    -34
                    %




Six Months Ended June 30,
                    
                    
                    Increase (decrease)2009
                    
                    
                    2008
                    
                    
                    $
                    
                    
                    %(in
      thousands)Hardware
      sales
                    
                    
                    429
                    
                    
                    $
                    149
                    
                    
                    
                    280
                    
                    
                    
                    188
                    %Lavasphere
      revenue
                    
                    
                    30
                    
                    
                    
                    39
                    
                    
                    
                    (9
                    )
                    
                    
                    -23
                    %Neo-Reader
      revenue
                    
                    
                    6
                    
                    
                    
                    -
                    
                    
                    
                    6
                    
                    
                    
                    -Legacy
      product revenue
                    
                    
                    145
                    
                    
                    
                    168
                    
                    
                    
                    (23
                    )
                    
                    
                    -14
                    %Patent
      licensing
                    
                    
                    10
                    
                    
                    
                    39
                    
                    
                    
                    (29
                    )
                    
                    
                    -75
                    %Other
      revenue
                    
                    
                    6
                    
                    
                    
                    76
                    
                    
                    
                    (70
                    )
                    
                    
                    -92
                    %Net
      Sales
                    
                    $
                    626
                    
                    
                    $
                    471
                    
                    
                    
                    155
                    
                    
                    
                    33
                    %




Net Sales
- Total revenues decreased $71,000, or 34%, to $136,000 for the three
months ended June 30, 2009 from $207,000 for the three months ended June 30,
2008. Total revenues increased $155,000, or 33%, to $626,000 for the six months
ended June 30, 2009 from $471,000 for the six months ended June 30, 2008. This
increase was the result of increased sales of our hardware products. Sales of
hardware products decreased to $36,000 from $82,000 for the three months ended
June 30, 2009 and 2008, respectively, and increased to $429,000 from $149,000
for the six months ended June 30, 2009 and 2008, respectively, as a result of
the introduction of our newest model barcode scanners as well as the sale of
remaining quantities of our older models. During the six months ended June 30,
2009, we recorded $6,000 of sales revenue for our barcode ecosystem products. In
succeeding quarters we expect these revenues and related licensing revenues to
increase as we shift the focus to our new business strategy of developing
products and services to support the emerging barcode ecosystem that is being
defined by bodies such as the OMA, GSMA and CTIA. We believe this focus will
deliver the most value in the future.


21





Cost of
Sales - Cost of sales was $281,000 for the three months ended June 30,
2009 compared with $292,000 for the three months ended June 30, 2008, a decrease
of $11,000, or 4%. Cost of sales was $808,000 for the six months ended June
30, 2009 compared with $605,000 for the six months ended June 30, 2008,
an increase of $203,000, or 34%. Cost of sales for NeoMedia Europe,
related to our hardware products, was $45,000 and $49,000 for the three
months ended June 30, 2009 and 2008, respectively, and was $334,000 and
$115,000 for the six months ended June 30, 2009 and 2008, respectively.
Amortization costs related to our patents, and the proprietary software of
NeoMedia Europe was $236,000 and $244,000 for the three months ended June
30, 2009 and 2008, respectively, and was $474,000 and $490,000 for the six
months ended June 30, 2009 and 2008, respectively.




Sales and
Marketing - Sales and marketing expenses were $178,000 and $655,000 for
the three months ended June 30, 2009 and 2008, respectively, a decrease of
$477,000 or 73%, and $464,000 and $1,283,000 for the six months ended June 30,
2009 and 2008, respectively, a decrease of $819,000 or 64%. The decrease in
sales and marketing expenses was the result of strict cost controls implemented
in mid-late 2008 and further reductions in 2009 compared with 2008.




General and
Administrative - General and administrative expenses were $863,000 and
$1,367,000 for the three months ended June 30, 2009 and 2008, respectively, a
decrease of $504,000, or 37%, and $1,787,000 and $2,573,000 for the six months
ended June 30, 2009 and 2008, respectively, a decrease of $786,000, or 31%. The
decrease in general and administrative expenses was the result of reductions in
compensation and travel costs, as well as reductions in professional fees
implemented in mid-late 2008 and further reductions in 2009 compared with
2008.




Research and
Development -Research and development expenses were $350,000 and
$655,000 for the three months ended June 30, 2009 and 2008, respectively, a
decrease of $305,000, or 47%, and $673,000 and $1,217,000 for the six months
ended June 30, 2009 and 2008, respectively, a decrease of $544,000, or 45%. The
decrease in research and development expenses was the result of reductions in
compensation and costs associated with the development of our hardware products,
which were completed and launched in late 2008. We have also implemented further
cost controls in 2009 compared with 2008.





Gain (Loss) from
Change in Fair Value of Hybrid Financial Instruments-We carry certain of our
convertible debentures at fair value, in accordance with FAS 155 and do not
separately account for the embedded conversion feature.  The change in
the fair value of these liabilities includes changes in the value of the
interest due under these instruments, as well as changes in the fair value of
the common stock underlying the instruments. Liability related to these
hybrid instruments decreased in the three months ended June 30, 2009 and 2008,
respectively, resulting in a gain of $23.3 million, and $4.1 million,
respectively. Liability related to these hybrid instruments decreased in
the six months ended June 30, 2009 and 2008, respectively, resulting in a
gain of $0.3 million, and $2.7 million, respectively. These fair value
changes were primarily as a result of the fluctuations in the value of our
common stock during the period. Because our stock price has been volatile
and because many of our hybrid financial instruments include relatively low
fixed conversion prices, it is possible that further increases in the market
price of our stock could cause the fair value of our hybrid financial
instruments to increase significantly in future periods.




Gain (Loss) from
Change inFairValue ofDerivative
Liabilities -Warrants
- We
account for our outstanding common stock warrants that were issued in connection
with the preferred stock and our debentures, at fair value. Liability related to
warrants decreased in the three months ended June 30, 2009 and 2008,
respectively, resulting in a gain of $20.9 million, and $1.5 million,
respectively. Liability related to warrants increased in the six months ended
June 30, 2009, and decreased in the six months ended June 30, 2008, resulting in
a loss of $12.4 million, and a gain of $3.5 million, respectively. These fair
value changes were primarily as a result of the fluctuations in the value of our
common stock during the period. Because our stock price has been volatile and
because many of our warrants include relatively low fixed exercise prices it is
possible that further increases in the market price of our stock could cause the
fair value of our warrants to increase significantly in future
periods.


22





Gain (Loss) from
Change inFairValue ofDerivative
Liabilities -Debentures
-For our
Series C convertible preferred stock, and certain of our convertible debentures,
we account for the embedded conversion feature separately as a derivative
financial instrument.  We carry these derivative financial
instruments at fair value. Liability related to the derivative
instruments embedded in these debentures decreased in the three months ended
June 30, 2009, and increased in the three months ended June 30, 20008,
respectively, resulting in a gain of $38.0 million, and a loss of $8.0 million,
respectively. Liability related to these derivative instruments and debentures
increased in the six months ended June 30, 2009, and 2008, respectively,
resulting in a loss of $9.7 million, and $4.6 million, respectively. These fair
value changes were primarily as a result of the fluctuations in the value of our
common stock during the period. Because our stock price has been volatile and
because many of our derivative financial instruments include relatively low
fixed conversion prices, it is possible that further increases in the market
price of our stock could cause the fair value of our derivative financial
instruments to increase significantly in future periods.





Other Interest
Expense, net -Other interest expense was $2.6 million and $4.1 million
for the three months ended June 30, 2009 and 2008, respectively, a decrease of
$1.5 million or 37%, and $3.7 million and $1.7 million for the six months ended
June 30, 2009 and 2008, respectively, an increase of $2.0 million or 118% that
results from increased financing activities from the second half of 2008 through
June 30, 2009. Other interest expense consists of interest charges related to
convertible debentures that are not carried at fair value under FAS 155,
interest accrued for creditors as part of financed purchases, past due balances
and notes payable, net of interest earned on cash equivalent
investments.




Results of
Discontinued Operations -In 2007, we discontinued
the operations of our Mobot, Sponge, 12Snap, Telecom Services and Micro Paint
Repair businesses.  During the six months ended June 30, 2008, we
recognized a loss of $291,000, primarily attributable to wind-down expenses
associated with Micro Paint Repair, 12Snap, and Telecom Services.




Liquidity
and Capital Resources




As of
June 30, 2009, we had $0.3 million in cash and cash equivalents; a decrease of
$1.0 million, or 77%, compared with a total of $1.3 million as of
December 31, 2008.




Cash used
in operating activities decreased to $2.7 million for the six months ended
June 30, 2009 compared with $3.2 million for the period ended June 30,
2008.  The decrease in cash used in operations is primarily due to the
cost control measures implemented in late 2008 and early 2009.




Cash used
in investing activities was $24,000 for the six months ended June 30, 2009,
representing the purchase of equipment. Net cash provided by investing
activities was $0.4 million for the six months ended June 30,
2008.  This was primarily due to the sale of our remaining ownership
of 12Snap, wind-down expenses from discontinued operations, a partial settlement
of intercompany loans and cash retained by us from the shut-down of Micro Paint
Repair-US which resulted in net proceeds to us of $0.8 million.




Cash
provided by financing activities was $1.8 million for the six months ended June
30, 2009, which resulted from $1.7 million in convertible debt instruments net
of fees from Y.A. Global, and proceeds received upon exercise of stock options
by two former employees totaling $0.1 million. Cash provided by and used in
financing activities during the six months ended June 30, 2008 was $1.4 million,
and was the result of additional borrowing activities through convertible debt
instruments, and the repayment of portions of our notes payable.




As of
June 30, 2009, we had a working capital deficiency of $91.3 million, of which
$67.7 million relates to the fair value of hybrid and derivative financial
instruments, and $11.6 million relates to the carrying value of debentures
carried at amortized cost. These values are significantly greater than the face
amount of our debt that would be otherwise due in cash if the conversion feature
of these instruments and the warrants did not exist





Significant
Liquidity Events





Going
Concern - We have historically incurred net losses and losses from
operations and we expect that we will continue to have negative cash flows as we
implement our business plan.  There can be no assurance that our
continuing efforts to execute our business plan will be successful and that we
will be able to continue as a going concern. The accompanying consolidated
financial statements have been prepared in conformity with US GAAP, which
contemplate our continuation as a going concern.  Net loss for the six
months ended June 30, 2009 was $28.6 million while net cash used by
operations was $2.7 million.  We also have an accumulated deficit
of $241.2 million and a working capital deficit of $91.3 million as of
June 30, 2009, much of which is related to the derivative value of our financing
instruments. We also have a continuing obligation as of June 30, 2009 of $4.6
million relating to a purchase price guarantee associated with our prior
acquisition of 12Snap (which we subsequently sold).


23




The items
discussed above raise substantial doubts about our ability to continue as a
going concern.




We
currently do not have sufficient cash to sustain us for the next twelve
months.  We will require additional financing in order to execute our
operating plan and continue as a going concern.  Our management’s plan
is to attempt to secure adequate funding to bridge the commercialization of our
barcode ecosystem business. We cannot predict whether this additional financing
will be in the form of equity, debt, or another form and we may not be able to
obtain the necessary additional capital on a timely basis, on acceptable terms,
or at all.  We believe that we can obtain additional financing, but in
the event that these financing sources do not materialize, or that we are
unsuccessful in increasing our revenues and profits, we may be unable to
implement our current plans for expansion, repay our debt obligations as they
become due or continue as a going concern, any of which circumstances would have
a material adverse effect on our business, prospects, financial condition and
results of operations.





Including
funding received subsequent to June 30, 2009, we have received $2.6 million in
financing from YA Global Investments, L.P (“YA Global”) in 2009. While Y.A.
Global has informally told us that they intend to continue to fund our
operations on a month-to-month basis, should YA Global choose not to
provide us with additional capital financing, as they have in the past, or
if Y.A. Global does not object and we seek funding from alternative sources but
are also unsuccessful, or if we are unable to generate significant product
revenues, we only have sufficient funds to sustain our current operations
through approximately September 15, 2009.





The
financial statements in this Form 10-Q do not include any adjustments relating
to the recoverability and reclassification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary, should we be
unable to continue as a going concern.





Sources of Cash
and Projected Cash Requirements-As of June
30, 2009, our cash balance was $0.3 million. NeoMedia’s reliance on YA Global as
our primary financing source has certain ramifications that could affect future
liquidity and business operations.  For example, pursuant to the terms
of the convertible debenture agreements between us and YA Global, without YA
Global’s consent we cannot (i) issue or sell any shares of our common stock
or our preferred stock without consideration or for consideration per share less
than the closing bid price immediately prior to its issuance, (ii) issue or
sell any preferred stock, warrant, option, right, contract, call, or other
security or instrument granting the holder thereof the right to acquire our
common stock for consideration per share less than the closing bid price
immediately prior to its issuance, (iii) enter into any security instrument
granting the holder a security interest in any of our assets or (iv) file any
registration statements on Form S-8. In addition, pursuant to security
agreements between us and YA Global, YA Global has a security interest in all of
our assets.  Such covenants could severely harm our ability to raise
additional funds from sources other than YA Global, and would likely result in a
higher cost of capital in the event we secured funding.




Additionally,
pursuant to the terms of the Investment Agreement between us and YA Global in
connection with our Series C convertible preferred stock sale, we cannot (i)
enter into any debt arrangements in which we are the borrower, (ii) grant any
security interest in any of our assets or (iii) grant any security below market
price.





Subsequent
Events




Secured
Convertible Debenture - On July 15, 2009 and August 14, 2009, we entered
into additional Secured Convertible Debentures with YA Global for principal
amounts of $535,000 and $475,000, respectively. The debentures accrue interest
at 14% per annum and are payable on the maturity date (July 29, 2010) in cash,
or provided that certain equity conditions are satisfied, in shares of common
stock.  At any time from the closing date until the maturity date, YA
Global has the right to convert the convertible debentures into our common
stock  at the then effective conversion price, which varies relative
to the our trading stock price, at the lesser of, $0.02 per share, or 95% of the
lowest weighted average price of the Company’s common stock during the ten days
preceding the conversion date, and adjusts to 50% of the lowest weighted average
price of the Company’s common stock during the ten days preceding the conversion
date in the event of a default. The conversion is limited such that the holder
cannot exceed 4.99% ownership, unless the holders waive their right to such
limitation. We have the right to redeem a portion or the entire outstanding note
at a 10% premium plus accrued interest. The debentures are secured by certain
Pledged Property, as such term is defined in the Security Agreement, dated July
29, 2008, and certain Patent Collateral, as defined in a security agreement
(patent), entered into on July 29, 2008.


24




Asset Purchase
and Sale Agreement – On July 17, 2009, the Company entered into an Asset
Purchase and Sale Agreement to dispose of certain assets in connection with our
legacy Maxicode, PDF 417, and WISP software product lines. Neither the assets
sold, nor the revenue to be acquired in connection with the asset sale, are
material to the Company.




Critical
Accounting Policies and Estimates




There
have been no material changes to our critical accounting policies and estimates
from the information provided in Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” included in our
Annual Report on Form 10-K for the fiscal year ended December 31,
2008.




ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk




We are a
“smaller reporting company” as defined by Rule 12b-2 of the Exchange Act and are
not required to provide information under this item.




ITEM 4T.
Controls and Procedures




Disclosure
Controls and Procedures-Our management, with the participation of our CEO and CFO have
evaluated the effectiveness of our disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
the end of the period covered by this report.




These
controls are designed to ensure that information required to be disclosed in the
reports we file or submit pursuant to the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the SEC, and that such information is accumulated and communicated to our
management, including our CEO and CFO, as appropriate, to allow timely decisions
regarding required disclosure.




Based on
this evaluation, our CEO and CFO concluded that our disclosure controls and
procedures were not effective as of June 30, 2009 at a reasonable assurance
level, because of the material weaknesses described in Item 9A of our Annual
Report on Form 10−K for the fiscal year ended December 31, 2008, which we are
still in the process of remediating.  Please see “Management’s Report
on Internal Control over Financial Reporting” in Item 9A of the 2008 Form 10−K
for a full description of these weaknesses.




Notwithstanding
the material weaknesses described in Item 9A of the Form 10−K for the fiscal
year ended December 31, 2008, we believe that our consolidated financial
statements presented in this Quarterly Report on Form 10−Q fairly present, in
all material respects, our financial position, results of operations, and cash
flows for all periods presented herein.




Inherent
Limitations-Our
management, including our Chief Executive Officer and Chief Financial Officer,
do not expect that our disclosure controls and procedures will prevent all error
and all 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. The design of any system of controls is based in part
upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions. 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 all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within our company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdown
can occur because of simple error or mistake. In particular, many of our current
processes rely upon manual reviews and processes to ensure that neither human
error nor system weakness has resulted in erroneous reporting of financial
data.


25





Changes in
Internal Control over Financial Reporting-There were no changes in
the Company’s internal control over financial reporting during the period ended
June 30, 2009, which were identified in conjunction with management’s evaluation
required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act,
that have materially affected, or are reasonably likely to materially affect,
the Company’s internal control over financial reporting.


26





PART
II - OTHER INFORMATION




ITEM
1.  Legal Proceedings




There
have been no material developments relating to certain pending legal
proceedings.  For a description of pending legal proceedings, see Note
7 – Contingencies, to the Consolidated Financial Statements set forth in this
Form 10-Q.





ITEM
1A.  Risk Factors





We are a
smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are
not required under this item to provide information.





ITEM
2.  Unregistered Sales of Equity Securities and Use of
Proceeds





On July
29, 2008 (the “Closing Date”), NeoMedia Technologies, Inc., a Delaware
corporation (the “Company”) entered into a Securities Purchase Agreement (the
“SPA”) to issue and sell secured convertible debentures (the “Debentures” and
each, a “Debenture”) to YA Global Investments, L.P. (the “Investor”) in the
principal amount of up to Eight Million Six Hundred Fifty Thousand Dollars
($8,650,000) pursuant to the terms of the SPA, by and between the Company and
the Investor, of which the first secured convertible Debenture in the amount of
$2,325,000 was funded on the Closing Date, the second secured convertible
debenture in the amount of $2,325,000 was funded on October 28, 2008 and a third
debenture in the amount of $4,000,000 was to be funded on or after January 1,
2009 subject to certain conditions set forth in the SPA.
 
 On April
6, 2009, the Company and the Investor entered into an Amendment Agreement (the
“Amendment Agreement”) whereby the SPA was amended in order to reduce the amount
of the third secured convertible Debenture (as discussed above) from $4,000,000
to $1,100,000, and whereby such Third Closing (as defined in the Amendment
Agreement) was broken down into two (2) separate closings, the first to occur on
April 6, 2009, pursuant to which the Investor purchased a secured convertible
debenture in the principal amount of $550,000 and the second to occur on or
after May 1, 2009, pursuant to which the Investor exercised its option and
purchased a secured convertible debenture in the principal amount of
$550,000.
 
 On June
5, 2009, the Investor and the Company entered into an agreement to issue an
additional debenture (the “Additional Agreement”), and the Company issued to the
Investor a secured convertible debenture in the principal amount of $715,000.
Such transaction was described in the Company’s Current Report on Form 8-K filed
with the U.S. Securities and Exchange Commission (the “SEC”) on June 5,
2009.
 
 On July
15, 2009, the Investor and the Company entered into an Agreement to issue an
additional debenture (the “Second Additional Agreement”), and the Company issued
to the Investor a secured convertible debenture in the principal amount of
$535,000. Such transaction was described in the Company’s Current Report on Form
8-K filed with the SEC on July 21, 2009.
 
 On August
14, 2009, the Investor and the Company entered into an Agreement to issue an
additional debenture (the “Third Additional Agreement”), a copy of which is
attached hereto as Exhibit 10.124, whereby the Company issued to the Investor a
secured convertible debenture in the principal amount of $475,000, a copy of
which is attached hereto as Exhibit 10.125 (the “Fifth Additional
Debenture”).  Such debenture shall mature on July 29, 2010 (the
“Maturity Date”). The Fifth Additional Debenture shall accrue interest at a rate
equal to fourteen percent (14%) per annum and such interest shall be paid on the
Maturity Date (or sooner as provided in the Fifth Additional Debenture) in cash
or, provided that certain Equity Conditions are satisfied (as such term is
defined in the Fifth Additional Debenture), in shares of the Company’s common
stock (“Common Stock”) at the applicable Conversion Price (as defined in the
Fifth Additional Debenture).  At any time after August 14, 2009, the
Investor shall be entitled to convert any portion of the outstanding and unpaid
principal and accrued interest thereon into fully paid and non-assessable shares
of the Common Stock at a price equal to the lesser of $0.02 and ninety-five
percent (95%) of the lowest volume weighted average price of the Common Stock
during the ten (10) trading days immediately preceding each conversion
date.
 
 The
Company shall not affect any conversion, and the Investor shall not have the
right to convert any portion of the Fifth Additional Debenture to the extent
that after giving effect to such conversion, the Investor (together with the
Investor’s affiliates) would beneficially own in excess of 4.99% of the number
of shares of Common Stock outstanding immediately after giving effect to such
conversion, except for not less than sixty-five (65) days prior written notice
from the Investor.
 
 The
Company shall have the right to redeem a portion or all amounts outstanding
(subject to certain conditions in the Fifth Additional Debenture) by paying the
amount equal to the principal amount being redeemed plus a redemption premium
equal to ten percent (10%) of the principal amount being redeemed, and accrued
interest.
 
 In
connection with the closing of the Third Additional Agreement, the Company
placed a $25,000 monitoring fee into escrow, directly from the proceeds of the
Fifth Additional Debenture closing on August 14, 2009 (as deposited into escrow,
the “Escrow Funds”) which shall be used to compensate Yorkville Advisors LLC
(“Investment Manager”) for monitoring and managing the purchase and investment
made by the Investor, pursuant to the Investment Manager’s existing advisory
obligations to the Investor.  The Company, Investment Manager and the
Investor entered into an Escrow Agreement, dated July 29, 2008 (the “Escrow
Agreement”) appointing David Gonzalez, Esq. as escrow agent (the “Escrow Agent”)
to hold the Escrow Funds and to periodically disburse portions of such Escrow
Funds to the Investment Manager from escrow in accordance with the terms of the
Escrow Agreement, a copy of which is referenced hereto as Exhibit 10.107 (and
the amended Exhibit A thereto is attached as Exhibit 10.111
hereto).
 
 All of
the Debentures are secured by (a) certain Pledged Property, as such term is
defined in that certain Security Agreement, of even date with the SPA, by and
among the Company, each of the Company’s subsidiaries made a party thereto and
the Investor and (b) certain Patent Collateral, as such term is defined in that
certain Patent Security Agreement, of even date with the SPA, by and among the
Company, each of the Company’s subsidiaries made a party thereto and the
Investor.  Copies of the Security Agreement and the Patent Security
Agreement are referenced hereto as Exhibits 10.101 and 10.102,
respectively.
  In
connection with the SPA, the Company also entered into those certain Irrevocable
Transfer Agent Instructions with the Investor, the Escrow Agent and WorldWide
Stock Transfer, LLC, the Company’s transfer agent, a copy of which is attached
as Exhibit 10.108 hereto.


ITEM
3.  Defaults Upon Senior Securities





None





ITEM
4.  Submission of Matters to A Vote of Security Holders





None





ITEM
5.  Other Information





None


27




ITEM
6.  Exhibits




(a)
Exhibits:




Exhibit
                
                
                
                Filed
                
                
                
                
                
                FilingNumber
                
                Description
                
                Herewith
                
                Form
                
                Exhibit
                
                Date3.1
                
                Articles
      of Incorporation of Dev-Tech Associates, Inc. and amendment
      thereto
                
                
                
                SB-2
                
                3.1
                
                11/25/963.2
                
                Bylaws
      of DevSys, Inc.
                
                
                
                SB-2
                
                3.2
                
                11/25/963.3
                
                Restated
      Certificate of Incorporation of DevSys, Inc.
                
                
                
                SB-2
                
                3.3
                
                11/25/963.4
                
                By-laws
      of DevSys, Inc.
                
                
                
                SB-2
                
                3.4
                
                11/25/963.5
                
                Articles
      of Merger and Agreement and Plan of Merger of DevSys, Inc and Dev-Tech
      Associates, Inc.
                
                
                
                SB-2
                
                3.5
                
                11/25/963.6
                
                Certificate
      of Merger of Dev-Tech Associates, Inc. into DevSys, Inc.
                
                
                
                SB-2
                
                3.6
                
                11/25/963.7
                
                Articles
      of Incorporation of Dev-Tech Migration, Inc. and amendment
      thereto
                
                
                
                SB-2
                
                3.7
                
                11/25/963.8
                
                By-laws
      of Dev-Tech Migration, Inc.
                
                
                
                SB-2
                
                3.8
                
                11/25/963.9
                
                Restated
      Certificate of Incorporation of DevSys Migration, Inc.
                
                
                
                SB-2
                
                3.90
                
                11/25/963.1
                
                Form
      of By-laws of DevSys Migration, Inc.
                
                
                
                SB-2
                
                3.10
                
                11/25/963.11
                
                Form
      of Agreement and Plan of Merger of Dev-Tech Migration, Inc. into DevSys
      Migration, Inc.
                
                
                
                SB-2
                
                3.11
                
                11/25/963.12
                
                Form
      of Certificate of Merger of Dev-Tech Migration, Inc. into DevSys
      Migration, Inc.
                
                
                
                SB-2
                
                3.12
                
                11/25/963.13
                
                Certificate
      of Amendment to Certificate of Incorporation of DevSys, Inc. changing our
      name to NeoMedia Technologies, Inc.
                
                
                
                SB-2
                
                3.13
                
                11/25/963.14
                
                Form
      of Certificate of Amendment to Certificate of Incorporation of NeoMedia
      Technologies, Inc. authorizing a reverse stock split
                
                
                
                SB-2
                
                3.14
                
                11/25/963.15
                
                Form
      of Certificate of Amendment to Restated Certificate of Incorporation of
      NeoMedia Technologies, Inc. increasing authorized capital and creating
      preferred stock
                
                
                
                SB-2
                
                3.15
                
                11/25/9610.1
                
                Second
      Agreement and Amendment to Consulting Agreement between NeoMedia and
      Thornhill Capital, dated July 22, 2005
                
                
                
                S-3/A
                
                10.3
                
                1/30/0610.2
                
                Standby
      Equity Distribution Agreement, dated March 30, 2005, between NeoMedia and
      Cornell Capital Partners
                
                
                
                8-K
                
                16.1
                
                4/1/0510.3
                
                Placement
      Agent Agreement, dated March 30, 2005, between NeoMedia and Cornell
      Capital Partners
                
                
                
                8-K
                
                16.2
                
                4/1/0510.4
                
                Escrow
      Agreement, dated March 30, 2005, between NeoMedia and Cornell Capital
      Partners
                
                
                
                8-K
                
                16.3
                
                4/1/0510.5
                
                Registration
      Rights Agreement, dated March 30, 2005, between NeoMedia and Cornell
      Capital Partners
                
                
                
                8-K
                
                16.4
                
                4/1/0510.6
                
                Promissory
      Note, dated March 30, 2005, between NeoMedia and Cornell Capital
      Partners
                
                
                
                8-K
                
                16.5
                
                4/1/0510.7
                
                Security
      Agreement, dated March 30, 2005, between NeoMedia and Cornell Capital
      Partners
                
                
                
                8-K
                
                16.5
                
                4/1/0510.8
                
                Warrant
      dated March 30, 2005, granted by NeoMedia to Thornhill Capital
      LLC
                
                
                
                S-3/A
                
                10.12
                
                7/18/05


28





Exhibit
                
                
                
                Filed
                
                
                
                
                
                FilingNumber
                
                Description
                
                Herewith
                
                Form
                
                Exhibit
                
                Date10.9
                
                Warrant
      dated March 30, 2005, granted by NeoMedia to Cornell Capital Partners
      LP
                
                
                
                S-3/A
                
                10.13
                
                7/18/0510.10
                
                Definitive
      Merger Agreement between NeoMedia and Mobot
                
                
                
                8-K
                
                16.10
                
                2/10/0610.11
                
                Definitive
      Sale and Purchase Agreement between NeoMedia and 12Snap
                
                
                
                8-K
                
                16.10
                
                2/14/0610.12
                
                Definitive
      Sale and Purchase Agreement between NeoMedia and Gavitec
                
                
                
                8-K
                
                16.10
                
                2/21/0610.13
                
                Definitive
      Sale and Purchase Agreement between NeoMedia and Sponge
                
                
                
                8-K
                
                16.10
                
                2/22/0610.14
                
                Promissory
      Note, dated October 18, 2004, between NeoMedia and Cornell Capital
      Partners
                
                
                
                S-3/A
                
                10.26
                
                1/30/0610.15
                
                Investment
      Agreement, dated February 17, 2006 between NeoMedia and Cornell Capital
      Partners
                
                
                
                8-K
                
                10.1
                
                2/21/0610.16
                
                Investor
      Registration Rights Agreement, dated February 17, 2006 between NeoMedia
      and Cornell Capital Partners
                
                
                
                8-K
                
                10.2
                
                2/21/0610.17
                
                Irrevocable
      Transfer Agent Instruction, dated February 17, 2006, by and among
      NeoMedia, Cornell Capital Partners and American Stock Transfer & Trust
      Co.
                
                
                
                8-K
                
                10.3
                
                2/21/0610.18
                
                Warrant,
      dated February 17, 2006
                
                
                
                8-K
                
                10.4
                
                2/21/0610.19
                
                Warrant,
      dated February 17, 2006
                
                
                
                8-K
                
                10.5
                
                2/21/0610.20
                
                Warrant,
      dated February 17, 2006
                
                
                
                8-K
                
                10.6
                
                2/21/0610.21
                
                Assignment
      Agreement, dated February 17, 2006 by NeoMedia and Cornell Capital
      Partners
                
                
                
                8-K
                
                10.7
                
                2/21/0610.22
                
                Assignment
      of Common Stock, dated February 17, 2006 between NeoMedia and Cornell
      Capital Partners
                
                
                
                8-K
                
                10.8
                
                2/21/0610.23
                
                Securities
      Purchase Agreement, dated August 24, 2006, between the Company and Cornell
      Capital Partners, LP
                
                
                
                8-K
                
                10.1
                
                8/30/0610.24
                
                Investor
      Registration Rights Agreement, dated August 24, 2006, between the Company
      and Cornell Capital Partners, LP
                
                
                
                8-K
                
                10.2
                
                8/30/0610.25
                
                Pledge
      and Security Agreement, dated August 24, 2006, between the Company and
      Cornell Capital Partners, LP
                
                
                
                8-K
                
                10.30
                
                8/30/0610.26
                
                Secured
      Convertible Debenture, dated August 24, 2006, issued by the Company to
      Cornell Capital Partners, LP
                
                
                
                8-K
                
                10.40
                
                8/30/0610.27
                
                Irrevocable
      Transfer Agent Instructions, dated August 24, 2006, by and among the
      Company, Cornell Capital Partners, LP and American Stock Transfer &
      Trust Co.
                
                
                
                8-K
                
                10.50
                
                8/30/0610.28
                
                A
      Warrant, dated August 24, 2006
                
                
                
                8-K
                
                10.60
                
                8/30/0610.29
                
                B
      Warrant, dated August 24, 2006
                
                
                
                8-K
                
                10.70
                
                8/30/0610.30
                
                C
      Warrant, dated August 24, 2006
                
                
                
                8-K
                
                10.80
                
                8/30/0610.31
                
                D
      Warrant, dated August 24, 2006
                
                
                
                8-K
                
                10.9
                
                8/30/0610.32
                
                Amendment
      to Warrant No. CCP-002, dated August 24, 2006,  between the
      Company and Cornell Capital Partners, LP
                
                
                
                8-K
                
                10.1
                
                8/30/0610.33
                
                Amendment
      to “A” Warrant No. CCP-001,  dated August 24, 2006, between the
      Company and Cornell Capital Partners, LP
                
                
                
                8-K
                
                10.11
                
                8/30/0610.34
                
                Amendment
      to “B” Warrant No. CCP-002, dated August 24, 2006, between the Company and
      Cornell Capital Partners, LP
                
                
                
                8-K
                
                10.12
                
                8/30/0610.35
                
                Amendment
      to “C” Warrant No. CCP-003,  dated August 24, 2006, between the
      Company and Cornell Capital Partners, LP
                
                
                
                8-K
                
                10.13
                
                8/30/0610.36
                
                Letter
      of intent amongst the Company, Global Emerging Markets, and Jose
      Sada
                
                
                
                8-K
                
                16.1
                
                8/31/0610.37
                
                Termination
      Agreement between NeoMedia Technologies, Inc, and Cornell Capital
      Partners, LP
                
                
                
                S-3/A
                
                10.53
                
                1/30/0710.38
                
                Definitive
      share purchase and settlement agreement between NeoMedia and Sponge, dated
      November 14, 2006
                
                
                
                8-K
                
                16.1
                
                11/20/0610.39
                
                Agreement
      between NeoMedia and FMS
                
                
                
                8-K
                
                16.1
                
                12/7/06




29




Exhibit
                                
                                
                                
                                Filed
                                
                                
                                
                                
                                
                                FilingNumber
                                
                                Description
                                
                                Herewith
                                
                                Form
                                
                                Exhibit
                                
                                Date10.40
                                
                                Escrow
      agreement amongst NeoMedia, Mobot, FMS, and Kirkpatrick and Lockhart
      Nicholson Graham LLP
                                
                                
                                
                                8-K
                                
                                16.2
                                
                                12/7/0610.41
                                
                                Description
      of Special Preference Stock
                                
                                
                                
                                8-K
                                
                                16.3
                                
                                12/7/0610.42
                                
                                Promissory
      note payable from NeoMedia to FMS
                                
                                
                                
                                8-K
                                
                                16.4
                                
                                12/7/0610.43
                                
                                License
      agreement between NeoMedia and Mobot
                                
                                
                                
                                8-K
                                
                                16.50
                                
                                12/7/0610.44
                                
                                Securities
      Purchase Agreement, dated December 29, 2006, between the Company and
      Cornell Capital Partners, LP
                                
                                
                                
                                8-K
                                
                                10.10
                                
                                1/8/0710.45
                                
                                Investor
      Registration Rights Agreement, dated December 29, 2006, between the
      Company and Cornell Capital Partners, LP
                                
                                
                                
                                8-K
                                
                                10.20
                                
                                1/8/0710.46
                                
                                Secured
      Convertible Debenture, dated December 29, 2006, issued by the Company to
      Cornell Capital Partners, LP
                                
                                
                                
                                8-K
                                
                                10.30
                                
                                1/8/0710.47
                                
                                Irrevocable
      Transfer Agent Instructions, dated December 29, 2006, by and among the
      Company, Cornell Capital Partners, LP and American Stock Transfer &
      Trust Co.
                                
                                
                                
                                8-K
                                
                                10.40
                                
                                1/8/0710.48
                                
                                A
      Warrant, dated December 29, 2006
                                
                                
                                
                                8-K
                                
                                10.50
                                
                                1/8/0710.49
                                
                                Amendment
      to Warrant No. CCP-002, dated December 29, 2006,  between the
      Company and Cornell Capital Partners, LP
                                
                                
                                
                                8-K
                                
                                10.6
                                
                                1/8/0710.50
                                
                                Amendment
      to “A” Warrant No. CCP-001,  dated December 29, 2006, between
      the Company and Cornell Capital Partners, LP
                                
                                
                                
                                8-K
                                
                                10.7
                                
                                1/8/0710.51
                                
                                Amendment
      to “B” Warrant No. CCP-002, dated December 29, 2006, between the Company
      and Cornell Capital Partners, LP
                                
                                
                                
                                8-K
                                
                                10.8
                                
                                1/8/0710.52
                                
                                Amendment
      to “C” Warrant No. CCP-003,  dated December 29, 2006, between
      the Company and Cornell Capital Partners, LP
                                
                                
                                
                                8-K
                                
                                10.9
                                
                                1/8/0710.53
                                
                                Amendment
      to “A” Warrant No. CCP-001,  dated December 29, 2006, between
      the Company and Cornell Capital Partners, LP
                                
                                
                                
                                8-K
                                
                                10.1
                                
                                1/8/0710.54
                                
                                Amendment
      to “B” Warrant No. CCP-001,  dated December 29, 2006, between
      the Company and Cornell Capital Partners, LP
                                
                                
                                
                                8-K
                                
                                10.11
                                
                                1/8/0710.55
                                
                                Amendment
      to “C” Warrant No. CCP-001,  dated December 29, 2006, between
      the Company and Cornell Capital Partners, LP
                                
                                
                                
                                8-K
                                
                                10.12
                                
                                1/8/0710.56
                                
                                Securities
      Purchase Agreement, dated December 29, 2006, between the Company and
      Cornell Capital Partners, LP
                                
                                
                                
                                8-K
                                
                                10.13
                                
                                1/8/0710.57
                                
                                Amendment
      Agreement I to the Sale and Purchase Agreement between NeoMedia and
      certain former shareholders of Gavitec AG, dated January 23,
      2007
                                
                                
                                
                                8-K
                                
                                10.1
                                
                                1/29/0710.58
                                
                                Consulting
      Agreement between the Company and SKS Consulting of South Florida
      Corp.
                                
                                
                                
                                8-K
                                
                                10.1
                                
                                2/6/0710.59
                                
                                Amendment
      Agreement III to Sale and Purchase Agreement between NeoMedia and certain
      former shareholders of 12Snap AG, dated March 16, 2007
                                
                                
                                
                                8-K
                                
                                10.1
                                
                                3/22/0710.60
                                
                                Securities
      Purchase Agreement between NeoMedia and Cornell Capital Partners LP, dated
      March 27, 2007
                                
                                
                                
                                8-K
                                
                                10.1
                                
                                3/27/0710.61
                                
                                Investor
      Registration Rights Agreement between NeoMedia and Cornell Capital
      Partners LP, dated March 27, 2007
                                
                                
                                
                                8-K
                                
                                10.2
                                
                                3/27/0710.62
                                
                                Secured
      Convertible Debenture, issued by NeoMedia to Cornell Capital Partners, LP,
      dated March 27, 2007
                                
                                
                                
                                8-K
                                
                                10.3
                                
                                3/27/0710.63
                                
                                Irrevocable
      Transfer Agent Instructions, by and among NeoMedia, Cornell Capital
      Partners, LP and Worldwide Stock Transfer, dated March 27,
      2007
                                
                                
                                
                                8-K
                                
                                10.4
                                
                                3/27/0710.64
                                
                                Warrant,
      issued by NeoMedia to Cornell Capital Partners, LP, dated March 27,
      2007
                                
                                
                                
                                8-K
                                
                                10.5
                                
                                3/27/0710.65
                                
                                Master
      Amendment Agreement, by and between NeoMedia and Cornell Capital Partners,
      LP, dated March 27, 2007
                                
                                
                                
                                8-K
                                
                                10.6
                                
                                3/27/0710.67
                                
                                Security
      Agreement, by and between NeoMedia and Cornell Capital Partners, LP, dated
      on or about August 24, 2006
                                
                                
                                
                                8-K
                                
                                10.7
                                
                                3/27/0710.68
                                
                                Security
      Agreement, by and between NeoMedia and Cornell Capital Partners, LP, dated
      March 27,2007
                                
                                
                                
                                8-K
                                
                                10.8
                                
                                3/27/07




30




Exhibit
                                                                          
                                                                          
                                                                          
                                                                          Filed
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          FilingNumber
                                                                          
                                                                          Description
                                                                          
                                                                          Herewith
                                                                          
                                                                          Form
                                                                          
                                                                          Exhibit
                                                                          
                                                                          Date10.69
                                                                          
                                                                          Security
      Agreement (Patent), by and between NeoMedia and Cornell Capital Partners,
      LP, dated March 27, 2007
                                                                          
                                                                          
                                                                          
                                                                          8-K
                                                                          
                                                                          10.9
                                                                          
                                                                          3/27/0710.70
                                                                          
                                                                          Pledge
      Shares Escrow Agreement, by and between NeoMedia and Cornell Capital
      Partners, dated March 27, 2007
                                                                          
                                                                          
                                                                          
                                                                          8-K
                                                                          
                                                                          10.10
                                                                          
                                                                          3/27/0710.71
                                                                          
                                                                          Sale
      and Purchase Agreement between NeoMedia and Bernd M.
    Michael
                                                                          
                                                                          
                                                                          
                                                                          8-K
                                                                          
                                                                          10.1
                                                                          
                                                                          4/6/0710.72
                                                                          
                                                                          Completion
      of Acquisition of Disposition of Assets of BSD Software
    Inc.
                                                                          
                                                                          
                                                                          
                                                                          8-K/A
                                                                          
                                                                          10.1
                                                                          
                                                                          6/8/0710.73
                                                                          
                                                                          Full
      and Final Settlement Agreement, dated August 14, 2007, by and between
      NeoMedia, Wayside and Tesscourt
                                                                          
                                                                          
                                                                          
                                                                          8-K
                                                                          
                                                                          99.1
                                                                          
                                                                          8/17/0710.74
                                                                          
                                                                          Letter
      of intent between NeoMedia Technologies, Inc. and Greywolf Entertainment,
      Inc.
                                                                          
                                                                          
                                                                          
                                                                          8-K
                                                                          
                                                                          16.1
                                                                          
                                                                          8/21/0710.75
                                                                          
                                                                          Registration
      Rights Agreement, by and between NeoMedia and YA Global Investments, L.P.,
      dated August 24, 2007
                                                                          
                                                                          
                                                                          
                                                                          8-K
                                                                          
                                                                          10.1
                                                                          
                                                                          8/30/0710.76
                                                                          
                                                                          Secured
      Convertible Debenture, issued by NeoMedia to YA Global Investments, dated
      August 24, 2007
                                                                          
                                                                          
                                                                          
                                                                          8-K
                                                                          
                                                                          10.2
                                                                          
                                                                          8/30/0710.77
                                                                          
                                                                          Irrevocable
      Transfer Agent Instructions, by and among NeoMedia, YA Global Investments,
      L.P. and Worldwide Stock Transfer, LLC, dated August 24,
    2007
                                                                          
                                                                          
                                                                          
                                                                          8-K
                                                                          
                                                                          10.3
                                                                          
                                                                          8/30/0710.78
                                                                          
                                                                          Warrant
      issued by NeoMedia to YA Global Investments, L.P., dated August 24,
      2007
                                                                          
                                                                          
                                                                          
                                                                          8-K
                                                                          
                                                                          10.4
                                                                          
                                                                          8/30/0710.79
                                                                          
                                                                          Repricing
      Agreement, by and between NeoMedia and YA Global Investments, L.P., dated
      August 24, 2007
                                                                          
                                                                          
                                                                          
                                                                          8-K
                                                                          
                                                                          10.5
                                                                          
                                                                          8/30/0710.80
                                                                          
                                                                          Security
      Agreement, by and between NeoMedia and YA Global Investments, L.P., dated
      August 24, 2007
                                                                          
                                                                          
                                                                          
                                                                          8-K
                                                                          
                                                                          10.6
                                                                          
                                                                          8/30/0710.81
                                                                          
                                                                          Security Agreement (Patent),
      by and between NeoMedia and YA Global Investments, L.P., dated August 24,
      2007
                                                                          
                                                                          
                                                                          
                                                                          8-K
                                                                          
                                                                          10.7
                                                                          
                                                                          8/30/0710.82
                                                                          
                                                                          Sale
      and Purchase Agreement between NeoMedia and Greywolf Entertainment, Inc.,
      dated October 26, 2007
                                                                          
                                                                          
                                                                          
                                                                          8-K
                                                                          
                                                                          10.1
                                                                          
                                                                          11/5/0710.83
                                                                          
                                                                          Definitive
      purchase agreement between NeoMedia Technologies, Inc. and Micro Paint
      Holdings Limited, dated November 1, 2007.
                                                                          
                                                                          
                                                                          
                                                                          8-K
                                                                          
                                                                          10.1
                                                                          
                                                                          11/7/0710.84
                                                                          
                                                                          Distribution
      agreement between NeoMedia Technologies, Inc. and Micro Paint Holdings
      Limited, dated November 1, 2007.
                                                                          
                                                                          
                                                                          
                                                                          8-K
                                                                          
                                                                          16.1
                                                                          
                                                                          11/7/0710.85
                                                                          
                                                                          Sale
      of the Assets of the Micro Paint Repair Business Unit.
                                                                          
                                                                          
                                                                          
                                                                          8-K
                                                                          
                                                                          10.1
                                                                          
                                                                          11/21/0710.86
                                                                          
                                                                          Share
      Purchase and Transfer Agreement, dated January 31, 2008, by and between
      NeoMedia and Bernd Michael.
                                                                          
                                                                          
                                                                          
                                                                          8-K
                                                                          
                                                                          10.1
                                                                          
                                                                          2/8/0810.87
                                                                          
                                                                          Arbitration
      Agreement, dated January 31, 2008, by and between NeoMedia and Bernd
      Michael.
                                                                          
                                                                          
                                                                          
                                                                          8-K
                                                                          
                                                                          10.1
                                                                          
                                                                          2/8/0810.88
                                                                          
                                                                          Secured
      Convertible Debenture, dated April 11, 2008, issued by the Company to YA
      Global Investments, L.P.
                                                                          
                                                                          
                                                                          
                                                                          8-K
                                                                          
                                                                          10.1
                                                                          
                                                                          4/17/0810.89
                                                                          
                                                                          Secured
      Convertible Debenture, dated May 16, 2008, issued by the Company to YA
      Global Investments, L.P.
                                                                          
                                                                          
                                                                          
                                                                          8-K
                                                                          
                                                                          10.1
                                                                          
                                                                          5/22/0810.90
                                                                          
                                                                          Warrant,
      dated May 16, 2008, issued by the Company to YA Global Investments,
      L.P.
                                                                          
                                                                          
                                                                          
                                                                          8-K
                                                                          
                                                                          10.2
                                                                          
                                                                          5/22/0810.91
                                                                          
                                                                          Secured
      Convertible Debenture, dated May 30, 2008, issued by the Company to YA
      Global Investments, L.P.
                                                                          
                                                                          
                                                                          
                                                                          8-K
                                                                          
                                                                          10.1
                                                                          
                                                                          6/5/0810.92
                                                                          
                                                                          Warrant,
      dated May 30, 2008, issued by the Company to YA Global Investments,
      L.P.
                                                                          
                                                                          
                                                                          
                                                                          8-K
                                                                          
                                                                          10.2
                                                                          
                                                                          6/5/08




31




Exhibit
                            
                            
                            
                            Filed
                            
                            
                            
                            
                            
                            FilingNumber
                            
                            Description
                            
                            Herewith
                            
                            Form
                            
                            Exhibit
                            
                            Date10.93
                            
                            Settlement
      Agreement and Release, dated June 3, 2008, by and between the Company and
      William Hoffman
                            
                            
                            
                            8-K
                            
                            10.5
                            
                            6/5/0810.94
                            
                            Resignation
      Letter, effective May 22, 2008, executed by William
Hoffman
                            
                            
                            
                            8-K
                            
                            10.6
                            
                            6/5/0810.95
                            
                            Settlement
      Agreement and Release, dated June 2, 2008, by and between the Company and
      Frank J. Pazera
                            
                            
                            
                            8-K
                            
                            10.7
                            
                            6/5/0810.96
                            
                            Resignation
      Letter, effective May 22, 2008, executed by Frank J.
Pazera
                            
                            
                            
                            8-K
                            
                            10.8
                            
                            6/5/0810.97
                            
                            Employment
      Agreement, dated June 10, 2008, by and between NeoMedia Technologies, Inc.
      and Iain McCready
                            
                            
                            
                            8-K
                            
                            10.1
                            
                            6/16/0810.98
                            
                            Secured
      Convertible Debenture, dated July 10, 2008, issued by the Company to YA
      Global Investments, L.P.
                            
                            
                            
                            8-K
                            
                            10.1
                            
                            7/16/0810.99
                            
                            Securities
      Purchase Agreement, dated July 29, 2008, by and between the Company and YA
      Global Investments, L.P.
                            
                            
                            
                            8-K
                            
                            10.1
                            
                            8/4/0810.100
                            
                            Secured
      Convertible Debenture, dated July 29, 2008, issued by the Company to YA
      Global Investments, L.P.
                            
                            
                            
                            8-K
                            
                            10.2
                            
                            8/4/0810.101
                            
                            Security
      Agreement, dated July 29, 2008, by and among the Company, each of the
      Company’s subsidiaries made a party thereto and YA Global Investments,
      L.P.
                            
                            
                            
                            8-K
                            
                            10.3
                            
                            8/4/0810.102
                            
                            Patent
      Security Agreement, dated July 29, 2008, by and among the Company, each of
      the Company’s subsidiaries made a party thereto and YA Global Investments,
      L.P.
                            
                            
                            
                            8-K
                            
                            10.4
                            
                            8/4/0810.103
                            
                            Warrant
      9-1A, dated July 29, 2008, issued by the Company to YA Global Investments,
      L.P.
                            
                            
                            
                            8-K
                            
                            10.5
                            
                            8/4/0810.104
                            
                            Warrant
      9-1B, dated July 29, 2008, issued by the Company to YA Global Investments,
      L.P.
                            
                            
                            
                            8-K
                            
                            10.6
                            
                            8/4/0810.105
                            
                            Warrant
      9-1C, dated July 29, 2008, issued by the Company to YA Global Investments,
      L.P.
                            
                            
                            
                            8-K
                            
                            10.7
                            
                            8/4/0810.106
                            
                            Warrant
      9-1D, dated July 29, 2008, issued by the Company to YA Global Investments,
      L.P.
                            
                            
                            
                            8-K
                            
                            10.8
                            
                            8/4/0810.107
                            
                            Escrow
      Agreement, dated July 29, 2008, by and among the Company, YA Global
      Investments, L.P., Yorkville Advisors, LLC and David Gonzalez,
      Esq.
                            
                            
                            
                            8-K
                            
                            10.9
                            
                            8/4/0810.108
                            
                            Irrevocable
      Transfer Agent Instructions, dated July 29, 2008, by and among the
      Company, the Investor, David Gonzalez, Esq. and WorldWide Stock Transfer,
      LLC
                            
                            
                            
                            8-K
                            
                            10.10
                            
                            8/4/0810.109
                            
                            Letter
      Agreement, dated September 24, 2008, by and among NeoMedia Technologies,
      Inc. and YA Global Investments, L.P.
                            
                            
                            
                            8-K
                            
                            10.1
                            
                            10/1/0810.110
                            
                            Second
      Secured Convertible Debenture, dated October 28, 2008, issued by the
      Company to YA Global Investments, L.P.
                            
                            
                            
                            8-K
                            
                            10.3
                            
                            11/3/0810.111
                            
                            Revised
      Exhibit A to Escrow Agreement, dated October 28, 2008
                            
                            
                            
                            8-K
                            
                            10.12
                            
                            11/3/0810.112
                            
                            Letter
      Agreement, dated March 27, 2009, by and between the Company and YA Global
      Investments, L.P.
                            
                            
                            
                            8-K
                            
                            10.13
                            
                            4/13/0910.113
                            
                            Amendment
      Agreement, dated April 6, 2009, by and between the Company and YA Global
      Investments, L.P.
                            
                            
                            
                            8-K
                            
                            10.14
                            
                            4/13/0910.114
                            
                            Third
      Secured Convertible Debenture (first closing), dated April 6, 2009, issued
      by the Company to YA Global Investments, L.P.
                            
                            
                            
                            8-K
                            
                            10.15
                            
                            4/13/09




32




Exhibit
                                      Number
                                    
                                    Description
                                    
                                    Filed
                                      Herewith
                                    
                                    Form
                                    
                                    Exhibit
                                    
                                    Filing
                                      Date10.115
                                    
                                    Waiver,
      effective as of December 31, 2008, by and between the Company and YA
      Global Investments, L.P.
                                    
                                    
                                    
                                    8-K
                                    
                                    10.16
                                    
                                    4/13/0910.116
                                    
                                    Fourth
      Secured Convertible Debenture (second amended third closing), dated May 1,
      2009, issued by the Company to YA Global Investments, L.P.
                                    
                                    
                                    
                                    8-K
                                    
                                    10.15
                                    
                                    5/7/0910.117
                                    
                                    Agreement,
      dated June 5, 2009 (Additional Agreement), by and between the Company and
      YA Global Investments, L.P.
                                    
                                    
                                    
                                    8-K
                                    
                                    10.16
                                    
                                    6/5/0910.118
                                    
                                    Fifth
      Convertible Debenture (Additional Agreement closing), dated June 5, 2009,
      issued by the Company to YA Global Investments, L.P.
                                    
                                    
                                    
                                    8-K
                                    
                                    10.17
                                    
                                    6/5/0910.119
                                    
                                    Agreement,
      dated July 15, 2009 (Second Additional Agreement), by and between the
      Company and YA Global Investments, L.P.
                                    
                                    
                                    
                                    8-K
                                    
                                    10.18
                                    
                                    7/21/0910.120
                                    
                                    Sixth
      Convertible Debenture dated July 15, 2009, (Second Additional Debenture),
      issued by the Company to YA Global Investments, L.P.
                                    
                                    
                                    
                                    8-K
                                    
                                    10.19
                                    
                                    7/21/0910.121
                                    
                                    Agreement,
      dated July 17, 2009, by and between the Company and Silver Bay Software,
      LLC.
                                    
                                    
                                    
                                    8-K
                                    
                                    10.20
                                    
                                    7/21/0910.122
                                    
                                    Agreement,
      dated July 17, 2009, by and between the Company and Mr. Greg
      Lindholm.
                                    
                                    
                                    
                                    8-K
                                    
                                    10.21
                                    
                                    7/21/0910.123
                                    
                                    Non-Exclusive
      License Agreement between the Company and Mobile Tag, Inc. dated July 28,
      2009
                                    
                                    
                                    
                                    8-K
                                    
                                    10.1
                                    
                                    7/30/0910.124
                                    
                                    Agreement
      dated August 14, 2009 (Third Additional Agreement) by and Between the
      Company and Y.A. Global Investments, L.P.
                                    
                                    X10.125
                                    
                                    Seventh
      Convertible Debenture dated August 14, 2009 ( Fifth Additional Debenture)
      issued by the Company to Y.A. Global Investments, L.P.
                                    
                                    X31.1
                                    
                                    Certification
      of Chief Executive Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002
                                    
                                    X31.2
                                    
                                    Certification
      of Chief Financial Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002
                                    
                                    X32.1
                                    
                                    Certification
      of Chief Executive Officer Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
                                    
                                    X32.2
                                    
                                    Certification
      of Chief Financial Officer Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
                                    
                                    X




33


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)Dated:     August 14,
      2009
                  /s/ Michael
      W.  ZimaMichael W. ZimaChief Financial Officer & Principal Accounting
  Officer




34