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

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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

                                       OR

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

                         COMMISSION FILE NUMBER 0-21743

                           NEOMEDIA TECHNOLOGIES, INC.
        (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S>          <C>                                                                 <C>

             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)
</TABLE>

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


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


As of August 12, 2002, there were 21,929,896  outstanding shares of the issuer's
Common Stock.

<PAGE>




                         PART I -- FINANCIAL INFORMATION

     ITEM 1.  FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

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

                                                                                         JUNE 30,           DECEMBER 31,
                                                                                           2002                2001
                                                                                        -----------        -------------
ASSETS                                                                                  (Unaudited)          (Audited)
<S>                                                                                     <C>                <C>

Current assets:
  Cash and cash equivalents............................................                 $        10        $         134
  Trade accounts receivable, net of allowance for doubtful
    account of $32 in 2002 and $65 in 2001.............................                       3,613                2,583
  Costs and estimated earnings in excess of billings on
    uncompleted contracts..............................................                          46                   43
  Inventories..........................................................                         141                  197
  Assets held for sale.................................................                         ---                  210
  Prepaid expenses and other current assets............................                         711                  582
                                                                                           --------             --------
      Total current assets.............................................                       4,521                3,749

Property and equipment, net............................................                         148                  205
Capitalized patents, net...............................................                       2,378                2,500
Capitalized and purchased software costs, net..........................                         219                1,828
Other long-term assets.................................................                         710                  757
                                                                                           --------             --------
      Total assets.....................................................                 $     7,976        $       9,039
                                                                                           ========             ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable.....................................................                 $     3,842        $       2,886
  Amounts due under financing agreements..........                                            2,746                2,283
  Liabilities in excess of assets of discontinued business unit                               1,496                  ---
  Accrued expenses.....................................................                       2,020                1,922
  Current portion of long-term debt....................................                         156                  149
  Notes payable........................................................                         785                  750
  Sales taxes payable..................................................                         209                  135
  Billings in excess of costs and estimated earnings on
    uncompleted contracts..............................................                          75                   13
  Deferred revenues....................................................                         901                  767
  Other................................................................                          14                    7
                                                                                           --------             --------
      Total current liabilities........................................                      12,244                8,912

Long-term debt, net of current portion.................................                         310                  390
                                                                                           --------             --------
      Total liabilities................................................                      12,554                9,302
                                                                                           --------             --------

Shareholders' equity:
  Preferred stock, $.01 par value, 25,000,000 shares authorized, none issued
    and outstanding in 2002, 452,489 issued and outstanding in 2001                             ---                    5
  Additional paid-in capital, preferred stock...................                                ---                  878
  Common stock, $.01 par value, 200,000,000 shares authorized,
    41,882,724 shares issued and 40,241,298 outstanding in 2002
    and 20,446,343 shares issued and 18,804,917 outstanding in 2001                             402                  188
   Additional paid-in capital..........................................                      68,259               63,029
   Stock subscription receivable.......................................                     (3,040)                (240)
   Deferred stock-based compensation...................................                       (347)                  ---
   Accumulated deficit.................................................                    (69,073)             (63,344)
   Treasury stock, at cost, 201,230 shares of common stock.............                       (779)                (779)
                                                                                           --------          -----------

      Total shareholders' equity.......................................                     (4,578)                (263)
                                                                                           --------             --------
        Total liabilities and shareholders' equity                                      $     7,976        $       9,039
                                                                                         ==========           ==========

                       The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                                                 2
<PAGE>

<TABLE>
<CAPTION>



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

                                                                                         SIX MONTHS ENDED JUNE 30,
                                                                                 ----------------------------------
                                                                                        2002                2001
                                                                                 ---------------        -----------
<S>                                                                              <C>                     <C>

NET SALES:
  License fees......................................                             $          153         $       430
  Resale of software and technology equipment and service fees                            4,895               2,452
                                                                                 --------------         -----------
      Total net sales...............................                                      5,048               2,882
                                                                                 --------------         -----------

COST OF SALES:
  License fees......................................                                        684               1,328
  Resale of software and technology equipment and service fees                            3,865               1,994
                                                                                 --------------         -----------

      Total cost of sales...........................                                      4,549               3,322
                                                                                 --------------         -----------

GROSS PROFIT (LOSS).................................                                        499               (440)

Sales and marketing expenses........................                                        512               1,379
General and administrative expenses.................                                      2,560               2,591
Research and development costs......................                                        533                 143
Loss on impairment of assets........................                                      1,003                 ---
Loss on Digital:Convergence license contract........                                        ---               7,354
                                                                                 -------------        ------------

Loss from operations..................                                                  (4,109)            (11,907)
Interest expense (income), net......................                                         97                (52)
                                                                                 --------------        ------------

Loss from continuing operations.......                                                  (4,206)            (11,855)
Discontinued operations (Note 1):
   Loss from operations of discontinued business unit                                       ---             (2,612)
   Loss on disposal of discontinued business unit                                       (1,523)                 ---
                                                                                 --------------        ------------

NET LOSS............................................                             $      (5,729)         $  (14,467)
                                                                                 ==============        ============


NET LOSS PER SHARE FROM CONTINUING OPERATIONS-
   BASIC AND DILUTED................................                             $       (0.12)         $    (0.79)
                                                                                 ==============         ===========


NET LOSS PER SHARE FROM DISCONTINUED OPERATIONS-
   BASIC AND DILUTED................................                             $       (0.05)         $    (0.18)
                                                                                 ==============         ===========

NET LOSS PER SHARE--BASIC AND DILUTED................                            $       (0.17)         $    (0.97)
                                                                                 ==============         ===========

Weighted average number of common shares--basic and diluted                          34,291,781          14,924,646
                                                                                 ==============         ===========


                       The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                                                 3
<PAGE>

<TABLE>
<CAPTION>



                                            NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                CONSOLIDATED STATEMENTS OF OPERATIONS
                                                (In thousands, except per share data)


                                                                                         SIX MONTHS ENDED JUNE 30,
                                                                                 ----------------------------------
                                                                                        2002                2001
                                                                                 ---------------       ------------
<S>                                                                               <C>                  <C>
NET SALES:
  License fees......................................                              $           41       $       203
  Resale of software and technology equipment and service fees                             3,611              1,029
                                                                                  --------------       ------------
      Total net sales...............................                                       3,652              1,232
                                                                                  --------------       ------------

COST OF SALES:
  License fees......................................                                         336                659
  Resale of software and technology equipment and service fees                             2,899                775
                                                                                  --------------       ------------

      Total cost of sales...........................                                       3,235              1,434
                                                                                  --------------       ------------

GROSS PROFIT (LOSS).................................                                         417              (202)

Sales and marketing expenses........................                                         280                479
General and administrative expenses.................                                       1,575              1,092
Research and development costs......................                                         317                (5)
Loss on impairment of assets........................                                       1,003                ---
Loss on Digital:Convergence license contract........                                         ---              7,354
                                                                                  --------------       ------------

Loss from operations..................                                                   (2,758)            (9,122)
Interest expense (income), net......................                                          66               (21)
                                                                                  --------------       ------------

Loss from continuing operations.......                                                   (2,824)            (9,101)
Discontinued operations (Note 1):
   Loss from operations of discontinued business unit                                        ---            (1,941)
   Loss on disposal of discontinued business unit                                        (1,523)                ---
                                                                                  --------------       ------------

NET LOSS............................................                              $      (4,347)       $   (11,042)
                                                                                  ==============       ============


NET LOSS PER SHARE FROM CONTINUING OPERATIONS-
   BASIC AND DILUTED................................                              $       (0.07)       $     (0.59)
                                                                                  ==============       ============


NET LOSS PER SHARE FROM DISCONTINUED OPERATIONS-
   BASIC AND DILUTED................................                              $       (0.04)       $     (0.13)
                                                                                  ==============       ============

NET LOSS PER SHARE--BASIC AND DILUTED................                             $       (0.11)       $     (0.72)
                                                                                  ==============       ============

Weighted average number of common shares--basic and diluted                           39,412,368         15,413,832
                                                                                  ==============       =============


                       The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                                                 4
<PAGE>

<TABLE>
<CAPTION>


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

                                                                                             SIX MONTHS ENDED JUNE 30,
                                                                                     ----------------------------------
                                                                                            2002                2001
                                                                                     ---------------       ------------
<S>                                                                                         <C>            <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...........................................................................         $(5,729)       $(14,467)
Adjustments to reconcile net loss to net cash used in operating activities:
  Depreciation and amortization......................                                            805           1,935
  Write-off of Digital Convergence license contract................................              ---           7,354
  Preferred stock issued to pay advertising expense................................              ---             882
  Loss on disposal of discontinued business unit...................................            1,523             ---
  Loss on impairment of assets.....................................................            1,003             ---
  Expense associated with warrant repricing........................................               38             845
  Stock options and warrants granted for services..................................              383              75
  Changes in operating assets and liabilities:
    Trade accounts receivable......................................................          (1,030)           1,173
    Prepaid - Digital:Convergence..................................................              ---             118
    Other current assets...........................................................              563             (4)
    Accounts payable, amounts due under financing agreements, liabilities in excess
       of assets of discontinued business unit, and accrued expenses                           1,933         (2,127)
    Deferred revenue...............................................................              134             189
    Other current liabilities......................................................               69            (53)
                                                                                            --------        --------
      Net cash used in operating activities........................................            (308)        (4,080)
                                                                                            --------        --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalization of patent costs, software development and purchased intangible assets
                                                                                                (20)         (2,652)
(Increase)/decrease in value of life insurance policies                                           47             ---
Acquisition of property and equipment..............................................              ---            (81)
                                                                                            --------        --------

      Net cash used in investing activities........................................               27         (2,733)
                                                                                            --------        --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock
   net of $0 issuance costs in 2002 and $10 in 2001................................              198          1,637
Net proceeds from exercise of stock warrants.......................................               43          1,010
Net proceeds from exercise of stock options..........                                            242            139
Net proceeds from release of restricted cash held for line of credit                             ---            750
Net proceeds from issuance of notes payable........................................               21            ---
Issuance of stock-based deferred compensation......................................            (347)            ---
Repayments on notes payable and long-term debt.....................................              ---          (210)
                                                                                             -------       --------

      Net cash provided by financing activities....................................              157          3,326
                                                                                            --------       --------

NET INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS.............................................................            (124)        (3,487)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.......................................              134          4,453
                                                                                            --------       --------

CASH AND CASH EQUIVALENTS, SEPTEMBER 30, 2001......................................         $     10       $    966
                                                                                            ========       ========

SUPPLEMENTAL CASH FLOW INFORMATION:
  Interest paid during the six months ended June 30 (net)                                   $      1       $     2
  Non-cash investing and financing activities:
   Net assets acquired as part of Qode purchase agreement
      in exchange for common stock and forgiveness of note                                       ---         1,800
   Issuance costs for shares issued through private placements                                   ---            10
   Stock issued in exchange for limited recourse promissory notes                              3,040           ---
   Common stock issued to settle debt..............................................              309           ---
   Cancellation of common stock issued
      in 2001 to offset stock subscription receivable..............................            (240)           ---


                       The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                                                 5
<PAGE>




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

1. BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS

BASIS OF PRESENTATION

     The  condensed  consolidated  financial  statements  include the  financial
statements of NeoMedia Technologies, Inc. and its wholly-owned subsidiaries. The
accompanying  unaudited condensed  consolidated  financial  statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the  information  and  footnotes  required by generally  accepted  accounting
principles  for complete  consolidated  financial  statements.  These  condensed
consolidated   financial   statements  and  related  notes  should  be  read  in
conjunction  with the Company's Form 10-K for the fiscal year ended December 31,
2001.  In the opinion of  management,  these  condensed  consolidated  financial
statements  reflect all adjustments  which are of a normal  recurring nature and
which are necessary to present  fairly the  consolidated  financial  position of
NeoMedia as of June 30, 2002,  and the results of operations  for the three- and
six-month periods ended June 30, 2002 and 2001, and cash flows for the six-month
period ended June 30, 2002 and 2001.  The results of  operations  for the three-
and six-month periods ended June 30, 2002 are not necessarily  indicative of the
results  which may be  expected  for the entire  fiscal  year.  All  significant
intercompany  accounts and  transactions  have been eliminated in preparation of
the condensed consolidated financial statements.


NATURE OF BUSINESS OPERATIONS

     The Company is  structured  and  evaluated  by its Board of  Directors  and
Management as two distinct business units:  NeoMedia Internet  Switching Service
(NISS) and NeoMedia Consulting and Integration Service (NCIS).

      NEOMEDIA INTERNET SWITCHING SERVICE (NISS)

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

      NEOMEDIA CONSULTING AND INTEGRATION SERVICES (NCIS)

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

RECLASSIFICATIONS

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

RECENT ACCOUNTING PRONOUNCEMENTS

     On  July  21,  2001,  the  Financial   Accounting  Standards  Board  issued
Statements of Financial  Accounting  Standards No. 141 (SFAS No. 141), "Business
Combinations",  and No.  142  (SFAS No.  142),  "Goodwill  and Other  Intangible
Assets." SFAS No. 141 addresses financial  accounting and reporting for goodwill
and other intangible  assets acquired in a business  combination at acquisition.


                                       6
<PAGE>

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

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

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


PURCHASE AND DISPOSAL OF QODE.COM, INC.

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

     The  Company  accounted  for this  purchase  using the  purchase  method of
accounting  in  accordance  with  Accounting  Principles  Board  Opinion No. 16,
"Business Combinations". The excess fair market value of the net assets acquired
over the  purchase  price was  allocated  to reduce  proportionately  the values
assigned to  noncurrent  assets.  The  accompanying  consolidated  statements of
operations  include the operations of Qode from March 1, 2001,  through June 30,
2002.


                                       7
<PAGE>




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


        Original Shares: 274,699 issued at $4.95               1,360,000

        Contingent shares: 35,074 issued at $0.39          $      13,000
                                                           -------------
                                                           $   1,373,000
                Total purchase price                       -------------
        PURCHASE PRICE ALLOCATED AS FOLLOWS:
        -----------------------------------
        ASSETS PURCHASED
        ----------------

                Trade receivables                          $       5,000

                Inventory                                        144,000

                Prepaid expenses                                  49,000

                Furniture & fixtures                             913,000

                Capitalized development costs                  2,132,000

                Capitalized software                              83,000

                Refundable deposits - non-current                 38,000

        LIABILITIES ASSUMED
        -------------------

                Accounts payable                               (981,000)

                Forgiveness of note receivable                 (440,000)

                Interest receivable                             (10,000)

                Current portion of long-term debt              (117,000)

                Note payable                                    (24,000)

                Capitalized lease obligation                   (419,000)
                                                           -------------

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

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

CONTINGENT CONSIDERATION

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

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

                                      8
<PAGE>


respect to a disagreement  over the  performance of, and investment in, the Qode
business  unit for the period  March 1, 2001 through  February  28,  2002.  As a
result, all such shares may be released to Qode.

      INTANGIBLE ASSETS

        Intangible assets acquired from Qode.com include:

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

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

OTHER

        On May 31, 2001,  three  creditors of Qode.com,  Inc.  filed in the U.S.
Bankruptcy Court an involuntary bankruptcy petition for Qode.com, Inc. Qode.com,
Inc. has converted the  proceedings to Chapter 11, U.S. Code to re-organize  its
debts.


DISPOSAL OF QODE BUSINESS UNIT

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

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

        During June 2002,  the Finx Group  notified  the Company that it did not
intend  to carry  out the  letter of intent  due to  capital  constraints.  As a
result,  during the three-month period ended June 30, 2002, the company recorded
an  additional  expense of $1.5  million for the  write-off  of  remaining  Qode
assets.  As of June 30,  2002,  the  Company  had $1.3  million  of  liabilities
relating to the Qode system on its books.

IMPAIRMENT OF PAPERCLICK ASSET

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

OTHER EVENTS

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

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


                                       9
<PAGE>


        During  February  2002, the Company sold 19 million shares of its common
stock at $0.17  per share in  exchange  for  promissory  notes  maturing  at the
earlier of i) August 12, 2002, or ii) 30 days from  registration  of the shares.
Assuming  full  payment of the notes,  proceeds  from this  transaction  will be
$3,230,000,  of which  $190,000  par value was paid during the first  quarter of
2002.  During August 2002, the notes matured  without  payment,  and the Company
subsequently  cancelled the 19 million  shares  issued in  connection  with such
notes.  The Company has  accrued a  liability  in the third  quarter of $190,000
relating to the par value paid in connection with the issuance of the shares.

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

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

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

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

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

        During  May 2002,  the  Company  settled  its  lawsuit  with its  former
President and Chief  Operating  Officer (see "Legal  Proceedings").  The Company
will make cash payments of $90,000 directly to the plaintiff from the period May
2002 through  December 2002, and cash payments to the  plaintiff's  attorney for
legal fees in the amount of $45,000 due in July and August  2002.  In  addition,
the plaintiff was granted  360,000 options to purchase shares of NeoMedia common
stock at an exercise price of $0.08.

        During May 2002,  the Company  entered  into a Standby  Equity  Purchase
Agreement with Cornell Capital  Partners LP ("Cornell").  Under the terms of the
agreement,  Cornell has agreed to purchase up to $5.0 million of NeoMedia common
stock over the next two years,  with the timing of the purchase at the Company's
discretion. Each purchase will be for a maximum of $75,000, with a minimum seven
days between  purchases.  The shares will be valued at 98% of the lowest closing
bid price  during  the  five-day  period  following  the notice of  purchase  by
NeoMedia.  The Company  will pay 5% of the gross  proceeds  of each  purchase to
Cornell as a commission.  According to the terms of the  agreement,  the Company
cannot draw on the line of credit until the shares  underlying the agreement are
registered for trading with Securities and Exchange Commission.

        During  May  2002,   the   Company   granted  a   personal,   worldwide,
non-exclusive,  limited  intellectual  property licensing  agreement to Brandkey
Systems Corporation. Brandkey will pay the Company $50,000 upfront licensing fee
plus 2.5 % of all  royalty-based  revenues  earned  by  Brandkey,  with  minimum
royalties  of $25,000 in 2003,  $50,000 in 2004,  and $75,000 in 2005 and after.
Royalty  revenue  earned by the Company may not exceed $1.0 million in any given
year. The Company recognized  approximately  $4,000 relating to this contract in
the accompanying consolidated statements of operations.

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


                                       10
<PAGE>

Company is authorized to grant to employees,  directors,  and  consultants up to
10,000,000 options to purchase shares of its common stock.

        On June 26, 2002, the Company  announced  that its chairman,  Charles W.
Fritz, had been granted a 90-day leave of absence from his  responsibilities  as
Chief Executive  Officer by the company's Board,  which,  concurrently,  elected
Charles T. Jensen  president  and Chief  Operating  Officer,  and also named him
acting CEO. The Company also  announced  that it had promoted  David Dodge,  its
Controller, to Vice President and Chief Financial Officer.

2.    LIQUIDITY AND CAPITAL RESOURCES

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

3.    GOING CONCERN

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

        Through  June  30,  2002,  the  Company  has not been  able to  generate
significant  revenues  from its  operations  to cover its  costs  and  operating
expenses.  Although the Company has been able to issue its common stock or other
financing for a significant portion of its expenses, it is not known whether the
Company will be able to continue this practice,  or if its revenue will increase
significantly to be able to meet its cash operating expenses.

        This, in turn,  raises  substantial doubt about the Company's ability to
continue as a going concern.  Management  believes that the Company will be able
to raise additional funds through an offering of its common stock or alternative
sources of financing.  However,  no assurances can be given as to the success of
these  plans.  The  consolidated   financial   statements  do  not  include  any
adjustments that might result from the outcome of these uncertainties.

4.    SUBSEQUENT EVENTS

        On July 22, 2002, 2150 Western Court,  L.L.C.,  the property manager for
the  Company's   Lisle,   IL,  office,   filed  a  summons  seeking  payment  of
approximately $72,000 for all past due rents on the facility.  The summons asked
for a judgment for the above amount plus  possession  of the  premises.  A court
date is scheduled  for August 22, 2002.  The Company is  attempting to negotiate
settlement of this issue out of court prior to the court date.

        On July 27, 2002,  the Company's  former  General  Counsel filed suit in
U.S.  District Court, Ft. Myers division,  seeking payment of the 2000 executive
incentive,  severance and unpaid  vacation  days in the amount of  approximately
$154,000.  In June  2001,  the  Company's  compensation  committee  approved  an
adjustment  to the 2000  executive  incentive  plan that  reduced the  executive
incentive  payout  as a  result  of the  write-off  of  the  Digital:Convergence
intellectual  property  license  contract  in the second  quarter of 2001.  As a
result,  the Company  reduced the  accrual  for such payout by an  aggregate  of
approximately  $1.1  million in the second  quarter of 2002.  The  plaintiff  is
seeking payment of the entire original incentive payout. The Company has accrued
the reduced  payout.  The total  accrual  relating to this matter as of June 30,
2002, is approximately $100,000.


                                       11
<PAGE>



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

OF OPERATIONS

OVERVIEW

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

        NeoMedia's  quarterly  operating  results have been subject to variation
and will continue to be subject to variation,  depending  upon factors,  such as
the  mix of  business  among  NeoMedia's  services  and  products,  the  cost of
material, labor and technology,  particularly in connection with the delivery of
business  services,  the costs  associated  with  initiating new contracts,  the
economic  condition of NeoMedia's target markets,  and the cost of acquiring and
integrating new businesses.


RESULTS OF OPERATIONS  FOR THE SIX MONTHS ENDED JUNE 30, 2002 AS COMPARED TO THE
SIX MONTHS ENDED JUNE 30, 2001

    NET SALES.  Total net sales for the six months ended June 30, 2002 were $5.0
million,  which  represented a $2.1 million,  or 72%, increase from $2.9 million
for the six months ended June 30, 2001.  This increase  primarily  resulted from
revenues  relating to the  Company's  newly  created SAN  practice in 2002.  The
Company will continue to pursue  additional  sales of SAN products and services,
and to the extent  that such sales can be made,  the Company  expects  total net
sales to more  closely  resemble  the  results for the first six months of 2002,
rather than the first six months of 2001.

    License  fees.  License fees were $0.2 million for the six months ended June
30, 2002, a decrease of $0.2 million or 50%,  compared with $0.4 million for the
six  months  ended  June  30,  2001.  The  decrease  was due to  lower  sales of
internally  developed  software  licenses in 2002.  Demand for such licenses has
historically fluctuated from year to year. The Company will continue to increase
sales efforts of its internally developed software licenses in the future.

    RESALES OF SOFTWARE AND  TECHNOLOGY  EQUIPMENT AND SERVICE FEES.  Resales of
software and technology equipment and service fees increased by $2.4 million, or
96%, to $4.9 million for the six months ended June 30, 2002, as compared to $2.5
million for the six months ended June 30, 2001. This increase primarily resulted
from revenues  relating to the Company's newly created SAN practice in 2002. The
Company will continue to pursue  additional  sales of SAN products and services,
and to the extent that such sales can be made,  the Company  expects  resales to
more closely resemble the results for the first six months of 2002,  rather than
the first six months of 2001.

    COST OF SALES. Cost of resales as a percentage of related resales was 79% in
2002 and 81% in 2001. The Company expects the cost of resales as a percentage of
related resales to remain relatively stable in the next 12 months.

    GROSS  PROFIT.  Gross  profit was $0.5 million for the six months ended June
30, 2002, an increase of $0.9 million  compared with a negative  gross profit of
($0.4) million in 2001. The increase was due to higher SAN-related ales in 2002,
as well as lower  software  amortization  costs in 2002 due to the  write-off of
Qode-related assets at the end of 2001.

    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


                                       12
<PAGE>

volume.  Sales and marketing expenses were $0.5 million for the six months ended
June 30, 2002,  compared to $1.4 million for the six months ended June 30, 2001,
a decrease of $0.9 million or 64%.  This  decrease  resulted from a reduction in
sales  and  marketing  personnel  resulting  from the  Company's  cost-reduction
initiative started in the second half of 2001. The Company does not expect sales
and marketing expenses fluctuate  dramatically from 2002 levels over the next 12
months.

    GENERAL AND  ADMINISTRATIVE.  General and administrative  expenses were $2.6
million  for the six months  ended June 30, 2002 and 2001.  The Company  expects
general and  administrative  expense to decrease  slightly in the next 12 months
due to  continued  cost  reduction  efforts  and  reduced  expenses  relating to
professional services paid with shares of common stock, stock options, and stock
warrants.

    RESEARCH  AND  DEVELOPMENT.  During  the six  months  ended  June 30,  2002,
NeoMedia  charged to expense  $0.5 million of research  and  development  costs,
compared to $0.1 million for the six months ended June 30, 2001,  an increase of
$0.4 million or 400%. The increase is primarily due to the fact that the Company
was  capitalizing the majority of its product  development  costs in 2001 as the
Qode  Commerce  Solution was being rolled out. The roll-out was canceled and the
product  discontinued in the third quarter of 2001. During the second quarter of
2002,  development  resources were devoted primarily to system maintenance.  The
company  expects  research and  development  costs will decline over the next 12
months.

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

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

    INTEREST EXPENSE/(INCOME), NET. Interest expense/(income) consists primarily
of interest paid to creditors as part of financed  purchases,  notes payable and
NeoMedia's  asset-based  collateralized line of credit net of interest earned on
cash equivalent  investments.  Interest expense increased by $149,000 to $97,000
for the six months  ended June 30,  2002 from  income of  $(52,000)  for the six
months  ended June 30,  2001,  due to lower cash  balances  in 2002,  as well as
interest  charges in 2002  relating to notes  payable not held during 2001.  The
Company  expects net  interest  expense  similar to 2002 levels over the next 12
months, due to capital constraints and borrowing costs.

    LOSS FROM CONTINUING OPERATIONS. The loss from continuing operations for the
six months  ended  June 30,  2002 was $4.2  million,  which  represented  a $7.7
million, or 65% decrease from a $11.9 million loss for the six months ended June
30, 2001. The decrease resulted primarily from the $7.4 million write-off of the
Digital Convergence license contract during the second quarter of 2001.

    LOSS  FROM   OPERATIONS  OF  DISCONTINUED   BUSINESS   UNITS.   The  Company
discontinued  operations of its Qode business unit in 2001,  resulting in a loss
from  operations  of  discontinued  business  units of $2.6  million for the six
months ended June 30, 2001.  The business  unit's assets were purchased in March
2001 and the implementation was cancelled during the second quarter of 2001. The
Company does not expect any charges  relating to the Qode  business  unit in the
next 12 months.

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


                                       13
<PAGE>

    NET  LOSS.  The net loss for the six  months  ended  June 30,  2002 was $5.7
million, which represented an $8.8 million, or 61% decrease from a $14.5 million
loss for the six months ended June 30, 2001.  The  decrease  primarily  resulted
from the $7.4 million  write-off  of the Digital  Convergence  license  contract
during the  second  quarter  of 2001,  combined  with a  reduction  in  overhead
expenses  resulting from a reduction in force  initiated in the third quarter of
2001.


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

    NET SALES.  Total net sales for the three  months  ended June 30,  2002 were
$3.7 million,  which  represented a $2.5  million,  or 208%,  increase from $1.2
million  for the three  months  ended June 30,  2001.  This  increase  primarily
resulted from revenues  relating to the Company's  newly created SAN practice in
2002. The Company will continue to pursue  additional  sales of SAN products and
services,  and to the extent that such sales can be made,  the  Company  expects
total net sales to more closely resemble the results for the first six months of
2002, rather than the first six months of 2001.

    LICENSE FEES.  License fees were $41,000 for the three months ended June 30,
2002, a decrease of $162,000 or 80%, compared with $203,000 for the three months
ended June 30, 2001. The decrease was due to lower sales of internally developed
software licenses in 2002. Demand for such licenses has historically  fluctuated
from year to year.  The Company will  continue to increase  sales efforts of its
internally developed software licenses in the future. .

    RESALES OF SOFTWARE AND  TECHNOLOGY  EQUIPMENT AND SERVICE FEES.  Resales of
software and technology equipment and service fees increased by $2.6 million, or
260%,  to $3.6 million for the three months ended June 30, 2002,  as compared to
$1.0 million for the three months ended June 30, 2001.  This increase  primarily
resulted from revenues  relating to the Company's  newly created SAN practice in
2002. The Company will continue to pursue  additional  sales of SAN products and
services,  and to the extent that such sales can be made,  the  Company  expects
total net sales to more closely resemble the results for the first six months of
2002, rather than the first six months of 2001.

    COST OF SALES.  Cost of resales as a percentage  of related  resales for the
three  months  ended June 30 was 80% in 2002 and 75% in 2001.  This  increase is
primarily due to a higher sales mix of lower-margin equipment in 2002.

    GROSS PROFIT.  Gross profit was $0.4 million for the three months ended June
30, 2002, an increase of $0.6 million  compared with a negative  gross profit of
($0.2) million in 2001. The increase was due to higher SAN-related ales in 2002,
as well as lower  software  amortization  costs in 2002 due to the  write-off of
Qode-related assets at the end of 2001.

    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  were $0.3  million for the three months
ended June 30,  2002,  compared to $0.5  million for the three months ended June
30, 2001,  a decrease of $0.2  million or 40%.  This  decrease  resulted  from a
reduction  in  sales  and  marketing  personnel  resulting  from  the  Company's
cost-reduction  initiative  started in the second half of 2001. The Company does
not expect sales and marketing expenses fluctuate  dramatically from 2002 levels
over the next 12 months.

    GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
$0.5 million,  or 45%, to $1.6 million for the three months ended June 30, 2002,
compared to $1.1 million for the three months ended June 30, 2001.  The increase
is primarily  related to increased legal and professional  services  relating to
fund-raising  in 2002.  During the  three-month  period ended June 30, 2002, the
Company  recognized  expense of $0.4 million  relating to professional  services
paid with shares of common stock, stock options, and stock warrants. The Company
expects general and  administrative  expense to decrease slightly in the next 12
months due to continued cost reduction  efforts and reduced expenses relating to
professional services paid with shares of common stock, stock options, and stock
warrants.

                                       14
<PAGE>

    RESEARCH  AND  DEVELOPMENT.  During the three  months  ended June 30,  2002,
NeoMedia  charged to expense  $0.3 million of research  and  development  costs.
During the three  months  ended June 30,  2001,  the  Company  did not charge to
expense any costs associated with research and  development,  but did incur $0.2
million of development  expense  relating to its Qode business.  This expense is
included  under "Loss from  operations  of  discontinued  business  unit" in the
accompanying   statement  of  operations.   The  company  expects  research  and
development costs will decline over the next 12 months.

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

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

    INTEREST EXPENSE/(INCOME), NET. Interest expense/(income) consists primarily
of interest paid to creditors as part of financed  purchases,  notes payable and
NeoMedia's  asset-based  collateralized line of credit net of interest earned on
cash equivalent  investments.  Interest expense  increased by $87,000 to $66,000
for the three months ended June 30, 2002 from income of $(21,000)  for the three
months  ended June 30,  2001,  due to lower cash  balances  in 2002,  as well as
interest  charges in 2002  relating to notes  payable not held during 2001.  The
Company  expects net  interest  expense  similar to 2002 levels over the next 12
months, due to capital constraints and borrowing costs.

    LOSS FROM CONTINUING OPERATIONS. The loss from continuing operations for the
three  months ended June 30, 2002 was $2.8  million,  which  represented  a $6.3
million,  or 69%  decrease  from a $9.1  million loss for the three months ended
June 30, 2001. The decrease  resulted  primarily from the $7.4 million write-off
of the Digital  Convergence  license contract during the second quarter of 2001,
offset by the $1.0 million loss on impairment of assets in 2002.

    LOSS  FROM   OPERATIONS  OF  DISCONTINUED   BUSINESS   UNITS.   The  Company
discontinued  operations of its Qode business unit in 2001,  resulting in a loss
from  operations of  discontinued  business  units of $1.9 million for the three
months ended June 30, 2001.  The business  unit's assets were purchased in March
2001 and the implementation was cancelled during the second quarter of 2001. The
Company does not expect any charges  relating to the Qode  business  unit in the
next 12 months.

    NET LOSS.  The net loss for the three  months  ended June 30,  2002 was $4.3
million,  which represented a $6.7 million, or 61% decrease from a $11.0 million
loss for the three months ended June 30, 2001.  The decrease  resulted  from the
$7.4 million  write-off of the Digital  Convergence  license contract during the
second quarter of 2001,  offset by the $1.0 million loss on impairment of assets
in 2002.


FINANCIAL CONDITION

        As of June 30, 2002, the Company's cash balance was $10,000  compared to
$17,000 at March 31, 2002 and $134,000 at December 31, 2001.

        Net cash used in operating  activities for the six months ended June 30,
2002 and 2001, was $0.3 million and $4.1 million,  respectively.  During the six
months ended June 30, 2002,  trade accounts  receivable  increased $1.0 million,
while  accounts  payable  inclusive of amounts due under  financing  agreements,
accrued  expenses and deferred  revenue  increased $2.1 million.  During the six
months ended June 30, 2001,  trade accounts  receivable  decreased $1.2 million,
while  accounts  payable  inclusive of amounts due under  financing  agreements,
accrued  expenses and deferred  revenue  decreased $1.9 million.  NeoMedia's net
cash flow used in  investing  activities  for the six months ended June 30, 2002
and 2001 was $0 and $2.7 million, respectively.

                                       15
<PAGE>

        Net cash provided by financing  activities for the six months ended June
30, 2002 and 2001, was $0.2 million and $3.3 million, respectively. The decrease
was due to $1.6  million  proceeds for the sale of common stock and $1.1 million
from the exercise of stock  options and warrants in 2001.  During the six months
ended June 30, 2002,  the Company sold 19 million  shares of its common stock at
$0.17 per share in exchange for promissory  notes maturing at the earlier of i),
August 12, 2002, or ii) 30 days from  registration of the shares.  During August
2002, the notes matured without payment, and the Company subsequently  cancelled
the 19 million  shares  issued in  connection  with such notes.  The Company has
accrued a liability in the third  quarter of $190,000  relating to the par value
paid in connection with the issuance of the shares.

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

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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


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



                                       16
<PAGE>



                 FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

        The Company operates in a dynamic and rapidly changing  environment that
involves numerous risks and  uncertainties.  The market for software products is
generally  characterized  by rapidly changing  technology,  frequent new product
introductions  and changes in customer  requirements  which can render  existing
products  obsolete or  unmarketable.  The statements  contained in this document
that are not historical facts may be forward-looking statements (as such term is
defined in the rules  promulgated  pursuant to the  Securities  Exchange  Act of
1934)  that are  subject  to a variety  of risks and  uncertainties  more  fully
described in the Company's filings with the Securities and Exchange  Commission.
The forward-looking statements are based on the beliefs of the management of the
Company, as well as assumptions made by, and information currently available to,
the  Company's  management.   Accordingly,   these  statements  are  subject  to
significant  risks,  uncertainties  and  contingencies  which  could  cause  the
Company's  actual  growth,  results,  performance  and  business  prospects  and
opportunities in 2002 and beyond to differ materially from those expressed in or
implied by, any such forward-looking  statements.  Wherever possible, words such
as  "anticipate,"   "plan,"   "expect,"   "believe,"   "estimate,"  and  similar
expressions have been used to identify these forward-looking statements, but are
not  the  exclusive  means  of  identifying   such   statements.   These  risks,
uncertainties and contingencies  include,  but are not limited to, the Company's
limited operating history on which expectations regarding its future performance
can be based,  competition  from, among others,  high technology  companies that
have greater  financial,  technical  and marketing  resources  and  distribution
capabilities  than the Company,  the  availability  of sufficient  capital,  the
effectiveness  of the  Company's  efforts to  control  operating  expenses,  the
Company's  ability  to sell its  products  and  general  economic  and  business
conditions  affecting  the Company and its  customers  in the United  States and
other  countries in which the Company sells and anticipates to sell its products
and services.  The Company does not undertake any obligation to publicly release
the results of any  revisions to these  forward-looking  statements  that may be
made to reflect any future events or circumstances.





                                       17
<PAGE>



PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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

    AirClic  has also  filed suit  against  the  Company  in the  United  States
District Court for the Eastern District of Pennsylvania.  In this second action,
AirClic seeks a declaration that certain core intellectual property securing the
note issued by the Company to AirClic,  some of which is patented and others for
which a  patent  application  is  pending  is  invalid  and  unenforceable.  Any
declaration that the Company's core patented or patentable technology is invalid
and  unenforceable  would  have a  material  adverse  effect  on  the  Company's
business, prospects, financial condition, and results of operations. The Company
is vigorously  defending against this lawsuit as well. On November 21,2001,  the
Company filed a motion to dismiss the complaint.  On December 19, 2001,  AirClic
filed a response  opposing  that  position.  The motion has not yet been decided
upon by the court.  The Company has not accrued any liability in connection with
this matter.

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

    In April 2001, the former President and director of NeoMedia filed a lawsuit
against  the Company  and  several of its  directors.  The suit was filed in the
Circuit Court of the Twentieth Judicial Circuit for Sarasota, Florida. The claim
alleges the individual was  fraudulently  induced into accepting  employment and
that the Company breached the employment agreement.  The individual's employment
with the Company ended in January 2001. During May 2002, the Company settled the
suit.  The Company will make cash payments of $90,000  directly to the plaintiff
during the period May 2002  through  December  2002,  and cash  payments  to the
plaintiff's  attorney  for legal fees in the  amount of $45,000  due in July and
August 2002. In addition,  the plaintiff was granted 360,000 options to purchase
shares of NeoMedia  common stock at an exercise price of $0.08.  As of March 31,
2002,  the Company had accrued a $347,000  liability  relating to the suit. As a
result,  the  Company  recognized  an  increase  to net income of  approximately
$176,000  during  the  three-month  period  ended  June 30,  2002 to adjust  the
liability to the  settlement  amount.  As of June 30, the Company had an accrued
liability  of  $115,000  relating  to this  matter.  As of August 5,  2002,  the
Company's  legal counsel in this matter  withdrew  representation  and no longer
represents  the  Company.  As of the date of this  filing,  the  Company had not
engaged new counsel.

    On August 20, 2001, Ripfire,  Inc. filed suit against the Company in the San
Francisco  County  Superior  Court seeking  payment of $138,000 under a software


                                       18
<PAGE>

license  agreement  entered  into  between  the  Company and Ripfire in May 2001
relating to implementation of the Qode Universal Commerce Solution.  The Company
is currently  negotiating  settlement of this matter.  The Company has accrued a
$133,000  liability relating to this matter. As of August 5, 2002, the Company's
legal counsel in this matter withdrew  representation  and no longer  represents
the  Company.  As of the date of this  filing,  the  Company had not engaged new
counsel.

    On October 3, 2001, Headway  Associates,  Ltd. filed a complaint for damages
in the Circuit Court of the  Seventeenth  Judicial  Circuit for Broward  County,
Florida.  Headway  Associates,  Ltd. is seeking payment of all amounts due under
the terms the lease  agreement of the Ft.  Lauderdale  office of NeoMedia's Qode
business unit. The lease  commenced on March 3, 2000 and terminates on March 31,
2005. On February 25, 2002,  Headway agreed to accept $100,000 cash payment over
a two-month  period for settlement of all past-due and future amounts owed under
the lease.  As of June 30,  2002,  the Company had made  payments  all  payments
relating to the settlement.

    On November 30, 2001,  Orsus  Solutions USA, Inc.,  filed a summons  seeking
payment in full of  approximately  $525,000  relating to a software and services
contract associated with implementation of the Qode Universal Commerce Solution.
The Company is currently negotiating  settlement of this matter. The Company has
accrued a liability of $525,000 in the accompanying financial statements.  As of
August  5,  2002,   the  Company's   legal  counsel  in  this  matter   withdrew
representation  and no longer  represents  the  Company.  As of the date of this
filing, the Company had not engaged new counsel.

    On March 20, 2002, IOS Capital, Inc. filed a summons seeking full payment of
approximately  $38,700  relating to past due and future payments under an office
equipment  lease.  During April 2002,  the Company  settled this matter for cash
payments  totaling  $29,000.  As of June  30,  2002,  the  Company  had made all
payments under the settlement agreement.

    On July 22, 2002, 2150 Western Court,  L.L.C.,  the property manager for the
Company's  Lisle,  IL, office,  filed a summons seeking payment of approximately
$72,000 for all past due rents on the facility. The summons asked for a judgment
for the above amount plus possession of the premises.  A court date is scheduled
for August 22, 2002.  The Company is attempting to negotiate  settlement of this
issue out of court prior to the court date.

    On July 27, 2002, the Company's  former  General  Counsel filed suit in U.S.
District  Court,  Ft.  Myers  division,  seeking  payment of the 2000  executive
incentive,  severance and unpaid  vacation  days in the amount of  approximately
$154,000.  In June  2001,  the  Company's  compensation  committee  approved  an
adjustment  to the 2000  executive  incentive  plan that  reduced the  executive
incentive  payout  as a  result  of the  write-off  of  the  Digital:Convergence
intellectual  property  license  contract  in the second  quarter of 2001.  As a
result,  the Company  reduced the  accrual  for such payout by an  aggregate  of
approximately  $1.1  million in the second  quarter of 2002.  The  plaintiff  is
seeking payment of the entire original incentive payout. The Company has accrued
the reduced  payout.  The total  accrual  relating to this matter as of June 30,
2002, is approximately $100,000.


ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

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

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

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

      In February 2002, the Company issued  19,000,000 shares of common stock at
a price of $0.17 per share to five individuals and two  institutional  unrelated
parties.  The shares  were issued in exchange  for limited  recourse  promissory
notes  maturing at the earlier of i.) August 12, 2002,  or ii.) 30 days from the


                                       19
<PAGE>

date of registration of the shares.  The gross proceeds of such transaction were
expected  to be  approximately  $3,040,000  upon  maturity  of the  notes,  as a
purchase price of $0.01 per share,  or $190,000 in aggregate,  was paid in cash.
During  August  2002,  the  notes  matured  without  payment,  and  the  Company
subsequently  cancelled the 19 million  shares  issued in  connection  with such
notes.  The Company has  accrued a  liability  in the third  quarter of $190,000
relating to the par value paid in connection with the issuance of the shares.

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

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

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

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

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

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

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

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


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

        The Company's  annual  meeting of our  shareholders  was held on June 6,
2002 ("the Annual Meeting").  Holders of our common stock were entitled to elect
five directors.  On all matters that came before the Annual Meeting,  holders of
our common  stock were  entitled  to one vote for each share  held.  Proxies for
32,633,935  of the  41,956,579  shares of  common  stock  entitled  to vote were
received in connection with the Annual Meeting.

        The following  table sets forth the names of the five persons elected at
the  Annual  Meeting  to serve as  directors  until our next  annual  meeting of
shareholders  and the number of votes cast for, against or withheld with respect
to each person.

                                       20
<PAGE>

DIRECTOR              FOR           AGAINST     WITHHELD      TOTAL
--------              ---           -------     --------      -----

Charles W. Fritz      31,784,070    849,865     9,322,644     41,956,579
William E. Fritz      31,784,070    849,865     9,322,644     41,956,579
Charles T. Jensen     31,784,070    849,865     9,322,644     41,956,579
A. Hayes Barclay      31,784,048    849,887     9,322,644     41,956,579
James J. Keil         31,784,070    849,865     9,322,644     41,956,579


      Shareholders were also asked to vote on the following proposals:

         PROPOSAL #2 - To approve an  amendment  to  NeoMedia's  Certificate  of
         Incorporation  to increase  the number of shares of  authorized  common
         stock,  par value $.01,  from  50,000,000 to 200,000,000  shares and to
         increase the number of shares of authorized  preferred stock, par value
         $0.01, from 10,000,000 to 25,000,000

         PROPOSAL #3 - To approve the 2002 Stock Option Plan

        The following table sets forth the number of votes cast for,  against or
withheld with respect to each of the two proposals listed above.

MATTER         FOR          AGAINST     ABSTAIN    WITHHELD      TOTAL
------         ---          -------     -------    --------      -----
Proposal #2    25,482,127   1,731,300   13,550     14,729,602    41,956,579

Proposal #3    29,451,084   1,551,800   1,631,051  9,322,644     41,956,579



                                       21
<PAGE>



                                  RISK FACTORS

RISKS SPECIFIC TO NEOMEDIA

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

        On  September  6, 2001,  AirClic  filed suit  against the Company in the
Court of Common Pleas,  Montgomery County,  Pennsylvania,  seeking,  among other
things, the accelerated  repayment of a $500,000 loan it advanced to the Company
under the  terms of a letter of intent  entered  into  between  AirClic  and the
Company.  The letter of intent was  subsequently  abandoned  on the basis of the
Company's alleged breach of certain  representations  made by the Company in the
promissory note issued to AirClic in respect of such advance. The note issued by
the Company in respect of AirClic's $500,000 advance is secured by substantially
all of the Company's  property,  including  its core physical  world-to-Internet
technologies.  If the Company is deemed to have  defaulted  under such note, and
does  not  pay  the  judgment,  AirClic,  which  is  one of  the  Company's  key
competitors,  could acquire the Company's core  intellectual  property and other
assets,  which would have a material  adverse effect on the Company's  business,
prospects,  financial  condition,  and  results of  operations.  The  Company is
vigorously  defending  this  claim  and  has  interposed  counterclaims  against
AirClic.  As of the date of this filing,  pleadings  were closed and the parties
have  engaged in written  discovery.  Whether or not  AirClic is  successful  in
asserting its claims that the Company breached certain  representations  made by
it in the note, the note became due and payable in accordance  with its terms on
January 11, 2002. Based on the cash currently available to the Company,  payment
of the note and related  interest  would have a material  adverse  effect on the
Company's  financial  condition.  See  "Management's  Discussion and Analysis of
Financial Condition and Results of Operations". If the Company fails to pay such
note,  AirClic could proceed  against the  Company's  intellectual  property and
other assets securing the note which would have a material adverse effect on the
Company's business,  prospects,  financial condition, and results of operations.
The Company is  aggressively  seeking bridge  financing to enable it to pay such
principal and interest that remains under the note  following the  resolution of
the Company's  counterclaims against AirClic. See "Risk Factors - Risks Specific
to NeoMedia - The Company  Cannot  Predict Its Capital Needs And May Not Be Able
To Secure Additional Financing".

        AirClic has also filed suit  against  the  Company in the United  States
District Court for the Eastern District of Pennsylvania.  In this second action,
AirClic seeks a declaration that certain core intellectual property securing the
note issued by the Company to AirClic,  some of which is patented and others for
which a patent application is pending,  is invalid and in the public domain. Any
declaration  that the  Company's  core  patented  or  patentable  technology  is
non-protectable and in the public domain would have a material adverse effect on
the  Company's  business,   prospects,   financial  condition,  and  results  of
operations.  The Company is vigorously  defending this second action as well. On
November  21,2001,  the  Company  filed a motion to dismiss  the  complaint.  On
December 19, 2001,  AirClic filed a response opposing that position.  The motion
has not yet been decided upon by the court.  See "Risk Factors - Risks  Specific
to NeoMedia - The Company  May Be Unable To Protect  Its  Intellectual  Property
Rights And May Be Liable For  Infringing  The  Intellectual  Property  Rights Of
Others".

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

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

THE COMPANY HAD A RETAINED DEFICIT; THE COMPANY ANTICIPATES FUTURE LOSSES.

    The  Company  has  incurred  substantial  losses  since its  inception,  and
anticipates  continuing to incur substantial losses for the foreseeable  future.
The Company incurred a loss of $5,729,000 in the six months ended June 30, 2002,
$25,469,000  in the year ended  December 31, 2001,  $5,409,000 in the year ended
December 31, 2000,  $10,472,000 in the year ended December 31, 1999, $11,495,000


                                       22
<PAGE>

in the year ended  December 31, 1998,  and $5,973,000 in the year ended December
31, 1997. The Company's accumulated losses were approximately  $69,073,000 as of
June 30, 2002, and  $63,344,000 as of December 31, 2001. As of June 30, 2002 and
December  31,  2001 and 2000,  the Company had a working  capital  (deficit)  of
approximately  $(7,723,000),  $(5,163,000)  and  $8,426,000,  respectively.  The
Company had stockholders' equity of $(4,578,000),  $(263,000) and $19,110,000 at
June 30, 2002, December 31, 2001 and 2000,  respectively.  The Company generated
revenues of $5,048,000 for the six months ended June 30, 2002 and $8,142,000 and
$27,565,000 for the years ended December 31, 2001 and 2000. In addition,  during
the six months ended June 30, 2002,  and years ended December 31, 2001 and 2000,
the Company recorded negative cash flows from operations of $308,000, $5,202,000
and $6,775,000,  respectively.  To succeed,  the Company must develop new client
and customer  relationships and substantially  increase its revenue derived from
improved products and additional  value-added services. The Company has expended
and will  continue to expend  substantial  resources  to develop and improve its
products,  increase  its  value-added  services  and to market its  products and
services.  These  development  and  marketing  expenses must be incurred well in
advance of the recognition of revenue.  As a result, the Company may not be able
to achieve or sustain profitability.

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

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

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

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

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

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

                                       23
<PAGE>

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

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

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

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

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

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

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

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

                                       24
<PAGE>

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

    During the six months  ended June 30, 2002 and the years ended  December 31,
2001,  2000,  1999, 1998, and 1997, the Company derived 97%, 73%, 66%, 78%, 72%,
and 78%, respectively,  of its revenues from the resale of computer software and
technology  equipment.  A loss or a  reduction  of  this  revenue  would  have a
material  adverse  effect  on  the  Company's  business,  prospects,   financial
condition, and results of operations,  as well as the Company's stock price. The
Company can provide no assurance that:

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

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

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

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

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

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

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

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

                                       25
<PAGE>

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

    The  Company's  future  success  will depend in large part on the  Company's
ability to attract,  train, and retain additional highly skilled executive level
management, creative, technical, and sales personnel. Competition is intense for
these types of personnel from other  technology  companies and more  established
organizations,  many of which have  significantly  larger operations and greater
financial, marketing, human, and other resources than the Company has currently.
The  Company  may  not be  successful  in  attracting  and  retaining  qualified
personnel on a timely  basis,  on  competitive  terms,  or at all. The Company's
current  directors' and officers'  insurance policy was renewed on July 25, 2002
for a  period  of 12  months.  To  the  extent  that  sufficient  resources  are
available,  the Company intends to maintain a directors' and officers' liability
insurance policy at all times. However, any inability to maintain such liability
insurance in the future would materially  adversely affect the Company's ability
to attract and retain qualified director and officer candidates.  If the Company
is not successful in attracting and retaining qualified personnel, its business,
prospects,  financial  condition,  and results of operations would be materially
adversely affected.

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

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

        On June 26, 2002, the Company  announced  that its chairman,  Charles W.
Fritz, had been granted a 90-day leave of absence from his  responsibilities  as
Chief Executive  Officer by the Company's Board,  which,  concurrently,  elected
Charles T. Jensen  president  and Chief  Operating  Officer,  and also named him
acting CEO. The Company also  announced  that it had promoted  David Dodge,  its
Controller, to vice president and Chief Financial Officer.


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

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

                                       26
<PAGE>

    The Company  licenses  from third  parties  certain  software  tools that it
includes in its services and products. If any of these licenses were terminated,
the Company could be required to seek  licenses for similar  software from other
third parties or develop these tools internally.  The Company may not be able to
obtain such  licenses or develop such tools in a timely  fashion,  on acceptable
terms,  or  at  all.  Companies  participating  in  the  software  and  Internet
technology   industries  are  frequently   involved  in  disputes   relating  to
intellectual  property.  The Company may in the future be required to defend its
intellectual property rights against infringement,  duplication,  discovery, and
misappropriation  by third parties or to defend  against  third-party  claims of
infringement.  Likewise,  disputes  may  arise in the  future  with  respect  to
ownership of technology  developed by employees who were previously  employed by
other  companies.  Any such  litigation or disputes  could result in substantial
costs to, and a diversion  of effort by, the Company.  An adverse  determination
could subject the Company to significant  liabilities to third parties,  require
the Company to seek  licenses  from,  or pay  royalties  to, third  parties,  or
require the Company to develop appropriate alternative  technology.  Some or all
of these licenses may not be available to the Company on acceptable  terms or at
all,  and the  Company  may be  unable to  develop  alternate  technology  at an
acceptable  price or at all. Any of these  events could have a material  adverse
effect on the Company's business, prospects, financial condition, and results of
operations.  See "Risks  Specific To NeoMedia - Currently  Pending Legal Actions
Threaten To Divest The Company Of Critical Intellectual Property."

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

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

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

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

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

    The Company expected to receive up to $3,040,000, plus interest at a rate of
6% per annum, upon repayment of limited recourse  promissory notes issued to the
Company as primary consideration for 19,000,000 shares of NeoMedia common stock,
sold at $0.17 per share,  offered  by the  Company  in a private  placement  and
currently in the process of being  registered  for public  resale,  assuming all
19,000,000  of such shares  offered in the private  placement are resold and the
notes are  repaid in full.  A price of $0.01 per share was paid in cash for such
shares and the  limited  recourse  promissory  notes were for the balance of the
purchase price of $0.16 per share.  The promissory  notes became due and payable
on  the  earlier  of  (1)  August  12,  2002,  or  (2)  30  days  following  the
effectiveness  of the  S-1/A  registration  statement  in which the  shares  are
included. During August 2002, the notes matured without payment, and the Company
subsequently  cancelled the 19 million  shares  issued in  connection  with such
notes.  The Company has  accrued a  liability  in the third  quarter of $190,000
relating to the par value paid in connection with the issuance of the shares.

    The Company's cash balance as of June 30, 2002, was  approximately  $10,000.
Based on current cash balances and operating  budgets,  the Company  believes it
will  need to raise  operating  capital  in the next 30 days.  If the  Company's
financial  resources  are  insufficient,  the  Company  may be  forced  to  seek
protection  from its  creditors  under  the  United  States  Bankruptcy  Code or


                                       27
<PAGE>

analogous  state  statutes  unless  it is able to  engage  in a merger  or other
corporate  finance  transaction with a better  capitalized  entity.  The Company
cannot predict whether additional financing will be available, its form, whether
equity or debt,  or be in another  form, or if the Company will be successful in
identifying  entities with which it may  consummate a merger or other  corporate
finance transactions.

    BECAUSE THE COMPANY WILL NOT PAY CASH DIVIDENDS,  INVESTORS MAY HAVE TO SELL
    THEIR SHARES IN ORDER TO REALIZE THEIR INVESTMENT.

   The Company has not paid any cash dividends on its common stock and do not
intend to pay cash dividends in the foreseeable future. The Company intends to
retain future earnings, if any, for reinvestment in the development and
marketing of its products and services. Any credit agreements into which the
Company may enter with institutional lenders may restrict the Company's ability
to pay dividends. Whether the Company pays cash dividends in the future will be
at the discretion of the Company's Board of Directors and will be dependent upon
the Company's financial condition, results of operations, capital requirements,
and any other factors that the Board of Directors decides is relevant. As a
result, investors may have to sell their shares of common stock to realize their
investment.

    SOME PROVISIONS OF THE COMPANY'S  CERTIFICATE OF  INCORPORATION  AND BY-LAWS
    MAY  DETER  TAKEOVER  ATTEMPTS,  WHICH  MAY  LIMIT  THE  OPPORTUNITY  OF THE
    COMPANY'S  STOCKHOLDERS TO SELL THEIR SHARES AT A PREMIUM TO THE THEN MARKET
    PRICE.

    Some of the  provisions of the Company's  certificate of  incorporation  and
by-laws  could make it more  difficult for a third party to acquire the Company,
even if doing so might be beneficial to the Company's  stockholders by providing
them with the  opportunity  to sell their shares at a premium to the then market
price.  On  December  10,  1999,  the  Company's  Board of  Directors  adopted a
stockholders  rights plan and  declared a  non-taxable  dividend of one right to
acquire Series A Preferred  Stock of the Company,  par value $0.01 per share, on
each  outstanding  share of the Company's common stock to stockholders of record
on December 10, 1999 and each share of common stock  issued  thereafter  until a
pre-defined hostile takeover date. The stockholder rights plan was adopted as an
anti-takeover  measure commonly  referred to as a "poison pill." The stockholder
rights  plan was  designed to enable all  stockholders  not engaged in a hostile
takeover attempt to receive fair and equal treatment in any proposed takeover of
the corporation and to guard against partial or two-tiered  tender offers,  open
market accumulations and other hostile tactics to gain control of NeoMedia.  The
stockholders  rights  plan,  which is similar to plans  adopted by many  leading
public  companies,  was not adopted in response to any effort to acquire control
of NeoMedia at the time of adoption.  This stockholders rights plan may have the
effect of rendering  more  difficult,  delaying,  discouraging,  preventing,  or
rendering  more  costly an  acquisition  of  NeoMedia  or a change in control of
NeoMedia.   Certain  of  the   Company's   directors,   officers  and  principal
stockholders,  Charles W. Fritz,  William E. Fritz and The Fritz Family  Limited
Partnership were exempted from triggering the "poison pill" as a result of their
significant  holdings at the time of the plan's adoption,  which otherwise might
have triggered the "poison pill."

    In addition, the Company's certificate of incorporation authorizes the Board
of Directors to designate and issue preferred stock, in one or more series,  the
terms  of  which  may be  determined  at the time of  issuance  by the  Board of
Directors,  without  further  action by  stockholders,  and may  include  voting
rights,  including  the  right  to  vote  as a  series  on  particular  matters,
preferences as to dividends and liquidation,  conversion, and redemption rights,
and sinking fund provisions.

   The Company is authorized to issue a total of 25,000,000 shares of Preferred
Stock, par value $0.01 per share. The Company's designated Preferred Stock is
comprised of 200,000 shares of Series A Preferred Stock, par value $0.01 per
share, which shares are issuable in connection with the Company's stockholders
rights plan, and 500,000 shares of Series B Convertible Preferred Stock, par
value $0.01 per share, of which 452,289 shares were issued in 2001. The 452,489
Series B shares outstanding as of December 31, 2001 automatically converted into
the same number of common shares on January 2, 2002.

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

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

                                       28
<PAGE>

    The  Company's  common stock has traded as low as $0.02 and as high as $6.75
between  June 30, 2000 and August 5, 2002.  From time to time after this filing,
the market price of the common stock may experience significant volatility.  The
Company's   quarterly   results,   failure   to  meet   analysts   expectations,
announcements by the Company or the Company's competitors regarding acquisitions
or dispositions, loss of existing clients, new procedures or technology, changes
in general conditions in the economy,  and general market conditions could cause
the market price of the common stock to  fluctuate  substantially.  In addition,
the stock market has experienced  significant price and volume fluctuations that
have  particularly  affected  the trading  prices of equity  securities  of many
technology  companies.  These  price and  volume  fluctuations  often  have been
unrelated to the operating  performance of the affected companies.  In the past,
following  periods of volatility in the market price of a company's  securities,
securities  class action  litigation  has often been  instituted  against such a
company.  This type of  litigation,  regardless of the outcome,  could result in
substantial costs and a diversion of management's attention and resources, which
could materially adversely affect the Company's business,  prospects,  financial
condition, and results of operations.

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

    As of June 30, 2002, the Company had  outstanding  stock options to purchase
approximately  11.7  million  shares of common  stock and  warrants  to purchase
approximately  7.9  million  shares  of common  stock,  some of which may in the
future, but do not currently,  have exercise prices at or below the price of the
Company's  common  shares on the public  market.  To the extent such  options or
warrants are  exercised,  there will be further  dilution.  In addition,  in the
event that any future financing  should be in the form of, be convertible  into,
or  exchangeable  for, equity  securities,  and upon the exercise of options and
warrants, investors may experience additional dilution.

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

    The market price of the Company's  common stock could decline as a result of
sales of a large number of shares of the Company's common stock in the market as
a result of offerings of common stock or securities convertible,  exercisable or
exchangeable  for common stock,  or the perception that these sales could occur.
These  sales also might make it more  difficult  for the  Company to sell equity
securities  in the  future  at a time  and at a price  that  the  Company  deems
appropriate.  The Company's  officers and directors are not currently subject to
lock-up  agreements  preventing  them  from  selling  their  shares.  Two of the
Company's  officers and directors,  Charles W. Fritz and William E. Fritz intend
to sell an aggregate of 3,544,074  shares of common stock in  connection  with a
registration  that the Company is currently in the process of making  effective.
Additionally, shares issued upon the exercise of stock options granted under the
Company's  stock option  plans will be eligible for resale in the public  market
from time to time  subject to  vesting.  As of June 30,  2002,  the  Company had
outstanding  options to purchase up to 11.7 million  shares of its common stock,
with exercise  prices ranging from $0.01 to $10.88.  Of the 11.7 million options
outstanding,  10.3 million were vested as of June 30, 2002.  As of June 30, 2002
the Company  also had  outstanding  7.9 million  warrants to purchase  shares of
common stock, with exercise prices ranging from $0.00 to $15.00.

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


RISKS RELATING TO THE COMPANY'S INDUSTRY

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

    Concerns over the security of the Internet and other electronic transactions
and the  privacy  of  consumers  and  merchants  may  inhibit  the growth of the


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<PAGE>

Internet  and  other  online  services  generally,  especially  as  a  means  of
conducting commercial transactions,  which may have a material adverse effect on
the Company's physical world-to-Internet business.

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

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

    In  addition,  the public in general may not accept the  Internet  and other
online services as a viable  commercial or information  marketplace for a number
of  reasons,  including  potentially  inadequate  development  of the  necessary
network  infrastructure  or delayed  development  of enabling  technologies  and
performance  improvements.  To the extent  that the  Internet  and other  online
networks continue to experience significant growth in the number of users, their
frequency of use, or in their bandwidth requirements, the infrastructure for the
Internet and online  networks  may be unable to support the demands  placed upon
them.  In  addition,  the  Internet or other  online  networks  could lose their
viability  due to delays in the  development  or adoption of new  standards  and
protocols  required to handle increased levels of Internet  activity,  or due to
increased governmental regulation.  Significant issues concerning the commercial
and  informational  use  of  the  Internet  and  online  networks  technologies,
including  security,  reliability,  cost,  ease of use,  and quality of service,
remain unresolved and may inhibit the growth of Internet business solutions that
utilize  these  technologies.  Changes  in,  or  insufficient  availability  of,
telecommunications  services to support the  Internet or other  online  services
also could result in slower  response  times and  adversely  affect usage of the
Internet  and  other  online  networks  generally  and  the  Company's  physical
world-to-Internet product and networks in particular.

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

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

   o   Rapid technological change;
   o   Changes in user and customer requirements and preferences;
   o   Frequent   new   product   and  service   introductions   embodying   new
       technologies; and

   o   The emergence of new industry  standards and practices  that could render
       proprietary technology and hardware and software infrastructure obsolete.

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

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

                                       30
<PAGE>

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

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

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

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

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

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

        Certain of the Company's proprietary technology allow for the storage of
demographic data from its users. In 2000, the European Union adopted a directive
addressing  data  privacy  that may  limit  the  collection  and use of  certain
information  regarding  Internet  users.  This directive may limit the Company's
ability to collect and use information  collected by the Company's technology in
certain  European  countries.  In addition,  the Federal  Trade  Commission  and
several  state  governments  have  investigated  the  use  by  certain  Internet


                                       31
<PAGE>

companies  of  personal   information.   The  Company  could  incur  significant
additional expenses if new regulations regarding the use of personal information
are introduced or if the Company's privacy practices are investigated.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

      10.17   Standby Equity Purchase  Agreement between NeoMedia  Technologies,
              Inc.  and Cornell  Capital  Partners LP (filed as an  amendment to
              this form 10-Q)

      10.18   Nasdaq  Staff  delisting  notification  letter dated May 16, 2002.
              (filed as an amendment to this form 10-Q)

      10.19   Settlement  agreement  relating  to wrongful  termination  lawsuit
              brought by former president and Chief Operating  Officer (filed as
              an amendment to this form 10-Q)




(b)   Reports on Form 8-K

      On April 2, 2002,  the  Company  filed a form 8-K  disclosing  that it had
instituted a stock  warrant  repricing  program under which certain of its stock
warrants would be repriced to the greater of (1) $0.12 per share,  or (2) 50% of
the last sale price of shares of Common  Stock on the Nasdaq Small Cap Market on
the trading date immediately preceding the date of exercise.

      On April 15, 2002,  the Company  filed a form 8-K  disclosing  that it had
instituted a stock option  repricing  program  under which  certain of its stock
options  would be repriced to the greater of (1) $0.12 per share,  or (2) 50% of
the last sale price of shares of Common  Stock on the Nasdaq Small Cap Market on
the trading date immediately preceding the date of exercise.

      On May 17, 2002, the Company filed a from 8-K disclosing  that it received
notification from the Nasdaq Listing  Qualifications  Panel that its shares were
delisted  effective May 17, 2002,  due to failure to meet either the minimum net
tangible  assets  ($2,000,000)  or  minimum  stockholders'  equity  ($2,500,000)
criteria for continued listing.  The Company's shares are now trading on the OTC
Bulletin Board.

      On June  26,  2002,  the  Company  filed a from  8-K  disclosing  that its
chairman,  Charles W. Fritz, had been granted a 90-day leave of absence from his
responsibilities  as Chief  Executive  Officer by the  company's  Board,  which,
concurrently,  elected Charles T. Jensen president and Chief Operating  Officer,
and also named him acting CEO. The Company also  announced  that it had promoted
David Dodge, its Controller, to Vice President and Chief Financial Officer.


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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 AUGUST 14, 2002                By:  /s/  Charles T. Jensen
     ---------------                   -----------------------------------------
                                    Charles T. Jensen, President and Chief
                                    Operating Officer


Date AUGUST 14, 2002                By:  /s/ David A. Dodge
     ---------------                   -----------------------------------------
                                     David A. Dodge, Vice President, Chief
                                     Financial Officer, and Controller


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

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

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

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

By:/s/ Charles T. Jensen                                    Date August 14, 2002
   -------------------------------------------------------       ---------------
Charles T. Jensen, President and Chief Operating Officer

By:/s/ David A. Dodge                                       Date August 14, 2002
   -------------------------------------------------------       ---------------
David A. Dodge, Vice President, Chief Financial Officer,
and Controller




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