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

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

                                 FORM 10 - QSB

(Mark One)

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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998

                                       OR

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

                         COMMISSION FILE NUMBER 0-21743

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

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

2201 SECOND STREET, SUITE 600, FORT MYERS, FLORIDA                 33901
--------------------------------------------------               ----------
   (Address of Principal Executive Offices)                      (Zip Code)

Issuer's Telephone Number (Including Area Code)      941-337-3434

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

         As of October 30, 1998, there were outstanding 8,691,888 shares of the
issuer's Common Stock.


<PAGE>


                         PART I -- FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                  NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
                      UNAUDITED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                  SEPTEMBER         DECEMBER
ASSETS                                                                            30, 1998          31, 1997
                                                                                ------------      -----------
                                                                                        (In thousands)
<S>                                                                               <C>              <C>     
Current assets:
     Cash and cash equivalents ...........................................        $  2,134         $ 10,283
     Trade accounts receivable, net of allowance for doubtful
         accounts of $293 and $191 .......................................           3,942            6,656
     Amounts due from related parties ....................................              13                6
     Inventories .........................................................              --              363
     Prepaid expenses and other ..........................................             856              562
                                                                                  --------         --------

         Total current assets ............................................           6,945           17,870
                                                                                  --------         --------

Property and equipment, net of accumulated depreciation ..................             855              651
Intangible asset - acquired customer list, net of accumulated amortization           1,049               --
Capitalized software costs, net of accumulated amortization ..............           1,954            1,278
                                                                                  --------         --------

     Total assets ........................................................        $ 10,803         $ 19,799
                                                                                  ========         ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable ....................................................        $  2,954         $  4,320
     Accrued expenses ....................................................           1,327              931
     Current portion of long-term debt ...................................             116              201
     Other ...............................................................             398              306
                                                                                  --------         --------

         Total current liabilities .......................................           4,795            5,758

Long-term debt, net of current portion ...................................             831              915
                                                                                  --------         --------

         Total liabilities ...............................................           5,626            6,673
                                                                                  --------         --------

Shareholders' equity:
     Preferred stock. $.01 par value, 10,000,000 shares authorized,
            none issued and outstanding ..................................              --               --
     Common stock, $.01 par value, 50,000,000 shares authorized,
         8,688,080 and 8,295,291 shares issued and outstanding ...........              87               83
     Additional paid-in capital ..........................................          24,706           23,542
     Accumulated deficit .................................................         (19,616)         (10,499)
                                                                                  --------         --------

         Total shareholders' equity ......................................           5,177           13,126
                                                                                  --------         --------

     Total liabilities and shareholders' equity ..........................        $ 10,803         $ 19,799
                                                                                  ========         ========
</TABLE>

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


                                        1
<PAGE>


                  NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
                 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                      NINE MONTHS
                                                                  ENDED SEPTEMBER  30,
                                                            -------------------------------
                                                                 1998               1997
                                                                 ----               ----
                                                                  (Dollars in thousands,
                                                                  except per share data)
<S>                                                         <C>                 <C>        
NET SALES:
     License fees ..................................        $     1,685         $     1,381
     Resales of software and technology equipment ..             10,920              13,245
     Service fees ..................................              2,768               1,847
                                                            -----------         -----------
         Total net sales ...........................             15,373              16,473
                                                            -----------         -----------

COST OF SALES:

     License fees ..................................                148                 190
     Resales of software and technology equipment ..              9,436              11,534
     Service fees ..................................              2,574               1,547
     Amortization of capitalized software costs ....                413                 481
                                                            -----------         -----------
         Total cost of sales .......................             12,571              13,752
                                                            -----------         -----------

GROSS PROFIT .......................................              2,802               2,721

Sales and marketing expenses .......................              7,357               3,253
General and administrative expenses ................              4,128               3,294
Research and development costs .....................                590                 638
                                                            -----------         -----------

Loss from operations ...............................             (9,273)             (4,464)

Interest expense (income), net .....................               (156)                112
                                                            -----------         -----------

LOSS BEFORE INCOME TAXES ...........................             (9,117)             (4,576)

Income tax expense (benefit) .......................                 --                 (45)
                                                            -----------         -----------

NET LOSS ...........................................        $    (9,117)        $    (4,531)
                                                            ===========         ===========

NET LOSS PER SHARE - BASIC AND DILUTED .............        $     (1.07)        $     (0.62)
                                                            ===========         ===========

Weighted average number of common shares outstanding          8,515,339           7,359,446
                                                            ===========         ===========
</TABLE>



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


                                       2
<PAGE>


                  NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
                 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                      THREE MONTHS
                                                                  ENDED SEPTEMBER  30,
                                                            -------------------------------
                                                                1998               1997
                                                            -----------         -----------
                                                                 (Dollars in thousands,
                                                                 except per share data)
<S>                                                         <C>                 <C>        
NET SALES:
     License fees ..................................        $       290         $       492
     Resales of software and technology equipment ..              3,383               2,774
     Service fees ..................................                651                 672
                                                            -----------         -----------
         Total net sales ...........................              4,324               3,938
                                                            -----------         -----------

COST OF SALES:
     License fees ..................................                 34                  28
     Resales of software and technology equipment ..              3,076               2,433
     Service fees ..................................                952                 599
     Amortization of capitalized software costs ....                188                 174
                                                            -----------         -----------
         Total cost of sales .......................              4,250               3,234
                                                            -----------         -----------

GROSS PROFIT .......................................                 74                 704

Sales and marketing expenses .......................              2,739               1,215
General and administrative expenses ................              1,133               1,517
Research and development costs .....................                110                 192
                                                            -----------         -----------

Loss from operations ...............................             (3,908)             (2,220)

Interest expense (income), net .....................                (19)                 59
                                                            -----------         -----------

NET LOSS ...........................................        $    (3,889)        $    (2,279)
                                                            ===========         =========== 

NET LOSS PER SHARE - BASIC AND DILUTED .............        $     (0.45)        $     (0.30)
                                                            ===========         ===========

Weighted average number of common shares outstanding          8,665,908           7,510,390
                                                            ===========         ===========
</TABLE>


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


                                        3
<PAGE>



                  NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
                 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                          NINE MONTHS
                                                                                      ENDED SEPTEMBER  30,
                                                                                  ----------------------------
                                                                                     1998              1997
                                                                                  ----------       -----------
                                                                                         (In thousands)
<S>                                                                                <C>              <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................................        $ (9,117)        $ (4,531)
Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization ........................................             715              623
     Provision for doubtful accounts ......................................             341              315
     Changes in operating assets and liabilities:
         Trade accounts receivable ........................................           2,366            1,049
         Other current assets .............................................              70             (297)
         Accounts payable and accrued expenses ............................            (969)            (976)
         Other current liabilities ........................................              78               25
                                                                                   --------         --------

         Net cash used in operating activities ............................          (6,516)          (3,792)
                                                                                   --------         --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalization of software development costs and purchased software .......          (1,091)            (970)
Acquisition of customer list ..............................................            (292)              --
Acquisition of property and equipment .....................................            (436)            (499)
                                                                                   --------         --------

         Net cash used in investing activities ............................          (1,819)          (1,469)
                                                                                   --------         --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of units .......................................              --            1,295
Exercise of stock warrants ................................................              --            2,003
Exercise of stock options .................................................             342               13
Repayment of advance to shareholder .......................................              --             (472)
Proceeds from advance to shareholder ......................................              --              472
Repayments on notes payable and long-term debt ............................            (156)            (198)
                                                                                   --------         --------

         Net cash provided by financing activities ........................             186            3,113
                                                                                   --------         --------

NET DECREASE IN CASH AND CASH EQUIVALENTS .................................          (8,149)          (2,148)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............................          10,283            4,209
                                                                                   --------         --------

CASH AND CASH EQUIVALENTS, END OF PERIOD ..................................        $  2,134         $  2,061
                                                                                   ========         ========

SUPPLEMENTAL CASH FLOW INFORMATION:
     Interest paid ........................................................        $     95         $    233
     Stock issued to acquire customer list ................................             826               --
</TABLE>


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


                                        4
<PAGE>


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


1.   BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS

BASIS OF PRESENTATION

     The consolidated financial statements include the financial statements of
NeoMedia Technologies, Inc. and its wholly-owned subsidiaries, NeoMedia
Migration, Inc., Distribuidora Vallarta, S.A. incorporated in Guatemala,
Allegiant Legacy Solutions, Inc. ("Allegiant")(which was merged into NeoMedia
Technologies, Inc. in December 1997), NeoMedia Technologies of Canada, Inc.
incorporated in Canada, NeoMedia Tech, Inc. incorporated in Delaware, NeoMedia
EDV GmbH incorporated in Austria, NeoMedia Technologies Holding Company B.V.
incorporated in the Netherlands, NeoMedia Technologies de Mexico S.A. de C.V.
incorporated in Mexico, NeoMedia Migration de Mexico S.A. de C.V. incorporated
in Mexico, NeoMedia Technologies do Brasil Ltd. incorporated in Brazil and
NeoMedia Technologies UK Limited incorporated in the United Kingdom, and are
collectively referred to as "NeoMedia" or the "Company". The consolidated
financial statements of NeoMedia are presented on a consolidated basis for all
periods presented. The merger with Allegiant on September 25, 1997 was accounted
for as a pooling of interests, and accordingly, all financial information has
been restated as if the entities were combined for all prior periods. All
significant intercompany accounts and transactions have been eliminated in
preparation of the consolidated financial statements. Foreign operations were
not significant.

     The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and do not include
all of the information and footnotes required by generally accepted accounting
principles for complete consolidated financial statements. In the opinion of
management, these consolidated financial statements reflect all adjustments
which are of a normal recurring nature and which are necessary to present fairly
the consolidated financial position of NeoMedia as of September 30, 1998 and
December 31, 1997, and the results of operations for the nine and three months
ended September 30, 1998 and 1997, and cash flows for the nine months ended
September 30, 1998 and 1997. The results of operations for the nine and three
months ended September 30, 1998 are not necessarily indicative of the results
which may be expected for the entire fiscal year.

NATURE OF BUSINESS OPERATIONS

     NeoMedia operates in one business segment which is comprised of three
principal applications markets: (i) Intelligent Document(TM) Solutions
("IDOCs(TM)") Unit, (ii) Integrated Technology Systems Solutions Unit and (iii)
Year 2000 / Migration (Mass Change) Solutions Unit.

     The IDOCS UNIT assists clients in linking the worlds of print and
electronic media(SM). NeoMedia's patent-pending NeoLink(TM) technology
simplifies electronic commerce by hyperlinking printed material directly to
on-line information and electronic commerce sites. Using this technology, common
publications and products, such as magazines, catalogs, direct mail pieces and
barcoded consumer products, become direct extensions of the World Wide Web,
eliminating the well publicized limitations of search engines and broadcast
"push" applications. In addition, the IDOCs Unit assists clients in embedding
active data elements in standard printed documents or on physical objects for
the purpose of launching computer programs and creating automated links to the
World Wide Web.


                                        5
<PAGE>


     The INTEGRATED TECHNOLOGY SYSTEMS SOLUTIONS UNIT assists clients in
optimizing the creation, production and management of printed documents and
printed document processes. These efforts have historically focused on designing
and providing complete, client specific, high speed and high volume document
formatting and printing solutions. Recently, services of the Integrated
Technology Systems Solutions Unit have been expanded to include Integrated
Document Factories ("IDF's"), a complete, client specific system solution for
automating, monitoring and managing print-to-mail processes. IDF's incorporate
manufacturing principles and IDOCs(TM) technology, enabling clients not only to
achieve maximum efficiencies in their print processes, but to also ensure
document integrity and traceability.

     The YEAR 2000 / MIGRATION (MASS CHANGE) SOLUTIONS UNIT enables and assists
clients to implement mass changes in computer software and hardware systems,
such as (i) identifying, seeking and automatically correcting restrictive source
and application fields which store data, including among other items, dates
(adding two digits to a two-digit date field when four digits are required to
correct the Year 2000 problem), stock prices (converting from a fractional to a
decimal measurement system) and European currencies (converting to the new
European Monetary Unit of Measure, commonly known as the "Eurodollar"), and (ii)
conversions from closed, proprietary "legacy" systems to open systems.

     As part of the services provided in connection with the above solutions it
offers, NeoMedia often recommends, specifies, supplies and installs equipment
and software products from third-party software and hardware vendors, leading
consulting firms and major system integrators, many of whom have strategic
alliances with NeoMedia. These alliances are integral to NeoMedia's business
operations. NeoMedia principally markets and distributes its products through
distributors in the United States (although it has distributors in Europe and
Latin America which have not generated material sales), and currently has U. S.
district offices located in Florida, California, Illinois, New York and Ohio.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

     License revenues represent revenue from the licensing of NeoMedia's
proprietary software tools and applications products. NeoMedia licenses its
development tools and application products pursuant to non-exclusive and
non-transferable license agreements. Software and technology equipment resales
represent revenue from the resale of purchased third party hardware and software
products. Service fees represent revenue from consulting, education and post
contract customer support services. Effective January 1, 1998, NeoMedia adopted
the software license revenue recognition provisions of the American Institute of
Certified Public Accountants ("AICPA") Statement of Position 97-2 "Software
Revenue Recognition" ("SOP 97-2"), as amended. Specifically, license revenue is
recognized if persuasive evidence of an agreement exists, delivery has occurred,
pricing is fixed and determinable, and collectibility is probable. The impact of
the adoption of SOP 97-2, as amended, was not material to NeoMedia's
consolidated financial statements.

COMPREHENSIVE INCOME

     NeoMedia adopted the provisions of Financial Accounting Standards Board
("FASB") Statement of Accounting Standards No. 130 "Reporting Comprehensive
Income" ("FAS 130") effective January 1, 1998. FAS 130 requires companies to
report comprehensive income. Comprehensive income is defined as the change in
equity of a business during a period from transactions and other events and
circumstances from nonowner sources. During the nine and three months ended
September 30,1998, changes in NeoMedia's shareholders' equity consisted of its
net loss, the exercise of stock options and the issuance of common stock to
acquire a customer list. Accordingly, comprehensive income as defined by FAS 130
was the net loss in the accompanying unaudited consolidated statement of
operations.


                                        6
<PAGE>


COMPUTATION OF LOSS PER SHARE

     Effective December 31, 1997, NeoMedia adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("FAS 128") which replaces
the presentation of primary earnings per share with basic earnings per share and
which requires dual presentation of basic and diluted earnings per share on the
Consolidated Statements of Operations. FAS 128 requires restatement of all prior
period earnings per share data presented. Basic net earnings per share is
computed by dividing net income by the weighted average number of shares of
common stock outstanding during the period, and diluted net earnings per share
includes the effect of unexercised stock options and warrants using the treasury
stock method. The treasury stock method assumes that common stock was purchased
at the average market price during the period. Because the assumed exercise of
stock options and warrants would have an antidilutive effect on the net loss per
share for the nine and three months ended September 30, 1998 and 1997, no
exercise of stock options and warrants were assumed and diluted net loss per
share was the same as basic net loss per share.

CONCENTRATIONS OF CREDIT RISK

     Financial instruments that potentially subject NeoMedia to concentrations
of credit risk consist primarily of trade accounts receivable with customers.
Credit risk is generally minimized as a result of the large number and diverse
nature of NeoMedia's customers which are located throughout the United States.
NeoMedia extends credit to its customers as determined on an individual basis
and has included an allowance for doubtful accounts of $293,000 and $191,000 in
its September 30, 1998 and December 31, 1997 consolidated balance sheets,
respectively. NeoMedia had net sales to one major customer in the
telecommunications industry of $2,684,000 and $5,507,000 during the nine months
ended September 30, 1998 and 1997, respectively, resulting in trade accounts
receivable of $1,056,000 and $3,116,000 as of September 30, 1998 and December
31, 1997, respectively. Revenue generated from the remarketing of software and
technology equipment has accounted for a significant percentage of NeoMedia's
revenue. Such sales accounted for 71.0% and 68.5% of NeoMedia's revenue for the
nine months ended September 30, 1998 and 1997, respectively.

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

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AS COMPARED
TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997

     GENERAL. Total net sales for the nine months ended September 30, 1998 were
$15.4 million, which represented a $1.1 million, or 7%, decrease from $16.5
million for the nine months ended September 30, 1997. This decrease primarily
resulted from (i) a $2.9 million decrease in sales to a NeoMedia customer in the
telecommunications industry, and (ii) a $1.8 million one-time U.S. sale of a IBM
S390 computer in 1997 which did not recur in 1998. These decreases were
partially offset with (i) a $2.0 million increase in sales of IBM S390 computer
hardware in Canada, (ii) a $1.0 million increase in sales of Year 2000 products
including licenses and services, and (iii) a $600,000 increase in sales relating
to the implementation of an integrated document factory.

     The net loss for the nine months ended September 30, 1998 was $9.1 million,
which represented a $4.6 million, or 102%, increase from a $4.5 million loss for
the nine months ended September 30, 1997. This increase in the net loss
primarily resulted from NeoMedia's continuing to invest in the infra-structure
needed to manage current and expected future growth. The $4.6 million increase
in the infra-structure costs during 1998 as compared to 1997 was partially
offset with the increase in sales of the Year 2000 products which reduced losses
by $100,000.

     The total of general, administrative, sales, marketing, research and
development expenses increased $4.9 million to $12.1 million for the nine months
ended September 30, 1998 from $7.2 million during the nine months ended
September 30, 1997. This increase primarily resulted from NeoMedia investing in
the expansion of its infra-structure by hiring management, sales and other
personnel to develop, market and sell new products.


                                        7
<PAGE>


     LICENSE FEES. License fees for the nine months ended September 30, 1998
were $1,685,000 compared to $1,381,000 for the nine months ended September 30,
1997, an increase of $304,000 or 22%. This increase resulted primarily from the
increase in sales of licenses of NeoMedia's Year 2000 proprietary software. Cost
of sales for license fees consisted primarily of fees paid to an independent
software developer for one of the existing software transition tools. Cost of
sales as a percentage of related sales was 8.8% during 1998 compared to 13.8%
during 1997. This decrease in the cost of sales as a percentage of related sales
was primarily due to the increased sales of ADAPT/2000 and ADAPT PC, which is
proprietary software.

     RESALES OF SOFTWARE AND TECHNOLOGY EQUIPMENT. Resales of software and
technology equipment decreased by $2,325,000, or 18%, to $10,920,000 for the
nine months ended September 30, 1998, as compared to $13,245,000 for the nine
months ended September 30, 1997. This decrease primarily resulted from (i) a
$2.9 million decrease in sales to a NeoMedia customer in the telecommunications
industry, and (ii) a $1.8 million one-time sale of a IBM S390 computer in 1997
which did not recur in 1998. These decreases were partially offset with a $2.0
million increase in sales of IBM S390 computer hardware in Canada and $1.7
million increase to new U.S. customers. Cost of sales as a percentage of related
sales was 86.4% during 1998, compared to 87.0% during 1997. This decrease in the
cost of sales as a percentage of related sales was primarily due to the sale of
more IBM S390 computers that have a higher profit margin.

     SERVICE FEES. NeoMedia's service fees increased by $921,000, or 49.9%, to
$2,768,000 for the nine months ended September 30, 1998, compared to $1,847,000
for the nine months ended September 30, 1997. This increase was primarily due to
a $700,000 increase in the Year 2000 service fees and the $500,000 increase in
consulting fees for integrated document factory services. These increases were
partially offset with a $300,000 decrease in document solutions services. Cost
of service fees as a percentage of related sales increased to 92.9% during 1998
from 83.8% during 1997 primarily due to lower margin on Year 2000 services.

     AMORTIZATION OF SOFTWARE. Amortization of software for the nine months
ended September 30, 1998, as compared to the nine months ended September 30,
1997, decreased $68,000 as a result of certain migration software costs becoming
fully amortized during 1997, and, as a percentage of total net sales, decreased
to 2.7% during 1998 from 2.9% during 1997. The Company generally amortizes
software costs over three to five years.

     SALES AND MARKETING. A portion of the compensation to the sales and
marketing staff constitutes salary and is fixed in nature and the remainder of
this compensation, which is paid as a commission, is directly related to sales
volume. Sales and marketing expenses increased $4,104,000, or 126.1%, to
$7,357,000 for the nine months ended September 30, 1998 from $3,253,000 for the
nine months ended September 30, 1997, as a result primarily of hiring additional
direct sales personnel intended to build future revenue growth.

     GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$834,000, or 25.3%, to $4,128,000 for the nine months ended September 30, 1998,
from $3,294,000 for the nine months ended September 30, 1997. This increase was
due mainly to NeoMedia building its administrative infra-structure, which
includes $407,000 of compensation and related expenses, $233,000 of legal and
professional fees, $150,000 of rent expense and $53,000 of depreciation expense,
to manage intended future growth.

     RESEARCH AND DEVELOPMENT. During the nine months ended September 30, 1998,
NeoMedia charged to expense 3.8% of total net sales in research and development
expenses as compared to 3.9% during the nine months ended September 30, 1997.
This percentage decrease was due to a decrease in sales and a increase in the
amount of software development costs that were capitalized during 1998 pursuant
to FASB's Statement of Financial Accounting Standard No. 86. NeoMedia currently
intends to continue to make significant investments in its development
activities.

     INTEREST EXPENSE (INCOME), NET. Interest expense (income) consists
primarily of interest paid to creditors as part of financed purchases,
capitalized leases and NeoMedia's asset-based collateralized line of credit, net
of interest earned on cash equivalent investments. Interest expense (income)
decreased by $268,000 to ($156,000) for the nine months ended September 30, 1998
from $112,000 for the nine months ended September 30, 1997, due to interest
income earned on the proceeds from common stock purchase warrants exercised in
the fourth quarter of 1997.


                                        8
<PAGE>


     INCOME TAX EXPENSE (BENEFIT). The $45,000 benefit for income taxes recorded
during the nine months ended September 30, 1997 represented the recovery of
income taxes paid in prior years from the carry back of operating losses.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AS COMPARED
TO THE THREE MONTHS ENDED SEPTEMBER 30, 1997

     GENERAL. Total net sales for the three months ended September 30, 1998 were
$4.3 million, which represented a $.4 million, or 10%, increase from $3.9
million for the three months ended September 30, 1997. This increase primarily
resulted from the sales of the IBM S390 computers in Canada.

     The net loss for the three months ended September 30, 1998 was $3.9
million, which represented a $1.6 million, or 70%, increase from a $2.3 million
loss for the three months ended September 30, 1997. This increase in the net
loss primarily resulted from NeoMedia's continuing to invest in the
infra-structure needed to manage current and intended future growth. These
infra-structure costs increased $1.1 million during 1998 as compared to 1997. In
addition, the decrease in license fees impacted net loss by $208,000 and
consulting costs for the Year 2000 / Migration Solutions Unit increased $353,000
during the three month period 1998 as compared to the same period in 1997.

     The total of general, administrative, sales, marketing, research and
development expenses increased $1.1 million to $4.0 million for the three months
ended September 30, 1998 from $2.9 million during the three months ended
September 30, 1997. This increase primarily resulted from NeoMedia investing in
the expansion of its infra-structure by hiring management, sales and other
personnel to develop, market and sell new products.

     LICENSE FEES. License fees for the three months ended September 30, 1998
were $290,000 compared to $492,000 for the three months ended September 30,
1997, a decrease of $202,000 or 69.7%. This decrease resulted primarily from the
decrease in sales of licenses of NeoMedia's Year 2000 proprietary software. Cost
of sales for license fees consisted primarily of fees paid to an independent
software developer for one of the existing software transition tools. Cost of
sales as a percentage of related sales was 11.7% during 1998 compared to 5.7%
during 1997. This increase in the cost of sales as a percentage of related sales
was primarily due to the increased costs of ADAPT PC, which was not available in
1997.

     RESALES OF SOFTWARE AND TECHNOLOGY EQUIPMENT. Resales of software and
technology equipment increased by $609,000, or 21.9%, to $3,383,000 for the
three months ended September 30, 1998, as compared to $2,774,000 for the three
months ended September 30, 1997. This increase primarily resulted from the sales
of IBM S390 computers in Canada. Cost of sales as a percentage of related sales
was 89.9% during 1998, compared to 88.1% during 1997.

     SERVICE FEES. NeoMedia's service fees decreased by $21,000, or 3.1%, to
$651,000 for the three months ended September 30, 1998, compared to $672,000 for
the three months ended September 30, 1997. This decrease was primarily due to a
$230,000 decrease in document solutions services. This decrease was partially
offset with a $200,000 increase in Year 2000 services. Cost of service fees as a
percentage of related sales increased to 146.2% during 1998 from 88.8% due to
the cost of consultants for Year 2000 services.

     AMORTIZATION OF SOFTWARE. Amortization of software for the three months
ended September 30, 1998, as compared to the three months ended September 30,
1997, decreased $14,000 as a result of certain migration software costs becoming
fully amortized during 1997.

     SALES AND MARKETING. Sales and marketing expenses increased $1,524,000, or
125.4%, to $2,739,000 for the three months ended September 30, 1998 from
$1,215,000 for the three months ended September 30, 1997, as a result primarily
of hiring additional direct sales personnel intended to build future revenue
growth.


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<PAGE>


     GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
$384,000, or 25.3%, to $1,133,000 for the three months ended September 30, 1998,
from $1,517,000 for the three months ended September 30, 1997. This decrease was
due mainly to a decrease in compensation expense in 1998.

     RESEARCH AND DEVELOPMENT. During the three months ended September 30, 1998,
NeoMedia charged to expense 2.5% of total net sales in research and development
expenses as compared to 4.9% during the three months ended September 30, 1997.
This percentage decrease was due to an increase in the amount of software
development costs that were capitalized during 1998 pursuant to FASB's Statement
of Financial Accounting Standard No. 86.

     INTEREST EXPENSE (INCOME), NET. Interest expense (income) decreased by
$78,000 to ($19,000) for the three months ended September 30, 1998 from $59,000
for the three months ended September 30, 1997, due to interest income earned on
the proceeds from common stock purchase warrants exercised in the fourth quarter
of 1997.

LIQUIDITY AND CAPITAL RESOURCES

     As of September 30, 1998, NeoMedia's working capital was $2.2 million which
represented a $9.9 million decrease from December 31, 1997. As of September 30,
1998, NeoMedia's cash and cash equivalents were $2.1 million, which represented
a $8.2 million decrease from December 31, 1997. Net cash used in operating
activities for the nine months ended September 30, 1998 and 1997, was $6,516,000
and $3,792,000, respectively. During 1998, trade accounts receivable decreased
$2,714,000, while accounts payable and accrued expenses decreased $970,000.
During 1997, trade accounts receivables decreased $1,000,000, while accounts
payable and accrued expenses decreased $1,000,000. NeoMedia's net cash flow used
in investing activities for the nine months ended September 30, 1998 and 1997,
was $1,819,000 and $1,469,000, respectively.

     Net cash provided by financing activities for the nine months ended
September 30, 1998 and 1997, was $186,000 and $3,113,000, respectively. In
April, 1998, NeoMedia acquired a customer list for $1,118,000, of which $826,000
of the consideration was given in NeoMedia common stock. In January, 1997,
NeoMedia consummated the over-allotment of its initial public offering and
received net proceeds of $1.3 million.

     NeoMedia anticipates that its existing cash balances and funds available
from borrowings under its existing financing agreement may have to be
supplemented with additional funds, through loans and / or capital
contributions, to finance NeoMedia's operations for the remainder of 1998. If
NeoMedia has insufficient funds for its needs, there can be no assurance that
additional funds can be obtained on acceptable terms, if at all. If necessary
funds are not available, NeoMedia's business and operations would be materially
adversely affected and in such event NeoMedia would attempt to reduce costs and
adjust its business plan.

YEAR 2000 ISSUES

     In the next 15 months, many companies, including NeoMedia, will face
potentially serious issues associated with the inability of existing data
processing hardware and software to appropriately recognize calendar dates
beginning in the year 2000. Many computer programs that can only distinguish the
final two digits of the year entered may read entries for the year 2000 as the
year 1900. In 1996, NeoMedia began the process of identifying the many software
applications and hardware devices used internally expected to be impacted by
this issue. NeoMedia's analysis encompasses its (i) applications software;
(ii)hardware; and (iii) data residing in programs. The software programs used
internally by NeoMedia (primarily its general ledger accounting package which is
not year 2000 compliant) were purchased from third party vendors. In assessing
its risk of non-compliance, the Company's internal systems department classified
vital and non-vital production systems. NeoMedia has completed the analysis of
over 70% of all production systems software (representing virtually all of the
"vital" systems comprising the corporate backbone), including verification by
third party vendors that the programs are Year 2000 compliant, as well as
internal testing which confirms readiness of those programs. NeoMedia incurred
costs of approximately $1000 in upgrading the operating system, and about $2,500
in upgrading the application program, for its existing accounting general ledger
program. During the fourth quarter, 1998, NeoMedia plans to install an
additional year 2000 compliant upgrade, recently received from the software
vendor, to the existing general ledger accounting package. In addition, NeoMedia


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<PAGE>


has purchased a new general ledger accounting package which is year 2000
compliant according to the vendor. NeoMedia expects to spend approximately
$400,000, including software licensing fees, hardware leases and associated
services for this accounting system. NeoMedia is currently developing the
environment for this new system, and plans to install, implement and test it in
1999. At that time, the Company expects to maintain the existing accounting
package for archival and contingency purposes. As an additional measure of
security, routine back-ups of data are performed to preserve information in
various vital systems, and manual or paper files are maintained if other
measures fail with regard to the most vital accounting functions. The remaining
30% of the application software is considered either non-vital or capable of
compliance with a vendor-provided "patch" on an as-needed basis. NeoMedia
expects to test virtually all remaining application programs in 1999. NeoMedia
believes that the hardware devices supporting production systems which were not
year 2000 compliant have been replaced with those which are year 2000 compliant.
The few remaining PC's which are not now compliant are scheduled for routine
replacement during 1999 with compliant hardware, thereby eliminating the year
2000 concern. Costs associated with hardware replacement include approximately
$1,200 per month for a lease of hardware necessary to implement the new
accounting system, and $4,000 to replace the server upon which the existing
accounting package resides. Although prudent measures have been taken, there can
be no assurance that NeoMedia will not be adversely affected by the failure of
the existing accounting package if the new package is not installed timely or by
the failure of the new package to be fully year 2000 compliant as represented by
the vendor. With hardware and software matters nearing completion, in 1999,
NeoMedia plans to utilize its proprietary software tools to analyze vital data
residing in application programs, such as accounting spreadsheets, for
non-complaint data. Vital data will be remediated. NeoMedia believes that its
propriety software, for which it is currently selling licenses, is year 2000
compliant.


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<PAGE>



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

     The exhibits required by Item 601 of Regulation S-B to be filed herewith
     are as follows:

     27.1  Financial Data Schedule (SEC use only)

(b)  Reports on Form 8-K

     No reports on Form 8-K were filed during the three months ended September
     30, 1998.




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<PAGE>



                                   SIGNATURES


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


                                      NEOMEDIA TECHNOLOGIES, INC.
                                  Registrant

Date   NOVEMBER 13, 1998      By:    
     -------------------         --------------------------------------
                              Charles E. Fritz, President, Chief Executive
                                Officer and Chairman of the Board


Date   NOVEMBER 13, 1998      By:    
     -------------------         --------------------------------------
                              Charles T. Jenses, Vice President, Chief Financial
                                Officer, Treasurer and Director






                                       13
<PAGE>


                                  EXHIBIT INDEX

EXHIBIT
NUMBER      DOCUMENT
-------     --------

  27.1      Article 5 Financial Data Schedule for September 30, 1998













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