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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549


                                  FORM 10-KSB
(Mark One)

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                      OR

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

                FOR THE TRANSITION PERIOD ________ TO ________ .

                         COMMISSION FILE NUMBER 0-21743


                           NEOMEDIA TECHNOLOGIES, INC.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)


                DELAWARE                                         36-3680347
    -------------------------------                          -------------------
    (STATE OR OTHER JURISDICTION OF                           (I.R.S. EMPLOYER
     INCORPORATION OR ORGANIZATION)                          IDENTIFICATION NO.)


     2201 SECOND STREET, SUITE 600
          FORT MYERS, FLORIDA                                       33901
----------------------------------------                         ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                         (ZIP CODE)


          ISSUER'S TELEPHONE NUMBER (INCLUDING AREA CODE) 941-337-3434

         SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:



                                             NAME OF EACH EXCHANGE
           TITLE OF EACH CLASS                ON WHICH REGISTERED
           -------------------                -------------------
      COMMON STOCK, PAR VALUE $.01         NASDAQ SMALL CAP MARKET

     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 [ ]

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB [X]

     Issuer's consolidated revenue for its most recent fiscal year was
$25,256,000.

     The aggregate market value of the voting stock held by non-affiliates of
the issuer based on the price at which shares of common stock closed on March
3, 2000 ($14.50) was $132,008,348. Determination of stock ownership by
non-affiliates is made solely for purposes of responding to the requirements of
the form and the registrant is not bound by this determination for any other
purpose.

     As of March 3, 2000, there were outstanding 12,531,431 shares of the
issuer's Common Stock.



                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of Registrant's Proxy Statement for the 2000 Annual Meeting of
Shareholders to be filed with the Commission within 120 days of the end of
Registrant's last fiscal year is incorporated by reference into Part III.

================================================================================
<PAGE>

                                    PART I

ITEM 1. BUSINESS

GENERAL

     ORGANIZATIONAL HISTORY. The Registrant, NeoMedia Technologies, Inc.
("NeoMedia"), was incorporated under the laws of the State of Delaware on July
29, 1996, to acquire by tax-free merger Dev-Tech Associates, Inc. ("Dev-Tech"),
NeoMedia's predecessor, which was organized in Illinois in December, 1989. In
March, 1996, Dev-Tech's common stock was split, with an aggregate of 2,551,120
shares of common stock being issued in exchange for the 164 then issued and
outstanding shares of common stock. On August 5, 1996, NeoMedia acquired all of
the shares of Dev-Tech in exchange for the issuance of shares of NeoMedia's
common stock to Dev-Tech's stockholders ("Dev-Tech Merger"). Each stockholder
of Dev-Tech received one share of NeoMedia's common stock in exchange for one
share of Dev-Tech's common stock. The Dev-Tech Merger was effected under
applicable provisions of the Internal Revenue Code as a tax-free transaction to
the corporations and stockholders. As a result of the Dev-Tech Merger, holders
of options and warrants to purchase Dev-Tech's common stock have the right to
purchase NeoMedia's common stock. As an additional result of the Dev-Tech
Merger, NeoMedia is the successor to the business and operations of Dev-Tech.
In November, 1996, a reverse stock split was effected whereby each NeoMedia
shareholder received .90386 shares of common stock for each one share of common
stock then owned.

     In November, 1996, Dev-Tech Migration, Inc., an Illinois corporation
("DTM") and an affiliate of Dev-Tech, was merged into a subsidiary of NeoMedia.
DTM provided migration services. Migration services consist of adapting
computer software that operates only with a specific brand of hardware and
operating and data base software (called a "legacy system"), to operate with
most, if not all brands of hardware and operating software (called an "open
system platform" or an "open system environment"). Management determined that
DTM's services complimented Dev-Tech's services as a systems integrator, and
that the synergies between the two companies would be beneficial. Accordingly,
on November 20, 1996, DTM was merged ("Migration Merger") into NeoMedia
Migration, Inc. ("Migration"), a wholly-owned subsidiary of NeoMedia in
exchange for the issuance of shares of NeoMedia's common stock to Charles W.
Fritz, the sole stockholder of DTM and a principal shareholder, officer and
director of NeoMedia. Mr. Charles Fritz received an aggregate of 827,525 shares
of common stock on the basis of one share of DTM's common stock for .90386
share of NeoMedia's Common Stock. As a result of the Migration Merger, holders
of options to purchase DTM common stock have the right to purchase NeoMedia's
common stock. The Migration Merger was also effected under applicable
provisions of the Internal Revenue Code as a tax free transaction to the
corporations and Mr. Fritz. As a result of Migration Merger, Migration is the
successor to the business and operations of DTM.


                                        1
<PAGE>

     These two mergers were accounted for in a manner similar to the pooling of
interests method of accounting using historical book values rather than fair
market value as all entities involved were under common control.

     In August, 1996, Distribuidora Vallarta, S.A., a Guatemalan corporation
was formed where by NeoMedia employs computer software developers and system
integrators. Distribuidora Vallarta, S.A. is 80% owned by NeoMedia
Technologies, Inc. and 20% owned by NeoMedia Migration, Inc.

     On September 25, 1997, in accordance with a Stock Purchase Agreement (the
"Allegiant Merger") entered into between the parties, NeoMedia acquired from
George G. Luntz and Gerald L. Willis all of the stock in Allegiant Legacy
Solutions, Inc. ("Allegiant"), which was founded on February 16, 1996.
Allegiant primarily sells licenses to proprietary software tools (including
"ADAPT/2000") that identify, seek and automatically correct date data that is
stored in various formats across both program code and specific data files.

     Mr. Luntz and Mr. Willis received an aggregate of 1,070,000 shares of
common stock of NeoMedia. The number of shares of NeoMedia's common stock
received by Mr. Luntz and Mr. Willis was determined through arms-length
negotiations between the parties. Mr. Luntz entered into an employment
agreement with NeoMedia. Mr. Willis entered into a consulting agreement with
NeoMedia. The Allegiant Merger was accounted for as a pooling of interests, and
accordingly, all financial information has been restated as if the entities
were combined for all prior periods. On December 22, 1997, Allegiant was
dissolved and merged into NeoMedia.

     During 1998 NeoMedia formed the following wholly-owned subsidiaries:
NeoMedia Technologies of Canada, Inc., incorporated in Canada; NeoMedia Tech,
Inc., incorporated in Delaware; NeoMedia EDV GMBH, incorporated in Austria;
NeoMedia Technologies Holding Company B.V., incorporated in the Netherlands;
NeoMedia Technologies de Mexico S.A. de C.V., incorporated in Mexico; NeoMedia
Migration de Mexico S.A. de C.V., incorporated in Mexico; NeoMedia Technologies
do Brazil Ltd., incorporated in Brazil, and NeoMedia Technologies UK Limited,
incorporated in the United Kingdom. All significant intercompany accounts and
transactions have been eliminated in the preparation of the consolidated
financial statements.

BUSINESS OVERVIEW

     Since inception, NeoMedia has been helping customers and partners
assimilate new technology without discarding their investment in programs and
processes. To help accomplish these objectives, NeoMedia operates as two
distinct business units: Application Service Provider (NeoMedia ASP) and
Systems Integration Services (NeoMedia SI). NeoMedia ASP's mission is to become
the world's leading provider of systems and services that link print and print
on products to web-based information, while the mission of NeoMedia SI is to
provide the highest level of expertise and customer satisfaction through the
utilization of new technologies and to provide resources to fund the Company's
investment in NeoMedia ASP.


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<PAGE>

NEOMEDIA ASP

     NeoMedia ASP was launched to commercialize NeoMedia's patented technology
for seamlessly linking printed material to the internet. This technology has
been developed over the past four years. Management believes this technology
has the potential to provide the industry standard for linking the worlds of
print and electronic media. The commercialization of products using this
technology was begun during 1999.

     There are three groups of technology in the ASP business unit: (I)
NeoLink/trademark/ (II) PaperData, and (III) NeoSure:

     (I) NEOLINK/trademark/

     NeoLink/trademark/ is technology (formerly called Intelligent Documents or
IDOCs) that allows the user to use a bar code, word, or numbers on a printed
page or product (like UPC/EAN codes) to link to a specific webpage by either
scanning the code or typing in the word or number. NeoLink/trademark/
automatically launches the users web browser and takes the user to that
specific webpage without the user having to log on to the web and type in the
URL or use of a search engine to find the webpage. The technology also allows
the gathering of information identifying the document or product being scanned
as well as information regarding the demographics of the user making the
inquiry. This demographic information can be compiled and marketed to companies
who want to know who is viewing their websites, and also provide for custom
profile routing. NeoLink/trademark/ technology is used in the following
products:

        PAPERCLICK SERVICE FOR PUBLISHERS AND ADVERTISERS

     PaperClick/trademark/ Service is a web-based virtual portal
(www.paperclick.com) for publishers and advertisers. It allows them to create
their own links to webpages and print a Paperclick code that consists of a
number or word as well as a barcode. Users type the short PaperClick code or
scan a Paperclick barcode to connect directly to Web-related information. Using
PaperClick codes, publishers are able to extend printed story scope with links
to interactive content, and at the same time, deliver display ads, classified
ads, directories, or direct marketing material. Advertisers can provide to
potential customers direct access to a Webpage that can provide more
information on the product, provide instant e-commerce to buy the product or
even show videos about the product. Demographic information can be compiled and
marketed to the publishers and advertisers.


                                       3
<PAGE>

                                                               [GRAPHIC OMITTED]


        PAPERCLICK ENTERPRISE/trademark/

     PaperClick Enterprise is the enhanced version of PaperClick featuring the
ability to create an unlimited number of PaperClick codes. Profiled Routing
allows publishers to tailor content according to reader profile information,
control bar display options, and measure commercial effectiveness through
Demographic Reporting.

        PAPERCLICK TOGO/trademark/ FOR CELL PHONES

     PaperClick ToGo (www.paperclick.com) provides direct access to the World
Wide Web via cell phones and personal data assistants (PDAs) employing wireless
markup protocol (WAP). PaperClick ToGo converts any URL address, regardless of
length, into a short telephone number-like PaperClick code. Use of the shorter
PaperClick numeric codes provides simple and direct access to the Internet from
small hand held devices with limited keypads. PaperClick ToGo compliments
Paperclick for Publishers and Advertisers, giving consumer a convenient way to
access Internet information using cellular service.

                                                               [GRAPHIC OMITTED]

        PAPERCLICK TOGO/trademark/ FOR PALM OS

     PaperClick ToGo for Palm OS allows convenient capture and storage of
Paperclick codes on a Palm Pilot (or any Palm OS device) at any time or
location. After returning to a PC, the codes automatically transfer at
synchronization of the Palm Pilot. This freeware application is a standard Palm
OS application that works with Graffiti and the Palm's pop-up keyboards, in
addition to the built-in numeric keypad included on the main screen.

                                                               [GRAPHIC OMITTED]

     (II) PAPERDATA/trademark/

     PaperData/trademark/ is a technology that addresses the problem of
converting a digital file into a print image while maintaining all of the
attributes of the file. During the process of converting a digital file to a
print image, valuable information regarding attributes of the data itself are
lost, such as font specifications, file identifiers, spreadsheet formulas and
database references. In order to access an original digital document, the
reader must either copy the original file to digital media (a computer disk)
and then distribute it, or transfer the file over a data network (email). The
Paperdata technology allows users to directly embed a digital


                                        4
<PAGE>

data file via a barcode on a printed document. This document can then be
transmitted as a piece of paper would. The new user can scan the barcode and
the digital version of the document is launched. This technology makes it
possible for barcodes on paper to act as computer disks. The preproduction
design of PaperData/trademark/ is complete, but the production design and
future commercialization has not yet occurred.

     (III) NEOSURE/trademark/

     NeoSure/trademark/ is a technology for protecting negotiable printed
commercial documents, such as checks, money orders, coupons, food stamps and
gift certificates, from counterfeit and forgery. This patent-pending technology
incorporates NeoMedia's NeoLink/trademark/ and PaperData/trademark/
technologies with U.S. Checks patented UV-Smart/trademark/ paper stock
identification techniques and an on-line registration database. When used
concurrently, this system verifies that a document is authentic, has not been
modified and that the transaction has not been duplicated. The system can also
be used to automate the processing of printed transactional documents, such as
checks and gift certificates, as well as link documents to specific individuals
for specific transactions in order to prevent unauthorized use. NeoMedia has
filed several extensive patent applications on the use of NeoSure/trademark/
and other related technologies for linking, securing and promoting web-commerce
from print media, such as coupons, catalogs and direct mail. The preproduction
design of NeoSure/trademark/ is complete, but the production design and future
commercialization has not yet occurred.

     Other products sold by the ASP unit include:

        PACER ADVANTAGE 2000

     Pacer Advantage 2000 is a comprehensive Internet tool that automates
customer profiling and ordering processes for multi-level marketing directors.
Specifically, Pacer Advantage 2000 calculates the recommended quantity and
shipping schedule for prospective customers then links the information to an
e-Commerce site for initial order processing and automatic product
replenishment.

        MAXICODE ENCODER/trademark/

     MaxiCode Encoder/trademark/ is a software program developed by NeoMedia to
enable high speed /high volume printers to generate industry standard Maxicode
barcodes.

        PDF417 ENCODER/trademark/

     PDF417 Encoder/trademark/ is a software program developed by NeoMedia to
enable high speed/high volume printers to generate industry standard PDF417
barcodes. This product has been developed to deliver the smallest possible
PDF417 barcode for any given data set. (This process is known as optimal
encoding)


                                       5
<PAGE>

NEOMEDIA SI

     NeoMedia SI re-markets equipment and software products from third-parties,
renders system integration services, provides proprietary software for document
management and production systems, migrates programs and databases from closed
system to open system platforms, and adds customized applications to an
existing system platform. This business unit is establishing itself in the
technology industry by working closely with customers and business partners in
integrating new technologies while leveraging previous system infrastructure
investments.

     The following products are offered by NeoMedia SI:

     SUN MICROSYSTEMS EQUIPMENT

     NeoMedia SI provides sales and support of UNIX/trademark/ based solutions.
The company's broad product knowledge and unique relationship with Sun
Microsystems provides outstanding benefits for customers. NeoMedia is the first
Sun-Netscape Alliance Channel Partner in the Midwest U.S. region to receive
Level III certification for the iPlanet suite of software products.

     IBM COMPUTER EQUIPMENT

     NeoMedia SI provides solutions in systems integration, e-business, server
consolidation and business intelligence of IBM products.

     THE INTEGRATED DOCUMENT FACTORY/trademark/ (IDF)

     The IDF is a suite of software tools that apply modern manufacturing
principles and process controls at large print-to-mail centers. The IDF
integrates computer and printer hardware with software programs to coordinate
and streamline the entire print production process from design customization
through production, assembly and distribution.

     WISP/trademark/ (WANG INTERCHANGE SOURCE PROCESSOR)

     WISP is a software toolkit for converting WANG VS COBOL applications so
they can be run on Microsoft Windows or UNIX computers. This toolkit enables
users an alternative to manually changing the applications.

CUSTOMERS

     NEOMEDIA ASP. NeoMedia ASP has several customers using its products and
services, including Amway and the Mexico City Government. However, there is no
one significant customer to date. The Company is aggressively pursuing numerous
other opportunities for its products and services.


                                       6
<PAGE>

     NEOMEDIA SI. Although NeoMedia SI provides services and products to a
spectrum of customers, ranging from closely-held companies to Fortune 500
companies, for the years ended December 31, 1999 and 1998, one customer,
Ameritech Services, Inc. ("Ameritech"), accounted for 23.9% and 24.9%,
respectively, of NeoMedia SI's revenue. NeoMedia SI expects sales to Ameritech
as a percentage of total sales to decline in the future. Furthermore, NeoMedia
does not have a written agreement with Ameritech and, therefore, there are no
contractual provisions to prevent Ameritech from terminating its relationship
with NeoMedia at any time. Accordingly, the loss of this customer, or a
significant reduction by it in buying the products and services offered by
NeoMedia, absent diversification, would materially and adversely affect
NeoMedia SI's revenues and results of operations. In addition, the equipment
and software which is re-marketed to this customer is supplied by a single
supplier. Accordingly, the loss of this supplier would materially adversely
affect NeoMedia SI. For these reasons, NeoMedia SI is seeking, and continues to
seek, to diversify its sources of revenue and vendors from whom it purchases.

SALES AND MARKETING

     NEOMEDIA ASP. NeoMedia ASP markets its products and services primarily
through its direct sales force, which was composed of 10 personnel as of
December 31, 1999. NeoMedia ASP currently maintains a domestic sales office in
New York, New York and international sales offices in Monterey, Mexico and
Vienna, Austria. NeoMedia ASP has built an extensive network of resellers (both
VARs and agents) that are trained to resell the Paperclick products and
services. During 1999, an agent agreement was entered into with A.T. Cross
Company ("Cross"). The agreement allows Cross to bundle NeoMedia's
NeoLink/trademark/ technology products with Cross's pen/scan device. NeoMedia
ASP is currently working on other partnerships and agent relationships to
collectively supplement the Company's internal sales and marketing staff.

     During 1998, NeoMedia acquired a customer list for total consideration of
$1,155,000, including 120,000 shares of NeoMedia common stock valued at
$827,000 (giving effect to the common stock being unregistered and "restricted"
securities as such term is defined in Rule 144 of the rules and regulations
promulgated under the Securities Act of 1933, as amended) and cash of $292,000.
Additionally, there were legal and other expenses of $36,000 that were related
to this transaction. The customer list is intended to be used to develop
relationships for the sale of the Company's ASP business unit products. The
cost of the customer list is being amortized on the straight-line method over
its estimated useful life of five years.

     NEOMEDIA SI. NeoMedia SI markets its products and services, as well as
those for which it acts as a re-marketer, primarily through its direct sales
force, which was composed of 14 personnel as of December 31, 1999. NeoMedia SI
currently maintains a domestic sales office in suburban Chicago, Illinois. The
sales organization is responsible for achieving quarterly and annual sales
quotas. NeoMedia SI also relies upon its strategic alliances with industry
leaders to help market its products and services, provide lead referrals and


                                        7
<PAGE>

establish informal co-marketing arrangements. Representatives of NeoMedia SI
attend seminar and trade shows, both as speakers and participants, to help
market its products and services.

     In addition, NeoMedia SI has several agents and independent distributors
in the United States, and in foreign countries that sell its products and
services. NeoMedia SI anticipates that the indirect sales channel will account
for an increasingly significant portion of NeoMedia SI's total revenue in
future periods. Successful indirect sales efforts depend on the abilities,
resources, reputations, motivations and strategies of third parties over which
NeoMedia SI has little control. NeoMedia SI does not sell all its products and
services through each distribution channel.

RESEARCH AND DEVELOPMENT

     NEOMEDIA ASP. NeoMedia ASP believes that its success in the internet
environment depends upon its ability to quickly develop new products and
services, as well as make enhancements to its existing products. NeoMedia ASP
employed 19 and 12 persons in the area of product development as of December
31, 1999 and December 31, 1998, respectively. During the years ended December
31, 1999 and 1998, NeoMedia ASP incurred total research and development costs
of $1,722,000 and $1,150,000, respectively, of which $807,000 and $626,000,
respectively, were capitalized as software development costs and $915,000 and
$524,000, respectively, were expensed as research and development costs.

     NEOMEDIA SI. All significant research and development relating to NeoMedia
SI products was discontinued at the end of 1999 when the Company discontinued
its Y2K business. All employees that were in this area were reassigned or
released during the fourth quarter of 1999. If any future research or
development is needed for this area it will be performed by NeoMedia ASP's
research and development division or by outside subcontractors. During the
years ended December 31, 1999 and 1998, NeoMedia SI incurred total research and
development costs of $135,000 and $818,000, respectively, of which $64,000 and
$273,000, respectively, were capitalized as software development costs and
$71,000 and $545,000 respectively, were expensed as research and development
costs.

INTELLECTUAL PROPERTY RIGHTS

     All current intellectual property is related to the ASP business unit and
is managed as a corporate resource. NeoMedia received its first patent from the
U.S. Patent and Trademark Office in August 1999. The patent, number 5,933,829,
was allowed for the process invented by the Company for "automatic access of
electronic information through secure machine-readable codes on printed
documents." The Company received its second patent, number 5,978,773, in
November 1999. The patent was allowed for the broad and innovative process that
allows familiar print media such as magazines, catalogs, advertisements, even
product labels themselves, to become the user interface to the Web. NeoMedia's
proprietary


                                       8
<PAGE>

technology based on these patents enables everyone, regardless of training or
experience, to easily access the World Wide Web on the Internet. These two
patents and their related proprietary technologies, along with other pending
applications, enhance the use of the Internet for E-commerce by making it much
more user friendly as well as secure. NeoMedia also has numerous other domestic
and international patents and continuations pending in these and other related
areas.

     NeoMedia relies upon its patents, copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions, all of which
afford only limited protection, to protect its proprietary technology and
products. Although NeoMedia takes steps to protect its trade secrets, such as
requiring employees with access to NeoMedia's proprietary information to
execute confidentiality and non-disclosure agreements, it may be possible for
unauthorized parties to copy or reverse engineer all or part of any one of
NeoMedia's proprietary technology and products. Furthermore, just as there can
be no assurance that a misappropriation of NeoMedia's proprietary technology
and products will not occur, there can be no assurance that copyright,
trademark and trade secret laws will be available in all circumstances to
protect NeoMedia's rights. In addition, although the laws of the United States
may protect NeoMedia's proprietary rights in its technology and products, the
laws of foreign countries where NeoMedia's products may be used may not protect
its proprietary rights at all or to the same extent as the laws of the United
States.

     NeoMedia believes that its proprietary technology and products do not
infringe upon the rights of any third parties; however, there can be no
assurance that a third party will not in the future claim infringement by
NeoMedia. Similarly, infringement claims could be asserted against products and
technologies which NeoMedia licenses from third parties.

     NeoMedia may provide some of its products to end users using
non-exclusive, non-transferable licenses which provide that the licensee may
use the software solely for internal operations on designated computers at
specific sites or by a specified number of users. NeoMedia generally does not
make source codes available for its products.

     Due to the difficulty of doing so, NeoMedia has never policed, nor has it
ever attempted to police, the unauthorized use of its products. Even though
piracy of NeoMedia's proprietary rights could materially adversely affect it,
NeoMedia believes that the threat of piracy, or the unavailability of
protection under applicable laws, is less significant to its competitive and
financial well being than its ability to respond to the rapid change in
technology which characterizes the computer industry.

COMPETITION

     NEOMEDIA ASP. The markets in which NeoMedia ASP competes are relatively
new. The Company does not believe that it has any significant competition in
the area. There are companies that offer similar products but do not
necessarily offer the same level of functionality or scalability. NeoMedia also
has a significant portfolio of both invented and acquired patents to support
its proprietary technologies and provide a barrier to entry for potential
competitors.


                                       9
<PAGE>

     NEOMEDIA SI. The largest competition, in terms of number of competitors,
is for customers desiring systems integration, including the re-marketing of
another party's products, and document solutions. These competitors range from
the local, small privately held companies to the large national and
international organizations, including the large consulting firms. A large
number of companies act as re-marketers of another party's products, and
therefore, the competition in this area is intense. In some instances,
NeoMedia, in acting as a re-marketer, may compete with the original
manufacturer.

PRODUCT LIABILITY INSURANCE

     NeoMedia has never had any product liability claim asserted against it.
However, NeoMedia could be subject to product liability claims in connection
with the use of the products and services that it sells. There can be no
assurance that NeoMedia would have sufficient resources to satisfy any
liability resulting from these claims or would be able to have its customers
indemnify or insure NeoMedia against such claims. Although NeoMedia maintains
insurance against such claims, there can be no assurance that such coverage
will be adequate in terms and scope to protect NeoMedia against material
adverse effects in the event of a successful claim.

GOVERNMENT REGULATION

     Existing or future legislation could limit the growth of use of the
Internet, which would curtail our revenue growth. Statutes and regulations
directly applicable to Internet communications, commerce and advertising are
becoming more prevalent. Congress recently passed laws regarding children's
online privacy, copyrights and taxation. The law remains largely unsettled,
even in areas where there has been legislative action. It may take years to
determine whether and how existing laws governing intellectual property,
privacy, libel and taxation apply to the Internet, e-commerce and online
advertising. In addition, the growth and development of e-commerce may prompt
calls for more stringent consumer protection laws, both in the United States
and abroad.

     Our website allows for the storage of demographic data from our users. The
European Union recently adopted a directive addressing data privacy that may
limit the collection and use of certain information regarding Internet users.
This directive may limit our ability to collect and use information in certain
European countries. In addition, the Federal Trade Commission and several state
governments have investigated the use by certain Internet companies of personal
information. We could incur significant additional expenses if new regulations
regarding the use of personal information are introduced or if our privacy
practices are investigated.

ENVIRONMENTAL PROTECTION COMPLIANCE

     NeoMedia has no knowledge of any federal, state or local environmental
compliance regulations which affect its business activities. NeoMedia has not
expended any capital to comply with any environmental protection statutes and
does not anticipate that such expenditures will be necessary in the future.


                                       10
<PAGE>

EMPLOYEES

     As of December 31, 1999, NeoMedia employed 88 persons. Of the 88
employees, 44 are located at the Company's headquarters in Fort Myers, FL, 30
at other domestic locations and 14 are located outside the United States. Of
the 88 employees, 35 are dedicated to NeoMedia ASP, 29 are dedicated to
NeoMedia SI, and 24 provide shared services used by both business units. None
of NeoMedia's employees are represented by a labor union or bound by a
collective bargaining agreement. NeoMedia believes that its employee relations
are good.

     NeoMedia's success depends to a significant extent on the performance of
its senior management and certain key employees. Competition for highly skilled
employees, including sales, technical and management personnel, is intense in
the computer industry. NeoMedia's failure to attract additional qualified
employees or to retain the services of key personnel could materially adversely
affect NeoMedia's business.

SAFE HARBOR PROVISION OF THE PRIVATE SECURITIES LITIGATION ACT OF 1995

     NeoMedia 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 Item 1
(Business) and Item 6 (Management's Discussion and Analysis of Financial
Condition and Results of Operations) 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 NeoMedia's filings with the
Securities and Exchange Commission including, without limitation, those
described under "Risk Factors" in NeoMedia's Form S-3 Registration Statement ,
effective July 22, 1999. The forward-looking statements are based on the
beliefs of the management of NeoMedia, as well as assumptions made by, and
information currently available to, NeoMedia's management. Accordingly, these
statements are subject to significant risks, uncertainties and contingencies
which could cause NeoMedia's actual growth, results, performance and business
prospects and opportunities in 2000 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,
NeoMedia'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 NeoMedia, the availability of sufficient
capital, NeoMedia's ability to identify the right product mix, , NeoMedia's
ability to operate effectively in geographical areas in which it has no prior
experience, the maturation and success of NeoMedia's strategy to develop,
market and sell its products and services, risks inherent in conducting
international


                                       11
<PAGE>

business, risks associated with selling proprietary licenses and conducting a
consulting services business, changes in NeoMedia's product and service mix and
product and service pricing, the effectiveness of NeoMedia's efforts to control
operating expenses, general economic and business conditions affecting NeoMedia
and its customers in the United States and other countries in which NeoMedia
sells and anticipates to sell its products and services, and NeoMedia's ability
to: (i) obtain additional financing on terms acceptable to the Company, or at
all, to allow the Company to continue its operations as currently proposed;
(ii) develop, market and sell existing and acquired products for its patented
technology; (iii) adjust to changes in technology, customer preferences,
enhanced competition and new competitors in the print-to-internet technology
market; (iv) protect its proprietary patent rights from infringement or
misappropriation; (v) maintain or enhance its relationships with business
partners and vendors; and (vi) attract and retain key employees. There can be
no assurance that NeoMedia will be able to identify, develop, market, sell or
support new products or enhancements successfully, that any such new products
or enhancements will gain market acceptance, or that NeoMedia will be able to
respond effectively to technological changes. There can be no assurance that
NeoMedia will not encounter technical or other difficulties that could delay
introduction of new products in the future. If NeoMedia is unable to introduce
new products or enhancements and respond to industry changes on a timely basis,
its business could be materially adversely affected. NeoMedia is not obligated
to update or revise these forward-looking statements to reflect new events or
circumstances.

ITEM 2. DESCRIPTION OF PROPERTIES

     NeoMedia's principal executive, development and administrative office is
located at 2201 Second Street, Suite 600, Fort Myers, Florida 33901. NeoMedia
occupies approximately 15,000 square feet under terms of a written lease from
an unaffiliated party expiring on August 12, 2000. NeoMedia has a sales
facility at 2150 Western Court, Suite 230, Lisle, Illinois 60532, where
NeoMedia occupies approximately 6,000 square feet under the terms of a written
lease from an unaffiliated party expiring on October 31, 2000.

     NeoMedia also leases space, where the principal sales facility was
formerly located, at 280 West Shuman Boulevard, Suite 100, Naperville, Illinois
60563. This lease in Naperville covers approximately 9,300 square feet under
the terms of a written lease from an unaffiliated party expiring on December
31, 2000. NeoMedia subleases all of the space in the Naperville facility under
the terms of a written sublease to an unaffiliated party expiring on December
31, 2000.

     The Company also leases office space in one other domestic location and
three international locations. These offices are primarily used for its sales
efforts.

     NeoMedia leases from Charles W. Fritz (NeoMedia's President) and his wife,
pursuant to a verbal, month-to-month lease, space at 6054 Timberwood Circle,
#240, Fort Myers, Florida 33908, which it currently uses as temporary housing
for employees relocating to or visiting Fort Myers. Although this lease is
between affiliated parties, NeoMedia believes that it is on terms no less
favorable to it than could be obtained from unaffiliated parties.


                                       12
<PAGE>

     NeoMedia believes that its existing office space is adequate to meet its
current and short-term requirements.

ITEM 3. LEGAL PROCEEDINGS

     As of December 31, 1999, NeoMedia was not a party to any material legal
proceedings except as follows:

     Gerald Willis, a former consultant to NeoMedia, has filed an arbitration
claim against NeoMedia with the American Arbitration Association for an
undetermined amount "in excess of $300,000" for an alleged breach by the
Company of a Consulting Agreement dated August 1, 1997. The Consulting
Agreement was entered into in connection with a stock purchase transaction,
whereby the Company acquired all of the shares of stock in Allegiant Legacy
Solutions, Inc. (ALS) from both ALS's stockholders, Gerald Willis and George
Luntz. The Company believes that Mr. Willis has breached the Consulting
Agreement, and disputes that it owes Mr. Willis any amounts thereunder. The
company filed a counterclaim in the arbitration against Mr. Willis for
$291,300, plus attorneys' fees. As of March 8, 2000, no settlement discussions
have yet occurred between the Company and Mr. Willis' attorney. The arbitration
of this case is scheduled for hearing May 22-24, 2000.

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

     No matters were submitted to a vote of NeoMedia security holders during
the fourth quarter of the year ended December 31, 1999.


                                       13
<PAGE>

                                     PART II


ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


     (a) MARKET INFORMATION. NeoMedia's common stock and warrants began trading
on The Nasdaq Small Cap Stock MarketSM under the symbol "NEOM" on November 25,
1996, the date of its initial public offering. Prior to such time there was no
established public trading market for NeoMedia's common stock. The Company also
trades on the Frankfurt Stock Exchange.

     Set forth below is the range of high and low sales prices for the common
stock and warrants for the periods indicated as reported by NASDAQ. The
quotations do not include retail markups, markdowns or commissions and may not
represent actual transactions.

TYPE OF SECURITY        PERIOD ENDED                     HIGH            LOW
----------------        ------------                     ----            ---
Common Stock            March 31, 1998                  $  9.13         $ 6.06
                        June 30, 1998                   $ 10.13         $ 4.50
                        September 30, 1998              $  6.00         $ 2.44
                        December 31, 1998               $  3.00         $ 1.50
                        March 31, 1999                  $  5.25         $ 2.75
                        June 30, 1999                   $  7.25         $ 4.03
                        September 30, 1999              $  9.88         $ 5.50
                        December 31, 1999               $  7.00         $ 4.25

     (b)  HOLDERS. As of March 3, 2000, there were 149 holders of record of
NeoMedia's common stock. NeoMedia believes that it has a greater number of
shareholders because a substantial number of NeoMedia's common stock is held of
record in street name by broker-dealers for their customers.

     (c) DIVIDENDS. As of March 3, 2000, NeoMedia has not paid any dividends on
its common stock and does not expect to pay a cash dividend in the foreseeable
future, but intends to devote all funds to the operation of its businesses. As
of March 3, 2000, NeoMedia has a letter of credit with Bank One, Chicago,
Illinois, the terms of which require Bank One's written permission prior to the
declaration of cash dividends.

     NeoMedia's stock price has been and will continue to be subject to
significant volatility. Past financial performance should not be considered a
reliable indicator of future performance, and investors should not use
historical trends to anticipate results or trends in future periods. If
revenues or earnings in any quarter fail to meet expectations of the investment
community, there could be an immediate and significant impact on NeoMedia's
stock price. In addition, NeoMedia's stock price may be affected by broader
market trends that may be unrelated to NeoMedia's performance.

     In November 1998, NeoMedia borrowed $500,000, in two separate notes from
unrelated third parties. These notes were due in November, 1999 with an
interest rate of 20%. One $250,000 note was extended until January 6, 2000, and
the other was extended


                                       14
<PAGE>

until February 25, 2000. These notes were secured by 375,000 shares of
NeoMedia's common stock by placing them in an escrow account. These shares are
considered issued but not outstanding. As part of obtaining the financing,
37,500 stock warrants, exercisable at $2.00 per share, were issued to the
lender. These warrants were exercised in February 2000. As of March 3, 2000,
both notes have been repaid and the 375,000 shares securing the notes are in
the process of being released from escrow and retired by the Company.

     In January, 1999, the Company issued 82,372 shares of the Company's Common
Stock to a related party at a price of $3.03 per share. In connection with the
sale, the Company also issued 8,237 warrants with an exercise price of $3.04.

     In January, 1999, the Company issued 145,000 shares of the Company's
Common Stock at a price of $3.50 per share to unrelated parties. In connection
with the sale, the Company also issued 7,286 warrants with an exercise price of
$3.50 and 170,000 warrants with an exercise price of $2.13.

     In January, 1999, the Company issued 42,857 shares of the Company's Common
Stock at a price of $3.50 per share to a related party. In connection with the
sale, the Company also issued 4,286 warrants with an exercise price of $3.50.

     In February, 1999, the Company issued 250,000 shares of the Company's
Common Stock at a price of $4.00 per share to an unrelated party. In connection
with the sale, the Company also issued 100,000 warrants with an exercise price
of $5.00.

     In April, 1999, the Company issued 1,000,000 shares of the Company's
Common Stock at a price of $3.45 per share to an unrelated party. In connection
with the sale, the Company also issued 175,000 warrants with an exercise price
of $3.45.

     In May, 1999, the Company issued 65,000 shares of the Company's Common
Stock at a price of $4.75 per share to an unrelated party. In connection with
the sale, the Company also issued 6,500 warrants with an exercise price of
$5.00.

     In June, 1999, the Company issued 250,000 shares of the Company's Common
Stock at a price of $4.00 per share to an unrelated party. In connection with
the sale, the Company also issued 120,000 warrants with an exercise price of
$7.00.

     In September, 1999, the Company issued 210,000 shares of the Company's
Common Stock at a price of $7.00 per share to an unrelated party.

     In September, 1999, the Company issued 275,231 shares of the Company's
Common Stock at a price of $5.75 per share to an unrelated party. In connection
with the sale, the Company also issued 27,523 warrants with an exercise price
of $6.75.

     In October, 1999, the Company issued 15,000 shares of the Company's Common
Stock at a price of $4.38 per share to an unrelated party. In connection with
the sale, the Company also issued 1,500 warrants with an exercise price of
$4.38.

     In November, 1999, the Company issued 143,334 shares of the Company's
Common Stock at a price of $3.75 per share to an unrelated party. In connection
with the sale, the


                                       15
<PAGE>

Company also issued 5,067 warrants with an exercise price of $5.50, 1,267
warrants with an exercise price of $4.75, 5,333 warrants with an exercise price
of $4.67, and 2,667 warrants with an exercise price of $5.84.

     In January, 2000, the Company issued 381,356 shares of the Company's
Common Stock at a price of $3.75 per share to an unrelated party. In connection
with the sale, the Company also issued 12,571 warrants with an exercise price
of $7.19, 5,400 warrants with an exercise price of $6.44, and 12,166 warrants
with an exercise price of $7.37.

     In February, 2000, the Company issued 39,535 shares of the Company's
common stock at a price of $6.88 per share to an unrelated party. In connection
with the sale, the Company also issued 2,500 warrants with an exercise price of
$12.74 and 1,454 warrants with an exercise price of $9.56.

     In February, 2000, the Company issued 50,000 shares of the Company's
Common Stock at a price of $6.00 per share to an unrelated party. In connection
with the sale, the Company also issued 2,982 warrants with an exercise price of
$10.06.

     In March, 2000, the Company issued 1,000,000 shares of the Company's
Common Stock at a price of $7.50 per share to an unrelated party. In connection
with the sale, the Company also issued 275,000 warrants with an exercise price
of $7.50 and 125,000 warrants with an exercise price of $15.00.

     The above issuance's of securities were made by the Company in reliance on
an exemption from registration contained in Section 4(2) of the Securities Act
of 1933, as amended, as offerings not involving a public offering.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

OVERVIEW

     During 1999, the Company's focus shifted from Systems Integration,
Migration and Y2K toward its Applications Service Provider (ASP) business. The
Company sold its first license with the internally-developed NeoLink technology
during the year, and in December launched its PaperClick.com virtual portal.
NeoMedia's strategy is to become the worlds leading provider of systems and
services that link print and print on products to web based information. The
Company discontinued its Y2K product line during the fourth quarter of 1999.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 AS COMPARED TO THE
YEAR ENDED DECEMBER 31, 1998

     NET SALES. Total net sales for the year ended December 31, 1999 were $25.3
million, which represented a $1.8 million, or 7.7%, increase from $23.5 million
for the year ended December 31, 1998. This increase primarily resulted from
higher resales of technology equipment during the year, offset by lower
services revenue.


                                       16
<PAGE>

     LICENSE FEES. License fees remained unchanged at $2.4 million for the
years ended December 31, 1999 and December 31, 1998. Cost of sales as a
percentage of related sales was 26.4% during 1999 compared to 11.6% during
1998. This increase in the cost of sales as a percentage of related sales was
primarily due to the increased sales of licenses with royalties.

     RESALES OF SOFTWARE AND TECHNOLOGY EQUIPMENT. Resales of software and
technology equipment increased by $2.8 million, or 16.6%, to $19.7 million for
the year ended December 31, 1999, as compared to $16.9 million for the year
ended December 31, 1998. This increase primarily resulted from increased
resales of Sun Microsystems equipment. Cost of sales as a percentage of related
sales was 87.7% during 1999, compared to 86.6% during 1998.

     SERVICE FEES. NeoMedia's service fees decreased by $1.2 million, or 27.9%,
to $3.1 million for the year ended December 31, 1999, compared to $4.3 million
for the year ended December 31, 1998. This decrease was primarily due to lower
sales of services related to the installation services of value-added equipment
resales, as well as reduced revenue from referral fees for third-party
services. Cost of service fees as a percentage of related sales increased to
109.1% during 1999 from 86.4% during 1998 primarily due to the decrease in
services revenue.

     AMORTIZATION OF CAPITALIZED SOFTWARE AND PATENTS. Amortization of
capitalized software and patents included in cost of sales was $1,142,000 in
1999 compared to $596,000 in 1998. This increase was primarily due to
amortizing patent costs related to the acquired Solar patent in 1999 and
expensing the Company's Y2K products at the end of 1999.

     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 decreased $3.2 million, or 32.0%, to $6.8
million for the year ended December 31, 1999 from $10.0 million for the year
ended December 31, 1998, as a result primarily of reductions in marketing
expenses and a reduction in selling expenses related to Y2K products.

     GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$0.4 million, or 8.2%, to $5.3 million for the year ended December 31, 1999,
from $4.9 million for the year ended December 31, 1998. This increase was due
to an increase in the allowance for doubtful accounts at December 31, 1999.

     RESEARCH AND DEVELOPMENT. During the year ended December 31, 1999,
NeoMedia charged to expense $986,000 of research and development expenses, a
decrease of $83,000 or 7.8% compared to $1,069,000 charged to expense for the
year ended December 31, 1998. This decrease was due to an increase in
capitalization of development costs related to the ASP products. To the extent
the Company can obtain additional capital, it will continue to make significant
investments in research and development.


                                       17
<PAGE>

     INTEREST EXPENSE (INCOME), NET. Interest expense consists primarily of
interest paid to creditors as part of financed purchases, capitalized leases
and NeoMedia's asset-based collateralized line of credit net of interest earned
on cash equivalent investments. Interest (income)/expense increased by
$347,000, or 287%, to $226,000 for the year ended December 31, 1999 from
$(121,000) for the year ended December 31, 1998, due to the interest income
earned in 1998 on the proceeds from common stock purchase warrants exercised in
the fourth quarter of 1997, as well as higher interest payments on debt
obtained at the end of 1998.

     NET LOSS. The net loss for the year ended December 31, 1999 was $10.5
million, which represented a $1.0 million, or 8.7% decrease from a $11.5
million loss for the year ended December 31, 1998. The decrease was primarily
due to reduced marketing expenses and a decrease in selling expenses related to
Y2K products. This was offset by a lower gross profit caused by lower service
revenue and increased software amortization expense.

LIQUIDITY AND CAPITAL RESOURCES

     For the period January 1, 2000 through March 17, 2000, the Company has
successfully obtained approximately $9.5 million of equity financing and $2.9
million from exercises of warrants and employee stock options. The Company also
received a commitment from an unrelated third party to invest up to $7.5
million in the Company through the purchase of unissued shares of common stock
at a price of $7.50 per share. In connection with the additional financing,
125,000 warrants at an exercise price of $7.50 and 125,000 warrants at an
exercise price of $15.00 will be issued. The unrelated party will also be
nominated for a position on NeoMedia's Board of Directors. Management believes
that this additional financing, together with revenue from operations, will be
sufficient to sustain operations for the remainder of 2000.

     Subsequent to December 31, 1999, the Company has undertaken the following
initiatives:

     o    Through March 17, 2000, the Company has raised $9.5 million from
          private placements.

     o    Through March 17, 2000, the Company has raised $2.7 million from the
          exercise of stock warrants.

     o    Through March 17, 2000, the Company has raised $223,000 from the
          exercise of employee stock options.

     o    Unrestricted cash on hand as of March 17, 2000, was $11.9 million.


                                       18
<PAGE>

     Net cash used in operating activities for the year ended December 31, 1999
and 1998, was $7.5 million and $7.1 million, respectively. During 1999, trade
accounts receivable inclusive of costs in excess billings decreased $1.8
million, while accounts payable, accrued expenses and deferred revenue
decreased $1.7 million. During 1998, trade accounts receivable inclusive of
costs in excess of billings decreased $197,000, while accounts payable, accrued
expenses and deferred revenue increased $2.1 million. NeoMedia's net cash flow
used in investing activities for the year ended December 31, 1999 and 1998, was
$1.6 million and $2.4 million, respectively. This increase resulted from the
decreased acquisition of property and equipment, as well as a decrease in
purchases of intangible assets.

YEAR 2000 ISSUES

     The Year 2000 (Y2K) issue (i.e. the ability of computer systems to
recognize a date using "00" as the year rather than 1900) affects all companies
and organizations. As a result of the Company's Y2K efforts, no significant
internal problems have occurred to date. The Company has not experienced any
problems with suppliers, vendors, customers, or financial institutions. There
were no significant expenditures related to Y2K compliance, and the Company
does not anticipate any further expenses associated with Y2K.

ITEM 7. FINANCIAL STATEMENTS

     The Financial Statements to this Form 10-KSB are attached commencing on
page F-1.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURES

     On July 7, 1999, the Company filed a Report on Form 8-K reporting that
KPMG LLP had resigned as the Company's independent auditors. In connection with
the audit of the Company's financial statements for the fiscal year ended
December 31, 1998 and in the subsequent interim periods, there were no
disagreements with KPMG LLP on any matters of accounting principles or
practice, financial statement disclosure, or auditing scope and procedures
which, if not resolved to the satisfaction of KPMG LLP would have caused KPMG
LLP to make reference to the matter in their report. Effective July 14, 1999,
the Company engaged Arthur Andersen LLP to audit the Company's consolidated
financial statements for the fiscal year ending December 31, 1999.


                                       19
<PAGE>

              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To NeoMedia Technologies, Inc.

We have audited the accompanying consolidated balance sheet of NeoMedia
Technologies, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1999, and the related consolidated statements of operations, shareholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NeoMedia Technologies, Inc.
and subsidiaries as of December 31, 1999, and the results of their operations
and their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.


/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP


Tampa, Florida
February 25, 2000
(except with respect to the matter
discussed in Note 15, as to which
the date is March 17, 1999)

                                      F-1
<PAGE>

                         INDEPENDENT AUDITOR'S REPORT


To the Shareholders and Board of Directors of
NeoMedia Technologies, Inc.

     We have audited the accompanying consolidated balance sheet of NeoMedia
Technologies, Inc. and subsidiaries (the "Company") as of December 31, 1998,
and the related consolidated statements of operations, cash flows and
shareholders' equity for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

     We conducted our audit in accordance with generally accepted auditing
standards. Those stadards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of the Company as of December 31, 1998, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

     The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 15
to the consolidated financial statements, the Company has suffered recurring
losses from operations, has a significant accumulated deficit, and working
capital deficiency that raise substantial doubt about its ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 15. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.


/s/ KPMG LLP
------------
KPMG LLP


Miami, Florida
March 12, 1999


                                      F-2
<PAGE>

                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                  DECEMBER 31,
                                                                           ---------------------------
                                                                               1999           1998
                                                                           ------------   ------------
<S>                                                                        <C>            <C>
ASSETS
Current assets:
 Cash and cash equivalents, including restricted amounts of $944 in 1999
   and $750 in 1998.....................................................    $   3,404      $   1,350
 Short-term investments ................................................          150             --
 Trade accounts receivable, net of allowance for doubtful accounts of
   $888 in 1999 and $225 in 1998........................................        3,419          5,690
 Amounts due from related parties ......................................           --              4
 Costs and estimated earnings in excess of billings on
   uncompleted contracts ...............................................           --            222
 Inventories ...........................................................           57             --
 Prepaid expenses and other current assets .............................          264            849
                                                                            ---------      ---------
   Total current assets ................................................        7,294          8,115
                                                                            ---------      ---------
Property and equipment, net ............................................          545            786
Intangible assets, net .................................................        5,296          3,729
Other long-term assets .................................................          522             --
                                                                            ---------      ---------
   Total assets ........................................................    $  13,657      $  12,630
                                                                            =========      =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
 Accounts payable ......................................................    $   4,892      $   5,898
 Accrued expenses ......................................................          720          1,000
 Stock liability .......................................................        1,863             --
 Current portion of long-term debt .....................................          625            577
 Sales taxes payable ...................................................          454            430
 Billings in excess of costs and estimated earnings on
   uncompleted contracts ...............................................          131             --
 Deferred revenues .....................................................          265            656
 Other .................................................................           11              7
                                                                            ---------      ---------
   Total current liabilities ...........................................        8,961          8,568
                                                                            ---------      ---------
Long-term debt, net of current portion .................................          676            801
                                                                            ---------      ---------
   Total liabilities ...................................................        9,637          9,369
                                                                            ---------      ---------
Shareholders' equity:
 Preferred stock, $.01 par value, 10,000,000 shares authorized,
   none issued or outstanding ..........................................           --             --
 Common stock, $.01 par value, 50,000,000 shares authorized,
   12,398,389 shares issued in 1999 (12,023,389 outstanding) and
   9,074,080 shares issued in 1998 (8,699,080 outstanding) .............          119             87
 Additional paid-in capital ............................................       36,367         25,168
 Accumulated deficit ...................................................      (32,466)       (21,994)
                                                                            ---------      ---------
   Total shareholders' equity ..........................................        4,020          3,261
                                                                            ---------      ---------
    Total liabilities and shareholders' equity .........................    $  13,657      $  12,630
                                                                            =========      =========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
                                    sheets.

                                      F-3
<PAGE>

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



<TABLE>
<CAPTION>
                                                                          YEARS ENDED DECEMBER 31,
                                                                        -----------------------------
                                                                             1999            1998
                                                                        --------------   ------------
<S>                                                                     <C>              <C>
NET SALES:
 License fees .......................................................   $    2,430       $   2,362
 Resales of software and technology equipment .......................       19,678          16,854
 Service fees .......................................................        3,148           4,262
                                                                        ----------       ---------
   Total net sales ..................................................       25,256          23,478
                                                                        ----------       ---------
COST OF SALES:
 License fees .......................................................          648             275
 Resales of software and technology equipment .......................       17,247          14,596
 Service fees .......................................................        3,433           3,682
 Amortization of capitalized software and patent costs ..............        1,142             596
                                                                        ----------       ---------
   Total cost of sales ..............................................       22,470          19,149
                                                                        ----------       ---------
GROSS PROFIT ........................................................        2,786           4,329
Sales and marketing expenses ........................................        6,765           9,990
General and administrative expenses .................................        5,281           4,886
Research and development costs ......................................          986           1,069
                                                                        ----------       ---------
Loss from operations ................................................      (10,246)        (11,616)
Interest expense (income), net ......................................          226            (121)
                                                                        ----------       ---------
NET LOSS ............................................................   $  (10,472)      $ (11,495)
                                                                        ==========       =========
NET LOSS PER SHARE--BASIC AND DILUTED ...............................   $    (1.01)      $   (1.34)
                                                                        ==========       =========
Weighted average number of common shares--basic and diluted .........   10,377,478       8,560,849
                                                                        ==========       =========
</TABLE>

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


                                      F-4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                 YEARS ENDED DECEMBER 31,
                                                                               -----------------------------
                                                                                    1999            1998
                                                                               -------------   -------------
<S>                                                                            <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ...................................................................     $ (10,472)      $ (11,495)
Adjustments to reconcile net loss to net cash used in operating activities:
 Depreciation and amortization .............................................         2,029           1,081
 Provision for doubtful accounts ...........................................           665             547
 Fair value of stock based compensation granted for
   professional services ...................................................            28              91
 Changes in operating assets and liabilities
  Trade accounts receivable ................................................         1,606             419
  Costs and estimates earnings in excess of billings on
    uncompleted contracts ..................................................           222            (222)
  Other current assets .....................................................           382              76
  Long-term assets .........................................................          (522)             --
  Accounts payable and accrued expenses ....................................        (1,286)          1,517
  Billings in excess of costs and estimates earnings on
    uncompleted contracts ..................................................           131              --
  Deferred revenue .........................................................          (391)            539
  Other current liabilities ................................................            76             378
                                                                                 ---------       ---------
   Net cash used in operating activities ...................................        (7,532)         (7,069)
                                                                                 ---------       ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalization of software development and purchased intangible assets .....        (1,470)         (1,980)
Acquisition of property and equipment ......................................          (127)           (428)
                                                                                 ---------       ---------
   Net cash used in investing activities ...................................        (1,597)         (2,408)
                                                                                 ---------       ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock, net of $148 issuance costs......         8,172              --
Net proceeds from exercise of stock warrants ...............................            75              --
Net proceeds from exercise of stock options ................................         1,061             280
Repayment from shareholder .................................................            --               2
Borrowings under notes payable and long-term debt ..........................         2,000             464
Repayments on notes payable and long-term debt .............................          (125)           (202)
                                                                                 ---------       ---------
   Net cash provided by financing activities ...............................        11,183             544
                                                                                 ---------       ---------
NET INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS .....................................................         2,054          (8,933)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ...............................         1,350          10,283
                                                                                 ---------       ---------
CASH AND CASH EQUIVALENTS, END OF YEAR .....................................     $   3,404       $   1,350
                                                                                 =========       =========
SUPPLEMENTAL CASH FLOW INFORMATION:
 Restricted cash balances at December 31 ...................................     $     944       $     750
 Interest paid during the year .............................................           146             156
 Non-cash investing and financing activities:
  Fair value of shares issued to acquire customer list .....................            --             827
  Fair value of warrants granted in conjunction with acquisition
    of patents .............................................................            --             432
  Conversion of short-term debt to equity ..................................         2,000              --
  Issuance costs for shares issued through private placements ..............           112              --
  Stock liability due upon issuance of patent ..............................         1,863              --
</TABLE>

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


                                      F-5
<PAGE>

                 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                       (IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                  COMMON STOCK          ADDITIONAL                        TOTAL
                                             -----------------------     PAID-IN      ACCUMULATED     SHAREHOLDERS'
                                                SHARES       AMOUNT      CAPITAL        DEFICIT          EQUITY
                                             ------------   --------   -----------   -------------   --------------
<S>                                          <C>            <C>        <C>           <C>             <C>
BALANCE, DECEMBER 31, 1997 ...............    8,295,291       $ 83       $23,542       $ (10,499)      $  13,126
Exercise of employee options .............      273,789          3           277              --             280
Fair value of shares issued in
  conjunction with the acquisition of
  a customer list ........................      120,000          1           826              --             827
Fair value of shares and
  options issued for professional
  services rendered ......................       10,000         --            54              --              54
Fair value of warrants granted
  in conjunction with the acquisition
  of patents .............................           --         --           432              --             432
Fair value of warrants granted in
  conjunction with financing, net of
  $47 of issuance costs...................           --         --            37              --              37
Net loss .................................           --         --            --         (11,495)        (11,495)
                                              ---------       ----       -------       ---------       ---------
BALANCE, DECEMBER 31, 1998 ...............    8,699,080         87        25,168         (21,994)          3,261
                                              ---------       ----       -------       ---------       ---------
Exercise of employee options .............      611,854          6         1,055              --           1,061
Common stock through private
  placement, net of $260 of
  issuance costs .........................    1,978,794         20         8,039              --           8,058
Fair value of options issued for
  professional services rendered .........           --         --            28              --              28
Exercise of warrants .....................      231,764          1            74              --              76
Fair value of stock granted in
  conjunction with financing .............      501,897          5         2,003              --           2,008
Net loss .................................           --         --            --         (10,472)        (10,472)
                                              ---------       ----       -------       ---------       ---------
BALANCE, DECEMBER 31, 1999 ...............   12,023,389       $119       $36,367       $ (32,466)      $   4,020
                                             ==========       ====       =======       =========       =========
</TABLE>

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

                                      F-6
<PAGE>

                 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS

BASIS OF PRESENTATION

     The consolidated financial statements include the financial statements of
NeoMedia Technologies, Inc. and its wholly-owned subsidiaries, NeoMedia
Migration, Inc., a Delaware corporation; Distribuidora Vallarta, S.A.
incorporated in Guatemala; Allegiant Legacy Solutions, Inc. ("Allegiant")
(which was merged into NeoMedia Technologies, Inc. in December 1997); NeoMedia
Technologies of Canada, Inc. incorporated in Canada; NeoMedia Tech, Inc.
incorporated in Delaware; NeoMedia EDV GmbH incorporated in Austria; NeoMedia
Technologies Holding Company B.V. incorporated in the Netherlands; NeoMedia
Technologies de Mexico S.A. de C.V. incorporated in Mexico; NeoMedia Migration
de Mexico S.A. de C.V. incorporated in Mexico; NeoMedia Technologies do Brasil
Ltd. incorporated in Brazil and NeoMedia Technologies UK Limited incorporated
in the United Kingdom, and are collectively referred to as "NeoMedia" or the
"Company". The consolidated financial statements of NeoMedia are presented on a
consolidated basis for all periods presented. The merger with Allegiant on
September 25, 1997 was accounted for as a pooling of interests, and
accordingly, all financial information has been restated as if the entities
were combined for all prior periods. All significant intercompany accounts and
transactions have been eliminated in preparation of the consolidated financial
statements.

NATURE OF BUSINESS OPERATIONS

     Since inception, NeoMedia has been helping customers and partners
assimilate new technology without discarding their investment in programs and
processes. To help accomplish these objectives, NeoMedia operates as two
distinct business units: Application Service Provider (NeoMedia ASP) and
Systems Integration Services (NeoMedia SI). NeoMedia ASP provides systems and
services that link print and print on products to web-based information.
NeoMedia SI provides computer technology equipment and systems integration
services to customers.

     NEOMEDIA ASP

     NeoMedia ASP was launched to commercialize NeoMedia's patented technology
for seamlessly linking printed material to the internet. This technology has
been developed over the past four years. Management believes this technology
has the potential to provide the industry standard for linking the worlds of
print and electronic media. The commercialization of products using this
technology was begun during 1999.

                                      F-7
<PAGE>

                 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


1. BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS--(CONTINUED)

     NEOMEDIA SI

     NeoMedia SI re-markets equipment and software products from third-parties,
renders system integration services, provides proprietary software for document
management and production systems, migrates programs and databases from closed
system to open system platforms, and adds customized applications to an
existing system platform. This business unit is establishing itself in the
technology industry by working closely with customers and business partners in
integrating new technologies while leveraging previous system infrastructure
investments.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

     For the purposes of the consolidated balance sheets and consolidated
statements of cash flows, all highly liquid investments with original
maturities of three months or less are considered cash equivalents. Cash
equivalents includes restricted amounts of $944,000 as of December 31, 1999 and
$750,000 as of December 31, 1998 (Note 6).

ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.

REVENUE RECOGNITION

     License revenues represent revenue from the licensing of NeoMedia's
proprietary software tools and applications products. NeoMedia licenses its
development tools and application products pursuant to non-exclusive and
non-transferable license agreements. Software and technology equipment resales
represent revenue from the resale of purchased third party hardware and
software products. Service fees represent revenue from consulting, education
and post contract customer support services. Effective January 1, 1998,
NeoMedia adopted the software license revenue recognition provisions of the
American Institute of Certified Public Accountants ("AICPA") Statement of
Position 97-2 "Software Revenue Recognition" ("SOP 97-2"), as amended.
Specifically, license revenue is

                                      F-8
<PAGE>

                 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

recognized if persuasive evidence of an agreement exists, delivery has occurred,
pricing is fixed and determinable, and collectibility is probable. The impact of
the adoption of SOP 97-2 was not material to NeoMedia's consolidated financial
statements. The substantial majority of software license revenue has been
recognized on a percentage of completion basis, along with the associated
services being provided.

     Software and technology equipment resale revenue is recognized when all of
the components necessary to run software or hardware have been shipped and only
insignificant post-delivery obligations remain. Historically, product returns
and allowances have been insignificant. Service revenues include maintenance
fees for providing system updates for software products, user documentation and
technical support and are recognized over the life of the contract. Other
service revenues, including training and consulting, are recognized as the
services are performed.

COMPREHENSIVE INCOME

     NeoMedia adopted the provisions of Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards (SFAS) No. 130 "Reporting
Comprehensive Income" ("SFAS 130") effective January 1, 1998. SFAS 130 requires
companies to report comprehensive income. Comprehensive income is defined as
the change in equity of a business during a period from transactions and other
events and circumstances from nonowner sources. For the years ended December
31, 1999 and 1998, changes in NeoMedia's shareholders' equity consisted of its
net loss, stock based compensation, certain equity offerings, along with the
exercise of stock options. Accordingly, comprehensive loss as defined by SFAS
130 was the net loss in the accompanying consolidated statement of operations.

INVENTORIES

     Inventories are stated at the lower of cost or market, and at December
31,1999 was comprised of purchased computer technology resale products. Cost is
determined using the first-in, first-out method.

PROPERTY AND EQUIPMENT

     Property and equipment are carried at cost less allowances for accumulated
depreciation. Repairs and maintenance are charged to expense as incurred.
Depreciation is generally computed using the straight-line method over the
estimated useful lives of the


                                      F-9
<PAGE>

                 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

related assets. The estimated useful lives range from three to five years for
equipment and up to seven years for furniture and fixtures. Leasehold
improvements are amortized over the shorter of the life of the lease or the
useful lives of the related assets. Upon retirement or sale, cost and
accumulated depreciation are removed from the accounts and any gain or loss is
reflected in the statement of operations.

     Depreciation expense was $367,000 and $290,000 for the years ended
December 31, 1999 and 1998, respectively.

INTANGIBLE ASSETS

     Intangible assets consist of capitalized software costs, patents, and an
acquired customer list.

     Software development costs are accounted for in accordance with FASB SFAS
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." Costs associated with the planning and designing phase of
software development, including coding and testing activities necessary to
establish technological feasibility, are classified as research and development
and expensed as incurred. Once technological feasibility has been determined,
additional costs incurred in development, including coding, testing, quality
assurance and documentation writing, are capitalized. Once a product is made
available for sale, capitalization is stopped unless the related costs are
associated with a technologically feasible enhancement to the product.
Amortization of purchased and developed software is provided on a
product-by-product basis over the estimated economic life of the software,
generally not exceeding three years, using the straight-line method.

     Patents (including patents pending and intellectual property) and acquired
customer lists are stated at cost, less accumulated amortization. The acquired
customer list is being amortized over a five year period. Patents are generally
amortized over periods ranging from five to seventeen years.

     Amortization expense was $1,662,000 and $791,000 for the years ended
December 31, 1999 and 1998, respectively.

                                      F-10
<PAGE>

                 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)


EVALUATION OF LONG-LIVED ASSETS

     The Company periodically performs an evaluation of the carrying value of
its long-lived assets in accordance with FASB SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
This evaluation consists primarily of a comparison to the future undiscounted
net cash flows from the associated assets in comparison to the carrying value
of the assets. As of December 31, 1999, the Company is of the opinion that no
impairment of its long-lived assets has occurred.

INCOME TAXES

     In accordance with SFAS No. 109, "Accounting for Income Taxes", income
taxes are accounted for using the assets and liabilities approach. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities, and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be recognized.
The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period of enactment.

COMPUTATION OF NET LOSS PER SHARE

     Basic net loss per share is computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the period. The
Company has excluded all outstanding exercisable stock options and warrants
from the calculation of diluted net loss per share because these securities are
anti-dilutive for all years presented. The shares excluded from the calculation
of diluted net loss per share are detailed in the table below:

<TABLE>
<CAPTION>
                                                         DECEMBER 31, 1999     DECEMBER 31, 1999
                                                        -------------------   ------------------
<S>                                                             <C>                   <C>
     Outstanding Exercisable Stock Options ..........           1,398,000             1,493,000
     Outstanding Warrants ...........................           2,301,000             1,640,000
</TABLE>


                                      F-11
<PAGE>

                 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)


FINANCIAL INSTRUMENTS

     The Company believes that the fair value of its current assets and current
liabilities approximate carrying value. Certain of the Company's long-term
obligations are non-interest bearing and were discounted at an assumed interest
rate of approximately 9% when the obligation was entered into during 1994 (see
note 7).

CONCENTRATIONS OF CREDIT RISK

     Financial instruments that potentially subject NeoMedia to concentrations
of credit risk consist primarily of trade accounts receivable with customers.
Credit risk is generally minimized as a result of the large number and diverse
nature of NeoMedia's customers, which are located throughout the United States.
NeoMedia extends credit to its customers as determined on an individual basis
and has included an allowance for doubtful accounts of $888,000 and $225,000 in
its December 31, 1999 and 1998 consolidated balance sheets, respectively.
NeoMedia had net sales to one major customer in the telecommunications industry
(Ameritech) of $5,843,000 and $5,825,000 during the years ended December 31,
1999 and 1998, respectively, resulting in trade accounts receivable of $225,000
and $1,352,000 as of December 31, 1999 and 1998, respectively. Revenue
generated from the remarketing of computer software and technology equipment
has accounted for a significant percentage of NeoMedia's revenue. Such sales
accounted for approximately 78% and 72% of NeoMedia's revenue for the years
ended December 31, 1999 and 1998, respectively.

ACCOUNTING FOR STOCK OPTIONS

     Effective January 1, 1996, NeoMedia adopted SFAS No. 123, "Accounting for
Stock-Based Compensation" which requires certain disclosures about stock-based
employee compensation arrangements, regardless of the method used to account
for them, and defines a fair-value based method of accounting for an employee
stock option or similar equity instrument and encourages all entities to adopt
that method of accounting for all of their employee stock compensation plans.
However, SFAS 123 also allows an entity to continue to measure compensation
cost for stock-based compensation plans using the intrinsic-value method of
accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). Entities electing to
continue using the accounting method in APB 25 must make pro forma disclosures
of net income and earnings per share as if the fair-value method of accounting
had been adopted. Under the fair-value method, compensation cost is measured at
the grant date based on the


                                      F-12
<PAGE>

                 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

value of the award and is recognized over the service period, which is usually
the vesting period. Under the intrinsic-value based method, compensation cost
is the excess, if any, of the quoted market price of the stock at grant date or
other measurement date over the amount an employee must pay to acquire the
stock. Because NeoMedia elected to continue using the accounting method in APB
25, no compensation expense was recognized in the consolidated statement of
operations for the years ended December 31, 1999 and 1998 for stock-based
employee compensation. Had compensation cost for NeoMedia's stock-based
compensation plan been determined using the fair-value method of accounting,
NeoMedia's net loss and loss per share would have been increased to $11,731,000
or ($1.13) per share in 1999, and $13,070,000 or ($1.53) per share, in 1998.

     For grants in 1999 and 1998, the following assumptions were used: (i) no
expected dividends; (ii) a risk-free interest rate of 5% for 1999 and 5% for
1998; (iii) expected volatility of 70% for 1999 and 50% for 1998 and (iv) an
expected life of 4 years for options granted in 1999 and 4 years for options
granted in 1998. The fair-value was determined using the Black-Scholes
option-pricing model. The volatility percentages used by the Company represent
management's estimate of reasonable volatility based primarily upon an average
of select industry competitors. The Company's actual stock price volatility was
approximately 112% and 111% during the years ended December 31, 1999 and 1998,
respectively. Management believes that the average volatility percentages are
more appropriate given the relatively short trading history of the Company's
common stock.

     The estimated fair value of grants of stock options and warrants to
non-employees of NeoMedia is charged to expense in the consolidated financial
statements.

RECLASSIFICATIONS

     Certain reclassifications have been made to the 1998 financial statements
to conform to the 1999 presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June of 1998 the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The FASB later issued in June 1999 SFAS
No. 137, which deferred the effective date for SFAS No. 133 to all fiscal years
beginning after June 15, 2000, with earlier application encouraged. SFAS No.
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity to


                                      F-13
<PAGE>

                 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. Management does
not believe the adoption of SFAS No. 133 will have a material impact on the
Company's financial position or results of operations.

     On December 3, 1999 the Securities and Exchange Commission (SEC) staff
released Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition". This
SAB provides guidance on the recognition, presentation and disclosure of
revenue in financial statements. The Company will implement SAB No. 101 for the
quarter ended June 30, 2000. The Company is currently evaluating this SAB, but
does not believe that it will have a material impact on the Company's results
of operations.

3. CONTRACT ACCOUNTING

     NeoMedia periodically enters into long-term software development and
consultation agreements with certain customers. As of December 31, 1999 and
1998, certain contracts were not completed and information regarding these
uncompleted contracts was as follows:

<TABLE>
<CAPTION>
                                                                  1999         1998
                                                               ----------   ---------
                                                                   (IN THOUSANDS)
<S>                                                            <C>          <C>
   Total amount of contracts in progress ...................    $  1,995     $1,755
                                                                ========     ======
   Costs incurred to date on uncompleted contracts .........         828        944
   Estimated earnings on uncompleted contracts .............         980         (4)
                                                                --------     -------
     Subtotal ..............................................       1,808        940
   Less customer billings to date ..........................      (1,939)      (718)
                                                                --------     ------
   Costs and estimated earnings in excess of billings on
     uncompleted contracts .................................    $     --     $  222
                                                                ========     ======
   Billings in excess of costs and estimated earnings on
     uncompleted contracts .................................    $    131     $   --
                                                                ========     ======
</TABLE>


                                      F-14
<PAGE>

                 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


4. PROPERTY AND EQUIPMENT

     As of December 31, 1999 and 1998, property and equipment consisted of the
following:

                                                     1999         1998
                                                 -----------   ---------
                                                     (IN THOUSANDS)
   Furniture and fixtures ....................    $    420      $  451
   Leasehold improvements ....................         124         124
   Equipment .................................       1,290       1,164
                                                  --------      ------
     Total ...................................       1,834       1,739
   Less accumulated depreciation .............      (1,289)       (953)
                                                  --------      ------
   Total property and equipment, net .........    $    545      $  786
                                                  ========      ======

5. INTANGIBLE ASSETS

     As of December 31, 1999 and 1998, intangible assets consisted of the
following:

                                                    1999          1998
                                                  --------      -------
                                                      (IN THOUSANDS)
   Capitalized and purchased software costs ..    $  4,663      $ 4,482
   Customer list .............................       1,155        1,155
   Patents and related costs .................       2,672          615
                                                  --------      -------
     Total ...................................       8,490        6,252
   Less accumulated amortization .............      (3,194)      (2,523)
                                                  --------      -------
   Total intangible assets, net ..............    $  5,296      $ 3,729
                                                  ========      =======

     In October 1994, the Company purchased, via seller financing, certain
computer software from International Digital Scientific, Inc. ("IDSI"). The
aggregate purchase price was $2,000,000 and was funded by an uncollateralized
seller payable, without interest, in an amount equal to the greater of: (i) 5%
of the collected gross revenues of NeoMedia Migration for the preceding month;
or (ii) the minimum installment payment as defined, until paid in full. The
minimum installment payment is the amount necessary to provide an average
monthly payment for the most recent twelve month period of $16,000 per month.
The present value of $2,000,000 discounted at 9% (the Company's then
incremental borrowing rate) for 125 months was approximately $1,295,000, the
capitalized cost of the assets acquired. The discount is being accreted to
interest expense over the term of the note. The software acquired was amortized
over its estimated useful life of three years. As of December 31, 1999 and
1998, the balance of the note payable, net of unamortized discount, was
$801,000 and $931,000, respectively.

                                      F-15
<PAGE>

                 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


5. INTANGIBLE ASSETS--(CONTINUED)

     During 1998, NeoMedia acquired a customer list for total consideration of
$1,155,000, including 120,000 shares of NeoMedia common stock valued at
$827,000 (giving effect to the common stock being unregistered and "restricted"
securities as such term is defined in Rule 144 of the rules and regulations
promulgated under the Securities Act of 1933, as amended) and cash of $292,000.
Additionally, there were legal and other expenses of $36,000 that were related
to this transaction. The customer list is intended to be used to develop
relationships for the sale of the Company's products. The cost of the customer
list is being amortized on the straight-line method over its estimated useful
life of five years.

     During December 1998, the Company acquired the rights to certain patent
filings. The Company paid a total of $125,000 in cash along with a warrant to
purchase shares of the Company's common stock at a negligible value (such
warrant was valued at approximately $432,000, the trading price of the
underlying common stock). The Company is also liable to pay the seller an
additional $1,862,500 six months from the date that the first U.S. patent
application is granted. During November 1999, NeoMedia was awarded this patent
by the US Patent and Trademark Office for a process that allows automatic
access of electronic information through secure machine-readable codes on
printed documents. As of December 31, 1999, the Company has recorded a
liability for this transaction in the amount of $1,862,500. The payment may be
settled by the Company either in cash or through the issuance of additional
warrants to purchase Company common stock at negligible values. Based upon
currently available working capital, the Company anticipates that the
obligation will be settled through the issuance of additional warrants.

6. FINANCING AGREEMENTS

     The Company has an agreement with a commercial finance company that
provides short-term financing for certain computer hardware and software
purchases. Under the agreement, there are generally no financing charges for
amounts paid within 30 or 45 days, depending on the vendor used to source the
product. Borrowings are collateralized by accounts receivable generated from
the sales of merchandise to NeoMedia's customers. In addition, as of December
31, 1999, a $750,000 letter of credit was issued to the benefit of the
commercial finance company. NeoMedia collateralized this letter of credit with
a $750,000 certificate of deposit. As of December 31, 1999 and 1998, amounts
due under this financing agreement included in accounts payable were $1,509,000
and $2,835,000, respectively.


                                      F-16
<PAGE>

                 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


7. LONG-TERM DEBT

     As of December 31, 1999 and 1998, long-term debt consisted of the
following:

<TABLE>
<CAPTION>
                                                                                1999        1998
                                                                             ---------   ---------
                                                                                (IN THOUSANDS)
<S>                                                                          <C>         <C>
   Note payable to IDSI, non-interest bearing with interest imputed at 9%,
     due with minimum monthly installments of $16,000 through March
     2005 ................................................................    $1,008      $1,216
   Note payable, interest bearing at 20% per annum, $250,000 due
     January 2000 and $250,000 due February 2000, secured by 375,000
     shares of previously unissued Company common stock placed in
     escrow ..............................................................       500         500
                                                                              ------      ------
     Subtotal ............................................................     1,508       1,716
   Less: unamortized discount ............................................      (207)       (338)
                                                                              ------      ------
     Total long-term debt ................................................     1,301       1,378
   Less: current portion .................................................      (625)       (577)
                                                                              ------      ------
   Long-term debt, net of current portion ................................    $  676      $  801
                                                                              ======      ======
</TABLE>

     The long-term debt repayments for each of the next five fiscal years
ending December 31 are as follows:

<TABLE>
<CAPTION>
                                                                                 (IN THOUSANDS)
                                                                                ---------------
<S>                                                                                  <C>
   2000 ................                                                             $  692
   2001 ................                                                                192
   2002 ................                                                                192
   2003 ................                                                                192
   2004 ................                                                                192
   Thereafter ..........                                                                 48
                                                                                     ------
   Total ...............                                                             $1,508
                                                                                     ======
</TABLE>


                                      F-17
<PAGE>

                 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


8. INCOME TAXES

     For the years ended December 31, 1999 and 1998, the components of income
tax benefit were as follows:

                                                          1999          1998
                                                       ---------      --------
                                                            (IN THOUSANDS)
   Current .........................................   $      --      $    (78)
   Deferred ........................................          --            --
                                                       ---------      --------
   Income tax benefit ..............................   $      --      $    (78)
                                                       =========      ========

     For the years ended December 31, 1999 and 1998, the significant components
of the deferred tax benefit were as follows:

                                                          1999          1998
                                                       ---------      --------
                                                            (IN THOUSANDS)
   Deferred tax benefit ............................   $ (5,766)      $ (3,983)
   Increase in valuation allowance .................       5,766         3,983
                                                       ---------      --------
     Total .........................................   $      --      $     --
                                                       =========      ========

     As of December 31, 1999 and 1998, the types of temporary differences
between the tax basis of assets and liabilities and their financial reporting
amounts which gave rise to deferred taxes, and their tax effects were as
follows:

                                                          1999           1998
                                                       ---------      ----------
                                                            (IN THOUSANDS)
   Accrued employee benefits .......................   $      31      $     30
   Provisions for doubtful accounts ................         337            90
   Deferred revenue ................................          --           386
   Capitalized software development costs ..........          98           600
   Net operating loss carryforwards ................      12,724         6,466
   Research and development credit .................          91            --
   Other ...........................................          59            --
   Alternative minimum tax credit carryforward .....          45            47
                                                       ---------      --------
   Total deferred tax assets .......................      13,385         7,619
   Valuation allowance .............................     (13,385)       (7,619)
                                                       ---------      --------
   Net deferred income tax asset ...................   $      --      $     --
                                                       =========      ========


                                      F-18
<PAGE>

                 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


8. INCOME TAXES--(CONTINUED)

     NeoMedia will not record an income tax benefit due to the 100% valuation
allowance. Because the realization of NeoMedia's NOL carryforwards is
uncertain, a valuation allowance has been established against it and other
deferred income tax assets.

     For the years ended December 31, 1999 and 1998, income tax benefit
differed from the amount computed by applying the statutory federal rate of 34%
as follows:


<TABLE>
<CAPTION>
                                                              1999                      1998
                                                    ------------------------   -----------------------
                                                       AMOUNT          %          AMOUNT          %
                                                    ------------   ---------   ------------   --------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                                 <C>            <C>         <C>            <C>
   Benefit at federal statutory rate ............     $ (3,561)        (34)%     $ (3,908)       (34)%
   Foreign income taxes, net of federal .........           61           1             --         --
   Permanent and other, net .....................          346           3            (75)        (1)
   Change in valuation allowance ................        3,154          30%         3,983         35
                                                      --------         ---       --------        ---
   Income tax benefit ...........................     $     --          --%      $     --         --%
                                                      ========         ====      ========        ====
</TABLE>

     As of December 31, 1999, NeoMedia had net operating loss carryforwards for
federal tax purposes totaling approximately $34 million which may be used to
offset future taxable income, or, if unused expire between 2011 and 2019. A
portion of the net operating loss carryforwards are attributable to tax
deductions related to the exercise of stock options. As a result of certain of
NeoMedia's equity activities occurring during the year ended December 31, 1997,
NeoMedia anticipates that the annual usage of its pre 1998 net operating loss
carryforwards may be further restricted pursuant to the provisions of Section
382 of the Internal Revenue Code.

     The valuation allowance for deferred tax assets increased by approximately
$1.9 million due to the exercise of stock options, which will result in future
tax deductions. The related benefit is recorded to shareholders' equity as it
is realized.

9. TRANSACTIONS WITH RELATED PARTIES

     During each of the years ended December 31, 1999 and 1998, NeoMedia leased
office and residential facilities from related parties for rental payments
totaling $13,000.

     During the years ended December 31, 1999 and 1998, the Company leased from
a director of the Company a trade show booth for rental payments totaling
$31,000 and $34,000, respectively. The lease expired during 1999.


                                      F-19
<PAGE>

                 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


9. TRANSACTIONS WITH RELATED PARTIES--(CONTINUED)

     In January 1999, the spouse of a director of the Company purchased 82,372
shares of the Company's common stock from NeoMedia at a price of $3.03 per
share. In January 1999, a director of the Company purchased 42,857 shares of
the Company's common stock from NeoMedia at a price of $3.50 per share. As part
of these purchases, the spouse of the director received a total of 8,237
warrants to purchase stock at $3.04 per share and the director received 4,286
warrants to purchase stock at $3.50 per share.

     In July 1999, the Company paid professional fees in the amount of $73,000
to a director of the Company, for services related to the recruitment of
NeoMedia's President and Chief Operating Officer and one sales representative.

10. COMMITMENTS AND CONTINGENCIES

     NeoMedia leases its office facilities and certain office and computer
equipment under various operating leases. These leases provide for minimum
rents and generally include options to renew for additional periods. For the
years ended December 31, 1999 and 1998, NeoMedia's rent expense was $1,268,000
and $1,057,000, respectively. Beginning December 1, 1996, NeoMedia subleased a
portion of its office facilities until the lease expires.

     The following is a schedule of the future minimum lease payments and
receipts under non-cancelable operating leases as of December 31, 1999:


                                                        PAYMENTS     RECEIPTS
                                                       ----------   ---------
                                                            (IN THOUSANDS)
   2000 ............................................      $661         $183
   2001 ............................................        84           --
   2002 ............................................        47           --
   2003 ............................................         5           --
   2004 ............................................         1           --
   Thereafter ......................................        --           --
                                                          ----         ----
   Total ...........................................      $798         $183
                                                          ====         ====

     The Company has entered into a migration contract (specifically Y2K
remediation) with a Colombian customer related to the remediation of certain of
the customer's computer systems to be Year 2000 compliant. The total contact is
approximately $780,000, of which approximately $750,000 has been recognized as
revenue by the Company as of December 31, 1999. As an element to the contract,
the Company has guaranteed its work

                                      F-20
<PAGE>

                 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


10. COMMITMENTS AND CONTINGENCIES--(CONTINUED)

product and resulting Year 2000 compliance of the customer. To this end, during
1999 the Company established bank guarantees in the form of certificates of
deposit totaling approximately $150,000 in favor of the customer. The Company
believes that it has the ability and intent to complete such remediation in a
satisfactory manner and is accounting for this project on a percentage of
completion basis.

     The Company is party to certain litigation in the normal course of
business including the following:

     o    A former consultant to NeoMedia has filed an arbitration claim against
          NeoMedia for approximately $300,000 for an alleged breach by the
          Company of a consulting agreement. The company has filed a
          counterclaim in the arbitration. The arbitration of this case is
          scheduled for hearing in May 2000.

     Management of the Company, after consultation with legal counsel, is of
the opinion that the ultimate resolution of this and other matters will have no
material adverse impact on the Company's consolidated financial statements.

     NeoMedia has entered into various employment and consulting agreements
which require an aggregate of approximately $850,000 in annual payments. These
employment and consulting agreements extend to various dates through 2001.
These agreements also provide for the payment of severance and other benefits
under certain conditions.

     The Y2K issue (i.e. the ability of computer systems to recognize a date
using "00" as the year rather than 1900) affects all companies and
organizations. As a result of the Company's Y2K efforts, no significant
internal problems have occurred to date. The Company has not experienced any
problems with suppliers, vendors, customers, or financial institutions. There
were no significant expenditures related to Y2K compliance, and the Company
does not anticipate any further expenses associated with Y2K. Except as
disclosed above, the Company anticipates no future commitments related to sales
of its Y2K products.

11. DEFINED CONTRIBUTION SAVINGS PLAN

     NeoMedia maintains a defined contribution 401(k) savings plan covering
substantially all eligible employees meeting certain minimum age and months of
service requirements, as defined. Participants may make elective contributions
up to established limits. All amounts contributed by participants and earnings
on these contributions are fully vested at all times.


                                      F-21
<PAGE>

                 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


11. DEFINED CONTRIBUTION SAVINGS PLAN--(CONTINUED)

The plan provides for matching and discretionary contributions by NeoMedia,
although no such contributions to the plan have been made to date.

12. EMPLOYEE STOCK OPTION PLAN

     Effective February 1, 1996, NeoMedia adopted the 1996 Stock Option Plan
making available for grant to employees of NeoMedia options to purchase up to
1,500,000 shares of NeoMedia's common stock. The stock option committee of the
board of directors has the authority to determine to whom options will be
granted, the number of options, the related term, and exercise price. The
option exercise price shall be equal to or in excess of the fair market value
per share of NeoMedia's common stock on the date of grant. Options granted
during 1998 and 1997 were granted at an exercise price equal to fair market
value on the date of grant. Options granted can not be exercised during the
year following the date of grant and must be exercised within ten years from
the date of grant.

     Effective March 27, 1998, NeoMedia adopted the 1998 Stock Option Plan
making available for grant to employees of NeoMedia options to purchase up to
8,000,000 shares of NeoMedia's common stock. The stock option committee of the
board of directors has the authority to determine to whom options will be
granted, the number of options, the related term, and exercise price. The
option exercise price may be less than the fair market value per share of
NeoMedia's common stock on the date of grant. Options granted during 1999 and
1998 were granted at an exercise price equal to fair market value on the date
of grant. Options generally vest 20% upon grant and 20% per year thereafter.
The options expire ten years from the date of grant.


                                      F-22
<PAGE>

                 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


12. EMPLOYEE STOCK OPTION PLAN--(CONTINUED)

     A summary of the status of NeoMedia's 1996 and 1998 stock option plans as
of and for the years ended December 31, 1999 and 1998 is as follows:

<TABLE>
<CAPTION>
                                                            1999                           1998
                                                -----------------------------   ---------------------------
                                                                    WEIGHTED                       WEIGHTED
                                                                     AVERAGE                       AVERAGE
                                                                    EXERCISE                       EXERCISE
                                                     SHARES           PRICE          SHARES         PRICE
                                                ----------------   ----------   ---------------   ---------
                                                 (IN THOUSANDS)                  (IN THOUSANDS)
<S>                                             <C>                <C>          <C>               <C>
   Outstanding at beginning of year .........         3,164         $  4.40          1,405         $  2.64
   Granted ..................................         1,721            4.71          2,281            5.26
   Exercised ................................          (599)           1.77           (274)           1.02
   Forfeited ................................          (868)           5.79           (248)           6.02
                                                      -----         -------          -----         -------
   Outstanding at end of year ...............         3,418         $  4.43          3,164         $  4.40
                                                      =====         =======          =====         =======
   Options exercisable at year-end ..........         1,398                          1,483
   Weighted-average fair value of options
     granted during the year ................        $ 2.68                         $ 2.33
   Available for grant at the end
     of the year ............................         5,162                          6,015
</TABLE>

     The following table summarizes information about NeoMedia's stock options
outstanding as of December 31, 1999:

<TABLE>
<CAPTION>
                            OPTIONS OUTSTANDING                                   OPTIONS EXERCISABLE
---------------------------------------------------------------------------   ----------------------------
                                                WEIGHTED-        WEIGHTED-                       WEIGHTED-
                                                 AVERAGE          AVERAGE                         AVERAGE
       RANGE OF              NUMBER             REMAINING         EXERCISE         NUMBER        EXERCISE
   EXERCISE PRICES         OUTSTANDING      CONTRACTUAL LIFE       PRICE        EXERCISABLE        PRICE
---------------------   ----------------   ------------------   -----------   ---------------   ----------
                         (IN THOUSANDS)                                        (IN THOUSANDS)
<S>                     <C>                <C>                  <C>           <C>               <C>
   $-- to $  .84                246            6.1 years          $  .84             245         $  .84
    1.88 to   2.91              518            8.8 years            2.61             243           2.52
    3.00 to   4.91            1,171            8.4 years            3.42             389           3.70
    5.00 to   7.88            1,327            9.2 years            6.19             452           6.57
    8.00 to  10.88              156            8.7 years            8.81              69           9.06
---------------------         -----        ------------------     ------             ---         ------
   $ .84 to $10.88            3,418            8.6 years          $ 4.43           1,398         $ 4.19
=====================         =====        ==================     ======           =====         ======
</TABLE>


                                      F-23
<PAGE>

                 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


12. EMPLOYEE STOCK OPTION PLAN--(CONTINUED)

     In December 1998, the Company issued 30,000 options to buy shares of the
Company's common stock to a director at a price of $2.00 per share for
consulting services rendered, and recognized $25,000 in expense in its 1998
consolidated financial statements.

     In December 1999, the Company issued 20,000 options to buy shares of the
Company's common stock to an outside consultant at a price of $7.00 per share
for consulting services rendered, and recognized $28,200 in expense in its 1999
consolidated financial statements.

13. SEGMENT INFORMATION

     For the year ended December 31, 1999, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131). SFAS 131 supersedes Financial Accounting Standards Board's SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS 131
establishes standards for the way that business enterprises report information
about operating segments in annual financial statements. SFAS 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of SFAS 131 did not affect
results of operations or financial position, but did affect the disclosure of
segment information.

     The Company is organized into two primary business segments: (a) NeoMedia
SI, and (b) NeoMedia ASP. Performance is evaluated and resources allocated
based on specific segment requirements and measurable factors. Management uses
the Companies internal income statements to evaluate each business unit's
performance. Assets of the business units are not relevant for management of
the business segments nor for disclosure.


                                      F-24
<PAGE>

                 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

13. SEGMENT INFORMATION--(CONTINUED)

     Operational results for the two segments for the years ended December 31,
1999 and 1998 are presented below:

                                   NEOMEDIA SI     NEOMEDIA ASP     CONSOLIDATED
                                  -------------   --------------   -------------
   YEAR ENDED DECEMBER 31, 1999
   Revenue ....................     $ 24,461         $    795        $  25,256
   Net Loss ...................       (4,556)          (5,916)         (10,472)

   YEAR ENDED DECEMBER 31, 1998
   Revenue ....................     $ 23,371         $    107        $  23,478
   Net Loss ...................       (8,786)          (2,709)         (11,495)

14. COMMON STOCK

     During the year ended December 31, 1999, the Company issued through
private placements 1,978,794 shares of the Company's Common Stock for proceeds
of $8.1 million. In connection with these private placements, the Company also
issued 414,666 warrants.

     During the year ended December 31, 1999, 231,764 of the Company's
outstanding warrants were exercised for proceeds of approximately $75,000.

     In 1999, an unrelated third party converted their $2.0 million note
receivable from the Company into shares of the Company's common stock at a
price of $4.00 per share. The unrelated third party also received 200,000
warrants.

15. LIQUIDITY AND SUBSEQUENT EVENTS

     During the years ended December 31, 1999 and 1998 the Company's net loss
totaled approximately $10,472,000 and $11,495,000 respectively. As of December
31, 1999 the Company has an accumulated deficit of approximately $32,466,000,
had a working capital deficit of approximately $1,667,000 and approximately
$2,460,000 in unrestricted cash balances.

     Subsequent to December 31, 1999, the following events have occurred:

     o    During January and February 2000, the Company repaid its two of its
          notes payable in the aggregate amount of $500,000.

     o    In January, 2000, the Company issued 381,356 shares of the Company's
          common stock at a price of $3.75 per share to an unrelated party. In
          connection with the sale, the Company also issued 12,571 warrants with
          an exercise price of $7.19, 5,400 warrants with an exercise price of
          $6.44, and 12,166 warrants with an exercise price of $7.37. Proceeds
          from these transactions were $1.4 million.


                                      F-25
<PAGE>

                 NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


15. LIQUIDITY AND SUBSEQUENT EVENTS--(CONTINUED)

     o    In February, 2000, the Company issued 39,535 shares of the Company's
          common stock at a price of $6.88 per share to an unrelated party. In
          connection with the sale, the Company also issued 2,500 warrants with
          an exercise price of $12.74 and 1,454 warrants with an exercise price
          of $9.56. Proceeds from these transactions were $272,000.

     o    In February, 2000, the Company issued 50,000 shares of the Company's
          common stock at a price of $6.00 per share to an unrelated party. In
          connection with the sale, the Company also issued 2,982 warrants with
          an exercise price of $10.06. Proceeds from this transaction were
          $300,000.

     o    In March, 2000, the Company issued 1,000,000 shares of the Company's
          common stock at a price of $7.50 per share to an unrelated party. In
          connection with the sale, the Company also issued 275,000 warrants
          with an exercise price of $7.50 and 125,000 warrants with an exercise
          price of $15.00. The Company must also nominate a person from this
          unrelated party to NeoMedia's Board of Directors. Proceeds from this
          transaction were $7.5 million.

     o    [During the first quarter 2000 through March 17, 2000 the Company has
          raised $2.9 million from the exercise of stock warrants and options.]

     The Company's unrestricted cash balance at March 17, 2000 was
approximately $11.9 million (unaudited). The Company also has an agreement from
an unrelated third party to invest an additional $7.5 million in the Company
through the purchase of unissued shares of common stock.

                                      F-26
<PAGE>

                                   PART III


ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT

     Information called for by Item 10 of Part III is incorporated by reference
to the definitive Proxy Statement for the 2000 Annual Meeting of Shareholders
to be held tentatively on June 20, 2000, to be filed with the Commission within
120 days of the end of the Company's last fiscal year.

ITEM 10. EXECUTIVE COMPENSATION

     Information called for by Item 11 of Part III is incorporated by reference
to the definitive Proxy Statement for the 2000 Annual Meeting of Shareholders
to be held tentatively on June 20, 2000, to be filed with the Commission within
120 days of the end of the Company's last fiscal year.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information called for by Item 12 of Part III is incorporated by reference
to the definitive Proxy Statement for the 2000 Annual Meeting of Shareholders
to be held tentatively on June 20, 2000, to be filed with the Commission within
120 days of the end of the Company's last fiscal year.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information called for by Item 13 of Part III is incorporated by reference
to the definitive Proxy Statement for the 2000 Annual Meeting of Shareholders
to be held tentatively on June 20, 2000, to be filed with the Commission within
120 days of the end of the Company's last fiscal year.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

     (1) The following exhibits required by Item 601 of Regulation S-B to be
filed herewith are hereby incorporated by reference:

<TABLE>
<CAPTION>
  EXHIBIT
    NO.      DESCRIPTION
  -------    -----------
<S>          <C>
      3.1    Articles of Incorporation of Dev-Tech Associates, Inc. and amendment thereto (Incorporated
             by reference to Exhibit 3.1 to NeoMedia's Registration Statement No. 333-5534 (the
             "Registration Statement")).
      3.2    By-laws of Dev-Tech Associates, Inc. (Incorporated by reference to Exhibit 3.2 to NeoMedia's
             Registration Statement).
</TABLE>

                                      III-1
<PAGE>


<TABLE>
<CAPTION>
 EXHIBIT
   NO.     DESCRIPTION
 -------   -----------
<S>        <C>
   3.3     Restated Certificate of Incorporation of DevSys, Inc. (Incorporated by reference to Exhibit 3.3
           to NeoMedia's Registration Statement).
   3.4     By-laws of DevSys, Inc. (Incorporated by reference to Exhibit 3.4 to NeoMedia's Registration
           Statement).
   3.5     Articles of Merger and Agreement and Plan of Merger of DevSys, Inc. and Dev-Tech
           Associates, Inc. (Incorporated by reference to Exhibit 3.5 to NeoMedia's Registration
           Statement).
   3.6     Certificate of Merger of Dev-Tech Associates, Inc. into DevSys, Inc. (Incorporated by
           reference to NeoMedia's Registration Statement).
   3.7     Articles of Incorporation of Dev-Tech Migration, Inc. and amendment thereto (Incorporated by
           reference to Exhibit 3.7 to NeoMedia's Registration Statement).
   3.8     By-laws of Dev-Tech Migration, Inc. (Incorporated by reference to Exhibit 3.8 to NeoMedia's
           Registration Statement).
   3.9     Restated Certificate of Incorporation of DevSys Migration, Inc. (Incorporated by reference to
           Exhibit 3.9 to NeoMedia's Registration Statement).
   3.10    Form of By-laws of DevSys Migration, Inc. (Incorporated by reference to Exhibit 3.10 to
           NeoMedia's Registration Statement).
   3.11    Form of Agreement and Plan of Merger of Dev-Tech Migration, Inc. into DevSys Migration,
           Inc. (Incorporated by reference to Exhibit 3.11 to NeoMedia's Registration Statement).
   3.12    Form of Certificate of Merger of Dev-Tech Migration, Inc. into DevSys Migration, Inc.
           (Incorporated by reference to Exhibit 3.12 to NeoMedia's Registration Statement).
   3.13    Certificate of Amendment to Certificate of Incorporation of DevSys, Inc. changing its name to
           NeoMedia Technologies, Inc. (Incorporated by reference to Exhibit 3.13 to NeoMedia's
           Registration Statement).
   3.14    Form of Certificate of Amendment to Certificate of Incorporation of NeoMedia Technologies,
           Inc. authorizing a reverse stock split (Incorporated by reference to Exhibit 3.14 to
           NeoMedia's Registration Statement).
   4.1     Form of Certificate for Common Stock of DevSys, Inc. (Incorporated by reference to
           Exhibit 4.1 to NeoMedia's Registration Statement).
   4.2     Form of Joseph Charles' Warrant Agreement (Incorporated by reference to Exhibit 4.2 to
           NeoMedia's Registration Statement).
   4.3     Form of Private Placement Financing Converted Securities Registration Rights Agreement
           (Incorporated by reference to Exhibit 4.4 to NeoMedia's Registration Statement).
   4.4     Form of 10% Unsecured Subordinated Convertible Promissory Note (Incorporated by
           reference to Exhibit 4.5 to NeoMedia's Registration Statement).
   4.5     Form of Principal Stockholder's Warrant (Incorporated by reference to Exhibit 4.6 to
           NeoMedia's Registration Statement).
   4.6     Form of Placement Agent's Warrant Registration Rights Agreement (Incorporated by
           reference to Exhibit 4.7 to NeoMedia's Registration Statement).
   4.7     Form of Placement Agent's Warrant for the Purchase of Shares of Common Stock and
           Warrants (Incorporated by reference to Exhibit 4.8 to NeoMedia's Registration Statement).
   4.8     Form of Warrant Agreement and Warrant (Incorporated by reference to Exhibit 4.9 to
           NeoMedia's Registration Statement).
   4.9     Form of Warrant to Charles W. Fritz (Incorporated by reference to Exhibit 4.10 to
           NeoMedia's Form 10-KSB for the year ended December 31, 1997)
   4.11    Form of Warrant to Dominick & Dominick, Incorporated (Incorporated by reference to
           Exhibit 4.11 to NeoMedia's Form 10-KSB for the year ended December 31, 1997)
</TABLE>

                                      III-2
<PAGE>


<TABLE>
<CAPTION>
 EXHIBIT
   NO.     DESCRIPTION
 -------   -----------
<S>        <C>
   4.12    Form of Warrant to Compass Capital, Inc. (Incorporated by reference to Exhibit 4.12 to
           NeoMedia's Form 10-KSB for the year ended December 31, 1997)
   4.13    Form of Warrant to Thornhill Capital, L.L.C. (Incorporated by reference to Exhibit 4.10 to
           NeoMedia's Form 10-KSB for the year ended December 31, 1997)
   4.14    Form of Warrant to Southeast Research Partners, Inc. (Incorporated by reference to
           Exhibit 4.14 to NeoMedia's Form 10-KSB for the year ended December 31, 1997)
   4.15    Form of Warrant to Joseph Charles & Associates, Inc. (Incorporated by reference to
           Exhibit 4.15 to NeoMedia's Form 10-KSB for the year ended December 31, 1997)
  10.1     Form of Nonsolicitation and Confidentiality Agreement (Incorporated by reference to
           Exhibit 10.2 to NeoMedia's Registration Statement).
  10.2     Employment Agreement dated May 1, 1996 between Dev-Tech Associates, Inc. and Charles
           W. Fritz (Incorporated by reference to Exhibit 10.3 to NeoMedia's Registration Statement).
  10.3     Employment Agreement dated April 1, 1996 between Dev-Tech Associates, Inc. and Robert
           T. Durst, Jr. (Incorporated by reference to Exhibit 10.4 to NeoMedia's Registration
           Statement).
  10.4     Employment Agreement dated May 1, 1996 between Dev-Tech Associates, Inc. and Charles
           T. Jensen (Incorporated by reference to Exhibit 10.5 to NeoMedia's Registration Statement).
  10.5     Lease dated August 29, 1995 for premises located at 280 Shuman Boulevard, Naperville,
           Illinois (Incorporated by reference to Exhibit 10.8 to NeoMedia's Registration Statement).
  10.6     Guaranty (By Individual) dated October 20, 1992, to IBM Credit Corporation from Charles W.
           Fritz, as Guarantor (Incorporated by reference to Exhibit 10.40 to NeoMedia's Registration
           Statement).
  10.7     Dev-Tech Associates, Inc. Annual Incentive Plan for Management (Incorporated by reference
           to Exhibit 10.43 to NeoMedia's Registration Statement).
  10.8     Dev-Tech Associates, Inc. 1996 Stock Option Plan (Incorporated by reference to
           Exhibit 10.44 to NeoMedia's Registration Statement).
  10.9     First Amendment and Restatement of Dev-Tech Associates, Inc. 1996 Stock Option Plan
           (Incorporated by reference to Exhibit 10.45 to NeoMedia's Registration Statement).
  10.10    Form of Stock Option Agreement--Dev-Tech Associates, Inc. (Incorporated by reference to
           Exhibit 10.46 to NeoMedia's Registration Statement).
  10.11    Dev-Tech Migration, Inc. 1996 Stock Option Plan (Incorporated by reference to Exhibit 10.47
           to NeoMedia's Registration Statement).
  10.12    First Amendment and Restatement of Dev-Tech Migration, Inc. 1996 Stock Option Plan
           (Incorporated by reference to Exhibit 10.48 to NeoMedia's Registration Statement).
  10.13    Form of Stock Option Agreement--Dev-Tech Migration, Inc. (Incorporated by reference to
           Exhibit 10.49 to NeoMedia's Registration Statement).
  10.14    Dev-Tech Associates, Inc. 401(k) Plan and amendments thereto (Incorporated by reference
           to Exhibit 10.50 to NeoMedia's Registration Statement).
  10.15    Mutual General Release and Stock Purchase Agreement with the Estate of Thomas Ruberry
           (Incorporated by reference to Exhibit 10.52 to NeoMedia's Registration Statement).
  10.16    First Amendment and Restatement of NeoMedia Technologies, Inc. 1996 Stock Option Plan
           (As Established Effective February 1, 1996, and as amended through November 18, 1996)
           (Incorporated by reference to Exhibit 10.60 to NeoMedia's Registration Statement).
  10.17    Agreement of Lease Between First Union National Bank of Florida and NeoMedia
           Technologies, Inc. Dated November 27, 1996 (Incorporated by reference to Exhibit 10.43 to
           NeoMedia's Form 10-KSB for the year ended December 31, 1996).
</TABLE>

                                      III-3
<PAGE>


<TABLE>
<CAPTION>
  EXHIBIT
    NO.      DESCRIPTION
  -------    -----------
<S>          <C>
    10.18    Sublease Agreement Between NeoMedia Technologies, Inc. and Lancaster Annuity Services
             Company Dated November 8, 1996 (Incorporated by reference to Exhibit 10.44 to
             NeoMedia's Form 10-KSB for the year ended December 31, 1996).
    10.19    Master Lease Between William E. Fritz and NeoMedia Technologies, Inc. Dated
             November 6, 1996 (Incorporated by reference to Exhibit 10.46 to NeoMedia's Form 10-KSB
             for the year ended December 31, 1996).
    10.20    Agreement for Wholesale Financing (Security Agreement) Between IBM Credit Corporation
             and NeoMedia Technologies, Inc. Dated February 20, 1997 (Incorporated by reference to
             Exhibit 10.47 to NeoMedia's Form 10-KSB for the year ended December 31, 1996).
    10.21    Collateralized Guaranty Between IBM Credit Corporation and NeoMedia Migration, Inc.
             Dated February 20, 1997 (Incorporated by reference to Exhibit 10.48 to NeoMedia's
             Form 10-KSB for the year ended December 31, 1996).
    10.22    Lease By and Between American National Bank and Trust Company of Chicago and
             NeoMedia Technologies, Inc. Dated February 25, 1997 (Incorporated by reference to
             Exhibit 10.50 to NeoMedia's Form 10-QSB for the quarter ended March 31, 1997).
    10.23    Letter Agreement by and between Dominick & Dominick, Incorporated and NeoMedia
             Technologies, Inc. Dated March 20, 1997 (Incorporated by reference to Exhibit 10.51 to
             NeoMedia's Form 10-QSB for the quarter ended June 30, 1997).
    10.24    Stock Purchase Agreement Dated August 30, 1997 By and Between NeoMedia
             Technologies, Inc. and George Luntz and Gerald L. Willis (Incorporated by reference to
             Exhibit 99.1 to NeoMedia's Form 8-K dated September 25, 1997).
    10.25    Registration Rights Agreement Dated September 25, 1997 By and Between NeoMedia
             Technologies, Inc. and Gerald L. Willis and George G. Luntz (Incorporated by reference to
             Exhibit 99.2 to NeoMedia's Form 8-K dated September 25, 1997).
    10.26    Consulting Agreement Dated August 30, 1997 By and Between NeoMedia Technologies, Inc.
             and Gerald L. Willis. (Incorporated by reference to Exhibit 99.3 to NeoMedia's Form 8-K
             dated September 25, 1997).
    10.29    Purchase Agreement dated December 31, 1998, by and between NeoMedia Technologies,
             Inc. and Solar Communications, Inc.
    10.30    NeoMedia Technologies, Inc. 1998 Stock Option Plan (Incorporated by reference to
             Appendix A to NeoMedia's Form 14A Filed on February 18, 1998).
    10.31    Amendment to NeoMedia Technologies 1998 Stock Option Plan (Incorporated by reference
             to text of NeoMedia form 14A filed on July 2, 1999)
      21     Subsidiaries (Incorporated by reference to description of Company's subsidiaries contained
             in Part I, Item I of this form 10-KSB.

         (2) The following exhibits required by Item 601 of Regulation S-B are hereby filed herewith:

    10.32    Employment agreement dated August 2, 1999 between NeoMedia Technologies, Inc. and
             William Goins
    23.1     Consent of Arthur Andersen LLP
    23.2     Consent of KPMG LLP
    27.1     Article 5 Financial Data
</TABLE>

(b) Reports on Form 8-K


    N/A

                                     III-4
<PAGE>

                                  SIGNATURES


     In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of Fort Myers, State of
Florida, on the 28th day of March, 2000.

                                    NEOMEDIA TECHNOLOGIES, INC.
                                    REGISTRANT


                                    By:          /s/ CHARLES W. FRITZ
                                       -----------------------------------------
                                       Charles W. Fritz, Chief Executive Officer
                                               and Chairman of the Board

     In accordance with the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on March 28, 2000.


<TABLE>
<CAPTION>
            SIGNATURES                                     TITLE
            ----------                                     -----
<S>                                  <C>
       /s/ CHARLES W. FRITZ          Chief Executive Officer, Chairman of the Board
----------------------------------     and Director
         Charles W. Fritz

       /s/ WILLIAM F. GOINS          President, Chief Operating Officer and Director
----------------------------------
         William F. Goins

       /s/ WILLIAM E. FRITZ          Secretary and Director
----------------------------------
         William E. Fritz

      /s/ CHARLES T. JENSEN          Chief Financial Officer, Treasurer and Director
----------------------------------
        Charles T. Jensen

     /s/ ROBERT T. DURST, JR.        Director
----------------------------------
       Robert T. Durst, Jr.

       /s/ A. HAYES BARCLAY          Director
----------------------------------
         A. Hayes Barclay

        /s/ JAMES J. KEIL            Director
----------------------------------
          James J. Keil

         /s/ PAUL REECE              Director
----------------------------------
           Paul Reece

      /s/ JOHN A. LOPIANO            Director
----------------------------------
        John A. Lopiano
</TABLE>



                                     III-5
<PAGE>

                                  EXHIBIT INDEX

 SEQUENTIAL    EXHIBIT
 PAGE NUMBER    NUMBER      DOCUMENT
 -----------   -------      --------

     E-1         23.1       Independent Auditors' Consent

     E-2         23.2       Independent Auditors' Consent

     E-3 - E-15  10.32      Employment Agreement between NeoMedia Technologies,
                            Inc. and William Goins

     E-16        27.1       Article 5 Financial Data Schedule for December 31,
                            1999