As filed with the Securities and Exchange Commission on January 20, 2006


                                                                                            SEC Registration No. 333-123848
===========================================================================================================================
                                      UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                                                   Washington, D.C. 20549


                                                     AMENDMENT NO. 6 TO
                                                          FORM S-4
                                  REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933


                DELAWARE                     NEOMEDIA TECHNOLOGIES, INC.                       36-3680347
                                                                                      
     (State or other jurisdiction of       (Name of issuer in its charter)                  (I.R.S. Employer
     incorporation or organization)                                                           Identification No.)

      2201 SECOND STREET, SUITE 600                         7373                               CHARLES T. JENSEN
        FORT MYERS, FLORIDA 33901               (Primary Standard Industrial             2201 SECOND STREET, SUITE 600
            (239)  337-3434                      Classification  Code Number)             FORT MYERS,  FLORIDA 33901-3083
(Address and telephone number of                                                                   (239) 337-3434
Registrant's principal executive offices)                                                 TELECOPIER NO.: (239) 337-3668
                                                                                       (Name, address, and telephone number
                                                                                             of agent for service)
                                                      With copies to:
          Clayton E. Parker, Esq.                                                           Christopher J. DeLise, Esq.
        Kirkpatrick & Lockhart LLP                                                          Kirkpatrick & Lockhart LLP
     201 S. Biscayne Blvd., Suite 2000                                                   201 S. Biscayne Blvd., Suite 2000
              Miami, FL 33131                                                                     Miami, FL 33131
       Telephone No.: (305) 539-3305                                                       Telephone No.: (305) 539-3319
Telecopier No.:  (305) 358-7095                                                           Telecopier No.: (305) 358-7095

Approximate date of commencement of proposed sale to the public:

Upon  consummation of the merger described herein. If any of the securities being registered on this Form are being offered
in  connection  with the  formation of a holding  company and there is  compliance  with General  Instruction  G, check the
following box. |_|

If this Form is filed to register  additional  securities for an offering pursuant to Rule 462(b) under the Securities Act,
please  check the  following  box and list the  Securities  Act  registration  statement  number of the  earlier  effective
registration statement for the same offering. |_|

If this Form is a post-effective  amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box
and list the Securities Act registration  statement  number of the earlier  effective  registration  statement for the same
offering.|_|

                                              CALCULATION OF REGISTRATION FEE
===========================================================================================================================
                                                                                     PROPOSED
                                                                 PLUS ESTIMATED      MAXIMUM
                               AMOUNT TO BE   PROPOSED MAXIMUM        CASH           AGGREGATE        AMOUNT OF
   TITLE OF EACH CLASS OF       REGISTERED     OFFERING PRICE     CONSIDERATION      OFFERING       REGISTRATION
SECURITIES TO BE REGISTERED        (1)          PER SHARE (2)         (2)             PRICE (2)         FEE(3)
---------------------------------------------------------------------------------------------------------------------------
Common Stock, par value         20,000,000          $0.227           $5.00         $4,540,005          $534.36
   $0.01 per share
===========================================================================================================================

---------------
(1)   Represents the maximum number of NeoMedia shares issuable in the merger, assuming no adjustment to the exchange ratio
      of  1.00  share  of  BSD  common  stock  exchanged  for  NeoMedia  common  stock  equivalent  to .07  divided  by the
      volume-weighted  average  price of NeoMedia  stock for the five business  days  preceding  the effective  date of the
      merger.

(2)   Estimated  solely for purposes of calculating the  registration  fee pursuant to Rule 457(f)(1),  based on 20,000,000
      shares of NeoMedia common stock being exchanged for 100% of BSD's common shares, using the average of the closing bid
      and ask prices of NeoMedia's common stock of $0.227 per share as reported in the  Over-the-Counter  Bulletin Board on
      April 1, 2005. Cash consideration is estimated at $0.05 per shareholder, times an estimated 100 shareholders.

(3)   Registration fee was paid previously.

THE REGISTRANT HEREBY AMENDS THIS  REGISTRATION  STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE
DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY  STATES THAT THIS REGISTRATION  STATEMENT SHALL
THEREAFTER  BECOME  EFFECTIVE IN  ACCORDANCE  WITH SECTION 8(A) OF THE  SECURITIES  ACT OF 1933 OR UNTIL THIS  REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.





                       SUBJECT TO COMPLETION OR AMENDMENT.
                            DATED _________ __, 2005

                                20,000,000 SHARES


                           NEOMEDIA TECHNOLOGIES, INC.

                            EXCHANGE OF COMMON STOCK
--------------------------------------------------------------------------------


      20,000,000 SHARES OF COMMON STOCK OF NEOMEDIA TECHNOLOGIES, INC. ARE
 BEING EXCHANGED FOR ALL OF THE OUTSTANDING COMMON STOCK OF BSD SOFTWARE, INC.

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

The common stock of NeoMedia  Technologies,  Inc.  ("NeoMedia") is traded on the
Over-the-Counter Bulletin Board under the symbol "NEOM". The common stock of BSD
Software,  Inc. ("BSD") is quoted on the  Over-the-Counter  Bulletin Board under
the  symbol  "BSDS".   After  consummation  of  the  merger  described  in  this
information statement/prospectus,  shares of NeoMedia will continue to be traded
on the Over-the-Counter  Bulletin Board;  however,  shares of BSD's common stock
will no longer be traded or listed on any exchange.


AS OF  JANUARY  6,  2006,  BASED  ON  32,560,897  SHARES  OF  BSD  COMMON  STOCK
OUTSTANDING,  A VOLUME-WEIGHTED 5-DAY AVERAGE CLOSING PRICE OF NEOMEDIA STOCK OF
$0.344,  AND THE SHARE  EXCHANGE  RATE  OUTLINED  IN THE MERGER  AGREEMENT,  BSD
SHAREHOLDERS WOULD RECEIVE 0.2035 SHARES OF NEOMEDIA STOCK FOR EACH SHARE OF BSD
COMMON STOCK THAT THEY CURRENTLY HOLD.  THIS  CALCULATION IS GIVEN FOR REFERENCE
ONLY.  IT IS  IMPORTANT TO NOTE THAT BSD  SHAREHOLDERS  WILL NOT KNOW THE ACTUAL
NUMBER OF SHARES THEY WILL RECEIVE UNTIL THE EFFECTIVE  DATE OF THE MERGER.  BSD
SHAREHOLDERS WHO WISH TO INQUIRE ABOUT THE NUMBER OF SHARES THEY WILL RECEIVE IN
THE MERGER CAN CALL TOLL-FREE (877) 813-2419.


BSD SHAREHOLDERS  WISHING TO EXERCISE THEIR  DISSENTERS'  RIGHTS MUST DELIVER TO
BSD WITHIN 20 DAYS AFTER  RECEIVING  NOTICE FROM BSD THAT SUCH APPRAISAL  RIGHTS
ARE  AVAILABLE,  A WRITTEN  NOTICE OF INTENT  TO DEMAND  PAYMENT.  A  DISSENTING
SHAREHOLDER THEN CANNOT VOTE IN FAVOR OF THE PROPOSED ACTION.


WE CURRENTLY HAVE AN ADDITIONAL OFFERING OUTSTANDING IN WHICH WE ARE REGISTERING
THE SHARES  UNDERLYING  54,000,000  WARRANTS GRANTED IN CONNECTION WITH OUR $100
MILLION STANDBY EQUITY SISTRIBUTION  AGREEMENT WITH CORNELL CAPITAL PARTNERS. ON
MAY 25, 2005, WE FILED A REGISTRATION  STATEMENT ON FORM S-3  (REGISTRATION  NO.
333-125239,  AS AMENDED ON JULY 18, 2005, AUGUST 18, 2005,  NOVEMBER 7, 2005) TO
REGISTER THE SHARES UNDERLYING SUCH WARRANTS.


PLEASE PAY  CAREFUL  ATTENTION  TO ALL OF THE  INFORMATION  IN THIS  INFORMATION
STATEMENT/PROSPECTUS.   IN  PARTICULAR,   YOU  SHOULD  CAREFULLY   CONSIDER  THE
DISCUSSION IN THE SECTION  ENTITLED "RISK  FACTORS"  BEGINNING ON PAGE 8 OF THIS
INFORMATION STATEMENT/PROSPECTUS.

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

NEITHER THE UNITED  STATES  SECURITIES  AND  EXCHANGE  COMMISSION  NOR ANY STATE
SECURITIES  REGULATOR  HAS  APPROVED  OR  DISAPPROVED  OF THE  SECURITIES  TO BE
DISTRIBUTED UNDER THIS INFORMATION  STATEMENT  /PROSPECTUS OR DETERMINED IF THIS
INFORMATION  STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

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

This  prospectus  is  dated  ________,  2005,  and  is  first  being  mailed  to
stockholders of NeoMedia and BSD on or about _____, 2005.

The information in this information statement/prospectus is not complete and may
be changed.  NeoMedia may not distribute these securities until the registration
statement  filed with the United States  Securities  and Exchange  Commission is
declared effective.  The information  statement/prospectus  is not and shall not
constitute  an  offer  to sell and it is not  soliciting  an offer to buy  these
securities in any state where the offer or sale is not permitted.




This   information   statement/prospectus    incorporates   important   business
information about NeoMedia and BSD that is not included in or delivered with the
information statement/prospectus.  NeoMedia will provide you with copies of this
information statement/prospectus, as well as exhibits filed with the information
statement/prospectus, upon written or oral request to:

---------------------------------      ----------------------------------
   IF A NEOMEDIA STOCKHOLDER:                IF A BSD SHAREHOLDER:
---------------------------------      ----------------------------------
   NeoMedia Technologies, Inc.                  BSD Software, Inc.
  2201 Second Street, Suite 600         5824 Second Street SW, Suite 300
    Ft. Myers, Florida 33901           Calgary, Alberta, Canada, T2H-0H2
        (239) 337-3434                            (403) 257-7090
---------------------------------      ----------------------------------

IF YOU WOULD  LIKE TO  REQUEST  ANY  DOCUMENTS  FROM  NEOMEDIA,  PLEASE DO SO BY
_______, 2005.




_____________, 2005


Dear BSD Shareholders:

As you may be aware,  BSD Software,  Inc. has entered into an agreement and plan
of merger with  NeoMedia  Technologies,  Inc.  which  provides  for  NeoMedia to
acquire from you and the other BSD shareholders 100% of BSD's common stock. When
the merger is completed, BSD will become a wholly-owned subsidiary of NeoMedia.


Upon completion of the merger,  BSD's shareholders will receive,  for each share
of  BSD  stock  owned,   NeoMedia  stock   equivalent  to  .07  divided  by  the
volume-weighted  average price of NeoMedia  stock for the five days prior to the
effective time of the merger.  NeoMedia  common stock is publicly  traded on the
Over-the-Counter Bulletin Board exchange under the symbol "NEOM". On January 12,
2006, the closing price of NeoMedia common stock was $0.375. In 2004, NeoMedia's
common stock traded between a low of $0.05 and a high of $0.299.  Since April 5,
2005,  the  approximate  date  that  NeoMedia  filed  its  initial   information
statement/prospectus  relative  to its  acquisition  of  and  merger  with  BSD,
NeoMedia's stock has been subject to dramatic price volatility. Between April 5,
2005 and January 12, 2006, NeoMedia's stock has traded as low as $0.21 per share
and as high as $0.72 per share.  BSD  shareholders who wish to inquire about the
number of shares  they will  receive  in the  merger  can call  toll-free  (877)
813-2419.

Following the merger, based on 32,560,897 outstanding shares of BSD common stock
and  468,406,229  outstanding  shares of NeoMedia common stock as of January 12,
2006, and assuming a NeoMedia stock price of $0.344 (the volume-weighted average
stock price for the five days  preceding  January 12,  2006),  BSD  shareholders
would hold approximately 1.4% of the outstanding shares of NeoMedia and existing
NeoMedia  shareholders would hold the remaining 98.6% of NeoMedia's  outstanding
shares.  The actual exchange ratio will vary due to changes in NeoMedia's  stock
price and any additional issuances of common stock by BSD prior to the effective
time of the  merger,  and will not be known  until  such  effective  time of the
merger.


Shareholders  holding  approximately 63% of the outstanding shares of BSD common
stock have each entered into an agreement  with  NeoMedia to vote to approve and
adopt the Merger  Agreement  and the merger.  BSD's Board of Directors  has also
approved the Merger Agreement.

On behalf of the BSD Board of Directors, I thank you for your support.

Sincerely,
/s/ Guy Fietz
President
BSD SOFTWARE, INC.





                                                     TABLE OF CONTENTS

                                                                                                                      
SUMMARY OF INFORMATION STATEMENT/PROSPECTUS...............................................................................3
   The Companies..........................................................................................................3
   The Merger.............................................................................................................4
   What You Will Receive In The Merger; Merger Consideration; Fractional Shares...........................................4
   BSD Approval Of The Merger.............................................................................................5
   BSD's Reasons for the Merger; Recommendation of BSD's Board of Directors...............................................5
   NeoMedia's Reasons for the Merger; Recommendation of NeoMedia's Board of Directors.....................................5
   Conditions to the Merger...............................................................................................5
   Restrictions on Solicitation...........................................................................................5
   Termination............................................................................................................6
   Fees...................................................................................................................6
   MATERIAL FEDERAL INCOME TAX CONSEQUENCES...............................................................................6
   Comparison of Rights of NeoMedia Shareholders and BSD Shareholders.....................................................6
   Comparative Market Price Information...................................................................................7
   Listing and Trading of NeoMedia Common Stock...........................................................................7
   Interest of Directors and Officers of BSD in the Merger................................................................7
   Interest of Directors and Officers of NeoMedia in the Merger...........................................................7
   Risks Related to the Merger............................................................................................7
   Dissenters' Rights.....................................................................................................7
RISK FACTORS..............................................................................................................9
   Risks Related to the Merger............................................................................................9
   Risks Related to NeoMedia's Business..................................................................................11
   Risks Relating To NeoMedia's Industry.................................................................................16
   Risks Specific To This Offering.......................................................................................19
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS...............................................................22
SELECTED HISTORICAL FINANCIAL DATA OF NEOMEDIA...........................................................................23
SELECTED HISTORICAL FINANCIAL DATA OF BSD................................................................................24
COMPARATIVE PER SHARE DATA...............................................................................................25
COMPARATIVE STOCK PRICE DATA.............................................................................................26
THE MERGER...............................................................................................................27
   BSD's Reasons for the Merger..........................................................................................27
   NeoMedia's Reasons for the Merger.....................................................................................28
   Interests of Certain Persons in the Merger; Conflicts of Interest.....................................................28
   Anticipated Accounting Treatment......................................................................................28
   Material Canadian Federal Income Tax Consequences of the Merger.......................................................30
   Dissenters' Rights....................................................................................................31
   Federal or State Regulatory Requirements and Approvals................................................................33
   Description of NeoMedia's and BSD's Securities........................................................................33
   Material Differences Between Rights of Holders of NeoMedia Common Stock Compared to BSD Common Stock..................33
THE MERGER AGREEMENT.....................................................................................................34
   General; Structure of Transaction; Distribution of Common Stock.......................................................34
   Representations and Warranties........................................................................................35
   Conduct of Business Prior to the Effective Time of the Merger.........................................................36
   No Solicitation.......................................................................................................37
   Additional Covenants..................................................................................................37
   Conditions to Completion of the Merger................................................................................38
   Termination of the Merger Agreement...................................................................................40
   Expenses and Termination Fees.........................................................................................41
   Amendment; Extension and Waiver of the Merger Agreement...............................................................41
COMPARATIVE RIGHTS OF NEOMEDIA AND BSD SHAREHOLDERS......................................................................42
NEOMEDIA'S BUSINESS......................................................................................................47
   Company History.......................................................................................................47
   Recent Developments...................................................................................................47
   Industry Overview.....................................................................................................52
   Strategy..............................................................................................................53

                                                            -i-






                                                                                                                      
   Products/Services.....................................................................................................54
   Strategic Relationships...............................................................................................57
   Sales and Marketing...................................................................................................58
   Customers.............................................................................................................58
   Research and Development..............................................................................................58
   Intellectual Property Rights..........................................................................................59
   Competition...........................................................................................................59
   Employees.............................................................................................................60
   Properties............................................................................................................60
   Dividend Policy.......................................................................................................60
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................................61
   Overview..............................................................................................................61
   Critical Accounting Policies..........................................................................................64
   Results of Operations for the Year Ended December 31, 2004 as Compared to the Year Ended December 31, 2003............70
   Liquidity and Capital Resources.........................................................................................
NEOMEDIA'S MANAGEMENT....................................................................................................74
   Directors and Executive Officers......................................................................................74
   Election Of Directors And Officers....................................................................................75
   Meetings Of The Board Of Directors....................................................................................75
   Committees Of The Board Of Directors..................................................................................75
   Director Compensation.................................................................................................76
   Section 16(a) Beneficial Ownership Reporting Compliance...............................................................76
   NeoMedia's Executive Compensation.....................................................................................76
   Employment Agreements.................................................................................................77
   Incentive Plan for Management.........................................................................................77
   NeoMedia's Stock Option Plans.........................................................................................77
   NeoMedia's Stock Incentive Plan.......................................................................................78
   Options And Warrants Granted In NeoMedia's Last Fiscal Year...........................................................78
   Option And Warrant Exercises In Last Fiscal Year And Fiscal Year-End Values...........................................78
   Security Ownership of Certain Beneficial Owners and Management of NeoMedia............................................80
   Certain Relationships and Related Transactions of NeoMedia............................................................81
   Section 16(a) Beneficial Ownership Reporting Compliance...............................................................82
   Code of Ethics........................................................................................................82
   Limitations on Director's Liability and Indemnification...............................................................82
DESCRIPTION OF NEOMEDIA'S CAPITAL STOCK..................................................................................84
   Common Stock..........................................................................................................84
   Preferred Stock.......................................................................................................84
   Warrants And Options of NeoMedia......................................................................................86
   Registration Rights...................................................................................................87
   Anti-Takeover Provisions Under bylaws and Laws........................................................................87
   Transfer Agent........................................................................................................88
DESCRIPTION OF BSD'S BUSINESS............................................................................................89
   Business Development..................................................................................................89
   BSD's/Triton's Business...............................................................................................89
   Triton Recent Developments............................................................................................89
   Triton's Products & Services..........................................................................................90
   Triton's Strategic Technology Alliances...............................................................................90
   Sales and Marketing Approach..........................................................................................91
   Competitive Analysis..................................................................................................92
   Triton/BSD Legal Matters..............................................................................................93
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................................94
   Overview..............................................................................................................94
   Background Of Triton..................................................................................................95
   Products and Services.................................................................................................95
   Results of Operations For The Year Ended July 31, 2005, as Compared to the Year Ended July 31, 2004...................98
   Critical Accounting Policies..........................................................................................99



                                                            -ii-




                                                                                                                    
   BSD's Liquidity and Capital Resources................................................................................100
BSD'S MANAGEMENT........................................................................................................102
   Directors and Executive Officers.....................................................................................102
   Summary Compensation Table...........................................................................................103
   Employment Agreements................................................................................................103
   Stock Option Plan....................................................................................................103
   Options And Warrants Granted In BSD's Last Fiscal Year...............................................................103
   Option And Warrant Exercises In Last Fiscal Year And Fiscal Year end Values..........................................103
   Security Ownership of Certain Beneficial Owners and Management of BSD................................................103
   Certain Relationships and Related Transactions.......................................................................105
   Section 16(a) Beneficial Ownership Reporting Compliance..............................................................105
   Code of Ethics.......................................................................................................105
   Limitations on Director's Liability and Indemnification..............................................................105
DESCRIPTION OF BSD'S CAPITAL STOCK......................................................................................107
   Common Stock.........................................................................................................107
   Preferred Stock......................................................................................................107
   Warrants And Options.................................................................................................107
   Registration Rights..................................................................................................107
   Anti-Takeover Provisions Under bylaws and Laws.......................................................................107
   Transfer Agent.......................................................................................................108
LEGAL MATTERS...........................................................................................................109
EXPERTS.................................................................................................................109
WHERE YOU CAN FIND MORE INFORMATION.....................................................................................110
INDEX TO FINANCIAL STATEMENTS...........................................................................................F-1
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS.......................................................................II-1
   Item 20. Indemnification of Directors and Officers..................................................................II-1
   Item 21. Exhibits and Financial Statement Schedules.................................................................II-2
   Item 22. Undertakings...............................................................................................II-2
SIGNATURES.............................................................................................................II-2


                                                           -iii-



                     QUESTIONS AND ANSWERS ABOUT THE MERGER


THE FOLLOWING ARE SOME  QUESTIONS THAT YOU, AS A STOCKHOLDER OF BSD OR NEOMEDIA,
MAY HAVE  REGARDING THE MERGER.  BSD AND NEOMEDIA URGE YOU TO READ CAREFULLY THE
REMAINDER OF THIS  INFORMATION  STATEMENT/PROSPECTUS  BECAUSE THE INFORMATION IN
THIS SECTION DOES NOT PROVIDE ALL OF THE INFORMATION  THAT MIGHT BE IMPORTANT TO
YOU WITH  RESPECT TO THE MERGER.  ADDITIONALLY,  IMPORTANT  INFORMATION  IS ALSO
CONTAINED IN THE ANNEXES TO, AND THE DOCUMENTS  INCORPORATED  BY REFERENCE INTO,
THIS INFORMATION STATEMENT/PROSPECTUS.

Q:  WHAT IS THE PROPOSED TRANSACTION?
A: The Board of  Directors  of BSD, as well as a majority  of BSD  shareholders,
have voted to adopt an agreement and plan of merger among NeoMedia Technologies,
Inc.,  NeoMedia Telecom Services,  Inc., and BSD Software,  Inc., and the merger
contemplated thereby. In this information statement/prospectus,  we refer to the
agreement and plan of merger as the "Merger  Agreement." In the merger, BSD will
be merged into NeoMedia  Telecom  Services,  Inc., a newly formed,  wholly-owned
subsidiary of NeoMedia Technologies. After the merger, NeoMedia Telecom Services
will be the "Surviving Corporation" and will remain a wholly-owned subsidiary of
NeoMedia Technologies.

Q: WHY ARE NEOMEDIA AND BSD PROPOSING TO MERGE?
A: NeoMedia and BSD are merging  because they believe the resulting  combination
will create a stronger,  more competitive  company capable of achieving  greater
financial  strength,   administrative   efficiencies,   growth  potential,   and
shareholder value than either company would have on its own.

Q: WHAT WILL I RECEIVE IN EXCHANGE FOR MY BSD STOCK IN THE MERGER?
A: In the  merger,  each share of your BSD common  stock will be  exchanged  for
NeoMedia stock equivalent to .07 divided by the volume-weighted average price of
NeoMedia stock for the five days prior to the effective  time of the merger.  In
this prospectus, we refer to the ratio of NeoMedia common stock to be issued for
each share of BSD common stock as the "exchange ratio." The ratio of .07 divided
by the  volume-weighted  average price of NeoMedia stock for the five days prior
to the  effective  time of the merger  that you will  receive for each BSD share
will not  change.  However,  the number of NeoMedia  shares you will  receive at
closing will change  depending on NeoMedia's stock price at the time of closing.
NeoMedia's shares will be valued using a 5-day  volume-weighted  average closing
price for the five days prior to closing.  You will not  receive any  fractional
shares of NeoMedia common stock.  Instead of any fractional  shares, you will be
paid cash for such fraction at a rate of $0.07 per share.  The  following  table
illustrates  how many shares of NeoMedia you would  receive at  different  price
levels of NeoMedia stock at the time of closing:



------------------------------------------------------------------------------------------
                                                                    
Shares of BSD owned                                 1,000      1,000     1,000      1,000
------------------------------------------------------------------------------------------
NeoMedia volume-weighted average prices             $0.07      $0.20     $0.30      $0.50
------------------------------------------------------------------------------------------
NEOMEDIA SHARES ISSUED IN MERGER                    1,000        350       233        140
------------------------------------------------------------------------------------------
ADDITIONAL CASH CONSIDERATION RECEIVED IN LIEU
OF RECEIPT OF FRACTIONAL SHARES                     $0.00      $0.00     $0.02      $0.00
------------------------------------------------------------------------------------------


It is important to note that BSD shareholders will not know the actual number of
shares  they  will  receive  until  the  effective  date  of  the  merger.   BSD
SHAREHOLDERS WHO WISH TO INQUIRE ABOUT THE NUMBER OF SHARES THEY WILL RECEIVE IN
THE MERGER CAN CALL TOLL-FREE (877) 813-2419.

Q: WHAT WILL BE THE EFFECT OF THE MERGER ON THE  STOCKHOLDERS  OF  NEOMEDIA  AND
BSD?

A: Based on the number of NeoMedia and BSD shares  outstanding as of January 12,
2006, and the  volume-weighted  average closing stock price of NeoMedia stock of
$0.344 for the five days  preceding  January 12, 2006,  upon  completion  of the
merger the current  stockholders  of NeoMedia would own  approximately  98.6% of
NeoMedia  and the former  stockholders  of BSD would own  approximately  1.4% of
NeoMedia.  Actual  ownership  percentages  could change between the date of this
information statements/prospectus and closing due to any additional issuances of
shares by NeoMedia  and/or BSD, or  fluctuations in the price of NeoMedia stock.
NeoMedia  and BSD  currently  estimate  that  they  each  will  incur  costs  of
approximately $75,000 ($150,000 in total) related to the merger.





Q:  WHAT  ARE  THE  FEDERAL  INCOME  TAX  CONSEQUENCES  OF  THE  MERGER  TO  BSD
SHAREHOLDERS?
A: Assuming that the merger is completed as currently contemplated, (i) you will
not  recognize any gain or loss for United  States  federal  income tax purposes
except to the extent you  receive  cash in  exchange  for your BSD common  stock
(including  any cash received in lieu of a fractional  share of NeoMedia  common
stock) and (ii) you will not  recognize  and gain or loss for  Canadian  federal
income  tax  purposes.   You  should   consult  your  tax  advisor  for  a  full
understanding of the tax consequences of the merger to you.

Q: AM I ENTITLED TO DISSENTERS' RIGHTS?
A: Under Florida law, holders of BSD common stock outstanding  immediately prior
to the  effective  time of the  merger who have not voted in favor of the merger
have the right to exercise their  dissenters'  rights and obtain payment in cash
for the fair value of their shares of common stock,  rather than receive  shares
of NeoMedia common stock as described in this  information  statement/prospectus
and  the  attached  Merger  Agreement.   To  exercise  dissenters'  rights,  BSD
stockholders  must  strictly  follow  the  procedures  described  under  Section
607.1301 et seq. of the Florida  Business  Corporation Act. These procedures are
summarized under the section of this information  statement/prospectus  entitled
"The  Merger-Dissenters'  Rights" beginning on page 29. In addition, the text of
the applicable  provisions of Florida Business  Corporation  Act,  together with
BSD's initial notice to potential  dissenters,  and a Dissenters'  Demand Notice
Form is attached as Annex A to this information statement/prospectus.

Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We expect to complete  the merger  promptly  after we receive  all  necessary
regulatory approvals. We currently expect this to occur during the first quarter
of 2006.  Satisfying  some of the  conditions  to closing  the  merger,  such as
receiving certain governmental  clearances or approvals,  is not entirely within
our control. If all the conditions to completion of the merger are not satisfied
during the first  quarter of 2006,  we expect to complete  the merger as soon as
practicable once the conditions are satisfied.

Q: WILL I BE ABLE TO SELL THE SHARES OF NEOMEDIA  COMMON  STOCK I RECEIVE IN THE
MERGER?
A: Yes. All of the shares of NeoMedia common stock received by BSD  stockholders
in connection with the merger will be freely  transferable  unless the holder is
considered an affiliate of either BSD or NeoMedia  under the  Securities  Act of
1933, as amended.  Shares of NeoMedia  acquired in the merger by BSD  affiliates
may only be sold pursuant to a  registration  statement or an exemption from the
registration requirements of the Securities Act. The price at which the NeoMedia
common stock will trade after the merger is unknown.

Q: WHAT DO I NEED TO DO NOW?
A: After the merger is  completed,  you will receive  written  instructions  for
exchanging your stock certificates.

Q: WILL BSD CONTINUE AS A PUBLIC COMPANY?
A: No. If the merger occurs, BSD will no longer be publicly owned.

Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger, or need additional copies of this
prospectus,  you should contact BSD Software, Inc. at (403) 257-7090, if you are
a stockholder  of BSD; or NeoMedia at (239)  337-3434 if you are  stockholder of
NeoMedia.  BSD  shareholders who wish to inquire about the number of shares they
will receive in the merger can call toll-free (877) 813-2419.


                                       2


                   SUMMARY OF INFORMATION STATEMENT/PROSPECTUS

The following is a summary that highlights certain information contained in this
information  statement/prospectus.  This  summary  may  not  contain  all of the
information that may be important to you. For a more complete description of the
MERGER  AGREEMENT  and the  merger  contemplated  by the  MERGER  AGREEMENT,  we
encourage you to read  carefully this entire  information  statement/prospectus,
including the attached  exhibits and annexes hereto.  In addition,  we encourage
you to ready the  information  incorporated  by reference into this  information
statement/prospectus,   which   includes   important   business  and   financial
information  about BSD and NeoMedia  that has been filed with the United  States
Securities and Exchange Commission.  You may obtain the information incorporated
by  reference  into  this  information  statement/prospectus  by  following  the
instructions in the section of this  information  statement/prospectus  entitled
"Additional  Information Where You Can Find More Information"  beginning on page
105.
--------------------------------------------------------------------------------

The Companies

                           NEOMEDIA TECHNOLOGIES, INC.
                          2201 Second Street, Suite 600
                               Ft. Myers, FL 33901
                                 (239) 337-3434

      NeoMedia develops proprietary  technologies that link physical information
and objects to the Internet marketed under its PaperClickTM brand name.

      NeoMedia is structured as three business units: NeoMedia Internet Software
Service ("NISS"),  NeoMedia  Consulting and Integration  Services ("NCIS"),  and
NeoMedia Micro Paint Repair ("NMPR").

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

      NCIS is the original business line upon which NeoMedia was organized. This
unit  resells  client-server  equipment  and related  software,  and general and
specialized  consulting  services.  Systems integration services also identifies
prospects  for custom  applications  based on our products and  services.  These
operations are based in Lisle, Illinois.

      NMPR  is  the  business  unit  encompassing  the   recently-acquired   CSI
International chemical line. NMPR is attempting to commercialize its micro-paint
repair offerings and solutions.

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

                         NEOMEDIA TELECOM SERVICES, INC.
                          2201 Second Street, Suite 600
                               Ft. Myers, FL 33901
                                 (239) 337-3434

      NeoMedia Telecom Services, Inc. is a Nevada corporation and a wholly-owned
subsidiary of NeoMedia Technologies.  NeoMedia Telecom Services was incorporated
during October 2004 solely for the purposes of effecting the merger with BSD. It
has not  carried  on any  activities  other than in  connection  with the Merger
Agreement.  Following the merger,  NeoMedia Telecom Services, Inc. will continue
the business of BSD.

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


                                       3


                               BSD SOFTWARE, INC.
                        5824 Second Street SW, Suite 300
                        Calgary, Alberta, Canada, T2H-0H2
                                 (403) 257-7090

      BSD was  incorporated  in Florida on February 7, 1989 under the name "Park
Avenue  Marketing,  Inc." On February 2, 1998, as a result of its acquisition of
100% of the common stock of two commonly controlled  entities,  Respiratory Care
Services, Inc. ("RCS") and RCS Subacute, Inc. ("RCSS"), that were engaged in the
healthcare industry, the name was changed from "Park Avenue Marketing,  Inc." to
"BSD  Healthcare  Industries,  Inc."  Prior to these  acquisitions,  BSD did not
conduct any operations.

      BSD  acquired  RCS and RCSS because BSD  perceived  increasing  demand for
respiratory care services in long-term healthcare  facilities.  On July 1, 1999,
principally  as a  result  of a  change  in  Medicare  reimbursement  rates  for
respiratory  services,  BSD sold RCS and RCSS.  On December 17, 2001 BSD changed
its name to "BSD Software, Inc."

      As a result of the sale of RCS and RCSS,  BSD had no operations  until its
acquisition of 90% of Triton Global Business Services Inc. ("TGBSI") on November
4, 2002. TGBSI is the 100% owner of Triton Global Communications Inc. ("Triton")
through  which  it  conducts  its  business  operations.   The  details  of  the
acquisition are contained in Note 4 to the attached Financial Statements.

      Triton  was  incorporated  in  April  1998 as a next  generation  Internet
protocol  ("IP")  enabled  provider  of  live  and  automated  operator  calling
services,   e-business   support,   billing  and  clearinghouse   functions  and
information management services to  telecommunications,  Internet and e-business
service providers.

      Triton focuses on helping its clients  improve  profitability  by enabling
them to quickly  deploy new services,  streamline  operations  and make quicker,
more  informed  business  decisions.  Triton  is  a  customer  service  oriented
organization  providing service to direct customers and service providers,  both
within North America and internationally.

      Triton was the first fully implemented  alternate billing agent within the
Local Exchange Carriers ("LECs") billing system in Canada. Triton's vision is to
continue expanding its live and automated  operator service capability  focusing
on making emerging  web-based  information  and  transaction  services easier to
access and pay for.

      BSD's  management and staff are trained to assist and provide clients with
solutions  for  their  business.   Triton  is  currently  operating  with  eight
employees.

THE MERGER

      The Board of Directors of BSD, as well as a majority of BSD  shareholders,
have voted to adopt an agreement and plan of merger among NeoMedia Technologies,
Inc.,  NeoMedia Telecom Services,  Inc., and BSD Software,  Inc., and the merger
contemplated  thereby.  In the merger,  BSD will be merged into NeoMedia Telecom
Services,   Inc.,  a  newly   formed,   wholly-owned   subsidiary   of  NeoMedia
Technologies. After the merger, NeoMedia Telecom Services will be the "Surviving
Corporation" and will remain a wholly-owned subsidiary of NeoMedia Technologies.

      NeoMedia  and  BSD  are  merging   because  they  believe  the   resulting
combination  will  create  a  stronger,  more  competitive  company  capable  of
achieving  greater  financial  strength,   administrative  efficiencies,  growth
potential, and shareholder value than either company would have on its own.


WHAT YOU WILL RECEIVE IN THE MERGER; MERGER CONSIDERATION; FRACTIONAL SHARES

      In the  merger,  each share of BSD  common  stock  will be  exchanged  for
NeoMedia stock equivalent to .07 divided by the volume-weighted average price of
NeoMedia stock for the five days prior to the effective time of the merger.  You
will not receive any fractional shares of NeoMedia common stock.  Instead of any
fractional  shares,  you will be paid cash for such  fraction at a rate of $0.07


                                       4


per  share.  It is  important  to note that BSD  shareholders  will not know the
actual  number  of shares  they will  receive  until the  effective  date of the
merger.  BSD  SHAREHOLDERS  WHO WISH TO INQUIRE  ABOUT THE NUMBER OF SHARES THEY
WILL RECEIVE IN THE MERGER CAN CALL TOLL-FREE (877) 813-2419.

NEOMEDIA'S BOARD OF DIRECTORS AFTER THE MERGER

      NeoMedia's  Board of Directors  will not change due to the  acquisition of
BSD.

BSD Approval Of The Merger

      BSD's  Board of  Directors  approved  the  merger by  written  consent  on
November  29,  2004.  In addition,  holders of 63% of BSD's  outstanding  shares
approved the merger by signing a Voting  Rights  Agreement on or before  signing
the Merger Agreement.

BSD's Reasons for the Merger; Recommendation of BSD's Board of Directors

      BSD's Board of Directors,  as well as holders of 63% of BSD's  outstanding
shares,  has  approved  the  Merger  Agreement.  BSD's  board and the  approving
majority  shareholders  believe that the Merger Agreement is advisable,  fair to
and in the best interest of BSD and its shareholders.  In reaching its decision,
the BSD board and majority  shareholders  considered a number of factors,  which
are  described  in more detail in the  section of this  information/registration
statement  entitled  "BSD's  Reasons for the Merger." The BSD Board of Directors
and  majority  shareholders  did not  assign  relative  weights  to the  factors
described in that section or the other  factors  considered  by it. In addition,
the BSD board and majority shareholders did not reach any specific conclusion on
each factor  considered,  but  conducted an overall  analysis of these  factors.
BSD's  board  and  majority  shareholders  may have  given  different  weight to
different factors.

NeoMedia's Reasons for the Merger;  Recommendation of  NeoMedia<129>fs  Board of
Directors

      The Board of Directors of NeoMedia approved the merger on August 18, 2004,
after NeoMedia's  senior  management  discussed with them the business,  assets,
liabilities,   actual  and  projected   results  of  operations   and  financial
performance  of BSD, the  complementary  nature of certain of BSD's products and
capabilities  and the products of NeoMedia,  the  expectation  that BSD could be
readily  integrated  with  NeoMedia,  and the  potential  benefits that could be
realized as a result of such integration.

Conditions to the Merger

      The obligations of NeoMedia and BSD to complete the merger are conditioned
upon the other party's  representations  and warranties  being true and correct,
except as has not had or would not  reasonably  be  expected  to have a material
adverse  effect,  and the other party having  complied in all material  respects
with such party's covenants.  In addition,  NeoMedia's and BSD's obligations are
further conditioned on:

      o     the absence of any  statute,  rule,  order,  decree,  regulation  or
            injunction of any United States or Canadian court,  United States or
            Canadian  governmental   authority  or  any  governmental  authority
            pursuant  to  foreign  antitrust  laws  that  precludes,  prohibits,
            restrains  or enjoins  the  consummation  of the merger or makes the
            consummation of the merger illegal;

      o     the  termination or expiration of the waiting  periods or receipt of
            approvals pursuant to the Hart-Scott-Rodino  Antitrust  Improvements
            Act; and

      o     the continuing  effectiveness of the registration statement of which
            this information statement/prospectus forms a part, and the material
            compliance with all other applicable material state securities laws.

Restrictions on Solicitation

      Subject to certain  exceptions,  the Merger  Agreement  precludes BSD, its
subsidiaries,  officers,  directors,  employees,  investment bankers, attorneys,
accountants and other  representatives  from directly or indirectly  soliciting,


                                       5


knowingly encouraging,  participating in any discussions  regarding,  furnishing
any non-public  information  with respect to, or assisting or  facilitating  any
proposal  for any third party to acquire  more than 20%  ownership  of BSD,  its
subsidiaries, or its assets.

Termination

      The Merger  Agreement may be terminated by the mutual  consent of NeoMedia
and BSD. Additionally, either NeoMedia or BSD may terminate the Merger Agreement
if:

      o     both companies' boards of directors mutually agree to terminate;

      o     the  party  seeking  termination  is not in  material  breach of the
            Merger  Agreement  and the other  party has  materially  breached  a
            representation,  warranty,  covenant  or  agreement  of  that  party
            contained  in the  Merger  Agreement  and such  breach is either not
            capable of being cured or, with  respect to a covenant or  agreement
            that is capable  of being  cured,  has not been  cured or  satisfied
            within 30 days of notice of the breach; and

      o     the merger has not closed by December  31,  2005,  which date may be
            extended by mutual consent of NeoMedia and BSD.

      The Merger  Agreement  may be  terminated  by NeoMedia  if, at the time of
closing, BSD has:

      o     less than $850,000 in assets;

      o     more than $5,000,000 in liabilities, or

      o     more than 35,000,000 shares of common stock  outstanding  (increased
            to 38,000,000 on June 6, 2005).

      The  merger  may be  terminated  by BSD if the  holders of more than 5% of
BSD's outstanding shares dissent to the merger.

Fees

      Each side will bear its own fees in connection with the proposed merger.

MATERIAL FEDERAL INCOME TAX CONSEQUENCES

IF THE MERGER IS  COMPLETED  AS  CURRENTLY  CONTEMPLATED,  THEN,  IN GENERAL,  A
SHAREHOLDER  WHO  EXCHANGES  SHARES OF BSD COMMON  STOCK FOR SHARES OF  NEOMEDIA
COMMON  STOCK WILL NOT  RECOGNIZE  ANY GAIN OR LOSS EXCEPT TO THE EXTENT CASH IS
RECEIVED  (INCLUDING ANY CASH RECEIVED IN LIEU OF A FRACTIONAL SHARE OF NEOMEDIA
COMMON STOCK).

      Certain exceptions and/or other  considerations may apply to the foregoing
statement.  See the section of this  information  statement/prospectus  entitled
"The Merger--Material Federal Income Tax Consequences."

Comparison of Rights of NeoMedia Shareholders and BSD Shareholders

      After the merger,  BSD  shareholders  who receive NeoMedia common stock in
the merger will become  NeoMedia  shareholders  and their rights as shareholders
will be governed by the Certificate of Incorporation  and bylaws of NeoMedia and
Delaware  General  Corporation  Law ("DGCL").  There are a number of differences
between the  Certificate of  Incorporation  and bylaws of NeoMedia and the DGCL,
and the  Articles of  Incorporation  and bylaws of BSD and the Florida  Business
Corporations  Act (the "FBCA") by which BSD is governed.  These  differences are
summarized under the section of this information  statement/prospectus  entitled
"Comparative Rights of NeoMedia and BSD Shareholders."


                                       6


Comparative Market Price Information


      Shares of NeoMedia  common stock are listed under the Symbol "NEOM" on the
Over-the-Counter Bulletin Board, and shares of BSD common stock are listed under
the trading symbol "BSDS" on the  Over-the-Counter  Bulletin  Board. On December
20,  2004,  the last full  trading day prior to the public  announcement  of the
Merger  Agreement,  the last sales price of BSD common stock was $0.15 per share
and the last  sales  price of  NeoMedia  common  stock was $0.18 per  share.  On
January 12, 2006, the most recent practicable date prior to the printing of this
information  statement/prospectus,  the last sales price of BSD common stock was
$0.055 per share and the last sales  price of NeoMedia  common  stock was $0.375
per share.  Since April 5, 2005,  the  approximate  date that NeoMedia filed its
initial  information  statement/prospectus  relative to its  acquisition  of and
merger with BSD, NeoMedia's stock has been subject to dramatic price volatility.
Between April 5, 2005 and January 12, 2006,  NeoMedia's  stock has traded as low
as $0.21  per  share  and as high as $0.72  per  share.  You are urged to obtain
current market quotations.


Listing and Trading of NeoMedia Common Stock

      Shares of NeoMedia common stock received by BSD shareholders in the merger
will be listed on the  Over-the-Counter  Bulletin Board. After completion of the
merger,  shares of  NeoMedia  common  stock  will  continue  to be traded on the
Over-the-Counter  Bulletin Board,  but shares of BSD common stock will no longer
be listed or traded.

INTEREST OF DIRECTORS AND OFFICERS OF BSD IN THE MERGER


      As of  January  12,  2006,  the  directors  and  officers  of BSD,  in the
aggregate, owned approximately 27% of the outstanding common stock of BSD.


INTEREST OF DIRECTORS AND OFFICERS OF NEOMEDIA IN THE MERGER


      As of January 12, 2006,  the  directors  and officers of NeoMedia,  in the
aggregate, owned approximately 21% of the outstanding common stock of NeoMedia.


RISKS RELATED TO THE MERGER

      You should refer to the section of this  information  statement/prospectus
entitled  "Risk Factors"  beginning on page 8 for a detailed  discussions of the
risks  associated with the merger,  the offering  described  hereunder,  and the
businesses of NeoMedia and BSD.

DISSENTERS' RIGHTS

      In  order to  exercise  appraisal  rights,  dissenting  shareholders  must
strictly  comply  with  the  statutory   procedures  of  the  Florida   Business
Corporation  Act  (the  "FBCA").  If a  proposed  corporation  action  requiring
appraisal  rights  under  the  FCBA is  submitted  to a vote at a  shareholders'
meeting,  or is  submitted  to a  shareholder  pursuant to a consent to vote,  a
dissenting  shareholder who wishes to exercise appraisal rights, must deliver to
the  corporation  before the vote is taken,  or within 20 days  after  receiving
notice from the corporation that such appraisal rights are available,  a written
notice of intent to demand payment. A dissenting shareholder then cannot vote in
favor of the proposed  action.  If the proposed  action becomes  effective,  the
corporation  must deliver a written  appraisal notice and form to all dissenting
shareholders  who  provided  a notice of intent to  demand  payment  within  the
statutorily  prescribed  time limits.  The  corporation  must send the appraisal
notice and form within 10 days after the corporate action became effective.  The
corporation  may  offer  to a  dissenting  shareholder  a  payment  based on the
corporation's  estimate of the fair value of the shareholder's  shares. The fair
value of the shares is determined  immediately  before the  effectuation  of the
corporate  action to which the  shareholder  objects  and  using  customary  and
current  valuation  concepts  and  techniques  generally  employed  for  similar
business in the context of the transaction  requiring  appraisal,  excluding any
appreciation or depreciation  in  anticipation of the corporate  action,  unless
such  exclusion   would  be  inequitable.   A  dissenting   shareholder  who  is
dissatisfied  with the  corporation's  offer, must notify the corporation on the
form  provided  to  the  dissenting  shareholder  by  the  corporation  of  that
dissenting  shareholder's  estimate  of the fair  value of the shares and demand
payment of that estimate plus  interest.  If a dissenting  shareholder  fails to
notify the  corporation  in  writing of the demand to be paid the  shareholder's
stated estimate of the fair value plus interest  within the timeframe  requested
be the  corporation,  which  shall be no less than 40 or more than 60 days after
the appraisal  notice and form are sent, the shareholder is entitled only to the


                                       7


payment  offered by the  corporation.  Due to the fact that the actual  exchange
rate of BSD shares for  NeoMedia  shares will not be known  until the  effective
time of the merger,  a dissenting  shareholder  may not know the actual exchange
rate at the time the notice of dissent is submitted.


                                       8


                                  RISK FACTORS

In   addition   to  the  other   information   included   in  this   information
statement/prospectus,  including the matters addressed in "Cautionary  Statement
Concerning  Forward-Looking  Statements,"  you  should  carefully  consider  the
following risks before  deciding  whether to assert your right to dissent to the
proposed merger.  In the case of BSD  stockholders,  if you do not exercise your
dissenters'  rights as  discussed on page 29, you will become a  stockholder  of
NeoMedia.  In addition,  you should read and consider the risks  associated with
the business of NeoMedia because these will affect the combined entity.

                           RISKS RELATED TO THE MERGER

THE VALUE OF SHARES OF NEOMEDIA COMMON STOCK TO BE RECEIVED BY BSD  STOCKHOLDERS
IN THE MERGER IS FIXED AND WILL NOT BE ADJUSTED  FOR CHANGES IN THE PRICE OF BSD
OR NEOMEDIA COMMON STOCK.

      BSD's  shareholders  will  receive,  for each  share of BSD  stock  owned,
NeoMedia stock equivalent to .07 divided by the volume-weighted average price of
NeoMedia stock for the five days prior to the effective time of the merger.  The
number of shares each BSD  shareholder  will  receive  will change  based on the
number of shares of both BSD and  NeoMedia  common  shares  outstanding  and the
price of  NeoMedia  common  stock at the  effective  time of the  merger.  It is
important  to note  that BSD  shareholders  will not know the  actual  number of
shares they will receive  until the effective  date of the merger.  The ratio of
.07 to the price of NeoMedia  common  stock will not be adjusted  for changes in
the  market  price of BSD or  NeoMedia  common  stock,  meaning an  increase  in
NeoMedia's stock price prior to the effective time of the merger would result in
fewer shares of NeoMedia stock being exchanged for each share of BSD stock.  The
price at which the NeoMedia common stock will trade after the merger is unknown.


      The market  price of NeoMedia  common stock at the  effective  time of the
merger will likely be different from the current market price of NeoMedia common
stock for a variety of reasons,  including market  reactions to the merger.  For
example,  between January 1, 2004 and December 31, 2004, the market price of the
NeoMedia  common  stock ranged from a low of $0.05 per share to a high of $0.299
per share. Additionally, since April 5, 2005, the approximate date that NeoMedia
filed its initial information  statement/prospectus  relative to its acquisition
of and merger with BSD,  NeoMedia's  stock has been  subject to  dramatic  price
volatility.  Between  April 5, 2005 and January 12, 2006,  NeoMedia's  stock has
traded as low as $0.21 per share and as high as $0.72 per share. Stockholders of
NeoMedia and BSD are urged to obtain current market  quotations for the NeoMedia
common stock.


THE MARKET PRICE AND TRADING VOLUME OF THE NEOMEDIA COMMON STOCK MAY BE VOLATILE
AND THE HOLDERS OF BSD COMMON  STOCK MAY NOT BE ABLE TO SELL THEIR  SHARES AT OR
ABOVE THE INITIAL  MARKET  PRICE OF THE  NEOMEDIA  COMMON  STOCK  FOLLOWING  THE
MERGER.

      The  market   price  of  the  NeoMedia   common   stock  could   fluctuate
significantly for many reasons, including in response to the risk factors listed
in this prospectus or for reasons unrelated to NeoMedia's  performance,  such as
reports  by  industry  analysts,   investor  perceptions,  or  announcements  by
NeoMedia's customers,  competitors or suppliers regarding their own performance,
as well as general economic and industry conditions.  For example, to the extent
that other companies within  NeoMedia's  industry  experience  declines in their
stock price, NeoMedia's stock price may decline as well.

NEOMEDIA  COMMON STOCK HAS BEEN SUBJECT TO DRAMATIC PRICE  VOLATILITY  SINCE THE
FILING OF THE INFORMATION STATEMENT/PROSPECTUS RELATING TO THE MERGER WITH BSD


      Since April 5, 2005, the approximate  date that NeoMedia filed its initial
information  statement/prospectus relative to its acquisition of and merger with
BSD,  NeoMedia's  stock has been subject to dramatic price  volatility.  Between
April 5, 2005 and January 12, 2006,  NeoMedia's stock has traded as low as $0.21
per share and as high as $0.72 per share.


NEOMEDIA MAY FACE SIGNIFICANT CHALLENGES IN INTEGRATING NEOMEDIA AND BSD AND, AS
A RESULT, MAY NOT REALIZE THE EXPECTED BENEFITS OF THE MERGER.

      The merger  involves the integration of two companies that have previously
operated  independently.  Combining the operations of NeoMedia and BSD will be a
complex  process that will require,  among other things,  integration of various


                                       9


functional  areas,  such as finance,  human  resources  and sales and  marketing
groups, and coordination of development efforts. NeoMedia cannot be certain that
the integration will be completed in a timely manner, if at all, or that it will
be able to achieve the  anticipated  benefits of the merger.  For  example,  the
companies may experience  difficulties in harmonizing employee benefit policies,
the relocation of certain job functions may result in the loss of personnel with
critical  corporate  knowledge  and  upgrading  financial  reporting  systems to
operate as a single system may lead to  interruptions  in tracking  financial or
sales information.  Failure to adequately manage the integration  process and to
coordinate  the joint efforts of the two  companies may have a material  adverse
effect on the business of the combined  company.  There can be no assurance that
the employees of BSD will be willing to continue their  employment with NeoMedia
after the merger.  There is no assurance that after the merger  NeoMedia will be
able  to  maintain  all  of  the  existing  commercial  relationships  of BSD or
NeoMedia.


NEOMEDIA  AND  BSD  MAY  SUFFER  NEGATIVE  CONSEQUENCES  IF  THE  MERGER  IS NOT
COMPLETED.

      If the merger is not  completed  for any reason,  NeoMedia and BSD will be
subject to a number of material risks, including:

      o     the market price of NeoMedia and BSD common stock may decline to the
            extent  that the  current  market  price of such  shares  reflects a
            market assumption that the merger will be completed;

      o     costs related to the merger, such as legal and accounting fees, must
            be paid even if the merger is not completed;

      o     the diversion of management  attention from the day-to-day  business
            of the companies and the  unavoidable  disruption to their employees
            during the period  before the  completion  of the merger may make it
            difficult for NeoMedia and BSD to regain their financial position if
            the merger does not occur; and

      o     if the  merger is  terminated  and BSD's  Board of  Directors  seeks
            another merger or business combination, BSD's stockholders cannot be
            certain  that BSD will be able to find a partner  willing  to pay an
            equivalent  or more  attractive  price  than the price to be paid by
            NeoMedia in the merger


                                       10


                      RISKS RELATED TO NEOMEDIA'S BUSINESS

NEOMEDIA HAS HISTORICALLY LOST MONEY AND LOSSES MAY CONTINUE

      NeoMedia  has  incurred  substantial  losses  since  our  inception,   and
anticipates  continuing to incur substantial losses for the foreseeable  future.
NeoMedia incurred a loss of $5,469,000 and $5,493,000 in the nine-month  periods
ended September 30, 2005 and 2004, respectively, and a loss of $7,230,000 in the
year ended December 31, 2004 and $5,382,000 in the year ended December 31, 2003.
NeoMedia's accumulated losses were approximately  $88,846,000 and $83,377,000 as
of September 30, 2005 and December 31, 2004,  respectively.  As of September 30,
2005 and December 31, 2004 and 2003, NeoMedia had a working capital (deficit) of
approximately   ($3,839,000),   ($2,597,000)  and  ($6,526,000),   respectively.
NeoMedia had  stockholders'  equity  (deficit)  of  $5,494,000,  $4,392,000  and
($3,203,000)   at  September   30,  2005,   and  December  31,  2004  and  2003,
respectively.  NeoMedia generated revenues of $1,721,000, $1,269,000, $1,700,000
and $2,400,000 for the nine-month periods ended September 30, 2005 and 2004, and
the years ended December 31, 2004 and 2003,  respectively.  In addition,  during
the  nine-month  periods ended  September 30, 2005 and 2004, and the years ended
December  31,  2004  and  2003,  NeoMedia  recorded  negative  cash  flows  from
operations of $5,951,000,  $2,500,000, $4,650,000 and $2,979,000,  respectively.
To succeed,  NeoMedia  must  develop new client and customer  relationships  and
substantially increase its revenue derived from improved products and additional
value-added services.  NeoMedia has expended, and to the extent it has available
financing,  NeoMedia  intends to continue to expend,  substantial  resources  to
develop and improve its  products,  increase  its  value-added  services  and to
market its products and services.  These development and marketing expenses must
be incurred well in advance of the recognition of revenue. As a result, NeoMedia
may not be able to achieve or sustain profitability.

NEOMEDIA'S  INDEPENDENT  REGISTERED  PUBLIC  ACCOUNTING  FIRM HAVE  ADDED  GOING
CONCERN   LANGUAGE  TO  THEIR  REPORT  ON  NEOMEDIA'S   CONSOLIDATED   FINANCIAL
STATEMENTS, WHICH MEANS THAT NEOMEDIA MAY NOT BE ABLE TO CONTINUE OPERATIONS

      The  report  of  Stonefield  Josephson,   Inc.,   NeoMedia's   independent
registered  public  accounting  firm,  with respect to  NeoMedia's  consolidated
financial statements and the related notes for the years ended December 31, 2004
and 2003,  indicates  that, at the date of their  report,  NeoMedia had suffered
significant  recurring  losses from  operations and its working  capital deficit
raised  substantial  doubt about its  ability to  continue  as a going  concern.
NeoMedia's consolidated financial statements do not include any adjustments that
might result from this uncertainty.

THERE IS  LIMITED  INFORMATION  UPON WHICH  INVESTORS  CAN  EVALUATE  NEOMEDIA'S
BUSINESS  BECAUSE THE  PHYSICAL-WORLD-TO-INTERNET  MARKET HAS EXISTED FOR ONLY A
SHORT PERIOD OF TIME

      The  physical-world-to-Internet  market in which  NeoMedia  operates  is a
recently developed market.  Further,  NeoMedia has conducted  operations in this
market only since March 1996.  Consequently,  NeoMedia has a relatively  limited
operating  history upon which an investor may base an  evaluation  of NeoMedia's
primary business and determine  NeoMedia's  prospects for achieving its intended
business objectives.  To date, NeoMedia has sold its  physical-world-to-Internet
products to only 12 companies. NeoMedia is prone to all of the risks inherent to
the establishment of any new business venture,  including  unforeseen changes in
its business  plan.  An investor  should  consider the  likelihood of NeoMedia's
future  success  to be  highly  speculative  in light of its  limited  operating
history in its  primary  market,  as well as the  limited  resources,  problems,
expenses,  risks, and complications frequently encountered by similarly situated
companies    in   new   and   rapidly    evolving    markets,    such   as   the
physical-world-to-Internet  space. To address these risks,  NeoMedia must, among
other things:

      o     maintain and increase its client base;

      o     implement  and  successfully  execute  its  business  and  marketing
            strategy;

      o     continue to develop and upgrade its products;

      o     continually update and improve service offerings and features;

      o     respond to industry and competitive developments; and

      o     attract, retain, and motivate qualified personnel.


                                       11


      NeoMedia may not be successful in addressing  these risks.  If NeoMedia is
unable to do so, its business,  prospects,  financial condition,  and results of
operations would be materially and adversely affected.

NEOMEDIA'S FUTURE SUCCESS DEPENDS ON THE TIMELY INTRODUCTION OF NEW PRODUCTS AND
THE ACCEPTANCE OF THESE NEW PRODUCTS IN THE MARKETPLACE.

      Rapid  technological  change and  frequent new product  introductions  are
typical for the markets NeoMedia serves.  NeoMedia's  future success will depend
in large part on continuous, timely development and introduction of new products
that address evolving market requirements.  To the extent that NeoMedia fails to
introduce  new  and  innovative  products,  it  may  lose  market  share  to its
competitors,  which may be difficult to regain. Any inability, for technological
or other  reasons,  to  successfully  develop and introduce  new products  could
materially and adversely affect NeoMedia's business.

NEOMEDIA'S  COMMON STOCK IS DEEMED TO BE "PENNY  STOCK,"  WHICH MAY MAKE IT MORE
DIFFICULT FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS

      NeoMedia's  common  stock is deemed  to be  "penny  stock" as that term is
defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934, as
amended.  These  requirements  may reduce the  potential  market for  NeoMedia's
common  stock by reducing the number of  potential  investors.  This may make it
more difficult for investors in NeoMedia's  common stock to sell shares to third
parties or to otherwise dispose of them. This could cause NeoMedia's stock price
to decline. Penny stocks are stock:

      o     with a price of less than $5.00 per share;

      o     that are not traded on a "recognized" national exchange;

      o     whose prices are not quoted on the NASDAQ automated quotation system
            (NASDAQ  listed stock must still have a price of not less than $5.00
            per share); or

      o     in issuers  with net  tangible  assets  less than $2 million (if the
            issuer has been in continuous operation for at least three years) or
            $10 million (if in continuous  operation for less than three years),
            or with average  revenues of less than $6 million for the last three
            years.

      Broker-dealers  dealing in penny stocks are required to provide  potential
investors  with a  document  disclosing  the  risks of penny  stocks.  Moreover,
broker-dealers  are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor.

NEOMEDIA IS UNCERTAIN OF THE SUCCESS OF ITS INTERNET SWITCHING SOFTWARE BUSINESS
UNIT  AND THE  FAILURE  OF THIS  UNIT  WOULD  NEGATIVELY  AFFECT  THE  PRICE  OF
NEOMEDIA'S STOCK

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

      o     this  Internet  Switching  Software  business unit will ever achieve
            profitability;

      o     its current product offerings will not be adversely  affected by the
            focusing of its resources on the  physical-world-to-Internet  space;
            or

      o     the products NeoMedia develops will obtain market acceptance.

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


                                       12


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

      At September 30, 2005, and December 31, 2004 and 2003,  approximately 41%,
49% and 65%,  respectively,  of NeoMedia's total assets were intangible  assets,
consisting primarily of rights related to NeoMedia's patents, other intellectual
property,  and  excess of  purchase  price over fair  market  value paid for CSI
International,  Inc. (now NeoMedia Micro Paint Repair). If NeoMedia's operations
are  unsuccessful,  these  assets  will have  little or no  value,  which  would
materially  adversely  affect the value of  NeoMedia's  stock and the ability of
NeoMedia's stockholders to recoup their investments in NeoMedia's capital stock.

NEOMEDIA'S PHYSICAL-WORLD-TO-INTERNET MARKETING STRATEGY HAS NOT BEEN TESTED AND
MAY NOT RESULT IN SUCCESS

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

NEOMEDIA'S  INTERNALLY DEVELOPED SYSTEMS ARE INEFFICIENT AND MAY PUT NEOMEDIA AT
A COMPETITIVE DISADVANTAGE

      NeoMedia  uses  internally  developed  technologies  for a portion  of its
systems  integration   services,   as  well  as  the  technologies  required  to
interconnect its clients' and customers'  physical-world-to-Internet systems and
hardware with its own. As NeoMedia  develops these systems in order to integrate
disparate  systems  and  hardware on a  case-by-case  basis,  these  systems are
inefficient and require a significant  amount of customization.  Such client and
customer-specific  customization  is time  consuming  and  costly  and may place
NeoMedia at a competitive  disadvantage  when compared to competitors  with more
efficient systems.

NEOMEDIA COULD FAIL TO ATTRACT OR RETAIN KEY PERSONNEL

      NeoMedia's  future  success  will  depend in large part on its  ability to
attract, train, and retain additional highly skilled executive level management,
creative, technical, and sales personnel. Competition is intense for these types
of personnel from other technology companies and more established organizations,
many of which  have  significantly  larger  operations  and  greater  financial,
marketing,  human,  and other  resources than NeoMedia has.  NeoMedia may not be
successful in attracting and retaining qualified personnel on a timely basis, on
competitive terms, or at all. NeoMedia's failure to attract and retain qualified
personnel  could  have a material  adverse  effect on its  business,  prospects,
financial condition, and results of operations.

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

      NeoMedia's success depends largely on the skills of certain key management
and technical  personnel,  including  Charles T. Jensen,  NeoMedia's  President,
Chief  Executive  Officer  and Chief  Operating  Officer,  and Charles W. Fritz,
NeoMedia's  founder  and  Chairman  of the Board of  Directors.  The loss of the
services of Messrs.  Jensen or Fritz could  materially harm NeoMedia's  business
because of the cost and time necessary to replace and train a replacement.  Such
a loss would also divert  management  attention  away from  operational  issues.
NeoMedia does not presently  maintain a key-man life insurance policy on Messrs.
Jensen or Mr. Fritz.

NEOMEDIA MAY BE UNSUCCESSFUL IN INTEGRATING ITS MICRO PAINT REPAIR BUSINESS WITH
ITS CURRENT BUSINESS

      The success of NeoMedia's Micro Paint Repair business unit could depend on
the ability of  NeoMedia's  executive  management to integrate the business plan
with the business plan of  NeoMedia's  NCSI and NISS  business  units.  The NMPR
business unit operates in a separate industry from NeoMedia's other two business
units.


                                       13


NEOMEDIA MAY BE UNABLE TO PROTECT ITS  INTELLECTUAL  PROPERTY  RIGHTS AND MAY BE
LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS

      NeoMedia's success in the  physical-world-to-Internet  and the value-added
systems  integration  markets  is  dependent  upon its  proprietary  technology,
including patents and other intellectual property, and on the ability to protect
proprietary  technology and other  intellectual  property  rights.  In addition,
NeoMedia  must conduct its  operations  without  infringing  on the  proprietary
rights of third  parties.  NeoMedia also intends to rely upon  unpatented  trade
secrets and the know-how and expertise of its employees, as well as its patents.
To protect its proprietary technology and other intellectual property,  NeoMedia
relies  primarily on a  combination  of the  protections  provided by applicable
patent,   copyright,   trademark,   and  trade   secret   laws  as  well  as  on
confidentiality procedures and licensing arrangements.  NeoMedia has six patents
for its  physical-world-to-Internet  technology,  and an additional  six patents
acquired  with the purchase of Secure  Source  Technologies  related to document
security.  NeoMedia  also has several  trademarks  relating  to its  proprietary
products.  Although  NeoMedia  believes that it has taken  appropriate  steps to
protect  its  unpatented  proprietary  rights,   including  requiring  that  its
employees  and third parties who are granted  access to  NeoMedia's  proprietary
technology  enter  into  confidentiality  agreements,  NeoMedia  can  provide no
assurance  that these  measures will be sufficient to protect its rights against
third parties. Others may independently develop or otherwise acquire patented or
unpatented technologies or products similar or superior to NeoMedia's.

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

NEOMEDIA IS EXPOSED TO PRODUCT  LIABILITY  CLAIMS AND AN  UNINSURED  CLAIM COULD
HAVE A MATERIAL  ADVERSE  EFFECT ON NEOMEDIA'S  BUSINESS,  PROSPECTS,  FINANCIAL
CONDITION, AND RESULTS OF OPERATIONS, AS WELL AS THE VALUE OF NEOMEDIA'S STOCK

      Many of NeoMedia's projects are critical to the operations of its clients'
businesses. Any failure in a client's information system could result in a claim
for   substantial   damages   against   NeoMedia,   regardless   of   NeoMedia's
responsibility for such failure. NeoMedia could, therefore, be subject to claims
in connection with the products and services that it sells.  NeoMedia  currently
maintains product liability insurance. There can be no assurance that:

      o     NeoMedia has  contractually  limited its  liability  for such claims
            adequately or at all; or

      o     NeoMedia  would have  sufficient  resources to satisfy any liability
            resulting from any such claim.

      The  successful  assertion  of one or more large claims  against  NeoMedia
could have a  material  adverse  effect on its  business,  prospects,  financial
condition, and results of operations.

NEOMEDIA WILL NOT PAY CASH DIVIDENDS AND INVESTORS MAY HAVE TO SELL THEIR SHARES
IN ORDER TO REALIZE THEIR INVESTMENT

      NeoMedia has not paid any cash  dividends on its common stock and does not
intend to pay cash  dividends in the  foreseeable  future.  NeoMedia  intends to
retain  future  earnings,  if  any,  for  reinvestment  in the  development  and
marketing of NeoMedia's products and services.  As a result,  investors may have
to sell their shares of common stock to realize their investment.


                                       14


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

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

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

      NeoMedia is authorized to issue a total of 25,000,000  shares of Preferred
Stock, par value $0.01 per share. NeoMedia has no present plans for the issuance
of any preferred stock.  However, the issuance of any preferred stock could have
a material  adverse effect on the rights of holders of NeoMedia's  common stock,
and, therefore,  could reduce the value of shares of NeoMedia's common stock. In
addition,  specific rights granted to future holders of preferred stock could be
used to restrict NeoMedia's ability to merge with, or sell NeoMedia's assets to,
a third party.  The ability of the Board of Directors to issue  preferred  stock
could have the  effect of  rendering  more  difficult,  delaying,  discouraging,
preventing,  or rendering  more costly an acquisition of NeoMedia or a change in
NeoMedia's control thereby preserving control by the current stockholders.


                                       15


                      RISKS RELATING TO NEOMEDIA'S INDUSTRY

THE SECURITY OF THE  INTERNET  POSES RISKS TO THE SUCCESS OF  NEOMEDIA'S  ENTIRE
BUSINESS

      Concerns   over  the  security  of  the  Internet  and  other   electronic
transactions, and the privacy of consumers and merchants, may inhibit the growth
of the Internet and other online  services  generally,  especially as a means of
conducting commercial transactions,  which may have a material adverse effect on
NeoMedia's physical-world-to-Internet business.

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

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

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

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

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

      o     rapid technological change;

      o     changes in user and customer requirements and preferences;

      o     frequent  new  product  and  service  introductions   embodying  new
            technologies; and


                                       16


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

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

      o     enhance and  improve the  responsiveness  and  functionality  of its
            products and services;

      o     license or develop  technologies  useful in its business on a timely
            basis;

      o     enhance  its  existing  services,   and  develop  new  services  and
            technologies that address the increasingly  sophisticated and varied
            needs of NeoMedia's prospective or current customers; and

      o     respond to technological  advances and emerging  industry  standards
            and practices on a cost-effective and timely basis.

NEOMEDIA'S  COMPETITORS  IN THE MICRO  PAINT  REPAIR  INDUSTRY  COULD  DUPLICATE
NEOMEDIA'S PROPRIETARY PROCESSES

      NeoMedia's  success  in the  micro  paint  repair  industry  depends  upon
proprietary  chemical  products  and  processes.  There  is  no  guarantee  that
NeoMedia's competitors will not duplicate NeoMedia's proprietary processes.

NEOMEDIA MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN MARKETS WHERE ITS COMPETITORS
HAVE MORE RESOURCES

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

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

      Many of NeoMedia's  competitors  have longer operating  histories,  larger
customer bases,  longer  relationships with clients,  and significantly  greater
financial,  technical,  marketing, and public relations resources than NeoMedia.
Based on total assets and annual  revenues,  NeoMedia is  significantly  smaller
than its two largest competitors in the physical-world-to-Internet industry, the
primary focus of  NeoMedia's  business.  Similarly,  NeoMedia  competes  against
significantly  larger and  better-financed  companies in the systems integration
and equipment resale  businesses,  including the  manufacturers of the equipment
and technologies that NeoMedia integrates and resells. If NeoMedia competes with
its primary  competitors  for the same  geographical or  institutional  markets,
their  financial  strength could prevent  NeoMedia from capturing those markets.
NeoMedia may not successfully  compete in any market in which it conducts or may
conduct operations.  In addition, based on the increasing  consolidation,  price
competition  and  participation  of  equipment   manufacturers  in  the  systems
integration  and equipment  resales  markets,  NeoMedia  believes that it may no
longer be able to compete  effectively in these markets in the future. It is for
this  reason,  that  NeoMedia  has  increasingly  focused its  business  plan on
competing in the emerging market for physical-world-to-Internet products.

      Many of  NeoMedia's  competitors  in the Micro Paint Repair  business have
access  to  more  financial  resources  as  well.  NeoMedia  may  not be able to
penetrate   markets  or  market  its  products  as   effectively  as  NeoMedia's
better-funded competitors.


                                       17


IN THE FUTURE  THERE COULD BE  GOVERNMENT  REGULATIONS  AND LEGAL  UNCERTAINTIES
WHICH COULD HARM NEOMEDIA'S BUSINESS

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

      Certain of  NeoMedia's  proprietary  technology  allows for the storage of
demographic  data from  NeoMedia's  users. In 2000, the European Union adopted a
directive  addressing  data  privacy  that may limit the  collection  and use of
certain   information   regarding  Internet  users.  This  directive  may  limit
NeoMedia's  ability to  collect  and use  information  collected  by  NeoMedia's
technology  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.  NeoMedia could incur  significant
additional expenses if new regulations regarding the use of personal information
are introduced or if NeoMedia's privacy practices are investigated.

      Certain  of  NeoMedia's   micro  paint   solutions  could  be  subject  to
environmental regulations.


                                       18


                         RISKS SPECIFIC TO THIS OFFERING


      As of January 12, 2006,  NeoMedia had  468,406,229  shares of common stock
outstanding, and options and warrants to purchase up to an aggregate 172,041,721
shares of common  stock.  NeoMedia will also issue  additional  shares of common
stock in connection with the acquisition of BSD described  herein.  On March 30,
2005, NeoMedia and Cornell entered into a Standby Equity Distribution  Agreement
under which Cornell  agreed to purchase up to $100 million of NeoMedia's  common
stock over a two-year  period,  with the  timing and amount of the  purchase  at
NeoMedia's  discretion.  Also on March 30, 2005,  NeoMedia borrowed from Cornell
the principal amount of $10,000,000  (less $68,000 of discounts and fees paid to
Cornell) in the form of a secured promissory note.


CURRENT BSD  STOCKHOLDERS  MAY SELL THEIR SHARES OF NEOMEDIA  COMMON STOCK TO BE
RECEIVED IN THE MERGER IN THE PUBLIC  MARKET,  WHICH SALES MAY CAUSE  NEOMEDIA'S
STOCK PRICE TO DECLINE

      BSD's  shareholders  will  receive,  for each  share of BSD  stock  owned,
NeoMedia stock equivalent to .07 divided by the volume-weighted average price of
NeoMedia stock for the five days prior to the effective time of the merger. Such
holders may sell the shares of common stock being registered in this offering in
the public market, which may cause NeoMedia's stock price to decline.

THE MARKET PRICE OF NEOMEDIA'S SECURITIES MAY BE VOLATILE

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

      o     the ability to retain existing clients and customers;

      o     the ability to attract new clients and customers at a steady rate;

      o     the ability to maintain client satisfaction;

      o     the ability to motivate  potential  clients and customers to acquire
            and implement new technologies;

      o     the extent to which NeoMedia's products gain market acceptance;

      o     the timing and size of client and customer purchases;

      o     introductions of products and services by competitors;

      o     price competition in the markets in which NeoMedia competes;

      o     the pricing of hardware  and  software  that we resell or  integrate
            into NeoMedia's products;

      o     the level of use of the Internet and online services, as well as the
            rate of market acceptance of physical-world-to-Internet marketing;

      o     the  ability  to  upgrade  and   develop   NeoMedia's   systems  and
            infrastructure in a timely and effective manner;


                                       19


      o     the  ability  to  attract,  train,  and retain  skilled  management,
            strategic, technical, and creative professionals;

      o     the amount and timing of  operating  costs and capital  expenditures
            relating to the expansion of NeoMedia's  business,  operations,  and
            infrastructure;

      o     unanticipated  technical,  legal, and regulatory  difficulties  with
            respect to use of the Internet; and

      o     general  economic  conditions  and economic  conditions  specific to
            Internet technology usage and electronic commerce.


      NeoMedia's  common  stock  traded  as low as $0.01  and as high as  $0.299
between  January  1, 2003 and  December  31,  2004.  Since  April 5,  2005,  the
approximate    date    that    NeoMedia    filed   its    initial    information
statement/prospectus  relative  to its  acquisition  of  and  merger  with  BSD,
NeoMedia's stock has been subject to dramatic price volatility. Between April 5,
2005 and January 12, 2006, NeoMedia's stock has traded as low as $0.21 per share
and as high as $0.72 per  share.  From time to time  after  this  offering,  the
market price of NeoMedia's common stock may experience  significant  volatility.
NeoMedia's   quarterly   results,   failure  to  meet  analysts'   expectations,
announcements  by  us  or  NeoMedia's   competitors  regarding  acquisitions  or
dispositions, loss of existing clients, new procedures or technology, changes in
general conditions in the economy, and general market conditions could cause the
market price of the common stock to fluctuate  substantially.  In addition,  the
stock market has experienced significant price and volume fluctuations that have
particularly affected the trading prices of equity securities of many technology
companies.  These price and volume fluctuations often have been unrelated to the
operating performance of the affected companies.


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


      As of  January 12, 2006,   NeoMedia  had  outstanding  stock  options  and
warrants  to purchase  172,041,721  shares of common  stock,  some of which have
exercise prices at or below the price of NeoMedia's  common shares on the public
market.  To the extent such  options or warrants  are  exercised,  there will be
further dilution.  In addition, in the event that any future financing should be
in the form of, be convertible into, or exchangeable for, equity securities, and
upon the exercise of options and warrants,  investors may experience  additional
dilution.


YOU MAY SUFFER  SIGNIFICANT  DILUTION AS A RESULT OF NEOMEDIA'S  STANDBY  EQUITY
DISTRIBUTION AGREEMENT WITH CORNELL CAPITAL PARTNER, LP

      During  the  years  ended  December  31,  2004  and  2003,  NeoMedia  sold
112,743,417  and  98,933,244  shares,  respectively,  under its  Standby  Equity
Distribution  Agreement (and the predecessor of the Standby Equity  Distribution
Agreement called an Equity Line of Credit) with Cornell Capital Partners, LP. To
the extent that cash generated from  operations  does not meet  NeoMedia's  cash
needs,  NeoMedia  could  continue to sell  additional  shares  under the Standby
Equity Distribution Agreement.

      On March 30, 2005,  NeoMedia and Cornell entered into a new Standby Equity
Distribution Agreement under which Cornell agreed to purchase up to $100 million
of NeoMedia's common stock over a two-year period, with the timing and amount of
the purchase at NeoMedia's discretion. Also on March 30, 2005, NeoMedia borrowed
from Cornell the principal  amount of  $10,000,000  (less  discounts and fees of
$68,000 paid to Cornell) in the form of a secured promissory note.

FUTURE SALES OF COMMON STOCK BY NEOMEDIA'S  STOCKHOLDERS  COULD ADVERSELY AFFECT
NEOMEDIA'S  STOCK  PRICE  AND  NEOMEDIA'S  ABILITY  TO RAISE  FUNDS IN NEW STOCK
OFFERINGS


      The market price of  NeoMedia's  common stock could decline as a result of
sales of a large number of shares of NeoMedia's  common stock in the market as a
result of this offering,  or the perception that these sales could occur.  These
sales also might make it more difficult for us to sell equity  securities in the
future  at a time  and at a  price  that  we  deem  appropriate.  Following  the
acquisition of BSD (assuming a NeoMedia stock price at the effective time of the
merger of $0.344,  which was the  volume-weighted  average  price of  NeoMedia's
stock for the five days preceding January 12, 2006), if all options and warrants
were exercised, NeoMedia would have up to 647,074,980 shares outstanding.



                                       20




      Sales of  NeoMedia's  common  stock in the public  market  following  this
offering could lower the market price of NeoMedia's common stock. Sales may also
make it  more  difficult  for us to sell  equity  securities  or  equity-related
securities in the future at a time and price that  NeoMedia's  management  deems
acceptable or at all. All 468,406,229  shares of common stock  outstanding as of
January 12, 2006, are, or upon effectiveness of this registration statement will
be, freely tradable without restriction, unless held by NeoMedia's "affiliates."



                                       21


           CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

      This   information   statement/prospectus   contains  or  incorporates  by
reference certain "forward-looking statements" within the meaning of the Private
Securities  Litigation  Reform Act of 1995.  Investors are  cautioned  that such
forward-looking  statements  are subject to risks and  uncertainties,  including
those  described  under the  section  of this  information  statement/prospectus
entitled  "Risk  Factors,"  many  of  which  are  beyond   NeoMedia's   control.
Accordingly,  actual  results  may differ  materially  from those  expressed  or
implied  in any  such  forward-looking  statements.  Words  such as  "estimate,"
"project,"  "plan,"  "believe,"  "expect,"  "anticipate,"  "intend"  and similar
expressions may identify forward-looking statements.

      All forward-looking  statements are qualified by the risks described under
the section of this  information  statement/prospectus  entitled  "Risk Factors"
which, if they develop into actual events,  could have a material adverse effect
on the merger or on NeoMedia's  and/or BSD's  business,  financial  condition or
results  of  operations.  In  addition,  investors  should  consider  the  other
information  contained in or  incorporated  by reference  into this  information
statement/ prospectus.

      These  forward-looking  statements  are subject to  numerous  assumptions,
risks and  uncertainties.  Factors that may cause actual  results to differ from
those contemplated by the forward-looking  statements include, among others, the
following possibilities:

      o     inability to protect  intellectual  property or license  third party
            patents;

      o     a significant increase in competitive pressures in the industries in
            which NeoMedia and BSD compete;

      o     less   favorable   than  expected   general   economic  or  business
            conditions,  both  domestic and foreign,  resulting  in, among other
            things, lower than expected revenues;

      o     greater  than  expected  costs  or   difficulties   related  to  the
            integration of the businesses of NeoMedia and BSD;

      o     the impact of competitive products and pricing;

      o     the success of operating initiatives;

      o     availability of qualified personnel;

      o     changes in, or the failure to comply with,  government  regulations;
            and

      o     adverse changes in the securities markets.

      Because such  statements  are subject to risks and  uncertainties,  actual
results may differ materially from those expressed or implied by forward-looking
statements.  Stockholders  are  cautioned  not to place undue  reliance on these
statements,  which  speak  only as of the  date of this  information  statement/
prospectus or, in the case of documents  incorporated by reference,  the date of
such documents.

      NeoMedia  and  BSD  undertake  no  obligation  and do not  intend  to make
publicly  available any update or other revisions to any of the  forward-looking
statements  contained  in  this  information   statement/prospectus  to  reflect
circumstances  existing after the date of this information  statement/prospectus
or to reflect  the  occurrence  of future  events even if  experience  or future
events make it clear that any  expected  results  expressed  or implied by those
forward-looking  statements  will not be realized,  except as may be required by
securities law.


                                       22


                 SELECTED HISTORICAL FINANCIAL DATA OF NEOMEDIA

         The following  selected financial data the three and nine month periods
ended  September 30, 2005 and 2004 have been derived from  NeoMedia's  unaudited
consolidated  financial  statements which include, in management's  opinion, all
adjustments,  consisting of normal recurring  adjustments,  necessary to present
fairly the results of  operations  and  financial  position of NeoMedia  for the
periods and dates presented.  The following  selected financial data for each of
the five years in the period  ended  December  31, 2004 have been  derived  from
NeoMedia's  audited   consolidated   financial   statements  which  include,  in
management's   opinion,   all   adjustments,   consisting  of  normal  recurring
adjustments, necessary to present fairly the results of operations and financial
position of NeoMedia  for the periods and dates  presented.  This data should be
read  in  conjunction  with  the  respective  audited   consolidated   financial
statements of NeoMedia,  including  the notes  thereto,  incorporated  herein by
reference  and with the  "Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations" of NeoMedia  contained in, or  incorporated
in, the Annual  Reports and other  information  that NeoMedia has filed with the
United  States  Securities  and  Exchange  Commission.  See the  section of this
information statement/prospectus entitled "Where You Can Find More Information."



                                       NINE MONTHS
                                   ENDED SEPTEMBER 30,                        YEARS ENDED DECEMBER 31,
                                 ----------------------    -------------------------------------------------------------
                                   2005         2004         2004         2003         2002         2001         2000
                                 ---------    ---------    ---------    ---------    ---------    ---------    ---------
                                                                                          
Total net sales                  $   1,721    $   1,269    $   1,700    $   2,400    $   9,399    $   8,142    $  27,565
Net loss                         ($  5,469)   ($  5,493)   ($  7,230)   ($  5,382)   ($  7,421)   ($ 25,469)   ($  5,409)
Net loss per share               ($   0.01)   ($   0.02)   ($   0.02)   ($   0.04)   ($   0.26)   ($   1.55)   ($   0.39)
Weighted average shares
outstanding
 during the period (thousands)     451,487      324,471      329,362      125,030       22,330       16,410       13,931

Total assets                     $  15,287    $   9,721    $  10,406    $   3,876    $   4,323    $   9,039    $  40,594
Long-term debt                          --           --           --           --    $     226    $     390    $     539



                                       23


                    SELECTED HISTORICAL FINANCIAL DATA OF BSD

      The following  selected  financial  data for each of the five years in the
period  ended July 31, 2005 have been derived  from BSD's  audited  consolidated
financial  statements and include,  in management's  opinion,  all  adjustments,
consisting  of normal  recurring  adjustments,  necessary to present  fairly the
results of operations  and  financial  position of BSD for the periods and dates
presented.  This data should be read in conjunction with the respective  audited
and unaudited  consolidated  financial  statements  of BSD,  including the notes
thereto,  incorporated herein by reference and with the "Management's Discussion
and Analysis of Financial  Condition and Results of Operations" of BSD contained
in, or incorporated  in, the Annual Reports and other  information that NeoMedia
has filed with the United States  Securities  and Exchange  Commission.  See the
section of this  information  statement/prospectus  entitled "Where You Can Find
More Information."



                                      THREE MONTHS
                                         ENDED
                                       OCTOBER 31,                               YEAR ENDED JULY 31,
                                 ----------------------    -------------------------------------------------------------
                                   2005         2004         2005        2004(A)      2003(A)      2002(B)      2001(B)
                                 ---------    ---------    ---------    --------     ---------    ---------    ---------
                                                       (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
                                                                                          
Total net sales                  $   2,295    $   1,578    $   7,350    $   6,091    $   2,911    $   5,382    $     705
Net income (loss)                $       7    $      99    $     271    $      45    ($  4,860)   $     193    $      29
Net income (loss) per share      $    0.00    $    0.00    $    0.01    $    0.00    ($   0.19)   $  193.00(C) $   29.00(C)
Weighted average shares
outstanding during the period
   (thousands)                      32,561       32,685       31,921       31,494       25,494            1(C)         1(C)

Total assets                     $   1,989    $   1,325    $   1,706    $   1,158    $     886    $   1,269    $     260


----------
(A)   On November 2, 2002,  BSD changed its fiscal year end from  December 31 to
      July 31.  BSD was not  required  to file a  transition  report  because it
      adopted the fiscal year end of Triton Global Business Services,  Inc., the
      company  it  acquired  on  or  about  that  date.  Accordingly,  financial
      statements were not audited for the fiscal year ended July 31, 2002.

(B)   BSD  acquired   Triton   Global   Business   Services  and  Triton  Global
      Communications  during November 2002.  These business units represent 100%
      of BSD's revenue  since that date.  Prior to the  acquisition,  BSD was an
      inactive publicly traded "shell" corporation with little or no revenue. As
      a result,  the financial  information shown above for the years ended July
      31, 2002,  2001,  and 2000, is the financial  information of Triton Global
      Communications,  which is  considered  the acquirer of BSD for  accounting
      purposes.

(C)   Prior to the  business  combination  with BSD and Triton  Global  Business
      Services,  Triton Global  Communications was a privately held company with
      one share outstanding.


                                       24


                           COMPARATIVE PER SHARE DATA

      The following tables present historical per share data of BSD and NeoMedia
as of and for  the 12  months  ended  July  31,  2005  and  December  31,  2004,
respectively.  The data presented  below should be read in conjunction  with the
historical financial statements of NeoMedia and BSD incorporated by reference in
this information statement/prospectus.  Because the number of shares of NeoMedia
common  stock to be issued in the merger will not be known until the  completion
of the  merger,  pro forma per share data is  presented  below using the closing
sale price of a share of NeoMedia  common  stock on December  31, 2004 which was
$0.265.



                                                                          YEAR ENDED      YEAR ENDED
                                                                           JULY 31,      DECEMBER 31,
                                                                             2005            2004
                                                                        -------------    -------------
                                                                                   
BSD HISTORICAL
   Earnings per share                                                   $        0.01              ---
   Book value per share (as of end of period)(1)                        ($       0.10)             ---

NEOMEDIA HISTORICAL
   Loss per share                                                                 ---    ($       0.02)
   Book value per share (as of end of period)(1)                                  ---    $        0.01

PRO FORMA COMBINED
   Loss per combined company share(2)                                             ---    ($       0.02)
   Book value per combined company share (as of end of period)(3)                 ---    $        0.02



----------
(1)   The  historical  net book value per share of NeoMedia and BSD common stock
      is computed by dividing common  stockholders'  equity at period end by the
      number of shares of common stock outstanding at the period end.

(2)   The pro forma combined net loss per share of the combined company's common
      stock is computed by dividing  the pro forma  combined net loss by the pro
      forma weighted number of shares of common stock  outstanding at the period
      end, assuming the merger had been completed on January 1, 2004.

(3)   The pro forma combined net book value per share of the combined  company's
      common stock is computed by dividing  the pro forma  common  stockholders'
      equity  (deficit)  by the pro forma  number  of  shares  of  common  stock
      outstanding  at the period end,  assuming the merger had been completed on
      January 1, 2004.


                                       25


                          COMPARATIVE STOCK PRICE DATA

      NeoMedia  common  stock  is  listed  and  traded  on the  Over-the-Counter
Bulletin  Board  under the symbol  "NEOM".  BSD  common  stock and is listed and
traded on the  Over-the-Counter  Bulletin  Board  under the symbol  "BSDS".  The
following table sets forth,  for the periods  indicated,  the high and low sales
prices per share of NeoMedia  common  stock and BSD common  stock as reported on
the respective  markets in which they are traded.  Neither  NeoMedia nor BSD has
paid dividends with respect to its common stock.

                                    NEOMEDIA                      BSD
                                  COMMON STOCK               COMMON STOCK
                              ----------------------     ----------------------
                                HIGH         LOW           HIGH         LOW
                              ---------    ---------     ---------    ---------
2001
   January 1 - March 31          $6.00        $5.69         $0.25        $0.25
   April 1 - June 30             $4.50        $5.00         $0.25       $0.001
   July 1 - September 30         $1.85        $4.12        $0.001       $0.001
   October 1 - December 31       $0.24        $1.94         $7.25        $1.10

2002
   January 1 - March 31          $0.41        $0.14         $7.05        $5.25
   April 1 - June 30             $0.17        $0.05         $8.52        $6.00
   July 1 - September 30         $0.10        $0.02         $8.52        $1.25
   October 1 - December 31       $0.05        $0.01         $4.75        $0.33

2003
   January 1 - March 31          $0.06        $0.01         $1.85        $0.64
   April 1 - June 30             $0.04        $0.01         $1.28        $0.30
   July 1 - September 30         $0.29        $0.01         $0.51        $0.22
   October 1 - December 31       $0.23        $0.10         $0.44        $0.16

2004
   January 1 - March 31          $0.16        $0.14         $0.25        $0.09
   April 1 - June 30             $0.11        $0.05         $0.51        $0.09
   July 1 - September 30         $0.12        $0.06         $0.85        $0.22
   October 1 - December 31       $0.30        $0.06         $0.34        $0.12


2005
   January 1 - March 31          $0.29        $0.22         $0.24        $0.07
   April 1 - June 30             $0.72        $0.19         $0.17        $0.06
   July 1 - September 30         $0.51        $0.32         $0.10        $0.05
   October 1 - December 31       $0.45        $0.28         $0.06        $0.04

2006
   January 1 - January 12        $0.38        $0.29         $0.06        $0.06

      On  December  20,  2004,   the  last  trading  day  prior  to  the  public
announcement of the execution of the Merger Agreement,  the closing price of BSD
common stock was $0.15 per share and the closing price of NeoMedia  common stock
was $0.18 per share.  On January 12, 2006, the most recent  practicable  trading
day prior to the printing of this information statement/prospectus,  the closing
price of BSD common stock was $0.055 per share and the closing price of NeoMedia
common  stock was $0.375 per  share.  The market  prices of shares of BSD common
stock and NeoMedia  common stock are subject to  fluctuation.  As a result,  BSD
shareholders are urged to obtain current market quotations. Since April 5, 2005,
the   approximate   date   that   NeoMedia   filed   its   initial   information
statement/prospectus  relative  to its  acquisition  of  and  merger  with  BSD,
NeoMedia's stock has been subject to dramatic price volatility. Between April 5,
2005 and January 12, 2006, NeoMedia's stock has traded as low as $0.21 per share
and as high as $0.72 per  share.  On  January 12, 2006,  there were  32,560,897
shares of BSD common stock outstanding and 468,406,229 shares of NeoMedia common
stock outstanding.



                                       26


                                   THE MERGER

      On  December  21,  2004,  NeoMedia  and BSD  signed  a  definitive  Merger
Agreement, the form of which is attached hereto as Exhibit 10.55.

BSD's Reasons for the Merger

      On  November  29,  2004,  BSD's  Board of  Directors  approved  the Merger
Agreement,  which  provides  for the  acquisition  by  NeoMedia of BSD through a
merger  of BSD with and into  NeoMedia  Telecom  Services,  a newly  formed  and
wholly-owned  subsidiary  of  NeoMedia.  In  addition,  holders  of 63% of BSD's
outstanding shares approved the merger by signing a Voting Rights Agreement.

      In  reaching   their   decision  to  approve  the  merger  and  the  other
transactions  contemplated by the Merger  Agreement,  the BSD Board of Directors
and majority  shareholders  consulted  with BSD's  management  and its legal and
financial advisors. BSD's board and majority shareholders considered a number of
factors and potential benefits of the merger including,  without limitation, the
following:

      o     the enhanced potential for earnings and revenue growth that could be
            attained through a combination of NeoMedia's PaperClickTM technology
            with BSD's technology and telecommunications  industry expertise (in
            addition,  both  companies  expect  cost  savings may be attained by
            eliminating overlap of expenses);

      o     the significantly larger public float and trading volume of NeoMedia
            common  shares  compared to the public  float and trading  volume of
            shares of BSD common stock,  which should  provide BSD  shareholders
            who receive  NeoMedia  shares in the merger the  opportunity to gain
            greater liquidity in their investment;

      o     the results of the  business and  accounting  due  diligence  review
            conducted by BSD's management and directors;

      o     the  potential  benefits to BSD employees  from a  combination  with
            NeoMedia;

      o     BSD's business, current financial condition and results of operation
            and  future  prospects  and the  belief of the  board  and  majority
            shareholders,  based on its familiarity with these matters, that the
            consideration   to  be  received  by  BSD's   shareholders   in  the
            transaction  fairly  reflects BSD's intrinsic  value,  including its
            prospects for future growth in line with historical growth rates;

      o     the recent  evaluation by BSD's  management of BSD's  strategic plan
            and projections and the risks related to achieving those projections
            and the goals of that plan,  compared  to the risks and  benefits of
            the merger; and

      o     THE   ABILITY  OF  BSD'S   SHAREHOLDERS   TO   RECEIVE   THE  MERGER
            CONSIDERATION ON A TAX-ADVANTAGED BASIS.

      The BSD Board of Directors and majority  shareholders  also considered and
balanced  against the potential  benefits of the merger a number of  potentially
adverse  factors  concerning  the  merger  including,  without  limitation,  the
following:

      o     the fact that the final  number of  NeoMedia  shares to be issued in
            exchange for each share of BSD is dependent  upon the trading  price
            of  NeoMedia's  common  stock  at the time of  closing,  and that an
            increase  in  NeoMedia's  share  price  between  the  date  of  this
            prospectus  and closing  will result in BSD  shareholders  receiving
            fewer shares of NeoMedia common stock in the merger;

      o     the  opportunities  for  growth  and  the  potential  for  increased
            shareholder  value if BSD were to stay  independent  and realize its
            strategic plan,  financial  projections  and expected  technological
            advances over the next five years;

      o     the risk that the merger might not be  completed in a timely  manner
            or at all;


                                       27


      o     the risk of  diverting  management  focus and  resources  from other
            strategic  opportunities and from operational  matters while working
            to implement the merger; and

      o     the  possibility  of management and employee  disruption  associated
            with the merger.

      After taking into  account all of the factors set forth above,  as well as
others,  the BSD Board of Directors  and majority  shareholders  agreed that the
benefits of the merger outweigh the risks and that the Merger  Agreement and the
merger  are  advisable  and  fair  and in the  best  interests  of BSD  and  its
shareholders.

      The BSD  Board of  Directors  and  majority  shareholders  did not  assign
relative weights to the above factors or the other factors  considered by it. In
addition,  the BSD board and  majority  shareholders  did not reach any specific
conclusion on each factor considered, but conducted an overall analysis of these
factors.  Individual members of the BSD board may have given different weight to
different factors.

NeoMedia's Reasons for the Merger

      The Board of Directors of NeoMedia approved the Merger Agreement on August
18,  2004  after  NeoMedia's  senior  management  discussed  with  the  Board of
Directors the business, assets, liabilities, results of operations and financial
performance  of BSD, the  complementary  nature of certain of BSD's products and
capabilities  and the products of NeoMedia,  the  expectation  that BSD could be
integrated with NeoMedia, and the potential benefits that could be realized as a
result of such integration.

Interests of Certain Persons in the Merger; Conflicts of Interest

      BSD  shareholders  should  be  aware  that  some of  BSD's  directors  and
executive  officers have interests in the merger that are different  from, or in
addition to, the interests of BSD shareholders generally. The Board of Directors
of BSD was aware of these  interests and considered them in approving the merger
and the Merger Agreement.

      Equity Plans. Upon the completion of the merger, BSD employees,  including
senior  management,  will be eligible to participate in NeoMedia's  stock option
plans and stock incentive  plans.  Any issuances of stock or stock options under
NeoMedia's  various plans must be approved by either the Stock Option  Committee
of NeoMedia's board, or the Board of Directors as a whole.

      Insiders Who Are  Debtholders of BSD. Two of BSD's  majority  shareholders
who  approved  the merger are also  debtholders  of BSD.  The debt owed to these
individuals will become debt of NeoMedia Telecom Services upon completion of the
merger.

Anticipated Accounting Treatment

      The total merger consideration paid by NeoMedia,  together with the direct
costs of the merger,  will be allocated to BSD's tangible and intangible  assets
and liabilities based on their fair market values.  The assets,  liabilities and
results of operations of BSD will be consolidated  into the assets,  liabilities
and results of operations of NeoMedia after the merger.

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

      The following  discussion  sets forth the material  United States  federal
income tax  consequences of the merger to BSD  Stockholders  (as defined below).
This discussion does not address any tax consequences  arising under the laws of
any state,  local or foreign  jurisdiction.  This  discussion  is based upon the
Internal Revenue Code of 1986, as amended,  (the "Code"), the regulations of the
U.S. Treasury  Department and court and administrative  rulings and decisions in
effect  on the date of this  registration  statement.  These  laws  may  change,
possibly  retroactively,  and any change could affect the continuing validity of
this discussion.

      For purposes of this discussion,  the term "BSD  Stockholder"  refers to a
holder of BSD common stock that is:

      o     A citizen or resident of the United States;


                                       28


      o     a  corporation,  or other entity  taxable as a corporation  for U.S.
            federal income tax purposes,  created or organized under the laws of
            the United States or any of its political subdivisions;

      o     a trust if it (i) is subject to the primary  supervision  of a court
            within the United States and one or more United States  persons have
            the authority to control all  substantial  decisions of the trust or
            (ii) has a valid election in effect under  applicable  United States
            Treasury regulations to be treated as a United States person; or

      o     an estate that is subject to U.S.  federal  income tax on its income
            regardless of its source.

      If a partnership  (including any entity treated as a partnership  for U.S.
federal  income tax  purposes)  holds BSD common  stock,  the tax treatment of a
partner will  generally  depend on the status of the partners and the activities
of the partnership.  A partner of a partnership  holding BSD common stock should
consult his own tax advisor.

      This  discussion  assumes that BSD common stock is held as a capital asset
within the meaning of Section 1221 of the Code.  Further,  this  discussion does
not address all aspects of U.S.  federal income taxation that may be relevant to
BSD Stockholder under the stockholder's  particular circumstances or that may be
applicable  to a BSD  Stockholder  if the  stockholder  is  subject  to  special
treatment under the U.S. federal income tax laws, including if a BSD Stockholder
is:

      o     a financial institution;

      o     a tax-exempt organization;

      o     an S corporation or other pass-through entity;

      o     an insurance company;

      o     a mutual fund;

      o     a dealer in securities or foreign currencies;

      o     a trader in  securities  who  elects  the  mark-to-market  method of
            accounting for the securities;

      o     subject to the alternative minimum tax provisions of the Code;

      o     a BSD Stockholder who received BSD common stock through the exercise
            of  employee  stock  options or through a  tax-qualified  retirement
            plan;

      o     a person that has a functional currency other than the U.S. dollar;

      o     a holder of options granted under any BSD benefit plan;

      o     a BSD  Stockholder  who holds BSD  common  stock as part of a hedge,
            straddle or a constructive sale or conversion transaction; or

      o     certain United States expatriates.

      THE MERGER.  NeoMedia and BSD have  structured  the merger to qualify as a
reorganization  within the meaning of Section 368(a) of the Code.  NeoMedia will
receive a legal  opinion that the merger so  qualifies.  In  addition,  based on
representations and covenants contained in a tax opinion certificate provided by
NeoMedia  and  NeoMedia  Telecom   Services,   Inc.  and  on  customary  factual
assumptions,  all of which must continue to be true and accurate in all material
respects  as  of  the  effective  time  of  the  merger,   and  subject  to  the
qualifications  and limitations  set forth in the opinion,  it is the opinion of
Kirkpatrick  & Lockhart  Nicholson  Graham LLP,  counsel to  NeoMedia,  that the
merger will qualify as a reorganization  within the meaning of Section 368(a) of
the Code. Accordingly,  the material U.S. federal income tax consequences of the
merger are as follows:


                                       29


      o     BSD  Stockholders  will not recognize gain or loss upon the exchange
            of BSD common stock for  NeoMedia  common stock except to the extent
            of any cash  received  instead  of a  fractional  share of  NeoMedia
            common  stock.  This gain or loss will be capital gain or loss equal
            to the  difference  between the amount of cash  received and the tax
            basis allocated to such fractional  share.  The capital gain or loss
            recognized will constitute long-term capital gain or loss if the BSD
            Stockholder's  holding period in BSD common stock surrendered in the
            merger is greater than one year as of the date of the merger.

      o     the  aggregate  tax basis in the  NeoMedia  common  stock that a BSD
            Stockholder  receives in the merger  (including any fractional share
            interest  deemed to be received and  exchanged  for cash) will equal
            the BSD  Stockholder's  aggregate  tax basis in the BSD common stock
            that the stockholder surrenders less the amount of cash, if any, the
            BSD  Stockholder  receives,  plus  the  amount  of any  gain the BSD
            Stockholder  recognizes  as a result of receiving  the cash, if any;
            and

      o     the  holding  period  for  the  NeoMedia  common  stock  that  a BSD
            Stockholder  receives in the merger  (including any fractional share
            interest  deemed to be received and exchanged for cash) will include
            the BSD  Stockholder's  holding  period for the shares of BSD common
            stock that the stockholder surrenders in the exchange.

      If a BSD  Stockholder  acquired  different  blocks of BSD common  stock at
different times and at different prices, the stockholder's tax basis and holding
period in his NeoMedia  common stock may be  determined  with  reference to each
block of BSD common stock.

      BACKUP  WITHHOLDING.  A  non-corporate  BSD  Stockholder may be subject to
information  reporting and backup  withholding on any cash received instead of a
fractional  share interest in NeoMedia common stock. A BSD Stockholder  will not
be subject to backup withholding, however, if the stockholder:

      o     furnishes a correct  taxpayer  identification  number and  certifies
            that the BSD Stockholder is not subject to backup withholding on the
            Form W-9 or successor form; or

      o     is otherwise exempt from backup withholding.

      Any amounts withheld under the backup withholding rules will be allowed as
a refund or credit against your U.S. federal income tax liability,  provided you
furnish the required information to the Internal Revenue Service.

      REPORTING  REQUIREMENTS.  A BSD Stockholder that receives  NeoMedia common
stock as a result of the merger will be required to retain records pertaining to
the merger and will be required  to file with the  stockholder's  United  States
federal  income  tax  return  for the year in which  the  merger  takes  place a
statement setting forth facts relating to the merger.

      THIS DISCUSSION DOES NOT ADDRESS TAX  CONSEQUENCES  THAT MAY VARY WITH, OR
ARE CONTINGENT ON, INDIVIDUAL  CIRCUMSTANCES.  MOREOVER, IT DOES NOT ADDRESS ANY
NON-INCOME TAX OR ANY FOREIGN,  STATE OR LOCAL TAX  CONSEQUENCES  OF THE MERGER.
TAX MATTERS ARE VERY  COMPLICATED,  AND THE TAX CONSEQUENCES OF THE MERGER TO AN
INDIVIDUAL  BSD  STOCKHOLDER  WILL  DEPEND  UPON THE FACTS OF THE  STOCKHOLDER'S
PARTICULAR SITUATION.  ACCORDINGLY,  BSD STOCKHOLDERS ARE STRONGLY ENCOURAGED TO
CONSULT WITH A TAX ADVISOR TO DETERMINE THE PARTICULAR FEDERAL,  STATE, LOCAL OR
FOREIGN INCOME OR OTHER TAX CONSEQUENCES TO THEM OF THE MERGER.

MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

      The following is a summary of the principal  Canadian  federal  income tax
considerations  generally  applicable  to BSD  Stockholders  who are resident in
Canada.  This summary,  which does not constitute a legal opinion, is restricted
in its scope to BSD Stockholders who are individuals (that is, taxpayers who are
persons and not corporations,  trusts or other entities)  resident in Canada for
the  purposes  of the Income  Tax Act Canada  (the "Tax Act") and who hold their
shares as capital property. This commentary assumes that the BSD Stockholder and
any person deemed to deal with him not at  arm's-length  for the purposes of the
Tax Act,  will not after the  exchange  hold or have rights to acquire more than
one-half of the shares  entitled to vote to elect directors in NeoMedia nor have
shares  with a fair  market  value of more  than  50% of all  issued  shares  in
NeoMedia.


                                       30


      This summary is based upon  NeoMedia's  understanding  of the Tax Act, the
regulations to it (the "Regulations") and the current  administrative  practices
of the Canada  Revenue  Agency  ("CRA").  This  summary  also takes into account
proposals for specific  amendments to the Tax Act publicly  announced in writing
by the  Minister  of  Finance  of  Canada  as of the  date of  this  information
statement/prospectus (the "Proposed Amendments"). There is no assurance that the
Proposed Amendments will be enacted into law in the manner proposed,  or at all.
This summary does not take into account or  anticipate  any possible  changes in
the law, whether by legislative, governmental or judicial action.

      No advance  income tax ruling has been applied for from CRA in  connection
with the transactions contemplated by filing nor will one be sought.

      This  summary  is  not  exhaustive  of all  possible  federal  income  tax
considerations  and  does  not  deal  with  provincial  or  foreign  income  tax
considerations. This summary does not constitute, and should not be construed to
constitute,  legal or tax  advice to any  particular  person.  BSD  STOCKHOLDERS
RESIDENT IN CANADA ARE THEREFORE  ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THEIR PARTICULAR CIRCUMSTANCES.

      A BSD Stockholder  who exchanges  his/her or her shares for NeoMedia stock
will have a  disposition  of those shares for the purposes of the Tax Act.  That
BSD  Stockholder  will be deemed to have  disposed  of BSD  shares for an amount
equal to their cost base  immediately  prior to the exchange (thus  realizing no
gain or loss) and will be deemed to have  acquired the NeoMedia  shares for that
same amount.

      However,  a Canadian  resident BSD Stockholder can elect in his/her return
of  income  of the  taxation  year in which  the  exchange  occurs  to treat the
disposition not as a "rollover" or non-recognition  transaction but as one which
may generate a capital gain (or loss). In that case,  proceeds of disposition of
shares by the BSD  Stockholder  equal to the fair market  value of the  NeoMedia
shares  received on the exchange will be deemed to have realized.  To the extent
that the  proceeds of  disposition  received or deemed to have been  received in
respect of the BSD shares exceed the aggregate of the BSD Stockholder's adjusted
cost base and costs of disposition,  the BSD Stockholder  will realize a capital
gain for income tax purposes.  A capital loss will  generally be realized to the
extent  that  proceeds of  disposition  are  exceeded  by the BSD  Stockholder's
adjusted cost base of the BSD shares and costs of disposition.

      A Canadian  resident  must  include  one-half of the amount of any capital
gain realized into income which would then be taxed at ordinary  marginal rates.
One-half of a capital loss,  referred to in the Tax Act as an allowable  capital
loss, may be utilized to offset taxable capital gains realized by the individual
in the current year. To the extent that allowable capital losses realized in the
year are not  utilized  to offset  taxable  capital  gains for that  year,  such
allowable  capital  losses can be used to offset net  taxable  capital  gains in
future years or in the three preceding years.

      The  cost  base of the  NeoMedia  shares  to that  Canadian  resident  BSD
Stockholder  will be their fair market value on the date of the  transaction  if
that BSD Stockholder elects out of the "rollover" treatment.

Dissenters' Rights

      Under  Florida law,  holders of BSD common stock  outstanding  immediately
prior to the  effective  date of the  merger  who have not voted in favor of the
merger have the right to exercise their dissenters' rights and obtain payment in
cash for the fair value of their  shares of common  stock,  rather than  receive
shares   of   NeoMedia   common   stock  as   described   in  this   information
statement/prospectus  and the attached Merger Agreement. To exercise dissenters'
rights,  BSD  stockholders  must strictly follow the procedures  described under
Section 607.1301 et seq. of the Florida  Business  Corporation Act (the "FBCA").
The text of the  applicable  provisions  of Florida  Business  Corporation  Act,
together with BSD's initial  notice to dissenters as required under the FBCA and
a Dissenter's  Demand  Notice Form,  is attached as Annex A to this  information
statement/prospectus.  Instruction as to how to exercise  dissenters'  rights in
connection with the merger are included in Annex A. A BSD  shareholder  desiring
to exercise his/her dissenters' rights under the FBCA must execute and return to
BSD the Dissenter's Demand Notice Letter in Annex A.

      In  order to  exercise  appraisal  rights,  dissenting  shareholders  must
strictly  comply  with the  statutory  procedures  of the  FBCA.  If a  proposed
corporation  action requiring  appraisal rights under the FCBA is submitted to a
vote at a shareholders'  meeting, or is submitted to a shareholder pursuant to a
consent to vote,  a  dissenting  shareholder  who wishes to  exercise  appraisal
rights,  must deliver to the corporation  before the vote is taken, or within 20
days after receiving  notice from the corporation that such appraisal rights are
available,   a  written  notice  of  intent  to  demand  payment.  A  dissenting
shareholder  then cannot vote in favor of the proposed  action.  If the proposed


                                       31


action  becomes  effective,  the  corporation  must deliver a written  appraisal
notice and form to all dissenting  shareholders  who provided a notice of intent
to demand payment within the statutorily prescribed time limits. The corporation
must send the  appraisal  notice  and form  within 10 days  after the  corporate
action became effective. The corporation may offer to a dissenting shareholder a
payment  based  on  the  corporation's   estimate  of  the  fair  value  of  the
shareholder's  shares.  The fair value of the shares is  determined  immediately
before the effectuation of the corporate action to which the shareholder objects
and using  customary and current  valuation  concepts and  techniques  generally
employed  for  similar  business  in the  context of the  transaction  requiring
appraisal,  excluding any  appreciation  or  depreciation in anticipation of the
corporate  action,  unless such  exclusion  would be  inequitable.  A dissenting
shareholder who is dissatisfied  with the  corporation's  offer, must notify the
corporation  on  the  form  provided  to  the  dissenting   shareholder  by  the
corporation of that dissenting  shareholder's  estimate of the fair value of the
shares and demand  payment  of that  estimate  plus  interest.  If a  dissenting
shareholder  fails to notify the corporation in writing of the demand to be paid
the  shareholder's  stated  estimate of the fair value plus interest  within the
timeframe  requested be the corporation,  which shall be no less than 40 or more
than 60 days after the appraisal  notice and form are sent,  the  shareholder is
entitled only to the payment  offered by the  corporation.  Due to the fact that
the actual  exchange  rate of BSD shares for  NeoMedia  shares will not be known
until the effective time of the merger,  a dissenting  shareholder  may not know
the actual exchange rate at the time the notice of dissent is submitted.

      Section 607.1302 of the FBCA provides in pertinent part that a shareholder
is entitled to appraisal (i.e.,  dissenters')  rights,  and to obtain payment of
the fair value of that shareholder's shares in the event of, among other things,
consummation  of a merger to which  the  corporation  is a party if  shareholder
approval is required for the merger under Section  607.1103 of the FBCA, and the
shareholder  is  entitled  to vote on the merger or  exchange  of shares in such
merger;  provided that the  shareholder  has not voted in favor of the merger or
share exchange.

      A shareholder may assert  his/her/her  dissenters'  rights to all or fewer
than all shares he/she/she held as of the record date.

      Under  Section  607.1320,  the  corporation  is  required  to provide  the
stockholder  with an  initial  notice of the  corporate  action  giving  rise to
dissenters'  rights  (e.g.,  a merger  or share  exchange)  at the same time the
corporation  provides notice of the meeting on which the proposed merger will be
put to a vote,  or if no such  meeting  is to  occur,  on the date on which  the
corporation  first solicits  consents for the proposed  merger or share exchange
from any stockholder (the "Initial Notice"). The Initial Notice must also inform
the  stockholder  that the  corporation has concluded that a stockholder may be,
is, or is not entitled to assert their dissenters' rights under the FBCA.

      Within 20 days of receipt of the Initial Notice (or before a vote is taken
on the proposed  merger),  a stockholder who has not voted to approve the merger
and who  wished to  exercise  his/her  dissenters'  rights,  must so notify  the
corporation in writing.

      If  the  proposed  merger  is  approved  by  the  stockholders,  then  the
corporation  must,  within  10  days of the  date on  which  the  merger  became
effective,  send a second notice to the  stockholders  who  previously  provided
notice to the corporation of their intention to assert their dissenters'  rights
informing  such persons that the merger was  approved and  soliciting  from them
certain  information  to be  supplied on an  enclosed  form and  returned to the
corporation,  such as name,  number of shares held,  affirmative  representation
that they did not vote for the merger,  the  corporation's  estimate of the fair
value of the shares held by such  person,  a copy of the  corporation's  current
financial  statements,  and a copy of Sections  607.1301 through 607.1333 of the
FBCA (the "Second Notice").  "Fair value" is defined under the FBCA as the value
of the  corporation's  shares  immediately  prior to the  proposed  merger using
customary and current valuation  concepts and techniques  generally employed for
similar businesses in the context of the transaction requiring appraisals.

      A stockholder  wishing to exercise  his/her  dissenters'  rights must then
execute the form enclosed in the Second Notice and return it to the  corporation
within 20 days, and, if his shares are represented by certificates, deposit such
certificates in accordance  with the terms contained in the Second Notice.  Once
the shareholder has done the foregoing, he/she loses all rights as a shareholder
unless he/she withdraws his/her election to exercise his/her dissenters' rights.
If the  shareholder  states on such form that he/she  accepts the  corporation's
offer,  then the corporation must tender payment to shareholder  within 90 days.
However,  if the shareholder  indicates on such form that he/she does not accept
the corporation's  offer, then he/she must provide his/her  determination of the
fair value and note same on the form before returning it to the corporation.


                                       32


      The corporation then has 60 days in which to (a) accept the  shareholders'
counter-offer/determination  of fair value and thereafter pay such amount within
said 60-day period,  or (b) negotiate with the  shareholder  toward a compromise
value and thereafter  pay such amount within said 60-day  period,  or (c) reject
the  shareholder's  counter-offer/determination  of fair  value  and  thereafter
within said 60-day period commence a proceeding in the appropriate  court in the
county in which the  corporation's  principal  office is located  for a judicial
determination  of fair value.  The  corporation  must tender payment of the fair
value determined by the court within 10 days of a final determination.

      Under the FBCA, court costs, including costs of any third party appraisals
ordered by the court,  are paid by the corporation.  Additionally,  if the court
finds  that the  corporation  did not  substantially  comply  with the FBCA with
regard to dissenters'  rights, it can assess fees for the shareholder's  counsel
against  the  corporation  as  well.  However,  if  the  court  finds  that  the
shareholder  acted  arbitrarily or vexatiously,  it can assess the corporation's
legal fees against the shareholder.

FEDERAL OR STATE REGULATORY REQUIREMENTS AND APPROVALS

      NeoMedia has consulted  with its legal counsel and believes that it is not
required to obtain the consent  of, or furnish  prior  notice to, any federal or
state governmental  authority in connection with the consummation of the merger,
including any notice required under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, 15 United States, Section 18a (Section 7A of the Clayton Act).

DESCRIPTION OF NEOMEDIA'S AND BSD'S SECURITIES

      A description  of NeoMedia's  and BSD's  securities is provided on page 77
and page 102 of this information statement/prospectus, respectively.

MATERIAL DIFFERENCES BETWEEN RIGHTS OF HOLDERS OF NEOMEDIA COMMON STOCK COMPARED
TO BSD COMMON STOCK

      A description  of the material  differences  between  rights of holders of
NeoMedia  common  stock  compared to BSD common  stock is provided on page 40 of
this information statement/prospectus.


                                       33


                              THE MERGER AGREEMENT

This  section of the  information  statement/  prospectus  describes  the Merger
Agreement.  While  NeoMedia  and BSD  believe  that the  description  covers the
material terms of the Merger Agreement,  this summary may not contain all of the
information  that is important to you. The Merger  Agreement is attached to this
prospectus as Exhibit 10.55. This document is incorporated  herein by reference,
and NeoMedia and BSD urge you to read it carefully.

General; Structure of Transaction; Distribution of Common Stock

      Following  satisfaction  or waiver of all of the conditions to the merger,
BSD will merge into NeoMedia  Telecom  Services,  a  wholly-owned  subsidiary of
NeoMedia  which is sometimes  referred to as the "merger  subsidiary."  NeoMedia
Telecom  Services  will  survive  the  merger as a  wholly-owned  subsidiary  of
NeoMedia.  If all  conditions to the merger are satisfied or waived,  the merger
will become effective at the time of the filing by the surviving  corporation of
a duly executed certificate of merger with the Nevada Secretary of State.

      The Exchange Ratio and Treatment of BSD Common Stock.  BSD's  shareholders
will receive,  for each share of BSD stock owned,  NeoMedia stock  equivalent to
.07 divided by the volume-weighted  average price of NeoMedia stock for the five
days prior to the effective  time of the merger.  The number of NeoMedia  shares
each BSD shareholder will receive at closing will change depending on NeoMedia's
stock price at the time of closing.  NeoMedia stock to be issued in the exchange
will be valued using a 5-day volume-weighted  average closing price for the five
days  prior  to  closing.  No  fractional  shares  will be  issued.  BSD  common
stockholders that otherwise would receive fractional shares will instead receive
the nearest  whole number of shares  rounded down and an amount of cash (without
interest)   equal  to  the   product  of  such   fraction   multiplied   by  the
volume-weighted  average closing price for the five days prior to closing of one
share of NeoMedia  common  stock as reported  on the  Over-the-Counter  Bulletin
Board.  IT IS IMPORTANT TO NOTE THAT BSD  SHAREHOLDERS  WILL NOT KNOW THE ACTUAL
NUMBER OF SHARES THEY WILL RECEIVE UNTIL THE EFFECTIVE  DATE OF THE MERGER.  BSD
SHAREHOLDERS WHO WISH TO INQUIRE ABOUT THE NUMBER OF SHARES THEY WILL RECEIVE IN
THE MERGER CAN CALL TOLL-FREE (877) 813-2419.

      Treatment of BSD Stock Options and Warrants.  NeoMedia will not assume any
outstanding stock options or warrants issued by BSD. All options and warrants to
purchase BSD stock will be converted or cancelled prior to the effective date.

      Exchange of  Certificates.  After the effective date of the merger,  BSD's
transfer agent, Florida Atlantic Stock Transfer, will mail to each record holder
of BSD common stock a letter of transmittal and  instructions  for  surrendering
their certificates. Only those holders who properly surrender their certificates
in accordance with the  instructions  will receive a certificate or certificates
representing  that number of whole shares of NeoMedia common stock, cash in lieu
of any  fractional  shares  of  NeoMedia  common  stock  and  any  dividends  or
distributions  to  which  they  are  entitled.   The  surrendered   certificates
representing  shares of BSD common stock will be cancelled.  After the effective
time of the merger,  each  certificate  representing  shares of BSD common stock
that has not been  surrendered  will only  represent the right to receive common
stock of  NeoMedia,  cash in lieu of any  fractional  shares of NeoMedia  common
stock and any dividends or distributions  to which they are entitled.  Following
the  effective  date of the merger,  BSD will not register any  transfers of BSD
common stock on its stock transfer books.

      No  dividends  or other  distributions  declared  or made with  respect to
NeoMedia  common  stock with a record date after the closing  date of the merger
will be paid to the holder of any unsurrendered BSD certificate until the holder
surrenders  its BSD  certificate in accordance  with the letter of  transmittal.
Upon  surrender,  the transfer  agent will  deliver to the record  holder of the
certificate,  without interest,  any dividends or distributions  with respect to
the NeoMedia  common  stock to which the holder is entitled  which have a record
date after the closing date of the merger.

      If any BSD common stock  certificate is lost,  stolen or destroyed,  a BSD
stockholder  must provide an  appropriate  affidavit of that fact.  NeoMedia may
require a BSD  stockholder to deliver a bond or indemnity  agreement as security
against any claim that may be made against NeoMedia,  the surviving  corporation
or the transfer agent with respect to any lost, stolen or destroyed certificate.


                                       34


Representations and Warranties

      NeoMedia and BSD each made a number of  representations  and warranties in
the Merger Agreement regarding aspects of their respective businesses, financial
condition, structure and other facts pertinent to the merger.

BSD's representations and warranties include representations as to:

      o     Organization of BSD;
      o     Capitalization of BSD;
      o     Stockholders' Agreements, etc;
      o     Authorization;
      o     Officers and Directors;
      o     Bank Accounts;
      o     Subsidiaries;
      o     Real Property;
      o     Personal Property;
      o     Environmental Matters;
      o     Contracts;
      o     No Conflict or Violation;
      o     Consents;
      o     Permits;
      o     SEC Reports;
      o     Financial Statements;
      o     Books and Records;
      o     Absence of Certain Changes or Events;
      o     Liabilities;
      o     Litigation;
      o     Labor Matters;
      o     Employee Benefit Plans;
      o     Transactions with Related Parties;
      o     Compliance with Law;
      o     Intellectual Property;
      o     Tax Matters;
      o     Insurance;
      o     Brokers;
      o     Transaction Costs;
      o     No Other Agreements to Sell NeoMedia or its Assets;
      o     Accounts Receivable;
      o     Inventory;
      o     Product Warranty;
      o     Board Recommendation; and
      o     Material Misstatements or Omissions.

      NeoMedia's representations and warranties include representations as to:

      o     Organization;
      o     Capitalization of NeoMedia and Merger Subsidiary;
      o     Authorization;
      o     SEC Reports;
      o     Financial Statements;
      o     Books and Records;
      o     No Conflicts;
      o     Approvals;
      o     Merger Consideration;
      o     Brokers' and Finders' Fees;
      o     Board Approval; and
      o     No Stockholder Approval Required.


                                       35


      The representations and warranties in the Merger Agreement are complicated
and not easily  summarized.  You are urged to carefully read the portions of the
Merger Agreement entitled  "Representations and Warranties of NeoMedia and major
stockholders"  relating to BSD and  "Representations and Warranties of Buyer and
Merger Sub" relating to NeoMedia and the Merger Subsidiary.

Conduct of Business Prior to the Effective Time of the Merger

      BSD and NeoMedia have agreed that,  until the earlier of the completion of
the merger or termination of the Merger Agreement, except as contemplated by the
Merger  Agreement  or agreed to in  writing,  they will,  and will  cause  their
respective  subsidiaries to, operate their respective  businesses  solely in the
ordinary course of business and in accordance with past practice.

      BSD and NeoMedia have also agreed that until the earlier of the completion
of the merger or termination of the Merger Agreement, BSD will not, and will not
permit any of its respective  subsidiaries  to, do any of the following  without
NeoMedia's  prior written consent,  unless expressly  contemplated by the Merger
Agreement and subject to certain exceptions:

      o     incur any  indebtedness  for borrowed money,  or assume,  guarantee,
            endorse,  or otherwise  become  responsible  for  obligations of any
            other person;

      o     issue or  commit to issue any  shares  of its  capital  stock or any
            other  securities or any securities  convertible  into shares of its
            capital stock or any other securities;

      o     declare,  pay or  incur  any  obligation  to  pay  any  dividend  or
            distribution  on its  capital  stock or  declare,  make or incur any
            obligation to make any  distribution  or redemption  with respect to
            capital stock;

      o     make any changes to its Articles of Incorporation or bylaws or other
            charter documents;

      o     mortgage, pledge or otherwise encumber any assets or sell, transfer,
            license or  otherwise  dispose of any assets  except for the sale or
            disposition  of inventory  to  customers  in the ordinary  course of
            business and consistent with past practice;

      o     cancel,  release or assign any indebtedness owed to it or any claims
            or rights held by it;

      o     make any  investment  or  commitment  of a capital  nature either by
            purchase of stock or securities,  contributions to capital, property
            transfer or otherwise,  or by the purchase of any property or assets
            of any other person;

      o     terminate any contracts or make any change in any contract;

      o     enter into or modify any employment contract;

      o     pay any  compensation  to or for any  employee,  officer or director
            other  than in the  ordinary  course of  business  and  pursuant  to
            employment  arrangements  existing  as of the  date  of  the  Merger
            Agreement;

      o     pay or  agree  to pay any  bonus,  incentive  compensation,  service
            award, severance, "stay bonus" or other like benefit;

      o     enter into or modify any other material employee plan;

      o     enter  into or  modify  any  contract  or other  arrangement  with a
            related party;

      o     make any change in any method of accounting or accounting practice;

      o     fail to comply with all material  laws  applicable  to the assets of
            BSD  or  BSD's  subsidiaries  and  business   consistent  with  past
            practices;


                                       36


      o     fail to use its commercially  reasonable efforts to (i) maintain its
            business,   (ii)  maintain  existing   relationships  with  material
            suppliers and customers of BSD and others having  business  dealings
            with BSD, and (iii) otherwise  preserve the goodwill of its business
            so that such  relationships  and  goodwill  will be preserved on and
            after the closing date;

      o     make or change any election in respect of taxes, adopt or change any
            material  accounting method in respect of taxes,  enter into any tax
            allocation agreement, tax sharing agreement, tax indemnity agreement
            or closing agreement,  settle or compromise any claim, notice, audit
            report  or  assessment  in  respect  of  taxes,  or  consent  to any
            extension or waiver of the limitation period applicable to any claim
            or assessment in respect of taxes; or

      o     commence any legal action or proceeding.

      The agreements  related to the conduct of business in the Merger Agreement
are complicated and not easily  summarized.  You are urged to carefully read the
section of the Merger Agreement entitled "Conduct Prior to the Effective Time."

No Solicitation

      Until the merger is completed or the Merger  Agreement is terminated,  BSD
has agreed not to, and agreed to direct their  respective  officers,  directors,
employees, representatives and other agents not to:

      o     take any action to solicit, initiate or encourage the making of, any
            acquisition proposal, or

      o     subject to the discussion below, engage in any negotiations with, or
            provide any nonpublic  information  or data to, or afford any access
            to its  properties,  books or  records  any person  relating  to any
            acquisition proposal.

      BSD may, without breaching the Merger Agreement, respond to an unsolicited
acquisition proposal by discussing the proposal with, and furnishing information
to the party making the  proposal,  if the board  determines  in good faith with
advice from its financial  advisor that the potential  acquirer  submitting such
acquisition proposal is reasonably capable of consummating the acquisition,  and
the board  determines  in good faith after  receiving  advice from its financial
advisor,  that  such  acquisition  proposal  is  reasonably  likely to lead to a
superior proposal.

      BSD has agreed to promptly notify NeoMedia of any acquisition proposal, or
any request for  information  or access to  properties,  books or records by any
person who has advised that it may be considering  making,  or that has made, an
acquisition proposal.

Additional Covenants

BSD has also agreed to the following covenants:

      o     The major  stockholders  shall have entered  into voting  agreements
            with  NeoMedia  with respect to the voting of their BSD common stock
            and which voting  agreements  prohibit the major  stockholders  from
            selling  or  transferring  their  BSD  common  stock  prior  to  the
            effective time of the merger;

      o     BSD will give  NeoMedia and its  officers,  employees,  accountants,
            counsel,  financing  sources  and other  agents and  representatives
            reasonable  access to all buildings,  offices,  and other facilities
            and to all  books  and  records  of BSD and  all  BSD  subsidiaries,
            whether located on the premises of BSD or at another location;

      o     BSD  will  permit  NeoMedia  to  make  such  inspections  as it  may
            reasonably require;

      o     BSD will cause its  officers  to furnish  NeoMedia  such  financial,
            operating,  technical  and product data and other  information  with
            respect to the business  and assets of BSD as NeoMedia  from time to
            time may request, including without limitation, financial statements
            and schedules;


                                       37


      o     BSD will allow NeoMedia the  opportunity to interview such employees
            and other personnel and affiliates of BSD as NeoMedia may reasonably
            request;

      o     BSD will assist and cooperate  with NeoMedia in the  development  of
            integration  plans for  implementation by NeoMedia and the Surviving
            Corporation following the effective date of the merger;

      o     BSD will exercise any rights that mature between the date hereof and
            the  effective  date of the  merger to  repurchase  any  outstanding
            shares of BSD common  stock at the price at which such  shares  were
            issued;

      o     BSD will make reasonable efforts to maintain its proprietary rights;
            and

      o     BSD will  deliver to NeoMedia  all SEC filings it makes prior to the
            closing date.

      BSD and NeoMedia have mutually agreed to the following covenants:

      o     BSD and NeoMedia  will keep the  information  or knowledge  obtained
            pursuant to the negotiation and execution of the Merger Agreement or
            the effectuation of the merger transaction confidential;

      o     Both sides will bear their own expenses relating to the merger;

      o     Except as required by law  (including  federal and state  securities
            laws),  or as may be  reasonably  necessary  to complete the merger,
            neither BSD nor  NeoMedia  will  disclose the  existence  of, or any
            subject  matter  of, or the  terms and  conditions  of,  the  Merger
            Agreement to any third party  without the prior  written  consent of
            the other;

      o     BSD and NeoMedia will use commercially  reasonable  efforts to take,
            or cause to be taken, all actions under the Merger Agreement;

      o     BSD and NeoMedia  will notify one another of (a) the  occurrence  of
            any  event,   the  occurrence  of  which  is  likely  to  cause  any
            representation  or  warranty  of BSD or  NeoMedia  to be  untrue  or
            inaccurate at or prior to the closing  date,  and (b) any failure of
            the  BSD or  NeoMedia  to  comply  with  or  satisfy  any  covenant,
            condition or agreement to be complied  with or satisfied by it under
            the Merger Agreement;

      o     BSD will be responsible for all tax returns and related  liabilities
            until the closing date, and NeoMedia will be responsible for all tax
            returns and related liabilities after the closing date;

      o     BSD and NeoMedia  agree that in  connection  with any third party or
            derivative  litigation  which may be brought against BSD relating to
            the merger,  BSD will keep  NeoMedia  informed of the course of such
            litigation,  and BSD agrees that it will consult with NeoMedia prior
            to entering into  settlement  or compromise of any such  litigation;
            and

      o     The  Certificate  of  Incorporation  and  bylaws  of  the  Surviving
            Corporation   shall   contain  the   provisions   with   respect  to
            indemnification  set forth in the Certificate of  Incorporation  and
            bylaws of BSD as of the date of the Merger Agreement.

Conditions to Completion of the Merger

      The  obligations  of NeoMedia and BSD to complete the merger and the other
transactions   contemplated   by  the  Merger   Agreement  are  subject  to  the
satisfaction  or  waiver,  to the  extent  legally  permissible,  of each of the
following conditions before completion of the merger:

      o     the  registration  statement  on Form S-4 of which this  information
            statement/prospectus is a part shall have been declared effective by
            the United States Securities and Exchange Commission (the "SEC") and
            shall not be the subject of any stop order or  proceeding by the SEC
            seeking a stop  order,  and no  similar  proceeding  shall have been
            initiated in respect of the information statement/prospectus;

      o     no temporary restraining order or injunction, law, regulation, order
            or  proceeding  by a  governmental  entity,  that could  prevent the
            merger or make the merger illegal, has been entered or begun; and


                                       38


      o     each of BSD,  NeoMedia  and the  Surviving  Corporation  shall  have
            timely  obtained  from  each   governmental   entity  all  necessary
            approvals, waivers or consents.

      BSD's  obligations  to  complete  the  merger  and the other  transactions
contemplated by the Merger  Agreement are subject to the  satisfaction or waiver
in writing of each of the following  additional  conditions before completion of
the merger:

      o     The  representations  and  warranties  of NeoMedia  contained in the
            Merger  Agreement shall have been accurate in all respects as of the
            date of the Merger  Agreement  and shall be accurate in all respects
            as of the closing date as if made on and as of the closing date;

      o     NeoMedia  shall have  performed  and  complied  with in all material
            respects of each agreement,  covenant and obligation required by the
            Merger  Agreement to be so performed or complied with by NeoMedia at
            or before the closing date; and

      o     NeoMedia shall have delivered to BSD a buyer certificate,  dated the
            closing date and executed by an authorized officer of NeoMedia.

      BSD's  representations  and warranties  must be true and correct as of the
date the merger is to be completed as if made at and as of such time except:

      o     The  representations  and  warranties of BSD contained in the Merger
            Agreement shall have been accurate in all respects as of the date of
            the Merger Agreement and shall be accurate in all respects as of the
            closing date as if made on and as of the closing date;

      o     BSD shall have performed and complied with in all material  respects
            each  agreement,  covenant  and  obligation  required  by the Merger
            Agreement to be so  performed  or complied  with by BSD on or before
            the closing date;

      o     BSD shall have delivered to NeoMedia a seller certificate, dated the
            closing  date and  executed  by the  President  and Chief  Executive
            Officer of BSD;

      o     The adoption of the Merger Agreement by the requisite holders of the
            outstanding  shares of BSD common stock shall have been  obtained by
            BSD at a special meeting or by written consent as permitted by law;

      o     BSD shall not have  liabilities in an amount greater than $5 million
            as of July 31, 2005, and as of the closing date;

      o     BSD shall have assets in an amount equal to or greater than $850,000
            as of July 31, 2005, and as of the closing date;

      o     BSD shall not have in excess of 35  million  shares of common  stock
            issued and  outstanding  as of the  closing  date  (increased  to 38
            million on June 6, 2005);

      o     BSD shall  have  terminated  prior to the  closing  date any and all
            employment  agreements,  severance  agreements,  "golden  parachute"
            provisions of any agreements, and/or any other agreements that would
            entitle  any  person   compensation  or  payment   pursuant  to  the
            termination  of such  person's  employment or a change of control in
            BSD;

      o     All  required  consents,  approvals,   notifications,   disclosures,
            filings and registrations shall have been obtained or made;

      o     No action shall be pending or threatened  relating in any way to the
            Merger  Agreement  or the  transactions  contemplated  in the Merger
            Agreement;


                                       39


      o     The holders of not more than 5% of the issued and outstanding shares
            of BSD common stock shall have dissented to the merger;

      o     Each of the key  employees  defined  in the Merger  Agreement  shall
            remain continuously  employed by BSD on substantially the same terms
            and with substantially the same  responsibilities  as on the date of
            the Merger Agreement and BSD shall have no knowledge that any of the
            key employees has any intention to terminate  their  employment with
            the Surviving Corporation;

      o     Each required employee shall have executed and delivered to NeoMedia
            an employment agreement;

      o     All BSD stock  option and warrant  agreements  shall be converted or
            cancelled prior to the effective time of the merger;

      o     BSD,  BSD  Stockholders  and  any  person  who  is  a  "disqualified
            individual"  (as  defined  in Section  280G(c) of the United  States
            Internal  Revenue  Code,  as amended  (the  "Code") and the proposed
            Treasury  Regulations  promulgated  thereunder)  with respect to BSD
            shall have taken any and all actions  necessary  to provide  that no
            payment or acceleration of any right to benefits or payment pursuant
            to the Merger  Agreement,  any employee plan,  contract or any other
            plan or arrangement shall constitute an "excess  parachute  payment"
            within the meaning of Code Section 280G(b)(1) (NeoMedia and BSD each
            acknowledge  and agree that such  actions may  include,  but are not
            necessarily  limited  to, the  approval by BSD  stockholders  of the
            right to receive or retain such payments or benefits, which approval
            satisfies the requirements of Code Section  280G(b)(5)(B) of and the
            proposed Treasury Regulations promulgated thereunder); and

      o     NeoMedia shall have no actual  knowledge and shall not have received
            a notice pursuant to Treasury  Regulations  Section 1.445-4 that the
            statement  delivered  by BSD  pursuant  to Code  Section  6.11(g) is
            false.

Termination of the Merger Agreement

      The Merger Agreement may be terminated and the merger may be abandoned any
time prior to the effective time by either NeoMedia or BSD, if:

      o     the merger shall not have been consummated on or before December 31,
            2005,  which date may be extended by mutual  consent of NeoMedia and
            BSD (such date was  extended  from  October 31, 2005 to December 31,
            2005 on October 28, 2005);

      o     any law shall have been enacted,  entered or promulgated prohibiting
            the   consummation  of  the  Merger   substantially   on  the  terms
            contemplated in the Merger Agreement; or

      o     a court of competent  jurisdiction or other government  entity shall
            have issued an order,  decree,  ruling or  injunction,  or taken any
            other  action,   having  the  effect  of  permanently   restraining,
            enjoining or otherwise  prohibiting the merger  substantially on the
            terms  contemplated   hereby,  and  such  order,   decree,   ruling,
            injunction or other action shall have become final.

      The Merger Agreement may be terminated and the merger may be abandoned any
time prior to the effective time by NeoMedia, if:

      o     BSD shall have failed to comply in any material  respect with any of
            the covenants or agreements contained in the Merger Agreement;

      o     there exists a breach or breaches of any  representation or warranty
            of BSD contained in the Merger Agreement; or

      o     (i) the  Board  of  Directors  of BSD  fails  to  adopt  the  Merger
            Agreement,  or withdraws,  amends or modifies in a manner adverse to
            NeoMedia its adoption of the Merger  Agreement,  (ii) a tender offer
            (to which Rule 14e-2(a) under the  Securities  Exchange Act of 1934,
            as amended  (the "1934  Act")  applies)  for any of the  outstanding
            shares of capital stock of BSD is commenced prior to BSD the closing
            date,  and  within  the time  required  by Rule  14e-2(a)  under the


                                       40


            Exchange  Act the  Board of  Directors  of BSD  fails  to  recommend
            against  acceptance of such tender offer,  or takes no position with
            respect to such  tender  offer,  or states its  inability  to take a
            position with respect to such tender  offer,  (iii) BSD or its Board
            of Directors takes any position  (including making no recommendation
            or stating an  inability to make a  recommendation)  with respect to
            any acquisition  proposal other than a recommendation to reject such
            acquisition proposal, (iv) the Board of Directors of BSD resolves to
            accept,  accepts or recommends to the stockholders of BSD a superior
            proposal,  or (v) the Board of Directors of BSD resolves to take any
            of the foregoing actions.

      The Merger Agreement may be terminated and the merger may be abandoned any
time prior to the effective time by BSD, if:

      o     NeoMedia or the Surviving Corporation shall have failed to comply in
            any  material  respect  with  any of  the  covenants  or  agreements
            contained in any section of the merger;

      o     there exists a breach or breaches of any  representation or warranty
            of NeoMedia or the  Surviving  Corporation  contained  in the Merger
            Agreement; or

      o     the  Board  of  Directors  of  BSD  accepts  or  recommends  to  the
            stockholders  of  BSD a  superior  proposal  or  resolves  to do so,
            provided that BSD has given written notice of such superior proposal
            and NeoMedia has not made a proposal which is reasonably  equivalent
            from the  perspective of the  stockholders of BSD within 72 hours of
            such written notice.

Expenses and Termination Fees

      Each side shall pay their own  expenses  relating to the  merger.  Neither
party is subject to a termination fee in the event the merger is not completed.

Amendment; Extension and Waiver of the Merger Agreement

      Amendment.  The Merger  Agreement  may be  amended  by the mutual  written
agreement of NeoMedia and BSD at any time prior to the closing of the merger.

      Extension  and  Waiver.  At any time  prior to the  effective  time of the
merger any party may, to the extent legally allowed:

      o     extend the time for the  performance  of any of the  obligations  or
            other acts of the other parties under the Merger Agreement;

      o     waive any inaccuracies in the representations and warranties made to
            such party  contained  in the Merger  Agreement  or in any  document
            delivered pursuant to the Merger Agreement; or

      o     waive  compliance  with any of the  agreements or conditions for the
            benefit of such party contained in the Merger Agreement.


                                       41


               COMPARATIVE RIGHTS OF NEOMEDIA AND BSD SHAREHOLDERS

      NeoMedia is incorporated under the laws of the State of Delaware,  whereas
BSD is incorporated  under the laws of the State of Florida.  BSD  shareholders'
rights are currently governed by the Florida Business  Corporation Act ("FBCA"),
the  Articles of  Incorporation  of BSD and the bylaws of BSD;  however,  if the
merger is completed,  BSD  shareholders  who receive  shares of NeoMedia  common
stock in the merger will become  shareholders  of NeoMedia,  and their rights as
such  will  be  governed  by the  Delaware  General  Corporation  Law  ("DGCL"),
NeoMedia's  Certificate of Incorporation  and bylaws.  The material  differences
between  the rights of holders of BSD common  stock and the rights of holders of
NeoMedia  common  stock,  resulting  from the  differences  in  their  governing
documents, are summarized below.

      The following  summary does not purport to be a complete  statement of the
rights of holders of NeoMedia  common  stock or the rights of the holders of BSD
common stock.  This summary  contains a list of the material  differences but is
not meant to be relied upon as an exhaustive  list or a detailed  description of
the  provisions  discussed  and is qualified in its entirety by reference to the
DGCL,  the FBCA, and the governing  corporate  documents of NeoMedia and BSD, to
which the holders of BSD common  stock are  referred.  Copies of such  governing
corporate  documents of NeoMedia and BSD are available,  without charge,  to any
person,    including   any   beneficial   owner   to   whom   this   information
statement/prospectus  is delivered,  by following the instructions  listed under
"Where You Can Find More Information."



-------------------------------------------------------------------------------------------------------
                                  BSD SOFTWARE, INC.                            NEOMEDIA
-------------------------------------------------------------------------------------------------------
                                                             
AUTHORIZED CAPITAL       BSD's authorized capital stock            NeoMedia's authorized capital
STOCK                    consists of 5,000,000 shares of           stock consists of 25,000,000
                         preferred stock, $0.001 par value         shares of preferred stock, par
                         per share, and 50,000,000 shares of       value $0.01 per share; and
                         common stock, $0.001 par value per        1,000,000,000 shares of common
                         share.                                    stock, par value $0.01 per share.
-------------------------------------------------------------------------------------------------------
PAYMENT OF DIVIDENDS     The Board of Directors of BSD may,        Under the DGCL, NeoMedia may
                         from time to time, declare and the        declare and pay cash dividends out
                         corporation may pay dividends on          of its surplus or, if it has no
                         its shares in cash, property or its       surplus, out of any net profits
                         own shares, except when the               for the current or preceding
                         corporation is insolvent or when          fiscal year, provided that the
                         the payment thereof would render          payment will not reduce the
                         the corporation insolvent subject         capital of the corporation below
                         to the provisions of the Florida          the aggregate liquidation
                         Statutes.  BSD has never paid a           preference of the corporation's
                         dividend.                                 stock having a preference upon the
                                                                   distribution of assets. NeoMedia
                                                                   has never paid a cash dividend.
-------------------------------------------------------------------------------------------------------
ELECTION AND SIZE        Elected annually with a minimum of        The number of directors which
OF BOARD OF              one and no more than seven.  BSD          shall constitute the whole board
DIRECTORS                currently has one director.               shall be not less than one nor
                                                                   more than nine.  NeoMedia
                                                                   currently has five board members
                                                                   who are elected annually.
-------------------------------------------------------------------------------------------------------



                                                   42




-------------------------------------------------------------------------------------------------------
                                  BSD SOFTWARE, INC.                            NEOMEDIA
-------------------------------------------------------------------------------------------------------
                                                             
REMOVAL OF DIRECTORS     A director may resign at any time         A director may resign at any time
                         or may be removed at a meeting of         upon written notice to the Board
                         shareholders called expressly for         of Directors.  A director may be
                         that purpose.  Any director or the        removed with or without cause, by
                         entire Board of Directors may be          a majority of stockholders if the
                         removed, with or without cause, by        notice of the meeting names the
                         a vote of the holders of a majority       director or directors to be
                         of the shares then entitled to vote       removed at said meeting.
                         at an election of directors.
-------------------------------------------------------------------------------------------------------
VACANCIES ON THE         Any vacancy occurring in the Board        Any vacancy on the Board of
BOARD                    of Directors, including any vacancy       Directors may be filled by
                         created by reason of an increase in       election at the next annual or
                         the number of directors, may be           special meeting of stockholders.
                         filled by the affirmative vote of a       A majority of the Board of
                         majority of the remaining directors       Directors may fill any vacancy
                         though less than a quorum of the          prior to such annual or special
                         Board of Directors.  A director           meeting of stockholders.
                         elected to fill a vacancy shall
                         hold office only until the next
                         election of directors by the
                         shareholders.
-------------------------------------------------------------------------------------------------------
VOTE ON                  Shareholders:  Special meetings of        Stockholders: Special meetings of
EXTRAORDINARY            the shareholders shall be held when       the stockholders may be called
CORPORATE                directed by the president or the          either by the chairman, president
TRANSACTIONS             Board of Directors, or when               or secretary at the request, in
                         requested in writing by the holders       writing of a majority of the Board
                         of no less than 10% of all the            of Directors or at the request in
                         shares entitled to vote at the            writing of stockholders owning
                         meeting.  A meeting requested by          shares of capital stock equal to
                         shareholders shall be called for a        50% of the entire capital stock of
                         date not less than 3 nor more than        the corporation issued and
                         30 days after the request is made,        outstanding and entitled to vote.
                         unless the shareholders requesting
                         the meeting designate a later date.       Directors: The authority of the
                         The call for the meeting shall be         Board of Directors may be
                         issued by the secretary, unless the       exercised without a meeting if a
                         president, the Board of Directors,        consent in writing, setting for
                         or the shareholders requesting the        the action taken, is signed by all
                         meeting shall designate another           of the directors entitled to vote.
                         person to do so.

                         Directors:  Written  notice  of the
                         time  and  place of special  meetings
                         of the Board of  Directors  shall be
                         given to each  director  by either
                         personal  delivery, telegram,  or
                         cablegram at least three days before
                         the meeting or by notice  mailed to
                         the director at least 3 days before
                         the  meeting.  Members  of the
                         Board of Directors may participate
                         in a meeting of such board by
                         means of a conference telephone or
-------------------------------------------------------------------------------------------------------



                                                  43




-------------------------------------------------------------------------------------------------------
                                  BSD SOFTWARE, INC.                            NEOMEDIA
-------------------------------------------------------------------------------------------------------
                                                             
                         similar communications  equipment
                         by means of which all persons
                         participating in the meeting can
                         hear each other at the same time.
                         Participation by such means shall
                         constitute presence in person at the
                         meeting.
-------------------------------------------------------------------------------------------------------
AMENDMENT OF             May be amended by the affirmative         NeoMedia reserves the right to
CERTIFICATE OR           vote of a majority of the Board of        amend, alter, change or repeal any
ARTICLES OF              Directors and by the affirmative          provision contained in the
INCORPORATION            vote of the holders of not less           Certificate of Incorporation, in
                         than two-thirds of the then               the manner now or hereafter
                         outstanding stock of the                  prescribed by statute, and all
                         corporation.                              rights conferred upon the
                                                                   stockholders herein are granted
                                                                   subject to this right.
-------------------------------------------------------------------------------------------------------
AMENDMENT OF BYLAWS      bylaws may be altered, amended, or        In furtherance and not in
                         repealed, and new bylaws may be           limitation of the powers conferred
                         adopted by the majority vote of           by statute, the Board of Directors
                         directors of the corporation.             is expressly authorized to make,
                                                                   alter or repeal the bylaws of
                                                                   NeoMedia.
-------------------------------------------------------------------------------------------------------
INDEMNIFICATION          The corporation may indemnify the         NeoMedia's Certificate of
                         officers and directors against any        Incorporation and bylaws limit or
                         contingency or peril and in               eliminate the liability of
                         conjunction therewith  to procure,        directors to the fullest extent
                         at the corporation's expense,             permitted by Delaware law and
                         policies of insurance.                    require indemnification to the
                                                                   maximum extent permitted by
                                                                   Delaware law.
-------------------------------------------------------------------------------------------------------
APPRAISAL RIGHTS         Under Florida law, a shareholder is       Under Delaware law, no appraisal
                         entitled to appraisal (i.e.               rights are available for the
                         dissenters') rights, and to obtain        stockholders of the surviving
                         payment of the fair value of that         corporation if no vote of the
                         shareholder's shares in the event         surviving corporation is required
                         of, among other things,                   to approve the merger
                         consummation of a merger to which
                         the corporation is a party if
                         shareholder approval is required
                         for the merger, and the shareholder
                         is entitled to vote on the merger
                         or the exchange of shares in such
                         merger, provided that the
                         shareholder has not voted in favor
                         of the merger or share exchange.  A
                         shareholder may assert his/her
                         dissenters' rights to all or fewer
                         than all shares he/she held as of
                         the record date.  For a more
                         detailed description of the timing
                         and procedures to be associated
                         with a BSD's shareholder's exercise
                         of his/her dissenter's rights,
                         please refer to page 29 of this
                         Statement entitled "Dissenters'
                         Rights."
-------------------------------------------------------------------------------------------------------



                                                  44




-------------------------------------------------------------------------------------------------------
                                  BSD SOFTWARE, INC.                            NEOMEDIA
-------------------------------------------------------------------------------------------------------
                                                             
PREEMPTIVE RIGHTS        Under Florida law, the shareholders       Under Delaware law, absent express
                         of a corporation do not have a            provision in a corporation's
                         preemptive right to acquire the           Certificate of Incorporation, a
                         corporation's unissued shares or          stockholder does not, by operation
                         the corporation's treasury shares,        of law, possess preemptive rights
                         except in each case to the extent         to subscribe to additional
                         that the corporation's Articles of        issuances of the corporation's
                         Incorporation so provide.  BSD's          stock.  NeoMedia's Certificate of
                         Articles of Incorporation do not          Incorporation does not provide for
                         provide for its shareholders to           its stockholders to have any
                         have any preemptive rights with           preemptive rights with respect to
                         respect to any shares of its              any shares of its capital stock.
                         capital stock.
-------------------------------------------------------------------------------------------------------
MEETINGS OF              An annual meeting of the                  An annual meeting of the
SHAREHOLDERS             shareholders at such time and place       stockholders shall be held at such
                         as designated by the Board of             time as the Board of Directors may
                         Directors.  Business transacted at        designate for the purpose of
                         the annual meeting shall include          electing directors and for the
                         the election of directors of the          transaction of such other business
                         corporation.                              as may properly come before the
                                                                   meeting.
-------------------------------------------------------------------------------------------------------



                                                  45




-------------------------------------------------------------------------------------------------------
                                  BSD SOFTWARE, INC.                            NEOMEDIA
-------------------------------------------------------------------------------------------------------
                                                             
CONSENT OF               Any action required to be taken at        Any action required to be taken at
SHAREHOLDERS IN          an annual or special meeting of           a meeting of the stockholders, or
LIEU OF MEETING          shareholders, may be taken without        any other action which may be
                         a meeting, without prior notice and       taken at a meeting of the
                         without a vote, if a consent in           stockholders, may be taken without
                         writing, setting forth the action         a meeting and without a vote, if a
                         so taken, shall be signed by the          consent in writing, setting forth
                         holders of outstanding stock having       the action so taken shall be
                         not less than the minimum number of       signed (a) if five days prior
                         votes that would be necessary to          notice of the proposed action is
                         authorize such action at a meeting        given in writing to all of the
                         at which all shares entitled to           stockholders entitled to vote with
                         vote thereon were present and             respect to the subject matter,
                         voted.  A majority of the shares          hereof, by the holders of
                         entitled to vote, represented in          outstanding shares having not less
                         person or by proxy, shall                 than the minimum number of votes
                         constitute a quorum at a meeting of       that would be necessary to
                         shareholders.  If a quorum is             authorize or take such action at a
                         present, the affirmative vote of a        meeting at which all shares
                         majority of the shares represented        entitled to vote thereon were
                         at the meeting and entitled to vote       present and voting; or (b) by all
                         on the subject matter shall be the        of the stockholders entitled to
                         act of the shareholders unless            vote with respect to the subject
                         otherwise provided by law.                matter thereof. Prompt notice of
                                                                   the taking of the corporate
                                                                   action without a meeting by less
                                                                   than unanimous written consent shall
                                                                   be given in writing to those
                                                                   stockholders who  have not consented
                                                                   in writing.  In the event that the
                                                                   action which is consented to is such
                                                                   as would have required the filing
                                                                   of a certificate under any section
                                                                   of the DGCL if such action had been
                                                                   voted on by the stockholders at a
                                                                   meeting thereof, the certificate
                                                                   filed under such section shall
                                                                   state, in lieu of any statement
                                                                   required by such section concerning
                                                                   any vote of stockholders, that
                                                                   written consent has been given in
                                                                   accordance with the DGCL and that
                                                                   written notice has been given as
                                                                   provided in the DGCL.
-------------------------------------------------------------------------------------------------------



                                                  46


                               NEOMEDIA'S BUSINESS


Company History

      NeoMedia Technology,  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.,  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.

      NeoMedia also has the following wholly-owned subsidiaries:  NeoMedia Micro
Paint  Repair,  Inc.,   incorporated  in  Nevada;   NeoMedia  Migration,   Inc.,
incorporated  in  Delaware;   Distribuidora  Vallarta,   S.A.,  incorporated  in
Guatemala;  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.  In October 2004,
NeoMedia established  NeoMedia Telecom Services,  Inc. in Nevada for the purpose
of acquiring BSD Software, Inc. of Calgary, Alberta, Canada ("BSD").

RECENT DEVELOPMENTS

      MOBOT, INC. ("MOBOT")

      On July 27,  2005,  NeoMedia  signed a  non-binding  Letter  of  Intent to
acquire Mobot (www.mobot.com), of Lexington, Massachusetts, a pioneer and leader
in mobile  visual  search  technologies.  Mobot was  founded  in 2003 by its CEO
Russell Gocht to pursue the  application  of advances in image  processing on of
camera  phones in the  consumer  marketplace.  The  Letter  of Intent  calls for
NeoMedia  to acquire  all of the  outstanding  shares of Mobot in  exchange  for
$3,500,000  cash and $6,500,000 in shares of NeoMedia  common stock.  The LOI is
subject to due diligence by both parties.

      On July 28, 2005,  NeoMedia loaned Mobot the principal  amount of $600,000
in the form of an unsecured promissory note. The Note accrues interest at a rate
of 6% per annum. The Note will be forgiven upon signing of a definitive purchase
agreement  for the  acquisition  of all of the  outstanding  shares  of Mobot by
NeoMedia,  as contemplated by the Letter of Intent. In the event the acquisition
is not  consummated,  the Note will become due 90 days after  written  notice of
cancellation  of the  Letter of  Intent.  In the  event the  Letter of Intent is
terminated and the Note is not repaid within 90 days of such  cancellation,  the
note will  convert  into shares of Mobot  common stock with a value equal to the
unpaid principal and accrued interest on the Note.

      On September 26, 2005,  NeoMedia loaned Mobot an additional $200,000 under
the same terms as the Note.  On  October  26,  2005,  NeoMedia  loaned  Mobot an
additional  $200,000  under the same terms as the Note.  Both of the  additional
loans were subject to the same terms as the Note. On December 15, 2005, NeoMedia
advanced  Mobot an additional  $500,000.  This advance will be forgiven upon the
earlier of signing of a definitive purchase agreement for the acquisition of all
of the outstanding shares of Mobot by NeoMedia, or February 15, 2006.

      $100 MILLION  STANDBY EQUITY  DISTRIBUTION  AGREEMENT WITH CORNELL CAPITAL
PARTNERS LP

      On March 30,  2005,  NeoMedia and Cornell  entered  into a Standby  Equity
Distribution Agreement under which Cornell agreed to purchase up to $100 million
of NeoMedia's common stock over a two-year period, with the timing and amount of
the purchase at NeoMedia's discretion. The maximum amount of each purchase would
be $2,000,000 with a minimum of five business days between advances.  The shares
would be valued at 98% of the  lowest  closing  bid price  during  the  five-day
period following the delivery of a notice of purchase by NeoMedia,  and NeoMedia
would pay 5% of the gross proceeds of each purchase to Cornell.  As a commitment
fee for Cornell to enter into the agreement, NeoMedia issued 50 million warrants


                                       47


to Cornell with an exercise price of $0.20 per share, and a term of three years,
and also  paid a cash  commitment  fee of $1  million.  NeoMedia  also  issued 4
million warrants with an exercise price of $0.229 to an independent  third party
as a fee  for  negotiating  and  structuring  the  Standby  Equity  Distribution
Agreement.  NeoMedia  expects  to  file a  registration  statement  with  the US
Securities and Exchange Commission during 2005 to register the shares underlying
the $100 million Standby Equity Distribution  Agreement.  The new Standby Equity
Distribution  Agreement  would  become  active  at the  time  the  SEC  declares
effective a registration statement containing such shares.

      On May 25,  2005,  NeoMedia  filed a  registration  statement  on Form S-3
(Registration  No.  333-125239)  to register  54,000,000  shares  underlying the
warrants granted in connection with the Standby Equity Distribution Agreement.

      $10 MILLION SECURED PROMISSORY NOTE PAYABLE TO CORNELL CAPITAL PARTNERS LP

      On March 30, 2005,  NeoMedia borrowed from Cornell the principal amount of
$10,000,000  before discounts and fees in the form of a secured promissory note.
Cornell withheld structuring and escrow fees of $68,000 related to the note. The
note was scheduled to be repaid at a rate of $1,120,000 per month commencing May
1, 2005  (subsequently  changed to $840,000 per month starting on April 1, 2005)
and continuing  until  principal and interest are paid in full. The note accrues
interest  at a rate of 8% per annum on any unpaid  principal.  NeoMedia  has the
option to prepay any remaining principal of the note in cash without penalty. In
connection with the note, NeoMedia and Cornell entered into a security agreement
under  which the note is  secured  by all of  NeoMedia's  assets  other than its
patents and patent applications. NeoMedia also escrowed 25,000,000 shares of its
common stock as security for the note.  As of September  30, 2005,  NeoMedia had
made payments of $4,690,000 against the principal.

      ACQUISITION OF CSI INTERNATIONAL, INC.

      On  February  6, 2004,  NeoMedia  acquired  CSI  International,  Inc.,  of
Calgary,  Alberta,  Canada, a private  technology  products company in the micro
paint repair industry.  NeoMedia issued  7,000,000  shares of NeoMedia's  common
stock,  plus $2.5 million cash in exchange  for all  outstanding  shares of CSI.
NeoMedia  have  centralized  the  administrative  functions  in its Fort  Myers,
Florida  headquarters,  and maintain the sales and operations office in Calgary,
Alberta, Canada.

      PENDING ACQUISITION OF BSD SOFTWARE, INC.

      On December 21, 2004,  NeoMedia signed a Merger  Agreement with BSD. Under
the terms of the  agreement,  each  share of BSD  stock  will be  exchanged  for
NeoMedia stock equivalent to .07 divided by the volume-weighted average price of
NeoMedia  stock for the five days  prior to the  effective  time of the  merger.
Closing will occur when all regulatory  approvals  have been granted,  including
effectiveness  of a  registration  statement  on Form S-4 whereby  the  NeoMedia
shares to be granted in the transaction  are registered.  The number of NeoMedia
shares to be granted in the exchange will change  depending on NeoMedia's  stock
price at the time of  closing.  Because  a  majority  of BSD  shareholders  have
approved the merger prior to the signing of the Merger  Agreement,  BSD will not
hold a shareholders meeting to vote on the merger.

      ACQUISITION OF SECURE SOURCE TECHNOLOGIES, INC.

      On  October 8, 2003,  NeoMedia  acquired  Secure  Source  Technologies,  a
provider  of  security   solutions  and  covert  security   technology  for  the
manufacturing  and financial  services  industries,  in exchange for 3.5 million
shares of NeoMedia's  common stock.  With the purchase of SST, NeoMedia acquired
additional patents that complement its existing intellectual property portfolio,
as well as a security software platform, and computer equipment.

      IPOINT-MEDIA LTD.

      On September 7, 2004,  NeoMedia and iPoint-media Ltd.  ("iPoint-media") of
Tel Aviv, Israel, entered into a business development agreement. In exchange for
entering  into  the  service  agreement,   NeoMedia  received  7%  ownership  in
iPoint-media,  consisting of 28,492  shares of  iPoint-media  common  stock.  In
addition to the business development agreement,  NeoMedia acquired an additional
10% ownership of iPoint-media,  consisting of 40,704 shares of common stock, for
$1 million cash.


                                       48


      iPoint-media  was founded in April 2001 as a spin-off from Imagine  Visual
Dialog LTD, whose  shareholders  include  Israeli-based  Nisko group, an Israeli
holding company, Singapore-based Keppel T&T, and marketing and advertising group
WPP.  iPoint-media  specializes  in Customer  Interaction  Management and is the
world's 1st  developer  of IP Video Call  Centers  for  Deutsche  Telecom.  Muki
Geller, the founder of Imagine Visual Dialog, is the founder, President & CEO of
iPoint-media.  iPoint-media  is  located  in Tel Aviv,  Israel,  with a European
customer support center in The Netherlands.  iPoint-media's mission is to become
the  video  access  platform  and  application  engine  of  choice  for  service
providers.

      On October 26, 2004, NeoMedia announced that it would issue its first-ever
stock dividend with the  distribution of common shares of  iPoint-media  Ltd. of
Tel Aviv as a property dividend.  NeoMedia will distribute 5% (or 20,435 shares)
of iPoint-media's common stock to NeoMedia shareholders of record as of November
17, 2004. The date of the property  dividend payment will be announced after the
United  States  Securities  and  Exchange  Commission  declares   iPoint-media's
registration  statement on Form SB-2  effective.  iPoint-media  filed their SB-2
(Registration No. 333-126342) on July 1, 2005.

      PICKUPS PLUS / AUTOMOTIVE PRESERVATION, INC.

      On February 25, 2005, NeoMedia invested $250,000 in exchange for 8,333,333
shares of Pickups Plus, Inc. ("PUPS")(OTCBB:PUPS)  restricted common stock. PUPS
is a retail operator and franchiser of retail  automotive  parts and accessories
stores  catering  to the light  truck  market,  and also  provides  new  vehicle
preparation,  environmental  protection  packages,  detailing and reconditioning
products and services.

      Also on February  25, 2005,  NeoMedia  signed two  non-binding  letters of
intent  (individually,  an "LOI" and  collectively  the "LOIs") to acquire up to
100% of Automotive Preservation,  Inc. ("AP"), a distributor of automotive paint
and accessory products,  from AP's parent company, PUPS. The first LOI calls for
NeoMedia to initially  acquire 30% of AP for $1,600,000,  to be paid $600,000 in
cash,  $554,000 in shares of NeoMedia  restricted  common  stock,  and  $446,000
through  the  assumption  of AP debt by  NeoMedia.  Under the second  LOI,  upon
completion  of the  acquisition  of the initial 30% of AP by NeoMedia,  NeoMedia
would have the option to acquire an additional 30% of AP for $1,650,000, payable
in shares of  NeoMedia  restricted  common  stock.  The  second  LOI also  gives
NeoMedia the option to purchase the final 40% of AP for either:  (i) $2,200,000,
payable in shares of NeoMedia  restricted  common stock,  if NeoMedia  exercises
this right within 12 months of  acquiring  the second 30% of AP, or (ii) a price
equivalent to AP's previous quarter EBITDA multiplied by 8, payable in shares of
NeoMedia  restricted  common stock. Both LOIs are non-binding and subject to due
diligence by NeoMedia and AP

      MICRO PAINT REPAIR DEVELOPMENTS

      On December 20, 2005, NeoMedia executed a definitive supply agreement with
E.I. DuPont de Nemours  (Belgium) BVBA of Belgium,  a subsidiary of E.I. DuPont,
under  which  NeoMedia  will  distribute   DuPont's  automobile  refinish  paint
throughout the People's  Republic of China.  The agreement calls for NeoMedia to
serve as a  non-exclusive  distributor  of DuPont  products  to Beijing  Sino-US
Jinche Yingang Auto  Technological  Services Limited  ("Jinche") in the People's
Republic of China.  NeoMedia  previously  signed a  distribution  agreement with
Jinche under which Jinche will distribute and use NeoMedia's  micro paint repair
products at its automotive service facilities throughout China.

      On  December  14,  2005,  NeoMedia  executed  a  definitive   distribution
agreement with PPG  Industries'  PPG Shanghai  Trading Co. Ltd.  ("PPG"),  under
which NeoMedia will distribute automotive  aftermarket products produced by PPG.
The Agreement calls for NeoMedia to serve as a non-exclusive  distributor of PPG
products to Jinche in the People's Republic of China.

      On October 4, 2005, NeoMedia signed a definitive distribution agreement to
bring its NeoMedia Micro Paint Repair  business to  Scandinavia.  The agreement,
signed with WITHO-AS of Oslo, Norway  ("WITHO-AS"),  calls for WITHO-AS to serve
as an exclusive  distributor of NeoMedia's micro paint repair products,  systems
and licenses to automotive service facilities  throughout  Denmark,  Sweden, and
Norway.  Based in Oslo, Norway,  WI-THO AS is a new company formed to specialize
in products  and  services  involving  micro paint  repairs for  automobiles  in
Denmark, Sweden and Norway.


                                       49


      On September 27, 2005, NeoMedia signed a definitive distribution agreement
to bring its NeoMedia  Micro Paint Repair  business to Mexico and Latin America,
as well as be a  distributor  of  other  automotive  aftermarket  products.  The
agreement,  signed with  Micropaint de Mexico,  S.A.  ("Micropaint  de Mexico"),
calls  for  Micropaint  de  Mexico  to  serve  as an  exclusive  distributor  of
NeoMedia's  micro paint  repair  products,  systems and  licenses to  automotive
service facilities throughout Mexico and Latin America. The Agreement also calls
for  Micropaint  de Mexico to buy  certain  automotive  aftermarket  repair  and
environmental  protection products from NeoMedia.  Founded earlier this year and
based in  Monterrey,  Mexico,  Micropaint  de Mexico  specializes  in  providing
automotive aftermarket products throughout Mexico and Latin America.

      On August 30, 2005,  NeoMedia signed a distribution  agreement with Jinche
Yingang Automobile Co. of Beijing, China ("Jinche"), under which Jinche will act
as  a  distributor  of  automotive  products  in  China.  Jinche  is  a  Beijing
PRC-registered  company specializing in automobile sales,  financing,  insurance
and repair. NeoMedia will supply Jinche with its micro paint repair products, as
well as various other automotive aftermarket products from other manufacturers.

      PAPERCLICK(R) DEVELOPMENTS

      On January 23, 2004, NeoMedia filed a patent infringement  lawsuit against
AirClic,  Inc.  During July 2005,  NeoMedia and AirClic  settled the case out of
court,  with  AirClic  agreeing  to  compensate  NeoMedia  for past  and  future
activities.  AirClic  did not  receive  a  license  to use  NeoMedia's  patented
PaperClick(R) technology.

      On January 2, 2004, NeoMedia filed a patent  infringement  lawsuit against
Virgin(R)   Entertainment  Group,  Inc.,  Virgin  Megastore  Online  and  Virgin
Megastore  (collectively,  "Virgin").  During  June  2005,  NeoMedia  and Virgin
settled the case out of court, with Virgin agreeing to purchase a license to use
NeoMedia's patented PaperClick(R) technology platform through 2016.

      On May 13,  2005,  the  European  Patent  Office  (EPO) issued a Notice of
Allowance  based  on  proceedings  conducted  during  April  2005 in The  Hague.
Recognition by the EPO extends the patents for NeoMedia's  core technology - the
use of bar cods and other unique identifiers to automatically link to content on
the Internet - to Austria, Belgium, France, Germany, Liechtenstein,  Luxembourg,
the Netherlands, Sweden, Switzerland and the United Kingdom.

      On April 18, 2005,  NeoMedia  announced  that it named Martin N. Copus,  a
global and  interactive  marketing  executive  who has  worked  with many of the
world's leading brands,  as its COO and to the  newly-created  position of chief
executive of its PaperClick  wireless  business unit. Prior to joining NeoMedia,
Mr.  Copus was  Managing  Director  of 12Snap UK, an  internationally-acclaimed,
award-winning  mobile marketing company focusing on wireless channels,  where he
led development and  implementation of interactive  marketing programs for major
blue-chip companies including  McDonald's(R),  Kellogg(R),  Procter & Gamble(R),
Coca-Cola(R),  Safeway(R),  Budweiser(R),  and  20th  Century  Fox(R).  Prior to
running  the  U.K.   operations  of  12Snap,  Mr.  Copus's  background  included
assignments as executive  director of Huntsworth PLC, a marketing services group
listed on the main board of the London Stock Exchange;  Worldwide Board Director
of Interpublic  Group's Ammirati Puris Lintas  advertising unit; and senior vice
president of Leo Burnett Company Inc., Chicago,  responsible for its Marlboro(R)
USA  advertising  and  marketing  services  account.  Mr.  Copus holds a B.A. in
marketing and an M.A. in modern languages, both from Oxford University.

      On April 12, 2005, NeoMedia acquired four  search-oriented  patents issued
in the U.S.  and  pending in Europe and Japan from  LoyaltyPoint  Inc.  for $1.5
million  cash and 10%  royalties  on all future sales for a period of ten years.
The first patent (U.S.  6,430,554 B1) covers technology that uses uniquely-coded
objects,  such as consumer goods to automatically  generate an online search for
information related to those objects or goods from a computer, PDA, mobile phone
or other device.  The second  patent (U.S.  6,651,053 B1) is an extension of the
first,  covering additional mechanisms for performing such searches using mobile
devices.  The third patent  (U.S.  6,675,165  B1) covers uses of  location-based
technology to deliver  content that is based both on a particular  advertisement
and the geographic  location in which the  advertisement is located.  The fourth
patent (U.S.  6,766,363 B1) covers  techniques for providing  information to end
users based on objects, goods or other items depicted in external media, such as
video, audio, film or printed matter.


                                       50


      On March 18, 2005,  NeoMedia and Foote Cone & Belding ("FCB"),  a division
of FCB Worldwide LLC and part of the Interpublic Group of Companies, Inc. (NYSE:
IPG), entered into a co-marketing agreement surrounding NeoMedia's PaperClick(R)
technology platform. The agreement calls for FCB to work with NeoMedia to create
and develop  opportunities and programs  utilizing  PaperClick(R),  to integrate
PaperClick  into  marketing  campaigns  for new  and  existing  clients,  and to
facilitate   the   introduction   of  NeoMedia  and  PaperClick  in  the  mobile
telecommunications  industry.  NeoMedia will provide technical and sales support
for presentations and marketing programs co-developed for FCB clients, work with
FCB to explore and create marketing  opportunities and solutions,  and introduce
FCB to its business customers,  including brand managers.  FCB and NeoMedia will
team for co-marketing  and sales efforts in the U.S., as well as in Europe,  the
Middle East, Africa and Latin America.

      On March 10, 2005,  NeoMedia and  Intactis  Software,  Inc., a provider of
Check  21  software  products  and  solutions  for the  small-  to  medium-sized
financial  institution  market,  entered into a business  development  agreement
under  which  the two  companies  will  develop a  database  lookup  system  for
validating  codes  printed on  negotiable  instruments  (checks).  In  addition,
NeoMedia invested $250,000 in Intactis convertible  preferred stock and warrants
to own up to 25% of Intactis.  Intactis  also placed an order for an initial 100
copies of NeoMedia's PaperClick Print Encoder software.

      During  January 2005,  NeoMedia  signed a Letter of Intent to enter into a
licensing  agreement  with Shelron  Group,  Inc. for  PaperClick(R)'s  family of
mobile  marketing  products to be used with  Shelron's  ActivShopper  comparison
shopping  toolbar  (attached as Exhibit 10.56  hereto).  The agreement will give
Shelron  Group,  Inc.  the  worldwide  rights  to use  PaperClick(R)  on the new
ActivShopper  Mobile Edition for cell phones and PDA's.  ActivShopper  is a free
software download designed to automatically  scan, locate and compare prices for
items a consumer selects at an e-commerce site.

      On December 13, 2004, NeoMedia introduced  PaperClick(R)  Mobile Marketing
Services,  a tool that allows global marketers and advertising  agencies to have
one-on-one  contact with consumers through cell phones and other mobile wireless
devices.  PaperClick(R) Mobile Marketing Services delivers real-time promotional
content,  which can be updated and changed by marketers,  while giving consumers
one-click  e-commerce  buying power. The latest addition to the Mobile Marketing
Services suite lets users of a wide range of already-in-use  camera phones "take
pictures" of special created codes on packages and promotional items and connect
in one-click to marketing  information.  First  available for Nokia(R) Series 60
mobile phones,  the new capability  complements the launch of the  PaperClick(R)
Mobile Go-Window(TM) during 2004 and PaperClick(R) for Camera Cell Phones(TM) in
2003.

      On December 6, 2004,  NeoMedia signed a non-binding  Letter of Intent with
Nextcode Corporation to form a strategic  partnership,  with joint marketing and
sales efforts, involving use of NeoMedia's PaperClick(R) technology and Nextcode
Corporation's   barcode   reading   software.   Nextcode,   based  in   Concord,
Massachusetts,  provides  barcode  reading  software and technology  designed to
enhance  the  usability  of mobile  phones and enable  access to  Internet-based
content, services and commerce. When finalized, the one-year renewable agreement
would give the companies mutual rights to resell  PaperClick(R) Client Software,
PaperClick(R) Code Activation,  PaperClick(R)  Server Software and PaperClick(R)
Integration Services, as well as Nextcode's mobile barcode decoding applications
and Nextcode's code creation and publishing systems.

      During  October  2004,  NeoMedia  entered into a marketing  alliance  with
Science  Applications  International  Corporation ("SAIC") to jointly establish,
launch, develop and promote NeoMedia's PaperClick(R) line of products.

      During 2003,  NeoMedia unveiled its PaperClick(R) for Camera Cell PhonesTM
product, which reads and decodes UPC/EAN or other bar codes to link users to the
Internet,  providing  information and enabling e-commerce on a compatible camera
cell  phone,  such as the Nokia 3650 model.  During the second  quarter of 2004,
NeoMedia introduced its PaperClick(R)  Mobile  Go-WindowTM,  a horizontal bar on
the screen of a wireless  device where users can enter numeric  strings from UPC
or other bar codes to link directly to targeted online  information via patented
PaperClick(R)  technology and software.  The  PaperClick(R)  Mobile  Go-WindowTM
currently  works with PalmTM Tungsten C PDA, the  HandspringTM  Treo 270 and 600
Smartphones,  Pocket PC(R),  Java MIDP 2.0 (Mobile  Independent  Device Profile)
standard,  Microsoft Windows  Mobile(TM)-based  Smartphones,  Nokia(R) Series 60
phones, Sendo(R) X, Panasonic(R) X700, and Siemens(R) SX-1.

      During  2003,   NeoMedia  unveiled  the  go-to-market   strategy  for  its
PaperClick(R)  suite of  products.  Over the past several  months,  NeoMedia has
signed contracts with several key partners  outlined in the strategy,  including
agents and resellers Big Gig Strategies (United Kingdom), SRP Consulting (United
States), AURA Digital  Communications  (Australia),  Relyco (United States), E&I


                                       51


Marketing  (Taiwan),  Deusto  Sistemas  (Spain),  Nextcode  Corporation  (United
States), and Jorge Christen and Partners LLP (Mexico).  NeoMedia has also teamed
with European advertising agency 12Snap, and worldwide advertising agency Arnold
Worldwide.  In June 2004,  NeoMedia entered into a collaborative  agreement with
Intel Corporation for NeoMedia's  PaperClick(R) mobile connectivity  platform to
operate on the recently introduced Intel PXA27x processor  family-based cellular
phones.

      AIRCLIC, INC. SCANBUY, INC., AND LSCAN TECHNOLOGIES, INC. LAWSUITS

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

      During July 2005, NeoMedia and AirClic settled the case out of court, with
AirClic agreeing to compensate NeoMedia for past and future activities.  AirClic
did not receive a license to use NeoMedia's patented PaperClick(R) technology.

      NeoMedia  voluntarily  dismissed  the suit  against  LScan in the Northern
District of  Illinois  and  re-filed  the suit on May 26,  2004,  in the Eastern
District of  Pennsylvania.  After  LScan  failed to answer,  NeoMedia  filed and
served its motion  for  default  judgment  on July 6,  2004.  The Court  entered
default  judgment on July 7, 2004.  During  October  2005,  the court  issued an
injunction  that prohibits  LScan from using any technology or application  that
employs any NeoMedia patent.

      On March 29, 2004,  Scanbuy  filed suit  against  NeoMedia in the Southern
District of New York  alleging  that NeoMedia  infringed  Scanbuy's  copyrights,
violated the Lanham Act and  committed  deceptive  trade  practices and tortious
interference.  During October 2005, the copyright  charges were dismissed by the
court.  On April 20, 2004,  NeoMedia  re-filed  its suit against  Scanbuy in the
Southern  District of New York alleging patent  infringement.  Scanbuy filed its
answer on June 2, 2004.  NeoMedia filed its answer and  affirmative  defenses on
July 23, 2004.  The parties are currently  engaged in discovery in both of these
actions.

      VIRGIN ENTERTAINMENT GROUP LAWSUIT

      On January 2, 2004, NeoMedia filed a patent  infringement  lawsuit against
Virgin(R)   Entertainment  Group,  Inc.,  Virgin  Megastore  Online  and  Virgin
Megastore  (collectively,  "Virgin").  During  June  2005,  NeoMedia  and Virgin
settled the case out of court, with Virgin agreeing to purchase a license to use
NeoMedia's patented PaperClick(R) technology platform through 2016.

INDUSTRY OVERVIEW

      NEOMEDIA INTERNET SWITCHING SOFTWARE

      The goal of NeoMedia's  Internet Switching Software business segment is to
promote mass adoption of NeoMedia's  switch and background  computer  process to
link physical world objects to the Internet.  NeoMedia's switching platform is a
state-of-the-art open and extensible cross-media publishing tool that applies to
customers in a variety of industrial,  commercial, and educational applications.
This business segment is also responsible for licensing NeoMedia's  intellectual
property to others as a means of promoting  this new market as well as providing
a   revenue   and   cash   resource.    NeoMedia   has   been   developing   its
physical-world-to-Internet  technology  and  offerings  since 1996 and considers
itself an innovator  and pioneer in this  industry.  In the past several  years,
NeoMedia has seen similar  technologies  and concepts emerge in the marketplace,
and sees these events as a positive validation of the physical world-to-internet
concept.


                                       52


      NeoMedia  believes the key to the  adoption of  physical-world-to-Internet
technologies  in the  marketplace  will  be in the  development  of  real  world
applications that provide the end user a valuable experience.  NeoMedia believes
that, with an estimated 1.5 billion mobile phone users worldwide, mobile devices
such as cellular  telephones and PDAs are a key device in the development of the
physical  world to Internet  marketplace.  To this end,  during  2003,  NeoMedia
announced its PaperClick(R)  for Camera Cell PhonesTM  product,  which reads and
decodes  UPC/EAN  or other bar codes to link  users to the  Internet,  providing
information and enabling  e-commerce on a compatible  camera cell phone.  During
2004, NeoMedia  introduced  PaperClick(R)  Mobile Marketing  Services,  a mobile
solution using PaperClick(R) for Camera Cell Phones that allows global marketers
and advertising  agencies to have one-on-one contact with consumers through cell
phones  and  other  mobile  wireless  devices.  PaperClick(R)  Mobile  Marketing
Services  delivers  real-time  promotional  content,  which can be  updated  and
changed by marketers,  while giving consumers one-click e-commerce buying power.
The latest addition to the Mobile Marketing  Services suite lets users of a wide
range of  already-in-use  camera phones "take pictures" of special created codes
on  packages  and  promotional  items and  connect  in  one-click  to  marketing
information.

      NEOMEDIA CONSULTING AND INTEGRATION SERVICES

      NeoMedia  believes that the  technology and equipment  resale  business is
becoming a  commodity  industry  for  products  undifferentiated  by value added
proprietary  elements and services.  Resale operations are also being compressed
as equipment manufacturers consolidate their distribution channels.

      Proprietary  products,  such as  NeoMedia  encoders,  offer a  competitive
value-add to NeoMedia's  NCIS business.  The NCIS division also sells  migration
products (tools designed to "migrate" software code from one platform to another
platform) primarily to mid-sized to large corporations and government  agencies.
The products  include  proprietary  products and software tools to migrate Wang,
HP3000,  Data General,  DEC and IBM DOS/VSE platforms (legacy systems) to a Unix
or NT open system platform.

      NEOMEDIA MICRO PAINT REPAIR

      NMPR  serves  the light  collision  and  paint  repair  industry  offering
products and processes that are designed to increase  customer  productivity and
profits.  NMPR's  products are  positioned to augment  traditional  paint repair
methods  commonly  used  in  body  shops,  as well  as  allowing  non-body  shop
operations to expand their service offerings. The micro paint repair industry is
a sub-segment of the aftermarket automotive coatings business.

STRATEGY

      NEOMEDIA INTERNET SWITCHING SOFTWARE

      NeoMedia  has spent  the past  decade  developing  and  patenting  the now
confirmed  space  of  linking  the  physical  and  Internet  environments,   and
developing and  implementing  five  generations of  continuously  refined switch
technology  that  bridge  these  environments.  During  the past  year-and-half,
NeoMedia has introduced  PaperClick(R)  for Camera Cell Phones and PaperClick(R)
Mobile  Marketing  Services,  shifting  the  focus of this  dynamic  unit to the
rapidly emerging mobile  marketing  sector.  NeoMedia is strategically  pursuing
potential  licensees  of  the  PaperClick(R)  switching  platform,  as  well  as
intellectual property licensing  opportunities with organizations  attempting to
commercialize    physical-world-to-Internet    technology,    such   as   Symbol
Technologies, A.T. Cross Company and Brandkey Systems Corporation.

      NEOMEDIA CONSULTING AND INTEGRATION SERVICES

      The goal of the NCIS unit is to continue to provide customized  technology
infrastructure  solutions,  as  well  as act  as the  integration  arm  for  the
PaperClick(R) family of products.

      NEOMEDIA MICRO PAINT REPAIR

      NeoMedia's  proprietary Micro Paint Repair system can dramatically  reduce
costs for current auto body repair facilities, or create a new profit center for
auto-related  businesses that do not currently  offer paint repair.  NeoMedia is
attempting  to market its Micro Paint  Repair  system to a myriad of  automotive
industry businesses,  from auto dealers to body shops to glass repair shops, and
more.


                                       53


PRODUCTS/SERVICES

      NEOMEDIA INTERNET SWITCHING SOFTWARE

      PAPERCLICK(R) MOBILE MARKETING SERVICE

      PaperClick(R)  is a Mobile  Marketing  Service that enables brand managers
and consumer product  manufacturers to market directly to their target customers
via their portable  devices such as mobile  phones,  and PDAs.  Using  products,
brand names,  and  marketing  collateral,  brand  managers and consumer  product
manufacturers can interact directly with their customers.

      By entering a word or phrase  (e.g.,  brand name or tagline) into a mobile
device,  or by taking a picture of a barcode on your  product or your  marketing
collateral,  a consumer  can retrieve  tailored  Web content in one click,  even
pages deep within a website.  PaperClick(R)  bypasses long URLs, search engines,
or difficult-to-navigate  phone menus. PaperClick(R) can directly link a word or
code to mobile commerce, rebates, contests, coupons, registration, instructional
videos, ad tracking, polling, customer profiling, and more.

PaperClick(R)  links a unique identifier  (e.g.,  barcode or word) to a specific
URL (i.e., Webpage) using a simple 5-step process:

      STEP  1:  Activation  - A  barcode  or word is  activated  by the  product
      manufacturer;

      STEP 2: A PaperClick(R)-enabled device retrieves the code or word;

      STEP 3: The device's Web browser is automatically launched and connects to
      a designated server;

      STEP 4: The server  retrieves  the  specific  URL based on the  barcode or
      word; and

      STEP 5: The URL is downloaded to the device's browser.

The PaperClick(R) solution consists of:

      WORD ACTIVATION

      1.    Register   brand   names   or   taglines   in   the    PaperClick(R)
            WordRegistryTM.  The  WordRegistryTM is the official  repository for
            PaperClick(R) Words;

      2.    Bid on  non-trademarked  words.  Non-trademarked  words (e.g., cola,
            burger,  car)  will  be  auctioned  to the  highest  bidder  via the
            PaperClick(R) WordRegistryTM; and

      3.    Activate your brand names and taglines by linking them to mobile web
            content using Link Manager Software.

      CREATED CODE ACTIVATION. NeoMedia can create custom PaperClick(R) codes to
            place on product packaging or literature,  a subway poster, a direct
            mailer, or other marketing collateral. Consumers with a camera phone
            simply  snap a picture of the code and link  directly to Web content
            designated by the product's manufacturer.

      EXISTING CODE ACTIVATION.  As with created codes,  PaperClick(R)  can link
            already-existing  product  codes,  such as UPC,  EAN,  JAN, and ISBN
            codes, to tailored Web content.

With  activation,  NeoMedia  also  provides  the  following  word and code  link
management tools:

      LINK  MANAGER  SOFTWARE.  Software for a PC that allows a product owner to
            link words and codes to a specific URL;


                                       54


      HANDSET SOFTWARE.  Device software  required for a mobile device customers
            to read activated codes and words; and

      BASIC REPORTING.  Allows  product  owner to track the  number of  consumer
            "hits" by code, date and time.

NeoMedia  also  offers  the  following  value-added  services  with word or code
activation:

      CLICK MANAGEMENT SERVICES

      LINK  MANAGER  SERVICE.  NeoMedia will manage the linking of all words and
            codes on behalf of a product owner; and

      CODE  VERIFICATION.  NeoMedia  will test  each  code to ensure  that it is
            printed properly and that it links to the correct URL.

      WEB   CONTENT  CREATION  SERVICES.   NeoMedia  assists  its  customers  in
            creating  Web  content  for mobile  devices in XHTML,  WAP and other
            mobile formats.

      MOBILE MARKETING  CAMPAIGN  SERVICES.  NeoMedia helps its customers create
            mobile advertising campaigns using their products with PaperClick(R)
            technology.

      CUSTOMIZED REPORTING. NeoMedia offers customized reporting and data mining
            that allows  product owners to receive  additional  data about their
            marketing campaigns.

      SERVER SOFTWARE.  For product  owners that are  managing a large number of
            codes or words,  NeoMedia offers Server Software that allows them to
            store the links within their organization's network.

      INTELLECTUAL PROPERTY LICENSING.

      NeoMedia  currently  holds  six  United  States  patents  relating  to the
physical-world-to-Internet  marketplace,  and an additional six patents acquired
in 2003 with the  purchase  of Secure  Source  Technologies  related to document
security.  NeoMedia's core  physical-world-to-Internet  patent portfolio (Patent
Nos. 5,933,829,  5,978,773,  6,108,656,  6,199,048, 6,434,561, and 6,542,933) is
comprised of "system and method" patents that cover the use of  machine-readable
data for information  retrieval.  Among the identifiers that could be classified
as machine-readable are PaperClick(R)-enabled 2D barcodes, 1D barcodes,  UPC/EAN
barcodes,  magnetic stripes, OCR/ICR, RFID, smartcards,  numbers, hot words, and
voice.  NeoMedia  intends to license  this  intellectual  property  portfolio to
companies  endeavoring  to tap the potential of this emerging  market.  To date,
NeoMedia has entered into such agreements with  Digital:Convergence,  A.T. Cross
Company,  Symbol Technologies,  and Brandkey Systems  Corporation.  During 2002,
NeoMedia  entered  into an  agreement  with Baniak  Pine and Gannon,  a law firm
specializing  in patent  licensing  and  litigation,  under  which the firm will
represent  NeoMedia in seeking out  potential  licensees  of  NeoMedia's  patent
portfolio.

      On May 13,  2005,  the  European  Patent  Office  (EPO) issued a Notice of
Allowance  based  on  proceedings  conducted  during  April  2005 in The  Hague.
Recognition by the EPO extends the patents for NeoMedia's  core technology - the
use of bar cods and other unique identifiers to automatically link to content on
the Internet - to Austria, Belgium, France, Germany, Liechtenstein,  Luxembourg,
the Netherlands, Sweden, Switzerland and the United Kingdom.

      NEOMEDIA CONSULTING AND INTEGRATION SERVICES

      NCIS  is a group  of  highly  skilled  application  developers  thoroughly
familiar  with  systems  integration,  storage  networks,  and other  associated
technologies who contract to develop custom applications for clients.

      System integration  project management and consulting services are offered
through  NeoMedia's  NCIS  business  unit.  These  services  fall into two broad
categories:

      A.    FOR IMPLEMENTATION OF PAPERCLICK(R) MOBILE MARKETING SERVICE.

      B.    FOR DEVELOPMENT AND IMPLEMENTATION OF CUSTOMIZED APPLICATIONS.


                                       55


1.    SERVICES FOR IMPLEMENTATION OF PAPERCLICK(R) MOBILE MARKETING SERVICE.
      The NCIS business unit is comprised of the executive team, technical team,
      and project managers to establish and deploy a common set of processes and
      templates,  presenting  an  organized,  unified  implementation  from each
      project manager. These reusable project management components enable fast,
      efficient  PaperClick(R)  project  deployment.  Key  functions of the NCIS
      business unit are to:

      o     Create PaperClick(R) Implementation Vision;

      o     Develop  methodology  including  updating  and  deployment  of  best
            practices;

      o     Facilitate   team    communication    through   common    processes,
            deliverables, and terminology;

      o     Support  a  common  repository  so  that  prior  project  management
            deliverables can be candidates for reuse by similar projects;

      o     Provide  clients (and  internal  management)  continual  training to
            build  core  project  management  competencies,   a  common  set  of
            experiences,   and  an  understanding  of  PaperClick(R)   technical
            development; and

      o     Track  status  of  PaperClick(R)   projects,   and  provide  project
            visibility to management in a common and consistent manner.

      Services  complementary to a PaperClick(R) project implementation are also
provided.  They may consist of consulting or hardware  services that are part of
the project, such as additional servers, network configurations etc., or totally
separate  from the project due to a parallel  need.  Services  may also  include
continuation and maintenance of completed projects.  Post implementation  change
orders,  training, and code alterations are handled through this division of the
System Integration Business Unit.

2.    SERVICES FOR DEVELOPMENT AND  IMPLEMENTATION  OF CUSTOMIZED  APPLICATIONS.
      NeoMedia's NCIS business  assists  clients in developing and  implementing
      their own customized PaperClick(R) applications.

      Storage Area Networks ("SAN").  SAN is a Storage Management  solutions and
consultancy  consisting  of tools  and  services  that  insure  data  integrity,
efficiency and  accessibility,  achieved through moving data backup,  access and
archival functions off of traditional local area networks ("LANs") and wide area
networks  ("WANs") that are added on to a highly  reliable  independent  managed
network.

      Product Sales and Equipment  Re-sales.  NCIS markets and sells proprietary
software products,  including  high-density symbology encoders (e.g., PDF417 and
UPS Maxicode),  and resells  client-server  hardware and related systems such as
Sun Microsystems,  IBM and others , as well as related applications software and
services.

      NEOMEDIA MICRO PAINT REPAIR

      NMPR's  system   utilizes   proprietary   technology  to  repair  cosmetic
automobile  damage such as chips,  scratches,  spots,  blemishes,  and  oxidized
paint.  While  competitive  paint repair products  utilize a mechanical fix, the
NMPR  system  chemically  alters the paint to make the repair  invisible  to the
naked eye,  even with the most lustrous  metal flake and pearlized  auto paints.
Repairs can be completed in a fraction of the time of conventional  methods, and
all of NMPR's products are free of harmful icocyanates.

      The products offered through NMPR include:

      NMPR  PAINT  SYSTEM.  NMPR  offers a license to use its  proprietary  NMPR
            Paint System,  along with a training  program and ongoing  technical
            support relating to the system.

      NMPR  PAINT SYSTEM  PRODUCTS.  NMPR supplies the products  necessary for a
            paint system  operator to implement an NMPR Paint  System.  Products
            include NMPR's  proprietary  chemicals,  auto paint, and application
            hardware.


                                       56


      NMPR  SPECIALTY  PRODUCTS.  NMPR  offers a variety  of  non-paint  related
            specialty  products,   including  dent  repair,  interior  cleaning,
            corrosion protection, windshield repair, and warranty programs.

      NMPR  PAINT  REPAIR  SERVICES.  NMPR  currently  operates  a paint  repair
            facility in its Calgary office. The facility utilizes the NMPR Paint
            System to make  cosmetic  repairs to  automobiles  for  dealerships,
            rental car companies, and consumers.

STRATEGIC RELATIONSHIPS

      NEOMEDIA INTERNET SWITCHING SOFTWARE

      During January 2002,  NeoMedia  engaged Baniak Pine and Gannon,  a Chicago
law firm  specializing in intellectual  property  licensing and litigation.  The
firm assists  NeoMedia in seeking out  potential  licensees of its  intellectual
property portfolio,  including any resulting litigation.  Baniak Pine and Gannon
currently represents NeoMedia in its lawsuit against Scanbuy.

      During May 2002,  NeoMedia granted a personal,  worldwide,  non-exclusive,
limited   intellectual   property   licensing   agreement  to  Brandkey  Systems
Corporation.  Brandkey paid NeoMedia a $50,000 upfront  licensing fee in 2002, a
$25,000 royalty in 2003, a $50,000 royalty in 2004, and is obligated to pay 2.5%
of all future royalty-based revenues earned by Brandkey,  with minimum royalties
of $50,000 in 2004, and $75,000 in 2005 and after.

      On October 30, 2003,  NeoMedia unveiled the go-to-market  strategy for its
PaperClick(R) suite of products.  Since that time, NeoMedia has signed contracts
with several key partners  outlined in the strategy,  including channel partners
Big Gig  Strategies,  SRP Consulting,  and Relyco,  systems  integrator  Science
Applications International Corporation ("SAIC"), and European advertising agency
12Snap.

      In June 2004,  NeoMedia entered into a collaborative  agreement with Intel
Corporation for NeoMedia's PaperClick(R) mobile connectivity platform to operate
on the recently introduced Intel PXA27x processor family-based cellular phones.

      During 2003 and 2004,  NeoMedia  engaged key partners  around the world to
assist in the  anticipated  roll-out of the  PaperClick(R)  family of  products.
During this time,  NeoMedia has partnered with distributors and resellers,  such
as Big Gig Strategies  (United Kingdom),  SRP Consulting  (United States),  AURA
Digital  Communications  (Australia),  Relyco  (United  States),  E&I  Marketing
(Taiwan), Deusto Sistemas (Spain), and Jorge Christen and Partners LLP (Mexico).

      NEOMEDIA CONSULTING AND INTEGRATION SERVICES

      Through  this  segment,  NeoMedia  provides  services  and  products  to a
spectrum  of   customers,   ranging  from   closely  held   companies  to  large
corporations.

      NEOMEDIA MICRO PAINT REPAIR

      On March  29,  2005,  NeoMedia's  Micro  Paint  Repair  business  signed a
national  marketing and sales agreement with Restex,  Inc., of Dallas,  Texas, a
provider of products to automobile  dealerships.  The agreement calls for Restex
to sell and market  NeoMedia's  proprietary  micro  paint  repair  system to its
customers in the automotive industry.

      On June 1, 2004, NeoMedia entered into a distribution agreement with Micro
Paint Systems  (Australasia)  Limited of New Zealand for exclusive  distribution
rights to NeoMedia's  Micro Paint Repair  products in Australia and New Zealand.
The  agreement is  contingent  upon a minimum  purchase of 500 systems over five
years in that territory.  NeoMedia received an initial payment on signing of the
contract, which included the fee for four initial systems.

      On August  2,  2004,  NeoMedia  announced  that it  signed a  distribution
agreement  with Motor  Dealer's  Association  Co-Auto Ltd.  ("MDA  Co-Auto") the
largest buying consortium for new car franchised  dealers in Western Canada. The
agreement  provides  exclusive rights for MDA Co-Auto to market NeoMedia's Micro
Paint Repair system to its member dealers.  MDA Co-Auto has 1,050 member dealers
in British Columbia, Alberta, Saskatchewan, Manitoba and the Yukon.


                                       57


SALES AND MARKETING

      NEOMEDIA INTERNET SWITCHING SOFTWARE

      During 2003 and 2004, NeoMedia has worked to establish a global network of
direct  salespeople and resellers to sell and market the PaperClick(R)  suite of
products.   NeoMedia   currently   employs  eight  direct  sales  and  technical
consultants  in its  Lisle,  Illinois  office  who  represent  the NISS and NCIS
business units.  Additionally,  NeoMedia has established reseller  relationships
with industry  innovators,  with a presence in the US,  Europe,  South  America,
Asia, and Australia.

      NEOMEDIA CONSULTING AND INTEGRATION SERVICES

      NeoMedia,  through its systems integration  services segment,  markets its
products  and  services,  as well as those for  which it acts as a  re-marketer,
primarily through a direct sales force,  which was composed of three individuals
as of December  31,  2004.  In  addition,  this  business  unit also relies upon
strategic  alliances  to  help  market  products  and  services,   provide  lead
referrals,   and  establish  informal  co-marketing   arrangements.   NeoMedia's
representatives   attend  seminars  and  trade  shows,   both  as  speakers  and
participants,  to help market products and services. In addition,  this business
segment has three agents in the United States that sell NeoMedia's  products and
services.

      NEOMEDIA MICRO PAINT REPAIR

      NeoMedia  markets its Micro Paint Repair  products and services  primarily
through a direct sales force and agents.  In  addition,  this  business  unit is
exploring strategic alliances to help market products and services, provide lead
referrals,  and  establish  informal  co-marketing  arrangements.  This business
segment is also establishing an agent network in the United States and Canada to
sell NeoMedia's  products and services.  To this end, during 2004 NeoMedia Micro
Paint Repair signed  distribution  agreements with MDA Co-Auto Ltd., the largest
buying  consortium for new car franchised  dealers in Western Canada,  and Micro
Paint Systems (Australasia) Limited of New Zealand.

CUSTOMERS

      NEOMEDIA INTERNET SWITCHING SOFTWARE

      PaperClick(R).     NeoMedia's     customers    for    its    PaperClick(R)
physical-world-to-Internet  offerings have included Amway, Solar Communications,
Inc., and NYCO Products Company.

      Intellectual  Property  Licensing.  To date,  NeoMedia has entered into IP
licensing agreements with Digital:Convergence  Corporation,  A.T. Cross Company,
Symbol  Technologies,  and Brandkey  Systems  Corporation.  NeoMedia  intends to
pursue additional license agreements in the future.

      NEOMEDIA CONSULTING AND INTEGRATION SERVICES

      NCIS  provides  equipment  and  software  reselling  and  integration  and
automation  consulting  services  to a variety  of  customers  across a range of
industries,   including  telecommunications,   insurance,   financial  services,
manufacturing, government entities, and more.

      NEOMEDIA MICRO PAINT REPAIR

      The customer base for the NMPR  business  unit consists  primarily of auto
dealers and repair shops throughout Canada,  the US, and Australia/New  Zealand.
In  addition,  NeoMedia  is  party to  distribution  arrangements  with  several
organizations,  including  MDA  Co-Auto  and Novus in  Canada,  and Micro  Paint
Systems Australasia in New Zealand.


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RESEARCH AND DEVELOPMENT

      NEOMEDIA INTERNET SWITCHING SOFTWARE

      NISS  employed  three  persons  in the area of product  development  as of
December  31,  2004.  During the years ended  December  31, 2004 and 2003,  NISS
incurred   total   software   development   costs  of  $462,000  and   $332,000,
respectively.

      NEOMEDIA CONSULTING AND INTEGRATION SERVICES ?

      Any future  research  or  development  of  products  relating  to the NCIS
business unit will be performed by the NISS division or outside contractors.

      NEOMEDIA MICRO PAINT REPAIR

      During  October  2004,   NeoMedia   contracted  the  founder  of  the  CSI
International to provide  research and development  services for its Micro Paint
Repair business. In addition, NeoMedia has one employee in its Calgary, Alberta,
Canada office,  to assist with research and development.  During the years ended
December 31, 2004 and 2003,  NMPR incurred  total product  development  costs of
$19,000 and $0, respectively.

INTELLECTUAL PROPERTY RIGHTS

      NeoMedia's success in the  physical-world-to-Internet  and the value-added
systems  integration  markets  is  dependent  upon its  proprietary  technology,
including  patents,  and other  intellectual  property,  and on its  ability  to
protect its proprietary  technology and other  intellectual  property rights. In
addition,  NeoMedia  must  conduct  its  operations  without  infringing  on the
proprietary  rights  of  third  parties.  NeoMedia  also  intends  to rely  upon
unpatented  trade  secrets and the know-how and expertise of its  employees.  To
protect its proprietary  technology and other  intellectual  property,  NeoMedia
relies  primarily on a  combination  of the  protections  provided by applicable
patent,   copyright,   trademark,   and  trade  secret  laws,   as  well  as  on
confidentiality  procedures and licensing arrangements.  NeoMedia has six United
States  patents for its  physical-world-to-Internet  technology,  an  additional
patent for which NeoMedia  received a  notification  of issuance from the United
States Patent and Trademark  Office in 2005, an additional  patent in Mexico for
which  NeoMedia  received a  notification  of issuance  from the  Mexicano de la
Propiedad  Industrial in 2005, and an additional  six patents  acquired with the
purchase of Secure Source  Technologies  related to document security.  NeoMedia
also has several trademarks relating to its proprietary software products.


COMPETITION

      NEOMEDIA INTERNET SWITCHING SOFTWARE

      Although  NeoMedia  has  been  developing  its  physical-world-to-Internet
technology and offerings  since 1996, the market  surrounding  the technology is
only now  beginning  to take shape.  Over the past year,  new  technologies  and
concepts  have  emerged in the  physical-world-to-Internet  space,  specifically
relating to mobile commerce and mobile  marketing on  Internet-enabled  cellular
phones and PDAs.  NeoMedia views the increased  development of other products in
this  space  as a  validation  of  the  physical-world-to-Internet  concept  and
believes that the increased promotion of these products and services by NeoMedia
and  other  companies  in this  space  will  raise  consumer  awareness  of this
technology,  resulting in a larger, and more rapidly-developing market. NeoMedia
believes its portfolio of  physical-world-to-Internet  technologies  and patents
could provide a barrier to entry for many potential competitors.

      NEOMEDIA CONSULTING AND INTEGRATION SERVICES. ?

      Competitors in the consulting and integration services business range from
local,  small  privately  held  companies to large  national  and  international
organizations, including 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.


                                       59


      NEOMEDIA MICRO PAINT REPAIR.

      NeoMedia's  competitors  in the micro paint  repair  consist  primarily of
suppliers  of  traditional  paint  repair  methods,  such  as  automotive  paint
manufacturers.

Employees

      As of December 31,  2004,  NeoMedia  employed 34 persons,  of which 16 are
located at NeoMedia's  headquarters in Fort Myers, Florida,  eight at NeoMedia's
Lisle, Illinois office, eight at NeoMedia's Calgary, Alberta, Canada office, and
two remote  employees.  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 on 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
NeoMedia's business.

PROPERTIES

      NeoMedia's principal executive,  development and administrative  office is
located at 2201 Second Street,  Suite 600, Fort Myers,  Florida 33901.  NeoMedia
occupies approximately 10,000 square feet under terms of a written lease from an
unaffiliated  party which  expires on June 30, 2008,  with monthly rent totaling
approximately $18,000.

      NeoMedia  maintains a sales  facility at 2150  Western  Court,  Suite 230,
Lisle, Illinois 60532, occupying approximately 6,000 square feet under the terms
of a written lease from an unaffiliated party expiring on October 31, 2006, with
monthly rent totaling approximately $7,000.

      NeoMedia maintains a production and product  development  facility for its
Micro  Paint  Repair  Business  unit  in  Calgary,  Alberta,  Canada,  occupying
approximately  4,000  square  feet  under the terms of a written  month-to-month
lease from an affiliated party with monthly rent totaling $2,400.

      During  February 2005,  NeoMedia  signed a least to occupy a 10,000 square
foot Micro Paint Repair  facility in Ft.  Myers,  Florida,  under the terms of a
written lease from an  unaffiliated  party  expiring on February 28, 2008,  with
monthly rent totaling  approximately  $9,000.  The facility will host  training,
demonstrations,  production,  distribution,  and retail  services  for the Micro
Paint Repair business unit.

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

DIVIDEND POLICY

      On October 26, 2004, NeoMedia announced that it would issue its first-ever
stock dividend with the  distribution of common shares of  iPoint-media  Ltd. of
Tel Aviv as a property dividend.


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          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

OVERVIEW

NISS (PHYSICAL-WORLD-TO-INTERNET OFFERINGS) BUSINESS UNIT DEVELOPMENTS.

      Over the past several  years,  NeoMedia's  focus has been aimed toward the
commercialization of its Internet Switching Systems ("NISS") business unit. NISS
consists of the patented  PaperClickTM  technology  that  enables  users to link
directly  from  the  physical  to the  digital  world,  as well  as the  patents
surrounding  certain  physical-world-to-Internet  linking processes.  NeoMedia's
mission is to invent, develop, and commercialize  technologies and products that
effectively  leverage the  integration of the physical and electronic to provide
clear  functional  value  for its  end-users,  competitive  advantage  for their
business partners and return-on-investment for their investors.

      On September 8, 2003, NeoMedia announced its PaperClick(R) for Camera Cell
PhonesTM  product,  which reads and  decodes  UPC/EAN or other bar codes to link
users to the  Internet,  providing  information  and  enabling  e-commerce  on a
compatible camera cell phone, such as the Nokia(R) 3650 model. During the second
quarter of 2004,  NeoMedia introduced its PaperClick(R)  Mobile  Go-WindowTM,  a
horizontal bar on the screen of a wireless  device where users can enter numeric
strings  from UPC or  other  bar  codes  to link  directly  to  targeted  online
information via patented PaperClick  technology and software.  The PaperClick(R)
Mobile Go-WindowTM  currently works with PalmTM Tungsten C PDA, the HandspringTM
Treo 270 and 600 Smartphones,  Pocket PC(R),  Java MIDP 2.0 (Mobile  Independent
Device Profile) standard, and Microsoft Windows Mobile(TM)-based Smartphones.

      During  2003,   NeoMedia  unveiled  the  go-to-market   strategy  for  its
PaperClick(R)  suite of  products.  Over the past several  months,  NeoMedia has
signed contracts with several key partners  outlined in the strategy,  including
agents and resellers Big Gig Strategies (United Kingdom), SRP Consulting (United
States), AURA Digital  Communications  (Australia),  Relyco (United States), E&I
Marketing  (Taiwan),  Deusto  Sistemas  (Spain),  Nextcode  Corporation  (United
States), and Jorge Christen and Partners LLP (Mexico).  NeoMedia has also teamed
with systems integrator SAIC, and European  advertising agency 12Snap to provide
click management  services for  PaperClick(R)  products in Europe. In June 2004,
NeoMedia  entered into a  collaborative  agreement  with Intel  Corporation  for
NeoMedia's PaperClick(R) mobile connectivity platform to operate on the recently
introduced Intel PXA27x processor family-based cellular phones.

      In addition,  during June 2004 NeoMedia  signed a teaming  agreement  with
IPSO, an integrator of proprietary solutions developed by its provider companies
for  financial  institution  members and a leader in meeting Check 21 standards.
Enacted by Congress  and signed into law last year,  Check 21 requires  banks to
begin  accepting   substitute   checks  (called  "IRDs"  for  image  replacement
documents) in lieu of original checks as of October 29, 2004.  NeoMedia and IPSO
could partner on proposals and presentations  surrounding Check 21. On March 10,
2005, NeoMedia and Intactis Software,  Inc., (IPSO's successor),  entered into a
business  development  agreement  under which the two  companies  will develop a
database  lookup system for validating  codes printed on negotiable  instruments
(checks).  In  addition,  NeoMedia  invested  $250,000 in  Intactis  convertible
preferred stock and warrants to own up to 25% of Intactis.  Intactis also placed
an order for an  initial  100  copies of  NeoMedia's  PaperClick  Print  Encoder
software.

      During  October  2004,  NeoMedia  entered into a marketing  alliance  with
Science  Applications  International  Corporation ("SAIC") to jointly establish,
launch, develop and promote NeoMedia's PaperClick(R) line of products.

      During  January 2005,  NeoMedia  signed a Letter of Intent to enter into a
licensing  agreement  with Shelron  Group,  Inc. for  PaperClick's(R)  family of
mobile  marketing  products to be used with  Shelron's  ActivShopper  comparison
shopping  toolbar.  The agreement  will give Shelron  Group,  Inc. the worldwide
rights to use  PaperClick(R)  on the new  ActivShopper  Mobile  Edition for cell
phones  and  PDAs.   ActivShopper  is  a  free  software  download  designed  to
automatically scan, locate and compare prices for items a consumer selects at an
e-commerce site.

      On   April  8,   2005,   NeoMedia   acquired   from   Loyaltypoint,   Inc.
("Loyaltypoint") four issued United States patents, and two patent applications,
one each in Europe  and Japan,  relating  to mobile  search  and  location-based
advertising. In exchange for the patents and patent applications,  NeoMedia paid
$1,500,000 cash. NeoMedia will also pay Loyaltypoint a 10% royalty on all future
licensing revenue earned by NeoMedia from the acquired patents.


                                       61


      On May 13,  2005,  the  European  Patent  Office  (EPO) issued a Notice of
Allowance  based  on  proceedings  conducted  during  April  2005 in The  Hague.
Recognition by the EPO extends the patents for NeoMedia's  core technology - the
use of bar cods and other unique identifiers to automatically link to content on
the Internet - to Austria, Belgium, France, Germany, Liechtenstein,  Luxembourg,
the Netherlands, Sweden, Switzerland and the United Kingdom.

NMPR (MICRO PAINT REPAIR) BUSINESS UNIT DEVELOPMENTS.

      On  February  6,  2004,   NeoMedia   acquired   100%   ownership   of  CSI
International,  Inc., of Calgary, Alberta, Canada, a private technology products
company in the micro paint repair industry. NeoMedia currently has approximately
50 active paint repair end-user system agreements.

      On  June  1,  2004,   NeoMedia  announced  that  it  had  entered  into  a
distribution  agreement  with Micro Paint Systems  (Australasia)  Limited of New
Zealand for  exclusive  distribution  rights to  NeoMedia's  Micro Paint  Repair
products in  Australia  and New Zealand.  The  agreement  is  contingent  upon a
minimum  purchase of 500  systems  over five years in that  territory.  NeoMedia
received an initial  payment on signing of the contract,  which included the fee
for four initial systems.

      On June 22,  2004,  NeoMedia  announced  its new  product  called  "Silver
Solutions," a process created specifically to mend the popular high metallic and
pearl paint finishes on new cars.

      On July 16, 2004,  NeoMedia announced that its NeoMedia Micro Paint Repair
business unit added five more licensees as part of a private label contract with
Crackmaster Distributors Ltd., a Canadian auto aftermarket company.

      On August  2,  2004,  NeoMedia  announced  that it  signed a  distribution
agreement with Motor Dealer's  Association  Co-Auto Ltd.  ("MDA  Co-Auto"),  the
largest buying consortium for new car franchised  dealers in Western Canada. The
agreement  provides  exclusive rights for MDA Co-Auto to market NeoMedia's Micro
Paint Repair system to its member dealers.  MDA Co-Auto has 1,050 member dealers
in British Columbia, Alberta, Saskatchewan, Manitoba and the Yukon.

      On December 29, 2004,  NeoMedia  received a $290,000 order for proprietary
paints and related materials from Micro Paint Systems  (Australasia)  Limited of
New Zealand,  which holds  distribution  rights to NeoMedia's micro paint repair
products in Australia and New Zealand. Micro Paint Systems (Australasia) Limited
of New Zealand is offering  NeoMedia's  proprietary  paint and systems under its
label in that market. The order was shipped during the first quarter of 2005.

      On February 25, 2005, NeoMedia invested $250,000 in exchange for 8,333,333
shares of Pickups Plus, Inc. ("PUPS")(OTCBB:PUPS)  restricted common stock. PUPS
is a retail operator and franchiser of retail  automotive  parts and accessories
stores  catering  to the light  truck  market,  and also  provides  new  vehicle
preparation,  environmental  protection  packages,  detailing and reconditioning
products and services.

      Also on February  25, 2005,  NeoMedia  signed two  non-binding  letters of
intent  (individually,  an "LOI" and  collectively  the "LOIs") to acquire up to
100% of Automotive Preservation,  Inc. ("AP"), a distributor of automotive paint
and accessory products,  from AP's parent company, PUPS. The first LOI calls for
NeoMedia to initially  acquire 30% of AP for $1,600,000,  to be paid $600,000 in
cash,  $554,000 in shares of NeoMedia  restricted  common  stock,  and  $446,000
through  the  assumption  of AP debt by  NeoMedia.  Under the second  LOI,  upon
completion  of the  acquisition  of the initial 30% of AP by NeoMedia,  NeoMedia
would have the option to acquire an additional 30% of AP for $1,650,000, payable
in shares of  NeoMedia  restricted  common  stock.  The  second  LOI also  gives
NeoMedia the option to purchase the final 40% of AP for either:  (i) $2,200,000,
payable in shares of NeoMedia  restricted  common stock,  if NeoMedia  exercises
this right within 12 months of  acquiring  the second 30% of AP, or (ii) a price
equivalent to AP's previous quarter EBITDA multiplied by 8, payable in shares of
NeoMedia  restricted  common stock. Both LOIs are non-binding and subject to due
diligence by NeoMedia and AP.

      On March  29,  2005,  NeoMedia's  Micro  Paint  Repair  business  signed a
national  marketing and sales agreement with Restex,  Inc., of Dallas,  Texas, a
provider of products to automobile  dealerships.  The agreement calls for Restex
to sell and market  NeoMedia's  proprietary  micro  paint  repair  system to its
customers in the automotive industry.


                                       62


      On August 30, 2005,  NeoMedia signed a distribution  agreement with Jinche
Yingang Automobile Co. of Beijing, China ("Jinche"), under which Jinche will act
as  a  distributor  of  automotive  products  in  China.  Jinche  is  a  Beijing
PRC-registered  company specializing in automobile sales,  financing,  insurance
and repair. NeoMedia will supply Jinche with its micro paint repair products, as
well as various other automotive aftermarket products from other manufacturers.

      On September 27, 2005, NeoMedia signed a definitive distribution agreement
to bring its NeoMedia  Micro Paint Repair  business to Mexico and Latin America,
as well as be a  distributor  of  other  automotive  aftermarket  products.  The
agreement,  signed with  Micropaint de Mexico,  S.A.  ("Micropaint  de Mexico"),
calls  for  Micropaint  de  Mexico  to  serve  as an  exclusive  distributor  of
NeoMedia's  micro paint  repair  products,  systems and  licenses to  automotive
service facilities throughout Mexico and Latin America. The Agreement also calls
for  Micropaint  de Mexico to buy  certain  automotive  aftermarket  repair  and
environmental  protection products from NeoMedia.  Founded earlier this year and
based in  Monterrey,  Mexico,  Micropaint  de Mexico  specializes  in  providing
automotive aftermarket products throughout Mexico and Latin America.

      On October 4, 2005, NeoMedia signed a definitive distribution agreement to
bring its NeoMedia Micro Paint Repair  business to  Scandinavia.  The agreement,
signed with WITHO-AS of Oslo, Norway  ("WITHO-AS"),  calls for WITHO-AS to serve
as an exclusive  distributor of NeoMedia's micro paint repair products,  systems
and licenses to automotive service facilities  throughout  Denmark,  Sweden, and
Norway.  Based in Oslo, Norway,  WI-THO AS is a new company formed to specialize
in products  and  services  involving  micro paint  repairs for  automobiles  in
Denmark, Sweden and Norway.

      On  December  14,  2005,  NeoMedia  executed  a  definitive   distribution
agreement with PPG  Industries'  PPG Shanghai  Trading Co. Ltd.  ("PPG"),  under
which NeoMedia will distribute automotive  aftermarket products produced by PPG.
The Agreement calls for NeoMedia to serve as a non-exclusive  distributor of PPG
products to Beijing Sino-US Jinche Yingang Auto  Technological  Services Limited
("Jinche")  in the  People's  Republic of China.  NeoMedia  previously  signed a
distribution  agreement  with Jinche under which Jinche will  distribute and use
NeoMedia's  micro paint repair  products at its  automotive  service  facilities
throughout China.

      On December 20, 2005, NeoMedia executed a definitive supply agreement with
E.I. DuPont de Nemours  (Belgium) BVBA of Belgium,  a subsidiary of E.I. DuPont,
under  which  NeoMedia  will  distribute   DuPont's  automobile  refinish  paint
throughout the People's  Republic of China.  The agreement calls for NeoMedia to
serve as a  non-exclusive  distributor  of  DuPont  products  to  Jinche  in the
People's Republic of China.

NCIS (SYSTEMS INTEGRATION) BUSINESS UNIT DEVELOPMENTS.

      NCIS is the original business line upon which NeoMedia was organized. This
unit  resells  client-server  equipment  and related  software,  and general and
specialized  consulting  services.  Systems integration services also identifies
prospects for custom  applications  based on  NeoMedia's  products and services.
These operations are based in Lisle, Illinois.

ACQUISITIONS

            CSI INTERNATIONAL,  INC. On February 6, 2004, NeoMedia acquired 100%
      ownership of CSI  International,  Inc.,  of Calgary,  Alberta,  Canada,  a
      private  company  in the micro  paint  repair  industry.  NeoMedia  issued
      7,000,000  shares of its common stock,  plus $2.5 million cash in exchange
      for  all  outstanding   shares  of  CSI.   NeoMedia  has  centralized  the
      administrative  functions  in its Fort Myers,  Florida  headquarters,  and
      maintains a sales office in Calgary, Alberta, Canada.

            BSD SOFTWARE,  INC. On December 21, 2004,  NeoMedia and BSD signed a
      definitive  Agreement and Plan of Merger.  BSD owns 90% of the outstanding
      shares of Triton Global  Business  Services,  Inc., a provider of live and
      automated  operator  calling  services and e-business  support,  including
      billing,  clearinghouse and information  management services, to companies
      in the telecommunications  industry.  BSD's shareholders will receive, for
      each share of BSD stock owned, NeoMedia stock equivalent to .07 divided by
      the  volume-weighted  average  price of  NeoMedia  stock for the five days


                                       63


      prior to the effective time of the merger. The agreement has been approved
      by holders of approximately 63% of BSD's outstanding  shares and its Board
      of    Directors.    NeoMedia    and   BSD   expect   to   file   a   joint
      registration/information  statement with the United States  Securities and
      Exchange  Commission  (the "SEC") in the first  quarter of 2005.  NeoMedia
      expects  to  complete  the  merger  when the  review is  complete  and the
      registration  is  approved.  At  this  time,  the  exchange  rate  will be
      determined  and closing will be held.  Closing is subject to the terms and
      conditions  outlined  in the  merger  agreement,  as  well  as  regulatory
      approval of the merger and registration/information statement by the SEC.

            MOBOT, INC. On July 27, 2005,  NeoMedia signed a non-binding  Letter
      of Intent to acquire  Mobot,  Inc., a pioneer and leader in mobile  visual
      search  technologies.  The Letter of Intent  calls for NeoMedia to acquire
      all of the outstanding shares of Mobot in exchange for $3,500,000 cash and
      $6,500,000  in shares of NeoMedia  common  stock.  The Letter of Intent is
      subject to due diligence and the signing of a definitive agreement by both
      parties.

IPOINT-MEDIA LTD.

      On September 7, 2004,  NeoMedia and iPoint-media Ltd.  ("iPoint-media") of
Tel Aviv, Israel, entered into a business development agreement. In exchange for
entering  into  the  service  agreement,   NeoMedia  received  7%  ownership  in
iPoint-media,  consisting of 28,492  shares of  iPoint-media  common  stock.  In
addition to the business development agreement,  NeoMedia acquired an additional
10% ownership of iPoint-media,  consisting of 40,704 shares of common stock, for
$1 million cash.

      iPoint-media  was founded in April 2001 as a spin-off from Imagine  Visual
Dialog LTD, whose  shareholders  include  Israeli-based  Nisko group, an Israeli
holding company, Singapore-based Keppel T&T, and marketing and advertising group
WPP.  iPoint-media  specializes  in customer  interaction  management and is the
world's  first  developer of IP Video Call Centers for  Deutsche  Telecom.  Muki
Geller, the founder of Imagine Visual Dialog, is the founder, President & CEO of
iPoint-media.  iPoint-media  is  located  in Tel Aviv,  Israel,  with a European
customer support center in The Netherlands.  iPoint-media's mission is to become
the  video  access  platform  and  application  engine  of  choice  for  service
providers.

      On October 26, 2004, NeoMedia announced that it would issue its first-ever
stock dividend with the  distribution of common shares of  IPoint-media  Ltd. of
Tel Aviv as a property dividend.  NeoMedia will distribute 5% (or 20,435 shares)
of iPoint-media's common stock to NeoMedia shareholders of record as of November
17, 2004. The date of the property  dividend payment will be announced after the
Securities  and  Exchange   Commission  declares   iPoint-media's   registration
statement on Form SB-2 effective.  iPoint-media  filed their SB-2  (Registration
No. 333-126342) on July 1, 2005.

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

CRITICAL ACCOUNTING POLICIES

      The United States  Securities and Exchange  Commission  (the "SEC") issued
Financial  Reporting  Release No. 60,  "Cautionary  Advice Regarding  Disclosure
About Critical  Accounting  Policies" ("FRR 60"),  suggesting  companies provide
additional disclosure and commentary on their most critical accounting policies.
In FRR 60, the SEC defined  the most  critical  accounting  policies as the ones
that are most important to the portrayal of a company's  financial condition and
operating  results,  and  require  management  to make  its most  difficult  and
subjective judgments, often as a result of the need to make estimates of matters
that  are  inherently  uncertain.  Based  on this  definition,  NeoMedia's  most
critical accounting policies include: inventory valuation, which affects cost of
sales  and  gross  margin;  and the  valuation  of  intangibles,  which  affects
amortization and impairment of goodwill and other intangibles. NeoMedia also has
other  key  accounting  policies,  such as  policies  for  revenue  recognition,
including  the  deferral  of a portion  of  revenues  on sales to  distributors,
allowance for doubtful  accounts,  and  stock-based  compensation.  The methods,
estimates and judgments NeoMedia uses in applying these most critical accounting
policies have a significant impact on the results it reports in its consolidated
financial statements.


                                       64


      Intangible Asset Valuation. The determination of the fair value of certain
acquired  assets and  liabilities is subjective in nature and often involves the
use of significant  estimates and  assumptions.  Determining the fair values and
useful lives of intangible assets especially  requires the exercise of judgment.
While there are a number of different  generally  accepted  valuation methods to
estimate the value of intangible  assets acquired,  NeoMedia  primarily uses the
weighted-average  probability  method outlined in SFAS 144. This method requires
significant management judgment to forecast the future operating results used in
the  analysis.  In addition,  other  significant  estimates are required such as
residual growth rates and discount factors.  The estimates NeoMedia has used are
consistent  with the plans  and  estimates  that  NeoMedia  uses to  manage  its
business,  based on available historical  information and industry averages. The
judgments made in determining the estimated  useful lives assigned to each class
of assets  acquired  can also  significantly  affect  NeoMedia's  net  operating
results.

      Allowance  for Doubtful  Accounts.  NeoMedia  maintains  an allowance  for
doubtful  accounts for  estimated  losses  resulting  from the  inability of its
customers to make required payments. Allowance for doubtful accounts is based on
NeoMedia's  assessment of the collectibility of specific customer accounts,  the
aging of accounts  receivable,  NeoMedia's history of bad debts, and the general
condition of the industry. If a major customer's credit worthiness deteriorates,
or  NeoMedia's   customers'  actual  defaults  exceed   historical   experience,
NeoMedia's estimates could change and impact its reported results.

      Inventory.  Inventories  are stated at lower of cost (using the  first-in,
first-out method) or market.  NeoMedia continually  evaluates the composition of
its  inventories  assessing  slow-moving  and ongoing  products and  maintains a
reserve for  slow-moving  and  obsolete  inventory  as well as related  disposal
costs.

      Stock-based  Compensation.  NeoMedia records  stock-based  compensation to
outside consultants at fair market value in general and administrative  expense.
NeoMedia does not record expense  relating to stock options granted to employees
with an  exercise  price  greater  than or equal to market  price at the time of
grant. NeoMedia reports pro forma net loss and loss per share in accordance with
the  requirements of SFAS 123 and 148. This  disclosure  shows net loss and loss
per share as if NeoMedia had accounted for its employee  stock options under the
fair value method of those statements. Pro forma information is calculated using
the  Black  Scholes  option  pricing  model on the date of  grant.  This  option
valuation  model  requires  input  of  highly  subjective  assumptions.  Because
NeoMedia's employee stock options have characteristics  significantly  different
from  those of traded  options,  and  because  changes in the  subjective  input
assumptions  can  materially  affect the fair value  estimate,  in  management's
opinion,  the  existing  model does not  necessarily  provide a reliable  single
measure of fair value of its employee stock options.

      In December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
Payment".  Statement 123(R) will provide  investors and other users of financial
statements  with more complete and neutral  financial  information  by requiring
that the  compensation  cost relating to  share-based  payment  transactions  be
recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability  instruments issued.  Statement 123(R) covers a
wide range of share-based  compensation  arrangements  including  share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. Statement 123(R) replaces FASB Statement No. 123,
Accounting  for  Stock-Based  Compensation,  and  supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. Statement 123, as originally issued in
1995,  established  as preferable a  fair-value-based  method of accounting  for
share-based  payment  transactions  with  employees.   However,  that  Statement
permitted entities the option of continuing to apply the guidance in Opinion 25,
as long as the footnotes to financial statements disclosed what net income would
have been had the preferable  fair-value-based method been used. Public entities
(other than those filing as small  business  issuers)  will be required to apply
Statement  123(R) as of the first interim or annual reporting period that begins
after December 15, 2005.  The Company is currently  evaluating the impact of the
adoption of this Statement.

      Estimate of Litigation-based  Liability.  NeoMedia is defendant in certain
litigation  in the  ordinary  course  of  business  (see  the  section  of  this
information statement/prospectus entitled "Legal Proceedings"). NeoMedia accrues
liabilities  relating  to  these  lawsuits  on a  case-by-case  basis.  NeoMedia
generally  accrues attorney fees and interest in addition to the liability being
sought.  Liabilities are adjusted on a regular basis as new information  becomes
available. NeoMedia consults with its attorneys to determine the viability of an
expected  outcome.  The  actual  amount  paid  to  settle  a case  could  differ
materially from the amount accrued.


                                       65


      Revenue Recognition. NeoMedia derives revenues from three primary sources:
(1) license  revenues and (2) resale of software and  technology  equipment  and
service  fee  revenues,  and (3)  sale of its  proprietary  Micro  Paint  Repair
solution.

      (1)   License fees, including  Intellectual  Property licenses,  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.   Resales  of  software  and
            technology  equipment represent revenue from the resale of purchased
            third party  hardware  and software  products  and from  consulting,
            education, maintenance and post contract customer support services.

            The basis for  license  fee  revenue  recognition  is  substantially
            governed by  American  Institute  of  Certified  Public  Accountants
            ("AICPA") Statement of Position 97-2 "Software Revenue  Recognition"
            ("SOP  97-2"),   as  amended,   and  Statement  of  Position   98-9,
            Modification  of  SOP  97-2,  "Software  Revenue  Recognition,  With
            Respect to Certain Transactions.".  License revenue is recognized if
            persuasive  evidence of an agreement exists,  delivery has occurred,
            pricing is fixed and determinable, and collectibility is probable.

      (2)   Revenue for resale of software and technology  equipment and service
            fee is recognized based on guidance provided in SEC Staff Accounting
            Bulletin  ("SAB")  No.  104,   "Revenue   Recognition  in  Financial
            Statements," as amended (SAB 104). Software and technology equipment
            resale revenue is recognized when all of the components necessary to
            run  software  or  hardware  have  been  shipped.  Service  revenues
            including maintenance fees for providing system updates for software
            products,  user  documentation  and technical support are recognized
            over  the  life  of the  contract.  Software  license  revenue  from
            long-term   contracts  has  been   recognized  on  a  percentage  of
            completion basis, along with the associated services being provided.
            Other  service  revenues,  including  training and  consulting,  are
            recognized as the services are performed.  NeoMedia uses stand-alone
            pricing to determine an element's vendor specific objective evidence
            ("VSOE")  in order to allocate an  arrangement  fee amongst  various
            pieces of a multi-element  contract.  NeoMedia  records an allowance
            for   doubtful   accounts   on  a   customer-by-customer   basis  as
            appropriate.

            In December 2003, the SEC issued SAB 104, "Revenue Recognition." SAB
            104   supersedes   SAB  101,   "Revenue   Recognition  in  Financial
            Statements."  SAB 104's  primary  purpose is to  rescind  accounting
            guidance  contained in SAB 101 related to multiple  element  revenue
            arrangements,  superseded as a result of the issuance of EITF 00-21,
            "Accounting for Revenue  Arrangements  with Multiple  Deliverables."
            Additionally,  SAB 104 rescinds  the SEC's  Revenue  Recognition  in
            Financial  Statements  Frequently  Asked  Questions and Answers (the
            "FAQ")  issued with SAB 101 that had been  codified in SEC Topic 13,
            Revenue  Recognition.   Selected  portions  of  the  FAQ  have  been
            incorporated  into SAB 104. While the wording of SAB 104 has changed
            to reflect  the  issuance of EITF  00-21,  the  revenue  recognition
            principles  of SAB 101 remain  largely  unchanged by the issuance of
            SAB 104, which was effective upon issuance.  The adoption of SAB 104
            did not impact NeoMedia's consolidated financial statements.

      (3)   Revenue for training and  certification  on  NeoMedia's  Micro Paint
            Repair systems is recognized  equally over the term of the contract,
            which is  currently  one year.  A portion of the initial fee paid by
            the  customer is allocated  to training  costs and initial  products
            sold with the system,  and is recognized upon completion of training
            and shipment of the products. Ongoing product and service revenue is
            recognized as products are shipped and services performed.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED  SEPTEMBER 30, 2005 AS COMPARED
TO THE THREE MONTHS ENDED SEPTEMBER 30, 2004

      Net sales.  Total net sales for the three months ended  September 30, 2005
were $436,000, which represented a decrease of $35,000, or 7%, from $471,000 for
the three months ended September 30, 2004. This decrease primarily resulted from
reduced  recognition of deferred  revenue  relating to software  maintenance and
proprietary license revenue in the consulting and integration  services business


                                       66


unit.  NeoMedia  could  realize an increase in net sales over the next 12 months
with the anticipated  acquisitions of BSD Software, Inc. and Mobot, Inc., and if
the Company is successful in implementing its PaperClick  go-to-market  strategy
and/or its business plan for its Micro Paint Repair business unit.

      License  fees.  License  fees  were  $88,000  for the three  months  ended
September 30, 2005,  compared with $96,000 for the three months ended  September
30, 2004, a decrease of $8,000, or 8%. The decrease was due primarily to reduced
recognition of deferred revenue  relating to proprietary  license revenue in the
consulting and  integration  services  business unit.  NeoMedia could realize an
increase in license fees over the next 12 months if the Company is successful in
implementing its PaperClick go-to-market strategy.

      Resales of software and technology  equipment and service fees. Resales of
software and technology equipment and service fees decreased by $33,000, or 24%,
to $105,000  for the three  months  ended  September  30,  2005,  as compared to
$138,000 for the three months ended September 30, 2004. This decrease  primarily
resulted  from  reduced  recognition  of deferred  revenue  relating to software
maintenance products.  NeoMedia intends to continue to pursue additional resales
of equipment,  software and services.  NeoMedia  expects resales to more closely
resemble the results for the three months ended September 30, 2005,  rather than
the three months ended September 30, 2004.

      Micro paint  repair  products  and  services.  Sales of micro paint repair
products and services  were  $243,000 for the three months ended  September  30,
2005,  compared with  $237,000 for the three months ended  September 30, 2004 an
increase  of $6,000 or 3%.  The  increase  resulted  primarily  from the sale of
additional micro paint repair systems since September 30, 2004. NeoMedia expects
micro  paint-related  sales to more  closely  resemble the results for the three
months ended September 30, 2005,  rather for the three months ended three months
ended  September 30, 2004.  NeoMedia could realize an increase in net sales over
the next 12 months if the Company is  successful  in  implementing  its business
plan  for  its  Micro  Paint  Repair  business  unit,   including  revenue  from
distribution  agreements signed in 2005 with distributors in China, New Zealand,
Scandinavia, and Mexico.

      Cost of license  fees.  Cost of  license  fees was  $54,000  for the three
months ended September 30, 2005, an decrease of $25,000,  or 32%,  compared with
$79,000 for the three months  ended  September  30,  2004.  Cost of license fees
represents amortization of revenue generating intangible assets.

      Cost of resales of software and  technology  equipment  and service  fees.
Cost of resales of  software  and  technology  equipment  and  service  fees was
$67,000 for the three months ended September 30, 2005, a decrease of $80,000, or
54%,  compared with $147,000 for the three months ended  September 30, 2004. The
decrease  resulted from  decreased  resales in 2005 compared with 2004.  Cost of
resales as a percentage of related resales was 64% in 2005,  compared to 107% in
2004.  This  decrease  has a direct  correlation  to the  decrease  in  revenue.
NeoMedia  expects  costs  of  resales  to  fluctuate  with  the mix of  sales of
equipment, software, and services over the next 12 months.

      Cost of micro paint  repair  products  and  services.  Cost of micro paint
repair  products and services was $214,000 for the three months ended  September
30, 2005,  compared with $151,000 for the three months ended September 30, 2004,
an increase of $63,000 or 42%.  The increase  was  primarily  due to addition of
fixed costs  associated with the new micro paint facility located in Fort Myers,
Florida. NeoMedia expects cost of micro paint will increase proportionate to any
increase in sales of micro paint products over the next 12 months.

      Gross  Profit.  Gross  profit  was  $101,000  for the three  months  ended
September 30, 2005, an increase of $7,000,  or 7%, compared with gross profit of
$94,000 for the three  months  ended  September  30,  2004.  This  increase  was
primarily the result of decreased  resales in 2005 compared with 2004 off set by
the addition of fixed costs associated with the new micro paint facility located
in Fort Myers, Florida.

      Sales and  marketing.  Sales and marketing  expenses were $834,000 for the
three months ended September 30, 2005, compared to $514,000 for the three months
ended  September  30,  2004,  an increase of $320,000 or 62%.  The increase is a
result  of the  addition  of the  micro  paint  business  sales  force  and cost
associated  with  marketing and promotion of the Company's  PaperClick and micro
paint repair products.  NeoMedia expects sales and marketing expense to increase
over the next 12 months with the anticipated  acquisitions of BSD Software, Inc.
and Mobot,  Inc., and the continued  development and anticipated  rollout of the
PaperClick and Micro Paint Repair businesses.


                                       67


      General and administrative.  General and administrative expenses increased
by $340,000,  or 66%, to $856,000 for the three months ended September 30, 2005,
compared to $516,000 for the three months ended September 30, 2004. The increase
resulted  primarily from additional  personnel and higher legal and professional
fees in 2005  resulting  from pending  acquisitions  and  registration  filings.
NeoMedia expects general and administrative expense to increase over the next 12
months with the potential acquisition of BSD Software and Mobot, Inc.

      Research and  development.  During the three months  ended  September  30,
2005, NeoMedia charged to expense $285,000 of research and development costs, an
increase of $171,000 or 150%  compared to $114,000  for the three  months  ended
September  30, 2004.  The increase is primarily due to the  amortization  of the
micro paint chemical  formulations and proprietary  process during 2005, as well
as  additional  development  resources  added to the  PaperClick  product  line.
NeoMedia  expects  research and  development  costs to increase over the next 12
months with the anticipated  acquisitions of BSD Software, Inc. and Mobot, Inc.,
and the continued  development  efforts  related to the  anticipated  rollout of
NeoMedia's PaperClick product suite.

      Gain/(loss)  on  extinguishment  of debt.  During the three  months  ended
September  30, 2005,  NeoMedia  recognized a gain on  extinguishment  of debt of
$1,000,  a decrease  of $5,000 or 83%  compared  to a gain of $6,000  during the
three months ended  September 30, 2004.  These gains resulted from a discount in
settlement  of debt and/or the  difference  between the cash or market  value of
stock issued to settle the debt and the  carrying  value of the debt at the time
of settlement.

      Amortization of debt discount. During the three months ended September 30,
2004,  NeoMedia  recognized an  amortization  of debt issuance cost of $334,000.
This cost is related to the  amortization of the fair value of warrants  granted
to Cornell  Capital  Partners in  connection  with  promissory  notes  issued to
Cornell  Capital  Partners by NeoMedia  during January 2004. No  amortization of
debt issuance cost was  recognized  during the three months ended  September 30,
2005.

      Interest  (expense)  / income.  Interest  expense  consists  primarily  of
interest accrued on notes payable and past due account balances. Interest income
consists primarily of interest earned on cash equivalent investments. During the
three months ended September 30, 2005,  NeoMedia  recognized interest expense of
$77,000,  an increase of $15,000 or 24% compared to interest  expense of $62,000
during the three months ended September 30, 2004. The change is primarily due to
interest  accrued on a $10 million note payable to Cornell  Capital  Partners in
2005, offset by increased interest income resulting from higher cash balances in
2005.

      Net Loss.  The net loss for the three months ended  September 30, 2005 was
$1,950,000,  which  represented  increase  of  $510,000,  or 35%  from a loss of
$1,440,000 for the three months ended September 30, 2004. The increase  resulted
primarily  from expenses  relating to increased  sales,  marketing,  general and
administrative  expenses  relating to the rollout of the  Company's  micro paint
repair and PaperClick business units, as well as increased professional fees.

RESULTS OF OPERATIONS  FOR THE NINE MONTHS ENDED  SEPTEMBER 30, 2005 AS COMPARED
TO THE NINE MONTHS ENDED SEPTEMBER 30, 2004

      Net sales.  Total net sales for the nine months ended  September  30, 2005
were  $1,721,000,  which  represented  an increase  of  $452,000,  or 36%,  from
$1,269,000 for the nine months ended September 30, 2004. This increase  resulted
from  revenue  generated  by the  Company's  micro paint  repair  business  unit
acquired in February  2004, as well as licensing fees from the settlement of the
patent lawsuits lawsuit. This revenue increase was offset by reduced recognition
of deferred  revenue  relating to software  maintenance and proprietary  license
revenue in the consulting and integration services business unit. NeoMedia could
realize an increase  in net sales over the next 12 months  with the  anticipated
acquisitions  of BSD  Software,  Inc.  and Mobot,  Inc.,  and if the  Company is
successful in  implementing  its  PaperClick  go-to-market  strategy  and/or its
business plan for its Micro Paint Repair business unit.

      License  fees.  License  fees  were  $426,000  for the nine  months  ended
September 30, 2005,  compared with $256,000 for the nine months ended  September
30,  2004,  an increase of $170,000,  or 66%. The increase was due  primarily to
licensing fees from  settlement of the patent  lawsuits in 2005.  NeoMedia could
realize an  increase  in license  fees over the next 12 months if the Company is
successful in implementing its PaperClick go-to-market strategy.


                                       68


      Resales of software and technology  equipment and service fees. Resales of
software and  technology  equipment and service fees  decreased by $165,000,  or
33%, to $336,000 for the nine months ended  September  30, 2005,  as compared to
$501,000 for the nine months ended September 30, 2004.  This decrease  primarily
resulted  from  reduced  recognition  of deferred  revenue  relating to software
maintenance  revenue in the consulting and integration  services  business unit.
NeoMedia intends to continue to pursue additional resales of equipment, software
and services.  NeoMedia expects resales to more closely resemble the results for
the nine months  ended  September  30,  2005,  rather than the nine months ended
September 30, 2004.

      Micro paint  repair  products  and  services.  Sales of micro paint repair
products and services  were  $959,000  for the nine months ended  September  30,
2005,  compared with  $512,000 for the nine months ended  September 30, 2004, an
increase of $447,000 or 87%. The increase was primarily  from a $290,000 sale of
products  to Micro  Paint  Repair  Australasia,  NeoMedia's  distributor  in the
Australia and New Zealand market, as well as an increase in the number of active
paint systems since September 30, 2004. NeoMedia expects sales of micro paint to
more closely  resemble the results for the nine months ended September 30, 2005,
rather than the nine months ended September 30, 2004.

      Cost of license  fees.  Cost of  license  fees was  $302,000  for the nine
months ended  September 30, 2005, a increase of $53,000,  or 21%,  compared with
$249,000 for the nine months  ended  September  30,  2004.  Cost of license fees
represents amortization of revenue generating intangible assets.

      Cost of resales of software and  technology  equipment  and service  fees.
Cost of resales of  software  and  technology  equipment  and  service  fees was
$208,000 for the nine months ended  September  30, 2005, a decrease of $272,000,
or 57%, compared with $480,000 for the nine months ended September 30, 2004. The
decrease  resulted from  decreased  resales in 2005 compared with 2004.  Cost of
resales as a percentage of related  resales was 62% in 2005,  compared to 96% in
2004.   This  decrease  is  mainly  due  to  revenue  in  2005   resulting  from
higher-margin  maintenance  contracts.  NeoMedia  expects  costs of  resales  to
fluctuate  with the mix of sales of equipment,  software,  and services over the
next 12 months.

      Cost of micro paint  repair  products  and  services.  Cost of micro paint
repair  products and  services was $724,000 for the nine months ended  September
30, 2005, compared with $376,000 for the period between February 6, 2004 through
September  30, 2004,  an increase of $348,000 or 93%. The increase was primarily
due to of the  cost of sale of  products  to  Micro  Paint  Repair  Australasia,
NeoMedia's distributor in the Australia and New Zealand market, the cost of sale
of products in relation to increased  sales and the fixed costs  associated with
the new micro paint facility  located in Fort Myers,  Florida.  NeoMedia expects
cost of micro  paint will  increase  proportionate  to any  increase in sales of
micro paint products over the next 12 months.

      Gross  Profit.  Gross  profit  was  $487,000  for the  nine  months  ended
September 30, 2005, an increase of $323,000, or 197%, compared with gross profit
of $164,000 for the nine months ended  September  30,  2004.  This  increase was
primarily  the result of increased  micro paint sales,  and  high-margin  patent
license fees in 2005 compared with 2004.

      Sales and marketing.  Sales and marketing expenses were $2,859,000 for the
nine months ended September 30, 2005, compared to $1,461,000 for the nine months
ended  September  30, 2004,  an increase of $1,398,000 or 96%. The increase is a
result of the  addition  of the  micro  paint  business  sales  force,  non-cash
recognition  of  professional  services  expense  due  to  the  cancellation  of
consulting contract originally recorded as deferred stock compensation, and cost
associated  with  marketing and promotion of the Company's  PaperClick and micro
paint repair products.  NeoMedia expects sales and marketing expense to increase
over the next 12 months with the anticipated  acquisitions of BSD Software, Inc.
and Mobot,  Inc., and the continued  development and anticipated  rollout of the
PaperClick and Micro Paint Repair businesses.

      General and administrative.  General and administrative expenses increased
by  $1,124,000,  or 87%, to $2,417,000  for the nine months ended  September 30,
2005,  compared to $1,293,000 for the nine months ended  September 30, 2004. The
increase  resulted  primarily  from  additional  personnel  and higher legal and
professional  fees in 2005 resulting from pending  acquisitions and registration
filings.  NeoMedia expects general and  administrative  expense to increase over
the next 12 months with the  potential  acquisition  of BSD  Software and Mobot,
Inc.

      Research and development. During the nine months ended September 30, 2005,
NeoMedia  charged to expense  $629,000 of research  and  development  costs,  an
increase  of $275,000 or 78%  compared  to  $354,000  for the nine months  ended
September  30, 2004.  The increase is primarily due to the  amortization  of the
micro paint chemical  formulations and proprietary  process during 2005, as well
as  additional  development  resources  added to the  PaperClick  product  line.


                                       69


NeoMedia  expects  research and  development  costs to increase over the next 12
months with the anticipated  acquisitions of BSD Software, Inc. and Mobot, Inc.,
and the continued  development  efforts  related to the  anticipated  rollout of
NeoMedia's PaperClick product suite.

      Gain on extinguishment of debt. During the nine months ended September 30,
2005,  NeoMedia  recognized a gain on  extinguishment  of debt of  $172,000,  an
increase of $43,000 or 33% compared to a gain of $129,000 during the nine months
ended September 30, 2004.  These gains resulted from the difference  between the
cash or market value of stock  issued to settle the debt and the carrying  value
of the debt at the time of settlement.


      Amortization of debt discount.  During the nine months ended September 30,
2004,  NeoMedia  recognized an amortization of debt issuance cost of $2,500,000.
This cost is related to the  amortization of the fair value of warrants  granted
to Cornell  Capital  Partners in  connection  with  promissory  notes  issued to
Cornell  Capital  Partners by NeoMedia  during January 2004. No  amortization of
debt issuance  cost was  recognized  during the nine months ended  September 30,
2005.

      Interest  (expense)  / income.  Interest  expense  consists  primarily  of
interest accrued on notes payable and past due account balances. Interest income
consists primarily of interest earned on cash equivalent investments. During the
nine months ended September 30, 2005,  NeoMedia  recognized  interest expense of
$223,000, an increase of $45,000 or 25% compared to interest expense of $178,000
during the nine months ended  September 30, 2004. The change is primarily due to
interest  accrued on a $10 million note payable to Cornell  Capital  Partners in
2005, offset by increased interest income resulting from higher cash balances in
2005.

      Net Loss.  The net loss for the nine months ended  September  30, 2005 was
$5,469,000,  which  represented  a  decrease  of  $24,000,  or 1% from a loss of
$5,493,000  for the nine months ended  September  30, 2004.  The decrease in net
loss resulted  primarily from increased revenue and gross margin relating to the
micro paint  repair  business  and  settlement  of patent  lawsuits,  as well as
expenses  relating to the amortization of debt discount in 2004. These increases
were offset by increased sales,  marketing,  general and administrative expenses
relating  to the rollout of the  Company's  micro  paint  repair and  PaperClick
business units in 2005.

RESULTS OF  OPERATIONS  FOR THE YEAR ENDED  DECEMBER 31, 2004 AS COMPARED TO THE
YEAR ENDED DECEMBER 31, 2003

      Net  sales.  Total net sales for the year  ended  December  31,  2004 were
$1,700,000,  which represented a $700,000,  or 29%, decrease from $2,400,000 for
the year ended December 31, 2003. This decrease  primarily resulted from reduced
resales of Sun Microsystems  equipment due to increased  competition and general
economic  conditions,  offset by new sales from  NeoMedia's  Micro Paint  Repair
business  acquired during  February 2004.  NeoMedia could realize an increase in
license fees over the next 12 months if NeoMedia is successful  in  implementing
its PaperClick(R) go-to-market strategy, or if pending court cases involving its
intellectual  property are resolved in  NeoMedia's  favor.  NeoMedia  could also
realize a  material  increase  in Micro  Paint  Repair  revenue if  NeoMedia  is
successful in implementing its business plan for that business unit.

      License fees.  License fees were $343,000 for the year ended  December 31,
2004, compared with $414,000 for the year ended December 31, 2003, a decrease of
$71,000,  or 17%. The decrease  was due to lower sales of  internally  developed
software  licenses in 2004.  NeoMedia  could realize an increase in license fees
over  the  next  12  months  if  NeoMedia  is  successful  in  implementing  its
PaperClick(R)  go-to-market  strategy,  or if pending court cases  involving its
intellectual property are resolved in NeoMedia's favor.

      Resales of software and technology  equipment and service fees. Resales of
software and technology  equipment and service fees decreased by $1,356,000,  or
68%, to $630,000 for the year ended December 31, 2004, as compared to $1,986,000
for the year ended  December 31, 2003.  This  decrease  primarily  resulted from
reduced resales of Sun Microsystems  equipment due to increased  competition and
general economic  conditions.  NeoMedia intends to continue to pursue additional
resales of equipment,  software and services.  NeoMedia  expects resales to more
closely  resemble the results for the year ended December 31, 2004,  rather than
the year ended December 31, 2003.

      Micro Paint  Repair  products  and  services.  Sales of Micro Paint Repair
products  and  services  were  $727,000  for the year ended  December  31, 2004.
NeoMedia  acquired this business on February 6, 2004, and as a result there were
no sales of Micro  Paint  Repair  products  and  services  during the year ended
December 31, 2003.  NeoMedia  could  realize a material  increase in Micro Paint
Repair revenue if NeoMedia is successful in  implementing  its business plan for
that business unit.


                                       70


      Cost of license fees. Cost of license fees was $324,000 for the year ended
December 31, 2004, an increase of $24,000, or 8%, compared with $300,000 for the
year ended December 31, 2003. The increase resulted from increased  amortization
of capitalized patent costs during 2004 compared with 2003.

      Cost of resales of software and technology equipment and service.  Cost of
resales of software and  technology  equipment  and service was $604,000 for the
year ended  December 31, 2004, a decrease of $1,225,000,  or 67%,  compared with
$1,829,000  for the year ended  December 31, 2003.  The decrease  resulted  from
decreased resales in 2004 compared with 2003. Cost of resales as a percentage of
related  resales was 96% in 2004,  compared to 92% in 2003. This increase is due
to revenue  declining  more rapidly than the fixed  portion of costs of resales,
coupled with eroding margins in the resale  business.  NeoMedia expects costs of
resales to fluctuate with the mix of sales of equipment,  software, and services
over the next 12 months.

      Cost of Micro Paint  Repair  products  and  services.  Cost of micro paint
repair  products and services was $541,000 for the year ended December 31, 2004.
Cost of micro paint repair  products  and  services as a  percentage  of related
sales was 74%.  NeoMedia  acquired this  business on February 6, 2004,  and as a
result there were no cost of sales of micro paint  repair  products and services
during the year ended  December 31, 2003.  NeoMedia  expects cost of micro paint
repair  products and services to increase  with Micro Paint Repair  revenue over
the next 12 months as NeoMedia continues its roll-out of this business unit.

      Gross  Profit.  Gross profit was $231,000 for the year ended  December 31,
2004, a decrease of $40,000,  or 15%, compared with gross profit of $271,000 for
the year ended  December 31, 2003.  This  decrease was  primarily  the result of
reduced resales of Sun Microsystems  equipment due to increased  competition and
general economic conditions.

      Sales and marketing.  Sales and marketing expenses were $2,046,000 for the
year ended  December 31, 2004,  compared to $523,000 for the year ended December
31, 2003, an increase of $1,523,000 or 291%.  This increase  resulted  primarily
from the addition of  recently-acquired  Micro Paint Repair business sales force
and cost associated with marketing and as promotion of NeoMedia's  PaperClick(R)
and Micro Paint Repair products. NeoMedia expects sales and marketing expense to
increase over the next 12 months with the continued  development and anticipated
rollout of the  PaperClick(R)  and Micro Paint Repair product suites, as well as
the anticipated acquisition of BSD.

      General and administrative.  General and administrative expenses decreased
by  $2,055,000,  or 48%, to  $2,215,000  for the year ended  December  31, 2004,
compared to  $4,270,000  for the year ended  December  31,  2003.  The  decrease
resulted   primarily  from  non-cash  expenses  relating  to  NeoMedia's  option
repricing  program,  expense for stock options issued with exercise prices below
market price,  and higher  stock-based  professional  service expense in 2003 as
compared  with 2004.  NeoMedia  expects  general and  administrative  expense to
increase  over  the  next  12  months  with  the  recent   acquisition   of  CSI
International and the potential acquisition of BSD Software.

      Research  and  development.  During  the year  ended  December  31,  2004,
NeoMedia  charged to expense  $651,000 of research  and  development  costs,  an
increase of $319,000 or 96% compared to $332,000 charged to expense for the year
ended  December  31,  2003.  The  increase is  primarily  due to the addition of
development  headcount and computer  systems during 2004, as well as development
costs  associated  with the Micro Paint Repair  business  unit acquired in 2004.
NeoMedia  expects  research and  development  costs to increase over the next 12
months with the continued  development  efforts of its  PaperClick(R)  and Micro
Paint Repair products and services.

      Gain on  extinguishment  of debt. During the year ended December 31, 2004,
NeoMedia recognized a gain on extinguishment of debt of $140,000, resulting from
the payment of debt at a discount to the book value of the debt,  an increase of
$292,000,  or 192%,  compared with a loss on  extinguishment of debt of $152,000
for the year ended  December 31, 2003.  These gains  resulted  from a difference
between  the cash or market  value of stock  issued  to settle  the debt and the
carrying value of the debt at the time of settlement.

      Amortization  of debt  discount.  During the year ended December 31, 2004,
NeoMedia recognized an amortization of debt issuance cost of $2,500,000 relating
to the fair  value of  warrants  granted  to  Cornell  Capital  Partners,  LP in
connection  with  promissory  notes issued to Cornell by NeoMedia during January
2004. NeoMedia did not recognize any such expense during the year ended December
31, 2003. During the year ended December 31, 2004,  NeoMedia  amortized the full
$2.5 million  discount value relating to the Cornell  warrants,  and as a result
does not expect to recognize such expense in the next 12 months.


                                       71


      Interest expense.  Interest expense consists primarily of interest accrued
for creditors as part of financed  purchases,  past due balances,  notes payable
and interest earned on cash equivalent  investments.  Interest expense decreased
by  $187,000,  or 50%, to  $189,000  for the year ended  December  31, 2004 from
$376,000 for the year ended December 31, 2003, due to reduced expense associated
with vendor settlements and debt in 2004 compared with 2003.

      Net  Loss.  The  net  loss  for the  year  ended  December  31,  2004  was
$7,230,000,  which  represented a $1,848,000,  or 34% increase from a $5,382,000
loss for the year ended December 31, 2003. The increase resulted  primarily from
the amortization of debt issuance cost of $2,500,000 in 2004,  offset by reduced
general and administrative costs in 2004.

LIQUIDITY AND CAPITAL RESOURCES

      As of December 31, 2004, NeoMedia's cash balance was $2,634,000,  compared
to $61,000 at December 31, 2003, an increase of $2,573,000.  As of September 30,
2005,  NeoMedia had cash  balances of  $4,673,000 as a result of its $10 million
secured promissory note with Cornell funded in March 2005.

      NeoMedia's  consolidated  financial statements have been prepared assuming
NeoMedia  will  continue  as a  going  concern.  Accordingly,  the  consolidated
financial  statements  do not include  any  adjustments  that might  result from
NeoMedia's inability to continue as a going concern.

      Net cash used in operating activities was approximately $4,650,000 for the
year ended  December  31,  2004,  compared  with  $2,979,000  for the year ended
December 31, 2003, an increase of $1,671,000, or 56%. The increase was primarily
due to increased sales and marketing expenses in 2004 associated with NeoMedia's
PaperClick(R)  products,  the addition of infrastructure with the acquisition of
CSI, and the  continued  payment of accounts  payable and  accruals  incurred in
previous  years.  Net cash used in operating  activities  was $5,951,000 for the
nine months  September 30, 2005,  compared with  $3,500,000  for the nine months
ended September 30, 2004.

      NeoMedia's net cash flow used in investing  activities for the years ended
December  31, 2004 and 2003,  was  $1,252,000  and  $281,000,  respectively,  an
increase of $971,000,  or 346%.  The increase was due to  NeoMedia's  $1 million
investment in I-Point Media Ltd.  during 2004.  NeoMedia's net cash flow used in
investing  activities for the nine months ended  September 30, 2005 and 2004 was
$2,326,000 and $212,000, respectively.

      Net cash provided by financing activities for the years ended December 31,
2004 and 2003 was  $8,535,000  and  $3,251,000,  respectively,  an  increase  of
$5,284,000,  or 163%. The increase was due to increased  draws under  NeoMedia's
Standby Equity Distribution  Agreement with Cornell Capital Partners, LP in 2004
as compared with 2003.  Net cash provided by financing  activities  for the nine
months  ended  September  30,  2005  and 2004 was  $10,292,000  and  $5,430,000,
respectively.

      During the years ended  December  31, 2004 and 2003,  NeoMedia's  net loss
totaled  $7,230,000  and  $5,382,000,  respectively.  As of December  31,  2004,
NeoMedia had accumulated  losses from  operations of $83,377,000,  had a working
capital deficit of $2,597,000,  and $2,634,000 in cash balances. During the nine
months ended September 30, 2005 and 2004, NeoMedia's net loss totaled $5,469,000
and $5,493,000, respectively. As of September 30, 2005, NeoMedia had accumulated
losses  from  operations  of  $88,846,000,  had a  working  capital  deficit  of
$3,039,000, and $4,673,000 in cash balances.

      As of September  30, 2005,  NeoMedia had drawn $14.3  million  against its
current $20 million  2003 Standby  Equity  Distribution  Agreement  with Cornell
Capital Partners, leaving an available balance of $5.7 million. During the three
and nine month periods ended September 30, 2005, NeoMedia sold approximately 5.1
million and 19.3 million shares,  respectively,  to Cornell under the 2003 SEDA.
NeoMedia expects to use proceeds from the 2003 SEDA to repay all or a portion of
the $10 million  promissory  note funded by Cornell.  The Company expects to use
the cash proceeds as future working capital and to fund potential acquisitions.


                                       72


      On March 30, 2005,  NeoMedia and Cornell Capital  Partners  entered into a
Standby  Equity  Distribution  Agreement  under which Cornell  Capital  Partners
agreed to purchase up to $100 million of NeoMedia's common stock over a two-year
period, with the timing and amount of the purchase at NeoMedia's discretion. The
maximum  amount of each  purchase  would be  $2,000,000  with a minimum  of five
business  days  between  advances.  NeoMedia  expects  to  file  a  registration
statement  with the SEC during 2005 to register the shares  underlying  the $100
million  2005 SEDA.  The 2005 SEDA would  become  available  at the time the SEC
declares effective a registration statement containing such shares. In addition,
Cornell  Capital  Partners  holds 50  million  warrants  to  purchase  shares of
NeoMedia  common  stock at an  exercise  price of $0.20 per share.  NeoMedia  is
currently in the process of registering the shares underlying the warrants. Upon
registration,  NeoMedia  can force  exercise of the  warrants,  resulting  in an
additional $10 million cash to NeoMedia.

      There can be no  assurances  that the  market  for  NeoMedia's  stock will
support  the sale of  sufficient  shares  of  NeoMedia's  common  stock to raise
sufficient  capital  to sustain  operations  for such a period,  or that  actual
revenue  will  meet  management's  expectations.  If  necessary  funds  are  not
available,  NeoMedia's  business and  operations  would be materially  adversely
affected and in such event,  NeoMedia  would  attempt to reduce costs and adjust
its business plan.


                                       73


                              NEOMEDIA'S MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

      As of December 31, 2004, NeoMedia's directors and executive officers were:

NAME                  AGE    POSITION
----------------      ---    ---------------------------------------------------
Charles W. Fritz      48     Chairman of the Board of Directors
Charles T. Jensen     61     President, Chief Executive Officer, Chief Operating
                             Officer, and Director
David A. Dodge        29     Vice-President, Chief Financial Officer and
                             Controller
William E. Fritz      74     Secretary and Director
James J. Keil         77     Director
A. Hayes Barclay      73     Director

      The following is certain summary information with respect to the directors
and executive officers of NeoMedia:

      CHARLES W. FRITZ

      Mr.  Fritz is a founder of NeoMedia  and has served as an officer and as a
Director of  NeoMedia  since our  inception.  On August 6, 1996,  Mr.  Fritz was
appointed  Chief  Executive  Officer and Chairman of the Board of Directors.  On
April 2, 2001,  Mr. Fritz was  appointed as President  where he/she served until
June 2002. Mr. Fritz is currently a member of NeoMedia's Compensation Committee.
Prior  to  founding  NeoMedia,  Mr.  Fritz  was an  account  executive  with IBM
Corporation  from January 1986 to January  1988,  and Director of Marketing  and
Strategic  Alliances for the information  consulting group from February 1988 to
January  1989.  Mr.  Fritz holds an M.B.A.  from  Rollins  College and a B.A. in
finance  from the  University  of  Florida.  Mr.  Fritz is the son of William E.
Fritz, a Director of NeoMedia.

      CHARLES T. JENSEN

      Mr. Jensen was Chief Financial  Officer,  Treasurer and  Vice-President of
NeoMedia from 1996 through 2002.  Mr. Jensen has been a Director since 1996, and
currently is a member of NeoMedia's  Compensation  Committee.  During 2002,  Mr.
Jensen was promoted to NeoMedia's President, Chief Operating Officer, and Acting
Chief Executive Officer. During August 2004, Mr. Jensen was made permanent Chief
Executive  Officer.  Prior to joining  NeoMedia in November 1995, Mr. Jensen was
Chief  Financial  Officer of Jack M. Berry,  Inc., a Florida  corporation  which
grows and processes citrus products,  from December 1994 to October 1995, and at
Viking Range  Corporation,  a Mississippi  corporation  which  manufactures  gas
ranges,  from  November  1993 to December  1994.  From December 1992 to February
1994,  Mr.  Jensen was  Treasurer of Lin Jensen,  Inc.,  a Virginia  corporation
specializing  in ladies  clothing and  accessories.  Prior to that, from January
1982 to March 1993, Mr. Jensen was Controller and  Vice-President  of Finance of
The Pinkerton Tobacco Co., a tobacco manufacturer.  Mr. Jensen holds a B.B.A. in
accounting  from  Western   Michigan   University  and  is  a  Certified  Public
Accountant.

      DAVID A. DODGE

      Mr.  Dodge joined  NeoMedia in 1999 as the  Financial  Reporting  Manager.
Since then, Mr. Dodge has acted as NeoMedia's Director of Financial Planning and
Controller,  and currently  holds the title of Vice  President,  Chief Financial
Officer and  Controller.  Prior to joining  NeoMedia in 1999,  Mr.  Dodge was an
auditor  with  Ernst  & Young  LLP for two  years.  Mr.  Dodge  holds a B.A.  in
economics from Yale  University and an M.S. in accounting from the University of
Hartford, and is also a Certified Public Accountant.

      WILLIAM E. FRITZ

      Mr.  Fritz is a  founder  of  NeoMedia  and has  served as a  Director  of
NeoMedia  since our  inception.  Mr.  Fritz also served as Treasurer of NeoMedia
from its inception until May 1, 1996. Since February 1981, Mr. Fritz has been an
officer  and  either the sole  stockholder  or a  majority  stockholder  of G.T.
Enterprises,  Inc. (formerly  Gen-Tech,  Inc.),  D.M., Inc. (formerly  Dev-Mark,
Inc.) and EDSCO, three railroad freight car equipment  manufacturing  companies.
Mr.  Fritz  holds a B.S.M.E.  and a Bachelor  of Naval  Science  degree from the
University of Wisconsin. Mr. Fritz is the father of Charles W. Fritz, NeoMedia's
former Chief Executive Officer and Chairman of the Board of Directors.


                                       74


      JAMES J. KEIL

      Mr. Keil has been a Director of NeoMedia  since  August 6, 1996.  Mr. Keil
currently  is a  member  of  NeoMedia's  Compensation  Committee,  Stock  Option
Committee  and Audit  Committee.  He is  founder  and  President  of Keil & Keil
Associates,  a business and  marketing  consulting  firm located in  Washington,
D.C.,  specializing  in  marketing,   sales,  document  application  strategies,
recruiting  and  electronic  commerce  projects.  Prior to  forming  Keil & Keil
Associates in 1990,  Mr. Keil worked for 38 years at IBM  Corporation  and Xerox
Corporation in various  marketing,  sales and senior executive  positions.  From
1989-1995,  Mr.  Keil  was on the  Board of  Directors  of  Elixir  Technologies
Corporation (a non-public  corporation),  and from 1990-1992 was the Chairman of
its  Board of  Directors.  From  1992-1996,  Mr.  Keil  served  on the  Board of
Directors of Document  Sciences  Corporation.  Mr. Keil holds a B.S. degree from
the  University of Dayton and did Masters level studies at the Harvard  Business
School and the University of Chicago in 1961/62.

      A. HAYES BARCLAY

      Mr.  Barclay  has been a Director of NeoMedia  since  August 6, 1996,  and
currently is a member of NeoMedia's  Stock Option Committee and Audit Committee.
Mr.  Barclay has practiced law for  approximately  37 years and, since 1967, has
been an officer,  owner and employee of the law firm of Barclay & Damisch,  Ltd.
and its  predecessor,  with offices in Chicago,  Wheaton and Arlington  Heights,
Illinois.  Mr. Barclay holds a B.A. degree from Wheaton College, a B.S. from the
University  of Illinois and a J.D.  from the Illinois  Institute of  Technology,
Chicago-Kent College of Law.

ELECTION OF DIRECTORS AND OFFICERS

      Directors  are elected at each  annual  meeting of  stockholders  and hold
office  until  the  next   succeeding   annual  meeting  and  the  election  and
qualification of their respective  successors.  Officers are elected annually by
the  Board of  Directors  and hold  office  at the  discretion  of the  Board of
Directors.  NeoMedia's  bylaws permit the Board of Directors to fill any vacancy
and such director may serve until the next annual  meeting of  shareholders  and
the due election and qualification of his/her successor.

MEETINGS OF THE BOARD OF DIRECTORS

      During the year ended  December 31, 2004,  NeoMedia  held five  directors'
meetings  and each  incumbent  director  attended  more than 75% of the total of
meetings of the Board of Directors  and the  committees of which he is a member.
The Board of Directors also acted 20 times by unanimous written consent.

COMMITTEES OF THE BOARD OF DIRECTORS

      NeoMedia's  Board  of  Directors  has  an  Audit  Committee,  Compensation
Committee and a Stock Option  Committee.  The Board of Directors does not have a
standing Nominating Committee.

      AUDIT  COMMITTEE.  The  Audit  Committee  is  responsible  for  nominating
NeoMedia's  independent  Registered  Public  Accounting Firm for approval by the
Board of  Directors,  reviewing  the scope,  results and costs of the audit with
NeoMedia's  independent  accountants,  and reviewing  the financial  statements,
audit practices and internal controls of NeoMedia.  During 2004,  members of the
Audit Committee were non-employee  directors James J. Keil and A. Hayes Barclay.
During 2004, the Audit Committee held four meetings.

      Due to financial  constraints,  NeoMedia does not currently  have an audit
committee financial expert serving on its audit committee.

      COMPENSATION  COMMITTEE.  The  Compensation  Committee is responsible  for
recommending compensation and benefits for the executive officers of NeoMedia to
the Board of  Directors  and for  administering  NeoMedia's  Incentive  Plan for
Management.  Charles W. Fritz,  Charles T. Jensen, A. Hayes Barclay and James J.
Keil,  were  members of  NeoMedia's  Compensation  Committee  during  2004.  The
Compensation Committee acted by unanimous written consent twice during 2004.


                                       75


      STOCK OPTION COMMITTEE. The Stock Option Committee,  which is comprised of
non-employee directors, is responsible for administering NeoMedia's Stock Option
Plans.  A. Hayes Barclay and James J. Keil are the current members of NeoMedia's
Stock Option  Committee.  During 2004,  the Stock Option  Committee met once and
acted by unanimous written consent six times.

DIRECTOR COMPENSATION

      Outside directors are currently  compensated through the issuance of stock
options from  NeoMedia's  2003 Stock Option Plan.  During May 2004, each outside
director  received  one million  options  with an  exercise  price of $0.075 per
share.  NeoMedia  does not have a written  compensation  policy for its  outside
directors at this time.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
NeoMedia's  officers  and  directors,  and  persons  who own more  than 10% of a
registered class of NeoMedia's equity  securities,  to file reports of ownership
and  changes  in  ownership  with the  United  States  Securities  and  Exchange
Commission (the "SEC").  Officers,  directors and greater than 10%  shareholders
are required by SEC  regulation  to furnish  NeoMedia with copies of all Section
16(a) forms they file.

      Based  solely  on a  review  of the  copies  of such  forms  furnished  to
NeoMedia,   NeoMedia   believes  that  during  2003  all  Section  16(a)  filing
requirements  applicable to NeoMedia's  officers,  directors and 10%  beneficial
owners were complied with.

NEOMEDIA'S EXECUTIVE COMPENSATION

      The  following  table sets forth certain  information  with respect to the
compensation  paid to (i) NeoMedia's Chief Executive  Officer,  and (ii) each of
NeoMedia's other executive  officers who received aggregate cash compensation in
excess of $100,000 for services rendered to NeoMedia  (collectively,  the "Named
Executive Officers") during the years ended December 31, 2004 and 2003:



                                     ANNUAL COMPENSATION                              LONG-TERM COMPENSATION
                          -------------------------------------------     ------------------------------------------------
                                                             OTHER                      SECURITIES                  ALL
                                                             ANNUAL       RESTRICTED    UNDERLYING                 OTHER
                                                            COMPENS-        STOCK        OPTIONS/      LTIP       COMPENS-
      NAME AND                     SALARY      BONUS         ATION         AWARD(S)      SARS (1)     PAYOUTS      ATION
 PRINCIPAL POSITION       YEAR       ($)        ($)           ($)           ($)           (#)          ($)         ($)
----------------------    -----    --------    -------      ---------     ---------     ---------    --------    ---------
                                                                                         
Charles T. Jensen          2004     175,000        ---            ---           ---     4,000,000         ---          ---
 President and Chief       2003     162,000     92,000 (2)        ---           ---     10,000,00         ---        1,000 (4)
 Executive Officer
--------------------------------------------------------------------------------------------------------------------------
Charles W. Fritz           2004    $175,000        ---            ---           ---     4,000,000         ---          ---
   Chairman of the Board   2003     145,000    110,000 (2)    $60,000  (3)      ---     10,000,00         ---        1,000 (4)
--------------------------------------------------------------------------------------------------------------------------
David A. Dodge             2004     122,000        ---            ---           ---     2,000,000         ---          ---
   Vice President and      2003      90,000      7,000 (2)        ---           ---     2,300,000         ---          ---
   Chief Financial Officer
--------------------------------------------------------------------------------------------------------------------------


----------
(1)   Represents  options  granted under  NeoMedia's  2003,  2002 and 1998 Stock
      Option Plans and warrants  granted at the  discretion  of the Stock Option
      Committee of NeoMedia's Board of Directors.
(2)   During  2003,  NeoMedia  paid  past  due  Year  2000  executive  incentive
      liability  through the issuance of shares of its common stock. The amounts
      reported  in this table  represent  the market  value of the shares on the
      date of issuance.
(3)   During  2003,  NeoMedia  paid  Charles W. Fritz  unpaid  salary  from 2002
      through the issuance of shares of its common stock.  The amounts  reported
      in this  table  represent  the  market  value of the shares on the date of
      issuance.
(4)   Includes  automobile  expenses   attributable  to  personal  use  and  the
      corresponding income tax effects.


                                       76


EMPLOYMENT AGREEMENTS

      No  employment  agreements  are  currently in place for any of  NeoMedia's
employees.

INCENTIVE PLAN FOR MANAGEMENT

      Effective as of January 1, 1996, NeoMedia adopted an Annual Incentive Plan
for  Management  (the  "Incentive  Plan"),  which provides for annual bonuses to
eligible  employees  based  upon the  attainment  of  certain  corporate  and/or
individual  performance goals during the year. The Incentive Plan is designed to
provide  additional  incentive to NeoMedia's  management to achieve these growth
and profitability goals. Participation in the Incentive Plan is limited to those
employees  holding  positions  assigned to incentive  eligible salary grades and
whose  participation  is authorized by NeoMedia's  Compensation  Committee which
administers the Incentive Plan,  including  determination of employees  eligible
for  participation  or exclusion.  The Board of Directors  can amend,  modify or
terminate  the  Incentive  Plan for the next plan year at any time  prior to the
commencement of such next plan year.

      To be eligible for  consideration  for inclusion in the Incentive Plan, an
employee  must be on  NeoMedia's  payroll for the last three  months of the year
involved.  Death, total and permanent disability or retirement are exceptions to
such  minimum  employment,  and awards in such  cases are  granted on a pro rata
basis. In addition, where employment is terminated due to job elimination, a pro
rata  award  may  be  considered.  Employees  who  voluntarily  terminate  their
employment,  or who are  terminated  by NeoMedia for  unacceptable  performance,
prior to the end of the year are not eligible to  participate  in the  Incentive
Plan.  All awards are subject to any  governmental  regulations in effect at the
time of payment.

      Performance goals are determined for both NeoMedia's and/or the employee's
performance  during the year,  and if performance  goals are attained,  eligible
employees  are entitled to an award based upon a specified  percentage  of their
base salary.

      NeoMedia did not have a formal  incentive plan for management in place for
the year ended December 31, 2004.

      During the years ended December 31, 2004 and 2003,  NeoMedia paid $159,000
and  $593,000,  respectively,  in past  due  incentive  awards  relating  to its
executive incentive plan for fiscal 2000, through the issuance of common stock.

NEOMEDIA'S STOCK OPTION PLANS

      Effective  February 1, 1996 (and amended and restated  effective  July 18,
1996 and further amended through  November 18, 1996),  NeoMedia adopted its 1996
Stock  Option Plan (the "1996 Stock  Option  Plan").  The 1996 Stock Option Plan
provides for the granting of  non-qualified  stock options and  incentive  stock
options within the meaning of Section 422 of the Internal  Revenue Code of 1986,
as amended,  and provides for the issuance of a maximum of 1.5 million shares of
common stock.  All 1.5 million options were granted under  NeoMedia's 1996 Stock
Option Plan.

      Effective March 27, 1998, NeoMedia adopted its 1998 Stock Option Plan (the
"1998 Stock Option Plan").  The 1998 Stock Option Plan provides for the granting
of  non-qualified  stock options and provides for the issuance of a maximum of 8
million  shares of  common  stock.  All 8 million  options  were  granted  under
NeoMedia's 1998 Stock Option Plan.

      Effective June 6, 2002,  NeoMedia  adopted its 2002 Stock Option Plan (the
"2002 Stock Option Plan"). The 2002 Stock Option Plan provides for authority for
the Board of Directors to the grant  non-qualified stock options with respect to
a maximum of 10 million  shares of common  stock.  All 10 million  options  were
granted under NeoMedia's 2002 Stock Option Plan

      Effective  September 24, 2003, NeoMedia adopted its 2003 Stock Option Plan
(the  "2003  Stock  Option  Plan").  The 2003 Stock  Option  Plan  provides  for
authority  for the Board of Directors to the grant  non-qualified  stock options
with respect to a maximum of 150 million shares of common stock.  On October 17,
2003,  NeoMedia filed a  registration  statement on Form S-8 to register all 150
million  shares  underlying  the options in the 2003 Stock  Option  Plan.  As of
December 31, 2004, NeoMedia had issued approximately 69 million shares under the
2003 Stock Option Plan


                                       77


NEOMEDIA'S STOCK INCENTIVE PLAN

      Effective October 31, 2003, NeoMedia adopted the 2003 Stock Incentive Plan
(the "2003 Stock  Plan").  Under the terms of the 2003 Stock Plan,  NeoMedia has
set  aside  up to 30  million  shares  of  common  stock  to be  issued  to  pay
compensation  and  other  expenses  related  to  employees,   former  employees,
consultants,  and non-employee  directors. On November 3, 2003, NeoMedia filed a
registration statement on Form S-8 to register all 30 million shares in the 2003
Stock Plan.  As of December 31,  2004,  NeoMedia  had issued  approximately  9.3
million shares under the 2003 Stock Plan.

401(K) PLAN

      NeoMedia  maintains a 401(k)  Profit  Sharing  Plan and Trust (the "401(k)
Plan").  All employees of NeoMedia who are 21 years of age or older and who have
completed  three  months of service are  eligible to  participate  in the 401(k)
Plan.  The  401(k)  Plan  provides  that  each  participant  may  make  elective
contributions  of up to  20%  of  such  participant's  pre-tax  salary  (up to a
statutorily  prescribed  annual limit,  which is $13,000 for 2004) to the 401(k)
Plan, although the percentage elected by certain highly compensated participants
may be  required  to be lower.  All  amounts  contributed  to the 401(k) Plan by
employee  participants and earnings on these  contributions  are fully vested at
all  times.  The  401(k)  Plan also  provides  for  matching  and  discretionary
contributions   by   NeoMedia.   To  date,   NeoMedia  has  not  made  any  such
contributions.

OPTIONS AND WARRANTS GRANTED IN NEOMEDIA'S LAST FISCAL YEAR

      The following presents certain  information on stock options for the Named
Executive Officers for the year ended December 31, 2004:




                                                                                            POTENTIAL REALIZABLE
                                        PERCENT OF                                                  VALUE
                        NUMBER OF         TOTAL                                            AT ASSUMED ANNUAL RATES
                       SECURITIES        OPTIONS/                                              OF STOCK PRICE
                       UNDERLYING          SARS                                                 APPRECIATION
                         OPTIONS        GRANTED TO     EXERCISE OR                             FOR OPTION TERM
NAMED                    GRANTED       EMPLOYEES IN    BASE PRICE        EXPIRATION        ------------------------
EXECUTIVE OFFICER          (#)         FISCAL YEAR      ($/SHARE)           DATE              5% ($)      10% ($)
-------------------    ------------    -------------   ------------    ----------------    ------------ -----------
                                                                                      
Charles T. Jensen        4,000,000         5.2%           $0.11         March 8, 2014         $277,000    $701,000

Charles W. Fritz         4,000,000         5.2%           $0.11         March 8, 2014         $277,000    $701,000

David A. Dodge           2,000,000         2.6%           $0.11         March 8, 2014         $138,000    $351,000


OPTION AND WARRANT EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES

      The  following  table sets  forth  options  exercised  by  NeoMedia  Named
Executive  Officers  during the year ended December 31, 2004, and the number and
value of all unexercised options at fiscal year end.


                                       78




                                                        NUMBER OF UNEXERCISED
                                                        SECURITIES UNDERLYING             VALUE OF UNEXERCISED IN-
                         SHARES                            OPTIONS/SARS AT                THE-MONEY OPTIONS/SARS AT
                        ACQUIRED       VALUE              DECEMBER 31, 2004                 DECEMBER 31, 2004 (1)
NAMED                  ON EXERCISE    REALIZED     --------------------------------    --------------------------------
EXECUTIVE OFFICER          (#)          ($)        EXERCISABLE      UNEXERCISABLE      EXERCISABLE      UNEXERCISABLE
-------------------    ------------   ---------    -------------    ---------------    -------------    ---------------
                                                                                      
Charles T. Jensen        1,505,386    $347,000      11,000,000        3,000,000         $2,705,000         $465,000

Charles W. Fritz         1,549,000    $156,000      12,510,000        3,000,000         $3,030,000         $465,000

David A. Dodge             100,000     $25,000      2,700,000         1,500,000          $639,000          $233,000


----------
(1)   Based on the difference  between the closing price of $0.265 of NeoMedia's
      common stock as quoted on Over-the-Counter  Bulletin Board on December 31,
      2004 and the exercise price of the option/SAR.


                                       79


SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF NEOMEDIA


      The following table sets forth certain  information  regarding  beneficial
ownership of NeoMedia's  common stock as of January 12, 2006, (i) by each person
or entity  known by  NeoMedia  to own  beneficially  more than 5% of  NeoMedia's
Common Stock, (ii) by each of NeoMedia's  directors and nominees,  (iii) by each
executive officer of NeoMedia named in the Summary  Compensation Table, and (iv)
by all executive officers and directors of NeoMedia as a group.


                                                 AMOUNT AND
                                                  NATURE OF
                       NAME AND ADDRESS OF       BENEFICIAL      PERCENT OF
   CLASS                 BENEFICIAL OWNER       OWNERSHIP (1)    CLASS (1)
------------     -----------------------        --------------   ----------
Common Stock     Charles W. Fritz (2)(3)            30,920,555      6.4%
Common Stock     William Fritz(2)(4)                53,150,944     11.2%
Common Stock     Charles T. Jensen(2)(5)            15,501,500      3.2%
Common Stock     David A. Dodge(2)(6)                4,850,000      1.0%
Common Stock     A. Hayes Barclay(2)(7)              3,155,000       *
Common Stock     James J. Keil(2)(8)                 5,388,619      1.1%
Common Stock     Martin N. Copus(9)                  3,682,186       *
                                                 -------------   ----------
Common Stock     Officers and Directors
                   as a Group (9 Persons)(10)      116,648,804     22.3%
                                                 =============   ==========


----------
*     - denotes  ownership  of less than one  percent of issued and  outstanding
      shares of NeoMedia's common stock.

      (1)   Applicable percentage of ownership is based on 468,406,229 shares of
            common  stock  outstanding  as of January 12,  2006,  together  with
            securities  exercisable or  convertible  into shares of common stock
            within 60 days of January 12, 2006, for each stockholder. Beneficial
            ownership  is  determined  in  accordance  with  the  rules  of  the
            Securities and Exchange  Commission and generally includes voting or
            investment power with respect to securities.  Shares of common stock
            subject to  securities  exercisable  or  convertible  into shares of
            common stock that are currently exercisable or exercisable within 60
            days of January 12, 2006, are deemed to be beneficially owned by the
            person  holding such  securities  for the purpose of  computing  the
            percentage  of  ownership  of such  person,  but are not  treated as
            outstanding for the purpose of computing the percentage ownership of
            any other person.  The common stock is the only outstanding class of
            equity securities of NeoMedia.
      (2)   Address of the referenced  individual is c/o NeoMedia  Technologies,
            Inc., 2201 Second Street, Suite 600, Fort Myers, FL, 33901.
      (3)   Charles W. Fritz is the  Company's  founder and the  Chairman of the
            Board of  Directors.  Shares  beneficially  owned include 100 shares
            owned by each of Mr.  Fritz's four  children for an aggregate of 400
            shares,  15,500,000 shares of common stock issuable upon exercise of
            options granted under the Company's 2003, 2002 and 1998 stock option
            plans,  1,510,000  shares  issuable upon exercise of stock warrants,
            12,367,186  shares of common  stock  owned by Mr.  Charles  W. Fritz
            directly,  and 1,542,969 shares of common stock held by the CW/LA II
            Family Limited  Partnership,  a family limited  partnership  for the
            benefit of Mr. Fritz's family.
      (4)   William E. Fritz, the Company's  corporate secretary and a director,
            and his wife,  Edna  Fritz,  are the  general  partners of the Fritz
            Family Limited  Partnership  and therefore each are deemed to be the
            beneficial  owners of the 1,511,742  shares held in the Fritz Family
            Partnership. As trustee of each of the Chandler R. Fritz 1994 Trust,
            Charles  W.  Fritz 1994  Trust and Debra F.  Schiafone  1994  Trust,
            William E. Fritz is deemed to be the beneficial owner of the 165,467
            shares of NeoMedia held in these trusts. Additionally,  Mr. Fritz is
            deemed to own:  45,433,735  shares held directly by Mr. Fritz or his
            spouse,  2,540,000 shares to be issued upon the exercise of warrants
            held by Mr. Fritz or his spouse,  and 3,500,000  shares to be issued
            upon the exercise of options  held by Mr.  Fritz or his spouse.  Mr.
            William  E.  Fritz  may be  deemed to be a parent  and  promoter  of
            NeoMedia, as those terms are defined in the Securities Act.
      (5)   Charles T. Jensen is  President,  Chief  Operating  Officer,  Acting
            Chief  Executive  Officer,  and a member of the Board of  Directors.
            Beneficial  ownership  includes  15,500,000  shares of common  stock
            issuable upon exercise of options  granted  under  NeoMedia's  stock
            option plans, and 1,500 shares owned by Mr. Jensen's sons.
      (6)   David A.  Dodge is Vice  President,  Chief  Financial  Officer,  and
            Controller. Beneficial ownership includes 4,850,000 shares of common
            stock  issuable  upon exercise of options  granted under  NeoMedia's
            stock option plans.
      (7)   A. Hayes  Barclay is a member of the Board of  Directors.  Ownership
            includes  3,150,000 shares of common stock issuable upon exercise of
            options  granted  under  NeoMedia's  stock option  plans,  and 5,000
            shares owned by Mr. Barclay directly.
      (8)   James  J.  Keil  is a  member  of the  Board  of  Directors.  Shares
            beneficially  owned includes 3,500,000 shares issuable upon exercise
            of options and 1,888,619 shares owned by Mr. Keil directly.
      (9)   Martin N.  Copus is Chief  Operating  Office.  Beneficial  ownership
            includes  3,500,000 shares of common stock issuable upon exercise of
            options  granted under  NeoMedia's  stock option plans,  and 182,186
            shares held by Mr. Copus directly.
      (10)  Includes an aggregate of 49,500,000 currently exercisable options to
            purchase  shares of common  stock  granted  under  NeoMedia's  stock
            option plans,  4,050,000 currently  exercisable warrants to purchase
            shares of common  stock,  and  63,098,804  shares owned  directly by
            NeoMedia's officers and directors.


                                       80


CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF NEOMEDIA

      During  February  2002,  NeoMedia  borrowed  $10,000 from William E. Fritz
under a note  payable  bearing  interest at 8% per annum with a term of 30 days.
The note was repaid during April 2003.

      During March 2002,  NeoMedia borrowed $190,000 from William E. Fritz under
a note payable bearing interest at 8% per annum with a term of 16 days. The note
was repaid during March 2002.

      During April 2002, NeoMedia borrowed $11,000 from William E. Fritz under a
note payable  bearing  interest at 8% per annum with a term of 60 days. The note
was repaid during April 2003..

      During November 2002, NeoMedia issued Convertible Secured Promissory Notes
with an aggregate  face value of $60,000 to three  separate  parties,  including
Charles W. Fritz,  Chairman of the Board of Directors  of  NeoMedia;  William E.
Fritz, an outside director;  and James J. Keil, an outside  director.  The notes
bear interest at a rate of 15% per annum, and matured at the earlier of (i) four
months, or (ii) the date the shares underlying the Cornell Capital Partners,  LP
Equity Line of Credit were  registered  with the United  States  Securities  and
Exchange  Commission.  The notes were convertible,  at the option of the holder,
into either cash or shares of NeoMedia  common stock at a 30% discount to either
market price upon closing, or upon conversion, whichever is lower. NeoMedia also
granted to the holders an  additional  1,355,670  shares of its common stock and
60,000 warrants to purchase shares of its common stock at $0.03 per share,  with
a term of three years.  The warrants and shares were issued in January  2003. In
addition,  since this debt is convertible  into equity at the option of the note
holder at beneficial conversion rates, an embedded beneficial conversion feature
was recorded as a debt discount and amortized using the effective  interest rate
over  the  life  of the  debt in  accordance  with  EITF  00-27.  Total  cost of
beneficial  conversion  feature,  fair  value of the stock and cost of  warrants
issued exceed the face value of the notes payable,  therefore, only $60,000, the
face amount of the note, was  recognizable as debt discount,  and amortized over
the life of the notes  payable.  NeoMedia  repaid  Charles  Fritz's note in full
during  March 2003,  and repaid  James J. Keil's note in full during April 2003.
NeoMedia  paid  $30,000 of the  principal  on William  Fritz's note during April
2003, and entered into a new note with Mr. Fritz for the remaining $10,000.  The
new note also includes a provision under which, as  consideration  for the loan,
Mr.  Fritz  will  receive a 3%  royalty on all  future  revenue  generated  from
NeoMedia's  intellectual  property.  The new note was paid in full during  April
2004.

      During April 2003,  NeoMedia's Board of Directors  approved the payment in
full of  approximately  $154,000 of  liabilities  owed by NeoMedia to Charles W.
Fritz,  NeoMedia's  Founder and Chairman of the Board of Directors,  through the
issuance of 15,445,967  shares of common stock.  NeoMedia  recognized a discount
expense in general and administrative expenses of approximately $15,000 relating
to this transaction with Mr. Fritz.

      During April 2003,  NeoMedia sold  25,000,000  shares of its common stock,
par value  $0.01,  in a private  placement  at a price of $0.01  per  share.  In
connection  with the  sale,  NeoMedia  also  granted  the  purchaser  25,000,000
warrants to purchase  shares of NeoMedia's  common stock at an exercise price of
$0.01  per  share.  The  warrants  had a fair  value of  $298,000  and have been
recorded as a cost of issuance.  The purchaser was William E. Fritz, a member of
NeoMedia's Board of Directors. Proceeds to NeoMedia from sale of the shares were
$250,000.  NeoMedia  recognized a discount expense in general and administrative
expenses of  approximately  $50,000 relating to this transaction with Mr. Fritz.
On August 6, 2003, Mr. Fritz exercised his/her warrants and purchased 25,000,000
additional shares of common stock at a price of $0.01 per share.

      During  April 2003,  NeoMedia  entered into a  consulting  agreement  with
William Fritz,  an outside  director,  for  consulting  and advisement  services
relating  to  the  merger  with  Loch  Energy,   Inc.,  and  to  the  subsequent
implementation  of various  management  programs  surrounding the business.  The
agreement  called  for total  payments  of  $250,000  over a period of one year.
During  August  2003,  NeoMedia  paid the  consulting  contract in full.  During
September 2003, the consulting  contract was rescinded and the full $250,000 was
returned to NeoMedia.

      During July 2003,  NeoMedia borrowed $25,000 from William E. Fritz, one of
its outside directors.  This amount was added to the principal of a $10,000 note
payable to Mr.  Fritz that  matured in April  2004,  with all other terms of the
note remaining the same. As  consideration  for the loan,  NeoMedia  granted Mr.
Fritz  2,500,000  warrants to purchase  shares of NeoMedia's  common stock at an
exercise  price  of  $0.01  per  share.   The  warrants  had  a  fair  value  of
approximately  $74,000.  In accordance  with EITF 00-27,  NeoMedia  recorded the
relative  fair  value of the  warrants  as a  discount  against  the  note,  and
amortized the discount over the life of the note.


                                       81


      On August 29, 2003,  NeoMedia  borrowed $50,000 from William E. Fritz, one
of its outside directors,  under an unsecured note payable. The note was paid in
full during September 2003.

      On October 31, 2005, NeoMedia purchased a used automobile for $17,000 from
Charles T. Jensen, its president and chief executive officer.  NeoMedia believes
the transaction was completed at arm's length.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
NeoMedia's  officers  and  directors,  and  persons  who own more  than 10% of a
registered class of NeoMedia's equity  securities,  to file reports of ownership
and  changes  in  ownership  with the  United  States  Securities  and  Exchange
Commission (the "SEC").  Officers,  directors and greater than 10%  shareholders
are required by SEC  regulation  to furnish  NeoMedia with copies of all Section
16(a) forms they file.

      Based  solely  on a  review  of the  copies  of such  forms  furnished  to
NeoMedia,   NeoMedia   believes  that  during  2004  all  Section  16(a)  filing
requirements  applicable to NeoMedia's  officers,  directors and 10%  beneficial
owners were complied with.

CODE OF ETHICS

      NeoMedia has adopted a code of ethics that applies to its senior executive
and financial  officers.  NeoMedia's  Code of Ethics seeks to promote (1) honest
and  ethical  conduct,  including  the  ethical  handling  of actual or apparent
conflicts of interest between personal and professional relationships, (2) full,
fair, accurate,  timely and understandable disclosure of information to the SEC,
(3) compliance with applicable  governmental  laws, rules and  regulations,  (4)
prompt internal  reporting of violations of the Code of Ethics to  predesignated
persons,  and (5)  accountability for adherence to the Code of Ethics. A copy of
the  NeoMedia's  Code of Ethics was filed as Exhibit  10.53 to  NeoMedia's  Form
10-KSB for the year ended December 31, 2004.

LIMITATIONS ON DIRECTOR'S LIABILITY AND INDEMNIFICATION

      As  permitted  by the  Delaware  General  Corporation  Law  (the  "DGCL"),
NeoMedia  has  included in its  Certificate  of  Incorporation  a  provision  to
eliminate  the personal  liability  of its  directors  for monetary  damages for
breach or alleged  breach of their  fiduciary  duties as  directors,  except for
liability  (i) for any breach of the  director's  duty of loyalty to NeoMedia or
its stockholders, (ii) for acts or omissions not in good faith or which involved
intentional  misconduct  or a knowing  violation  of law,  (iii) in  respect  of
certain  unlawful  dividend  payments or stock  redemptions or  repurchases,  as
provided in Section 174 of the DGCL, or (iv) for any transaction  from which the
director derived an improper personal  benefit.  The effect of this provision is
to eliminate the rights of NeoMedia and its stockholders (through  stockholders'
derivative  suits on behalf of NeoMedia) to recover  monetary  damages against a
director for breach of the  fiduciary  duty of care as a director  except in the
situations  described in clauses (i) through (iv) above. This provision does not
limit  nor  eliminate  the  rights  of  NeoMedia  or  any  stockholder  to  seek
non-monetary relief such as an injunction or rescission in the event of a breach
of a director's duty of care.  These  provisions will not alter the liability of
directors under federal securities laws.

      The Certificate of  Incorporation  and the bylaws of NeoMedia provide that
NeoMedia is required  and  permitted to  indemnify  its officers and  directors,
employees and agents under certain  circumstances.  In addition, if permitted by
law,  NeoMedia is required to advance  expenses to its officers and directors as
incurred in  connection  with  proceedings  against them in their  capacity as a
director  or  officer  for which  they may be  indemnified  upon  receipt  of an
undertaking  by or on behalf of such director or officer to repay such amount if
it  shall  ultimately  be  determined  that  such  person  is  not  entitled  to
indemnification.  At present, NeoMedia is not aware of any pending or threatened
litigation or  proceeding  involving a director,  officer,  employee or agent of
NeoMedia in which indemnification would be required or permitted.


                                       82


      Insofar as  indemnification  for liabilities  arising under the Securities
Act of 1933, as amended (the "1933 Act") may be permitted to directors, officers
or  controlling  persons of NeoMedia  pursuant to the foregoing  provisions,  or
otherwise,  NeoMedia has been  advised that in the opinion of the United  States
Securities and Exchange Commission such indemnification is against public policy
as expressed in the 1933 Act and is, therefore, unenforceable.


                                       83


                     DESCRIPTION OF NEOMEDIA'S CAPITAL STOCK

      The  following   description  of  NeoMedia's  capital  stock  and  certain
provisions of NeoMedia's  Certificate of  Incorporation  and bylaws is a summary
and is qualified in its entirety by the provisions of NeoMedia's  Certificate of
Incorporation  and  bylaws,  which have been  filed as  exhibits  to  NeoMedia's
registration statement of which this prospectus is a part.

      On September 24, 2003,  NeoMedia's  shareholders voted to (i) increase the
number of shares of common  stock,  par value $0.01 per share,  that NeoMedia is
authorized to issue from 200 million to 1 billion;  and (ii)  implement the 2003
Stock Option Plan,  under which  NeoMedia is authorized to grant to  employeees,
directors,  and  consultants up to 150 million options to purchase shares of its
common stock. On October,  30, 2003,  NeoMedia's board of diretors  approved the
2003 Stock  Incentive  Plan,  under  which  NeoMedia  can issue up to 30 million
shares of stock to employees,  non-employee directors, consultants for incentive
purposes.


      As of January 12, 2006,  NeoMedia had  468,406,229  shares of common stock
outstanding, and no shares of preferred stock were outstanding.


COMMON STOCK

      Holders of NeoMedia's common stock are entitled to one vote for each share
held of record on each matter  submitted to a vote of  stockholders.  Holders of
the common  stock do not have  cumulative  voting  rights,  which means that the
holders of more than one-half of NeoMedia's  outstanding shares of common stock,
subject  to the  rights of the  holders  of  preferred  stock,  can elect all of
NeoMedia's directors, if they choose to do so. In this event, the holders of the
remaining  shares of  common  stock  would  not be able to elect any  directors.
Subject to the prior rights of any class or series of preferred  stock which may
from time to time be outstanding,  if any,  holders of common stock are entitled
to  receive  ratably,  dividends  when,  as,  and if  declared  by the  Board of
Directors out of funds legally  available for that purpose and, upon  NeoMedia's
liquidation,  dissolution,  or winding up, are entitled to share  ratably in all
assets  remaining after payment of liabilities and payment of accrued  dividends
and liquidation  preferences on the preferred  stock, if any.  Holders of common
stock have no preemptive rights and have no rights to convert their common stock
into any other securities.  The outstanding  common stock is duly authorized and
validly  issued,  fully paid, and  nonassessable.  In the event NeoMedia were to
elect to sell  additional  shares  of  common  stock  following  this  offering,
investors in this offering would have no right to purchase additional shares. As
a result, their percentage equity interest in us would be diluted.

      The shares of  NeoMedia's  common stock  offered in this offering will be,
when  issued  and paid for,  fully  paid and not  liable  for  further  call and
assessment.  Except as otherwise  permitted by Delaware  law, and subject to the
rights of the holders of preferred stock, all stockholder action is taken by the
vote of a majority of the  outstanding  shares of common stock voted as a single
class  present at a meeting of  stockholders  at which a quorum  consisting of a
majority  of the  outstanding  shares of common  stock is  present  in person or
proxy.

PREFERRED STOCK

      NeoMedia  may issue  preferred  stock in one or more series and having the
rights, privileges, and limitations, including voting rights, conversion rights,
liquidation preferences,  dividend rights and preferences and redemption rights,
as may, from time to time,  be  determined by the Board of Directors.  Preferred
stock may be issued in the future in connection with  acquisitions,  financings,
or other matters, as the Board of Directors deems appropriate. In the event that
NeoMedia  determines to issue any shares of preferred  stock,  a certificate  of
designation containing the rights, privileges, and limitations of this series of
preferred stock shall be filed with the Delaware  Secretary of State. The effect
of this preferred stock  designation power is that NeoMedia's Board of Directors
alone,  subject  to  federal  securities  laws,  applicable  blue sky laws,  and
Delaware  law,  may be able to authorize  the issuance of preferred  stock which
could have the effect of delaying,  deferring, or preventing a change in control
of NeoMedia without further action by NeoMedia's stockholders, and may adversely
affect the voting and other rights of the holders of  NeoMedia's  common  stock.
The  issuance  of  preferred  stock with voting and  conversion  rights may also
adversely  affect the voting power of the holders of  NeoMedia's  common  stock,
including the loss of voting control to others.


                                       84


      During December 1999, NeoMedia's Board of Directors approved a Certificate
of Resolutions Designating Rights and Preferences of Preferred Stock, filed with
the  Delaware  Secretary of State on December  20,  1999.  By this  approval and
filing,  200,000 shares of Series A Preferred  Stock were  designated.  Series A
Preferred Stock carries the following rights:

      o     The right to receive  mandatory cash dividends  equal to the greater
            of $0.001 per share or 100 times the amount of all  dividends  (cash
            or non-cash, other than dividends of shares of common stock) paid to
            holders of the common stock, which dividend is payable 30 days after
            the conclusion of each calendar  quarter and  immediately  following
            the declaration of a dividend on common stock;

      o     100  votes  per each  share of  Series A  Preferred  on each  matter
            submitted to a vote of NeoMedia's stockholders;

      o     The right to elect two  directors at any meeting at which  directors
            are to be elected, and to fill any vacancy on the Board of Directors
            previously filled by a director  appointed by the Series A Preferred
            Stockholders;

      o     The right to receive  an amount,  in  preference  to the  holders of
            common  stock,  equal to the amount per share  payable to holders of
            common stock, plus all accrued and unpaid  dividends,  and following
            payment of 1/100th of this liquidation  preference to the holders of
            each share of common stock, an additional  amount per share equal to
            100 times the per share amount paid to the holders of common stock;

      o     The right to exchange each share of Series A Preferred for 100 times
            the  consideration  received per share of common stock in connection
            with any merger, consolidation,  combination or other transaction in
            which shares of common  stock are  exchanged  for or converted  into
            cash, securities or other property; and

      o     The right to be redeemed in accordance with NeoMedia's  stockholders
            rights plan.

      While accrued mandatory dividends are unpaid,  NeoMedia may not declare or
pay dividends or distributions on, or redeem, repurchase or reacquire, shares of
any class or series of junior or parity stock.

      The  Series A  Preferred  was  created  to be  issued in  connection  with
NeoMedia's  stockholders  rights plan,  described  below.  No shares of Series A
Preferred have been issued to date.

      On June 19, 2001,  NeoMedia's Board of Directors approved a Certificate of
Designations  to  Create a Class of  Series A  Convertible  Preferred  Stock for
NeoMedia Technologies,  Inc., filed with the Delaware Secretary of State on June
20, 2001. By this approval and filing,  47,511 shares are designated as Series A
Convertible  Preferred Stock.  NeoMedia's Series A Convertible  Preferred Stock,
par value $0.01 per share, has the following rights:

      o     Series  A  Convertible  Preferred  is  convertible  into  shares  of
            NeoMedia's   common  stock  at  a  one-to-one   ratio,   subject  to
            proportional   adjustments   in  the   event  of  stock   splits  or
            combinations,  and  dividends or  distributions  of shares of common
            stock, at the option of the holder;  shares are subject to automatic
            conversion as determined in each agreement  relating to the purchase
            of shares of Series A Convertible Preferred;

      o     Each share of Series A Convertible  Preferred is entitled to receive
            a liquidation  preference  equal to the original  purchase  price of
            such share in the event of liquidation, dissolution, or winding up;

      o     Upon merger or consolidation, or the sale, lease or other conveyance
            of all or substantially all of NeoMedia's assets, shares of Series A
            Convertible Preferred are automatically  convertible into the number
            of shares of stock or other securities or property  (including cash)
            to which the common  stock into which it is  convertible  would have
            been entitled; and


                                       85


      o     Shares of Series A  Convertible  Preferred  are entitled to one vote
            per share, and vote together with holders of common stock.

      In June 2001, 452,489 shares of Series A Convertible Preferred were issued
to About.com,  Inc. pursuant to a certain Agreement for Payment in Common Stock,
in lieu of cash payment to About.com for online advertising services. On January
2, 2002, such shares were converted into 452,489 shares of common stock.

      On January 16, 2002,  NeoMedia's Board of Directors approved a Certificate
of Designation,  Preferences, Rights and Limitations of Series B 12% Convertible
Redeemable  Preferred  Stock of  NeoMedia  Technologies,  Inc.,  filed  with the
Delaware  Secretary of State on February 28, 2002.  By this approval and filing,
100,000 shares are designated as Series B 12% Convertible  Redeemable  Preferred
Stock. NeoMedia's Series B 12% Convertible Redeemable Preferred Stock, par value
$0.01 per share, has the following rights:

      o     Series B  Preferred  shares  accrue  dividends  at a rate of 12% per
            annum,  or $1.20 per share,  between  the date of  issuance  and the
            first anniversary of issuance;

      o     Series B Preferred  is redeemed to the maximum  extent  permitted by
            law (based on NeoMedia's funds legally  available for redemption) at
            a price per share of  $15.00,  plus  accrued  dividends  (a total of
            $16.20 per share) on the first anniversary of issuance;

      o     Series B  Preferred  receive  proceeds  of  $12.00  per  share  upon
            NeoMedia's liquidation, dissolution or winding up;

      o     To the extent,  not redeemed on the first  anniversary  of issuance,
            Series B Preferred is automatically convertible into NeoMedia's then
            existing  general class of common stock on the first  anniversary of
            issuance at a price equal to $16.20  divided by the greater of $0.20
            and the lowest  publicly-sold  share price  during the 90 day period
            preceding the  conversion  date,  but in no event more than 19.9% of
            NeoMedia's  outstanding  capital  stock as of the  date  immediately
            prior to conversion.

      o     Upon merger or consolidation, or the sale, lease or other conveyance
            of all or substantially all of NeoMedia's assets, shares of Series B
            Preferred are automatically convertible into the number of shares of
            stock or other securities or property  (including cash) to which the
            common stock into which it is convertible  would have been entitled;
            and

      o     Shares of Series B Preferred  are entitled to one vote per share and
            vote with common  stock,  except  where the  proposed  action  would
            adversely  affect the Series B Preferred  or where the  non-waivable
            provisions  of  applicable  law mandate  that the Series B Preferred
            vote separately, in which case Series B Preferred vote separately as
            a class, with one vote per share.

      NeoMedia's  Preferred  Stock is currently  comprised of 25 million shares,
par value $0.01 per share,  of which 200,000  shares are  designated as Series A
Preferred  Stock,  none of which are issued or outstanding,  and,  following the
conversion into common stock of 452,489 shares of Series A Convertible Preferred
Stock issued to  About.com,  of which 47,511  shares are  designated as Series A
Convertible  Preferred Stock,  none of which are issued and outstanding,  and of
which 100,000 shares of Series B 12%  Convertible  Redeemable  Preferred  Stock,
none of which are issued and  outstanding.  NeoMedia  has no present  agreements
relating to or requiring the  designation  or issuance of  additional  shares of
preferred stock.

WARRANTS AND OPTIONS OF NEOMEDIA


      As of January 12, 2006,  NeoMedia had outstanding  options and warrants to
purchase  100,666,721  and  71,375,000,   shares  of  NeoMedia's  common  stock,
respectively,  with exercise  prices ranging from $0.01 to $6.00.  The number of
shares  issuable  upon  exercise  and the  exercise  prices of the  warrants are
subject to  adjustment in the event of certain  events such as stock  dividends,
splits and  combinations,  capital  reorganization  and with  respect to certain
warrants,  issuance of shares of common stock at prices below the then  exercise
price of the warrants.



                                       86


      On March 30, 2005,  NeoMedia issued 50 million warrants to Cornell Capital
Partners with an exercise  price of $0.20 per share,  and a term of three years,
as a  commitment  fee for Cornell to enter into a $100  million  Standby  Equity
Distribution  Agreement with NeoMedia.  NeoMedia also issued 4 million  warrants
with an  exercise  price of $0.229 to an  independent  third  party as a fee for
negotiating and structuring the Standby Equity Distribution Agreement.

      On September  24, 2003,  NeoMedia's  shareholders  approved the 2003 Stock
Option Plan.  Under this plan,  NeoMedia is  authorized  to grant to  employees,
directors,  and consultants up to 150,000,000  options to share of common stock.
As of December 31, 2004,  NeoMedia had issued  approximately  69 million options
under the 2003 Stock Option  Plan,  of which  approximately  15 million had been
exercised.

      During May 2003, NeoMedia re-priced  approximately 8 million stock options
under a repricing  program.  Under the terms of the program,  the exercise price
for outstanding options under NeoMedia's 2002, 1998, and 1996 Stock Option Plans
was restated to $0.01 per share for an original period of 6 months.  The program
was  subsequently  extended  through  December 31, 2004. In accordance with FASB
Interpretation,  FIN 44,  Accounting for Certain  Transactions  Involving  Stock
Transactions,  the award was accounted for as variable from May 19, 2003 through
the  period  ended   December  31,  2004.   Accordingly,   NeoMedia   recognized
approximately   $104,000   and   $746,000   as   compensation   in  general  and
administrative  expense  during  the years  ended  December  31,  2004 and 2003,
respectively.  Approximately  3.5 million and 4.4 million options were exercised
under  the  program   during  the  years  ended  December  31,  2004  and  2003,
respectively. The repricing program expired on December 31, 2004.

      During April 2003,  NeoMedia  repriced  approximately 1.9 million warrants
held by  Thornhill  Capital  LLC,  an  outside  consultant.  Of the 1.9  million
warrants,   1.5  million  had  an  exercise  price  of  $0.05  per  share,   and
approximately  0.4  million had an  exercise  price of $2.09 per share.  All 1.9
million  warrants  were  repriced  to $0.00 per share.  NeoMedia  recognized  an
expense of approximately  $27,000 related to this transaction  during the second
quarter of 2003. These warrants were exercised immediately after the repricing.

      In June  2002,  NeoMedia  repriced 3 million of  NeoMedia's  common  stock
warrants  from  $0.12 to $0.05 per share.  All of the  warrants  were  exercised
immediately.  NeoMedia  recognized  an  expense  of  $132,000  related  to  this
repricing during the year ended December 31, 2002.

      In April 2002, in order to encourage  the exercise of options,  NeoMedia's
Board of Directors adopted an option repricing program. Under the program, those
persons  holding  options  granted  under the 1996,  1998 and 2002 Stock  Option
Plans,  to the extent their  options were  exercisable  during the period ending
October 9, 2002,  were  allowed to  exercise  the option at a price which is the
greater  of  $0.12  per  share  or 50% of the  last  sale  price  of a share  of
NeoMedia's  common stock on the  Over-the-Counter  Bulletin Board on the trading
date immediately preceding the date of exercise. No options were exercised under
the program and no expense was recognized relating to the program.

      During  March  2002,  NeoMedia  repriced   approximately  1.2  million  of
NeoMedia's common stock warrants for a period of six months.  During the term of
the warrant repricing program,  participating  holders were entitled to exercise
qualified  warrants at an  exercise  price per share equal to the greater of (1)
$0.12 or (2) 50% of the  last  sale  price  of  shares  of  common  stock on the
Over-the-Counter  Bulletin Board, on the trading date immediately  preceding the
date of exercise.  Approximately  370,000  warrants were exercised in connection
with the  program,  and  NeoMedia  recognized  approximately  $63,000 in expense
relating to the repricing during the year ended December 31, 2002.

REGISTRATION RIGHTS

      None.

ANTI-TAKEOVER PROVISIONS UNDER BYLAWS AND LAWS

      On December 10, 1999, NeoMedia's Board of Directors adopted a stockholders
rights plan and declared a non-taxable dividend of one right on each outstanding
share of NeoMedia  common stock to  stockholders  of record on December 10, 1999
and each share of common stock issued prior to the rights plan trigger date. The
stockholder  rights  plan was  adopted  as an  anti-takeover  measure,  commonly
referred to as a "poison  pill." The  stockholder  rights  plan was  designed to
enable all  stockholders  to receive  fair and equal  treatment  in any proposed
takeover of the corporation  and to guard against  partial or two-tiered  tender


                                       87


offers,  open market  accumulations  and other hostile  takeover tactics to gain
control of NeoMedia.  The  stockholders  rights plan,  which is similar to plans
adopted by many public  companies,  was not adopted in response to any effort to
acquire  control of  NeoMedia  at the time of  adoption.  Certain of  NeoMedia's
directors,  officers and principal  stockholders,  Charles W. Fritz,  William E.
Fritz and The Fritz Family Limited  Partnership and their holdings were exempted
from the  triggering  provisions of NeoMedia's  poison pill plan, as a result of
the fact that, as of the plans  adoption,  their  holdings  might have otherwise
triggered the poison pill.

TRANSFER AGENT

      NeoMedia's  stock  transfer  agent  is  American  Stock  Transfer  & Trust
Company, 59 Maiden Lane, Plaza Level, New York, NY 10038.


                                       88


                          DESCRIPTION OF BSD'S BUSINESS


Business Development

      BSD was  incorporated  in Florida on February 7, 1989 under the name "Park
Avenue  Marketing,  Inc." On February 2, 1998, as a result of its acquisition of
100% of the common stock of two commonly controlled  entities,  Respiratory Care
Services, Inc. ("RCS") and RCS Subacute, Inc. ("RCSS"), that were engaged in the
respiratory  care  industry the name was changed to BSD  Healthcare  Industries,
Inc. Prior to these acquisitions, BSD did not conduct any operations.

      On  July  1,  1999,  principally  as a  result  of a  change  in  Medicare
reimbursement rates for respiratory services, BSD Healthcare Industries sold RCS
and RCSS.

      On December 17, 2001 BSD changed its name to BSD Software, Inc.

      As a result of the sale of RCS and RCSS,  BSD had no operations  until its
acquisition of 90% of Triton Global Business Services Inc. ("TGBSI") on November
4, 2002. TGBSI is the 100% owner of Triton Global Communications Inc. ("Triton")
through which it conducts its business operations.

BSD's/Triton's Business

      Triton  was  incorporated  in  April  1998 as a next  generation  Internet
protocol  ("IP")  enabled  provider  of  live  and  automated  operator  calling
services,   e-business   support,   billing  and  clearinghouse   functions  and
information management services to  telecommunications,  Internet and e-business
service providers.

      Triton focuses on helping its clients  improve  profitability  by enabling
them to quickly  deploy new services,  streamline  operations  and make quicker,
more  informed  business  decisions.  Triton has aligned  itself with  strategic
partners allowing BSD to offer advanced services in the telecom industry. Triton
is  a  customer  service  oriented  organization  providing  service  to  direct
customers and service providers, both within North America and internationally.

      Triton was the first fully implemented  alternate billing agent within the
Local Exchange  Carriers  ("LECs") billing system in Canada.  Triton's  business
plan  is  to  continue   expanding  its  live  and  automated  operator  service
capability,  focusing on making  emerging web based  information and transaction
services easier to access and pay for.

      BSD's  management and staff are trained to assist and provide clients with
the best solutions for their business.  Triton is currently operating with eight
employees.

      BSD  does  not  have  any  patents,  trademarks,   licenses,   franchises,
concessions,  royalty  agreements.  The  business  of  BSD  is  not  subject  to
government  approval or special  regulation and BSD is not aware of any probable
or proposed  regulations that would affect BSD's  operations.  BSD has two major
customers that account for 73% of its accounts receivable at July 31, 2004.

      Triton's technology  platforms are capable of providing its customers with
the  ability  to  integrate  traditional  telecommunication  services,  internet
information and subscriptions services and e-commerce transactions and place the
charges on the billing medium of the end users choice.  Given the recent general
increase  in  overall  demand  for  these  services  by  consumers,  Triton  has
positioned  itself with the intent of becoming a  significant  provider of these
services in the future.

Triton Recent Developments

      AUDIO TEXT

      On September 23, 2003, BSD announced  that its' majority owned  subsidiary
TGBSI has signed an exclusive  contract to provide new customer  activation  and
billing  services for a leading global  provider of audio-text  services and has
divested  itself of its  Canadian  hotel  operations.  On November  18, 2003 BSD
announced  signing of an exclusive  contract with a leading  global  provider of
audio-text  services and  subsequently  announced  that expected  revenues would


                                       89


increase from  $100,000 per month to $200,000 per month.  Under the terms of the
agreement  TGBSI will provide the  underlying  network,  caller  validation  and
billing  and  collection  services  for new  subscribers  to various  audio-text
services. BSD continues to provide services for these customers.

      1010

      On June 1, 2004,  BSD announced  signing of an agreement  with Bell Canada
Inc. to become an inter-exchange  carrier ("IXC").  As an IXC carrier,  TGBSI is
able to offer multiple network service  solutions to complement its core billing
capacity.  On June 6, 2004 BSD  announced  that  TGBSI  signed an  International
Termination  and Call Record  Management  Agreement  with a major LEC. Under the
terms of the three year Agreement, TGBSI will provide international termination,
billing and clearing, customer service and direct billing.

      900

      On February 23, 2004, BSD announced that it secured the ability to provide
900 Services to North America. On August 4, 2004 BSD announced that TGBSI signed
a new  $3,000,000  yearly  contract  with a leading  provider  of  International
audio-text  services to providing  National  900 Services in Canada.  As well as
providing  the  National  900  network,  TGBSI will also provide the LEC billing
services,  bad debt management and handle all customer  service  inquiries.  BSD
continues to perform its contracted services.

      BILLING & COLLECTIONS

      On December 3, 2003, BSD announced the signing of 18  independent  LECs to
Billing and  Collection  Agreements.  On April 4, 2004, BSD announced that TGBSI
has completed an agreement  with one of the largest  United States  providers of
operator services to provide customized billing and clearing for Canadian-billed
collect and third party calls. The potential aggregate value of this contract is
in excess of $800,000 per year.  BSD  continues to  streamline  its offerings to
remain competitive in the industry.

Triton's Products & Services

      Triton has sophisticated  proprietary  software and hardware services that
are  capable  of  processing  call  records  for  telecommunications   companies
worldwide. They track and process bills for a wide range of services, from local
and long distance  operator  services as well as paging,  voice mail, caller ID,
phone cards and other "ease of access" 0+Plus dialing solutions. Triton has also
developed  flat-fee  billing  solutions  that it believes will benefit  Internet
content and service  providers.  With the  addition of services for the Internet
community,  Triton anticipates that it will be able to meet the needs of an even
broader range of communications companies.

      Triton's  products and services  include,  in the  operator/agent  service
field:  global  and  domestic  origination,   hospitality  providers,   payphone
providers,  directory assistance, North America service,  international service,
enhanced   information   services,   e-business  support  services,   e-commerce
transaction support, "Click-2-Talk" web-based voice routing, and call center ASP
solutions

      Triton's  billing  services  include:  North American LEC billing,  online
subscription based billing, and web-based transaction billing (e-commerce).

Triton's Strategic Technology Alliances

      Triton has developed and secured  strategic  alliances within the industry
that Triton  believes are key to the successful  service and  maintenance of its
client  support  systems and the delivery of advanced  features.  The  strategic
partnerships  are expected to promote global  solutions with billing as the core
function or source of revenue.  Triton continually  enhances and streamlines its
service offerings to remain competitive in an evolving  marketplace.  Triton has
completed the development of a state of the art IP e-commerce platform described
below for future deployment.

      NEXT GENERATION IP-ENABLED OPERATOR SERVICES PLATFORM

      Triton's  International  Operator  Services  Platform,  which  is not  yet
deployed,  has been created by  integrating  hardware and software  applications
from Cisco's IP Gateway,  CosmoCom's IP-based Next Generation CosmoCall Universe
Platform, and the Enhanced Operator Services ("EOS") from Intelis.


                                       90


      Triton  is  currently  formulating  its  plan  of  implementation  and the
required marketing strategies and service offerings.

      CosmoCall Universe is a multimedia,  multi-channel call center system that
goes  far  beyond  the  capabilities  of  traditional  call  center  technology.
Traditional   call  centers  are  based  on   circuit-switched   automatic  call
distributors ("ACDs"), and support only voice telephone calls. CosmoCall has all
the  capabilities  of a  modern  telephone  call  center,  but as a  multimedia,
multi-channel  interaction  center,  CosmoCall supports not only voice telephone
calls,  but also live  multimedia  communication  sessions via the Internet.  It
manages and distributes not only live calls, but also messages, including voice,
fax, and e-mail  messages.  CosmoCall  supports  remote agents and multiple site
operation  transparently via a managed IP WAN. Agents are  location-independent,
and  multiple  call center  sites can be managed as a single  entity  capable of
distributing calls to any agent in any site or location.

      The  Intelis  EOS  software is fully  integrated  on top of the  CosmoCall
Universe  Platform  and  inspects  incoming  calls  on a  call-by-call  basis to
determine how a call should be processed.  The system uses all data presented by
the switch to determine call  treatment,  including:  ANI,  Ingress Trunk Group,
Info Digit, State of the ANI, NPA NXX of the ANI and DNIS.

      Based upon the incoming  characteristics  of a call, the system determines
what  application  is  used  to  process  the  call  and the  carrier  for  that
application. For example, the application may be Enhanced EOS or prepaid whereas
the  carrier  defines  characteristics  of that  application  such  as  branding
information, rating information, and validation rules.

      Integrated together these products provide Triton the capability to launch
web-based  services  as well as  support  for  traditional  telephony  including
collect, third party and calling card supported calls.

      TRITON'S TELCO GRADE BILLING PLATFORM

      Highland Lakes  Software  ("Highland")  is an  independent  global service
provider for core billing  services for  competitive  LECs  ("CLECs")  and LECs.
Triton  has been able to  achieve  continued  market  penetration  by  employing
Highlands'  core  billing  software at the root of its  billing  infrastructure.
Highland  will continue to provide  billing  solutions to Triton as the industry
matures  and demands  more  technically  enhanced  functionality.  Triton  works
closely with Highland to provide  extended  electronic  billing services to meet
the  demands  of  service  providers  and  the  Internet   end-user.   With  the
coordination of Highland engineers,  Triton has developed proprietary modules to
enhance  allowable  billing  types and to provide an  effective  direct  billing
service as well as an aggressive revenue recovery service for our customers.

      Sales and Marketing Approach

      Direct  sales  and  strategic  sales  alliances  are used as the  business
strategy for Triton as it continues to grow.

      As  a  provider  of  billing,  clearinghouse  and  information  management
services to the  telecommunications  industry,  Triton has attempted to position
itself to take  advantage  of the  current  disarray  in the  telecommunications
sector. Historically many of the international collect calling and international
billing and clearing contracts have been controlled by intermediary agents.

      Triton's sales team will be segmented between target customer segments and
over the long-term by geography (domestic and international).

      Triton  anticipates  that  initially,   incremental  business  development
representatives  will be added  to  target  North  American  carriers  including
clearing  houses,   alternative  operator  service  providers,   local  exchange
carriers, long distance voice and data providers, wireless carriers and internet
and  e-business  service  providers.  While this will involve  primarily  direct
marketing and selling, it is anticipated that alliances can be established where
Triton's  products and services can be positioned as part of a bundled  offering
in conjunction with other complementary services.


                                       91


Competitive Analysis

      THIRD PARTY BILLING COMPANIES

      The majority of clearinghouse  competitors are United  States-based or are
part of an incumbent  LEC.  Triton  believes that its position as an independent
Canadian operation makes it unique among those in the third party billing market
in North America.

      Triton may not be able to compete with large  telecommunication  providers
on a revenue  scale,  but Triton  believes that it does have the ability to meet
the evolving telecom market's needs quickly and efficiently.

      Most of these  competitors  are  restricted  from  entering  the  Canadian
marketplace due to regulatory issues. This means that these competitors can also
become Triton customers in certain segments of their business, particularly when
it comes to providing  services to all outside  competitors who wish to bill for
Canadian Services.

      ALTERNATIVE OPERATOR SERVICES PROVIDERS ("AOSPS")

      In  addition  to  providing   sophisticated  billing  and  clearing,   the
technology  platform currently being developed will allow Triton to compete with
carriers and  companies  providing  live and  automated  operator  services both
domestically and, with multi-language capabilities, on an international basis.

      In  addition  to specific  AOSPs,  the  majority of the LECs in the United
States and Canada provide operator services as part of their core offerings.  In
1997,  the  Federal  Communications  Commission  ruled  that in  order  to be an
eligible telecommunications carrier a service provider would have to provide the
basic  universal  services  as laid out in the  Telecommunications  Act of 1996,
including:  voice grade  access to the PSTN,  single  party  service,  access to
emergency  service  (i.e.,  911),  and  access  to both  operator  services  and
directory assistance (i.e., 411).

      While  telecommunication  carriers are mandated to provide these services,
they do not have to providing it themselves.  Triton believes that this provides
opportunity for Triton to look to these competitors as prospective customers for
its AOSP and future IP-enabled service offerings.

      Triton's   Canadian-based  low  cost   infrastructure,   fewer  regulatory
encumbrances  than  United  States-based  carriers  and the ability to provide a
fully-bundled  suite of  services on a single IP enabled  platform  allows it to
compete for both traditional services as well as future services.

TRITON'S  E-BUSINESS/COMMERCE  SUPPORT SERVICES  "CLICK-2-TALK" AND VIRTUAL CALL
CENTERS

      PLATFORM ADVANTAGES

      Triton's  Click-2-Talk  operator  services  platform  has been  created by
integrating  hardware and  software  applications  from  Cisco's IP Gateway,  an
IP-based next generation universal CRM platform,  and EOS functionality.  Triton
believes that the market  advantages  inherent with a 100% IP platform  include,
but are not limited to:

      o     Intelligent   multi-media   routing   to  and  from  the   Internet.
            Click-2-Talk  enables a computer user to connect or conference using
            voice over internet  protocol  ("VOIP") to  communicate  with a live
            agent.  By connecting the consumer's  computer to a live agent,  the
            Triton IP platform will minimize  fraud risk and anxiety  associated
            with inputting personal credit card information on the Internet.
      o     Due to the fact that Triton's platform is fully IP-enabled, "Virtual
            Agents" can be  supported  via a simple  internet  connection.  This
            means that Triton can eliminate the cost and  challenges  associated
            with  traditional  brick-and-mortar  call  centers.  Agents  can  be
            located  virtually  anywhere  in the world  including  a  customer's
            existing contact center or specific  geographic  regions,  providing
            24x7 coverage and an understanding of local language and cultures.
      o     Triton's  platform  supports  multiple  "live  agents"  as  well  as
            fully-automated billing methods including credit card, calling card,
            collect,  person to person and bill to third party.  Call accepts or
            "voice prints" are stored for billing and collection audit purposes.
      o     The  platform  provides  fully  integrated  multi-language  support,
            removing the  barriers of  communication  that impede  international
            e-business, telecommunications and emerging IP service transactions.


                                       92


      o     Cost of operation is  significantly  reduced by utilizing least cost
            routing  ("LCR") and  commodity  priced VOIP  transport  inbound and
            outbound without the traditional  requirement of changing  protocols
            from IP to time division multiplexing ("TDM") and back again.
      o     Carrier grade quality is  guaranteed by using  dedicated  bandwidth,
            redundant architecture and by co-locating technology within a robust
            data center facility.
      o     Support for ASP deployment of customer applications.

TRITON/BSD LEGAL MATTERS

      BSD or its subsidiaries are aware of the following legal proceedings:

      In December 2002, Triton Global  Communications sued CanTalk for breach of
contract.  The action was brought before the Court of Queen's  Bench,  Winnipeg,
Canada. The case is styled "Triton Global Communications v. CanTalk." The action
alleges that CanTalk failed to perform under an outsource  agreement pursuant to
which CanTalk was to provide  support for Triton's entry into the  international
operator service market.  In response to the suit,  CanTalk filed a counterclaim
against Triton for $10,000  alleging  breach of contract.  Triton  believes that
CanTalk's   counterclaim   is  without  merit  and  it  intends  to  defend  the
counterclaim;  however, there is no certainty that Triton/BSD will be successful
in their defense of this action.

      In June 2003,  PBJ Holdings Inc. filed a Statement of Claim against Triton
Global  Business  Services  Inc.  in the Court Of Queen's  Bench of Alberta  for
breach of contract  alleging that Triton Global Business Services Inc. failed to
pay $125,000 for the introduction of Triton Global Business Services Inc. to BSD
Software Inc. On December 17, 2004,  this matter was settled.  The amount Triton
agreed to pay in settlement  totaled $125,000.  The first payment of $12,000 was
paid on December  17,  2004.  The balance of $113,000 is payable in  twenty-four
consecutive $4,708 monthly  installments,  which commenced January 10, 2005. The
full amount is included in notes payable.

      On May 2, 2005, four shareholders of BSD Software,  Inc. filed a complaint
against BSD and NeoMedia,  claiming  that the purchase  price as outlined in the
purchase  agreement  between  NeoMedia  and BSD is too low. The  plaintiffs  are
seeking  unspecified  damages and injunctive  relief against the merger.  BSD is
currently reviewing the case with its attorneys.


                                       93


           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

OVERVIEW

BSD Software,  Inc. (the "Company") entered into a Share Exchange Agreement (the
"Agreement") dated October 23, 2002 with Triton Global Business  Services,  Inc.
("TGBSI") and four  stockholders of TGBSI,  who owned  approximately  90% of the
issued and  outstanding  shares  (the "TGBSI  Shareholders").  TGBSI is the sole
shareholder of Triton Global  Communications Inc. ("TGCI"),  which is a provider
of  billings,   clearing  house  and  information  management  services  to  the
telecommunications industry. Pursuant to the Agreement, on November 4, 2002, the
TGBSI Shareholders  exchanged their shares for an aggregate of 26,613,891 common
shares of BSD at a par value  $0.001 per share.  In  addition,  an  aggregate of
1,615,760  common  shares  were  issued  for  nominal  consideration  to certain
persons,  principally  shareholders of BSD, who owned shares of BSD prior to the
share exchange.

As a result of these transactions,  TGBSI became a majority-owned  subsidiary of
BSD and the TGBSI  Shareholders  became the  holders of 88.3% of the  30,123,251
common shares of BSD issued and outstanding  immediately subsequent to the Share
Exchange  transaction.  Accordingly,  financial  information included herein for
prior years is that of TGBSI,  consolidated  with BSD from November 4, 2002, the
date of completion of the arrangement.

In connection with the share exchange,  Jeffrey Spanier,  the President and sole
employee  and director of BSD,  surrendered  4,000,000  shares of common  stock,
constituting 67.9% of the common stock which was issued and outstanding prior to
the share exchange.

BSD will  seek to  acquire  the  remaining  TGBSI  common  shares  as soon as is
practical.  After such additional  exchange a total of 34,154,946  common shares
will be issued and outstanding, of which 29,084,240 shares will have been issued
to the former  shareholders  of TGBSI and the former  shareholders of TGBSI will
own 85.15% of the issued and outstanding  common shares.  In connection with the
contemplated  additional  exchange of shares, the four majority  shareholders of
TGBSI have agreed to return to BSD for  cancellation,  on a pro rata basis, that
number of common  shares as may be necessary  such that when all shares of TGBSI
are  exchanged,  the total  number  of common  shares  outstanding  shall  equal
32,593,600 shares plus any issuances of common shares after November 4, 2002. As
the TGBSI shareholders  ultimately control BSD, TGBSI has been designated as the
acquirer  in the  transaction.  The fair  value of the  assets  and  liabilities
acquired are as follows:

            Investments and marketable securities     $           404
            Accounts payable and accrued liabilities           (2,040)
                                                      ---------------
            Working capital deficiency assumed        $        (1,636)
                                                      ===============

The above deficiency has been charged to BSD's deficit account and the financial
statements  reflect the financial position and results of TGBSI from the date of
its incorporation on May 28, 2002 forward.  Additional  paid-in capital reflects
the increase in share  capital  attributable  to the  carrying  value of TGBSI's
share capital.

TGBSI acquired TGCI effective  October 31, 2002. The  acquisition  was accounted
for using the purchase method with the results of operations being included from
the date of acquisition. Details of the acquisition are as follows:

            NET DEFICIENCY ACQUIRED:
                   Current liabilities                $     2,655,306
                   Current assets                          (1,008,743)
                   Property, plant and equipment           (1,171,081)
                                                      ---------------
                                                              475,482
            CONSIDERATION PAID:
                   Note payable to Guy Fietz                  401,250
                   Shares of TGBSI issued                   1,248,750
                   Acquisition costs                          486,197
                                                      ---------------
                   Goodwill upon acquisition of TGCI  $     2,611,679


                                       94


Subsequent to the acquisition the entire amount of goodwill has been written off
and charged to operations.

Although BSD currently owns 90% of TGBSI, operations have resulted in cumulative
losses to July 31, 2005 and as a result the entire  amount of these  losses have
been reflected in these financial  statements and no minority  interest has been
calculated.  Until such time as  operations  recover the  deficiency in minority
interest of $213,000 the full 100% of operating results will be reported with no
off-setting minority interest.

BACKGROUND OF TRITON

Triton was  incorporated  in April 1998 as a next generation  Internet  Protocol
(IP)  enabled  provider  of  live  and  automated   operator  calling  services,
e-Business  support,   billing  and  clearinghouse   functions  and  information
management  services to  telecommunications,  internet  and  e-business  service
providers.

Triton is a fully implemented  alternate billing agent within the Local Exchange
Carriers (LEC's) billing system in Canada. BSD's vision is to continue expanding
its  "live" and  "automated"  operator  service  capability  focusing  on making
emerging web based information and transaction services easier to access and pay
for.

Triton has aligned itself to provide globally accessible products,  coupled with
sophisticated   proprietary  technology,   allowing  it  to  offer  this  global
marketplace   fully-integrated  or  unbundled  solutions.   Triton's  management
believes  that the  future  growth of the  industry  is  largely  based upon the
ability of service  providers  to offer  multiple  billing  options for consumer
services thus increasing market penetration.

Triton's  technology  platforms are capable of providing its customers  with the
ability to integrate  traditional  telephony services,  internet information and
subscription  services and e-Commerce  transactions and place the charges on the
billing medium of the end users choice.


PRODUCTS AND SERVICES

Triton has  sophisticated  proprietary  software and hardware  services that are
capable of processing call records for  telecommunications  companies worldwide.
They track and process  bills for a wide range of services,  from local and long
distance operator services as well as paging, voice mail, caller ID, phone cards
and other "ease of access", 0+Plus dialing solutions.  Triton has also developed
"flat-fee"  billing  solutions that are expected to benefit Internet content and
service providers.  With the addition of services for the Internet community, we
believe  Triton  has  moved to  meeting  the needs of an even  broader  range of
communications companies.

The following is a list of Triton's products and services:

      OPERATOR/AGENT SERVICES

      -     Global and Domestic Origination

      -     Hospitality Providers

      -     Payphone Providers

      -     Directory Assistance

      -     North America

      -     International

      -     Enhanced Information Services


                                       95


      BILLING SERVICES

      -     North American Local Exchange Carrier (LEC) Billing

      -     Online Subscription Based Billing

      -     Web-Based Transaction Billing (e-Commerce)

      PLANNED SERVICE OFFERINGS

      -     E-Business Support Services

      -     E-Commerce Transaction Support

      -     Click To Talk(TM)" Web-Based Voice Routing

      -     Call Centre "ASP" Solutions

Triton  provides   comprehensive  billing  and  collection  programs  that  help
inter-exchange    carriers,    operator    service    providers,    and    other
telecommunications  providers' reach thousands of telecommunications  consumers.
Triton  acts as an agent for  Incumbent  Local  Exchange  Carriers  (ILECs)  and
Competitive Local Exchange Carriers (CLECs) across the nation.  Throughout their
billing and collection  programs,  they have the ability to bill for an array of
telecommunication services on a customer's local telephone bill.

NEXT GENERATION INTERNET PROTOCOL (IP) ENABLED OPERATOR SERVICES PLATFORM

Triton's  International  Operator Services Platform,  which is not yet deployed,
has been created by integrating hardware and software  applications from Cisco's
Internet  Protocol (IP) Gateway,  CosmoCom's IP based Next Generation  CosmoCall
Universe Platform, and the Enhanced Operator Services (EOS) from Intelis.

Triton is  currently  formulating  its plan of  implementation  and the required
marketing strategies and service offerings.

CosmoCall  Universe is a multimedia,  multi-channel call center system that goes
far beyond the capabilities of traditional call center  technology.  Traditional
call centers are based on circuit-switched  Automatic Call Distributors  (ACDs),
and support only voice telephone calls.  CosmoCall has all the capabilities of a
modern  telephone call center.  But as a multimedia,  multi-channel  interaction
center,  CosmoCall  supports  not only  voice  telephone  calls,  but also  live
multimedia  communication  sessions via the Internet. It manages and distributes
not only live  calls,  but also  messages,  including  voice,  fax,  and  e-mail
messages.   CosmoCall   supports  remote  agents  and  multiple  site  operation
transparently  via a  managed  IP  WAN.  Agents  are  location-independent,  and
multiple  call  center  sites  can be  managed  as a single  entity  capable  of
distributing calls to any agent in any site or location.

The Intelis Enhanced Operator Services (EOS) software is fully integrated on top
of the CosmoCall Universe Platform and inspects incoming calls on a call-by-call
basis to  determine  how a call  should be  processed.  The system uses all data
presented by the switch to determine call treatment including ANI, Ingress Trunk
Group, Info Digit, State of the ANI, NPA NXX of the ANI and DNIS.

Based upon the incoming  characteristics  of a call, the system  determines what
application  is used to process the call and the  Carrier for that  application.
For  example,  the  application  may be  Enhanced  Operator  Services or Prepaid
whereas the Carrier defines characteristics of that application such as branding
information, rating information, and validation rules.

Integrated  together these products  provide Triton with unique  capabilities to
launch web-based services as well as support for traditional telephony including
collect, third party and calling card supported calls.


                                       96


MERGER

On December 21, 2004,  NeoMedia  Technologies,  Inc.  (NeoMedia) and the Company
signed a definitive Agreement and Plan of Merger. Upon the closing of the merger
transaction discussed therein, the Company's shareholders will receive, for each
share of the Company's stock owned,  NeoMedia  common stock  equivalent to $0.07
divided by the  volume-weighted  average price of NeoMedia  common stock for the
five trading days  immediately  prior to the effective  time of the merger.  The
agreement  has been  approved by holders of  approximately  63% of the Company's
outstanding shares and its Board. Closing is subject to the terms and conditions
outlined in the merger agreement,  as well as regulatory  approval of the merger
and  registration/information  statement  by the United  States  Securities  and
Exchange  Commission.  Prior to  closing,  the merger can be  terminated  by the
Company if  shareholders  of more than 5% of the  Company's  outstanding  shares
dissent to the merger. The merger can be terminated prior to closing by NeoMedia
if, at the time of closing,  the Company has: (i) less than  $850,000 in assets,
(ii) more than $5,000,000 in liabilities,  or (iii) more than 38,000,000  shares
of common stock outstanding. Either party can terminate the merger if the merger
has not  closed by  December  31,  2005,  which date may be  extended  by mutual
consent of NeoMedia and the Company.  There is no assurance that the merger will
be completed.  See details of the Agreement as Exhibit 10.1 which was filed with
our Form 10-KSB for the year ended July 31, 2005.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31, 2005

REVENUE

We had  revenue of  $2,295,000  for the three  months  ended  October  31,  2005
compared to revenue of  $1,578,000 in the  comparable  period in the prior year.
This increase is primarily attributable to marketing activities resulting in new
business in call records.  The fluctuation of foreign currency rates between the
Canadian and US dollar also affected revenues.  Our revenue consisted  primarily
of  fees  for  processing   Canadian  and  U.S.   terminated  call  records  for
telecommunications  companies.  Revenue is recognized at the time that calls are
transferred  to the  clearinghouse  for  billing to  customers.  Provisions  are
recorded  based on  management's  estimate  of calls  that  cannot  be billed or
collected based on historical  chargeback's  throughout the life of the contract
and historical data from similar contracts.

COST OF REVENUES

We had cost of revenues of $1,982,000, or 86.4% of revenue, for the three months
ended  October  31,  2005  compared  to  $1,176,000  or 74.5% of  revenue in the
comparable period in the prior year. In the three months ended October 31, 2005,
we had a gross  margin of  $313,000  or 13.6% of  revenue,  compared  to a gross
margin of $402,000,  or 25.5% of revenue,  in the comparable period in the prior
year. Cost of goods sold, for the three months ended October 31, 2005,  consists
of settlement fees to customers,  carrier line charges and clearing costs levied
by the LEC's.  The reason for the  decrease in gross  profit is due to rewriting
one of our contracts that resulted in lower margin of 5% on that contract, and a
change in contract mix that resulted in diminishing gross profits.

OPERATING EXPENSES

For the three  months  ended  October 31,  2005,  we had  operating  expenses of
$277,000  compared  to  $272,000  in the same  period  of the prior  year.  This
difference was attributable to reduced professional fees offset by the change in
foreign exchange rate differences between the comparable periods.

Rent expense consists of the rent paid for our administrative offices located in
Calgary,  Canada.  Payroll expense relates to the payroll of our 8 employees and
includes wages and benefits.  Depreciation and amortization  expense consists of
the  depreciation  and  amortization of office  furniture,  computer  equipment,
fixtures and leasehold improvements.


                                       97


NET INCOME FROM OPERATIONS

Net income  from  operations  was  $36,000 in the  current  period  compared  to
$130,000 for comparable  period in the prior year.  This is primarily due to the
reduced  gross  profits  discussed  above  with a minor  impact  from the slight
increase in operating expenses for the same quarter in the prior year.

NET INCOME

The items  specified  above  resulted  in a net  income of $7,000  for the three
months  ended  October  31,  2005 after  recognizing  other  expenses  including
interest  expense of $29,000.  In the  comparable  period in the prior year, the
Company had net income of $99,000 after recognizing interest expense of $31,000.
This change is primarily  attributed to the reduced  gross margin  recognized on
contracts in the current period.

RESULTS OF OPERATIONS  FOR THE YEAR ENDED JULY 31, 2005, AS COMPARED TO THE YEAR
ENDED JULY 31, 2004

REVENUE

The Company had revenue of $7,350,000  for the year ended July 31, 2005 compared
to revenue of  $6,091,000  for the year ended July 31,  2004.  This  increase is
primarily attributable to marketing activities resulting in new business in call
records.  The change in the US dollar also affected  revenues.  Triton's revenue
consisted  primarily of fees for processing  Canadian and U.S.  terminated  call
records for telecommunications companies. Revenue is recognized at the time that
calls are transferred to the clearinghouse for billing to customers.  Provisions
are  recorded  for  management's  estimate  of calls  that  cannot  be billed or
collected.

COST OF REVENUES

Triton had cost of revenues  of  $5,856,000,  or 79.7% of revenue,  for the year
ended July 31,  2005  compared  to  $4,618,000  or 75.8% of revenue for the year
ended July 31, 2004.  In the year ended July 31, 2005,  we had a gross margin of
$1,495,000  or 20.3% of revenue,  compared to a gross margin of  $1,473,000,  or
24.2% of revenue,  for the year ended July 31, 2004.  Cost of revenues,  for the
year ended July 31, 2005, consists of settlement fees to customers, carrier line
charges and clearing  costs levied by the LEC's.  The reason for the decrease in
gross profit is due to rewriting  one of our  contracts  that  resulted in lower
margin of 10% on that  contract,  and a change in contract mix that  resulted in
diminishing gross profits.

OPERATING EXPENSES

For the year ended July 31, 2005,  Triton had  operating  expenses of $1,061,000
compared to $1,223,000  for the year ended July 31, 2004.  This  difference  was
primarily attributable to, reduced legal fees and reduced rent expense as Triton
relocated into smaller premises at a lower lease rate and subleased the previous
premises for the full amount of the lease,  as well as increased  payroll  costs
due to having 2 additional staff than in the comparative period.

                                                           Year
                                                           Ended
      Description                                      July 31, 2005
      ---------------------------------------------------------------
      Administration                                  $       140,000
      Professional Fees                                       187,000
      Rent                                                     57,000
      Payroll                                                 604,000
      Depreciation and amortization                            73,000
                                                      ---------------
      TOTAL                                           $     1,061,000
                                                      ===============

Rent  expense  consists  of the rent paid for  Triton's  administrative  offices
located in  Calgary,  Canada.  Payroll  expense  relates to the payroll of our 8
employees and includes wages and benefits. Depreciation and amortization expense
consists of the  depreciation  and  amortization of office  furniture,  computer
equipment, fixtures and leasehold improvements.


                                       98


NET INCOME

The items  specified  above  resulted in a net income of  $271,000  for the year
ended July 31, 2005 after recognizing other expenses  including interest expense
of $154,000  and a loss on  disposal  of assets in the amount of $9,000.  In the
comparable  period in the prior year,  Triton had a net income of $45,000  after
recognizing interest expense of $253,000 and a loss on disposal of assets in the
amount of $3,000 and  recording a gain on the sale of contracts in the amount of
$51,000.


CRITICAL ACCOUNTING POLICIES

      GOING CONCERN

      The attached  financial  statements  have been prepared on a going concern
basis in accordance with United States generally accepted accounting principles.
The going  concern  basis of  presentation  assumes  that BSD will  continue  in
operation  for the  foreseeable  future  and be able to  realize  its assets and
discharge its liabilities and commitments in the normal course of business.  The
Company has reported net income of $271,000 and $45,000 for the years ended July
31, 2005 and 2004  respectively and has an accumulated  deficit of $5,705,000 as
of July 31, 2005. As of July 31, 2005 the Company had a working  capital deficit
of $3,205,000

      The  Company's  ability to continue as a going  concern is dependent  upon
management's ability to raise additional  financing.  During the year ended July
31, 2005, management continued to take actions to reduce operating losses and is
in the process of securing  additional  financing.  There is no  assurance  that
additional financing will be obtained.

      The ability of the  Company to continue as a going  concern and to realize
the  carrying  value of its assets and  discharge  its  liabilities  when due is
dependent on the successful  completion of the actions taken or planned, some of
which are described above,  which management  believes will mitigate the adverse
conditions  and events which raise  substantial  doubt about the validity of the
"going concern" assumption used in preparing the attached financial  statements.
There is no certainty  that these and other  strategies  will be  sufficient  to
permit BSD to continue beyond July 31, 2006.

      The  financial  statements  do  not  reflect  adjustments  that  would  be
necessary if the "going concern" assumption were not appropriate.  If the "going
concern" basis was not appropriate for these financial  statements,  adjustments
would be necessary to the carrying value of assets and liabilities, the reported
revenues and expenses, and the balance sheet classifications used

MINORITY INTEREST IN TGBSI

      Although BSD currently  owns 90% of TGBSI,  operations  have resulted in a
loss for the current  period and as a result the entire  amount of this loss has
been reflected in these  financial  statements and no reduction for the minority
interest therein has been calculated.  Until such time as operations recover the
deficiency in minority interest of $213,000,  the full 100% of operating results
will be reported in BSD's statement of operations.

PROPERTY & EQUIPMENT

      Property and equipment are stated at cost.  Amortization is provided using
the straight-line method at the following rates:

--------------------------------------------------------------------------
Asset                                         Method
--------------------------------------------------------------------------

Office furniture and equipment             Straight line        5 years
Computer equipment                         Straight line        5 years
Computer software                          Straight line        3 years
Leasehold improvements                     Straight line        5 years
==========================================================================


                                       99


      Property  and  equipment  are  assessed  for  potential   impairment  when
triggering events occur that indicate the carrying value may not be recoverable.
If the  undiscounted  estimated future net cash flows are less than the carrying
value of the asset, the impairment loss is calculated as the amount by which the
carrying  value  of the  asset  exceeds  its fair  value.  Fair  value  has been
calculated as the present value of estimated future net cash flows.

REVENUE RECOGNITION

      BSD  records   revenue  in  accordance  with  SEC  SAB  No.  104  "Revenue
Recognition in Financial Statements." SAB No. 104 requires that service sales be
recognized  when there is persuasive  evidence of an arrangement  which states a
fixed and determinable price and terms,  delivery of the product has occurred in
accordance  with  the  terms  of the  sale,  and  collectibility  of the sale is
reasonably assured. Revenue is recognized at the time that calls are accepted by
the clearing house for billing to customers.

BSD'S LIQUIDITY AND CAPITAL RESOURCES

      At October 31, 2005 and July 31,  2005,  BSD had a cash balance of $44,000
and  $23,000,  respectively.  Historically,  BSD has met cash  needs  through  a
combination  of cash from  operations  and proceeds  from the sale of equity and
debt securities, and loans from the former stockholders of TGBSI. At October 31,
2005 and July 31,  2005,  BSD had negative  working  capital of  $3,299,000  and
$3,205,000,  respectively.  BSD anticipates that its cash needs over the next 12
months will be for  general  working  capital  needs of  $1,400,000,  consisting
primarily  of payroll,  administration  (including  the costs of  defending  the
lawsuits discussed below) and other miscellaneous expenses, and the satisfaction
of a portion its current liabilities of $5,213,000 as they come due

      Currently BSD has entered into amortizing  payment agreements with some of
its creditors. BSD has the ability to perform on all of its finalized agreements
and will likely be able to perform on the commitments with its creditors.

      NET  CASH  USED IN  OPERATIONS.  Net cash  provided  from  operations  was
$204,000  for the year ended July 31,  2005,  an  increase  of  $82,000,  or 67%
compared with net cash  provided from  operations of $122,000 for the year ended
July 31,  2004.  The use of cash by  operations  was  principally  the result of
operations,  an  increase  in  accounts  payable of  $493,000,  amortization  of
$73,000,  non-cash  expenses of $30,000,  a reduction of prepaid expenses in the
amount of $11,000 offset by an increase in accounts receivable of $683,000.

      Net cash used in operations was $71,000 for the three months ended October
31, 2005 compared  with net cash  provided  from  operations of $269,000 for the
three  months  ended  October  31,  2004.  The use of cash from  operations  was
principally  the  result of  operations,  an  increase  of  accounts  payable of
$121,000 offset by an increase in accounts receivable of $216,000.

      NET CASH USED IN  FINANCING.  Net cash used in financing  was $232,000 for
the year ended July 31, 2005,  an increase of $119,000,  or 105%,  compared with
net cash used in  financing  activities  of $113,000 for the year ended July 31,
2004.  This is  entirely  due to the paying down of notes  payable,  shareholder
loans and the amount owed to Wayside Solutions Inc.

      Net cash used in financing  was $42,000 for the three months ended October
31, 2005 as compared  with net cash used in  financing  of $82,000 for the three
months ended October 31, 2005.  This is entirely due to the paying down of notes
payable, and shareholder loans.

      NET CASH FROM INVESTING.  Net cash from investing was $17,000 for the year
ended July 31,  2005 , a  decrease  of  $16,000  or 49%  compared  with net cash
provided from  investing for the year ended July 31, 2004 of $33,000,  resulting
from proceeds on sale of property, plant and equipment in the amount of $17,000.
Net cash from investing was the result of selling  excess office  furnishings no
longer  needed due to us  relocating  to smaller  premises.  No cash was used in
investing activities during the three months ended October 31, 2005.


                                      100


      EFFECTS OF FOREIGN  EXCHANGE RATE CHANGES.  Net cash used in the change in
foreign exchange rates was $95,000 for the year ended July 31, 2005, as compared
to net cash provided from the change in foreign exchange rates of $11,000 in the
year ended July 31, 2004. Net cash provided from the change in foreign  exchange
rates was $135,000 for the three months ended October 31, 2005, as compared with
cash used of $41,000 for the three months ended October 31, 2004.


                                      101


                                BSD'S MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

      As of July 31, 2005, BSD's directors and executive officers were:

NAME               AGE    POSITION
---------------    ---    ------------------------------------------------------
Guy Fietz          40     President, Director of BSD Software, Inc., Director of
                          Triton Global Business Services, Inc. (as of 5/29/02),
                          Director of Triton Global Communications, Inc.
                          (as of  4/30/98)

Gordon Ellison     53     Chief Financial Officer of BSD Software, Inc.,
                          Director of Triton Global Business Services Inc.
                          (as of 4/26/04)

      The following is certain summary information with respect to the directors
and executive officers of BSD:

      GUY FIETZ. Mr. Fietz has been in the telecommunications  industry for over
five years.  Since launching Triton, he has managed  operations and lead growth.
Prior to his work in  telecommunications,  Mr.  Fietz  operated  ventures in the
hospitality market. Prior to establishing Triton, Mr. Fietz was an entrepreneur.
His most recent ventures prior to Triton  included  establishing a restaurant in
1994-1998,  a wholesale  sportswear  manufacturer,  Ganz Enterprises  Inc., from
1988-1994, as well as Ganz retail sportswear 1992-1994.

      GORDON  ELLISON.  Mr. Ellison joined Triton in 2003 as the Chief Financial
Officer.  Prior to this Mr. Ellison was employed for 18 months as controller for
a private company in the liquid storage industry. From 1994 to 2002, Mr. Ellison
was first the controller  and  subsequently  the CFO for a private  distribution
company with operations located in cities through out western Canada. Mr Ellison
is a graduate of the University of Calgary  holding a Bachelor of Science degree
and  subsequently  received his  designation as a Chartered  Accountant and is a
member of the Institute of Chartered  Accountants  of Alberta.  He has presented
seminars on various tax and management related topics throughout western Canada.

BSD'S DIRECTOR COMPENSATION

      BSD directors are not currently  compensated for their services as members
of BSD's Board of Directors. BSD does not have a written compensation policy for
its directors at this time.

ELECTION OF BSD'S DIRECTORS AND OFFICERS

      BSD's  directors are elected at each annual  meeting of  stockholders  and
hold  office  until the next  succeeding  annual  meeting and the  election  and
qualification  of their  respective  successors.  BSD's  officers are  appointed
annually  by the Board of  Directors  and hold office at the  discretion  of the
Board of  Directors.  BSD's  bylaws  permit the Board of  Directors  to fill any
vacancy  and  such  director  may  serve  until  the  next  annual   meeting  of
shareholders and the due election and qualification of his/her successor.

MEETINGS OF BSD'S BOARD OF DIRECTORS

      During the year ended July 31, 2005,  BSD held eight  directors'  meetings
and each incumbent director attended all meetings of the Board of Directors. The
Board of Directors also acted twice by unanimous written consent.

COMMITTEES OF BSD'S BOARD OF DIRECTORS

      Messrs. Fietz and Ellison are the members of BSD's Audit Committee,  which
reviews the internal  accounting  procedures  of BSD and consult with and review
the services  provided by BSD's  independent  registered public accounting firm.
BSD  intends to  establish  an  independent  audit  committee.  BSD has no other
committees.


                                      102


EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

      The  following  table sets  forth  information  with  respect to the total
compensation  earned  by,  or paid to,  the  person's  serving  as BSD's and its
subsidiaries  President,  Chief Executive  Officer,  and Chief Financial Officer
(collectively, the "Named Executive Officers") during 2005, 2004, and 2003.



                                                   SUMMARY COMPENSATION TABLE
                                                     ANNUAL COMPENSATION (2)                    LONG-TERM COMPENSATION
                                            -------------------------------------------------------------------------------------
                                                                              OTHER             SECURITIES
                                                                             ANNUAL  RESTRICTED UNDERLYING
                                                                            COMPENS-    STOCK    OPTIONS/    LTIP     ALL OTHER
                  NAME AND                          SALARY      BONUS         ATION    AWARD(S)   SARS (1)  PAYOUTS  COMPENSATION
             PRINCIPAL POSITION             YEAR      ($)        ($)           ($)       ($)        (#)       ($)         ($)
---------------------------------------------------------------------------------------------------------------------------------
                                                                                             
 Guy Fietz, President, Chief Executive
 Officer, Director; President at Triton
 Global Business Services, Inc. and Triton
 Global Communications, Inc. (both
 subsidiaries of BSD)                       2005   168,842         --             --         --         --       --            --
                                            2004   144,285    116,362             --         --         --       --            --
                                            2003    95,846         --             --         --         --       --            --

 Gordon Ellison, Chief Financial Officer,
 Director; Chief Financial Officer at
 Triton Global Business Services, Inc. and
 Triton Global Communications, Inc. (both
 subsidiaries of BSD)                       2005    50,080         --             --         --         --       --            --
                                            2004    24,129         --             --         --         --       --            --

Les Hammond, former CFO of BSD              2004    38,890         --             --         --         --       --            --
                                            2003    17,084         --             --         --         --       --            --



----------
(1)   All  amounts  were paid  through  Triton  Global  Communications  Inc.  in
      Canadian dollars.  The amounts for the current year have been converted at
      .80552 and previous years have been converted at a .711845 exchange rate.

EMPLOYMENT AGREEMENTS

      BSD currently has employment  agreements  that cover base salary and allow
for an  annual  review  of  remuneration  and do not have an  expiry  date.  The
agreements  also  allow  for  commissions  and  bonuses  to be added to  monthly
remuneration  as described in BSD's polices and  procedures.  Agreements  may be
terminated with cause by BSD without notice.

STOCK OPTION PLAN

      BSD does not currently have a stock option plan.

OPTIONS AND WARRANTS GRANTED IN BSD'S LAST FISCAL YEAR

      BSD did not issue stock options to any of the Named Executive Officers for
the year ended July 31, 2005.

OPTION AND WARRANT EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END VALUES

      None of BSD's Named Executive  Officers  exercised options during the year
ended July 31, 2005, or held any stock options as of July 31, 2005.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF BSD

      The following table sets forth, as of July 31, 2005,  certain  information
with respect to BSD's equity  securities  owned of record or beneficially by (i)
each officer and director of BSD and its subsidiaries;  and (ii) each person who
owns  beneficially  more  than 5% of each  class  of  BSD's  outstanding  equity
securities.

                                      103




                          NAME AND ADDRESS OF              AMOUNT AND NATURE OF
  TITLE OF CLASS          BENEFICIAL OWNER                BENEFICIAL OWNERSHIP (1)         PERCENT OF CLASS
  ----------------------- --------------------------- -------------------------------- ------------------------
                                                                              
  Common Stock            Guy Fietz (2)                                 16,218,992                   49.8%
                          90 Mt. Assiniboine
                          Circle,  S.E.
                          Calgary, Alberta
                          Canada T2Z
                          2N8

  Common Stock            SunTzu Trust
                          ANZ House, P.O. Box 11
                          Rarotonga, Cook Islands                        7,328,701                   22.5%

  Common Stock            Trans Research
                          International Trust (3)
                          ANZ House, P.O. Box 11
                          Rarotonga, Cook
                          Islands                                        8,168,620                   25.1%

  Common Stock            Merlexis Trust (3)
                          ANZ House, P.O. Box 11
                          Rarotonga, Cook
                          Islands                                        3,381,633                   10.4%

  Common Stock            Blair J. McInnes (4)
                          78 Kinkora Drive
                          Winnipeg, Manitoba
                          Canada R3R
                          2L6                                            8,168,620                   25.1%

  Common Stock            David Worrall (5)
                          58 Amalia Crescent
                          R.R. # 5
                          Belwood, Ontario
                          Canada N0B 1J0                                 3,381,633                   10.4%



----------
(1)   Based on  32,560,897  shares  issued  and  outstanding  at July 31,  2005.
      Applicable percentage of ownership is based on 32,560,897 shares of common
      stock  outstanding  as of July 31, 2005 for each  stockholder.  Beneficial
      ownership  is  determined  in  accordance  within  the rules of the United
      States Securities and Exchange Commission and generally includes voting of
      investment  power  with  respect  to  securities.  Shares of common  stock
      subject to securities  exercisable  or  convertible  into shares of common
      stock that are currently exercisable or exercisable within 60 days of July
      31, 2005 are deemed to be  beneficially  owned by the person  holding such
      options for the purpose of computing  the  percentage of ownership of such
      persons,  but are not treated as outstanding  for the purpose of computing
      the percentage ownership of any other person.
(2)   Guy Fietz is the Protector of SunTzu Trust and has voting  authority  over
      the stock held by the Trust.  Consequently,  the 7,328,701 shares owned by
      the Trust are also included in the number of shares owned by Guy Fietz.
(3)   Trans Research  International  Trust holds 1,405,354  shares in beneficial
      trust for the Merlexis Trust and consequently Merlexis Trust also includes
      the additional 1,405,354 shares.
(4)   Blair McInnes is the Protector of Trans Research  International  Trust and
      has voting authority over the stock held by the Trust.  Consequently,  the
      8,168,620  shares  owned by the Trust are also  included  in the number of
      shares owned by Blair McInnes.
(5)   David Worrall is the Protector of Merlexis Trust and has voting  authority
      over the stock held by the Trust. Consequently, the 3,381,633 shares owned
      by the  Trust are also  included  in the  number of shares  owned by David
      Worrall.


                                      104


CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Wayside  Solutions,  Inc.,  a  Corporation  affiliated  with the  Company,
provided  financing  services to the Company.  Amounts due to Wayside  Solutions
Inc., bear interest at 10% per annum and are due on demand.  A general  security
agreement against all current and future assets of the Company has been provided
by TGBSI to Wayside  Solutions Inc. as collateral.  Accrued interest relating to
these services is included in interest and finance charges,  aggregating $61,485
in the year ended July 31, 2005 and $66,766 in the year ended July 31, 2004.

      Accrued  interest  calculated  at 10% on the amount owing to Guy Fietz has
been  recorded  at $35,335  for the year  ended  July 31,  2005 and an amount of
$34,119 was recorded in the year ended July 31, 2004.

      Amounts due to shareholders bear interest at rates varying from 0%-10% per
annum,  are  unsecured  and due on demand.  Payments in 2005  totaled  $105,158,
including  interest  of $11,206  (2004 - $12,000,  principal  only).  During the
current  year  126,300   shares  were  issued  to  pay  down  amounts  owing  to
shareholders of $39,153 including  interest of 4,353. A similar  transaction did
not occur in the prior year.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
BSD's officers and directors,  and persons who own more than 10% of a registered
class of BSD's equity  securities,  to file reports of ownership  and changes in
ownership with the United States Securities and Exchange  Commission (the "SEC")
and with the NASDAQ  Stock  Market.  Officers,  directors  and greater  than 10%
shareholders  are required by SEC  regulation  to furnish BSD with copies of all
Section 16(a) forms they file.

      Based solely on a review of the copies of such forms  furnished to BSD, or
written  representations  received by BSD, BSD  believes  that during its fiscal
year ended July 31, 2005,  all Section 16(a) filing  requirements  applicable to
the officers,  directors and 10% beneficial  owners were met,  except for shares
disposed of by Guy Fietz on February 23, 2005, which has since been filed on the
appropriate form.

CODE OF ETHICS

      BSD has adopted a code of ethics that applies to its senior  executive and
financial  officers.  BSD's  Code of Ethics  seeks to  promote:  (1)  honest and
ethical conduct,  including the ethical handling of actual or apparent conflicts
of interest  between personal and  professional  relationships,  (2) full, fair,
accurate,  timely and  understandable  disclosure of  information  to the United
States  Securities  and Exchange  Commission,  (3)  compliance  with  applicable
governmental  laws,  rules and  regulations,  (4) prompt  internal  reporting of
violations   of  the  Code  of  Ethics  to   predesignated   persons,   and  (5)
accountability  for  adherence  to the Code of  Ethics.  A copy of BSD's Code of
Ethics is incorporated by reference to this information statement/prospectus.

LIMITATIONS ON DIRECTOR'S LIABILITY AND INDEMNIFICATION

      Under  Florida  law,  if  directors,  officers,  employees  or agents of a
Florida corporation are sued in their corporate capacities, the corporation must
indemnify  them against their defense costs if they are successful on the merits
or otherwise.

      Although  BSD's  bylaws  do  not  contain  additional  mandatory  director
indemnification  provisions,  Florida law states that Florida  corporations have
the power to indemnify any person who was or is a party to any proceeding (other
than an action by, or in the right of, the  corporation),  by reason of the fact
that he/she is or was a director, officer, employee, or agent of the corporation
or is or was serving at the request of the  corporation as a director,  officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise  against liability incurred in connection with such proceeding,
including  any  appeal  thereof,  if he/she  acted in good faith and in a manner
he/she  reasonably  believed to be in, or not opposed to, the best  interests of
the corporation  and, with respect to any criminal action or proceeding,  had no
reasonable cause to believe his/her conduct was unlawful. The termination of any
proceeding by judgment,  order, settlement, or conviction or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a presumption that the
person  did  not act in good  faith  and in a  manner  which  he/she  reasonably
believed to be in, or not opposed to, the best interests of the  corporation or,
with respect to any  criminal  action or  proceeding,  had  reasonable  cause to
believe that his/her conduct was unlawful.


                                      105


      In addition,  Florida corporations have power to indemnify any person, who
was or is a party to any  proceeding  by or in the right of the  corporation  to
procure a judgment  in its favor by reason of the fact that the person is or was
a director,  officer, employee, or agent of the corporation or is or was serving
at the request of the corporation as a director,  officer, employee, or agent of
another  corporation,  partnership,  joint venture,  trust or other  enterprise,
against  expenses and amounts paid in settlement not exceeding,  in the judgment
of the Board of Directors, the estimated expense of litigating the proceeding to
conclusion,  actually and reasonably  incurred in connection with the defense or
settlement   of  such   proceeding,   including   any   appeal   thereof.   Such
indemnification  shall be authorized if such person acted in good faith and in a
manner  he/she  reasonably  believed  to be in,  or not  opposed  to,  the  best
interests of the corporation, except that no indemnification shall be made under
this  subsection  in  respect of any  claim,  issue,  or matter as to which such
person  shall have been  adjudged  to be liable  unless,  and only to the extent
that,  the court in which such  proceeding  was  brought,  or any other court of
competent  jurisdiction,  shall  determine upon  application  that,  despite the
adjudication  of liability but in view of all  circumstances  of the case,  such
person is fairly and  reasonably  entitled to indemnity for such expenses  which
such courts shall deem proper.

      Insofar as indemnification for liabilities arising under the United States
Securities  Act of 1933,  as  amended  (the  "1933  Act")  may be  permitted  to
directors,  officers,  and controlling  persons of BSD pursuant to the foregoing
provisions  of Florida  law, or  otherwise,  the United  States  Securities  and
Exchange  Commission has nevertheless held that such  indemnification is against
public policy as expressed in the 1933 Act and is, therefore,  unenforceable. In
the event that a claim for indemnification  against such liabilities (other than
the  payment by the  corporation  of  expenses  incurred  or paid by a director,
officer,  or controlling  person of the corporation in the successful defense of
any action,  suit, or  proceeding)  is asserted by such  director,  officer,  or
controlling   person  connected  with  the  securities  being  registered,   the
corporation  will,  unless in the  opinion  of its  counsel  the matter has been
settled by controlling precedent,  submit to a court of appropriate jurisdiction
the question  whether such  indemnification  by it is against  public  policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.


                                      106


                       DESCRIPTION OF BSD'S CAPITAL STOCK

      The following description of BSD's capital stock and certain provisions of
BSD's Articles of Incorporation  and bylaws is a summary and is qualified in its
entirety by the provisions of BSD's Articles of Incorporation and bylaws,  which
have been filed as exhibits to the Registration  Statement on Form S-4, of which
this information statement/prospectus is a part.

      As of  October  31,  2005,  BSD had  32,560,897  shares  of  common  stock
outstanding, and no shares of preferred stock were outstanding.

COMMON STOCK

      Holders of BSD common  stock are  entitled to one vote for each share held
of record on each matter  submitted  to a vote of  stockholders.  Holders of the
common stock do not have cumulative voting rights,  which means that the holders
of more than one half of BSD's  outstanding  shares of common stock,  subject to
the rights of the holders of preferred  stock, can elect all of BSD's directors,
if they choose to do so. In this event,  the holders of the remaining  shares of
common  stock  would not be able to elect any  directors.  Subject  to the prior
rights of any class or series of preferred  stock which may from time to time be
outstanding,  if any,  holders of common stock are entitled to receive  ratably,
dividends  when,  as, and if  declared  by the Board of  Directors  out of funds
legally available for that purpose and, upon BSD's liquidation,  dissolution, or
winding up, are entitled to share ratably in all assets  remaining after payment
of liabilities and payment of accrued  dividends and liquidation  preferences on
the preferred stock, if any.  Holders of common stock have no preemptive  rights
and have no rights to convert their common stock into any other securities.  The
outstanding common stock is duly authorized and validly issued,  fully paid, and
nonassessable.  In the  event  BSD were to elect to sell  additional  shares  of
common stock  following this offering,  investors in this offering would have no
right to  purchase  additional  shares.  As a result,  their  percentage  equity
interest in us would be diluted.

PREFERRED STOCK

      As of October  31,  2005,  BSD had  5,000,000  shares of  preferred  stock
authorized, par value $0.001, none of which were issued or outstanding.

WARRANTS AND OPTIONS

      As of October 31, 2005, BSD had outstanding warrants to purchase 1,000,000
shares of BSD's common stock, and outstanding options to purchase 150,000 shares
of BSD's common  stock.  All options and warrants will be converted or cancelled
prior to the effective  time of the merger.  The number of shares  issuable upon
exercise and the exercise  prices of the warrants are subject to  adjustment  in
the event of certain events such as stock  dividends,  splits and  combinations,
capital reorganization and with respect to certain warrants,  issuance of shares
of common stock at prices below the then exercise price of the warrants.

REGISTRATION RIGHTS

      None.

ANTI-TAKEOVER PROVISIONS UNDER BYLAWS AND LAWS

      The Florida Control Share Act (the "FCSA") generally  provides that shares
acquired in a control  share  acquisition  will not  possess  any voting  rights
unless  such  voting  rights are  approved  by a majority  of the  corporation's
disinterested  shareholders.  A "control share  acquisition"  is an acquisition,
directly or  indirectly,  by any person of ownership  of, or the power to direct
the  exercise of voting power with respect to,  issued and  outstanding  control
shares of a publicly  held  Florida  corporation.  "Control  shares"  are shares
which,  except for the FCSA,  would have voting  power  that,  when added to all
other  shares  owned by a person or in respect to which such person may exercise
or direct the exercise of voting power,  would  entitle such person  immediately
after acquisition of such shares, directly or indirectly,  alone or as part of a
group,  to exercise or direct the  exercise of voting  power in the  election of
directors  within any of the  following  ranges:  (i) at least 20% but less than
33.33% of all voting power; (ii) at least 33.33% but less than a majority of all
voting power; or (iii) a majority or more of all voting power.


                                      107


      Under  the  FCSA,  a  Florida  corporation  may  expressly  opt out of the
application  of the terms of the FCSA in its  bylaws,  in which  case the shares
acquired in a control share acquisition will  automatically  possess full voting
rights   without  the   requirement  of  the  approval  of  a  majority  of  the
corporation's disinterested  shareholders.  BSD has not opted out of the FCSA in
its bylaws.

TRANSFER AGENT

      The transfer agent for BSD is Florida  Atlantic Stock  Transfer,  7130 Nob
Hill Road, Tamarac, Florida, 33321.


                                      108


                                  LEGAL MATTERS

      The  validity  of the shares of common  stock  offered  hereby as to their
being  fully paid,  legally  issued and  non-assessable  will be passed upon for
NeoMedia by Kirkpatrick & Lockhart Nicholson Graham LLP.

                                     EXPERTS

      The audited consolidated  financial  statements of NeoMedia  Technologies,
Inc. and its  subsidiaries  for the years ended  December 31, 2004 and 2003 have
been  audited by  Stonefield  Josephson,  Inc.,  independent  registered  public
accounting  firm,  as indicated in their  report with respect  thereto,  and are
included herein in reliance upon the authority of said firm as experts in giving
said report.  Reference is made to said report,  which  includes an  explanatory
paragraph  with  respect  to the  uncertainty  regarding  NeoMedia's  ability to
continue  as a  going  concern,  as  discussed  in  Note 1 to  the  consolidated
financial statements.

      The audited consolidated  financial  statements of BSD Software,  Inc. and
its  subsidiaries  for the year  ended  July  31,  2005  have  been  audited  by
Stonefield Josephson,  Inc.,  independent  registered public accounting firm, as
indicated  in their  report with respect  thereto,  and are  included  herein in
reliance  upon the  authority  of said firm as  experts in giving  said  report.
Reference is made to said report,  which includes an explanatory  paragraph with
respect  to the  uncertainty  regarding  BSD's  ability to  continue  as a going
concern, as discussed in Note 1 to the consolidated financial statements.

      The audited consolidated  financial  statements of BSD Software,  Inc. and
its subsidiaries for the year ended July 31, 2004 have been audited by KPMG LLP,
chartered  accountants,  as indicated in their report with respect thereto,  and
are included  herein in reliance  upon the  authority of said firm as experts in
giving  said  report.  Reference  is made  to said  report,  which  includes  an
explanatory paragraph with respect to the uncertainty regarding BSD's ability to
continue as a going concern.

      The audited consolidated  financial statements of CSI International,  Inc.
for the years ended  August 31,  2003 and 2002 have been  audited by Eisner LLP,
Independent Registered Public Accounting Firm, as indicated in their report with
respect thereto,  and are included herein in reliance upon the authority of said
firm as experts in giving said report.

      The audited  financial  statements  of Mobot,  Inc. (a  development  stage
company) for the year ended  December 31, 2004 and for the period from September
8,  2003  (date of  inception)  to  December  31,  2003,  have been  audited  by
Stonefield Josephson,  Inc.,  independent  registered public accounting firm, as
indicated  in their  report with respect  thereto,  and are  included  herein in
reliance  upon the  authority  of said firm as  experts in giving  said  report.
Reference is made to said report,  which includes an explanatory  paragraph with
respect to the uncertainty  regarding  NeoMedia's ability to continue as a going
concern, as discussed in Note 1 to the consolidated financial statements.


                                      109


                       WHERE YOU CAN FIND MORE INFORMATION

      NeoMedia  and BSD  file  annual,  quarterly  and  current  reports,  proxy
statements,  and other documents with the United States  Securities and Exchange
Commission (the "SEC"). You may read and copy any document NeoMedia or BSD files
at the SEC's public  reference room at Judiciary Plaza  Building,  100 F Street,
N.E.,   Washington,   D.C.  20549.  You  should  call  1-800-SEC-0330  for  more
information on the operation of the Public  Reference  Room. The SEC maintains a
website at www.sec.gov where certain  information  regarding issuers,  including
NeoMedia  and BSD,  may be found.  NeoMedia's  website  is  www.neom.com.  BSD's
website is www.tritonglobal.ca.

      This information  statement/prospectus is part of a registration statement
filed  with  the SEC on Form  S-4.  The  registration  statement  contains  more
information than this information  statement/prospectus  regarding  NeoMedia and
BSD and their common stock,  including  certain exhibits and schedules.  You can
get a copy of the  registration  statement  from the SEC at the  address  listed
above or from its website, www.sec.gov.

      Statement made in this information statement/prospectus as to the contents
of any contract,  agreement or other  document  referred to are not  necessarily
complete; with respect to each such contract,  agreement or other document filed
as an exhibit to this  information  statement/prospectus,  reference  is made to
such exhibit for a more complete  description of matter involved,  and each such
statement  is  qualified  in its  entirety  by  such  reference.  Copies  of the
information  statement/prospectus and exhibits may be inspected, without charge,
at the  offices of the  Commission,  or obtained  at  prescribed  rates from the
Public Reference Section of the Commission at the address set forth above.

      No  person  has  been  authorized  to give  any  information  or make  any
representation  not contained or incorporated  by reference in this  information
statement/prospectus   and,   if  so  given  or  made,   such   information   or
representation  must  not  be  relied  upon  as  having  been  authorized.  This
information  statement/prospectus  does  not  constitute  an  offer to sell or a
solicitation  of an offer to buy any  securities  other  than  those  shares  of
NeoMedia common stock to which it relates, or an offer to sell or a solicitation
of an offer to buy any securities in any  jurisdiction  where, to any persons to
whom it is unlawful to make such an offer or solicitation.  Neither the delivery
of this information  statement/prospectus nor the sale of any security hereunder
shall  imply  that the  information  contained  herein  is  correct  at any time
subsequent to the date hereof.


                                      110


                          INDEX TO FINANCIAL STATEMENTS

------------------------------------------------------------------ -------------
                       FINANCIAL STATEMENT                             PAGE
------------------------------------------------------------------ -------------
NeoMedia  Technologies,  Inc.  Consolidated  Financial Statements      F-2
For The Years Ended December 31, 2004 And 2003
------------------------------------------------------------------ -------------
NeoMedia  Technologies,  Inc.  Consolidated  Financial Statements      F-42
For The Three- and  Nine-Month  Periods Ended  September 30, 2005
And 2004
------------------------------------------------------------------ -------------
BSD Software,  Inc.  Consolidated  Financial  Statements  For The      F-57
Three Month Periods Ended October 31, 2005 And 2004
------------------------------------------------------------------ -------------
BSD Software,  Inc.  Consolidated  Financial  Statements  For The      F-72
Years Ended July 31, 2005 And 2004
------------------------------------------------------------------ -------------
Pro Forma Financial Information                                        F-93
------------------------------------------------------------------ -------------
Financial  Statements Of Acquired  Business,  CSI  International,     F-102
Inc., For The Years Ended August 31, 2003 And 2002
------------------------------------------------------------------ -------------
Financial  Statements Of Probable  Material  Acquisition,  Mobot,     F-111
Inc., For The Years Ended December 31, 2004 and 2003
------------------------------------------------------------------ -------------
Financial  Statements Of Probable  Material  Acquisition,  Mobot,     F-126
Inc., For The Nine Months Ended September 30, 2005
------------------------------------------------------------------ -------------


                                      F-1


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
NeoMedia Technologies, Inc.

We  have  audited  the  accompanying  consolidated  balance  sheet  of  NeoMedia
Technologies,  Inc.  as of  December  31,  2004,  and the  related  consolidated
statements of operations,  stockholders'  equity  (deficit),  and cash flows for
each of the two years in the period ended December 31, 2004. 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 audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audits 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
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of the Company as of
December 31, 2004, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 2004, in conformity  with U.S.
generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated  financial  statements,  the Company's significant operating losses
and  working  capital  deficit  raise  substantial  doubt  about its  ability to
continue as a going concern. Management's plans regarding those matters also are
described in Note 1. The  consolidated  financial  statements do not include any
adjustments that might result from the outcome of this uncertainty.


/s/ STONEFIELD JOSEPHSON, INC.

CERTIFIED PUBLIC ACCOUNTANTS

Irvine, California
February 11, 2005


                                      F-2


                          NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
                                   CONSOLIDATED BALANCE SHEET
                               (IN THOUSANDS, EXCEPT SHARE DATA)



                                                                                   DECEMBER 31,
                                                                                       2004
                                                                                   ------------
                                                                                
ASSETS
Current assets:
        Cash and cash equivalents                                                  $      2,634
        Trade accounts receivable, net of allowance for doubtful accounts of $46            282
        Inventories, net of allowance for obsolete & slow-moving inventory of $0            115
        Prepaid expenses and other current assets                                           386
                                                                                   ------------
        Total current assets                                                              3,417

        Property and equipment, net                                                         110
        Capitalized patents, net                                                          2,174
        Micro paint repair chemical formulations and proprietary process, net             1,630
        Goodwill                                                                          1,099
        Other Intangible assets, net                                                        221
        Investment in iPoint-media, Ltd.                                                  1,000
        Cash surrender value of life insurance policy                                       728
        Other long-term assets                                                               27
                                                                                   ------------
             Total assets                                                          $     10,406
                                                                                   ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
        Accounts payable                                                           $      1,911
        Amounts payable under settlement agreements                                         103
        Liabilities of discontinued business unit                                           676
        Sales taxes payable                                                                 108
        Accrued expenses                                                                  1,566
        Deferred revenues and other                                                         514
        Notes payable                                                                     1,136
                                                                                   ------------
             Total current liabilities                                                    6,014
                                                                                   ------------

Shareholders' equity:
        Preferred stock, $0.01 par value, 25,000,000 shares authorized, none
        issued and outstanding                                                               --
        Common stock, $0.01 par value, 1,000,000,000 shares authorized,
          436,746,758 shares issued and 432,525,053 outstanding                           4,325
        Additional paid-in capital                                                       84,728
        Deferred stock-based compensation                                                  (445)
        Accumulated deficit                                                             (83,377)
        Accumulated other comprehensive loss - foreign currency translation
        adjustment                                                                          (60)
        Treasury stock, at cost, 201,230 shares of common stock                            (779)
                                                                                   ------------
        Total shareholders' equity                                                        4,392
                                                                                   ------------
             Total liabilities and shareholders' equity                            $     10,406
                                                                                   ============

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



                                              F-3


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




                                                                         YEARS ENDED DECEMBER 31,
                                                                      ------------------------------
                                                                           2004             2003
                                                                      -------------    -------------
                                                                                 
NET SALES:
       License fees                                                   $         343    $         414
       Resale of software and technology equipment and service fees             630            1,986
       Micro paint repair products and services                                 727               --
                                                                      -------------    -------------
       Total net sales                                                        1,700            2,400
                                                                      -------------    -------------

COST OF SALES:
       License fees                                                             324              300
       Resale of software and technology equipment and service fees             604            1,829
       Micro paint repair products and services                                 541               --
                                                                      -------------    -------------
       Total cost of sales                                                    1,469            2,129
                                                                      -------------    -------------

GROSS PROFIT                                                                    231              271
       Sales and marketing expenses                                           2,046              523
       General and administrative expenses                                    2,215            4,270
       Research and development costs                                           651              332
                                                                      -------------    -------------

       Loss from operations                                                  (4,681)          (4,854)
       Gain (loss) on extinguishment of debt                                    140             (152)
       Amortization of debt discount                                         (2,500)              --
       Interest expense, net                                                   (189)            (376)
                                                                      -------------    -------------

NET LOSS                                                                     (7,230)          (5,382)
       Other comprehensive loss:
          Foreign currency translation adjustment                               (60)              --
                                                                      -------------    -------------
COMPREHENSIVE LOSS                                                    $      (7,290)   $      (5,382)
                                                                      =============    =============
LOSS PER SHARE--BASIC AND DILUTED                                     $       (0.02)   $       (0.04)
                                                                      =============    =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES--BASIC AND DILUTED             329,362,127      125,029,723
                                                                      =============    =============

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



                                                F-4



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



                                                                                              YEARS ENDED
                                                                                              DECEMBER 31,
                                                                                          ------------------
                                                                                            2004      2003
                                                                                          -------    -------
                                                                                               
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net loss                                                                            ($7,230)   ($5,382)
      Adjustments to reconcile net loss to net cash used in operating activities:
      Amortization of discount on note payable                                              2,500         --
      Depreciation and amortization                                                           674        470
      Inventory reserve                                                                        --         13
      Bad debt                                                                                 24        191
      Expense (decrease of fair value) for repriced options                                   104        773
      Fair value of expense portion of stock-based
               compensation granted for professional services                                 626      1,000
      Interest expense allocated to debt                                                        3         56
      Discount related to common stock issuance                                                --         50
      Loss on payment of accounts payable in stock                                             --        152
      (Increase)/decrease in value of life insurance policies                                  (1)       (35)
      Changes in operating assets and liabilities
        Trade accounts receivable, net                                                        (82)       212
        Inventory                                                                             (58)        (3)
        Other current assets                                                                   68        273
        Accounts payable                                                                     (421)    (1,064)
          Amounts payable under settlement agreements                                        (669)       772
          Liabilities of discontinued business unit                                            19       (838)
          Sales taxes payable                                                                 (29)      (189)
          Accrued expenses                                                                   (177)       936
        Deferred revenue other current liabilities                                             (1)      (366)
                                                                                          -------    -------
          Net cash used in operating activities                                            (4,650)    (2,979)
                                                                                          -------    -------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Amounts issued under notes receivable                                                    --       (209)
      Investment in iPoint-media, Ltd.                                                     (1,000)        --
      Capitalization of software development and purchased intangible assets                 (141)       (28)
      Acquisition of property and equipment                                                  (111)       (44)
                                                                                          -------    -------
        Net cash used in investing activities                                              (1,252)      (281)
                                                                                          -------    -------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Net proceeds from issuance of common stock, net of issuance costs of $620 in
      2004 and $226 in 2003                                                                 7,906        250
      Net proceeds from exercise of stock options and warrants                              2,687        406
      Borrowings under notes payable and long-term debt                                     9,085      3,350
      Repayments on notes payable and long-term debt                                       (8,753)      (755)
      Cash paid to acquire CSI International, Inc. (net of cash acquired)                  (2,390)        --
                                                                                          -------    -------
        Net cash provided by financing activities                                           8,535      3,251
                                                                                          -------    -------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                       (60)        --

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                        2,573         (9)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                                   61         70
                                                                                          -------    -------
CASH AND CASH EQUIVALENTS, END OF YEAR                                                    $ 2,634    $    61
                                                                                          =======    =======



                                                    F-5




                                                                                               
SUPPLEMENTAL CASH FLOW INFORMATION:
      Interest paid/(received) during the period                                          $   111    $     6
      Income taxes paid                                                                        --         --
      Non-cash investing and financing activities:
        Reduction in accounts payable and accruals for debt paid in stock                     190      1,509
        Reduction of note payable paid in stock                                                32         --
        Reduction of long-term debt and accrued interest paid in stock                         --        904
        Fair value of stock issued for services and deferred to future periods                653        282
        Fair value of shares issued to acquire CSI Int'l (net of costs of registration)       695         --
        Change in net assets resulting from acquisition of CSI (net of cash acquired)       3,090         --
        Value of stock granted to acquire Secure Source Technologies, Inc.                     --        500
        Gain (loss) on extinguishment of debt                                                 140       (152)
        Direct costs associated with Standby Equity Distribution Agreement and Equity
      Line of Credit                                                                        2,216      6,772

        Fair value of warrants issued as a direct incremental cost of financing                --         93

        Discount recognized on the issuance of stock with notes payable                        --         56


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



                                                    F-6





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

                                                                     ACCUMULATED
                      COMMON STOCK       ADDITIONAL    DEFERRED         OTHER                        TREASURY STOCK        TOTAL
                  --------------------    PAID-IN       STOCK       COMPREHENSIVE   ACCUMULATED   -------------------  STOCKHOLDERS'
                    SHARES     AMOUNT     CAPITAL    COMPENSATION        LOSS         DEFICIT      SHARES     AMOUNT      EQUITY
                  ----------   -------   ----------  ------------   -------------   -----------   --------   --------  -------------
                                                                                            
BALANCE,
DECEMBER 31, 2002 30,746,968   $   307   $   65,442          (231)  $           0      ($70,765)   201,230      ($779)      ($6,026)

Shares issued
to Cornell
Capital Partners
under Equity line
of Credit         98,933,244       990        1,803           ---             ---           ---        ---        ---         2,793

Issuance of
Common Stock
through private
Placement, Net
of $6,818 of
issuance costs    25,000,000       250           50           ---             ---           ---        ---        ---           300

Exercise of
employee options  15,599,175       156            0           ---             ---           ---        ---        ---           156

Exercise of
Warrants          28,904,900       289          (39)          ---             ---           ---        ---        ---           250

Expense
associated with
option & warrant
repricing                ---       ---          774           ---             ---           ---        ---        ---           774

Fair value
stock, options,
& warrants
issued for
professional
services rendered  4,030,424        40          385           ---             ---           ---        ---        ---           425

Stock issued to
pay past due
liabilities       40,776,546       408        2,505           ---             ---           ---        ---        ---         2,913

Issuance of
warrants and
stock with debt          ---       ---           19           ---             ---           ---        ---        ---            19

Expense
recognized for
options issued
with exercise
price below
market price             ---       ---          626           ---             ---           ---        ---        ---           626

Change in
Deferred Stock
Compensation             ---       ---          ---           (51)            ---           ---        ---        ---           (51)

Net Loss                 ---       ---          ---           ---             ---        (5,382)       ---        ---        (5,382)

BALANCE,
DECEMBER 31,2003 243,991,257   $ 2,440   $   71,565         ($282)  $           0      ($76,147)   201,230      ($779)      ($3,203)

Shares issued
to Cornell Capital
Partners under
ELOC and SEDA    112,743,417     1,127        6,864           ---             ---           ---        ---        ---         7,991

Exercise of
stock options     12,860,616       129           43           ---             ---           ---        ---        ---           172

Exercise of
stock warrants    51,510,000       515        2,000           ---             ---           ---        ---        ---         2,515

Fair value stock,
options, &
warrants issued
for professional
services rendered  2,013,375        20          785           ---             ---           ---        ---        ---           805

Stock issued to
pay past due
liabilities        2,406,388        24          242           ---             ---           ---        ---        ---           266

Stock issued in
connection with
acquisition of
CSI International  7,000,000        70          625           ---             ---           ---        ---        ---           695

Expense
associated with
option repricing         ---       ---          104           ---             ---           ---        ---        ---           104

Fair value of
warrants issued
with debt                ---       ---        2,500           ---             ---           ---        ---        ---         2,500

Change in
Deferred Stock
Compensation             ---       ---          ---          (163)            ---           ---        ---        ---          (163)

Comprehensive
loss - foreign
currency
translation
adjustment               ---       ---          ---           ---             (60)          ---        ---        ---           (60)

Net Loss                 ---       ---          ---           ---             ---        (7,230)       ---        ---        (7,230)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31,
2004             432,525,053   $ 4,325   $   84,728          (445)           ($60)     ($83,377)   201,230      ($779) $      4,392
====================================================================================================================================

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



                                                                F-7


                  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; 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,   NeoMedia
Technologies UK Limited incorporated in the United Kingdom, NeoMedia Micro Paint
Repair, Inc. a Nevada corporation,  and NeoMedia Telecom Services, Inc. a Nevada
corporation,  and are  collectively  referred to as "NeoMedia" or the "Company".
The   consolidated   financial   statements  of  NeoMedia  are  presented  on  a
consolidated  basis  for  all  years  presented.  All  significant  intercompany
accounts  and   transactions   have  been   eliminated  in  preparation  of  the
consolidated financial statements.

      The accompanying  consolidated  financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America,  which  contemplate  continuation  of the  Company as a going  concern.
However,  the Company has reported net losses of $7,230,000  and  $5,382,000 for
the years ended December 31, 2004 and 2003, respectively, and has an accumulated
deficit of  $83,377,000  as of December 31, 2004.  In addition,  the Company had
working capital deficit of $2,597,000 as of December 31, 2004.

      The Company cannot be certain that  anticipated  revenues from  operations
will be sufficient  to satisfy its ongoing  capital  requirements.  Management's
belief  is  based on the  Company's  operating  plan,  which in turn is based on
assumptions that may prove to be incorrect. If the Company's financial resources
are  insufficient  the  Company  may require  additional  financing  in order to
execute its operating plan and continue as a going  concern.  The Company cannot
predict whether this additional  financing will be in the form of equity,  debt,
or another form. The Company may not be able to obtain the necessary  additional
capital on a timely  basis,  on  acceptable  terms,  or at all.  In any of these
events,  the Company may be unable to implement its current plans for expansion,
repay  its  debt  obligations  as they  become  due or  respond  to  competitive
pressures,  any of which  circumstances  would have a material adverse effect on
its business, prospects, financial condition and results of operations.

      Should these financing sources fail to materialize,  management would seek
alternate  funding  sources  through  sale of  common  and/or  preferred  stock.
Management's plan is to secure adequate funding to bridge to profitability  from
the Company's PaperClick(R) business,  intellectual property portfolio and Micro
Paint Repair business.


                                      F-8


NATURE OF BUSINESS OPERATIONS

      During 2004,  NeoMedia was  structured as three distinct  business  units:
NeoMedia Internet Software Service (NISS),  NeoMedia  Consulting and Integration
Services (NCIS), and NeoMedia Micro Paint Repair (NMPR).

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

            NCIS  (systems   integration  service  offerings)  is  the  original
      business  line upon  which  NeoMedia  was  organized.  This  unit  resells
      client-server  equipment and related software, and general and specialized
      consulting   services.   Systems  integration   services  also  identifies
      prospects  for  custom  applications  based  on  NeoMedia's  products  and
      services. These operations are based in Lisle, Illinois.

            NMPR  (Micro  Paint   Repair   offerings)   is  the  business   unit
      encompassing the recently-acquired  CSI International  chemical line. NMPR
      is attempting to commercialize its unique micro-paint repair solution. The
      Company completed its acquisition of CSI on February 6, 2004. As a result,
      NeoMedia's  results  for the year ended  December  31, 2003 do not include
      operations from this business unit.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ESTIMATES

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

CASH AND CASH EQUIVALENTS

      For the  purposes  of the  consolidated  balance  sheet  and  consolidated
statements of cash flows, all highly liquid investments with original maturities
of three months or less are considered cash  equivalents.  The Company maintains
bank  accounts with  balances  which,  at times,  may exceed  federally  insured
limits. The Company has not experienced any losses on such accounts. The Company
believes it is not exposed to any significant risk on bank deposit accounts.  As
of December 31, 2004, the Company had cash balances of $2,692,000 which were not
insured by the FDIC.

FINANCIAL INSTRUMENTS

The carrying  amount of the Company's  cash  equivalents,  accounts  receivable,
prepaid expenses,  other current assets,  cash surrender value of life insurance
policy,  accounts payable and accrued  expenses,  accrued salaries and benefits,
and payable to merchants  approximates  their  estimated  fair values due to the
short-term maturities of those financial instruments.

      Rates  currently  available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.

      It is not  practicable  to estimate  the fair value of the  Company's  17%
investment in the common stock of i-Point Media Ltd., which  distributes  video,
audio and data over IP networks, because of the lack of quoted market prices and
the inability to estimate fair value without incurring excessive costs. However,
management  believes that the carrying amount (on the cost method) of $1,000,000
at December 31, 2004 was not impaired.


                                      F-9


   Pertinent financial information reported by iPoint Media Ltd. is as follows:

                             (in thousands of US
                                   dollars)
                          ---------------------------
                             2004           2003
                          -----------    ------------
Total assets                  $1,119            $193
Stockholders' deficit           (341)         (1,451)
Revenues                         514             618
Net loss                        (695)           (544)

ACCOUNTS RECEIVABLE

      The Company  reports  accounts  receivable at net  realizable  value.  The
Company's terms of sale provide the basis for when accounts become delinquent or
past due. The Company  provides an allowance for doubtful  accounts equal to the
estimated  uncollectible  amounts. The Company's estimate is based on historical
collection experience and a review of the current status of accounts receivable.
Receivables  are generally  charged off and sent to a  collections  agency after
ninety  days past due. It is at least  reasonably  possible  that the  Company's
estimate of the allowance for doubtful accounts will change in the near-term. At
December 31, 2004, the allowance for doubtful accounts was $46,000.

INVENTORIES

      Inventories are stated at the lower of cost or market, and at December 31,
2003 was comprised of purchased  computer  technology  resale products and micro
paint repair products. Cost is determined using the first-in,  first-out method.
At December 31, 2003,  the reserve for  obsolescence  was $13,000.  There was no
reserve as of December 31, 2004.

PROPERTY AND EQUIPMENT

      Property and equipment are carried at cost less allowance 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 related assets.  Upon retirement or sale, cost and
accumulated  depreciation  are removed from the accounts and any gain or loss is
reflected  in the  consolidated  statements  of  operations.  The cost of normal
maintenance  and  repairs  is  charged  to  operations  as  incurred.   Material
expenditures,  which  increase  the  life  of  an  asset,  are  capitalized  and
depreciated over the estimated remaining life of the asset.

The estimated service lives of property and equipment are as follows:

           Furniture and fixtures            7 years
           Computer equipment                3 to 5 years


CAPITALIZED PATENTS

      Patents (including  patents pending and intellectual  property) are stated
at cost, less  accumulated  amortization.  Patents are generally  amortized over
periods ranging from five to seventeen years.


MICRO PAINT CHEMICAL FORMULATIONS AND PROPRIETARY PROCESSES

      Micro  Paint  Repair  chemical   formulations  and  proprietary  processes
consists  of the  estimated  fair value of the  formulations  acquired  from CSI
International,  Inc.  that are used in  NeoMedia's  Micro Paint Repair  business
unit. The estimated fair value was determined using an independent  appraisal of
the assets and  liabilities  acquired  in the  transaction.  This value is being
amortized using the  straight-line  method over its estimated  useful life of 10
years.


                                      F-10


GOODWILL

      Goodwill  consists of the excess fair value of purchase price paid for CSI
International,  Inc. over the identifiable net assets and liabilities  acquired.
Goodwill  was  determined  using an  independent  appraisal  of the  assets  and
liabilities  acquired in the  transaction.  Goodwill was not assigned a life and
will be tested for  impairment  as defined by Statement of Financial  Accounting
Standards  No. 144,  "Accounting  for the  Impairment  or Disposal of Long-Lived
Assets."

OTHER INTANGIBLE ASSETS

      Other intangible assets consists of customer  base/contracts,  copyrighted
material and acquired software  products,  which are amortized over the expected
life of the product, generally three to five years.

INVESTMENTS

      Investments consist of NeoMedia's investment in iPoint-media. On September
7, 2004,  NeoMedia acquired 17% ownership of iPoint-media,  consisting of 69,196
shares  of  common  stock,  for $1  million  cash.  NeoMedia  has  recorded  the
investment at cost as of December 31, 2004.

EVALUATION OF LONG-LIVED ASSETS

      In  October  2001,  the FASB  issued  SFAS No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived Assets." This statement supersedes SFAS No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets  to  Be  Disposed  of."  Although   retaining  many  of  the  fundamental
recognition and measurement  provisions of SFAS 121, the new rules significantly
change  the  criteria  that  would  have  to be  met to  classify  an  asset  as
held-for-sale.  The statement also supersedes  certain  provisions of Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations--Reporting
the Effects of Disposal of a Segment of a Business,  and Extraordinary,  Unusual
and Infrequently  Occurring Events and  Transactions," and will require expected
future  operating  losses  from  discontinued  operations  to  be  displayed  in
discontinued  operations  in the  period  or  periods  in which the  losses  are
incurred rather than as of the measurement date, as presently required. NeoMedia
adopted this new statement on January 1, 2002,  and concluded that the effect of
adopting this statement had no material impact on NeoMedia's financial position,
results of operations, or cash flows.

AMOUNTS DUE UNDER SETTLEMENT AGREEMENTS

      NeoMedia is party to various  settlement  agreements  with  certain of its
vendors  relating  to past  due  accounts  payable.  The  settlement  agreements
generally call for monthly payment installments against such past due amounts.

REVENUE RECOGNITION

      During  2004 and  2003,  NeoMedia  derived  revenues  from  three  primary
sources:  (1) license revenues,  (2) resale of software and technology equipment
and service fee revenues, and (3) Micro Paint Repair sales.

      (1)   License fees,  including  Intellectual  Property license,  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.
Resales of software and technology  equipment  represent revenue from the resale
of purchased  third party  hardware and software  products and from  consulting,
education, maintenance and post contract customer support services.

      The basis for license fee revenue recognition is substantially governed by
American  Institute  of  Certified  Public  Accountants  ("AICPA")  Statement of
Position 97-2  "Software  Revenue  Recognition"  ("SOP 97-2"),  as amended,  and
Modification of SOP 97-2, Software Revenue Recognition,  with Respect to Certain
Transactions.  License  revenue  is  recognized  if  persuasive  evidence  of an
agreement exists, delivery has occurred, pricing is fixed and determinable,  and
collectibility is probable.


                                      F-11


      (2)   Revenue for resale of software and technology  equipment and service
fee is  recognized  based  on  guidance  provided  in  Securities  and  Exchange
Commission  (SEC) Staff  Accounting  Bulletin No. 104,  "Revenue  Recognition in
Financial  Statements," as amended (SAB 104). Software and technology  equipment
resale  revenue  is  recognized  when  all of the  components  necessary  to run
software or hardware have been shipped.  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.  Software
license revenue from long-term  contracts has been recognized on a percentage of
completion  basis,  along with the  associated  services being  provided.  Other
service  revenues,  including  training and  consulting,  are  recognized as the
services are  performed.  The Company uses  stand-alone  pricing to determine an
element's  vendor  specific  objective  evidence  (VSOE) in order to allocate an
arrangement  fee amongst various pieces of a  multi-element  contract.  NeoMedia
records an allowance for uncollectible accounts on a customer-by-customer  basis
as appropriate.

      (3)   NeoMedia's  Micro Paint Repair  business unit derives  revenue from:
(a) the right to use NeoMedia's proprietary Micro Paint Repair system, (b) paint
products and services, (c) training, and (d) technical support.

            (a)   Paint  system  revenue  is a one-time  fee paid by  NeoMedia's
                  customer to use NeoMedia's  proprietary  paint system,  and is
                  deferred  and  recognized   over  the  expected  life  of  the
                  relationship, which was estimated at one year during 2004.
            (b)   Paint product and service  revenue is recognized when products
                  are shipped or when services are performed.
            (c)   Training   revenue  is   recognized   upon   completion  of  a
                  company-certified training course.
            (d)   Technical  support revenue is recognized on a monthly basis as
                  support services are provided.

SHIPPING AND HANDLING COSTS

      Shipping and handling costs are passed through to the Company's customers,
and are netted in cost of goods sold.

RESEARCH AND DEVELOPMENT

      Costs  associated  with the  planning  and  designing  phase  of  software
development,  including  coding and testing  activities,  and related  overhead,
necessary   to   establish   technological    feasibility   of   the   Company's
internally-developed   software   products,   are  classified  as  research  and
development and expensed as incurred.

STOCK BASED COMPENSATION

      The Company  accounts for  stock-based  compensation  in  accordance  with
Accounting Principles Board ("APB") Opinion No. 25. "Accounting for Stock Issued
to  Employees,"  and complies  with the  disclosure  provisions  of SFAS No. 123
"Accounting for Stock-Based  Compensation."  Under APB No. 25, compensation cost
is recognized  over the vesting period based on the excess,  if any, on the date
of grant of the fair value of the Company's shares over the employee's  exercise
price.  When the exercise  price of the option is less than the fair value price
of the  underlying  shares on the grant date,  deferred  stock  compensation  is
recognized  and amortized to expense in  accordance  with  Financial  Accounting
Standards  Board ("FASB")  Interpretation  No. 44 over the vesting period of the
individual options. Accordingly, if the exercise price of the Company's employee
options equals or exceeds the market price of the underlying  shares on the date
of grant no compensation expense is recognized.  Options or shares awards issued
to non-employees and directors are valued using the Black-Scholes  pricing model
and expensed over the period services are provided.

      In  December  2002,  the  FASB  issued  SFAS  No.  148,   "Accounting  for
Stock-Based Compensation-Transition and Disclosure," which amends, SFAS No. 123,
"Accounting for Stock-Based  Compensation,"  to provide  alternative  methods of
transition  for a voluntary  change to the fair value based method of accounting
for stock-based  employee  compensation.  In addition,  SFAS No. 148 expands the
disclosure requirements of SFAS No. 123 to require more prominent disclosures in
both annual and interim financial  statements about the method of accounting for
stock-based employee  compensation and the effect of the method used on reported
results.  The  transition  provisions  of SFAS No. 148 are  effective for fiscal
years ended after December 15, 2002. The transition  provisions do not currently
have an impact on the Company's  consolidated  financial position and results of


                                      F-12


operations as the Company has not elected to adopt the fair  value-based  method
of accounting  for  stock-based  employee  compensation  under SFAS NO. 123. The
disclosure provisions of SFAS No. 148 are effective for financial statements for
interim  periods  beginning  after  December 15, 2002.  The Company  adopted the
disclosure requirements in the first quarter of 2003.

      The Company  accounts for its stock option plans under the recognition and
measurement  principles  of APB Opinion No. 25,  Accounting  for Stock Issued to
Employees,  and related  Interpretations.  No stock-based employee  compensation
cost is reflected in net loss, except when options granted under those plans had
an exercise price less than the market value of the  underlying  common stock on
the date of grant.  The following  table  illustrates the effect on net loss and
loss per share if the company had applied the fair value recognition  provisions
of  FASB  Statement  No.  123,  Accounting  for  Stock-Based  Compensation,   to
stock-based employee compensation.

                                                       YEARS ENDED
                                                       DECEMBER 31,
                                                ------------------------
                                                    2004        2003
                                                ----------- ------------
Net Loss, as reported                             ($7,230)     ($5,382)
Compensation recognized under APB 25                  ---          623
Compensation recognized under SFAS 123             (1,445)        (962)
                                                ----------- ------------
   Pro-forma net loss                             ($8,675)     ($5,721)
                                                =========== ============

Net Loss per share:
Basic and diluted - as reported                    ($0.02)      ($0.04)
                                                =========== ============
Basic and diluted - pro-forma                      ($0.03)      ($0.05)
                                                =========== ============

      For grants in 2004 and 2003, the following  assumptions  were used: (i) no
expected  dividends;  (ii) a risk-free  interest  rate of 4.5%;  (iii)  expected
volatility  ranging  from  438% to 451% for 2004 and from 253% to 457% for 2003,
and (iv) an  expected  life of the  shorter of 3 years or the stated life of the
option for options granted in 2004 and 2003. The fair-value was determined using
the Black-Scholes option-pricing model.

      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.  These  options  vest in the same  manner  as the  employee  options
granted under each of the option plans as described above.

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
Company has recorded a 100% valuation allowance as of December 31, 2004.

TRANSLATION OF FOREIGN CURRENCY

      The functional  currency of the Company's  Micro Paint Repair  business is
the Canadian dollar.  Financial  statements from the Micro Paint Repair business
unit are  translated to United States dollars at the exchange rates in effect at
the balance sheet date for assets and  liabilities  and at average rates for the
period for revenues and expenses. Resulting exchange differences are accumulated
as a component of accumulated other comprehensive loss.


                                      F-13


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  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:

                                        DECEMBER 31, 2004    DECEMBER 31, 2003
      Outstanding Stock Options             52,804,121           33,512,507
      Outstanding Warrants                  18,825,000           26,195,000

RECLASSIFICATIONS

      Certain   reclassifications  have  been  made  to  the  2002  consolidated
financial statements to conform to the 2003 presentation.


                                      F-14


RECENT ACCOUNTING PRONOUNCEMENTS

      In December 2003, the  Securities and Exchange  Commission  ("SEC") issued
Staff  Accounting  Bulletin  ("SAB") No.  104,  "Revenue  Recognition."  SAB 104
supersedes SAB 101,  "Revenue  Recognition in Financial  Statements."  SAB 104's
primary purpose is to rescind  accounting  guidance contained in SAB 101 related
to multiple element revenue arrangements, superseded as a result of the issuance
of EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables."
Additionally,  SAB 104  rescinds  the SEC's  Revenue  Recognition  in  Financial
Statements  Frequently  Asked  Questions and Answers ("the FAQ") issued with SAB
101 that had been  codified  in SEC  Topic  13,  Revenue  Recognition.  Selected
portions of the FAQ have been  incorporated  into SAB 104.  While the wording of
SAB  104 has  changed  to  reflect  the  issuance  of EITF  00-21,  the  revenue
recognition  principles of SAB 101 remain  largely  unchanged by the issuance of
SAB 104,  which was  effective  upon  issuance.  The adoption of SAB 104 did not
impact the consolidated financial statements.

      In March 2004,  the FASB  approved the  consensus  reached on the Emerging
Issues Task Force (EITF) Issue No.  03-1,  "The Meaning of  Other-Than-Temporary
Impairment and Its  Application to Certain  Investments."  The objective of this
Issue is to provide  guidance for identifying  impaired  investments.  EITF 03-1
also provides new disclosure  requirements for investments that are deemed to be
temporarily  impaired.  In September 2004, the FASB issued a FASB Staff Position
(FSP)  EITF  03-1-1  that  delays  the  effective  date of the  measurement  and
recognition guidance in EITF 03-1 until after further deliberations by the FASB.
The disclosure  requirements  are effective only for annual periods ending after
June 15,  2004.  The Company  has  evaluated  the impact of the  adoption of the
disclosure  requirements  of EITF 03-1 and does not  believe  the impact will be
significant  to  the  Company's  overall  results  of  operations  or  financial
position.  Once  the  FASB  reaches  a final  decision  on the  measurement  and
recognition provisions,  the company will evaluate the impact of the adoption of
EITF 03-1.

      In  November  2004,  the FASB  issued SFAS No. 151  "Inventory  Costs,  an
amendment of ARB No. 43, Chapter 4. The amendments made by Statement 151 clarify
that abnormal  amounts of idle facility  expense,  freight,  handling costs, and
wasted materials  (spoilage) should be recognized as current-period  charges and
require the allocation of fixed  production  overheads to inventory based on the
normal  capacity of the  production  facilities.  The guidance is effective  for
inventory  costs  incurred  during fiscal years  beginning  after June 15, 2005.
Earlier  application  is permitted for inventory  costs  incurred  during fiscal
years  beginning after November 23, 2004. . The Company has evaluated the impact
of the adoption of SFAS 151, and does not believe the impact will be significant
to the Company's overall results of operations or financial position.

      In December 2004, the FASB issued SFAS No.152, "Accounting for Real Estate
Time-Sharing Transactions--an amendment of FASB Statements No. 66 and 67" ("SFAS
152).  The  amendments  made by  Statement  152 amend  FASB  Statement  No.  66,
Accounting for Sales of Real Estate,  to reference the financial  accounting and
reporting guidance for real estate time-sharing transactions that is provided in
AICPA Statement of Position (SOP) 04-2,  Accounting for Real Estate Time-Sharing
Transactions.  This Statement also amends FASB Statement No. 67,  Accounting for
Costs and Initial Rental  Operations of Real Estate Projects,  to state that the
guidance  for (a)  incidental  operations  and (b) costs  incurred  to sell real
estate  projects does not apply to real estate  time-sharing  transactions.  The
accounting  for those  operations  and costs is subject to the  guidance  in SOP
04-2.  This  Statement is effective  for financial  statements  for fiscal years
beginning after June 15, 2005 with earlier application  encouraged.  The Company
has  evaluated  the impact of the adoption of SFAS 152, and does not believe the
impact will be  significant  to the Company's  overall  results of operations or
financial position.

      In December 2004,  the FASB issued SFAS No.153,  "Exchanges of Nonmonetary
Assets,  an  amendment  of  APB  Opinion  No.  29,  Accounting  for  Nonmonetary
Transactions."  The amendments  made by Statement 153 are based on the principle
that exchanges of nonmonetary  assets should be measured based on the fair value
of the assets exchanged.  Further, the amendments eliminate the narrow exception
for  nonmonetary  exchanges of similar  productive  assets and replace it with a
broader  exception  for  exchanges  of  nonmonetary  assets  that  do  not  have
commercial substance. Previously, Opinion 29 required that the accounting for an
exchange of a productive  asset for a similar  productive asset or an equivalent
interest in the same or similar productive asset should be based on the recorded
amount of the asset relinquished.  Opinion 29 provided an exception to its basic
measurement  principle (fair value) for exchanges of similar  productive assets.
The Board  believes that  exception  required that some  nonmonetary  exchanges,
although commercially substantive, be recorded on a carryover basis. By focusing
the exception on exchanges that lack  commercial  substance,  the Board believes
this Statement produces financial reporting that more faithfully  represents the


                                      F-15


economics of the transactions.  The Statement is effective for nonmonetary asset
exchanges  occurring in fiscal periods  beginning  after June 15, 2005.  Earlier
application is permitted for  nonmonetary  asset  exchanges  occurring in fiscal
periods  beginning after the date of issuance.  The provisions of this Statement
shall be applied  prospectively.  The  Company has  evaluated  the impact of the
adoption of SFAS 152, and does not believe the impact will be significant to the
Company's overall results of operations or financial position.

      In December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
Payment".  Statement 123(R) will provide  investors and other users of financial
statements  with more complete and neutral  financial  information  by requiring
that the  compensation  cost relating to  share-based  payment  transactions  be
recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability  instruments issued.  Statement 123(R) covers a
wide range of share-based  compensation  arrangements  including  share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. Statement 123(R) replaces FASB Statement No. 123,
Accounting  for  Stock-Based  Compensation,  and  supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. Statement 123, as originally issued in
1995,  established  as preferable a  fair-value-based  method of accounting  for
share-based  payment  transactions  with  employees.   However,  that  Statement
permitted entities the option of continuing to apply the guidance in Opinion 25,
as long as the footnotes to financial statements disclosed what net income would
have been had the preferable  fair-value-based method been used. Public entities
(other than those filing as small  business  issuers)  will be required to apply
Statement  123(R) as of the first interim or annual reporting period that begins
after December 15, 2005.  The Company is currently  evaluating the impact of the
adoption of this Statement.

3.    EQUITY LINE OF CREDIT WITH CORNELL CAPITAL PARTNERS ("CORNELL")

      On February 11, 2003,  NeoMedia and Cornell entered into an Equity Line of
Credit  Agreement  under which  Cornell  agreed to purchase up to $10 million of
NeoMedia's  common stock over a two-year  period,  with the timing and amount of
the purchase at the Company's  discretion.  The maximum  amount of each purchase
was  $150,000  with a minimum of seven days between  purchases.  The shares were
valued  at 98% of the  lowest  closing  bid price  during  the  five-day  period
following the delivery of a notice of purchase by NeoMedia.  The Company paid 5%
of the gross proceeds of each purchase to Cornell.

      On October 27,  2003,  the Company and Cornell  entered into a $20 million
Standby Equity Distribution Agreement.  The terms of the agreement are identical
to the terms of the  previous  Equity  Line of Credit,  except  that the maximum
"draw" under the new agreement is $280,000 per week,  not to exceed  $840,000 in
any 30-day period,  and Cornell will purchase up to $20 million of the Company's
common stock over a two-year period. As a consideration fee for Cornell to enter
into the agreement,  the Company  issued 10 million  warrants to Cornell with an
exercise price of $0.05 per share, and a term of five years.  Cornell  exercised
the  warrants  in January  2004,  resulting  in  $500,000  cash  receipts to the
Company. In November 2003, the Company filed a Form SB-2 to register 200 million
shares under this $20 million Standby Equity Distribution  Agreement. In January
2004,  the Form SB-2 was  declared  effective  by the  Securities  and  Exchange
Commission.


                                      F-16


      During the years  ended  December  31,  2004 and 2003,  the  Company  sold
112,743,417 and 98,933,244 shares, respectively,  of its common stock to Cornell
under the Standby Equity  Distribution  Agreement and Equity Line of Credit. The
following  table  summarizes  funding  received  and from,  and shares  sold to,
Cornell during the years ended December 31, 2004 and 2003:

                                                  YEAR ENDED DECEMBER 31,
                                              --------------------------------
                                                  2004              2003
                                              --------------    --------------
Number of shares sold to Cornell               112,743,417        98,933,244

Gross Proceeds from sale of
shares to Cornell                               10,123,000         9,565,000
Less: discounts and fees*                       (1,967,000)       (6,772,000)
                                              --------------    --------------
   Net Proceeds from sale of
     shares to Cornell                          $8,156,000        $2,793,000
                                              --------------    --------------


----------
*     - In accordance with terms of Standby Equity Distribution Agreement, stock
      is valued at 98% of the  lowest  closing  bid price  during the week it is
      sold

5.    PROPERTY AND EQUIPMENT

      As  of  December  31,  2004,  property  and  equipment  consisted  of  the
following:

                                                     (dollars in
                                                      thousands)
                                                     ------------
                                                        2004
                                                     ------------
Furniture and fixtures                               $        273
Equipment                                                     149
                                                     ------------
        Total                                                 422
Less: accumulated depreciation
     Furniture and fixtures                                  (262)
     Equipment                                                (50)
                                                     ------------
        Total property and equipment, net            $        110
                                                     ============

      Depreciation  expense was $66,000 and $83,000 for the years ended December
31, 2004 and 2003, respectively.


                                      F-17


6.    INTANGIBLE ASSETS

      As of December 31, 2004, intangible assets consisted of the following:

                                                     (dollars in
                                                      thousands)
                                                     ------------
                                                         2004
                                                     ------------
      Patents and related costs                      $      3,645
      Micro paint repair chemical formulations and
        proprietary process                                 1,800
      Goodwill                                              1,099
      Other intangible assets                                 788
                                                     ------------
        Total                                               7,332
      Less: accumulated amortization
      Patents and related costs                            (1,471)
      Micro paint repair chemical formulations and
         proprietary process                                 (170)
      Other intangibles                                      (567)
                                                     ------------
          Intangible assets, net                     $      5,124
                                                     ============

      Capitalized  patent  activity for the year ended  December 31, 2004 was as
follows:

                                                     (dollars in
                                                      thousands)
                                                     ------------
                                                         2004
                                                     ------------
      Beginning balance                              $      2,415
      Additions                                                80
      Amortization                                           (321)
                                                     ------------
         Ending balance                              $      2,174
                                                     ============

      Amortization  expense of capitalized patents was $321,000 and $273,000 for
the years ended December 31, 2004 and 2003,  respectively.  The weighted-average
amortization  period of  capitalized  patents as of  December  31,  2004 was 7.6
years.

      Capitalized Micro Paint Repair chemical formulations and propriety process
activity for the year ended December 31, 2004 was as follows:

                                                     (dollars in
                                                       thousands)
                                                     ------------
                                                         2004
                                                     ------------
      Beginning balance                              $        ---
      Micro paint repair chemical formulations and
        propriety process obtained through
        acquisition of CSI International                    1,800
      Amortization                                           (170)
                                                     ------------
         Ending balance                              $      1,630
                                                     ============

      Amortization  expense of Micro  Paint  Repair  chemical  formulations  and
propriety  process was $170,000 and $0 for the years ended December 31, 2004 and
2003,  respectively.  The  weighted-average  amortization  period of capitalized
repair chemical  formulations and propriety  process as of December 31, 2004 was
10 years.


                                      F-18


      Capitalized  goodwill activity for the year ended December 31, 2004 was as
follows:

                                                     (dollars in
                                                      thousands)
                                                     ------------
                                                         2004
                                                     ------------
      Beginning balance                              $        ---
      Goodwill obtained through acquisition of
        CSI International                                   1,099
                                                     ------------
         Ending balance                              $      1,099
                                                     ============

      There was no amortization expense of goodwill for the years ended December
31, 2004 and 2003, respectively.


      Other intangible  assets activity for the year ended December 31, 2004 was
as follows:

                                                     (dollars in
                                                       thousands)
                                                     ------------
                                                         2004
                                                     ------------
      Beginning balance                              $        118
      Additions                                               220
      Amortization                                           (117)
                                                     ------------
         Ending balance                              $        221
                                                     ============

      Amortization expense of capitalized and purchased software costs and other
intangible  assets was $117,000  and  $114,000 for the years ended  December 31,
2004  and  2003,  respectively.  The  weighted-average  amortization  period  of
capitalized and purchased software costs as of December 31, 2004 was 4.7 years.

      As of December 31, 2004, the Company estimated future amortization expense
of capitalized patents and software for the next five years to be:

                                                    (IN THOUSANDS)
                                                     ------------
                                         2005                 598
                                         2006                 525
                                         2007                 498
                                         2008                 487
                                         2009                 437


                                      F-19


7.    ALLOWANCE FOR DOUBTFUL ACCOUNTS AND INVENTORY RESERVE

      Allowance for doubtful  accounts  activity for the year ended December 31,
2004 was as follows:

                                                     (dollars in
                                                      thousands)
                                                     ------------
                                                         2004
                                                     ------------
      Beginning balance                              $         49
      Bad debt                                                 24
      Write-off of uncollectible accounts                     (27)
                                                     ------------
         Ending balance                              $         46
                                                     ============

      Inventory reserve for the year ended December 31, 2004 was $0.

8.    FINANCING AGREEMENTS

      As of December 31, 2004,  the Company was party to a commercial  financing
agreement with GE Access that provides short-term financing for certain computer
hardware and software purchases.  This arrangement allows the Company to re-sell
high-dollar  technology equipment and software without committing cash resources
to financing the purchase.  Termination of the Company's financing  relationship
with GE Access  could have a material  adverse  effect the  Company's  financial
condition.  Management  expects  the  agreement  to  remain in place in the near
future.  As of  December  31,  2004 the  amount  payable  under  this  financing
arrangement was approximately $17,000.

9.    NOTES PAYABLE

      On March 13, 2003,  the Company  borrowed from Cornell the gross amount of
$262,000 before discounts and fees. The note was repaid in full during 2003.

      On May 27,  2003,  the Company  borrowed  from Cornell the gross amount of
$245,000 before discounts and fees. The note was repaid in full during 2003.

      On June 24, 2003,  the Company  borrowed  from Cornell the gross amount of
$400,000 before discounts and fees. The note was repaid in full during 2003.

      On July 9, 2003, the Company  borrowed  $25,000 from William E. Fritz, one
of its outside directors.  This amount was added to the principal of the $10,000
note payable to Mr. Fritz  entered into during April 2003,  with all other terms
of the note  remaining  the same.  As  consideration  for the loan,  the Company
granted Mr. Fritz 2,500,000  warrants to purchase shares of the Company's common
stock at an exercise price of $0.01 per share.  The warrants had a fair value of
approximately  $74,000.  In accordance with EITF 00-27, the Company recorded the
relative  fair value of the  warrants  as a discount  against  the note,  and is
amortizing  the  discount  over the life of the note.  The note was paid in full
during April 2004.

      On July 21, 2003,  the Company  borrowed  from Cornell the gross amount of
$200,000 before discounts and fees. The note was repaid in full during 2003.

      On August 1, 2003,  the Company  borrowed from Cornell the gross amount of
$200,000 before discounts and fees. The note was repaid in full during 2003.

      On August 29, 2003,  the Company  borrowed  $50,000 from William E. Fritz,
one of its outside directors, under an unsecured note payable. The note was paid
in full during September 2003.

      On September 2, 2003,  the Company  borrowed from Cornell the gross amount
of $200,000 before discounts and fees. The note was repaid in full during 2003.


                                      F-20


      On  September  11,  2003,  the Company  received  funding in the form of a
promissory  note from Cornell in the gross amount of $500,000  before  discounts
and fees. The note was repaid in full during 2003.

      On September 29, 2003, the Company  borrowed from Cornell the gross amount
of  $1,500,000  before  discounts  and fees.  The note was repaid in full during
2003.

      On January 20, 2004, the Company borrowed from Cornell the gross amount of
$4,000,000 before discounts and fees. Of the $4,000,000 funding,  $2,500,000 was
used to fund the  acquisition of CSI  International,  Inc. during February 2004.
Cornell  withheld a $315,000  retention  fee related to the issuance of stock to
pay off the debt in the future. The Company paid this note in full during 2004.

      The Company also granted to Cornell 40,000,000 warrants to purchase shares
of NeoMedia stock with an exercise price of $0.05 per share during January 2004.
In April  2004,  the Company  filed a Form SB-2 to  register  40 million  shares
underlying warrants granted to Cornell (and subsequently  transferred by Cornell
to Stone Street  Asset  Management  LLC) in  connection  with a promissory  note
issued by the Company to. In May 2004,  the Form SB-2 was declared  effective by
the Securities and Exchange Commission. The fair value of the warrants using the
Black-Scholes  pricing  model  was  $5,000,000.   In  accordance  with  APB  14,
"Accounting for Convertible Debt and Debt Issued with Stock Purchase  Warrants",
the Company has compared  the relative  fair values of the warrants and the face
value of the notes,  and has  allocated a value of $2.5 million to the warrants.
Of the $2.5  million,  $2 million was allocated to the $4 million note issued in
January  2004 and $0.5 million  against the $1 million  note in April 2004.  The
$2.5 million was recorded as a discount  against the carrying value of the note.
The $2.5 million that was allocated to the notes is considered a discount on the
promissory  notes,  and therefore was amortized over the life of the notes using
the effective interest method, in accordance with Staff Accounting  Bulletin No.
77,  Topic  2.A.6,  "Debt  Issue  Costs" of SFAS 141,  "Business  Combinations".
Accordingly,  the Company  recorded an  amortization  of discount of  $2,500,000
related to the warrants  during the year ended  December31,  2004.  Stone Street
Asset  Management LLC exercised the warrants during November 2004,  resulting in
net funds to NeoMedia of $2 million.

      On April 8, 2004,  the Company  borrowed  from Cornell the gross amount of
$1,000,000  before discounts and fees.  Cornell withheld a $76,000 retention fee
related to the issuance of stock to pay off the debt in the future.  The Company
paid this note in full during 2004.

      On July 2, 2004,  the Company  borrowed  from  Cornell the gross amount of
$1,000,000  before discounts and fees.  Cornell withheld a $76,000 retention fee
related to the issuance of stock to pay off the debt in the future.  The Company
paid this note in full during 2004.

      On August 6, 2004,  the Company  borrowed from Cornell the gross amount of
$2,000,000  before  discounts  and fees.  Cornell  withheld a  retention  fee of
$153,000 related to the issuance of stock to pay off the debt in the future. The
Company paid this note in full during 2004.

      On October 18, 2004, the Company borrowed from Cornell the gross amount of
$1,085,000  before  discounts  and fees.  Cornell  withheld a  retention  fee of
$85,000  related to the issuance of stock to pay off the debt in the future.  As
of December 31, 2004,  the Company had not made any payments  against this note.
The Company paid this note in full during the first quarter of 2005. The Company
invested the proceeds from the note in  iPoint-media  pursuant to the investment
agreement between NeoMedia and I-Point Media Ltd.

10.   CONCENTRATIONS OF CREDIT RISK

      Financial  instruments that potentially subject NeoMedia to concentrations
of credit risk consist  primarily of trade accounts  receivable  with customers.
NeoMedia  extends  credit to its customers as determined on an individual  basis
and has included an allowance  for doubtful  accounts of $46,000 in its December
31, 2004 consolidated  balance sheet. In addition, a single company supplies the
majority of the Company's resold equipment and software, which is re-marketed to
this customer. Accordingly, the loss of this supplier could materially adversely
affect the Company's  operations.  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 37% and
83% of  NeoMedia's  revenue  for the years  ended  December  31,  2004 and 2003,
respectively.


                                      F-21


11.   ACQUISITIONS

      ACQUISITION OF CSI INTERNATIONAL, INC. ("CSI")

      On  February  6,  2004,   NeoMedia   acquired   100%   ownership   of  CSI
International,  Inc., of Calgary, Alberta, Canada, a private technology products
company in the micro  paint  repair  industry.  NeoMedia  paid a purchase  price
including  an  issuance of  7,000,000  shares of its common  stock,  and cash of
$2,500,000 in exchange for all outstanding shares of CSI. The shares were valued
at $0.10 per share, which was the market price of NeoMedia's common stock on the
Over-the-counter  Bulletin Board exchange around the acquisition date.  NeoMedia
also incurred direct costs of the business  combination  totaling $5,000,  which
are included in the purchase  price for purposes of allocating  assets  acquired
and liabilities assumed.

      The  acquisition was accounted for under the purchase  method.  The actual
purchase  price was based on cash paid,  the fair value of NeoMedia stock around
the date of the  acquisition,  and direct costs associated with the combination.
The purchase price was allocated as follows:

                                                     (Dollars in
                                                      Thousands)
                                                     ------------
Value of 7 Million Shares Issued ($0.10 per share)   $        700
Cash paid                                                   2,500
Direct costs of acquisition                                     5
                                                     ------------
   Total Fair Value of Purchase Price                $      3,205
                                                     ------------

Assets Purchased:
   Cash                                              $        115
   Accounts receivable, net                                    67
   Inventory                                                   54
   Other current assets                                        12
   Investments                                                 25
   Property, plant & equipment                                  8
   Micro paint repair chemical formulations and
     proprietary process                                    1,800
   Goodwill                                                 1,099
   Customer base / contracts                                  110
   Copyrighted materials                                       50
                                                     ------------
      Total Assets Purchased                                3,340
                                                     ------------

Less Liabilities Assumed:
   Accounts payable                                           (23)
   Accrued liabilities                                        (12)
   Notes payable                                             (100)
                                                     ------------
      Total Liabilities Assumed                              (135)
                                                     ------------


                                      F-22


      The combination is being accounted for as a purchase business  combination
as defined by Statement  of Financial  Accounting  Standards  No. 141,  Business
Combinations.  The  final  allocation  of the  excess  purchase  price  over net
tangible  assets was  determined  based on  independent  appraisal of the assets
purchased.  The values assigned to intangible assets,  aside from goodwill,  are
subject to amortization. The intangible assets were assigned the following lives
for amortization purposes:


      Intangible asset                             (life in years)
      ----------------                              -------------
      Micro paint repair chemical formulations
        and proprietary process                                10
      Customer base / contracts                                 5
      Copyrighted materials                                     5

      Goodwill  was not  assigned  a life and will be tested for  impairment  as
defined by Statement of Financial  Accounting  Standards No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets.

      The  accompanying  consolidated  statement of operations  presented herein
contains  the  results of  operations  for CSI for the period  February 6, 2004,
through December 31, 2004

      Pro-forma  results of operations as if NeoMedia and CSI had combined as of
January 1, 2004 and 2003 are as follows:



                                            YEAR ENDED DECEMBER 31, 2004                     YEAR ENDED DECEMBER 31, 2003
                                     --------------------------------------------     --------------------------------------------
                                                           (A)                                              (A)
                                                        PRO-FORMA                                        PRO-FORMA
                                                 CSI     ADJUST-       PRO-FORMA                  CSI     ADJUST-      PRO-FORMA
                                     NEOMEDIA   INT'L     MENTS        COMBINED       NEOMEDIA   INT'L     MENTS        COMBINED
                                     --------   -----    --------      ---------      --------   ------  ---------     -----------
                                                                                               
Total net sales                      $  1,700     791       (727)(A)   $   1,764      $  2,400      654        --- (A) $     3,054
Loss from operations                  ($4,681) (1,746)     1,720 (A)     ($4,707)      ($4,854)      34        --- (A)     ($4,820)
Net loss                              ($7,230) (2,639)     2,613 (A)     ($7,256)      ($5,382)      34        --- (A)     ($5,348)
Net loss per share-basic and diluted   ($0.02)                            ($0.02)       ($0.04)                    (A)      ($0.04)
Weighted average number of
 common shares - basic and
 diluted                          329,362,127            690,411 (B) 330,052,538   125,029,723           7,000,000 (B)  132,029,723


Pro-forma Adjustments
---------------------
(A)   -     Adjustments  are to reflect  operations of CSI from February 6, 2004
            through   December  31,  2004,  which  are  included  in  NeoMedia's
            operations for year ended December 31, 2004.

(B)   -     To adjust  weighted  average shares  outstanding as if the 7,000,000
            shares  issued as part of the  purchase  price of CSI on February 6,
            2004, had been issued on January 1, 2004 and 2003


                                      F-23


      BSD SOFTWARE, INC. ("BSD)

      On  December   21,  2004,   NeoMedia   Technologies,   Inc.   ("NeoMedia")
(OTCBB:NEOM)  and BSD Software Inc.  ("BSD")  (OTCBB:  BSDS) signed a definitive
Agreement  and Plan of Merger,  the form of which is  attached  as Exhibit  16.1
hereto.

      BSD owns 90% of the outstanding shares of Triton Global Business Services,
Inc., a provider of live and automated  operator calling services and e-business
support,  including billing,  clearinghouse and information management services,
to companies in the telecommunications industry.

      BSD's  shareholders  will  receive,  for each  share of BSD  stock  owned,
NeoMedia stock equivalent to .07 divided by the volume-weighted average price of
NeoMedia stock for the five days prior to the effective time of the merger.

      The agreement has been approved by holders of  approximately  63% of BSD's
outstanding  shares  and its  Board.  NeoMedia  and BSD  intend  to file a joint
registration/information statement with the SEC for review.

      Upon  effectiveness  of  the  registration,  the  exchange  rate  will  be
determined,  a closing meeting will be held, and the acquisition and merger will
be  completed.  Closing is subject to the terms and  conditions  outlined in the
merger   agreement,   as  well  as   regulatory   review  of  the   merger   and
registration/information  statement by the United States Securities and Exchange
Commission.

      Prior to closing,  the merger can be  terminated by BSD if more than 5% of
BSD's  outstanding  shares  dissent to the merger.  The merger can be terminated
prior to closing by NeoMedia if, at the time of closing,  BSD has: (i) less than
$850,000 in assets, (ii) more than $5,000,000 in liabilities, or (iii) more than
35,000,000  shares of common stock  outstanding.  Either party can terminate the
merger if the merger has not closed by July 31, 2005, which date may be extended
by mutual consent of NeoMedia and BSD.

      SECURE SOURCE TECHNOLOGIES, INC. ("SST")

      On October 8, 2003, the Company acquired 100% ownership of SST, a provider
of security  solutions and covert security  technology for the manufacturing and
financial  services  industries,  in  exchange  for 3.5  million  shares  of the
Company's  common  stock.  With  the  purchase  of  SST,  the  Company  acquired
additional patents that compliment its existing intellectual property portfolio,
as well as a security software platform,  and computer  equipment.  Prior to the
acquisition,  SST  was  inactive  and  had  minimal  operating  activities.  The
acquisition  was accounted  for under the purchase  method.  The final  purchase
price was  based on the fair  value of the  Company's  stock on the dates of the
grant. The purchase price was allocated as follows:

                                                     (Dollars in
                                                      Thousands)
                                                     ------------
Value of 3.5 Million Shares Issued (Purchase Price)  $        500

Assets Purchased:
   Computer Equipment                                           1
   Software Platform                                           77
   Patents                                                    422
                                                     ------------
      Total Purchase Price Allocation                $        500
                                                     ------------

      The proforma  financial  information is not presented as this  acquisition
was not considered  significant or material to the combined financial statements
on the date of the acquisition.

      The values assigned to intangible assets are subject to amortization.  The
acquired  software  platform  has  no  residual  value  and  a  weighted-average
amortization  period of 3 years. The acquired patents have no residual value and
a  weighted-average  amortization  period of 11.1 years.  The results of SST are
included in the consolidated financial statements for the period October 8, 2003
through December 31, 2004.


                                      F-24


13.   2000 EXECUTIVE INCENTIVE

      During the years ended December 31, 2004 and 2003, the Company satisfied a
portion of its 2000 accrued executive incentive  obligation through the issuance
of common  stock to current and former  employees  who had  participated  in the
plan. The Company relieved  approximately $160,000 and $692,000 of the liability
through the issuance of  approximately  1.5 and 15.4 million  shares  during the
years ended  December  31, 2004 and 2003,  respectively.  The excess of the fair
value of the common  stock  issued  over the  outstanding  accrued  bonuses  was
included in the gain (loss) on extinguishment of debt.

14.   COMPREHENSIVE LOSS

      Comprehensive  loss  consists  of net income  (loss)  and other  gains and
losses affecting  shareholders'  investment  that,  under accounting  principles
generally accepted in the United States,  are excluded from net income.  Changes
in the components of other comprehensive loss are as follows:

                                                         2004
                                                     ------------
Beginning balance                                    $        --
Additions:
   Foreign currency translation adjustment                    (60)
                                                     ------------
Ending Balance                                       $        (60)
                                                     ============


                                      F-25


15.   INCOME TAXES

      For the years ended  December 31, 2004 and 2003,  the components of income
tax expense were as follows:

                                            2004          2003
                                         ----------  ------------
                                              (IN THOUSANDS)
      Current.                           $       --  $         --
      Deferred                                   --            --
      Foreign                                    --            --
                                         ----------  ------------
         Income tax expense/(benefit)    $       --  $         --
                                         ==========  ============

      As of  December  31,  2004 and 2003,  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:

                                            2004          2003
                                         ----------  ------------
Accrued employee benefits                $      ---  $          8
Provisions for doubtful accounts                 18            20
Capitalized software development
   costs and fixed assets                       799           740
Net operating loss carryforwards (NOL)       30,319        27,014
Accruals                                        501           578
Write-off of long-lived assets                2,070         2,070
State taxes                                     156           107
Alternative minimum tax credit
  carryforward                                   45            45
                                         ----------  ------------
Total deferred tax assets                    33,908        30,582
Valuation Allowance                         (33,908)      (30,582)
                                         ----------  ------------
   Net deferred income tax asset         $      ---  $        ---
                                         ==========  ============

      Because it is more  likely  than not that  NeoMedia  will not  realize the
benefit of its deferred tax assets,  a valuation  allowance has been established
against them.

      For the years ended  December  31,  2004 and 2003,  the income tax benefit
differed from the amount computed by applying the statutory  federal rate of 34%
as follows:

                                            2004         2003
                                         ----------  ------------
Benefit at federal statutory rate        $   (2,458) $     (1,830)
State income taxes, net of federal             (286)         (213)
Permanent and other, net                       (582)          142
Change in valuation allowance                 3,326         1,901
                                         ----------  ------------
   Income tax expense/(benefit)          $      ---  $        ---
                                         ==========  ============

      As of December 31, 2004, NeoMedia had net operating loss carryforwards for
federal tax purposes  totaling  approximately  $76 million  which may be used to
offset future taxable  income,  or, if unused expire between 2011 and 2020. As a
result of certain of NeoMedia's equity activities, NeoMedia anticipates that the
annual usage of its pre-1998 net operating loss carryforwards  should be further
restricted  pursuant to the  provisions  of Section 382 of the Internal  Revenue
Code.


                                      F-26


16.   TRANSACTIONS WITH RELATED PARTIES

      During August 2003,  the Company  borrowed  $50,000 from William E. Fritz,
one of its outside directors,  under an unsecured note payable with a term of 30
days. The note was repaid in full during September 2003.

      During July 2003, the Company  borrowed $25,000 from William E. Fritz, one
of its outside  directors.  This amount was added to the  principal of a $10,000
note payable to Mr.  Fritz that  matures in April 2004,  with all other terms of
the note remaining the same. As consideration  for the loan, the Company granted
Mr.  Fritz  2,500,000  warrants  to  purchase  shares of its common  stock at an
exercise  price of $0.01 per share.  The full principle of $35,000 plus interest
was paid in full during 2004.

      During April 2003,  the Company  entered into a consulting  agreement with
William Fritz,  an outside  director,  for  consulting  and advisement  services
relating  to  the  merger  with  Loch  Energy,   Inc.,  and  to  the  subsequent
implementation  of various  management  programs  surrounding the business.  The
agreement  called  for total  payments  of  $250,000  over a period of one year.
During August 2003,  the Company paid the  consulting  contract in full.  During
September 2003, the consulting  contract was rescinded and the full $250,000 was
returned to NeoMedia.

      During April 2003, the Company's  Board of Directors  approved the payment
in full of approximately  $154,000 of liabilities owed by NeoMedia to Charles W.
Fritz, the Company's Founder and Chairman of the Board of Directors, through the
issuance of 15,445,967 shares of common stock. The Company recognized a discount
expense in general and administrative expenses of approximately $15,000 relating
to this transaction with Mr. Fritz.

      During April 2003, the Company sold 25,000,000 shares of its common stock,
par value $0.01, in a private placement at a price of $0.01 per share to William
Fritz.  The  Company's  stock  price  at the time of the  sale  was  $0.012.  In
connection  with the sale,  the  Company  also  granted  25,000,000  warrants to
purchase  shares of  NeoMedia  common  stock at an  exercise  price of $0.01 per
share.  The warrants  had a fair value of $298,000  and have been  recorded as a
cost of  issuance.  The  Company  recognized  a discount  expense in general and
administrative  expenses of  approximately  $50,000 relating to this transaction
with Mr.  Fritz.  On August 6,  2003,  Mr.  Fritz  exercised  his  warrants  and
purchased  25,000,000  additional shares of common stock at a price of $0.01 per
share.

      During November 2002, the Company issued  Convertible  Secured  Promissory
Notes with an aggregate face value of $60,000 to 3 separate  parties,  including
Charles W. Fritz,  Chairman of the Board of Directors  of  NeoMedia;  William E.
Fritz, an outside director;  and James J. Keil, an outside  director.  The notes
had an  interest  rate of 15% per annum,  and matured at the earlier of i.) four
months, or ii.) the date the shares underlying the Cornell Equity Line of Credit
were registered with the SEC. The notes were  convertible,  at the option of the
holder,  into  either  cash or shares  of the  Company's  common  stock at a 30%
discount to either market price upon closing,  or upon conversion,  whichever is
lower. The Company also granted to the holders an additional 1,355,670 shares of
its common stock and 60,000  warrants to purchase  shares of its common stock at
$0.03 per share, with a term of three years. The warrants and shares were issued
in January 2003. In addition,  since this debt is convertible into equity at the
option of the note holder at beneficial conversion rates, an embedded beneficial
conversion  feature was  recorded as a debt  discount  and  amortized  using the
effective interest rate over the life of the debt in accordance with EITF 00-27.
Total cost of beneficial conversion feature, fair value of the stock and cost of
warrants  issued  exceed the face value of the notes  payable,  therefore,  only
$60,000,  the face amount of the note, was  recognizable  as debt discount,  and
amortized  over the life of the notes  payable.  During  March 2003,  two of the
affiliated  parties,  Mr.  William  Fritz and Mr.  Keil,  agreed  to extend  the
maturity date due to NeoMedia's capital constraints.  The Company repaid Charles
Fritz's note in full during March 2003,  and repaid James J. Keil's note in full
during April 2003. The Company repaid the balance on William Fritz's note during
2004. The new note also included a provision under which, as  consideration  for
the loan,  Mr. Fritz will receive a 3% royalty on all future  revenue  generated
from the Company's intellectual property.

      During  April 2002,  the Company  borrowed  $11,000  from William E. Fritz
under a note  payable  bearing  interest at 8% per annum with a term of 60 days.
The note was repaid in April 2003.

      During March 2002,  the Company  borrowed  $190,000  from William E. Fritz
under a note  payable  bearing  interest at 8% per annum with a term of 16 days.
The note was repaid during March 2002.


                                      F-27


      During February 2002, the Company  borrowed  $10,000 from William E. Fritz
under a note  payable  bearing  interest at 8% per annum with a term of 30 days.
The note was repaid in April 2003.

      During  October 2001, the Company  borrowed  $4,000 from Charles W. Fritz,
NeoMedia's Chairman, its former Chief Executive Officer and a director,  under a
note payable  bearing  interest at 10% per annum with a term of six months.  The
note was repaid in April 2003.

      The Company believes that all of the above  transactions were conducted at
"arm's length",  representing what NeoMedia believes to be fair market value for
those services.

17.   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, 2004 and 2003,  NeoMedia's  rent  expense was  $229,000 and
$265,000, respectively.

      NeoMedia is party to various  payment  arrangements  with its vendors that
call for fixed  payments  on past due  liabilities.  NeoMedia  is also  party to
various consulting agreements that carry payment obligations into future years.

      The  following  is  a  schedule  of  the  future  minimum  payments  under
non-cancelable operating leases in effect as of December 31, 2004:


                                                       PAYMENTS
                                                    (IN THOUSANDS)
                                                     ------------
                                         2005                  89
                                         2006                 ---
                                         Thereafter           ---
                                                     ------------
                                         Total       $         89
                                                     ============

      As of  December  31,  2004,  none of the  Company's  employees  were under
contract.  Additionally, as of December 31, 2004, the Company was not a party to
any long-term consulting agreements that are required to be paid in cash.

      LEGAL PROCEEDINGS

      The  Company is involved in various  legal  actions  arising in the normal
course of business, both as claimant and defendant.  While it is not possible to
determine  with  certainty  the outcome of these  matters,  it is the opinion of
management  that the eventual  resolution of the  following  legal actions could
have a material adverse effect on the Company's  financial position or operating
results.

      AIRCLIC, INC., SCANBUY, INC., AND LSCAN TECHNOLOGIES, INC.

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


                                      F-28


      On April 19, 2004,  AirClic filed a declaratory  judgment  action  against
NeoMedia  in  the  Eastern  District  of  Pennsylvania.  NeoMedia  answered  and
counterclaimed on May 18, 2004. AirClic answered NeoMedia's counterclaim on June
10, 2004.  On April 20,  2004,  NeoMedia  re-filed  its suit against  AirClic in
Pennsylvania for patent infringement. AirClic answered and counterclaimed on May
13, 2004. NeoMedia filed its answer to AirClic's  counterclaims on June 2, 2004.
NeoMedia filed an amended  complaint on July 1, 2004,  and AirClic  answered and
counterclaimed on July 20, 2004.  NeoMedia's  answer to AirClic's  counterclaims
was filed on August 3, 2004.

      NeoMedia  voluntarily  dismissed  the suit  against  LScan in the Northern
District of  Illinois  and  re-filed  the suit on May 26,  2004,  in the Eastern
District of  Pennsylvania.  After  LScan  failed to answer,  NeoMedia  filed and
served its motion for default judgment on July 6, 2004.

      On March 29, 2004,  Scanbuy  filed suit  against  NeoMedia in the Southern
District of New York  alleging  that NeoMedia  infringed  Scanbuy's  copyrights,
violated the Lanham Act and  committed  deceptive  trade  practices and tortious
interference.  Scanbuy  filed an amended  complaint on June 23,  2004.  NeoMedia
filed its answer and  affirmative  defenses on July 23, 2004. On April 20, 2004,
NeoMedia  re-filed its suit against Scanbuy in the Southern District of New York
alleging patent infringement. Scanbuy filed its answer on June 2, 2004. NeoMedia
filed its answer and affirmative defenses on July 23, 2004.

      VIRGIN ENTERTAINMENT GROUP

      On January 2, 2004, NeoMedia filed a patent  infringement  lawsuit against
Virgin(R)   Entertainment  Group,  Inc.,  Virgin  Megastore  Online  and  Virgin
Megastore  ("Virgin").  The  complaint for Patent  Infringement  and Damages was
filed in the United States District Court for the Northern District of Illinois,
by  Baniak  Pine &  Gannon,  NeoMedia's  intellectual  property  law  firm.  The
complaint  claims that Virgin has infringed  four of  NeoMedia's  patents - U.S.
Patents Nos.  5,933,829,  5,978,773,  6,108,656,  and  6,199,048.  The complaint
alleges  that the  Virgin  Megaplay  Stations  located  in  Virgin's  Megastores
infringe  NeoMedia's  patents by using  Virgin's  Megascan  technology  to allow
customers to scan UPC codes from in-store CDs and DVDs to access  Internet-based
product information,  such as music and movie previews, and album and video art.
The complaint  also alleges that Virgin had notice of  NeoMedia's  patents since
the  latter  part  of 2002 or  before,  yet it  continued  with  its  infringing
activities.  The complaint seeks compensatory damages for Virgin's infringement,
with those  damages to be trebled due to the  willful  and wanton  nature of the
infringement. NeoMedia also seeks to preliminarily and permanently enjoin Virgin
from its infringing activities. Virgin answered NeoMedia's complaint on March 1,
2004.

      OTHER LITIGATION

      On October 28, 2002,  Merrick & Klimek,  P.C.,  filed a complaint  against
NeoMedia seeking payment of  approximately  $170,000 in past due legal services.
The amount in question is subject to an unsecured  promissory  note that matured
unpaid on February 28, 2002. On May 1, 2003,  NeoMedia settled the suit for cash
payments totaling  approximately  $196,000,  to be paid at a rate of $30,000 per
quarter  until the balance is satisfied.  NeoMedia had a remaining  liability of
approximately $33,000 relating to this matter as of December 31, 2004, which was
included in accrued expenses.

      On December 7, 2004,  Reitler  Brown & Rosenblatt  LLC,  filed a complaint
against  NeoMedia  seeking payment of  approximately  $422,000 in past due legal
services  and  accrued   interest.   NeoMedia  had  a  remaining   liability  of
approximately  $422,000  relating to this matter as of December 31, 2004,  which
was included in accounts payable and accrued expenses.

18.   DEFINED CONTRIBUTION SAVINGS PLAN

      NeoMedia   maintains  a  defined   contribution   401(k)   savings   plan.
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.  The plan  provides  for  matching and  discretionary
contributions by NeoMedia,  although no such contributions to the plan have been
made to date.


                                      F-29


19.   STOCK OPTIONS AND WARRANTS

      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.  These options granted expired
ten years from the date of grant. These options vest 100% one year 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 generally vest 20% upon grant and 20%
per year thereafter. The options expire ten years from the date of grant.

      Effective June 6, 2002,  NeoMedia  adopted its 2002 Stock Option Plan. The
2002 Stock Option Plan provides for authority for the stock option  committee of
the board of directors to grant  non-qualified  stock  options with respect to a
maximum of 10,000,000  shares of common stock.  The option exercise price may be
less than the fair market value per share of NeoMedia's common stock on the date
of grant,  and may be granted with any vesting schedule as approved by the stock
option committee.

      Effective September 24, 2003, NeoMedia adopted its 2003 Stock Option Plan.
The 2003 Stock Option Plan  provides for authority for the Board of Directors to
the grant  non-qualified  stock options with respect to a maximum of 150,000,000
shares of common  stock.  The  option  exercise  price may be less than the fair
market value per share of NeoMedia's  common stock on the date of grant, and may
be granted with any vesting schedule as approved by the stock option  committee.
On October  17,  2003,  NeoMedia  filed a Form S-8 to register  all  150,000,000
shares underlying the options in the 2003 Stock Option Plan.


                                      F-30


      The following table  summarizes the status of NeoMedia's  2003, 2002, 1998
and 1996 stock option plans as of and for the years ended  December 31, 2004 and
2003:



                                                  2004                         2003
                                        -------------------------    -------------------------
                                                       WEIGHTED                     WEIGHTED
                                                       AVERAGE                      AVERAGE
                                                       EXERCISE                     EXERCISE
                                         SHARES         PRICE         SHARES         PRICE
                                        ----------    -----------    ----------    -----------
                                                                       
                                           (In                          (In
                                        thousands)                  thousands)

Outstanding at beginning of year           33,512       $0.23           10,801       $1.11
Granted                                    32,752       $0.09           39,018       $0.01
Exercised                                 (12,860)      $0.23          (15,605)      $0.01
Forfeited                                    (600)      $0.09             (702)      $1.26
                                        ----------    -----------    ----------    -----------
   Outstanding at end of year              52,804       $0.06           33,512       $0.23*
                                        ==========    ===========    ==========    ===========

Options exercisable at year-end            34,680                       33,512

Weighted-average fair value
  of options granted during the year        $0.10                        $0.10

Available for grant at the end of the
year                                       81,873                      114,025


----------
*     -     Includes  3,644,382  options that had a restated  exercise  price of
            $0.01  under  option  repricing  program  that  was in  place  as of
            December 31, 2004.  For purposes of this table,  options  subject to
            repricing are shown at their original exercise price.

      The following table summarizes  information about NeoMedia's stock options
outstanding as of December 31, 2004:




                                 OPTIONS OUTSTANDING                                       OPTIONS EXERCISABLE
     ----------------------------------------------------------------------------    -------------------------------
                                                 WEIGHTED-
                                                  AVERAGE            WEIGHTED-                           WEIGHTED-
                                                 REMAINING            AVERAGE                             AVERAGE
         RANGE OF             NUMBER            CONTRACTUAL          EXERCISE            NUMBER          EXERCISE
      EXERCISE PRICES       OUTSTANDING            LIFE                PRICE          EXERCISABLE         PRICE
      ------------------    --------------    ------------------    --------------    --------------    -------------
                                                                                         
                            (In thousands)                                            (In thousands)

       $-- to $0.010              26,568         8.8   years           $0.01                26,568        $0.01
      0.011 to 0.087               4,640         9.4   years           $0.07                 3,516        $0.07
      0.088 to 0.160              21,575         9.1   years           $0.11                 4,575        $0.11
      0.170 to 7.000                  21         4.8   years           $6.89                    21        $6.89
     ------------------    --------------    ------------------    --------------    --------------    -------------
       $-- to $7.000              52,804         9.0   years           $0.06                34,680        $0.03
     ==================    ==============    ==================    ==============    ==============    =============



                                      F-31



      During the years  ended  December  31,  2004 and 2003,  NeoMedia  made the
following option grants:



                                               2004                                   2003
                                 ----------------------------------    -----------------------------------
                                      RANGE OF            OPTIONS           RANGE OF            OPTIONS
                                      EXERCISE            GRANTED           EXERCISE            GRANTED
      RECIPIENTS                       PRICES         (In thousands)         PRICES           (In thousands)
-----------------------------    --------------------    ----------    --------------------    -----------
                                                                                   
Employees                         $0.062 to $0.128          23,290      $0.010 to $0.010           31,725
Non-employee directors            $0.010 to $0.075           3,357      $0.010 to $0.010            3,000
Non-employees                     $0.025 to $0.100           6,105      $0.010 to $0.160            4,293
                                 --------------------    ----------    --------------------    -----------
   Total                          $0.010 to $0.128          32,752      $0.010 to $0.160           39,018
                                 --------------------    ----------    --------------------    -----------


OPTION-RELATED EXPENSE

      In June 2003,  the  Company  issued  375,000  options to buy shares of the
Company's common stock to two outside  consultants at a price of $0.01 per share
for consulting services rendered.  The Company recognized  approximately $13,000
in general and administrative expense in the accompanying consolidated financial
statements for the year ended December 31, 2003.

      In October 2003, the Company  issued 125,000  options to buy shares of the
Company's common stock to two outside  consultants at a price of $0.01 per share
for consulting services rendered.  The Company recognized  approximately $13,000
in general and administrative expense in the accompanying consolidated financial
statements for the year ended December 31, 2003.

      In October 2003, the Company issued 1,000,000 options to buy shares of the
Company's  common stock to an outside  consultant  at a price of $0.01 per share
for consulting to be provided over a period of one year. The options were valued
at approximately $102,000, of which the Company recognized approximately $20,000
in general and administrative expense in the accompanying consolidated financial
statements for the year ended December 31, 2003.

      In October 2003, the Company  issued 500,000  options to buy shares of the
Company's  common stock to an outside  consultant  at a price of $0.01 per share
for consulting to be provided over a period of one year. The options were valued
at approximately $51,000, of which the Company recognized  approximately $10,000
in general and administrative expense in the accompanying consolidated financial
statements for the year ended December 31, 2003.

      In November  2003,  the Company issued 50,000 options to buy shares of the
Company's  common stock to an outside  consultant  at a price of $0.06 per share
for consulting services rendered. The Company recognized approximately $7,000 in
general and administrative  expense in the accompanying  consolidated  financial
statements for the year ended December 31, 2003.

      In November 2003, the Company issued 150,000  options to buy shares of the
Company's  common stock to an outside  consultant  at a price of $0.16 per share
for consulting services rendered. The Company recognized approximately $3,000 in
general and administrative  expense in the accompanying  consolidated  financial
statements for the year ended December 31, 2003.

      In December  2003,  the Company issued 50,000 options to buy shares of the
Company's  common stock to an outside  consultant at a price of $0.052 per share
for consulting services rendered. The Company recognized approximately $7,000 in
general and administrative  expense in the accompanying  consolidated  financial
statements for the year ended December 31, 2003.

      In December  2003,  the Company issued 43,125 options to buy shares of the
Company's  common stock to an outside  consultant  at a price of $0.01 per share
for consulting services rendered. The Company recognized approximately $6,000 in
general and administrative  expense in the accompanying  consolidated  financial
statements for the year ended December 31, 2003.


                                      F-32


      In January 2004,  the Company  issued 50,000  options to buy shares of the
Company's  common stock to an outside  consultant at a price of $0.025 per share
for consulting  services rendered to the Company.  The Company recognized $7,000
in general and administrative expense in the accompanying consolidated financial
statements for the year ended December 31, 2004.

      During the period  January  through June 2004,  the Company issued 106,674
options to buy shares of the Company's common stock to James J. Keil, an outside
director,  at a price of $0.01 per share for consulting services rendered to the
Company  during  that  time.  The  Company  recognized  $9,000  in  general  and
administrative expense in the accompanying consolidated financial statements for
the year ended December 31, 2004.

      In February 2004, the Company  issued  5,555,556  options to buy shares of
the  Company's  common stock to an outside  consultant,  at a price of $0.01 per
share for  consulting  services  rendered to the  Company's  Micro Paint  Repair
business  over a period of three  years from the date of  issuance.  The Company
recorded $550,000 as deferred stock compensation at the time of issuance, and is
recognizing  this  amount  over the  period of the  contract.  Accordingly,  the
Company  recognized  $182,000  in  general  and  administrative  expense  in the
accompanying  consolidated  financial statements for the year ended December 31,
2004.

Warrants

      Warrant activity as of December 31, 2004 and 2003 was as follows:

Warrants Outstanding as of December 31, 2002               7,433,758
     Warrants issued                                      48,060,000
     Warrants exercised                                  (28,904,900)
     Warrants expired                                       (393,858)
                                                      --------------

Warrants Outstanding as of December 31, 2003              26,195,000
     Warrants issued                                      44,150,000
     Warrants exercised                                  (51,510,000)
     Warrants expired                                        (10,000)
                                                      --------------
Warrants Outstanding as of December 31, 2004              18,825,000
                                                      ==============

      The following table summarizes  information about warrants  outstanding at
December 31, 2004, all of which are exercisable:

                                                WEIGHTED-           WEIGHTED-
                                                 AVERAGE             AVERAGE
      RANGE OF             WARRANTS             REMAINING           EXERCISE
  EXERCISE PRICES         OUTSTANDING       CONTRACTUAL LIFE          PRICE
---------------------    --------------    --------------------    ------------
                         (In thousands)
   $--- to $0.05                13,050        3.5     years           $0.01
    0.06 to 3.56                 4,375        4.2     years           $0.28
    3.57 to 6.00                 1,400        0.8     years           $6.00
---------------------    --------------    --------------------    ------------
   $--- to $6.00                18,825        3.4     years           $0.52
=====================    ==============    ====================    ============

      During  January  2003,  the Company  granted  40,000,  10,000,  and 10,000
warrants with an exercise  price of $0.03 per share to William E Fritz,  Charles
W. Fritz, and James J. Keil,  respectively,  in connection with funding provided
to the Company by these individuals during November 2002.

      During February 2003, the Company  granted 500,000  warrants to GE Access,
its primary equipment supplier,  as payment of interest relating to a commercial
credit  agreement  between  GE  Access  and  NeoMedia.  The  Company  recognized
approximately  $7,000 in  interest  expense in the 2003  consolidated  financial
statements relating to the warrant issuance.  The warrants were exercised during
2004


                                      F-33


      During April 2003,  the Company  granted  25,000,000  warrants to purchase
shares  of  NeoMedia  common  stock at an  exercise  price of $0.01 per share to
William E. Fritz, an outside director,  in connection with financing provided to
the Company by Mr.  Fritz.  The warrants  were  exercised  during the year ended
December 31, 2003.

      During  July 2003,  the  Company  granted  2,500,000  warrants to purchase
shares  of  NeoMedia  common  stock at an  exercise  price of $0.01 per share to
William E. Fritz, an outside director,  in connection with financing provided to
the Company by Mr.  Fritz.  The warrants  were not  exercised as of December 31,
2004.

      During September 2003, the Company granted 10,000,000 warrants to purchase
shares of NeoMedia  common  stock at an exercise  price of $0.01 per share to an
outside  consultant for consulting,  advisory,  and financing services performed
during  the  third  and  fourth   quarters  of  2003.  The  Company   recognized
approximately  $93,000 in expense in the 2003 consolidated  financial statements
relating to the warrant issuance. The warrants were not exercised as of December
31, 2003.

      During October 2003, the Company granted to Cornell 10,000,000 warrants to
purchase shares of the Company's  common stock at an exercise price of $0.05 per
share, in connection with the $20 million Standby Equity Distribution  Agreement
entered into between the Company and Cornell. The warrants were not exercised as
of December 31, 2003. Cornell exercised the warrants during January 2004.

      During January 2004, the Company granted to Cornell 40,000,000 warrants to
purchase  shares of NeoMedia stock with an exercise price of $0.05 per share, as
consideration  for the issuance of two promissory  notes by Cornell to NeoMedia.
The first  note was for a face  amount of $4  million  and was issued in January
2004;  the second was for a face amount of $1 million  issued in April 2004. The
fair value of the warrants using the Black/Scholes pricing model was $5 million.
In accordance with APB 14, "Accounting for Convertible Debt and Debt Issued with
Stock Purchase  Warrants",  the Company compared the relative fair values of the
warrants and the face value of the notes,  and allocated a value of $2.5 million
to the warrants. Of the $2.5 million, $2 million was allocated to the $4 million
note issued in January  2004 and $0.5  million  against  the $1 million  note in
April 2004.  The $2.5  million was  recorded as a discount  against the carrying
value  of the  note.  The  $2.5  million  that  was  allocated  to the  notes is
considered a discount on the promissory  notes, and therefore was amortized over
the life of the notes using the effective  interest  method,  in accordance with
Staff Accounting  Bulletin No. 77, Topic 2.A.6,  "Debt Issue Costs" of SFAS 141,
"Business  Combinations".  Accordingly,  the Company recorded an amortization of
discount of $2,500,000  related to the warrants  during the year ended  December
31, 2004.  The warrants  were  subsequently  assigned by Cornell to Stone Street
Asset  Management LLC. Stone Street Asset  Management LLC exercised the warrants
during November 2004, resulting in net funds to NeoMedia of $2 million.

      During  February 2004, the Company  granted  150,000  warrants to purchase
shares of NeoMedia  common stock at an exercise  price of $0.102 per share to an
outside consultant.  The Company recognized  approximately $15,000 in expense in
the 2004 consolidated financial statements relating to the warrant issuance. The
warrants were not exercised as of December 31, 2004.

      During  March 2004,  the Company  granted  4,000,000  warrants to purchase
shares of NeoMedia  common  stock at an exercise  price of $0.11 per share to an
outside  consultant  as a finder fee related to financing  received by NeoMedia.
The Company charged the fair value of the warrants of $440,000 as a reduction to
capital accounts. The warrants were not exercised as of December 31, 2004.

      OPTION AND WARRANT REPRICING PROGRAMS

      During April 2003, the Company repriced approximately 1.9 million warrants
held by Thornhill Capital LLC, an outside consultant to the Company.  Of the 1.9
million  warrants,  1.5 million had an  exercise  price of $0.05 per share,  and
approximately  0.4  million had an  exercise  price of $2.09 per share.  All 1.9
million  warrants  were repriced to $0.00 per share.  The Company  recognized an
expense of approximately  $27,000 related to this transaction  during the second
quarter of 2003. These warrants were exercised immediately after the repricing.


                                      F-34


      During  May 2003,  NeoMedia  re-priced  approximately  8.0  million  stock
options under a repricing program.  Under the terms of the program, the exercise
price for outstanding options under NeoMedia's 2002, 1998, and 1996 Stock Option
Plans was  restated to $0.01 per share for an original  period of 6 months.  The
program was subsequently  extended through December 31, 2004. In accordance with
FASB Interpretation, FIN 44, Accounting for Certain Transactions Involving Stock
Transactions,  the award was accounted for as variable from May 19, 2003 through
the  period  ended   December  31,  2004.   Accordingly,   NeoMedia   recognized
approximately   $104,000   and   $746,000   as   compensation   in  general  and
administrative  expense  during  the years  ended  December  31,  2004 and 2003,
respectively.  Approximately  3.5 million and 4.4 million options were exercised
under  the  program   during  the  years  ended  December  31,  2004  and  2003,
respectively. The repricing program expired on December 31, 2004.

20.   SEGMENT AND GEOGRAPHICAL INFORMATION

      Beginning with 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.

      NeoMedia is structured as three distinct business units: NeoMedia Internet
Software Service (NISS),  NeoMedia  Consulting and Integration  Services (NCIS),
and NeoMedia Micro Paint Repair  (NMPR).  Performance is evaluated and resources
allocated  based  on  specific  segment  requirements  and  measurable  factors.
Management  uses the  Company's  internal  income  statements  to evaluate  each
business unit's performance.


                                      F-35


      Operational  results for the three  segments for the years ended  December
31, 2004 and 2003 are presented below:

                                                           (in thousands)
                                                     --------------------------
                                                            YEARS ENDED
                                                           DECEMBER 31,
                                                     --------------------------
                                                         2004         2003
                                                     ------------   -----------
NET SALES:
      NeoMedia Consulting & Integration Services     $        910   $     2,354
      NeoMedia Internet Switching Service                      62            46
      NeoMedia Micro Paint Repair                             728           ---
                                                     ------------   -----------
                                                     $      1,700   $     2,400
                                                     ------------   -----------

NET LOSS:
      NeoMedia Consulting & Integration Services          ($1,862)      ($4,331)
      NeoMedia Internet Switching Service                  (2,755)       (1,051)
      NeoMedia Micro Paint Repair                          (2,613)          ---
                                                     ------------   -----------
                                                          ($7,230)      ($5,382)
                                                     ------------   -----------

IDENTIFIABLE ASSETS
      NeoMedia Consulting & Integration Services     $        274
      NeoMedia Internet Switching Service                   2,423
      NeoMedia Micro Paint Repair                           3,183
      Corporate                                             4,526
                                                     ------------
                                                     $     10,406
                                                     ------------

      Net  revenues,  loss,  and  identifiable  assets  by  geographic  area are
presented  based upon the country of  destination.  During  2004,  NeoMedia  had
operations  and assets in the United  States and Canada.  During 2003,  NeoMedia
operated within the United States only. No other foreign country represented 10%
or more of net  revenues  for the years ended  December  31,  2004 or 2003.  Net
revenues, loss, and identifiable assets by geographic area were as follows:

                                                           (in thousands)
                                                     --------------------------
                                                             YEARS ENDED
                                                            DECEMBER 31,
                                                     --------------------------
                                                         2004          2003
                                                     ------------   -----------
                    NET SALES:
                          United States              $      1,063   $     2,400
                          Canada                              637           ---
                                                     ------------   -----------
                                                     $      1,700   $     2,400
                                                     ------------   -----------
                    NET LOSS:
                          United States                   ($6,516)      ($5,382)
                          Canada                             (714)          ---
                                                     ------------   -----------
                                                          ($7,230)      ($5,382)
                                                     ------------   -----------
                    IDENTIFIABLE ASSETS
                          United States              $      7,272   $     3,876
                          Canada                            3,134           ---
                                                     ------------   -----------
                                                     $     10,406   $     3,876
                                                     ------------   -----------


                                      F-36


21.   COMMON STOCK

      Holders of common  stock are  entitled  to one vote for each share held of
record on each matter submitted to a vote of stockholders. Holders of the common
stock do not have cumulative voting rights, which means that the holders of more
than one half of NeoMedia's  outstanding shares of common stock,  subject to the
rights of the holders of preferred stock, can elect all of NeoMedia's directors,
if they choose to do so. In this event,  the holders of the remaining  shares of
common  stock  would not be able to elect any  directors.  Subject  to the prior
rights of any class or series of preferred  stock which may from time to time be
outstanding,  if any,  holders of common stock are entitled to receive  ratably,
dividends  when,  as, and if  declared  by the Board of  Directors  out of funds
legally   available   for  that  purpose  and,  upon   NeoMedia's   liquidation,
dissolution,  or  winding  up,  are  entitled  to share  ratably  in all  assets
remaining  after  payment of  liabilities  and payment of accrued  dividends and
liquidation  preferences on the preferred stock, if any. Holders of common stock
have no preemptive  rights and have no rights to convert their common stock into
any other  securities.  The  outstanding  common  stock is duly  authorized  and
validly issued, fully-paid, and nonassessable.

      On September 24, 2003,  the Company's  shareholders  voted to increase the
number of shares of common stock, par value $0.01 per share, that the Company is
authorized to issue from 200,000,000 to 1,000,000,000.

      On February 11, 2003,  NeoMedia and Cornell entered into an Equity Line of
Credit  Agreement  under which  Cornell  agreed to purchase up to $10 million of
NeoMedia's  common stock over a two-year  period,  with the timing and amount of
the purchase at the Company's  discretion.  The maximum  amount of each purchase
was  $150,000  with a minimum of seven days between  purchases.  The shares were
valued  at 98% of the  lowest  closing  bid price  during  the  five-day  period
following the delivery of a notice of purchase by NeoMedia.  The Company paid 5%
of the gross proceeds of each purchase to Cornell.

      On October 27,  2003,  the Company and Cornell  entered into a $20 million
Standby Equity Distribution Agreement.  The terms of the agreement are identical
to the terms of the  previous  Equity  Line of Credit,  except  that the maximum
"draw" under the new agreement is $280,000 per week,  not to exceed  $840,000 in
any 30-day period,  and Cornell will purchase up to $20 million of the Company's
common stock over a two-year period. As a consideration fee for Cornell to enter
into the agreement,  the Company  issued 10 million  warrants to Cornell with an
exercise price of $0.05 per share, and a term of five years.  Cornell  exercised
the  warrants  in January  2004,  resulting  in  $500,000  cash  receipts to the
Company.

22.   PREFERRED STOCK

      The Company's Preferred Stock is currently comprised of 25,000,000 shares,
par value $0.01 per share,  of which 200,000  shares are  designated as Series A
Preferred Stock, none of which are issued or outstanding.  Additionally,  47,511
shares are designated as Series A Convertible Preferred Stock, none of which are
issued  and  outstanding,  and  100,000  shares are  designated  as Series B 12%
Convertible   Redeemable   Preferred  Stock,   none  of  which  are  issued  and
outstanding.  The Company has no present agreements relating to or requiring the
designation or issuance of additional shares of preferred stock.

23.   SUBSEQUENT EVENTS

      During January 2005, NeoMedia introduced the newest  PaperClick(R)  Mobile
Go Window(TM) for Nokia(R) Series 60 cell phones and other cell phones which use
Series 60 software.  This introduction became the fifth Go Window from NeoMedia,
making the product line available across five mobile operating environments,  on
over 35 models of cell phones.

      During  January  2005,  NeoMedia  signed a reseller  agreement  with Jorge
Christen & Partners LLP of Mexico. The reseller agreement gives Jorge Christen &
Partners  LLP the rights to resell  PaperClick(R)  products  in Mexico and Latin
America.

      During  January 2005,  NeoMedia  signed a reseller  agreement  with Deusto
Sistemas of Bilbao,  Spain.  The reseller  agreement  gives Deusto  Sistemas the
rights to resell PaperClick(R) products in Europe.

      During  January  2005,  NeoMedia  signed  a  reseller  agreement  with E&I
Marketing and Consulting Co. of Taipei, Taiwan. The reseller agreement gives E&I
Marketing  and  Consulting  Co. the rights to resell  PaperClick(R)  products in
Asia.


                                      F-37


      During  January 2005,  NeoMedia  signed a Letter of Intent to enter into a
licensing  agreement  with Shelron  Group,  Inc. for  PaperClick(R)'s  family of
mobile  marketing  products to be used with  Shelron's  ActivShopper  comparison
shopping  toolbar.  The agreement  will give Shelron  Group,  Inc. the worldwide
rights to use  PaperClick(R)  on the new  ActivShopper  Mobile  Edition for cell
phones  and  PDA's.  ActivShopper  is  a  free  software  download  designed  to
automatically scan, locate and compare prices for items a consumer selects at an
e-commerce site.

24.   EVENTS  (UNAUDITED)  SUBSEQUENT  TO THE DATE OF THE REPORT OF  INDEPENDENT
      REGISTERED PUBLIC ACCOUNTING FIRM

      In  February  2005,  NeoMedia  was  awarded a patent  in  Mexico  from the
Instituto Mexicano de la Propiedad Industrial,  the patent office in Mexico, for
the process invented by NeoMedia for "automatic access of electronic information
through  secure  machine  readable  codes  on  printed  documents."  The  patent
recognizes  NeoMedia's  innovation  in  creating a secure link  between  printed
documents and the Internet using an obfuscated bar code and its technology.  The
U.S. Patent and Trademark Office had previously  awarded patent No. 5,933,829 to
NeoMedia for the same technology.

      In February 2005, NeoMedia was awarded an allowance for another new patent
in the U.S. from the U.S. Patent and Trademark Office. The application is serial
no.  09/821,677  which covers 44 claims and is an adaptation of NeoMedia's  U.S.
Patent  6,542,933,  applying to technology that accesses  Internet  content from
wireless devices. NeoMedia expects the patent to be issued shortly.

      On February 22, 2005,  NeoMedia and IT-Global signed a one-year  renewable
agreement giving IT-Global  rights to sell and license  PaperClick(R)  products,
including client and server software,  code activation and integration services.
IT-Global will focus on the New York tri-state area,  where it is based, as well
as other areas, domestically and internationally, it serves.

      On February 25, 2005, NeoMedia invested $250,000 in exchange for 8,333,333
shares of Pickups Plus, Inc. ("PUPS")(OTCBB:PUPS)  restricted common stock. PUPS
is a retail operator and franchiser of retail  automotive  parts and accessories
stores  catering  to the light  truck  market,  and also  provides  new  vehicle
preparation,  environmental  protection  packages,  detailing and reconditioning
products and services.  The 8,333,333 shares represent  approximately 6% of PUPS
outstanding shares (based on 125,249,954 PUPS shares outstanding as of September
30, 2004).  Because the investment  represents less than 20% of PUPS outstanding
shares,  NeoMedia  will  record  the  investment  at  cost  and  analyze  it for
impairment going forward.

      On February 25, 2005, NeoMedia signed two non-binding letters of intent to
acquire up to 100% of Automotive  Preservation,  Inc.  ("AP"),  a distributor of
automotive  paint and accessory  products,  from AP's parent company,  PUPS. The
first LOI calls for NeoMedia to initially  acquire 30% of AP for $1,600,000,  to
be paid  $600,000  in cash,  $554,000 in shares of  NeoMedia  restricted  common
stock,  and $446,000  through the  assumption of AP debt by NeoMedia.  Under the
second  LOI,  upon  completion  of the  acquisition  of the initial 30% of AP by
NeoMedia,  NeoMedia would have the option to acquire an additional 30% of AP for
$1,650,000,  payable in shares of NeoMedia  restricted  common stock. The second
LOI also gives  NeoMedia  the option to purchase the final 40% of AP for either:
(i)  $2,200,000,  payable in shares of  NeoMedia  restricted  common  stock,  if
NeoMedia  exercises  this right within 12 months of acquiring  the second 30% of
AP, or (ii) a price equivalent to AP's previous quarter EBITDA  multiplied by 8,
payable in shares of NeoMedia restricted common stock. Both LOIs are non-binding
and subject to due diligence by NeoMedia and AP.

      On March 10, 2005,  NeoMedia and  Intactis  Software,  Inc., a provider of
Check  21  software  products  and  solutions  for the  small-  to  medium-sized
financial  institution  market,  entered into a business  development  agreement
under  which  the two  companies  will  develop a  database  lookup  system  for
validating  codes  printed on  negotiable  instruments  (checks).  In  addition,
NeoMedia invested $250,000 in Intactis convertible  preferred stock and warrants
to own up to 25% of Intactis.  Intactis  also placed an order for an initial 100
copies of NeoMedia's PaperClick Print Encoder software.


                                      F-38


      On March 18, 2005,  NeoMedia and Foote Cone & Belding ("FCB"),  a division
of FCB Worldwide LLC and part of the Interpublic Group of Companies, Inc. (NYSE:
IPG), entered into a co-marketing agreement surrounding NeoMedia's PaperClick(R)
technology platform. The agreement calls for FCB to work with NeoMedia to create
and develop  opportunities and programs  utilizing  PaperClick(R),  to integrate
PaperClick  into  marketing  campaigns  for new  and  existing  clients,  and to
facilitate   the   introduction   of  NeoMedia  and  PaperClick  in  the  mobile
telecommunications  industry.  NeoMedia will provide technical and sales support
for presentations and marketing programs co-developed for FCB clients, work with
FCB to explore and create marketing  opportunities and solutions,  and introduce
FCB to its business customers,  including brand managers.  FCB and NeoMedia will
team for co-marketing  and sales efforts in the U.S., as well as in Europe,  the
Middle East, Africa and Latin America.

      On March  29,  2005,  NeoMedia's  Micro  Paint  Repair  business  signed a
national  marketing and sales agreement with Restex,  Inc., of Dallas,  Texas, a
provider of products to automobile  dealerships.  The agreement calls for Restex
to sell and market  NeoMedia's  proprietary  micro  paint  repair  system to its
customers in the automotive industry.

      On March 30,  2005,  NeoMedia  borrowed  from  Cornell the gross amount of
$10,000,000 before discounts and fees.  Cornell withheld  structuring and escrow
fees of $68,000  related  to the note.  As of June 1,  2005,  NeoMedia  had made
payments against the principal totaling $1,680,000.  The note is scheduled to be
repaid at a rate of $1,120,000 per month  commencing  May 1, 2005  (subsequently
changed to $840,000 per month  starting on April 1, 2005) and  continuing  until
principal and interest are paid in full. The note accrues  interest at a rate of
8% per annum on any  unpaid  principal.  NeoMedia  has the  option to prepay any
remaining  principal of the note in cash without penalty. In connection with the
note,  NeoMedia and Cornell  entered into a security  agreement  under which the
note is secured by all of  NeoMedia's  assets  other than its patents and patent
applications.  NeoMedia also escrowed  25,000,000  shares of its common stock as
security for the note.

      On March 30,  2005,  NeoMedia and Cornell  entered  into a Standby  Equity
Distribution Agreement under which Cornell agreed to purchase up to $100 million
of NeoMedia's common stock over a two-year period, with the timing and amount of
the purchase at NeoMedia's discretion. The maximum amount of each purchase would
be $2,000,000 with a minimum of five business days between advances.  The shares
would be valued at 98% of the  lowest  closing  bid price  during  the  five-day
period  following  the  delivery of a notice of purchase by  NeoMedia.  NeoMedia
would pay 5% of the gross proceeds of each purchase to Cornell.  As a commitment
fee for Cornell to enter into the agreement, NeoMedia issued 50 million warrants
to Cornell with an exercise price of $0.20 per share, and a term of three years,
and also  paid a cash  commitment  fee of $1  million.  NeoMedia  also  issued 4
million warrants with an exercise price of $0.229 to an independent  third party
as a fee  for  negotiating  and  structuring  the  Standby  Equity  Distribution
Agreement.  NeoMedia  expects  to  file a  registration  statement  with  the US
Securities and Exchange Commission during 2005 to register the shares underlying
the $100 million  Standby  Equity  Distribution  Agreement.  The Standby  Equity
Distribution  Agreement  would  become  active  at the  time  the  SEC  declares
effective a registration statement containing such shares.

      On April 12, 2005, NeoMedia acquired four  search-oriented  patents issued
in the U.S.  and  pending in Europe and Japan from  LoyaltyPoint  Inc.  for $1.5
million  cash and 10%  royalties  on all future sales for a period of ten years.
The first patent (U.S.  6,430,554 B1) covers technology that uses uniquely-coded
objects,  such as consumer goods to automatically  generate an online search for
information related to those objects or goods from a computer, PDA, mobile phone
or other device.  The second  patent (U.S.  6,651,053 B1) is an extension of the
first,  covering additional mechanisms for performing such searches using mobile
devices.  The third patent  (U.S.  6,675,165  B1) covers uses of  location-based
technology to deliver  content that is based both on a particular  advertisement
and the geographic  location in which the  advertisement is located.  The fourth
patent (U.S.  6,766,363 B1) covers  techniques for providing  information to end
users based on objects, goods or other items depicted in external media, such as
video, audio, film or printed matter.


                                      F-39


      On April 18, 2005,  NeoMedia  announced  that it named Martin N. Copus,  a
global and  interactive  marketing  executive  who has  worked  with many of the
world's leading brands,  as its COO and to the  newly-created  position of chief
executive of its PaperClick  wireless  business unit. Prior to joining NeoMedia,
Mr.  Copus was  Managing  Director  of 12Snap UK, an  internationally-acclaimed,
award-winning  mobile marketing company focusing on wireless channels,  where he
led development and  implementation of interactive  marketing programs for major
blue-chip companies including  McDonald's(R),  Kellogg(R),  Procter & Gamble(R),
Coca-Cola(R),  Safeway(R),  Budweiser(R),  and  20th  Century  Fox(R).  Prior to
running  the  U.K.   operations  of  12Snap,  Mr.  Copus's  background  included
assignments as executive  director of Huntsworth PLC, a marketing services group
listed on the main board of the London Stock Exchange;  Worldwide Board Director
of Interpublic  Group's Ammirati Puris Lintas  advertising unit; and senior vice
president of Leo Burnett Company Inc., Chicago,  responsible for its Marlboro(R)
USA  advertising  and  marketing  services  account.  Mr.  Copus holds a B.A. in
marketing and an M.A. in modern languages, both from Oxford University.

      On May 2, 2005,  NeoMedia  announced that it had signed a letter of intent
with Jinche Yingang  Automobile Co. of Beijing,  China  ("Jinche"),  under which
Jinche will act as a distributor  of NeoMedia's  micro paint repair  products in
China.  Jinche is a Beijing  PRC-registered  company  specializing in automobile
sales, financing, insurance and repair.

      On May 13,  2005,  the  European  Patent  Office  (EPO) issued a Notice of
Allowance  based  on  proceedings  conducted  during  April  2005 in The  Hague.
Recognition by the EPO extends the patents for NeoMedia's  core technology - the
use of bar cods and other unique identifiers to automatically link to content on
the Internet - to Austria, Belgium, France, Germany, Liechtenstein,  Luxembourg,
the Netherlands, Sweden, Switzerland and the United Kingdom.

      On June 17,  2005,  NeoMedia  signed a Letter of Intent with the WI-THO AS
("WI-THO")  of Oslo,  Norway,  which  calls for WI-THO to become  the  exclusive
master  distributor  of  NeoMedia's  micro paint  repair  products,  systems and
licenses to automotive service facilities throughout Denmark, Sweden and Norway.
When  finalized,  the agreement calls for WI-THO AS to pay $500,000 for NeoMedia
micro paint repair products and its exclusive distributor license.

       On January 2, 2004, NeoMedia filed a patent infringement  lawsuit against
Virgin(R)   Entertainment  Group,  Inc.,  Virgin  Megastore  Online  and  Virgin
Megastore  (collectively,  "Virgin").  During  June  2005,  NeoMedia  and Virgin
settled the case out of court, with Virgin agreeing to purchase a license to use
NeoMedia's patented PaperClick(R) technology platform through 2016.

      On January 23, 2004, NeoMedia filed a patent infringement  lawsuit against
AirClic,  Inc.  During July 2005,  NeoMedia and AirClic  settled the case out of
court,  with  AirClic  agreeing  to  compensate  NeoMedia  for past  and  future
activities.  AirClic  did not  receive  a  license  to use  NeoMedia's  patented
PaperClick(R) technology.

      On July 27,  2005,  NeoMedia  signed a  non-binding  Letter  of  Intent to
acquire Mobot, of Lexington,  Massachusetts.  Mobot develops and  commercializes
mobile  visual search  technologies.  The Letter of Intent calls for NeoMedia to
acquire all of the  outstanding  shares of Mobot in exchange for $3,500,000 cash
and  $6,500,000 in shares of NeoMedia  common  stock.  The LOI is subject to due
diligence by both parties.

      On July 28, 2005,  NeoMedia lent Mobot the principal amount of $600,000 in
the form of an unsecured promissory note. The Note accrues interest at a rate of
6% per annum.  The Note will be forgiven  upon signing of a definitive  purchase
agreement  for the  acquisition  of all of the  outstanding  shares  of Mobot by
NeoMedia,  as contemplated by the Letter of Intent. In the event the acquisition
is not  consummated,  the Note will become due 90 days after  written  notice of
cancellation  of the  Letter of  Intent.  In the  event the  Letter of Intent is
terminated and the Note is note repaid within 90 days of such cancellation,  the
note will  convert  into shares of Mobot  common stock with a value equal to the
unpaid  principal  and accrued  interest  on the Note.  On  December  15,  2005,
NeoMedia  advanced Mobot an additional  $500,000.  This advance will be forgiven
upon  the  earlier  of  signing  of a  definitive  purchase  agreement  for  the
acquisition of all of the outstanding  shares of Mobot by NeoMedia,  or February
15, 2006.

      On August 30, 2005,  NeoMedia signed a distribution  agreement with Jinche
Yingang Automobile Co. of Beijing, China ("Jinche"), under which Jinche will act
as  a  distributor  of  automotive  products  in  China.  Jinche  is  a  Beijing
PRC-registered  company specializing in automobile sales,  financing,  insurance
and repair. NeoMedia will supply Jinche with its micro paint repair products, as
well as various other automotive aftermarket products from other manufacturers.


                                      F-40


      On September 27, 2005, NeoMedia signed a definitive distribution agreement
to bring its NeoMedia  Micro Paint Repair  business to Mexico and Latin America,
as well as be a  distributor  of  other  automotive  aftermarket  products.  The
agreement,  signed with  Micropaint de Mexico,  S.A.  ("Micropaint  de Mexico"),
calls  for  Micropaint  de  Mexico  to  serve  as an  exclusive  distributor  of
NeoMedia's  micro paint  repair  products,  systems and  licenses to  automotive
service facilities throughout Mexico and Latin America. The Agreement also calls
for  Micropaint  de Mexico to buy  certain  automotive  aftermarket  repair  and
environmental  protection products from NeoMedia.  Founded earlier this year and
based in  Monterrey,  Mexico,  Micropaint  de Mexico  specializes  in  providing
automotive aftermarket products throughout Mexico and Latin America.

      On September 30, 2005,  NeoMedia entered into a mobile marketing  alliance
and co-marketing agreement with advertising agency Arnold Worldwide, centered on
NeoMedia's patented  PaperClick(R)  technology platform. The agreement calls for
Arnold and  NeoMedia to work  together to develop  opportunities  and  marketing
campaigns  utilizing  PaperClick.  NeoMedia  will  provide  technical  and sales
support for  presentations,  marketing  programs  and  campaigns  conceived  and
developed by Arnold for its clients.

      On October 4, 2005, NeoMedia signed a definitive distribution agreement to
bring its NeoMedia Micro Paint Repair  business to  Scandinavia.  The agreement,
signed with WITHO-AS of Oslo, Norway  ("WITHO-AS"),  calls for WITHO-AS to serve
as an exclusive  distributor of NeoMedia's micro paint repair products,  systems
and licenses to automotive service facilities  throughout  Denmark,  Sweden, and
Norway.  Based in Oslo, Norway,  WI-THO AS is a new company formed to specialize
in products  and  services  involving  micro paint  repairs for  automobiles  in
Denmark, Sweden and Norway.

      During  October  2005,  the  copyright  lawsuit  brought by Scanbuy,  Inc.
against  NeoMedia  was  dismissed  by the U.S.  District  Court for the  Eastern
District of  Pennsylvania.  The court also issued an injunction  that  prohibits
LScan,  Inc., against whom NeoMedia won a default judgment in 2004 in its patent
infringement  case against LScan,  from using any technology or application that
employs any NeoMedia patents.

      On  December  14,  2005,  NeoMedia  executed  a  definitive   distribution
agreement with PPG  Industries'  PPG Shanghai  Trading Co. Ltd.  ("PPG"),  under
which NeoMedia will distribute automotive  aftermarket products produced by PPG.
The Agreement calls for NeoMedia to serve as a non-exclusive  distributor of PPG
products to Beijing Sino-US Jinche Yingang Auto  Technological  Services Limited
("Jinche")  in the  People's  Republic of China.  NeoMedia  previously  signed a
distribution  agreement  with Jinche under which Jinche will  distribute and use
NeoMedia's  micro paint repair  products at its  automotive  service  facilities
throughout China.

      On December 20, 2005, NeoMedia executed a definitive supply agreement with
E.I. DuPont de Nemours  (Belgium) BVBA of Belgium,  a subsidiary of E.I. DuPont,
under  which  NeoMedia  will  distribute   DuPont's  automobile  refinish  paint
throughout the People's  Republic of China.  The agreement calls for NeoMedia to
serve as a  non-exclusive  distributor  of  DuPont  products  to  Jinche  in the
People's Republic of China.


                                      F-41


SUPPLEMENTARY FINANCIAL INFORMATION

The following  information  presents  NeoMedia  Technologies,  Inc.'s  unaudited
quarterly  operating  results for the nine months ended  September  30, 2005 and
2004.  The data has been  prepared  by  NeoMedia  Technologies,  Inc. on a basis
consistent with the Consolidated Financial Statements included elsewhere in this
registration  statement,  and includes  all  adjustments,  consisting  of normal
recurring accruals,  that we consider necessary for a fair presentation thereof.
These  operating   results  are  not   necessarily   indicative  of  our  future
performance.



                  NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
                       (IN THOUSANDS, EXCEPT SHARE DATA)
                                                                                  SEPTEMBER 30,
                                                                                       2005
                                                                                  ------------
                                                                               
ASSETS
Current assets:
        Cash and cash equivalents                                                  $   4,673
        Trade accounts receivable, net of allowance for doubtful accounts of $77         666
        Inventories, net of allowance for obsolete & slow-moving inventory of $0         110
        Investment in marketable securities                                              117
        Prepaid expenses and other current assets                                        388
                                                                                   ---------
        Total current assets                                                           5,954

        Property and equipment, net                                                      165
        Leasehold improvements, net                                                       44
        Capitalized patents, net                                                       3,501
        Micro paint chemical formulations and proprietary process, net                 1,497
        Goodwill                                                                       1,099
        Other Intangible assets, net                                                     209
        Loan receivable from Mobot, Inc.                                                 800
        Investment in IPoint-media, Ltd. and Intactis Software, Inc.                   1,250
        Cash surrender value of life insurance policy                                    740
        Other long-term assets                                                            28
                                                                                   ---------
             Total assets                                                          $  15,287
                                                                                   =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
        Accounts payable                                                           $   1,587
        Amounts payable under settlement agreements                                       77
        Liabilities in excess of assets of discontinued business unit                    676
        Sales taxes payable                                                               44
        Accrued expenses                                                               1,724
        Deferred revenues and other                                                      360
        Notes payable                                                                  5,325
                                                                                   ---------
             Total current liabilities                                                 9,793
                                                                                   ---------

Shareholders' equity:
        Preferred stock, $0.01 par value, 25,000,000 shares authorized, none
        issued and outstanding                                                            --
        Common stock, $0.01 par value, 1,000,000,000 shares authorized,
          476,410,478 shares issued and 460,253,892 outstanding                        4,603
        Additional paid-in capital                                                   104,157
        Deferred stock-based compensation                                               (216)
        Deferred equity financing costs                                              (13,256)
        Accumulated deficit                                                          (88,846)
        Accumulated other comprehensive loss                                            (169)
        Treasury stock, at cost, 201,230 shares of common stock                         (779)
                                                                                   ---------
        Total shareholders' equity                                                     5,494
                                                                                   ---------
             Total liabilities and shareholders' equity                            $  15,287
                                                                                   =========

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



                                      F-42





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

                                                                      THREE MONTHS ENDED SEPTEMBER 30,
                                                                      ------------------------------
                                                                           2005            2004
                                                                      -------------    -------------
                                                                                 
NET SALES:
       License fees                                                   $          88    $          96
       Resale of software and technology equipment and service fees             105              138
       Micro paint repair products and services                                 243              237
                                                                      -------------    -------------
       Total net sales                                                          436              471
                                                                      -------------    -------------
COST OF SALES:
       License fees                                                              54               79
       Resale of software and technology equipment and service fees              67              147
       Micro paint repair products and services                                 214              151
                                                                      -------------    -------------
       Total cost of sales                                                      335              377
                                                                      -------------    -------------

GROSS PROFIT                                                                    101               94
       Sales and marketing expenses                                             834              514
       General and administrative expenses                                      856              516
       Research and development costs                                           285              114
                                                                      -------------    -------------
       Loss from operations                                                  (1,874)          (1,050)
       Gain \ (loss) on extinguishment of debt                                    1                6
       Amortization of debt discount                                             --             (334)
       Interest (expense) \ income, net                                         (77)             (62)
                                                                      -------------    -------------
NET LOSS                                                                     (1,950)          (1,440)
       Other comprehensive loss:
          Unrealized gain/loss on marketable securities                          (4)              --
          Foreign currency translation adjustment                                15              (31)
                                                                      -------------    -------------
COMPREHENSIVE LOSS                                                    $      (1,939)   $      (1,471)
                                                                      =============    =============
LOSS PER SHARE--BASIC AND DILUTED                                     $       (0.00)   $       (0.00)
                                                                      =============    =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES--BASIC AND DILUTED             456,695,836      342,990,471
                                                                      =============    =============

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



                                      F-43





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


                                                                      NINE MONTHS ENDED SEPTEMBER 30,
                                                                      ------------------------------
                                                                           2005             2004
                                                                      -------------    -------------
                                                                                 
NET SALES:
       License fees                                                   $         426    $         256
       Resale of software and technology equipment and service fees             336              501
       Micro paint repair products and services                                 959              512
                                                                      -------------    -------------
       Total net sales                                                        1,721            1,269
                                                                      -------------    -------------
COST OF SALES:
       License fees                                                             302              249
       Resale of software and technology equipment and service fees             208              480
       Micro paint repair products and services                                 724              376
                                                                      -------------    -------------
       Total cost of sales                                                    1,234            1,105
                                                                      -------------    -------------

GROSS PROFIT                                                                    487              164
       Sales and marketing expenses                                           2,859            1,461
       General and administrative expenses                                    2,417            1,293
       Research and development costs                                           629              354
                                                                      -------------    -------------
       Loss from operations                                                  (5,418)          (2,944)
       Gain \ (loss) on extinguishment of debt                                  172              129
       Amortization of debt discount                                             --           (2,500)
       Interest expense, net                                                   (223)            (178)
                                                                      -------------    -------------
NET LOSS                                                                     (5,469)          (5,493)
       Other comprehensive loss:
          Unrealized gain/loss on marketable securities                        (133)              --
          Foreign currency translation adjustment                                24              (47)
                                                                      -------------    -------------
COMPREHENSIVE LOSS                                                    $      (5,578)   $      (5,540)
                                                                      =============    =============
LOSS PER SHARE--BASIC AND DILUTED                                     $       (0.01)   $       (0.02)
                                                                      =============    =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES--BASIC AND DILUTED             451,487,240      324,471,293
                                                                      =============    =============

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



                                      F-44




                  NEOMEDIA TECHNOLOGIES, INC. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (IN THOUSANDS)
                                                                                              NINE MONTHS ENDED
                                                                                                 SEPTEMBER 30,
                                                                                             --------------------
                                                                                               2005        2004
                                                                                             --------    --------
                                                                                                   
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net loss                                                                               ($ 5,469)   ($ 5,493)
      Adjustments to reconcile net loss to net cash used in operating activities:
      Amortization of discount on note payable                                                     --       2,500
      Depreciation and amortization                                                               545         367
      Provision for doubtful accounts                                                              --          24
      Expense (decrease of fair value) for repriced options                                        --        (240)
      Fair value of expense portion of stock-based
               compensation granted for professional services                                     623         545
      Interest expense allocated to debt                                                           --           3
      (Increase)/decrease in value of life insurance policies                                     (13)         17
      Changes in operating assets and liabilities:
        Trade accounts receivable, net                                                           (384)         (8)
        Inventory                                                                                   5         (54)
        Other current assets                                                                     (848)         90
        Accounts payable, amounts due under financing agreements, liabilities in excess
          of assets of discontinued business unit, accrued expenses and stock liability          (256)     (1,211)
        Deferred revenue and other current liabilities                                           (154)        (40)
                                                                                             --------    --------
          Net cash used in operating activities                                                (5,951)     (3,500)
                                                                                             --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Investment in Pickups Plus, Inc. / Intactis Software, Inc.                                 (500)         --
      Capitalization of software development and purchased intangible assets                   (1,639)       (109)
      Acquisition of property and equipment                                                      (187)       (103)
                                                                                             --------    --------
        Net cash used in investing activities                                                  (2,326)       (212)
                                                                                             --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Net proceeds from issuance of common stock, net of issuance costs of $115 in 2005
      and $620 in 2004                                                                          6,262       5,926
      Net proceeds from exercise of stock options and warrants                                    909         581
      Borrowings under notes payable and long-term debt                                         9,932       8,000
      Repayments on notes payable and long-term debt                                           (5,811)     (6,687)
      Cash commitment fee for $100 million Standby Equity Distribution Agreement               (1,000)         --
      Cash paid to acquire CSI International, Inc. (net of cash acquired)                          --      (2,390)
                                                                                             --------    --------
        Net cash provided by financing activities                                              10,292       5,430
                                                                                             --------    --------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                            24         (47)

NET INCREASE IN CASH AND CASH EQUIVALENTS                                                       2,039       1,671

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                  2,634          61
                                                                                             --------    --------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                                     $  4,673    $  1,732
                                                                                             ========    ========
SUPPLEMENTAL CASH FLOW INFORMATION:
      Interest paid  during the period                                                       $     47    $     50
      Income taxes paid                                                                            --          --
      Non-cash investing and financing activities:
        Reduction in accounts payable and accruals due to debt paid with shares of common
      stock                                                                                        --         190
        Fair value of stock issued for services and deferred to future periods                    239         585
        Fair value of shares issued to acquire CSI Int'l (net of costs of registration)            --         695
        Change in net assets resulting from acquisition of CSI (net of cash acquired)              --       3,090
        Gain on extinguishment of debt                                                            349         129
        Direct costs associated with Standby Equity Distribution Agreement and Equity Line
      of Credit                                                                                 1,204       1,447

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



                                      F-45


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

1.    BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS

BASIS OF PRESENTATION

      The  condensed  consolidated  financial  statements  include the financial
statements  of NeoMedia  Technologies,  Inc. and its  wholly-owned  subsidiaries
("NeoMedia" or the "Company"). The accompanying unaudited condensed consolidated
financial  statements have been prepared in accordance with the  instructions to
Form 10-QSB and do not include all of the information and footnotes  required by
accounting  principles  generally  accepted in the United  States of America for
complete  consolidated   financial  statements.   These  condensed  consolidated
financial  statements and related notes should be read in  conjunction  with the
Company's  Form  10-KSB for the fiscal  year ended  December  31,  2004.  In the
opinion of management, these condensed consolidated financial statements reflect
all adjustments  which are of a normal  recurring nature and which are necessary
to  present  fairly  the  consolidated  financial  position  of  NeoMedia  as of
September 30, 2005, the results of operations for the three-month and nine-month
periods  ended  September 30, 2005 and 2004,  and cash flows for the  nine-month
periods  ended  September 30, 2005 and 2004.  The results of operations  for the
three-month  and  nine-month  periods ended  September 30, 2005 and 2004 are not
necessarily  indicative  of the  results  which may be  expected  for the entire
fiscal year. All significant  intercompany  accounts and transactions  have been
eliminated in preparation of the condensed consolidated financial statements.

GOING CONCERN

      The accompanying  condensed  consolidated  financial  statements have been
prepared in conformity  with  accounting  principles  generally  accepted in the
United States of America,  which  contemplate  continuation  of the Company as a
going  concern.  However,  the Company has reported net losses of $1,950,000 and
$1,440,000 for the three months ended September 30, 2005 and 2004, respectively,
and net losses of $5,469,000 and $5,493,000 for the nine months ended  September
30, 2005 and 2004,  respectively,  and has an accumulated deficit of $88,846,000
as of September 30, 2005. In addition,  the Company had working  capital deficit
of $3,839,000 as of September 30, 2005.

      If the  Company's  financial  resources are  insufficient  the Company may
require additional financing in order to execute its operating plan and continue
as a going concern. The Company cannot predict whether this additional financing
will be in the form of equity,  debt,  or another  form.  The Company may not be
able to obtain the necessary additional capital on a timely basis, on acceptable
terms, or at all. In any of these events, the Company may be unable to implement
its current plans for expansion,  repay its debt  obligations as they become due
or respond to competitive  pressures,  any of which  circumstances  would have a
material  adverse  effect on its business,  prospects,  financial  condition and
results of operations.  The financial  statements do not include any adjustments
relating to the recoverability and reclassification of recorded asset amounts or
amounts and reclassification of liabilities that might be necessary,  should the
Company be unable to continue as a going concern.

      Should these financing sources fail to materialize,  management would seek
alternate  funding  sources  through  sale of  common  and/or  preferred  stock.
Management's plan is to secure adequate funding to bridge the profitability from
the Company's  PaperClick  business,  intellectual  property portfolio and Micro
Paint Repair business.

NATURE OF BUSINESS OPERATIONS

      NeoMedia is structured as three distinct business units: NeoMedia Internet
Software Service (NISS),  NeoMedia  Consulting and Integration  Services (NCIS),
and NeoMedia Micro Paint Repair (NMPR).

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


                                      F-46


      NCIS (systems integration service offerings) is the original business line
upon which NeoMedia was organized. This unit resells client-server equipment and
related  software,  and general and  specialized  consulting  services.  Systems
integration  services also identifies prospects for custom applications based on
NeoMedia's products and services. These operations are based in Lisle, Illinois.

      NMPR (micro paint repair  offerings) is the business unit encompassing the
CSI  International  chemical  line acquired  during 2004.  NMPR is attempting to
commercialize its unique micro-paint repair solution.  The Company completed its
acquisition of CSI on February 6, 2004.

      In addition,  on December 21, 2004, NeoMedia signed a definitive Agreement
and Plan of Merger to acquire and merge with BSD Software,  Inc. BSD owns 90% of
the outstanding shares of Triton Global Business  Services,  Inc., a provider of
live and automated operator calling services and e-business  support,  including
billing,  clearinghouse and information management services, to companies in the
telecommunications  industry. On April 4, 2005 NeoMedia and BSD filed an initial
joint  registration/information  statement with the United States Securities and
Exchange  Commission (the "SEC").  NeoMedia  expects to complete the merger when
the SEC review is  complete,  the  registration  is declared  effective  and the
information  statement is mailed to BSD's  shareholders of record. At this time,
the  exchange  rate will be  determined  and  closing  will be held.  Closing is
subject to the terms and conditions outlined in the merger agreement, as well as
regulatory approval of the merger and registration/information  statement by the
SEC. Upon the anticipated closing of the merger, NeoMedia expects to integrate a
new business  unit called  "NeoMedia  Telecom  Services"  encompassing  Triton's
business.

RECLASSIFICATIONS

      Certain amounts in the 2004 condensed  consolidated  financial  statements
have been reclassified to conform to the 2005 presentation.

STANDBY  EQUITY  DISTRIBUTION  AGREEMENTS  WITH  CORNELL  CAPITAL  PARTNERS,  LP
("CORNELL")

      On February 11, 2003,  NeoMedia and Cornell entered into an Equity Line of
Credit  Agreement  under which  Cornell  agreed to purchase up to $10 million of
NeoMedia's  common stock over a two-year  period,  with the timing and amount of
the purchase at the Company's  discretion.  The maximum  amount of each purchase
was  $150,000  with a minimum of seven days between  purchases.  The shares were
valued  at 98% of the  lowest  closing  bid price  during  the  five-day  period
following the delivery of a notice of purchase by NeoMedia.  The Company paid 5%
of the gross proceeds of each purchase to Cornell.

      On October 27,  2003,  the Company and Cornell  entered into a $20 million
Standby  Equity  Distribution  Agreement  (the  "2003  SEDA").  The terms of the
agreement  are  identical  to the terms of the  previous  Equity Line of Credit,
except that the maximum "draw" under the new agreement is $280,000 per week, not
to exceed  $840,000 in any 30-day  period,  and Cornell will  purchase up to $20
million of the Company's  common stock over a two-year  period.  As a commitment
fee for  Cornell  to enter  into the 2003 SEDA,  the  Company  issued 10 million
warrants  to Cornell  with an exercise  price of $0.05 per share,  and a term of
five years.  Cornell  exercised  the  warrants  in January  2004,  resulting  in
$500,000 cash receipts to the Company.  In November 2003, the Company registered
200 million  shares  underlying  this $20 million 2003 SEDA. In April 2004,  the
Company registered 40 million shares of common stock underlying warrants granted
to Cornell in connection with a promissory note issued by the Company to Cornell
(see "Notes Payable to Cornell" below).

      On March 30,  2005,  NeoMedia and Cornell  entered  into a Standby  Equity
Distribution  Agreement (the "2005 SEDA") under which Cornell agreed to purchase
up to $100  million of NeoMedia  common stock over a two-year  period,  with the
timing and amount of the purchase at NeoMedia's  discretion.  The maximum amount
of each  purchase  would be  $2,000,000  with a minimum  of five  business  days
between  advances.  The shares would be valued at 98% of the lowest  closing bid
price during the five-day period  following the delivery of a notice of purchase
by NeoMedia, and NeoMedia would pay 5% of the gross proceeds of each purchase to
Cornell.  Concurrent with the SEDA,  NeoMedia  entered into an escrow  agreement


                                      F-47


with  Cornell  and an escrow  agent,  under  which the escrow  agent holds in an
escrow account shares of NeoMedia common stock, and the cash paid by Cornell for
such shares,  issued pursuant to an advance under the SEDA. The shares and funds
can only be released  upon receipt by the escrow  agent of a joint  disbursement
instruction  signed  by  NeoMedia  and  Cornell.  NeoMedia  expects  to  file  a
registration  statement with the SEC to register the shares  underlying the 2005
SEDA.  The 2005  SEDA  would  become  available  at the  time  the SEC  declares
effective a registration statement containing such shares.

      As a  commitment  fee for  Cornell to enter  into the 2005 SEDA,  NeoMedia
issued 50 million warrants to Cornell with an exercise price of $0.20 per share,
and a term of three years, and also paid a cash commitment fee of $1 million. If
shares of  NeoMedia's  common  stock  underlying  the  warrant are covered by an
effective  registration  statement  and if the closing  bid price of  NeoMedia's
common stock is above $0.30 for five  consecutive  business  days,  NeoMedia may
force conversion of the warrant. NeoMedia also issued 4 million warrants with an
exercise  price of $0.227 to a consultant as a fee in  connection  with the 2005
SEDA.  As of March 31, 2005,  NeoMedia  recorded the $12.3 million fair value of
the warrants to "Deferred equity financing costs" and, upon effectiveness of the
2005 SEDA, will amortize this amount to additional paid-in capital straight-line
over the two-year life of the 2005 SEDA.

      During  the nine  months  ended  September  30,  2005,  the  Company  sold
19,337,119  shares of its  common  stock to  Cornell  under the 2003  SEDA.  The
following table  summarizes  funding received from Cornell during the nine-month
periods ended September 30, 2005 and 2004:



                                                        2005
                                  -----------------------------------------------
                                                                          NINE
                                                                         MONTHS
                                    FIRST         SECOND      THIRD       ENDED
                                   QUARTER       QUARTER     QUARTER    SEPT. 30
                                  -----------------------------------------------
                                                           
Number of shares sold to Cornell   6,998,931    7,258,094   5,080,094  19,337,119
Gross Proceeds from sale of
shares                            $1,709,000   $3,219,000  $2,130,000  $7,058,000
Less: discounts and fees*           (204,000)    (489,000)   (170,000)   (863,000)
                                  ----------- ------------ ----------- ----------
 Net Proceeds from sale of shares $1,505,000  $ 2,730,000  $1,960,000  $6,195,000
                                  ----------- ------------ ----------- ----------

                                                        2004
                                  -----------------------------------------------
                                                                         NINE
                                                                        MONTHS
                                    FIRST       SECOND       THIRD       ENDED
                                   QUARTER      QUARTER     QUARTER     SEPT. 30
                                  -----------------------------------------------
Number of shares sold to Cornell  21,282,203   29,819,873  36,685,664  87,787,740

Gross Proceeds from sale of
shares                            $2,332,000  $ 2,308,000 $ 2,734,000  $7,374,000
Less: discounts and fees*           (500,000)    (465,000)   (483,000) (1,448,000)
                                  ----------  ----------- ----------- -----------
 Net Proceeds from sale of shares $1,832,000  $ 1,843,000 $ 2,251,000  $5,926,000
                                  ----------  ----------- ----------- -----------


----------
*     Pursuant  to the  terms of the 2003  SEDA , stock is  valued at 98% of the
      lowest closing bid price during the week it is sold.

PROMISSORY NOTES PAYABLE TO CORNELL

      On March 30, 2005,  NeoMedia borrowed from Cornell the principal amount of
$10,000,000  before discounts and fees in the form of a secured promissory note.
Cornell withheld structuring and escrow fees of $68,000 related to the note. The
note was  originally  scheduled to be repaid at a rate of  $1,120,000  per month
commencing May 1, 2005,  which was  subsequently  changed to $840,000 per month,
continuing  until  principal  and  interest  are paid in full.  The note accrues
interest  at a rate of 8% per annum on any unpaid  principal.  NeoMedia  has the


                                      F-48


option to prepay any remaining principal of the note in cash without penalty. In
connection with the note, NeoMedia and Cornell entered into a Security Agreement
under  which the note is  secured  by all of  NeoMedia's  assets  other than its
patents and patent applications. NeoMedia also escrowed 25,000,000 shares of its
restricted  common  stock as security for the note.  As of  September  30, 2005,
NeoMedia had made payments of  $4,690,000  against the  principal,  reducing the
principal balance to $5,310,000.

      On August 6, 2004,  NeoMedia  borrowed  from  Cornell the gross  amount of
$2,000,000  before  discounts  and fees.  Cornell  withheld  $153,000  as a fee.
NeoMedia paid this note in full during 2004.

      On July 2,  2004,  NeoMedia  borrowed  from  Cornell  the gross  amount of
$1,000,000  before  discounts  and  fees.  Cornell  withheld  $76,000  as a fee.
NeoMedia paid this note in full during 2004.

      On April 8, 2004,  NeoMedia  borrowed  from  Cornell  the gross  amount of
$1,000,000  before  discounts  and  fees.  Cornell  withheld  $76,000  as a fee.
NeoMedia paid this note in full during 2004.

      On January 20, 2004,  NeoMedia  borrowed  from Cornell the gross amount of
$4,000,000 before discounts and fees. Of the $4,000,000 funding,  $2,500,000 was
used to fund the  acquisition of CSI  International,  Inc. during February 2004.
Cornell withheld $315,000 as a fee. NeoMedia paid this note in full during 2004.

      In  connection  with the January 20, 2004 note,  NeoMedia  also granted to
Cornell  40,000,000  warrants  to  purchase  shares of  NeoMedia  stock  with an
exercise price of $0.05 per share. In April 2004, NeoMedia registered 40 million
shares underlying the warrants granted to Cornell (and subsequently  transferred
by Cornell to Stone Street Asset Management LLC). The fair value of the warrants
using the Black-Scholes pricing model was $5,000,000. In accordance with APB 14,
"Accounting for Convertible Debt and Debt Issued with Stock Purchase  Warrants",
NeoMedia compared the relative fair values of the warrants and the face value of
the notes,  and allocated a value of $2.5 million to the  warrants.  Of the $2.5
million,  $2 million was allocated to the $4 million note issued in January 2004
and $0.5 million against the $1 million note in April 2004. The $2.5 million was
recorded as a discount  against the carrying value of the note. The $2.5 million
that was  allocated  to the notes was  considered  a discount on the  promissory
notes,  and  therefore  was  amortized  over the  life of the  notes  using  the
effective interest method, in accordance with Staff Accounting  Bulletin No. 77,
Topic  2.A.6,  "Debt  Issue  Costs"  of  SFAS  141,   "Business   Combinations".
Accordingly, NeoMedia recorded an amortization of discount of $2,500,000 related
to the  warrants  during the year ended  December31,  2004.  Stone  Street Asset
Management LLC exercised the warrants  during  November  2004,  resulting in net
funds to NeoMedia of $2 million.

OTHER EVENTS

      During February 2004, the Company entered into a Consulting Agreement with
an unrelated  third party,  under which the  consultant  will provide  sales and
marketing  services  relating to the Company's  Micro Paint business unit over a
period of three years.  As  consideration  for the contract,  the Company issued
6,055,556  options with an exercise price of $0.01 to the  consultant.  The fair
value of the  options  at the time of  issuance  was  $550,000.  The  Company is
recognizing  the fair value as sales and marketing  expense over the term of the
contract (three years). The contract was terminated during the second quarter of
2005,  accordingly,  the Company  recognized  professional  services  expense of
$267,000 to write off the remaining  deferred  stock  compensation.  The Company
recognized  $368,000 and $81,000 in expense  relating to the contract during the
six month periods ended June 30, 2005 and 2004, respectively.

      On February 25, 2005, NeoMedia invested $250,000 in exchange for 8,333,333
shares of Pickups Plus, Inc. ("PUPS")(OTCBB:PUPS)  restricted common stock. PUPS
is a retail operator and franchiser of retail  automotive  parts and accessories
stores  catering  to the light  truck  market,  and also  provides  new  vehicle
preparation,  environmental  protection  packages,  detailing and reconditioning
products and services. The 8,333,333 shares represent approximately 5.8% of PUPS
outstanding shares (based on 125,249,954 PUPS shares outstanding as of September
30, 2004).  Because the investment  represents less than 20% of PUPS outstanding
shares,  NeoMedia  has  recorded  the  investment  at cost  and  analyze  it for
impairment  going  forward.  As of September 30, 2005,  NeoMedia has recorded an
impairment of $133,000 due to the decrease in the quoted market price.


                                      F-49


      On February 25, 2005, NeoMedia signed two non-binding Letters of Intent to
acquire up to 100% of Automotive  Preservation,  Inc.  ("AP"),  a distributor of
automotive  paint and accessory  products,  from AP's parent company,  PUPS. The
first Letter of Intent  calls for  NeoMedia to  initially  acquire 30% of AP for
$1,600,000,  to be paid  $600,000  in  cash,  $554,000  in  shares  of  NeoMedia
restricted  common  stock,  and $446,000  through the  assumption  of AP debt by
NeoMedia.  Under the second Letter of Intent, upon completion of the acquisition
of the initial 30% of AP by NeoMedia,  NeoMedia would have the option to acquire
an additional 30% of AP for $1,650,000, payable in shares of NeoMedia restricted
common  stock.  The second  Letter of Intent also gives  NeoMedia  the option to
purchase the final 40% of AP for either:  (i)  $2,200,000,  payable in shares of
NeoMedia  restricted  common stock,  if NeoMedia  exercises this right within 12
months of  acquiring  the second 30% of AP, or (ii) a price  equivalent  to AP's
previous  quarter  EBITDA  multiplied  by  8,  payable  in  shares  of  NeoMedia
restricted  common stock.  Both Letter of Intent are  non-binding and subject to
due  diligence by NeoMedia and AP. On  September  21, 2005,  the BOD approved to
change the deal  structure for the  acquisition of AP, so that the Company would
acquire only 30% of AP for a total purchase price of $1.6 million of which $600K
would be paid in cash and $446K would be paid  through the  assumption  of debt,
and $554K through the issuance of restricted  NeoMedia stock.  NeoMedia will not
acquire the remaining 70% of AP under the new structure.

      On April 12, 2005, NeoMedia acquired four  search-oriented  patents issued
in the U.S.  and  pending in Europe and Japan from  LoyaltyPoint  Inc.  for $1.5
million  cash and 10%  royalties  on all future sales for a period of ten years.
The first patent (U.S.  6,430,554 B1) covers technology that uses uniquely-coded
objects,  such as consumer goods to automatically  generate an online search for
information related to those objects or goods from a computer, PDA, mobile phone
or other device.  The second  patent (U.S.  6,651,053 B1) is an extension of the
first,  covering additional mechanisms for performing such searches using mobile
devices.  The third patent  (U.S.  6,675,165  B1) covers uses of  location-based
technology to deliver  content that is based both on a particular  advertisement
and the geographic  location in which the  advertisement is located.  The fourth
patent (U.S.  6,766,363 B1) covers  techniques for providing  information to end
users based on objects, goods or other items depicted in external media, such as
video, audio, film or printed matter.

      On May 13,  2005,  the  European  Patent  Office  (EPO) issued a Notice of
Allowance  based  on  proceedings  conducted  during  April  2005 in The  Hague.
Recognition by the EPO extends the patents for NeoMedia's  core technology - the
use of bar codes and other unique  identifiers to automatically  link to content
on  the  Internet  -  to  Austria,  Belgium,  France,  Germany,   Liechtenstein,
Luxembourg, the Netherlands, Sweden, Switzerland and the United Kingdom.

      On June 20, 2005, NeoMedia announced that it has signed a Letter of Intent
with  WI-THO AS of Oslo,  Norway,  where  WI-THO AS will  become  the  exclusive
distributor of NeoMedia's micro paint repair  products,  systems and licenses to
automotive service facilities  throughout  Demark,  Sweden and Norway.  Based in
Oslo,  Norway,  WI-THO AS is a new company  formed to specialize in products and
services  involving micro paint repairs for  automobiles in Denmark,  Sweden and
Norway.

      On June 29, 2005,  NeoMedia  announced that it had reached an out-of-court
agreement  with  Virgin  Entertainment  Group,  Inc.  whom  it sued  for  patent
infringement.  In  the  agreement,  Virgin  agreed  to  purchase  a  license  of
NeoMedia's PaperClick(R) technology platform through 2006.

      On July 8, 2005, NeoMedia reached an out-of-court  agreement with AirClic,
Inc. whom it sued for patent infringement.  In the agreement,  AirClic agreed to
compensate  NeoMedia for past and future  activities.  AirClic did not receive a
license  to use  NeoMedia's  patented  PaperClick(R)  technology  as part of the
settlement.

      On July 12,  2005,  NeoMedia  entered  into a  consulting  agreement  with
Silicon  Space,  Inc.,  under  which  Silicon  Space  is  developing  NeoMedia's
PaperClick(R)   WordRegistry   interface.   Silicon   Space   replaces   Science
Applications  International,  Inc.,  who  NeoMedia  engaged in October 2004 on a
contingency basis to build and host the interface.  NeoMedia intends to host the
WordRegistry internally upon its completion.

      On July 27,  2005,  NeoMedia  signed a  non-binding  Letter  of  Intent to
acquire Mobot(TM), Inc. ("Mobot"), of Lexington,  Massachusetts.  Mobot develops
and commercializes mobile visual search technologies. The Mobot letter of intent
calls for NeoMedia to acquire all of the outstanding shares of Mobot in exchange
for  $3,500,000  cash and  $6,500,000 in shares of NeoMedia  common  stock.  The
letter of intent is subject to due diligence by both parties.


                                      F-50


      On July 28, 2005,  NeoMedia loaned Mobot the principal  amount of $600,000
in the form of an unsecured promissory note. The Note accrues interest at a rate
of 6% per annum. The Note will be forgiven upon signing of a definitive purchase
agreement  for the  acquisition  of all of the  outstanding  shares  of Mobot by
NeoMedia,  as contemplated by the Letter of Intent. In the event the acquisition
is not  consummated,  the Note will become due 90 days after  written  notice of
cancellation  of the  Letter of  Intent.  In the  event the  Letter of Intent is
terminated and the Note is not repaid within 90 days of such  cancellation,  the
note will  convert  into shares of Mobot  common stock with a value equal to the
unpaid principal and accrued interest on the Note.

      In the  event a  definitive  purchase  agreement  is not  executed  by the
parties,  or the Mobot letter of intent is not terminated by September 26, 2005,
Mobot has the right to demand an  additional  $200,000  loan from  NeoMedia.  On
September  26, 2005,  Mobot  exercised  its right and  received  the  additional
$200,000  loan.  Further,  in the event a definitive  purchase  agreement is not
executed by the parties or the Letter of Intent is not terminated by October 26,
2005,  Mobot has the right to demand an additional  $200,000 loan from NeoMedia.
On October 26, 2005,  Mobot  exercised  its right and  received  the  additional
$200,000  loan.  Both of the  additional  loans  are in the  form  of  unsecured
promissory notes subject to the same terms as the original $600,000 note.

      On August 30, 2005, NeoMedia signed a definitive distribution agreement to
bring its  NeoMedia  Micro Paint  Repair  business to the  People's  Republic of
China, as well as be a distributor of other automotive aftermarket products. The
agreement,  signed  with  Beijing  Sino-US  Jinche  Yingang  Auto  Technological
Services  Limited  ("Jinche"),  a joint venture  operating under the laws of the
People's  Republic  of  China,  calls  for  Jinche  to serve as a  non-exclusive
distributor  and user of  NeoMedia's  micro paint repair  products,  systems and
licenses at its automotive  service  facilities  throughout China. The agreement
also  calls  for  Jinche  to  buy  certain  automotive  aftermarket  repair  and
environmental protection products from NeoMedia.

      On September 27, 2005, NeoMedia signed a definitive distribution agreement
to bring its NeoMedia  Micro Paint Repair  business to Mexico and Latin America,
as well as be a  distributor  of  other  automotive  aftermarket  products.  The
agreement,  signed with  Micropaint de Mexico,  S.A.  ("Micropaint  de Mexico"),
calls  for  Micropaint  de  Mexico  to  serve  as an  exclusive  distributor  of
NeoMedia's  micro paint  repair  products,  systems and  licenses to  automotive
service facilities throughout Mexico and Latin America. The Agreement also calls
for  Micropaint  de Mexico to buy  certain  automotive  aftermarket  repair  and
environmental  protection products from NeoMedia.  Founded earlier this year and
based in  Monterrey,  Mexico,  Micropaint  de Mexico  specializes  in  providing
automotive aftermarket products throughout Mexico and Latin America.

      On September 30, 2005,  NeoMedia entered into a mobile marketing  alliance
and co-marketing  agreement with advertising agency Arnold Worldwide ("Arnold"),
centered on NeoMedia's patented PaperClick(R) technology platform. The agreement
calls for Arnold and  NeoMedia  to work  together to develop  opportunities  and
marketing  campaigns utilizing  PaperClick.  NeoMedia will provide technical and
sales support for presentations,  marketing programs and campaigns conceived and
developed by Arnold for its clients.

INVESTMENT IN MARKETABLE SECURITIES

      On February 25, 2005, NeoMedia invested $250,000 in exchange for 8,333,333
shares, or approximately  5.8% of Pickups Plus, Inc. ("PUPS")  restricted common
stock.  PUPS is a retail operator and franchiser of retail  automotive parts and
accessories  stores  catering to the light truck  market,  and also provides new
vehicle   preparation,   environmental   protection   packages,   detailing  and
reconditioning products and services. In accordance with Statements of Financial
Accounting  Standards No. 115,  "Accounting for Certain  Investments in Debt and
Equity   Securities,"   the   investment   in  PUPS   is   being   recorded   as
available-for-sale   securities   and  reported  at  fair  value.   Accordingly,
unrealized  gains and  losses on the  equity  securities  are  reflected  in the
condensed consolidated statement of operations and comprehensive income (loss).


                                      F-51





       The investments in marketable securities are summarized as follows:

                                                                  AS OF SEPTEMBER 30, 2005
                                  -----------------------------------------------------------------------------------------
                                       Amortized              Unrealized             Unrealized               Fair
                                          Cost               Holding Gain          Holding Losses            Value
                                  --------------------- ----------------------- --------------------- ---------------------
                                                                                               
         Available-for-sale             $250,000                 $ -                ($ 133,000)            $ 117,000


FINANCIAL INSTRUMENTS

      The  carrying   amount  of  the  Company's  cash   equivalents,   accounts
receivable, prepaid expenses, other current assets, cash surrender value of life
insurance policy,  accounts payable and accrued  expenses,  accrued salaries and
benefits,  and payable to merchants approximates their estimated fair values due
to the short-term maturities of those financial instruments.

      Rates  currently  available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.

      It is not  practicable  to estimate  the fair value of the  Company's  17%
investment  in the common  stock of i-Point  Media Ltd. and its  investments  of
250,000 shares of preferred  stock of Intactis  Software,  Inc.,  because of the
lack of quoted  market  prices and the  inability to estimate fair value without
incurring excessive costs. However,  management believes that the total carrying
amount of  $1,250,000  in the  investments  in iPoint  Media Ltd.  and  Intactis
Software, Inc. at September 30, 2005 was not impaired.

      For all  available-for-sale  investment  securities,  the carrying  values
represents  fair value of the securities  and unrealized  gain (losses) that are
other than temporary are recognized as other  comprehensive  income (loss).  The
Company does not hold these securities for speculative or trading purposes.

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  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:

                                            SEPTEMBER 30, 2005
      Outstanding Stock Options                77,629,221
      Outstanding Warrants                     72,775,000


                                      F-52


PRO-FORMA INFORMATION REQUIRED BY SFAS 148

      At  September  30,  2005,  the  Company  has  five  stock-based   employee
compensation  plans (the 2003 Stock  Incentive Plan, the 2003 Stock Option Plan,
the 2002 Stock  Option  Plan,  the 1998 Stock  Option  Plan,  and the 1996 Stock
Option Plan).  The Company  accounts for those plans under the  recognition  and
measurement  principles  of APB Opinion No. 25,  Accounting  for Stock Issued to
Employees,  and related  Interpretations.  No stock-based employee  compensation
cost is reflected in net loss, except when options granted under those plans had
an exercise price less than the market value of the  underlying  common stock on
the date of grant.  The following  table  illustrates the effect on net loss and
loss per share if the Company had applied the fair value recognition  provisions
of  FASB  Statement  No.  123,  Accounting  for  Stock-Based  Compensation,   to
stock-based employee compensation.



                                                  THREE MONTHS ENDED            NINE MONTHS ENDED
                                                     SEPTEMBER 30,                SEPTEMBER 30,
                                                ------------------------     -------------------------
                                                   2005        2004             2005         2004
                                                ----------- ------------     ------------ ------------
                                                                              
Net Loss, as reported                             ($1,950)     ($1,440)         ($5,469)     ($5,493)
Compensation recognized under APB 25                  ---          ---              ---            9
Compensation recognized under SFAS 123             (1,080)        (372)          (2,760)      (1,073)
                                                ----------- ------------     ------------ ------------
   Pro-forma net loss                             ($3,030)     ($1,812)         ($8,229)     ($6,557)
                                                =========== ============     ============ ============
Net Loss per share:
Basic and diluted - as reported                    ($0.00)       $0.00           ($0.01)      ($0.02)
                                                =========== ============     ============ ============
Basic and diluted - pro-forma                      ($0.01)      ($0.01)          ($0.02)      ($0.02)
                                                =========== ============     ============ ============


SUBSEQUENT EVENTS

      On October 4, 2005, NeoMedia signed a definitive distribution agreement to
bring its NeoMedia Micro Paint Repair  business to  Scandinavia.  The agreement,
signed with WITHO-AS of Oslo, Norway  ("WITHO-AS"),  calls for WITHO-AS to serve
as an exclusive  distributor of NeoMedia's micro paint repair products,  systems
and licenses to automotive service facilities  throughout  Denmark,  Sweden, and
Norway.  Based in Oslo, Norway,  WI-THO AS is a new company formed to specialize
in products  and  services  involving  micro paint  repairs for  automobiles  in
Denmark, Sweden and Norway.

      During  October  2005,  the  copyright  lawsuit  brought by Scanbuy,  Inc.
against  NeoMedia  was  dismissed  by the U.S.  District  Court for the  Eastern
District of  Pennsylvania.  The court also issued an injunction  that  prohibits
LScan,  Inc., against whom NeoMedia won a default judgment in 2004 in its patent
infringement  case against LScan,  from using any technology or application that
employs any NeoMedia patents.

SEGMENT REPORTING

      As of September  30, 2005  NeoMedia was  structured  and  evaluated by its
Board of Directors and Management as three distinct business units:

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

      NeoMedia  Consulting  and  Integration  Services  (NCIS) is the  Company's
systems integration business unit. This unit resells client-server equipment and
related software,  and general and specialized  consulting  services.  NCIS also
identifies  prospects for custom  applications based on NeoMedia's  products and
services. The operations are based in Lisle, Illinois.


                                      F-53


      NeoMedia Micro Paint Repair (NMPR) is the business unit  encompassing  the
Company's micro paint repair products and services acquired in 2004.

      The Company's  reportable segments are strategic business units that offer
different technology and marketing strategies.  NCIS operates principally in the
United States.  NISS operates  principally in the United States and Europe. NMPR
is headquartered  in Ft. Myers,  Florida,  and currently sells into Canada,  the
United  States,  Australia,  and New  Zealand,  and has entered  into letters of
intent to begin distribution in China and Scandinavia.

      Consolidated  net sales,  net operating  losses by geographic area for the
three-month  and  nine-month  periods  ended  September  30, 2005 and 2004,  and
long-lived  assets by geographic area as of September 30, 2005, were as follows:

                                              (in thousands)
                             --------------------------------------------------
                               THREE MONTHS ENDED        NINE MONTHS ENDED
                                  SEPTEMBER 30,            SEPTEMBER 30,
                             ------------------------ -------------------------
                                2005         2004        2005         2004
                             ------------ ----------- ------------ ------------
NET SALES:
      United States                 $244        $234       $1,204         $757
      Canada                         192         237          517          512
                             ------------ ----------- ------------ ------------
                                    $436        $471       $1,721       $1,269
                             ------------ ----------- ------------ ------------
NET (LOSS)/INCOME:
      United States              ($2,029)    ($1,019)     ($4,911)     ($4,508)
      Canada                          79        (421)        (558)        (985)
                             ------------ ----------- ------------ ------------
                                 ($1,950)    ($1,440)     ($5,469)     ($5,493)
                             ------------ ----------- ------------ ------------

LONG-LIVED ASSETS
      United States               $5,699
      Canada                       2,834
                             ------------
                                  $8,533
                             ------------


                                      F-54


      Consolidated  net sales,  net  operating  losses for the  three-month  and
nine-month periods ended September 30, 2005 and 2004, and identifiable assets as
of September 30, 2005, were as follows:




                                                                       (in thousands)
                                                      --------------------------------------------------
                                                        THREE MONTHS ENDED        NINE MONTHS ENDED
                                                           SEPTEMBER 30,            SEPTEMBER 30,
                                                      ------------------------ -------------------------
                                                         2005         2004        2005         2004
                                                      ------------ ----------- ------------ ------------
                                                                                
NET SALES:
      NeoMedia Consulting & Integration Services             $158         $230         $554         $711
      NeoMedia Internet Switching Service                      35            4          208           46
      NeoMedia Micro Paint Repair                             243          237          959          512
                                                      ------------ ----------- ------------ ------------
                                                             $436         $471       $1,721       $1,269
                                                      ------------ ----------- ------------ ------------
NET LOSS:
      NeoMedia Consulting & Integration Services            ($911)       ($189)     ($2,299)       ($682)
      NeoMedia Internet Switching Service                    (640)        (482)      (1,863)      (1,326)
      NeoMedia Micro Paint Repair                            (399)        (421)      (1,307)        (985)
      Amortization of Cornell Debt Discount                   ---         (348)         ---       (2,500)
                                                      ------------ ----------- ------------ ------------
                                                          ($1,950)     ($1,440)     ($5,469)     ($5,493)
                                                      ------------ ----------- ------------ ------------
IDENTIFIABLE ASSETS
      NeoMedia Consulting & Integration Services             $241
      NeoMedia Internet Switching Service                   3,654
      NeoMedia Micro Paint Repair                           3,416
      Corporate                                             7,976
                                                      ------------
                                                          $15,287
                                                      ------------


EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

      In December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
Payment".  Statement 123(R) will provide  investors and other users of financial
statements  with more complete and neutral  financial  information  by requiring
that the  compensation  cost relating to  share-based  payment  transactions  be
recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability  instruments issued.  Statement 123(R) covers a
wide range of share-based  compensation  arrangements  including  share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. Statement 123(R) replaces FASB Statement No. 123,
Accounting  for  Stock-Based  Compensation,  and  supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. Statement 123, as originally issued in
1995,  established  as preferable a  fair-value-based  method of accounting  for
share-based  payment  transactions  with  employees.   However,  that  Statement
permitted entities the option of continuing to apply the guidance in Opinion 25,
as long as the footnotes to financial statements disclosed what net income would
have been had the preferable  fair-value-based method been used. Public entities
(other than those filing as small  business  issuers)  will be required to apply
Statement  123(R) as of the first interim or annual reporting period that begins
after December 15, 2005. Management is currently evaluating the impact SFAS 123R
will have on our consolidated financial statements.

      In March  2005,  the SEC  released  Staff  Accounting  Bulletin  No.  107,
"Share-Based  Payment" ("SAB 107"), which provides interpretive guidance related
to the interaction between SFAS 123(R) and certain SEC rules and regulations. It
also provides the SEC staff's views regarding  valuation of share-based  payment
arrangements.  In April  2005,  the SEC amended  the  compliance  dates for SFAS
123(R),  to allow  companies to implement the standard at the beginning of their
next fiscal year,  instead of the next reporting period beginning after June 15,
2005.  Management  is currently  evaluating  the impact SAB 107 will have on our
consolidated financial statements.


                                      F-55


      In May 2005,  the FASB issued FASB Statement No. 154,  Accounting  Changes
and Error Corrections. This new standard replaces APB Opinion No. 20, Accounting
Changes,  and FASB  Statement  No. 3,  Reporting  Accounting  Changes in Interim
Financial Statements, and represents another step in the FASB's goal to converge
its standards with those issued by the IASB. Among other changes,  Statement 154
requires   that  a  voluntary   change  in   accounting   principle  be  applied
retrospectively  with all prior period financial statements presented on the new
accounting  principle,  unless it is  impracticable to do so. Statement 154 also
provides that (1) a change in method of  depreciating or amortizing a long-lived
nonfinancial asset be accounted for as a change in estimate (prospectively) that
was effected by a change in accounting  principle,  and (2) correction of errors
in previously issued financial  statements should be termed a "restatement." The
new standard is effective for  accounting  changes and correction of errors made
in fiscal  years  beginning  after  December 15,  2005.  Early  adoption of this
standard is permitted for  accounting  changes and  correction of errors made in
fiscal years beginning after June 1, 2005.

      In June 2005, the Emerging Issues Task Force, or EITF, reached a consensus
on Issue 05-6,  Determining the Amortization Period for Leasehold  Improvements,
which requires that leasehold improvements acquired in a business combination or
purchased subsequent to the inception of a lease be amortized over the lesser of
the  useful  life of the  assets  or a term  that  includes  renewals  that  are
reasonably  assured at the date of the business  combination  or purchase.  EITF
05-6 is effective for periods beginning after July 1, 2005. We do not expect the
provisions  of this  consensus  to have a material  impact on the our  financial
position, results of operations or cash flows.

      In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for
Conditional Asset Retirement  Obligations"  ("FIN 47"). FIN 47 provides guidance
relating to the identification of and financial  reporting for legal obligations
to perform an asset retirement activity. The Interpretation requires recognition
of a liability for the fair value of a conditional  asset retirement  obligation
when incurred if the liability's fair value can be reasonably estimated.  FIN 47
also defines  when an entity would have  sufficient  information  to  reasonably
estimate  the fair value of an asset  retirement  obligation.  The  provision is
effective no later than the end of fiscal years ending after  December 15, 2005.
The  Company  will adopt FIN 47 and does not believe  the  adoption  will have a
material impact on its consolidated  financial position or results of operations
or cash flows.


                                      F-56


SUPPLEMENTARY FINANCIAL INFORMATION

The following  information  presents BSD Software,  Inc.'s  unaudited  quarterly
operating results for the three months ended October 31, 2005 and 2004. The data
has  been  prepared  by BSD  Software,  Inc.  on a  basis  consistent  with  the
Consolidated  Financial  Statements  included  elsewhere  in  this  registration
statement,  and  includes  all  adjustments,   consisting  of  normal  recurring
accruals,  that we consider  necessary for a fair  presentation  thereof.  These
operating results are not necessarily indicative of our future performance.





  BSD SOFTWARE, INC.
  Interim Consolidated Balance Sheet (Unaudited)
  October 31, 2005

  (U.S. dollars)
                                                                                             
  Assets

  Current assets:
   Cash and cash equivalents                                                                    $      44,315
   Accounts receivable                                                                              1,856,883
   Prepaid expenses                                                                                    12,905
  -----------------------------------------------------------------------------------------------------------
                                                                                                    1,914,103

  Property and equipment                                                                               74,721
  -----------------------------------------------------------------------------------------------------------
  Total assets                                                                                  $   1,988,824
  -----------------------------------------------------------------------------------------------------------
  Liabilities and Stockholders' Deficiency
  Current liabilities:
   Accounts payable and accrued liabilities                                                     $   3,538,737
   Shareholder loans                                                                                  226,232
   Due to Officer                                                                                     490,186
   Due to Wayside Solutions Inc.                                                                      872,436
   Notes payable                                                                                       85,551
  -----------------------------------------------------------------------------------------------------------
                                                                                                    5,213,142
  Commitments and contingencies

  Stockholders' deficiency:
   Share capital:
   Authorized:
   Preferred stock 5,000,000 shares at $.001 par value
   Common stock 50,000,000 shares at $.001 par value
   Issued and outstanding:
   32,560,897 common shares                                                                            32,561
   Additional paid-in capital                                                                       3,193,697
   Accumulated Deficit                                                                             (5,697,249)
   Accumulated other comprehensive loss                                                            (  753,327)
  -----------------------------------------------------------------------------------------------------------
                                                                                                   (3,224,318)
  -----------------------------------------------------------------------------------------------------------
  Total liabilities and shareholders' deficit                                                   $   1,988,824
  -----------------------------------------------------------------------------------------------------------

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



                                      F-57




  BSD SOFTWARE, INC.
  Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

                                                                                     Three Months Ended
                                                                                         October 31
  (U.S. dollars)                                                                     2005           2004
                                                                                                 (restated)
  -----------------------------------------------------------------------------------------------------------
                                                                                          
  Revenue                                                                       $   2,295,010   $   1,578,332

  Cost of revenue                                                                   1,981,908       1,175,915
  -----------------------------------------------------------------------------------------------------------
                                                                                      313,102         402,417
  Operating expenses:
    Administration                                                                     36,704          35,264
    Professional fees                                                                  43,410          79,875
    Rent                                                                               17,092          15,089
    Payroll                                                                           164,191         122,398
    Depreciation and amortization                                                      15,776          19,529
  -----------------------------------------------------------------------------------------------------------
                                                                                      277,173         272,155
  -----------------------------------------------------------------------------------------------------------
  Income from operations                                                               35,929         130,262

  Other expense
    Interest expense                                                                  (28,636)        (30,861)
  -----------------------------------------------------------------------------------------------------------
  Income before provision for taxes                                                     7,293          99,401
    Income taxes                                                                           --              --
  -----------------------------------------------------------------------------------------------------------
  Net Income                                                                            7,293          99,401
  Other comprehensive loss
    Foreign currency translation adjustment                                          (113,787)       (286,173)
  -----------------------------------------------------------------------------------------------------------
  Comprehensive loss                                                            $    (106,494)  $    (186,772)
  -----------------------------------------------------------------------------------------------------------
  Basic income per share                                                        $        0.00   $        0.00
  Diluted income per share                                                      $        0.00   $        0.00
  -----------------------------------------------------------------------------------------------------------
  Weighted average common shares and common share equivalents:
  Basic                                                                            32,560,897      31,684,597
  Diluted                                                                          32,560,897      32,684,597
  -----------------------------------------------------------------------------------------------------------

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



                                      F-58





BSD SOFTWARE, INC.
Consolidated Statements of Cash Flows (Unaudited)
                                                                                      Three Months Ended
                                                                                          October 31
(U.S. dollars)                                                                       2005             2004
                                                                                                   (restated)
---------------------------------------------------------------------------------------------------------------
                                                                                            
Cash flows from (used in):
Operations:
Net income                                                                      $        7,293    $      99,401
Adjustments to reconcile net income to cash provided by (used in)
  operating activities:
      Depreciation and amortization                                                     15,776           19,529
Changes in operating working capital:
      Decrease (Increase) in accounts receivable                                      (215,555)          24,383
      Decrease in prepaid expenses                                                          --           10,369
      Increase in accounts payable and accrued liabilities                             121,137          115,766
---------------------------------------------------------------------------------------------------------------
                                                                                       (71,349)         269,448
---------------------------------------------------------------------------------------------------------------
Financing:
      Repayment of shareholder loans                                                   (25,251)         (23,099)
      Repayment of notes payable                                                       (17,125)          (8,499)
      Repayment of due to Wayside Solutions Inc.                                            --          (50,695)
---------------------------------------------------------------------------------------------------------------
                                                                                       (42,376)         (82,293)
---------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents                           134,856          (40,956)
---------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents                                               21,131          146,199
Cash and cash equivalents, beginning of period                                          23,184          128,945
---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period                                        $       44,315    $     275,144
---------------------------------------------------------------------------------------------------------------

Supplemental Cash flow information
      Interest Paid                                                             $        1,973    $       3,084
      Taxes paid                                                                $           --    $          --


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



                                      F-59


BSD SOFTWARE, INC.
Notes to Consolidated Interim Financial Statements
(U.S. Dollars)
Three month period ended October 31, 2005
(Unaudited)


1.    NATURE OF BUSINESS:

      BSD Software,  Inc. (the "Company")  operates as a holding company for the
      purposes of investing in Triton Global Communications Inc. ("TGCI"), which
      is a provider  of  billings,  clearing  house and  information  management
      services to the tele-communications industry.

      The accompanying  unaudited consolidated interim financial statements have
      been prepared in accordance with accounting  principles generally accepted
      in the United States of America for interim financial information and with
      the  instructions  to Form 10-QSB and Regulation S-B of the Securities and
      Exchange  Commission.   Accordingly,  they  do  not  include  all  of  the
      information  and  footnotes  required by accounting  principles  generally
      accepted in the United States of America for complete financial statements
      and should be read in conjunction with the Financial  Statements contained
      in the Company's audited consolidated  financial statements on Form 10-KSB
      for the period  ended July 31,  2005.  In the opinion of  management,  all
      adjustments (consisting of normal recurring accruals) considered necessary
      for a fair presentation  have been included in the consolidated  financial
      position of the Company as of October 31, 2005 and the  operating  results
      for the three month period ended  October 31, 2005 and 2004 and cash flows
      for the  three  month  period  ended  October  31,  2005  and 2004 are not
      necessarily  indicative  of the results  that may be expected for the year
      ended July 31, 2006.

      These financial  statements have been prepared on a going concern basis in
      accordance with United States generally  accepted  accounting  principles.
      The Company has  reported net income of $271,350 and $44,549 for the years
      ended July 31, 2005 and 2004  respectively and has an accumulated  deficit
      of  $5,704,542  as of July 31, 2005. As of July 31, 2005 the Company had a
      working  capital  deficit of $3,205,216.  These factors,  amongst  others,
      raise substantial doubt about the Company's ability to continue as a going
      concern.

      The  Company's  ability to continue as a going  concern is dependent  upon
      management's ability to raise additional financing and continue profitable
      operations.  During the year ended July 31, 2005,  management continued to
      take actions to reduce  operating losses and is in the process of securing
      additional financing. There is no assurance that additional financing will
      be obtained.

      The ability of the  Company to continue as a going  concern and to realize
      the carrying value of its assets and discharge its liabilities when due is
      dependent on the  successful  completion  of the actions taken or planned,
      some of which are described above, which management believes will mitigate
      the adverse  conditions and events which raise substantial doubt about the
      validity of the going concern assumption used in preparing these financial
      statements.  There is no certainty that these and other strategies will be
      sufficient  to permit the Company to continue to meet its  obligations  in
      the normal course of business.

      The  financial  statements  do  not  reflect  adjustments  that  would  be
      necessary if the going concern  assumption  were not  appropriate.  If the
      going concern basis was not appropriate  for these  financial  statements,
      adjustments  would  be  necessary  to the  carrying  value of  assets  and
      liabilities,  the reported  revenues and  expenses,  and the balance sheet
      classifications used.


                                      F-60


BSD SOFTWARE, INC.
Notes to Consolidated Interim Financial Statements
(U.S. Dollars)
Three month period ended October 31, 2005
(Unaudited)


1.    NATURE OF BUSINESS (CONTINUED):

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

      On December 21,  2004,  NeoMedia  Technologies,  Inc.  (NeoMedia)  and the
      Company signed a definitive Agreement and Plan of Merger. Upon the closing
      of the merger transaction  discussed therein,  the Company's  shareholders
      will receive, for each share of the Company's stock owned, NeoMedia common
      stock equivalent to $0.07 divided by the volume-weighted  average price of
      NeoMedia common stock for the five trading days  immediately  prior to the
      effective  time of the merger.  The agreement has been approved by holders
      of approximately  63% of the Company's  outstanding  shares and its Board.
      Closing  is  subject to the terms and  conditions  outlined  in the merger
      agreement,   as  well  as   regulatory   approval   of  the   merger   and
      registration/information  statement by the United  States  Securities  and
      Exchange Commission. Prior to closing, the merger can be terminated by the
      Company  if  shareholders  of more  than 5% of the  Company's  outstanding
      shares  dissent  to the  merger.  The merger  can be  terminated  prior to
      closing by NeoMedia if, at the time of closing,  the Company has: (i) less
      than  $850,000 in assets,  (ii) more than  $5,000,000 in  liabilities,  or
      (iii) more than  38,000,000  shares of common  stock  outstanding.  Either
      party can  terminate  the merger if the merger has not closed by  December
      31, 2005, which date may be extended by mutual consent of NeoMedia and the
      Company. There is no assurance that the merger will be completed.

2.    SIGNIFICANT ACCOUNTING POLICIES:


      (a)  Principles of consolidation:

           The unaudited  consolidated  interim financial statements include the
           accounts of Triton  Global  Communications  Inc.  ("TGCI") and Triton
           Global   Business   Services   Inc.   ("TGBSI").    All   significant
           inter-company  balances and  transactions  have been  eliminated upon
           consolidation.

      (b)  Translation of foreign currency:

           The functional  currency of the  operations  is the Canadian  dollar.
           The financial  statements  are reported in  United States dollars and
           are  translated  to United States  dollars  at the exchange  rates in
           effect at the balance sheet date for  assets and  liabilities  and at
           average  rates for the period for  revenues and  expenses.  Resulting
           exchange  differences  are accumulated  as a component of accumulated
           other comprehensive loss.

           Revenue and expense  transactions  originating  in  U.S.  dollars are
           translated to Canadian dollars at rates in  effect at the time of the
           transaction.  Foreign  exchange  losses of $6,411 in 2005 and foreign
           exchange gain of $28,452 in 2004 are included in income.

      (c)  Reclassification:

           Certain  reclassifications have been made to the prior year unaudited
           consolidated  interim financial statements  to conform to the current
           year presentation.


                                      F-61


BSD SOFTWARE, INC.
Notes to Consolidated Interim Financial Statements
(U.S. Dollars)
Three month period ended October 31, 2005
(Unaudited)

2.    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

      (d)  Revenue recognition:

           We  record  revenue  in  accordance  with  SEC SAB No.  104  "Revenue
           Recognition  in  Financial  Statements."  SAB No. 104  requires  that
           service sales be recognized  when there is persuasive  evidence of an
           arrangement  which states a fixed and  determinable  price and terms,
           delivery of the product has occurred in accordance  with the terms of
           the  sale,  and  collectibility  of the sale is  reasonably  assured.
           Revenue  is  recognized  at the time that calls are  accepted  by the
           clearing house for billing to customers.

      (e)  Stock-based compensation:

           Under  the  fair  value  based   method,   stock-based   payments  to
           non-employees  are  measured  at the fair value of the  consideration
           received,  or the fair value of the  equity  instruments  issued,  or
           liabilities incurred, whichever is more reliably measurable. The fair
           value  of  stock-based  payments  to  non-employees  is  periodically
           re-measured  until  counterparty  performance  is  complete,  and any
           change  therein is recognized  over the period and in the same manner
           as if the  Company  had paid cash  instead  of  paying  with or using
           equity instruments. The cost of stock-based payments to non-employees
           that are  fully  vested  and  non-forfeitable  at the  grant  date is
           measured and recognized at that date. Pro forma income is the same as
           net income as no options were granted or vested during the periods.

      (f)  Income per common share:

           Income per common share is  calculated  by dividing the net income by
           the weighted average number of common shares  outstanding  during the
           period. Diluted income per common share is calculated by dividing the
           applicable  net income by the sum of the weighted  average  number of
           common shares outstanding and all additional common shares that would
           have been outstanding if potentially  dilutive common shares had been
           issued during the period.

      (g)  Deferred Income Taxes

           The company uses the asset and  liability  method of  accounting  for
           income  taxes.  Under the asset and  liability  method,  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.
           The effect on deferred tax assets and  liabilities of a change in tax
           rates is recognized in income in the period that includes the date of
           enactment.

           To  the  extent  that  realization  of  deferred  tax  assets  is not
           considered  to be "more  likely than not",  a valuation  allowance is
           provided.

      (h)  Minority Interest

           Although  the Company  currently  owns only 90% of TGBSI,  operations
           have  resulted  in  cumulative  losses to October  31,  2005 and as a
           result the entire amount of these losses have been reflected in these
           financial  statements and no minority  interest has been  calculated.
           Until such time as  operations  recover  the  deficiency  in minority
           interest  of  $212,075  the full 100% of  operating  results  will be
           reported with no off-setting minority interest.

      (i)  New Accounting Pronouncements

           In November 2004, the FASB issued SFAS No. 151,  "Inventory Costs, an
           amendment of ARB No. 43, Chapter 4". The amendments made by Statement
           151 clarify that abnormal amounts of idle facility expense,  freight,
           handling costs, and wasted materials  (spoilage) should be recognized
           as  current  period  charges  and  require  the  allocation  of fixed
           production overheads to inventory based on the normal capacity of the
           production facilities.  The guidance is effective for inventory costs
           incurred during fiscal years  beginning after June 15, 2005.  Earlier
           application is permitted for inventory  costs incurred  during fiscal
           years  beginning  after  November 23, 2004. The Company has evaluated
           the impact of the  adoption  of SFAS 151,  and does not  believe  the
           impact  will be  significant  to the  Company's  overall  results  of
           operations or financial position.


                                      F-62


BSD SOFTWARE, INC.
Notes to Consolidated Interim Financial Statements
(U.S. Dollars)
Three month period ended October 31, 2005
(Unaudited)

 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

      (i)  New Accounting Pronouncements (continued):

           In November 2004, the FASB issued SFAS No. 151,  "Inventory Costs, an
           amendment of ARB No. 43, Chapter 4". The amendments made by Statement
           151 clarify that abnormal amounts of idle facility expense,  freight,
           handling costs, and wasted materials  (spoilage) should be recognized
           as  current  period  charges  and  require  the  allocation  of fixed
           production overheads to inventory based on the normal capacity of the
           production facilities.  The guidance is effective for inventory costs
           incurred during fiscal years  beginning after June 15, 2005.  Earlier
           application is permitted for inventory  costs incurred  during fiscal
           years  beginning  after  November 23, 2004. The Company has evaluated
           the impact of the  adoption  of SFAS 151,  and does not  believe  the
           impact  will be  significant  to the  Company's  overall  results  of
           operations or financial position.

           In  December  2004,  the  FASB  issued  SFAS  No.153,  "Exchanges  of
           Nonmonetary  Assets,  an amendment of APB Opinion No. 29,  Accounting
           for Nonmonetary  Transactions."  The amendments made by Statement 153
           are based on the  principle  that  exchanges  of  nonmonetary  assets
           should be measured  based on the fair value of the assets  exchanged.
           Further,   the   amendments   eliminate  the  narrow   exception  for
           nonmonetary  exchanges  of similar  productive  assets and replace it
           with a broader exception for exchanges of nonmonetary  assets that do
           not have commercial substance.  Previously,  Opinion 29 required that
           the  accounting  for an exchange of a productive  asset for a similar
           productive  asset or an  equivalent  interest  in the same or similar
           productive  asset should be based on the recorded amount of the asset
           relinquished.   Opinion  29  provided  an   exception  to  its  basic
           measurement   principle   (fair  value)  for   exchanges  of  similar
           productive  assets.  The Board believes that exception  required that
           some nonmonetary  exchanges,  although commercially  substantive,  be
           recorded on a carryover basis. By focusing the exception on exchanges
           that lack  commercial  substance,  the Board  believes this Statement
           produces  financial  reporting  that more  faithfully  represents the
           economics  of  the  transactions.  The  Statement  is  effective  for
           nonmonetary  asset  exchanges  occurring in fiscal periods  beginning
           after June 15, 2005. Earlier application is permitted for nonmonetary
           asset exchanges  occurring in fiscal periods beginning after the date
           of  issuance.  The  provisions  of this  Statement  shall be  applied
           prospectively.  The Company has  evaluated the impact of the adoption
           of SFAS 152, and does not believe the impact will be  significant  to
           the Company's overall results of operations or financial position.

           In  December  2004,  the FASB  issued  SFAS  No.123  (revised  2004),
           "Share-Based  Payment".  Statement 123(R) will provide  investors and
           other users of financial  statements  with more  complete and neutral
           financial   information  by  requiring  that  the  compensation  cost
           relating  to  share-based  payment   transactions  be  recognized  in
           financial  statements.  That cost will be measured  based on the fair
           value of the equity or liability instruments issued. Statement 123(R)
           covers  a  wide  range  of  share-based   compensation   arrangements
           including share options,  restricted  share plans,  performance-based
           awards, share appreciation rights, and employee share purchase plans.
           Statement  123(R)  replaces FASB  Statement No. 123,  Accounting  for
           Stock-Based   Compensation,   and  supersedes  APB  Opinion  No.  25,
           Accounting   for  Stock  Issued  to  Employees.   Statement  123,  as
           originally   issued   in   1995,    established   as   preferable   a
           fair-value-based   method  of  accounting  for  share-based   payment
           transactions  with  employees.   However,  that  Statement  permitted
           entities  the option of  continuing  to apply the guidance in Opinion
           25, as long as the footnotes to financial  statements  disclosed what
           net income would have been had the preferable fair-value-based method
           been used. Public entities (other than those filing as small business
           issuers) will be required to apply  Statement  123(R) as of the first
           interim or annual  reporting  period that begins  after  December 15,
           2005. Management is currently evaluating the impact SFAS 123(R), will
           have on our consolidated financial statements.

                                      F-63


BSD SOFTWARE, INC.
Notes to Consolidated Interim Financial Statements
(U.S. Dollars)
Three month period ended October 31, 2005
(Unaudited)

2.    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

      (i)  New Accounting Pronouncements (continued):

           In March 2005,  the SEC released Staff  Accounting  Bulletin No. 107,
           "Share-Based   Payment"  ("SAB  107"),  which  provides  interpretive
           guidance  related to the interaction  between SFAS 123(R) and certain
           SEC rules and  regulations.  It also  provides the SEC staff's  views
           regarding  valuation of share-based  payment  arrangements.  In April
           2005, the SEC amended the compliance dates for SFAS 123(R),  to allow
           companies  to implement  the standard at the  beginning of their next
           fiscal year,  instead of the next reporting  period  beginning  after
           June 15, 2005.  Management is currently evaluating the impact SAB 107
           will have on our consolidated financial statements.

           In  March  2005,  the  FASB  issued  FASB   Interpretation   No.  47,
           "Accounting for Conditional Asset Retirement Obligations" ("FIN 47").
           FIN  47  provides  guidance  relating  to the  identification  of and
           financial  reporting  for  legal  obligations  to  perform  an  asset
           retirement  activity.  The Interpretation  requires  recognition of a
           liability  for the  fair  value  of a  conditional  asset  retirement
           obligation  when  incurred  if  the  liability's  fair  value  can be
           reasonably  estimated.  FIN 47 also defines when an entity would have
           sufficient  information  to reasonably  estimate the fair value of an
           asset retirement obligation. The provision is effective no later than
           the end of fiscal years ending after  December 15, 2005.  The Company
           will  adopt  FIN 47 and does not  believe  the  adoption  will have a
           material impact on its consolidated  financial position or results of
           operations or cash flows.

           In May 2005,  the FASB issued  FASB  Statement  No.  154,  Accounting
           Changes and Error Corrections. This new standard replaces APB Opinion
           No. 20,  Accounting  Changes,  and FASB  Statement  No. 3,  Reporting
           Accounting  Changes in Interim Financial  Statements,  and represents
           another step in the FASB's goal to converge its standards  with those
           issued by the IASB. Among other changes,  Statement 154 requires that
           a voluntary change in accounting principle be applied retrospectively
           with all  prior  period  financial  statements  presented  on the new
           accounting principle,  unless it is impracticable to do so. Statement
           154 also  provides  that (1) a change in method  of  depreciating  or
           amortizing a  long-lived  nonfinancial  asset be  accounted  for as a
           change in estimate  (prospectively)  that was effected by a change in
           accounting  principle,  and (2)  correction  of errors in  previously
           issued financial statements should be termed a "restatement." The new
           standard is effective for accounting changes and correction of errors
           made in  fiscal  years  beginning  after  December  15,  2005.  Early
           adoption of this  standard is permitted  for  accounting  changes and
           correction  of errors made in fiscal  years  beginning  after June 1,
           2005.

           In June 2005,  the  Emerging  Issues Task Force,  or EITF,  reached a
           consensus  on Issue 05-6,  Determining  the  Amortization  Period for
           Leasehold  Improvements,  which requires that leasehold  improvements
           acquired in a business  combination  or purchased  subsequent  to the
           inception of a lease be amortized  over the lesser of the useful life
           of the assets or a term that includes  renewals  that are  reasonably
           assured at the date of the business  combination  or  purchase.  EITF
           05-6 is effective for periods beginning after July 1, 2005. We do not
           expect the provisions of this consensus to have a material  impact on
           our financial position, results of operations or cash flows.


3.    COMMITMENTS AND CONTINGENCIES:

      The  Company  leases  its business premises  and certain  office equipment
      under operating  leases.  Total  lease payments  during the  current three
      month  period  totaled  $14,206 (2004 - $15,796),  net of sublease revenue
      of $42,188 (2004 - $36,623). Future lease payments will aggregate $210,946
      as follows:

                           2006              $     66,207
                           2007                    62,295
                           2008                    61,925
                           2009                    20,519
                           2010                         0
                                             ------------
                                             $    210,946
                                             ============

     Included  in the above,  the Company  leases  premises  with  future  lease
     payments  of  approximately:  2006  -  $151,876;  2007 -  $136,017;  2008 -
     $91,235;  2009 - $0.00 which are subleased for  corresponding  amounts over
     corresponding lease terms.


                                      F-64


BSD SOFTWARE, INC.
Notes to Consolidated Interim Financial Statements
(U.S. Dollars)
Three month period ended October 31, 2005
(Unaudited)

3.    COMMITMENTS AND CONTINGENCIES: (CONTINUED)

      In the normal  course of  operations  the Company is subject to claims and
      lawsuits.  The Company is currently involved in the following  litigation,
      which they are  defending.  The  Company is aware of the  following  legal
      proceedings:

      In December 2002, TGCI sued CanTalk for breach of contract. The action was
      brought before the Court of Queen's Bench,  Winnipeg,  Canada. The case is
      styled "Triton Global  Communications v. CanTalk." The action alleges that
      CanTalk failed to perform under an outsource  agreement  pursuant to which
      CanTalk was to provide  support for Triton's entry into the  international
      operator  service  market.  In  response  to the  suit,  CanTalk  filed  a
      counterclaim  against TGCI for $10,000  alleging breach of contract.  TGCI
      believes that  CanTalk's  counterclaim  is without merit and it intends to
      defend the counterclaim.

      On May 2, 2005, four shareholders of BSD Software,  Inc. filed a complaint
      against BSD and NeoMedia,  claiming that the purchase price as outlined in
      the purchase agreement between NeoMedia and BSD is too low. The plaintiffs
      are seeking  unspecified damages and injunctive relief against the merger.
      BSD has  moved to have the  action  dismissed  and  believes  the claim is
      without merit and intends to defend the claim.

      In July of 2005 Broad Reach Network Inc.  (BRN) filed a Statement of Claim
      against  Triton  Global  Business  Services Inc.  (TGBSI).  The action was
      brought before the court of Queen's Bench, Calgary,  Alberta. BRN is suing
      for damages and judgment in the amount of CDN  $81,000.  TGBSI has filed a
      statement  of defense  denying the amount of the  indebtedness  to BRN and
      filed a  countersuit  in the amount of CDN $50,000 for breach of contract.
      The  Company  has  accrued  an amount  in its  liabilities  to cover  this
      contingency.


4.    RELATED PARTY TRANSACTIONS:

      Wayside  Solutions,  Inc.,  a  Corporation  affiliated  with the  Company,
      provided  financing  services  to the  Company.  Amounts  due  to  Wayside
      Solutions  Inc.,  bear interest at 10% per annum and are due on demand.  A
      general  security  agreement  against all current and future assets of the
      Company  has  been  provided  by  TGBSI  to  Wayside   Solutions  Inc.  as
      collateral.  Accrued  interest  relating to these  services is included in
      interest and finance  charges,  aggregating  $15,289 in the current period
      (2004 - $16,742).

      Amounts due to Guy Fietz, CEO, President and a shareholder of the Company,
      bear interest at 10% per annum, are unsecured and due on demand.  Included
      in interest  and  finance  charges is accrued  interest of $9,320  (2004 -
      $8,623).

      Amounts due to shareholders bear interest at rates varying from 0%-10% per
      annum,  are  unsecured  and due on demand.  Payments in the current  three
      month  period  totaled  $27,224,  including  interest  of  $1,973  (2004 -
      $27,599, including interest of $2,918).

      These transactions are in the normal course of operations and are measured
      at the exchange amount of  consideration  established and agreed to by the
      related parties.


                                      F-65


BSD SOFTWARE, INC.
Notes to Consolidated Interim Financial Statements
(U.S. Dollars)
Three month period ended October 31, 2005
(Unaudited)


5.    CONCENTRATION OF RISK:

      Accounts receivable with three customers represent approximately 89% (2004
      - two customers  accounted for 78%) of the balance of accounts  receivable
      as at  October  31,  2005.  It is the  opinion  of  management  that these
      accounts  do  not  represent  a  significant  credit  risk  as  all of the
      customers  are large  corporations  that have been in business for several
      years and never defaulted on any payments to the company

      A majority of the Company's purchases are from four (2004 - five) specific
      vendors.  The Company has significant  sales and purchases  denominated in
      U.S.  currency,  and is therefore exposed to financial risk resulting from
      fluctuations  in  exchange  rates and the  degree of  volatility  of these
      rates.


                                      F-66


BSD SOFTWARE, INC.
Notes to Consolidated Interim Financial Statements
(U.S. Dollars)
Three month period ended October 31, 2005
(Unaudited)

6.    RESTATEMENT OF PREVIOUSLY REPORTED FINANCIAL INFORMATION:

      The Company, in reviewing its accounting practices with respect to
      translating the foreign currency statements of its subsidiary Triton
      Global Business Services Inc., became aware that it incorrectly applied
      SFAS 52 in accounting for foreign currency translations related to the net
      assets of its subsidiary. As the functional currency of the Company and
      its subsidiaries is the Canadian dollar, the net assets of its subsidiary
      were to be translated using the historical exchange rate in effect when
      the merger with its subsidiary occurred. As a result, the company had
      overstated the Additional Paid in Capital balance as well as overstated
      the Accumulated Other Comprehensive Loss balance. Both of these accounts
      form part of the equity section of the balance sheet. The foreign currency
      translations were reported correctly for all asset and liability accounts
      as well as revenue, and expenses and other items in arriving at Net
      Income.

      At the same time the company realized that it was not following the
      recommendations in SFAS 95 paragraph 25 which states that the effect of
      exchange rate changes should be presented as a separate part of the
      statement cash flows. The Company had netted these changes in the related
      line items in the cash flows from operations section.

      As a result, the Company has restated certain financial information that
      was previously reported in the Company's Annual Report on Form 10-KSB for
      the fiscal year ended July 31, 2005. The following tables provide a
      reconciliation of amounts previously reported by the Company.

   Items affected in the shareholders' deficiency section of the Consolidated
                                 Balance Sheet
--------------------------------------------------------------------------------



                                                      ----------------------------------------------------
                                                                     At July 31, 2005
                                                      ----------------------------------------------------
                                                      Previously        Restatement             Restated
                                                       Reported         Adjustment                Total
                                                      ----------------------------------------------------
                                                                                   
            Additional paid in capital                $ 3,762,704       $  (569,007)     1     $ 3,193,697
            Accumulated other comprehensive loss      $(1,208,547)      $   569,007      1     $  (639,540)
                                                      ----------------------------------------------------


                                                      ----------------------------------------------------
                                                                    At October 31, 2004
                                                      ----------------------------------------------------
                                                      Previously        Restatement             Restated
                                                       Reported         Adjustment                Total
                                                      ----------------------------------------------------
                                                                                   
            Additional paid in capital                $ 3,710,928       $  (585,507)     1     $ 3,125,421
            Accumulated other comprehensive loss      $(1,244,578)      $   585,507      1     $  (659,071)
                                                      ----------------------------------------------------


                                                      ----------------------------------------------------
                                                                    At January 31, 2005
                                                      ----------------------------------------------------
                                                      Previously        Restatement             Restated
                                                       Reported         Adjustment                Total
                                                      ----------------------------------------------------
                                                                                   
            Additional paid in capital                $ 3,688,028       $  (523,581)     1     $ 3,164,447
            Accumulated other comprehensive loss      $(1,119,079)      $   523,581      1     $  (595,498)
                                                      ----------------------------------------------------


                                                      ----------------------------------------------------
                                                                     At April 30, 2005
                                                      ----------------------------------------------------
                                                      Previously        Restatement             Restated
                                                       Reported         Adjustment                Total
                                                      ----------------------------------------------------
                                                                                   
            Additional paid in capital                $ 3,643,368       $  (478,921)     1     $ 3,164,447
            Accumulated other comprehensive loss      $(1,031,172)      $   478,921      1     $  (552,251)
                                                      ----------------------------------------------------


1     Reflects the exchange rate translations on the net assets of the Company's
      subsidiary using the historical rate in effect at the time the shares were
      issued


                                      F-67


BSD SOFTWARE, INC.
Notes to Consolidated Interim Financial Statements
(U.S. Dollars)
Three month period ended October 31, 2005
(Unaudited)

6.    RESTATEMENT OF PREVIOUSLY REPORTED FINANCIAL INFORMATION (CONTINUED):

The effect on comprehensive income of the Consolidated Statements of Operations
                            and Comprehensive Income
--------------------------------------------------------------------------------



                                              -------------------------------------------------------------------------------------
                                                      For the Year Ended July 31, 2005             For the Year Ended July 31, 2004
                                              -------------------------------------------------------------------------------------
                                              Previously   Restatement        Restated     Previously   Restatement       Restated
                                               Reported     Adjustment         Total        Reported     Adjustment         Total
                                              -------------------------------------------------------------------------------------
                                                                                                  
Net Income                                    $ 271,350     $      --        $ 271,350     $  44,549     $      --        $  44,549
   Other comprehensive income (loss)
   Foreign currency translation adjustment    $(527,944)    $ 261,302   1    $(266,642)    $(331,583)    $ 110,999   1    $(220,584)
                                              -------------------------------------------------------------------------------------
Comprehensive Income (Loss)                   $(256,594)    $ 261,302        $   4,708     $(287,034)    $ 110,999        $(176,035)
                                              =====================================================================================


                                              -------------------------------------------------------------------------------------
                                               For the 3 Months Ended October 31, 2004      For the 3 Months Ended October 31, 2003
                                              -------------------------------------------------------------------------------------
                                              Previously   Restatement        Restated     Previously   Restatement       Restated
                                               Reported     Adjustment         Total        Reported     Adjustment         Total
                                              -------------------------------------------------------------------------------------
                                                                                                  
Net Income                                    $  99,401     $      --        $  99,401     $ (16,193)    $      --        $ (16,193)
   Other comprehensive income (loss)
   Foreign currency translation adjustment    $(563,975)    $ 277,802   1    $(286,173)    $(380,625)    $ 134,667   1    $(245,958)
                                              -------------------------------------------------------------------------------------
Comprehensive Income (Loss)                   $(464,574)    $ 277,802        $(186,772)    $(396,818)    $ 134,667        $(262,151)
                                              =====================================================================================


                                              -------------------------------------------------------------------------------------
                                               For the 3 Months Ended January 31, 2005      For the 3 Months Ended January 31, 2004
                                              -------------------------------------------------------------------------------------
                                              Previously   Restatement        Restated     Previously   Restatement       Restated
                                               Reported     Adjustment         Total        Reported     Adjustment         Total
                                              -------------------------------------------------------------------------------------
                                                                                                  
Net Income                                    $  49,463     $      --        $  49,463     $  78,269     $      --        $  78,269
   Other comprehensive income (loss)
   Foreign currency translation adjustment    $ 125,499     $ (61,926)  1    $  63,573     $  27,318     $ (10,163)  1    $  17,155
                                              -------------------------------------------------------------------------------------
Comprehensive Income (Loss)                   $ 174,962     $ (61,926)       $ 113,036     $ 105,587     $ (10,163)       $  95,424
                                              =====================================================================================


                                              -------------------------------------------------------------------------------------
                                                 For the 3 Months Ended April 30, 2005        For the 3 Months Ended April 30, 2004
                                              -------------------------------------------------------------------------------------
                                              Previously   Restatement        Restated     Previously   Restatement       Restated
                                               Reported     Adjustment         Total        Reported     Adjustment         Total
                                              -------------------------------------------------------------------------------------
                                                                                                  
Net Income                                    $  52,472     $      --        $  52,472     $ 258,465     $      --        $ 258,465
   Other comprehensive income (loss)
   Foreign currency translation adjustment    $  87,907     $ (44,660)  1    $  43,247     $ 197,450     $(107,706)  1    $  89,744
                                              -------------------------------------------------------------------------------------
Comprehensive Income (Loss)                   $ 140,379     $ (44,660)       $  95,719     $ 455,915     $(107,706)       $ 348,209
                                              =====================================================================================


1     Reflects the exchange rate translations related to the net assets of the
      Company's subsidiary for the period


                                      F-68


BSD SOFTWARE, INC.
Notes to Consolidated Interim Financial Statements
(U.S. Dollars)
Three month period ended October 31, 2005
(Unaudited)

6.    RESTATEMENT OF PREVIOUSLY REPORTED FINANCIAL INFORMATION (CONTINUED):

      The effect of foreign currency translation adjustments on the consolidated
      statements of cash flows



                                                                             For the Year Ended July 31, 2004
-------------------------------------------------------------------------------------------------------------
                                                                   Previously     Restatement      Restated
                                                                    Reported       Adjustment        Total
                                                                  -------------------------------------------
                                                                                      
Cash flows from (used in):
Operations:
          Net income                                              $    44,549     $        --     $    44,549
          Items not involving cash:
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
          Non-cash financing costs                                $    98,550     $        --     $    98,550
          Loss on sale of assets                                  $     3,179     $        --     $     3,179
          Depreciation and amortization                           $    77,093     $        --     $    77,093
Changes in operating working capital:                             $        --
          Increase in accounts receivable                         $  (350,352)    $    44,405  1  $  (305,947)
          Decrease in income taxes recoverable                    $    33,048     $        --     $    33,048
          Decrease in prepaid expenses                            $     2,053     $        39  1  $     2,092
          Increase in accounts payable and accrued
          liabilities                                             $   225,666     $   (55,739) 1  $   169,927
-------------------------------------------------------------------------------------------------------------
                                                                  $   133,786     $   (11,295)    $   122,491

Investing:
          Proceeds on sale of property and equipment              $    35,188     $        --     $    35,188
          Purchase of property and equipment                      $    (2,259)    $        --     $    (2,259)
-------------------------------------------------------------------------------------------------------------
                                                                  $    32,929     $        --     $    32,929

Financing:
          Repayment of shareholder loans                          $   (38,395)    $        --     $   (38,395)
          Repayment of  notes payable                             $   (10,599)    $        --     $   (10,599)
          Repayment of due to Wayside Solutions Inc.              $   (63,706)    $        --     $   (63,706)
-------------------------------------------------------------------------------------------------------------
                                                                  $  (112,700)    $        --     $  (112,700)

Effect of exchange rate changes on cash and cash equivalents      $        --     $    11,295  1  $    11,295
-------------------------------------------------------------------------------------------------------------

Net decrease (increase) in cash and cash equivalents              $    54,015     $        --     $    54,015
Cash and cash equivalents, beginning of period                    $    74,930     $        --     $    74,930
-------------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of period                          $   128,945     $        --     $   128,945
=============================================================================================================


1     Reflects the exchange rate translations related to current assets and
      liabilities of the Company's subsidiary for the stated period


                                      F-69


BSD SOFTWARE, INC.
Notes to Consolidated Interim Financial Statements
(U.S. Dollars)
Three month period ended October 31, 2005
(Unaudited)

 6.    RESTATEMENT OF PREVIOUSLY REPORTED FINANCIAL INFORMATION (CONTINUED):

      The effect of foreign currency translation adjustments on the consolidated
      statements of cash flows



                                                                               For the Year Ended July 31, 2005
---------------------------------------------------------------------------------------------------------------
                                                                     Previously     Restatement      Restated
                                                                      Reported       Adjustment        Total
                                                                    -------------------------------------------
                                                                                        
Cash flows from (used in):
Operations:
          Net income                                                $   271,350     $        --     $   271,350
          Items not involving cash:
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
          Shares issued to non-executive employees                  $    30,000     $        --     $    30,000
          Loss on sale of assets                                    $     9,167     $        --     $     9,167
          Depreciation and amortization                             $    73,187     $        --     $    73,187
Changes in operating working capital:
          Increase in accounts receivable                           $  (747,954)    $    64,637  1  $  (683,317)
          Decrease in prepaid expenses                              $     9,013     $     1,696  1  $    10,709
          Increase in accounts payable and accrued liabilities      $   464,584     $    28,667  1  $   493,251
---------------------------------------------------------------------------------------------------------------
                                                                    $   109,347     $    95,000     $   204,347

Investing:
          Proceeds on sale of property and equipment                $    16,677     $        --     $    16,677
---------------------------------------------------------------------------------------------------------------

Financing:
          Repayment of shareholder loans                            $   (93,952)    $        --     $   (93,952)
          Repayment of  notes payable                               $   (69,027)    $        --     $   (69,027)
          Repayment of due to Wayside Solutions Inc.                $   (68,806)    $        --     $   (68,806)
---------------------------------------------------------------------------------------------------------------
                                                                    $  (231,785)    $        --     $  (231,785)

Effect of exchange rate changes on cash and cash equivalents        $        --     $   (95,000) 1  $   (95,000)
---------------------------------------------------------------------------------------------------------------

Net decrease (increase) in cash and cash equivalents                $  (105,761)    $        --     $  (105,761)
Cash and cash equivalents, beginning of period                      $   128,945     $        --     $   128,945
---------------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of period                            $    23,184     $        --     $    23,184
===============================================================================================================


1     Reflects the exchange rate translations related to current assets and
      liabilities of the Company's subsidiary for the stated period


                                      F-70


BSD SOFTWARE, INC.
Notes to Consolidated Interim Financial Statements
(U.S. Dollars)
Three month period ended October 31, 2005
(Unaudited)

6.    RESTATEMENT OF PREVIOUSLY REPORTED FINANCIAL INFORMATION (CONTINUED):

      The effect of foreign currency translation adjustments on the consolidated
      statements of cash flows



The effect of foreign currency translation adjustments on the consolidated
statements of cash flows
===================================================================================================================================
                  For the 3 months ended                          October 31, 2004                                 October 31, 2003
                                          -----------------------------------------------------------------------------------------
                                          Previously      Restatement     Restated        Previously      Restatement     Restated
                                           Reported        Adjustment      Total           Reported        Adjustment      Total
                                          -----------------------------------------------------------------------------------------
                                                                                                  
Cash from (used in)
      Operations                          $ 228,492       $  40,956   1   $ 269,448       $  30,615       $(156,522)  1   $(125,907)
      Investing                           $      --       $      --       $      --       $  35,188       $      --       $  35,188
      Financing                           $ (82,293)      $      --       $ (82,293)      $      --       $      --       $      --
Effect of exchange rate changes on
cash and cash equivalents                 $      --       $ (40,956)  1   $ (40,956)      $      --       $ 156,522   1   $ 156,522
-----------------------------------------------------------------------------------------------------------------------------------

Net decrease (increase) in cash and
cash equivalents                          $ 146,199       $      --       $ 146,199       $  65,803       $      --       $  65,803

Cash and cash equivalents, beginning
of period                                 $ 128,945       $      --       $ 128,945       $  74,930       $      --       $  74,930
-----------------------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of
period                                    $ 275,144       $      --       $ 275,144       $ 140,733       $      --       $ 140,733
===================================================================================================================================


===================================================================================================================================
                  For the 6 months ended                           January 31, 2005                                January 31, 2004
                                          -----------------------------------------------------------------------------------------
                                          Previously      Restatement     Restated        Previously      Restatement     Restated
                                           Reported        Adjustment      Total           Reported        Adjustment      Total
                                          -----------------------------------------------------------------------------------------
                                                                                                  
Cash from (used in)
      Operations                          $    (905)      $  81,993   1   $  81,088       $ (17,945)      $(159,855)  1   $(177,800)
      Investing                           $  16,677       $      --       $  16,677       $  35,188       $      --       $  35,188
      Financing                           $ (99,975)      $      --       $ (99,975)      $ (52,838)      $      --       $ (52,838)
Effect of exchange rate changes on
cash and cash equivalents                 $      --       $ (81,993)  1   $ (81,993)      $      --       $ 159,855   1   $ 159,855
-----------------------------------------------------------------------------------------------------------------------------------

Net decrease (increase) in cash and
cash equivalents                          $ (84,203)      $      --       $ (84,203)      $ (35,595)      $      --       $ (35,595)

Cash and cash equivalents, beginning
of period                                 $ 128,945       $      --       $ 128,945       $  74,930       $      --       $  74,930
-----------------------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of
period                                    $  44,742       $      --       $  44,742       $  39,335       $      --       $  39,335
===================================================================================================================================


===================================================================================================================================
                  For the 9 months ended                            April 30, 2005                                   April 30, 2004
                                          -----------------------------------------------------------------------------------------
                                          Previously      Restatement     Restated        Previously      Restatement     Restated
                                           Reported        Adjustment      Total           Reported        Adjustment      Total
                                          -----------------------------------------------------------------------------------------
                                                                                                  
Cash from (used in)
      Operations                          $  19,291       $  74,858   1   $  94,149       $  58,109       $ 139,439   1   $ 197,548
      Investing                           $  16,677       $      --       $  16,677       $  32,999       $      --       $  32,999
      Financing                           $(159,703)      $      --       $(159,703)      $(142,272)      $      --       $(142,272)
Effect of exchange rate changes on
cash and cash equivalents                 $      --       $ (74,858)  1   $ (74,858)      $      --       $(139,439)  1   $(139,439)
-----------------------------------------------------------------------------------------------------------------------------------

Net decrease (increase) in cash and
cash equivalents                          $(123,735)      $      --       $(123,735)      $ (51,164)      $      --       $ (51,164)

Cash and cash equivalents, beginning
of period                                 $ 128,945       $      --       $ 128,945       $  74,930       $      --       $  74,930
-----------------------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of
period                                    $   5,210       $      --       $   5,210       $  23,766       $      --       $  23,766
===================================================================================================================================
1     Reflects the exchange rate translations related to current assets and
      liabilities of the Company's suubsidiary for the stated period



                                      F-71


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of BSD Software, Inc and Subsidiaries

We have audited the  accompanying  consolidated  balance  sheet of BSD Software,
Inc.  (the  "Company")  as of  July  31,  2005,  and  the  related  consolidated
statements of operations and  comprehensive  loss, cash flows, and shareholders'
deficit 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 the standards of the Public  Company
Accounting Oversight Board (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 provide a reasonable
basis for our opinion.

In our opinion,  the 2005 consolidated  financial  statements  referred to above
present fairly, in all material respects,  the financial position of the Company
as of July 31, 2005,  and the results of its  operations  and its cash flows for
the year then ended in conformity with accounting  principles generally accepted
in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements,  the Company has experienced operating losses
and has a 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 2. The consolidated  financial  statements do
not  include  any  adjustments  that  might  result  from  the  outcome  of this
uncertainty.

/s/ Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
Irvine, California
September 28, 2005, except for Note 11, (which is as of December 15, 2005).


                                      F-72


REPORT OF INDEPENDENT PUBLIC ACCOUNTING FIRM


To the Board of Directors of BSD Software, Inc.

We have audited the  accompanying  statements  of operations  and  comprehensive
loss, shareholders' deficit and cash flows of BSD Software, Inc. (the "Company")
for the year ended July 31, 2004. 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 audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (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  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects the results of the Company's operations and its
cash flows for the year ended July 31, 2004 in  conformity  with U.S.  generally
accepted accounting principles.

The consolidated  financial  statements  described above have been restated from
those previously issued as described in note 11.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has experienced operating losses
and has a 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 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.


/s/ KPMG LLP

Chartered Accountants


Regina, Canada
September 24, 2004, except for note 11,
which is as of December 15. 2005

                                      F-73


BSD SOFTWARE, INC.
Consolidated Balance Sheet, as restated
--------------------------------------------------------------------------------
(U.S. dollars)                                                   July 31, 2005
--------------------------------------------------------------------------------
Assets

Current assets:
  Cash                                                            $    23,184
  Accounts receivable                                               1,582,891
  Prepaid expenses                                                     12,452
--------------------------------------------------------------------------------
                                                                    1,618,527

Property and equipment                                                 87,392
--------------------------------------------------------------------------------
                                                                  $ 1,705,919
--------------------------------------------------------------------------------

Liabilities and Stockholders' Deficiency
Current liabilities:
  Accounts payable and accrued liabilities                        $ 3,187,028
  Shareholder loans                                                   243,256
  Due to Officer                                                      463,973
  Due to Wayside Solutions Inc.                                       827,041
  Notes payable                                                       102,445
--------------------------------------------------------------------------------
                                                                    4,823,743
Stockholders' deficiency:
Share capital:
Authorized:
  Preferred stock 5,000,000 shares at $.001 par value
  Common stock 50,000,000 shares at $.001 par value
  Issued and outstanding:
  32,560,897 common shares (July 31, 2004 - 31,684,597)                32,561
  Additional paid-in capital (as restated - Note 11)                3,193,697
  Accumulated Deficit                                              (5,704,542)
  Accumulated other comprehensive loss (as restated - Note 11)       (639,540)
--------------------------------------------------------------------------------
Commitments and contingencies                                      (3,117,824)
--------------------------------------------------------------------------------
                                                                  $ 1,705,919
--------------------------------------------------------------------------------

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

                                      F-74


BSD SOFTWARE, INC.
Consolidated Statements of Operations and Comprehensive Income, as restated



                                                                                   Years Ended July 31,
-------------------------------------------------------------------------------------------------------------
(U.S. dollars)                                                                     2005             2004
-------------------------------------------------------------------------------------------------------------
                                                                                           
Revenue                                                                       $  7,350,409       $  6,091,101

Cost of revenues                                                                 5,855,723          4,618,371
-------------------------------------------------------------------------------------------------------------
                                                                                 1,494,686          1,472,730
Operating expenses:
         Administration                                                            140,209            182,938
         Professional fees                                                         186,736            334,946
         Rent                                                                       57,244             90,396
         Payroll                                                                   603,260            537,391
         Depreciation and amortization                                              73,187             77,093
-------------------------------------------------------------------------------------------------------------
                                                                                 1,060,636          1,222,764
-------------------------------------------------------------------------------------------------------------

Income from operations                                                             434,050            249,966

Other income (expenses)
         Interest expense                                                         (153,533)          (253,328)
         Loss on sales of assets                                                    (9,167)            (3,179)
         Gain on sale of contracts                                                    --               51,090
-------------------------------------------------------------------------------------------------------------
         Total other income (expense)                                             (162,700)          (205,417)

Income before provision for taxes                                                  271,350             44,549
         Income taxes                                                                 --                 --
-------------------------------------------------------------------------------------------------------------
Net Income                                                                         271,350             44,549
Other comprehensive loss
         Foreign currency translation adjustment (as restated - Note 11)          (266,642)          (220,584)
-------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) (as restated - Note 11)                           $      4,708       $   (176,035)
-------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per share                                          $       0.01       $       0.00
-------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding, basic                                      31,780,707         30,494,009
-------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding, diluted                                    31,921,884         31,494,009
-------------------------------------------------------------------------------------------------------------


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

                                      F-75


BSD SOFTWARE, INC.
Consolidated Statements of Cash Flows, as restated



                                                                                      Years Ended July 31,
--------------------------------------------------------------------------------------------------------------
(U.S. dollars)                                                                       2005              2004
--------------------------------------------------------------------------------------------------------------
                                                                                              
Cash flows from (used in):
Operations:
Net income                                                                          $ 271,350       $  44,549
Items not involving cash:
         Adjustments  to  reconcile  net income to cash  provided by (used in)
          operating activities:
         Non-cash financing costs                                                          --          98,550
         Shares issued to non-executive employees                                      30,000              --
         Loss on sale of assets                                                         9,167           3,179
         Depreciation and amortization                                                 73,187          77,093
Change in non-cash operating working capital:
         Accounts receivable                                                         (683,317)       (305,947)
         Income taxes recoverable                                                          --          33,048
         Prepaid expenses                                                              10,709           2,092
         Accounts payable and accrued liabilities                                     493.251         169,927
--------------------------------------------------------------------------------------------------------------
                                                                                      204,347         122,491
Investing:
         Proceeds on sale of property and equipment                                    16,677          35,188
         Purchase of property and equipment                                                --          (2,259)
--------------------------------------------------------------------------------------------------------------
                                                                                       16,677          32,929
Financing:
         Repayment of shareholder loans                                               (93,952)        (38,395)
         Repayment of notes payable                                                   (69,027)        (10,599)
         Repayment of due to Wayside Solutions Inc.                                   (68,806)        (63,706)
--------------------------------------------------------------------------------------------------------------
                                                                                     (231,785)       (112,700)
--------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents                          (95,000)         11,295
--------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents                                            (105,761)         54,015

Cash, beginning of period                                                             128,945          74,930
--------------------------------------------------------------------------------------------------------------
Cash, end of period                                                                 $  23,184       $ 128,945
--------------------------------------------------------------------------------------------------------------
Supplemental Cash Flow Information
         Interest Paid                                                              $  11,527       $     723
         Taxes Paid                                                                 $      --       $      --
         Non-cash investing and financing activities:
                Reduction of accounts payable and accrued liabilities
                in lieu of stock issuance                                           $   4,348       $      --
                Reduction of shareholder loans in lieu of stock issuance            $  39,153       $      --
                Shares issued to employees                                          $  30,000       $      --


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


                                      F-76





BSD SOFTWARE, INC.
Consolidated Statements of Shareholders' Deficit, as restated

                                                                                          ACCUMULATED
                                                    COMMON STOCK            ADDITIONAL        OTHER
                                           ----------------------------      PAID-IN      COMPREHENSIVE    ACCUMULATED
                                              SHARES           AMOUNT        CAPITAL           LOSS          DEFICIT        TOTAL
===================================================================================================================================
                                                                                                      
Balance July 31, 2003, as
   originally reported                       30,710,427    $    30,710    $  2,213,161   $   (349,020)    $(6,020,441)  $(4,125,590)
Correction of error                                                       $   (196,706)  $    196,706                   $        --
-----------------------------------------------------------------------------------------------------------------------------------

Balance July 31, 2003, as restated           30,710,427    $    30,710    $  2,016,455   $   (152,314)    $(6,020,441)  $(4,125,590)

Shares issued of subsidiary company                                       $    886,964                                  $   886,964
Stock issued re: extension of financing
  agreements                                    252,170    $       253    $    100,616                                  $   100,869
Stock issued for employee salary                 30,000    $        30    $      9,527                                  $     9,557
Stock issued for professional services
  rendered                                       35,000    $        35    $     13,965                                  $    14,000
Stock issued re: Accomodation Agreements        657,000    $       657    $     97,893                                  $    98,550
Comprehensive loss - foreign currency
  translation adjustment                                                                 $   (220,584)                  $  (220,584)
Net Income                                                                               $         --     $    44,549   $    44,549
-----------------------------------------------------------------------------------------------------------------------------------
Balance July 31, 2004                        31,684,597         31,685       3,125,420       (372,898)     (5,975,892)   (3,191,685)

Stock issued to pay debt                        126,300    $       126    $     39,027                                  $    39,153
Restricted stock issued to employees            750,000    $       750    $     29,250                                  $    30,000
Comprehensive loss - foreign currency
  translation adjustment                                                                 $   (266,642)                  $  (266,642)
Net Income                                                                                                $   271,350   $   271,350
-----------------------------------------------------------------------------------------------------------------------------------

Balance July 31, 2005                        32,560,897    $    32,561    $  3,193,697   $   (639,540)    $(5,704,542)  $(3,117,824)
====================================================================================================================================

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



                                      F-77


BSD SOFTWARE, INC.
Notes to Consolidated Financial Statements
(U. S. Dollars)
Periods ended July 31, 2005 and July 31, 2004

1.    NATURE OF BUSINESS:

      BSD Software, Inc. (the "Company") operates as a holding company of Triton
      Global  Communications  Inc.  ("TGCI"),  which is a provider of  billings,
      clearing   house   and    information    management    services   to   the
      tele-communications industry.

      The accompanying  consolidated  financial statements have been prepared in
      accordance with  accounting  principles  generally  accepted in the United
      States of America for financial information.  The preparation of financial
      statements in accordance with United States generally accepted  accounting
      principles  requires  management to make  estimates and  assumptions  that
      affect the reported  amounts of assets and  liabilities and the disclosure
      of  contingent  assets  and  liabilities  at the  date  of  the  financial
      statements and revenues and expenses during the reporting  period.  Actual
      results could differ from those estimates.

      On December 21,  2004,  NeoMedia  Technologies,  Inc.  (NeoMedia)  and the
      Company signed a definitive Agreement and Plan of Merger. Upon the closing
      of the merger transaction  discussed therein,  the Company's  shareholders
      will receive, for each share of the Company's stock owned, NeoMedia common
      stock equivalent to $0.07 divided by the volume-weighted  average price of
      NeoMedia common stock for the five trading days  immediately  prior to the
      effective  time of the merger.  The agreement has been approved by holders
      of approximately  63% of the Company's  outstanding  shares and its Board.
      Closing  is  subject to the terms and  conditions  outlined  in the merger
      agreement,   as  well  as   regulatory   approval   of  the   merger   and
      registration/information  statement by the United  States  Securities  and
      Exchange Commission. Prior to closing, the merger can be terminated by the
      Company if more than 5% of the Company's outstanding shares dissent to the
      merger.  The merger can be terminated  prior to closing by NeoMedia if, at
      the time of closing,  the Company has:  (i) less than  $850,000 in assets,
      (ii) more than  $5,000,000 in  liabilities,  or (iii) more than 38,000,000
      shares of common stock outstanding.  Either party can terminate the merger
      if the merger  has not  closed by  December  31,  2005,  which date may be
      extended  by mutual  consent  of  NeoMedia  and the  Company.  There is no
      assurance that the merger will be completed.

2.    GOING CONCERN:

      These financial  statements have been prepared on a going concern basis in
      accordance with United States generally  accepted  accounting  principles.
      The going  concern  basis of  presentation  assumes  that the Company will
      continue in operation  for the  foreseeable  future and be able to realize
      its assets and discharge its  liabilities  and  commitments  in the normal
      course of  business.  The Company has  reported net income of $271,350 and
      $44,549 for the years ended July 31, 2005 and 2004 respectively and has an
      accumulated deficit of $5,704,542 as of July 31, 2005. As of July 31, 2005
      the Company had a working capital deficit of $3,205,216.

      The  Company's  ability to continue as a going  concern is dependent  upon
      management's ability to raise additional financing and continue profitable
      operations.  During the year ended July 31, 2005,  management continued to
      take actions to reduce  operating losses and is in the process of securing
      additional financing. There is no assurance that additional financing will
      be obtained.

                                      F-78


2.    GOING CONCERN (CONTINUED):

      The ability of the  Company to continue as a going  concern and to realize
      the carrying value of its assets and discharge its liabilities when due is
      dependent on the  successful  completion  of the actions taken or planned,
      some of which are described above, which management believes will mitigate
      the adverse  conditions and events which raise substantial doubt about the
      validity  of the  "going  concern"  assumption  used  in  preparing  these
      financial  statements.   There  is  no  certainty  that  these  and  other
      strategies  will be  sufficient  to permit the Company to continue to meet
      its obligations in the normal course of business.

      The  financial  statements  do  not  reflect  adjustments  that  would  be
      necessary if the "going concern"  assumption were not appropriate.  If the
      "going concern" basis was not appropriate for these financial  statements,
      adjustments  would  be  necessary  to the  carrying  value of  assets  and
      liabilities,  the reported  revenues and  expenses,  and the balance sheet
      classifications used.

3.    SIGNIFICANT ACCOUNTING POLICIES:

      (a)  Principles of consolidation:

           The consolidated  financial statements include the accounts of Triton
           Global  Communications  Inc.  ("TGCI")  and  Triton  Global  Business
           Services  Inc.  ("TGBSI").  TGCI was acquired by TGBSI on October 22,
           2002 and these financial statements reflect the results of operations
           for TGCI from that date  forward.  TGBSI  acquired  the  Company in a
           reverse takeover transaction effective November 4, 2002. As a result,
           the Company changed its year end to July 31, 2003.  These  statements
           reflect  the  consolidated  operations  of TGBSI from  August 1, 2002
           forward  consolidated  with the Company  from  November 4, 2002.  All
           significant   inter-company   balances  and  transactions  have  been
           eliminated upon consolidation.

           Use of Estimates:

           The  preparation of consolidated  financial  statements in conformity
           with accounting principles generally accepted in the United States of
           America  requires  management to make estimates and assumptions  that
           affect the reported  amounts of assets and liabilities and disclosure
           of  contingent  assets and  liabilities  at the date of the financial
           statements  and the reported  amount of revenues and expenses  during
           the  reporting  period.  Significant  estimates  made  by  management
           include,  among others,  realization  of long lived  assets,  accrued
           liabilities, and valuation allowance for defined income taxes. Actual
           results could differ from those estimates.

           Fair Value of Financial Instruments:

           The Company has adopted SFAS No. 107,  "Disclosures  About Fair Value
           of Financial  Instruments." SFAS No. 107 requires  disclosure of fair
           value information about financial  instruments when it is practicable
           to estimate that value.

           For certain of the Company's  financial  instruments  including cash,
           accounts  receivable,  and accounts payable and accrued  liabilities,
           the  carrying  amounts  approximate  fair  value  due to their  short
           maturities. The amounts shown for notes payable also approximate fair
           value because current interest rates and terms offered to the Company
           for similar debt are substantially the same.


                                      F-79


3.    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

      (b)  Property and equipment:

           Property  and  equipment  are  stated  at  cost,  net of  accumulated
           depreciation  and  amortization.  Amortization  is provided using the
           straight-line method at the following rates:

           ---------------------------------------------------------------------
           Asset                                  Method
           ---------------------------------------------------------------------

           Office furniture and equipment      Straight line            5 years
           Computer equipment                  Straight line            5 years
           Computer software                   Straight line            3 years
           Leasehold improvements              Straight line            5 years
           ---------------------------------------------------------------------

           Property and  equipment are assessed for  potential  impairment  when
           triggering  events occur that indicate the carrying  value may not be
           recoverable.  If the undiscounted estimated future net cash flows are
           less than the carrying  value of the asset,  the  impairment  loss is
           calculated  as the  amount by which the  carrying  value of the asset
           exceeds its fair value. Fair value has been calculated as the present
           value of estimated future net cash flows.

      (c)  Translation of foreign currency:

           The functional currency of the operations is the Canadian dollar. The
           financial  statements  are reported in United States  dollars and are
           translated to United States  dollars at the exchange  rates in effect
           at the balance sheet date for assets and  liabilities  and at average
           rates for the period for revenues and  expenses.  Resulting  exchange
           differences  are  accumulated  as a component  of  accumulated  other
           comprehensive loss.

           Revenue  and expense  transactions  originating  in U.S.  dollars are
           translated to Canadian  dollars at rates in effect at the time of the
           transaction.  Foreign  exchange  gains and  losses  are  included  in
           income.

      (d)  Revenue recognition:

           We  record  revenue  in  accordance  with  SEC SAB No.  104  "Revenue
           Recognition  in  Financial  Statements."  SAB No. 104  requires  that
           service sales be recognized  when there is persuasive  evidence of an
           arrangement  which states a fixed and  determinable  price and terms,
           delivery of the product has occurred in accordance  with the terms of
           the  sale,  and  collectibility  of the sale is  reasonably  assured.
           Revenue  is  recognized  at the time that calls are  accepted  by the
           clearing house for billing to customers.

      (e)  Reclassification:

           Certain  reclassifications  have been made to the prior year  balance
           sheet to conform to the current year presentation.

                                      F-80


3.    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

      (f)  Stock-based compensation:

           Under  the  fair  value  based   method,   stock-based   payments  to
           non-employees  are  measured  at the fair value of the  consideration
           received,  or the fair value of the  equity  instruments  issued,  or
           liabilities incurred, whichever is more reliably measurable. The fair
           value  of  stock-based  payments  to  non-employees  is  periodically
           re-measured  until  counterparty  performance  is  complete,  and any
           change  therein is recognized  over the period and in the same manner
           as if the  Company  had paid cash  instead  of  paying  with or using
           equity instruments. The cost of stock-based payments to non-employees
           that are  fully  vested  and  non-forfeitable  at the  grant  date is
           measured and recognized at that date. In November of 2004 the Company
           issued 126,300 common shares to pay down debt owed to shareholders of
           Triton  Global  Business  Services  Inc.  In July of 2005 the Company
           issued 750,000 common shares to employees.  These  transactions  were
           recorded at their fair value and are  included in the  statements  of
           the company.

                                          July 31, 2005     July 31, 2004

           Outstanding Stock Options         150,000            750,000
           Outstanding Warrants            1,000,000          1,000,000


      (g)  Earnings (loss) per common share:

           Basic earnings  (loss) per common share is calculated by dividing the
           net earnings  (loss) by the weighted  average number of common shares
           outstanding  during the period.  Diluted  earnings  (loss) per common
           share is calculated by dividing the applicable net earnings (loss) by
           the sum of the weighted  average number of common shares  outstanding
           and all additional  common shares that would have been outstanding if
           potentially dilutive common shares had been issued during the period.
           The treasury  stock method is used to compute the dilutive  effect of
           options, warrants and similar instruments.

      (h)  Deferred Income Taxes:

           The company uses the asset and  liability  method of  accounting  for
           income  taxes.  Under the asset and  liability  method,  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.
           The effect on deferred tax assets and  liabilities of a change in tax
           rates is recognized in income in the period that includes the date of
           enactment.  To the extent that  realization of deferred tax assets is
           not considered to be "more likely than not", a valuation allowance is
           provided.

      (i)  Minority Interest:

           Although  the Company  currently  owns only 90% of TGBSI,  operations
           have resulted in  cumulative  losses to July 31, 2005 and as a result
           the  entire  amount  of these  losses  have been  reflected  in these
           financial  statements and no minority  interest has been  calculated.
           Until such time as  operations  recover  the  deficiency  in minority
           interest  of  $212,804  the full 100% of  operating  results  will be
           reported with no off-setting minority interest.


                                      F-81


3.    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

      (j)  New Accounting Pronouncements:

           In November 2004, the FASB issued SFAS No. 151,  "Inventory Costs, an
           amendment of ARB No. 43, Chapter 4". The amendments made by Statement
           151 clarify that abnormal amounts of idle facility expense,  freight,
           handling costs, and wasted materials  (spoilage) should be recognized
           as  current  period  charges  and  require  the  allocation  of fixed
           production overheads to inventory based on the normal capacity of the
           production facilities.  The guidance is effective for inventory costs
           incurred during fiscal years  beginning after June 15, 2005.  Earlier
           application is permitted for inventory  costs incurred  during fiscal
           years  beginning  after  November 23, 2004. The Company has evaluated
           the impact of the  adoption  of SFAS 151,  and does not  believe  the
           impact  will be  significant  to the  Company's  overall  results  of
           operations or financial position.

           In December 2004, the FASB issued SFAS No.152,  "Accounting  for Real
           Estate Time-Sharing Transactions, an amendment of FASB Statements No.
           66 and 67 (SFAS 152)".  The  amendments  made by Statement  152 amend
           FASB  Statement  No.  66,  Accounting  for Sales of Real  Estate,  to
           reference the financial  accounting  and reporting  guidance for real
           estate time-sharing  transactions that is provided in AICPA Statement
           of Position  (SOP)  04-2,  Accounting  for Real  Estate  Time-Sharing
           Transactions.  This  Statement  also  amends FASB  Statement  No. 67,
           Accounting  for Costs and Initial  Rental  Operations  of Real Estate
           Projects,  to state that the guidance for (a)  incidental  operations
           and (b) costs incurred to sell real estate projects does not apply to
           real  estate  time-sharing  transactions.  The  accounting  for those
           operations  and costs is subject to the  guidance  in SOP 04-2.  This
           Statement  is effective  for  financial  statements  for fiscal years
           beginning after June 15, 2005, with earlier  application  encouraged.
           The Company has evaluated the impact of the adoption of SFAS 152, and
           does not  believe  the impact will be  significant  to the  Company's
           overall results of operations or financial position.

           In  December  2004,  the  FASB  issued  SFAS  No.153,  "Exchanges  of
           Nonmonetary  Assets,  an amendment of APB Opinion No. 29,  Accounting
           for Nonmonetary  Transactions."  The amendments made by Statement 153
           are based on the  principle  that  exchanges  of  nonmonetary  assets
           should be measured  based on the fair value of the assets  exchanged.
           Further,   the   amendments   eliminate  the  narrow   exception  for
           nonmonetary  exchanges  of similar  productive  assets and replace it
           with a broader exception for exchanges of nonmonetary  assets that do
           not have commercial substance.  Previously,  Opinion 29 required that
           the  accounting  for an exchange of a productive  asset for a similar
           productive  asset or an  equivalent  interest  in the same or similar
           productive  asset should be based on the recorded amount of the asset
           relinquished.   Opinion  29  provided  an   exception  to  its  basic
           measurement   principle   (fair  value)  for   exchanges  of  similar
           productive  assets.  The Board believes that exception  required that
           some nonmonetary  exchanges,  although commercially  substantive,  be
           recorded on a carryover basis. By focusing the exception on exchanges
           that lack  commercial  substance,  the Board  believes this Statement
           produces  financial  reporting  that more  faithfully  represents the
           economics  of  the  transactions.  The  Statement  is  effective  for
           nonmonetary  asset  exchanges  occurring in fiscal periods  beginning
           after June 15, 2005. Earlier application is permitted for nonmonetary
           asset exchanges  occurring in fiscal periods beginning after the date
           of  issuance.  The  provisions  of this  Statement  shall be  applied
           prospectively.  The Company has  evaluated the impact of the adoption
           of SFAS 152, and does not believe the impact will be  significant  to
           the Company's overall results of operations or financial position.



                                      F-82


3.    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

      (j)  New Accounting Pronouncements (continued):

           In  December  2004,  the FASB  issued  SFAS  No.123  (revised  2004),
           "Share-Based  Payment".  Statement 123(R) will provide  investors and
           other users of financial  statements  with more  complete and neutral
           financial   information  by  requiring  that  the  compensation  cost
           relating  to  share-based  payment   transactions  be  recognized  in
           financial  statements.  That cost will be measured  based on the fair
           value of the equity or liability instruments issued. Statement 123(R)
           covers  a  wide  range  of  share-based   compensation   arrangements
           including share options,  restricted  share plans,  performance-based
           awards, share appreciation rights, and employee share purchase plans.
           Statement  123(R)  replaces FASB  Statement No. 123,  Accounting  for
           Stock-Based   Compensation,   and  supersedes  APB  Opinion  No.  25,
           Accounting   for  Stock  Issued  to  Employees.   Statement  123,  as
           originally   issued   in   1995,    established   as   preferable   a
           fair-value-based   method  of  accounting  for  share-based   payment
           transactions  with  employees.   However,  that  Statement  permitted
           entities  the option of  continuing  to apply the guidance in Opinion
           25, as long as the footnotes to financial  statements  disclosed what
           net income would have been had the preferable fair-value-based method
           been used. Public entities (other than those filing as small business
           issuers) will be required to apply  Statement  123(R) as of the first
           interim or annual  reporting  period that begins  after  December 15,
           2005.  The Company has  evaluated  the impact of the adoption of SFAS
           123(R),  and does not believe the impact will be  significant  to the
           Company's overall results of operations or financial position.

           In March 2005,  the SEC released Staff  Accounting  Bulletin No. 107,
           "Share-Based   Payment"  ("SAB  107"),  which  provides  interpretive
           guidance  related to the interaction  between SFAS 123(R) and certain
           SEC rules and  regulations.  It also  provides the SEC staff's  views
           regarding  valuation of share-based  payment  arrangements.  In April
           2005, the SEC amended the compliance dates for SFAS 123(R),  to allow
           companies  to implement  the standard at the  beginning of their next
           fiscal year,  instead of the next reporting  period  beginning  after
           June 15, 2005.  Management is currently evaluating the impact SAB 107
           will have on our consolidated financial statements.

           In May 2005,  the FASB issued  FASB  Statement  No.  154,  Accounting
           Changes and Error Corrections. This new standard replaces APB Opinion
           No. 20,  Accounting  Changes,  and FASB  Statement  No. 3,  Reporting
           Accounting  Changes in Interim Financial  Statements,  and represents
           another step in the FASB's goal to converge its standards  with those
           issued by the IASB. Among other changes,  Statement 154 requires that
           a voluntary change in accounting principle be applied retrospectively
           with all  prior  period  financial  statements  presented  on the new
           accounting principle,  unless it is impracticable to do so. Statement
           154 also  provides  that (1) a change in method  of  depreciating  or
           amortizing a  long-lived  nonfinancial  asset be  accounted  for as a
           change in estimate  (prospectively)  that was effected by a change in
           accounting  principle,  and (2)  correction  of errors in  previously
           issued financial statements should be termed a "restatement." The new
           standard is effective for accounting changes and correction of errors
           made in  fiscal  years  beginning  after  December  15,  2005.  Early
           adoption of this  standard is permitted  for  accounting  changes and
           correction  of errors made in fiscal  years  beginning  after June 1,
           2005.

           In  March  2005,  the  FASB  issued  FASB   Interpretation   No.  47,
           "Accounting for Conditional Asset Retirement Obligations" ("FIN 47").
           FIN  47  provides  guidance  relating  to the  identification  of and
           financial  reporting  for  legal  obligations  to  perform  an  asset
           retirement  activity.  The Interpretation  requires  recognition of a
           liability  for the  fair  value  of a  conditional  asset  retirement
           obligation  when  incurred  if  the  liability's  fair  value  can be
           reasonably  estimated.  FIN 47 also defines when an entity would have
           sufficient  information  to reasonably  estimate the fair value of an
           asset retirement obligation. The provision is effective no later than
           the end of fiscal years ending after  December 15, 2005.  The Company
           will  adopt  FIN 47 and does not  believe  the  adoption  will have a
           material impact on its consolidated  financial position or results of
           operations or cash flows.


                                      F-83


4.    PROPERTY AND EQUIPMENT:

      ==========================================================================
                                                    Accumulated
                                       Cost         Amortization  Net Book Value
      --------------------------------------------------------------------------

      Office furniture and equipment   $  68,301    $     46,780  $      21,521
      Computer equipment                 151,630          95,493         56,137
      Computer software                   66,366          62,761          3,605
      Leasehold improvements              17,978          11,849          6,129

      --------------------------------------------------------------------------
                                       $ 304,275    $    216,883  $      87,392
      ==========================================================================


      Estimated depreciation expense over the next 5 years is as follows:

                           2006                           $        49,822
                           2007                                    34,724
                           2008                                     2,846
                           2009                                        --
                           2010                                        --
                                                          ---------------
                                                          $        87,392
                                                          ===============

5.    NOTES PAYABLE:

      Notes  payable bear  interest at rates  varying from 0%-5% per annum,  are
      unsecured and due on demand.  Payments in 2005 totaled $69,290,  including
      interest of $321 (2004 - $16,814, including interest of $723).

6.    INCOME TAXES:

      Income tax  recovery  differs  from the amount  that would be  computed by
      applying  the  statutory  income  tax  rate of 35%  (2004  - 35%)  for the
      following reasons:

      ==========================================================================
                                                          2005             2004
      --------------------------------------------------------------------------
      Computed income tax (recovery)               $    94,973           15,592

      Non taxable items and other differences         (144,426)        (305,289)

      Adjustment to future tax assets for
        enacted changes in tax losses and rates         20,038           20,038

      Change in valuation allowance                     29,415          269,659
      -------------------------------------------------------------------------
                                                   $        --       $       --
      =========================================================================


                                      F-84


6.    INCOME TAXES (CONTINUED):

      The tax effects of  temporary  differences  that give rise to deferred tax
      assets and deferred tax liabilities are presented below:



      =========================================================================================================
                                                                                2005                     2004
      ---------------------------------------------------------------------------------------------------------
                                                                                           
      Deferred tax assets:
        Non-capital losses carried forward                                    $    785,520       $      788,659

        Property, plant and equipment - difference in net book value
            and undepreciated capital cost                                         155,261              181,537

      Tax value of investment greater than accounting                              450,621              450,621
         -
      ---------------------------------------------------------------------------------------------------------
                                                                                 1,391,402            1,420,817
      Less valuation allowance                                                  (1,391,402)          (1,420,817)
      ---------------------------------------------------------------------------------------------------------
                                                                                        --                   --
      Deferred tax liabilities                                                          --                   --
      ---------------------------------------------------------------------------------------------------------
      Net deferred tax assets                                                 $         --          $        --
      =========================================================================================================



            The Corporation had approximately  $2,337,856 of non-capital  losses
      available at July 31, 2005 to reduce taxable income of future years. These
      losses expire in periods from 2006 through 2020.


7.    COMMITMENTS AND CONTINGENCIES:

            Operating Leases

            The  Company  leases  its  business   premises  and  certain  office
      equipment  under  operating  leases under  non-cancelable  operating lease
      agreements  expiring through 2009. Total lease payments during the current
      period  totaled  $59,028  (2004 -  $91,950),  net of  sublease  revenue of
      $152,157(2004 - $81,977). Future lease payments will aggregate $226,406 as
      follows:


                           2006                         $     64,155
                           2007                               60,111
                           2008                               59,933
                           2009                               42,207
                           2010                                   --
                                                        ------------
                                                        $    226,406

            In addition,  the Company leases premises with future lease payments
      of approximately:  2006 - $153,417; 2007 - $130,041; 2008 - $121,051 which
      are subleased for corresponding amounts over corresponding lease terms.


                                      F-85


7.    COMMITMENTS AND CONTINGENCIES (CONTINUED):

            Payment Commitments

            The company  has made  certain  commitments  to pay down some of its
      current  liabilities.  All of the items are shown as current  even  though
      these  commitments  extend over a one year period as the Company  would be
      subject to immediate repayment terms if the commitments are not kept.


                       Accounts      Notes     Shareholder
                        Payable     Payable        Loans               Total

           2006       $ 201,380    $  68,500       $ 105,397       $   375,277
           2007         163,754       34,484          36,909           235,147
           2008              --           --           4,849             4,849
           2009              --           --              --                --
                      ---------    ---------       ---------       -----------
                      $ 365,134    $ 102,984       $ 147,155       $   615,273
                      =========    =========       =========       ===========


            Litigation

            In the normal course of operations  the Company is subject to claims
      and  lawsuits.  The Company is  currently  involved in various  claims and
      litigation,  which they are defending. The Company or its subsidiaries are
      aware of the following legal proceedings:

      In December 2002, TGCI sued CanTalk for breach of contract. The action was
      brought before the Court of Queen's Bench,  Winnipeg,  Canada. The case is
      styled "Triton Global  Communications v. CanTalk." The action alleges that
      CanTalk failed to perform under an outsource  agreement  pursuant to which
      CanTalk was to provide  support for Triton's entry into the  international
      operator  service  market.  In  response  to the  suit,  CanTalk  filed  a
      counterclaim  against TGCI for $10,000  alleging breach of contract.  TGCI
      believes that  CanTalk's  counterclaim  is without merit and it intends to
      defend the counterclaim.

      On May 2, 2005, four shareholders of BSD Software,  Inc. filed a complaint
      against BSD and NeoMedia,  claiming that the purchase price as outlined in
      the purchase agreement between NeoMedia and BSD is too low. The plaintiffs
      are seeking  unspecified damages and injunctive relief against the merger.
      BSD is currently reviewing the case with its attorneys.  BSD believes that
      the action is without merit and intends to defend the claim.

8.    STOCK OPTIONS AND WARRANTS:

      On May 14, 2003 the Company  entered into an  agreement to issue  warrants
      for  1,000,000  common  shares,  at  an  exercise  price  of  $0.25  to  a
      corporation as consideration for consulting services.  These warrants were
      issued on August 20, 2003. Management's best estimate of the fair value of
      the shares at the time of the  Agreement  was  approximately  $0.40,  as a
      result a charge for $150,000 was recorded as professional fees expense for
      the year  ended July 31,  2003.  These  warrants  were  excluded  from the
      Diluted  Weighted  Average Shares  Outstanding for the year ended July 31,
      2005, since the strike price exceeds the average annual market price.

      On August 2, 2003 the Board of Directors granted stock options to purchase
      150,000 shares at a strike price of $0.01 per share to a non-employee  for
      services  performed  that are to expire on August 2, 2005.  Subsequent  to
      year end the options have expired.


                                      F-86


8.    STOCK OPTIONS AND WARRANTS (CONTINUED):

      On August 2, 2003 the Board of Directors granted stock options to purchase
      450,000 shares at a strike price of $0.01 per share to key  employees.  On
      December  19,  2003 the  Board of  Directors  approved  stock  options  to
      purchase  150,000  shares  at a strike  price of $0.01  per share to a key
      employee.  At the present  time the Company had not adopted a Stock Option
      Plan,  thus no granted stock  options  could be exercised.  As a result of
      this,  the Company did not recognize the  compensation  cost in accordance
      with Accounting  Principles Board ("APB") Opinion No. 25.  "Accounting for
      Stock Issued to Employees" as the Company did not have a qualified plan.

      In July of 2005, the Company's  Board of Directors  adopted and approved a
      Stock Bonus Plan, which included the issuance of 750,000 restricted shares
      to key  employees of the Company at a price of $0.04 per share.  The Stock
      Bonus Plan included a provision  that replaced the options  granted to key
      employees in August and December 2003 aforementioned.


9.    RELATED PARTY TRANSACTIONS:

      Wayside  Solutions,  Inc.,  a  Corporation  affiliated  with the  Company,
      provided  financing  services  to the  Company.  Amounts  due  to  Wayside
      Solutions  Inc.,  bear interest at 10% per annum and are due on demand.  A
      general  security  agreement  against all current and future assets of the
      Company  has  been  provided  by  TGBSI  to  Wayside   Solutions  Inc.  as
      collateral.  Accrued  interest  relating to these  services is included in
      interest and finance  charges,  aggregating  $61,485 in the current period
      (2004 - $66,766).

      Amounts due to Guy Fietz, CEO, President and a shareholder of the Company,
      bear interest at 10% per annum, are unsecured and due on demand.  Included
      in interest  and finance  charges is accrued  interest of $35,335  (2004 -
      $34,119).

      Amounts due to shareholders bear interest at rates varying from 0%-10% per
      annum, are unsecured and due on demand. Payments in 2005 totaled $105,158,
      including interest of $11,206 (2004 - $12,000, principal only). During the
      current  year  126,300  shares  were issued to pay down  amounts  owing to
      shareholders  of  $39,153   including   interest  of  $4,353.   A  similar
      transaction did not occur in the prior year.

      These transactions are in the normal course of operations and are measured
      at the exchange amount of  consideration  established and agreed to by the
      related parties.

10.   CONCENTRATION OF RISK:

      Accounts receivable with three customers represent approximately 90% (2004
      - 2 customers represented 73%) of the balance of accounts receivable as at
      July 31, 2005. It is the opinion of management  that these accounts do not
      represent a significant credit risk.

      A majority  (47%) (2004 - 57%) of the  Company's  purchases are from three
      (2004 - three) specific  vendors.  The Company has  significant  sales and
      purchases  denominated  in U.S.  currency,  and is  therefore  exposed  to
      financial  risk  resulting  from  fluctuations  in exchange  rates and the
      degree of volatility of these rates.


                                      F-87


11.   RESTATEMENT OF PREVIOUSLY REPORTED ANNUAL FINANCIAL INFORMATION:

      The  Company  in  reviewing  its  accounting  practices  with  respect  to
      translating  the foreign  currency  statements  of its  subsidiary  Triton
      Global  Business  Services Inc. became aware that it was not following the
      recommendations of SFAS 52 in accounting for foreign currency translations
      related to the net assets of its subsidiary. As the functional currency of
      the Company and its subsidiaries is the Canadian dollar, the net assets of
      its  subsidiary  were to be  translated  using the exchange rate in effect
      when the merger with its subsidiary occurred. As a result, the company had
      overstated  the Additional  Paid in Capital  account as well as overstated
      the Accumulated Other  Comprehensive Loss account.  Both of these accounts
      form part of the equity section of the balance sheet. The foreign currency
      translations were reported  correctly for all asset and liability accounts
      as well as  revenue,  and  expenses  and other  items in  arriving  at Net
      Income.

      At the same  time  the  company  realized  that it was not  following  the
      recommendations  in SFAS 95  paragraph  25 which states that the effect of
      exchange  rate  changes  should be  presented  as a  separate  part of the
      statement cash flows.  The Company had netted these changes in the related
      line items in the cash flows from operations section.

      As a  result,  the  Company  concluded  that  it  should  restate  certain
      financial information that was previously reported in the Company's Annual
      Report on Form  10-KSB  for the  fiscal  year  ended  July 31,  2005.  The
      following tables provide a reconciliation of amounts  previously  reported
      by the Company.

Items  affected  in the  shareholders'  deficiency  section of the  Consolidated
Balance Sheet




                                                         At July 31, 2005
                                            --------------------------------------------
                                            Previously     Restatement        Restated
                                             Reported      Adjustment           Total
                                            --------------------------------------------
                                                                    
   Additional paid in capital               $ 3,762,704    $  (569,007)(1)   $ 3,193,697

   Accumulated other comprehensive loss     $(1,208,547)   $   569,007(1)    $  (639,540)
                                            --------------------------------------------



                                                         At October 31, 2004
                                            --------------------------------------------
                                            Previously     Restatement        Restated
                                             Reported      Adjustment           Total
                                            --------------------------------------------
                                                                    
   Additional paid in capital               $ 3,710,928    $  (585,507)(1)   $ 3,125,421

   Accumulated other comprehensive loss     $(1,244,578)   $   585,507 (1)   $  (659,071)
                                            --------------------------------------------



                                                         At January 31, 2005
                                            --------------------------------------------
                                            Previously     Restatement        Restated
                                             Reported      Adjustment           Total
                                            --------------------------------------------
                                                                    
   Additional paid in capital               $ 3,688,028    $  (523,581)(1)   $ 3,164,447

   Accumulated other comprehensive loss     $(1,119,079)   $   523,581 (1)      (595,498)
                                            --------------------------------------------



                                                         At April 30, 2005
                                            --------------------------------------------
                                            Previously     Restatement        Restated
                                             Reported      Adjustment           Total
                                            --------------------------------------------
                                                                    
   Additional paid in capital               $ 3,643,368    $  (478,921)(1)   $ 3,164,447

   Accumulated other comprehensive loss     $(1,031,172)   $   478,921 (1)   $  (552,251)
                                            --------------------------------------------



----------
(1)   Reflects the exchange rate translations on the net assets of the Company's
      subsidiary using the historical rate in effect at the time the shares were
      issued


                                      F-88

11.   RESTATEMENT OF PREVIOUSLY REPORTED ANNUAL FINANCIAL INFORMATION
      (CONTINUED):

The effect on comprehensive income of the Consolidated  Statements of Operations
and Comprehensive Income



                                             For the Year Ended July 31, 2005                For the Year Ended July 31, 2004
                                       ---------------------------------------------------------------------------------------------
                                       Previously     Restatement        Restated       Previously     Restatement        Restated
                                        Reported       Adjustment          Total         Reported       Adjustment          Total
                                       ---------------------------------------------------------------------------------------------
                                                                                                        
   Net Income                          $  271,350     $        --       $ 271,350       $  44,549        $       --       $  44,549

    Other comprehensive income (loss)

    Foreign currency translation
      adjustment                       $ (527,944)    $   261,302(1)    $(266,642)      $(331,583)       $  110,999(1)    $(220,584)
                                       ---------------------------------------------------------------------------------------------
   Comprehensive Income (Loss)         $ (256,594)    $   261,302       $   4,708       $(287,034)       $  110,999       $(176,035)
                                       =============================================================================================



                                          For the 3 Months Ended October 31, 2004         For the 3 Months Ended October 31, 2003
                                       ---------------------------------------------------------------------------------------------
                                       Previously     Restatement        Restated       Previously     Restatement        Restated
                                        Reported       Adjustment          Total         Reported       Adjustment          Total
                                       ---------------------------------------------------------------------------------------------
                                                                                                        
   Net Income                          $   99,401     $        --          99,401         (16,193)       $       --       $ (16,193)

    Other comprehensive income (loss)

    Foreign currency translation
      adjustment                       $ (563,975)        277,802(1)    $(286,173)      $(380,625)       $  134,667(1)    $(245,958)
                                       ---------------------------------------------------------------------------------------------
   Comprehensive Income (Loss)         $ (464,574)     $  277,802       $(186,772)      $(396,818)       $  134,667       $(262,151)
                                       =============================================================================================



                                          For the 3 Months Ended January 31, 2005         For the 3 Months Ended January 31, 2004
                                       ---------------------------------------------------------------------------------------------
                                       Previously     Restatement        Restated       Previously     Restatement        Restated
                                        Reported       Adjustment          Total         Reported       Adjustment          Total
                                       ---------------------------------------------------------------------------------------------
                                                                                                        
   Net Income                          $   49,463      $       --       $  49,463       $  78,269        $       --       $  78,269

    Other comprehensive income (loss)

    Foreign currency translation
      adjustment                       $  125,499      $  (61,926)(1)   $  63,573       $  27,318        $  (10,163)(1)   $  17,155
                                       ---------------------------------------------------------------------------------------------
   Comprehensive Income (Loss)         $  174,962      $  (61,926)      $ 113,036       $ 105,587        $  (10,163)      $  95,424
                                       =============================================================================================



                                          For the 3 Months Ended April 30, 2005           For the 3 Months Ended April 30, 2004
                                       ---------------------------------------------------------------------------------------------
                                       Previously     Restatement        Restated       Previously     Restatement        Restated
                                        Reported       Adjustment          Total         Reported       Adjustment          Total
                                       ---------------------------------------------------------------------------------------------
                                                                                                        
   Net Income                          $   52,472      $       --       $  52,472       $ 258,465        $       --       $ 258,465
    Other comprehensive income (loss)
    Foreign currency translation
      adjustment                       $   87,907      $  (44,660)(1)   $  43,247       $ 197,450        $ (107,706)(1)   $  89,744
                                       ---------------------------------------------------------------------------------------------
   Comprehensive Income (Loss)         $  140,379      $  (44,660)      $  95,719       $ 455,915        $ (107,706)      $ 348,209
                                       =============================================================================================


(1)  Reflects  the exchange rate  translations related to the  net assets of the
     Company's subsidiary for the period


                                      F-89


11.   RESTATEMENT   OF  PREVIOUSLY   REPORTED   ANNUAL   FINANCIAL   INFORMATION
      (CONTINUED):

      The effect of foreign currency translation adjustments on the consolidated
      statements of cash flows



                                                                   For the Year Ended July 31, 2004
---------------------------------------------------------------------------------------------------
                                                             Previously   Restatement     Restated
                                                              Reported    Adjustment       Total
                                                             --------------------------------------
                                                                                 
Cash flows from (used in):
Operations:
     Net income                                              $  44,549    $      --       $  44,549
     Items not involving cash:
Adjustments  to  reconcile  net  income  to cash
   provided by (used  in) operating activities:
     Non-cash financing costs                                $  98,550    $      --       $  98,550
     Loss on sale of assets                                  $   3,179    $      --       $   3,179
     Depreciation and amortization                           $  77,093    $      --       $  77,093
Changes in operating working capital:                                                     $      --
     Increase in accounts receivable                         $(350,352)   $  44,405(1)    $(305,947)
     Decrease in income taxes recoverable                    $  33,048    $      --       $  33,048
     Decrease in prepaid expenses                            $   2,053    $      39(1)    $   2,092
     Increase in accounts payable and accrued liabilities    $ 225,666    $ (55,739)(1)   $ 169,927
---------------------------------------------------------------------------------------------------
                                                             $ 133,786    $ (11,295)      $ 122,491
Investing:
     Proceeds on sale of property and equipment              $  35,188    $      --       $  35,188
     Purchase of property and equipment                      $  (2,259)   $      --       $  (2,259)
---------------------------------------------------------------------------------------------------
                                                             $  32,929    $      --       $  32,929
Financing:
     Repayment of shareholder loans                          $ (38,395)   $      --       $ (38,395)
     Repayment of  notes payable                             $ (10,599)   $      --       $ (10,599)
     Repayment of due to Wayside Solutions Inc.              $ (63,706)   $      --       $ (63,706)
---------------------------------------------------------------------------------------------------
                                                             $(112,700)   $      --       $(112,700)
Effect of exchange rate changes on cash and cash
equivalents                                                  $      --    $  11,295(1)    $  11,295
---------------------------------------------------------------------------------------------------
Net decrease (increase) in cash and cash equivalents         $  54,015    $      --       $  54,015
Cash and cash equivalents, beginning of period               $  74,930    $      --       $  74,930
---------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period                     $ 128,945    $      --       $ 128,945
===================================================================================================


----------
(1)   Reflects  the exchange  rate  translations  related to current  assets and
      liabilities of the Company's subsidiary for the stated period


                                      F-90


11.   RESTATEMENT   OF  PREVIOUSLY   REPORTED   ANNUAL   FINANCIAL   INFORMATION
      (CONTINUED):

      The effect of foreign currency translation adjustments on the consolidated
      statements of cash flows



                                                                   For the Year Ended July 31, 2005
---------------------------------------------------------------------------------------------------
                                                             Previously   Restatement      Restated
                                                             Reported     Adjustment        Total
                                                             --------------------------------------
                                                                                 
Cash flows from (used in):
Operations:
     Net income                                              $ 271,350    $      --       $ 271,350
     Items not involving cash:
Adjustments to reconcile net income to cash
  provided by (used  in) operating activities:
     Shares issued to non-executive employees                $  30,000    $      --       $  30,000
     Loss on sale of assets                                  $   9,167    $      --       $   9,167
     Depreciation and amortization                           $  73,187    $      --       $  73,187
Changes in operating working capital:
     Increase in accounts receivable                         $(747,954)   $  64,637(1)    $(683,317)
     Decrease in prepaid expenses                            $   9,013    $   1,696(1)    $  10,709
     Increase in accounts payable and accrued liabilities    $ 464,584    $  28,667(1)    $ 493,251
---------------------------------------------------------------------------------------------------
                                                             $ 109,347    $  95,000       $ 204,347
Investing:
     Proceeds on sale of property and equipment              $  16,677    $      --       $  16,677
---------------------------------------------------------------------------------------------------

Financing:
     Repayment of shareholder loans                          $ (93,952)   $      --       $ (93,952)
     Repayment of  notes payable                             $ (69,027)   $      --       $ (69,027)
     Repayment of due to Wayside Solutions Inc.              $ (68,806)   $      --       $ (68,806)
---------------------------------------------------------------------------------------------------
                                                             $(231,785)   $      --       $(231,785)
Effect of exchange rate changes on cash and cash
equivalents                                                  $      --    $ (95,000)(1)   $ (95,000)
---------------------------------------------------------------------------------------------------
Net decrease (increase) in cash and cash equivalents         $(105,761)   $      --       $(105,761)
Cash and cash equivalents, beginning of period               $ 128,945    $      --       $ 128,945
---------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period                     $  28,184    $      --       $  23,184
===================================================================================================


----------
(1)   Reflects  the exchange  rate  translations  related to current  assets and
      liabilities of the Company's subsidiary for the stated period


                                      F-91


11.   RESTATEMENT OF PREVIOUSLY REPORTED FINANCIAL INFORMATION (CONTINUED):


      The effect of foreign currency translation adjustments on the consolidated
      statements of cash flows


      ==============================================================================================================================
                         For the 3 months ended                         October 31, 2004                           October 31, 2003
                                                 -----------------------------------------------------------------------------------
                                                 Previously   Restatement       Restated     Previously  Restatement     Restated
                                                  Reported     Adjustment         Total       Reported    Adjustment       Total
                                                 -----------------------------------------------------------------------------------
                                                                                                       
      Cash from (used in)

         Operations                              $  228,492   $    40,956 (1)  $ 269,448     $   30,615  $  (156,522)(1) $(125,907)


         Investing                               $       --   $        --      $      --     $   35,188  $        --     $  35,188

         Financing                               $  (82,293)  $        --      $ (82,293)    $       --  $        --     $      --

      Effect of exchange rate changes on cash
      and cash equivalents                       $       --   $   (40,956)(1)  $ (40,956)    $       --  $   156,522 (1) $  156,522
      ------------------------------------------------------------------------------------------------------------------------------
      Net decrease (increase) in cash and cash
      equivalents                                $  146,199   $        --      $ 146,199     $   65,803  $        --     $   65,803

      Cash and cash equivalents, beginning of
      period                                     $  128,945   $        --      $ 128,945     $   74,930  $        --     $   74,930
      ------------------------------------------------------------------------------------------------------------------------------
      Cash and cash equivalents, end of period   $  275,144   $        --      $ 275,144     $  140,733  $        --     $  140,733
      ==============================================================================================================================


      ==============================================================================================================================
                         For the 6 months ended                         January 31, 2005                           January 31, 2004
                                                 ----------------------------------------------------------------------------------
                                                 Previously   Restatement       Restated    Previously   Restatement     Restated
                                                  Reported     Adjustment         Total      Reported     Adjustment       Total
                                                 -----------------------------------------------------------------------------------
                                                                                                       
      Cash from (used in)

         Operations                              $     (905)  $    81,993 (1)  $  81,088    $  (17,945)  $  (159,855)(1) $ (177,800)

         Investing                               $   16,677   $        --      $  16,677    $   35,188   $        --     $   35,188

         Financing                               $  (99,975)  $        --      $ (99,975)   $  (52,838)  $        --     $  (52,838)
      Effect of exchange rate changes on cash
      and cash equivalents                       $       --   $   (81,993)(1)  $ (81,993)   $       --   $   159,855 (1) $  159,855
      -----------------------------------------------------------------------------------------------------------------------------
      Net decrease (increase) in cash and cash
      equivalents                                $  (84,203)  $        --      $ (84,203)   $  (35,595)  $        --     $  (35,595)

      Cash and cash equivalents, beginning of
      period                                     $  128,945   $        --      $ 128,945    $   74,930   $        --     $   74,930
      ------------------------------------------------------------------------------------------------------------------------------
      Cash and cash equivalents, end of period   $   44,742   $        --      $  44,742    $   39,335   $        --     $   39,335
      ==============================================================================================================================


      ==============================================================================================================================
                         For the 9 months ended                           April 30, 2005                             April 30, 2004
                                                 -----------------------------------------------------------------------------------
                                                 Previously   Restatement       Restated    Previously   Restatement     Restated
                                                  Reported     Adjustment         Total      Reported     Adjustment       Total
                                                 -----------------------------------------------------------------------------------
                                                                                                        
      Cash from (used in)
                                                 $   19,291   $    74,858 (1)  $  94,149     $   58,109   $  139,439 (1) $  197,548

         Investing                               $   16,677   $        --      $  16,677     $   32,999   $       --     $   32,999

         Financing                               $ (159,703)  $        --      $(159,703)    $ (142,272)  $       --     $ (142,272)

      Effect of exchange rate changes on cash
      and cash equivalents                       $       --   $   (74,858)(1)  $ (74,858)    $       --   $ (139,439)(1) $ (139,439)
      ------------------------------------------------------------------------------------------------------------------------------
      Net decrease (increase) in cash and cash   $ (123,735)  $        --      $(123,735)    $  (51,164)  $       --     $  (51,164)

      Cash and cash equivalents, beginning of
      period                                     $  128,945   $        --      $ 128,945     $   74,930   $        --    $   74,930
      ------------------------------------------------------------------------------------------------------------------------------
      Cash and cash equivalents, end of period   $    5,210   $        --      $   5,210     $   23,766   $        --    $   23,766
      ------------------------------------------------------------------------------------------------------------------------------


   (1)  Reflects  the exchange rate  translations related  to current assets and
        liabilities of the Company's subsidiary for the stated period

                                      F-92



                    UNAUDITED PRO FORMA FINANCIAL INFORMATION

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION

PENDING ACQUISITION OF BSD SOFTWARE, INC.

On December 21, 2004, NeoMedia signed a merger agreement with BSD Software Inc.,
("BSD")  of  Calgary,  Alberta,  Canada  (OTCBB:  BSDS).  Under the terms of the
agreement,  each  share  of BSD  stock  will be  exchanged  for  NeoMedia  stock
equivalent to .07 divided by the volume-weighted average price of NeoMedia stock
for the five days prior to the effective time of the merger.  Closing will occur
when all regulatory  approvals have been granted,  including  effectiveness of a
Form S-4  information/registration  statement registering the NeoMedia shares to
be granted in the  transaction.  The number of NeoMedia  shares to be granted in
the  exchange  will change  depending on  NeoMedia's  stock price at the time of
closing.

PENDING ACQUISITION OF MOBOT, INC.

On July 27,  2005,  NeoMedia  signed a  non-binding  Letter of Intent to acquire
Mobot, of Lexington, Massachusetts, a pioneer and leader in mobile visual search
technologies.  Mobot was founded in 2003 by its CEO Russell  Gocht to pursue the
application of advances in image  processing on of camera phones in the consumer
marketplace.  The Letter of Intent  calls for  NeoMedia  to  acquire  all of the
outstanding  shares of Mobot in exchange for  $3,500,000  cash and $6,500,000 in
shares of NeoMedia  common  stock.  The LOI is subject to due  diligence by both
parties.

On July 28, 2005,  NeoMedia loaned Mobot the principal amount of $600,000 in the
form of an unsecured  promissory note. The Note accrues interest at a rate of 6%
per annum.  The Note will be  forgiven  upon  signing of a  definitive  purchase
agreement  for the  acquisition  of all of the  outstanding  shares  of Mobot by
NeoMedia,  as contemplated by the Letter of Intent. In the event the acquisition
is not  consummated,  the Note will become due 90 days after  written  notice of
cancellation  of the  Letter of  Intent.  In the  event the  Letter of Intent is
terminated and the Note is note repaid within 90 days of such cancellation,  the
note will  convert  into shares of Mobot  common stock with a value equal to the
unpaid  principal  and accrued  interest on the Note.  On  September  26,  2005,
NeoMedia  loaned Mobot an additional  $200,000 under the same terms as the Note.
On October 26, 2005, NeoMedia loaned Mobot an additional $200,000 under the same
terms as the Note. On December 14, 2005,  NeoMedia  advanced Mobot an additional
$500,000.  This  advance  will be  forgiven  upon the  earlier  of  signing of a
definitive  purchase  agreement for the  acquisition  of all of the  outstanding
shares of Mobot by NeoMedia, or February 15, 2006.

PRESENTATION


The unaudited pro forma condensed  combined  historical  statement of operations
for the nine months ended September 30, 2005 gives effect to the acquisitions of
BSD and Mobot as if they had  occurred  as of  January 1,  2004,  combining  the
historical results of NeoMedia for the nine months ended September 30, 2005 with
the historical results of Mobot for the nine months ended September 30, 2005 and
the  historical  results of BSD for the nine months ended October 31, 2005.  The
unaudited pro forma condensed  combined  historical  statement of operations for
the year ended  December  31, 2004 gives effect to the  acquisitions  of BSD and
Mobot as if they had occurred as of January 1, 2004,  combining  the  historical
results of NeoMedia  for the year ended  December  31, 2004 with the  historical
results of the same period for BSD and Mobot..


The unaudited  pro forma  condensed  combined  balance sheet as of September 30,
2005 gives effect to the  acquisitions  of BSD and Mobot as if they had occurred
as of September 30, 2005.

The unaudited pro forma combined  financial  statements  included in this filing
have been prepared by the  managements  of NeoMedia,  Mobot,  BSD without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain  information and footnote  disclosures  normally  prepared in accordance
with generally  accepted  accounting  principles  have been condensed or omitted
pursuant to such rules and  regulations.  However,  the managements of NeoMedia,
Mobot, BSD believe that the disclosures are adequate to make the information not
misleading.


                                      F-93


The pro forma adjustments are based on currently available  information and upon
estimates   and   assumptions   that  we  believe  are   reasonable   under  the
circumstances.  The  unaudited  pro  forma  financial  data  do not  purport  to
represent  what  NeoMedia's  financial  position or results of operations  would
actually have been if such  transactions had occurred on those dates and are not
necessarily  representative  of  NeoMedia's  financial  position  or  results of
operations for any future period.  The unaudited pro forma financial  statements
should be read in conjunction with the separate historical  financial statements
and  footnotes of NeoMedia  included in Form 10-KSB for the year ended  December
31, 2004 (included herein),  with the separate historical  financial  statements
and footnotes of BSD for the nine months ended October 31, 2005 and for the year
ended  July  31,  2005  (included  herein),  and with  the  separate  historical
financial statements and footnotes of Mobot for the nine months ended September,
2005 and for the years ended December 31, 2004 and 2003 (included herein)

2.  PRELIMINARY PURCHASE PRICE ALLOCATION

A final  determination  of the  allocation  of the purchase  price to the assets
acquired  and  liabilities  assumed  has not  been  made for BSD or  Mobot.  The
allocation reflected in the unaudited pro forma combined financial statements is
based  on  management's  best  judgment  and  estimate  of the  fair  values  of
intangible  assets being acquired,  and should be considered  preliminary and is
subject to the closing of the  acquisition and the completion of a comprehensive
independent  valuation of the assets acquired and liabilities assumed. The final
allocation  of  purchase  price  could  differ  materially  from  the pro  forma
allocation included herein.

3.  PRO FORMA NET LOSS PER SHARE

The pro forma basis and  dilutive  net loss per share are based on the  weighted
average number of shares of pro forma  NeoMedia's  common stock as if the shares
issued to acquire BSD and Mobot had been issued at the  beginning of each of the
reporting  periods.  Dilutive  shares are not included in the computation of pro
forma dilutive net loss per share as their effect would be anti-dilutive.


                                      F-94


                          NEOMEDIA TECHNOLOGIES, INC.
              UNAUDITED PRO-FORMA CONDENSED COMBINED BALANCE SHEET
                               SEPTEMBER 30, 2005
                          (In thousands of US Dollars)
                                  (Unaudited)




                                                                                                  PRO-FORMA
                                                             (A)                                    ADJUST-
                                                           NEOMEDIA      BSD (B)     MOBOT (C)       MENTS          CONSOLIDATED
                                                           ---------    ---------    ---------    -----------       -------------
                                                                                                     
Current assets:
        Cash and cash equivalents                          $   4,673    $      44    $     441    $    (3,500)(E)   $       1,658
        Trade accounts receivable, net                           666        1,857            1             --               2,524
        Inventories, net                                         110           --           --             --                 110
        Investment in marketable securities                      117           --           --             --                 117
        Prepaid expenses and other current assets                388           13            6             --                 407
                                                           ---------    ---------    ---------    -----------       -------------
           Total current assets                                5,954        1,914          448         (3,500)              4,816

        Property and equipment, net                              209           75           11             --                 295
        Capitalized patents, net                               3,501           --           --             --(E)            3,501
        Micro paint repair chemical formulations and
        proprietary process                                    1,497           --           --             --               1,497
        Customer list                                             --           --           --          8,128(E)            8,128
        Goodwill                                               1,099           --           --          7,680(E)            8,779
        Other intangible assets                                  209           --            9            331(E)              549
        Loan receivable from Mobot, Inc.                         800           --           --           (800)                 --
        Investment in iPoint-media, Ltd.                       1,000           --           --             --               1,000
        Cash surrender value of life insurance policy            740           --           --             --                 740
        Other long-term assets                                   278           --            7             --                 285
                                                           ---------    ---------    ---------    -----------       -------------
             TOTAL ASSETS                                  $  15,287    $   1,989    $     475    $    11,839       $      29,590
                                                           =========    =========    =========    ===========       =============

LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
        Accounts payable                                   $   1,587    $   3,539    $      48             --       $       5,174
        Amounts payable under settlement agreements               77           --           --             --                  77
        Liabilities in excess of assets of discontinued
        business unit                                            676           --           --             --                 676
        Sales taxes payable                                       44    $       0           --             --                  44
        Accrued expenses                                       1,724           --          210             --               1,934
        Deferred revenues and other                              360           --           53             --                 413
        Shareholder loans                                         --          226           --             --                 226
        Due to officer                                            --          490           --             --                 490
        Due to Wayside Solutions, Inc.                            --          872           --             --                 872
        Notes payable                                          5,325           86          800           (800)              5,411
                                                           ---------    ---------    ---------    -----------       -------------
             TOTAL LIABILITIES                                 9,793        5,213        1,111           (800)             15,317
                                                           ---------    ---------    ---------    -----------       -------------

        Convertible debentures                                    --           --          500           (500)(F)              --

Shareholders' deficit:
        Preferred stock                                           --           --           --             --                  --
        Common stock (D)                                       4,603           33           --(G)         146(E)            4,782
        Additional paid-in capital                           104,157        3,194            1          5,405(E)          112,757
        Deferred equity financing costs                      (13,256)          --           --             --             (13,256)
        Deferred stock-based compensation                       (216)          --           --             --                (216)
        Accumulated other comprehensive loss                    (169)        (754)          --            754(E)             (169)
        Retained earnings (accumulated deficit)              (88,846)      (5,697)      (1,137)         6,834(E)          (88,846)
        Treasury stock                                          (779)          --           --             --                (779)
                                                           ---------    ---------    ---------    -----------       -------------
           Total shareholders' deficit                         5,494       (3,224)      (1,136)        13,139              14,273
                                                           ---------    ---------    ---------    -----------       -------------
             TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT   $  15,287    $   1,989    $     475    $    11,839       $      29,590
                                                           =========    =========    =========    ===========       =============



                                      F-95



PRO-FORMA ADJUSTMENTS

(A) - NeoMedia balance sheet is presented as of September 30, 2005

(B) - BSD balance sheet is presented as of October 31, 2005

(C) - Mobot balance sheet is presented as of September 30, 2005

(D) - As of  September  30,  2005,  NeoMedia's  $0.01  par  value  common  stock
      consists of 1,000,000,000 authorized shares, 476,410,478 shares historical
      and 493,055,341  shares pro forma issued;  and 460,253,892  historical and
      478,170,755 pro forma outstanding.

(E) - Adjustment  for stock and  cash issued for the  following   purposes:  (i)
      shares of  NeoMedia  common  stock to be issued to acquire  BSD  Software,
      Inc.,  assuming  acquisition  occurred as of September 30, 2005;  and (ii)
      cash and shares of NeoMedia  common  stock to be issued to acquire  Mobot,
      Inc. assuming  acquisition  occurred as of September 30, 2005.  Adjustment
      includes the elimination of $33 common stock and $3,194 additional paid in
      capital of BSD, and $1 additional  paid in capital of Mobot.  The purchase
      price for each acquisition was calculated as follows:

  BSD SOFTWARE, INC.



                                                                          
       Number of common shares of BSD outstanding as of September 30, 2005       32,560,897

    x  0.07 allocation factor outlined in purchase agreement                           0.07
    /  NeoMedia closing stock price around September 30, 2005
         (measurement date)                                                           $0.49
                                                                                -----------
         Pro forma  number of shares of NeoMedia  to be issued as  purchase
          price consideration                                                     4,651,557
    x  NeoMedia closing stock price around September 30, 2005
          (measurement date)                                                          $0.49
                                                                                -----------
       Pro forma purchase price                                                 $ 2,279,263
                                                                                ===========

  MOBOT, INC.

       Pro forma number of shares of NeoMedia to be issued as purchase price
        consideration                                                            13,265,306
    x  NeoMedia  closing  stock price around  September 30, 2005
         (measurement date)                                                           $0.49
                                                                                -----------
       Amount of purchase price to be paid in cash
        (pursuant to letter of intent)                                          $ 6,500,000

       Plus cash consideration                                                  $ 3,500,000
                                                                                -----------
           Pro forma purchase price                                             $10,000,000
                                                                                ===========


In accordance  with SFAS 141 and EITF 99-12,  for the purposes of this unaudited
pro forma  balance  sheet,  the fair value of the stock to be issued as purchase
price  consideration  is assumed to be $0.49 per  share,  which was the  average
closing  price of NeoMedia  common stock for the three days up to and  including
September 30, 2005 (the  measurement  date).  There are no  additional  options,
warrants,  or other stock-based  consideration  expected to be issued as part of
the purchase price for either acquisition. Because of the nature of the formulae
used to calculate the stock consideration to be issued in each acquisition,  the
dollar  value of the  shares to be  issued,  and as a result  the excess of fair
value over book value to be allocated to intangible  assets,  will not change as
NeoMedia's stock price fluctuates. However, the number of shares to be issued as
stock  consideration  will  change as  NeoMedia's  stock price  fluctuates.  The
following  table  shows the number of shares  that would be issued if, as of the
measurement  date,  the price of NeoMedia stock were to fluctuate from the price
of $0.49 presented above:



                                                          NEOMEDIA STOCK PRICE AT MEASUREMENT DATE
                                        ----------------------------------------------------------------------------
                                            $0.10           $0.20           $0.40           $0.50           $1.00
                                            -----           -----           -----           -----           -----
                                                                                            
Pro forma number of NeoMedia shares
to be issued to acquire:
  BSD Software                            22,792,628      11,396,314       5,698,157       4,558,526       2,279,263
  Mobot                                   65,000,000      32,500,000      16,250,000      13,000,000       6,500,000
                                        ----------------------------------------------------------------------------
    Total pro forma number of shares      87,792,628      43,896,314      21,948,157      17,558,526       8,779,263
                                        ----------------------------------------------------------------------------




                                      F-96



PRO-FORMA ADJUSTMENTS (CONT'D)

(E) - Based on NeoMedia's  stock price around the measurement  date of September
      30,  2005  and the  balance  sheets  of  NeoMedia,  BSD,  and  Mobot as of
      September  30, 2005,  the pro forma  purchase  price for each  acquisition
      would be allocated as follows:



                                                                  (in thousands of US dollars,
                                                                     except share amounts)
                                                                      BSD             MOBOT
                                                                  ------------    ------------
PURCHASE  PRICE  CONSIDERATION
                                                                              
Cash                                                                        --    $      3,500

Number of shares of NeoMedia common stock expected to be issued      4,651,557      13,265,306
/  NeoMedia closing stock price around September 30, 2005
   (measurement date)                                             $       0.49    $       0.49
Fair value of shares expected to be issued as purchase price
consideration                                                     $      2,279    $      6,500

  Total fair value expected to be issued as purchase price
  consideration                                                   $      2,279    $     10,000

ASSETS PURCHASED
Cash and cash equivalents                                         $         44    $        441
Trade accounts receivable, net                                           1,857               1
Prepaid expenses and other current assets                                   13               6
Property and equipment, net                                                 75              11
Customer contracts and relationships (i)(ii)                             3,135           4,993
Goodwill (i)(iii)                                                        2,218           5,462
Other intangible assets (iv)                                               150             190
Other long-term assets                                                      --               7
                                                                  ------------    ------------
                                                                         7,492          11,111
                                                                  ------------    ------------

LIABILITIES ASSUMED
Accounts payable                                                        (3,539)            (48)
Sales taxes payable                                                          0              --
Accrued expenses                                                            --            (210)
Deferred revenues and other                                                 --             (53)
Shareholder loans                                                         (226)             --
Due to officer                                                            (490)             --
Due to Wayside Solutions, Inc.                                            (872)             --
Notes payable                                                              (86)           (800)
                                                                  ------------    ------------
                                                                        (5,213)         (1,111)
                                                                  ------------    ------------



(i)  -   For purposes of these  unaudited pro forma  financial  statements,  the
         excess of fair value of consideration  paid over net book value for BSD
         and Mobot is allocated to the following  intangible  asset  categories:
         customer  contracts and relationships,  goodwill,  and other intangible
         assets. The allocation is made based on NeoMedia  management's judgment
         and best estimate of the value of each category for each  business.  As
         of this filing,  NeoMedia has not performed an independent valuation of
         such  intangible  assets.  After the  completion  of each  acquisition,
         NeoMedia will perform an  independent  valuation of both Mobot and BSD,
         and a final  allocation  of the  purchase  price of each entity will be
         made based on the results of such  valuations.  It is important to note
         that the final independent valuation could vary materially from the pro
         forma allocation presented above.

(ii) -   Customer  contracts and relationships  consist of the customers of each
         business that are under contract,  as well as prospects  identified for
         potential future business, the fair value of which is calculated as the
         discounted  after-tax  expected  earnings  from current and  identified
         customers. NeoMedia expects to assign an amortization period of 3 years
         to this class of assets.

(iii)-   The  remaining  excess of fair  value  paid  over net book  liabilities
         assumed  is  allocated  to  goodwill,  and as such,  is not  assigned a
         depreciable life.  Goodwill will be tested for impairment as defined by
         Statement of Financial Accounting Standards No. 144, Accounting for the
         Impairment or Disposal of Long-Lived Assets.

(iv) -   Other  intangible   assets  consist  of  trademarks  and  trade  names,
         demonstration  videos,  websites,  and  other  proprietary  copyrighted
         materials.  The fair value of demonstration videos, websites, and other
         proprietary  copyrighted  materials was  calculated  using the expected
         replacement  value for these assets.  The fair value of trademarks  and
         trade names was  estimated  using  assigned  nominal  values.  NeoMedia
         expects  to assign an  amortization  period of 3 years to this class of
         assets.


                                      F-96



(F)   - The Mobot  convertible  debentures  are payable in cash,  together  with
      accrued  interest  at a rate of 4% per annum,  at  maturity  in 2009.  The
      debentures  have  conversion  rights that allow for the  debentures  to be
      converted into 167 shares of Mobot common stock,  at a price of $1,500 per
      share,  in the  event  of a sale  of  Mobot.  NeoMedia  expects  that  the
      debentures will be converted prior to closing of the acquisition of Mobot.
      As a result, the above unaudited condensed  consolidated pro forma balance
      sheet is shown assuming the debentures are converted prior to closing.  In
      the event that the debentures are not converted prior to the  consummation
      of the acquisition of Mobot by NeoMedia,  then the pro forma  consolidated
      balance sheet would show  convertible  debentures of $500, and goodwill of
      $9,279.  If the debentures are not converted,  NeoMedia  expects to retire
      them with cash  subsequent to the merger date. The debentures do not carry
      the right to convert into shares of NeoMedia  common stock  subsequent  to
      the  merger.  Additionally,  NeoMedia  does not  have  the  right to force
      conversion of the debentures prior to, or subsequent to, completion of the
      merger. The pro forma number of shares of NeoMedia issued to acquire Mobot
      is the same  whether  or not the  debentures  are  converted  prior to the
      merger.

G)  - Mobot has   warrants  outstanding  to purchase  a total of 83 shares at an
      exercise price of $1,500 per share, issued in connection with, and held by
      the holders of, the  convertible  debentures  described  in Note (F).  The
      warrants  expire  at the  earlier  of (i)  conversion  of the  convertible
      debentures, or (ii) upon occurrence of a termination event, which includes
      the sale of Mobot. As such,  NeoMedia  expects the holders to exercise the
      warrants and purchase shares of Mobot common stock prior to closing of the
      merger.  As a result,  there is no expected  impact to the  unaudited  pro
      forma  financial  statements.  In the event the warrants are not converted
      prior to closing of the merger, they would be forfeited and there would be
      no impact to the unaudited pro forma financial  statements.  NeoMedia does
      not have the  right to force  conversion  of the  warrants  prior  to,  or
      subsequent to, the merger.



                                      F-97


                           NEOMEDIA TECHNOLOGIES, INC.
         UNAUDITED PRO-FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005
               (In thousands of US Dollars, except per share data)
                                   (Unaudited)




                                                                                   PRO-FORMA
                                                                                    ADJUST-           PRO-FORMA
                                                NEOMEDIA(A)     BSD(B)    MOBOT(C)   MENTS           CONSOLIDATED
                                              -------------- ---------- ---------- -----------       ------------
                                                                                            
NET SALES:
       License fees                                    $426          --         --         --               $426
       Resale of software and                                                   --
        technology equipment and service
        fees                                            336          --         --         --                336
       Micro paint revenue                              959          --         --         --                959
       Telecom services revenue                          --       6,387         --         --              6,387
       Mobot revenue                                     --          --        144         --                144
                                              -------------- ---------- ---------- -----------       ------------
          Total net sales                             1,721       6,387        144          0              8,252
                                              -------------- ---------- ---------- -----------       ------------

COST OF SALES:
       License fees                                     351          --         --         --                351
       Resale of software and                                                   --
        technology equipment and service
        fees                                            208          --         --         --                208
       Micro paint direct cost of revenue               724          --         --         --                724
       Telecom services direct cost of
       revenue                                                    5,283         --         --              5,283
       Mobot revenue                                     --          --         --         --                  0
                                              -------------- ---------- ---------- -----------       ------------
          Total cost of sales                         1,283       5,283          0          0              6,566
                                              -------------- ---------- ---------- -----------       ------------

GROSS PROFIT                                            438       1,104        144          0              1,686

       Selling, general and administrative
       expenses                                       5,227         855      1,047      2,118   (D)        9,247
       Research and development costs                   629          --         --         --                629
                                              -------------- ---------- ---------- -----------       ------------

Income (loss) from operations                        (5,418)        249       (903)    (2,118)            (8,190)
       Loss on extinguishment of debt, net              172          --         --         --                172
       Loss on sale of assets                                        --         --         --                  0
       Amortization of debt discount                                 --         --         --                  0
       Interest expense, net                           (223)       (122)       (15)        --               (360)
                                              -------------- ---------- ---------- -----------       ------------

INCOME BEFORE PROVISION FOR INCOME TAXES             (5,469)        127       (918)    (2,118)            (8,378)
       Provision for income taxes                        --          --         --         --                 --
                                              -------------- ---------- ---------- -----------       ------------

NET INCOME (LOSS)                                    (5,469)        127       (918)    (2,118)            (8,378)

OTHER COMPREHENSIVE INCOME (LOSS):
       Unrealized loss on marketable
       securities                                      (133)         --         --         --               (133)
       Foreign currency translation
       adjustment                                        24        (205)        --         --               (181)
                                              -------------- ---------- ---------- -----------       ------------

COMPREHENSIVE INCOME (LOSS)                         ($5,578)       ($78)     ($918)   ($2,118)           ($8,692)
                                              ============== ========== ========== ===========       ============

NET INCOME (LOSS) PER
       SHARE--BASIC AND DILUTED                      ($0.01)                                              ($0.02)
                                              ==============                                         ============

COMPREHENSIVE INCOME (LOSS)
       PER SHARE--BASIC AND DILUTED                  ($0.01)                                              ($0.02)
                                              ==============                                         ============

Weighted average number
       of common shares-basic and diluted       451,487,240                        64,577,198  (D)    516,064,438
                                              ==============                       ===========       ============



                                      F-98



PRO-FORMA ADJUSTMENTS

(A) - NeoMedia results include  operations of CSI International for  the  period
      January 1, 2005 through September 30, 2005,  therefore CSI results are not
      shown separately.

(B) - BSD results are for the nine months ended October 31, 2005

(C) - Mobot results are for the nine months ended September 30, 2005.


(D) - Adjustment  to  reflect amortization of acquired intangible assets for the
      nine months ended  September 30, 2005, as if the  acquisition of Mobot and
      BSD had  occurred  on January 1, 2004.  It is  important  to note that the
      actual estimated  useful lives of intangible  assets acquired that will be
      adopted based on an  independent  valuation  could vary from the estimates
      presented  herein  (see  note E(i) to the pro  forma  balance  sheet for a
      discussion  on useful  lives).  Such a  difference  could cause a material
      difference between the actual periodic  amortization charges that NeoMedia
      will record in its statement of operations,  and the  amortization  amount
      shown  above.  Estimated  useful  lives  are  based on  management's  best
      estimate of the purchase  price  allocation,  and have not been  finalized
      based on the results of an independent valuation.

(E) - Adjustment for shares that would  have been issued  in connection with BSD
      and  Mobot  acquisitions  as if they had  occurred  on  January  1,  2004,
      calculated as follows:



         BSD SOFTWARE, INC.
                                                                                     
            Number of common shares of BSD outstanding as of January 1, 2004               31,684,597
         x  0.07 allocation factor outlined in purchase agreement                                0.07
         /  NeoMedia stock price on January 1, 2004
            (measurement date)                                                                 $0.135
                                                                                           ----------
            Pro forma number of shares of NeoMedia to be issued as purchase
            price consideration                                                            16,429,050
                                                                                           ----------
         MOBOT, INC.
            Amount of purchase price to be paid in cash (pursuant to letter of
            intent)                                                                        $6,500,000
         /  NeoMedia stock price on January 1, 2004 (measurement  date)                        $0.135
                                                                                           ----------
            Pro forma number of shares of NeoMedia to be issued as purchase price
            consideration                                                                  48,148,148
                                                                                           ----------
            Total pro forma number of shares of NeoMedia to be issued as purchase
            price consideration                                                            64,577,198
                                                                                           ==========



                                      F-99





                                                    NEOMEDIA TECHNOLOGIES, INC.
                                  UNAUDITED PRO-FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
                                           FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2004
                                        (In thousands of US Dollars, except per share data)
                                                            (Unaudited)

                                                                                                     PRO-FORMA       PRO-FORMA
                                              NEOMEDIA(A)          BSD(A)            MOBOT(A)       ADJUSTMENTS     CONSOLIDATED
                                             -------------    -------------       -------------    -------------    -------------
                                                                                                     
NET SALES:
       License fees                          $         343               --                  --               --    $         343
       Resale of software and                           --
          technology equipment and service
       fees                                            630               --                  --               --              630
       Micro paint revenue                             727               --                  --               --              727
       Telecom services revenue                         --            6,511                  --               --            6,511
                                             -------------    -------------       -------------    -------------    -------------
          Total net sales                            1,700            6,511                  --               --            8,211
                                             -------------    -------------       -------------    -------------    -------------
COST OF SALES:
       License fees                                    324               --                  --               --              324
       Resale of software and                                                                --
          technology equipment and service
       fees                                            604               --                  --               --              604
       Micro paint direct cost of revenue              541               --                  --               --              541
       Telecom services direct cost of
       revenue                                          --            5,068                  --               --            5,068
                                             -------------    -------------       -------------    -------------    -------------
          Total cost of sales                        1,469            5,068                  --               --            6,537
                                             -------------    -------------       -------------    -------------    -------------
GROSS PROFIT                                           231            1,443                  --               --            1,674
       Selling, general and administrative
       expenses                                      4,261            1,218                 213            2,822(B)         8,514
       Research and development costs                  651               --                  --               --              651
                                             -------------    -------------       -------------    -------------    -------------
Income (loss) from operations                       (4,681)             225                (213)          (2,822)          (7,491)
       Loss on extinguishment of debt, net             140               --                  --               --              140
       Loss on sale of assets                           --              (12)                 --               --              (12)
       Amortization of debt discount                (2,500)              --                  --               --           (2,500)
       Interest expense, net                          (189)            (144)                 (5)              --             (338)
                                             -------------    -------------       -------------    -------------    -------------
INCOME BEFORE PROVISION FOR INCOME TAXES            (7,230)              69                (218)          (2,822)         (10,201)
       Provision for income taxes                       --               --                  --               --               --
                                             -------------    -------------       -------------    -------------    -------------
NET INCOME (LOSS)                                   (7,230)              69                (218)          (2,822)         (10,201)

OTHER COMPREHENSIVE INCOME (LOSS):
       Foreign currency translation
       adjustment                                      (60)              --                  --               --              (60)
                                             -------------    -------------       -------------    -------------    -------------
COMPREHENSIVE INCOME (LOSS)                  ($      7,290)   $          69       ($        218)   ($      2,822)   ($     10,261)
                                             =============    =============       =============    =============    =============
NET INCOME (LOSS) PER
       SHARE--BASIC AND DILUTED              ($       0.02)                                                         ($       0.03)
                                             =============                                                          =============



                                      F-100





                                                                                                     
COMPREHENSIVE INCOME (LOSS)
       PER SHARE--BASIC AND DILUTED          ($       0.02)                                                         ($       0.03)
                                             =============                                                          =============
Weighted average number
       of common shares-basic and diluted      329,362,127                                            64,577,198(C)   393,939,325
                                             =============                                         =============    =============


PRO-FORMA ADJUSTMENTS

(A)   - NeoMedia,  BSD, and Mobot results shown are for the year ended  December
      31,  2004.  Results of CSI  International,  Inc.  (acquired on February 4,
      2004) are included in NeoMedia's  consolidated  results for more than nine
      months, and therefore are not shown separately.


(B)   - Adjustment to reflect amortization of acquired intangible assets for the
      year ended  December 31, 2004, as if the  acquisition of Mobot and BSD had
      occurred  on  January  1, 2004.  It is  important  to note that the actual
      estimated useful lives of intangible  assets acquired that will be adopted
      based on an independent  valuation could vary from the estimates presented
      herein  (see  notes  E(i) - (iv)  to the pro  forma  balance  sheet  for a
      discussion  on useful  lives).  Such a  difference  could cause a material
      difference between the actual periodic  amortization charges that NeoMedia
      will record in its statement of operations,  and the  amortization  amount
      shown  above.  Estimated  useful  lives  are  based on  management's  best
      estimate of the purchase  price  allocation,  and have not been  finalized
      based on the results of an independent valuation


(C)   - Adjustment for shares that would have been issued in connection with BSD
      and Mobot  acquisitions  as if th haey ocd  oncurred  Ja  1,nuary 20 ca04,
      aslculated fo llows:


      BSD SOFTWARE INC.

      Number of common shares of BSD outstanding as of
         January 1, 2004                                         31,684,597

    x 0.07 allocation factor outlined in purchase agreement            0.07
    / NeoMedia stock price on January 1, 2004
        (measurement date)                                           $0.135
                                                              -------------
      Pro forma number of shares of NeoMedia to be issued
         as purchase price consideration                         16,429,050
                                                              -------------
      MOBOT, INC.

      Amount of purchase price to be paid in cash (pursuant
         to letter of intent)                                    $6,500,000
    / NeoMedia stock price on January 1, 2004
         (measurement date)                                          $0.135
                                                              -------------
      Pro forma number of shares of NeoMedia to be issued
         as purchase price consideration                         48,148,148
                                                              -------------
      Total pro forma number of shares of NeoMedia to be
         issued as purchase price consideration                  64,577,198
                                                              =============



                                     F-101


                          INDEPENDENT AUDITORS' REPORT


Board of Directors
CSI International Inc.
Calgary, Alberta Canada


We have audited the accompanying  balance sheets of CSI International Inc. as of
August 31, 2003 and 2002, and the related statements of income and comprehensive
income, changes in stockholders' equity and cash flows for the years 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 audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  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  audits  provide  a
reasonable basis for our opinion.

In our opinion, the financial statements enumerated above present fairly, in all
respects, the financial position of CSI International Inc. as of August 31, 2003
and 2002,  and the  results of its  operations  and its cash flows for the years
then ended, in conformity with accounting  principles  generally accepted in the
United States of America.

/s/ Eisner LLP

New York, New York
January 23, 2004


                                     F-102


CSI INTERNATIONAL INC.

BALANCE SHEETS
(in U.S. dollars)




                                                                                              AUGUST 31,
                                                                                      ---------------------------
                                                                                          2003          2002
                                                                                      ---------------------------
                                                                                                
ASSETS
Current assets:
   Cash and cash equivalents                                                               $136,000     $126,000
   Accounts receivable, net of allowance for doubtful accounts of $13,000 for 2003
        and $9,000 for 2002 60,000 38,000                                                    60,000       38,000
   Inventories                                                                               13,000       10,000
   Other current assets                                                                       1,000        1,000
                                                                                      ---------------------------

            Total current assets                                                            210,000      175,000

Investments                                                                                  51,000
Property and equipment, net                                                                   7,000        2,000
                                                                                      ---------------------------
                                                                                           $268,000     $177,000
                                                                                      ===========================
LIABILITIES
Current liabilities:
   Accounts payables                                                                        $22,000      $17,000
   Accrued expenses                                                                          36,000       12,000
   Income taxes payable                                                                      12,000        8,000
   Due to stockholder                                                                                     14,000
                                                                                      ---------------------------
            Total current liabilities                                                        70,000       51,000
                                                                                      ---------------------------
Commitments (Note F)

STOCKHOLDERS' EQUITY
Common stock - no par value: 20,000 shares authorized; 100 shares
    issued and outstanding in 2003 and 2002, respectively
Accumulated other comprehensive income (loss) - currency translation adjustment               7,000      (7,000)
Retained earnings                                                                           191,000      133,000
                                                                                      ---------------------------
                                                                                            198,000      126,000
                                                                                      ---------------------------
                                                                                           $268,000     $177,000
                                                                                      ===========================


See notes to financial statements




                                     F-103


CSI INTERNATIONAL INC.

STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in U.S. dollars)



                                                                                           AUGUST 31,
                                                                                  -----------------------------
                                                                                      2003            2002
                                                                                  -------------   -------------
                                                                                            
     Revenue                                                                          $544,000        $438,000
     Direct cost of revenue                                                            338,000         283,000
                                                                                  -------------   -------------
     Gross profit                                                                      206,000         155,000
                                                                                  -------------   -------------
     Operating costs and expenses:
        Selling, general and administrative                                            148,000         122,000
        Depreciation and amortization                                                    2,000           1,000
                                                                                  -------------   -------------
                                                                                       150,000         123,000
                                                                                  -------------   -------------
     Income from operations                                                             56,000          32,000

     Gain on equity securities received in connection with advances (net)               13,000
     Interest expense                                                                                  (4,000)
     Loss on sale of assets                                                                           (19,000)
                                                                                  -------------   -------------
     INCOME BEFORE PROVISION FOR INCOME TAXES                                           69,000           9,000
     Provision for income taxes                                                        (11,000)         (6,000)
                                                                                  -------------   -------------
     NET INCOME                                                                         58,000           3,000

     OTHER COMPREHENSIVE INCOME:
        Foreign currency translation adjustment                                         14,000           6,000
                                                                                  -------------   -------------
     COMPREHENSIVE INCOME                                                              $72,000          $9,000
                                                                                  =============   =============


See notes to financial statements



                                      F-104


CSI INTERNATIONAL INC.

Statements of Changes in Stockholders' Equity
(in U.S. dollars)



                                                                               ACCUMULATED
                                                                                  OTHER
                                                                              COMPREHENSIVE
                                 NUMBER OF                     RETAINED          (LOSS)          STOCKHOLDERS'
                                  SHARES         AMOUNT        EARNINGS          INCOME             EQUITY
                                ------------    ----------    -----------    ----------------    -------------
                                                                                  
BALANCE - SEPTEMBER 1, 2001             100     $       --       $130,000           ($13,000)         $117,000
Net income                                              --          3,000                                3,000
Translation adjustment                                  --                             6,000             6,000
                                ------------    ----------    -----------    ----------------    --------------

BALANCE - AUGUST 31, 2002               100             --        133,000             (7,000)          126,000
Net income                                              --         58,000                               58,000
Translation adjustment                                  --                            14,000            14,000
                                ------------    ----------    -----------    ----------------    --------------
BALANCE - AUGUST 31, 2003               100     $       --       $191,000             $7,000          $198,000
                                ============    ==========    ===========    ================    ==============



See notes to financial statements


                                     F-105


CSI INTERNATIONAL INC.

STATEMENT OF CASH FLOWS
(in U.S. dollars)


                                                                                     YEAR ENDED AUGUST 31,
                                                                                  -----------------------------
                                                                                     2003             2002
                                                                                  ------------    -------------
                                                                                            
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                                        $58,000            $3,000
   Adjustments to reconcile net income to net cash provided by (used in)
        operating activities:
   Depreciation and amortization                                                       2,000             1,000
   Loss on disposal of assets                                                                           19,000
   Gain on equity securities received in connection with advances                    (13,000)
   Changes in:
        Accounts receivable                                                          (22,000)           11,000
        Inventories                                                                   (3,000)            2,000
        Other current assets                                                                           (1,000)
        Accounts payable and accrued expenses                                         29,000            12,000
        Income taxes payable                                                           4,000             8,000
                                                                                  ------------    -------------
               Net cash provided by operating activities                              55,000            55,000
                                                                                  ------------    -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of fixed assets                                                           (7,000)
   Investment in equity securities                                                    (6,000)
   Proceeds from disposal of property                                                                  120,000
   Advances to third party                                                           (45,000)
   Repayments from third party                                                        13,000
                                                                                  ------------    -------------
              Net cash (used in) provided by investing activities                    (45,000)          120,000
                                                                                  ------------    -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Repayment of mortgage payable                                                                       (82,000)
   Repayments of amounts due to stockholder                                          (14,000)          (72,000)
                                                                                  ------------    -------------
               Net cash used in financing activities                                 (14,000)         (154,000)
                                                                                  ------------    -------------
Effect of exchange rate changes on cash                                               14,000            31,000
                                                                                  ------------    -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                             10,000            52,000
Cash and cash equivalents, beginning of year                                         126,000            74,000
                                                                                  ------------    -------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                              $136,000          $126,000
                                                                                  ============    =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash paid for:
        Income taxes                                                                  $7,000
        Interest                                                                                        $4,000

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING INFORMATION:
   Reduction in due to stockholder in lieu of payment from sale of building                            $41,000



See notes to financial statements


                                     F-106


CSI INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 AND 2002

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(1)   COMPANY:

CSI  International  Inc. (the "Company") was  incorporated  in Calgary,  Alberta
Canada in 1992 under the name Chip Repair  Systems of Canada,  Inc. In 1993, the
Company changed its name to Chip Repair Systems  International Inc. and in 1996,
the Company changed its name to CSI International Inc.

The Company  licenses a  technology  developed  by its  founder and  significant
stockholder.  The technology provides for a more efficient and economical method
to repair paint related damage to vehicles.

The Company conducts its business primarily in the province of Alberta.

(2)   FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS:

The financial  position and results of operations of the Company are  determined
using local currency as the functional  currency (Canadian  dollar).  Assets and
liabilities  are  translated at the  prevailing  exchange rate in effect at each
year  end.  Investments,   property  and  equipment,   due  to  stockholder  and
contributed  capital  accounts  are  translated  using the  historical  rates of
exchange  when the  transaction  is  completed.  Income  statement  amounts  are
translated at the average exchange rate during the year. Translation adjustments
arising  from the use of  different  exchange  rates  from  period to period are
included in the cumulative translation adjustment account in stockholders equity
under  comprehensive  income.  Gains and losses  resulting from foreign currency
transactions  are  included  in  operations.  There were no gains or losses from
foreign currency transactions in 2003 or 2002.

(3)   REVENUE RECOGNITION:

Revenue  related to product sales is recognized when the products are shipped to
customers  and  collection  is reasonably  assured.  Revenue  related to service
repairs is recognized upon customer acceptance.

(4)   CASH AND CASH EQUIVALENTS:

The Company considers all highly liquid investments with original  maturities of
three months or less to be cash equivalents.

(5)   INVENTORIES:

Inventories  are valued at the lower of cost or market.  Cost is determined on a
first-in, first-out method.

(6)   PROPERTY AND EQUIPMENT:

Property  and  equipment  are  stated at cost,  less  accumulated  depreciation.
Depreciation  is calculated  using the  straight-line  method over the estimated
useful  lives  of  the  assets,  which  range  from  3  to  7  years.  Leasehold
improvements are amortized on a straight-line basis over the useful lives or the
term of the related lease, whichever is shorter.


                                     F-106


CSI INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 AND 2002

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(7)   LONG-LIVED ASSETS:

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting  for the  Impairment or Disposal of Long-Lived  Assets," the Company
records impairment losses on long-lived assets used in operations or expected to
be disposed of when  indicators of impairment  exist and the cash flows expected
to be derived from those assets are less than carrying  amounts of those assets.
No such indicators  existed and the Company did not record any impairment charge
for the years ended August 31, 2003 and 2002.

(8)   INCOME TAXES:

Deferred  income taxes are determined  based upon enacted tax laws in Canada and
rates applied to the differences between the financial  statements and tax basis
of assets and liabilities.

(9)   USE OF ESTIMATES:

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the  reporting  period.  The Company  reviews all  significant  estimates
affecting the financial  statements on a recurring  basis and records the effect
of any adjustments when necessary.

(10)  FAIR VALUE OF FINANCIAL INSTRUMENTS:

The carrying amounts of cash, accounts receivable, investments, accounts payable
and accrued  expenses  approximate  fair value due to the  short-term  nature of
those instruments.

(11)  ADVERTISING COSTS:

Advertising  costs incurred during the years ended August 31, 2003 and 2002 were
$5,000 and $3,000, respectively.

NOTE B - INVESTMENTS

In fiscal  2003,  the Company  invested  $6,000 in exchange  for 4,257 shares of
common stock of Triton Global Business Services,  Inc. ("Triton"),  an unrelated
third party.  These shares are  restricted and are recorded at cost as of August
31, 2003. The Company's ownership percentage in Triton is de minimis.

During fiscal 2003, the Company  advanced $45,000 to Triton, a subsidiary of BSD
Software,  Inc.  ("BSDS"),  a public company.  The general terms of the advances
included  repayment  within 30 days with interest at a rate of 8% per annum.  In
connection with these advances,  the Company received 61, 684 restricted  common
shares of BSDS. In addition, the Company received an additional 48,160 shares of
BSDS as  consideration  for extending the notes.  As of the advance  dates,  the
Company ascribed no value to the notes. The Company  accredited the value of the
notes as  interest  income  over the  repayment  period (30 days).  The  Company
received  payment of $13,000 during fiscal 2003 and wrote the remaining  balance
($32,000) off as noncollectible.


                                     F-108


CSI INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 AND 2002

NOTE B - INVESTMENTS (CONTINUED)

The Company  ascribed a value of $45,000 in connection  with the advances  based
upon the share price at the date of each advance limited to the amounts advanced
to the third party. In addition,  the Company  ascribed a value of $53,000 and a
corresponding  increase to interest income for the additional shares recieved as
consideration for extending the repayment date of the advances. As of August 31,
2003, the Company  determined  that a decline in the market value of such shares
was other than  temporary  and recorded a loss of $53,000 to reduce the recorded
value to its then market value.

NOTE C - PROPERTY AND EQUIPMENT

Major classes of property and equipment are as follows:

                                                        AUGUST 31,
                                                 --------------------------
                                                    2003           2002
                                                 -----------    -----------
Computers                                            $8,000         $8,000
Equipment                                            33,000         33,000
Leasehold improvements                                7,000
                                                 -----------    -----------

                                                     48,000         41,000
Less accumulated depreciation and amortization       41,000         39,000
                                                 -----------    -----------
                                                     $7,000         $2,000
                                                 ===========    ===========

Depreciation  and  amortization  expense for the years ended August 31, 2003 and
2002 was $2,000 and $1,000, respectively.

NOTE D - RELATED PARTY

A  stockholder  and a founder had advanced  funds to the Company prior to fiscal
2002 for working capital purposes. The advances were noninterest bearing and due
on demand. The amount due to stockholder was repaid in fiscal 2003.

The Company leases its facility from a stockholder and founder (see Note G).

NOTE E - INCOME TAXES

Provision for income taxes for the years ended August 31, 2003 and 2002 consists
of the following:

                                                  YEAR ENDED AUGUST 31,
                                                ---------------------------
                                                    2003           2002
                                                -------------    ----------
     Current                                         $11,000        $6,000
                                                =============    ==========


                                     F-109


CSI INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2003 AND 2002

NOTE F - COMMITMENTS

The Company leases  premises under a long-term  operating  lease (as extended in
September  2003) from a rleated  party (see Note D)  expiring  August 31,  2008.
Under this lease, the Company has the following obligations for annual rentals:

2004                                         $21,000
2005                                          21,000
2006                                          21,000
2007                                          21,000
2008                                          21,000
                                          -----------
                                            $105,000
                                          ===========

Rent  expense  for the  years  ended  August  31,  2003  and  2002  amounted  to
approximately $14,000 and $4,000, respectively.

NOTE G - LOSS ON DISPOSAL OF ASSETS

(1)   BUILDING:

During  fiscal 2002,  the Company sold the building it occupied to a stockholder
and  founder.  The sale price of the  building  was  $161,000.  The sales  price
consisted  of  $120,000  of cash and a  reduction  of  $41,000  in amount due to
stockholder. The net book value of the building at the date of sale was $139,000
resulting in a gain of $22,000.

(2)   MARKETABLE SECURITIES:

During  fiscal 2002,  the Company  recorded a loss on  marketable  securities of
$41,000 as such securities expired worthless.

NOTE H - CONCENTRATION OF CREDIT RISK

As of August 31, 2003, two customers accounted for 24% and 12% of total accounts
receivable.

As of August 31, 2003, one vendor accounted for 37% of accounts payable.

NOTE I - SUBSEQUENT EVENTS

(1)   LETTER OF INTENT:

The Company has entered  into a letter of intent as of November 2, 2003 to enter
into a merger agreement with Neomedia Technologies,  Inc. ("Neomedia"), a public
company,  located in Florida,  USA, in which the Company  would  become a wholly
owned subsidiary of Neomedia. Consideration for this transaction will consist of
$2,500,000  in cash  and 7  million  newly  issued  shares  of  common  stock of
Neomedia.

(2)   LEASE:

The Company leased a new automobile in December 2003. The lease is for a term of
4 years with a monthly rental of $1,000.

(3)   INVESTMENTS:

As of January 23, 2004,  the closing  price of BSDS of common stock was $.22 per
share, resulting in a decrease in market value of such shares of $21,000.


                                     F-110


             Report of Independent Registered Public Accounting Firm


To the Board of Directors of Mobot, Inc.
Lexington, Massachusetts


We have audited the  accompanying  balance sheet of Mobot,  Inc. (a  development
stage company) as of December 31, 2004, and the related statements of operations
and  stockholders'  deficit  and cash  flows for the year then ended and for the
period from September 8, 2003  (inception) to December 31, 2004. 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 the standards of the Public  Company
Accounting Oversight Board (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 Mobot, Inc. as of December 31,
2004,  and the  results of its  operations  and its cash flows for the year then
ended and for the period from  September  8, 2003  (inception)  to December  31,
2004, in conformity with accounting  principles generally accepted in the United
States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial  statements,  the Company's  significant  operating losses and working
capital deficit raise substantial doubt about its ability to continue as a going
concern.  Management's  plans regarding those matters also are described in Note
1. The  financial  statements do not include any  adjustments  that might result
from the outcome of this uncertainty.


CERTIFIED PUBLIC ACCOUNTANTS

Irvine, California
October 11, 2005


                                     F-111


MOBOT, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
--------------------------------------------------------------------------------

                                                                   December 31,
                                                                        2004
                                                                   ------------
ASSETS

CURRENT ASSETS:
   Cash                                                            $    290,000
   Prepaid expenses                                                       2,937
                                                                   ------------
       Total current assets                                             292,937
                                                                   ------------
Property and equipment, net                                               4,055
Intangible assets, net                                                    4,668
Security deposit                                                          7,303
                                                                   ------------
           Total assets                                            $    308,963
                                                                   ============

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
   Accounts payable                                                $     16,071
   Accrued expenses                                                       4,613
   Accrued interest                                                       5,945
                                                                   ------------
       Total current liabilities                                         26,629
                                                                   ------------
Convertible debentures                                                  500,000

STOCKHOLDERS' DEFICIT:
   Common stock, $0.01 par value, 10,000 shares authorized,
     1,659 shares outstanding                                                17
   Additional paid-in capital                                               652
   Deficit accumulated in the development stage                        (218,335)
                                                                   ------------
       Total stockholders' deficit                                     (217,666)
                                                                   ------------
           Total liabilities and stockholders' deficit             $    308,963
                                                                   ============

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


                                     F-112





MOBOT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
----------------------------------------------------------------------------------------------------

                                                                                       From Inception
                                                                                       of Development
                                                                                           Stage
                                                                                       (September 8,
                                                                       Year Ended         2003 to
                                                                       December 31,    December 31,
                                                                          2004            2004)
                                                                      -------------    -------------
                                                                                 
NET SALES                                                             $          --    $          --

COST OF GOODS SOLD                                                               --               --
                                                                      -------------    -------------
       Gross profit                                                              --               --

OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES:
   Selling and marketing expenses                                            22,448           22,448
   General and administrative expenses                                      190,245          190,245
                                                                      -------------    -------------
       Total operating expenses                                             212,693          212,693
                                                                      -------------    -------------
OPERATING LOSS                                                             (212,693)        (212,693)

INTEREST EXPENSE                                                             (5,642)          (5,642)
                                                                      -------------    -------------
NET LOSS                                                              $    (218,335)   $    (218,335)
                                                                      =============    =============


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



                                     F-113





MOBOT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' DEFICIT
-----------------------------------------------------------------------------------------------------------

                   From Inception of Development Stage (September 8, 2003 to December 31, 2004)

                                                                                      Deficit
                                                                                    Accumulated
                                                      Common Stock       Additional    in the
                                                 ---------------------    Paid In   Development
                                                   Shares      Amount     Capital      Stage        Totals
                                                 ---------   ---------   ---------   ---------    ---------
                                                                                   
Balance at September 8, 2003
(inception), stock issued
at $0.01 per share                                   1,000   $      10   $      --   $      --    $      10
                                                 ---------   ---------   ---------   ---------    ---------

Balance, December 31, 2003                           1,000   $      10   $      --   $      --    $      10

Restricted stock issued on
September 24, 2004 for sale
at $1.00 per share                                      70           1          69          --           70

Restricted  stock issued on September 24, 2004
and November 29, 2004 for sale at
$1.00 per share with a
forfeiture clause                                      560           6         554          --          560

Restricted stock issued on
November 29, 2004 for sale
at $1.00 per share                                      29          --          29          --           29

Net loss                                                --          --          --    (218,335)    (218,335)
                                                 ---------   ---------   ---------   ---------    ---------
Balance, December 31, 2004                           1,659   $      17   $     652   $(218,335)   $(217,666)
                                                 =========   =========   =========   =========    =========

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



                                     F-114





MOBOT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
-------------------------------------------------------------------------------------


                                                                      From Inception
                                                                      Of Development
                                                                         Stage
                                                                      (September 8,
                                                           Year Ended    2003 to
                                                          December 31,  December 31,
                                                              2004         2004)
                                                          ------------  ----------
                                                                  
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss$                                                (218,335)   $(218,335)
   Adjustments to reconcile net loss to net cash
     Provided by operating activities:
       Depreciation and amortization                             555          555
       Changes in operating assets and liabilities:
           Prepaid expenses                                   (2,937)      (2,937)
           Security deposit                                   (7,303)      (7,303)
           Accounts payable                                   16,071       16,071
           Accrued expenses                                    4,613        4,613
           Accrued interest                                    5,945        5,945
                                                           ---------    ---------
                Net cash used for operating activities      (201,391)    (201,391)

CASH FLOWS USED FOR INVESTING ACTIVITIES:
   Purchase of property and equipment                         (4,278)      (4,278)
   Purchase of intangible asset                               (5,000)      (5,000)
                                                           ---------    ---------
                Net cash used for investing activities        (9,278)      (9,278)

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
   Convertible debenture                                     500,000      500,000
   Proceeds from issuance of stock                               659          669
                                                           ---------    ---------
                Net cash provide by financing activities     500,659      500,669

NET INCREASE IN CASH                                         289,990      290,000

CASH, beginning of period                                         10           --
                                                           ---------    ---------
CASH, end of period                                        $ 290,000    $ 290,000
                                                           =========    =========


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



                                     F-115


MOBOT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2004

(1)   BASIS OF PRESENTATION AND SUMMARY OF OPERATIONS:

      BASIS OF PRESENTATION

      Mobot,  Inc., a  Massachusetts  corporation  referred to as "Mobot" or the
      "Company,"  was originally  incorporated  under the laws of Delaware under
      the name Ilumena  Corporation on September 8, 2003  (inception) and had no
      activity  during the year ended  December 31, 2003.  On September 16, 2004
      the Board of  Directors  approved to have the  Company's  name  officially
      changed to Mobot,  Inc.  Mobot is in the business of connecting  consumers
      using any camera phone on any wireless  carrier to brands,  mobile content
      and  commerce.  No complex  codes,  navigation  or changes to  cross-media
      campaigns are required.

      The  accompanying  financial  statements  have been prepared in conformity
      with  accounting  principles  generally  accepted in the United  States of
      America, which contemplate continuation of the Company as a going concern.
      However,  the Company  has  reported  net losses of $218,335  for the year
      ended  December  31,  2004,  and has  retained  deficit of  $218,335 as of
      December 31, 2004. In addition, the Company has a cash balance of $290,000
      and working capital of $266,308 as of December 31, 2004.

      GOING CONCERN

      The Company cannot be certain that  anticipated  revenues from  operations
      will  be   sufficient  to  satisfy  its  ongoing   capital   requirements.
      Management's  belief is based on the Company's  operating  plan,  which in
      turn is  based on  assumptions  that may  prove  to be  incorrect.  If the
      Company's  financial  resources are  insufficient  the Company may require
      additional  financing in order to execute its operating  plan and continue
      as a going concern.  The Company cannot  predict  whether this  additional
      financing  will be in the form of  equity,  debt,  or  another  form.  The
      Company may not be able to obtain the  necessary  additional  capital on a
      timely basis, on acceptable terms, or at all. In any of these events,  the
      Company may be unable to implement its current plans for expansion,  repay
      its  debt  obligations  as  they  become  due or  respond  to  competitive
      pressures, any of which circumstances would have a material adverse effect
      on its business, prospects, financial condition and results of operations.

(2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

      DEVELOPMENT STAGE COMPANY

      The Company has not generated any significant revenue since inception. The
      accompanying  financial statements have been prepared using the accounting
      formats prescribed for development stage companies.


                                     F-116


MOBOT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2004

(2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

      USE OF ESTIMATES

      The preparation of the financial  statements in accordance with accounting
      principles generally accepted in the United States of America requires the
      Company's  management  to  make a  number  of  estimates  and  assumptions
      relating to the reported amounts of assets and liabilities, the disclosure
      of  contingent  assets  and  liabilities  at the date of the  consolidated
      financial  statements,  and the  reported  amounts of revenue and expenses
      during  the  period.  Significant  items  subject  to such  estimates  and
      assumptions  include  the  carrying  amount  of  property  and  equipment,
      intangibles, valuation allowances for deferred income tax assets, accounts
      receivable,  accruals and other factors.  Actual results could differ from
      those estimates.

      CASH

      For the purposes of the balance  sheet and  statement  of cash flows,  all
      highly liquid investments with original maturities of three months or less
      are considered cash equivalents.  The Company maintains bank accounts with
      balances which, at times,  that may exceed federally  insured limits.  The
      Company  has not  experienced  any losses on such  accounts.  The  Company
      believes  it is not  exposed  to any  significant  risk  on  bank  deposit
      accounts.  The Company had a cash  balance of $290,000 as of December  31,
      2004, which exceeded federally insured limit.

      PROPERTY AND EQUIPMENT

      Property and equipment  consists  primarily of computer equipment having a
      useful  life of 3 years  and  are  carried  at  cost,  net of  accumulated
      depreciation.  Depreciation is calculated using the  straight-line  method
      over  the  estimated  useful  lives of the  related  assets.  Repairs  and
      maintenance  are charged to expense as incurred.  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.  Material
      expenditures,  which increase the life of an asset,  are  capitalized  and
      depreciated over the estimated remaining life of the asset.

      INTANGIBLE ASSET

      Intangible  asset consists of a domain name and is carried at cost, net of
      accumulated   amortization.   Amortization   is   calculated   using   the
      straight-line   method  over  estimated  useful  life  of  5  years.  Upon
      retirement or sale, cost and accumulated amortization are removed from the
      accounts and any gain or loss is reflected in the statement of operations.


                                     F-117


MOBOT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2004

(2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

      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 Company has  recorded a
      100% valuation allowance as of December 31, 2004.

      ADVERTISING COSTS

      The Company expenses the cost of advertising and promoting its services as
      incurred.  There were no advertising  expenses incurred for the year ended
      December 31, 2004.

      FAIR VALUE OF FINANCIAL INSTRUMENTS

      For  certain  of the  Company's  financial  instruments,  including  cash,
      short-term   bank   borrowings,   accounts   payable  and  other   accrued
      liabilities,  the  carrying  amounts  approximate  fair value due to their
      short-term   maturities.   The  fair   value  of   long-term   obligations
      approximates  its carrying value as the existing  contract  interest rates
      are  comparable  to market  rates  currently  offered to the  Company  for
      similar debt instruments with similar maturities.

(3)   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

      In May 2005,  the FASB issued FASB Statement No. 154,  Accounting  Changes
      and Error  Corrections.  This new  standard  replaces  APB Opinion No. 20,
      Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes
      in Interim Financial Statements, and represents another step in the FASB's
      goal to converge its standards with those issued by the IASB.  Among other
      changes,  Statement  154 requires  that a voluntary  change in  accounting
      principle  be  applied  retrospectively  with all prior  period  financial
      statements  presented  on  the  new  accounting  principle,  unless  it is
      impracticable  to do so.  Statement 154 also provides that (1) a change in
      method of  depreciating or amortizing a long-lived  nonfinancial  asset be
      accounted for as a change in estimate (prospectively) that was effected by
      a  change  in  accounting  principle,  and (2)  correction  of  errors  in
      previously  issued financial  statements should be termed a "restatement."
      The new standard is effective  for  accounting  changes and  correction of
      errors made in fiscal years beginning after December 15, 2005.


                                     F-118


MOBOT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2004

(3)   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED):

      Early  adoption of this standard is permitted for  accounting  changes and
      correction of errors made in fiscal years beginning after June 1, 2005.

      In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for
      Conditional  Asset  Retirement  Obligations"  ("FIN 47").  FIN 47 provides
      guidance  relating to the  identification  of and financial  reporting for
      legal   obligations  to  perform  an  asset   retirement   activity.   The
      Interpretation requires recognition of a liability for the fair value of a
      conditional  asset retirement  obligation when incurred if the liability's
      fair value can be reasonably estimated. FIN 47 also defines when an entity
      would have sufficient information to reasonably estimate the fair value of
      an asset retirement  obligation.  The provision is effective no later than
      the end of fiscal years ending after  December 15, 2005.  The Company will
      adopt FIN 47 beginning  the first quarter of fiscal year 2006 and does not
      believe  the  adoption  will have a  material  impact on its  consolidated
      financial position or results of operations or cash flows.

      In March  2005,  the SEC  released  Staff  Accounting  Bulletin  No.  107,
      "Share-Based  Payment" ("SAB 107"), which provides  interpretive  guidance
      related to the  interaction  between SFAS 123(R) and certain SEC rules and
      regulations. It also provides the SEC staff's views regarding valuation of
      share-based  payment  arrangements.  In April  2005,  the SEC  amended the
      compliance  dates for SFAS 123(R),  to allow  companies  to implement  the
      standard at the  beginning of their next fiscal year,  instead of the next
      reporting  period  beginning after June 15, 2005.  Management is currently
      evaluating  the  impact  SAB 107 will have on our  consolidated  financial
      statements.

      In December 2004,  the FASB issued SFAS No.153,  "Exchanges of Nonmonetary
      Assets,  an amendment of APB Opinion No. 29,  Accounting  for  Nonmonetary
      Transactions."  The  amendments  made by  Statement  153 are  based on the
      principle that exchanges of nonmonetary assets should be measured based on
      the fair value of the assets exchanged.  Further, the amendments eliminate
      the narrow  exception  for  nonmonetary  exchanges  of similar  productive
      assets  and  replace  it  with  a  broader   exception  for  exchanges  of
      nonmonetary  assets  that do not have  commercial  substance.  Previously,
      Opinion 29 required  that the  accounting  for an exchange of a productive
      asset for a similar productive asset or an equivalent interest in the same
      or similar  productive asset should be based on the recorded amount of the
      asset  relinquished.  Opinion  29  provided  an  exception  to  its  basic
      measurement  principle  (fair value) for  exchanges of similar  productive
      assets.  The Board believes that exception  required that some nonmonetary
      exchanges,  although commercially substantive,  be recorded on a carryover
      basis.  By  focusing  the  exception  on  exchanges  that lack  commercial
      substance,  the Board believes that SFAS 153 produces financial  reporting
      that more faithfully  represents the economics of the  transactions.  SFAS
      153 is  effective  for  nonmonetary  asset  exchanges  occurring in fiscal
      periods  beginning after June 15, 2005.  Earlier  application is permitted
      for nonmonetary asset exchanges occurring in fiscal periods


                                     F-119


MOBOT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2004

(3)   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED):

      beginning  after the date of issuance.  The  provisions of this  Statement
      shall be applied  prospectively.  The Company has  evaluated the impact of
      the  adoption  of SFAS  153,  and  does not  believe  the  impact  will be
      significant  to the Company's  overall  results of operations or financial
      position.

      In December 2004, the FASB issued SFAS No.123 "Share-Based Payment".  SFAS
      123(R) will provide investors and other users of financial statements with
      more  complete and neutral  financial  information  by requiring  that the
      compensation  cost  relating  to  share-based   payment   transactions  be
      recognized in financial  statements.  That cost will be measured  based on
      the fair value of the equity or liability  instruments issued. SFAS 123(R)
      covers a wide range of  share-based  compensation  arrangements  including
      share options,  restricted share plans,  performance-based  awards,  share
      appreciation  rights,  and  employee  share  purchase  plans.  SFAS 123(R)
      replaces FASB Statement No. 123, Accounting for Stock-Based  Compensation,
      and  supersedes  APB  Opinion  No.  25,  Accounting  for  Stock  Issued to
      Employees.  Statement  123, as originally  issued in 1995,  established as
      preferable a fair-value-based method of accounting for share-based payment
      transactions with employees.  However,  that Statement  permitted entities
      the option of  continuing  to apply the guidance in Opinion 25, as long as
      the footnotes to financial statements disclosed what net income would have
      been had the preferable fair-value-based method been used. Public entities
      (other than those filing as small  business  issuers)  will be required to
      apply Statement  123(R) as of the first interim or annual reporting period
      that begins after June 15, 2005.  The adoption of this  standard  will not
      have any  impact on the  Company's  results  of  operations  or  financial
      position as the Company does not participate in the related activities.

      In December 2004 the Financial  Accounting Standards Board issued two FASB
      Staff  Positions  - FSP  FAS  109-1,  Application  of FASB  Statement  109
      "Accounting for Income Taxes" to the Tax Deduction on Qualified Production
      Activities Provided by the American Jobs Creation Act of 2004, and FSP FAS
      109-2  Accounting  and  Disclosure   Guidance  for  the  Foreign  Earnings
      Repatriation  Provision  within the  American  Jobs  Creation Act of 2004.
      Neither of these  affected the Company as it does not  participate  in the
      related activities.

      In November 2004, the Financial Accounting Standards Board ("FASB") issued
      Statement of Financial  Accounting  Standards ("SFAS") No. 151, "Inventory
      Costs" an amendment of  Accounting  Research  Bulletin  ("ARB") No. 43, to
      clarify the  accounting  for abnormal  amounts of idle  facility  expense,
      freight,  handling  costs,  and  wasted  material  (spoilage).  This  SFAS
      requires  that  those  items  be  recognized  as  current-period   charges
      regardless  of  whether  they  meet the  criterion  of "so  abnormal".  In
      addition, this SFAS requires that allocation of fixed production overheads
      to the  costs  of  conversion  be  based  on the  normal  capacity  of the
      production  facilities.  Companies are required to adopt the provisions of
      this  Statement  for  fiscal  years  beginning  after June 15,  2005.  The
      adoption  of this  standard  will  not have any  impact  on the  Company's
      results of operations or financial position.


                                     F-120


MOBOT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2004

(4)   PROPERTY AND EQUIPMENT:

                                                           December 31,
                                                               2004
                                                          ---------------
      Computer equipment                                  $         4,278
      Less accumulated depreciation                                   223
                                                          ---------------
      Computer equipment, net                             $         4,055
                                                          ===============

      Depreciation expense was $223 for the year ended December 31, 2004.

(5)   INTANGIBLE ASSET: December 31, 2004

      Domain name                                         $         5,000
      Less accumulated amortization                                   332
                                                          ---------------
      Domain name, net                                    $         4,668
                                                          ===============

      Amortization expense was $332 for the year ended December 31, 2004.

(6)   INCOME TAXES:

      The  Company  had net  operating  loss  carry  forwards  of  approximately
      $193,400. The loss expires in 2024. The Company believes it is more likely
      than not that it will not realize the future tax benefits of its operating
      loss carry  forwards  and has  provided a full  valuation  allowance as of
      December 31, 2004.

      The components of current and deferred income tax expense (benefit) are as
      follows:

                                                           December 31,
                                                               2004
                                                          ---------------
      Current:
        State                                             $            --
        Federal                                                        --

      Deferred:
        State                                                          --
        Federal                                                        --
                                                          ---------------
        Net income tax expense                            $            --
                                                          ===============


                                     F-121


MOBOT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2004

(6)   INCOME TAXES (CONTINUED):

      A  reconciliation  of income taxes between the statutory and effective tax
      rates on income before income taxes is as follows:

                                                           December 31,
                                                               2004
                                                          ---------------

      Computed statutory income tax expense (benefit)     $       (74,234)
        State income tax, net of federal                          (20,742)
        Meals and entertainment                                       720
        Depreciation                                                 (179)
        Accrual to cash                                            10,306
      Change in valuation allowance                               (84,129)
                                                          ---------------
                                                          $            --
                                                          ===============

      The components of deferred income taxes are as follows:

                                                           December 31,
                                                                2004
                                                          ---------------
      Deferred tax assets:
        Net operating loss carry forward                  $       (84,129)
      Deferred tax liabilities:
        Accelerated depreciation on property & equipment             (179)
      Accrual to cash                                              10,306
                                                          ---------------
        Net deferred tax assets                                   (74,002)

        Valuation allowance                                        74,002
                                                          ---------------
                                                          $            --
                                                          ===============

(7)   EQUITY:

      COMMON STOCK

      Each of the eight holders of our common stock are entitled to one vote for
      each  share  held  of  record  on  each  matter  submitted  to a  vote  of
      stockholders.  Holders of common stock have no preemptive  rights and have
      no rights to convert  their  common stock into any other  securities.  The
      outstanding   common  stock  is  duly   authorized  and  validly   issued,
      fully-paid, and non-assessable.


                                     F-122


MOBOT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2004

(7)   EQUITY:

      FORFEITURE CLAUSE

      During  the year,  the  Company  issued 560  shares to key  employees.  If
      employment with the Company  terminates before four years from the date of
      issuance,  the  employee  will be required to forfeit a certain  number of
      shares, based upon a predetermined schedule. The Company retains the right
      to purchasing back these forfeited shares at the original purchase price.

      EQUITY INCENTIVE PLAN

      On September 16, 2004,  the Company  adopted an incentive  plan called the
      "2004  Equity  Incentive  Plan"  providing  for the  issuance of up to 900
      shares of the  Company's  common  stock  pursuant to grants of  restricted
      stock or stock options under the plan.

(8)   COMMITMENTS AND CONTINGENCIES:

      The Company leases its office  facility  under an operating  lease with an
      expiration  date of April 30, 2006.  For the year ended December 31, 2004,
      Mobot incurred rent expense of $5,817.

      The  following  is a schedule  of the future  minimum  payments  under the
      non-cancelable operating lease in effect as of December 31, 2004:

                                                             Operating
                                                               Leases
                                                             ---------
      Year Ended December 31,
          2005                                               $  46,788
          2006                                                  17,577
                                                             ---------
                      Total minimum payments                 $  64,365
                                                             =========

      In the normal course of business the Company is subject to various  claims
      and  litigation.  The  Company  does not  currently  have any  pending  or
      threatening litigation.


                                     F-123


MOBOT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2004

(9)   CONVERTIBLE DEBENTURES:

      In August and October of 2004,  the  Company  entered  into two  five-year
      $250,000  convertible  debenture  financing  agreements.  These agreements
      accrue  interest at 4% per annum and can be paid after twelve  months with
      no prepayment  penalties.  As of December 31, 2004, the Company recognized
      accrued  interest  on the  debentures  in the  amount of  $5,945.  Neither
      agreement  has a repayment  schedule  and are  payable in full,  including
      accrued interest, at August and October of 2009.

      The debentures have conversion rights that allows for the debentures to be
      converted  into 333 shares of the Company's  common stock only as follows:
      (1) from and after the date that is twelve months following the closing if
      the Company has not completed a major equity financing  producing proceeds
      to the Company of at least $3 million prior to such date, (2) in the event
      of an initial public offering,  (3) in the event of a sale of the Company.
      In the event of an  initial  public  offering a sale of the  Company,  the
      Company will notify the  debenture  holders they have the right to convert
      the  debentures  within ten days of such  notice at a  conversion  rate of
      $1,500 per  share.  The  debentures  do not have a  beneficial  conversion
      feature.

      The debentures  also have stock warrants that are issuable upon conversion
      or exchange of the debentures at 50% of the number of shares  converted to
      common shares.


(10)  SUBSEQUENT EVENTS:

      On July 27,  2005,  Mobot  signed a  non-binding  Letter  of  Intent to be
      purchased  by NeoMedia  Technologies,  Inc.  ("NeoMedia"),  of Fort Myers,
      Florida.  NeoMedia has three distinct  business units,  NeoMedia  Internet
      Software Service that offers technologies if linking the physical world to
      the internet,  NeoMedia  Consulting and Intergration  Services that offers
      resale of computer  hardware and software and NeoMedia  Micro Paint Repair
      that offers technologies in the micro paint industry.

      The Letter of Intent calls for NeoMedia to acquire all of the  outstanding
      shares of Mobot in exchange for  $3,500,000  cash and $6,500,000 in shares
      of NeoMedia  common  stock.  The LOI is subject to due  diligence  by both
      parties.


                                     F-124


MOBOT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2004

(10)  SUBSEQUENT EVENTS (CONTINUED):

      On July 28, 2005,  Mobot  borrowed from  NeoMedia the principal  amount of
      $600,000 in the form of an  unsecured  promissory  note.  The Note accrues
      interest at a rate of 6% per annum. The Note will be forgiven upon signing
      of a  definitive  purchase  agreement  for the  acquisition  of all of the
      outstanding shares of Mobot by NeoMedia,  as contemplated by the Letter of
      Intent.  In the event the  acquisition is not  consummated,  the Note will
      become due 90 days after written notice of  cancellation  of the Letter of
      Intent.  In the event the Letter of Intent is  terminated  and the Note is
      not repaid within 90 days of such cancellation, the note will convert into
      shares of Mobot  common  stock with a value equal to the unpaid  principal
      and accrued interest on the Note.

      In the  event a  definitive  purchase  agreement  is not  executed  by the
      parties,  or the Letter of Intent is not terminated by September 26, 2005,
      Mobot has the right to demand an additional  $200,000 loan from  NeoMedia.
      On  September  26,  2005,  Mobot  exercised  its  right and  received  the
      additional  $200,000  loan.  Further,  in the event a definitive  purchase
      agreement  is not  executed  by the parties or the Letter of Intent is not
      terminated  by  October  26,  2005,  Mobot  has the  right  to  demand  an
      additional  $200,000  loan from  NeoMedia.  On  October  26,  2005,  Mobot
      exercised its right and received the additional $200,000 loan. Both of the
      additional loans are in the form of unsecured  promissory notes subject to
      the same terms as the original $600,000 note.


                                     F-125


SUPPLEMENTARY FINANCIAL INFORMATION

The following  information  presents Mobot, Inc.'s unaudited quarterly operating
results for the nine months ended September 30, 2005 and 2004. The data has been
prepared by Mobot,  Inc. on a basis consistent with the  Consolidated  Financial
Statements included elsewhere in this registration  statement,  and includes all
adjustments, consisting of normal recurring accruals, that we consider necessary
for a fair  presentation  thereof.  These operating  results are not necessarily
indicative of our future performance.

MOBOT, INC.
BALANCE SHEET - unaudited
SEPTEMBER 30, 2005
--------------------------------------------------------------------------------

ASSETS

CURRENT ASSETS:
   Cash                                                             $   440,793
   Accounts receivable                                                    1,250
   Prepaid expenses                                                       5,636
                                                                    -----------

           Total current assets                                         447,679
                                                                    -----------

PROPERTY AND EQUIPMENT, net                                              10,915
INTANGIBLE ASSETS, net                                                    9,031
SECURITY DEPOSIT                                                          7,303
                                                                    -----------

                                                                    $   474,928
                                                                    ===========

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
   Accounts payable                                                 $    47,634
   Accrued interest                                                      20,945
   Deferred revenue                                                      52,639
   Accrued salaries                                                     188,917
   Note payable                                                         800,000
                                                                    -----------


           Total current liabilities                                  1,110,135
                                                                    -----------

CONVERTIBLE DEBENTURES                                                  500,000
                                                                    -----------

STOCKHOLDERS' DEFICIT:
   Common stock, $0.01 par value, 10,000 shares authorized,
     1,834 shares issued and outstanding                                     18
   Additional paid-in capital                                               855
   Accumulated deficit                                               (1,136,080)
                                                                    -----------

           Total stockholders' deficit                               (1,135,207)
                                                                    -----------

                                                                    $   474,928
                                                                    ===========

The accompanying notes form an integral part of these financial statements.

                                      F-126


MOBOT, INC.
STATEMENTS OF OPERATIONS - unaudited
--------------------------------------------------------------------------------






                                          Nine Months       Nine Months
                                              Ended           Ended
                                          September 30     September 30
                                              2005             2004
                                           -----------      -----------
                                                      
NET SALES                                  $   143,961      $        --

COST OF GOODS SOLD                                  --               --
                                           -----------      -----------

GROSS PROFIT                                   143,961               --
                                           -----------      -----------

OPERATING EXPENSES:
   Selling and marketing expenses              115,581           19,519
   General and administrative expenses         930,829           57,019
                                           -----------      -----------

       Total operating expenses              1,046,410           76,538
                                           -----------      -----------

OPERATING LOSS                                (902,449)         (76,538)

INTEREST EXPENSE                               (15,296)              74
                                           -----------      -----------

NET LOSS                                   $  (917,745)     $   (76,464)
                                           ===========      ===========


The accompanying notes form an integral part of these financial statements.


                                     F-127



MOBOT, INC.
STATEMENTS OF CASH FLOWS - unaudited
INCREASE (DECREASE) IN CASH
--------------------------------------------------------------------------------




                                                      Nine Months      Nine Months
                                                         Ended            Ended
                                                     September 30,    September 30,
                                                          2005            2004
                                                      -----------      -----------
                                                                 
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                           $  (917,745)     $   (76,464)
   Adjustments to reconcile net loss to net cash
     Provided by operating activities:
     Depreciation and amortization                          2,154               --
     Changes in operating assets and liabilities:
       Accounts receivable                                 (1,250)              --
       Prepaid expenses                                    (2,699)              --
       Security deposit                                        --               --
       Accounts payable                                    31,563           25,596
       Accrued interest                                    15,000               --
       Deferred revenue                                    52,639               --
       Deferred salaries                                  184,304               --
                                                      -----------      -----------

              Net cash used for operating
                activities                               (636,034)         (50,868)
                                                      -----------      -----------

CASH FLOWS USED FOR INVESTING ACTIVITIES:
   Investment in patents                                   (9,031)              --
   Purchase of property and equipment                      (4,346)              --
   Purchase of intangible asset                                --               --
                                                      -----------      -----------

                Net cash used for investing
                  activities                              (13,377)              --
                                                      -----------      -----------

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
   Proceeds from convertible debenture                         --          250,000
   Loan                                                   800,000               --
   Proceeds from notes payable                            100,000               --
   Repayment of notes payable                            (100,000)              --
   Proceeds from issuance of stock                            204               --
                                                      -----------      -----------

                Net cash provided by financing
                  activities                              800,204          250,000
                                                      -----------      -----------

NET INCREASE IN CASH                                      150,793          199,132
CASH, beginning of period                                 290,000               10
                                                      -----------      -----------

CASH, end of period                                   $   440,793      $   199,142
                                                      ===========      ===========


The accompanying notes form an integral part of these financial statements.


                                     F-128



MOBOT, INC.
NOTES TO FINANCIAL STATEMENTS - unaudited
NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
--------------------------------------------------------------------------------


(1)   BASIS OF PRESENTATION AND SUMMARY OF OPERATIONS:

      BASIS OF PRESENTATION

            Mobot,  Inc., a Delaware  corporation  referred to as "Mobot" or the
            "Company,"  was originally  incorporated  under the laws of Delaware
            under the name Ilumena  Corporation on September 8, 2003 (inception)
            and had no activity  during the year ended  December  31,  2003.  On
            September  16,  2004 the  Board of  Directors  approved  to have the
            Company's  name  officially  changed to Mobot,  Inc. Mobot is in the
            business  of  connecting  consumers  using any  camera  phone on any
            wireless carrier to brands,  mobile content and commerce. No complex
            codes, navigation or changes to cross-media campaigns are required.

            On July 27,  2005,  Mobot  signed a  non-binding  Letter  of  Intent
            ("Letter of Intent") to be purchased by NeoMedia Technologies,  Inc.
            ("NeoMedia"),  of Fort Myers,  Florida.  NeoMedia has three distinct
            business  units,  NeoMedia  Internet  Software  Service  that offers
            technologies if linking the physical world to the internet, NeoMedia
            Consulting and  Integration  Services that offers resale of computer
            hardware and  software  and NeoMedia  Micro Paint Repair that offers
            technologies in the micro paint industry. The Letter of Intent calls
            for  NeoMedia to acquire all of the  outstanding  shares of Mobot in
            exchange for  $3,500,000  cash and  $6,500,000 in shares of NeoMedia
            common stock. The LOI is subject to due diligence by both parties.

      GOING CONCERN

            The  accompanying   financial   statements  have  been  prepared  in
            conformity  with  accounting  principles  generally  accepted in the
            United  States of America,  which  contemplate  continuation  of the
            Company as a going  concern.  However,  the Company has reported net
            losses of $917,745 and $76,464 for the periods  ended  September 30,
            2005 and 2004, respectively, and has retained deficits of $1,136,080
            and  $76,464 as of  September  30, 2005 and 2004,  respectively.  In
            addition,  the Company has cash balances of $440,793 as of September
            30, 2005.

            The  Company  cannot  be  certain  that  anticipated  revenues  from
            operations  will  be  sufficient  to  satisfy  its  ongoing  capital
            requirements.   Management's   belief  is  based  on  the  Company's
            operating plan, which in turn is based on assumptions that may prove
            to  be  incorrect.   If  the  Company's   financial   resources  are
            insufficient the Company may require  additional  financing in order
            to execute its operating plan and continue as a going  concern.  The
            Company cannot predict whether this additional  financing will be in
            the form of equity,  debt, or another  form.  The Company may not be
            able to obtain the necessary  additional  capital on a timely basis,
            on acceptable terms, or at all. In any of these events,  the Company
            may be unable to implement  its current plans for  expansion,  repay
            its debt  obligations  as they become due or respond to  competitive
            pressures,  any of which circumstances would have a material adverse
            effect on its business,  prospects,  financial condition and results
            of operations.



                                     F-129



(2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

      REVENUE RECOGNITION

            The Company records revenue in accordance with SEC Staff  Accounting
            Bulletin  No.  104 ("SAB  104")  Revenue  Recognition  in  Financial
            Statements  SAB No. 104  requires  that sales be  recognized  when a
            persuasive  evidence  of an  arrangement  exists,  the  price to the
            customer is fixed and  determinable  price,  delivery of the service
            has occurred and collectibility is reasonably  assured.  The Company
            records sales over the life of the contracts as certain key services
            are performed in accordance with contract  terms,  which state fixed
            prices and terms, and collection is reasonably assured.


                                     F-130


(2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

              assets.   Repairs  and  maintenance  are  charged  to  expense  as
              incurred.   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.  Material  expenditures,
              which  increase  the  life  of  an  asset,   are  capitalized  and
              depreciated over the estimated remaining life of the asset.

      INTANGIBLE ASSET

              Intangible asset consists of a domain name and is carried at cost,
              net of accumulated amortization.  Amortization is calculated using
              the  straight-line  method over estimated  useful life of 5 years.
              Upon  retirement or sale, cost and  accumulated  amortization  are
              removed from the accounts and any gain or loss is reflected in the
              statement of operations.

      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 Company has
              recorded a 100% valuation allowance as of December 31, 2004.

      ADVERTISING COSTS

              The Company  expenses the cost of  advertising  and  promoting its
              services as incurred.  There were no advertising expenses incurred
              for the period ended September 30, 2005.

      FAIR VALUE OF FINANCIAL INSTRUMENTS

              For  certain of the  Company's  financial  instruments,  including
              cash,  short-term  bank  borrowings,  accounts  payable  and other
              accrued  liabilities,  the carrying amounts approximate fair value
              due to their  short-term  maturities.  The fair value of long-term
              obligations  approximates  its  carrying  value  as  the  existing
              contract  interest rates are comparable to market rates  currently
              offered to the Company for similar debt  instruments  with similar
              maturities.


                                     F-131


(3)   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

      In May 2005,  the FASB issued FASB Statement No. 154,  Accounting  Changes
      and Error  Corrections.  This new  standard  replaces  APB Opinion No. 20,
      Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes
      in Interim Financial Statements, and represents another step in the FASB's
      goal to converge its standards with those issued by the IASB.  Among other
      changes,  Statement  154 requires  that a voluntary  change in  accounting
      principle  be  applied  retrospectively  with all prior  period  financial
      statements  presented  on  the  new  accounting  principle,  unless  it is
      impracticable  to do so.  Statement 154 also provides that (1) a change in
      method of  depreciating or amortizing a long-lived  nonfinancial  asset be
      accounted for as a change in estimate (prospectively) that was effected by
      a  change  in  accounting  principle,  and (2)  correction  of  errors  in
      previously  issued financial  statements should be termed a "restatement."
      The new standard is effective  for  accounting  changes and  correction of
      errors made in fiscal years beginning after December 15, 2005.

      Early  adoption of this standard is permitted for  accounting  changes and
      correction of errors made in fiscal years beginning after June 1, 2005.

      In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for
      Conditional  Asset  Retirement  Obligations"  ("FIN 47").  FIN 47 provides
      guidance  relating to the  identification  of and financial  reporting for
      legal   obligations  to  perform  an  asset   retirement   activity.   The
      Interpretation requires recognition of a liability for the fair value of a
      conditional  asset retirement  obligation when incurred if the liability's
      fair value can be reasonably estimated. FIN 47 also defines when an entity
      would have sufficient information to reasonably estimate the fair value of
      an asset retirement  obligation.  The provision is effective no later than
      the end of fiscal years ending after  December 15, 2005.  The Company will
      adopt FIN 47 beginning  the first quarter of fiscal year 2006 and does not
      believe  the  adoption  will have a  material  impact on its  consolidated
      financial position or results of operations or cash flows.

      In March  2005,  the SEC  released  Staff  Accounting  Bulletin  No.  107,
      "Share-Based  Payment" ("SAB 107"), which provides  interpretive  guidance
      related to the  interaction  between SFAS 123(R) and certain SEC rules and
      regulations. It also provides the SEC staff's views regarding valuation of
      share-based  payment  arrangements.  In April  2005,  the SEC  amended the
      compliance  dates for SFAS 123(R),  to allow  companies  to implement  the
      standard at the  beginning of their next fiscal year,  instead of the next
      reporting  period  beginning after June 15, 2005.  Management is currently
      evaluating  the  impact  SAB 107 will have on our  consolidated  financial
      statements.

      In December 2004,  the FASB issued SFAS No.153,  "Exchanges of Nonmonetary
      Assets,  an amendment of APB Opinion No. 29,  Accounting  for  Nonmonetary
      Transactions."  The  amendments  made by  Statement  153 are  based on the
      principle that exchanges of nonmonetary assets should be measured based on
      the fair value of the assets exchanged.  Further, the amendments eliminate
      the narrow  exception  for  nonmonetary  exchanges  of similar  productive
      assets  and  replace  it  with  a  broader   exception  for  exchanges  of
      nonmonetary  assets  that do not have  commercial  substance.  Previously,
      Opinion 29 required that the


                                     F-132



(3)   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED):

      accounting for an exchange of a productive asset for a similar  productive
      asset or an equivalent  interest in the same or similar  productive  asset
      should be based on the recorded amount of the asset relinquished.  Opinion
      29 provided an exception to its basic  measurement  principle (fair value)
      for  exchanges  of similar  productive  assets.  The Board  believes  that
      exception required that some nonmonetary exchanges,  although commercially
      substantive,  be recorded on a carryover  basis. By focusing the exception
      on exchanges that lack commercial substance,  the Board believes that SFAS
      153 produces  financial  reporting  that more  faithfully  represents  the
      economics of the transactions. SFAS 153 is effective for nonmonetary asset
      exchanges  occurring  in fiscal  periods  beginning  after June 15,  2005.
      Earlier application is permitted for nonmonetary asset exchanges occurring
      in fiscal periods beginning after the date of issuance.  The provisions of
      this Statement shall be applied  prospectively.  The Company has evaluated
      the impact of the  adoption  of SFAS 153,  and does not believe the impact
      will be  significant  to the  Company's  overall  results of operations or
      financial position.

      In December 2004, the FASB issued SFAS No.123 "Share-Based Payment".  SFAS
      123(R) will provide investors and other users of financial statements with
      more  complete and neutral  financial  information  by requiring  that the
      compensation  cost  relating  to  share-based   payment   transactions  be
      recognized in financial  statements.  That cost will be measured  based on
      the fair value of the equity or liability  instruments issued. SFAS 123(R)
      covers a wide range of  share-based  compensation  arrangements  including
      share options,  restricted share plans,  performance-based  awards,  share
      appreciation  rights,  and  employee  share  purchase  plans.  SFAS 123(R)
      replaces FASB Statement No. 123, Accounting for Stock-Based  Compensation,
      and  supersedes  APB  Opinion  No.  25,  Accounting  for  Stock  Issued to
      Employees.  Statement  123, as originally  issued in 1995,  established as
      preferable a fair-value-based method of accounting for share-based payment
      transactions with employees.  However,  that Statement  permitted entities
      the option of  continuing  to apply the guidance in Opinion 25, as long as
      the footnotes to financial statements disclosed what net income would have
      been had the preferable fair-value-based method been used. Public entities
      (other than those filing as small  business  issuers)  will be required to
      apply Statement  123(R) as of the first interim or annual reporting period
      that begins after June 15, 2005.  The adoption of this  standard  will not
      have any  impact on the  Company's  results  of  operations  or  financial
      position as the Company does not participate in the related activities.

      In December 2004 the Financial  Accounting Standards Board issued two FASB
      Staff  Positions  - FSP  FAS  109-1,  Application  of FASB  Statement  109
      "Accounting for Income Taxes" to the Tax Deduction on Qualified Production
      Activities Provided by the American Jobs Creation Act of 2004, and FSP FAS
      109-2  Accounting  and  Disclosure   Guidance  for  the  Foreign  Earnings
      Repatriation  Provision  within the  American  Jobs  Creation Act of 2004.
      Neither of these  affected the Company as it does not  participate  in the
      related activities.

      In November 2004, the Financial Accounting Standards Board ("FASB") issued
      Statement of Financial  Accounting  Standards ("SFAS") No. 151, "Inventory
      Costs" an amendment of  Accounting  Research  Bulletin  ("ARB") No. 43, to
      clarify the accounting for abnormal amounts


                                     F-133


(3)   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED):

      of idle facility  expense,  freight,  handling costs,  and wasted material
      (spoilage).   This  SFAS  requires  that  those  items  be  recognized  as
      current-period  charges  regardless  of whether they meet the criterion of
      "so abnormal".  In addition,  this SFAS requires that  allocation of fixed
      production  overheads  to the costs of  conversion  be based on the normal
      capacity of the production facilities. Companies are required to adopt the
      provisions  of this  Statement for fiscal years  beginning  after June 15,
      2005.  The  adoption  of this  standard  will not have any  impact  on the
      Company's results of operations or financial position.

(4)   NOTE PAYABLE:

      On July 28, 2005,  Mobot borrowed the principal  amount of $600,000 in the
      form of an unsecured  promissory note. The Note accrues interest at a rate
      of 6% per annum.  The Note will be forgiven  upon  signing of a definitive
      purchase agreement for the acquisition of all of the outstanding shares of
      Mobot by NeoMedia,  as contemplated by the Letter of Intent.  In the event
      the acquisition is not consummated, the Note will become due 90 days after
      written notice of cancellation  of the Letter of Intent.  In the event the
      Letter of Intent is  terminated  and the Note is not repaid within 90 days
      of such  cancellation,  the note will  convert into shares of Mobot common
      stock with a value equal to the unpaid  principal and accrued  interest on
      the Note.

      On September 26, 2005,  NeoMedia loaned Mobot an additional $200,000 under
      the same terms as noted above.

(5)   CONVERTIBLE DEBENTURES:

      In August and October of 2004,  the  Company  entered  into two  five-year
      $250,000  convertible  debenture  financing  agreements.  These agreements
      accrue  interest at 4% per annum and can be paid after twelve  months with
      no prepayment  penalties.  As of September 30, 2005, the Company  recorded
      accrued  interest  on the  debentures  in the amount of  $20,945.  Neither
      agreement  has a repayment  schedule  and are  payable in full,  including
      accrued interest, at August and October of 2009.

      The debentures have conversion rights that allows for the debentures to be
      converted  into 333 shares of the Company's  common stock only as follows:
      (1) from and after the date that is twelve months following the closing if
      the  Company has not  completed a major  equity  financing,  resulting  in
      proceeds to the Company of at least $3 million prior to such date,  (2) in
      the event of an initial public offering, (3) in the event of a sale of the
      Company.  In the  event  of an  initial  public  offering  or  sale of the
      Company, the Company will notify the debenture holders they have the right
      to convert the  debentures  within ten days of such notice at a conversion
      rate  of  $1,500  per  share.  The  debentures  do not  have a  beneficial
      conversion feature.

      The debentures  also have stock warrants that are issuable upon conversion
      or exchange of the debentures at 50% of the number of shares  converted to
      common  shares.  The fair value of the warrants has been  determined to be
      nominal and has not been recorded by the Company.


(6)   SUBSEQUENT EVENTS:

      On October 26, 2005,  NeoMedia  loaned Mobot an additional  $200,000 under
      the same terms as  discussed  in notes  payable.  On  December  15,  2005,
      NeoMedia  advanced  Mobot an  additional  $500,000.  This  advance will be
      forgiven  upon the earlier of signing of a definitive  purchase  agreement
      for the acquisition of all of the outstanding shares of Mobot by NeoMedia,
      or February 15, 2006.


                                     F-134



                PART II - INFORMATION NOT REQUIRED IN PROSPECTUS


ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

      As  permitted  by the  Delaware  General  Corporation  Law  (the  "DGCL"),
NeoMedia  has  included in its  Certificate  of  Incorporation  a  provision  to
eliminate  the personal  liability  of its  directors  for monetary  damages for
breach or alleged  breach of their  fiduciary  duties as  directors,  except for
liability  (i) for any breach of the  director's  duty of loyalty to NeoMedia or
its stockholders, (ii) for acts or omissions not in good faith or which involved
intentional  misconduct  or a knowing  violation  of law,  (iii) in  respect  of
certain  unlawful  dividend  payments or stock  redemptions or  repurchases,  as
provided in Section 174 of the DGCL, or (iv) for any transaction  from which the
director derived an improper personal  benefit.  The effect of this provision is
to eliminate the rights of NeoMedia and its stockholders (through  stockholders'
derivative  suits on behalf of NeoMedia) to recover  monetary  damages against a
director for breach of the  fiduciary  duty of care as a director  except in the
situations  described in clauses (i) through (iv) above. This provision does not
limit  nor  eliminate  the  rights  of  NeoMedia  or  any  stockholder  to  seek
non-monetary relief such as an injunction or rescission in the event of a breach
of a director's duty of care.  These  provisions will not alter the liability of
directors under federal securities laws.

      The Certificate of  Incorporation  and the bylaws of NeoMedia provide that
it is required and permitted to indemnify our officers and directors,  employees
and agents  under  certain  circumstances.  In  addition,  if  permitted by law,
NeoMedia is  required  to advance  expenses to our  officers  and  directors  as
incurred in  connection  with  proceedings  against them in their  capacity as a
director  or  officer  for which  they may be  indemnified  upon  receipt  of an
undertaking  by or on behalf of such director or officer to repay such amount if
it  shall  ultimately  be  determined  that  such  person  is  not  entitled  to
indemnification.  At present, NeoMedia is not aware of any pending or threatened
litigation or  proceeding  involving a director,  officer,  employee or agent of
NeoMedia in which indemnification would be required or permitted.

      Insofar as  indemnification  for liabilities  arising under the Securities
Act of 1933, as amended (the "1933 Act") may be permitted to directors, officers
or  controlling  persons of NeoMedia  pursuant to the foregoing  provisions,  or
otherwise,  NeoMedia has been  advised that in the opinion of the United  States
Securities and Exchange Commission such indemnification is against public policy
as expressed in the 1933 Act and is, therefore, unenforceable.


                                      II-1


ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) The  following  exhibits  are  filed  herewith  or  incorporated  herein  by
reference:




EXHIBIT NO.     DESCRIPTION                                       LOCATION
-----------     ------------------------------------------------  ------------------------------------------
                                                            
3.1             Articles    of    Incorporation    of   Dev-Tech  Incorporated  by  reference to Exhibit 3.1
                Associates, Inc. and amendment thereto            to  Registrant's   Registration  Statement
                                                                  No.   333-5534 as filed  with the  SEC  on
                                                                  November   25, 1996

3.2             Bylaws of DevSys, Inc.                            Incorporated  by  reference to Exhibit 3.2
                                                                  to  Registrant's   Registration  Statement
                                                                  No.   333-5534 as filed  with the  SEC  on
                                                                  November   25, 1996

3.3             Restated   Certificate   of   Incorporation   of  Incorporated  by  reference to Exhibit 3.3
                DevSys, Inc.                                      to  Registrant's   Registration  Statement
                                                                  No.   333-5534 as filed  with the SEC   on
                                                                  November   25, 1996

3.4             Bylaws of DevSys, Inc.                            Incorporated  by  reference to Exhibit 3.4
                                                                  to  Registrant's   Registration  Statement
                                                                  No.   333-5534 as filed  with the  SEC  on
                                                                  November   25, 1996

3.5             Articles  of Merger  and  Agreement  and Plan of  Incorporated  by  reference to Exhibit 3.5
                Merger of DevSys,  Inc and Dev-Tech  Associates,  to  Registrant's   Registration  Statement
                Inc.                                              No.  333-5534  as  filed  with  the SEC on
                                                                  November 25, 1996

3.6             Certificate  of Merger of  Dev-Tech  Associates,  Incorporated  by  reference to Exhibit 3.6
                Inc. into DevSys, Inc.                            to  Registrant's   Registration  Statement
                                                                  No.   333-5534 as filed  with the  SEC  on
                                                                  November   25, 1996

3.7             Articles    of    Incorporation    of   Dev-Tech  Incorporated  by  reference to Exhibit 3.7
                Migration, Inc. and amendment thereto             to  Registrant's   Registration  Statement
                                                                  No.   333-5534 as filed  with the  SEC  on
                                                                  November   25, 1996

3.8             Bylaws of Dev-Tech Migration, Inc.                Incorporated  by  reference to Exhibit 3.8
                                                                  to  Registrant's   Registration  Statement
                                                                  No.   333-5534 as filed  with the  SEC  on
                                                                  November   25, 1996

3.9             Restated  Certificate of Incorporation of DevSys  Incorporated  by  reference to Exhibit 3.9
                Migration, Inc.                                   to  Registrant's   Registration  Statement
                                                                  No.   333-5534 as filed  with the  SEC  on
                                                                  November   25, 1996

3.10            Form of Bylaws of DevSys Migration, Inc.          Incorporated  by reference to Exhibit 3.10
                                                                  to  Registrant's   Registration  Statement
                                                                  No.   333-5534 as filed  with the  SEC  on
                                                                  November   25, 1996



                                                    II-2





EXHIBIT NO.     DESCRIPTION                                       LOCATION
-----------     ------------------------------------------------  ------------------------------------------
                                                            
3.11            Form  of   Agreement   and  Plan  of  Merger  of  Incorporated  by reference to Exhibit 3.11
                Dev-Tech Migration,  Inc. into DevSys Migration,  to  Registrant's   Registration  Statement
                Inc.                                              No.  333-5534  as  filed  with  the SEC on
                                                                  November 25, 1996

3.12            Form  of   Certificate  of  Merger  of  Dev-Tech  Incorporated  by reference to Exhibit 3.12
                Migration, Inc. into DevSys Migration, Inc.       to  Registrant's   Registration  Statement
                                                                  No.   333-5534 as filed  with the  SEC  on
                                                                  November   25, 1996

3.13            Certificate   of  Amendment  to  Certificate  of  Incorporated  by reference to Exhibit 3.13
                Incorporation of DevSys,  Inc. changing its name  to  Registrant's   Registration  Statement
                to NeoMedia Technologies, Inc.                    No.  333-5534  as  filed  with  the SEC on
                                                                  November 25, 1996

3.14            Form of  Certificate of Amendment to Certificate  Incorporated  by reference to Exhibit 3.14
                of Incorporation of NeoMedia Technologies,  Inc.  to  Registrant's   Registration  Statement
                authorizing a reverse stock split                 No.  333-5534  as  filed  with  the SEC on
                                                                  November 25, 1996

3.15            Form of  Certificate  of  Amendment  to Restated  Incorporated  by  reference to Exhibit 3.5
                Certificate   of   Incorporation   of   NeoMedia  to  Registrant's  Annual  Report  as filed
                Technologies,    Inc.   increasing    authorized  with the SEC on November 2, 2001
                capital and creating preferred stock

5.1             Opinion re: legality                              Provided Herewith

8.1             Tax Opinion                                       Provided Herewith

10.1            Dev-Tech Associates, Inc. 1996 Stock Option Plan  Incorporated   by   reference  to  Exhibit
                                                                  10.44  to  the  Registrant's  Registration
                                                                  Statement  No.  333-5534 as filed with the
                                                                  SEC on November 25, 1996

10.2            First  Amendment  and  Restatement  of  Dev-Tech  Incorporated   by   reference  to  Exhibit
                Associates, Inc. 1996 Stock Option Plan           10.45  to  the  Registrant's  Registration
                                                                  Statement  No.  333-5534 as filed with the
                                                                  SEC on November 25, 1996

10.3            Form  of  Stock  Option   Agreement  -  Dev-Tech  Incorporated   by   reference  to  Exhibit
                Associates, Inc.                                  10.46  to  the  Registrant's  Registration
                                                                  Statement  No.  333-5534 as filed with the
                                                                  SEC on November 25, 1996

10.4            Dev-Tech Migration, Inc. 1996 Stock Option Plan   Incorporated   by   reference  to  Exhibit
                                                                  10.47  to  the  Registrant's  Registration
                                                                  Statement  No.  333-5534 as filed with the
                                                                  SEC on November 25, 1996

10.5            First  Amendment  and  Restatement  of  Dev-Tech  Incorporated   by   reference  to  Exhibit
                Migration, Inc.                                   10.48  to  the  Registrant's  Registration
                                                                  Statement  No.  333-5534 as filed with the
                                                                  SEC on November 25, 1996



                                                    II-3






EXHIBIT NO.     DESCRIPTION                                       LOCATION
-----------     ------------------------------------------------  ------------------------------------------
                                                            
10.6            Form  of  Stock  Option   Agreement  -  Dev-Tech  Incorporated   by   reference  to  Exhibit
                Migration, Inc.                                   10.49  to  the  Registrant's  Registration
                                                                  Statement  No.  333-5534 as filed with the
                                                                  SEC on November 25, 1996

10.7            Dev-Tech   Associates,   Inc.  401(k)  Plan  and  Incorporated   by   reference  to  Exhibit
                amendments                                        10.50  to  the  Registrant's  Registration
                                                                  Statement  No.  333-5534 as filed with the
                                                                  SEC on November 25, 1996

10.8            First  Amendment  and  Restatement  of  NeoMedia  Incorporated   by   reference  to  Exhibit
                Technologies, Inc. 1996 Stock Option Plan         10.60  to  the  Registrant's  Registration
                                                                  Statement  No.  333-5534 as filed with the
                                                                  SEC on November 25, 1996
10.9            NeoMedia  Technologies,  Inc.  1998 Stock Option  Incorporated  by reference to Exhibit 10.9
                Plan                                              to the  Registrant's  Form 10-KSB as filed
                                                                  on March 9, 2004

10.10           Amendment  to NeoMedia  Technologies  1998 Stock  Incorporated  by  reference to Form 14A as
                Option Plan                                       filed with the SEC on July 2, 1999

10.11           Sale and Purchase  Agreement  between  Qode.com,  Incorporated   by   reference  to  Exhibit
                Inc. and NeoMedia Technologies, Inc.              10.48 to the  Registrant's  Current Report
                                                                  on  Form  8-K as  filed  with  the  SEC on
                                                                  March 15, 2001

10.12           Warrant repricing letter dated March 19, 2002     Incorporated  by  reference to Exhibit 1.2
                                                                  to  the  Registrant's  Current  Report  on
                                                                  Form  8-K as  filed  with the SEC on April
                                                                  2, 2002

10.13           Option repricing letter dated April 3, 2002       Incorporated  by  reference to Exhibit 1.2
                                                                  to  the  Registrant's  Current  Report  on
                                                                  Form  8-K as  filed  with the SEC on April
                                                                  15, 2002

10.14           Intellectual    Property   licensing   agreement  Incorporated   by   reference  to  Exhibit
                between NeoMedia and A.T. Cross Company           10.18 to the  Registrant's  Form  S-1/A as
                                                                  filed with the SEC on April 24, 2002

10.15           Intellectual    Property   licensing   agreement  Incorporated   by   reference  to  Exhibit
                between NeoMedia and Symbol Technologies, Inc.    10.19 to the  Registrant's  Form  S-1/A as
                                                                  filed with the SEC on April 24, 2002

10.16           Sponsorship  and Advertising  Agreement  between  Incorporated   by   reference  to  Exhibit
                NeoMedia and About.com, Inc.                      10.20 to the  Registrant's  Form  S-1/A as
                                                                  filed with the SEC on April 24, 2002

10.17           Letter of Intent  regarding  proposed  strategic  Incorporated   by   reference  to  Exhibit
                transaction between NeoMedia and AirClic, Inc.    10.21 to the  Registrant's  Form  S-1/A as
                                                                  filed with the SEC on April 24, 2002

10.18           Form of Promissory Note issued to AirClic, Inc.   Incorporated   by   reference  to  Exhibit
                                                                  10.22 to the  Registrant's  Form  S-1/A as
                                                                  filed with the SEC on April 24, 2002



                                                    II-4






EXHIBIT NO.     DESCRIPTION                                       LOCATION
-----------     ------------------------------------------------  ------------------------------------------
                                                            
10.19           Form of Limited Recourse  Promissory Note issued  Incorporated   by   reference  to  Exhibit
                in  exchange  for 19  Million  Shares  of Common  10.23 to the  Registrant's  Form  S-1/A as
                Stock                                             filed with the SEC on April 24, 2002

10.20           Nasdaq Staff  Determination  Letter with respect  Incorporated   by   reference  to  Exhibit
                to  de-listing of NeoMedia  securities  from the  10.24 to the  Registrant's  Form  S-1/A as
                Nasdaq SmallCap market                            filed with the SEC on April 24, 2002

10.21           Revised warrant  repricing letter dated April 3,  Incorporated   by   reference  to  Exhibit
                2002                                              10.25 to the  Registrant's  Form  S-1/A as
                                                                  filed with the SEC on April 24, 2002

10.22           Equity  Line of Credit  Agreement,  dated May 6,  Incorporated   by   reference  to  Exhibit
                2002, between NeoMedia  Technologies and Cornell  10.17   to  the   Registrant's   Quarterly
                Capital Partners, LP                              Report on Form 10-Q as filed  with the SEC
                                                                  on August 14, 2002

10.23           Nasdaq  Staff  delisting   notification   letter  Incorporated   by   reference  to  Exhibit
                dated May 16, 2002                                10.18   to  the   Registrant's   Quarterly
                                                                  Report on Form 10-Q as filed  with the SEC
                                                                  on August 14, 2002

10.24           Settlement   Agreement   relating   to  wrongful  Incorporated   by   reference  to  Exhibit
                termination  lawsuit brought by former president  10.19  to the  Registrant's  Form  10-Q as
                and Chief Operating Officer                       filed with the SEC on August 14, 2002

10.25           Mutual  settlement   agreement  by  and  between  Incorporated   by   reference  to  Exhibit
                NeoMedia  Technologies  and 2150  Western  Court  10.20  to the  Registrants  Form  10-Q  as
                Company, LLC                                      filed on November 14, 2002

10.26           Mutual  settlement   agreement  by  and  between  Incorporated   by   reference  to  Exhibit
                NeoMedia Technologies and Ripfire, Inc.           10.21  to the  Registrants  Form  10-Q  as
                                                                  filed on November 14, 2002

10.27           Mutual  settlement   agreement  by  and  between  Incorporated   by   reference  to  Exhibit
                NeoMedia Technologies and Wachovia Bank, N.A.     10.22  to the  Registrants  Form  10-Q  as
                                                                  filed on November 14, 2002

10.28           Mutual  settlement   agreement  by  and  between  Incorporated   by   reference  to  Exhibit
                NeoMedia   Technologies   and  Marianne  LePera,  10.23  to the  Registrants  Form  10-Q  as
                NeoMedia Technologies' former General Counsel     filed on November 14, 2002

10.29           Equity Line of Credit Agreement,  dated February  Incorporated   by   reference  to  Exhibit
                11,  2003,  between  NeoMedia  Technologies  and  10.80  to the  Registrants  Form  S-1/A as
                Cornell Capital Partners                          filed on February 14, 2003

10.30           Form  of  Placement   Agent   Agreement,   dated  Incorporated   by   reference  to  Exhibit
                November  2002,  between  NeoMedia  Technologies  10.84  to  the  Registrant's  Form  S-1 as
                and Westrock Advisors, Inc.                       filed on February 12, 2003

10.31           Form of Escrow  Agreement,  dated November 2002,  Incorporated   by   reference  to  Exhibit
                between   NeoMedia   Technologies   and  Cornell  10.85  to  the  Registrant's  Form  S-1 as
                Capital Partners                                  filed on February 12, 2003



                                                    II-5






EXHIBIT NO.     DESCRIPTION                                       LOCATION
-----------     ------------------------------------------------  ------------------------------------------
                                                            
10.32           Form of  Registration  Rights  Agreement,  dated  Incorporated   by   reference  to  Exhibit
                November  2002,  between  NeoMedia  Technologies  10.86  to  the  Registrant's  Form  S-1 as
                and Cornell Capital Partners                      filed on February 12, 2003

10.33           Promissory   Note,   dated  February  23,  2001,  Incorporated   by   reference  to  Exhibit
                between  Digital  Convergence   Corporation  and  10.87  to  the  Registrant's  Form  S-1 as
                NeoMedia                                          filed on February 12, 2003

10.34           Termination  Agreement,  dated  August 21, 2001,  Incorporated   by   reference  to  Exhibit
                between About.com and NeoMedia                    10.88  to  the  Registrant's  Form  S-1 as
                                                                  filed on February 12, 2003

10.35           Memorandum  of Terms to  merge,  dated  March 7,  Incorporated  by  reference to Exhibit 3.1
                2003, between NeoMedia and Loch Energy, Inc.      to the  Registrant's  Form 8-K as filed on
                                                                  March 19, 2003

10.36           Binding  Letter of Intent to merge,  dated  July  Incorporated  by reference to Exhibit 99.5
                25, 2003,  between  NeoMedia  and Secure  Source  to the  Registrant's  Form 10-QSB as filed
                Technologies, Inc.                                on August 14, 2003

 10.37          Definitive  Merger  Agreement,  dated October 3,  Incorporated  by reference to Exhibit 99.1
                2003,   between   NeoMedia  and  Secure   Source  to the  Registrant's  Form 8-K as filed on
                Technologies, Inc                                 October 8, 2003

10.38           Standby  Equity  Distribution  Agreement,  dated  Incorporated   by   reference  to  Exhibit
                October 27, 2003,  between  NeoMedia and Cornell  10.91 to the  Registrant's  Form SB-2/A as
                Capital Partners                                  filed on December 19, 2003

10.39           Form  of  Placement   Agent   Agreement,   dated  Incorporated   by   reference  to  Exhibit
                October   27,   2003,   between   NeoMedia   and  10.92 to the  Registrant's  Form SB-2/A as
                Newbridge Securities Corporation                  filed on December 19, 2003

10.40           Form of  Registration  Rights  Agreement,  dated  Incorporated   by   reference  to  Exhibit
                October 27, 2003,  between  NeoMedia and Cornell  10.93 to the  Registrant's  Form SB-2/A as
                Capital Partners                                  filed on December 19, 2003

10.41           Form of  Escrow  Agreement,  dated  October  27,  Incorporated   by   reference  to  Exhibit
                2003,   between  NeoMedia  and  Cornell  Capital  10.94 to the  Registrant's  Form SB-2/A as
                Partners                                          filed on December 19, 2003

10.42           2003 Stock Compensation Plan                      Incorporated  by  reference to Exhibit 4.1
                                                                  to the  Registrant's  Form S-8 as filed on
                                                                  October 31, 2003

10.43           Letter of Intent to acquire  CSI  International,  Incorporated  by  reference to Exhibit 3.1
                Inc., dated November 8, 2003                      to the  Registrant's  Form 8-K as filed on
                                                                  November 13, 2003

10.44           Letter of Intent to acquire BSD Software,  Inc.,  Incorporated  by  reference to Exhibit 3.1
                dated December 9, 2003                            to the  Registrant's  Form 8-K as filed on
                                                                  December 11, 2003

10.45           Definitive Merger  Agreement,  dated February 6,  Incorporated  by  reference to Exhibit 3.1
                2004,  between  NeoMedia and CSI  International,  to the  Registrant's  Form 8-K as filed on
                Inc.                                              February 10, 2004



                                                    II-6






EXHIBIT NO.     DESCRIPTION                                       LOCATION
-----------     ------------------------------------------------  ------------------------------------------
                                                            
10.46           $4 million  Promissory  note  payable to Cornell  Incorporated   by   reference  to  Exhibit
                Capital Partners, dated January 15, 2004          10.49 to the  Registrant's  Form 10-KSB as
                                                                  filed on March 9, 2004

10.47           Form   of   Business    Development    Agreement  Incorporated  by  reference to Exhibit 2.2
                between  NeoMedia  and iPoint-media               to the  Registrant's  Form 8-K as filed on
                                                                  September 17, 2004

10.48           Form of Investment  Agreement  between  NeoMedia  Incorporated  by  reference to Exhibit 2.3
                and iPoint-media                                  to the  Registrant's  Form 8-K as filed on
                                                                  September 17, 2004

10.49           Form of Registration  Rights  Agreement  between  Incorporated  by  reference to Exhibit 2.4
                NeoMedia  and iPoint-media                        to the  Registrant's  Form 8-K as filed on
                                                                  September 17, 2004

10.50           Form  of   Indemnification   Agreement   between  Incorporated  by  reference to Exhibit 2.5
                NeoMedia  and iPoint-media                        to the  Registrant's  Form 8-K as filed on
                                                                  September 17, 2004

10.51           Form  of   Merger   Agreement   among   NeoMedia  Incorporated  by reference to Exhibit 16.1
                Technologies,  Inc.,  NeoMedia Telecom Services,  to the  Registrant's  Form 8-K as filed on
                Inc., and BSD Software, Inc.                      December 22, 2004

10.52           Form of NeoMedia's  Policy  Statement on Ethical  Incorporated   by   reference  to  Exhibit
                Behavior                                          10.53 to the  Registrant's  Form 10-KSB as
                                                                  filed on March 7, 2005

10.53           Form of Term Sheet with Nextcode Corporation      Incorporated   by   reference  to  Exhibit
                                                                  10.54 to the  Registrant's  Form 10-KSB as
                                                                  filed on March 7, 2005

10.54           Form of  Letter of Intent  With  Shelron  Group,  Incorporated   by   reference  to  Exhibit
                Inc.                                              10.55 to the  Registrant's  Form 10-KSB as
                                                                  filed on March 7, 2005

10.54           Form of Letters  of Intent  With  Pickups  Plus,  Incorporated   by  reference  to  Exhibits
                Inc.                                              16.1  and  16.2 to the  Registrant's  Form
                                                                  8-K as filed on March 1, 2005

10.55           Form  of   Merger   Agreement   among   NeoMedia  Provided Herewith
                Technologies,  Inc.,  NeoMedia Telecom Services,
                Inc., and BSD Software, Inc.

10.56           Letter of  extension  of  outside  date  between  Provided Herewith
                NeoMedia and BSD

10.57           Co-Marketing  Partner Agreement between NeoMedia  Incorporated  by reference to Exhibit 16.1
                Technologies,  Inc. and Foote Cone & Belding,  a  to the  Registrant's  Form 8-K as filed on
                division of FCB Worldwide L.L.C.                  March 24, 2005

10.58           Standby Equity Distribution Agreement, dated      Incorporated  by reference to Exhibit 16.1
                March 30,2005, between NeoMedia and Cornell       to the  Registrant's  Form 8-K as filed on
                                                                  April 1, 2005

10.59           Placement Agent Agreement, dated March 30,        Incorporated  by reference to Exhibit 16.2
                2005, between NeoMedia and Cornell                to the  Registrant's  Form 8-K as filed on
                                                                  April 1, 2005



                                                    II-7





EXHIBIT NO.     DESCRIPTION                                       LOCATION
-----------     ------------------------------------------------  ------------------------------------------
                                                            
10.60           Escrow Agreement, dated March 30, 2005, between   Incorporated  by reference to Exhibit 16.3
                NeoMedia and Cornell                              to the  Registrant's  Form 8-K as filed on
                                                                  April 1, 2005

10.61           Registration Rights Agreement, dated March 30,    Incorporated  by reference to Exhibit 16.4
                2005, between NeoMedia and Cornell                to the  Registrant's  Form 8-K as filed on
                                                                  April 1, 2005

10.62           Promissory Note, dated March 30, 2005, between    Incorporated  by reference to Exhibit 16.5
                NeoMedia and Cornell                              to the  Registrant's  Form 8-K as filed on
                                                                  April 1, 2005

10.63           Security Agreement, dated March 30, 2005,         Incorporated  by reference to Exhibit 16.6
                between NeoMedia and Cornell                      to the  Registrant's  Form 8-K as filed on
                                                                  April 1, 2005

10.64           Patent Purchase Agreement, dated April 8, 2005,   Incorporated  by reference to Exhibit 16.1
                between NeoMedia and Loyaltypoint, Inc.           to the  Registrant's  Form 8-K as filed on
                                                                  April 13, 2005

10.65           Letter Amending Section 7.3(g) of the Merger      Provided Herewith
                Agreement between NeoMedia and BSD

10.66           Letter of  extension  of  outside  date  between  Provided Herewith
                NeoMedia and BSD

10.67           Letter of  extension  of  outside  date  between  Provided Herewith
                NeoMedia and BSD

10.68           Distribution Agreement between NeoMedia and       Incorporated  by reference to Exhibit 16.1
                Beijing Sino-US Jinche Yingang Auto               to the  Registrant's  Form 8-K as filed on
                Technological Services Limited                    August 31, 2005

10.69           Distribution Agreement between NeoMedia and       Incorporated  by reference to Exhibit 16.1
                Micropaint de Mexico, S.A.                        to the  Registrant's  Form 8-K as filed on
                                                                  September 29, 2005

10.70           Distribution   Agreement  between  NeoMedia  and  Incorporated  by reference to Exhibit 16.1
                WITHO-AS                                          to the  Registrant's  Form 8-K as filed on
                                                                  October 6, 2005

10.71           Second Bridge Loan  Agreement  between  NeoMedia  Provided Herewith
                and Mobot

10.72           Distribution Agreement between NeoMedia and PPG   Incorporated  by reference to Exhibit 16.1
                Industries                                        to the  Registrant's  Form 8-K as filed on
                                                                  December 15, 2005

10.73           Supply Agreement between NeoMedia and DuPont de   Incorporated  by reference to Exhibit 16.1
                Nemours (Belgium) BVBA                            to the  Registrant's  Form 8-K as filed on
                                                                  December 21, 2005

23.1            Consent   of   Stonefield    Josephson,    Inc.,  Provided Herewith
                independent  auditors of NeoMedia  Technologies,
                Inc.



                                                    II-8





EXHIBIT NO.     DESCRIPTION                                       LOCATION
-----------     ------------------------------------------------  ------------------------------------------
                                                            
23.2            Consent of KPMG,  LLP,  independent  auditors of  Provided Herewith
                BSD Software, Inc.

23.3            Consent of Eisner LLP,  independent  auditors of  Provided Herewith
                CSI International, Inc.

23.4            Consent   of   Stonefield    Josephson,    Inc.,  Provided Herewith
                independent auditors of BSD Software, Inc.

23.5            Consent   of   Stonefield    Josephson,    Inc.,  Provided Herewith
                independent auditors of Mobot, Inc.

Annex A         BSD   Initial    Dissenters'    Notice   Letter,  Provided Herewith
                Dissenters'  Demand  Notice Form,  and Copies of
                Sections   607.1301   through  607.1333  of  the
                Florida  Business   Corporation  Act  Concerning
                Dissenters' Rights



                                                    II-9


ITEM 22. UNDERTAKINGS.

      The undersigned registrant hereby undertakes:

            (1) To  file,  during  any  period  in  which  it  offers  or  sells
securities, a post-effective amendment to this registration statement to:

                  (i) Include any  prospectus  required by Sections  10(a)(3) of
the Securities Act of 1933, as amended (the "1933 Act");

                  (ii)  Reflect in the  prospectus  any facts or events  arising
after the  effective  date of the  Registration  Statement  (or the most  recent
post-effective  amendment  thereof)  which,  individually  or in the  aggregate,
represent a fundamental  change in the information set forth in the Registration
Statement.  Notwithstanding the foregoing, any increase or decrease in volume of
securities  offered (if the total dollar value of  securities  offered would not
exceed that which was  registered) and any deviation from the low or high end of
the estimated  maximum offering range may be reflected in the form of prospectus
filed with the  Commission  pursuant  to Rule 424(b) if, in the  aggregate,  the
changes in volume  and price  represent  no more than 20% change in the  maximum
aggregate  offering price set forth in the  "Calculation  of  Registration  Fee"
table in the effective Registration Statement;

                  (iii) Include any additional or changed  material  information
on the plan of distribution;

            (2) That,  for the purpose of  determining  any liability  under the
1933  Act,  each  such  post-effective  amendment  shall be  deemed  to be a new
registration  statement  relating to the  securities  offered  therein,  and the
offering  of such  securities  at that time  shall be deemed to be the bona fide
offering thereof.

            (3)  To  remove  from  registration  by  means  of a  post-effective
amendment any of the securities that remain unsold at the end of the offering.

      Insofar as indemnification  for liabilities arising under the 1933 Act may
be  permitted  to  directors,  officers  and  controlling  persons  of the small
business issuer pursuant to the foregoing  provisions,  or otherwise,  the small
business  issuer has been  advised  that in the  opinion  of the  United  States
Securities and Exchange Commission such indemnification is against public policy
as expressed in the 1933 Act and is, therefore, unenforceable. In the event that
a claim for indemnification  against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities  being  registered,  the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling  precedent,  submit  to a  court  of  appropriate  jurisdiction  the
question  whether  such  indemnification  by  it is  against  public  policy  as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.


                                     II-10


                                   SIGNATURES


         In accordance  with the  requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing this Registration  Statement on Form
S-4 and authorized this Registration Statement to be signed on our behalf by the
undersigned, on January 16, 2006.


                                    NEOMEDIA TECHNOLOGIES, INC.


                                    By: /s/ Charles T. Jensen
                                        ----------------------------------------
                                        Charles T. Jensen
                                        President, Chief Executive Officer,
                                        Chief Operating Officer and Director

                                        /s/ David A. Dodge
                                        ----------------------------------------
                                        David A. Dodge
                                        Vice-President, Chief Financial Officer,
                                        and principal accounting officer


      Pursuant to the  requirements  of the  Securities Act of 1933, as amended,
this  Registration  Statement  has been signed by the  following  persons in the
capacities and on the dates stated.





SIGNATURES                    TITLE                                 DATE
---------------------------   -----------------------------------   -----------------
                                                              
/s/ Charles T. Jensen         President, Chief Executive Officer,
---------------------------   and Director                          January 16, 2006
Charles T. Jensen


/s/ William E. Fritz          Director                              January 16, 2006
---------------------------
William E. Fritz


/s/ Charles W. Fritz          Chairman of the Board                 January 16, 2006
---------------------------
Charles W. Fritz


/s/ David A. Dodge            Vice-President, Chief Financial
---------------------------   Officer, and principal accounting     January 16, 2006
David A. Dodge                officer


/s/ Hayes Barclay             Director                              January 16, 2006
---------------------------
Hayes Barclay


/s/ James J. Keil             Director                              January 16, 2006
---------------------------
James J. Keil




                                     II-11


                                     ANNEX A

              INITIAL DISSENTERS' NOTICE LETTER TO BSD SHAREHOLDERS

                               [ON BSD LETTERHEAD]


_______________, 2005

RE: INITIAL NOTICE OF DISSENTERS' RIGHTS UNDER THE FBCA

Dear BSD Software, Inc. Shareholder:

      As you may be aware,  BSD  Software,  Inc.  ("BSD")  has  entered  into an
agreement and plan of merger with NeoMedia Technologies, Inc. (NeoMedia"), which
provides for NeoMedia to acquire from you and the other BSD shareholders 100% of
BSD's common stock. When the merger is completed, BSD will become a wholly-owned
subsidiary of NeoMedia.

      Upon completion of the merger,  BSD's shareholders will receive,  for each
share of BSD stock  owned,  NeoMedia  stock  equivalent  to .07  divided  by the
volume-weighted  average price of NeoMedia  stock for the five days prior to the
effective time of the merger.  NeoMedia  common stock is publicly  traded on the
Over-the-Counter  Bulletin Board exchange under the symbol "NEOM".  On March 21,
2005, the closing price of NeoMedia common stock was $0.232. In 2004, NeoMedia's
common stock traded between a low of $0.05 and a high of $0.299.

      Following the merger, based on 31,810,897 outstanding shares of BSD common
stock and 432,525,053 outstanding shares of NeoMedia common stock as of December
31, 2004, and assuming a NeoMedia stock price of $0.25, BSD  shareholders  would
hold  approximately  2% of the  outstanding  shares  of  NeoMedia  and  existing
NeoMedia  shareholders  would hold the remaining  98% of NeoMedia's  outstanding
shares.  The actual exchange ratio will vary due to changes in NeoMedia's  stock
price and any additional issuances of common stock by BSD prior to the effective
time of the merger.

      Shareholders holding  approximately 62.7% of the outstanding shares of BSD
common  stock have each  entered  into an  agreement  with  NeoMedia  to vote to
approve and adopt the Merger Agreement and the merger.  BSD's Board of Directors
has also approved the Merger Agreement.

      For  those  BSD  shareholder  who do  NOT  vote  in  favor  of the  merger
("Potential  Dissenters"),  we hereby  inform  you that you may be  entitled  to
assert dissenters' rights under Section 607.1301 et seq. of the Florida Business
Corporation  Act (the  "FBCA"),  copies of which are attached to the end of this
notice  letter.  Potential  Dissenters  are urged to carefully read the enclosed
FBCA as  perfection  of your rights as a dissenter  thereunder  requires  you to
strictly satisfy all requirements of the FBCA. To reiterate,  in order to assert
your dissenters' rights under the FBCA, you must NOT vote in favor of the merger
and you must comply with the requirements of the FBCA.

      The FBCA  requires,  among  other  things,  that BSD furnish you with this
initial  notice of  dissenters'  rights (the  "Initial  Notice"),  copies of the
relevant portions of the FBCA concerning  dissenters'  rights,  and the attached
Dissenters'  Demand  Form,  which you should  fill-out  and return to BSD if you
desire to assert your  dissenters'  rights  under the FBCA in lieu of  receiving
your pro rata share of NeoMedia stock as described  above. BSD must receive your
completed  Dissenters'  Demand  Form no later than  twenty  (20) days after your
receipt of this Initial Notice (the "Deadline"). Failure to complete or sign the
Dissenters'  Demand Form or return it to BSD's  offices by the Deadline  will be
deemed a waiver of your  dissenters'  rights in accordance with the FBCA, and in
such instances you will instead receive your pro rata share of NeoMedia stock as
outlined above.

      As required under the FBCA,  once the merger becomes  effective,  BSD will
send a second notice of Dissenters'  Rights (the "Second  Notice") only to those
shareholders of BSD who have submitted their signed  Dissenters'  Demand Form to
BSD by the Deadline indicated above. The Second Notice will, among other things,
provide  you  with  details  concerning  the  date on which  the  merger  became
effective, an estimate of the fair value of your BSD shares immediately prior to
the effective date of the merger,  copies of the relevant provisions of the FBCA
concerning  dissenter's  rights,  and a  Appraisal  Notice  Form,  that you must
complete and return to BSD by the deadline  indicated in the Second  Notice.  To
clarify,  as required under the FBCA, the fair value of dissenters'  shares will
NOT  reflect  any change in value  attributed  to the  merger or any  subsequent
event;  rather,  the fair value  determination is made immediately  prior to the
effective date of the merger.




      In the event that holders of more than 5% of BSD's  outstanding  shares of
common stock elect to exercise their dissenters' rights under the FBCA, NeoMedia
may, in its discretion as provided in the Merger  Agreement,  elect to terminate
the consummation of the merger.

      IN LIGHT OF THE  FOREGOING,  BSD'S  BOARD OF  DIRECTORS  URGES  YOU TO NOT
ASSERT YOUR DISSENTERS'  RIGHTS AND INSTEAD ELECT TO RECEIVE YOUR PRO RATA SHARE
OF NEOMEDIA STOCK AS DESCRIBED  ABOVE.  However,  if you do elect to assert your
dissenters'  rights, you are urged to (i) carefully review the attached excerpts
from the FBCA, (ii) not vote in favor of the merger, (iii) complete and sign the
attached Dissenters' Demand Form, and (iv) return the Dissenters' Demand Form to
BSD by the Deadline.  Failure to strictly  comply with the  requirements  of the
FBCA will be deemed a waiver of your dissenters'  rights thereunder and you will
instead  receive  your pro rata  share of  NeoMedia  stock as  described  at the
beginning of this letter.

Sincerely,


The Board of Directors
BSD Software, Inc.




                             DISSENTERS' DEMAND FORM

TO:      BSD Software, Inc.
         5824 Second Street SW, Suite 300
         Calgary, Alberta, Canada, T2H-0H2
         Attention: CFO

I,  the  undersigned,  am  a  shareholder  of  BSD  Software,  Inc.,  a  Florida
corporation ("BSD" or the "Company"), on __________________, 2005, (the "Initial
Notice Date") the date on which the Company first informed its  shareholders  of
the  proposed  merger (the  "Contemplated  Merger")  by and among BSD,  NeoMedia
Technologies, Inc., a Delaware corporation, and NeoMedia Telecom Services, Inc.,
a Nevada corporation.

I HEREBY REPRESENT AND WARRANT TO THE COMPANY THE FOLLOWING:

1.    I currently  own  ___________________  shares of common  stock of BSD (the
      "BSD SHARES") as follows: (insert number of shares owned)

a.    ____ Solely, with no other person or entity, or

b.    ____ Jointly, with ____________________________, or

c.    ____  Through the  following  entity:  __________________________________.
(check one only and fill-in blank to the right as necessary)

o     No person or entity owns the BSD Shares other than as I have  indicated in
      my response to No. 1 above.

2.    I    acquired    the   BSD    Shares   on   or   about    the    following
      date(s):_______________________________________. (insert dates(s))

3.    ______ I did _____ did not hold the BSD  Shares as of the  Initial  Notice
      Date (check one only)

4.    I did not vote in favor of the Contemplated Merger at any time

5.    I hereby serve  notice upon the Company that I object to the  Contemplated
      Merger,  and that I demand  payment for my BSD Shares  pursuant to Section
      607.1321  of the  Florida  Business  Corporation  Act  (the  "FBCA")  as a
      dissenting shareholder of BSD.

6.    I hereby  acknowledge  that it order  for me to be  entitled  to assert my
      dissenters'  rights  under the FBCA, I must  complete,  execute and return
      this Dissenters'  Demand Form to the Company at the address noted above by
      no later than 20 days after the date on which I received the  accompanying
      Initial Dissenters' Notice from BSD.

7.    I hereby acknowledge that I received the accompanying  Initial Dissenters'
      Notice,  this Dissenters'  Demand Form, and copies of Sections 607.1301 et
      seq., inclusive, of the FBCA on or before the date hereof.

8.    I hereby  acknowledge  that in order for me to perfect the  exercise of my
      dissenters'  rights  under  the  FBCA,  I must  strictly  comply  with all
      requirements  of the FBCA and I  understand  that my  failure to do so may
      result in my being deemed to have irrevocably waived such rights.

THE UNDERSIGNED:

Signature:__________________________________
Print Name:_________________________________
Address:____________________________________
____________________________________________
Phone Number:_______________________________





   SECTIONS 607.1301 THROUGH 607.1333 OF THE FLORIDA BUSINESS CORPORATION ACT
                         CONCERNING DISSENTERS' RIGHTS



607.1301. APPRAISAL RIGHTS; DEFINITIONS

The following definitions apply to ss. 607.1302-607.1333:

(1) "Affiliate"  means a person that directly or indirectly  through one or more
intermediaries  controls,  is  controlled  by, or is under  common  control with
another  person  or  is  a  senior  executive   thereof.   For  purposes  of  s.
607.1302(2)(d), a person is deemed to be an affiliate of its senior executives.

(2)  "Beneficial  shareholder"  means a person  who is the  beneficial  owner of
shares held in a voting trust or by a nominee on the beneficial owner's behalf.

(3) "Corporation" means the issuer of the shares held by a shareholder demanding
appraisal  and,  for  matters  covered in ss.  607.1322-607.1333,  includes  the
surviving entity in a merger.

(4) "Fair value" means the value of the corporation's shares determined:

(a) Immediately  before the  effectuation  of the corporate  action to which the
shareholder objects.

(b) Using  customary and current  valuation  concepts and  techniques  generally
employed  for similar  businesses  in the context of the  transaction  requiring
appraisal,  excluding any  appreciation  or  depreciation in anticipation of the
corporate  action unless  exclusion  would be inequitable to the corporation and
its remaining shareholders.

(5) "Interest"  means  interest from the effective date of the corporate  action
until the date of payment, at the rate of interest on judgments in this state on
the effective date of the corporate action.

(6)  "Preferred  shares"  means a class or series of shares the holders of which
have preference over any other class or series with respect to distributions.

(7) "Record shareholder" means the person in whose name shares are registered in
the records of the  corporation or the beneficial  owner of shares to the extent
of the rights granted by a nominee certificate on file with the corporation.

(8)  "Senior  executive"  means the chief  executive  officer,  chief  operating
officer,  chief financial  officer,  or anyone in charge of a principal business
unit or function.

(9) "Shareholder" means both a record shareholder and a beneficial shareholder.

CREDIT(S)

Amended by Laws 2003, c. 2003-283, ss. 21, eff. Oct. 1, 2003.

HISTORICAL AND STATUTORY NOTES

Derivation:
Laws 1989, c. 89-154, ss. 118.

Amendment Notes:

Laws 2003, c. 2003-283, ss. 21, rewrote this section, which formerly read:



"The following definitions apply to ss. 607.1302 and 607.1320:

"(1)  'Corporation'  means  the  issuer  of  the  shares  held  by a  dissenting
shareholder   before  the  corporate   action  or  the  surviving  or  acquiring
corporation by merger or share exchange of that issuer.

"(2) 'Fair value,' with respect to a dissenter's shares,  means the value of the
shares  as of the  close  of  business  on the day  prior  to the  shareholders'
authorization  date,  excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.

"(3)   'Shareholders'   authorization   date'   means  the  date  on  which  the
shareholders'  vote authorizing the proposed action was taken, the date on which
the corporation  received  written consents without a meeting from the requisite
number of  shareholders  in order to authorize the action,  or, in the case of a
merger pursuant to s. 607.1104, the day prior to the date on which a copy of the
plan of merger  was  mailed  to each  shareholder  of  record of the  subsidiary
corporation."

607.1302. RIGHT OF SHAREHOLDERS TO APPRAISAL

(1) A shareholder is entitled to appraisal rights,  and to obtain payment of the
fair value of that  shareholder's  shares,  in the event of any of the following
corporate actions:

(a)  Consummation of a merger to which the corporation is a party if shareholder
approval  is  required  for the merger by s.  607.1103  and the  shareholder  is
entitled to vote on the merger or if the  corporation  is a  subsidiary  and the
merger is governed by s. 607.1104;

(b)  Consummation of a share exchange to which the corporation is a party as the
corporation whose shares will be acquired if the shareholder is entitled to vote
on the  exchange,  except that  appraisal  rights  shall not be available to any
shareholder of the corporation  with respect to any class or series of shares of
the corporation that is not exchanged;

(c)  Consummation  of a  disposition  of assets  pursuant to s.  607.1202 if the
shareholder  is  entitled  to  vote  on the  disposition,  including  a sale  in
dissolution  but not including a sale pursuant to court order or a sale for cash
pursuant to a plan by which all or substantially  all of the net proceeds of the
sale will be  distributed  to the  shareholders  within 1 year after the date of
sale;

(d)  Any  other  amendment  to the  articles  of  incorporation,  merger,  share
exchange,  or  disposition  of assets to the extent  provided by the articles of
incorporation, bylaws, or a resolution of the board of directors, except that no
bylaw or board  resolution  providing  for  appraisal  rights  may be amended or
otherwise altered except by shareholder approval; or

(e) With regard to a class of shares prescribed in the articles of incorporation
prior to October 1, 2003,  including any shares  within that class  subsequently
authorized by amendment,  any amendment of the articles of  incorporation if the
shareholder  is entitled to vote on the  amendment and if such  amendment  would
adversely affect such shareholder by:

1. Altering or abolishing  any preemptive  rights  attached to any of his or her
shares;

2.  Altering or  abolishing  the voting  rights  pertaining to any of his or her
shares, except as such rights may be affected by the voting rights of new shares
then being authorized of any existing or new class or series of shares;

3. Effecting an exchange, cancellation, or reclassification of any of his or her
shares, when such exchange,  cancellation,  or  reclassification  would alter or
abolish the shareholder's voting rights or alter his or her percentage of equity
in the  corporation,  or  effecting  a  reduction  or  cancellation  of  accrued
dividends or other arrearages in respect to such shares;

4. Reducing the stated redemption price of any of the  shareholder's  redeemable
shares,  altering or abolishing  any provision  relating to any sinking fund for
the redemption or purchase of any of his or her shares,  or making any of his or
her shares subject to redemption when they are not otherwise redeemable;




5.  Making  noncumulative,  in  whole  or in  part,  dividends  of  any  of  the
shareholder's preferred shares which had theretofore been cumulative;

6. Reducing the stated dividend preference of any of the shareholder's preferred
shares; or

7. Reducing any stated  preferential  amount payable on any of the shareholder's
preferred shares upon voluntary or involuntary liquidation.

(2)  Notwithstanding  subsection (1), the availability of appraisal rights under
paragraphs  (1)(a),  (b), (c), and (d) shall be limited in  accordance  with the
following provisions:

(a)  Appraisal  rights shall not be  available  for the holders of shares of any
class or series of shares which is:

1.  Listed on the New York Stock  Exchange  or the  American  Stock  Exchange or
designated as a national  market  system  security on an  interdealer  quotation
system by the National Association of Securities Dealers, Inc.; or

2. Not so listed or  designated,  but has at least  2,000  shareholders  and the
outstanding  shares of such class or series have a market  value of at least $10
million, exclusive of the value of such shares held by its subsidiaries,  senior
executives,  directors,  and beneficial shareholders owning more than 10 percent
of such shares.

(b) The applicability of paragraph (a) shall be determined as of:

1. The record  date fixed to  determine  the  shareholders  entitled  to receive
notice of, and to vote at, the meeting of shareholders to act upon the corporate
action requiring appraisal rights; or

2. If there will be no meeting of shareholders, the close of business on the day
on  which  the  board of  directors  adopts  the  resolution  recommending  such
corporate action.

(c)  Paragraph  (a)  shall  not be  applicable  and  appraisal  rights  shall be
available  pursuant to subsection  (1) for the holders of any class or series of
shares who are required by the terms of the corporate action requiring appraisal
rights to accept for such shares anything other than cash or shares of any class
or any series of shares of any corporation, or any other proprietary interest of
any other entity, that satisfies the standards set forth in paragraph (a) at the
time the corporate action becomes effective.

(d)  Paragraph  (a)  shall  not be  applicable  and  appraisal  rights  shall be
available  pursuant to subsection  (1) for the holders of any class or series of
shares if:

1. Any of the  shares  or  assets  of the  corporation  are  being  acquired  or
converted,  whether by merger,  share  exchange,  or otherwise,  pursuant to the
corporate action by a person, or by an affiliate of a person, who:

a. Is, or at any time in the 1-year period immediately preceding approval by the
board of directors of the corporate action  requiring  appraisal rights was, the
beneficial  owner of 20 percent or more of the voting power of the  corporation,
excluding any shares acquired  pursuant to an offer for all shares having voting
power if such  offer  was  made  within 1 year  prior  to the  corporate  action
requiring  appraisal  rights for  consideration  of the same kind and of a value
equal to or less than that paid in connection with the corporate action; or

b. Directly or indirectly  has, or at any time in the 1-year period  immediately
preceding approval by the board of directors of the corporation of the corporate
action requiring appraisal rights had, the power, contractually or otherwise, to
cause the  appointment or election of 25 percent or more of the directors to the
board of directors of the corporation; or

2. Any of the  shares  or  assets  of the  corporation  are  being  acquired  or
converted,  whether by merger,  share exchange,  or otherwise,  pursuant to such
corporate action by a person, or by an affiliate of a person,  who is, or at any
time in the  1-year  period  immediately  preceding  approval  by the  board  of
directors  of the  corporate  action  requiring  appraisal  rights was, a senior
executive or director of the corporation or a senior  executive of any affiliate
thereof,  and that senior executive or director will receive, as a result of the
corporate  action,  a  financial  benefit  not  generally   available  to  other
shareholders as such, other than:




a.  Employment,   consulting,   retirement,   or  similar  benefits  established
separately and not as part of or in contemplation of the corporate action;

b.  Employment,  consulting,  retirement,  or similar  benefits  established  in
contemplation  of,  or as part  of,  the  corporate  action  that  are not  more
favorable than those existing before the corporate action or, if more favorable,
that have been  approved on behalf of the  corporation  in the same manner as is
provided in s. 607.0832; or

c. In the case of a  director  of the  corporation  who will,  in the  corporate
action, become a director of the acquiring entity in the corporate action or one
of its  affiliates,  rights and benefits as a director  that are provided on the
same  basis  as  those  afforded  by the  acquiring  entity  generally  to other
directors of such entity or such affiliate.

(e) For the purposes of paragraph (d) only,  the term  "beneficial  owner" means
any person who, directly or indirectly,  through any contract,  arrangement,  or
understanding, other than a revocable proxy, has or shares the power to vote, or
to direct the voting of, shares, provided that a member of a national securities
exchange  shall  not be  deemed  to be a  beneficial  owner of  securities  held
directly or  indirectly by it on behalf of another  person  solely  because such
member is the  recordholder of such securities if the member is precluded by the
rules of such exchange from voting without  instruction on contested  matters or
matters that may affect substantially the rights or privileges of the holders of
the  securities to be voted.  When two or more persons agree to act together for
the purpose of voting their shares of the corporation,  each member of the group
formed thereby shall be deemed to have acquired beneficial ownership,  as of the
date of such  agreement,  of all voting shares of the  corporation  beneficially
owned by any member of the group.

(3)  Notwithstanding  any other  provision  of this  section,  the  articles  of
incorporation  as  originally  filed  or any  amendment  thereto  may  limit  or
eliminate  appraisal rights for any class or series of preferred shares, but any
such  limitation  or  elimination  contained  in an amendment to the articles of
incorporation that limits or eliminates  appraisal rights for any of such shares
that are outstanding  immediately  prior to the effective date of such amendment
or that the  corporation  is or may be  required  to  issue  or sell  thereafter
pursuant to any conversion, exchange, or other right existing immediately before
the effective  date of such  amendment  shall not apply to any corporate  action
that becomes effective within 1 year of that date if such action would otherwise
afford appraisal rights.

(4) A  shareholder  entitled  to  appraisal  rights  under this  chapter may not
challenge a completed  corporate action for which appraisal rights are available
unless such corporate action:

(a) Was not  effectuated in accordance  with the  applicable  provisions of this
section or the  corporation's  articles of  incorporation,  bylaws,  or board of
directors' resolution authorizing the corporate action; or

(b) Was procured as a result of fraud or material misrepresentation.

CREDIT(S)

Amended by Laws 1994, c. 94-327, ss. 5, eff. June 2, 1994; Laws 1997, c. 97-102,
ss. 31, eff. July 1, 1997;  Laws 2003, c.  2003-283,  ss. 22, eff. Oct. 1, 2003;
Laws 2004, c. 2004-378, ss. 1, eff. June 24, 2004.

HISTORICAL AND STATUTORY NOTES

Derivation:
Laws 1989, c. 89-154, ss. 119.

Amendment Notes:

Laws 1994,  c. 94-327,  ss. 5, eff.  June 2, 1994,  inserted in subsec.  (4) "or
designated as a national  market  system  security on an  interdealer  quotation
system by the National Association of Securities Dealers, Inc.".




Laws 1997, c. 97-102,  eff.  July 1, 1997,  removed  gender-specific  references
applicable  to human  beings  from  volume  4 of the  Florida  Statutes  without
substantive changes in legal effect.

Laws 2003, c. 2003-283, ss. 22, rewrote this section, which formerly read:

"(1) Any  shareholder of a corporation has the right to dissent from, and obtain
payment  of the fair  value of his or her  shares in the  event  of,  any of the
following corporate actions:

"(a) Consummation of a plan of merger to which the corporation is a party:

"1. If the shareholder is entitled to vote on the merger, or

"2. If the  corporation is a subsidiary  that is merged with its parent under s.
607.1104, and the shareholders would have been entitled to vote on action taken,
except for the applicability of s. 607.1104;

"(b)  Consummation  of a sale or exchange of all, or  substantially  all, of the
property  of the  corporation,  other  than in the usual and  regular  course of
business,  if the  shareholder  is  entitled  to  vote on the  sale or  exchange
pursuant to s.  607.1202,  including a sale in  dissolution  but not including a
sale  pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially  all of the net proceeds of the sale will be distributed to the
shareholders within 1 year after the date of sale;

"(c)  As  provided  in  s.   607.0902(11),   the  approval  of  a  control-share
acquisition;

"(d)  Consummation  of a plan of share  exchange to which the  corporation  is a
party  as  the  corporation  the  shares  of  which  will  be  acquired,  if the
shareholder is entitled to vote on the plan;

"(e) Any  amendment  of the  articles of  incorporation  if the  shareholder  is
entitled to vote on the amendment and if such amendment would  adversely  affect
such shareholder by:

"1.  Altering or abolishing any preemptive  rights attached to any of his or her
shares;

"2.  Altering or abolishing  the voting  rights  pertaining to any of his or her
shares, except as such rights may be affected by the voting rights of new shares
then being authorized of any existing or new class or series of shares;

"3. Effecting an exchange,  cancellation,  or  reclassification of any of his or
her shares, when such exchange, cancellation, or reclassification would alter or
abolish the shareholder's voting rights or alter his or her percentage of equity
in the  corporation,  or  effecting  a  reduction  or  cancellation  of  accrued
dividends or other arrearages in respect to such shares;

"4. Reducing the stated redemption price of any of the shareholder's  redeemable
shares,  altering or abolishing  any provision  relating to any sinking fund for
the redemption or purchase of any of his or her shares,  or making any of his or
her shares subject to redemption when they are not otherwise redeemable;

"5.  Making  noncumulative,  in  whole  or in  part,  dividends  of  any  of the
shareholder's preferred shares which had theretofore been cumulative;

"6.  Reducing  the  stated  dividend  preference  of any  of  the  shareholder's
preferred shares; or

"7. Reducing any stated  preferential amount payable on any of the shareholder's
preferred shares upon voluntary or involuntary liquidation; or

"(f) Any  corporate  action taken,  to the extent the articles of  incorporation
provide that a voting or nonvoting shareholder is entitled to dissent and obtain
payment for his or her shares.

"(2) A shareholder  dissenting from any amendment  specified in paragraph (1)(e)
has the  right  to  dissent  only as to  those of his or her  shares  which  are
adversely affected by the amendment.




"(3) A shareholder may dissent as to less than all the shares  registered in his
or her name. In that event, the  shareholder's  rights shall be determined as if
the shares as to which he or she has  dissented and his or her other shares were
registered in the names of different shareholders.

"(4) Unless the articles of incorporation  otherwise provide,  this section does
not apply with respect to a plan of merger or share  exchange or a proposed sale
or exchange of property,  to the holders of shares of any class or series which,
on the record date fixed to determine the  shareholders  entitled to vote at the
meeting of  shareholders  at which such action is to be acted upon or to consent
to any such  action  without a meeting,  were  either  registered  on a national
securities  exchange or  designated as a national  market system  security on an
interdealer  quotation system by the National Association of Securities Dealers,
Inc., or held of record by not fewer than 2,000 shareholders.

"(5) A shareholder  entitled to dissent and obtain payment for his or her shares
under this section may not challenge the  corporate  action  creating his or her
entitlement  unless the action is unlawful  or  fraudulent  with  respect to the
shareholder or the corporation."

Laws 2004, c. 2004-378, ss. 1, in subsec. (1)(e), substituted "a class of shares
prescribed in the articles of incorporation prior to October 1, 2003,  including
any shares within that class subsequently  authorized by amendment," for "shares
issued prior to October 1, 2003," following "With regard to" in the introductory
paragraph.

Prior Laws:
Fla.St.1989, ss. 607.244.
Laws 1987, c. 87-257, ss. 4.
Laws 1981, c. 81-155, ss. 10.
Laws 1975, c. 75-250, ss. 81.
Fla.St.1975, ss. 608.23.
Laws 1969, c. 69-23, ss. 4.
Laws 1953, c. 28170, ss. 1.
Fla.St.1951, ss. 612.40.
Comp.Gen.Laws 1927, ss. 6564.
Laws 1925, c. 10096, ss. 38.

607.1303. ASSERTION OF RIGHTS BY NOMINEES AND BENEFICIAL OWNERS


(1) A record  shareholder may assert  appraisal  rights as to fewer than all the
shares  registered  in the record  shareholder's  name but owned by a beneficial
shareholder only if the record shareholder objects with respect to all shares of
the  class or  series  owned by the  beneficial  shareholder  and  notifies  the
corporation in writing of the name and address of each beneficial shareholder on
whose  behalf  appraisal  rights  are  being  asserted.  The  rights of a record
shareholder  who  asserts  appraisal  rights for only part of the shares held of
record  in  the  record  shareholder's  name  under  this  subsection  shall  be
determined as if the shares as to which the record  shareholder  objects and the
record  shareholder's  other  shares were  registered  in the names of different
record shareholders.

(2) A beneficial  shareholder  may assert  appraisal  rights as to shares of any
class or series held on behalf of the shareholder only if such shareholder:

(a) Submits to the corporation the record  shareholder's  written consent to the
assertion   of  such   rights  no  later  than  the  date   referred  to  in  s.
607.1322(2)(b)2.

(b)  Does so with  respect  to all  shares  of the  class  or  series  that  are
beneficially owned by the beneficial shareholder.

CREDIT(S)

Added by Laws 2003, c. 2003-283, ss. 23, eff. Oct. 1, 2003.




607.1320. NOTICE OF APPRAISAL RIGHTS

(1) If proposed  corporate action described in s. 607.1302(1) is to be submitted
to a vote at a  shareholders'  meeting,  the meeting  notice must state that the
corporation has concluded that  shareholders are, are not, or may be entitled to
assert  appraisal rights under this chapter.  If the corporation  concludes that
appraisal rights are or may be available,  a copy of ss.  607.1301-607.1333 must
accompany  the meeting  notice  sent to those  record  shareholders  entitled to
exercise appraisal rights.

(2) In a merger pursuant to s. 607.1104,  the parent  corporation must notify in
writing all record  shareholders  of the  subsidiary  who are entitled to assert
appraisal rights that the corporate action became effective. Such notice must be
sent within 10 days after the corporate  action became effective and include the
materials described in s. 607.1322.

(3) If the  proposed  corporate  action  described  in s.  607.1302(1)  is to be
approved  other  than by a  shareholders'  meeting,  the notice  referred  to in
subsection  (1) must be sent to all  shareholders  at the time that consents are
first solicited  pursuant to s. 607.0704,  whether or not consents are solicited
from all shareholders, and include the materials described in s. 607.1322.

CREDIT(S)

Amended by Laws 1993,  c.  93-281,  ss. 35, eff.  May 15,  1993;  Laws 1997,  c.
97-102, ss. 32, eff. July 1, 1997; Laws 2003, c. 2003-283,  ss. 24, eff. Oct. 1,
2003.

HISTORICAL AND STATUTORY NOTES

Derivation:
Laws 1989, c. 89-154, ss. 120.

Amendment Notes:

Laws 1993, c. 93-281,  ss. 35, eff. May 15, 1993, in subsec.  (10),  substituted
"authorized  but unissued shares of the  corporation"  for "in the case of other
treasury shares".

Laws 1997, c. 97-102,  eff.  July 1, 1997,  removed  gender-specific  references
applicable  to human  beings  from  volume  4 of the  Florida  Statutes  without
substantive changes in legal effect.

Laws 2003, c. 2003-283, ss. 24, rewrote this section, which formerly read:

"(1)(a) If a proposed  corporate  action  creating  dissenters'  rights under s.
607.1302 is submitted to a vote at a shareholders'  meeting,  the meeting notice
shall  state that  shareholders  are or may be  entitled  to assert  dissenters'
rights and be accompanied by a copy of ss. 607.1301,  607.1302,  and 607.1320. A
shareholder who wishes to assert dissenters' rights shall:

"1.  Deliver to the  corporation  before the vote is taken written notice of the
shareholder's  intent to demand  payment  for his or her shares if the  proposed
action is effectuated, and

"2. Not vote his or her shares in favor of the proposed  action. A proxy or vote
against  the  proposed  action  does not  constitute  such a notice of intent to
demand payment.

"(b) If proposed corporate action creating  dissenters' rights under s. 607.1302
is effectuated  by written  consent  without a meeting,  the  corporation  shall
deliver a copy of ss.  607.1301,  607.1302,  and  607.1320  to each  shareholder
simultaneously  with any request for the  shareholder's  written  consent or, if
such a request  is not  made,  within  10 days  after  the date the  corporation
received  written  consents  without  a  meeting  from the  requisite  number of
shareholders necessary to authorize the action.

"(2) Within 10 days after the shareholders'  authorization date, the corporation
shall give written  notice of such  authorization  or consent or adoption of the
plan of merger,  as the case may be, to each  shareholder  who filed a notice of
intent to demand payment for his or her shares pursuant to paragraph  (1)(a) or,
in the case of  action  authorized  by  written  consent,  to each  shareholder,
excepting any who voted for, or consented in writing to, the proposed action.




"(3)  Within 20 days after the giving of notice to him or her,  any  shareholder
who elects to dissent shall file with the corporation a notice of such election,
stating the shareholder's name and address,  the number,  classes, and series of
shares as to which he or she  dissents,  and a demand  for  payment  of the fair
value of his or her shares.  Any  shareholder  failing to file such  election to
dissent  within the period set forth shall be bound by the terms of the proposed
corporate  action.  Any shareholder  filing an election to dissent shall deposit
his  or  her  certificates   for   certificated   shares  with  the  corporation
simultaneously  with the filing of the election to dissent.  The corporation may
restrict the transfer of  uncertificated  shares from the date the shareholder's
election to dissent is filed with the corporation.

"(4)  Upon  filing a notice  of  election  to  dissent,  the  shareholder  shall
thereafter be entitled only to payment as provided in this section and shall not
be entitled to vote or to exercise any other rights of a  shareholder.  A notice
of election may be withdrawn in writing by the shareholder at any time before an
offer is made by the corporation,  as provided in subsection (5), to pay for his
or her shares.  After such offer,  no such notice of election  may be  withdrawn
unless the corporation consents thereto.  However, the right of such shareholder
to be paid the fair value of his or her shares shall cease,  and the shareholder
shall be  reinstated  to have all his or her rights as a  shareholder  as of the
filing of his or her notice of election,  including any  intervening  preemptive
rights  and  the  right  to  payment  of  any  intervening   dividend  or  other
distribution  or,  if any such  rights  have  expired  or any such  dividend  or
distribution  other than in cash has been  completed,  in lieu  thereof,  at the
election of the corporation, the fair value thereof in cash as determined by the
board as of the time of such  expiration or  completion,  but without  prejudice
otherwise to any corporate  proceedings that may have been taken in the interim,
if:

"(a) Such demand is withdrawn as provided in this section;

"(b) The proposed corporate action is abandoned or rescinded or the shareholders
revoke the authority to effect such action;

"(c) No demand or petition  for the  determination  of fair value by a court has
been made or filed within the time provided in this section; or

"(d) A court of competent  jurisdiction  determines that such shareholder is not
entitled to the relief provided by this section.

"(5) Within 10 days after the expiration of the period in which shareholders may
file  their  notices  of  election  to  dissent,  or within 10 days  after  such
corporate  action is effected,  whichever is later (but in no case later than 90
days from the  shareholders'  authorization  date), the corporation shall make a
written offer to each dissenting  shareholder who has made demand as provided in
this section to pay an amount the corporation estimates to be the fair value for
such  shares.  If the  corporate  action  has not been  consummated  before  the
expiration of the 90-day period after the shareholders'  authorization date, the
offer may be made conditional upon the consummation of such action.  Such notice
and offer shall be accompanied by:

"(a) A balance  sheet of the  corporation,  the  shares of which the  dissenting
shareholder  holds, as of the latest  available date and not more than 12 months
prior to the making of such offer; and

"(b) A profit and loss  statement of such  corporation  for the 12-month  period
ended  on the date of such  balance  sheet  or,  if the  corporation  was not in
existence  throughout such 12-month period, for the portion thereof during which
it was in existence.

"(6) If within 30 days after the making of such  offer any  shareholder  accepts
the same,  payment for his or her shares  shall be made within 90 days after the
making of such offer or the  consummation of the proposed  action,  whichever is
later. Upon payment of the agreed value, the dissenting  shareholder shall cease
to have any interest in such shares.




"(7) If the  corporation  fails to make such offer  within the period  specified
therefor  in  subsection  (5)  or if it  makes  the  offer  and  any  dissenting
shareholder or shareholders fail to accept the same within the period of 30 days
thereafter, then the corporation, within 30 days after receipt of written demand
from any  dissenting  shareholder  given  within 60 days after the date on which
such corporate action was effected, shall, or at its election at any time within
such  period  of 60  days  may,  file  an  action  in  any  court  of  competent
jurisdiction  in the county in this  state  where the  registered  office of the
corporation  is  located  requesting  that the  fair  value  of such  shares  be
determined.  The court shall also determine whether each dissenting shareholder,
as to whom the  corporation  requests the court to make such  determination,  is
entitled to receive payment for his or her shares.  If the corporation  fails to
institute the proceeding as herein provided,  any dissenting  shareholder may do
so in the name of the corporation.  All dissenting  shareholders (whether or not
residents  of this  state),  other than  shareholders  who have  agreed with the
corporation  as to the  value of their  shares,  shall  be made  parties  to the
proceeding as an action against their shares. The corporation shall serve a copy
of the initial pleading in such proceeding upon each dissenting  shareholder who
is a resident  of this state in the manner  provided by law for the service of a
summons and complaint and upon each nonresident dissenting shareholder either by
registered  or  certified  mail and  publication  or in such other  manner as is
permitted by law. The  jurisdiction  of the court is plenary and exclusive.  All
shareholders  who are proper  parties to the proceeding are entitled to judgment
against the  corporation  for the amount of the fair value of their shares.  The
court may, if it so elects, appoint one or more persons as appraisers to receive
evidence and recommend a decision on the question of fair value.  The appraisers
shall  have  such  power and  authority  as is  specified  in the order of their
appointment or an amendment  thereof.  The corporation shall pay each dissenting
shareholder  the amount  found to be due him or her  within 10 days after  final
determination of the proceedings.  Upon payment of the judgment,  the dissenting
shareholder shall cease to have any interest in such shares.

"(8) The judgment may, at the  discretion  of the court,  include a fair rate of
interest, to be determined by the court.

"(9) The costs and expenses of any such  proceeding  shall be  determined by the
court and shall be assessed against the corporation, but all or any part of such
costs and expenses may be apportioned  and assessed as the court deems equitable
against  any or all  of the  dissenting  shareholders  who  are  parties  to the
proceeding,  to whom the corporation has made an offer to pay for the shares, if
the court finds that the action of such  shareholders  in failing to accept such
offer was  arbitrary,  vexatious,  or not in good  faith.  Such  expenses  shall
include reasonable compensation for, and reasonable expenses of, the appraisers,
but shall exclude the fees and expenses of counsel for, and experts employed by,
any party. If the fair value of the shares,  as determined,  materially  exceeds
the amount  which the  corporation  offered to pay  therefor  or if no offer was
made, the court in its discretion may award to any shareholder who is a party to
the proceeding such sum as the court determines to be reasonable compensation to
any attorney or expert employed by the shareholder in the proceeding.

"(10) Shares  acquired by a corporation  pursuant to payment of the agreed value
thereof or pursuant to payment of the judgment entered therefor,  as provided in
this section,  may be held and disposed of by such corporation as authorized but
unissued shares of the corporation,  except that, in the case of a merger,  they
may be held and disposed of as the plan of merger otherwise provides. The shares
of  the  surviving   corporation  into  which  the  shares  of  such  dissenting
shareholders  would have been  converted  had they  assented to the merger shall
have the status of authorized but unissued shares of the surviving corporation."

Prior Laws:
Fla.St.1989, ss. 607.247.
Laws 1987, c. 87-257, ss. 5.
Laws 1977, c. 77-174, ss. 1.
Laws 1975, c. 75-250, ss. 82.
Fla.St.1975, ss. 608.23.
Laws 1969, c. 69-23, ss. 4.
Laws 1953, c. 28170, ss. 1.
Fla.St.1951, ss. 612.40.
Comp.Gen.Laws 1927, ss. 6564.
Laws 1925, c. 10096, ss. 38.




607.1321. NOTICE OF INTENT TO DEMAND PAYMENT

(1) If proposed corporate action requiring appraisal rights under s. 607.1302 is
submitted to a vote at a shareholders' meeting, or is submitted to a shareholder
pursuant to a consent vote under s. 607.0704, a shareholder who wishes to assert
appraisal rights with respect to any class or series of shares:

(a) Must deliver to the corporation  before the vote is taken, or within 20 days
after receiving the notice  pursuant to s.  607.1320(3) if action is to be taken
without a shareholder  meeting,  written notice of the  shareholder's  intent to
demand payment if the proposed action is effectuated.

(b) Must not vote,  or cause or permit to be voted,  any shares of such class or
series in favor of the proposed action.

(2) A shareholder who does not satisfy the requirements of subsection (1) is not
entitled to payment under this chapter.

CREDIT(S)

Added by Laws 2003,  c.  2003-283,  ss. 25, eff.  Oct. 1, 2003.  Amended by Laws
2004, c. 2004-378, ss. 7, eff. June 24, 2004.

HISTORICAL AND STATUTORY NOTES

Amendment Notes:

Laws 2004,  c.  2004-378,  ss. 7,  reenacted  this  section  for the  purpose of
incorporating the amendment to ss. 607.1302 in a reference thereto.


607.1322. APPRAISAL NOTICE AND FORM


(1) If proposed corporate action requiring appraisal rights under s. 607.1302(1)
becomes  effective,  the corporation must deliver a written appraisal notice and
form  required  by  paragraph  (2)(a)  to all  shareholders  who  satisfied  the
requirements  of s.  607.1321.  In the case of a merger under s.  607.1104,  the
parent  must  deliver  a  written  appraisal  notice  and  form  to  all  record
shareholders who may be entitled to assert appraisal rights.

(2) The  appraisal  notice must be sent no earlier  than the date the  corporate
action became effective and no later than 10 days after such date and must:

(a)  Supply a form that  specifies  the date that the  corporate  action  became
effective and that provides for the shareholder to state:

1. The shareholder's name and address.

2. The number, classes, and series of shares as to which the shareholder asserts
appraisal rights.

3. That the shareholder did not vote for the transaction.

4.  Whether  the  shareholder  accepts  the  corporation's  offer as  stated  in
subparagraph (b)4.

5. If the offer is not accepted,  the shareholder's  estimated fair value of the
shares  and a demand  for  payment  of the  shareholder's  estimated  value plus
interest.

(b) State:

1. Where the form must be sent and where  certificates for  certificated  shares
must be deposited  and the date by which those  certificates  must be deposited,
which date may not be earlier  than the date for  receiving  the  required  form
under subparagraph 2.




2. A date by which the corporation  must receive the form, which date may not be
fewer than 40 nor more than 60 days after the date the  subsection (1) appraisal
notice and form are sent, and state that the  shareholder  shall have waived the
right to demand appraisal with respect to the shares unless the form is received
by the corporation by such specified date.

3. The corporation's estimate of the fair value of the shares.

4. An offer to each  shareholder who is entitled to appraisal  rights to pay the
corporation's estimate of fair value set forth in subparagraph 3.

5.  That,  if  requested  in  writing,  the  corporation  will  provide  to  the
shareholder  so  requesting,   within  10  days  after  the  date  specified  in
subparagraph  2.,  the  number  of  shareholders  who  return  the  forms by the
specified date and the total number of shares owned by them.

6. The date by which the notice to withdraw  under s. 607.1323 must be received,
which date must be within 20 days after the date specified in subparagraph 2.

(c) Be accompanied by:

1.  Financial  statements  of the  corporation  that  issued  the  shares  to be
appraised, consisting of a balance sheet as of the end of the fiscal year ending
not more than 15 months prior to the date of the corporation's appraisal notice,
an income  statement for that year, a cash flow statement for that year, and the
latest available interim financial statements, if any.

2. A copy of ss. 607.1301-607.1333.


      CREDIT(S)

Added by Laws 2003, c. 2003-283, ss. 26, eff. Oct. 1, 2003.


607.1323. PERFECTION OF RIGHTS; RIGHT TO WITHDRAW


(1) A  shareholder  who wishes to exercise  appraisal  rights  must  execute and
return  the  form  received  pursuant  to s.  607.1322(1)  and,  in the  case of
certificated shares,  deposit the shareholder's  certificates in accordance with
the terms of the notice by the date  referred  to in the notice  pursuant  to s.
607.1322(2)(b)2. Once a shareholder deposits that shareholder's certificates or,
in  the  case  of  uncertificated  shares,  returns  the  executed  forms,  that
shareholder loses all rights as a shareholder,  unless the shareholder withdraws
pursuant to subsection (2).

(2) A shareholder who has complied with subsection (1) may nevertheless  decline
to exercise  appraisal  rights and  withdraw  from the  appraisal  process by so
notifying  the  corporation  in writing  by the date set forth in the  appraisal
notice  pursuant to s.  607.1322(2)(b)6.  A shareholder who fails to so withdraw
from the appraisal process may not thereafter withdraw without the corporation's
written consent.

(3) A  shareholder  who does not execute and return the form and, in the case of
certificated shares,  deposit that shareholder's share certificates if required,
each by the date set forth in the notice  described in subsection (2), shall not
be entitled to payment under this chapter.

CREDIT(S)

Added by Laws 2003, c. 2003-283, ss. 27, eff. Oct. 1, 2003.





607.1324. SHAREHOLDER'S ACCEPTANCE OF CORPORATION'S OFFER

(1) If the shareholder  states on the form provided in s.  607.1322(1)  that the
shareholder  accepts  the  offer  of the  corporation  to pay the  corporation's
estimated fair value for the shares,  the corporation shall make such payment to
the shareholder within 90 days after the corporation's  receipt of the form from
the shareholder.

(2) Upon payment of the agreed value,  the  shareholder  shall cease to have any
interest in the shares.

CREDIT(S)

Added by Laws 2003, c. 2003-283, ss. 28, eff. Oct. 1, 2003.


607.1326. PROCEDURE IF SHAREHOLDER IS DISSATISFIED WITH OFFER


(1) A shareholder who is dissatisfied with the corporation's  offer as set forth
pursuant to s. 607.1322(2)(b)4. must notify the corporation on the form provided
pursuant to s. 607.1322(1) of that  shareholder's  estimate of the fair value of
the shares and demand payment of that estimate plus interest.

(2) A  shareholder  who fails to  notify  the  corporation  in  writing  of that
shareholder's  demand to be paid the  shareholder's  stated estimate of the fair
value plus interest  under  subsection  (1) within the timeframe set forth in s.
607.1322(2)(b)2. waives the right to demand payment under this section and shall
be  entitled  only to the  payment  offered by the  corporation  pursuant  to s.
607.1322(2)(b)4.

CREDIT(S)

Added by Laws 2003, c. 2003-283, ss. 29, eff. Oct. 1, 2003.


607.1330. COURT ACTION


(1) If a shareholder  makes demand for payment  under s. 607.1326  which remains
unsettled,  the  corporation  shall  commence a proceeding  within 60 days after
receiving the payment  demand and petition the court to determine the fair value
of the shares and accrued  interest.  If the  corporation  does not commence the
proceeding  within  the 60-day  period,  any  shareholder  who has made a demand
pursuant  to s.  607.1326  may  commence  the  proceeding  in  the  name  of the
corporation.

(2) The proceeding shall be commenced in the appropriate  court of the county in
which the corporation's principal office, or, if none, its registered office, in
this state is located.  If the  corporation is a foreign  corporation  without a
registered office in this state, the proceeding shall be commenced in the county
in this state in which the principal office or registered office of the domestic
corporation  merged with the foreign  corporation was located at the time of the
transaction.

(3) All  shareholders,  whether or not  residents of this state,  whose  demands
remain unsettled shall be made parties to the proceeding as in an action against
their shares. The corporation shall serve a copy of the initial pleading in such
proceeding  upon each  shareholder  party who is a resident of this state in the
manner  provided by law for the service of a summons and complaint and upon each
nonresident  shareholder party by registered or certified mail or by publication
as provided by law.

(4) The  jurisdiction  of the court in which the  proceeding is commenced  under
subsection (2) is plenary and exclusive.  If it so elects, the court may appoint
one or more persons as appraisers  to receive  evidence and recommend a decision
on the question of fair value. The appraisers shall have the powers described in
the order  appointing  them or in any amendment to the order.  The  shareholders
demanding  appraisal rights are entitled to the same discovery rights as parties
in other civil proceedings. There shall be no right to a jury trial.




(5) Each  shareholder made a party to the proceeding is entitled to judgment for
the amount of the fair value of such  shareholder's  shares,  plus interest,  as
found by the court.

(6) The corporation  shall pay each such  shareholder the amount found to be due
within 10 days after final determination of the proceedings. Upon payment of the
judgment, the shareholder shall cease to have any interest in the shares.

CREDIT(S)

Added by Laws 2004, c. 2004-378, ss. 2, eff. June 24, 2004.

607.1331. COURT COSTS AND COUNSEL FEES


(1) The  court in an  appraisal  proceeding  shall  determine  all  costs of the
proceeding,  including the  reasonable  compensation  and expenses of appraisers
appointed  by  the  court.   The  court  shall  assess  the  costs  against  the
corporation,  except that the court may assess costs  against all or some of the
shareholders demanding appraisal,  in amounts the court finds equitable,  to the
extent the court finds such shareholders acted arbitrarily,  vexatiously, or not
in good faith with respect to the rights provided by this chapter.

(2) The court in an appraisal  proceeding  may also assess the fees and expenses
of counsel and experts for the  respective  parties,  in amounts the court finds
equitable:

(a) Against the  corporation and in favor of any or all  shareholders  demanding
appraisal if the court finds the corporation did not  substantially  comply with
ss. 607.1320 and 607.1322; or

(b) Against either the  corporation  or a shareholder  demanding  appraisal,  in
favor of any other  party,  if the court finds that the party  against  whom the
fees and expenses are assessed acted  arbitrarily,  vexatiously,  or not in good
faith with respect to the rights provided by this chapter.

(3) If the court in an appraisal  proceeding  finds that the services of counsel
for any shareholder were of substantial benefit to other shareholders  similarly
situated,  and that the fees for those services  should not be assessed  against
the corporation,  the court may award to such counsel reasonable fees to be paid
out of the amounts awarded the shareholders who were benefited.

(4) To the extent the corporation  fails to make a required  payment pursuant to
s. 607.1324,  the  shareholder  may sue directly for the amount owed and, to the
extent  successful,  shall be entitled to recover from the corporation all costs
and expenses of the suit, including counsel fees.

CREDIT(S)

Added by Laws 2003,  c.  2003-283,  ss. 30, eff.  Oct. 1, 2003.  Amended by Laws
2004, c. 2004-5, ss. 98, eff. June 29, 2004.

HISTORICAL AND STATUTORY NOTES

Amendment Notes:

Laws 2004, c. 2004-5, a reviser's bill, deleted obsolete and expired provisions,
corrected grammatical and typographical errors, and made other similar changes.




607.1332. DISPOSITION OF ACQUIRED SHARES

Shares acquired by a corporation pursuant to payment of the agreed value thereof
or pursuant to payment of the  judgment  entered  therefor,  as provided in this
chapter,  may be held and  disposed of by such  corporation  as  authorized  but
unissued  shares of the  corporation,  except  that,  in the case of a merger or
share exchange,  they may be held and disposed of as the plan of merger or share
exchange otherwise provides.  The shares of the surviving corporation into which
the  shares of such  shareholders  demanding  appraisal  rights  would have been
converted  had they  assented to the merger shall have the status of  authorized
but unissued shares of the surviving corporation.

CREDIT(S)

Added by Laws 2003, c. 2003-283, ss. 31, eff. Oct. 1, 2003.