NEOMEDIA TECHNOLOGIES INC, 10KSB40, 2000-03-30

NEOMEDIA TECHNOLOGIES INC
10KSB40, 2000-03-30
COMPUTER INTEGRATED SYSTEMS DESIGN

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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

[ ] 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
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(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.

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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.

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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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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.

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[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

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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)

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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.

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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

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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

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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.

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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.

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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

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

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

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

As independent certified public accounts, we hereby consent to the incorportion
of our report, included in this Form 10-K, into the Company's previously filed
registration statement on Forms S-8 (File nos. 333-80591 and 333-42477).

/s/ ARTHUR ANDERSEN LLP

ARTHUR ANDERSEN LLP

Tampa, Florida,
March 27, 2000

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EXHIBIT 23.2

Independent Auditors' Consent

The Board of Directors
NeoMedia Technologies, Inc.

We consent to incorporation by reference in the registration statements on Form
S-8 (Nos.333-42477 and 333-80591) of NeoMedia Technologies, Inc. of our
report dated March 12, 1999, relating to the consolidated balance sheet of
NeoMedia Technologies, Inc. and subsidiaries (collectively referred to as the
"Company") as of December 31, 1998, and the related consolidated statements of
operations, cash flows and stockholders' equity for the year then ended, which
report appears in the December 31, 1999 annual report on Form 10-KSB of NeoMedia
Technologies, Inc.

Our report dated March 12, 1999 contains an explanatory paragraph that states
that the Company has suffered recurring losses from operations, has a
significant accumulated deficit, and a working capital deficiency which raise
substantial doubt about its ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of that uncertainty.

/s/ KPMG LLP

KPMG LLP

Miami, Florida
March 29, 2000

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EXHIBIT 10.32

E M P L O Y M E N T A G R E E M E N T

THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 2nd day of August, 1999, by and between NeoMedia Technologies, Inc., a
Delaware corporation with offices at 2201 Second Street, Suite 600, Fort Myers,
Florida (the "Company") and William F. Goins III (hereinafter referred to as the
"Executive").

WHEREAS, the Company desires to enter into an agreement for the
employment of Executive by the Company to be assured of the continued services
of Executive and Executive desires to enter into employment by the Company on
the terms and subject to the conditions provided herein.

NOW, THEREFORE, in consideration of the premises and of the terms,
covenants and conditions hereinafter contained, the parties hereto agree as
follows:

1. EMPLOYMENT, DUTIES AND AUTHORITY.

1.1 Duties and Responsibilities. The Company hereby employs Executive
and Executive hereby accepts employment by the Company as President and Chief
Operating Officer, on the terms and subject to the covenants and conditions
herein contained and in accordance with all Company policy and procedures, which
may vary from time to time at the discretion of the Company. The Executive shall
have such duties, responsibilities and authority commensurate with his executive
position and as the by-laws of the Company provide and as the Board of Directors
of the Company shall, from time to time, prescribe. During the term of
Executive's employment hereunder, Executive shall devote his full time to the
performance of his duties and responsibilities hereunder and will perform such
duties and responsibilities faithfully and with reasonable care for the welfare
of the Company. Executive shall provide services to the Company principally at
Company corporate headquarters. During the term of his employment hereunder,
Executive shall not perform any services, whether or not for compensation, for
any person, firm, partnership, corporation or other entity of any kind or nature
whatsoever, other than the Company, without the express written consent of the
President of the Company; provided, however, notwithstanding the foregoing
provisions to the contrary, Executive may volunteer his services to charitable,
religious and not-for-profit organizations and may write articles and books
provided that such activities do not prevent Executive from performing his
services hereunder and the entities to which he provides such services or the
other activities in which he engages are not in competition with the Company.

2. COMPENSATION.

2.1 Base Salary. The Company shall pay to Executive during the Initial
Term (as hereinafter defined) of employment hereunder, and each renewal term, a
salary of one hundred eighty thousand ($180,000) dollars per annum ("Base
Salary"). The Base Salary shall be subject to review from time to time, whereby
the Executive shall be eligible for salary increases at the discretion of the
Compensation Committee of the Company Board of Directors. The Base Salary, less
all amounts which the Company is required to withhold from such payments for
applicable federal, state or local laws or regulation, shall be paid by the
Company to the Executive in accordance with the Company's policies and
procedures.

2.2 Sign-on Bonus. In consideration of Executive's employment during
the Initial Term, Company shall pay to Executive a cash sign-on bonus of
twenty-five thousand ($25,000) dollars (the "Sign-on Bonus"). The Sign-on Bonus
shall be paid with the Executive's first Base Salary paycheck, less all amounts
which the Company is required to withhold from such payments for applicable
federal, state or local laws or regulation.

2.3 Stock Options. In further consideration of Executive's employment,
Company grants to Executive stock options, from the 1998 Stock Option Plan, for
100,000 shares of the Company's common stock (the "Stock Options"), subject to
approval by the Stock Option Committee of the Company's Board of Directors. Such
options shall have an exercise price equal to the closing NASDAQ price for such
stock on Executive's first date of employment, and shall vest in accordance with
the Company's standard vesting schedule of twenty percent immediately upon
grant, and

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an additional twenty percent upon each of the four successive annual
anniversaries of such grant. The Stock Options shall be subject to the terms and
conditions of the Stock Option Agreement and the 1998 Stock Option Plan.
Executive shall be eligible for additional stock option grants, anticipated to
be 100,000 additional Stock Options annually, at the discretion of the
Compensation Committee and the Stock Option Committee of the Board of Directors,
subject to the terms and conditions stated herein.

2.4 Incentive Plan. Executive shall participate in, and be deemed an
eligible employee of, the Company's Annual Incentive Plan for Management in
accordance with the provisions of such plan. During the calendar year 1999,
Executive shall be eligible for a performance bonus of 75% of Base Salary if the
Company achieves 100% of its financial plan. Such bonus shall become payable at
a reduced percentage rate if Company achieves 85% of its sales goal and 60% of
its profitability goal. The 1999 bonus will be prorated based on the performance
and length of employment of Executive during the calendar year 1999, and subject
to all provisions of the Company's Plan.

2.5 Payment During Absences. If Executive shall be absent from work on
account of personal injuries or sickness, he shall, subject to the provisions of
Section 5.1(b), continue to receive the payments of Base Salary provided for in
paragraph 2.1 hereof; provided, however, that any such payment may, at the
Company's sole option, be reduced by the amount which the Executive may receive,
for the period covered by any such payments, disability payments (i) pursuant to
any disability insurance which the Company, in its sole discretion, may
maintain, or (ii) under any governmental program for disability compensation.

3. BENEFITS; EXPENSE REIMBURSEMENT.

Executive shall be entitled to those benefits described in this Section
3, and shall not be entitled to any other benefits of any kind or nature
whatsoever.

3.1 Benefits. Executive shall receive all other benefits of employment
available to other employees of the Company generally, including, without
limitation, vacation time off, other time off, participation in any medical,
dental or other group health plans or accident benefits, life insurance
benefits, pension or profit-sharing plans, as shall be instituted by the
Company, in its sole discretion. Set forth on Exhibit A hereto is a summary of
the current benefits full time employees of the Company are entitled to receive.
Any or all of such benefits may be modified or discontinued at any time or from
time to time by the Company in its sole discretion (provided that such
modification or discontinuance is applicable to all of the Company's full time
employees) and the Company shall not have any obligation of any kind or nature
whatsoever to provide Executive with any benefit in place of such modified or
discontinued benefit (a substituted benefit), unless such substituted benefit is
provided to all full time employees of the Company.

3.2 Relocation Benefits. Executive shall be reimbursed for actual
relocation expenses incurred in relocating his household from Illinois to
Sarasota, Florida. Relocation expenses shall be paid in accordance with the
Company's Relocation Policy, but shall not exceed the sum of twenty-five
thousand ($25,000) dollars ("Relocation Benefits"). Executive shall be afforded
Relocation Benefits only once, unless the corporate headquarters of the Company
shall be relocated at least eighty (80) miles from its present location.

3.3 Automobile Lease. Executive shall be eligible to participate in
Company's Executive Automobile Leasing Program, and will be provided a vehicle
in accordance with, and subject to, the terms of the Company's Executive
Automobile Leasing policy. In accordance with applicable tax laws, the value of
personal use of the company vehicle shall be reported as taxable income to the
Executive.

3.4 Expense Reimbursement. During the term hereof, the Company shall
reimburse Executive for all reasonable and necessary business related expenses
incurred by Executive in the performance of his duties hereunder, including
without limitation, travel, meals, lodging, office supplies or equipment subject
to such limitations, restrictions, reporting standards and policies and
procedures that the Company may from time to time establish. Executive shall
provide to the Company promptly after incurring any such expenses a detailed
report thereof and such documentation

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as the Company shall from time to time require and as shall be sufficient to
support the deductibility of all such expenses by the Company for federal income
tax purposes.

4. TERM.

The employment of Executive hereunder shall be for a term commencing on
August 1, 1999 and expiring on July 31, 2000 (the "Initial Term"). Upon the
expiration of the Initial Term or any renewal term of Executive's employment
hereunder, the term of such employment automatically shall be renewed for an
additional term of one year unless Executive or the Company shall give notice of
the termination of Executive's employment and this Agreement by written notice
to the other no less than 60 days prior to the date of expiration of the Initial
Term or any renewal term.

5. TERMINATION BY COMPANY.

5.1 Right To Terminate Prior To Expiration of Term. Notwithstanding any
other provision herein contained to the contrary, the Company shall be entitled
to terminate this Agreement and the employment of Executive prior to the
expiration of the Initial Term or any renewal term: (a) for any reason (other
than an event of default by the Executive) upon written notice to Executive; (b)
immediately upon the occurrence of an event of default by Executive, as provided
herein; or (c) upon Death or Disability of Executive, as defined herein.

5.2 Event of Default by Executive. For purposes of Section 5.1,
an event of default with respect to Executive shall include:

(a) any failure by Executive to perform his duties and responsibilities
hereunder in a faithful and diligent manner or with reasonable care and, if such
failure can be cured, the failure by Executive to cure such failure within five
days after written notice thereof shall have been given to Executive by the
Company;

(b) violation of Company policy, as prescribed from time to time by
Company, and if such violation can be cured, the failure by Executive to cure
such violation within five days after written notice thereof shall have been
given to Executive by the Company;

(d) destruction or conversion by Executive of any property of the
Company, without the Company's consent;

(e) Executive's conviction of a felony;

(f) Executive's adjudication as an incompetent;

(g) Executive's habitual intoxication;

(h) Executive's drug addiction;

(i) Conduct unbefitting an executive of Company which, in the
discretion of the Board of Directors of the Company, casts the Company in a
shameful light;

(j) The commission by Executive of an act resulting in injury to
the business, property or reputation of the Company;

(k) The commission of an act by Executive in the performance of
his duties hereunder which amounts to negligence;

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(l) The refusal by Executive to perform, or substantial neglect
of, the duties assigned to Executive;

(m) Any violation of any statutory or common law duty of loyalty
to the Company; or

(n) Executive's breach of paragraphs 7, 8, 9 or 10 hereof.

5.3 Disability. For purposes of this Agreement, the term Disability
means any physical or mental condition of Executive which, as determined by the
Company in its sole discretion, is expected to continue indefinitely and which
renders Executive incapable of performing any substantial portion of the
services contemplated hereunder. The mere effort by Executive to carry on the
duties of his employment shall not be sufficient if it is determined by the
Company, in its sole discretion, that Executive is not making a substantial
full-time contribution to the Company or Executive's actions as a whole are
detrimental to the Company.

5.4 Effect Of Termination.

5.4.1 Termination Without Cause. In the event of termination of this
Agreement and Executive's employment pursuant to Paragraph 5.1(a) hereof, all
rights and obligations of the Company and Executive hereunder shall terminate on
the date of such termination, subject to the following:

(a) Executive shall be entitled to receive (subject to a right of
setoff or counterclaim by the Company) all Base Salary and benefits which shall
have accrued prior to the date of such termination. Notwithstanding anything to
the contrary, the obligation of the Company for the payment of Base Salary or
benefits for the remainder of the then-current Term shall terminate as of the
date of such termination;

(b) Executive shall be entitled to receive severance pay in an amount
equal to Executive's actual Base Salary for the six (6) months immediately
preceding such termination (the "Severance Pay"). In the event Executive shall
not have been employed by Company for six months preceding such termination,
Executive shall nevertheless receive Severance Pay, calculated as Executive's
actual Base Salary for the number of actual months thus employed, plus an
additional sum of one-twelfth (1/12th) the Base Salary stated in Section 2.1 for
each additional month which when added to actual months thus employed shall
equal a total of six (6) months. Severance Pay shall be payable, at the
Company's option, in a lump sum distribution or in accordance with the Company's
regular pay cycle, and in either case shall be subject to withholding for
applicable federal, state or local laws or regulations; and

(c) All rights of the Company or Executive which shall have accrued
hereunder prior to the date of such termination and all provisions of this
Agreement which are to survive termination of employment of Executive hereunder,
including those arising under Section 7, 8, 9 and 10 shall survive such
termination, and the Company and Executive shall continue to be bound by such
provisions in accordance with their terms. Notwithstanding anything to the
contrary, for the purposes of this section, the right to receive Base Salary or
other compensation for the remainder of the then-current Term of this Agreement
shall not survive.

5.4.2 Termination For Cause. In the event of termination of this
Agreement and Executive's employment pursuant to Paragraph 5.1(b) hereof, all
rights and obligations of the Company and Executive hereunder shall terminate on
the date of such termination, subject to the following:

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(b) In the event such termination shall occur prior to expiration of
the Initial Term, Company shall be entitled to recover, by set off or by any
other legal means, a pro rata share of the Sign-on Bonus and Relocation Benefits
paid to Executive, in an amount proportionate to the remainder of the Initial
Term rendered unfulfilled by reason of such termination; and

5.5 Death of Executive. This Agreement and all rights and obligations
of the parties hereunder shall terminate immediately upon the death of Executive
except that the Company shall pay to the heirs, legatees or personal
representative of Executive all compensation or benefits hereunder accrued but
not paid to the date of Executive's death.

5.6 Right to Set Off. The Company shall have the right to offset
against any payment due Executive under this Agreement such amount as shall
compensate the Company, or its affiliates, for any losses, injury or other
damage sustained as a result of any act or omission to act of Executive
regardless of whether such conduct gave rise to such termination. In the event
that any such loss, injury or other damage cannot be ascertained with certainty
within fourteen days after the termination of Executive's employment, the
Company shall escrow all payments due Executive which are being set-off pursuant
to the provisions of this subsection in an interest-bearing account until the
amount of loss, injury or other damage can be ascertained, at which time any
amount in excess of such estimated loss, injury, or other damage will be paid,
with interest thereon as earned in such interest-bearing account, to Executive;
provided, however, payment of any such amount to Executive shall not, in any
manner or way whatsoever, release Executive from liability to the Company for
any amount of such loss, injury, or damage sustained by the Company as a result
of Executive's acts or omissions to act, regardless of such payments.

6. TERMINATION BY EXECUTIVE.

6.1 Executive's Right to Terminate. In addition to Executive's right to
terminate set forth in Section 4, Executive shall be entitled to terminate his
employment with the Company under this Agreement for any reason (other than upon
an event of default by the Company) upon (a) sixty (60) days prior written
notice to Company, or (b) immediately upon the occurrence of an event of default
by the Company.

6.2 Event of Default By Company.

6.2.1 For purposes of this Section 6, an event of default with respect
to the Company shall mean:

(a) Any failure by the Company to perform its obligations to Executive
under this Agreement and (if such failure can be cured) the failure by the
Company to cure such failure within thirty (30) days after written notice
thereof shall have been given to the Company by Executive;

(b) Company's filing a petition for relief under any chapter of Title
a11 of the United States Code or a petition to take advantage of any insolvency
laws of the United States of America or any state thereof;

(d) Company's consent to the appointment of a receiver of itself or of
the whole or any substantial part of its property; or

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(e) Company's filing a petition or answer seeking reorganization under
the Federal Bankruptcy Laws or any other applicable law or statute of the United
States of America or any state thereof.

6.2.2 For the purposes of this Section 6, an event of default by
Company shall not occur merely if:

(a) the Company should sell any or all of its assets, business units or
lines of business;

(b) the Company should acquire new assets, business units or lines of
business;

(d) Executive is asked to assume reasonable additional or different job
responsibilities not inconsistent with his expertise or job title.

6.3 Effect Of Termination.

6.3.1 Termination Without Cause. In the event of termination of the
Agreement by Executive in accordance with the provisions of Section 6.1(a)
hereof, all rights and obligations of the Company and Executive hereunder shall
terminate on the date of such termination, subject to the following:

(a) Executive shall be entitled to receive all Base Salary and benefits
which shall have accrued prior to the date of such termination. Notwithstanding
anything to the contrary, the obligation of the Company for the payment of Base
Salary or benefits for the remainder of the then-current Term shall terminate as
of the date of such termination;

6.3.2 Termination For Cause. In the event of termination of the
Agreement by Executive in accordance with the provisions of Section 6.1(b)
hereof, all rights and obligations of the Company and Executive hereunder shall
terminate on the date of such termination, subject to the following:

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7. NON-COMPETITION AND NON-SOLICITATION.

7.1 Non-Competition and Non-Solicitation. Executive agrees that, so
long as he is employed by Company pursuant to this Agreement, and for a period
of twelve (12) months following expiration of the term or termination of this
Agreement, other than termination by Executive upon the occurrence of an event
of default by the Company, he will not, directly or indirectly, as a sole
proprietor, member of a partnership, stockholder, investor, officer or director
of a corporation, or as an employee, agent, associate, consultant or material
creditor of any person, partnership, corporation, joint venture, trust, business
trust, association, firm, business organization or other entity of any kind or
nature (hereinafter collectively referred to as "Entity") other than the
Company or in any other capacity do any of the following:

(a) Executive will not, in any manner or way whatsoever, own, manage,
operate, finance, join, control, participate in the ownership, management,
operation or be connected with, in any manner or way whatsoever, perform
services for or otherwise carry on a business anywhere in the world where
NeoMedia does business or is negotiating to do business at the time of
termination which performs any of the services provided at any time by, or which
utilizes or sells any of the products, software or tools developed, sold or
owned at any time by, the Company or engages in business similar to the business
of the Company at any time during the term of this Agreement;

(b) Executive will not, directly or indirectly, induce or attempt to
persuade any employee of Company to terminate such employment relationship in
order to enter into any relationship with such person or to enter into any such
relationship on behalf of any Entity whether or not such Entity is in
competition with Company or any of its affiliates;

(c) Executive will not, directly or indirectly, solicit any business
related to the business conducted by Company from any clients, agencies of
clients, customers, or agencies of clients or customers of Company; and

(d) Executive will not, directly or indirectly, perform services of any
kind or nature for any Entity which engages in or conducts any business that
competes with the business of the Company.

For the purposes of this Agreement, the words "directly or indirectly"
as used in Section 7.1 herein shall include, but not be limited to, (i) acting
as an agent, officer, director, representative, consultant, independent
contractor, or employee of any Entity or enterprise, and (ii) participating in
any such competing Entity or enterprise as an owner, partner, limited partner,
member, joint venturer, material creditor or stockholder (except as a
stockholder holding less than five percent (5%) interest in a corporation whose
shares are traded on a national securities exchange or in the over-the-counter
market unless Executive controls such corporation, either alone or with others).

7.2 Acknowledgment.

(a) Executive acknowledges that the restrictions set forth in Section 7
hereof are reasonable in scope and essential to the preservation of the
Company's business and proprietary properties and interests, and that the
enforcement thereof will not in any manner preclude Executive, in the event of
Executive's termination of employment with the Company, from becoming gainfully
employed in such manner and to such extent as to provide a standard of living
for himself, the members of his family and those dependent upon him of at least
to the sort and fashion to which he and they have become accustomed and may
expect. Executive acknowledges that his expertise is of a special, unique,
unusual, extraordinary and intellectual character, which gives said expertise a
peculiar value, and that a breach by Executive of the provisions of this Section
7 cannot reasonably or adequately be compensated in damages in an action at law;
and such a breach of any of these provisions will cause the Company irreparable
injury and damage. Executive further

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acknowledges that he possesses unique skills, knowledge and abilities and that
competition by him, in violation of the provisions of this Section 7 would be
extremely detrimental to the Company. Accordingly, without limiting the right of
the Company to pursue any and all legal and equitable rights available to it for
violation of the covenants of this Section 7, the Company shall be entitled, in
addition to any other remedies it may have under this Agreement or otherwise, to
preliminary and permanent injunctive and other equitable relief, without the
necessity of posting any bond, to prevent a breach or to curtail any breach or
threatened breach of this Section 7 both while this Agreement is in force and
thereafter with respect to obligations continuing after the expiration or
termination of this Agreement; provided, however, notwithstanding any provision
herein contained to the contrary, no specification herein of a specific legal or
equitable remedy shall be construed as a waiver or prohibition against the
pursuing of other legal or equitable remedies.

(b) Executive acknowledges that: (i) the provisions of this Section 7
are a material inducement to the Company to enter this Agreement; and (ii) if
the provisions of this Section 7 were not included in this Agreement, the
Company would not have entered this Agreement. It is the intent and
understanding of each party that if, in any action before any court or agency
legally empowered to enforce this covenant, any term, restriction, covenant or
promise is found to be unreasonable and for that reason unenforceable, then such
term, restrictions, covenant or promise shall be deemed modified to the extent
necessary to make it enforceable by such a court or agency.

8. CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY.

8.1. Confidential Information. "Confidential Information" means
information disclosed by the Company to Executive, or developed or obtained by
Executive during his employment by the Company, provided that such information
is not generally known in the business and industry in which the Company is or
may subsequently become engaged, relating to or concerning the business,
projects, techniques or methods of the Company, whether relating to financial
data, marketing, merchandising, selling or otherwise. Without limitation,
Confidential Information shall include all know-how, technical and financial
information, ideas, concepts and processes relating to the business of the
Company, whether now existing or hereafter developed, and all prices, customer
names and customer lists.

8.2 Intellectual Property. The term "Intellectual Property" shall
mean all trade secrets, inventions, designs, developments, ideas, devices,
methods and processes (whether or not patented or patentable, reduced to
practice or included in the Confidential Information) and all patents and patent
applications related thereto, all copyrights, copyrightable works and mark works
(whether or not included in the Confidential Information) and all registrations
and applications for registration related thereto, all Confidential Information,
and all other proprietary rights contributed to, or conceived or created by,
Executive (whether alone or jointly with others) at any time during Executive's
employment by the Company that: (i) relate to the business or to the actual or
anticipated research or development of the Company; (ii) result from any work
that Executive performs for the Company; or (iii) are created using the
equipment, supplies or facilities of the Company or any Confidential
Information.

8.3 Ownership. Executive shall promptly disclose to the Company all
Intellectual Property made or conceived by him alone or jointly with others,
from the date of this Agreement until Executive's employment with the Company is
terminated and within the two year period immediately following such
termination, relevant or pertinent, in any way, whether directly or indirectly,
to the business of the Company or resulting from or suggested by any work which
he may have done for the Company. Executive shall, at all times during his
employment with the Company, assist the Company in every proper way (entirely at
the Company's expense) to obtain and develop for the Company's benefit patents
on such Intellectual Property, whether or not patented; and shall do all such
acts and execute, acknowledge and deliver all such instruments as may be
necessary or desirable in the opinion of the Company to vest in the Company the
entire interest in such Intellectual Property.

All Intellectual Property is, shall be and shall remain the exclusive
property of the Company. Executive assigns to the Company all right, title and
interest in and to the Intellectual Property; provided, however, that, when
applicable, Company shall own the copyrights in all copyrightable works included
in the Intellectual Property pursuant to the work-made-for-hire doctrine (rather
than by assignment), as such term is defined in the United States Code, Title
17, entitled "Copyrights". All Intellectual Property shall be owned by the
Company irrespective of any copyright notices or confidentiality legends to the
contrary which may have been placed on such works by Executive or by others.
Executive

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shall ensure that all copyright notices and confidentiality legends on all work
product authored by Executive shall conform to the Company's practices and shall
specify the Company as the owner for the work.

8.4 Keep Records. Executive shall keep and maintain adequate and
current written records of all Intellectual Property in the form of notes,
sketches, drawings, computer files, reports or other documents relating thereto.
Such records shall be and shall remain the exclusive property of the Company and
shall be available to the Company at all times during Executive's employment and
shall be turned over to Company at the conclusion of such employment. Executive
shall keep all original documents and computer files at the office and the
password to Executive's computer shall at all times be known by the Company's
director of Human Resources.

8.5 Further Assurances. During the period of Executive's employment by
the Company and at all times thereafter, Executive shall promptly execute any
and all declarations, assignments, applications and other instruments which the
Company shall deem necessary to apply for and obtain patents and copyright
registrations in any country or otherwise to protect the Company's interests in
the Intellectual Property.

9. NON-DISCLOSURE AND NON-USE.

9.1 Non-Disclosure. Executive acknowledges and agrees that Executive
may have access and contribute to information and materials of a highly
sensitive nature (including Confidential Information and Intellectual Property)
and that a purpose of this Agreement is to protect the legitimate business
interests of the Company therein. Executive agrees that, during the period of
Executive's employment by the Company and at all times thereafter, unless
Executive first secures the written consent of the Company, Executive shall not
use for Executive or anyone else, and shall not disclose to others, any
Confidential Information, except to the extent such use or disclosure is
required in the performance of Executive's assigned duties for the Company or by
law or court order. Executive further agrees to use Executive's best efforts and
utmost diligence to safeguard the Confidential Information and to protect it
against disclosure, misuse, espionage, loss and theft.

9.2 Required Disclosures. In the event that Executive is required by
law or court order to disclose any Confidential Information, Executive: (i)
shall notify the Company in writing as soon as possible, but in no event later
than twenty (20) business days prior to any such disclosure except as required
by court of law; (ii) shall cooperate with the Company to preserve the
confidentiality of such Confidential Information consistent with applicable law;
and (iii) shall use Executive's best efforts to limit any such disclosure to the
minimum disclosure necessary to comply with such law or court order.

10. WRITINGS AND WORKING PAPERS.

Executive covenants and agrees that any and all originals and copies of
all records, books, textbooks, letters, pamphlets, drafts, memoranda or other
writings of any kind written by him for or on behalf of the Company or in the
performance of Executive's duties hereunder, Confidential Information referred
to in Section 8 hereof, Intellectual property, all notes, records, including but
not limited to financial statements, calculations, letters, papers, records,
computer hardware, computer disks, computer print-outs, customer lists, customer
account records, documents, instruments, designs, programs, brochures, sales
literature, policy and procedures manuals, however such information might be
obtained or recorded (including electronic data storage systems), or any copies
thereof, or any information or instruments derived therefrom, and drawings or
any similar information of any type or description received by Executive or made
or kept by him of work performed in connection with his employment by the
Company and all computers, software and data and materials maintained in a
medium other than paper shall be and are the sole and exclusive property of the
Company and the Company shall be entitled to any and all copyrights thereon or
other rights relating thereto. Executive agrees to return to the Corporation
such information immediately upon termination of employment regardless of the
reason for termination and regardless of which party terminates, and to execute
any and all documents or papers of any kind or nature which the Company or its
successors, assigns or nominees deem necessary or appropriate to acquire,
enhance, protect, perfect, assign, sell or transfer its rights under this
Agreement. Executive also agrees that upon request he will place all such notes,
records, drawings and other items specified herein in the Company's possession
and will not take with him without the written consent of a duly authorized
officer of the Company any notes, records,

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drawings, blueprints or other reproductions relating or pertaining to or
connected with his employment of the business, books, textbooks, pamphlets,
documents work or investigations of the Company. The obligations of this Section
shall survive the term of employment hereunder or the termination or expiration
of the Initial Term or any renewal term hereof.

11. INJUNCTIVE RELIEF.

Without limiting the right of the Company to pursue all other legal and
equitable rights available to them for violation of the covenants set forth in
Sections, 8, 9 and 10, it is agreed that such other remedies cannot fully
compensate the Company for such a violation and that the Company shall be
entitled to injunctive relief to prevent violation or continuing violation
hereof without the necessity of posting any bond; provided, however,
notwithstanding any provision herein contained to the contrary, no specification
in this Agreement of a specific legal or equitable remedy shall be construed as
a waiver or prohibition against the pursuing of other legal or equitable
remedies. It is the intent and understanding of each party that if, in any
action before any court or agency legally empowered to enforce this covenant,
any term, restriction, covenant or promise is found to be unreasonable and for
that reason unenforceable, then such term, restriction, covenant or promise
shall be deemed modified to the extent necessary to make it enforceable by such
a court or agency.

12. GENERAL.

12.1 Assignment. The rights and duties hereunder of Executive shall
not be assignable, without the express written consent of the Company. The
Company can assign this Agreement to any successor. This Agreement shall be
binding upon any successor to Company.

12.2 Binding Effect. This Agreement shall be binding upon the
parties hereto and their respective successors in interest, heirs and personal
representatives and, to the extent permitted herein, their assigns.

12.3 Severability. If any provision of this Agreement or any part
hereof or application hereof to any person or circumstance shall be finally
determined by a court of competent jurisdiction to be invalid or unenforceable
to any extent, the remainder of this Agreement, or the remainder of such
provision or the application of such provision to persons or circumstances other
than those as to which it has been held invalid or unenforceable, shall not be
affected thereby and each provision of this Agreement shall remain in full force
and effect to the fullest extent permitted by law. The parties also agree that,
if any portion of this Agreement, or any part hereof or application hereof, to
any person or circumstance shall be finally determined by a court of competent
jurisdiction to be invalid or unenforceable to any extent, any court may so
modify the objectionable provision so as to make it valid, reasonable and
enforceable.

12.4 Survival. Except as otherwise explicitly set forth herein,
Sections 5, 6 7, 8, 9, 10, 11, 12 and 13 shall survive any expiration or
termination of this Agreement.

12.5 Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given, delivered and received
(a) when delivered, if delivered personally, (b) four days after mailing, when
sent by registered or certified mail, return receipt requested and postage
prepaid, and (c) the next business day after delivery to a private courier
service, when delivered to a private courier service providing documented
overnight service, in each case addressed as follows:

If to the Company: NeoMedia Technologies, Inc.
2201 Second Street, Suite 600
Fort Myers, FL 33901
Attention: Chairman of the Board

If to Executive: William F. Goins, III
7670 Solimar Circle
Boca Raton, FL 33433

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<PAGE>

12.6 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior written or oral negotiations, representations, agreements,
commitments, contracts or understandings with respect thereto and no
modification, alteration or amendment to this Agreement may be made or shall be
effective unless the same shall be in writing and signed by both of the parties
hereto.

12.7 Waivers. No failure by either party to exercise any of such
party's rights hereunder or to insist upon strict compliance with respect to any
obligation hereunder, and no custom or practice of the parties at variance with
the terms hereof, shall constitute a waiver by either party to demand exact
compliance with the terms hereof. Waiver by either party of any particular
default by the other party shall not affect or impair such party's rights in
respect to any subsequent default of the same or a different nature, nor shall
any delay or omission of either party to exercise any rights arising from any
default by the other party affect or impair such party's rights as to such
default or any subsequent default.

12.8 Governing Law; Jurisdiction. For purposes of construction,
interpretation and enforcement, this Agreement shall be deemed to have been
entered into under the laws of the State of Florida, without regard to its
conflicts of laws rules or principles, and its validity, effect, performance,
interpretation, construction and enforcement shall be governed by and be subject
to the laws of the State of Florida.

12.9 Jurisdiction and Venue. Any and all suits for any and every breach
of this Agreement shall only be instituted and maintained in any court of
competent jurisdiction in the State of Florida and the parties hereto consent to
the jurisdiction and venue in such court. The parties hereby waive the right to
bring any action in any other jurisdiction. Executive waives any claim Executive
may have that (a) Executive is not personally subject to the jurisdiction of any
state or federal court located in the State of Florida, (b) Executive is immune
from any legal process (whether through service or notice, attachment prior to
judgment, attachment made in execution of judgment, execution or otherwise) with
respect to Executive or Executive's property, (c) any such suit, action or
proceeding is brought in an inconvenient forum, (d) the venue of any such suit,
action or proceeding is improper, or (e) the provision of this section may not
be enforced in or by such court.

In any such action or proceeding, to the fullest extent permitted by
applicable law, each of the parties hereby absolutely and irrevocably waives
personal service of any summons, complaint, declaration or other process and
hereby absolutely and irrevocably agrees that the service thereof may be made by
certified or registered mail directed to such party at its address set forth
herein.

12.10 Assistance in Pending or Threatened Actions. Both before and
after termination of employment, Executive shall provide the Company (without
additional compensation) with assistance in any proceeding or threatened
proceeding in which the Company, or any affiliate, is or may be a party;
provided, however, that Executive shall only be required to give assistance with
respect to matters of which he has knowledge or experience.

12.11 Execution and Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be considered an original instrument,
but all of which shall be considered one and the same agreement, and shall be
binding when one or more counterparts have been signed by, and delivered to,
each of the parties.

12.12 Headings. Descriptive headings of the several sections of this
Agreement are inserted for convenience only and shall not, in any manner or way
whatsoever, affect the meaning or construction of any provision of this
Agreement.

12.13 Certain Terminology. Except where the context otherwise requires,
references to "this Section" or words of similar import shall be deemed to refer
to the entire section and not a particular subsection and references to
"hereunder", "herein", "hereof" or words of similar import shall be deemed to
refer to the entire Agreement and not the particular section or subsection.

12.14 Waiver of Construction Rule. Executive acknowledges and
represents that Executive has read and understands the provisions of this
Agreement, and has had the opportunity to consult with his legal advisor with
respect

E-13
<PAGE>

to this Agreement and the provisions hereof. Accordingly, the rule of
construction that an ambiguous provision shall be construed against the party
drafting such provision shall not apply to this Agreement and the provisions
hereof.

13. ACKNOWLEDGMENT.

Executive acknowledges and agrees that Executive has fully read and
understands this Agreement, has had the opportunity to discuss this Agreement
with Executive's attorney, has had any questions regarding its effect or the
meaning of its terms answered to Executive's satisfaction, and, intending to be
legally bound hereby, has freely and voluntarily executed this Agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

NEOMEDIA TECHNOLOGIES, INC. Executive:

By:____________________________ _______________________________
Charles W. Fritz William F. Goins, III
Chairman of the Board
and Chief Executive Officer

E-14
<PAGE>

EXHIBIT A
NEOMEDIA STANDARD BENEFITS

HEALTH INSURANCE & PRESCRIPTION DRUG CARD
This P.P.O. plan will be effective on the first of the month following thirty
days of employment. The cost is $14.00 per pay period for single coverage and up
to $28.00 per pay period for family coverage. In network services are not
subject to a deductible. Pre-existing conditions are covered! Office visits are
$15 if you go to a panel provider. Prescriptions are $5.00 for generics.
Excellent well child care addendum.

DENTAL INSURANCE
There is no cost for this benefit. Single or Family coverage. Effective on the
same day as the health insurance. Benefit has numerous parts and the benefit
increases with continued dental visits.

SHORT TERM & LONG TERM DISABILITY INSURANCE
There is no cost for this benefit. Effective on the same day as the health
insurance. STD is 60% of salary or $500 per week max. Coverage up to 13 weeks.
LTD continues for up to $10,000 per month to age 65.

LIFE INSURANCE
There is no cost for this benefit. Effective on the same day as the health
insurance. Coverage is two times your annual base pay for life and four times
your base pay for accidental death and dismemberment.

LONG TERM CARE INSURANCE
There is no cost for this benefit for individual coverage. Effective on the same
day as the health insurance. You may be able to enroll your spouse, parents, or
grandparents in this benefit by paying their premium yourself. Coverage for
nursing home and/or home health care services.

401K PLAN
Effective on date of hire. You may contribute up to 25% of your income up to
$10,000 into a tax deferred investment plan. Contribution is 100% vested.

PAY PERIODS
Pay days are twenty-four (24) times per year. On the 15th of each month (pay for
the 1st through 15th) and on the last day of the month (pay for the 16th through
the last day of the month).

VACATION TIME OFF
New employees earn 3.333 hours per pay period. This increases to 5.000 hours per
pay after 3 years service and 6.666 hours per pay after 5 full years of service.

OTHER TIME OFF
Employees earn 3.333 hours per pay for sickness/illness, 24.000 hours per year
personal time off, and eight (8) holidays per year. There is no carry over and
this is a calendar year basis.

TUITION REIMBURSEMENT
Full time employees may receive up to $2,200/yr in reimbursement for tuition,
books and registration fees.

FLEXIBLE SPENDING ACCOUNTS
Employees may have pre tax income deferred for medical or dependent care
expenses.

EMPLOYEE ACTIVITIES

NeoMedia sponsors several activities for you and your family including company
picnics, weekend getaways, and professional sports outings.

E-15

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